The_Economist_2010-09-04

INSIDE THIS WEEK: TECHNOLOGY QUARTERLY Jacob Zuma’s two bad calls Will the Ivy League become GM? How to conserve Africa’s animals Can the laws of physics change? september 4th– 10th 2010

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The Republicans’ Young Guns

The web’s new walls How the internet’s openness is under threat

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storemags & fantamag - magazines for all The Economist September 4th 2010 3

Contents 7 The world this week Leaders 11 The internet The web’s new walls 12 Pakistan’s cricket scandal Crossing the boundary 12 South Africa’s politics Zuma’s two bad calls 14 Global economic policy Monetary illusions 16 Japan Self-destruction On the cover The web’s new walls: leader, page 11. The internet has been a great uni er of people, companies and online networks. Powerful forces are threatening to balkanise it, pages 75-77.

Tribalism online, page 61 The Economist online Daily analysis and and opinion from our 19 blogs, plus audio and video content, debates and a daily chart E-mail: newsletters and mobile edition Economist.com/email

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Volume 396 Number 8698 First published in September 1843 to take part in "a severe contest between intelligence, which presses forward, and an unworthy, timid ignorance obstructing our progress."

Editorial o ces in London and also: Bangkok, Beijing, Berlin, Brussels, Cairo, Chicago, Delhi, Frankfurt, Hong Kong, Jerusalem, Johannesburg, Los Angeles, Mexico City, Moscow, New York, Paris, San Francisco, São Paulo, Tokyo, Washington

Letters 18 On industrial policy, Australian elections, Club Med, legalising drugs, Jews and Muslims, punks Brie ng 23 Game conservation in Africa Horns, claws and the bottom line United States 29 The Iraq war Mission truncated 30 The Bush tax cuts Hoping for a reprieve 30 Ohio’s 1st congressional district In black and white 32 The salmonella outbreak Un oeuf is enough 32 Savannah’s port A man, a plan, a canal 34 Atlantic City A struggling city by the sea 38 Lexington The Republicans’ Young Guns The Americas 41 Energy in Brazil Ethanol’s mid-life crisis 42 Mexico’s ruling party The new old guard

Asia 43 India’s disappointing government Much less than promised 44 Parliamentary polls in Afghanistan Bloody democracy 45 China and North Korea Greetings comrades 45 Football and the Koreas Dreaming of 2022 46 Vietnam’s economy Plus one country 46 A pan-Asian university Reopening an ancient college 48 Banyan A oat on a Chinese tide Middle East and Africa 50 Peace talks Back to the table 51 Maids in the Middle East Little better than slavery 51 Rwanda and Congo Revisiting the killing elds 52 South African politics The president and the strikers Technology Quarterly After page 52 Europe 53 Germany’s energy policy Nuclear power? Um, maybe 54 The French opposition No, he Strauss-Kahn’t 55 Europe’s Roma Hard travelling 56 Charlemagne Long live the Karlings Britain 57 Catholics in Britain The fruits of adversity 58 State schools and selection The religious and the rational 59 The Cambridge cluster University challenge 60 Bagehot Tony Blair’s memoirs

The Republicans’ Young Guns A new force takes shape inside the party: Lexington, page 38

Zuma’s two bad calls Seeking to buy o allies and cracking down on dissent worrying signs in South Africa: leader, page 12. President Zuma comes out badly from weeks of crippling strikes, page 52

Conserving Africa’s animals Governments have mostly failed to protect Africa’s wildlife. But other models involving hunters, rich conservationists and local farmers are showing promise, pages 23-26

1 Contents continues overleaf

4 Contents

The Economist September 4th 2010

International 61 The internet and society A cyber-house divided 62 Technology and protest A town crier in the global village

Can the laws of physics change? Curious results from the outer reaches of the universe suggest they may be di erent in di erent places, page 85

Will the Ivy League become GM? America’s universities are the best in the world. But so was its car industry once.

There’s a danger that the former could go the way of the latter: Schumpeter, page 74

Business 65 Fake drugs Poison pills 66 Intellectual-property battles Is Paul Allen a patent troll?

66 Mobile internet in emerging markets The next billion geeks 67 Online television Old media hog the remote 70 Car-sharing Wheels when you need them 70 Brazilian oil Over a barrel 72 Burger King Whopper to go 72 A minimum wage for Hong Kong So much for red in tooth and claw 74 Schumpeter America’s universities Brie ng 75 The future of the internet A virtual counter-revolution

79 80 80 Technology Quarterly With articles on geothermal power, rewiring the nervous system, data-mining of social networks, bottom-up approaches to energy in the developing world, better composite images of police suspects, hacks to cut printing costs, cracking quantum cryptography, the rise of crowdfunding, and much more, after page 52

81 82 82 83 84

Finance and economics World economy The odd decouple Sovereign debt Wiggle room Carbon markets The smoking gun Buttonwood Dividends decoded Rare earths Digging in Private equity Candover and out Deutsche Bank A tamer casino Economics focus Quantitative easing

Science and technology 85 The nature of the universe Can the laws of physics change?

86 Emerging infections No good deed goes unpunished 86 Climate-change assessment Must try harder 88 Mental stimulation and dementia Brain gain Books and arts 89 Surviving climate change The ways of a warmer world 90 Walking in Africa In the steps of the master 90 Myanmar’s Than Shwe A tyrant nobody knows 91 New thriller: The Garden of Betrayal Oily conspiracies 91 Social history Home comforts 92 Sculpture from the Kingdom of Ife Magni cent mysteries Obituary 93 Mont Liggins The breath of babes 101 Economic and nancial indicators Statistics on 42 economies, plus closer looks at purchasing managers’ indices and foreign exchange markets

Next week We publish a special report on Latin America. A richer, fairer continent is within reach, but a lot of things have to be put right rst, says Michael Reid Principal commercial o ces: 25 St James’s Street, London sw1a 1hg Tel: 020 7830 7000 Fax: 020 7839 2968/9 Boulevard des Tranchées 16 1206 Geneva, Switzerland Tel: 41 22 566 2470 Fax: 41 22 346 9347 750 3rd Avenue, 5th Floor, New York, NY 10017 Tel: 1 212 541 0500 Fax: 1 212 541 9378 60/F Central Plaza 18 Harbour Road, Wanchai, Hong Kong Tel: 852 2585 3888 Fax: 852 2802 7638 Other commercial o ces: Chicago, Dubai, Frankfurt, Los Angeles, Paris, San Francisco and Singapore

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The world this week Politics

The rst direct Israeli-Palestinian peace negotiations in 20 months began in Washington.

Binyamin Netanyahu and Mahmoud Abbas began talks urged on by President Barack Obama along with President Hosni Mubarak of Egypt, King Abdullah of Jordan and Tony Blair for the Quartet .

In the run up the talks, four Israeli settlers were shot dead and two injured in two separate incidents in the West Bank. Hamas claimed responsibility for the attacks.

Mexico’s federal police arrested Édgar Valdez Villarreal, known as La Barbie , one of the country’s most powerful and violent drug tra ckers. Mr Valdez is the fourth top gang leader to fall in the past year.

The Mexican authorities hope he will provide intelligence on the various mobs that he has worked with during his criminal career.

A destructive in uence Ichiro Ozawa, long a kingmaker in Japan but never its prime minister, campaigned to usurp Naoto Kan as leader of the governing Democratic Party of Japan, ahead of a party vote on September 14th. Mr Ozawa announced a populist platform which included proposals for tearing up a deal with America on a military base on Okinawa, increasing spending, with subsidies to farmers, and intervening in currency markets to constrain the rocketing yen. Mr Kan is trying to present himself as a responsible and realistic leader.

In Sri Lanka the cabinet agreed on a proposal to rewrite the country’s constitution to allow the president, Mahinda Rajapaksa, to seek a third term.

Mr Rajapaksa has been in o ce since 2005 and his current term ends in 2016. He enjoys the support of twothirds of parliament and so is likely to get the necessary legislation passed.

Kim Jong Il, the Dear Leader of North Korea, completed a trip by armoured train to China, his second in only four months. Many speculated that he used the visit to prepare the way for his third son, Kim Jong Un, for eventual succession to the leadership ahead of a conclave of the North Korean Communist Party early in September. China is North Korea’s most important ally.

Franklin Brito, a 50-year-old farmer, died after a hunger strike to protest against Venezuela’s government authorising squatters to occupy his land. He had been held at a military hospital in Caracas since December.

Drilling began to rescue the 33 workers trapped in a collapsed mine in Chile.

Fidel Castro, Cuba’s former president, gave a rare interview to a Mexican newspaper.

He said the intestinal illness he has su ered in recent years had left him at death’s door , and expressed regret for having o cially persecuted gays in the 1960s and 1970s.

Pakistanis and cricket-lovers were morti ed after a newspaper sting appeared to show members of the Pakistani test side agreeing, through an agent, to rig parts of a game against England in exchange for £150,000 ($230,000). Pakistan’s prime minister, Yousaf Raza Gilani, spoke for many

The Economist September 4th 2010 7 when he said accusations against the team have caused embarrassment for the entire nation.

The two top executives of Afghanistan’s biggest bank have been forced out amid allegations of corruption. They have been replaced by a central bank o cial as fears grew that the bank, which is dangerously short of cash, could fail.

The Green party in Australia agreed, to no one’s great surprise, to back Julia Gillard, the Labor candidate for prime minister, in exchange for a promise that a new government would do more to tackle climate change. Ms Gillard and her rival, Tony Abbott, who leads an opposition conservative coalition, continued negotiations with a handful of independent MPs who hold the balance of power in the 150-seat lower house, after a dead-heat general election in August. Andrew Wilkie, one of the independents, has said he will back Ms Gillard.

Blair accuses Voting to elect a new leader of the British Labour Party began on the same day as the publication of Tony Blair’s memoirs. The book, which reveals for the rst time Mr Blair’s feelings about his successor as prime minister, Gordon Brown, threatened an untimely refocusing of attention on old party divisions.

Speculation that Vladimir Putin, Russia’s prime minister, will run for president in 2012 increased following a series of photo-ops and an interview in a Russian newspaper. In it, Mr Putin said that unauthorised political protesters faced a club on the noggin . One day later, a number of protesters were arrested during demonstrations across Russia.

The row over France’s mass expulsion of Roma continued, with several ministers within Nicolas Sarkozy’s cabinet voicing their unease. Bernard Kouchner, the foreign minister, said he had almost resigned over the issue.

Thilo Sarrazin, a director of Germany’s central bank, faced calls for his resignation after he published a controversial book on immigration. Mr Sarrazin, who may soon be expelled from Germany’s Social Democratic Party, made reference to a single Jewish gene and characterised Muslim immigrants to Europe as a drain on society.

A Swedish prosecutor has ordered the reopening of a rape investigation against Julian Assange, the founder of WikiLeaks, an international whistle-blowing website.

Mission statement Barack Obama o cially declared America’s combat operations in Iraq to be over, and con rmed that he would scale down the country’s commitment to Afghanistan starting next year.

Tens of thousands of teapartiers gathered in Washington at an event organised by Glenn Beck, a conservative broadcaster. The rally, which took place at the Lincoln Memorial on the anniversary of Martin Luther King’s I Have a Dream speech, was addressed among others by Sarah Palin, who, in a veiled attack on the Obama administration, said that we must not fundamentally transform America as some would want; we must restore America and restore her honour.

Democrats in West Virginia chose Joe Manchin to contest the Senate seat held by Robert Byrd for more than 51 years before his death in June. Mr Manchin, the state’s popular governor, will face John Raese, the Republican candidate, in 1 November’s election.

The Economist September 4th 2010

8 The world this week

Business Ben Bernanke told economists and central bankers at a meeting in Jackson Hole that the Federal Reserve would resume unconventional measures if the economy deteriorated again. The chairman of America’s central bank said the economic recovery was weaker than had been expected, but that de ation was not a significant risk.

Purchasing-managers’ indices showed that manufacturing growth in August had accelerated in America and China.

The American PMI grew faster than expected, o ering a positive note amid worries about the state of the economic recovery. In China, the increase in manufacturing growth came as reassurance that an expected slowdown in economic activity would be smooth and gradual.

In the euro area the PmI declined, but August was the 11th consecutive month of overall manufacturing expansion. The slowdown could mean the economy is cooling after strong second-quarter growth.

Manufacturing expansion also decelerated in Britain.

Faced with stagnant growth and a strong yen that is hurting corporate pro ts, Japan announced a ¥11 trillion ($130 billion) stimulus package. The measures include low-interest loans for nancial institutions and job-seeking help for the young. The yen barely moved on the news.

Petróleo Brasileiro, Brazil’s state-controlled oil company, agreed to pay the government $42.6 billion in stock for ve billion barrels of oil, or $8.5 per barrel. Petrobras also hopes to sell shares to raise up to $25 billion in cash. This will nance an e ort to tap into rich but barely accessible reserves below the ocean o the Brazilian coast.

Cotton price Cotlook A index, US cents/lb 100 90 80 70 60 50 2007

08

09

fourth-largest producer, are forecast to cut the country’s cotton output by 6.9%. But supplies are expected to improve when the American harvest begins in the autumn.

General Motors and Ford reported worse-than-expected sales for August. Gm‘s sales fell by 22% year-on-year, while Ford’s dropped by 7.1%. Chrysler, on the other hand, saw an 11% rise in deliveries. The mixed picture highlighted the volatility of the American car market’s recovery.

All right for some The Indian economy grew by 8.8% in the year to the second quarter. The fast rate of expansion, the highest in almost three years, underscored the country’s robust recovery.

Meanwhile, the Australian economy grew by 1.2% in the second quarter and by 3.3% on the previous year. The betterthan-expected results were mainly driven by expanding exports to China, Australia’s biggest trading partner.

10

Source: Thomson Reuters

Cotton prices reached a 29month high on concerns that demand from Asian textile mills will outstrip supply.

Floods in Pakistan, the world’s

The second quarter was not as rosy for Canada’s economy, which grew by 2% at an annual rate, compared with a 5.8% growth rate between January and March.

iShrunk the products Steve Jobs, Apple’s co-founder, announced the launch of a new line of smaller, revamped iPods. Apple TV, the company’s set-top box, will also shrink in size and o er cheaper TV-programme rentals in high de nition. And iTunes, the company’s music player and online store, will be getting social-network features.

The healthy second-quarter growth rate recorded in the euro area failed to a ect the number of jobless. The unemployment rate remained at 10% in July, unchanged from June, according to Eurostat, the European Union’s statistical service; it was up from 9.6% in July 2009. In Germany, which is leading much of the euro zone’s growth, the unemployment rate fell to 6.9% from 7.6% a year earlier.

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Genzyme, an American biotechnology company, rejected an $18.5 billion takeover bid by Sano -Aventis. Genzyme said the French pharmaceutical’s $69-per-share o er dramatically undervalued the company, but that a deal could eventually be struck between the two.

The Indian government told Research in Motion, Google and Skype to set up servers in the country and enable its security agencies to monitor calls and e-mails. India rst took issue with RIM, the BlackBerry maker, in early August over its message-encryption technology. The country extended its demands to the other companies, saying terrorists might use these platforms to communicate.

Cash handover Candover, once one of Britain’s biggest private-equity groups, said it would sell the remainder of its portfolio and return the cash to shareholders. The beleaguered fund’s decision to wind itself up was precipitated by bad boom-era investments and failed e orts to sell itself during the summer.

Other economic data and news can be found on pages 101-102

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storemags & fantamag - magazines for all The Economist September 4th 2010 11

Leaders

The web’s new walls How the threats to the internet’s openness can be averted

W

HEN George W. Bush referred to rumours on the, uh, internets during the 2004 presidential campaign, he was derided for his cluelessness and internets became a shorthand for a lack of understanding of the online world. But what looked like ignorance then looks like prescience now. As divergent forces tug at the internet, it is in danger of losing its universality and splintering into separate digital domains.

The internet is as much a trade pact as an invention. A network of networks, it has grown at an astonishing rate over the past 15 years because the bigger it got, the more it made sense for other networks to connect to it. Its open standards made such interconnections cheap and easy, dissolving boundaries between existing academic, corporate and consumer networks (remember CompuServe and AOL?). Just as a free-trade agreement between countries increases the size of the market and boosts gains from trade, so the internet led to greater gains from the exchange of data and allowed innovation to ourish.

But now the internet is so large and so widely used that countries, companies and network operators want to wall bits of it o , or make parts of it work in a di erent way, to promote their own political or commercial interests (see pages 75-77).

Walled wide web Three sets of walls are being built. The rst is national. China’s great rewall already imposes tight controls on internet links with the rest of the world, monitoring tra c and making many sites or services unavailable. Other countries, including Iran, Cuba, Saudi Arabia and Vietnam, have done similar things, and other governments are tightening controls on what people can see and do on the internet.

Second, companies are exerting greater control by building walled gardens an approach that appeared to have died out a decade ago. Facebook has its own closed, internal e-mail system, for example. Google has built a suite of integrated webbased services. Users of Apple’s mobile devices access many internet services through small downloadable software applications, or apps, rather than a web browser. By dictating which apps are allowed on its devices, Apple has become a gatekeeper. As apps spread to other mobile devices, and even cars and televisions, other rms will do so too.

Third, there are concerns that network operators looking for new sources of revenue will strike deals with content providers that will favour those websites prepared to pay up. Al Franken, a Democratic senator, spelled out his nightmare scenario in a speech in July: right-wing news sites loading ve times faster than left-wing blogs. He and other advocates of net neutrality want new laws to stop networks discriminating between di erent types of tra c. But network operators say that could hamper innovation, and those on the right see net neutrality as a socialist plot to regulate the internet.

Thus the incentives that used to favour greater interconnection now point the other way. Suggesting that The Web is

Dead , as Wired magazine did recently, is going a bit far. But the net is losing some of its openness and universality.

That’s not always a bad thing. The pro ts which Apple harvests from its walled garden have enabled it to provide services and devices that delight its customers, who may be happy to trade a little openness for greater security or ease of use; if not, they can go elsewhere. While some parents welcome Apple’s policy of blocking racy apps from its devices, for example, anyone who dislikes it can buy a Nokia or an Android phone instead. And existing antitrust laws can always be brought to bear if any company establishes and then abuses a dominant position in, say, mobile-phone operating systems or advertising platforms something that has not happened yet.

Restrictions imposed by governments are more troubling, and harder to deal with. There is not much that outsiders can do about China’s great rewall. But Western governments can at least set a good example. Australia’s plan to build a Chinesestyle rewall in an e ort to block child pornography and bomb-making instructions, for instance, is daft and should be scrapped. It will be easy to evade, and traditional law-enforcement approaches are a better way to handle such problems than messing with the internet’s plumbing.

Governments inclined to censor might be swayed by arguments that focus on the economic bene ts of openness. Duy Hoang, an American-based campaigner for democracy in Vietnam, has suggested that foreign critics stress the internet’s role in fostering trade, development, education and jobs. Similarly, China could be reminded how much more its scientists could achieve if they had unfettered access to information.

What about the risk that operators will fragment the internet by erecting new road-blocks or toll booths? In theory, competition between providers of internet access should prevent this from happening. Any broadband provider that tries to block particular sites or services, for example, will quickly lose customers to rival rms provided there are plenty of them.

Why net neutrality is a distraction But that is not the case in America. Its vitriolic net-neutrality debate is a re ection of the lack of competition in broadband access. The best solution would be to require telecoms operators to open their high-speed networks to rivals on a wholesale basis, as is the case almost everywhere in the industrialised world. America’s big network operators have long argued that being forced to share their networks would undermine their incentives to invest in new infrastructure, and thus hamper the roll-out of broadband. But that has not happened in other countries that have mandated such open access , and enjoy faster and cheaper broadband than America. Net neutrality is di cult to de ne and enforce, and e orts to do so merely address the symptom (concern about discrimination) rather than the underlying cause (lack of competition). Rivalry between access providers o ers the best protection against the erection of new barriers to the ow of information online.

This newspaper has always championed free trade, open markets and vigorous competition in the physical world. The same principles should be applied on the internet as well. 7

The Economist September 4th 2010

12 Leaders Pakistan’s cricket scandal

Crossing the boundary The responsibility for Pakistan’s cricketing scandal lies ultimately with the country’s elite

N

OT much unites Pakistanis more than cricket. The national game inspires widespread devotion and the national team justi ed pride. Led by wristy batsmen, like Javed Miandad, and blood-curdling fast bowlers, like Imran Khan, Pakistan has often excelled at the world’s most popular sport after football. Its side has tended to beat India’s, despite its more modest population. In a country su ering devastation from ooding, and long divided by ethnicity, region, religion and sect, which often seems to have little to boast of, or even reason for being, cricket should be a boon.

But Pakistan’s cricketers are advertising much that is wrong with their country. In- ghting (including with cricket bats), drug-taking, feigned injury, allegations of players being coerced into Islamic fundamentalism and other scandals have plagued the national side. But the most egregious involves match- xing, to which Pakistani cricketers, allegedly including several of today’s crop, seem especially prone.

In the latest case three Pakistani cricketers, including the national captain, Salman Butt, are alleged to have conspired with gamblers to x parts of recent games against England’s team a practice known as spot- xing . The allegations, raised this week by a British tabloid, are unproven, but ominous. Three alleged accomplices have been arrested on suspicion of money-laundering and conspiring to defraud bookmakers.

This blight is a symptom of cricket’s mismanagement. Most national cricket boards are manned by unaccountable, often incompetent and overly politicised administrators, ill- tted to a game that generates billions of dollars. The supremo of its governing body, the International Cricket Council, should have no time to spare for this task. He is Sharad Pawar, India’s agri-

culture minister. In Asia, especially, many of these o cials are also allegedly corrupt or otherwise malfeasant witness a scandal in the Indian Premier League, the boss of which, Lalit Modi, stands accused of overseeing vast tax evasion.

Cricket is a business that should be managed e ciently and transparently. Those who sully the game should incur sti penalties including, if the allegations against them are proven, the latest Pakistanis under a cloud. One of them, alas, is Muhammad Amir, a brilliant 18-year-old, who hails from Swat, which was until last year overrun by the Taliban. This made attending cricket practice di cult and Mr Amir’s achievements even more remarkable. Speaking up for him this week, his former coach, an Australian, called Mr Amir a shining light of hope . Yet this beacon, if found guilty, should play no more cricket for a long time, if ever.

That is a necessary tragedy, but Pakistani cricket will not become clean unless its elite administrators do a better job. In cricket as in politics, Pakistan’s problems start at the top, with President Asif Ali Zardari, who presides over its cricket board.

With Mr 10% as Mr Zardari is also known because of many (unproven) allegations against him for a role model, why would Mr Amir not try to make a sly buck?

The game of life And this mirrors a wider abdication by Pakistan’s privileged citizens. Understandably they are dismayed by their country’s growing reputation as the world’s troublemaker. But, with heroic exceptions, they show little appetite for trying to improve the place. Many prefer to blame their problems on others, ideally America. They also blithely dodge tax at around 10% of GDP, Pakistan’s tax-collection rate is one of the world’s lowest.

In cricket, as in life, Pakistan’s ruling class should recognise that its country’s man-made problems are largely its own responsibility. That would be a rst step towards ending them. 7

South Africa’s politics

Zuma’s two bad calls Seeking to buy o allies and cracking down on dissent: bad signs in South Africa

W

HEN he became president of South Africa just over a year ago, Jacob Zuma promised to quench South Africans’ thirst for renewal. After the aloof and idiosyncratic Thabo Mbeki, here was a big-hearted, charismatic man of the people who would unite a fractious country and help it make itself felt in the world. Sure enough, Mr Zuma was at his beguiling best during the football World Cup, a festival that passed o even better than most had dared hope.

Yet even at the time of his election, it was not clear what Mr

Zuma stood for. At home, in front of African National Congress audiences, he sounded like a nationalist and socialist. Abroad, he sounded like a free-market liberal. He never properly explained what he believed in. Pessimists suggested it was getting power and holding on to it.

So far, it looks as though they are right. Mr Zuma still hasn’t explained his vision, but his actions since he came to power suggest that it consists in paying o his political allies while cracking down on his critics.

The rst tendency is illustrated by the government’s response to the latest round of strikes by the public-sector unions. The Congress of South African Trade Unions (Cosatu) demanded an excessive 8.6% pay rise, more than double the rate 1

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14 Leaders 2 of in ation, at a time when the country’s recovery from last

year’s recession is fragile. Rather than facing these demands down, the government gave in to threats of even bigger strikes by raising its nal o er of 7% by a further 0.5 percentage points. Not surprisingly, as The Economist went to press the unions were holding out for even more (see page 52).

The political reasons for caving in to Cosatu are clear. The union is an important ally on the ANC’s left. Mr Zuma is paying his dues to it. But the economic consequences of doing so are also obvious. The above-in ation pay increases that Cosatu has claimed over the past ve years have swelled government expenditure and crowded out spending on worthier causes. Over-generous pay settlements will jeopardise economic recovery. Moreover, the money goes to workers who are already relatively well o , rather than to the 40% of South Africans who are without a job, many of them living in dire poverty. And at the same time as Mr Zuma’s government is giving too much money to its allies, it is threatening to remove liberties from its critics.

For all South Africa’s faults, its press has at its best been riotously, exhilaratingly free. The country’s 1996 constitution, one of the most liberal in the world, includes a protection of free speech and a right to access any information held by the state . In a democracy dominated by one party, as South Africa is, a free press is an especially important check on the abuse of power by the government.

Yet some in the ANC have never liked the press’s freedom to criticise. Hence a proposed new Protection of Information Bill that would impose arbitrary restrictions on access to govern-

ment information, backed up by extreme punishments of up to 25 years in jail. The government wants to judge the release of information against a sweeping new test of the national interest , rather than today’s standard of national security . Ominously, it would be up to ministers to de ne the national interest. And a new Media Appeals Tribunal, also appointed by the government, would ensure that all reporting was fair , although it is not clear yet what powers it would have to punish unfair journalists. If all this were to happen, South Africa’s press would end up being subject to restrictions not seen since the days of apartheid.

Mr Zuma’s attitude to these proposals is not yet clear. He has not publicly supported the bill, yet he has not killed it; but when he says the press should be promoting the country’s human rights culture as well as its prosperity, stability and the well-being of its people instead of spreading a daily diet of negativity and defeatism , he sounds depressingly like the leader of Eritrea or Myanmar.

Time to come good South Africa is Africa’s biggest economy and its most in uential country. It could lead the continent towards prosperity and freedom, or in the other direction. It is largely up to Mr Zuma to decide which way it goes.

The signs so far are worrying, but it is early days yet. There is plenty of time for Mr Zuma to take a public stand against this rotten press bill. It would be a good way of telling his countrymen, and the rest of the world, that he has a vision for South Africa and that it is a decent one. 7

Global economic policy

Monetary illusions Central bankers are not magicians. Don’t count on them to conjure up remedies if the rich economies ag

O

VER the past few years the reputations of the rich Euro United Japan world’s central bankers have area States 6 uctuated wildly. When the 3 nancial crisis struck, they were + 0 blamed for allowing the hous– 3 ing and credit bubbles to build, 2007 08 09 10 and for failing to foresee the bust. Later they were lionised for preventing a new Depression with bold actions to support the nancial system. Now a third stage is at hand, one of dangerously outsized expectations.

With most governments unable, or unwilling, to o er more scal stimulus, central banks are left solely responsible for propping up the agging recovery. The phenomenon is most obvious in America. Its economy has weakened, yet the default path for scal policy is a hefty tightening as the Obama stimulus wanes, the states slash spending to balance their budgets and the Bush tax cuts expire. With any discussion of remedies by politicians drowned out by partisan positioning before the mid-term elections in November, disproportionate hope is pinned on Ben Bernanke’s Federal Reserve. Hence the attention paid to his recent speech at Jackson Hole, which laid out, with great con dence, what further steps the Fed could take.

America is in the vanguard, but excessive faith in central bankers is unlikely to stop there. Some rich economies, notaInflation rates, %

bly Germany, have done well of late. But if America’s slowdown persists, they too will ag, particularly as scal austerity kicks in (see page 79). In 2011, on current plans, the rich world is set for its biggest collective budget cuts in at least 40 years. Already there is talk of the Bank of England o setting the pain by printing more money to buy more government bonds (a policy known as quantitative easing). The European Central Bank seems ready to maintain its special liquidity facilities for longer, and may be pushed to do more when the recovery slows.

Currency movements will add to the pressure. The Bank of Japan this week said it would extend the availability of cheap loans to banks, in a bid to push down the yen.

In ordinary times it makes sense to leave the central banks to stabilise the economy while governments repair their nances. Cheaper money is an obvious o set to tighter budgets and, historically, many of the most successful scal adjustments have been matched by looser monetary policy. But these are not ordinary times. Central banks cannot cut shortterm rates any further. And in many places the recovery is sluggish for a reason that also renders central banks less e ective: economies are deleveraging as households, in particular, rebuild their savings and pay down debt. If people do not want to borrow, monetary policy, although not impotent, gives a smaller lift to the economy than it normally would.

Central bankers are also ying blind. With short-term poli- 1

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16 Leaders 2 cy rates at or near zero, getting more of a monetary boost

means expanding a set of instruments whose e cacy, and side-e ects, are ill-understood (see page 84). Mr Bernanke and his colleagues have no shortage of proposals, from buying more government bonds to promising to keep interest rates low. But some ideas are untested. And those that have already been used, such as printing money to buy government bonds, are likely to su er from diminishing returns. To make a further meaningful dent in bond yields, for instance, the Fed might need to buy another $1 trillion-2 trillion of government debt.

Not by the Fed alone None of this means central bankers should not do what they can. They do have tools to try to ward o de ation, and should use them. However, they may not be able to live up to expectations. They can’t transform a sluggish recovery from a nancial crisis into a vibrant one. Nor, if the expansion stumbles,

can they prop it up alone.

Responsibility for boosting growth must be more evenly split with politicians. Only politicians can address the structural problems that are also holding back the rich world’s economies, such as the housing debt in America and the barriers to hiring in parts of Europe. Only politicians in countries, notably including America, that still have room for scal stimulus can ensure that it is used to complement monetary policy.

And only politicians can couple stimulus with longer-term pension and tax reform, so that investors do not lose faith in sovereigns’ future solvency. Such a combination (however dif cult given the electoral cycle in America) would avoid damaging the economy with ill-timed austerity now, and increase the e ectiveness of bigger central-bank purchases of government bonds.

It is heady stu for central bankers to be seen, once again, as saviours. But they cannot do it alone. 7

Japan

Self-destruction Japan’s ruling party should cast its most famous member, Ichiro Ozawa, into the wilderness

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OT for nothing is Ichiro Ozawa known as The Destroyer . Over a career spent scheming in the back rooms of Japanese politics, he has made and broken alliances, toppled governments and, with laconic disdain, treated transparency and other democratic norms as so many Western pretences.

Yet his latest ploy is one of his darkest. In challenging Naoto Kan, the prime minister, as leader of the ruling Democratic Party of Japan (DPJ), he threatens to bring down Japan’s third government in 12 months. Worse, he may destroy what remains of the trust that voters put in the DPJ when it ended 55 years of one-party rule last year. For the good of Japanese democracy, not to mention its own future, the DPJ must reject Mr Ozawa and all that he stands for.

If the challenger does pull o a victory in the vote on September 14th and he may he would take over the DPJ a mere three months after he had been forced to step down as secretary-general under the cloud of a political-funding scandal. He would also replace Mr Kan as prime minister or, if he preferred to stay in the shadows, install a puppet leader in his place. That would be a disaster, even by the sorry standards of recent Japanese politics, in which four prime ministers have come and gone in the past four years.

Among the public and his party at large, Mr Ozawa is hugely unpopular; less than 15% of the DPJ’s rank-and- le support him. He has no clear policy platform. Many may justi ably wonder whether he wants to take control of his party purely out of a desire for power, or also to keep the consequences of his murky nancial dealings at bay: high o ce brings immunity from prosecution.

However, Mr Ozawa is not to be stopped by mere unpopularity. He excels at a form of money politics that has long plagued Japan. Running a formidable electoral machine, he provides nance and campaign management in return for the

loyalty of members of parliament. Hence Mr Ozawa controls the biggest group among the DPJ’s 412 members of parliament, and their vote is likely to be decisive. Never mind that voters rejected this sort of cronyism when they kicked out the longruling Liberal Democratic Party (LDP) last year. No matter that few of his faction in parliament have the gravitas even to join an e ective cabinet. What counts is that many MPs are only in politics because Mr Ozawa put them there.

Be brave Mr Ozawa’s cronies may feel they have no option but to support him. But democratic politics is about choice, and all but the party’s most short-sighted politicians face one. Mr Kan badly damaged the party during upper-house elections in July by bumbling into an ill-judged discussion over consumption taxes. But in refusing to make any back-room concessions to Mr Ozawa, and in seeing o Mr Ozawa’s sidekick, Yukio Hatoyama, the former prime minister, he has started to earn back the public’s respect. Support for his cabinet has risen sharply in the past week. The public seems happy that he has chosen to take the ght with Mr Ozawa out into the open.

Tribal politics has no place in modern Japan. The country, trapped in a 20-year economic funk, needs bold leadership, not blind loyalty. The divisions in the party have already had worrying economic repercussions: the stockmarket this week fell on fears that the government is too weak to stimulate faltering growth and stop a crippling rise in the yen. There is a growing fear that whoever wins the leadership contest will face a split party. That will put it in an even weaker position to cut deals with the opposition.

A fatal rupture need not happen if the DPJ, under Mr Kan, puts its faith not in its own discredited faction bosses, but in the opinion of ordinary voters. A year ago they kicked the LDP into the political outback. In June they left the vapid Mr Hatoyama in no doubt he should resign. The next month they dealt a sharp blow to Mr Kan. If the DPJ picks Mr Ozawa as Japan’s next leader, it can expect no mercy. 7

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Letters Government industry SIR Recent interest in industrial policy ( Picking winners, saving losers , August 7th) has turned the discussion to how and when to do it better, rather than simply how to do it less.

The distinction between leading and following the market is useful. Public investment in new industries where private investors have shown little interest ( leading ) is obviously riskier than where the private sector has already had some success ( following ).

Leading can be made less risky by studying products being made in economies with incomes two- or three-times higher to see what domestically-based rms might be able to upgrade to or diversify into.

However, public assistance must be given against performance indicators, which may relate to export success, or product quality, or prices moving towards international levels. Failure to specify performance conditions has been the bane of industrial policy from India to New Zealand. And as for how to improve success it is worth bearing in mind the dictum attributed to Thomas Watson, founder of IBM, If you want to be more successful, increase your failure rate.

Professor Robert H. Wade Department of International Development London School of Economics London SIR Your leader, Leviathan Inc (August 7th), argued that it is a mistake for American and European governments to renew their intervention in the development of speci c industries within their economies. As you correctly noted, the state has played an important role in the recent progress of Brazil, India and China, and all the newcomers to the world’s 30 largest listed rms are state backed (or owned) corporations from the emerging world. This is not an annoying nuance. This is a sign of changing times and probably an indicator of the shape the global economy will take after the nancial crisis. Developed countries face the tough chal-

The Economist September 4th 2010 lenge of either recognising that state capitalism simply works better and adapting respectively, or accepting becoming obsolete and losing out to the emerging world, not only on growth rates of GDP but on levels of prosperity as well.

Vladimir Yakunin President World Public Forum Dialogue of Civilisations President JSC Russian Railways Moscow SIR Your characterisation of France’s Minitel as a deadend French national communications network long since overtaken by the internet couldn’t be further o the mark. Launched in 1982, it is considered one of the most successful pre-world wide web online services. At its peak in 2000, 25m people were using the Minitel to make online purchases, arrange train reservations, check stock prices or search the telephone directory. It is now outdated and will be closed next year, but 2m French people are still using it today. The Minitel is possibly one of most successful products to come out of Leviathan Inc’s factories.

Vincent Billiet Paris

Club Meddling SIR I believe the reason Club Méditerranée started to decline ( An empire built on sand , August 14th) was due to something more sordid than you reported. First, co-founder Gilbert Trigano gave the top job to his son Serge rather than to his then-equal number two, Jean-Robert Reznik, who was generally considered to have a better grasp of marketing.

Second, going upmarket usually seems like a sound business tactic getting more revenue per customer. But there are some important challenges: converting existing customers to what is in e ect a new, more expensive, product; or nding new customers; or making more pro t from a product that costs more to produce. I believe these challenges were underestimated and, indeed, were not overcome post-Trigano. The 2001 September 11th terrorist attacks are blamed but the decline started well before that.

Should the original product line have been left unaltered, or was Club Med doomed to fail because the market for its business model vanished?

Murray Bailey Research director People-in-Travel Hong Kong

Blues Down Under SIR Your leader on the Australian election was dispiriting ( (Un)lucky country , August 14th). It is hard to disagree that the candidates are uninspiring and unappealing although more opprobrious epithets could be used. Sadly Australian democracy has descended into a dismal contest between focus groups in marginal electorates. In a period when Australia faces di cult choices on many issues foreign policy, climate change, tax, the two-speed economy, health, education voters deserve more but can only watch impotent as this farce draws to an end. For a country with so many favourable features we should be doing so much better.

Paul Harris Sydney

Talk of legalising drugs SIR I applaud Mexican President Felipe Calderón for his honesty and courage in calling for a debate on drug legalisation to help reduce the bloody war in Mexico ( Thinking the unthinkable , August 14th). Former President Vicente Fox has since gone further and called for an end to prohibition. Their openness and frankness are in stark contrast to the Obama administration.

Barack Obama’s drug tsar, Gil Kerlikowske, has repeatedly said not only are he and Mr Obama opposed to legalisation, but that the word is not even in their vocabulary.

America has sent Mexico $1.3 billion in aid to buy guns and tanks. What Mexico really needs doesn’t cost a penny. It needs America to open up a

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debate about the causes of and solutions to the violence in Mexico. All options need to be considered when coming up with an exit strategy for this unwinnable war.

Tony Newman Director of media relations Drug Policy Alliance New York Historical harmony SIR Your book review on Muslim attitudes to Jews ( People of the Book , August 14th) ignored the evidence for substantial co-operation between the two sets of believers during the early development of Islam. One of the few Arabic documents to survive relatively uncorrupted from the rst decades of the seventh century, the Constitution of Medina , explicitly places Jewish tribes alongside Muslims as one community with the believers . Contemporary Armenian and Syriac accounts of the conquest of the Near East describe Jews aiding and joining the Arab invaders of then-Roman lands.

Antagonism between Muslims and Jews is neither universal, nor inevitable, and is only more poignant when one considers the instrumental role played by Jewish groups in establishing Islamic rule in the rst place.

Ben White London A punk in politics SIR I am puzzled by your depiction of David Cameron as a punk on your cover (August 14th). Were you inspired

by John Lydon of the Sex Pistols once radical, now the face of a British butter brand? Or was it The Damned and their lyrics I’m gonna smash it up ‘til there’s nothing left ?

Carmen Marrero London 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 Fax: 020 7839 4092 More letters are available at: Economist.com/letters

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Online highlights

Tea with Sidney Rittenberg Mao’s one-time interpreter on spending 16 years in Chinese prisons pondering how to be a better revolutionary; why the Chairman, whom Mr Rittenberg rst met in 1946, was the best listener he ever knew; and why China is di erent from America and always will be

Looking for an olive branch As Barack Obama steps into a century-long argument about land, religion, ethnicity and nationhood in the Middle East, our correspondents decode the handshakes, photo calls and speeches, seeking any sign that Mr Obama is making progress where other presidents have failed

Ghetto-blaster blasters The Pentagon has been working on a cruise missile that sweeps the ground with a high-powered microwave beam to fry enemy electronics and detonate roadside bombs. But what can be done these days, legally or otherwise, to silence more everyday electronic devices?

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Middle East: Fatwa control The Saudi regime is cracking down on both extremist and opposition clerics by controlling who can issue fatwas

Business: Cloud cuckoo The battle between Dell and HP for 3PAR shows how keen tech rms are to have a strong presence in the cloud

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Science: Yellow submarine A new method makes examinations to diagnose bladder cancer slightly less ghastly

Travel: Broken dreams Boeing delays the Dreamliner again: when the Onion starts making fun of your company’s problems, you’re in trouble

Americas: Barbie behind bars

Mexico’s federal police arrest Édgar Valdez Villarreal, alias La Barbie , one of the country’s most powerful gangsters and quite possibly its most violent Economist.com/node/21010260

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United States: Inequality and the crash Our bloggers debate the causes of the economic crisis, focusing on government attempts to reduce inequality

Technology: Password misery Creating a secure password is simple; remembering it, impossible

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Asia: An unlikely comic book Indonesians ip through a well-intentioned graphic novel about one of the Bali bombers

Language: Russian slang Vladimir Putin’s peculiarly violent vernacular gets another airing

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Economics: By invitation

Guest economists discuss Germany’s recovery and whether other countries have anything to learn from German policy Economist.com/economics/by-invitation

Media: Questions for Jay Rosen Ninety percent of everything is crap, says the NYU professor, but that’s nothing novel.

There’s just more everything now Economist.com/node/21009993

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Executive Focus

Economic consultants DotEcon is an economic consultancy that assists governments, regulators and private firms around the world. We provide advice on high-profile public policy, competition and regulatory issues, the design and implementation of auctions and other market mechanisms, demand modelling and forecasting, cost-benefit analysis and business strategy.

We are looking for recent graduates in economics or other quantitative disciplines (e.g. mathematics, statistics or econometrics) to join our London-based team as consultants. All candidates are required to: • have strong analytical skills that can be applied to complex real world problems; • be able to communicate ideas effectively and clearly, both internally and externally to clients; • be open-minded and able to learn quickly, work efficiently to tight deadlines and work on multiple projects across sectors; and • have an interest in keeping up with the latest research and applying new and innovative techniques.

For more details about our work and how to apply visit DotEcon’s website www.dotecon.com/careers.

DotEcon Ltd 17 Welbeck Street, London W1G 9XJ

The Partnership for Maternal, Newborn & Child Health, hosted by the World Health Organization based in Geneva, Switzerland, is seeking to fill the position of

Director, Partnership for Maternal, Newborn & Child Health Geneva, Switzerland The Partnership for Maternal, Newborn & Child Health is a global health partnership of multilateral organizations, governments, non-governmental organizations, partner countries, donors and foundations, health care professional organizations and academic, research and training institutions who have a shared interest in, and commitment to, the achievement of the maternal and child health related Millennium Development Goals 4 & 5 and are committed to achieve them through strengthening and accelerating coordinated action at all levels; promoting rapid scaling-up of proven costeffective interventions; and advocacy for increased resources and commitment.

The Director reports to the Board on the achievement of objectives and workplan of the Partnership and appropriate use of resources; plays a key role in resource mobilization; supports the Chair and Executive Committee in facilitating and promoting the work of the Partnership; speaks and advocates for the Partnership through presentations and published articles, represents the Partnership at inter-agency, international, regional and national meetings; acts as focal point with the host organization; facilitates internal and external communications across the Partnership including WHO, and ensures regular and productive meetings of the partners and stakeholders.

The successful candidate will have excellent leadership qualities; sound knowledge of the Partnership’s mandate and knowledge of how to translate decisions and strategies into action; excellent communication and networking skills, including the capacity to work effectively with a wide range of stakeholders, the ability

to facilitate discussion among disparate partners and forge consensus; good advocacy and representational skills and experience in fundraising; excellent programme management skills; excellent managerial and supervisory skills, and proven ability to focus and direct the efforts of individuals and teams in the global health field to achieve the common objective of improving maternal, newborn and child health.

The successful candidate will have a degree in medicine or advanced university degree in nursing, midwifery or other appropriate health-related area or social science, with a postgraduate degree in public health or management, preferably at the MPH, MBA or Ph.D. level.

More than ten years experience working in developing countries and a minimum of three years experience at the international level coordinating with national governments, the donor community, international organizations, non-governmental organizations, and professional and academic bodies; extensive experience and a sound understanding of implementation challenges at country level and how to overcome them; sound understanding of programme and investment issues at country level; extensive managerial experience.

Further details about the Partnership can be seen at http://www.who.int/pmnch/en/ For more details including remuneration and how to apply, please see http://www.who.int/employment/ vacancies/en/ Vacancy Notice HQ/10/FCH/FT402 Closing date for applications: 29 September 2010.

The Economist September 4th 2010

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Executive Focus

FOOD AND AGRICULTURE ORGANIZATION OF THE UNITED NATIONS invites applications for the position of

DEPUTY DIRECTOR-GENERAL (KNOWLEDGE) AT ITS HEADQUARTERS IN ROME, ITALY RESPONSIBILITIES: Advise the Director-General on the delivery of the Organization’s strategic objectives, core functions and organizational results under area of responsibility. Advocate FAO’s policy position and communicate its messages with respect to the areas under his/her mandate. Ensure that FAO technical departments effectively respond to the priority needs of Member Nations in line with the Strategic Framework and the Medium-Term Plan. Ensure a coherent approach to achieving organizational results, as well as the resolution of cross-organizational issues.

Advocates the dissemination and application of information and knowledge, of technology transfer and capacity building. Promote close interactions with global entities in agricultural research for development.

REQUIREMENTS: Post graduate qualifications or equivalent experience in a field related to the work of the Organization. Demonstrated professional competence and management/strategic leadership of a high order. Fluency in English, French or Spanish and a limited knowledge of any of the other two or Arabic, Chinese or Russian, the languages of the Organization. Ability to lead and work effectively with a diverse team of people of different national and cultural backgrounds in an international setting.

Further information on this position is available at http://www.fao.org/VA/senior_ en.htm General information on the Organization, its programmes and structure can be found at http://www.fao.org CANDIDATURES: Applications, including a full curriculum vitae and Personal History Form (available in MS Word (A4 and letter formats)), quoting VA DDK/224/10, should be submitted to the Director, Human Resources Management Division (CSH), FAO, Viale delle Terme di Caracalla, 00153, Rome, Italy or sent by e-mail to: senior-vacancies@fao.org or faxed to Italy 06-5705 5131.

Deadline for applications: 30 September 2010.

The Economist September 4th 2010

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22

Executive Focus

The Economist September 4th 2010

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Brie ng Game conservation in Africa

Horns, claws and the bottom line goma, LAIKIPIA, selinda and TSWALU

Governments have mostly failed to protect Africa’s wildlife. But other models involving hunters, rich conservationists and local farmers are showing promise

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NLY eight specimens of the northern white rhino are left alive on the planet, and they are all in captivity. The handful that remained in the wild in Congo have not been seen in years; they are almost certainly dead. A nal e ort to save the subspecies earlier this year saw four northern whites shipped from a zoo in the Czech Republic to the Ol Pejeta conservancy on the Laikipia reserve in Kenya.

The senses of these rhinos had been dulled by the cold concrete of Slav zoo life.

In Africa, by contrast, they found themselves under open skies, with wild browse, the trees lled with weaver birds, the red soil interrupted with termite mounds and the land sweeping away to the icy peak of Mount Kenya. In such an environment the hearing of the rhinos soon sharpened and their agility returned. They became wild again, says Berry White, a rhino expert who oversaw the move.

Yet the chances of saving the northern white are remote. Short of re-engineering it from frozen samples in the future, the best hope of preserving its genetic stock is to breed the last individuals with southern whites. That means the end of a creature that has probably been distinct for a million years. Indeed, the decline of the African rhino which includes the black rhino as well as the white is among the sorriest and most instructive tales in conservation.

When President Theodore Roosevelt came to east Africa in 1909 an estimated 300,000 rhinos roamed the region. Now

there are perhaps 2,000. The problem is not that the rhinos are half-blind, lumbering, and often infertile which they are. It is economic: the ornamental and medicinal value of rhino horn makes it hard for the rhino to pay its way alive.

The value of rhino horn in China, ounce for ounce, is higher than gold. It is likely to keep rising with an ageing population; in Chinese medicine the horn is ground into a powder to alleviate fevers and pain, particularly for terminally ill patients. With more Chinese contractors working in Africa, the risk of poaching seems to have increased. Market forces are insistent. Even at Ol Pejeta, which is protected by electric fences and armed guards, the horns of the four northern whites have had to be led down to limit the risk of poaching. An inside job at one private ranch in Kenya last Christmas saw a rhino killed and its horns hacked o . The Kenya Wildlife Service later tracked down the culprits and recovered the horns, along with $8,500 in cash the poachers had been paid, with the balance payable on delivery. Sold in 10g increments in Guangzhou, the seven kilos of horn would be worth $250,000.

The story of the rhino is an extreme example of a wider decline of biodiversity in Africa. A recent study by the London Zoological Society and the United Nations Environment programme claims that the population of big animals in African national parks (excluding elephant and rhino) has dropped by 59% since 1970. Poach-

The Economist September 4th 2010 23

ing for meat is only part of the problem; few people eat zebra. The real pressure is from the expansion of human settlements.

Population density in Africa is not high and the continent is a negligible polluter, producing less than one tonne of CO2 per head against 20 tonnes in the United States. But because most Africans depend on what they ine ciently grow or gather, and because there is little investment in sustainable farming and forestry, ecosystems su er. According to the Global Footprint Network, a San Francisco think-tank which seeks to quantify demand and supply of natural resources, the biocapacity of Africa per person has fallen by half since 1960 (see chart on next page).

As smallholdings, or shambas, are subdivided, children who have inherited nothing move to new areas. More wire is rolled out, more poison set down, scrub and trees burned and water sources appropriated. This steady and silent loss of habitat shamba cation, if you will transforms ecosystems into a monoculture t for humans. It also fragments range, limiting the ability of wild animals to hunt, forage or migrate. Shamba cation has been particularly hard on the big cats, which need a lot of space. Some advocates reckon that the number of lions in Africa has dropped from 400,000 in 1955 to 20,000 today. If nothing changes, there will be no lions left on the planet by 2020, asserts Dereck Joubert, who heads National Geographic’s Big Cats Initiative.

That may be an overstatement. Ol Pejeta had no lions until two found their way under a culvert in 1985 to start a new pride.

