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 The Economist March 22nd 2014 5
Contents
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8 The world this week Europe
39 Reforming Italy
Leaders Gambler in a rush
11 Diplomacy after Crimea 40 Taxes in Europe
The new world order Lightening the load
12 Cosmology 40 Serbia’s election
Man suddenly sees the A zealot in power
start of the universe 41 French local elections
12 Law enforcement Frontal assault
Armed and dangerous 42 Charlemagne
Adrift over energy America’s police No-knock
14 Investing in
raids, assault weapons and
infrastructure
even an armoured car to
The trillion-dollar gap United States protect pumpkins: America’s
On the cover 16 China’s cities 43 Paramilitary police police use paramilitary tactics
The post-Soviet world order The great transition Cops or soldiers? too often, leader, page 12. The
was far from perfect, but 44 Prostitutionomics line between cop and soldier
Vladimir Putin’s idea for Letters Sex, lies and statistics has become thin, page 43
replacing it is much worse:
18 On Tibet, death row, 45 Washington’s mayoral race
leader, page 11. The struggle
prostate cancer, Africa, Richer, whiter, pickier?
inside Ukraine, page 23. In
Picasso, inequality, 46 North Carolina politics
Crimea, violence is not far
Crimea A purple state sees red
from the surface, page 24.
How America and Europe hope 46 Kansas and Missouri
to put pressure on Russia, Briefing The new border war
page 25. For Angela Merkel, 23 The Ukraine crisis 47 Race and universities
the crisis is a throwback to Responding to Mr Putin Asians protest
worse times, page 26. London
24 Violence in Crimea 48 Lexington
has more to lose than most
Hugs and thugs Democrats v Kochs
when it comes to scaring off
oligarchs, page 26. Europe has 25 Sanctions
yet to wean itself off Russian Follow the roubles The Americas Britain’s budget George
energy: Charlemagne, page 42 26 Germany’s Russia policy 49 Venezuela’s protests Osborne sticks to the course,
Which war to mention? Inside the barrios page 29. A radical shake-up of
26 Russian money in Britain pensions, page 30. The budget
50 Bello
The Economist online Honey trapped Brazilian foreign policy
was full of trickery, yet serious
in its purpose: Bagehot, page 37
Daily analysis and opinion from 52 Mexico’s finance minister
our 19 blogs, plus audio and video Britain The man from MIT
content, debates and a daily chart
Economist.com/blogs 29 The budget
Not for turning Middle East and Africa
E-mail: newsletters and
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Print edition: available online by 31 Labour’s response 54 Syria’s civil war
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Audio edition: available online Floored A succession crisis
to download each Friday 34 Housing 55 Mali
Economist.com/audioedition Modest plans Hurry up
34 High-speed rail The sex industry Laying bare
56 South Africa’s business... the oldest profession, page 44
Supersonic Somali shop-swap
36 Internal migration 56 ...and its president
Not on your bike Why they booed him
Volume 410 Number 8879
37 Bagehot
General Osborne
Published since September 1843
to take part in "a severe contest between
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1 Contents continues overleaf
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6 Contents The Economist March 22nd 2014

WorldMags.net Asia
76 Janet Yellen
Clarity gap
57 Indonesian politics
76 Fannie Mae and Freddie
The chosen one
Mac
58 Haze over Sumatra Deconstruction delays
Fires are burning again
79 Portugal
59 Japanese politics Exiting the bail-out
Flaming out
80 Free exchange
59 Tasmania’s forests The case for monetary
Logging on boldness
60 A census in Myanmar
Future of the music industry Too much information Next week
Record bosses now hope that Science and technology We publish a special report on
61 Banyan
online streaming could become 82 Astrophysics robots, which offer a unique
Stand-off in the South
a big enough business to arrest BICEP flexes its muscles insight into what people want
China Sea
their industry’s long decline, 83 An ancient fern from technology. That makes
page 67. The land of Abba takes Jurassic mark their progress peculiarly
to streaming, page 68 China fascinating, says Oliver Morton
83 Peer review
63 Housing markets Acid test
Double bubble trouble
84 Animal behaviour Subscription service
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everyone should read A long and winding road 94 Tony Benn
“Decoded”, page 88 Spear-thrower of the left
74 Buttonwood
Markets and the economy
75 Green bonds
Spring in the air
75 People’s Bank of China
Lessons from Singapore
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8 The Economist March 22nd 2014
The world this week
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Antonis Samaras, the prime Men armed with metal bars Mr Rauner will face Pat Quinn,
Politics minister of Greece, opened attacked two newspaper exec- the incumbent, in November’s
the government coffers to use utives in Hong Kong. The poll. The state’s huge unfund-
€500m ($700m) from last victims work for the Hong ed pension obligations will be
year’s primary budget surplus Kong Morning News, which is a big issue at the election.
to boost the incomes of a due to be launched this year.
million Greeks, including This happened on the same Greasing the diplomatic wheel
poorer pensioners and the day police charged two men Alfonso Portillo, the president
police. That did not stop Greek with the stabbing of a former of Guatemala from 2000 to
civil servants staging a two- editor, Kevin Lau, in an attack 2004, pleaded guilty in a court
day strike against austerity. in February. Both incidents in New York to laundering
have raised concerns about money. Mr Portillo claimed he
The liberal-democratic D66 press freedom in Hong Kong. received a bribe of $2.5m from
party was the big winner in Taiwan, which he says was in
local elections in the Thailand lifted a state of emer- exchange for continued
In an ornate hall reminiscent Netherlands, taking12 of the gency in Bangkok, as tensions diplomatic recognition of the
of an imperial past, Vladimir bigger cities up for grabs and eased after weeks of protests. country during his term in
Putin decreed that “Crimea knocking Labour off its 60-year The protesters had wanted office. The Taiwanese insist
has always been part of perch as the largest party in Yingluck Shinawatra to resign everything was above board.
Russia” and signed a treaty Amsterdam, the capital. as prime minister.
with the peninsula’s new Air Canada suspended flights
premier to annex it. This fol- Without hope We want our oil back to Venezuela, citing security
lowed a controversial referen- The search for a missing A North Korean-flagged tanker concerns. Around 30 people
dum in which, Crimean offi- Malaysian passenger jet with taking oil from eastern Libya have died to date in clashes
cials claimed, 97% of voters 239 people on board, mostly on behalf of a faction opposed between opposition protesters
backed secession from Uk- Chinese nationals, widened to to the government in Tripoli and security forces.
raine. Ukraine suggested it include remote areas of the was commandeered by a unit
would pull its forces out of Indian Ocean, after it appeared of American Navy Seals at the Jim Flaherty, Canada’s long-
Crimea after the Russian flag that the aircraft may have request of the authorities in serving finance minister, who
was raised at Ukraine’s navy headed west and then turned Tripoli and Cyprus, into whose used stimulus spending to
headquarters on the Crimean south for some reason after it waters the vessel had sailed. steer Canada through the
coast. America called an emer- took off. Australia investigated Barack Obama had given the financial crisis, stepped down.
gency summit of the G7. whether large objects operation his blessing. The It will be up to his successor,
observed by satellite in seas tanker’s initial unauthorised Joe Oliver, to complete the job
Moldova’s breakaway prov- south-west of Perth were parts journey had led to the of balancing the books.
ince of Transdniestria, which is of the airliner. dismissal of Ali Zidan as
on the border with Ukraine, Libya’s prime minister. President Juan Manuel Santos
also asked to join Russia, lead- China’s government revealed of Colombia confirmed the
ing to more worries about a blueprint for urbanisation Syrian government forces dismissal of Gustavo Petro, the
stability in the region. Moldo- that envisions giving perma- dealt a blow to the rebels by left-wing mayor of Bogotá, for
va’s president warned that any nent urban residency to 100m retaking the strategic settle- mismanagement of waste
move by Transdniestria to rural migrants and plans for ment of Yabroud, north of contracts. The removal of Mr
follow Crimea’s lead would be 60% of China’s population to Damascus, the last town in Petro is widely seen as
“counter-productive”. live in cities by 2020. that area in rebel hands. arbitrary and may complicate
peace talks with the country’s
Serbia’s parliamentary An official report said that FARC guerrillas.
election was won by the con- South Africa’s president,
servative Serbian Progressive Jacob Zuma, had “benefited
Party. Aleksandar Vucic, who unduly” by spending $20m of
will be prime minister, set out state money on a private resi-
an ambitious plan of dence. He was told to repay
economic liberalisation. He some of the costs. But while it
has also promised to crack could be “legitimately
down on corruption. construed” that Mr Zuma had
misled parliament over the
Germany’s environment renovations, the report also
agency reported that the coun- said he may have made a
try’s carbon emissions went Activists opposed to a trade “bona fide mistake”.
up again, rising by 1.2% in 2013. deal with China occupied
The environment minister said Taiwan’s parliament. The Friendly rivals Colombia’s vice-president said
that Germany may miss its protesters believe that the Bruce Rauner, a wealthy he had turned down an
target of reducing carbon agreement, which would financier from Chicago, won ambassadorship to Brazil
emissions by 40% in 2020, allow China and Taiwan to the primary race to be the because it would have been
compared with 1990 levels, an invest more freely in each Republican candidate for too warm for his dog (Orión, a
astonishing admission from a other’s services industries, governor of Illinois. Infused German Shepherd). Colom-
country that spent €16 billion would hurt the Taiwanese by the Tea Party, but also a bia’s foreign minister issued an
subsidising renewable energy economy and leave it vulner- friend of Rahm Emanuel, apology to stop Brazil getting
last year. able to pressure from Beijing. Chicago’s Democratic mayor, too hot under the collar. 1
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 The Economist March 22nd 2014 The world this week 9

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markets and banking. Mark accepting a $1.2 billion fine and 32% share in any combined
Business Carney, the central bank’s admission of wrongdoing entity. Bouygues, a blue-chip
governor, said this would from Toyota to settle claims industrial group, has also put
At its first monetary-policy streamline decision-making so related to problems with stick- in a bid for SFR.
meeting with Janet Yellen as that “we can increase our ing accelerator pedals in 2009
chairman, America’s Federal international impact”. and 2010. Mike Lynch upped the ante in
Reserve adjusted its forward his fight with Hewlett-Pack-
guidance, dropping its refer- Political economy PSA Peugeot Citroën asked ard over its claims that his
ence to a 6.5% unemployment George Osborne, Britain’s Louis Gallois to be its new management team cooked the
rate as a threshold for consid- chancellor of the exchequer, chairman. He will succeed books at Autonomy, a software
ering a rise in interest rates. Ms announced the biggest revamp Thierry Peugeot, who is step- firm, before HP bought it in
Yellen implied that rates might of the country’s private-pen- ping down; the Peugeot family 2011. In an open letter to HP’s
gradually start to increase six sions system in almost a is relinquishing its blocking shareholders Mr Lynch, Auton-
months after the Fed ends its century. The changes, which powers at the French carmaker omy’s former chief executive,
asset-purchase programme, form part of the government’s amid a restructuring that said the tech giant had “selec-
which was reduced by another budget, include allowing includes China’s Dongfeng tively leaked” information in
$10 billion, to $55 billion. retirees to take their pension taking a 14% stake. Mr Gallois is the case to “smear our
pot as a lump sum rather than a veteran industrialist and a reputations”. HP has reported
Manipulating money having to buy an annuity. The former chief executive of EADS the alleged accounting
share prices of many pension (now Airbus Group). irregularities to regulators.
Chinese yuan per dollar providers fell sharply after the
Inverted scale surprise news. Vodafone, a global telecoms Taking a bite of the Big Apple
6.0 company based in Britain, Alibaba, China’s biggest
General Motors created a boosted its business in Europe e-commerce firm, confirmed
6.1 new position of head of global by agreeing to buy ONO, a that it had chosen America
vehicle safety, as it issued yet Spanish provider of broad- rather than Hong Kong for its
6.2 another big recall for various band, pay-TV and phone IPO. It will be the biggest tech
safety checks. The company services, in a deal valued at stockmarket flotation since
6.3
has been rocked by news that €7.2 billion ($10 billion). ONO’s Facebook’s in 2012, and is
2013 2014
America’s Justice Department private-equity owners had another trophy for New York’s
Source: Thomson Reuters
has begun a preliminary in- been considering a flotation of booming IPO market. Sina
The People’s Bank of China vestigation into how it han- the firm. Weibo, a Chinese microblog-
took further action to weaken dled a separate recall for faulty ging site (in which Alibaba has
the yuan by widening the ignition switches, which may Meanwhile, Vivendi, a French an 18% stake), is also planning
band in which it allows the have caused a dozen deaths. conglomerate, entered into to list in New York, as is King
currency to trade. The central GM apparently knew about exclusive talks about selling its Digital, the London-based
bank has indicated that it is the problem a decade ago. SFR telecoms operations with developer of the “Candy
navigating a decline in the Altice, a firm backed by Patrick Crush Saga” mobile game.
currency to deter speculators Just as it opened one investiga- Drahi, a telecoms entrepre-
from betting on it rising contin- tion into car safety the Justice neur. Altice is offering around Other economic data and news
ually; the yuan has strength- Department closed another, by €12 billion ($16.7 billion) and a can be found on pages 92-93
ened by 30% since 2005, which
China tolerated before worries
emerged about “hot-money
inflows” and falling exports.

Meanwhile, the Chinese gov-

ernment was considering
whether to rescue a property
developer that cannot repay
its debts. Zhejiang Xingrun
would not be the first property
firm to collapse in China, but
its woes are seen as a possible
harbinger of problems storing
up in the economy associated
with informal lending prac-
tices, or “shadow banking”.

The Bank of England

undertook a radical shake-up
of its management structure,
including the setting up of a
“financial stability and risk
directorate” and the appoint-
ment of Nemat Shafik, who is
currently a senior official at the
IMF, to a new role overseeing
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 WorldMags.net

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 The Economist March 22nd 2014 11
Leaders
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The new world order
The post-Soviet world order was far from perfect, but Vladimir Putin’s idea for replacing it is much worse

“I N PEOPLE’S hearts and

minds,” Vladimir Putin told
Russia’s parliament this week,
Sadly, too few people understand this. Plenty of countries
resent American primacy and Western moralising. But they
would find Mr Putin’s new order far worse. Small countries
“Crimea has always been an in- thrive in an open system of rules, albeit imperfect ones. If
separable part of Russia.” He an- might is right, they have much to fear, especially if they must
nexed the peninsula with daz- contend with an aggressive regional power. Larger countries,
zling speed and efficiency, especially the new giants of the emerging world, face less
backed by a crushing majority threat of bullying, but an anarchic, mistrustful world would
in a referendum (see page 23). He calls it a victory for order and harm them all the same. If international agreements are
legitimacy and a blow against Western meddling. robbed of their meaning, India could more easily be sucked
The reality is that Mr Putin is a force for instability and strife. into a clash of arms with China over Arunachal Pradesh or La-
The founding act of his new order was to redraw a frontier us- dakh with Pakistan. If unilateral secession is acceptable, Tur-
ing arguments that could be deployed to inflame territorial dis- key will find it harder to persuade its Kurds that their future lies
putes in dozens of places around the world. Even if most Cri- in making peace. Egypt and Saudi Arabia want Iran’s regional
means do want to join Russia, the referendum was a farce. ambitions to be tamped down, not fed by the principle that it
Russia’s recent conduct is often framed narrowly as the start of can intervene to help Shia Muslims across the Middle East.
a new cold war with America. In fact it poses a broader threat Even China should pause. Tactically, Crimea ties it in knots.
to countries everywhere because Mr Putin has driven a tank The precedent of secession is anathema, because of Tibet; the
over the existing world order. principle of unification is sacrosanct, because of Taiwan. Stra-
tegically, though, China’s interests are clear. For decades, it has
The embrace of the motherland sought to rise peacefully within the system, avoiding the com-
Foreign policy follows cycles. The Soviet collapse ushered in a petition that an upstart Germany launched against Britain in
decade of unchallenged supremacy for the United States and the 19th century and which ended in war. But peace is elusive
the aggressive assertion of American values. But, puffed up by in Mr Putin’s world, because anything can become a pretext
the hubris of George Bush, this “unipolar world” choked in the for action, and any perceived aggression demands a riposte.
dust of Iraq. Since then Barack Obama has tried to fashion a
more collaborative approach, built on a belief that America Act now or pay later
can make common cause with other countries to confront For Mr Obama, this is a defining moment: he must lead, not
shared problems and isolate wrongdoers. This has failed mis- just co-operate. But Crimea should also matter to the rest of the
erably in Syria but shown some signs of working with Iran. world. Given what is at stake, the response has so far been
Even in its gentler form, it is American clout that keeps sea weak and fragmented. China and India have more or less
lanes open, borders respected and international law broadly stood aside. The West has imposed visa sanctions and frozen a
observed. To that extent, the post-Soviet order has meaning. few Russians’ assets. The targets call this a badge of honour.
Mr Putin is now destroying that. He dresses up his takeover At the very least, the measures must start to exceed expecta-
of Crimea in the garb of international law, arguing for instance tions. Asset freezes can be powerful, because, as the Iran sanc-
that the ousting of the government in Kiev means he is no lon- tions showed, international finance dreads being caught up in
ger bound by a treaty guaranteeing Ukraine’s borders that Rus- America’s regulatory machinery. Mr Putin’s kleptocratic
sia signed in 1994, when Ukraine gave up nuclear weapons. friends would yelp if Britain made London unwelcome to Rus-
But international law depends on governments inheriting the sian money linked to the regime (see page 26). France should
rights and duties of their predecessors. Similarly, he has in- withhold its arms sales to Russia; and, in case eastern Ukraine
voked the principle that he must protect his “compatriots”— is next, Germany must be prepared to embargo Russian oil and
meaning anybody he chooses to define as Russian—wherever gas. Planning should start right now to lessen Europe’s depen-
they are. Against all evidence, he has denied that the unbadged dence on Russian energy and to strengthen NATO.
troops who took control of Crimea were Russian. That combi- Ukraine needs short-term money, to stave off collapse, and
nation of protection and subterfuge is a formula for interven- longer-term reforms, with the help of the IMF, backed by as
tion in any country with a minority, not just a Russian one. much outside advice as the country will stomach. As a first
Brandishing fabricated accounts of Ukrainian fascists step, America must immediately pay its dues to the fund,
threatening Crimea, he has defied the principle that interven- which have been blocked by Congress for months.
tion abroad should be a last resort in the face of genuine suffer- Even if the West is prepared to take serious measures
ing. He cites NATO’s bombing of Kosovo in 1999 as a precedent, against Mr Putin, the world’s rising powers may not be in-
but that came after terrible violence and exhaustive efforts at clined to condemn him. But instead ofacquiescing in his illegal
the UN—which Russia blocked. Even then Kosovo was not, like annexation of Crimea, they should reflect on what kind of a
Crimea, immediately annexed, but seceded nine years later. world order they want to live under. Would they prefer one in
Mr Putin’s new order, in short, is built on revanchism, a reck- which states by and large respect international agreements
less disdain for the truth and the twisting of the law to mean and borders? Or one in which words are bent, borders ignored
whatever suits those in power. That makes it no WorldMags.net
order at all. and agreements broken at will? 7
12 Leaders The Economist March 22nd 2014

Cosmology WorldMags.net
Man suddenly sees the start of the universe

The quest to understand reality takes a great leap backwards

I N THE beginning was the

word and the word was “infla-
tion”. That is no blasphemy. It is,
has passed every test applied to it, cannot be reconciled with
quantum theory, which has also passed every test applied to it.
Quantum theory is the theory of small things. It describes
rather, a celebration of human electromagnetism and two less-familiar forces that operate at
curiosity, ingenuity and bloody- the scale of atomic nuclei. Relativity theory is the theory of big
minded persistence in the quest things. It describes the force of gravity. Since inflation is the
to try to find out how the uni- way the universe made the transition from small to big, it is a
verse actually works. good place to look for the missing link.
No one yet knows how the universe came into existence.
Those who believe it was created by God are as free today as Not quite as simple as an apple and a persuasive serpent
they were a week ago to continue in that belief, as are those The gravitational waves detected by BICEP2 date from the be-
who think the whole thing is the chance result of a quantum ginning of the inflationary process and are thus a product of
fluctuation in the nothingness beforehand. But results of a the small, quantum-scale version of the universe. This means
study of the early universe using BICEP2, a telescope located they are quantum phenomena—the first known manifesta-
near the South Pole, where the air is thin and isolation keeps tions of quantum gravity. That confirms the link between rela-
equipment clean, suggest what happened very shortly after- tivity and quantum theory (which no one really doubted). It
wards (see page 82). also gives physicists investigating the link something real to
These findings, announced on March 17th, are of signs of play with in their search for how that link actually works.
primordial gravitational waves. They confirm the theory, de- A little caution is called for. It can be dangerous, in science,
bated among astrophysicists for three decades, that within a to put too much faith in a single set of observations. The gravi-
trillionth of a trillionth of a trillionth of a second of the mo- ty-wave signals that BICEP2 has found—slight fluctuations in
ment it began the universe got bigger. Immensely bigger. A vol- the intensity of the cosmic microwave background, an all-per-
ume of space that started off no larger than an atom in the pre- vading bath of radiation that preserves some features of the
inflation universe would, after inflation, have been about the very early universe—are but a faded palimpsest. They have
size of the solar system. been overwritten time and again by other signals, and these
Apart from the sheer gobsmackingness of this claim, the have had to be scraped away to make the gravitational waves
BICEP2 team’s discovery is important for three reasons. By con- visible. Confirmation using other instruments is needed.
firming inflation it explains why the universe still exists—since Other teams of scientists will now try to find similar evi-
it was inflation which stopped it fluctuating back into the void. dence; new researchers will get excited about the field. This is
By confirming the existence of gravitational waves, it bolsters welcome. The merging of particle physics and cosmology is
Einstein’s general theory of relativity, which predicts them. one of the great intellectual achievements of the past 50 years.
And by linking gravitational waves with inflation it provides a And in showing that the deepest truths of the material uni-
chink through which physicists can peer to try to solve one of verse are to be found by gazing out into the deepest, earliest re-
their field’s biggest mysteries: why general relativity, which cesses of space, it feeds not just the intellect, but the spirit. 7

