The champagne boom

JUNE 22ND- 28TH 2024

A SPECIAL ISSUE
The Economist June 22nd 2024 7

The world this week Politics

big non-aligned countries. Gaza. He said that it \Vas the party of Jacob Zt1ma, a
Chinastayed a\vayfrom the inconceivable ., that America disgraced former ANC presi-
gathering in Switzerland and had bee11 'withholding weap- dent, ~rill join the opposition.
cou11tries such as India In- 011s and ammunitio11s" i11
donesia, Mexico, Saudi Arabia recent months. The White The UN Sect1rity Council
a11d South Africa did not sign House said it did not kno\\1 adopted a resolution ordering
the final communiqué. what the prime minister \Vas the Rapid Support Forces a
talking about, stressing that rebellious Sudanese paramili-
Jens Stoltenberg, the ecretary- only one shipment ofheavy tary group, to lift its iege of
general of NATO, said that 23 of bombs had been delayed. e 1-Fasher, in the Darfur region.
the alliance's 32 members It also called for a hait in fight-
would meet a target of spend- Afterthe departure of Benny ing between the RSF and the
Vladimir Putin visited North i11g at least 2% of GDP on de- Gantz and Gadi Eisenkot Mr official Sudanese Armed Forc-
Korea. The Russian president fence this year. That is up from Netanyahu dissolved his six- es. The resolurion \Vhich
,vas given an elaborate \Vel- just three countries in 2014 and member war cabinet. Sorne of passed after Russia abstained,
come before holding talks ,vith ten in 2023. Mr Stoltenberg \Vas the decisions previottsly made points to a hardening of in-
l(im Jong Un, the Asian coun- in Washington to discuss ne.x1: by the war cabinet will nowfall ternational opinion against the
try's dictator. The pair have month's NATO st1mmit, which to the larger security cabinet RSF amid concerns that it and
strengthened their alliance is expected to reach a deal on which includes orne of M.r allied Arab militias are con-
during the \Var in Ukraine, with providing security assistance Netanyahu's far-right allies. ducring genocide in Darfur.
North Korea providi11g Russia and trainingto Ukraine. Mean-
,vith weapons. The West fears while Mark Rutte, the outgoi11g To have and to hold
that in return Russia is helping Dutch prime 1ninister looked Joe Biden announced ne\v legal
North I(orea wirh its nuclear set to succeed Mr Stoltenberg protections for migrants \\7ho
programme. Both leader as NATO's leader in October. are in America illegally but
signed a mutual-defence pact. married co American citizens.
Mr Putin then \Vent to Viet- The French revolution The new system streamlines
nam, where he was also given Jordan Bardel la, the president the process forapplying for
the full state-visit treatment. of the hard-right National permanent residency, but
Rally (RN) in France, t1rged applica11ts must have lived in
Thaksin Shina,vatra \Vho was voters to band his party an the United States for at least
deposed as Thailand's prime absolute majority at snap ten years. Around 500,000
minister in a coup in 2006 and elections called for June 30th spouses could potentially
returned from exile last year, and July7th. Polling shows the At. least 550 people <lied dt1ring benefi t, in 011e of the most
\Vas formally charged with RN's parliamentary party the haj the a1mt1al pilgrimage sigitificant presidenrial actions
insulting the monarchy. Mr which is led by Marine Le Pen to Mecca in Saudi Arabia, as on immigration in a decade.
Thaksin an influential figure in \Vi11ning the mosr seats but tempe ratures in the city bit
Thai politics was granted bail, falling short of a majority. 51.8°C (125°F). Around 1.8m Large protests \Vere held in
deferring for no,v the problem- Bruno Le Maire, the finance Muslims are expected to travel Brazil against a proposed
atic prospect of sending him to min iste r, subtly cri tic ised to the site for the pi lgri mage change to the law that would
prison. The indictment is 011e Emmanuel Macron's decisio11 this year. equate abortions after 22 ,veeks
of three politically charged to call the election, saying it to homicide. Co11servatives in
cases that could rock Thai had caused ",vorries, incom- A ship that \\ras attacked Congress suppon the bill, but
politics. The Co11stitutio11al prehe11sion sometimes anger" recently by Houtbi insurgents critics 11ote that lare abortio11s
Court has set dates for early among French people. from Yemen sank in the Red are often performed on chil-
July to hear one case chat cot1ld Sea the seco11d vessel that the dren who were abused by
bring do,vn the prime minister The Israel Defence Forces said rebels have sunk since starting re latives. Abortion is legal in
Srettha Tbavisin and another chat it would hold a daily "tacti- their campaign to disrupt Brazil only in cases ofrape
that cot1ld ban Move Forv.1ard cal pause" of military activity shipping last November. One fetal deformation and vvhen
the main opposition party. on a road in the south of Gaza crewman died in the incident. the woman's life is in danger.
to allow more aid to enter the The Hot1this used a d rone boat
Meanwhile, Thailand became territory through the l(erem packed with explosives. Ecuador will temporarily
the first country in South-East Shalorn crossing. Binyamin suspend visa \Vaivers for Chi-
Asia to legalise same-sex Netanyahu Israel's prime South Africa's two biggest nese nationals from July1st, as
marriage, after the t1pper minister, denounced the deci- political parties, the Africa11 tens of thousa11ds of migrants
house of parliament over- sion. The IDF made it clear that National Congress and the travel to the country en route to
,vhelm ingly approved the this did not amount to a cease- Democratic Alliance, formed a the United States. Ecuador i
meast1re. The king now needs fire. Ir said that fightingwould coalition government headed one of only two Sot1th Amer-
to ign the bill, paving the way continue in Rafah where eight by Cyri l Ramapho a the presi- ican countries chat grant visa-
for gay ,vedding later this year. soldiers \Vere killed recently. dent, after the ANC lost its free travel to Chinese visitors
parliamentary majority. The (Suriname is the other). From
A global summit to shore up Mr etanyabu released a video ne\v governme11t, \.Vhich aise there, they often head north.
support for U kraine in its fight criticising the Biden adminis- inclt1des other smaller parties, The numberof Chinese natio11-
against Russia ended ,vithout tration fo r its treatment of agreed to focus on economic als trying to cross the us bor-
securing the agreement of the Israel du ring the current \Var in gro\vth cheering investors. MK der has rocketed si11ce 2022.
8 The Economist June 22nd 2024

