August 3rd 2024

The world this week

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The world this week
Politics
Business
KAL’s cartoon
This week’s covers
The world this week

Politics
August 1st 2024

At least 20 protesters were reportedly killed in clashes with police after

Nicolás Maduro was declared the victor of Venezuela’s presidential election
by the country’s electoral commission. The opposition says exit polling
showed that its candidate, Edmundo González, was the clear winner in the
high-turnout contest. It has been unable to obtain results from many polling
stations. America called for the immediate publication of the precinct-level
polling. Nine countries in the region, including Argentina and Peru, called
an emergency meeting of the Organisation of American States, which said
the vote was unreliable. China, Iran, North Korea and Russia congratulated
Mr Maduro.

Ismael “El Mayo” Zambada and Joaquín Guzmán López, two leaders of the
Sinaloa drug cartel in Mexico, were arrested in El Paso, Texas. Mr Guzman
is a son of Joaquín “El Chapo” Guzmán, who is serving a life sentence in a
Colorado prison. A lawyer for Mr Guzmán junior said he had not made a
plea deal with American authorities. He had apparently tricked Mr Zambada
into flying to El Paso, though Mr Zambada’s lawyers say their client was
kidnapped.

One by one
Israel said that a rocket fired by Hizbullah killed 12 children and teenagers
at a football ground in a Druze village in the Golan Heights. Israel retaliated
with a strike on Beirut’s southern suburbs, a Hizbullah stronghold, killing
Fuad Shukr, the militia’s top military commander. Shortly after, Ismail
Haniyeh, Hamas’s most senior political leader, was killed in a strike in
Tehran, which he was visiting. Israel also claimed that it had killed
Muhammad Deif, the overall commander of Hamas’s military wing, in a
strike on Gaza on July 13th.

Masoud Pezeshkian was sworn in as Iran’s ninth president (Ismail Haniyeh

had been in Tehran for the inauguration). He has promised to fight
corruption, fix the ailing economy and improve relations with the West, but
will probably struggle to implement any major reforms.

Israel’s military prosecutor opened an investigation into a group of soldiers

accused of sexually abusing a Palestinian prisoner held at a detention camp.
That prompted a mob of Israelis to storm the base where the soldiers were
detained. Hours later there was a riot at another base, home to Israel’s
military court. Several right-wing lawmakers joined the demonstrations.
Herzi Halevi, the army chief, said the scenes were “bordering on anarchy”.

Separatist rebels and jihadists in Mali reportedly killed dozens of

mercenaries from Russia’s Wagner Group who were in a convoy with troops
from the west African country. The attack near the Algerian border is the
worst known loss for Wagner in Africa.

Jacob Zuma, the former president of South Africa, was finally booted out of
the African National Congress. The 82-year-old upended the country’s
politics in May by leading his new party, uMkhonto weSizwe, to third place
in a general election, depriving the hitherto hegemonic ANC of its national
majority.
Ethiopia floated its currency, ending decades of efforts to manage the value
of the birr. The decision was approved by the IMF, which hours later
announced loans worth $3.4bn over four years. Relations with the fund had
been hampered by the war in the Tigray region.

At least 166 people were killed in landslides caused by heavy rains in

India’s southern state of Kerala. Scores more are thought to be buried under
the mud and rubble.

The junta in Myanmar extended the country’s state of emergency, which

has been in place since a military coup in 2021, for another six months. The
army has lost vast swathes of territory to various groups of ethnic rebels,
who have started to co-ordinate their operations.

Judicial review
Joe Biden proposed a radical overhaul of America’s Supreme Court,
including 18-year term limits for its justices. Kamala Harris endorsed the
plan, though it is unlikely to come to fruition. Mike Johnson, the speaker of
the House of Representatives, said the Democrats wanted to change the
court because they disagree with its recent decisions and that the proposal
was “dead on arrival”.

Kamala Harris raised $200m in her first week as the Democrats’

presumptive presidential candidate, according to her campaign. That is
more than Mr Biden raised in the first three months of the year. The polls
show her now running neck and neck with Donald Trump.

The man who plotted the terrorist attacks of 9/11, Khalid Sheikh
Mohammed, and two of his abettors have agreed to plead guilty to
conspiracy and murder in a deal that will see them imprisoned for life rather
than face the death penalty. The three men have been in American custody
since 2003 and are being held at Guantánamo Bay.

Southport, a seaside town in Britain, became the scene of one of the

country’s most tragic mass stabbings. A 17-year-old youth has been charged
with entering a children’s Taylor Swift-themed dance class with a knife,
killing three girls, all under ten years old. Eight other children and two
adults who tried to protect them were seriously injured. A vigil for the
victims was overshadowed by violence after suspected far-right protesters
clashed with police.

Anjem Choudary, the leader of al-Muhajiroun, a banned radical Islamist

group, was jailed for life in London. An operation involving American,
British and Canadian authorities led to his conviction for directing a terrorist
group.

Britain’s new finance minister, Rachel Reeves, said she had discovered a
£22bn ($28bn) hole in the country’s public finances. She claimed that the
previous government covered up the financial mess and left an
“unforgivable” inheritance. The previous Tory finance minister, Jeremy
Hunt, rejected her claims, saying that the overspend was a result, among
other things, of Labour’s decision to raise public-sector pay.

Russia said it had taken control of Pivdenne in Ukraine’s Donetsk region,

as it continued its slow but steady progress against Ukrainian forces.
Pivdenne lies just outside Toretsk, a coal-mining town, where Ukraine has
so far held the line. Russia claimed to have also captured two villages on the
road to Pokrovsk, a transport hub 70km (43 miles) west of Toretsk.
Meanwhile Russia launched one of its biggest drone attacks across Ukraine
since the start of the war.
After a culturally sophisticated and provocatively outré opening ceremony,
the Olympics got under way in Paris. Heavy rain led to increased pollution
in the Seine, causing the men’s triathlon to be delayed (the swimming leg
was held in the river). Suspicion fell on left-wing groups for sabotaging the
French rail network on the opening day and telecoms networks two days
later.
This article was downloaded by zlibrary from https://www.economist.com/the-world-this-week/2024/08/01/politics
The world this week

Business
August 1st 2024

The Bank of Japan raised its benchmark interest rate for only the second
time in 17 years, to 0.25% (it increased the rate in March for the first time
since 2007). It also plans to reduce its ¥6trn ($39bn) monthly bond
purchases by half by the spring of 2026. Japanese government officials had
been uncharacteristically vocal in their desire to see the bank halt the decline
of the yen. The weakened currency has fuelled inflation, which has remained
above the bank’s 2% target for 27 months.

The Federal Reserve made no changes to its main interest rate but left the
door open for a cut in September. Earlier data suggested the American
economy grew at an annualised rate of 2.8% in the second quarter, double
the 1.4% expansion in the first quarter.
The Bank of England cut interest rates for the first time since March 2020,
the start of the covid-19 pandemic. It shaved a quarter of a percentage point
off the base rate, taking it to 5%. The bank said it expects the fall in Britain’s
headline inflation rate will continue to feed through to weaker pay and price-
setting dynamics.

The euro zone’s GDP grew by 1% on annualised basis in the second quarter (or
by 0.3% on a straight comparison with the first quarter). Germany’s
economy contracted again by whatever measure was used.

Boeing reported a $1.4bn quarterly net loss, in part because the extra
safeguards it is putting in place to tackle quality issues have slowed down
production. Its defence and space division also racked up an operating loss.
Meanwhile, the company named Kelly Ortberg as its new chief executive.
Mr Ortberg used to run Rockwell Collins, which supplied Boeing with
electronics. He retired in 2021.

Boeing is not the only aerospace company with big problems. Airbus
recorded a higher-than-expected charge of almost €1bn ($1.1bn) related to
its space business. It has already cut its target for deliveries of commercial
planes.

Microsoft reported a solid set of earnings for the second quarter, with
revenue from its Azure cloud division up by 29%, year on year. Still, that
figure was slightly below market expectations, which Microsoft blamed in
part on capacity constraints for artificial intelligence, where demand is
racing ahead of its ability to provide services. The company said its
investments in AI would continue to increase. Capital spending hit $19bn in
the quarter, a rise of 80%.

Meta also announced an increase in spending on AI in its earnings. “I’d rather

risk building capacity before it is needed rather than too late,” said Mark
Zuckerberg. Separately, Meta reached a settlement with Texas over claims
that its now-obsolete facial-recognition system gathered biometric data from
Texans on Facebook without their permission. Meta is paying $1.4bn to
settle the charges, the largest amount ever obtained from an action brought
by a single state, according to Texas.
AI, AI, oh
Meanwhile, another global outage hit Microsoft’s systems, this time a
cyber-attack on its email service and its Minecraft video game. The effects
of the recent worldwide interruption to Microsoft systems from a faulty
update distributed by CrowdStrike, which provides security software,
continued to reverberate. Delta Air Lines said it lost $500m because of the
disruption.

The US Consumer Product Safety Commission decided that Amazon is

legally responsible for defective goods from third-party sellers on its
website, and must issue safety recalls and notify consumers if a product is
faulty. Amazon is appealing against the decision.

BPand Shell reported bumper quarterly profits. BP said it would build its sixth
oil platform in the Gulf of Mexico, underlining the continuing importance of
fossil fuels to big energy companies. Shell posted a loss in its renewables
business. The company recently shelved a biofuels project in Europe
because of poor market conditions in that industry.

Air New Zealand ditched its short-term climate target, the first big
international airline to do so. The carrier had hoped to reduce carbon
emissions by 28.9% by 2030 compared with 2019 levels, but that goal ran
into headwinds, including the unavailability of fuel-efficient aircraft and
unaffordability of alternative jet fuels. It is also withdrawing from the
Science Based Targets initiative, a collaboration among various NGOs, but
remains committed to reaching net zero by 2050.

The cinematic universe

“Deadpool & Wolverine” notched up $211m in box-office sales over its
opening weekend in America, a record sum for an R-rated film. It took a
further $233m in international markets. “Inside Out 2”, meanwhile, has
surpassed $1.5bn in global sales since its release in June, pushing it over the
lifetime gross receipts of “Barbie” and “Top Gun: Maverick”. “Deadpool &
Wolverine” and “Inside Out 2” were made by Marvel and Pixar, two Disney
subsidiaries, giving the company a couple of big hits after a few summers of
relative box-office wash-outs.
This article was downloaded by zlibrary from https://www.economist.com/the-world-this-week/2024/08/01/business
The world this week

KAL’s cartoon
August 1st 2024

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

Can Nicolás Maduro be stopped from stealing Venezuela’s election?

After protests over a stolen election, the goons crack heads
Nicolás Maduro’s sham election: the sequel

KAL ’s cartoon appears weekly in The Economist. You can see last week’s here.
This article was downloaded by zlibrary from https://www.economist.com/the-world-this-week/2024/08/01/kals-cartoon
The world this week | The Economist

This week’s covers

How we saw the world
August 1st 2024

We have one cover this week, looking at how Chinese companies are
winning the global south. Chinese firms in industries from cars to clothing
are expanding abroad with startling speed. A new commercial contest has
begun. Its battleground is neither China nor the rich world, but the fast-
growing economies of the global south.

The expansion of Chinese business is taking two forms. One is through

globalised supply chains. Another, less noticed, is the pursuit by Chinese
firms of the 5bn consumers who live in the rest of the developing world.
Since 2016 listed Chinese firms have quadrupled their sales in the global
south, to $800bn, and now sell more there than in rich countries. For the
West, attempting to deal with China’s rise, that holds uncomfortable lessons.
Leader: Chinese companies are winning the global south

Briefing: Chinese firms are growing rapidly in the global south

This article was downloaded by zlibrary from https://www.economist.com/the-world-this-week/2024/08/01/this-weeks-covers
Leaders
Chinese companies are winning the global south
The Middle East must step back from the brink
Genomic medicines can cost $3m a dose. How to make them affordable
Can Nicolás Maduro be stopped from stealing Venezuela’s election?
Is the big state back in Britain?
How to make tourism work for locals and visitors alike
Leaders | Going global

Chinese companies are winning the global south

Their expansion abroad holds important lessons for Western incumbents
August 1st 2024

Since the end of the cold war the rich world’s corporate giants have been the
dominant force in global commerce. Today consumers and workers in
almost every country are touched in some way by the world-spanning
operations of multinational firms from America, Europe and, to a lesser
extent, Japan. These leviathans are now under threat, as Chinese firms in
industries from cars to clothing expand abroad with startling speed. A new
commercial contest has begun. Its battleground is neither China nor the rich
world, but the fast-growing economies of the global south.

The expansion of Chinese business is taking two forms. One is through

globalised supply chains. Greenfield foreign direct investment by Chinese
firms tripled last year, to $160bn. Much of that was spent building factories
in countries from Malaysia to Morocco. Less noticed is the fact that Chinese
firms are also pursuing the 5bn consumers who live in the rest of the
developing world. Since 2016, listed Chinese firms have quadrupled their
sales in the global south, to $800bn, and now sell more there than in rich
countries. For the West, attempting to deal with China’s rise, that holds
uncomfortable lessons.

Chinese businesses are looking abroad partly because of slowing economic

growth and ferocious competition at home. They are chipping away at the
dominance of incumbent multinationals everywhere from Indonesia to
Nigeria. Transsion, an electronics firm, produces half of the smartphones
purchased by Africans. Mindray is the leading supplier of patient-monitoring
systems in Latin America. Chinese makers of electric vehicles (EVs) and wind
turbines are expanding in the developing world, which also happens to be
home to nine of TikTok’s ten biggest markets.

The precise shape of Chinese expansion is, however, a consequence of

policies of governments in the West and China. As rich countries erect trade
barriers to keep out Chinese goods, including solar panels and EVs, some
Chinese firms are attempting to skirt restrictions by shifting production to
the global south. At the same time, selling to emerging markets in their own
right has become more attractive, too. The companies’ path has been
smoothed by the efforts of China’s government to build diplomatic ties with
the global south, notably by facilitating $1trn of infrastructure investment
through the Belt and Road Initiative (BRI). As the West has turned inward,
China and the rest of the emerging world have drawn closer.

At a time when globalisation is under attack, this holds an important lesson

for policymakers: that trade can bring extraordinary benefits. Billions of
lives will be enhanced by a wider choice of cheap, innovative and green
goods. Transsion’s $100 smartphones mean that some of the world’s poorest
people now have at their fingertips all the knowledge and services the
internet has to offer. Affordable medical devices will save countless lives.
Low-cost climate-friendly technologies make it more likely that developing
countries will be able to keep their greenhouse-gas emissions in check even
as they get richer and their populations grow.

Another lesson is how costly it is to shelter incumbent Western

multinationals from competition. Domestic rivalries mean that Chinese
firms, once derided for turning out shoddy copycat products, have mastered
the knack of producing goods for low-income consumers in a way that
Western companies never did. Chinese firms are now at the cutting-edge of
EVs and batteries, precisely the sorts of industries rich-world governments

coddle at home. The idea that Chinese brands lack global appeal has been
shattered by companies such as Shein, a fast-fashion firm. Sales by Chinese
companies in the global south have already overtaken those of Japanese
multinationals. On current trends, they will pull ahead of European firms
and be on par with American ones by 2030.

For governments in the global south, the lesson is more subtle. Policymakers
in host countries have an opportunity to enrich their own consumers, create
jobs, and foster innovation and competition. But to do so they will need to
steer between protectionism on one hand, and passivity on the other.

As in the West, local industries competing with Chinese companies will cite
China’s fondness for subsidies and seek special protection. Already, Brazil
has introduced tariffs on EVs, and some Chinese exports are facing levies in
Indonesia. Yet to shut out Chinese products would deprive consumers of the
benefits of choice and innovation, and shield unproductive and stagnant
local industries from competition. But policymakers should also beware of
being too lax. Some have already been burnt as BRI debts went sour. Much of
the business being done by Chinese firms in the global south today involves
only final assembly. Many firms are reported to bring in Chinese workers,
rather than hire locally. For developing economies to truly benefit, they
should press Chinese firms to employ more local workers, share technology
and heed local environmental and labour standards.

China may well go along with this. Over the years American and Japanese
multinationals saw the benefits of training up local staff and imparting
know-how, as they sought to be nearer their end markets, reduce costs and
avoid a backlash from angry locals. Chinese firms may similarly come to see
the benefits of establishing deeper roots in the emerging world. And just as
closer commercial ties enhanced the soft power of America and Japan in the
late 20th century, so too may China wield greater influence in the global
south.
Cede capital
For decades the West was the world’s fiercest advocate for globalisation.
The consequences of its decision to turn inward to shield itself from Chinese
competition will take years to become completely clear. But the world is not
standing still. Western multinationals have long been the main agents of
cross-border trade and investment, and some of the biggest beneficiaries of
openness. Today they are surrendering ground in the world’s fastest-growing
and most populous markets. China is already reaping the rewards. ■

For subscribers only: to see how we design each week’s cover, sign up to our
weekly Cover Story newsletter.
This article was downloaded by zlibrary from https://www.economist.com/leaders/2024/08/01/chinese-companies-are-winning-the-
global-south
Leaders | Ever closer

The Middle East must step back from the brink

That still means starting with a ceasefire in Gaza
July 31st 2024

A WEEK CAN be a long time in war. Until July 27th there was growing optimism
that Israel and Hamas were close to a ceasefire that would halt their ten-
month conflict. Diplomats and spies from four countries planned to hash out
the details at a meeting in Rome. Antony Blinken, America’s secretary of
state, said the talks were “inside the ten-yard line”. Israelis and Palestinians
might not have followed the American-football metaphor, but many shared
his sentiment.

Then a rocket fired from Lebanon killed 12 children on a football pitch in

the Golan Heights. Israel retaliated by bombing Beirut’s southern suburbs, to
assassinate one of Hizbullah’s most senior commanders. Hours later it killed
Ismail Haniyeh, the leader of Hamas, in a surprise strike on Tehran. Hopes
for a ceasefire then gave way to fears of a bigger regional war.

Read all our coverage of the war between Israel and Hamas

Those fears may not yet be realised. Iran has vowed a response for Mr
Haniyeh’s killing, but it will probably be reluctant to go to war on behalf of
Hamas. Israel and Hizbullah are likewise keen to avoid an all-out barrage of
missiles, which would cause immense destruction on both sides of the
border.

A sort of deterrence is still holding—barely. But it is getting ever harder to

maintain. Combatants in the region are crossing lines that would have
recently seemed uncrossable. Twice this year Israel has bombed Beirut, a
city it had not officially targeted since 2006. In April Iran fired a volley of
missiles and drones at Israel for the first time ever. The Middle East’s old
rules of engagement have been erased. Because no one is sure about the new
ones, each strike risks escalating to all-out war.

The path to averting such a conflict starts with a ceasefire in Gaza. Mr

Haniyeh’s assassination will no doubt temporarily halt the talks with Israel.
But it will not change the reality in Gaza. Hamas’s fighters are exhausted
and the public is desperate for relief from a war that has killed almost 40,000
people. That means whoever replaces Mr Haniyeh will face the same
impetus to make a deal with the Israelis. But it is still unclear whether
Binyamin Netanyahu wants to make one.

The Israeli prime minister has prevaricated for months, fearful that agreeing
to a ceasefire would switch Israel’s focus back to its internal ills and his own
trial for corruption. The hopeful view is that Mr Haniyeh’s death gives him
an excuse to declare victory and accept a deal. (So too would Israel’s
announcement on August 1st that it had killed Muhammad Deif, Hamas’s
military chief, in a strike three weeks earlier.) A more cynical view is that if
you want a truce, killing your main interlocutor is a curious way to show it.
Perhaps Mr Haniyeh was too valuable a target to leave alive; or perhaps his
killing was a way for Mr Netanyahu to sabotage the talks.
The assassinations may have been feats of intelligence and operations, but
they do not change Israel’s bleak strategic position. Its war in Gaza has been
drifting aimlessly for months; the loss of Mr Haniyeh, a politician who had
little say over the fighting, will not weaken Hamas on the battlefield. Nor
will assassinating Fuad Shukr, the Hizbullah commander, compel the group
to halt its daily fire on northern Israel. A small country cannot keep battling
on all fronts indefinitely.

Indeed, the choice for Israel has never been more stark. It can make a deal
with Hamas in order to free the surviving hostages from Gaza, bring a
measure of calm to its northern border and provide a chance for regional
diplomacy. The public, senior army officers and even some right-wing
lawmakers support such a step. Or it can spurn a deal in order to continue a
war that could spiral out of control at any time—and probably doom the 115
hostages who remain in Gaza as well.

America has vowed to protect Israel. In recent days it quietly sent an

aircraft-carrier strike group back to the Persian Gulf. Deterring Iran and its
proxies is only part of the equation, though. President Joe Biden has spent
months trying to cajole Mr Netanyahu into a ceasefire, and he has vowed to
spend the final months of his presidency pursuing one. It is past time for Mr
Biden to get tough and threaten real consequences if the Israeli prime
minister continues to refuse. That may clash with his pro-Israel instincts. But
if he does not press harder, the outcome may be worse for the region,
including Israel itself: a ruinous conflict that no one can control. ■
This article was downloaded by zlibrary from https://www.economist.com/leaders/2024/07/31/the-middle-east-must-step-back-from-
the-brink
Leaders | High and mighty

Genomic medicines can cost $3m a dose. How to

make them affordable
The treatments are marvels of innovation. Their pricing must be inventive,
too
August 1st 2024

Many diseases are the result of choice or circumstance: an unhealthy way of

life, toxic living conditions or a chance encounter with a virus or bacterium.
Others are predestined—because they are written in the genes. Millions of
people worldwide suffer from the most common genetic diseases, such as
sickle-cell anaemia or thalassemia, two blood disorders. A long tail of rarer
conditions each afflict an unfortunate few, who add up to many millions in
total.

Twenty years ago most patients had little hope of a treatment. But exciting
developments in genomic medicines are now promising to treat, and
potentially cure, horrible and sometimes fatal genetic diseases. Gene-editing,
for example, uses enzymes to snip a patient’s DNA precisely where needed and
make a repair to harmful mutations.

The technologies are mind-bending, but their cost, sadly, is bank-breaking.

At over $3m a time, several gene therapies count as the most expensive
drugs ever approved. Even wealthy countries are struggling to absorb their
costs. The Aspen Institute, a think-tank, reckons that by 2031 America may
spend a combined $30bn a year on gene and cell therapies covering 550,000
people. That would be roughly ten times the average cost per patient of
America’s current prescription-drug bill. If they are to realise their potential,
these medical innovations may therefore demand financial innovation, too.

Pharma firms insist that the price is justified. They correctly point out that
creating new medicines is colossally expensive and fraught with risk. Once
invented and approved, these treatments are also unusually fiddly to make.
Gene therapies have been compared to “snowflakes”, because each batch is
unique. Firms argue that treatments relieve great suffering and that, if their
effects last, a single cure can spare the long-term expense of a chronic
ailment which would otherwise be borne over a sufferer’s entire life.

Where governments pay for health care, the cost of gene therapies will be
spread over the entire population. That makes it easier to design payment
mechanisms—even if the money itself will be hard to find. But the situation
in America is even more complex. Some insurance plans, sponsored by
small employers, are ill-equipped to cope with the upfront cost of the new
drugs. Firms have compared the sudden expense to a “lightning strike”.

Insurers might have to pay for a treatment in instalments, rather than all at
once. They might have to join forces with other insurers to handle specific
treatments. Tens of thousands of people with sickle-cell anaemia are covered
by Medicaid, a health-insurance plan for the poor, administered by state
governments. To defray costs, the federal government is trying a pilot
scheme to co-ordinate coverage across states.

Insurers are also learning from other industries. Some talk about a “Netflix”
model, where lots of small insurers pay a subscription fee in return for
whatever therapies a manufacturer brings on stream. To allay the
uncertainty, some drugmakers could offer warranties that compensate
insurers if treatments ultimately fail.

History shows that the cost of new medicines can fall over time with
advances in technology. The cost of monoclonal antibodies declined almost
50-fold in the 20 years after 1998. Something similar should happen with
genomic medicines. One hope is that they will become “platform
technologies”, allowing a single drug, after a few tweaks, to treat many
diseases without requiring expensive clinical trials each time. Pharma firms
themselves seem to be expecting prices to fall. Some are contemplating
genomic therapies for more common conditions, such as heart disease,
which will work only with much lower prices per patient.

The danger is that even if costs fall, pharma firms have too little incentive to
lower prices by as much. Once a drug has been established as the “standard
of care” for a certain condition, insurers can switch to cheaper providers
only if they can meet the same standard. If no other providers exist, even
governments will have surprisingly little bargaining power in price
negotiations with manufacturers.

Governments can, however, use their clout in other ways. They can
streamline regulatory systems to make it easier for other firms to enter the
market. They can also offer financial incentives, such as tax credits,
vouchers or prizes, for the invention of rival treatments. Drug development
already benefits from substantial public support through research funding,
tax incentives and patent protections. These medicines all ultimately derive
from Nobel-prizewinning discoveries guided by curiosity, not profit. Thanks
to public investment in breakthrough technologies, as well as private risk-
taking, gene therapies can now perform wonders. Another wave of publicly
funded research and initiative may now be needed to perform the same
magic for less money. ■
This article was downloaded by zlibrary from https://www.economist.com/leaders/2024/08/01/genomic-medicines-can-cost-3m-a-dose-
how-to-make-them-affordable
Leaders | Daylight robbery

Can Nicolás Maduro be stopped from stealing

Venezuela’s election?
Peaceful protests and judicious diplomacy offer some hope
July 31st 2024

THERE COMES a moment in a country’s descent into dictatorship when a

heavily armed regime tries to force millions of people to accept that black is
white, bad is good and losers are winners. By so blatantly stealing the
presidential election on July 28th, President Nicolás Maduro has ensured
that for Venezuela that moment is now .

By every measure except the regime’s, the vote was won soundly by
Edmundo González. He is an avuncular former diplomat around whom the
opposition coalesced after Mr Maduro barred the most impressive
opposition leader, María Corina Machado, from running. Exit polls and
parallel counts from swathes of separate polling stations all show Mr
González winning, with more than 65% of the vote. Yet after a suspicious
delay, the electoral authority, run by regime lackeys, announced that victory
belonged narrowly to Mr Maduro.

During his 11 years in power, Mr Maduro has grown ever more anti-
democratic. This time his regime invented millions of votes to steal a win.
The scale of the fraud far outstrips Venezuela’s past sham elections.
Venezuela is now reminiscent of the Democratic Republic of Congo, one of
the world’s poorest countries, where millions of votes were fabricated in
2018 to secure the election for the loser. Congo’s ruse succeeded. Mr
Maduro’s must not.

Whether it does depends primarily on ordinary Venezuelans. So blatant is

the steal that they may refuse to accept it. Protests have broken out across
the country, including in places once seen as bastions of the regime. At least
20 people have died. Caracas, the capital, has been a din of pots and pans.
Crowds have toppled at least six statues of the late Hugo Chávez, whom Mr
Maduro succeeded in 2013 as leader of the socialist-themed “Bolivarian
revolution”.

Venezuelans are also fed up with the ruination of their country in a quarter of
a century of strongman rule. Under Mr Maduro, hyperinflation soared
(today, inflation is “only” 50%). In the eight years to 2021, the economy
shrank by three-quarters. Corruption is rife. Dissidents disappear into
dungeons. A quarter of the population—7m people—has fled abroad.

Alas, the army is blocking change, and to get it to abandon Mr Maduro and
uphold the constitution’s electoral process will be hard. Mr Maduro relies on
Cuban intelligence to keep officers in line. The opposition should strive to
show in irrefutable detail that the election was stolen. On the back of that, it
should stage large, peaceful demonstrations. Many foot-soldiers, whose own
families share in the current hardship of Venezuelans, are not necessarily
loyal to the regime.

The outside world can do its bit, too. Without full, credible election data,
Western powers should reject the official results outright. Failure to provide
such data should mean renewed economic sanctions and pursuit by the
International Criminal Court for potential crimes against humanity. The
West should also use individual sanctions against Mr Maduro’s inner circle,
including his generals, whose families luxuriate in plush hotels in Madrid
and elsewhere.

More crucial will be the role of President Luiz Inácio Lula da Silva in next-
door Brazil. An erstwhile ally of chavismo, Lula is now frustrated. He, too,
has demanded the release of election data. Privately, and ideally with the
backing of the left-wing governments in Colombia and Mexico, he should be
much tougher and tell Mr Maduro that if he clings on, his usual friends will
disown him—and impose sanctions on his family.

The world has one last thing to offer: a safe way out for Mr Maduro and his
closest cronies to a comfortable life by a Brazilian or Caribbean beach,
possibly with immunity from prosecution. That would outrage those who
want to see Mr Maduro face justice at The Hague. But it is a price worth
paying to avoid bloodshed and start putting Venezuela back together.■
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stealing-venezuelas-election
Leaders | Labour’s growth plan

Is the big state back in Britain?

The risk is not too much interventionism, but too little audacity
August 1st 2024

The Labour Party’s first month in power has given scaremongers plenty to
work with. Britain’s new government has begun to unveil what looks to be
the most interventionist economic agenda the country has seen in the past 50
years. Railways are to be re-nationalised. An activist state is spending
billions on industrial policy and setting up a new energy behemoth. Teachers
and doctors will receive big pay increases. A workers’ rights agenda is to
come—as are, almost certainly, increases in taxes on capital gains.

Tilt the lens slightly, though, and this programme appears less alarming.
Labour’s enthusiasm for industrial policy is never going to be something
that The Economist shares. But the details differ from the slogans. Behind
the statist rhetoric, Labour’s actions so far amount to a fairly orthodox
agenda of supply-side economic reform. Indeed, if anything, the big risk to
the mission of boosting growth is not Labour’s headstrong interventionism,
but its lack of audacity.

Look first at what the government does, rather than what it says. GB Energy, a
new publicly owned entity, was first billed as a state-run energy supplier.
But what Labour has set up is closer to a regulatory concierge; its initial
focus is on shepherding offshore-wind projects through onerous approval
processes before selling them on to private developers. A new National
Wealth Fund (NWF), designed to catalyse private funding in green industries, is
to be run at arm’s length from government by City financiers. Taking charge
of the railways is, in some ways, a formalisation of existing arrangements,
after the state bailed out train operators during the covid-19 pandemic.

Britain’s frail public services need better funding; those pay increases were
recommended by independent bodies and match gains made by workers in
the private sector. And the government’s early steps on the planning system
—approving solar farms, lifting England’s onshore-wind ban, making
housing targets binding and signalling a willingness to build on the green
belt—have all been encouraging.
Opportunities will certainly arise to boost interventionism. Ed Miliband, the
energy secretary, seems keen that GB Energy should eventually own and
operate wind farms and other ventures. The steel industry, which
governments of all stripes have propped up in defiance of economic logic,
features heavily in the NWF’s mandate. If not carefully drafted, Labour’s
planned employment law risks gumming up Britain’s labour market. It was
only in February that Labour dropped its commitment to a colossal £28bn
($36bn; 1.2% of GDP) in annual green spending: what might it do if it had the
cash?

Despite that fear, the evidence so far suggests the risk is not that Labour is
too red, but too timid. “Treasury brain”, the finance ministry’s penny-
pinching scepticism about plans for long-term spending, beats big-state
mania but it is hardly a recipe for productivity growth. Rachel Reeves’s first
fiscal announcements as chancellor on July 29th suggest that she has a nasty
case of the disease. “If we cannot afford it, we cannot do it,” she has
repeated, inverting John Maynard Keynes’s dictum that “anything we can
do, we can afford”.

To help fill a hole in this year’s public finances, she cut nearly £800m-worth
of transport investment, including projects that have languished for years in
planning purgatory—a strange signal for a politician who, in opposition,
decried stop-go capital investment. Her search for new savings risks more
raids on capital budgets in the National Health Service, where the
cumulative cost of the efficiency-wrecking maintenance backlog was
already projected to exceed £15bn by 2028.

Labour has shown no appetite for difficult-but-vital reforms like

rationalising Britain’s growth-choking property taxes. On Brexit, the
country’s single biggest productivity headache, the mood music with Europe
is better than it was under the previous Tory government, but incrementalism
still reigns. On planning, the real test of Labour’s mettle will be whether it
can shift to a more rules-based system; on devolution, it will be how much
control and cash it gives up to local authorities.

Stability and orthodoxy make for a much more appealing economic pitch
than unfettered dirigisme. But it is not a million miles from the promises of
Rishi Sunak and Jeremy Hunt, who took over after the chaos of Liz Truss’s
government. A serious agenda for growth needs more than an iron
chancellor: it also requires changes to the way the government thinks about
transport, housing, taxation, Europe and more. The real danger is that
Labour does too little, not too much. ■
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Leaders | The travel boom

How to make tourism work for locals and visitors

alike
Holidays don’t have to be hell
August 1st 2024

The dollar is hovering near a two-decade high. That has unleashed a

multitude of American tourists keen to exercise their newfound spending
power, much to the dismay of snobbish Europeans and anyone who has a
fondness for empty, unspoilt beaches. And it has done so at a time when
tourism is back in fashion. Trips were up by 19% in the first quarter of this
year, compared with a year ago. They are forecast to exceed pre-covid levels
across the whole of the year.

But tourism’s revival is being met by a backlash. Popular destinations

including Barcelona, Dubrovnik, Majorca and Santorini have either
introduced or are considering limits on cruise ships. Japan is erecting
barriers to prevent tourists gathering to gawp at Mount Fuji. Tens of
thousands of protesters in Barcelona and the Balearic Islands have even
called for an end to “mass tourism”.

The arguments underpinning the protests are misguided—as are many of the
policies they inspire. Tourism is a useful source of revenue. Policymakers
can find ways to make it more bearable and more lucrative at the same time.
These do not involve bans on tourists or making destinations less attractive.
Instead, countries should pursue a more capitalist solution, by exercising
their pricing power.

Tourism is big business. On a broad estimate, the industry earned $3.3trn

last year, equivalent to 3% of global GDP and 6% of cross-border financial
flows. For host countries, it is a welcome source of jobs as well as revenue.
The unemployment rates that spiked above 20% in much of southern Europe
in the 2010s would have been higher still had it not been for the millions of
visitors who came to soak up the sun.

The problem, though, is that individual visitors inevitably fail to take into
account the effect they have on others. Congestion is a headache for
residents and tourists alike. Having to compete with the crowds for flat
rentals, seats on a bus and space on pavements spoils the quality of life for
city residents as much as it does the holiday experience for tourists.

Taxes can help, by ensuring that tourists pay for the congestion costs they
impose. In some places taxes may deter the crowds. Travellers seeking
lovely beaches have lots of options, for instance. If Thailand were to make
visiting more costly, tourists would go to Vietnam instead. Indeed, one study
finds that every 10% increase in tourist taxes in the Maldives leads to a 5%
reduction in visitor numbers.

In some places the crowds might still come. Evidence suggests that tourist
taxes are mostly ineffective at dissuading people from visiting destinations
with standout attractions that cannot be found elsewhere, such as
Barcelona’s Sagrada Família. People respond by reallocating spending, for
example by choosing a cheaper hotel, rather than cancelling trips.

However, that is not a reason for despair. For one thing, imposing much
higher levies might have more of an effect on numbers. The taxes that
already exist are set at paltry levels. In October Barcelona’s nightly hotel tax
will increase, but only to €4 ($4.30); a day-pass to enter Venice sets you
back a mere €5, which would barely cover a cup of coffee in St Mark’s
Square. The market could bear much higher prices.

If visitors are willing to go elsewhere, underdeveloped tourist sites could

then have a chance to attract their business. If people insist on visiting the
hot spots, extra taxes levied via airlines or hotels could pay for infrastructure
that makes life better for tourists and residents alike. In addition, other
measures can encourage people to spend time in less congested places or
neighbourhoods. As well as erecting barriers, Japanese authorities more
sensibly sometimes impose a congestion charge on Mount Fuji. Copenhagen
offers ice cream to tourists who do a bit of litter picking. Once the pricing is
right, residents who are still grumpy or who hate crowds have the freedom to
move somewhere else.

Some might object that tourist taxes are unfair, because they stop young or
poor visitors from seeing the world. Yet tourism is always unequal. And
passes or tax-free travel could be granted to students or unemployed people,
as happens at many museums. Venetians may shake their fists when a fresh
boatload of cruise passengers arrives; they should instead be rubbing their
hands in glee. ■
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and-visitors-alike
Letters
Letters to the editor
Letters | On the Secret Service, Paraguay, Boeing, central banks and supply
shocks, trust, data, business reading

Letters to the editor

A selection of correspondence
August 1st 2024

Letters are welcome via email to letters@economist.com

Founding the Secret Service

It is urban legend, not historical truth, that the “law creating the Secret
Service was signed by Abraham Lincoln on April 14th 1865” (“Off-target”,
July 20th). Actually, the Secret Service Division of the Treasury
Department, as it was known, came into being through nothing more than a
brief written order by that department’s chief legal officer on July 5th 1865.
Though your article correctly notes that the unit’s initial purpose was to
investigate counterfeiting, not protecting the president, there was no relevant
vote in Congress (which was adjourned).

The precise origins of the story appear to lie in an actual fact. Lincoln met
Hugh McCulloch, the secretary of the treasury, on April 14th 1865. The
juxtaposition of this meeting with the president’s assassination later that
night at Ford’s Theatre seems to have suggested a more-dramatic-than-real
narrative to subsequent writers. The embellishers include two former Secret
Service officials who, in 1960, included a version of the tale in a history
published with the approval of the agency itself.

However, not a shred of contemporaneous documentation supports the story.

McCulloch’s own detailed memoir in 1889 discusses his final meeting with
Lincoln but makes no mention of the Secret Service.

Congress did not pass a law expressly providing for a Secret Service
Division until 1882. In the intervening 17 years, great controversy had
developed over the Secret Service, in part because southern legislators were
angry at how it had been used to infiltrate the Ku Klux Klan in the former
Confederacy and in part because undercover Secret Service men had
skimmed money or helped Republicans carry out various political dirty
tricks. The 1882 legislation accordingly specified that the Secret Service’s
mission would be to fight counterfeiting “and no other purpose whatever”.

This language is notable given the assassination of President James Garfield

in just the previous year, 1881. Still, it did not prevent the executive branch
from deploying Secret Service men, informally, as occasional bodyguards
for President Grover Cleveland midway through his second term (1893 to
1897), or, indeed, as espionage agents during the Spanish-American war,
which broke out in 1898. As The Economist correctly notes, Congress did
not authorise the Secret Service to protect presidents until 1901, after the
assassination of William McKinley.
CHARLES LANE

Author, “Freedom’s Detective: The Secret Service, the Ku Klux Klan and
the Man who Masterminded America’s First War on Terror”
Washington, DC
Paraguay and Taiwan
Paraguay’s relationship with Taiwan has been in place for over 67 years, and
is solidly based on shared values such as democracy and the rule of law. To
suggest that our nearly seven-decade-long bond is solely based on economic
ties is a gross misrepresentation and reveals a deep ignorance (“The cost of
loyalty”, July 6th). Furthermore, claiming that our co-operation agreements
are used at the discretion of the government as a “petty cash” fund is not
only devoid of any factual basis but undermines the careful and transparent
work that our two countries have been undertaking for years. Work which,
with support from Taiwan, has achieved significant advancements in our
country across education, health, infrastructure, technology and knowledge
transfer.

Over the years, various third parties have systematically sought to

undermine the relationship between our countries to make way for the
People’s Republic of China. In recent years, these attempts have intensified,
accompanied by “academic reports” and journalistic publications.

You are right in asserting that the People’s Republic of China has a strong
presence in the region, and that Paraguay is one of the few countries where
its penetration is limited. However, dismissing Paraguay’s diplomatic choice
in favour of Taiwan without a comprehensive evaluation of both the
economic and geopolitical dimensions undermines the credibility and
integrity of your argument.

In maintaining diplomatic relations with Taiwan, Paraguay exercises its

sovereign right to pursue a path that it deems most beneficial for its national
interests. This decision, rooted in historical, political and economic
considerations, should be respected and analysed with the depth and
impartiality it deserves.

The diplomatic relationship between Paraguay and Taiwan is mutually

beneficial and its impact extends beyond the bilateral sphere. Paraguay’s
diplomatic recognition of Taiwan has supported its international standing
and path to development. Taiwan has become a world leader in
semiconductor technology. It also boasts one of the most efficient and
comprehensive health-care systems globally. Additionally, Taiwan is a
global leader in innovation, research and development across various
sectors, including technology and biotechnology.

In sum, the true value of our loyalty to Taiwan is reflected in our solid
relationship, which goes far beyond temporary trade balances and is firmly
rooted in shared values. Crucially, our partnership underscores the
importance of supporting nations that uphold likeminded democratic values
and contribute significantly to global progress and stability.
RUBÉN RAMÍREZ LEZCANO

Minister of foreign affairs

Asunción, Paraguay
A failure to communicate
Schumpeter was spot-on in his review of Boeing’s failings, which do indeed
amount to corporate criminality (July 13th). There are two additional aspects
worth noting. Boeing failed to have an internal regulator inspect, test and
ensure the safety of its systems. And arguably an even greater shortcoming
lies with the independent external regulator, the Federal Aviation
Administration, which got too close to Boeing. The FAA neglected its own
properly independent inspection and testing, particularly of safety-critical
and safety-significant systems.
JOHN CHURCHILL

Christchurch, Dorset
Supply shocks and inflation
“In theory, central bankers should ignore supply shocks,” you say (“The end
of the beginning”, July 6th). I disagree. Central banks should never ignore
supply shocks. By definition, supply shocks affect an economy’s ability to
produce goods and services. Inflation will rise if overall supply contracts,
unless the central bank raises interest rates to reduce demand. Although
monetary policy primarily affects aggregate demand, it must also react to
supply shocks to keep supply and demand in balance if it wants to stabilise
inflation. This is true whether the supply shock turns out to be temporary or
persistent.

Fighting inflation is not rocket science. The Federal Reserve’s Monetary

Policy Report contains several rules for setting monetary policy that perform
well in a variety of economic models. None of them requires central banks
to know whether inflation has risen because of a supply shock or a demand
shock, or to know how long a shock will persist. The rules call for
responding to actual inflation, as well as measures of real economic activity,
such as the unemployment rate.

