[Feb 10th 2024]

The world this week

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The world this week

Politics
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KAL’s cartoon
This week’s covers
How we saw the world

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The world this week

Politics
Feb 8th 2024 |

A panel of three judges at the federal appeals court in Washington, DC,

rejected Donald Trump’s claim that he is immune from prosecution for
allegedly trying to overturn the result of the election in 2020. Mr Trump had
argued that he could only face prosecution in relation to “official acts” if
Congress impeached and convicted him first, but the judges ruled that the
former president is now merely “citizen Trump”. His trial in the case was
due to start on March 4th, but the judge overseeing those proceedings has
postponed the date indefinitely.
They couldn’t run a bath

Republicans in the Senate blocked a compromise bill, which they

themselves had spent months helping to craft, that tied military aid to
Ukraine and Israel to stricter measures on border control. Mr Trump had
made it clear that the party should not make a deal with Democrats on the
border, as he wants to keep the issue alive for the election. The Democrats
then separated the military-aid package into a different bill for a second vote.

In another fiasco, the Republican-controlled House of Representatives

rejected a vote to impeach Alejandro Mayorkas, America’s secretary of
homeland security. It was a fruitless gesture that was in essence based on
Mr Mayorkas’s remarks that the border with Mexico was secure. A few
Republicans joined Democrats in opposing the measure. The Republican
leadership vowed to hold another vote.

America and its allies struck Iranian-backed militias in Iraq and Syria in
retaliation for an attack that had killed three American soldiers at a base in
Jordan. The Pentagon said that one of its strikes killed one of the
commanders of the Kataib Hizbullah militia who had planned the attack.

Antony Blinken, the American secretary of state, visited Saudi Arabia,

Israel and elsewhere in the Middle East in an effort to negotiate a hostage
deal and ceasefire in Gaza between Israel and Hamas. Binyamin Netanyahu,
the Israeli prime minister, rejected Hamas’s demands as “delusional”, but
talks continue. Arab states hinted they might be willing to offer security
guarantees to Israel if it agreed to the establishment of a Palestinian state.

Senegal‘s presidential election was postponed for ten months, sparking a

constitutional crisis. It was supposed to be held on February 25th. President
Macky Sall will remain in power beyond the end of his legal term in office,
which finishes on April 2nd.

Hage Geingob, the 82-year-old president of Namibia, died weeks after being
diagnosed with cancer. Nangolo Mbumba, the vice-president, has taken over
as interim head of state until elections are held in November.

The UN called for $4.1bn in humanitarian aid to support 17.4m people in

war-torn Sudan and neighbouring countries.

Support for the African National Congress, which has been in power in
South Africa since the end of apartheid in 1994, has fallen below 40% just
months ahead of a general election in which the party is expected to lose its
parliamentary majority.
Michelle O’Neill, the leader of Sinn Féin in Northern Ireland, became the
first-ever Irish-nationalist head of the province’s government. She was sworn
in as first minister following the decision of the pro-British Democratic
Unionists to return to the power-sharing executive.

It was announced that King Charles III of Britain has cancer. He had
recently been in hospital for a procedure on his prostate, but “a separate
issue of concern” was found. The king has stepped back from making public
appearances.

Pakistan suffered a wave of violence ahead of a general election on

February 8th. At least 30 people were killed by bomb blasts in two towns
close to the border with Afghanistan. And ten policemen died when their
station in Khyber Pakhtunkhwa was attacked by around 30 militants. A
candidate for the national parliament was shot dead in the province a week
earlier.

Five years after being detained in China on espionage charges, Yang

Hengjun, an Australian citizen, was handed a suspended death sentence by
a court in Beijing. Mr Yang was born in China and blogged about its affairs.
The Australian government said it was “appalled” by the decision. The
sentence may be commuted to life imprisonment after two years.
Nayib Bukele, who describes himself as the world’s coolest dictator, romped
home to re-election in El Salvador. Mr Bukele is popular because of his
crackdown on crime, though he has retained power by circumventing a one-
term limit on the presidency.

At least 130 people were confirmed dead and hundreds were missing after
wildfires swept through Chile’s central region. Separately, Sebastián Piñera,
a two-time president of Chile, died after the helicopter he was piloting
crashed in the south of the country.

The governor of Donetsk province in eastern Ukraine said that Russia was
pounding the area with between 1,500 and 2,500 artillery shells and rockets
a day. Meanwhile rumours continued to swirl that Volodymyr Zelensky,
Ukraine’s president, is about to replace several senior generals and
government officials. “A reset is necessary,” he said in an interview.

The farmers’ protests that have swept across Europe spread to Italy and
Spain. The farmers have a wide range of complaints, including stringent
green targets which they say are hurting their industry. The European
Commission said that it would ditch a proposal to halve the use of pesticides,
an apparent concession to the farmers. It also removed firm targets for
agriculture from an ambitious plan to reduce greenhouse-gas emissions by
2040.

Meanwhile, the European Parliament backed a measure where certain

vegetables grown using new genomic techniques may be exempted from
the EU’s strict regulations on genetically modified crops. Supporters of
NGTs say the technology reduces the use of fertilisers and pesticides and
makes crops more resilient to climate change. The measures will now be put
to the EU’s member states.

The European Commission began disciplinary procedures against Hungary

over a recently enacted measure that targets activities by foreigners deemed
to be subversive. The measure falls under Hungary’s “sovereignty law”, the
latest in a long list of legal codes that run contrary to EU jurisprudence. The
commission says the new law threatens democratic values. Hungary has two
months to respond.
The negotiations being overseen by Geert Wilders to form a coalition
government in the Netherlands received a setback when NSC, a centre-right
party, pulled out of the talks. The Party for Freedom (PVV), which is led by
Mr Wilders, a veteran far-right politician, won the most seats at an election
last November. But the NSC now says that deteriorating government
finances mean that the proposed coalition will not be able to keep its
promises.
Aliyev and kicking

Ilham Aliyev cruised to victory in Azerbaijan’s election. The result was

never in doubt. The autocratic president brought the poll forward from
October 2025 to take advantage of a surge in his popularity following the
army’s swift victory over Armenian fighters in Nagorno-Karabakh last
September. Amnesty International said Azeri authorities had intimidated
government critics even more than usual ahead of the election.

Parisians voted in favour of tripling the parking fees on SUVs, the latest
green policy from the Socialist mayor, Anne Hidalgo. Critics said family
cars would be caught up in the scheme. Less than 6% of the French capital’s
electorate bothered to vote. Christophe Béchu, the French government’s
minister for ecological transitioning, who is a centrist, described it as
“punitive environmentalism”.

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The world this week

Business
Feb 8th 2024 |

The big oil giants reported bumper profits for 2023. BP’s underlying profit
of $13.8bn was its second-largest in a decade. Murray Auchincloss, the new
chief executive, announced that the company would extend its share buy-
back programme. TotalEnergies’ net profit of $21.4bn was a record.
Chevron’s net income, also $21.4bn, was its second-highest since 2013, as
was ExxonMobil’s $36bn since 2012. Exxon also claimed a big victory
when two activist investors withdrew their proposed shareholder motion for
the company to speed up its emissions reductions. Exxon is still ploughing
ahead with a lawsuit questioning the investors’ motives. Shell recently
reported a profit of $28bn.
A conflict of interests

War in the Middle East has hurt sales at McDonald’s in the region. The fast-
food retailer said its business in Malaysia, Indonesia and France, which has a
large Muslim population, had also been affected. The chain was targeted by
protesters after a franchised outlet in Israel offered free meals to soldiers.
Starbucks has also reported that similar boycotts are affecting its business.

New York Community Bancorp tried to reassure investors that its business
was still sound, after its credit rating was cut to junk status by Moody’s.
NYCB, which bought the assets of Signature Bank after it went to the wall
last year, has spooked investors by reporting a quarterly loss related to its
exposure to commercial-property loans. Its share price has since plummeted,
wiping 60% off its market value.

China has fallen further into a deflationary spiral. Consumer prices in

January were 0.8% lower than in the same month last year, the biggest such
drop since 2009. It is another headache for policymakers in Beijing, who are
contending with a weak economy, a crashing property market and feeble
stockmarkets.

The value of German exports plunged by 4.6% in December compared

with November, a much sharper drop than had been expected. The value of
exports fell to €125bn ($137bn), the lowest since March 2022; they declined
by 1.4% over the whole year. There was some good news for the
beleaguered German economy. Industrial orders rose by 8.9% in December,
the most since June 2020. https://t.me/+Z6Sv8oUmW0pkMjI5
Markets took a positive view of Fatih Karahan’s appointment as the new
governor of Turkey’s central bank. Hafize Gaye Erkan abruptly resigned
after just eight months in the job, over what she claimed was a “character
assassination campaign” against her in sections of the press. Mr Karahan
used to work as an economist at both the Federal Reserve Bank of New York
and Amazon. With inflation in Turkey running at 65%, he is expected to
continue with the bank’s aggressive round of interest-rate rises.
Investors reduced further their expectations of the Federal Reserve making a
cut to interest rates in March, after American employers added 353,000 jobs
in January, double the number that analysts had forecast.

After 18 months of negotiations, the parent company of Yandex, Russia’s

Google, agreed to sell all its business in Russia to a consortium of Yandex
managers and Russian investors. The $5.2bn sale by the Dutch-registered
Yandex marks the biggest corporate exit from Russia since the start of its
war against Ukraine. Yandex’s managers stressed that it would remain
“private and independent”.

Meta’s share price fell back a bit from the 20% jump it registered after
reporting solid quarterly results and announcing its first-ever shareholder
dividend. The company’s revenues from digital ads surged in the last three
months of 2023 (as they did at Google and Amazon). Meanwhile, Meta
announced that it will encode artificial-intelligence generated images on its
platforms with new technological specifications that it hopes will become a
labelling standard across the wider social-media industry.

In other earnings news, Uber reported its first annual net profit since its IPO.
Snap’s share price took a dive after its results disappointed investors; the
operator of Snapchat is cutting about 10% of its 5,000 strong workforce.
Disney narrowed the losses in its streaming business. And Toyota’s stock hit
a record, after the Japanese carmaker raised its profit forecast; its finance
chief said sales of electric-hybrid vehicles were soaring.
The lucky country

The Australian government readied a bill that will give employees the right
to ignore calls and texts from their bosses outside working hours, with fines
for employers who break the rules. The Greens, who pushed for the change,
reckon Australians work six weeks unpaid overtime a year. The “right to
disconnect” was first introduced in France (of course) and the revolution has
spread to around 20 countries. Australia also has an unofficial Go Home on
Time Day, first observed in 2009.

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week/2024/02/08/business
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The world this week

KAL’s cartoon
Feb 8th 2024 |

Dig deeper into the subject of this week’s cartoon:

House Republicans are helping Vladimir Putin

Vladimir Putin extends his crackdown

Meet Boris Nadezhdin, Vladimir Putin’s brave challenger

KAL’s cartoon appears weekly in The Economist. You can see last week’s
here.
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week/2024/02/08/kals-cartoon

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The world this week

This week’s covers

How we saw the world

Feb 8th 2024 |

WE HAD TWO covers this week. In most of the world, we look at the rise
of killer drones. The weapons, pioneered in Ukraine, offer precision warfare
at scale and could one day become as dominant as artillery.
Leader: Killer drones pioneered in Ukraine are the weapons of the future
Science and technology: How cheap drones are transforming warfare in
Ukraine

In Asia and America we consider China’s stockmarket nightmare. Xi

Jinping’s skittish policymaking has knocked investors’ confidence, both at
home and abroad. We ask whether China’s president can win them back.
Leaders: Can Xi Jinping win back the markets?
Briefing: China’s well-to-do are under assault from every side
China: As China’s markets crash, its consumers cower

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week/2024/02/08/this-weeks-covers

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Leaders
Killer drones pioneered in Ukraine are the weapons of the
future
Weapons systems :: They are reshaping the balance between humans and technology in war

Can Xi Jinping win back the markets?

China’s confidence shock :: As a property crisis drags the economy into deflation, confidence
is seeping away

House Republicans are helping Vladimir Putin

The arsenal of hypocrisy :: Their cynicism over Ukraine weakens America and makes the
world less safe

Donald Tusk tries to restore Poland’s rule of law

What happens when populists lose :: Repairing the damage done by the last government will
take grit and patience

What Jokowi’s inglorious exit means for Indonesia

Indonesia’s election :: The outgoing president is playing kingmaker to a controversial ex-
general

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Weapons systems

Killer drones pioneered in Ukraine are the

weapons of the future
They are reshaping the balance between humans and technology in war

Feb 8th 2024 |

PRECISION-GUIDED weapons first appeared in their modern form on the

battlefield in Vietnam a little over 50 years ago. As armed forces have
strived ever since for accuracy and destructiveness, the cost of such weapons
has soared. America’s GPS-guided artillery shells cost $100,000 a time.
Because smart weapons are expensive, they are scarce. That is why
European countries ran out of them in Libya in 2011. Israel, more eager to
conserve its stockpiles than avoid collateral damage, has rained dumb bombs
on Gaza. What, though, if you could combine precision and abundance?

For the first time in the history of warfare that question is being answered on
the battlefields of Ukraine. Our report this week shows how first-person
view (FPV) drones are mushrooming along the front lines. They are small,
cheap, explosives-laden aircraft adapted from consumer models, and they
are making a soldier’s life even more dangerous. These drones slip into tank
turrets or dugouts. They loiter and pursue their quarry before going for the
kill. They are inflicting a heavy toll on infantry and armour.

The war is also making FPV drones and their maritime cousins ubiquitous.
January saw 3,000 verified FPV drone strikes. This week Volodymyr
Zelensky, Ukraine’s president, created the Unmanned Systems Force,
dedicated to drone warfare. In 2024 Ukraine is on track to build 1m-2m
drones. Astonishingly, that will match Ukraine’s reduced consumption of
shells (which is down because Republicans in Congress are shamefully
denying Ukraine the supplies it needs).

The drone is not a wonder weapon—no such thing exists. It matters because
it embodies big trends in war: a shift towards small, cheap and disposable
weapons; the increasing use of consumer technology; and the drift towards
autonomy in battle. Because of these trends, drone technology will spread
rapidly from armies to militias, terrorists and criminals. And it will improve
not at the budget-cycle pace of the military-industrial complex, but with the
break-things urgency of consumer electronics.

Basic FPV drones are revolutionarily simple. The descendants of racing

quadcopters, built from off-the-shelf components, they can cost as little as
several hundred dollars. FPV drones tend to have short ranges, carry small
payloads and struggle in bad weather. For those reasons they will not (yet)
replace artillery. But they can still do a lot of damage. In one week last
autumn Ukrainian drones helped destroy 75 Russian tanks and 101 big guns,
among much else. Russia has its own FPV drones, though they tend to target
dugouts, trenches and soldiers. Drones help explain why both sides find it so
hard to mount offensives.

The exponential growth in the number of Russian and Ukrainian drones

points to a second trend. They are inspired by and adapted from widely
available consumer technology. Not only in Ukraine but also in Myanmar,
where rebels have routed government forces in recent days, volunteers can
use 3D printers to make key components and assemble airframes in small
workshops. Unfortunately, criminal groups and terrorists are unlikely to be
far behind the militias.

This reflects a broad democratisation of precision weapons. In Yemen the

Houthi rebel group has used cheap Iranian guidance kits to build anti-ship
missiles that are posing a deadly threat to commercial vessels in the Red Sea.
Iran itself has shown how an assortment of long-range strike drones and
ballistic missiles can have a geopolitical effect that far outweighs their cost.
Even if the kit needed to overcome anti-drone jamming greatly raises the
cost of the weapons, as some predict, they will still count as
transformationally cheap.

The reason goes back to consumer electronics, which propel innovation at a

blistering pace as capabilities accumulate in every product cycle. That poses
problems of ethics as well as obsolescence. There will not always be time to
subject novel weapons to the testing that Western countries aim for in
peacetime and that is required by the Geneva Conventions.

Innovation also leads to the last trend, autonomy. Today, FPV drone use is
limited by the supply of skilled pilots and by the effects of jamming, which
can sever the connection between a drone and its operator. To overcome
these problems, Russia and Ukraine are experimenting with autonomous
navigation and target recognition. Artificial intelligence has been available
in consumer drones for years and is improving rapidly.

A degree of autonomy has existed on high-end munitions for years and on

cruise missiles for decades. The novelty is that cheap microchips and
software will let intelligence sit inside millions of low-end munitions that are
saturating the battlefield. The side that masters autonomy at scale in Ukraine
first could enjoy a temporary but decisive advantage in firepower—a
necessary condition for any breakthrough.

Western countries have been slow to absorb these lessons. Simple and cheap
weapons will not replace big, high-end platforms, but they will complement
them. The Pentagon is belatedly embarking on Replicator, an initiative to
build thousands of low-cost drones and munitions able to take on China’s
enormous forces. Europe is even further behind. Its ministers and generals
increasingly believe that they could face another major European war by the
end of the decade. If so, investment in low-end drones needs to grow
urgently. Moreover, ubiquitous drones will require ubiquitous defences—not
just on battlefields but also in cities at peace.
Kalashnikovs in the skies

Intelligent drones will also raise questions about how armies wage war and
whether humans can control the battlefield. As drones multiply, self-co-
ordinating swarms will become possible. Humans will struggle to monitor
and understand their engagements, let alone authorise them.

America and its allies must prepare for a world in which rapidly improving
military capabilities spread more quickly and more widely. As the skies over
Ukraine fill with expendable weapons that marry precision and firepower,
they serve as a warning. Mass-produced hunter-killer aircraft are already
reshaping the balance between humans and technology in war. ■

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weekly Cover Story newsletter.

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China’s confidence shock

Can Xi Jinping win back the markets?

As a property crisis drags the economy into deflation, confidence is seeping
away

Feb 8th 2024 |

THIS YEAR investors in Chinese stocks have been on a hair-raising ride.

Even as America’s S&P 500 index reached record highs, markets in China
and Hong Kong shed $1.5trn in January alone. Retail investors have taken to
Chinese social media to vent their frustration. So brutal was the slump that
on February 6th China’s president, Xi Jinping, was reportedly to be briefed;
the next day Yi Huiman, the head of China’s securities regulator, was
sacked. Prices recovered a little as state firms began buying stocks. In the
coming days they may rise further still.

Step back, though, and there is no mistaking the dismal bigger picture. The
market value of China’s and Hong Kong’s equities is down by nearly $7trn
since its peak in 2021—a fall of around 35%, even as that of America’s
stocks has risen by 14%, and India’s by 60%. The decline signals a
fundamental problem. Investors abroad and at home once saw China’s
government as a dependable steward of the economy. Now this trust has
seeped away, with severe consequences for China’s growth.

Less than a decade ago the mood in China’s markets was ebullient. Foreign
investors were eager to tap into the potential of the world’s rising economic
star. China was expanding at a steady and impressive clip of over 6% a year.
Foreign portfolio investment rushed in as offshore investors were given
direct access to Chinese stocks via Hong Kong in 2014. Four years later
MSCI, a financial firm, began including mainland stocks in its global
indices. China’s government, for its part, hoped to professionalise its
markets in order to attract foreign capital and expertise, and to build an asset
class to supplant property. A cohort of wealthy businesspeople and investors
were emerging who had been exhorted by Mr Xi himself to live the China
dream.

The implicit understanding was that, whatever China’s politics, its officials
could be trusted to steer the economy towards prosperity. China would
continue to grow at an enviable pace, its citizens would still put wealth and
economic stability above political freedoms, and foreign investors would
reap handsome returns. Everyone could get rich.

What has gone wrong? One widely noted problem is Mr Xi’s skittish
policymaking. A regulatory crackdown on tech that began in 2020 knocked
investors’ confidence. The emergence from zero-covid was a fiasco. The
government has vacillated over a property crisis that has sapped savings and
sentiment and dragged the economy into deflation, with prices falling in the
year to January at their fastest rate since the financial crisis of 2007-09. It
rightly wants to avoid reinflating a bubble. But it also wants to avoid
handouts and to focus growth on “high quality” sectors that it believes will
help China rival America’s technological, economic and military might.
Profits were down last year even in these sectors, however. And China lacks
the stimulus it needs.

Less appreciated is how much foreign investors have fallen out of love with
China. They must contend not only with poor policymaking, but also the risk
that its worsening relationship with America could jeopardise their
investments. They have been net sellers of mainland stocks for months.
Whereas asset managers once cheered on China’s inclusion in global indices,
they are now crafting products that leave it out. Instead, investors are eyeing
up India, with its large population, and Japan, with its cutting-edge
technology. Hong Kong, too, has suffered. Companies from the mainland
account for three-quarters of its market capitalisation. On January 22nd India
briefly overtook it to become the world’s fourth-biggest stockmarket.

Most worrying of all is that investors on the mainland are also losing
confidence. After three decades of extraordinary growth, China’s wealthy
are experiencing a painful reversal in fortunes, as our Briefing this week
reports. Both their property and their financial investments are sinking, and
surveys indicate that many white-collar workers received pay cuts last year.
The evidence suggests that more capital is flowing out of China. Those who
cannot get round China’s capital controls are moving into safer money-
market funds, or fleeing into funds listed on the mainland that track foreign
stocks.

All this will deal a blow to China’s growth. Our analysis of household
surveys suggests that a small but influential group of people hold most of
China’s financial assets. Their straitened circumstances will have knock-on
effects, by reducing consumption and weighing on investment decisions.
Investors trapped in the mainland may have little choice but to put some of
their hard-earned cash into stocks. Foreigners, by contrast, may be harder to
tempt back. That will come at a cost to China, even though foreign investors
still own a small share of its equities. Over the years they have provided a
useful external check on asset prices. Moreover, their entry into the market a
decade ago was associated with more capital spending and investment in
research and development by Chinese firms. Their departure, conversely,
could hurt innovation.

Mr Xi seems to know that something is going wrong. In addition to sacking

Mr Yi, the government has curbed short-selling, and state-owned asset
managers have been ordered to buy stocks . This may prop up stock prices
for a time. But such meddling only betrays China’s mistrust of markets,
underlining why investors have left.
Far from embracing the need for broad change, Mr Xi is making things
worse. At home, he is cracking down on criticism of the economy. At the
same time, China is becoming more suspicious of foreign businesses.
Financial data are becoming harder for offshore investors to obtain. In
December new rules on the gaming industry were proposed, only to be
quietly removed after markets reacted badly. In January the central bank
declined to cut interest rates, despite continued deflation, catching out
markets. All of this serves only to frighten investors.

The real obstacle to change is Mr Xi’s iron belief that he and the Communist
Party must be in total control. Regaining investors’ trust requires a rethink of
the state’s role in the economy. But Mr Xi is unlikely to soften his grip.
Investors once thought that China’s politics need not encroach on their
ability to make money. Now that they know there is no escaping politics,
they will tread more fearfully. ■

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The arsenal of hypocrisy

House Republicans are helping Vladimir Putin

Their cynicism over Ukraine weakens America and makes the world less
safe

Feb 7th 2024 |

POLITICIANS OFTEN put winning the next election above solving

problems. Yet this week Republicans in the House of Representatives went a
step further and sabotaged their own policy priorities to hurt President Joe
Biden. Their cynicism makes America weaker, and gives comfort to its
enemies.

For the past couple of years Republicans have made much of the chaos at the
southern border, with good reason. There were 302,000 attempts by irregular
migrants to cross in December alone. Knowing that Democrats wanted to
pass a bill to supply Ukraine with fresh military aid, the House leadership
paired the two issues, thinking that by doing so they could drive a harder
bargain on immigration. A bipartisan group of senators went away and
worked on a border compromise, the results of which are broadly in line
with what Republicans had sought. The proposals would have helped reduce
the flow of people coming across the southern border, which is a priority for
voters.

Rather than take this win, the House leadership then turned around and
rejected the very thing they had been asking for. It is no mystery why they
did this: Donald Trump wants to win votes by playing up the border chaos.
He urged Republicans to kill the deal the Senate had come up with because
he would rather keep the border as a livid campaign issue than see the
problems there alleviated. After Mr Trump’s intervention, Republican
senators abandoned it too, burying this latest Senate compromise in the
crowded graveyard of failed immigration reforms, and leaving Republicans
still complaining about the border and still refusing to do anything about it.

That is bad enough, but the damage Republicans have done goes far beyond
America’s own shores. By killing the border bill, they have also set back the
cause of Ukraine, which urgently needs more cash and kit to defend itself
against invading Russians. Ukrainian soldiers cannot wait while some
alternative funding idea percolates through a congressional committee. They
need ammunition now. If they do not get it, they may not be able to repel the
Russian spring offensive, and they could lose more of their country.

Without new legislation on Ukraine or the border, Mr Biden may tap some
other Pentagon budget for a little bit of money—though nothing like enough.
He can also tweak immigration enforcement through executive actions. But
this will be tinkering to offset the harm caused by a massive political failure
in Congress. Domestically, the consequence will be more border chaos, with
tens of thousands of people crossing each month to claim asylum, and then
disappearing into an overburdened immigration system. For the world, the
fallout could be much worse.

The slowdown of American support is already hurting Ukraine on the

battlefield, as can be seen from the dispute between the country’s president
and the head of its armed forces. America’s friends are watching nervously;
its enemies with gleeful anticipation.
If Uncle Sam fails to stand behind a democratic ally defending itself against
an unprovoked invasion by a tyrant who is also the West’s most belligerent
geopolitical foe, what good are American security guarantees in the Baltics
or Taiwan or the Middle East? Ukraine has doggedly resisted Vladimir
Putin’s imperial ambitions without endangering a single American soldier.
To cut it loose would embolden aggressors everywhere and make the world
less safe for everyone. House Republicans are no doubt congratulating
themselves for making life harder for Mr Biden. If they had set out to harm
America and help Mr Putin they could hardly have done a better job. ■

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What happens when populists lose

Donald Tusk tries to restore Poland’s rule of law

Repairing the damage done by the last government will take grit and
patience

Feb 8th 2024 |

WHEN POPULIST parties win power they often try to capture institutions.
They appoint their supporters to run the courts, bureaucracy, state-owned
firms and public media. The goal is partly to make it easier to ram through
decisions and win more elections. But it is also to ensure that if the populists
lose power, loyalists lodged within the state can still pursue their agenda.
With populism and state capture on the rise, working out how to unwind
such control is becoming ever more important. An early test case, Poland,
shows how hard it is to get right.

Poland’s populist-nationalist government, run by the Law and Justice (PiS)

party, was booted out of office by voters in October and replaced by a
centrist coalition led by Donald Tusk. Over the years PiS has packed the
courts, sidestepped the constitution and appointed cronies to government
firms and broadcasters. Mr Tusk faces a hellish task to undo this harm. He
must restore independence and sideline PiS apparatchiks without violating
the very rule of law he wants to protect.

In some cases the new government is on the right side of the line. The new
justice minister, Adam Bodnar, is Poland’s prosecutor-general, too, and he
wants to make that post independent. In addition, he wants to take control of
the body that appoints judges away from parliament and give it back to
judges themselves. Whether you are in favour of that or not, both moves
enhance judicial independence and reduce government power. Mr Bodnar
also fired the national prosecutor and then ignored an order to reinstate him
from a PiS-controlled constitutional tribunal. He relied upon a technicality:
an aggressive move but one that was probably within the law. Such
legitimate, but byzantine, struggles over procedures and appointments could
play out for years to come.

Regarding the media, however, the new government has gone too far. PiS
had turned the public radio and television broadcasters into propaganda
megaphones, and created a new (and possibly unconstitutional) media
council to control them. It is essential to restore the broadcasters’
impartiality. To that end, Mr Tusk’s government has fired media firms’
senior staff using commercial law. Fair enough: the state is the owner of
these businesses.

However, the government has also ignored parts of the constitution dealing
with the state media’s independence. After a first illegal attempt at reform
backfired, the government is putting state media firms into liquidation to
restructure them, but it has not explained its plans or opened them up for
discussion. News broadcasts on public radio and TV are more neutral than in
the past, but the government has not made a clear enough commitment never
to exert political influence.

Plenty of other countries, including nearby Hungary, could face the Polish
dilemma in the coming years. When considering whether political
detoxification efforts are legitimate, benign intent is not enough. Instead a
two-part test should apply. First, any change must be within the law. Second,
its result should be to disperse power, not concentrate it. Mr Bodnar’s
actions pass both tests; the media clean-up gets questionable grades on both.
As an additional safeguard, Mr Tusk’s government should also welcome
scrutiny from the European Union, which will help affirm its reforms are
sound.
Uncaptured

Poland’s struggle will take a long time. Many liberals see Andrzej Duda,
Poland’s notionally independent president, as a PiS stooge who will use his
veto powers to try to block reforms. Rather than trying to circumvent the
law, Mr Tusk and his allies should persuade voters to pick a different
president in elections next year. In restoring the rule of law over state
institutions, liberal governments must respect the law themselves.
Otherwise, even when they lose at the polls, the populists will have won. ■

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Indonesia’s election

What Jokowi’s inglorious exit means for Indonesia

The outgoing president is playing kingmaker to a controversial ex-general

Feb 8th 2024 |

JOKO WIDODO is leaving Indonesia’s presidency less creditably than he

entered it. A decade ago the former furniture salesman, popularly known as
Jokowi, swept to power on a promise to defy the elites who had stage-
managed the world’s third-biggest democracy since the fall of the dictator
Suharto in 1998. But instead of beating the power brokers, Jokowi (pictured
centre-left) has joined them.

In the run-up to an election due on February 14th, the outgoing president has
thrown his weight behind Prabowo Subianto (pictured centre-right), a former
general and son-in-law of Suharto, who has an appalling human-rights
record and a professed ambivalence towards democracy. Jokowi’s eldest son
is Mr Prabowo’s running-mate—courtesy of Jokowi’s brother-in-law, who,
as chief justice of Indonesia’s highest court, lifted an age limit standing in
his 36-year-old nephew’s way.

Jokowi’s endorsement has made Mr Prabowo the favourite to win the

presidency at the third attempt (he lost elections in 2014 and 2019, then
falsely claimed they were stolen). His main rivals, Anies Baswedan and
Ganjar Pranowo, both competent former governors, claim their rallies have
been disrupted or cancelled by shadowy officials. This is a worrying augury
for Indonesia, and an unworthy end to Jokowi’s tenure.

Though he has not overseen the tearaway growth he also promised, his
economic management has helped make Indonesia one of the best-
performing economies in recent years. Its vulnerability to a strong dollar and
shifts in global capital flows once made it a member of the “Fragile Five”
emerging markets. Thanks to prudent management, the public finances have
improved and the economy is more stable. Indonesia has grown at around
5% a year pretty consistently.

Infrastructure has been overhauled, with thousands of miles of road and rail
added. A package of reforms passed last year eased restrictions on foreign
investment. By pressing firms to process nickel domestically, Jokowi has
supported the development of an industry responsible for half the world’s
output. Improved governance has contributed, among other things, to a fall
in the rampant deforestation that has long made Indonesia one of the biggest
emitters of greenhouse gases. The country’s traditional “non-aligned”
foreign policy has put it safely between America and China on most issues.

Mr Prabowo has vowed to continue most of Jokowi’s policies, reassuring

investors. They are too complacent. The recent progress has come about in
spite of Jokowi’s authoritarian instincts and delusions of grandeur, which Mr
Prabowo seems likelier to emulate. The former general backs an epic white-
elephant scheme of Jokowi’s to carve a new $34bn capital city out of the
Bornean rainforest. He appears keen to extend protectionist nickel policies—
which will pay off only if demand for the metal remains high—to less
promising sectors. Tarnished by his alleged Suharto-era abuses—on account
of which America and Australia once barred him—he remains prone to
clumsy outbursts, including a speech last year in which he floated a Putin-
friendly peace plan for Ukraine. Jokowi’s support for him has reportedly
alienated the president’s technocratic colleagues, including Sri Mulyani
Indrawati, the finance minister behind much of the progress.

Mr Prabowo’s victory need not be the end of liberal politics in Indonesia: the
advances that 200m voters have enjoyed may make them more demanding in
future. Nonetheless the cronyism so evident in his campaign is dispiriting.
Jokowi arrived in 2014 as a breath of fresh air. But by failing to entrench
Indonesia’s democracy, even as he has strengthened its economy, he leaves
behind a rotten smell. ■

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Letters
Letters to the editor
On China and Taiwan, royalty, artificial intelligence, activist investors, retirement :: A
selection of correspondence

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On China and Taiwan, royalty, artificial intelligence, activist investors,

retirement

Letters to the editor

A selection of correspondence

Feb 8th 2024 |

Letters are welcome via email to letters@economist.com

China’s claims on Taiwan

It is certainly true, as Chaguan observed, that the obsession of China’s

Communist Party with Taiwan is a political choice, one that actually
contradicts the party’s original position (January 20th). In the party’s first
couple of decades it did not view the people of Taiwan as Chinese to be
reunified, and it supported the Taiwanese Communist Party’s demands for
the island’s independence from Japan (not reunification with China). In the
1930s, Mao Zedong himself saw Taiwan as no different from Korea,
Vietnam, or other imperialist possessions that deserved self-determination.
In fact, neither the Chinese Communist Party nor its rival Kuomintang of
China began to view Taiwan through the lens of Chinese reunification until
well into the 1940s.

One other consequential choice by Beijing was to decide that there could be
only one China. However, by asserting that the People’s Republic of China
is this one China, the Communist Party just makes it easier for those who
reject the PRC to reject also any political connection to any China,
regardless of who is ruling. Rather than reflexively blame Taiwan’s people
or America for the cross-strait dispute’s longevity and intractability, the
Communist Party ought to engage in a little reflection and self-criticism.

BRIAN C. CHAO
Assistant professor
National Security Affairs Department
Naval War College
Newport, Rhode Island

The royal appendage

Charlemagne unfairly derides the human appendix by comparing it to

Europe’s royal highnesses, who are “essentially vestigial” and “serve little
obvious purpose” (January 20th). In fact, recent research has shown that the
appendix has a valuable role in human health by providing a haven for
bacteria to repopulate the bowel following a diarrheal illness. Yet before
scientists recognised these benefits, generations of doctors were taught that
the appendix was better out than in.

The same goes for the crowned heads of Europe. If a hereditary monarch
wants to follow the path of the appendix from scorn to admiration, then he or
she needs to do a better job of advertising their benefits to society.

MICHAEL PHILLIPS
Menssana Research
Fort Lee, New Jersey

Does monarchy work? In Transparency International’s 2022 Corruption

ratings, 11 of the least-corrupt 20 countries were monarchies (none were in
the most corrupt). In the World Happiness rankings for 2023, ten of the
happiest 20 countries were monarchies (admittedly, Jordan was the 15th
least happy). In all cases, monarchies perform disproportionately well. Even
if the existence of their monarchy had no effect whatever on the happiness or
corruption of these countries, it doesn’t seem to be doing much harm.

KIERON O’HARA
The Hague
Tracking AI fakery

Plaudits for your leader on defending against fake content generated by

artificial intelligence (“Pics and it didn’t happen” January 20th). You
concluded that attributing trusted sources is the best way to avoid being
misled. However, “assuming trustworthy sources can continue to identify
themselves securely” just shifts the problem. AI is already skilled at
impersonation. Strong authentication of creators will be the key to stopping
AI fakes. AI may not be able to detect AI content, but it will continue to
detect AI-generated faces trying to fool biometric authentication. When we
set the rules that the AI fakes have to dance to, we can spot them stumble.

ANDREW BUD
Chief executive
iProov
London
I agree that the AI hype-cycle is probably now shifting downwards as people
realise that ChatGPT and related technologies have a long way to go before
consistently hitting professional levels of output (“The missing investment
boom”, January 13th). However, we may be using the wrong measure and
therefore drawing the wrong conclusions. Most firms interested in
harnessing the power of AI won’t be buying graphics processing units or
ramping up investment in data-centre hardware in response to the hype. This
is because they will consume or modify ready-made solutions from vendors
that will show up on balance-sheets as additional operational expenditures.
And most of that spending will go to suppliers that already have contracts
with these firms (Amazon, Google and Microsoft).

Most of the contacts that I have across industries are intending to increase
investment in these technologies and harness them in a firm’s products and
services in the coming year. If that’s the case, the hype-cycle may be waning,
but the investment will trend upwards from here.

ZACH ARNOLD
Executive director
MSCI
Raleigh, North Carolina
Constructivism delivers

There is certainly a time and a place for activist investors like Bill Ackman
to take more public, assertive approaches with their targets and stick to their
guns on their demands (Buttonwood, January 13th). However, evidence
from the past six years suggests that a more flexible strategy delivers the
best results.

Data from Europe and America show that, two years after being targeted by
an activist, company share prices outperformed the market by an average of
5.5%, if the activists’ demands were met in full. When only some activist
demands were met, however, the average share price performance over the
market rose to 8.8%. This demonstrates that constructive compromise, or
“constructivism”, where the company board and activist investor work
productively together, delivers the best result for all. No one has a monopoly
on good ideas.

ANDRÉ MEDEIROS
Managing director
Alvarez & Marsal
London
Charities reporting

If “no strings” grant-making (Special report on philanthropy, January 13th)

does not include accountability for impact, it will simply be a way to waste
more money faster. Our foundation has done unrestricted-only funding for
25 years, but we don’t fund NGOs that can’t make a credible case for
impact. They’re flying blind and we would be too. Although it’s true that
“there is no single metric for charitable success comparable to profit in
business,” a thorough understanding of what an organisation is trying to
accomplish (admittedly not always achievable) almost always suggests a
useful way to measure impact.

The “no strings” wave will help clear the logjam of dumb reporting
requirements, but that will accomplish little if the subsequent flow is not
directed by an understanding of impact. That requires accountability for
impact on the part of both NGOs and their funders, and as to the latter, it is
telling, and more than a little depressing, that I’ve never heard of anyone in
my job getting fired for lack of impact.

KEVIN STARR
Chief executive
Mulago
San Francisco

You mentioned the promising rise of “trust-based philanthropy”, where

donors provide unrestricted funding to charities. But who should donors
trust? Is there a sensible, evidence-based way to determine where resources
can make the biggest difference?

Fortunately, there is. We can rely on questions like “Overall, how happy are
you, 0-10?”. This approach is used in the “World Happiness Report”, and
has been endorsed by the British Treasury. It is then possible, in principle, to
capture wildly different outcomes by their overall effect on Wellbeing Life
Years.

In reality, very little such research exists, for either donors or governments.
We advise donors that, if they want to buy happiness for other people, the
leading candidate is funding the treatment of depression in low-income
countries. We estimate this is about five times more cost-effective than cash
transfers to the very poor.

The idea we should focus on happiness is old; it goes back to the

Enlightenment, if not Aristotle. What’s new is that we have data. We should
use it.

DR MICHAEL PLANT
Research fellow
Wellbeing Research Centre
Oxford University
You’re never too old

Bartleby wrote about the dangers of retiring, giving us the examples of some
highly successful octo- and nonagenarian outliers who still work (January
27th). The problem for many successful (or mildly so) professionals who
achieve some authority in the later stages of their professions is that they kid
themselves into believing people genuinely appreciate their point of view,
rather than the authority granted with long service.

Most of us aren’t really so gifted that our advice is really sought after. I’d
like to offer an alternative view: embrace the later stages of life, have a
purpose, be it a hobby or voluntary support to a cause, and let the next
generation do things unencumbered by your suggestions and “wisdom”.

JONATHAN TOTTMAN
Nakhon Si Thammarat
Province
Thailand

For those of us not blessed with 89-year-old Giorgio Armani’s role as head
of a multi-billion-dollar company (a rare counterfactual), the prospect of an
eternity ingesting the soul-sapping gruel of corporate life is truly horrific.
Endless meetings, ghastly hotels, budget reviews, office politics, technical
committees, audit reviews, performance appraisals, terrible IT, wearying
travel, egregious management, awaydays, policy forums, marketing
initiatives, programme boards, risk sessions, customer complaints; all these
combine to rinse out any joy or meaning you may experience from Monday
to Friday (and frequently Saturdays and Sundays too).

I am retired and spent 35 minutes this afternoon staring at a large and

majestic acacia tree in my garden, because I could and wanted to. I gained
more spiritual nourishment from this episode than anything that had
occurred in my 40 years in corporate life.

WILL MOSS
Bury St Edmunds, Suffolk

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By Invitation
A presidential candidate sees daunting challenges at home
and abroad
Indonesia’s election :: Indonesia can help keep peace in the Indo-Pacific, says Ganjar Pranowo

An AI-risk expert thinks governments should act to

combat disinformation
Artificial intelligence and democracy :: An election may already have been swayed, says
Philip Fox

Kyriakos Mitsotakis on how to escape the grip of populism

A post-populist perspective :: It requires a combination of honesty and flexibility, says
Greece’s prime minister

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Indonesia’s election

A presidential candidate sees daunting challenges

at home and abroad
Indonesia can help keep peace in the Indo-Pacific, says Ganjar Pranowo

Feb 7th 2024 |

SUKARNO, THE first president of Indonesia, saw independence as a

“golden bridge” to becoming an advanced economy and a prosperous
society. It is a national ideal to fulfil those goals by 2045, when the country
will celebrate the centennial anniversary of independence. However, the
journey has not been easy and will continue to be studded with enormous
challenges.

The most evident challenge is the climate crisis. It poses a serious threat to
the global economy, affects geopolitics, undermines maritime communities
and threatens the livelihood of indigenous peoples. At the same time, the
world is trying to grapple with the rise of artificial intelligence. We are yet to
see if AI will improve lives or exacerbate social inequality.

These challenges are hard enough to tackle, even without great-power

competition looming in the background. America and China are locked in a
strategic rivalry that could undo the achievements of globalisation. After
three decades of a WTO-led global trading order, protectionism is surging:
the number of unilateral restrictions imposed by countries on international
trade and investment quadrupled between 2017 and 2022, to more than
2,600, according to the Global Trade Alert, a data provider. Geopolitics is
fragmenting as the two great powers compete for influence and look to build
coalitions. One can only hope that this strategic rivalry does not lead to war.

The backdrop to these challenges is a world which has seen years of

democratic backsliding. On the face of it, 2024 will be a festival of
democracy. Countries with a combined population of over 4bn are expected
to hold national elections, including, on February 14th, my own, Indonesia,
where I am standing as one of three presidential candidates. But the decline
in the quality of democracy is a serious concern. Many countries are
experiencing a weakening of democratic institutions. In some, the integrity
of elections is being undermined by the very participants in the democratic
process.

Unfortunately, Indonesia, the world’s third-largest democracy after India and

America, faces the same set of challenges. When the very people who are
expected to abide by democratic rules of the game begin to bend those rules,
the future of our democracy is indeed at stake. For example, the
Constitutional Court, whose head is President Joko Widodo’s brother-in-law,
in a controversial ruling, changed the age limit for presidential and vice-
presidential candidates, allowing the president’s son to run for vice-
president. There have also been reports and allegations that the state
apparatus is no longer neutral and is, in fact, actively supporting one of the
candidates.

Indonesia does, however, have some enduring advantages. It is blessed with

abundant assets. It is reaping a demographic dividend as its working-age
population—those between the ages of 15 and 64—continues growing. It is
forecast that, by 2030, around 203m Indonesians, around 68% of the
population, will belong to this group. That is a huge base of human potential
to drive economic development.

Indonesians realise that this opportunity will not last forever. According to
the latest report on population projection from our National Planning
Agency, the productive-age boom is set to end in 2041. It is, therefore, time
for Indonesia to intensify its efforts to push for faster human-capital
development: high-quality education, better access to health care and
narrowing the digital gap. This focus is all the more important given the
need to reduce Indonesia’s heavy reliance on natural resources as the engine
of economic growth and development.

After the collapse of the New Order regime led by General Suharto in 1998,
we made a choice as a nation: that democracy is the most suitable system for
us to flourish and prosper. We need to defend democracy resolutely, step up
our fight against corruption, eradicate nepotism and avoid conflict of
interests. It is only within a properly functioning democracy that every
citizen will have equal opportunity to thrive. It is only within a consolidated
democracy that the tendency to abuse power using the apparatus of the state
can be prevented.

We understand that our standing among nations will be greatly enhanced if

we can show the world that Indonesia is a force for peace. In Indonesia we
often say “kami cinta damai, namun lebih cinta kemerdekaan” (“we love
peace, but we love freedom more”). That is why, since independence,
Indonesia has pursued, and will continue to pursue, a free and active foreign
policy. But this principle should not be understood as neutral or indifferent.
It means Indonesia must maintain its strategic autonomy vis-a-vis any power
and ensure that its national interest is always at the forefront of every policy
choice.

Foreign policy is also about balancing national interests and international

obligations as mandated by international law. In this regard, Indonesia, as a
maritime nation, should see itself as “Garda Samudera”, the Guardian of the
Seas. As a power between two oceans—the Indian and Pacific—and as a
country transforming itself into a global maritime fulcrum, Indonesia should
play a role in ensuring the seas remain global public goods. This will require
it to work with others in the region to ensure a peaceful Indo-Pacific, by
maintaining maritime security, addressing maritime pollution and preserving
the maritime ecological environment.