Now there are 55 lions; 35 more have been shot over the years to control the population. It repopulated itself, says Richard Vigne, the head of the conservancy. Yet no matter how fecund nature is, humans are more so. With Africa’s human population 1

24 Brie ng Game conservation in Africa

The Economist September 4th 2010

2 set to double to 2 billion by 2050, new

thinking is needed to preserve the continent’s remaining biodiversity.

The rst step is plain economics: a recognition that the wild has to pay its way.

Take the Koyiaki ranch on the edge of Kenya’s Masai Mara reserve. The number of Masai huts on the property has increased from 44 to 2,735 since 1950. More Masai mean more cattle, carving up the vegetation and polluting the waterholes. But the cows provide the Masai with milk, blood, prestige, and a sense of belonging. The gira e, by contrast, stands toweringly mute and uncompetitive. Just beyond Koyiaki the commercial wheat farms begin and the gira e has even less chance of earning its way. The results are lethal: some aerial surveys suggest gira e numbers around the Mara have fallen by 80% since 1979.

The hunting debate Some environmental economists contend that the failure of conservationists to take local cost-bene t analysis seriously has accelerated the loss of biodiversity. They feel strongly that the private sector should step in. Private management structures are a lot more e ective in capturing the economic value of biodiversity, says Wolf Krug, a German environmental economist. He also criticises some animal-rights groups for campaigning against hunting; that tactic, he says, devalues the animals they are trying to save. When pressed, and in private, a surprising number of conservationists say they would like to see limited hunting to provide an income stream for local communities.

Some countries have had success with hunting. Namibia, for instance, has increased the absolute numbers of its game animals by allowing oryx, hartebeest, kudu and springbok to be hunted and harvested as high-protein low-fat meat for re-

gional supermarkets. Peter Lindsey of the University of Pretoria argues that animalrights groups are denying Africa the wise use of its elephants whose ivory is a resource, in his view, because elephants’ fertility suggests it could be harvested sustainably. He reckons trophy-hunting in Africa is worth $200m a year: a potential bonanza for local communities.

But animal-rights organisations like the Born Free Foundation object to hunting on ethical grounds. They argue that many hunters who start with gazelles end up going after predators, often illegally. And the money does not reach the locals: much of what is generated is taken o shore. The debate is bitter. The pro-hunting lobby complains that animal-righters have a lot of money to splash around, and are even writing legislation in several African countries in return for donations to government wildlife services. Hunters say their activities complement tourism: their clients are happy to stay in shabby, dusty places as long as they get their kill. But the bloodthirsty history of big-game hunting in Africa means that hunters still need to show that they have an economic value.

Hunting aside, there is broad agreement on how to improve conservation in Africa. A rst step is to upgrade the continent’s national parks. Outside South Africa, Namibia and Botswana these have an indi erent record, and tend to mirror the competence of their governments. There is, all agree, no chance of creating new ones; the costs are too high. But where a government has failed there may be a case for privatising park services such as accounting, tourism and even security. Indeed, it may be better for the entire management to be handed over to outsiders.

The African Parks Network, a South African charity, runs national parks for several African countries. Its biggest contract is for the 1.2m-hectare Garamba National Park in Congo. The head of African Parks, Peter Fearnhead, cites Malawi as the charity’s biggest success so far. In six years a 70,000-hectare park has been restocked with animals and a tourism industry built up. For many countries the renewal of their national parks is probably the best rst step in protecting biodiversity. Only 2% of big game in Uganda lives outside the country’s underfunded national parks. If Uganda were to invest in them, o ering concessions to safari operators and even allowing some property development nearby, it could expand the protected area and boost earnings at the same time.

Private conservancies are an even bigger opportunity. Some of these are owned by individuals or conservation groups; Ol Pejeta is a not-for-pro t company with shareholders. Others are community initiatives, where local people receive an income for promoting conservation. Conservancies can earn money directly from

Careless continent Africa’s global hectares* per person Ecological footprint

Biocapacity† 6 5 4 3 2 1 0

1965 70 75 80 85 90 95 2000 06 *Productivity-weighted area †Capacity of ecosystems to produce useful biological materials and to absorb waste Source: Global materials generated by humans Footprint Network

tourism, hunting, farming, forestry and exploiting plants for medicines and cosmetics. They can also be paid for preserving a watershed, stopping ooding and runo , or for o setting carbon emissions. But the biggest potential is probably in non-use earnings, where large numbers of people around the world pay small sums to buy shares in African biodiversity not to use it, but simply because they believe its protection is important to the planet. The trick is to create a non-use market that works.

A spectacular example of individual generosity is Tswalu, South Africa’s largest private conservancy. It stands high in the Kalahari desert, towards Botswana. It is a harsh and beautiful landscape, painted in shades of yellow and grey. Temperatures drop below freezing in the winter. Water is scarce. Some conservationists might sni at Tswalu’s tarmac airstrip and the power lines running across the property. But that misses the larger land reclamation: 43 farms aggregated into a 100,000-hectare block and turned over to wildlife preservation. Our aim is to restore the Kalahari to itself, says Tswalu’s owner, Nicky Oppenheimer, who also serves as chairman of De Beers, a diamond rm. Tswalu’s head of wildlife, Gus Van Dyk, says that the farmers had killed almost everything that had teeth or claws. Rehabilitation is a longterm project, he says, but eagles are returning and mountain zebras are back.

Mr Oppenheimer admits that the economics of Tswalu do not add up. His family puts in several million dollars a year to balance the books. It is not clear if money earned from the live-capture and sale of oryx, springbok and other animals, supplemented by earnings from a lodge that charges $850 a night, will ever be enough to make it pay. The conservancy must look after local residents as well as roads and equipment. New housing has been built, along with a kindergarten and a clinic.

Making a dent in local poverty is important. Mr Van Dyk cautiously says that rates of illiteracy and alcoholism among those living on Tswalu seem to be falling.

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26 Brie ng Game conservation in Africa

The Economist September 4th 2010

2 has been found in a remote gully on the re-

serve. Yet the scale of Tswalu is so huge that nature dominates. The value of this place is not what we know, but what we don’t know, says Mr Van Dyk the ways of the burrowing animals that live there, or the virtues of the desert grasses. Meanwhile, natural processes are returning.

Lightning sets re to dry grass. Lions drive the boks into bigger herds. As invasive species are removed, springs bubble up. This year, a stream ran for the rst time in a decade. If you give it time and space, nature is very forgiving, says Mr Van Dyk. Africa does not have enough time or enough Oppenheimers to pull o many Tswalus. According to Sam Lawson of the Nature Conservancy, a Washington-based charity, perhaps only 20,000 people in the world are rich enough to underwrite a conservancy of Tswalu’s ambition, and few of them are interested in the African bush.

There is not enough philanthropy, emphasises Mr Lawson. You need to look at what is economically sustainable.

60% since the 1960s.

The situation is more complicated in a country like Kenya, where the pressure on land is higher. Ian Craig helped set up Lewa, a 23,000-hectare conservancy not far from Ol Pejeta. Now that a $16m buyout by the Nature Conservancy seems to have secured Lewa’s immediate future, Mr Craig has turned his attention to saving nature in the vast expanses of northern Kenya through working with communities. He maintains that small and local is better than big and foreign . His Northern Rangelands Trust, for example, is setting up a slaughterhouse so that, in return for conservation work protecting wildlife, planting trees, keeping water holes for wild animals Boran, Rendille and Samburu tribesmen can fatten and slaughter their cattle and sell the beef at premium prices to the market in Nairobi. The test of Mr Craig’s model will come later this year, when black rhinos will be introduced into the wild in northern Kenya without fences or armed guards, relying simply on the local community for protection.

Then there is tourism. The debate here is how upmarket the safari business looking at wildlife, rather than shooting it should go. As upmarket as possible, says Colin Bell, a South African pioneer of luxury safaris. One of Mr Bell’s camps is Selinda, in northern Botswana. Its 125,000 hectares of mopane woodland and waterways are leased from the Botswana government. Security is no problem. Botswana provides its own anti-poaching patrols and the country’s president, Ian Khama, is a partner in the enterprise. The land is at and soft, the rocks covered in layers of ancient soil. It has one of the highest densities of elephants in the world. The Selinda spillway lls with oodwaters from the Angolan hills once every 20 or 30 years, bringing tilapia, hippos, pelicans, snubnosed ducks and rafts of water lily which locals eat as a delicacy. It is a special place at a special price. Selinda costs

Involving the locals Just as the stately homes of Europe were forced to open up to the public, so conservancies in Africa have to open up to their neighbours. A fortress mentality is clearly unacceptable in countries with high levels of poverty, says Chris Thouless, a zoologist based in Kenya.

This means that a conservancy has to earn more for locals than it would if they exploited the land. Because conservation in Africa has to compete at market prices and provide for locals, it will probably be forced into marginal areas which cannot be farmed. So the future for private conservation in Africa will increasingly be in drier, remoter areas. Even there, it will be expensive. Costs can be o set by selling a luxury home to jet-setters who will also receive a seat on the board of the conservancy. Or an endowment might be raised by a conservation organisation to pay for running costs. Either way, overseas capital will be needed which could create political problems.

Community initiatives may be cheaper and more politically durable. South Africa recently decided to give farmers the right to own wild animals on their land. This allows them to sell on the animals and their o spring, admit paying tourists and, in the case of rhinos, enjoy tax breaks. The result has been a dramatic rise in the number of southern white rhinos in the country: from 20 individuals in 1900, there are 16,000 now. Namibia already has 6.5m hectares of land under community projects, supporting 230,000 people. It has increased the amount of wildlife on community and private land by Protected, but not legally lucrative

around $1,400 a night, not including the cost of the small plane that gets you there.

Mr Bell brushes aside complaints about exclusivity. The best model for the wilderness is no visitors at all, he says; if they must come, better to have a high price and low numbers. All the same, his safaris beat hunting: Hunters get 12 visitors a year, we get 12 visitors a day. Botswana has been less interested in fostering tourist numbers than in moving from the bargain basement of safaris to the top end but, all the same, tourism revenues have grown from $300m in the 1990s to about $3 billion today.

Around 40% of the country is now under some kind of wildlife protection, and Mr Khama wants to push that higher.

But the safari business has shown little interest in extending operations to Africa’s jungles or even to Francophone Africa, where wild animals are under more pressure than anywhere else on the continent.

In insecure areas such as eastern Congo charities like the Gorilla Organisation, a London-based group, end up doing the hard work. Its 70,000-hectare Walikale community initiative aims to protect 750 gorillas in 80 families. The locals are keen; they have no motive to poach them. Rangers are supposed to collect gorilla stools and send them to Germany for DNA analysis. But the Walikale exists only on paper.

Since it was set up in 2001, rebel activity and lack of funds have limited surveys to the most accessible parts of the reserve.

Groups like Greenpeace question the point of spending limited funds and media coverage to save yet another piece of savannah when the entire Congo basin is threatened by illegal logging. The safari industry argues back that, for decades, it has stimulated interest in Africa. Nevertheless, the bling of that industry gives pause: a tent with Afghan carpets and a deep English bath, not to mention a native guard standing by with a spear, may have more to do with pampering customers than with stewardship of the land.

In the end, though, there is more in play than science. In terms of biodiversity, Mr Thouless admits that Texas could serve as a safer home for rhinos than Ol Pejeta.

But there are other considerations.

Beauty, for instance. Mr Joubert of the Big Cats Initiative has spent most of his life photographing lions and other beasts in the African bush. There is a spiritual value to untouched land which cannot be measured, he maintains. It belongs to the people who have not yet been born. If space and silence do have a universal value, wealthy Chinese and Indians, as well as Africans, may eventually contribute to the conservation e ort. For now, though, the task is to leave them something to take care of. 7

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storemags & fantamag - magazines for all The Economist September 4th 2010 29

United States

Also in this section 30 The Bush tax cuts 30 Ohio’s 1st congressional district 32 The salmonella outbreak 32 Savannah’s port 34 Atlantic City 38 Lexington: the Republican Brat Pack

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

The Iraq war

Mission truncated Washington, dc

A stance that helped Barack Obama and the Democrats to victory has become a near-irrelevance

W

HEN he ran for president, few subjects distinguished Barack Obama more than his views on the war in Iraq. He had opposed it from the start, so he constantly reminded the electorate, unlike his main rival for the Democratic nomination, Hillary Clinton. He was determined to withdraw the majority of American troops from the country within 16 months of coming to o ce, unlike his Republican opponent, John McCain, who had spoken of American troops being in Iraq for 100 years. All this formed a big part of Mr Obama’s appeal to voters, who were sick of the con ict and dismayed by George Bush’s handling of it. So when Mr Obama declared the ful lment of his pledge (a little over three months late) and the end of our combat mission in Iraq in an address from the Oval O ce on August 31st, it should have been a triumphant moment for the president and a cathartic one for the American public. Instead, the speech was a sombre a air, and the popular reaction muted.

In part Mr Obama was simply determined to avoid the mistakes of Mr Bush, who was endlessly lampooned for hopping gleefully out of a ghter jet dressed in a ightsuit in front of a banner reading Mission Accomplished , just as Iraq began to sink into a bloody insurgency. As Mr Obama was quick to concede, Iraqi politics are a muddle and extremists will continue to set o bombs .

It does not help that America’s withdrawal is only partial. Almost 50,000

troops remain in Iraq. In theory their chief mission is to train Iraq’s security forces, but in practice they will still do some ghting, in what Mr Obama called targeted counterterrorism missions . So the end of the war may not be apparent to ordinary Americans, despite the change of the mission’s name from Operation Iraqi Freedom to Operation New Dawn . As Ken Gude of the Centre for American Progress, a think-tank, puts it, 50,000 is not zero.

The impact of Mr Obama’s announcement was further dampened by the fact that he has escalated America’s war e ort in Afghanistan even as he removes troops from Iraq. The president acknowledged that after almost ten years of war in Afghanistan, some Americans are understandably asking tough questions about our mission there . That is an understatement: although he has tried to distinguish between the dumb war in Iraq and the smarter one in Afghanistan, Americans seem to think that getting involved in the latter was also a mistake and are gloomy about its prospects. Justin Ruven of MoveOn.org, a left-leaning activist group that opposes both wars, says his members have growing misgivings about what feels like a quagmire in Afghanistan .

In his speech Mr Obama reiterated a promise to start reducing the number of soldiers in Afghanistan by next July and to remove all American forces from Iraq by the end of 2011. But Americans now consider Mr Obama and his fellow Democrats marginally less reliable on the subject of

Iraq than Republicans, according to Rasmussen Reports a dramatic reversal from just a couple of years ago. Scott Rasmussen, the rm’s boss, cautions that this nding may simply re ect a broader swing towards the Republicans, rather than shifting views on Iraq itself. But that is scant consolation to Democratic candidates facing di cult races at the mid-term elections in November.

Mr Ruven of MoveOn.org argues that had Mr Obama not ful lled his pledge to withdraw troops from Iraq, he and his fellow Democrats would be in even deeper trouble than they already are. He concedes that some Democratic activists have been turned o by Mr Obama’s enthusiasm for the war in Afghanistan, which will probably have some impact on both turnout and fund-raising. But he does not believe that many people, on the left or the right, will cast their vote in the mid-terms based on their views of the two wars. It is the economy that will galvanise them.

Many Americans, it is true, are simply no longer interested in either con ict. Just 40% rated the war in Iraq as very important in a Rasmussen survey last month, for example, and just 41% thought the war in Afghanistan was, compared with 85% who felt that way about the economy. In May 2008, in contrast, when Mr Obama was running for president, 58% of people judged Iraq to be very important. Anxiety about the war has been declining since August 2008, according to Rasmussen, when America’s nancial system began to seize up and the severity of the recession became clear. Iraq has sunk to number ten on voters’ list of priorities, the polling rm nds, behind such issues as immigration, education and government ethics .

The Iraq war is no longer the driver of American politics, says Mr Gude. Mr Obama himself implied as much by shifting subjects halfway through his address from the two wars to the state of the econ- 1

The Economist September 4th 2010

30 United States 2 omy. Our most urgent task, he said, is to

restore our economy, and put the millions of Americans who have lost their jobs back to work. The withdrawal from Iraq should help with that, he suggested, by freeing funds that were previously being spent on the war.

The fact that the president felt obliged to raise the dire state of the economy in a speech about his military successes neatly illustrates the political signi cance of the public’s waning interest in Iraq and Afghanistan. The two wars may not cost the Democrats many votes, but they will not corrode Republican support and galvanise the left as they have done in the past two elections. One of the Democrats’ most effective talking points has lost its potency, leaving them with few appealing subjects to discuss on the campaign trail. 7

The Bush tax cuts

A slight reprieve?

Washington, DC

Extending the cuts for a while may turn out to be prudent policy

H

OW dramatically the pendulum of fear has swung in the past year from worries about the fragile recovery, to panic about the level of the national debt, and back to anxiety about growth again.

Swinging along with it has been the fate of George Bush’s tax cuts, which are due to expire at the end of this year. Democratic Party leaders had hoped to make political capital, just before the mid-term elections in November, from the extension of the cuts for households earning less than $250,000 ($200,000 for single earners). At the same time, they hoped to paint the Republicans as hypocrites for moaning about the de cit while ghting to keep low taxes for the very rich. But these hopes, like the recovery, have withered away.

A deeper hole US budget deficit* $trn: CBO baseline with Bush tax cuts extended 0

% of GDP: CBO baseline with Bush tax cuts extended 0

–

–

0.5

4

1.0

8

1.5

12 2010

12

14

16

18

20

Fiscal years ending September 30th Source: Congressional Budget Office

*Forecast

The tax cuts, which were supposed to last for only ten years, had their genesis in the 2000 presidential campaign, when both Mr Bush and Al Gore, the Democratic candidate, proposed to return a portion of the then budget surplus to voters. As the economy tipped into recession in 2001, stimulus became the rationale for the cuts, and for the 2003 law that phased them in more rapidly than originally planned. By then, reduced tax revenues were contributing to a steady increase in the de cit. The Congressional Budget O ce has estimated the cost of the cuts over the ten years to 2011 at $1.7 trillion.

Their approaching end might therefore have pleased de cit hawks. The CBO’s baseline budget forecast, which assumes that the cuts do indeed expire as planned, sees the de cit falling from 9.1% of GDP in 2010 to 2.5% in 2014. A full extension of the Bush tax cuts would increase the shortfall in 2014 to 4.1% of GDP (see chart) and would produce a total budgetary cost of $3.3 trillion over the next decade. That seems completely una ordable.

But red ink is no longer the main concern in Washington. In July Barack Obama proposed the renewal of cuts for all but the wealthy an exception that would save perhaps $700 billion over the next ten years compared with a full extension. But disappointing economic numbers have altered the political terrain. A growing number of Democrats have warmed to a full extension, fearful of campaign ads accusing them of raising taxes when the economy is weak.

Some form of extension of the cuts for most households does seem prudent.

America’s economy can ill a ord a big scal blow. A return to recession is still unlikely, but the odds of one have recently increased. Tax changes aside, scal policy will in e ect tighten substantially anyway next year, with the end of the two-year stimulus programme and continued belttightening at the state and local-government levels. If legislative deadlock adds to this an unintended tax hike, the impact could be dire.

But another ten-year extension is too mighty a weapon to wield against recession, just as no extension at all is a dangerous way to attack the de cit at present.

America can, in fact, a ord to provide more scal support for its economy. But in order to reduce the risk of a debt crisis, Congress should at the same time lay out a credible path back to sustainable budgets, and this it is failing to do. It might have used the opportunity provided by the end of the Bush tax cuts to embark on a long-overdue reform of the tax code, broadening the tax base and making the system simpler and more e cient. Instead, the wrangling is only providing more evidence of Washington’s political sclerosis as the economy continues to weaken. 7

Ohio’s 1st congressional district

In black and white cincinnati

Democrats must energise their base if they are to win in November

S

TEVE DRIEHAUS is ready to speak to old folk at a community centre in Cincinnati’s western suburbs, but their game of bingo is not quite nished and the Democratic congressman has to wait. A woman sidles over to warn that it’s a tough crowd.

She is right. Some in the audience are vexed at the $26 billion package of aid for teaching and other jobs that Mr Driehaus and his colleagues in the House recently passed. It’s another union bail-out! yells one lady. Mr Driehaus’s suggestion that some of the blame for America’s economic ills lies with the Bush administration does not go down well, either.

This is Ohio’s 1st congressional district.

Covering most of Cincinnati and surrounding Hamilton County, it is a diverse political barometer with a Democratic urban core and suburbs full of Republicans and independents. George Bush carried the district in 2004; Barack Obama won it in 2008, by 11 points. Mr Driehaus was elected that year, defeating Steve Chabot, a Republican who had held the seat for 14 years and who now wants it back.

Mr Chabot is still a recognised gure in the district, and a smattering of polls give him the edge. At a pre-season game for the Cincinnati Bengals he dives into the orange-and-black-shirted multitude as they stream towards the stadium, shaking hands, and is rewarded with many pledges of support. His hands now sore, Mr Chabot goes on to attend school fairs at two parishes in this heavily Catholic district.

Mr Driehaus’s voting record is a tough sell here. He voted for the stimulus package and the health-care act, though only after the White House issued an executive 1

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The Economist September 4th 2010

32 United States 2 order that keeps federal funding restric-

tions on abortions. Mr Chabot’s record is easier to glean; he resolutely opposed bailouts when he was a congressman in the autumn of 2008. If elected, he will work to halt funding for the health-care act, though he would support new legislation to cut costs and expand coverage.

One factor helping the Democrats in 2008 was the high turnout of black voters, who make up 29% of the electorate in the district. Lincoln Heights is one of the neighbourhoods that were planned speci cally for blacks migrating from the South in the early 1920s. It was settled by men who lived in tents and worked in the foundries while they built their own homes. Robert Bannister, the town manager, takes Mr Driehaus on a tour. Lincoln Heights is poor; 30% of the residents fall below the poverty line. Boarded-up houses are a reminder of the subprime crisis. Some streets are dilapidated and the crime rate is high, but turn a corner and there are ne houses, with barbecues and decent cars in the driveways. Mr Bannister expresses his frustration with the pace of change. He hopes a new freeway exit will encourage businesses to set up. A big GE Aviation factory is just across the I-75; maybe some suppliers could relocate here.

Mr Driehaus believes his task is to encourage partnerships between poor communities and corporations, which can do a great deal. But if he wants to keep his job the Democrats will have to turn out their base on November 2nd. Mr Obama may be unpopular in Cincinnati’s western suburbs, but a black aide to the congressman o ers a peek at a photograph of her fouryear-old grandson, proudly wearing a suit and tie, who idolises the president and wants to grow up to be just like him. 7

The salmonella outbreak

Un oeuf is enough New York

Unsafe eggs are the latest food scare

A

MERICANS are known as hearty eaters, so a string of recent food-safety scares has shaken them to their rather wide cores.

The country has already endured the economic and gastronomic damage in icted by recent recalls of unsafe spinach, peanut butter, beef and peppers. Now insult has been added to injury.

The latest scare involves eggs. O cials con rm that from May to July nearly 2,000 people have been sickened by salmonella traced back to tainted eggs. As this is several times the baseline rate of a iction, it has forced the recall of over 500m eggs. That is

Beware! Beware! not a deadly blow, as the country produces over 6 billion eggs each month, but more recalls may be coming.

Who is to blame? The dust is far from settled on that question. Indeed, a committee of the House of Representatives has only just begun an investigation, an inquiry that essentially asks whether the trouble began with the chicken or the egg. But the broader problem is easy to identify.

America’s food system has evolved rapidly. Regulation has not.

Over the past few decades every sector of American agriculture has undergone dramatic consolidation. The egg industry is no exception. In 1987, 95% of the country’s output came from 2,500 producers; today, that gure is a mere 192. Though the salmonella problem appeared to a ect two dozen brands, those were all traced back to just two rms in Iowa, the top eggproducing state. Critics suggest that this shrivelling of the supply chain leaves consumers vulnerable to bad luck or bad behaviour. Inspectors from the Food and Drug Administration (FDA) reported this week that a recent visit to Wright County Egg, one of the Iowan rms responsible for the recall, found rats, maggots and manure piled several metres high at or near the eggproducing facilities. Robert Reich, a former labour secretary in Bill Clinton’s administration calls these corporate crimes and argues that government doesn’t have nearly enough inspectors or lawyers to bring every rotten egg to trial.

That points to the other culprit: poor regulation. Shockingly, state o cials do not inspect eggs in Iowa, and federal authority is fractured among several supervisory agencies. This bureaucratic tangle is a well-known problem. Bill Clinton promised stronger regulations for eggs in the 1990s. Broader reform is needed, advocates have long insisted, as more Americans eat food that is imported, prepared in restaurants and produced at huge plants. In March 2009 Barack Obama created a food safety working group to study the existing maze of regulations and suggest improvements. But reform has been too slow. O cials at the FDA argue that stricter regulations that came into force on July 9th would, had they been implemented earlier, have probably prevented the egg crisis.

An unfortunate irony , declares Margaret

Hamburg, the FDA’s boss.

The latest outbreak may inspire further action. The House passed food-safety legislation more than a year ago. In August the Senate at last nudged forward its own bill, which would give the FDA more power and give industry more obligations. The bill is designed to be less onerous for the smallest food producers, but parts of the industry are decidedly cranky. The worst outcome, critics say, would be arduous rules that do little to improve food safety.

Nevertheless, a new law now seems inevitable. The Senate is expected to take up the bill after the summer recess. Advocates call the e ort historic. Others might say it’s a bit like shutting the coop door after the hen has scarpered. 7

Savannah’s port

A man, a plan, a canal Savannah

Why digging in Panama is bringing out the shovels on America’s east coast

S

OMETIMES what is absent is more important than what is present. So it is with Savannah’s port, the fourth-busiest container port in America and one of its fastest-growing, where what is absent is the sea. Its busier rivals Los Angeles, Long Beach and New York/New Jersey sit on saltwater bays; Savannah’s port is almost 20 miles (32km) inland on the Savannah River, far from the city’s charming Victorian centre, in the distinctly unlovely suburb of Garden City.

Yet it is precisely that remote site that has allowed Savannah to grow as swiftly as it has: land is cheap and available. Home Depot, IKEA, Target and Wal-Mart all have distribution centres of more than 1m square feet (100,000 square metres) in the Savannah area to handle cargo coming through the port, which sits at a nexus of interstate highways and railway lines that provide quick access to the south-east and Midwest. During scal 2009 another 1.5m square feet of warehouse space came onstream in the region; a further 20m square feet are planned. Georgia’s ports (of which Savannah is the largest) are a big economic engine for the state, responsible in 2009 for 8.6% of Georgia’s total production income ($61.7 billion), 6.7% of its employment (295,443 jobs) and $6.1 billion in federal, state and local tax revenue.

Yet reaching this point has required signi cant deepening of the Savannah River, from its natural depth of 17 feet (5.2 metres) to 42 feet today. Now the Georgia Ports Authority (GPA) wants to dig out Savannah’s shipping channel even further, to 48 feet, in order to attract the larger vessels expected 1

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Smarter business for a Smarter Planet:

It’s time to ask smarter questions.

What exactly does a benchmark mean? For the last five years, IBM DB2® on Power Systems™ has ranked first on three of the industry’s leading performance benchmarks, longer than Oracle and Microsoft combined.1 But is that the best way to think about the possibilities of technology? What really matters isn’t some abstract measure of performance, it’s what companies actually do with that performance. For instance, Coca-Cola Bottling Company is using DB2 on Power to reduce licensing, maintenance and storage fees by $350,000. EuResist is using an integrated analytics solution to predict the most effective drug combinations for individuals with HIV, with 78% accuracy. And the Dubai Gold & Commodities Exchange is working with IBM Security Services to achieve system uptime of over 99.9%. On a smarter planet, these are the benchmarks that matter.

1. Based on number of days of performance leadership for the TPC-C, TPC-H 10TB, and SAP 3-Tier SD benchmarks between June 1, 2005, and June 1, 2010. For more information, see http://www.tpc.org and http://www.sap.com/solutions/ benchmark. TPC, TPC-C and TPC-H are trademarks of the TPC. IBM, the IBM logo, ibm.com, DB2, Power Systems, Smarter Planet and the planet icon are trademarks of International Business Machines Corp., registered in many jurisdictions worldwide. Other product and service names might be trademarks of IBM or other companies. A current list of IBM trademarks is available on the Web at www.ibm.com/legal/copytrade.shtml. © International Business Machines Corporation 2010.

A smarter business is built on smarter software, systems and services.

Let’s build a smarter planet. ibm.com/questions

The Economist September 4th 2010

34 United States 2 to call on east-coast ports once the expand-

ed Panama Canal opens in 2014. The deepening threatens to send saltwater far upstream, into the Savannah National Wildlife Refuge, and to increase the size of the oxygen-free dead zone in deep water.

The Army Corps of Engineers has been studying the project since the mid-1990s, and though it is not expected to release its nal recommendation until this autumn, both the GPA and conservation groups expect the deepening to happen.

Far from gearing up for battle, however, the traditional antagonists of industry and conservation have so far been rather accommodating. That is partly due to the decade of bimonthly meetings while the Army Corps was studying the expansion.

Attacking an abstract opponent is easy; savaging someone with whom you’ve had

co ee regularly for a decade is much harder. It also helps that Curtis Foltz, GPA’s boss, has green inclinations of his own, having electri ed the port’s cranes and refrigerated-tanker racks and reduced diesel consumption by 2.1m gallons a year.

Yet green promises and hydrologic engineering models only tell what might happen, not what will. To that end the Georgia Conservancy, one of the state’s leading green groups, has appealed for extensive monitoring after the shipping channel has been deepened. Currently the Army Corps of Engineers plans to monitor for ve years; Will Berson, interim director of the Georgia Conservancy’s coastal of ce, believes that is not long enough. After all, says Mr Berson, We’ve been studying nuclear waste for 40 years and we still have no idea what to do with it. 7

Atlantic City

A struggling city by the sea atlantic city

New Jersey’s governor has a plan to help America’s playground

F

OR centuries Atlantic City has been a holiday spot. The Lenni-Lenape Indians spent their summer months there, though they called it Absegami . In 1850 Jonathan Pitney, a local doctor, saw the then undeveloped island as a city by the sea , a health resort where people could escape the dirty towns. Within a few years a train full of Atlantic City’s rst spa guests arrived. A century and a half later that city by the sea boasts 11 casinos and the famous Boardwalk; but its fortunes have declined of late. People think of it as unsafe and unclean. Its jobless rate, at 12%, is higher than the national rate of 9.5%. A reported 24% of its housing units are empty. The city’s poverty rate is slightly higher than it was in 1978, when the rst casino opened.

Gambling, long considered recessionresistant, was one of the rst industries to be a ected by the latest recession. It may also, according to Moody’s, a ratings agency, be one of the last to recover. On August 18th the Casino Control Commission announced that Atlantic City’s casinos had reported a 23% decline in operating pro ts during the second quarter of 2010. Net revenues were down by 7%.

Some casinos are really struggling. Caesar’s reported a 43% decline in gross operating pro ts in the second quarter. Days after Donald Trump resigned in February as chairman of Trump Entertainment Resorts, the company led for bankruptcy.

Atlantic City’s prospects have been further dimmed by growing competition from neighbouring states. Casino revenue

climbed by 21% in Pennsylvania, but fell by more than 13% in Atlantic City, according to the American Gaming Association.

Atlantic City is dying, says Chris Christie, New Jersey’s new governor. He thinks the resort, which generates $1 billion in state and local taxes, must become more family-friendly, a Las Vegas East .

Within weeks of his inauguration he created a commission to look at gaming as part of the economic-recovery plan for the state. It issued a report in July which proposed a Clean and Safe Tourism District with state oversight.

In theory this sounds good to Lorenzo Langford, Atlantic City’s mayor. If state police are patrolling the Boardwalk and casinos, he could assign city police to more blighted areas; but he is not sure what state oversight will mean in practice. More encouragingly, Mr Christie wants money to stay in the city. At present the Casino Reinvestment Development Authority, a state agency, distributes some of the gambling taxes to the rest of the state. If Mr Christie’s plan is approved by a cantankerous state legislature, this money would have to be reinvested in the resort.

This part of the plan is not sitting well with lawmakers from the northern part of the state, who will lose out. Others are upset at the prospect that the racing track in northern New Jersey’s Meadowlands Sports Complex may close, as the state is no longer willing to subsidise tracks that are in the red. Mr Christie is said to be considering opening another gambling venue at the Meadowlands, which appals casino owners and politicians from the southern part of the Garden State. Some think Atlantic City could not survive casinos opening so close to New York City.

Mr Langford, a former casino dealer and pit-boss, observes that the Atlantic City of today, although still struggling, is in better shape than it was. He points to investment in housing and brags about 11 years of falling crime rates. But the fortunes of his constituents depend on the casinos, where one in four residents is employed. There is some good news. Though gambling is down, the mayor is delighted that the numbers visiting the city have not fallen o very much. They’re coming to shows, to the Boardwalk, to the beach. He may be right. Bruce Springsteen, New Jersey’s favourite son, wrote a song about Atlantic City, which observed Everything dies but maybe everything that dies someday comes back. Here’s hoping. 7

Boardwalk going under

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The Economist September 4th 2010

38 United States

Lexington The charge of the Brat Pack A moderate force takes shape inside the Republican Party

T

HE Weekly Standard, the parish magazine of American conservatives, is not merely a wry observer of the political scene.

From time to time it plays a direct part in Republican politics. In 2007 a clutch of its senior editors, visiting Alaska for a luxury cruise and lecture tour, were entertained by Sarah Palin in her governor’s mansion. They came away mightily impressed. On returning to Washington Fred Barnes wrote a gushing article about her. Bill Kristol later started to push her name as a possible running mate for John McCain. You might say that the rest is history, except that Ms Palin’s history in politics is far from over.

Later that year the Standard indulged in another round of Republican talent-spotting when it ran a cover story about three promising Republicans in the House of Representatives whom it called the young guns . The three men thus attered Eric Cantor from Virginia, Paul Ryan from Wisconsin and Kevin McCarthy from California liked and adopted the moniker. They have since turned the Young Guns into a bigger, formal group, working with the National Republican Congressional Committee to pick talented congressional candidates.

The Young Guns is not, perhaps, a brilliant name for a political group. Whether it is a play on the Brat Pack’s Westerns or the song

by Wham!, it invites ridicule, and has received its share. Apart from anything else, these are men in their 40s, young only by the desiccated standards of politics. The book the trio has just written ( Young Guns: A New Generation of Conservative Leaders ) is accompanied by a promotional video that de es parody. And yet the book deserves scrutiny, because its authors’ views are going to matter a lot sooner than was once expected. When The Economist wrote about the Young Guns last summer, we wondered whether they could lead the Republicans out of the wilderness . Since then, however, after the briefest of sojourns in the wilderness, Republican fortunes have been transformed. The party would now be astonished if it did not re-enter the promised land after November’s mid-terms.

If the Republicans win the House, Mr Cantor, now chief whip, would be in line to become majority leader, or perhaps even speaker. Mr Ryan, the ranking member of the Budget Committee, has made himself the party’s indispensable theoretician since producing his Road Map for America’s Future , one of the most

serious Republican e orts to chart a way out of the country’s long-term scal crisis. Although Mr Cantor is considered the leader of the group and Mr Ryan the wonk, both are occasionally spoken of as future presidents (Mr McCarthy earns his place in the trinity by virtue of his command of electoral strategy).

So what does the book say? It is, sadly, thin on policy detail. A lot of it is taken up arguing that the rebound of Republican fortunes over the past year was not a uke brought about by the economy’s failure to recover but the result of hard political work.

Far from being the party of no , the Young Guns insist, Republicans have behaved since Barack Obama’s election as a constructive opposition, willing to co-operate with the new president but cruelly spurned. In January 2009 they o ered an alternative stimulus bill, but Mr Obama chose instead to sign the bloated grab bag of taxpayer-funded government gifts to special interests drafted without Republican input by the House’s Democratic leadership. Republicans o ered a Patients’ Choice Act and other commonsense health reforms, but the Democrats preferred to ram through their 2,700-page health monstrosity .

A second argument is that the Republicans have been forced to oppose the Democrats’ measures by the sheer ideological radicalism of Mr Obama’s aims. This president and his party, the Young Guns say, are trying not to cure a sickly economy but to follow a hard-core-left agenda and make America into a European-style welfare state. This exaggerated idea that the country’s essential nature is being deliberately undermined by a societytransforming administration has become a lazy caricature on the American right (and on the British left: Ed Miliband, competing to lead Britain’s Labour Party, was this week accusing his government of pushing Britain towards a more unequal, more brutish, more unjust American style of capitalism.) But at least the Young Guns focus on policy, without resorting to the im- am about God, ag and the constitution that wafted over the Washington Mall last weekend at what some called the Beckoning , a rally organised by Glenn Beck, a broadcaster and propagandist.

The bridge and the epiphany Less familiar and more refreshing is what the Young Guns have to say about their own party. They admit that the Republicans lost their way during the big-government conservatism of the Bush years. Mr Cantor says that he saw the error of the party’s ways when a Republican-controlled Congress wanted to build Alaska’s bridge to nowhere in 2005. But whereas the tea-party tendency of the party praises small government in theory without explaining what to do about the country’s budget-busting entitlements, the Young Guns show a commendable technocratic interest in policies that would in fact shrink the state.

By far the most ambitious of these is Mr Ryan’s road map, which would eventually eliminate the federal debt by cutting spending and, in e ect, privatising Medicare (government health care for the elderly). Not surprisingly, given the cries of horror that arose when it looked as if Mr Obama’s health reforms might reduce Medicare spending, Mr Ryan’s road map, rather like that bridge in Alaska, is for the moment not going anywhere either.

But the fact that he dared to draft it does show that at least one of the Young Guns is willing to think extremely audacious thoughts.

If the Republicans reclaim the House, these will be men to watch.

In the meantime, more policy detail would be welcome. 7 Economist.com/blogs/lexington

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The Americas

The Economist September 4th 2010 41

Energy in Brazil

Also in this section

Ethanol’s mid-life crisis

42 Mexico’s ruling party

Piracicaba, SÃO PAULO STATE

The sugar industry produces food, fuel and environmental bene ts. How fast it grows may depend on an argument about how it should be regulated

I

T IS what passes for a winter’s day in upstate São Paulo. The sun is blazing from a blue sky feathered lightly with cirrus cloud. In a large, sloping eld overlooking the city of Piracicaba, a mechanical harvester chomps through a stand of threemetre-high sugar cane, fat and juicy from months of sunshine. The harvester slices the cane into 20cm chunks and regurgitates them into a 30-tonne trailer moving alongside that will lug them a few kilometres to the Costa Pinto mill (pictured).

There the cane is weighed, washed, tipped onto a conveyor belt, crushed and then, depending on market conditions, crystallised into sugar or distilled into ethanol. The woody residue the bagaço is burned in two high-pressure boilers that, according to the ickering needle in the control room, are supplying around 50 megawatts (MW) of electricity to the local grid enough to power half of Piracicaba.

Sugar has been grown in Brazil for 500 years, and the country is by far the world’s biggest exporter of it. But sugar now also forms the nucleus of a new agro-industrial and renewable-energy complex. Biofuels, mainly derived from sugar, are Brazil’s most important source of energy after oil.

For a unit of energy, the production and

use of sugar-based ethanol generates only two- fths of the carbon emissions of petrol, and half those of corn-based ethanol, according to the United States Environmental Protection Agency. And bioplastics made from sugar cane are poised to move from the laboratory to the corner store, with the launch of soft-drink bottles.

Yet the industry is struggling to turn all these economic and environmental benets into reliable revenues. For that it largely blames the government and is duly arguing for a more favourable regulatory regime. But it should watch out. The government, in turn, accuses the industry of wanting to have the best of both the agricultural and energy worlds. It could yet make the industry’s life harder.

Since Brazil relaxed price and production controls on sugar cane two decades ago, its crop has increased by two and a half times. Nearly all the growth has come from large, mechanised farms in the southcentral region hundreds of miles away from the Amazon rainforest. Ethanol output has more than doubled since 2002, thanks to the development of ex-fuel engines for cars, capable of running on either petrol or ethanol indistinguishably. More than half the cars in Brazil now have ex-

fuel engines, and that gure should rise to 90% by 2017, according to Marcos Jank of UNICA, the sugar-industry association in São Paulo. In addition, Brazil’s government requires petrol to be sold in a blend of three or four parts to one of ethanol.

Given its environmental bene ts, sugar-based ethanol has the potential to be a global industry. That is why Royal Dutch Shell has set up a $12 billion joint venture with Cosan, Brazil’s biggest sugar and ethanol producer. The new venture, signed on August 25th, combines the two companies’ service stations in Brazil, totalling 4,500.

Shell is also contributing $1.6 billion in cash and its stakes in biofuel-research companies, while Cosan is putting in its 23 sugar mills, including Costa Pinto.

But whereas Brazil exports 70% of its sugar production, 75% of its ethanol output is still sold at home. That is mainly because the United States and Europe see ethanol as an agricultural commodity and protect their own producers (mainly of corn ethanol). Developing an internationally agreed mechanism to certify the environmental bene t would also help, says Mark Lyra, of Cosan. Nevertheless, Mr Jank thinks the world market for Brazilian ethanol will grow and that the sugar industry can tri- 1

42 The Americas

The Economist September 4th 2010

2 ple its electricity co-generation capacity to

15,000MW (around 27% of Brazil’s demand today) from its present acreage of cane.

Realising this potential requires big capital investments. Large-scale exports depend on new pipelines and a port. Three out of four sugar mills are not connected to the electricity grid. But many companies took on debt to expand just before the recession temporarily drove down prices in 2008-09. The result is a gentle wave of consolidation: 87 of the 438 mills in south-central Brazil changed hands last year, UNICA says. Even so, the top ve producers still account for barely a fth of total output.

Until a world ethanol market takes o , Brazil’s producers will stay uncomfortably dependent on domestic sales and on Petrobras, the national oil giant. The company is both their biggest customer (because it buys ethanol to mix with petrol) and their top competitor (because its petrol competes with all-ethanol biofuels). It is also the fourth-biggest ethanol producer itself.

The sugar people complain that, although the price of ethanol rises and falls with world sugar demand, petrol prices in Brazil do not adjust quickly to changes in the oil price. They also think that on environmental grounds ethanol should be lower-rated for value-added tax than diesel, as it is in São Paulo but not in other states. And they complain that regulation hampers their expansion. Ethanol and electricity co-generation could make up more of Brazil’s energy matrix, argues Mr Jank. But the long-term future of the ethanol industry depends on government policies, he says.

These complaints get short shrift in Brasília. O cials complain that when the world sugar price is high as it is today the mills divert cane away from producing ethanol. To ensure stable supplies, ethanol should be regulated as a fuel by the National Petroleum Agency, says Tereza Campelo, an o cial on the sta of President Luiz Inácio Lula da Silva. She accuses the industry of wanting to have all the advantages of being treated as an energy producer and none of the disadvantages.

Two things overhang this debate. The

Sweet success Brazil’s production, years ending March Sugar, m tonnes

Ethanol, m litres

35

35

30

30

25

25

20

20

15

15 2005

Source: UNICA

06

07

08

09

10

rst is new discoveries that have the potential to make Brazil a big oil exporter. The industry says they will make Petrobras even more powerful, and have caused Lula to forget his earlier enthusiasm for biofuels.

This last charge seems unfair: the government insists biofuels will retain their current share of Brazil’s energy matrix.

Second, if the opinion polls are right, Brazil’s presidential election in October is likely to be won by Dilma Rousse , Lula’s former chief of sta and energy minister.

She believes even more strongly than he in state planning and direction of the energy industry. The sugar people, by contrast, prefer to follow the market’s signals in deciding whether cane is crystallised or distilled. After all, they argue, it was only once the state relaxed its grip that a world-beating ethanol industry came into being. 7

Mexico’s ruling party

The new old guard mexico city

How ten years in power have changed the former opposition leaders

S

KULKING around Morelia after dark, a 17-year-old Agustín Torres would wait until midnight before sticking up posters for the National Action Party (PAN). Any earlier, and he risked being photographed by authorities monitoring subversives in the western city. I wanted to be against the system, so I joined the PAN, says Mr Torres, now 33 and a congressman.

These days, the PAN is part of the system. After 61years in opposition, it wrested the presidency from the hegemonic Institutional Revolutionary Party (PRI) in 2000 and held it in 2006. Its strengths re ect its legacy as the protagonist of Mexico’s transition to multi-party democracy. Unlike the big-tent pri, the conservative pan knows what it stands for. Whereas the PRI is driven by power, the PAN tends to be driven by ideology, says Luis Rubio, the head of CIDAC, a think-tank. And unlike the fractious Party of the Democratic Revolution (prd), its leftist counterpart, the pan runs a slick operation. It even boasts an international reach, winning 57% of the expatriate vote in 2006.

Yet its two presidents, Vicente Fox and then Felipe Calderón, are often seen as disappointments. Much of the fault for their failure to pass big reforms lies with Mexico’s gridlocked political system: with three big parties in Congress, forming majorities is hard, and the super-majorities needed to amend the constitution even harder. Moreover, the pri has always retained the majority of state governorships. But the pan cannot escape blame for a decade of limp

economic growth and rising concern over crime. It lost the midterm votes of 2003 and 2009 badly. It’s much simpler to be an opposition party than a governing party, says César Nava, the pan’s president.

The biggest di culty has been managing relations between party and government, which, Mr Nava says, each have their own temperament and their own ends . Mr Calderón has often been criticised for appointing mere pan loyalists to his cabinet. His inability to nd experts within the party’s ranks shows that it has not developed a governing class to match the old regime. The PRI had a lot of dinosaurs, as traditional machine politicians are called, but a very sophisticated elite, says Soledad Loaeza, a political scientist at the Colegio de México, a graduate school.

The party’s ideological consistency also risks calcifying. Mr Rubio speculates that the pan’s abundance of true believers may be hindering its intellectual development. Its social conservatism has limited its appeal in cosmopolitan Mexico City, where the mayor, the prd’s Marcelo Ebrard, has legalised gay adoption. Thanks in part to the in uence of a secretive Catholic society called El Yunque (The Anvil), the party has taken a hard line on abortion, which even rape victims nd hard to obtain in some PAN-run states.

The party leadership is becoming more exible. In July’s elections for state governors, it formed an alliance with the prd that Manlio Fabio Beltrones, the pri’s leader in the Senate, deemed against nature . Fernando Gómez Mont, Mr Calderón’s then-interior minister, left the pan in protest. Yet the alliance beat expectations and took three large states from the pri.

However, the pan has also begun to compromise its principles in less savoury ways: Mr Calderón was censured by the electoral authorities for giving a televised address 19 days before the vote.

The real test for the pan will come in 2012. In the most recent presidential election, the pri’s entrant was crippled by a bitter nomination ght. The party is bent on uniting around a candidate this time. The telegenic governor of the state of Mexico, Enrique Peña Nieto, is now the front-runner. If he falters, Mr Beltrones awaits.

Mr Calderón cannot run again, and the pan’s bench looks weak. The best hope for the party to keep the pri out of power might well be to back Mr Ebrard. His social liberalism would test PAN voters’ loyalty, causing party leaders to say such a deal is unlikely, though not impossible. Even if their opposition could be overcome, an alliance would sink Mr Calderón’s legislative agenda the pri, which controls the lower house of Congress, is already vowing to block it in protest at the state-level pan-prd pact. Yet after 61 years in opposition, the PAN will now contemplate anything to keep its old rivals at bay. 7

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storemags & fantamag - magazines for all The Economist September 4th 2010 43

Asia

Also in this section 44 Elections, again, in Afghanistan 45 China and North Korea 45 Football and Korean reuni cation 46 Vietnam’s economy 46 Nalanda university 48 Banyan: A oat on a Chinese tide

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

India’s disappointing government

Much less than promised delhi

The economy is powering on, but the Congress-led coalition is squandering an opportunity to improve India

T

HE weightlifting auditorium has a leaky roof. The athletes’ village has no kitchen. Stagnant monsoon water, abuzz with dengue-carrying mosquitoes, collects at most of the stadiums being hurriedly built for the Delhi Commonwealth games, which are due to begin on October 3rd. The security arrangements, in terrorism-stricken India, are shot to pieces because of 24hour processions of workmen at most venues. Manmohan Singh, the prime minister, reiterates the o cial line that these will be the best games ever . That may depend on how you de ne best .

This shambles, for which corruption, feuding ministries, sapping bureaucracy and shoddy workmanship are all to blame, does not matter to many Indians.

Athletics is not cricket. And few know much about their country’s image abroad.

Yet it is depressing, not least because it mirrors how large parts of India are run.

When Mr Singh’s government, a coalition dominated by the Congress party, came to power in May last year it was considered to be in a strong position to im-

prove matters. Congress had won a general election convincingly, letting it shake o a few of the troublesome partners, including Communist parties, who dogged its outgoing coalition administration. Its main opposition, the Hindu nationalist Bharatiya Janata Party, was de ated by electoral defeat. And Congress’s leaders, Mr Singh and Sonia Gandhi, the party chief, are highly regarded.

The government has at least managed the economy steadily. On August 31st it said that output had grown by 8.8% in the second quarter compared with the same quarter last year. This gure was made especially rosy by the relative gloom of a year earlier. Yet it puts India back in its wished-for realm of 9% growth, and it is based on strong growth in job-creating manufacturing, which increased by 12.4%.

But almost everywhere else the results are disappointing. The government has brought almost none of the economic reform India needs. And it has done no more in other pressing areas, like infrastructure and health care, than its predecessor. It

may even have jeopardised one of that government’s biggest achievements, a civil nuclear co-operation deal with America that was expected to lead to big investments in nuclear energy. On August 30th India’s upper house passed a nuclear-liability law that will make suppliers of nuclear fuels and related gear liable for 80 years in the event of any malfunction. That may well deter them.

Worse, the government’s poor management of several crises makes it seem incompetent. These include violent separatist protests in Kashmir, where an 11-year-old boy was killed by police on August 30th, becoming the 65th victim of the year, and a worsening Maoist insurgency in east India, which has cost almost 900 lives this year.

