The economist 2016 05 28

INSIDE: A 14-PAGE SPECIAL REPORT ON MIGRATION Who’s in charge in Iran?

Opioids in a world of pain America’s tangled voting laws Big-headed babies, big-brained parents MAY 28TH– JUNE 3RD 2016

Life in the fast lane: CEOs and F1

A nuclear nightmare

Kim Jong Un’s growing arsenal

The Economist May 28th 2016 5

Contents 8 The world this week Leaders 11 North Korea’s weapons A nuclear nightmare 12 Austria’s election Disaster averted—for now 12 Online platforms Nostrums for rostrums 13 American elections Voting wrongs 14 Opioids The ecstasy and the agony On the cover It is past time for the world to get serious about North Korea’s nuclear ambitions: leader, page 11. Kim Jong Un is on the home straight to making his country a serious nuclear power. Nobody knows how to stop him, pages 19-22

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Volume 419 Number 8991 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, Lima, Mexico City, Moscow, Mumbai, Nairobi, New Delhi, New York, Paris, San Francisco, São Paulo, Seoul, Shanghai, Singapore, Tokyo, Washington DC

Letters 16 On genomics, migrants, China, London, cronies, country living Briefing 19 Nuclear North Korea By the rockets’ red glare Asia 23 America and Vietnam Pull the other one 24 Afghanistan’s Taliban Aiming for the head 25 India’s deep south Southern comfort China 26 Retirement China’s Florida 27 Social media The dark art of astroturfing 28 Banyan Disturbing the China dream United States 29 Voting rights The fire next time 31 The Libertarian Party Guns, weed and relevance 31 The campaigns Heard on the trail 32 Hillary Clinton’s e-mails An indictment of sorts

32 Disability lawsuits Frequent filers 33 Soccer flourishes Kick turn 34 Lexington Oh, Oklahoma The Americas 35 Mexico’s elections A test for the ruling party 36 Bello Chávez’s little blue book 37 Britain and Argentina Ending estrangement 37 Brazilian culture A history of jeitinho Middle East and Africa 39 Iranian politics Who’s in charge?

40 Fighting Islamic State Fallujah, again 41 Israeli politics He’s back!

41 Tanzania Government by gesture 42 The Torah in Abuja Who wants to be a Jew? Special report: Migration Looking for a home After page 42 Europe 43 Visa liberalisation Europe’s deal with Turkey 44 Crimea’s Tatars 1944 all over again 45 Greece gets its bail-out Temporary relief 45 Austria’s vote Extremism loses, barely 46 German nationality Name, date of birth, migration background 48 Charlemagne Le sexisme

Voting rules America’s electoral laws are a recipe for chaos in November: leader, page 13. Today’s voting-rights disputes are less clear-cut than those of the civil-rights era, but they are inflammatory all the same, page 29.

Compulsory voting is hardest to enact in the places where it would make most difference: Free exchange, page 66

Europe’s far right Extremist parties are no longer a fringe: leader, page 12. The far right lost in Austria, but it is a growing force in Europe, page 45. The migrant crisis in Europe last year was only one part of a worldwide problem.

The rich world must get better at managing refugees. See our special report after page 42

Who’s in charge in Iran? The supreme leader is clipping the wings of the reformist president, page 39

1 Contents continues overleaf

6 Contents

The Economist May 28th 2016

49 50

50 51 Opioids Americans take too many painkillers. Most other people don’t get enough: leader, page 14. The war on drugs is depriving people in poor countries of pain relief, page 52

International 52 Opioids The problem of pain

55 56 57 58 58 59 Regulating tech firms The growing power of online platforms is worrisome. But regulators should tread carefully: leader, page 12.

European governments are not alone in wondering how to deal with digital giants, page 55

Britain Rural Britain Countryside blues Brexit brief Yes, we have no straight bananas Teenage pregnancy Not in the family way Bagehot The continental imperative

60

Business Regulating tech firms Taming the beasts Alibaba Under scrutiny Oil-price reporting Striking it rich American media Sumner’s lease Alcohol in China Reviving the spirits The future of carmakers Upward mobility Schumpeter Life in the fast lane

Finance and economics 61 Banks and Brexit Wait and hope 62 Buttonwood Ignorant investors 63 Quicken Loans A new foundation 63 Japan’s pension fund That sinking feeling

64 Payday loans Regulators take interest 65 Cyber-attacks on banks Heist finance 66 Free exchange Compulsory voting Science and technology 69 Human evolution Of bairns and brains 70 Global warming In the red 71 Drone countermeasures Hacked off 71 Product design The replicator 72 Additive manufacturing Alloy angels Books and arts 73 Dawn of the oil industry Guts, greed and gushers 74 Genetics Mix and match 74 Jacobean history Forgotten hero 75 Mali Paper trail 75 The invention of dating Love’s labour 76 Opera Fiery angel 80 Economic and financial indicators Statistics on 42 economies, plus a closer look at GDP growth in Africa Obituary 82 Fritz Stern Another German

Babies and intelligence Children are born helpless, which might explain why humans are so clever, page 69

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8

The Economist May 28th 2016

The world this week Politics

Alexander Van der Bellen, a former head of the Green party, won Austria’s presidential election by just 31,000 votes, defeating Norbert Hofer of the Freedom Party. Had he won this (largely ceremonial) post, Mr Hofer would have been the first far-right head of state in the European Union.

His surprisingly high support reflected voter anger over immigration. As in several European countries, the far right has been making ground.

In Brussels Greece’s creditors agreed on a deal to secure debt relief for the country. The measures, which were thrashed out in late-night talks after months of wrangling, are intended to restructure Greek debt, which is currently 180% of GDP. Greece will receive €10 billion ($11 billion) in aid to help it avoid a default, starting with €7.5 billion next month.

After being detained in Russia for two years Nadia Savchenko, a Ukrainian pilot, was released from jail and sent home. She was exchanged for two Russian prisoners captured in Ukraine. On her return home Ms Savchenko ironically thanked those who had “wished me evil”, and was greeted as a national hero.

In Turkey Binali Yildirim was sworn in as prime minister following the ouster of his predecessor, Ahmet Davutoglu. Mr Yildirim is a loyal supporter of Recep Tayyip Erdogan, the president, and vowed to continue with an overhaul of the constitution which is handing more powers to the presidency.

New government, old problems Romero Jucá, Brazil’s planning minister, stepped aside after tapes were leaked in which he appeared to suggest that the impeachment of the president, Dilma Rousseff, would blunt an investigation into the multibillion-dollar scandal centred on Petrobras, the state-controlled oil company. Mr Jucá, one of the targets of the investigation, says his remarks were misinterpreted. He was only recently appointed by the interim president, Michel Temer. The new government proposed several reform measures, including a cap on the growth of public spending.

Cuba’s Communist government said it would legalise small and medium-sized enterprises. That builds on earlier reforms, which allow “self-employed” Cubans to own restaurants, bed-andbreakfasts and other small businesses.

Coca-Cola stopped producing sugary drinks in Venezuela because it cannot obtain sugar.

Price controls have made growing sugar cane unprofitable and the country suffers from a shortage of foreign exchange.

The push back Iraq’s government announced the start of an operation to retake Fallujah, a city just a 30-minute drive from Baghdad that has been held by Islamic State for the past two years.

Avigdor Lieberman, who leads Israel’s nationalist Yisrael Beiteinu party, joined Binyamin Netanyahu’s coalition government, and became defence minister. Mr Lieberman, who lives in a Jewish settlement in the West

Bank, has repeatedly derided efforts to secure peace with the Palestinians.

A series of bombings hit two government strongholds on Syria’s coast, killing as many as 100 people.

this would remove a “lingering vestige of the cold war”. China, however, worries that America’s efforts to improve its relationship with Vietnam is aimed at keeping it in check.

The government and opposition leaders in Burundi started talks to resolve a crisis in which more than 1,000 people are thought to have been killed. But the government excluded key opposition figures from the talks, reducing the chances of a successful outcome.

The monetary-policy committee of Nigeria’s central bank voted to allow the currency, the naira, to float against the dollar. The country has previously maintained an overinflated peg against the dollar that is 40% higher than the black-market rate, leading to a shortage of hard currency.

Communications breakdown In a report to Congress Hillary Clinton was criticised by the State Department’s inspectorgeneral for using a private e-mail server when she was secretary of state. Mrs Clinton should have discussed the security risks with officials, the report said, though it recognised that the department had a history of dealing inadequately with electronic messages. The issue continues to dog Mrs Clinton’s campaign.

A bill that would help Puerto Rico manage its $70 billion debt pile was introduced in Congress. The legislation would set up a financial control board and restructure some debt. It has bipartisan support, but is opposed by some of the American territory’s creditors. The governor of Puerto Rico welcomed parts of the bill, but worries that a financial control board would be too powerful.

Arms deal During a visit to Vietnam, Barack Obama announced an end to America’s embargo on the sale of weapons to the communist country. He said

Tsai Ing-wen was sworn in as Taiwan’s new president. She is the island’s first female leader, and the second from the Democratic Progressive Party, which favours independence from China. Ms Tsai called for “positive dialogue” across the Taiwan Strait, but did not mention the “one China” notion that China insists Taiwan must accept.

In Afghanistan the Taliban named a new leader to replace Mullah Akhtar Mansour who was killed by an American drone. He is Hibatullah Akhundzada, a hardline religious scholar who served as Mullah Mansour’s deputy.

Protests by hundreds of parents of university applicants spread to a fourth province in China. They are angry about plans to reduce the number of places reserved for local students. Parents worry that this will mean greater competition for places and reduce their privileges, which is indeed the point.

China’s Communist Party stepped up its efforts to persuade members to write out the party’s constitution by hand. Two newly weds have become famous for doing so on their wedding night. The aim is to remind members of their communist ideals, but the army’s newspaper warned that some people were— believe it or not—just going through the motions when transcribing the document’s 1 15,000 characters.

The Economist May 28th 2016

Business

Faced with a future where ride-hailing could reduce car ownership, Toyota and Volkswagen became the latest carmakers to invest in startups that provide such services.

Toyota formed a partnership with Uber, the biggest ridesharing app, to develop “mobility services”. And Volkswagen invested $300m in Gett, the Israeli outfit behind the largest taxi-hailing app in Europe. Unlike Uber, Gett signs up only regulated drivers in the cities in which it operates, such as London’s black-cab drivers.

Prompted by the market dominance of Facebook, Google and the like, the European Commission set out suggestions for regulating online platforms. The proposals target specific problems such as the ability to move personal data from site to site. The commission also wants to make it easier for consumers to shop online by removing “geoblocking” tools that prevent shoppers in one country getting deals offered in another.

Hewlett Packard Enterprise, the smaller of the two businesses to emerge from Hewlett Packard’s split last year, announced that it is spinning off its enterprise-services unit. The unit grew out of HP’s takeover in 2008 of EDS, an IT outsourcing company founded by Ross Perot.

If it could turn back time Also picking up the pieces from a takeover that hasn’t worked out, Microsoft announced more job cuts at the mobile-phone business it

The world this week 9 acquired from Nokia two years ago and will take another write-down, of $950m. Never a big player in the business, its share of the global smartphone market shrank again in the first three months of the year, to 0.7%, according to Gartner, a research firm.

Alibaba, China’s biggest e-commerce company, disclosed that it is being investigated by America’s Securities and Exchange Commission over the way it accounts for revenue, including sales from Singles’ Day, China’s version of Black Friday.

The drama over Sumner Redstone’s control of Viacom continued. The 92-year-old mogul removed Philippe Dauman, Viacom’s chairman, from a trust that will decide what happens to Mr Redstone’s holdings when he dies.

Mr Dauman filed a lawsuit to thwart the move, arguing that Mr Redstone was mentally incompetent and being manipulated by his daughter, Shari.

Federico Ghizzoni is to step down as chief executive of UniCredit, Italy’s biggest bank. Speculation had increased about his future as the bank’s problems mounted. Mr Ghizzoni was heavily criticised

when UniCredit agreed to underwrite Banca Popolare di Vicenza’s disastrous capitalraising, which ended with a government-orchestrated rescue from a fund backed by it and other Italian financial firms.

Approaching vessels The Singapore Exchange (SGX) declared an interest in taking over the Baltic Exchange in London, which would combine the two leading maritime-industry hubs.

The latter compiles the Baltic Dry Index, which measures the costs of shipping commodities, and has developed derivatives for shipowners to insure against fluctuations in freight prices. Founded in 1744, it also provides a code of practice for the shipping market.

BSI, a Swiss bank, was ordered to close its business in Singapore after regulators identified serious anti-money-laundering lapses in connection with a corruption scandal at 1MDB, a Malaysian state investment fund. At the same time Switzerland fined the bank SFr95m ($96m), opened a criminal probe and approved a takeover of BSI by EFG International, which is based in Zurich, that would see it “integrated and thereafter dissolved”.

Bayer presented its $62 billion takeover bid for Monsanto, the latest attempt at consolidation in the agricultural seeds and chemicals business. The American company said the initial proposal from its German rival was “inadequate”, but believes in the “substantial benefits” of a deal.

Europe’s antitrust regulator approved Anheuser Busch InBev’s $108 billion merger with SABMiller, after getting the assurances it wanted that the newly combined beer giant will sell SABMiller’s European brands. The deal still needs to be cleared by competition authorities in America, China and South Africa.

In, out, shake it all about The European Central Bank warned that the rise of populist parties in Europe could slow the pace of economic reforms. Populists on the left and right ends of the political spectrum have made gains in elections by running against spending cuts. Another big concern of the ECB is the potential risk posed by the vote in Britain on whether to leave the European Union, which will be held on June 23rd.

Other economic data and news can be found on pages 80-81

The Economist May 28th 2016 11

Leaders

A nuclear nightmare It is past time for the world to get serious about North Korea’s nuclear ambitions

B

ARACK OBAMA began his presidency with an impassioned plea for a world without nuclear weapons. This week, in his last year in office (and as we went to press), he was to become the first American president to visit Hiroshima, site of one of only two nuclear attacks. Mr Obama has made progress on nuclear-arms reduction and non-proliferation. He signed a strategic-arms-control treaty (New START) with Russia in 2010.

A series ofnuclear-security summits helped stop fissile material getting into the wrong hands. Most important, he secured a deal in July to curtail and then constrain Iran’s nuclear programme for at least the next 10-15 years.

But in one area, his failure is glaring. On Mr Obama’s watch the nuclear-weapons and missile programme of North Korea has become steadily more alarming. Its nuclear missiles already threaten South Korea and Japan. Sometime during the second term ofMr Obama’s successor, they are likely also to be able to strike New York. Mr Obama put North Korea on the back burner. Whoever becomes America’s next president will not have that luxury.

The other Manhattan project The taboo against nuclear weapons rests on three pillars: policies to prevent proliferation, norms against the first use of nukes (especially against non-nuclear powers) and deterrence.

North Korea has taken a sledgehammer to all of them.

No country in history has spent such a large share of its wealth on nuclear weapons. North Korea is thought to have a stockpile of around 20 devices. Every six weeks or so it adds another. This year the pace of ballistic missile testing has been unprecedented (see pages 19-22). An underground nuclear detonation in January, claimed by the regime to be an H-bomb (but more likely a souped-up A-bomb), has been followed by tests of the technologies behind nuclear-armed missiles. Although three tests of a 4,000-kilometre (2,500-mile) missile failed in April, North Korean engineers learn from their mistakes. Few would bet against them succeeding in the end.

North Korea is not bound by any global rules. Its hereditary dictator, Kim Jong Un, imposes forced labour on hundreds of thousands of his people in the gulag, including whole families, without trial or hope ofrelease. Mr Kim frequently threatens to drench Seoul, the South’s capital, in “a sea of fire”. Nuclear weapons are central to his regime’s identity and survival.

Deterrence is based on the belief that states act rationally.

But Mr Kim is so opaque and so little is known about how decisions come about in the capital, Pyongyang, that deterring North Korea is fraught with difficulty. Were his regime on the point of collapse, who is to say whether Mr Kim would pull down the temple by unleashing a nuclear attack?

The mix of unpredictability, ruthlessness and fragility frustrates policymaking towards Mr Kim. Many outsiders want to force him to behave better. In March, following the recent weapons test, the UN Security Council strengthened sanc-

tions. China is infuriated by Mr Kim’s taunts and provocations (it did not even know about the nuclear test until after it had happened). It agreed to tougher measures, including limiting financial transactions and searching vessels for contraband.

But China does not want to overthrow Mr Kim. It worries that the collapse of a regime on its north-eastern border would create a flood of refugees and eliminate the buffer protecting it from American troops stationed in South Korea. About 90% of North Korea’s trade, worth about $6 billion a year, is with China. It will continue to import North Korean coal and iron ore (and send back fuel oil, food and consumer goods) as long as the money is not spent on military activities—an unenforceable condition.

Protected by China, Mr Kim can pursue his nuclear programme with impunity. The sanctions are unlikely to stop him. If anything, they may spur him to strengthen and upgrade his arsenal before China adopts harsher ones.

Understandably, therefore, Mr Obama has preferred to devote his efforts to Iran. Because the mullahs depend on sales of oil and gas to the outside world, embargoes on Iran’s energy exports and exclusion from the international payments system changed their strategic calculus. But this logic will not work with North Korea.

Can anything stop Mr Kim? Perhaps he will decide to shelve his “nukes first” policy in favour of Chinese-style economic reform and rapprochement with South Korea. It is a nice idea, and Mr Kim has shown some interest in economic development. But nothing suggests he would barter his nuclear weapons to give his people a better life.

Perhaps dissent over Mr Kim’s rule among the North Korean elite will lead to a palace coup. A successor might be ready for an Iran-type deal to boost his standing both at home and abroad. That is a possibility, but Mr Kim has so far shown himself able to crush any challengers to his dominance.

The last hope is that tougher sanctions will contribute to the collapse of the regime—which, in turn, could lead to reunification with the South and denuclearisation of the Korean peninsula. That would be the best outcome, but it is also the one that carries the most danger. Moreover, it is precisely the situation China seeks to avoid.

Fat boy Without any good options, what should America’s next president do? A priority is to strengthen missile defence. New THAAD anti-missile systems should be sent to South Korea and Japan, while America soothes objections that their radar could be used against China’s nuclear weapons. China should also be cajoled into accepting that sanctions can be harsher, without provoking an implosion. Were that to lead initially only to a freeze on testing, it would be worth having. Because a sudden, unforeseen collapse of Mr Kim’s regime is possible at any time, America needs worked-out plans to seize or destroy North Korea’s nuclear missiles before they can be used. For this China’s co-operation, or at least acquiescence, is vital. So clear and present is the danger that even rivals who clash elsewhere in Asia must urgently find new ways to work together. 7

12 Leaders

The Economist May 28th 2016

Austria’s presidential election

Disaster averted—for now Europe’s far right is no longer a fringe

A

USTRIA dodged a bullet this week. So did Europe. NorFor far-right parties, % bert Hofer, a talented politician 0 10 20 30 40 with a winning smile, nearly beAustria France came the first far-right head of Netherlands state in western Europe since Denmark Sweden the end of the second world Germany war—but failed, by a nerve-jangling 0.6% of the vote (see page 45).

This is scant cause for relief. Mr Hofer has shown that wellpackaged extremism is a vote-winner. He sounds so reasonable. Austria must maintain border controls for as long as the European Union cannot enforce its external frontiers, he says.

Of course he supports the EU, but only on the basis of subsidiarity (“national where possible, European where necessary”).

It is easy to forget that his Austrian Freedom Party (FPÖ) was partly founded by ex-Nazis, and that its manifesto—much of which Mr Hofer wrote—bangs on about Europe’s Christian culture and the German ethno-linguistic Heimat. Or that his party demonises “fake” asylum-seekers and vows to outlaw the distribution of free copies of the Koran.

The FPÖ’s popularity, like that of xenophobic parties across Europe, is in part an angry reaction to the recent influx of Middle Eastern refugees. Alexander Van der Bellen, the former Green Party leader who narrowly beat Mr Hofer, owes his victory to a broad alliance ofvoters trying to blockthe far right. Yet a fringe party that draws half the vote is no longer a fringe. And Austria is a harbinger: all over Europe, far-right parties are becoming too big to ignore (see chart).

In France Marine Le Pen will probably come first in the initial round of next year’s presidential election. In the Netherlands Geert Wilders is polling far ahead of any rival. Far-right parties in Denmark and Switzerland have been winning pluralities for years, and Sweden’s may soon. This is not the 1930s.

Voting intention

Jan 2013 Latest

Ms Le Pen is unlikely to win the second round of the presidential election. In Denmark and the Netherlands, populists have quit or refused to join coalitions for fear of being blamed for unpopular decisions. But they still influence policy, and force the centre-right and -left into grand alliances, leaving the populists as voters’ only plausible alternative.

How can mainstream parties beat them? Not by peddling diluted versions of their Eurosceptic or anti-immigrant policies. Austria’s Social Democrats switched from welcoming asylum-seekers to tightening border controls, and were flattened for it. Voters prefer real populists to centrists who fake it.

Besides, extreme policies fuel irrational fears rather than extinguish them. Look at France and eastern Europe: the far right is thriving, though few Syrian refugees have arrived.

Stick to your guns Moderates cannot defeat extremists by abandoning their ideals. Rather, they must fight for them. Voters are deserting mainstream parties because they stand for so little. They are hungry for politicians with clear values. Radicals of the left have understood this: witness the passionate support aroused by Britain’s Jeremy Corbyn and Spain’s Pablo Iglesias. The world needs leaders who can make an equally rousing argument for moderation. The mushmouths that France’s mainstream parties appear set to nominate next year will not do.

Responsible parties must also bring results. As our special report this week makes clear, the task of integrating refugees, economically and socially, is more urgent than ever. And Mr Hofer is right about one thing: to open its internal borders, the EU must secure its external ones. Extreme nationalist parties cannot integrate new immigrants, nor build an effective Europe of shared asylum burdens and orderly borders. Only the parties of tolerance and liberal values can do that. They need to convince voters of it. 7

Online platforms

Nostrums for rostrums The growing power of online platforms is worrisome. But regulators should tread carefully

I

N1949 FrankMcNamara, an executive at a struggling finance company, had the idea of a charge card to settle the tab at high-class eateries. First, he had to solve a tricky problem. Restaurants would not accept a charge card as payment unless customers wanted to use one; and diners would not carry a card unless restaurants accepted it. His solution was to give away his card to a few hundred well-heeled New Yorkers: once the elite of Manhattan’s gourmands were signed up, he could persuade a few upscale restaurants to accept his new charge

card and also to pay him a commission. Within a year, the Diners Club card was accepted in hundreds of places and carried by over 40,000 people.

The Diners Club may not seem to have much in common with digital giants like Facebook, Google, Uber and Amazon.

But such businesses are all examples of “platforms”: they act as matchmakers between various entities and they typically charge different prices to different actors in the market. Google connects websites, consumers and advertisers, who foot the bill. Facebook does something similar for its members. Uber matches passengers and drivers, who pay the ride-hailing app a slice ofthe fare. Amazon brings together shoppers with retail1 ers, who pay a fee.

The Economist May 28th 2016 2

Leaders 13

The growing clout of online platforms is a boon to society but a headache for trustbusters. Platforms benefit from the power of networks: the more potential matches there are on one side of a platform, the greater the number that flock to the other side. The consequence may be a monopoly. That is normally a red flag for trustbusters, who are scrambling to keep pace with the rise of platforms (see page 55). But they should tread carefully. The nature of platforms means established rules of regulation often do not apply.

Think different In a conventional, “one-sided” market, prices are related to the cost of supplying goods and services. If a business can charge a big mark-up over its marginal cost of production, a wise regulator would strive to ensure there are enough firms vying for business or, where that is not possible, to set prices in line with the monopolist’s costs. Such precepts are little use in regulating platforms. Their prices are set with an eye to the widest participation. Often consumers pay nothing for platform services—or are even charged a negative price (think of the rewards systems run by some payment cards). Pushing down prices on one side ofthe platform may cause charges on the other side to rise, a bit like a waterbed. That in turn may drive some consumers away from the platform, leaving everyone worse off. Such uncertainties mean that regulators must not act precipitously.

But they are right to be thinking about the unique economics of platforms. Tech giants like to claim there is no need for special regulation. The winner-takes-all aspect of networks may mean there is less competition inside the market, but there is still fierce rivalry for the market, because countless startups are vying to be the next Google or Facebook. Unfortunately, incumbents may be able to subvert this rivalry.

One of their strategies is to use mergers. “Shoot-out” acquisitions is the name given to purchases of startups with the aim of eliminating a potential rival. Many claim that Facebook’s acquisition of WhatsApp was in this category. A recent parliamentary report in Britain noted that Google had made 187 purchases of other tech firms. Trustbusters tend to ignore mergers of businesses in unrelated markets and big firms hoovering up small fry. Buyers of firms with an EU-wide turnover of less than €100m do not have to notify the European Commission.

Rules that take into account how markets may develop over longer periods will be fiendish to craft. But they are needed.

A second concern is talent. Tech firms are jealous of their secrets. When their best people leave, they take ideas with them.

Yet clauses in job contracts that restrict what types of work employees can do once they leave a company are also a means of thwarting the emergence of rivals. California has shown the way by clamping down on such practices.

A third issue is the power of personal data. Google is such an effective search engine in part because its algorithms draw on vast logs of past queries. Amazon can use customers’ trading history to guide its marketing with greater precision. These data troves raise barriers to entry to the next Google or Amazon. There are no easy fixes, however. Even defining who owns information is complex; making data portable is tricky.

As Frank McNamara and his heirs have found, a successful platform company finds ways of balancing the interests of the parties it brings together. Regulators of online platforms face a similar balancing act—between the incentives for new firms to emerge and the benefits to consumers of large incumbents.

That will require new ways of thinking and careful judgment.

In the meantime, however, the priority for trustbusters must be to ensure they do no harm. 7

American elections

Voting wrongs America’s electoral laws are a recipe for chaos

I

T IS the morning of November 9th, the day after the election, and America is waking up to find out who is the new president. The result turns on the vote in North Carolina, where the ballot papers are being recounted. Even when the tally is in, the result will be in doubt.

North Carolina’s new voting laws are subject to a legal challenge, which could take weeks for the courts to resolve. Both sides complain that the election is being stolen; the acrimony, sharpened by allegations ofracial discrimination, makes Florida’s hanging chads and the Supreme Court’s ruling in favour of George W. Bush in 2000 seem like a church picnic.

This is not as fanciful as it sounds. America organises its democracy differently from other rich countries. Each state writes its own voting laws, there is no national register of eligible voters and no form of ID that is both acceptable in all polling booths and held by everyone. Across the country, 17 states have new voting laws that, in November, will be tested for the first time in a presidential contest. In several states these laws

face legal challenges, which allege that they have been designed in order to discourage African-Americans and Latinos from voting. It is past time to start worrying about where these challenges might lead.

The X factor The new laws date largely from a Supreme Court decision in 2013. Before then, many states in the South, and a couple elsewhere, that had spent much of the 20th century finding ingenious ways to prevent minorities from voting, had to clear any changes to their voting laws with the Justice Department or a federal court. Three years ago, the Supreme Court ruled the country had “changed dramatically” and that the formula for choosing which states were covered was outdated. That allowed all the states to write laws unsupervised.

Handed power over the rules for electing themselves, Republican politicians in southern statehouses have, unsurprisingly, tilted them in their own favour. Early voting, which nonwhites (who lean Democratic) are keen on, has been restricted.

Another change has been to limit the kinds of ID that are acceptable at a polling station. In Texas student IDs are out, hand1 gun licences are in.

14 Leaders 2

The Economist May 28th 2016

The authors of these laws protest that they have nothing to do with race or political advantage and claim that they are necessary to guard against voter fraud. Yet there is scant evidence of fraud. To claim otherwise is cynical and corrosive. In the 12 years before Alabama passed its new voter-ID law there was one documented case of impersonation.

The second argument made, in southern states, is that the new voting laws merely bring them in line with those elsewhere in the country, some of which do not allow early voting at all. This is true, but tantamount to an admission of guilt: politicians in some safely Democratic districts in the north have not been above fiddling with election rules and redrawing district boundaries to protect incumbents either. Indeed, it is an argument for a more general change.

The worst of all the arguments for the new voting laws is that casting a ballot should not be made too easy, because if people are not clever enough to understand the rules govern-

ing elections they should not be entrusted with choosing the government. Any political party that hopes for lower turnout has lost its way. William F. Buckley, a conservative pundit, once wrote that he would rather be governed by the first 2,000 people listed in the Boston telephone directory than by 2,000 members of Harvard’s faculty. Republican lawmakers must decide whether they still believe in the good sense of those they aspire to govern, or whether they lost that faith somewhere on the way to the statehouse.

The new voting laws suggest the Supreme Court underestimated the grip the past still has on the present. Were politicians really concerned about voter fraud they would hand over the running of elections and voter registers to non-partisan bodies. Unfortunately, this will not happen. Why disarm when you have all the bullets? As a second best, therefore, the courts should expedite cases on voting laws to reduce the chances of legal challenges after the election. 7

Opioids

The ecstasy and the agony Americans take too many painkillers. Most other people don’t get enough

“P

LEASURE is oft a visitant; but pain clings cruelly,” wrote John Keats. Nowadays pain can often be shrugged off: opioids, a class of drugs that includes morphine and other derivatives of the opium poppy, can dramatically ease the agony ofbroken bones, third-degree burns or terminal cancer. But the mismanagement of these drugs has caused a pain crisis (see page 52). It has two faces: one in America and a few other rich countries; the other in the developing world.

In America for decades doctors prescribed too many opioids for chronic pain in the mistaken belief that the risks were manageable. Millions of patients became hooked. Nearly 20,000 Americans died from opioid overdoses in 2014. A belated crackdown is now forcing prescription-opioid addicts to endure withdrawal symptoms, buy their fix on the black market or turn to heroin—which gives a similar high (and is now popular among middle-aged Americans with back problems).

In the developing world, by contrast, even horrifying pain is often untreated. More than 7m people die yearly of cancer, HIV, accidents or war wounds with little or no pain relief. Fourfifths of humanity live in countries where opioids are hard to obtain; they use less than a tenth of the world’s morphine, the opioid most widely used for trauma and terminal pain.

Opioids are tricky. Take too much, or mix them with alcohol or sleeping pills, and you may stop breathing. Long-term patients often need more and more. But for much acute pain, and certainly for the terminally ill, they are often the best treatment. And they are cheap: enough morphine to soothe a cancer patient for a month should cost just $2-5.

In poor countries many people think of pain as inevitable, as it has been for most of human existence. So they seldom ask for pain relief, and seldom get it if they do. The drug war declared by America in the 1970s has made matters worse. It led to laws that put keeping drugs out ofthe wrong hands ahead of

getting them into the right ones. The UN says both goals matter.

But through the 1980s and 1990s, as the war on drugs raged, it preached about the menace of illegal highs with barely a whisper about the horror of unrelieved pain.

American policy has been especially misguided. By keeping cocaine and heroin illegal, drug warriors have empowered criminal gangs that torture and kill. Even as American fee-forservice doctors overprescribed opioids at home, America spread its harsh approach to illegal drugs worldwide. Poor countries, scared of getting on Uncle Sam’s wrong side for not trying hard enough to control narcotics, have written laws even more restrictive than those recommended by the UN. One passed in India in 1985 saw legitimate morphine use plunge by 97% in seven years. In Armenia morphine is only available to cancer patients, who must rush from ministry to ministry filling in forms to receive a few days’ supply.

Opioids should be more widely available. That entails risks. One is addiction: doctors need training to minimise it.

Long-term use is perilous; use by the terminally ill is not. Another risk—that the drugs will leak onto the black market—is real, but less serious than America’s example might suggest.

Many American buyers of street opioids were first hooked by their doctors; other countries can avoid that mistake. They can also avoid the mix of fee-for-service provision and direct-toconsumer drug advertising that aggravated America’s lax prescribing. And they should copy Britain’s centralised system for prescription records, which stops patients from doctor-hopping their way to addiction.

Biting on a stick is not good enough Above all, the global bodies that monitor narcotics should recognise that easing suffering is as important as preventing addiction. Forcing people in great pain to jump through hoops to get relief should be recognised as an infraction of international rules. The UN has, belatedly, started to talk of unrelieved pain as a problem. As the cause of needless suffering, it should be trying harder to bring solace. 7

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The Economist May 28th 2016

Letters Risk rewards in science You note current efforts to harness the promise of genomic medicine aimed at sequencing more genomes, to understand labyrinthine genetic susceptibilities arising from variation in multiple genes (“Encore une fois”, May 7th). However, it is also noteworthy that the initial sequencing of the human genome in 2000 enabled entirely new fields of discovery, including transcriptomics (the large-scale study of RNA molecules), proteomics (the same for proteins) and big-data science in biology. These innovations have revolutionised translational research and may now do the same for clinical medicine. Yet they would have been impossible without substantial funding for risky science, from governments, investors and philanthropic bodies.

Rather than failing to live up to their potential, the largescale efforts to sequence the human genome, and the resulting “omics technologies”, have yielded tremendous economic and scientific benefits for society.

PROFESSOR THOMAS VONDRISKA David Geffen School of Medicine University of California, Los Angeles Suffer the children It is not only a humanitarian imperative to help unaccompanied child migrants who arrive in Europe (“Under-age and at risk”, May 7th). European states also have a legal obligation to do so, having ratified the 1989 Convention on the Rights of the Child.

Every child has a right to adequate shelter, to a caregiver and to an education. It is shameful that many of the world’s richest countries, which see themselves as the cradle of human rights, deny children those very rights.

The children who arrive in Europe without their parents have fled their homes in fear of their lives. They have entrusted themselves to gangs of smugglers and put themselves at risk of abuse and child

labour. With borders closing around them, some are trapped in Serbia and Macedonia, with no way forward and no way back. Many have been illegally detained in Greece.

We all need to see those children for what they are: not as migrants, financial burdens or threats to society but as children in need of protection.

They have rights and they deserve to be given a future.

VITO ANGELILLO Director-general Terre des Hommes Zurich Foolish academics “It was the worst of times” (May 14th) marked 50 years since the start of the Cultural Revolution in China. Your article brought back memories of Western intellectuals at the time who supported Mao Zedong’s eradication of old customs, culture, habits and ideas. I recall one of my fellow graduate students in London, an avowed Maoist, bursting into the college’s common room to announce that in China mathematics teachers were now being sent to the land to labour along with the peasants.

In a challenging tone, he asked whether we did not think that was wonderful.

“Certainly”, responded one of our finest scholars with wideeyed, possibly disingenuous innocence, “as long as the peasants reciprocate by going to the towns to teach algebra and calculus.” They never spoke to each other again.

MICHAEL SINGER Dickson Poon School of Law King’s College London Mao believed that knowledge was too powerful a tool, leading to wisdom, thoughts and questions which could undermine his rule. Both my great-aunt and uncle were teachers at the Beijing Dance Academy. Both were denounced as intellectuals and sent to be reformed. What made it worse was not the forced hardship, but the confiscation of all the books, art works and other culturally related items they possessed.

They managed to hide some, but many more were destroyed. This is the real reason behind the atrocity. Purging his rivals at the same time was just convenient for Mao. LOUISA VAN DIJK The Hague On the right track There is a way for the new mayor of London to realise his objective of connecting the development of housing to public transport (“Going underground”, May 14th). He could compulsorily purchase land to build rail connections and homes and then sell or rent the new homes in partnership with a developer to pay for the railway. Crucially, he should keep in public ownership any stations and other commercial properties in the area to provide ongoing rental income.

This is the strategy used by the Mass Transit Railway Corporation in Hong Kong. MTRC is 77% owned by the Hong Kong government. It already runs light-rail services in London and will operate Crossrail.

It has also won a contract to extend Stockholm’s urban network to the city’s commuter belt by using the profit from rising land-values to pay for the railway. Its profits help pay for public services in Hong Kong by way of dividends.

We don’t need to hand London’s underground to the MTRC. We could leave it to Transport for London, allowing it in time to become a profitable business as opposed to one with a permanent public subsidy.

ANDREW PURVES London Tech cronies The technology industry should have been included in your crony-capitalism index (“The party winds down”, May 7th). Microsoft was innovative in its early years, but if it isn’t now a monopolist, I don’t know what is. You cited Google as a potential candidate because it is involved in anti-competitive litigation. But litigation is the wrong test. The

American government takes the view that there is a difference between a monopoly that is established through its own growth and one that is established through acquisitions. The government brings many cases against mergers that would have resulted in a company taking enough market share to extract rents, but fewer against those that gained their monopoly position through growth.

There is no reason why there should be any difference in the government’s treatment of a monopoly. Yet there is, despite the lack of litigation.

The fact that more anti-competitive cases aren’t brought against such technology companies suggests that cronies have managed to convince government about the merits of this false distinction.

ANDY EDSTROM Los Angeles The great escape

Your review of Adrian Tinniswood’s “The Long Weekend” asserts that the “English country house casts a long, rose-tinted shadow” (“Partying, hunting, shooting”, May 7th). I think that’s right.

“Country House”, a song released by Blur in 1995, comes to mind, describing the leisured life of a modern-day nouveau-riche on his landed estate who is “reading Balzac and knocking back Prozac”.

RICHARD SPENCER Woodland Hills, California 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

Briefing North Korea’s nuclear weapons

By the rockets’ red glare Kim Jong Un is on the home straight to making his country a serious nuclear power.

Nobody knows how to stop him

I

N JANUARY North Korea detonated a nuclear device underground, its fourth such test and the first, it claimed, to show that it could build a thermonuclear weapon. In February it successfully launched a satellite. It has since been testing missile technology at a hectic pace. In March, its leader, Kim Jong Un, posed with a model of a nuclear weapon core and the re-entry vehicle of a long-range missile. On May 7th he told the congress of the Korean Workers’ Party in Pyongyang that his nuclear-weapons and missile programmes had brought the country “dignity and national power”. He boasts of his ability to “burn Manhattan down to ashes”.

The nuclear test, most experts believe, did not in fact demonstrate the ability to build a thermonuclear hydrogen bomb.

The satellite does not seem to be working.

Some of the missile tests failed. Mr Kim says a lot of nasty things. But there is a limit as to how much you can downplay this sequence of events. As Mark Fitzpatrick of the International Institute for Strategic Studies, a think-tank, puts it: “Just because Pyongyang wants us to pay attention, that doesn’t mean we shouldn’t.”

It is always tempting for America and other countries to put North Korea’s nuclear ambitions on the back burner of policy priorities, in large part because of a chronic absence of good options for dealing with them. But only an extreme optimist can today doubt that North Korea has developed missiles that threaten not just its southern neighbour but also Japan and, soon, the American base on Guam. Many experts, such as John Schilling, who writes about missile technology at 38 North, a website on North Korea run from Johns Hopkins University, believe that North Korea is on track to have a nuclear-capable missile with the range to reach the continental United States by early next decade— which is to say, within America’s next two presidential terms. Stopping that from happening needs to be a front-burner priority.

The history of unsuccessful responses to North Korea’s nuclear ambitions began in 1994, when Mr Kim’s father, Kim Jong Il, threatened to pull out of the nuclear NonProliferation Treaty (NPT) (see timeline on following page). The Clinton administration promised him two proliferation-resistant reactors—that is, reactors from which

The Economist May 28th 2016 19

North Korea would not have been able to derive weapons-grade nuclear material— economic aid and an easing of sanctions if he agreed to freeze and then dismantle the country’s nuclear-weapons programme.

This “Agreed framework” collapsed in 2002 when evidence of North Korean cheating became impossible to ignore.

North Korea duly quit the NPT. The next diplomatic efforts were the “Six-party talks”, which included China, Japan, Russia and South Korea as well as America and North Korea. They appeared to bear fruit in 2005 when America confirmed its recognition of North Korea as a sovereign state that it had no intention of invading, and North Korea agreed to return to the NPT, thus putting all its nuclear facilities under the oversight of the International Atomic Energy Agency (IAEA), and to forsake “all nuclear weapons and existing nuclear programmes”.

So different from Iran Despite North Korea carrying out its first nuclear weapon test in 2006, the six-partytalks process somehow limped on until April 2009. Then, over a period of little more than seven weeks, North Korea tried to launch a satellite with a three-stage Unha-2 rocket in defiance of UN Security Council Resolution 1718, chucked IAEA inspectors out of its Yongbyon reactor complex and carried out a second underground nuclear test. Since then it has been pretty much downhill all the way. A final attempt at a deal based on aid in exchange 1

20 Briefing North Korea’s nuclear weapons

The Economist May 28th 2016

North Korea’s nuclear path Says it is leaving NPT

Threatens to leave Nuclear Non-Proliferation Treaty (NPT), then relents

Fires Taepodong missile over Japan

Declares reactivation of nuclear facilities Announces it has nuclear weapons

First test of Nodong 1 missile UN inspectors say North Korea is hiding evidence of nuclear fuel for bombs

Agrees to freeze testing on long-range missiles

Signs “Agreed framework” with US to freeze and dismantle nuclear programme in exchange for nuclear reactors, aid and easing of sanctions

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Expels UN inspectors from Yongbyon nuclear facility

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stillborn when North Korea announced a new missile launch only a fortnight later.

Faced with such a record of duplicity and intransigence, Barack Obama had apparently long since concluded that if he was to achieve anything in the sphere of nuclear non-proliferation, Iran offered at least a chance of success; with North Korea there was virtually none.

It was a cool calculation typical of the president. For a start, North Korea was a lot further down the road to a nuclear-weapons capability than Iran, which had remained within the NPT and was still a few years from being able to test a device. And Mr Obama realised there was also much more leverage to be had over Iran than North Korea. Bill Clinton had come close to authorising an air strike on Yongbyon in 1994, but pulled back in the belief it would trigger a new war on the peninsula that, by some estimates, could cost a million lives.

After the nuclear test in 2006 the military option was off the table for good. That was never true of Iran. The Iranian leadership could not fully discount the threat of a preemptive strike by either Israel or America.

Agrees to return to NPT and “forsake nuclear weapons”.

One day later, demands reactor from the US

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Agrees testing moratorium in exchange for aid

Launches Unha-2 rocket in defiance of UN security resolution

Launches a satellite using the Unha-3 rocket

Expels UN inspectors; pulls out of talks and restarts nuclear facilities

Carries out first underground nuclear test

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Third nuclear test

Launches satellite on Unha-3

Restarts Yongbyon nuclear reactor

UN agrees new sanctions Three unsuccessful launches of Musudan missiles

Claims it has tested submarinelaunched missile

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Six-party talks with China, Russia, United States, Japan and South Korea

Series of US-North Korean talks

2 for a testing moratorium in early 2012 was

Says it will disable nuclear facilities. America agrees to unfreeze assets and provide aid

Kim Jong Un George W. Bush

Sanctions were also a much more potent weapon against Iran than they ever could be with North Korea. Iran was vulnerable because it is dependent on oil and gas exports. And even though the country is only minimally democratic, its leadership has to pay attention to falling living standards and the anger they can bring.

That helped make the removal of sanctions a greater priority than pressing ahead with the nuclear programme.

By contrast, sanctions have had a relatively low impact on North Korea’s closed economy. In large part that is because 90% of the trade it does is with China, which refuses to cut it off because of fears that a subsequent economic collapse would bring with it a torrent of refugees and the demise of a useful buffer against a close American ally. Nor does Mr Kim have to worry much about the political consequences of hardship for his people. So effective is the regime’s brutal system of control—anyone suspected of disloyalty may be killed or banished to a frozen gulag—that there was little sign of dissent even when hundreds of thousands died of starvation during the 1990s.

Whizz for atoms: a science and technology centre in Pyongyang

Barack Obama

Lastly, Iran always (if implausibly) denied that it was seeking the capability to make nuclear weapons—the supreme leader Ali Khamenei even issued a fatwa that described possessing nuclear weapons as a “grave sin”. Mr Kim believes that nuclear weapons are essential. Like his father before him he has built them into the national narrative and iconography, seeing them as fundamental to the dynasty’s survival. Even without nuclear weapons, Iran is a regional power that America has to take seriously. North Korea has no other claim to fame except its nastiness. Its ruler sees nuclear weapons as the key to gaining the respect he demands from the outside world. They are not bargaining chips to be traded for other benefits.

You can observe a lot just by watching That is why the evidence of an almost manic amount of nuclear-weapons-related testing since January is so alarming, and why interpreting what it means both in terms of political signalling and technical progress has become urgent. Gary Samore, Mr Obama’s arms-control adviser until 2013 and now research director at Harvard’s Belfer Centre, cautions how little outsiders really know for sure about North Korea’s capabilities. Jonathan Pollack, a Korea expert at the Brookings Institution, agrees the data are limited. Nevertheless, he says: “In the words of Yogi Berra, you can observe a lot by watching.”

David Albright, the president of the Institute for Science and International Security, a think-tank, and a former IAEA inspector in Iraq, has carried out detailed analysis of what is known of North Korea’s capacity to reprocess plutonium and enrich uranium. If the country is producing bombs similar in yield to the one that America dropped on Hiroshima—that is, of 10 to 20 kilotons, which would be small by modern standards, but would therefore require less-capable missiles for their delivery—his central projection is that it can pro- 1

The Economist May 28th 2016

Briefing North Korea’s nuclear weapons 21

2 duce enough fissile material for around

...(which just happens to fit inside this)

gines from Soviet-era R-27 submarinelaunched ballistic missiles were coupled together to provide the propulsive power and range for a warhead carried by a KN-08 to hit the east coast of the United States. It is not known how many R-27s North Korea has, but up to 150 went missing from Russia in the post-Soviet 1990s. Mr Schilling reckons flight testing of a KN-08 enhanced in this way could begin soon, leading to a “limited operational capability by 2020”.

Other recent tests include a large solidfuelled rocket motor of the kind needed to launch a mobile medium-range missile at very short notice (liquid-fuelled rockets, like those on the KN-08, take much longer to prepare for flight and are harder to move around) and the launch of a ballistic missile apparently from a submerged submarine in late April.

Not all North Korea’s tests meet with

success. Three recent test fires of the Musudan flopped. Michael Elleman, a missile expert at the IISS, speculates that perhaps the missiles were solid-fuelled and the engines still at an early stage of development.

Mr Elleman reckons that getting the Musudans working, and thus being able to threaten the American base in Guam over 3,000km away, must be a priority. He cautions that a string of failures is not grounds for optimism; the North Korean approach is to try it, find out what went wrong, find a fix and then validate it. “Their systems never work first time,” says Mr Schilling, “but they persevere.”

Some of what Mr Fitzpatrick describes as “this extraordinary amount of activity” may have been related to the seventh congress of the Workers’ Party, a sanctification ofMr Kim’s leadership. A less frenzied pace of testing may now resume. Since 2013, Mr 1

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seven warheads a year and that its current stockpile is about 20.

Mr Albright, like most analysts, is deeply sceptical that the device tested in January was, as Mr Kim claimed, a true hydrogen bomb. In hydrogen bombs a “primary”, which gets its power from nuclear fission in uranium or plutonium, sets off a “secondary”, which gets its power from the fusion of deuterium and tritium.

Such bombs have yields in the hundreds of kilotons, or megatons. Estimates based on seismology suggest this year’s test, like its predecessors, had a yield of no more than ten kilotons, though the fact that the bomb was more deeply buried than the first three suggests its makers may have expected something bigger. Mr Albright suspects the engineers were trying a technique developed by South Africa’s defunct nuclear programme in which a lithium, deuterium and tritium tablet at the centre of a fission device boosts its yield with a bit of fusion.

The next issue is whether the North Koreans have graduated from devices that can be tested to devices that can be fitted onto either its existing medium-range Nodong missile (developed from the Sovietera Scud C) or its two missiles under development, the Musudan intermediate-range ballistic missile (IRBM) and the KN-08 intercontinental ballistic missile (ICBM). Mr Schilling thinks that they would not have carried out four nuclear tests on something they did not think they could deliver. On March 9th, Mr Kim was photographed paying a visit to what may have been the Chamjin missile factory outside Pyongyang. In a hall packed with several ballistic missiles, Mr Kim posed beside a plausible-looking re-entry vehicle that would be consistent in size with a fission device about 60cm in diameter and weighing up to 300 kilograms. Both American and South Korean officials are convinced that North Korea can indeed make a warhead small enough to fit on the Nodong, which can reach targets in Japan, including American bases (see map).

A further question concerns the re-entry vehicle Mr Kim was proudly showing off: would it survive its passage through the Earth’s atmosphere? Until recently, Western intelligence believed that North Korea had not yet mastered this technology. But on March 15th pictures appeared in the North Korean media of what appeared to be a nose-cone from a KN-08 placed on an engine test stand one and a half metres beneath an ignited Scud rocket motor. Another picture (above, right) showed Mr Kim examining the re-entry vehicle after it had seemingly passed its test.