Law enforcement in the United States

Armed and dangerous

No-knock raids, assault weapons and armoured cars: America’s police use paramilitary tactics too often

EARLY one morning a team of vealed that he said these words immediately after shooting
heavily armed police officers him. Mr Mallory died. His family are suing the police.
burst into the home of Eugene Such tragedies are too common in America. One reason is
Mallory, an 80-year-old retired that the police have become more militarised. Raids by Special
engineer in Los Angeles county. Weapons and Tactics (SWAT) units used to be rare: according to
What happened next is unclear. Peter Kraska of Eastern Kentucky University there were only
The officer who shot Mr Mallory about 3,000 a year in the early 1980s. Now they are routine:
six times with a submachine perhaps 50,000 a year (see page 43).
gun says he was acting in self-defence—Mr Mallory also had a These teams, whose members wear body armour and are
gun, though he was in bed and never fired it. Armed raids can equipped with military-style weapons, were originally in-
be confusing: according to an investigation, the policeman ini- tended to tackle only the most dangerous criminals, such as
tially believed that he had ordered Mr Mallory to “Drop the murderers or hostage-takers. Now they are most commonly
recording re- used to serve search warrants in drug-related cases. The police 1
gun” before opening fire. However, an audioWorldMags.net
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14 Leaders The Economist March 22nd 2014

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2 raided Mr Mallory’s home, for example, because they thought
they would find a methamphetamine factory there. Instead
When the police find assets that they suspect are the proceeds
of crime, they can seize them. Under civil asset-forfeiture rules,
they found two marijuana plants, belonging to a stepson who they do not have to prove that a crime was committed—they
had a California medical-marijuana licence. can grab first and let the owners sue to get their stuff back. The
Some of the uses to which SWAT teams are put defy belief. police can meanwhile use the money to beef up their own
In Maryland paramilitary police have been sent to break up il- budgets, buying faster patrol cars or computers. All this gives
legal poker games; in Iowa, to arrest people suspected of petty them a powerful incentive to focus on drug crimes, which gen-
fraud; in Arizona, to crack down on cockfighting. erate lots of cash, rather than, say, rape, which does not. This is
America’s courts tend to smile on SWAT tactics. They have outrageous. Citizens should not forfeit their property unless
ruled that police may enter a home without knocking if an- convicted of a crime; and the proceeds should fund the state as
nouncing their presence might give a criminal a chance to de- a whole, not the arm that does the grabbing.
stroy evidence, for example by flushing drugs down the toilet.
Such “no-knock” raids carry the advantages of surprise—and Bang! Knock, knock...er, sorry, wrong house
the disadvantages. The police do a difficult and dangerous job, and it is completely
Having armed men burst into one’s home is terrifying. Star- understandable that they do not wish to be outgunned by bad
tled citizens may assume they are being burgled—the “flash- guys. A big show of force can sometimes deter criminals from
bang” grenades that SWAT teams toss in to (temporarily) blind starting a fight. And police departments are right to spend gen-
and deafen their targets tend to add to the confusion. Some erously on defensive equipment such as body armour, which
people shoot back, with tragic consequences. Radley Balko, a increases the chance that officers will come home alive.
campaigning journalist, has identified more than 50 innocent Nonetheless, the militarisation of American law enforce-
civilians who have been killed in SWAT raids. ment is alarming. The police are not soldiers. Armies are
Two factors have pushed the American police to militarise. trained to kill the enemy; the police are supposed to uphold
First, thanks to the “war on terror”, there is plenty of money the law and protect citizens. They should use the minimum
available for big weapons. Between 2002 and 2011 the Depart- force necessary to accomplish those goals.
ment of Homeland Security handed out a whopping $35 bil- That does not mean getting rid ofSWAT teams entirely. But it
lion in grants to state and local police. In addition, the Penta- does mean restricting their use to situations where there are
gon supplies surplus military hardware to police forces at solid grounds to believe that the suspect involved is armed
virtually no cost. That is why the quiet little town of Keene, and dangerous. They should not be used to serve search war-
New Hampshire has an armoured personnel carrier called a rants on non-violent offenders, or to make sure that strip joints
BearCat, which the local police chief said might be used to pro- are code-compliant, or in any circumstance where a knock on
tect its pumpkin festival. the door from a regular cop would suffice. The “war on drugs”
Second, the war on drugs creates perverse incentives. is supposed to be a metaphor, not a real war. 7

Investing in infrastructure

The trillion-dollar gap

How to get more of the world’s savings to pay for new roads, airports and electricity

Global infrastructure I
Investment required, 2013-30, $trn
2010 prices
F YOU have been to New
York’s La Guardia airport re-
But public money can be only part of the solution. The
greater opportunity lies in tapping private capital. Unfortu-
cently, taken a train during Lon- nately, the big global banks which used to lend money to fi-
0 20 40 60 don’s rush hour, tried to drive in nance infrastructure projects are pulling back, as new “Basel 3”
Lagos or endured one of India’s capital rules make such lending less attractive (see page 73).
ubiquitous power cuts, you will The potential pot of gold is elsewhere, in the $50 trillion of cap-
Transport Water have first-hand knowledge of ital managed by pension funds, sovereign-wealth funds, insur-
Power Telecoms
the world’s infrastructure defi- ance companies and other institutional investors. Only 0.8%
cit. According to the World Economic Forum, global spending of this is currently allocated to infrastructure. A tenfold in-
on basic infrastructure—transport, power, water and commu- crease would be a good target.
nications—currently amounts to $2.7 trillion a year when it
ought to be $3.7 trillion. The gap is almost as big as South Ko- From pension funds to power stations
rea’s GDP. And it is likely to grow fast. In principle, investing in a power station or toll road ought to
Much of the money to plug the gap needs to come from the be an attractive prospect for institutional investors. The long
public purse: even in an age of austerity many governments life ofthese assets is a perfect match for the long-term liabilities
should be spending more. With the economy weak and bor- of a pension fund. Infrastructure projects offer reliable cash-
rowing cheap, it is daft that America’s public infrastructure flow, a hedge against inflation, low volatility and returns that
spending is at a 20-year low, even as the country’s roads, are generally not correlated with other assets. In practice,
bridges and dams are rated D+ by the American Society ofCivil though, many money managers have shied away, scared by
Engineers. The most cash-strapped emerging economies have the scale, complexity and political risk involved. Individual
room to cut inefficient subsidies (such as for fuel) and switch pension funds lack the expertise to assess complicated pro-
the money into building better roads and sewers. WorldMags.net jects, too many of which are dreamt up by politicians who care 1
 WorldMags.net

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16 Leaders The Economist March 22nd 2014

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2 more about winning votes than commercial viability. Corrup-
tion is rife and political pitfalls, from angry environmentalists
used to pay for top-notch infrastructure teams.
The second priority is to streamline the system for slicing
to voters furious about rising power prices, are legion. In risk unrelated to a project’s commercial viability. Govern-
emerging economies these dangers are magnified by the pos- ments and international financial institutions like the World
sibility of currency crises. Bank already, for a fee, protect private investors against politi-
But in two areas a few innovations could transform the cal risks, such as the expropriation of their assets. Rich-world
market. The first is the professionalisation of project manage- development agencies also offer guarantees for projects their
ment. Every country needs a competent group of bureaucrats countries’ firms invest in. But the system is small, fragmented
who have the authority and skills to design a pipeline of via- and geared to banks. To encourage the growth of a market in
ble infrastructure deals and the political clout to standardise infrastructure bonds, the big development organisations, led
procurement procedures and other practicalities of getting a by the World Bank, ought to provide a bigger and more stan-
road built or a tunnel dug. Some countries already do this well. dardised menu of credit enhancements and guarantees.
Chile has a National Public Investment System that has dra- These changes could have dramatic results. Infrastructure
matically improved the efficiency of its capital spending. Can- bonds could become as ubiquitous as mortgage-backed secu-
ada and Australia stand out too. But in too many countries rities. That won’t mean every African country gets the road
technocrats tend to be under the thumb of politicians and not network it needs. But it would help ensure that more of today’s
up to the job. In poorer countries aid money could usefully be savings finance the building blocks of tomorrow’s growth. 7

China’s cities

The great transition

The government is right to reform the “hukou” system, but it needs to be braver

China’s urban population

As % of total
C HINA’S future is now firmly 100m ofthe 250m migrants. It could be a significant boon to the
urban. Already around 54% economy, too, enabling migrants, who now save a large pro-
of its people live in cities—and portion of their wages because of fears about the cost of health
Actual Hukou
60 the proportion is rising fast as care, to consume more. But the plan should have gone much
40 ever more jobs are created in of- further.
20 fices, factories and construction
0 sites, luring ever more people You say you want an urban revolution
2003 05 07 09 11 13
from the countryside. There are There are two main areas where it falls short. First, the hukou
now around 250m rural migrants living in cities. Despite many liberalisation focuses on cities with under 5m people. Yet most
wobbles, in the property market (see page 63) and elsewhere, new jobs are being created in the 16 big cities with populations
this extraordinary revolution has been surprisingly smooth: of more than 5m, and most of the dodgy government debt
there are, for instance, very few shanty towns of the sort you seems to be concentrated in the smaller cities whose officials
see in Brazil or India. Yet at the heart of prosperous, urban Chi- are therefore unwilling to fork out for benefits for new urba-
na sits an enormous inequality, based upon the hukou system nites. Large cities can give urban hukou, but only on a compli-
of household registration. cated points-based system which tends to favour the prosper-
To have full access to schools and hospitals in the cities at ous, giving graduates and skilled workers a better chance.
subsidised urban costs, you must have an urban hukou. But if When tried elsewhere, that ends up allowing mainly the elite
you were born in a rural area then your hukou (and that of to migrate. The points-based system should be scrapped and
your children) is registered there—and changing that is very dif- the door opened faster and wider.
ficult. Only 36% of the people who live in cities qualify as resi- The second problem is bigger. Though migrants hate the
dents there. This has, in the past, helped control the flow of way they are discriminated against in cities, many are nervous
people and kept urban labour costs down while letting the about accepting an urban hukou, even if offered, as they do not
new urban middle class retain their privileges. see it as a reliable source of security. Urban welfare systems are
The first generation of migrants was happy just to get paid so new and so imperfect that migrants doubt, with good rea-
more in the cities. Now many complain about how unjust the son, that they will be able to draw on unemployment benefits
system is, and it has begun to look politically dangerous. The or a promised pension, especially if they move to another city.
labour of these poor migrants built China’s new cities; and So they keep one foot in the countryside, holding onto their
they and their children form an increasingly angry urban un- tiny patch of land and never making the break. Even if they
derclass, unable to live the “Chinese Dream” being touted by want to sell their land, they are still not allowed to do so. The
China’s president, Xi Jinping. plan thus needs two other important strands: more cash for
That explains the importance of the government’s long de- public services in the cities, and allowing the establishment of
layed “people-centred” plan on urbanisation, released on a rural land market, so that the buying and selling of land
March 16th (see page 64). It wants 60% of China’s people to live could help enrich farmers just as it has enriched urbanites.
in cities by 2020, putting it broadly in line with the current av- These are massive changes. But success in the next stage of
erage for countries with similar income levels to China, and it China’s epic modern development depends on them. Only
wants 45% of them to have full urban hukou. then can it become the urbanised, modernised nation it longs
This is a huge change. It involves giving full urban hukou
WorldMags.netto to be, and only then can the Chinese Dream become reality. 7
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18
Letters The Economist March 22nd 2014

A plea to China
WorldMags.net
botched suicide attempt: tion in childhood death-rates Generational leaps
Rector shot himself in the and AIDS mortality, suggest
SIR – Following the tragic head. Surely it is the mental that a demographic dividend SIR – You are fond of quoting a
killing of 29 innocent people in state of the accused at the time might now be on the horizon. measure of social mobility that
Kunming, and the self immola- of the murder that is relevant? The continent lost out by finds only 9% of Americans
tion of120 Tibetans in recent TOBY POYNDER beginning its fertility decline make the leap from the lowest
months, you pronounced that London when investments in family to the highest quintile in their
“the only way forward” is for planning and population lifetime (“A memo to Obama”,
China to show Uighurs and Men’s health policies were falling drastical- March 1st). This is a very high
Tibetans “how they can live ly, but that disinterest is now in bar. In previous studies, social
peacefully and prosperously SIR – We would like to assure abeyance. As for hopes for mobility has been defined as
together within China” (“The your readers that testing for a economic prosperity, sub- moving up one quintile in a
burden of empire”, March 8th). protein called prostate-specific Saharan Africa grew by a generation, not four.
But you did not say how that antigen (PSA) for early detec- remarkable 4.7% in 2013, or by Both my grandfathers were
objective might be achieved. tion of prostate cancer is not, as 6% if you exclude South Africa. in the first quintile. My father
The underlying issue is the one book puts it, a “hoax” Much will depend on policies took his education and ambi-
gulf between the theoretical (“Help or harm”, March 8th). It adopted by governments, but tion seriously and got us into
rights for minorities enshrined is correct that PSA testing does the imminent demographic the middle quintile. My sister,
in China’s constitution, and have a limited ability to detect dividend and the resurgent brother and I were the first
the administrative practice on the presence of cancer. And economy augur well for the college-educated members of
the ground. The theoretical PSA levels can sometimes continent. our family and chose three
protection of language, cultur- increase because of benign Finally, one may add that different routes into the top
al tradition and religious belief conditions. But we do not Africa’s economy not living up quintile. Isn’t that a better
is, in practice, experienced as agree that PSA is a flawed to the forecasts of experts is measure of mobility?
repression, uncontrolled marker, though testing can be more a comment on the ex- STEVE WATSON
economic development and improved. perts than on the continent. Lynnfield, Massachusetts
inward migration of the major- New biomarkers, such as ALAKA BASU
ity Han Chinese to the regions. the prostate health index, Professor of development SIR – Is it only partly correct to
A proper constitutional which is derived from PSA and sociology claim, as you say, that “in-
arrangement would commit to includes in its mathematical Cornell University equality is driven by tech-
genuine dialogue between formula some isoforms of PSA, Ithaca, New York nology and globalisation”.
communities and be sincere in have shown to be more accu- KAUSHIK BASU This cannot be the whole story.
seeking an outcome that is to rate in predicting cancer and Chief economist European countries are just as
the advantage of all and avoiding unnecessary biopsy. World Bank open and just as technological-
respects the rule of law. America’s Food and Drug Washington, DC ly advanced (if not more so)
China is open to change. In Administration approved it than America, yet the rise in
declaring war on pollution, for recently, and it has been avail- An eye for Picasso inequality in America has
example, Li Keqiang, the prime able in Europe since 2011. been much more pronounced.
minister, has recognised that Doctors, and their patients, SIR – Your story about how Only Britain comes close to
economic growth on its own is have an interest in avoiding technology is being used to matching the trend seen on
not the answer to all China’s overtreatment. We should use restore faded paintings (“Artful this side of the Atlantic. Per-
problems and he intends to therapies that selectively illusion”, February 22nd) haps you should investigate
pursue “a different kind of ablate known prostate cancers reminded me of how Pablo the choices that politicians
development”. For the sake of while preserving existing Picasso did the exact opposite, make regarding inequality.
China’s minority population functions, such as continence by creating an artistic effect RYAN HASSETT
of100m, and for the good of and sexual potency, and that would become apparent New York
the nation as a whole, we hope minimising lifetime morbidity. only in the future as the mate-
that Beijing’s willingness to MASSIMO LAZZERI rials of his art degraded. Ron- Sauce for the Russian goose
consider a new way forward GIORGIO GUAZZONI ald Penrose, in “Scrapbook
extends to political as well as Department of urology 1900-1981”, described how SIR – It turned out as you said
environmental concerns. San Raffaele Turro hospital Picasso used white chalk on (“A predictable outcome”,
THUBTEN SAMDUP Milan white paper to depict his eyes March 15th). More than 95% of
Office of Tibet in one of his last self-portraits. Crimeans have voted to leave
London Fertile grounds for hope In its original state the eyes Ukraine. Can we now expect a
would have appeared as similar plebiscite to be held in
An infamous case SIR – Although it is true that sightless blank voids. But, as Chechnya—95% Chechen and
birth rates in Africa have not Penrose noted, they will 2% Russian—on whether to
SIR – To argue against putting fallen as much as the UN “become visible with age as leave Russia?
criminals with low-IQ on expected there is more reason the paper darkens bringing DAVID BOOK
death row you trotted out the to be optimistic about the light back into his eyes, an Monterey, California 7
case of Ricky Ray Rector, who future than you think (“The allegory of his magical power
before his execution in 1992 dividend is delayed”, March to give sight to the blind, and
asked for a portion of his last 8th). If one goes by the histori- an example of his ability to Letters are welcome and should be
addressed to the Editor at
meal to be saved “for later” cal experience of fertility enlist the co-operation of time The Economist, 25 St James’s Street,
(“Death for the mentally dis- declines, several features of and its alchemical powers over London sw1A 1hg
abled”, March 8th). The man contemporary life in Africa, matter.” E-mail: letters@economist.com
was clearly mentally impaired, such as the recent increase in IAN WHITTINGHAM More letters are available at:
Economist.com/letters
but only as the result of a contraceptive use and reduc- Heathfield, East Sussex
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Executive Focus 19

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The Economist March 22nd 2014

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20
Executive Focus
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The Economist March 22nd 2014

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Executive Focus 21

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The Economist March 22nd 2014

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 Digital highlights
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Visit economist.com for news, blogs, audio, video, interactive graphics and debates
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A case of the vapers Should she stay or should she go? Of pulp fiction and James Bond
Wherever big tobacco marches, its lawyers Justice Ruth Bader Ginsburg, the Supreme Olga Sobolev, an academic at the London
are never far behind. So it is proving with Court’s fiercest liberal, recently turned 81. School of Economics, discusses the ways
e-cigarettes, as a patent war has broken out She may be molasses-like on her feet, but she writers on both sides of the Iron Curtain
between a subsidiary of Britain’s Imperial shows no signs of intellectual decline. Yet responded to the cold war. Neither side
Tobacco and some of America’s biggest even some of her strongest supporters say produced many great works, but mostly
manufacturers of vapour smokes her 21st year on the bench should be her last propaganda, pulp fiction and spy novels

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Blasphemy laws give representatives 1Malaysia Airlines Flight ÒYou can have equality or meritocracy, but you
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The plot thickens
Pakistan is by far the worst offender othersÕ inherited fortune. [Remove them] if

2 Language study
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Transport: Fragmented flag-carriers
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When the seven former Yugoslav “Inherited wealth”, March 18th 2014

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 Briefing The Ukraine crisis The Economist March 22nd 2014 23

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Responding to Mr Putin Also in this section

24 Violence in Crimea
25 The West’s sanctions
26 Germany’s Russia policy
KHARKIV AND KIEV
Russia wants a divided Ukraine, and despite the promise of the revolution it may 26 Russian money in Britain
well get one