The easy response to this disappointment is to blame unrealistic expectations.

Despite hopes bandied about by businessmen, there never was much prospect of this leftist government bringing economic reform to India’s statist nancial sector or protected retail industry.

But even when the government has tried bits of reform it has often got stuck.

The biggest, an e ort to prune the country’s dreadful thicket of indirect taxes into a tidier form, an all-India Goods and Services Tax, has been pushed back by a year, to April 2012. Another, to scrap a petrol subsidy, announced in June to many loud public protests, has been followed by only one rise in petrol prices, which suggests they 1

44 Asia

The Economist September 4th 2010 Parliamentary polls in Afghanistan

2 are not yet free.

The government’s inability to make itself work better is a more basic failing richly evident in the games’ foul-up for which Congress, in charge of the Delhi state government, is especially guilty. To address a big weakness of the previous government, road-building, an able minister, Kamal Nath, was appointed. He promised to build an average of 20km a day, but this looks unlikely.

In education, another priority, early progress has slowed. The education minister, Kapil Sibal, has promised an array of improvements, including universal primary education, partly provided for through private schooling. This has been enshrined in law, yet its implementation is bogged down. State governments are against any change that the centre will not fund; and its negotiating skills are poor.

The man at the wheel A lack of strong leadership underlies that.

Mr Singh’s power is limited. From her central Delhi bungalow, at 10 Janpath, Mrs Gandhi controls the government. Ministers also pay more heed to the man expected to be the next prime minister, her 40year-old son Rahul, than to the current one. Yet on the rare occasions when Mr Singh has decided to put his shoulder to the wheel, it has moved. That explains why the America-India nuclear deal was passed by the previous government, despite much hostility to it.

Why Mr Singh, a formidable economist and liberal, has not tried to do more especially to calm the crises in Kashmir and the east is ba ing. But his reluctance to act more vigorously explains why he is rated less highly at home than abroad. According to Newsweek he is the world leader other leaders love . India Today, by contrast, found that 1% of Indians consider him their rst choice for prime minister.

Mr Gandhi, a late-developer, meanwhile shows little interest in the tough business of policy. He is devoted to rebuilding Congress, especially in populous north India; forthcoming state elections, in Bihar in October and West Bengal next year, will be important tests of his progress. This ambition also explains Mr Gandhi’s single recent policy statement.

After the government forbade a big mining company, Vedanta, to extract bauxite from a mountain in Orissa sacred to local tribes, he rushed to present himself to them, on August 26th, as their soldier in Delhi . Indeed they need one. And the tribal vote, about 8% of the total, would certainly be helpful to Congress.

But it would be more useful for India if Mr Gandhi could get a long-stalled land-acquisition bill through parliament. It would rede ne the terms under which the government can acquire land for industry, an urgent need, in a poor, crowded country. 7

Bloody democracy Kabul

Elections this month should not be quite as awful as last year’s presidential one

T

HE presidential poll in Afghanistan is still the stu of nightmares for the technicians, diplomats and o cials who had the misfortune to be involved in it. They shudder at the orgy of Taliban violence unleashed across the country on voting day, August 20th 2009, the most violent day in recent years. Voters stayed away from many polling stations, leaving corrupt supporters of the incumbent, Hamid Karzai, to stu ballot boxes with perhaps 1m votes.

And during the months of ballot auditing and recounts that followed, the business of government ground to a halt.

Relations between Afghanistan’s Western backers and Mr Karzai also sank to a wretched low after the West dared to point out the extraordinary level of electoral fraud. God, it was just terrible, says one shaken foreign election expert. It just can’t happen again.

Yet the return of such misery is precisely what many fear when Afghans go to the polls again, on September 18th, to elect 249 members of parliament. The Kabul analyst of the International Crisis Group, a thinktank, is among those giving warning that Afghanistan is once again about to go over the cli . Violence and intimidation are on the rise against candidates, three of whom have been killed. Late in August the bodies of ve election workers who had

A sign of progress

been volunteering for a female candidate in Herat were found, apparently shot by the Taliban. A record 406 female candidates are running, but many have been the targets of insurgents and unenlightened local power brokers.

A smooth electoral process is unlikely.

The electoral register is still hopelessly awed, with an estimated 5m of its 17m voters thought to be fraudulently listed or duplicates. Yet the poll is unlikely to be quite as bad as in 2009. Representatives of international election-monitoring groups say that some lessons have been learnt.

Importantly, the Independent Election Commission (IEC), an Afghan body, is much improved. Its chairman is generally seen as practical and independent, unlike the Karzai loyalist who oversaw last year’s asco. Sensible and simple innovations have been introduced, including sticking plastic sheets on completed result sheets in polling stations, to discourage tampering.

The IEC is also wise to the jiggery-pokery that was perpetrated last time by unscrupulous data-entry sta in the national tally centre in Kabul. That is just as well, given the decline of another body, the Electoral Complaints Commission (ECC), that just about saved the day last year when three non-Afghans on its ve-man board insisted on a fairly rigorous inquiry into mass fraud. A diplomat in Kabul observes that the IEC is stronger, but the ECC is weaker. Mr Karzai made no secret of his loathing for the meddling foreign commissioners and has cut their number to two.

In any case, fraud may be harder to detect as a result of a ludicrously crowded eld of over 2,550 candidates, which means relatively few votes will need to be stolen in each provincial battleground to a ect outcomes rather than the 1m false ballots of last time.

To make ballot-stu ng harder the IEC will not open 938 polling stations in areas that have been deemed too dangerous. If it discourages fraud, that is a welcome move (the idea was bitterly opposed last year by Mr Karzai), though it will make life harder for would-be voters in the largely Pushtun south, where violence is worst. Meanwhile more polling stations are being opened in the north, which will make it easier in many places for non-Pushtuns to vote. As a result, the election may be cleaner than last year’s poll but in the eyes of an important ethnic group, it is unlikely to be seen as any more legitimate. 7

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Asia 45

China and North Korea

Greetings, comrades Beijing

What lies behind the Dear Leader’s latest trip to China?

N

ORTH KOREA’S leader, Kim Jong Il, must have been on an urgent mission when he boarded his bulletproof train and headed to China for the second time in less than four months on August 26th. With America’s former president Jimmy Carter in town, devastating oods in the north and a rare conclave of his ruling party only days away, Mr Kim had much to keep him at home. But buttering up China appears to be a new priority.

Both China and North Korea, as is their wont, kept quiet about the visit until after Mr Kim’s return on August 30th. By then Mr Carter had left with an American, Aijalon Gomes, who had been serving eight years’ hard labour for entering the country illegally in January. Mr Gomes’s release was a rare gesture of conciliation to America after months of heightened tension caused by the sinking in March of a South Korean naval vessel.

America responded, however, by giving details of sanctions on several North Korean individuals and entities suspected

Did you miss me? of illicit activities , such as dealing in weapons or drugs, or procuring luxury goods for Mr Kim or others. The decision to impose them had been announced in July.

China has complained loudly about America’s recent muscle- exing, particularly its joint military exercises with South Korea. These are due to resume on September 5th with drills in the Yellow Sea, which China regards as uncomfortably close to its own shore. China began its own naval exercises in the Yellow Sea on September 1st.

The o cial news agency, Xinhua, called them routine , but a decision to draw at-

Football and Korean reuni cation

Dreaming of 2022 Seoul

The South waves sticks and dangles footballs at the North

S

OUTH KOREANS are unsure precisely how best to respond to the uncertain changes in the regime to the North. A hardline approach to its neighbour has been the o cial stance ever since the Cheonan, a Southern military corvette, was torpedoed in March. Sanctions, a diplomatic freeze and military exercises with the Americans all suggest that the authorities in Seoul are in no mood to back down.

Yet this week, the South Korean Red Cross said that it would send emergency aid, mostly food and medicine, worth $8.4m to help the North cope with oods.

This would be the rst aid to ow north since May, but the South’s government insists it is merely a temporary humanitarian measure.

It is still harder to know what to make of a more eccentric o er of a sporting olive branch. An ex-foreign minister and diplomat in the South has proposed that the two Koreas should collaborate in a bid to host the football World Cup. Han

Sung-joo, who chairs a committee seeking the return of the event to South Korea in 2022, wants the North to host some matches. He denies an o cial joint approach is in the works, but suggests that four games could be played north of the 38th parallel, perhaps in Pyongyang’s cavernous May Day stadium. The North has yet to say if it is keen.

In fact there is little, if any, prospect of South Korea winning a bid for the cup so soon after its joint hosting, with Japan, of the 2002 event. Yet Mr Han insists that Sepp Blatter, the president of FIFA, the world football body, was very responsive to the idea of involving the North.

Jeong Tae-se, the North’s star striker, has also said it would be beyond our wildest dreams to see a World Cup match played in North Korea. But that was in May, before his team su ered an inglorious exit from the 2010 cup. Perhaps a similar humiliation for the North Korean team in Pyongyang would suit South Korea’s hawkish strategy after all.

tention to them could be intended to show resolve in the face of the American and South Korean manoeuvres. The results of an international investigation into the sinking of the South Korean ship, which blamed it on North Korea, were released after Mr Kim’s last trip (his rst foray abroad in four years). China has refused to accept the ndings. By rolling out the red carpet again, it showed it has no plans to reconsider.

Less clear is why Mr Kim wanted to go back so soon. Much speculation has suggested that it could be related to the forthcoming party conclave, the rst on such a scale since 1980. North Korea says it will be held early in September. One popular theory is that Mr Kim wants the gathering to endorse the appointment of his son, Kim Jong Un, to a senior party post. The idea would be to groom him to succeed his father, whose health has not been robust.

The younger Mr Kim is in his late twenties and is believed to be jobless. Rumours of his rise as heir apparent have long been circulating, and it is plausible that his father would want to inform China if con rmation of this is imminent.

No mention was made of Kim Jong Un or the succession issue in o cial Chinese and North Korean reports. It is not even known if he went on the trip. But Kim Jong Il did spend some time inspecting sites related to the revolutionary days in China of his own late father, Kim Il Sung. Mr Kim spoke of the need to hand over to the rising generation the baton of the traditional friendship between the two countries.

China’s president, Hu Jintao (pictured with the Dear Leader), wished the party meeting in Pyongyang a signal success .

The Chinese media played up Mr Kim’s reported agreement with his hosts on the need for an early resumption of multinational talks on North Korea’s nuclear programme. Prospects for this remain dim, but some analysts believe that North Korea might try to get negotiations restarted as a 1

The Economist September 4th 2010

46 Asia 2 way of relieving economic pressure. For

the moment, China is North Korea’s lifeline. Diplomats say trade between the two countries has picked up in recent months.

In return for food, North Korea has given China a new lease on harbour facilities in the north-eastern port of Rajin.

The prospect of a power transfer in Pyongyang worries China. Global Times, an English-language newspaper in Beijing, accused America and South Korea of wanting to create turmoil in North Korea and said a smooth transition there was vital for stability in north-east Asia. Victor Cha of the Centre for Strategic and International Studies, a Washington think-tank, says that Mr Kim’s mysterious visit at least made it clear that China would stick with its ally to the bitter end . 7

Vietnam’s economy

Plus one country Hanoi

Cheap labour will not yield gains for ever. But what comes next is unclear

O

N THE edge of Hanoi brick-walled factories lie abandoned, weeds sprouting in their ruins. Surprisingly, this is a sign of progress. The land is slated for new housing; the state-owned textile rm that operated there is moving to an industrial park, where it can better meet booming demand for Vietnamese garments. Exports of textiles and garments rose by 17% in the rst seven months this year, to $5.8 billion, suggesting that investors still favour Vietnam as a base for cheap manufacturing.

Its advantages have been ampli ed by recent labour unrest and rising costs in southern China’s factories. In Hanoi there is renewed talk of China Plus One as a strategy for multinationals keen to spread their bets. Vietnam could gain handsomely, thanks to its labour which is cheaper than China’s and its neighbours’ (see

Spot the opportunity Average monthly wage, $ Malaysia China

Thailand Indonesia

Philippines Vietnam 600 500 400 300 200 100 0

1990

95

2000

Source: Economist Intelligence Unit

05

09

chart). Even after a pay rise, the monthly wage for a textile worker starts at $84, says Nguyen Tung Van, head of the Communist Party-run textile workers’ union, from his o ce in the abandoned compound. The industry employs around 1.7m people.

Makers of footwear, furniture and more also gain from supplies of cheap labour.

Vietnam has prospered as a result. GDP per head was below $100 in 1990 but is now well over $1,000, says the World Bank. But with workers getting richer, more will need to move into higher-skilled work, becoming better educated and using capital and technology more e ciently.

Even that is not enough. Vietnam’s creaky infrastructure (power cuts are still common, even in the capital) and ine cient bureaucrats make it hard for exporters to compete. A wish to develop poorer provinces has led to some questionable choices: Vietnam’s only oil re nery, for example, is in central Quang Ngai, far from either oil wells or industrial cities.

The government, too, needs to give up on short-term xes. The currency, the dong, has been devalued three times since November 2009. Fiscal weakness and policy ip- ops led Fitch, a credit-rating agency, to cut Vietnam’s sovereign rating in July. Foreign reserves have been run down.

Many Vietnamese opt to hoard dollars, not bank them. In ation, at 8.2%, is a worry.

More could be done to develop a domestic market, too, in a population of 86m.

One problem is dominant state-owned enterprises. Some competition has appeared in sectors like banking, but too often big, state rms are morphing into conglomerates, helped by cheap credit and political ties. Party leaders speak warmly of South Korea’s chaebol, but Vietnam’s versions are unlikely to develop a competitive edge.

Note, for example, Vinashin, a deeply indebted shipbuilding company, where the powerful ex-boss, who had been appointed by the prime minister, was arrested in August for mismanagement. The sensible decision may be to close or sell such a company. O cials, however, seem to have decided that it is too big to fail. 7

Nalanda university

Ivory pagodas An ancient pan-Asian university might yet open again

N

ALANDA is an unlovely place in the poorest state in India. Yet, as in much of Bihar, a prosaic present belies a poetic past. It is the site of one of the rst great universities which, half a millennium before the founding of Oxford, ourished with some 10,000 students and monks from all over Asia. Mango groves and lotus pools circled its halls, and an 8th-century inscription touted its row of pagodas the spires of which touched the clouds.

If some scholars and diplomats have their way, a new generation of students will be enrolled. A bill has just snaked through India’s parliament calling for Nalanda’s revival, at a likely cost of several hundred million dollars. The Nalanda Mentor Group, led by Amartya Sen, an economics Nobel laureate, has overseen the project since it was rst proposed in 2006. The Bihar state government has agreed to provide 500 acres for a new campus and India’s Planning Commission has pro ered 1 billion rupees (some $21m) to get the project started. A chancellor has also been appointed.

Nalanda could be a showpiece of regional diplomatic engagement: a declaration in support of it was signed at a 2009 summit in Thailand by 16 countries, of which Japan and Singapore have shown most interest. Even China has o ered to help, says Mr Sen, who notes a Chinese former foreign minister is part of the project. George Yeo, Singapore’s foreign minister who is also on the Mentor Group, says Nalanda matters to the whole region, not least because a translation of the Lotus Sutra, a religious text, by one of its monks is the basis for Mahayana Buddhism practised in East Asia.

Whatever the university comes to symbolise, it must rst be built. There is no commitment to funds even now, admits Mr Sen, but fund-raising is beginning. Setting up universities by intergovernmental agreement is also an unproven model, but Mr Sen points to a new one in Delhi founded by the South Asian Association for Regional Cooperation, as a possible guide. The Nalanda project enjoys the support of Manmohan Singh, India’s prime minister, which should give it a push in one of India’s most dysfunctional states. And the project’s appeal is clear: Nalanda o ers both a glimpse of a glorious past and a chance of a bit of neighbourly collaboration.

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48 Asia

The Economist September 4th 2010

Banyan A oat on a Chinese tide China’s economic rise has brought the rest of emerging Asia huge bene ts. But the region still needs the West

W

ITH markets still on edge after the worst nancial crisis in decades, and fears of renewed recession stalking the West, this week seemed a poignant moment for China’s People’s Daily to detect a golden age of development , for Asia at least. Yet developing Asia, led by China itself, is booming. China’s GDP barrelled along in the rst half of the year, growing by 11.1% compared with a year earlier. The newly industrialised little tigers Hong Kong, Singapore, South Korea and Taiwan as well as most of South-East Asia seem to have fully recovered from the downturn. Even Thailand, mired in political turmoil, grew by 9.1% in the second quarter.

The dream is that this gilded future is now insulated from richworld downturns: that China now having, after all, o cially overtaken Japan as the world’s second-largest economy can drive growth for the whole region. One day, maybe. Not yet.

That the idea has currency at all re ects a remarkable transformation in itself. During the East Asian nancial crash of the late 1990s, many in the region blamed China as a proximate cause of the debacle. Its emergence as a big competitor, the argument went, stalled the rapid export growth on which countries such as Thailand had come to depend, poking large holes in their current accounts, and precipitated the collapse of con dence.

Since then, and especially since the surge that followed its accession to the WTO in 2001, China’s economic clout has grown as fast or faster in its own region as anywhere. And with East Asia, unlike with Europe and America, China tends to run trade de cits. It is now the biggest trading partner for both Australia and India. It is the biggest export market for Japan, South Korea and Taiwan; the second-biggest for Malaysia and Thailand; the third-biggest for Indonesia and the Philippines, and so on.

Everyone is waking up to the potential of the Chinese market.

Indian poultry farmers have learned that once-discarded chicken’s feet can actually be sold. Hoteliers in Bali grapple with nightclasses in Mandarin.

Still, few are yet con dent in the golden age . People’s Daily used the term in reporting the views of many taking part in the Sixth Beijing-Tokyo Forum in Tokyo. It seems unlikely the many included the Japanese contingent. The economic news at home was worrying though it would have been grimmer still

were it not for the healthy growth in recent years in exports to China. In this context, the report read rather like a young sports champion consoling the veteran whom he has just bested.

Even in much of young, vigorous developing Asia the boom seems too precarious for triumphalism. One reason for this is statistical. Growth gures in parts of Asia have been so spectacularly good partly because they were so spectacularly bad in the rst half of 2009. Singapore’s extraordinary rst-half GDP growth of 17.9% looks slightly less otherworldly against last year’s rst-half contraction of 5.3%. In the depth of the crisis, as trade for a while seized up, the region, as one of the most trade-dependent in the world, saw growth plummet.

That trade dependence is another reason for sobriety. Outside of China and India (which this week reported 8.8% second-quarter growth compared with a year earlier), developing Asia remains heavily dependent on external demand. And despite the heady growth of sales to China, the most important sources of demand remain the G3 of America, Europe and Japan.

Asian exports to China fall broadly into three categories. Industrialised countries, notably Japan and South Korea, have found a big market for capital goods. Countries such as Australia and Indonesia have fed China’s growing appetite for commodities and raw materials such as coal, iron ore and palm oil. But many Asian exporters have been selling components, as part of globalised supply chains in which made in China often means assembled in China from bits produced all over the place .

It is hard to work out from published trade gures where components imported to China from, say, Malaysia, end up. But Malaysian o cials believe that some 60% of their exports to China are destined for the G3. (By contrast, less than 30% of Indonesia’s exports to China are re-exported.) A recent study of such global production sharing in East Asia by the Asian Development Bank (ADB) concluded that it has played a pivotal role in the region’s dynamism and growing interdependence. But it has not lessened the region’s dependence on the global economy.

Other studies have also found that China has already had quite a big positive impact on growth in other countries in the region. Besides providing an export market, it is a source of tourists, investment opportunities and demand for services. And, less measurably, it is a source of economic optimism: a boost to consumer and business sentiment.

Not quite the rising tide that lifts all boats Its economy, however, for all its three-decades-long boom, still only accounts for 8% of global GDP in current dollars; domestic private consumption, though growing fast, remains a small part of national GDP by global standards (36%). This will grow as China reforms its economy to give a bigger share to household income, for example by lifting wages for China’s factory workers.

On August 29th Wen Jiabao, China’s prime minister, must have enjoyed lecturing Japanese visitors on the need to tackle the problem of relatively low wages at Japanese factories in China.

This rebalancing , though, could take decades. In the short term the high-speed growth much of the rest of the region has enjoyed will moderate. Growth will not be measured against the worst of the slump; and faltering recovery in the G3 will dent exports, however well China does. The golden age is not here yet. 7 References to various sources are available online: Economist.com/blogs/banyan

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50

The Economist September 4th 2010

Middle East and Africa

Also in this section 51 The abuse of maids in the Middle East 51 Rwandan crimes in Congo 52 Strikes and politics in South Africa

For daily analysis and debate on the Middle East and Africa, visit Economist.com/middleeast Economist.com/africa

Middle East peace talks

Back to the table Washington, DC

Israel’s prime minister sounds upbeat, even if no one else does

Y

ET another bout of Israeli-Palestinian peace negotiations was launched this week amid a splurge of pious public talk tempered by sceptical punditry. Not much new in that, it seems, though it is almost two years since the previous direct talks took place (and ran aground).

Nothing new, either, in two ghastly shootings on the West Bank in the days before the talks. The rst left four Israeli civilians dead, two of them the parents of six children and another a pregnant woman.

Hamas proudly took the credit as a means of exposing, it said, the collusion between the Palestinian Authority and the occupying forces of Israel. The following day two more Israelis were wounded.

What may be new, though, is Binyamin Netanyahu. The butt, deservedly, of much of the scepticism, the Israeli prime minister may be swinging around from spoiler to genuine, if hesitant, peacemaker. If he is, prospects for success, even partial, will much improve. At a dinner at the White House on the eve of the talks, Mr Netanyahu said that he sought a peace that would end the con ict with the Palestinians once and for all.

Mr Netanyahu began negotiating with the Palestinian president, Mahmoud Abbas, coddled and prodded by President Barack Obama and with President Hosni Mubarak of Egypt, King Abdullah of Jordan and Tony Blair for the Quartet all there to urge them on. Back in Tel Aviv, his defence minister, Ehud Barak, laid out

terms for a nal agreement. Jerusalem, said Mr Barak, should be divided, with the Jewish areas under Israel including 12 new sections built on the Palestinian side since 1967 the Palestinian areas under the new state of Palestine, and the ancient Old City and its environs under a special regime with agreed arrangements . On the West Bank, Mr Barak says, the spread-eagled settlements would be dismantled and only the large settlement blocks near the old border retained. There would be stringent security arrangements and questions over the fate of Palestine refugees would be solved within the state of Palestine or by resettlement outside.

This amounts to the old Clinton Parameters which Mr Barak, then prime minister, accepted, but the then Palestinian leader, Yasser Arafat, rejected ten years ago in talks chaired by the then American president. These terms, give or take, are accepted by most foreign countries.

But they are hardly the vision of Mr Netanyahu’s Likud Party loyalists or of the other rightist and religious parties allied to the Likud in the present coalition. And they are certainly not the vision of the settlers and their political sympathisers, who stand outside the government but still look to Mr Netanyahu to ght for the Land of Israel and for an all-Jewish Jerusalem.

Is Mr Barak saying what Mr Netanyahu cannot yet say but is, however reluctantly, preparing to say if the negotiations go well? Mr Netanyahu’s people distanced

him from Mr Barak’s remarks, yet it was Mr Barak whom he pointedly sent to Amman last week for talks with Mr Abbas and King Abdullah. Mr Barak, the leader of the Labor Party, in e ect acts as foreign minister for the peace talks while the man who holds the title, Avigdor Lieberman, has threatened to quit the government if the prime minister gives too much ground.

In that case, says Mr Barak, the government can be widened , meaning that the opposition Kadima Party can be brought in. Peace is more important than the composition of the government.

Mr Barak, it may be argued, has no political choice. But Mr Netanyahu has. Yet, both in Washington and in the days leading up to the high-pro le conclave, he was at pains to project a positive approach to the new negotiations. In a speech to Likud followers on August 29th he chose to recall the courage of Anwar Sadat and Menachem Begin , the Egyptian president and Israeli Likud leader who negotiated the rst Israeli-Arab peace treaty back in 1979.

What does Mr Abbas need to do to emulate Sadat so that he, Mr Netanyahu, can respond like Begin, who ceded the whole of occupied Sinai to Egypt? Mr Abbas needs above all to keep on talking , Mr Netanyahu explains, despite any disputes or di erences that are bound to arise as the negotiations proceed.

The rst such dispute has already arisen: Mr Netanyahu’s ten-month moratorium on settlement building ends on September 26th. Mr Abbas says he’ll walk out of the talks if building resumes. Mr Netanyahu, in e ect, is urging that the two sides talk on while Mr Barak quietly ensures that no building takes place outside the areas Jerusalem and the blocks that are anyway expected to end up under Israel.

Don’t let’s look for pretexts to stop talking, the newly gung-ho Mr Netanyahu, past master of pretexts, ardently urged. 7

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storemags & fantamag - magazines for all The Economist September 4th 2010

Middle East and Africa 51

Maids in the Middle East

Little better than slavery Domestic workers in the Middle East have a horrible time

A

S a maid working in Saudi Arabia, Lahanda Purage Ariyawathie suffered at the hands of her Saudi employer and his wife, who skewered her body with at least 24 nails and needles (pictured). Her case was unusually brutal, but the abuse of domestic workers in the Middle East is all too common.

Huge numbers of migrant domestic workers, mostly from Asia and Africa, are employed throughout the region. Some 1.5m work in Saudi Arabia, 660,000 in Kuwait and 200,000 in Lebanon. Many work very long hours and receive little food, no time o and pay that is a fraction of any minimum wage, if it materialises

A stful of nails Rwanda’s meddling in Congo

Revisiting the killing elds nairobi

A leaked UN report looks very bad for Rwanda’s government

I

N 1996 Rwandan troops descended on the Chimanga refugee camp in east Congo, to which their compatriots had ed to avoid genocide at home. The soldiers gathered the refugees together with promises of meat to fortify themselves for a promised return to Rwanda. At a given moment, says the draft of a new report from the United Nations, a whistle sounded and the soldiers positioned all around the camp opened re on the refugees. Accord-

at all. Human Rights Watch (HRW), a New York-based group, says at least one domestic worker died every week in Lebanon between January 2007 and August 2008. Almost half were suicides and many were as a result of falling from high buildings, often while trying to escape their employers. Mistreatment is so widespread that the Philippines, Ethiopia and Nepal no longer let their citizens go to Lebanon to work as maids, though such bans have had little e ect.

Most maids get their jobs through sponsorship systems, so their immigration status is tied to their employer. Employers can repatriate them at will, prevent them from changing jobs and, in Saudi Arabia and Kuwait, stop them from leaving the country.

In much of the Middle East domestic workers are also excluded from legal employment protection. There has been talk of reform, but little has come of it. In a lonely example Jordan extended its labour laws in 2008 to cover domestic workers.

In June the Lebanese ministry of labour set up a hotline for workers’ complaints. HRW has been monitoring the hotline which, it notes, has not been advertised to migrant domestic workers, is open only between 8am and 1pm, and has no translators. In the rst month it did not receive a single call from a domestic worker. NGOs and religious organisations have done better. They have set up text-message numbers so that maids trapped at home can report abuses and get free legal advice. ing to di erent sources, between 500 and 800 refugees were killed in this way.

In the 16 years since his rebel forces halted the Rwandan genocide, the country’s president, Paul Kagame, has earned a reputation for steering his country rmly towards stability, economic growth and a measure of reconciliation. Lately, that reputation has come under attack. Before a landslide election victory in August Mr Kagame found himself under heavy re for the mysterious murders, oppression and censorship that marred the run-up to the polls. Grim-faced and impatient of critics, Mr Kagame weathered the storm.

The draft UN report, leaked last week, will be harder to brush o . It suggests Mr Kagame’s mostly Tutsi army attempted a counter-genocide in the mid-1990s in parts of Rwanda’s vast and unruly neighbour, Congo.

Mr Kagame’s rebel army swept through Rwanda from Uganda in 1994 to halt the genocide in which Hutu death squads slaughtered around 800,000 Tutsis and moderate Hutus. The perpetrators of the genocide a mixture of politicians, priests, and militias ed to Congo where they hid among more than 1m genuine Hutu refugees. When the génocidaires regrouped to continue their ght Mr Kagame ordered an invasion of eastern Congo in 1996. This triggered a war that drew in six more countries (Burundi, Uganda, Angola, Zimbabwe, Namibia and the Central African Republic) and led to the deaths of about 4m people, mostly from disease and ill-health.

A team from the UN’s O ce for the High Commissioner on Human Rights, charged with documenting the most serious violations of human rights and international law during the con ict, catalogued 617 incidents that occurred between 1993 and 2003. The result is a detailed inventory of horrors. People are chopped up, shot and burned to death.

Over the 500 pages or so of the report none of the countries implicated in the violence comes o well. But 104 out of 617 incidents involved the murder, often on a large scale, of Hutu refugees by Mr Kagame’s forces and allies. The report’s authors say that some of the incidents, if proven in a court of law, could be classi ed as crimes of genocide. Rwanda’s army made no effort to distinguish between civilians and combatants, instead killing probably several tens of thousands in the relentless pursuit of Hutus, according to the report.

This detailed reporting of alleged Rwandan crimes seems to back up what human-rights activists have been arguing for years: that Mr Kagame’s commanders should be held to account just as the Hutu perpetrators of the 1994 genocide were. Indeed, the report’s ndings claw at the heart of Mr Kagame’s moral authority. Mr Kagame’s reputation is based on being the man who ended the genocide and now 1

The Economist September 4th 2010

52 Middle East and Africa 2 he’s accused of perpetrating one, says Ja-

son Stearns, a Congo expert.

Rwanda has always denied committing atrocities in Congo and the government angrily dismissed the leaked report as immoral and unacceptable . Rwanda’s foreign minister threatened to withdraw the country’s peacekeepers from the war-torn Sudanese region of Darfur if the report were to be published in its current form. Insiders say the draft was leaked precisely to prevent any such sanitising edits.

It will make uncomfortable reading for Mr Kagame’s backers too, such as America

and Britain, but little will change. Despite his ruthlessness Mr Kagame is regarded as a steadying hand in a chaotic region.

Sadly the report will change little in Congo either. The aim of cataloguing these atrocities was to help end impunity and to win justice for the countless victims of Congo’s overlapping wars. But the Congolese government has already rejected recommendations for a truth commission and an international tribunal. Instead, the government says, any crimes will be tried through the domestic justice system which is staggeringly inept and corrupt. 7

South African politics

With friends like these

President Jacob Zuma is badly bruised by weeks of crippling strikes

T

HE public-sector strikes that have paralysed hospitals, schools and other essential services across the country since August 18th have damaged South Africa’s image abroad. They have also undermined relations between the ruling African National Congress (ANC) and the Congress of South African Trade Unions (Cosatu), part of the ruling tripartite alliance, together with the communists. On September 1st Cosatu rejected the latest pay o er from the government, so as The Economist went to press the strikes seemed destined to continue, and even intensify. President Jacob Zuma, who ordered both sides back to the negotiating table on August 30th in a lastditch attempt to end the strike, has emerged weakened from the fray.

Cosatu, with a membership of 2m, has been feeling increasingly aggrieved since Mr Zuma took over as president 16 months ago. Having helped elevate him to power, the country’s biggest union federation thought that he was their man. Cosatu had expected to play an important role in the new administration. Instead, it has repeatedly found its policies ignored. In June relations reached near breaking-point when the ANC threatened to bring disciplinary proceedings against Cosatu’s leader, Zwelinzima Vavi, for having accused the government of failing to take action against corrupt ministers.

Carrying on the ght against corruption in public life is one of Mr Vavi’s passions.

Having already discerned a tendency within the ANC that is hellbent on their agenda of self-enrichment and crass materialism , he returned to the charge last week, claiming that the whole country was rapidly turning into a full-blown predator state, in which a powerful, corrupt and demagogic elite of political hye-

nas increasingly controls the state as a vehicle for accumulation.

Rows between the ANC, Cosatu and the communists are nothing new. But the rhetoric has become nastier and more personal of late. A meeting of alliance leaders, to try to sort things out, was due to have been convened immediately after the football World Cup in early July, but still has not taken place.

Mr Vavi says that the alliance is now paralysed. Some analysts believe it may break up. But its demise has often been predicted in the past without ever coming to pass. Much of Cosatu’s power is based on its close relations with the ANC. Its honeymoon with Mr Zuma may be over, but it has no credible alternative left-wing candidate to promote in his place as president.

Another of Mr Zuma’s kingmakers, the powerful ANC Youth League, also appears to have fallen out of love with its former idol. It has been incensed by Mr Zuma’s decision to call its leader, Julius Malema, to book, following a series of particularly outrageous statements by the young rebrand. At an ANC disciplinary hearing in May, Mr Malema was ned 10,000 rand ($1,300) and ordered to attend an angermanagement course, for sowing disunity within the ANC. The League has demanded the whole proceedings be annulled, while hinting that it may not support the 68-year-old Mr Zuma for a second term.

It is time for a new generation to take over, Mr Malema suggested in an interview last week. The older people don’t know what the current issues are or how to deal with them. Once older people decide to continue with the old way of doing things, they’re going to become irrelevant.

Mr Malema, meanwhile, advocates what he would doubtless regard as more relevant policies, such as the nationalisation of the country’s mines and the expropriation of white-owned farms at a price to be determined by the government. Land reform has been progressing too slowly, Mr Malema says. It is time to abolish the willing buyer, willing seller principle.

It is not only the alliance that is in turmoil. Both the ANC and its Youth League are struggling with their own internal divisions and in- ghting. How much of all this hu ng and pu ng is part of the normal jostling for position ahead of the ANC’s National General Council later this month, in its turn a preparation for the party’s veyearly national conference, when a new leadership will be elected, is di cult to tell.

But it is not making the government or the party look good in the run up to next year’s local-government elections. 7

Bringing the country to a standstill

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Rewiring the nervous system

Bottom-up ways to deliver energy

The sceptical cyber-guru

TechnologyQuarterly September 4th 2010

Hot rocks and high hopes The promise and pitfalls of geothermal power

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Monitor

The Economist Technology Quarterly September 4th 2010

3

Contents

On the cover Geothermal power stations harness underground heat to generate electricity in volcanically active places such as Iceland. A new approach uses drilling to allow geothermal power to be tapped almost anywhere, greatly expanding its potential as an energy source.

But it has several obstacles to overcome including its tendency to cause small earthquakes: page 18 Monitor 3 Better photo t images, remote medical monitoring, a new kind of jet engine, acoustic bres, monitoring drivers’ behaviour, hacks to cut printing costs, improved speech recognition, using magnetism to measure food quality, cracking quantum cryptography and crowdfunding creative projects Mining social networks 16 Untangling the social web What your network of friends can reveal about you Inside story 18 Hot rocks and high hopes The promise and pitfalls of geothermal power Bionic limbs 21 Rewiring the nervous system A new technique makes arti cial limbs easier to control Energy in the developing world 23 Power to the people How bottom-up models can address the energy gap Brain scan 25 The virtual curmudgeon A pro le of Jaron Lanier, a sceptical cyber-guru

Memory upgrade

Software: A novel approach to generating images of suspects uses a range of tricks to achieve a dramatic improvement in accuracy

T

HE human brain is hard-wired to recognise faces. Babies learn to identify their parents’ faces within hours of being born, and even in old age people can remember what their childhood friends looked like. But remembering faces is not the same as being able to describe them.

This is particularly apparent when witnesses are asked by the police to create a composite picture of a suspect. Even when the result is thought to be a good likeness by the witness, that does not mean that other people will also be able to recognise the face and thus identify the suspect.

Indeed, even when working from a fresh memory, the composite pictures people produce are, on average, recognisable to others only 20% of the time. And this percentage dwindles further if the witness is working from a memory more than a few days old. The problem is that face recognition is a holistic process: people are good at recognising faces as a whole, but struggle to identify or describe individual facial features, such as a person’s eyes, nose or mouth.

But police forces in Britain and other countries are using a new technology that solves this problem by changing the task from one of recall into one of recognition.

Charlie Frowd at the University of Central Lancashire, in Preston, and Peter Hancock at the University of Stirling, in Scotland,

have spent more than a decade re ning their new approach, but it now appears to be paying dividends.

Instead of asking witnesses to select facial features their system, called EvoFIT, initially presents them with a grid of 18 randomly generated faces that match the race, gender and general shape of the suspect. From these the witness is asked to select the two that most resemble the suspect, however vaguely. The software then takes these two selections and breeds them, treating the facial features of their selections like genes, mixing them together and making random changes, to produce 18 new o spring which are displayed in a new grid. As this process is repeated, with the witness again choosing the closest two matches, the faces generated quickly converge on one that bears a resemblance to that of the suspect.

But just how recognisable are such faces to others? To nd out, Dr Frowd recruited subjects who were shown a photograph of an unfamiliar face, which happened to be that of a football player.

Two days later the subjects used both EvoFIT and a traditional composite system commonly used by the police, called PRO- t, to recreate this face from memory.

The resulting pictures were then shown to fans of the footballer’s team to see if they could identify him. The EvoFIT compos- 1

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2 ites were recognised by 11% of the subjects,

against 5% for the PRO- t composite.

Drs Frowd and Hancock realised that if the results were to be improved further their evolutionary approach was not enough on its own. What was needed was a dash of psychology. Research suggests there are fundamental di erences in the way people perceive familiar and unfamiliar faces, says Dr Frowd. With familiar faces it is the internal features of the face regions that include the eyes, nose, eyebrows and mouth that matter most. With unfamiliar faces, by contrast, the external features the hair, ears, face shape and neck play a more important role.

To account for this EvoFIT was adapted to blur out any distracting external features when witnesses choose from the grid, and restore them once their selections have been made. And, to re ne the nal image and account for people’s general inability to gauge age accurately, the resulting image can be tuned to make the face appear older or younger, plumper or thinner, more or less attractive, or even more or less trustworthy. (This is done by altering the size and shape of facial features in accordance with research indicating the traits that are generally regarded as attractive, trustworthy and so forth.)

To boost the performance of the program further, the researchers also decided to address the way in which the composite images are presented. Typical mugshots tend to look similar to each other. Rather than seeing the unique features of the face, people tend to focus on similarities with other mugshots they might have seen. So EvoFIT was designed to show an animation of the nal image, which would slowly accentuate the facial features, essentially creating a caricature, before morphing back to the original.

When these enhancements were put to the test the improvement in performance was staggering. In a second experiment, EvoFIT images led to correct identi cations 24.5% of the time with the blurring and feature toggling added. And when the animated caricature was also added, the success rate jumped to 42%.

So much for the theory. EvoFIT is now being used in practice. The rst formal evaluation was carried out by police in Lancashire between 2007 and 2008. During this time 30 EvoFITs were used, mainly for serious crimes such as indecent assault. Although six arrests were made during this period an apparent success rate of 20% these cases also involved the use of a traditional PRO- t system. And just because someone is arrested does not, of course, mean that they were the perpetrator. But in a later 12-month trial with the Derbyshire Constabulary in 2008, EvoFIT images were constructed in 57 cases, resulting in 43 names being put forward by the public, 19 arrests being

made and seven people being charged.

It is quite possible that the age-toggling and caricature enhancements could be used to improve the success rate of traditional non-evolutionary composite systems, such as the PRO- t and E-FIT systems used by police forces in Britain, and the FACES and Identi-Kit 2000 systems used in America, says Dr Frowd. But the real problem is that about 70% of witnesses have such a poor recall of the o ender’s face that a traditional composite cannot be constructed in the rst place, he says. So you need a system like EvoFIT that doesn’t need good recall to produce an image.

There are now 11 police forces using EvoFIT in Britain, and one in Romania. In America, Dr Frowd is working with police in Boston to improve the software’s ability to deal with Hispanic faces. One of the British forces, the Derbyshire Constabulary, has now started using EvoFIT exclusively. It’s doubled our workload, says Beverly Hunt, the force’s facial identi cation o cer, because it is now possible to produce a useful image even when a witness has only a vague memory of a suspect’s face. 7

An online medic Emergency medicine: Field medicine, for soldiers and civilians alike, gets smarter as medical monitoring technology improves

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ALF way through a ight from Mumbai to London, a male passenger complained of a swollen right hand and an inability to bend his ngers. The ight attendants were uncertain about what to do and hooked the passenger up to a small device which took and transmitted vital signs, including his pulse, blood pressure and a picture of his hand, to a groundbased medical team.

As the passenger’s condition worsened, the device was also used to transmit an electrocardiographic (ECG) trace. The resulting information was used to rule out heart problems, and the passenger was stabilised and monitored with the assistance of a doctor on the ight. The decision was made to continue the journey rather than divert to the nearest airport.

Medical emergencies like this often occur on aircraft, and there are not always doctors on board. But in this particular case the doctor says she would have asked for the ight to be diverted, had it not been for the ability of the portable vital-signs monitor being carried on the aircraft to rule out a heart attack. Such remote health

monitors are becoming even more sophisticated and are also capable of being used in some of the most extreme conditions.

The device used on the Mumbai ight was a Tempus telemedicine monitor made by RDT, a British company based near Basingstoke. It supplies the devices for use on ships and at remote locations like oil wells, as well as on aircraft. The Tempus is similar to a high-end portable monitor used by some ambulance crews, except that it is small, extremely rugged and capable of simultaneously transmitting the data for vital signs, including ECG, blood-sugar and blood-oxygen levels, along with voice and video pictures. Moreover, it can do this in multiple ways, with built-in Wi-Fi, mobile, satellite and Bluetooth communication links. It is also designed to be simple to operate using a touch-screen and pictorial instructions, which means that the need for training is minimal.

Now RDT has come up with an even tougher version, which has just gone into trials with America’s special forces. It is waterproof, soundproof (so as not to give a unit’s position away) and will operate over military radio systems. Because it will be used by trained combat medics, new features are being added. These include a small ultrasonic probe that can be used to scan for internal injuries, such as uid in the abdomen or internal bleeding, and a video laryngoscope, which can be used to view and open a patient’s airway by inserting a tube a tricky and potentially dangerous procedure. A miniature video camera on the laryngoscope’s tip relays a picture to the screen on the device to help its correct insertion. The monitor can also be preprogrammed with medical details of individual members of a unit, or automatically obtain them from smart dog tags, which are being considered by some armed forces.

Just as the crew of an aircraft or ship can use such monitors to connect to remote medical centres in order to help make a diagnosis, obtain treatment advice 1

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2 and determine whether to divert for help

or not, the idea is that a commander in the eld will be better informed about the need to evacuate a casualty which might mean calling o an operation. And if the trials with the special forces go well, says Graham Murphy, RDT’s chief executive, versions of the new device could be provided for civilian paramedic use.

Future capabilities, Mr Murphy hopes, might include a digital stethoscope to analyse breathing sounds and a haema-

toma scanner to look for a brain haemorrhage. And in both civilian and military use, the vital signs recorded by the monitor could provide doctors attending a casualty who arrives at a hospital with a history of the patient’s condition and any treatment administered something which is not always readily available. This could be sent remotely, or carried with the patient and transferred via a memory stick. Medical emergency-room dramas may never be the same again. 7

Powering up Jet engines: A nifty new engine design promises to improve combustion e ciency, thus cutting fuel consumption and reducing emissions

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N A world worried about global warming, improving the cleanliness and e ciency of jet engines is a priority for airlines and aircraft manufacturers. It is not just altruism: greener engines also use less fuel, and so cut costs. Incremental improvements over the years have made a di erence. Modern jets burn only half as much fuel per unit of thrust as their 1960s counterparts. But some people think it is time for a radical redesign. One of those people is David Lior, the boss of a small Israeli rm called R-Jet Engineering.

Jet engines rely on Isaac Newton’s third law of motion: for every action there is an equal and opposite reaction. When a jet is running, a compressor at the front draws in air and compresses it (see illustration).

This air is guided and di used by static blades to allow for easier ignition when it is mixed with fuel and ignited in a combustion chamber. The reaction comes in the form of rapidly expanding hot gases, which blast out of the rear of the jet and thus drive the aircraft forward. As they do so, they pass through another set of static blades which direct and accelerate the hot gases to turn a turbine. The turbine is connected by a shaft to the compressor at the front, thus turning it and keeping the whole process running.

The approach taken by R-Jet involves having the air and hot gases in the combustor rotate with the compressor and turbine. To achieve this, the company uses what it calls an orbiting combustion nozzle (OCN), which turns with the compressor to inject the air into the combustion chamber as a vortex. The vortex is maintained by blades that rotate on the inner casing of the combustor. This swirling action helps mix the air and fuel for a more complete and much quicker combustion. The hot gases then exit, also in a

vortex, to drive the turbine.

This, says Dr Lior, eliminates the need for the two sets of static blades. That means an OCN engine can be built more cheaply with fewer components. It would also need to be only half the size of a conventional jet of similar power, says Dr Lior. The engine would use at least 25% less fuel and, he claims, its emissions of carbon dioxide and nitrogen oxide would be cut by three-quarters because of its unique ignition properties.

So why are airlines not beating their way to R-Jet’s door? The company, founded by a group of Israeli military o cials and jet-turbine experts from the former Soviet Union, has built a technology demonstrator but needs a bigger partner to take the concept further. As with any radical change to an existing technology,

especially a jet engine, a large installed base of expertise together with lots of regulation mean it can be hard for a newcomer to make headway. To ease its entry into the market, R-Jet reckons that OCN engines could be used rst as generators to produce electricity, or to power unmanned drone aircraft. Having established a track record for themselves in this way, the engines could then migrate to their intended use on airliners.

The big aircraft-engine-makers are exploring new ideas for jet engines. The most obvious change has been to their shape. Whereas jet engines were long and slim in the 1960s, today they have a vast opening at the front containing a giant fan.

This fan is used to blow up to 90% of the air around the outside of the compressor and combustion chamber. This air is slower-moving than that going through the jet, but its greater mass also means it provides plenty of thrust and more e ciently too, which is why modern high-bypass jets burn only half as much fuel as their 1960s counterparts. They are also some 80% quieter because the mass of slower-moving air shrouds the noisy hot gases coming from the rear of the jet.

One way to increase the e ciency of a high-bypass jet engine is to turn the fan into an open rotor, a bit like returning to propellers, but using two rings of stubby counter-rotating blades. Rolls-Royce and General Electric are looking at this approach. Pratt & Whitney is exploring putting a gearbox between the fan and the turbine, because fans run more e ciently at low speeds and turbines operate better at high speeds.

But however high-bypass engines are built in the future, at their core they will still have a basic jet engine. So if R-Jet’s technology can prove itself, it might provide another leap forward. 7

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A suit that can sing and hear Materials: Optical bres made of piezoelectric materials can turn sound into subtle electrical signals, and vice versa

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UITAR HERO , a hugely popular video game, has done wonders to transform the amboyant strumming of closet air guitarists into at least some approximation of music. But soon even the feigned exertions of fantasy rock stars may become unnecessary because researchers in America have developed an acoustic bre, like a guitar string, capable of electrically plucking itself.

Electrical signals make the bre vibrate to produce a sound (although rather quietly, so you must listen to it closely). But the process can also be reversed, which is potentially more useful. When acoustic waves cause the bre to vibrate, it produces a corresponding electrical signal that can be detected. This means the bres can also work much like a microphone. In short, the bres can both sing and hear.

The work, by Yoel Fink of the Massachusetts Institute of Technology and his colleagues, is at an early stage. But Dr Fink imagines that fabrics woven from these bres would be capable of continuously monitoring the sounds of the body for health screening. Obstructions in blood ow carry very speci c acoustic signatures that could be picked up by, say, a stocking laced with these bres.

The bres are based on a type of piezoelectric polymer. This is a material which can translate electrical elds into mechanical stress, or vice versa. Although piezoelectric materials are well known for their tendency to vibrate when an electric eld

is applied, drawing them out into thin bres would require a huge amount of energy and would merely result in the bre stretching and contracting along its length, says Dr Fink.

To make a bre vibrate in a transverse fashion, like the strings on a musical instrument, a more complex architecture is required. Dr Fink’s bre consists of a hollow rod of an insulating polycarbonate material with a 30-micrometre ring of a piezoelectric polymer running along its length. This is sandwiched between inner and outer rings of conducting material that act like electrodes, and the whole thing is surrounded by yet another layer of polycarbonate as cladding.

What is remarkable about these bres is that they are only 1.1 millimetres in diameter. They are drawn from a much larger preform block of material, in much the same way that conventional optical bres are created. This allows the various layers to be assembled at a more manageable scale and then heated and stretched out, like seaside rock. It is tricky to do this without changing the molecular structure of the active material, says Dr Fink. A key issue for piezoelectric materials is order, he says. So when the bre is drawn the researchers apply a powerful electric eld to ensure that the molecules in the plastic all line up in the same direction as the bre cools.

Adding electrodes posed a further challenge. Simply anking the piezoelectric layer with thin concentric layers of metal would not work because metals tend to have a low viscosity. When you draw a material of low viscosity it tends to break up, says Dr Fink. Instead the researchers use two layers of graphite-rich conductive plastic, each anked by a single metal strip in the inner and outer cladding. They recently described their work in the journal Nature Materials.

By creating complex material structures within the bres, new things become possible. To demonstrate this Dr Fink and his colleagues have also shown how the bres can be used for communications.

This involves covering the bres with a re ective coating, and then controlling their vibration by applying electrical signals. When laser light is bounced o the bre, the re ected light is modulated in accordance with the electrical signals. This could be used like an optoacoustic version of the radio-frequency bar codes that are used by cars passing through the pay booths of automated toll roads or to tag some goods in shops.

Other proposed uses for the self-plucking acoustic bres include nets that monitor the ow of water in the ocean and large-area sonar imaging systems. And once the bres can be made small enough to be woven into clothing, they could also function as a wearable microphone. 7

Gently does it Motoring: Spies on the dashboard can teach people to drive more economically and tick them o if they fail to do so

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OME people always take things to extremes. For those trying to save fuel there is hypermiling, in which the really dedicated try to use less than 4.5 litres/100km (ie, travel more than 80 miles on a gallon) in a car that under normal use might do only half as well. Apart from driving very slowly and trying not to use the brakes (which dissipates energy), hypermilers employ other tricks, such as wiring the fuel injectors up to lights mounted on the dashboard so they can see whether or not they are squirting fuel into the cylinders. Although this is all too much trouble for most motorists, the hypermilers do have a point: driving technique plays a big part in how much fuel a car consumes. Now various devices are being used to help teach more moderate ways of driving economically.