Another ground test on April 9th has, according to Mr Schilling, put to rest any doubts about North Korea’s ability to build an ICBM sooner rather than later. Two en-

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22 Briefing North Korea’s nuclear weapons 2 Kim has talked of his byungjin policy of

combining nuclear deterrence with economic development. Mr Pollack says that if Mr Kim wants the sort of bells-and-whistles deterrent deployed by the large nuclear powers, with submarine-launched and mobile missiles, the ruinous expense would make such a policy impossible. If, on the other hand, Mr Kim just wants what Mr Pollack calls a “don’t fuck with us” deterrent—one that keeps outside powers from interfering with his regime—he probably has one now.

Given what he has been testing, it seems likely that Mr Kim has his heart set on the former. His talk of economic reform—he laid out the first new five-year plan for decades at the congress—is short on specifics. If his enthusiasm for growth has led him to be worried by the supposedly tougher sanctions agreed to by the UN Security Council in Resolution 2270 on March 2nd in response to the nuclear test, he has shown no sign of it.

Deterrence, defence, despair These latest sanctions reflect China’s increased willingness to co-operate with America and others on North Korea, a new mood born of frustration and annoyance that Mr Kim continues his nuclear provocations when China has asked him to stop.

Still, unlike the sanctions on Iran, those on North Korea remain focused on hobbling the nuclear programme and denying luxury goods to Mr Kim and his cronies, rather than on damaging the general economy.

North Korea is free to buy fuel oil and sell iron ore and coal as long as the revenues are not used to fund military activities.

This is not a condition that can be practically enforced.

Chun Yung-woo, South Korea’s former chief negotiator at the six-party talks and national-security adviser to President Lee Myung-bak until 2013, says that although China has toughened its stance towards North Korea, it has “not fundamentally changed its policy of putting stability before denuclearisation—it will only implement sanctions that are tolerable to North Korea”. He hopes that the next American president, with support from Congress, will put China on the spot by applying a “secondary boycott” to any Chinese businesses trading with North Korea.

Another South Korean official, who talks regularly to the Chinese, is more sympathetic to their dilemma. The official says Beijing has been disturbed by an almost complete lack of communication with the North Korean regime since Mr Kim executed his uncle, Jang Song Taek, in 2013. Jang was the one senior figure in Pyongyang with whom the Chinese had close ties. The Chinese are changing their tactics, if not their strategy, in response to what they see as continuing provocations, looking for a sanctions “sweet-spot”—harsh enough to

The Economist May 28th 2016 change Mr Kim’s mind but not so punitive as to risk the collapse of the regime. However, if Mr Kim believes he is now on the “home straight”, his instinct may be to sprint for the finishing line and talk afterwards. Mr Chun thinks that North Korea will never denuclearise; if it agreed to stop testing it would be because it had achieved the nuclear power and status it craves.

The rest of the world will not agree to that. Still, Mr Fitzpatrick says that some kind of high-level engagement is overdue: he thinks it preposterous that the only American who knows Mr Kim is Dennis Rodman, a retired basketball player. Peacetreaty talks with North Korea to bring about a formal end to the Korean war, he

Is THAAD the best you can do? reckons, would not require recognition of North Korea’s nuclear status and could be part of an agreement to freeze nuclearweapons development.

Mr Samore thinks Mr Kim’s behaviour may eventually exasperate China so much that it will bring into play sanctions which really hurt. In the absence of such leverage, though, the focus must be on strengthening deterrence and containment. That means resisting or defusing Chinese displeasure over the proposed fielding of the THAAD (terminal high-altitude area defence) ballistic-missile defence system in South Korea. The Chinese oppose THAAD on the basis that its powerful AN/TPY-2 radar could undermine the effectiveness of their nuclear deterrent against America, a claim that Mr Samore rejects.

China fears that, over time, a regional network of anti-missile systems deployed

by America’s allies might come to threaten the deterrent effect of its relatively small strategic nuclear forces. In this instance

that concern seems far-fetched. The THAAD system is designed to destroy missiles during the terminal phase of their trajectories, when they are coming back down; it can do nothing against missiles during their boost or midcourse phase, so Chinese missiles aimed at America would have nothing to fear from a THAAD battery in South Korea. Still, the Chinese claim to be worried that THAAD’s radars, if used in “look mode” rather than “terminal mode”, could reach deep into their territory.

Americans point out that using the radar that way would decouple it from the missile-defence system it was deployed with, which would defeat its purpose.

More generally, they say that this is just something China will have to put up with.

As America’s defence secretary, Ash Carter, said last month: “It’s a necessary thing.

It’s between us and the South Koreans, it’s part of protecting our own forces on the Korean peninsula and protecting South Korea. It has nothing to do with the Chinese.”

The message to China was clear: as you have done such a lousy job persuading your ally to rein in his nukes, you will have to accept the consequences.

Mr Elleman has calculated that, faced with 50-missile salvoes, a layered defence consisting of two THAAD batteries and South Korea’s existing Patriot systems would be able to stop all but 10% of what was fired. He and Michael Zagurek, in a paper for 38 North, base their calculations on what is known in the jargon as “single-shot probability of kill” (SSPK). With two layers of defence, the SSPK of each interceptor need only be a bit over 0.7 for 90% of the incoming missiles to be destroyed.

That would be an impressively effective defence against conventionally armed missiles. But only one or two nuclear warheads need to get through for the casualties to be immense (420,000 killed and injured in Seoul for each 20 kiloton warhead, reckon Mr Elleman and Mr Zagurek). And if nuclear-tipped missiles were launched alongside or behind conventional decoys the system would be clueless as to which was which. If Mr Kim were to add submarinelaunched missiles to his arsenal, defence would be harder still; they could be fired out of sight of THAAD’s radar.

Like tougher sanctions, THAAD is well worth deploying. But neither can fully contain the threat. Nor is it certain that conventional deterrence (which rests upon the assumption that the regime to be deterred is sufficiently rational not to invite its own destruction) will necessarily work against North Korea. Another reason the Chinese give for their unwillingness to tighten the screw on the regime is that they fear its imminent collapse could result in a last act of suicidal nuclear defiance by Mr Kim. That may just be what Mr Kim wants his adversaries to believe. But if it is a bluff, it is not one that anybody wishes to call. 7

The Economist May 28th 2016 23

Asia

Also in this section 24 War in Afghanistan 25 India’s deep south

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

America and Vietnam

Pull the other one SINGAPORE

America’s president plays the Vietnam card

B

ARACK OBAMA fooled no one this week when, having announced that America was lifting its embargo on selling weapons to Vietnam, he denied that the decision was “based on China or any other considerations”. It was a tactful fib, to portray the move as merely part of Mr Obama’s legacy-building mission ofreconciliation with historic enemies, to be followed days later by a historic visit to the site of America’s atom-bombing of Hiroshima. But at a time of increased tension in the South China Sea, where Vietnam is among the countries disputing territory with China, America’s policies there are bound to be seen in a different context. The headline in Global Times, a fire-breathing Chinese tabloid, read simply: “Washington uses past foe to counter China”.

The American president made his announcement a few hours into his first state visit to Vietnam, following a meeting with the country’s new president, Tran Dai Quang, in Hanoi. Official enthusiasm was mirrored in the thick crowds lining the streets in the capital and in Ho Chi Minh City to greet Mr Obama, whose visit between May 23rd and 25th was only the third by an American leader since the end of the Vietnam war in 1975. His star power contrasted with the indifference most Vietnamese show for the stiff apparatchiks of the ruling Communist Party. Locals in Hanoi gawped at Mr Obama tucking into bun cha, a cheap meal of grilled pork and rice

noodles bought from a street stall.

The end of the arms ban will have little immediate impact. America had already twice loosened it, first in 2007 and again in 2014, allowing the sale of needed patrol vessels. It will take years for the Vietnamese, short on cash and largely reliant on Russian weaponry, to integrate American hardware. Moreover, weapon sales to Vietnam (like to anywhere else) will still need to be approved case by case, and the first purchases are likely to be of relatively inoffensive systems, such as radar. China’s press has warned that America risks turning the region into a “tinderbox of conflicts”, yet its diplomats, not normally slow to accuse America of stoking tensions, played down the decision. A spokeswoman for the foreign ministry welcomed the normalisation of ties between Vietnam and America, and painted the arms ban as a kooky anachronism.

America’s move is partly a sop to conservative factions within Vietnam’s Communist Party in need of reassurance. Behind this week’s smiles they still fret that America harbours hope of overthrowing the party. Bigwigs in government feel bounced into their friendship with America by virulent anti-Chinese sentiment among ordinary Vietnamese, some of whom accuse the cadres of going soft on Vietnam’s overbearing northern neighbour. Trust earned by dropping the embargo might eventually gain advantages for

America’s own armed forces, such as a return to Cam Ranh Bay, once an American naval base on the south-eastern coast.

America had previously insisted that lifting the embargo would depend on Vietnam’s progress on human rights, which even Mr Obama admits has been only “modest”. The regime’s thuggishness makes even a largely symbolic concession hard to swallow. The party was seen to have eased up on critics during 2015, when it was negotiating access to the Americanled Trans-Pacific Partnership (TPP), a freetrade deal—but it has since reverted to form, and its new leadership, reshuffled in January, contains several former secret policemen. Mr Obama’s arrival in Vietnam coincided with a ludicrous parliamentary “election”, boasting a 96% turnout, and with a crackdown on environmentalists who have been gathering in the cities to protest about polluted canals and seas. The authorities even sabotaged Mr Obama’s efforts to meet critics of the party by briefly detaining several campaigners whom the president had invited to his hotel for a chat.

China plays the Gambia gambit Boosters say that improving Vietnam’s human-rights record is bound to be a long slog, and that gaining the regime’s trust is a prerequisite. They say that arms sales are far from America’s only bargaining chip: the terms of the TPP, for example, oblige Vietnam to begin tolerating independent unions, a reform that could loosen the Communists’ monopoly on public life. But that deal will have no impact if, as seems all too possible, America’s Congress refuses to ratify it.

So Mr Obama is taking the long-term view that closer partnership with Vietnam is worth sacrificing some principles for.

America and its regional friends are alarmed by China’s forcefulness in the 1

24 Asia 2 South China Sea—notably its building

boom, turning disputed rocks and reefs into artificial islands, which may well, despite Chinese denials, become military bases. Both diplomacy and American displays of might have failed to stop this.

America currently has an aircraft-carrier battle group in the South China Sea to remind the world of its military strength. To Chinese protests, it has sent ships and planes close to Chinese-claimed rocks and reefs. Meanwhile, the Philippines has challenged China’s territorial claims at an international tribunal in The Hague, which is expected to rule soon. China has said it will ignore the ruling. The Philippines’ new president, Rodrigo Duterte, has not made clear how he would react to a decision in his country’s favour.

Although nobody expects America and China to go to war over some remote rocks and man-made islands, an accidental clash in or over the South China Sea remains a

The Economist May 28th 2016 risk. On May 17th Chinese fighter jets dangerously intercepted an American reconnaissance plane over the sea. China denies its planes did anything provocative.

China does seem to worry about its image, however. Its foreign minister, Wang Yi, recently toured the smallest South-East Asian countries—Brunei, Cambodia and Laos—and announced that China had reached “consensus” with them on handling disputes in the sea. This was news to the countries concerned, and alarmed their fellow members of the Association of South-East Asian Nations, who saw a blatant attempt to divide them. China has also lobbied G7 countries in the hope that the statement their leaders issue on May 27th after their summit in Japan will not scold China over the South China Sea. Already China’s newest diplomatic partner, the Gambia, in distant west Africa has, bizarrely, confirmed China’s “indisputable sovereignty” over the sea. So that’s that, then. 7

War in Afghanistan

Taliban reshuffled ISLAMABAD AND KABUL

The Americans’ killing of Mullah Akhtar Mansour will deepen divisions within the Taliban but not end the insurgency

F

OR the second time in under a year, senior men from the Afghan Taliban have descended on Quetta, capital of Balochistan, the largest but least populated of Pakistan’s four provinces, to elect a new supreme leader. The first time was hurriedly to choose a successor to Mullah Muhammad Omar, the Taliban’s founding leader, after attempts to hide his death in a Karachi hospital two years earlier were exposed.

But now that successor, Mullah Akhtar Mansour, who was involved in the cover-up of Omar’s death and in a ruthless purge of rivals afterwards, is himself dead.

He was killed on May 21st, on a lonely road in Balochistan, by an American drone.

For his Pakistani hosts, Mullah Mansour’s death has embarrassing echoes of Osama bin Laden, who was killed by American special forces five years ago in his secret home near a Pakistani military academy. But Mullah Mansour was no fearful recluse. He had the backing of a Pakistani state that gives sanctuary to Taliban leaders as a means of maintaining influence in Afghanistan. And whereas American drone strikes against militants in the tribal area ofNorth Waziristan are longestablished and carried out under rules secretly agreed with Pakistan, Balochistan was considered to be off-limits. No longer.

The Americans, whose strikes are usually clandestine, were quick to announce Mullah Mansour’s elimination (so much for

Pakistani feelings). They said he was an “obstacle to peace and reconciliation” who had stopped more reasonable Taliban leaders from “participating in peace talks with the Afghan government”.

Mullah Mansour got about. On his final day he had travelled 450 kilometres (280 miles) by taxi from the border with Iran (he was struck shortly after stopping for lunch). His Pakistani passport (under an assumed name) that was found at the scene

Out of a clear blue sky

showed that he had also frequently flown from Karachi to Dubai and Bahrain. That American spooks tracked him after a lengthy stay in Iran may lead comrades to wonder about traitors in their midst.

In Afghanistan, people sick of endless Taliban attacks emanating from Pakistan were delighted. Afghan leaders had long wanted America to take the war against the Taliban to Pakistan. That it has now done so is a boost for President Ashraf Ghani. His attempts to befriend Pakistan in hopes of support for peace talks earned him scorn at home. The talks have gone nowhere, violence has escalated and the Taliban have grabbed more territory than at any time since their ouster in 2001.

The peace talks, hosted by Pakistan in the capital, Islamabad, involve Afghanistan, America and China. But in five meetings, there has been ever less to talk about.

Mullah Mansour was more interested in sending militants to Kabul than envoys to the talks (in April over 60 Afghans were killed in one attack alone in the Afghan capital). The Afghan government, believing Pakistan had promised to use force against “irreconcilable” insurgents, did not even bother to send a senior official, bar its ambassador, to the last meeting on May 18th. It is not clear how much of a reputation Pakistan can salvage as a self-proclaimed peace broker, especially as Mullah Mansour’s sojourns in Iran suggest that he may have been slipping from the Pakistani orbit. Some in the Pakistani establishment may even have been happy for the Americans to kill him.

But America remains royally fed up with Pakistan, not least because of its reluctance to go after a key Taliban ally, the Haqqani network, sheltering in North Waziristan. In February the American Congress refused to give Pakistan financial help to buy eight F-16 fighter jets. As for China, a key Pakistani ally, it has promised billions 1

The Economist May 28th 2016

Asia 25

2 of dollars in roads and more, but is likely to

remain uncomfortable about its investments until the region’s Islamist insurgencies are stamped out. Meanwhile, on May 23rd the leaders of Iran, India and Afghanistan signed a deal to create a transit hub at the Iranian port of Chabahar on the Arabian Sea. That would challenge Pakistan’s own port joint-venture with the Chinese at Gwadar, 170km farther east.

On May 24th the Taliban appointed as their new leader Haibatullah Akhundzada, a former head of the courts with little military experience but with a line in fatwas endorsing executions and amputations. He inherits a death sentence from America, and a squabbling outfit at war with itself as well as with the Afghan government and its sponsors.

Mullah Mansour was viewed by some field commanders as being too close to Pakistan. Mr Akhundzada may need to prove his credentials by redoubling a Taliban offensive in Afghanistan that has been raging since last summer. With the spring fighting season under way, and a profitable opium harvest gathered, the Taliban are well placed to tighten their pincer around Lashkar Gah, the capital of Helmand province in the south, and to expand their offensive in the north. They may even attempt to retake Kunduz, the northern provincial capital that was briefly captured last year. Peace will have to wait. 7

India’s deep south

Southern comfort COIMBATORE

Tamil Nadu and Kerala dance to a different tune from the rest of India

M

AHATMA GANDHI would not have enjoyed Texfair 2016 in Coimbatore in the southern state of Tamil Nadu. The man hated machines and factories, and promoted Indian independence by urging every household to spin its own cotton yarn. But on display at the textile fair were bobbins, rollers, waste balers, quality-control sensors and much, much more.

Indeed, India is vying with China to be the world’s biggest producer of yarn, with over 45m spindles twirling around the clock. But what is striking about the trade fair is how so much of the modern wizardry on show is made not in better-known industrial centres around the world but in Coimbatore itself, a city of just 1.6m some 500 kilometres (310 miles) south-west of Chennai, the Tamil Nadu capital.

The fast-growing city is an inelegant sprawl stretching into groves of coconut palms. It teems with technical institutes, bustling factories and civic spirit. Earnest

Coimbatore: bobbin and weavin’ and ambitious, Coimbatore evokes the American Midwest of a century ago. A regional manufacturers’ group that was founded in 1933 during Gandhi’s homespun campaign has now designed, built and marketed a hand-held, battery-operated cotton picker that it claims is six times more efficient than human fingers.

Gandhi would have been appalled. But the gadget says something about the quiet success of parts of India’s deep south. Mill owners worry that with day wages in Tamil Nadu and neighbouring Kerala to the west now far higher than those in northern India, local cotton may grow uncompetitive. Tea planters in the hills west of Coimbatore are already squeezed. One landowner, in Kerala’s Wayanad region, where silver oaks shade trim ranks of tea bushes, says that his pickers get 300 rupees (about $4.50) a day, nearly three times the wage in Darjeeling in India’s north.

It may not sound like much, but it is also more than the average Indian earns. And as a whole, GDP per person in Tamil Nadu and Kerala is 68% and 41% higher respectively than the national average of $1,390 a year. With the south’s booming new industries, better education and higher wages contrasted with declining industries in the north and east, India is undergoing a shift a bit like the American one from the rustbelt to the sunbelt in the 1980s. Kerala shares in this new industrialisation less than Tamil Nadu, but that is balanced by another source of prosperity: remittances from abroad. As many as one in ten of Kerala’s 35m people workin the rich Arab countries ofthe Persian Gulf. Their remittances boost local incomes, property prices and demand for better schools. Kerala, under leftist governments for the past six decades, already has India’s best state education and its highest literacy rate. Its school district has again topped nationwide exams for 17-

year-olds, followed by Chennai region, covering the rest of southern India.

Yet India’s deep south has not transmuted growing prosperity into greater political clout. It remains largely aloof from broader political trends, including a slugging match between the Bharatiya Janata Party (BJP), in office nationally under Narendra Modi, the prime minister, and Congress, the once-dominant centre-left party that worships Gandhi. In elections across four Indian states that wrapped up on May 19th, attention elsewhere focused largely on the fortunes of those two parties. The BJP’s capture from Congress of Assam in the north-east was seen as a big boost for Mr Modi. Congress’s failure to take any state was seen as a sign of decay.

Voters in both Kerala and Tamil Nadu, which has 72m people, paid hardly any attention at all. In both states the contest was between long-established state-level parties. Keralites and Tamils alike admit that in terms of policy not much distinguishes the rival parties. For a generation, power in Kerala has alternated between two left-ofcentre coalitions. Tamil Nadu, meanwhile, has been in thrall to parties that both make “Dravidian progress”—a reference to South India’s linguistic and racial separateness from the “Aryan”, Hindi-dominated north—part of their name.

Elections are often bidding wars. In Tamil Nadu this has meant offers of household goods or simple cash. The favoured lure in Kerala, where politics is so staid that rival party bands traditionally deliver a joint crescendo in village squares to mark the end of campaigning, has been promises of ever more generous welfare.

In practice, voters often punish the party in power. But this year voters in Tamil Nadu re-elected the incumbent government for the first time in a generation. The AIADMK, whose boss is a former actress known as Jayalalithaa, had the stronger party machine and a track record of generosity. It secured victory over the DMK, from which it split in 1972. The outcome in Kerala was more traditional. The corruption-tainted ruling coalition, led by a local affiliate of Congress, was trounced by the communist-led Left Front.

Interestingly, gains were made by a newcomer to Keralite politics since the last state elections in 2011: Mr Modi’s BJP. It picked up just one seat in the 140-member state assembly, but almost doubled its proportion of votes, to 15%. To some, the Hindu-nationalist party’s entry reflects the impatience of Kerala’s growing (and mostly Hindu) middle class with the handout politics that tends, on paper at least, to favour religious minorities in a state that is 27% Muslim and 18% Christian. But Keralites fed up with both Congress and the hammerand-sickle mob, both of which have failed to foster industrialisation and jobs, may have felt they had nowhere else to go. 7

26

The Economist May 28th 2016

China

Also in this section 27 Astroturfing the internet 28 Banyan: Failings of the China dream

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

Retirement

China’s Florida SANYA

People used to retire where they lived and worked. That is beginning to change

T

HE cheongsam modelling contest starts at 7pm; at 8pm it is group dances in the style of ethnic Uighurs from China’s far west, and of fan-waving north-easterners from provinces adjoining Russia and North Korea. Participants and spectators alike are pensioners: retired miners, teachers and industrial workers. They sit in the evening cool, gossiping and applauding. A man in a Hawaiian shirt keeps the beat with castanets. Fei Liyue, a former construction manager, says that he and his relatives come every evening. He is 3,200km (2,000 miles) from his home in the bleak oil city of Daqing.

Almost everyone is, like Mr Fei, from the rust belt of the north-east, a region that is gripped in winter by an Arctic chill. But the scene here is by the beach in the subtropical city of Sanya in Hainan, an island province as far south from their native region as it is possible to go without leaving the country (see map). Palm fronds and bougainvillea rustle in the breeze. Bikiniclad tourists dash by. The crowds of elderly visitors (some are pictured) are something new in Sanya. They may herald a profound social change.

Chinese people used to live, work, retire and die where they were born. The country’s filial traditions reflect this: children are supposed to look after their parents. The bureaucracy enforces it: everyone has a hukou (household registration) which provides subsidised health and education, almost always in a person’s

place of birth.

Thanks to the migration of workers, however, 260m people, about one-fifth of the population, now live somewhere other than their birthplace. In the past five years, the pattern of retirement has also begun to change. Increasing numbers spend some or all of their pensionable years away from where they used to work. Neither filial tradition nor the hukou system have proved strong enough to prevent this.

In the 1950s and 1960s Americans flocked from cold industrial cities, such as New York and Chicago, to subtropical FlorRUSSIA Daqing

MONGOLIA

HEILONGJIANG JILIN

LIAONING

New York’s latitude

N. KOREA

Beijing

C H I N A ’s Miami

YUNNAN

de latitu

GUANGXI

HAINAN

Sanya

Climate

Tropical Continental

Humid temperate Dry

500 km

Dry temperate Mountain

Source: “Mapping Crop Cycles in China Using MODIS-EVI Time Series”,

by Le Li et al. Remote Sensing. March 2014

ida. Now Chinese people are moving from the industrial heartland of Heilongjiang, Jilin and Liaoning (the three north-eastern provinces) to Hainan. And just as movement to America’s sunbelt helped transform a backward region, so the same thing could happen in China.

Fifty years ago Sanya was a small fishing village. Ye Yaer, who was born there in 1961, survived on discarded ends of sugar cane and did not get a pair of shoes until he was 12. Every day his mother walked 25km to the nearest market town, carrying those of her children too young to walk as well as 20 kilos of fish to sell. Now Mr Ye is a successful fish-dealer whose business extends across southern China; Sanya is full of fivestar resorts. And as happened in Florida, a retirement business is being built on the back of Hainan’s tourism.

According to Sanya’s government, 400,000-500,000 pensioners head to the city each year, perhaps half of them from the north-east. That compares with the city’s total population (those resident for six months or longer) of 749,000. The incomers are not the new rich. Huang Cheng of Sanya University says one-third of the sun-seeking pensioners have a monthly income of 2,000-3,000 yuan ($305-460), about the average for a working person. A quarter receive only 1,000-2,000 yuan a month. Most come for six months and return to the north-east in summer. “It’s too hot here then,” says Mr Fei, the oil-city man, though he admits he is thinking of settling in Sanya full-time. Rather like Florida’s “snowbirds”, many rent an apartment just for the winter.

Fewer than 100,000 migrant pensioners live on the island year round, thinks Mr Huang. But there are signs that more are settling. Half of those he interviewed said they had bought property in Sanya. The number staying permanently started to soar in 2010 when the city’s retirement 1

The Economist May 28th 2016 2 boom began. Hua Hong Investments, a lo-

cal property company, is about to open the city’s first American-style residential care home, with medical services, an indoor golf driving-range and calligraphy classes.

The winter pensioners are “awesome”, enthuses Wu Qifa, a farmer in Danzhou, a village on the edge of Sanya, who rents out rooms to them. “We couldn’t survive without them.” The village pharmacy is unusually well stocked with heart medicines, blood-pressure pills and pain relief for knee and hip joints.

Li Wen, from Heilongjiang, followed the seniors down to Sanya and opened a restaurant there offering north-eastern cuisine. It has been doing a roaring trade, he says, though this year business has slackened, reflecting an economic slowdown in the north-east. Thanks to tourism and the retirees, Sanya’s economy grew more than tenfold between 2000 and 2013, almost twice as fast as the country as a whole.

But with so many moving in, problems are inevitable. Medical services—poor at the best of times—are overwhelmed in winter. Doctors among the retired visitors have been drafted in to help. Everyone complains about traffic. In winter the price ofvegetables typically doubles, and that of seafood triples, says Mr Huang. In summer most pensioners go home, hurting firms that cater to them.

Not surprisingly, given the pressure on public services, relations between locals and the newcomers are “sensitive”, say volunteers at the Sanya Association for Resettling Retirees. “I would as soon befriend an Iraqi as a north-easterner,” fumes one Sanya resident. It did not help when in 2014 Li Boqing, a deputy mayor who is himself from the north-east, said that: “If immigrants left the city, Sanya would become a ghost town overnight.”

The city government, however, does not want its hospitals and roads clogged up, and so is trying to control the flood of incomers. One method is requiring that new apartments be 80 square metres or larger. Typically, pensioners rent spaces far smaller than that. There are other factors that may curb the influx. Huang Huang of the China Tourism Academy in Beijing says that those in early retirement (which usually begins at the age of 60 for men, 55 for female civil servants and 50 for other women) will normally be well enough to seek a cleaner, warmer environment away from their children. As they become less active, however, many will migrate back to be near their families. At the last stage, when they need frequent medical assistance, they will probably enter old-age institutions. It is unclear whether the government will build these in big population centres or in places like Sanya.

Pensioners themselves are looking beyond Sanya’s overcrowded streets. Some are moving to villages along the coast, or

China 27 hill towns in Yunnan, a subtropical province on the mainland. In Guangxi province, bordering on Yunnan, the village of Bama attracts those keen to learn the secret oflongevity—it is said to have an unusually large population of centenarians.

China has about 220m people over 60.

If they prove as mobile as American retirees (1.1% of whom move from one state to another each year), that would mean over 2m pensioners upping sticks annually, potentially making a huge difference to the economies and social structures of their destinations. To judge by the experience of Sanya, few places are ready for it. 7

Social media

The dark art of astroturfing BEIJING

On the internet, nobody knows you’re a running dog

“T

HE people’s police love the people, the people love the people’s police” is a well-known ditty that officials claim is cherished and accurate. Earlier this month, however, Global Times, a newspaper in Beijing, said that police were struggling to convince the public that they had acted properly in the case of a 29-year-old man who died in the capital while in their custody. Disdain for and distrust of the police is, in fact, widespread. But it is rare for an organ so closely linked to the Communist Party to admit that officers have a credibility problem.

Police said they had detained the man, Lei Yang, on May 7th during a raid on a brothel; that he had resisted arrest and died of a heart attack. His family and friends used social media to challenge this account. They said that Mr Lei was fit and had no record of heart trouble; that he was

on his way to the airport to pick up relatives when he disappeared; and that timings and other details given by the police were implausible. These counterclaims created a firestorm online, and even in state-linked media.

The case is the latest illustration of how social media—despite huge efforts by the government to block access to online information that it considers sensitive—play an important role in China’s public and political life. Censors tried hard to delete posts critical of the police handling of Mr Lei’s case. But it proved impossible to keep up with the deluge.

Such efforts by the censors are relatively easy for internet users to detect. More difficult to monitor are the government’s attempts to influence online discussion by intervening surreptitiously with posts and comments they disguise to look like they come from the public. A new study published by Harvard University offers a rare analysis of how this works. On the basis of a leaked e-mail archive from a local government’s propaganda office, the authors conclude that 488m such bogus posts appear each year, about one out of every 178 of the messages that are posted each year on commercial sites.

Contrary to popular belief, those involved in this effort avoid arguing with sceptics of the government. Instead, the scholars write, they try to distract the public and change the subject. Most of their posts gush with praise for China, the party or other symbols of the regime (such as the much-loved police).

The authors describe this as a “massive secretive operation”. But its existence has long been suspected. The government’s online cheerleaders are commonly disparaged as belonging to the “50-Cent Party”, a reference to the amount, equivalent to eight American cents, that they are rumoured to receive for each pro-government post. The scholars believe, though, that most 50-centers are government or party officials, and that they are paid nothing extra for their online scribblings.

Their posts were clearly of little use during another recent scandal that came to light thanks to a furore on social media. It involved the death of a student who spent vast sums of borrowed money for an ineffective course of cancer treatment at an army hospital. He had learned about it from Baidu, China’s largest search engine, which did not make clear that advertising payments skewed its search results.

In an e-mail reportedly sent to his staff Baidu’s CEO, Robin Li, wrote that as a result of the scandal, Baidu faced a crisis in public trust. “Baidu could go bankrupt in just 30 days if we lose our users’ support,” he wrote. The episode was a huge embarrassment to the party too. But if its leaders have the same worries as Mr Li, they have yet to become public. 7

28 China

Banyan

The Economist May 28th 2016

Rocking boats, shaking mountains

To bewilderment in China, neither Hong Kong nor Taiwan seems to want to follow its script

T

HE “China dream” of the president, Xi Jinping, is of a rejuvenated, rich and strong country that will once again enjoy the respect and fealty in Asia commanded by the empires of old. That last part is not happening: from a recalcitrant young despot, North Korea’s Kim Jong Un, on its north-eastern border, to those ungrateful Vietnamese Communists to the south, flirting with America, insolent insubordination abounds. And perhaps most alarming of all, the people of “inalienable” territories wrested from the motherland by predatory imperialists—Hong Kong and Taiwan—show no enthusiasm at all for a return to its bosom.

Events in recent weeks have highlighted China’s difficulties in both places. In Hong Kong a visiting senior official from Beijing, Zhang Dejiang, had to scurry around under high security to avoid meeting protesters. Paving stones were glued down in case they became projectiles. And in Taiwan President Tsai Ing-wen, at her swearing-in on May 20th, rejected months of intense Chinese pressure to pay lip service to the notion that there is “one China”.

Mr Zhang presented a friendly face in Hong Kong, prompting the Big Lychee, an acerbic local blog, to note: “Few sights are more painful to behold than a senior Chinese Communist Party official attempting to be nice. They do it with undisguised distaste, only when the usual thuggish methods like violence and bribery have failed.” As for Ms Tsai’s performance, China did not mask its disappointment. Its Taiwan-affairs body, unabashed at treating a popularly elected leader like an underperforming fourth-grader, called it “an incomplete test answer”. Some democracy-loving Chinese citizens showed more sympathy, with supportive posts online (soon deleted), and a rally (soon dispersed) by a handful of people in the city of Chongqing to mark the inauguration.

In Hong Kong and Taiwan China’s tactics are much the same.

It uses economic sticks and carrots combined with occasional heavy-handed displays of power. It ignores or suppresses views it does not like and appeals to pan-Chinese patriotism. But it should know by now that these methods do not work. For example, to help Hong Kong recover from the SARS epidemic in 2003, China eased restrictions on the numbers of mainland visitors.

The resulting throngs of Chinese tourists soon became yet another of the locals’ grievances. Similarly, in Taiwan, a massive expansion of trade and tourism links with China under Ms Tsai’s prede-

cessor, Ma Ying-jeou of the Kuomintang (KMT), caused huge protests in 2014. Yet Mr Zhang spent his time urging Hong Kongers to focus on the economy and not to “rock the boat”. He dodged issues that have angered people, notably China’s refusal to allow proper elections for Hong Kong’s chief executive. That decision, also in 2014, triggered large demonstrations, too.

China’s approach to Ms Tsai suggests it has few new ideas, either, on how to handle Taiwan. She was elected in January despite China’s warnings. It abhors her Democratic Progressive Party, which leans towards formal as well as functional independence from China. So China insists that Ms Tsai must accept what is known as the “1992 consensus”—that there is only “one China”, however defined, of which Taiwan is part. Mr Xi last year thundered that if Taiwan rejects this “the earth will move and the mountains shake.” To emphasise the point, last November he made a remarkable concession for a Chinese leader by travelling to Singapore to meet Mr Ma, then Taiwan’s president. That was a reminder of the importance to China’s leaders of reclaiming Taiwan: the unfinished item in its agenda of national recovery from a “century of humiliation”. Since 1981 they have been trying to woo Taiwan with a “one-country, two-systems” arrangement comparable to the one later offered to Hong Kong, but giving Taiwan even greater leeway. Hong Kong’s enjoyment of 50 years of autonomy after its reversion to Chinese sovereignty in 1997 was supposed to be an advertisement of the advantages of this arrangement. It has turned instead into a warning of its dangers.

Since January, China has turned to its usual battery of economic, diplomatic and strong-arm methods to bring Ms Tsai into line. Tour operators report a sharp drop in the number of Chinese tourists. China has signalled an end to the “diplomatic truce” it had been observing by not competing with Taiwan for recognition from poor countries: in March it established ties with Taiwan’s former partner, the Gambia. It has also bullied Kenya into sending Taiwan citizens, detained on suspicion of fraud, to China. And, just before Ms Tsai’s swearing-in, it staged military exercises on the coast opposite Taiwan, as if rehearsing an invasion.

The pageantry around the inauguration included a re-enactment of the brutal suppression of an uprising against mainland (then KMT) rule in 1947—a defining event for the island’s independence movement. But in her speech Ms Tsai bent over backwards to keep to her promise not to upset the status quo. She even acknowledged the “historical fact” of the meeting in 1992 at which the alleged consensus was reached. But she did not repeat the “one China” fiction. Struggling to appease both her pro-independence supporters and Taiwan’s domineering neighbour, she gave neither quite what they wanted.

Straitened circumstances It is Hong Kong that seems to be learning from Taiwan, not the other way round. A small but vocal independence movement has sprung up there. But China is not changing course in either place. Its response to Ms Tsai’s speech was to resort to threats about cutting off contacts and to belittle her. The lack of specifics, however, has left China room for manoeuvre. It would be heartening to think that this means China’s leaders realise that the best way to win hearts and minds in Hong Kong and Taiwan is not to bribe, browbeat and bully, but to make China itself look a more attractive sovereign power. More likely, however, is that China has too many problems to deal with, at home and on its periphery, to risk another crisis in the Taiwan Strait just now. 7

The Economist May 28th 2016 29

United States

Also in this section 31 The Libertarian Party 31 On the trail, surrender edition 32 Hillary Clinton’s e-mails 32 Disability lawsuits 33 Soccer flourishes 34 Lexington: Oh, Oklahoma

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

Voting rights

The fire next time UNION SPRINGS, ALABAMA

Today’s voting-rights disputes are less clear-cut than those of the civil-rights era, but they are inflammatory all the same

T

HE 45-mile drive from Union Springs, seat of Bullock County, Alabama, to Montgomery, the state capital, might not seem very arduous. But for some locals, the distance itself is not the main obstacle.

Going to Montgomery, as some now must to get a driver’s licence, means the best part of a day off work for two people, the testsitter and his chauffeur (there is no public transport). That is a stretch for employees in inflexible, minimum-wage jobs—and there are lots of them in Union Springs, a tidy town in which the missing letters on the shuttered department store’s façade betray a quiet decline, surrounded by the sort of spacious but dilapidated poverty characteristic of Alabama’s Black Belt.

To some, this trek is not just an inconvenience but a scandal. The state’s voters must now show one of several eligible photo-IDs to cast a ballot, of which driving licences are the most common kind. Last year, supposedly to save money, the issuing office in Union Springs, formerly open for a day each week, was closed, along with others in mostly black, Democraticleaning counties. After an outcry, the service was reinstated for a day per month; at other times, applicants head to Montgomery. For James Poe, a funeral-home director and head of the NAACP in Bullock County, the combination of a new voter-ID law and reduced hours is “insanity”.

Such impediments may not be as flagrant

as when, as a young man in Union Springs, he had to interpret the constitution in order to vote, but, he thinks, they are obnoxious all the same.

For Mr Poe, the explanation of what he calls “a slick Jim Crow” is simple: “Republicans want fewer people to vote.” Far from it, insists John Merrill, who as a Republican legislator helped craft the new law and now oversees its implementation as Alabama’s secretary of state. Anyone without a driving licence can apply for a free, alternative ID—in Union Springs, at the friendly registrar’s office in the courthouse. True, fewer than 8,000 have been issued, but that, Mr Merrill says, is because not many people need them (others disagree). He pledges to ensure that anyone who wants an ID gets one, even if he has to go to their house himself. Turnout soared in the recent primary, he points out (though only on the Republican side). As for racial discrimination at the polls: “That day is over.”

Across the Edmund Pettus bridge The nuances, malleable data and emotive claims in the row over Alabama’s voting law are typical of similar disputes raging across the South, in and out of court, and elsewhere. Some might not be resolved before the presidential election and may cloud its outcome. At their heart is the question of how far America has escaped the racial traumas of its past.

Altogether 17 states will have new rules in place for this presidential election. Reverend William Barber, a civil-rights activist who is leading the fight against North Carolina’s changes (among the most sweeping), shares Mr Poe’s outrage. These are, he says, summarising the general complaint, “an all-out retrogressive attack on voting rights”, which his generation must defend, just as a previous one secured the passage of the Voting Rights Act (VRA) in 1965. Thus his slogan: “This is our Selma.”

Yet if this patchwork of initiatives is indeed an assault on hallowed rights, it is, metaphorically speaking, a crime without a body or incontrovertible smoking gun.

That is partly due to the fiddly nature of the reforms. Chief among them are requirements for photo-IDs which, surveys suggest, minority citizens are more likely to lack (in Texas, which has the toughest ID law, you can vote with a gun licence but not a student or employee card). Other revisions include the curtailment of earlyvoting periods and the ending of electionday registration and out-of-precinct voting.

North Carolina’s law contains all these elements: all, say its critics, will disproportionately affect minorities. Elsewhere there are conflicts over the need to produce proof of citizenship to register to vote (recently discounted by a court in Kansas) and the pruning of electoral rolls.

Innocent or insidious, these tweaks are not as luridly discriminatory as the blatant, often bloody shenanigans of the past.

Moreover their impact is difficult to prove conclusively. A study by the Government Accountability Office found that, in Kansas, tighter ID laws led to a drop in turnout of roughly 2% between 2008 and 2012, and slightly more in Tennessee; younger and black voters were more likely to be affected. Researchers at the University of Cali- 1

30 United States 2 fornia, San Diego, also calculated that strict

ID laws depress minority turnout, notably among Hispanics. There are worrisome projections: Arturo Vargas of the NALEO Educational Fund, a Latino lobby group, reckons 875,000 Latino voters could be impeded by new regulations in November, 90% of them in Texas.

But, as in Alabama, there is contrary evidence, too. For instance, in the congressional elections of 2014, the first held under North Carolina’s new regime, black turnout rose—a bump Mr Barber’s side attributes to an exciting Senate race and an energetic get-out-the-vote push. As it happens, Alabama’s turnout crashed in 2014, which officials ascribe to that year’s dull, incumbent-heavy races. Those explanations point up a basic evidential hitch: electoral behaviour is driven by many factors, from the political (a historic black candidate) to the personal (getting stuck at work). Demonstrating a single rule’s consequences is tricky; proving why people fail to vote is particularly fraught. And lots of these measures are yet to be tested.

A rainstorm with no umbrella Hardly surprising, then, that opponents of these changes, including the federal government, have sometimes struggled to persuade courts that they violate the VRA or are unconstitutional. “They’re wasting a lot of money,” says Christian Adams of the Public Interest Legal Foundation, which joined Virginia in a successful defence of voter-ID; a federal court recently upheld North Carolina’s law. On the other hand, Texas’s has been judged discriminatory, as, this week, were Ohio’s cuts to early voting; several states, including Alabama, face ongoing litigation.

Perhaps if the burden of proof fell more squarely on the laws’ proponents, the outcomes of these cases might be more consistent—especially if circumstantial evidence weighed more heavily. Exhibit A might be their incriminating timing.

The key date, say activists, was June 25th 2013. That was when the Supreme Court neutralised the aspect of the VRA that required nine mostly southern states with records of discrimination, plus parts of six others, to clear changes to their voting practices with the Justice Department or a federal court before they took effect.

Edward Blum, a pro-reform campaigner who helped bring the suit, argues that, having “done what it was designed to do”, the relevant section of the VRA had become an infringement of state sovereignty; in various southern states, he notes, black turnout is now higher than in other bits of America. A narrow majority of the court duly ruled that, while prejudice persisted, the country had “changed dramatically”, and that the formula used to apply the preclearance requirement was outdated. Dissenting, Ruth Bader Ginsburg adduced the

The Economist May 28th 2016 700-odd discriminatory measures blocked by the Justice Department between 1982 and 2006; she likened the decision to “throwing away your umbrella in a rainstorm because you are not getting wet”.

Not all the places now embroiled in controversy had been fingered for preclearance. But several were, and their new laws might have been rejected—as some apparently realised. Alabama, recipient of 24 objections by the Justice Department since 1990, passed its voter-ID law in 2011, but held it back; it announced that it would implement it the day after the ruling. North Carolina’s legislators rushed theirs through a month later, one remarking that the VRA “headache” had been lifted. Texas’s law was blocked, then revived. That telling opportunism lies behind Mr Barber’s view that black voters now have “less protection than on August 7th, 1965”, the day after the Voting Rights Act was signed.

Exhibit B in the circumstantial case against the new laws is the ropey rationale for passing them. The main reason cited for the ID requirements is the need to combat fraud. That sounds reasonable, except that the kind of impersonation they prevent is vanishingly rare. In Alabama, argues the NAACP’s Legal Defence Fund, there was one documented case of voter-impersonation in the 12 years before the ID law was passed. The laws’ supporters, such as Mr Adams, dismiss these quibbles: “How much criminal activity is OK?”, he demands. Mr Merrill, in Alabama, says the state should always try to improve, just as its triumphant college football team constantly recruits new players.

If there were no other cause for suspicion, that perfectionist argument might wash. But there is, including—Exhibit C— the roster of implicated states. Several fea-

Still marching

ture growing minority populations, tightening political competition, or both. In 2008 Barack Obama won North Carolina by a whisker; Wisconsin and Virginia, two other swing states, are also involved. The history, like the geography, is fishy. As Richard Hasen of the University of California recounts, the tinkering began after the debacle in Florida in 2000, which showed that “in close elections, the rules matter”.

Mr Obama’s election gave it another impetus; the Republicans’ statehouse victories in 2010, and then the Supreme Court’s ruling, facilitated further spurts. This, alleges Mr Vargas, the Latino advocate, is “the status quo trying to hold on to its political power for as long as possible”.

After the end of history “Voting in the South,” says Mr Barber, “has always been about the issue of race.” If that remains true, and if election regimes cannot be assessed in isolation from history, practices that are permissible in one part of the country—New Yorkhas no early voting, for example—might indeed be deemed discriminatory in another. Occasional inopportune comments by bigoted politicians, such as the legislators in Alabama caught referring to black voters as “aborigines”, bolster that gloomy analysis. A milder judgment is that, these days, race is a proxy for partisanship, since minority Americans mostly vote Democratic, rather than a target in itself; though as Wendy Weiser of the Brennan Centre for Justice says, it is scant consolation for black people to be disenfranchised for their party allegiance rather than simply for their skin colour.

At the least, many of these reforms imply a wilful failure to understand the constraints of poverty, especially the rural, poorly educated sort. In Alabama applicants for a free voter ID must swear, on pain of prosecution, that they have no other valid kind. That, for some, is offputting, as is the paperwork required, in some states that provide such loopholes, to vote without an ID. Early voting, same-day registration and out-of-precinct voting are useful to people leading hard-pressed, sometimes disrupted lives.

In truth, though, as some activists acknowledge, these hurdles are not the only barrier to greater minority influence. Nationwide turnout was already low among Latinos and black youngsters—a disengagement that, in down-at-heel places such as Bullock County, is at once tragic and understandable. The possible closure of a nearby prison is a bigger preoccupation in Union Springs than the election.

“We don’t have any industries trying to knock the door down,” laments Saint Thomas, the mayor. “You just about got to beg ‘em.” Mr Poe of the NAACP offered free rides to Montgomery for anyone keen to get their ID there. No one, he says disconsolately, has taken him up on it. 7

The Economist May 28th 2016

United States 31 The campaigns

Heard on the trail

The Libertarian Party

Guns, weed and relevance WASHINGTON, DC

Gary Johnson could launch the Libertarians on a big third-party run

A

S THE likely presidential nominee of the Libertarian Party, Gary Johnson has a lot to be modest about; and he is.

“Everybody I meet seems to like me,” says the two-term former Republican governor of New Mexico. “But I’m a Libertarian, so doesn’t that denote there are some loose screws out there?” He leaves the question hanging.

Tiny, electorally trifling and obsessed with guns and weed, cherished emblems of its 11,000 members’ freedom, the party has never mattered in national politics. It is by some measures America’s third-biggest—yet not flattered by that comparison.

In 2012 Mitt Romney crashed to defeat with 61m votes; Mr Johnson, who ran for the Libertarians after failing to be noticed in the Republican primaries, won 1.3m. Yet he could be about to improve on that.

Mr Johnson and his running-mate, Bill Weld, a former governor of Massachusetts, are expected to emerge from the Libertarians’ convention in Orlando on 30th May with the party’s ticket. If so, he could feasibly launch the biggest third-party run since Ralph Nader won almost 3% of the vote for the Green Party in 2000—including 100,000 votes in Florida that may have cost Al Gore the presidency. Or he could do better; a poll by Monmouth University put Mr Johnson on 11% in a three-way race with Donald Trump and Hillary Clinton. That was especially creditable given how little he is known; he figured in almost no national polls in 2012. It has encouraged Mr Johnson to think he could register the 15% vote-share that would guarantee him in-

Lindsey Graham (Senator from South Carolina) “He’s a race-baiting, xenophobic, religious bigot.” December 8th 2015, CNN

Chris Christie (Governor of New Jersey) “A crisis for Donald is when his favourite restaurant on the Upper East Side isn’t open.” January 30th 2016

“We talked about national security, and told some jokes. [Trump’s] very cordial, he’s a funny guy, and he’s from New York.

He can take a punch.” May 12th 2016

“There is no-one who is better prepared to provide America with the strong leadership that it needs both at home and around the world, than Donald Trump.”

February 26th 2016

John McCain (Senator from Arizona) “I think he may owe an apology to the families of those who have sacrificed in conflict and those who have undergone the prison experience in serving their country.” July 20th 2015, MSNBC

Rand Paul (Senator from Kentucky) “Donald Trump is a delusional narcissist and an orange-faced windbag.” January 25th 2016, The Nightly Show

“You have to listen to people that have chosen the nominee of our Republican Party. I think it would be foolish to ignore them.” May 7th 2016, CNN

“I took a pledge when I ran for president to not run as an independent candidate and to support the Republican nominee. I stand by that pledge.” May 17th 2016, Breitbart.com

Bobby Jindal (former governor of Louisiana) “But you know why [Trump] hasn’t read the Bible? Because he’s not in it.” September10th 2015

Rick Perry (former Texas Governor) “Donald Trump’s candidacy is a cancer on conservatism, and it must be clearly diagnosed, excised and discarded.” July 22nd 2015

“I think electing Donald Trump would be the second-worst thing we could do this November, better only than electing Hillary Clinton.” May 8th 2016, Wall Street Journal

“I`m going to support him and help him and do what I can. He is one of the most talented people who has ever run for president I have ever seen.” May 5th 2016, CNN

clusion in this year’s televised debates.

With publicity, he could catch on. He has the accomplishments of a chest-beating conservative hero—he is a self-made millionaire, triathlete and razor-beaked deficit hawk; he vetoed 750 spending bills in New Mexico. He is also a sometime dope smoker (he resparked his youthful habit in 2005 to manage the pain from a paragliding accident), who comes across as almost goofily unaffected. He speaks in horror of the disdain many Americans show for Mexican immigrants—whom he calls “the cream of the crop”—as if it were borne of some crazy misunderstanding, rather than embedded nativist resentment and economic anxiety. Voters sick of political polish might like the mix: he really is authentic. Yet Mr Johnson’s main cause for hope is the unpopularity of the likely Republican and Democratic alternatives.