V LADIMIR PUTIN, announcing the an-

nexation of Crimea in the Kremlin’s
gilded Hall ofSt George, sounded like a vic-
Maidan revolution was about. It went be-
yond the overthrow of Viktor Yanuko-
vych, the kleptocrat president. It was the
raine which would allow a de facto Rus-
sian protectorate in the southern and east-
ern parts of the country, and thus forestall
tor who felt his place in history secure— birth of a Ukraine that is more than a geo- any further movement towards the Euro-
along with Vladimir I, who adopted Chris- graphical side-effect of the collapse of the pean Union. But Mr Putin’s words about
tianity in Crimea, and Catherine the Great, Soviet Union, but instead a nation-state the impossibility of fighting the will of the
who conquered it. Russia’s political elite re- with its own identity—a nation that has people may yet come back to haunt him.
sponded with thunderous standing ova- outgrown its old politicians, but has yet to Three factors allowed Mr Putin to an-
tions and tears and cheers for Russia. find a responsible elite to replace them. nex Crimea easily and without bloodshed.
It was the speech of a man whose ambi- The rise in national consciousness can The first was the power of the Russian
tions go far beyond grabbing Crimea. But it be observed in a steady flow of people—in- forces already legitimately stationed in Cri-
was not a speech preparing the country for cluding Ukrainians for whom Russian is mea (it is not only home to Russia’s Black
a lengthy or costly struggle. As Mr Putin their mother tongue—enlisting as volun- Sea Fleet—there are several other military
pointed out with glee, Crimea was taken teers prepared to fight for their new coun- bases scattered across the peninsula); the
“without a single shot”. Fighting against try. One of them, Denis Shevlyakov, a 46- second was the approbation of the ethni-
the will of the people is difficult, if not im- year-old Russian-speaker, says, “I dodged cally and culturally Russian population in
possible, he added. military service in the Soviet Union; I nev- Crimea, which has longed to regain its
Mr Putin’s success in taking Crimea er thought I would volunteer to fight for place as part of the Soviet empire. The third
demonstrates his strengths—an ability to Ukraine.” was the weakness of the interim govern-
appeal to people’s yearning for what they ment in Kiev, which was still being formed
miss about the past, and a skill at using the The will of the people when Mr Putin struck. It was unable and
legacies of that past to his own ends. He ex- Nobody knows what Mr Putin will do unwilling to fight back in any way, and re-
cels at deepening and exploiting existing next. He probably realises that Kiev, which lieved to be restrained by Western leaders
weaknesses, and there is no shortage of he refers to as “the mother of Russian cit- acutely aware that they could not step in to
such weaknesses in Ukraine. Mr Putin is ies”, is lost to him. But he will try to claw defend Ukraine themselves.
right in saying that Ukraine’s post-Soviet back what he considers to be part of the The Ukrainian troops who defied the
rulers busied themselves dividing the “Russian world”—a concept which has no Russians in Crimea with dignity, if not suc-
spoils, instead of building a state. It is un- legal borders. If Ukraine implodes, as in its cess, are heroes to their fellow country-
derstandable that he passes over Russia’s post-revolutionary weakness it might, he men. The government, though, is seen as
persistent willingness to aid and abet them will pick off some pieces. The military having let them down. This could strength-
in their schemes. threat remains. And at the very least he en the hand of Ukraine’s right-wing na-
But that is precisely what February’s will insist on a deep federalisation of Uk- tionalists. Their mainstream party, Svo- 1
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24 Briefing The Ukraine crisis The Economist March 22nd 2014

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2 boda, has been losing support sharply in
recent months, after a Nazi-style torch pro-
Putin being granted the right to use mili-
tary force in Ukraine. The pro-Russian poli-
did not stop Russian television reporting
“ongoing” troubles late into the night).
cession in January which appalled most ticians who have emerged there are mar- Gennady Kernes, Kharkiv’s mayor, says
Maidan supporters, but was a gift to Rus- ginal figures who would not be able to the rally was “illusion creation” designed
sian propagandists. Now thugs from Svo- control the region even if Moscow were to as a possible justification for future action.
boda have harassed the head of Ukraine’s move in and install them as puppets. Russia does not need to move now, he says;
national television channel for broadcast- On the day of the Crimean referendum it can afford to wait until the Ukrainian
ing Mr Putin’s speech—providing Russian pro-Russian separatists staged rallies in Do- economy worsens, a process Russia is
television with more useful footage. netsk and Kharkiv calling for votes there, helping along by blocking Ukrainian ex-
The government has failed to counter too. Neither amounted to much. In Khar- ports. For his part, Mr Kernes, who has
Russian propaganda; for example, the fact kiv a couple of thousand pro-Russian prot- switched sides more than once over the
that many of those gunned down on Inde- esters gathered by the statue of Lenin (one past decade, says he recognises the interim
pendence Square by Mr Yanukovych’s of the few left standing) and listened to government and resents any talk of seces-
snipers were from the Russian-speaking rather elderly activists before unfurling a sion. The government distrusts him, but
east is not widely appreciated. This is part vast Russian flag. The stand-off between needs his support in the region—an ambi-
of a general failure to bring together the in- the police and pro-Russian protesters may guity reflected in the fact that Mr Kernes, as
dustrial east, where a nostalgia for the So- have aped Maidan, but it was not part of a the subject of a criminal investigation, is
viet Union is still common, and the agricul- mass movement, more a bit of street the- under night-time house arrest.
tural west, which is more individualistic atre, carefully choreographed for the cam- One of the weakest links in the east is
and more keen on the European Union eras. By seven o’clock it was all over (which Donetsk, a coal-mining region controlled 1
(see map). It took Arseny Yatseniuk, the
prime minister, three weeks to make a tele-
Violence in Crimea
vised appeal to the Russian-speakers in the
south and east that reassured them about
the status of their language and promised Hugs and thugs
more autonomy for local governments.
SIMFEROPOL
Things might have gone much better had
Some Crimeans welcome annexation, but violence is not far from the surface
the negotiations which produced the gov-
ernment included political leaders from
the east and south in the first place. O N THE day Russia annexed Crimea, a
Tatar was being buried in Simfero-
pol, the region’s capital. Reshat Ametov, a
of the peninsula’s population, is on the
other hand ecstatic.Vladimir Shakh-
vorostov, a Crimean Cossack ataman,
Street theatre 39-year-old construction worker and said Russians had felt oppressed by the
Russian forces have been working to drive father of three, had been seized by un- Ukrainian authorities. “Crimea was
the different parts of the country further identified men in combat fatigues after never part of Ukraine and people never
apart, using propaganda, agents of influ- taking part in a pro-Ukraine rally next to spoke Ukrainian here,” he said. “How
ence and provocateurs. Andriy Parubiy, a Crimea’s regional government on March would you like it if people came to your
former Maidan leader who now heads Uk- 3rd: his body, bearing signs of torture, was home and dictated what language you
raine’s National Security and Defence found on March 16th, the day of Crimea’s could and couldn’t speak?”
Council, says several Russian intelligence referendum on joining Russia. On the laptop screen around which
officers have been detained in the country. His fate highlights the undertow of Mr Shakhvorostov and his friends were
But despite some violent clashes in Do- thuggery and violence that has tugged at gathered, Vladimir Putin was accompa-
netsk and Kharkiv over the past week, en- Crimea since Russia sent its troops into nied by Sergei Aksenov, the head of a
croaching on the east would not be as easy the region in the wake of the February Crimean Russian separatist party pro-
as it was in Crimea. Valery Khmelko of the revolution. “Now there are Cossacks and claimed as prime minister of Crimea in
Kiev International Institute of Sociology soldiers with automatic weapons patrol- February. Hyperactive and loud, he has
says that although people in the south and ling the streets,” says Seitislyam Kish- set a new benchmark for governing by
east of the country favour good relations veyev, head of Tatar programming at the Twitter. He has tweeted that Crimea will
with Russia, some 70% disapprove of Mr state television company, Krym. “How switch to Moscow time; that local elec-
can you feel safe?” tions will be held in September 2015; that
A number of reporters have been the rouble will start to circulate in April.
Split decision beaten by “self-defence” forces—vigilan- There are darker messages: that all Ukrai-
If there were a referendum next Sunday to join the tes in black knitted caps, red armbands nian property in Crimea will now be
EU or a customs union with Russia, and military uniforms who now guard nationalised; the suggestion “South-east
how would you vote?
most official buildings in Crimea. Some [Ukraine]: it’s time”.
EU Customs union Wouldn’t vote
Maidan activists from Kiev have been Some now fear Crimea will see the
% polled by Ukrainian region, February 2014
abducted—among them Alexei Grit- kind of anarchic carve-up of property
senko, the son of a former Ukrainian and business that plagued Russia in the
defence minister, who was released on 1990s. In what may be a sign of things to
UKRAINE
Kiev
March 20th. One Ukrainian soldier and come armed men in ski masks burst into
10.7 9.3 one self-defence activist were killed in a a car dealership in Simferopol on the day
Lviv CENTRAL 13.4 Kharkiv
shoot-out at a Ukrainian army base on of Mr Putin’s speech. The business is
WESTERN EASTERN
the outskirts of Simfereopol. The circum- reportedly owned by a partner of Petro
CHERNIVTSI Donetsk
SOUTHERN 12.1 stances of the deaths are still unclear; the Poroshenko, a business tycoon and a
45.5 Total
population fate of the Ukrainians in the bases, sur- strong contender for presidential elec-
2013, m rounded by the self-defence forces and tions in Ukraine. A woman coming to
CRIMEA
Simferopol
Russian troops, is a daunting question. pick up her car, which was being serviced
Sebastopol The mood among some of Crimea’s there, asked to be let in. “Tomorrow,” one
Sources: State Statistics Service of Ukraine; k ethnic Russians, who make up about 60% of the soldiers barked.
Kiev International Institute of Sociology (KMIS)
WorldMags.net
 The Economist March 22nd 2014 Briefing The Ukraine crisis 25

WorldMags.net
2 by Rinat Akhmetov, Ukraine’s richest oli-
garch and Mr Yanukovych’s long-term po- A growing sense of self
pects to be compensated for any further
losses. For Greece, desperately seeking
litical partner. “He knows that any strong Support for Ukrainian independence, % polled new growth, the prospect of economic
power in Kiev is a threat to him,” one se- sanctions that might keep Russian tourists
COMMUNISTS
nior Ukrainian politician says. But he does WIN PUTIN WINS YANUKOVYCH away is the cause of much worry.
not want to cede control over his region to PARLIAMENTARY RUSSIAN WINS Targeted sanctions can be hard to en-
ELECTION PRESIDENCY PRESIDENCY
Mr Putin, either. A federal structure and a force: in the case of Libya some transac-
100
fractious parliamentary republic that CHECHEN ORANGE tions slipped through the net simply be-
WARS REVOLUTION
would allow him to pull strings from be- STARTS 90 cause there are so many ways to spell
hind the stage would suit him much better. 80 Qaddafi. More than 100 lawsuits against
Decentralisation is necessary; there is a targeted sanctions of various sorts have
70
consensus in Ukraine about giving more been brought in the European Court of Jus-
RUSSIA
economic autonomy to elected mayors. INVADES 60 tice over the years, which has led to a tight-
Moving too far down the road to federal- GEORGIA ening of procedures. Sanctions must be
50
ism, though, would make the desire of subject to due process and the EU must pro-
many to move the whole country into the 1 2
40 duce evidence to back its pursuit of specific
European mainstream impossible (which 1991 95 2000 05 10 13
people. This makes the commander of the
is why Mr Putin likes the idea). Black Sea Fleet easier to target than a presi-
Source: Kiev International Institute of Sociology (KMIS)
Using Mr Yanukovych as a legal instru- dential adviser who may have much more
ment, the Kremlin has already refused to influence, and more to lose, but whose
recognise the elections set for May 25th. If it Despite the threats, there is a chance links to Crimea are not so obvious.
manages to stop the ballot in the south and that unity will prevail. For all its govern- Both the American and European gov-
east of the country, or to cast doubt on its ment failings and regional differences, sup- ernments say that their measures are just a
results, the new Ukrainian president will port for Ukraine’s sovereignty has grown start and can be extended, depending on
come to office crippled. If it foments vio- steadily over the past two decades (see what Russia does next. Even if the lists are
lence, things could get very nasty, not least chart). A generation has grown up with it lengthened to include the families of the
because Ukraine lacks motivated and pro- and wants its children to enjoy it. As Ana- main targets, the sanctions will fall far
fessional security services. The police toly Gritsenko, a former defence minister, short of the chokehold on Iran’s economy.
were, until a few weeks ago, fighting the says: “We will never agree if we think of Those sanctions were comparatively easy
people now in power; they are demoral- Ukraine as the land of our fathers. But we to put in place because the country was al-
ised and distrusted. Some see them as a can easily agree if we talk about Ukraine as ready cut off from the world economy. This
source of sabotage. the land of our children.” 7 is not the case for Russia. “Tough sanctions
would mean saying to BP, Exxon, Chevron,
Shell, Boeing and Siemens that they can’t
The West’s sanctions do business in Russia,” says Fiona Hill of

Follow the roubles

the Brookings Institution, a think-tank.
This would not only damage Western com-
panies, but also Western governments, Ms
Hill says, which could expect embarrass-
ing videos squirrelled away by Russian
spies to start appearing on the internet.
Even so, at their summit which begins
BRUSSELS AND WASHINGTON, DC
on March 20th, after The Economist went to
How America and Europe hope to put pressure on Russia
press, European leaders were sure to feel

D URING the cold war, strategists in the

West worried that their societies were
at a disadvantage because they were less
deputy prime minister, Dmitry Rogozin
(who as ambassador to NATO liked to give
AK-47s out as gifts) as well as members of
pressure to come up with something stron-
ger. One obvious possibility would be for
France to suspend its delivery of two Mis-
willing to put up with the inconvenience the Duma, presidential advisers and Uk- tral-class amphibious assault ships to Rus-
victory might require. Russia’s return to raine’s ex-president, Viktor Yanukovych. sia. The contract was controversial even in
disturbingly Soviet behaviour has brought The European list, by contrast, consists of better times, and has since become an em-
with it a revenant of the same idea: that the members of the armed forces. barrassment. Britain’s decision to suspend
West is too greedy for Russian money to Those named will be unable to travel to military sales and co-operation with Rus-
pass meaningful sanctions against mem- America or the EU, and any assets they sia may be an attempt to nudge France to-
bers of Vladimir Putin’s government. For hold in either place will be frozen. Ameri- wards this. Laurent Fabius, France’s foreign
evidence, see the lack of a response to the can and European firms will be banned minister, has said action on the ships
murder of Alexander Litvinenko in a Lon- from doing business with them. The Trea- would need to be matched by other coun-
don sushi restaurant and to the war in sury says this will hurt even those who do tries: “I’m thinking of the British in particu-
2008 between Russia and Georgia. Target- not have assets in America because they lar to do something equivalent with the as-
ed measures taken after the annexation of will be unable to use dollars in any tran- sets of the Russian oligarchs in London”
Crimea have yet to banish this suspicion. sactions, and because international banks (see next page).
On March 17th, arguing that the pro- are wary of attracting the attention that For the moment, Western governments
Russian referendum in Crimea had no le- might come from trading with them. are unwilling to sacrifice much for Uk-
gitimacy, the American government an- The greater caution of the European list raine. Isolating Russia would do real harm
nounced sanctions against 11 prominent reflects the EU’s internal divisions. Poland, to the world economy; registering a protest
Russians and Ukrainians. The European Sweden and the Baltic states are hawkish; over Crimea does not yet seem worth that
Union issued its own list, which though Greece, Cyprus and Italy lead the doves. pain in Washington, Brussels or Berlin (see
longer—21 people—was less aggressive in Cyprus, still in recession after the collapse next page). Nor is there any certainty that
going after members of the Russian gov- of its offshore banking system, which ca- tougher measures would change what
ernment. The American list includes the ters heavily to wealthy Russians, says it ex- Russia does next. 7
WorldMags.net
26 Briefing The Ukraine crisis The Economist March 22nd 2014

Germany’s Russia policy WorldMags.net blacklisting officials deemed at fault dur-

ing the crisis—have not, admittedly, im-
Which war to mention? pressed Mr Putin much. Subsequent steps,
in the form of economic sanctions, could
hurt a lot more.
The pain would be shared. Though Rus-
sia was only Germany’s11th-largest trading
partner in 2013, after Poland, some
BERLIN
300,000 German jobs depend on exports
For Angela Merkel and her foreign minister, the crisis is a throwback to worse times
there. Russia in turn mainly supplies gas

H ILLARY CLINTON, among others, has

reportedly compared Vladimir Putin’s
annexation of Crimea to Adolf Hitler’s in-
Russia: Wandel durch Handel (change
through trade) as the rhyming slogan has it.
(Leave the bullying to the Americans with
and oil, 36% and 35% of Germany’s imports
respectively. Russia might react to eco-
nomic sanctions by reducing those ex-
vasion of Czechoslovakia in 1938, which their cowboy diplomacy, went the sub- ports. A report by the Centre for European
Hitler justified on the basis of protecting text.) Policy Studies (CEPS), a Brussels think-
ethnic Germans living in the Sudetenland. Mrs Merkel’s predecessor, Gerhard tank, argues that the EU has full reserves
Angela Merkel, the German chancellor Schröder, took this approach furthest, be- and could import more gas from Algeria,
and de facto leader of the European Union coming pals with Mr Putin and, soon after Norway and Nigeria, though at a price.
in dealing with Vladimir Putin, has also leaving office, joining the board of a pipe- Other experts, such as Alexander Rahr at
been looking to history for precedents. But line company carrying Russian gas to Ger- the German-Russian Forum, an organisa-
she concentrates on the events leading up many. Even now, Mr Schröder preaches tion for informal exchanges between the
to the first world war, not the second. That empathy for Mr Putin, arguing that his ac- two countries, think that doing without
choice of analogy says much about how tions in the Crimea are no different to Russian gas is at best years away.
Germany is handling the crisis. NATO’s intervention in Kosovo in 1999, in There are many more measured steps
As a former East German, Mrs Merkel which Germany took part under Mr to be taken before things escalate that far. If
has no illusions about Mr Putin, who Schröder. That is a “shameful” compari- they did, Germany’s business elite and
learned fluent German as a KGB agent in son, Mrs Merkel told parliament: in Kosovo public might yet support such drastic mea-
her country during the 1980s. She sees his NATO was intervening to stop atrocities. sures; but only after they had seen Mrs
empire-building as an atavism that has no And yet Germany’s Russia policy under Merkel exhaust every other option. 7
place in postmodern Europe—the sort of Mrs Merkel and her foreign minister, Frank-
“conflict about spheres of influence and Walter Steinmeier, will always be more nu-
territorial claims that we know from the anced than its more gung-ho allies would Russian money in Britain
19th and 20th centuries, conflicts that we like. Mrs Merkel’s style of crisis manage-
thought we had transcended,” as she told
her parliament on March 13th. Unless Mr
ment, as displayed during the euro crisis, is
essentially incrementalist. Mr Steinmeier
Honey trapped
Putin stops, she added, Germany and its al- used to be Mr Schröder’s chief of staff and
lies will incrementally step up their resis- shared his approach. And both are fasci-
tance. She ruled out a shooting war, but not nated, if not haunted, by history; having re-
an economic one. cently read the bestseller “The Sleepwalk-
London has more to lose than most
By the standards of German foreign ers” by Christopher Clark, an Australian
when it comes to scaring off oligarchs
policy in general, and specifically its rela- historian at Cambridge who speaks flaw-
tions with Russia, such a tough tone is new.
Starting with Ostpolitik (Eastern policy) in
the 1970s, Germany has preferred engage-
less German, they are determined not to
repeat the mistakes of1914.
Mr Clark’s protagonists are sleepwalk-
T HE charity ball planned for this May by
the Friends of Dulwich College, a
school in South London that charges
ment to confrontation when it comes to ers because, in the weeks following the as- £5,500 ($9,100) a term in fees, was to have
sassination of Franz Ferdinand, they failed been a lavish affair. With a Russian theme,
to communicate or change course, trap- and a lot of Russian parents on the organis-
ping themselves in seemingly inevitable ing committee, it included Aeroflot among
cycles of escalation and mobilisation until its sponsors. In the light of the Ukraine cri-
disaster struck. On March 14th, in the Ba- sis, though, it has been quietly cancelled.
roque atrium ofBerlin’s German Historical Presumably the idea of the well-heeled-
Museum, Mr Steinmeier hosted a debate and-educated whooping it up as Cossacks
between Mr Clark and a German histori- and babushkas was thought untimely.
an, Gerd Krumeich, about the lessons of Russian wealth has permeated the up-
1914 for today. The most relevant one, said per reaches of society in Britain more com-
Mr Steinmeier, is what can happen when pletely than in any other Western country.
dialogue stops and diplomacy fails. It is The amount of money that post-Soviet oli-
crucial not to drive into “dead ends”, Mr garchs have pumped into “Londongrad”
Steinmeier went on, but to create “exits”. means, say critics, that David Cameron’s
Sanctions and other measures must government will never crack down on
come step by step, giving Mr Putin chance them, no matter how incensed it is by Rus-
after chance to stop further escalation. Mrs sia’s enormities. Accidentally revealed
Merkel and Mr Steinmeier have been briefing notes stating that London’s finan-
speaking to Russia more than any other cial centre, the City, should not be closed to
Western leaders, with nearly daily phone Russians seemed to bolster the case.
calls in recent weeks. No matter what hap- Britain grants three-year “investor”
pens, Germany will keep talking. visas to foreigners who invest £1m or more
The first two sanctions—suspending in government bonds. Two years later they
Much more talk than trust talks about easing visa requirements and can buy residency for £10m as long as they 1
WorldMags.net
 The Economist March 22nd 2014 Briefing The Ukraine crisis 27