Not surprisingly, companies that operate eets of cars and trucks are among the rst users of fuel-saving eco-assist systems. The most popular of these are global-positioning system (GPS) units that use live tra c information and other data, such as weather and past trends, to plot not the fastest but the most economical route to a destination at a particular time.

According to iSuppli, a Californian research rm, fewer than 1% of new cars have such eco-routing systems tted, but it expects that by 2020 a third will.

Interest is also growing in other devices that go beyond a simple fuel-economy meter and provide more information about drivers’ behaviour. One such is used by Masternaut Three X, a British company that specialises in vehicle tracking. It taps into the engine-management system which, because of the increasing amount of electronics used in cars, contains data that can be analysed to monitor such things as excessive revving and harsh braking. This information can be shown as a series of warnings on the dashboard and is monitored by eet managers. Firms using such systems say they can yield fuel savings of around 10% a year.

As well as discovering those with the heaviest feet on the accelerator pedal who could do with retraining, this can also help reduce accidents. There is a correlation between driving e ciently and safely, says Dan Steere, chief executive of GreenRoad, a company based in California. For instance, driving more smoothly by antici- 1

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2 pating manoeuvres and then braking and

accelerating lightly not only uses less fuel but also tends to make drivers more alert to avoiding potential accidents.

GreenRoad’s driver-monitoring device does not need to tap into the car’s innards.

It uses GPS to measure a vehicle’s speed and a set of accelerometers to measure the forces acting on the car as it accelerates, brakes and turns. The data are analysed to determine how the vehicle is being driven and the results shown to the driver as green, amber and red LEDs. For eet cars, the data can also be relayed to a control centre, so that Big Brother can tick o o ending drivers.

Mr Steere claims that despite the Orwellian overtones most drivers will soon become comfortable with the device and value the fuel savings it o ers. He has clearly never met Jeremy Clarkson. 7

Ruses to cut printing costs O ce technology: All kinds of technological tricks are being used to reduce the cost and environmental impact of o ce printers

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HE dream of the paperless o ce has been around for years, but it has remained just that, despite the rise of e-mail and the web. True, paper consumption in American o ces peaked in 2001, but since then it has declined only slightly from its high of around 150 pounds (68kg) of paper per worker per year. In Europe, meanwhile, each worker prints an average of 31 pages a day, seven of which were not even wanted, according to recent research by Lexmark, a printer manufacturer.

The cost of all that paper, toner and ink quickly adds up. Which is why, earlier this year, the University of Wisconsin-Green Bay adopted a novel strategy to save money on print supplies: it changed its fonts.

Programs like Microsoft Outlook default to Arial, but a thinner-lined typeface such as Century Gothic requires less toner or ink to form its characters. A study in 2009 showed that switching to Century Gothic could save businesses as much as $80 per

printer per year. The university predicts that this year it will reduce its $100,000 print-supplies bill by around 10% by making this simple change.

No one had put the facts together, namely, that ink or toner is very expensive, that people still print a lot, and that there is a lot of variance between fonts in how much ink they use, says Diane Blohowiak, the university’s director of computing. So far no students or sta members have complained. And the FBI, local governments and even America’s space agency, NASA, have all come calling, hoping to make similar savings too.

Thrifty though a font like Century Gothic may be, a Dutch company, Ecofont, has found a way to make a font that is even thriftier: by punching holes in the letters. The rm did this by creating a new version of a popular font called Vera Sans which is shot through with tiny holes (see below). The rm says this can reduce the amount of ink or toner needed by 25%, with no e ect on legibility. (Ms Blohowiak and her colleagues disagreed, deciding not to use the new font because it was sometimes di cult to read on screen.)

Ecofont’s new software goes one better, letting people use normal fonts on screen and inserting the holes only at print time and then only for small type sizes, where they are less apparent. Ecofont recently picked up a European Environmental Design Award for its work.

Another money-saving trick involves a more low-tech approach. Given the industry’s model of selling printers at knock-down prices and then charging high prices for re ll cartridges one investigation famously found that inkjet ink costs more than seven times as much, millilitre for millilitre, as 1985 Dom Perignon champagne there is understandable scepticism when printers claim to be running low even while turning out beautiful, streak-free pages. Surely there must be more ink in the tank?

There often is. Sensors in ink and toner cartridges report them as being empty even when they are not, a fact that has led to lawsuits (manufacturers say they need to protect the non-replaceable print head from trying to print without ink).

Many laser printers use an optical sensor to measure toner levels. Instead of simply warning users, printers refuse to produce another page until the cartridge is

How to print in green on a black-and-white printer

changed. But frustrated users ght back in online forums. Perhaps the most popular trick is to cover the tiny window in toner cartridges with a piece of tape, fooling the optical sensor into thinking that the cartridge is always full. This correspondent recently squeezed an additional two months of life from a supposedly empty toner cartridge before the rst streaks appeared on printed pages.

A further way to cut costs and reduce environmental impact is to use less paper.

These days it’s usually a matter of a few clicks to print out a document on half as many sheets, simply by rotating and squeezing two pages onto each one. But this can be hard on the eye. So a better option is duplex printing: printing at full size, on both sides of each sheet. According to a recent European Union green purchasing guide, duplex printing can cut costs by 38% over the life of a printer.

Citigroup once estimated that it could save $700,000 a year and eliminate 76 tonnes of solid waste if every employee saved only one sheet of paper per week by using duplex printing or copying. Duplex printing is a common feature on modern printers and copiers. But when was the last time you used it? The real challenge, as the EU guide notes dryly, is persuading people to actually use the duplex function .

Using clever fonts, making toner cartridges last longer and saving paper are all bottom-up ways to cut printing costs.

There is also an increasingly popular top-down option, known in the trade as managed print services (MPS). This involves outsourcing the operation and management of o ce printers and copiers to an external supplier such as HP, Xerox or Ricoh. That supplier is paid a monthly fee, and then has an incentive to cut printing costs by exploiting economies of scale in procurement, replacing printers with more e cient models and so forth. Some MPS suppliers even monitor individual employees’ use of printers or copiers in order to identify particularly wasteful or ine cient practices.

The industry’s rule of thumb is that MPS can cut costs by around 30%. As companies look for ways to save money, it is not surprising that the global MPS market grew by 27% to $25.8 billion in 2009, according to Photizo Group, a marketresearch rm.

Of course, the best thing, from both a cost-saving and an environmental point of view, would be not to print at all. In parallel with e orts to cut costs within their o ces, many rms have also introduced automatic e-mail signature lines that ask external recipients to consider the environment before printing this e-mail . Does this work? Nobody knows.

But until the paperless o ce nally comes along, it is at least a cheap way to look environmentally conscious. 7

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Correct me if I’m wrong Software: A new approach to speech recognition gives users the chance to x misunderstandings without having to repeat themselves

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HERE is often something sweet, intimate even, about couples who nish each other’s sentences. But it can also be a source of irritation, especially when they get it wrong. A similar irritation (minus the sweetness) is often felt by users of speechrecognition software, which still manages to garble and twist even the most clearly spoken words. Might the solution lie in a more intimate relationship between the user and the software?

Modern speech-recognition programs do not merely try to identify individual words as they are spoken; rather, they attempt to match whole chunks of speech with statistical models of phrases and sentences. The rationale is that by knowing statistical rules of thumb for the way in which words are usually put together an abstract probabilistic approximation of grammar, if you will it is possible to narrow the search when attempting to identify individual words. For example, a noun-phrase will typically consist of a noun preceded by a modi er, such as an article and possibly also an adjective. So if part of a speech pattern sounds like ball ,

the odds of it actually being ball will increase if the utterances preceding it sound like the and bouncy .

Although this continuous speech recognition technique has indeed improved accuracy, it is by no means infallible. Moreover, when it gets things wrong, it often does so spectacularly. The problem is that, as a direct consequence of this technique, the misidenti cation of even a single word can take the program o on the wrong path as it tries to predict what the rest of the phrase is likely to be.

Though such errors are inevitable, there may be a way to let speech-recognition programs take the pain out of making corrections. Per Ola Kristensson and Keith Vertanen, at the University of Cambridge’s Computer Laboratory, have developed a method of allowing speechrecognition programs to share their thoughts, as it were, with the user in order to speed up the correction process. Their solution, called Parakeet, is a touch-screenbased interface for phones and other mobile devices, which not only displays the words, phrases or sentences that scored highest in the program’s statistical model, but also any close contenders. This allows the user to select alternatives easily, with a quick tap of the nger. More subtly, if none of the predicted sentences is entirely correct, yet collectively they contain the words that were spoken, the user can simply slide his nger across the appropriate words to link them up.

In a sense, all Parakeet is doing is allowing the user to see which alternative words or sentences the program would have predicted. The di erence is that existing programs require the user to correct each word individually from a drop-down list of alternatives, or else to retype or reutter the words. What is frustrating about this, says Dr Kristensson, is that more often than not the correct strings of words were recognised, but rejected by the speech-recognition program on statistical grounds. Parakeet makes them all available to the user.

The prototype uses an open-source speech-recognition program called Pocket Sphinx, developed at Carnegie Mellon University, in Pittsburgh, but Dr Kristensson reckons it would be easy to apply the same approach to commercially available programs like Nuance’s Dragon. So far Dr Kristensson and Dr Vertanen have carried out only limited trials on a handful of people. Even so, these have achieved operating rates of around 22 words per minute considerably higher than the 16 an average user can achieve using predictive texting. With the likes of Google, Nuance and Vlingo now o ering mobile speech-recognition services for phones, and the development of speech-driven systems for use in vehicles, Parakeet may be ying into a growing market. 7

Fast-track testing Magnetic levitation: The same technology used to make trains go fast can help identify unwanted substances in food and water

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O MOST people magnetic levitation (maglev) connotes high-speed passenger trains. It is what enables the Shanghai Transrapid to glide over the tracks at speeds of as much as 430kph (267mph).

But the same technology has recently found a much more pedestrian use in testing food and water.

One way to identify a substance without resorting to ddly chemical methods is to determine its density. This will not provide a precise composition but it can give a decent approximation. The purity of minerals is often assessed in this way, as are things like the amount of fat in milk or salt in water. (The less fat there is in milk, the more dense it is; the less salt there is in water, the less dense it is.)

The problem is that existing devices for measuring density tend to be either precise or portable. Those devices that are both, such as oscillating tubes, can set you back several thousand dollars. But George Whitesides and his colleagues from Harvard University have come up with an ingenious way to square this circle using the principles of maglev.

Most materials, including milk and water, are diamagnetic, which means they are repelled by external magnetic elds though this phenomenon is far too subtle to be observed in normal circumstances.

This means that when a drop of liquid is mixed with a suitable solution of paramagnetic ions, which become magnetic in the presence of a permanent magnet, it will be pushed to where the eld is weakest, and stay there.

The researchers twigged that this phenomenon could be used to measure density and, as they report in the Journal of Agricultural and Food Chemistry, they set about this task by erecting a stack of two o -the-shelf neodymium magnets separated by a vertical vial of paramagnetic uid. The magnets’ like poles were facing one another, creating a eld which was weakest precisely in the centre of the vial.

When a drop of an unknown substance is injected into the vial, however, it will not settle quite in the middle. The magnetic forces will push it towards the centre, but gravity will pull it downwards until an equilibrium point is attained. The drop’s height above the bottom magnet 1 can then be measured using a standard

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The Economist Technology Quarterly September 4th 2010

2 millimetre ruler, and that measurement

can be plugged into a formula to arrive at a precise gure for density. (In an earlier paper the researchers conveniently included an Excel spreadsheet that performs this calculation automatically.)

Dr Whitesides puts the total cost of the components for his device, including an aluminium casing, at less than $50. Mass production would reduce the cost even

further. It is a small price to pay for a quick and easy way to check whether, for instance, water is too briny for irrigation. He thinks the device could even prove handy in some carefully chosen biomedical applications, especially in the developing world where inexpensive solutions are in demand. The Bill & Melinda Gates Foundation, which helped nance the project, must certainly hope so. 7

Schrödinger’s cat and mouse Computing: Quantum cryptography is unbreakable in theory. But like any security system, in practice it is only as safe as its weakest link

I

T SOUNDS foolproof. One of the fundamental tenets of quantum mechanics is that measuring a physical system always disturbs it. If the system in question is a message written as a series of digital bits encoded in the polarisation of light, this means that intercepting and reading the message can no longer be done surreptitiously. The receiver should be able to detect an eavesdropper and take appropriate countermeasures.

To a hacker, though, the word foolproof is a challenge. And to prove the point, two groups of academic spies have now shown that whatever the theory says, practical attempts to hide messages this way can still be vulnerable.

In order to encrypt a message, the sender, known conventionally as Alice, scrambles it using a secret key before sending it to the receiver, known as Bob.

Even if Eve, the eavesdropper, intercepts the message, she cannot make sense of it without the key. The problem, then, is how to pass the key from Alice to Bob without Eve getting hold of it as well.

Quantum key distribution does this by encoding the information in the polarisation states of individual photons, the particles of light, which are sent from Alice to Bob over an optical bre. If Eve taps into the line and intercepts the key, she disturbs the photons when she measures their polarisation. By comparing a subset of the photons that Alice sends with what Bob measures, the pair can check for the presence of errors introduced by Eve. If errors are detected, Bob can throw away the key and ask for another.

In practice, quantum-key-distribution systems rely on sophisticated optical equipment to prepare, transmit and detect

the individual polarised photons that make up the key. And when these realworld components meet the clever academic theorems that are supposed to guarantee security, holes emerge.

In the rst piece of research, a team from the Norwegian University of Science and Technology and the National University of Singapore, led by Vadim Makarov and Ilja Gerhardt, hacked into a system that connects several buildings on the National University of Singapore’s campus. Their eavesdropping apparatus (which is small enough to t in a suitcase) was designed to take advantage of a weakness in a particular sort of photon detector in Bob’s receiving equipment. If hit with a bright enough ash of light, such detectors are blinded. And if, on top of the bright pulse, a smaller pulse of just the right type is sent, the detector can be forced to record a one or a zero.

In essence, Eve now has control of Bob’s detector. After intercepting the key, she can make it record just the right pattern of bits without any of the telltale errors her eavesdropping was supposed to introduce. Using this technique, Dr Makarov and his team were able to steal the entire key without leaving any trace of their activities.

The second hack was carried out by a team from the University of Toronto, led

by Hoi-Kwong Lo. They stole information from a research version of a system made

by ID Quantique, a Swiss rm that is trying to commercialise quantum cryptography, by ddling with synchronisation signals that pass between Alice and Bob. To start the key exchange, Bob sends Alice two strong laser pulses separated by a precise interval. She uses these pulses to determine how to polarise the photons she sends back. If Eve intercepts Bob’s pulses and changes the separation between them, she can trick Alice into sending photons that have slightly di erent polarisations from those that were intended. When Eve intercepts these tweaked photons, she can gather information on them while keeping the error rate she introduces at just below a tolerable level.

Her slight tweaks have compensated for the disturbances she creates.

Neither of these techniques actually breaks the fundamental principles on which quantum cryptography is based.

They simply exploit loopholes introduced when it is implemented to practice. As quantum hackers continue to put systems through their paces, such loopholes will be closed as these now have been and the systems become more secure. People like Gregoire Ribordy, the chief executive of ID Quantique, are therefore encouraging the hackers in their activities. Such hacking is, nevertheless, a useful reminder of an old adage: if something looks too good to be true, it probably is. 7

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Monitor

The Economist Technology Quarterly September 4th 2010

Putting your money where your mouse is Crowdfunding: Artists, musicians and writers are using the internet to aggregate lots of small donations to fund their work

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IKIPEDIA, a giant online encyclopedia compiled by volunteers, is the product of the aggregation of lots of people’s spare time. An example of crowdsourcing , it demonstrates that on the internet, as in the real world, many hands make light work. Can the same approach be applied to money as well as time? That is the idea behind crowdfunding , in which lots of small contributions are aggregated online to support artistic or creative ventures.

As crowdfunding has matured from a series of one-o e orts into something reproducible, the money has followed.

Millions of dollars, in increments as small as $5, have poured into e orts that connect artists, musicians, writers and others with people willing to fund their projects.

Venture capitalists have also shown an interest by investing in start-ups that facilitate crowdfunding.

There have of course been tip jars on web pages for years, and even big sites like Wikipedia ask for donations. But this approach works for a vanishingly small number of sites, and then only in conjunction with other sources of revenue.

Crowdfunding is di erent, say its advocates. It’s not a tip jar, and that’s what makes it sustainable, says Perry Chen, the boss of Kickstarter, the largest of several start-ups that act as matchmakers between donors and projects.

Instead, crowdfunding works by raising money for a well-de ned project within a speci ed time limit and with a goal of raising a particular minimum sum (typically around $2,500). If the goal is not met, no funds are collected. Donors usually get some kind of reward or recognition (a mention in a lm’s credits, for example), but they do not have any rights in the resulting work. The term crowdfunding has also been applied to raising money for companies or charity, says Kevin Lawton, the author of CrowdFunding: The Micro-VC Revolution! . But there are regulatory limits on micro-investing, so the term is most widely used to refer to fund-raising for creative work.

Kickstarter lets donors fund art shows, movies, short lms, dance, graphic novels and theatre productions. It helped Diaspora, an open-source socialnetworking project, raise $200,000 during the recent controversy over Face-

book’s privacy policies. IndieGogo supports lmmakers, writers and game designers. Some sites specialise: Sellaband helps bands raise money to fund professional recording of albums, and Spot.us raises money for journalistic projects.

Yancey Strickler, Kickstarter’s chief community o cer, says the rm accepts about half the projects submitted to it.

We turn down projects that are charity, that are just straight business expenses, or ‘my dog has cancer’, he says. Of those that are accepted, about half meet their funding goals: around 1,600 projects had been funded by July 2010. (Another crowdfunding rm, RocketHub, screens out only projects it deems illegal or in bad taste.) Kickstarter says it has raised over $15m for its users since its launch in 2009.

Sellaband says it has raised over $3m and has contributed to the funding of 50 albums since 2006. Crowdfunding rms typically take a 5% commission and charge a 3-4% payment-processing fee.

With a little cash from my friends Crowdfunding has bene ted from the rise of social networking, which allows even non-celebrities to accumulate large numbers of fans or followers online, to whom they can reach out when a project needs funding. Successful projects, says Mr Chen, usually require an anchor audience of friends or fans who engage in micropatronage , enjoying the association with a successful project and a personal link with an artist or writer.

The makers of a series of documentaries about David Lynch, a lmmaker, are using crowdfunding to raise the seed money to start work on the project’s third lm.

Jon Nguyen, one of the producers involved, says supporters who donate $50 receive a tote bag or a print of a self-portrait by Mr Lynch. They can then follow the project’s progress online. We’re going to write about it, blog about it, talk to people on Facebook, says Mr Nguyen.

Crowdfunding will be used to raise only 15-20% of the funding, however; the rest is expected to come from European grants.

Ted Rall, a syndicated editorial cartoonist and opinion columnist, raised $26,000 from over 200 contributors via Kickstarter for a four-week trip to Afghanistan. When he rst visited Afghanistan in 2001, he says, there were plenty of media outlets that were willing to fund his trip; indeed, they were having trouble nding people prepared to go. But this time around Mr Rall was unable to secure any funding in advance. The crowdfunding e ort, however, brought him to the attention of a publisher, who has contracted him to write a book about his trip. Donors who give $100 will receive a signed copy.

Crowdfunding may turn out to be a fad, says Cory Doctorow, a bestselling novelist and blogger who is experimenting with various forms of micropatronage, including selling a bespoke short story for $10,000 to one of his fans. There will be some people for whom the fact that they raise money for themselves will be a marketing story, he says. But crowdfunding’s early success at raising sums large enough to be useful, though not large enough to replace other sources of funding for creative works, ts in with a broader trend of using technology to bring artists and their audiences closer together.

As Mr Chen notes, artists can now ask their audiences directly for support, and will often get it. People are thrilled to be involved in the creative process and see something come to life, he says. 7

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16

Mining social networks

The Economist Technology Quarterly September 4th 2010

Untangling the social web Software: From retailing to counterterrorism, the ability to analyse social connections is proving increasingly useful

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ELECOMS operators naturally prize mobile-phone subscribers who spend a lot, but some thriftier customers, it turns out, are actually more valuable. Known as in uencers , these subscribers frequently persuade their friends, family and colleagues to follow them when they switch to a rival operator. The trick, then, is to identify such trendsetting subscribers and keep them on board with special discounts and promotions. People at the top of the o ce or social pecking order often receive quick callbacks, do not worry about calling other people late at night and tend to get more calls at times when social events are most often organised, such as Friday afternoons. In uential customers also reveal their clout by making long calls, while the calls they receive are generally short.

Companies can spot these in uencers, and work out all sorts of other things about their customers, by crunching vast quantities of calling data with sophisticated network analysis software. Instead of looking at the call records of a single customer at a time, it looks at customers within the context of their social network. The ability to retain customers is particularly important in hyper-competitive markets, such as India. Bharti Airtel, India’s biggest mobile operator, which handles over 3 billion calls a day, has greatly reduced customer defections by deploying the software, says Amrita Gangotra, the rm’s director for information technology.

The market for such software is booming. By one estimate there are more than 100 programs for network analysis, also known as link analysis or predictive analy-

sis. The raw data used may extend far beyond phone records to encompass information available from private and governmental entities, and internet sources such as Facebook. IBM, the supplier of the system used by Bharti Airtel, says its annual sales of such software, now growing at double-digit rates, will exceed $15 billion by 2015. In the past ve years IBM has spent more than $11 billion buying makers of network-analysis software.

Gartner, a market-research rm, ranks the technology at number two in its list of strategic business operations meriting signi cant investment this year.

Adoption is being driven by the availability of more sources of information, and by the fact that network-analysis software is becoming easier to use. A decade ago IBM employed experts with PhDs in mathematics to study social networks, according to Mark Ramsey, the rm’s head of business analytics for eastern Europe, the Middle East and Africa. Today, college graduates can operate analysis software handling enormous quantities of data.

Bharti Airtel employs only about 100 analysts to keep tabs on its 135m subscribers.

Take me to your leaders Of course, companies have long mined their data to improve sales and productivity. But broadening data mining to include analysis of social networks makes new things possible. Modelling social relationships is akin to creating an index of power , says Stephen Borgatti, a network-analysis expert at the University of Kentucky in Lexington. In some companies, e-mails are

analysed automatically to help bosses manage their workers. Employees who are often asked for advice may be good candidates for promotion, for example.

Ellen Joyner of SAS, an analytics rm based in Cary, North Carolina, notes that more and more nancial rms are using the software to uncover fraud. The latest version of SAS’s software identi es risky borrowers by examining their social networks and Internal Revenue Service records, she says. For example, an applicant may be a bad risk, or even a fraudster, if he plans to launch a type of business which has no links to his social network, education, previous business dealings or travel history, which can be pieced together with credit-card records. Ms Joyner says the software can also determine if an applicant has associated with known criminals perhaps his ancée has shared an address with a parolee. Some insurers reduce premiums for banks that protect themselves with such software.

Last year an American government body called the Recovery Accountability and Transparency Board (RATB) began using network-analysis software to look for fraud within the $780 billion nancialstimulus programme. In addition to the internet, RATB combs Treasury and law-enforcement databases to uncover non-obvious relationships , says Earl Devaney, its chairman. The software works very well, he says. It has triggered about 250 ongoing criminal investigations and 400 audits.

Joe Biden, America’s vice-president, said in June that such software would be used to prevent fraud within the government’s Medicaid and Medicare health-care schemes. The Army Criminal Investigation Command already sni s out procurement fraud by scanning text in e-mails. The software, developed by SRA, an American rm, can correlate numbers and phrases written in nine languages with nancial databases. If a person discusses a particular Department of Defence payment with an individual not o cially linked to the 1 deal, SRA’s software may notice it.

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Mining social networks

The Economist Technology Quarterly September 4th 2010

2

The police department of Richmond, Virginia, has pioneered the use of network-analysis software to predict crimes.

Police o cers know that crime increases at certain times, such as on paydays and when there is a full moon. But the software lets them analyse the social networks around suspects, such as dealings with employers, collection agencies and the Department of Motor Vehicles. The goal, according to Stephen Holli eld, the department’s technology chief, is to pull together a complete picture of suspects and their social circle.

Party plans turn out to be a particularly useful part of this picture. Richmond’s police have started monitoring Facebook, MySpace and Twitter messages to determine where the rowdiest festivities will be. On big party nights, the department now saves about $15,000 on overtime pay, because o cers are deployed to areas that the software deems ripe for criminal activity. Crime has dramatically declined as a result, says Mr Holli eld. Colin Shearer, vice-president of predictive analytics at SPSS, a division of IBM that makes the software in question, says it can largely replace police o cers’ reliance on gut feel .

Network analysis also has a useful role to play in counterterrorism. Terror groups are often decentralised, so mapping their social networks is akin to deciphering a big spaghetti picture , says Roy Lindelauf of the Royal Dutch Defence Academy, who develops software for intelligence agencies in the Netherlands. It turns out that the key terrorists in a group are often not the leaders, but rather seemingly low-level people, such as drivers and guides, who keep addresses and phone numbers memorised. Such people tend to stand out in network models because of their high level of connectedness. To nd them, analysts map structural signatures such as short phone calls placed to the same number just before and after an attack, which may indicate that the beginning and end of an operation has been reported.

The capture of Saddam Hussein in

2003 was due in large part to the mapping of the social networks of his former chauffeurs, according to Bob Gri n, the chief executive of i2, a British rm which developed the software used in the manhunt.

Senior members of the Iraqi regime were mostly clueless about the whereabouts of the former president, says Mr Gri n, but modelling the social networks of his chau eurs who had links to rural property eventually led to the discovery of his hideout, on a farm near his hometown of Tikrit.

From social to societal networks Where is network analysis headed? The next step beyond mapping in uence between individuals is to map the in uences between larger segments of society. A forecasting model developed by Venkatramana Subrahmanian of the University of Maryland does just that. Called SOMA Terror Organization Portal, it analyses a wide range of information about politics, business and society in Lebanon to predict, with surprising accuracy, rocket attacks by the country’s Hizbullah militia on Israel.

Attacks tend to increase, for example, as more money from Islamic charities ows into Lebanon. Attacks decrease during election years, particularly as more Hizbullah members run for o ce and campaign energetically. By the middle of 2010 SOMA was sucking up data from more than 200 sources, many of them newspaper websites. The number of sources will have more than doubled by the end of the year.

Once these societal networks of in uence can be accurately mapped, they can be used to promote the spread of particular ideas those that support stability and democracy, for example. Last year America’s army, which jointly funds SOMA with the air force, began disbursing about $80m in ve-year research grants for network analysis to promote democracy and national security. An authoritarian government, for instance, may have di culties slowing the spread of a new idea in a certain medium say, internet chatter about a book that explains how corruption under-

mines job creation. Diplomatic services can use this information to help ideas spread. Brian Uzzi of Northwestern University in Evanston, Illinois, who advises intelligence agencies on democracy-promotion analytics, says diplomatic services are mapping the tipping point when ideas go mainstream in spite of government repression.

SPADAC, a rm based in McLean, Virginia, performs such analyses on Egypt and other countries in Africa, the Middle East and South-East Asia. Clients include the United States, Mexico and various diplomatic services. Riots, bloody elections and crackdowns, among other things, can be forecast with improving accuracy by crunching data on food production, unemployment, drug busts, home evictions and slum growth detected in satellite images.

Mark Dumas, the head of SPADAC, notes that societies with longstanding and strong social and business ties abroad weather change well. In relatively closed countries, like Egypt, rapid shifts in social networks can trigger upheaval, he says.

Last year SPADAC’s revenue reached $19m; this year it will exceed $27m.

Country analyses have great potential in peacekeeping and counterinsurgency operations, according to Kathleen Carley of Carnegie Mellon University in Pittsburgh. She is developing a societal model of Sudan with a team of about 40 researchers. Foreign aid workers and diplomats frequently stumble in Sudan because they fail to work out which tribal and political leaders they should work with, and how.

Ms Carley’s model, known as ORA, analyses a decade of data on such things as weather, land and water disputes, cabinet reshu es, reactions to corruption, court cases, economic activity and changes in tribal geographic maps. Within the information that emerges are lists of the locals most likely to co-operate with Westerners, with details of the role each would best play. This depth of insight, a demonstration of the power of network analysis today, will only grow. 7

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18

Inside story

The Economist Technology Quarterly September 4th 2010

Hot rocks and high hopes Geothermal power: Deriving energy from subterranean heat is no longer limited to volcanic regions. By drilling deep wells into the ground, it can be made to work almost anywhere. Just watch out for the earthquakes

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VER the course of the next ten years a company called Geodynamics, based in Queensland, Australia, is planning to drill as many as 90 wells, each 4,500-5,000 metres deep, in the Cooper Basin, a desert region in South Australia with large energy reserves. But the company is not drilling for oil or gas. It is looking for an energy source that is far cleaner and more abundant than any fossil fuel: heat emanating from hot rocks deep beneath the Earth’s surface, a promising emerging form of geothermal energy.

Conventional geothermal power exploits naturally occurring pockets of steam or hot water, close to the Earth’s surface, to generate electricity. (Heat from the water is used to boil a uid and drive a steam turbine connected to a generator.)

Because such conditions are rare, the

majority of today’s geothermal power plants are located in rift zones or volcanically active parts of the world. In Iceland, around one-quarter of the country’s electricity is produced by geothermal power stations; at the Svartsengi power station, the naturally occurring hot water also ows into a lagoon, which is a popular (and photogenic) bathing spot.

Geothermal power stations can also be found along the Ring of Fire around the Paci c, in Indonesia, the Philippines and on America’s west coast. Conventional geothermal power stations worldwide have a total capacity of 10.7 gigawatts (GW) and will generate 67.2 gigawatt hours (GWh) of energy this year enough to supply power to more than 52.5m people in 24 countries, according to America’s Geothermal Energy Association.

Engineered geothermal systems (EGS) are based on a related principle, but they work even in parts of the world that are not volcanically active, by drilling thousands of metres underground to mimic the design of natural steam or hot-water reservoirs. Wells are bored and pathways are created inside hot rocks, into which cold water is injected. The water heats up as it circulates and is then brought back to the surface, where the heat is extracted to generate electricity. Because the Earth gets hotter the deeper you drill, EGS could expand the reach of geothermal power enormously and provide access to a virtually inexhaustible energy resource.

The beauty of the concept is that if it works, it can work anywhere in the world, says Subir Sanyal, president of GeothermEx, a consultancy based in California. According to The Future of Geothermal Energy , a report issued by the Massachusetts Institute of Technology (MIT) in 2007, the thermal energy available in America in rocks 3-10km (1.9-6.2 miles) beneath the Earth’s surface is nearly 140,000 times greater than its annual energy consumption. Conservative estimates suggest just 2% of that energy could be tapped by EGS in practice, but even that would be far more than is needed to supply all of America’s electricity. Tapping it will, however, require both technical and 1

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Inside story

The Economist Technology Quarterly September 4th 2010

19

The beauty of the concept is that if it works, it can work anywhere in the world.

2 economic hurdles to be overcome.

At the moment only a few EGS plants exist worldwide, including a pilot plant in Soultz, France, and a small commercial plant in Landau, Germany. But Geodynamics and other companies around the world are hoping to change that. Over the next decade Geodynamics plans to build ten 50 megawatt (MW) power stations in Cooper Basin, and that may just be the beginning. According to Doone Wyborn, the company’s chief scientist, the area’s resources could support hundreds of power stations with a total generating capacity of up to 12.5GW more than all the geothermal power stations now operating worldwide. There are also plans for new EGS projects in America, Britain, France and Germany. Those in the eld have high hopes for future expansion: the International Geothermal Association predicts that there will be 160GW of geothermal capacity installed worldwide by 2050, about half of which will be EGS. Like other forms of renewable energy, geothermal power produces little or no carbon dioxide. But unlike other forms of renewable energy, such as solar or wind power, it has the further advantage that it is not intermittent, but can provide steady, predictable baseload electricity, all day and all night. This makes it particularly appealing to utilities.

These bene ts, in combination with growing electricity use worldwide, concerns about limited supplies of fossil fuels, and e orts to reduce carbon-dioxide emissions and prevent climate change, have prompted governments and investors to pour money into this emerging technology. Google, for example, has invested more than $10m in two EGS companies in California, Potter Drilling and AltaRock Energy. Meanwhile America’s Department of Energy has announced up to $338m in stimulus funds for 123 geothermal projects, with nearly $133m earmarked for EGS research.

Australia’s e orts are probably the most ambitious. Primary Industries and Resources SA (PIRSA), an Australian government agency, projects that between 2002 and 2014, investments in Australian geothermal projects (including more than $250m in government grants) could reach $2.7 billion with roughly 72% of that gure going toward EGS projects. More than 50 companies exploring geothermal projects in Australia have taken out over 400 licences for areas covering nearly 500,000 square kilometres a combined area roughly the size of Spain.

The rst conventional geothermal power station, powered by hot springs near Larderello, Italy, began generating electricity in the early 1900s. It was several decades before scientists thought of designing systems that could work anywhere. In the early 1970s the concept of hot dry rock (HDR) geothermal power emerged at Los Alamos National Laboratory, New Mexico, and researchers from the lab conducted the rst tests at nearby Fenton Hill. This led to similar projects in Britain, Japan, France and elsewhere.

Drilling into the past HDR was based on the idea that by drilling into hot, dry rocks and fracturing them it would be possible to mimic a natural water-based geothermal system. Cold water is injected into one well and ows through the reservoir’s cracks and pathways, absorbing heat. The hot water is then brought back to the surface through a production well, where it heats up a secondary working uid with a lower boiling point. The vapour from that uid then spins a turbine to generate electricity, while the water is reinjected into the well.

These early experiments led to an important lesson: that creating a productive, permeable reservoir is best done by working with the site’s existing geology, and cracking open or widening existing fractures, rather than trying to create entirely new ones. Barry Goldstein, director of petroleum and geothermal at PIRSA, says it is important to choose an area with the potential to support a su cient rate of water ow to make the project economic.

In fact, EGS projects can be operated under a range of geological conditions, from HDR to hot fractured wet rocks, all of which need di erent levels of enhancement (ie, di erent amounts of drilling, fracturing and water injection). There’s a continuum, says Karl Gawell, executive director of America’s Geothermal Energy Association. It extends all the way to conventional geothermal systems, some of which are bene ting from EGS research.

The power stations at The Geysers in Northern California, the world’s largest developed geothermal eld, reinject water into their reservoirs to restore steam reserves and boost output a technique borrowed from EGS, says Mr Gawell.

Costs for conventional geothermal projects vary widely depending on location, temperature and drilling depth, among other things. Geothermal plants have no fuel costs, but upfront costs are high, and verifying the potential of a site, as with an oil well, can take a long time, making nancing di cult in the current economic climate. The most economically viable projects, as you might expect, are those that exploit high temperatures at shallow depths. A typical American geothermal power station produces electricity at a cost of around $0.10/kWh. That makes geothermal power competitive with many other technologies, especially with added nancial incentives such as America’s production tax-credit for renewable-energy projects, currently about $0.02/kWh. (Producing electricity from coal or gas also costs around $0.10/kWh.) 1 The same cannot be said for EGS, at

20

Inside story

The Economist Technology Quarterly September 4th 2010

Most earthquakes created by EGS are too small to be felt, but a few have caused damage to property.

2 least for the foreseeable future. As you go

deeper, temperatures go up but so do costs. The equipment on the surface costs about the same for EGS as it does for conventional geothermal power, but the drilling costs can be twice as much or more for EGS. Dr Wyborn estimates that electricity from EGS could initially cost an additional $0.09/kWh over conventional geothermal, or about $0.19/kWh. That would make EGS economic only in places with strong nancial incentives, such as Germany, where operators of renewableenergy projects receive generous subsidies in the form of feed-in tari s currently $0.31/kWh for power from EGS. Technological improvements, such as cheaper and better methods for drilling, creating reservoirs and improving water ow rates, could cut the cost of EGS. Well productivity is especially important. You want to get as much extracted energy as possible for that set of wells you’ve drilled, to maximise the return on your investment, explains Je erson Tester, associate director of the Cornell Centre for a Sustainable Future and lead author of the MIT report. So far most EGS projects have achieved ow rates of only around 25 litres per second, far short of the 50-100 litres per second that is required to operate geothermal projects pro tably. Both AltaRock and Geodynamics are working on creating more fractures per well, which they hope will increase both the ow rate and heat absorption from the rocks.

But unexpected problems can pop up.

In April 2009 Geodynamics was ready to commission a pilot plant when the steel casing of a well cracked, causing uncontrolled ow of water out of the well. An independent investigation determined that the problem could be avoided in the future by choosing a di erent type of well casing. Geodynamics has announced that it will drill two new wells. Its 1MW pilot plant is now scheduled to come online in early 2012, followed by a 25MW commercial demonstration plant three years later.

AltaRock also encountered drilling problems in 2009, when it made three attempts to redrill a well for a demonstration project at The Geysers. It eventually abandoned that e ort after the drilling assembly repeatedly got stuck due to the hole collapsing. Along with its partner, Davenport Newberry, it now plans to demonstrate its technology at another site near Bend, Oregon, a project for which it was awarded $21.5m in stimulus funds by America’s Department of Energy.

Much of the drilling equipment for

geothermal wells comes from the oil-andgas industry, but Bob Potter, a member of the original HDR team at Los Alamos, is trying something di erent. His rm, Potter Drilling, is pursuing a process called spallation, which uses superheated steam.

When it comes into contact with rock, crystalline grains in the rock expand and create tiny fractures, causing small particles, called spalls, to break o . In e ect, it is a drill that melts rock, says Mr Potter’s son, Jared, who is the chief executive of Potter Drilling. Spallation can get through rock more quickly than conventional drilling, and the use of steam means there are no costly drill bits that need replacing.

Little earthquakes Perhaps the biggest hurdle that will prevent EGS from spreading is its propensity to cause noticeable earthquakes that frighten people. Earthquakes are in fact a requirement for the technology to work.

In order to prop open or enlarge existing cracks and fractures, water is injected into boreholes at high pressure, causing small tremors. There’s no doubt that what you do when you fracture rock causes seismicity, says Susan Petty, president and chief technology o cer of AltaRock. But the

Showing the way in Landau

goal is to have those events be so tiny that people can’t feel them. Most earthquakes created by EGS are indeed too small to be felt, but a few have caused damage to property. One project in Basel, Switzerland, was shut down because of a 3.4magnitude earthquake in December 2006 that scared residents and cracked buildings. Earthquakes of a similar magnitude have also been reported from projects in Australia, Germany and France.

But man-made earthquakes are not unique to EGS; they also occur as a result of oil-and-gas drilling, and damming and mining operations. The question is whether they can be controlled. Ernie Majer, a seismologist and deputy director of the Earth Sciences Division at Lawrence Berkeley National Laboratory, who is working on re ning EGS seismicity guidelines for America’s Department of Energy, believes they can. With proper study and implementation, you can guarantee that there won’t be big ones, says Dr Majer, who sees small quakes as a nuisance rather than a danger. Still, many in the industry agree that EGS should be developed in remote areas rst, rather than in densely populated cities such as Basel.

And the risks associated with EGS must be balanced against the drawbacks of other energy technologies, such as fossil fuels, which produce carbon-dioxide emissions and occasional oil spills, and nuclear power, which produces radioactive waste. Wind power, meanwhile, is criticised for causing noise pollution, killing birds and despoiling landscapes.

The real question, in the end, is what people are ready to put up with in return for a secure energy supply. It’s a tradeo , says Dr Majer. You have bene ts and hazards. There’s no perfect technology.

Whether EGS can overcome the obstacles it currently faces, and go on to play an important role in the world’s renewableenergy portfolio, should become clear in the next decade. The well failure has set us back, acknowledges Dr Wyborn of Geodynamics. But he is certainly not giving up. According to the MIT report, the rst 100MW of installed EGS capacity should be the most di cult and costly to achieve, but after that it should get easier and cheaper. Scarcer and more expensive oil would certainly help. There are thousands of wells being drilled for oil across the world every year, says Dr Wyborn. I imagine that in a couple of decades all of those drilling rigs that are now redundant, because we’ve run out of oil, will be drilling geothermal wells instead. 7

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Rewiring nerves

The Economist Technology Quarterly September 4th 2010

How to rewire the nervous system Biomedicine: Doctors are rerouting nerves to give patients more natural control of prosthetic arms and bring paralysed limbs back to life

I

T IS known as phantom limb syndrome or phantom pain . But this strange phenomenon feels all too real to the people it a ects, and can be agonisingly painful. Amputees and people who have become paralysed may still feel a missing limb or a part of their body, even though it is no longer connected to their nervous system. Yet such sensations o er con rmation that even when a limb has been severed or cut o from the nervous system, the nerves that once serviced it remain alive and well. Doctors are now nding ways to put these nerves to good use, by rewiring them to control prosthetic limbs or reanimate paralysed limbs.

Moreover, rewiring the nervous system should allow amputees to gain a sense of embodiment of a prosthetic. That is, by controlling and sensing the prosthetic using the same neural pathways and parts of the brain that once governed the real limb, the prosthetic can be made to feel and act like a genuine extension of the user’s body.

And by stimulating the nerves in the legs or arms of paralysed patients nerves that have been cut o from the central nervous system it is possible to create co-ordinated movement of great subtlety. For example, the hands of paralysed patients have been stimulated to enable them to grasp and turn door knobs.

And with careful control and co-ordination of the muscle groups in their legs, patients can even rise from their wheelchairs and take steps.

Prosthetic limbs are becoming increasingly sophisticated, but it can be very di cult to control them in a natural way, says Paul Marasco, a biomedical engineer at the Louis Stokes Cleveland Department of Veteran A airs Medical Center, in Ohio. For example, patients control some motorised devices by exing muscles in their remaining stump, shoulder or chest. These muscle movements are detected by electromyography (EMG) sensors on the skin, and the

signals are translated into movements by the prosthetic.

This approach can provide incredible control over an arti cial arm, but patients often prefer to use simpler, mechanical prosthetics. For one thing, such devices allow the patient to sense the movement of the arm through a system of cables which are used to control the device, usually by attaching them to the opposite shoulder.

So even when their eyes are closed they can get a sense of whether an arti cial arm is extended, or if there is resistance to a grasping motion, making the limb feel less detached and unnatural than an EMG device. Another problem with EMG prosthetics is that patients literally have to retrain their brains to make new associations between muscle movements and their out-

Natural control of an arti cial arm

21

comes a shoulder ex could become a grasp motion, for example, while a twitch of pectoral muscle in the chest may extend the arti cial arm.

But there is a way to overcome both these di culties with motorised limbs, using a technique called targeted reinnervation . Pioneered by Todd Kuiken, director of the Neural Engineering Centre for Arti cial Limbs at the Rehabilitation Institute of Chicago, along with his colleagues Aimee Schultz, Blair Lock and Dr Marasco (who was formerly at NECAL), this involves rerouting the nerves that would have originally controlled and sensed the missing limb and connecting them instead to other parts of the body. By rewiring a missing arm’s motor nerves to muscles in the remaining stump, shoulder or chest, for example, and rewiring the arm’s sensory nerves to the skin in these regions, a channel is opened to the part of the brain that once controlled the missing limb.

It is a strange and slightly ghoulish idea, because it means that if a patient tries to ex his missing nger, for example, a muscle in another part of his body (which is now connected to the nerves that used to control the nger) contracts instead. When the amputee wants to open or close their hand, these muscles twitch, says Dr Marasco.

EMG sensors detect these signals and translate them into control signals that cause the mechanical hand to open and close. The patient can then open and close his prosthetic hand simply by trying to move the ngers that 1 are no longer there.

22

Rewiring nerves

The Economist Technology Quarterly September 4th 2010

Targeted reinnervation involves rerouting nerves that originally controlled the missing limb.

2

The sensory side of things works in a similar fashion, but instead of reconnecting nerves to di erent muscles, they are instead rewired to the skin’s underlying sensory systems. They hook themselves up to the receptors in the skin, says Dr Marasco. So when the reinnervated skin (on the chest or shoulder, perhaps) is touched, it registers to the patient as a sensation in the missing limb. They have very distinct sensations that they can feel: vibrations, temperature and pressure, he says. This means sensors in a prosthetic limb could, in theory, stimulate the reinnervated skin to cause realistic sensations.

The rst example of sensory reinnervation actually happened by accident back in 2003, when the surgery was rst performed, says Ms Schultz. Several patients underwent surgery to reroute their motor nerves to di erent muscles, but in the process the sensory nerves reinnervated themselves too, attaching themselves to the skin receptors. This was discovered when one of the patients was having alcohol dabbed on his chest, and remarked that he could feel it in his missing limb.

Everyone was stunned, says Ms Schultz.

This opened the door to the possibility of providing feedback to patients. But enabling patients to sense things will mean developing sensors to go on prosthetic limbs, and corresponding devices to stimulate the reinnervated skin. To this end Dr Marasco and his colleagues have been working with Ed Colgate, a haptics expert at Northwestern University in Evanston, Illinois, and Kinea Design, a biomechatronics rm that is also based in Evanston, to develop tactile devices that would attach to the amputee’s skin.

Multisensory devices have already been developed and tested on reinnervated amputees, relaying sensations of contact, pressure, vibration, shear force and temperature. These prototypes use mechanical stimulation to create these sensations, and electrical Peltier devices to generate di erent temperatures. Patients feel the sensations in their missing limbs, and one patient was even able to discriminate by touch between sandpaper, Te on and the bumpy texture of a computer ribbon cable using arti cial touch sensors.

Although there are far fewer sensory receptors in the skin of the chest, shoulder and upper arm than there are in the hand, the tactile acuity of these regions’ skin appears to increase when reinnervated, says Dr Marasco. It’s not entirely clear why, but it probably comes down to how the brain perceives these signals. It appears that

there is much more processing power devoted to these nerves, he says. Just how much tactile acuity can be achieved remains to be seen. This is unchartered territory, says Dr Marasco.

When it comes to rewiring the limbs of paralysed patients in order to reanimate them, however, a very di erent approach is required. Researchers must instead target the deeper nerves that control movement.

The idea of electrically stimulating the muscles of paralysed people is not new.

Many di erent techniques have emerged over the years, most of which involve applying small jolts of electricity externally to muscles, via electrodes on the skin, to make them contract. Besides o ering a means of exercising the muscles, and so preventing atrophy, the hope is that this functional electrical stimulation might also help restore mobility to patients.

Reanimate this But external stimulation is less than ideal, says Dustin Tyler, a biomedical engineer at Case Western Reserve University in Cleveland, Ohio. The muscles in the legs are so large that the whole muscle does not contract, he says. So he and his colleagues have been looking at ways to activate these muscles by tapping into the femoral nerve, in the groin. By moving back to the nerve you get the whole muscle, he says. The femoral nerve is divided into several dozen separate bundles of nerves, called fascicles, each of which contains hundreds if not thousands of individual nerves. Di erent fascicles lead to di erent muscles, so stimulating groups of fascicles at di erent times and by di erent degrees should enable co-ordinated leg movements.

Stimulating fascicles can be done by wrapping so-called cu electrodes around

them. The problem is that within the femoral nerve all the fascicles are themselves bundled together, making it di cult to stimulate them individually. But Dr Tyler has developed a cu electrode that allows discrimination by gently attening the femoral nerve without damaging it. Most electrodes are designed around the assumption that nerves are round, he says.

But attening them out makes the individual fascicles accessible, like the parallel wires in old computer cables, says Dr Tyler.

And by controlling the intensity and duration of the electrical pulses applied, it is possible to specify just how much of the tissue is contracted. Besides getting patients to stand and take steps, albeit tremulous ones, Dr Tyler and his team have used an early version of this technique in a patient’s arms to enable grasping movements. They hope to carry out the rst permanent implantation of their new electrodes in November.

But to create full mobility, what is not clear is how a patient might control such a system. Some sort of joystick interface could be used to allow paraplegic people, who still have control of their upper body, to activate certain patterns of co-ordinated movement, such as standing, walking and sitting. But in the long term the ultimate goal would be to place electrodes in the motor cortex of the brain.

That is some way o . But targeted reinnervation is now available as a treatment.

More than 40 people around the world have undergone the procedure so far. Even though patients can currently use it only to control their arti cial limbs, sensory feedback is coming. And these are merely the rst examples of what can be done by rewiring the nervous system, and linking nerves to electronic and robotic devices. 7

Getting touchy-feely with haptic sensors

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Energy in the developing world

The Economist Technology Quarterly September 4th 2010

Power to the people

Technology and development: A growing number of initiatives are promoting bottom-up ways to deliver energy to the world’s poor

A

ROUND 1.5 billion people, or more than a fth of the world’s population, have no access to electricity, and a billion more have only an unreliable and intermittent supply. Of the people without electricity, 85% live in rural areas or on the fringes of cities. Extending energy grids into these areas is expensive: the United Nations estimates that an average of $35 billion-40 billion a year needs to be invested until 2030 so everyone on the planet can cook, heat and light their premises, and have energy for productive uses such as schooling. On current trends, however, the number of energy poor people will barely budge, and 16% of the world’s population will still have no electricity by 2030, according to the International Energy Agency.

But why wait for top-down solutions?

Providing energy in a bottom-up way instead has a lot to recommend it. There is no need to wait for politicians or utilities to act. The technology in question, from solar panels to low-energy light-emitting diodes (LEDs), is rapidly falling in price. Local, bottom-up systems may be more sustainable and produce fewer carbon emissions than centralised schemes. In the rich world, in fact, the trend is towards a more exible

system of distributed, sustainable power sources. The developing world has an opportunity to leapfrog the centralised model, just as it leapfrogged xed-line telecoms and went straight to mobile phones.