Around 60% of voters dislike Donald Trump and 55% Hillary Clinton. That should encourage more Americans to vote as freely of the old duopoly as they increasingly claim to be; 42% say they are independent voters, up from 30% a decade ago.

And the Libertarians’ voguish message of fiscal conservatism, social liberalism and anti-interventionism has something for the disaffected of both big parties. Compared with a straightforward Trump-Clinton match-up, the Monmouth poll suggested Mr Johnson could take 6% of the vote from Mrs Clinton and 4% from Mr Trump.

The particular unease of many Republicans with their presumptive candidate— along with their failure hitherto to launch a conservative rival to him—explains a surge of interest in the Libertarian confab in Orlando. After Mr Trump sewed up their nomination in Indiana this month, Google reported a 5,000-fold increase in online searches for Mr Johnson. He is not to all Republican tastes; Mr Trump’s most outspoken critics in the party tend to hold neoconservative views on security. Yet even they hope he might bring disenchanted Republicans to the polls in November, and thereby retain their support for Republican candidates in the coterminous congressional contests.

Mr Johnson rejects Mr Trump utterly: “There’s nothing about Donald Trump that 1

32 United States 2 appeals to me.” Yet he sounds most hope-

ful of picking up support from disaffected Democrats, especially followers of Senator Bernie Sanders, whom he says he agrees with on almost everything—including the evil of crony capitalism and virtues of pot—except the economy. Yet how would he woo them?

Mr Johnson’s suggestion is unconventional. On the basis that, he argues, with some support from surveys, Americans are more libertarian than they know, he would point them to an online quiz, “Isidewith.com”, to help them work out where they stand. “I say, “Take the quiz, and whoever you pair up with, I think you should knockyourselfout over them.” His own experience with the quiz, he sweetly relates, suggest he agrees with 73% of Mr Sanders’s proposals, 63% of Mrs Clinton’s and 57% of Mr Trump’s. 7

Hillary Clinton’s e-mails

Already indicted WASHINGTON, DC

The Democratic front-runner is mired in a scandal of her own nurturing

C

OULD Hillary Clinton’s bid for the presidency be undone by her unusual e-mail arrangements as secretary of state?

A report by an internal watchdog of the State Department, the inspector-general, into her use of a private e-mail account for official business, suggests it could be. The report, which was released on May 25th, does not allege Mrs Clinton broke any law: that would have stoked fears of a campaign-ending indictment by the FBI, which is also investigating the matter. Yet it raises concerns about her conduct and uncandid response to the scandal—upon which Do-

The Economist May 28th 2016 nald Trump, her unconscionable Republican rival, will now feast.

Ever since Mrs Clinton’s e-mail server became a matter of public debate last year, she has said she broke no rules. To the contrary, the State Department report says she was under an “obligation” to seek clearance for her e-mail system, did not, and it would have been denied if she had done, due to “security risks”.

Her e-mail rig was not a secret, exactly.

The report notes “some awareness” of it among senior diplomats. It points instead to the impunity with which Mrs Clinton’s affairs were handled. When two IT whizzes expressed fears that her e-mails might not be preserved, their boss “instructed the staff never to speak of the secretary’s personal e-mail system again.”

In Mrs Clinton’s defence, the report notes that the department has “longstanding, systemic weaknesses” in its recordkeeping. Colin Powell, Mrs Clinton’s predecessor but one, also used a private e-mail account and broke record-keeping rules.

Yet the report suggests he had more of an excuse; it was hard to send e-mails outside the State Department’s system in his time.

He also sent fewer e-mails than Mrs Clinton, for whom secrecy—not mere “convenience”, as she has claimed—seems to have been a motivating factor. E-mails included in the report show her fear that, if she adopted an official e-mail account as an aide had advised her to, her personal emails could be published: “I don’t want any risk of the personal being accessible”.

On the evidence available, that says a lot about the origins of this scandal. Out of a neuralgic concern for confidentiality, Mrs Clinton overrode rules that her advisers considered to be less important than they were. She was no doubt motivated by years of political smears (which Mr Trump, who has already suggested she may be a murderer, is now dredging up); her staff was lulled by the State Department’s his-

tory of laxity and supplication to its boss.

Yet if it may be possible to take a tolerant view of how this started, there is no excusing the mess Mrs Clinton has made of it. A more agile politician would immediately have recognised the scandal’s potential to exacerbate the poor trust ratings that are her biggest weakness. She would then have taken urgent measures to confess her carelessness, express remorse and make a fulsome display of handing over whatever materials the investigators required. Instead Mrs Clinton obfuscated, denied and watched the scandal grow. The most significant indictment to arise from it may well concern her skills as a politician. But with the latest polls giving Mr Trump a narrow lead, that is not at all reassuring. 7

Disability lawsuits

Frequent filers SANTA BARBARA

Laws meant to help the disabled have had unintended consequences

F

OR an inkling of how good intentions can go awry, consider Title III of the Americans with Disabilities Act (ADA).

Passed by Congress in 1990 with the laudable aim of giving the disabled equal access to places of business, it has been supplemented with new Department of Justice standards (in 2010, for example, the DOJ said that miniature horses can qualify as service animals). The hundreds of pages of technical requirements have become so “frankly overwhelming” that a good 95% of Arizona businesses haven’t fully complied, says Peter Strojnik, a lawyer in Phoenix. He has sued more than 500 since starting in February, and says he will hit thousands more in the state and hire staff to begin out-of-state suits.

Businesses that brave court instead usually lose. Lawyers need only show that a violation once existed—a bathroom mirror, stall partition, or sign improperly positioned can be enough, as is having handicapped parking marked with faded paint.

Violators must pay all legal fees. Mr Strojnik uses the money taken in to pay helpers, including testers who hunt for infractions and serve as plaintiffs, and puts the remaining proceeds into his charity, Advocates for Individuals with Disabilities. People should give attorneys like him who enforce the law a break, he says, and instead “be grumpy at Congress”.

The money machine has sped up in the past couple of years, with some plaintiffs now filing more than two dozen lawsuits a week, says Richard Hunt, a Dallas lawyer who defends businesses and teaches disability law at Southern Methodist Univer- 1

The Economist May 28th 2016

United States 33 Soccer flourishes

Kick turn NEW YORK

More and more Americans like watching people kick round balls

Paralegal paradise 2 sity. Small businesses typically settle for

$3,500 to $7,500. That’s a bargain compared to the cost of a court fight, Mr Hunt says, and, for the lawyer and plaintiff, good money for a few hours’ work.

California offers a bigger bonanza. The state’s Unruh Act awards a disabled plaintiff up to $4,000 for each time he or she visited, or wished to visit, an offending business. This increases the cost of losing a lawsuit, so California’s small businesses typically pay settlements of $15,000 to $20,000, says Tom Scott, head of the Sacramento branch of the National Federation of Independent Business.

Nearly all California businesses have at least one violation, perhaps of a state building code, says Marejka Sacks, a paralegal at Moore Law Firm in San Jose. Her team cuts businesses slackfor “the little minutiae stuff,” she says, but has still sued more than 1,000 since switching from criminal law to ADA infractions in 2009.

Proving that a violation has caused a handicapped person difficulty, discomfort, or embarrassment is “not a difficult threshold”, she says. Nineteen of every 20 businesses paid up to avoid trial.

Serial filers say they provide a valuable service because Congress did not fund a dedicated enforcement bureaucracy. Why do businesses think it’s OK to risk our safety for profit?, asks Eric Wong of the Disability Support Alliance, himself a wheelchair user. He says that those who think there are thousands of wasteful lawsuits share “the delusional rationalisations of serial ADA violators”.

What’s next? Omar Weaver Rosales, a Texas lawyer, has sued about 450 businesses in the past two years; more than 70% paid up to avoid a trial. But even more lucrative pastures are coming into view. In

D

ESPITE its name, the Copa America has never been played north of the Rio Grande before. On June 3rd the international soccer tournament kicks off in Santa Clara, California. Games will take place in ten cities across the country over the next four weeks. It is the latest effort to cement the sport into the mainstream consciousness. Soccer still lags behind America’s four leading sports: baseball, basketball, hockey and American football. But several measures suggest that the game is gaining ground.

Much of the hard running took place in the 1990s, when the successful hosting of the World Cup coincided with a surge of young players and the formation of Major League Soccer (MLS). According to a poll for ESPN, soccer has become the second-most popular sport for12-24 year olds, after American football, and is the standout leader among Hispanics of the same age. Last year soccer-playing among boys in high school grew more than any other sport, according to the National Federation of State High School Associations (perhaps capitalising on fears over the safety of American football, where numbers fell).

The success of the national teams, in particular the women’s side, has been a boon. Last year, the Women’s World Cup final attracted a domestic TV audience of 27m—roughly the same as the recordsetting college American football championship game in 2015. Until recently, the challenge had been to keep people interested between World Cups. A rise in the number of games from other countries that are broadcast live has helped. According to Stephen Master of Nielsen, which measures such things, there is now more live soccer available on American TV than in any other country.

Partly as a result, average attendances

at MLS games have grown by 56% since 2001. In the past five years they have risen 29%. More people go to MLS games than go to an NBA games or National Hockey League ones (though both basketball and hockey are played in smaller stadiums with higher ticket prices). When it comes to revenue, soccer is still a minnow: MLS generates just half the revenue of Japanese baseball and a tenth of what the NBA does.

There is also depth to this growth among fans. In May FC Cincinnati, a freshly minted team playing in the third tier (the United Soccer League, or USL), registered one crowd of more than 23,000. In 2015, newly formed New York City FC sold 15,000 season tickets before they had kicked a ball. The league is set to grow from 20 to 24 teams over the next two seasons, and one of the youngest, most eclectic fan bases of all American sports—52% of MLS fans are aged 18-34, the highest proportion of any professional sports league.

Viewing figures for MLS also have a long way to go before they can compete regularly with the big four. But TV audiences are growing (tying domestic fixtures in with English Premier League games, which attract larger audiences, has worked well) and networks see the potential, signing a $90m-a-year deal to 2022 for broadcasting rights.

Still, MLS has still not fully dispelled its image as a retirement home for clapped-out European stars. Only Sebastian Giovinco, a player for Toronto FC, can be considered a foreign star in his prime. With a new surge of spending on soccer in China, it may become even more difficult to attract stardust. America churns out more world-beating athletes than any other country, but none of them play soccer. Yet.

March a California judge ordered Colorado retailer Bag’n Baggage to pay $4,000 in damages and legal fees thought to exceed $100,000 because its website didn’t accommodate screen-reading software used by a blind plaintiff. Mr Rosales says extending ADA rules to websites will allow him to begin suing companies that use colour combinations problematic for the colourblind and layouts that are confusing for people with a limited field of vision.

The DOJ is supporting a National Association of the Deaf lawsuit against Harvard for not subtitling or transcribing videos and audio files posted online. As such

cases multiply, content may be taken offline. Paying an accessibility consultant to spot the bits of website coding and metadata that might trip up a blind user’s screen-reading software can cost $50,000 for a website with 100 pages. Reflecting on the implications of this, Bill Norkunas, a Florida disability-access consultant who was struck with polio as a child (and who helped Senator Ted Kennedy draft the ADA), says that removing videos that lack subtitles would deprive wheelchair users and the blind, who could at least listen to them. Mr Norkunas hopes that won’t happen, but reckons it very well might. 7

34 United States

The Economist May 28th 2016

Lexington Oh, Oklahoma What happens when voters distrust their politicians so much that they bind their hands

S

OME weeks ago Oklahoma’s teacher of the year for 2016, Shawn Sheehan, dined in Washington, DC, with counterparts from California and Washington state. The mood was jolly until the high-flyers, all finalists for national teacher of the year, compared salaries. When Mr Sheehan—a young teacher of mathematics and special education—revealed his pay, his table-mates “sort of went silent”. For in state rankings of teachers’ pay Oklahoma comes 48th. Washington’s teacher of the year has since been urging Mr Sheehan to move to the West Coast. “He’s been sending me house listings,” he says, ruefully.

Oklahomans dislike such stories. They are sternly conservative: God-fearing, tornado-lashed prairie folk, so proud of their mineral wealth that an oil well stands next to the State Capitol, where feebler types might plant flowers. They scorn big government—the state is in the bottom third for tax revenue per person.

But Oklahomans care about their public schools, which educate the vast majority of their kids, and which (notably via sport) are social anchors for many towns. So they wince when good teachers are lured elsewhere. Even now, as slumping oil and gas prices have been followed by a deep budget crisis, the Republican governor, Mary Fallin, says she wants to give teachers a raise, an ambition echoed by legislators from both parties. A poll last year found 98% of Oklahomans back higher classroom pay, dividing only over whether to raise salaries across-the-board, or on merit.

That consensus makes raising teachers’ pay a good test of basic governance. Alas, legislators negotiating a new budget have spent May failing it. Democrats blocked a scheme involving higher cigarette taxes, because they wanted some of the revenues for health care. Republicans introduced and withdrew a proposal to increase teachers’ pay while cutting their other benefits. Worse, with days left to fill a $1.3 billion hole in the budget, Republicans devoted long hours to further loosening gun laws, to arguing about transgender pupils in school bathrooms and to passing a law that sought to make performing almost all abortions a felony.

That attempt to criminalise abortion was certain to be struck down as unconstitutional in the courts. Governor Fallin vetoed the law, calling it ambiguously worded. The only doctor in the state senate, a Republican who personally opposes abortion, was crisper in his diagnosis, calling the proposal “insane”.

Budget negotiations ended without a pay rise for teachers (and indeed resulted in a 16% cut to higher education), so the matter is now in the hands of voters. A bipartisan group wants to ask them to increase education funding by adding a penny in the dollar to state sales taxes in November. Their ballot measure, State Question 779, is backed by a former Democratic governor, David Boren, and a group of business bosses and former members of Ms Fallin’s cabinet. It aims to raise $615m, enough for a $5,000 increase per teacher. Even supporters admit that sales taxes are a clumsy way to raise money, because the poor spend a larger share of their incomes on day-to-day shopping. Mr Boren, an old-fashioned centrist who is now president of the University of Oklahoma, calls sales taxes “regressive” and would have been “thrilled” if lawmakers had acted. Mr Sheehan, another backer of the initiative, worries about the impact on low-income families, though he argues that schools are often their best ladder out of poverty. The ballot initiative amounts to voters telling legislators: “you guys are not doing your job,” says the teacher, who is running as an independent for the state senate in November.

Mr Boren sees a problem of political culture. For 25 years both Democrats and Republicans have won elections in Oklahoma by promising tax cuts. In the 1990s voters amended the state constitution so the legislature can only increase taxes if super-majorities of three-in-four members agree, or if voters say yes in a referendum. After living through three boom-and-bust commodities cycles, the 75-year-old ex-governor fretted as he saw Republicans cut state income taxes twice, against a backdrop of surging oil production and revenues. “Oklahomans got sold on a free lunch,” says Mr Boren. Businesses wanted a free lunch too, he adds: demanding tax breaks and subsidies, while still expecting a welltrained workforce. Republicans do not wholly disagree. Senator Rob Standridge represents the district that Mr Sheehan is contesting, near Oklahoma City. Though Mr Standridge defends low tax rates, he laments that states get into bidding wars to woo employers: “We spend way too much on incentives.”

Bound and gagged The campaign behind the ballot initiative polled voters to ask if they would tolerate higher income, property or sales taxes to invest in education. Income taxes divided voters along partisan lines, with Republicans rejecting rises. As for property taxes, Oklahomans like them low—Mr Boren links this to their history as land-rich, cash-poor homesteaders. Most backed higher sales taxes. People tell Mr Boren that they like sales tax because “everybody pays it,” unlike fiddlier taxes that the rich can dodge.

The Oklahoma Council of Public Affairs, a smaller-government group that tried to block the measure in court, says Oklahoma cities could end up with some of the country’s highest sales taxes. It points to polls showing an option that Oklahomans like better: paying teachers by cutting tax credits for wind and renewable energies, and other corporate subsidies. But that risks clashes between special interests: scrapping tax breaks for wind energy is a priority for Oklahoma’s mighty oil and gas industry.

A narrow question of public policy—how to stop Texas and other neighbours pinching Oklahoma teachers—has exposed broad, not very cheering truths about democracy. Elected politicians have prospered by urging voters to distrust them. Voters duly bound legislators’ hands to limit government mischief. Now Oklahoma is struggling to deliver a policy with near-universal support. Hope that someone learns a lesson from all this. 7

The Economist May 28th 2016 35

The Americas

Mexico’s regional elections

Also in this section

The view from Veracruz

36 Bello: Chávez’s little blue book 37 An Anglo-Argentine rapprochement 37 A history of the Brazilian jeitinho

VERACRUZ

An electoral contest in a troubled state is a test for the country’s ruling party

V

ERACRUZ calls itself “four times heroic” to commemorate the occasions in the 19th and 20th centuries on which it resisted foreign assaults. The election campaign taking place in the port city on the Gulf of Mexico, and in the surrounding state of the same name, is less edifying.

Héctor Yunes Landa, the candidate of the ruling Institutional Revolutionary Party (PRI) for the governorship of the state, calls his rival, Miguel Ángel Yunes Linares, “a pervert, sexually sick”. He warns voters to “take care of the safety of your children.”

Mr Yunes Linares, who leads a coalition that includes the conservative National Action Party and the left-wing Party of the Democratic Revolution, denies reports that he belonged to a paedophile ring. He says his opponent, who is also his cousin, is waging a “dirty war”.

With 8.1m people, Veracruz is Mexico’s third most populous state. Its mix of cities and rural settlements, indigenous and non-indigenous folk—and its oil, farming and manufacturing—make it a microcosm of the country as a whole. It is also among the most troubled of the 12 states that will elect new governors on June 5th (most are also holding municipal elections, as is a 13th state). Veracruz’s economy has grown the least over the past five years (see chart).

It has a reputation for corruption. A federal auditor found irregularities in the use of 14 billion pesos ($1 billion) of federal money transferred to Veracruz in 2014, the highest level of suspect spending in Mexico.

Although the state is not especially viol-

ent by Mexican standards, it is perilous for journalists who inquire into allegations of corruption and ties between the government and organised crime. An estimated 18 reporters have disappeared or been murdered during the tenure of the current governor, Javier Duarte, who accuses journalists in turn ofconsorting with organised crime. Many are afraid to do their jobs.

Mr Duarte is loathed; his disapproval rating among veracruzanos stands at 83%, by one poll. Mr Yunes Linares has pledged to throw him in jail if he wins. Although the governor cannot run for re-election his unpopularity and the state’s poor eco-

Bruised Veracruz Mexico, state* GDP, average annual % increase Q4 2010-Q4 2015, %

0

1

2

3

4

5

6

Aguascalientes

PRI

Quintana Roo

PRI

Chihuahua

PRI

Hidalgo

PRI

Tlaxcala

PRI

Puebla

PAN

Zacatecas

PRI

Oaxaca

MC†

Durango

PRI

Sinaloa

PAN

Tamaulipas Veracruz Source: INEGI

Current governor, party

PRI PRI

*With gubernatorial elections on June 5th 2016 †Citizens’ Movement

nomic performance may bring to an end 80 years of unbroken rule by the PRI. Many Mexicans would see in that result a harbinger of the country’s presidential election in 2018. Mexico’s president, Enrique Peña Nieto, belongs to the same party as Mr Duarte and, like him, is widely blamed for corruption and lawlessness (though he is not quite as unpopular).

In Veracruz, voters may opt for neither ofthe brawling cousins and choose instead the candidate of the hard-left Morena party, Cuitláhuac García Jiménez. That would give hope to Morena’s populist leader, Andrés Manuel López Obrador, a twice-defeated presidential candidate who plans to run again in 2018. Those with a stake in Mexico’s stability will worry.

The state elections will not be a straightforward referendum on Mr Peña’s presidency. The PRI, which governed Mexico as a one-party state for most of the 20th century, runs nine of the 12 states being contested, some of them, such as Chihuahua, much better run than Veracruz. The party’s national leader, Manlio Fabio Beltrones, expects the PRI to win nine governorships, though perhaps not the ones it has now. In four states besides Veracruz the PRI has never been out of power. Regional issues will matter more than national ones in most places. But that does not mean that Mr Peña, who cannot run again in 2018, or Mr Beltrones, who may try to succeed him as president, will be able to shrug off losses in Veracruz or the other states where the 1 PRI now rules.

36 The Americas 2

The mud-fight in Veracruz shows why some voters are disenchanted with mainstream parties, but also why those parties continue to win elections. As its long rule of Veracruz suggests, the PRI remains a formidable machine, sometimes steamrollering legal norms as well as political opponents. A functionary in Veracruz of Prospera, a federal social programme, resigned on May 10th after he was caught on tape discussing how to buy votes for the PRI. “Normal democratic politics are not in place in the likes of Veracruz,” says Jesús Silva-Herzog, a political scientist at Tecnológico de Monterrey, a university.

The Economist May 28th 2016 The same can be said of some other states. In Oaxaca a tip-off led to the discovery this month of a warehouse packed with fridges, children’s bicycles and groceries, along with PRI campaign literature, apparently intended for distribution to voters. In Tamaulipas 52 candidates for municipal office have quit, saying they were threatened by gangs that back rival candidates. Such episodes help explain why, according to Latinobarómetro, a polling group, just19% of Mexicans are satisfied with democracy, the lowest level among the 18 Latin American countries surveyed.

Mr Peña is not a bruiser like Mr Duarte.

The president has taken big steps towards modernising Mexico, including opening energy and telecoms to competition and raising standards for state schools. And yet he cannot divorce himself entirely from the sleaze in Veracruz and other states. As a PRI man, he profits from the sharp-elbowed electoral tactics of its operatives. In 2018, the machine will work just as hard for the party’s presidential nominee as it has in the state elections.

Mr Peña’s standing with voters has been hurt by his mishandling of the murder of 43 students in September 2014, a crime that shocked Mexicans; by a recent 1

Bello Chávez’s little blue book Outsiders should push Nicolás Maduro to hold a recall referendum this year

T

IME was when Hugo Chávez was immensely proud of the new constitution he gave Venezuela in 1999, at the start of his 14 years of rule. He had it printed in a little blue book, and would hand out copies to everyone he met. Now the government of Chávez’s chosen successor, Nicolás Maduro, is tearing it up.

That process began after an election in December in which the opposition won control of the National Assembly with 7.7m votes (56% of the total). That is a bigger (and fresher) mandate than Mr Maduro’s own. The regime has illegally neutered the assembly. The supreme tribunal, packed with chavista puppets, threw out an amnesty law for political prisoners approved by the assembly, which has the constitutional right to grant one. The assembly has twice used its constitutional power to reject Mr Maduro’s decrees granting himself emergency powers. The president has pressed on regardless. “It’s a matter of time” before the assembly “disappears”, he said this month.

Article 72 of the constitution declares that all elected officeholders are subject to recall via referendum after the halfway point of their terms. This article is part of Title 4, on political rights. Yet this month Mr Maduro, who won a narrow and disputed victory in a presidential election in April 2013, said that the recall referendum against him, which the opposition demands, was merely “a constitutional option”, not an “obligation”. “There won’t be a referendum” this year, insisted Aristóbulo Istúriz, the vice-president. The timing matters. If the president is recalled in year four of his term, a new election follows; if it is later, the vice-president, who is appointed by the president, serves out the term. The electoral authority, which in practice acts as a branch of the government, is stalling the referendum process.

Why is Mr Maduro ripping up Chávez’s little blue book? Venezuela is in desperate straits, because of the fall in the oil price and years of mismanagement. As it struggles to avoid a debt default, which would cut off credit to the oil industry, Mr Maduro’s government has applied a python squeeze to imports. Coca-Cola this week announced it would halt production in the country because of sugar shortages. Many Venezuelans spend hours queuing for the scarce food available at officially controlled prices. Patients are dying needlessly because of shortages of drugs.

The government knows it would almost certainly lose a referendum. Datanalisis, a pollster, finds that 64% want Mr Maduro to go. Electoral defeat would destroy the founding myth of chavismo: that it embodies a popular revolution. Mr Maduro would prefer to be pushed out by a military coup, which would make him a victim, argues Henrique Capriles, the opposition presidential candidate in 2013. Many analysts believe that the regime’s strategy is to hang on until 2017, in the hope that the oil price will continue its recent partial recovery and/or with a view to replacing Mr

Maduro but keeping power.

In ignoring the demand for political change the regime is “playing with fire”, Margarita López Maya, a Venezuelan political scientist, told Prodavinci, a website.

On the streets, desperation is mounting.

Incidents of looting rose in March and April, to more than one a day. Although the security forces usually react swiftly, on May 11th a wholesale market in Maracay, about 80km (50 miles) west of Caracas, was looted for three hours.

Mr Maduro’s strategy depends on military support. Many officers are involved in business, legal and illegal. They and the president are “hostages to one another”, says Ms López. Some in the army are worried. Two retired generals who were close to Chávez recently called for the referendum to take place.

To deny Venezuelans a recall referendum in 2016, wrote Luis Almagro, the secretary-general of the Organisation of American States (OAS), in an open letter to Mr Maduro this month, “would make you just another petty dictator”. Changes of government in Argentina and Brazil have deprived Mr Maduro of allies. Several countries in the region are calling for dialogue in Venezuela. But Mr Maduro has shown he is not interested in talks he cannot control. A diplomat from the Vatican this month cancelled a trip to Venezuela.

According to a source in Caracas, that was because Mr Maduro rejected a five-point plan for mediation by the pope.

Mr Almagro has proposed invoking the OAS’s Democratic Charter, which could lead to Venezuela’s suspension from the organisation. He may not have the votes to make that happen. But absent a referendum, it is the right course. Latin America’s tacit acceptance of unconstitutional government in Venezuela sets a dangerous precedent.

The Economist May 28th 2016

The Americas 37

2 double-digit rise in the number of homi-

cides; and by a conflict-of-interest scandal related to the building of his wife’s house.

The PRI’s failure to approve a draft anti-corruption bill in Congress in April has opened him, and the party, to accusations that the PRI is blasé about graft.

In the state of Nuevo León last year Jaime Rodríguez Calderón, better known as “El Bronco”, became the first governor to be elected without the support of a political party. Next month veracruzanos may elect Mr García, the left-wing Morena candidate, who rails against corruption in the parties backing the Yunes cousins. In 2018 voters may turn on the same parties’ candidates in the presidential election. That could let in mavericks, such as El Bronco, or even provide Mr López Obrador with an opportunity to carry out his dangerous programme of left-wing anti-reform. Veracruz, Mexico’s microcosm, may prove to be a model for its future politics as well. 7

Anglo-Argentine relations

Ending estrangement BUENOS AIRES

A new start for an old relationship

W

ITH its green bell tower and royal coat of arms, the Torre Monumental in Buenos Aires would not look out of place in a British market town. The 60-metre (200-foot) Palladian clock tower was a gift from the city’s British community to mark the centenary of Argentina’s 1810 revolution (though it was completed in 1916).

On May 24th this year around 200 people gathered to commemorate its centenary.

The celebration comes at a rare moment of warmth in Anglo-Argentine relations. Argentina’s newish president, Mauricio Macri, has reasserted his country’s claim to the Falkland Islands (known in Argentina as the Malvinas), which belong to Britain. But, unlike his pugilistic predecessor, Cristina Fernández de Kirchner, he wants to co-operate with Britain on such areas as trade and fighting drug-trafficking.

Argentina’s foreign minister, Susana Malcorra, met her counterpart in London on May 12th, the first such meeting since 2002.

Flights to the Falklands may resume after a 13-year interruption.

A hundred years ago Britain and Argentina were complementary economic superpowers. Britain built Argentina’s railway, which helped make Argentina one of the world’s ten richest countries, and bought 40% of its exports, mainly beef and grain. In 1914 Harrods, a fancy department store, opened its first overseas branch in Buenos Aires.

Don’t chime for me, Argentina Signs of this former commercial camaraderie are everywhere. Red post boxes appear on street corners. Football, the national sport, is an English invention, as are some Argentine teams. The original Newell’s Old Boys, Lionel Messi’s first club, were the pupils of a Kent-born teacher.

Posh porteños (Buenos Aires residents) play cricket at the Hurlingham Club.

The Falklands war, triggered by Argentina’s invasion of the islands in 1982, ended the bonhomie. Signs of Britishness were expunged. Bar Británico, once frequented

by British railway workers, changed its sign to read Bar tánico. The Torre de los Ingleses became the Torre Monumental.

Diplomatic relations were restored in 1989 but Ms Fernández and her late husband, Néstor Kirchner, who was president before her, interrupted the rapprochement. In 2012 Argentine veterans broke into the tower. Now the city government wants to repair the damage. Mr Macri hopes to do the same for Argentina’s battered relationship with Britain. 7

Brazilian culture

Way, José SÃO PAULO

A guide to cutting corners

B

RAZILIANS delight in Portuguese words that seem to have no equivalent in other languages. Saudade is yearning for an absent person or a place left behind. Cafuné is the act of running one’s fingers through a lover’s hair. More newsworthy is jeitinho, a diminutive of jeito (“way”). It is a way around something, often a law or rule.

The impeachment of Dilma Rousseff, an unpopular president who has not personally been accused ofserious wrongdoing, is a jeitinho around the constitution. (Many of the politicians who voted to impeach her are themselves indefatigable explorers of such byways, for example around cam-

paign-finance laws.)

Jeitinho, which has connotations of ingenuity as well as illegality, is a marker of national identity, says Livia Barbosa, an anthropologist. Two-thirds of Brazilians confess to seeking out such shortcuts, according to a survey conducted in 2006 by Alberto Almeida, a political scientist. Daily life is criss-crossed with them. A restaurateur offers policemen a packed lunch to entice them to patrol his street, saving 10,000 reais ($3,000) a month in private-security fees. Laranjas (“oranges”) act as cut-rate shell companies, hiding business activities from taxmen and investigators.

To spare busy students from having to accept internships, required for many university courses, professors approve fictitious ones, complete with made-up reports. Brazilians bring along children or old people to jump queues at banks, clinics and government offices; some parents lend out their children for that purpose.

The material world has its own sort of jeitinhos, jury-rigged contrivances called gambiarras. An iron could serve as a skillet; a sawed-off styrofoam cup, affixed to a fork, becomes a spoon.

Keith Rosenn, a legal scholar at the University of Miami in Florida, points out that in the parts of Latin America governed by Spain rule-bending was tolerated. Charged with executing laws ill-suited to local conditions, colonial administrators could tell the king, obedezco pero no cumplo (I obey but do not comply), without fear ofpunishment. Though Portugal’s monarchs offered their Brazilian “captains” no such leeway, they took it anyway. Hence, the resort to jeitinho. Modern laws are no more sensible.

Brazil passed more than 75,000, many of them pointless, in the ten years to 2010.

More than half of Brazilians think there is little reason to comply with many of them.

Some scholars think that Catholics, tempted to regard confession as an alternative to compliance, are especially prone to jeitinho-like behaviour. Others suggest that mestiço (mixed-race) societies like Brazil’s are liable to be flexible, about the law as much as ethnicity. Perhaps inequality plays a role: the rich and powerful flout the law, so why shouldn’t ordinary folk?

That may be getting harder, and not just for politicians caught up in the judiciary’s unrelenting investigation into the bribery scandals surrounding Petrobras, the statecontrolled oil company. Nowadays, cameras rather than police officers enforce speed limits. E-Poupatempo (e-save time), an internet portal set up by the state of São Paulo, expedites such tasks as filing police reports. It allows little scope for jeitinho. Roberto DaMatta, an anthropologist, thinks Brazil may be moving towards Anglo-Saxon norms, in which laws “are either obeyed or do not exist”. If that happens, the satisfaction many Brazilians will feel may be tinged with saudades. 7

The Economist May 28th 2016 39

Middle East and Africa

Also in this section 40 The campaign against Islamic State 41 Avigdor Lieberman returns 41 Tanzania’s impulsive president 42 Africa’s new Jews

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

Iranian politics after the nuclear deal

Who’s in charge?

TEHRAN

The supreme leader is clipping the wings of the reformist president

A

BOVE the grimy car-choked streets of Tehran, Iran’s down-at-heel capital, a new poster campaign is under way. Beside the brooding black-turbaned features of Iran’s supreme leader, Ayatollah Ali Khamenei, slogans extol the virtues of the “resistance economy”. The regime, it seems, is not ready to let go ofthe isolationist days of Iran’s worst confrontations with the West.

Anyone who hoped that the signing last July of a nuclear deal between Iran and six world powers would strengthen the hands of the country’s reformists at the expense of the religious conservatives is starting to think again. The deal, which Mr Khamenei had been persuaded would boost a stagnant economy (see chart) by ending most international sanctions and reintegrating Iran into the global financial system, has so far fallen far short of what was hoped. The backlash has begun.

Iranian oil exports have, it is true, grown by 60% since the formal lifting of sanctions in January. Iranian and Western trade delegations scurry back and forth.

But Iran is struggling to repatriate its earnings, and to turn its memoranda of understanding into contracts. Although John Kerry, the American secretary of state, insists the way is open for legitimate trade with Iran, Treasury officials say any dealings that “touch” America—for instance by trading with Iran in dollars—risk falling foul of America’s remaining sanctions if they involve entities linked to the army or the Revolutionary Guards. Given the opacity of Iran, that might mean any sizeable firm.

Without cast-iron assurances big banks, spooked by the gigantic fine of $9 billion levied on BNP-Paribas in 2014, are steering clear. SWIFT, the global bank transactions network, has been reconnected to Iran, but remains dormant—“a newly built highway no one is using”, says an Iranian official.

Visitors to Iran still have to bring large wads of cash, since international credit cards do not work there.

Iran-minded fund managers, jubilant a year ago when an outline of the nuclear deal was first settled, now lament the lack of business. American investors visiting Tehran will not even leave their business cards for fear ofpossible repercussions. Despite Iran’s stability in a volatile region, its educated population, its well-developed road network and its potential as a regional hub, most Western companies continue

Brought to its knees Iran Oil production

GDP % change on a year earlier

Barrels per day, m

5

15

4

10

3

* 5

2

0

1

5

+ –

0

10 2000 02

04

Sources: EIA; IMF

06

08

10

12

14 15 *To October

to regard it as toxic. Few expect any change this side of the American elections, and perhaps for many months thereafter.

Mr Khamenei has seemingly turned on the government of President Hassan Rohani. Mr Rohani had reckoned the agreement would rapidly attract $50 billion worth of foreign investment, see funds frozen by foreign governments speedily released and spur growth to 8% a year. “We thought we would revive relations with the banks immediately after the deal,” says the central bank’s governor, Valliollah Seif.

Many businessmen echo the supreme leader’s derision: “How come they didn’t negotiate the process of financial reintegration—which banks would transfer the frozen assets, how much and when?” asks a market analyst, aghast. Mr Khamenei’s advisers level accusations of incompetence, and suspect Mr Rohani has fallen into an American trap.

The supreme leader is seeking to rein in the president. Some of Mr Rohani’s planned visits abroad, including to Belgium and Austria last month, have been cancelled at the last minute. “I urge you to come and see for yourself,” said Mr Seif, wooing investors at a conference in London earlier this month. But Westerners whom the president’s office has invited to Iran find their meetings blocked by the supreme leader’s men. Puncturing public hope of an end to revolutionary isolation, Mr Khamenei recently criticised the teaching of English.

Mr Khamenei is also resorting to force.

“Don’t be bashful,” he recently exhorted some 7,000 undercover police mobilised to uphold puritanical codes—even though the country’s mores are closer to those of Central Asia than the sex-segregated Arab world. (“White marriage”—the term for unmarried couples living together—is increasingly commonplace.) A fresh catch of activists has been put behind bars, including journalists, human-rights monitors and 1

40 Middle East and Africa 2 models who had appeared on social me-

dia unveiled. “The empire,” says a diplomat in Tehran, “is trying to strike back.”

Mr Rohani refuses to buckle. Emboldened by the conviction that he represents the popular mood, the president these days sounds more like an opposition leader, for all that he is a former head of the National Security Council and an Islamic clergyman. Along with his vice-president, he distances himself from talk of the “resistance economy”; he insists on the virtues of English and of pivoting towards global economic engagement. This means news bulletins can be schizophrenic. Headlines celebrate the latest trade deals alongside the supreme leader’s fulminations against Western plans for “colonialist inculcation”.

It is, however, hardly an even fight.

Beyt-e-Rahbar, the supreme leader’s headquarters, commands the armed forces, the 128,000-strong Revolutionary Guard Corps (IRGC), the networks of spies, the vast state-owned firms that dominate the economy, the judiciary, the sprawling state media and the bodies that vet and veto elected bodies. Presidential decisions are diluted or simply ignored by civil servants appointed by Mr Rohani’s predecessors.

Even the cabinet is a coalition, including ministers wary of privatisation.

Some in Mr Rohani’s camp think little will change before Mr Khamenei dies or retires (he is 76, and thought to suffer from prostate cancer). Even then things might not improve. This week came the news that a veteran conservative from Tehran, Ayatollah Ahmad Jannati, has been appointed as the head of the Assembly of Experts, which will pick the next supreme leader when the moment arrives.

“Mr Rohani believes in economic liberalisation, but it doesn’t percolate down the pyramid,” says a member of Iran’s chamber of commerce. And for all Mr Rohani’s success in sharply increasing the number of reformist parliamentarians, the president still lacks a majority in the Majlis following elections held in February and concluded with run-offs in April. Some 80-85 independents hold the balance of power, and may bend as much towards Mr Khamenei as Mr Rohani. When your correspondent visited parliament recently, a preacher was giving sermons about the dangers of English spies.

Still, there are a few hopeful signs: three-quarters of the fractious old parliament lost their seats, including Gholam Ali Haddad-Adel, a veteran loyalist and a close relative of Mr Khamenei. The clerical contingent collapsed to 6%, half that of the last election in 2012 and just a tenth of its strength in the first post-revolution election in 1980. For the first time women outnumber clergymen in the Majlis.

Mr Khamenei has won every power struggle he has faced, including with Mr Rohani’s predecessors as president, the

The Economist May 28th 2016 hardline Mahmoud Ahmadinejad and the reformist Muhammad Khatami (whose name he still bans from appearing in print). But the leader seems crankier than before. Mr Rohani enjoys the support of Ayatollah Ali Akbar Hashemi Rafsanjani, the veteran kingmaker. After the latest testing of ballistic missiles, timed to undermine one of Mr Rohani’s trips abroad, Mr Rafsanjani tweeted that Iran would be better engaging in dialogue than conducting missiles tests. “Those who say the future is in negotiations not missiles are either ignorant or traitors,” snapped back an irked Mr Khamenei.

So bad have things become that many observers now wonder whether Mr Khamenei will let Mr Rohani stand for a second term next year: his hand-picked Guardian Council could decide to bar him.

Mr Khamenei’s problem is that there is no obvious alternative. For want of anyone more like-minded, he is healing his rift with Mr Ahmadinejad, perhaps hoping that the ex-president can recover his populist touch. Although Iran’s middle class blames Mr Ahmadinejad for squandering the money that rolled in during the oil-

boom years, poor Iranians remember a time of generous welfare handouts and the reconstruction of Shia shrines, like Qom’s opulent Jamkaran. “When he goes walkabout in the provinces, Ahmadinejad is ten times more popular than Rohani,” insists Hamid Reza Tareghi, a confidant of Mr Khamenei who derides Mr Rohani’s supporters as counter-revolutionaries.

Qassem Suleimani, the head of the IRGC’s foreign legion, the Quds force, has been mentioned as another possible candidate. He is popular among reformists as well as hardliners, having led the fight against the Sunni jihadists in Iraq and Syria. But entering politics might cost the Revolutionary Guard its most popular leader.

The electorate itself may lose interest.

Though Iranians voted in droves in the last election, Mr Khamenei’s recent actions demonstrate the limits of the ballot box in determining Iran’s course. Nor does the prospect of change from within inspire much hope. Down an alley of Tehran’s bazaar, a wizened peddler sells tea from a cart and compares the Shah’s reign with the current incumbents. Forget the people, he says, this lot struggle to rule themselves. 7

The campaign against Islamic State

Fallujah, again

Why retaking the jihadist stronghold has become a priority

F

ALLUJAH is a place with bad memories for the American soldiers who served in Iraq. Two battles in 2004, the second of which was the bloodiest of the whole war, confirmed it as the stronghold of the insurgency that arose to challenge the American occupation. It was also the first big city to fall to Islamic State (IS) at the outset of its rampage across Iraq in 2014. Now there is to be a third battle of Fallujah. On May 22nd Iraq’s prime minister, Haider al-

Will the plan survive contact with the enemy?

Abadi, declared that an offensive to retake the city, which lies only half an hour’s drive west of Baghdad, had begun.

For the American-led coalition fighting IS, the decision to go for Fallujah makes little military sense. The priority remains wresting back Mosul, Iraq’s second-biggest city, which fell to IS two years ago. Preparatory operations are well under way, although few believe that the security forces will be ready to move in before the end of1

The Economist May 28th 2016

Middle East and Africa 41 Israeli politics

TURKEY SYRIA

Mosul dam

Sinjar

Mosul

He’s back!

IRAQI KURDISTAN Erbil

Makhmour

JERUSALEM

Avigdor Lieberman returns to government, more powerful than ever

Kirkuk Baiji Euphrates

I

R

A

Q

Tikrit Samarra Tigr is

Fallujah

IRAN

D I YA L A

Baghdad 100 km

Ramadi

Area of Islamic State control (May 23rd 2016) Source: Institute for the Study of War

2 the year. The Americans fear that Fallujah

will become a distraction that will delay the assault on Mosul even further.

Though the military logic is dubious, there are good political reasons for Mr Abadi’s announcement. His feeble government has endured an even more than usually torrid few weeks. Twice since the end of April mobs loyal to Muqtada al-Sadr, a turbulent cleric and militia boss, have breached the heavily fortified “green zone” and ransacked parliament in protest against corruption and sectarianism.

Meanwhile, the security situation in Baghdad has steadily worsened with a series of bombings carried out by IS against Shia areas of the city. On May 18th IS boasted that it had killed 522 Baghdadis in a month.

Mr Abadi had to be seen to be doing something. According to Michael Knights, an Iraq expert at the Washington Institute for Near East Policy, it is unlikely that the IS bombing campaign is being orchestrated from Fallujah, which has been tightly sealed off for months. It is more plausible that the bombs are being brought in from Diyala province to the east and from the south along the Tigris river. But Fallujah is still an irritant that can and probably should be dealt with.

Mr Knights says that the Fallujah offensive ought not to delay the retaking of Mosul. The forces in the north will largely be regular army divisions retrained by the coalition, and Kurdish peshmerga fighters.

The Fallujah operation depends on socalled Popular Mobilisation Units, mainly Shia militias, most of which are supported directly by Iran, and local police. The spearhead, as with the retaking of Ramadi last December, will be elite counter-terrorism units backed up by coalition air power.

It looks probable that Fallujah will be back in government hands before long.

That its retaking will have any effect on the IS bombing campaign in Baghdad is less likely. The Americans say that as IS loses territory, it is inevitably returning to its old terrorist ways. That is not much comfort to the city’s long-suffering inhabitants. 7

E

VER since his fourth election victory in March 2015 Binyamin Netanyahu has been trying to broaden his coalition, which, with only 61 members, had the slimmest of majorities in Israel’s 120-member parliament. For most of the past year he has held on-and-off talks with the leader of the centre-left Zionist Union, Yitzhak Herzog. But last week, as the negotiations hit a snag, the prime minister astounded the country by concluding a deal with Avigdor Lieberman (pictured left), the leader of Yisrael Beitenu (Israel is Our Home), a right-wing nationalist party.

The renewed alliance with Mr Lieberman, a former foreign minister, who has repeatedly fallen out with Mr Netanyahu and who recently called him “a liar and a fraudster” and accused him of being incapable of making decisions, shows the lengths the prime minister is prepared to go to preserve his rule. In return for bringing his five Knesset members into the coalition, Mr Lieberman will be appointed defence minister, traditionally the most important job in Israel after the prime minister’s. He is also getting 1.4 billion shekels ($360m) to boost pensions for low-income retirees, mainly immigrants from the former Soviet Union, the Moldovan-born Mr Lieberman’s core constituency.

Another concession to coalition partners agreed upon this month was the decision to continue public funding for ultraOrthodox schools that do not teach basic secular subjects, including maths and English. This move, which by the end of the decade could deprive as many as 20% of Israeli schoolchildren of basic skills, was a demand by the “Haredi” parties, Shas and United Torah Judaism, who together are represented by 13 members of Mr Netanyahu’s coalition.

The deal with Yisrael Beitenu precipitated the resignation of the well-respected defence minister Moshe Yaalon, not only from the ministry, but also from the Knesset, citing “difficult disagreements on moral and professional matters” with Mr Netanyahu and attacking the “extreme and dangerous elements that have taken over Israel and the Likud Party”.

Mr Yaalon, a former general, had recently clashed with the prime minister over military criticism of an increasingly antiArab atmosphere in parts of Israeli society.

Mr Yaalon has now joined a growing group of disgruntled former ministers sworn to removing Mr Netanyahu. This

Get ready for fireworks club of rebels, which until recently included Mr Lieberman himself, may prove a bigger threat than the official opposition to Mr Netanyahu’s rule. Mr Herzog, who failed to close a deal largely because of fears that his party would not go along with him, is facing calls for an early leadership election.

Mr Lieberman is hardly a safe pair of hands. In the past he has threatened Egypt (saying he would bomb the Aswan Dam on the Nile) and called for the beheading of “traitors” among Arab citizens of Israel.

He has said that, if named defence minister, he would order the killing of the Hamas leader, Ismail Haniyeh, within 48 hours if he did not accept Israel’s demands for the return of the bodies of two Israeli soldiers killed in Gaza in 2014. Mr Netanyahu may not get the stability he so craves. 7

Tanzania

Government by gesture DAR ES SALAAM

A president who looks good but governs impulsively

W

HEN opening parliament after his election last year, Tanzania’s president, John Magufuli, repeated a campaign promise: parents would no longer have to pay for secondary education. “And when I say free education, I indeed mean free,” he assured MPs. This year the government started expelling foreign workers without proper permits, including thousands of Kenyan teachers. Schools that were already straining to cope with a huge influx of new pupils are now at breaking point.

The president, nicknamed “the Bulldozer”, has delighted Tanzanians with an anti-corruption drive and public displays of austerity. Within weeks of taking office last November he had banned all but the most urgent foreign travel for government officials. He spent Tanzania’s Independence Day picking up litter by hand. He has 1

42 Middle East and Africa 2 fired officials suspected of incompetence

or dishonesty and purged 10,000 “ghost workers” from the public payroll. However, he has a worrying tendency not to think things through.

Take, for example, his efforts to extract more tax from people using the port at Dar es Salaam, a gateway for the region. He has enforced VAT on the costs of moving goods that arrive at the port overland to neighbouring countries such as Zambia and Malawi. Shipping firms have immediately switched routes and now unload in Kenya, Mozambique or South Africa, leaving a once bustling harbour almost empty.

Mr Magufuli remains popular with ordinary Tanzanians. Twitter users at #WhatWouldMagufuliDo celebrate his thriftiness by suggesting amusing things he might approve of, such as wearing a curtain instead of buying new clothes and heating showers with a candle. The president has mended fences with neighbours, too. In April Uganda decided that a $4 billion oil pipeline would go through Tanzania, scrapping a previous agreement with Kenya. A month later Rwanda decided to build a railway to Dar es Salaam instead of the Kenyan port of Mombasa.

However, some Tanzanians, especially businessfolk, are having doubts about Mr Magufuli’s flair for the dramatic. When he thinks a public official has misbehaved he fires him on the spot, rather than following due process. More important is that he shows little interest in wider reforms aimed at spurring economic growth. If anything he seems to be making it tougher to invest in a country that already scores dismally on the World Bank’s ease ofdoing business index, where it is ranked 139th out of189. “What Africa needs is strong institutions, not strong men or women,” says Zitto Kabwe, an opposition leader.

Surprisingly Tanzania even makes it hard for honest companies to pay their taxes (there it ranks 150th). Little wonder many less scrupulous ones don’t bother: last year fewer than 500 companies contributed an astonishing 43% of government revenues. Many others paid nothing.

Instead of addressing these deeper

The Economist May 28th 2016 Reading the Torah in Abuja

Who wants to be a Jew? LAGOS

The unlikely spread of Judaism in Africa

A

S THE sun sets on a Friday in a smart new suburb of Lagos, Harim Obidike dons his kippah and opens up a prayer book. It is the start of shabbat, the Jewish holy day, and as he croons through the psalms, a gaggle of youngsters sing along.

“We are Israelites,” he says after bread has been broken and the candles lit.

Nigeria is a devout country split loosely between a Muslim north and a Christian south: two halves which were brought together by colonialists and still butt heads today. A couple of decades ago, modern Judaism was almost unheard of. But this household is one of a growing number that are taking to the Torah. In Abuja, the capital, there are at least four small communities of Igbospeakers that have opened synagogues.