Ignoring the guidelines that these rules provide, as the Fed did in 2021 when
inflation soared above its 2% target, risks a repeat of the 1970s, when
temporary inflation shocks from oil prices led to sustained increases in
inflation. Belated interest-rate rises in 2022 and 2023 have helped ensure
that the temporary supply (and fiscal) shocks produced only a temporary rise
in inflation. Central banks committed to low and stable inflation cannot
ignore supply shocks either in theory or in practice.
CARL WALSH

Professor of economics emeritus

University of California, Santa Cruz

Labour must build trust

The Conservative Party did not lose its desire to govern overnight (Bagehot,
July 20th). Rather, its ambition receded as the never-ending parade of
scandals forced it onto the back foot. From David Cameron to Owen
Paterson to Scott Benton, repeated lobbying scandals have tainted public
perceptions of politics more than anything else. For all its important
announcements on energy and housebuilding, restoring trust is where the
new Labour government must begin.

The blame also lies with the 2014 Lobbying Act. It is so riddled with
exemptions that it keeps the vast majority of lobbying in the shadows. If the
new government wants to avoid the briefest of honeymoons and ensure its
efforts resonate with bruised, sceptical voters, it needs to rebuild trust, and
quickly.
ALASTAIR MCCAPRA

Chief executive
Chartered Institute of Public Relations
London

The death of data

It is not true that “Unlike bodies, data do not decay” (“A date with destiny
and your data”, July 13th). The devices on which the data are stored decay
after a few decades at the most. The preservation of data requires that they
continually be copied from old to new storage media. Any crisis that
interrupts the data transfer, such as war, pandemic, or economic collapse,
will also destroy the historical record. You admit that “Not all data can be
saved,” which is regrettably true for historical as well as personal data. Paper
copies are the only durable backup.
FREDERICK PILCHER

Las Cruces, New Mexico

Summer reading
Bartleby is right that literature provides excellent guidance for managers
(July 13th), pointing out that Virgil and Tom Sawyer are great leaders,
whereas Richard III, Macbeth and Captain Ahab are not. During the dog
days of summer, we may all sometimes feel like Herman Melville’s
Bartleby, the columnist’s namesake, who when faced with jobs, tasks and
suggestions, replied: “I would prefer not to.”
CAROL WESTON

Armonk, New York

George Orwell’s “Animal Farm” also provides useful insight for those who
wish to ascend from cubicle to corner office, and sad reminders for those
who stay on the farm with them.
JEEVANI SUBASINGHE

London
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By Invitation
Keep the code behind AI open, say two entrepreneurs
Not all AI models should be freely available, argues a legal scholar
Thailand’s thwarted election winner on the move to ban his party
By Invitation | Artificial intelligence

Keep the code behind AI open, say two

entrepreneurs
Martin Casado and Ion Stoica argue that open-source models will power
innovation without compromising security
July 29th 2024

NO ONE DOUBTS that artificial intelligence (AI) will change the world. But
a doctrinal dispute continues to rage over the design of AI models, namely
whether the software should be “closed-source” or “open-source”—in other
words, whether code is proprietary, or public and open to modification by
anyone.

Some argue that open-source AI is a dead end or, even worse, a threat to
national security. Critics in the West have long maintained that open-source
models strengthen countries like China by giving away secrets, allowing
them to identify and exploit vulnerabilities. We believe the opposite is true:
that open-source will power innovation in AI and continue to be the most
secure way to develop software.

This is not the first time America’s tech industry and its standard-setters and
regulators have had to think about open-source software and open standards
with respect to national security. Similar discussions took place around
operating systems, the internet and cryptography. In each case, the
overwhelming consensus was that the right way forward was openness.

There are several reasons why. One is that regulation hurts innovation.
America leads the world in science and technology. On an even playing field
it will win. With one hand tied behind its back it might well lose. That’s
exactly what it would do by restricting open-source AI development. A
potential talent pool that once spanned the globe would be reduced to one
spanning the four walls of the institution or company that developed the
model. Meanwhile, the rest of the world, including America’s adversaries,
would continue to reap the benefits of open-source and the innovation it
enables.

A second reason is the widely accepted view that open-source makes

systems safer. More users—from government, industry and academia, as
well as hobbyists—means more people analysing code, stress-testing it in
production and fixing any problems they identify.

A good example in the sphere of national security is Security-Enhanced

Linux (SELinux). It was originally developed by the America’s National
Security Agency as a collection of security patches for the open-source
Linux operating system, and has been part of the official Linux distribution
for more than 20 years. This learn-from-others approach is vastly more
robust than one based on proprietary operating systems that can only be
fixed by their vendors, on whatever timelines they can manage.

There is much discussion in Western national-security circles about

preventing other states from gaining access to state-of-the-art AI technology.
But restricting open-source will not accomplish this goal. In the case of
China, that is because the horse has bolted. China is already at the cutting
edge of AI: it may well have more AI researchers than America, and it is
already producing very competitive models. According to one popular
system for ranking large language models, China has three of the world’s top
seven open-source models.

Some Chinese companies are also finding ways to get around export
controls on graphics processor units (GPUs), specialised circuits that excel at
algebra. Even American companies are not easily persuaded to overlook
billions in revenue. A previous attempt at prohibiting the export of high-end
Intel chips resulted in China developing the world’s fastest supercomputer
using a novel, internally developed computing architecture.

The inability of American companies to keep proprietary, infrastructure-

critical IP secure has a long history. Huawei, for instance, has publicly
admitted to copying proprietary code from Cisco. As recently as March, the
FBI apprehended a Chinese former Google engineer for allegedly stealing AI

trade secrets from the company—which is renowned for its security.

A question to ask is whether we want to live in a world where we understand

the fundamental nature of other countries’ AI capabilities—because they’re
based in part on open-source technology—or a world where we’re trying to
figure out how they work. There is no third option where China, for
example, doesn’t have advanced AI capabilities.

The final reason to favour open-source is that it drives innovation. The

argument that we should move away from open-source models because they
cannot compete with proprietary models on performance or cost is plain
wrong. Foundation models are on their way to becoming a key component
of application infrastructure. And since at least the mid-1990s the majority
of impactful new infrastructure technologies have been open-source.

There’s no clear reason why AI models will be different. Today’s AI is rooted

in open-source and open research, and the stunning advances in generative AI
over the past two years—with the rise of OpenAI, Mistral, Anthropic and
others—can be largely attributed to the openness of the preceding decade.
Today, many of the most advanced uses of AI are the product of developers
running and fine-tuning open-source models. Many of the most advanced
users of AI are in communities that have grown organically around open-
source. The die has been cast.
There is, of course, room for different business and development models to
thrive, and no one should take national security lightly. But restricting open-
source would hamstring an approach that has held its own when it comes to
security while driving three decades of innovation. ■

Martin Casado is a general partner at Andreessen Horowitz. Ion Stoica is a

professor of computer science at UC Berkeley and co-founder and executive
chairman of Databricks and Anyscale.

For a different view on the open-v-closed AI debate, see this article by

Lawrence Lessig.
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say-two-entrepreneurs
By Invitation | Artificial intelligence

Not all AI models should be freely available,

argues a legal scholar
The more capable they are, the greater the risk of catastrophe, reckons
Lawrence Lessig
July 29th 2024

FREE AND open-source software has driven technological innovation and

the spread of technical skills. The freedom to share and build upon software
developed by others has given countless young coders the chance to learn,
and is at the core of the businesses that power the digital economy.

It therefore feels obvious to many that the principles of free and open-source
software should be extended to the development of AI models. In principle,
they should. But there are important differences between ordinary software
and AI technology that counsel against a simple extension of a simple
principle to the full range of AI models.
AIis more a category than a technology. Like the category “weapon”, it
ranges from the relatively harmless to the potentially catastrophic. No one
would believe that the access we allow to pea-shooters should be the same
for stinger missiles. Neither should we believe that the software norms
developed for operating systems or media players must apply in the same
way to highly capable AI systems with the potential to cause immense harm.

Nor is it even obvious how the norms of free and open-source software
should apply. Open-source software is software whose source code is
released under licences that allow others to copy and modify the code. It is
the access to that code that spreads knowledge. But AI models consist of at
least four types of digital components, only three of which are actually
software. The fourth — model weights—is both the most potent and the most
obscure.

Model weights are the variable or numerical values used to translate inputs
into outputs. They encapsulate all that the model learned during its training.
Thus, if the training cost $1bn, the model weights reflect that value. If the
training cost $1,000, they are obviously less powerful and less valuable.

So, which among these four components must be shared to be consistent

with open-source values?

Source code is certainly one, for it teaches how the model was built. But
model weights are just strings of numbers. On their own, they don’t teach
anything. With the other software components and the data used to train the
model, they certainly could teach how the model understands. But distinct
from what they teach, they are simply the power of the model. On the
analogy to weapons, model weights are not the design or plans for a weapon.
They are the weapons.

In my view, all four components should be freely available for models of

limited capability. Hugging Face, an AI community platform, offers over
350,000 AI and machine-learning models, 75,000 datasets and 150,000
demonstration applications, all open-source and publicly available. These
models are likely not powerful enough to do significant harm. Making them
available supports an ecology of free knowledge that is critical to improving
the understanding of AI.
Yet that same logic does not apply to highly capable AI models, especially
when it comes to releasing model weights. Whatever model weights can
teach, that benefit must be weighed against the enormous risk of misuse that
highly capable models present. At some point, that risk is clearly too great.

Mark Zuckerberg, founder of Meta, the creator of Llama, the most powerful
open-weight release to date, assures us that open releases “should be
significantly safer since the systems are more transparent and can be widely
scrutinised”. They can be widely scrutinised, but when? If the danger is
discovered after the code is in the wild, the assurance that all can see the
problem equally is not much consolation.

Mr Zuckerberg promises that the foundation models behind freely released

model weights have guardrails to protect against harmful or dangerous
misuse, and that “using Llama with its safety systems like Llama Guard will
likely be safer and more secure than closed models.” However, researchers
are now demonstrating just how easily these guardrails can be removed.
Llama 2 had guardrails to block users from deploying it for improper or
unsafe purposes. But in 2023, and for less than $200, a team from Palisade
Research was able to disable these and produce an unconstrained version of
Llama 2. Just how dangerous could these Frankenstein open-weight models
become, as the foundation models behind them become more powerful and
the techniques for removing guardrails become more sophisticated?

The point is not that only open-weight releases can be hijacked. But they do
create a unique risk because once released, they cannot be recalled. By
contrast, models that give access through web portals or regulated APIs could,
in principle, identify when users are attempting a hijack. In principle, then,
they could more easily shut down malicious use than could models that have
been freely distributed.

Together, these threats suggest we need a more sophisticated framework for

understanding what parts of AI should be freely available and what parts
should not. That understanding must track model capability and, as I will
explain, regulatory capacity.

For low-capability models, we should encourage the Hugging Face ethic.

The risks are low and the contribution to understanding is vast. For high-
capability models, we need regulation that ensures both closed and open
models are safe before they are released—and that they are not released in
ways that could create catastrophic risk. No simple line will divide low
capability from high. But if we’re to secure the potential for open-source
development, we must develop the regulatory capacity to draw this line and
enforce it.

Importantly, these risks are contingent on the regulatory capacity of the

infrastructure within which AI operates. AI researchers are now exploring ways
to use the chips that run AI models to regulate the models themselves—
building governance, as it were, onto the chips. If this capability were
required generally, it could operate as a kind of circuit-breaker, disabling
runaway systems. Such mandates create their own risks, but a technical
governance infrastructure would allow us to focus on model risks, not
whether a model was open or not. And as it could help lessen the risks of AI
development in general, it could weaken arguments against open-source
release in particular.

Private companies alone, in fierce competition with each other, do not have
sufficient incentives to avoid catastrophic risk. Neither would simply
banning open-source AI avoid the risk of great harm. Instead, we need to
develop the regulatory capacity to ensure an environment within which safe
AI can be developed, and the regulatory judgment to determine when the

public risk from any AI deployment is too great.

Today, these risks are imposed upon all of us by private actors with little
public oversight. That formula has not worked with dangerous technologies
in the past. It will not work with the AI systems of the future.■

Lawrence Lessig is the Roy L. Furman Professor of Law and Leadership at

Harvard Law School and a co-founder of Creative Commons.

For a different view on the open-v-closed AI debate, see this article by Martin
Casado and Ion Stoica.
This article was downloaded by zlibrary from https://www.economist.com/by-invitation/2024/07/29/not-all-ai-models-should-be-
freely-available-argues-a-legal-scholar
By Invitation | Thai politics

Thailand’s thwarted election winner on the move

to ban his party
Weaponising the courts to muzzle dissent will fail in the long run, says Pita
Limjaroenrat
August 1st 2024

WHEN I LED the Move Forward Party to victory in the general elections of
May 2023, the country was euphoric. Many Thais, along with international
observers, believed the kingdom was on the cusp of a progressive
renaissance, with the electorate’s will finally triumphant. A post-election
pact among opposition parties seemed to pave the way for me to become the
next prime minister through a parliamentary vote.

That initial euphoria, however, proved premature. In the aftermath of the

elections, conservative forces swiftly mobilised to stymie our coalition’s
formation. The appointed Senate, wielding its undemocratic power to vote
on the premiership, defied the elected majority in the Lower House and
thwarted our bid to form a government. The judiciary then intervened,
suspending me from parliament for holding a minuscule stake in a defunct
media company—an alleged contravention of electoral law—before
reinstating me after 190 days. The coup de grâce came when the Pheu Thai
Party, our erstwhile ally and the runner-up in the polls, reneged on our pact.
In a stunning volte-face, Pheu Thai aligned with military-backed parties to
lead the government, leaving Move Forward in opposition.

Thailand’s democratic standing is poised for further deterioration as the

country’s constitutional court contemplates the dissolution of Move
Forward. Such a ruling would not only remove the most popular party from
the political landscape but would also banish me from politics for at least a
decade.

This political tumult helps explain why Thailand suffered the steepest
decline in the 2023 EIU Democracy Index among South-East Asian countries,
falling from 55th to 63rd place. Indeed, the kingdom’s fall was among the
ten most precipitous out of all 167 countries ranked.

The attempt to undermine democracy by attacking Move Forward should

come as no surprise to students of Thai political history. Since the revolution
in 1932 that transformed Thailand from an absolute to a constitutional
monarchy, the will of the electorate has frequently been flouted. In the 20th
century the country endured 20 attempted military coups, 12 of which
succeeded. These putsches were almost invariably justified by allegations of
corruption against elected officials, with the military presenting itself as a
paragon of moral rectitude. This century has seen two further coups, in 2006
and 2014.

The repercussions of these episodes on Thailand’s democratic development

and, equally crucially, its economic competitiveness, continue to reverberate.
But an old-style military takeover is no longer the only tool, and arguably it
is an outdated one. Some army factions recognise that they need to reform
and are warming to the idea of civilian control of the military. After all, our
party won by a huge margin in many constituencies with major army
barracks. Citizens, meanwhile, are flexing some democratic muscles,
scrutinising military affairs and spending with unprecedented vigour.
In Thailand, while the risk of military intervention is ever present, the
preferred means of safeguarding the establishment’s interests has shifted.
Now the judicial apparatus is the weapon of choice to muzzle those who
seek to challenge the status quo. This tactic, dubbed “judicial coup” or
“lawfare”, has become a hallmark of Thai politics over the past two decades.
Four popular political parties and numerous politicians have been banned
from participating in formal politics. Additionally, no fewer than 272
individuals, including 20 under the age of 18, have been charged with lèse-
majesté—insulting the royal family—which carries a sentence of up to 15
years in prison, since the pro-democracy movement swept the country in
2020. Such legal manoeuvring allows the establishment to maintain its grip
on power while preserving a veneer of constitutional legitimacy.

Move Forward and I have become the latest casualties of such judicial
overreach. Beyond my 190-day suspension on dubious grounds, I am
currently serving a suspended jail sentence alongside other progressive
political leaders. The charges stem from participation in a flash-mob protest
in 2019 against the Election Commission’s move to dissolve the Future
Forward Party—the progenitor of our progressive movement. The court
contended that the protest disrupted train services, impeded public access
and occurred in unacceptable proximity to a royal palace. An appeal is under
way.

On August 7th this pattern of judicial activism is set to reach its apogee with
a verdict on the potential dissolution of Move Forward. The Election
Commission and the constitutional court have levelled accusations that our
proposal to amend the lèse-majesté law constitutes an attempt to overthrow
the democratic regime with the king as head of state. This impending
decision marks a critical juncture for Thai democracy. The outcome could
redefine the boundaries of permissible political discourse in the kingdom,
with far-reaching implications for our democratic and economic trajectories.

A guilty verdict could plunge Thailand back into turmoil. Politically, it

would disenfranchise millions and deepen resentment towards the ruling
class. Economically, it would deter investors and cast doubt on the country’s
ability to escape the middle-income trap.
Despite polls showing Move Forward’s approval rating approaching 50%,
the party’s leaders, myself included, have eschewed encouraging street
protests that might lead to chaos or endanger lives. Unrest on the streets of
Bangkok, the capital, would provide a pretext for another full-on military
putsch, further setting back democracy.

We urge our constituents to maintain faith in the ballot box, recognising that
realising democratic ideals in Thailand’s largely undemocratic political
system is a long-term contest. With or without my participation in formal
politics, the movement’s next iteration will remain fully engaged in electoral
politics. The elite’s judicial overreach and other quick fixes designed to
preserve the status quo will not always work in the long run, as more people
embrace the universal democratic values represented by Move Forward and
whatever political vehicle takes our place after the ruling on August 7th.

Provincial elections are due this year, followed by municipal elections next
year, the Bangkok gubernatorial race in 2026 and national elections in 2027.
Our movement and associates who share similar ideals are expected to
perform strongly in these contests, which offer opportunities for peaceful yet
potent expression of the popular will. Thailand’s path to greater democracy
lies in peaceful transitions through credible elections, with change stemming
from the grassroots. Eventually, the people will triumph—and do so
legitimately.■

Pita Limjaroenrat was leader of the Move Forward Party from 2020 to 2023
and is now its advisory chairman.
This article was downloaded by zlibrary from https://www.economist.com/by-invitation/2024/08/01/thailands-thwarted-election-
winner-on-the-move-to-ban-his-party
Briefing
Chinese firms are growing rapidly in the global south
Briefing | Going out

Chinese firms are growing rapidly in the global

south
Western firms beware
August 1st 2024

FOR DECADES the world’s corporate titans have seen China as an essential
place to do business. Chinese firms, it turns out, were no different. Their
domestic market was vast and growing at a dizzying pace, so they had little
reason to hunt for customers abroad. China’s colossal manufacturing sector,
meanwhile, with its legions of cheap workers, made producing goods
elsewhere unnecessary. In spite of the fuss in much of the rich world about
Chinese investment, Chinese firms have a comparatively small global
footprint.

Firms listed in China generated a mere $1.5trn in foreign revenue in 2023,

whereas those listed in America took in $5.8trn and their European
counterparts $6.4trn. China’s stock of outbound foreign direct investment
(FDI) was equivalent to just 17% of its GDP last year, compared with 34% for
America and 49% for Germany. Many of those investments, moreover,
focused on securing access to raw materials or acquiring foreign intellectual
property. Even China’s status as the world’s biggest exporter is slightly
misleading: a big, although shrinking share of what it ships abroad is
produced by foreign businesses.

This relatively inward focus is now changing—quickly. Since 2016 Chinese

firms’ foreign sales have more than doubled. Their greenfield FDI (building a
new mine or factory, say, rather than buying one) surged to a record $162bn
last year, up from $50bn a year before, according to fDi Markets, a data
provider. Nearly three-quarters of that was in manufacturing.

Home affront
This outward expansion is a reflection of the dwindling allure of China’s
domestic economy. It no longer grows as zippily as it once did. It is also
fiercely competitive, plagued by price wars in industries from cars to wind
turbines. Even excluding the troubled property sector, the average return on
invested capital for China’s listed non-financial firms was a meagre 4.9%
last year, compared with 6.6% for European companies and 8.7% for
American ones.

The faltering domestic economy has induced ever more Chinese firms to “go
out”, to use a slogan with which the government cajoled them to invest
abroad in the early 2000s. Many would like to increase sales in rich
countries, which account for three-quarters of consumer spending outside
China. Expanding in those markets, however, has become tricky for Chinese
firms as the political mood has shifted against them. Chinese carmakers have
been slapped with hefty tariffs on both sides of the Atlantic. Western
politicians grumble about Shein and Temu, two fast-growing Chinese e-
emporia. TikTok, a short-video app, faces a ban in America unless its
Chinese parent, ByteDance, sells it.

Some Chinese firms are trying to skirt trade barriers by shifting production
from China to other developing countries. That is an approach long taken by
Chinese solar firms, which were, in effect, locked out of the American
market in 2012 by anti-dumping duties. America imports almost no solar
panels directly from China, but buys lots from South-East Asia, where
Chinese firms like JinkoSolar, Trina Solar and Longi, the world’s three
largest producers of solar modules, have built big factories.

That strategy is now being emulated in other industries, which explains

Chinese firms’ surging investment in manufacturing abroad. Although some
factories are being built in the West, the lion’s share of activity is in the
global south, home to nine of China’s top ten destinations for greenfield FDI
last year (see chart 1). In July BYD, a Chinese electric-vehicle company,
opened a new car factory in Thailand, its first in South-East Asia. CATL, a
Chinese battery firm, is expanding production in South-East Asia and
reportedly exploring investments in Morocco and Turkey.

Trade data suggest that these new factories rely heavily on imported Chinese
components rather than local supply chains. In the top ten destinations for
Chinese greenfield FDI, imports from China of intermediate goods used in
manufacturing have nearly tripled over the past decade. COSCO, a Chinese
shipping giant, recently added capacity between China and Mexico, in large
part to ship more to factories near Mexico’s border with America.
Johnson Wan of Jefferies, an investment bank, reckons the main reason
Chinese firms are building factories abroad is to avoid tariffs. Proximity to
China’s robust supply chains has typically been a competitive advantage for
Chinese firms, notes Guoli Chen of INSEAD, a French business school. True,
factory wages in China have risen sharply, quadrupling since 2010 to over
$8 an hour, well above the average in South-East Asia. But manufacturing at
home is usually still the cheaper option, thanks to China’s huge economies
of scale and well-developed infrastructure.

In time, though, the commercial rationale for manufacturing abroad will

strengthen. Over the past decade China’s Belt and Road Initiative has
channelled more than $1trn of investment into power networks, railways and
ports across the global south (much of which has flowed through Chinese
firms such as State Grid, a power company, CRRC, a maker of trains, and COSCO).
Those investments have made recipient countries more attractive places in
which to manufacture.

For Chinese firms, that is just as well. Western governments are beginning to
crack down on their use of factories in the global south in effect to disguise
the origins of largely Chinese-made goods. In June American tariffs were
extended to many of the solar products made by Chinese firms in South-East
Asia, after the Department of Commerce judged that the factories in
question were adding little value beyond final assembly.

Aurora australis
Another popular strategy for intrepid Chinese firms encountering growing
hostility in the West is simply to peddle their products elsewhere. According
to The Economist’s calculations, drawing on estimates from Morgan Stanley,
a bank, listed Chinese firms have nearly quadrupled their sales in the global
south since 2016, whereas Western firms have grown theirs by only a third.
The $800bn in sales Chinese firms made in these countries last year
exceeded what they made in rich ones (see chart 2).

Chinese companies battling Western rivals at home have tended to start by

offering cheap alternatives. That has left them well positioned to serve
poorer consumers in the global south. Half of the smartphones purchased by
Africans are made by Transsion, a Chinese company that sells many of its
devices for less than $100 under such brands as Tecno, Infinix and Itel.
Chinese makers of household appliances, including Haier and Midea, are
also dominant in Africa. Brazilians and Mexicans are among the biggest
consumers of Shein’s inexpensive clothing.

As Chinese firms have honed their mastery of manufacturing, they have

shed their reputation for poor quality, at least in the global south, note
Lourdes Casanova and Anne Miroux of Cornell University. That has helped
them sell more complex products, too. In Thailand Chinese carmakers
including SAIC and BYD accounted for 18% of sales in 2023, up from just 6% in
2020, according to MarkLines, a data provider. They account for half of the
cars sold in Russia, which Western rivals have abandoned since its invasion
of Ukraine. Mindray, a Chinese maker of medical equipment, is the leading
supplier of patient-monitoring systems in Latin America. Chinese makers of
wind turbines, such as Goldwind and Envision, have also been expanding
sales in emerging markets.

Chinese firms will find it easier to sell in the global south if they shift
production there, too. Transsion, for example, has a factory in Ethiopia,
which allows it to distribute phones across Africa quickly and cheaply.
Producing locally also fosters goodwill. Whereas Westerners are
increasingly suspicious of China, many in the developing world think it
plays a positive role in their domestic economy, according to Pew, a research
centre (Indians are a notable exception). Building factories in poorer
countries helps reinforce that view and casts China as a spur to development,
rather than a threat to local livelihoods.

In a testament to its strengthening brand, China Inc is gaining momentum in

the global south even in industries that do not rely on its manufacturing
prowess. Cotti Coffee, a Chinese coffee chain founded in 2022, now has
more than 7,000 stores across Asia and the Middle East. Of the ten countries
with the most TikTok users, nine are in the developing world.

All this should ring alarm bells at Western multinationals. They have been
steadily edged out of China in recent years by home-grown competitors.
Many harbour ambitions to expand instead in the same fast-growing
economies in which their Chinese rivals are now gaining sway. As recently
as 2016 listed American and European firms together generated 15 times the
foreign sales of Chinese firms in the global south. That ratio has since
shrunk to five. Chinese firms already outsell Japanese ones in the developing
world.

Western firms still enjoy some advantages. They have a decades-long head
start building global brands and hiring local staff who understand what
consumers in their markets want. China’s geopolitical ambitions,
meanwhile, sometimes cause commercial problems. Its territorial claims in
the South China Sea have soured relations with some of its South-East Asian
neighbours. China is also unpopular in countries that received big
investments through the Belt and Road Initiative but have struggled to
service the associated debt, such as Sri Lanka and Zambia.

It is early, then, in the contest for the consumers of the global south. But
Western firms may have less time than they think before Chinese rivals gain
the upper hand. Protectionist politics at home will not save them abroad. ■
This article was downloaded by zlibrary from https://www.economist.com/briefing/2024/08/01/chinese-firms-are-growing-rapidly-in-
the-global-south
United States
The demise of an iconic American highway
The Kamala Harris effect on the polls has been dramatic
Can Donald Trump win back suburban voters?
America is not ready for a major war, says a bipartisan commission
How the election will shape the Supreme Court
United States | Death by a thousand slides

The demise of an iconic American highway

California’s Highway 1 is showing the limits of mankind’s ingenuity
July 30th 2024

BOB VAN WAGENEN is cruising 2,000 feet above the rocky shoreline of
California’s central coast at 180mph. The fog retreats westward from the
cliffs and settles over the Pacific, allowing his four-seat Cessna Skylane a
clear view of the bluffs below. He trades his aviator shades for spectacles to
better read his instruments, and to look for blue whales in the azure waters.
Two things stand out: the drama of the mountains meeting the sea, and the
two-lane highway between them. “It’s terribly remote down here,” he says
into his headset, the plane whirring in the background. “This is Highway 1
in all its glory.”

Highway 1 is the westernmost road in California. Only a guardrail and a

steady hand prevent drivers from careening into the ocean. Construction
began in 1919, but the 656-mile (1,060km) route, which begins south of Los
Angeles and ends in tiny Leggett, where redwood trees outnumber people,
wasn’t finished until 1937. Built with prison labour, at least 70,000 pounds
of dynamite and financing from Franklin Roosevelt’s Public Works
Administration, it was one of many engineering marvels erected during the
Depression.

Lately, however, the highway has not been traversable from beginning to
end. Since January 2023, a Highway 1 road-trip must be done in two pieces.

Tourists can cruise north along Orange County’s beaches, where the road
emerges from a tangle of highways resembling spaghetti. It swerves inland
in Los Angeles, before jutting back towards the coast. Up near San Simeon
road-trippers can smell the elephant seals before they come into view. The
seals burp and bark and squirm in piles on the sand mere feet from Highway
1. Slightly farther north, the signs begin. “Slide area”. “Road closed ahead”.

The scenery is different at the other end. After traversing Leggett’s forests
and the north coast’s craggy beaches, Highway 1 streaks across San
Francisco’s Golden Gate Bridge. Sea otters play in the estuaries around the
highway in Moss Landing. Humpback whales swim unseen in the submarine
canyon offshore. South of Monterey, the signs resume. “Rock slide ahead”.
Big Sur, a rugged 70-mile stretch of the coast over which Mr Van Wagenen
is flying, is the highway’s missing middle. Fierce winter storms in the past
two years pummelled the Santa Lucia mountains, loosening mounds of
sediment which buried and broke the road in four places (see map).
Highway 1 is the only artery that connects Big Sur to the rest of California—
and it was clogged.

Fog crawls up Big Sur’s western slopes, which are green in the winter
months and gold in the summer. The redwoods cast long shadows above the
poison oak. Without a reliable phone signal, locals navigate by waypoints.
They speak about the land as a place eternal. “This is the California that men
dreamed of years ago,” wrote Henry Miller, one of many writers and artists
who sought solace in Big Sur. From the air, it looks untouched but for the
highway. “It is like a giant has come down this coast with a huge sword and
just cut the landscape,” says Magnus Toren, who runs the Henry Miller
Memorial Library.

The highway has always been unstable because of the region’s geology. For
more than 100m years the ocean’s crust plunged beneath the land that would
become California. Bits of the sea floor were scraped up as if by a snow
plough. “There’s a whole pile of junk at the front edge of the continent,”
explains Tanya Atwater, a geophysicist. Then, about 25m years ago, the
collision of two tectonic plates pushed that “junk” skyward to form the Santa
Lucia range. The mountains are crumbly and inconsistent: some material
weaker than the rock right beside it.

Stuck in the middle with you

Because the mountains are relatively young, they are still growing. But they
are also eroding and Mr Van Wagenen’s flights help track that. When he hits
a button, a camera starts clicking, taking one picture every second. Scientists
at the US Geological Survey stitch them into one image to compare the coast
over time and catch landslides before they have catastrophic consequences.
They can spot slow-moving ones. But the irregularity of the rock makes
forecasting future debris flows impossible.
Some of Big Sur’s 1,500 inhabitants welcome a break from tourists. But the
respite comes with big problems. First responders can’t get to residents in an
emergency. Children must hike to their school bus. Helicopters drop food.
Hotels and restaurants suffer. The state also loses. Visit California, its
tourism agency, reckons that a 2017 slide deprived the state of at least
$581m in tourism revenues and taxes.

Climate change will make things worse. As the oceans warm, more moisture
is carried in the atmosphere, which can create stronger atmospheric rivers.
These conveyor belts for water in the sky now carry up to half of
California’s average annual rainfall. A recent paper from a trio of
researchers at the University of California in Los Angeles (UCLA) suggests that
the most extreme atmospheric rivers may bring 25% more precipitation in
future. When these filaments move east across the Pacific, the first landmass
they hit are the coastal mountains, like those above Highway 1.

Climate change is also increasing the intensity and range of fires across
California. Wildfires followed by more intense rainfall increase the risk of
landslides. Flames can incinerate vegetation, destabilising soil and rock.
When plants burn in extremely hot fires, a waxy, water-repellent substance
can form on the soil. “It’s almost like putting a plastic tarp down on the
ground in terms of letting all of that water run off,” explains Daniel Swain, a
climate scientist at UCLA.

The state’s transport agency, Caltrans, reckons the highway will open in full
this year. But there is no plan to alter the road to avoid problems recurring.
Some propose grand solutions: tunnel through the mountains, or move the
highway inland. John Laird, a state senator for Big Sur, is dismissive. “I get
asked, ‘Why don’t you just reroute the highway?’,” he says, with some
exasperation. “Sorry, have you been there? Have you seen it? When you
have that situation, there is no rerouting.”

Locals believe that the highway is too precious to fail. They are probably
right, but the price is high. Caltrans estimates that the four landslides of
2023-24 alone will cost $128m to fix. California is rich, but not exactly flush
with cash. For the past two years the governor, Gavin Newsom, has slashed
spending on climate initiatives to plug a budget deficit.
There are only whispers about the other option: managed retreat. Big Sur
will not be swallowed by the Pacific, but repeatedly being cut off from
civilisation threatens the health and livelihoods of locals. Not fixing the road
is “relegating those folks to not living there anymore”, says Mr Swain.

Sitting in the corner of his library, with his cat, Jack Kerouac, mewing at his
feet, Mr Toren ponders the wisdom of development in Big Sur—and its
uncertain future. The highway brought us into this landscape, he says, with
gratitude and remorse. But “if I were to deeply consider what would be best,
then…we should all just leave Big Sur to be wild.”■

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.
This article was downloaded by zlibrary from https://www.economist.com/interactive/united-states/2024/07/30/the-demise-of-an-
iconic-american-highway
United States | Campaign calculus

The Kamala Harris effect on the polls has been

dramatic
The latest surveys point to a tightening race
July 31st 2024

Joe Biden had been one of the most unpopular presidents to seek re-election
since the advent of modern polling. In April 2023, when he declared his
intention to run for a second term, some 41% of Americans said they
approved of him. More than a year later, after his disastrous debate
performance and calls from high-profile members of his own party for him
to step aside, his approval rating sank to an all-time low of 37%.

Keep up with the contest between Kamala Harris and Donald Trump with
our US election poll tracker
But throughout the intervening period polls showed that the Democratic
Party was weathering the storm despite its standard-bearer taking on water.
When given a choice between Mr Trump and an unnamed Democratic
candidate, rather than Mr Biden, Democrats enjoyed a clear lead. Who was
this mysterious Democrat who could both excite the party’s base and work
to woo moderate and undecided voters? It seems that the answer may have
been hiding in plain sight: Kamala Harris, who became the presumptive
nominee in the days after Mr Biden stepped aside.

Although polling is still sparse, early results suggest that the Democratic
base is very enthusiastic about their new candidate. YouGov, a pollster,
found that before Mr Biden’s withdrawal 62% of Democrats said they were
enthusiastic about voting in November. After he dropped out, that share rose
to 79%. Favourability towards Ms Harris is a lot higher than for Mr Biden,
especially among those who are young, black or Hispanic (see chart), voters
whose support had been faltering this year, according to many polls.

In an average of national polls Ms Harris still lags behind Mr Trump, though

by a smaller margin than Mr Biden did (one point versus three points). Mr
Trump led in the ten national polls conducted the week before Mr Biden
stepped down from the nomination. In the 27 polls since then, Ms Harris has
led in 12 and tied in one. Whereas third parties tended to hurt Mr Biden
more than Mr Trump, early polling since Ms Harris took the helm indicates
that the opposite might now be true. In recent polling conducted by YouGov,
3% of voters who supported Mr Biden in 2020 said they would vote for a
third party rather than Ms Harris or Mr Trump. This compares with 9% in
the equivalent poll carried out before Mr Biden’s withdrawal, suggesting
that some Biden-sceptic third-party voters might be coming home to the
Democrats.

But Ms Harris’s entry into the race has done more than invigorate the core of
the Democratic base. Her favourability ratings are an improvement on Mr
Biden’s among moderates and older voters, too. Among those who say they
are unsure who they will vote for in November or that they are open to
changing their minds, Mr Trump has a net favourability of minus 38,
compared with minus 30 for Mr Biden and minus 13 for Ms Harris. Ms
Harris has improved on the erstwhile presumptive Democratic nominee’s net
favourability with independents by 17 points.

Citing poor polling for Mr Biden, the Trump campaign has insisted that
states which Mr Biden won by large margins in 2020, such as Minnesota and
Virginia, are within the former president’s grasp. But recent state polling
suggests that Ms Harris has narrowed the contest back to the key swing
states. The averages of three recent polls in Minnesota and two in New
Hampshire show her leading by around six points in both states, barely
behind Mr Biden’s margins of victory in 2020 and well ahead of polls
conducted before his withdrawal.

Meanwhile, she has closed the gap with Mr Trump in the states which are
likely to be pivotal in the electoral college. Across six polls, she was tied
with Mr Trump in Michigan and trailed him by one point in Pennsylvania,
states where Mr Biden was trailing by two points and four points at the time
he dropped out, according to FiveThirtyEight, an aggregation website.

None of this suggests that Ms Harris is odds-on to win the presidency.

Nationwide, the election is very close. To defeat Mr Trump, she must
overcome a big electoral-college disadvantage. Early approval from voters
may wither as her opponent hones his attacks. Still, Ms Harris has succeeded
in upending some of the peculiarities of the rematch between Messrs Trump
and Biden, reinvigorating the Democratic base. She has moved the contest
back to familiar battlegrounds. Now, there are fewer than 100 days to win it.
■

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.
This article was downloaded by zlibrary from https://www.economist.com/united-states/2024/07/31/the-kamala-harris-effect-on-the-
polls-has-been-dramatic
United States | Swing states

Can Donald Trump win back suburban voters?

In Michigan, Republicans are selling a kinder, gentler Trumpism to
college-educated voters. It isn’t sticking yet
July 26th 2024

On a hot and muggy evening in Rochester Hills, a suburb of Detroit, the

local Republican club is meeting to hone battle plans for the 2024 election.
Leading the workshop is Amy Hawkins, an energetic millennial activist and
supporter of Donald Trump. She tells the crowd of mostly 60-somethings
that the Republican Party needs an attitude adjustment. Don’t shun those
who disagree with you, she urges; instead, recognise that “we don’t all have
to sing from the same songbook.” Don’t show up in MAGA hats to yell at local
school-board officials, she implores; do bake them cookies and tell them
you’re praying for them. “What if we became known as the happy party?”
she muses.
It is easy to see why Ms Hawkins has chosen to recalibrate Trumpism in this
enclave of stately homes occupied by voters with college degrees. When Mr
Trump won the White House in 2016, he took Michigan by a mere 11,000
votes. He lost the state’s white, college-educated suburban voters by five
points. In 2020 that deficit swelled to 17 points and he lost Michigan to Joe
Biden by 154,000 votes. Suburbanites’ rebuke of Mr Trump accounted for
three-quarters of the swing against him. To win this year, Mr Trump will
need to lure at least some of them back.

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presidential poll tracker.

Read more of our coverage of the US elections of 2024.

He has work to do. According to polls from YouGov/The Economist, Mr

Trump is polling nationally at 43% among white suburban voters with a
college degree. That is three points less than the share he won in 2020,
judging by numbers from Catalist, a progressive political-data firm. How,
then, did Mr Trump build a steady lead over Mr Biden this summer? Among
educated white suburbanites, at least, it is not so much that Mr Trump is
winning; it is that Mr Biden was losing, and the question now is whether a
new Democratic nominee can reverse that trend. In 2020 the president won
53% of white, college-educated suburban voters nationally. Across June and
July 2024 Mr Biden polled at 43%.
Now that Democrats are to replace him with a younger candidate, will the
picture change? There is clear evidence that Kamala Harris, the presumptive
nominee, would have an opportunity to improve on Mr Biden’s recent
performance. In 2022 Michigan’s popular governor, Gretchen Whitmer, won
re-election by an 11-point margin. She swept the state’s suburbs by 17
points. Although there are no apples-to-apples figures available about Mr
Biden’s standing in Michigan when he left the race, it is clear from national
numbers that his margin was much smaller than that. Ms Harris could close
the gap.

This summer, particularly after Mr Biden’s cataclysmic debate performance

on June 27th and until he ended his campaign on July 21st, Mr Trump has
maintained a steady lead in national polls and in every swing state. Yet as
the ceiling on his vote-share shows, Mr Trump remains vulnerable in the
suburbs. A Democratic comeback would probably pass through swing-state
suburban counties like Oakland.

A tale of two counties

Rochester Hills may appear as if it belongs in a 1960s John Updike novel,
but the suburbs are not what they used to be. For one, they are racially more
diverse. Since 1980, the number of white residents in Oakland County has
held steady but that of non-whites has grown from 60,000 to 320,000 in
2020. The county has shifted left during this period; greater diversity is
probably one factor, along with changing views among college-educated
white voters.

Polarisation along educational lines has also changed how suburbanites vote.
Consider Michigan’s tale of two suburban bellwether counties. Between
1972 and 2012, Oakland, where half of adults have college degrees, and its
working-class neighbour, Macomb County, where a quarter do, were
regarded as lockstep predictors of Michigan’s vote in presidential elections.

Oakland voted for the candidate that won the state ten out of 11 times, while
Macomb did so nine times. The average difference in candidate margins
across the two counties was just four points. But Mr Trump changed all that.
In 2016, Oakland and Macomb diverged by 20 points and Mr Trump won
Macomb with 54% of the vote. (Hillary Clinton prevailed in Oakland.)

Since then, Republicans have found themselves on shaky ground in

Michigan. Their state party fell into disarray, riven by internecine struggles
and swamped with debt. And they would surely prefer to forget the past
three elections in the state. In 2018 Republicans “got slaughtered in
Michigan”, says Jason Cabel Roe, a veteran party strategist in the state. Ms
Whitmer won the governor’s contest, and Democrat women won races for
attorney-general and secretary of state. Two more women Democrats, Haley
Stevens and Elissa Slotkin, won competitive congressional seats, marking
the first time since the 1930s that Oakland County had no Republican
representatives in the House. “It was very much the year of the woman,” Mr
Roe adds.

It got worse for Republicans in 2022. As Ms Whitmer won her second term
easily, a ballot initiative to enshrine abortion in the state’s constitution
passed by 13 points. Democrats took control of the state House and Senate,
and established their first trifecta in 38 years, controlling the governorship
and both chambers of the legislature.

With abortion rights in the state already established, that issue—a rallying
point for Ms Harris’s campaign—has less salience in Michigan.
Suburbanites are most concerned about the economy this time around,
according to polling from Emerson College. Generally, Mr Trump polled
better than Mr Biden on that issue. Yet so far, there has been little
enthusiasm for this election. In the summer of 2020 polling from
YouGov/The Economist showed that some 70% of white, college-educated
suburban voters were extremely or very enthusiastic about that year’s
election. Across June 2024 only about half said the same. In an initial poll
after Mr Biden left the race, enthusiasm among Democrats rose to 54%,
compared with 43% in a previous poll.