The world this week Business

Astudy by the Ii\>iF said that the shareholder, who claimed the holder, with a 22.6% stake.
"sheer scale and speed of the sum now ,vorth arottnd $46bn Saudi Arabia's sovereig11-
transformation" in Al \Vould \vas too large. Tesla says the ,vealth fund is taking 15%. The
arnplifyjob lasses reducing vote backing Mr Mt1sk's pay otherbig investoris the Qatar
the share of labour income in "significantly impacts' the Investment Authority with a
national accou11ts and exacer- issue. But la,vyers for the 20% holding. (Heathro,v's
bating inequaliry. It called on dissident investor insist the chairman Lord Deighton is
governments to prepare social vote has no legal impact. also chairman of 17ie J~co1io-
ystem that will "cushion the 11ii ·fs parent company.)
transition costs for \Vorkers". Fisker, a make r of electric
vehicles, filed forbankrt1ptcy Si11gapore rett1rned to the top
lnvestor reprieve protection in America. The spot in an annual rankingof
Dave Calhou11, Boeing's CEO, A judge in Texas dismissed company went pt1blic in 2020 competitiveness amo11g 67
was questioned by Arnerica11 what remained of Exxon- amid a \Vave of optimisrn in the countries compiled by IMD a
senators about recent safety Mobil's la\\1st1ir against activist industry, but its sales never business school. The city-state
incidents involving his com- investors over its e1nissions took off. Fisker \Vas delisted by last ropped the poil in 2020.
pany's planes such as the targets. Arjuna Capital and the Ne\v York Stock Exchange Switzerland came second and
blowout of a door panel on a Follow This had proposed a recentlybecat1Se its share price Denmark, last year's champion
737 MAX. Richard Blumenthal, proxy vote on quickening the wa "abnormally lo\v',. of efficiency, came thi rd.Amer-
the chairman of the committee pace of Exxon's emission cuts, ica dropped three places to 12th
investigating the failures, but theydropped the proposai Toyoda Akio's reappointment spot. China climbed even
described Boeing as "an iconic when it threater1ed to sue, as chairman of Toyota won the places to 14th. Venezuela took
co1npany... that someho\V lost claiming they \\1ere abusing the support of just 72% of share- the wooden spoon.
its way". Mr Calhot1n \Vho is proxy system. The jt1dge ruled holders do\ivn from 85% last
stepping do\\rn apologised for that the case against Arjuna year. T\VO big proxy adviser Knights of Wall Street
the recent incident and two was no~, invalid, as it had had recommended voting Employees from Chessify an
earlier fata l cra he . Mean- pledged not to refile the mo- against MrToyoda forfailingto online chess platform, ,von the
whi le, the latest \Vhistleblo\\rer tion. He had al ready removed oversee the proper certification World Corporate Chess
to make a complaint revealed Follow This f rom the suit . process on some veh icles. lt Championship in ew York,
that Boeing lost track of 400 \Vas a rare instance of a rebel- beating a team from Chess-
faulty parts, and that some of Tesla sub mitted a letterto a lion in corporate Japan. Mood, anotherplatform. Banks
them may have been insralled judge in Delaware as king for and financial firms, including
on planes. Boeing's share price nevv legal arguments on Elon The O\vnership structure of BlackRock and Goldman
is dovvn by 30% this year. Musk's 2018 pay deal after77°/4 Heathrow "vas overhauled Sachs took part in the rapid-
of the company's shareholders following the decision of Ferro- round format though only two
Nvidia overtook Microsoft and backed the package at their vial an infrastructure group to Susquehanna and uss made it
App le to beco me the wo rld 's annual meeting. In January the sell do\vn its stake. Ardian a through to the semi-finals. A
most valuable company \Vith a judge voided the package in a French private-equity fi rm, is team from Google came sec-
stockmarket value of more case brought by a dissident 110,v the airport's largest share- ond-bottorn in its g roup.
than $3.3trn. The rnaker of
chi_ps for artificial intellige11ce
has seen its sl1are price surge
by 40% since issuing bumper
qt1arterly reve11ues and profits a
month ago and expects sales
to increase from the roll-out of
its Black\vell chip billed as the
wo rld's most powerful. vidia
is only one of a dozen compa-
nies to lead the S&P 500 since
its creation in 1926. lt recently
split its stock lo\vering the
share price to make it more
attractive to small investors.

Broadcom's share price also hit

new highs, afterthe chipmaker
announced a ten-for-one stock
plit chat cornes into effect in
July. Overthe past fe\\7 years big
tech companies have been
using stock splits to dilt1te the
price of their st1rgi11g shares,
though Meta and Microsoft
ha,,e notably not done so.
The Economist June 22nd 2024 Leaders 9
The
Economist

The solar age

The exponential growth of solar power ,vill change the world

T IS 70 YEARS since AT&T's Bell Labs unveiled a new technol- Other constraints do exist. Given people's proclivity for liv-
Ihoped.
ogy for turning sunlight into power. The phone company
itcould replace the batteries that run equipment in out-
ing outside daylight hours solar power needs to be comple-
mented with storage and supplemented by other technologies.
of-the-way places. It also realised that powering devices with Heavy industry and aviation and freight have been bard to
light alone showed how science could make the future seem electrify. Fortunately these problems may be solved as batter-
wonderful; hence a press event at which sunshine kept a toy ies and fuels created by electrolysis gradually become cheaper.
Ferris wheel spinning round and round. Another worry is that the vast rnajority of the vvorld's solar
Today solar power is long past the toy phase. Panels now oc- panels and almost all the purified silicon from "vhich they are
cupy an area around half that of Wales and this year they -vvill made corne from China. Its solar industry is highly competi-
provide the world with about 6% of its electricity- which is al- tive, heavily subsidised and is outstripping current der11and-
most three times as much electrical energy a America con- quite an achievernent given ail the solar capacity Chinais in-
sumed back in 1954. Yet this historie growth is only the second- stalling within its own borders (see Business section). This
most-remarkable thing about the rise of solar power. The most means that Chinese capacity is big enough to keep the expan-
remarkable is that it is nowhere 11ear over. sion going for years to corne even if some of the companies in-
To call solar power s rise exponential is not hyperbole, but a volved go to the "vall and some investment dries up.
statement of fact. Installed solar capacity doubles roughly eve- In the long run a world in which more energy is generated
ry three years, and so grows ten-fold each decade. Such sus- without the oil and gas that corne from unstable or unfriendly
tained growth is seldotn seen in anything that matters. That parts of the world will be 1nore dependable. Still, although the
1nakes it hard for people to get their heads round "vhat is going Chinese Communist Party cannot rig the price of sunlight as
on. When it was a tenrh of its current size ten years ago solar OPEC tries to rig that of oil, the fact that a vital industry resides
power was scill seen as marginal even by experts who knew in a single hostile country is worrying.
ho\.v fast it had grown. The next ten-fold increase will be equiv- It is a concern that America feels keenly, "vhich is why it has
alent to multiplying the world's en tire fleet of nuclear reactors put tariffs on Chinese solar equiprnent. However, because al-
by eight in less than the time it typically takes most all the demand for solar panels still lies
to build just a single one of them. in the future, the rest of the world will have
Solar cells will in all likelihood be the single plenty of scope to get into the market. Amer-
biggest source of electrical power on the pla11- ica's adoption of solar energy could be frus-
et by the mid 2030s. By the 2040s they may be trated by a pro-fossil-fuel Trump presidency
the largest source not just of electricity but of but only temporarily and painfully. It could
all energy. On current trends the ail-in cost of equally be enhanced if America released pent
the electricity they produce promises to be up demand by ma.king it easier to install pan-
Jess than half as expensive as the cheapest els on homes and to join the grid- the country
available today. This will not stop climate change, but could has a terawatt of ne-vv solar capacity waiting to be connected.
slow it a lot faster. Much of the \.vorld- including Africa, where Carbo11 prices "vould help, just as they did in the S'-'Vitch from
6oom people still cannot light their homes (see Middle East & coal to gas in the European Union.
Africa section)-will begin to feel energy-rich. That feeling The aim should be for the virtuous circle of solar-power
will be a new and transformational one for humankind. production to turn as fast as possible. That is because it offers
To grasp that this is not some environmentalist fever drearn, the prize of cheaper energy. The benefits start with a boost to
consider solar econornics. As the cumulative production of a productivity. Anything that people use energy for today will
manufactured good increases costs go dovvn. As costs go cost less- and that includes pretty much everything. Then
down, demand goes up. As demand goes up production in- corne the things cheap energy will make possible. People who
creases- and costs go down further. This cannot go on for could never afford to will start lighting their houses or driving
ever; production, demand or both always become constrained. a car. Cheap energy can purify water and even desalinate it. I t
In earlier energy transitions- from wood to coal, coal to oil or can drive the hungry machinery of artificial intelligence. It can
oil to gas- the efficiency of extraction gre\iv, but it was eventu- make billions of homes and offices more bearable in summers
ally offset by the cost of finding ever more fuel that will, for decades to corne, be getting hotter.
A..c; our essay this week explains, solar power faces no such But it is the thir1gs that nobody has yet thought of that will
constraint. The resources needed to produce solar cells and be rnost consequential. Ir1 its radical abundance cheaper ener-
plant them on solar farms are silicon-rich and sunny places gy will free the imagination setting tiny Ferris wheels of the
and human ingenuity ail three of which are abundant. Ma.king mind spinning with excirement and new possibilities.
cells also takes energy, but solar povver is fast ma.king that This \iVeek marks the summer solstice in the northern hemi-
abundant too. As for demand it is both huge and elastic- if spl1ere. The sun rising to itc:; highest point in the sky will in dec-
you make electricity cheaper people will find uses for it. The ades to corne shine down on a \Vorld where nobody need go
result is that in contrast to earlier energy sources solar power \ivithout the blessings of electricity and where the access to en-
has routinely become cheaper and ,vill continue to do so. ergy invigorates ail those it touches. ■
10 Leaders The Economist June 22nd 2024