(Jews joke that every town needs at least two so that members can hold a grudge, and refuse to attend one of them.) In one, on the outskirts of the city, there is a gospel lilt to the songs: members taught themselves to read Hebrew and then had to make up the tunes, says one.

It might seem odd that people would sign up to join a small faith whose members have suffered centuries of oppression. Yet Uri Palti, Israel’s ambassador to Nigeria, reckons there are more than 40 such communities across the country.

Daniel Lis, an academic, thinks there may be thousands of Nigerians who practise Judaism. Millions more of the Igbo tribe believe that they are descended from biblical Israelites. Across Africa as a

whole there may be thousands more self-declared Jews. One community in eastern Uganda, the Abayudaya, adopted the faith almost a century ago. Its rabbi was recently elected the country’s first Jewish member of parliament.

Yet the embrace by these communities of the laws of Moses has not been warmly reciprocated by the Orthodox establishment in Israel. Unlike proselytising religions such as Christianity, the guardians of Orthodox Judaism go out of their way to make conversion difficult, insisting on a two-year programme of study and lifestyle changes.

Still, officialdom is shifting. Israel’s Jewish Agency last month recognised the Abayudaya as Jews, meaning that they are allowed to emigrate to Israel. There is a precedent. Since the 1980s more than 90,000 Ethiopian Jews (known to some as Falashas) did so after Israel’s rabbis accepted them into the fold.

Such a stamp of approval seems a little less likely in the case of Nigeria.

Some fear it would open Israel’s gates to thousands of economic migrants. Yet this does not trouble the likes of Mr Obidike.

Nigeria’s Semites argue that they are descended from one of Israel’s lost tribes and that cultural similarities such as circumcision are proof of their pedigree.

Others at his synagogue do not worry much about officialdom’s response. “We are Jewish,” says one old lady who switched from Catholicism. “Whether you are recognised or not is no matter.”

structural issues Mr Magufuli has continued to live up to his nickname of “Bulldozer”: one foreign firm was given seven days to settle a $5m bill, says its boss. The country’s revenue authority then took the money directly from its bank account. By con-

trast, the government is painfully slow to pay its own bills: it still owes the same company $30m. Accia Mining, a gold producer, is owed $98m in VAT rebates—effectively an interest-free loan to the government. “The country has become totally uninvestable,” says a bigwig at a privateequity firm with holdings across Africa.

“You pay your taxes for five years and have the returns to prove it and then some guy arrives with his own calculation and says you haven’t paid your tax.”

Mr Magufuli’s zeal may be admired, but his party, which has ruled Tanzania since independence, is thuggish and undemocratic: it suppressed dissent during the elections last year and then cancelled a vote held in Zanzibar after the opposition probably won it. Frustrated, America suspended $472m of aid. The Bulldozer merely harrumphed that Tanzania would soon no longer need aid and told the revenue authority to squeeze even harder. 7

SPECIAL REPORT M I G R AT I O N May 28th 2016

Looking for a home

SP EC IA L R EPO R T MIGRATION

Looking for a home The migrant crisis in Europe last year was only one part of a worldwide problem. The rich world must get better at managing refugees, says Tom Nuttall LIKE COUNTLESS STUDENTS of German before him, Ahmed is struggling with his verb placement. Eager to learn, he listens patiently as the earnest volunteers from Über den Tellerrand kochen (Cook Outside the Box), a Berlin-based outfit that began by offering refugees a space to prepare food and has since branched out into language classes, explain the fiendish intricacies of the grammar. But before long they have moved on to the difference between Sie and Du, and Ahmed is floundering. “I love the German people,” he says later. “But I just can’t speak their language.”

That is not his only problem. Deposited by Germany’s refugee office in Hoppegarten, a distant suburb of the capital best known for horseracing, Ahmed, a 24-year-old Syrian refugee, cannot afford to commute to Berlin proper. Even if he could, he might still find it hard to get a job, though as a refugee he has full access to Germany’s labour market. A barman by training—he claims to mix a killer mojito—Ahmed would face a lot of competition in job-poor Berlin, and his lack of German is a handicap. It is also hindering his search for accommodation closer to town, which, within reason, the state would pay for. For now, it seems, he is stuck.

Ahmed arrived in Germany last November, joining hundreds of thousands of Syrians and other asylum-seekers on the migrant trail via Turkey, Greece and the Balkans. Like many of his compatriots, he had fled not Syria itself but Lebanon, where he and his family had been leading a clandestine life for years, safe from harm but struggling to get by and unable to return home. As his story suggests, Germany (along with several other European countries) faces a huge challenge integrating its newcomers, most of whom arrived with few language skills or qualifications, into its labour market and wider society. That will take time, resources and political capital. In some countries it will test assumptions about welfare, housing and employment.

But last year’s drama was also a sharp reminder to Europe that it cannot insulate itself from the troubles of its wider neighbourhood. For years Syrian refugees had been building up in Turkey, Lebanon and Jordan, not to mention the millions displaced inside the country itself. Of the estimated total of 13m displaced by the war (7m inside Syria, 6m outside), around 1m have gone to Europe. Lebanon now hosts 1.07m registered Syrians (the total number is closer to 1.5m), a staggering burden for a country of 4.5m. In Jordan 1.3m refugees swallow up one-quarter of public spending. Governments and officials in the Middle East had warned Europe about a wave of refugees. But without a robust system of international rules that could have eased the burden on the refugee-hosting countries, or any political interest in Europe in resolving the problem, it was left to Ahmed and many others like him to vote with their feet, bring- 1 The Economist May 28th 2016

CO N T E N T S 5 The language of migration Terminological exactitudes 6 Politics Welcome, up to a point 8 Integration A working solution 9 Demographics Not so fast 10 Resettlement Bring me your huddled masses 12 Lebanon’s and Jordan’s plight Caught by geography 13 Refugee camps in Africa From here to eternity 15 Looking ahead How to do better

A list of acknowledgments and sources is at Economist.com/specialreports

3

S P E C I A L R EPO R T M IGRATI O N

up the main framework for international protection of people fleeing persecution and provide the basis for the work of the UNHCR. The convention is one of the most potent instruments of international law ever devised. The primary obligation that it places on signatories is the duty of non-refoulement, meaning they may not return people to countries where they are at risk.

But as James Hathaway, an expert on refugee law at the UniThe 60m question versity of Michigan, points out, it has also proved to be an extremely versatile device. Over the decades regional and internaThanks in part to the explosion of refugees from Syria, the tional law has built on the convention’s foundations, extending United Nations High Commissioner for Refugees (UNHCR), the the scope of protection beyond the original definition of a refuUN’s refugee body, now puts the world’s displaced population at gee as someone who faces a “well-founded fear of being persea post-war record of 60m, of whom 20m are stranded outside cuted”. Notably, many parts of the world now offer protection to their own countries (the map shows only registered refugees, for those fleeing war-torn countries like Syria. whom firm figures are available). Except for a couple of bright And yet the politicians who established the refugee regime spots, such as the possible return of up to 6m internally disin the early 1950s, with the horrors of the second world war still placed Colombians after a peace deal between the government fresh in the mind, had modest ambitions. The convention covand the guerrillas, the problem is getting worse. New conflicts in ered only Europeans who had been displaced before 1951, includplaces like South Sudan are creating fresh refugee problems; olding millions during the war and many more in post-war ethnic er ones, such as Somalia’s, grind on with no solution in sight. cleansing. (The UNHCR had no role in helping the millions disStill, there is no iron law that says the globally displaced placed by India’s partition, or the Arab-Israeli war of 1948.) By must continue to rise in number. Conflicts can be resolved, just 1950 resettlement and repatriation efforts had reduced Europe’s as they can break out. Perhaps more worrying is that a record 45% refugee population to less than half a million. The UNHCR was of the world’s refugees are now in “protracted situations” that small, poor and feeble. Few expected it to last for long. have lasted five years or more. Syrians are the latest recruits to However, it turned out to be a rather useful adjunct to Westthis wretched club, and the welcome is wearing thin in the counern foreign policy, particularly for refugees fleeing communist or tries to which most have fled. Indeed, dismal prospects in Turkey, Soviet-backed states. In 1956 the high commissioner used his Jordan and Lebanon partly explain last year’s exodus to Europe. good offices to help hundreds of thousands of Hungarians who Shocked to learn that they were legally obliged to help the fled the Soviet tanks, even though they were not covered by the people streaming across their borders, a growing number of convention. Many were resettled in America or other countries European politicians and officials are pressing for revisions to the outside Europe. The UNHCR helped victims of fighting in Africa UN’s 1951 Refugee Convention and its 1967 protocol, which make and Asia in the 1950s and 1960s, and the 1967 protocol to the convention removed its geographical and temporal limits.

Agreements in Africa and Asia extended the scope of protection. Later, the EuroEUROPE pean Union created new forms of protec3.49 tion that fell short of full refugee status, to ASIA & help victims of war and other forms of vi3.79 MIDDLE EAST & PACIFIC 3.01 olence that did not meet the convention’s NORTH AFRICA strict definition. The result was an international mesh of laws and institutions to AMERICAS 0.75 help displaced people around the globe.

2 ing chaos in their wake. What was Lebanon’s problem is now

Germany’s. Belatedly, the rich world has learned that the current system of international protection for refugees is broken. And Europe, which is where the global refugee regime began 65 years ago, and where its limits have now been most starkly exposed, will have to be the catalyst for change.

Number of registered refugees*

SUB-SAHARAN 4.06 AFRICA

By country, June 2015 1m+

500-5k

250k-1m

1-500

50k-250k

0 or no data

5k-50k

Magic number

Total refugees* By region, m WORLD 15.1

Biggest population movements due to conflict, m

Worldwide number of refugees‡, m

Europe, second world war†, 1939-45

20 15.0

India, partition, 1947 14.0

15

Bangladesh, war, 1971 10.0

10

Syria, war, 2011 - present 4.2 Afghanistan, wars, 1978 - present 3.5

5

Iraq, war, 2003-11 2.1

0 1951

60

Sources: UNHCR; NATO; Migration Policy Institute; Refugees International; US State Department; press reports

4

70

80

90

2000

10

15§

*Or people in a refugee-like situation †Includes internally displaced people ‡Data missing for some countries before 1990s § To end June

In time the UNHCR identified three “durable solutions” for refugees beyond providing immediate sanctuary: voluntary repatriation, integration in the country that offered asylum and resettlement to another country, usually in the rich world. All are now floundering. Most refugees would dearly love to return home, but that would require resolution of the conflicts they fled in the first place, and there is little sign of that for Somalis, Syrians or Afghans. Returns are at their lowest since 1983, according to UNHCR figures.

That leaves integration and resettlement. Western governments can play a crucial role in both. To promote integration in countries that may be resistant to opening their labour markets or overburdening public services, they can provide financial and logistical support. For the 1 The Economist May 28th 2016

SP EC IA L R EPO R T MIGRATION

tionally takes a large share of resettled refugees, has slightly increased its quotas but has been deterred by probably ill-founded anon, that can mean anything from cheap security concerns since last November’s terrorist attacks in Paris. loans to the creation of special economic Canada’s new prime minister, Justin Trudeau, speedily made zones to assistance for overburdened good (at great expense) on an election promise to resettle 25,000 towns and villages. In parts of Africa, this Syrians, and then promised to take more. But this alone is a drop report will show, there are glimmers of a in the ocean. new approach that may offer refugees an alternative to mouldering in camps.

But today’s politics has turned against resettlement, in which vulnerable It seems unfair that proximity to war zones should refugees are moved to rich countries that define responsibility to refugees volunteer to accept them, usually with the help of the UNHCR. Too often such rich As Peter Sutherland, the UN’s special migration representacountries, having clamped down on irregular flows, promise tive, notes, it seems unfair for a country’s proximity to war zones generous resettlement to compensate but fail to follow through. to define its responsibility to refugees. To ward offthis danger, the Australia, for example, is often accused of not living up to its vow 1951 convention calls on signatories to act in a “spirit of internato increase its resettlement quotas now that it has more or less tional co-operation”, but places no specific obligations on couneliminated spontaneous arrivals of asylum-seekers by turning tries and regions not faced with a refugee influx. Last year’s crisis them back at sea. There are worrying signs that the EU may folin Europe revealed the weaknesses of the global refugee regime. low suit. Vague promises of mass resettlement of refugees from Europe learned that its carefully constructed asylum and border Turkey to Europe have not materialised. America, which tradirules were no match for migrants who flouted them en masse. But it also found that the arrival of modest numbers of uninvited foreigners quickly upset its comfortable political and economic balance.

To keep them out, in March the EU signed a deal with Turkey that skates close to the The way people talk about migration is carefully modulated edge of international law by obliging asylum-seekers who reach Greece to return urged politicians and journalists to “drop WORDS MATTER. OR, as Twitter-savvy to Turkey, where some may face inadethe I-word” when referring to America’s migration campaigners on both sides of quate protection or even refoulement. estimated 11m illegal immigrants. “Unthe Atlantic put it, #wordsmatter. Political All this shows up a glaring differdocumented” is now in wide use, but this advocates have long sought to advance ence in the treatment of refugees between perceived concession to political correctwords and phrases likely to generate the rich and the poor world. In Europe, ness irritates some. Donald Trump rouses sympathy for their cause: “pro-life” versus asylum-seekers are treated generously by his crowds by reverting to the controversial “pro-choice”, “spending cuts” versus global standards, even if some countries term “illegals”. “savings”. As opinion has divided over have tightened their rules. In most EU Other languages have their own migration, it is no surprise that the politicountries they can work before they obversions of this war of words. In German, cal battle has spread to linguistics. tain refugee status (or some lesser protecthose who object to the standard term for Broadly, the best term for those who tion), and certainly afterwards. They are refugees, Flüchtlinge (declared word of the move permanently from one country to promised housing, freedom of moveyear for 2015 by the Society for the German another, for whatever reason, is “miment and protection from official harassLanguage), now use the PC term Geflüchtete grants”. If they are fleeing persecution or ment. Public services generally work well (those who have fled). Germans expelled violence, they can present themselves as and benefits are adequate. After five years from Czechoslovakia and other east Euroasylum-seekers; once their claim has been refugees in EU states can usually become pean countries after the second world war accepted, they become refugees, with all permanent residents (which gives them became known as Vertriebene (driven out), the protections that entails. But for some, freedom of movement throughout the a term that conferred victimhood. Mexicans the term has become loaded.

EU), and in some cases full citizens. And who unofficially live in the United States call The English-language service of even those whose bids for asylum fail are themselves sin papeles (“without papers”).

Al-Jazeera, a broadcaster, was cheered by often granted some of these privileges, In Europe the picture is clouded by refugee-rights campaigners last summer partly because governments find it so mixed motives and imperfect data. Afghans when it vowed to stop calling the people hard to send them back. make up the second-largest group of arrivstreaming across the Aegean “migrants”, als, but around one-third of their asylum a “reductive” word it said enabled “hate Fortune favours the brave claims are rejected. How should they be speech and thinly veiled racism”. The Unwilling to unwind these proteccategorised? Few Syrians leaving homes in UNHCR, as the custodian of a legal frametions, European governments have simTurkey and Lebanon are fleeing for their work that relies on a careful distinction ply made it harder for asylum-seekers to lives, but most win some form of protection between refugees and others, preferred reach their borders in the first place. The in Europe. And many Africans who emigrate the phrase “refugees and migrants”. For overall effect has been something akin to for economic reasons encounter the sort of nationalist demagogues like Hungary’s a dystopian television game show: the refpersecution on their journeys that provides Viktor Orban, “migrant” was about as ugees must brave untold hardships to grounds for asylum. The distinction bepolite as it got. reach their destination, but a glittering tween “refugees” and “migrants” matters to America has experienced similar prize awaits them once they arrive. lawyers as well as linguists. battles. Latino campaigners have long For the 86% of the world’s refugees 1

2 Syrian refugees in Turkey, Jordan and Leb-

Terminological exactitudes

The Economist May 28th 2016

5

S P E C I A L R EPO R T M IGRATI O N

2 who fetch up in the developing world, the reverse applies: the

journey is often (though not always) less arduous, but conditions are likely to be far worse. By accidents of geography countries that border war zones, such as Lebanon, Jordan and Kenya, find themselves the involuntary hosts of millions of refugees, some languishing in camps, others scratching a meagre existence on the fringes of cities. Some of these countries, particularly in the Middle East, never signed the 1951 convention. Others, mainly in Africa, simply ignore its provisions, denying refugees the right to work or travel, sometimes for decades at a stretch. This leaves the hard-working but largely unaccountable (and often underfunded) humanitarian organisations that care for them, including the UNHCR, to serve as surrogate states, a role for which they are rarely suited. The effect ofthis approach can be seen in places like Dadaab, a collection of five camps near Kenya’s border with Somalia described later in this special report (and now threatened with closure). There, a second and third generation of refugees is growing up entirely dependent on the rations, sanitation services and schooling provided by NGOs.

Europe’s dilemma This special report will argue that the Refugee Convention, and the further protections embodied in regional agreements, should be retained. But it will also show that fresh thinking is desperately needed to make them work, especially for refugees in protracted situations. Developing countries will continue to host the lion’s share of the world’s refugees, and that need not spell disaster: Syrians may have a better chance of economic and social integration in Lebanon or Jordan than in Europe, and will be more likely to return home if peace is made. Such countries can also usually host refugees at a small fraction of the cost in Europe or America. But they cannot be left to cope with the problem alone, and when their limits are breached others will feel the consequences, as Europe learned last year.

A new compact between rich and poor world is therefore needed. Europe will be the Petri dish. Other regions, including North America and Australasia but also wealthier parts of the Middle East, Asia and even Latin America, may follow. A UN refugee summit in New York in September, devoted to exploring fresh avenues for international protection, offers a chance to start the conversation.

But it will be hard for rich countries to extend more help to refugees when their own voters are fretting about a loss of control. For European governments in particular, that means two things. First, they must ensure that the integration of refugees like Ahmed proceeds as smoothly as possible, which is harder than many suggest. Second, they need to restore confidence in border management and their ability to control irregular migratory flows. Europe’s response to last year’s crisis was improvised, chaotic, divisive and expensive. The damage was immense, and the loss of confidence will be hard to repair.

Western governments have been muddying the waters on migration for decades, pretending that the “guest workers” they had imported to ease labour shortages would return home; relying on armies of undocumented migrant workers; and making unrealistic promises about their ability to control borders. This has fostered distrust, allowing anti-immigrant populists to flourish, and shrunk the political space for sensible and compassionate policies. It has exposed the West to charges of hypocrisy, not always unwarranted. The hope must be that Europe’s troubles last year will jolt politicians into taking a more far-sighted approach towards refugee management, including better co-operation among themselves and more help for the poor countries that bear the heaviest load. The fear is that, by spooking voters and polluting politics, it will do the opposite. 7 6

Politics

Welcome, up to a point Politicians must keep better control of migration, and tell the truth THE EARLY STAGES of Europe’s refugee crisis produced heartwarming images. Volunteers flocked to Greek islands to help the refugees clambering ashore from their overloaded rubber dinghies. Locals lined the platforms of German railway stations, applauding the migrants as they stepped off the trains.

“I’ve never been so proud of my country,” says Kadidja Bedoui of We Do What We Can, a voluntary outfit in Sweden, which at the peak was receiving over10,000 migrants a week.

But as the people kept coming, more voters started to believe populists who claimed that governments had lost control.

The Sweden Democrats, an anti-immigrant party that had gained notoriety with a television spot showing burqa-clad Muslims overtaking a shuffling pensioner in a race for public funds, topped polls. Eventually Sweden’s overwhelmed government slammed on the brakes, erecting border controls and tightening asylum rules. Other European countries saw the chaos in 1 Sweden and Germany as an example of what not to do.

The Economist May 28th 2016

SP EC IA L R EPO R T MIGRATION

2

International law obliges governments to help refugees who reach their borders, but domestic politics constrains their room for manoeuvre. Europe presents a double challenge. First, it is a rich region with a commitment to human rights that happens to sit next to two poor, troubled and crowded ones: Africa and the Middle East. Second, it is a (largely) borderless club of geographically concentrated states with widely varying economies, benefit systems and labour markets. Asylum-seekers shop around, leaving some EU countries to bear a far heavier burden than others. That sets governments against one another.

Over the years the EU has taken halting steps to manage this problem. The 2004 Qualification Directive, built on the framework of the 1951 Refugee Convention, extended the scope of protection beyond the definition in the convention and provided for common grounds on which it could be granted. Other rules guaranteed minimum reception standards for asylum-seekers across the EU and set out which country was responsible for each asylum claim (usually the first one a migrant sets foot in). Member countries were unwilling to sacrifice too much sovereignty (for example, by allowing EU officials to adjudicate asylum claims), but the rudiments of a common asylum policy worked well enough when the number of arrivals was limited.

But all that changed when over 1m asylum-seekers reached Europe last year. Most of them had travelled across safe countries; indeed, a good number hailed from them, particularly those Africans who sailed to Italy from Libya. European governments had to decide whether to follow through on the promise of comprehensive protection implied in the EU’s asylum directives—and in the rhetoric of some of their leaders.

The answer turned out to be no. A Eurobarometer poll last July, even before the arrivals peaked, found that immigration had become Europeans’ biggest concern, far ahead of the economic issues that usually dominate such surveys. Populist parties like the Sweden Democrats linked governments’ handling of migration to their established claim that elite parties are incompetent or treacherous.

Once the Willkommenskultur in Germany and elsewhere receded and the backlash began, panicked governments put up border controls and struck questionable deals with third countries to keep migrants out. A series of sexual assaults by migrants on German women in Cologne on New Year’s Eve further darkened the mood.

Other rich countries have not faced irregular arrivals on anything like Europe’s scale, leaving them largely free to design their own refugee policies. The United States, which signed the 1967 protocol to the Refugee Convention but not the original document, has traditionally taken in the bulk of refugees resettled by the UNHCR. But for decades its response was driven by foreign-policy considerations; between 1956 and 1968 all but 1,000 of the 233,000 refugees it admitted came from communist countries, according to Gil Loescher, a refugee analyst.

America continued to resettle refugees after the end of the cold war, and reThe Economist May 28th 2016

mains the UNHCR’s biggest donor by far. But today security fears, sharpened after last year’s terrorist attacks in Paris and the mass killings in San Bernardino, California, make it harder for the Obama administration to take in more than its current plan for 10,000 Syrians (on top of 75,000 refugees from elsewhere). Lingering memories of the large numbers of illegal immigrants who arrived in America from Mexico and Central America in search of jobs in the 1990s may also have limited politicians’ options.

Pick and choose Canada has taken a different approach. Its physical remoteness from any refugee streams has allowed it to pursue a generous but selective immigration policy, based mainly on its own economic needs. One-fifth of its population is now foreign-born, the highest rate in the G8, and nearly half the immigrants have a tertiary education. Last year Justin Trudeau, the newly elected prime minister, declared Canada the world’s first “post-national” state. Public confidence in the country’s migration policy allowed Mr Trudeau to campaign on a pledge to resettle 25,000 Syrian refugees, a rapidly executed policy that proved so popular that the quota was increased to 35,000. A grateful Filippo Grandi, head of the UNHCR, calls Mr Trudeau one of his two “saviours” (the other is Jim Yong Kim, the president of the World Bank).

But geographical seclusion can cut both ways. Japan showers money on the UNHCR but until 2010 accepted no refugees at all, in keeping with a closed-door migration policy that few voters seem minded to overturn. Australia does resettle thousands of refugees each year, but has taken a tough line on spontaneous arrivals since a surge in boat people from South-East Asia three years ago. The navy The EU’s now intercepts all asylum-seekers at sea progress on and either sends them back to their port of departure or directs them to detention migration centres in Papua New Guinea and Nauru. and asylum This expensive and legally dubious policy enjoys bipartisan political support, rules has and Australia bristles at international criticism. Politicians have hinted at revising been or even withdrawing from the 1951 conagonisingly vention, which Australia signed.

EU officials often fume about the opslow probrium heaped upon Europe over migration while rich Gulf or Asian states look the other way. Every time spontaneous arrivals to Europe surge, so do calls for barriers to be erected, navies to be dispatched, laws to be scrapped—and allegations that Europe has succumbed to a new age of prejudice. That is unfair. In Britain, for example, where concerns about migration have been rising for years (as has immigration itself), standard measures of xenophobia have been declining: just15% of people worry about a relative marrying someone of a different race, down from 50% in the mid-1980s, according to research by British Future, a think-tank.

Instead, the hostility springs from a fear that governments have lost the ability to manage who may or may not cross their borders, supposedly one of their primary responsibilities to citizens. “Nothing erodes public acceptance of migration like the perception that it is out of control,” says Paul Scheffer, a Dutch analyst. That is why Europe, having messed up its initial response to the migrant crisis, had no alternative but to strike its deal with Turkey in March.

Voters have also grown tired of confusing and contradictory messages. Rare is the politician who can speak honestly about immigration. When foreign workers first arrived in large numbers in western Europe decades ago, political leaders, especially in Germany, insisted that theirs were not immigration 1 7

S P E C I A L R EPO R T M IGRATI O N

2 countries. But over the years voters watched a different story un-

fold as the sights and sounds of the streets changed and governments started to write integration policies. In countries like Spain and America, politicians’ reluctance to acknowledge that they needed foreign workers led to growing irregular immigration and, later, to embarrassing amnesties. America is still battling this legacy. Immigration from Mexico to the United States went into reverse at least two years ago, yet 38% of American voters agree with Donald Trump’s proposal to build a giant wall along the country’s southern border.

Politicians still struggle to talk about immigration, says Sunder Katwala of British Future. He thinks they should avoid dismissing public anxiety by spouting facts and figures, which preaches to the converted but confirms sceptics’ fears about detached elites. But they should also resist aping the rabble-rousing of populists who will never command majority support. The messages that resonate best with voters acknowledge the pressures of migration while calling for the benefits to be harnessed.

Some politicians are getting the message. Since Sweden’s mainstream parties lifted the taboo that once surrounded debates on immigration, support for the Sweden Democrats has slid.

Most importantly, politicians should remember that unrealistic promises may come back to haunt them. David Cameron, Britain’s prime minister, will never live down his doomed vow in 2010 to reduce annual net immigration to his country to below 100,000 (“no ifs, no buts”). Politicians in Sweden and Germany may be repeating that mistake by pledging to send back tens of thousands of failed asylum-seekers, which on past form they will find hard to do. Designed largely to deter new migrants, such talk instead risks further eroding public trust.

But many liberals also need to come clean. The police and media cover-up after Cologne shattered many Germans’ confidence in their government’s policy. All sides need to accept that rich countries cannot remain immune from the global increase in mobility, and that certain sectors would collapse without migrant labour; but also that refugees are not invariably a great boon to economies, as advocates suggest. But to ensure the maximum benefit from the arrangements for everyone, the newcomers have to be properly integrated. 7

Integration

A working solution The best way to settle newcomers is to find them jobs YEHYA IS ONE of the lucky ones. A refugee from the northern Syrian city of Aleppo, he reached the Netherlands in June 2015, before the rush of arrivals swamped the asylum system. He obtained protection in just two months, entitling him to begin integration classes at Implacement, an Amsterdam-based firm that offers refugees three-month courses on language, computer literacy and a basic introduction to Dutch life, taking in everything from taxes to transsexuals (“Muslims find that a bit strange,” admits an administrator).

Classes like these began in the early 1980s, springing from a Dutch integration policy written by Rinus Penninx, an academic who feared that the guest workers the Netherlands had been importing, largely from Turkey and Morocco, and their descendants were in danger of becoming an underclass. Initially legal, eco8

Settling in Employment rate* by duration of residence

All migrants Refugees Non-migrant population

2014, %

Belgium

1-5

Sweden

6-9

10+

100 80 60 40 20 0

1-5

Years

10+

Years

Switzerland

1-5

6-9

100 80 60 40 20 0

Britain

6-9 Years

Source: Eurostat

10+

100 80 60 40 20 0

na

1-5

6-9 Years

10+

100 80 60 40 20 0

*15- to 64-year-olds

nomic and social integration was encouraged, but culture, religion and customs were to be left out as part of a laissez-faire approach that later, in the Netherlands and elsewhere, became known as multiculturalism.

It’s compulsory In time that changed as some Dutch voters grew anxious about the cultural distance between some groups of migrants and mainstream society. In 2004 the debate sharpened after a Dutch-Moroccan Islamist murdered Theo van Gogh, a controversial film-maker. Integration became, and remains, contested political territory. The government shifted the burden of integration to the migrants themselves, which Mr Penninx frowns on.

Today the “Integration in the Netherlands” website baldly states: “You have three years to integrate…You must pass the integration exam within this period of time.” This exam, which tests language skills and knowledge of Dutch society, is compulsory for any migrant who seeks to obtain permanent residence. Failure to integrate can incur a fine of up to €1,250 ($1,410). After last year’s influx, other countries, such as Germany and Belgium, are mulling tightening integration requirements for refugees.

Many European governments face a dilemma: better conditions for asylum-seekers should help their integration, but may also attract more of them. Under the strict Dutch approach, asylum-seekers may not receive anything more than basic state assistance until their claim has been processed. After last year’s surge in asylum applications to 59,000, that can take a year or more after arrival. Limited employment rights are offered after six months. This delay infuriates local politicians, who want to get on with integration while asylum-seekers are still motivated.

Integration is one of the three “durable solutions” the UNHCR seeks for refugees. In the poor world, most governments fear unsettling their own citizens by allowing refugees to flood labour markets. That is less of a concern in the developed world; indeed, there is evidence that over time refugees may spur lowskilled natives to move into more productive employment. But the record of rich countries in integrating immigrants into the workforce is mixed. America does well; its flexible labour market creates large numbers of low-skilled jobs, and officials aim to get resettled refugees into work quickly. Last year the Migration Policy Institute, a think-tank, found that in the United States, between 2009 and 2011 male refugees were more likely to be employed than their locally born counterparts; female refugees 1 fared as well as American women.

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2

In Europe the results are patchier. Some of the more visible signs of failure to integrate earlier immigrants—from the banlieues that ring French cities to the divided towns of northern England—make it harder for governments to take in new ones.

The country to watch is Germany, which took in 1.1m asylumseekers last year. Some will be refused protection, and others will return home voluntarily. But Germany still faces the biggest integration challenge in Europe; failure will discredit Angela Merkel, the chancellor, and hamper her attempts to organise a pan-European resettlement scheme for Syrians. The Cologne assaults stoked concerns about cultural clashes. But the challenge of finding employment for hundreds of thousands of people may prove tougher.

“What is integration? It’s a job, and speaking German,” says Achim Dercks of the Association of German Chambers of Commerce and Industry (DIHK). Recognising the power of work to integrate newcomers, in 2014 Germany cut the waiting period before asylum-seekers can look for a job to three months. By EU law most countries must open their labour markets to asylum-seek-

ers after nine months, though several do not. All refugees are entitled to work once their claim has been approved.

Access to the labour market is of little use if migrants cannot speak the language. That mattered less for the Turkish and Moroccan guest workers who manned Dutch and German assembly lines in the 1960s and 1970s. But today even basic jobs require linguistic fluency, if only to understand health and safety rules, so most governments lay on language classes for newcomers.

That delays entry into the labour market.

A bigger problem is that refugees have tended to flock to countries with little need for low- or unskilled labour. Half of those who have arrived in Sweden in the past two years have nine years or less of schooling, says Susanne Spector, a labourmarket economist at the Confederation of Swedish Enterprise, but 95% of jobs require more than that, and the few basic jobs available attract an average of three applicants each. Germany’s Federal Employment Agency reckons that only 10% of the recent arrivals will be ready to work after one year, 50% after five years 1 and 70% after15. (Mr Dercks is more optimistic.)

Not so fast Refugees cannot solve Europe’s demographic woes A CONSPIRACY THEORY took hold in Germany last year: it was self-interest, said critics, not compassion, that led Angela Merkel to open the door to hundreds of thousands of refugees. Greying Germany, expected to lose 10m of its current population of 81m by 2060, desperately needed an injection of young workers to boost its labour force and prop up its pension schemes. Who better to provide it than the young migrants streaming across the border? And what was good for Germany was good for its neighbours. Nine of the world’s ten countries with the highest share of over-65s are European (the tenth is Japan). Nor are more babies likely to bring relief: the fertility rate in all EU countries is below—often far below—the replacement rate of 2.1 children per woman.

Four-fifths of asylum applicants in the EU last year were younger than 35. Thanks to immigration, Germany’s population stopped falling in 2011 and has been rising slightly but steadily ever since. Young immigrants can help ageing societies in two ways: they lower the dependency ratio (the proportion of the non-working young and old to people of working age), and they often have more children than the native population, at least initially. America’s open immigration policy has helped it maintain a relatively healthy age structure. By contrast, the population of Japan, which allows almost no immigration, is declining by hundreds of thousands a year.

Last year, as the magnitude of the refugee inflows became clear, Vítor Constâncio, a vice-president of the European Central Bank, said that immigrants could stop Europe from The Economist May 28th 2016

Young blood Dependency ratio*, 2015 0

Asylum-seekers General population

10 20 30 40 50 60 70 80

France Sweden Denmark Britain Greece Italy Netherlands EU-28 Germany Spain Bulgaria Romania Hungary Source: Eurostat

*Population aged less than 18 and over 65 per 100 people aged 18-64

committing “demographic suicide”.

But migrants are no demographic panacea. The scale of immigration needed to compensate for Europe’s rising age profile is politically implausible. Germany’s Federal Statistics Office recently calculated that the country would need to accept 470,000 working-age migrants a year to offset its demographic decline. And the migrants would have to keep coming, because they age, too, and their fertility rates tend quickly to converge with those of the native population.

Besides, they do not always stick around. The fertility fillip Spain got from high immigration before the financial crisis, for example, evaporated when foreign workers went home after the 2008 crash.

Indeed, demographics can present a threat as well as an opportunity. Population forecasts for the Arab world and, in particular, sub-Saharan Africa foreshadow growing migration pressures. Thirteen of the 15 countries with a total fertility rate (roughly, numbers of children per woman) above five are in Africa. In 2050, according to UN forecasts, the population of Africa will be three times that of Europe, compared with less than twice as much today. The continent already struggles to find jobs for the 11m young men and women that reach working age every year. Governments are often content to see young people leave: emigrants relieve pressure on labour markets and send home juicy remittances. Europe will remain the destination of choice for most of them, but they may not be a good fit for the jobs on offer there.

Better, then, to help developing countries create jobs for their own? The king of Morocco supposedly once told EU leaders that if they did not want his people, they would have to scrap their agricultural subsidies and take his oranges instead. This apocryphal story got things upside-down: emigration in poor countries tends to rise with income per person, up to around $7,500 a year, as people acquire the means to leave. The African migrants who reach Europe via Italy are often among the richer and better-educated. So as Africa gets wealthier, more of its people may decide to chance their hand elsewhere. Some will go to richer parts of their own continent, but plenty will seek the bountiful lands to their north. Europe, look out.

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2

That leaves a lot of migrants drawing unemployment benefit; and long-term welfare dependency, particularly of non-citizens, drains treasuries and fosters resentment. Christina MerkerSiesjo, who runs Yalla Trappan, a social enterprise for migrant women in Rosengard, a refugee-heavy district of Malmo, says Sweden’s generous benefits can induce passivity among newcomers. Better to get them involved in some form of activity as soon as possible, whether paid or voluntary.

A recent IMF report urges countries to make labour markets more flexible to speed up the integration of refugees. Germany’s Hartz labour and welfare reforms, introduced between 2003 and 2005 by the then chancellor, Gerhard Schröder, made it more attractive to take the sort of low-skilled work that may suit many refugees, but plenty more can be done to loosen up what remains a tightly regulated labour market. From this summer a new “3+2” rule will protect refugees on three-year vocational courses from deportation for two years after completing their training, removing a disincentive to recruiting them. Germany may not be crying out for low-skilled labour, but its tradition of vocational training can provide a bridge into work for some. The country could also do a better job of recognising the qualifications of skilled refugees, such as doctors.

In Sweden nearly 20% of the non-Europeans who immigrated in 2002-12 were asylum-seekers and refugees, and last year’s influx will have pushed the number higher. This helps explain why unemployment for immigrants, at 16%, is almost three times that for natives. Employment rates for refugees are lower than for native Swedes even after ten years. Ms Spector says that in the long run the best thing the government could do for immigrants is to allow much greater variation in pay to encourage employers to create more low-skilled work.

The lesser of two evils?

That would be a hard sell in a country that cherishes its collective-bargaining traditions, in which employers and unions negotiate annual wage deals. But some opposition parties have urged a reduction in pay to get more refugees into work. Sweden may ultimately have to choose between unemployment ranks swollen by refugees or a looser approach to employment and benefit rules, including stronger incentives to work. That will be tricky. The Hartz reforms, though widely credited with keeping German unemployment low, were blamed in part for Mr Schröder’s defeat at the polls in 2005.

Last year’s influx of refugees included many children, and educating them will be crucial for long-term integration. Countries must balance their specific needs—especially language learning, which calls for segregated teaching—against the social value of teaching them in the same classrooms as everyone else.

Germany has recruited new teachers and set up one-year “welcome classes” for newcomers with a focus on language teaching.

Housing presents another challenge. In most countries asylum-seekers are placed in reception centres until their cases are heard (unless they can find their own accommodation). Once accepted, they are usually free to live where they like. But cities that are popular with refugees, such as Berlin, may not offer the best workopportunities or be well placed to provide welfare support.

To avoid overconcentration, the German government is considering obliging refugees to stay put for their first two years.

Canada has tried an alternative to the usual state-led integration model. Since 1978 it has allowed voluntary groups, such as churches or diaspora organisations, to sponsor refugees privately, supporting them financially for a year and introducing them to life in their new home. One-third of the 25,000 Syrian refugees Canada has recently taken in were resettled this way.

Privately sponsored refugees tend to integrate more quickly; one 10

study found that after a year 76% had jobs, compared with 45% of those backed by the state. The British government is now considering a scheme along Canadian lines.

But in the poor countries where most refugees live, integration poses an entirely different set of problems. In long-established refugee camps NGOs usually provide services like health care and education, sometimes to a higher standard than is available to the country’s ordinary residents, but governments rarely allow the refugees to work. Labour-market restrictions have forced most of the working-age Syrian refugees in Turkey, Lebanon and Jordan into black-market jobs, with the attendant exploitation. Little wonder that so many aspire to a better life in the West, either braving dangerous journeys to get there or accepting a long wait for a state-backed resettlement. 7

Resettlement

Bring me your huddled masses It worked for the Indochinese. Why not the Syrians?

NINE COUNTRIES HOST most of the world’s refugees.

None of them is wealthy. All border war zones, from Syria to South Sudan. The simplest way for rich countries to help the poor ones that shoulder the lion’s share of the global refugee burden is through resettlement, the UNHCR’s second “durable solution”: accepting refugees directly from the countries they have fled to. Many countries have had annual resettlement quotas for decades, agreed with and implemented through the UNHCR. America, for example, plans to take in 85,000 refugees this year.

But the numbers are nothing like enough to accommodate the most acute refugee emergency: the 5m or so Syrians stranded in Turkey, Lebanon and Jordan, not to mention the 7m displaced inside Syria, many of whom could still flee.

That is why some Europeans have sought a new approach: eliminate, or at least drastically reduce, irregular migrant flows, and launch a mass refugee-resettlement scheme instead. It is a 1

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been true of the Hungarians.) The West may sympathise with the victims of Bashar al-Assad’s barrel bombs, but sees little geomodels of the smugglers who thrive on illegality, and have counpolitical gain in helping them. Even the Indochinese effort was tries choose refugees rather than the other way around. neither quick nor easy. It involved several false starts and lots of Mass resettlement was supposed to play a large part in the arm-twisting, and took years to complete. And Europe’s political controversial agreement struck between the European Union will has been sapped by the chaos of last year’s mass arrivals. and Turkey on March 18th. The deal committed the Europeans to But if Europe cannot muster the will for mass resettlement, taking in one Syrian refugee from Turkey for every irregular Syrithe danger is of drift towards an Australian-style solution in an sent back from Greece. Larger numbers would be resettled unwhich a “hard” rejection policy is unleavened by generosity and der a separate “voluntary humanitarian admissions” scheme, which could also include Jordan and Lebanon. The more ambitious speak of resettling 250,000 Syrians a year to Europe. If Some Europeans are now arguing for a new approach: that inspired America and other rich coun- drastically cut back irregular migrant flows and put in tries to step up their efforts, the burden on Syria’s neighbours might become more place a mass refugee-resettlement scheme instead manageable and the chaos of irregular migration could be brought under control. neighbours are left to bear the burden. Australia boasts that it has It has been done before. Almost all of the 180,000 Hungareliminated the unplanned arrival of asylum-seekers by sea. But ians who fled to Austria after the Soviets suppressed the 1956 its politicians’ promises to boost the resettlement of refugees uprising were quickly resettled, some as far afield as Nicaragua have not been kept: quotas fell from 20,000 in 2012-13 to 13,750 in and New Zealand. But for most the model is the Indochinese 2014-15 (although numbers are due to rise again). Campaigners “boat-people” crisis that began in the 1970s, which gave rise to devote their energy to undoing Australia’s offshoring deals with perhaps the most successful mass resettlement in history. MilPapua New Guinea and Nauru rather than boosting resettlement lions of refugees scrambled on to boats to flee the communist numbers. Europe may be moving in this direction: the push for governments that took over in Vietnam, Laos and Cambodia folresettlement has got lost in the row over the deal with Turkey. lowing the American military withdrawal in 1973. When overburdened South-East Asian countries started to turn refugees Chaos into order away, the international community took action. Between 1975 and 1995 about 1.3m Indochinese refugees were moved to rich If Europe cannot do it, what about the rest of the world? countries, mainly the United States, Canada and Australia.

Canada’s programme, described earlier in this report, is generMost settled in well. In America, the median household inous but pricey, and highly selective: single men are placed at the come of immigrants from South-East Asia is now higher than back of the queue. America is already struggling to meet its that of people born in the country. Filippo Grandi, the UN’s refupledge to resettle 10,000 Syrians this year. Barack Obama would gee chief, notes proudly that the refugee co-ordinator who probably like to take more, but that will be hard in an election showed him around Illinois on a recent visit was an evacuee year dominated by Trumpian immigration demagoguery. And from Vietnam. The response to the Indochinese boat people sugfears of terrorism have clouded the issue, despite elaborate gests that co-ordinated global action with a big dollop of political screening protocols for refugees that can take two years or more. will can resolve refugee crises. Could it work for Syrians?

After last November’s attacks in Paris, Republican governors fell Probably not. The numbers are far larger today, and Syrians over themselves to declare their states closed to refugees. are not the only people seeking refuge. America’s generosity toIn other regions the picture is dimmer still. Japan and South wards the boat people sprang in part from a desire to show solKorea, never known for generosity towards refugees, have not idarity with the victims of communist regimes. (The same had agreed to accept any Syrians at all. The same goes for the rich Gulf states, none of which has signed the Refugee Convention.

Some, such as Saudi Arabia, host large numbers of Syrians on work visas, but these offer nothing like the protection afforded by refugee status. Brazil is a brighter spot; it has issued humanitarian visas to over 8,000 Syrians under an open-door policy, although barely a quarter of them have made the journey so far, not least because they have to find their own air fares.

With the usual routes apparently blocked, Mr Grandi has tried to expand the criteria for resettlement through “additional pathways”—university scholarships, expanded family reunion and humanitarian visas. Over the next three years the UNHCR hopes to move at least 450,000 Syrian refugees to the West, mainly from Turkey, Jordan and Lebanon. But a recent conference in Geneva failed to attract many new resettlement pledges.

It seems clear that there will be no Indochinese-style mass resettlement solution to Syria’s refugee crisis. That may not be a disaster. Resettlement is in some ways an admission of defeat.

Refugees who have been accepted into a third country are less likely to return to their original homes than those who remain where they were first granted asylum. “I’m not a big fan of [resettlement], but what are the alternatives?” asks Mr Grandi. For those in the world’s most “protracted refugee situations”, that is a crucial question. 7

2 beguiling idea: replace chaos with order, destroy the business

The Economist May 28th 2016

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Lebanon’s and Jordan’s plight

Caught by geography Syria’s neighbours bear a heavy burden LOOK AT US, we’re just sitting here,” says Hassan al-Barouk, a refugee from al-Qusayr, a Syrian town near Homs.

The air inside the tent in which your correspondent encounters Mr al-Barouk and a cluster of other refugees, part of a small camp outside the Lebanese town of Saadnayel, is thick with hopelessness. There is no talk of adventuring to Europe, no question of an organised resettlement to a country that might offer a future. Instead the complaints pour forth. The Lebanese authorities make it impossible to register, which denies refugees the ability to move freely. Schools arbitrarily stop Syrian children from attending classes. Work is forbidden. The main way of passing the time is swapping WhatsApp messages with friends and family back home, as the regular phone chirrups testify. Everyone in the tent says they want to return home to Syria, but no one believes it can happen soon.

Refugees like the 24 families in this “informal tented settlement” (the Lebanese government does not allow official refugee camps) make up 15-20% of the Syrians in Lebanon. Most of the rest rent their homes, which are often just garages or disused warehouses. The camp-dwellers are the poorest of the bunch, obliged to sell assets and take on debt to pay their bills, including annual rent of $300-$1,000 a year per tent. NGOs are on hand to help, but food rations have been cut for lack of funding. Only emergency medical treatment is covered. Some towns here in the Bekaa valley, an agricultural region in Lebanon’s east, have more refugees than locals. And they are not going away.

A troubled land Lebanon has more refugees per head of population than any other country; its near-neighbour Jordan has one-third the number. Riven by sectarian strife between its Sunni, Shia and Christian populations, and with a 15-year civil war in living memory, Lebanon is a minnow in a volatile region with irascible giants like Iran and Saudi Arabia tugging at its politics. Its frac-

tious parliament has been unable to elect a president since 2014, and struggles to hold legislative sessions more than once a year.

At times the state is unable to perform basic functions, as the mountains of uncollected rubbish bags on some streets testify.

Lebanon’s economy was spluttering even before the Syrian refugees crossed over, and the 1.5m now inside its borders—more than the total number of asylum-seekers who reached Europe last year—make up over one-quarter of its population, disrupting the labour market, overburdening water and sanitation systems and, since the vast majority are Sunni, upsetting the sectarian balance. The public debt has swelled. Lebanon’s attempts to distance itself from Syria’s strife have faltered as Hizbullah, the Shia militia, has intervened to help the Assad regime and Sunni terrorists have scrapped with Lebanese troops in the country’s northeast. Add to all this the apparently insoluble problem of the halfmillion Palestinian refugees living in the country, and you might reasonably ask how Lebanon is managing.

To answer that, Nasser Yassin, an academic at the American University of Beirut, points to the extensive and long-standing informal networks between Syrians and Lebanese. Under a deal struck in 1993 Syrians could work in Lebanon without visas; perhaps half a million were doing so before the war. (Jordan had a similar arrangement.) Many of the scruffy refugee settlements around Lebanese towns grew out of informal housing plots for Syrian farm workers. Syrians working illegally for low pay on farms or building sites are competing mostly against each other (or Palestinians); few Lebanese are interested in such jobs. Europe, suggests Mr Yassin, could learn a thing or two from Lebanon about the value of informal mechanisms.

Perhaps half the Lebanese economy is underground, and the authorities tend to turn a blind eye to Syrians who work without permits. The owner of a large, popular Syrian restaurant in the middle of Beirut says finance-ministry officials told him to find a Lebanese business partner to get round ownership restrictions. He, and many other Syrians like him, are useful sources of employment for refugees. Some Syrian capital has followed refugees over the border, and private landlords benefit from lots of new tenants who are pushing up rents. Every refugee has a story to tell about ill-treatment at the hands of locals, but there have been no widespread protests or reports of systematic persecution. The wide dispersal of refugees around the country may have helped.

Thus has Lebanon stayed afloat for now. But, notes Mr Yassin, the country is storing up trouble. Life has become much 1

A sea of misery Registered refugees, June 2015 By host country, m 0

0.3

Per 1,000 population of host country 0.6

0.9

1.2

1.5

Turkey

1.8

0 Lebanon

30

60

90

By origin, m

120 150 180 210

0

Pakistan

Jordan

Afghanistan

Lebanon

Nauru

Somalia

Iran

Chad

South Sudan

Ethiopia

Turkey

Sudan

South Sudan

Congo

Jordan

Top 3 Top 5 Top 10

Mauritania

C.A.R.

Djibouti

Iraq

Chad

Sweden

Eritrea

Sudan

Malta

Myanmar

Kenya Uganda

% of total refugees

0.5 1.0 1.5 2.0 2.5 3.0 3.5 4.0 4.5

Syria

Top 3 Top 5 Top 10 % of total refugees

Source: UNHCR

12

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2 tougher for refugees since the government tightened its rules last

year. Registered Syrians must now pay $200 to renew residency permits and sign a pledge not to work; the non-registered require a Lebanese sponsor. Most refugees do not have official papers, and over two-thirds live below the official poverty line. Some schools are “double-shifting” (Lebanese in the morning, Syrians in the afternoon), but most refugee children are not in school at all. Many must toil in the fields to help keep their families going.