Ms Hawkins’s pitch in Rochester Hills for a kinder, gentler Trumpism

reflects recent attempts by the national Republican Party to tone down MAGA
pugilism. The effort was on display at the party convention in Milwaukee. It
is not a natural script for Mr Trump and he did not stick to it for long, but
some of his allies on the front lines understand what it takes to win in blue-
leaning areas. “The formula is to trim yourself a little bit on the rhetoric and
the issues that you talk about,” Mr Roe says. The “guiding principle is to
give non-Republicans permission to vote for a Republican.” Even one
carrying the baggage of Donald Trump. ■

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Balance, a weekly note from our Lexington columnist that examines the state
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win-back-suburban-voters
United States | Red alert

America is not ready for a major war, says a

bipartisan commission
The country is unaware of the dangers ahead and of the costs to prepare
for them
July 29th 2024

GENERAL CHARLES “CQ” BROWN, the chairman of the joint chiefs of

staff, America’s top military officer, recently told the Aspen Security Forum,
a gathering of the country’s foreign-policy elite, that the nation’s armed
forces were the “most lethal, most respected combat force in the world”.
Steely-faced, and to jubilant whoops, he declared: “I do not play for second
place.”

In truth, America’s military position is eroding. That is the message of a

report published on July 29th by a bipartisan commission entrusted by
Congress with scrutinising the Biden administration’s National Defence
Strategy, a document published two years ago.

The commission was chaired by Jane Harman, a former Democratic

congresswoman, with Eric Edelman, an undersecretary of defence in the
George W. Bush administration, deputising. In 2018 the previous such
commission had warned that America “might struggle to win, or perhaps
lose, a war against China or Russia”. This time the language is starker. The
threats to America, including “the potential for near-term major war”, are the
most serious since 1945, the commission says. The country is both unaware
of their extent and unprepared to meet them.

The most serious problem is China. “We’re at least checkmating China

now,” boasted Joe Biden, America’s president, on July 6th. In reality, China
is “outpacing” America not only in the size but also in the “capability” of its
military forces, as well as in defence production, and the country is probably
on track to meet its target of being able to invade Taiwan by 2027, argues the
commission. In space and in the cyber realm, the People’s Liberation Army
is “peer- or near-peer level”.

Russia is a lesser concern but, despite its quagmire in Ukraine, still poses a
serious threat. On July 19th Vipin Narang, a senior Pentagon official,
confirmed reports that Russia was seeking to place a nuclear weapon in
orbit, describing it as a “threat to all of humanity” and “catastrophic for the
entire world”. The report says that America should boost its presence in
Europe to a full armoured corps, a much larger commitment than currently
exists, accompanied by enablers such as air defence and aviation, with some
of today’s rotational forces, which swap in and out, potentially turned into
ones that are permanently deployed.

Compounding these threats is the increasing political and military alignment

between China, Russia, North Korea and Iran, including the transfer of arms,
technology and battlefield lessons. That presents “a real risk, if not
likelihood”, in the sombre view of the commission, “that conflict anywhere
could become a multi-theatre or global war”.

In 2018 the Trump administration’s National Defence Strategy did away

with the previous requirement that the Pentagon be prepared to fight two
major wars, including one in Europe and one in Asia, at the same time. Mr
Biden’s team stuck to that reduced ambition. The result is that a war in one
theatre would stretch America dangerously thin, forcing it to rely on nuclear
weapons to compensate.

A conflict would also find America wanting in other respects. “Major war
would affect the life of every American in ways we can only begin to
imagine,” warns the commission. Cyber-attacks would pound critical
infrastructure including power, water and transport. Access to minerals vital
for both civilian and military industries “would be completely cut off”, the
report concludes.

Casualties would far exceed any Western experience in recent memory. The
latest simulations by the army show that, in battles involving corps and
divisions—larger formations that the army is prioritising over brigades and
battalions—casualties ran to 50,000-55,000, including 10,000-15,000 killed.
The commission does not call for a return to the military draft, which
America abandoned in 1973, but it hints at it, saying that the country’s all-
volunteer force faces “serious questions”.

Military solutions
In response to these problems, the commission makes a number of
recommendations. One is to bolster alliances. On July 28th the Biden
administration made a big stride in that regard by announcing the creation of
a new “warfighting” headquarters in Japan to command all land, sea and air
forces in the country. Another recommendation is to reform the Pentagon,
whose procurement, research and development practices the commission
describes as “byzantine”.

A third is to sharply raise defence spending, which is projected to remain flat

in real terms for the next five years, despite the previous commission’s
recommendation for 3-5% annual real-terms growth. That particular figure is
somewhat arbitrary. Nonetheless, the commission urges Congress to revoke
existing spending caps, pass a multi-year supplemental budget to beef up the
defence-industrial base and open the fiscal taps to put defence “on a glide
path to support efforts commensurate with the US national effort seen during
the Cold War”.

There is something here to irritate everyone. To pay for all this, the report
proposes additional taxes and cuts to spending on health care and welfare.
Both political parties will balk at that. Democrats shy away from more
defence spending. Republicans are allergic to more taxes. The defence-
policy wonks in Donald Trump’s orbit will like the idea of beefing up the
armed forces, but many will recoil at the idea of putting more troops into
Europe, rather than Asia.

There is little time to waste, says the commission. “The US public are largely
unaware of the dangers the United States faces or the costs…required to
adequately prepare,” it says. “They do not appreciate the strength of China
and its partnerships or the ramifications to daily life if a conflict were to
erupt…They have not internalised the costs of the United States losing its
position as a world superpower.”■

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major-war-says-a-bipartisan-commission
United States | POTUS and SCOTUS

How the election will shape the Supreme Court

A second Trump administration could lock in a conservative supermajority
for decades
July 30th 2024

IN a speech in Texas on July 29th President Joe Biden called for major
changes to America’s highest court: term limits for the justices and an
enforceable ethics code, plus a constitutional amendment scuttling the
court’s recent decision broadly shielding former presidents from criminal
prosecution. Kamala Harris, his vice-president and would-be successor,
quickly endorsed the proposals. But Mike Johnson, the Republican speaker
of the House of Representatives, accurately declared the plans “dead on
arrival”. Republicans are disinclined to tinker with a Supreme Court
delivering conservative victories. And the requisites for constitutional
amendments—supermajorities of the states and in both houses of Congress
—remain hopelessly out of reach.
Still, by highlighting the “dangerous and extreme decisions” emanating from
the Supreme Court, Mr Biden is turning voters’ attention to a potent issue.
Reforms may be unrealistic for now. But the shape of the court may turn on
who sits in the Oval Office come January.

Over his four terms Franklin Roosevelt managed to appoint a full

complement of nine justices. Dwight Eisenhower, in two terms, seated five.
If Donald Trump retakes the White House he could join a small club of
presidents who pull off the legacy-shaping accomplishment of installing a
majority of sitting justices.

Mr Trump has already left a deep imprint on the court. Each of his three
appointees—Neil Gorsuch, Brett Kavanaugh and Amy Coney Barrett—
shifted it further to the right. Justice Barrett’s nomination to succeed Ruth
Bader Ginsburg anchored a six-justice majority that has brought sweeping
changes to American law, from guns to religious liberty to abortion.

If the Republicans recapture the presidency and also win back the Senate, in
a second term Mr Trump could fill vacancies without undue difficulty. With
the demise of the filibuster rule for Supreme Court nominees in 2017, little
would stand in his way should another seat or two open up.

Who might go? The two oldest justices—Samuel Alito, 74, and Clarence
Thomas, 76—would surely stay should Mr Trump lose in November, to
keep the court conservative. But they could be ready to retire if he wins.
They have attracted scrutiny for accepting gifts from billionaires and for
their spouses’ sympathy with the “stop the steal” movement that culminated
in the attack on the Capitol on January 6th 2021. These appointees of
George W. Bush and George H.W. Bush (respectively), not Mr Trump’s trio
of justices, are the most MAGA of the lot. Installing two justices in their 40s or
early 50s could solidify the Supreme Court’s conservative tilt for decades.

When he ran for president in 2016 Mr Trump released a list of potential

nominees vetted by the Federalist Society, the seat of the conservative legal
movement. Yet he seems to have soured on Leonard Leo, the society’s co-
chairman. They are said not to have spoken since 2020, when Mr Trump was
aghast that Leo-recommended lawyers (and his three appointees to the
Supreme Court) refused to countenance his claims of election fraud. Steve
Vladeck of Georgetown University reckons a “tighter network of folks
already in the Trump orbit” will have his ear this time, and one is Mike
Davis, the combative lawyer who shepherded the nominations of Neil
Gorsuch and Brett Kavanaugh for the Senate Judiciary Committee.

Taking the Fifth

Some of Mr Trump’s most likely picks sit on the Fifth Circuit Court of
Appeals, America’s most conservative court. Mr Trump gravitates towards
judges with sterling educational pedigrees. Judge James Ho’s degrees from
Stanford and the University of Chicago—along with his jurisprudential
bombast, seen in his idiosyncratic arguments in abortion cases—may make
him a contender. Alex Aronson, the founder of Court Accountability, an
advocacy organisation, is among those who consider Judge Ho a “front-
runner”. But David Lat, a legal commentator, notes that Judge Ho is a
“lightning rod” who could repel some moderates.

Two more judges on the Fifth Circuit could be up for a promotion. Mr

Aronson calls Judge Andrew Oldham “lower-key and more buttoned-up”
than Judge Ho but “every bit as partisan”; he clerked for Justice Alito and
could be a tempting pick to succeed his old boss. Judge Stuart Kyle Duncan
is another “MAGA bomb-thrower” to watch, Mr Aronson says, as is Lawrence
VanDyke, Mr Trump’s nominee to the Ninth Circuit Court of Appeals.

An unconventional pick could be Jonathan Mitchell, who successfully

argued at the Supreme Court that Mr Trump should remain on Colorado’s
primary ballot despite the 14th Amendment’s bar on oath-breaking
insurrectionists becoming president. Mr Mitchell has never served as a judge
but he was the architect of Senate Bill 8, which in effect ended abortion
rights in Texas nine months before Roe v Wade was overturned. Aileen
Cannon, the district-court judge in Mr Trump’s classified-documents case,
earned praise from the former president when she threw out those charges.
She could be up for promotion to the 11th Circuit Court of Appeals as a
stepping-stone to a still higher perch.

Not all Mr Trump’s likely short-listers hail from the jurisprudential fringes.
Three women he installed on circuit courts would be choices closer to the
mould of his first-term picks: Neomi Rao on the DC Circuit, aged 51, a former
clerk for Justice Thomas; Allison Rushing on the Fourth Circuit, another
Thomas clerk and only 42; and Britt Grant on the 11th (aged 46).

Ms Harris’s roster of potential picks, should she win, seems more

straightforward. Leondra Kruger is a 47-year-old justice on the state
supreme court of California and was an excellent advocate at the Supreme
Court in a dozen appearances when she worked in Barack Obama’s
Department of Justice. Judge Julianna Michelle Childs of the DC Circuit, a
contender in 2022 to replace Justice Stephen Breyer, could reappear on Ms
Harris’s list.

A few of President Biden’s appointees to the lower courts could be attractive

picks. Two former voting-rights lawyers, Judges Dale Ho of the southern
district of New York and Myrna Pérez of the Second Circuit, would counter
efforts to clip the wings of the Voting Rights Act of 1965. Judge Alison
Nathan of the Second Circuit could be America’s first openly gay justice.
Lucy Koh (Ninth Circuit), John Lee (Seventh Circuit) or Sri Srinivasan (DC
Circuit) could be the first Asian-American on the court. Brad Garcia of the DC
Circuit, which produces the most Supreme Court justices (including four of
the current nine), is Latino, a former clerk to Justice Elena Kagan and, at 38,
could serve for decades.

Yet all these prospects would struggle to be confirmed if the Democrats win
the White House but lose the Senate—an outcome that may lock Justices
Elena Kagan (64) and Sonia Sotomayor (70), Barack Obama’s appointees,
into their seats until at least 2029. Mr Trump’s reshaping of the court was
made possible by Republican intransigence in February 2016 when, hours
after Antonin Scalia (an arch-conservative justice) died, Mitch McConnell,
the majority leader, declared that his seat would remain open until after that
year’s presidential election. There is no reason to think Republicans will
stop playing hardball. ■

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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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supreme-court
The Americas
After protests over a stolen election, the goons crack heads
The plight of Brazil’s indigenous groups worsens
Will El Mayo’s arrest slow the spread of fentanyl?
The Americas | Venezuela’s regime digs in

After protests over a stolen election, the goons

crack heads
Yet the brazenness of Nicolás Maduro’s theft crosses a line
August 1st 2024

ONLY ONE reason prevails for why Nicolás Maduro ever became
Venezuela’s president. It was not his skill at winning elections. Nor his
willingness to steal them. It was certainly not his oratory. It was simply that
his charismatic predecessor, Hugo Chávez, who had cancer, appointed him
as heir. In the build-up to Venezuela’s latest presidential election, held on
July 28th (Chávez’s 70th birthday), a video of the late populist announcing
his decision, in 2012, was broadcast repeatedly as a kind of talisman.

Had he known the appalling consequences, would the caudillo really have
chosen Mr Maduro? So disastrous has been his rule over the past 11 years
that both men have now become targets of national opprobrium. In an orgy
of iconoclasm the day after the president stole an election he could never
have fairly won, symbols of the Chávez era were targeted, including at least
five statues of the late leader torn from their pedestals to euphoric cheers.
The crowds were eager that the Maduro government be the next to fall. Pink
election posters featuring a beaming Mr Maduro were ripped from street
lamps and trampled underfoot. The protests were everywhere, from the
slums of Caracas, the capital, to Valle Lindo, a neighbourhood in Anzoátegui
state that traditionally has been deeply loyal to the regime. Predictably, Mr
Maduro sent his goons onto the streets while his propagandists perpetuated
lazy caricatures: those protesting were all pampered members of the middle
class, or drug addicts, or vandals. The claims were denied by the protesters
themselves. “We’re not the rich. This is the ‘hood!”, chanted one group in
the capital’s working-class district of Petare. At least seven people, including
one soldier, were dead by the night’s end (as The Economist went to press,
about 20 had died, mostly at the hands of security forces or pro-government
thugs).

A day earlier optimism had risen. Venezuelans voted in what seemed like the
best and possibly last chance to rid the country of the despot. Everyone
knew that from the outset the process was skewed in Mr Maduro’s favour.
The most popular opposition candidate, the conservative María Corina
Machado, the winner of earlier opposition primaries, was banned on
specious grounds from taking part. Her stand-in was Edmundo González, a
mild-mannered former diplomat. Mr Maduro had blanket access to a captive
media; Mr González was denied that luxury.

Ms Machado, who in 2002 set up a charity which specialised in vote-

monitoring, made diligent preparations in advance for possible fraud. The
opposition recruited thousands of election witnesses and deployed them at
the country’s nearly 16,000 polling stations. Their key task was to keep a
record of the actas, or voting receipts, which election machines print out
before transmitting the results to the national electoral commission. As polls
closed, people began to hope a little. “I dared believe my first ever vote
would count,” said Arturo Silva, a 19-year-old student in Caracas.

It did not. When the apparatchik at the head of the electoral authority, Elvis
Amoroso, announced the results, they bore no resemblance either to opinion
polling before the vote, or to exit polls, or to a quick count of 30% of the
actas conducted by the opposition. Mr Maduro, Mr Amoroso declared, had
won 51.2% of the vote compared with 44.2% for Mr González. To date, the
authority has not even published a breakdown of results from each polling
station. Mr González and Ms Machado cried fraud and have evidence to
back the claim. Their teams have collected copies of 81% of the actas,
showing that Mr González defeated Mr Maduro in a landslide—perhaps
67% of the votes to Mr Maduro’s 30%.

The regime’s response to being called out is, preposterously, to accuse the
opposition itself of massive fraud. The authorities claim that Ms Machado
commissioned a cyber-attack, originating from North Macedonia, in an
attempt to alter the vote. The Carter Centre, a non-profit organisation
founded by Jimmy Carter, a former American president, issued a scathing
preliminary report on July 30th after sending monitors to the election. It
stated that Venezuela’s electoral process both failed to meet “international
standards of electoral integrity” and flouted “numerous provisions” of the
country’s own laws. The administration of President Joe Biden expressed
“serious concerns” about the regime’s claim of victory.

Dark times lie ahead. Hours before the Carter Centre’s report was released,
Mr Maduro began arresting opposition figures, including Freddy Superlano,
a party leader, who was filmed being bundled into the back of a car by
masked men outside his home in Caracas. Jorge Rodríguez, who is head of
the national assembly and, with the vice-president, Delcy Rodríguez (his
sister), among the most powerful figures in the ruling clique, brands both Mr
González and Ms Machado as “fascists” and demands their imprisonment.
Meanwhile Mr Maduro urges pro-regime snoops to report protesters, via a
government app.

Some protests may continue, but in a country where 7m, about a quarter of
the population, have emigrated over the past decade, many lack the energy
to fight any more. Besides, says one resident of Petare, “They have the
weapons.” Phil Gunson of the International Crisis Group, a think-tank, says
that it is unlikely that protests alone can unseat Mr Maduro.

A final hope might be the army. For the time being it remains loyal.
Venezuela has among the most top-heavy armed forces in the world, with
around 2,000 generals and admirals, or twice as many as in the far larger
United States. Thanks to Mr Maduro’s crony capitalism, they have been
allowed to get rich, while those suspected of wavering are ruthlessly
punished. Members of the armed forces make up about half of the country’s
300-odd political prisoners, as classified by Foro Penal, a legal assistance
group in Caracas.

A handful of the region’s democracies still wield some influence over Mr

Maduro and his regime. Brazil is probably best placed to try to deflect
Venezuela from becoming an even grimmer dictatorship. Yet following
private conversations with both Mr Maduro and Mr González, the chief
foreign-policy adviser to President Luiz Inácio Lula da Silva of Brazil, Celso
Amorim, declared to the Guardian newspaper on July 30th: “I am worried. I
am leaving here worried.” The United States and countries in the region,
bracing for more Venezuelans fleeing abroad, are right to be too.■

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election-the-goons-crack-heads
The Americas | Help needed

The plight of Brazil’s indigenous groups worsens

Blame illegal miners, ranchers, loggers, traffickers and an unsympathetic
Congress
August 1st 2024

Since PORTUGUESE colonisers first appeared, the story of indigenous

Brazilians has been littered with horror. Disease and violence killed many
after the conquest. Slavery on rubber plantations existed into the 20th
century. Today wildcat miners, ranchers and loggers are the threat to the
indigenous peoples of Brazil.

A new report by the (Catholic) Indigenous Missionary Council tallies 1,040

deaths of indigenous children under the age of five in 2023, an increase of a
quarter compared with a year earlier and the highest number since records
began in 2003. Though the increase partly reflects improved access to data
in often remote regions, other figures show that the plight of indigenous
people is worsening. Last year 208 people were murdered, compared with
70 in 2014. Brain defects and damaged nervous systems caused by mercury
poisoning from illegal mining are also becoming more common.

Things have not always been so grim. In 1988, following a blighted period
of military rule, Brazil enacted a new constitution guaranteeing rights for
indigenous peoples, above all the right to protected lands. Over 600,000
indigenous Brazilians live in reserves, which cover 13% of the country (see
map). For some years violence against them did fall.

Things turned for the worse after 2014, when Brazil entered a period of
crisis. A president was impeached. A Congress in thrall to ranchers and
miners gained ascendancy. In 2018 voters elected a far-right populist as
president, Jair Bolsonaro.
He cared little about indigenous peoples. A former army captain and a son of
a wildcat miner, he promised not to recognise “one more centimetre” of
indigenous territory. His government proposed a law that would have
legalised mining in reserves. He called the National Foundation for
Indigenous Peoples (FUNAI), a government agency, a “nest of rats” and pledged
to take a “scythe to its neck”. To lead it, he chose a former policeman who
had once been disciplined for siding with ranchers during an operation to
evict them from indigenous lands.

During Mr Bolsonaro’s four-year rule some 20,000 gold miners illegally

invaded Brazil’s largest reserve, for the Yanomami people, which has 31,000
mostly isolated inhabitants. The miners felled forests and spewed toxic slush
into rivers. On one occasion Mr Bolsonaro’s justice minister, Anderson
Torres, alerted miners in Yanomami territory to the date and time of a police
operation against them, allowing them to escape. As game fled and fish
filled with mercury, malnourishment rose sharply among Yanomami people.
Almost 200 died from malnutrition. Now federal prosecutors are
investigating the alleged diversion of medicines from Yanomami territory
during Mr Bolsonaro’s term.

The (left-leaning) president since 2023, Luiz Inácio Lula da Silva, promised
vigorously to defend indigenous rights. At his inauguration Lula was led up
the presidential ramp by Raoni Metuktire, the chief of the Kayapo people.
He has created a ministry for indigenous peoples and put a Guajajara woman
in charge. He has recognised 13 new indigenous lands, taking the total to
537. He has beefed up FUNAI and the environmental regulator, IBAMA. And he
called for an emergency operation in Yanomami territory, thanks to which
thousands of miners were expelled.

Yet when the operation wound down in March, about 8,000 miners returned
to Yanomami territory. Reserves that have suffered the longest from mercury
poisoning offer a depressing picture of what may lie ahead. Since 2016,
requests for wheelchairs among the Munduruku people, whose territory lies
east of the Yanomami, have grown by 135%, mainly for children with
atrophied limbs. Developmental difficulties, blindness and loss of feeling in
the hands and feet are all becoming much more widely documented.

Despite the federal government’s actions, indigenous groups will remain

vulnerable. It does not help that the price of gold has more than doubled
since 2016. Criminal groups are piling in. Melina Risso of Igarapé Institute,
a think-tank in Rio de Janeiro, says that in the past five years a “criminal
ecosystem” has emerged in the Amazon basin in which illegal gold miners,
loggers and traffickers of drugs and wildlife co-operate over logistics and
needs such as fuel, helicopters and guns. Between 2018 and 2021 the
number of firearms registered in the Amazon region tripled to 184,000.
Murders in Amazonas state are 42.5 per 100,000, compared with a national
average of 22 per 100,000.

A final worry is a bill approved by federal lawmakers last year. It bars the
recognition of indigenous land if the tribes in question cannot show that they
were occupying it in 1988. The Supreme Court has ruled the bill
unconstitutional and Lula has vetoed it. But Congress then overturned his
veto. A court-mandated “process of conciliation” gets under way on August
5th, involving a congressional commission. Many indigenous Brazilians
hope that conciliation does not mean that they face further pressures on their
health and their livelihoods.■

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groups-worsens
The Americas | Mexico’s drug gangs

Will El Mayo’s arrest slow the spread of fentanyl?

The United States nets a very big fish
August 1st 2024

Ismael “EL mayo” zamBada is far less well-known than his fellow founder
of Mexico’s Sinaloa Cartel, Joaquín Gúzman, or “El Chapo”. With his
daring prison escapes and a craving for notoriety, El Chapo became the face
of the gang, until his capture in 2016 and his incarceration for life in a
“supermax” prison in the United States. Yet for all his low-key manner, El
Mayo was every bit as important in building the Sinaloa operation into a
vast and violent drugs and money-laundering syndicate. Its connections ran
deep into Mexico’s political establishment and it controlled the lion’s share
of the North American market for illegal drugs. It was therefore a stunning
coup when the United States arrested Mr Zambada on July 26th along with
one of El Chapo’s four sons, Joaquín Gúzman López, in Texas.
More will emerge about how the men came to be detained. Perhaps Mr
Gúzman López, another Sinaloa bigwig like his three brothers, helped the
authorities lure Mr Zambada onto a private plane to El Paso, under the
pretence that he was going to inspect clandestine airfields in northern
Mexico. Perhaps it was part of a deal between Mr Gúzman López and
American prosecutors that would benefit him or his family. But Mr Zambada
may also have been in negotiations to turn himself in; he may have wanted a
story to conceal that.

Whatever the details, the Americans are cock-a-hoop. They have long
accused Mr Zambada, who is 76, of controlling a huge drug-trafficking
operation to the United States, from heroin and cocaine to, these days,
synthetic drugs. Lately they have also pointed to the four “Chapitos” as
critical figures in trafficking fentanyl, the powerful opioid that caused almost
75,000 deaths in the United States last year alone. Mr Zambada was
something of a surrogate father to the Chapitos. But more recently his ties
with them grew strained as the Chapitos’ behaviour grew more brash.

The United States has been central to confronting Mexico’s criminal gangs.
Its co-operation with Mexico under the administration of President Andrés
Manuel López Obrador is not as close as it was under his predecessors.
Indeed, its penetration of Mexico’s drug gangs shows up the Mexican
government’s ineptitude and corruption, says Eduardo Guerrero, a security
analyst in Mexico City. Ostensibly to reduce bloodshed, Mr López Obrador
has taken a hands-off approach to Mexico’s criminal outfits—though he has
recently helped the United States more.

Some argue that a strategy of only going after high-value targets is flawed.
Mexico’s “war on drugs” from 2006 complicated the criminal landscape and
shed more blood. With leaders removed, others wrestled for control. As
groups splintered and fought among themselves, murders in Mexico leapt:
there are now 30,000 or more a year. Better, argues Vanda Felbab-Brown of
the Brookings Institution, a think-tank in Washington, to devote more
resources to capturing the middle management beneath the bosses.

The consequences of the latest Sinaloa arrests remain unclear. The United
States now has two of the four Chapitos in custody. There may be a tussle
for control of the Sinaloa Cartel, with the possibility of an orgy of infighting.
There are reports of Mr Zambada’s son taking control of his faction, while
the two Chapitos still at large have assumed control of their family’s side.
That may not be a stable arrangement. Any weakening of the Sinaloan lot
could be to the advantage of the Jalisco New Generation Cartel, the other of
Mexico’s big two gangs. Whatever happens, the hugely profitable trafficking
of fentanyl is unlikely to be much impaired.

Dish the dirt

Still, the arrest of Mr Zambada may prove significant. The United States
may be able to extract powerful intelligence from him. As Ms Felbab-Brown
notes, Mr Zambada has been Mexico’s “corruptor-in-chief”. The hope is that
he provides information on vast networks of collusion that exist among
politicians, bureaucrats and law and security officials. Last year the United
States convicted Genaro García Luna, a former minister of public security,
of taking money from the Sinaloa Cartel. Surely bringing down many more
Mexican officials, as well as gangsters, would laudably undermine the
country’s pernicious criminal networks.■

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spread-of-fentanyl
Asia
America recreates a warfighting command in Japan
America remains Asia’s military-exercise partner of choice
Indian cities are utterly unprepared for what is about to hit them
How Asia’s wild west shakes up the modern world
Asia | Less Nimitz, more MacArthur

America recreates a warfighting command in

Japan
The threat from China hastens the biggest military transformation in the
Pacific in decades
July 27th 2024

Editor’s note: This article was updated on July 28th.

KADENA AIR BASE in Japan (pictured), America’s largest in the Pacific, is roughly
650km from the coast of China as the missile flies. Jets roar constantly over
children’s playgrounds on their way to and from patrols. But American
forces there have been on a peacetime footing since the end of the Vietnam
war. That changed on July 28th, when Lloyd Austin, America’s defence
secretary, announced the creation of a new warfighting command to oversee
all American forces in Japan.
The “historic” shift, as Mr Austin calls it, is a sign of the alarm with which
America and Japan regard the threat from China, which is rapidly building
up its armed forces. The new headquarters will help strengthen the defence
of Japan—once a seen as a rear base for operations but increasingly likely to
be on the front line of any conflict with China. It will also mirror Japan’s
own plans to create an American-style joint command to fuse air, sea, land
and other forces early next year.

“This is finally the transformation of US-Japan relations from what used to be

mainly a basing agreement, to project US military power, into a true military
alliance,” argues Christopher Johnstone of the Centre for Strategic and
International Studies, a think-tank in Washington. The move may deepen
China’s worries about encirclement and intensify complaints that America is
building an “Asian NATO”.

That is a long way from reality. America’s allies in Asia have no mutual
obligation to defend each other, as do members of NATO. Right now US Forces
Japan (USFJ) is mainly an administrative headquarters for units based in the
country, and to liaise with the Japanese government. The real warfighting
commander, Admiral Samuel Paparo, head of Indo-Pacific Command, is
based 7,500km to the east, above Pearl Harbour in Hawaii.

That set-up, dating from when Admiral Chester Nimitz masterminded many
of the naval battles and island-hopping campaigns against Japan in the
second world war from Hawaii, has looked increasingly implausible. Jeff
Hornung of the RAND Corporation, another American think-tank, says that in
any war with China communications with front-line forces in Japan and
elsewhere in the western Pacific are likely to be heavily disrupted, whether
by cyber-attacks, sabotage of undersea cables or strikes in space against
satellites.

Thus the creation of a forward-deployed operational command, well within

the range of China’s missiles, brings memories of Douglas MacArthur, who
fought many of the battles against Japan—in the Philippines and Papua New
Guinea—much closer to the action than Nimitz (sometimes dangerously so).
He later ruled Japan after its surrender.
The revamped USFJ will be run by a three-star general, who will answer to
Admiral Paparo. The Japanese had pushed for a four-star officer, akin to
General Paul LaCamera, who commands American forces in South Korea.
American officials note, however, that in wartime the general would take
over command of both American and South Korean forces. In Japan the two
armed forces take orders from their separate chains of command, even in a
crisis.

Nevertheless, the aim is to integrate exercises, planning and ultimately

fighting more closely. “When this transition is complete, USFJ will have a
direct leadership role in planning and leading US forces, in both peacetime
and potential crises,” says a senior American official. “They will be doing
that side by side with Japanese forces like never before.”

Mr Austin was joined in Tokyo by Antony Blinken, the American secretary

of state, for a meeting of the “2+2”—ie, of American and Japanese foreign
and defence ministers. They warned of the “increasingly severe security
environment” created by North Korea, Russia and above all China, not least
through their nuclear threats and build-up. Against that, they hailed their
alliance as “stronger than ever”. Beyond building the joint commands, they
agreed to boost production of scarce air-defence and long-range strike
missiles, and to increase deployments around Japan’s south-western islands
close to Taiwan. America reaffirmed its “ironclad” commitment to defend
Japan with its full might, including nuclear weapons.

In 2022 Japan announced it would sharply increase defence spending by

more than 60%, to 2% of GDP, by 2027, and would acquire long-range missiles
able to reach mainland China. For the foreseeable future it would be able to
launch such long-distance strikes only with intelligence and other support
from America.

Building blocks
The new American headquarters will be built in a phased process, about
which there are many unanswered questions: the size of the command, its
powers, location and area of responsibility, and the scope for other allies in
the Indo-Pacific to be incorporated into operations. Many of these issues are
sensitive, whether because of American inter-service rivalries or Japan’s
struggles to shed its pacifism. “Both left and right would prefer Japanese
forces to retain greater sovereignty,” notes Watanabe Tsuneo, of the
Sasakawa Peace Foundation, a Japanese think-tank.

One question involves American politics. President Joe Biden’s

administration is seeking to strengthen the growing “latticework” of new
security arrangements on top of its old alliances in Asia before the American
elections in November. This involves institutionalising such things as the
burgeoning three-way military co-operation with Japan and South Korea.

And it means beefing up other parts of the “island chain” that girdles China,
from Japan to Malaysia. At another 2+2 meeting in Manila on July 30th,
America announced a big push to modernise the Philippines’ armed forces
and coastguard, which have faced intense harassment by China around
disputed parts of the South China Sea. The tension has eased somewhat in
recent days, after a still-undisclosed deal allowed the Philippines to resupply
its garrison on a rusting ship grounded on the Second Thomas Shoal. But the
truce may not hold for long. America’s “once in a generation” package
includes $500m in military aid.

With a further 2+2 with Australia due to be held in Annapolis on August 6th,
American officials speak of “the ten most consequential days” for the Biden
administration’s defence policy in the Indo-Pacific. But how much can really
be established before its term runs out is unclear. The new American
headquarters in Japan will probably not be running when the Japan Joint
Operations Command (J-JOC) begins work in March 2025. Congress, which
must authorise the headquarters and appropriate the funds for it, is largely
paralysed.

A further uncertainty is what all these efforts would mean in a crisis over
Taiwan, a self-governing island which China is determined to retake, by
force if necessary. How far would the new command be involved if
American forces decided to defend Taiwan? Conventionally, America has
seen its role as the “spear” that would take on Chinese forces, with Japan as
the “shield” to defend its territory and American bases. Whether such a
distinction can be maintained in a war is doubtful.
That said, Japan is fast shedding its coyness about Taiwan, which it ruled for
half a century, until 1945. The late prime minister, Abe Shinzo, declared that
“a Taiwan contingency is a Japan contingency”. It was telling that earlier
this month Japanese and Taiwanese coastguard vessels held joint sea-rescue
exercises. Japan is donating coastguard vessels and maritime radars to the
Philippines. Japan has also signed “reciprocal access agreements” with both
Australia and the Philippines to host each other’s forces.

If successful, the joint-forces model could spread. America last month set up
a joint headquarters (under a two-star commander) to improve the defence of
Guam, an American island territory. Some talk of doing something similar in
Australia, where American forces are building up their presence. Having
several headquarters across the Pacific and expanding when needed would
strengthen America’s resilience. MacArthur knew all about command under
fire. But the headquarters back in Pearl Harbour will still prove vital—just
as it was to Nimitz and America’s success in winning the Pacific war. ■

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in-japan
Asia | Double act

America remains Asia’s military-exercise partner

of choice
A new report shows just how far China is falling behind
August 1st 2024

As a demonstration of brute sea power, few events can match the biennial
Rim of the Pacific exercise (RIMPAC) hosted by America in Hawaii. The world’s
largest naval drill, which was due to finish on August 2nd, after this article
was published, has brought together 25,000 sailors, airmen and soldiers from
29 countries. Over the past month like-minded navies have honed their skills
on tasks ranging from disaster relief to anti-submarine warfare. It has
included a “sinking exercise”: the opportunity to torpedo a rusty, 36,000-
tonne American amphibious-assault ship.
Beyond the martial pomp, exercises like RIMPAC serve as a way to cement and
bolster relations. And when it comes to wooing regional states, America
continues to thump China as the exercise partner of choice in the region. A
survey of military exercises held in Asia between 2003 and 2022 published
by the International Institute for Strategic Studies (IISS), a think-tank in
London, shows that America took part in 1,113 exercises with regional
countries. China mustered a paltry 130 drills over the same period (see chart
1).

What explains the disparity? It suggests how each country would fight, were
a war to break out. China would be fighting in its own backyard; America
would be a long way from home and relying on the support and capabilities
of its allies, notes Evan Laksmana, a co-author of the survey. That sort of
coalition warfare requires regular and intense training to smooth out
potential kinks in communications or technology. China, by contrast, is
unlikely to have any real allies to fight alongside in the first place. Although
it trains with Russia in the region, the Kremlin’s clapped-out navy is
unlikely to offer much brawn.
Second, combined military exercises depend on trust, and few countries trust
China. It claims nearly the entirety of the South China Sea as its own, and
uses its navy and coastguard, as well as “maritime militias” of armed fishing
fleets, to intimidate its neighbours. That imposes a limit on how many states
are willing to train with China (see chart 2), says Ian Storey of the ISEAS-Yusof
Ishak Institute, a think-tank in Singapore. China has sought to alleviate those
fears by conducting more prosaic exercises, such as counter-terrorism or
disaster relief (see chart 3). But these are often relatively unsophisticated,
says Mr Storey.
Of course, China sees some value in doing joint exercises, not least because
it can get its eyes on Western military gear. Its ad hoc partners, such as
Singapore and Thailand, operate Western-built platforms and systems. They
also offer a shop window for China’s own military kit. Moreover, for a
country that has not fought a big war in four decades, joint exercises offer an
opportunity to practise.

Ousting Uncle Sam as Asia’s pre-eminent defence partner will be tough. The
IISS report concludes that China is likely to focus on deepening ties with a

smaller group of countries, such as Pakistan, Russia and Thailand. But for
American officials the fact that more regional countries are interested in its
exercises is yet further evidence that its alliance-building efforts in the
region are working. ■

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partner-of-choice
Asia | Urbanisation

Indian cities are utterly unprepared for what is

about to hit them
The urban population is set to double by 2050
August 1st 2024

THE BRITISH, under whose colonial rule Bombay grew from a collection
of mosquito-infested islands into a metropolis, called their creation “Urbs
Prima in Indis”—the first city in India. So it remains. Home to corporate
headquarters, the country’s biggest port, and the film and television
industries, Mumbai—as it has been called since 1995—is the richest, densest
and most liberal city in the country. It is urban India at its most intense.

It is also the most extreme example of the myriad problems facing all Indian
cities. Mumbai has more billionaires than any city in the world barring New
York and London, but it also has a greater proportion of people living in
slums than any other Indian city. It has been battered in recent weeks by
incessant monsoon downpours that, as they do every year, have caused
flooding and destroyed roads. Its public transport is bursting at the seams.
On average, seven people are killed on the commuter-rail system every day.

The government’s answer is to build more. Projects already under

construction include a six-lane highway along the western coast, a series of
bridges linking the western suburbs, roughly a dozen metro lines, a new
airport, a high-speed rail link and a plan to rehouse the million-odd residents
of Dharavi, a giant slum, at the cost of tens of billions of dollars.

Splurging on infrastructure, though necessary, will not be enough. Metro

lines and coastal highways were first proposed in the 1960s, when Mumbai’s
population was just over 5m. Today that number is estimated at around 20m.
It is projected to double by 2050. So is the population of urban India as a
whole. “If you think that urbanisation is a problem today…try overlaying
another Mumbai on top of this Mumbai,” says Shashi Verma, who oversees
technology at London’s transport authority and advises Indian policymakers
on a pro bono basis. Preparing for this growth, says Mr Verma, “is not
tomorrow’s problem. It’s not even today’s problem. It is actually yesterday’s
problem.”

India is far from ready. No one knows how many people live in its cities
today. The last census was taken 13 years ago. The central government
shows no signs of conducting a fresh one. The census definition of an urban
area is narrow, but even by its strict standards one in three people lived in
cities in 2011. Today perhaps as many as one in two do. One thing is clear:
the hundreds of millions of urban Indians will soon be joined by hundreds of
millions more. Yet the Ministry of Housing and Urban Affairs was allocated
a mere 1.7% of the national budget announced on July 23rd. For India’s
cities to cope, urban authorities must focus on three things.

The first is to deal with the main reason that cities fail to build adequate
housing: land-use regulations. An overly prescriptive, 2,200-page National
Building Code and a surfeit of local rules prevent developers from making
optimal use of pricey urban land. Mumbai has some of the most restrictive
land-use regulations of any global megacity. In most well-functioning cities
about 90% of land is given over to streets, public spaces and buildings. In
Mumbai and other Indian cities, those uses take up less than half of the land
area, according to analysis by Bimal Patel, an urban planner. The rest is
wasted on “private open spaces”—mostly building compounds that are
walled off and put to no good use.

The result is that Indian cities are sparsely built-up yet feel densely crowded,
note Sanjeev Sanyal and Aakanksha Arora of the prime minister’s Economic
Advisory Council. Cities sprawl outwards, driving up the cost of providing
infrastructure.

Making India’s cities denser and more affordable would help with the
second challenge: public transport. If India’s cities are to double in size,
private vehicles cannot be the answer. Of the world’s ten most gridlocked
cities, three are in India. The government has splashed out on costly metro-
rail systems in recent years, but less glamorous (and more useful) public bus
networks have been neglected.

The third issue facing India’s cities is climate change. This year the country
experienced its longest-ever heatwaves. They will only become more
frequent, India’s chief meteorologist told a local newspaper. Urbanisation is
itself a cause of higher temperatures, accounting for roughly 38% of
warming in Indian cities, according to a recent study. Concrete and tarmac
retain heat, cars stuck in traffic radiate it and air-conditioners breathe it out.
The poorest suffer the most. In Mumbai, densely packed slums can be
between 5°C and 8°C hotter than neighbouring residential areas.
Researchers estimate that the city’s economy stands to lose $6bn annually
from excessive rain and flooding by 2050.

Many Indian cities have disaster-management protocols and “heat-action

plans” to deal with extreme weather. These revolve around providing flood
shelters or cooling stations. But they tackle only symptoms. Robust public-
transport systems and affordable housing are better tools for dealing with
causes. So are greenery and building design. India’s building code should
shift its focus towards insulation and ventilation.

In 2022 economists at Kyushu University in Japan found that despite poor

conditions and the absence of basic services, slum residents in Mumbai were
happier and more satisfied with their lives than rural populations in the city’s
hinterlands, owing to higher social trust and better wages. So long as India’s
cities offer the hope of a better life, however slim, they will continue to grow
—whether they are prepared for it or not. ■

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what-is-about-to-hit-them
Asia | Banyan

How Asia’s wild west shakes up the modern world

James C. Scott, an anthropologist, shed light on an ungovernable region
August 1st 2024

The seaports of Asia are synonymous with globalisation, trade and

integration. The ships which go through the hubs of Shanghai, Busan and
Singapore connect the world’s producers and consumers at speeds which
would once have been unfathomable. They are the sinews of the modern
world.

But the continent’s highlands, far from the distant centres of political and
financial power, are a different story. Many have resisted the power of
governments, officialdom and the formal economy for centuries. James C.
Scott, an American anthropologist and political scientist, who died on July
19th at the age of 87, helped illuminate the lawless history of what he called
Zomia, a region spread across upland South-East Asia, encompassing much
of Thailand, Laos, Vietnam and Myanmar, which spills into China’s south-
western and India’s north-eastern corners. Mr Scott said that he saw the
world not with an anarchist lens, but with an anarchist squint. He was not a
doctrinaire opponent of government in all its forms, but took an interest in
the way state power was established and how it was resisted.

On both the political left and right, readers of a libertarian bent (your guest
columnist among them) have consumed his idiosyncratic work over decades.
“Seeing Like a State”, his anthology from 1998 on the unintended effects of
government intervention in a variety of fields, is a particular favourite. “The
Art of Not Being Governed” (2009) is a distillation of his work studying the
highlands of South-East Asia. “Against the Grain” (2017) explored the way
agriculture was used as a tool of control.

Zomia was a natural fit for Mr Scott’s squint. He made the case that over
centuries the lifestyles and social structures of the region’s residents had
been shaped by evading the power of the states—whether Chinese, Burmese
or Thai—which hemmed them in. Their sustenance relied on “escape crops”
which grew quickly, were tolerant of poor soil and did not require consistent
labour.