But just as the spread of mobile phones was helped along by new business models, such as pre-paid airtime cards and village telephone ladies , new approaches are now needed. We need to reinvent how energy is delivered, says Simon Desjardins, who manages a programme at the Shell Foundation that invests in for-pro t ways to deliver energy to the poor. Companies need to come up with innovative business models and technology. Fortunately, lots of people are doing just that.

Let there be light Start with lighting, which prompted the establishment of the rst electrical utilities in the rich world. At the Lighting Africa conference in Nairobi in May, a World Bank project to encourage private-sector solutions for the poor, 50 lighting rms displayed their wares, up from just a handful last year. This illustrates both the growing interest in bottom-up solutions and falling prices. Prices of solar cells have also fallen,

23

so that the cost per kilowatt is half what it was a decade ago. Solar cells can be used to power low-energy LEDs, which are both energy-e cient and cheap: the cost of a set of LEDs to light a home has fallen by half in the past decade, and is now below $25.

This could eliminate kerosene lighting in the next ten years, the way cellphones took o in about 13 years, says Richenda Van Leeuwen of the Energy Access Initiative at the UN Foundation in Washington, DC. That would have a number of bene ts: families in the developing world may spend as much as 30% of their income on kerosene, and kerosene lighting causes indoor air pollution and res.

But such systems are still beyond the reach of the very poorest. There are hundreds of millions who can a ord clean energy, but there is still a barrier for the billions who cannot, says Sam Goldman, the chief executive of D.light. His rm has developed a range of solar-powered systems that can provide up to 12 hours of light after charging in sunlight for one day.

D.light’s most basic solar lantern costs $10.

But the price would have to fall below $5 to make it universally a ordable, according to a study by the International Finance Corporation, an arm of the World Bank. So there is scope for further improvement.

It is not just new technology that is needed, but new models. Much of the ferment in bottom-up energy entrepreneurialism is focusing on South Asia, where 570m people in India, Pakistan and Bangladesh, mostly in rural areas, have no access to electricity, according to the International Energy Agency. One idea is to use locally available biomass as a feedstock to generate power for a village-level micro-grid .

Husk Power Systems, an Indian rm, uses second-world-war-era diesel generators tted with biomass gasi ers that can use rice husks, which are otherwise left to rot, as a feedstock. Wires are strung on cheap, easy-to-repair bamboo poles to provide power to around 600 families for each generator. Co-founded three years ago by a local electrical engineer, Gyanesh Pandey, Husk has established ve mini-grids in Bihar, India’s poorest state, where rice is a staple crop. It hopes to extend its coverage to 50 mini-grids during 2010. Consumers pay door-to-door collectors upfront for power, and Husk collects a 30% government subsidy for construction costs. Its pilot plants were pro table within six months, so its model is sustainable.

Emergence BioEnergy takes this approach a step farther. Its aim is to provide many entrepreneurial opportunities 1

24

Energy in the developing world

Generating electricity from rice husks 2 around energy production, says Iqbal

Quadir, the rm’s founder, who is also director of the Legatum Centre for Development & Entrepreneurship at the Massachusetts Institute of Technology (MIT). A cattle farmer in a small village in Bangladesh might, for example, operate a one-kilowatt generator in his hut, powered by methane from cow manure stored in his basement.

He can then sell surplus electricity to his neighbours and use the waste heat from the generator to run a refrigerator to chill milk. This preserves milk that otherwise might be spoilt, o ers new sources of income to the farmer (selling power and other services, such as charging mobile phones or running an internet kiosk) and provides power to others in his village.

The farmer funds all this with a micro nance loan. It is no coincidence that this is a similar model to the telephone lady scheme, pioneered in Bangladesh a few years ago, in which women use microloans to buy mobile phones and then sell access, by the call, to other villagers; Mr Quadir helped establish Grameenphone, now the largest mobile operator in Bangladesh, and hopes to repeat its success in energy. After a pilot project in two villages, Emergence BioEnergy plans a broader rollout in 2011 in conjunction with BRAC, a

The Economist Technology Quarterly September 4th 2010

giant micro nance and development NGO. Another project, in India, aims to convert women from gathering wood, which denudes forests, to using canisters of lique ed petroleum gas (LPG). India’s four state-owned regional power companies, including Bharat Petroleum Corporation, will build a national network of thousands of LPGpowered community kitchens.

Local entrepreneurs will then provide the LPG and charge villagers to use the kitchens in 15minute increments.

Harish Hande, managing director of Selco Solar, a social enterprise in India that promotes the adoption of new energy technologies, says the important thing is not so much to deliver energy to the poor, but to provide new ways to generate income. His rm has devised a solar-powered sewing machine, for example. Last year Mr Hande started an incubation lab in rural Karnataka, in southern India, to bring together local customers and engineering interns from MIT, Stanford and Imperial College, London. The lab is currently piloting a hybrid banana dryer that runs on biomass during wet spells and sunlight on dry days to make packets of dried banana so that farmers no longer have to rely on selling their crop immediately.

Making it pay Even when new technology and models are available, the logistics of rolling them out can be daunting. The two big challenges are providing the upfront investment for energy schemes, and building and maintaining the necessary distribution systems to enable them to reach su cient scale. At the moment, most schemes are funded by angel investors, foundations and social venture-capital funds. There is a vigorous debate about whether the private sector on its own can make these models work as technology improves, or whether non-pro t groups are needed to ll the gaps in funding and distribution.

Micro nance institutions may seem the natural nancial partners to help the poor pay for energy systems, since they are the only organisations with millions of poor customers. But teething problems are formidable and success stories are few,

says Patrick Maloney of the Lemelson Foundation, which invests in clean-energy technologies for the poor. A telephone lady could buy a mobile phone for a relatively small sum, and would immediately have a source of income with which to repay the loan. Although a household that buys a solar lamp saves money on kerosene, the investment takes several months to pay for itself, and there is no actual income from the lamp. For bigger energy projects, such as micro-generators, the loan required is much larger, and therefore riskier, than the loan for a mobile phone.

Moreover, micro nance institutions may lack the funds to identify reliable energy suppliers, educate loan o cers about clean-energy technologies and build a support network for energy schemes. One way to solve this problem, being pursued

by MicroEnergy Credits, a social enterprise, is to plug micro nance institutions into carbon markets. Projects can then be funded by selling carbon credits when a micro nance customer switches from kerosene to solar lighting, for example.

Distribution is also a problem, particularly in Africa and South Asia, where the majority of the world’s energy-poor live.

Infrastructure and supply chains are poor or non-existent, particularly in rural areas.

Recruiting and training a sales force, and educating consumers of the bene ts of switching away from wood or kerosene, must be paid for somehow. Social enterprises are innovating in this area, too. Solar Aid, a non-pro t group, specialises in setting up microfranchises to identify and train entrepreneurs. The organisation works with local authorities to identify potential entrepreneurs, who must gather signatures from their local community providing both the endorsement of their neighbours and a future customer base.

They then undergo ve days of training with an exam at the end. Solar Aid is also testing a kiosk-based system to help entrepreneurs distribute LED lighting in the Kibera district of the Kenyan capital, Nairobi.

Some hurdles to bottom-up energy projects are more easily addressed. In particular, high import duties on clean-energy products in many developing countries, notably in Africa, hamper their adoption by the poor. Ethiopia, for example, imposes a 100% duty on imports of solar products, while Malawi charges a 47.5% tax on LED lighting systems. Such taxes are sometimes defended on the basis that only the rich can a ord fancy technology. But the same was said about mobile phones a decade ago and look at them now. 7

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Brain scan

The Economist Technology Quarterly September 4th 2010

25

The virtual curmudgeon Jaron Lanier, a pioneer of virtual-reality technology, has more recently become an outspoken critic of online social media

F

ROM Wikinomics to Cognitive Surplus to Crowdsourcing , there is no shortage of books lauding the Web 2.0 era and celebrating the online collaboration, interaction and sharing that it makes possible. Today anyone can publish a blog or put a video on YouTube, and thousands of online volunteers can collectively produce an operating system like Linux or an encyclopedia like Wikipedia.

Isn’t that great?

No, says Jaron Lanier, a technologist, musician and polymath who is best known for his pioneering work in the eld of virtual reality. His book, You Are Not A Gadget: A Manifesto , published earlier this year, is a provocative attack on many of the internet’s sacred cows. Mr Lanier lays into the Web 2.0 culture, arguing that what passes for creativity today is really just endlessly rehashed content and that the fake friendship of social networks is just bait laid by the lords of the clouds to lure hypothetical advertisers . For Mr Lanier there is no wisdom of crowds, only a cruel mob. Anonymous blog comments, vapid video pranks and lightweight mash-ups may seem trivial and harmless, he writes, but as a whole, this widespread practice of fragmentary, impersonal communication has demeaned personal interaction.

If this criticism of Google, Facebook, Twitter and Wikipedia had come from an outsider a dyed-in-the-wool technophobe then nobody would have paid much attention. But Mr Lanier’s denunciation of internet groupthink as digital Maoism carries more weight because of his career at technology’s cutting edge.

Mr Lanier was born in New York City in 1960, but his bohemian parents upped sticks and moved to Mesilla, New Mexico, when he was young. His mother died in a car accident when he was nine and he was raised by his father in di cult nancial circumstances. Their house was repossessed and for a long time the Laniers lived in tents. Eventually they built a strange house that the young Mr Lanier helped design. It took seven years to complete and gave him a taste for creating fantastical environments. He also collected bits of discarded technology from the nearby White Sands missile base and built

contraptions, including a haunted house that he describes as too strange and terrifying for even a single kid to visit .

But he had few friends of his own age in any case. The young Mr Lanier was far more comfortable in the company of adults and had a talent for befriending clever people who acted as mentors.

Clyde Tombaugh, the head of optics at the missile range and the discoverer of the dwarf planet Pluto, took him under his wing and helped him build telescopes from cast-o technology. Mr Lanier also had access to the well-equipped computer centre at White Sands.

Mesilla was a rough town back then, and not an easy place for a sensitive, intelligent young man to t in. I was very intensely lonely and very disconnected, says Mr Lanier. It left me with a profound awkwardness that I haven’t fully overcome. His sense of alienation gave him an abiding fascination with what it means to be connected to other people. What does it mean to not be alone? asks Mr Lanier. I’ve approached that question through music, technology, writing and other means.

After dropping out of both high school and art college, Mr Lanier tried his hand at goat-herding and midwifery. His antiestablishment tendencies prevented him from doing the obvious thing and taking a job at the White Sands missile range.

Instead, he hopped into a bullet-riddled Dodge Dart and drove to California in pursuit of a girl, characteristically hanging out with the Nobel prize-winning physicists, Richard Feynman and Murray GellMann, along the way.

It all started with Atari California in the early 1980s proved to be more accepting of bohemian inventors than Mesilla, New Mexico, and Mr Lanier felt at home. Via a circuitous route, he went from busking on the streets of Santa Cruz to working for Atari, a video-games rm, as a researcher. At his new home in Sausalito, he also busied himself developing a video game called Moondust, which he demonstrated to his new employers. Tom Zimmerman, a co-worker, recalls the game being a visual orgy where the player has to move a cloud around. Move the cloud fast enough, and you are rewarded with a surge of light and sound. Everyone else was writing shoot-’em-up games, so I knew this guy was di erent, says Mr Zimmerman.

In 1984 Atari’s fortunes changed for the worse and Mr Lanier and Mr Zimmerman 1

26

Brain scan

The Economist Technology Quarterly September 4th 2010

We have to revive the beautiful intellectual joy of computing, as opposed to the business potential.

2 found themselves without a job. For Mr

Lanier, unemployment simply meant more time to work on pet projects. Having made some money from selling Moondust, he continued to work on a postsymbolic visual programming language (VPL) for manipulating objects in threedimensional space. What was missing was an interface device to move the objects about. As it happened, Mr Zimmerman had developed a data glove some years before, with the intention of using it to mould virtual pottery. But programming was not Mr Zimmerman’s forte.

Jaron was looking for a more interesting interface technology for his programming language, says Mr Zimmerman. You could characterise it as software looking for hardware. I was on the other side. I had this rich interface device, but no application for it.

In 1985 Mr Zimmerman, along with Chuck Blanchard, Young Harvill and Steve Bryson, joined Mr Lanier’s recently formed company, VPL Research, that would pioneer virtual reality. Jaron was picking up these fantastical ideas of virtual creatures you’d inhabit through your body, and people would be interacting in this virtual world, and I was doing the interface hardware, building these gloves for him, says Mr Zimmerman. We were basically creating this industry, although we didn’t know it at the time. VPL created the rst software avatars, the rst multiperson virtual reality, the rst commercial VR equipment and its rst application, to surgical simulation. VPL thrived for a while, selling 1.3m basic data gloves to Mattel, a toymaker, and a smaller number of high-end gloves to NASA and IBM. But the rm led for bankruptcy in 1990, and all its patents were sold to Sun Microsystems, then a rising computer-maker.

Looking back, 20 years later, it is hard to say whether Mr Lanier’s VR dream has been realised or not. In a sense, it has become commonplace in the form of video games, which routinely feature avatars and have controllers that sense movement and provide vibrational feedback. But VR in the precise form that Mr Lanier originally conceived it, with headmounted displays, data-gloves and immersive environments, is used only in obscure corners of industrial design. The eld that has bene ted most from the technology is probably medicine, where VR is used for surgical training and planning. VR can also be used during surgery to enhance the surgeon’s vision, increasing the number of non-invasive proce-

dures that can be performed.

One problem in assessing the success of VR is that the term itself, coined by Mr Lanier, has come to mean many things.

The original term meant a shared experience of a virtual world in which a computer simulation intervened in the sensorymotor loop, says Mr Lanier. These days, it means just about anything.

Carry on connecting Oddly, in 1996, when Allan Weis had a crazy idea to create distributed virtual reality, he hadn’t heard of Jaron Lanier. At the time, Mr Weis worked for Advanced Network & Services, a non-pro t organisation that built and maintained a large section of the internet under contract to the American National Science Foundation. The NSF provided Mr Weis with a grant of several million dollars to develop his crazy idea, known as tele-immersion.

His rst move was to hold a conference at the University of Illinois and invite everybody he knew who was involved in virtual reality and computer graphics to join him in his new venture the National Tele-immersion Initiative.

Each person Mr Weis recruited said Mr Lanier should be running the project. Mr Weis eventually tracked him down and o ered him the job of lead scientist. He was able to get a lot of people with very large egos working together on a joint project and accomplished an enormous amount in just a few years, says Mr Weis.

He doesn’t let his ego get in the way of working with people. And I’ve never met anyone who didn’t really respect him.

Mr Lanier’s ability to connect with people, in order to connect people, is possibly his greatest asset. When describing him, his friends use terms like huggable , jovial and humanist . It is easy to see why the collectivism of Web 2.0 irks Mr Lanier. He regards it as impersonal, passive, anonymous and less than the sum of its parts, and calls it a hive mind .

He has described VR, by contrast, as the rst medium to come along that doesn’t narrow the human spirit .

You Are Not A Gadget is a pessimistic book, but Mr Lanier argues that it is optimistic about humans. It says that humans are special, they’re not computers, he explains. He does not just rail against Web 2.0. He also decries the lack of ambition in computer science, and worries that there is less experimentation than there was in the past. To criticise computing for a lack of innovation sounds odd. But when computer-science students dream

of being the next Larry Page or Mark Zuckerberg they are all thinking within the con nes of narrow engineering and commercial strategies, Mr Lanier argues.

We’re losing track of the vastness of the potential for computer science, he says.

We really have to revive the beautiful intellectual joy of it, as opposed to the business potential.

So it is perhaps surprising that Mr Lanier has collaborated with some of the very rms he criticises. He has done business with Google, which has acquired a couple of the rms where he has worked since the collapse of VPL. He has been an adviser to Linden Lab, the makers of Second Life , an online virtual world. More recently he has worked as a partner architect with Microsoft on Kinect, a camera that attaches to its Xbox 360 games console. Kinect enables full-body motion capture, voice recognition and face recognition, allowing gamers to use their bodies, voices and faces instead of conventional game controllers. When asked to justify biting the hand that feeds him, Mr Lanier observes that Microsoft is the only institution in the world for doing this type of work on a large scale.

Even more surprising, perhaps, is that Jimmy Wales, the co-founder of Wikipedia, describes Mr Lanier as a lovely guy .

We may have some disagreements about Web 2.0, says Mr Wales, but I consider his criticism to be generally thoughtful and always honest. Running Wikipedia means that Mr Wales is all too aware of the pitfalls, as well as the advantages, of mass online collaboration. We may not be as far apart as people might imagine, he says of Mr Lanier. 7 O er to readers Reprints of this special report are available at US$7.00 each, with a minimum of 5 copies, plus 10% postage in the United States, 15% postage in Mexico and Canada. Add tax in CA, DC, IL, NY, VA; GST in Canada.

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The Economist September 4th 2010 53 Also in this section 54 France’s Socialists 55 Europe’s Roma 56 Charlemagne: Long live the Karlings

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

Germany’s energy policy

Nuclear power? Um, maybe Berlin

Angela Merkel agonises over a planned phase-out of Germany’s nuclear capacity

W

HEN Angela Merkel cares about an issue she does not give a speech. Instead, she hits the road. Lately Germany’s chancellor has travelled to a wind park in Mecklenburg-West Pomerania, a nuclear reactor in Lower Saxony, and an energygenerating house in Hesse. Aiming to draw attention to Germany’s dilemmas in deciding how much and what sort of power to produce and consume in the coming decades, Mrs Merkel will bundle her answers into a comprehensive energy concept , to be unveiled at the end of September.

This is like coming up with a menu that pleases both carnivores and herbivores.

Much of the debate revolves around whether to scrap a plan devised by an earlier government to cease nuclear-power generation by 2022. The decision will affect Mrs Merkel’s political standing and the public nances, as well as Germany’s energy future. With roughly a quarter of generation capacity due to reach retirement age by 2020, decisions made now will shape the energy pro le of Europe’s biggest economy for years. There is a window of opportunity for good changes or for messing up the situation for the next 50 years, says Olav Hohmeyer, an economist at the University of Flensburg.

Meat-eaters and vegetarians agree that the window should be used to reconcile two German ambitions: to remain an industrial powerhouse and a role model for other countries in ghting climate change.

The argument is over how. Industry frets that Germans pay more for electricity than almost all other Europeans. Renewables in Germany are growing more quickly than in almost any other EU state (see chart), but that is only because consumers pay a large subsidy, some 10 billion ($12.8 billion) last year. Energy taxes, already high, may be about to rise. In August energy companies and their supporters took out full-page newspaper advertisements arguing against tax rises and for a dismantling of bureaucratic barriers to investment. To secure cheap, climate-friendly power, the signers argued, nuclear and coal would have to remain part of the mix.

But nuclear power is not a complement to renewable energy, insist the greens. Renewable power is ckle, available when

Getting greener Proportion of renewable sources in net electricity consumption, % change 1997-2008 Renewable sources, % of net electricity consumption

50 – 0 + 50 100 150 200 Germany Britain

258 15.4 5.6

Poland

4.2

EU-27

16.7

France

14.4

Austria

62.0

Source: German Ministry of Economics and Technology

the wind blows or the sun shines but absent when it does not. Until enough can be stored (perhaps behind Norwegian dams) Germany will require exible backup generators during the lulls. Plants red with natural gas can do this. Nuclear plants, which require 50 hours to restart, claims the anti-nuclear lobby, cannot.

Nuclear power is unpopular: 56% of Germans want to phase it out on schedule and just 38% favour an extension, according to one poll. Some 150,000 people across Germany demonstrated against it in April; another big protest is planned on September 18th in Berlin. Opinion is divided within the government on whether a nuclear extension would have to be approved by the Bundesrat, the upper house of parliament, which will probably vote against it. Any future government that includes the Green Party or Social Democrats will reverse any [extension] decision this government takes, says Hermann Ott, a Green member of the Bundestag. It would wreck any prospect of a future coalition between the Greens and Mrs Merkel’s Christian Democratic Union (CDU), an option she had hoped to keep open.

Yet to withdraw on schedule from nuclear power, which produces more than a fth of Germany’s electricity (see chart on next page), would be risky. The CDU is divided, but leans towards extending the deadline. Many in the party see the decision as a test for a chancellor who prefers messy compromises to clear leadership. It would be fatal to give up a source of energy that is cheap, domestic and emits little carbon, says Joachim Pfei er, a CDU member of the Bundestag. Plus the money is irresistible. An eight-year extension would produce between 21 billion and 73 billion of extra pro ts for utilities. That windfall can be taxed. For starters, the government hopes to raise 2.3 billion a year from 1

54 Europe

The Economist September 4th 2010

2 a tax on nuclear fuel as part of an

80 billion, four-year plan to reduce its de cit.

Mrs Merkel appears to favour a nuclear extension of ten to 15 years, splitting the difference between her green-minded environment minister, Norbert Röttgen, and the industry-friendly economy minister, Rainer Brüderle, a member of the junior coalition partner, the Free Democratic Party. How she will make this politically palatable is unclear. Reluctant utilities may have to come up with extra money for renewables. Mr Röttgen reportedly wants an expensive retro- tting to harden nuclear plants against terrorist aeroplane strikes.

Regardless of the nuclear decision, the government will stick with its ambitious climate goals: a 40% reduction in greenhouse-gas emissions from 1990 levels by 2020 (double the European Union’s current target), plus 30% of electricity from renewable sources by then.

The energy concept cannot stop there. Herbivores and carnivores alike want to unblock the expansion of the electricity grid, which will be needed to ship power from wind farms in the North Sea to consumers in southern Germany. But citi-

Everything in moderation Germany’s sources of electricity, 2009 Coal 18.3

Lignite 24.6

Others 3.9 Oil 2.1

%% of net consumption

Renewables 15.6

Nuclear 22.6

Gas 12.9 Source: German Ministry of Economics and Technology

zens’ movements mobilise against almost any energy project, no matter how green. It takes eight to ten years to get approval to add to the grid, complains Hildegard Müller of BDEW, which represents utility companies. Everyone thinks households and o ces, which account for half of energy consumption, should conserve more.

Mrs Merkel has whetted Germany’s appetite for cheap, secure, green energy. She is still fussing with the recipe. 7

The French opposition

Maybe he Strauss-Kahn’t paris

What looks obvious to outsiders is not clear to France’s Socialists

F

RANCE’S opposition Socialist Party should be building up for its best crack at the French presidency in over a decade.

The incumbent, Nicolas Sarkozy, is unpopular. Polls nd that a majority of the French want the left to return to power. And, in Dominique Strauss-Kahn (pictured), the boss of the IMF in Washington, DC, the Socialists have a potential candidate with a real chance of victory in 2012. One new poll nds that, if a presidential election were to take place today, Mr Strauss-Kahn would beat Mr Sarkozy in a second-round run-o by a crushing 59% to 41%.

If only it were that simple. After its summer conference at the Atlantic resort of La Rochelle last weekend, where delegates discussed socialism over platters of fruits de mer, the party is certainly feeling upbeat. It put on a show of unity, with rival grandees posing together for the cameras in studious harmony. Yet Mr Strauss-Kahn, the party’s best potential candidate, may not get the nomination.

Correction: Last week’s story on drug use in the former Czechoslovakia incorrectly con ated the velvet revolution and the velvet divorce. The country split into the Czech Republic and Slovakia in 1993, not 1989. Our apologies for the error.

The reason is that the Socialist boss, Martine Aubry, is doing pretty well herself.

Originally considered a caretaker leader, the mayor of Lille led the party to a sweeping victory at regional elections earlier this year. This transformed her from backroom steward into a politician with votewinning credibility. Unlike the economically liberal Mr Strauss-Kahn, Ms Aubry appeals to the party’s left; ten years ago, as France’s labour minister, she introduced the country’s 35-hour working-week law.

She has also deftly seized the moral high ground ceded by Mr Sarkozy, who has spent the summer expelling illegal Roma (see next page) and clearing illegal camps, a policy Ms Aubry denounced as a summer of shame for France . With the slogan Another France is possible , Ms Aubry is taking aim at Mr Sarkozy’s weak spots, stressing the need for values and respect. Polls now suggest that she too could beat Mr Sarkozy: one gave her a second-round score of 53% to his 47%.

For his part, Mr Strauss-Kahn is keeping all options open. He hinted earlier this year that he might run in 2012, and regularly visits Paris to keep in touch with Socialist friends. But he also knows that he must

keep above the grubby business of French politics while in his current job, and symbolically stayed in America during the Socialist conference. Above all, the timing is awkward. In order to stand in the Socialist primary vote, planned for next autumn, he would have to quit his IMF job ahead of the expiry of his term in September 2012.

Those who know Mr Strauss-Kahn well say that this scenario is plausible only if he is virtually guaranteed the nomination. In other words, he will not leave a top globetrotting job sorting out the world’s nancial problems to enter a French beauty contest against party rivals. He tried that last time around, in 2006, and lost to Ségolène Royal, who went on to defeat at the hands of Mr Sarkozy.

Yet the more that polls suggest Ms Aubry would defeat Mr Sarkozy, the harder it will become for Mr Strauss-Kahn’s friends to claim he is the only man for the job. As she’s a woman, it will be particularly di cult for him to say: ‘Well, she’s done a great job for the party, but she isn’t up to the presidency’, comments one gure on the left.

Besides which, for a big left-wing chunk of the Socialist Party, which wants to hike taxes to pay for a reversal of Mr Sarkozy’s plans to raise the legal retirement age from 60 to 62, Mr Strauss-Kahn is too linked to budget-cutting austerity plans and tainted by a fat American pay cheque.

If Mr Strauss-Kahn decides not to run, plenty of other hopefuls might think they have a chance. They include not only Ms Aubry and Ms Royal, whose simmering mutual suspicion is never far from the surface, but also François Hollande, Ms Royal’s ex-partner and the party’s former leader, as well as younger gures such as Manuel Valls, the mayor of a Parisian suburb. In short, 2011 could turn into a year of open warfare rather than a show of unity.

This is something the Socialists can ill afford: the last time they won a presidential election was 22 years ago. 7

Fine, I’ll stay in Washington

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Europe 55

Europe’s Roma

Hard travelling Budapest

Scapegoated abroad and the victims of prejudice at home, eastern Europe’s Roma are the problem no politician wants to solve

S

LOVAKIA is in shock; France in uproar.

The cause of both nations’ turmoil is the Roma (gypsies), or, rather, what is being done to them. This week a gunman in the Slovak capital, Bratislava, killed seven people and injured 14, before shooting himself dead. Six of the victims were a Roma family, killed inside their apartment; they appear to have been deliberately targeted.

In France the expulsion of hundreds of Roma immigrants, whom Nicolas Sarkozy’s government says were in the country illegally, has galvanised opposition from the pope, French churches, a UN committee and even several ministers in Mr Sarkozy’s own government. Yet further tough legislation is promised.

Between them the Slovakian shootings and the expulsions from France highlight the di culties faced by Europe’s largest stateless minority. An ingrained underclass, Roma are the victims of prejudice, often violent, at home in eastern Europe.

Thousands have migrated westward to seek a better life, particularly as the expansion of the European Union has allowed them to take advantage of freedom-ofmovement rules. Yet although conditions may be better in the west, the reception has rarely been friendly and politicians like President Sarkozy have ruthlessly exploited hostility towards the newcomers.

But the demagogic instincts of western leaders pale in comparison to the negligence of their eastern counterparts. Roma don’t vote much. No government in eastern Europe with a substantial Roma minority has done much to deal with the discrimination they face or the hopeless poverty that keeps them excluded from the mainstream, says Rob Kushen of the Budapest-based European Roma Rights Centre.

One of the biggest problems is schooling: Roma children are routinely placed in institutions for the mentally handicapped.

A new survey by Amnesty International says that in Slovakia, Roma make up less than 10% of the school-age population but 60% of pupils in special schools. Unsurprisingly, many leave school early, without the skills they need to compete in the job market. Instead they drift into collecting scrap metal, begging or petty crime.

Straightforward prejudice plays its part.

This week an MEP from Jobbik, a far-right Hungarian party, called for the mass internment of Roma. Last year Hungarian police sought help from the FBI after a series of attacks on Roma settlements in

which six people were killed, including a ve-year-old boy, Robika Csorba, and his father, Robert. Gunmen rebombed their house and lay in wait as they ed, before opening re. A few weeks later, six Roma teenagers arrested in the Slovak town of Kosice for allegedly stealing a purse were forced to strip naked, kiss and hit each other, as police lmed their humiliation. In western Europe Roma migrants have faced rebomb attacks in Italy, pogroms in Belfast and forcible evictions in Greece.

This year marks the halfway point of Europe’s Decade of Roma Inclusion , launched in 2005 at a riverside hotel in Budapest. Five years on, say activists, most Roma are still worse o than under communism, which, for all its faults, at least guaranteed work, housing and welfare, and stamped down on hate crimes.

Today conditions in Roma settlements on the edges of town and villages rival Africa or India for their deprivation.

Yet the Roma also su er from problems of their own making. Ambitious youngsters are often held back by their intensely

Inside Europe, outside society patriarchal and conservative societies.

Girls are married o in their teens and boys put to work at an early age rather than study. Weary of the hostility they face from the outside world, Roma communities are prone to cut themselves o from society and its laws. Four years ago in Olaszliszka, northern Hungary, a driver who clipped a Romany girl with his car (she was unhurt) was dragged from the vehicle by a mob, many of them related to the girl, and beaten to death in front of his daughters.

In recent years, under the EU’s rules on freedom of movement, a torrent of cheap workers from the east have found work in the west. But most Roma leave their homelands in search not of work but of freedom from destitution and persecution. Little wonder that France, egged on by Italy and others, has been keen to Europeanise the issue, urging Brussels to go to greater e orts to get the eastern countries to integrate their Roma. Yet now that those countries are safely inside the EU it is far harder than in the pre-accession years for Eurocrats to tell their governments what to do.

Europeans would be swift to condemn the plight of the Roma were they in any other part of the world. However, eastern European governments are unlikely suddenly to tackle a problem that dates back centuries just because Brussels tells them to. Perhaps self-interest may prove a more powerful motivator. Roma families are far larger than those of the mainstream population: the pool of deprivation is only going to grow. In addition, a recent World Bank study estimates the annual cost of the failure to integrate Roma in Bulgaria, Romania, Serbia and the Czech Republic at 5.7 billion ($7.3 billion). As the report notes: Bridging the education gap is the economically smart choice. If humanitarian arguments fail to carry the day, perhaps economics and demographics might. 7

56 Europe

The Economist September 4th 2010

Charlemagne Long live the Karlings The emperor Charlemagne is the wrong father- gure for Europe

B

EYOND the octagon of Aachen cathedral lies the golden shrine of St Mary, holding ancient relics that are displayed every seven years: the cloak of the Virgin, the swaddling clothes of the infant Jesus, the loincloth of the Saviour on the Cross and the cloth that held the severed head of John the Baptist. Such wonders made Aachen one of the great pilgrimage sites of medieval Europe. In these more sceptical times, it is the other golden casket here that commands the visitor’s attention: the one bearing the remains of Charlemagne.

The Frankish warrior-king, crowned as heir of the Roman emperors by Pope Leo III in 800, is still revered locally as a saint.

More importantly, he is the icon of Europe’s newer, secular faith: political and economic integration. Since 1950 Aachen has bestowed a yearly Charlemagne prize on the gure deemed to have done most to promote European unity. The winners are mostly a predictable cast of grandees. In 2002 the prize was awarded not to a person but to the euro. And in 2004 the judges conferred the prize on Pope John Paul II; a reversal, perhaps, of Leo’s coronation of Charlemagne.

Charlemagne has long been called the father of Europe (he even instituted a common currency). Yet he is a awed symbol.

He ruled by a sword called Joyeuse ; anathema to those good EU citizens who abjure war and adopt Ode to Joy as their anthem.

As well as Saracens, he smote future Europeans Saxons, Slavs and more. His alliance with the pope exacerbated the schism between western and eastern Christianity.

Charlemagne’s empire, moreover, was ephemeral. The partition engendered by his grandsons’ civil war proved more lasting.

Louis (or, rather, Ludwig) the German, took the lands east of the Rhine that would one day become Germany; Charles the Bald got the western lands, the core of the future France. The eldest, Lothair, got the middle bit, destined to be fought over endlessly. Aachen, the heart of the empire, became a frontier town. Known as Aix-la-Chapelle in French, it changed hands between Napoleon and the Prussians. In the second world war it was the rst German city to fall to the Allies and much of it was reduced to rubble (although the damaged cathedral survived). Charlemagne’s remains were taken to a coal-mine for safekeeping.

A pilgrim to Aachen, particularly the new incarnation of

Charlemagne as a humble columnist, should not be too cynical.

Charlemagne is a more palatable gure than some of the European empire-builders that followed him, be it Napoleon, Hitler or Stalin. Like Abraham, he is supranational, the forebear of both the French and the Germans. By remembering the man Germans call Karl der Große, perhaps Europeans can overcome their bitterness at the Kaiser and the Führer.

For Jürgen Linden, a former mayor of Aachen and now chairman of the board that awards the Charlemagne prize, the starting point for any discussion of Europe is still the war. I remember the ruins from my childhood. There was a border. It was almost impossible to go to the Netherlands or to Belgium. People smuggled butter, cigarettes and co ee, he says. Today Aachen is prospering, democracy is rmly rooted, no passport is required to visit neighbouring, or more distant, countries and much of the continent enjoys a single currency. All this, thanks to Europe.

The normalisation of Germany was achieved by yoking it to the cause of European unity; Germany provided the economic motor and France drove the bus (Britain was later hitched behind in a trailer, trying to apply the brakes). Now Europe is bigger, as is Germany. France and Germany are drifting apart, not helped by the fact that their leaders, Nicolas Sarkozy and Angela Merkel, dislike each other and understand each other even less. It is said that they can converse only in broken English. Armin Heinen, professor of history at Aachen’s university, says modern German identity was built on reconciliation with the French Erbfeind, or hereditary enemy. Now that we have an enlarged Europe, we have so many other hereditary enemies we must deal with.

Decades of half-steps towards integration have made a strange chimera of Europe: part superstate, part United Nations; a French-inspired system that now mostly speaks English; a single market that still lacks a single system of patents; a common currency without a joint economic or scal policy. Brussels moves ponderously. European integration was already being overtaken by globalisation when the nancial crisis struck. Its proudest creation, the euro, may yet be overwhelmed by the ensuing sovereign-debt crisis.

Was Jerusalem builded here?

The unity of Europe has always been like the heavenly Jerusalem, an ideal never to be reached. But increasingly Europe’s business is conducted in an earthly Jerusalem, with its grubby contests over money, in uence, jobs and national status. Ever-closer union has become ever harder, like trying to push together magnets of the same polarity. In the past the crisis might have prompted another great leap towards integration, as some Eurocheerleaders hoped it might. These days the task is merely to preserve what has been achieved: to shore up the euro, to shelter the single market from protectionism and to contain a populist antiimmigrant backlash that threatens the European Union’s cherished free movement of people.

By now the imperial Charlemagne might have unsheathed Joyeuse. Firm leadership certainly looks attractive. Yet Europe’s messiness is its strength: rows are no longer settled by the sword.

The EU is a voluntary group of democracies. For all its faults, more states want to join and none wish to leave. So the EU is likely to last longer than Charlemagne’s empire. Forget the great Karl; the bickering little Karlings are better. 7 Economist.com/blogs/charlemagne

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storemags & fantamag - magazines for all The Economist September 4th 2010 57

Britain

Also in this section 58 Religious schools 59 The Cambridge cluster 60 Bagehot: Blair’s memoirs

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

Catholics in Britain

The fruits of adversity Bolstered by immigration and challenged by the economic downturn, the church is playing an ever more active role

T

O SEE two faces of Catholic Britain, you need only walk a short way from Parliament. The train and bus stations of Victoria, where many migrants arrive to seek their fortunes, are even closer.

First there is the squat red brick of Westminster cathedral, home of England’s Catholic hierarchy; its Byzantine mosaics, glinting in candlelight, are a splendid setting for one of the country’s nest choirs.

Round the corner things are more downto-earth at a hostel and day-centre for the homeless (the largest in London, it is claimed) set up by a religious order, the Daughters of Charity. Among the duties of the priests and nuns who work at The Passage is liaison with police, hospitals and undertakers, in the fairly common event that homeless people, often young, succumb to addiction or despair.

Perhaps the distance between the two should not be overstated. For a body that works at society’s sharp end, the hostel has many friends in high places, including banks. Sta at Goldman Sachs help in the kitchen; employees at Barclays assist the homeless with tips on how to open a bank account. And for all its splendour, the cathedral is a newish building for a newly revived institution, one that remembers being weak. It was only in 1850 that Catholics felt able, for the rst since the monarchy broke with Rome in the 1530s, to have bish-

ops in England. And 20 years before that, o ce-holders had to be Anglicans.

Such discrimination may be a fading memory, but then churches have a di erent way of measuring time. Among the cathedral’s treasures are the remains of martyrs who died for the Roman faith at the hands of a Protestant state. (Protestants were killed by Catholics too, of course, but earlier.) Even in its nest bastions, Catholic England does not feel a place grown arrogant on a diet of unfettered power.

These days Catholic Britons who will be welcoming Pope Benedict XVI to their shores this month have little obvious reason to call themselves embattled. In an historic reversal, adherents of their faith have been named to one top job after another.

Chris Patten, a Conservative politician (and co-organiser of the papal visit) is chancellor of Oxford University, an institution that Catholics avoided attending (until the pope allowed them, in 1896) even after Anglicans admitted them. The previous speaker of the House of Commons was Michael Martin, whose roots are in Hibernian, working-class Glasgow. And the head of the BBC, Mark Thompson, is of the Papist persuasion. Almost the only thing a Catholic (or even the spouse of a Catholic) cannot be, by British law, is king or queen.

But the senior Catholics who are hosting the pope do not talk or act as if they had

laurels to rest on. Instead, they point out that their co-religionists work hard for whatever prominence they now enjoy as the biggest body of churchgoing Christians. Whereas the established Church of England is still trying to reconcile inherited privilege with a shrunken ock, their Catholic compatriots have had their muscles toned by some hard battles.

Nor does the success of individual Catholics mean that life is easy for conscientious believers, insists Charles Moore, a columnist and Catholic convert. Given the liberal, secular consensus that prevails in Britain, it would be almost impossible for a strict Catholic one who accepted the church’s teaching on abortion, homosexuality and stem-cell research to become prime minister, he thinks. The old Anglican prejudice against Catholics has been replaced by the secular sort.

It is true that Catholic politicians face hard questioning: Ruth Kelly, a former education secretary, was criticised for her Roman leanings. Tony Blair converted to Catholicism only after he had stepped down as prime minister. John Battle, a Catholic Labour politician, says his biggest act of religiously inspired de ance was not a bioethical issue but opposing the Iraq war in 2003. But he thinks his co-religionists have won respect for their willingness to work with other faiths in easing social problems, including the plight of migrants.

As the pope will see, the latest challenge facing his followers in Britain is also a huge opportunity an in ux of Catholic workers from eastern Europe, Asia, Latin America and Africa. Under the impact of immigration, Catholic churches are ourishing and trying hard to adapt to new languages and styles in greater London and other southern places such as Reading 1

The Economist September 4th 2010

58 Britain 2 and Southampton. Further north, some

old Catholic areas like Lancashire and Liverpool have seen church attendance plunge, but there are pockets where particular groups of migrants have settled. In bits of Lancashire there are lots of Indian Christians from the state of Kerala.

Most of the migrants who throng London’s churches are doing better than the occupants of The Passage, but sometimes not much. The Ground of Justice , a church-backed survey of migrant worshippers published in 2007, found that in some London parishes three-quarters of the congregation had no legal right to be in Britain (and were thus vulnerable to illegally low pay and blackmail). For many, hearing mass in Portuguese or Tagalog was a moment of calm in a grinding existence. In a few cases, new worshippers were instructed to integrate with a local ock that was weak and collapsing.

As an example of Catholicism at work in a grittily multicultural area, take the Jesuit church in Stamford Hill in north London, where Hasidic Jews have been joined

by Hispanic and Slavic newcomers. Gimcrack shops o er cash-remittance services to distant lands. And on Sundays, mass is said rst in English, then in Spanish, then in Polish. If migrants are not satis ed by that, they have choices: what meets their eye as they leave mass is a smart new Pentecostal church, with worship in Portuguese as well as English. For anyone who thinks churches need competition to stay on their toes, this is a healthy sight.

Nor are hard-pressed migrants the only element in Catholic London’s rich diversity. Another contingent is formed by young, successful men and women whose style and theology are conservative: believers in salvation by tweed alone , as one clerical wag dubs them. Some have emerged from monastic private schools; others are one or two generations away from roots in Ireland or eastern Europe.

Their views are often well to the right of an older group of churchgoers, who sign up readily to green and third-world causes.

Nor should their in uence be underestimated. Francis Davis, a Catholic scholar, recalls an earlier cohort of liberal worshippers who reacted with dismay to the Vatican’s rigid line on contraception, for example, but stayed in the church. These days such people tend to lapse altogether, leaving more conservative types in the pews, albeit in small numbers.

That leaves wide open the question of how the church will look when today’s young fogeys reach middle age. Filipinos and Poles are often traditional in their devotional practices; they are comfortable with statues and saints. Will local conservatism mix with the imported variety to forge a new style of Catholicism, girding for fresh battles with secularism and longing for a reversal of the Reformation? 7

State schools and selection

The religious and the rational Excellent schools tend to choose their pupils. Is there another way?

P

ARENTS seeking the best education for their o spring often look to ancient institutions. Small wonder that schools run by either the Catholic church or the Church of England are often high on their list. Almost a quarter of all children in the state system attend a religious school, most of them Anglican- or Catholic-run primary schools.

In his drive to give parents more choice in educating their children, Tony Blair raised the pro le of church schools by encouraging existing ones to expand and new ones to set up shop. The former prime minister was also keen on incorporating other religions into the state system. The rst state-funded Muslim and Sikh schools opened soon after he took power, and the rst Hindu school in 2008.

Mr Blair’s successors have lacked his zeal, but religious schools continue to ourish. One reason is that their pupils tend to do better than others in exams. In 2009, 57% of them at around age 16 passed national exams (GCSEs) with acceptable grades, including those in maths and English, compared with 51% at non-religious

School ties Autonomy, by state-school type

Allowed to: select alter set pupils other national teachers’ than local curriculum pay Religious Grammar Specialist Academy/free

✔ ✔ 10%* ✘

✘ ✘ ✘ ✔

✘ ✘ ✘ ✔

Comprehensive

20%†

✘

✘

Source: Department for Education

*When speciality is non-academic †Allowed to select from ability bands to ensure mix

state schools.

Studies suggest that this may have more to do with the intake of students than with the quality of education. Faith schools are allowed to select pupils according to whether their parents are observant religiously or pretend to be and such parents are often of higher educational attainment or commitment than the common run. They are frequently just plain richer, too. The proportion of children entitled to free school meals at Catholic and Church of England schools is lower than at non-religious state schools. The Church of England has promised to set aside places at its new schools for children whose parents profess other religions or none at all, but the pledge has no legal force.

The new Conservative/Liberal Democrat government wants to rely on methods other than overt selection to improve results in state schools. Michael Gove, the education secretary, has rushed through two main sorts of supply-side reforms. The previous government had come up with academies to revive failing, mainly inner-city schools and given them certain freedoms. Academies do not have to stick zealously to the national curriculum, for example, and they are not constrained by the national pay deals for teachers that hobble their counterparts elsewhere in the state sector (see table). They may not, however, select students: they are required to take the most local ones, even when an academy replaces that vanishingly rare thing, a failing church school.

Mr Gove invited all schools rated outstanding by inspectors to become academies. Some 900 expressed an interest in doing so. But on September 1st Mr Gove said that just 32 schools would be switching to academies at the start of term. Many had not had time to complete the process, the o cial line goes, and a further 110 are expected to become academies in the coming months. Others say that heavy lobbying by teaching unions against changing status deterred many schools.

Succeeding without selecting will also be the challenge for Mr Gove’s other supply-side initiative: free schools. Taking a leaf out of Sweden’s book, he wants groups of parents or teachers (or in principle religious leaders) to set up their own schools, which will enjoy from the outset the same freedom as academies. They too are likely to be more modest in number than Mr Gove had hoped. A lack of clarity over funding has stymied attempts to recruit to schools that exist only on paper.

Battersea, a London borough on the south bank of the Thames, for example, lacks su cient state secondary school places to meet demand, and children must either leave the area or their parents pay to send them to private schools. The Neighbourhood Schools Campaign, a parent group dedicated to creating a new state sec- 1

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storemags & fantamag - magazines for all The Economist September 4th 2010 2 ondary school, has found a site, the old Bo-

lingbroke Hospital; persuaded Wandsworth council to buy and lease back the building; and found an education charity, ARK, to run the proposed school. But until it is guaranteed the go-ahead, it cannot begin to recruit seriously. There are only a few months to go before parents must apply for secondary school places starting in September 2011.

Britain 59 For the Bolingbroke group and others like them, opening in 2012 is a more realistic target. That would give the schools time to recruit sta and prospective parents con dence that their children would not be taught in the corner of a building site.

Legislation to reform the school system may have been rushed through Parliament, but the momentum has yet to be felt in the world outside Westminster. 7

The Cambridge cluster

University challenge cambridge

The town’s high-tech industry is weathering recession well

N

EITHER the drab modernity of the suburbs nor the beautiful buildings in the centre hint that Cambridge is at the heart of one of Britain’s biggest clusters of high-tech businesses. But on the outskirts of the city, just o a busy dual carriageway, is the collection of low-rise, landscape-gardened buildings that make up the Cambridge Science Park.

The resemblance to the architecture of Silicon Valley is striking, and deliberate: the high-tech industry that has grown up around Cambridge is known as Silicon Fen . Built on the solid scienti c research provided by Cambridge University currently ranked fth in the world by Shanghai Jiaotang University, which compiles an international league table it features rms in sectors such as electronics, computing, software, scienti c instruments and pharmaceuticals. The number of jobs in research and development is around ve times the British average.

The high-tech economy has weathered the economic downturn well, at least so far. First-half pro ts at two of the cluster’s agship rms ARM, a designer of computer chips, and Autonomy, a software house rose by 102% and 24%, respectively, compared with the same period last year.

ARM has a record backlog of orders. Smaller rms seem to be holding up well too: three years after the start of the credit crunch, the St John’s Innovation Centre, an out t run by one of the university colleges that provides o ce space for start-ups, is still around 90% full. Insolvency rates across the East Anglia region fell by 53% in the year to March 2010, and by 30% nationally. And unemployment is relatively low: 2.2% of residents in the greater Cambridge area were claiming job-seeker’s allowance (the main unemployment bene t) in June, less than Britain’s 3.8%. As of September 2009, 4.9% of residents were out of work, compared with 7.4% across the country.

What explains the resilience? This re-

cession has been concentrated in sectors like nance and construction rather than high-tech, says Ray Edgson of Cambridge Consultants, a technology-development consultancy. Besides, he says, tech rms which, after all, earn their living from innovation tend not to cut research and development budgets unless they absolutely have to. Diversity has probably helped: besides its traditional strengths in electronics and software development, Cambridge has a healthy (and relatively recessionproof) medical-technology sector, and has branched out into biotechnology over the past couple of decades.

Not everything is rosy. Complaints about expensive housing are common, and so are gripes about infrastructure, particularly the city’s congested roads. Funding is now harder to come by, especially for the smallest rms. Venture-capital money has dried up, says David Gill, a former HSBC banker who now runs the St John’s Innovation Centre. Most of the rms that

managed to get money last year got it from angels [individual investors] instead. Venture-capital funding to high-tech rms across the country has fallen by around 40% over the past two years, reckons the National Endowment for Science, Technology and the Arts. The recession has exacerbated a long-term trend, says Mr Gill, who thinks many venture-capital investors have been put o the high-tech sector by a combination of uncertain returns and memories of the dotcom bust at the turn of the century.

Others are more optimistic. Nigel Brown, a local nancier who chairs the Greater Cambridge Partnership, an economic-development organisation, reckons the lack of nance has helped to blow away the froth , and that the shortage of money helps to separate strong ideas from weak ones. He is setting up a bank (tentatively named the Cambridge Boring Bank ) which will focus on lending to small rms in the area.

Looming public-spending cuts could cause problems: Mr Gill points out that many rms depend on state grants to get started, especially with other funding harder to come by. Tax breaks for research and development are rumoured to be under threat as well. Yet the cuts are likely to be less damaging here than in many places. Cambridge University, which powers the cluster, has a number of high cards.

The assets accrued during its 800-year existence mean that it relies on the state for only about two- fths of its funding. Its academic reputation will continue to draw the world’s best students. And the city’s bustling intellectual life thanks mainly to the university should keep it an attractive destination for the bright and ambitious in all walks of life. It won’t exactly be pleasant, says one local high-tech worker. But there’s no way it’ll be as bad as it was after the dotcom bubble . 7

Strictly no punting at the Cambridge Science Park

60 Britain

The Economist September 4th 2010

Bagehot Lessons from 35,000 feet Tony Blair’s rather odd memoirs contain important truths for his successors

J

UST who does Tony Blair think he is? In a revealing quirk of the English language, to ask the question is to level an accusation at the same time. The former prime minister has always been hard to pigeon-hole, by class or political tribe. He is the Oxfordeducated barrister with unabashedly bourgeois tastes who led the Labour Party to three victories over Conservative rivals of humbler upbringing. The social liberal and self-proclaimed progressive who forged close bonds with George Bush (recently declaring the Texan an idealist of genuine integrity ). The devout Christian who led his country into four wars.

Along with the invasion of Iraq, those shape-shifting qualities may go some way towards explaining the real loathing Mr Blair inspires in many British hearts. At least in his home country, three years out of o ce have done little to dim the dislike. The publication of his memoirs on September 1st was presented by much of the press as a trial to be endured. Even the announcement that he would give all the proceeds (amounting to millions of pounds) to a charity for wounded soldiers was greeted with eye-rolling, and talk of blood money.