These developmental, geopolitical and ecological challenges are daunting, to

be sure. By rising to them we hope to realise the vision of Sukarno, to build
Indonesia anew. ■

Ganjar Pranowo is the candidate of the PDI-P-led alliance in Indonesia’s

presidential election. He was governor of Central Java from 2013 to 2023.

The Economist invited all three presidential candidates to write a guest

essay. We did not receive submissions from Prabowo Subianto of the
Advanced Indonesia Coalition or Anies Baswedan of the Coalition of
Change for Unity.

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Artificial intelligence and democracy

An AI-risk expert thinks governments should act

to combat disinformation
An election may already have been swayed, says Philip Fox

Feb 6th 2024 |

ONE DAY last November, Olaf Scholz addressed the German people with
an unexpected announcement: his government was to request the Federal
Constitutional Court to ban the “fascist” Alternative für Deutschland, a far-
right political party. A video containing the German leader’s message
appeared on a website created specifically for that purpose.

Only it wasn’t the real Mr Scholz. A German group of guerrilla artists had
used artificial intelligence (AI) to create a “deepfake”: an image or video
generated by machine-learning software. Just a few hours after the clip went
live, a government spokesman condemned the “manipulative” nature of such
videos and their potential to “stir up uncertainty”.
Britain’s National Cyber Security Centre recently raised similar concerns
that deepfakes could compromise democratic discourse and upcoming
elections through targeted disinformation. As politicians fret about the trend,
ordinary voters are growing more worried, too. According to a poll by Ipsos
last year, a majority of people in numerous countries, including America,
Britain and France, believe that AI will make disinformation worse.

Yet there is actually a lot of uncertainty about how real this danger is.
Despite the use of advanced AI, the deepfake of Mr Scholz is easily given
away as fake by out-of-sync lip movement and an unnatural voice. The same
is true for the majority of deepfakes currently circulating on social media.
Are fears of AI-generated disinformation exaggerated?

Some experts point to studies from before the rise of generative AI that show
that disinformation campaigns are generally of limited success. For example,
Chris Bail, a sociologist at Duke University, and colleagues looked at a
concerted Russian disinformation campaign on Twitter in 2017 and
concluded that it largely failed to sow political division among Americans.
People’s general reluctance to change their political views in response to any
piece of information, though often a curse, might in this case be a blessing.

AI is already changing the disinformation landscape, but the impact is

different for static media like text and images than for audio and video. In
the case of the former, AI doesn’t really boost the quality of disinformation.
Studies suggest that AI-generated text is at best slightly more convincing
than human-written text, and often no more so; Photoshop made
sophisticated fake images possible long before generative AI was available.
The change is, rather, quantitative: AI makes it much easier to produce and
distribute disinformation at scale.

Large language models (LLMs) such as ChatGPT generate high-quality text

at practically no cost; tools like Midjourney allow even amateurs to create
realistic-looking images with simple prompts. LLMs can help write
computer code to automate the spread of disinformation. They have been
used to generate “alternative news” websites that mix truth and lies but are
hard to shut down because of concerns over censorship. AI-operated social-
media profiles, so-called “social bots”, can manipulate algorithms to push
certain types of content. In the future, such bots might turn into full-blown
online personas that enter into relationships with users and target them with
subtle personalised messages.

Perhaps none of this would be enough to sway mass opinion. But that
doesn’t mean there’s no danger. Studies have found that merely knowing
about the spread of disinformation lowers public trust in the media, even the
most reliable sources. That, in turn, increases the “liar’s dividend”: the
relative ease with which politicians can denounce compromising evidence as
fake.

The biggest concerns are reserved for dynamic media. On top of a

quantitative boost, AI adds a whole new qualitative dimension to audio and
video. Previously, it just wasn’t possible to create realistic fake videos of
public figures, except perhaps for Hollywood studios. We’re moving closer
to a world where anyone can craft such footage on their laptop.

Last August Brendan Nyhan of Dartmouth College said in The Economist:

“We still have not one convincing case of a deepfake making any difference
whatsoever in politics”. We might have seen such a case just a few weeks
later, in Slovakia. Two days before the national election in September 2023,
an audio deepfake began circulating on social media. The widely shared clip
appeared to be of Michal Šimečka, leader of the Progressive Slovakia party,
discussing plans to rig the election. Because the clip gained traction during a
48-hour news moratorium before the vote, it was hard to debunk in time.
After a tight race, Mr Šimečka’s party lost by five percentage points to that
of Robert Fico, a pro-Russian populist.

Experts remain divided on the impact of AI-generated disinformation on

democracy and elections, and it may be some time before it is clear. But
politicians can’t afford to wait for the dust to settle; AI is moving too fast for
a “wait and see” approach. They must decide now how much risk to public
discourse they are willing to accept. Fortunately, there are a number of
interventions that can be made to boost its resilience.

First, AI companies should be incentivised to develop watermarking and

detection tools, used to distinguish AI-generated from authentic content, that
actually work (current tools can too easily be evaded, or “washed out”).
They could be given a choice: develop models that refuse to generate certain
types of content, such as realistic videos of public figures, or find a way to
reliably watermark their output (or make it otherwise detectable).

Second, such technical fixes should be flanked by tried-and-tested

“prebunking” interventions. These can be media campaigns, short videos or
games that educate people about the goals and strategies of disinformation
campaigns and enhance public resistance to fake news.

Third, we need robust monitoring regimes and third-party evaluations to

keep future model capabilities in check. For example, governments must
know when models become able to autonomously wage manipulation
campaigns via online personas. Without such oversight, policymakers won’t
be able to react in time if things go really awry.

Before the age of generative AI, Photoshop didn’t make it impossible to tell
true from false, just as Wikipedia didn’t make everyone intellectually lazy.
Yet AI brings risks of a different order of magnitude. Since the technology is
moving at a daunting pace, countermeasures might come too late unless
policymakers act now. That this is a “year of elections”, with more than half
the world’s population living in countries that will send citizens to the polls,
makes it even more urgent to act. Taking a soft stance on AI-generated
disinformation is not worth the risk.■

Philip Fox is an analyst at the KIRA Center for AI Risks & Impacts, an
independent think-tank in Berlin.

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invitation/2024/02/06/an-ai-risk-expert-thinks-governments-should-act-to-combat-
disinformation

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A post-populist perspective

Kyriakos Mitsotakis on how to escape the grip of

populism
It requires a combination of honesty and flexibility, says Greece’s prime
minister

Feb 2nd 2024 |

THE CHEQUERED history of Greek politics since 1945 suggests that where
there is a vacuum there is often trouble. Never was that more apparent than
in the decade following the global financial crisis that erupted in 2007, when
the country was slowly but inexorably swallowed up by the empty promises
of populism.

Greece’s embrace of a populist-led government was relatively short. But the

damage was profound. The country I inherited when I was elected prime
minister in 2019 was widely seen as the sick man of Europe.
Today Greece finds itself in a different place. In 2023 we were named The
Economist’s country of the year; we have also topped the newspaper’s
economic ranking two years running. In last summer’s election the leftist
populist vote collapsed, and my party returned to power for a second term
with an increased share of the vote.

And yet, post-pandemic, amid war, an energy crisis, a migration challenge

and high inflation, the same populist impulses we have managed to see off in
Greece are once again on the rise across much of the rest of Europe.

Which invites the question: what if anything can Greece’s experience since
2019 tell us about why that’s happening and what to do about it?

There is no one-size-fits-all solution to tackling the rise of populism. But

there are themes that run deep.

Take grievances. Even now the European liberal establishment of which I

am a part is still largely unable or unwilling to accept that the grievances that
fuel populist uprising—from globalisation to the rising cost of living—are
real and genuinely held.

It’s an approach that manifests as “us and them” and says “we know best”.
Such hectoring self-righteousness is catastrophic. It blinds us to people’s
pain, clouds our judgment about which issues to prioritise and, eventually,
turns voters away.

In 2015 Greece found itself at the forefront of the rise of populism. Its first
populist government was elected in January of that year, and the country did
it again eight months later. In doing so, Greece ushered in the full monty of
populist ideology: a hybrid coalition of the extremes of both hard-left and
hard-right.

The four years that followed taught me that populists promise the Earth, but
ultimately their promises are grand, utterly empty and totally unachievable.

The answer to combating such extremes lies in delivering effective policies

while being prepared to challenge and even junk your orthodoxy and your
preconceptions, when necessary. That meant being prepared to flex rapidly
in response to global events while embracing a new triangulation logic: pro-
growth but fiscally responsible; robust on migration and assertive on
security, alongside a strong foreign policy; and socially liberal at home.

On the economy, we were focused on growth: cutting taxes, supporting

entrepreneurs, spurring investment through market reforms. But we also
understood the importance of remaining fiscally responsible. The result was
one of the highest growth rates in the euro zone and a rapid reduction of debt
to GDP. Credit-rating agencies rewarded us by returning Greek debt to
investment-grade status.

On migration, we unashamedly implemented tougher border controls. But at

the same time we greatly shortened the time it took to process asylum
claims, improved conditions in our reception centres and cleared legal
pathways for labour mobility. On foreign policy, we built new regional
partnerships around trade, security and energy provision. And in our
relations with Turkey, we confronted the challenges head-on, while keeping
the door to dialogue open.

These reforms allowed me to focus on a more liberal social platform at

home: tackling inequality, improving public services through digitisation and
even addressing progressive issues such as marriage equality. I was clear
that, as long as the economy was robust, whatever fiscal surplus we
generated above our targets would be used to support the most vulnerable
households.

Between the elections of 2019 and 2023 people saw rapid change.
Unemployment fell, growth rose sharply after the pandemic and we earned
back the trust of markets and foreign investors. At the same time, the
country shifted towards the green and digital economies of the future.
Greece found a new voice nearer to the centre of the European Union.
Relations with Turkey began to improve.

Greece’s application for funds from the Recovery and Resilience Facility,
the centrepiece of the EU’s covid-19 recovery plan, was one of the largest of
any member state and was approved before any other country. The European
Commission recognised how our strategic use of funds dovetailed with our
growth strategy: fostering a strong recovery and a more resilient economy
and society.
The resounding election victory last June proved that the approach works. It
was indeed possible to create a new anti-populist voter coalition of left and
right.

Victory showed that it was possible to restrict the breathing space available
to the populists by keeping our traditional right-wing and centre-right voters
happy, while also expanding the appeal of our party to Greeks who identified
as centrist or even centre-left. The extreme-right parties took 12%, but that
was a far weaker showing than in most European countries. In an era of
widespread cynicism, Greece has shown that politics can be done differently.

In the end, of course, the most powerful bulwark against populism is

listening and delivering. The accolades awarded to Greece by this newspaper
will mean little if its economy isn’t growing, and if it can’t generate the
additional revenue needed to support health-care reform and better public
education. For Greece, combating populism will continue to be about
generating equitable economic growth while converging with a progressive,
centrist Europe.

To do that requires honesty. When mistakes are made, they need to be

acknowledged. And it requires the ability to show you are making a
difference, not just overpromising. But above all it requires clarity. It’s about
explaining why, for example, an investment-grade rating is not just about
pleasing markets—it means lower borrowing costs for people’s mortgages—
or why it’s important to attract foreign investment to create more high-
paying jobs.

That matters because at its core all politics, while not necessarily always
local, is always related to the individual, to family and to household well-
being. Only by delivering on that can we begin to restore trust and defeat
populism.■

Kyriakos Mitsotakis is the prime minister of Greece.

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Briefing
China’s well-to-do are under assault from every side
Dissipating dreams :: Their agonies at the hands of markets and the state will reshape the
Chinese economy

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Dissipating dreams

China’s well-to-do are under assault from every

side
Their agonies at the hands of markets and the state will reshape the Chinese
economy

Feb 8th 2024 | SHANGHAI

IT WAS A year ago that the woman who asked to be referred to as Xue Li
entered the minefield, although she did not know it at the time. It was only
when a mine detonated that she realised the risk she had been running—and
by then it was too late.

Chinese call an investment that has gone bad a “landmine explosion”. In Ms

Xue’s case, the blast came from a wealth-management product that had
promised an annual return of about 8%. It had been recommended by a
friend and was sold by Hywin, a big firm based in Shanghai but listed in
both Hong Kong and New York. She put in 300,000 yuan ($42,000) last
February and a further 500,000 a few months later. In December, however, it
became clear that the firm was struggling to meet its obligations. It is
uncertain how much of her original investment, if any, Ms Xue will ever see
again.

Across China hundreds of thousands of the well-to-do have suffered

landmine injuries in recent months. Zhongzhi, an investment firm which
went bust in December, owes its 150,000 clients $36bn. And explosions are
not confined to wealth-management firms. By far the most common
investment in China is property, and property values have been falling for
almost three years. The stockmarket, too, is sliding: the Shanghai
Composite, one of the most prominent indices, has dropped by over 20%
since its peak in 2021. And whereas the government has in the past stepped
in to help investors hit by plunging asset prices, this time it shows little
inclination for a bail-out. Ms Xue will have to try to stanch the bleeding on
her own.

China publishes almost no official data about the distribution of wealth,

perhaps for fear of revealing just how unequal it is. But The Economist has
analysed nationwide surveys from 2018 and 2020 that asked participants
about their income and investments, weighting the responses to reflect
China’s demography. That has yielded a rough breakdown of who owns
most of the financial assets that are losing value so fast, and so allowed us to
infer what the swooning markets might mean for China’s economy and
society.
Year of the drubbing

A huge share of the country’s wealth, it turns out, is in the hands of people
like Ms Xue. The drubbing the markets have been giving them, and the
government’s apparent indifference, is reshaping their investment
preferences, in all likelihood for years to come. That, in turn, will impede the
authorities’ plans to develop the financial system and thus slow China’s
future growth. Ms Xue and investors like her will suffer the most, but
China’s economy will also end up scarred by the detonations.
The survey data suggest that about 50% of China’s wealth is in the hands of
the 113m or so people with a net worth of 1m-10m yuan. This cohort—just
8% of the population—has even more influence over financial markets than
their wealth would suggest. They own 64% of all publicly traded shares, for
instance, and 61% of investment funds (see chart 1).

The group are the main beneficiaries of China’s 40-odd years of booming
growth. Born in the 1960s, 1970s and early 1980s, they were some of the
first to return to university after schools were closed during the Cultural
Revolution. They were the first group to start small, private businesses.
When the Shanghai stock exchange opened in 1990, they were among the
first retail investors on the scene. They also propelled China’s property
market since the first mortgage was issued by a state bank in 1986. Many
will have cashed in on the privatisation of housing in the 1990s, buying flats
for meagre sums that are now worth a fortune. They have experienced a
miraculous shift in living standards over their working lives, from communal
kitchens to holiday homes. Deng Xiaoping declared in the late 1970s that
China would reject Maoism and “let some people get rich first”, and these
are the people who did.

Ms Xue appears to be a typical member of the “got-rich-first” group. She is

a Beijinger in her late 40s, eyeing an early retirement after 25 years in
advertising. She has saved and invested widely. In addition to the detonated
wealth-management product, she owns a residential investment property and
some commercial property that she rents out. About 20% of her savings are
in the stockmarket. All of these investments are now losing value. It is not
obvious where to turn. China’s strict capital controls make it difficult and
prohibitively expensive to move money abroad; the closest she has come to
that is an insurance policy from Macau, a “special administrative region”
with different financial regulations and its own currency. Ms Xue’s only
other form of diversification has been to stash away some gold.

For China’s wealthy, the present market turmoil is unprecedented and

disorienting. Property prices had risen steadily for decades, with only a tiny
blip in 2008. Although the stockmarket has been more volatile, the state has
typically intervened to prevent big routs. Investors in more esoteric wealth-
management products have also benefited from bail-outs when things went
wrong, while receiving high yields in the meantime. A recent survey of
affluent Chinese by Charles Schwab, an American asset manager, found that
more than half expected 20-40% annual returns.
Dragon mire

Such expectations are looking ever less plausible. During Xi Jinping’s first
term as China’s leader, in 2013-18, the average annual growth in personal
income from investments was 10.8%. That fell during Mr Xi’s second term
to 7%. Over the past two years it has sunk below 5%.

In part, this reflects Mr Xi’s determination to prevent bubbles and thus make
the financial system more stable. To that end, he has tried to dispel the
assumption that the state will come to the rescue of any struggling financial
firm. In 2018, for example, he instigated a crackdown on online-lending
platforms, wiping out an industry with 1trn yuan in outstanding loans. That
was part of a broader campaign to restrict lending outside banks, which has
shrunk by more than half since 2016.

The authorities still seem keen to shield the poor from turmoil in the
financial system. This year, for instance, the central government will attempt
to merge more than 2,000 rural banks with more than $6trn in assets, to
strengthen institutions catering mainly to people on the lowest rung of
China’s economic ladder. But the rich are a different story. When several
small banks collapsed in 2022, deposits in excess of 500,000 yuan were not
reimbursed by the state. By the same token, as property developers have
gone bust the state has dragged its feet about rescuing those who paid for
apartments that were never built, many of whom are relatively affluent.
Wealthier investors, the logic runs, can afford to absorb the losses and
should understand the risks.

But the risks are often opaque, and different investments more closely
related than they at first appear. A search for “landmine investment” on
Chinese social media reveals endless posts about trusts and other wealth-
management products. These typically funnel cash from China’s rich to risky
borrowers willing to pay high interest rates. The trust industry alone has
raised $2.9trn from 1.3m people and companies. About 30% of its loans are
used to buy bonds, equities and investment funds. Another quarter is lending
to conventional businesses. More than 7% has gone to property developers,
almost all of whom are on the ropes.

Wang Yong’s parents, who are got-rich-first types, were assured they were
not investing in property when they bought a trust product last year. The
family lives in a prosperous coastal port city. Mr Wang’s father has long
invested in stocks. His mother in recent years has dabbled in wealth-
management products, often taking the recommendations of an adviser at an
asset-management company. Last year she went big, buying a 3m yuan trust
product issued by a state-owned industrial enterprise. She later discovered
that her money had been lent to a property developer that had defaulted. The
state firm said the problem would be resolved in 60 days. That deadline
came and went in early January. That’s when Mr Wang (a pseudonym) began
posting complaints on social media.

Tens of thousands are doing the same. Trust defaults are rising at an
alarming rate. The product Mr Wang bought was issued by a firm with about
740bn yuan ($100bn) in assets. Many other trust firms are expected to miss
payments in the coming months. The government has so far refused to bail
them out. Most clients have no way to recoup their money. Lawyers tend to
advise that lawsuits are futile.

Property has also become a landmine for many investors. For years Chinese
media celebrated the “explosive expansion” of urban apartment prices and
urged people to cash in. Ms Xu, a finance executive in her 50s who did not
want her full name published, made sure that she did. She moved to
Shanghai 20 years ago but often returns to her hometown inland, where she
bought two investment flats. (Her parents live in one of them.) By 2021 their
value had more than doubled. Last year, as the downturn deepened, she put
both flats on the market in the hope of realising some gains before prices fell
further. But she has not been able to sell them. Developers have cut the
prices of new flats in her city by more than 10%. Potential buyers are
holding back in expectation of further drops. She fears all her gains will be
wiped out.

Half of China’s housing wealth belongs to the got-rich-first. There are no

nationwide data on house prices and the official figures for individual cities
seem to understate falling prices. The government’s numbers claim that
prices have barely budged in Shanghai. Local economists, in contrast,
reckon they have crashed by 20-30% in some central districts and could fall
further in 2024. People in smaller cities talk of 30-40% “discounts” on new
flats.

Chinese spent about 16.3trn yuan buying homes in 2021. Analysts believe
that up until that year about 30% of residential property was purchased as an
investment, rather than to live in. That means punters pumped some 5trn
yuan into investment properties at the top of the market and will have lost a
big part of their savings.

Again, the government does not seem too concerned. The central bank
declined to cut rates in January, despite months of deflation. The authorities
have long wanted to quell speculation in property and prevent bubbles
forming. They worry that too much of China’s household wealth—some
80%—is concentrated in housing, compared with about 30% in America, for
example. There is little systemic risk: banks are well capitalised and
mortgages form a relatively small share of their assets. Local governments,
meanwhile, see a chance to acquire lots of apartments on the cheap, to be
used as low-income housing.

But this blasé view disregards the gloom that is spreading fast among the
got-rich-first. On top of everything else, many are seeing their wages fall.
About a third of white-collar workers say their salaries were cut last year, the
highest proportion for several years, according to Zhaopin, a job-search firm.
Many senior bankers’ pay has been slashed by 30%, one claims, as part of
Mr Xi’s push to rid the financial industry of Western-style extravagance.
Wage growth in the private sector slowed to just 3.7% in 2022, down from
double digits just a few years ago, the National Bureau of Statistics reports.
Financial reversals among the rich tend to reverberate through the economy.
In an article entitled “My middle-class dream died in wealth management”,
published late last year in a local newspaper, a 40-year-old woman named
Zhou Ning described how she had lost millions of yuan to landmines. She
explained how she has gone from holidaying in Europe and America to
asking relatives for money. She has been forced to sell her luxury handbags
and find part-time work. She can no longer pay for her mother-in-law’s
cancer treatment. She has moved her child from a fancy international
kindergarten to one with nearly triple the number of pupils.

As their income declines and their assets atrophy, the got-rich-first are
becoming more cautious about spending. This “negative wealth effect” is
hurting the economy. Oxford Economics, a research firm, estimates that
household savings jumped to 32.4% of disposable income in the last quarter
of 2023. Excess savings that could be used to consume or invest probably hit
around 4trn yuan, or 3.2% of GDP.
As they become more cautious, the got-rich-first are reshaping China’s
markets. An executive at one of China’s biggest asset-management firms
says the collapse of Zhongzhi has been catastrophic for his industry. Clients
used to grill him about the returns products would earn, he says; “Now they
want proof we’re not a scam.” Mutual funds, which invest in stocks and are
hard to redeem, saw their smallest inflows in a decade last year. Money-
market funds, which can be sold instantly, grew from 8.1trn yuan in 2020 to
12.3trn in July (see chart 2).

It is into safe and liquid assets that China’s wealth is moving like never
before, says Philip Leung of Bain, a consulting firm. Fixed-term deposits at
banks, one of the safest investments available, grew faster last year than at
any point since they were introduced in 2015. By the same token, the few
funds that are allowed to invest abroad grew fourfold to 400bn yuan in assets
under management between 2020 and last July. And sales of insurance
policies like Ms Xue’s reportedly soared last year in Macau and Hong Kong,
another special administrative region with its own currency and financial
regulation.

All this will have a baleful effect on the financial system and the broader
economy. Retail investors’ hitherto growing interest in stocks, bonds and
investment funds, which the government had hoped would reduce Chinese
savers’ fixation with property, has reversed. In the long run, that will reduce
the flow of capital to business. The got-rich-first will also be more cautious
about investing in their own businesses. Li Wei of Cheung Kong Graduate
School of Business (CKGSB) in Beijing says entrepreneurs born in the
1960s and 1970s have been the driving force of company formation and
wealth creation for decades. But a survey of business confidence conducted
by CKGSB has found declining expectations for profits for seven
consecutive months—a first in the survey’s 12-year history, excluding the
pandemic.

The landmines are also creating protesters among a previously apolitical

group. The got-rich-first tended to look favourably on the government,
which helped them to so massively improve their lot over the years. But Ms
Xue and Mr Wang, at least, have been transformed into activists, hoping to
bring attention to their causes. After posting a video on social media about
her landmine injury, Ms Xue began receiving messages from people in
different cities who had lost money on the same product. She has urged them
to go to the police. She has also led small groups to the offices of Hywin in
Beijing. Mr Wang, too, has linked up with fellow investors. They have
visited the bank branches in their cities to complain. This appears to be a
growing trend among wealthy Chinese who have experienced financial
losses. The Economist has spoken to several well-off investors over the past
two years who have taken to the streets and even clashed with police in the
hopes of spurring the authorities to action.

None of these efforts has been successful. Ms Xue’s visits to the police have
resulted only in a warning not to “incite” others to complain. Mr Xi is keen
to make financial markets more stable, but he does not want the Communist
Party to be blamed when they malfunction. Protesters are usually safe if they
stick to complaining about deadbeat firms, but if their actions could be
construed as criticism of the government, they risk detention.
Dragon’s denigrators

Even if most got-rich-first keep quiet, however, the current turmoil is

unwinding decades of goodwill between the government and its most
productive citizens. Whereas previously China’s thriving strivers and the
authorities appeared to be on the same side, often in contrast to pampered
young people, the state now appears indifferent if not hostile to the problems
of the well-to-do. The got-rich-first, says an investment manager, “are just
starting to realise that they have become the enemy”. That is a shift that will
have grim consequences not just for them, but for all of China. ■

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Europe
A mounting crisis of confidence confronts Olaf Scholz
A party in a death spiral? :: Germans are grouchy, the hard right is rampant and the economy
sluggish

Madrid is booming. Growing while keeping its cool will be

the tricky part
A moment in the sun :: A southern success story

Vladimir Putin extends his crackdown in Russia

Silencing the Kremlin’s critics :: Even troublesome war supporters are targeted

Poland is trying to restore the rule of law without violating

it
Return of law :: Donald Tusk seeks to undo a hard-right party’s capture of the state

Europe is importing a solar boom. Good news for (nearly)

everyone
Charlemagne :: Cheap Chinese solar modules are delivering the EU’s green promises

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A party in a death spiral?

A mounting crisis of confidence confronts Olaf

Scholz
Germans are grouchy, the hard right is rampant and the economy sluggish

Feb 4th 2024 | Berlin

ONE HUNDRED AND SIXTY-ONE years is a long time in politics.

Through two devastating world wars and a long cold one, through fat years
and lean right up to the present, Germany’s Social Democrats (SPD) have
kept a prime seat at the table of power. The left-of-centre party has been a
junior or senior coalition partner in every government for all but four years
in the past quarter-century. Olaf Scholz, the eighth man (yes, all of them)
from the SPD to serve as chancellor since 1919, leads the “traffic-light”
coalition, named for its three parties’ colours, that took office after
Germany’s last national election, in 2021.
But since then the SPD’s popularity, and that of Mr Scholz, has collapsed.
The party came first in the 2021 election, and peaked in polls of “voting
intentions” at 28%. The same polls now put it in third or even fourth place,
attracting barely 15%. The downward trajectory has been so fast and steady
that, barring a helping hand from fate, the SPD looks likely to be humiliated
in European elections in June, then trounced in September in elections in
three eastern German states, where hostility to Mr Scholz’s government
seethes. Like the traditional socialist party in France, which has tumbled
from national dominance to terminal irrelevance, the SPD could find itself
facing extinction.
This decline is not inevitable. Plenty of Germans still agree with what the
SPD stands for: a generous welfare state, strong protection of workers’
rights, a progressive social agenda, commitment to the European Union. On
recent weekends hundreds of thousands have gathered on German streets,
with Mr Scholz’s encouragement, to denounce the hard-right Alternative for
Germany (AfD), in a strong show of passion that favours the SPD.

Yet an accumulation of factors weighs on the old party, including the decline
of its blue-collar support base, a limp economy, a threatening global
environment and policy clashes between partners in the three-party coalition.
Add to these Mr Scholz’s dry predilection for management rather than bold
leadership, and you have a perfect storm.

One measure of this peril is the depth of shared anger at the government
across very different sectors of society. When farmers blocked roads across
the country in early January, protesting against a government plan to scrap
tax exemptions that they benefit from, lorry-drivers and independent
tradesmen joined in. Despite the disruption, polls reported that more than
three-quarters of Germans sympathised with the protests.

Big businesses are not happy, either. Rainer Dulger, the head of the
Confederation of German Employers’ Associations, a trade group, says his
members increasingly have no faith in the government. “It hurts me to see
how low Germany has sunk in the last two years,” he told journalists in mid-
January.

An obvious cause of the anger is the flattening or, in many cases, shrinkage
of real disposable incomes in the past two years, as inflation spiked to levels
not seen since the early 1990s. Mr Scholz’s government has been trying to
mitigate this, in part by raising benefits paid to jobless people. But despite
bringing relief to some 5.5m, the wider impact seems to have been to
convince Germans that the SPD’s generosity with taxpayers’ money rewards
scroungers and undermines the work ethic. A recent survey showed that 62%
of the party’s own supporters believe its policies discourage people from
working.

In a sign of dysfunction inside the coalition, Christian Lindner, the finance

minister and leader of the small, pro-business Free Democratic Party, has
repeatedly denounced his partner-party’s policies. “Is this still the old aunt
SPD, the employee’s lawyer, or is this the agent for those receiving benefits
from the welfare state?” he asked one interviewer in January.
But the damage to Mr Scholz’s party is not only of its own making. Mr
Lindner’s refusal to touch Germany’s “debt brake”, a constitutional rule that
cripples the government’s ability to borrow, is one reason for the policy
contortions that, for example, pushed the government to provoke farmers by
trimming their perks.

The third partner in the coalition, the Greens, have caused even more
trouble. Many Germans viewed their insistence on switching off the
country’s last three nuclear-power plants last April, amid an energy crisis
created by the halt to Russian fuel supplies, as utterly barmy. Soon after that,
an ill-judged push by the Greens to cajole homeowners into installing costly
heat pumps became political gold dust for the opposition, which branded the
effort a glaring example of government overreach.

This charge struck home in part because the SPD has in fact drifted away
from its traditional working-class electoral base. This class has shrunk as
more Germans moved into white-collar jobs, while in declining industrial
regions, as well as in the former East Germany, many former socialists have
shifted to the right. Research shows that supporters of the AfD are far more
likely to be worried about inflation than are SPD voters, presumably because
the latter are more comfortable with their lot. The shrinking of the SPD’s
catchment area can also be seen in the party’s age profile. Since 2000 the
party’s membership has fallen by nearly half, to just 365,000 last year. Some
57% of them are over 60.

It may be natural that with time, the party’s vigour would fade a bit. Fewer
excuses can be made for the failings of Mr Scholz’s leadership. Germans
have not forgotten that the former Hamburg mayor won the 2021 election
less through merit than because, whereas his opponents all committed
campaign blunders, he stuck relentlessly to a bland script. The persona he
projected was of a calm, comforting clone of his predecessor Angela Merkel,
a popular and famously unflappable chancellor (albeit one from a different
party). Mr Scholz even copied Mrs Merkel’s habit of pressing her fingers
and thumbs together in a downward-pointing diamond.

But instead of seeming open and decisive in power, Mr Scholz comes across
as aloof and hesitant. Shying from grand gestures and disdaining the press,
he prefers boardrooms to public podiums. He has repeatedly left
controversies to fester and allowed his ministers to clash, only intervening
when the political damage has already been done. “Olaf takes the approach
that you only engage in fights where you can win; other issues it is best not
to touch,” says one party insider. The insider adds that this approach is fine if
you are running a ministry, but not so good when running Europe’s most
pivotal country in a time of multiple crises.

Mr Scholz, who visits Washington on February 8th-10th, has defenders at

home and abroad who praise his caution in troubled times. The German
public has been less impressed. The chancellor’s popularity soared briefly in
March 2022, after Mr Scholz bravely declared a Zeitenwende—an epochal
change—in response to Russia’s invasion of Ukraine. His approval rating
has since fallen to 20%, the lowest for any chancellor since the pollster
Deutschlandtrend started keeping a record in 1997. Only 12% say that he
“communicates effectively.”

Not surprisingly, there are rumblings of discontent from within the SPD.
Mostly, though, complains another party insider, there is complacency and
what they call “a moving of deckchairs”. Some pin hopes on a mid-term
change of leadership, with the far more popular defence minister, Boris
Pistorius, brought in to shore up the sagging team. But a recent poll by
Forsa, a political research group, suggests that in a fresh national election Mr
Pistorius, a gruff, ruddy-faced SPD stalwart, would boost the party’s chances
by just three percentage points. The spiral looks likely to continue.■

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A moment in the sun

Madrid is booming. Growing while keeping its cool

will be the tricky part
A southern success story

Feb 6th 2024 | Madrid

“JUST TO BE something, I’ll be a madrileño.” Not a stirring sentiment, and

yet the line is part of the official anthem of Madrid, which has often “just
been something”. King Felipe II made the middling town his new capital in
1561 in part simply because it was dead central and lacked competing
powerful institutions; amazingly in such a Catholic country, Madrid did not
even get its own completed cathedral until 1993. But later, as Spain’s empire
declined, so did Madrid’s profile.

Now Madrid is having a moment. Tourists are flocking, as well as would-be

residents. They include Americans fleeing toxic politics, northern Europeans
seeking an easy-living big city, and, most of all, Latin Americans. Some
come to work in construction, care or hospitality. Others are rich
Venezuelans and Mexicans fleeing confiscatory populism. The foreign
population has grown by 20% since 2016, much of that Latino, making
Madrid a growing rival to Miami as the “capital of Latin America”. The
Madrid region is richer than Rome’s and not far behind Berlin’s.

The city’s and region’s governments, both of them run by the conservative
People’s Party, have welcomed the influx. Last year the region announced a
plan to let people who invest in Madrid—including in property—offset 20%
of the cost from their taxes, for example. Isabel Díaz Ayuso, the pugnacious
regional president, gleefully contrasts Madrid’s low-tax, light-regulation
approach with a supposedly overbearing national government. But that
Socialist-led national government has done its bit for Madrid, too. It has so
far kept a “golden visa”—giving residency to those who invest €500,000
($537,000)—while passing a “digital-nomad” law to attract knowledge
workers.

José Luis Martínez-Almeida, Madrid’s mayor, says a turning-point came

with the pandemic, when Ms Ayuso battled the prime minister, Pedro
Sánchez, to keep businesses open. Covid-19 took a terrible toll, but Madrid
emerged with a reputation for openness. “Before, it was the best-kept secret.
Now it is the place to be,” says Mr Almeida, uttering the final phrase in
English.

The attractions include culture, low and high. For a long time the Prado
museum’s stuffy, traditional presentation of a brilliant collection was not
enough to attract foreigners away from the coasts. Now it anchors a trio of
stylish museums (with the Reina Sofia and the Thyssen-Bornemisza) that
welcome over 7m visitors a year. But the museum of the Bernabeu stadium,
home to the Real Madrid football club, attracts over a million a year too, and
the city has just nabbed the Spanish Formula 1 Grand Prix race from
Barcelona. The number of musicals in the city has doubled to 14-15 since
the pandemic. Cheap tapas are being joined by an increasingly sophisticated
gastronomy, often drawing on Spanish regions far from Madrid.

The city’s weight in Spain is growing, too. In 1980 the region accounted for
15% of Spanish GDP. In 2022 the share was 19%, expanding even faster
than Madrid’s proportion of Spain’s population. In 2018-22 the region
attracted about 71% of foreign investment in Spain, with the next-highest
region, Catalonia, at 11%. The signal that “you are welcome” is powerful for
investors, says Nuria Vilanova of CEAPI, a group that promotes links with
Latin America. And though Spanish universities are middling, its business
schools are an exception. Madrid has campuses of three such schools that
come high in global rankings.
The price of success

The biggest problem facing Madrid is where it can put people. The region,
with 7m inhabitants, is expected to add another million in the next decade.
But the city lacks housing, the reason growth has gone to suburbs and
dormitory towns. The newest housing developments are soulless,
unwalkable places. Since a peak in 2006, new building permits have fallen
by 69% in Madrid, according to Neinor, a property developer. Getting them
is still onerous.

Hence the hopes for Madrid Nuevo Norte, a new district around Chamartín
railway station. Where five skyscrapers now stand, a host of new ones are
planned by 2050, creating a new business hub. But the developers hope to
avoid the fate of projects that lack shops, residents and green space. Around
a third of the planned 10,500 apartments are to be affordable (and rent- or
price-protected), while ground floors in many buildings are to be for small
retail. But some, including Rita Maestre, the co-chair of Más Madrid, the
left-wing opposition in the city, fear the project may exacerbate the city’s
divisions between a rich north and far poorer south.

“It’s such a clean city,” Ms Maestre says she hears—from people who know
just half of it. Usera or Carabanchel in the south, with incomes per head of
€11,000-12,000, get about one-third of the street-cleaning budget of the rich
north, she says. If the city needed a piece of ugly infrastructure such as a
dump or a water-purification facility, “100% of the time” it was built in the
south, she says. But even the poorest areas are orderly and safe, thanks to
tight-knit local communities, she argues. Those include foreign ones. Usera,
with over 10,000 Chinese residents (most from a single county, Qingtian), is
home to the city’s bustling Chinatown.
Can the city keep its cool while changing so quickly? Internationalisation
and the rapid change in demography inevitably leave some grumbling about
the good old days. But Ian Gibson, an Irish Hispanist author who has lived in
Madrid since the 1970s, says “Don’t worry—it’s never changed,” despite the
worries over the years. “It has become itself more fully.” ■

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Silencing the Kremlin’s critics

Vladimir Putin extends his crackdown in Russia

Even troublesome war supporters are targeted

Feb 8th 2024 |

ON JANUARY 25TH a Russian court sentenced Igor Girkin, a former

officer of the FSB, Russia’s main security service, to four years in a penal
colony for the crime of “public incitement of extremist activity”. His arrest
last July, days after he had criticised Vladimir Putin’s wartime decisions and
called the Russian president a “cowardly mediocrity” on social media, has
sent shockwaves through Russia’s active community of pro-war nationalists,
many of whom deem him a hero.

Mr Girkin’s reputation rests on his paramilitary career; under the codename

Strelkov (“Marksman”), he proved a key figure in both the annexation of
Crimea in 2014 and the initial organisation of rebel groups in Ukraine’s
eastern Donbas region. He remains a strong supporter of both the war and
Russia’s resurgent national project, notwithstanding running afoul of the
Kremlin. The case has heralded a shift in Kremlin prison policy, which now
not merely punishes critics of the war but also seeks to rein in the excesses
of troublesome supporters.

Politically motivated cases in Russia have long resulted in draconian prison

sentences, but the motivations for such prosecution have shifted with time.
In the 2000s cases were brought against prominent business figures like
Mikhail Khodorkovsky, an oligarch, and Sergei Magnitsky, a tax adviser
who later died violently while in custody. In the 2010s political prisoners
tended to be involved in protest movements, as was the case with the band
Pussy Riot and with the house arrest in 2014 of Alexei Navalny, Russia’s
most prominent opposition leader.

Following Russia’s invasion of Ukraine in February 2022, however, the

policy shifted again and Russia’s many prisons started to be used as an
instrument for punishing opponents of the war. Mr Navalny, who has been
held in custody since 2021, has received two additional sentences since the
invasion began: first for nine years and then for another 19.

Punishment even against grassroots activists has veered into the absurd. One
example is the seven-year sentence imposed in mid-November on Sasha
Skochilenko, an artist who replaced grocery-store price tags with criticisms
of the Russian army and the war effort. Last summer Olga Smirnova, an
activist, was sentenced to six years in jail in connection with seven war-
related posts she had made on Vkontakte, a Russian social-media platform.

Cases such as these are launched selectively, and to set an example, says
Sergey Troshin, a St Petersburg municipal councillor who has expressed
public support for both Ms Smirnova and Ms Skochilenko. “The task the
state set for itself was to take a few people and publicly hand them large
sentences,” he said. “You can think of this as ‘precision repression’, and it
makes people scared enough to halt their activism.”

According to OVD-Info, a human-rights monitor, approximately 160

Russians have been imprisoned and over 850 have been prosecuted for anti-
war activities since the start of the full-scale invasion of Ukraine in February
2022.
The prison system has also been used as a reward for loyalty as much as a
punishment for defiance. Prisoners, many of whom had been convicted for
multiple, violent crimes, have walked free with full pardons after serving in
the Russian army in Ukraine for as little as six months. This has been framed
in state-run media outlets and friendly social media as a reward for loyalty to
a new national project centred on resistance to the West, the promotion of a
multipolar world and Russia’s continuing influence in the “near abroad”.

However, a recent investigation conducted by BBC Russia uncovered a shift

in policy. In an effort to curb local resentment, and probably to distance the
president from what has proved to be a controversial policy during the runup
to the presidential elections next month, ex-convict veterans are now
required to serve until the war’s end in return for probation rather than a
pardon. Exoneration may only be received in cases when soldiers reach the
military’s age limit, earn a special commendation or are maimed in combat,
described as “health loss”. ■

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Return of law

Poland is trying to restore the rule of law without

violating it
Donald Tusk seeks to undo a hard-right party’s capture of the state

Feb 7th 2024 | WARSAW

SINCE DECEMBER Kalina Ostrowska has been coming home from school
and doing something that would shock most parents of 16-year-olds: she
turns on the television and watches the Sejm, Poland’s parliament. Lots of
her friends are watching, too. Young Poles have become strangely interested
in politics. In the election last October turnout among those under 30, who
normally vote at low rates, reached 69%, not far below the overall figure of
74%. They overwhelmingly backed the opposition, helping Donald Tusk and
his centrist Civic Coalition (KO) to beat the hard-right Law and Justice (PiS)
party that had run Poland for eight years.
One reason the Sejm makes such good television is its new speaker, Szymon
Holownia. Mr Holownia, who leads the centre-right Poland 2050 party (now
part of Mr Tusk’s alliance), is a long-time talk-show host and master
showman. “It’s funny when the opposition protests and Holownia shuts them
up with some pointed retort,” says Ms Ostrowska. Yet the main reason to
watch is the riveting conflict playing out in Poland’s government.

Like many populist parties in power, PiS grabbed control of independent

state institutions and packed them with loyalists. Poland wound up having its
EU funds withheld for violating the rule of law. Mr Tusk is trying to fix this,
which means rewriting statutes and firing apparatchiks. But Andrzej Duda,
the president, who comes from PiS, has pledged to veto the government’s
efforts. The constitutional tribunal, dominated by PiS appointees, is
gumming things up too. Mr Tusk’s government faces a tricky job: restoring
the rule of law without abridging the rule of law in the process.

The biggest challenge is the judiciary. PiS changed the law so that the Sejm,
where it had a majority, appointed members of the National Council of the
Judiciary (NCJ), which nominates and promotes judges. It then put loyalists
in place throughout the courts. When the EU’s top court ruled that this
violated the separation of powers, Polish prosecutors began going after
judges who had the temerity to appeal to that court. Meanwhile PiS fused the
offices of minister of justice and prosecutor-general, created a new post of
national prosecutor, and—just before the election—passed a law requiring
presidential consent to dismiss him. Analysts said PiS was trying to cement
its control of state institutions.

The new justice minister, Adam Bodnar, wants to break up the cement. To
ditch the national prosecutor without risking a veto from Mr Duda, Mr
Bodnar announced on January 12th that his appointment was void, on the
grounds that the procedures the government used to bring him out of
retirement were wrongly applied. Experts think Mr Bodnar is right, but PiS
and the constitutional court have cried foul. The justice minister is also
trying to replace regional court presidents.

PiS’s deputies in the Sejm, who eagerly packed the courts when they were in
power, denounce Mr Bodnar’s house-cleaning as a coup d’etat. The
difference is that where PiS grabbed control over the judiciary, Mr Bodnar
wants to give it away. The government plans to split the posts of justice
minister and prosecutor-general, and to allow judges themselves to pick
most members of the NCJ. Mr Bodnar is “trying not to gain power, but to
give it back to judges”, says Zuzanna Rudzinska-Bluszcz, a deputy justice
minister. But that reform will require Mr Duda’s signature.

The second area of conflict is the media. Under PiS state TV, radio and the
national press agency were transformed into propaganda outlets. PiS created
a new supervisory council and packed it with allies. To circumvent it, on
December 19th the new culture minister used commercial law to replace the
state media’s staff, acting as the companies’ owner. PiS-appointed TV
employees staged a sit-in, but soon gave up. To reorganise the media, the
government has put them into liquidation. But some courts refuse to register
the liquidations.

Not just PiS but some civil-society groups dislike these manoeuvres, which
ignore the bits of the constitution concerning the state media. The Helsinki
Foundation for Human Rights, a watchdog, said the takeover “raises serious
legal doubts”. The government argues PiS’s supervisory council was
unconstitutional, too. But it has done little to reassure the public that it will
not create a mouthpiece of its own.

The final battleground is the state’s economic institutions. The central bank’s
governor, Adam Glapinski, is a pro-PiS braggart. But his policy decisions
show little evidence of bias, and Mr Tusk has dialled back talk of
investigating him.

More troubling stories are emerging concerning certain state-owned

companies. Orlen, a government-owned oil firm, took over its rival Lotos
(also government-owned) in 2022. EU competition regulators ordered Lotos
to divest some assets first, which mainly went to Mol, a Hungarian company,
and to Saudi Aramco. On February 5th government auditors said those assets
were sold for $1.24bn less than their worth. Critics say PiS wanted an oil
monopoly for political reasons: Orlen held fuel prices below market level
during the campaign. The government has fired the company’s CEO and
supervisory board.
At any rate, many Poles seem to be thoroughly enjoying the turmoil. The
approval rating of Mr Tusk’s KO has risen since December, while PiS’s has
fallen. At the state TV broadcaster “the end of political pressure” has
restored morale, says Pawel Moskalewicz, its news director. But the
judiciary is a much bigger problem. Undoing PiS’s takeover of the state will
be a long and controversial slog. ■

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Charlemagne

Europe is importing a solar boom. Good news for

(nearly) everyone
Cheap Chinese solar modules are delivering the EU’s green promises

Feb 8th 2024 |

A BANNER RUNNING down the side of the European Commission’s

headquarters in Brussels depicts cartoon workers recladding its 13-floor
façade with solar panels. The illustration might come across as a cruel joke
to residents of the Belgian capital, for whose leaden skies the phrase “fifty
shades of grey” could have been coined. But thanks to green edicts devised
by the Euro-wallahs at the commission, the continent’s fields and rooftops
are being paved with very real photovoltaic cells. In 2023 the equivalent of
one nuclear reactor of solar power was installed every single week. In the
past three years nearly as many panels have been plugged into EU power
grids as had been since the industry dawned at the century’s start. By 2030
the bloc is aiming to triple the number of solar panels installed, thus
covering an area bigger than 300,000 football pitches, two dozen times the
size of Paris.