Little wonder so many Syrians grabbed the chance to leave for Europe when it came last year. In January, as Turkey prepared to reintroduce visas for Syrians travelling from third countries, the queues at Beirut airport stretched around the block. But now that that valve has been shut, a large, idle population could start to pose a security threat. Jabhat al-Nusra, a Syrian al-Qaeda affiliate, has sought to recruit among refugees.

Can the UN’s “durable solution” of integration work here?

Not according to one French official, who says Lebanon would collapse if forced to offer citizenship to all the refugees it has taken in. That may be true, but there is plenty ofground between the extremes of mass naturalisation and permanent limbo. Fortunately the West has started to rethink its approach. A recent donor conference in London raised $11 billion for Syrian refugees, and promised more help for host communities.

This is already bearing fruit in some quarters. The deputy mayor of Majdal Anjar, a town in the Bekaa that took in 25,000 refugees, boasts about the shiny new rubbish-collection vehicle he has been sent, courtesy of the UN. Donors such as Britain speak enthusiastically of funding sewage systems, irrigation projects and flood walls for particularly burdened regions. The EU plans to relax trade barriers on certain goods from Jordan to create jobs for both locals and refugees. In exchange for all this largesse, donors want the beneficiaries to do more for the refugees they host, in particular by opening up their labour markets.

At the London conference the Lebanese government promised to ease formal restrictions in a few sectors. This summer Jordan plans to launch a pilot programme that will offer work to 150,000 refugees in low-tax special economic zones.

Charges that the West hopes to manage its refugee problem by throwing money at it may be justified. But money goes further in the region than it does at home: Mr Yassin estimates it can cost 40 times as much to host a refugee in Britain than it does in Lebanon. And although the NGOs are skint, fresh forms of financing are emerging. The World Bank recently relaxed its rules on providing cheap loans to middle-income countries facing humanitarian crises, such as Jordan and Lebanon.

A hologram government In some ways Lebanon is a special case. What Rabih Shibli, also at the American University ofBeirut, calls its “hologram government” makes it difficult for foreign diplomats to extract reliable commitments. And like most other Middle Eastern countries, Lebanon held back from signing the Refugee Convention.

But more than five years into the Syrian crisis, there are signs that the government may relax some of its strictures, particularly if its own citizens can see some benefit. Here, and elsewhere in the region, donors can encourage this by working with the grain ofsuccessful regional and local programmes. A more predictable funding structure would help, so that refugees do not see wild swings in their financial support, and municipalities can better plan their provision ofpublic services. And the West’s resettlement efforts should extend beyond Turkey to Jordan and Lebanon.

All told, the refugees in Lebanon and Jordan are probably still better offthan the hundreds of thousands in Kenya’s Dadaab camp 4,000km to the south, near the Somali border, who have lived there all their lives. 7 The Economist May 28th 2016

Refugee camps in Africa

From here to eternity Kenya’s Dadaab camp has become many refugees’ permanent home—but the goverment wants to shut it “STATUS DETERMINATION”. “IMPLEMENTING partners”. “Well-founded fears”. One of the first things you notice about Dadaab, a sprawling collection of refugee camps in the Kenyan desert 90km (56 miles) from the Somali border, is the jargon. It comes thick and fast in conversation with the NGO workers running the field offices and health clinics. It is on the posters in agency compounds and the donated t-shirts sported by toddlers. You even hear it from some of the younger refugees, because the quickest way to get a water pipe fixed or a latrine built is to use the language of rights and repression. In Dadaab, the world’s largest agglomeration of refugees, the bureaucracy is almost as stifling as the heat.

It was not supposed to be like this. The refugee-protection regime established after the second world war promised livelihoods and security offered by stable states, not NGOs. But although many Europeans may imagine refugees as people on the move—crossing the Mediterranean in overloaded rubber dinghies or trudging through the Balkans—Dadaab is closer to the reality of most of the world’s displaced people. Some 345,000 refugees, 95% of them Somalis who have fled across the border, are spread across five camps, their lives governed by dozens of NGOs that have little understanding of development or statebuilding, and a Kenyan police and security presence that at times can feel more like an occupying force.

Back in 1991, when the UNHCR first consolidated the informal settlements established by Somalis fleeing civil war into an organised refugee camp, no one expected Dadaab to last this long. But over time the camps grew (some now resemble cities), informal economies emerged and people got used to the life. Somalia’s endless strife made return home difficult for most.

In many respects the NGOs that run the place do a fine job.

The schools they operate are overstretched, but that is partly be- 1 13

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2 cause they have attracted lots of pupils. There are no funds for

treating chronic conditions, but the clinics are clean and well run; a cholera outbreaklate last year was quickly contained. Many refugees dislike the maize, beans and flour they are given—“donkey food”, says one—but now that the UNHCR has introduced a biometric system to cut fraud, it is at least distributed efficiently.

There are flourishing secondary markets for UN rations. In some ways the services are better than those available to some Kenyans, so thousands of locals, mainly ethnic Somalis, have passed themselves off as refugees to gain access to the camps.

But agencies can do only so much. Few refugees are able to work. Once children finish school there is little chance of higher education except for the lucky few who obtain scholarships to places like Canada. “What’s the point?” asks Deka Abdullahi, an ambitious 18-year-old at Hagadera Secondary School, who complains that her hard work will leave her no better off than girls who quit school years ago. Many refugees have simply pressed pause on life, idling away the hours by chewing the fat (or the khat). A second generation has grown up with no knowledge of life outside Dadaab; a third is already 10,000 strong.

The “docile, disempowered” refugees, writes Ben Rawlence in City of Thorns, an account of life in Dadaab, “do as they are told. They hesitate before authority and plead for their rights in the language of mercy.” Their lives are shaped by external forces that reach the camps through two main tribunes: the agencies and NGOs that sustain them, and the Kenyan government, which wants to close them. Then there is the violence of Somalia’s al-Shabab insurgency, which has spilled over into the camps in previous years.

Dadaab is a much safer place these days, but that is not how Kenya’s politicians see things. The government says the camps harbour al-Shabab terrorists. In May it abruptly disbanded its department for refugee affairs and said it would close Dadaab by May 2017, without explaining how such a massive operation might be carried out. Some saw the announcement as a ruse to extract more money from donors, who have been distracted by the Syrian crisis. Since 2010 the UNHCR’s funding for Dadaab has fallen from $223 to $148 per person a year (excluding food). The World Food Programme cut its rations by 30% last year. Previous pledges to close Dadaab have come and gone, yet this time the government seems more determined.

Aid groups warn that closing Dadaab could trigger a humanitarian catastrophe, particular if refugees were sent into danger zones across the Somali border. But the government has rarely been interested in outsiders’ views. For years donors have urged Kenya to allow refugees to integrate, by loosening restric-

14

tions on work, opening up to investment in infrastructure or allowing them to move out of the camps. But even if the government does retreat from its plan, there is no prospect of local integration for the denizens of Dadaab, and only a lucky few will be resettled.

That leaves the UNHCR’s third “durable solution”: voluntary repatriation. In 2013 the UNHCR and the Somali government bowed to Kenyan pressure and backed returns for Somalis in Dadaab. Under this “tripartite agreement” the UNHCR arranges journeys back to Somalia for willing refugees. They are given a $100 voucher for food, and agents follow up with phone calls to check on their progress. “The world is looking at the Middle East, not at us,” says Abdisaid Aden, a former businessman, as he prepares to board a repatriation flight to Mogadishu after five years in Dadaab. He blames cuts in the camps for his decision to leave.

Over 14,000 refugees have returned since the scheme took effect in December 2014. But that is not fast enough for the government.

Almost all those who have been repatriated are from the second influx of Somali refugees, who arrived in Dadaab in 2010-11fleeing drought as much as violence. The first, much larger wave, dating to 1991-92, will be harder to persuade. With settled lives in the camps, they have more to lose and, in most cases, little to return to: most have sold, or lost, what assets they had in Somalia. “I’m not going anywhere,” grins Bishar Barre, a tailor who has lived in Hagadera, the largest of the five camps, since 1992.

His small clothes-repair outfit keeps him busy, and his ten children have places in the camp’s schools. He says he will leave only if everyone else does.

Try another way Elsewhere in Kenya things may be more promising. In Kalobeyei, a settlement outside Kakuma, another refugee camp, in the remote north-west, a plan is afoot to grant refugees small plots of land and allow them to sell their produce. (Kakuma was also slated for closure in May, but the government appears to have backtracked, as there are no suggestions of terrorist links to the camp.) Cash vouchers may replace food rations to encourage local economic integration. It is early days, but agencies hope Kalobeyei may be built up to accommodate 60,000 people. The experiment was inspired by a model over the border in Uganda, where refugees from Congo, Rwanda and elsewhere have long been granted a degree of self-reliance. From beginnings in farming, some have now diversified into commerce and manufacturing. One-fifth of refugees in Uganda employ people outside their family, and of those 40% are Ugandans, according to research by Oxford University’s Refugee Studies Centre. This approach has provided refugees with livelihoods and hope, and helped secure some support Ugandan hosts.

The Kenyan from their Alas, back in Dadaab the residents government have no such ambitions. Instead they are left to pray for more generous donors, a has gradual improvement back home and mercy at the hands of their Kenyan hosts. clamped Around the world, from Pakistan to Gaza, down on over 11m refugees are living in such “protracted situations”. “We don’t have a furefugees’ ture,” says Victoria, a South Sudanese freedom of woman, as she concludes a phone conversation with an NGO about a broken movement water tap. “We’re just refugees.” This is life for hundreds of thousands in Dadaab.

Syrians entering their fifth year of displacement in neighbouring countries fear they might be going the same way. 7 The Economist May 28th 2016

SP EC IA L R EPO R T MIGRATION

Looking ahead

How to do better Spontaneous migrant flows cannot be prevented, but they can be handled more competently THE REFUGEE CONVENTION says that states should do “everything within their power to prevent [refugees] from becoming a cause of tension” between them. They have manifestly failed. Chaotic flows set governments against one another.

Countries hosting lots of refugees bitterly resent the rest of the world for failing to do its bit. Refugees, bar the lucky few who have made it to developed countries, are increasingly locked in limbo, wards of a system run by NGOs that offers them no hope of building a meaningful life.

That does not mean the world should rip up the convention and start again, as some urge. A tapestry of international law has been woven around the idea that there is a specific class of people who deserve the protection of states other than their own.

Starting from scratch is more likely to undermine that idea than expand on it. A legal definition of refugees is needed to secure consent in countries that protect them. Without it the right to asylum, and the prospect of resettlement, will evaporate.

Instead, suggests James Hathaway of the University of Michigan, view the convention as a beautiful house with a worn carpet. It needs renovation, not reconstruction. That means two things. First, recognition that refugees will eventually need more than humanitarian protection. Second, a new compact between the rich world, which has the resources to manage the problem, and the poor, which bears the brunt of it. Countries like Lebanon and Kenya are providing a global good and deserve more help.

The starting point must be a new approach to protracted situations to place integration at the heart of refugee policy. That The Economist May 28th 2016

does not mean giving refugees immediate citizenship rights (although in due course they should be offered to some). The possibility of a return home should never be blocked off. But over time, granting refugees a degree of self-determination can reduce the distressing waste of human potential in places like Dadaab, and reduce friction between refugees and their hosts.

For too long Western politicians have been profusely thanking refugee-hosting countries for their generosity while chastising them for not allowing their guests to work or move around freely. Such hypocrisy has not gone unnoticed in the developing world. So in a related change, the West should introduce long-term development thinking into refugee policy, the better to align the interests of refugees with those of the communities that host them.

Some refugee aid should be shifted from humanitarian agencies to development budgets, politically difficult though that might be. The World Bank has already changed its rules to help middle-income countries facing large refugee burdens. Individual rich countries, or clubs of them, could offer trade preferences to countries with large refugee populations, as they do for the world’s poorest. But governments are not the only actors. Jordan’s economic zones show how the private sector may be encouraged to help both locals and refugees.

Be prepared Managing the world’s stock of refugees is one thing; dealing with sudden flows from conflict areas that can strain economies, infrastructure and social cohesion is another. Countries like Lebanon and Jordan, dealt a poor hand by geography, should not be left to cope on their own.

It is impossible to tell where or when the next wave of displacement will appear, but educated guesses can be made. The UNHCR is worried about women and children fleeing gangs in Central America and heading for the United States. In north-east Nigeria Boko Haram has displaced 2.2m people. The Middle East is as flammable as ever. And other potential sources of large population shifts loom, notably climate change, which might gener- 1 15

S P E C I A L R EPO R T M IGRATI O N

2 ate fresh waves of migration as arable land degrades and water

would otherwise struggle to Offer to readers scarcity leads to conflict and flight. keep a lid on. The disorderly Reprints of this special report are available.

Help from the rich world should begin with the traditional flows into Europe last year were A minimum order of five copies is required. responses: more resettlement and more help for humanitarian the outcome of a problem alPlease contact: Jill Kaletha at Foster bodies. Acutely overstretched countries should be given particulowed to fester. “Refugees are Printing Tel: +1 866 879 9144 Ext: 168 e-mail: jillk@fosterprinting.com lar support. David Miliband, head of the International Rescue convincing governments of the Committee, a humanitarian group, wants rich countries to acneed to act,” says Mr Grandi of Corporate offer cept 10% of the world’s refugees, concentrating on the most vulthe UNHCR. If nothing is done, Corporate orders of 100 copies or more are nerable. More money is needed, too. Last year the UNHCR was “they will come anyway.” Euroavailable. We also offer a customisation able to meet only half the needs it had budgeted for, and several pean leaders no doubt regret service. Please contact us to discuss your requirements. of its projects were left massively underfunded. having paid so little attention to Tel: +44 (0)20 7576 8148 But fresh thinking is also needed to help countries avoid illegal migration until a year ago. e-mail: rights@economist.com sinking into protracted situations. Places like Lebanon should Many fear the next wave, from For more information on how to order special not have to hold out the begging bowl at hastily convened donor Libya, Turkey or even Russia. A reports, reprints or any copyright queries conferences every year or two. Agencies have learned to move pre-emptive approach might be you may have, please contact: equipment and personnel near conflict zones in preparation for seen as a form of insurance. So The Rights and Syndication Department a wave of refugees. An expanded global fund for displacement, there is a strong case for Europe 20 Cabot Square London E14 4QW overseen by an independent authority that can spring into acleading the way.

Tel: +44 (0)20 7576 8148 tion when required, would make such planning and response But first the EU must get its Fax: +44 (0)20 7576 8492 easier. Governments might prefer the predictability of regularly own house in order, using the e-mail: rights@economist.com paying into a fund to ad hoc donor events. And once refugee probreathing space that the deal www.economist.com/rights blems turn from acute to chronic, the response should shift from with Turkey has granted (proFuture special reports humanitarian to development. vided it holds). Rather than Artificial intelligence June 25th The International Organisation for Migration, which may squabbling about plans drawn Chinese society July 9th soon be folded into the UN, could help match global migration up in Brussels to spread refugees The company September 17th supply and demand as part of a tighter international migration around member countries, it The world economy October 1st regime. But global governance has its limits. The international should think about different Previous special reports and a list of system is prone to inertia and turf wars. The UNHCR, the tradiways in which countries may forthcoming ones can be found online: tional guardian of the rules governing refugee movements, no contribute, be it in cash or in economist.com/specialreports longer carries the clout it once did, and kind. There is a case for generatmay find it difficult to embrace fresh aping common resources to manproaches to protection. So the political enage this common problem, ergy for change will have to come from whether by issuing bonds, as Italy has proposed, or through a governments, often acting together. The new tax, as Germany might prefer. At the same time the EU must next American president, if so inclined, continue its slow trudge towards a harmonised asylum system. might encourage a rethink of the global The advantages of co-operation are less obvious to counprotection scheme, perhaps with the help tries isolated from the direct consequences of regional unrest, of a new UN secretary-general. such as Australia, Japan and, to a degree, America. But they, too, The new approach should work have an interest in preserving the liberal order that is threatened with the grain of international politics. Bilateral relationships often yield better results than sluggish international bodies Migration is an intrinsically ambivalent business, both can offer. Spain’s deals with West African countries such as Senegal, which combine for the governments that must manage it and for the police and patrol co-operation, repatria- migrants themselves tion deals and lots of aid, slashed illegal immigration some years ago. Some countries will be well placed to accept particular refugee groups beby vast refugee flows. They do not want to see the EU, its greatest cause of historical or colonial ties, as in the successful resettlechampion, tear itself apart. Another refugee crisis in the Middle ment in Britain of the Ugandan Indians expelled by Idi Amin in East could topple governments, with unpredictable conse1972. Rich countries seeking to plug particular gaps in their labour quences in a combustible region. And even the status quo might markets might be encouraged to take in refugees. not be stable. Some refugee populations, if left to rot, can turn to what aid groups call “negative coping strategies,” from drug It’s everyone’s problem abuse to crime to the threat of terrorism across borders. Many will be exploited, especially children.

All these changes would make it clearer that legal responsiIn the end, though, nothing can force a government to do bilities to refugees cannot be separated from politics. Too often more for refugees outside its borders. The policies of the next age national politicians and international officials talk past each othof refugee management still depend on a spirit of compassion er: accusations of xenophobia fly in one direction, dismissals of and humanitarianism. Migration is an intrinsically ambivalent starry-eyed idealism in the other. In the West, the first principles business, both for the governments that must manage it and for of international refugee law are wearily revisited every time the migrants themselves. The hopes they have invested in a new numbers surge. homeland will always be tempered by regret for what they have Lawyers and NGOs need to accept that the treaties and lost and by fear ofwhat may lie ahead. As for policymakers, there rules they cherish will wither without the continued consent of is nothing they can do to prevent unpredictable refugee flows. the democracies that drew them up. Politicians, for their part, But they could certainly make a better job of managing them. 7 should acknowledge that aid agencies manage a problem they

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The Economist May 28th 2016

The Economist May 28th 2016 43

Europe

Also in this section 44 Crimea’s Tatars 45 Greece gets its bail-out 45 Austria’s presidential squeaker 46 Germany’s ethnic labels 48 Charlemagne: Sexism in France

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

Visa liberalisation

Europe’s murky deal with Turkey BRUSSELS AND ISTANBUL

The EU is gambling its reputation to secure its borders

I

T WAS meant to be a game-changer.

When a deal between the European Union and Turkey was struck in March with the aim of limiting the numbers of asylumseekers coming to Europe, many in Brussels felt cautiously optimistic. Angela Merkel, the German chancellor, claimed it offered a “sustainable, pan-European solution”. In exchange for visa-free travel for some ofits citizens, €6 billion ($7 billion) in refugee aid and revived talks on possible future accession to the EU, Turkey was to take back migrants who had made their way to Greece and try to secure its borders.

Faced with perhaps another million refugees making their way to Europe this year, it appeared to be the only way to bring some order to the chaos.

The number of refugees coming to Europe has indeed dropped (see chart). Yet the agreement is looking more and more murky. It risks undermining both the reputation of the EU and its relationship with Turkey, from whose shores hundreds of thousands of refugees set off last year on their journey to Europe.

Since the agreement Recep Tayyip Erdogan, Turkey’s president, has become even more openly and arrogantly autocratic, as if to show that he can flout European norms with impunity. On May 22nd he replaced the prime minister, Ahmet Davutoglu, who was the engineer of the migrant deal, with a loyalist, Binali Yildirim. The ousting was as smooth as it was ruthless.

Save for a few vague references to party unity, no one in the ruling Justice and Development party bothered to offer a rea-

son for Mr Davutoglu’s departure.

Mr Yildirim pledged to enshrine Mr Erdogan’s status as the party’s leader and executive president. Two days earlier Turkey’s parliament lifted the immunity of its members, opening the way for 50 of 59 MPs from the pro-Kurdish Peoples’ Democratic Party to face prosecution, mostly on spurious terror charges. Mr Erdogan accuses them of peddling propaganda for the Kurdistan Workers Party, an outlawed militia—an accusation they strenuously deny.

Mr Erdogan has also clamped down more forcefully on the press and potential dissidents. According to a report in May, nearly 900 Turkish journalists have lost their jobs in the first four months of the year, and 33 were detained. Prosecutors have opened more than 1,800 cases against people suspected of insulting Mr Erdogan since he was elected president in 2014. His

From flood to trickle Daily migrant arrivals to Greek islands, ’000 EU-TURKEY DEAL GOES INTO FORCE

10 8 6 4 2 0

Oct

Nov

2015 Source: UNHCR

Dec

Jan

Feb

Mar

2016

Apr May

reach even extends beyond Turkey. In April he exploited a German prohibition on insulting foreign heads of state to demand that Jan Böhmermann, a comedian, be prosecuted for reading a satirical poem on television that depicted Mr Erdogan in various obscene acts.

All this has spooked officials in Brussels. On May 23rd Mrs Merkel admitted that visa-free travel would not happen by July, as had been agreed on (somewhat unrealistically) in March. Turkey still needs to meet the EU’s final seven conditions (out of 72). These include issuing biometric passports; cracking down on corruption; becoming more co-operative with extradition requests; and, most controversially, narrowing the broad anti-terror laws it has used to harass journalists, academics and politicians. The EU’s Council of Ministers is developing new rules that would make it easier for Europe to suspend visa liberalisation for six months, or rescind it altogether, if circumstances change. Such contortions may make visa-free travel more politically palatable to Europeans wary of illegal immigration from Turkey. But they also make the deal look cynical.

The problem, says Marc Pierini of Carnegie Europe, a Brussels think-tank, is that the issues of visa liberalisation, EU accession and immigration should not have been mixed up in the first place. Turkey has been seeking visa-free travel for years. Including it in the refugee deal makes it a reward for doing Europe’s dirty work, rather than a way of granting Turkey more equal footing with the EU. The deal also gives Mr Erdogan a bargaining chip: if no visa-free travel is forthcoming, he could let refugees through to Europe once more. Even a few thousand would cause chaos: Greece is still overwhelmed by the 50,000 refugees stuck there since March.

If visa liberalisation does go ahead, Europe could lose much of its leverage over Turkey. “Europeans overstate the attraction of what they are offering,” says Hugh Pope 1

44 Europe

The Economist May 28th 2016

2 of the International Crisis Group, an NGO.

The idea of accession is less of a draw than it was in the mid-2000s, when Turkey was pushing through reforms. Support for the EU has increased: according to one poll 62% of Turks want to join the EU, up from 42% in 2015. But nearly seven out of ten believe Turkey will never be allowed in.

Most damaging, European leaders seem to be lowering standards in order to make the deal work. Few spoke out when the offices of Zaman, a formerly critical newspaper, were seized by the government in March. Other abuses, including the shelling of residential neighbourhoods during clashes with Kurdish insurgents, have been raised only hesitantly.

If visa liberalisation is granted after Turkey merely tweaks its laws, that would further undermine the EU. Many in Brussels are unhappy that it has sacrificed its principles to such an extent, says Marietje Schaake, a Dutch MEP. It sends the message that “if we need you badly enough, then everything can be talked about”. Yet it is not clear the EU can get a better deal. The message this one sends may be accurate. 7

Crimea’s Tatars

1944 all over again BAKHCHISARAY AND SIMFEROPOL

A Eurovision win provides symbolic victory over Russian repression

O

N May 14th Crimea’s indigenous Tatars sat glued to their screens, watching as Jamala, a Ukrainian singer of Tatar descent, won the Eurovision song contest.

Jamala’s song “1944” commemorated Stalin’s brutal deportation of the entire Crimean Tatar population. For Russia’s government, the song was an infuriating breach of the contest’s ban on politics. For Tatars, it was a gesture of defiance. Most Tatars refuse to accept Russia’s annexation of the peninsula in 2014. As a result, they have been singled out for punishment.

In Crimea every Tatar family has stories of the deportation. Eighty-one-year-old Refat Selyamiev still clearly remembers May 18th, 1944, when Soviet soldiers came to his family’s house, led his mother and her three children out and brought them to a local cemetery. They expected to be murdered. Instead they, along with the rest of Crimea’s 200,000 Tatars, were taken to the train station, bundled into cattle cars and shipped to Uzbekistan. Stalin claimed the Tatars had collaborated with the Germans.

The trip took 18 days. Mr Selyamiev remembers the thirst, the diet of salted herring, and the dead (8,000 in total during the journey) being chucked out of carriages at train stops. Three months into the

UKRAINE Dnipropetrovsk

Luhansk

Donetsk Rostov

Odessa

Sea of Azov

CRIMEA Bakhchisaray

Simferopol

Sebastopol

Yalta

150 km

Black Sea

RUSSIA

Sochi

exile his mother died, aged 32. He was put into an orphanage. His father, who had been with the Soviet army fighting the Germans, came to collect him.

Mr Selyamiev’s latest experience of Russian state violence is much more recent. On February12th a dozen armed men in balaclavas broke into his house, forced his son to the floor and placed his two grandsons facing the wall, guns pointed at their backs. Other armed men, accompanied by a dog, searched the premises. His son was taken to the police station, where he was interrogated over alleged sabotage of railway tracks, then released.

Crimean Tatars who refuse to accept Russian annexation see it as a continuation of Stalinism. (As if to prove them right, Russia’s Communist Party has peppered roadways with billboards featuring Stalin’s portrait and the words “It is our victory!”)

Governed by Sergei Aksyonov, a Russian puppet nicknamed “Goblin”, the peninsula has become dangerous for the Tatars.

Their houses and mosques have been searched and some of their men abducted, tortured and killed. The Mejlis, their representative body, has been outlawed. Some 15,000 have fled, mostly to Ukraine. Nariman Dzhelalov, the deputy head of the Mejlis, calls it a “hybrid deportation”—a ref-

A Tatar’s courage never flags

erence to Vladimir Putin’s “hybrid war” of dirty tricks and disinformation when grabbing Crimea in the first place.

Russia has long practised similar methods in the North Caucasus. Abdurashid Dzhepparov, a Tatar activist whose son and nephew were abducted two years ago and never found, says the goal is either to intimidate or to provoke a revolt that would serve as a pretext for mass repression. Prosecutors have charged several observant Muslims with terrorism and adherence to Hizb ut-Tahrir, a pan-Islamic political organisation that was banned in Russia in 2004 but not in Ukraine. In an Orwellian twist, Tatars who opposed Russia’s annexation have been charged with “threatening Russian territorial integrity”.

The Russian government is also trying to co-opt Tatar leaders. A few members of the Mejlis have switched sides, launching a pro-government movement called Kyrym. Other Tatars face a difficult moral choice. Lenur Islyamov, once Crimea’s biggest businessman and the owner of ATR, the Tatars’ TV channel, has moved to Ukraine. He has organised a blockade of goods to Crimea and put together a military battalion which, he says, would be ready to defend Crimean Tatars.

On the other side, Remzi Ilyasov, a former Mejlis member, now serves as a vicespeaker of the Russian-installed Crimean parliament. He says the Tatars should accept Russian rule, and Mr Islyamov endangers the lives of ordinary Tatars.

Mustafa Dzhemilev, formerly the head of the Mejlis and, before that, the leader of a nonviolent Tatar resistance movement against Soviet rule, now lives in exile in Kiev, barred from entering his homeland.

He is resolute: “If an enemy comes to your land, you have to resist.” Anyway, he argues improbably, it is only a matter of time before Crimea is returned to Ukraine. “The Soviet government was trying to break us but in the end broke up itself. And Russia is not even the Soviet Union.” 7

The Economist May 28th 2016 Greece gets its bail-out

Temporary relief ATHENS

The EU, the IMF and Greece agree to disburse now and argue later

T

HERE was plenty of shouting in parliament as Greece’s government, led by the leftist Syriza party, pushed through a €1.8 billion ($2 billion) package of tax increases on May 22nd. Protestors, among them a former Syriza cabinet minister, hoisted a banner outside the building declaring “They (the measures) shall not pass”. But Alexis Tsipras, the prime minister, rallied his lawmakers: there were no defections. Afterwards Panos Kammenos, defence minister and leader of the rightwing Independent Greeks, Syriza’s coalition partner, blasted the rise in valueadded taxes on small Aegean islands— which he had just voted for—as “criminal”.

From next year Greeks will have to pay more for the small pleasures that have made life bearable during the country’s seven-year recession: cigarettes, coffee and even craft beer. VAT will rise to 24% on groceries, mobile phone calls and most consumer goods. “Just surviving has become a challenge,” sighed Stelios Paterakis, a retired army officer living on a pension of €800 a month.

The tax increases completed a package of reforms that Greece agreed to after six months of negotiations with its creditors, the European Union and the International Monetary Fund. Their passage could mark a turning point. Last year Greece’s economy suffered tremendous damage while the newly-elected Mr Tsipras battled the EU and the IMF, demanding a debt writeoff and better loan terms. According to the Lisbon Council, a think-tank, the sixmonth confrontation cost Greece more than €40 billion in lost output and revenues before Mr Tsipras capitulated, accepting harsh conditionality in return for an €86 billion bail-out.

But having accepted the bail-out, the government dragged its feet over the conditions. The May 22nd vote finally satisfied Greece’s creditors that they had been met.

In the early hours of May 25th, after a grueling 11-hour meeting, Eurozone finance ministers hashed out a deal to disburse €10.3 billion of funds to cover Greece’s debt repayments for the rest of the year.

Deep divisions remain between the EU and IMF, which insists that Greece’s creditors must reduce its huge debt load to make it sustainable. Germany will not hear of it.

The deal struck in Brussels delays the issue until 2018, after the current bail-out ends (and after Germany’s election next year).

Meanwhile Greece must plod on with pen-

Europe 45 sion and tax reforms, and speed up privatising state property.

In sum, the deal extends the long Greek and European tradition of down-road cankicking. Yet for Greek businesspeople, any agreement is a welcome promise of financial stability. Yields on Greek bonds are at their lowest since November. Finance ministry officials think the government can return to capital markets early next year. The European Central Bank is set to accept Greek government bonds again as collateral for loans, allowing Greek banks to borrow at cheaper rates. That will free up billions in desperately needed liquidity for borrowers. Kostis Michalos, chairman of the Athens chamber of commerce, summed up the mood: “I have to admit, I’m beginning to feel optimistic.” 7

Austria’s presidential squeaker

So long, farewell?

VIENNA

The far right lost in Austria, but it is a growing force in Europe

“T

HERE are two possibilities,” predicted Norbert Hofer, who had just become the standard-bearer of Europe’s hard right. It was May 22nd, voting in Austria’s presidential run-off had ceased and the Freedom Party of Austria (FPÖ) candidate seemed to be ahead. “The first: I become president. The second: I become president, and Heinz-Christian Strache becomes chancellor!” In the beer garden in Vienna’s Prater amusement park, his supporters roared, drowning out shrieks from the adjacent roller coaster. Mr Strache, the FPÖ’s leader, grinned.

Once absentee ballots were counted the next day, a third scenario materialised.

Mr Hofer (who carries a Glock pistol, supposedly to fend off refugees) narrowly lost

Up on the right Voting intention for far-right parties Selected countries, % of respondents

50 Poland 40 Austria Switzerland

Hungary Germany January 2013

30 France* Netherlands 20 Denmark Sweden Italy Belgium (BE) Slovakia (SK) 10 Finland Britain (FI) Greece (GR) 0 May 2016 or latest

Sources: Ipsos Mori; YouGov; TNS-Nipo; Gallup;demoskop.se; electograph.com; Niepewne Sondaze; press reports

*% with positive sentiment towards

to Alexander Van der Bellen, Austria’s 72year-former Green Party leader. Just 31,000 votes averted the election of western Europe’s first far-right head of state since 1945.

How had a man who talks of the “Muslim invasion” of Europe come so close?

The answer is part local, part European.

The FPÖ epitomises Austria’s failure fully to come to terms with its complicity in the Third Reich. Founded by former SS officers, the party has close links with Austria’s Burschenschaften, secretive fraternities that embrace pan-Germanist ideology. The FPÖ has traded its earlier anti-Semitism for Islamophobia; “Vienna must not become Istanbul” runs one slogan. Yet it enjoys some respectability. It has formed regional governments with both the centre-right ÖVP and the centre-left SPÖ, and in 2000 joined a national government as a junior partner.

Voters in Austria are fed up with the two mainstream parties, which have spent decades parcelling out state jobs to their supporters and have been in coalition together since 2007. The unemployment rate has risen slightly, to 5.7%. When the migrant crisis broke, the SPÖ-ÖVP government first endorsed Angela Merkel’s prorefugee policies, then reversed course. The FPÖ, with its dark warnings about foreign criminals, has looked more sure of itself.

The two establishment parties together obtained just 22% of the vote in the first round of the presidential contest. Mr Van der Bellen won thanks more to strong anti-FPÖ turnout than to his own appeal.

The continental dimension is the refugee crisis. Across Europe, parties of the populist right have made strides (see chart) by whipping up angst about the newcomers. Some, like Poland’s Law and Justice party and Viktor Orbán in Hungary, are post-Soviet nationalists. Others, like Alternative for Germany, the Danish People’s Party, the Party for Freedom (PVV) in the Netherlands and the UK Independence Party, are break-outs from the mainstream right. Then there are openly racist outfits like Hungary’s Jobbik and Greece’s Golden Dawn. The FPÖ, like Marine Le Pen’s National Front in France, is in a fourth category: hard-right parties reaching new voters by smoothing over their extremism.

Mainstream European politicians—not unlike American ones currently discombobulated by Donald Trump—lack a formula for beating these upstarts. The populist right is using the refugee crisis to woo older, poorer and more nostalgic voters with talk of national pride and the decadence of elites. In Austria, at least, the centrists have an example of what not to do.

The country suffers from an over-cosy establishment and a deficit of mainstream opposition voices. The SPÖ and ÖVP have pandered to the anti-refugee right rather than confront it. The result on May 23rd could easily have gone the other way. Moderates elsewhere should be scared. 7

46 Europe

The Economist May 28th 2016

German nationality

Name, date of birth, migration background BERLIN

Of all the ways European countries classify ethnicity, Germany’s may be the worst

I

N TERMS of diversity, the German squad that will travel to France for the UEFA football championship next month leads the national trend. About one in five Germans has a so-called “migration background”, but nearly half the national team does. The names on the jerseys include Boateng (Ghanaian), Mustafi (Albanian via Macedonia), Bellarabi (Moroccan), and Khedira (Tunisian). Even some of the German names belie foreign origins. Antonio Rüdiger’s mother is from Sierra Leone.

Bernd Leno has Russian roots.

When Germans talk about ethnic origins, they contrast the term “migration background” with its cheeky antonym, bio-deutsch (“organic German”). This reflects attitudes toward nationality that are both controversial and in flux. By tradition, Germanness has always been an ethnic identity, based on shared descent or “blood”. But today Germany is becoming a multi-ethnic society like other Western countries. This raises the question of how the state should officially treat the categories of “bio” and “migrant”.

The pressing issue this year is how to count them. Since 1957 Germany has conducted an annual “micro-census” of 1% of the population. A new law in 2005 added a complex tangle of questions every fourth year meant to determine whether a household has foreign origins. Bureaucrats decide whether to assign the label “migration background” based on the questionnaire, which has become controversial. Because the law expires this year, moreover, a new version is now wending its way through the committees of the Bundestag. This has scholars and policymakers pondering how identity should be measured.

The rest of Europe takes wildly differing approaches. At one extreme is France, which has traditionally defined citizenship as a choice. It thus officially ignores descent and ethnicity in its census questions. This was always a bit hypocritical, says Patrick Simon of the National Institute for Demographic Studies in Paris; the French used racial categories in their empire and, when it ended in the 1950s, began applying them to the ex-colonials who came to France. But they soon reverted to treating nationality as a binary matter of having or not having citizenship, regardless of descent.

Britain in 1991 and Ireland in 2010 took a different path. Like other English-speaking countries, they accepted that their societies

were already multi-ethnic. Policymakers wanted to compile statistics for different groups in the hope that this might help them monitor discrimination. So they included questions about ethnicity in their censuses. But respondents self-identify by choosing from a menu of options, including “black British” and “mixed”. Ethnicity is subjective, not scientific.

The countries of eastern Europe reflect yet another tradition. They are young states that broke out of collapsing multiethnic empires. Their emphasis is therefore on counting centuries-old national minorities, rather than new migrants. Hungary, for example, has a list of official ethnicities, from Magyar and Slovenian to Serb or Roma. But these countries also use selfidentification. One drawback is that some groups, especially Roma, may prefer not to “out” themselves for fear of stigmatisation, and thus go undercounted, says Linda Supik, an ethnologist in Essen.

Germany, the Netherlands and the Scandinavian countries form a final bloc.

In the past, these societies were relatively homogenous. Today, they have a well-intentioned reluctance to admit the existence of an ethnic mainstream, which could imply that other groups are secondclass citizens. Their censuses do not ask directly about ethnicity, but use proxies— such as the birthplace of parents—and then assign a seemingly objective category.

In the German case this approach harks

All cheering for the same team

back awkwardly to old notions of blood identity, argues Anne-Kathrin Will at the Otto-von-Guericke University in Magdeburg. To have a “migrant background”, it is enough for one parent to be born abroad.

And the German system, unlike the Dutch, passes the status on to the children. Many Germans with just one foreign-born grandparent are classified as having a migrant background. But parents or grandparents who migrated to Germany before the 1950s are excluded, in order to exempt the millions of ethnic Germans who fled from eastern Europe just after the second world war. Although they were migrants, they and their progeny are not considered to have a “migration background”—in effect, they are deemed bio-Deutsche.

All approaches have their problems.

The French notion that the state should deliberately ignore the ethnicity of its citizens is naive, says Mr Simon. Refusing to collect data on how many citizens have African or Arab backgrounds makes it much harder for policymakers to identify or fight discrimination. By contrast, the problem with self-identification is that categories are subjective and culturally fluid. This makes it hard to compare data over time.

But most scholars thinkthat bureaucratic decisions made through pseudo-objective proxy questions are the worst option.

When parental birth is the only criterion, ethnic information is lost with each generation. A fourth-generation German citizen who is black may want to identify with his ethnic group—as many Latino Americans do, for example. By contrast, a German child who has one foreign grandparent may not view ethnicity as relevant to her identity at all. The ultimate challenge, says Mr Simon, is to rethink the meaning of “mainstream”. The aim is to make society more cohesive. Germany’s classification system seems to be dividing it. 7

48 Europe

The Economist May 28th 2016

Charlemagne Of creeps and crèches French working women get universal child care—and universal harassment

T

HERE is a scene in “Marseille”, a new television drama billed as a French version of “House of Cards”, in which an ambitious deputy mayor holds a campaign meeting in his office. A photo is selected for election leaflets. New polls provoke cheers.

As the male staff file out, the deputy mayor shuts the door behind them, detaining the sole young woman on his team. “A good poll should be celebrated,” he mutters, pinning her to his desk and unbuttoning her shirt: “Isn’t this what you wanted?”

Sex and smoking feature to excess in “Marseille”. Perhaps the French writers are catering to what they think Americans expect from a drama about French politics. Yet there is something about the casual indifference of this scene, of no great narrative consequence, that makes it unusually plausible. Five years after the DSK affair—when Dominique Strauss-Kahn, the former IMF chief and Socialist politician, was arrested on rape charges (later dropped)—France again faces claims of predatory sexism.

This month Denis Baupin resigned as deputy speaker of parliament after claims of years of sexual aggression and harassment (which he denies). Days later Michel Sapin, the finance minister, apologised for inappropriately touching a female journalist.

Such caddish behaviour would hardly be rare: parliament, nearly three-quarters male, sometimes echoes like a farmyard. One opposition deputy clucked like a hen (une poule is used to mean “chick”) when a female deputy spoke. Others whistled when a female minister took the floor in a dress. “We thought the DSK affair had changed the situation and that macho habits…were heading for extinction. Alas,” wrote a group of female journalists last year in Libération, a newspaper.

What’s the French for “chauvinism”?

Of course, every country suffers from sexism. And France has at least made an effort to combat discrimination. Although women did not get the vote until 1944, today parité, or equal rights, is a national creed. Half of government ministers are female. Electoral rules require party lists to be made up equally of men and women. Next year a quota will require women to make up at least 40% of big companies’ board members.

What makes France different, though, is a tolerance of sexual entitlement, mixed with complex codes about femininity. Like

Italians, the French have traditionally treated male seduction as part of the political game. Infidelity by public figures is seen as normal, and disapproval as a puritan obsession ofuptight Americans or northern Europeans. No French president has been hounded from office for sexual dalliances, including the current one, who was photographed heading for a tryst on a scooter. Both the wife and the mistress of another, François Mitterrand, attended his funeral, to general indifference.

Moreover, even some women ridicule the notion that commenting on their appearance is sexist. France, after all, values elegance and aesthetics in all corners of life, whether of cakes in a pâtisserie window, or neatly polished nails. Admiring a woman’s look is not always meant as a sexual advance. Nor is a feminine dress sense—the Christian Louboutin heels, the Dior silk skirt— automatically interpreted as a statement of sexual availability.

French law defines sexual harassment with apparent clarity.

In practice, however, the rules are far from clear-cut. The cultural celebration of femininity in France, deplored back in 1949 by Simone de Beauvoir in “The Second Sex”, blurs the lines and complicates judgment. There is a self-censoring culture of silence over predatory behaviour.

A younger generation, however, is not so indulgent. This month 17 female former ministers, from left and right, declared that the “taboo and law of silence” was no longer acceptable.

Women need to overcome their fear that society will judge that “they were asking for it”, says Caroline de Haas, a young French feminist. Even if codes of seduction in France make it difficult to decrypt certain words or gestures, argues Clémentine Autain, a feminist politician, one phrase is unambiguous: “No means no.”

For a country that launched post-war feminist theory, France sometimes seems to be fighting yesterday’s feminist battles, and not just in politics. Corporate France, too, has its share of womanising chancers, as well as clubbish male practices. Only one CAC40 firm, Engie, is run by a woman. In America this might prompt a debate over whether the problem is female assertiveness (see Sheryl Sandberg) or corporate demands (see Anne-Marie Slaughter). In France the discussion is stuck on chauvinism.

Yet, if drawing the line between harassment, prejudice and Gallic charm makes France a complicated place to be a professional woman, it is also in other ways one of the most supportive in Europe. France stands out for its policies on working parenthood. On weekday mornings Paris’s sidewalks throng with tiny children, one hand clutching a comfort blanket, the other tucked into that of a besuited parent. They are off for a long day at école maternelle, or nursery, which the French state provides free to all children. Over 99% of three- to five-year-olds attend nursery, the highest rate among OECD countries apart from Malta.

France’s pro-natalist policies, historically inspired by the need to breed soldiers to keep Germany at bay, guarantee Scandinavian levels of spending on family benefits and crèches. Train travel is subsidised for big families. Generous paid holidays, and the cult of the month of August, help mothers, too.

As a result, far more mothers of small children work full-time in France than in Germany or Britain, all professional categories included. By actively supporting working motherhood, France makes it easier for women to stay on the career ladder after childbirth, even if statistics show they still do most of the housework.

In short, between good child care and infuriating male chauvinism, French working women have both the best and the worst of it. Which is not quite the same as having it all. 7

The Economist May 28th 2016 49

Britain

Also in this section 50 Brexit brief: Embracing red tape 50 A decline in teenage pregnancy 51 Bagehot: The continental imperative

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

Rural Britain

Countryside blues OKEHAMPTON AND JOHN O’GROATS

Britain’s rural areas are struggling. Cyclical and structural factors explain why

A

VISIT to Okehampton—a small town in England’s most rural parliamentary constituency of Central Devon—fulfils a very English yearning for long shadows on cricket grounds and warm beer. It is near to Dartmoor, a wild national park; cream teas are served in its 1950s-themed railway station, from where tourists can catch a train along the moor to Exeter every Sunday.

You might be forgiven for thinking that rural areas like Okehampton must be big winners from Britain’s rapid shift to the online economy. Why live in a cramped city when you can be just as productive working from a pretty village?

Since 1999 the proportion of British households with an internet connection has increased from 15% to 90%. Most adults now have a smartphone and in 2015, 13% of retail sales were online, up from 3% in 2007.

Yet many places like Okehampton are not booming. The economic output of “predominantly rural” areas in England (a classification based on the number of people living outside settlements with more than 10,000 people) accounts for about one-fifth of the country’s total. But output is probably lower today than it was in 2006, official figures suggest—in effect, a decade-long rural recession. The percentage of rural folk who are employed is lower now than it was in 2008-09. In recent years population growth has been far slower in rural areas than in urban ones.

On Okehampton’s high street, there are

plenty of empty shops. Since 2010 the rate of business creation in Central Devon has been one of the lowest in the country. Its position on a ranking of “multiple deprivation”, a rounded measure of poverty in English constituencies, has worsened by eight places since 2010. This is not just chance: the average “highly” rural area in England deteriorated by 14 places over the same period. Highly urban areas, meanwhile, improved by 11 places on average (though urban areas still tend to be more deprived than rural ones). In the decade to 2013 (the latest available data) suicides in highly rural parts of England rose by 3%, while falling by 10% in urban areas.

The poor performance of rural areas is in part because of government policy.

Firms in the countryside struggle to break into the online economy; in Okehampton the internet can be painfully slow. The previous Labour government promised that everyone in the country would have broadband by 2012. Having missed that target, the Conservative government estimated that by the end of 2015 less than 1% of all premises would have access to speeds of under 2Mbps—good enough for basic internet use, but not for streaming videos. The average download speed in urban areas is at least three times what it is in rural ones, according to a report from Ofcom, the telecommunications regulator. A recent study by the universities of Aberdeen and Oxford argues that low-quality internet im-

poses extra costs on rural businesses.

The countryside has lost out from government policy in another way, too. Since 2010 the number of public-sector workers across Britain has fallen by about 15%, as the government has trimmed public spending. This is a troubling development, since rural parts often rely heavily on the state for economic growth. For instance, without the spark generated by a growth of government jobs, private-sector employment in the Scottish Highlands would have fallen in the 2000s.

The pace of public-sector job losses in England since 2009 has been roughly 50% faster in rural areas than in highly urban parts. This may be the result of the government consolidating jobs in urban areas to make them more efficient. In parts of Leeds and Coventry, two mid-ranking cities, public-sector employment has recently risen.

Down, on the farm However, structural economic changes, beyond the remit of any politician, may be even more important than government policies. Agriculture may be one weakness. Total income from farming is estimated to have fallen in 2014-15 by a whopping 29% in real terms. Yet over a longer timeframe farming has performed decently. Average farm incomes are roughly double what they were a decade ago.

Changes to Britain’s manufacturing sector have probably had a bigger impact on rural areas. From the 1960s to the 1980s manufacturing employment grew rapidly in the countryside, according to a paper by David Keeble of Cambridge University, as firms looking to expand left the cities in search of cheaper land. Places like Powys, in central Wales, and the Highlands and Islands of Scotland benefited, even as overall manufacturing employment started its long decline. Rural areas ended up about a 1

50 Britain

The Economist May 28th 2016

2 third more dependent on manufacturing

employment than highly urban places.

However, recently the pressure of foreign competition has made production even in rural areas unviable. Manufacturing employment in the Highlands and Islands has fallen by about 20% since 2004, a similar magnitude to the average rural area. In 2013-14 a maker of electronic goods near Okehampton, which had been there for 50 years and employed at least 250 people, closed.

Nationally, the service sector has more than compensated for the continued fall in manufacturing jobs. But high-value service-sector industries are much better suited to urban areas. Such are the benefits of close personal relationships, in industries like banking, or the rapid sharing of ideas, in industries like advertising, that no matter how good technology is, dynamic

firms still want to be clustered.

In the past decade the economies of Britain’s five biggest cities have grown 12 percentage points faster in real terms than the rest of the country. Even if every rural area were hooked up to ultrafast broadband, places like London, Manchester and Glasgow have other advantages which make them an irresistible draw.

To convince rural folk that it was not just concerned about cities, last summer the government set out ten measures to improve rural productivity, including vague promises about “encouraging long-term investment” and giving such areas “greater local control”. Access to superfast internet will soon be a legal right. All this will help, yet the economics continue to tilt in favour of cities. Small towns and villages may be the spiritual heart of the nation, but economically they will continue to struggle. 7

Brexit brief

Yes, we have no straight bananas Brexiteers carp at European Union red tape, but how much of it would they tear up?

E

VERYBODY complains about EU regulation. Myths abound over curvature of cucumbers, how many bananas are allowed in a bunch or whether children may blow up balloons. More legitimate gripes include rules limiting working time to 48 hours a week, enforcing parental leave or regulating vacuum-cleaner power. Brexiteers say much red tape is imposed against British wishes and hobbles small firms that do not trade with the EU. They promise liberation after a vote to leave.

Membership of the EU, especially its single market, brings with it many rules.

Some are ill-judged, uncosted and not subject to cost-benefit analysis. The workingtime directive was a needless intrusion into an issue better decided at national level. And regulation imposes costs. Open Europe, a London-based think-tank, using official figures, says the annual cost to the economy of the EU’s 100 most expensive rules is £33 billion ($49 billion) a year.