The future of combat

WarandAI
The character of warfare is about to be profoundly changed by artificial intelligence

HE COMPUTER was born in \var and by war. Colossus vvas oversee the system without intervening in every action.
T built in 1944 to crack azi codes. By the 1950s computers
were orgaoising America's air defences. In the decades that
The paradox is that even as AI gives a clearer sense of the
battlefield war risks becoming more opaque for the people
followed, machine intelligence played a mall pan in warfare. who fight it. There vvill be less time to stop and think. As the
Now it is about to become pivotai. Just as the civiJian world is models hand down increasingly oracular judgrnents, their out-
witnessing rapid progress in the power and spread of artificial put will become ever harder to scrutinise \Vithout ceding the
intelligence (AI), so too must the military world prepare for an enemy a lethal advantage. Armies will fear that if they do not
onrush of innovation. As much as it transforms the character give their AI advisers a longer leash, theywill be defeated by an
of war, it could also prove destabilising. adversary who does. Faster combat and fewer pauses will make
Today's rapid change has several causes. One is the crucible it harder to negotiate truces or hait escalation. This 1nay favour
of war itself, most notablyin Ukraine. Small, inexpen ive chips defenders, ,vho can hunker down while attackers break cover
routinely guide Russian and Ukrainian drones to their targets, as they advance. Or it may tempt attackers to strike pre-e111p-
scaling up a technology once confined ro a superpower's mis- tive1y and with massive force so as to tear down the sensors
siles. A second is tl1e recent exponential advance of AI, en- and networks on which AI-enabled armies will depend.
abling astonishing feats of object recognition and higher-order The scale of AI-based war means that mass and industrial
problem solving. A third is the rivalry betvveen America and heft are likely to beco1ne even more important than they are to-
China, in which both see Al a the key to military superiority. day. You might think new technology will let armies become
The results are most visible in the advance of intelligent leaner. But if software can pick out tens of thousands of tar-
killing machines. Aerial and naval drone have been vital to gets, arrrùes will need tens of thousands of ,veapons to strike
both sides in Ukraine for spotting and attacking targets. AI's them. And if the defender has the advantage attackers will
role is as the solution to jarnming, because it enables a drone to need more vveapons to break through.
home in on targets, even if GPS signal~ or the link to the pilot That is not the only reason AI vvarfare faveurs big countries.
have been eut. Breaking the connection between pi]ot and Drones may get cheaper but the digital systems that 1nesh the
plane should soon let armies deploy far larger battlefield together will be fiendishly expen-
numbers of low-cost munitions (see Schumpe- sive. Building AI-infused armies will take huge
ter). Eventually self-directing swarms will be investments in cloud servers able to handle se-
designed to swan1p defences. cret data. Armies navies and air forces that to-
But ,vhat is most visible about military AI is day exist in their own data silos will have to be
notwhat is n1ost important. As ourbriefing ex- integrated. Training the models will call for ac-
plains, the technology is also revo1utionising cess to va t troves of data.
the command and control that military offi- Which big country does AI favour most?
cers use to orchestrate vvars. China vvas once thought to have an advantage,
On the front Une, drones embody just the last and most dra- thanks to its pool of data, control over pri,1ate industry and
matic lirlk in the kill chain, the series of steps beginning with looser ethical constraints. Yet just no"v America looks to be
the search for a target and ending in an attack. AI's deeper sig- ahead in the frontier models that may shape the next genera-
nificance is what it can do before the drone strikes. Because it tion of military AI. And ideology n1atters: it is unc]ear whether
sorts through and processes data ar superhuman speed it can the arrnies of authoritarian states, which prize centralised con-
pluck every ta11k out of a thousand satellite images or inter- trol will be able to exploit the benefits of a technology that
pret light, heat, sound and radio waves to dLc;tinguish decoys pushes intelligence and insight to the lo"vest tactical levels.
from the real thing. If tragically the first AI-powered war does break out, inter-
Away from the front line it can selve rnuch larger problems national Jaw is likely to be pushed to the margins. Ali the more
than those faced by a single drone. Today that means simple reason to think today about how to limit the destruction. Chi-
tasks, such as vvorking out which weapon is best suited to de- na should heed America's call to rule out AI control over nuc-
stroying a threat. In due course, "decision-support systems' lear weapons for instance. And once a war begins, human-to-
may be able to grasp the baffling complexity of \Var rapidly human bottines will become more important than ever. AI sys-
and over a wide area- perhaps an entire battlefield. tems told to maximise mi1itary advantage \Vill need to be en-
The consequences of this are only just becoming clear. AI coded with values and restraints that human commanders take
systems coupled with autonornous robots on land sea and air, for granted. These include placing an implicit value on human
are likely to find and destroy targets at an unprecedented life- ho\v many civilians is it acceptable to kill in pursuing a
speed and on a vast scale. high-value target?- and avoiding certain destabilising strikes
The speed of such vvarfare \.vill change the balance between such as on nuclear early-vvarning satellites.
soldier and software. Today, armies keep a man "in the loop", The uncertainties are profound. The only sure thing is that
approving each lethal decision. As finding and striking targets AI-driven change is drawing near. The armies that anticipate
is compressed into minutes or seconds the buman may merely and master technological advances earliest and most effective-
''sit on the loop" as part of a hurnan-rnachine team. People \Vill ly will probably prevail. Everyone else is likely to be a victim. ■
The Economist June 22nd 2024 Leaders 11

French peril

Lookingbad
A snap election in France reveals the flimsiness of Emmanuel Macron's legacy