Mr Scott believed that Zomia was becoming less unruly. But the region’s
lawlessness persists in different ways. Consider Dali, in Yunnan province in
China, a relatively easy-going corner of an increasingly authoritarian
country. A government campaign to eradicate the local supply of cannabis
and magic mushrooms has blunted the city’s vibe, but the products are
impossible to wipe out.

The lawlessness can be more malign. Khun Sa, a drug kingpin and military
commander from Myanmar’s hilly Shan state, exercised control over as
much as half the world’s supply of heroin during the 1980s. The warlord was
a product of one of the region’s defeated military forces, beginning his
ignominious career with the Chinese Kuomintang who had fled after their
defeat by Mao Zedong’s communists. In a better-known part of the world,
Khun Sa would have been as famous as Pablo Escobar. Much of Myanmar’s
civil war is being fought around these borderlands.
Some of the region’s anarchic nature has been formalised, in strange ways.
The hill peoples of South-East Asia from centuries past would find the neon-
lit, bustling Special Economic Zones (SEZs) in northern Laos and eastern
Myanmar quite unfamiliar. But the zones are a bizarre hybrid of the region’s
historical disorder and the growing reach of official power. Pumping billions
of dollars from China into the SEZs has been encouraged under the Belt and
Road Initiative. The money has brought corruption, but none of the safety
usually associated with state power. The SEZs are hubs of gambling, money-
laundering, and trafficking in humans and wildlife.

They are also home to the scam compounds which have blossomed in recent
years. Victims, lured from across the world with the promise of work and
other opportunities, are instead put to work in a form of modern slavery,
where they craft online scams to swindle people globally. Zomia’s
lawlessness touches the rest of the world as never before.

Mr Scott was right that the process of Zomia being subsumed by the
countries around it is well under way. Revolutions in transport and
communications technology made that transformation inevitable. But he also
made clear that the ungovernable hills and strait-laced valleys were
complements to one another, rather than opposing forces. Each had
something that the other wanted: whether something benign, or something
destructive. To understand that, the anarchist squint will remain a very
useful tool, and is Mr Scott’s lasting legacy.
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world
China
China is itching to mine the ocean floor
Which Olympic sports is China good at?
To revive the economy, China wants consumers to buy better stuff
When China hides disasters in a memory hole
China | Sunken treasures

China is itching to mine the ocean floor

It wants to dominate critical-mineral supply chains
July 28th 2024

SCATTERED ACROSS the ocean floor are trillions of lumps of nickel,

copper, cobalt and manganese. Companies have long wanted to mine them:
these “critical minerals” are needed in vast quantities to electrify the global
economy and cut dependence on fossil fuels. But the International Seabed
Authority (ISA), a UN body, is still figuring out how mining should be regulated.
Some environmental groups want an outright ban. Supporters and critics of
deep-sea mining are hashing out these issues at an ISA meeting in Jamaica
between July 29th and August 2nd. Of the 160-odd countries participating,
few have more interest in the outcome than China.

Demand for critical minerals might more than double by 2040 compared
with 2020, according to the International Energy Agency, a forecaster. China
is a big reason why. It makes most of the world’s solar panels, electric cars
and batteries, all of which require such minerals. Last year clean-energy
industries accounted for 40% of the growth of its GDP, according to the Centre
for Research on Energy and Clean Air, a think-tank in Finland. But China
has to import many of the critical minerals it uses. Its manganese comes
from South Africa, Gabon and Australia. Most of its cobalt comes from the
Democratic Republic of Congo. Its nickel largely comes from the
Philippines and Indonesia.

These dependencies worry China’s leaders. They fear supplies could be

disrupted by political turmoil or pressure from rivals like America. The
scramble for critical minerals is “a new front for strategic competition
among global powers”, says China’s national intelligence agency. Officials
rank critical metals alongside oil and gas in their importance to China’s
future. Deep-sea mining promises a secure supply. And it would occur in
international waters, beyond other countries’ sovereign authority. In 2016 Xi
Jinping, China’s leader, said his country must get its hands on the “hidden
treasures” of the ocean.

To that end, China has spent years building up influence at the ISA, which has
authority over the seabed in international waters under the UN Convention on
the Law of the Sea (UNCLOS). The ISA is largely financed by its member countries,
and China gives it more money than any other donor. In 2020 it also gave
the ISA a training facility in Qingdao, a port city in eastern China. At ISA
meetings last year, some countries tried to introduce a moratorium on deep-
sea mining. They failed, in large part because of pressure from China. Its
goal is to create a permissive mining regime that brooks no interference
from other countries, says Isaac Kardon, of the Carnegie Endowment for
International Peace, a think-tank in Washington.

In total the ISA has issued 31 licences allowing the holders to explore for
minerals in preparation for commercial operations. Three Chinese miners—
China Ocean Mineral R&D Association, China Minmetals and Beijing
Pioneer Hi-Tech Development—hold five between them, more than any
other country’s miners. They are itching to start operations. Three of the
Chinese licences cover patches of seabed in the Clarion-Clipperton Zone, an
enormous region in the eastern Pacific Ocean that holds quantities of critical
minerals roughly equivalent to all terrestrial reserves. The other two are in
the western Pacific and the Indian Ocean.

Companies typically mine in order to make money, but China’s also have
grander concerns. Take China Minmetals, a state-run giant that has an
exploration licence for about 7.3m hectares of ocean floor (an area bigger
than Sri Lanka). In March its chairman vowed to secure mineral supplies in
order to help “rejuvenate the Chinese nation”. Chinese companies must
expand operations until they “cannot be dislodged” from global supply
chains, he said.

Deep-sea mining involves sending a large robot to the seabed to hoover up

lumps of metal, known as nodules. A support ship then sucks up the nodules
through a pipe. All this is tricky because of the low visibility and high
pressure at the bottom of the sea. China’s technology is not quite cutting-
edge. But it is getting there. In July a team from Shanghai Jiao Tong
University sent a test robot (pictured on previous page) to depths of below
4,000 metres to collect 200kg of material. The robot was largely built from
Chinese-made components, “smashing international monopolies”, said
China’s state media.
If commercial mining gets going, Chinese companies might well end up
leading the industry, says Cory Combs of Trivium, a consultancy. China can
build ships and robots faster than any other country. Its officials have a
history of lavishing subsidies on emerging industries. And its deep-sea
miners have a giant domestic market for the riches they bring to the surface.

All this worries environmental groups. The deep-ocean floor supports

thousands of unique species, from microbes to sponges. Even with strict
regulation and responsible operators, mining robots are likely to cause
damage. They can kill the organisms they drive over; the plumes of sediment
they create can kill more. Chinese miners, moreover, do not have a record of
being responsible even on land, where their activities are easier to monitor.

China’s rivals are uneasy too, and not just for the sake of the sponges. One
worry is that deep-sea mining could act as cover for less peaceful activities.
Surveys of the deep ocean would help China’s naval submarines navigate. In
2021 a research vessel sent by China Minmetals took an unexplained detour
from its exploration zone. It spent five days in the waters near Hawaii,
where America has big military bases.

Western countries’ biggest concern, though, is about who controls the supply
chains of clean-energy industries. China already has a substantial advantage.
Deep-sea mining might cement it. America, meanwhile, is shut out of ISA
discussions as it has not ratified UNCLOS. In March a group of retired American
officials wrote to the Senate demanding that it ratify the treaty. Chinese
miners had “taken advantage of our absence”, they said.

Such worries are a boon, however, to the Western businesses arguing for
deep-sea mining. One of these is The Metals Company, a Canadian outfit
that hopes to apply for a commercial-mining licence from the ISA later this
year. It gets a warm reception in Washington these days, says Gerard Barron,
its founder. “People have latched on to the fact that China is going to
potentially dominate this industry,” he says. “It’s a very motivating driver.”
■

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China | Flipping talented

Which Olympic sports is China good at?

The country’s athletes seem to prefer competing indoors and as individuals
August 1st 2024

On July 29th Lian Junjie and Yang Hao (pictured) leapt off a ten-metre-high
platform, twisting and flipping in near-perfect synchronisation. Before the
Olympic judges even posted their marks, Chinese fans celebrated. Then it
became official: the pair had won gold, beating divers from Britain. China
has won 50 gold medals in the sport of diving over the years, more than any
other country.

Olympic medals are a source of prestige for China. The country boycotted
the games for decades because of the participation of Taiwan, which China
claims. When China returned in the 1980s it won fewer medals than its size
seemed to warrant. But as China grew richer, the state poured resources into
the training of athletes. Some have also been accused of doping. The upshot
is that China’s share of gold medals at the summer games has risen from 2%
in 1988 to 11% in 2021.

China’s success tends to be concentrated in a handful of disciplines. Using

statistics compiled by Olympedia, a database of results, we analysed the
country’s performance at the summer games from 1992 to 2021. We
assigned points for each medal handed out (three for gold, two for silver and
one for bronze), then calculated China’s share of these points, or dominance
score, in each sport. A score of one means China won every medal in a
sport; a score of zero indicates that it won none.

China dominates sports such as table tennis and badminton (see chart 1),
winning over half of the Olympic medals ever awarded in the former. In
diving China hopes to win most, if not all, of the eight golds on offer this
year. Elsewhere in the pool, though, Chinese athletes are less buoyant. The
country’s swimming team, which is the focus of doping allegations, won just
7% of medal points in 2021.
We wondered if the sports that China was good at had anything in common.
To find out, we sorted events into various (non-exclusive) categories
according to their characteristics, then built a model to see if these categories
could explain China’s performance. Chart 2 shows how China’s dominance
score moves up or down based on a sport’s inclusion in a category, all else
being equal. (We excluded sports introduced since 2016 for lack of data.)

China does better in sports played indoors compared with those played
outside. It is bad at sports that involve physical contact between competitors
and at big-team sports (three players or more in our definition). China does
well in events that are scored by judges. We expected the results to show that
it focuses on sports where there are lots of medals up for grabs—the better to
increase its total. But its dominance score actually drops by 0.08 if a sport
features more than five events.

America, in contrast, excels at team sports. Where a sport is played or if it is

judged has no statistically significant effect on the performance of its
athletes. America’s wins are also spread more widely. This may reflect
differences in the countries’ sporting regimes. China relies on a training
system that throws the state’s weight behind a few elite athletes. America
has a more diffuse system which encourages participation in a wide range of
sports.
After five days of competition, China has won more gold medals than
America. But that lead may not last. ■

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China | Slowing down, trading up

To revive the economy, China wants consumers to

buy better stuff
It is offering them money to do so
August 1st 2024

EVERYWHERE YOU look, the world’s politicians face tough economic

choices. In many countries, they must raise taxes, cut spending or put up
with high interest rates to keep inflation in check and make room for
investment in the future. China is different. In the world’s second-biggest
economy, inflation is too low, investment is excessive and interest rates are
falling. The government’s most urgent economic task is to encourage
citizens to loosen their belts, not tighten them.

“We should focus on boosting consumption to expand domestic demand,”

the Communist Party’s Politburo said on July 30th. It is right. The
government’s economic-growth target for this year is “around” 5%. To meet
it, demand and production must expand in tandem. Consumption accounted
for most of the necessary increase in spending last year, as households
returned to eating out and travelling after the pandemic. Their spending was
also strong in the first three months of this year. But it has since begun to
flag, putting the growth target in doubt.

Consumer confidence is low. Retail sales grew by only 2% in June,

compared with a year earlier, even before adjusting for inflation. Sales of
cosmetics and clothing fell. A survey by China’s central bank in April
showed that over 60% of city-dwellers want to increase the amount in their
savings accounts. Less than a quarter want to consume more.

To change their minds, the government has expanded a programme

introduced in March. The scheme provides subsidies to households that
renovate their homes and scrap old goods for shinier, greener replacements.
Buyers of new electric cars will receive up to 20,000 yuan ($2,800). Other
goods, including refrigerators and televisions, will attract subsidies of up to
2,000 yuan. The money for the scheme, which will amount to about 150bn
yuan ($20bn), will come from long-term bonds sold this year by the central
government. That will spare debt-ridden local governments an additional
financial burden.

At a press conference for the policy, Xu Xingfeng of the Ministry of

Commerce referred to cars, household appliances, home furnishings and
catering as the “four guardian kings” of traditional consumption, a reference
to the four protectors of the world in Buddhism. He urged local governments
to promote energy-saving appliances, such as water-efficient dishwashers,
and more sophisticated home products, such as “smart” toilets. The Buddha,
of course, taught that desire for material things was the source of suffering.
But he never owned a smart toilet.

Will the scheme make a difference? The amount earmarked by the central
government is the equivalent of only 0.3% of the country’s annual retail
sales (although it is meant to be spent in a shorter interval). Even if it
succeeds in the near term, it may cannibalise later sales. America’s cash-for-
clunkers programme, introduced in 2009 during the global financial crisis,
prompted 360,000 extra car purchases in two months, according to Atif
Mian of Princeton University and Amir Sufi of the University of Chicago.
But because subsequent sales were correspondingly weak, the net effect was
almost zero by March 2010.

Such schemes aim to prise open wallets. Another approach to raising

consumption is to fatten those wallets. The Politburo also promised to
“increase residents’ income through multiple channels”, without specifying
how. Households’ biggest source of income is wages. But Goldman Sachs, a
bank, estimates that urban wages grew by only 2.7% year-on-year in the
second quarter, compared with growth of 5.6% in the first.

Households can also earn income from their assets. For most Chinese, their
biggest asset is housing. A survey in 2019 by the central bank showed that
flats and other residential property accounted for 60% of the average city-
dweller’s wealth. The ongoing decline in China’s house prices will,
therefore, have damaged consumer morale. But because few households rent
out their flats, even when they own several of them, the property slump may
have inflicted surprisingly little harm on their cashflow, points out Adam
Wolfe of Absolute Strategy Research, an advisory firm.

What about households’ other assets? Building on the central bank’s survey,
Mr Wolfe has estimated the average city-dweller’s holdings of stocks,
bonds, deposits and other financial assets. He calculates that the yield on this
portfolio (including dividends and interest payments) has halved since 2019
(see chart). This is partly because regulators have cracked down on the
riskier, more rewarding, products offered by shadow banks. It is also
because households’ eagerness to save, amassing deposits and bonds, has
reduced the return to doing so. The decline in yields is, then, a consequence
of weak consumption. And by eroding household income, it could also be a
further cause of it.

In steering the economy, China’s rulers have powers and privileges other
politicians can only dream of. They face no political opposition. The central
bank is subservient. The government owns most of the commercial banks
and many other firms, too. Yet China’s leaders have failed over the past two
decades to rebalance the economy decisively towards consumption. And
they will probably fail over the rest of this year to raise household spending
enough to meet their growth target. Perhaps it is time for them to trade in
their old economic policies for new ones. ■

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consumers-to-buy-better-stuff
China | Chaguan

When China hides disasters in a memory hole

A revealing attempt to forget a terrible plane crash
August 1st 2024

ONLY A FEW fire-blackened branches and tree stumps, half hidden by

young green ferns, betray the horrors that visited this valley in southern
China a little over two years ago. No shrine or memorial stone marks the
place where 132 people on a domestic flight from Kunming to Guangzhou
lost their lives. They died in the early afternoon of March 21st 2022 when
their China Eastern Boeing 737 hit the ground in a near-vertical nosedive,
travelling at close to the speed of sound.

An unmarked dirt road leads to the crash site in the southern province of
Guangxi, winding through citrus orchards and eucalyptus groves from the
nearest village, Molang. For a while the steep-sided crater was sealed behind
a wall of blue metal panels. Now farmers on motorcycles pass through
openings to reach their fields. Controls remain in place, though. When
Chaguan walked to the crater on a recent afternoon he was soon accosted by
the deputy head of the village Communist Party committee, who like most
locals bears the family name Mo. “We pay great attention to state security
here,” Mr Mo explained, while filming your columnist with his phone.
Villagers had told him about the arrival of a foreigner, heeding government
instructions to report “people from elsewhere, spies and so on”. Locals
would refuse to say anything about the plane crash, he added.

To this day Chinese authorities have proposed no cause for the disaster.
Officials have confirmed that no problems were logged with the plane, its
crew or the weather before take-off. Images of the doomed airliner, caught
by a security camera near the crash site, show it hurtling earthwards in one
piece. Though Boeing’s reputation as a manufacturer is taking a battering
just now, no safety alerts have been issued by China Eastern or Boeing about
the crash in 2022. These would have flagged things that other carriers need
to know about. To aviation professionals, the only remaining explanation is
“intentional pilot action”. The same professionals point to a telltale surge in
Chinese efforts to monitor pilot mental health, including sessions on mental
illness at an Asia-Pacific aviation-safety summit in August to be co-hosted
in Beijing by the Civil Aviation Administration of China.

Pilot suicide has caused tragedies before, as when a co-pilot for

Germanwings, a European airline, locked his captain out of the cockpit and
flew into a mountain in 2015, killing 150 people. Yet from the start Chinese
officials have scolded those asking whether China Eastern flight MU5735
crashed deliberately, calling such inquiries “rumours” which “seriously
misled the public”. Alas, officials decline to discuss other causes. Instead,
China has sought to bury the tragedy in a hole of forgetting. Immediately
after the crash online nationalists denounced reporters who interviewed
victims’ families. Since then, neither relatives nor their lawyers have waged
public campaigns to hold state-owned China Eastern to account. Though
international conventions require annual updates on air-crash investigations,
China’s first- and second-anniversary bulletins were terse to the point of
insult. The crash is “very complicated”, officials say, their work needs more
time.
Chaguan did not travel to Guangxi to gawp at a disaster scene. His aim was
to explore how officially mandated amnesia works on the ground. The
question is worth asking because imposed forgetting is becoming more
brazen in Xi Jinping’s China. Party bosses have always resorted to cover-ups
when things go wrong. But in the first decades of the reform era, as China
embraced capitalism and opened to the world, media, lawyers, civil-society
groups and even some officials were more willing to press the government
for explanations. After a high-speed train crash killed 40 near the city of
Wenzhou in 2011, railway officials called off the search for survivors after
eight hours and buried some train carriages in a pit. They reversed course
amid an outcry, including on-air condemnations by state-television hosts.
After 21 hours of searching, a two-year-old girl was found alive. The buried
carriages were dug up.

Under Mr Xi, though, state media face far harsher political controls and
censorship, and the party dares to consign even large catastrophes to a
memory hole. After China’s tight pandemic restrictions were suddenly
abandoned in late 2022, many doctors say they were banned from recording
covid-19 as a cause of death. Later, to thwart independent researchers trying
to estimate excess deaths from the pandemic’s exit wave, national authorities
stopped reporting cremation statistics.

Autocracy, technology and cynicism at

work
Still, the evidence from Molang is that controls are tight but not total. “In
China it’s not like the West, you always insist on freedom, freedom,
freedom,” grumbled Mr Mo, escorting his foreign visitor to the village.
“Here we need to heed instructions from the security department.” Nearing a
group of villagers playing cards, he added confidently: “When they see me,
they won’t tell you anything.” He was only half right. Though many locals
were silent, some were ready to talk. An older villager recalled rushing to
help with the crash and watching bereaved relatives visiting Molang. With
Mr Mo at his side, that villager agreed that the lack of a physical monument
was odd, adding: “If that many people had died in a war, there would be a
memorial.” Asked why one has not been built, he replied, “How should I put
it? I’m just a simple farmer.”

Large disasters are not truly forgotten and leaders know it. They impose
silence to signal that a subject is off-limits. Today more citizens have
something to lose by disobeying. If they discuss banned topics online they
risk being cut off from the all-in-one messaging, shopping and financial apps
that are essential to life in China. After that, time is on the party’s side.
Vegetation already covers the red-earth slopes of Molang’s crash site. Before
long there will be nothing at all to see. ■

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hole
Middle East & Africa
Israeli strikes on Beirut and Tehran could intensify a regional war
Will Hamas turn from war to politics?
Ethiopia is in the midst of a kidnapping epidemic
Somaliland’s camel herders are milking it
Middle East & Africa | Two knocks in the night

Israeli strikes on Beirut and Tehran could

intensify a regional war
At the very least, they will delay talks over a ceasefire in Gaza
July 31st 2024

SEVEN HOURS and 1,500 kilometres separated the air strikes in two
Middle Eastern capitals. Both were part of an Israeli operation that could
lead to a dramatic escalation in a regional war which has been raging for
nearly ten months.

The first, around 7.30pm local time on July 30th, targeted a flat in the
southern suburbs of Beirut. Visiting the apartment was Fuad Shukr, a
military adviser to the leader of Hizbullah, a Lebanese Shia militia and
political party. He was killed; so were at least five civilians. A few hours
later another missile hit—this time, at a nondescript home in Tehran. It
killed Ismail Haniyeh, the leader of Hamas, the Palestinian Islamist
movement which began the war on October 7th with a surprise attack that
killed 1,200 people in Israel.

Read all our coverage of the war between Israel and Hamas

Israel’s choice of targets was both tactical and symbolic. Mr Shukr was
central to Hizbullah’s military operations since its founding. He was thought
to be involved in the attacks on American and French military barracks in
Beirut in 1983. Israeli intelligence believes he was a critical link in
shipments of Iranian guidance systems for Hizbullah’s long-range missiles.

As Hamas’s political chief, Mr Haniyeh was less involved in military

matters. He is believed to have been told of the October 7th attack just
minutes beforehand. Since 2017 he has been the group’s public face, based
in Qatar and shuttling across the region. He was an important interlocutor in
ceasefire talks with Israel.

Israel has claimed responsibility only for the Beirut strike, calling it
retaliation for a rocket attack on Majdal Shams in the Golan Heights three
days earlier, which killed 12 children. The rocket was almost certainly fired
by Hizbullah (though the group denies it).

Since October 8th, when Hizbullah began attacking Israel in support of

Hamas, both sides have mainly targeted military positions and depopulated
border towns. The massacre in Majdal Shams and the killing of Mr Shukr
break those unspoken rules of engagement. Both Israelis and Lebanese
worry about further escalation.

Neither Israel nor Hizbullah has an interest in a wider war—but they are
preparing for one. There have been reports of Hizbullah putting its long-
range missiles on launchers and Israeli security officials have made it clear
that, in contrast to October 7th, their forces are poised and ready for a much
wider campaign.

The onus is now on Hizbullah to decide on the scale of its response. It took
them more than a day to announce Mr Shukr was dead—a sign, perhaps, that
they will act cautiously. A major attack on Israel could draw in America,
which has deployed significant forces to the region. Lloyd Austin, the
defence secretary, said on July 31st that America would “defend” Israel if it
was attacked. He had spent the previous few days counselling Israel not to
attack Beirut, lest it trigger a bigger conflict.

Hizbullah’s response will also be influenced by Iran, its main patron. So far
Iran has not been eager to see its most powerful proxy dragged into a bigger
war. That would risk squandering its decades-long investment in Hizbullah.
But Israel’s decision to assassinate Mr Haniyeh on Iranian soil may change
the calculus. Israel has not taken responsibility for the killing, giving the
Iranians room for manoeuvre. At first Iranian officials also avoided ascribing
blame. But a few hours later Ali Khamenei, the supreme leader, did away
with such ambiguity. Israel “martyred our dear guest in our territory”, he
said.

Iran has struck Israel directly once before: it launched more than 300
missiles and drones in April, in retaliation for an Israeli strike that killed
several high-ranking officers at Iran’s embassy compound in Damascus.
Israel hit back with a pinpoint strike on an Iranian anti-aircraft radar, and the
round was over.

This time Iran must decide whether it can risk a bigger conflagration. It is
going through a sensitive political moment. Mr Haniyeh was killed hours
after he attended the inauguration of Masoud Pezeshkian, Iran’s new
president, who was elected after his predecessor was killed in a helicopter
crash in May. This was probably not how he envisaged his first day on the
job.

Iran has seen how its strategy of surrounding Israel with proxies has
succeeded. But it has now also seen Israel strike at its most vulnerable
points, from Tehran and Beirut to Hodeidah in Yemen. It has also watched a
de facto coalition emerge, with an American carrier group in the Persian
Gulf, an international task force in the Red Sea and even Arab regimes
intercepting Iranian-made missiles launched at Israel. This has given Iran
some pause.

Even as Israel, Hizbullah and Iran inch toward a wider war, Israel and
Hamas had been edging towards a ceasefire agreement. Talks have been
going on for months, but in recent weeks negotiators seemed guardedly
optimistic that both sides would accept a framework for a staged withdrawal
from Gaza and the release of 115 hostages still held there.

Two men will ultimately decide whether those talks succeed. Yahya Sinwar,
the leader of Hamas in Gaza, is increasingly isolated. On August 1st Israel
announced it had killed Muhammad Deif, the Hamas military chief, in a
strike three weeks prior. Gazans have endured immense suffering: almost
40,000 have been killed, and most of their buildings destroyed or damaged.
All of this has pressed Mr Sinwar hard to make a deal. Mr Haniyeh’s
assassination will delay ceasefire talks, but it will not change the underlying
situation in Gaza.

Binyamin Netanyahu, the Israeli prime minister, has been ambivalent about
a deal. He has authorised talks with Hamas, through Egyptian and Qatari
mediators, but has repeatedly added new conditions to Israel’s initial
proposal. These include a continued Israeli presence along the border
between Gaza and Egypt. Israel’s war-weary defence chiefs favour a deal,
partly because they want to focus on the much bigger threat from Hizbullah.
Officials involved in the talks accuse Mr Netanyahu of giving priority to
politics: the far-right ministers in his government oppose any ceasefire while
Hamas is still standing.

The assassinations could give Mr Netanyahu the political tailwind he needs

to make a deal—if indeed he wants to. He could claim to have responded to
the October 7th attack and to have brought enough retribution on Israel’s
enemies: the elusive “total victory” he has promised. But before he can
decide, he will need to wait for Hizbullah and Iran to respond to the
assassinations—and to see whether he has a much bigger war on his hands.
■

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beirut-and-tehran-could-intensify-a-regional-war
Middle East & Africa | After Ismail Haniyeh

Will Hamas turn from war to politics?

The assassination of its political leader poses a string of dilemmas
August 1st 2024

On paper Ismail Haniyeh, assassinated in Tehran on July 31st, was Hamas’s

supreme leader. When in 2022 he ran for a second term in that role, he was
unopposed. But for the past ten months, since Hamas’s attack on Israel on
October 7th, he has often looked more like a postman. The focus of
leadership shifted to Gaza, while Mr Haniyeh ran the political wing from
Qatar. The decision to continue war or seek a ceasefire has lain with the
Qassam Brigades, the military wing led by Yahya Sinwar. Mr Haniyeh
relayed messages.

In the short term the assassination tightens Mr Sinwar’s grip. But more
pragmatic Hamas types think his decision to mount the attack in October
squandered two decades of state-building. They want to reconstitute Hamas
as a political movement and an arm of the Muslim Brotherhood, the Islamist
group that is its ideological parent, rather than remain a band of jihadist
guerrillas. In any event, Mr Haniyeh’s death is likely to spark a struggle
within Hamas that could determine its future—and that of Palestine itself.

Read all our coverage of the war between Israel and Hamas

Much will depend on how Hamas reassesses the Gaza war. Start with Mr
Sinwar’s supporters in the group. Although he unleashed his fighters on
Israel with cavalier disregard for the consequences of Israel’s inevitable
retaliation, some within Hamas still celebrate this as a military achievement.
Never before had Palestinians seized land within the lines laid down in
1948, when Israel was born. Never before had they overrun army bases,
killed so many Israelis and taken so many hostages. The attack, Hamas’s
cheerleaders insist, punctured Israel’s aura of invincibility, while its
retaliation sullied its standing. Mr Sinwar’s approach, they claim, has been
vindicated.

It took Mr Sinwar years to build his authority. After a fractious internal

election in 2017 he chased out civilian rivals, including Mr Haniyeh. Big
decisions were thereafter made by the military command. Some 80% of
recruits had to do military service, reckons an analyst close to the group.

Mr Sinwar has dabbled in politics, too. Like Fatah, Hamas’s secular

Palestinian rival, he tried negotiating with Israel. In 2019 he offered
Binyamin Netanyahu, the Israeli prime minister, a long-term ceasefire
brokered by Egypt, which Mr Netanyahu at first accepted, then spurned.
Only violence, concluded Mr Sinwar, would force Israel to make
concessions.

His followers boast of facing down the region’s strongest army for ten
months. By Israeli estimates, Hamas still fields a fighting force of more than
10,000 (the group’s figure is bigger). And Mr Sinwar is still alive. His
fighters have killed hundreds of Israeli soldiers. Wherever Israel withdraws
within Gaza, they reinsert themselves. As Mr Sinwar’s disciples tell it,
Hamas has proved the most effective Palestinian fighting force since 1948.
Now consider those who question Mr Sinwar’s actions. Pragmatists lament
that the assault has reduced their statelet to ruins. In the lead-up to October
7th, most Palestinians in Gaza had rarely had it so good—admittedly starting
at a low bar. New roads and resorts had sprouted on their small strip of land.
Israel let back in thousands of labourers from Gaza, for the first time in more
than 15 years.

Now most Gazans, homeless and hungry, loathe Hamas. Their death toll is
nearing 40,000, far greater than that of the nakba, or catastrophe of 1948.
Gaza’s landmarks—its medieval hammams, mosques and handsome villas—
are piles of rubble. “It’s the worst period in the history of Palestine,” says
one Gazan in exile.

Hamas’s reputation for imposing law and order in Gaza has been shredded,
too. Pillage is rife. Gunmen who may belong to Hamas have looted Gaza’s
banks. Graffiti announce the verdicts of kangaroo courts, while thugs knee-
cap the accused and toughs beat up critics. An opinion poll in June showed
support for Hamas’s rule in Gaza had slumped to under 5%, compared with
39% in the West Bank. A day of reckoning may ensue when its fighters
emerge from their tunnels: “He’ll be pummelled when he comes up,” says a
writer in Gaza, referring to Mr Sinwar. And some fighters never will. Israel
killed Muhammad Deif, the group’s military chief, in a strike in July.

Hamas has not made much diplomatic ground either. Many Arab
governments ban it, just as Western ones do. Iran and its proxies have failed
to rescue it—or to keep its leaders safe. If expelled from Qatar, it might
struggle to find another haven. Iraq’s government, though close to Iran’s, has
said no. Chaotic Yemen might offer one. Outside Gaza, criticism of Mr
Sinwar’s decision for war courses through the ranks.

When the war stops, both Hamas and Gaza’s beleaguered people might want
a new type of leader. Of the frontrunners to replace Mr Haniyeh, Khalil al-
Haya is the closest to Mr Sinwar—and even he has suggested that Hamas
could disarm. Another contender is Nizar Awadallah, a stalwart from
Hamas’s inception who stood against Mr Sinwar for the group’s leadership.

The strongest candidate may be Khaled Meshaal, who headed the group
until 2017, whereafter Mr Sinwar strove to marginalise him. A scholar raised
in Kuwait with many diplomatic contacts, Mr Meshaal comes from the West
Bank. He might want Hamas to come under the Palestinian Liberation
Organisation, the national umbrella, even if it had to accept its previous
agreements recognising Israel. In the past he has also advocated breaking
with Iran and Hizbullah, its Lebanese proxy, and turning to Sunni Arab
states for support.

Whether the Qassam Brigades would agree is unclear. Anyone hoping to

rule Gaza after the war would need their backing. But most Gazans yearn for
respite and reconstruction. “Hamas’s leaders realise that October 7th was a
miscalculation,” says Muhammad Daraghmeh, a Palestinian journalist with
good sources among Hamas’s leaders. Will the group’s next boss agree?■

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Middle East & Africa | Ransom notes

Ethiopia is in the midst of a kidnapping epidemic

As the government hails a new IMF deal, lawlessness is spreading
August 1st 2024

The road from the Ethiopian capital, Addis Ababa, to the town of Debark in
the northern highlands is one of the country’s busiest thoroughfares. These
days it is also among the most dangerous. In recent months travellers have
been terrorised by armed gangs who kidnap bus drivers and their passengers
for ransom. On July 3rd more than 100 people were taken hostage by
highwaymen demanding up to 1m birr ($17,500) per captive. “We’re too
poor to pay,” says one relative. The sibling of another hostage says the
kidnappers warned families that without payment they would never see their
loved ones alive again.

The government of Abiy Ahmed, Ethiopia’s prime minister, does not want to
talk about kidnapping. It would rather discuss its efforts to kickstart a debt-
laden economy. On July 28th Abiy announced a series of liberal reforms that
enabled a long-awaited deal with the IMF for a $3.4bn loan secured a day later.
More market-friendly reforms will encourage donors and investors. But so
too would political stability. Negotiations with the IMF had been held up for
more than two years by civil war in the northern region of Tigray, in which
more than half a million people are thought to have died. Abiy’s government
hopes the deal signals to the outside world that Ethiopia is returning to
normality.

That is optimistic. A peace deal signed in 2022 between Abiy’s federal

government and the authorities in Tigray brought a measure of calm to that
region. But the good news ends there. In neighbouring Amhara, Ethiopia’s
army has been battling regional militias known as the Fano for more than a
year. In Oromia, the region surrounding Addis Ababa, it is fighting against
the Oromo Liberation Army (OLA), a rebel movement which says it is
struggling for the self-determination of Ethiopia’s largest ethnic group.
Neither conflict is close to ending: talks between the government and the OLA
failed in November; prominent Fano leaders have ruled out negotiations. If
anything, the violence is becoming more entrenched—not just in these
regions but elsewhere, too. “It’s metastasising,” says a Western diplomat.
“It’s quite, quite terrifying.”
The extent of kidnapping shows why. What began as isolated incidents
confined to the remote parts of Oromia, where the state has always been
weak, has spread across the country (see chart). Targets were once chosen
for their political significance. Now almost anyone is at risk outside Addis
Ababa. Even Tigray, renowned before the war for its strong internal security,
has recently witnessed a spate of abductions for ransom

Several trends underlie the crisis. The first is the weakening and fragmenting
of Ethiopia’s armed opposition movements. The OLA, for instance, has little to
show for more than five years of insurgency. It has yet to win control of a
single urban centre; threats to take over the capital have repeatedly proved
empty. Funding from supporters in the overseas diaspora is thought to have
dried up. So splinter groups proliferate and resort to kidnapping and other
forms of extortion to stay afloat.

The second trend is a weakening of the state. In large parts of the country the
government has lost its monopoly on force. In north-west Amhara it is
unable to protect refugees from neighbouring Sudan. They report almost
daily predations by bandits and militiamen. In post-war Tigray some
frustrated members of the Tigray Defence Force, the regional paramilitary
outfit which fought against the federal government, have taken to the bush.
Across the north lurks the spectre of what in Ethiopia have historically been
known as shiftas: armed outlaws surviving off plunder.

The state is also in some ways complicit. The line between rebel and
government today is blurred. Victims of kidnapping regularly accuse
officials and security forces of involvement, whether by turning a blind eye
or taking a share of the ransoms. Officials and rebels are known to cut deals.
Earlier this year the government is understood to have paid off local rebels
before the inauguration of a luxury resort in order to avoid an incident in the
presence of foreign dignitaries. And the government has an indirect hand in
the lawlessness, since police routinely arrest people only to demand a “fee”
to release them. The line between hostage-taking and policing can be fuzzy,
too.

Blame the victims

All of this is compounded by the dire state of the economy. Parts of northern
Ethiopia are nearing famine. Civil servants go months without pay. For the
growing number of unemployed youth, joining a rebel group may be the
only option. “It is a marketplace of militias,” says Jonah Wedekind, a
researcher. “Whichever entity provides the best material incentives for
fighters to join gains the upper hand.”

Many Ethiopians complain that the government is indifferent to their plight.

Addis Ababa, after all, is mostly safe. Officials and wealthier Ethiopians can
avoid perilous roads by flying (Ethiopian Airlines, the state carrier, is
enjoying a spike in domestic traffic). When pressed in a recent meeting with
opposition parties, the prime minister appeared to blame the public,
suggesting that the security forces could not enforce the law because
elements of the local population were sheltering “kidnappers and looters”.

Yet his government’s economic ambitions depend on law and order. Foreign
investors are running scared: a $2bn geothermal project in Oromia was
recently abandoned because of insecurity. At the heart of the prime
minister’s vision for the country is high-end tourism. But tourists demand
safety no less than foreign investors. “Ethiopia is shrinking into Addis
Ababa,” says a veteran businessman. “And kidnapping is largely
responsible.” ■

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midst-of-a-kidnapping-epidemic
Middle East & Africa | Under the hump

Somaliland’s camel herders are milking it

Commercial dairies are scaling up an old trade
August 1st 2024

It is milking time on Mustafa Duale’s farm and the camels are lowing: an
eerie groan, like the creak of an old door. A dozen herders strain the milk
through a sieve into metal pails. They will sleep here tonight, in the open,
beside a pen of thorns. The pails will be loaded into the back of an estate car
and reach Hargeisa, the capital of Somaliland, with the setting sun.

Mr Duale watches over his reading glasses, looking every inch the engineer
that he is. The city is his home, and boreholes his trade. But in Somaliland,
an unrecognised state on the Gulf of Aden, camels are a form of wealth.
“My father and grandfather were herders,” says Mr Duale. “It’s like it’s in
my genes.” He is one of a group of entrepreneurs who are turning a
longstanding trade in camel milk into a commercial business.
Hargeisa was not always a good place to be a milkman. The Somali air force
flattened it in 1988 during a civil war. So total was the devastation that
Somalilanders—who had been governed for 31 years as part of Somalia—
decided to declare their independence in 1991. One former rebel remembers
marching through the streets of the capital that year and finding a single
functioning tea shop.

But today Hargeisa is home to 1.2m people and more tea shops than a camel
herder could shake his stick at. Half a litre of Mr Duale’s milk goes for
$1.30. Cafes sell vanilla and strawberry flavoured camel milkshakes for
almost $2. The rejuvenated city is both a ready market and a source of
capital, as townsfolk invest their savings in the hinterland. Mr Duale has
built a reservoir to irrigate fields where he grows fodder for his 400 camels.
Smaller camel herders without any pasture of their own also give him their
animals to look after in exchange for a fee.

Other camel farmers have made circuitous journeys, travelling even farther
than their nomadic forefathers. Mohamed Isaq escaped to Canada during the
civil war but after three decades there his IT job was giving him the hump. He
returned to Hargeisa and started a camel farm. “I thought I could kill two
birds with one stone: have a business and drink camel milk,” he says,
swearing by the restorative power of his creamy produce.

The industry is not yet ready to export, which would need equipment to
pasteurise the milk and keep it cool. But the demand is there. Mr Duale is
discussing opportunities with Camel Culture, an American firm that sells
camel milk to African and Arab migrants eager for a taste of home. Other
markets are growing, too. A Chinese firm hopes to open a factory to make
camel-milk powder over the border, in the ethnic-Somali region of Ethiopia.
Camelicious, a firm based in Dubai, uses camel milk to make ice cream with
flavours such as dates, saffron and cardamom.

Somaliland still struggles to attract investment, despite the go-getting spirit

of its people. “Investors will not risk their money because most of them—
especially big companies from the West—will say it’s an unrecognised
state,” laments Abdirizak Ibrahim Mohamed, the investment minister. But
hope is hidden in the very word “Somali” itself. Some folk etymologists
speculate it comes from the phrase soo maal: literally, “Go milk!” ■
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herders-are-milking-it
Europe
Will a new “pact” of ten laws help Europe ease its migrant woes?
Vienna’s social housing, lauded by progressives, pushes out the poor
Amid the bombs, Ukrainians rediscover the beach
The Olympics are teaching the French to cheer again
Humiliated by Azerbaijan, Armenia tacks towards the West
Europe | Devil and the deep blue sea

Will a new “pact” of ten laws help Europe ease its

migrant woes?
It will require an extraordinary number of institutions to work together
July 30th 2024

THEY MOVE stiffly on weak legs as they leave the bus and enter the
fenced-off temporary centre on El Hierro, one of the Canary Islands. Spanish
police register each one, reading the number off a wristband they were given
at the port, calling out: “U8, adult female! U3, minor male!” Then come the
men, who make up the vast majority: of the 145 arrivals on that day’s boat,
eight are women and three children. Nearly all are sub-Saharan Africans.
They are lucky. No one is seriously ill; no one has given birth at sea, as
someone the week before had; and they all survived. This year more than
5,000 migrants have died trying to reach Spain, mostly en route from
western Africa to the Canaries, according to Caminando Fronteras, an NGO.
Meanwhile, around 20,000 people made it alive in the first half of 2024.
That makes the western African route a growing share of the total; EU-wide
arrivals were around 94,000, down about a third from last year.
The boats sail directly west from Africa (usually from Mauritania, these
days) to evade capture by African coastal forces. That lengthens their
journey. When they point back towards Europe, the nearest island is the
smallest and westernmost of the Canaries, with only 7,000 residents.

El Hierro has responded admirably. After a couple of days, the migrants

moved to a disused convent which they could leave freely. Many
unaccompanied minors are housed with families, and join local schools. The
head of the island’s government, Alpidio Armas, says the situation creates
little controversy. The Canaries have long experience of immigration,
especially from Latin America. The islands are ageing, and agriculture,
tourism and construction need labour; Mr Armas would like more of the
migrants to stay.

But most of the adults are swiftly sent to much bigger Tenerife. From there,
many will move to the Spanish mainland, where they are far less welcome.
Vox, a hard-right party, quit several regional coalition governments in July
over plans to distribute asylum-seekers around the country.

The boats arriving in places like the Canaries and Lampedusa, in Italy, are
only the most striking form of illegal migration to the European Union. In
fact most arrivals come by air (entering legally and overstaying visas) or
over land. Ever since the crisis years of 2015-16, when over a million
irregular migrants arrived, the EU has struggled to find a collective response.

Now it finally has one. In May the bloc approved a “migration pact” of ten
laws. Margaritis Schinas, a vice-president of the European Commission who
helped craft the pact, says it proves that Europe can “lead from the centre”.
He jokes that he was “encouraged” that both right-wingers (Matteo Salvini
of Italy) and leftists (Jean-Luc Mélenchon of France) opposed it.

The deal takes effect in June 2026. It will massively beef up the data system
for fingerprinting and registering migrants, known as Eurodac. The idea is to
track repeat arrivals and stop people from going elsewhere in the EU (already
prohibited in theory, but often ignored by arrival states).