WorldMags.net who bagged somewhere between £3m

and £10m for representing Roman Abra-
movich, the billionaire who owns Chelsea
football club, in a legal battle with the late
Boris Berezovsky, another expatriate ty-
coon. The case generated legal costs of
around £100m.
With so much at stake, it is not surpris-
ing that British officials are thinking twice
before going after the oligarchs. The City is
a more international financial centre than
Wall Street, which is fuelled by a vast do-
mestic market, and attacking Russian plu-
tocrats would not just have costs in itself; it
might also scare off plutocrats from other
countries. “The British are not convinced
that cracking down on its Russian rich will
hurt Putin, and they know that persecuted
wealth would eventually leave for places
Some of London’s charms like Hong Kong and Dubai,” says an advis-
er to Russian investors in Britain.
2 have held on to the bonds. Russians were known for their secretive shell companies, Listing requirements for share offerings
granted 433 of these visas between the do well out of this. A leading BVI lawyer by oligarch-owned companies were made
third quarters of 2008 and 2013, more than says that Russian clients make up 15-20% of a bit stricter just before the latest crisis. Fur-
any other nationality. Only the Chinese his business. Only the Chinese are as ac- ther tightening could follow. But barring a
came close, with 419. Dulwich is one of tive. The lawyer notes that business from serious escalation in other parts of Uk-
dozens ofsmart British schools and univer- Russians is up slightly in recent weeks. raine, says the adviser, the oligarchs expect
sities that have made room for the oli- London is the main foreign capital-rais- to continue enjoying their “gentlemen’s
garchs’ children. According to the Indepen- ing venue for Russian firms, many of agreement” with Britain, which leaves
dent Schools Council, 8.3% of private which crave a listing there to gain interna- them free to spend as they like as long as
schools’ non-British pupils last year were tional financial respectability. Some 28 they stay within some limits, such as not
Russian. That could mean up to £60m a Russian firms, with a market value of £260 trying to buy big financial institutions.
year in fees. The number of Russian pupils billion, are listed on London’s main ex- If Britain did decide to get tough on oli-
has doubled since 2009. change (compared with just two in New garchs on good terms with Mr Putin, it
Oligarchs are keen buyers of London York). Another15 Russian-focused firms are would face problems. It would be hard to
mansions and penthouses. According to on the AIM market for growth stocks. Doz- justify picking on businessmen who, how-
Savills, an estate agency, 4% of buyers in ens more have depositary receipts (special ever chequered their backgrounds, played
“prime central” areas, such as Chelsea and overseas shares) that are traded in London. no role in stirring up trouble in Crimea.
Westminster, are Russians, spending £6.3m Some $46 billion of Russian stock has been Seizing Chelsea from Mr Abramovich, as
on average. Interestingly, another estate sold in London IPOs since 1996, according some have proposed, would be a banana-
agent says that he recently got a “peculiar” to Dealogic. republic response—even if it might please
call from a Russian client eager to sell two The fate of offerings in the pipeline—in- Arsenal fans and those who blame house
large properties immediately, which might cluding a bank and two retailers—is now prices on foreign wealth.
possibly be connected to the crisis. uncertain, more because of market condi- There is also the small issue of the rule
The number of properties registered to tions than from a fear that listings might be of law. The Russians’ overpaid counsel
Russians understates the true total by fail- blocked. Underwriters sneaked in an offer- would have a field day picking holes in the
ing to capture offshore structures fronted ing by Lenta, a supermarket chain, days be- legality of sanctions or seizures. London is
by nominees, of which Russians are partic- fore the crisis erupted. Its share price subse- full of lawyers experienced in asset-recov-
ularly fond. Britain’s offshore satellites, in quently tumbled by 15%. ery litigation, and well versed in exploiting
particular the British Virgin Islands, Transactions in London don’t just puff the difficulties of linking this pool of mon-
up the issuing firms’ reputations. They ey to that crime. The most egregious klep-
have the same effect on the wallets of the tocratic excess can be devilishly hard to es-
Top of the form investment bankers, lawyers, accountants tablish to the satisfaction ofthe courts. This
British tier-one investor visas granted and spin-doctors who offer advice. The may explain why the sanctions an-
July 2008 to September 2013, % of total fees are particularly juicy for underwriters. nounced this week were against officials
0 5 10 15 20 25 30 Fees on debt offerings by Russian firms in with undisputed links to Russian decision-
Russia
London have been running at almost making over Crimea.
$300m annually in the past few years, ac- There is another, more promising set of
China
cording to Thomson Reuters. targets, however: the people in charge of
United States
Silks have done well too. Between state-run Russian companies, some of
Egypt March 2008 and March 2013, almost two- whom are known to have expensive pads
India thirds of all litigants in the High Court’s and business interests in Western capitals.
Kazakhstan commercial division came from overseas. A plush Hampstead house, for instance,
Iran The largest contingent was Russian, say belongs to the son of Vladimir Yakunin,
Pakistan lawyers. Senior barristers have come to ex- the head of Russia’s railways and a chum
Australia pect a “Russian premium” of up to £1,500 of Mr Putin’s. But go after bosses at a firm
Canada an hour (on top of the “brief fee”), accord- like Rosneft, and you risk traumatising
ing to The Lawyer, a trade paper. Some call your own corporate titans. BP has a 20%
Source: Home Office
it the “Sumption effect”, after a barrister stake in the giant state oil producer. 7
WorldMags.net
WorldMags.net

WorldMags.net
 The Economist March 22nd 2014 29
Britain
WorldMags.net Also in this section
30 A radical pensions reform
31 Labour lurches left
31 Cutting the price of carbon
34 Baby steps on housing
34 HS2: paging Manchester
36 The gumming-up of Britain
37 Bagehot: Osborne to rule

For daily analysis and debate on Britain, visit

Economist.com/britain

The budget financial crisis (see charts on this page).

Not for turning

Despite the pressure on households,
the chancellor is not for turning. He lacks
political room for such a manoeuvre; he
cannot claim credit for the rebound while
also urging a change of course to secure it.
Instead, Mr Osborne patted himself on the
back, suggesting “many chancellors...
A long slump did not persuade George Osborne to change his economic
would be tempted to squander the gains”
policy—and the recovery won’t either
to secure electoral victory. Not he.

F OR most of George Osborne’s tenure as

chancellor of the exchequer, budget
days have been sombre affairs, each a bit
by 2.7% in 2014. More people are working
than ever before, despite continued de-
clines in public-sector employment. The
The budget is therefore a modest thing,
seeking to deliver a grab-bag of fairly cheap
policy measures in the hope of winning
bleaker than the last. Only a year ago the one-month unemployment rate dipped to votes (see Bagehot). The political ramifica-
British economy looked on the brink of a 6.9% in January (the official rate is 7.2%). The tions will almost certainly prove more im-
triple dip into recession. Its fortunes have number of Britons claiming jobseekers’ al- portant than the economic ones: the OBR
since improved dramatically. In his budget lowance fell 3.5% in the year to February: a reckons the chancellor’s changes will have
address on March 19th, Mr Osborne boast- further sign of labour-market strength and a negligible effect on growth.
ed that British GDP growth is the fastest in a dose of fiscal good news, since it reduces Households will be offered a child-care
the rich world. With an election looming pressure on benefits. credit worth up to £2,000, helping as many
in May 2015, one might then have expected For all that, a robust economic recovery as 2m families, according to the govern-
the chancellor to tap-dance to the podium. is not yet in the bag. Though business in- ment. Continuing the pattern of the past
Instead sobriety (and a bit of finger vestment is picking up at last, growth has few budgets, Mr Osborne will lift the per-
wagging at the spendthrift Labour opposi- been driven mostly by consumers running sonal tax-free allowance by £500 in the 1
tion) was the order of the day. Britain’s is a down their savings—a process that cannot
“resilient economy”, in the chancellor’s re- go on forever. And a stronger job market
peated phrase—but apparently not too re- has done little to alleviate the cost-of-living Glass half full…or half empty?
silient. Only by continuing on the govern- squeeze that continues to bedevil the co- GDP, % change on a year earlier, Q4 2013
ment’s charted course can recent progress alition. Consumer prices have grown fast-
1 – 0 + 1 2 3
be sustained, Mr Osborne warned. er than average earnings in every month of
Britain
That course has stretched on longer its tenure.
United States
than anyone anticipated when the Con-
Germany
servative-Liberal Democrat coalition came Many miles to go
France
to power in 2010. Then Mr Osborne hoped The OBR expects this dismal pattern to
Italy
to balance the budget (adjusting for cycli- break: it thinks earnings will swell by 2.5%
cal swings in the economy) by the 2015-16 this year, compared with a rise in inflation GDP per person, 2007-13, % change
fiscal year. Britain is instead on a path to of1.9%. But it also reckons GDP growth will 15 10 5 – 0 + 5
close the gap by 2018-19. Public debt is fore- slow over the course of 2014 as household
Germany
cast to peak two years later than hoped. Yet consumption—which ran well ahead of
United States
revisions to economic forecasts are at last earnings growth in 2013—ceases to defy France
moving in the right direction. gravity. And Britain still has much ground Britain
New estimates from the Office for Bud- to cover. Though its growth is impressive Italy
get Responsibility (OBR), Britain’s fiscal by international standards, it has fallen far
Sources: Haver Analytics; IMF
watchdog, suggest the country will grow behind others on a per-head basis since the
WorldMags.net
30 Britain The Economist March 22nd 2014

Here’s hoping
WorldMags.net cutting than in the spending.
For better or worse, the chancellor is fo-
nursing homes.
The government reckons that most peo-
Public-sector net borrowing forecasts cused on the work required to return Brit- ple can be trusted to make sensible deci-
As % of GDP by budget ain to the black. He has managed to con- sions (although it is also proposing that
2011 2012 2013 2014 vince other politicians—and most of the they be given advice when they retire). But
7 country—that this task is of overriding im- that view sits oddly with its other policies.
6 portance. That is a colossal achievement. Many workers are now auto-enrolled in
5 But it is hardly a conclusive one, and it bare- pension plans, on the basis that they are
4 ly hints at the struggles to come. too apathetic to provide for their futures
3 Soon after it became clear that Britain’s voluntarily. Do people suddenly acquire
2 budget deficit was ballooning, taxes were wisdom when they retire, perhaps?
1 increased. The pain from that was brief, The change will have wide-ranging
+
0 and hardly crippling. In the end, higher tax- consequences, not least for the insurance
–
1 es will account for less than one-fifth of to- companies that sell annuities, several of
2013 14 15 16 17 18
tal deficit reduction. Cuts to spending, by which saw sharp share-price plunges. To
Source: Office of Budget Responsibility
contrast, are less than half complete. Bring- the extent that pensioners do take more of
ing down the deficit to zero, as all major their pension pot upfront, the government
2 2014-15 fiscal year, to £10,500. The threshold parties have promised to do, will mean in- will get tax revenues earlier than before;
above which income tax rises to 40% will creasingly nasty trade-offs between be- the boost may be worth £1.2 billion ($2 bil-
also be lifted slightly—though the thresh- loved public services such as schools and lion) by the 2018-19 financial year.
old for national-insurance contributions hospitals, which may start to suffer visibly. But there are dangers for the state too.
will not change. Do not envy any British chancellor his job Public employees such as doctors and
The budget contained sops to the old for the next few years. 7 teachers are covered by final-salary
and working-class voters. The government schemes, under which the government
put off an expected rise in fuel duty and cut guarantees to pay them a retirement in-
duties on bingo and beer. Mr Osborne an- Pensions come. These pensions are funded on a pay-

Pot luck
nounced bold changes to pensions (see as-you-go basis, meaning the Treasury has
next story). Courting business, he doubled put no money aside to cover them. If pub-
and extended the tax-free allowance on in- lic-sector workers decided to transfer their
vestment spending and increased the gov- money into a private pension pot, to take
ernment’s support for export finance, as advantage of the new freedom, the Trea-
part of a continued effort to address Brit- sury would have to cough up the cash im-
ain’s persistently woeful performance in mediately; the government is proposing to
The chancellor hands more freedom to
foreign markets. deny public-sector workers that right.
retirees
Though sold as the responsible reaction The same worry applies to private-sec-
to improved economic fortunes, the new
budget is more risky than it seems. Britain’s
growth potential has been seriously im-
G ET out those cruise brochures—retirees
may soon be going on a spending
spree. Historically, most Britons with per-
tor final-salary schemes, which might sud-
denly face a cash drain if workers opt to
convert. Such pension schemes are big in-
paired by the recession and the subse- sonal pensions and those in so-called “de- vestors in government bonds, and the
quent weak recovery. The OBR has greatly fined-contribution” schemes have been switch might make it more difficult to fund
revised down its estimate of the “output forced to use their pension pots to buy an Britain’s deficit. So private-sector workers
gap”—how far short of capacity the econ- annuity—a product paying a (normally in final-salary schemes may also lose their
omy is operating—from 3.7% of potential fixed) income for the rest of their lives. right to transfer. Freedom for some retirees
GDP a year ago to 1.4% now. Once the Brit- These have never been popular. Money in- will thus come at the price of restrictions
ish economy has caught up (which the OBR vested in an annuity is locked away and on others. 7
expects will happen in 2018 but the Bankof cannot be passed on to the retiree’s heirs.
England is aiming to achieve sooner), Recently, low interest rates and longer lifes-
growth rates will slow. That, in turn, im- pans have caused annuity rates to fall
plies that finishing the job of deficit reduc- sharply. Last month the Financial Conduct
tion may prove harder than expected. Authority, Britain’s regulator, concluded
that the annuity market “is not working
Potholes ahead well for consumers”.
The OBR optimistically predicts that Brit- Few anticipated George Osborne’s
ain’s underlying growth rate will be a fairly sweeping response. In his budget speech,
healthy 2.2% by the end of the decade the chancellor outlined a plan to do away
thanks to an eventual rebound in produc- with the requirement to buy an annuity
tivity growth, which has performed dis- and all the arcane rules that accompany it.
mally during the recovery. If that happens Retirees will be free to draw down their
it will scarcely be thanks to Mr Osborne, pension pot as they like, subject to paying
who has avoided splurging on the sort of tax at their marginal rate. That will bring
capital investment that makes the econ- Britain into line with other countries in-
omy run better. He promised £200m to fill cluding America, Australia and Denmark.
potholes and announced plans to found It may prove a popular idea, but is it a
an Alan Turing Institute to focus on “big good one? Pensions get generous tax treat-
data and algorithm research”, but this is ment to encourage people to provide for re-
not quite sufficient. The chancellor prom- tirement; if they blow their pension pot on
ised that details would follow in the au- a Maserati, they may end up as wards of
tumn on new funding for capital projects. the state, particularly in their later years
But his word may carry more weight in the when many will need expensive care in Thanks George
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Labour’s response WorldMags.net