T MAY OT measure up to Napoleon's march on Mosco\.v in ing it is the preserve of the government, headed by a prime
I 1812, but Emn1anuel Macron's decision to call a parliament- minister whom the president picks but whom parliament can
ary election this month is looking like one of the most self-de- dismiss through a simple confidence vote. In practice Mr Mac-
structive gambles by a French leader in modern times. After ron will have litt1e choice but to offer the job to the nominee of
seven years under his centrist government voters' judgment whichever party or alliance co1nes top. Mr Macron may hope
threatens to be severe. It may well plunge France into a politi- that his centrists can forge a post-election a]liance with other
cal and perhaps even economic, crisis. One victim would be moderates but the numbers do not look close to adding up.
Mr Macron's own project of reform. That leaves three options: a hung parliament, or a govern-
The signs so far are ominous. The stockmarket has fallen by ment of either the hard right or hard left. None of them is
4% since be made bis announcement on June 9th, the night of good. Both the right and the left are committed to doing things
his party's drubbing in the European Parliament elecrion at France cannot afford (see Europe section). These include in1-
the hands of Marine Le Pen's ational Rally. Share prices in posing puniti\re wealth taxes, slashing VAT on fuel and scrap-
France's three big banks are down by aln1ost 10%. Bond ping Mr Macrons reforms of the pension system so that
spreads are widening. Euro-elections tend to France can go back to one of the earliest re-
be a protest vote, not a reflection of ho\,v peo- French legif!lativc elections 2024 tirement ages in the world. (The right would
ple will express themselves when choosing First-round voting intention,Jun 17th, % add harsh restrictions on immigration cit-
their national parliament. Thi time, however National Rally izenship and free movement to the mix· the
their anger now has barely a vveek left to dis- Ne,•1Popular Front
left, a big jump in the nùnimurn \ivage.) The
si pate and the polls show no sign that it \.vill. problems are compounded by the fact that
Ens<.>f11blo
The president faces a squeeze berween Ms France is already running a high budget defi-
Ot hèrs
Le Pen's hard right and a rapidly created Nevv cit of over 5% of GDP this year.
Popular Front that includes powerful hard-left The most likely ourcome is a hung parlia-
elements especially the Unsubmissive France party domin- ment with an unstable government. It n1ight be even worse. As
ated by Jean-Luc Mélenchon a former Trotskyist. Mr Macron everyone jockeyed for advantage in the presidential poil in
seems to have assumed such an alliance would not be formed three years' rime legislation would srruggle to get through
so fast. France's parliamentary eleccions use a tvvo-round sys- even a budget. The gridlock could spread to the European Un-
tem wi th a high threshold for going through to the second ion. The one thing the hard left and right might agree on
round. The da11ger is that most of the president's men and would be to ditch most of the past seven years' reforms.
won1en will not make it that far-leaving a choice between the Mr Macron's ambition was to transform France's political
xenophobic nationalists and the anti-capitalist radicals. His system by strengthening its moderate elements and to perma-
political group Ensemble faces losing half its seats or more. nently shift the national consensus towards economic mod-
Mr Macron vvill remain in office· his term does not expire ernisation. Right novv his legacy looks more likely to be re-
until 2027. But although the president has extensive powers ov- forms that do not stick and a political centre that has been
er defence and foreign policy, new domestic policy, like the eviscerated- so much so that his succe sor as president may
budget needs to be voted through by parliament. Administer- yet be his nemesis, Ms Le Pen. ■

Wealth taxes

How to tax billionaires

Closing loopholes would be better than a levy on unrealised capital gains

HE RICH are different from other people. They have more of his stocks ail that money is off-limits to the taxman.
T money and, in most places, they pay much Jess tax. Going
by one broad definition of income that combines consumption
Cash-strapped governments want to get their hands on a
slice of these riches. ext year Australia will start taxing unre-
and someone's change in net worth America's best-heeled pay alised gains in employee pension-fund accounts with balances
just a few cents on every dollar of their fortunes. Lately those of more than A$3m ($2m). As part of his re-election campaign
fortunes have ballooned, thanks to a soaring stockmarket. One President Joe Biden is promisir1g to find $5oobn over te11 years
study found that unrealised capital gains account for $6trn of for social programmes by charging a 25% taxon the unrealised
the $11trn in \.Vealth held by the richest Americans. Since 2023, capital gains of individuals who, like Mr Huang and 10,000
as the artificial-intelligence frenzy has fuelled demand for other Americans, are worth $1oom or more.
both Nvidia's GPUs and its shares, the chipmaker's founder It is easy to understand \.vhy the \ivorld's non-multimillion-
Jensen Huang, made more than $1oobn. But until he sells sorne aires may want to soak the very ricb. It is equally easy to grasp ►►
 The Economist June 22nd 2024 Leaders 13

► char the economy. Yet on this front Mr Milei has so far offered supply could lead to deflation. Or if the goal is to push people
monetary anarchy rather than a new order. On the campaign away from pesos entirely even fo r transactions, then it could
trail he promi ed to dollarise the economy and 'blow up" the stoke inflation a the supply of pesos outstri ps plummeting
central bank. Now he and his team talk of "currency competi- dema11d for them. The IMF \vllich has a $44bn lending pro-
tion", whereby the peso would coexist vvith other currencies. gramme to Argentina, seems worried. Mr Milei has promised
But the details remain worryingly vague. And he still wants to to tell the fund all about his monetary plans by the end of the
close the central bank. Ail this uncertainty has costs. lnvestors r11onth. But, if endogenous dollarisation survives, it would
do not want to sink cash into a country where the n1onetary probably be less likely to lend his govemment new cash.
system and currency are up for grabs.
Mr Milei still harbours radical visions even if some on his The art of the deal
team do not. In May be declared that he wanted "endogenous Such a radical experiment is not just risky, it is also unneces-
dollarisation". Argentines could use dollars or pesos, but the sary. Across the Andes, Peru has the kind of currency competi-
supply of pesos would be fixed. When the economy grows tion that could work in Argentina. There dollars are used
(and thus needs more money to circulate) Argentines would alongside the sol. But in contrast to Mr Milei's plan the central
therefore be forced to start using their own dollar savings. The bank adjusts the supply of the sol and supports its use. Mr Mi-
peso, he said, would becorne a "museum piece'. lei succeeded in Congress by compromising. To avoid squai1-
This half-baked scheme raises rnore questions than it an- dering his hard-won gains, he needs to foster certainty and
swers. It has never been tried elsewhere. Freezing the money sanity by giving ground over the peso, too. ■

Administering lndia

Small-states theory
lndia doesn't need more government. It needs more governments