The sizzling solar sector has been an unexpected ray of hope for a continent
still reeling from the cut-off of Russian gas. But amid the cheering some are
squealing for help. Companies that make solar panels in Europe are teetering
on the brink of failure; the outlook for them is not so much cloudy as
apocalyptic. For the European solar boom is in truth a repackaged Chinese
one: 95% of modules installed in the EU are imported from the world’s
dominant producer, which can churn them out at unbeatable prices. This
makes policymakers anxious. Part of the case made to voters sceptical of the
need for an economy-disruptive ecological transition was that going green
would do more than merely fend off climate change. It was also meant to
make Europe more resilient—less dependent on Russian gas, say—and
create lots of new jobs. Does meeting ecological targets with containers full
of Chinese solar panels merely change the autocratic regime Europeans will
depend on, and crush employment to boot?

In short, no. For some green goods, such as electric vehicles, trade-offs
between jobs, economic security and environmental targets do indeed exist.
For solar, the case for learning to stop worrying and love Chinese
photovoltaic cells is much clearer.

For one, it is clear that cheap imports have indeed fuelled the installation
craze. In the early 2010s Europe throttled the arrival of Chinese solar
modules after struggling EU producers successfully lobbied for import
restrictions. Deployment of solar arrays soon fell; consumers and utilities
turn out to be willing to fork out only so much for virtuous electricity. As
soon as the trade restrictions were lifted six years ago, installations rose
again. Now European solar-panel producers are again lobbying for import
restrictions, or at least subsidies to keep them afloat. Given that Chinese
panels now sell for around half the cost of European ones—aided by cheap
labour and energy costs, and also by ample state backing—that would mean
vast and probably sustained levels of largesse.

Isn’t a little market distortion a price worth paying for a home-grown energy
source? That is the line of thinking in France, whose politicians have yet to
come across an industry they did not deem “strategic” (a yogurt-maker was
once kept out of an American rival’s clutches on that basis). “Sovereignty
might have a cost, but it also has no price,” its deputy ambassador to the EU
said recently according to the Financial Times, in a valiant bid to sound like
a Gallic Braveheart. Some wince at ordering solar panels from China, since
over a third of one of their key inputs is sourced from Xinjiang, a restive
region where forced labour is rife. But two fears predominate. The first is
that China could one day cut off the supply of solar panels as Russia’s
Vladimir Putin did with its gas, leaving Europe once again in the lurch. The
second is that China will corner the solar manufacturing market, then raise
prices when other producers have been wiped out.

The Russian parallel is “far-fetched”, says Simone Tagliapietra of Bruegel, a

Brussels think-tank with a paper out this week on the merits of solar imports.
Gas stops flowing as soon as a pipeline is cut, whereas already-installed
solar panels keep generating juice. There are currently enough modules
stockpiled in the EU for over a year’s worth of installations. China would
also suffer if Europe was deprived of green technology, given the planetary
effects of climate change. And lots of other producers—notably America,
which is providing huge subsidies for each domestically made solar panel in
a bid to curtail dependence on China—are entering the fray, thus leaving
future Europeans with lots of choice.

How about jobs? Protecting a few European solar factories would help
workers there. But raising prices would slow down installation. This in turn
would destroy jobs among those deploying solar panels, which is far more
labour-intensive, point out the Bruegel boffins. Short of Chinese engineers
teleporting to Belgium to install rooftop panels, those jobs will not soon be
outsourced.
Where the sun don’t shine

The EU has yet to decide whether it wants the cake or its eating. The
commission on February 6th laid out plans to cut greenhouse-gas emissions
by 90% of 1990 levels by 2040. But the “Net Zero Industry Act”, also
agreed this week, calls for 40% domestic production of green technologies
by 2030. Nobody knows how a viable solar industry could be magicked up
in just a few years without a protectionist revival. More sensibly, the new
law will nudge firms to look beyond a single dominant global supplier (ie,
China) for green-technology projects funded with public money, pushing
importers to source panels from India, for example. And everyone agrees
that researchers in Europe should be among those inventing the next
generation of solar modules.

Given its expensive workers, high energy costs and weak industrial supply
chains, the EU should not be making photovoltaic cells. Those who worry
about French-style “strategic autonomy” should splurge on defence, not on
coddling industries that will never be able to turn a profit. Europe has the
chance to green itself fast and cheaply through imports. It should seize it. ■

Read more from Charlemagne, our columnist on European politics:

Europe’s grumpy farmers are a symptom of wider malaise (Feb 1st)
The EU’s €50bn package to Ukraine is a far cry from its rhetoric (Jan 25th)
Europe’s monarchies are a study in dignified inanity (Jan 18th)

Also: How the Charlemagne column got its name

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Britain
How Britain lost its war on drugs
A pill wind :: Blame new synthetic opioids, inadequate funding and a punitive attitude

What Charles III’s illness says about monarchs and

mortality
Royal bodies :: Britain responds to the king’s cancer diagnosis

Britain’s economy will need rate cuts sooner rather than

later
Not so soft :: Inflation is coming down but worries about growth rise

A tiny right-wing party tries to menace Britain’s

Conservatives
Eyes right :: Reform UK’s best opportunity yet arrives on February 15th

The controversy over Britain’s planned Holocaust

memorial
Remembrance row :: Wrong place, wrong design

Iran is targeting its opponents in Britain

Death to Britain, but not just yet :: Iran’s regime sees London as both hunting ground and
playground

The former prime minister who fascinates the Labour

Party
Bagehot :: Starmerites are studying a neglected former leader

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A pill wind

How Britain lost its war on drugs

Blame new synthetic opioids, inadequate funding and a punitive attitude

Feb 7th 2024 |

AS A GENERAL practitioner (GP) in a deprived inner-city neighbourhood

of Birmingham, Judith Yates had a close-up view of the evolution of
Britain’s illegal drugs market. In the 1980s some of her poorest patients
became addicted to Afghan heroin as it flooded the market. In the 1990s they
made crack pipes from Coca-Cola cans and asthma inhalers. Some
recovered. Others went in and out of prison, where they often became
addicted to other drugs. Several died.

In 2010, frustrated by how little ground the government was making in its
war on drugs, Dr Yates started visiting the local coroner’s office to collect
information on drug deaths. “I wanted to look for patterns, see if we could
prevent people dying,” she said. What she found alarmed her. Drug deaths
were increasing every year. And opioids were playing a big role.

In 2022 Dr Yates (by then retired but continuing her investigations) spotted
the name of a drug on the coroner’s reports that she had not seen before: n-
pyrrolidino etonitazene. This is one of a class of new synthetic opioids
known as nitazenes which are at least as powerful as fentanyl (another
synthetic opioid that is itself up to 50 times more powerful than heroin) and
often many times more so (see chart).

The drug had been found in three young men who had died, two students
and a businessman—quite different sorts of drug users from those Dr Yates
was used to seeing in coroners’ reports. They had bought what appeared to
be pharmaceutical-grade oxycodone (painkiller) pills online. “They would
have thought they were self-medicating to reduce the stresses of life,” she
says. “They certainly did not expect to die.”

Dr Yates’s experience is a microcosm of a wider crisis. Drug deaths in

England and Wales have risen every year since 2012. In 2022, the most
recent year for which there are data, the figure was 4,907, according to the
Office for National Statistics (ONS); 89% higher than in 2012. In that period
some features of drug deaths have remained steady. Most victims are male
(see chart). The north-east has the highest death rate. (Scotland, which is
subject to the same laws but where drug deaths are counted separately, has
one of the highest rates in Europe.) And the same generation—people born
in the 1970s—are the likeliest to die.
The vulnerability of this cohort is explained in part because in the last two
decades of the 20th century more young people started using hard drugs,
chiefly heroin and cocaine. These do more damage to the body as it ages.
Deaths caused by cocaine, which has become increasingly popular as it has
become cheaper, rose to 857 in 2022 from 112 in 2011. Drug-induced deaths
may also be rising because it has become more common to take more than
one substance at a time, which is likelier to be fatal.
But the most worrying part of the picture involves the consumption of
synthetic opioids. Britain, like most of Europe, has so far sidestepped the
opioid crisis that killed 70,000 Americans last year alone. Because of its
nationalised, non-profit-driven health-care system (in which doctors are
generally responsible about prescribing opioids), it is unlikely to ever
develop a problem as big as America’s.

Yet experts worry that an opioid crisis may nonetheless be looming because
of changes to the global drugs trade. Most heroin in Europe comes from
Afghanistan, where in 2021 the Taliban announced a ban on opium, a gum
produced from poppies from which heroin is manufactured. Two missed
poppy harvests later, the market for synthetic opioids such as nitazenes—
which are relatively easy and cheap to manufacture (in China, it is thought)
and then post—is said to be booming.

No one knows how many people in Britain have been killed by nitazenes.
They have been detected in several dozen cases but are not always tested for.
Meg Jones, director of Cranstoun, a charity, says nitazenes are being cut into
many different sorts of drugs, often accidentally (because they are cut and
packed on the same surface). In November the Home Office said it was
decreeing 15 new drugs to be “class A”, the most dangerous sort. Most of
them are nitazene compounds.

Britain is singularly unprepared for an opioid crisis. Funding cuts in the

2010s have devastated drug-treatment programmes. In the second part of an
independent, government-commissioned review into drugs published in
2021, Professor Carol Black, a doctor and academic, said that “funding cuts
have left treatment and recovery services on their knees.” The workforce
was “depleted, especially of professionally qualified people, and
demoralised”. “The current situation is intolerable,” she said.

The government has acknowledged that more investment in such services is

needed. Yet it needs to do a lot more than restore what it has squandered.
Since Britain passed the Drugs Misuse Act 1971, which criminalises
possession of illicit drugs, it has taken a moralistic, punitive attitude to drug
use that has achieved little.
Britain remains one of the few countries in Europe that does not have safe
drug-consumption rooms (though one is due to open in Scotland soon). That
is because to run one could mean being charged with a crime. Research
suggests such places do not increase drug use but help users enrol in other
treatment. They are, moreover, a low-cost intervention, requiring little more
than a room, a health-care worker and a supply of overdose medications. Yet
Rishi Sunak, the prime minister, has said they “condone use of drugs”.

There has been some progress. Police forces increasingly carry naloxone, an
opioid antidote. Once only available in injectable form, it is now available as
a nasal spray. Officers prefer using this to giving drug addicts CPR.
(Multiple doses may be needed to save someone who has taken nitazenes.)
Last month The Loop, a charity, opened the first Home Office-licensed drug-
testing site, in Bristol. It will allow users to submit samples of illegal drugs;
if there are concerns about the potency and purity of substances, local
authorities can send public-health alerts and the buyer can be offered advice
and treatment. More such centres are crucial.

In a rapidly evolving drug market information is power, says Dr Yates. She

would, for instance, like the government to find a way to hasten the
dissemination of information about drug deaths, which are usually certified
by coroners. The ONS says that record delays in inquests mean 64% of
deaths that were registered in 2022 actually occurred in previous years. If
Britain does have an opioid crisis, it may not find out before it is too late. ■

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Royal bodies

What Charles III’s illness says about monarchs

and mortality
Britain responds to the king’s cancer diagnosis

Feb 6th 2024 |

BRITAIN HAS always been interested in its kings’ bodies. Each age has had
its own particular obsession. For Shakespeare, it was the king’s head—the
mortal brow beneath the hollow crown—that fascinated. After the
Restoration it was the king’s hand—Charles II was believed to be able to
heal diseases by touch alone. Now national attention has turned to the state
of Charles III’s health.

According to a statement from Buckingham Palace on February 5th, “a

separate issue of concern was noted” while the king was being treated for an
enlarged prostate. Subsequent tests “identified a form of cancer”. Quite
which form has not been announced; a little royal distance remains. But
when future historians come to chronicle the change from a “magical”
monarchy, able to heal by touch alone, to the more humdrum mortal kind,
this moment may feature: few things seem more mortal or less magical than
a prostate.

In the past monarchies have been less willing to admit to frailty, as have
their physicians. When George VI had his entire left lung removed in 1951
because of lung cancer, the public (and indeed the king himself) were told
that this was due to “structural abnormalities”. When his grandfather, the
high-living Edward VII, collapsed in Biarritz, it was at once entirely
unsurprising—Edward smoked, drank and ate so abundantly that he couldn’t
do up the bottom buttons on his waistcoat—and, at first, entirely unspoken
about. An attempt to treat the king was made, including through the
application of his favourite mistress. But even she failed to revive him.

The monarch’s mortality feels all the more salient when they come to the
throne late. Elizabeth II ascended to the throne at the age of 25; when the
congregation at her coronation sang “Long to reign over us” they could feel
confident that she, with the pinchably plump flesh of youth, would do just
that. At his coronation last year Charles—the longest-serving heir-apparent
—was already 74.

A monarch is not a country incarnate, but they are not far off. If Elizabeth II
—dutiful, stable and influential—embodied one era, it feels uncomfortably
as though Charles III—also dutiful, but ageing and now battling ill health—
might represent another. Then again, as Shakespeare makes clear, a king is
also just a man. The crown might be bejewelled; the royal crest might sit on
the press releases. But the king beneath is mortal, and increasingly open
about it. ■

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Not so soft

Britain’s economy will need rate cuts sooner

rather than later
Inflation is coming down but worries about growth rise

Feb 8th 2024 |

RATE-SETTERS AT THE Bank of England (BoE) are an unusually rowdy

bunch, at least in public. At the Federal Reserve, America’s central bank,
virtually all its recent monetary-policy decisions have been unanimous. That
has not happened at the BoE since interest rates began rising in late 2021. At
their most recent meeting, on February 1st, a majority of the nine-member
monetary-policy committee (MPC) opted to hold interest rates at 5.25%. But
individual votes were cast to raise rates, to keep them flat and to cut them—
the first such three-way split since the financial crisis.

Despite the disagreements, the argument is moving in favour of the doves.

No longer an international outlier on high inflation, Britain continues to
stand out for problematically weak growth. Elsewhere in the rich world, and
to the puzzlement of many economists, it hasn’t taken much economic pain
to bring inflation down. Britain looks less fortunate. As a result the case for
starting to cut interest rates soon, if not quite yet, looks stronger than in just
about any other big rich economy.

Until recently, inflation had been Britain’s primary macroeconomic worry.

“Core” inflation, which excludes volatile categories such as food and energy,
hit a peak of 7.1% year on year last May, months after declines had begun in
most other advanced economies. The policy prescription was clear: raise
rates.
The medicine appears to be working. Year-on-year inflation did rebound
slightly in December, to 4%, but much of that rise came from an upswing in
flight and hotel prices that is unlikely to be repeated. By some measures
inflation is now within touching distance of the BoE’s 2% target (for
instance, by calculating inflation on a six-month basis, a faster-moving
measure than the 12-month change that is more commonly used; see top
chart).

A continued slowdown looks likely for several reasons. First, the biggest
supply-side ructions of the past few years have receded: European natural-
gas prices are back near pre-pandemic levels and global shipping backlogs
have eased (recent disturbances in the Red Sea aside). Second, financial
markets in Britain have remained tame, avoiding the blowout exuberance
that has prompted some concern in America about re-accelerating inflation.
The S&P 500 index of American companies has gained almost 20% since
November; the FTSE 100, its British equivalent, is up by around 4% over
the same period.

But the most consequential reason for inflation’s decline is also the least
welcome: British growth remains extremely weak. Britain’s GDP has risen
by around 1.5% since 2019, half the figure for the euro area over the same
period and a fifth that for America (see bottom chart). Discussion of the
country’s growth malaise often focuses on structural woes such as lagging
productivity growth and underinvestment. Those problems have not gone
away. But the evidence suggests that a cyclical economic downturn is also
under way.

The data are admittedly more messy than usual; the Office for National
Statistics freely admits that the reliability of economic numbers has
worsened since the pandemic as response rates to its labour-force surveys
have fallen. But look closely, and a pattern of ongoing weakness emerges. In
December inflation-adjusted retail sales hit their lowest level since the height
of the pandemic. Industrial production has fallen in recent months; job
vacancies continue to decline. The BoE’s forecasters have pencilled in zero
GDP growth in the first three months of this year. Of the 61 forecasters
polled by Bloomberg, a data provider, not one has a projection higher than
1% for 2024; the average is just 0.4%.
The remedies to Britain’s structural growth problems tend to be slow-acting,
complex and elusive. Navigating a cyclical downturn is better-trodden
economic territory. The classic solution would be to cut interest rates, and to
do so in excess of the cuts necessitated by falling inflation. That moment has
not quite arrived. Inflation is still uncomfortably high. The budget in March
may see a jolt of fiscal stimulus from pre-election tax giveaways.

Monetary easing would be a much more prudent form of stimulus. Only one
MPC member, Swati Dhingra, voted in favour of rate cuts on February 1st.
An outbreak of unanimity seems unlikely in the near future. But it may not
take too many meetings for Dr Dhingra to be in the majority. ■

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Eyes right

A tiny right-wing party tries to menace Britain’s

Conservatives
Reform UK’s best opportunity yet arrives on February 15th

Feb 8th 2024 | WELLINGBOROUGH

“WE NEED TO send these monkeys a very significant shock,” says Ben
Habib, Reform UK’s candidate in the Wellingborough by-election. It is
doubtful if anybody who has come to hear him speak, in a dimly lit Baptist
church, truly believes Mr Habib will win the election on February 15th. But
he could shock the monkeys (that is, the government) all the same.

Once a shoemaking powerhouse, Wellingborough, a town in

Northamptonshire, now contains barbers, eastern European food stores and a
clutch of post-war buildings that one architectural historian dismissed as
“drab cheap stuff”. In short, it looks like many English towns. And
Wellingborough is also like other English towns in its Conservatism. The
outgoing Tory MP, Peter Bone, won 62% of the vote in the 2019 general
election, against just 26% for his Labour opponent.

If Labour manages to snatch the seat it will be upsetting for the Tories, but
not hugely surprising. The by-election is taking place because an
independent panel found that Mr Bone had bullied and exposed himself to a
member of his staff (Mr Bone says the claims against him are false). That
triggered a successful recall petition in the constituency, which, in effect,
gave Labour a weeks-long head start in the ensuing by-election. The party is
fighting hard to win it, with a crack unit of activists and MPs. The
Conservatives, meanwhile, have made the puzzling decision to put up Helen
Harrison, a councillor and Mr Bone’s partner, as their candidate. They have
made a sleazy situation appear sleazier.

Much worse for the Tories would be a Labour victory accompanied by a

surge in votes for Reform UK. The Reform party is a peculiar outfit. It was
the Brexit Party until Brexit happened; then it opposed covid-19 lockdowns,
which soon ended. Now it is a generic radical-right party, which contends
that Brexit has not been hard enough. By far its most famous figure is Nigel
Farage, a Eurosceptic gadfly who tormented the Conservative Party a decade
ago and pushed the government into holding the referendum on EU
membership in 2016. But Mr Farage is busy with a TV-presenting job these
days and does not trouble himself with by-elections in the Midlands.

Reform is a populist party, but not so far a popular one. In its pomp, in 2014,
the Farage-led United Kingdom Independence Party (UKIP) took 38% of the
vote in five by-elections, beating the Conservative Party in all but one of
them. In contrast Reform UK’s best recent performance was in Tamworth, in
October, where it took just 5% of the vote. The party seems to have grown
stronger since then: The Economist’s poll tracker puts Reform on 11%, and
on 17% among people who voted Conservative in the 2019 general election.
But it will not panic the Conservative Party until it manages to win a good
number of actual votes.

The Wellingborough by-election, one of two on the same day (the other is in
Kingswood, another Tory-held seat in south Gloucestershire), is an ideal
opportunity for Reform to show it can menace the Conservative Party on its
right flank. Wellingborough is Brexity—62% of voters in the local authority
voted “Leave” in 2016—and there are lots of disgruntled Tories to pick off.
Ms Harrison seems to take the threat from Reform seriously. In a radio
hustings held on February 1st, she answered a question about immigration
by saying that she agreed with much of what Mr Habib had just said. A
request for the candidates to reveal an interesting fact about themselves had
the others talking about their prowess in boxing, gymnastics and stand-up
comedy. Ms Harrison replied that she had co-founded a Brexit group.

If the Reform party fails to break through in Wellingborough, however, it

may have to rethink its pitch. Whereas UKIP was above all a Eurosceptic,
anti-immigration party, Reform is searingly right-wing on many issues. That
limits its appeal. Mr Habib is for slashing taxes and regulations and against
woke teachers, confusing gender notions and net-zero policies. “Some
people may find it a bit esoteric,” he tells the crowd in the Baptist church,
before launching into a discourse on Northern Ireland’s constitutional place
in the United Kingdom. The crowd’s polite reaction suggests it does indeed
find such talk esoteric. It cheers up when Mr Habib rails against rampant
immigration.■

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Remembrance row

The controversy over Britain’s planned Holocaust

memorial
Wrong place, wrong design

Feb 3rd 2024 |

BUILDING A MEMORIAL to the victims of the Holocaust is something

Britain might be expected to do quite well. Its cities are endowed with many
magnificent monuments, after all. Yet nearly a decade after the government
drew up a plan to build a new memorial and learning centre in central
London, the project is beset by rancour and delay. In January, at a hearing of
a parliamentary committee to consider the plan, Ruth Deech, a cross-bench
peer in the House of Lords, asked why the government was “so determined
to push this project through when it has alienated so many people, it adds
nothing, costs a fortune?”
The main problem is the proposed site for the memorial. In 2016, after a
public consultation, the government settled on Victoria Tower Gardens, a
small park next to Parliament and the Thames. But a law dating from 1900
prohibits the park from being used as anything other than a public garden.
Planning permission for a memorial was granted in 2021, but the High Court
quashed it the following year. In 2023 the government introduced a bill that
would repeal the prohibition.

The memorial’s design has also attracted opposition. Rectangular and

bronze, it is dominated by 23 large fins, the gaps between them representing
the 22 countries in which Jewish communities were destroyed by the
Holocaust. Critics, many of them Jewish, have been rude about the design,
likening it variously to a toaster and a shoe box. (The lead architect, Sir
David Adjaye, has withdrawn from the project following claims of sexual
misconduct, which he has denied.)

It is possible for disliked designs subsequently to become popular. Yet the

size of the planned memorial is undoubtedly a problem. It would
overshadow a smaller Victorian one that recalls the end of slavery in the
British empire. UNESCO says it would spoil the park’s views, which include
the House of Lords. (The learning centre would be below ground.)

Some believe that the project verges on the jingoistic. Sir Richard Evans, a
historian, told the committee that the site had been “justified on the grounds
that it symbolises the importance of British values and parliamentary
democracy as a bulwark against genocide”. This he found “rather
misleading”. History is muddier. Britain, for example, had “placed many
obstacles in the way of Jews who tried to escape from Nazi Germany”. Sir
Richard worried that the memorial might “encourage complacency and self-
satisfaction”.

In recent months, warnings that it could also constitute a security threat have
grown louder. Since October, when Israel began bombarding Gaza, there
have been regular pro-Palestinian marches through London. Reports of
antisemitism have also been rising. Some worry that the memorial could
become a focus for such prejudice.
Some people believe a much smaller figurative memorial in Victoria Tower
Gardens would be fine. Given the widespread levels of ignorance about the
Holocaust, the government might be better off focusing on education,
especially online. Others still question whether Britain needs a new
anything. They point to the permanent Holocaust exhibition at the Imperial
War Museum. It is less than a mile from Victoria Tower Gardens, and
superb. ■

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Death to Britain, but not just yet

Iran is targeting its opponents in Britain

Iran’s regime sees London as both hunting ground and playground

Feb 8th 2024 |

IN 1987 Amirhussein Amir-Parviz, a former cabinet minister in the Shah of

Iran’s government, was sitting in his car in London. Mr Amir-Parviz led a
group opposed to the Islamic regime which had taken power in Tehran in
1979. When a bomb under his seat exploded, Mr Amir-Parviz escaped. He
was just one among scores of people targeted by Iranian agents across
Europe in the 1980s and 1990s. Now, it seems, the bad old days are back.

Britain has identified at least 15 credible threats by Iran to kill Britons or

British residents since the start of 2022 alone. On January 29th the
government imposed new sanctions on members of an Islamic
Revolutionary Guard Corps (IRGC) unit that had tried to assassinate two
presenters at Iran International, a Britain-based TV station. It is “quite an
unprecedented time”, says a British government official who works on Iran.
“We are at the peak level of Iranian state activity globally since 1979.”

Iran’s Islamic Republic has a long record of foreign skulduggery. But such
activity has revived dramatically in recent years. In September 2022 the
death of Mahsa Amini, a young Kurdish-Iranian woman who had been
arrested for flouting the mandatory hijab law, prompted huge protests across
Iran. The regime, spooked and vulnerable, went after what it saw as
subversives abroad. London, the centre of a loose network of activists and
dissidents that constitutes Iran’s opposition in exile, is a big target—even
more so now, after the war in Gaza and British participation in attacks on
Iranian-backed Houthis.

The most prominent quarry has been Farsi-language broadcasters like Iran
International and BBC Persian. In February 2023 Iran International was
forced temporarily to abandon its operations in Britain citing the threat from
Iran, which had declared it a terrorist organisation in the wake of its
reporting about the death of Amini. In December a Chechen-Austrian man
was sentenced to more than three years in jail for collecting information
about the channel’s former offices.

No one has been physically harmed so far. “If they wanted to kill people
they could have done it,” says a former British diplomat. But scare people
they have. All the Farsi-speaking journalists in London contacted by The
Economist said they or their families in Iran had been intimidated. One had
been moved to a safe house after men on a motorbike had shouted death
threats at his wife along with the address where she lived. Some had
resigned.

New security laws to tackle foreign spying on British soil came into effect
late last year. All the journalists we spoke to had received visits by counter-
terrorism police advising them to change their daily routines and to avoid
visiting countries near Iran, including Turkey and the UAE. Some had
received panic alarms. But all fear the police are overstretched. When one
called an emergency number no one answered.

Whereas Russia’s modus operandi has been to dispatch (often hapless)

intelligence officers to bump off people abroad, Iran has rarely used its own
spies for this sort of “wet work”. Instead it uses a motley crew of organised
criminal networks, which are allowed to get on with drug trafficking in Iran
in exchange for doing jobs for the Ministry of Intelligence and Security,
Iran’s spy agency. A drugs smuggler and a member of the Hells Angels were
among those indicted in America last month for plotting to kill Iranian
dissidents there. Occasionally, Iran has resorted to unwitting private
investigators to watch dissidents; it also recruits non-Iranian Shias, often of
Afghan, Pakistani and Iraqi origin.

It stirs the pot in other ways, too. The theocratic regime has a network of
mosques, religious colleges, schools and hosseiniyas (prayer halls) across
Britain, which owe their allegiance to Iran’s supreme leader, Ayatollah Ali
Khamenei. The Islamic Centre of England, a charity in London formally
headed by Mr Khamenei’s representative in Britain, was given a warning by
the Charity Commission after it held events in 2020 which eulogised
Qassem Suleimani, an IRGC general who was assassinated by America that
year.

More recently the BBC has unearthed incidents where IRGC commanders
gave virtual speeches to British students, on one occasion urging them to
“bring an end to the life of the oppressors and occupiers, Zionists and Jews
across the world”. As Iran’s government grows more insular and paranoid,
the threats could worsen. Iran’s regime is “overwhelmingly occupied with
succession planning” for the ailing Mr Khamenei, says Ali Ansari of the
University of St Andrews, as factions vie for control.

Iran’s activities in Britain extend to business, too. Iranian academics in

Britain with close regime ties have set up companies in such fields as oil and
gold trading, mining and marketing. Much of that is probably legitimate
under British law. Still, on February 5th the Financial Times reported that
the Petrochemical Commercial Company, sanctioned by America for
allegedly raising hundreds of millions of dollars for the IRGC, secretly
owned front companies in Britain that have had bank accounts with Lloyds
and Santander.

Several regime figures, including Mr Khamenei, have relatives in Britain.

Well-connected oligarchs and clerics send their children to London on visa
schemes for investors (a practice defended by some British officials because
it helps recruit informants). While Iranian security forces were suppressing
the protests of 2022, one of the aghazadeh, the children of Iran’s elite, was
filmed in evening dress dancing at a party in London. Not a veil was in sight.
“They say death to America and Britain,” says an Iranian dissident in the
city, “and they love living in America and Britain.” ■

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Bagehot

The former prime minister who fascinates the

Labour Party
Starmerites are studying a neglected former leader

Feb 8th 2024 |

SIR KEIR STARMER sometimes says that he must emulate all three
previous leaders of the Labour Party to win governing majorities. He has to
revive a battered country like Clement Attlee (who was prime minister in
1945-51), modernise the economy like Harold Wilson (1964-70, 1974-76)
and fix public services like Sir Tony Blair (1997-2007). The second of this
trio particularly fascinates the party. Sir Keir flecks his speeches with
Wilson-era clichés (“white heat” and “the pound in your pocket”). Rachel
Reeves, the shadow chancellor, is an admirer, as is Nick Thomas-Symonds, a
shadow minister and author of a well-reviewed Wilson biography.
Wilson left office tainted by sleaze and fixated by alleged MI5 plots against
him. Labour’s left reviled him as a schemer, the party’s right as a relic who
had failed to modernise Britain’s economy or tame the unions. He has
undergone a resurrection in part due to Labour’s chronic nostalgia, and in
part because it is tired of losing and Wilson was a winner (“the sine qua non
of a successful leader,” notes Mr Thomas-Symonds). The dates of his
election victories are used by some in the party as shorthand for possible
outcomes this year: a “’64” (a tiny majority), a “’66” (a big majority) or a
“’74” (a hung parliament followed by a majority in another election called
soon after). But the Wilson renaissance is also because his era has strong
parallels with Labour’s position today.

Sir Keir, born two years before Wilson entered Downing Street, has followed
a similar course. Both are workaholics from lower-middle-class families:
Wilson’s father was an industrial chemist, Sir Keir’s a toolmaker. Wilson
aligned himself with the leftist Aneurin Bevan, before becoming the Labour
leader by tacking to the centre. Sir Keir, with a similar methodical ambition,
served under Jeremy Corbyn before moving rightwards. Both marry high-
mindedness with low cunning. “This party is a moral crusade or it is
nothing,” said Wilson of Labour. “He never much believed in ideology; he
was an operator,” said Roy Jenkins, his home secretary. Both shed a stiff,
academic bearing for an everyman routine; a pipe, a mackintosh and a bottle
of HP sauce were Wilson’s props.

Sir Keir will campaign like Wilson. In 1964, as today, Labour attacked “13
wasted years” of economic mismanagement and stagnation (in fact, real
income growth has been far worse this time round). Sixties Britain was
suffused with a declinist anxiety, which Sir Keir has revived. Britain is
slipping so far behind its peers, he says, that the young will soon look for
work in Poland.

Sir Keir has also revived the rhetoric of class and meritocracy that Wilson
turned into a cudgel. The root of Britain’s economic woes, said Wilson, was
that the cabinet and boardrooms were stuffed with aristocratic duffers whose
“grouse-moor conception of national leadership” was unfit for the jet age;
Britain needed scientifically minded go-getters. (Sir Keir, who talks of a
“class ceiling”, switches grouse moor for Rishi Sunak’s helicopter.) The
answer was the expansion of comprehensive schooling and universities,
which some in the shadow cabinet regard as Labour’s greatest achievement.
The foe of the “old school tie” would doubtless have cheered Ms Reeves’s
plan to levy VAT on private schools.

The shadow chancellor’s economic agenda has a Wilsonesque edge. His

“national plan”, announced in 1965, promised to lift growth to 3.8% a year
in order to stave off a currency crisis, fix regional imbalances and fund the
swelling welfare state. Her growth “mission” targets the highest per-person
increase in GDP in the G7. They share a vision of an active Whitehall
working hand-in-glove with businesses and the unions to steer investment to
productive ends. Like Wilson, the party’s leadership today admires glossy
manufacturing over services, wants a spree of housebuilding and preaches
dull reform over grands projets.

David Edgerton, a historian, argues that Sir Keir’s ambition to remake

capitalism pales compared with Wilson’s. But there are still important things
for Labour to learn from his premierships. Wilson’s national plan was
immediately undermined by pressure on sterling and the deflationary
policies needed to support it. Wilson resisted devaluing the pound until
1967, harming his authority in the process. That left him too weak to pass
trade-union reforms. At the time of writing, Sir Keir was expected to scrap a
plan to spend £28bn ($35bn) per year on green energy after months of
dithering over its affordability given the state of the public finances. If so, he
has belatedly learned one lesson from Wilson: Labour must act faster to
acknowledge hard realities.

A second lesson concerns the Treasury. Wilson tried to bypass its short-term
instincts (“very, very skilled chaps in more or less stopping you doing
anything”) by setting up a rival Department for Economic Affairs to run
industrial planning. It was short-lived. The party today doesn’t plan to break
up the Treasury; Ms Reeves is shaping up to be an imperial chancellor. But it
needs to figure out how to strengthen the centre of government so that its
“missions” of long-term reform aren’t strangled by bean-counting.
He who rejects change is the architect of decay

The third lesson is that centre-left leaders can create the space for radical
social reforms if they themselves hew to bread-and-butter concerns. Wilson
oversaw a dizzying legal revolution: the abolition of capital punishment, the
legalisation of homosexuality and abortion, the end of theatre censorship,
and the passage of race- and sex-equality laws. Yet Wilson left the heavy
lifting on such issues to Jenkins and others. He told his speechwriters to stick
to working-class concerns: “I don’t want too many of those Guardian-isms,
Environmentalism, Genderism etc.”

Sir Keir’s speeches are blue-collar, yet he also shows glimmers of

radicalism: he has indicated that he would welcome the decriminalisation of
euthanasia should a private members’ bill be brought. Ben Pimlott’s
biography of Wilson, published in 1992, affords his social reforms only
passing mention over 700 pages. A leader can achieve a lot if they don’t care
who gets the credit. ■

Read more from Bagehot, our columnist on British politics:

The search for Conservative Party unity (Feb 1st)
Britain’s Labour Party is backed by a pro-growth coalition (Jan 25th)
Scottish nationalism’s left turn (Jan 18th)

Also: How the Bagehot column got its name

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United States
Trump’s lead over Biden may be smaller than it looks
Poll positions :: Consider only the highest-quality national polls, and the Republican’s
advantage melts away

What the death of America’s border bill says about toxic

congressional politics
Deliberative or disgraced? :: Republicans opt for theatre instead of governance

A court rejects Donald Trump’s claim to absolute

immunity
Citizen Trump :: The former president will now take his outlandish plea to the Supreme Court

Congress might just pass an astonishingly sensible tax deal

Shh! Legislation in progress :: But too much attention could scupper it

Florida too may have an abortion referendum in November

Direct democracy :: It could influence the presidential election. It would be an even bigger
deal for abortion access

State attorneys-general are shaping national policy

Generalising :: Despite not being elected to do so

This is not a story about Taylor Swift and the Super Bowl
Lexington :: Well, maybe a little

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Poll positions

Trump’s lead over Biden may be smaller than it

looks
Consider only the highest-quality national polls, and the Republican’s
advantage melts away

Feb 4th 2024 | WASHINGTON, DC

IF AMERICA WERE to hold its presidential election tomorrow, Donald

Trump would be picking out curtains for the Oval Office. The Economist’s
polling average puts him up by 2.3 points over Joe Biden nationwide (see
top chart). And across the six swing states expected to decide the election—
Arizona, Georgia, Michigan, Nevada, Pennsylvania and Wisconsin—he
leads by an average of 3.8 points. Betting markets list Mr Trump as a clear
favourite. Never in his past two campaigns were his general-election polls
this strong. Is it time for the world to brace itself for a second Trump
presidency?
The election is still nine months away. Historically, polls taken before the
summer of an election year have been poor predictors of results. But no
former president has sought to return to office since the advent of modern
polling. Opinions about the omnipresent Mr Trump are much firmer than
they are about typical challenger candidates, who at this stage of the race are
usually still fighting to secure their party’s nomination. As a result, even
though Mr Trump is not yet the presumptive Republican nominee, current
head-to-head polls between him and Mr Biden may be unusually
informative.

Nationwide surveys over the past month have varied widely, ranging from an
eight-point lead for Mr Trump to a six-point edge for Mr Biden. Polling
averages, which blunt the effect of such outliers, suggest that Mr Trump
holds a clear lead. But the polls that comprise such averages differ in their
methods and degree of rigour. Democrats hunting for a silver lining can take
solace in one clear pattern: pollsters with the best records of accuracy show
better results for Mr Biden. Lower-quality pollsters are kinder to Mr Trump.

Public trust in polling has weakened following the industry’s high-profile

underestimates of Mr Trump’s support in 2016 and 2020 (although polling
before the 2018 and 2022 midterm elections was accurate). Reliably
estimating pollsters’ accuracy—measured by the size of their historical
errors and whether they consistently exaggerate support for a particular party
—requires a large sample of surveys across many elections. FiveThirtyEight,
a data-journalism outfit, recently updated its ratings of American pollsters. It
assesses them on a combination of their records and their methodological
transparency.
Some pollsters are consistently more accurate than the field. But there are
many ways to judge quality. The Economist’s general-election polling
average weights polls solely by sample size and recency, so larger and newer
polls contribute a greater share to the overall score. On this basis, Mr Trump
leads Mr Biden in national polls by 2.3 points. That compares with a 0.2-
point lead for Mr Biden in an unweighted average that gives polls from six
months ago the same weight as those from this past week.

The size of Mr Trump’s lead varies widely by the quality of pollster, as

assessed by FiveThirtyEight (see bottom chart). This early in the election
cycle, the pollsters in its highest tier have run polls only sporadically. (An
exception is a weekly survey by YouGov, an online pollster, for The
Economist.) However, in total, 13 polls have been conducted in 2024 by
firms in this group. On average, they show a virtual tie between Mr Trump
and Mr Biden.

By contrast, most polls released in January 2024 have come from firms with
good but not exceptional records. Polls in these (“good” and “decent”) tiers
show Mr Trump with a 2.4-point and 1.7-point lead respectively.
Meanwhile, pollsters with a poor record or no previous published results
show Mr Trump with an average lead of around six percentage points.

National polls reflect the general mood, and correspond to the popular vote.
But thanks to the electoral-college system, winning the popular vote is no
guarantee of electoral victory. In 2000 and 2016, for example, Republican
nominees won the presidency despite losing the popular vote. In recent
decades the electoral college has benefited Republican candidates. If Mr
Trump were to win the popular vote by a six-point margin, he would almost
certainly win at least 358 electoral-college votes, giving him the largest
Republican victory since George H.W. Bush‘s in 1988. This would bring
into play even states that Mr Biden won comfortably in 2020, such as Maine,
Minnesota, New Hampshire, New Mexico and Virginia.

To those who think that all polls are created equal, Mr Trump has opened a
modest but growing lead nationwide. But to those who insist that pollsters’
historical accuracy predicts future accuracy, the candidates are in a dead
heat.■
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with fast analysis of the most important electoral stories, and Checks and
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of American democracy and the issues that matter to voters.

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states/2024/02/04/trumps-lead-over-biden-may-be-smaller-than-it-looks

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Deliberative or disgraced?

What the death of America’s border bill says

about toxic congressional politics
Republicans opt for theatre instead of governance

Feb 6th 2024 | Los Angeles

THE LIFE of the Senate’s bill to increase border security in exchange for
sending aid to Ukraine was wretched and short. Its three main negotiators
released the text on Sunday. On Monday it had the support of Mitch
McConnell, the chamber’s top Republican. By Tuesday it was dead. “It
looks to me, and to most of our members, as if we have no real chance here
to make a law,” Mr McConnell conceded.

But that is only because of the petulant actions of those members.

Republicans’ negative reactions in both chambers of Congress were
overwhelming and swift—considering the bill is 370 pages long. Mike
Johnson, the Republican speaker of the House of Representatives, posted on
X (formerly Twitter) that the bill would be “dead on arrival” in the lower
chamber. That is despite voters’ approval: a recent poll from YouGov
suggests that a narrow plurality of Americans support the compromise.

Senators used to be more willing to do the hard work of governing than

House members. They were supposed to be the grown-ups. Indeed, the
willingness of the bill’s chief negotiators to try to craft a bipartisan
compromise on an issue as toxic as immigration in an equally toxic political
environment was something of a throwback to a more congenial time. But
that distinction has faded as the Republican Party writ large has come under
the thumb of Donald Trump, who has delighted in campaigning on border
chaos, and who would not be denied the opportunity to keep doing so. “Only
a fool, or a Radical Left Democrat, would vote for this horrendous Border
Bill,” the former president wrote on his social-media platform, Truth Social.

Republican senators quickly fell into line. James Lankford, a senator for
Oklahoma who had spent months as the lead Republican negotiating the bill,
delivered a defiant message to his party on the Senate floor. “You can do
press conferences without the other side,” he said, “but you can’t make law
without the other side.”

The bill’s death is a blow to President Joe Biden, who supported it in large
part because he needs to secure the border to help his electoral prospects. In
a non-election year, the bill’s border provisions would be a Republican
dream. It is far more conservative than any attempt at bipartisan immigration
reform in this century. It would grant the Department of Homeland Security
(DHS) the power to shut down the asylum system to those crossing illegally
if the number of people trying to cross exceeds a certain threshold. But there
would be limits on how long the emergency power could be used, and the
small number of migrants who show up at a port of entry with an
appointment would still be processed. The bill would make it harder for
migrants to pass their preliminary asylum interviews, limit parole at the
border—a presidential authority that Republicans say the Biden
administration has used too liberally—and expand detention.

The bill contains some carrots for the many Democrats squeamish about
restricting asylum. It would create a path to residency for Afghans who had
helped American forces prior to their disastrous withdrawal from
Afghanistan in 2021. It would slightly expand legal immigration by offering
50,000 additional immigrant visas each year for five years, and protect the
children of long-term visa holders from deportation. But it notably does not
contain a pathway to citizenship for undocumented immigrants, nor relief for
migrants brought to America as children.

More than border security is at stake. The $118bn bill included $60bn to
support Ukraine in its fight against Russia, $20bn for border enforcement
and the immigration system, $14bn for Israel and $10bn for humanitarian aid
to be spread across Gaza, the West Bank and Ukraine, among other things.
How the president can accomplish these objectives without funds
appropriated by Congress is now unclear. Mr Biden can tweak the
immigration system using executive action. But America needs a lot more
asylum officers and Border Patrol agents, and that takes a lot of cash.

Also unclear is Congress’s ability to accomplish anything at all. Chuck

Schumer, the Senate majority leader, is pushing for a foreign-aid package for
Ukraine, Israel and Taiwan. It is in effect the border bill minus the border
provisions. Such a bill might get 60 votes in the Senate, where support for
Ukraine among Republicans is stronger than in the House.

But any one House member can call a vote for Mr Johnson’s removal as
speaker. Marjorie Taylor Greene, a MAGA congresswoman from Georgia,
has threatened to do so should he move to fund Ukraine. The mutiny against
former speaker Kevin McCarthy last year proves that is not an empty threat.
Even with a speaker, and that is a low bar, the House is flailing. On February
6th Mr Johnson failed to convince his slim majority to impeach Alejandro
Mayorkas, the DHS secretary, and to pass aid for Israel.

The approaching election, Mr Trump’s long shadow and the intransigence of

the House Republican caucus mean that little governing will happen on
Capitol Hill this year. The only thing Americans can be sure to expect is
more political theatre. ■

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states/2024/02/06/what-the-death-of-americas-border-bill-says-about-toxic-
congressional-politics

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Citizen Trump

A court rejects Donald Trump’s claim to absolute

immunity
The former president will now take his outlandish plea to the Supreme Court

Feb 7th 2024 | NEW YORK

ON THE CAMPAIGN trail, Donald Trump has been saying he would be a

“dictator” on the first day of his second presidency. Mr Trump may be half-
joking when he announces this plan to cheering throngs. But the Republican
front-runner has a track record of swelling presidential power past its
traditional limits, from declaring a national emergency to build a wall on the
southern border, to withholding his financial records and White House
communications related to the January 6th riot.

On February 6th Mr Trump’s latest pretension—that years after leaving

office he is immune from criminal prosecution for actions he took as
president—met with thorough rejection by a federal appeals court in
Washington, DC. “Former President Trump has become citizen Trump,” the
ruling read, “with all of the defences of any other criminal defendant.” The
three-judge panel that dismantled Mr Trump’s case included two appointed
by Joe Biden and a staunch conservative appointed by George H.W. Bush.