Another innovation is a legal fiction that those arriving have not yet entered
the EU. This allows for the “border procedure”, a keystone of the deal.
Migrants judged to pose a security risk, or who come from a relatively safe
country (one from which less than 20% of previous migrants received
asylum), can be sent home in an expedited procedure. Countries like Senegal
and Mauritania, poor but not at war, fall into this group. Critics say the
border procedure will not be a legal proceeding worth the name. Since the
right to seek asylum is part of international law, this provision will probably
face legal challenges.

In 2022 around half of irregular arrivals were granted some form of

protection in Europe. Those from countries whose nationals typically
succeed, such as Mali (68%) or Sudan (70%), will still have access to the
full, lengthy asylum procedure, including appeals. So will unaccompanied
children and the mentally ill. Harmonising asylum criteria across the EU’s 27
members is meant to even out success rates. (Currently, in the EU as a whole
62% of Afghans get asylum; in Romania only 28% do.)

Finally, a “solidarity mechanism” will allow border countries to relocate an

EU-wide total of 30,000 or more asylum-seekers per year to other countries,

according to quotas. Countries that refuse to take their share may instead pay
€20,000 ($21,700) per head—a grubby bargain to appease countries that
ignored an earlier quota. But states can declare a migration “crisis” and
suspend some of their burden-sharing responsibilities (though the EU
institutions must subsequently agree). This may be abused by countries such
as Hungary that oppose the migration pact.

The pact will not work without diplomacy. Europeans have already made
deals to restrain migration with transit states such as Egypt, Libya,
Mauritania, Morocco, Tunisia and Turkey. These sometimes lead to
outrages: in May a group of newspapers and Lighthouse Reports, a
journalism collective, reported that black migrants in Mauritania, Tunisia
and Morocco were being rounded up and dumped in the desert, using
vehicles donated by the EU. But such “externalisation” of border enforcement
seems likely to continue. This year Italy struck a deal with Albania to use
Albania as a kind of offshore processing centre for asylum claims.

The hardest part may be making deals with the countries migrants originally
hail from. EU countries want them to stop migrants from leaving, and have
struck deals with some of them. But the new “border procedure” assumes
they will take back their nationals. They often refuse, and there is no way to
force them.

A previous boat “crisis” from west Africa to the Canaries in 2006 shows
what might be possible. Spain struck deals with a number of countries of
origin, working with local security forces, boosting development aid and
allowing more legal migration. Bernardino León, Spain’s deputy foreign
minister at the time, says that countries do not want to do Europeans’ work
for them: “You need to help them sell something to their people.”

The new migration pact will require an extraordinary number of institutions

to work together. National governments need co-ordinated approaches to
migration involving interior, foreign, labour, social-security, overseas-
development and other ministries. The EU’s 27 governments must get along as
best they can. And countries of origin and transit need to be brought on
board. Europe at last has something resembling a collective migration
system. Now it has to make it work. ■

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europe-ease-its-migrant-woes
Europe | Paradise cost

Vienna’s social housing, lauded by progressives,

pushes out the poor
The city’s most hard-up rely on the private sector
August 1st 2024

With the mercury hitting 35°C this summer, many Viennese have headed for
rooftop pools. At Aspern Seestadt, one of Europe’s largest housing projects,
they can plunge into an artificial lake or take the kayak out for a paddle.
Such are the joys of the projects, Viennese-style. Aquatics for the many, not
the few.

About 60% of Vienna’s population of 2m or so live in “social housing”,

where rents are kept low by the city. Apartments are often small, but the
amenities—kindergartens, laundries and pools—generous. A two-bedroom
unit of 80 square metres (861 square feet) with a garden costs as little as
€900 ($975) a month. Vienna is regularly voted the world’s most liveable
city: cheap housing means more money for the good life. Just 44% of
Viennese spend over a quarter of their income on housing (including energy
costs); in London it is 86%, in Paris 67%. Renters can keep their apartments
for life at roughly the same rent.

This housing model is a legacy of “Red Vienna”, a period after the first
world war when a socialist city council started building proletarian fortresses
such as the gigantic Karl-Marx-Hof. It has recently been attracting enormous
interest from abroad. Droves of American city planners grappling with
homelessness and soaring rents have come over to learn whether the
Viennese model can work in places like San Diego. The New York Times has
lauded Vienna as a “renters’ utopia”.

That all depends on who is renting. True, young people can ditch their
parents in their early 20s. But even many Viennese acknowledge that the
model is no longer fit for purpose in a fast-growing, prosperous city.
Designed to provide housing for the poorest, Vienna’s social housing now
mostly benefits the well-off.

The council owns and runs about 220,000 apartments directly, including old-
fashioned Gemeindebauten (community flats) such as the Karl-Marx-Hof.
Most of the action, however, centres on 58 “limited-profit housing
associations” (LPHAs), which account for some 20% of the city’s housing. A
national housing tax of 1% divided equally between employers and
employees helps these schemes. The council reduces the LPHAs’ costs, for
example by letting them buy land at knock-down rates.

About 80% of Vienna’s population qualify for social housing, so high are the
income limits: €57,600 after tax for one person and over €100,000 for a
couple with two children. The council boasts that this makes it “inclusive”:
the entire middle class gets access to subsidised housing. But the barriers to
entry are such that it is mostly the middle class that benefits.

For a start, people can enter the housing queue (sometimes two years long or
more) only if they are citizens of an EU country and have been registered for
two years at the same address in Vienna. Applicants also have to
demonstrate a regular income. These criteria knock out many immigrants,
new arrivals and those without regular jobs. Non-Austrians make up 34% of
Vienna’s population and Austria has very low naturalisation rates.

Moreover, rent is not the only cost for an LPHA apartment. Prospective renters
must make a down payment of up to €500 per square metre to meet building
costs. So-called “smart apartments” charge much less, but are often tiny, just
40 square metres. The council argues that such fees “protect the system from
being overrun”; critics say they simply keep immigrants and the poor out of
middle-class enclaves. Only 9% of renters in the LPHA sector have low
incomes. Since residents can stick around for life, the council has struggled
to prevent tenants with houses elsewhere from renting out their municipal
flats.

Ironically, the poorest quarter of Vienna’s residents often have to rent in the
private sector. There, rents are needlessly high, argues Hans Ulreich, a
property developer. Private builders must follow the same dense
bureaucratic procedures as the municipal housing sector. Mr Ulreich thinks
regulations could be significantly reduced without losing safety or quality.
Vienna’s population is growing by 20,000 per year, and social housing alone
cannot meet the demand. The Viennese model was ground-breaking in the
1920s, but it is no panacea—and is due for an update. ■

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Europe | The water’s mostly demined

Amid the bombs, Ukrainians rediscover the beach

Odessa gives itself permission to tan again
July 30th 2024

THREATS OF BALLISTIC missiles, drones and sea mines might ordinarily

be enough to put holidaymakers off their buckets and spades. But nothing is
so simple in Odessa, Ukraine’s good-time resort on the Black Sea. Two and
a half years into war, its beaches are alive again with speedos, silicone and
grandmothers selling shrimps and corn on the cob. Demand is so great that
trains and hotels are sold out weeks in advance. Prices for the most
expensive rooms at the prestigious Lanzheron beach have shot up to $1,000
a day.

Observing the rows of bronzing bodies from a rocky hill above the beach is
Valentin Zakharchenko, a 74-year-old artist. He squats and squints in the
sunlight, and makes tiny adjustments to the placement of his easel. What
brings him here, he says, is a search for answers. He is not so interested in
the sea—that is merely the background to his unfinished portrait of a young
man sunbathing on the shore. No, he is much more interested in watching
the seemingly relaxed people. “Don’t be fooled,” he says. “The state of war
is present in everyone’s soul right now.”

Read more of our recent coverage of the Ukraine war

Fazil Askerov, a hotel entrepreneur at Nemo, a five-star resort,

acknowledges the oddity of beaches full of bathers just a few hundred
metres from Odessa’s heavily bombed port infrastructure. The city’s tourism
chiefs reckon this year’s season is already about three times as busy as that
of 2023. Back then beach life was hampered by Russia’s demolishing of the
Kakhovka dam in the nearby Kherson region in June (which led to an
ecological catastrophe). Ukraine’s ban on military-age males leaving the
country has left few holiday alternatives for millions of Ukrainian families,
Mr Askerov says. Odessa does not need many of them to fill its roughly
17,000 hotel beds.

Creative real-estate agents have taken to marketing apartment rentals by

saying they are on the “non-drone-facing” side of town. No one is quite sure
what this means; it may be a bit of dark Odessan humour. In any case, all of
Nemo’s glass-fronted penthouses, which are on the vulnerable seafront, are
booked for the foreseeable future.

This year, authorities gave in to pressure to open for swimming early, and
began clearing mines from city beaches as early as April. But that does not
mean the beaches are entirely safe, says Captain Dmytro Pletenchuk, a
spokesman for the navy. Russian missiles often miss their targets, he says,
and storms wash mines towards the shore. Last year, there were several
explosions causing injuries and deaths. “If you encounter the mine when you
are in the water, you are a goner. The probability is low, but it’s real.”

The tourists largely ignore the war’s inconveniences. Few head to air-raid
shelters during alerts, which can sound several times a day. Not every beach
has shelters close enough to run to within the three minutes of warning
before a ballistic missile lands. “People say they don’t care if it’s just a
ballistic missile,” says Sasha, a taxi driver stuck in a jam snaking up the hill
from Lanzheron beach to the city centre. “What worries them more are the
Shahed drones, which have a more unpredictable trajectory.” For whatever
reason, Russia has not sent many of its kamikaze drones in the last two
months. But that is no reason for complacency, thinks Sasha: “My guess is
that they are modernising drone stocks with jet engines.”

Idle speculation? Not necessarily. With a smile, Sasha produces a military

pass: he is a serving air-defence officer. Driving a cab is a side job: “I’m
usually on the monitors with the mobile air-defence groups,” he says. His
military salary is just 34,000 hryvnia ($830) a month. The government used
to pay soldiers more, but it is strapped for cash. “You can’t be sure of your
future here. But I tell my wife, there’s no point in getting depressed. If you
do, you’ll never see the way out.”

Back in his cluttered fourth-floor studio in Odessa’s House of Artists,

stacked with hundreds of canvases, Mr Zakharchenko says his unfinished
painting might be an allegory of the city’s future. He is not sure how it will
turn out. Maybe there will be a tragedy. Maybe not. He marks a line across
the paradisiacal blue sky above the young male sunbather. “See, the line
could be a crane, flying lyrically, beautifully, away over the horizon,” he
muses. “Or it might be something quite different.” ■

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the-beach
Europe | Allez les bleus

The Olympics are teaching the French to cheer

again
France’s politics is a mess, but the games are glorious
August 1st 2024

The Olympic games are doing something very odd to France. Traditionally,
the country has embraced jaded critique as a national character trait. Now
the hosts of the games, who on July 31st ranked second in the medal table,
seem to be shrugging off their studied glumness and reaching for
superlatives as if for a bottle of chilled summer rosé. Léon Marchand, the
swimming champion, has become “une nouvelle star”. After the spectacular
opening ceremony along the Seine on July 26th Le Monde, the bible of the
understated Paris intellectual, went full tabloid: “MAGIC!”

This unsettling positivity is not just a capital-city phenomenon. Three-

quarters of the French now say they are pleased that the country is hosting
the games. As many as 23m people watched the opening ceremony on
French television. Fully 86% judged it to be a success. This figure is all the
more telling given the way the four-hour extravaganza challenged France’s
traditional conception of itself.

A playful, boisterous carnival, the festival along the Seine played with the
themes of order and rebellion, formality and disruption, against the backdrop
of Paris’s quays and palaces. As darkness fell, and despite heavy rain, the
river became a mirror for a whimsically defiant mobile spectacle overseen
by Thomas Jolly, a theatre director. Aya Nakamura, a Franco-Malian singer
(pictured on next page), dressed head-to-toe in shimmering gold, performed
with swaying musicians from the Republican Guard. Dancers attached to
poles swung above the 16th-century Pont Neuf. President Emmanuel
Macron, profiting from the enthusiasm, posted a widely-shared sentiment on
X: “This is France!”

Even a controversy that emerged on the religious right was swiftly washed
away. After a burlesque scene featuring drag queens on a bridge, Marion
Maréchal, a politician from the ultra-Catholic right, denounced a “parody of
the Last Supper”. The claim went viral. Church leaders joined in. This was
absurd, Mr Jolly explained: the scene was a tribute to a painting of
Dionysus, god of wine and festivities. The Olympic organisers apologised
for any offence, and the French moved on.

Natives say the city feels different. The metro’s signage has improved.
Policemen dispense friendly advice in place of the traditional Parisian snub
(or worse).

Even the fact that France has no proper government seems to have been
forgotten. Until the games began, political life had become an unimpressive
spectacle of fractious squabbling. This was exacerbated by Mr Macron’s
decision to call snap parliamentary elections, which ended inconclusively on
July 7th with a hung parliament. No political bloc is remotely close to
commanding a majority; no majority alliance is close to being forged. Since
July 16th Gabriel Attal has acted as a caretaker prime minister, and is likely
to do so at least until the end of the games, on August 11th.
The left-wing New Popular Front (NFP), now the biggest bloc, with 193 seats
in the 577-seat lower house, thinks it has a solution. After weeks of
quarrelling, the alliance of Socialists, Greens, Communists and the hard left
finally agreed on a candidate for prime minister: Lucie Castets, the little-
known finance director of Paris’s city government, which forecasts that its
debt will rise from €7.7bn ($8.3bn) in 2022 to €9.3bn in 2025. Ms Castets
has since been doing the media rounds. She promises to lower the pension
age and raise €150bn in new taxes by 2027, largely from the rich.

Yet Mr Macron looks in no rush to offer her the job. The constitution states
simply that the president names the prime minister; only political precedent
suggests that the job should go to the biggest party. Mr Macron still hopes,
says an aide, that rival parties will find their way to a majority coalition.
This would appear to rule out inviting the NFP, which is 96 seats short of a
majority, to govern alone. Yet if his own centrist bloc, which holds 166
seats, were to form a coalition, it would need to join up with both the centre-
right Republicans, who hold 47, and the moderate left. Neither link looks
imminent.

When the games are over, divisive politics in Paris will doubtless resume.
The budget for 2025 is due to go to cabinet in late September, and then to
parliament the following month. The longer Mr Macron takes to name a
prime minister, the more the left-wing alliance will cry foul and accuse him
of meddling in the democratic process. But, for the time being at least,
rudderless France has put politics on hold, and seems all the better for it. ■

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Europe | Westward ho!

Humiliated by Azerbaijan, Armenia tacks towards

the West
Courting the EU and America without alienating Russia is a difficult trick
August 1st 2024

The European Union boasts of being a regulatory superpower, not a military

one. But in its relationship with Armenia it is starting to deploy both sorts of
muscle. On July 22nd the EU announced that one of its military-assistance
programmes will send aid to Armenia for the first time. The same day it
opened visa-liberalisation talks. Meanwhile, American troops were
conducting a small exercise with Armenian forces. It was all part of the
pivot to the West begun last year by Nikol Pashinyan, the prime minister.

Armenians are disillusioned with their erstwhile patron, Russia. Distracted

by its war in Ukraine, it failed in 2023 to stop Azerbaijan from conquering
Nagorno-Karabakh, formerly an autonomous ethnically Armenian enclave.
Both America and European powers are eager to weaken Russia in its
traditional backyard. “Much of the population of Armenia wants to get
further from Russia. So we’re creating the conditions for that to happen,”
said James O’Brien, America’s assistant secretary of state for Europe, on
July 30th. But it is a difficult manoeuvre, and Mr Pashinyan is buffeted by
winds from multiple directions.

In the Caucasus, Russia is down but not out. Mr Pashinyan has frozen
military co-operation and evicted Russian border guards who were stationed
at Yerevan’s airport. But Russia still has a base and thousands of soldiers in
Armenia, and its border guards still patrol Armenia’s frontiers with Turkey
and Iran. Russia owns Armenia’s railways and fuels its nuclear power plant.
It probably still enjoys the sympathy of many in the security forces.

The Russian response to Armenia’s westward turn has ranged from concern
trolling (Maria Zakharova, a foreign-ministry spokeswoman, expressed
“concern for Armenia’s future”) to veiled threats. Dmitry Peskov, a Kremlin
spokesman, said Armenia was free to pursue relations with other partners
but not “the way the Kyiv regime did it, that is, in an ‘either-or’ fashion”.

Meanwhile, Mr Pashinyan is negotiating with Azerbaijan to resolve their

decades-long conflict. Azerbaijan is using the threat of fighting to strong-
arm Armenia into concessions, including removing territorial claims on
Nagorno-Karabakh from its constitution. At home Mr Pashinyan faces an
emboldened opposition, led by a charismatic nationalist archbishop, that is
enraged by such compromises.

If the Kremlin wants trouble for Armenia, Azerbaijan will be happy to help.
On July 26th it claimed that Armenia had fired heavy weapons across the
border, blaming America, the EU and France for encouraging “provocations”.
With Western military aid, Armenia is “less motivated to stay engaged in the
peace process”, says Elchin Amirbayov, a senior Azerbaijani official.

Western help has so far been modest. The EU’s military aid amounts to €10m
($10.8m), partly earmarked for preparing Armenian forces to take part in
future EU missions. The joint drills with American forces were based on a
peacekeeping scenario, not combat. If the visa-liberalisation talks eventually
bear fruit, it will be years from now. None of this helps with Armenia’s
immediate needs. “The West most probably will not give hard security
guarantees to Armenia, and I believe everyone understands this—Russia, the
West, Pashinyan and Azerbaijan,” says Benyamin Poghosyan of APRI
Armenia, a think-tank.

The extent of the pivot to the West remains unclear. It will probably depend
on the outcome of the war in Ukraine and on whether Russia’s relations with
the West remain bitter. In the meantime, Mr Poghosyan says, Mr Pashinyan
is trying to be “anti-Russian enough to get something from the West and not
anti-Russian enough to burn all the bridges with the Kremlin”. ■

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towards-the-west
Britain
What will Great British Energy do?
A riot in Southport shows how the British far right is changing
How deep is Britain’s fiscal “black hole”?
Britain’s railways go from one extreme to another
The disease that most afflicts England’s National Health Service
The race to become leader of Britain’s Conservatives
Was the Bank of England right to start lowering interest rates?
British voters care less about tax rises than politicians think
Britain | Transition of power

What will Great British Energy do?

The new body’s first job is to unblock private investment
August 1st 2024

When Sir Keir Starmer proposed a state-owned company called Great

British Energy in September 2022, he was aping the man dragged out of 10
Downing St two months earlier. Sir Keir had studied Boris Johnson’s
bracing pledge to “take back control” in the 2016 Brexit referendum.
Adapting this mantra, the then opposition leader griped that the only
governments with a stake in Britain’s energy system were foreign ones, from
Sweden, France and China. GB Energy would secure “British power for
British people”. It would also allow him to ditch a more radical plan for
wholesale renationalisation.

Now that Labour is in government, the question is whether good politics can
become good policy. Sir Keir has long been breezy about what exactly a new
“national champion” for energy would do. In a speech on July 25th at a
wind-turbine factory in Widnes, he gave more clues. The plan still comes
wrapped in misty-eyed patriotism; some of it raises eyebrows. But at its core
is a sensible urge to use the power of the state to speed private development.

Energy is central to Labour’s plan for government. Of its five organising

missions, the most developed is to have a clean power system by 2030, five
years earlier than the previous government’s target. Sir Keir and his eager
energy secretary, Ed Miliband, have swiftly announced a series of green
projects, including wind turbines, solar farms and electricity pylons. This,
they argue, is the only way to reduce bills, emissions and the country’s
exposure to oil and gas imports. Ministers see cutting the cost of electricity
as vital to growth.

As elsewhere, Labour’s approach combines deregulation with enthusiasm

for an active state. Within days of taking office, Mr Miliband lifted a de
facto ban on onshore wind in England and approved three solar farms that
had been gummed up in the planning system. He has promised to remove
local vetoes on green infrastructure; on July 30th he announced a big
increase in the budget for the next renewable-energy auction. Yet these
measures alone, says Mr Miliband, won’t be enough for the pace and scale
of change that is needed. That is where GB Energy comes in.
Take offshore wind. Labour wants to almost quadruple capacity in six years,
from around 15 gigawatts (GW) today to 55GW by 2030. The current
development process is painfully slow. Ground conditions are mapped,
seabird flocks assessed, communities consulted, grid connections secured:
add that up and there is typically a decade between getting a seabed lease
and breaking ground, says Alistair McGirr of SSE, a renewables firm. Things
have got slower the more congested the seabed has become; a neighbouring
project can easily mess with your study of a kittiwake colony.

Tackling this speed problem will be GB Energy’s first big job. Although
planning reforms will help a bit, ministers worry that projects may still get
gummed up in legal challenges. Instead, they see a new role for the state in
carrying out area-wide environmental assessments and facilitating
compensation measures for local communities. In the case of offshore wind
GB Energy will partner with the Crown Estate, a public body, to take on this

early development work; sites that have been made ready will then be sold
on to private firms. The Netherlands uses a similar model; private
developers think emulating it is sensible.

What else might GB Energy do? So far it is not entirely clear. The government
will establish it as a state-owned company based in Scotland. Its board—
which will be chaired by Jürgen Maier, a former boss of Siemens UK, a
manufacturing business—will be independent, meaning that Mr Miliband
will not be able to interfere with investment decisions. He will set the
company’s budget and objectives, however. Over the current five-year
parliament it will get £8.3bn ($10.7bn, or 0.3% of GDP), although Labour has
not said how this will be allocated. Its mission is set to include not only
getting turbines built faster but creating jobs, earning money for taxpayers
and lowering energy bills.

Three risks stand out. The first is that GB Energy focuses on the wrong aims.
Unblocking private development is where GB Energy can add most value,
says Sam Alvis, an energy wonk who worked on the body’s design; if it
succeeds, bills should fall over time as more renewables come onto the grid.
But lowering bills doesn’t make much sense as a near-term goal, given they
will be driven more by oil and gas prices. And asking it to make money for
the Treasury could be self-defeating. If Labour wants to speed up
development the bigger challenge is to make projects more financially
attractive to private firms, says Brett Christophers of Uppsala University.

A second related risk is whether GB Energy ends up crowding out investment

rather than crowding it in. Some suspect it might hold onto stakes in
offshore wind farms that it has taken through the early stages of
development, when these could easily attract private money. “The question
is ‘why should the state want to buy a wind farm?’” says Huub Den Rooijen,
formerly of the Crown Estate. A better use of a relatively modest budget
would be to de-risk areas that the private sector is less willing to invest in,
says Josh Buckland of Flint Global, a consultancy. That might involve
looking at the barriers to less mature technologies—constructing the right
infrastructure at ports to support floating offshore wind platforms, for
example.

The third risk is that GB Energy gets too ambitious. Mr Miliband, who has
long cast a jealous eye over other state-backed energy firms like Denmark’s
Orsted and Sweden’s Vattenfall, hopes that GB Energy will eventually become
a fully fledged generator, building and running its own projects. Yet those
other companies took years to build up their expertise and they did so in a
nascent market. It is probably “ten years too late” to start competing with
them, reckons Mr Den Rooijen. What might be more realistic is building up
deep expertise as an equity partner.

Flanked by factory workers in Widnes, Sir Keir framed his fledgling

creation as a decisive break in British energy policy: “It is time for the
British people to own things and make things again.” That language suggests
something more radical than the likely reality. Labour still plans to achieve
the energy transition through the market. The test of GB Energy’s success will
be how much it hastens that process, not whether it creates an alternative
one. ■

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Britain | A tragedy, then a riot

A riot in Southport shows how the British far right

is changing
It has become easier to spread lies and stir up trouble online
July 31st 2024

IT WAS AN ugly moment in a traumatic week. Sir Keir Starmer had come
to visit the site of a horrific knife attack that had taken place on July 29th in
Southport in which three children had been killed and ten others injured. By
the time the prime minister arrived in the seaside town in north-west
England the next day, conspiracy theories had been swirling online for
hours. An angry mob heckled him as he lay flowers. “Get the truth out,” one
yelled.

Things would get uglier still. By 8pm on July 30th dozens of thugs had
gathered around a local mosque. They hurled bricks at Muslims who had
come to pray and at the police who had come to protect them. A police van
was set alight; 27 officers had to be taken to hospital. Overwhelmingly, the
local community had only wanted to grieve in peace. “This is the only thing
I will write, but please stop the violence,” said Jenni Stancombe, whose
daughter had been killed in the attack .

Rabbles on streets are nothing new. But the violence in Southport—and

further disturbances in London, Hartlepool and elsewhere on July 31st—
show that the way hooligans congregate has changed. The rioting was
sparked by false claims on social media that the attacker was called “Ali Al-
Shakati” and had arrived in Britain on an illegal boat. (The police have said
that the man charged with the attack, who is 17 and cannot be named, was in
fact born in Cardiff to Rwandan parents.) “Six hours of misinformation on
Monday fuelled a riot outside a mosque on Tuesday,” says Sunder Katwala
of British Future, a think-tank.

The spread of lies has been made easier by social-media platforms tilting
back towards permissiveness, after earlier efforts to clamp down on
incitement and hate speech. Tommy Robinson, a far-right English activist, is
one of many who have been allowed back onto platforms like X. Other sites
like Facebook have cut their monitoring teams, says Nick Lowles of Hope
Not Hate, a campaign group. Among those to have spread false rumours
about the identity of the attacker is Andrew Tate, a misogynistic social-
media personality with a large online following.

The riot was also an illustration of how the far right has changed in the past
decade in response to a declining electoral market for overt racism. “There
has been a turn away from the ballot box and towards the street and online,”
says Mr Katwala. Agitators like Laurence Fox, a former actor, argue that
multiculturalism has failed; at a rally in London on July 27th he told a large
crowd that there was “no political solution to this problem”. A proliferation
of football-hooligan and other groups on Whatsapp and Telegram, two
messaging apps, has made it simpler to organise trouble, as happened after
pro-Palestinian marches about the war in Gaza and seems to have happened
again in Southport.

Mr Lowles, who tracks far-right activity in Britain, thinks that most of the
rioters in Southport came from the town and those around it. Their cause
may only attract a few hundred supporters in each area; locals were out the
next morning in Southport to help clear up the mess. But the yobs are still
numerous enough to cause trouble, and they will be back again. ■

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Britain | Fiscal feuding

How deep is Britain’s fiscal “black hole”?

Rachel Reeves sets out her first big decisions as chancellor
July 29th 2024

THE FIRST months of a new British government are precious. Problems can
be blamed on ministers’ predecessors, who will struggle for a hearing.
Capitalising on that honeymoon can neutralise the political costs of tough
choices: George Osborne, a former Conservative chancellor, moved quickly
in 2010 to pin swingeing spending cuts on Labour’s profligacy. Britain’s
new Labour chancellor is following the same playbook. On July 29th Rachel
Reeves presented the results of an audit into the public finances, which she
had commissioned straight after the election.

With the stern look of a disappointed head teacher, Ms Reeves decried an

“unforgivable” inheritance. Her focus was on immediate pressures in this
financial year. Even after accounting for the Treasury’s rainy-day fund and
assumptions that some programmes would come in under budget, she told
Parliament that a £21.9bn ($28.2bn; 0.8% of GDP) overspend had been
uncovered. About half came from inflation-busting pay rises for public-
sector workers. Most of the rest came from £6.4bn in higher-than-expected
costs associated with the asylum system, with smaller contributions from aid
for Ukraine, support for the railways and more.

Ms Reeves expects to fill a quarter of that hole with immediate spending

cuts. The single biggest saving will come from means-testing winter-fuel
payments for pensioners. That saves £1.5bn in the next fiscal year and the
group affected—the better-off elderly—is hardly a core Labour constituency.
Further savings will come from axing chunks of Rishi Sunak’s policy legacy.
She is ending schemes to send asylum-seekers to Rwanda (worth £1.4bn), to
revamp the secondary-school curriculum (£185m) and to sell discounted
shares in NatWest to the public (£100m-450m).

More consequential were her cuts on social care (worth £1.1bn) and
transport (£785m). The transport cuts are mostly focused on second-tier road
and rail projects. Nonetheless, they represent a continuation of previous
governments’ tendency to endlessly tinker with infrastructure projects. Ms
Reeves condemned “the stop-go cycle of capital investment” in a lecture in
March. Back then she called it “the new British disease”. Strikingly, the cuts
did not extend to the government’s new flagship initiatives to spend billions
in public money on green infrastructure.

If Ms Reeves’s goal was to re-emphasise Labour’s sorry inheritance, she was

partly successful. Labour and the Conservatives have been shadowboxing
over the state of the public finances since before the election. The
Conservatives argue that forecasts from the Office for Budget Responsibility
(OBR), a fiscal watchdog, mean the books are now fully open.

But the OBR’s medium-term forecasts, last released in March, did not account
for in-year overspends. A row is now brewing over whether it was
misleading for the Treasury not to share details of the areas at risk; Richard
Hughes, the OBR chief, has announced an investigation. Jeremy Hunt, the last
chancellor, parried with a letter querying why top civil servants had just
signed off on this year’s spending if the overruns were so unusual. Ms
Reeves has set out reforms that should make future cases of this sort much
easier to spot.

Focusing on the overall fiscal inheritance also helps Labour to divert

attention from the policy choices embedded in Ms Reeves’s statement, such
as accepting the recommendations of pay-review boards to raise public-
sector wages by more than expected. Doing so is understandable: pay has
lagged the private sector since inflation started rising in 2022 (see chart).
But it was still a choice. Also consequential is confirmation that Labour will
axe Conservative plans to cap civil-service headcount.

Her statement set the stage for the next budget, which will take place on
October 30th. Labour was evasive on tax throughout the election, saying it
would not raise taxes on “working people” and ruling out increases to the
biggest levies. Ms Reeves has since confirmed the inevitable: that some tax
rises are coming. But she will be hoping that her show of fiscal sternness
will be enough to reduce their political impact—for Labour, at least. ■

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Britain | A fatter controller

Britain’s railways go from one extreme to another

Departing: privatisation. Destination: centralisation
August 1st 2024

When britain’s railways were nationalised for the first time, in 1948,
politicians steamed. Conservative peers called it “a most ghastly mistake”
and “by far the biggest measure of Socialism which had ever been proposed
in the world outside Russia”. By contrast, the new government’s
renationalisation programme is chugging along quietly. A bill to bring
passenger-train operations into public ownership passed its second reading
in the House of Commons on July 29th, following a thinly attended debate.
Polls show that most people, including most Conservative voters, approve.

This smooth passage is a surprise, because if you take a long view, Britain is
doing something extraordinary. In the 1990s a Conservative government
dismembered British Rail, which had run the railways since nationalisation,
and embarked on a radical programme of privatisation. Once the new
government has finished its work, Britain will end up with one of the rich
world’s most centrally controlled railways. That may not leave it better off.

The government’s plans are in two parts, and will take two bills to achieve.
First comes the renationalisation of passenger services. At present most
intercity trains are run by firms that contract with the Department for
Transport. As their contracts expire or reach break points, the department
will not renew them. All the services should be in public hands by October
2027. A second bill will create Great British Railways, a powerful quango
that will oversee train operations, railway infrastructure and much else.

If this does not seem like a lurch, it is partly because of what has happened
in the past few years. Since 2018 the Department for Transport has taken
over four railway franchises from companies that ran into trouble. Most of
the remaining private train operators are firmly under the state’s thumb.
They used to have considerable freedom to innovate and set ticket prices,
but lost it when the state bailed them out during the covid-19 pandemic.
“Effectively, the railway is already nationalised,” says Andy Bagnall, the
head of Rail Partners, which represents train operators.

Another reason for the smooth journey to central control is that almost
nobody likes the current arrangements. Poor co-ordination between private
train operators, Network Rail (which looks after the infrastructure) and other
parts of the system wrecked the transition to a new timetable in 2018.
Innovations like digital signalling, which ought to allow more trains to run
on a line, are far harder than they should be. Andrew Haines, Network Rail’s
boss, recently called the introduction of digital signalling on one short
stretch of track “as close to impossible as anything I’ve ever encountered in
my life”.

Even so, Britain is travelling in an unusual direction. Under pressure from

the EU, other European countries are allowing more room for private
operators. Long-distance trains in France remain a virtual state monopoly,
but in May the regulator approved a deal that will allow a private company
to compete. The firm’s name, Kevin Speed, evokes the Porsche-driving,
wide-tied chancers who appeared in Britain in the era of privatisation and
deregulation.
Britons probably like the idea of renationalisation because they believe it
will improve performance. If it creates a more integrated railway, with better
co-ordination between infrastructure and train operation, they might be
proved right. But running a railway is not easy, as the previous government
showed over the course of recent years. The Office of Rail and Road, a
regulator, tracks the performance of 24 passenger-railway operators. Over
the year to March 2024, three of the franchises run by the Department for
Transport were among the top five with the most cancellations (if you
include services removed from the schedule in advance, not just on the day
they were due to run).

Nor has the state managed to respond intelligently to the railways’ greatest
problem: the huge changes in travel patterns since the pandemic. Railway
journeys are still one-tenth lower than in 2019 despite the popularity of the
new Elizabeth Line in south-east England. As office drones have taken to
working from home, season-ticket sales have collapsed by two-thirds. In
2021 the government tried to lure people back by introducing a new flexible
season ticket, but sales have been slow.

Other troubles lie ahead. The calamity of HS2, an endlessly overrunning

infrastructure project, means less money for other initiatives and perhaps
less confidence that Britain is capable of transforming its railways. A few
hours before the railway nationalisation bill passed its second reading in the
Commons, the chancellor, Rachel Reeves, nixed a scheme that might have
brought some old railway lines back into use. Meanwhile, metropolitan
mayors such as Andy Burnham in Greater Manchester and Sadiq Khan in
London are demanding more control over railway services in their
territories. Renationalisation and the creation of Great British Railways
might only end up providing travelling Britons with new targets for their
anger. ■

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to-another
Britain | Short-termitis

The disease that most afflicts England’s National

Health Service
Stopping raids on capital budgets would be a start
August 1st 2024

On July 29th the new Labour government announced a pay deal with the
British Medical Association that would give junior doctors in England a pay
rise of 22% over two years. If accepted it will bring an end to the longest
period of industrial unrest in the history of the National Health Service (NHS),
which has led to the cancellation of almost 1.5m appointments.

The rationale, said Rachel Reeves, the chancellor, was simple. Settling the
strikes will cost £350m ($450m), which is “a drop in the ocean” compared
with the £1.7bn they have cost the taxpayer. Paying more may make sense
for workforce reasons, too. In a health-care system that struggles to retain its
staff, the agreement may stop some doctors from fleeing to Australia. But in
other respects, the government seems less keen to take the longer view.

Short-termism is built into the NHS’s annual planning cycle. In order to stick to
its budget, the NHS routinely relies on its trusts and Integrated Care Boards
(ICBs), regional bodies that plan and commission services, to sign up to
unrealistic targets. At a point in the year when the finances get particularly
dicey—usually because of winter ailments, though last year because of
strikes—the government somehow finds extra money. Even so, the
combined deficit for ICBs was still estimated to be £1.4bn in the 2023-24
fiscal year.

These pressures now look set to worsen. The government this week accepted
the recommendation of pay-review bodies to give public-sector workers,
including those in the NHS, a raise of 5.5%. To help fill the hole left by these
increases and other overspending, trusts will have to find more efficiency
savings.

The result is likely to be yet more raids on NHS capital budgets, a practice that
has already caused huge trouble. Britain spends far less on capital
investments in health care than comparable countries. The NHS reckons that
the cost of the maintenance backlog on its estates—already rising (see chart)
—will exceed £15bn by 2028. Crumbling buildings are not just dangerous.
They add to delays and inefficiencies. In one hospital, an intensive-care unit
was recently closed because the roof fell in. In another, staff must wheel
their patients outside between buildings.

Capital spending is being squeezed in other ways, too. A hospital-rebuilding

programme worth £20bn was beset by delays in part because the last
government allocated as little money as possible to the early phases; Labour
now says it will review the whole programme. Measures designed to
incentivise fiscal discipline can have perverse outcomes. Guy’s and St
Thomas’ Foundation Trust in London has one of the largest estimated
maintenance backlogs, at more than £400m. Because its ICB produced a
deficit, even though the trust had a small surplus, its capital allocation has
been reduced by £2m this year.

These are not the only symptoms of short-termism. Successive governments

have dodged the costs of shifting the health-care system more towards
prevention. There were 6.7m diagnoses of major illnesses in England in
2019; the Health Foundation, a think-tank, reckons there will be 9.3m by
2030. Wes Streeting, Labour’s health secretary, has long recognised that
Britain should be spending less on hospitals and more on keeping
populations healthier for longer. But Labour’s main manifesto pledge for the
NHS was to ensure that within five years no one waited more than 18 weeks on

hospital waiting lists, which now top 7.6m. Prioritising that measure means
hurling more resources at hospitals, not fewer.

Cost-cutting has meant yet another delay to a planned overhaul of social

care, where continued underfunding ratchets up pressure on the NHS. On July
29th Ms Reeves also cancelled a long-planned reform that would have
capped the costs people pay for social care. Doing so will save £1.1bn in the
first year but come at a steep cost to thousands of families. Sir Andrew
Dilnot, an economist who first proposed the cap many years ago, has called
the decision “a tragedy”.

In a recent report on the NHS’s finances, the National Audit Office warned of
the “potential growing mismatch between demand for NHS services and the
funding the NHS will receive”. On his first day in office, Mr Streeting said that
the service was “broken”. Ridding it of short-termitis would be a good
course of treatment. ■

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Britain | Tory story

The race to become leader of Britain’s

Conservatives
An exhausted party seems to think that it doesn’t have to change
July 30th 2024

Kemi Badenoch has a reputation for pugnacity, which is why many Tories
think she should succeed Rishi Sunak as the party’s leader. But when
addressing Angela Rayner, Labour’s new deputy prime minister, in the
House of Commons on July 19th Ms Badenoch sounded jaded. Ms Rayner’s
hope of pepping up housing construction was doomed, she said. There
would be a deluge of angry emails; Labour’s new MPs would revolt.

“We have been there. We know; you don’t,” she told Labour. “I want to
reassure the right honourable lady that I will be here to say, ‘I told you so’
when these targets are missed.” It was a strikingly defeatist account of the
power of government—as John F. Kennedy didn’t say: “We choose not to go
to the Moon, or do the other things, because they are hard.”

A sense of exhaustion runs through the Tory party, which has embarked
upon the search for its sixth leader in a decade. By the deadline on July 29th
Ms Badenoch and five of her fellow MPs had gathered the requisite ten
nominations by their parliamentary colleagues to enter the contest to succeed
Mr Sunak. They will be whittled down to four candidates by other Tory MPs,
and then down to two after the Tory party conference in October. The party
membership will then pick the winner, who will be announced on November
2nd.

It seems clear that candidates will pitch to the right in pursuit of members’
support. Ms Badenoch, analysing why her party secured its worst result
since the birth of Britain’s modern electoral system in 1832, argues that it
“talked right yet governed left”. Robert Jenrick, another contender, says that
voters “did not feel that the Conservative Party was conservative enough for
them.” Tom Tugendhat, ostensibly a liberal-minded Tory, has put exit from
the European Convention on Human Rights on the table. James Cleverley
and Priti Patel promise more sway for party members.

That tactic might win a leadership race. It is less likely to propel the Tories
back to power, for three reasons. First, voters may conclude that this sounds
like the same record that Mr Sunak played, at increasing volume, during the
election campaign. Recall how his opening pitch in that contest was a pledge
to bring back national service, a tougher line on trans rights and new
restrictions on immigration.

The messengers are familiar, too. Mr Tugendhat and Ms Badenoch ran for
the leadership in 2022. Mr Cleverly and Ms Patel are former home
secretaries, Mr Jenrick an ex-immigration minister and Mel Stride, the final
member of the sextet, a former work and pensions secretary. The last three
leaders to take their parties from opposition to government—Sir Keir
Starmer, David Cameron and Sir Tony Blair—only entered Parliament in the
election following their party’s ousting from office.

The second problem is that the Tories lost voters in every direction. In the
election on July 4th they retained just 52% of Boris Johnson’s electoral
coalition of 2019, as it splintered between Labour (which won over 13% of
the Tories’ 2019 voters), the Liberal Democrats (7%) and Reform UK (23%).
A “unite the right” strategy, in which the Tories claw back defectors to
Reform UK, is one-eyed. So far the candidates have had bizarrely little to say
about the fact that the Lib Dems have punched deep into the Tories’ wealthy
English heartlands. The ambition to win back Labour voters is entirely
absent. The notion that the Tories’ richest pickings lie to the right is
probably mistaken anyway: 26% of Reform voters say they will “never”
vote Tory again, compared with 14% of Lib Dems, according to More in
Common, a think-tank.

The third problem with tacking right is the risk of irrelevance. For the next
five years the Labour government will set the agenda; voters will give
opposition parties a second glance infrequently, and punish those that seem
divorced from their concerns. In 2006 Lord Cameron told his party it had
absented itself from the national conversation: “While parents worried about
child care, getting the kids to school, balancing work and family life, we
were banging on about Europe.” Such hardheadedness is absent now.

Successful oppositions must decide which bits of their own past to disown,
and which parts of the political landscape to accept as the new consensus.
Sir Tony had to embrace the market logic of Thatcherism, Lord Cameron the
social liberalism of New Labour. Here the Tories face two big decisions.
First is what story they tell about Britain’s economic performance. The
official line from the party, for the moment, is that Mr Sunak bequeathed
Labour a recovering economy of strong growth, low inflation and low
unemployment, and that tax rises introduced by the new government are an
ideological choice. The decision for the next leader is whether to continue
that defence or to face harder truths about persistent low growth since 2008.