As it happens, Mr Blair’s book, A Journey , is at once a strange and rather gripping read, with important lessons for both the coalition government of David Cameron and the Labour Party, which will choose a new leader this month. Mr Blair goes beyond making the familiar case that Labour wooed its core voters for too long, before realising they did not add up to a winning majority. Even in the mid-1990s, Labour was only resigned to compromise with the electorate, he says. Mr Blair’s insight was that the voters are right , and the party should change because it wanted to: celebrating the aspirations of middle-class Britons, and acknowledging that Britain had needed the economic and industrial reforms of the Thatcher era, while promoting compassion for the weakest in society.

Those hoping for apology or self-doubt face disappointment.

Mr Blair comes close to conceding that he wasted his early years in power, imagining the public sector could be reformed from the centre: he cites inexperience in his defence (astonishingly, being prime minister was his rst and only job in government).

His central message is not that history will absolve him (though on Iraq he asks critics to consider the oppression Saddam

would be dealing out were he still in power). Instead, again and again he prays in aid his three election victories. Ordinary people are surprisingly tolerant of messy, complicated decision-making, he insists, even if they opposed, for example, the Iraq war.

If these sound like boasts from the world of business why, millions of voters can’t be wrong that is no accident. More than once, Mr Blair suggests that the role of a modern-day prime minister is like that of a corporate CEO. Recalling his growing certainty that he was the man to reshape the Labour Party and lead it to victory, Mr Blair compares himself to a businessman who has spotted the next great opportunity . At times, indeed, his book reads less like a British political autobiography than like the memoirs of a transatlantic business tycoon. There is the same dizzying blend of self-belief, name-dropping, genuinely shrewd analysis and eclectic leadership tips. There are references to favourite parables from the New Testament, and advice on keeping a tightly controlled diary as well as ensuring access to quality bathrooms (because constant jet travel plays havoc with the bowels). Even the prose is weirdly rootless: the multicultural argot of global VIPs who spend their lives at 35,000 feet. Thus Alastair Campbell, a key press aide, had clanking great balls , George Bush is a normal guy and Alan Milburn, a favourite minister, was fully simpatico with the direction of change .

Yet A Journey is more than a reminder that the former prime minister is quite an odd man, and oddly un-British in manner for someone who seemed in his early years at least to have a telepathic feel for the instincts of his fellow countrymen. In his radical rejection of political tribalism, he is a subversive gure still.

Mr Blair insists that left/right distinctions are outdated (in a world of globalised capitalism he prefers to de ne policies on trade, immigration or the rise of emerging powers, for example, as open or closed ). Normal people do not think about politics most of the time, he adds, but show a healthy scepticism about party manifestos, knowing that they cannot set out how a party will react to unforeseen events. Instead, the character, likeability and personality of party leaders are of paramount importance .

David Cameron’s government is continuing Blairite policies, he notes for example, on autonomous academy schools, which were themselves inspired by earlier Tory reforms. At best, progressive politicians can hope to de ne themselves by xed values, such as concern for the poorest at home and abroad, rather than by policies with xed party labels.

Tribalists need not apply This is quite a comforting analysis, of course, if you happen to be a former party leader who bet big that likeability trumped traditional party boundaries. But it is possible to nd Mr Blair selfserving yet his description of how real voters think and act convincing. In pursuit of governments which speak to their instincts, lots of people may switch from party to party, while feeling they are being perfectly consistent.

There is a pointed lesson here for Labour members as they choose a new leader this month. They need to decide whether they are choosing a new boss for their party, or one who could plausibly belong to the country as a whole, as a future prime minister. Mr Blair has not endorsed a candidate (probably to the relief of all concerned). But then again he barely needs to. Like customers, voters are always right in his world: that is who he is. 7 Economist.com/blogs/bagehot

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storemags & fantamag - magazines for all The Economist September 4th 2010 61

International

E-communication and society

Also in this section

A cyber-house divided

62 Technology and protest

washington, dc

Online as much as in the real world, people bunch together in mutually suspicious groups and in both realms, peacemaking is an uphill struggle

I

N 2007 Danah Boyd heard a white American teenager describe MySpace, the social network, as like ghetto or whatever .

At the time, Facebook was stealing members from MySpace, but most people thought it was just a fad: teenagers tired of networks, the theory went, just as they tired of shoes.

But after hearing that youngster, Ms Boyd, a social-media researcher at Microsoft Research New England, felt that something more than whimsy might be at work.

Ghetto in American speech suggests poor, unsophisticated and black. That led to her sad conclusion: in their online life, American teenagers were recreating what they knew from the physical world separation by class and race.

A generation of digital activists had hoped that the web would connect groups separated in the real world. The internet was supposed to transcend colour, social identity and national borders. But research suggests that the internet is not so radical.

People are online what they are o ine: divided, and slow to build bridges.

This summer Ms Boyd heard from a scholar in Brazil who, after reading her research, saw a parallel. Almost 80% of internet users in Brazil use Orkut, a social network owned by Google. As internet use rises in Brazil and reaches new social groups, better-o Brazilians are leaving Orkut for Facebook. That is partly because they have more friends abroad (with

whom they link via Facebook) and partly snobbishness. Posh Brazilians have a new word: orkuti cação, or becoming orkutised . A place undergoing orkuti cação is full of strangers, open to anyone. Brazilians are now the second biggest users of the micro-blogging site Twitter; but some wonder whether the dreaded o-word awaits that neighbourhood too.

Facebook’s architecture makes it easy for groups to remain closed. For example, it suggests new friends using an algorithm that looks at existing ones. But simpler, more open networks also permit self-segregation. On Twitter, members can choose to follow anyone they like, and can form groups by embedding words and shortened phrases known as hashtags in their messages. In May Martin Wattenberg and Fernanda Viégas, who research the display of social information, looked at the ten most popular hashtags on Twitter and discovered that most were used almost exclusively by either black or white authors. The hashtag #cookout was almost entirely black; the hashtag #oilspill almost entirely white.

With ideology, the pair’s ndings were a bit more hopeful; liberals and conservatives at least communicate by trading taunts. They do so by appropriating hashtags so as to surface in each others’ searches. By now, only one keyword in American political discourse remains una ected by such games of tag: #NPR, or National Pub-

lic Radio, used only by liberals.

All this argues for a cautious response to claims that e-communications abate con ict by bringing mutually suspicious people together. Facebook has a site called Peace on Facebook, where it describes how it can decrease world con ict by letting people from di erent backgrounds connect. (The optimism is catching; this spring a founder of Twitter described his service as a triumph of humanity .)

Peace on Facebook keeps a ticker of friend connections made each day between people from rival places. Israelis and Palestinians, the site claims, made about 15,000 connections on July 25th, the most recent available day. That is hard to put in context; Facebook does not make public the total number of friendships in any country. But Ethan Zuckerman, a blogger and activist, used independent data to estimate that these links represent roughly 1-2% of the combined total of friendships on Israeli and Palestinian accounts. Using the same method for Greece and Turkey, his estimate was 0.1%. That understates the role of Greek-Turkish friendship groups, or groups dedicated to music or lms that both countries like. Among, say, people from either country who are studying outside their homeland (and have a betterthan-average chance of becoming decision-makers), the share of trans-Aegean links would be far higher. And their mere existence sends an important moral signal. 1

The Economist September 4th 2010

62 International 2

But Mr Zuckerman frets that the internet really serves to boost ties within countries, not between them. Using data from Google, he looked at the top 50 news sites in 30 countries. Almost every country reads all but 5% of its news from domestic sources. Mr Zuckerman believes that goods and services still travel much farther than ideas, and that the internet allows us to be imaginary cosmopolitans .

Peace on Facebook o ers data for India and Pakistan, too. That is even harder to put in context. Pakistan has banned Facebook in the past, and o ers too few users to qualify even for independent estimates.

John Kelly, founder of Morningside Analytics, a rm that analyses social networks, examined links between blogs and twitter accounts in India and Pakistan and discovered two hubs that link the two countries.

South Asian expats in London who selfidentify as Desis people from the subcontinent link freely to each other and to their home countries. And cricket fans in both countries link up spontaneously.

Mr Kelly believes that clusters of internet activity, when they do cross national borders, ow from pre-existing identities.

Ethnic Baloch bloggers in three di erent countries link mainly to each other. Blogs in Afghanistan show some ties to NGOs and American service members, but a far greater number to Iranian news services and poetry blogs. That re ects old reality, not some new discovery. There is also some hope in Morningside’s data. Four websites most consistently account for links between countries: YouTube, Wikipedia, the BBC and, a distant fourth, Global Voices Online. The last of these, launched at Harvard University in 2005 and mainly funded by American foundations, works to create links between bloggers in di erent countries, and to nd what it calls bridge bloggers : expats and cultural translators, like London’s Desis, who help explain their countries to each other.

(This newspaper has a loose editorial collaboration with the site.)

Onnik Krikorian, Global Voices’ editor in Central Asia, is a British citizen with an Armenian name. He couldn’t go to Azerbaijan and had di culty establishing any online contact with the country until he went to a conference in Tbilisi in 2008 and met four Azeri bloggers. They gave him their cards, and he found them on Facebook. To his surprise, they agreed to be his friends. Mr Krikorian has since found Facebook to be an ideal platform to build ties.

Those rst four contacts made it easier for other Azeris to link up with him.

But the internet is not magic; it is a tool.

Anyone who wants to use it to bring nations closer together has to show initiative, and be ready to travel physically as well as virtually. As with the telegraph before it also hailed as a tool of peace the internet does nothing on its own. 7

Technology and protest

A town crier in the global village ottawa

A cross-border fraternity that strives to be seen, heard and heeded

N

EARLY four years ago, a web-based political movement set itself the modest task of closing the gap between the world we have and world most people everywhere want . Calling their group Avaaz, which means voice in several languages, the founders aimed to reproduce globally some of the success which their progenitors like America’s Moveon.org, and Australia’s Getup! had enjoyed in national political arenas.

By its own lights, the movement, using 14 languages and engaged in a mind-boggling list of causes, has had some spectacular successes. Within the next few months, membership will top 6m. The number of individual actions taken (from bombarding a politician with a well-aimed message, or funding a poster campaign, to helping provide satellite phones to Burmese monks) is estimated at over 23m. Among the recent developments Avaaz claims to have in uenced are a new anti-corruption law in Brazil; a move by Britain to create a marine-conservation zone in the Indian Ocean; and the spiking of a proposal to allow more hunting of whales.

But is there any objective measure by which the reach of a global e-protest movement can be assessed? Sceptics use words like clicktavism to describe political action that demands nothing more of a protester than pressing a button, which may just imply curiosity; and

it is rarely possible to prove beyond doubt that e-campaigning is a decisive factor in a political outcome.

On the other hand, argues Ricken Patel, a co-founder of Avaaz, digital activism rarely ends with the click of a mouse.

Avaaz’s campaign against the death sentence for adultery imposed on an Iranian woman asks members to phone Iranian embassies (and provides numbers); members are also being urged to put pressure on the leaders of Brazil and Turkey to intercede with Iran. Avaaz is collecting funds for a campaign in the Brazilian and Turkish press, too.

Avaaz’s other demands range from the simple close Guantánamo, because it plays into the hands of Osama bin Laden to the very broad: ght climate change, avoid a clash of civilisations.

Despite the risk of blurred signals, the variety of causes is also a strength, says Dave Karpf, an American analyst of the net; it allows the group to act as a hub, attracting members to one campaign and telling them about others. As Evgeny Morozov, a writer on the internet (including for The Economist) points out, Avaaz has lost whatever monopoly it had over the creation of instant, cross-border lobbies; you can do that on Facebook. But the way Avaaz bunches unlikely causes together may be an asset in a world where campaigns, like race and class, can still segregate people, not reconcile them.

A new way of looking at that prison camp

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storemags & fantamag - magazines for all The Economist September 4th 2010 65

Business

Also in this section 66 Patent trolls 66 The next billion internet users 67 Old media dominate online TV 70 The joy of car-sharing 70 Brazil’s overpriced oil 72 Burger King for sale?

72 A minimum wage for Hong Kong 74 Schumpeter: Are American universities doomed?

For daily analysis and debate on business, visit Economist.com/business- nance

Fake drugs

Poison pills NEW YORK

Counterfeit drugs used to be a problem for poor countries. Now they threaten the rich world, too

D

RUG smugglers can expect harsh penalties nearly everywhere if the drugs in question are heroin or cocaine. Those who smuggle counterfeit medicines, by contrast, have often faced lax enforcement and light punishment. Some governments deem drug-counterfeiting a trivial o ence, little more than a common irritant. After all, whose spam lter does not groan with ads for suspiciously cheap Viagra ?

This could be changing, however. The pharmaceutical industry has persuaded several governments to sti en regulations against fake drugs and to conduct more aggressive raids (see chart). Companies are also devising novel technologies to outfox the criminals. Even the Catholic church is joining the cause, issuing a stern statement in August that it is in the best interest of all concerned that smuggling of counterfeit drugs be fought against .

The pope’s concern is justi ed. Counterfeit drugs can kill. Many are shoddily made, containing the wrong dose of the active ingredient. Taking them instead of the real thing can turn a treatable disease into a fatal one. It can also foster drug resistance among germs. This has been a big problem for a long time in developing countries.

Studies of anti-infective treatments in Africa and South-East Asia have found that perhaps 15-30% are fakes. The UN estimates that roughly half of the anti-malarial drugs sold in Africa worth some $438m a year are counterfeits.

Roger Bate of the American Enterprise Institute, a think-tank in Washington, DC,

cautions that any such estimates should be treated with care. The countries with the most fakes may not be cracking down, so o cial gures will look rosy; in contrast, countries with a smaller counterfeit trade that are vigilant may end up with more seizures. The World Health Organisation agrees, and has recently taken its estimates o its website. Even so, Mr Bate says his eld work has convinced him that counterfeits kill at least 100,000 people a year, mostly in the poor world.

Now it appears that fakes are taking o in the rich world too. Yes, Viagra still tops the list of knock-o s seen by P zer, says John Clark, the American drug rm’s global head of security; but fake versions of at least 20 of its products (including Lipitor, a blockbuster cholesterol drug) have been detected in the legitimate supply chains of

at least 44 countries. Mr Clark’s intelligence comes from P zer’s global network of informants, consumer tip-o s and instore inspections. He sees worrying trends.

Counterfeiters used to operate chie y in developing countries, says Mr Clark, but now his rm sees fakes coming from such rich and well-regulated places as Canada and Britain. And the crooks are growing more technologically sophisticated: some can even counterfeit the holograms on packets that are meant to reassure customers that pills are genuine.

A consumer study funded by P zer recently found that nearly a fth of Europeans polled in 14 countries had obtained medicines through illicit channels. That, the rm reckons, makes for a grey market in the EU of over 10 billion ($12.8 billion).

Terry Hisey of Deloitte, a consultancy, thinks the global market for fakes could be worth between $75 billion and $200 billion a year. Those staggering sums, he argues, help explain the emergence of a urry of new technologies and companies hoping to help the drugs industry secure its global supply chain .

In July Oracle, an American software giant, unveiled Pedigree, a programme that helps drugs rms track and trace pills all 1

Extr@ 5trong V!agra g00d pr1ce Global seizures of counterfeit, illegally diverted and stolen pharmaceuticals

Seizures by region*, 2009 2,000 1,500

0

200

400

600

800 1,000

Asia Latin America Europe

1,000 500

North America Eurasia Near East

0 2002 03

04

05

Source: Pharmaceutical Security Institute

06

07

08

09

Africa *Numbers exceed total, as region included if it is origin, point of seizure or transit, or destination of illegal pharmaceuticals

66 Business

The Economist September 4th 2010

2 the way from the factory to your ngers.

IBM has a rival o ering, as well as one using radio-frequency identi cation (RfID) chips, which are embedded in packaging to detect tampering and allow precise tracking. 3M, a materials company, and Abbott Laboratories, an American medical rm, are also rolling out an RfID-based product. A division of Johnson & Johnson, a drugs giant, has developed web-based software to help customs o cials quickly verify whether drugs are fake or real.

Poor countries nd it hard to take advantage of such technologies. Sophisticated radio tags and database software are not

much use in places where street hawkers peddle fakes with impunity. Still, even in such di cult circumstances, a combination of political will and business ingenuity can make a di erence.

Bottom-up battle A Ghanaian start-up rm, mPedigree, has come up with a clever way to use mobile phones in this ght. Participating drugs companies emboss a special code onto packages, which customers nd by scratching o a coating. By sending a free text with that code, they can nd out instantly if the package is genuine or a fake.

Intellectual-property battles

Patent lather SAN FRANCISCO

Paul Allen has rekindled a controversy over patent trolls

D

EEP-FRIED beer may sound scrumptious, but is it patentable? Mark Zable, an inventive Texan, thinks it is. To protect his novel production process, which involves encasing the alcohol in batter and dunking it in a fryer, he recently applied for a patent. He wants to pro t if others exploit his beery brainwave.

Without patents to protect their creations, inventors would have little incentive to invent. But some Americans fret that patent protection has grown too strong. The system breeds so many lawsuits, they worry, that it throttles the innovation it is supposed to promote.

Consider a suit led on August 27th by Interval Licensing, a rm owned by Paul Allen, a co-founder of Microsoft. It targets everyone who is anyone in Silicon Valley, including Google, Apple, eBay, Yahoo! and Facebook. (But not Microsoft.)

It involves four patents covering inventions that improve an internet user’s online experience, such as suggestions for further reading related to a news article and pop-up features that display share prices. Interval claims these were pioneered at Mr Allen’s now defunct Silicon Valley research laboratory and then patented between 2000 and 2004. It accuses each of its targets of violating one or more of the patents.

Their response has been swift. Facebook called the suit completely without merit while Google harrumphed about people trying to compete in the courtroom instead of the marketplace . In private, some executives accuse Mr Allen of behaving like a patent troll a name given to rms that buy up patents solely in order to squeeze money out of companies that allegedly infringe them. Tech rms like trolls about as much as the Billy Goats Gru did. An aggressive troll can hold up a billion-dollar product over a

patent worth a fraction of that.

By that strict de nition, Mr Allen is not a troll. The suit involves advances that Interval says were made in Mr Allen’s own lab, not someone else’s. But the case does have some trollish features, say Mr Allen’s critics. Why, they ask, did Interval wait so long to assert its rights?

Was it tempted by the large piles of cash that so many tech rms built up during the downturn?

Successful tech companies undoubtedly face a problem with out-of-the-blue patent suits, says Michael Jacobs of Morrison & Foerster, a law rm, who notes that the vast majority of cases end up producing formal licensing deals of some kind or other. According to PatentFreedom, a body that tracks the activity of what it calls non-practising entities , or out ts such as Acacia Research that collect patents without intending to use the underlying technology in products, the number of court cases brought by them has risen sharply, from 109 in 2001 to 470 last year.

E orts to address this problem through the courts have so far failed.

Legislation designed to improve matters is still stuck in Congress. So companies are looking for other ways to protect themselves. RPX, a rm that specialises in defensive buying of potentially problematic tech patents, has seen its client base more than double this year to almost 60 companies, including Dell and Hewlett-Packard. The rm licenses its entire portfolio of 1,500 or so patents and rights to its members in return for an annual fee based on their operating income. John Amster, RPX’s boss, says that although the rm can’t eliminate patent risk, it o ers a cost-e ective way to reduce it. That is worth celebrating perhaps with a deep-fried beer.

Bright Simons, the rm’s boss, argues that technologies like his can be a useful bottom-up complement to top-down enforcement. Having successfully completed initial trials, he says, mPedigree is ready to expand its service in the region. The government of Nigeria, where fakery is rife, recently declared its intention to adopt such a text-based validation system.

Thomas Kubic of the Pharmaceutical Security Institute, an industry-funded out t, gives warning that this war will be hard to win. After more than 30 years as an investigator, he is sure that crooks will eventually nd a way around any defence.

Even so, he thinks novel approaches such as mobile-based validation may harden the target , just as a burglar alarm makes your home somewhat trickier to rob. If the cost and complexity of faking drugs goes up, crooks may choose to fake Gucci handbags instead. This would still be theft, not to mention a crime against fashion. But it will not kill anyone. 7

Mobile internet in emerging markets

The next billion geeks DADRI, UTTAR PRADESH

How the mobile internet will transform the BRICI countries

B

UYING a mobile phone was the wisest $20 Ranvir Singh ever spent. Mr Singh, a farmer in the north Indian state of Uttar Pradesh, used to make appointments in person, in advance, to deliver fresh bu alo milk to his 40-odd neighbours. Now his customers just call when they want some.

Mr Singh’s income has risen by 25%, to 7,000 rupees ($149) a month. And he hears rumours of an even more bountiful technology. He has heard that something on mobile phones can tell him the current market price of his wheat. Mr Singh does not know that that something is the internet, because, like most Indians, he has never seen or used it. But the phone in his 1

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Imagine how noisy the trains will be Personal computers and mobile-phone sim cards, bn India: PCs

sim cards

China: PCs

sim cards 1.2 1.0 0.8 0.6 0.4 0.2 0

2006

09

Source: Boston Consulting Group

15* *Forecast

storemags & fantamag - magazines for all The Economist September 4th 2010 2 calloused hand hints at how hundreds of

millions of people in emerging markets perhaps even billions will one day log on.

Only 81m Indians (7% of the population) regularly use the internet. But brutal price wars mean that 507m own mobile phones. Calls cost as little as $0.006 per minute. Indian operators such as Bharti Airtel and Reliance Communications sign up 20m new subscribers a month.

In other developing countries, too, there are many more mobile phones than internet connections. In Brazil, Russia, India, China and Indonesia (the so-called BRICI countries), there are 610m regular internet users but a staggering 1.8 billion mobile-phone connections, according to the Boston Consulting Group (BCG). In a report called The Internet’s New Billion , BCG predicts that by 2015 there will be 1.2 billion internet users in these countries dwar ng the total in America and Japan (see chart on previous page).

These new internet users will mostly log on via their mobile phones. This tends to be cheaper and easier than any other option. In Brazil, xed-line broadband is often prohibitively expensive; in Russia, where it can be much cheaper, it is often unavailable. In India, where infrastructure is always a headache, it is hard to get a good basic landline, let alone broadband.

Poor people seldom have personal computers. In the BRICI countries, whose combined population is more than 3 billion, there are only 440m PCs. Many people use internet cafés, but these are inaccessible to rural folk. A connection in your pocket is far more convenient.

Hordes of Indians will start using their mobiles to access the internet early next year when third-generation (3G) services, which allow subscribers to access the web, arrive. Kunal Bajaj, India director of Analysys Mason, a British consultancy, expects the take-up to be as fast and as revolutionary as it has been for mobile phones. The telecoms companies have seen what happens when they drop prices. They’ve already tasted blood. The price wars will be just as aggressive, he says.

The stakes are high. In developing countries, every 10 percentage-point increase in mobile-phone penetration yields an extra 0.81 percentage points of annual economic growth, according to a 2009 World Bank study. The mobile internet could be even more powerful. The unemployed will search for jobs online. Farmers in remote areas will nd customised advice on crop planting.

The drawback of the internet is that you have to be literate to use it. That is a huge problem in India, where the literacy rate is only 60% (in China and Russia, it is over 90%). Mr Singh, the farmer, cannot read, so he cannot send text messages. He says he often needs help dialling numbers correctly, too. 7

Business 67 Online television

Hogging the remote

Old-media rms are rmly in control of internet video

L

IKE stallholders in a busy market, technology companies hawked their online-video services this week. In Berlin, Sony announced it would begin selling lms over the internet to Europeans. In San Francisco, Apple unveiled a smaller, cheaper Apple TV, a set-top box designed to play videos. It also said some television shows would be available à la carte for 99 cents. YouTube, a video-streaming website owned by Google, is trying to cut deals with studios that would allow it to rent newly released lms. Amazon too is reportedly trying to build a subscription service. But while technology companies are making all the noise, old-media rms are quietly steering the market.

The main reason for all the activity is the abrupt appearance in shops of televisions that can plug into the internet, either through cables or wirelessly. NPD, a research rm, reckons that 12% of all the atscreen televisions sold in America in the rst seven months of this year were connected . That share is likely to soar. Technology rms spy an opportunity to bypass old-fashioned distributors and bring online video directly to the living room.

And media rms spy a threat. Even the most diversi ed companies have become dependent on people’s willingness to pay hefty bills for multi-channel television each month. Cable and satellite TV supplied fully 71% of News Corporation’s pro ts in the second quarter of this year. Any video distributed outside the current, lu-

Some prefer old-style television

crative pay-TV framework worries the media rms. They merely have to look at the music business, or the newspaper business, to see the dire consequences of losing control of their content online.

But there are only a few big lm and television producers, and they have applied the brakes. Apple has been unable to set up a subscription service for television and lms. Its e orts to persuade companies to drop the prices of TV shows have been rebu ed by all except News Corporation and Disney, on whose board Steve Jobs, Apple’s head honcho, sits. Hulu, an online video aggregator owned in part by the studios, has similarly failed to obtain many shows from cable TV or from CBS, America’s most popular broadcast network. Its owners have pushed it into setting up a paywall.

Even Google, the arch-disrupter, is looking tame. The rm is building its browser and search bar into high-end televisions, hoping that couch potatoes will use it to look for programmes. If some of them can be directed to shows on YouTube, Google will be able to siphon advertising away from television. It would be a ne plan if YouTube had lots of high-quality programmes, but it hasn’t. (The Onion, a humorous website, once imagined a YouTube contest challenging users to make a good video.) So YouTube will probably have to pay top dollar for lms, limiting its appeal and turning a once subversive force into a 1 humdrum distributor.

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70 Business 2

The Economist September 4th 2010

Old-fashioned television is hardly being swept away. At present people watch online video for three hours per month, according to Nielsen, compared with 158 hours for old-style television. And the early evidence suggests that those whizzy new connected sets are not always connected. A recent poll for Forrester Research found that many people didn’t fully understand the devices they had bought, and only a few had recommended them to their friends. They may learn. But such apathy from early adopters suggests that content owners will have plenty of time to prepare for the revolution.

One out t is steadily gaining ground.

Net ix, which rents DVDs through the post, has been amassing subscribers: 15m so far. It is gradually moving into online distribution, and is becoming popular on connected TVs. It will be built into the new Apple TV. Net ix has a pot of money to spend on rights, and wants to acquire some content exclusively. Although it stayed quiet this week, it is the company to watch and, if you are a television or lm executive, to worry about. 7

Car-sharing

Wheels when you need them Renting cars by the hour is becoming big business

C

AR clubs, whose members pay an annual fee and then rent a car by the hour on a pay-as-you-go basis, are moving from a fringe fad for greens to a big global business. Carmakers have no choice but to pay attention: one rental car can take the place of 15 owned vehicles.

Car-sharing started in Europe and spread to America in the late 1990s, when the rst venture opened in Portland, Oregon, a traditional hangout of tree-huggers.

For years it was organised by small co-operatives, often supported by local government. It still has a green tinge. One in ve new cars added to club eets is electric; such cars are good for short-range, urban use. But sharing is no longer small.

Frost & Sullivan, a market-research rm, estimates that by 2016 the market will be worth $6 billion a year, half of that in America, with a total of some 10m users.

Outside America, most of the growth is in Britain and other north European countries such as Germany. The market leader is a company called Zipcar, founded in Cam-

Correction: our story on shocking new accounting rules ( You gonna buy that? August 21st) contained a shocking error. We should have said that the obligation to pay for a leased item will go in the liabilities column, not the debit column. Sorry.

bridge, Massachusetts, which is now headed for a public listing. Zipcar already has 400,000 members, mostly in America where it is thought to have 80% of the market. It recently bought Streetcar, the market leader in London, though competition authorities are still scrutinising that deal.

Zipsters, as members are called, book their car by phone or online, pick it up from a nearby parking bay and unlock it with their Zipcard. When they nish, they leave it in a neighbourhood parking bay, rather than having to return it to a central depot.

Hertz and Avis, two conventional car-hire rms, are trying something similar, fearful that their daily and weekly rental business will su er if they ignore the new trend.

Carmakers are interested, too. Daimler launched its car2go with a pilot scheme in Ulm, in Germany, where it now has 19,000 members nationwide. It has also set up a scheme in Austin, Texas, where members can pick up the car in one place, leave it in another and pay by the minute. Such carsharing schemes have been been boosted

by American university campuses banning student cars to ease congestion.

Daimler, which makes Mercedes cars and trucks, uses its tiny smart fortwo cars for the service. In Germany the market leader in car-sharing is a company owned by Deutsche Bahn, a railway giant, based around railway stations. In France, Peugeot is experimenting with its own scheme.

Frost & Sullivan calculates that a car owner doing 12,000 miles (19,000km) a year can save $1,834 by shifting to a carsharing service. So car-sharing will stimulate short-term demand for new cars while threatening a proportion of carmakers’ longer-term sales. There is one way that car-sharing might actually help carmakers, however. The main car-sharing rms are keen to promote electric vehicles, since that ts with their green ethos. So they could become a reliable source of demand for such cars, which carmakers feel they ought to make but are unsure if they can sell. And if sharers like their electric vehicles, they may even go on to buy them. 7

Petrobras

Over a barrel Brazil’s oil giant may be paying too much to pump the stu Rio de Janeiro

F

OUR years ago Brazil struck oil up to 350km (220 miles) o shore and buried under deep water and thick layers of rock, sand and corrosive salt. In places, the oil elds are 7km below the surface, so getting the black stu out was always going to be hard. Now it looks like nding the funding will be tricky too.

On September 1st, two months later than planned, Brazil’s government made public the price it will demand for an estimated 5 billion barrels, mostly in the Franco eld o the coast of Rio de Janeiro. Petrobras, the national oil company that was partially privatised in 1997 (Brazil’s government still owns 40% and a majority of voting rights), will have to pay $8.51 a barrel.

Analysts frown that $6 would be more reasonable. Oil is $74 a barrel, on the surface, but is worth much less underground.

Petrobras is Latin America’s largest company by market value, but it is short of cash and its feud with the government has helped to wipe 25% o its shares since the start of the year. Setting the price for those reserves is the rst step in a complex plan to raise badly needed capital. It will pay in shares, not cash. This will allow the government to bolster its stake. On September 30th Petrobras is expected to hold a rights o ering, in which minority shareholders can participate. It was hoping to raise $25 billion, but that will now be hard.

Deep-water drilling is risky, as BP found out in the Gulf of Mexico. Future Brazilian concessions are expected to be run on a pro t-sharing basis, with companies other than Petrobras able to take part. In all cases, however, the government is likely to demand that Petrobras be the operator. Analysts worry that the rm will spread itself too thinly. The government insists that 65% of contracts for drills, ships, platforms and so on must go to Brazilian rms. Investors hate that. There are an estimated 50 billion barrels of oil in the various pre-salt elds (ie, the elds under the salt beneath the sea). Local sourcing will require huge numbers of Brazilian workers to acquire skills they currently lack.

Further delays are possible. Minority shareholders are complaining about the potential dilution of their holdings, and some are threatening to sue. And the coastal states o whose shores the oil lies may also cause trouble. They are mi ed that Brazil’s federal government is taking what they see as their wealth and lavishing it on 1 poorer states to the north.

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72 Business

The Economist September 4th 2010 A minimum wage for Hong Kong

The oil is theirs

So much for red in tooth and claw

Brazil’s oil, barrels per day, m 2.5

hong Kong

2.0

An enclave of unbridled capitalism thinks again

1.5

I

Consumption

1.0 Production 0.5 0

1965 70 75 80 85 90 95 2000 05 09 Source: BP

2

With elections due on October 3rd, Brazil’s government was anxious to avoid the accusations of selling the country short that would have followed had it set an investor-pleasing price for the oil. Luiz Inácio Lula da Silva, the president, has made much of the opportunity that oil wealth brings. It will propel Brazil to developedcountry status, he says. He plans a development fund to spend the government’s share, on infrastructure, education, housing and the like. But rst the oil must ow, and that means getting private money owing into Petrobras. 7

Burger King

Whopper to go NEW YORK

Will Burger King be gobbled up by private equity?

S

HARES in Burger King (BK) soared on September 1st on reports that the fastfood company was talking to several private-equity rms interested in buying it.

How much beef was behind these stories was unclear. But lately the company famous for the slogan Have It Your Way has certainly not been having it its own way.

There may be arguments about whether BK or McDonald’s serves the best fries, but there is no doubt which is more popular with stockmarket investors: the maker of the Big Mac has supersized its lead in the past two years.

Recession has favoured McDonald’s over BK, whose share price has fallen by half since the economy was ame-grilled in the summer of 2008. Shares in McDonald’s have risen, reaching an all-time high in August. Same-store sales at BK have fallen for ve successive quarters.

Why has McDonald’s been eating BK’s lunch? Among other things, BK has always had a higher proportion of sales to young men, who have been hit especially hard by the recession. McDonald’s, by contrast, has

T HAS been mooted since 1932, but Hong Kong has never had a minimum wage. It soon will, however. In July a law was passed. And on August 30th, after endless meetings, an o cial commission agreed to recommend what the minimum hourly wage should be. That gure was not disclosed, but leaks suggest it will be HK$28-29 ($3.60-3.70).

That is halfway between what labour groups demanded and what business groups reluctantly suggested. It will please no one: the territory’s largest labour organisations vowed to ght for at least HK$33, plus annual increases. Prices are rising and wage grumbles are rife. Bus workers brie y went on strike in August.

China Daily, an organ of the mainland government, predicts that 314,000 workers (9% of Hong Kong’s workforce) will bene t. It would be more accurate to say that 314,000 people will be a ected, since they are currently paid less. At fast-food outlets, for example, HK$22 an hour is common. Security guards and cleaners are also ill-paid. Some will reap higher wages. Others will be sacked. No one knows how many. The liberal Ming Pao newspaper put the gure at 100,000, based on a survey of about 500 small businesses.

The indirect cost will be harder to measure, but could be more important.

Hong Kong is lled with tiny private companies. In July, there were 824,471 of them registered one for every 4.5 workers. Many are mere shells, but others are extraordinarily active. Few have a human-resources department or much experience in providing paperwork to

for several years wooed women and older people with relatively healthy salads and drinkable co ee. BK has struggled to follow suit. At the same time, it has had to contend with angry shareholders, as the rising cost of beef and other ingredients has clobbered its pro ts. BK may also have cannibalised its existing sales by o ering value meals that were a bit too irresistible.

BK is used to changes in ownership. It went from being part of Pillsbury, a food company, to Grand Metropolitan, a British conglomerate, then to Diageo, a drinks giant. In 2002 it was sold to a group of private-equity investors: TPG, Bain Capital and Goldman Sachs. They did a fair job, improving sales with better marketing. They also helped turn around the most troubled of the franchisees who operate most BK restaurants. In 2006 BK oated its shares

the government.

Hong Kong doesn’t o er a large consumer market, as China does, or low production costs, or even clean air. What it has traditionally o ered is simplicity.

Businesses can start, operate and grow with minimal interference from the state.

That is why this speck of rock is rich.

Backers of the minimum wage hope that it will be followed with other rules, such as caps on working hours. With each new rule, businessfolk fear, doing business will become a little more cumbersome. Some rms will grow more slowly. Others will never start.

Hyperbolic in Hong Kong again. Its bosses may hope that going private once more will protect them from short-term stockmarket pressures while they ponder how to beat McDonald’s.

If BK does go private, it may be part of a trend in the private-equity industry now that some of the bigger rms have rediscovered their appetite for deals of gobbling up the companies they had taken public during the bubble years but which are now trading cheaply. TPG, Bain Capital and Goldman Sachs still own a sizeable stake in BK, despite listing it on the New York Stock Exchange in 2006. However, it seems that other private-equity rms are interested in buying it. If that happens, no doubt BK servers will appreciate the irony: the act of passing a company from one private-equity rm to another is known in the business as ipping . 7

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74 Business

The Economist September 4th 2010

Schumpeter Declining by degree Will America’s universities go the way of its car companies?

F

IFTY years ago, in the glorious age of three-martini lunches and all-smoking o ces, America’s car companies were universally admired. Everybody wanted to know the secrets of their success. How did they churn out dazzling new models every year? How did they manage so many people so successfully (General Motors was then the biggest private-sector employer in the world)? And how did they keep their customers so happy?

Today the world is equally in awe of American universities.

They dominate global rankings: on the Shanghai Ranking Consultancy’s list of the world’s best universities, 17 of the top 20 are American, and 35 of the top 50. They employ 70% of living Nobel prizewinners in science and economics and produce a disproportionate share of the world’s most-cited articles in academic journals. Everyone wants to know their secret recipe.

Which raises a mischievous question. Could America’s universities go the way of its car companies? On the face of it, this seems highly unlikely. Student enrolments are higher than ever this year, as Americans who cannot nd jobs linger or return to education. Cambridge, Massachusetts, shows no outward sign of becoming Detroit. Yet there are serious questions about America’s ivory towers.

Two right-wing think-tanks, the American Enterprise Institute (AEI) and the Goldwater Institute, have both produced damning reports about America’s university system. Two left-wing academics, Andrew Hacker and Claudia Dreifus, have published an even more damning book: Higher Education? How Colleges are Wasting Our Money and Failing Our Kids and What We Can Do About It . And US News & World Report, a centrist magazine, says in its annual survey of American colleges that: If colleges were businesses, they would be ripe for hostile takeovers, complete with serious cost-cutting and painful reorganisations.

College fees have for decades risen faster than Americans’ ability to pay them. Median household income has grown by a factor of 6.5 in the past 40 years, but the cost of attending a state college has increased by a factor of 15 for in-state students and 24 for out-of-state students. The cost of attending a private college has increased by a factor of more than 13 (a year in the Ivy League will set you back $38,000, excluding bed and board). Academic in ation makes medical in ation look modest by comparison.

As costs soar, diligence is tumbling. In 1961 full-time students in four-year colleges spent 24 hours a week studying; that has fallen to 14, estimates the AEI. Drop-out and deferment rates are also hair-curling: only 40% of students graduate in four years.

The most plausible explanation is that professors are not particularly interested in students’ welfare. Promotion and tenure depend on published research, not good teaching. Professors strike an implicit bargain with their students: we will give you light workloads and in ated grades so long as you leave us alone to do our research. Mr Hacker and Ms Dreifus point out that senior professors in Ivy League universities now get sabbaticals every third year rather than every seventh. This year 20 of Harvard’s 48 history professors will be on leave.

America’s commitment to research is one of the glories of its higher-education system. But for how long? The supply of papers that apply gender theory to literary criticism remains ample. But there is evidence of diminishing returns in an area perhaps more vital to the country’s economic dynamism: science and technology. The Kau man Foundation, which studies entrepreneurship, argues that the productivity of federal funding for R&D, in terms of patents and licences, has been falling for some years. Funding is spread too thinly. It would yield better results if concentrated on centres of excellence, but fashionable chatter about the knowledge economy stirs every congressional backwoodsman to stick his ngers into the university pie.

The Goldwater Institute points to a third poison to add to rising prices and declining productivity: administrative bloat. Between 1993 and 2007 spending on university bureaucrats at America’s 198 leading universities rose much faster than spending on teaching faculty. Administration costs at elite private universities rose even faster than at public ones. For example, Harvard increased its administrative spending per student by 300%.

In some universities, such as Arizona State University, almost half the full-time employees are administrators. Nearly all university presidents conduct themselves like corporate titans, with salaries, perks and entourages to match.

At least the Naval Academy is free Given the size and competitiveness of America’s higher-education system, you might expect these problems to be self-correcting. Why don’t some universities compete by hiring teaching superstars? And why don’t others slash prices? The big problem is that high-status institutions such as universities tend to compete with each other on academic reputation (which is enhanced by star professors) and bling (luxurious dormitories and fancy sports stadiums) rather than value for money. This starts at the top: Yale would never dream of competing with Harvard on price. But it also extends to second-division universities: George Washington University has made itself fashionable by charging students more and spending lavishly on its facilities.

This luxury model is unlikely to survive what is turning into a prolonged economic downturn. Parents are much less willing to take on debt than they were and much more willing to look abroad for better deals. The internet also poses a growing threat to what Bill Gates calls place-based colleges . Online, you can listen to the world’s best lecturers for next to nothing.

America’s universities lost their way badly in the era of easy money. If they do not nd it again, they may go the way of GM. 7 Economist.com/blogs/schumpeter

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Brie ng The future of the internet

A virtual counter-revolution

The internet has been a great uni er of people, companies and online networks.

Powerful forces are threatening to balkanise it

T

HE rst internet boom, a decade and a half ago, resembled a religious movement. Omnipresent cyber-gurus, often framed by colourful PowerPoint presentations reminiscent of stained glass, prophesied a digital paradise in which not only would commerce be frictionless and growth exponential, but democracy would be direct and the nation-state would no longer exist. One, John-Perry Barlow, even penned A Declaration of the Independence of Cyberspace .

Even though all this sounded Utopian when it was preached, it re ected online reality pretty accurately. The internet was a wide-open space, a new frontier. For the rst time, anyone could communicate electronically with anyone else globally and essentially free of charge. Anyone was able to create a website or an online shop, which could be reached from anywhere in the world using a simple piece of software called a browser, without asking anyone else for permission. The control of information, opinion and commerce by governments or big companies, for that matter indeed appeared to be a thing of the past.

You have no sovereignty where we gather, Mr Barlow wrote.

The lofty discourse on cyberspace has long changed. Even the term now sounds passé. Today another overused celestial metaphor holds sway: the cloud is code for all kinds of digital services generated in warehouses packed with computers, called data centres, and distributed over the internet. Most of the talk, though, concerns more earthly matters: privacy, antitrust, Google’s woes in China, mobile applications, green information technology (IT). Only Apple’s latest iSomethings seem to inspire religious fervour, as they did again this week.

Again, this is a fair re ection of what is happening on the internet. Fifteen years after its rst manifestation as a global, unifying network, it has entered its second phase: it appears to be balkanising, torn apart by three separate, but related forces.

First, governments are increasingly reasserting their sovereignty. Recently several countries have demanded that their law-enforcement agencies have access to e-mails sent from BlackBerry smartphones. This week India, which had threatened to cut o BlackBerry service at the end of August, granted RIM, the device’s maker, an extra two months while

authorities consider the rm’s proposal to comply. However, it has also said that it is going after other communication-service providers, notably Google and Skype.

Second, big IT companies are building their own digital territories, where they set the rules and control or limit connections to other parts of the internet. Third, network owners would like to treat di erent types of tra c di erently, in e ect creating faster and slower lanes on the internet.

It is still too early to say that the internet has fragmented into internets , but there is a danger that it may splinter along geographical and commercial boundaries.

(The picture below is a visual representation of the nationality of tra c on the internet, created by the University of California’s Co-operative Association for Internet Data Analysis: America is in pink, Britain in dark blue, Italy in pale blue, Sweden in

A fragmenting virtual world

The Economist September 4th 2010 75 green and unknown countries in white.)

Just as it was not preordained that the internet would become one global network where the same rules applied to everyone, everywhere, it is not certain that it will stay that way, says Kevin Werbach, a professor at the Wharton School of the University of Pennsylvania.

To grasp why the internet might unravel, it is necessary to understand how, in the words of Mr Werbach, it pulled itself together in the rst place. Even today, this seems like something of a miracle. In the physical world, most networks railways, airlines, telephone systems are collections of more or less connected islands. Before the internet and the world wide web came along, this balkanised model was also the norm online. For a long time, for instance, AOL and CompuServe would not even exchange e-mails.

Economists point to network e ects to explain why the internet managed to supplant these proprietary services. Everybody had strong incentives to join: consumers, companies and, most important, the networks themselves (the internet is in fact a network of networks ). The more the internet grew, the greater the bene ts became. And its founding fathers created the basis for this virtuous circle by making 1

76 Brie ng The future of the internet

The Economist September 4th 2010

2 it easy for networks to hook up and for in-

dividuals to get wired.

Yet economics alone do not explain why the internet rather than a proprietary service prevailed (as Microsoft did in software for personal computers, or PCs). One reason may be that the rapid rise of the internet, originally an obscure academic network funded by America’s Department of Defence, took everyone by surprise. The internet was able to develop quietly and organically for years before it became widely known, writes Jonathan Zittrain, a professor at Harvard University, in his 2008 book, The Future of the Internet And How To Stop It . In other words, had telecoms rms, for instance, suspected how big it would become, they might have tried earlier to change its rules.

Whatever the cause, the open internet has been a boon for humanity. It has not only allowed companies and other organisations of all sorts to become more e cient, but enabled other forms of production, notably open source methods, in which groups of people, often volunteers, all over the world develop products, mostly pieces of software, collectively. Individuals have access to more information than ever, communicate more freely and form groups of like-minded people more easily.

Even more important, the internet is an open platform, rather than one built for a speci c service, like the telephone network. Mr Zittrain calls it generative : people can tinker with it, creating new services and elbowing existing ones aside. Any young company can build a device or develop an application that connects to the internet, provided it follows certain, mostly technical conventions. In a more closed and controlled environment, an Amazon, a Facebook or a Google would probably never have blossomed as it did.

Forces of fragmentation However, this very success has given rise to the forces that are now pulling the internet apart. The cracks are most visible along geographical boundaries. The internet is too important for governments to ignore.

They are increasingly nding ways to enforce their laws in the digital realm. The most prominent is China’s great rewall .

The Chinese authorities are using the same technology that companies use to stop employees accessing particular websites and online services. This is why Google at rst decided to censor its Chinese search service: there was no other way to be widely accessible in the country.

But China is by no means the only country erecting borders in cyberspace.

The Australian government plans to build a rewall to block material showing the sexual abuse of children and other criminal or o ensive content. The OpenNet Initiative, an advocacy group, lists more than a dozen countries that block internet con-

1

Please delete Governments’ content-removal requests to Google and YouTube, July 1st-December 31st 2009 0

100

200

300 3,663

Brazil

458

Germany India

1,061

United States

3,580 44

South Korea

1,166

Britain

550

Italy Argentina

98

Spain

324

Australia

155

Requests for information

Canada

41

Source: Google

tent for political, social and security reasons. They do not need especially clever technology: governments go increasingly after dominant online rms because they are easy to get hold of. In April Google published the numbers of requests it had received from o cial agencies to remove content or provide information about users. Brazil led both counts (see chart 1).

Not every request or barrier has a sinister motive. Australia’s rewall is a case in point, even if it is a clumsy way of enforcing the law. It would be another matter, however, if governments started tinkering with the internet’s address book, the Domain Name System (DNS). This allows the network to look up the computer on which a website lives. If a country started its own DNS, it could better control what people can see. Some fear this is precisely what China and others might do one day.

To confuse matters, the DNS is already splintering for a good reason. It was designed for the Latin alphabet, which was ne when most internet users came from the West. But because more and more netizens live in other parts of the world China boasts 420m last October the Internet Corporation for Assigned Names and Numbers, the body that oversees the DNS, allowed domain names entirely in other 2

Busy highway Global consumer internet traffic, exabytes per month File sharing Internet video Web/data Other

50 FORECAST

40 30 20 10 0

2000 Source: Cisco

05

10

14

scripts. This makes things easier for people in, say, China, Japan or Russia, but marks another step towards the renationalisation of the internet.

Many media companies have already gone one step further. They use another part of the internet’s address system, the IP numbers that identify computers on the network, to block access to content if consumers are not in certain countries. Try viewing a television show on Hulu, a popular American video service, from Europe and it will tell you: We’re sorry, currently our video library can only be streamed within the United States. Similarly, Spotify, a popular European music-streaming service, cannot be reached from America.

Yet it is another kind of commercial attempt to carve up the internet that is causing more concern. Devotees of a uni ed cyberspace are worried that the online world will soon start looking as it did before the internet took over: a collection of more or less connected proprietary islands reminiscent of AOL and CompuServe.

One of them could even become as dominant as Microsoft in PC software. We’re heading into a war for control of the web, Tim O’Reilly, an internet savant who heads O’Reilly Media, a publishing house, wrote late last year. And in the end, it’s more than that, it’s a war against the web as an interoperable platform.

The trend to more closed systems is undeniable. Take Facebook, the web’s biggest social network. The site is a fast-growing, semi-open platform with more than 500m registered users. Its American contingent spends on average more than six hours a month on the site and less than two on Google. Users have identities speci c to Facebook and communicate mostly via internal messages. The rm has its own rules, covering, for instance, which thirdparty applications may run and how personal data are dealt with.

Apple is even more of a world apart.

From its iPhone and iPad, people mostly get access to online services not through a conventional browser but via specialised applications available only from the company’s App Store . Granted, the store has lots of apps about 250,000 but Apple nonetheless controls which ones make it onto its platform. It has used that power to keep out products it does not like, including things that can be construed as pornographic or that might interfere with its business, such as an app for Google’s telephone service. Apple’s press conference to show o its new wares on September 1st was streamed live over the internet but could be seen only on its own devices.

Even Google can be seen as a platform unto itself, if a very open one. The world’s biggest search engine now o ers dozens of services, from news aggregation to word processing, all of which are tied together and run on a global network of dozens of 1

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portant service is its online advertising platform, which serves most text-based ads on the web. Being the company’s main source of revenue, critics say, it is hardly a model of openness and transparency.

There is no conspiracy behind the emergence of these platforms. Firms are in business to make money. And such phenomena as social networks and online advertising exhibit strong network e ects, meaning that a dominant market leader is likely to emerge. What is more, most users these days are not experts, but average consumers, who want secure, reliable products. To create a good experience on mobile devices, which more and more people will use to get onto the internet, hardware, software and services must be more tightly integrated than on PCs. Net neutrality, or not?

Discussion of these proprietary platforms is only beginning. A lot of ink, however, has already been spilt on another form of balkanisation: in the plumbing of the internet. Most of this debate, particularly in America, is about net neutrality . This is one of the internet’s founding principles: that every packet of data, regardless of its contents, should be treated the same way, and the best e ort should always be made to forward it.