Mr Trump’s pitch for immunity stems from the federal case brought by Jack
Smith, the special counsel, concerning the former president’s attempt to
overturn the results of the 2020 election. The appeals-court hearing, which
began on January 9th after a district-court judge also ruled that Mr Trump
did not enjoy the “divine right of kings”, exposed the extraordinary nature of
the argument. When asked whether, for example, a president who had a
political rival assassinated by SEAL Team Six could face a legal reckoning
after leaving office, Mr Trump’s lawyer answered no—unless Congress had
impeached and convicted him first. The judges were unimpressed. Making
former presidents wholly immune from criminal exposure, they wrote,
would abrogate “the primary constitutional duty of the judicial branch to do
justice in criminal prosecutions”.

Mr Trump’s lawyers had argued that presidents might be “chilled” into

inaction if a blanket of immunity does not await them upon leaving office (a
claim Mr Trump repeated after the ruling). And yet, wrote the judges, past
presidents have always “understood themselves to be subject to
impeachment and criminal liability”, so any purported chilling effect has
been in place throughout American history.

Gerald Ford, for example, pardoned Richard Nixon after he resigned—

which was necessary only because both men knew that Nixon faced criminal
prosecution for his involvement in the Watergate scandal. And Bill Clinton
“agreed to a five-year suspension of his law licence and a $25,000 fine” to
avoid having criminal charges filed against him after his presidency. Even if
some presidents were to temper their actions through fear of “vexatious
litigation”, the court wrote, that risk is outweighed by the public interest in
holding former chief executives responsible for criminal misdeeds.

After expediting the briefing and oral argument, the DC circuit took nearly a
month to issue its ruling. That has delayed Mr Trump’s trial for election
interference, originally due to begin on March 4th. Yet the 57-page decision
—presented by a united front of ideologically diverse judges—may
ultimately help get the trial started in time for a verdict before the
presidential election in November.

One more tribunal could stand in the way, however. The DC circuit panel put
its ruling on hold until February 12th to give Mr Trump time to request a
stay, and ask for full review, by the Supreme Court. If the justices decline,
the case will return to the district court and the trial could begin in the
spring. But more likely, in a season rife with fraught election-year battles, is
an accelerated trip to the Supreme Court.■

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with fast analysis of the most important electoral stories, and Checks and
Balance, a weekly note from our Lexington columnist that examines the state
of American democracy and the issues that matter to voters.■

Correction, February 7th 2024: An earlier version of this article mistakenly

referred to Richard Nixon as Gerald Ford’s running mate. Sorry.

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Shh! Legislation in progress

Congress might just pass an astonishingly sensible

tax deal
But too much attention could scupper it

Feb 8th 2024 | WASHINGTON, DC

THE “SECRET CONGRESS” theory holds that bills which attract public
attention are born to partisan rancour, endure a life of torture and usually die
a miserable death. For a recent example, look only to the much-hyped
bipartisan deal that sought to patch up America’s broken immigration system
and steer much-needed funds to Ukraine. It took months of work to craft the
compromise; when it was unveiled on February 4th it barely lasted one
business day before being left for dead. But the theory also holds that
successful compromises happen all the time as long as no one makes a fuss
over it.
It is with some trepidation, then, that we mention the rather good bipartisan
tax deal that the House of Representatives passed by an overwhelming
margin of 357-70 on January 31st. (This article will be short to avoid
attracting too much additional attention.) The $78bn package trades
something Democrats want—more generous tax credits for families with
children—for something Republicans want: more generous tax credits for
businesses. It plans to completely pay for this by eliminating a tax credit
unloved by anyone, a covid-era relief programme for firms that kept
employees on staff that was notoriously abused by fraudsters (95% of the
time, according to one whistleblower).

If the bill actually became law there would be plenty to crow about. Capital
and labour would split the spoils almost equally. Businesses would be able to
immediately deduct their research and development costs. (Under current
law, these must be amortised over five years.) They would also be able to
deduct more aggressively some capital and, less justifiably, interest
expenses. The revision of the child-tax credit would ensure that families at
the bottom of the income distribution receive greater sums. (Because benefit
levels scale down at low levels of income, middle-income families are
currently more likely to receive the maximum credit amount of $2,000 per
child than poor families.)

This proposal would not be as generous (or as expensive) as the brief policy
experiment conducted in 2021, when the child-tax credit was converted into
a de facto monthly child allowance, which had the effect of reducing child
poverty by as much as 40%. But it would still be significant. The Centre on
Budget and Policy Priorities, a left-leaning think-tank, calculates that the
changes would increase benefits for 16m children in poor families and that
400,000 of them would be pulled above the official poverty line in the first
year.

Some objections are already being voiced above a whisper. A handful of

Republican senators have complained that the more generous child-tax
credits do not come with enough work requirements on parents. There are
technical reasons to think that their objections could be assuaged. The
proposed redesign still preserves the “phase-in” structure whereby poor
taxpayers earn more of the credit as their income increases, creating an
incentive to work. A study by the Joint Committee on Taxation, the non-
partisan research body in Congress, pointed out that “the proposed
expansion of the child tax credit on net increases labour supply.”

What could really scupper the deal is even more attention to it. The White
House called it a “welcome step forward” and urged its passage. But one
side endorsing a bill often risks greater opposition by the other. “Passing a
tax bill that makes the president look good—mailing out cheques before the
election—means he could be re-elected,” Chuck Grassley, a nonagenarian
Republican senator from Iowa, admitted a bit too truthfully to reporters. If
the deal is to pass, future discussions might have to happen sotto voce. ■

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with fast analysis of the most important electoral stories, and Checks and
Balance, a weekly note from our Lexington columnist that examines the state
of American democracy and the issues that matter to voters.

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Direct democracy

Florida too may have an abortion referendum in

November
It could influence the presidential election. It would be an even bigger deal
for abortion access

Feb 8th 2024 | TALLAHASSEE

AS A PROTEST slogan, “Stop Political Interference” does not trip lightly

off the tongue. But to abortion-rights activists brandishing signs with the
phrase on the steps of Florida’s Supreme Court on February 7th, it cut to the
heart of their precarious campaign. Inside the court that morning, judges
were debating whether to allow Florida voters to decide a ballot question in
November that would codify a right to abortion in the state constitution.
Campaigners collected more than a million signatures to qualify the
initiative, but it remains uncertain whether voters will be permitted to have a
say.
Florida is one of 13 states considering ballot measures related to abortion
this year. National attention is likely to turn to those in Arizona and Nevada,
where Democrats hope the initiatives will bolster turnout in the swing states.
A successful referendum in Florida would have a greater impact on abortion
access. Currently, the procedure is legal in the state up to 15 weeks of
pregnancy—the most liberal regime in the Deep South. Florida has become a
destination for women living in more restrictive nearby states and is now
third in the country for number of abortions, according to the Society of
Family Planning, a non-profit group.

Florida’s abortion law is likely to change this year, one way or another. Last
April, Governor Ron DeSantis signed a law banning abortion after six
weeks, stopping access to the procedure before many women know they are
pregnant. The law is tied up in the courts, but is expected to take effect at
some point this year. A quite different regime would take hold if the
proposed ballot initiative were to pass. It would establish a state right to
abortion until viability—generally around 23 weeks—and after that time if
the life and health of the mother were at stake.

Since June 2022, when the Supreme Court overturned Roe v Wade and ended
a federal constitutional right to abortion, seven states have held ballot
initiatives on the issue. Each time, abortion rights have won out, including in
deep-red Kansas and ruddy Ohio. Florida, however, has one of the most
challenging environments for ballot initiatives, says Jonathan Marshfield of
the University of Florida’s law school. He compares the process to a
freshwater fish in the ocean: it is hard to survive, but “it could be worse and
totally out of the water,” since Florida at least allows ballot initiatives, unlike
some states.

Collecting the signatures to qualify required 10,000 volunteers as well as

paid collectors. Now the ballot language must be approved by the state
Supreme Court. It has leeway to decide whether the wording will be
sufficiently comprehensible to a typical voter.

Florida’s high court judges are not sympathetic to abortion rights. Mr

DeSantis appointed five of the seven who heard the arguments, in no small
part because they held dependably pro-life views. One of the other two
judges introduced a restrictive abortion law while serving previously in the
US House of Representatives.

Florida’s attorney-general, Ashley Moody, argued against the proposed

amendment, saying that its language “vastly understates [its] potentially
sweeping scope”. The judges seemed sceptical that voters would be misled,
with the state’s chief justice, Carlos Muñiz, calling the language, “self-
evidently broad”. He added, “The people of Florida aren’t stupid. They can
figure this out.” Abortion-rights campaigners are playing it cool, assuring
nervous supporters that the language was designed to withstand expected
legal challenges. Court watchers are more cautious and give the referendum
even odds of appearing on the ballot in November.

If it does go forward, it will require heavy support to prevail. Florida ballot

initiatives must earn a 60% supermajority to succeed. Aaron DiPietro of the
Florida Family Planning Council, which is campaigning against the
amendment, cites this high threshold as the chief difference with earlier anti-
abortion amendment campaigns in other states. “No red or purple-leaning
state in any of these abortion amendments has received over 60% support,”
he points out. Abortion-rights campaigners did come close, however,
attracting 59% support in Kansas and just under 57% in Ohio and Michigan.

Florida’s voters have occasionally met the supermajority requirement,

including in a ballot initiative that returned voting rights to felons. However,
that result was subsequently undermined by a determinedly conservative
state government. Former felons now have to pay fees before they can vote,
disqualifying nearly 80% of them. Similarly, after medical marijuana was
made legal at the ballot box, the state house banned smoking it. Even if the
latest initiative is adopted, the struggle over access to abortion in Florida is
all but certain to continue. ■

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with fast analysis of the most important electoral stories, and Checks and
Balance, a weekly note from our Lexington columnist that examines the state
of American democracy and the issues that matter to voters.

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Generalising

State attorneys-general are shaping national policy

Despite not being elected to do so

Feb 8th 2024 | Austin

TO FOREIGNERS LOOKING in, it is unusual enough that America elects

most of its top prosecutors. More shocking is the amount of money going
into political campaigns. Now the two have come together in a way that
would make even the least wonky American curious. Between 2008 and
2022 the cost of state attorney-general races rose from $17m to $222m. Over
that period governors’ contests became only eight—rather than 12—times
pricier and those of state senators merely doubled.

The cashflow reflects something much bigger: the role of state attorney-
general has been recast. The job used to be about defending state laws and
prosecuting cheats, fraudsters and corporate bullies. Today attorneys-general
shape nationwide politics and policy by pushing strategic lawsuits through
their favourite courts. Their quiet rise to power has made the states’ top
lawyers some of America’s most unchecked partisan players.

Two attorneys-general, one a Republican and one a Democrat, exemplify the

new breed. First there is Ken Paxton of Texas. Between 2021 and 2023 he
refused to represent state agencies in court at least 75 times, according to
ProPublica and the Texas Tribune, both news outlets—often seemingly for
ideological reasons. He has dropped child-sexual-assault cases after losing
track of the plaintiffs, let payments to crime victims lapse and taken
decreasing interest in catching Medicaid cheats. Instead he chose to energise
his Trumpian base by relentlessly suing the Biden administration. Mr Paxton
has blocked vaccine mandates and banned abortion when it was still
protected under the federal constitution. Most recently he brought the
country’s attention to a bitter row over whether Texas can enforce its own
immigration regime at the southern border.

“I am sickened by his disregard for the safety of Americans,” Letitia James

wrote after one such case. Though Ms James is Mr Paxton’s ideological
opposite, as New York’s attorney-general she goes about her job in rather
similar fashion. An Empire State judge will soon decide whether to side with
her and strip Donald Trump of his property business for lying to lenders
about his finances. Her case alleging that the bosses of the National Rifle
Association, a gun lobby, schemed to enrich themselves is on trial in
Manhattan. These charges may have more legal merit than some of Mr
Paxton’s. But they have also given progressives reason to swoon over her.
When asked last summer to represent the state’s more centrist Democratic
governor—in theory her primary client—on immigration issues she recused
herself, telling Politico, a news website, that this was due to “a philosophical
difference”.

New York and Texas are not isolated examples. How did the attorney-
general’s office come to be held by partisans who pursue flashy lawsuits
rather than defending the laws of their states? The story dates back to a
Supreme Court case on environmentalism. In the early 2000s non-profit
groups, cities and states teamed up against the Bush administration for not
regulating greenhouse gases. They argued that pollutants were a health risk
and that the Clean Air Act required the feds to do something. The plaintiffs’
argument was strong; the question was who had standing to sue. The
Supreme Court ruled that due to the threat of rising sea-levels the
Massachusetts attorney-general could lead the charge.

Massachusetts v EPA set the precedent for a single state to challenge the
federal government in court. That drastically expanded the reach of
attorneys-general—Republicans soon raced to sue Barack Obama when he
took office. Over time attorneys-general realised that if they banded together
with like-minded colleagues across the country, they could handpick the
district with the most sympathetic judges in which to bring their case. One
federal judge’s injunction in their favour, and against Washington, could shut
down a policy for the whole country until a higher court ruled on its appeal.
“Not only can they play on their home-turf, they can now choose the
referee,” says Steve Vladeck of the University of Texas at Austin.

The strategy took off when Mr Trump became president. Democratic

attorneys-general sued the federal government more times in four years than
they had in the previous 16, says Paul Nolette, a political scientist.
Republicans took it a step further under Joe Biden, aiming their litigation not
just at Democratic policies but at the administrative state itself. Today these
lawsuits are masterfully co-ordinated to maximise partisan wins, says James
Tierney, a former attorney-general of Maine who teaches at Harvard
University. With that in mind it is less surprising that Mr Trump’s Muslim
travel ban was halted by a judge in Honolulu and mifepristone, an abortion
pill, was temporarily outlawed by a judge in the Texas Panhandle.
Follow the money

Dark-money groups caught on to the fact that attorneys-general had sway

and that their races were cheaper to influence than congressional ones. The
Concord Fund, a conservative one, has pumped at least $9.5m into the
contests since 2020. That cash no doubt helped unseat moderates: a five-
term Republican attorney-general of Idaho who refused to be a political
activist was booted out in 2022. The left is no more tolerant of impartiality.
The Democratic Attorneys General Association, which funds candidates,
announced in 2019 that it would no longer back Democrats who were not
explicitly pro-choice. For aspiring attorneys-general the calculus has become
clear: get more political, get elected.
To those who fear too much power is concentrated in the executive, activist
attorneys-general are perhaps a good check. Yet according to a
YouGov/Economist poll, most Americans would prefer their attorney-
general to stick to bread-and-butter law enforcement. Voters elect
lawmakers, not litigators, to craft national policy. ■

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with fast analysis of the most important electoral stories, and Checks and
Balance, a weekly note from our Lexington columnist that examines the state
of American democracy and the issues that matter to voters.

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Lexington

This is not a story about Taylor Swift and the

Super Bowl
Well, maybe a little

Feb 8th 2024 |

THIS IS NOT a column about Taylor Swift. It is possibly something more

ridiculous, a column about all the columns about Taylor Swift. And yet
attention must be paid, because so much attention is being paid. That is the
ineluctable logic of the media-politics complex, a philosophical school of
which Donald Trump is the American Aristotle. Ms Swift is no slouch,
either.

Any news organisation would be deceiving readers about the reality of

American life by ignoring the national convulsion over the relationship
between Ms Swift and Travis Kelce, a tight end for the Kansas City Chiefs,
an American-football team competing in the Super Bowl on February 11th.
And yet any news organisation must also reckon with the complexity that
this reality has its basis in unreality, not in fact-free lies about a stolen
election but in fact-free speculation about whether the romance is a real love
affair, or a cross-branding triumph by two marketing savants, or, darker yet,
a “psychological operation” hatched by the Pentagon to re-elect President
Joe Biden. (The Pentagon has denied this.)

Having described that basic background, your news organisation approaches

a fork in the road. Down one route lies further credulous or cynical
conspiracy theorising. This is the route chosen by some stars of Fox News.
Down the other, news organisations can poke at those who traffic in
conspiracies while not ruling out the cross-branding theory, and speculating
about if and with what effect Ms Swift might endorse Mr Biden, as she did
in 2020.

As these news organisations intensify and prolong the attention to the artist
and the athlete, they are doing their jobs: they are covering what has come to
be defined as news. They are also harvesting the fruits of the fascination
with Ms Swift, a subject all Americans appear to think about even more
frequently than the males do the Roman empire. (Small wonder, by the way,
that Super Bowls are gassily enumerated in Latin. This one is LVIII.)

There is a third branching from this particular fork, down which the self-
loathing columnist, racked (yet also tickled) at the prospect of writing about
Ms Swift and Mr Kelce, might venture in search of a high-minded rationale.
Inevitably, that columnist will collide with Daniel J. Boorstin. Boorstin, a
historian, set out to understand what had led Americans “to create the thicket
of unreality which stands between us and the facts of life”.

In “The Image”, a book he published in 1961, Boorstin concluded that “we

expect too much from the world.” When we pick up the newspaper, we
anticipate learning of momentous events. Yet the real world does not supply
spectacular novelty very often. This imbalance was not obvious when the
first newspaper published in America, Publick Occurrences Both Forreign
and Domestick, appeared in Boston in 1690, promising news just once a
month. But then came advances in technology—the rotary press in the 19th
century, followed by radio and television in the 20th—and the definition of
“news” began to inflate to fill all that space and, with it, all that yearning for
something new, something interesting.

Boorstin argued that the imbalance between demand and supply was
corrected by the invention of the “pseudo-event”. This was a happening or
statement that did not arise spontaneously, out of the natural flow of events
in the world, but was created, often by a canny public-relations agent. This
kind of news now so defines the daily representation of reality beyond our
direct experience that it is hard to imagine apprehending the world without
it.

To Boorstin, the pseudo-event was a potentially dangerous means of

distortion, a way to shape perception by exploiting the thirst for novelty.
Joseph McCarthy, the red-baiting senator from Wisconsin, was “a natural
genius” at generating pseudo-events, turning journalists into “reluctantly
grateful” consumers and purveyors of his product: “Many hated him; all
helped him.” Sound familiar? Boorstin was writing in what now seems a
leisurely age, before the internet stretched the canvas for news to infinity
while wrecking the economics of the industry, rewarding ceaseless nattering
while discouraging costly reporting. These developments amplified the
power of pseudo-events, as Mr Trump, always his own best publicist, has
shown.

Does Mr Trump mean it when he says that if elected president again he

might impose tariffs of more than 60% on imports from China? It is possible
that even he does not know the answer. It may matter someday, but it does
not matter now, not for the ephemeral needs of news and politics. What
matters is whatever next hyperbole will briefly sate those same ephemeral
needs. Provided it keeps spinning, the process is accretive: the more
attention Mr Trump gets, the more attention he will get.
Anti hero

One result of all the artificial novelty, according to Boorstin, was the
debasement of achievement. People could become famous without doing
anything heroic. The celebrity, Boorstin wrote, “is the human pseudo-event.
He has been fabricated on purpose to satisfy our exaggerated expectations of
human greatness.”
Ms Swift’s music is a mighty achievement, one that has made her not merely
a celebrity but a hero to her hundreds of millions of fans, whatever pseudo-
events she has confected along the way. She has courted publicity by
appearing at Mr Kelce’s games, rather than privately cheering over nachos
and chicken wings at home. Yet even Fox News interviewed a “body-
language expert” who concluded that the feelings between the two were real.

It remains possible that the romance is staged to be vivid and dramatic; that
it has, in Boorstin’s terms, only an ambiguous relation to the underlying
reality. But maybe all this coverage is a perfect, self-satirising crystallisation
of this media era: a pseudo-pseudo-event, not devised by a publicist but
created by media speculation itself—not something shallow being
exaggerated into significance, in other words, but something profound being
turned into something silly. One can hope. ■

Read more from Lexington, our columnist on American politics:

How to overcome the biggest obstacle to electric vehicles (Feb 1st)
Why America’s political parties are so bad at winning elections (Jan 25th)
It’s not the Trump Party quite yet (Jan 18th)

Stay on top of American politics with The US in brief, our daily newsletter
with fast analysis of the most important electoral stories, and Checks and
Balance, a weekly note from our Lexington columnist that examines the state
of American democracy and the issues that matter to voters.

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Middle East & Africa

Israel scorns America’s unprecedented peace plan
Antony Blinken’s shuttle diplomacy :: Arab states offer remarkable “security guarantees” to
Israel

Why Iran is hard to intimidate

America’s reverse-Goldilocks strategy :: US soldiers are a bull’s-eye target for Iranian militias

America is trying to peg Israel’s settlers back

Israel’s obstructive settlers :: But their power in politics and on the ground shows no sign of
waning

How to house the world’s fastest-growing population

House and home :: About 70% of buildings needed in Africa by 2040 are not yet built

Democracy is under attack in Senegal

How to stay in power :: The election is delayed after riot police drag opposition MPs out of
parliament

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Antony Blinken’s shuttle diplomacy

Israel scorns America’s unprecedented peace plan

Arab states offer remarkable “security guarantees” to Israel

Feb 7th 2024 | JERUSALEM AND RIYADH

ISRAEL’S TRIUMPH in the Six Day War of 1967 was met by the “three
nos” at an Arab summit in Khartoum: no peace with Israel, no recognition,
no negotiations. The war in Gaza seems to be having the opposite effect,
American officials say. Saudi Arabia, the most important Arab state, is
saying yes to peace, negotiations and recognition of the Jewish state—if
Israel agrees to a “clear and credible pathway” to the creation of a
Palestinian state in the West Bank and Gaza Strip, which it occupied in 1967.
There may be two more yeses on offer: yes to Arab security assurances to
Israel, beyond diplomatic relations; and yes to Arab states’ help with
reforming the Palestinian Authority (PA) so it is fit to run Gaza.
Such is the message carried to Israel this week by Antony Blinken,
America’s secretary of state, after criss-crossing the Arabian peninsula—his
fifth regional tour since Hamas’s attack of October 7th. But to judge from
the scornful reaction of Israel’s prime minister, Binyamin Netanyahu, Israel
is now the naysayer.

The outlook in the Middle East seems dire. Iran’s allies in Lebanon are
exchanging regular fire with Israel; and those in Syria, Iraq and Yemen have
been attacking American forces, provoking rounds of retaliation, before and
during his trip (see next story). More than 27,000 Palestinians are reported
dead in Gaza. Most of the territory’s population is displaced and facing
disease and hunger. Israel stands accused of genocide in the International
Court of Justice. In the eyes of many, America’s reputation has also been
stained by President Joe Biden’s support for Israel.

Yet Mr Blinken is seeking to turn the horror of Gaza into a chance for peace.
And American officials seemed elated by their talks with Saudi Arabia’s
crown prince and de facto ruler, Muhammad bin Salman.

Once treated as a “pariah”, in the past words of Mr Biden, Saudi Arabia has
become central to America’s ambitious diplomatic strategy. This involves
securing an “extended” pause in the fighting in Gaza with a hostage and
prisoner exchange, followed by a permanent ceasefire, Israeli acceptance of
a Palestinian state, Saudi Arabia’s recognition of Israel and new American
security commitments. Mr Blinken seems convinced that, rather than 1967,
the moment in Israel today is more akin to the aftermath of the Arab-Israeli
war of 1973 and the Palestinian intifada (uprising) of 1987-93. Then, the
pain of conflict led to the peace treaty with Egypt in 1979 and the Oslo
accords of 1993 that created the PA.

Even so, the path to a regional deal is far from assured. The hostage deal—
the essential first step in America’s plan—rests on a man whom the Israelis
are determined to kill: Yahya Sinwar, the leader of Hamas in Gaza. He is
thought to be hiding with hostages in tunnels under Gaza.

That said, Mr Blinken brought hopeful news. On February 6th the emir of
Qatar told him Hamas had responded to a hostage deal drafted by Israel,
America, Egypt and Qatar. The answer was deemed “positive” by Qatar and
promising by Mr Blinken (albeit with some “non-starters”). Yet Mr
Netanyahu dismissed it as “delusional”.

The sticking point is whether the fighting will continue after the pause, as
Israel wants. Hamas insists on an eventual permanent ceasefire and Israel’s
withdrawal from Gaza. The likeliest compromise is a deal that unfolds in
phases. America’s hope is that even a temporary pause will change the
mindset of both sides, allowing them to consider the “day after”.

This turns the spotlight on Mr Netanyahu, who has declared his intention to
fight for “absolute victory” and his opposition to a Palestinian state. “The
day after is the day after Hamas. All of Hamas,” he said. Arab leaders want
America to exert more pressure on him. The Biden administration thinks that
halting the flow of weapons to Israel would encourage Hamas and the rest of
Iran’s “axis of resistance”. Instead Mr Blinken chastised Israel for a death
toll that was “too high”, pushed for more humanitarian aid and insisted that
it “put civilians first and foremost in mind”. On February 1st America also
imposed sanctions on four Jewish settlers accused of violence against
Palestinians, irking Mr Netanyahu.

Mr Blinken thinks the region is at a fork. One way lies salvation, with a
“future for the better for Israelis, for Arabs, for Palestinians”. The other way
leads to damnation, with “an endless cycle of violence and destruction and
despair”. Mr Blinken also seems worried about Israeli forces pushing on to
Rafah at the southern end of Gaza. Palestinians are increasingly concentrated
there and the risk is of their being pushed across the border into Sinai.
Seeking to reassure Egypt’s president, Abdel-Fattah al-Sisi, Mr Blinken
earlier expressed America’s “rejection of any forced displacement of
Palestinians from Gaza”.

America wants Israel to agree to “a practical, timebound, irreversible path to

a Palestinian state” as part of an agreement between America, Israel, the PA
and Saudi Arabia. America would offer a defence treaty with Saudi Arabia
and civilian nuclear technology. The PA would agree to reform.

To sweeten the deal, Mr Blinken said, Arab states were offering Israel
unspecified “security guarantees’‘. These are unlikely to involve a formal
defence treaty; Gulf states do not have big armies, nor do they want to be at
the forefront of an American-Israel confrontation with Iran. But informed
sources suggest options might include more intelligence-sharing, a common
air-defence zone and joint military exercises. Some of this already takes
place, but the aim would be to make it more visible and institutionalised. Mr
Blinken said Arab states were ready “to do things with and for Israel that
they were never prepared to do in the past”; America, too, would agree to do
the same.

Moreover, Arab states seem ready to help the PA reform. Foreign ministers
from Saudi Arabia, the United Arab Emirates (UAE), Qatar, Egypt and
Jordan are set to meet PA officials in Riyadh on February 8th to discuss
governance. Some Arab sources suggest Jordan could help train Palestinian
security forces, and the UAE could help improve the PA’s administration.

Arab states have made clear they will not send peacekeepers to Gaza if and
when the Israelis leave; nor will they pay to rebuild it unless there is an
Israeli commitment to Palestinian statehood. Nevertheless, they seem to
understand that they must take greater charge of settling the question of
Palestine, or risk Iran and other radicals exploiting it to their advantage.

In private Mr Netanyahu is said to be more flexible than he lets on. Can he

bring himself to say yes to the Saudis? And if he refuses, would those who
replace him be more willing? Neither Mr Blinken nor anyone else is certain.
■

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America’s reverse-Goldilocks strategy

Why Iran is hard to intimidate

US soldiers are a bull’s-eye target for Iranian militias

Feb 6th 2024 | DUBAI

DETERRENCE IS A simple concept: using the threat of force to stop an

enemy from doing something. America ought to have no trouble restraining
Iran thus. The former has a globe-striding army; the latter relies on warships
and fighter jets that predate the Moon landing. In practice, though, Iran has
proved devilishly difficult to deter. It is hard to put off insurgents and
militias with air campaigns; their goals are attrition and survival, not well-
ordered governance, and they are willing to take casualties. Full-scale
invasion may be the only sure way to deter them but the history of such
interventions is salutary.

Since October the Islamic Republic’s proxy militias in Syria and Iraq have
carried out more than 160 attacks on American troops. Some were harmless
—more theatre than threat—but not the one on January 28th, which killed
three American soldiers at a base in north-eastern Jordan. The Houthis,
meanwhile, an Iranian-backed militia in Yemen, have for months waged a
campaign of missile and drone attacks against commercial ships in the Red
Sea, choking off a waterway that handles perhaps 30% of global container
trade.

America has begun to hit back. On February 3rd it bombed more than 85
targets in Iraq and Syria, the first round of what Joe Biden, America’s
president, promised would be a multi-stage response to the drone attack in
Jordan. It struck the Houthis the next day and again on February 5th. Two
days later an American strike in Baghdad killed a leader of Kataib
Hizbullah, an Iranian-backed militia in Iraq. Yet the attacks from Iran’s
proxies continue.

Mr Biden’s hawkish critics think they know why: American threats are not
credible because America is unwilling to strike Iran itself. They point to
Operation Praying Mantis, during the “tanker wars” of the 1980s, in which
America sank five of Iran’s warships and destroyed two of its oil platforms
in the Persian Gulf.

Critics on the left make a different argument. They see talk of deterrence as
misguided warmongering and instead offer what they say is a simple
solution: end the war in Gaza. If Israel stops killing Palestinians, Iranian-
backed militias might stop their own violent acts.

Both arguments miss the mark. It is true that hitting Iran’s navy in 1988
compelled it to reduce its attacks on oil tankers (and to stop targeting
Americans altogether). But the Iran of 1988 was exhausted from a ruinous
eight-year war against Saddam Hussein’s Iraq and bereft of strong allies. It
had no choice but to back down. The Iran of today, by contrast, has a
powerful network of proxies and a degree of support from both Russia and
China. A round of American strikes might make it even more inclined to use
those proxies—and, perhaps, to dash for a nuclear bomb as insurance against
future attacks.

As for the Gaza war, many of Iran’s proxies cite the conflict as justification
for their acts. But history did not start on October 7th. Militias in Syria and
Iraq have carried out dozens of attacks against American troops in the past
decade. The Houthis, too, have a record of attacks on shipping; the war is
merely an excuse to escalate what they were already doing.

America’s struggle to deter Iran stems from deeper contradictions in its

Middle East policy, namely its desire to pivot away from the region while
still keeping troops in it, leaving a military presence big enough to present a
menu of targets but too small actually to constrain Iran.

This reverse-Goldilocks arrangement had deadly consequences on January

28th. The drone attack in Jordan hit an outpost known as Tower 22, a
logistics hub for nearby al-Tanf, a remote American garrison in Syria.
Established during the campaign against Islamic State, no one can quite
explain why al-Tanf still exists. American officials cite a range of missions,
but in practice it mostly serves as a bull’s-eye for Iranian-backed groups
whenever they want to lash out at America.

The Iranian regime views its proxies as vital for its survival: they are
fighting a long war of attrition to drive American troops from the Middle
East and hobble Israel and America’s allies in the Gulf. Deterrence can work
only if that perception changes.

Perhaps Iran could be dissuaded from using its proxies if it thought America
was prepared to topple its regime. After two decades of failed American
adventures in the Middle East, though, neither Americans nor Iranians
believe that is on the cards.

America’s allies in the region do not believe it either. A decade ago, Israel
and some Gulf states might have cheered American strikes on Iranian
proxies. Then as now, the region was ablaze: Iran was helping Bashar al-
Assad turn Syria into a charnel house, and the Houthis were sweeping down
from their northern redoubts to seize control of most of Yemen’s population
centres. A sustained campaign of American strikes might have changed the
course of civil wars in both countries.

Today, though, those wars are basically settled—in favour of Iran’s allies.
The regime has its hooks deep in four Arab countries. A few scattered sorties
will not dislodge it. That is why Saudi Arabia and the United Arab Emirates
have tried to improve their relations with Iran: if America cannot protect its
partners, they reckon detente via diplomatic engagement and economic
incentives is a safer alternative.

In a briefing with reporters after the strikes in Syria and Iraq, American
officials talked not of deterrence but of trying to “degrade” the capabilities
of Iranian-backed groups. That might be more realistic: if America blows up
enough Houthi anti-ship missiles, they will have to stop firing (at least until
Iran can deliver more).

But that would require a prolonged campaign of the sort that Mr Biden may
wish to avoid, which gets back to the crux of the problem. In the Middle
East, America is torn between leaving and staying and cannot decide what to
do with the forces it still has in the region. The status quo is not working—
and, paradoxically, it is Iran that has deterred America from changing it. ■

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Israel’s obstructive settlers

America is trying to peg Israel’s settlers back

But their power in politics and on the ground shows no sign of waning

Feb 8th 2024 | JERUSALEM

AT FIRST THE Israeli settlers in the West Bank tried to laugh off the
executive order signed by Joe Biden, America’s president, on February 1st
imposing sanctions on “persons undermining peace, security and stability in
the West Bank”. The editor of a popular far-right website posted a cartoon of
a Jewish shepherd in the West Bank. “What am I going to do now with all
my assets in New York?” said the caption.

The laughter faded when Israeli banks began blocking the accounts of the
settlers targeted by America’s sanctions regime. Bezalel Smotrich, the
finance minister and himself an ultra-nationalist settler, vowed to prevent
financial institutions from implementing the sanctions. But his power in this
matter is negligible. “If anyone thinks that for the sake of a few settlers’
accounts Israeli banks are about to jeopardise their access to the global
financial system controlled by the Americans, they’re in for a rude
awakening,” said a senior banker.

Mr Biden is a self-proclaimed Zionist who has backed Israel to the hilt since
Hamas’s attack last year. But the order is a sign that his patience with
Binyamin Netanyahu’s hardline coalition is wearing thin.

The Jewish settlers in the West Bank, the heart of a future Palestinian state,
are among the biggest obstacles to America’s ambitious plans for peace. So
far the sanctions have hit only four fairly minor settler activists, who are
accused of violence against Palestinians. But the wording of the presidential
order leaves little doubt that bigger figures, including cabinet ministers,
could be affected. “It’s a warning shot and the target is Netanyahu,” says an
Israeli official involved in talks with the Americans. Mr Biden seems to be
trying to drive a wedge between the settlers and the rest of Israel, leaving Mr
Netanyahu with the choice of either dumping his toxic partners or going
down with them.
The settlers’ number belies their political weight. Of 10m Israelis, around
460,000 live in the West Bank (not including east Jerusalem). Most live in
urban settlements near the pre-1967 border where they have been lured by
cheap housing. In any peace deal, it is assumed that these “settlement blocs”
would be absorbed into Israel. In return, chunks of land currently within
Israel would be swapped into the new Palestinian state.

More problematic are the smaller settlements deep in the West Bank that
would have to be dismantled. Most of their residents are religious ideologues
who comprise less than 2% of Israel’s population but enjoy wide and fervent
support. Parties representing them did well in the 2022 election, helping
return Mr Netanyahu to office; indeed, he depends on them for his majority.
They have been lavishly rewarded. Five ministers are settlers.

Their power was clear on January 28th when 12 ministers attended a

convention in Jerusalem calling for the re-establishment of Jewish
settlements in the Gaza Strip after the war. Mr Netanyahu said this was
“unrealistic” and promised that Israel had no intention of doing so. But he
did not prevent ministers from his own Likud party from attending the
conference, where speakers called for the reoccupation of Gaza and for the
2.3m Palestinians living there to be displaced.

Even after Hamas’s attack on October 7th, only a quarter of Jewish Israelis
support such a plan, according to a poll carried out in November. But settler
representatives, who are already signing up families to settle in these would-
be new outposts, have consistently proved capable of moving government
policy in the West Bank in their favour. For over half a century they have
challenged governments, including those on the right, by building deeper
into the West Bank, eventually getting retrospective government support.

Mr Netanyahu is now floundering in the polls. If elections were to be held

soon, his coalition would almost certainly lose power. But even without their
supporters in government, the settlers would still be a force, in politics and
on the ground. Many serve in combat units and are heavily involved in the
fighting in Gaza. They will argue that their sacrifice is being dishonoured if
their West Bank homes are threatened. This will resonate with many Israelis,
even those not in their political camp.
Going by past experience, some will try to block any concessions to the
Palestinians with violence. Emboldened and armed by supporters in
government, settlers killed at least ten Palestinians last year, according to a
report by Yesh Din, an Israeli human-rights group. If the establishment of a
Palestinian state looks more likely, such action may increase. Yet if
American plans for peace are to stand a chance, this threat must be
countered. Mr Netanyahu’s government shows little interest in doing so. But
even a centrist one could struggle to face the settlers down. ■

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House and home

How to house the world’s fastest-growing

population
About 70% of buildings needed in Africa by 2040 are not yet built

Feb 7th 2024 | DAKAR

SHINY CARS line the streets of Ngor, a suburb of Dakar. Beside the
occasional passing sheep are telltale signs of wealth—ice-cream shops and
gyms—that should be enticing to banks offering mortgages. Yet loans are
hard to come by. Sam Thianar and his family live in two rooms of the
apartment block he is building. The rest he hopes to rent out. Although
construction started years ago, the building is a mess of concrete and
exposed wires. “When I save a little money, I buy some sand and cement and
build a little more,” he says. He applied for a loan of 10m CFA francs
($16,500) from a credit mutual, but was rejected. Nearby Ibrahima Diouf
shovels sand to make bricks. Could he ever get a mortgage? “Never, never,
never,” he replies.
The struggle to finance and build homes is contributing to a profound
housing crisis in sub-Saharan Africa. In almost all African countries even the
very cheapest new home is too expensive for a typical teacher or police
officer with the mortgage they could obtain, according to the Centre for
Affordable Housing Finance in Africa (CAHF), a research outfit based in
Johannesburg (see chart 1 ). Instead many Africans live in housing without
toilets or reliable electricity. Some 230m people, half of all urban dwellers in
Africa, live in slums, a number that is rising because of urbanisation and
population growth.

Yet Africa’s need for housing is also a tremendous opportunity. A mind-

bending 70% of the buildings expected in Africa in 2040 do not exist,
reckons the UN. Building them could be a boon not just for slum-dwellers
but for growth, jobs and, potentially, climate-friendly construction. Africa
will be the construction site of the world, enthuses Ian Shapiro of Reall, an
investor in African housing.

One reason for this chronic shortage of decent housing lies with how homes
are built now. Perhaps 90% are self-built, usually incrementally over many
years. Cities are thus riddled with unfinished buildings. Some buy their
homes from developers, where they pay a portion upfront, more during
construction and the rest on completion. Yet if developers do not sell enough
apartments in the building or hit other troubles, then everything stops. “It
puts the risk on the buyer,” says Seeta Shah of FSD Kenya, a financial think-
tank. “You could get burned, or you could get your home.” Both ways of
building tie up scarce capital in cement that houses no one and earns nothing
for years. And because of the tight finances, truly large-scale housing
projects are rare.

Building quality homes in Africa also involves a fiendishly complex set of

tasks—from buying land and wrangling title to persuading governments to
install water to the area and finding a buyer. Finishing one step often
depends on progress in all the others. And each needs financing. “It’s a
dance, it’s not a straight line,” says Kecia Rust of CAHF.

The cheapest new house generally costs the equivalent of $20,000-40,000.

Yet income per person is only about $1,700 a year. The high cost is partly
caused by red tape. In Kenya, for example, there are 140 laws, policies and
regulations relating to affordable housing. Building codes, which often date
back to the colonial era, also set inappropriate standards. In Kenya a car park
is required for any two-bedroom home. The result is that those who build
formally cannot build cheaply. Many small builders dodge regulations
altogether. That makes the homes they build cheaper but often more
dangerous.

The lack of land titles hits supply and drives up prices. Developers need this
paperwork before they can build; without it they risk losing the entire
investment. Yet just 4% of countries in Africa have mapped and registered
the private land in their capital cities. On average it costs more than 7% of
the value of the property to register it. In parts of Nigeria this cost reaches
20%.
Weak titles also make it harder for people to borrow. This is because banks
will generally refuse to lend against a property if its ownership is fuzzy. That
is one reason why there are vanishingly few mortgages in Africa. Uganda,
with almost 50m people, has about 7,000 mortgages outstanding. It is not an
extreme case. In most sub-Saharan countries the stock of mortgage debt to
GDP is lower than 1%. By comparison, in Britain it is 65% (see chart 2).
A second reason is that perhaps 85% of people have informal jobs, such as
selling fruit at the market or riding a motorbike taxi. As such, they do not
have pay slips that could prove to banks that they have a regular income and
can afford to repay a loan. A third reason is that many Africans need a loan
to start building a home, but banks are especially reluctant to lend if the only
collateral is undeveloped land.

Bigger financial forces push up mortgage rates and sharply limit the number
of loans available, too. A rule of thumb is that mortgage rates need to be in
single digits to have a chance of being affordable, says Simon Walley of the
World Bank. Yet just 15 out of 48 countries for which there are data in sub-
Saharan Africa have rates below 10%. That is firstly because central-bank
interest rates, a floor for mortgages, are persistently high to curb inflation.
Compounding the problem is the scarcity of long-term finance in Africa and
the fact that governments grab most of it by borrowing heavily. Banks and
investors can earn 13-15% a year simply by buying government bonds.
Setting up a retail bank, finding customers and then trying to measure the
credit risk of people with no pay slips and fuzzy collateral involves an awful
lot of effort —and risk—in comparison.

There have been efforts in recent years to make mortgages cheaper, often by
setting up mortgage-refinance companies. These are usually owned by clubs
of banks, backed by governments and get cheap loans and equity from
development-finance institutions (DFIs), such as the World Bank. This
allows them to borrow more cheaply in capital markets than banks can. The
refinance companies then pass on their lower borrowing rates to banks to
allow them to offer cheaper mortgages. Eight countries in west Africa jointly
have such a firm while Kenya, Tanzania and Nigeria each have one. These
have helped, but nowhere near enough.

In Tanzania, which has a population of 67m, the mortgage-refinance

company directly backs only 1,500 outstanding mortgages. In Kenya, with a
population of 56m, the mortgage-refinance company has backed just 2,876
loans in almost five years, less than a tenth of its target. Mr Walley of the
World Bank, which has lent to most of these companies, says the problem is
that “the housing-supply response hasn’t happened, or not to the scale we
would have liked.” High underlying interest rates also limit their impact,
says Aliou Maïga of the International Finance Corporation (IFC), the
private-sector arm of the World Bank. He also points to a tougher problem:
poverty. “Whatever you do, it’s very, very difficult to fit income levels into
the housing equation,” he says.

All this is prompting a radical rethink. Mr Walley believes mortgages can

reach a wider scale in Africa some day, but says that currently, at best, they
are going to serve the richest 5-15% of the population. Mr Maïga is blunter:
“Acquisition by individuals and the mortgage, to me, are not necessarily the
right instrument in Africa.” That is striking, given that the IFC partly owns
and finances the mortgage-refinance companies in west Africa, Tanzania and
Kenya. The IFC is now resetting its housing strategy altogether.

If mortgages modelled on the rich world are not right for Africa, what is?
One answer is to embrace the reality that African houses are often self-built
in stages. Banks are starting to offer smaller shorter-term loans to enable
families, for example, to build an extra room to rent out. Housing Finance
Bank (HFB) in Uganda does just this. Its loans are typically for three years
and are worth about $4,000 on average. The bank requires some collateral,
but dodges the headaches of formal title by accepting guarantors and sales
agreements for land or even just belongings like a motorbike or fridge. “The
performance of these loans is good,” says Michael Mugabi, HFB’s managing
director. “They don’t default.” Because the loan allows a building extension
to be completed without delay, it is an efficient use of capital.
Tinker, tailor

Such loans still require clever ways of assessing the creditworthiness of

informal workers. Syntellect, an Indian startup, is trying to help with
machine learning. An algorithm is fed the results of a questionnaire tailored
to the borrower’s trade—from street-food vendor to tailor—and also uses
utility payments, mobile-money records and geolocation intelligence about
whether, say, a street vendor has a wealthy potential clientele nearby. It
recently signed up with Kenya’s largest microfinance organisation to help
with credit decisions for housing loans.

Others see more hope in bigger developers because they may solve the
problem of bank loans for new builds. Unity Homes, a developer in Kenya
and Nigeria, uses the value of its undeveloped land to provide mortgage
banks with financial guarantees that it will complete construction projects.
This gives the banks the security they need to lend to customers buying
homes before they are completed.

Still, full mortgages are out of reach for people who are not in formal
employment. To help them, some DFIs and private firms are experimenting
with rental and rent-to-own models. Housing needs to be approached like big
infrastructure projects, says Mr Maïga of IFC. By that he means very large
developments built by private firms where governments, institutional
investors and DFIs guarantee to buy the homes. Families then rent or rent-to-
buy from these institutional owners. Rent-to-buy removes the need for an
upfront deposit. Instead tenants slowly accumulate ownership over time. The
IFC has recently agreed to pilot programmes in this style with three
governments in west Africa.

Private firms are also turning to rentals. After more than a decade as a
developer of large housing projects in Africa for sale to families, Daniel
Font came to a worrying conclusion: “In some ways we were completely
wrong.” Most people had no access to mortgages and those who did buy
their units rented them out anyway, he explains. Mr Font now leads a new
company, SIV Africa, which is building rental homes in Africa. The
company plans to own, maintain and operate the projects over the long term
while also selling a share of the portfolio on capital markets. The goal is to
build quality homes for people who have no access to banks. “That is 90%
of the population in Africa,” says Mr Font.