N HIS FIRST decade in office arendra Modi used central- change. More local autonomy creates an alternative mecha-
I isation to help modernise the country. His ideal is a strong
leader with a national mandate and a majority in Parliament
nism for reform by boosting flexibility acco untability experi-
mentation and competi tion. Since its creation Telangana's
who can direct the central government to force through chang- share of GDP has risen from 4.1% to 4.8%. Neglected when it
es across a huge country. Election results on June 4th cast was part of the undivided state of Andhra Pradesh, its rural ar-
doubts on that approach because Mr Modi's party lost i ts ma- eas now have regular power and water.
jority and now relies on allies to ru.le. Centralisation appears to This ne'vvspaper does not usually argue fo r more gover11-
have reached its limit. That means it is "vorth considering the ment. But it bas no hesitation in arguing for more goven1-
alternative: delegating power by creating more independently ments. True, India has tried this before. In the 1990s Parlia-
run cities and even more States. ment passed constitutional amendments aimed at devolving
The opening line of India's constitution declares that the power from states to local governrnents, but States proved re-
country "shall be a union of states". After independence in luctant to cede control.
1947, princely realms were folded into new states, residual co- Our solution is different: to allow mega-cities ro govern
lonial territory annexed, and borders reorgan- themselves and to have more states. The co11-
ised along linguistic lines. The system contin- stitution grants Parliament unilateral power to
ues to adapt. Three new States were born in create states, extinguish existing ones (as Mr
2000. Telangana the newest turned ten this Modi did with Jammu and I(ashmir in 2019)
month (see Asia section). Today India's 28 and change bou11daries. UP should be divided
states are powerful. They employ more people up. Other places have solid claims to indepe11-
than local and central governments put to- dence. In Maharashtra Mumbai should have
gether. And they are con titutionally responsi- more clout; relatively poor eastern Maharash-
ble or jointly responsible for most basic func- tra has long demanded statehood.
tions including health care education, lavv and order, agricul- Decentralisation does have downsides. With lots more
ture and the supply of welfare. States and cities, there vvould be non-stop elections so India
Yet today's set-up has two problems. One i that India's me- would need to create synchronised, regular voting cycles. The
ga-cities lack autonomy: they are typically part of states with distribution of resources benveen states, f rom tax revenues to
large rural populations vvhom politicians tend to put first. The energy, is a delicate affair; extra tates and citie would make it
other is that rnany states are too large. America, with a quarter more complex still. And redrawing India's internai administra-
of the people has 50 states. China has 27 provinces and auton- tive borders would open up the thorny question of its parlia-
omous regions but its administrative energies are concentrat- mentary-seat boUI1daries which give disproportionate povver
ed at the sub-provi11cial level. Uttar Pradesh (UP) the largest to the wealthy south at the expense of the poorer north.
Indian state, has 240m people more than Nigeria or Brazil. Yet these problems \iVOuld be outweighed by the benefits of
Because of India's vast political and economic diversity, better administration, more responsive government, improved
centrally imposed one-size-fits-all policies only sornetimes services and faster-growing economies. In the long run, creat-
\VOrk, and exc1ude many policy are as that are crying out for ing new states \iVOuld help India thrive. ■
The Economist June 22nd 2024 Asia 31

lndian federalism the govern ment's thinking says KTR.

Another advantage of 11ew states is that
Here's a model they may have greater leeway to experi-
me11t. Upon creation Telanga11a immedi-
ately set about making itself attractive to
investors. Many lndian states eager to rise
ttp ease-of-doi11g-business rankings pro-
HYOERABAO mise "single-window clearance" for busi-
Telangana, lndia•s youngest state, sho,vs the benefits of splitting big states nesses to deal ,vith the bureaucracy. Bt1t
the process is still a painful mess, with
DECADE AGO the Union of lndia \Vel- multiple departments \Vorking to their
A comed into the fold its newest rnem-
ber: the state of Telangana. Of India's then
own timelines. Telangana s innovation \\1as
to do a\vay with many requirements and
29 states, it ranked 12th by populatio11, 11th p romise approvals \Vithi11 15 days. Such
by area and 10th by per-person incarne. ideas were "only possible because \Ve were
One of those rankings has since changed a ne\V state, and there was no legacy to pull
dramatically. By last year Tela11gana had you do\\1n '', says Jayesh Ranjan, a senior bu-
shot up to boast the highest per-person in- reaL1crat \vho ,vas involved in d rafti11g the
,,...
corne of any decenr-size state, behind only Hyderabad-.----c""', - Telangana Bay of policies. "Everything 'A1as a clean slate.
tiny Sikkim and Goa. Goa - Andhra Bengal Lastly, carving smaller chunks out of
That is not ail. In the past decade the India's bigger states- undivided AP \Vas
state's GDP gro\vth has outperformed In- the fourth-largest by area- allows poliri-
Arab1an
dia as a whole. With just 2.7°/4 of India's Sea
Created in 201 4 cians and officiais to more carefully tackle
population, its share of the cot1ntry•s ai1nu- SRI Created ,n 2000 local i sue . On a practical level, it also eas-
al output has increased nearly a fifth, to LANKA D Pre-split state es travel and administration. In Telangana
500 km
1 1 border
4.8%. Hyderabad its economic po\ver- the government focused on long-standing
house is a multilingual multireligious me- grouses: po,ver, \:\Tater and funds. Electric-
tropolis \Vith an abundance of higb-tech as KTR). People \\1orried thar "these guys ity generation capacity expanded from
jobs, including the largest Amazon office were running amok in the street ... can they 7.80,v to 19.5GW bet\veen 2014 and 2023.
any,vhere. Microsoft and Google are ex- actually corne govern?" The new govern- Severa] projects to boost waterfordrinking
panding their already subscantial presence ment proved practical, reassuring busi- and irrigation \vere put in motion. Welfare
in the city. It is also a pharma hub. What is nesses that their interests were safe. There schemes for farmers ,vere rolled out.
Telangana's recipe for success? were no reprisals agai11st the Andhraite- To be sure, Telangana had an advan-
The story of Telangana's independence dom inated business community. tage: Hyderabad . . Chandrababu Naidu,
starts in 1956, \Vhen the region became part The moment of founding bas a clarify- cbief minister of the undivided state be-
of a new Telugu-speaking state called An- ing effecr, says St1yash Rai of Car11egie In- tween 1995 and 2004 had positioned him-
dhra Pradesh or AP (see map). They shared dia a think-tank in Delhi causing elites to se lf as a tech-savvy leader, eaming the city
a language bttt the t\V0 had different his- think: 'We need to get ottr act together...so the nick11ame "Cyberabad". l<CR's gover11-
tories cuisines and dialects. Ten ions soon the state becomes a stable political and ment doubled down on the tech-first strat-
rose as Telttgtis f rom coastal regions ca1ne economic entity." There is immense pres- egy. Accordi11g to a state-government re-
to dominate business and politics in Hy- sure on leaders to prove themselves both port IT experts more than quadrupled to
derabad, the capital. Telanganites i11sisted to voters and to their detractors. Having 2-4trn rupees ($29bn) between 2014 and
they '-'Vere being di criminated against. A something to prove had "a lot' to do with 2023, and TT jobs nearly tripled to 900 ooo.
decades-long agitation for statehood cul- Yet the dominance of Hyderabad alien-
minated i11 its creation by an act of India's ated rural voters. Per-person income in its
Parliament in 2014. tech d istrict is over twice the state average
The very face of being ne\v is one bene- a11d five rimes rhat of its poorest district.
fit of state formation . In 2000 India created Undernutrition among children has risen.
three ne\\r states, hiving off chunks from Tela11gana's voters showed the door to I<CR
un\vieldy giants. For several years the ne\V at elections last year. He should have seen
entities did better economically than the it coming: 20 years ago undivided AP boot-
rumps they )eft behind. Yet that Telangana ed out the urbane Mr Naidt1 in favour of a
\Vould thrive 'vVas not foretold (none of the rival promising more evenly spread pros-
other ne\ivish states sustained their early perity. (The rump of AP also grew robustly
momentum). lt was the poorer part of the since bift1rcation but lavished spending on
state frorn which it \Vas carved out. U 11like handouts. Its fiscal deficit is nearly twice
other prosperous sot1them States, it is Telangana's. This month voters brought
landlocked. It still has only one airport. Mr Naidu back from opposition.)
With the exception of Hyderabad, it Jacks Telangana's nevv governmenr. led by the
any cities of size. Many foresaw economic Congress party, has made it a priority to
difficulties even t1nrest. er1courage growth elsewhere. It p lans to
I<. Chandrashekar Rao better known as p romote investment outside Hyderabad.
KCR, had led the movement fo r statehood. At the same time it has signalled that it will
But as the fi rst chief min îster of the new not rever e policies that are working \Vell.
e11tity, he had to transition to governing. Telangana•s record as a ne,v state is im-
"There \Vere a lot of apprehensions," says p ressive. But the real work to ensure its
l(.T. Rama Rao, I<CR's son and a minister in long-term p rosperity-and strengthen the
that government (he is kno\.\7n inevitably Cyberabad delivers the cyberagoods case for new states-is only beginning. ■
The Economist June 22nd 2024 57

lndians s1udying abroad Oxford Economies, a British consultancy.