The second is over planning reform. Sir Keir is putting the need to build at
the centre of his economic agenda. Under Mr Sunak, who will continue as
leader until his successor is chosen, the Tory response so far has been to
redouble the base-pleasing NIMBY rhetoric of the election campaign, talking of
an attempt to “concrete over the green belt”. Many think it essential that the
Tories change their tune if they are to reclaim the banner of wealth creation.
Taking his first Prime Minister’s Questions on July 24th, Sir Keir mocked
Sir Roger Gale, a veteran Tory, who griped about his building spree. “My
advice is that when you get rejected that profoundly by the electorate, it is
best not to go back to them and tell them that they were wrong. It is best to
reflect, and change your approach and your party.” Sound advice. ■

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conservatives
Britain | Cutting loose

Was the Bank of England right to start lowering

interest rates?
Andrew Bailey takes a calculated risk
August 1st 2024

It was a close call. On August 1st the Bank of England announced that it was
cutting interest rates by 0.25 percentage points. The votes of its Monetary
Policy Committee (MPC) were split five to four. Ahead of the announcement,
markets had also been divided, pricing in roughly a 60% chance of a cut.
The bank says it intends to reduce rates only gradually from here. Markets
reckon it will do so once more before the end of the year (see chart).
The lack of consensus, and the caution, are understandable. Some
uncertainty is inevitable in central banking. Economic data tend to be
muddled and contradictory, especially over the short term. The most reliable
data series, like GDP releases, take months to compile and are stale before they
even arrive. Statistical offices frequently revise releases after the fact. But
Britain’s economic situation has recently become especially difficult to
parse.

The headline rate of inflation, which the bank formally aims to control, has
now hit its 2% target on the nose. But its decline mostly reflects big drops in
volatile energy and food prices. The core inflation rate, which strips those
prices out and tends to better reflect the underlying pressures on the
economy, is still running at 3.5%. Other measures, like services inflation and
nominal wage growth, are even higher: at 5.7% and 5.2%, respectively.
Inflation is down but not out.

What of growth and the labour market? There, again, the picture is murky.
There is certainly a case for optimism. GDP rose by 1.5% in the 12 months to
May, much faster than most forecasters—including the bank itself—
expected. But that could be a temporary sugar-rush as Britain exits
recession. The bank thinks so, writing that “underlying momentum appears
weaker” in a report accompanying the rate decision. Corroborating that
view, the labour market seems to be creaking: the unemployment rate has
risen and job vacancies are down. That could presage a slowdown. Although
a slight cooling would be a welcome help in controlling inflation, a sharper
deterioration would be unpleasant.

The poor quality of much of Britain’s economic data does not help. The two
data series that should matter most for interest-rate decisions are
unemployment and inflation. Both have been faulty recently. The Labour
Force Survey, which is used to generate the unemployment rate, has been
less reliable ever since survey-response rates fell during the covid-19
pandemic. The Office for National Statistics is in the middle of refurbishing
the survey but the figures are unusually jumpy and tough to interpret in the
meantime.

The latest round of inflation data, covering June, was also distorted by an
unusually high reading for hotel prices. Data sleuths tracked that down to a
handful of individual price readings. They initially pointed to higher prices
around Taylor Swift’s Eras Tour as a culprit. Pantheon Macroeconomics, a
consultancy, cross-referenced the concert dates and suggests that a concert in
Cardiff by P!nk, an American singer-songwriter, could have been to blame.

So, was cutting in August the right decision? Any central banker waiting for
perfect information has left it too late. Looming over the MPC’s decision is the
criticism it received for being too slow to raise rates in response to rising
inflation in 2021 and 2022. Several of the bank’s peers have now reduced
rates. The European Central Bank has already done so. The Federal Reserve
demurred at its July 31st meeting but signalled that a move is likely at its
next meeting in September.

Although out-of-control inflation is the biggest single threat to a central

bank’s credibility, keeping policy tight and choking growth during a
slowdown would also be a bad look. In other words, moving now makes
sense. A bank rate of 5% remains restrictive and the MPC has ample space to
speed or slow the easing from here. It just needs the view of the road ahead
to be clearer. ■

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start-lowering-interest-rates
Britain | Bagehot

British voters care less about tax rises than

politicians think
So if you’re going to increase a tax, make it a big one
July 31st 2024

The Cornish pasty looms large in David Cameron’s memoirs. In 2012 the
then Conservative government decided to levy VAT on hot takeaway food such
as the beefy snack. It was a measly scheme that would have raised an annual
£110m ($140m; 0.005% of GDP). Outrage ensued. “Pasties,” Lord Cameron
despaired. “I hadn’t even thought about pasties.” For page after page, he
gaily recalls the scandal which saw headlines of “Let Them Eat Cold Pasty”
and a Marie Antoinette lookalike hounding George Osborne, his chancellor
of the exchequer.

In comparison, Lord Cameron’s memoir spends precisely one paragraph on

the biggest tax rise of his tenure. In 2010 his government raised £13bn a
year by increasing VAT by 2.5 percentage points to 20%, its highest level ever.
It was a huge rise, yet attracted little opprobrium at the time and is now
largely forgotten.

Tax policy leads to peculiar politics. Outrage bears no relation to fiscal

impact. The biggest increases often receive the least blowback; small ones
can trigger fury. Voters are rarely grateful for a cut; often they barely notice.
Rachel Reeves, the new chancellor, finally admitted on July 30th that taxes
will have to increase when she presents her first budget in the autumn. The
bizarre politics of tax will come to the fore once more.

In general voters pay far less attention to tax than politicians think, whatever
direction it moves. Consider the last Tory government. Jeremy Hunt, the
then chancellor, was generous to the point of irresponsibility, knocking 4p
off the rate of national insurance at a cost of £20bn per year. Taken together,
the tax cuts saved a typical earner £900. Yet about eight in ten said the cuts
would make little or no difference to their personal finances. They did
nothing to stop the Conservatives receiving a historic beating in the general
election on July 4th.

Tax rises are swallowed far more easily than people in Westminster expect.
Between 2019 and 2024 the Tory government raised taxes more than any
parliament since the second world war. Freezing income-tax thresholds
resulted in huge increases; middle-class earners on far from extravagant
wages were dragged into higher-rate bands for the first time as nominal
salaries shot up. In 2010 one in ten people paid Britain’s 40% rate; now one
in six does. By 2028 freezing thresholds will bring in £40bn per year—as
much as raising the basic rate of income tax by 5p per pound.

Describe this scenario to an MP in 2019 and they would have predicted civil
unrest. Instead, British voters grumbled in focus groups but largely accepted
it. Some may not even have noticed. Only six in ten people check their
payslips; few of those will bother to untangle how much extra the taxman
took—particularly if more money is landing in their bank account overall.
On the eve of the election 1% of voters thought tax was the most important
issue facing Britain. Only 5% thought it was among the most important; in
contrast, one in three voters opted for the National Health Service. Raising
the money is one thing; what the government does with it is more
significant.

How the tax is collected often matters more than how much is taken. Taxes
that people pay directly are much less popular. Council tax is hated. Sending
a direct debit of £200 a month to the council is more visible than the much
larger sums whipped directly from people’s salaries by the government. In
general, voters would prefer a cut to council tax (which makes up a small
chunk of household costs) over one to income tax (which would leave them
materially better off), according to More In Common, a pollster. Inheritance
tax is loathed. Only 4% of estates pay it, but many more people resent the
idea of it. Writing a cheque to the government shortly after a relative has
died is no fun.

Sage commentators often quote Jean-Baptiste Colbert, a 17th-century

French statesman: “The art of taxation consists in so plucking the goose as
to obtain the largest amount of feathers with the least possible amount of
hissing.” In practice this strategy often results in few feathers being plucked
and an angry bird, as Lord Cameron found with pasties. It is better to follow
the strategy of Lord Cameron’s VAT rise: grab the goose, ignore any hissing,
and hope it eventually forgives or forgets. Voters often do. Ken Clarke, one
of the more successful chancellors, put it best: “There is nothing so dead and
forgotten as old budgets.” What was controversial one day becomes the
norm the next.

On October 30th Ms Reeves will have the pleasure of announcing her first
soon-to-be-forgotten budget. When it comes to raising money, she has
limited her options. The chancellor has ruled out an increase to VAT, income
tax, national insurance and corporation tax. Together they account for about
70% of all government revenue. Rather than pulling one lever as far as it can
go, Ms Reeves has to yank as many as possible to raise proper money.

Tax doesn’t have to be taxing

The more levers Ms Reeves yanks, the higher the chance that she will
experience what Lord Cameron faced with the Cornish pasty. Perhaps it will
be farmers, dragged into inheritance tax for the first time. Maybe doctors,
who now have a taste for striking, will not like their pensions being pilfered.
Grumpy businessmen whacked by capital-gains tax may prove a formidable
lobby group. Better to pick a larger tax—whether national insurance or VAT—
and make any outrage worth it. If a revolt is possible over a pasty, it is
possible over a pension.

What of the pasty? Following the outcry, Lord Cameron’s government

allowed a loophole. If a warm pasty was cooling down, having been recently
removed from an oven, it would remain exempt. The Cornish pasty defeated
Britain’s mighty Treasury. It was a loss the Treasury could bear. After all,
Lord Cameron’s VAT rise remains in place. It is worth about £20bn per year.
Tasty. ■

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rises-than-politicians-think
Business
What could kill the $1trn artificial-intelligence boom?
Can Samsung get its mojo back?
Dumb phones are making a comeback
India’s electric-scooter champion goes public
What is the point of industry awards?
What Chipotle and McDonald’s say about the consumer slowdown
Business | Feeding the machine

What could kill the $1trn artificial-intelligence

boom?
A fast-growing supply chain is in danger of over-extending
July 28th 2024

“The risk of under-investing is dramatically greater than the risk of over-

investing,” said Sundar Pichai, the boss of Alphabet, which owns Google, on
a recent earnings call. He, like lots of executives nowadays, was talking
about artificial intelligence (AI). More specifically, he was talking about
building AI data centres to serve the customers of the tech giant’s cloud-
computing arm. The sums involved are eye-popping. Alphabet’s capital
spending is expected to grow by about half this year, to $48bn. Much of that
will be spent on AI-related gear.

Mr Pichai is in good company. During an earnings call on July 30th Satya

Nadella, the chief executive of Microsoft, also reaffirmed his plans to spend
big on AI. Alphabet and Microsoft, along with Amazon and Meta, will
together spend $104bn building AI data centres this year, estimates New
Street Research, a firm of analysts. Add in spending by smaller tech firms
and companies in other industries and the total AI data-centre binge between
2024 and 2027 could reach $1.4trn.

The scale of this investment, and uncertainty over if and when it will pay
off, is giving shareholders the jitters. The day after Alphabet’s results the
NASDAQ, a tech-heavy index, fell by 4%, the biggest one-day drop since October

2022. Microsoft’s share price also fell after its earnings release.

For now, the tech giants show little inclination to pare back their
investments, as Mr Pichai’s remarks show. That is good news for the myriad
suppliers that are benefiting from the boom. Nvidia, a supplier of AI chips that
in June briefly became the world’s most valuable company, has grabbed
most of the headlines. But the AI supply chain is far more sprawling. It spans
hundreds of firms, from Taiwanese server manufacturers and Swiss
engineering outfits to American power utilities. Many have seen a surge in
demand since the launch of ChatGPT in 2022, and are themselves investing
accordingly. In time, supply bottlenecks or waning demand could leave
those companies over-extended.
AIinvestment can be split into two. Half of it goes to chipmakers, with Nvidia
the main beneficiary. The rest is spent on makers of equipment that keeps
the chips whirring, ranging from networking gear to cooling systems. To
assess the goings-on along the AI supply chain, The Economist has examined
a basket of 60-odd such companies. Since the start of 2023 the mean share
price of firms in our universe has risen by 103%, compared with a 42%
increase in the S&P 500 index of American stocks (see chart 1). Their
expected sales for 2025 have climbed by 14%, on average. That compares
with a 1% increase across non-financial firms, excluding tech companies, in
the S&P 500.

The biggest gainers were chipmakers and server manufacturers (see chart 2).
Nvidia accounted for almost a third of the rise in the group’s expected sales.
It is forecast to sell $105bn of AI chips and related equipment this year, up
from $48bn in its latest fiscal year. AMD, its nearest rival, will probably sell
about $12bn of data-centre chips this year, up from $7bn. In June Broadcom,
another chipmaker, said that its quarterly AI revenues jumped by 280%, year
on year, to $3.1bn. It helps customers, including cloud providers, design
their own chips, and also sells networking equipment. On July 25th SK Hynix,
one more chipmaker, said it expects demand for its advanced memory chips
to more than double in the next year.
Companies that make servers are also raking it in. Both Dell and Hewlett
Packard Enterprise (HPE) said in their most recent earnings calls that sales of AI
servers doubled in the past quarter. Foxconn, a Taiwanese manufacturer that
assembles lots of Apple’s iPhones, also has a server business. In May it said
its AI sales had tripled over the past year.

Other firms are seeing interest spike, even if new sales have not yet
materialised. Eaton, a maker of industrial machinery, said that in the past
year it saw more than a four-fold increase in customer enquiries in America
related to its AI data-centre products. AI servers can require up to ten times
more power than conventional ones. Earl Austin Junior, the boss of Quanta
Services, a firm that builds renewable-power and transmission equipment,
recently admitted that the surge in demand for its data-centre business had
“caught me off guard a little bit”. Vertiv, which sells cooling systems used in
data centres, noted in April that its pipeline of AI projects more than doubled
within two months.

All this interest is setting off a further frenzy of investment. This year
around two-thirds of firms in our sample are expected to raise their capital
expenditure, relative to sales, above their five-year averages. Many
companies in the supply chain are building new factories. They include
Wiwynn, a Taiwanese server-maker, Supermicro, an American one, and
Lumentum, an American seller of advanced networking cables. Many are
also spending more on research and development.

Some companies are investing through acquisitions. This month AMD said it
was buying Silo AI, a startup, to boost its AI capabilities. In January HPE
announced it would spend $14bn to acquire Juniper Networks, which makes
networking gear. In December Vertiv announced its purchase of CoolTera, a
liquid-cooling specialist. It hopes this will help it scale up its production of
liquid-cooling technology 45-fold.

Just as the spending ramps up, though, the threats to the AI supply chain are
building. One problem is its heavy reliance on Nvidia. Baron Fung, of
Dell’Oro Group, a research firm, notes that when Nvidia went from
launching a new chip every two years to every year, the entire supply chain
had to scramble to build new production lines and meet accelerated
timelines. Future sales for lots of firms in the AI supply chain are predicated
on keeping the world’s most valuable chipmaker happy.

Another threat stems from supply bottlenecks, most notably in the

availability of power. An analysis by Bernstein, a broker, looks at a scenario
in which by 2030 AI tools are used roughly as much as Google search is
today. That would raise the growth in power demand in America to 7% a
year, from 0.2% between 2010 and 2022. It would be hard to build that
much power capacity swiftly. Stephen Byrd of Morgan Stanley, a bank,
notes that in California, where many AI data centres could be built, it takes six
to ten years to get connected to the grid.

Some companies are already trying to fill the gaps by providing off-grid
power. In March Talen Energy, a power company, sold Amazon a data centre
connected to a nuclear-power plant for $650m. CoreWeave, a small AI cloud
provider, recently struck a deal with Bloom Energy, a fuel-cell maker, to
produce on-site power. Others are repurposing sites such as bitcoin-mining
locations that already have grid access and power infrastructure. Still, the
energy needs for AI are so vast that the risk of a power shortage remains.

The biggest threat to the AI supply chain would come from waning demand.
In June Goldman Sachs, a bank, and Sequoia, a venture-capital firm,
published reports questioning the benefits of current generative-AI tools, and
—by extension—the wisdom of the cloud-computing giants’ spending
bonanza. If AI profits remain elusive, those giants could cut investments,
leaving the supply chain exposed.

The build-out of factories has brought higher fixed costs. Across our sample
of firms the median spending on property, plants and equipment is expected
to jump by 14% between 2023 and 2025. Some investments may start to
look suspect if demand is slow to materialise. The price tag on HPE’s purchase
of Juniper Networks was two-thirds of the acquirer’s market value when it
was announced in January.

Even after the recent wobbles, market expectations remain bullish. For our
sample of firms the median price-to-earnings ratio, a measure of how
investors value profits, has climbed by nine percentage points since the start
of 2023. If such expectations are to be met, AI tools need to improve quickly,
and businesses need to adopt them en masse. For the many companies along
the AI supply chain, the stakes are getting uncomfortably high. ■

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intelligence-boom
Business | Semi-successful

Can Samsung get its mojo back?

Its profits are surging, but its technology is lagging behind
August 1st 2024

Samsung Electronics, South Korea’s most valuable company, is the

archetype of vertical integration. The smartphones and other consumer
electronics it is best known for accounted for about half of its revenue and a
quarter of its operating profit in the period from April to June. The rest came
from the components that go into such devices—including the
semiconductors that run them.
On July 31st the company reported that its operating profit in the most
recent quarter was up 16-fold, year on year, thanks to growth in its chip
business. Demand is rocketing as tech giants such as Microsoft and Alphabet
rush to build data centres to support their artificial-intelligence (AI)
ambitions. Samsung’s share price rose 4% on the day. Yet a single bumper
quarter cannot obscure the company’s deeper challenges. Most worrying is
that it has been losing ground to rival chipmakers. Global technology stocks
are up by 82% since the start of 2023. Samsung’s value has risen by just half
that (see chart 1).

The South Korean giant is struggling to compete at the cutting-edge of both

logic chips (which process information) and memory chips (which store it).
In the first category, it has fallen further behind TSMC, a Taiwanese foundry
that manufactures semiconductors on behalf of companies such as Nvidia,
the leading supplier of AI chips. Between the first quarters of 2019 and 2024
the Taiwanese firm increased its share of the global chip-foundry business
from 48% to 61%, according to Trendforce, a research firm. Samsung’s
share fell from 19% to 11% (see chart 2).
Samsung’s position as the global leader in memory chips is also under
threat. There it is being menaced by SK Hynix, a South Korean firm spun off
from Hyundai in 2001 that has become the world’s biggest producer of high-
bandwidth memory (HBM) chips. These stack memory chips together,
increasing speed and decreasing power consumption, which makes them
especially useful in AI applications. In HBM3, the most advanced type currently
available, SK Hynix is thought to hold a market share of 90%. Samsung’s
memory chips, meanwhile, reportedly suffer from low production yields (the
proportion of chips that actually work). Buyers are said to grouse about poor
power efficiency.

Because of long lead times for conducting research and building factories,
success and failure in the semiconductor industry can be many years, even
decades, in the making. For SK Hynix, an early bet on HBM allowed the company
to steal a march on its larger competitor. It 2013 it pioneered the original HBM
industry standards in collaboration with AMD, an American chip firm.
Samsung, by contrast, scaled down its HBM research team in 2019. Industry
analysts point to a legacy of complacency among Samsung’s top brass when
it comes to shifts in technology.

Samsung’s problems are not limited to its chipmaking business. Its share of
global smartphone sales is roughly stable, despite stiffening competition
from cheap Chinese rivals. Elsewhere in the supply chain, though, Chinese
companies are making life difficult. Two years ago the company gave up on
competing against them in the liquid-crystal display (LCD) screen business. It
now concentrates on more advanced organic light-emitting diode (OLED)
screens, producing them both for its own devices and for those of other
companies. Even there, however, it confronts Chinese competition, most
notably from BOE Technologies, a state-owned enterprise which has rapidly
climbed to prominence in the industry.

Display aggression
In November Samsung filed a complaint against BOE with America’s
International Trade Commission, accusing the company of misappropriating
its trade secrets (BOE has not responded to the allegation). The OLED market is
growing quickly, and South Korean producers such as Samsung still lead at
the premium end of it. But the company has reason to be nervous. According
to the Korean Display-Industry Association, a trade body, the proportion of
Chinese smartphones made with South Korean OLED panels has fallen
dramatically, from 78% in 2021 to 16% in 2023.

To make matters worse, the company has lately been grappling with a
fractious workforce. In July thousands of its employees gathered outside
company facilities south of Seoul, as part of the first organised work
stoppage in the firm’s history. The protest over pay and conditions is not yet
resolved, and several thousand workers in the company’s semiconductor
factory are still refusing to return to work.

Nonetheless, there are glimmers of hope for the company. In July its HBM3
chips were accepted by Nvidia for its H20 processors, which comply with
American export rules for the Chinese market. Samsung’s next iteration of
HBM chips is now being evaluated by possible buyers. It plans to begin the

mass production of cutting-edge two-nanometre logic chips in 2025, and has

secured orders from customers including Preferred Networks, a Japanese AI
firm. An added advantage for Samsung is that, as a supplier of both memory
and logic chips, it can offer a one-stop shop for customers. It already has the
necessary capabilities to package chips together, which is tricky.
Buyers of the most advanced memory and logic chips are desperate for more
competition in the market. According to Myron Xie of SemiAnalysis, a
consultancy, Nvidia is “very keen” that all three of the leading memory-chip
companies—Samsung, SK Hynix and Micron, an American firm—are able to
offer the products it needs. He adds that, when it comes to manufacturing
logic chips, Samsung “doesn’t have to be on par with TSMC, but does need to
be closer to make it an acceptable proposition”.

The company is aware of the threats it faces. It has shaken up its leadership,
replacing Kyung Kye-hyun, the boss of its chipmaking business, with Jun
Young-hyun, who had previously run Samsung’s growing battery subsidiary,
in May. And it has been investing to catch up with rivals. Samsung’s capital
expenditure over its most recent four quarters amounted to $44bn, compared
with $26bn for TSMC and $6bn for SK Hynix (see chart 3). Yet unlike those more
focused firms, it is spending to fend off competitors on various fronts. The
company’s integrated model has served it well over the decades. But it has
its drawbacks, too. ■

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Business | Screened out

Dumb phones are making a comeback

They even have Snake
August 1st 2024

It is hard to imagine life without a smartphone these days. Leave yours at

home and you may find yourself lost, moneyless and severed from social
contact. Nine in ten American adults own one, according to Pew Research
Centre. They spend 3 hours and 45 minutes on them a day, on average,
reckons GWI, a firm of analysts. New versions souped up with artificial
intelligence may be even harder to put down.

Yet a market is also emerging for phones that are deliberately pea-brained.
These dumb phones—confusingly called “feature phones”—account for just
2% of phone sales in America. But demand is growing. In 2016 HMD, a
Finnish firm, bought the rights to relaunch the devices of Nokia, whose basic
phones once reigned supreme. It says it is now selling “tens of thousands” of
flip-phones a month in America. In May it re-released the Nokia 3210, a
mainstay of many millennials’ teenage years, in Europe. It even has Snake, a
classic mobile game.

Dumb phones today do not merely replicate those of the past, though.
Startups offer minimalist devices of their own. One example is the Light
Phone, which is shaped like an iPod and has an e-ink screen like a Kindle. It
also allows users to add optional “tools” including a podcast-player and a
directions app.

What explains the return of the dumb phone? One factor is anxiety over the
impact of smartphones—and social-media apps in particular—on young
people’s mental health. That is why Eton, a posh British school, announced
in July that it would bar its future prime ministers from bringing
smartphones to school, and would provide them with Nokia phones instead.

But plenty of grownups are also choosing dumb phones of their own accord.
Jose Briones, who moderates a forum dedicated to dumb phones on Reddit,
a social-media site, switched to the Light Phone after growing alarmed at his
soaring screen-time tally. Like many neophytes, he still keeps a smartphone
for situations such as travelling abroad. Other smartphone addicts are instead
opting to dumb down their devices, either by deleting apps or downloading
ones that control screen time, of which there are a growing number.

Forswearing the supercharged connectivity of a smartphone can lead to

jitters at first. Christina Dinur, another dumb-phone convert, remembers
wondering what to do with herself when waiting in a queue without her
smartphone. But, she says, she “settled into it really quickly”. For some, it
seems, a dumb phone can be a smart choice.■

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Business | Two wheels good

India’s electric-scooter champion goes public

It promises to be a wild ride for investors
August 1st 2024

Two-wheeled vehicles are an integral part of life in India. They whizz over
the country’s broken, clogged roads, carrying families and loads that would
fill a small lorry. India manufactures about 20m of them each year, making it
one of the world’s leading producers. It is fitting, then, that the country’s
largest initial public offering (IPO) so far this year is for an electric-scooter
company. On August 2nd Ola Electric plans to sell around $730m of shares
at a price that will value the firm at roughly $4bn.

Ola Electric has been on a fast but bumpy ride since it began churning out
battery-powered scooters in 2021. Mechanical troubles early on led to fires
and breakdowns. The company has now resolved those manufacturing
problems, and is the leading maker of the vehicles in India. Yet it lost $190m
in its most recent fiscal year, 8% more (in rupees) than its loss in the
previous year. It sold 330,000 scooters at an average price of $1,800—and
an average loss of $573. Although that is an improvement, of sorts, on the
156,000 scooters sold at an average loss in excess of $1,100 in the previous
year, profits appear to be some distance away.

The $4bn valuation at which the company will list is significantly below the
$5.4bn valuation it received in September during its last venture-funding
round. Bhavish Aggarwal, Ola Electric’s founder, claimed, implausibly, that
he wanted to make sure that the IPO was priced “attractively for the entire
investor community in India”. The company’s reduced valuation will be
disappointing for some recent investors, but is hardly a rarity in India these
days. Valuations among Indian startups have plummeted owing to rising
interest rates. Ola Cabs, the ride-hailing service from which Ola Electric was
spun off, was valued at $7.3bn in 2021. It has since suspended its planned
listing, sacked employees and closed overseas operations.

Ola Electric, though, is raising money to do more than just keep its engine
running. Of the funds it raises, $191m will be used for research and
development and $147m for capital equipment, primarily to bring the
production of batteries in-house. A planned electric car has been put on hold,
but new electric motorcycles are scheduled to be introduced in 2025.

Analysts are bullish about the outlook for two-wheelers in India. According
to one presentation accompanying Ola Electric’s offering, annual sales in the
country are expected to rise to 13m units by 2028, up from around 700,000
today. But pot holes still lie ahead. In recent months the government has cut
subsidies for electric vehicles, leading to a slowdown in growth. And even if
electric scooters continue to spread across the country, there will be stiff
competition from domestic rivals such as TVS and Bajaj, which have excellent
reputations and deep pockets.

On the bright side, one usual group of competitors—Chinese companies—

has struggled to keep up with domestic firms. Part of the explanation may be
regulations in the Chinese market which, for perhaps understandable
reasons, cap the speed at which its two-wheelers can travel. India has no
such restraints. Ola Electric’s two-wheelers can reach a zippy 120kph. They
have a range of 150km, to boot.
For now, it looks as though investors in India’s public markets are happy to
go along with Ola Electric for a ride. Interest in the IPO is reportedly high. In
recent days, in anticipation of the listing, videos have circulated on social
media of partially submerged Olas speeding through flooded Indian streets.
That is an impressive achievement—though, given the brevity of the clips, it
is unclear whether the riders successfully make it to their destinations.
Investors in the scooter-maker may be taking a similar plunge. ■

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goes-public
Business | Bartleby

What is the point of industry awards?

Booze, sweat and plexiglass
August 1st 2024

Industry awards are ridiculous and ubiquitous. That both of these things are
true is doubtless a sad commentary on the human condition. But it also tells
you something about the things that employees value.

The ridiculousness is obvious. All the attributes of glamorous awards shows

are replicated save for one ingredient: glamour. At awards shows on TV,
almost everyone looks comfortable in their glad rags. At industry awards
shows, almost no one does. The bow ties are clip-on; the talk is of when the
tuxedo has to be returned to the rental shop. Every so often someone
suddenly goes over on her new heels and disappears spectacularly from
view. There is a sense of excitement but mainly because the drinks are free.
Everyone is a bit sweaty.
There is a brief moment of anticipation when the identity of the celebrity
host for the evening is revealed, followed by an even briefer moment of
silence, then the sound of 400 people asking “Who’s that?”. The host will
attempt to strike a serious note about the importance of the work that all the
nominees do (how the world depends on the composites industry, why
baking soda will end poverty) while guests neck the bubbly and
surreptitiously pocket copies of the menu.

Then it’s on to the main event. When the awards are actually handed out,
pictures of the nominees are shown on a screen so you can see what
everyone looks like sober (and ten years younger). Some categories are so
absurd that you start to suspect someone is playing a practical joke. Britain’s
water industry really does compete to win the award for “Leakage Initiative
of the Year”; the wedding industry hands out a gong for the best barn venue.
Others are even more prestigious. “The Supreme Award is the highest
accolade at the Brick Awards” is not a made-up sentence.

No one involved thinks this is a completely fair fight. The pool of candidates
may well be self-selecting: nominees often send in their own entries. The
judging process is usually opaque. It costs a lot of money to attend awards
dinners and you would not blame the organisers for making sure that the
trophies are shared out a bit. It’s not quite a case of “all must have prizes”.
But if your firm stumped up for a platinum table with a magnum of
champagne and a guaranteed position at the front of the ballroom, it
probably expects something in return.

The winners don’t care about any of that. (The losers try to look
magnanimous and then write bitter columns like this one.) When their names
are announced, they sway to the front and grin awkwardly for a
photographer. They return to their tables clutching a gigantic piece of
plexiglass; colleagues crowd round to examine it as though it were the
Rosetta Stone. Once every category, attendee and weak joke has been
exhausted, the host wraps up. People head to the bar for a final drink. “Is it
still free?” they ask hopefully.

If these ceremonies are so absurd, why do they persist? Some reasons are
obvious. A night out is fun. Awards do add lustre to the winners’ CVs: if you
were in the brick industry, you’d definitely like to be able to say that you
have won the Supreme Award. They can burnish the reputation of
overlooked departments within firms. And for the companies shelling out for
tables, awards are a little bit of cheap marketing to the outside world.

But award ceremonies also survive because they tap into employees’ deeper
needs. They offer a sense of recognition, however imperfect, for your work.
There is validation in knowing that your boss put you forward for a gong, or
that the sanitation industry sees you as a rising star. Awards impart a sense of
collective purpose. This is not just a roomful of sweaty people; this is the
grounds-management industry and by God, it is something worth
celebrating.

Awards can also make people feel as if they are on a team. Competition is
one of the central facts of capitalism, but for many employees the contest
can feel abstract. Once a year the civilised surroundings of a large hotel
ballroom provide a simulacrum of that competition. Over napkins folded
into flowers, nominees come face to face with the employees of rival
companies. Winners are greeted as heroes; losers get consoling pats on the
back. Awards are absurd, but they make you feel as if you belong.

Boss Class, Bartleby’s podcast series on management and work, has recently
been nominated in the 2024 British Podcast Awards. To be clear, these
particular awards are in no way ridiculous.

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Business | Schumpeter

What Chipotle and McDonald’s say about the

consumer slowdown
Americans still want more than just the lowest price
July 31st 2024

Near Schumpeter’s home in Los Angeles are two fast-food restaurants

almost kitty-corner to each other, as Americans quaintly put it. In different
ways, both help explain one of the biggest puzzles in today’s business
environment: the state of the American consumer. One is Chipotle Mexican
Grill, a canteen-like restaurant famous for its burritos and bowls of chicken,
the cheapest of which comes with rice, beans, salsa and various other
toppings, and which costs $10.60. The other is McDonald’s, home of the
hamburger. Its cheapest meal deal is $5. It comes with a burger, nuggets,
fries and such generous quantities of salt it is a blessing that there is a fizzy
drink to wash it down with.
You might think Chipotle would be suffering more in a world where
consumers face high housing costs, utility bills and petrol prices, their
savings are running down, and the job market is getting shakier. Not only is
its menu dearer. In recent months the chain, a darling of millennials and gen-
Zs, has found a hit squad of TikTok influencers on its case, filming
themselves jabbing its bowls of chicken with their forks and accusing it of
scrimping on the size of its famously generous portions.

But you would be wrong. In an earnings call on July 24th, its boss, Brian
Niccol, acknowledged the portion-size problem in a small number of its
restaurants and pledged to fix it. Despite the fuss, business boomed in the
quarter from April to June. Chipotle’s sales grew by a whopping 18% in the
period, compared with the same three months in 2023. Demand increased in
every income group, Mr Niccol said.

Under the Golden Arches, it was a different story. The lower-income

customers of McDonald’s have been feeling the pinch since last year, said
Chris Kempczinski, its boss. In the latest quarter the chain’s sales on a like-
for-like basis fell by 1%, compared with the previous year. Even the recently
introduced $5 meal deal had yet to boost revenues.

The contrasting fortunes of these two chains may befuddle those looking to
understand the state of America’s consumers, especially when other
industries are also sending mixed messages. But two lessons can be drawn.
The first is that it is too soon to conclude that growth in American
consumption has stalled. The second is that, even if it has, it is too simplistic
to say that the best response for firms is to cut prices.

The most recent economic indicators and quarterly earnings bear out the first
point with a maddening (lack of) clarity. According to a University of
Michigan survey published on July 26th, consumer sentiment hit its lowest
point in eight months in July. A few days later, the Conference Board, a
business group, said that in the same month shoppers’ confidence rose. Like
McDonald’s, food and drink giants such as Coca-Cola, PepsiCo and
Starbucks signalled weakness in America in recent months. So did Diageo,
the world’s bartender-in-chief. But Procter & Gamble (P&G), the mammoth
purveyor of non-food brands such as Pampers nappies and Gillette razors,
saw no sign that American shoppers were in retreat. “So far, so good,” said
its boss, Jon Moeller. The consensus is that low-income shoppers are hurting
the most. But the degree to which others are feeling the pinch is hard to say.
Sales in America of Hermès, maker of the Birkin bag, soared; those of LVMH,
another high-society stalwart, did not.

If anything, consumers appear more picky than panicky. The higher costs of
living mean more are staying at home rather than going out. Prices at
restaurants are rising faster than at supermarkets, so even chains like
McDonald’s no longer seem as cheap as they used to. In California, this is
particularly true. A law implemented in April requiring fast-food chains to
pay a minimum wage of $20, up from $16, has raised prices, scaring many
customers away, says John Gordon, an independent analyst. When diners do
go out, the novelty of doing so may lead them to spend more, helping
explain why Chipotle is doing better than McDonald’s.

Even those who stay at home still splash out on the odd treat, says Sally
Lyons Wyatt of Circana, a market-research firm. Those wanting to save
money buy retailers’ own-label products, look for bargains online, or go to
dollar stores. But they have not forsaken pricier brands, especially those that
offer something fresh, or a cheaper option than going out. She calls this
bifurcation.

Consider food. Because they go out less, diners have more money to splurge
on meals at home: an “Italian” night in, say, with premium-priced pasta and
wine. They behave similarly with non-edible goods, such as personal care.
Consumers may no longer feel their budgets stretch to pampering at beauty
salons or barber shops on the high street. But they can afford to spend a bit
more on upmarket products for use at home. Sellers of branded goods such
as P&G are taking advantage of this trend by, for example, peddling fancy
new grooming kits. Input costs may be higher, but the premium prices
protect their profit margins.

Nuggets of truth
In sum, even if American consumers are feeling the pinch, companies that
cater to them can still do well if they think creatively. Cutting prices is not
the only option. It can spur a race to the bottom, says Danilo Gargiulo of
Bernstein, a broker: McDonald’s may be able to cut prices, but so can
Burger King. Better to provide value for money, that hard-to-define concept
that attracts customers whatever the price. It encompasses both quantity and
quality.

As an illustration, consider, if you will, two of Schumpeter’s recent lunches.

At Chipotle, his $10.60 chicken bowl overflowed with tasty food. He ate
half, and took the other half home for supper. In other words, two meals for
the price of one. His $5 McDonald’s meal deal was not as skimpy as he
expected. But it was so salty, he threw half of it away. ■

If you want to write directly to Schumpeter, email him at

schumpeter@economist.com

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about-the-consumer-slowdown
Finance & economics
What the war on tourism gets wrong
Which cities have the worst overtourism problem?
Investors beware: summer madness is here
Gary Gensler is the most controversial man in American finance
India’s economic policy will not make it rich
China’s last boomtowns show rapid growth is still possible
EU handouts have long been wasteful. Now they must be fixed
Finance & economics | Hotting up

What the war on tourism gets wrong

Visitors are a boon, if managed wisely
July 29th 2024

Cooling off is easy in Barcelona. Swim in the sea, sip sangria—or just hang
about looking like a holidaymaker. Recently residents have taken part in
anti-tourist protests, some firing at guests with water pistols. Other rallies
calling for an end to mass tourism have taken place across the Balearic and
Canary Islands. And it is not just Spaniards. Locals in Athens have held
funerals for their dead neighbourhoods. Authorities in Japan have put up a
fence to spoil a popular view of Mount Fuji and prevent tourists gathering.
Soon there will be a 5pm curfew for visitors to a historic neighbourhood in
Seoul.

During the depths of the covid-19 pandemic many predicted that tourism
would never return. Now, however, holidaymakers are back. According to UN
Tourism, a multilateral agency, this year trips are set to nudge 1.5bn, up a tad
from 2019. The dollar, measured against a basket of currencies, is worth
more than at any point over the past two decades, barring a four-month spell
in 2022—meaning that Americans are particularly keen to travel. This ought
to be a gift to the cities and countries being visited. Tourists bring cash and
make little use of taxpayer-funded services. Indeed, officials in central banks
and finance ministries quietly welcome the inflows, even as politicians are
being pushed by voters to soak tourists (with taxes) and limit arrival
numbers.

Familiar spots in Europe are seeing visitor numbers soar. Trips to Greece,
the fastest-growing market in southern Europe, jumped by a fifth in the first
quarter of 2024, compared with the year before. Visitor spending in Portugal
is forecast to be 20% higher this year than in 2019. To find even more
impressive growth one must venture to developing countries, and plenty do.
More than half of the ten fastest-growing destinations are in emerging
markets, where guests can get more bang for their buck and tourist industries
are being created from scratch. The number of holidaymakers in Albania and
Saudi Arabia doubled in the first quarter of 2024, for instance, compared
with five years ago. Arrivals to the Dominican Republic and Turkey have
also shot up.
Tourism accounts for 3% of global GDP, a chunky 6% of cross-border trade
and employs as many people as live in America—meaning its expansion
will reshape economic activity and ease government budgets. The
economies of Greece, Portugal and Spain all grew at a rate of 2% or higher
last year, against an average of 0.4% across the EU. Taking the broadest
possible definition, some 20% of Albania’s economy now relies on tourists,
up by two percentage points from five years ago. In Saudi Arabia tourism’s
contribution to GDP has grown by a third in the past year. Holidays are a
serious business.

Tourism, like any export, generates national income. Unlike consumers of

other exports, tourists travel to the source country to consume products,
rather than the other way round. Goods and services that are not normally
tradeable, such as a paella by the beach, become so. In most places, foreign
diners will pay consumption taxes while using few public services—unless,
that is, the prawns turn out to have been dodgy. Although there are surge
costs, such as requiring additional police in the summer, there are also surge
benefits, such as tourists paying for train tickets during off-peak times, when
carriages might otherwise be empty.

The problem is that higher tax receipts offer diffuse benefits, whereas the
costs of tourism are concentrated. In Barcelona residents are annoyed by
crowds, dirty streets and higher prices, as well as stores selling cannabis and
tacky souvenirs. Majorca’s situation is “unbearable”, says Joana Maria, who
organises local anti-tourist protests. The population of the island can swell
from 1m to 1.4m in peak periods.

Hit the road

Some economists also worry. As tourism booms, it draws in a larger share of
an economy’s capital and labour. Critics liken this to a kind of “Dutch
disease”, where rapid growth in one export sector prevents other, higher-
value-added industries from growing. According to Giuseppe Di Giacomo at
the University of Lugano and Benjamin Lerch of the Swiss finance ministry,
growth in Italy’s tourism business from 2010 to 2019 reduced demand for
education, resulting in lower university enrolment and completion rates.
Serving pizzas to hungry tourists seems a great way to get by at the age of
20; by the age of 40 a tiring waiter may wish he had studied for that degree.
The holiday sector relies on lots of poorly paid workers whose productivity
grows only slowly—meaning it would be a particularly bad business for
developing countries to get stuck in.

Policymakers want to turn the boom to their benefit and keep locals happy.
From Portimão, a lovely beachside spot in Portugal, to Poole, which also has
a beach and is in Britain, towns across Europe are making guests pay more
in taxes, so as to ration access and improve infrastructure. Some would like
to attract richer guests; others are attempting to reduce visitor numbers
altogether. Cruise-ship passengers are often particularly unwelcome since
they crowd streets without having the decency to pay for hotels or
restaurants. Greece plans to cap the number of berths in 2025, after
passenger arrivals increased by 50% last year. Where rents are high, as in
Barcelona and Lisbon, governments are cracking down on short-term lets.

In some places, tourist taxes are effective. Gangbusters growth in emerging

markets is in part a result of travellers looking for a bargain. These
destinations tend not to have museums stocked with the world’s loot or
unique Broadway shows; instead, they often attract visitors with offerings
that are more easily substituted, namely beaches and booze. Festus Fatai
Adedoyin of Bournemouth University and co-authors find that in one such
spot, the Maldives, each 10% increase in taxes reduces arrivals by 5.4%, but
this hurts an industry that contributes almost a third of GDP.

By contrast, in places with unique attractions, taxes are less likely to put off
tourists. Amid a throng of visitors outside a home designed by Antoni
Gaudí, a famous Catalan architect, Nina Tavolder, a Canadian, says she was
undeterred by the €4-7 ($4-8) nightly charge. She chose Barcelona for its
culture, food and nightlife: “We would not consider not coming because of
the tax.” A study in 2019 by Song Haiyan of Hong Kong Polytechnic
University and co-authors found that higher airfare levies, a type of tourist
tax, did not affect overall spending, merely shifting budgets. Those paying
more for flights then splashed less on hotels and meals. As Jordi Valls, one
of Barcelona’s deputy mayors, puts it, the flow of tourists is “unstoppable”.

Although tourists are unlikely to stop visiting because of a price rise, they
may change how they visit. Venice has experimented with a €5 entry charge
for day-trippers this summer, which it is considering doubling, in the hope of
encouraging visitors to stay the night. Japanese officials, meanwhile, levied
a ¥2,000 ($13) congestion charge on a crowded hiking trail at Mount Fuji on
July 1st in an attempt to shift tourists to other routes and ease the
environmental burden. Copenhagen is offering free meals and museum
passes to tourists who do some litter picking.

It is worth trying to make tourism work, rather than to become as

unwelcoming as possible. If guests raise local prices, they will also raise
wages, notes Chloe Parkins of Oxford Economics, a consultancy.
Governments can do more to accommodate arrivals, both by building
infrastructure and loosening planning rules. Rents would not rise as fast in
Barcelona, for instance, if housing supply responded to foreign and local
demand. Indeed, history shows that tourism receipts can be invested in
infrastructure and higher value-added sectors, as has happened in Italy and,
more recently, Mexico. In most cases, summer holidays can be enjoyed by
everyone. ■

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often-self-harming
Finance & economics | Beat the crowds

Which cities have the worst overtourism problem?