For the hundreds of millions of Africans with no chance of getting a

mortgage and who live in cramped, poorly lit and often unsanitary homes,
the rethink cannot happen quickly enough. ■

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How to stay in power

Democracy is under attack in Senegal

The election is delayed after riot police drag opposition MPs out of
parliament

Feb 8th 2024 | DAKAR

“MACKY SALL, Dictator!” chanted protesters on February 5th in Dakar,

Senegal’s capital, as they dodged police officers firing tear gas and raged at
their president. By late that evening it was getting harder to disagree. Riot
police in masks and helmets marched into the National Assembly and
dragged out about 30 opposition MPs. “It’s a coup d’état against the people,”
shouted one MP before he was pulled away. They had been occupying the
speaker’s platform in protest against a planned vote, held without any
debate, to delay by almost ten months the presidential election scheduled for
February 25th. Moments later the vote passed. Mr Sall will now stay in
office far beyond his term, which was supposed to end on April 2nd.
Senegal has been seen as an African star: a pillar of stability, democracy and
economic growth in west Africa. Unlike many other countries in the region,
it has avoided civil wars and coups, and has had a series of largely peaceful
and democratic transitions of power. Never before has it delayed a
presidential election. And in a region hit by a spate of coups, Mr Sall has
played a leading role in the attempts by ECOWAS, the regional bloc, to push
juntas back towards democracy. Yet his message has been undermined by a
sharp decline in freedom in Senegal itself. Now its democracy is in grave
danger.

The vote followed a speech by Mr Sall on February 3rd in which he had

simply called off the election and proposed a “national dialogue” to create
the “conditions for a free, transparent and inclusive election”. Yet Mr Sall
held such talks just months ago.

Since then repression has ramped up alarmingly. One presidential candidate

was arrested while protesting the next day. Several MPs who had opposed
the delay attempted to campaign regardless. They too were arrested. Mobile-
internet access was cut for 48 hours, motorbikes (popular with protesters)
were banned, and a television station was shut down altogether.

The constitutional crisis was triggered by accusations of alleged corruption

in the Constitutional Council, the judicial body that determines whether
candidates are eligible to run. Mr Sall justified postponing the election by
saying time was needed to resolve the row between the council and some
members of the assembly, which had already voted to open an inquiry.

In January the council barred Ousmane Sonko, the leading opposition

candidate, on the basis of his conviction for defamation in a case brought by
a minister. In jail on separate charges of fomenting insurrection, Mr Sonko
says the cases against him are politically motivated. The council also
blocked Karim Wade, the son of a former president, from running. Mr
Wade’s political party, which made the allegations of corruption against the
council, has pushed for the inquiry and the delay. The council denies any
wrongdoing.

What is Mr Sall up to? He claims to be defending democracy, warning that

the dispute between judges and MPs “could seriously harm the credibility of
the election”. Yet he is unconvincing as a democratic saviour—and not just
because delaying an election and marching riot police into parliament is a
curious way of defending democracy.

His government was first accused of politicising the justice system in 2019,
when Mr Wade and another opposition figure were disqualified from
running for president because of legal troubles. Mr Sall’s administration has
also previously ignored the law, seemingly to keep Mr Sonko out of the race.
(Mr Sall denies any wrongdoing.) Worse, since early 2021 at least 45 people
have been killed in various protests backing Mr Sonko.

Given all this, many fear Mr Sall, who had backed his prime minister,
Amadou Ba, for president, has malign motives. One view is that he now
believes Mr Ba will lose to Mr Sonko’s number two, who is running despite
also being in jail—hence Mr Sall is delaying the election, perhaps to back
another horse for the presidency.

Another is that he wants to cling to power for himself, either by delaying the
poll again, or by going back on his word not to run for a third term. This
would seem to be in breach of the constitution’s two-term limit, but Mr Sall
maintains that he can run legally. The president had previously flirted with
standing again before belatedly ruling it out. But he can be fickle—he
postponed the election just days after pledging to stick to the original
timetable.

Since the chaos in the National Assembly there have not been any large
protests, perhaps because the police are out in force and up to 1,000
opposition members and activists have been arrested. Yet the fight is not
over. There is talk of a general strike, influential religious bodies have
denounced Mr Sall’s move, and the opposition is hatching plans for protests
it hopes the police will find harder to stop.

The American government says that the vote to delay “cannot be considered
legitimate”. Several candidates are challenging it at the Constitutional
Council. They ought to have a strong case, since the constitution says that
the duration of the president’s mandate cannot be amended. But since the
council has been accused of impropriety, a ruling in either direction is
unlikely to resolve the crisis.
“We are in a situation of total uncertainty,” says Alioune Tine, a human-
rights activist in Senegal. “This jump into the unknown can have unexpected
consequences—like the army taking power.” ■

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The Americas
After Nayib Bukele’s crushing, unconstitutional victory,
what next?
El Salvador :: El Salvador’s “philosopher king” is already hinting at a third term

Mexico’s president and his family are fighting claims of

corruption
The C word :: The truth is that Andrés Manuel López Obrador has done too little to tackle the
problem in society

Andrés Manuel López Obrador splashes out as elections

loom
Pensions bonanza :: The trouble is Mexico can’t pay the president’s bill

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El Salvador

After Nayib Bukele’s crushing, unconstitutional

victory, what next?
El Salvador’s “philosopher king” is already hinting at a third term

Feb 5th 2024 | IZALCO AND SAN SALVADOR

EL SALVADOR’S PRESIDENT reacted to his re-election victory on

February 4th with his usual understatement. Before any official results were
announced, Nayib Bukele claimed to have won at least 85% of the vote. In a
speech from the presidential palace he called this “the record in the entire
democratic history of the world”.

Mr Bukele has indeed won with a landslide. With 70% of the votes tallied,
he had 83%. His party, New Ideas, has probably won a majority in the
slimmed-down national legislature, too, though perhaps not to the degree he
claims. A problem with the electronic system means the votes for lawmakers
now need to be counted by hand.
Sticklers for the rule of law noted that it was unconstitutional for Mr Bukele
to run for a second consecutive term. But in 2021 he got the top court to rule
that he could run again if he took a six-month leave of absence, which he
did, at least on paper. He insists that voters should be able to decide whether
they want him to remain in office. “Why discard the path if it’s working?” he
asked when announcing his run.

The immaculately coiffed, jeans-clad leader is popular largely thanks to his

crackdown on crime. Before he took office in 2019, Salvadoreans lived in
terror of gangsters, who extorted money from local businesses with impunity
and fought deadly turf wars with each other. Gang crime used to cost a
staggering 16% of GDP, by one estimate.

Mr Bukele first tried negotiating with the gangs. Then he switched to a mano
dura (iron fist) approach. He let the police arrest anyone they suspected of
gang ties. More than 74,000 people—equivalent to over 8% of the young
male population of the country—have been locked up. Few have had trials
yet, though they may eventually get “collective” ones, with hundreds of
suspects judged simultaneously.

With so many gangsters behind bars, previously dangerous neighbourhoods

have been transformed. The national homicide rate fell from 51 per 100,000
in 2018 to three last year. Shops and restaurants that previously had to pay
protection money—a huge drain on their livelihoods—no longer have to.
Ordinary folk can walk the streets without fear.
Eyes on the prize

“We lived through 50 horrible years of wars and killings and everything has
changed,” says Ana Rodríguez, a 70-year-old leaving a polling station in
Izalco, an hour to the west of San Salvador, the capital. The country is now a
much safer place to live in: the number of Salvadoreans trying to cross the
border from Mexico into the United States fell by a third in the last fiscal
year.

Mr Bukele shunned traditional campaigning for PR stunts. He hosted the

Miss Universe contest, shook hands with Lionel Messi and presided over a
mighty communications machine, including trolls who steamrolled critics
and drowned out unfavourable narratives. His public-relations push has
helped change the international image of his country of 6.3m, too. He has
marketed it as a surfers’ paradise riding the wave of the future. In 2021 El
Salvador was the first country to make bitcoin legal tender. (Shopkeepers are
much less impressed by this than by his gang crackdown.)

Critics worry about Mr Bukele’s appetite for power and scorn for checks and
balances. From the start he has lavished benefits on the police and army to
secure their loyalty. He is also doubling the size of the army, from 20,000 to
40,000. In 2020 he marched troops into the legislature to intimidate
lawmakers into approving funds for his security plan. A year later his party
won a super-majority in the assembly, and he moved to increase his sway
over the courts. He ousted the attorney-general and the judges of the
constitutional court, and forcibly retired a third of the country’s regular
judges, replacing them with loyalists. His inner circle consists of his
brothers.

Before the election he changed the rules to favour his own party and made it
easier for Salvadoreans who live abroad to vote. Ballots cast by the diaspora
—740,000 of the 6.2m registered voters—all go to San Salvador, where the
number of undecided seats is highest.

So what will Mr Bukele decide to do with a second term? Félix Ulloa, the
vice-president, says now the administration has “cleaned the house” of
crime, the focus will be on education, health and infrastructure. He says that
El Salvador is for the first time spending annually over 5% of GDP on
education and has distributed laptops and tablets to all students. This fits
with a push to turn the country into a tech hub, he says, pointing to the
adoption of bitcoin and to laws encouraging investment by tech firms. He
touts future infrastructure projects such as airports, a train along the Pacific
coast and a cable car.
Bitcoin bro meets Miss Universe

Rather than worry about crime, Salvadoreans now see the economy as the
country’s biggest problem, according to a survey in January by the
University of Central America in San Salvador. As public safety has
improved, the economy has somewhat, too. The price of the country’s
government debt, which had collapsed to distressed levels in 2022, has
bounced back. JPMorgan, a bank, reckons El Salvador’s potential annual
growth rate has risen from 2% to about 3%. But figures remain lacklustre:
annual growth in GDP is forecast to remain lower than in Honduras and
Guatemala for at least the next three years. No doubt Mr Bukele will want to
secure a much-ballyhooed deal with the IMF.

The government hopes to attract further cash from China, which paid for a
fancy national library that opened in November. And El Salvador is offering
a “freedom visa” and a ten-year tax holiday to anyone who invests $1m of
cryptocurrency in the country. Mr Ulloa says the government will soon issue
bitcoin bonds. But Lourdes Molina, an economist, frets that the increased
use of bitcoin could turn El Salvador into a money-laundering paradise.

A state of exception (ie, emergency) to fight crime was first declared in

March 2022 and has since been renewed 22 times. Mr Bukele asked voters
to give him a super-majority in the assembly so he can keep renewing it.
This would hand him a potent tool to scare his remaining critics. It has
already been used against union members and environmental campaigners,
notes Ruth López of Cristosal, a human-rights group. Only a few civil-
society organisations and journalists remain active, says Bertha Deleón,
formerly one of the president’s lawyers. Mr Bukele cites their continued
existence as proof that El Salvador is a democracy. But in 2021 he tried to
pass a bill to class some civil-society organisations and journalists as foreign
agents, similar to laws in Nicaragua and Russia.

Not all Salvadoreans are cheering their strongman’s victory. Families of the
arrested are furious. In a poor, rural area a couple in their 50s weep as they
describe how three of their four sons, aged 15, 17 and 25, and a grandson,
aged 15, were taken in November. Their kids were not gang members, they
say; one worked for the government until he fell ill and the other two were at
school all day. “We are now scared of the police and army,” they say. In the
UCA poll, 63% of respondents said they were “being more careful” about
whom they discuss their political opinions with. Diego, a 19-year-old
soldier, says he admires the president but worries: “It’s not good that one
party has all the power.”

Transparency and accountability are dismal under Mr Bukele, critics charge.

Before he was sacked, a former attorney-general was investigating members
of the government for misdirecting funds during the pandemic, among other
things. If a regime can lock people up indefinitely without charge, officials
may one day demand pay-offs not to do so, some fear.

Meanwhile, a third term is already being discussed. Mr Bukele has said that
the law doesn’t “currently” allow for one. But he added that every
generation has the right to decide its own laws. ■

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americas/2024/02/05/after-nayib-bukeles-crushing-unconstitutional-victory-what-next

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The C word

Mexico’s president and his family are fighting

claims of corruption
The truth is that Andrés Manuel López Obrador has done too little to tackle
the problem in society

Feb 8th 2024 | Mexico City

MEXICO’S PRESIDENT, Andrés Manuel López Obrador, has long railed

against corruption. But on January 30th a consortium of news outlets
reported that in 2006 his campaign team had accepted $2m from drug gangs
in return for favours. The reports, based on information from the US Drug
Enforcement Administration, do not show that the president knew what was
going on. But a close aide did, they allege. Mr López Obrador completely
rejects the allegations, calling them slander.

These reports follow others. A recent article on a local news site alleged that
Mr López Obrador’s third son, Gonzalo López Beltrán, ran a network
overcharging contractors supplying materials for the Tren Maya, a tourist
train that is one of his father’s pet projects. In 2022 his eldest, José Ramón,
was revealed to have been living in a luxury pad in Houston connected to a
contractor for Pemex, the state oil company. Mr López Obrador and his
family have denied any wrongdoing in all of these cases.

Some scorn the credibility of the allegations surrounding Mr López

Obrador’s 2006 campaign. They put them down to political skulduggery
ahead of elections in June. Though he cannot run again, wounding him
would also harm his preferred successor, Claudia Sheinbaum of the ruling
party, Morena. She is almost certain to win. But others, like Fernando Nieto
of the College of Mexico in Mexico City, think the latest reports need further
investigation.

Overall Mr López Obrador’s management of corruption has been appalling,

whatever else he claims. Surveys reveal that 86% of Mexicans say acts of
corruption are frequent when dealing with the government. The biggest
reported case of embezzlement by a government agency, involving more
than $800m, happened on Mr López Obrador’s watch. Functionaries at
Segalmex, an agricultural agency, used fake contracts to siphon off cash. But
there have been a “very low number of complaints of corruption and an
extraordinarily low number of investigations,” says Issa Luna Pla of the
Autonomous University of Mexico.

State processes hardly help. Fully 80% of public contracts are still awarded
without tendering, despite the president’s promises of change. He has also
cut funding for the transparency body which looks into impropriety, and has
just introduced a bill, albeit one unlikely to pass, to get rid of it entirely.

The president enjoys an approval rating of over 60%. And the new
allegations are meagre compared with those hurled at the previous
government. Nonetheless a grubby new phase in the presidential race may
have begun. ■

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americas/2024/02/08/mexicos-president-and-his-family-are-fighting-claims-of-
corruption
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Pensions bonanza

Andrés Manuel López Obrador splashes out as

elections loom
The trouble is Mexico can’t pay the president’s bill

Feb 8th 2024 | Mexico City

ON FEBRUARY 5TH Mexico’s outgoing president, Andrés Manuel López

Obrador, sent a package of 20 reforms to Congress. Most are previously
rejected ideas, such as electing judges by popular vote and abolishing
independent regulators. The opposition will find one measure harder to
block in the run-up to elections in June: the president wants workers’
pensions to equal their final salary, up to a limit of 16,777 pesos ($984) a
month.

Presumably he thinks this massive bung to the relatively well-off will win
votes. It only applies to workers with formal jobs—under half the total. (The
government also gives a “well-being pension”—a cash transfer—to
everyone over 65.) The private pension funds to which formal workers and
their employers contribute cannot afford to pay 100%-of-salary pensions.
Somehow the government would have to make up the difference.

That will be hard. The average pension replacement rate (combining public
and private pensions) in the OECD, a rich-country club, is 61% of the wage.
Public spending on Mexico’s pensions has already risen from 18% of the
budget in 2018 to 22% this year. Citibanamex, a bank, says the measure
would cost 1.5% of GDP a year by 2025, rising to 2% in a decade as Mexico
ages.

Mr López Obrador has lately proved willing to splash out, even if it harms
both Mexico and his successor. Take cash transfers. By slashing
administrative costs, initially he gave more to households than his
predecessors had without significantly raising the budget. But in 2023 he
upped the budget for them by 8% in real terms. The well-being pension’s
value has jumped more than three-fold in real terms since 2018, to 6,000
pesos every two months.

Citibanamex bluntly describes Mexico’s budget for this year as ”designed to

win the elections”. Given Mexico’s history of fiscal irresponsibility, it is
risky. The net debt-to-GDP ratio is expected to rise this year from 46% to
48% and weighs more heavily than it did for much of the 2010s because of
higher interest rates. The fiscal deficit will widen from 3.5% to 5% of GDP:
ratings agencies warn that the country may risk a credit downgrade. “A red
flag” is being waved because this year part of the borrowing is going on
current spending rather than investment, says Javier Aparicio of CIDE, a
university in Mexico City.

Mr López Obrador had long been seen as a peso-pincher, partly because of

his campaign of “republican austerity” and partly because he spent less than
2% of GDP to support people during the pandemic. Yet he has not so much
cut as rejigged the budget to suit his populist priorities. He spurns spending
on government machinery, hollowing out the civil service. Too little is spent
on health care and education. Mexico shells out only 0.6% of GDP a year on
domestic security, the lowest level in Latin America and the Caribbean.
Yet the president keeps the tab open for infrastructure projects, says Mr
Aparicio. They have consumed billions of dollars. Just one, the Tren Maya, a
tourist train for the south-east, will cost at least $28bn, up from its original
budget of $7.5bn. He has also propped up Pemex, the state oil company. It
has received at least $70bn since 2018 in transfers and tax breaks, says
Vanessa Rubio, a former opposition senator now at the London School of
Economics.

All this will put the next president in a bind, even if Congress refuses to
splurge on pensions. Claudia Sheinbaum, the candidate for Morena, the
ruling party, looks set to win. Both she and Xóchitl Gálvez, the candidate for
an opposition coalition, say they will keep paying for cash transfers. Even if
Mr López Obrador’s mega-projects are completed before he leaves office,
his successor will need to reassign money to neglected roads and ports.

Fiscal reform is becoming inevitable. Mexico’s annual tax take is only

around 17% of GDP; in Chile it is 24%. Income taxes are already high, but
the government could incentivise workers to move from the informal sector
into the formal one, where they pay tax. Value-added and property taxes
could probably raise more cash. Meanwhile Pemex also needs reform.

Mexico’s multidimensional measure of poverty shows clearly where cash

should be spent, says Ms Rubio. Mexico has many old people who need
more help, but a lot of its younger people do, too. ■

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Asia
A controversial general looks likely to be Indonesia’s next
leader
Indonesian politics :: Prabowo Subianto looks unfit to govern the world’s third-largest
democracy

South Korea’s writers and directors play Squid Game

Pay the writers :: The people behind the country’s TV and film boom are not profiting from it

Izumi Kenta wants to shake up Japan’s opposition

Force for change :: The centre-left leader tells The Economist his plan for a more serious
politics

Australia’s enthusiasm for immigration is being tested

G’day, goodbye :: The country is trying to slash net migration

Are India’s corruption police targeting Narendra Modi’s

critics?
Rule of Modi :: Money-laundering raids, many on the opposition, have increased 27-fold in
the past decade

Singapore cracks down on Chinese influence

Banyan :: The city-state wields its foreign-interference law for the first time

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Indonesian politics

A controversial general looks likely to be

Indonesia’s next leader
Prabowo Subianto looks unfit to govern the world’s third-largest democracy

Feb 8th 2024 | Jakarta and Madura

AT FIRST BLUSH, it did not seem too alarming. At Asia’s leading security
conference last year, held in a glitzy ballroom at the Shangri-La hotel in
Singapore, Indonesia’s defence minister, Prabowo Subianto, proposed a
peace plan for Ukraine. Clad in a western suit and traditional peci cap, he
then argued for an immediate ceasefire to establish a demilitarised buffer
zone. Both Russia and Ukraine would withdraw 15km from their forward
positions. The United Nations would send peacekeepers and organise a
referendum to decide which country owned the disputed territory. China, a
big investor in Indonesia in recent years, lauded Mr Prabowo’s vision.
Ukraine’s defence minister labelled it “a Russian plan” and “strange”.
The oddest part of Mr Prabowo’s speech was not that it appeared to
constitute impromptu support for Vladimir Putin. It was that it contradicted
the official policy of Indonesia, which had voted to denounce Russia’s
invasion of Ukraine at the UN. Mr Prabowo, who is the favourite to win a
presidential election on February 14th, had consulted neither the current
president, Joko Widodo (“Jokowi”), nor Indonesia’s foreign ministry. For
some Asia strategists, his outburst was a promise of volatile new leadership
in the world’s fourth-most populous country.

The former general’s record is troubling. A former son-in-law of Suharto, a

dictator toppled in 1998, Mr Prabowo stands accused of committing
atrocities during his decades in the army—including, at the helm of its
special forces, in Indonesia’s former territory of East Timor. He is also
alleged to have ordered the kidnapping of more than 20 pro-democracy
activists in 1998, of whom 13 remain missing. (He denies any wrongdoing.)
He was at one time barred from entering America and Australia because of
these allegations.

After losing the past two presidential elections to Jokowi, Mr Prabowo

falsely claimed that the vote had been stolen. In 2019 eight people were
killed after he urged his supporters to protest against the election result. He
has also tried to abolish the direct election of regional leaders and has said
Indonesia needs an authoritarian leader. This raises a more worrying
question about Indonesia’s future under a probable Prabowo presidency. Will
the world’s third-largest democracy continue the broadly successful rise of
the post-Suharto period, or return to authoritarianism?

Mr Prabowo owes his strong footing in the race to support from Jokowi, who
is extremely popular. The president’s eldest son, Gibran Rakabuming, is Mr
Prabowo’s running-mate. There are rumours of a deal between Mr Prabowo
and Jokowi that would allow the outgoing president to wield influence
behind the scenes after his term ends in October. Jokowi’s popularity is
based in part on his solid economic record. During a decade in power he has
presided over annual growth of 5%, liberalising reforms and a policy of
resource nationalism that has helped develop a nickel-mining industry
responsible for nearly half of global output. At the same time, he has
weakened Indonesia’s nascent democratic institutions.
Last October the country’s constitutional court, whose chief justice is
Jokowi’s brother-in-law, delivered a ruling that in effect made the president’s
36-year-old son an exception to a rule that bars anyone under the age of 40
from running for president or vice-president. Jokowi is also alleged to have
suborned the once independent anti-corruption commission. He now faces
mounting criticism that he is interfering in the election. Rival campaign
teams accuse state agencies of arbitrarily cancelling their rallies and
intimidating Jokowi’s critics. Prominent Indonesian academics say the
president is showing disregard for democracy.

If no candidate secures over 50% of the vote on February 14th, the election
will go to a run-off in late June. That would allow the anti-Prabowo vote to
unite, reducing the general’s chance of victory. Mr Prabowo’s two main
opponents, Anies Baswedan, a former education minister and governor of
Jakarta, and Ganjar Pranowo, a former governor of Central Java province,
are both better qualified and more competent than he is. But their lacklustre
campaigns have failed to convince many that a Prabowo presidency would
be dangerous. According to The Economist’s aggregate of recent opinion
polls, Mr Prabowo currently has around 53% of the vote. Mr Anies, who was
sacked from Jokowi’s cabinet, has 20% and Mr Ganjar, the candidate of
Indonesia’s largest political party, 19%.
TikTok politics

Indonesian elections tend to be decided by personality, not policy. Sure

enough, Mr Prabowo’s team has revamped his image by posting short videos
of the former general dancing goofily on TikTok, which has more
subscribers in Indonesia than any country except America. Such gimmicks
have helped divert younger voters, who mostly favour Mr Prabowo, from his
unsavoury past. Many consider his military record a plus. Indonesia’s army
is its most trusted public institution, surveys suggest.
It is unclear what Mr Prabowo would do with the power he has long sought.
He has pledged to maintain Jokowi’s measures, including a nickel-centred
industrial policy and a plan to relocate the capital from Jakarta to a site in the
jungles of Borneo. But given his explosive temper and erratic behaviour,
there is little reason to think Mr Prabowo would defer to Jokowi if elected.
His other big ideas are mostly impractical or ruinously expensive.
Mr Prabowo has said double-digit growth is possible. His team says it aims
to deliver 6-7% annual growth, in order to prevent Indonesia falling into the
middle-income trap. Yet its economy has not grown at 7% since 1996,
before the Asian financial crisis. And Mr Prabowo has given few details on
how he would make it grow faster. His stump speeches are packed with fiery
nationalism. “Some would have us sell raw materials to foreigners at cheap
prices. I say: all our wealth must undergo domestic downstream processing!”
he recently declared, referring to a policy that forces foreign commodity
firms to add value to their products in Indonesia.

Mr Prabowo also says he wants to lessen Indonesia’s reliance on imported

food. As defence minister, he has overseen the destruction of thousands of
acres of forest in a failed attempt to boost rice production. He says he will
give free milk and lunch to all Indonesian schoolchildren to curb the
malnourishment that affects one in five. This programme will cost around
$83m a day, estimates a spokesman for Mr Prabowo, Burhanuddin Abdullah,
a former governor of Indonesia’s central bank. Mr Prabowo’s rivals argue
that policies to reduce stunting should instead be aimed at pregnant mothers
and newborn babies, not school-age children. No candidate has said anything
of significance on foreign policy, beyond attempting to woo the 9m
Indonesian voters who work overseas, many of them as maids, nannies and
labourers on building sites.

The election has had a couple of positives. Five televised candidate debates
were each watched by around 100m people. The vote count is expected to be
credible. And across the world’s biggest archipelago, voters appear to
cherish their suffrage. On a recent day on the campaign trail, tens of
thousands travelled, sometimes for hours, on foot, by motorbike or by lorry
to catch a glimpse of Mr Anies canvassing support on the island of Madura
in east Java. He has held over 20 open forums across Indonesia, known as
Desak Anies or “Challenge Anies”, in which voters are invited to fire
impromptu questions at him.

Villagers in northern Sumatra questioned Mr Anies about land rights.

Younger Indonesians wanted to know if he would legalise marijuana. This
kind of campaigning is a break from the past, where politicians would pay
dancers and musicians to entertain voters at rallies. It is also “a better way to
compete”, says Mr Anies. It is rather hard to imagine this vision of a more
serious Indonesian democracy being realised under Mr Prabowo. ■

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Pay the writers

South Korea’s writers and directors play Squid

Game
The people behind the country’s TV and film boom are not profiting from it

Feb 7th 2024 | SEOUL

IN “SQUID GAME”, a South Korean TV mega-hit from 2021, 456

desperate contestants compete in a series of deadly challenges. A prize of
45.6bn won ($34m) awaits the sole survivor. Working in the country’s
entertainment industry can feel similarly rapacious. Scriptwriters and
directors fight feverishly against long odds to get their projects made. But in
contrast to “Squid Game”, success is unlikely to be lucrative for them.

Shows like “Squid Game”, which became Netflix’s most popular offering
and is said to have netted the company almost $900m, have earned the South
Korean entertainment industry global accolades. Yet Hwang Dong-hyuk, its
creator, says the show made him only enough “to put food on the table”.
Yoon Je-kyoon, head of the Directors Guild of Korea, says its members earn
on average 18m won a year, while writers make only about 10m. The guild,
and 24 other bodies that represent South Korean creatives, are lobbying for
changes to the law to ensure that they are better paid.

Last year America’s creative industries were paralysed by weeks-long strikes

by writers over the reduced royalties, or residuals, that streaming services
pay compared with television networks. South Korean creatives often get
none at all. They are typically hired by a production house for a one-off fee,
for which they forgo rights to any future profits from their work. Only
established stars of the industry can generally insist on a better deal.

The relative decline of cinema and television companies has made that
negotiation harder. Writers’ bargaining power was underpinned by box-
office numbers and TV ratings. By contrast, creatives say, streaming services
release less detailed viewership numbers. And they are increasingly the go-
to source of money for big-budget productions in South Korea. In May
Netflix, which claims to pay “fair, highly competitive rates”, promised to
invest $2.5bn in South Korean content. Disney+ said in September it was
hoping to “gradually increase” its spending in the country.

The strikes in America won writers and directors a better deal. That
approach is unlikely to work in South Korea, argues Kim Byung-in, head of
the Screenwriters Guild of Korea. Not only does the industry lack
Hollywood’s century-long union history, but South Korea’s complex labour
laws and the fact that creatives tend to be freelancers rather than employees
make striking difficult.

South Korean creatives are therefore fighting to change the country’s

copyright law, to include a “right to remuneration”. This would guarantee
them a payout from the end-user, such as a broadcaster or streaming
company, if their creations are successful. Several amendments are being
considered in South Korea’s parliament. Many creatives hope Yu In-chon, a
former actor who became minister for culture in October, will back one of
them.

There is opposition. The Media Platform Alliance for Copyrights Issues, an

outfit that represents broadcasters and streamers, says the change would
cripple the industry. Yet if pay doesn’t increase, South Korean TV and
cinema “could all vanish like fog”, says Mr Kim. He worries that young
storytellers could shift to better-paying media, such as webtoons.■

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Force for change

Izumi Kenta wants to shake up Japan’s opposition

The centre-left leader tells The Economist his plan for a more serious
politics

Feb 8th 2024 | TOKYO

IZUMI KENTA, the leader of Japan’s main opposition Constitutional

Democratic Party (CDP), is itching for change. In an interview with The
Economist, the self-declared progressive laments the country’s slow growth
and demographic woes. The culprit, he reckons, is the conservative rule of
the Liberal Democratic Party (LDP), which has endured for most of the past
seven decades. “Old values have kept sucking the country’s vitality,” says
Mr Izumi. “We want to change things.”

In theory, he has a rare opportunity. The LDP is beset by a financial scandal.

Its leader, Kishida Fumio, Japan’s prime minister, is very unpopular. Yet Mr
Izumi’s party is struggling to take advantage. The CDP’s net approval rating
is around 5% in most polls, while the LDP garners between 15% and 35%.
This reflects the opposition party’s genesis. The party it emerged from in
2017, the Democratic Party of Japan (DPJ), had the misfortune to be in
power when a massive tsunami hit in 2011. Many blamed the painful
aftermath on DPJ incompetence, badly damaging the party’s reputation.

Some of the criticism was warranted. Having antagonised Japan’s powerful

bureaucracy, the DPJ was also unable to implement much of the reform it
had promised. “The DPJ tried too hard to come up with an alternative
system,” says Makihara Izuru of the University of Tokyo. Still, the degree to
which the centre-left remains stained by this failure is hard to fathom.

Mr Izumi—who took the helm of the CDP in 2021—hopes to fix this

weakness, in part by directing the party to adopt more “realistic” and popular
policies. He took over from Edano Yukio, a former DPJ secretary-general,
who was especially associated with the party’s wretched spell in power.
Most Japanese recall Mr Edano appearing on television in a blue jumpsuit
following the tsunami and subsequent meltdown of the Fukushima nuclear
power plant. Mr Izumi, who at 49 is young by the standard of Japanese
politicians, represents an opportunity to reset. Yet, having also served in the
DPJ administration, he still has his work cut out to reassure sceptical voters
that his party is fit to govern.

Born of an inveterate opposition party, the CDP is often accused of lacking a

positive vision. Mr Izumi, who likens his party to the Democrats in America
and the Labour Party in Britain, does have ideas. They include socially
liberal policies such as legalising gay marriage and allowing married couples
to use different surnames, which a majority of the public supports. Yet Mr
Izumi is struggling to get much of a spotlight on his party. He admits it lacks
social-media savvy, yet also expresses frustration with how fixated the
Japanese media are on the ruling party. Many political scientists support that
analysis. “The media are so accepting of the idea that the LDP is the only
game in town,” says Nakano Koichi of Sophia University.

Mr Izumi warrants more attention, if only for a change that he is already

bringing to Japanese politics. Centre-left parties such as the CDP have
traditionally taken a more sceptical view of Japan’s alliance with America
and clung to the country’s post-war pacifist identity. Thus the ill-fated DPJ
government—“for the sake of presenting a grand, alternative vision”, as Mr
Izumi puts it—sought to moderate the LDP’s more hawkish security
policies, alarming America. By contrast, he supports Mr Kishida’s effort to
bolster defence. This echoes public opinion, which has become more
security-minded since Russia’s invasion of Ukraine in 2022.

Mr Izumi has also shown a willingness to revise the centre-left’s long-

standing opposition to nuclear energy. Besides being sensible in itself, this is
also in step with public opinion. The meltdown at Fukushima caused a
furious anti-nuclear backlash that led to the government shutting down
nuclear plants across Japan. But high energy prices have weakened the anti-
nuclear lobby; and without nuclear power Japan will struggle to achieve its
decarbonisation goals. Mr Izumi has shown measured support for restarting
nuclear power stations. He still has much to do to revive the centre-left
opposition. But the pragmatism he is demonstrating makes it seem possible.
■

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G’day, goodbye

Australia’s enthusiasm for immigration is being

tested
The country is trying to slash net migration

Feb 8th 2024 | SYDNEY

AUSTRALIA HAS long claimed to be the world’s most successful

multicultural country. Immigrants have increased its population by more
than a third this century, to over 26m. The promise of sunshine and well-paid
work first drew European migrants; now more come from China and India.
This has never triggered a major populist backlash: most Australians have
welcomed the newcomers with open arms. But now their tolerance is being
tested.

The cause is a massive recent influx. Net migration, a measure of

immigrants minus emigrants, passed 500,000 in the year to July 2023. That
was double the pre-pandemic level—and added more than the population of
Canberra, Australia’s capital, to the national total. The huge increase has
coincided with a housing crisis, which is being widely blamed on
immigrants. The “social licence” for migration is fraying, admits the centre-
left Labor government of Anthony Albanese. In December it pledged to
halve the annual immigration rate over the next two years.

The social licence rests on a trade-off. For two decades both major parties
have pushed border security as a means to stop asylum-seekers, or “boat
people”, while letting in ever-more skilled workers and students. Net
migration more than doubled between 2000 and 2019, fuelling some of the
fastest rates of population growth in the OECD, a club mainly of rich
countries. That fuelled a growth spurt—until a long covid-19 lockdown
triggered a recession and left Australia short of workers.

After it threw open its borders in November 2021, the influx resumed. And
Australians have started to grumble. They are not throwing up fences,
exactly. In a survey last year 78% said immigration made their country
stronger. But most of them would prefer less of it: two polls in December
found that around 60% think the current intake is too high. The percentage
of Australians who rank immigration as their biggest worry more than
doubled, to 13%, between September and December, according to
Freshwater Strategy, a pollster.

The cost of housing is a big reason. Property prices have soared despite high
borrowing costs, and Australia faces a chronic shortage of rentals. A lack of
building is the main cause, but both major parties concede that high
immigration is exacerbating the problem. “We’ve got a generation of
Australians who can’t even get into a rental…it is not the time to be running
very large migration programmes,” said the home-affairs minister, Clare
O’Neil.

Mr Albanese pledges to cut immigration to a “sustainable level”. His

government plans to reduce net migration to a roughly pre-pandemic level of
235,000 by 2027. According to Abul Rizvi, a former deputy secretary of
Australia’s Department of Immigration, this is the first time an Australian
government has set such a target in spite of the obvious risk to growth.
The cuts may be less drastic than they sound. Immigration was in line to fall
anyway, as a backlog of pandemic-era applications is cleared. Still, the
government promises a “crackdown”, particularly on visas for students, the
biggest migrant cohort. The government says many are gaming the system
by enrolling in dud courses.

Is a more populist debate brewing? That is unlikely, says Nick Biddle of the
Australian National University. Australia’s skills-based migration system
gives priority to people with the qualifications it needs. That lessens the
usual griping about wage competition from low-skilled migrants. Politicians
are also wary of alienating the third of Australians who were born outside
the country. Both parties maintain that Australia is a “beautiful multicultural
country”, as Ms O’Neil puts it. For now, this still sets Australia apart. ■

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Rule of Modi

Are India’s corruption police targeting Narendra

Modi’s critics?
Money-laundering raids, many on the opposition, have increased 27-fold in
the past decade

Feb 5th 2024 | DELHI

THE ENFORCEMENT DIRECTORATE used to be a sleepy corner of

India’s finance ministry. Mandated to investigate money-laundering and
foreign-exchange violations, it rarely made headlines under the previous
government, a coalition led by the Congress party, which ruled from 2004 to
2014. Its record on money-laundering—a big problem in India—was
particularly lacklustre: it conducted only 112 raids and failed to achieve a
single conviction.

Under Narendra Modi, the ED (as it is known) has become one of India’s
most feared agencies. Since he became prime minister in 2014 it has
conducted more than 3,000 money-laundering raids and secured 54
convictions. Most controversially, especially in the run-up to a general
election due by May, it has targeted dozens of opposition politicians,
including at least five party leaders—while largely steering clear of bigwigs
in Mr Modi’s Bharatiya Janata Party (BJP). On January 31st ED officers
arrested Hemant Soren, chief minister of the eastern state of Jharkhand, on
suspicion of money-laundering. Mr Soren, who denies wrongdoing, leads
one of the 27 parties in the main opposition alliance.

Opposition leaders have characterised the ED’s activities as a malign effort

by Mr Modi to stifle dissent and engineer his re-election. Mr Soren’s was the
first arrest of a sitting chief minister in India’s history (although he had
technically resigned a few hours earlier). He is also the first leader of the
anti-BJP alliance to have been arrested. He may not be the last. The same
day, the ED issued a fifth summons to a more powerful opposition leader,
Arvind Kejriwal, who is Delhi’s chief minister and heads the Aam Aadmi
party. He is wanted for questioning in another money-laundering case. Mr
Kejriwal, whose deputy is already in jail awaiting trial in the case, has
denied any wrongdoing and refused to comply.

The ED’s targets also include senior figures in Congress, the BJP’s main
national rival. Among them are Sonia Gandhi, the party’s former leader, and
her son, Rahul. In a post on X (formerly Twitter) after Mr Soren’s arrest, Mr
Gandhi claimed that the ED and other investigative agencies were being
used to eliminate the opposition. “The BJP, itself steeped in corruption, is
running a campaign to destroy democracy in its obsession with power,” he
said.

The BJP claims to be tackling corruption that became endemic under

Congress. BJP officials also accuse Congress of having used state bodies,
especially the Central Bureau of Investigation (CBI), to harass opponents
when it was in power. “Corruption is in their nature,” Amit Shah, the BJP
home minister, said in December after tax raids on a Congress MP
uncovered 2bn rupees ($24m) in cash. “Now I understand why a campaign
was run against PM Modi that agencies are being misused.”

Graft was rife during Congress’s rule. And it sometimes misused

investigative agencies—but to nothing like the degree seen under Mr Modi.
Under the previous government, the proportion of cases against politicians
that targeted the opposition was 54% for the ED and 60% for the CBI,
according to an investigation by the Indian Express newspaper. In Mr
Modi’s first eight years in power, that figure rose to 95% for both agencies,
it found.

Graft investigators have targeted some BJP figures in the past decade, but no
party leaders, cabinet members or chief ministers. They also dropped or
eased probes into several opposition politicians after they defected to the
BJP. As for Mr Modi’s claim to have cut corruption overall, activists and
academics say low-level graft has declined, largely thanks to new digital
payment and ID systems, which allow direct welfare payments, cutting out
corrupt officials. But some say the BJP’s policy of pouring cash into
infrastructure projects, often through well-connected firms, has increased
opportunities for big-ticket graft.

It has also hindered proper oversight by haranguing India’s increasingly

buttoned-up media outlets and NGOs, which have also been subjected to
more graft and tax investigations. In a recent annual survey by Transparency
International, a global corruption watchdog, India slipped eight places, to 93
out of 180 countries. Its score on a scale from 0 (highly corrupt) to 100 (very
clean) dropped by one to 39.

That was too small a change to conclude whether the country had grown
more or less corrupt, the watchdog said. But it noted a “further narrowing of
civic space” ahead of the general election. ■

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Banyan

Singapore cracks down on Chinese influence

The city-state wields its foreign-interference law for the first time

Feb 8th 2024 |

“FESTIVE FEVER” is how the Singapore Chinese Cultural Centre describes

the national mood in the run-up to Chinese New Year on February 10th. A
different fever troubles the government of Singapore: how to deal with
China’s allegedly extensive influence operations in the city-state. This month
a sweeping new law against foreign interference was invoked for the first
time, against a Hong Kong-born Singaporean, Philip Chan.

Shadowy Chinese operations are not a new development. In 2018 Huang

Jing, an academic at the Lee Kuan Yew school at the National University of
Singapore, was expelled from the country for his ties to China’s security
ministry. And misinformation and propaganda has long coursed through
Singaporean social media. There are laws in place to regulate that. But the
Foreign Interference (Countermeasures) Act, passed in 2021 and known as
FICA, grants the home minister, K. Shanmugam, new powers to investigate
individuals suspected of engaging in information campaigns by a hostile
state. Mr Chan, the government declared, “has shown susceptibility to be
influenced by foreign actors and willingness to advance their interests.”

Mr Chan is a property investor with interests in both Singapore and Hong

Kong. He is forever popping up in photos of dignitaries visiting business
associations. There is no harm in that. Nor is there in crooning a duet with a
Singaporean minister at a charity event, as he has also been seen to be doing.

Mr Chan is however a member of the Chinese People’s Political

Consultative Conference (CPPCC), an organ of the Chinese Communist
Party. He appears to have crossed a line by trumpeting China’s interests. Last
year, in Beijing, he declared that the Chinese diaspora was duty-bound to
“tell China’s story well”. He added that “if you want to have a future, you
must stand with the country that represents the future.” Similar messaging
comes through in Mr Chan’s various writings in Lianhe Zaobao, Singapore’s
Chinese-language daily.

Not surprisingly, this has annoyed Mr Shanmugam and his colleagues. They
are loth to see their tiny if prosperous state bend to the will of the regional
hegemon. Yet Xi Jinping, China’s supreme ruler, has instructed the
Communist Party to recruit ethnic-Chinese nationals of other countries in a
quest to build international support and stymie political enemies. In 2018
responsibility for relations with the Chinese diaspora was handed to the
same united front department that oversees the CPPCC. In South-East Asia
above all, Chinese embassies and state-security organs reach out to ethnic-
Chinese businessmen, clan associations and grassroots organisations. Mr
Xi’s approach confers primacy to blood rather than to citizenship: no matter
how long ago their forebears left China, ethnic Chinese are considered to
have a duty to their ancestral land.

Distinguishing little between the Chinese state, Chinese culture and Chinese
ethnicity is bound to sow questions about the loyalty and identity of the tens
of millions of ethnic-Chinese citizens of South-East Asian countries. This
causes especially serious worries for Singapore. It is the region’s only
majority-Chinese state, with ethnic Malays, Indians and others in the
minority. It is a rare state founded on multiracial principles. Racial identities
are celebrated but racial harmony is demanded and policed.

Chinese interference, as Singapore’s ruling party sees it, poses a threat to the
very idea of Singapore because it challenges that multiracial compact. No
surprise, then, that the Singapore Chinese Cultural Centre, which contains a
cornucopia of interactive exhibits, emphasises both the uniquely local
dimensions of Chinese culture and the paramount importance of loyalty to
Singapore. It was set up in 2017 after the Chinese embassy sponsored a
cultural centre of its own.

Yet questions arise about the government’s approach to Mr Chan, notes Ian
Chong of the National University of Singapore. What measures will be taken
against him? Or is the point to scare people away from dealing with him (he
has already resigned some of his association positions)? Or is he a case, in
Chinese parlance, of killing the chicken to scare the monkeys—that is, more
significant figures inclined to be in cahoots with China? More influential
Singaporean businessfolk than Mr Chan are members of the CPPCC.
Nobody has suggested they be FICA-ed. Come to that, Singapore has not
named China as the offending country in Mr Chan’s case. China has a way
of making everyone chicken.

Read more from Banyan, our columnist on Asia:

Asia’s commercial heft helps keep Russia’s war economy going (Feb 1st)
South Korea’s ban on praising the North is ridiculous (Jan 22nd)
How Hindu is India’s foreign policy? (Jan 18th)

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China
Can China’s consumers save its economy?
Spend more, please :: Our number-crunching suggests economic “rebalancing” will be
exceptionally hard

Protests are soaring, as China’s workers demand their

wages
Pay up :: They are coming up with creative stunts to put pressure on companies

An espionage case hurts Chinese relations with Australia

Shrouded in secrecy :: The mysterious story of Yang Hengjun who is now sentenced to death

Xi Jinping’s chaos-loving friends

Chaguan :: Why is stability-obsessed China aligned with Iran, North Korea and Russia?

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Spend more, please

Can China’s consumers save its economy?

Our number-crunching suggests economic “rebalancing” will be
exceptionally hard

Feb 6th 2024 | HONG KONG

MOST EMERGING economies struggle to live within their means. China,

however, struggles to live up to them. Even in the best of times, the
combined spending of its households, firms and government is not enough to
buy all that it can produce, leaving a surplus that must be exported. The
country has run a trade surplus for 34 of the past 40 years. And these are not
the best of times. China is enduring its longest spell of deflation since the
Asian crisis over a quarter of a century ago. An epic stockmarket rout since
late 2022 has seen investors lose $2trn.