As aspirations rise, enrolment in India's
The new kids in class own universities and colleges is shooting
t1p. In 2001 some 9m Indians attended
higher-education institutions. Now the
student body num bers about 43m havi ng
long ago passed America to become the
second-largest in the \Vorld after China.
W ill rich countries \Velcome Indian students the way they did Chinese ones? More growth seems certain: enrolment in
tertiary education (the total number of stu-
VER THE past two decades the num- the next page). So did America. In both dents as a share of the college-aged popu-
O ber of people studyi11g i11 countries
other than their o,vn has tripled, to more
cot111tries it vvas the first time in years tl1at
had occurred.
lation) remains belo\\r 30% , less than half
the rate in China. The government wants
tha11 6m. Inter11ational srude11ts from Chi- These newcomers ha,,e differe11t de- this to reach 50% by 2035 which wot1ld
na have caused most of that increase. mands frorn their East Asian forerunners. bring total enrolment to near 75m.
Yot111gsters flocked to universities in Eng- For one thing Indian stt1dents as a grot1p Yet S\Vift expansion has done nothir1g
lish-speaking countries to expand both are much more likely to \Vant to carry on to improve the poor quality of teaching
their minds and their opporrunities. In re- living and ,.vorking in their host countries and research in many Indian institutions.
turn they brought valuable brainpower and even after their courses end. Economically No Indian university ranks among the
large piles of fo reign cash. Governments this could be a boon to labour markets. Po- \1/0rld s top 100 judged by any of the most
have sometitnes vie\ved this bou11ty as a litically it could provoke more heated reac- rigorous league tables. These take into ac-
reason to put less of their own money into tions about foreign students in cot1ntries count things like the quality of research
higher educarion. Institutions in Australia aJready rive11 by imrnigratio11 debares. output. The higher-education system has
Britain and Canada have grown increas- lndia's stt1dent exodus is driven by "islands of excellence", says NY. Varghese
ingly reliant on foreign flows to st1bsidise youthful de1nography and fast-u1creasing of the ational University of Educational
researcb and to cover the costs of educat- wealth. Given it is home to 1.4bn citizens, Planning and Administration in Delhi. But
ing local scholars. the country has more university-aged peo- ir a)so has an "ocean of mediocrity". Com-
No\\( the market for international study ple than an)'\vhere. Every 1nonth, a 1nillion petition for spots at the best places is furi-
i about to undergo a huge change. Chi- more Indians tt1rn 18. Their families are ou . Several Indian institutions have rejec-
11ese school-leavers are growing gradually much richer tha11 they used to be: I ndia's tion rates higher than America's Ivy
less keen to rravel· in their place, Indian GDP per person rose from $469 in 2002 to League including the fo rmidable Indian
stude11ts are becoming the main e11gine of $2 410 tvvo decades later according to the l11stitutes of Tech11ology.
growth. In 2022 Britain isst1ed more stt1- World Bank. The number of middle- and Ma11y I11dian stt1dents see better pros-
dent visas to Indian citizens than they high-income households m India is ex- pects abroad. They are finding it ever easi-
doled out to Chinese ones (see chart 1 on panding by around 10% each year reckons er to fina11ce their ambitions. Banks are ►►
 58 1nternat ional The Econom ist June 22nd 2024

► growing more \•Villing to issue student than Chinese ones to remain in the coun-
loans for foreign study. This is in part be- Study buddies [I] tries where they have studied after gradua-
cause of examples set by a fast-expanding Britain, sponsored-study visas issued, '000 tion. Most big destination countries oper-
gaggle of non-bank financial firms, says Top five coun tries. 12-month moving total ate some kind of "post-study'' visa scheme,
Arnan Singh of GradRight, \1/hich helps 150 \.\rhich permits you11gsters to stay on for a
students pick between them. China fe,v years after they graduate, often with
These new outfits are less likely to re- 120 fe\iV stri11gs attached. The Chinese, \Vho
quire collateral. Instead they are more i11- tend to head home quickly did not make
clined to 1nake lendi11g decisions using da- 90 great tise of these. I ndians by contrast are
ta about a student's chosen subject and Pakistan very keen on them. They look for these
60
destination, rather than eeking out infor- Nlgeriai , -,... schemes \ hen deciding where in the
mation about theirfamily \.Vealch. But plen- 30 \Vorld to study. Their terrns can affect ho\V
ty of people still end up making big sacri- \Vill ing lenders are to give Indian students
=:;_~US
fices. Farmers sometimes sell fields to fund 0 the 1no11ey they need to pay cot1rse fees.
their children's travels, says Saif Iqba] of 2018 19 20 21 22 23 24
All these differences create complica-
ApplyBoard, a Canadian edtech firm. tions. Postgradt1ate students are much
Driven by these factors-and by over- more likely tha11 undergraduates to request
hang from the pandemic years, \vhen many additional visas for spouses or children.
youngsters put their educational dreams ing. Its own universities are improving fast. "Post-studyu visa schemes previously lirtle
on ho ld- the number of people leaving In- And as relations with the West gro\.V more noticed by the public are grovving more
dia for study has lately surged. In the first rense Chinese students abroad may no controversial. Lo\ver spending per student
ten months of 2023 some 760 ooo lndians longer feel as welcome as they once did. means that countries have to welcome
went abroad forforeign study of some sort, There are also related concerns that Chi- more ne\vcomers to bank the same
reckons the gover11ment. Thar is roughly nese employers wil l stop seeing Western amottnts of cash. The lo\V- and middle-tier
30% more than in 2019. Ir1 total some 1.5m degrees as an asset. universities that benefit mo t from lnd ian
lndian students reside overseas, it guesses Yet if the 11ewcomers bring opportu1li- arrivais do not have a loud voice in forums
about 38% higher chan before covid-19. ry they also presenr new risks. The single where these policies are discussed.
Arnerica estimates that the number stt1dy- largest threat is that shifts in the countries In recent mo11ths governments in Aus-
ing at its colleges and universities bas that send international students affect tralia Britain and Canada have all tight-
grown by some 37°/4 in five years, to ho'.v willing voters in receiving countries ened rules around fore ign students. Cana-
270 ooo (see chart 2). are to accept them. Debates about immi- da is temporari ly capping foreign enrol-
gration in rich countries are increasingly ment on undergraduate and non-degree
Balancing the books taxie. As the numbers of internatio11al sru- courses over \Vorries about housing and vi-
The exodus is good news for India and for dents rise, the mo re often they are dra\vn sa abuses. Australia has just eut the
the countries to which its students head. In into these ro,vs. amount of rime it will permit international
public, Indian politicians are inclined to Indeed lndian stude11ts differ from students to remain in the country after
bemoa11 the departures. But behind the their Chinese counterparts in ways that they graduate, and Britain has barred ail
rhetoric everyone kno\VS that stt1dents seem likely to inflame these fights. The In- but a sliver of foreign srudents from bring-
who go abroad generally do well, and "bet- dians are far less wealthy for a start. They ing depe11dants. America is net tightening
1
ter than they would do a t home says Mr
, usually faveur more affordable lower-tier for the moment. But its t1niversities corn-
Varghese. Those ,vho return bring back universitie and incline towards shorter plain that immigration officiais are reject-
valuable skills: India's best universities are courses. They are much more likely for ex- ing a high share of Indian applicants. Last
full of foreign-educated academics. Those ample, to study at postgraduate level than year they turned down 36% of ail requests
\.Vho stay a,vay are see11 as flag-fliers for In- as undergraduates. That is because fu11d- for student visas, up from 15% in 2014.
dia abroad. The cou11try is proud of former ing a one- or two-year master's is more
foreign stude11ts such as Satya Nadella a11d manageable tha11 fu11ding a full bachelor's Class action
Sundar Pichai the bosses of the American degree overseas. In Britain a typical India11 Such meast1res are 11ot t1nprecedented as
tech giants Mic rosoft and Alphabet, both studenc spends only about half as mttch on governments frequently blow hot and cold
of ~rhorn '.Vere born in India. tuition fees as a Chi11ese one. aboL1t international stt1dents. Sorne think
Meanwhile receiving countries- nota- lndian students are also much keener the latest round of tightening is simply an-
bly America Austra1ia, Britain and Cana- other S\ving in that same old cycle. But
da- see a chance to grab talent particular- Matt Durnin of Nous a consultancy with
ly in engineering, computer science and Land of the fee offices in Australia Britain and elsevvhere,
maths. Such skilled workers can boost re- United States, international students enrolled reckons something more fundarnental is
search innovation and more. According to in higher educat ion, by country of orlgln, '000 afoot. For years Western countries gre\V
analysis fro1n 2022 by the National Foun- 400 accustomed to stude11ts \Vho \Vere cash
dation for American Policy a think-tank a rich, and \Vho headed home the day after
China
quarter of billio11-dollar startups in Ameri- 300
graduatio11. No\V they are realising that
ca had founders \Vho came to the country 'the game is completely different".
a international students. The risk is that rich countries \Vill
Wester11 universities also think Indian 200 increasingly shun cheir opportunities to
tudents may help to maintain demand for lndla naftle bright young thing . And, worse,
their expe11sive degrees even as migrations 100 that they do so without revisiting the fund-
from China plateau. For years analysts ing settlements that have made their un i-
have warned that a decades-long boom in versities eve r more reliant on incarne from
Chinese arrivais might be nearing its peak_: , ,,,,,,,,,, ,,,,, , ,, ,,, , 0
overseas. Given the growth-boosring po,v-
2000 05 10 15 20 22
the pandemic may well have acceJerated er ofbig, zingyuniversities, that would be a
!,0111 ce: losl. u 1. l11h,1nal 1011al Educ: l i r,
that. China's youth population is shrink- foolish mistake. ■
The Economist June 22nd 2024 Business 61