Worlds apart

Labour used to woo Conservative voters. Not any more

S TRATEGISTS in the Labour Party used to

imagine Britons spread along a bell
curve of political views. A few hard-right
mistic about the state of the country. These
divides have grown in recent years, mostly
thanks to the uneven effects of the govern-
and hard-left voters occupied the two ex- ment’s austerity programme.
tremes, with the line rising to a high peakin Labour’s bid to win a leftish majority
the centre. On this crest dwelled such cru- with few Tory votes may be confrontation-
cial swing voters as “Essex man” (an up- al, and it made Mr Miliband look daft. But
wardly mobile home-owner living in Lon- at least it has the virtue of offering voters a
don’s eastern suburbs) and “Worcester clear choice in the next election, due in
woman” (a middle-class mother living in May 2015. Britons are known to grumble
the Midlands). Both archetypes were tar- that the big parties are all the same, clus-
gets of Tony Blair’s hugely successful cam- tered together on the centre ground and of-
paign to win over former Tory voters in the fering similar policies. More than at any
1997 election campaign. time in the past quarter of a century, they
The budget debate on March 19th are wrong about that. 7
showed how far the party has strayed from
that approach. Rising to respond to George
Osborne, the chancellor of the exchequer, Pricing carbon
Ed Miliband ignored the details of the bud-
get. The Labour leader issued a tirade on
behalf of the struggling classes, accusing
Floored
ministers of being callous, self-serving
elites. “After all the embarrassment of the
millionaire’s tax cut, they will not rule out
going further,” he yelled, finger stabbing to-
Carbon taxes are as necessary as they
wards the government front bench. That
are unpopular
the cut in question (reducing the top rate of
income tax) appeared in the budget of
2012, not the one just announced, did not
dampen his fervour.
I T TAKES a particular kind of environ-
mental policy to irk industrialists and
greens alike. In its short life the Carbon
whom straightforward cash subsidies are a
more appealing means of support. Critics
say the tax has pushed up electricity costs
Mr Miliband’s display may have been Price Floor (CPF), a tax on pollution that yet has failed to force the closure of cheap
crude, but there was method to it. Labour was frozen by the chancellor of the exche- coal-fired power stations, which still pro-
hopes to construct an election-winning co- quer on March 19th, has done precisely vide 40% of Britain’s power. They regret
alition from lefty Liberal Democrats, new that. Holding down the unloved levy—for that the Treasury has stashed away the pro-
voters and disillusioned non-voters. The four years from 2016—will cut energy costs ceeds (probably £2 billion a year by 2016)
party’s internal polling and focus groups for businesses and householders. But it rather than invest in more green schemes.
suggest that these types are especially re- leaves Britain’s climate policy in a mess. By far the biggest problem is that since
ceptive to toff-bashing and claims that the Carbon taxes or trading schemes, the carbon tax’s conception the European
Tories look after the rich first. The top-rate which aim to encourage investment in emissions-trading system has collapsed. A
tax cut especially exercises them. low-carbon generation by steadily raising glut of permits means European power
Former Conservative voters, by con- the cost of alternatives, are the cheapest firms have been paying as little as €4
trast, are a fairly low priority for Labour. way to clean up smoggy economies. Un- ($5.60) per tonne of carbon, down from
Partly, this is because they constitute a like subsidies for renewables, they do not about €30 in 2008 and much lower than
smaller pool than they did in Mr Blair’s rely on politicians guessing which technol- the £18 ($30) minimum at which Britain’s
day—over 14.1m Britons had voted Tory in ogies to support. Since 2005 an EU cap- price will be set. That is making the coun-
1992, compared with 10.7m in 2010. They and-trade scheme has forced polluters try’s manufacturers uncompetitive with-
have also become more concentrated in across the continent to purchase permits out reducing Europe’s carbon emissions,
safe Conservative seats, where they are of for each tonne of carbon they emit. Brit- because permits not purchased in Britain
no use to Mr Miliband’s lot. ain’s carbon-price floor, a form of carbon still get snapped up by its neighbours.
Most of all, Labour notes that the gap tax announced in 2011 and enacted in 2013, Mr Osborne claims his freeze will save
between Tory voters and left-of-centre aims to protect green investors from a medium-sized manufacturer about
ones has widened. The bell curve now swings in the price of these permits by set- £50,000 a year, and the average household
looks more like a Bactrian camel, with two ting a minimum amount that polluters about £15. That is peanuts. But the damage
large humps. Polling shows that women, must pay for them. to government policy is severe. The reform
northerners, working-class voters and the The policy riles businesses in energy- may well require taxpayers to cough up
young strongly tend towards Labour’s ar- intensive industries, such as chemicals and more money for renewable generators
guments on society and the economy. manufacturing, whose bills are already ris- whose subsidy rates have been calculated
Men, southerners, middle-class voters and ing because of global fuel costs. Nor is it on the assumption that carbon taxes keep
the old are distinctly Tory, and more opti- much loved by renewable groups, for bumping up the wholesale price of power. 1
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2 Postponing promised increases only a year
after the tax was launched destroys its
of shops, public transport or infrastructure.
The government’s new idea is to create a
credibility with green investors, even if development corporation with control
politicians return to raising it in a few over planning and the ability to borrow to
years. And without a rising carbon price, clean up and prepare the site. That was
Britain’s plan to produce carbon-free pow- how post-war new towns such as Milton
er by 2030 will depend ever more on subsi- Keynes and Stevenage were built.
dies, which may prove unsustainable. A similar interventionism is visible in
The CPF’s troubles reflect particularly the plan to rebuild 1960s estates. Many of
badly on Europe’s bureaucrats, who have these, such as the Aylesbury Estate in
failed to salvage a continental trading sys- Southwark and Robin Hood Gardens in
tem that has long since lost its teeth. Lead- Tower Hamlets, are crumbling. By increas-
ers at a summit on March 20th and 21st are ing the density on the sites, and using the
expected to forgo most climate chatter for proceeds of selling the extra houses built, it
discussions on promoting industry and de- ought to be possible to cover the cost of re-
fusing the crisis in Ukraine. When Britain’s construction. But councils have been short
tax freeze expires in 2020, things may not of money to do much themselves, and
have moved along much. 7 private developers extract high returns in
exchange for putting up capital. With cen-
tral-government money, those projects
Housing ought to move quicker and councils ought
to get more for their land.
Modest plans These are decent measures—but no-
where near enough. To accommodate pop- Both on and off the pitch
ulation growth, England alone needs to in-
crease its supply of homes to around were revised down. As NIMBY opposition
230,000 per year, more than twice the grew, politicians wavered. Ed Balls, the
number built last year. The real restriction shadow chancellor, has turned particular-
The government goes back into
on Britain’s construction sector is planning ly sceptical. Sir David, who oversaw the
housebuilding
policy, which constrains building near ex- 2012 Olympics, was drafted in to cut costs.
The proposed savings in HS2 Plus are mini-
W HEN George Osborne is spotted out-
side Westminster, he is very often
making an appearance on a building site,
isting infrastructure at the edge of cities.
The chancellor has been unable to change
that. Instead, he is in effect adopting a mil-
mal. But his choice of venue was potent. “I
wanted to galvanise the political leaders of
wearing a fluorescent safety jacket. It was der version of 1960s-style grand planning: the north,” he explains.
no surprise to hear him claim once again, using government money to boost con- London sucks up much of the cash that
in his budget speech on March 19th, that struction on marginal, unpopular sites. It is is spent on infrastructure in Britain, but
“We’re getting Britain building”. Sadly, giv- an improvement, but only just. 7 Manchester is skilled at fighting for any
en the huge extent of Britain’s housing money left over. Its tram system is expand-
shortage, the chancellor’s proposed inter- ing. In February work started on the North-
ventions do not add up to much. High-speed rail ern Hub, a £600m rail electrification
The biggest announcement was that scheme that will speed journeys to nearby
the government will extend Help to Buy, a
scheme that guarantees mortgages for peo-
Supersonic cities. In 2012 Manchester’s local authori-
ties brokered a deal to keep some tax rev-
ple purchasing newly built homes. Mr Os- enues after investing in the transport net-
borne also hopes to build a new town at work—a form of fiscal devolution unusual
Ebbsfleet, a patch of post-industrial land in outside London.
MANCHESTER
the Thames estuary, and promises to speed Good government explains Manches-
One city now carries the hopes of
up the redevelopment of several rotting ter’s success. Local authorities in many
high-speed rail boosters
1960s and 1970s social housing estates in large cities are changeable and fractious.
HEN a revised case for HS2, a pro-
London.
By making it easier for housebuilders to
shift their stock, Help to Buy has probably
W posed high-speed railway, was
launched late last year, the press confer-
But Sir Richard Leese, the Labour leader of
Manchester city council, and Sir Howard
Bernstein, the chiefexecutive, have been in
helped boost building slightly, especially ence took place in a dingy government their jobs for many years; both know how
in northern cities where construction had basement. On March 17th Sir David Hig- to squeeze money and power out of
all but ceased. Extending the programme gins, the railway’s new chairman, present- Whitehall. Manchester’s leaders can lobby
will boost Britain’s housing stock by ed “HS2 Plus”, a review of the scheme, in over several parliaments, points out Mike
120,000 by 2020, the Treasury claims, the spectacular setting of Manchester’s Emmerich of New Economy Manchester, a
though it will also expose taxpayers to any town hall, surrounded by Pre-Raphaelite think-tank—vital when dealing with big,
future house-price crash. Mr Osborne also paintings and portraits of Victorian gran- slow-moving infrastructure projects. High-
announced a new fund to support lending dees. This was supposed to suggest re- speed rail has long been a priority. “Some
to small housebuilders—who have strug- newed confidence in the controversial rail of us have been making these arguments
gled to get financing in recent years—which project. It also revealed something else: for a long time,” says Sir Howard.
ought to have a similar effect. that the future of HS2 is now largely in Of the few savings Sir David suggested,
The new town is more adventurous. Manchester’s hands. most hit the Midlands and the south. A
Ebbsfleet, where a high-speed rail link to Last year the case for the railway, which London connection between HS2 and HS1,
London opened in 2007, has had plans for will connect London with Birmingham, the existing high-speed rail link to Europe,
new homes for almost 20 years. Few have Leeds and Manchester, seemed shaky. Esti- was scrapped, despite being favoured by
been built, mostly because the site is a par- mated costs were revised up to £43 billion businesses in Birmingham. This will save
tially flooded quarry with little in the way ($71 billion) while its supposed benefits around £700m—money intended “for the 1
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2 north”, says Sir David. He also emphasised
better links between northern cities, and
the flow has slowed. Research by Anthony
Champion of Newcastle University shows
how many people are buying or selling
homes. In the mid-2000s migration out of
quicker building in the north: a new station that 49% of unskilled workers changed ad- the capital and northwards jumped as peo-
at Crewe, in Cheshire, could go up six years dress between 1971 and 1981. Just 36% did ple sold up and moved. From the financial
earlier than planned. People ought to find it between 2001 and 2011. Overall net migra- crisis until recently, however, Londoners
easier to commute between Leeds and tion to the south of England from the rest have struggled to get mortgages, leaving
Manchester, he explained. of Britain has barely increased since 2007 many stuck in the capital.
Sir David now wants northern leaders (see chart). Most of that rise was driven not Does this matter? The mass migration
to form a group to champion HS2 more by more northerners moving south but by of the young is not always popular. Jamie
forcefully. “It’s key that the north acts and fewer southerners moving north. British Reed, the MP for Copeland, a district in
speaks as a single voice,” he says. If Man- society, long among the most dynamic in Cumbria, gripes that the best graduates
chester led the way on this it would be par- Europe, appears to be settling down. from his constituency rarely move back
ticularly strong. Politicians from all parties Several things explain this. In the 1980s after finishing university. Yet lack of move-
listen to the council, says Ed Cox of IPPR people fled cities such as Liverpool be- ment is probably even worse. Alan Man-
North, a think-tank. But as a Labour au- cause their industries were dying. They ning, an academic at the London School of
thority it holds particular sway with that eventually expired, while the financial Economics, suggests low migration makes
party. If Mr Balls wavers in his support for crash of the early 1990s reduced London’s struggling towns more vulnerable to eco-
the project he would have to answer to a appeal. Today most of Britain’s big cities nomic shocks: if they cannot move to
strong lobby group. Past form suggests that have mixed economies, so fewer people work, people who lose their jobs will take
Manchester will get what it asks for. 7 need to move to find jobs. Americans are much longer to find new ones. Places such
also moving less often (though still more as Merthyr Tydfil, a Welsh former steel
than Britons) as the country’s metropolises town, might be better off if people found it
Internal migration become more similar. easier to up sticks.

Not on your bike

Though home-ownership rates in Brit- As the housing market begins to move
ain have been falling lately, a much larger again, migration is likely to pick up. In the
proportion of the population owns now longer run, falling home-ownership may
than in the 1970s and 1980s. That freezes reduce the barriers to moving. Yet the new
people in place, because buying and sell- pattern is likely to stick. That will increase
ing a house is far costlier and more time- the importance of universities to cities’
consuming than moving from one rented economies: without them, attracting
Britons are moving around less than
place to another. Moving across the coun- skilled workers will be difficult. It also sug-
they used to
try was easier in the days when mothers gests that international migration will con-

“R IFF-RAFF”, Ken Loach’s 1991 film

about poverty in Margaret Thatch-
er’s Britain, starts on a building site in Lon-
were more likely to be housewives. Finally,
wider car ownership and better public
transport make commuting easier: the big-
tinue to fill the gaps in the south’s booming
low-skilled service sector. But perhaps that
is no bad thing. Being forced to move by re-
don. A Cockney foreman bosses around a gest drop has been in short moves. cession was hardly pleasant. In the new
motley group ofmigrant workers, mocking But the most pronounced change model, people spread about the country at
their backgrounds and their abilities. Later seems to be cultural. People used to move their leisure. 7
the workers retire to a squat to drink cans mostly for work. They now move routine-
of lager. Today the film resembles a period ly, but for other reasons. Each year teen-
piece—not because foremen are more de- agers travel for university, accounting for Going south, young man
cent, necessarily, but because the migrant much of the inflow into cities such as Man- Net migration from north to south*, ’000
labourers in “Riff-Raff” are British. chester and Nottingham. In 2012 fully 23%
Moving south for work in hard times of 19-year-olds moved local authority, 60
was a defining feature of life in 20th-cen- against around 4% of the whole popula- 40
tury Britain. Yet though London’s econ- tion. A similar flow of 21-year-olds goes to
omy continues to outperform the north’s, London, which sucks in about a third of 20
+
new graduates. From there, almost every 0
borough has a net outflow of people to the –
rest of the south of England, as people 20
move out to commuter towns (London’s 40
population grows anyway because of
births and foreign immigration). 60
1976 80 85 90 95 2000 05 11
This churn is most powerful in the
south-east. In 2012, 3.1% of London’s popu- Internal migration as % of age group
lation moved to other parts of Britain,
25
while 2.5% moved in. Cambridge, Canter-
bury, Norwich and Oxford were similarly 20
mobile. But in the north-west of England
movement was about half as common as 15
in London. The places with the fewest mi-
grants, both in and out, are struggling in- 10
dustrial towns like Barrow-in-Furness,
5
Hartlepool and Sunderland.
The main driver of changes in migra- 0
tion in this model is the housing market, 0 10 20 30 40 50 60 70 80 90
not the labour market. Flows into universi- Age, years
ty towns and then south are largely con- *London, south-east,
Source: ONS south-west and east of England
stant. But flows out of London depend on
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Bagehot General Osborne

The chancellor’s fifth budget was full of trickery—yet utterly serious

tle more than an expression of the chancellor’s own shifting eco-
nomic judgment.
No matter. The recovery, and his political rivals’ failure to
predict it, has enshrined the plan as sacred and inflexible. This is a
mark of the political capital Mr Osborne is now drawing on, even
as he admitted the economy’s many remaining weaknesses. His
Labour Party rival, the shadow chancellor Ed Balls, who chun-
tered grudgingly throughout the budget speech, appears to have
been outdone. So have Mr Osborne’s many erstwhile Tory critics.
The apparently daunting task of arguing that the economy is
stronger yet still too weak for giveaways turned out to be a cinch.
The chancellor was triumphant.
That patently owes as much to crafty politics as to economics,
and Mr Osborne showed plenty more in his speech. It was less
weaselly than stoat-like—a whirligig of policies and pledges that
appeared more fascinating than substantial. They included sever-
al previously flagged traps for Labour. Legislation to cap the wel-
fare bill—a popular idea, tricky for Labour, and of only token im-
portance to the cost of welfare—is to be introduced to Parliament
next week. Announcing some money for next year’s 800th anni-
versary ofthe Magna Carta, the chancellor even found the oppor-

“N OW this is not the end. It is not even the beginning of the

end. But it is, perhaps, the end of the beginning.” Chur-
chill’s genius for spin, after El Alamein had delivered the first big
tunity to invite comparison between the medieval monarch it
humbled, King John, and another brother-betrayer, Labour’s
leader Ed Miliband. It was one of the better budget gags.
British victory of the second world war, is illustrated by how lit- The chancellor’s more substantial offers appeared similarly
tle-remembered are the modest claims he went on to make for designed to outfox his rivals. By raising the income tax threshold
that triumph. “Henceforth,” he continued, “Hitler’s Nazis will to £10,500, Mr Osborne will hope to woo aspirational low earn-
meet equally well-armed, and perhaps better-armed, troops.” ers, a group that currently votes, if at all, for anyone except the To-
That was a weaselly fudge if ever Bagehot heard one. ries. By giving retirees more say over their pension pots, a more
George Osborne faced a similarly daunting exercise in expec- ambitious ploy, he must hope to stanch the seepage of silver-
tations management when delivering his fifth budget on March haired Tory voters to the UK Independence Party, which has no
19th. Wan with nerves, the chancellor of the exchequer was able economic policy to speak of. To give the chancellor his due, pull-
to announce to Parliament the best economic figures in five years ing out a surprise liberal reform of this kind seemed also a sensi-
of faltering growth, falling living standards and painful spending ble way to negate the unrealistic demands for a splurge.
cuts. The economy is growing faster than in any other large rich
country. It is creating record numbers of jobs: for the first time in The method in his trickery
three decades Britain’s employment rate is higher than Ameri- And there is an important truth in that. Though Mr Osborne’s
ca’s. The budget deficit is edging downwards. The difficulty for trickery is always evident, so, increasingly, is the seriousness of
the chancellor was that, having been for so long denied, people his purpose. For all his feints, traps and compromises, the chan-
want jam, which he was bound to refuse them. The deficit, at cellor has so far stripped the public sector of 600,000 jobs,
around £108 billion ($179 billion) this year, or 6.6% of GDP, is too capped welfare and overseen, in a downturn, historic growth in
large to support the tax cuts that many of his Conservative col- private-sector employment. He has cut business taxes, thereby
leagues are demanding. But, while bound to disappoint, Mr Os- persuading employers to accept a rise in the minimum wage.
borne needed to avoid seeming so cautious as to crush confi- It is reasonable to argue about whether Mr Osborne’s mea-
dence in the recovery and his own stewardship of it. His task was sures have been just. Next year’s election campaign will accord-
to celebrate and reassure, yet give away almost nothing. ingly pit the Tory claim to have managed the economy well
He managed that, first by reminding Britons of the state they against Labour’s aspiration to manage it more fairly. But no one
were in when the Tory-led coalition took over in 2010. The econ- should doubt the clarity of the vision that is driving the Conser-
omy had suffered the deepest recession of modern times and vative chancellor. Whereas David Cameron, the prime minister,
seen the world’s biggest bank bail-out. The government was bor- promised to change Britain, with a fuzzy idea of volunteerism, Mr
rowing a quarter of what it spent. That history lesson done with, Osborne is actually changing it.
Mr Osborne began to relax, and a dab of colour returned to his His ambition is to make a more industrious society, less blight-
pallid cheeks. Britain was recovering from these horrors, he said, ed by the entitlement culture that blossomed under Labour. Even
because of its adherence to “the plan”. after the deficit is no more, the chancellor believes, public spend-
He referred to a raft of spending cuts, tax increases and pro- ing should be held down. Again, his motives appear partly self-
business gestures designed with a view to restoring the public fi- interested. Mr Osborne harbours leadership ambitions, and his
nances to surplus by 2018. That target is, in fact, less fixed than Mr ideas are finding more favour with the right of his party than Mr
Osborne implies. It was pushed back several times while the Cameron enjoys. The beneficiaries of his remodelled society
economy languished: the deficit was originally to have been might also be likelier to vote Tory. But just because the chancel-
closed before next year’s general election. The plan is, in short, lit- lor’s vision is political does not necessarily make it wrong. 7
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Europe
WorldMags.net Also in this section
40 Taxes in Europe
40 Serbia’s election
41 French local elections
42 Charlemagne: Adrift over energy

For daily analysis and debate on Europe, visit

Economist.com/europe

Reform in Italy Even so, like many people, the German

Gambler in a rush
chancellor is reserving judgment on the
boyish, big-talking Mr Renzi and his
breathtakingly ambitious plans. He de-
clared before flying to Berlin that he want-
ed Italy, not Germany, to lead Europe for
the next 20 years.
Much of what Mr Renzi has proposed is
ROME
sound. He seems more determined than
The Italian prime minister hopes to be let off some of Europe’s fiscal austerity
any recent Italian prime minister to use

M ATTEO RENZI is known to be a risk-

taker. This week, he is in effect asking
his fellow euro-zone leaders to take a gam-
run a deficit closer to the euro-mandated
ceiling of 3% of GDP (the deficit was other-
wise forecast to shrink this year to 2.6%).
spending cuts, not tax rises, to square the
public accounts. He has appointed a for-
mer IMF official, Carlo Cottarelli, to look
ble as well. On March 20th the Italian What, you might ask, is 0.4% between for savings. This week, Mr Cottarelli said
prime minister travelled to Brussels to friends? One answer is a cool €6.4 billion he could find €3 billion-5 billion by the end
meet first the European Commission’s ($8.9 billion). The other is that it would of the year. Mr Renzi has also laudably ig-
president, José Manuel Barroso, and then mean letting Italy reverse its path of deficit nored the unwritten rule that Italian gov-
other EU political leaders attending the reduction, making it an exception to the ernments cannot do anything to change
European Council. He had already visited euro zone’s austerity policy. Other coun- the labour market without tortuous con-
Paris and Berlin. At each stop on his tour, he tries, including France and Spain, would sultations with trade unions and employ-
has had the same goal: to win some fiscal doubtless demand similar leniency. ers. Astonishingly, his decision to break
leeway for his plan to bolster Italy’s fragile Yet after meeting Mr Renzi on March with this corporatist tradition has caused
economic recovery. 17th, the high priestess of austerity, Ger- scarcely any fuss.
Since 2010 Italy’s public debt has risen many’s Angela Merkel, barely hinted at The same cannot be said for other as-
from 116% to 133% of its GDP. It is not the concern. Instead, she was all smiles and pects of his programme. The biggest doubt
fault of the budget deficit, which has been even offered a helpful soundbite. “I see the is whether it can fulfil its declared aim of
trimmed from 5.5% to 3% of GDP and now glass half-full, not half-empty,” said Mrs raising growth. The centrepiece is a pledge
shows a substantial primary surplus, ie, Merkel. “And the Italian government is to cut €1,000 from the annual income-tax
before interest payments. Instead the working to fill it to the top.” Yet this was bill of the lowest earners, at a cost of €10
blame lies with the shrinkage of its econ- mostly pure politics. Mr Renzi faces his first billion. That delighted the unions, and
omy. Italian GDP has fallen over the same big electoral test with the vote for the Euro- many in the PD, since it enhances the
period by more than 4% in real terms. Out- pean Parliament in May, and it is in Ger- party’s chances ofwinning in May. But a re-
put recovered in the fourth quarter of 2013, many’s interests to see that he passes it. duction in the crippling taxes paid by Ital-
but only by 0.1%. Mr Renzi wants to spend The main threats to his centre-left ian firms would have done more to create
more, so that he can boost demand and Democratic Party (PD) come from the anti- jobs (see box on next page). Instead, em-
economic growth. His hope is that this is establishment Five Star Movement, whose ployers will get a 10% cut in a hated region-
an easier way to reduce the ratio of public leader, Beppe Grillo, wants to ditch the al tax, plus an extension from one year to
debt to GDP. euro; and Forza Italia, led by Silvio Berlus- three of the period for which firms can em-
Hence the series of expensive mea- coni, who though critical of austerity will ploy workers on short-term contracts.
sures, including tax cuts, that Mr Renzi un- not be able to campaign, because the su- Mr Renzi is trying to take Italy by storm
veiled on March 12th. Most of them, he in- preme court, which has already upheld his in a first 100 days of frenzied activity. On
sisted, can be paid for with cuts in public conviction for tax fraud, has just confirmed his maiden visit to parliament, he carried a
spending. But he also wants the freedom to a two-year ban on his holding public office. copy of Haruki Murakami’s “What I Talk1
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40 Europe The Economist March 22nd 2014