Behind that panic lies a deeper fear among investors and officials, namely
that China no longer has a reliable engine of growth. The country’s property
boom is over. Cash-strapped developers are afraid to start building flats and
people are afraid to buy them. The infrastructure mania has run out of road:
indebted local governments lack the funds. Exporting goods to the rest of the
world, which China relied on for decades to escape poverty, is getting harder
as protectionism rises and Western countries become increasingly wary of
relying on authoritarian states.

Much therefore rests on one remaining source of growth: boosting the

spending of China’s 1.4bn people. “The Chinese market, with its vast space
and growing depth, will play an important role in boosting aggregate global
demand,” Li Qiang, China’s prime minister, told the World Economic Forum
in Davos last month. A new IMF review of China’s prospects published on
February 2nd contains 61 references to the word “consumption”.

The goal of raising it makes sense. China’s stingy consumers often prefer to
save, not spend. Consumption accounts for 53% of GDP, compared with
72% for the world. On this measure China ranks 156th out of 168 countries.
Its resulting lopsided contribution to the world economy is stark. It accounts
for 32% of global investment and 18% of GDP, but only 13% of
consumption, according to Michael Pettis, an economist. Even among
emerging economies, China stands out: it consumed 7% less per person than
Brazil in 2022, though it produced about 40% more.

What are the prospects of rising consumption bailing China out? The good
news is that 2023 showed some recovery as the end of pandemic-era
restrictions allowed people to return to restaurants, shops and travel. As a
result, consumption accounted for over 80% of growth, the biggest share
since 1999. The bad news is that the prospects of a step change appear slight,
based on the public mood, cross-country maths and China’s own history.

Start with the public mood. The turmoil in the property market has damaged
the income, assets and morale of ordinary Chinese. Take Mr Chen, a
construction worker from Jiangsu province. He has struggled to find work—
and is not always paid when he does. He ploughed his savings into a flat for
his children in a town near his village, where many homes cannot find
buyers. “What’s frightening is not the past, but the future,” he says. The
mood is mirrored in forecasts: the IMF expects consumption growth to slow
during 2024.
Then consider the cross-country maths. Even if China escapes deflation this
year, the long-term pivot required is daunting. For China to rebalance its
economy successfully, consumption would need to rise by about ten
percentage points of GDP, according to calculations by Mr Pettis. The
Economist has examined how often this sort of shift has occurred around the
world, looking at the experience of 181 countries since 1960 and dividing
their economic history into rolling ten-year intervals. We found that only in
11% of cases did consumption rise by more than ten percentage points in the
space of a decade (see chart). Some of these examples are not encouraging.
Albania had a consumption mania in the early 1990s but also experienced
hyperinflation. Taiwan managed a ten-point shift from 1986 to 1996, but the
consumer boom was associated with a big stockmarket bubble.

Finally, consider China’s own history. Its policymakers have talked about
rebalancing the economy towards consumption, and away from exports and
investment, for almost 20 years, since an economic conference at the end of
2004. Back then, consumption’s share of GDP was around 55%—about the
same as today. Rebalancing is easier said than done.

Despite this, China has little choice but to try. One option is to promote a
new consumer culture. Mr Li, in his Davos speech, spoke of rapidly
unlocking China’s “supersize market” and “upgrading consumption”
towards new products such as electric vehicles, smart homes and “green
lifestyle” services. But social change cuts both ways. Even as they say they
want to promote spending, officials are on guard against the wrong kind.
Draft regulations on the video-gaming industry, issued in December and then
withdrawn, instructed companies to punctuate their games with pop-up
warnings against “irrational consumption behaviour”. China’s leaders could,
alternatively, stimulate consumption through short-term handouts to
households. But they seem to view such giveaways as ineffective, wasteful
or worse: an invitation to laziness.

That means the most plausible lever is to make citizens feel more financially
secure, so that they save less and splurge more. Expanding health care and
pension provision is important in the long run. Citizens like Mr Chen might
feel relaxed about spending more if it were easier for them to settle in the
cities in which they work. Under China’s hukou system, a household
registry, Mr Chen is officially a resident of his home village. That makes it
harder for him to access schools and hospitals in the cities where he earns a
living.
Cai Fang of the Chinese Academy of Social Sciences thinks giving migrant
workers urban hukou could raise their consumption by as much as 30%,
although other studies report less dramatic results. A study by economists at
Southwestern University of Finance and Economics in Chengdu found that
rural migrants who obtain urban hukou spend about as much as native city-
dwellers, but do so more conspicuously. The end of the housing bubble
could also liberate consumers. The cost of saving for a down-payment and
servicing a mortgage was 11% of city-dwellers’ disposable income in 2021,
according to rough estimates by Goldman Sachs, a bank. That figure could
fall to about 6% in a decade, it estimates.

Yet for now China’s approach to hukou reform is timid and piecemeal, any
dividend from the housing pivot is years away, and there is little sign of
comprehensive welfare reform. Consumption will probably increase
somewhat as a share of GDP, as a large cohort of retiring workers keeps
spending but stops producing. The associated demographic drag, however, is
hardly positive for growth. For economically insecure citizens like Mr Chen,
the equation points only one way. At 51 he is just nine years from the
customary retirement age for blue-collar workers. But he must look after his
parents as well as his youngest child. “It all depends on me. I don’t dare do
the maths.” For China’s government the calculations are similarly daunting.
■

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Pay up

Protests are soaring, as China’s workers demand

their wages
They are coming up with creative stunts to put pressure on companies

Feb 8th 2024 | BEIJING

“WHETHER YOU’VE got money or not, do go home for lunar new year.”
So goes a sentimental Chinese pop song. This year’s Spring Festival, as the
occasion is also known, begins on February 10th. In recent weeks millions of
China’s migrant workers, who spend most of the year toiling in cities, have
been travelling back to their villages to celebrate with their families. Some
are returning with hard-earned cash, which they might stuff into red
envelopes (per tradition) and give to their children. Others, though, are
coming home empty-handed—not because they are lazy, but because they
have not been paid.
Unpaid wages are a chronic problem in China. Migrant workers are rarely
given formal employment contracts. China’s state-run labour unions
(independent ones are banned) often side with management in disputes. So
companies are under little pressure to pay workers in a timely manner.
Sometimes, when business is bad, they refuse to pay them at all. Tensions
typically come to a head in the period before the Spring Festival, when
migrant workers scramble to get months of back pay before going home.
This year, as China’s economy sputters, things are worse than usual. Protests
over unpaid wages in the period before the Spring Festival have doubled
compared with last year, according to data from China Labour Bulletin, a
watchdog organisation in Hong Kong (see chart). Several local governments
have voiced concerns. The “severity and complexity of the situation cannot
be ignored”, said the Communist Party boss of Huaibei, a city in the eastern
province of Anhui, last month.

Many of those demanding back pay are construction workers, of which

China has about 52m. Four years ago the government introduced policies
designed to cool an overheating property market. But the measures proved
too effective, sending the industry into crisis. Meanwhile, the uncertainty of
the pandemic caused potential buyers to save their money instead. As a
result of all this, many developers halted big projects—and many workers on
those projects have not been paid.

One of them is Zhang Yongyin, who is from Guizhou, a poor province in the
south-west of China. Last summer he worked on a project by Evergrande, a
property behemoth that has been crippled by debt. Mr Zhang says he is still
owed 30,000 yuan ($4,220) by one of the subcontractors. He needs the
money to pay his mortgage and buy his child new clothes. “Everyone doing
construction work has lost heart,” he says.

Unpaid workers often band together to put pressure on companies. Some

block roads. Others are more creative. In January a group of workers at a
factory in Zhejiang province threatened to jump off a government building
unless they were paid. Such stunts are usually posted online to drum up
support. (The group did not jump.)

The central government says it wants to help. In December officials

launched a campaign to “eradicate” the problem of unpaid wages,
threatening to punish recalcitrant firms. But previous efforts have had little
effect. Although the government can force state-owned companies to cough
up, it has little sway over the private contractors that are at the heart of the
problem, says Aidan Chau of China Labour Bulletin.

In any case, the government is more concerned about social stability. That
means it often targets workers, too. Officials fume about “illegal gatherings”
aimed at shaming companies. A county in the western province of Gansu has
threatened to punish workers for the dangerous act of displaying banners
during protests.

At an informal labour market in southern Beijing, two dozen workers

recently waited in the cold, hoping to earn a little extra money before
heading home for the holiday. Few jobs are on offer, though. It has been a
tough year, they say. The workers at least take some comfort in their shared
hardship. Going home with no money would usually be humiliating. But this
year, says Mr Zhang, many of his neighbours have no money either. ■

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Shrouded in secrecy

An espionage case hurts Chinese relations with

Australia
The mysterious story of Yang Hengjun who is now sentenced to death

Feb 8th 2024 | BEIJING

IN NOVEMBER Anthony Albanese, Australia’s prime minister, met Xi

Jinping, China’s leader, in Beijing. Mr Xi declared that China and Australia
had “embarked on the right path of improving relations” after years of
estrangement. Just over two months later that path has a big pothole. On
February 5th Yang Hengjun, an Australian citizen (pictured), was given a
suspended death sentence by a Chinese court, after facing charges of
espionage.

Mr Yang’s story is murky. Born in China, he may once have had ties to the
country’s foreign or security ministries, though the foreign ministry says it
never employed him. He was better known as a writer, publishing spy novels
online and posting about democracy and human-rights abuses. He was
detained in the city of Guangzhou in 2019. Two years later his trial began—
behind closed doors. His death sentence could be commuted to life
imprisonment after two years of good behaviour. Mr Yang denies the
charges.

Australia’s foreign minister, Penny Wong, said her government was

“appalled” by the decision. The bilateral relationship has been fragile for
years. Chinese leaders did not like Australia’s deepening security co-
operation with America, its call for an inquiry into the origins of covid-19
and its decision to bar Huawei, a telecoms giant. China froze ministerial
exchanges and embargoed some Australian exports. The intimidation tactics
did not work and the arrival of Mr Albanese’s government in Australia in
2022 offered China a face-saving opportunity to back down.

One interpretation of Mr Yang’s sentence is that he is guilty. But China

“would be rubbing Australia’s face” in the evidence, if they had any, says
Dominic Meagher of the John Curtin Research Centre in Australia. Another
theory is that China’s government is split. The resolution of a case similar to
that of Mr Yang helped clear the way for better relations. In 2020 a Chinese-
born Australian citizen called Cheng Lei was arrested in China. She had
been working as an anchor on Chinese state television. Convicted of
espionage (with few details given), Ms Cheng spent three years in prison
before being released in October.

Mr Yang’s sentence cuts against this precedent. It would have been approved
by Communist Party leaders. Perhaps it indicates a struggle between
competing bureaucracies. China’s diplomats seem to favour friendlier ties
with Australia, while security officials are keen to show that Chinese who
acquire foreign citizenship are not beyond their reach (China does not allow
dual nationality).

The most obvious lesson is that the extent of any rapprochement was always
going to be limited, given Australia’s alliance with America. That means
even polite Chinese diplomacy is accompanied by a note of menace. Just
after the conciliatory meeting between Mr Albanese and Mr Xi, the Chinese
navy approached an Australian frigate in international waters, emitting sonar
pulses that may have injured Australian divers. ■
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Chaguan

Xi Jinping’s chaos-loving friends

Why is stability-obsessed China aligned with Iran, North Korea and Russia?

Feb 8th 2024 |

TURMOIL FASCINATED Mao Zedong, a revolutionary who enthused that

when “there is great chaos under heaven, the situation is excellent”. Today
China is the indispensable patron of regimes with a Maoist relish for
disorder and for terrorising neighbours, including Iran, North Korea and
Russia. Without China as a trading partner and diplomatic defender—
notably at the UN, when sanctions are on the agenda—those troublemakers
would pay a higher price for their lawless, aggressive ways.

China’s embrace of disruptive powers is something of a puzzle. Chairman

Mao’s China was poor, paranoid and largely closed to the world. Today’s
Communist Party chief, Xi Jinping, presides over a country whose prosperity
and strength rely on globalised commerce. China’s economy is slowing, and
would suffer greatly if the Middle East, North-East Asia or Russia and its
backyard were to descend into wider conflict. Nor is Mr Xi a revolutionary.
He is obsessed by order and stability.

Officially, China deplores the turbulent state of the world. China insists that
it does not endorse the invasion of Ukraine or North Korea’s development of
nuclear weapons. Instead China sees the frustrations of disruptive powers as
vindicating its worldview. While talking of peace and of the just cause of
creating a Palestinian state, China’s preferred order seeks security by coldly
balancing the interests of rival states, with no nonsense about universal
values or individual rights. Its diplomats duly accuse the American-led West
of stoking tensions by ignoring the “legitimate security concerns” of
countries like Iran, North Korea and Russia.

Does chaos suit China, then? Chaguan can report a striking lack of
consensus among foreign governments. Some voices argue that China sees
opportunities in a degree of “controlled chaos”. In that view, crises are
welcome that divide the West, distract America or—in China’s immediate
neighbourhood—advance Mr Xi’s stated goal that “Asian security should be
maintained by Asians” (ie, that America should retreat to its shore of the
Pacific).

A second camp insists that China’s mood is one of fatalism rather than glee.
In this telling, China did not choose this world of chaos and only pretends to
align itself with disruptive powers for propaganda purposes. Still another
camp, which comprises some foreign governments and Chinese scholars,
argues that China is reluctant to put pressure on turmoil-seeking partners,
even when they do something unwelcome, as long as those countries, like
China, face pressure from America. Solidarity does not add up to an
identical worldview, though. “Russia really wants bloc politics, and wants
China and Russia to stand in one bloc against the West. That is not what
China wants. We would like a stable world in which the US is not the only
superpower,” says a Chinese scholar.

Debating China’s view of chaos is more than an academic exercise. Lots of

governments are now asking China to use its leverage to rein in disruptive
partners. Their argument is usually an appeal to China’s self-interest. It is
unclear whether China is convinced.
Take tensions caused by North Korea. In the past few months it has forged
closer ties with Russia, shipping missiles and other weapons to Russian
forces in Ukraine. It has also tested ballistic missiles capable of hitting
anywhere in America. Some hopeful sorts detect signs of Chinese dismay
over these North Korean provocations. They note for instance that Russia
may see an interest in helping North Korea improve its missiles, now that it
is using them in Ukraine. Such Russian aid would give South Korea another
reason to strengthen defence ties with America and Japan: the last thing
China wants. Optimists note that China’s rhetoric has changed, a bit. In
recent times Chinese officials have called for the security concerns of all
relevant parties on the Korean peninsula to be heeded, rather than North
Korea’s alone. Pessimists note that China continues to block new sanctions
on North Korea at the UN. China would prefer to have friendly rather than
hostile relations with a nuclear-armed neighbour, gloomy voices conclude.

As for Iran, foreign governments tell China that its interests suffer when Iran
and its proxies create trouble, as when Houthi rebels fire missiles at ships in
the Red Sea. In reply, it is said, Chinese officials question whether there is
evidence that Iran controls the Houthis, or knew in advance about last
October’s Hamas attacks on Israel. Some observers wonder whether China
had convinced itself, naively, that Iran is a rational power that sees economic
development as its path to greater regional clout. Now China is learning that
Iran is radical and dangerous, not least after watching the country’s
Revolutionary Guards shoot missiles at militants based in Pakistan, a
nuclear-armed friend of China’s. Either way, despite buying lots of Iranian
oil, China is forging far deeper commercial ties with Saudi Arabia and Gulf
Arab states that fear Iran.
China hails Putin as a force for stability

Then there is Russia. Western leaders tell Mr Xi that warm ties with Russia’s
dictator, Vladimir Putin, have harmed European views of China. Mr Xi is
said to retort that China does not support war in Ukraine, but that it took
centuries to establish lasting peace along the 4,300km-long Sino-Russian
border and this achievement cannot be jeopardised. China’s messaging to
Russia is rather different. According to Russian state media, China’s defence
minister told his Russian counterpart on January 31st: “We have supported
you on the Ukrainian issue despite the fact that the US and Europe continue
to put pressure on the Chinese side.” In China’s account of the same call, its
minister agreed—apparently without blushing—to work with Russia on
“global security and stability”.

Perhaps China is best understood as a cynical, opportunist power, concludes

an observer. “They don’t want to see instability and terrorism. But if
America is humiliated in the Middle East, that works well for them. So they
wait, and in the meantime they will do a lot of business.” Much about
today’s Communist Party would startle Mao. Cynicism, he would recognise.
■

Read more from Chaguan, our columnist on China:

Hard times for China’s micro-industrialists (Feb 2nd)
Xi Jinping looks abroad for confidence (Jan 25th)
How China’s public views Taiwan’s elections (Jan 18th)

Also: How the Chaguan column got its name

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Business
America’s economy is booming. So why are bosses
worried?
Discomfort level :: Three of the forces that propped up profits may now be weakening

Samsung’s boss avoids prison, again

Out of the nick, in time :: Lee Jae-yong’s acquittal will benefit him, but not necessary South
Korea

Media companies club together for a joint sport-streamer

Team players :: Disney, Fox and Warner Bros Discovery have a new game plan

Can Giorgia Meloni reinvigorate Italia SpA?

Bittersweet life :: Why Italian companies find it so hard to grow

Fairness: the hidden currency of the workplace

Bartleby :: It animates bosses, employees and customers alike

Vladimir Putin wants to catch up with the West in AI

TsarGPT :: Good luck with that

Musk v Zuckerberg: who’s winning?

Schumpeter :: One burned billions, the other has earned them

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Discomfort level

America’s economy is booming. So why are bosses

worried?
Three of the forces that propped up profits may now be weakening

Feb 4th 2024 |

AMERICA’S STOCKMARKET is on a tear. Over the past three months the

S&P 500 index of large companies has soared by nearly 15%, reaching a
record high (see chart 1). Recent economic data support investors’ optimism.
On February 2nd statisticians reported that 353,000 jobs were created in
January, far more than expected. The economy grew by a healthy 3.3% (at
an annual rate) in the final quarter of 2023. Despite that, inflation slowed to
2.6% on the Federal Reserve’s preferred measure, not far off its 2% target.
Investors are now betting that by the end of the year the Fed will lower its
benchmark interest rate from its current range of between 5.25% and 5.5% to
below 4%, putting a rocket booster under America’s economy—and with it
America Inc.
This wager is not, however, by any means sure-fire. On January 31st Jerome
Powell, chairman of the Fed, scuppered hopes of an imminent rate cut,
arguing inflation was “still too high”. As cheap pandemic-era debts begin to
mature, the interest bill on America’s $21trn pile of non-financial corporate
debt will continue to creep upwards. Profits are more or less stagnant. In the
final quarter of last year, which S&P 500 firms are currently reporting, they
grew by a modest 1.6% year on year. What is more, three of the forces that
propped up profits may now be weakening.
One source of concern is America’s consumers. Some of the fuel that had
sent consumption soaring, confounding expectations of a recession in 2023,
is running out. The excess savings accrued by shoppers during the pandemic,
thanks in part to government stimulus cheques, have now largely been spent,
according to a recent paper by Francois de Soyres and co-authors from the
Fed. Default rates on credit cards have been steadily rising. Student loan
repayments, which resumed last October after the Supreme Court quashed a
pandemic-era moratorium, are adding to pressure on pocketbooks.

As a result, pedlars of discretionary goods are bracing for tough times. On

January 23rd Wayfair, an e-emporium for furniture, announced it would lay
off 13% of staff in response to “persistent category weakness”, just weeks
after its boss sent an inspiring Christmas memo to staff extolling the joys of
“working long hours” and “blending work and life”. On January 25th Levi
Strauss, maker of America’s favourite jeans, said it expected its revenue to
grow between 1% and 3% this year, below what analysts had anticipated,
and announced it would fire 10% to 15% of its workforce. On January 30th
Whirlpool, a maker of home appliances, said it expected like-for-like sales to
be flat in 2024.

That same day Mary Barra, boss of General Motors, America’s biggest
carmaker, cheerily predicted that the number of cars sold in America would
rise by 3% this year—not bad, but well below last year’s 12% increase. And
prices are expected to fall to bolster demand, squeezing margins just as car
firms are digesting higher costs from a new wage deal won by their
unionised workers late last year. American consumers are also switching
more slowly to pricier electric vehicles (EVs) than carmakers had
anticipated. On January 24th Tesla, America’s EV champion, warned that its
growth “may be notably lower” this year. Its shares plunged by 12% in
response, wiping $80bn from its market value.

Even sellers of consumer staples are signalling caution. Over the past two
years makers of packaged food and home essentials have managed to protect
profits from rising costs by jacking up prices without crushing demand. That
strategy now looks to be running out of road. On January 26th Colgate-
Palmolive, a purveyor of toothpastes, said it expected sales to grow between
1% and 4% this year, down from 8% last year. On January 30th Mondelez, a
confectioner, estimated revenue growth for 2024 of 3-5%, down from 14%
in 2023.

A second worry for some companies is the health of consumers in China. A

collapse in the country’s property sector has weighed on consumer
sentiment. In December Nike’s share price plunged after it reported slowing
sales growth in China as a result of “increased macro headwinds”. An order
by a Hong Kong court on January 29th compelling Evergrande, once China’s
biggest property developer, to liquidate could further dampen the mood. The
next day Laxman Narasimhan, boss of Starbucks, an American coffee chain,
warned that “a more cautious consumer” in China was weighing on its
growth. Although Apple, the iPhone-maker, managed to notch up year-on-
year 2% growth in the final quarter of last year, its sales in China slumped
by 13%. On February 5th Estée Lauder, a perfumer, said it would slash 3,000
jobs owing in part to weak Chinese demand. For Western firms, stiffening
local competition is adding to their woes.
Back at home, America’s manufacturing boom may be slowing—a third
source of concern. In the first half of last year monthly factory construction
in America surged by 17%, adjusting for inflation. In the second half this
growth slowed to 8% (see chart 2). TSMC, a Taiwanese chipmaker,
announced last month that it would delay the opening of a second chip
factory in Arizona by one or two years. It had already delayed the first in
July. On February 1st it was reported that Intel, an American chip
manufacturer, would delay the opening of a factory in Ohio. That may be
because subsidies promised by Joe Biden’s administration have been slow to
materialise. Of the $52bn designated in the CHIPS Act for supporting
domestic chipmaking, only a small fraction has been allocated. American car
firms are also postponing investments in EV production in response to
disappointing demand. That could weigh on the factory builders and
suppliers that have benefited from the boom.

One area of activity that shows no sign of slowing down is artificial

intelligence (AI). Amazon, Alphabet and Microsoft—America’s cloud-
computing triumvirate—reported year-on-year growth in their cloud
divisions of 13%, 26% and 30% in the latest quarter, powered in part by
increasing demand from customers for the computationally hungry
technology. All three told investors that their lofty ambitions for AI would
lead them to raise capital spending in 2024. On February 1st Meta, which
too harbours AI ambitions, reported blockbuster earnings and said it would
spend up to $37bn this year, a lot of it on data centres to host AI models. In
contrast to its previous splurge, on its unloved virtual-reality metaverse,
investors lapped it up—as they did news that the company would buy back
more shares and pay out its first-ever dividend. The next day Meta’s market
value soared by $200bn, to $1.2trn, the biggest one-day jump in Wall Street
history.

It may be some time, however, before the rest of corporate America sees a
boost to the bottom line from AI. According to a recent survey by BCG, a
consultancy, only 5% of companies are doing nothing whatsoever with the
technology. But 71% are merely “pursuing limited experimentation and
small-scale pilots”. As America Inc runs low on other fuel, many more such
pilots may be needed to ensure a smooth journey ahead. ■

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Out of the nick, in time

Samsung’s boss avoids prison, again

Lee Jae-yong’s acquittal will benefit him, but not necessary South Korea

Feb 8th 2024 | SEOUL

IT HAS BEEN a while since Lee Jae-yong did not have a court date in his
diary. In 2017 the scion of the family that controls Samsung, South Korea’s
mightiest chaebol (conglomerate), was charged with bribing an associate of
Park Geun-hye, then the country’s president. After being found guilty that
year, he was in and out of prison before being paroled and eventually
pardoned in 2022. In 2020, in the middle of that saga, he was indicted for
stock-price manipulation, breach of trust and auditing fraud. He has since
made 95 trips to Seoul Central District Court.

Mr Lee’s schedule is finally clear. On February 5th the court acquitted him,
and 13 other Samsung employees, of all charges. Mr Lee will hope to put his
legal troubles behind him and get back to business.
Both cases stemmed from the merger in 2015 of Cheil Industries and
Samsung C&T, the group’s unofficial holding company and a big
shareholder in Samsung Electronics, its crown jewel. The deal, which valued
each Cheil share at just under three Samsung C&T shares, passed control of
Samsung from the ailing Lee Kun-hee, the group’s chairman, to his son, the
younger Mr Lee, who was the largest shareholder in Cheil but had little stake
in Samsung C&T.

Prosecutors alleged that Mr Lee and his co-conspirators engaged in

underhanded practices to inflate the value of Cheil relative to Samsung
C&T. These included spreading false information and illegally lobbying
South Korea’s pension fund, a big shareholder in Samsung C&T. The sole
purpose of this scheme, the prosecutors argued, was to tighten Mr Lee’s grip
on the group. As a result, other shareholders lost out. The court ruled that
prosecutors had not provided sufficient evidence to prove either that the
merger was meant to hand control of the group to Mr Lee or that
shareholders had suffered a financial loss.

Mr Lee, who maintains his innocence, asked the court to acquit him so he
could focus “on moving the company forward”. Now that it has, he has
much to do. A slowdown in parts of the chip business, Samsung’s main cash
cow, has cut Samsung Electronics’ operating profit for 2023 to just $5bn, its
worst result since 2008 and down from a peak of $54bn in 2018. Profits
from memory chips, Samsung’s speciality, picked up in the final quarter of
2023. But Mr Lee still faces challenges, from the Sino-American tech war to
stiffer competition.

Then there is domestic politics. If the less business-friendly Democratic

Party keeps its majority in a general election in April, it may revive a bill
that would limit insurers’ assets from being overly concentrated in individual
firms. This would force Samsung Life Insurance, the largest shareholder in
Samsung Electronics, to sell most of its stock. That in turn would imperil Mr
Lee’s control of Samsung Electronics, which he exercises through Samsung
Life Insurance, in which Samsung C&T is the biggest shareholder. To
maintain it, he may need to simplify the conglomerate’s Byzantine corporate
structure.
Mr Lee’s acquittal may yet benefit his family business. South Korean
capitalism, not so much. Last year the World Bank’s arbitration court found
that the government had improperly meddled in the controversial merger.
That the Seoul court has now let its architect off the hook reinforces the
sense among many investors that chaebol heads can still do as they please. ■

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Team players

Media companies club together for a joint sport-

streamer
Disney, Fox and Warner Bros Discovery have a new game plan

Feb 8th 2024 |

MORE THAN 100m Americans will tune in on February 11th to the Super
Bowl, the biggest event in the country’s sporting calendar—and in its
television schedules. In 2023 the audience for the football game (the
American sort) was more than double that of the next-most watched
broadcast that year. Although much TV viewing has migrated to streaming
platforms, when Americans want to watch sport, old-school “linear” TV is
where they go.

Is that about to change? On February 6th three of America’s biggest sports

programmers—Disney (home of the ESPN sport network), Fox and Warner
Bros Discovery (WBD)—unveiled a plan to bring their most valuable
content to a new platform. The as-yet-unnamed streamer will launch this
autumn, showing everything from American football to the tennis at
Wimbledon. If it succeeds it could be a game changer for the media
business.
Most other kinds of TV have already shifted online. Last year streaming
accounted for more minutes of viewing in America than either broadcast or
cable TV, according to Nielsen, a ratings firm. Sport is the exception.
Although big tech has added sport to its menu—Amazon and YouTube have
bought rights to American football, Apple has dabbled in proper football and
Netflix is about to grapple with wrestling—true sport fans still need to shell
out for cable. The audiences are vast: 44 of America’s 50 most-watched
broadcasts last year were sport (see chart).

The new service would be the biggest sporting bet made on streaming. The
total value of sports rights on the platform—golf, NASCAR, hockey and
much else—will be about $16bn a year, reckons Bernstein, a broker. In all,
the content slate will encompass about 55% of American sports rights by
value, says Citigroup, a bank.

Some wonder if the new contender will ever make it to the starting line.
Antitrust regulators may object to three sports-content giants clubbing
together. And joint ventures can be unwieldy. Many are already comparing
the new streamer to Hulu, an early platform launched in 2007 by Fox and
NBC to counter the threat posed by YouTube. Its shared ownership slowed it
down, put a brake on investment and earned it the nickname “ClownCo”.
The new sporting venture risks being “ClownCo 2.0”, says Brian Wieser of
Madison and Wall, an advertising consultancy.

Success may depend on price. LightShed Partners, a research firm, predicts

that a subscription will start at $35 a month (plus a generous helping of ads),
less than half the cost of a comprehensive sport package on cable. Sport
addicts may consider the offering insufficient. But casual fans may be
tempted to ditch cable at last, hastening the decline of cable and satellite
firms, which have already lost half their American subscribers in the past
decade.

What is in it for Disney, WBD and Fox? They stand to lose out at first, as the
juicy cable market shrinks. But the target market is streaming-only
households that have never had cable, Lachlan Murdoch, Fox’s boss, told
investors on February 7th. And by giving viewers a streaming bundle
including sport, they could cut customer churn. People can easily cancel
their Disney+ subscription after bingeing the latest “Star Wars” spin-off
(some 5% do so every month). But they cannot binge a football season. And
when that ends, it will be time for basketball, then baseball and so on.
Joining forces may also improve the trio’s bargaining power relative to
sports leagues. The competition for sports rights is intense as new bidders
such as big tech pile in. If Disney, WBD and Fox bid jointly, they could rein
in the price inflation that leagues now demand. For companies left out of the
initiative, its successful launch would represent their “worst nightmare”,
argues LightShed Partners. Firms like Paramount and NBCUniversal may
find it harder to lure viewers to their own sport-streaming initiatives, even as
the decline of the cable market, which is where they still make most of their
money, speeds up. Time for a new game plan. ■

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Bittersweet life

Can Giorgia Meloni reinvigorate Italia SpA?

Why Italian companies find it so hard to grow

Feb 8th 2024 | MILAN

PROMINENTLY DISPLAYED at a bookshop at Linate airport in Milan is

the cover of Quando eravamo i padroni del mondo (When we were the
masters of the world). The book about the Roman empire has been on the
bestseller list since it was published in September. It reflects Italians’
nostalgic longing for their now rather ancient glory. They could take solace
from the fact that many Italian brands are still masters of the world: think
fast cars (Ferrari, Maserati, Lamborghini), elegant motorcycles (Ducati,
Vespa), beautiful clothes (Gucci, Prada, Zegna) and accessories to go with
them (Fendi, Bottega Veneta).

Except that few of Italy’s coveted marques and labels these days—including
all of those listed above—are fully Italian. Many are either incorporated
abroad, listed elsewhere or owned by foreigners. And taken together, they
lag behind those from other big European countries in terms of value. Italy’s
30 biggest brands are collectively worth just a third of Germany’s top 30 and
a quarter of France’s, according to Kantar, a research firm.
Uffa!

Corporate Italy more broadly likewise punches below the country’s signature
braggadocio. The entire Italian stockmarket is worth less than €800bn
($860bn), barely twice the market capitalisation of LVMH, the French owner
of several Italian luxury brands (including Fendi). The Milan bourse is
smaller than those in Paris and Frankfurt relative to each country’s GDP (see
chart 1). In the past ten years it has underperformed them, too (see chart 2).
Just five of the world’s 500 biggest companies by revenue hail from Italy,
down from 13 in 1997; 136 are American, 30 are German and 23 are French.
Even Spain, whose economy is a third smaller than Italy’s, has 11 firms on
the list. “Italians are world-class at creating companies but they are not good
at managing and growing them,” says Stefano Caselli, dean of the Bocconi
School of Management in Milan.
This irks Italy’s prime minister. Giorgia Meloni. Her right-wing government
wants to recreate Italian champions in industries from cars and energy to
food and fashion. On February 6th it pushed a capital-markets bill through
the lower house of parliament. It is meant to lure more listings to the Milan
stock exchange, pre-empt hostile takeovers and prevent big companies from
incorporating in places like the Netherlands (corporate home to Ferrari,
whose biggest shareholder, Exor, also part-owns The Economist’s parent
company).

The bill’s advocates argue it would remove a big obstacle to the creation of
corporate behemoths—Italy’s shallow capital markets. Critics warn it may
have the opposite effect. Fully 95% of shareholders in Italian listed firms are
foreign, says Dario Trevisan, a lawyer who represents institutional investors.
And the foreigners fear that the bill favours Italians, by allowing public
companies to grant long-term shareholders, who tend to be domestic, shares
with outsize voting rights and, if their stake is more than 9%, the ability to
veto some board appointments.
Italian business could certainly do with a deeper pool of capital. In its
absence, many companies have no choice but to rely on bank loans to
finance their growth. This is also true in other European countries, including
Germany. What distinguishes Italy is that many of its bosses actually prefer
borrowing from lenders to sharing power with other equity holders, says
Andrea Alemanno of Ipsos, a research firm in Milan. Like Julius Caesar, Mr
Alemanno remarks poetically, they would rather be first in a barbarian
village than second in Rome. All too often, the result is that companies take
on too much debt and go bust or get taken over by the government.

The alternative is to stay small. Italy has 4.3m companies with fewer than
250 employees. That is a third more than Germany, an economy twice the
size that is home to the world-famous Mittelstand of small and medium-
sized businesses. Such firms are responsible for 80% of employment and
70% of value-added in Italy, compared with, respectively, 56% and 43% in
Germany. Around 95% of them have fewer than ten employees. These
microenterprises, which tend to be far less productive than larger companies,
employ roughly one in two Italian workers.

“We have a strong layer of companies with 100 to 500 employees, but
beyond that it gets very thin,” admits Corrado Passera, a former economy
minister who runs Illimity, a bank specialised in lending to small and
medium-sized Italian firms. He and his family are nevertheless big believers
in il bel paese and its spirit of enterprise. His wife built a network of
veterinary clinics and his son founded a hotel business.

Setting up a company in Italy is both fun and easy, insists Mr Passera,

especially if you are a technology entrepreneur. In 2012 the government in
which he served passed the Startup Act, packed with incentives aimed at
nurturing innovative tech firms. Businesses which qualify are exempt from
fees for online incorporation, as well as some duties and taxes, and can take
advantage of expedited visa procedures for their international staff and tax
incentives for their investors.

Mr Passera’s high spirits notwithstanding, Italy has yet to create a Valle del
Silicio to rival equivalents elsewhere in Europe, let alone the American
original. Italy has the world’s tenth-biggest economy but ranks outside the
top 20 even among European countries in terms of investment in startups,
according to Sifted, an online publication that tracks such things. It has
produced just two unlisted tech firms valued at $1bn or more (both in
fintech). With luck, it may breed another one soon. Bending Spoons, which
helps clients design apps, has so far raised over $500m, according to
PitchBook, a data provider. But even that would leave it behind Spain, which
boasts four such “unicorns”. Germany has 33 and France 24.

Other promising Italian startups, like many of those beloved Italian brands,
are seeking their fortune abroad. Newcleo, founded by three Italians, is
developing novel lead-cooled nuclear reactors. It has so far raised €400m
($430m). Its research-and-development centre is located in Turin. But its
headquarters are in London. That is because after a referendum in 1987 Italy
phased out nuclear energy, which means no demand for its products in its
home market. Ms Meloni might try to phase it back in as part of its clean-
energy transition. Then again, she might not—decisiveness isn’t Italian
governments’ forte.

A heavy regulatory burden and legislative uncertainty are a problem not just
for atomic startups. All of Italy’s businesses struggle with the same
challenges, says Andrea Bonomi, chairman of Investindustrial, a private-
equity firm based in London and focused on Italian companies. If Ms Meloni
wants Italia SpA to thrive, that is where she should focus her attention. ■

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Bartleby

Fairness: the hidden currency of the workplace

It animates bosses, employees and customers alike

Feb 8th 2024 |

SOME VIDEOS are almost certain to go viral: wild animals that pilfer food
from unsuspecting families, cars that career through the windows of
crowded cafés, pilots trying to land planes in high winds. Some are less
obvious candidates to ricochet around the internet. Take, for example, the
case of Brittany Pietsch, whose recording of a call in which she is laid off
from a tech firm called Cloudflare went viral last month.

The recording lasts nine minutes, shows no one save Ms Pietsch and
involves words like “performance-improvement plan”. Despite these
unpromising ingredients, it makes public a moment of human drama that
could occur to almost any employee. It also tugs at a fundamental human
instinct. Whatever the rights and wrongs of Ms Pietsch’s dismissal, the
manner in which she was fired, in a summary call with two people she had
never met before and for reasons that are never properly explained, seems
unfair. And few things matter more to people than fairness.

In experiments where one person decides how to allocate a pot of money

with another, recipients will routinely reject an offer if they feel they are
being given too little, even if that means neither party gets any cash. A fair
share matters more than free money. Equity matters in non-financial life, too.
A study conducted in 2012 by Nicholas Wright of University College
London deliberately made some participants thirsty by hooking them up to a
saline drip; they would still reject offers of water from fellow participants if
they felt they were being offered too little.

Given how much weight humans place on fairness, it makes sense that
managers should think about it, too. For questions of fairness arise almost
everywhere in the workplace—not just when people lose their jobs but also
in who gets hired, who gets the credit when things go well and who has that
really nice desk right by the window.

Fairness is not just a preoccupation of workers. Last month a judge in

Delaware ruled against Elon Musk’s eye-watering compensation package at
Tesla on the ground that it was unfair to shareholders. A recent study into
CEO compensation by Alex Edmans of London Business School and his co-
authors found that bosses care about fairness, too. Money is not just about
what it can buy; CEOs think it is only right to be rewarded for better
performance, and to be paid in line with their peers. A sense of fairness can
be responsible for driving up bosses’ pay and fuelling anger about it at the
same time.

Customers value fairness, too, not least when it comes to pricing. Consumers
instinctively recoil at the idea of prices rising in response to surging demand,
whether for Uber fares on a busy night, face masks in a pandemic or snow
shovels the night after a big storm. Such views are deeply ingrained. A
recent paper by Casey Klofstad and Joseph Uscinski of the University of
Miami asked Floridians for their views of anti-price-gouging legislation that
would prevent shops from raising prices after a hurricane. Even when told
that economists and other experts believe that mandatory price ceilings
would exacerbate shortages and lead to store closures, respondents supported
the law. (Depending on your point of view, this either proves that the public
is irrational or that economists are not human.)

More often, opinions differ. The covid-19 pandemic, for example, drew a
new dividing line between people who can and do regularly work at home,
and those who have to come into offices and workplaces because of the
nature of their jobs. For many, this rectifies old unfairnesses: the option of
working from home enables single parents to combine child care and their
jobs more easily. For others, it reinforces existing inequities: poorer, lower-
skilled workers are disproportionately likely to be the ones without a choice
about where to work.

This combination of salience and subjectivity makes fairness a tricky area

for managers to navigate, but not an impossible one. No hiring decision will
feel fair if qualified employees do not even know that there is a job going; a
survey of 3,000 jobseekers by Gartner, a research firm, in 2021 found that
half of them were not aware of internal career opportunities. No lay-off will
feel fair if it is too impersonal; Cloudflare’s CEO agreed that Ms Pietsch’s
manager should have been on the call in which she was fired. Even if people
differ over what counts as the right outcome, they can usually agree on what
makes for a fair process. That is more than half the battle.■

Read more from Bartleby, our columnist on management and work:

Jürgen Klopp and the importance of energy (Jan 29th)
Why you should never retire (Jan 25th)
Companies run to their own annual rhythms (Jan 18th)

Also: How the Bartleby column got its name

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TsarGPT

Vladimir Putin wants to catch up with the West in

AI
Good luck with that

Feb 8th 2024 |

SIX YEARS ago, before anyone had heard of ChatGPT, Vladimir Putin said
that the country that led the development of artificial intelligence (AI) would
become the “ruler of the world”. He echoed the sentiment in December,
when he suggested that Russia should “head and lead” the march of AI.
Those comments came in response to a video-caller during a televised
phone-in who had taken on the Russian president’s likeness using an
apparently AI-generated deepfake, seemingly startling the real-life
strongman for a moment.

For Mr Putin, “leading” on AI is part of an ideological battle with the West.

The success of tools such as ChatGPT, developed by an American startup
called OpenAI, has led him to decry the dangers of relying on Western AIs
trained on English-language data. Western “large language models” (LLMs)
could, Mr Putin avers, “cancel” Russia’s perspective on the world if
unchallenged. They also threaten a regime that has sought to control the
Russian internet in recent years, a process accelerated by the invasion of
Ukraine. To no one’s surprise, the Kremlin banned ChatGPT shortly after its
launch in November 2022. Several Russian companies are hard at work
trying to build alternatives.

Last year Sber, a state-controlled lender with tech ambitions that was first
tasked by the Kremlin with AI development in 2019, launched GigaChat, a
chatbot that combines a command of Russian with the ability to generate
computer code and images. Yandex, Russia’s search giant, has integrated an
LLM, YandexGPT-2, into its virtual-assistant service, known as “Alice”.

The models are excellent at hewing to the party line. Alice, for example,
refused to answer The Economist’s questions about the war in Ukraine or
Alexei Navalny, Russia’s main opposition leader imprisoned in Siberia. It is
less clear that they are capable of outsmarting Western AIs. Yandex claims
that YandexGPT-2 does better than GPT-3.5, the model behind an earlier
version of ChatGPT, when answering queries in Russian. But Western
experts consulted by The Economist have found no independent analysis to
confirm this contention, and there have been no public comparisons with
GPT-4, the much more powerful current iteration of OpenAI’s model.

Russia also lags behind the West on a variety of AI-innovation indicators. A

report compiled by Stanford University said that, in 2022, the country
produced only one “significant” machine-learning system, compared with 16
in America and eight in Britain. As of June 2023 Russia was thought to have
just seven of the world’s 500 most powerful supercomputers, in contrast with
America’s 150. Russia also ranked 38th out 193 countries in the latest AI-
readiness index by Oxford Insights, a consultancy; America came first.

To catch up, Mr Putin envisages an ambitious AI strategy to replace an

earlier one from 2019. The Kremlin’s list of initial “instructions”, released in
January, suggests this new plan will aim to increase Russia’s
supercomputing capacity, expand training for AI professionals and improve
co-operation among the BRICS, a bloc that includes China and India.
Mr Putin’s instructions seem unrealistic, to put it politely. The war has led
many Russian developers and engineers to flee from the country: one
Kremlin official has suggested that 100,000 IT specialists left in 2022 alone,
roughly 10% of the tech workforce. Arkady Volozh, Yandex’s founder, lives
in exile in Britain and Israel after criticising the invasion. Sanctions limit
Russia’s access to advanced chips, which are made almost exclusively by
companies in America, South Korea and Taiwan, all part of the anti-Russian
alliance. In Russia’s war economy, private investment in tech is,
unsurprisingly, dwindling. The value of venture capital going into the sector
was just $71m in 2023, according to DSight, a business-intelligence firm
based in Moscow, a fall of 83% from the previous year.

Mr Putin’s response is, as with most things in Russia these days, to tighten
the state’s grip over the industry. In 2022 Yandex sold its news and blogging
services to VK, a state-controlled online conglomerate. On February 5th its
parent company, which is based in the Netherlands and listed in New York,
said it would sell the Russian business (which accounts for 95% of its
revenues) for $5bn to a consortium led by an arm of Lukoil, an energy
company. The Kremlin welcomed the deal. State-run entities such as Rostec,
a defence group, and Gazprom Neft, a subsidiary of the country’s largest
energy firm, are also dabbling in AI. Sber’s chief executive, German Gref,
says the bank is investing some $1bn a year in the technology.

These sums are, though, trifling next to the tens of billions of dollars being
spent by American AI champions such as Alphabet and Microsoft (which
has a partnership with OpenAI). The state money brings with it inefficiency
and a lack of competition—hardly a recipe for innovation. It also encourages
developing AI for the battlefield rather than the marketplace.
On the defensive

Russia has made progress in military AI, says Katarzyna Zysk of the
Norwegian Institute for Defence Studies, a think-tank, particularly in drones.
But in the West and even in China, a Russian ally, the excitement over
machine learning has been fuelled chiefly by recent leaps in general-purpose
applications such as ChatGPT, not specialist ones like pilotless aircraft.
Western and Chinese strategists are counting on such fast-improving civilian
AI to confer an economic and, ultimately, geopolitical and military edge. So
long as it remains on a war footing, Russia will not make much progress on
that front. ■

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Schumpeter

Musk v Zuckerberg: who’s winning?