Business in lndia
Condiments
Poweringup
Hot mess
BANGALORE
What ,ve11t wrong for America's favourite sriracha sauce?
India's electronics industry is surging

o WITNESS TND IA'S growi ng role as a vVEET AND spicy ,vith a sour tinge,
T manufacturing hub, dodge Bangalore's
notorious traffic and head north. Around
S riracha sauce was an in tant hit
,vhen David Tran, a Vietnamese refugee
45km outside the city, amid the dust a11d brot1ghr it co Arnerica i11 the 1980s under
debris of construction, Foxconn, a Taiwan- the brand Huy Fong Foods. Asian eater-
ese contract manufactt1rer, is turni11g 120 ies were the first to snap up Mr Tra11's
hectares of farmland into a faccory rbat hot sauce but before long the green-
,vill produce arot1nd 20m iPhones a year. nozzled bottle, with its distinctive roost-
Foxconn's plant \\rill be the third facility er logo had become a staple in restau-
near Bangalore dedicated to churning out rants and pantries alike. Within just a
phones for Apple an American tech giant. fe\V years Mr Tran ,vent from ha\\1 king
The other t\V0 are run by Tata, India's larg- his wares out of a Chevy van in Lo
est conglomerate. Angeles to \Valking the floor of a 20,000-
Bangalore, horne to ma11y of India's lT square-metre fuctory. By 2020 bis busi-
giants, is better known for its software ness \\1as worth $1bn.
than its hard\vare. Ho\vever the new fac- Sit1ce then ho\\1ever, it has suffered a
tories suggest that, in one induscry at least meltdown. First came grumblings by
India's efforts co transform itself into a fa11s that the condiment had lost its
manufactt1ring pO\Verhou e are bearing vibrant cri1nson colour and peppery
fruit. Electronics manufacturing- the punch. Next came the shortages. Enthu-
business of building mobile phones televi- siasts soon panicked and began to hoard
sions and other gadgets-is thriving in In- the stuff. At one point last year resale
dia. The value of electronics it produced prices for Huy Fong's sauce on eBay, an
rose from $37bn to $105bn (3% of GDP) be- e-commerce site, reached as high as $150
t,veen the fiscal years ending in March per bort le. To cap it off Jast month the
2016 and March 2023 (see chart on next compa11y announced it ,vas halting exacting requirements. "It was11't easy co
page). The government wants to triple this production until at least September. put together that supply chain,' Mr
again by fiscal 2026. Although India's pro- For decades Ht1y Fong set its sriracha U nder,vood explai11s. Ht1y Fong's woes
duction of eleccronics accounts for just 3% apart \Vith fresh jalapefto reddened on began in earnest once its reserves began
of the global total its share is gro\ving fast- the vine a difficult co1nmodity to grow tO rllfi Ollt Ïll 2020.
er than any other cou·ntry's. at scale. Competitors turned to dried Competitors have been ail too ,villi11g
No\vhere is this boorn. more evident chillies. Mr Tra11 rurned to Craig Un- to step i11to the gap left by the sriracha
than in the production of phones, which def'\,vood, a Californian \Vith a penchant pioneer. Mcllhenny, "vhich makes Ta-
makes up nearly half of India's electronics for pep pers. For 28 years U11denvood basco a rival hot sauce, began peddli11g
i11dustry. The country is the world's sec- Ranches, his company rnet ail Htty its o,v11 sriracha prodt1ct \Vith a cam-
ond-largest maker of the devices, trai ling Fo11g's jalapeôo needs, atone point paign promisi11g "110 shortage of flavour
only China. In fisca l 2015 India imported produci11g close to 45,000 tonnes a year. i11spiratio11". In the second half of last
almost four-fifths of it phones. It now im- To fi ll Htty Fong's bottles Undenvood year its condiment was the besrselling
pons barely any. Apple sources about one Ra11ches expanded ics acreage ren-fold. sriracha sat1ce in America. Other brands
in seven of its iPhones from India double The t\VO men became chums. In 2017 have had a boost too. Even Underwood
,vhat it did a year ago. Samsung, a South however, the relationsh ip soured follo\v - Ranches has piled in ,vith its own pro-
I<orean rival, has its largest phone-making ing a disagreement bet\veen Mr Tran and duct trading on its reputation as Huy
facility in the country. Mr Under\vood over financial terms. Fong's erstwhile supplier. If the re is one
Contract manufacturers, \Vhich build Althot1gh Mr Tra11 scrambled to find lesso11 from Mr Tran's debacle, the11 it is
products on behalf of other companies new gro\ivers, tuming south to Mexico to keep your friends close-and your
have bee11 rapidly expanding i11 India. Fox- 11one has been able to reliably meet his jalape11os closer.
conn, which assembles nearly t'wvo-thirds
of lndian-made iPhones, 110w has rnore
than 30 Indian facto ries and employs Foxconn and its peers have also set up ing. In November it acquired the I11dian
40,000 I ndian workers. Although its Indi- shop in India. P\VC, an advisory firm, esti- operations of Wistron, a Tai\-vanese firm,
an operations account for less than 5% of 1nates that the share of value India added ar1d began assembling iPhones. Tata 110w
its total revenue, the company is steadily to phone prodt1ced in the country in- plans to expand its factories to nab a larger
increasing its investments. It has et aside creased from 2% in 2014 to 15% in 2022. share of business \Vith Apple.
$2.6bn fo r its Bangalore factory. Last year It is not only foreign firms that have Anothe r lndian company benefiti ng
Liu Young Foxconn's boss, to ld i11vestors piled in. Tata first entered phone-making from the device-making bonanza is Dixon
that the several billion dollars it had invest- in 2021 by building parts for older models Technologies I11dia's largest domestic
ed in India so far \vas "only the beginning". of the iPhone. After initial issues with qual- electronics mai1ufacturer. The company
A steady stream of foreign suppliers to ity contrai, the company has found its foot- ~,hich began making gadgets for the local ►►
 62 Business The Economist June 22nd 2024