We rank popular destinations on two measures
August 1st 2024

Cities everywhere are busy implementing measures to deter excess tourism.

But most people agree holidaymakers offer an economic bounty. So what
would the ideal tourist market look like? Residents would probably prefer a
small number of high-spending visitors, to minimise disturbance and
maximise revenues. Figures compiled by The Economist rank 20 popular
destinations on their appeal to international travellers, and provide a sense of
which cities are nearest to—and furthest from—this ideal.
Start with international arrivals. In absolute terms London and Tokyo led the
field last year, with 20m visitors each, followed by Istanbul, with 17m.
Global cities attract lots of visitors. Divide them by population, though, and
Amsterdam, Paris and Milan claim the top three spots, with a remarkable
ten, eight and six arrivals per resident. The Dutch city’s appeal may frustrate
local officials. In recent years they have sought to stem the flood of tourists
by reducing the supply of hotel accommodation, banning cruise ships and
raising hotel taxes. In the end, it seems the lure of some lovely canals and
gouda cheese, among other things, is too much to overcome.

Tourist spending—on attractions, accommodation, transport and the like—

was highest in Dubai at $29bn last year, followed by London at $21bn and
Singapore at $19bn. Amsterdam, Paris and Dubai earned the most on a per
resident basis. The gap between high-ranking cities is surprisingly large.
Visitors to Amsterdam spent four times as much, on such a basis, as those to
Milan. If you cram an unfeasibly large number of tourists into a city,
spending per resident rockets. An Amsterdam with fewer tourists would be a
poorer city. Overcrowding has some upsides.

Some places, though, have stumbled across an even better state of affairs:
bringing in big revenues without overcrowding. Visitors to Osaka, Japan’s
ancient second city, spend $4,900 per local; those to Madrid spend $4,300.
Neither city is particularly busy, with four and two visitors a year per
resident, respectively. That will sound very attractive to residents of
Amsterdam. Yet perhaps even a few tourists is still too many. Authorities in
Osaka are considering charging foreign tourists an entry fee in order to
combat “overtourism”. And anti-tourist graffiti has started to appear across
Spain’s capital city. ■

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worst-overtourism-problem
Finance & economics | Buttonwood

Investors beware: summer madness is here

This year’s hottest months are shaping up to be especially wild
August 1st 2024

So much of finance is automated these days you can forget quite how
strongly markets echo human rhythms. Yet stock exchanges still ring their
opening and closing bells at either end of the working day designed a
century ago in Henry Ford’s car factory; the more civilised of them even
break for an hour at lunch. The foreign-exchange market notionally operates
around the clock, but it is a brave soul who attempts a big order during
London’s early hours, before the City is open for business. And it is not just
daily routines that matter—seasonal ones do, too. Spare a thought, then, for
the 20-somethings left to run the northern hemisphere’s trading desks over
the next few weeks, while their bosses doze on a beach.
Possibly for this reason, markets are often more jittery than usual during the
summer months. Last year, for example, it was in August that American
share prices began their final protracted fall before a storming bull run that
took them to new all-time highs. That may be down to liquidity, which, with
many investors also off reclining in the sun, tends to be slightly thinner
during the holiday season than in the rest of the year. It may also be that the
lack of veterans on banks’ trading floors allows panic to set in more easily.
Prices can swing a lot further before someone musters the courage to push
back.

This summer has already tested nerves. After months of rising at a

breakneck pace, stockmarkets around the world have been knocked off-
kilter. On July 24th America’s benchmark S&P 500 index had its worst
session since December 2022, falling by 2.3%. Equities elsewhere followed
suit the next day. Wall Street’s “fear gauge”, the VIX index, which measures
expected stockmarket volatility through the prices traders pay to protect
themselves from it, has leapt up after months in the doldrums. Meanwhile,
the Japanese yen, an erstwhile safe-haven currency, has rallied at close to its
fastest rate in two decades. It is almost enough to rouse a senior trader from
his sunbed.

What is more, the rumpus may be only getting started. One reason is that
stockmarkets have become eye-poppingly concentrated. America’s now
constitutes nearly two-thirds of global equity value, and increasingly
revolves around the fortunes of a small cluster of firms. The S&P 500’s big
drop came just after Alphabet and Tesla reported their second-quarter
earnings, and days before Amazon, Apple, Meta and Microsoft were due to
follow suit. In other words, a handful of tech giants worth a collective
$11trn, or a quarter of the S&P 500’s total value, released their earnings in a
little over a week. So much hinges on investors’ attitudes towards such
companies that it is easy to envisage further ructions ahead.

At the same time, those attitudes appear to be shifting from euphoria to

something a little more mercurial. The share price of Nvidia, the darling of
the previous bull run, has fallen by 14% since a peak in June, while gyrating
madly along the way. On July 30th it plunged by 7%, then rocketed by 13%
on July 31st. Alphabet lost 5% of its market value the day after its earnings
report, despite beating analysts’ revenue expectations. Tesla’s results, which
undershot expectations, led to a one-day drop of 12%.

Such big moves are not solely down to jumpy traders. They are also a result
of the extreme positions investors have taken. Analysts at the Royal Bank of
Canada note that asset managers have bet more aggressively on futures
contracts linked to the NASDAQ 100, an index dominated by big-tech firms, than
at almost any other time in the past. With these bets already placed, few
buyers remain to take prices higher; any change in sentiment can trigger a
crash. And it is not just the tech giants. Positioning in S&P 500 futures, as
well as those for America’s stockmarket more broadly, is more bullish—and
hence more vulnerable to a reversal—than it has been since the Royal Bank
of Canada began tracking it in 2010.

The consequence is that an awful lot rides on how quickly the Federal
Reserve can cut rates, giving earnings a boost that has already been priced
in. Following the rate-setters’ latest get-together on July 31st, such a move
seems imminent. “A reduction...could be on the table as soon as the next
meeting in September,” said Jerome Powell, the Fed’s chairman. Even this,
though, was already seen by investors as a sure thing. Any news suggesting
it might not be, or that further cuts might not swiftly follow, would be just
the sort of catalyst to make an already wild summer wilder still.

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madness-is-here
Finance & economics | Seeking security

Gary Gensler is the most controversial man in

American finance
Donald Trump is just the latest to take a swing. In an interview with The
Economist, the SEC chair defends his record
August 1st 2024

How many Securities and Exchange Commission chairs can you name?
Even in Washington it is hard to imagine a passer-by being able to come up
with more than one. Perhaps the best known is Joe Kennedy, the SEC’s first
chairman, who took office during the Depression when Americans had lost
faith in markets and were clamouring for protection against conmen and
fraudsters. And he is most famous for fathering a president.

Yet during his time at the SEC, Gary Gensler, the current chair, has become
remarkably well-known, even notorious. So much so that on July 27th, when
Donald Trump, the Republican presidential candidate, gave a speech at a
bitcoin convention, his biggest cheer came when he announced: “On day one
I will fire Gary Gensler and appoint a new SEC chairman.” Mr Trump appeared
taken aback by the roar. “I didn’t know he was that unpopular. Wow...Let me
say it again.” He repeated: “On day one I will fire Gary Gensler.”

In reality, Mr Trump will do no such thing. Every SEC chair since the agency
was set up in 1934 has resigned when the presidency changed party,
allowing the new administration to make its own pick.

The crypto crowd is just the noisiest example of the criticism Mr Gensler
has faced during his time in office. He has also riled the likes of Ken Griffin,
boss of Citadel, a mighty hedge fund, with rule changes in the Treasury
market and ticked off bosses of private-market funds with new disclosure
rules. With his term possibly near its end, he sat down for an interview with
The Economist on July 30th.

There is no disputing that Mr Gensler has been productive. “We laid out an
agenda to propose around 50 sets of new rules,” he points out. “And we’ve
now...completed about three-quarters.” If he finishes the rest, his tally will
amount to 15% more rules than Jay Clayton, his predecessor, and more than
double the number of Mary Jo White, Mr Clayton’s predecessor.

Mr Gensler’s detractors portray this as overreach. Yet he entered office with

an urgent to-do list. His appointment in 2021 came a year after the Treasury
market, the world’s most important capital market, briefly ceased to
function; a few months after retail traders pushed up GameStop shares 15-
fold in a fortnight, forcing brokerage firms to the brink; and at the time of a
crypto frenzy. Mr Gensler has pushed through sweeping changes—not
because he is meddling, he says, but because they were required.

If there is a philosophy to his agenda it is that more transparency is better,

competition is good and regulators must keep moving because markets do.
“We’ve updated our rules, because technology rapidly changes, because
business models change. Nothing stands still in life,” he says. Mr Gensler
sees much of crypto as being securities, and therefore under his remit (the
industry vehemently disagrees). His actions against the sector have had
mixed results, with lawsuits progressing against big players like the crypto
exchanges, even as some have stalled.
It is his other actions, though, that are more consequential. Take the
stockmarket. In 2021, in part owing to growing settlement risk associated
with GameStop trading, clearinghouses, the institutions that settle equity
trades, “said to the main brokerage houses, ‘We can’t take any more buy
orders for these listed stocks like GameStop,’” recalls Mr Gensler. “The
investing public was shut out of the market. That wasn’t right.” Since May
28th, equities in America have settled “t+1”, the day after a trade occurs,
rather than “t+2”, reducing the risk of a repeat. Mr Gensler is also planning
changes to how exchanges operate, such as by allowing them to quote stock
prices in smaller increments, as marketmakers, their competitors, already do.

In the Treasury market, trades will be routed through clearinghouses by the

end of 2025, a change Mr Gensler hopes will usher in more trading between
a greater range of counterparties. Rather than trades going through a bank
and dealers, as is common now, it might be possible for hedge funds to trade
directly with asset managers. As well as functioning better in times of stress,
he thinks these changes will promote competition: “On the margin if we
save just one basis point—and I’m not making any predictions—but even if
we save one basis point, that’s quite dramatic for the US taxpayer in a $28trn
market.”

Mr Gensler is not surprised that he and the financial industry do not always
see eye to eye. “Whether you’re a diamond dealer, an auto dealer, or a stock
or bond dealer…opacity, darkness, tends to help,” he says. “Adam Smith
wrote about this in the 18th century: transparency helps markets.” This is a
lesson that his own time in industry drilled home. “I worked at Goldman
Sachs for many years. And there were a number of sayings...one was
‘opacity or darkness [is] the friend of the firm.’”

Yet this enthusiasm for transparency has led him to push boundaries. His
proposals for climate disclosure, which would be onerous, have been
challenged in the courts. Sweeping regulations for private-market funds,
which would have required quarterly statements on performance and fees,
and also restricted their ability to charge levies, have been thrown out.

Mr Gensler expresses a willingness to adapt. “If a court rules one way, I

adjust. What do you do?” But he will adapt, not relent. Rather like Lina
Khan, the chair of the Federal Trade Commission, another regulator, his
term has been defined by a dogged pursuit of a big agenda. Yet unlike Ms
Khan, he has more to show for his efforts, and has suffered fewer setbacks.
If he remains in post, Wall Street and crypto should expect more of the
same. ■

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most-controversial-man-in-american-finance
Finance & economics | Modi’s missteps

India’s economic policy will not make it rich

A new World Bank report takes aim at emerging-market growth plans
August 1st 2024

The developing world has fallen back in love with economic planning. As
protectionism sweeps the West, poor countries are no longer afraid of
industrial policy—or bold ambition. India’s government declares that
manufacturing will propel the country to high-income status by 2047.
Indonesia wants to get there by 2050, with growth driven by green
commodities. Vietnam is aiming for annual GDP growth of 7% until 2030. By
the same time, South Africa wants to have more than doubled its income per
person from 2021. Surely economies everywhere are about to accelerate.

Not so, according to a new report by the World Bank. At current growth
rates, it will take India three-quarters of a century to reach a quarter of
America’s income per person. That is one calculation in the “World
Development Report”, released on August 1st, in which the bank’s
researchers run the numbers for 108 middle-income economies, accounting
for 40% of the world’s GDP and 75% of its population. Indermit Gill, the
bank’s chief economist, Somik Lall, one of his advisers, and co-authors
argue that the fad for industrial policy, especially as practised in India and
Indonesia, is unlikely to deliver the riches of which politicians are now
dreaming.

The report starts by laying out the challenge. Since 1990 just 34 countries
have attained high-income status. Thirteen were in the Eastern bloc and
benefited from joining the EU; another handful in the Gulf and Latin America
owe their wealth to commodity booms. Income per person in the median
middle-income country has remained below a tenth of America’s since the
1970s. If India is to sustain growth of 6-8% a year, it would repeat a feat
only South Korea has managed.

Such growth, the bank’s economists reckon, is fanciful. They argue

governments would be better off seeking to maintain slower growth for
longer. Mr Gill and co-authors suggest three aims: becoming more attractive
to capital, making better use of existing technology and developing new
tech. This is hardly groundbreaking. But what is new is the suggestion of a
timeline, against which they mark the progress of middle-income countries.

Brazil, for instance, is thought to have been on the right track until it became
a lower-middle-income country in the 1970s. At that point it should have
focused on importing foreign technology and introducing state-owned
conglomerates to international markets. Instead, it taxed international
intellectual property. Local patents became more common, but the quality of
innovation declined. Bulgaria, meanwhile, managed to integrate existing
technology into domestic production, but its own research and development
remains weak.

The authors criticise countries that hope to skip stages by developing

homegrown technology, rather than rolling out stuff used elsewhere. Such an
approach risks wasting scarce resources. Researchers will be tied up with
bad products, state bureaucracy will be overwhelmed and funds will be
channelled to unproductive firms. The report points out that South Korea’s
industrial policy subsidised the adoption of foreign tech, rather than
incentivising the production of knowledge at the frontier of human thought.
Any country that tries the latter path, the authors warn, will struggle to reach
the frontier.

Mr Modi’s “Make in India” strategy hopes to attract foreign firms to

manufacture everything from phones to electric vehicles. That is better than
plans in other developing countries. Malaysia offers subsidies to fledgling
firms willing to try their hand at cloud computing. Indonesia shaves off
some of the cost of an electric vehicle, but only if enough of its components
are domestically designed. But there is a risk that India goes the same way.
Other prongs of the country’s industrial policy seek to advance domestic
technology, including in chips and defence. Since 2020 the state has banned
the import of 509 common defence components as part of a bid to pump up
local arms exporters. The country has nevertheless dropped out of the top 25
defence exporters.

India’s management practices also come under fire. Although the World
Bank usually sticks to conventional macroeconomics, the report’s authors
employ a somewhat Schumpeterian framework, holding out the possibility
that incumbent firms can be efficient, but only if they are surrounded by new
entrants to keep them on their toes. India’s state prevents this at both ends of
the spectrum. Small Reservation Laws ensure a portion of handouts go to
firms too small to be efficient. Meanwhile, cronyism and poor competition
policy foster unproductive giants. A firm in America that reaches its 40th
birthday will typically have increased in size seven-fold. In India, it will
only have doubled in size.

Not all of the World Bank’s prescriptions stand up to scrutiny. Improving

education is a worthwhile aim, if ferociously hard. Keeping populism at bay,
also on the list, is another nice but tricky proposal. The report’s fondness for
South Korean industrial policy goes overboard. Yet it is surely right that
much of the country’s prosperity came from stonking private investment and
openness to foreign tech. Mr Modi has been unable to get investment roaring
in the sectors in which he wants India to produce its own breakthroughs. The
risk is that, in making a premature push, the country will in time find it
harder to develop industries that rival America’s. Luckily, all is not lost. By
the World Bank’s calculations, policymakers have at least three-quarters of a
century to get things right. ■
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will-not-make-it-rich
Finance & economics | Keeping the flame alive

China’s last boomtowns show rapid growth is still

possible
All it takes is for the state to work with the market
July 30th 2024

China’s economic miracle emerged from dozens of industrial entrepots.

Dongguan, famous for producing furniture and toys, as well as its many
brothels, witnessed GDP growth of 21% in 2004. Hohhot, a town on the edge of
the Mongolian steppe, posted growth of 18% in 2006 as it scarred its
mineral-rich terrain with mines. Shanghai, the country’s commercial hub,
achieved 15% growth the next year as it churned out everything from
machinery and textiles to cargo ships and steel, minting millionaires in the
process.

These towns have since slowed along with the rest of the country. Shanghai,
which now has an economy seven and a half times larger than 20 years ago,
saw its GDP grow by just 5% last year. Yet there remain places where growth, if
not quite miraculous, is still mightily impressive, running at 8-10% a year.
Most are small “county level” cities, home to something between a couple of
hundred thousand and a couple of million people, and administered by
bigger nearby conurbations. China’s last boomtowns are of great importance
to Xi Jinping, the country’s supreme leader, as he searches for ways to
rejuvenate the economy, which in the second quarter of the year grew at a
rate of just 4.7% year-on-year, down from 14.2% in 2007.

The third plenum of the Communist Party, a highly anticipated meeting that
ended on July 18th, underlined the importance of “high-quality
development”, a goal that includes upgrading basic manufacturing to higher-
value industries. The get-together also identified urbanisation and support
for the private sector as crucial. For a sense of what this might mean in
practice, consider Yueqing, an eastern coastal municipality of 1.3m that last
year still grew comfortably above 8%.

In 2023 the town’s GDP came to 166bn yuan ($24bn), around the same in real
terms as that of Dongguan in 2004. Visitors will take in Yueqing’s many
churches and temples, nestled among steep mountains, before they notice the
factories. Its industrial district is a collection of thousands of tiny plants
producing the smallest electrical appliances, such as circuit breakers,
switches and fuses. The town has been one of the world’s main producers of
low-voltage, low-value components since small underground operations
emerged in the late 1970s, following Mao Zedong’s death.

How has Yueqing kept up a near-miraculous pace? Its entrepreneurial past

helps. So does access to Wenzhou, a port to the south. But government
policy—in the form of an intense upgrade plan—also plays a part. Officials
have helped factories shift from basic widgets to valuable electronics.
Yueqing has, for instance, become a leader in bonding wires, which connect
parts in semiconductors. Policymakers encouraged Jiabo Technology, a local
firm, to work with a nearby university; together they overtook the foreign
outfits that had led the field. All told, 960 local firms are now considered to
be “high tech” by officials, meaning they produce high-value goods.
Fourteen are listed on a stock exchange, a rarity for a town of Yueqing’s
size.
Last year Yueqing became the first county-city in China to be referred to as a
“national advanced manufacturing cluster”. The title normally goes to larger
cities that have built networks of enterprises in industries critical to Mr Xi’s
idea of high-quality development. Its award is perhaps a sign that advanced
manufacturing will, in time, spread from the hubs of Shanghai and Shenzhen
to smaller towns. Diffusion would help with another problem facing
provincial China: the loss of people. Between 2010 and 2020, 1,240 counties
and county-cities out of 1,866 saw their populations shrink, many by more
than 20%, as people went to bigger cities in search of work. By contrast,
Yueqing’s population has grown. That in turn has helped it dodge the worst
of China’s property crisis.

Cities hoping to follow Yueqing’s path will face obstacles, however. Some
local factory bosses sneer when the state is given credit for its success. After
all, a distinguishing feature of the town, and others in Zhejiang province, is
that firms are fiercely private, owing to their underground history. Few state-
owned enterprises exist in the area and locals pride themselves on being
independent-minded. Many bosses are Christian, despite official distaste for
the religion. A young leader at an electric-switch factory says that
entrepreneurs even avoid borrowing from banks, preferring to use informal
lending networks that allocate credit much more efficiently.

Where public policy has played a part, it has often complemented the
strengths of private businesses. One measure hands out land to companies
based on tax contributions and emissions. Local banks have been allowed to
experiment with lending according to company performance, with low-
interest, zero-collateral loans made available for leading firms. Many
officials in the region have connections to industry, either as former business
owners or as members of families that own small companies, says one boss.
They tend not to intervene unless invited: the local government’s role is to
muster resources and foster connections, much like a consultancy.

If this sounds different from the rest of China, that is because it is. Mr Xi’s
time in power has featured a forceful demotion in the status of private
business, which has been bruising for the country’s most powerful tech
entrepreneurs. Trust between businessmen and apparatchiks is low. The third
plenum’s report noted that the Communist Party must do more to assist the
private sector. Perhaps, as Yueqing demonstrates, the best way it can assist
China’s firms is by doing less. ■

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show-rapid-growth-is-still-possible
Finance & economics | Free exchange

EU handouts have long been wasteful. Now they

must be fixed
New research highlights their failures
August 1st 2024

Budget talks in the European Union are a game of 27-dimensional chess.

Members play simultaneously against one another, negotiating over many
spending items at any one time. Countries are already preparing for the
contest that starts next year, which is likely to be particularly dramatic. The
world around the EU has shifted, owing to the war in Ukraine, the continent’s
increasingly difficult relationship with China and the growing urgency of
climate change. That necessitates what Mario Draghi, a former president of
the European Central Bank and prime minister of Italy, has called “radical
change”. Yet the bloc’s biggest contributors, including Germany and the
Netherlands, will be reluctant to stump up more cash. New outgoings for
climate change and defence will have to be funded by cuts elsewhere.
Where will the money come from? The EU’s two biggest pots are set aside for
agricultural subsidies and regional redistribution. The first received €380bn
($410bn) over the last seven-year cycle, or a third of the EU’s regular budget.
The redistribution pot got €390bn. Both are seen as foundational to the
European project. Agricultural pay-outs are meant to support the continent’s
rural economy, compensating farmers for its relative openness to trade,
without which they could charge higher prices. Regional-development funds
are intended to complement the EU’s single market, which benefits regions
with successful clusters of firms. The desire, as Jacques Delors, a former
president of the European Commission, once put it, is “a Europe built on
competition that stimulates, co-operation that strengthens and solidarity that
unites”.

The time has come to rethink such ideas. At first glance, it may seem harsh
to change policies that benefit Europe’s farmers and poor. Yet appearances
can be deceiving. In reality, the true beneficiaries of the EU’s largesse are
rather less deserving.

Start with agricultural subsidies. Economists have long understood that

handouts to farmers end up with landowners. As this newspaper wrote in
1843 regarding the protectionist Corn Laws: “While they are highly
injurious to the manufacturing and commercial classes, [they also do not]
benefit the farmers nor the agricultural labourers...The only class that can
derive benefit from them (if they can benefit any one) is the landed
proprietors.” This is because land is a crucial input for agricultural
production and, unlike fertiliser or tractors, more of it cannot easily be
produced. If agriculture becomes more profitable because of subsidies,
farmers will therefore respond by bidding up land’s price.

A recent paper by Edoardo Baldoni and Pavel Ciaian of the Joint Research
Centre, part of the European Commission, puts some numbers on this. The
authors find that more than a fifth of European agricultural subsidies end up
with landowners. The figure would be higher still if European land markets
were more competitive. In areas with few large farms, owners of small plots
struggle to find alternative tenants, lowering rental rates. Farmers often also
collude to ensure that land rates stay low: it is poor form to pay more to kick
your neighbour off his land. Nevertheless, takings by landowners may rise in
years to come, even if their share of handouts does not. That is because the
value of land is likely to increase owing to new green handouts. In the 2000s
Germany subsidised electricity from biogas. Later research found that
landowners in areas with lots of cattle were able to increase the rental price
of land by €60-140 a hectare. Some of today’s support for solar energy may
end up in landowners’ pockets, too.

It is a similar story with regional-development funds. The idea behind them

is straightforward. Funnelling cash to poorer parts of the EU, for
infrastructure, innovation and the like, should help their economies develop
and thus help reduce inequality. Yet a new paper points out this is not what
happens. Valentin Lang of the University of Mannheim, Nils Redeker of the
Delors Centre Berlin, a think-tank, and Daniel Bischof of the University of
Münster find that regions, as defined by the EU’s scheme, are too large and
diverse to sensibly guide funding. The authors combine household-survey
data from various European countries, covering the period from 1989 to
2017, and find that inequality within EU regions is much more significant than
divisions between EU regions. Funds would be better spent if they targeted
poorer places and households within these regions.

More damning still, the EU’s regional policies provide greater benefits to rich
households in poor regions than to their least well-off peers. To isolate the
policies’ effects, the researchers compare regions that just met the eligibility
threshold with those that narrowly missed out. They also look at EU
enlargement, which suddenly lowered the EU’s average GDP per person—against
which poorer, deserving regions are measured. Like other studies, they find
that the funding does boost regional growth. But drilling down into the
household survey, they also find that spending does very little for poorer
households within a region, even as richer households make hay. Indeed,
people in the top 40% of the income distribution see annual incomes grow
two to four percentage points faster. The reason for this, Messrs Lang,
Redeker and Bischof discover, is that handouts tend to support higher-skilled
jobs, since they end up funding projects involving larger, more technical
firms. By helping the rich in poorer regions, convergence funds end up
making within-region inequality worse.

French defence
Any attempt to mess with agricultural or regional handouts will meet howls
of indignation and possibly worse: farmer protests involving spilled milk or
dumped manure. Both schemes have numerous beneficiaries. They are also
seen to capture something of the essence of the EU. But the world is changing.
And so must the bloc. It is time for a bold gambit. ■

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been-wasteful-now-they-must-be-fixed
Schools brief
The race is on to control the global supply chain for AI chips
Schools brief | Artificial intelligence

The race is on to control the global supply chain

for AI chips
The focus is no longer just on faster chips, but on more chips clustered
together
July 30th 2024

In 1958 JACK KILBY at Texas Instruments engineered a silicon chip with a single
transistor. By 1965 Fairchild Semiconductor had learned how to make a
piece of silicon with 50 of the things. As Gordon Moore, one of Fairchild’s
founders, observed that year, the number of transistors that could fit on a
piece of silicon was doubling on a more or less annual basis.

In 2023 Apple released the iPhone 15 Pro, powered by the A17 bionic chip,
with 19bn transistors. The density of transistors has doubled 34 times over
56 years. That exponential progress, loosely referred to as Moore’s law, has
been one of the engines of the computing revolution. As transistors became
smaller they got cheaper (more on a chip) and faster, allowing all the hand-
held supercomputing wonders of today. But the sheer number of numbers
that AI programs need to crunch has been stretching Moore’s law to its limits.

The neural networks found in almost all modern AI need to be trained in order
to ascertain the right “weights” to give their billions, sometimes trillions, of
internal connections. These weights are stored in the form of matrices, and
training the model involves manipulating those matrices, using maths. Two
matrices—sets of numbers arrayed in rows and columns—are used to
generate a third such set; each number in that third set is produced by
multiplying together all the numbers in a row in the first set with all those in
a column of the second and then adding them all up. When the matrices are
large, with thousands or tens of thousands of rows and columns, and need to
be multiplied again and again as training goes on, the number of times
individual numbers have to be multiplied and added together becomes huge.

In this series on artificial intelligence

1. The story so far

2. Running out of data
3. Controlling the chip supply*
The training of neural nets, though, is not the only objective that requires
lightning-fast matrix multiplication. So does the production of high-quality
video images that make computer games fun to play: and 25 years ago that
was a far larger market. To serve it Nvidia, a chipmaker, pioneered the
design of a new sort of chip, the graphics-processing unit (GPU), on which
transistors were laid out and connected in a way that let them do lots of
matrix multiplications at once. When applied to AI, this was not their only
advantage over the central processing units (CPUs) used for most applications:
they allowed larger batches of training data to be used. They also ate up a lot
less energy.

s remain 10-100 times more cost-efficient and up to 1,000 times faster

GPU

than CPUs

Training AlexNet, the model which ushered in the age of “deep learning” in
2012, meant assigning weights to 60m internal connections. That required
4.7 x 1017 floating-point operations (FLOP); each FLOP is broadly equivalent to
adding or multiplying two numbers. Until then, that much computation
would have been out of the question. Even in 2012, using the best CPUs would
not just have required a lot more time and energy but also simplifying the
design. The system that trained AlexNet did all its phenomenal FLOPping with
just two GPUs.

A recent report from Georgetown University’s Centre for Emerging

Technology says GPUs remain 10-100 times more cost-efficient and up to
1,000 times faster than CPUs when used for training models. Their availability
was what made the deep-learning boom possible. Large language models
(LLMs), though, have pushed the demand for calculation even further.

Transformers are go
In 2018 Alec Radford, a researcher at OpenAI, developed a generative pre-
trained transformer, or GPT, using the “transformer” approach described by
researchers at Google the year before. He and his colleagues found the
model’s ability to predict the next word in a sentence could reliably be
improved by adding training data or computing power. Getting better at
predicting the next word in a sentence is no guarantee a model will get better
at real-world tasks. But so far the trend embodied in those “scaling laws” has
held up.

As a result LLMs have grown larger. Epoch AI, a research outfit, estimates that
training GPT-4 in 2022 required 2 x 1025 FLOP, 40m times as many as were used
for AlexNet a decade earlier, and cost about $100m. Gemini-Ultra, Google’s
most powerful model, released in 2024, is reported to have cost twice as
much; Epoch AI reckons it may have required 5 x 1025 FLOP. These totals are
incomprehensibly big, comparable to all the stars in all the galaxies of the
observable universe, or the drops of water in the Pacific Ocean.

In the past the solution to excessive needs for computation has been a
modicum of patience. Wait a few years and Moore’s law will provide by
putting even more, even faster transistors onto every chip. But Moore’s law
has run out of steam. With individual transistors now just tens of nanometres
(billions of a metre) wide, it is harder to provide regular jumps in
performance. Chipmakers are still working to make transistors smaller, and
are even stacking them up vertically to squeeze more of them onto chips.
But the era in which performance increased steadily, while power
consumption fell, is over.

As Moore’s law has slowed down and the desire to build ever-bigger models
has taken off, the answer has been not faster chips but simply more chips.
Insiders suggest GPT-4 was trained on 25,000 of Nvidia’s A100 GPUs, clustered
together to reduce the loss of time and energy that occurs when moving data
between chips.

Much of the $200bn that Alphabet, Amazon, Meta and Microsoft plan to
invest in 2024 will go on AI-related stuff, up 45% from last year; much of that
will be spent on such clusters. Microsoft and OpenAI are reportedly planning
a $100bn cluster in Wisconsin called Stargate. Some in Silicon Valley talk of
a $1trn cluster within the decade. Such infrastructure needs a lot of energy.
In March Amazon bought a data centre next door to a nuclear power plant
that can supply it with a gigawatt of power.
The investment does not all go on GPUs and the power they draw. Once a
model is trained, it has to be used. Putting a query to an AI system typically
requires roughly the square root of the amount of computing used to train it.
But that can still be a lot of calculation. For GPT-3, which required 3 x 1023 FLOP
to train, a typical “inference” can take 3 x 1011 FLOP. Chips known as FPGAs and
ASICs, tailored for inference, can help make running AI models more efficient

than using GPUs.

Nevertheless, it is Nvidia that has done best out of the boom. The company
is now worth $2.8trn, eight times more than when ChatGPT was launched in
2022. Its dominant position does not only rest on its accumulated know-how
in GPU-making and its ability to mobilise lots of capital (Jensen Huang, its
boss, says Nvidia’s latest chips, called Blackwell, cost $10bn to develop).
The company also benefits from owning the software framework used to
program its chips, called CUDA, which is something like the industry standard.
And it has a dominant position in the networking equipment used to tie the
chips together.

Supersize me
Competitors claim to see some weaknesses. Rodrigo Liang of SambaNova
Systems, another chip firm, says that Nvidia’s postage-stamp-size chips have
several disadvantages which can be traced back to their original uses in
gaming. A particularly big one is their limited capacity for moving data on
and off (as an entire model will not fit on one GPU).

Cerebras, another competitor, markets a “wafer scale” processor that is

21.5cm across. Where GPUs now contain tens of thousands of separate “cores”
running calculations at the same time, this behemoth has almost a million.
Among the advantages the company claims is that, calculation-for-
calculation, it uses only half as much energy as Nvidia’s best chip. Google
has devised its own easily customised “tensor-processing unit” (TPU) which
can be used for both training and inference. Its Gemini 1.5 AI model is able to
ingest eight times as much data at a time as GPT-4, partly because of that
bespoke silicon.
The huge and growing value of cutting-edge GPUs has been seized on for
geopolitical leverage. Though the chip industry is global, a small number of
significant choke-points control access to its AI-enabling heights. Nvidia’s
chips are designed in America. The world’s most advanced lithography
machines, which etch designs into silicon through which electrons flow, are
all made by ASML, a Dutch firm worth $350bn. Only leading-edge foundries
like Taiwan’s TSMC, a firm worth around $800bn, and America’s Intel have
access to this tool. And for many other smaller items of equipment the
pattern continues, with Japan being the other main country in the mix.

These choke-points have made it possible for the American government to

enact harsh and effective controls on the export of advanced chips to China.
As a result the Chinese are investing hundreds of billions of dollars to create
their own chip supply chain. Most analysts believe China is still years
behind in this quest, but because of big investments by companies such as
Huawei, it has coped with export controls much better than America
expected.

America is investing, too. TSMC, seen as a potential prize or casualty if China

decided to invade Taiwan, is spending about $65bn on fabs in Arizona, with
about $6.6bn in subsidies. Other countries, from India ($10bn) to Germany
($16bn) to Japan ($26bn) are increasing their own investments. The days in
which acquiring AI chips has been one of AI’s biggest limiting factors may be
numbered. ■
This article was downloaded by zlibrary from https://www.economist.com/schools-brief/2024/07/30/the-race-is-on-to-control-the-
global-supply-chain-for-ai-chips
Science & technology
Gene-editing drugs are moving from lab to clinic at lightning speed
How America built an AI tool to predict Taliban attacks
GPT, Claude, Llama? How to tell which AI model is best
Science & technology | A hop, snip and a jump

Gene-editing drugs are moving from lab to clinic

at lightning speed
The promising treatments still face technical and economic hurdles,
though
July 31st 2024

One autumn day in 2020 Patrick Doherty was walking his dog up a steep
mountain in County Donegal, Ireland, when he noticed he was, unusually for
him, running out of breath. The eventual diagnosis was terrifying:
amyloidosis, a rare genetic disease that caused a protein, amyloid, to build
up in his organs and tissues. The prognosis was even worse: it would cause
him years of pain until it finally killed him. In the face of such terrible
fortune, though, Mr Doherty had a stroke of luck. He was able to join a trial
of a new medical therapy and, with just a single injection, was apparently
cured. Now, he continues to walk his dog up that steep mountain in County
Donegal every week.
The treatment edited Mr Doherty’s genes using CRISPR-Cas9, a technology that
has moved from lab to clinic at lightning speed. Scientists have already used
gene editing to improve the vision of people with an inherited condition that
causes blindness. They also appear able to cure sickle-cell disease with it,
and to restore hearing in deaf mice. This new class of medicines will gather
pace in the coming year, tackling cardiovascular disease and cancer. A new
generation of more precise and efficient gene-editing tools is also
undergoing trials.

Cut and run

Cas9 acts like a pair of molecular scissors that cuts DNA at a precise
CRISPR-

location. A piece of RNA (a single-stranded version of DNA) attached to the

medicine guides the cutting enzyme, Cas9. Once DNA is cut, the cell’s natural
repair mechanisms swing into action. Gene-editing medicines commandeer
those natural cellular systems and end up replacing an existing (problematic)
segment of code with a new (corrected) sequence.

The speed of innovation has been impressive. CRISPR-Cas9 was discovered in

the lab in 2012 and just three years later eGenesis, a biotech firm in
Cambridge, Massachusetts, had used it to edit pig embryos to create organs
more suitable for transplantation into humans. By 2016 a CRISPR-Cas9 therapy
was approved for testing in patients with cancer, albeit on immune cells that
had been removed from the body, edited to help these cells fight the cancer
better, and then returned.

The following year, Vertex and Crispr Therapeutics, pharmaceutical

companies based in Boston, Massachusetts, and Zug, Switzerland, said they
would co-develop a treatment named CTX001, a treatment for two disorders:
sickle-cell disease and beta thalassemia. Both are caused by genetic faults in
the instructions for making haemoglobin, a protein that helps red blood cells
carry oxygen.

001, known today as Casgevy (exagamglogene autotemcel), arrived on the

CTX

market in November 2023, priced at $2.2m for a one-time treatment. It

involves collecting blood stem cells from a patient, editing a gene within
them to restart the production of a type of haemoglobin that is usually
produced only when a baby is in the womb, and re-injecting those stem
cells. The patient is then capable of creating enough healthy red blood cells
to treat the symptoms of their blood disorders.

As good as it is, CRISPR-Cas9 has limitations. The RNA guide molecule can
sometimes be imprecise, leading to unintended cuts to a patient’s DNA.
Moreover, because the tool breaks both strands in a DNA helix, the subsequent
repair can also introduce unwanted insertions or deletions. Damage to
genetic information like this could eventually lead to cancer or disrupt
cellular function in other ways.

Updates to the technology are thus in the works. CRISPR-Cas9 nickases, for
example, are enzymes that cut only one strand of the DNA double helix. To
make genetic changes, nickases therefore need to be used in pairs, meaning
less risk of off-target effects. It is unlikely that both nickases in an edit
would bind incorrectly to the same section of DNA. Another method, “base
editing”, can chemically change a single letter of a DNA’s sequence into
another without the need for cuts.

Some of these techniques are already in the clinic. In 2022 a patient with
familial hypercholesterolaemia was given an infusion of a base-editing
treatment as part of a trial. The disorder, which affects one in 250 people,
results in reduced clearance of bad cholesterol from the blood. The
treatment, VERVE-101, made by Verve Therapeutics, turns off the PCSK9 gene in
the liver by making a single-letter change in the DNA (from A to G).

Beam Therapeutics, based in Cambridge, Massachusetts, is using base

editing to make therapies for a range of conditions. These include making
four DNA-letter changes to immune cells so that they are better able to attack
leukaemia, as well as a product that works for the same diseases as Casgevy.
The company reckons its base-editing drug will work better than CRISPR-Cas9
and deliver higher levels of haemoglobin. Data from early trials of base-
editing technology in patients are expected in the second half of this year.

At the clinical frontier is “prime editing”, which uses a Cas9 nickase along
with a specially designed RNA guide that not only locates the correct region of
DNA, but also carries a template of the desired change. Also attached to the CRISPR

protein is an enzyme called reverse transcriptase. This reads the RNA template
and synthesises the correct DNA sequence at the location of the nicked site,
giving a precisely edited gene.

In April David Liu, a molecular biologist at Harvard University, posted on X

that the first trial to use prime editing in a patient had been approved only
four and a half years after his lab had published the first paper on the
technology. Prime Medicine, a biotech firm in Cambridge, Massachusetts,
has already begun clinical trials of its drug PM359 for the treatment of chronic
granulomatous disease—a life-threatening condition that affects the blood’s
ability to destroy infections.

Being able to change larger pieces of the genome, as is the case with prime
editing, makes it possible to treat diseases where errors stretch over a long
distance, like Huntington’s disease. But it could also help with the tricky
economics of treating rare diseases. Instead of making a medicine that treats
a single mutation to a gene, it would be possible to fix many types of
mutation with one correction. The flexibility of the technology means that,
in theory, prime editing could correct almost 90% of disease-causing genetic
variations.

The technological progress in gene-editing tools has not stopped. Yet

another method, known as “bridge RNA”, details of which were published in
Nature in June, uses a form of guide RNA that recognises two stretches of DNA—
the target site and the new gene that is to be inserted. This new technique
allows large stretches of DNA to be added, removed or inverted.

All these new technologies face technical and safety hurdles in the years
ahead. A big question is how to deliver therapies to the right place in the
body. Blood cells, cancers, the retina and the liver are all easy to reach and
edit. The brain and lungs are more difficult. One solution to the delivery
problem, proposed by Aera Therapeutics of Cambridge, Massachusetts, is a
capsid, a nanoparticle with a protein shell. Based on human proteins, these
nanoparticles could be targeted to different tissues while also not provoking
a strong response from the body’s immune system.

But perhaps the biggest challenge will be economic. So far, the new
generation of genomic medicines have been eye-wateringly expensive—a
shot of Hemgenix, a haemophilia B gene-therapy, costs $3.5m, around a
million dollars more than Casgevy. Firms believe they can charge high
prices not only because of the costs of developing and making the drugs, but
because they offer potentially lifelong benefits (although the durability of
these treatments remains to be proved).

There are reasons to think costs might come down in time. Treating diseases
that affect larger patient groups, such as heart disease, would help reduce
costs. Ultimately, many believe gene-editing tools will evolve into
“platforms”, where the core technology would remain unchanged and only
the specific instructions for changing genes would be tweaked for new
diseases. This would reduce the need for clinical trials for every new drug.
Until that happens, though, firms may be forced to drop even promising
treatments because of market conditions. Yet gene editing is moving so fast
that it seems only a question of when, not if, these new medicines will
overcome their difficulties. ■

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moving-from-lab-to-clinic-at-lightning-speed
Science & technology | I predict a riot

How America built an AI tool to predict Taliban

attacks
“Raven Sentry” was a successful experiment in open-source intelligence
July 31st 2024

In the summer of 2020 American intelligence analysts in Afghanistan got a

warning from “Raven Sentry”, an artificial-intelligence (AI) tool that they had
been operating for a few months. There was a high probability, the AI told
them, of a violent attack in Jalalabad, the capital of the eastern Nangarhar
province, at the beginning of July. It would probably cause between 20 and
40 casualties. The attack came, a little late, on August 2nd, when Islamic
State struck the city’s prison, killing some 29 people.

Raven Sentry had its origins in October 2019, when American forces in
Afghanistan were facing a conundrum. They had ever fewer resources, with
troop numbers falling, bases closing and intelligence resources being
diverted to other parts of the world. Yet violence was rising. The last quarter
of 2019 saw the highest level of Taliban attacks in a decade. To address the
problem they turned to AI.

Political violence is not random. A paper published in International

Organisation by Andrew Shaver and Alexander Bollfrass in 2023 showed,
for instance, that high temperatures were correlated with violence in both
Afghanistan and Iraq. When days went from 16°C highs to more than 38°C,
they observed, “The predicted probability of an Iraqi male expressing
support for violence against multinational forces [as measured in opinion
polls] increased by tens of percentage points.”

Raven Sentry took this further. A team of American intelligence officers,

affectionately dubbed the “nerd locker”, was placed in a special forces unit,
the culture of which is better suited to aggressive experimentation. They
began by studying “recurring patterns” in insurgent attacks going back to the
Soviet occupation of Afghanistan in the 1980s, says Colonel Thomas Spahr,
who described the experiment in a recent paper in Parameters, the journal of
the US Army War College.