One burned billions, the other has earned them

Feb 6th 2024 |

THE PLAYGROUND rivalry between Mark Zuckerberg and Elon Musk

dates back years—and in who-is-cooler-than-whom terms, Mr Musk usually
wins easily. As an innovator, Mr Zuckerberg, co-founder of Facebook and
boss of Meta, a social-media giant, has often been dismissed as a geeky
dilettante in a hoodie. He has never received the Promethean kudos Mr
Musk has for turning Tesla into a stallion of electric vehicles (EVs) and
SpaceX into a rocket sensation. Mr Zuckerberg is notorious for his motto
“move fast and break things”, which may have helped Facebook conquer the
world but gave licence to critics to cast it as a social menace. Mr Musk is
revered as a rule-breaker, plays up his bad-boy image and mostly gets away
with it.
Such was the tenor of their relationship when Mr Musk proposed a cage
match with Mr Zuckerberg in June last year just before Meta launched a
short-messaging app, Threads, to compete with Mr Musk’s Twitter (now X).
Forget the physical fight that never happened. In business terms, even then
Mr Musk had the upper hand. He was the richest man on Earth. Tesla’s
market value, though falling, was higher than Meta’s. Its revenues were
growing faster. Yet since then, he could not have kicked himself harder in
the teeth. In the past few weeks Tesla has shocked investors with a horror-
show earnings presentation. Mr Musk’s $56bn pay package from 2018 was
rescinded by a judge, which has slashed his net worth. From America to
China, his EVs have suffered recalls.

Mr Zuckerberg, meanwhile, is punching the air. On February 1st Meta

released earnings showing a staggering rise in sales and margins. Its market
value has reached $1.2trn, exactly the level Tesla achieved at its peak in
2021, and more than twice what the EV-maker is worth now. To be sure,
short-term measures of financial performance are not everything. But look at
longer-term factors, such as the way both men run their businesses, treat
their shareholders and customers, and respond to their own failures, and it is
clear the fight is as good as over. Zuck has won.

To understand why, start with the interplay between the way both
gazillionaires control and run their companies. Each of them lords it over
their firms in a way that makes corporate-governance advocates blanch: Mr
Zuckerberg via a dual-share structure that gives him majority control of
Meta; Mr Musk, by having everyone at Tesla in his thrall. But as Mr
Zuckerberg has become more sensitive to his fellow shareholders, Mr Musk
has become less so. That has had a big impact on performance.

Mr Zuckerberg’s volte face started in 2022 when shareholders recoiled at the

way he was blowing their money (and his) on moonshot projects like the
metaverse, just as Meta’s core business was slowing. Instead of ignoring
them, he listened. Since then he has changed his tune to focus on cutting
costs, boosting profits, and using the cash to invest in artificial intelligence
(AI) and the metaverse in a way that improves existing products as well as
funding futuristic bets. Moreover, to convince shareholders he is not wasting
their money, Meta will return more cash to them via share repurchases and
pay the company’s first-ever dividend.
Mr Musk has had no such epiphany. In the two years since Tesla’s share
price peaked, he seems to have doubled down on disappointing fellow
owners of the company’s stock. The sensible ones long for a cheap, mass-
market EV. Instead Tesla is selling expensive ones at a margin-shredding
discount. They want him to spend more time at Tesla, but he splits it with
SpaceX and wastes it at (and on) X. They yearn for full-self-driving cars as
the catalyst for a robotaxi revolution. Instead, even diehard fans were
stunned recently when Mr Musk threatened to move his AI and robotics
efforts away from Tesla unless he was given 25% voting control.

That leads to a second big difference: motivation, which was the crux of the
judge’s decision in Delaware on January 30th to strip Mr Musk of his
gargantuan pay cheque. Mr Zuckerberg, as the judgment noted, receives no
salary or share options. His 13% economic stake in Meta is the main
incentive to come to work each day. Mr Musk, however, is different. Though
his Tesla shareholding at the time meant he would become $10bn richer
every time Tesla’s value jumped by $50bn, that wasn’t enough. Tesla’s board
(many of whom the judge ruled were too chummy with Mr Musk to be
independent) convinced shareholders that an extra incentive was needed to
keep his nose to the grindstone: namely, the biggest payout in the history of
public markets. Now that it has been voided, his motivation, presumably, is
even more in doubt.

Then there are both men’s attitudes to customers, which have also moved in
opposite directions. Mr Zuckerberg was vilified for Facebook’s fast-and-
loose approach to users’ data, content moderation and privacy. The concerns
are still strong, especially when it comes to youngsters on social media. But
Facebook now has an independent oversight board to rule on content
decisions, and Meta says it has invested $20bn since 2016 in online safety.
No doubt Mr Musk still has some loyalists as customers. But considering
how many American EV owners lean Democratic, the more he rants on X,
the more it is clear that he disdains their political opinions. The latest recalls
are a further source of worry (though the problem can be fixed with a
software update). In China, a huge market, he faces stiff competition. Meta,
by contrast, credits Chinese advertisers with helping drive a big surge in ad
revenues last year.
Caged tyrant
In a nutshell, as Mr Zuckerberg grows older, he appears to have learned from
his mistakes. As Mr Musk grows older, he gets more puerile and distracted.
His huffy reaction to the Delaware court’s judgment, threatening to up sticks
and move Tesla’s incorporation to Texas, is a case in point. It indicates he
wants the company’s shareholders to have even less protection from his
capriciousness than usual. If anyone should get into the ring and hammer
some sense into him, it is them. ■

Read more from Schumpeter, our columnist on global business:

How much should TikTok fear a resurgent Donald Trump? (Feb 1st)
Can MSCI drag private markets out of the shadows? (Jan 25th)
Why BlackRock is betting billions on infrastructure (Jan 18th)

Also: If you want to write directly to Schumpeter, email him at

schumpeter@economist.com. And here is an explanation of how the
Schumpeter column got its name.

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Finance & economics

China’s stockmarket nightmare is nowhere near over
Fanning the flames :: The situation ought to worry Xi Jinping

The dividend is back. Are investors right to be pleased?

Buttonwood :: Why cash payments are no longer the preserve of widows and orphans

Are NYCB’s troubles the start of another banking panic?

Spring fever :: Probably not. But they do suggest broader problems

Bankers have reason to hope Trump triumphs

Capital punishment :: Will they now spend big on his campaign?

The false promise of Indonesia’s economy

Running out of road :: Presidential candidates vow to deliver 7% growth. Voters have heard it
before

Universities are failing to boost economic growth

Free exchange :: Too often they generate ideas that no one knows how to use

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Fanning the flames

China’s stockmarket nightmare is nowhere near

over
The situation ought to worry Xi Jinping

Feb 7th 2024 | Shanghai

RUNNING CHINA’S securities watchdog is a perilous job. A market rout

can end your career, or worse. On February 7th, after weeks of stockmarket
instability, Yi Huiman, the head of the China Securities Regulatory
Commission (CSRC), was suddenly fired and replaced. He is not the first
official to fall after a period of plummeting stock prices. Liu Shiyu, his
predecessor, was sacked in 2019, and later investigated for corruption. Xiao
Gang, the boss before that, was treated as a scapegoat for the market crash in
2015.

Before his dismissal, Mr Yi would have been aware that he was on

dangerous ground. Already this year, more than $1trn in market value has
been wiped from exchanges in China and Hong Kong. On February 5th the
Shanghai Composite plummeted to a five-year low. All told, the index is
down by more than a fifth since early 2022. And as miserable as the
performance of Chinese stocks has been for most of their three-decade
history, the present downturn feels different.

That is because China’s economic prospects are gloomier than at any point
in recent history. The dire state of the property market is the chief problem.
Prices and sales have fallen for more than a year; policymakers have failed
to prevent the correction. During the stock rout of 2015 retail investors had a
slogan: “Sell your stocks and buy real estate.” No one is chanting it these
days. To make matters worse, the government’s rescue plans do not look up
to the task.

For many citizens, it feels as if China never truly emerged from its dismal
zero-covid years. An economic recovery that was expected to play out in
2023 instead faltered during the first half of the year, leaving the country
mired in deflation. Pessimism has clouded the market ever since. Goldman
Sachs, a bank, recently asked a dozen of its local clients—asset managers,
insurers and private-equity types—to rate their bearishness towards China on
a scale of zero to ten, with zero being equal to their outlook during the
lockdowns of 2022. Half gave the country a score of zero; the other half said
three.

The situation ought to worry Xi Jinping, the country’s leader, for several
reasons. One is that more than 200m Chinese people own stocks, and
officials risk taking the blame. Few things enrage Chinese social-media
warriors more than a market rout. One recent post suggested that food
deliveries to the Shanghai Stock Exchange were being searched for
dangerous materials, such as bombs or poison. Many have piled onto the
American embassy’s social-media account to gripe. And a flurry of angry
posts have been directed at Hu Xijin, a nationalist media personality who
often tries to whip up support for Chinese shares. He said last year that he
would jump off a building if he lost too much money on stocks—not
because of the loss itself, but because of embarrassment. As the Shanghai
Composite hit its five-year low, some advised that he keep his word.
Another reason for Mr Xi to worry is that markets reflect the perception of
China and his leadership abroad. Until relatively recently global investors
were in love with Chinese stocks. Their inclusion in MSCI’s flagship
emerging-markets index in 2018 was welcomed by asset managers, and
hailed as a step forward in attempts to make Chinese stockmarkets more
international. Needless to say, the excitement has since faded. Zero-covid
policies hurt China’s reputation. Mr Xi’s support for Vladimir Putin despite
his invasion of Ukraine has done further damage. But nothing, most
investors agree, has harmed Mr Xi more than allowing the property
downturn to drag on for years.

Although Chinese authorities still hope to attract investment, foreign

investors are fleeing. They have been net sellers for months, dumping $2bn-
worth of shares in January alone. The sell-off has been so severe that some
experienced foreign investors are shutting down. Asia Genesis, a hedge fund
in Singapore, announced in January that it would close its doors following
the unexpected price drops.

Most foreign investors hold little hope for a recovery any time soon. One
investment manager at a foreign bank in Shanghai suggests that the
stockmarket may stabilise in the coming weeks. Indeed, on February 6th the
CSI 300, an index of firms, finished the day up by more than 3%, its best
performance in more than a year. Yet the low level of confidence will persist
until leaders put forward a sufficiently ambitious plan to fix the property
market. That might take years, the manager notes.
Money talks

Regulators have put out a series of statements about market stabilisation

since late January. Most recently, on February 6th Central Huijin, the
domestic arm of China’s sovereign wealth fund, indicated that it would start
buying shares to help stabilise the market. On February 4th the CSRC said
that it would prevent abnormal movements in trading, while cracking down
on “malicious” short-selling. Such announcements have made fund
managers uneasy. Foreign investors need to use hedging tools, like short-
selling, to operate normally. Talk of a crackdown has therefore caused them
to withdraw from Chinese markets in case they can no longer hedge
positions. Some are also pulling back owing to fear that their staff could be
detained and accused of financial crimes.

Both foreign and domestic investors are awaiting a state bail-out fund, about
which there have been hints but nothing more. On January 23rd Bloomberg,
a news service, reported that a stabilisation fund armed with some 2trn yuan
($280bn, or about 3% of China’s stockmarket capitalisation) could start
buying up shares. The “national team”, a handful of state-owned asset
managers, which includes Central Huijin, often steps in during downturns. In
2015 the team hoovered up about 6% of the entire market capitalisation via
purchases of individual stocks. More recently, these investment firms have
bought exchange-traded funds to avoid claims of insider-trading when the
names of their targets leak. Although investors have seen signs of the
national team at work in recent weeks, so far they have probably bought less
than 100bn yuan-worth of shares—far below the amount required to produce
a serious turnaround in the markets.

The central government may eventually step in with a bigger bail-out

package, perhaps after the Chinese New Year holiday, which will shut
markets for a week starting on February 12th. But Mr Xi is also eyeing
sweeping reforms to how China’s stockmarkets work and how investors
value the companies that trade on them.

One part of the plan is to shift China’s markets from a focus on capital-
raising to one on helping investors preserve their wealth. The distinction
often perplexes foreign market-watchers. Shouldn’t stockmarkets serve both
capital-hungry companies and regular investors? In theory, yes. But in China
markets are different, since they often serve state objectives, too. In recent
years, for instance, one of Mr Xi’s main aims has been to open capital
markets to industries such as artificial intelligence, green technology,
robotics and semiconductors, as part of a push to compete with America and
dominate a number of advanced-tech industries. The government has also
been keen on companies in these sectors listing within China rather than on
foreign exchanges, which led to the largest wave of initial public offerings
(IPOs) and follow-on issuance in Chinese history. Indeed, such was the
response, it turned the country into the world’s biggest IPO market for
several years. Chinese companies raised more capital on local stock
exchanges between 2020 and 2023 than they did in the decade before.

This helped meet Mr Xi’s aims. But it also drained liquidity from secondary
markets, where investor value is stored. Firms often went public at high
valuations only to see their share prices fall. Now regulators want to shift
towards a more “investor-oriented” market that protects average investors.
That means fewer IPOs and more liquidity directed to secondary trading.
History repeats
China’s markets have moved through such a cycle before. In 2012 regulators
halted all IPOs in the hope that excess liquidity would support share prices.
As a consequence, no company went public in 2013, even as hundreds
joined a queue to do so in the hope of raising funds. IPOs resumed in 2014.
The following year the stockmarket launched into a historic rally that ended
in a dramatic crash. The experience hurt the standing of both China’s capital
markets and its regulators. As officials try once again to make markets more
friendly to investors, capital allocators will be supremely conscious of what
happened previously.
Another part of the Chinese government’s long-term plan is to raise the
market value of state-owned enterprises (SOEs). Although such companies
already dominate China’s markets, they are valued at just half the level of
similar non-state companies. This is because SOEs are viewed by investors
as clunky operators that are more loyal to party apparatchiks than to
shareholders. Policymakers have therefore proposed creating a “valuation
system with Chinese characteristics” in order to boost their share prices.
Such a system would aim to “educate” investors on the broader social roles,
such as reducing unemployment during downturns, that state enterprises are
supposed to play. But it would also involve reforms within SOEs
themselves. State managers have historically cared little about investor
relations, and have not used return on equity as an internal metric for judging
performance. This would change. Meanwhile, regulators want the firms to
pay out regular dividends and conduct share buybacks that reward investors.
If the reforms are successful they would not only increase prices on China’s
stock exchanges, they would boost the wealth of the state through its
holdings in these companies.

These changes would have been easier to make when China’s stockmarket
was smaller and the country’s economy was still growing rapidly. Most of
the reforms require investors to accept the state’s dominant position in the
market, whether in directing capital flows or in making SOEs more
palatable. Investors now have decades of experience in trading Chinese
shares. They remember the initial attempts to list and market SOEs, as well
as the desire to guide capital into certain parts of the economy, and they have
witnessed the results. Ultimately, Chinese investors may have little choice
but to return to the country’s stockmarkets. Foreign investors, however, have
other options. ■

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Buttonwood

The dividend is back. Are investors right to be

pleased?
Why cash payments are no longer the preserve of widows and orphans

Feb 8th 2024 |

META CELEBRATED its 20th anniversary this week as all good and
mature businesses should: by paying shareholders a dividend. In lieu of a
birthday bash, the Silicon Valley stalwart marked its coming of age with a
stock buy-back and, for the first time, by offering a dividend. Investors will
receive 50 cents per share. Markets partied, with Meta’s share price rising by
20%, adding more than $200bn to the company’s market capitalisation on
the day of the announcement.

The dividend, a 17th-century innovation, was a mainstay of markets for

much of the 20th century. Stockpickers used the cash they earned from
dividends to price shares. The Bloomberg terminal of its time, Moody’s
Analyses of Investments, evaluated the giants of American rail on dividends
per mile of railroad laid. But the years have not been kind to the once-
dominant dividend. Since the early 1990s, regular cash payments to
shareholders have been in retreat, losing out to stock buy-backs, in which
management uses earnings to repurchase their stock, boosting the share
price.

Managers love buy-backs because they cut the number of shares on the
market, lifting earnings per share—and thus often executive compensation,
too. A higher stock price is all the more enticing if management is
compensated with the option to buy company shares. In the past, investors
have also preferred buy-backs. Capital gains are taxed at a lower rates than
dividend income in some countries, and investors like owning an
appreciating asset because they can choose when to sell and pay the taxman.

Meta’s decision to hand earnings to its minority owners received a raucous

reception, however. It is just the latest sign that markets are coming to
appreciate dividends. Those from S&P 500 firms rose to $588bn last year,
up 22% against three years ago. Investors have put $316bn in dividend-
focused exchange-traded funds globally, almost doubling their size over the
same period. An analyst at Bank of America speculates that 2024 could be
“a banner year for dividends”.

Why the shift? Daniel Peris of Federated Hermes, an investment house, and
author of a new book, “The Ownership Dividend”, puts the decline of cash
payments down to decades of falling interest rates and Reagan-era changes
to buy-back rules. As the risk-free rate fell, returns on bonds and savings
diminished, and so did the advantages of holding cash. Cheap money
enabled investors to plough capital into non-dividend-paying growth stocks.

In that time, writes Mr Peris, highfalutin financiers came to see the dividend
as the preserve of “widows and orphans”. Only staid companies, like banks
and utilities, tended to bother with them. Yet today’s economic environment
looks different. Interest rates have risen. Startups without a path to
profitability are failing to win over investors. And the Biden administration
has levied a tax on buy-backs. It is currently meagre but officials hope it will
rise.
Perhaps cash is once again king. Higher interest rates mean that investors
can put income to work. Many are enjoying respectable, risk-free returns in
money-market funds. Higher risk-free rates also lower the value of future
earnings in today’s dollars, meaning some investors will prefer cash in hand
today to higher stock prices tomorrow.

A similar calculation holds true for management, whose options for

deploying cash have become more limited. Higher rates demand higher
expected returns from long-term investments and discourage taking on debt
to fund share repurchases. The Biden administration’s distrust of corporate
takeovers means that acquisitions are less viable. Many firms are therefore
considering how best to return dollars to their shareholders.

Investors have reason to be careful, however. As economists argue, earning a

dividend is like taking cash out of an ATM—it does not make you richer. If a
company were to reinvest its earnings rather than pay out a dividend, it
ought to make more money in future and thus deliver a higher share price.
As a consequence, investors should be equally happy with either option.

A firm that issues a dividend is signalling that it has confidence in its future
cash flows, since shareholders often assume dividends will be permanent
and managers are loath to cut them. Yet such a move also suggests that
bosses have nowhere better to invest company cash, which bodes poorly for
a firm’s growth. Although high-yielding dividend stocks offer a reliable
income stream, they are unlikely to reward owners with a capital gain worth
celebrating.■

Read more from Buttonwood, our columnist on financial markets:

Bitcoin ETFs are off to a bad start. Will things improve? (Feb 1st)
Investors may be getting the Federal Reserve wrong, again (Jan 24th)
Wall Street is praying firms will start going public again (Jan 18th)

Also: How the Buttonwood column got its name

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Spring fever

Are NYCB’s troubles the start of another banking

panic?
Probably not. But they do suggest broader problems

Feb 8th 2024 | Washington, DC

A BANK PUBLISHES lousy earnings or an “update” on its business. Its

share price plunges. Its name is splashed on newspaper front pages. The
bank’s bosses hold a conference call urging calm. Its share price slides some
more. Anyone who has paid attention to America’s banking industry over the
past year will recognise these events. They ended in failure for Silicon
Valley Bank (SVB) in March and First Republic Bank (FRB) in April.

At first glance, the same script seems to be playing out once again. On
January 31st New York Community Bancorp (NYCB) of Hicksville, New
York, reported a quarterly loss. Its stock promptly dropped by 46%. During a
hastily organised conference call with investors on February 7th, Alessandro
DiNello, the bank’s hastily appointed executive chairman, attempted to
soothe fears. Shares sagged, dropping another 10% when markets opened
that morning.

Yet the surface-level similarities in these stories belie two big differences.
The first, and most important, is that NYCB does not appear to be on the
brink of failure, nor is it easy to see how it will fail in the coming weeks.
Indeed, its shares later rallied on February 7th. The second is that its
problems indicate a different type of trouble has begun. When interest rates
rise their impact on things like bond prices is immediate. Their impact on
borrowers’ ability to repay debts takes longer to play out. SVB and FRB
were both imperilled by a combination of flighty deposits and their
investments in low-interest-rate securities or loans, the value of which
collapsed when rates climbed. NYCB is struggling, in large part, because a
big loan went bad.
Start with NYCB’s balance-sheet. The bank, which holds $116bn in assets,
earned around $200m in the third quarter of 2023. But in the final quarter it
had to set aside $552m to cover property loans, resulting in a $252m loss.
Even before this, it was working to beef up capital levels. In 2023 it acquired
assets and deposits from Signature Bank, which failed along with SVB last
March. This pushed NYCB’s assets past $100bn, subjecting it to stricter
regulation. Compared with its new 12-figure peers, NYCB is no fortress.
The bank’s common equity tier-1 ratio, a measure of capital based on the
riskiness of its assets, fell to an unimpressive 9.1%, down from 9.6% in
September. In a bid to retain more equity, the bank slashed its dividend.

More than half of the bank’s value has now evaporated, leaving it with a
market capitalisation of $3bn, less than a third of the book value of its
equity. Analysts have slashed their profit forecasts for the bank. On February
6th Moody’s, a rating agency, downgraded NYCB to junk status, citing the
bank’s exposure to commercial property and the recent exit of important
audit and risk-management personnel.

Grim stuff. But NYCB’s deposits provide reassurance. More than two-thirds
of the $83bn deposited at the bank is insured, a far larger share than at SVB
and FRB before their failures, which should mean depositors are less flighty.
If they do run, the bank should stay standing. Against uninsured deposits of
$23bn, NYCB holds $17bn in cash, $6bn in securities and collateral that
could be used to borrow $14bn from the Federal Home Loan Banks (FHLB)
system or the Federal Reserve’s discount window. In addition, NYCB can
exchange $10bn of “reciprocal deposits” with other banks, which could in
effect reduce the share of its deposits that are uninsured.
Run along

Some sources of liquidity are easier to tap than others, but the bank could
have access to almost three times the cash it needs to pay out all uninsured
depositors. And, for now at least, depositors do not appear to be going
anywhere. Deposit levels have risen since the end of 2023, according to
unaudited figures the bank published on February 6th. “We have seen
virtually no deposit outflow from our retail branches,” Mr DiNello told
investors on February 7th.

Nevertheless, NYCB’s troubles might provoke broader unease. One reason

for this is its reliance on the FHLB system. This inconspicuous part of
America’s financial plumbing comprises 11 government-sponsored banks,
with total assets of $1.3trn. America’s lender of “second-to-last resort” raises
money from capital markets, and does so cheaply owing to the assumption
that the government would backstop its borrowing. It then lends to FHLB
members, which are also its dividend-receiving owners. By the end of March
2023 FHLB advances, a type of loan usually secured against mortgages, had
nearly tripled since the year before. SVB alone had increased its borrowing
to $15bn by the end of 2022.

Because NYCB holds more loans than deposits it has long relied on FHLB
advances as a source of funding, especially before its recent purchases
brought in more depositors. At the end of 2023, NYCB had borrowed $20bn
of FHLB advances. This borrowing amounts to 17% of NYCB’s assets, up
from 12% at the end of September. The bank taps the FHLB system at nine
times the rate of similar peers.

Another reason for broader unease is that this could be the first sign that a
crisis in commercial property is now harming the banking system. Although
total lending to office buildings is small as a share of loan books across
small banks—at around 5% of total assets—the slump in office-building
values has been steep.

Other firms are also struggling. Aozora, a Japanese lender that tried out
American commercial-property lending, reported losses related to its loans
on January 31st. On February 7th Deutsche Pfandbriefbank, a German bank,
announced it had increased loss provisions for its commercial-property
loans. Given the post-pandemic fall in office use, more losses are likely.
These are unlikely to imperil the broader banking system—but they might
keep some banks on the front pages. ■

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Capital punishment

Bankers have reason to hope Trump triumphs

Will they now spend big on his campaign?

Feb 8th 2024 | Washington, DC

HAVE YOU noticed that America’s bankers are seething over proposed new
capital rules? What gave it away? Perhaps it was the advertisements that
warn of dire consequences for the economy, which blare out during prime-
time spots in Sunday-night football games. Maybe it was the not-at-all-
veiled threats from executives. Suing your regulator is “never a preferred
option”, Jeremy Barnum of JPMorgan Chase told investors on a recent
earnings call, but “it can’t be taken off the table.” Or perhaps it was the
deluge of letters that recently arrived in the postboxes of the Federal Reserve
and other banking agencies.

America’s process for creating new bank rules has many stages. Regulators
publish their agenda in the Federal Register, a scintillating journal published
every weekday, which chronicles plans for rules, proposed rules, finalised
rules and so on. They talk to industry members and carry out impact
analyses. Back-and-forth between industry and overseer, at this stage, is
done over coffee, often in private rooms in federal buildings. Then a “Notice
of Proposed Rulemaking” is published, the “comment period” begins,
interested parties submit letters to regulators—and the battle emerges into
the open.

The process is normally pretty technical. It has been anything but for
proposals on how to implement Basel III, known as “Basel III endgame”,
that were first published in July. Bosses of large banks seem to have been
personally offended by them. Perhaps their thought process goes as follows:
are we really so incompetent at managing risk that system-wide capital
levels must be raised by 16%? After grievances piled up, the comment
period was extended from November 30th to January 16th.

Now all complaints have been filed, and letters published, the depth of
opposition is clear. Latham & Watkins, a law firm, finds that whereas 347
submissions disagreed in whole or in part with the rules, just nine supported
them as proposed. A wide range of groups found fault. It is hard to imagine
another cause that would unite BlackRock and Goldman Sachs with the
National Association for the Advancement of Coloured People,
environmentalists, estate agents and most sitting senators.

The rules are long and complicated, and so are the complaints. But they boil
down to three themes. First, a big increase in capital is unnecessary. Second,
the rules will hamper banks’ ability to intermediate capital markets. Third,
they will crush lending to important parts of the economy, such as housing
and environmental projects (especially ones favoured by President Joe
Biden’s Inflation Reduction Act).

Last year bank bosses seemed resigned to their fate. Marianne Lake of
JPMorgan described the proposals as “a little bit like being a hostage”. The
requirement was so shocking at first that “even if it changes a bit, you sort of
are grateful for that, but it’s still probably going to be high.” They now seem
more confident that the rules will be amended. “I don’t think anyone [thinks]
that this is going to move forward as proposed,” said Denis Coleman of
Goldman Sachs on January 16th.
Fed governors usually try to come to a consensus on regulatory matters. This
time, however, they are split, with Michelle Bowman and Christopher
Waller, two Donald Trump appointees, opposing the rules when they were
first proposed. On January 16th Mr Waller told the Brookings Institute, a
think-tank, that it “might even be best to just pull it back” and start again. On
January 17th Ms Bowman told the Chamber of Commerce, a lobbying
group, that agencies should make “substantive changes” to the rules. Even
Jerome Powell, the Fed’s chairman, has expressed reservations.
Capital punishment

There are three ways things can proceed. Regulators could press on
undeterred, and finalise the rules. This would almost certainly result in the
lawsuit to which Mr Barnum alluded. Any legal action would centre on
procedural issues—bank lobbyists argue that agencies have violated
legislation requiring data and analysis behind proposals to be made available
to the public. (Banks allege it was not; the agencies have not yet responded.)

The two other options are equally unpalatable: agencies could make more
substantial changes to the rules or they could pull them back and start again.
Either approach would require a repeat of the proposal-and-comment cycle.

A difficult situation is made still more difficult by the fact that the agencies
are starting to run out of time. The Congressional Review Act allows an
incoming Congress to throw out any rule that is finalised less than 60
legislative days before it assumes power. Given the forthcoming presidential
election and time off for summer recess, that deadline is closer than it seems.
It will fall in July. If rules are not finalised soon and Mr Trump, who watered
down bank capital requirements when last in office, wins the election in
November, it seems likely that extra-tough standards would be tossed out
entirely.

Thus bankers have every incentive to delay the time at which the rules might
be finalised. Will that sway their politics? Bank bosses are not typically big
political donors. According to data compiled by Open Secrets, a non-profit
outfit, neither Jamie Dimon of JPMorgan nor David Solomon of Goldman
Sachs has given money during this presidential campaign. Among more
junior staff, there does not seem to have been a rightward swing. If anything,
donations from people employed by JPMorgan, Citigroup and Bank of
America favour Democrats by a wider margin than in 2020. Perhaps some
things are more important than capital requirements—which is not what you
would gather from listening to bank advertisements. ■

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Running out of road

The false promise of Indonesia’s economy

Presidential candidates vow to deliver 7% growth. Voters have heard it
before

Feb 8th 2024 |

IN POLITICS, REPETITION is a crucial part of any campaign. But for

Indonesian voters, who go to the polls to elect a new president on February
14th, one pledge is starting to sound a little too familiar. Candidates hoping
to lead the world’s third-largest democracy have now, for the better part of
two decades, been vowing to raise the country’s growth rate to 7%.

Joko Widodo, the outgoing president known as Jokowi, was elected on such
a promise in 2014. So was his predecessor, Susilo Bambang Yudhoyono,
who came to office in 2004. This time, two of the three contenders are
making similar pledges. Ganjar Pranowo, former governor of Central Java,
has a growth target of 7%. Prabowo Subianto, Indonesia’s minister of
defence and the front-runner, has suggested that double-digit growth is
possible.
So far, two decades of promises have fallen short. Indonesia’s economy grew
by around 5% last year, close to the average rate over the past two decades.
The country’s last 7% expansion was in 1996, the year before the Asian
Financial Crisis (see chart 1). Since Indonesia’s transition to democracy in
1998, promises of higher growth have been far more common than the
policies that might encourage such a shift.

The outgoing president has achievements to flaunt. A decade ago the country
was one of the “Fragile Five”, a group of emerging-market economies
vulnerable to high interest rates abroad and a strong dollar. Today its current
account is roughly balanced and its external debts modest. After legislative
and legal speed bumps, Jokowi’s omnibus bill, which cuts restrictions on
foreign investment and simplifies licensing, finally became law last year.
Indonesia’s infrastructure has improved over the past decade, helped by the
construction of thousands of kilometres of roads.

Yet the government’s proudest achievement is its nickel-focused industrial

policy. The metal is used in electric-vehicle batteries, and Indonesia has the
world’s largest deposits. Export of most raw ore has been banned since 2014,
the aim being to force companies to process and manufacture in Indonesia.
BYD, Ford and Hyundai are among the carmakers now investing in the
country. Exports of ferronickel, a processed form of the metal, rose from
$83m in 2014 to $5.8bn in 2022.

Although openness to investment from both China and the West and an
enormous stockpile of a vital battery metal is proving to be a powerful
combination, there are risks to the approach. One is technological. Cullen
Hendrix of the Peterson Institute for International Economics, a think-tank,
notes that lithium-iron phosphate batteries, which contain no nickel, are
becoming more popular. Sodium-ion batteries, which need neither nickel nor
lithium, could surpass both types. Last month JAC Motors, a Chinese
carmaker backed by Volkswagen, a German one, delivered the first
commercial vehicles powered by sodium-ion batteries to customers.

There are also signs that Indonesian policymakers are learning the wrong
lessons from their nickel success. Despite obvious opportunities in the sunny
archipelago, solar-power investment is suppressed by rules that panels must
contain lots of domestically produced materials. Last year TikTok, a short-
form video platform, was prodded into a shotgun tie-up with Tokopedia, an
Indonesian e-commerce firm. It paid $840m for a 75% stake in the firm after
new regulations halted its own e-commerce operations in the country.

Moreover, Indonesian businesses remain stifled by local regulations, despite

reforms introduced by the omnibus law. Rules requiring imports to be
screened at particular entry points are equivalent to a 22% tariff, according
to research by the World Bank—more than twice the South-East Asian
average. Indeed, non-tariff barriers impose costs equivalent to 60-130% of
the cost of computers, electronics and transport equipment. The election
campaign has featured few concrete economic-policy proposals, but none of
the candidates has expressed any zeal for peeling back the country’s many
trade restrictions.

Indonesia’s industrial policy undermines officials when they seek to attract

investors who do not need the country’s resources. Malaysia, Thailand and
Vietnam, which place fewer restrictions on outside investors, are more
obvious destinations for firms looking for alternatives to Chinese
manufacturing. As a consequence, Indonesia’s exports of electronics are not
just lower than any other large economy in South-East Asia; they have
grown more slowly, too (see chart 2). The share of Indonesian exports
heading to America is lower than in any of its local competitors.

Although Indonesia is a relatively young country, by the time of the next

presidential election in 2029 this tailwind will have disappeared. The
country’s dependency ratio—the number of children aged under 15 and
adults over 65 per 100 working-age adults—will begin to rise steadily from
that year. Without more effective attempts to boost the economy, talk of 7%
growth will remain illusory. ■

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Free exchange

Universities are failing to boost economic growth

Too often they generate ideas that no one knows how to use

Feb 5th 2024 |

UNIVERSITIES HAVE boomed in recent decades. Higher-education

institutions across the world now employ in the order of 15m researchers, up
from 4m in 1980. These workers produce five times the number of papers
each year. Governments have ramped up spending on the sector. The
justification for this rapid expansion has, in part, followed sound economic
principles. Universities are supposed to produce intellectual and scientific
breakthroughs that can be employed by businesses, the government and
regular folk. Such ideas are placed in the public domain, available to all. In
theory, therefore, universities should be an excellent source of productivity
growth.
In practice, however, the great expansion of higher education has coincided
with a productivity slowdown. Whereas in the 1950s and 1960s workers’
output per hour across the rich world rose by 4% a year, in the decade before
the covid-19 pandemic 1% a year was the norm. Even with the wave of
innovation in artificial intelligence (AI), productivity growth remains weak
—less than 1% a year, on a rough estimate—which is bad news for
economic growth. A new paper by Ashish Arora, Sharon Belenzon, Larisa
C. Cioaca, Lia Sheer and Hansen Zhang, five economists, suggests that
universities’ blistering growth and the rich world’s stagnant productivity
could be two sides of the same coin.

To see why, turn to history. In the post-war period higher education played a
modest role in innovation. Businesses had more responsibility for achieving
scientific breakthroughs: in America during the 1950s they spent four times
as much on research as universities. Companies like AT&T, a telecoms firm,
and General Electric, an energy firm, were as scholarly as they were
profitable. In the 1960s the research and development (R&D) unit of
DuPont, a chemicals company, published more articles in the Journal of the
American Chemical Society than the Massachusetts Institute of Technology
and Caltech combined. Ten or so people did research at Bell Labs, once part
of AT&T, which won them Nobel prizes.

Giant corporate labs emerged in part because of tough anti-monopoly laws.

These often made it difficult for a firm to acquire another firm’s inventions
by buying them. So businesses had little choice but to develop ideas
themselves. The golden age of the corporate lab then came to an end when
competition policy loosened in the 1970s and 1980s. At the same time,
growth in university research convinced many bosses that they no longer
needed to spend money on their own. Today only a few firms, in big tech
and pharma, offer anything comparable to the DuPonts of the past.

The new paper by Mr Arora and his colleagues, as well as one from 2019
with a slightly different group of authors, makes a subtle but devastating
suggestion: that when it came to delivering productivity gains, the old, big-
business model of science worked better than the new, university-led one.
The authors draw on an immense range of data, covering everything from
counts of PhDs to analysis of citations. In order to identify a causal link
between public science and corporate R&D, they employ a complex
methodology that involves analysing changes to federal budgets. Broadly,
they find that scientific breakthroughs from public institutions “elicit little or
no response from established corporations” over a number of years. A boffin
in a university lab might publish brilliant paper after brilliant paper, pushing
the frontier of a discipline. Often, however, this has no impact on
corporations’ own publications, their patents or the number of scientists that
they employ, with life sciences being the exception. And this, in turn, points
to a small impact on economy-wide productivity.

Why do companies struggle to use ideas produced by universities? The loss

of the corporate lab is one part of the answer. Such institutions were home to
a lively mixture of thinkers and doers. In the 1940s Bell Labs had the
interdisciplinary team of chemists, metallurgists and physicists necessary to
solve the overlapping theoretical and practical problems associated with
developing the transistor. That cross-cutting expertise is now largely gone.
Another part of the answer concerns universities. Free from the demands of
corporate overlords, research focuses more on satisfying geeks’ curiosity or
boosting citation counts than it does on finding breakthroughs that will
change the world or make money. In moderation, research for research’s
sake is no bad thing; some breakthrough technologies, such as penicillin,
were discovered almost by accident. But if everyone is arguing over how
many angels dance on the head of a pin, the economy suffers.

When higher-education institutions do produce work that is more relevant to

the real world, the consequences are troubling. As universities produce more
freshly minted PhD graduates, companies seem to find it easier to invent
new stuff, the authors find. Yet universities’ patents have an offsetting effect,
provoking corporations to produce fewer patents themselves. It is possible
that incumbent businesses, worried about competition from university spin-
offs, cut back on R&D in that field. Although no one knows for sure how
these opposing effects balance out, the authors point to a net decline in
corporate patenting of about 1.5% a year. The vast fiscal resources devoted
to public science, in other words, probably make businesses across the rich
world less innovative.
If you’re so smart, why aren’t you rich?
Perhaps, with time, universities and the corporate sector will work together
more profitably. Tighter competition policy could force businesses to behave
a little more like they did in the post-war period, and beef up their internal
research. And corporate researchers, rather than universities, are driving the
current generative AI innovation boom: in a few cases, the corporate lab has
already risen from the ashes. At some point, though, governments will need
to ask themselves hard questions. In a world of weak economic growth,
lavish public support for universities may come to seem an unjustifiable
luxury. ■

Read more from Free exchange, our column on economics:

Biden’s chances of re-election are better than they appear (Feb 1st)
The false promise of friendshoring (Jan 25th)
What economists have learnt from the post-pandemic business cycle (Jan
17th)

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Science & technology

How cheap drones are transforming warfare in Ukraine
Ukraine’s drone war :: First-person view drones have achieved near mythical status on the
front lines

NASA’s PACE satellite will tackle the largest uncertainty

in climate science
Very small things :: It will monitor tiny particles in Earth’s atmosphere and oceans

The first endometriosis drug in four decades is on the

horizon
A long and winding road :: At last, progress is being made on a condition that affects one
woman in ten

Ancient, damaged Roman scrolls have been deciphered

using AI
They’re on a roll :: The new techniques could help rediscover lost works from antiquity

Scientists have trained an AI through the eyes of a baby

Baby AI :: “Chair” and “ball” were among little AI’s first words

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Ukraine
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Very small things

NASA’s PACE satellite will tackle the largest

uncertainty in climate science
It will monitor tiny particles in Earth’s atmosphere and oceans

Feb 7th 2024 |

SMALL THINGS can have big effects. Take the plant plankton that populate
the Earth’s oceans. When zooplankton eat them, the phytoplankton release a
chemical called dimethyl sulphide (DMS) and it is this that people are
referring to when they speak of the “smell of the sea”. Chemical reactions in
the atmosphere turn DMS into sulphur-containing particles that offer a
surface for water vapour to condense on. Do that enough times and the result
is a cloud. Clouds, in turn, affect both the local weather and, by reflecting
sunlight into space, the world’s climate.

Other tiny things have similarly extensive effects. Sulphur from ships’
funnels also makes particles that seed clouds, producing strings of puffy
white “shiptracks” that can be seen in satellite pictures. Soot from burning
fossil fuels, meanwhile, has the opposite effect. It is made of dark particles
that absorb solar energy, warming the air around them and discouraging
cloud formation. If sulphur particles make it high enough in the atmosphere
(thanks to a volcanic eruption, perhaps) they can form a haze that blocks
some sunlight from reaching Earth’s surface.

But although scientists know in general terms how these processes work,
quantifying them is much harder. Uncertainties about the behaviour of
“aerosols”, as various small particles in the air are collectively known, are
one of the main sources of scientific uncertainty in climate models. They are
therefore a big reason for the error bars that surround projections of how hot
Earth will become for a given increase in the amount of carbon dioxide in its
atmosphere.

Climate scientists hope that NASA’s new satellite, PACE (for “Plankton,
Aerosol, Cloud, ocean Ecosystem”), which was launched into Earth orbit on
February 8th, will reduce those uncertainties around aerosols. PACE’s
cameras will sweep the planet every one to two days to create a continually
updated census of the very small things that are suspended in the oceans
(plankton) and the air (aerosols).

PACE’s main camera is sensitive to the spectrum of light between the

ultraviolet and the near infrared. For the oceans, that means PACE will be
able to distinguish different types of phytoplankton. “That is powerful
because diatoms fuel fisheries [and] cyanobacteria can be harmful,” says
Jeremy Werdell, an oceanographer at NASA who is PACE’s chief scientist.
Two other instruments mounted on PACE will offer information about the
size and shape of aerosols, making it possible for the first time to distinguish
soot from sea spray and particles produced by burning fossil fuels.

That could be “transformative” for climate models, says Gavin Schmidt, a

climate scientist who also works at NASA. Modellers have had to
compensate for the limited nature of the existing aerosol data with informed
guesswork. As a result, different climate models vary considerably in their
estimates of how powerfully aerosols affect the climate.
Such uncertainties affect questions about how air pollution influences
climate change. Laws in Europe and North America have cut the amount of
air pollution from fossil fuels since the 1980s. This is a boon for human
health. But it has also lifted a smoggy veil that was masking some of the
warming caused by greenhouse-gas emissions. Cleaning up air pollution
could be one of the most important influences on the climate in the coming
decades. Better data will allow better modelling.

Similarly, climatologists are divided on the effect of rules adopted by the

International Maritime Organisation, part of the United Nations, which
capped the amount of sulphur in ship fuel starting in January 2020. Some
believe the reduction in sulphur in ship exhausts may have contributed to the
exceptionally hot temperatures recorded around the world in 2023. Others
think the effect was minimal.

There are plenty more questions climatologists would like answered.

Scribbled on the whiteboard in Kirk Knobelspiesse’s office at NASA’s
Goddard Space Flight Centre in Greenbelt, Maryland, is a list of 18 projects.
It ranges from gathering live data on volcanoes and forest fires to answering
what happens when soot from agricultural clearing fires that burn annually
in west Africa ends up on the tops of marine clouds, darkening the face they
present to the sun. The answers to all those questions depend on the
behaviour of tiny things. After decades of uncertainty, answers may be on
the way. ■

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A long and winding road

The first endometriosis drug in four decades is on

the horizon
At last, progress is being made on a condition that affects one woman in ten

Feb 7th 2024 |

IN 1690 DANIEL SCHRÖN, a German physician, described a patient with

“ulcers” throughout her peritoneum, bladder, intestines, uterus and cervix. It
was long thought to be the first documented appearance in medical literature
of endometriosis, a painful and debilitating gynaecological condition that
today affects as many as 190m women worldwide.

Uteruses are lined with the endometrium, a layer of tissue that thickens
during a menstrual cycle. If a fertilised egg does not become implanted, the
lining thins and is shed as a period. If endometrial tissue grows abnormally
outside the uterus, however, it can cause havoc. In extreme cases of
endometriosis, adhesions can “bind” a woman’s organs together—from
ovaries to bladder to bowels—and freeze them in place. Milder cases come
with severe pain, heavy menstruation, inflammation and scar tissue caused
by internal bleeding, fatigue and infertility. There is no known cure, and
treatment focuses on controlling symptoms, normally through some
combination of hormonal birth control, pain relief or surgery.

The World Health Organisation estimates that endometriosis affects around

one in ten women during their lifetime—roughly the same as the proportion
of the global population with diabetes. But whereas doctors understand why
diabetes occurs and how to treat it, their understanding of endometriosis is
languishing “30 to 40 years” behind, according to Andrew Horne, a
professor of gynaecology and reproductive sciences at the University of
Edinburgh and president-elect of the World Endometriosis Society. He
blames it on a lack of research and awareness, driven by funding shortages.

Things are starting to change. A clinical trial of the first non-hormonal, non-
surgical treatment for endometriosis, started in 2023 in Scotland, is showing
promising results. Dr Horne says that the trial, which he co-leads, grew out
of closer examinations of how endometriosis lesions form. By taking
samples from patients during diagnostic laparoscopies, his team found that
those with peritoneal endometriosis—meaning disease on the lining of the
pelvic cavity, which represents around 80% of cases—had significantly
higher levels of a chemical called lactate in their pelvises than those without.

Lactate is produced when the body breaks down glucose (and is also the
cause of the uncomfortable stitches that can suddenly strike runners). Its
increased presence, the researchers reckoned, suggested a hand in the
development of endometriosis lesions, possibly similar to the role lactate
plays in helping cancer cells proliferate. Scientists then looked for a drug
that had already been tested in cancer patients, settling eventually on
dichloroacetate (DCA). This is also used to treat rare types of metabolic
disorders in children in which excess lactic acid builds up in the blood.
Lead me to your door

A small group of human patients who were treated with DCA reported
lessened pain and better quality of life. A trial with a larger cohort, plus a
placebo arm, is next. If the drug is approved, which may be possible within
the next five to seven years, DCA will be the first new endometriosis
treatment discovered in four decades.

“There is still an issue—and I hate to say it—with issues that only affect
women,” Dr Horne says. That observation is borne out elsewhere. A report
released last month by McKinsey, a consultancy, concluded that “systematic
lack of disease understanding” led to a loss of 40m-45m disability-adjusted
life years for women annually, amounting to four lost days of “healthy life”
per year per woman worldwide.