Aviation
Electrifled
lndia Flying off the rails
Electronics manufacturing output, $bn Mobile-phone imports, % of domestic sales
100 80
80 BERLIN
60
60 European airlines are on a buying spree
40
40
OME CORPORATE tie-ups delight inves-
20 20
S tors. Others make them groan. The pur-
chase of a 41% stake in lTA, Italy's national
0 0
airline by Luftha11sa, a German carrier, for
2016 17 18 19 20 21 22 23 2015 16 17 18 19 20 21 22 23
€325m ($35om) is an example of the latter.
Financial years ending March 31st Financial years ending March 31st
Rumours that the EU is close to blessi11g
~ICci ln\l' ~, ,ndl ,; M fll 1n ~tu 1• r; J Mr 11ani.;k1I
the deal have contribLtted to a slump in
Lufthansa's share price.
► rnarket three decades ago bas jumped into more advanced areas like chipmaking. In- ITA, once called Alitalia is hardly a
producing smartphones for foreign com- dia's reluctance to lower trade barriers \Vith crown je,vel. Since its fo unding in 1946 it
panies. It now employs 27 ooo people, up its As ian neighbours is also a hindrance. has turned an annual profit only three
f rom 2 ooo a decade ago. Over the pasr Import duties for the ra\V materials and times. The Italian government privatised
year its share price has risen by 150%. components needed to produce electron- the company in 2009- then renationalised
l11dia's electrotlics boorn reflects a com- ics are typica lly higher than in other coun- it in 2020 rebranding it as ITA in the hope
binatio11 of the desire of Western tech tries that are vying to steal production of a fre h start. Air France-KLM and Etihad,
firms sttch as Apple to redttce their reliance away from China such as Vietnam. two airline businesses that had taken mi-
on China and the vast appetire of lndia's For his part, Mr Vachani of Dixon is nority stakes in the carrier, v.rrote off their
1.4bn people for whizzy devices such as bullish. He believes that "trus a Y2K mo- investtnents. The Italia11 government spent
smartphone . Generous handouts from ment'' for India's electronic 1nanufacrur- aroLtnd €3.5bn duri11g the covid-19 pan-
the government have sweetened the deal ing, a reference to the panic over a comput- demie to keep the company aloft, equiva-
for com.panies mulling production in In- er bug at the turn of the century that put lent to roughly €300,000 per employee.
dia. In 2020 the govemment announced a the wind in the sails of India's JT industry. Tuming around a business ,,vith uch an
programme of "prodt1ction-li11ked incen- Perhaps, i11 time, the term "Bangalored'J impressive history of financial disaster
tives" for manufacturers in various indus- could refer not, as today, to the draining of seems like a tall order. The Italian carrier
tries, including electronics. white-collar jobs a\1/ay from America, bt1t has been pummelled by low-cost rivals, in-
Sunil Vachani Dixo11's boss, credits the of blue-collar ones from China. ■ cluding Ryanair and Wizz Air that have
government for its belief in lndia's manu- expanded in Italy to capitalise on the tur-
facruring potential which he says has moil at the company. "Acquiring ITA is 011e
brought about "a change in the mindset' of of the most challenging propo itions in
the country. India's government has cer- Artificial or intelligent? European aviation," says Tobias Fromme of
tainly been busy \Vooing foreign rnanufac- Market capitalisation, $trn Bernstein a broker.
turers. !11 January it awarded the Padma 3.5 Why, then, is Luftha11sa pur uing a
Bhushan the country's third-highest civil- deal? It argues that Italy is one of the com-
ian a\vard, to Mr Liu of Foxconn. Pranay Apple 3.0 pany's biggest markets, and that ITA's
l(otastha11e of the Takshashila Institution, routes to Africa and South America com-
a think-ta11k in Ba11galore, says the govem- 2.5 pleme11t Lufthansa's routes to North
ment has been courcing companies such as America and East Asia. It adds thac it alrea-
2.0
Foxconn to lure in "anchor investors" dy O\Vns another small ltalian airline, Air
arou11d \Vhicl1 supply chains can form. 1.5
Dolomiti \Vhich means it is familiar \Vith
The hope is that India will one day be the market. A further motivation may be
able to dislodge Chi na as the ,vorld 's elec- 1.0 Lufthansa's fear that ITA could fall into the
tronics factory. Narendra Modi's electoral bands of a rival.
Nvidia
setback earlie r this month in which the 0.5 European aviation is in the midst of
prime mi11ister lost his parliamentary ma- \Vhat may be its final wave of consolida-
jority does not appear to have dampened 0 tion. Six companies- Air France-KLM
enthusiasm for that goal. His 11e,v govern- 2020 21 22 23 24 EasyJet, IAG, Lt1fthansa, Ryanair a11d Wizz
ment has signalJed co11tinuity in its sup- S rtce: L.. EG W1.11~panc Air-already account for 71% of capacity
port for manufactt1ring. on flights within the co11tinent. !AG vvhich
1
lndia s progress certainly looks promis- Nvidia's ascent O\vns Aer Lingtis, British Airways and
ing. In the 12 months to the end of March, On June 18th Nvidia overtook Microsoft as Iberia, i planning to buy 80% of Air Euro-
1
its electronic exports reached $29bn, up by the world's most valuable company. lts pa Spain s third-biggest airline SLtbject to
24%, year on year. Still, that is a far cry from market capital isation of $3.3trn is more than EU approval. A large stake in SAS a Scandi-
the almost $9oobn of electronics China ex- 20 times what it was in January 2020. ln- navian carrier, is bei11g sold to Air France-
ported last year. There is, then, plenty vestors are buying its shares as greedily as KLM and Castelake, an American private-
more to do. Nausbad Forbes, an Indian tech giants are buying its artificial-intelli- equity firm. Air France-KLM and lAG are
businessman, argues that unless Indian gence chips. Nvidia's revenue in the quarter expected to bid for TAP, Portt1gal's state-
firms invest in deepening their tecbnical ending in April rose by 262%. year on year. o\vned airline, which is up for sale. After
know-how, they will struggle to compete in lts net income rose by 628% . that there \Vill be little else left to buy. ►►