Yet regulation also brings benefits, put in this case by the government at £59 billion (surely an exaggeration). It predates EU membership: the first rules on cucumbers came in the 1960s, before Britain joined.

Moreover, the EU single market works only thanks to common rules. That is why in the 1980s Margaret Thatcher accepted more voting by majority (not unanimity) on single-market laws. Carolyn Fairbairn, director-general of the Confederation of British Industry, says such rules should really be seen as standardisation, not regulation.

More will be needed to extend the single market to areas like digital, energy and services. Brexiteers have often made fun ofextensive rules on road haulage, only to realise that road hauliers find them helpful.

It is also misleading to claim EU rules are always imposed on an unwilling government. Analysis by the London School of Economics finds Britain siding with the majority in 87% of EU votes. On climate change and financial regulation, Britain has led the push for tougher action. When businesses complain about red tape, they even find that the government has added extra rules to “gold-plate” those from the

Not in the family way

I

N THE 1990s, Britain had the highest teenage-pregnancy rate in the rich world, except America. It is still higher than much of western Europe, but between 2000 and 2014, the rate halved.

This partly reflects youngsters staying in education longer, and better access to contraception. But according to a paper published by the Lancet, a journal, policy mattered, too. In 2000 the government launched a new strategy of better sex education and a media campaign. More money was spent in poor areas, which then saw the largest decline. Policymakers may soon know the true importance of the strategy; its funding was cut in 2010.

EU. The costliest burdens are home-grown not EU-inspired, notably tight planning controls, the new living wage and the apprenticeship levy. By international standards, Britain remains lightly regulated. According to the OECD think-tank, it has the least-regulated labour market and the second least-regulated product market in Europe. It also comes high in the World Bank’s rankings for ease of doing business.

Despite what Brexiteers promise, it is not clear that a vote to leave would mean a bonfire of EU regulations. Were Britain to seek close links to the single market from outside, like Norway and Switzerland, it would have to observe most EU rules without having a say in them (Norway applies 93 of the 100 most expensive EU regulations). Even if it left the single market and traded from outside, exporters to the EU would have to comply with most EU regulations—and that includes small firms that supply big exporters. If EU-US talks on a transatlantic free-trade deal succeed, most of the world is likely to have to adopt their joint standards.

In short, even if Britain left the EU, it would not find it easy to scrap many of its regulations. Open Europe puts the maximum feasible saving at around £12.8 billion. And Raoul Ruparel, its director, concedes it would be politically challenging to realise that much. Most of the gains would come from ending EU climate-change, financial-services and employment rules.

Yet Britain has long supported the first two; and it seems fanciful to expect workers and unions to accept a dilution of employment rights that business is not even calling for.

One more point is lost in this debate: that the EU is proposing far fewer rules now. The European Commission’s better regulation agenda limits new regulations and even withdraws existing ones. Most EU members want less red tape. It is ironic that Britain should consider Brexit just when the EU has come round to a more competitive, less intrusive approach. 7

Births per 1,000 women, 15- to 19-year-olds 50 United States 40

30

Britain

20 Germany

France 10

Spain 0 2000 02

04

Source: World Bank

06

08

10

12

14

The Economist May 28th 2016

Britain 51

Bagehot The continental imperative To wash its hands of Europe would be a betrayal of Britain’s past, and future

B

REXITEERS rarely hesitate to profess their love ofEurope. Daniel Hannan, a campaigning MEP, stresses that he speaks Spanish and French. Sarah Vine, a journalist married to Michael Gove, the anti-EU justice secretary, points to her husband’s penchant for a glass of Bordeaux. “I love Europe!” Boris Johnson protested, unbidden, in a recent conversation with Bagehot. To prove his point, the former mayor of London inflicted a rendition of “Ode to Joy”, in the original German, on a startled crowd of supporters. Such declarations are often accompanied by what might be called the pro-European case for Brexit. Britain voting to leave the EU on June 23rd would produce a “domino effect” and “the democratic liberation of a whole continent”, gushed Mr Gove in a speech in April. It would be a helpful “wake-up call” concurs Liam Fox, a former defence secretary.

Such overtures have a semi-official slogan: “Love Europe, Hate the EU”. It is even available on sweatshirts. Which is all very jolly.

It also bears no relation to the reality of Brexit and the campaign being fought in its pursuit. Take Mr Gove’s dream of a sunny European spring. This rests on the Utopian premise that the dark forces of European history—nationalism, fragmentation, demagoguery—would simply dissipate in the pandemonium of the EU’s sudden collapse. Hardly any mainstream figure on mainland Europe agrees that Brexit, let alone the EU’s dissolution, would lead to more democracy and dynamism (it would do the opposite, argues Radek Sikorski, the Anglophile former foreign minister of Poland). It is also why hard-right populists like Marine Le Pen in France and Lutz Bachmann, the founder of Germany’s anti-Islam Pegida movement, have both endorsed a Leave vote.

Moreover, for people who claim to love Europe, Brexiteers seem rather energised by its woes. The continent’s economic decline, relative to the likes of China, is frequently and gleefully invoked (Britain is “shackled to a corpse” runs the over-used metaphor); in an article for the Daily Mail on May 22nd Steve Hilton, a former adviser to David Cameron, described the union’s member states as “ungovernable”. Meanwhile Vote Leave, the official Out campaign, warns of “terrorists and gangsters” roaming the continent. Leave.eu, another Out campaign group, has shared a video purporting to show migrant youths in Greece, France and Hungary attacking police cars, scrambling over fences and fight-

ing over food. “ANOTHER far-right party emerges in Europe” bellowed the Daily Express, one of the Leave camp’s favourite media outlets, on May 25th above an article on Denmark’s ultra-conservative New Civil Party.

A simple message runs through all this: Europe is sliding into stagnation, turmoil and extremism. Britain must inoculate itself by getting out of the EU (or as Mr Hannan calls it: “the elderly, creaking, sclerotic economies on the western tip of the Eurasian landmass”) while it can. Europe has plenty of problems but such exaggerations will become yet more lurid as the campaign enters its final weeks; expect more blood-curdling warnings of the chaos should Turkey join the EU. The insinuation that Britain should abandon its neighbours in their hour of need—anti-democratic forces on the march, decline and disintegration threatening—is a betrayal of the blood, sweat and treasure that the country has dedicated to the pursuit of peace and prosperity on the continent. Europe today has been shaped much more by its island neighbour than it might admit;

by Britons who sheltered from bombs rather than suing for peace, who landed on the beaches of Normandy, prosecuted Nazi war criminals, built new states from the rubble (the architecture of modern Germany was designed by British civil servants), helped defeat communism and—though not involved from the start— helped to shape the institutions and scope of today’s EU. Europe bears the stamp of British endeavour and influence, and is all the better for it. That is not a case for glorious, self-satisfied isolation, but for Britain staying in and rolling up its sleeves.

Such was the argument of a letter to the Guardian on May 25th in which over 300 academic historians pointed to Britain’s past and future “irreplaceable role” in Europe. “The lesson ofhistory is that British isolationism has often been associated with continental disintegration,” observed one of them, Niall Ferguson, at a speech in Downing Street ahead of its publication.

Fog in the channel Britain’s past achievements were more than philanthropic; they were also self-interested. For just as plant seeds and spores blow across the English Channel (the same varieties of flowers and fungi bloom in Kent as do in Flanders), so, too, do the continent’s triumphs and traumas. Europe’s economic sluggishness is Britain’s problem, too: it still sells more services to Luxembourg than to India, for example. No country can truly insulate itself from pollution, criminal networks or mass migrations. And in any case, some 2.2m Britons live in the same European countries wracked by the apocalyptic crises so prominent in the pro-Brexit campaign’s arguments. Citing unemployment, terrorism or instability on the continent as a reason for Britain to withdraw from the EU is like spotting your neighbour’s house on fire and resolving to put a better lock on your door.

Which is a round-about way of saying that Britain, though an island with an island’s outlook, is also a European country. Its connections with the continent grew up over millennia of shared history; of the ebb and flow of people, ideas and goods. The result in 2016 is a large moral, economic and political stake in the success of the mainland, the dominant institution of whose common civic life is currently—like it or not—the EU. To be “pro-European”, really, is not to have a passion for Beethoven, or to be able to conjugate a passé simple. It is to possess a concern, both selfish and munificent, for an old continent that encompasses Britain now as in the past. “Love Europe? Make the EU better.” 7

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The Economist May 28th 2016

International

Opioids

The problem of pain KANO AND THIRUVANANTHAPURAM

Americans are increasingly addicted to opioids. Meanwhile people in poor countries die in agony without them

D

EVIN LYALL had experimented with drugs recreationally as a teenager before a doctor in her hometown of North Wilkesboro, North Carolina prescribed her opioid painkillers after an ankle surgery. But it was only when she began taking Vicodin—one of the most popular prescription opioids—that she became an addict. She relished the sense of invincibility it gave her and began swapping her pills for stronger opioids on the black market.

When that became a hassle, she found a doctor who would prescribe her harder stuff, such as Roxicodone. It was not difficult, she recalls from her office at the North Wilkesboro addiction-treatment centre she opened in February, after three years of sobriety. “It was easy to figure out which doctors were prescribing what,” she says.

Opioid painkillers stimulate receptors in the brain and elsewhere to produce a powerful pain-numbing effect. They also lessen anxiety and depression—two common side-effects of intense pain. The sensation they induce is often described as euphoria. Some, such as morphine, are made from the opium poppy; others, such as oxycodone, are semi-synthetic or synthetic. They are highly addictive: even brief use can be followed by withdrawal symptoms. As a result, for most of the 20th century they were usually reserved for acute pain, after a serious accident or surgery, say, and palliative care, a branch of medi-

cine dedicated to curbing the pain of those with illnesses such as cancer or AIDS. But in the 1980s a series of papers by American researchers claimed that opioids could be used safely for longer periods. The evidence was slight, but, combined with a formidable marketing effort by drug firms, it led to American doctors prescribing opioids with abandon for chronic, non-terminal pain. According to America’s Centres for Disease Control (CDC), between 1994 and 2006 the share of American adults who had used prescription opioids in a given month jumped from 3.4% to nearly 7%. In 2012 doctors wrote 282m prescriptions for opioids— enough for a bottle each for every adult.

Americans guzzle six times more prescription opioids per person than 20 years ago.

Everybody hurts These doctors doubtless wanted to help patients in pain to lead happier, more active lives. However, America’s fee-for-service health model also gave them a financial incentive to provide patients with what they asked for—especially if it led to repeat prescriptions. Whatever the motivation, haphazard clinical practice and spotty oversight led to addiction and death. In 1999-2014 more than 165,000 Americans died from prescription-opioid overdoses.

The typical victim was poor, white and single—though wealthy people are not im-

mune. A definitive diagnosis will have to wait until the results of his autopsy, but some suspect that Prince, a musician who died unexpectedly last month, was a victim of prescription painkillers.

Opioids kill by slowing the respiratory system. A person who has taken too many—or who combines a standard dose with depressants such as alcohol, antianxiety pills or sleeping aids—may lose consciousness and stop breathing. According to the National Safety Council, an American non-profit, the difference between an effective and a lethal dose is “small and unpredictable”. Data are patchy, but state statistics suggest that many victims of opioid poisoning have legitimate prescriptions for chronic pain.

Newer evidence suggests that other drugs might be better for chronic pain. Andrew Kolodny of Physicians for Responsible Opioid Prescribing, an advocacy and research group, says that a combination of non-opioids, such as paracetamol and ibuprofen, can relieve acute pain at least as well—and certainly more safely.

A handful of other rich countries are struggling with opioid misuse, too. Canadians are increasingly getting hooked on and killed by the drugs, says Benedikt Fischer, who studies prescription-drug misuse at the University of Toronto’s Centre for Addiction and Mental Health. Britain, by contrast, has largely avoided creating opioid addicts. According to Cathy Stannard, a pain specialist at Southmead Hospital in Bristol, its publicly funded national health-care system means doctors have no incentive to over-prescribe. And prescription records are held centrally, so a patient bouncing from doctor to doctor in search of pain pills would quickly be spotted.

America is at last starting to wake up to its opioid scourge. The CDC recently re- 1

The Economist May 28th 2016

International 53

2 leased guidelines that urged increased cau-

Uncomfortably numb US, prescription opioid pain-relief

Cancer incidence and consumption of opioid pain-relief

Number of prescriptions, m

2011-13

Overdose deaths, ’000

300 240 180 120 60 0

20 16 12 8 4 0 2000 02 04 06 08 10 12

Africa Americas Asia Europe (south & east) Europe (west & central) Oceania

45 United States

40 35 30

Germany 25

Austria

Canada

Belgium

15

Denmark

20

Australia Switzerland

15

Netherlands

Spain

Norway

Sweden Luxembourg Iceland France Finland

10

New Zealand Ireland Slovenia Israel Italy Hungary Czech Republic Slovakia New Caledonia

Britain

NigerGambia

Greece Croatia Portugal Poland French Polynesia Cyprus Serbia Japan LatviaLithuania Bhutan Romania BulgariaEstonia Chile Argentina Turkey Bosnia Bahrain Singapore Bahamas Barbados Malta Uruguay Kuwait Brazil South Africa Colombia Belarus Jordan Saudi Arabia Lebanon Brunei Malaysia TrinidadCuba and Tobago Costa Rica Qatar Tunisia United Arab Emirates Oman Jamaica Venezuela Guyana Namibia Kazakhstan Iran Botswana Guatemala Mexico Russia Peru Moldova Georgia China Macedonia Mauritius Thailand Ecuador Egypt Micronesia Belize Ukraine El Salvador Albania Algeria Fiji Nicaragua Viet NamPanama Libya Zimbabwe Zambia Mongolia Samoa Uganda Armenia Malawi Sri Lanka Morocco Kyrgyzstan Philippines Vanuatu Ghana Dominican Republic Indonesia India Azerbaijan Uzbekistan Turkmenistan Bangladesh Yemen Benin Gabon Iraq Mozambique Tanzania Cameroon Haiti Pakistan Tajikistan Togo Mali Ivory Coast Burkina Faso Paraguay Suriname Guinea Ethiopia Kenya Congo Braz Sudan Nigeria Swaziland Rwanda

5 South Korea

Standard daily dose per 1,000 population per day

tion when prescribing opioids to non-cancer patients, and according to IMS Health, a consultancy, prescriptions have declined by 12% nationally since the peak in 2012. In February the president, Barack Obama, said he would seek $1.1billion in new funding for opioid-addiction treatments. Congress responded by passing 18 opioid-related bills in May. In many states doctors must now check databases to ensure that patients have not already been prescribed opioids elsewhere (though they can still get hold of pills in more than one state without triggering an alarm). The Drug Enforcement Agency (DEA) has cracked down on “pill mills” that reaped handsome profits from prescribing opioids to anyone who showed up to claim them.

Tighter prescribing is essential. But it has caused unintended harm. Heather Ratcliff of Petaluma, California, suffers from Ehlers-Danlos Syndrome, a degenerative disease; her tendons and ligaments do not properly secure her bones. A hearty laugh or unexpected sneeze is enough to dislocate her ribs. She tried acupuncture, osteopathic manipulative treatment and several other pain-relief methods before finally turning to opioids. “I hate them,” she says.

“I hate how they make me feel—foggyheaded and slow. I hate how people assume people who consistently use opioids are addicts. But I need them.”

Of late, Ms Ratcliff has found her medication harder to get. Her hydrocodone was cut off by a doctor when she tested positive for cannabis—even though she had previously disclosed her use of the drug, and had a medical licence for it. She says that these days doctors and pharmacists are jumpier about DEA scrutiny, which in extreme cases can lead to licences being revoked. On one occasion a pharmacist refused to fill a prescription.

The squeeze has also caused a startling heroin problem. People cut off from prescription opioids sometimes turn to heroin, which offers a similar high and is cheap and easy to score on the street. According to the American government’s National Survey on Drug Use and Health, four out of five heroin users had progressed from opioid pain-relievers. In 2014 nearly as many Americans died from heroin and prescription opioids as from traffic accidents. Pregnant users are giving birth to addicted babies. They suffer the same symptoms as an adult undergoing withdrawal: tremors, vomiting and fever.

If in America the problem is over-prescription, in Russia it is the opposite: opioids are too hard to come by. In 2014 a retired admiral in Moscow with pancreatic cancer shot himself when his wife tried but failed to procure opioids for him. He left a note saying that the blame lay entirely with the health ministry and the government. He was one of about 40 Russians to

0 0

50

100

150

200

250

300

350

Diagnosed cancer cases per 100,000 population*, 2012 Sources: IMS Health; US Centres for Disease Control and Prevention; GLOBOCAN; International Narcotics Control Board

have committed suicide in a single year because of unbearable pain, estimates the Lancet, a British medical journal.

Globally, such situations are far more common than the overuse seen in America. In poor and middle-income countries, people suffering from cancer and other terminal illnesses often die excruciating deaths with minimal relief. The International Narcotics Control Board (INCB), an independent monitor that oversees the implementation of UN drug conventions, estimates that 92% of all morphine, an opioid commonly used to control the pain caused by cancer, is consumed in America, Canada, New Zealand, Australia, and parts of western Europe—which between them hold only 17% of the world’s population.

“It’s an absurd situation,” says Dr Fischer, the Canadian professor. “We’re spraying [opioids] from a fire-hose while the majority of the world doesn’t have them.”

House of pain Access to pain relief in Nigeria has improved a bit since the country started importing morphine in 2012. But pharmacists from hospitals outside Lagos, the commercial capital, must travel there to buy morphine. Smaller hospitals struggle to pay for the trip. Aminu Kano, a hospital in the country’s north, is one of those that manages to procure opiates. Even so, a visit turns up distressing scenes. A burns victim lies deathly still under crisp white sheets, the skin on his face peeled back. More than half his body was set alight when a gas hob exploded in his house, but he is given no morphine. His brother says that at night he wakes up screaming from the pain.

Down a leafy walkway, a mother straps her three-year-old daughter to her back.

One side of the child’s face presses up against her; on the other, a growth the size of an orange protrudes from the socket where her eye should be. She has a rare kind of cancer called retinoblastoma. Her family must pay 120,000 naira ($600) each

*Age-adjusted

time she receives chemotherapy. When the money runs out, the pair leave. “At home there is no help for her pain,” the mother says. “The pain will be eating her, and all I can do to cool her down is pet her.”

Most palliative-care professionals, in Nigeria and elsewhere in the developing world, are found in cities. That makes it hard for rural patients to get treatment for their suffering. Gayatri Palat, a professor of pain and palliative medicine at the MNJ Institute of Oncology and Regional Cancer Centre in Hyderabad, India, recalls a former patient, a child with cancer. He had visited several clinics nearer his home in search of pain relief before stumbling into her hospital, ragged and short of breath. It had taken him more than 12 hours to get there, and he died soon afterwards. In Tenkasi, a rural town in India’s humid south, Samuel Samudra, a gaunt 60-year-old, was discharged from surgery for throat cancer.

By the time he arrived at Pallium India, a small palliative-care hospital in Thiruvananthapuram, the state capital of Kerala, the operative wound on his throat was infested with maggots. For pain relief, he had only over-the-counter pills.

When illness strikes, patients in poor countries expect to suffer. Even when the tumour on his hip grew to the size of a football, Mato Samaile, a frail 50-year-old Nigerian cattle farmer, was reluctant to go to hospital. “When I found the lump I said to my son: ‘We can’t leave the farm. We should stay until after the rain falls,’ ” he says from his bed in Aminu Kano. “People are brought up to tolerate pain,” says Amina Ibrahim, a surgeon at the hospital.

“If you don’t you are a coward. That is just our culture. So even doctors are not liberal on painkillers.”

Though Colombia produces its own opioid painkillers, some regional governments either cannot afford to buy them from the federal government, or regard them as a low priority.

And patients often associate morphine 1

54 International 2 with imminent death, says Marta Ximena

León of the palliative care and pain group at the University of La Sabana in Colombia. She recalls meeting cancer patients who begged not to be given the drugs.

“They felt that if they were prescribed morphine, that meant there was nothing else that could be done for them,” she says.

Doctors in many places are also wary.

In India, Dr Palat explains, their training includes very little about pain management.

A report in 2009 by Human Rights Watch, a pressure group, found that of some 300 Indian medical colleges, only five taught palliative care. The consequence is that few doctors know how to prescribe opioids safely. Even for patients with advanced cancer, they avoid morphine, says Dr Palat: “They’re afraid it will cause addiction in healthier patients or respiratory depression in those with terminal illnesses.” Similar worries in India’s north-eastern neighbour, Nepal, meant that 50% of the country’s supply of sustained-release morphine tablets went unused in 2011. M.R. Rajagopal, the head of Pallium India, says that news of the opioid crisis in America has only heightened such fears.

Show me where it hurts Pain management is simply not a priority for governments in much of the developing world, says Meg O’Brien, the managing director of global cancer treatment at the American Cancer Society. Many focus on life-threatening epidemics rather than treating pain, she says. “No one gets in trouble if, at the end of the year, pain relief has not been procured.”

The lack of opioids across the developing world is particularly striking, because the drugs are cheap to make, and the raw ingredients plentiful. Estimates suggest that the global harvest of opium poppies, from which natural and semi-synthetic opioid medications such as morphine and codeine are prepared, together with the chemicals for synthetic ones, should be enough to satisfy all the demand in the world. Few opioids are patented; a monthly dose of morphine should cost just $2-5.

But paltry prices can work against developing countries, says James Cleary, a palliative-care specialist at the University of Wisconsin: they mean drug firms have little incentive to bring them to new markets. Tariffs, import licences and high costs for small-scale local production mean that morphine can cost twice as much in poor places as rich ones. Some countries, such as Jamaica, subsidise opioid painkillers.

Many others do not.

Untreated suffering used to be the norm in the developed world, too. Even after the advent of modern painkillers, it took changing attitudes on the part of patients, doctors and governments before they became widely used. Opioids are now understood to be the most effective

The Economist May 28th 2016 and humane treatment for terminal pain, and also appropriate in many cases of acute pain.

The rest of the world would probably have seen the same progression in recent years—had it not been for the “war on drugs” that America launched with such fanfare half a century ago. The INCB has a dual mandate: to increase access to controlled substances for medical purposes and to stop their illicit use. Many governments, however, pay little attention to the first of those aims and focus instead on the second. With no impetus for wider prescribing from doctors, patients or governments, inertia and bureaucracy rule.

To try to stop leakage onto the black market, the INCB requires countries wishing to import opioid painkillers to provide estimates of the quantity they expect to use in the coming year. If the board deems the request reasonable, it is approved. But many countries decide how much to ask for by looking at past consumption, thereby underestimating current need. Senegal, for example, has asked for a similar morphine quota each year since the 1960s. In 2013 it applied for only 1 kilo of morphine— about enough to soothe the pain of 200 patients with advanced cancer.

The Russian admiral who committed suicide appears to have been denied opioid painkillers because his stacks of paperwork were missing one essential signature. Shortly after his death, his daughter wrote on her Facebook page: “To get a five days’ supply of [morphine], one has to spend many hours dashing between many doctors’ office in the clinic, [even] spend a few days. By the day’s end, one signature was still required and the clinic closed. My father was outraged. It was the last straw.”

In a recent report Human Rights Watch detailed the Byzantine process cancer patients must follow to procure morphine in Armenia. First patients are diagnosed by an oncologist and their diagnosis is con-

firmed through a biopsy, a procedure only a few Armenian hospitals perform. The oncologist must then try a series of weaker pain medicines before asking a panel for permission to use morphine. Five specialists assess the situation and either confirm or deny the prescription, which then needs to be authorised with four stamps and three signatures. A patient lucky enough to receive an authorised prescription must travel to one of the few clinics or pharmacies where morphine is stored and will receive only enough for a few days.

Such rules are far more restrictive than anything in the UN’s drug conventions, says Diederik Lohman, who works on palliative care for Human Rights Watch.

“Countries have been told ‘you have to crack down on drugs: the harsher the better,’ ” he explains. “For many years, drug strategies published by the international community and the United States did not mention the medical importance of certain controlled substances.” A1998 UN declaration begins: “Drugs destroy lives and communities, undermine sustainable human development, and generate crime.”

Nowhere does it refer to medical uses. For most patients in the developing world, untreated pain is the status quo and therefore they do not agitate against severe controls as their peers in the rich world might.

A handful of countries, including India, Ukraine and Colombia, have recently amended their laws to make it easier for patients who need them to be given opioids, though doctors say that implementation is slow. Some others have started producing their own morphine, or importing morphine powder which is less controlled and can be whizzed into orally administered syrup. Such changes mean that, since 2003, opioid consumption has increased in most regions. But much more must be done. The first step is to ensure that doctors—and patients—know that it is not necessary to die in pain. 7

The Economist May 28th 2016 55

Business

Also in this section 56 Alibaba under scrutiny 57 Oil-price reporting 58 The Viacom saga 58 Alcohol in China 59 The future of carmakers 60 Schumpeter: Life in the fast lane

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

Regulating technology companies

Taming the beasts BRUSSELS AND PARIS

European governments are not alone in wondering how to deal with digital giants

T

ALK to Axelle Lemaire, a French secretary of state in charge of all things digital, and one topic quickly comes up: online platforms of the kind operated by tech giants such as Facebook, Google and Uber.

“France is very open to them,” she insists, “but consumers have to be protected.”

Ms Lemaire’s words will soon be put into action. The French parliament is about to pass a law, sponsored by her, which will create the principle of loyauté des plateformes, best translated as platform fairness. Once it takes effect, operators of online marketplaces will, among other things, be required to signal when an offer is given prominence because the operator has struck a deal with the firm in question, as opposed to it being the best available.

In Brussels, too, the regulation of platforms is on the agenda. On May 25th the European Commission announced plans for how it intends to deal with such services. Its proposals cover everything from what tech firms should do to rid their digital properties of objectionable content, such as hate speech, to whether users can move data they have accumulated on one platform to another.

Here we go again, many will say. As usual, Europe is putting regulation above innovation, and being protectionist to boot, since most platforms are either American or Asian (see chart). European firms earned only about 5% of the profits of the 50 biggest listed platforms, which

Platform four Market capitalisation of platform companies, 2015 $trn

0

1

2

3

North America

64

Asia

82

Europe

27

Africa and L. America

Number of platform companies

3

Source: Global Platform Survey, CGE

reached a total of $1.6 trillion in the past four years; more than 80% ended up in America. The commission has been going after American tech firms for a while, say critics—it will soon decide how to punish Google for abusing its dominance in internet search, for example. This week’s plan fits a pattern.

But it is not only Europe that is suffering from growing platform anxiety. Although worries vary, politicians and regulators around the world are waking up to the power of these online matchmakers, whose role is to bring together different groups—advertisers and consumers in the case of Facebook and Google, merchants and buyers in the case of Amazon, drivers and passengers in the case of Uber. Plat-

forms exhibit what is known as “network effects”: the bigger the number of one kind of customer, the more attractive these services are for the other sort, and vice versa.

Facebook, the world’s biggest social network, symbolises the rise of global platforms. It now boasts over1.65 billion active users a month worldwide—more than the population of China. On average, they spend about 50 minutes per day on the site and the other two big services Facebook owns, Instagram and WhatsApp. For many of its users, the social network is not only useful for connecting with friends and relatives but also an important news source.

Platforms have also started to emerge in other sectors. Industrial machines and their products are packed with sensors and connected to the internet, digitising the real world and creating opportunities for matchmakers to connect manufacturers with suppliers. (This is where the EU sees a chance to close the gap with America.)

If Europe, predictably, is reacting to the rise of platforms through the rule book, America’s response also fits a stereotype.

Regulators have largely given the country’s platforms free rein—which may not be unconnected to the fact that they are now fervent lobbyists. In 2013, for instance, the Federal Trade Commission (FTC), which had been scrutinising Google, decided to take no action. But private actors are flexing their muscles.

The platlash Platform operators have faced a barrage of class-action suits from private litigants.

Last month Uber, a taxi-hailing service, settled one brought by drivers, promising no longer to kick them off its app without warning or recourse. After pressure from consumer groups, Google announced on May 11th that it would ban adverts for payday lenders, which are widely viewed as 1

56 Business 2 exploiting their customers.

The debate about the power of platforms has grown more heated thanks to reports this month that Facebook employees have kept news topics on issues close to conservatives’ hearts away from prominent display. Many, on both right and left, have called for Facebook, which denies the allegations, to be reined in. When a group of conservatives recently met Mark Zuckerberg, the firm’s boss, some demanded that it should have a more politically diverse workforce and take into consideration the impact on businesses when it changes the algorithm that decides if their Facebook page is shown in people’s newsfeeds.

Now the regulatory winds may be shifting. The FTC seems to be having second thoughts: it is not only looking again into Google’s search business, but is investigating whether the firm abuses its dominance in mobile operating systems. Whoever is elected president in November is unlikely to ignore the question of platforms. “If I become president, oh do they have problems,” Donald Trump has said of Amazon, accusing it of evading taxes.

The mood is changing in Asia too, albeit more slowly. In recent years the size of Naver, a web portal in South Korea, has prompted debate about whether it should be regulated. After an investigation by the country’s watchdogs, the firm has agreed, among other things, to help smaller online firms sell their wares.

The Chinese government is making life harder for platforms—and not just big Western ones, many of which are banned in the country or kept out by its Great Firewall. Alibaba, Baidu, Tencent and other big Chinese internet firms already know what is expected of them when it comes to keeping their services free of politically sensitive content. But other concerns are also increasingly to the fore: earlier this year Baidu got into hot water after the death of a student who said he had received misleading information on a cancer treatment from the company’s search engine. The government may seek even greater control over online-video platforms by insisting on taking minority equity stakes.

The European Commission’s plans don’t go that far but some proposals could end up being very interventionist (the details are still being worked out). For instance, the commission intends to create a “level playing field” for conventional telecoms carriers and firms that offer communication services over the internet, such as messaging apps. The question is whether levelling the field would involve lightening the regulatory burden on incumbents, such as the requirement to offer universal service, or applying such rules to newcomers. If the commission’s intentions for ondemand video services, such as Netflix, are any guide, the newcomers are likely to face new responsibilities: it wants to ensure

The Economist May 28th 2016 Alibaba

Under scrutiny SHANGHAI

American regulators are investigating China’s e-commerce giant

“W

E HAVE from time to time been subject to PRC and foreign government inquiries and investigations.”

So declared form 20-F, a regulatory filing submitted by Alibaba, China’s biggest e-commerce firm, to America’s Securities and Exchange Commission (SEC) on May 24th. It is tempting to dismiss this as boilerplate language. All foreign firms listed in America (Alibaba trades on the New York Stock Exchange) are required to file this document regularly. In fact, it is not inconsequential. The filing revealed that Alibaba is the target of an ongoing SEC investigation into its accounting practices. The company’s shares fell sharply after the news became public.

The SEC appears to have three areas of concern. It wants to know more about the Cainiao Network, a logistics joint venture worth $7.7 billion in which Ali-

Ma ponders that 20% of content is European.

In most other respects, however, the plans are a far cry from the fiery rhetoric in late 2014, when the European Parliament passed a resolution for Google to be broken up. In fact, they are notable as much for what they do not say as what they do. They do not, for instance, seekto make platforms responsible for illegal activities on their properties. Such “platform liability” would hurt small (mostly European) ones more than big (mostly American) ones, because there are economies of scale in policing this sort of thing. Instead, the commission is betting mainly on self-regulation to keep platforms clean (although it says it might take “additional measures” should such voluntary efforts fall short).

Another notable absence is a plan to apply new competition rules across all types of platform. Last year France and

baba has a 47% stake. The agency also wants data on “Singles’ Day”, an annual marketing promotion that last year apparently generated $14.3 billion in gross merchandise value (GMV) on one day. As GMV is not a recognised term in GAAP, the accounting standard used in America, the SEC may be digging into this claim.

Most intriguingly, the American regulator is also scrutinising how the company has handled its many related-party transactions. Jack Ma, the firm’s founder, caused outrage when he unilaterally spun off AliPay, Alibaba’s lucrative online-payments arm, in 2011 into an entity that he controlled. That business, now known as Ant Financial Services Group, is valued at $60 billion and is heading for a public flotation.

Where will this SEC action lead? It could be a routine inspection of the sort most public companies can expect from time to time. Alibaba certainly denies any wrongdoing, noting that it is cooperating with the authorities and voluntarily disclosing the fact that it is under investigation. But if the regulators do uncover evidence of real misconduct, things could get nasty for China’s most celebrated firm.

The only certainty, argues Vasu Muthyala of Kobre & Kim, a law firm, is that Chinese firms face greater scrutiny. Mr Muthyala, a former prosecutor who previously served at the SEC, says: “As Chinese business looks west for new capital, customers and business partners, there will inevitably be an increase in interest from American regulators.”

Germany, in particular, had demanded such “horizontal legislation” to strengthen the rights of smaller businesses that have come to rely on platforms—for instance, to keep platforms from imposing unfair terms and conditions or changing them unilaterally. But given the diversity of platforms, the commission has opted to stick with existing competition law and look at problems on a case-by-case basis. (In a nod to more interventionist member states, however, it plans to revisit the question next year).

The most interesting questions concern how platforms collect data from users and connected devices. These help firms improve services and target ads. But they can also be a source of market power—something antitrust experts have only now started looking into. “Exclusive access to multiple sources of user data may confer an 1

The Economist May 28th 2016 2 unmatchable advantage,” warns an influ-

ential report by a committee in Britain’s House of Lords. Germany’s competition authority is investigating whether Facebook has abused its dominance to impose weak privacy rules on users.

Sensibly, given how little is known about the mechanics of data markets, the commission intends to take only limited steps. For instance, it wants online firms to give users the option to log in using government-issued IDs rather than credentials provided by big platforms. This could make it harder for these to track users as they move around the internet, limiting

Business 57 their ability to scoop up data from sites belonging to others. Another proposal is to make it easier, for both consumers and businesses, to transfer data if they want to switch platforms.

Regulators still have much to learn about how to deal with platforms. But they have no choice but to get more expert. As Martin Bailey, who heads the commission’s efforts to create a single digital market, told the Lords committee: “There is hardly an area of economic and, arguably, social interaction these days that is left untouched by platforms in some way.” That is true far beyond the borders of Europe. 7

Oil-price reporting

Striking it rich

A niche business straddling journalism and oil is proving surprisingly lucrative

T

WO lines of business have stood out of late for their inability to make money: journalism and oil. So when it emerged on May 23rd that Argus Media, a British firm that reports global commodities prices, is to be sold to an American investment firm for $1.4 billion, it aroused a variety of emotions. One was surprise. “Data about oil markets now seem to be worth more than oil itself,” exclaimed one executive of a commodities exchange. Another, in the words of an employee at S&P Global Platts, Argus’s main rival, was “jealousy”. The sale has turned some of Argus’s 750 scribblers, a quarter of whom are said to own shares or options, into millionaires.

Argus began in 1970 as a newsletter reporting on petroleum-product prices in the Netherlands. General Atlantic, which is buying out the family of Jan Nasmyth, its late founder, has made the most aggressive move so far in an industry that is fast consolidating. Its leaders, Platts and Argus, are battling for dominance over reporting prices of the most widely used oil benchmarks, such as Dated Brent and West Texas Intermediate (WTI), against which billions of dollars-worth of oil are priced each day.

The benchmarks are used by oil companies, oil-producing countries, derivatives traders and others to decide at what level they should price hundreds of different grades of oil. Their providers make money by selling subscriptions to their information; the more prominent the benchmark, the more subscribers it generates.

In recent years, Platts has made the running in the oil markets with its Brent assessment, based on four grades of North Sea crude, which is used as a reference for petrol prices stretching from Europe to Asia.

WTI, which sets the price of different

grades of oil traded in the Americas, is assessed at a landlocked hub in Oklahoma and has not got the same global reach.

General Atlantic says its interest in Argus grew after 2009, when big producers like Saudi Arabia began using its sourcrude index rather than a rival from Platts to price imports into the United States—an indication that Platts’s leadership of the market was not impregnable. In December America lifted a ban on crude exports, giving WTI a new lease of life. General Atlantic hopes Argus’s WTI physical assessment will become an international rival to Brent.

“The battleground is global,” says Adrian Binks, who will remain Argus’s boss after over 30 years leading the company.

Asia is a further bone of contention as

Keeping a close eye on the barrels

trade flows have shifted east. Platts’s longestablished Dubai benchmark, used to price Middle Eastern crude bound for Asia, has been whipped around in the past year by aggressive trading from two big Chinese oil firms, Unipec and China Oil. India’s Reliance is also muscling in, and there is a vigorous new source of demand from China’s so-called “teapot” refiners, recently permitted to import oil. Big oil traders like Royal Dutch Shell, long used to calling the shots on Brent crude, have complained about undue Chinese influence on prices in Asia.

Platts says it has addressed the problem by adding crudes to make the benchmark more liquid this year.

There are also calls for stronger regulation as the industry consolidates. “There’s a huge tension between the economic value of these businesses—both to their shareholders and the broader economy—and the lack of oversight provided by host governments,” says Owain Johnson, managing director of the Dubai Mercantile Exchange (DME).

The companies argue that they are media outlets covering physical commodities, and should not be regulated like futures markets such as the Chicago Mercantile Exchange, where WTI futures are traded, or the DME. Though their benchmarks carry enormous weight, they are gathered by journalists who sit in newsrooms, watching screens and contacting traders by phone and instant messenger. They say they police themselves based on principles set by the International Organisation of Securities Commissions in 2012.

They may be partially reassured that General Atlantic, an investor in Airbnb and Uber, disrupters of hotel and taxi services respectively, understands the importance of trying to keep regulators at bay. In the meantime, it has created a rare species at Argus: the rich and happy journalist. 7

58 Business

The Economist May 28th 2016 Alcohol in China

Proof positive SHANGHAI

Sales of baijiu, China’s national tipple, are on the rebound

A

American media

Sumner’s lease NEW YORK

The future of Viacom is shrouded in uncertainty and mired in litigation

U

NDER normal circumstances, a nasty public power struggle between a company’s controlling shareholder and its chief executive might put a dampener on the share price. But the circumstances at Viacom, a media conglomerate, are anything but normal. Sumner Redstone (pictured), an ailing 92-year-old mogul, recently kept control of his $42 billion media empire after a humiliating legal battle to prise it from his hands. Now the focus has shifted to the leadership of Philippe Dauman, the CEO of Viacom, prompting another round of lawsuits. Although the drama makes the firm’s future more uncertain, investors seem more excited.

Like many a television soap opera, recent events have been absorbingly farfetched. First came a lawsuit by Manuela Herzer, a former lover of Mr Redstone’s who had been written out of his will. Her reinstatement would have threatened the tycoon’s control of Viacom and another media giant, CBS. A judge threw out that lawsuit on May 9th. Then, on May 20th, Mr Redstone ejected Mr Dauman from a trust that will decide the fate of his holdings after his death. Three days later Mr Dauman filed a lawsuit to block the move, arguing that Mr Redstone was mentally incompetent and that Shari Redstone, his daughter, was pulling the strings in an “unlawful corporate takeover”. Mr Redstone’s lawyers filed their own suit in response.

The share price has surged as the law-

VENUE PÉTAIN, a tree-lined boulevard of grand mansions and Art Deco towers in Shanghai’s old French concession, was once one of the city’s most prestigious residential streets. Hengshan Road, as it is now called, is today full of bars and restaurants. The most intriguing used to be the Moutai club, a secretive outfit catering to political bigwigs that decorated its walls with pictures of Deng Xiaoping and other luminaries quaffing firewater. Their glasses may have contained a special blend of Moutai, an expensive brand of baijiu, a liquor distilled from sorghum.

Alas, this pleasure palace has since shut down. A crackdown on corruption by the government of President Xi Jinping has made it risky for officials to schmooze with businessmen over bottles of baijiu. Sales of China’s national spirit (and the world’s most popular hard liquor), which rose at double-digit rates from 2007 to 2012, were dealt a big blow.

Annual growth in sales plunged to barely 3% in 2014 as purchases for official banquets and other forms of ostentatious boozing plummeted.

Baijiu is now making a comeback.

Sales last year rose by roughly 7% (see chart). In a recent report, “The Hangover Fades”, Citigroup, a bank, estimates that profits for the three biggest manufacturers of baijiu—Moutai, Wuliangye and Yanghe—have jumped since the second half of last year. The bank also notes that baijiu continues to outperform beer on sales volume growth, “suggesting that Chinese consumers’ preference for baijiu remains intact.”

What explains the revival, given that the corruption crackdown continues?

Andy Luo, a former manager of the defunct Moutai club, believes a boom in private consumption is the answer. Mr Luo, who now runs a popular restaurant in Shanghai, says the businessmen that

suits have flown. The removal of Mr Dauman from the trust raises the prospect of his dismissal from the firm. That seems to promise the change in strategy at Viacom that many believe is overdue. Eric Jackson, an activist investor who has blasted Mr Dauman’s leadership, believes the share price, currently around $42, could rise by another $10 or more if Mr Dauman is fired.

A long-standing confidant of Mr Redstone, and a spring chicken by comparison at 62, Mr Dauman has fallen out of favour as Viacom has floundered. The company’s share

frequent his current establishment prefer to drink baijiu, rather than whisky or other foreign spirits, with their Chinese food. “It’s a habit!” he insists. He also senses a shift towards swigging pricier premium brands.

If Mr Luo’s professional odyssey traces the fortunes of China’s national drink, then the future holds peril as well as promise for baijiu. He is right that private consumption is behind the recent renaissance. Fully half of all baijiu purchases in 2012 were made by the government, but that figure had collapsed to just a small fraction of the total by last year.

But Mr Luo also observes that many younger patrons prefer to sip wine at business dinners, even rebuffing their elders’ offers of baijiu.

As foreign businessmen know all too well, drinking vast quantities of this foul-smelling, throat-burning local brew has long been an unavoidable part of doing business in China. Toasts of gan bei and endless rounds of baijiu are still popular with the old guard, to be sure.

But the drink’s resurgence may only be temporary. Mr Luo offers this prediction: “it may take years, but these old habits will fade away.”

Spirit levels Sales of baijiu in China % increase on a year earlier 0.9

40 0.5

30 1

0.6 0.4

20 Litres, bn

0.6

1.1

0.4

1.3

10

1.2 1.2

0 2005

07

09

11

Sources: Wind Info; The Economist

13

15* *Estimate

price fell by close to 40% over the past year.

For nearly a decade before that under Mr Dauman it was the worst performer in its peer group. Since September 2006 Viacom’s shares have nudged up a little while Disney’s have more than tripled in value.

All parts of Viacom are underperforming. Its movie business, Paramount, has lagged behind the other big Hollywood studios for four years in a row; in April it reported a quarterly loss of $136m after disappointing box-office receipts for “Zoolander 2”. The company’s portfolio of cable 1

The Economist May 28th 2016 2 channels, including MTV, Nickelodeon

and Comedy Central, has lost more viewers in America than its big competitors—a decline of 35% over the past five years, by one measure. The cable networks remain lucrative but profits are falling as subscribers turn off and advertisers turn away.

Mr Dauman’s critics claim that he has run the company like the lawyer he is at a time when it required a creative leader.

They say he never came up with a strategy for growth, resisting efforts to embrace the digital era. He pushed an aggressive buyback programme to support the share price, which Mr Redstone was known to watch assiduously. If he kept Mr Redstone’s confidence, former executives say, he lost that of his workforce. Senior bosses and talented TV stars have left to work elsewhere. The 52nd floor of the Viacom building in New York, where Mr Dauman’s office is located, is a mirthless place, “like the gallows”, says one former employee.

If Mr Dauman is to keep his job it will

Business 59 require some fancy footwork. Ms Herzer’s lawsuit had challenged Mr Redstone’s competence to write her out of his will, which he did last autumn; she accused Shari Redstone of manipulating her father to her own benefit. If Ms Herzer had won her suit, control of Viacom and CBS might have gone to the trust on which Mr Dauman and an ally on Viacom’s board, George Abrams, held seats (Mr Abrams was also removed on May 20th).

At the time, Mr Dauman, in support of Mr Redstone and his daughter, gave sworn testimony on the nonagenarian’s “engaged and attentive” state of mind (though the decisive testimony was Mr Redstone’s own, in which he repeatedly called his former paramour a “fucking bitch”, in a lucid but deeply unpleasant videotaped tirade).

Now, to regain his position at the trust, and, perhaps, to remain in the 52nd-floor suite, Mr Dauman is having to make the opposite case. Fortunately for him, lawyers are good at presenting either side of an argument. 7

The future of carmakers

Upward mobility

Making vehicles may prove easier than selling services

C

AR companies have long talked a good game when it comes to harnessing technology that threatens to undermine the business of making and selling vehicles. In the 1990s, as the dotcom boom was in full swing, Jac Nasser, then boss of Ford, said that the new business models the internet would enable meant that his firm would outsource the dull task of assembling cars and reinvent itself as a mobility company, selling transport as a service. Mr Nasser was too early with this insight.

Only now are most big carmakers teaming up with tech firms that offer transport services, on the road to becoming mobility providers. But they in turn may have left it too late.

In the scramble to reinvent themselves, conventional carmakers have turned their attention of late to ride-hailing apps. These services allow people to use smartphone apps to summon a car and driver to ferry them to their next destination. On May 24th both Toyota and Volkswagen announced tie-ups with taxi-hailing apps.

The Japanese firm has made a small, undisclosed investment in Uber, the world’s biggest ride-hailing firm, with operations in over 70 countries. VW announced an investment of $300m in Gett, an Israeli firm that is popular in Europe. Matthias Müller, VW’s boss, has much bigger aspirations.

He declared that the German carmaker

aims to be a world-leading mobility provider by 2025.

VW will not lack for company. In January General Motors invested $500m in Lyft, Uber’s closest rival in America, partly to embrace ride-hailing and partly to share in the development of self-driving robotaxis. Last year Mark Fields, the boss of Ford, perhaps forgetting Mr Nasser’s earlier pronouncement, said that henceforth his firm would be a mobility company as well as a carmaker. Rumours abound that Ford is planning its own ride-hailing app and a vehicle to go with it—perhaps an on-demand minibus service.

Rivals in the pink

Though the latest battleground is ridehailing, car companies have their eyes on other ways of making money from mobility. People who might hitherto have wanted to own a car may no longer do so, preferring to pay to drive when they need to.

Young city-dwellers are turning their backs on owning a costly asset that sits largely unused while losing value. Membership of car clubs, which let people book vehicles by app for short periods, is growing fast. ZipCar, the world’s largest, is owned

by Avis Budget, a car-hire firm. More carmakers are copying Daimler’s Car2Go and BMW’s Drive Now apps. Ford, for example, is testing car-sharing services in America, Britain, Germany and India.

Car-sharing and ride-hailing schemes may eventually make carmakers money.

For mass-market firms, used to slim margins, it might even prove a boon, though premium carmakers, used to fatter profits, may not agree. Carmakers will not only take a cut of the fares but will jostle to supply vehicles. Indeed Toyota’s deal includes a financing scheme for Uber drivers to acquire its cars. GM offers a similar scheme to help Lyft’s drivers get on the road.

But their chances of profiting from usership rather than ownership depend on two things. First, carmakers need to change how they operate. Mastering the complicated business of manufacturing cars has kept new competitors largely at bay. But simultaneously running a service business that depends on constant engagement with customers and crunching large quantities of data is a far cry from designing a new SUV. Indeed the flurry of investments by carmakers has been driven as much by the desire to learn how these new businesses work as for immediate profits.

Second, big tech firms, adept at handling data and selling services, cannot get too far ahead. Google leads the field in selfdriving vehicles. Apple is rumoured to be planning to build its own car and recently invested in Didi Chuxing, China’s answer to Uber. A host of startups are plotting ways to profit from offering services that will move customers from A to B. Instead of owning a car, the future could include a monthly subscription to an app that combines car-sharing, taxis, buses, trains, bicycles and anything else on wheels, including on single journeys where multiple modes of transport are the quickest or cheapest option. More efficient use of public transport, more car-sharing and more ride-hailing will mean that people who might have bought a car may no longer do so, stifling the growth in vehicle sales that was expected as the middle classes take to the roads in developing countries. Carmakers face selling fewer vehicles while freewheeling competitors, unencumbered by a vast manufacturing business, mop up the profits from selling transport to customers on the move. 7

60 Business

The Economist May 28th 2016

Schumpeter Life in the fast lane Business people are racing to learn from Formula One drivers

O

N THE face of it business executives and Formula One drivers have nothing in common, other than the fact that they do their jobs sitting down. Racing drivers hurtle round a track, touching speeds of 350km an hour. Office-bound managers may occasionally wheel their chairs from one side of their desks to the other. Drivers risk a high-speed pile-up if they lose concentration.

Executives merely risk spilling coffee on a Hermès tie.