In terms of endometriosis, lack of medical understanding impedes diagnosis

as well as treatment. A study conducted by academics at Manchester
Metropolitan University, published in January in the Journal of Health
Communication, interviewed British women at different stages of obtaining
a diagnosis, which takes ten years on average. Many respondents said their
symptoms were initially (and sometimes repeatedly) dismissed as either
normal period pains, the result of lifestyle factors such as being overweight,
or as psychological. One reason that diagnosing endometriosis is such a
drawn-out, gruelling process is that it almost always requires surgery: most
lesions can be found only by inserting a camera (though those which cause
cysts generally show up on scans). To speed things up, scientists have
therefore been looking for “biomarkers”—the signatures of proteins or
processes related to a disease, which show up somewhere easy to test, like a
patient’s blood or urine.

Ziwig, a French pharmaceutical firm, claims to have found such a solution

for endometriosis. Its test looks for specific microRNAs—tiny strands of
genetic material—which, one study shows, appear in the saliva of women
with existing endometriosis diagnoses. In January the health-care authority
of France approved a pilot scheme to assess the effectiveness of Ziwig’s
“Endotest” ahead of a possible rollout. In 2022 Emmanuel Macron, the
country’s president, declared endometriosis “society’s problem” and made
improving treatment a national priority.

These developments do not mean that the problem of diagnosis is solved,

warns Dr Horne, who believes that more research is required to test how
endometriosis biomarkers appear in larger, more disparate populations. But,
after years of relative inaction, he now sees endometriosis research as “a
fast-moving field” at last. “I think I feel confident,” he says. ■

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They’re on a roll

Ancient, damaged Roman scrolls have been

deciphered using AI
The new techniques could help rediscover lost works from antiquity

Feb 6th 2024 |

“I CAN’T BELIEVE it worked!” says Nat Friedman, co-founder of the

Vesuvius Challenge, which offered $1m in prizes to anyone who could use
artificial intelligence (AI) to decipher papyrus scrolls carbonised by the
eruption of Mount Vesuvius in 79AD. But work it did. On February 5th Mr
Friedman announced that a three-person team had been awarded $700,000
for successfully extracting four passages of text, each at least 140 characters
long, and with at least 85% of the characters legible, from a scroll known as
Banana Boy. The three winners, Luke Farritor, Youssef Nader and Julian
Schilliger, are all computer-science students.
The scroll is one of hundreds found in the library of a Roman villa in
Herculaneum, which is thought to have belonged to the father-in-law of
Julius Caesar. Along with hundreds of other scrolls in the villa’s library, it
was damaged by scorching gases that engulfed the town during the same
eruption that also buried the nearby town of Pompeii.

Reading text from the scrolls is difficult because the heat turned them into
brittle charcoal logs; all efforts to unroll them physically caused them to
disintegrate. So attention shifted towards finding ways to unwrap them
virtually, through computer analysis of 3D scans of the scrolls made using
X-rays. This turned deciphering the scrolls into a software problem—but a
very complex one.

Virtual unrolling is a two-stage process pioneered by W. Brent Seales, a

computer scientist at the University of Kentucky. The first stage, called
segmentation, involves tracing the edges of the rolled-up papyrus sheet
inside the 3D scan, then extracting 2D images of the scroll’s surface. The
second stage, ink detection, analyses the resulting images to pluck the ink of
the scroll’s text from the papyrus background. This is particularly tricky for
the Herculaneum scrolls, which are written in carbon-based ink, so there is
very little contrast with the background of carbonised papyrus.

Dr Seales, along with Mr Friedman and Daniel Gross, two technology

entrepreneurs, thought AI techniques might fruitfully be brought to bear on
these two problems, and launched a prize challenge to find out. A
community of thousands of enthusiasts has since developed a range of tools
and tricks to speed up the fiddly process of segmentation, and to detect the
ink of individual letters, and then whole words. In October 2023 Mr Farritor
and Mr Nader were awarded smaller prizes for independently extracting the
first legible word (“porphyras”, which means “purple” in ancient Greek)
from the Banana Boy scroll (so named because of its size and shape).
The two students then teamed up and, joined by Mr Schilliger, further
improved the machine-learning technique involved in ink detection. By
manually labelling areas known to be ink, they could train a neural network
to find more of them; these were fed back into the model to improve its
detection abilities. Mr Nader also switched the neural network to a novel
architecture called a TimeSformer, which produced sharper results. Mr
Schilliger, meanwhile, devised a tool to automate more of the segmentation
process (much of which must still be done manually).
The deadline to submit results for the grand prize was at the end of
December, and the trio was awarded the prize after an assessment of the
entries by a team of papyrologists. (Three runners up will receive smaller
prizes of $50,000 each.) The winning entry revealed 15 columns of text,
written in Greek. Reading it was “mind-blowing”, says Federica Nicolardi, a
papyrologist at the University of Naples Federico II, who was one of the
judges. The text is thought to be a previously unknown work on pleasure by
Philodemus, an Epicurean philosopher who lived in Herculaneum.

Mr Friedman now wants to scale up the whole process. With ink detection
solved, he says, “the bottleneck is now segmentation”. Mr Schilliger’s auto-
segmentation tool is a big step forward, and he has agreed to make it open
source, and to collaborate with others to improve it. Further prizes are being
offered as an incentive. Mr Friedman, meanwhile, aims to scan more scrolls
using the Diamond Light Source, a particle accelerator in Britain, and to
standardise the scanning process.

That will cost money. Having given out $1.2m in prizes, some of it from his
own pocket, Mr Friedman is looking for other backers to help support the
project. He hopes that deciphering ancient scrolls will lead to the rediscovery
of lost works from antiquity—“each scroll is a mystery box”, he says—and,
ultimately, revive interest in further excavating the villa in Herculaneum,
which may contain thousands more of them. ■

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Baby AI

Scientists have trained an AI through the eyes of a

baby
“Chair” and “ball” were among little AI’s first words

Feb 7th 2024 |

FOR DECADES linguists have argued over how children learn language.
Some think that babies are born as “blank slates” who pick up language
simply from experience—hearing, seeing and playing with the world. Others
argue that experience is not enough and that babies’ brains must be
hardwired to make acquiring language easy.

AI models such as GPT-4 have done little to settle the debate. The way these
models learn language—by trawling through reams of text data from
millions of web pages—is vastly different to the experiences of babbling
babies.
A team of scientists at New York University examined the question by
training an AI model on the experiences of a single infant. Between the ages
of six and 25 months, a toddler called Sam wore a head-mounted camera for
an hour a week—around 1% of his waking hours. The camera recorded
everything he saw and heard while he played with toys, enjoyed days at the
park and interacted with his pet cats. The recordings and transcribed audio
were fed into an AI, which was set up to know that images and words that
appeared at the same time were related, but was otherwise left to make sense
of the mess of colours and speech that Sam experienced.

Despite the limited training data, the AI was able to pick out objects and
learn the matching words. The researchers tested the model by asking it to
identify objects that Sam had seen before, such as a chair from his home or
one of his toy balls. Given a list of four options the model picked the correct
word 62% of the time, far above the chance level of 25%. To the
researchers’ surprise, the model could also identify chairs and balls that Sam
had never seen. The AI learnt at least 40 different words, but it was far from
matching Sam’s vocabulary and language abilities by the end of the
experiment.

The researchers, published recently in the journal Science, argue that, to

match words to objects, learning from experience may well be enough.
Sceptics, however, doubt that the AI would be able to learn abstract nouns or
verbs, and question how similar the learning processes really are. The
mystery of language acquisition lives on.■

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Culture
When is it too soon to write history?
Chronicling the past :: Early accounts can stand the test of time, but they have to be riveting

Small, but mighty: how cuteness has taken over the world
Size doesn’t matter :: A supposedly childish aesthetic is being taken more seriously

Lessons for Keir Starmer from Britain’s first Labour

government
Labour pains :: The Labour Party first took power 100 years ago

Chinese animated films are booming

Name that toon :: But they would be even better if censors relaxed

The meaning of the hysteria over Taylor Swift

Back Story :: It reflects the overlap of politics, conspiracy and celebrity

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Chronicling the past

When is it too soon to write history?

Early accounts can stand the test of time, but they have to be riveting

Feb 5th 2024 |

2020. By Eric Klinenberg. Knopf; 464 pages; $32. Bodley Head; £25

THE SIGNS, at first, were small. On December 15th 2019 mentions of

“pneumonia” and the Chinese word feidian (SARS) started to spread on
WeChat, a Chinese social-media app, multiplying faster than any disease. By
February people outside China had started buying tissues, gloves and masks.
Then, as “2020”, a new history of covid, explains, people started keeping
their children home from school. Without giving too many spoilers, the
reader can guess what happened next. The covid-19 pandemic happened
next. History, in other words, happened next.
It has been an alarming few years. History—widely assumed to have stopped
somewhere around the fall of the Berlin Wall and the Spice Girls’ first
record—has got going again, with gusto. In just the past five years there has
been the pandemic (plaguey history), the invasion of Ukraine (bloody
history) and now the Israel-Hamas war (nested history-within-history
history). Much is changing, and people are writing about it. “2020” by Eric
Klinenberg, a professor of sociology at New York University, joins a rash of
other books about the disease. Histories of the Ukraine war have also started
to appear (one was even published in May 2023); those of the Israel-Hamas
war are doubtless not far off.

To go quickly from missile launch to book launch is an impressive feat of

publishing. Whether such speed makes for equally impressive histories is
less clear. History has a long history of sniffing at the quick turnaround.
When Thomas Carlyle, a Scottish essayist, published a book analysing the
French revolution, a reviewer tutted that it was too soon. (It was half a
century after it.) A certain unease about haste remains today. It is not clear
when the mundane “present” (to be dealt with by journalists) becomes the
monumental “past” (to be dealt with by historians). Is it after a month? A
year? A decade? In short: how soon is too soon to write history?

The worry, ironically, is a modern one: history used to be much less

historical. “In the classical period it was pretty much an assumption that you
can’t write about something that you haven’t been an eyewitness to,” says
Tom Holland, a historian and translator of Herodotus, a Greek historian.
Herodotus, the “father of history”, was notably nippy. In his “Histories” he
wrote about a series of wars (the Greco-Persian ones) that he had lived
through.

Among some writers the tradition persisted. Caesar’s “Gallic Wars” gives
the sense of a man writing while the mud and blood of Gaul are still wet on
his sandals. Much later, Winston Churchill made pandemic histories look
slow: he published “The Gathering Storm”, more than 600 pages of
billowing prose, just four years after the end of the second world war.

Few would suggest that these memorable works suffered from such speed.
Caesar is studied as a stylist to this day; Churchill won the Nobel prize in
literature. (The accolade disappointed him; he had been hoping for the peace
prize.) “The Showman”, a recent biography of Volodymyr Zelensky,
Ukraine’s president, by Simon Shuster, a journalist at Time, has been
described as “thoroughly researched and deeply insightful”. But swift books
can often raise other worries.

For example, prompt history can prompt questions of impartiality. Books by

those on the front lines of wars or pandemics should make readers wonder
whether they are history or self-serving memoir. After the war, Churchill
observed that analysis of the past should be left to history but added that “I
propose to write that history myself.”

Churchill, like all historians, was being selective. It was not just winning
prose but winning the war that led to him being so admired. Had Nazism
enveloped Europe his book, replete with phrases about how Britain chose to
“march against evil”, would have been received less rapturously—or perhaps
never written. After Russia’s invasion of Ukraine, Ukrainians and Russians
removed each other’s books from shelves, sometimes burning them or
turning them into toilet paper. Understanding of the past depends not merely
on what histories are written but on the onward march of history itself.
To the victor, the spoilers

The sheer passage of time matters, too. It is too soon to tell whether swift
histories of the Ukraine war will stand that test, but if books about the
second world war are any guide, they are unlikely to. There was a “time lag”
of perhaps 20-30 years between the end of the second world war and the
appearance of really good histories on it, says Sir Ian Kershaw, an English
historian. When Sir Ian studied history at Oxford University in the 1960s,
the curriculum simply ended in 1914: “It was felt to be too close to be able
to deal with properly.”

Some of the problems the prompt historian faces are practical. It takes time
for good sources to become available. Many recent books on Ukraine read
like dry assemblages of press clippings, with little analysis. It takes yet more
time for classified documents to become declassified. Intelligence gained
from Bletchley Park’s cracking of the Enigma code changed the course of
the second world war, but since Ultra was kept ultra-secret until 1974, it is
absent from all early histories.
Arguably the greater difficulties are emotional. Wars are not nice things. As
anyone who has attempted to discuss the recent Israel-Hamas war will know,
emotions run high; dispassionate analysis is rather lower.

Self-interest and self-justification can be rampant on all sides, and this is

inevitably reflected in the pages of history. Consider the second world war.
In its immediate aftermath, French histories played up the French resistance;
British histories played up British pluckiness; everyone’s histories played
down any earlier enthusiasm for dictators. In many cases, people simply did
not want to talk about such a “traumatic period” at all, says Sir Ian. One of
the most important books on the Holocaust, Raul Hilberg’s “The Destruction
of the European Jews”, was written in 1948 but not published in America
until 1961 and not translated into German until the 1980s.

History plays tricks on the reader. It looks like it is about the past—it is full
of people in odd, old-fashioned clothes, doing odd, old-fashioned things. But
it is often just as much about the present. All history, as Benedetto Croce, a
philosopher, observed, is “contemporary history”. Your view of past events
is “completely shaped by the way that those past events are useful to actors
in the present day”, says Francis Fukuyama, a professor of political science
at Stanford University. He would “clearly” not have written “The End of
History and The Last Man”, a book arguing that, in some ways, history was
over because Western liberal democracy had won out, today. “Things
change,” Mr Fukuyama admits: “I was writing about the things that were
going on in 1989.”

The onward march of history (the discipline) as well as history (the thing
with bombs and plagues) also matters. Historical accounts change; certain
“accepted narratives” are adopted and repeated, “just like conformism with
any other social norm”, says Professor Fukuyama. Western history books,
once full of tales of biffing foreigners in far-flung places, are now more
likely to reflect on the evils of imperialism. At universities today, courses
boast less naval history and more navel-gazing.

But to concentrate only on the writing of history is perhaps to miss the point.
Read “2020” or indeed any recent book on covid, and another problem with
recent history starts to arise in the reader’s mind. Mr Klinenberg’s book is
elegantly written and well researched. It is filled with impressive detail on
arguments over herd immunity, lockdowns, masks and all the rest of it. It is,
in short, for readers who have just lived through all of that, not much fun. So
perhaps as well as the complex question of how soon is too soon to write
history, another, rather simpler, question should also be considered. Namely,
how soon is too soon to read about it? ■

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Size doesn’t matter

Small, but mighty: how cuteness has taken over

the world
A supposedly childish aesthetic is being taken more seriously

Feb 2nd 2024 |

SCROLL THROUGH any social-media feed, and before long a cute video
will appear. Perhaps it shows a giggling baby or a rabbit nibbling
strawberries. A red panda might be throwing its paws in the air, like a furry
thief being apprehended, or a kitten may sit astride a tiny motorcycle. The
supply of these endearing clips is huge. On TikTok there are 65m videos
tagged #cute. The demand is even greater: those videos have been viewed
more than 625bn times.

Cute things are everywhere, not just online. In Japan—where appreciation

for all things kawaii is especially keen—roadblocks come in the form of
dolphins, ducks or frogs. Hello Kitty, a cartoon, adorns everything from
phone chargers to first-aid kits. In America a puppy has advertised beer, and
an endearing gecko helps GEICO sell around $39bn in car insurance a year.
In Britain a cartoon koala helps peddle toilet paper.

An interest in the adorable has long been derided as girlish and frivolous.
But cuteness has recently become a subject of serious inquiry, inspiring
scientific research, academic literature—dubbed “Cute Studies”—and a
recent book, “Irresistible: How Cuteness Wired our Brains and Conquered
the World”. A new exhibition at Somerset House in London (pictured) also
examines the ubiquity of cuteness in culture, bringing together art, games
and toys. Cuteness “has taken over”, says Claire Catterall, the curator. “It’s
infiltrated almost every aspect of our lives.”

What do humans consider cute? In the 1940s Konrad Lorenz, an Austrian

zoologist, found that people are drawn to babies with big eyes, a small nose
and mouth and round cheeks, as well as a pudgy body, short arms and legs
and a wobbly gait. These traits motivated people to nurture and protect
babies, helping ensure their survival. Humans are so drawn to these
attributes that cats and dogs may have been bred to emphasise those same
features. Cartoon characters have morphed, too. For instance, Mickey
Mouse’s arms, legs and nose have shrunk since 1928, while his head and
eyes have become larger.
A study from 2015 found that participants felt more energetic and positive,
and less annoyed, anxious or sad, after watching cat videos. Morten
Kringelbach, a neuroscientist at Oxford University, has studied the brain’s
rapid reaction to baby faces: the orbitofrontal cortex—a region linked with
pleasure, among other things—is activated within a seventh of a second.
(Men and women are equally eager to look at adorable infants.)

Cuteness is not a new obsession. Japanese artists in the Edo period (between
1603 and 1868) painted puppies or fashioned them out of ivory. Joshua Paul
Dale, the author of “Irresistible”, argues that the popularity of Cupids in
Renaissance and Rococo art made winged babies “the major expression of
cuteness in Western art for three centuries”. Technology has offered new
ways to enjoy winsome things. Harry Pointer’s photographs from the 1870s,
on display at Somerset House, depict felines in anthropomorphised ways,
sitting on tricycles or in prams. As he added amusing captions, he is credited
as the inventor of the cat meme.

It was in the 20th century that cuteness dug in its tiny claws. Walt Disney
brought a parade of wide-eyed creatures to cinemas across the world. (He
apparently instructed his animators to “Keep it cute!”) Japanese kawaii
culture also went global, with the spread of anime films and manga comic
books. After the advent of mass production, cute trinkets and toys became
widely available; Sanrio, which owns Hello Kitty, has $3.8bn in sales a year.

Then, with the internet, cuteness became available on demand. People could
watch and share amusing content of their children or favourite animals at
any time—in 2022 more than 90,000 videos of cats were uploaded to
YouTube every day. So voracious is the appetite for cute content that in
2014, when Tim Berners-Lee, the inventor of the world wide web, was asked
what surprised him most about internet usage, he replied simply: “Kittens.”

Cuteness has real-world uses. Lovot, a doe-eyed companion robot with a

button nose, is covered in sensors and responds positively when cuddled.
Such innovations may help combat loneliness among the elderly.
Policymakers, too, might harness the power of cute to nudge people’s
behaviour. Japan’s kawaii barriers are thought to reduce road-rage incidents.
Putting images on bins of sea turtles or dolphins trapped in rubbish has been
shown to reduce plastic waste. Mr Kringelbach says that cute babies can
encourage people to have empathy for demonised groups such as refugees.
An appreciation for cute things is a joy in and of itself, but it also “has the
potential to change the world”, he argues. How’s that for a cute idea? ■

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Labour pains

Lessons for Keir Starmer from Britain’s first

Labour government
The Labour Party first took power 100 years ago

Feb 8th 2024 |

The Wild Men. By David Torrance. Bloomsbury Continuum; 336 page; £20

IT SEEMS ALL but certain that the Labour Party will win the British
election, expected later this year. Rishi Sunak’s Conservatives are lagging in
the polls, consumed by in-fighting and division. All this makes for a
propitious moment to assess the first-ever Labour government, which took
office in January 1924. The leader of the opposition, Sir Keir Starmer,
himself christened after Labour’s first leader, Keir Hardie, could learn from
the story.
In “The Wild Men”, David Torrance, a journalist, recounts how Labour
rocked the political establishment when it came to power. The minority
Labour government, led by Ramsay MacDonald (pictured), lasted only nine
months, during which it managed to make some progress with reforms in
areas ranging from welfare to education and health. But its principal
achievement was simply to demonstrate that, contrary to loud claims by
Tories, Labour was fit to govern. In doing this, MacDonald paved the way
for the collapse of the Liberal Party in the election of October 1924, creating
the two-party system that has largely prevailed ever since.

Even such a short period in office offers useful lessons for later Labour
governments. One was the fiscal austerity shown by Philip Snowden as
chancellor of the exchequer. Contrary to the usual charge that Labour is
addicted to taxing and spending, in office the party has often held down
public expenses, partly to protect the value of the pound. In the 1920s
Labour scotched plans for a Channel tunnel. Rachel Reeves, today’s shadow
chancellor, promises to be similarly austere.

A second lesson is the big role that Labour leaders often find themselves
playing in foreign affairs. MacDonald, who was his own foreign secretary
(exhausting himself in the process), presided over two big European
conferences to settle diplomatic and economic problems caused by the first
world war. Once again, later Labour leaders have followed suit: Clement
Attlee helped to set up NATO in 1949; Harold Wilson pulled British troops
back from east of Suez in 1968; and Sir Tony Blair, who served as leader of
the Labour Party from 1994 to 2007, carved out a big—and not always
successful—global role.

And third is Labour’s tradition of treating its leaders as betrayers of the

party’s fundamental beliefs. MacDonald was criticised by his political peers
for not being sufficiently committed to socialism; he was later branded a
traitor for forming a national government with the Tories in the 1930s.
Wilson was similarly attacked as unprincipled. As for Sir Tony, despite his
three election victories, many in the party still hate him today. Only Attlee
seems secure in Labour’s pantheon.

Sir Keir, who has weeded out many of those most closely linked to Jeremy
Corbyn, his far-left predecessor as party leader, may have his work cut out to
avoid being seen by some in the party as just another traitor. He could do
worse than read this book to ponder what history can teach. ■

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Name that toon

Chinese animated films are booming

But they would be even better if censors relaxed

Feb 8th 2024 |

THE “BLACK CAT DETECTIVE”, released 40 years ago, was a childhood

fixture for many Chinese. The protagonist was a stern-faced, feline cop with
a law-and-order demeanour befitting a cool communist cat. His adventures
involved apprehending suspects (rats), prosecuting criminals (rhinos and
hippos) and protecting citizens (rabbits and pandas). Cheers from grateful
onlookers greeted him as he rode around on his motorbike.

Chinese cartoons have come a long way since then. While “Black Cat
Detective” was simply drawn and packed with blunt propaganda, today’s
offerings boast technical sophistication and engrossing narratives. The
aesthetics of “The Storm”, which opened in cinemas in January, look a lot
like Studio Ghibli, the celebrated Japanese animation studio behind films
such as “Spirited Away”. Another new movie, “Boonie Bears: Time Twist”
(pictured), released on February 10th, is a family-friendly adventure with
slick scenes reminiscent of Pixar, a pioneering animation studio now owned
by Disney.

These recent leaps in quality have propelled Chinese cartoons to success at

the domestic box office. “Ne Zha: Birth of the Demon Child” was the
highest-grossing film in China in 2019, beating out “Avengers: Endgame”, a
superhero movie by Marvel Studios, and “The Wandering Earth”, a home-
grown sci-fi epic. The Economist crunched data from Maoyan, a movie-
ticketing service in China, and found the share of box-office receipts going
to Chinese animated films took off after 2019 (see chart). In 2023
animations’ share of the top 100 films’ box-office intake was 9.5%, more
than four times that in 2018.

China’s burgeoning animation industry withered during the purges of the

Cultural Revolution, launched by Mao Zedong in 1966. After China opened
up economically, studios in America and Japan trotted their films into China.
Japanese anime (including “Doraemon”, starring a schoolboy and a robot
cat) and Western cartoons (such as “Finding Nemo” and “Cars”) dominated
television and cinema screens. Chinese animators turned to outsourcing
work for Western clients.

Things changed in 2015 with “Monkey King: Hero is Back”, the first
breakout success for Chinese animation at home. It was based on “Journey
to the West”, a famous Chinese novel from the 16th century. (In August
2023 a newer adaptation started streaming on Netflix, though not in China.)
A big step up in graphical fidelity helped draw audiences, and so did film-
makers’ insistence that the storytelling appeal to adults. The movie’s
protagonist, the Monkey King, is portrayed as emerging from a mid-life
crisis. “I never believed that cartoons are just for children,” Tian Xiaopeng,
the director, has said.

Just as Pixar helped animated films captivate an audience beyond popcorn-

popping children, Light Chaser Animation, a studio in Beijing, has boosted
cartoons’ popularity in China. Light Chaser’s first three productions were
cinematic marvels but financial flops. It was not until “White Snake” (2019),
a love story between a snake hunter and snake spirit (made for adults), that
the studio enjoyed its first success. Its “30,000 Miles from Chang’an”, which
was the seventh-highest-grossing film of 2023, featured lyrical recitals of
poetry from the Tang dynasty and blended elements from Chinese culture,
history and mythology.

That is a common theme among successful Chinese animations: the top three
highest-grossing ones all drew on traditional themes. This chimes with the
Communist Party’s drive for “cultural confidence”; in other words, China
should be proud of its heritage and not in thrall to Western cultural
influences.

Indeed, authorities have taken an interest. China’s 14th five-year plan, which
guides policy priorities, called for supporting development of the domestic
animation industry. Traditional culture is the “best foundation” for Chinese
animation, ran a boosterish headline last June in Global Times, a nationalist
tabloid. Cartoons have become like other industries, from automobiles to
internet companies: inspired by Western innovations but with added
“Chinese characteristics”.

Ironically, China’s censorship-heavy environment may have fostered the

relative success of its cartoons. Animations are usually chaste and do not
touch on topics like sex, drugs or crime. That means they are less likely to
fall foul of regulators, who vet and approve all films. But if Chinese
animators can make films like the ravishing “Chang’an”, imagine what they
could accomplish if they did not have to contend with censors, who are the
real villains no hero (animated or otherwise) has been able to defeat. ■

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Back Story

The meaning of the hysteria over Taylor Swift

It reflects the overlap of politics, conspiracy and celebrity

Feb 6th 2024 |

AS EVERY PAID-UP conspiracist knows, the NFL was rigged to ease the
Kansas City Chiefs into the Super Bowl on February 11th—ensuring the
attendance of Taylor Swift, girlfriend of one of the players, or so they say.
But why? Not just to lift the TV ratings, surely. No, the scheme is a deep-
state “psy-op” to boost Joe Biden’s electoral hopes. Or the real aim is to
promote satanism, as online exorcists reckon Ms Swift’s concerts do. In any
case, don’t fret about the singer getting from her gig in Tokyo to Las Vegas
for kickoff. Elvis is flying her in his UFO.

Only that last bit was made up by Back Story (though—you never know—
playing Ms Swift’s new album backwards might confirm it). The rest of the
wacky conjecture is, in part, the one-off fallout of a pop juggernaut colliding
with a mainstay of sport. But it also reflects two important overlaps: between
celebrity and conspiracy theories, and between both and American politics.

Claims that starry love affairs are shams, such as Ms Swift’s with Travis
Kelce of the Chiefs, are a common strand of conspiracy theories. More often
they involve death. Some celebrities are said to be secretly alive: thus Tupac
Shakur, a murdered rapper, is safely ensconced in Cuba. Others were
supposedly assassinated, such as Bob Marley, allegedly poisoned by
contaminated sneakers. Still others have died and been replaced with clones,
by nefarious spooks or greedy executives or just for the hell of it.

Doubting the fact or manner of a star’s demise invests consoling meaning in

the dust of mortality. If Elvis can simply die, what hope is there for everyone
else? Yet, as Swiftmania suggests, there is a wider synergy between the
worship of celebrities and the peddling of conspiracies.

It isn’t just that both appeal to people with too much time on their hands. At
the astral heights Ms Swift has reached, celebrity can be a form of mass
hypnosis or magical thinking. Fans conspire to imbue their idol with powers
and significance beyond the merely mortal. Many feel they share a personal
connection with a total stranger. A conspiracy theory doesn’t have to make
sense to you, only to its adherents; likewise the cultish devotion of Swifties
can seem baffling to the uninitiated. Ask any parent forced to listen to “Illicit
Affairs” on repeat.

Conspiracists have often worried about artists being manipulated for

political ends. After Anna Akhmatova, a Russian poet, gave a recital in
Moscow, Stalin is said to have raged: “Who organised the standing
ovation?” In the 1950s America’s paranoid “Red Scare” blighted careers and
lives, including Charlie Chaplin’s.

As during the cold war, American politics is now especially conducive to

suspicion of entertainers. One of them became president, a reality-TV star
whose rallies combine the vitriol of a witch-burning with the reassuring
formula of a game show. Donald Trump blurred to vanishing the line
between politics and showbiz; he also dragged conspiracy theories to the
centre of debate. And he exacerbated a prior political trend—America’s
extreme polarisation—which encourages conspiratorial thinking.
In an ultra-polarised outlook, your opponent is not a rival but an enemy, and
he is always up to something. Political strife spreads into unlikely crannies
of life, from beer to sport to music. Politics starts to resemble a contest
between conspiracy theories. This ratchet effect mirrors the momentum of
conspiracism, which is always moving on to new, more outlandish
speculations. The most ambitious claim to be comprehensive, decoding not
this or that murder but the hidden mechanism of the universe.

It may seem odd for Ms Swift to feature in the fantasies of conspiracists and
the rants of apparatchiks—to be the actress starring in their bad dreams, as
she might put it—but looked at in this light, it is natural. Her ongoing tour
has been blamed for causing inflation in Singapore and an earthquake in
Seattle. She is so famous that both the Pentagon and Japanese diplomats
have made cringey statements punning on her lyrics. She must be explained.

Perhaps, at half-time during the game, the conspiracists will be vindicated,

and Ms Swift will somehow endorse Mr Biden (as she did in 2020). Maybe
Mr Kelce will be outed as a shape-shifting lizard. If not, the conspiracy-
mongers will find an explanation, as millenarians do when the world fails to
end on the appointed day. It is theoretically possible that the Chiefs got to
the Super Bowl on merit, and that Ms Swift and Mr Kelce are a likeable
young couple in love. But only a sap would believe that.■

Read more from Back Story, our column on culture:

A new “Mr & Mrs Smith” is about more than action, money and sex (Feb
1st)
How should cinema tackle the horror of the Holocaust? (Jan 16th)
A cultural guide to new year’s resolutions (Dec 30th)

Also: How the Back Story column got its name.

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The Economist reads

What to read about Pakistan
Six books provide an introduction to a troubled, nuclear-armed country

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The Economist reads

What to read about Pakistan

Six books provide an introduction to a troubled, nuclear-armed country

Feb 6th 2024 |

AS PAKISTAN HEADS for a parliamentary election on February 8th the

country has rarely been in such a mess. It is on its 23rd bail-out from the
IMF, which demands in return painful fiscal measures, including cuts in
subsidies for electricity and fuel. The Pakistani Taliban are resurgent. In
January Pakistan exchanged missile fire with Iran; both sides say they were
aiming at militants based in the other’s territory. Hopes that the toppling of
Pakistan’s last military dictator—Pervez Musharraf—in 2008 would lead to
a steady strengthening of democracy have been dashed. The generals are
ensuring their role as the most important political players through a
continuing “soft coup”. The army is doing all it can to prevent the return to
power of Imran Khan, the former prime minister who was once a military
favourite and has been recently sentenced to multiple jail terms. Pakistan has
230m people, nuclear arms and borders with Asia’s two biggest powers,
China and India. Here are six books on a large and strategically important
country.

The Sole Spokesman: Jinnah, the Muslim League and the Demand for
Pakistan. By Ayesha Jalal. Cambridge University Press; 334 pages; £29.99

Seventy-five years after his death Muhammad Ali Jinnah still casts a shadow
over the country he created in 1947 to be the homeland of South Asia’s
Muslims. The frustrated actor turned Lincoln’s Inn barrister is at the centre
of the endless arguments about what Pakistan is for. Fundamentalists say that
Pakistan should be ruled by sharia law. Liberals endorse Jinnah’s exhortation
that it should be a secular state in which Hindus “are free to go to your
temples”. Ayesha Jalal, a historian at Tufts University near Boston,
Massachusetts, contends that Jinnah did not really want a separate Muslim
homeland at all. He spent most of his political career campaigning for
India’s independence from Britain. But he began to worry that the Hindu-
dominated Indian National Congress, the main pro-independence party,
would sweep away privileges enjoyed by elite Muslims like him. When he
latched onto the idea of Pakistan, he saw it as a “bargaining chip” to
strengthen the position of the Muslim minority within an independent India.
But Congress did not yield, and so Pakistan was born. When Ms Jalal made
this argument in 1985 Pakistani scholars and patriots condemned it as
heresy. The thesis is no longer taboo in Pakistan.

The Pakistan Paradox: Instability and Resilience. By Christophe

Jaffrelot. Hurst; 684 pages; £22.50

“The Pakistan Paradox” examines the country’s internal contradictions.

Christophe Jaffrelot, a French scholar of South Asia, identifies three major
problems. One is Pakistan’s unhappy attempts to manage its ethnic and
cultural diversity. For the sake of national unity, Pakistan has long promoted
a common culture based on Urdu, the language of the old Mughal court. But
its attack on linguistic diversity helped lead to the secession of Bangladesh
in 1971, four insurgencies in Balochistan, a province in the south-west, and
violence in Karachi, Pakistan’s megacity. Mr Jaffrelot goes on to discuss the
perpetual tussle between the army and politicians, arguing that the conflict is
not simply caused by the power-hungry generals who have periodically
seized control. Politicians from Benazir Bhutto to Nawaz Sharif have also
been authoritarian. Mr Jaffrelot finally tackles the civil war within Pakistani
Islam between secular-minded reformers and Islamists. In 1974 the zealots
changed the constitution to redefine the members of the minority Ahmadi
sect as non-Muslims. The Islamists have been in the ascendant ever since,
often helped by the armed forces.

Fighting to the End: The Pakistan Army’s Way of War. By Christine

Fair. Oxford University Press; 368 pages; $44.99 and £16.99

This short, scholarly book is one of the best primers on why Pakistan’s army
persists with its unwinnable struggle with India, a far larger and more
powerful country. Christine Fair, an American academic, makes her case
using 60 years of the army’s own publications and generals’ memoirs. They
reveal a paranoid “strategic culture” shared by military men convinced that
they are engaged in a civilisational battle with a neighbour that rejects the
legitimacy of partition. Rather than merely seeking to dominate the
subcontinent (which would be bad enough), India wants to reabsorb
Pakistan, the generals believe. They consider Hindus to be meek and
treacherous, and deem Muslims to be brave and committed to justice. From
this flows much else, including the tactic of backing a myriad of anti-India
jihadi groups while protected by a “nuclear umbrella”. The generals’ fear of
Indian influence in Kabul, Afghanistan’s capital, explains their obsession
with “strategic depth”, ie, ensuring that India has no foothold in Pakistan’s
northern neighbour. The contest for influence there is reminiscent of the
“great game”—Britain’s competition with Russia for clout in Afghanistan
during the Raj—Ms Fair points out.

The Pashtun Question: The Unresolved Key to the Future of Pakistan

and Afghanistan. By Abubakar Siddique. Hurst; 299 pages; $48.50 and
£35

This is a thoroughly readable account of the Pashtuns, Pakistan’s second-

largest ethnic group, which is settled on both sides of the border with
Afghanistan. Abubakar Siddique is a Pashtun who has covered his fellow
tribespeople for years for Radio Free Europe. Much of his work has focused
on the Pashtuns’ tragic entanglement with Islamist militancy. The Taliban
and its various offshoots on both sides of the border are an almost
exclusively Pashtun movement. Militancy began after the British split the
Pashtuns’ historic lands between India and Afghanistan, triggering numerous
“frontier jihads”. After independence Pakistan backed Pashtun Islamists
against nationalists who dreamed of creating a united Pashtunistan.
Pakistan’s government in Islamabad also sponsored Islamist rebellions
against the government in Kabul and, during Afghan resistance to the Soviet
occupation in the 1980s, directed American resources to the most extreme
Pashtun fundamentalists. This helped dislodge the Russians but radicalised
and militarised many Pashtuns. More than a million have died since 1979 in
wars involving Russia, American-led forces and other Afghans. Support for
Islamists also backfired on Pakistan. Even though Pakistan helped the
Afghan Taliban seize power from an American-backed government in 2021,
the Taliban refuse to do Pakistan’s bidding. The Pakistani Taliban—an
offshoot—have repeatedly turned their guns on Pakistan itself.

A Case of Exploding Mangoes. By Mohammed Hanif. Knopf; 336 pages;

$16.95. Vintage; £9.99

Perhaps because it is such a troubled place, Pakistan produces fabulous art.

“Joyland”, a film from 2022 about a man who falls in love with a
transgender dancer, was rightly praised. The paintings of Salman Toor sell
for more than $1m. The country also has many fine authors writing in
English, including Mohammed Hanif. His debut novel, “A Case of
Exploding Mangoes”, is a satire about the death of Zia ul Haq, the military
dictator who seized power in 1977 and was largely responsible for Pakistan’s
Islamisation. The book imagines the events leading up to the explosion of
his plane on August 17th 1988 through a series of darkly comic episodes.
Many of Mr Hanif’s characters want the pious and paranoid general dead. A
bomb in a consignment of mangoes (Pakistan’s national fruit) is just one of
the weapons that would-be assassins consider. The cruelty and absurdity of
Zia’s rule is captured by the story of a blind woman who is gang-raped, then
stoned for committing adultery. Mr Hanif trained to become an air-force
pilot during the Zia era. One of Zia’s would-be assassins is also a trainee
pilot. The sequences set in the Pakistan Air Force Academy are worthy of
Joseph Heller.

Travels in a Dervish Cloak: Adventures in Pakistan. By Isambard

Wilkinson. Eland Publishing; 324 pages; £16.99
For all its maddening problems, Pakistan is a beguiling place. Isambard
Wilkinson identifies much of what it is that captivates. He was the Daily
Telegraph’s correspondent in Pakistan (and also wrote for The Economist) at
a tumultuous time, covering the fall of Musharraf, the Taliban takeover of
the Swat valley and the assassination of Benazir Bhutto. But these great
events are secondary to his search for “the quiddity of Pakistan”. It helps that
he fell in love with the place as a teenager, when he accompanied his
grandmother, a Raj-era Anglo-Indian, on visits to see her old friend, a grande
dame of Lahore known as “the Begum”. A beautiful writer, Mr Wilkinson
paints a warm and generous picture of a diverse country of tribal chiefs and
mountain valleys still populated by pagan tribes. But the problems are never
far away. The Sufi shrines that he regards as the “pulses of Old Pakistan” are
blown up by jihadis who hate tolerant, syncretic strains of Islam. Mr
Wilkinson’s warnings that the “Heath Robinson contraption” of the Pakistani
state could fall apart are all the more powerful coming from such an admirer
of the country.

Also try

This article gives the background to the soft coup under way in Pakistan.
Here a former Pakistani ambassador to America argues that the country
needs a “grand bargain” between its politicians and its generals. Our sister
magazine, 1843, has described the plight of Afghan refugees in Pakistan.
Banyan, our Asia columnist, points out that as India becomes richer and
more powerful, its relations with Pakistan are both getting worse and
becoming less important to the bigger country. Here Banyan argues that both
Pakistan and China have less influence than they had expected on the
Taliban in Afghanistan.

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reads/2024/02/06/what-to-read-about-pakistan

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Economic & financial indicators

Economic data, commodities and markets
Indicators ::

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Indicators

Economic data, commodities and markets

Feb 8th 2024 |
The Economist commodity-price index was rebased in January 2024. Our
new weights can be found here.

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financial-indicators/2024/02/08/economic-data-commodities-and-markets

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Obituary
Rosemary Smith set out to prove that women drivers could
do as well as men
Backwards up the Kyber :: The queen of world rallying died on December 5th, aged 86

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Backwards up the Kyber

Rosemary Smith set out to prove that women

drivers could do as well as men
The queen of world rallying died on December 5th, aged 86

Feb 7th 2024 |

AS SHE BATTLED through her first Monte Carlo rally in 1962, Rosemary
Smith learned later, a man was closely observing her. For fully two hours he
followed her twists and turns in the terrible weather, the snow and sleet. It
wasn’t so much her driving he was appraising, though she could pull out of a
skid on an icy road as well as anybody, having learned that when driving the
big old family Vauxhall on wet Irish grass at the age of 11. No; he was
enjoying the rarity of seeing a woman in a rally at all.

They made quite a carload, it was true. She and her co-driver had a
passenger, Sally Anne Cooper, who wore a mink coat and carried a picnic
basket. She herself, mostly at the wheel, was impeccably turned out, make-
up and crimson nails perfect, her blonde hair stylishly waved beneath her
helmet. She looked every inch the fashion icon she had been not long before,
modelling Christian Dior’s New Look in Dublin and designing dresses for
her boutique; never dreaming, moreover, that she would spend most of her
life forging through mud, floods and deserts, keen as mustard to prove that
women, too, could be good at it.

And she was very good. In a sport where to finish at all was something of a
miracle for anyone, she finished 21 out of 24 international rallies she
entered. These included eight Monte Carlo rallies, the 17,000km London to
Sydney Marathon and the 27,000km rally in 1970 from London to Mexico
City. The East African Safari in 1974 was the hardest, with so much mud
that her car could hardly move. She and her co-driver were so tired, late and
filthy after the first leg that they could barely go on. But from a field of 99
only 16 cars finished, and one was theirs, and they won the Ladies Prize.

One rally, too, she won outright, beating all the boys. That was the 1965
Tulip Rally, the oldest in the Netherlands, which ran for 3,000km through
five countries. The weather, again, was awful, with thick snow, but she and
her co-driver triumphed, and Richard Burton and Elizabeth Taylor, no less,
sent her flowers. She had become, as she fully intended to be, the queen of
world rallying, toasted in Swinging London, Paris, Sydney and New York as
well as in the pubs at home.

So the man who trailed her on her first Monte Carlo rally and pretty soon
recruited her for his car company—Norman Garrad, competition manager of
Rootes—was on to a better thing than he realised. At the time he was mostly
thinking how good she would look draped over the bonnets of Rootes’s cars
and flashing her long legs around. His marques might not be winning races
but, with her in the picture, they would definitely draw the eye.

She didn’t object to that. If the boys wanted to call her a dolly bird and that
sort of carry-on, fine. She had spent enough of her life being horribly shy
about her height; now, confident that she looked good, she was happy to
pose on an unfolded road map or winsomely change a tyre. Besides, it was a
fact that she had no clue what the various parts of an engine were, and
couldn’t actually read a map for toffee—which was why, having been
plucked from the fashion world for her very first rally as a navigator, she
was firmly the driver ever after. Nevertheless, behind the technical gaps lay a
will to win as steely as any man’s. With her at the wheel of Rootes’s Hillman
Imps and Sunbeam Rapiers, the company was soon in the spotlight for the
right, rallying, reasons.

To drive any car at all was glorious to her. It was her life. Once inside the
car, strapped in, she was completely in control. She was free, herself against
the world, well away from the mother who constantly nagged her, the men
who disappointed her, the pregnancies that didn’t work out and the business
ventures that turned sour. She especially forgot all that at the wheel of her
faithful blue-and-white Hillman Imp, EDU 710C, the boxy but brave little
car in which she had won the Tulip Rally and driven her many Circuits of
Ireland. It was less speedy even than a Mini, but for traction on gravel or ice,
and taking narrow lanes, she found nothing better. For some years it
disappeared from her life, only to be rediscovered in an English hay barn,
dismantled but still, by great fortune, owning its original number-plate.

Other cars let her down quite badly. One lost its brakes on a road so
precipitous that she had to smash into a rock face to stop. Between Herat and
Kabul, engine trouble meant the car would not move at all; she had to be
towed for 600 miles. The same thing, failing cylinders, struck as she was
going over the Khyber Pass; with no hope of climbing in first gear, she drove
up for 33 miles in reverse. She also tumbled down a mountain or two. But
risks like that were part of the job, and she bounced back all the more
determined, fortified by her stock of Liquorice Allsorts and wine gums.

More annoying than the scrapes, in any case, were the little humiliations
dished out routinely to a woman in a man’s world. On test teams, even after
years, some men would still ask why she was there, and the men mostly got
the better cars. Le Mans was closed to women in her peak rallying days.
Though she won 12 Ladies Cups or Coupes des Dames, she felt a sting of
separation from the men; it was a great day when they were all just drivers,
competing together. That long, kind tow into Kabul, too, was annoying
because the “girls” had to be rescued by the men. How much she preferred
to roar past the boys and force them to respect her! Still, chivalry had its
uses, as when in the Andes the bandits who had blocked the road with rocks
politely moved them aside to let her Austin Maxi past, while stopping and
robbing the men.
The fastest Imp she drove in her heyday of competing had 65 brake
horsepower (bhp) and a top speed of 92mph. But she dreamed of wildly
swifter rides. In 2017 her chance came, when she was invited to drive an
800bhp Renault Sport Formula 1 car. She was 79, the oldest person ever to
try, but that didn’t deter her. The racing suit, black with yellow trim, looked
great. On the day, as she wedged herself into a car that felt more like a
submarine, she was shaking, but once she sensed her roaring speed the fire
in her belly returned. In that fire, her troubles simply burned up. The song
she wanted for her funeral was “Blaze Away”. ■

This article was downloaded by calibre from

https://www.economist.com/obituary/2024/02/07/rosemary-smith-set-out-to-prove-that-
women-drivers-could-do-as-well-as-men

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