Contractors based in Silicon Valley helped them train a neural network to

identify the correlations between historical data on violence and a variety of
open (ie, non-secret) sources, including weather data, social-media posts,
news reports and commercial satellite images. The resulting model identified
when district or provincial centres were at higher risk of attack, and
estimated the number of fatalities that might result.

America’s intelligence agencies and the Pentagon bureaucracy were initially

sceptical of the effort (they remain tight-lipped about it still). But the results
were striking, says Colonel Spahr, who was chief of staff to the top
intelligence official at the NATO mission in Afghanistan at the time. By October
2020 the model had achieved 70% accuracy, meaning that if it judged an
attack to be likely with the highest probability (80-90%) then an attack
subsequently occurred 70% of the time—a level of performance similar to
human analysts, he notes, “just at a much higher rate of speed”.

“I was struggling to understand why it was working so well,” says Anshu

Roy, the CEO of Rhombus Power, one of the firms involved. “Then we broke it
apart, and we realised that the signatures were evident in the towns—they
somehow knew.” Optical satellites (those that sense light) would observe
towns as a whole becoming darker at night just prior to attacks, he says.
However, areas in those towns associated with enemy activity in the past
would get brighter. Synthetic aperture radar (SAR) satellites, which send out
radar pulses rather than relying on ambient light, would pick up the metallic
reflections of heightened vehicle activity. Other satellites would detect
higher levels of carbon dioxide, says Mr Roy, though it is not clear why.

Attacks were more likely, it found, when the temperature was above 4°C,
lunar illumination was below 30% and it was not raining. “In some cases”,
notes Colonel Spahr, “modern attacks occurred in the exact locations, with
similar insurgent composition, during the same calendar period, and with
identical weapons to their 1980s Russian counterparts.” Raven Sentry was
“learning on its own”, says Colonel Spahr, “getting better and better by the
time it shut down”. That happened in August 2021 when America pulled out
of Afghanistan. By then it had yielded a number of lessons.

Human analysts did not treat its output as gospel. Instead they would use it
to cue classified systems, like spy satellites or intercepted communications,
to look at an area of concern in more detail. When new intelligence analysts
joined the team, they would be carefully taught its weaknesses and
limitations. In particular districts, says Mr Roy, the model was not very
accurate. “Not much had happened there in the past,” he says, “and no
matter how much modelling you do, if you can’t teach the model, there’s not
much you can do.”

In the three years since Raven Sentry was shut down, armed forces and
intelligence agencies have poured resources into AI for “indicators and
warnings”, the term for forewarning of attack. Many of the models have
matured relatively recently. “If we’d have had these algorithms in the run-up
to the Russian invasion of Ukraine, things would have been much easier,”
says a source in British defence intelligence. “There were things we wanted
to track that we weren’t very good at tracking at the time.” Four years ago SAR
images had a ten-metre resolution, recalls Mr Roy; now it is possible to get
images sharp enough to pick out objects smaller than a metre. A model like
Raven Sentry, trained on data from Ukraine’s active front lines, “would get
very smart very quickly”, he says.
Colonel Spahr says it is not a linear process. “Just as Iraqi insurgents learned
that burning tyres in the streets degraded US aircraft optics or as Vietnamese
guerrillas dug tunnels to avoid overhead observation, America’s adversaries
will learn to trick AI systems and corrupt data inputs,” he says. “The Taliban,
after all, prevailed against the United States and NATO’s advanced technology
in Afghanistan.” ■

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ai-tool-to-predict-taliban-attacks
Science & technology | On your marks

GPT, Claude, Llama? How to tell which AI model

is best
Beware model-makers marking their own homework
July 31st 2024

When Meta, the parent company of Facebook, announced its latest open-
source large language model (LLM) on July 23rd, it claimed that the most
powerful version of Llama 3.1 had “state-of-the-art capabilities that rival the
best closed-source models” such as GPT-4o and Claude 3.5 Sonnet. Meta’s
announcement included a table, showing the scores achieved by these and
other models on a series of popular benchmarks with names such as MMLU, GSM8K
and GPQA.

On MMLU, for example, the most powerful version of Llama 3.1 scored 88.6%,
against 88.7% for GPT-4o and 88.3% for Claude 3.5 Sonnet, rival models
made by OpenAI and Anthropic, two AI startups, respectively. Claude 3.5
Sonnet had itself been unveiled on June 20th, again with a table of
impressive benchmark scores. And on July 24th, the day after Llama 3.1’s
debut, Mistral, a French AI startup, announced Mistral Large 2, its latest LLM,
with—you’ve guessed it—yet another table of benchmarks. Where do such
numbers come from, and can they be trusted?

Having accurate, reliable benchmarks for AI models matters, and not just for
the bragging rights of the firms making them. Benchmarks “define and drive
progress”, telling model-makers where they stand and incentivising them to
improve, says Percy Liang of the Institute for Human-Centred Artificial
Intelligence at Stanford University. Benchmarks chart the field’s overall
progress and show how AI systems compare with humans at specific tasks.
They can also help users decide which model to use for a particular job and
identify promising new entrants in the space, says Clémentine Fourrier, a
specialist in evaluating LLMs at Hugging Face, a startup that provides tools for
AI developers.

But, says Dr Fourrier, benchmark scores “should be taken with a pinch of

salt”. Model-makers are, in effect, marking their own homework—and then
using the results to hype their products and talk up their company valuations.
Yet all too often, she says, their grandiose claims fail to match real-world
performance, because existing benchmarks, and the ways they are applied,
are flawed in various ways.

One problem with benchmarks such as MMLU (massive multi-task language

understanding) is that they are simply too easy for today’s models. MMLU was
created in 2020 and consists of 15,908 multiple-choice questions, each with
four possible answers, across 57 topics including maths, American history,
science and law. At the time, most language models scored little better than
25% on MMLU, which is what you would get by picking answers at random;
OpenAI’s GPT-3 did best, with a score of 43.9%. But since then, models have
improved, with the best now scoring between 88% and 90%.
This means it is difficult to draw meaningful distinctions from their scores, a
problem known as “saturation” (see chart). “It’s like grading high-school
students on middle-school tests,” says Dr Fourrier. More difficult
benchmarks have been devised—MMLU-Pro has tougher questions and ten
possible answers rather than four. GPQA is like MMLU at PhD level, on selected
science topics; today’s best models tend to score between 50% and 60% on
it. Another benchmark, MuSR (multi-step soft reasoning), tests reasoning
ability using, for example, murder-mystery scenarios. When a person reads
such a story and works out who the killer is, they are combining an
understanding of motivation with language comprehension and logical
deduction. AI models are not so good at this kind of “soft reasoning” over
multiple steps. So far, few models score better than random on MuSR.

MMLUalso highlights two other problems. One is that the answers in such tests
are sometimes wrong. A study carried out by Aryo Gema of the University
of Edinburgh and colleagues, published in June, found that, of the questions
they sampled, 57% of MMLU’s virology questions and 26% of its logical-fallacy
ones contained errors. Some had no correct answer; others had more than
one. (The researchers cleaned up the MMLU questions to create a new
benchmark, MMLU-Redux.)
Then there is a deeper issue, known as “contamination”. LLMs are trained
using data from the internet, which may include the exact questions and
answers for MMLU and other benchmarks. Intentionally or not, the models may
be cheating, in short, because they have seen the tests in advance. Indeed,
some model-makers may deliberately train a model with benchmark data to
boost its score. But the score then fails to reflect the model’s true ability.
One way to get around this problem is to create “private” benchmarks for
which the questions are kept secret, or released only in a tightly controlled
manner, to ensure that they are not used for training (GPQA does this). But then
only those with access can independently verify a model’s scores.

To complicate matters further, it turns out that small changes in the way
questions are posed to models can significantly affect their scores. In a
multiple-choice test, asking an AI model to state the answer directly, or to
reply with the letter or number corresponding to the correct answer, can
produce different results. That affects reproducibility and comparability.

Automated testing systems are now used to test models against benchmarks
in a standardised manner. Dr Liang’s team at Stanford has built one such
system, called HELM (holistic evaluation of language models), which generates
leaderboards showing how a range of models perform on various
benchmarks. Dr Fourrier’s team at Hugging Face uses another such system,
EleutherAI Harness, to generate leaderboards for open-source models. These
leaderboards are more trustworthy than the tables of results provided by
model-makers, because the benchmark scores have been generated in a
consistent way.

The greatest trick AI ever pulled

As models gain new skills, new benchmarks are being developed to assess
them. GAIA, for example, tests AI models on real-world problem-solving. (Some
of the answers are kept secret to avoid contamination.) NoCha (novel
challenge), announced in June, is a “long context” benchmark consisting of
1,001 questions about 67 recently published English-language novels. The
answers depend on having read and understood the whole book, which is
supplied to the model as part of the test. Recent novels were chosen because
they are unlikely to have been used as training data. Other benchmarks
assess models’ ability to solve biology problems or their tendency to
hallucinate.

But new benchmarks can be expensive to develop, because they often

require human experts to create a detailed set of questions and answers. One
answer is to use LLMs themselves to develop new benchmarks. Dr Liang is
doing this with a project called AutoBencher, which extracts questions and
answers from source documents and identifies the hardest ones.

Anthropic, the startup behind the Claude LLM, has started funding the creation
of benchmarks directly, with a particular emphasis on AI safety. “We are
super-undersupplied on benchmarks for safety,” says Logan Graham, a
researcher at Anthropic. “We are in a dark forest of not knowing what the
models are capable of.” On July 1st the company began inviting proposals
for new benchmarks, and tools for generating them, which it will co-fund,
with a view to making them available to all. This might involve developing
ways to assess a model’s ability to develop cyber-attack tools, say, or its
willingness to provide advice on making chemical or biological weapons.
These benchmarks can then be used to assess the safety of a model before
public release.

Historically, says Dr Graham, AI benchmarks have been devised by

academics. But as AI is commercialised and deployed in a range of fields,
there is a growing need for reliable and specific benchmarks. Startups that
specialise in providing AI benchmarks are starting to appear, he notes. “Our
goal is to pump-prime the market,” he says, to give researchers, regulators
and academics the tools they need to assess the capabilities of AI models,
good and bad. The days of AI labs marking their own homework could soon
be over. ■

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to-tell-which-ai-model-is-best
Culture
How long would it take to read the greatest books of all time?
A moving memoir probes the contradictions of modern China
The Paris Olympics are breaking’s one shot to become a global sport
A primer on RNA, perhaps the most consequential molecule of all
Tinned fish is swimming against the tide
Few writers have seen America more clearly than James Baldwin
Culture | Spine-tingling

How long would it take to read the greatest books

of all time?
The Economist consulted bibliophile data scientists to get an answer
July 26th 2024

“A PRECONDITION FOR reading good books is not reading bad ones: for life is short,”
wrote Arthur Schopenhauer in 1851. People are living longer than they did
in the German philosopher’s day, but the number of books has increased by
a much bigger factor. His dictum ought to carry even more weight now than
it did then.

In issuing it, the famously pessimistic thinker was uncharacteristically

optimistic. He thought that readers could reliably discern which books
deserved their time and which did not. That faith has waned. The idea of a
literary canon has come under attack. Some readers would prise it open to
admit more works by women and non-white authors; others would ditch the
concept entirely. In the 21st century critics have lost cultural clout and the
number of newspapers with book-review sections has dwindled. These days,
it seems, everyone has their own personal canon.

And yet the need for winnowing persists, so much so that book
recommendations seem to be almost as popular as the books they suggest.
Influencers on BookTok—a literary corner of TikTok, a video app—have
replaced the credentialled judges of yore. Thousands of reviewers contribute
to Goodreads, a website with tens of millions of members. Rebind, an app
that is now in a test version, will let readers of classic books use artificial
intelligence to question experts about the texts. The Economist regularly
publishes book reviews and recommendations on specific subjects as well as
periodical best-book lists.

Still, the number of texts that people are told they should read seems
overwhelming. One way to manage the deluge is to see where best-book
lists overlap, on the theory that the books that appear most often must be
really worth your while. That is what a website called thegreatestbooks.org
has done. Shane Sherman, a computer programmer in Texas, has used more
than 300 lists to come up with a list of lists, which he calls, not entirely
seriously, the “greatest books of all time” (GBOATs).

Mr Sherman’s data set includes more than 10,000 books, ranked by how
often they appear on the constituent lists. Using our interactive graphic, you
can search the top 500 and sort them by decade or century of publication,
year of publication, language and length.

Americans who read at least one book a year—just over half of adults—get
through 11 a year on average; a typical reader would therefore need over 45
years to finish this list of 500 must-reads. To help readers spend their time
judiciously, we have included roughly how long it would take to read each
book using estimates provided by Harry Tong, the co-founder of
howlongtoread.com, a search engine. People read at different speeds and
some books are slower going than others. The data say you should be able to
polish off James Joyce’s “Finnegans Wake”, ranked 325th, in 12 hours. It
took one book club 28 years.
The top book on this list of lists on July 1st was “One Hundred Years of
Solitude”, a pioneering work of magical realism by Gabriel García Márquez
published in 1967. Mr Tong estimates that it takes only seven hours and 40
minutes of solitude to read—about average for a GBOAT. “The Great Gatsby”, a
slim jazz-age tale by F. Scott Fitzgerald, ranked second, takes a mere two
hours and 51 minutes.
But number three, “Ulysses”, also by Joyce, demands a commitment of
nearly 15 hours. If you spend 15 minutes a day reading, as the average
American does, that will take you two months, which seems like a cheeky
demand for a book whose action takes place on a single day. Impatient
readers may be relieved to know that there is no correlation between length
and greatness.

By its nature, a list of lists reflects a cultural consensus. That makes the
position of some titles all the more surprising. The highest-ranked book that
is not a novel is Dante Alighieri’s “Divine Comedy”, a 14th-century poem
about the author’s journey from hell, through purgatory, to paradise. It
appears at number 27. The Bible, by “Unknown”, is the 34th GBOAT. “Hamlet”,
the first of Shakespeare’s six entries, comes in at number 83.

Redeem one’s shelf

The Bible aside, the first non-fiction book to appear, at number 60, is “The
Diary of a Young Girl” by Anne Frank, who wrote while hiding from the
Nazis in Amsterdam. (She was later murdered at Bergen-Belsen, a
concentration camp, in 1945.) Yet popularity can pull rank on profundity.
“Harry Potter and the Philosopher’s Stone” is the 134th GBOAT, eight places
higher than “The Republic” by Plato.

Most GBOATs were originally written in English and since the start of the 20th
century. And the literary compass points almost due West. After “One
Hundred Years of Solitude” (set in a country that resembles Colombia, the
birthplace of its author), nothing else both set in and by an author based in
the global south appears until “Things Fall Apart”, a historical novel set in
Nigeria, at number 50.

Mr Sherman’s statistical analysis also involves some old-fashioned

gatekeeping, as he varies the weighting of the lists in his database. (He
updates both the weightings and the rankings as new lists appear.) His
adjustments seem sensible. He subtracts points from lists that use books only
published over short time periods, for example, or that focus on tomes from
one region. Alongside the GBOATs Mr Sherman has devised a “global literary
canon”, which limits each country to three books and imaginative literature
to 80% of entries.

Yet readers hungry for self-improvement as well as entertainment may yearn

for the bracing smack of 19th-century-style prescriptiveness, the sort you
would have got from Sir John Lubbock’s “One Hundred Best Books”, a
version of which was published in 1887. Homer, Virgil and St Augustine
appear on Lubbock’s list. (They’re all GBOAT authors, too.) The spirit of
Lubbock, described as the “godfather” of best-books lists, lives on in the
syllabuses of great-books courses at some universities.

For Schopenhauer, shunning whatever is popular was an important part of

reading wisely: “You should remember that he who writes for fools always
finds a large public.” That is probably too dogmatic for the BookTok
generation. But the more tempered advice of C.S. Lewis, a scholar of
literature and author of “The Chronicles of Narnia” series for children, is
worth heeding: “It is a good rule, after reading a new book, never to allow
yourself another new one till you have read an old one in between.” If
you’re reading mainly GBOATs, the odds are it will be time well spent. ■

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Culture | The empire strikes back

A moving memoir probes the contradictions of

modern China
Edward Wong narrates his father’s journey from servant of the party to
escapee
August 1st 2024

At the Edge of Empire. By Edward Wong. Viking; 464 pages; $32. Profile;
£25

MANY OF THE too many books published about China focus on the economic,
political and military details of the country’s rise. In an absorbing new
memoir, Edward Wong takes a different tack. He explores the country
through a triple prism of history, geography and ancestry.

Mr Wong’s father, Yook Kearn, and his uncle, Sam, were born in Hong
Kong before the second world war, and spent part of their childhood in
southern China. After Sam left for graduate school in America in 1948,
Yook Kearn moved to Beijing in 1950 to serve the revolution. Party leaders
were in the process of putting back together the empire of the Qing dynasty,
which had collapsed in 1911. Yook Kearn was posted as a soldier to
Xinjiang, in the north-west.

The book chronicles the shattering of his idealism as Mao Zedong purged
the heroes of the revolution, and starvation set in during the Great Leap
Forward. For all the party leaders’ language of transformation, they were, he
discovered, just “heirs to the imperium”. Yook Kearn fled first to Hong
Kong, then to America in 1962. The author was born there a decade later.

When Mr Wong moved to China in 2008 as a correspondent for the New

York Times, he dug into his family history. He visited his father’s village and
felt the pull of Confucian family ties that bind within China and beyond. He
also sensed how they hinder the individualism that has allowed his relatives
to flourish in the West.

He travelled to “the fraying seams of the empire” to which his father was
posted. In Xinjiang, Tibet and Hong Kong, he saw how different cultural,
religious and colonial histories create resentment towards Beijing, bringing
crackdowns in their wake. “Beijing defined itself through its command of
the frontiers,” Mr Wong writes.

The stories are beautifully told and expose the contradictions of modern
China. The empire of the title is ever-present; so is the catharsis of the
book’s subtitle: “A family’s reckoning with China”. Yook Kearn and Sam
want their homeland to succeed, and they can see it becoming wealthy and
strong. But always, in the back of their minds, is the struggle with the forces
that caused them to leave in the first place. Emigration provided space for
that reckoning. For those unable to leave, it is harder. The empire usually
wins. ■

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Culture | Finding the beat

The Paris Olympics are breaking’s one shot to

become a global sport
But its inclusion was not without controversy
July 29th 2024

“WE SEE BREAKdancing as a future Olympic sport and ourselves as

pioneers in making this dream a reality.” So proclaimed the New York City
Breakers, a dance group, in 1984. Forty years later, on August 9th and 10th,
32 breakers—known also as B-boys and B-girls—will grace the stage in the
Place de la Concorde in Paris.

Breaking has broken into the Olympics; it is the only new event at this
year’s games. (The term “breakdancing” was coined by journalists and is not
used by adherents.) Yet despite its physicality and emphasis on dance
“battles”, breaking has tended to wear the label of “sport” uneasily.
Practitioners are generally more interested in gold chains than gold medals.
Indeed breakers never seriously sought a place at the games. They will
compete thanks to the World DanceSport Federation (WDSF), the body
recognised by the International Olympic Committee (IOC) to oversee dance. In
the past the WDSF focused its efforts on getting ballroom dancing into the
Olympics and in 2014 hired Jean-Laurent Bourquin, a former IOC official, as a
consultant, in part to further its ambitions. Mr Bourquin says he suggested
the WDSF deliver what the Olympics were seeking: an event that would appeal
to young viewers. (The WDSF declined to comment on Mr Bourquin’s account,
citing confidentiality agreements.)

Television viewership of the games has been on the wane for years: a trend
the IOC is keen to reverse, as it makes around 60% of its revenue from
broadcast rights. In recent years the games have tried to attract new
audiences with extreme sports such as climbing and skateboarding; last year
it even formed a commission to consider e-sports. Breaking offers the
benefit of being both visually impressive and easy to follow. It was included
in the Youth Olympic Games in Buenos Aires in 2018, where it was a
popular success.

Many breakers have been unenthusiastic about the Olympics. Some dancers
have taken umbrage with the judging criteria. Others have worried that
breaking culture will be misrepresented in the tournament. The dance
emerged in black and Latino communities in the Bronx in the 1970s, but
quickly spread internationally thanks to films such as “Breakin’” (1984).
The brief boom in “breaksploitation” movies made dancers wary of
appropriation by outsiders and too much mainstream attention, says Joseph
Schloss, a historian and B-boy.

A few have been critical of what they see as a ballroom-dance organisation

pushing into breaking. In a petition from 2017 breakers accused the WDSF of
trying “to exploit breaking as a Trojan horse to get its foot in the door of the
Olympics”.

But plenty of breakers have recognised the upsides of the Olympics. Asian
and European athletes have often had state or local-government support, but
American breakers have had to rely on rare corporate allies such as Red
Bull, an energy-drink company. Now firms including Nike and Ralph
Lauren are sponsoring dancers; Nike recently announced a breaking shoe.
The games will expose a generation of young people to the dance. “What’s
happening right now is what our dream was,” says David “Kid David”
Shreibman, a B-boy who will be commentating in Paris.

The flips and freezes may be fleeting, however. Breaking will not return in
Los Angeles in 2028. The IOC’s charter caps the number of athletes at 10,500;
any new event excludes others. Host cities have the final say over their
games and organisers in LA opted to include larger and better-funded sports
such as baseball and cricket, which bring with them vast audiences and lots
of corporate sponsorship (which is important, given the games are projected
to cost around $7bn).

What matters to breakers now is leveraging the publicity from Paris to bring
more money into the sport. Dancers are optimistic. “It’s just going to be less
of a struggle for everybody,” says Logan “Logistx” Edra, one of four
American breakers going to the games. Medal or not, that is a prize worth
competing for. ■

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Culture | Biology

A primer on RNA, perhaps the most consequential

molecule of all
“The Catalyst” looks at RNA’s role in life’s origins as well as its medical
uses
July 31st 2024

The Catalyst. Thomas Cech. W.W. Norton; 304 pages; $28.99 and £23.99

WHAT YOU see depends on how you look. For years students of cell biology were
taught that a molecule called RNA was but a humble minion assisting its
glamorous cousins, DNA and proteins. DNA acted as the library of all knowledge
about how to build an organism and proteins the means by which that
organism was built. RNA, by contrast, was seen as a messenger boy, carrying
copies of DNA’s blueprints to the cellular workshops where proteins were
forged; a porter, toting the amino-acid links of protein chains to those
workshops for assembly; and a part of the fabric of the workshops
themselves.

But, like someone staring at a Necker cube, biologists now realise that this
picture can be viewed another way—one that puts RNA centre stage. Their
shift of perception has followed the gradual realisation that RNA has a far
wider range of jobs in cells than previously understood. Indeed, it seems
likely that RNA actually predates the other two members of the trio as the
original molecule of life itself.

All this is the subject of Thomas Cech’s new book, “The Catalyst”. The
author is well placed to describe how this perceptual shift happened, given
that he was one of the early dissenters who brought it about. In the 1980s he
championed the idea that RNA molecules can also act as enzymes—that is, as
catalysts for biochemical reactions—a claim which flew in the face of the
conventional wisdom that only proteins could perform such manoeuvres. In
1989 he shared the Nobel chemistry prize for the discovery of what his team
dubbed “ribozymes”.

The particular ribozymal activity Dr Cech’s team found was an

“autocatalytic” rearrangement of an RNA molecule (the actual discovery was
made by Paula Grabowski, a graduate student). The molecule was destined
to become part of a ribosome—as the protein workshops are properly called
—and part of the molecule cut out another, redundant, part. That may sound
trivial. But it blew the enzymes-are-always-proteins dogma out of the water.

Similar discoveries by other labs quickly followed, as did other types of

ribozyme which did different jobs. Indeed it turned out that the RNA in
ribosomes is not just structural, but also catalytic. It is this, not a ribosome’s
protein component, which does the work of adding amino acids to a growing
protein chain.

That discovery, in particular, excited scientists seeking life’s origin. The

complex arrangement whereby proteinaceous enzymes (which orchestrate a
cell’s chemistry) are encoded by DNA (which does the information storage)
could not have appeared from nothing. But if RNA can do both jobs (which it
can), then the earliest critters may have relied on it alone. Only once RNA-
based organisms were up and running, the thinking now goes, was
information storage then handed over by evolution to DNA (which is more
stable than RNA) and catalysis to proteins (the chemical complexity of which
permits a bigger range of enzymes), with RNA assuming its current roles
linking these other two types of molecules.

The number of known links is multiplying. Since Dr Cech’s original

discovery, many other types of RNA have manifested themselves, involved
either in gene regulation or in protecting cells against viral infection. This
growing list affords medical and biotechnological opportunities. About half
of antibiotics, for example, work by gumming up the RNA in bacterial
ribosomes while leaving that in humans unharmed. This is a promising
starting-point in the search for new drugs.

RNAcan also work to silence disease-causing genetic mutations. Scientists can

craft versions of RNA that pair up with, and disable, RNA messengers from the
mutated DNA section. RNA messengers have also been used to create covid-
busting vaccines and may soon be deployed against other diseases, including
certain types of cancer. And RNA is a crucial element of the modern suite of
gene-editing techniques that began with CRISPR-Cas9. Not a bad record, then,
for what was once molecular biology’s also-ran. ■

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Culture | World in a dish

Tinned fish is swimming against the tide

Once a staple of wartime diets, it is now a social-media phenomenon
July 30th 2024

Mei Liao pulls back the can’s lid to reveal sardines swimming in a garlic and
herb butter. In other videos she stuffs russet-coloured smoked mackerel into
a sandwich or arranges sprats with capers and cucumber. Ms Liao says
tinned fish is often considered “akin to cat food or bunker food”. But,
posting as @daywithmei, she has turned it into a viral treat: her videos have
millions of views on TikTok.

The canning process was invented during the Napoleonic wars. Fresh food
was in short supply, particularly for those on military and naval expeditions,
and so foods preserved in jars became essential sources of sustenance. Later,
during the second world war, tinned fish became a staple part of diets. For a
long time this gave any food packed in aluminium or steel connotations of
hardship. But now tinned fish is back: on social media, on restaurant menus
and in Gen Z’s cupboards. What changed?

The product itself, for starters. Canned fish has been part of the Iberian food
scene since the 19th century: shops across Portugal are dedicated to the
vibrantly coloured cans. Becca Millstein encountered artisanal tinned fish,
such as pulpo en aceite de oliva (octopus in olive oil), while studying in
Europe. Realising that American equivalents were “frozen in the 1960s”, she
co-founded Fishwife, a food company, in 2020. Stockists are popping up to
meet gourmands’ demands. The Fantastic World of the Portuguese Sardine
opened in Times Square in New York last summer. The shop offers more
than 30 varieties of tinned fish, including eels and whelks.

Patrick Martinez founded The Tinned Fish Market, a British online-delivery

business, in 2018. “I remember doing farmers’ markets and people getting
upset because our sardines were £3 [$3.90]”, over five times the cost of
supermarket tins. Yet “The pandemic changed our appreciation of food,” he
says, as people had more time to indulge and experiment with unfamiliar
flavours. Now high-end products are his company’s main draw. In America,
too, sales of premium tinned fish—anything exceeding $5 a tin—are
growing at triple the rate of the broader market.

Branding is an important part of the revival. Ms Millstein credits much of

Fishwife’s success to social media; the company targets Gen Z and
millennial consumers online. Videos of influencers unboxing retro-looking
tins are both fun and helpful. Many people do not know what to do with
something like tinned sardines, Ms Liao says, and some worry about
choking on the bones. Watching instructional videos makes it “less scary”
for the uninitiated.

Tinned fish may be paving the way for cans’ comeback: there are more than
335m posts on TikTok related to “Spam food”. A new generation of
consumers has peeled away unflattering assumptions about preserved
foodstuffs and highlighted their convenience. Time to stock up. ■

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tide
Culture | A mountainous legacy

Few writers have seen America more clearly than

James Baldwin
A century after his birth, Baldwin remains one of the country’s most
important authors
August 1st 2024

IN THE months after a young black man in Ferguson, Missouri, was shot by
a white policeman in 2014—galvanising the Black Lives Matter movement
—no prominent African-American writer was invoked more often on social
media than James Baldwin. That was no surprise: Baldwin was an eloquent
civil-rights activist, whom the FBI watched anxiously and who counted Martin
Luther King junior and Malcolm X among his friends. Yet as Robert Reid-
Pharr, a professor at New York University, jokes: “James Baldwin never
wrote a sentence of 140 characters, ever.”
Though Baldwin, who would have turned 100 on August 2nd, wrote
elegantly direct sentences, his prose was subtle and often baroque—unlike
the sort found on X. Venerating Baldwin for his activism risks overlooking
what made him unique as a novelist and essayist. His fiction depicted
African-American life with more honesty and complexity than any writer
who preceded him. He influenced legions of writers, including Maya
Angelou, Toni Morrison and Ta-Nehisi Coates.

The centenary of Baldwin’s birth is being marked in America and Britain

with festivals and books analysing his legacy. Colm Tóibín, a celebrated
Irish novelist, has written a book called “On James Baldwin”. Vintage, a
publisher, has released new editions of three of Baldwin’s best works. All
this is testimony to Baldwin’s status as one of the most important,
perspicacious writers of the past century.

Baldwin was born in 1924 in Harlem to Emma Berdis Jones, who, like many
African-Americans in the early 20th century, had left the rural south for the
industrial north. His stepfather was a labourer and Baptist minister. Baldwin
was reading literature by the age of ten and preaching by 14. Also around
that age, as he put it, he fell “in love” with a male school friend, without “the
faintest notion of what to do about it”.

He did not go to university, but found his way into writing. He published his
first essay, a review of Maxim Gorky’s stories, in the spring of 1947, when
he was living a bohemian life in Greenwich Village. Like many young
writers, he was trying to work out who he was and what he had to say. In his
case, that meant wrestling with his sexuality and with what it meant to be
black in America. “I don’t like people who like me because I’m a Negro,” he
wrote in the introduction to his first book of essays. “Neither do I like people
who find in the same accident grounds for contempt.”

To him, well-meaning liberal condescension and racist hate were two sides
of the same coin: both saw African-Americans not as individuals, endowed
with the same constellations of virtues and flaws as anyone else, but as
objects of pity and scorn respectively. One of Baldwin’s earliest reviews
heaped scorn on “Uncle Tom’s Cabin” for precisely that reason. Baldwin felt
“protest novels”—meaning novels written with an explicit political purpose
—fail as art because of their “rejection of life, the human being, the denial of
his beauty, dread, power, in [their] insistence that it is his categorisation
alone which is real and which cannot be transcended”.

Everybody knows his name

Despite his power as an essayist, his heart lay in fiction. Baldwin’s career as
a novelist did not bear real fruit until he left America for Paris in 1948. As
he put it later in his life, one reason he left is because “Nothing worse could
happen to me there than had already happened here.” He would travel
between the two countries for the rest of his life, calling himself a
“commuter” rather than an expatriate. Abroad he felt freer to delve into his
inner world, an essential requirement for any novelist, but he could not
abandon his family or the struggle for civil rights back home.

The church and sexuality would form the cores of his two earliest, and best,
novels. In “Go Tell It on the Mountain” (1953) the protagonist, John Grimes,
struggles with his faith, but also experiences a quasi-religious epiphany and
displays tremendous promise as a preacher—all of which were true of
Baldwin himself. The author recognised that the church provides comfort,
structure and meaning to many, even as he also understood how religion
could provide cover for sin. The book ends with John insisting: “I was
saved. I was there.”

“Giovanni’s Room”, published three years later, in 1956, concerns a young

white American named David and his tempestuous affair with Giovanni, an
Italian bartender he meets at a Parisian gay bar. (The inspiration for
Giovanni was Lucien Happersberger, a Swiss boy, just 17, whom Baldwin
met at a gay bar in Paris. Baldwin called him “the love of my life”.) Through
David, who was engaged to the long-suffering Hella, Baldwin criticises the
strictures of what he called the “paralytically infantile” ideal of American
masculinity.

The book was daring for its time. Baldwin’s publishers at Knopf told him it
“will ruin your career” and declined to publish it. Fortunately the Dial Press
was not quite so spineless, and the book was released to largely favourable
reviews.
Aside from a superb film version of “If Beale Street Could Talk” in 2018,
Baldwin’s novels have rarely been adapted for the screen. And they are less
often taught in schools than they were in the late 20th century: the
ecclesiastical concerns of “Go Tell It on the Mountain” are more and more
remote to an increasingly secular country, and the sexuality in “Giovanni’s
Room” and “Another Country” too raw for an era of curriculum battles.

Despite his ambitions as a novelist, Baldwin found the most fame—and

certainly the most lasting influence—as an essayist. Though his essays were
often discursive in subject, sentence by sentence they have a pithiness and
power well-suited to social media. One oft-reposted line comes from a piece
he wrote for the New York Times in 1962, as the civil-rights movement was
gathering steam, about the writer’s social role: “Not everything that is faced
can be changed; but nothing can be changed until it is faced.”

His work is an appeal to an individual’s conscience—a theme also

appropriate for the social-media age, in which displaying the correct moral
stance supersedes the grinding political work of building coalitions across
ideological lines. Baldwin was unblinking, but deeply patriotic, and resistant
to sectarianism or contempt. “I love America more than any other country in
the world,” Baldwin wrote early in his career, “and, exactly for this reason, I
insist on the right to criticise her perpetually.” ■

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Economic & financial indicators
Economic data, commodities and markets
Economic & financial indicators | Indicators

Economic data, commodities and markets

August 1st 2024
This article was downloaded by zlibrary from https://www.economist.com/economic-and-financial-indicators/2024/08/01/economic-
data-commodities-and-markets
Obituary
Edna O’Brien’s books scandalised Ireland
Obituary | The Country Girl

Edna O’Brien’s books scandalised Ireland

The novelist and playwright died on July 27th, aged 93
July 31st 2024

They burned her book. Priests denounced it from the pulpit; in her
hometown they burned it in the parish grounds, after the rosary. Some
people, Edna O’Brien’s mother told her, had even fainted as it was burned.
That must have been the smoke, she had retorted. There was no shortage of
people telling her how angry everyone was. Some said they wanted to lynch
her. One said there would be a stoning next. The local postmistress said she
should be kicked naked through the town. Later, she wished she had queried
that one: why “naked”?

The Catholic Church wasn’t much of a one for nudity in the 1960s. Or for
her books, which also had nudity in them. Not to mention sex and breasts
and gussets and sinful black knickers—and sinful married men who slipped
their hands into them. “The Country Girls”, one archbishop said, was “filth”
which “should not be allowed inside any decent home”. It was “a smear on
Irish womanhood”, while she herself was “corrupting the minds of young
women”. The Irish Censorship Board banned her novel upon publication.
She even had her own books confiscated from her: when she arrived in
Dublin Airport, customs officials seized the copies that she had in her
suitcase. She was furious; less at the prudishness than the price: she’d just
lost £5-worth of books.

There hadn’t been many books at home. Her mother thought that the written
word was sinful. The only real books in the house were prayer books and a
cookery one: “Mrs Beeton’s Book of Household Management”. It had
recipes for boiled cabbage and an egg-yolk stain on the pages. Growing up
in her small Irish village she managed to get hold of only one novel: a copy
of Daphne du Maurier’s “Rebecca” which had circulated around
Tuamgraney—but by the page, and not in order. One day you might get page
204; and the next day, the first: “Last night I dreamt I went to Manderley
again.” She herself dreamed of writing—much to the distress of her mother.
When her first book came out, her mother had blacked out the rude words in
good, thick ink, then hidden it.

Catholicism would steal words from her—but first it steeped her in them. In
the beginning, for her, were its words. She grew up with the Bible and with
the psalms; with Church Latin and with “amo, amas, amat”; with Ave
Marias and with the words of the monthly Irish Messenger. The Messenger
cost three pence and had a picture of the blood-red, sacred heart of Jesus on
the cover. It brought the Good News of the world to come to the people of
Tuamgraney, and bad news from the world beyond. It warned of the influx
of “hot rhythm dance bands” and of the red ruin of communism. She liked it
because it had a “Thanksgiving” column (“Bleeding from nose stopped,
Success of school in needlework examination…Gangrene averted”). The
local mothers liked it because if you rubbed Jesus’s sacred heart with a wet
finger, the ink came off and could be used as rouge (another red ruin).

Its words would rub off on her own fingers, too. For the rest of her life
whatever she wrote would be filled with a similar blend of the sacred and
profane; with convent-educated girls who prayed to the name of Jesus then
swore with it; who said “Christ” and “eejit” and “arse”; who handled wicked
black brassières with pale, pure, rosary-bead fingers; then used those fingers
to do very impure things with older men.

Her mother was appalled by her writing. She had always feared bodily
defilement in all its forms: after male guests left, she used to smell the
cushions to see if they had farted, then aired the seat covers all night if they
had. She had lived in fear of hell, which was as real to her as the turf in the
fire. Sometimes, if a sod fell from it, her mother would catch it with her bare
hands, to test her strength for the future flames of eternity.

She feared her daughter would end in them. She had always wanted her to
put the harness on her imagination and on her heart. But Edna did neither.
First she fell in love with one of the nuns at her school (she too, she vowed,
would become a nun and sleep by her beloved in a hair shirt, on iron springs,
immune to passions). Then she fell in love with the works of James Joyce
(she too would write such luminous, labyrinthine sentences).

And then she fell in love with her future husband, another writer. They fled
from Ireland—that land of strange, throttled, sacrificial women—and
eloped, ending up in a mock-Tudor house in London. She made him toast
and Earl Grey tea and sponge cakes, and made herself look like a happily
married wife. In the quiet moments, she wrote her first novel and wondered
how long her own throttled, sacrificial life would last.

The answer came when she gave him the manuscript of “The Country Girls”
to read. When he finished it he said: “You can write and I will never forgive
you.” Nor, after it was published, would many others: she was a “Jezebel”,
said some; she was a “nymphomaniac”, said others.

But she was feted as well: Philip Roth was an admirer; Richard Burton rang
the doorbell and popped in to recite Shakespeare; Marlon Brando dropped
by one evening for a glass of milk. That evening was chaste—but there were
affairs, too. Male writers leered: a Vanity Fair profile called her the “Playgirl
of the Western World” and noted in prose less good than hers that “her
breasts abound” (in what, was not clear). The women’s libbers tutted: all this
writing about love and mistresses was not liberating.
She did not care. She didn’t feel strongly about the things that they felt
strongly about. She felt strongly about childhood and truth and lies and
about the real expression of feelings and about love. Her loves didn’t last—
but her love of writing did. To the end of her life, she would retain that
urgency to write; to make out of nothing some little thing. Perhaps the two
were related. For who would go through the terrible purgatory of writing if
they were not lonely? In the end, for her, was the word. ■
This article was downloaded by zlibrary from https://www.economist.com/obituary/2024/07/31/edna-obriens-books-scandalised-
ireland
 Table of Contents
The world this week
Politics
Business
KAL’s cartoon
This week’s covers
Leaders
Chinese companies are winning the global south
The Middle East must step back from the brink
Genomic medicines can cost $3m a dose. How to make them affordable
Can Nicolás Maduro be stopped from stealing Venezuela’s election?
Is the big state back in Britain?
How to make tourism work for locals and visitors alike
Letters
Letters to the editor
By Invitation
Keep the code behind AI open, say two entrepreneurs
Not all AI models should be freely available, argues a legal scholar
Thailand’s thwarted election winner on the move to ban his party
Briefing
Chinese firms are growing rapidly in the global south
United States
The demise of an iconic American highway
The Kamala Harris effect on the polls has been dramatic
Can Donald Trump win back suburban voters?
America is not ready for a major war, says a bipartisan commission
How the election will shape the Supreme Court
The Americas
After protests over a stolen election, the goons crack heads
The plight of Brazil’s indigenous groups worsens
Will El Mayo’s arrest slow the spread of fentanyl?
Asia
America recreates a warfighting command in Japan
America remains Asia’s military-exercise partner of choice
Indian cities are utterly unprepared for what is about to hit them
 How Asia’s wild west shakes up the modern world
China
China is itching to mine the ocean floor
Which Olympic sports is China good at?
To revive the economy, China wants consumers to buy better stuff
When China hides disasters in a memory hole
Middle East & Africa
Israeli strikes on Beirut and Tehran could intensify a regional war
Will Hamas turn from war to politics?
Ethiopia is in the midst of a kidnapping epidemic
Somaliland’s camel herders are milking it
Europe
Will a new “pact” of ten laws help Europe ease its migrant woes?
Vienna’s social housing, lauded by progressives, pushes out the poor
Amid the bombs, Ukrainians rediscover the beach
The Olympics are teaching the French to cheer again
Humiliated by Azerbaijan, Armenia tacks towards the West
Britain
What will Great British Energy do?
A riot in Southport shows how the British far right is changing
How deep is Britain’s fiscal “black hole”?
Britain’s railways go from one extreme to another
The disease that most afflicts England’s National Health Service
The race to become leader of Britain’s Conservatives
Was the Bank of England right to start lowering interest rates?
British voters care less about tax rises than politicians think
Business
What could kill the $1trn artificial-intelligence boom?
Can Samsung get its mojo back?
Dumb phones are making a comeback
India’s electric-scooter champion goes public
What is the point of industry awards?
What Chipotle and McDonald’s say about the consumer slowdown
Finance & economics
What the war on tourism gets wrong
Which cities have the worst overtourism problem?
Investors beware: summer madness is here
 Gary Gensler is the most controversial man in American finance
India’s economic policy will not make it rich
China’s last boomtowns show rapid growth is still possible
EU handouts have long been wasteful. Now they must be fixed
Schools brief
The race is on to control the global supply chain for AI chips
Science & technology
Gene-editing drugs are moving from lab to clinic at lightning speed
How America built an AI tool to predict Taliban attacks
GPT, Claude, Llama? How to tell which AI model is best
Culture
How long would it take to read the greatest books of all time?
A moving memoir probes the contradictions of modern China
The Paris Olympics are breaking’s one shot to become a global sport
A primer on RNA, perhaps the most consequential molecule of all
Tinned fish is swimming against the tide
Few writers have seen America more clearly than James Baldwin
Economic & financial indicators
Economic data, commodities and markets
Obituary
Edna O’Brien’s books scandalised Ireland