Proponents of this principle want it to become law, out of concern that network owners will breach it if they can. Their nightmare is what Tim Wu, a professor at Columbia University, calls the Tony Soprano vision of networking , alluding to a television series about a ma a family. If operators were allowed to charge for better service, they could extort protection money from every website. Those not willing to pay for their data to be transmitted quickly would be left to crawl in the slow lane. Allowing broadband carriers to control what people see and do online would fundamentally undermine the principles that have made the internet such a success, said Vinton Cerf, one of the network’s founding fathers (who now works for Google), at a hearing in Congress.

Opponents of the enshrining of net neutrality in law not just self-interested telecoms rms, but also experts like Dave Farber, another internet elder argue that it would be counterproductive. Outlawing discrimination of any kind could discourage operators from investing to di erentiate their networks. And given the rapid growth in le-sharing and video (see chart 2 on the previous page), operators may have good reason to manage data ows, lest other tra c be crowded out.

The issue is not as black and white as it seems. The internet has never been as neutral as some would have it. Network providers do not guarantee a certain quality of service, but merely promise to do their

Brie ng The future of the internet 77 best. That may not matter for personal emails, but it does for time-sensitive data such as video. What is more, large internet rms like Amazon and Google have long redirected tra c onto private fast lanes that bypass the public internet to speed up access to their websites.

Whether such preferential treatment becomes more widespread, and even extortionary, will probably depend on the market and how it is regulated. It is telling that net neutrality has become far more politically controversial in America than it has elsewhere. This is a re ection of the relative lack of competition in America’s broadband market. In Europe and Japan, open access rules require network operators to lease parts of their networks to other rms on a wholesale basis, thus boosting competition. A study comparing broadband markets, published in 2009 by Harvard University’s Berkman Centre for Internet & Society, found that countries with such rules enjoy faster, cheaper broadband service than America, because the barrier to entry for new entrants is much lower. And if any access provider starts limiting what customers can do, they will defect to another.

America’s operators have long insisted that open-access requirements would destroy their incentive to build fast, new networks: why bother if you will be forced to share it? After intense lobbying, America’s telecoms regulators bought this argument.

But the lesson from elsewhere in the industrialised world is that it is not true. The result, however, is that America has a small number of powerful network operators, prompting concern that they will abuse their power unless they are compelled, by a net-neutrality law, to treat all tra c

Stuck in the slow lane

equally. Rather than trying to mandate fairness in this way net neutrality is very hard to de ne or enforce it makes more sense to address the underlying problem: the lack of competition.

It should come as no surprise that the internet is being pulled apart on every level. While technology can gravely wound governments, it rarely kills them, Debora Spar, president of Barnard College at Columbia University, wrote several years ago in her book, Ruling the Waves . This was all inevitable, argues Chris Anderson, the editor of Wired, under the headline The Web is Dead in the September issue of the magazine. A technology is invented, it spreads, a thousand owers bloom, and then someone nds a way to own it, locking out others.

Yet predictions are hazardous, particularly in IT. Governments may yet realise that a freer internet is good not just for their economies, but also for their societies.

Consumers may decide that it is unwise to entrust all their secrets to a single online rm such as Facebook, and decamp to less insular alternatives, such as Diaspora.

Similarly, more open technology could also still prevail in the mobile industry. Android, Google’s smart-phone platform, which is less closed than Apple’s, is growing rapidly and gained more subscribers in America than the iPhone in the rst half of this year. Intel and Nokia, the world’s biggest chipmaker and the biggest manufacturer of telephone handsets, are pushing an even more open platform called MeeGo. And as mobile devices and networks improve, a standards-based browser could become the dominant access software on the wireless internet as well.

If, however, the internet continues to go the other way, this would be bad news.

Should the network become a collection of proprietary islands accessed by devices controlled remotely by their vendors, the internet would lose much of its generativity , warns Harvard’s Mr Zittrain. Innovation would slow down and the next Amazon, Google or Facebook could simply be, well, Amazon, Google or Facebook.

The danger is not that these islands become physically separated, says Andrew Odlyzko, a professor at the University of Minnesota. There is just too much value in universal connectivity, he argues. The real question is how high the walls between these walled gardens will be. Still, if the internet loses too much of its universality, cautions Mr Werbach of the Wharton School, it may indeed fall apart, just as world trade can collapse if there is too much protectionism. Theory demonstrates that interconnected networks such as the internet can grow quickly, he explains but also that they can dissolve quickly. This looks rather unlikely today, but if it happens, it will be too late to do anything about it. 7

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Finance and economics

Also in this section 80 Sovereign-debt ceilings 80 Gaming the carbon markets 81 Buttonwood: Decoding dividends 82 Rare earths get rarer 82 Candover’s over 83 Deutsche’s de ant business model 84 Economics focus: QE 2

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

The world economy

The odd decouple Theories about why some rich-world economies are doing better than America’s don’t stand up

A

MERICA is used to making the economic weather. It has the world’s largest economy, its most in uential central bank and it issues the main global reserve currency. In recent months, however, some rich-world economies (notably Germany’s) have basked in the sunshine even as the clouds gathered over America.

On August 27th America’s secondquarter GDP growth was revised down to an annualised 1.6%. That looked moribund compared with the 9% rate con rmed in Germany a few days earlier. America’s jobless rate was 9.5% in July ( gures for August were released on September 3rd, after The Economist went to press). But in Germany the unemployment rate is lower even than before the downturn. Other rich countries, including Britain and Australia, have enjoyed sprightlier recent GDP growth and lower unemployment than America.

This unusual divergence within the rich world has fostered many competing theories to explain it, including di erences in scal policies, exchange rates and debt levels. Most of these do not quite t the facts.

On one account Germany and, to a lesser extent, Britain have been rewarded for taking a rm grip on their public nances. In this view, the promise to tackle budget deficits has had a liberating e ect on private spending by reducing uncertainty. In America, by contrast, anxiety about public debt is making businesses and consumers tighten their purse strings.

The theory is a little too neat. Although credible plans to curb de cits are helpful to medium-term growth, they are unlikely to explain sudden spurts. Britain’s budget plans were announced towards the end of the quarter, on June 22nd. Germany’s were set out two weeks earlier. They could scarcely explain why GDP growth was strong. Indeed for most of the second quarter, scal uncertainty hung over both countries: in Britain because of a close election, in Germany because of commitments to help Greece and other countries. And the immediate impact of austerity is to dampen growth: witness the slump in Greece.

Perhaps the explanation is found in currency movements. One e ect of the euro-

Race from the bottom GDP, Q2 2008=100

United States Germany

Euro area* Japan

Britain 100 98 96 94 92 90

Q2

Q3

Q4

Q1

Q2

2008 Sources: Haver Analytics; The Economist

Q3

09

Q4

Q1

Q2

10 *Excluding Germany

area crisis was to push the euro down against the dollar in the early months of this year helping German rms but harming American exporters. Much of Germany’s second-quarter GDP growth came from trade, even as a wider trade gap sapped America’s economy. A weak pound could also explain Britain’s renewed economic strength, much as a surge in the yen has increased worries about Japan. On August 30th Japan’s central bank said it would o er banks ¥10 trillion ($118 billion) of six-month secured loans at its benchmark interest rate of 0.1%, on top of the ¥20 trillion of three-month loans it had already pledged. It hopes that this ood of money will push down borrowing costs, cap the yen’s rise and help exporters.

The currency theory also has holes in it.

The yen’s surge is too recent to explain why Japan’s GDP barely rose in the second quarter. Net trade added almost nothing to Britain’s GDP growth in the last quarter. Indeed America’s export growth has been much stronger (a sudden surge in imports was behind the second-quarter trade gap).

And demand for the sort of exports Germany has done well with, mostly luxury cars and specialist capital goods, tends to be insensitive to shifts in the exchange rate.

Britain is an awkward challenger to another theory: that a debt hangover is holding back consumers in countries that had housing booms. Consumer spending in Britain (and in America) rose at about the same rate as in thriftier Germany during the second quarter.

Britain stands out in another respect, too: its unemployment rate has risen by far less than in other places that had also racked up big mortgage debts. Divergent trends in unemployment may be better explained by the sort of recession each country had than by variations in jobs-market exibility, says Kevin Daly at Goldman 1

The Economist September 4th 2010

80 Finance and economics

Carbon markets

Sovereign debt

The smoking greenhouse gun

Wiggle room

The IMF o ers indebted governments some reassurance

O

NE consequence of the deepest recession since the Depression has been the biggest peacetime build-up of public debt the rich world has ever seen.

Some reckon that the debt position of many rich countries is now unsustainable. It is a measure of just how nervous people have become about the mountain of debt that the IMF not usually known for taking doveish views concluded in two papers released on September 1st that there is too much pessimism about public nances.

The IMF argues that despite historically high debt-to-GDP ratios, many countries still have room for scal manoeuvre.

Typically, the debate on the point at which a country’s debt burden spirals out of control has tried to identify a single debt-to-GDP threshold, above which things are no longer sustainable. The fund’s economists argue that a universal debt limit does not make sense.

That is because countries tend to respond to high debt ratios by cutting de cits but vary in their ability to do so.

Each country will have a debt limit that is partly a function of its own history of scal consolidation. According to the IMF economists’ calculations, this theoretical limit is much higher, even for highly indebted countries like Britain and America, than their current or projected nearterm debt ratios (see chart).

The fund cautions that countries cannot a ord to let debt build up until it reaches those levels. Rolling over their debt may become increasingly di cult well before the theoretical limit is

2 Sachs. In America, Ireland and Spain, the

collapse of labour-intensive construction swelled the dole queues. Britain also had a housing boom but its tight planning laws kept its construction industry small, so fewer jobs were lost when the bust came.

The downturns in Japan and Germany, deeper than America’s (see chart on previous page), were mainly caused by the collapse in world trade. That hurt capital-intensive export industries which were also more likely to rebound quickly so fewer jobs disappeared.

Some think America’s slowness to create new jobs is leading to undue pessimism about the rest of the world’s prospects. If US growth is not enough to give us a big payrolls gure, it’s deemed a disaster, says Marco Annunziata at UniCredit.

But fast-growing emerging markets, such as China, have kept the world economy

reached, something to which Greece and others can testify. The scal positions of Britain or America may not yet be unsustainable, but they are not comfortable.

The fund also reckons that the risk that countries with onerous debt levels will inevitably default is also signi cantly overestimated . This nding is partly based on its analysis of 36 cases since 1991 where countries saw their bond spreads soar. In 29 of these episodes there was no eventual default. It also reckons that because the principal problem facing today’s highly indebted countries is not high interest payments but high primary budget de cits, restructuring debt would not help much anyway. Whether these arguments will count for anything with investors remains to be seen.

PIGS in space Gross government debt, % of GDP 2015 forecast 0

50

Theoretical limit 100 150 200 250

Ireland

151.7

Spain

123.9

Greece

37.9

Portugal United States Britain

73.6

93.2

91.4 76.1

France Germany Source: IMF

Gap*

72.6

*Gap between projected ratio and theoretical limit, percentage points

Interactive: Explore our guide to world debt at Economist.com/debtguide2010

ticking over. Germany has done well because its exporters have made headway there. China’s vibrancy also explains why Australia’s GDP rose at its fastest rate for three years in the second quarter.

The best explanation for the uneven pattern of rich-world activity is also the most prosaic: America’s recovery is more advanced and its rms have rebuilt their stocks sooner. Europe’s business cycle tends to lag America’s by a quarter or two.

Recent indicators point to greater convergence. The index of American manufacturing published by the Institute of Supply Management unexpectedly picked up from 55.5 to 56.3 in August. The corresponding indices for the euro area and Britain fell back, to 55.1 and 54.3 respectively. America’s economy may have some unique troubles, but its fortunes are still strongly tied to the rest of the rich world. 7

An alluring trade in supergreenhouse gas emissions is coming under scrutiny

O

NE of the curiosities of carbon markets is that they do not just trade in carbon. Other greenhouse gases can be given a value, too sometimes a very high one. Claims that these prices promote scammery are now prompting some searching questions.

The gas at the centre of the controversy is HFC-23, a greenhouse gas which, on a weight-for-weight basis, is 14,800 times better at trapping heat than carbon dioxide. HFC-23 is produced as a by-product of the manufacture of HCFC-22, an ozone-destroying refrigerant. HCFC-22 is banned in developed countries, but developing countries can keep making it until 2030.

The acronyms do not end there. Under the Clean Development Mechanism (CDM) of the United Nations HCFC-22 producers in developing countries that destroy, rather than release, their HFC-23 can be eligible for Certi ed Emission Reduction (CER) credits, which can then be traded in the European Union’s emissionstrading scheme. This allows companies to buy extra emissions reductions to meet their cap-and-trade obligations, and in so doing to transfer money to schemes reducing emissions in developing countries.

Wind farms, solar programmes and other clean-energy projects are all eligible for CERs. But because destroying a tonne of HFC-23 is a lot cheaper than avoiding the emission of more than 10,000 tonnes of carbon dioxide, HFC-23 destruction has become the CDM’s principal source of emissions credits. According to Sandbag, an out t that monitors carbon markets, 59% of the CERs used as o sets in the EU cap-and-trade scheme in 2009 came from HFC-23 projects, representing more than 500m ($695m) in credits.

You cannot simply set up an HCFC-22 plant and demand cash; eligibility is limited to companies which were already producing the gases in 2000-04, and companies are capped in the amount they can receive. But there is little incentive for approved incineration schemes to reduce the amount of HFC-23 that they produce.

Quite the reverse, argues CDMwatch, a group that monitors the o set market. It says it has shown the CDM executive board that some plants have reduced their HFC-23 production during periods in which they were ineligible for CERs and upped it when they became eligible again, gaming the system. They found the smoking gun, says Michael Wara, a professor at 1

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Since the executive board received that submission in July, eight HFC projects have been placed under review. The CDM’s methodology panel is looking again at the way that HFC-23 schemes are assessed. According to Point Carbon, a market-intelligence rm, three countries on the board, which numbers ten in all, are putting applications for increased production from HFC-23 makers out to review as a way of stopping new issuance until the methodology is revised. The supply of CERs is likely to dry up over the rest of the year.

Longer-term demand for HFC-23 CERs

Finance and economics 81 may fall, too. Connie Hedegaard, the EU’s climate commissioner, is calling for the role industrial-gas CERs are allowed to play as o sets to be reassessed for the trading scheme’s next phase, which will run from 2013 to 2020. A Deutsche Bank analysis suggests that by reducing supply, a tough stance on this issue could drive the spot price of a tonne of carbon up from today’s 15 to 25 by the end of the year.

A more spectacular risk, Point Carbon’s Kjetil Roine points out, lies in rules to be discussed at the next meeting of the CDM’s executive board in mid-September. These could make the entities responsible for

CER issuance liable for replacing CERs issued incorrectly in the past. If some HFC-23 CERs were deemed retroactively invalid, such sanctions would drive up the price of other CERs while putting some of these entities in serious nancial trouble.

There is some good news. Until recently it appeared that, despite the large amounts of money changing hands, HFC-23 emissions had been steadily increasing. A study

by Ben Miller of America’s National Oceanic and Atmospheric Administration and colleagues published recently found that in fact emissions fell by 40% or so between 2006 and 2009. But at a very high price. 7

Buttonwood Divvying up returns Investors should pay more attention to dividends

D

IVIDENDS do not get the respect they deserve. Over the long run they provide the bulk of equity investors’ returns.

Work by Elroy Dimson, Paul Marsh and Mike Staunton of the London Business School* found that over the period from 1900 to 2005, the real return from global equities averaged 5%. The mean dividend yield over that period was 4.5%.

Despite this, stockmarkets devote a lot more time to forecasting and analysing pro ts than they do to thinking about payouts. Pro ts can be easily manipulated and come in a bewildering variety of forms (operating, reported, post-tax, preexceptional, etc). Dividends are (mostly) paid in cash and so are hard to fake.

In America dividends seemed to go out of fashion in the 1990s. A yield of 2% or so appeared trivial when the market was rising by 20% a year. The disrespect for dividends also re ected the belief that, for tax reasons, share repurchases were a better way of returning cash to investors. But share repurchases are much more volatile than dividend payouts and were brie y negative in 2008 ( rms issued more shares than they bought back).

Dropping a buy-back programme can be done on the quiet. A dividend cut is a very public statement of corporate weakness.

So what do current dividend levels tell us? First, the bad news. The global yield, as measured by the FTSE Global AllCap index, is only 2.5%. That suggests a very low level of future real returns from equities. Those returns have three components: the current level of dividend yield, real dividend growth and changes in valuation (moves in dividend-price ratios).

Perhaps surprisingly, Messrs Dimson, Marsh and Staunton show that, equally weighted, the average equity market enjoyed no real dividend growth at all over the 1900-2005 period. America per-

formed better than most, achieving 1.3% annual growth. Thanks to Wall Street’s heavy weighting in the world index, this dragged up the global dividend increase to 0.8% a year. But this gure falls well short of GDP growth. If repeated, it would raise the real equity return to just 3.3%.

As for valuation, this contributed around 0.7% a year to global equity returns between 1900 to 2005. In other words, share prices rose faster than dividends, and the yield fell. With the yield well below the historic average it seems implausible to assume any further contribution from valuation. Indeed, changes in valuation may subtract from future returns.

There is, however, some good news.

The modern fashion for creating derivatives means that it is possible to gauge investors’ expectations about future dividend growth. Dividend swaps allow investors to separate the income from the capital return of equities.

A very gloomy view for European payouts, at least, has already been absorbed in the price. According to James Montier of GMO, a fund-management group, investors are expecting no growth

at all in European nominal dividends between now and 2019. That looks unlikely.

Even America managed to generate some dividend growth during the Depression.

Mr Montier adds that European corporate dividends have already dropped by 33%. In the past dividend declines of such magnitude have been followed by annual gains of 5% over the subsequent decade. Even a dividend growth rate of 2% would make the swaps good value, in Mr Montier’s view.

In the context of the London Business School study, however, investors may be taking a rational view of the dividend outlook. If real dividends barely grow over the long term, then a forecast of stagnant nominal dividends may simply re ect investors’ expectations of zero in ation. That low-in ation outlook is indicated by the level of core European bond yields.

Such low bond yields do give the equity bulls one more (fairly powerful) argument that dividend yields look good by comparison. Germany’s equities yield 2.9% and its ten-year bonds yield just 2.1%.

Equities yield more than government bonds in Britain as well. Even if dividends did turn out to be stagnant for the next decade, investors would still get a higher income from equities than from government bonds. And if by any chance in ation were to take o , dividends would rise whereas government bonds would look horribly overpriced. The prospect for equities may not be great, in other words but they may still be the best of a bad lot.

.............................................................. * The Worldwide Equity Premium: A Smaller Puzzle by Elroy Dimson, Paul Marsh and Mike Staunton. http://ssrn.com/abstract=891620 Economist.com/blogs/buttonwood

The Economist September 4th 2010

82 Finance and economics Rare earths

Private equity

Digging in

Candover and out New york

A once-revered buy-out rm is going under. Who’s next?

Hong kong

China restricts exports of some obscure but important commodities

B

EHIND the rise of resource-poor countries like Japan, South Korea and China into industrial giants has been the readiness of other countries to sell them critical commodities, albeit sometimes at excruciating cost. An unfolding collision around a group of elements known as rare earths is seen by some as a test of China’s willingness to reciprocate.

Rare earths have become increasingly important in manufacturing sophisticated products including at-screen monitors, electric-car batteries, wind turbines and aerospace alloys. Over the summer prices for cerium (used in glass), lanthanum (petrol re ning), yttrium (displays) and a bunch of other iums have zoomed upward (see chart) as China, which accounts for almost all of the world’s production, squeezes supply. In July it announced the latest in a series of annual export reductions, this time by 40% to precisely 30,258 tonnes. That is 15,000-20,000 tonnes less than consumption by non-Chinese producers, says Judith Chegwidden of Roskill Information Services, a consultancy.

China has cited environmental concerns as the reason for the export quotas.

That is less implausible than it sounds.

Rare earths are dangerous and costly to extract responsibly; China’s techniques have been anything but. It has deposits in two regions: Inner Mongolia, where rare earths are a by-product of iron-ore production, and in the south of the country, where they are found in various clays. Although the extraction process in each location di ers, they share a need for highly toxic chemicals. Horror stories abound about poisoned water supplies and miners.

But since the spike in rare-earth prices seems not to have taken hold within Chi-

F

OR years people have been predicting the demise of private equity. Now they have a proper tombstone to point at.

On August 31st Candover, once one of Britain’s leading private-equity rms, announced that it would unwind its assets and return money to shareholders and investors. The 30-year-old rm is the biggest buy-out victim of the crisis so far.

Bad investments during the boom helped undo Candover. Several companies in its portfolio have struggled under their debts over the past two years, including Ferretti, a luxury-yacht maker. In June Candover relinquished control of Gala Coral, a gambling company, to creditors. It has had to write down several other investments.

The rm was also hurt by its peculiar structure. The buy-out bit, Candover Partners, was separate from its parent, Candover Investments, a publicly listed investment trust. When Candover Investments reneged on its planned 1

billion ($1.3 billion) contribution to the buy-out rm’s 2008 fund, it devastated the whole rm. In January Candover Partners returned all capital from that fund to investors, which meant it couldn’t fund new acquisitions. The performance of another one of its funds ruled out the possibility of wooing fresh investors. Its 2005 fund had a net internal rate of return (IRR) of -34.3% as of March.

Candover reportedly tried to nd a buyer for itself, but talks fell through.

Despite its odd structure, the news of Candover’s closure is still chilling for others in the industry. The boss of a major American private-equity rm predicts there will be a winnowing out of rms, particularly in Europe, where funds have performed less well. Josh Lerner, a professor at Harvard Business School, says Candover is like a Petri dish where bacteria are growing because it shows in exaggerated form what’s happening in the industry more generally.

na, many see another, more nefarious calculation behind the export quotas. Controlling the supply of rare earths means that China can also control their processing and use in nished goods, which would t a broader e ort to drive its manufacturers from low- to high-value goods.

If that is the Chinese plan, time is limited. High prices have already begun to propel a supply response elsewhere in the world. Ms Chegwidden says announcements of rare-earth projects around the world have accelerated in recent months.

Molycorp, an American rm which in various guises dates back to the early 1950s, intends to restart what was once the world’s largest source of rare earths, a mine in California closed in 2002 over environmental concerns and the then unjus-

ti able cost of correcting them. In July it raised $394m in an initial public o ering; its shares have risen by 20% since.

Similarly, Lynas Corporation of Western Australia has seen its shares rise eightfold since early 2009, shortly before a stateowned Chinese company attempted to make an investment that was itself blocked by the Australian government.

Toyota is reported to be close to securing key supplies in Vietnam; Sumitomo, another Japanese rm, is moving forwards in Kazakhstan. The problem of supply is easily solved, says John Kaiser of Kaiser Bottom-Fish Online, a website on mining. It just takes three to ve years and billions of dollars. China has long seen commodities in terms of security of supply. It may yet persuade others to follow suit. 7

Rarity value Rare-earths price index*, January 2002=100 1,200 1,000 800 600 400 200

100

0 2002 03 04 05 06 07 08 09 10 Source: Kaiser Bottom-Fish

*Composite of ten metals

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storemags & fantamag - magazines for all The Economist September 4th 2010

Finance and economics 83

Finance after the crisis: Deutsche Bank

A tamer casino Berlin

Germany’s biggest bank is trying to make investment banking boring. The latest in our series of pro les of nancial institutions after the crisis

J

OSEF ACKERMANN, the head of Deutsche Bank, combines a silky manner with blunt words. When the German government set up a bail-out fund to stabilise the country’s banking system, he said he would be ashamed to use it. When Europe and the IMF bailed out Greece, Mr Ackermann said he doubted it would pay back the loans. And when regulators and economists say that big banks should be broken up, with casino investment banks split o from utility retail banks, Mr Ackermann retorts that smaller banks will not make us safer.

Mr Ackermann speaks with the authority of a man who steered his bank through the crisis more deftly than most. Deutsche did not escape unscathed. In 2008, a year in which it had con dently forecast a record pro t of more than 8 billion ($11.7 billion), it posted a net loss of almost 4 billion because of a huge hit to its investment bank (see chart). Yet it emerged from the crisis as the leading member of an exclusive club of large banks others include Barclays and Credit Suisse that did not have to take direct injections of public funds (although all, of course, bene ted from a wide range of other government props to the system).

More striking still is the fact that Deutsche was able to cover its losses without having to raise signi cant amounts of new private capital. The two small rights issues it undertook, totalling nearly 3 billion, were to fund its purchase of a minority shareholding in Deutsche Postbank, a large German retail bank.

Although Deutsche Bank placed proprietary bets by buying bonds and other securities for its own account, it did so on a far smaller scale than most of its main rivals.

Many of the positions it took were tightly hedged. Its holdings of commercial-property securities, for instance, were partly protected by insurance policies written by AIG, an American insurer. By some estimates more than $12 billion owed from AIG to Deutsche Bank in collateral as a result of these policies. Deutsche has taken its approach of hedging risks so much to heart that when it released details of its holdings of European government bonds earlier this year, it emerged that the majority of its holdings of German government debt was hedged against default.

Even though Deutsche was one of the biggest issuers of subprime securities it was also one of the rst banks to place bets

Ackermann rebu s casino allegation that these bonds would collapse in value, leading critics to charge that it was betting against its own clients. There are always people who will say that if you lose less money you are too clever, says one executive. The proof [that we weren’t betting against clients] is that we also lost money.

Deutsche Bank was quick to cut its losses when markets turned sour, too.

Whereas some banks held on to positions, Deutsche quickly cut risk. In the weeks after Lehman Brothers’ collapse it dumped billions of euros in loans to private-equity rms and cut more than 900 jobs.

Underlying this relatively strong performance is the way Deutsche blurs the distinctions between casino banking and utility banking. Its investment bank’s longstanding strategy is to concentrate on client-driven ow businesses such as foreign-exchange, bonds and derivatives while holding as little risk as possible on its own balance-sheet. For the past six years Deutsche Bank has been the world’s largest currency trader: it now conducts almost one in ve of the world’s foreign-exchange trades. It is also the world’s largest trader of interest-rate swaps and features among the top three traders of most other sorts of nancial instruments.

The crisis has reinforced this positioning. Deutsche has reduced its proprietarytrading activities. And the collapse or merger of many of its competitors has enabled it to make big gains in trading for clients. In foreign exchange, for instance, the top ve banks now command 55% of the market, compared with 36% in 2001. With

less competition and volatile markets, the investment banks that are still standing have been earning fat margins trading in currencies, commodities and bonds.

Yet these spreads are already beginning to shrink as rivals regain their footing. Trading volumes fell in the second quarter across the industry. Investors are pressing Deutsche Bank to reduce its reliance on investment banking, no matter how stable its executives insist it has become. Deutsche has said in the past that it wants investment banking to account for no more than 60% of its total earnings. It has missed this target more often than hit it, however, and has quietly dropped mention of this goal. For the foreseeable future analysts expect investment banking to remain its main source of pro t (see chart).

There are promising prospects elsewhere. Businesses such as private banking and wealth management o er juicier margins. Expanding abroad is another avenue.

Early in 2010 Deutsche nalised the acquisition of Sal Oppenheim, a venerable banker to Germany’s richest families that had fallen on hard times by lending them too much. A few months later it closed the purchase of parts of the Dutch commercial-banking business of ABN AMRO. A bigger challenge is to improve the performance of its retail-banking businesses. In Germany there are too many banks and the margins are razor-thin. In trying to expand at home, Deutsche Bank has already bought almost a third of Deutsche Postbank, which has the nation’s biggest branch network. But this badly run bank is short of capital and Deutsche Bank would be forced to bolster its capital reserves again if it were to buy all of it within the next six months (as seems likely). Mr Ackermann is due to retire in 2013. Having succeeded in making investment banking seem relatively dull, making retail banking more exciting may be his last big task. 7

Tail wags dog Deutsche Bank’s pre-tax profit/loss, ¤bn Corporate banking & securities Asset & wealth management Corporate investments

Global transaction banking Private & business clients 10 8 6 4 2 +

0 –

2 4 6 8 10 2004 05

06

07

08

09

Sources: Bloomberg; Redburn Research

10* 11* *Forecast

The Economist September 4th 2010

84 Finance and economics

Economics focus War footing Monetary and scal stimulus make a potent, if uneasy, combination

T

HE Federal Reserve Bank of Kansas City’s annual conference in Jackson Hole, Wyoming, is the big event of the year for central bankers. But de ning monetary policy is far harder than it used to be. In recent years central bankers have lurched ever closer to the realm of scal policy, mainly by buying government debt with freshly printed money. They can justify such quantitative easing (QE) on monetary grounds since they have already lowered short-term interest rates to, or close to, zero. But they also worry it is a slippery slope from QE to monetising government de cits and thence, inevitably, to in ation. When Phillip Swagel, then an o cial with the US Treasury, was asked why he attended the conference in 2008, he shrugged: Fiscal policy, monetary policy what’s the di erence?

For central bankers this is an unsettling thought. Their mistrust of scal policy was nicely captured in a paper presented at this year’s Jackson Hole conference by Eric Leeper of Indiana University*. As central bankers have become more independent, they have increasingly based their policies on rigorous economic analysis. By contrast scal policy is deeply politicised, with haphazard methods and few, if any, de ned goals.

Much as central bankers would like to ignore scal policy, they cannot. Fiscal alchemy can undermine monetary science, says Mr Leeper. A wise monetary policy aims to keep prices stable, prudent scal policy to stabilise government debt. This division of labour works as long as the public believes that, after running a big de cit, the government will raise taxes or cut spending enough to keep debt under control. But, he argues, if the debt is so large that the government cannot credibly commit to these actions, the public assumes the central bank will in ate away the debt by printing money. In ation expectations soar and the central bank loses control of prices.

Mr Leeper’s warning resonates with central bankers, many of whom are calling for scal austerity even as they keep their own feet to the oor. Yet it is an odd thing to worry about now. Debt may be rising, yet underlying and expected in ation rates are falling in America and Europe, just as they did in Japan after its crisis.

Fiscal austerity robs policymakers of a potent antidote to a de ationary slump: simultaneous scal and monetary expansion.

By itself, QE works mainly through two channels. First, when the central bank buys government bonds the extra demand raises bond prices and lowers their yields. Lower long-term interest rates stimulate activity elsewhere in the economy. Second,

QED

20

20

15

15

10

10

5

5

Ben and the art of helicopter maintenance If QE cannot spur private demand on its own, combining it with looser scal policy may help. If the private sector will not spend, the government can do it instead, borrowing to cut taxes, send cheques to households, build infrastructure or even extinguish underwater mortgages. QE prevents all that borrowing from driving up long-term interest rates. This is the helicopter drop of money made famous by Milton Friedman and notorious by Mr Bernanke in a 2002 speech when he was still a Fed governor.

The combination has worked before. To ght the second world war, America’s federal government increased its debt from 44% of GDP to 106%. Starting in 1942 the Fed agreed to buy as much debt as necessary to keep short- and long-term interest rates below prescribed ceilings (see right-hand chart). The stimulus of mobilisation produced an immediate, and powerful, impact: unemployment fell from around 15% to 2%, and from 1940 to 1945 GDP grew by 12% a year. But there was a cost. Wage and price controls were used to contain in ation, which surged when controls came o . The Fed chafed under the yoke of the Treasury, winning its freedom only after a long battle in 1951.

Could the mechanics of wartime nance be recreated without the in ation or the loss of central-bank autonomy? Mr Leeper says the answer may be to create scal institutions that mimic the rigour and autonomy of central banks, as Sweden, Chile, Hungary and New Zealand have done to varying degrees. No easy task, to be sure, judging by how euro-area countries outed the scal targets in their Stability and Growth Pact. But if a scal authority helped governments credibly commit to a target debt-to-GDP ratio by a certain date, it could then combine stimulus today with austerity later. Perhaps then central bankers could join hands with their scal counterparts without trepidation. 7

0

................................................................................................

Government debt held by the central bank, % of GDP United States

Japan

Unemployment rate*, %

0 1996 98 2000 02

04

06

when banks sell their bonds to the central bank they get reserves (ie, deposits at the central bank) in return. They have an incentive to swap those low-yielding reserves for something with better returns, like shares or corporate debt. This lowers private-borrowing costs and raises asset values, boosting wealth and spending.

There is a catch, however. Supplying trillions of dollars of reserves and driving interest rates to zero cannot force banks to lend or companies and households to borrow. Five years of quantitative easing by the Bank of Japan in the early 2000s had barely any e ect on in ation and unemployment (see left-hand chart). Since late 2008 the Federal Reserve has bought $1.75 trillion of Treasuries and mortgage-related debt, bringing long-term interest rates down sharply. Yet sales of homes remain moribund, bank credit has contracted and the recovery is feeble.

This does not mean QE was useless, only that formidable headwinds have blunted its e ect. Carmen Reinhart of the University of Maryland and her husband, Vincent Reinhart of the American Enterprise Institute, presented evidence** at Jackson Hole that in the wake of nancial crises, deleveraging is a powerful drag on recovery. They found that the ratio of private credit to GDP rises by a median of 38 percentage points in the decade prior to a crisis, and drops by an equal amount in the decade after. Percapita GDP growth is 0.6 percentage points lower after a crisis.

08

Sources: Bank of Japan; Federal Reserve; OMB; US Census Bureau; IMF; The Economist

1940 42

44

46

48

50

52

*Pre-1947, 14 years and over

* Monetary Science, Fiscal Alchemy by Eric Leeper. http://www.kansascityfed.org/publicat/sympos/2010/2010-08-16-leeper-paper.pdf ** After the Fall by Carmen Reinhart and Vincent Reinhart. http://www.kansascityfed.org/publicat/sympos/2010/2010-08-17-reinhart.pdf

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Science and technology

The Economist September 4th 2010 85 Also in this section 86 The rise of monkeypox 86 Reforming the IPCC 88 Mental stimulation and dementia

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

The nature of the universe

Ye cannae change the laws of physics

Or can you?

R

ICHARD FEYNMAN, Nobel laureate and physicist extraordinaire, called it a magic number and its value one of the greatest damn mysteries of physics . The number he was referring to, which goes by the symbol alpha and the rather more long-winded name of the ne-structure constant, is magic indeed. If it were a mere 4% bigger or smaller than it is, stars would not be able to sustain the nuclear reactions that synthesise carbon and oxygen atoms.

One consequence would be that squishy, carbon-based life would not exist.

Why alpha takes on the precise value it does, so delicately ne-tuned for life, is a deep scienti c mystery. A new piece of astrophysical research may, however, have uncovered a crucial piece of the puzzle. In a paper just submitted to Physical Review Letters, a team led by John Webb and Julian King from the University of New South Wales in Australia presents evidence that the ne-structure constant may not actually be constant after all. Rather, it seems to vary from place to place within the universe. If their results hold up to scrutiny they will have profound implications for they suggest that the universe stretches far beyond what telescopes can observe, and that the laws of physics vary within it. Instead of the whole universe being netuned for life, then, humanity nds itself in a corner of space where, Goldilocks-like, the values of the fundamental constants

happen to be just right for it.

Slightly belying its name, the ne-structure constant is actually a compound of several other physical constants, whose values can be found in any physics textbook. You start with the square of an electron’s charge, divide it by the speed of light and Planck’s constant, then multiply the whole lot by two pi. The point of this laborious procedure is that this combination of multiplication and division produces a pure, dimensionless number. The units in which the original measurements were made cancel each other out and the result is 1/137.036, regardless of the measuring system you used in the rst place.

Constant variation Despite its convoluted origin, alpha has a real meaning. It characterises the strength of the force between electrically charged particles. As such, it governs among other things the energy levels of the electrons in an atom. When electrons jump between these energy levels, they absorb and emit light of particular frequencies. These frequencies show up as lines (dark for absorption; bright for emission) in a spectrum. When many di erent energy levels are involved, as they are in the spectrum of a chemically mixed star, the result is a ne, comb-like structure hence the constant’s name. If it were to take on a di erent value, the wavelengths of these lines would

change. And that is what Dr Webb and Mr King think they have found.

The light in question comes not from individual stars but from quasars. These are extremely luminous (and distant) galaxies whose energy output is powered by massive black holes at their centres. As light from a quasar travels through space, it passes through clouds of gas that imprint absorption lines onto its spectrum. By measuring the wavelengths of a large collection of these absorption lines and subtracting the e ects of the expansion of the universe, the team led by Dr Webb and Mr King was able to measure the value of alpha in places billions of light-years away.

Dr Webb rst conducted such a study almost a decade ago, using 76 quasars observed with the Keck telescope in Hawaii.

He found that, the farther out he looked, the smaller alpha seemed to be. In astronomy, of course, looking farther away means looking further back in time. The data therefore indicated that alpha was around 0.0006% smaller 9 billion years ago than it is now. That may sound trivial. But any detectable deviation from zero would mean that the laws of physics were di erent there (and then) from those that pertain in the neighbourhood of the Earth.

Such an important result needed veri cation using a di erent telescope, so in 2004 another group of researchers looked from the European Southern Observatory’s Very Large Telescope (VLT) in Chile.

They found no evidence for any variation of alpha. Since then, though, aws have been discovered in that second analysis, so Dr Webb and his team set out to do their own crosscheck with a sample of 60 quasars observed by the VLT. What they found shocked them. The further back they looked with the VLT, the larger alpha seemed to be in seeming con- 1

The Economist September 4th 2010

86 Science and technology 2 tradiction to the result they had obtained

with the Keck. They realised, however, that there was a crucial di erence between the two telescopes: because they are in di erent hemispheres, they are pointing in opposite directions. Alpha, therefore, is not changing with time; it is varying through space. When they analysed the data from both telescopes in this way, they found a great arc across the sky. Along this arc, the value of alpha changes smoothly, being smaller in one direction and larger in the other. The researchers calculate that there is less than a 1% chance such an e ect could arise at random. Furthermore, six of the quasars were observed with both telescopes, allowing them to get an additional handle on their errors.

If the ne-structure constant really does vary through space, it may provide a way of studying the elusive higher dimensions that many theories of reality predict, but which are beyond the reach of particle accelerators on Earth. In these theories, the constants observed in the three-dimensional world are re ections of what happens in higher dimensions. It is natural in these theories for such constants to change their values as the universe expands and evolves.

Alpha and omega Unfortunately, their method does not allow the team to tell which of the constants that goes into alpha might be changing. But it suggests that at least one of them is. On the other hand, the small value of the change over a distance of 18 billion lightyears suggests the whole universe is vastly bigger than that. A diameter of 18 billion light-years (9 billion in each direction) is a considerable percentage of observable reality. The universe being 13.7 billion years old, 13.7 billion light-years duly stretched to allow for the fact that space is expanding is the maximum distance it is possible to see in any direction. If the variation Dr Webb and Mr King have found is real, constant, and as gradual as their data suggest, you would have to go a very long way indeed to come to a bit of space where the ne-structure constant was hostile to the existence of life.

If. Other teams of astronomers are already on the case, and Victor Flambaum, one of Dr Webb’s colleagues at the University of New South Wales, points out in a companion paper that laboratory tests involving atomic clocks only slightly better than those that exist already could provide an independent check. These would vary as the solar system moves through the universe. But if and when such con rmation comes, it will break one of physics’s greatest taboos, the assumption that physical laws are the same everywhere and everywhen. And the ne-structure constant will have shown itself to be more mysterious than even Feynman conceived. 7

Emerging infections

No good deed goes unpunished New york

Smallpox has gone, but monkeypox is now rearing its ugly head

O

NE of the greatest public-health victories of the last century was the eradication of smallpox. After the disease was pronounced extinct, in 1980, people stopped using the smallpox vaccine. That seemed the ultimate symbol of technology’s triumph over a medieval scourge.

Alas, it turns out that the end of vaccination has unleashed new demons. Researchers have long suspected that smallpox vaccine also provides protection against diseases such as monkeypox and cowpox, and three decades ago a committee of experts weighed up whether ending vaccination for smallpox might allow one of those diseases to spread in humans.

They decided this was unlikely. Now, a study published in the Proceedings of the National Academy of Sciences suggests they may have been wrong. A team led by Anne Rimoin of the University of California, Los Angeles, conducted surveys of people living in the centre of the Democratic Republic of Congo. They found a dramatic surge in monkeypox a disease which, though not as bad as smallpox, kills up to 10% of those it infects.

The researchers selected central Congo partly because the last comprehensive study of monkeypox, carried out between 1981 and 1986, covered the area well. In addition, reports had been surfacing from that part of Congo about people with the disease. Their investigation found a 20fold increase, up from 0.7 cases per 10,000 people during the earlier survey to 14.4 cases per 10,000 between November 2005 and November 2007.

Scrutiny of the data reveals two curious trends. First, men were more likely to be infected than women, and people living in rural and forested areas more likely than town dwellers. That suggests those groups are in regular contact with a natural reservoir of monkeypox. Despite its name, monkeypox virus is believed to reside mainly in rodents such as squirrels and giant pouched rats. As war and poverty have forced those living in this area to rely more and more on meat from wild animals (with men doing the hunting), opportunities for the virus to pass from rodents to people have increased.

The second curiosity was that the disease was overwhelmingly one of the young in particular, the researchers note, those not vaccinated against smallpox (something which is true of most people under the age of 30). More than 90% of

Or should that be squirrelpox? those infected were born after 1980, and the average age of su erers was 12.

All this is not necessarily an argument for the reintroduction of smallpox vaccine.

Another of the paper’s authors, Nathan Wolfe of the Global Viral Forecasting Initiative, thinks the risks associated with that vaccine (allergic reactions that sometimes kill) outweigh its likely bene ts. What this result does suggest, though, is that the world’s health authorities need to watch for the emergence of other viruses related to smallpox that may be skulking in the undergrowth, awaiting their opportunity. 7

Climate-change assessment

Must try harder

A call to reform the IPCC

I

F THIS week’s report into the workings of the Intergovernmental Panel on Climate Change (IPCC) by a council of national academies of science were the sort of report children take home from school, its main themes would be expressed as could do better and needs to show workings . Stern parents might read it as calling for a Gradgrind-like clampdown; more indulgent ones as an inducement for the little darlings to try a little harder.

At a meeting in Busan, South Korea, this October, the parents in question the representatives of the IPCC’s member governments will decide which sort they want to be. Read in detail, the report suggests that if they want credible climate assessments, a rm hand will be required.

The report, produced by a committee chaired by Harold Shapiro, once the president of Princeton, under the auspices of 1

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88 Science and technology 2 the InterAcademy Council, was requested

in March by the UN’s secretary-general, Ban Ki-moon, and the chairman of the IPCC, Rajendra Pachauri, after a mistake about Himalayan glaciers triggered a spate of criticism earlier this year. It praises the IPCC for its achievements so far the best known of which is a series of mammoth assessments of climate science that provide the panel’s member governments with a shared basis for their negotiations on climate change. At the same time it calls for changes to the panel’s organisation, its procedures for choosing authors, its ways of dealing with review comments and its sometimes-misplaced statements of con dence in its own ndings.

Since the IPCC was created in 1988, the report says, charitable, educational and other organisations have been through a governance revolution in accountability and transparency. The IPCC has, for the most part, sat this revolution out. In many areas it lacks procedures for de ning what is needed. Without these there is no agreed

standard against which to judge its performance. In a contentious area where the good faith of scientists is frequently challenged, this lack of transparency and explicit procedure breeds distrust.

The report says that the IPCC needs clear statements on who decides, and by what criteria, what should be in its reports; on what it is looking for in its authors and on how they measure up; on what constitutes a con ict of interest for a panel member; and on what sort of primary material should be deemed worthy of inclusion (peer-reviewed science, yes; other stu only if explicitly approved by the authors with appropriate arguments for so doing).

Review editors need to marshal the thousands of comments they receive on drafts into clear critical arguments, and the authors need to respond to those arguments fully. Statements that go beyond the evidence or move into the realm of advocacy need to be avoided.

The argument that all this demands only gradual reform rests on the idea that

Mental stimulation and dementia

Brain gain Stimulating the brain delays, but does not prevent, dementia

A

S THE baby-boomer generation contemplates the prospect of the Zimmer frame there has never been more interest in delaying the process of ageing.

One consequence has been a dramatic rise in the popularity of brain-training games. But how e ective really is a daily dose of cryptic crossword?

Robert Wilson, a neuropsychologist at Rush University in Chicago, and his colleagues decided to nd out, by following a group of people without dementia.

Participants were asked to rate how frequently they engaged in cognitively stimulating activities. The researchers were looking for such things as reading newspapers, books and magazines, playing challenging games like chess, listening to the radio and watching television, and visiting museums.

The good news, as they report in Neurology, is that frequent activity of this sort seems to slow the rate of mental decline in those without cognitive impairment. The bad news is that in those who do then develop Alzheimer’s disease it is associated with a more rapid subsequent decline.

What seems to be happening is that cognitive stimulation helps overcome the e ect of the neurodegenerative lesions associated with dementia. It does not, however, make them go away. They continue to accumulate, so that when the disease does eventually take hold there

are more of them around than there otherwise would be, which results in a more rapid cognitive fall o . That is not a message of despair, though, because the length of time someone su ers from dementia is thus reduced and their healthy life prolonged. So the message is, carry on with the crosswords.

Keep at it!

the IPCC is already meant to be doing these things, and that the report just provides a helpful codi cation of best practice. The argument for something more fundamental is that, in a practice that is a long way from best, many of these things are not being done, despite the fact that it has long been clear that they should be.

Reviews can be sloppy and incomplete.

In the IPCC’s most recent report no glacier experts saw the incorrect paragraphs in the regional chapter on Asia, though a lot of them were involved in a chapter on snow, ice and frozen ground in a separate volume. Reviewers’ comments were sometimes dealt with only super cially, if not ignored altogether. As the climategate emails from the Climatic Research Unit at the University of East Anglia showed, authors sought to minimise the in uence of views they disagreed with while failing to document their arguments as to why that was the right thing to do. And the criteria by which those authors are chosen in the rst place are opaque.

The Shapiro committee says that as well as having clearer rules and more transparent procedures, the IPCC needs ways of being more responsive. It suggests an executive committee with the power to reshape the panel’s plans and respond to criticism. This committee should include people not involved in the IPCC’s daily work and at least one person from outside climate science altogether. In order to keep things fresh and avoid institutionalisation, committee members, including the chairman, should serve for only one of the sixyear stints it takes to produce the mammoth assessment reports.

Dr Pachauri, who started chairing the fourth IPCC report in 2002, is well into his second six-year stint. The logic of the Shapiro committee suggests that it would be better for him to stand down now, rather than in 2014. This is not something the committee calls for explicitly. But when the IPCC’s member governments meet in Busan the question of whether Dr Pachauri is the man to implement the committee’s recommendations will doubtless play a large part in their thinking, even if it is not discussed much in the open. (Or what passes for the open, for the IPCC’s plenaries are normally closed to press and public.)

Ironically, that exclusion underlines the fact that replacing Dr Pachauri is not the main point. The real point is actually achieving the sort of transparency and accountability that the governance revolution requires. Whoever leads the IPCC, the governments and, indeed, Mr Ban should make sure that there is a wellthought-out structure, and perhaps some expert special advisers, put in place in order to see to it that change happens. They might do well to ask Dr Shapiro for more detailed views on how that should be done, and to report back on the results. 7

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Books and arts

Also in this section 90 Exploring in Africa 90 Myanmar’s Than Shwe 91 A new thriller about oil 91 Bill Bryson’s social history 92 Sculpture from the Kingdom of Ife

Prospero, our online blog on books, arts and culture appears every day. For analysis and debate, visit Economist.com/culture

Climate change

The ways of a warmer world Books about how people can and will adapt to climate change need not be Panglossian as these two show

C

LIMATE change is a pretty scary topic, and those who write about it have, for the most part, been happy to play up the scariness. This may be due to noble motives or base ones. Many will have chosen to write about climate change because they think something should be done about it and that if their readers get scared they will be more likely to act. Others may intuit that their readers are likely to be seeking stu that con rms how right they were to have perceived the dreadfulness of the world in ways lesser people have not.

This is the road to climate porn , which revels in exaggerated disaster.

It is refreshing, then, to read books which look at the warming to come not as a frightful warning, nor as a fait accompli, but as something to which, at some levels of change, people will have to adapt and which in some settings they may adapt to rather well. The setting Matthew Kahn is interested in is the city, one of his preoccupations as an economist; Marek Kohn’s is the British Isles.

Mr Kahn suggests that city-dwellers have various advantages in preparing for the changes to come. They live in surroundings which, historically, have favoured innovation, have proved resilient in the face of shocks and between which it is comparatively simple to move when things get too bad. Migration from city to city is easier, when it comes to nding a niche to ll at the far end of the journey,

Climatopolis: How Our Cities Will Thrive in the Hotter Future. By Matthew Kahn.

Basic Books; 288 pages; $26.95 and £16.99 Turned Out Nice: How the British Isles Will Change as the World Heats Up. By Marek Kohn. Faber & Faber; 368 pages; £14.99 than from country to town.

The author has a good eye for the con icts that can complicate his picture of rational people responding to risk. National and city governments have an interest in making their cities seem safe which pulls against the interest that city dwellers have in gauging the risks and acting accordingly.

Los Angeles sends perverse signals about water use that will come back to haunt it; Manhattan (like Venice) has an interest in downplaying the risk of truly catastrophic oods. In Manhattan the issue is further complicated because the people whose taxes might pay for ood protection mostly in rented accommodation are not the owners of the property that will increase in value if oods are taken seriously.

The book tries to cover a lot of ground, but it remains (as climate-resilient cities will need to be) a bit pedestrian. It is overlarded with references to unhelpful popular culture and its take on some climate issues, as opposed to their economic consequences, is a tad super cial. Mr Kahn’s belief that Moscow is unlikely to

su er from extreme heatwaves does not engender much trust in his lists of cities that are climate-proof or climate-vulnerable (our picture shows a woman surviving Moscow this summer). To say that such a belief was fair enough at the time the book was written is to face the fact that the climate is a rather more complex and uncertain thing than the even, upbeat tenor of the book encourages readers to think.