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2 About When I Talk About Running”. But
haste carries a price. It was only after the
ed? And how does it square with Mr
Renzi’s pledge gradually to give young
Serbia’s election

new employment legislation had left cabi-

net that somebody noticed there was no
workers greater job protection?
Mr Renzi had also promised to repay
A zealot in power
lower limit on the length of contracts: they the state’s vast debts to private companies
could be for only a day. Since revised, the by July. That pledge has now been deferred
measure allows for up to eight renewals in to September. His proposed electoral law
BELGRADE
three years. But that means new employ- was distorted in parliament and will apply
The big test for the newly powerful
ees will have job security for an average only to the lower chamber. Mr Renzi wants
Aleksandar Vucic will be the economy
maximum of four months. “Any discrimi- to abolish the upper-house Senate. But that
nation is possible,” wrote Tito Boeri, a pro-
fessor at Milan’s business-oriented Boc-
coni university. “On hearing of a worker’s
will require a lengthy and difficult consti-
tutional reform. Were it to run aground, Ita-
ly could end up with an even crazier elec-
T HE outgoing prime minister of Serbia,
Ivica Dacic, called it a “political tsuna-
mi.” Members of Aleksandar Vucic’s Serbi-
pregnancy, for example, the employer can toral system than it has today. Running an Progressive Party (SNS) said the election
simply not renew her contract.” Is that may be fine, but Mr Renzi should be careful on March 16th went beyond their wildest
what a centre-left prime minister intend- not to trip. 7 dreams. For the opposition, the rout was
beyond their worst nightmares. Mr Vucic,
who will now become prime minister, can
Taxes in Europe even govern without a coalition partner.
Lightening the load Nobody has had so much power in his
hands since the dark days of Slobodan Mil-
osevic, whom Mr Vucic once served.
Mr Vucic’s SNS (and its allies) took 157 of
Austerity-hit countries in Europe try a new approach: cutting taxes the 250 seats in parliament; Mr Dacic’s So-

T HE past five years have been a bad

time to be a taxpayer in Europe.
Across the continent, governments have
Taxing times
General-government revenue, % of GDP
cialist coalition 45; the former ruling
Democratic Party 19; and the New Demo-
crats of Boris Tadic, a former president, 18.
relied heavily on tax rises to cut budget France Italy Euro zone Much political deadwood has been
deficits, increasing the total burden by Germany Greece Spain cleared away, including Vojislav Kostunica,
55
almost 5% of GDP in France and Greece a right-wing nationalist and Eurosceptic.
(see chart). But rather than raise taxes any 50 Although he will not need coalition
further, many countries are starting to cut partners, Mr Vucic may well want them,
them. The European Commission reck- 45 not least to have others to blame when
ons that the euro zone’s tax-to-GDP ratio things go wrong. Still, even if he brings in
40
stabilised in 2013 and is now falling. Mr Tadic or Mr Dacic, there is no getting
In January France announced plans to 35 away from the fact that he is now the un-
cut payroll taxes by €30 billion ($42 FORECAST disputed and unofficial master of Serbia.
billion). This month Italy unveiled in- 30 All responsibility will now lie with him.
come-tax cuts worth €10 billion for those There will be no strong opposition in the
2008 09 10 11 12 13 14 15
earning less than €25,000 a year. This new parliament.
Sources: European Commission; Eurostat
week Britain proposed tax cuts for most During the Yugoslav wars Mr Vucic was
people on low or medium incomes. a fanatical nationalist who wanted to
Ireland and Spain are also planning tax competitiveness by reducing the tax create a Greater Serbia on the ruins of Bos-
cuts later this year. “wedge” between employers’ costs and nia and Croatia. But he no longer makes
Lower taxes may be popular, but how what workers actually take home. In 2012 messianic and blood-curdling speeches.
are such giveaways being financed? Few this tax take reached nearly 50% of the Instead, he talks calmly, pressing the tips of
countries have the scope to borrow much payroll bill in France and Italy, against an his fingers together as though trying to
more. The commission has criticised OECD average of just 36%. hold something back. Since 2008 he has es-
France and Spain for repeatedly missing Some economists doubt that cutting poused a pro-European policy. He talks of
their deficit-reduction targets, though it is income tax, Italy’s approach, is the best joint sessions of government with the Bos-
not taking action against them. Italy’s way forward. Instead, they favour slash- nians in Sarajevo and calls Croatia a friend.
high level of public debt, which hit 133% ing Europe’s high employer-paid social- Serbia’s historic deal last year to normalise
of GDP in 2013, has also landed it on the security charges, as France proposes to relations with Kosovo, which seceded in
commission’s fiscal “watch list”. do. This would directly lower labour 2008, happened only with his permission.
Instead, most countries plan to pay for costs, encouraging companies to hire He is a Russophile, but even though Rus-
their tax proposals with public-spending extra workers as well as to increase their sia’s Vladimir Putin has been loudly com-
cuts. Italy says it will reduce spending by investment. paring Crimea to Kosovo, Mr Vucic has giv-
an extra €7 billion this year and save a That would also give a welcome boost en no inkling that he could lapse into his
further €2.2 billion thanks to lower yields to growth. The IMF reckons that Italy, for old nationalist self.
on its debt—though these figures may example, could raise its present lacklustre Coalition politics meant that, in the out-
prove optimistic. rate of growth by at least half a percent- going government, Mr Vucic ceded the
The politicians hope that lower taxes age point a year if it shifted the burden of prime minister’s job to Mr Dacic. During
will boost growth. As euro-zone coun- taxes away from firms and onto con- the election he was friendly to Mr Tadic,
tries cannot devalue or lower their own sumption. For Italy’s new government, who stabbed his old party in the back and
interest rates, tax cuts are one of the few which will be judged by voters mainly started a new one just five weeks before
ways of trimming business costs fast, says on whether it can kick-start growth and the vote. In this way the already enfeebled
Guillaume Menuet at Citigroup. France create more jobs, cutting the burden on opposition was diced and sliced. Mr
and Italy both hope to improve their employers should be a clear priority. Tadic’s new party enjoyed lots of televi-
sion coverage; others did not. Control of1
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 The Economist March 22nd 2014 Europe 41

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2 the media through government advertis-
ing and other means is known in Serbia as
ings between Mr Dacic and an associate of
Mr Saric known as Misha Banana.
Nonetheless, it is the National Front’s
performance that will be the most interest-
“soft censorship”. Yet jobs will be Mr Vucic’s big test. Un- ing. With 597 party lists, concentrated on
Mr Vucic has developed a zeal against employment is running at 26%. Serbia’s the Mediterranean fringe and in the ex-in-
corruption and for job creation. Coinci- middle classes complain that prices are so dustrial north, Ms Le Pen has expanded
dentally or not, none of those indicted for high that life is now harder than it has been hugely on the 119 lists that the party put for-
corruption, most of them connected to the for years. Mr Vucic is courting German and ward at the 2008 local elections. She has
opposition, were close to Mr Tadic. So far, Italian business and has made friends with beaten the previous record of 490 lists
arrests and indictments have been popular the United Arab Emirates, which gave Ser- fielded by her father, Jean-Marie, in 1995.
but convictions few. If Mr Dacic goes into bia a soft loan before the election. The UAE Even more importantly, the National Front
opposition, says Bosko Jaksic, a commen- has also invested in Serbia’s national air- is no longer treated as quite the pariah that
tator, some members of his Socialist Party line and plans to put money into a luxury it was under Le Pen père.
might be “fresh meat” to serve up in the riverside project, called Belgrade on Water. Ms Le Pen has cleaned up the party’s
anti-corruption cause. In the centre of Belgrade stands a statue image, ridding it of neo-Nazi links and fo-
On March 18th Darko Saric, a wanted of Nikola Pasic, one of Serbia’ greatest lead- cusing its anti-establishment message on
drug baron, arrived in Belgrade from Latin ers. With so much power in his hands Mr popular discontent with the euro, the Euro-
America after having been on the run since Vucic might yet also be commemorated. pean Union, Islam, immigration and main-
2009. He is said to be ready to talkabout his But if he fails, his image might deflate like stream politicians—the “professors of un-
dealings with Serbian politicians and ty- the giant blow-up bunny rabbit temporar- employment and bankruptcy who govern
coons. A year ago the press reported meet- ily installed nearby. 7 us”, as she calls them. Fully 34% of the
French told an opinion poll last month that
they agreed with the party’s ideas. Ms Le
French local elections Pen draws support from the left as well as

Frontal assault
the right. With the Socialists rooted in the
public sector, and the Communist Party in
ruins, the National Front is now the most
popular electoral choice for the French
working class.
In the first round of municipal voting,
the National Front could come first in some
PARIS
midsized towns such as Carpentras, Fréjus,
The party to watch this weekend is the resurgent National Front
Forbach or Hénin-Beaumont. In the sec-
the centre-right UMP rather than the Na-
S HE has the glint in the eye and the
breezy confidence of a politician who
knows that things are going her way. Ma-
tional Front. Ms Le Pen’s party is fielding
candidates in towns and villages that in-
ond round the party may even capture a
few of these. This in itself would be a
shock. At present France has no National
rine Le Pen, leader of the populist National clude only about a third of the French pop- Front mayor. Even a handful would give
Front, is heading into the two rounds of ulation. So although it will scoop up much the party useful momentum ahead of the
French local elections on March 23rd and of the discontent with Mr Hollande, it can- elections to the European Parliament in
30th with the largest number ofcandidates not come first nationwide. In the 100 or so May, in which several commentators ex-
the party has ever fielded at municipal lev- towns that could swing to the UMP, a lot pect it to come first.
el. Already, at the 2012 presidential elec- will depend on which candidates make it Yet Ms Le Pen’s sights are set higher still.
tion, she bagged nearly 18% of the vote, through to the run-off on March 30th, and Her plan is to win several hundred local-
coming third to the mainstream candi- on the voter turnout. Where the National council seats in order to give political expe-
dates on the left and the right. This time, in Front wins the 10% share that entitles it to rience to a new generation of frontistes,
towns where the Front is standing for mu- go through to the second round, the result with a view to training them for the legisla-
nicipal councils, Ms Le Pen is hoping to do could be a three-way contest that robs the tive elections in 2017. “Our real objective,”
even better. “Do you realise what that right of the votes that, in some towns, it she insists, with no hint of irony, “is to be-
means, for a movement with little local needs for victory. come the first party in France.” 7
elected base?” she says, almost in disbelief.
“Something is happening.”
The municipal elections are the first
mid-term test for François Hollande since
he captured the presidency in May 2012.
His Socialist Party is bracing itself for
sweeping losses. With an approval rating
in the polls of just 19%, Mr Hollande is the
most unpopular modern French president
ahead of any similar election. The econ-
omy is still sluggish and unemployment
remains painfully high. His government is
paralysed by rumours of an imminent re-
shuffle and discredited by its own ama-
teurism. Although the Socialists will prob-
ably hang on to some big cities, including
Paris and Lille, they are likely to lose more,
among them possibly Reims, Metz, Angers,
Amiens and Strasbourg.
In terms of sheer numbers, the chief
beneficiary of the Socialists’ losses will be Marine assurance
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42 Europe The Economist March 22nd 2014

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Charlemagne Adrift over energy

Europe has yet to wean itself off Russian energy

gas in America has transformed the global gas market, ma-
king LNG more available and affordable (and often cheaper
than Russian gas). But as European sources of gas decline, the
European Commission reckons the EU will import a growing
share of its gas: perhaps 80% by 2030.
Over the years, the EU has pursued contradictory policies.
It aspired to lead the world in reducing CO2 emissions, and so
pursued ambitious renewable-energy goals. With the economic
crisis, it started to worry more about the rising price of energy (in
part caused by subsidies for renewables) and a growing compet-
itiveness gap with America, which benefits from cheap shale gas.
At this week’s EU summit the focus will inevitably turn to energy
security. The leaders will probably approve a plan to reduce im-
port dependence in June.
Radek Sikorski, the Polish foreign minister, put it well when
he said this does not mean doing without Russian gas altogether,
but rather ensuring secure supplies at competitive prices. “We
have nothing against consuming Russian gas. There is nothing
morally wrong with the molecules,” he said. But Russian pipe-
lines should not be used to exert pressure on countries, or to force
them to pay outrageous prices. One reason why Lithuania wants

T HE Independence cannot sail into the Baltic port of Klapeida

a moment too soon. Built in South Korea, this floating gas ter-
minal is a weapon of geopolitics as important as any warship.
the Independence is that it pays about a third more for its gas than
Germany, which is farther from Russia.
Europe must do three things to reduce its vulnerability. First, it
Designed to tap into global supplies of liquefied natural gas should reduce its reliance on imported energy by developing re-
(LNG), it will allow Lithuania to break free of its total reliance on newable and nuclear power, shale-gas resources in the EU and
Russia. Given the fear that the Crimea crisis could turn into a promoting energy-saving measures.
sanctions war with Russia, the arrival of the Independence later Second, it needs to diversify its sources of imported gas. More
this year should give Lithuania some solace. could come from Norway. The promise ofgas in the eastern Medi-
Russia’s most obvious retaliation against Western sanctions terranean might spur a settlement to the Cyprus problem, but this
would be to choke off energy supplies, particularly gas. It pro- remains uncertain. Future exports of shale gas from America
vides about a quarter of the gas burned in the European Union, would help. Beyond that, weaning Europe off Russia to become
and almost all of it in several countries, including the Baltic trio, more reliant on Algeria, Qatar, Azerbaijan and Kazakhstan may
Finland and Bulgaria. Eastern Europeans are urging Germany to not seem very savoury. But the more rogues who sell them gas,
wean itself off Russian gas, and America to increase exports of the harder it is for any one to hold Europe hostage.
shale gas. Europe had a taste of gas wars in 2006 and again in
2009, when Russia shut the pipelines to Ukraine, leaving many Market power
downstream countries, mostly in south-eastern Europe, to shiver Third, and perhaps most important, the EU should ensure that
in the winter cold. Five years on, is Europe any less vulnerable? natural gas, wherever it comes from, can reach all who need it at a
In the short term at least, the outlook is not too bad. After a reasonable price. That means investment in an integrated, flexi-
mild winter, gas-storage reservoirs are still half-full and compa- ble and liberalised EU-wide gas grid that allows energy to be
nies are filling them while the gas still flows. The EU’s gas net- traded and moved from where it is available most cheaply to
work has become more integrated, with the installation of inter- where it is most needed. This would reduce the scope for Russia,
connectors and reverse-flow technology. This means that, if or anyone else, to pickoffvulnerable countries. The same goes for
gas through Ukraine is interrupted, countries in central Europe the electricity grid. Moreover, a proper energy market, together
can receive it from the west via Germany. Much of this would with an efficient emissions-trading market (with fewer exemp-
still come from Russia through alternative pipelines, such as tions for favoured polluters), would help other objectives, such as
Nord Stream, built under the Baltic directly to Germany. reducing the cost of low-carbon energy.
But what if Russia decides to cut off the gas to the whole of Eu- European leaders grandly set the end of this year to achieve a
rope? Through a combination of finding alternative suppliers, single energy market. But, plainly, it is still some way off. Take the
switching of fuels and rationing, most (but not all) countries Baltics: despite their fear of Russia, they have long bickered over
should get through the next six months or so. The more acute pro- the location of LNG terminals, the building of a joint nuclear
blems would begin next winter, when demand for heating rises power station and much else. Or Spain: it has several LNG termi-
sharply. Yet most Europeans think Russia would never dare go so nals and ample supplies of renewable electricity, but lacks the in-
far. After all, if the EU is reliant on Russia as its main gas supplier, terconnectors to France to export energy to the rest of Europe.
Russia is even more dependent on the EU as its main customer, There is much that Europe can and should do. A British “non-pa-
accounting for about half its gas exports. Given the extensive Eu- per” doing the rounds in Brussels this week speaks of needing a
rope-bound pipeline network, finding other buyers would be 25-year strategy. It would be best to start right now. 7
near-impossible, at least in the short run.
The longer-term picture is more mixed. The advent of shale Economist.com/blogs/charlemagne

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 The Economist March 22nd 2014 43
United States
WorldMags.net Also in this section
44 The economics of the sex industry
45 Washington, DC’s mayoral race
46 God and jobs in North Carolina
46 Kansas battles Missouri
47 Asians v affirmative action
48 Lexington: Why the Democrats want
to talk about the Koch brothers

For daily analysis and debate on America, visit

Economist.com/unitedstates
Economist.com/blogs/democracyinamerica

Paramilitary police Mr Kraska, most SWAT deployments are

not in response to violent, life-threatening
Cops or soldiers? crimes, but to serve drug-related warrants
in private homes.
He estimates that 89% of police depart-
ments serving American cities with more
than 50,000 people had SWAT teams in the
late 1990s—almost double the level in the
ATLANTA
mid-1980s. By 2007 more than 80% of po-
America’s police have become too militarised
lice departments in cities with between

F ROM the way police entered the

house—helmeted and masked, guns
drawn and shields in front, knocking
Bill Bratton, New York’s police chief.
But civil libertarians such as Radley
Balko, the author of “Rise of the Warrior
25,000 and 50,000 people had them, up
from 20% in the mid-1980s (there are
around 18,000 state and local police agen-
down the door with a battering ram and Cop”, fret that the American police are be- cies in America, compared with fewer
rushing inside—you might think they were coming too much like soldiers. Special than 100 in Britain).
raiding a den of armed criminals. In fact Weapons and Tactics (SWAT) teams (ie, The number of SWAT deployments
they were looking for $1,000-worth of paramilitary police units) were first soared even as violent crime fell. And al-
clothes and electronics allegedly bought formed to deal with violent civil unrest though in recent years crime rates have ris-
with a stolen credit card. They found none and life-threatening situations: shoot-outs, en in smaller American cities, Mr Kraska
of these things, but arrested two people in rescuing hostages, serving high-risk war- writes that the rise in small-town SWAT
the house on unrelated charges. rants and entering barricaded buildings, teams was driven not by need, but by fear
They narrowly avoided tragedy. On for instance. Their mission has crept. of being left behind. Fred Leland, a police
hearing intruders break in, the homeown- lieutenant in the small town of Walpole,
er’s son, a disabled ex-serviceman, reached Boozers, barbers and cockfighters Massachusetts, says that police depart-
for his (legal) gun. Luckily, he heard the po- Peter Kraska, a professor at Eastern Ken- ments in towns like his often invest in mil-
lice announce themselves and holstered it; tucky University’s School of Justice Stud- itary-style kit because they “want to keep
otherwise, “they probably would have ies, estimates that SWAT teams were de- up” with larger forces.
shot me,” he says. His mother, Sally Prince, ployed about 3,000 times in 1980 but are The courts have smiled on SWAT raids.
says she is now traumatised. now used around 50,000 times a year. They often rely on “no-knock” warrants,
Gary Mikulec, chief of the Ankeny, Some cities use them for routine patrols in which authorise police to force their way
Iowa police force, which raided Ms high-crime areas. Baltimore and Dallas into a home without announcing them-
Prince’s home in January, said that the sus- have used them to break up poker games. selves. This was once considered constitu-
pects arrested “were not very good peo- In 2010 New Haven, Connecticut sent a tionally dubious. But the Supreme Court
ple”. One had a criminal history that in- SWAT team to a bar suspected of serving has ruled that police may enter a house
cluded three assault charges, albeit more under-age drinkers. That same year heavi- without knocking if they have “a reason-
than a decade old, and on his arrest was ly-armed police raided barber shops able suspicion” that announcing their
found to have a knife and a meth pipe. around Orlando, Florida; they said they presence would be dangerous or allow the
It is easy to see why the police like to be were hunting for guns and drugs but ended suspect to destroy evidence (for example,
better armed than the people they have to up arresting 34 people for “barbering with- by flushing drugs down the toilet).
arrest. They risk their lives every day, and out a licence”. Maricopa County, Arizona Often these no-knock raids take place at
are understandably keen to get home in sent a SWAT team into the living room of night, accompanied by “flash-bang” gre-
one piece. A big display of force can make a Jesus Llovera, who was suspected of orga- nades designed temporarily to blind, deaf-
suspect think twice about pulling a gun. nising cockfights. Police rolled a tank into en and confuse their targets. They can go
“An awful lot of SWAT tactics are focused Mr Llovera’s yard and killed more than 100 horribly wrong: Mr Balko has found more
on forcing the suspect to surrender,” says of his birds, as well as his dog. According to than 50 examples of innocent people who 1
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44 United States The Economist March 22nd 2014