Yet one of the motor-racing world’s gurus now spends much of his time talking to chief executives. Aki Hintsa, a Finnish surgeon, was chief medical officer for the McLaren F1 team for 11 years. His clients have included two former world champions, Sebastian Vettel and Mika Hakkinen, as well as Lewis Hamilton, the current holder. Dr Hintsa’s relationship with the business world started informally when a CEO friend turned to him in despair, complaining of burnout. His business, Hintsa Performance, employs 30 people, applying his methods from discreet offices in Geneva and Helsinki. It earns more than 80% of its revenues from working with management teams and individual bosses.

Can business people really learn from Formula One? Dr Hintsa argues that the two worlds have more in common than you might think. Drivers sit atop a pyramid of 500-700 employees, from engineers to marketing departments, whose livelihoods depend on them. Surrounded by sycophants, drivers can easily lose control of their egos. They live horribly peripatetic lives—races are run in every corner of the world. Dr Hintsa says that his grand-prix experience forced him to focus on two problems that also plague executives always on the move.

The first is lack of sleep. A growing body of evidence shows that shortage ofshut-eye cripples individuals and poisons organisations. One study shows that staying awake for 20 hours has the same impact on the performance of various cognitive tasks as a blood-alcohol level of 0.1%, well over the limit for driving a car in most countries. Another study shows that being deprived of sleep leads people to adopt a more negative attitude or tone of voice. Employees are also more likely to report disengagement from work if a bad night’s sleep makes their bosses grouchy.

Yet sleep deprivation is commonplace in the business world— and is sometimes worn as a badge of honour. A recent survey of 196 business leaders by McKinsey, a management consultancy, re-

vealed that 66% were dissatisfied with the quantity of sleep they got and 55% were dissatisfied with the quality. Too many companies are run by people who are dazed by a lack of sleep.

The second problem shared by those in the driving seat, whether of a racing car or a multinational firm, is constant travelling. Life on the road not only makes sleep harder to manage by cutting the amount of resting time available and confusing the body clock. It has other debilitating effects. Spending long periods in pressurised airline cabins dehydrates the body and messes up circulation. Time in airports and hotels encourages overeating. Airports specialise in junk food; airlines serve over-salted and over-flavoured meals to compensate for the fact that flying dulls the taste buds. Deals are done over extravagant dinners washed down with too much wine by businessmen who then find themselves raiding the minibar at odd times of the night.

Dr Hintsa provides detailed instructions about how to overcome these difficulties. Bringing healthy snacks when travelling reduces the likelihood that frazzled bosses will delve into the minibar. Dimming the lights gradually in the evening prepares the mind for sleep. Switching off screens two hours before bed saves bombarding the brain with blue light, which tells it to stay awake.

Reading a book is better than goggling at a device.

His advice for coping with jet lag is complicated. His clients receive detailed charts that tell them on what side of the plane to sit and when to wear sunglasses after landing (when travelling east it is wise to wear shades on arrival to minimise exposure to daylight). The main thing is to decide whether to adapt the environment to your body, or your body to the environment. On a short trip, he advises sticking as closely as possible to a normal schedule and adjust meetings and bedtime accordingly. On longer jaunts, start adjusting to the new time zone a week in advance.

And pay attention to light: bright lights send the brain instructions to wake up and dimmer lights tell it to close down.

Sleeping your way to success Dr Hintsa is riding a wave of interest in how to improve the personal performance of executives. Hintsa Performance has a number of direct competitors such as Tignum, based in Phoenix, Arizona. Big management consultancies have started paying attention to the subject of shut-eye: the latest edition of the McKinsey Quarterly contains an article on how “sleep-awareness programmes can produce better leaders”. Caroline Webb, a former McKinsey consultant, has written a book, “How to Have a Good Day”, that suggests ways of using recent findings from economics and behavioural science to improve working life. Google has established a trend for providing workers with sleep pods, nap rooms and healthy snacks. The Boston Consulting Group has experimented with a “time off” policy: employees spend an evening every week without e-mail or their smartphone, in order to catch up on sleep. Some airlines and hotels are using “smart lighting” to help customers adjust to new time zones.

There are good strategic reasons for this. Companies recognise that, in a world where you can buy so much computer power off the shelf, their competitive advantage lies in the quality of their employees. But the main reason for the interest in firms like Dr Hintsa’s is individual angst rather than a corporate master plan.

From the CEO down, people are so hassled by the pace of business life that they are turning to anyone who can help them get their lives under control and their batteries recharged. Everyone could do with the occasional pit-stop. 7

Finance and economics

The Economist May 28th 2016 61 Also in this section 62 Buttonwood: Ignorant investors 63 The qualities of Quicken Loans 63 Japan’s giant pension fund 64 Regulating payday loans 65 Cyber-attacks on banks 66 Free exchange: Compulsory voting

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

Banks and Brexit

Wait and hope A British departure from the European Union would be costly for the world’s banks. Best not to worry until they have to

O

PINION polls suggest that Brexit won’t happen. Ladbrokes, a bookmaker, is offering 4-to-1 against. But pollsters and bookies have been wrong before: what if on June 23rd Britain chooses to quit the European Union? The world’s biggest banks, for which London is a second home if not their first, have plenty of other worries: profits are thin, regulators nagging, investors impatient. The referendum is an extra headache they could do without. Banks must nevertheless be braced for turmoil should the odds be upset. And if Britain votes to leave, they will face an awkward decision: should they shift business away from Europe’s financial capital?

Banks do not have to answer that question yet. They hope they never will. Already under pressure to cut costs, they are not spending oodles on contingency plans and won’t until they have to. For now, they regard the referendum chiefly as a market event, with a known date, which could cause volatility and strain liquidity. The most obvious place to look for trouble is in the exchange rate, where there has been some pre-poll turbulence. Between the turn of the year and early April sterling slid by 9% against the euro. Now it is only 3% down—and in fact a mite stronger against both the euro and the dollar than when the referendum was called in February.

After a vote to leave, such moves would look like gentle undulations. Options markets have been pricing in an immediate drop of 4% in the pound. Looking six months or a year ahead, economists, moistened forefingers aloft, guess sterling might plunge by 15% or even 30%. The OECD, the IMF, the Treasury and others predict severe damage to Britain’s economy (scaremongering, cry Brexiteers); the euro zone could suffer too. None of this is good for London-based banks—though sharp traders may profit from gyrating currencies—or for their corporate customers.

Repo plan In readying themselves, banks have been helped by the strengthening of supervision since the financial crisis. Regular inspection of their defences, both internally and by central banks, has become routine.

Supervisors are promising ample liquidity.

The Bank of England will hold three extra “repo” auctions around the referendum, in effect an offer to lend money to any banks that can provide common securities as collateral. Big British banks have access to foreign currency through other central banks; the Bank of England has swap lines with its peers in the G7 and Switzerland.

Volatility, in short, can be managed. The EU’s “passport” rules, under which a finan-

cial firm in one member may serve customers in the other 27 without setting up local operations, are another matter. European subsidiaries of non-EU banks receive the same treatment, which allows American, Swiss and Japanese firms to cater to the whole of Europe from their bases in London. Goldman Sachs is probably the most extreme example, with 6,000 of its 6,500 European staffin the British capital; it is building a new London office, due to open in 2019. Partly thanks to the passport, notes TheCityUK, a trade body that opposes Brexit, London boasts around 70% of the market for euro-denominated interestrate derivatives, 90% of European prime brokerage (assisting hedge funds with trading) and more besides.

Without a deal to renew or replace them, banks’ passports will expire if Britain leaves. Such a deal could be struck. The EU’s rules allow for non-members’ regulatory systems to be deemed “equivalent” to its own; Britain would be desperate to keep its financial industry; banks would surely lobby hard. Even so, legal costs are likely to rise, simply because banks would have to comply with two separate (though consistent) sets of rules. And agreement may not come easily. No other non-member, TheCityUK points out, has full passport rights.

Britain’s ex-partners may well be unforgiving: French and German politicians will not want to look soft before elections due next year, and will anyway be hoping to poach financial firms.

Nothing would be decided quickly. Britain would remain a member for two years (possibly more) after starting the exit procedure, while it negotiated the terms of its departure. But the clock would be ticking: banks would have to make plans. Since the 1

62 Finance and economics 2 crisis, supervisors have preferred banks to

have separately capitalised entities in separate jurisdictions. EU regulators may press them to make their minds up, and move capital and people—most likely, to places where they already have subsidiaries. The head of at least one euro-zone bank fears it would become much harder to clear euro transactions in London.

Banks are loth to talk about what they might do (at least in public, and so close to the poll), and no one will make firm plans before they have to. But HSBC said in February that it might shift 1,000 people, around one-fifth of its staff in London, to

The Economist May 28th 2016 Paris, where it has a subsidiary, formerly Crédit Commercial de France. Deutsche Bank’s co-chief executive, John Cryan, told the Financial Times last month that it “would be odd” to trade European government bonds and currency in a non-EU branch of a German bank. Others suggest that operations will be built up in Dublin (partly because of Ireland’s liberal labour laws) and Luxembourg.

London has defied gloomy predictions before. It became the euro zone’s financial capital even though Britain stayed out of the single currency. Its pull is probably too strong for any big bank to leave altogether,

or for a sudden decline. Besides banking expertise, it boasts an army of accountants, lawyers and other auxiliaries. People like to live in its huge, bubbling melting-pot.

But at the very least, there is likely to be a fragmentation of Europe’s financial industry if Britain quits: more business in other centres, less in London, and probably less overall. Economies of scale in Britain would be lost, while other places would be too small to compensate. That means higher costs that financial firms can ill afford after eight grinding post-crisis years. No wonder they hope that Britons will vote the problem away. 7

Buttonwood Ignorance isn’t bliss Dealing with the problem of public misperceptions

I

T IS not the “unknown unknowns” that catch people out, but the truths they hold to be self-evident that turn out to be completely wrong. On many issues, the gap between public perceptions and reality is very wide. The polling company Ipsos Mori found that Americans think 33% of the population are immigrants, for example, when the actual number is 14%. A 2013 poll found that Britons thought 24% of the population was Muslim—almost five times the correct figure of 5%.

Misperceptions about economic policy are common, too. Asked to name the top two or three areas of government spending, 26% of Britons cited foreign aid, more than picked pensions or education.

In fact, aid spending is a small fraction of the other two and only 1% of the total.

Some of this is to do with innumeracy.

Only a quarter of Britons could work out that the odds of throwing two consecutive heads in a coin toss was 25%. People are also heavily influenced by anecdotal evidence and by fears for themselves or their families—hence the tendency to overestimate the prevalence of crime or teenage pregnancy. (Asked how many teenage girls get pregnant each year, Americans plumped for 24%; the actual figure is 3%.)

More worrying is the possibility that people simply do not trust the official numbers. When Britons were asked why they overestimated the percentage of immigrants within the population, two answers dominated. One camp said that the government undercounted the numbers because of illegal immigration; a second group simply insisted their own answer was right, regardless of the evidence.

This points to the difficulty facing mainstream politicians who are trying to halt the rise of populists like Donald Trump. Reasoned presentation of the

facts may not help since the source of the information, whether it is the government or the mainstream media, will always be suspect. Those advocating that Britons vote to leave the European Union in next month’s referendum, for example, dismiss warnings about the economic impact from the IMF, OECD and Bank of England on the grounds that, “They would say that, wouldn’t they?”

If public misperceptions can distort economic debate, they are also a problem when it comes to financial markets. Financial products are often complex and buyers can be confused by the terminology. One survey found that only half of Americans knew that mutual funds did not offer a guaranteed return. A lack of mathematical knowledge is a further difficulty. Another survey asked 50-somethings questions that related to financial literacy; asked to calculate how much each of five prize-winners would get from a lottery jackpot of $2m, only 56% of respondents could answer the question. More than two-fifths did not know the difference between simple and compound interest.

The trend has been for individuals to

shoulder more responsibility for their financial well-being than they did in the past. This is particularly true in the case of pensions, where companies are retreating from the paternalistic approach of offering pensions linked to a worker’s final salary. In the brave new world of definedcontribution schemes, workers get a pot at retirement which they must eke out for the rest of their lives.

These are difficult calculations to make. A survey by the Society of Actuaries found that around 40% of Americans underestimated the average life expectancy of retired people by five years or more. Around 77% of Americans are very or somewhat confident that they are well prepared for retirement but only 63% say they have saved any money towards it, according to the Employee Benefit Research Institute.

These misapprehensions illustrate the problem with the idea ofcaveat emptor, or buyer beware, when it comes to retail customers of financial services. Investment products are not the same as other goods.

First, the price is not immediately obvious, given the impact of annual charges and fees on a customer’s long-term return. Second, the usefulness of the product may only become apparent after several years. A mutual fund is not like a corked wine that people can hand back to the waiter right away. By the time customers find out things have gone wrong, their financial future may be badly damaged.

Third, there is an asymmetry of information between the seller and the buyer.

Educating children and adults to be financially literate might help in the long term. Until then regulators, just like politicians, must deal with the public as they are, not how they might like them to be.

Economist.com/blogs/buttonwood

The Economist May 28th 2016 Quicken Loans

A new foundation DETROIT

One of America’s biggest mortgage lenders is not like the others

W

ELLS FARGO, America’s biggest provider of retail mortgages, drums up custom, and cheap funds to lend, through its 6,246 branches. The third- (Bank of America) and fourth-biggest (JPMorgan Chase) providers follow a similar model.

But the second-biggest mortgage firm, Quicken Loans, does business completely differently. It does not have any branches, interacting with its customers online and by telephone instead. Nor does it take deposits, relying on wholesale funding to finance its lending. Despite (or perhaps because of) breaking all these conventions, it is the fastest-growing firm in the industry: its new lending has risen from $12 billion in 2008 to $79 billion last year.

America’s 50 states all have slightly different laws regarding mortgages. Local bylaws in many cities and counties also affect property purchases. Then there are overlapping federal rules, especially regarding mortgages to be securitised and sold through Fannie Mae and Freddie Mac, two government-backed entities. So although mortgages may seem much the same to borrowers across the country, the firms that offer them have long assumed that they need a local presence to conform with the tangle ofrules. As a result, the mortgage business is absurdly fragmented. Even Wells has only a 7% market share.

In the late 1990s Dan Gilbert, Quicken’s founder, began to question this logic. He was struck by the ease of buying a sofa online; if something so big and cumbersome could be sold without bricks and mortar, then surely an intangible product like a mortgage could, whatever the legal intricacies. He began selling off Quicken’s 28 branches in 1998 and ultimately centralised the firm’s operations in downtown

Lift-off in eight minutes

Finance and economics 63 Detroit. From a growing collection of grand old buildings, including a former outpost of the Federal Reserve, Quicken began to market mortgages to customers all over the country. Applications are handled by employees schooled in the legal niceties of the relevant jurisdiction, but based in Detroit.

It helps that Quicken can sell its mortgages through Fannie and Freddie, and so does not need a huge balance-sheet to finance them. But because it relies on relatively expensive wholesale funding, it would struggle to compete with other providers on price. Its interest rates are typically 0.25-0.4 percentage points higher than the cheapest alternatives.

Instead Quicken aims to compete on service. It claims customers can fill out an online application and receive a decision on its latest offering, Rocket Mortgage, within eight minutes. The underlying software conducts a quick electronic sweep of the applicant’s financial records, along with any available data about the property to be purchased. For customers who are confused or whose applications are unusually complicated, help is available by phone or e-mail.

Quicken tries to ensure good customer service by keeping its own employees happy. Desks and chairs are fancy, adjustable, ergonomic affairs; the bathrooms have televisions set to sports channels. Some workers scoot around the bright open-plan offices on hoverboards. New recruits receive an eight-hour induction from Mr Gilbert and others, built around 19 principles (“isms” in Quicken-speak). They are told that “a penny saved is a penny earned” is terrible advice; that they should only say “no” when they have exhausted the possibility of saying “yes”, and so on. Show indifference to a customer and, Mr Gilbert writes, “I will find you… and I will personally root you out.”

It is hard to say precisely how well all this works, since Quicken, as a private firm, releases little financial data. But a good test of its values came last year, when the government sued it, claiming it had fiddled data on mortgages for poorer house-buyers backed by the government, which

caused the government losses when the loans went bad. Other financial firms hit with similar complaints have grumbled about a shakedown and settled. Quicken is contesting the lawsuit, saying the government’s case rests on 55 mortgages out of 246,000, and that it has got its facts wrong about 47 of those. As with so many things Quicken does, no other big financial firm would have dared behave in that way. 7

Japan’s giant pension fund

That sinking feeling TOKYO

Volatile stockmarkets spell pressure for the GPIF and its new leadership

T

HE fear that a creaking pension system will fail to provide for swelling ranks of retirees is held by some economists to be one reason why many Japanese prefer hoarding their cash to spending it. Any meddling with the ¥140 trillion ($1.27 trillion) pot that funds the state pension is politically fraught—as Hiromichi Mizuno, the first chief investment officer of the ultraconservative Government Pension Investment Fund (GPIF), is finding out.

In October 2014 the GPIF made an historic shift in its asset allocation, trimming its pile of Japanese government bonds and doubling its holding of stocks (see chart on next page). For the next three quarters, its returns duly rose along with stockmarkets.

In the financial year that ended on March 31st 2015 the fund made its highest-ever return, of 12.27%. The intention, however, was not so much to juice returns as to prepare for the return of inflation. The Bank of Japan’s massive monetary easing was supposed to be on the verge of pushing prices up again after a decade of deflation, thereby eroding the value of Japanese bonds.

Since those heady beginnings, however, Japanese shares, and some foreign ones, have sunk. The yen has also strengthened, lowering the value of foreign assets.

That has left the fund, which is the world’s biggest pension pot, with a loss that analysts estimate at over ¥5 trillion for the most recent fiscal year.

In the meantime, the inflation on which the new investment strategy was premised has not appeared. “We built a new portfolio allocation on a base case that the BoJ would generate 2% inflation within two years, but the base case may have changed,” says Mr Mizuno. Prices are currently falling, and the BoJ now says it may not reach its target before early 2018.

Mr Mizuno was unprepared for the bashing now coming the GPIF’s way. He joined from a private-equity firm in London and told friends last year that moving 1

64 Finance and economics

The Economist May 28th 2016 Short-term lending

More risk than reward

A pink slip

Japan’s Government Pension Investment Fund Returns, % change on previous quarter 8 4 + –

4 8 2009

10

11

12

13

Asset allocation, % bonds equities Domestic: International: Short-term assets 0 20 40

14

60

15

80

100

End December 2013 End December 2015 Source: Government Pension Investment Fund

2 to the GPIF was rather like swapping a Fer-

rari for a tricycle. It has come as a shock that not only is the GPIF unsophisticated in its investing approach (it has recently been barred from developing the kind of inhouse share-buying capability that other, large institutional investors possess), but also that politicians and the media are so ready to accuse it of gambling.

Shinzo Abe, Japan’s prime minister, was among the most ardent advocates of the shift in the fund’s asset allocation. He recently noted that long-term results, not short-term volatility, are what matter. But it does not help that he has also raised the prospect of lower pensions if the GPIF’s losses grow. Many critics of the shift, including its president at the time, Takahiro Mitani, claimed the government instigated it to pump up the stockmarket. The GPIF, which normally publishes its annual results in early July, has postponed them until the end of the month, after an election for the upper house of the Diet. The delay is a clear sign of political interference, says Jesper Koll of WisdomTree, an exchangetraded fund manager in Tokyo.

Mr Mizuno says the GPIF may have to adjust its portfolio again in light of the lack of inflation. In all likelihood, that would entail a shift out of equities and back into Japanese government bonds. Such a move would be a big embarrassment for the BoJ. But the GPIF may yet decide to stick to its current allocation. Later this year, notes Takatoshi Ito, an adviser to the government on the fund, the powers of its board will be strengthened, making it easier to withstand public criticism about short-term losses. And should Japan ever vanquish inflation, its pensioners will still want a hedge against all those expensive government bonds. 7

New regulations may kill off much of America’s payday-loan industry

“W

HAT rate of interest...can naturally be more proper than another?” asked Jeremy Bentham in “Defence ofUsury” in 1787. Anything less than 36%, answer American activists who want to curtail payday lending—pricey, short-term credit typically used as an advance on a pay cheque. When the Consumer Financial Protection Bureau (CFPB) unveils its proposals for regulating the industry on June 2nd, it will not set such an interest-rate cap (the Dodd-Frank act, which established the agency, forbids it from doing so). But the regulator will probably impose tough new requirements that could wipe out much of the supply of high-cost, short-term credit.

Around 12m Americans turn to payday lenders in any given year. The typical loan is about $350 and costs about $15 every two weeks for each $100 borrowed. At that interest rate, a $100 loan, with both principal and interest rolled over for a year, would explode into a debt of almost $3,800.

The CFPB’s studies of the market make for uncomfortable reading. Nearly half of customers borrow or roll over debt at least ten times per year. About half of those who borrow online incur bank fees averaging $185, on top of the cost of the payday loan, when automated repayments from their bank accounts leave them overdrawn or fail entirely. Richard Cordray, the agency’s director, alleges that many loans “ensnare” borrowers in debt traps.

Last year the agency floated some ideas to improve the market, such as mandatory affordability checks and limits on rollovers. Critics say such rules will force lenders to cut off credit to needy borrowers, or to shut down entirely. Thomas Miller, a professor of finance at Mississippi State University, estimates that preventing anyone from using payday loans more than six times a year—another possibility—would cause 60% of the industry to disappear.

That might harm those who need shortterm credit to cover unexpected outlays, such as replacing a broken boiler. People typically need emergency credit because they have few savings; this means they probably have low credit scores, too. That leaves them with few other options.

A recent episode illustrates this point.

Many states already have usury laws which, in theory, cap interest rates. In New York, for instance, charging a rate of more than 25% is a criminal offence. But most banks can avoid the caps by lending across state lines. New Yorkers can still borrow at

30% interest on credit cards issued by banks in, say, Utah. Last year, however, a federal court ruled that banks that sell on their loans cannot always make use of the loophole. One effect of the ruling was that all ofa sudden, interest-rate caps applied to online, peer-to-peer lenders, who had previously channelled their loans through banks to avoid usury laws.

A recent paper finds that this crimped lending to those with low credit scores. In the seven months following the ruling, online peer-to-peer loan volumes for those with the lowest credit scores grew by 124% in states not yet affected by the decision. In states where the ruling applied, they shrank by 48% (see chart).

That suggests sky-high interest rates on payday loans do reflect underlying risks, not simply an attempt to exploit borrowers. In 2005 a study by researchers at the Federal Deposit Insurance Corporation, another regulator, found that payday lenders were not unusually profitable. Bob DeYoung, a professor of finance at the University of Kansas, compares payday loans to short-term car rentals, arguing that ifyou divide the fee charged by the value of the car, you get a similarly high “interest rate”.

Elizabeth Warren, the senator whose efforts led to the founding of the CFPB, has long argued that financial products should be regulated like toasters: those that often cause fires should be banned. It seems certain that people who regularly turn to payday loans to cover recurring expenses are doing themselves no good. The trick, though, is to protect them without burning the entire industry to the ground. 7

Not alright for some United States, growth* in peer-to-peer loan volume By borrower’s credit score, 2015, %

States where rate cap is imposed Others 50

–

0

+

50

100

150

725-750 MORE CREDITWORTHY

0

700-725 675-700 650-675 625-650 Below 625

*Comparison of lending in Jun-Dec with Jan-May Source: “The effect of Usury Laws on Riskier Borrowers”,

by C. Honigsberg, R. Jackson and R. Squire, May 2016

The Economist May 28th 2016

Finance and economics 65

Cyberattacks on banks

Heist finance

Recent hacks highlight the vulnerability of the cross-border payments system

B

ARELY an eyebrow is raised these days when the credit-card details of retailers’ customers are stolen en masse; such crimes are attempted or committed daily.

But when banks’ own funds are pinched, it is time to pay attention—especially when the theft involves hijacking banks’ connections to the global payments system. This week the Society for Worldwide Interbank Financial Telecommunications (SWIFT), a network that thousands of banks around the world use to move money, described a recent spate of cyber-heists, which netted $90m. Gottfried Leibbrandt, SWIFT’s boss, described them as a “watershed moment”.

The threat now, he said, is not just to banks’ reputations, but to the very existence of those that fail to protect themselves.

Investigators are still trying to piece together how thieves pulled off a spectacular hack that siphoned $81m out of Bangladesh’s central bank in February, let alone who was behind it. This was one of the biggest-ever bank robberies, but it could have been worse: $850m of the bogus transfer requests were blocked. The stolen money went to a bank in the Philippines, then on to casinos. Where most of it went from there is unclear. Some ended up with a Chinese operator of junkets for gamblers (who denies knowing it was stolen).

The scam sent banks and SWIFT scrambling to check for other infiltrations. Their probes have turned up at least one similar, albeit smaller, case: hackers tried unsuc-

cessfully to nab $1m from Tien Phong Bank, in Vietnam, in December. Another case has come to light through court filings: Ecuador’s Banco del Austro is suing Wells Fargo for waving through fake transfers of $12m ($3m of which was later recovered) to accounts in Hong Kong. The American bank is fighting the action.

Experts say there are likely to be dozens of other actual or attempted breaches of this kind that have yet to be detected.

Cyber-criminals have become very good at covering their tracks. In the Bangladesh break-in, for instance, they wrote malware to interfere with a machine whose printouts the bank relied on to check transactions. Jens Monrad of FireEye, a cybersecurity firm that is conducting an audit of

Three-alarm firewall % of British finance executives identifying cyber attacks as: 50 one of the biggest threats to the financial system

40 30

one of the biggest challenges for their firm

20 10 0

2009

10

11

12

13

14

Source: Bank of England Systemic Risk Survey

15

the theft, says the median time it takes for targeted companies to realise their systems have been compromised is 146 days.

Banks’ coffers being raided by cybercrooks is bad enough. Worse, the thefts expose weaknesses in a vital bit of financial plumbing: banks’ connections to the SWIFT network. In each of the cases that have come to light, the thieves hacked into the bank’s system, used malware to log on to the SWIFT network using the bank’s unique code, and re-routed transactions to new beneficiaries.

SWIFT, a co-operative owned and used by 11,000 financial firms, processes 25m messages a day, covering half of all big cross-border transfers. Were it to be compromised, trust in the global payments system could evaporate. SWIFT insists its network and core messaging services were not breached; the security problems were at the banks themselves, it says. Officials at SWIFT express frustration that targeted banks can be slow to share information with it about hacks, meaning other banks don’t get intelligence they could act on.

Nevertheless, calls have grown for SWIFT to do more (with some geeks even suggesting it be replaced by blockchain technology). Mr Leibbrandt responded on May 24th by announcing a “customer security” plan, aimed at encouraging better network security, information-sharing and fraud detection. He also called for a new wave of innovation in cyber-security—covering “pattern recognition, monitoring, anomaly detection, authentication, biometrics”—to meet the growing threat from “hoodies hunkering over keyboards”.

But SWIFT has no power over banks.

That is down to regulators, whose performance in this area varies greatly. Among the most switched-on is the Bank of England, which runs a widely respected resilience-testing programme for big banks that includes mock attacks. British banks that fail to beef up their defences may even be forced to hold extra capital.

Standards in some emerging markets are much lower. Security at Bangladesh’s central bank was outdated and inadequate. One investigation found evidence of infiltration by three different groups. It is unlikely to be a coincidence that the hackers have targeted banks in relatively undeveloped markets rather than bigger (but much better protected) prizes in countries like Britain and America.

Not that banks in bastions of high finance can rest on their laurels. Even if their cyber-defences are strong, there is always the risk from accomplices on the inside (help from whom has not been ruled out in Bangladesh). Several big banks, including JPMorgan Chase, have begun to whittle down the number of employees with access to the SWIFT gateway. As experts never tire of saying, cyber-security is about people as much as it is about technology. 7

66 Finance and economics

The Economist May 28th 2016

Free exchange Make me Compulsory voting is hardest to enact in the places where it would make most difference

“I

F VOTING made any difference they wouldn’t let us do it,” quipped Mark Twain, an American writer. Some governments, however, think voting makes such a difference that they oblige voters to do it. Voting is compulsory in 26 countries around the world, from Argentina to Belgium. To those elsewhere worried about declining voter turnout, compulsory voting may seem tempting. But it is not a shortcut to a healthy democracy.

Turnout has fallen from around 85% of eligible voters across the OECD in the late 1940s to 65% today, according to the Institute for Democracy and Electoral Assistance (IDEA), an NGO. For many, the changing composition of the voting electorate is as worrying as its dwindling size. Voters in Britain and America are disproportionately rich, well-educated and old. That, studies suggest, skews policymaking. In late-19th-century America, for example, rules barring most blacks in the South from voting seem to have resulted in a much lower ratio of teachers to children in black schools. Government spending on health, in contrast, jumped by a third when women got the vote. Health spending also rose by a third in Brazil, when the introduction of electronic voting made it easier for the less educated to vote.

But boosting turnout is tricky. Making it easier to vote, by extending voting hours, say, or reducing bureaucracy, sometimes helps, but often only marginally. Allowing voters to register on polling day increases turnout by 5-7 percentage points; making election day a holiday seems to make no difference. One study found that after the American state of Oregon abandoned polling stations in favour of postal voting, turnout jumped by ten percentage points. Subsequent research failed to find such large effects, however, and there is some evidence that postal voting exacerbates the skew in who actually casts a ballot.

Efforts to cajole voters also have only a limited impact. Contact with a canvasser seems to be relatively effective, raising the chances of someone voting by around 4.3 percentage points according to one paper. But from Madonna’s threat to spank nonvoters in her video “Rock the Vote”, to worthy letters calling on citizens to perform their civic duties, it is hard to find a tactic that boosts turnout by more than a few percentage points.

Indeed, in a world of voluntary voting, the real mystery is why so many voters turn out at all. Although votes matter in

bulk, the chance of any individual vote deciding the outcome is minuscule. For voters, therefore, the potential benefit of participating is tiny relative to the cost of trudging to a polling booth and waiting in line. This is a classic collective-action problem, in which individuals have an incentive to free-ride on others’ sense of civic duty.

Making voting mandatory seems like a quick fix. Voters still have the right to abstain by leaving their ballot blank or otherwise spoiling it. The punishment for failing to vote is usually quite mild: in Australia, where voting has been mandatory since 1924, non-voters must either provide an excuse for their absence, or pay a A$20 ($14) fine.

Best of all, it works, both by increasing turnout and by reducing the skew in the electorate. Turnout in countries with compulsory voting is on average seven percentage points higher than in those where it is voluntary. Australia and Belgium both boast voting rates of more than 90%. In the parts of Switzerland where voting is mandatory, the turnout is more representative of the population as a whole than elsewhere. The results are different as a result, with leftist policy positions in referendums winning up to 20 percentage points more support. By the same token, when voting became compulsory in Australia it raised turnout by 24 percentage points, and increased the Labor party’s share of the vote by 7-10 percentage points. There is an air of a festival about voting in Australia: in 2013 19% of polling booths featured “sausage sizzles”—barbecues to reward voters with a sausage on bread.

A spoiled ballot Yet mandatory voting does not necessarily yield a democratic paradise. In places where turnout is already relatively high, compulsory voting may not do much to alter politics. In Austria, for instance, introducing it in some regions had little effect on the relative support for left- and right-wing parties or on the level of public spending.

And in places where turnout is low, and so the impact of mandatory voting might be big, it is politically difficult to enact. Barack Obama recently told a group of students that mandatory voting could have a “transformative” effect on American politics.

That is doubtless true: in 2012 voters were split pretty evenly between Mr Obama and his main rival for the presidency, Mitt Romney; according to opinion polls, non-voters favoured Mr Obama by a margin of 35 percentage points. More generally, Republicans tend to do better among the most consistent voters. It is hard to imagine them supporting a step that could massively diminish their electoral fortunes.

Republicans might dress up their resistance as a matter ofprinciple. For starters, voting and compulsion are an odd mix. Forcing apathetic voters into polling stations might mean a more uninformed electorate, which protects inept politicians and rewards inflammatory ones. It might also take some of the spark out of politics: the Dutch scrapped it in 1967, on the ground that it made politicians complacent. It would be far better, surely, to try to get non-voters interested in politics than to drag them to the polls against their will. Indeed, Mr Obama himself has been good at that: his candidacy inspired many Americans to vote for the first time. It is hard to see coercion as a good substitute for an inspirational candidate, or even for the hard slog of education. Then again, the odd sausage sizzle wouldn’t hurt. 7 Economist.com/blogs/freeexchange

Science and technology

The Economist May 28th 2016 69 Also in this section 70 Temperatures on the up 71 Drone countermeasures 71 Building a replicator 72 3D printing motorbikes

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

Human evolution

Of bairns and brains

Babies are born helpless, which might explain why humans are so clever

H

UMAN intelligence is a biological mystery. Evolution is usually a stingy process, giving animals just what they need to thrive in their niche and no more. But humans stand out. Not only are they much cleverer than their closest living relatives, the chimpanzees, they are also much cleverer than seems strictly necessary. The ability to do geometry, or to prove Pythagoras’s theorem, has turned out to be rather handy over the past few thousand years. But it is hard to imagine that a brain capable of such feats was required to survive on the prehistoric plains of east Africa, especially given the steep price at which it was bought. Humans’ outsized, power-hungry brains suck up around a quarter of their body’s oxygen supplies.

Sexy brains There are many theories to explain this mystery. Perhaps intelligence is a result of sexual selection. Like a peacock’s tail, in other words, it is an ornament that, by virtue of being expensive to own, proves its bearers’ fitness. It was simply humanity’s good fortune that those big sexy brains turned out to be useful for lots of other things, from thinking up agriculture to building internal-combustion engines. Another idea is that human cleverness arose out of the mental demands of living in groups whose members are sometimes allies and sometimes rivals.

Now, though, researchers from Rochester University, in New York, have come up with another idea. In Proceedings of the National Academies of Science, Steven Piantadosi and Celeste Kidd suggest that humans may have become so clever thanks to another evolutionarily odd characteristic: namely that their babies are so helpless.

Compared with other animals, says Dr Kidd, some of whose young can stand up and move around within minutes of being born, human infants take a year to learn even to walk, and need constant supervision for many years afterwards. That helplessness is thought to be one consequence of intelligence—or, at least, of brain size. In order to keep their heads small enough to make live birth possible, human children must be born at an earlier stage of development than other animals. But Dr Piantadosi and Dr Kidd, both of whom study child development, wondered if it might be a cause as well as a consequence of intelligence as well.

Their idea is that helpless babies require intelligent parents to look after them.

But to get big-brained parents you must start with big-headed—and therefore helpless—babies. The result is a feedback loop, in which the pressure for clever parents requires ever-more incompetent infants, requiring ever-brighter parents to ensure they survive childhood.

It is an elegant idea. The self-reinforcing

nature of the process would explain why intelligence is so strikingly overdeveloped in humans compared even with chimpanzees. It also offers an answer to another evolutionary puzzle, namely why high intelligence developed first in primates, a newish branch of the mammals, a group that is itself relatively young. Animals that lay eggs rather than experiencing pregnancy do not face the trade-off between head size at birth and infant competence that drives the entire process.

To test their theory, Dr Piantadosi and Dr Kidd turned first to a computer model of evolution. This confirmed that the idea worked, at least in principle. They then went looking for evidence to support the theory in the real world. To do that they gathered data from 23 different species of primate, from chimps and gorillas to the Madagascan mouse lemur, a diminutive primate less than 30cm long.

The scientists compared the age at which an animal weaned its young (a convenient proxy for how competent those young were) with their scores on a standardised test of primate intelligence. Sure enough, they found a strong correlation: across all the animals tested, weaning age predicted about 78% of the eventual score in intelligence. That correlation held even after controlling for a slew of other factors, including the average body weight of babies compared with adults or brain size as a percentage of total body mass.

The researchers point to other snippets of data that seem to support their conclusions: a study of Serbian women published in 2008, for instance, found that babies born to mothers with higher IQs had a better chance of surviving than those born to low-IQ women, which bolsters the idea that looking after human babies is indeed cognitively taxing. But although their the- 1

70 Science and technology 2 ory is intriguing, Dr Piantadosi and Dr Kidd

admit that none of this adds up to definitive proof.

That, unfortunately, can be the fate of many who study human evolution. Any such feedback loop would be a slow process (at least as reckoned by the humans themselves), most of which would have taken place in the distant past. There are gaps in the theory, too. Even if such a process could drastically boost intelligence,

The Economist May 28th 2016 something would need to get it going in the first place. It may be that some other factor—perhaps sexual selection, or the demands ofa complex environment, or some mixture of the two—was required to jumpstart the process. Dr Piantadosi and Dr Kidd’s idea seems a plausible addition to the list of explanations. But unless human intelligence turns out to be up to the task of building a time machine, it is unlikely that anyone will ever know for sure. 7

Global warming

In the red

The end of El Niño sees temperatures soar across the world

C

ONDITIONS in India are road-meltingly hot: on May 19th residents of Phalodi, a city in the north of the country, had to cope with temperatures of 51°C—the highest since records there began. Records are tumbling elsewhere, too. According to the latest data from America’s National Oceanic and Atmospheric Administration, 13 of the 15 highest monthly temperature anomalies have occurred since February 2015. The average temperature over land and ocean surfaces in April was 1.10°C above last century’s average (see map). The current year will almost certainly be the warmest on record, and probably by the largest margin to date.

A Pacific-wide climatic phenomenon known as El Niño (“The Boy” in Spanish) helps explain the heat. In non-Niño years, trade winds blow warm water to the west, where it pools in the western tropical Pacific. Cooler water is drawn up from the depths to the surface in the Pacific’s east as a result, in a process known as upwelling.

Every two to seven years, the pool of

warm water sloshes back eastwards when the trade winds weaken or even reverse; this is El Niño in action. The interaction of the Pacific Ocean and the atmosphere is part of a cycle called El Niño Southern Oscillation (ENSO).

This spilling of the warm pool across the tropical Pacific pushes up global surface temperatures. The consequent increase in atmospheric heat and moisture brings deluges to south-eastern South America and western North America, and drought to India, Australia, Indonesia and southern Africa. Niño-like conditions first began in mid-2014, but the full event did not emerge for another year. It then proved one of the strongest ever recorded.

On May 24th Australia’s Bureau of Meteorology (BOM) declared El Niño finished, as surface temperatures across the tropical Pacific have cooled over the past two weeks. What follows? Temperature peaks typically occur towards the end of El Niño, according to Kevin Trenberth from the National Centre for Atmospheric Research in

Land and ocean temperature departure from average* April 2016, °C

Source: NOAA

-5.0

-2.5

0

2.5

5

*Grey areas represent missing data

Boulder, Colorado. BOM says that there is a 50% chance that La Niña, another phase of ENSO and one associated with unusually low surface temperatures in the eastern Pacific, will form this year. Cooler weather for south-eastern Asia and western South America could accompany it.

But each event has its own quirks. And future Niños may hold greater surprises, thanks to increasing concentrations of heat-trapping gases in the atmosphere. Resultant ocean warming means the barrier to extreme Niños “is now lower”, says Eric Guilyardi, a meteorologist at the University of Reading in Britain. Between 1999 and 2012, 69 zettajoules of heat (or 69 x 1021 joules—a vast quantity of energy) have been sequestered in the oceans between 300 metres and 1,500 metres down, according to a 2014 study in Science. Still warmer oceans in years to come will probably mean that the weather events unleashed by strong Niños will intensify.

Blaming climate change for particular storms remains tenuous. But America’s National Academies of Science, Engineering and Medicine released a report in March laying out where scientists can more confidently attribute the probability or severity of weird weather to climate change. It says the most dependable attribution findings are for events related to an aspect of temperature; a warmer climate means that unusually hot days become more likely while unusually cold ones become less so. India’s scorching temperatures may reflect such trends. Limiting global warming to less than 2°C above pre-industrial temperatures, agreed at UN climate talks last year, appears impossible.

The way we live now The sweltering temperatures in recent months may help settle debates over a supposed “pause” in global warming that occurred between 1998 and 2013. During that period the Earth’s surface temperature rose at a rate of 0.04°C a decade, rather than the 0.18°C increase of the 1990s.

Fluctuating solar output, atmospheric pollution, incomplete data and volcanic activity were all posited as possible factors.

Some saw the stasis as evidence that previous temperature rises were thanks to natural cycles, not man-made warming. Others later argued that the hiatus never happened at all: inconsistent methods of measuring ocean surface temperature or inadequate statistical analysis were to blame.

The complexity of climate systems means temperature variations cannot be explained by a single cause. But those who pinned the pause on the ocean’s heat-storing may have known best. 7 Correction: In last week’s briefing on antibiotic resistance ("The grim prospect"), the word “plasmids” was incorrectly rendered as “plastids” on two occasions.

Plastids are plant-cell organelles, not found in bacteria.

Be assured that we do know the difference.

The Economist May 28th 2016

Science and technology 71

Drone countermeasures

Hacked off Guarding against rogue drones could be a legal nightmare

A

BLACK package suspended in mid-air under a hovering drone is picked up by the CCTV cameras surrounding Wandsworth prison in south London one evening earlier this year. As it moves closer to one of the windows, a prisoner leans out to snare the delivery with a stick and pull it inside. Prison officers later recover the package and find it is stuffed with drugs and mobile phones.

Such events are becoming increasingly common, not just in the use of drones to deliver contraband but in all sorts of other nefarious activities, from paparazzi spying on celebrities to burglars casing properties.

More worrying still are reports of drones being flown near aircraft. Security experts fret about ways terrorists could use drones to drop bombs or biological weapons.

What is needed, many reckon, are drone countermeasures. These already exist for military drones—including shooting them down with lasers. But that is a dangerous way to deal with small consumer drones flying in public areas. So, other answers are being sought in a challenge organised by MITRE, an American non-profit organisation that runs R&D centres funded by the federal government. It has drawn up a list of ten contenders to take part in a trial in August of“non-kinetic” systems capable of detecting and intercepting small drones weighing less than 5lbs (2.3kg). These systems must be good value and capable of wide deployment. The challenge is offering $100,000 of prizes and a chance to catch the eye of federal agencies.

The hurdles posed by the challenge are not what you might expect. “The technology aspects are sometimes the easy part,” says Duane Blackburn, a policy analyst at MITRE. Various rules and regulations mean that interfering with a drone could be a legal nightmare. For example, detecting a small hovering quadcopter drone at any reasonable distance requires a relatively powerful radar. Yet such transmitters are strictly controlled in America under Federal Communication Commission (FCC) regulations, making such equipment difficult and expensive to acquire.

The contenders think they can get around that by detecting the radio communications between a drone and its operator. Although drones can fly independently, some form of radio is used by an operator to relay commands, such as to go up or down, left or right, and to provide a video link from the drone’s camera.

Drone alert Mesmer, a system developed by Department 13, a technology company based near Baltimore, can detect these signals and even use them to identify the type of drone. Mesmer then employs its own signals to take command of the drone itself, ordering it to divert, land or return to base.

The Dronebuster from Radio Hill, a company based in New Jersey, uses a “point-and-shoot” device which can be aimed at an intruding drone to jam either its communications or GPS system. Com-

mercial drones are preprogrammed to land or return to base when they lose either of these signals. Lockheed Martin, a big American defence group, has a contender called ICARUS that employs multiple sensors to alert an operator to a drone threat and provide a selection of countermeasures, including taking command. The system also works automatically.

Yet such systems could also open up a legal can of worms. For one thing, intercepting signals used by a drone might be considered an illegal “wiretap”, according to FCC regulations. Jamming signals is also against the law. Alex Heshmaty of Legal Words, a British legal-services company, says that interfering with the software of a third-party drone without permission might breach anti-hacking laws.

Even if these rules can be circumvented, the Federal Aviation Administration makes it illegal to interfere with an aircraft in flight—and drones are considered to be aircraft. Similar rules exist in many other countries, including Britain. Andrew Charlton, a drone expert and head of a Swiss aviation consultancy, reckons that workable countermeasures against small drones will emerge, but in order to deploy them widely countries will have to review rules and regulations drawn up in an era of manned flight. 7

Product design

The replicator LANCASTER

Designing in the digital and physical worlds at the same time

W

HEN great designs are turned into products compromises are made.

The beautifully sculpted “concept” cars that regularly appear at motor shows never get built, at least not in the form they left the design studio, because they are inevitably too difficult and expensive to engineer for mass production. For decades this has meant products have had to be “designed for manufacture”, which essentially means their components must incorporate features that can be readily shaped by machines in order to be glued, screwed or welded together by people or robots. Now a combination of powerful computer-aided design (CAD) software and new manufacturing methods is changing the game.

Instead of being created with technical drawings and blueprints, most new products are today conceived in CAD systems in a three-dimensional virtual form. As these systems get cleverer some of the design processes themselves are being automated: algorithms suggest the most efficient shapes to save weight, or to provide

strength or flexibility according to the loads and stresses placed upon them.

Components and even entire products can be tested in their digital form, often using virtual reality. When something physical is finally built the same software drives the equipment that produces it, whether automated lathes and milling machines that cut and drill material or, in the case of additive manufacturing, 3D printers that build up objects layer-by-layer in a way never before possible.

This digital dimension gives designers a greater level of freedom to create new things (see box). But not all designers are skilled in using CAD systems. Even those who are might want to set aside the computer mouse for a saw, a file or a welding torch to get hands-on with their ideas. The ability to do both is becoming possible. A machine developed at the University of Lancaster in Britain provides a glimpse of a future in which product designers will be able to work in both digital and physical 1 forms—at the same time.

72 Science and technology 2

The ReForm is a desktop machine developed by Jason Alexander, Christian Weichel (now at Bosch, a German components group) and John Hardy (now cofounder of HE Inventions, a Manchester startup) to pick up any changes made to a physical model of a product and reflect those changes back into the digital model, or vice versa. “I like to think of it as the closest implementation yet of a Star Trek replicator,” says Dr Hardy, referring to the device that could create just about anything in the science-fiction TV series.

Tea, Earl Grey, hot Inside ReForm is a fast-spinning milling head, which cuts shapes out of material in the traditional subtractive manner, and a 3D-printing extrusion head, which builds material in layers up additively. Overseeing proceedings is a 3D scanner, which projects a pattern of light onto the object being worked upon. A pair of cameras, positioned in the machine at different viewpoints, detects minute differences in the pattern of light reflected from the object to determine its shape in a digital form. At present the machine works with modelling clay. That might seem a bit old-fashioned, but it is still widely used: despite all their new digital tools, car designers, for one, continue to make full-sized replicas of new models in clay.

The machine can be used in a number of ways. A digital CAD design can be sent to ReForm and it will set about milling it from a block of clay or printing it, after the machine itself determines which process will be the fastest. It could be a combination of both. Alternatively, an object can be placed inside ReForm to be scanned, after which a replica will be made either additively or subtractively.

Changes can then be made to the object, cutting a bit off here, say, adding a bit there or drilling a hole. That could be done virtually on a computer screen or by removing the physical model and doing the work manually. Once placed back into the machine, the scanner detects the changes and updates the digital model.

An image of the object is projected onto the viewing window at the front of the machine. This allows a designer to view the digital version overlaid on the actual clay object inside. It is used to produce a digital preview of what any changes will look like before cutting or printing begins.

And if a designer thinks he has really messed up, there is an “undo” button which will let him scroll back through images of previous iterations, choose one and leave it to the machine to return the object to that original state.

Machines like ReForm will allow people with no technical knowledge to engage in product design, says Dr Alexander. With further development, he believes it will be possible to integrate other manufacturing

The Economist May 28th 2016 Additive manufacturing

Alloy angels 3D printing produces a curious lightweight motorcycle

O

NE of the great advantages of 3D printing is being able to escape the constraints of traditional production processes, and to make things with unique shapes. The powerful computeraided design programs that are used to run 3D printers help engineers achieve this. Algorithms calculate the most efficient structure required to achieve the lightest weight and yet still handle all the loads and stresses that will be placed upon the object. Often the result is rather like something that nature might come up with—which is hardly surprising as nature has had millions of years of practice in creating highly efficient structures.

The latest example of this bionic design trend is the Light Rider, which is claimed to be the world’s first 3D-printed motorcycle. The substantial part of its structure was printed by APWorks, a company based near Munich, using a proprietary material called Scalmalloy, an aluminium-magnesium-scandium alloy that was specially developed for 3D

printing by Airbus, a European aerospace group that owns APWorks.

The motorcycle is driven by a 6kW electric motor and battery. It reaches a top speed of 80kph and hits 45kph in three seconds. That will not exactly excite serious bikers, but its 3D-printed frame could get their attention. It weighs just 6kg, which makes the Light Rider some 30% lighter than conventionally manufactured electric motorcycles.

Then there is the frame’s shape, which looks like an organic exoskeleton. This complex and hollow structure could not have been made with anything other than a 3D printer, says Joachim Zettler, APWorks’ boss. The process involved using a laser to melt together thousands of individual layers of the powdered alloy, each layer only some 60 microns (millionths of a metre) thick. The company is offering a limited production run of just 50 Light Riders. At some €50,000 ($56,000) each, it is not just the bike that is exotic but also the price.