For a far fuller sense of what climate change might mean to a speci c city, turn to the chapter on London in Mr Kohn’s Turned Out Nice , a tour de force of information and speculation. Like Mr Kahn, Mr Kohn takes the position that attempts to limit climate change are important, but that some change is inevitable. Thanks to the moderating in uence of the Atlantic ocean, he concludes that in Britain for the rest of this century this change will be less profound than elsewhere, having nothing to compare with the kind of shocks that will hit Spain, half of which could become semi-desert, let alone Bengal . But that does not mean it will be negligible. As climate change reinforces some trends and counteracts others it will reshape Britain and its landscapes.

Mr Kohn illustrates and elaborates this idea by studying a range of speci c places in detail, among them Glen A ric in the Highlands, the meanders of the Cuckmere river as it reaches the Sussex coast and the industrial citadel of Sizewell, a nuclear power plant which looms above a famous nature reserve. Writers such as Richard Mabey, Robert Macfarlane and Roger Deakin have spent recent years bringing sustained and sympathetic observation, detailed research and a sometimes wilful eclecticism to their accounts of Britain’s landscapes. In his application of their techniques to the future, Mr Kohn gives a depth to the scenarios of which he speaks that 1

The Economist September 4th 2010

90 Books and arts 2 the numbers and maps of more mundane

climate prognostication can never match.

In the process of immersing the reader in a fully realised set of tomorrows, Mr Kohn also recasts his perception of today.

Nature writing which takes the future and its possibilities as seriously as the past allows the reader to look at the present in a way that the declinist narratives so common in environmental writing disbar; the reader can see today as being in the middle of things, pulled in many directions, not pressed down at the end of time.

This unusual perspective should recommend the book to anyone interested in how the British relate to their land. It also encourages a pragmatic rebooting of those relations. The need to choose how to adapt to the future highlights the choices about town planning, or forestry, or coastal defences, or immigration that have shaped the present. It encourages the reader to think of the practicalities of what goes where, and why, of what should drain (city streets, through porous surfaces into the ground beneath) and what should soak (seaside levels, released from the hydrologic corsets of Victorian planners), of what should be wild and what be tamed.

Mr Kohn’s book is a richer, harder and more rewarding read than Mr Kahn’s. But both share a welcome desire to look at what climate change means in a world that can adapt to it and what can hinder that adaptation. They look at the opportunities as well as the costs; they encourage as well as warn. And both remember that there will be some things that cannot be saved, even though others may not be lost. 7

Walking in Africa

In the steps of the master Chasing the Devil: The Search for Africa’s Fighting Spirit. By Tim Butcher. Chatto & Windus; 325 pages; £18.99

I

N HIS bestselling book about the Congo, Blood River , Tim Butcher, a reporter for the Daily Telegraph, followed the route of Henry Stanley, an explorer with a reputation for colourful exaggeration, a cocky chancer . One place that Mr Butcher conspicuously failed to visit during his hectic dash through the most daunting, backward country on Earth was the leper colony that inspired Graham Greene’s 1960 novel, A Burnt-Out Case . Now he has made good this omission by trekking in the novelist’s footsteps through another neglected region of Africa, an expedition that resulted in Greene’s Journey Without Maps . For Mr Butcher it meant a 350-mile (560km) walk into the forests of Sierra Le-

The derring-do of an earlier age one ( the poorest country on Earth ) and Liberia ( one of the world’s most failed and scarred states ).

In 1935, su ocating in his marriage, the 30-year-old Greene invited his young cousin Barbara Greene to accompany him on a four-week expedition through the African interior. Both wrote accounts, and these serve as the trellis for Mr Butcher’s adventure, although, as he writes: The background to my journey could not have been more di erent to Graham Greene’s.

The author believes that Greene’s concealed agenda in Journey Without Maps was to act as eyes and ears for the AntiSlavery Society, concerned at that time about slave labour conditions in Liberia.

His own purpose in Chasing the Devil is more congested: a volatile mingling of atonement, bruised personal vanity and derring-do. In Sierra Leone two of Mr Butcher’s colleagues were killed in an unusually brutal civil war that he himself reported on (although, as he admits, he never ventured far from Freetown).

Across the border in Liberia, Mr Butcher was prevented from covering the last days of Charles Taylor’s regime after the Liberian leader put a price on his head (he had reported that Mr Taylor’s inner circle took part in cannibalism). With the civil war over and Mr Taylor eating courtroom sandwiches in The Hague, Mr Butcher seizes the chance to return to West Africa. This time, instead of a war correspondent’s smash-and-grab raid, his ambition is to write an intimate, ground-level narrative.

Always readable, his book works best as a homage to Greene and his cousin.

Their spirits are glimpsed, slung in hammocks, bored and sipping whisky, when Mr Butcher meets two old men who recall

the Greenes’ visit 74 years before. Although anxious to nd synchronicities, Mr Butcher relishes even more the di erences between the two expeditions. Whereas Greene’s retinue comprised 26 porters, three servants and a chef, he travelled with a compliant young theology graduate, David. The two shoulder between them a mere two rucksacks, plus a brace of daysacks which a guide transports separately on a motorbike. Otherwise, they are on their own in the jungle.

Mr Butcher, a self-confessed ego-driven Alpha Male , is less sympathetic when reminding us at every turn of the risks he is running. There is no denying his courage and bravado, nor does he make any attempt to do so. If Greene plays down the gravity of dangers surrounding him (at one point he nearly dies of fever), Mr Butcher is on constant alert for fatal diseases and devil-worshipping fetishists who might knife out his heart to the bloodcurdling screech of a bullroarer an instrument which shares with Mr Butcher’s overheated prose the capacity to create a strange unnerving sound that made the ceremonies even more terrifying.

Greene believed that horror should be remembered in tranquillity. This was his response to Dispatches , Michael Herr’s book on the Vietnam war: I think when one is dealing with horrors one should write very coldly. Otherwise it reads like hidden boasting ‘just see what a brave chap I am to have voluntarily put myself in the way of such experiences.’ A splash of coldness would have made Mr Butcher’s journey yet more memorable. 7

Myanmar’s Than Shwe

A tyrant nobody knows Than Shwe: Unmasking Burma’s Tyrant. By Benedict Rogers. Silkworm Books; 256 pages; $30

P

ERFECTION, of a kind, was what he was after wrote W.H. Auden in his Epitaph on a Tyrant . Perhaps it is this ambition that moves Than Shwe, the senior general in the junta which has run Myanmar into the ground. It may explain an inexplicable folly: building Naypyidaw ( Seat of Kings ), a grand new capital in a remote malaria-ridden area 320km (200 miles) from Yangon, Myanmar’s main city and former capital.

The project seems to obsess him. In this biography, Benedict Rogers recounts an anecdote from a former American military attaché in Myanmar, who approached Than Shwe at a reception to introduce himself. Before he could utter a word, Than Shwe recited: Canberra, Sydney; Wash- 1

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Books and arts 91 Social history

New thriller

Home comforts

Oily conspiracies The Garden of Betrayal. By Lee Vance.

Knopf; 320 pages; $24.95. Corvus; £14.99

S

INCE oil lubricates almost every geopolitical machination, triggering wars, coups and uprisings, it is a bit curious that there are so few thrillers written about the stu . The Garden of Betrayal is a welcome addition to a tiny subgenre.

Lee Vance, a former partner at Goldman Sachs, brings an insider’s knowledge of the oil industry to this nancial thriller. The picture he paints is engrossing though far from appealing. His cast includes a rapacious senator and his sleazy assistant, grasping middlemen, contract killers, a dying and duplicitous Mr Fix-it and, unusually for nowadays, a team of Mossad agents who are both humane and e cient.

The Garden of Betrayal is also subtly educational. Mr Vance has mastered the trick of gently feeding insider snippets to his readers without overloading them with information. The scenes at

2 ington, DC, New York; The Hague, Amster-

dam; Ottawa, Toronto. Many countries have an administrative capital separate from the major economic and population centres. Then he sauntered away.

At least the American recognised the general. If Than Shwe were to take his place in a line-up of war criminals and tyrants, few outside his own country would know either the face or the name. Yet Than Shwe has for two decades misruled a country of more than 50m people. So Mr Rogers’s attempt to analyse his life story is a valiant bid to do what is clearly needed.

Sadly, however, his search for the truth is doomed. Even if Mr Rogers, a writer and human-rights activist, knew Burmese, he would grapple with the secrecy that surrounds the junta. As it is, he has had to rely on gossip, anecdote, dubious o cial reports, speculation and extrapolation. Even a detail as basic as where the general was born is carefully attributed to a source close to a businessman reputed to be close to Than Shwe .

Worse, Than Shwe seems to be several di erent people. A senior United Nations envoy thinks him quite a vain guy , who dresses well, sits straight and looks good.

To a former Thai diplomat, however, he is a stout man with glasses and teeth covCorrection: In Sham country, but not sham bard (July 31st) we wrote that the kilt was banned by King George IV’s grandfather. We were a generation wrong: George II, who did the banning, was George IV’s great-grandfather.

industrial conferences and the sordid backroom deals taking place behind the glitz are remarkably convincing.

The book’s protagonist, Mark Wallace, is an energy analyst. His 12-year-old son, Kyle, was kidnapped seven years earlier, leaving a mess of unresolved grief and guilt and a crippled marriage. Mark has never given up the search for his son but his wife is drifting away and seems about to leave. Suddenly, work and family life combine, with perilous consequences.

One day he is o ered priceless information about the true state of the Saudi oil reserves. Then a new Russian pipeline explodes causing destruction and loss of life. The explosion is blamed on an accident but Mark knows otherwise. Simultaneously, he has a new lead on his son.

The combination of these events drags him deep into the kind of vast and sinister conspiracy that thriller writers love.

Mr Vance pulls it o with style, providing thought-provoking entertainment for early autumn reading. ered in red spots from betel nut .

Some things were already known about him: that he outraged public opinion when leaked video footage showed his daughter’s astonishingly lavish wedding, in one of the poorest countries in the world. It is also no secret that he is superstitious. It is less known perhaps that a favourite soothsayer is a tiny, hunched deaf-mute in her mid-forties , widely known as ET . And it may not be general knowledge that one explanation for another folly forcing farmers to plant jatropha for biofuels was that an astrologer had advised this method to neutralise the powers of his nemesis, the detained opposition leader, Aung San Suu Kyi. But if the book adds little to what we know for certain about Than Shwe, it is nevertheless a timely account of the awfulness of the regime he heads, whose leaders seem sure to continue to hold real power even after a stage-managed election in November. As Mr Rogers points out, Than Shwe’s predecessor, Ne Win, also gave his dictatorship a civilian mask.

But Than Shwe himself remains a mystery: not least because few people seem to think him very bright. His tactical nous and staying power have been consistently underestimated, perhaps because of the consensus characteristic that emerges from Mr Rogers’s biography: in the words of a Western diplomat whom he quotes, Than Shwe is a bit of a thug . 7

At Home: A Short History of Private Life.

By Bill Bryson. Doubleday; 512 pages; $28.95 and £20

T

HE fruits of Bill Bryson’s uent and amusing writing have been fame and fortune, so he now lives in one of the most desirable dwellings in the world: an old rectory in an English country village. The social and technological history of this lovely old house is the theme of his latest book, published earlier this year in Britain and coming out in America next month.

Readers of Mr Bryson’s previous books will nd many familiar pleasures: e ortlessly digestible prose, wry self-deprecating humour and lightly-worn erudition.

His cellar-to-attic survey of his beloved house covers the habits, gadgets and techniques that have allowed mankind to move from cave to hovel to mansion.

Most readers will know some of the points he makes, but everyone will nd something to surprise them. People could manufacture striped fabric before they could make doors and windows. Rats steal eggs through teamwork (one rodent lies on its back, holding the egg in its paws; its pal then tows it by the tail). Old pillows are rich in mite dung and human skin akes.

The central message is the pace of change in the 19th century (Mr Bryson’s 1

A house, a cup of tea and me

The Economist September 4th 2010

92 Books and arts 2 house was built in 1851). Thomas Marsham,

a Norfolk clergyman who was its rst occupant, was born in 1822 into a world of candlelight, medicinal leeches and travel no faster than a galloping horse. He lived to see steamships, express trains, telegraphy, photography, anaesthesia, indoor plumbing, gas lighting, antisepsis in medicine, refrigeration, electric lights, recorded music, cars and planes, skyscrapers, radio and much more besides.

American-born but an ardent anglophile, Mr Bryson neatly balances the social histories of his original and adopted homeland. He reminds readers of the glory days of the English country clergy from the early 18th to the late 19th century: a kind of tenured rural intelligentsia, with the time and brains to write, research and think (Thomas Bayes, of the eponymous probability theorem, is a signal example of this leisured excellence). A classic bit of Bryson research is to notice that Britain’s Dictionary of National Biography contains 4,600 mentions of rector and 3,300 for vicar compared with a modest 639 for inventor and 741 for scientist .

American settlers in those years had to ship most of their building materials and furniture from England, at great trouble, cost and uncertainty. Mr Bryson pays sympathetic tribute to their e orts, focusing on Thomas Je erson’s Monticello. He also highlights the later American fascination with European style and English aristocracy that led to the marriages and mansions of the great 19th-century tycoons.

Even the most unpromising rooms in Mr Bryson’s rectory provide food for thought, such as the miserable provision made for the servants, an all but invisible presence in the grand old days of yore. The hallway, now a neglected in-between room, is the last remnant of medieval times when the hall was the main (or only) room in the house. The toilet gives a chance to write about the vital subject of modern sewerage.

For good measure Mr Bryson also gives potted histories of, among other things, feminism, childhood, personal hygiene, bedding, sex, archaeology, parks, landscape gardening and staircases (the most dangerous place, statistically, in the home).

Sharp-eyed readers may note that in places the seams in this patchwork quilt are a little clumsy. A tougher editor might have clamped down on some of Mr Bryson’s lazy habits, such as the tiresome re-use of the phrase very real .

Old rectories used to be seen as draughty and impractical (which is why the Church of England sold them o cheaply). Now they are the preserve of the rich, who can a ord to furnish, clean and heat them comfortably. Mr Bryson’s book gives humbler readers a feeling of what they are missing and how lucky they are to enjoy what comforts they have. 7

Ife sculpture

Magni cent mysteries

Ancient West African treasures embark on a journey round America

A

FTER acclaim in Spain and Britain, Dynasty and Divinity , the rst big exhibition devoted to sculpture from the Kingdom of Ife (in present-day Nigeria), begins an 18-month tour of America in Houston on September 19th. The show, which consists of works in stone, terracotta and metal made between the 9th and 15th centuries, is a revelation and a treat. Art from dramatically di erent cultures is often hard to connect with, but these sculptures are naturalistic and remarkably accessible. Whether the subject is an animal, a person or a mythical creature, each image is well observed and has tremendous presence.

More than 100 works are on view. All are loans from Nigeria’s National Commission for Museums and Monuments. Some have left Africa for the rst time. Text and photo murals on the walls instruct visitors about the kingdom, an unbroken monarchy for more than 800 years. Today Ife is a city of 600,000 people. Its present ruler or Ooni is Alayeluwa Oba Okunade Sijuwade, Olubuse II; now aged 80, he studied in Britain, became a businessman and is enjoyably wealthy.

The background information is interesting but limited.

The art itself makes a powerful impact. Some of it is unnerving.

A few of the terracotta heads are gagged; others are deformed by birth defects or disease. The dozen or more heads in copper alloy are exciting in a less complicated way; their faces radiate serenity. Ten of them are life-sized. The three that are somewhat smaller are topped by crowns decorated with what appear to be rings of beads (as shown above). These heads are beautiful, technically sophisticated and compelling. At the time they were created, between the 14th and early 15th centuries, the city-state of Ife was a centre of trade, weaving and bead manufacture. It was a period of peace and prosperity, the kingdom’s golden age.

Some of the objects in the exhibition used to play a part in rituals. But were they made for that purpose? Ife has no written early history. Many of the works were chance discoveries. There is no archaeo-

logical record to help scholars nd answers to the many questions that they raise. Were the copper-alloy heads the work of a single artist or workshop? Are the heads portraits or idealised images? Are the scars on some of the brass and terracotta faces a means of suggesting beaded veils of the sort that are still in use today? Are all the heads male? It is almost impossible to be sure of the sex of one or two.

In the 15th century metal casting in Ife stopped abruptly. This was when the Portuguese arrived on West Africa’s coast. The neighbouring Kingdom of Benin supplanted inland Ife as a trading centre and the metal casters may have moved to where they were more likely to nd patrons. The best of Benin’s famous, more stylised bronzes were made between the 15th and 18th centuries. But Ife remained and remains the spiritual home of the Yoruba-speaking people.

In 1910 Leo Frobenius, a German explorer, saw Ife’s superbly modelled terracotta sculptures and a single brass head. He thought they were too good to have been made by Africans and concluded that the sculptors must have been survivors of Atlantis, the submerged island of Greek legend.

Along with expressions of excitement, there were echoes of this reaction in 1938 when Europeans rst saw a cache of newly unearthed brass heads.

Now these reactions seem shockingly bigoted or, at best, quaintly narrow-minded: the skill and imagination of African artists is generally recognised. Ife sculpture is seen to be sophisticated, not primitive. Appropriately, the show is touring art, rather than ethnographical, institutes. Its last stop before returning to Nigeria will be in the handsome new building of New York’s African art museum now rising at the corner of 110th Street and Fifth Avenue. 7

...............................................................

Dynasty and Divinity: Ife Art in Ancient Nigeria will be at the Museum of Fine Arts, Houston, September 19th-January 9th 2011; Virginia Museum of Fine Arts, Richmond, February 12th-May 22nd; Indianapolis Museum of Art, Indianapolis, July 8th-October 9th; Museum for African Art, New York, November 11th-April 8th 2012

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Obituary

The Economist September 4th 2010 93

Mont Liggins Graham Mont Liggins, investigator of the mysteries of birth and breath, died on August 24th, aged 84

H

E FORGOT about the sheep. He had meant to dump it in the incinerator on the way home from work. It was still in the car boot, and starting to smell. When he remembered, and forced it down the incinerator chute, it was already bloating, and the gassy innards instantly caught re. The force of the explosion sent ash 200 feet into the air over Auckland.

Graham Liggins (grinning, right, above) was trying to nd out what triggered labour. As a New Zealander, he had naturally turned to sheep. But his pursuit led to some of the most important discoveries in obstetrics, and the saving of hundreds of thousands of tiny, struggling lives.

He had rst got hooked on the subject in the late 1940s, at the end of his clinical training at Auckland hospital. He was not, in his own mind, a natural doctor, being far keener on skiing, golf, girls, and having fun; his party trick was blowing re. But family pressure had induced him to follow his father into medicine, and he began to be fascinated by the di culties of birth.

In those years, premature birth was often a death sentence. The baby’s lungs would be like small blobs of liver, unable or scarcely able to in ate. America’s best doctors could not save Patrick Kennedy, born ve weeks early in 1963 to John F. Kennedy and his wife Jackie. Dr Liggins

(known as Mont after his childhood craze for Monty the Mouse) was determined to understand why such births occurred, and to prevent them.

Squeezing his research into evenings after long days delivering babies, he began by questioning the theory, held since Aristotle, that the mother’s body instigated labour. He read of animals with prolonged pregnancies whose fetuses lacked a pituitary gland. This sent him to the animal research station at Ruakura among the sheep, and there, in an unsterile theatre, he began with much trial and error to remove the pituitary glands of unborn lambs. That surgery, as he discovered later with huge excitement, delayed the onset of labour. It was the fetus therefore, not the mother, that determined when labour started.

A stint at the University of California had consolidated those ndings. Back in Auckland, though, money was tight. Dr Liggins patched together a laboratory for himself in a condemned shed, no thing of beauty, but quite adequate: the sort of place he had haunted as a boy in the small gold-rush town of Thames in North Island, where he had squeezed down abandoned mine shafts and made his gang headquarters in derelict wooden huts, staying overnight in the creepy kauri forest to feast on sausages and chocolate.

In his shed, treading with care to avoid the rotting oorboards, he continued his research into fetal lambs. Having removed their pituitaries, he then infused the lambs with cortisol, a hormone indirectly produced by that gland. Each time, the ewe gave birth two days later. The signal for labour, at least in sheep, had been revealed.

Then serendipity stepped in. One morning Dr Liggins discovered that a lamb he had infused with cortisol had been born overnight. It was so premature that its lungs should have been unin atable, yet it was breathing. He realised that the cortisol had caused its lungs to mature early. In 1972, with his colleague Ross Howie (left above), he carried out a trial in which synthetic cortisol was given to women in premature labour. Amazingly, it reduced by half the number of babies dying.

The treatment was cheap, too. Two or four inexpensive injections saved tens of thousands of dollars in hospital costs and care of handicapped infants. Dr Liggins, as generous with his knowledge as with his whisky, was surprised that the rest of the world took 20 years to follow. Probably, he said, it was because people thought nothing good could come out of the colonies.

He delved further into lung development, spending his study leave in 1971 in a lab in the old Radcli e observatory in Oxford. His lasting contribution here, he said, was to point out that instead of lugging each sheep up the beautiful winding stone staircase, anaesthetising it and diagnosing pregnancy by opening it up, one could merely feel its belly while it was still outside. But in fact he and his colleagues made a surprising nding at Oxford: that fetal lambs spent most of the day making vigorous breathing movements, and that these were essential to the growth of their lungs.

Dunking seals In the late 1970s his researches took him to McMurdo base in the Antarctic. There, by dint of putting multiple tubes and probes into Weddell seals, sitting for hours over ice holes or slowly dunking their heads in water to simulate dives, he and other scientists tried to learn how seals held their breath for so long, and how pregnant females provided their fetuses with su cient oxygen. He found that seals had higher cortisol levels than any other mammal, and that the deepest divers had most strongly suggesting that the cortisol helped them withstand the ocean’s pressure.

Honours accrued around him: a fellowship of the Royal Society in 1980, a knighthood in 1991. But, to his lasting frustration, he never unravelled the mystery of what triggers labour in humans. It is mysterious still. Obstetricians can delay labour for only around two days but that is just long enough, as he discovered, for cortisol to expand those tiny lungs into life. 7

94

Courses

The Economist September 4th 2010

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96

Courses

The Economist September 4th 2010

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Appointments

97

DEAN OF THE CEU SCHOOL OF PUBLIC POLICY Central European University (CEU) invites applications from outstanding candidates for the position of Dean of its new school of public policy and international affairs.

Courses

CEU (www.ceu.hu) is an independent, graduate-level, research-intensive university, accredited in the US and Hungary, and privately endowed. Located in Budapest, CEU was founded in 1991 with strong regional intellectual roots and a unique transnational mission. Today CEU is a mature institution with an increasingly global identity, enrolling more than 1500 students from almost 140 countries. The University benefits from the expertise of an outstanding faculty body, internationally recruited, currently representing more than 40 countries.

CEU’s mission is to promote academic excellence, including state-of-the-art research, and civic engagement, in the study and development of open societies and democracy.

The school of public policy is a major initiative at CEU, mobilizing significant new and existing resources. In line with the overall mission of the university, the School will promote a transnational perspective, with a particular focus on civil society.

The School will be launched in the Fall of 2011. Preparatory work has been underway for more than a year, under the supervision of a planning committee made up of an interdisciplinary group of CEU faculty and external experts, in the fields of public policy, international relations, political science and economics. The Dean will play a central role developing the school into a world-class institution with a distinctive global agenda in teaching, research, and policy practice.

Applicants should hold the rank of professor or equivalent; have international experience and a strong academic record in public policy, international relations, political economy and/or comparative politics; and have university management experience.

The starting date is August 2011, or by arrangement. CEU will offer a highly competitive salary, as well as a dynamic and international academic environment. Applicants should submit a full resume, a statement of purpose, and publication samples to: The President and Rector, Central European University, c/o Human Resources Office, Nador utca 9, H-1051 Budapest, Hungary.

E-mail: job@ceu.hu.

Application deadline: 15 October 2010 CEU is an equal opportunity employer.

The Economist September 4th 2010

98

Appointments

The Economist September 4th 2010

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Appointments Non Bank Financial Institutions Regulatory Authority Deputy Chief Executive – Regulatory – Botswana The recently formed, Non Bank Financial Institutions Regulatory Authority (NBFIRA) is the regulator of all non-banking financial entities registered in Botswana including Pension Funds, Asset Management, Consumer/Micro Lending, Insurance and Collective Investment Undertakings. Its purpose is to safeguard the stability, fairness and efficiency of the non-banking financial sector, and ensure that regulation is in line with international best practice.

This is a wonderful opportunity to work in Africa’s sparkling model economy and be based in the capital, Gaborone, where living conditions, safety and security, health-care and education systems are comparable to the leading economies in Africa.

NBFIRA is seeking a highly experienced and proactive individual to take on the exciting role of Deputy Chief Executive to oversee the effective operation of its core business – regulation and supervision of capital markets, insurance and pension. In playing a leading role in the organisation you must be capable of making a positive impact quickly; building trust, communicating effectively and getting things done.

You will have outstanding ability as a leader and direct personal experience working in capital markets, other financial services businesses or regulatory environments.

This is a position of real influence, helping to establish the Authority and building momentum which will directly improve the quality of non-banking financial institutions in Botswana.

A seasoned professional looking for the challenge to use your substantial depth of experience and technical skills, you will have a Masters degree and a minimum of 10 years experience, with at least 2 years at senior management level.

Eligible and interested candidates should send their CV and current salary package details to kefilwe@hrmc.co.bw quoting the reference number NBF0210 in the subject box. Closing date for applications is 24 September 2010. If you have not received an email response within 48 hours, please call Kefilwe Tomeletso on +267 395 1640.

Human Rights Watch is seeking a highly qualified Executive Director to lead its Europe and Central Asia Division.

Please see www.hrw.org/jobs for details.

EOE

Tenders

KOSOVO PENSION SAVINGS TRUST (KPST) Is a not-for-profit institution responsible for the management and investment of pension contributions of all employees in the Republic of Kosovo. KPST is seeking a company registered in OECD which will facilitate the tender processes for asset managers selection. The company shall help with the evaluation and analysis of bids and present findings to the Governing Board of Directors. In order to obtain the tender dossier containing specific requirements please email: shkelzen.halili@trusti.org, Reference: “TKPK/10-04 221”.

The deadline for submitting the bids is 30 September 2010 at 14:00 CET.

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

The Economist September 4th 2010

BE A PART OF DYNAMIC KOREA To maintain our excellence, the Sejong University School of Business located in Seoul, Korea is looking for academically qualified faculty. The School of Business is AACSB-accredited and desires scholars with a passion for teaching, and an applied research record.

The School of Business invites applicants with outstanding academic accomplishments for full-time, faculty positions in all areas including Marketing, Finance, Management/Organizational Behaviour, Information Management, Accounting and other business-related areas. The positions require a doctorate from an AACSB-accredited institution.

Salary and rank will be commensurate with education and professional experience. Housing and a travel allowance will be provided. Native English speaking is preferred.

Please submit a complete and current curriculum vitae as well as names, addresses, telephone numbers, and email addresses of references. Send a cover letter of interest and the above materials to: Dr. Yoseop Lee, Dean of Graduate School of Business, Sejong University, 98 Gunja-Dong, Gwangjin-Gu, Seoul, Korea Email: yslee@sejong.ac.kr Homepage: www.sejong.ac.kr

Announcements

100

Fellowships

Business & Personal

Readers are Recommended

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

Tenders Regional Development Co. Ltd Call for Proposals for Food Security and Renewable Energy Projects in Mozambique The Government of Mozambique has offered to lease to the Government of Mauritius (represented by Regional Development Co. Ltd) some 23,500 hectares of land (18,500 hectares in the Province of Maputo and 5,000 in the Province of Manica), subject to the Government of Mauritius (represented by Regional Development Co. Ltd) coming up with viable and sustainable projects related to the land. For this purpose, the Regional Development Co. Ltd (RDC) has been incorporated as a private company with the Government of Mauritius as shareholder. Its objects include the promotion of regional food security and other regional development projects.

The RDC hereby invites prospective investors to submit technical and ďŹ nancial proposals for any agricultural activity, including processing and support services, and for renewable energy. This Call for Proposal is for projects that can be implemented on a maximum extent of 5,000 hectares only.

Eligibility This Call for Proposals is open to all investors, regardless of nationality or country of registration as well as to small planters in Mozambique and Mauritius.

Submission The complete project proposal must be submitted in 3 copies in a sealed envelope marked as follows:

TO ADVERTISE WITHIN THE CLASSIFIED SECTION, CONTACT: London New York Oliver Slater Tel: (44-20) 7576 8408 oliverslater@economist.com

Beth Huber Tel: (212) 541-0500 bethhuber@economist.com

Hong Kong

Paris

David E. Smith Tel: (852) 2585 3232 davidesmith@economist.com

Marie-Louise Boisseau Tel: (33) 1 53 93 67 14 marielouiseboisseau@economist.com

Project Proposal Food Security and Renewable Energy, Mozambique Private Operator’s Name and Address, and should be submitted to the following address: Secretary, Regional Development Co. Ltd, c/o Ministry of Finance and Economic Development, Room 103, 1st Floor, Government House, Port-Louis Mauritius Tel: +(230) 208 1652 Email: mjli@mail.gov.mu Proposals should be submitted at latest at 3.30 p.m on Friday 24 September 2010.

For further information, please contact the Secretary to obtain the set of documents relating to the call for proposal. The documents can also be downloaded from the website of the Board of Investment www.investmauritius.com Date: 06 August 2010

The Economist September 4th 2010

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storemags & fantamag - magazines for all The Economist September 4th 2010 101

Economic and nancial indicators Overview America’s GDP growth in the three months to the end of June was revised down sharply to an annualised quarter-on-quarter rate of 1.6% from the previous estimate of 2.4%. In the three months to the end of March, GDP had risen at an annualised rate of 3.7% from the previous quarter.

An early estimate put euro-area in ation at 1.6% in August 2010, a tenth of a percentage point lower than in July. The region’s unemployment rate remained at 10% in July, unchanged from a month earlier.

A surge in manufacturing, which grew by 12.4% on a year earlier, helped India’s economy grow by 8.8% in the year to the end of the second quarter. Growth accelerated from the rst quarter’s year-on-year rate of 8.6% and was the highest since the nal quarter of 2007. Some services, such as trade and transport, also grew rapidly, but agricultural growth was sluggish at 2.8%.

Australia’s GDP grew by 3.3% in the year to the end of the second quarter. Its quarteron-quarter growth rate of 1.2% was the highest in three years.

Poland’s economic growth picked up in the second quarter, when its economy expanded by 3.5% on a year earlier, after growing by 3% in the year to the end of the rst quarter.

South Korean industrial production rose by 15.5% in the 12 months to the end of July.

Thailand’s industrial production in July was 16.3% higher than a year earlier.

Indicators for more countries, as well as additional series, can be found at Economist.com/indicators

Manufacturing activity Surveys of purchasing managers by Markit, a research rm, suggest that manufacturing expanded at a faster pace in August than a year earlier in most countries. A year ago, 11 countries had purchasing managers’ indices (PMIs) below 50, indicating that manufacturing industries there were still contracting.

Now, contraction is apparent in only three of the 25 countries for which August data are available. After dipping into contractionary terrain in July, China’s August PMI of 51.9 once again signalled growth, though Chinese manufacturing has clearly slowed from a year earlier. In America, the Institute of Supply Management’s index for August pointed to growth for the 13th month in a row.

Output, prices and jobs % change on year ago Gross domestic product latest qtr* 2010† United States +3.0 Q2 +1.6 +3.0 +0.4 +3.2 Japan +2.0 Q2 China +10.3 Q2 na +9.9 Britain +1.6 Q2 +4.5 +1.4 Canada +3.4 Q2 +2.0 +3.5 Euro area +1.7 Q2 +3.9 +1.2 Austria +2.0 Q2 +3.8 +1.0 Belgium +2.2 Q2 +2.8 +1.3 France +1.7 Q2 +2.6 +1.4 Germany +4.1 Q2 +9.0 +1.9 Greece –3.5 Q2 –5.8 –3.9 Italy +1.1 Q2 +1.5 +1.0 Netherlands +2.1 Q2 +3.6 +1.4 Spain –0.1 Q2 +0.7 –0.4 Czech Republic +1.1 Q1 +2.0 +0.9 Denmark +2.8 Q2 +3.9 +1.5 Hungary +1.0 Q2 nil +0.3 Norway +0.6 Q2 –1.9 +1.3 Poland +3.5 Q2 na +3.0 Russia +5.2 Q2 na +4.8 Sweden +3.7 Q2 +4.7 +3.2 Switzerland +3.4 Q2 +3.5 +2.0 Turkey +11.7 Q1 na +5.5 Australia +3.3 Q2 +4.9 +3.1 Hong Kong +6.5 Q2 +5.7 +5.7 India +8.8 Q2 na +8.0 Indonesia +6.2 Q2 na +5.9 Malaysia +8.9 Q2 na +6.8 Pakistan +4.1 2010** na +4.4 Singapore +18.8 Q2 +24.0 +12.3 South Korea +7.2 Q2 +6.0 +6.3 +7.2 +7.7 Taiwan +12.5 Q2 +0.6 +4.1 Thailand +9.1 Q2 Argentina +6.8 Q1 +12.5 +6.8 Brazil +9.0 Q1 +11.4 +7.8 Chile +6.5 Q2 +18.4 +4.8 Colombia +4.4 Q1 +6.2 +4.6 Mexico +7.6 Q2 +13.5 +4.6 Venezuela –1.9 Q2 na –5.5 Egypt +5.8 Q1 na +5.2 Israel +4.8 Q2 +4.7 +3.2 Saudi Arabia +0.2 2009 na +3.4 South Africa +3.0 Q2 +3.2 +2.8

2011† +2.8 +1.6 +8.4 +1.9 +2.9 +1.3 +1.3 +1.4 +1.4 +1.6 –3.5 +1.0 +1.5 +0.5 +2.0 +1.8 +2.5 +1.4 +3.4 +4.0 +2.7 +1.9 +3.7 +3.3 +4.4 +8.1 +6.0 +4.0 +3.2 +4.3 +3.9 +4.3 +4.1 +4.0 +4.5 +5.6 +4.4 +3.3 –2.5 +5.5 +3.3 +3.7 +3.7

Industrial production latest +7.7 Jul +14.8 Jul +13.4 Jul +1.3 Jun +8.1 Jun +8.2 Jun +5.7 Jun +9.9 May +5.7 Jun +10.8 Jun –4.5 Jun +8.2 Jun +7.0 Jun +3.1 Jun +9.7 Jun +12.3 Jun +15.2 Jun –4.4 Jun +10.3 Jul +5.9 Jul +12.0 Jun +5.3 Q1 +10.2 Jun +3.4 Q1 +0.4 Q1 +7.1 Jun +4.9 Jun +9.4 Jun +4.7 Jun +9.9 Jul +15.5 Jul +20.7 Jul +16.3 Jul +6.8 Jun +11.1 Jun +3.3 Jul +8.5 Jun +8.4 Jun –1.6 Jun +4.4 Q1 +12.5 Jun na +8.8 Jun

Consumer prices Unemployment latest year ago 2010† rate‡, % +1.2 Jul –2.1 +1.7 9.5 Jul –0.9 Jul –2.2 –0.9 5.2 Jul +3.3 Jul –1.8 +3.0 9.6 2009 +3.1 Jul§ +1.8 +3.0 7.8 Jun†† +1.8 Jul –0.9 +1.7 8.0 Jul +1.6 Aug –0.2 +1.5 10.0 Jul +1.7 Jul –0.2 +1.4 3.9 Jun +2.3 Aug –0.8 +1.8 11.3 May‡‡ +1.7 Jul –0.7 +1.6 10.0 Jul +1.0 Aug nil +1.1 7.6 Aug +5.5 Jul +0.6 +4.5 12.0 May +1.6 Aug +0.1 +1.5 8.4 Jul +1.6 Jul +0.2 +1.2 5.5 Jul†† +1.8 Aug –0.8 +1.5 20.3 Jul +1.9 Jul +0.3 +1.6 8.7 Jul +2.3 Jul +1.0 +2.0 4.1 Jul +4.0 Jul +5.1 +4.4 11.0 Jul†† +1.9 Jul +2.2 +2.5 3.5 Jun§§ +2.0 Jul +3.6 +2.6 11.4 Jul‡‡ +5.5 Jul +12.0 +6.4 5.8 Jul‡‡ +1.1 Jul –0.9 +1.3 9.5 Jun‡‡ +0.4 Jul –1.2 +1.0 3.8 Jul +7.6 Jul +5.4 +8.7 11.0 May‡‡ +3.1 Q2 +1.5 +2.9 5.3 Jul +1.4 Jul –1.5 +2.4 4.3 Jul†† +11.3 Jul +11.9 +11.4 10.7 2009 +6.4 Aug +2.8 +5.4 7.4 Feb +1.9 Jul –2.4 +1.7 3.7 Jun +12.3 Jul +11.2 +12.6 5.5 Jul +3.1 Jul –0.3 +2.6 2.3 Q2 +2.6 Aug +2.2 +3.1 3.7 Jul +1.3 Jul –2.3 +1.3 5.2 Jul +3.3 Aug –1.0 +3.6 1.5 May +11.2 Jul*** +5.5 +10.9 7.9 Q2‡‡ +4.6 Jul +4.5 +5.2 6.9 Jul‡‡ +2.2 Jul +0.3 +1.8 8.5 Jun††‡‡ +2.2 Jul +3.3 +2.5 12.7 Jul‡‡ +3.6 Jul +5.4 +4.3 5.7 Jul‡‡ +30.9 Jul +28.3 +32.0 8.2 Q2‡‡ +10.7 Jul +10.0 +11.8 9.0 Q2‡‡ +1.8 Jul +3.5 +2.6 6.2 Q2 +5.5 Jun +5.2 +3.5 na +3.7 Jul +6.7 +5.1 25.3 Q2‡‡

*% change on previous quarter, annual rate. †The Economist poll or Economist Intelligence Unit estimate/forecast. ‡National definitions. §RPI inflation rate 4.8 in July. **Year ending June. ††Latest 3 months. ‡‡Not seasonally adjusted. §§Centred 3-month average. ***Unofficial estimates are higher.

The Economist commodity-price index

2000=100

Purchasing Managers’ Index*, August CONTRACTING

48

50

52

54

56

58

60

Germany India United States France Britain Russia China South Korea Japan Brazil

% change on one one month year

EXPANDING

2009 2010

*Based on a survey of purchasing executives. A reading of above/below 50 indicates the manufacturing Sources: economy is generally expanding/contracting Markit; ISM compared with the previous month

Aug 24th Aug 31st* Dollar index All items 221.1 222.8 –0.2 Food 219.5 220.0 +0.2 Industrials All 223.2 226.5 –0.7 205.5 207.3 +3.5 Nfa† Metals 232.9 237.0 –2.5 Sterling index All items 217.0 219.8 +3.6 Euro index All items 161.2 162.1 +3.8 Gold $ per oz 1,225.40 1,237.16 +4.7 West Texas Intermediate $ per barrel 71.70 71.64 –13.2 *Provisional †Non-food agriculturals.

+16.5 +12.0 +22.7 +42.6 +15.1 +23.0 +31.1 +30.1 +5.0

102 Economic and nancial indicators

The Economist September 4th 2010

Trade, exchange rates, budget balances and interest rates Trade balance* latest 12 months, $bn United States –592.4 Jun Japan +81.7 Jun China +174.7 Jul Britain –135.0 Jun Canada –3.1 Jun Euro area +26.7 Jun Austria –5.6 May Belgium +18.0 May France –62.4 Jun Germany +210.8 Jun Greece –43.5 May Italy –19.5 Jun Netherlands +51.0 Jun Spain –72.7 Jun Czech Republic +8.5 Jun Denmark +14.4 Jun Hungary +7.0 Jun Norway +55.1 Jul Poland –5.2 Jun Russia +152.6 Jun Sweden +9.1 Jul Switzerland +21.0 Jul Turkey –55.3 Jul Australia –0.8 Jul Hong Kong –42.9 Jul India –117.1 Jul Indonesia +19.5 Jul Malaysia +35.9 Jun Pakistan –15.4 Jul Singapore +16.8 Jul South Korea +40.2 Aug Taiwan +14.7 Jul Thailand +12.9 Jul Argentina +13.9 Jul Brazil +17.1 Aug Chile +15.3 Jul Colombia +1.0 Jun Mexico –2.2 Jul Venezuela +31.1 Q2 Egypt –24.2 Q1 Israel –4.9 Jul Saudi Arabia +105.2 2009 South Africa –1.1 Jun

Current-account balance latest 12 % of GDP months, $bn 2010† –391.9 Q1 –3.1 +175.2 Jun +3.3 +282.2 Q1 +4.9 –33.7 Q1 –1.4 –41.1 Q2 –1.8 –62.4 Jun –0.3 +8.7 Q1 +2.0 +0.1 Mar +0.5 –49.4 Jun –2.0 +182.7 Jun +5.2 –38.3 May –6.2 –65.3 Jun –2.7 +46.9 Q1 +5.9 –75.4 May –4.4 –2.1 Jun –3.3 +14.9 Jun +2.5 +1.9 Q1 –0.6 +54.9 Q2 +16.3 –10.0 Jun –3.0 +82.2 Q2 +5.2 +29.2 Q2 +6.9 +59.6 Q1 +8.8 –27.3 Jun –4.4 –49.5 Q2 –3.8 +17.0 Q1 +8.1 –38.4 Q1 –1.7 +9.7 Q2 +1.6 +29.2 Q2 +13.3 –3.7 Q1 –1.2 +37.0 Q2 +14.1 +34.1 Jul +3.3 +40.4 Q2 +8.5 +12.8 Jul +4.5 +9.6 Q1 +2.1 –43.8 Jul –2.7 +3.2 Q2 +0.7 –5.4 Q1 –1.7 –5.2 Q2 –1.3 +20.1 Q2 +9.3 –3.6 Q1 +0.2 +7.2 Q1 +2.4 +22.8 2009 +11.8 –11.4 Q1 –5.0

Markets

Budget Interest rates, % balance Currency units, per $ % of GDP 3-month 10-year gov’t Sep 1st year ago 2010† latest bonds, latest – – –8.9 0.23 2.58 84.6 92.5 –7.6 0.20 1.03 6.81 6.83 –2.2 2.52 2.91 0.65 0.62 –10.4 0.80 3.03 1.05 1.11 –4.5 0.61 2.85 0.78 0.70 –6.5 0.89 2.18 0.78 0.70 –5.1 0.89 2.63 0.78 0.70 –5.6 0.90 2.90 0.78 0.70 –7.9 0.89 2.55 0.78 0.70 –4.1 0.89 2.22 0.78 0.70 –9.5 0.89 11.30 0.78 0.70 –5.2 0.89 3.75 0.78 0.70 –6.2 0.89 2.39 0.78 0.70 –9.9 0.89 4.02 19.3 18.1 –5.4 1.24 3.31 5.81 5.23 –5.8 1.19 2.30 222 194 –3.9 5.36 7.40 6.17 6.09 9.9 2.68 2.87 3.09 2.93 –3.0 3.81 5.43 30.7 32.0 –3.9 7.75 5.46 7.27 7.23 –2.0 1.06 2.34 1.02 1.06 –0.4 0.17 1.17 1.51 1.51 –4.5 7.68 4.17‡ 1.10 1.20 –2.4 4.70 4.81 7.78 7.75 0.6 0.25 1.75 46.8 49.0 –5.5 6.07 8.19 9,006 10,140 –1.5 6.94 4.08‡ 3.13 3.54 –5.3 2.92 2.81‡ 85.5 82.7 –6.2 12.73 9.24‡ 1.35 1.44 –2.7 0.50 1.83 1,185 1,250 –1.9 2.66 4.34 32.0 32.9 –2.2 1.11 1.06 31.2 34.1 –3.2 1.42 2.79 3.95 3.85 –2.7 12.31 na 1.74 1.90 –2.1 10.66 6.16‡ 498 558 –2.2 2.64 2.18‡ 1,814 2,066 –3.6 3.48 4.05‡ 13.1 13.6 –1.0 4.48 6.22 5.30 na –3.1 14.52 6.55‡ 5.71 5.53 –8.2 9.66 5.03‡ 3.78 3.80 –4.0 1.75 3.34 3.75 3.75 5.0 0.72 na 7.28 7.85 –6.3 6.28 7.84

*Merchandise trade only. †The Economist poll or Economist Intelligence Unit estimate. ‡Dollar-denominated bonds.

Global foreign-exchange market According to the latest survey of foreign-exchange markets from the Bank for International Settlements (BIS), trading in currencies surged by 20% in April this year from April 2007, when the last such survey was conducted. This marks a signi cant slowdown from the 72% growth seen between 2004 and 2007.

Foreign-exchange swaps accounted for 44% of transactions in April this year, down from 52% three years earlier.

Inter-bank trading accounted for only 39% of foreign-exchange transactions this year, down from 63% in 1998. For the rst time this year, the BIS found that non-bank institutions like hedge funds and pension funds accounted for over half the transactions on the spot market.

Average daily turnover in April, $trn 4 Spot transactions Swaps Outright forwards Other

3

2

1

0 1998 Source: BIS

2001

04

07

10

United States (DJIA) United States (S&P 500) United States (NAScomp) Japan (Nikkei 225) Japan (Topix) China (SSEA) China (SSEB, $ terms) Britain (FTSE 100) Canada (S&P TSX) Euro area (FTSE Euro 100) Euro area (DJ STOXX 50) Austria (ATX) Belgium (Bel 20) France (CAC 40) Germany (DAX)* Greece (Athex Comp) Italy (FTSE/MIB) Netherlands (AEX) Spain (Madrid SE) Czech Republic (PX) Denmark (OMXCB) Hungary (BUX) Norway (OSEAX) Poland (WIG) Russia (RTS, $ terms) Sweden (OMXS30) Switzerland (SMI) Turkey (ISE) Australia (All Ord.) Hong Kong (Hang Seng) India (BSE) Indonesia (JSX) Malaysia (KLSE) Pakistan (KSE) Singapore (STI) South Korea (KOSPI) Taiwan (TWI) Thailand (SET) Argentina (MERV) Brazil (BVSP) Chile (IGPA) Colombia (IGBC) Mexico (IPC) Venezuela (IBC) Egypt (Case 30) Israel (TA-100) Saudi Arabia (Tadawul) South Africa (JSE AS) Europe (FTSEurofirst 300) World, dev’d (MSCI) Emerging markets (MSCI) World, all (MSCI) World bonds (Citigroup) EMBI+ (JPMorgan) Hedge funds (HFRX)† Volatility, US (VIX) CDSs, Eur (iTRAXX)‡ CDSs, N Am (CDX)‡ Carbon trading (EU ETS) ¤

Index Sep 1st 10,269.5 1,080.3 2,176.8 8,927.0 811.4 2,748.2 249.8 5,366.4 12,003.8 853.6 2,715.3 2,461.3 2,531.8 3,623.8 6,083.9 1,571.1 20,370.0 325.5 1,089.1 1,156.5 379.9 23,010.7 407.5 42,469.6 1,450.0 1,049.3 6,332.4 60,685.5 4,526.8 20,623.8 18,205.9 3,135.3 1,432.0 9,735.4 2,982.8 1,764.7 7,668.3 919.3 2,394.8 67,072.5 21,474.6 14,474.5 32,339.2 64,768.8 6,493.3 1,063.9 6,159.0 27,979.3 1,055.7 1,111.5 989.8 286.7 865.9 555.8 1,159.4 23.9 113.0 130.0 15.4

% change on Dec 31st 2009 one in local in $ week currency terms +2.1 –1.5 –1.5 +2.4 –3.1 –3.1 +1.6 –4.1 –4.1 +0.9 –15.4 –6.8 +0.5 –10.6 –1.6 +1.0 –20.1 –19.9 –1.1 –1.3 –1.0 +5.0 –0.9 –5.1 +3.1 +2.2 +2.0 +4.7 –6.7 –16.6 +4.9 –8.4 –18.2 +3.1 –1.4 –11.9 +4.4 +0.8 –9.9 +5.0 –7.9 –17.7 +3.1 +2.1 –8.7 +3.6 –28.5 –36.1 +4.6 –12.4 –21.7 +4.4 –2.9 –13.3 +6.4 –12.3 –21.6 +1.3 +3.5 –1.1 +6.1 +20.3 +7.5 +5.8 +8.4 –7.9 +4.8 –3.0 –9.2 +2.2 +6.2 –1.8 +4.6 +1.7 +0.4 +5.4 +10.2 +8.3 +3.8 –3.3 –1.7 +4.1 +14.9 +13.8 +3.9 –7.3 –8.0 –0.1 –5.7 –6.0 +0.1 +4.2 +3.6 –0.1 +23.7 +29.1 +2.5 +12.5 +23.1 +1.9 +3.7 +2.3 +1.9 +2.9 +7.4 +1.7 +4.9 +3.1 –0.9 –6.3 –6.5 +3.9 +25.2 +33.8 +2.7 +3.2 –0.7 +3.5 –2.2 –2.0 +2.7 +29.1 +31.5 +6.5 +24.8 +40.5 +2.8 +0.7 +0.7 –0.1 +17.6 na +1.4 +4.6 +0.5 +2.7 –0.1 nil +2.6 +0.6 +0.6 +5.7 +1.1 +2.3 +4.4 +0.9 –9.8 +3.5 –4.9 –4.9 +2.8 nil nil +3.4 –4.2 –4.2 +0.1 +4.2 +4.2 –0.3 +12.7 +12.7 0.1 +0.2 +0.2 26.7 21.7 (levels) –2.2 +61.4 +44.2 –5.1 +19.6 +19.6 +0.1 +21.6 +8.6

*Total return index. †Aug 31th. ‡Credit-default-swap spreads, basis points. Sources: National statistics offices, central banks and stock exchanges; Thomson Reuters; WM/Reuters; JPMorgan Chase; Bank Leumi le-Israel; CBOE; CMIE; Danske Bank; EEX; HKMA; Markit; Standard Bank Group; UBS; Westpac

Indicators for more countries, as well as additional series, can be found at Economist.com/indicators

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