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2 have died as a result of botched SWAT
raids. Officers can get jumpy and shoot un-
rape and murder investigations, which do
not. They also provide an incentive to ar-
ples of raids gone wrong. Tragic accidents
happen and some police departments use
necessarily, or accidentally. In 2011 Eurie rest suspected drug-dealers inside their their SWAT teams badly, but most use them
Stamps, the stepfather of a suspected drug- houses, which can be seized, and to bust well, says Lance Eldridge, a former army of-
dealer but himself suspected of no crimes, stash houses after most of their drugs have ficer and ex-sheriff’s deputy in Colorado.
was killed while lying face-down on the been sold, when police can seize the cash. It would be easier to determine who is
floor when a SWAT-team officer reportedly Kara Dansky of the American Civil Lib- right if police departments released more
tripped, causing his gun to discharge. erties Union, who is overseeing a study information about how and how often
Householders, on hearing the door be- into police militarisation, notices a more they deploy SWAT teams. But most are ex-
ing smashed down, sometimes reach for martial tone in recent years in the materi- tremely cagey. In 2009 Maryland’s gover-
their own guns. In 2006 Kathryn Johnston, als used to recruit and train new police offi- nor, Martin O’Malley, signed a law requir-
a 92-year-old woman in Atlanta, mistook cers. A recruiting video in Newport Beach, ing the police in his state to report such
the police for robbers and fired a shot from California, for instance, shows officers information every six months. Three pub-
an old pistol. Police shot her five times, kill- loading assault rifles, firing weapons, chas- lished reports showed that SWAT teams
ing her. After the shooting they planted ing suspects, putting people in headlocks were most often deployed to serve search
marijuana in her home. It later emerged and releasing snarling dogs. warrants on people suspected of crimes in-
that they had falsified the information This is no doubt sexier than showing volving drugs and other contraband, but
used to obtain their no-knock warrant. them poring over paperwork or attending the law is set to expire this year. Utah’s leg-
a neighbourhood-watch meeting. But does islature has passed a similar measure; it
Big grants for big guns it attract the right sort of recruit, or foster awaits the governor’s signature.
Federal cash—first to wage war on drugs, the right attitude among serving officers? No one wants to eliminate SWAT
then on terror—has paid for much of the Mr Balko cites the T-shirts that some off- teams. Imminent threats to human life re-
heavy weaponry used by SWAT teams. Be- duty cops wear as evidence of a culture quire a swift, forceful response. That, say
tween 2002 and 2011 the Department of that celebrates violence (“We get up early critics, is what SWAT teams should be used
Homeland Security disbursed $35 billion to beat the crowds”; “You huffand you puff for: not for serving warrants on people sus-
in grants to state and local police. Also, the and we’ll blow your door down”). pected of nonviolent crimes, breaking up
Pentagon offers surplus military kit to po- Others retort that Mr Balko and his al- poker games or seeing that the Pumpkin
lice departments. According to Mr Balko, lies rely too much on cherry-picked exam- Festival doesn’t get out of hand. 7
by 2005 it had provided such gear to more
than 17,000 law-enforcement agencies.
These programmes provide useful de- The economics of prostitution
fensive equipment, such as body armour
and helmets. But it is hard to see why Fargo,
North Dakota—a city that averages fewer
Sex, lies and statistics
than two murders a year—needs an ar-
moured personnel-carrier with a rotating
turret. Keene, a small town in New Hamp-
shire which had three homicides between
NEW YORK
1999 and 2012, spent nearly $286,000 on an
Laying bare supply and demand in the oldest profession
armoured personnel-carrier known as a
BearCat. The local police chief said it
would be used to patrol Keene’s “Pumpkin
Festival and other dangerous situations”. A
“I T’S hard out here for a pimp,” com-
plains the Three 6 Mafia, a rap group.
A new study by the Urban Institute, a
sioned by the Justice Department, brought
squeals of pleasure from journalists every-
where, who tended to play up evidence
Reason-Rupe poll found that 58% of Ameri- think-tank, casts doubt on this assertion. that the oldest profession is booming.
cans think the use of drones, military After investigating the sex trade in eight big But it doesn’t appear to be. In five out of
weapons and armoured vehicles by the American cities, researchers concluded seven cities, the underground sex industry
police has gone “too far”. that pimps can do rather well for them- shrank between 2003 and 2007, the study
Because of a legal quirk, SWAT raids can selves. Some in Atlanta bring in $33,000 a found. (In one place, Kansas City, Missouri,
be profitable. Rules on civil asset-forfeiture week, the study estimates. there was not enough evidence to decide.)
allow the police to seize anything which Tracking the sex trade is hard. It is legal In Washington, DC, takings fell by 34%. In
they can plausibly claim was the proceeds only in parts of Nevada. Elsewhere there Denver, with a population of 2.5m in 2007
of a crime. Crucially, the property-owner are no receipts; researchers relied instead if you include the suburbs, the sex trade
need not be convicted of that crime. If the on interviews with lawyers, police, prosti- grossed a mere $40m.
police find drugs in his house, they can take tutes and pimps. Their fat report, commis- The demand for sex probably does not
his cash and possibly the house, too. He change much over time, but other things
must sue to get them back. do. A century ago, when sexual mores
Many police departments now depend Hook-ups crowd out hookers were stricter, prostitution was more com-
on forfeiture for a fat chunk of their bud- How the sexual revolution squeezed the sex industry mon and better paid (see table). Men’s de-
gets. In 1986, its first year of operation, the 1911 2007 mand for commercial sex was higher be-
federal Asset Forfeiture Fund held $93.7m. Typical annual income, $’000 (2007 prices), for: cause the non-commercial sort was harder
By 2012, that and the related Seized Asset street prostitutes 25 18 to obtain—there was no premarital
Deposit Fund held nearly $6 billion. high end/escorts 430 200 hook-up culture. Women were attracted to
Mr Balko contends that these forfeiture Street prostitutes as % 385 144
prostitution in part because their other job
laws are “unfair on a very basic level”. of shop workers’ income opportunities were so meagre. And they
They “disproportionately affect low-in- % of men who say they 69*(1948) 15(2006) commanded high wages partly because
come people” and provide a perverse in- have ever paid for sex the social stigma was so great—without
centive for police to focus on drug-related Sources: “SuperFreakonomics”, by Steven high pay, it was not worth enduring it.
crimes, which “come with a potential kick- Levitt & Stephen Dubner, 2009; The price for a trick today ranges from
Payscale.com; The Kinsey Institute *White only
back to the police department”, rather than miserable ($15) to ample ($1,000 or more). 1
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 The Economist March 22nd 2014 United States 45

WorldMags.net politicians. Mr Barry (who endorsed Mr

Gray on March 19th) spent time in jail but
was re-elected as mayor in 1994 and still sits
on the council. He was such an inept ad-
ministrator that the federal government
eventually took over the city’s finances.
But since then Washington has under-
gone a transformation. The murder rate
has fallen, and city services actually work.
The electorate, too, is changing: it is becom-
ing richer, whiter and perhaps less tolerant
of rule-breaking.
A decade-long boom in federal spend-
ing, which began under George W. Bush
and gathered pace after the financial crisis,
has boosted the city’s core business. Un-
like most mayors, Mr Gray does not have to
worry about his city’s cash cow moving to
another state or offshore. The average in-
Most men prefer real girlfriends come of Washington residents tracks gov-
ernment spending closely (see chart) and
2 Prostitutes have many options besides violent). They are flexible with pricing, of- has risen faster than the national average.
street-walking. The internet makes it easier fering special deals for loyal customers and Four of the country’s ten wealthiest neigh-
for them to set up “dates” and negotiate swiftly adapting to economic downturns. bourhoods, according to Stephen Higley of
prices, and harder for the police to catch A third of pimps delegate management, the University of Montevallo, surround
them. They feel less vulnerable using so- training and even recruitment to an experi- the capital (though suburbanites cannot
cial-media sites than doing the “stroll”. But enced employee called a “bottom girl”. vote in city elections).
36% nonetheless report that some clients About 15% admitted to beating up their The public-sector bonanza has boosted
were violent or abusive. staff. Others, however, thought violence the population of the city and changed its
Pimps, who are often women, tend to was bad for business. One pimp said: “One racial make-up. Between 2000 and 2012
follow a business plan. They impose rules, bad girl can knock your whole stable loose. Washington’s white population grew by
such as “no drugs” or “no young clients” Get rid of the bad apple. If I needed to hit 39% while the black population declined
(who are more likely than older men to be them, I didn’t need them.” 7 by 10%. This makes DC an outlier: whites
are decreasing as a share of the population
in most big American cities. A lot of the
Washington, DC’s mayoral race change has come since the 2010 mayoral

A Gray area
election. That year blacks were still a ma-
jority in the city; now they are merely the
largest of the minorities that, taken togeth-
er, make up the whole, says Bill Frey of the
Brookings Institution, a think-tank. Mr Frey
adds that DC has gained far more people
since the 2010 census than it did in the
WASHINGTON, DC
whole of the preceding decade.
The turbulent politics of a city that is no longer black and poor
Many of the new arrivals are educated

W ITH a cast that includes a Mr Gray, a

Mr Orange and, if you include the
city council, a Mr White, the District of Co-
Several people who worked on his previ-
ous campaign are now in prison.
Washington voters have forgiven big-
folks who may even care about campaign-
finance regulations: almost a quarter of the
inhabitants of the metropolitan area
lumbia’s elections already resembled a ger scandals in the past. A former mayor, (which extends beyond DC’s boundaries)
Quentin Tarantino film. This was before Marion Barry, was smoking crack while in have postgraduate degrees. Yet the major-
the entrance of a man who, according to office long before Rob Ford, Toronto’s ity of the new arrivals are younger than 35,
federal prosecutors, insisted on being mayor, made the drug fashionable among many of them transitory students and in-
called Uncle Earl. This uncle, whose real terns who may vote elsewhere, if at all.
name is Jeffrey Thompson, contributed These demographic changes are not
$650,000 in undeclared funds to mayor A one-company town enough on their own to tip the election. If
Vincent Gray’s successful campaign in Income per person, $’000* Mr Gray gets surprised in the primary, or
2010. He is now co-operating with prosecu- United States Federal spending loses the election proper in November to
tors, who would like to talk to Mr Gray. Mr District of Columbia $trn* David Catania, a former Republican who
80 4
Gray is unlikely to help them, either before left the party because of its stance on gay
or after the Democratic primary that will rights, it will not be because of demogra-
60 3
be held on April 1st. phy or economics—but rather because Mr
Mr Thompson’s company, DC Char- 40 2
Gray’s electoral base in the still hard-up
tered Health Plan, was once the city’s larg- districts of the south-east did not believe
est contractor. He also owned some of its 20 1 his professions of innocence, and chose to
subcontractors. Prosecutors claim that Mr stay at home. “He’s so nonchalant about it
Thompson’s hidden campaign contribu- 0 0 all that people are wondering,” says Yo-
tions were an insurance policy against the 1980 85 90 95 2000 05 10 13 landa Moore, who runs a hair salon in the
risk of these arrangements being dis- Sources: Bureau of Economic Analysis; ward that Mr Gray represented before he
Office of Management and Budget *2009 prices
turbed. Mr Gray says he knew nothing. became mayor. 7
WorldMags.net
46 United States The Economist March 22nd 2014

North Carolina politics WorldMags.net nor swiftly began trimming regulations

and expanding vocational training in high
Some worry that a lack of discipline
among hardline Republicans will hurt the
A purple state sees schools. He introduced a modified flat tax,
which cuts personal rates up to two per-
state’s reputation for moderation. The
lurch to the right has provoked protests
red centage points to 5.8%, and cuts corporate
tax rates to as low as 3% by 2017. Critics carp
from a progressive “Moral Monday” move-
ment, led by local pastors, which had its
that a flat tax shifts the burden to poorer largest-ever rally in Raleigh in February.
DURHAM
people, particularly as the changes—which Unaffiliated voters have become the fast-
Should politicians focus on culture
took effect in January—include a rise in est-growing electoral group in the state,
wars or jobs?
some sales taxes and a repeal of the Earned and they are likely to outnumber regis-

“T HE business climate is amazing,”

marvels Chris Epstein, a property
developer in Charlotte, North Carolina. Of-
Income Tax Credit, which pads the wages
of the working poor. The reforms will also
reduce tax revenues by $2.4 billion over the
tered Republicans in most counties by
2016, say Morgan Jackson and Paul Shu-
maker, two political consultants.
ficials are either helpful or stay out of the next five years, according to the state’s Fis- The governor is no ideologue. “Listen,
way. And the living is sweet: drivers don’t cal Research Division. Mr McCrory dis- I’ve stepped on toes of both liberals and
honk, neighbours are kind and deals are of- putes this: “If I get more people to work conservatives,” he insists. Yet Mr McCrory
ten sealed with a handshake. “It’s like liv- we’ll have more money,” he says. seems unable to rein in his party and frus-
ing in a loafofWonder Bread,” he chuckles. From a peak of11.3% in January 2010, the trate unpopular laws. The legislature’s
North Carolina has long enjoyed a rep- state’s unemployment rate fell to 6.7% in power to override his veto can leave him
utation as an easy-going, business-friendly January this year. Conservatives crow that looking foolish, as he did when two vetoes
state. Warm weather, fine universities and cuts to jobless benefits have spurred peo- were quashed last year.
a low cost of living attract lots of migrants: ple to find work. North Carolina has added Several Democratic candidates have al-
its population grew 18.5% between 2000 a net 70,000 jobs since last January, accord- ready announced that they will be run-
and 2010, compared with 9.7% for America ing to the state’s Division of Employment ning for governor in 2016. “They smell
overall. Yet the recession cost North Caroli- Security, and the national recovery is start- blood in the water,” says Rob Christensen,
na around 340,000 jobs, not all of which ing to buoy the state’s manufacturers. a columnist at the News and Observer, a lo-
have come back. The state tries hard to re- However, the jobless rate has also fallen cal paper. State lawmakers in safe seats can
cruit new businesses, but faces stiff compe- because many people have given up look- afford to be out of touch with the elector-
tition from neighbouring South Carolina, ing, and so are no longer counted. ate. Governors are not so lucky. 7
Tennessee and Virginia. After a year in office, the governor’s ap-
When Pat McCrory (pictured) cam- proval rating is around 40%, with 47% of
paigned for governor in 2012, North Caroli- voters disapproving of the job he is doing, Kansas and Missouri
na was eager for new blood. Twenty years according to Public Policy Polling (PPP), a
of Democrats in the governor’s mansion
had led to tax hikes, government bloat and
firm based in Raleigh. He has been hurt by
some ineptitude at the Department of
The new border
allegations of impropriety. Mr McCrory, a
Republican former mayor of Charlotte,
Health and Human Services, which has
bungled programmes for Medicaid and
war
promised to create jobs, shrink the state’s food stamps. And he has been struggling to
KANSAS CITY, MISSOURI
debt and improve North Carolina’s manage a crisis with Duke Energy, the
Missouri calls for an economic truce
“brand”. He won the election handily. state’s main electricity supplier, which
with Kansas
To appeal to businesses, the new gover- spilled around 35m gallons of toxic coal
ash into the Dan River earlier this year,
threatening drinking water and aquatic
life. Given Mr McCrory’s push to cut red
M ISSOURI and Kansas are old rivals. In
the 1850s thousands of Missourians
rode into Kansas, seized polling stations at
tape, the timing is awkward. It hardly helps gunpoint and fraudulently elected pro-
that he worked at Duke Energy for 29 years. slavery candidates. The efforts of these
A bigger problem for him is that he has “border ruffians” (pictured on next page)
come to be seen as a figurehead for an in- were a prelude to the civil war.
creasingly unpopular state legislature. The Today the rivalry is less bloody. Both
2010 election gave the Republicans enough states offer tax incentives to lure in compa-
seats to control the redistricting process, nies from elsewhere. Because they share a
and in 2012 they took full charge of North large metropolitan region, Kansas City,
Carolina’s state government for the first many firms qualify for such breaks simply
time in a century. The party now enjoys a by shifting a mile or two over the border.
veto-proof “super-majority” in the Gen- Looking at the biggest type of sweeten-
eral Assembly, which means they can basi- er, the Hall Family Foundation, a charity,
cally pass whatever laws they want. estimates that over the past five years the
Unlike the pragmatic conservatives two state governments have forgone $217m
who have long dominated state politics, in taxes. Some 3,289 jobs have been tempt-
the Republicans now in charge are culture ed across the metropolitan border to Kan-
warriors. Their priorities ensured that Mr sas; Missouri has won 2,824 jobs back. Kan-
McCrory’s first year in office was conten- sas can therefore claim to be “winning”.
tious. The governor found himself signing But local reports suggest that CBIZ, a Kan-
laws to ban sharia (Islamic law), restrict san consulting firm, is considering moving
abortion and introduce strict voter-identi- to Missouri; that would erase this lead.
fication rules, which are being challenged None of this border-ruffianry creates
by the federal government. new jobs. Locals gripe that when, for ex-
Public approval for the General Assem- ample, AMC Theatre recently moved its
A moderate among wingnuts bly has fallen to 17%, according to PPP. headquarters out of downtown Kansas 1
WorldMags.net
 The Economist March 22nd 2014 United States 47

WorldMags.net Democratic bill which, if approved by vot-

ers, would have exempted universities
from this rule (and thus allowed them to
bring back affirmative action), whizzed
through the state Senate. It seemed likely to
pass in the lower house, too. California’s
voters, a more mixed bunch these days,
may well have supported it.
Affirmative-action policies are usually
seen as pitting whites against minorities,
particularly blacks. But California’s grow-
ing diversity is creating new battlegrounds.
Admission rates for blacks and Latinos at
the ten-campus University of California
(UC) have plummeted since Prop 209 was
enacted. But Asian-Americans, particular-
ly Chinese and Indians, have done well: in
2011-12 they made up 14% of public high-
school graduates but over a third of UC un-
dergraduate entrants.
And so after the Senate vote the 80-20
Initiative urged its 350,000 e-mail sub-
scribers to press Asian-American legisla-
tors to scrap SCA 5. Energetic and bot-
tom-up, the ensuing campaign had a
Tea-Party whiff to it. And it worked: their
I hear the tax breaks are good in Kansas phones ringing off the hook, several Asian-
American Democrats decided that ethnic
2 City, Missouri, its staff simply had a longer Since Missouri’s annual budget is $26 allegiances trumped partisan ones and
commute to work. Sly James, the mayor of billion to Kansas’s $14 billion, some Mis- withheld support for the bill. On March
Kansas City, Missouri, describes the new sourians ask why their state does not sim- 17th John Pérez, the Assembly Speaker,
border war as “short-sighted”. Kevin Colli- ply outspend its neighbour to win the war. withdrew it from consideration.
son, a reporter for the Kansas City Star, calls Mr Silvey says that if an agreement is not “The university has been hurt” by Prop
it “cannibalistic”. reached in the next few years, his col- 209, says Gene Block, UCLA’s chancellor.
A few years ago local business leaders leagues will want to “go with both barrels” Like other university administrators, he
from 17 companies, including Sprint and and steal more business from Kansas. says that diversity creates a better atmo-
HallmarkCards, wrote to Jay Nixon, the go- Move quickly Kansas, or the border ruffi- sphere for learning. Set against that is an
vernor of Missouri, and Sam Brownback, ans may yet ride again. 7 analysis that is hard to deny: if Prop 209
his counterpart in Kansas, to warn them were overturned, more Asian-American
that the rift was harming the area. In the applicants would be denied places at uni-
past month, a truce has started to look like- Race and higher education versities that would otherwise have ad-
lier. Majorities in the Missouri House and mitted them. The playing field is already
Senate have approved versions of a bill
that would bar incentives for businesses
Not black and tilted: Asian-Americans must typically
achieve better exam results than other
near the border to hop over it. The catch,
though, is that this law will go into effect
white groups to get into university.
Asian-Americans have low voting rates
only if Kansas reciprocates. There is a two- and are not noted for political activism.
year window for a deal to be done. Could this debate change that? S.B. Woo,
LOS ANGELES
Missouri Senator Ryan Silvey, a Repub- 80-20’s co-founder, likes to think so. It is
Asians object to affirmative action
lican who is sponsoring the Senate version time for Asians to acquire the political so-
of the bill, says he is confident the House
will soon pick up and pass his version.
Over in Kansas, Mr Brownback is guarded-
T HE 80-20 Initiative, an Asian-American
lobby group, scored its first big success
last October when it forced Jimmy Kim-
phistication of whites, he argues; they
should harass Asian politicians who fail
their constituents, and should be willing to
ly optimistic. He says he has thought for mel, a television host, to apologise for al- play the parties off against each other.
some time that “ceasefire negotiations” lowing a five-year-old boy to suggest on air But Asian-Americans, the country’s
were needed, and that this bill is a “neces- that America should kill everyone in Chi- fastest-growing minority, are a notably di-
sary condition for us to negotiate”. Mr na in order to avoid its debt obligations. verse bunch, bundled together for conve-
Brownback says that ceasefire discussions This week the group pulled off a more edi- nience more than analytical accuracy. As
ought to consider all the tools used to en- fying win, defeating an attempt to allow Karthick Ramakrishnan, a political scien-
courage economic development on both Californian universities to take account of tist at UC Riverside, points out, the SCA 5
sides of the border. These would include race when deciding whom to admit. campaign was dominated by Chinese-
income and property taxes. California’s Democrats have long Americans. Indians did not play much of a
It is difficult to understand why either chafed against Proposition 209, a 1996 vot- role; south-east Asians, poorer and less
state would want to continue throwing er-backed measure that said: “The state likely to attend university, tend to back af-
money at a scheme that benefits only the shall not discriminate against, or grant pref- firmative action. Even some Chinese-
companies that move. Mr Silvey explains: erential treatment to, any individual or Americans declared support for SCA 5. Cal-
“When people feel like they are locked in group on the basis of race, sex, colour, eth- ifornia’s demographic changes have up-
competition they just want to win, even nicity, or national origin” in public employ- ended politics in new and curious ways;
when the competition is stupid.” ment or education. In January SCA 5, a there are plenty more to come. 7
WorldMags.net
48 United States The Economist March 22nd 2014