One printed for the road techniques into ReForm, such as making things in plastic or metal or at much larger scale, with milling and extrusion heads mounted on robotic arms.

One intriguing possibility the team is thinking about is 3D printing electrical circuits, a process that is just beginning to be used in some factories. 3D-printed electronics would give ReForm the ability to make prototypes and even one-off pro-

ducts that are more functional. And it could also be used to follow up the software updates that many devices now demand with hardware updates, too. This would be done by putting a mobile phone, say, into the machine, cutting out a previous version of any circuitry and printing new electronics in its place. With a machine like ReForm it might no longer be necessary to throw any device away. 7

The Economist May 28th 2016 73

Books and arts

Also in this section 74 The gene: a history 74 Sir Kenelm Digby, charmer 75 The librarians of Timbuktu 75 The invention of dating 76 Ermonela Jaho, serious soprano

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

Dawn of the oil industry

Guts, greed and gushers ExxonMobil and Royal Dutch Shell dominate world oil. A century ago, they were born fighting each other

J

UST over 100 years ago Standard Oil, from which both Exxon and Mobil sprang, was the undisputed leader of the global oil industry. American trustbusters were soon hot on the heels of its competition-killing owner, John D. Rockefeller. So too was a scrappy Anglo-Dutch company, the product of a merger of Shell Oil with Royal Dutch in 1907, which had defied fearsome odds to muscle onto Standard’s home turf in America.

That amalgamation had been the work of two men: Marcus Samuel, a brilliant Jewish merchant who built the Shell Transportation and Trading Company from his father’s business selling seashells in Houndsditch, East London, and Henri Deterding, a Dutch wheeler-dealer who built Royal Dutch from unpromising beginnings in the swamps of Sumatra into an Asian powerhouse. These two egos, for years bitter rivals, eventually joined forces to confront a “hammerlock on the planet’s oil market”. Their story, though not new, is grippingly retold in “Breaking Rockefeller”.

Rockefeller’s life is vivid enough, though he is more of a presence snaking menacingly through the book than a central character. From his grand Manhattan office on 26 Broadway, the fastidiously punctual former book-keeper, with an eye permanently on the ledger, launched a “cut-to-kill” strategy whenever competition threatened his stranglehold on the

Breaking Rockefeller: The Incredible Story of the Ambitious Rivals Who Toppled an Oil Empire. By Peter Doran.

Viking; 352 pages; $28 kerosene industry. He would slash prices in one district to snuff out rivals, and raise them elsewhere to recoup his profits. Such was his dominance of global petroleum that he could do this with impunity throughout America, Europe and Asia.

The guts, greed and gusto of this cast of characters are what gives the book its vigour. The colourful backwaters where they waged their counter-offensives, from London’s East End, to Baku in the Caspian, to Spindletop, Texas, add historical flavour.

Peter Doran, a Washington-based scholar on European affairs, admits he has borrowed heavily from such books as “The Prize” by Daniel Yergin to tell his story.

Samuel ordered almost all of his papers to be burned when he died, so some of the lively personality traits found here may be more the result of imaginative storytelling than documentary rigour.

But the book is timely in an era when America’s shale revolution has upset the OPEC cartel’s efforts to control the world’s oil markets, and eastern Europe struggles to free its gas markets from dependence on Russia’s Gazprom. It is a vivid reminder of the dangers ofmonopolies, and ofthe mer-

its of no-holds barred competition and technological upheaval.

Samuel’s great coup was to commission the first modern oil tanker, which enabled him to ship hydrocarbons through the Suez Canal. Thus he could undercut Rockefeller in the Far East with cheap Russian fuel. Royal Dutch’s triumph came from applying new geological methods to find gushers of crude in the Dutch colonies of the East Indies, enabling it to fight Shell in Asia.

Their tie-up, arranged by another intriguing Londoner, Fred “Shady” Lane, followed the Russian revolution of 1905, which knocked out Shell’s Caspian production and almost broke the company.

But the timing proved superb. Instead of fighting each other, jointly they became a match for Standard. Its empire was under attack from Ida Tarbell, an American investigative journalist whose father had been ruined by Rockefeller. Her 19-part series starting in 1902 revealed Standard’s secret contracts, kickback schemes, Rockefeller’s “unholy alliance” between oil refiners and producers, and the extent of its monopoly.

Within a decade, the Supreme Court had ordered Standard Oil to be dismantled, though the bits into which it was broken were so valuable that “in the span of a few months at the end of 1911, Rockefeller went from being a very rich man to a fabulously wealthy one,” Mr Doran writes. His end, as a cheeky old man playing golf and seducing girls in the back seat of his car in Florida, is described with humour.

So is the retirement of Samuel, or Viscount Bearsted as he became, who helped persuade Winston Churchill to commission oil-burning dreadnoughts just before the first world war. Having climbed the social ladder as a Jew in Victorian England was a source of lifelong pride: “You can’t 1

74 Books and arts 2 think what pleasure it gives me to put ‘The

Honourable’ on my children’s envelopes,” he said after being made a peer.

The book acknowledges that Royal Dutch Shell could not have toppled Standard Oil alone. “The trustbusters weakened Rockefeller’s monopoly. Free marketeers like Deterding [and Samuel] provided a competitive alternative to it.” Thanks to the competition that they engendered, the oil industry has become more vigorous ever since. The author does not dwell on the challenges to oil’s supremacy that have arisen lately as a result of climate change.

But if Royal Dutch Shell’s challenge to Standard Oil is any lesson, companies that develop alternative forms of energy will only become true challengers to Big Oil with guts, greed and better technology. They are not quite there yet. 7

Genetics

Mix and match The Gene: An Intimate History. By Siddhartha Mukherjee. Scribner; 592 pages; $32. Bodley Head; £25

T

HE first human with a genome that has been permanently modified in a lab could be born by the end of this decade.

However innocuous the changes made, the baby’s birth will markthe first time that humanity has selectively interceded to change the genetic inheritance of future generations. That is an eventuality, Siddhartha Mukherjee argues in his new book, “The Gene”, for which the world is almost wholly unprepared.

The book begins in the tranquil gardens of St Thomas’s Abbey in Brno in the mid-19th century. It was here that Gregor Mendel, an Augustinian friar, began experiments with pea plants to see how biological traits are passed on from parents to offspring. As he bred peas with different characteristics—with purple or white flowers, or tall or dwarf plants—Mendel noticed that no purple-white flowers emerged, nor any plants of medium height. Instead, the original traits reappeared in different ratios after each cross. Mendel realised that these traits were being determined by independent particles of information, which every plant inherited from its parents. He had identified one of the fundamental characteristics of a gene, a discovery which would become a pillar of modern genetics.

“The Gene” ranges across 150 years, taking in every major advance in the field. It traces Charles Darwin’s thinking as he began to formulate his theory ofevolution on his voyage to the Galápagos islands, and follows the thread all the way to contem-

The Economist May 28th 2016 porary China, where scientists are carrying out cutting-edge, but ethically troubling, genetic experiments with human embryos. Dr Mukherjee does not neglect the catastrophic missteps that science has taken, including the global rise of the eugenics movement, from the campaign by Francis Galton, Darwin’s half-cousin, to make it the “national religion” of Britain, to the atrocities committed by Nazi doctors in the second world war, which largely brought eugenics programmes to a halt.

Its grand scope means “The Gene” cannot explore the science to the same depth as other books such as Steven Rose’s classic, “The Chemistry ofLife”. Nor is its narrative driven by a single powerful idea, as is Richard Dawkins’s “The Selfish Gene”, published 40 years ago.

Nonetheless, Dr Mukherjee uses personal experience to particularly good effect.

In “The Emperor of All Maladies”, his earlier Pulitzer-winning history ofcancer, it was his work as an oncologist that illuminated the science of the disease. In “The Gene” his family comes to the fore. He writes tenderly, for example, of his two mentally ill uncles: Rajesh, once “the most promising” of the brothers, and Jagu, who “resembled a Bengali Jim Morrison”. It is a poignant way to examine the genetics of schizophrenia: his own family’s history of mental illness leads him to studies of other families “achingly similar” to his own.

Returning to his uncles in the final chapter, Dr Mukherjee notes that mental illness can be accompanied by exceptional talents. He concludes his history with a 13point manifesto for the post-genomic world. “Normalcy”, he writes, “is the antithesis of evolution.” This, then, is perhaps the most powerful lesson of Dr Mukherjee’s book: genetics is starting to reveal how much the human race has to gain from tinkering with its genome, but still has precious little to say about how much we might lose. 7

Jacobean history

Forgotten hero A Stain in the Blood: The Remarkable Voyage of Sir Kenelm Digby. By Joe Moshenska.

William Heinemann; 553 pages; £20

W

HATEVER became of Sir Kenelm Digby? A cook, alchemist and philosopher and the inventor of the modern wine bottle, his life seems to have sunk without a trace. His recipes, set out in “The Closet of the Eminently Learned Sir Kenelme Digbie Kt. Opened”, were published and republished. His life was first told by John Aubrey, the great biographer of Digby’s age, but only one biography has appeared since the 1950s, written by a distant descendant of Digby’s.

He was the son of Everard Digby, a Gunpowder Plotter condemned to death for conspiring to blow up King James I. Yet Kenelm charmed his way into becoming a courtier to James’s son Charles I. He had a bookish, sheltered upbringing. Despite that, he went on to marry Venetia Stanley, a famous 17th-century beauty painted by Van Dyck and elegised by Ben Jonson.

Such was his fame for the occult that it was later rumoured that he had murdered her with wine laced with viper venom. In a bid to remove the “stain in his blood” as the son of a Gunpowder Plotter, he decided to reinvent himself as a pirate. It is an extraordinary story.

Joe Moshenska, a specialist in the Renaissance period at Cambridge University, digs up the first half of that life story, focusing on the voyage to reclaim his honour.

Charles I commissioned Digby to be a privateer, free to sink enemy ships or seize their loot. Charles was keen for extra cash raised through non-parliamentary means, like his predecessors. Digby acted as shipsinker, but partly as diplomat as well. He returned with looted wool bales, wine crates, currants (highly sought-after commodities at the time), ancient Greek marbles and Arabic manuscripts. In Algiers he persuaded the city governors to free 50 English slaves and open the port to all English vessels.

The romance between Digby and Stanley is just as fascinating. It was said that he faked his death in order to escape the affections of the Queen Regent of France. When Stanley heard he had died, she collapsed in grief and was persuaded to get engaged to a devious suitor. She later forgave Digby, and married him.

Mr Moshenska’s biography gives a wider picture of England’s place in the world. It is not hard to see Digby as an early product of the idea of empire. He brought back treasure but he also brought back ancient 1

The Economist May 28th 2016

Books and arts 75

2 learning, as well as foreign fauna and flora.

That an intellectual would become an ocean-faring buccaneer may seem incongruous, but it would lay the foundations of an English imperialism. Colonialists would go hand-in-hand with botanists and astronomers in their conquest of the globe.

The book also connects the English national story with a European one. Digby returned from his travels with continental recipes, philosophy and science. Around the same time Inigo Jones returned with ideas for classical architecture. Charles I, inspired partly by the opulence of the Spanish Habsburg court where he first met Digby, had Van Dyck and Rubens paint his and his father’s image.

Mr Moshenska depicts an age that sits between superstition and a scientific revolution. Digby indulged in horoscopes and alchemy, and discussed Galileo’s new ideas with Florentine academics. He advanced a theory that wounds would heal if a powder was applied to the weapon that caused the injury. (Unsurprisingly it worked better than spreading mustard on the open wound, a common alternative.)

His book on the weapon-salve, though much mocked, went through 29 English editions. Digby went on to write the first paper which the new Royal Society formally asked to publish, and he came up with a crude theory of photosynthesis.

In his short biography Mr Moshenska successfully brings back to life a forgotten self-made man who was at the same time braggadocio and philosopher, and who seemed to live so many lives. Readers curious to learn more can only await the second half of the story. 7

Mali

Paper trail The Bad-Ass Librarians of Timbuktu. By Joshua Hammer. Simon & Schuster; 278 pages; $26

J

OSHUA HAMMER’S new book, “The Bad-Ass Librarians of Timbuktu”, traces the story of hundreds of thousands of medieval texts as they are rescued in 2012 from near-destruction by jihadists linked to al-Qaeda in Mali. It is at once a history, caper and thriller, featuring a superherolibrarian, Abdel Kader Haidara, as the saviour of an entire culture’s heritage.

Some of the book’s most compelling passages are lists, sometimes as much as a paragraph in length. The spices, minerals, animals, fabrics and books carried into Timbuktu in the Middle Ages give a heady taste of what the city once was. The print-

Displaced but not destroyed ing process swirls to life in red, gold and black inks, on paper from Fez or distant Venice. Three craftsmen were needed to create a manuscript: one for the words, another for the proofreading and a third to dash in the delicate intonation markings.

Yet the tension, whether to share the texts or hide them, is ever-present. These millions of pages become the endangered species of the story, threatened by wave after wave of invaders.

Mr Hammer’s book is not strictly about the manuscripts, for their escape does not really start until halfway through the book.

It is mostly a history of jihad in Mali, which for centuries lay on the trade route across the Sahara. One day, a short sandy drive from his hero librarian’s home, a “butterscotch-and-peach painted concrete mosque” appeared to Mr Hammer: an outpost ofthe puritan, Saudi-funded Wahhabi ideologues taking root across the Sahel. He first sees the new mosque on a visit to Timbuktu before the war, when he also spots American special forces drinking beer in the heat. Trouble was brewing.

The story picks up speed as it begins to chart the opening salvos of Mali’s own Arab spring. France and America watch a weak region, infested with criminals, moulder. Military officials want to strike extremist groups as they form, they tell the author, whereas diplomats prefer development. Hostages are taken from Mali and neighbours, and traded for huge ransoms.

The Tuaregs who supported the Libyan leader, Muammar Qaddafi, come home armed and ready for revolution. Just as the fight is brewing, a world-renowned music festival in Timbuktu welcomes Bono to the stage. Four days later, after the tourists leave, the shooting begins.

Life becomes awful in Timbuktu, with brutal sharia punishments meted out by young soldiers. Many Malians refuse to be cowed. Here the caper begins at last. Mr Haidara, the dogged manuscript collector who has spent a lifetime gathering north

Africa’s most important works into central libraries, faces a difficult, at times insane, task: how to smuggle nearly half a million ancient texts from under the jihadi occupiers’ noses down a 1,000km route to Bamako. He develops an ulcer as a result of the stress.

The reader last encounters the troves of manuscripts as they arrive at safe houses in Bamako; “not one had been lost”, according to Mr Haidara. Here the author leaves them, as fragile, tantalising and inaccessible as they were in the desert. What of their future? For the ancient books themselves, this chapter is one among many. 7

The invention of dating

Love’s labour Labour of Love: The Invention of Dating.

By Moira Weigel. Farrar, Straus & Giroux; 292 pages; $26

U

NTIL the start of the 20th century, the rules of courtship were fairly straightforward. Male suitors called on eligible women under the watchful eyes of concerned adults. Keen chaps visited regularly and with the intent to marry. It was a dance to which everyone knew the steps. Modern pursuers are not so lucky. Who pays?

When can one text? Just how aloof should one be? Whether you are hoping for a relationship or just casual sex, dating “often feels like the worst, most precarious form of contemporary labour: an unpaid internship,” writes Moira Weigel in “Labour of Love”, an occasionally amusing and often provocative look at the work of wooing.

The rules of love, Ms Weigel argues, are shaped by economics. The concept of “dating” only came about at the dawn of the industrial age, when new opportunities 1

76 Books and arts 2 lured young people to cities in droves.

Working women were soon exposed to an array of potential mates, but many lived in tenements or boarding houses that were unfit for hosting callers. So men offered to escort romantic prospects to restaurants or dance halls, luring poorly paid women with the prospect of a “free treat”. Policing vice squads initially found these transactions suspect, and often arrested ladies who partook in them. But as these practices spread among the working classes, saloons and amusement parks sprang up to earn their business. By the mid-1910s even the middle classes considered “dating” a legitimate way to woo.

Shifting demographics also played a role. Falling birth-rates allowed parents to dote on fewer children, who were increasingly likely to go to school. Young people began mixing in new ways, particularly once American colleges went co-ed in the 1920s. Cars granted young lovers unprecedented privacy, leading one University of Michigan professor to sniff in 1928: “What is vulgarly known as ‘petting’ is the rule rather than the exception.” Perhaps it is the destiny of parents to be horrified by the habits of their children. In the 1950s many were appalled that young people were “going steady” when they should have been dutifully shopping around. Yet a shortage of American men after the second world war made it wiser for women to get cosy with one instead of playing the field.

The mating marketplace has spurred countless businesses. In the 1920s even respectable ladies began painting their faces, and the cosmetics industry exploded. As late as the 1960s most drinking establishments barred unaccompanied women, leading one enterprising New Yorker to open a place called T.G.I. Friday’s, and the “singles bar” was born (the place became so popular it needed velvet ropes). The videotape dating services used by time-poor yuppies in the 1980s set the stage for the boom in high-tech mate-shopping by the turn of the 21st century. And the desire to keep dating well into one’s 40s before settling on a partner has boosted demand for fertility treatments.

In this lively tour of changing romantic mores, Ms Weigel occasionally rambles off-course. She tends to bury thinly argued points beneath grand statements, and she reserves most of her sympathy for women.

But she is right to note that modern courtship is full of mixed messages. Women who are pushed to “lean in” at work are often told to pull back to appeal to men. Men who may answer to women at the office are encouraged to seem invincible after hours, and pay for the pleasure, too. Ms Weigel argues that this arrangement sustains the fiction that men are still in control of courtship—and may also explain why, in these uncertain economic times, the labour of love is so terribly confusing. 7

The Economist May 28th 2016 Opera

Fiery angel How Ermonela Jaho became the world’s most acclaimed soprano

W

HENEVER dictators stifle dissent, the art which most often survives is music. So it is no surprise that the soprano who earlier this month carried off the annual prize for the singer most esteemed by the readers of Opera Magazine, the industry’s bible, should have been born and bred in Enver Hoxha’s Albania. Ermonela Jaho recalls with affectionate amusement the paranoid, isolationist atmosphere in which she grew up: with one television channel and one state-approved comedian (Norman Wisdom, a Londoner); with baby boys being named Adriatik after the sea they had to cross to make their fortune; with hundreds of thousands of pill-box bomb-shelters studding the landscape; but also with a heady form of polyphony which has been sung at village weddings since antiquity.

Ms Jaho has great magnetism on stage, her singing complemented by a particular physical presence. When she sang the title role in Giacomo Puccini’s “Suor Angelica” at Covent Garden in 2011 she drew an ecstatic audience response every night; reviewing her reprise of the role in March, the critics ran out of superlatives. Angelica has been committed to a convent as punishment for an illicit affair. In this cruel drama she learns that her illegitimate son has died; she takes poison and dies praying for salvation. Ms Jaho’s performance took

The Traviata of Tirana

on a compelling momentum as shock reduced her to a seemingly lifeless corpse, before she gave way first to volcanic grief and then to wounded-animal rage.

“But that anger is also my anger,” she said afterwards. “When I sing, I draw on everything I have seen and heard in my life.” Her father taught philosophy and flew Russian fighters; her mother was a teacher, but her family was poor and her mother could never pursue the singing career she yearned for. A sense of failure pervaded her life. Born in 1974, Ms Jaho always wanted to be a singer. Her first ambition was to take up pop, until at 14 she went to a performance of “La Traviata”. “In that moment I saw a new horizon, a big door opening, and I wanted to go through it.” She has now sung “La Traviata” 232 times.

In person Ms Jaho is forceful and humorous, her ideas tumbling out seemingly unstoppably. She possesses an earthy beauty, with no hint of divadom, though she frequently refers to herself in the third person, as though watching her own progress with an objective eye. In later life she wants to spend more time as a voice teacher—something she already does whenever she travels back to Tirana—inculcating in younger singers the discipline which has allowed her to reach the heights without straining (and ruining) her voice.

Along the way, she has had a series of lucky breaks. The first was when Katia Ricciarelli, an Italian soprano, spotted her in a master-class at the Tirana conservatoire, and invited her to study in Italy, where she began her career. She married a childhood friend who was living in New York, and still lives there during the two months each year when she is not travelling.

Her breaks in London have followed a time-honoured pattern, stepping in for Anna Netrebko as Violetta in “La Traviata” at Covent Garden in 2008, and for Anja Harteros as Suor Angelica in 2011. When that invitation came through, at exceptionally short notice, she hesitated: she wanted to make the role her own, but her parents had both recently died, and she was too traumatised even to cry, she says. Singing the part was cathartic.

In the coming two years in London, New York, Washington and Paris she will again sing the title roles in “La Traviata” and “Madam Butterfly”, but she knows her vocal limits—she will never do Wagner.

Next month Opera Rara will release its recording of Ruggero Leoncavallo’s “Zazà”, which depends on the charisma of its star.

Only when the record company discovered Ms Jaho did it feel confident enough to go ahead with the recording. It will be her recording debut, and she finds the work full ofechoes ofher mother’s plight: “Some of Zazà’s lines I heard like a refrain from my mother, when I was a child. Singing this part was like having a knife go through my soul.” 7

79

Tenders

Capital Investments & Brokerage / Jordan Ltd. Co.

No .______ Prot.

Tirana, on __ / ____ / 2016

NOTIFICATION OF THE CONTRACT Name and address of the contracting authority: Ministry of Energy and Industry, address: Boulevard “Deshmoret e Kombit” 1001 Tirana, tel. + 355 42 222 245 Name and address of the Responsible Person: Etleva Kondi, Ministry of Energy and Industry (email: etleva.kondi@energjia.gov.al); Type of Contracting Authority: Central Institution The scope and type of contract: Granting through concessions the “Katundi i Ri” Hydropower Plant, and type of contract is “Work” Duration of Contract: 35 years The location of the object of the contract: In the upstream low of Drin i Zi River, from the quota of 400 m.m.n.d (the possible place for the dam construction), up to the quota of 445 m.m.n.d on the state border with the Former Yugoslavian Republic of Macedonia.

Legal, economic, inancial and technical information: In accordance with Appendix 9 of CSD Criteria for selection of winner: In accordance with Annex 10 of CSD Deadline for submission of bids: Within and not later than: Date 11/07/2016, at 12.00 o’clock.

Location: On the oficial website of the Public Procurement Agency www.app.gov.al Deadline for bid opening: Within and not later than: Date 11/07/2016, at 12.00 o’clock.

Location: On the oficial website of the Public Procurement Agency www.app.gov.al The period of validity of tenders: 150 days HEAD OF THE CONTRACTING AUTHORITY DAMIAN GJIKNURI

INVITATION TO BID FOR THE ACQUISITION/PURCHASE OF SHARES OF JORDAN MAGNESIA COMPANY LTD Capital Investments & Brokerage / Jordan Ltd. Co. (“CapInvest”) is pleased to invite all interested parties to participate in the bid process in connection with the sale of 100% of the share capital of Jordan Magnesia Company Ltd (“JorMag”). CapInvest is acting as the financial advisor to JorMag in connection with the sale transaction.

Company Background § JorMag is a Jordan-based mining company founded in 1997 to extract, produce, and market a variety of specialty magnesia products including caustic calcined magnesia and dead-burned magnesia. § JorMag is currently the only company in Jordan with duly granted rights to extract, produce and market magnesia from the resource-rich Dead Sea. JorMag also has rights to high purity limestone deposits that are abundant at a nearby quarry located in Al-Qatraneh area in Jordan. § JorMag owns a magnesia plant located at the southern end of the Dead Sea in Jordan with an annual production capacity of 60,000 tons of magnesia products. § JorMag benefits from a preferential tax-regime (designated a free economic zone), fully operational ancillary infrastructure, and contractual arrangements with the surrounding mining companies in the Dead Sea concession area to provide the necessary operational support, critical infrastructure, and key raw materials.

The Bidding Process After executing a confidentiality agreement, qualified prospective buyers will be provided with access to a virtual data room to undertake their due diligence review of JorMag. Site visits and a Q&A process will also be conducted during the due diligence process. At the conclusion, prospective buyers will be expected to submit a final, binding proposal to acquire 100% of JorMag’s share capital. Key upcoming dates and events are summarized below*.

Date May 16 – Jun 24 Jun 6 - Jun 16 Jun 27, 2016

Event Data room access and due diligence review Site visits and Q&A Final proposals due

For further information, please contact Omar B. Khader (Vice President) at: Office: +962 6 5200330 ext. 2475 Mobile: +962 79 630 3113 E-mail: omar.khader@capitalinv.com * The bidding process is subject to the terms and conditions outlined in the bid procedure letter which will be provided to interested parties

ESTABLISHMENT OF A NATONAL AIRLINE FOR THE REPUBLIC OF GHANA REQUEST FOR EXPRESSION OF INTEREST The Government of Ghana (GoG) has the objective to make Kotoka International Airport (KIA) the aviation hub of West Africa. GoG is therefore looking to establish a national airline to facilitate the achievement of its objective.

GoG, acting through the Ministry of Transport (MoT), has appointed a team of consultants led by PricewaterhouseCoopers (Ghana) Limited (PwC) to provide advisory services with regards to the establishment of the proposed new national airline.

Feasibility studies conducted by PwC has shown that a market exists to profitably support the operation of a new national airline without recourse to GoG funding. The feasibility study identified the following advantages currently available in the Ghanaian airline industry: 1.

2.

3.

Yields in Ghana and the rest of West Africa are still high compared to the rest of the world Passenger growth rate over the last five years was more than double the global average The Ghanaian economy has experienced significant growth over the last ten years and is still projected to outpace the rest of the global economy

The feasibility studies also demonstrated that the new national airline would require partnership with an experienced strategic airline partner with a global distribution network to adequately take advantage of the opportunities in the market place. GoG is therefore inviting prospective airline strategic partners to submit an Expression of Interest (“EoI”) to work with GoG to establish a new national airline for Ghana. The expression of interest should demonstrate the following, among others: • • • •

The financial strength of the prospective partner The prospective partner’s technical strength in areas of IT systems, flight operations, maintenance, yield and capacity management.

The reach and value of the prospective partner’s distribution network The prospective partner’s membership of a global alliance

Setting up Regional Industrial Clusters in Ethiopia: Preparation of Master Plan The Ministry of Industry of the Federal Democratic Republic of Ethiopia, in collaboration with its partners, would like to develop a Cluster Master Plan to facilitate the growth and development of a large number of SMEs in textiles, agro-processing, metals fabrication, furniture, construction materials, electric and electronic goods.

The Contractor in coordination with relevant government departments and stakeholders will be expected to conduct an in-country assessment and examine various factors such as geography, infrastructure, access to raw materials, environmental and social implications in order to develop a Cluster Master Plan. The assignment, which requires international and national expertise, will commence on 25th July 2016 and be completed by 14th October 2016

The deadline for the submission of the EoI is Friday, 24 June 2016 at 4pm GMT. Expressions of Interest should be marked CONFIDENTIAL – NATIONAL AIRLINE PROJECT and addressed to: THE CHIEF DIRECTOR ROOM #6, MINISTRY OF TRANSPORT PRIVATE MAIL BAG MINISTRIES, ACCRA, GHANA For enquiries, please contact Thomas Kyei-Boateng (email: thomas.kyeiboateng@gh.pwc.com or Winfred King (email: winfred.king@gh.pwc.com) at the PricewaterhouseCoopers (PwC) Ghana Ltd office at No. 12 Airport City, Una Home, 3rd Floor, Airport City, Accra or PMB CT 42, Cantonments, Accra.

T: +233 (0) 302 761 500 F: +233 (0) 302 761 544

The Economist May 28th 2016

The Ministry of Industry invites eligible organisations to submit proposals to carry out this work to the Private Enterprise Programme Ethiopia (PEPE).

Interested organisations may obtain the detailed terms of reference for this work by contacting smeclusters@enterprisepartners.org Deadline for applications: 30th June 2016

80

The Economist May 28th 2016

Economic and financial indicators Economic data % change on year ago

Economic data product Gross domestic latest

qtr* 2016†

Industrial production latest

Statistics on 42 economies, -1.1 Apr GDP+6.0 Apr

United States +2.0 Q1 +0.5 +1.8 plus +6.7 a closer look at China Q1 +4.5 +6.5 Japan growthnilin Q1 Africa +1.7 +0.5 Britain +2.1 Q1 +1.6 +1.9 Canada +0.5 Q4 +0.8 +1.6 Euro area +1.5 Q1 +2.1 +1.5 Austria +1.1 Q4 +1.2 +1.1 Belgium +1.4 Q1 +0.8 +1.3 France +1.3 Q1 +2.2 +1.3 Germany +1.6 Q1 +2.7 +1.5 Greece -1.2 Q1 -1.5 +1.4 Italy +1.0 Q1 +1.2 +1.0 Netherlands +1.4 Q1 +1.9 +1.5 Spain +3.4 Q1 +3.2 +2.8 Czech Republic +4.3 Q4 +2.0 +2.8 Denmark +0.4 Q4 +0.3 +1.3 Norway +0.7 Q1 +4.0 +1.5 Poland +4.3 Q4 -0.4 +3.5 Russia -1.2 Q1 na -1.3 Sweden +4.5 Q4 +5.3 +3.4 Switzerland +0.4 Q4 +1.7 +1.1 Turkey +5.7 Q4 na +3.3 Australia +3.0 Q4 +2.6 +2.5 Hong Kong +0.8 Q1 -1.8 +2.1 India +7.3 Q4 +4.4 +7.5 Indonesia +4.9 Q1 na +5.1 Malaysia +4.2 Q1 na +5.5 Pakistan +5.5 2015** na +4.8 Philippines +6.9 Q1 +4.5 +6.3 Singapore +1.8 Q1 +0.2 +2.8 South Korea +2.7 Q1 +1.5 +2.5 Taiwan -0.8 Q1 +0.8 +2.3 +3.8 +3.7 Thailand +3.2 Q1 Argentina +2.3 Q2 +2.0 -0.4 Brazil -5.9 Q4 -5.7 -3.7 Chile +2.0 Q1 +5.3 +3.4 Colombia +3.3 Q4 +2.4 +3.7 Mexico +2.6 Q1 +3.3 +2.4 Venezuela -8.8 Q4~ -8.4 -7.0 Egypt +4.0 Q4 na +4.0 Israel +1.7 Q1 +0.8 +3.7 Saudi Arabia +3.4 2015 na +2.8 South Africa +0.5 Q4 +0.4 +0.8

+0.2 Mar -0.3 Mar +0.8 Feb +0.2 Mar +2.5 Mar +1.2 Mar -0.8 Mar +0.2 Mar -4.0 Mar +0.5 Mar +0.3 Mar -1.7 Mar +0.7 Mar -2.6 Mar -5.7 Mar +6.0 Apr +0.6 Apr +5.5 Mar -4.5 Q4 +4.7 Mar +1.9 Q4 -1.3 Q4 +0.1 Mar +3.4 Mar +2.8 Mar +6.7 Mar +7.8 Mar -0.5 Mar -1.5 Mar -4.1 Apr +1.8 Mar -2.5 Oct -11.3 Mar +3.9 Mar +1.3 Mar -2.0 Mar na -10.9 Mar -0.5 Mar na -1.5 Mar

Current-account balance Consumer prices Unemployment latest 12 % of GDP latest 2016† rate, % months, $bn 2016† +1.1 Apr +2.3 Apr nil Mar +0.3 Apr +1.7 Apr -0.2 Apr +0.5 Apr +2.0 Apr -0.2 Apr -0.1 Apr -1.3 Apr -0.5 Apr nil Apr -1.1 Apr +0.6 Apr nil Apr +3.2 Apr -1.1 Apr +7.2 Apr +0.8 Apr -0.4 Apr +6.6 Apr +1.3 Q1 +2.7 Apr +5.4 Apr +3.6 Apr +2.1 Apr +4.2 Apr +1.1 Apr -0.5 Apr +1.0 Apr +1.9 Apr +0.1 Apr — *** +9.3 Apr +4.2 Apr +7.9 Apr +2.5 Apr na +10.3 Apr -0.9 Apr +4.2 Apr +6.2 Apr

+1.2 +1.8 +0.2 +0.6 +1.5 +0.2 +1.1 +1.1 +0.2 +0.3 +0.7 +0.2 +0.5 -0.5 +1.5 +0.7 +2.1 +1.7 +8.2 +0.8 -0.7 +8.2 +1.7 +2.6 +5.2 +4.3 +2.9 +5.4 +2.9 +1.3 +1.3 +1.0 +2.7 — +8.3 +3.6 +3.7 +3.1 +181 +8.8 +1.7 +3.8 +6.4

5.0 Apr 4.0 Q1§ 3.2 Mar 5.1 Feb†† 7.1 Apr 10.2 Mar 5.8 Mar 8.5 Mar 10.0 Mar 6.2 Apr 24.4 Jan 11.4 Mar 7.8 Apr 20.4 Mar 5.7 Apr§ 4.2 Mar 4.6 Feb‡‡ 9.5 Apr§ 5.9 Apr§ 7.3 Apr§ 3.5 Apr 10.9 Feb§ 5.7 Apr 3.4 Apr‡‡ 4.9 2013 5.5 Q1§ 3.5 Mar§ 5.9 2015 5.8 Q1§ 1.9 Q1 3.9 Apr§ 4.0 Apr 1.0 Mar§ 5.9 Q3§ 10.9 Mar§ 6.3 Mar§‡‡ 10.1 Mar§ 4.2 Mar 6.0 Dec§ 12.7 Q1§ 4.9 Apr 5.7 2014 26.7 Q1§

-484.1 Q4 +293.5 Q1 +151.1 Mar -146.9 Q4 -51.6 Q4 +357.1 Mar +9.6 Q4 -0.1 Dec -20.6 Mar‡ +292.3 Mar +1.1 Mar +41.4 Mar +68.8 Q4 +17.1 Feb +1.5 Q4 +18.8 Mar +35.3 Q4 -2.0 Mar +51.3 Q1 +29.2 Q4 +75.9 Q4 -29.5 Mar -56.0 Q4 +9.6 Q4 -22.6 Q4 -18.2 Q1 +7.0 Q1 -2.4 Q1 +8.4 Dec +54.8 Q1 +107.5 Mar +74.8 Q1 +31.6 Q4 -15.9 Q4 -34.1 Apr -4.7 Q1 -18.9 Q4 -30.5 Q1 -17.8 Q3~ -16.8 Q4 +13.8 Q4 -53.5 Q4 -13.6 Q4

-2.7 +2.8 +3.8 -4.7 -2.8 +2.8 +2.5 +0.8 -0.3 +7.6 +2.1 +1.9 +9.9 +1.0 -0.1 +6.4 +11.6 -2.1 +3.7 +6.0 +9.5 -4.5 -4.1 +2.6 -1.0 -2.4 +2.7 -0.9 +3.6 +20.4 +7.3 +12.3 +2.3 -2.3 -1.6 -1.4 -5.1 -2.8 -1.4 -2.0 +4.3 +0.1 -4.1

Budget Interest balance rates, % % of GDP 10-year gov't 2016† bonds, latest -2.5 -3.0 -6.2 -3.6 -1.4 -1.9 -2.0 -2.3 -3.5 +0.4 -3.9 -2.5 -1.6 -3.4 -1.6 -2.8 +7.2 -1.9 -2.2 -0.6 +0.3 -1.8 -2.0 -0.4 -3.7 -1.9 -3.7 -4.6 -2.1 +0.9 +0.5 -0.9 -2.1 -2.7 -5.4 -1.6 -1.9 -3.0 -14.4 -9.6 -2.5 -8.0 -3.3

1.88 2.76§§ -0.10 1.57 1.39 0.16 0.55 0.52 0.50 0.16 7.13 1.36 0.39 1.54 0.52 0.45 1.42 3.07 8.97 0.79 -0.26 10.10 2.31 1.31 7.46 7.58 3.86 8.03††† 4.46 2.17 1.78 0.85 2.26 na 12.93 4.58 8.13 6.17 11.17 na 1.84 na 9.43

Currency units, per $ May 25th year ago 6.56 110 0.68 1.31 0.90 0.90 0.90 0.90 0.90 0.90 0.90 0.90 0.90 24.3 6.67 8.33 3.96 65.6 8.30 0.99 2.94 1.39 7.77 67.4 13,655 4.10 105 46.8 1.38 1,183 32.6 35.7 14.0 3.59 693 3,065 18.5 9.99 8.88 3.85 3.75 15.7

6.20 121 0.65 1.23 0.91 0.91 0.91 0.91 0.91 0.91 0.91 0.91 0.91 24.9 6.76 7.62 3.72 49.9 8.38 0.94 2.60 1.28 7.75 63.5 13,155 3.59 102 44.5 1.34 1,090 30.4 33.4 8.97 3.06 608 2,501 15.3 6.30 7.61 3.89 3.75 11.9

Source: Haver Analytics. *% change on previous quarter, annual rate. †The Economist poll or Economist Intelligence Unit estimate/forecast. §Not seasonally adjusted. ‡New series. ~2014 **Year ending June. ††Latest 3 months. ‡‡3-month moving average. §§5-year yield. ***Official number not yet proved to be reliable; The State Street PriceStats Inflation Index, March 34.88%; year ago 27.1% †††Dollar-denominated bonds.

The Economist May 28th 2016

African growth TUNISIA O CC Africa’s economy is projected to expand RO by 3.7% in 2016, according to a report by ALGERIA L I B YA E G*Y P T -0.8 the OECD, a rich-country club. East Africa is predicted to be the continent’s CAPE MAURITANIA MALI VERDE NIGER ETHIOPIA* fastest-growing region: Ethiopia, in S U D A N ERITREA CHAD THE SENEGAL DJIBOUTI BURKINA GAMBIA FASO particular, has averaged double-digit GUINEA NIGERIA BENIN SOUTH growth since 2005 and its economy is GUINEABISSAU C . A . R . SUDAN SIERRA TOGO LEONE expected to swell further in 2016, bolCÔTE UGANDA †SOMALIA* LIBERIA D’IVOIRE CONGO-BRAZZAVILLE KENYA EQUATORIAL GABON stered by public-sector investment. West RWANDA GUINEA -8.0 C O N G O BURUNDI km Africa will be helped by the end of the TANZANIA 750 Ebola outbreak. Oil exporters have been ANGOLA MALAWI hit by the falling price of crude: the OECD ZAMBIA GDP, 2016 expects growth to remain subdued in ZIMBABWE MADAGASCAR NAMIBIA % change on a year earlier‡ Angola and Nigeria while Equatorial BOTSWANA 2.0-3.9 8.0+ SWAZILAND Guinea is forecast to remain in recession.

0-1.9 6.0-7.9 SOUTH South Africa is another gloomy spot: AFRICA LESOTHO 4.0-5.9 Decrease drought and power shortages mean its ‡Forecast Source: OECD *Years ending June †No data low-growth trajectory is set to continue.

MO Z

AM BI QU E

CA ME RO ON

GHANA

% change on Dec 31st 2015 Index one in local in $ Markets May 25th week currency terms United States (DJIA) 17,851.5 +1.9 +2.4 +2.4 China (SSEA) 2,946.5 +0.3 -20.5 -21.3 Japan (Nikkei 225) 16,757.4 +0.7 -12.0 -4.0 Britain (FTSE 100) 6,262.9 +1.6 +0.3 +0.2 Canada (S&P TSX) 14,053.7 +1.6 +8.0 +14.7 Euro area (FTSE Euro 100) 1,032.4 +3.2 -5.7 -3.2 Euro area (EURO STOXX 50) 3,061.6 +3.6 -6.3 -3.9 Austria (ATX) 2,272.7 +2.8 -5.2 -2.7 Belgium (Bel 20) 3,492.0 +4.1 -5.6 -3.2 France (CAC 40) 4,481.6 +3.8 -3.4 -0.8 Germany (DAX)* 10,205.2 +2.6 -5.0 -2.5 Greece (Athex Comp) 641.8 +2.2 +1.7 +4.3 Italy (FTSE/MIB) 18,201.4 +2.8 -15.0 -12.8 Netherlands (AEX) 447.2 +2.9 +1.2 +3.8 Spain (Madrid SE) 920.9 +4.1 -4.6 -2.1 Czech Republic (PX) 890.3 +1.9 -6.9 -4.5 Denmark (OMXCB) 894.2 +4.0 -1.4 +1.5 Hungary (BUX) 26,704.5 +2.6 +11.6 +15.2 Norway (OSEAX) 673.7 +2.0 +3.8 +10.3 Poland (WIG) 46,695.4 +0.2 +0.5 +0.2 Russia (RTS, $ terms) 908.0 -2.0 +7.7 +19.9 Sweden (OMXS30) 1,367.1 +1.9 -5.5 -4.0 Switzerland (SMI) 8,167.6 +2.4 -7.4 -6.5 Turkey (BIST) 78,609.0 +1.8 +9.6 +9.0 Australia (All Ord.) 5,436.8 +0.3 +1.7 +0.4 Hong Kong (Hang Seng) 20,368.1 +2.7 -7.1 -7.2 India (BSE) 25,881.2 +0.7 -0.9 -2.7 Indonesia (JSX) 4,773.0 +0.8 +3.9 +4.9 Malaysia (KLSE) 1,631.0 -0.3 -3.6 +0.8 Pakistan (KSE) 36,499.4 +0.5 +11.2 +11.2 Singapore (STI) 2,766.7 -0.4 -4.0 -1.3 South Korea (KOSPI) 1,960.5 +0.2 nil -0.9 Taiwan (TWI) 8,396.2 +2.9 +0.7 +1.3 Thailand (SET) 1,397.6 -0.2 +8.5 +9.3 Argentina (MERV) 12,381.5 -3.5 +6.0 -2.2 Brazil (BVSP) 49,482.9 -2.1 +14.1 +25.7 Chile (IGPA) 19,525.7 +0.1 +7.6 +10.0 Colombia (IGBC) 9,708.5 -1.6 +13.6 +17.6 Mexico (IPC) 45,710.9 +0.4 +6.4 -0.5 Venezuela (IBC) 15,314.2 +2.0 +5.0 na Egypt (Case 30) 7,543.4 -1.2 +7.7 -5.1 Israel (TA-100) 1,249.8 +2.3 -5.0 -3.9 Saudi Arabia (Tadawul) 6,516.5 -3.3 -5.7 -5.6 South Africa (JSE AS) 53,721.9 +1.8 +6.0 +4.6

MO

Markets

Economic and financial indicators 81

Other markets Other markets Index May 25th United States (S&P 500) 2,090.5 United States (NAScomp) 4,894.9 China (SSEB, $ terms) 336.7 Japan (Topix) 1,342.9 Europe (FTSEurofirst 300) 1,366.8 World, dev'd (MSCI) 1,654.4 Emerging markets (MSCI) 788.0 World, all (MSCI) 397.2 World bonds (Citigroup) 929.5 EMBI+ (JPMorgan) 754.0 Hedge funds (HFRX) 1,152.6§ Volatility, US (VIX) 13.9 CDSs, Eur (iTRAXX)† 75.1 CDSs, N Am (CDX)† 89.7 Carbon trading (EU ETS) € 5.8

The Economist commodity-price index % change on Dec 31st 2015 one in local in $ week currency terms +2.1 +2.3 +2.3 +3.3 -2.2 -2.2 -1.8 -20.2 -21.0 +0.3 -13.2 -5.3 +3.1 -4.9 -2.5 +0.8 -0.5 -0.5 -0.8 -0.8 -0.8 +0.6 -0.5 -0.5 -0.4 +6.8 +6.8 -0.6 +7.0 +7.0 nil -1.8 -1.8 +16.0 +18.2 (levels) -3.7 -2.6 -0.1 +7.2 +1.6 +1.6 -4.4 -30.0 -28.2

Sources: Markit; Thomson Reuters. *Total return index. †Credit-default-swap spreads, basis points. §May 24th.

Indicators for more countries and additional series, go to: Economist.com/indicators

2005=100 % change on

The Economist commodity-price indexone one May 17th Dollar Index All Items Food

137.5 164.5

Industrials All Nfa†

109.4 120.2

Metals 104.7 Sterling Index All items 172.8 Euro Index All items 150.8 Gold $ per oz 1,279.5 West Texas Intermediate $ per barrel

48.6

May 24th* month 135.5 162.3

year

-1.2 +2.1

-3.9 +4.7

107.6

-5.9

-14.9

115.8

-6.6

-7.2

104.1

-5.6

-18.2

168.7

-1.3

+1.2

150.9

+0.1

-6.2

1,234.6

-0.6

+3.8

48.3

+9.7

-16.8

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.

82

The Economist May 28th 2016

Obituary Fritz Stern

ians of its cultural and moral standards.

Another big book looked at money and power in imperial Germany, focusing on the previously unexplored relationship between Bismarck and his banker, a Prussian Jew called Gerson von Bleichröder. The picture painted was unflattering to both: the Iron Chancellor’s brutal opportunism matched by the financier’s fawning subservience. But the moral dilemmas of the Hitler era were the most fascinating. He wrote an insightful study of two anti-Nazi notables: the Protestant pastor Dietrich Bonhoeffer and his friend, the intelligence officer Hans von Dohnanyi.

Another German

Fritz Stern, a German-born American historian, died on May18th, aged 90

W

HAT made Germany go mad? Having fled the Nazis as a boy, Fritz Stern spent the rest of his life trying to understand and explain the murderous frenzy which beset his homeland.

His life spanned five states of Germany: the Weimar Republic, Hitler’s Nazi Reich, the prosperous, guilt-ridden Federal Republic, the harshly run communist East, and finally the reunified country, which bestowed on him its highest honours. His impeccable credentials—American, Jewish, a refugee from Hitler—meant he could praise something that modern Germans could not. He termed it anderes Deutschland (“another Germany”): not a state, but a place of noble ideas and brave behaviour, a cultural powerhouse and a force for European unity. After the Stern family’s flight from Breslau, now Polish Wroclaw, Germany could no longer be his fatherland, but German, precise and expressive, was still his mother-tongue—and there was nowhere else, he said fondly, where he could use it in the same way.

Fritz was seven when Hitler came to power: bad news, the boy could tell, from his father’s reaction when he brought up the morning newspaper. But it was nothing that affected the family personally. In the early Nazi years left-wingers, not Jews, bore the brunt of persecution. The prosper-

ous, professional Sterns were surely neither; the family had long ago converted to Lutheranism. Only when rebuked for making an anti-Semitic remark to his (piously Christian) sister did he even become aware of his family’s roots.

The Sterns were spared any personal humiliation: they emigrated unhurriedly and reluctantly, with their furniture and other possessions, in 1938, a fortunate six weeks before the furies of Kristallnacht.

The young man initially wanted to follow his father into medicine, but found the humanities beguiling. Albert Einstein, a family friend, advised him to stick with medicine: it was a science; history wasn’t. He ignored that, and a career in American academia, chiefly at Columbia University, quickly blossomed.

He made his name with a book on cultural despair, published in 1961, which traced the Nazis’ roots to a 19th-century German revulsion against modernity and liberalism. The trauma of defeat in the first world war turned fashionable cultural malcontents into a political force that ultimately became a murderous ideology. Hitler’s rise, he argued, owed less to the Austrian corporal’s personality, his thuggish supporters and brutish ideas, than to his opponents’ cowardice and the weakness of Germany’s “gatekeepers”—the guard-

Stern fans Distinguished in the English-speaking world, the silver-tongued professor was revered in Germany. Die Welt called him the country’s “Guardian Angel”: combining an insider’s knowledge with an outsider’s clout. Though originally lukewarm about reunification, in 1990, at a—literally—historic seminar, he helped persuade Margaret Thatcher, then the British prime minister, that it posed no threat to Europe.

The Stern professorial wrath descended on Daniel Goldhagen, an American author whose book “Hitler’s Willing Executioners” sweepingly blamed the Holocaust on Germans’ “eliminationist mindset”. His blistering review in Foreign Affairs called it “astoundingly repetitive”, “simplistic” and a “potpourri of half-truths and assertions” (and full of “vaporous, dreary jargon”, to boot). Anti-Semitism was inexcusable, but—historically—Germany was far from unique. Its misdeeds must be criticised, but always with scrupulous facts and logic.

Some judgments would have been hard for a non-Jewish, non-refugee to make: for example that Hitler would today be hailed as a German national hero had he died in 1936. His expertise was mostly from on high, and from afar, with little time actually living in Germany (a five-month stint in 1992 as the American ambassador’s adviser was the longest stay of his adult life). Some thought his delight in prizes and lectures excessive. Yet a self-questioning German soul permits no complacency: after receiving a particularly grand prize, he was asked by his wife “are you happy?”

He replied sombrely: “if not now, when?”

He ended his life worrying that democracy was disintegrating, just as it had in his youth. Authoritarian tendencies in Poland were distressing. So too were developments closer to home. When the Sterns arrived in America FDR was president. Now Donald Trump—a “nobody” but for his wealth and ambition—exemplified “stultification” and an ominously “dysfunctional, destructive” politics. A life spent studying how quickly and terribly things can go wrong, and the cost of righting them, sharpens the senses for such things. 7