Lexington WorldMags.net
Koch-fuelled politics

Why Democrats want the election to be about the billionaire Koch brothers
Fact-checkers employed by newspapers and websites raise
quibbles. The AFP spots exaggerate the downsides of Obama-
care, they argue, making it sound as though millions will be left
without any cover. Yet most cancelled plans will be replaced,
some by policies that will offer comparable benefits more cheap-
ly—as fact-checkers suggest will be the case with Mrs Boonstra’s
new plan (though she disputes this). Alas, elections are not won
by quibbling over facts. As Representative Peters concedes: “The
number of people who see a fact-check is always smaller than the
number who see the ads.”
To fight back, Democrats are attacking the Kochs themselves.
Mr Peters—running to fill a Senate seat held for 36 years by Carl
Levin, a Democrat—currently represents Michigan’s 14th district
in Congress. That includes the Detroit waterfront which, for
much of 2013, found itself playing host to a large heap of pet-coke
(which is widely traded as a fuel and industrial ingredient). Mr Pe-
ters describes complaints about “fugitive dust” blowing into
homes, and about pollution running off into the Great Lakes.
After some time the pet-coke’s owner was found to be a firm with
the Bond-villainesque name of Koch Carbon—though its sloppy
storage was the work of an unrelated company. Mr Peters helped

“O H MY God, I’d lay odds that’s pet-coke,” an appalled Ca-

nadian can be heard saying, over amateur video of a wall
ofblackdust, hundreds offeet high, rising from the American side
locals campaign to have the pet-coke removed from Detroit. On
March 21st he was due to revisit the site to receive an election en-
dorsement from the League of Conservation Voters, for this and
of the Detroit river. He is talking about petroleum coke, a sticky, other eco-activism.
gritty by-product of oil refining, which—in that video, shot during The Kochs claim to worry about the health of Michigan resi-
a 2013 storm—is being blown from a giant mound in industrial dents, Mr Peters says, but they allowed pet-coke to be dumped on
Detroit and across to the leafier Canadian city of Windsor. the state. He talks of making the Koch brothers’ agenda “real” to
Lexington would lay odds that TV viewers in Detroit and the voters, citing the Canadian video as useful evidence. “You had a
surrounding state of Michigan will soon know that video well. pile that was four or five storeys high and a city block long. All you
That is because the flying filth belonged to a firm controlled by have to do is to show dust clouds blowing off the pet-coke pile
David and Charles Koch (pronounced “coke”), industrialists with into the air,” he suggests. In Alaska, Senator Mark Begich is run-
a passion for conservative politics. Seven months before the mid- ning a TV ad denouncing the “billionaire Koch brothers” for clos-
term elections, Americans for Prosperity (AFP), a free-market ing a refinery in his state. Never one for understatement, the
group backed by the Koch brothers, has already spent millions of Democratic majority leader in the Senate, Harry Reid, has called
dollars on TV advertisements pounding Gary Peters, a Democrat- the Kochs “un-American”. The Democratic Senatorial Campaign
ic congressman seeking to become Michigan’s next senator. The Committee has launched a website describing the Republicans
most potent feature Julie Boonstra, a Michigan cancer patient ob- as “addicted to Koch” (and explaining that the Kochs’ “ideal
liged to change insurance plans by the Obamacare health law. In America” is a land of “dirty air” and “tax breaks for billionaires”).
them Mrs Boonstra talks about her cancelled policy and her “un-
affordable” new plan. Addressing Mr Peters directly, she tells him “I’d like to buy the world”—a Koch
that by voting for Obamacare, he has jeopardised her health. Will Koch-bashing work? Many Republicans doubt it, for the sim-
Similar AFP ads have rained down on vulnerable Democrats ple reason that few voters have heard of the brothers. They dis-
in such states as North Carolina, Louisiana, New Hampshire, Ar- miss the tactic as a way to scare up donations and motivate core
kansas and Alaska, where conservative voters are numerous. The supporters. Some draw parallels with 2006, when conservatives
ads are brutal masterpieces. Sometimes using actors and some- raged about George Soros and other big donors funding scurri-
times real voters, often filmed in bleached-out colours and lous attack ads from the Left. The rage was in vain: voters still wal-
backed by a mournful piano, they depict lives being ruined by the loped Republicans in a referendum on George Bush and Iraq.
new law. Anguished women open letters bearing bad news from However, Koch-bashing need not hit its purported targets to
their insurance providers. After opening his letter, a rural father work (just as attack ads can do the job, even after fact-checkers de-
gazes, stricken, at the young daughter he is powerless to protect. bunk them). A Democratic Party bigwig cites the 2012 election,
For too long, says Tim Phillips, AFP’s president, “economic when Mitt Romney was denounced as a wicked capitalist who
freedom” conservatives wooed voters with arguments full of loved to ship jobs to China. Republicans hit back with details of
numbers. AFP’s new strategy involves “telling stories” about indi- Mr Romney’s successful business record. The chumps! People
viduals. The group plans to keep the focus on Obamacare all the may not know who David and Charles Koch are “specifically”,
way to the November elections, as a cautionary tale. AFP wants to says the Democrat. But middle-class voters do believe that the
“drive home how big-government programmes disrupt lives and economy is tilted towards the super-rich. Tycoon-bashing is
hurt rather than help people.” That way, ventures Mr Phillips, about telling voters that they are right, and that if the Republican
when the Left offers another government plan, perhaps “some- agenda looks horrible to them, that is because it is bought and
thing on global warming”, Americans will be more sceptical. paid for by billionaires. Stories, not arguments. 7
WorldMags.net
 The Economist March 22nd 2014 49
The Americas
Venezuela’s protests
WorldMags.net Also in this section
Inside the barrios 50 Bello: Brazilian foreign policy
52 The man behind Mexico’s reforms

CARACAS
Support among the poor for the government of Nicolás Maduro is conditional
the Tupamaros,” says a street trader. The
T HE queue outside the Mikro supermar-
ket stretches in both directions along
the Avenida Sucre in western Caracas.
reference is to a band of former urban guer-
rillas who formed a political party after
cused by the opposition of several deaths
(which they deny). Their tight grip on
poorer communities is one reason the bar-
Some 200 people, of all ages, shade them- Chávez came to power in 1999, though rios, or shanty towns, have stayed quiet.
selves as best they can from the midday without handing over their weapons. Another is the widespread fear of los-
sun in the hope of reaching the door before “Things are quieter around here [than in ing benefits such as housing allocations,
the sugar or the flour runs out. “I’ve been the east] thanks to them.” employment or subsidised food, which
here over an hour and a half,” says an el- Armed civilian gangs, loyal to the “rev- are contingent on political loyalty. The oil
derly woman with a downcast expression olution” and known euphemistically as boom that began in 2002 allowed Chávez
near the front of the queue. “And they say colectivos, act as community enforcers. to mount a plethora of clientelistic welfare
the flour’s already finished.” This is Catia, a “The majority are criminals,” says José programmes, known as “the missions”.
poor district just a stone’s throw from the Quintero, an opposition activist from Pro- Health and education were the main focus
presidential palace and a longtime bastion Catia, a non-governmental organisation, of these initiatives, which made up in
of government support. But the fervour of “and they are armed to the teeth.” quantity for what they lacked in quality.
that backing has dissipated since the death Since the conflict turned violent in mid- Poverty was greatly reduced. When the oil
a year ago of President Hugo Chávez, February, alleged members of the colect- price stalled, so did social gains. The lead-
whose tomb lies nearby. ivos have been filmed and photographed ership of the opposition Democratic Unity
For the past six weeks Venezuela has using firearms against protesters. Acting in (MUD) alliance has so far failed to take full
been gripped by unrest that has left around concert with security forces, they are ac- advantage of ensuing discontent. Critics 1
30 people dead. Every big city has seen se-
vere street clashes, posing questions for-
both the regime and Venezuela’s neigh-
bours (see Bello, next page). Opposition
leaders have been arrested: the mayor of
San Cristóbal, where the protests began,
was detained on March 19th. Food short-
ages, the cost of living and violent crime
are among protesters’ main complaints.
But in most cities the violence and the bar-
ricades have been focused on middle-class
districts. The western half of the capital—
which, unlike the east and south-east of
Caracas, is run by the ruling United Social-
ist Party of Venezuela (PSUV)—has been
virtually unaffected. “This is an upside-
down country,’ says Kelvin Maldonado, a
chavista activist. “The rich are protesting
and the poor are content.”

Loyal, to a point
The contentment, however, is more appar-
ent than real. “The same problems they
have over there,” says Mercedes Rodrí-
guez, a pensioner from western Caracas,
“we have over here, too.” For a month now,
Ms Rodríguez has been searching for the
pills she needs to control her blood pres-
sure. “There’s nowhere I haven’t looked,”
she says. She draws a blank in the 4F phar-
macy too, where the woman behind the
WESTERN
counter says they have run out of 40% of
the medicines they normally sell. Asked
why there are no barricades in the Avenida
Sucre, the pensioner manages a wry smile.
“Maybe there’s more repression,” she says.
Two black flags flutter in the breeze atop
Block 15-A, part of the 23 de Enero housing
project that overlooks the avenue. “That’s The heartland of chavismo
WorldMags.net
50 The Americas The Economist March 22nd 2014

WorldMags.net
2 say it has yet to convince disaffected chavis-
tas that it has their best interests at heart.
negative view of the situation today and
over half thought it would be even worse
paigning for regime change plays into the
government’s accusations that the opposi-
In western Caracas, its task is made in six months. tion is trying to mount a coup. Mr Quintero
harder by the threat of chavista violence. Having been anointed by Chávez him- takes a more nuanced view. He believes
Lest that prove insufficient, Nicolás Madu- self, Mr Maduro commands residual loyal- the opposition radicals merely jumped the
ro, the president, recently banned opposi- ty. Popular alternatives are thin on the gun. In two or three months, he says, short-
tion marches in this part of the city, which ground. But more than 40% of government ages of food and basic goods will be so se-
is where the most vital government institu- supporters blame the president for crime vere that the barrios will explode as they
tions—including his office—are located. and economic hardship. Almost 90% of all did in the Caracazo in February 1989, when
A recent survey by Datos, a polling firm, Venezuelans said the government should a wave of riots and a heavy-handed re-
found discontent with the government change its policies, and an astonishing 64% sponse led to hundreds of deaths. “When
right across the social spectrum. Only 27.1% favoured getting rid of it “by constitutional they can no longer find any food, it will be
of respondents described themselves as means” as soon as possible. like 1989,” he says. “People will take to the
pro-government; 43.7% favoured the oppo- The MUD is split. Some want Mr Madu- streets, and they won’t be going home.”
sition. More than seven out of ten had a ro’s resignation. Its leaders believe cam- After that, it is anyone’s guess. 7

Bello The bets that failed

BrazilÕs next government will need a new foreign policy

S INCE it is the only big power in South

America, Brazil inevitably catches the
eye of outsiders looking for a country to
friends in the south helped to torpedo
any meaningful Doha deal. The relation-
ship with China has disappointed. China
take the lead in resolving the region’s con- failed to back its security-council bid; it is
flicts—such as the one raging in the streets happy to buy Brazilian soyabeans, but not
of Venezuela. Yet leader is not a role that its manufactures. Most wounding of all,
Dilma Rousseff, Brazil’s president, is keen the countries of Latin America’s western
to play. She has reasons for her reluc- seaboard—Chile, Peru, Colombia and
tance—and they explain why Brazilian Mexico—have forged their own Pacific Al-
foreign policy has run into trouble. liance, built on free trade and free mar-
Ms Rousseff has behaved as a loyal kets, in a tacit rebuke to Mercosur.
ally to the elected, but autocratic, govern- Brazil still has international strengths.
ment of Nicolás Maduro, which faces op- It has acquired influence in Africa, and
position protests almost daily. Brazil has plenty of soft power (which will be
worked hard to thwart any role in Venezu- enhanced if this year’s football World
ela for the Organisation of American Cup goes well). But in the region, its main
States, which includes the United States. allies now are ultra-protectionist Argenti-
Instead, the foreign ministers of the South zil may fall out of favour in Caracas. In ad- na and Venezuela, a basket case and polit-
American Union (UNASUR) have agreed dition, Brazil’s long tradition of multilater- ical embarrassment.
to promote talks in Venezuela. It is an ini- alism and non-intervention means its Brazil’s underlying problem in South
tiative without teeth: the ministers ex- default position is to talk, not act. America is its ambivalence about exercis-
pressed their solidarity with Mr Maduro, But not always. When Luiz Inácio Lula ing real leadership. That would involve
disqualifying themselves as honest bro- da Silva, Ms Rousseff’s predecessor and opening its economy to its neighbours,
kers in the opposition’s eyes. political mentor, took office in 2003 he de- and seeking integration based on mutual
Brazil’s wrong-headed calculation is clared that Brazil would pursue a more am- national interest and binding rules, rather
that the protests will fizzle out. Mr Madu- bitious foreign policy and seek a leading than fleeting ideological solidarity.
ro took a UNASUR statement on March role in South America. Brazil duly forged Brazil’s foreign ministry recently
12th as a green light to launch another closer ties with other rising powers of the launched a policy review (though, on
crackdown. Faced with a deteriorating global “south” and allied with them in the South America, it is Ms Rousseff and her
economy and mounting unpopularity, Doha round of world-trade talks. It sought advisers who call the shots). So here is
Mr Maduro’s rule is likely to remain re- a permanent seat at the UN Security Coun- Bello’s contribution: in Mercosur external
pressive. Given that Brazil’s ruling Work- cil. In South America a “pink tide” of elec- trade negotiations are conducted by the
ers’ Party (PT) claims to stand for democ- toral victories by the left allowed Lula’s bloc and hobbled by Argentina. Brazil
racy and human rights, he is a strange ally. Brazil to recast Mercosur, the flawed cus- should set out to turn it into a free-trade
One explanation is that Venezuela has toms union it leads, as an instrument ofpo- area instead. Brazil could then do trade
become an issue in Brazil’s presidential litical co-operation, shared protectionism deals with the Pacific Alliance, the EU and
election in October, in which Ms Rousseff and social justice—an alternative to the others. And it should recognise that the
will seek a second term. Venezuela’s left- “Washington consensus”. When the 2008 democracy clauses in regional agree-
right divide is echoed, albeit more faintly, financial crisis crippled the United States ments do not merely require condemna-
in Brazil. Whatever the PT’s differences and Europe, Lula’s bet on the south tion of coups but also oblige elected presi-
with Mr Maduro’s authoritarian popu- seemed to have paid off. dents, like Mr Maduro, to adhere to
lism, they are trumped by left-wing sol- But five years later, the world is a much minimum standards of democratic gover-
idarity. Having done lucrative business in harsher place for Brazil, as Matias Spektor, nance and human rights. Unfortunately,
Venezuela, Brazilian companies want to an international-affairs specialist at Kings such changes are likely only if the opposi-
repatriate their profits and worry that Bra- College London, points out. Brazil’s new tion wins in October.
WorldMags.net
WorldMags.net

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52 The Americas The Economist March 22nd 2014

Mexico’s finance minister WorldMags.net spending to hit the government’s 3.9%

The man from MIT

growth target this year (many private fore-
casts are closer to 3%). Government spend-
ing grew by 20% year on year in January.
He says this was necessary to boost de-
mand, especially since the central bank’s
room to cut rates is constrained by the pros-
pect of tighter monetary policy north of
MEXICO CITY
the border.
The brain behind President Peña’s bold economic reforms
In the process, the budget deficit is pro-
jected to rise to 1.5% of GDP this year and to-
T AKE the lift down from Luis Videga-
ray’s office in the National Palace and
you enter a portrait gallery of past finance
forms, businessmen became frustrated
trying to talk to him. It took14 months as fi-
nance minister before he paid a visit to
tal public borrowing (which includes
things like investment in Pemex, the state
ministers stretching back to the 19th cen- Wall Street. With his eye off the economic oil firm) could hit 4.1%, which is high for a
tury. Mr Videgaray runs through the latest ball, growth slowed to a miserly 1.1% in non-crisis year. In a country with a che-
ones, pointing out, with a hint of rivalry, 2013, a four-year low. Some wondered quered debt history, higher borrowing
where they got their economics doctor- whether Mexico’s moment had already worries some: Héctor Aguilar Camín, a
ates. Two of the most influential of the past been and gone. Spirits lifted in December commentator, likens it to an alcoholic hav-
15 years went to the University of Chicago when Congress boldly voted to end a 75- ing his first drink after many years on the
(one, Agustín Carstens, is now central- year-old state oil monopoly; Moody’s, a wagon. Mr Videgaray shrugs that off. He ex-
bank governor). They turned Mexico’s ratings agency, awarded Mexico an “A” pects the energy reform eventually to lead
economy into a paragon of low inflation grade last month. But everyone is still wait- to higher oil production, which would
and stability—albeit one that has often ing impatiently for clearer signs of an eco- boost tax revenues. In the meantime, he
struggled to grow fast (see chart). nomic rebound. says government income from Pemex is
Mr Videgaray is a Massachusetts Insti- Mr Videgaray explains how his MIT- safeguarded—a factor that contributed to
tute of Technology (MIT) man. “I didn’t ap- honed belief in the imperfection of mar- the Moody’s upgrade.
ply to Chicago,” he says. He went to MIT, kets, especially in Mexico, helped shape
he points out, because he does not believe the reforms. Thanks to the entry into force Just a tipple
markets are perfect. “Mexico is a market of the North American Free-Trade Agree- Although businesses are desperate for
economy, but we should have better mar- ment 20 years ago, the export sector has more growth, this projected splurge has
kets. The government needs to work to im- been knocked into shape by international raised hackles. Many industrialists feel it is
prove how markets perform.” That belief is competition. But the rest of the economy, being paid for largely through a tax reform
at the root of the series of economic re- sheltered from those same forces, has re- that fell heavily on them last year. There is
forms he orchestrated last year. It also in- mained stagnant and unproductive. The also a growing concern that Mr Videgaray’s
forms his plans to rev up Mexico’s sluggish reforms “start with the conviction that obsession with driving down prices may
economy this year. these markets will not open up by them- go too far—through price regulation or oth-
Although he became finance minister selves,” he says. er measures that would end up discourag-
in December 2012, Mr Videgaray has only His aim is not just to bust open monop- ing investment.
now started to divulge his economic phi- olies and oligopolies and develop stronger He rejects the tax gripes (“taxes are nev-
losophy. For much of last year, he hun- energy, telecoms and banking industries. er popular”) and says an antitrust bill in
kered down in an office close to President In an unusual focus on the millions of Congress aims to restrict the government’s
Enrique Peña Nieto, drawing up reforms in small firms that provide 75% ofjobs in Mex- power to control prices. “It’s very impor-
energy, education, telecommunications, ico, he says he also wants to lower prices tant that the government is close to the
banking and public finance. The two men and raise the quality of inputs like gas and business community and that we under-
have been almost inseparable since Mr electricity, broadband and credit, which stand their concerns,” he says. “But at some
Peña became a state governor in 2005 and would make growth more sustainable. point the government needs to be a gov-
made Mr Videgaray his finance chief. Ad- Bottlenecks that limit cheap imports from ernment.” Mr Videgaray may be more vis-
mirers say the president’s political nous is the United States mean that Mexican firms ible now, but he still keeps his distance. 7
complemented by his minister’s brain. often pay several times more for natural
Mr Videgaray’s reclusiveness had costs. gas than their American counterparts do,
Although he gave time to congressmen for example. Mr Videgaray calls this “the
whose support he needed to enact re- democratisation of productivity.”
The reforms also aim to put a much big-
ger onus on autonomous regulators,
Borrowing time which he hopes will do a better job of
Mexico’s: trustbusting than politicians have. Mr Vi-
GDP PSBR* degaray says one of the highlights of Mr
% change on previous year As % of GDP Peña’s administration was when the presi-
6 6 dent in February turned to the Supreme
†
3 3
Court to stop a local judge blocking a deci-
‡ sion made by the new telecoms regulator.
+ +
0 0 “That sent a very strong signal of what this
– – administration is about,” he says.
3 3 The reforms may take years to kick in
6 6
fully. In the meantime, Mr Videgaray’s
2001 03 05 07 09 11 13 14 most pressing task is pepping up the econ-
*Public-sector borrowing requirement omy. Although Mexico should benefit
Sources: INEGI; SHCP; †Official forecast
Economist Intelligence Unit ‡EIU forecast
from recovery in the United States, Mr Vi-
degaray thinks it needs a big dose of deficit More visible Videgaray
WorldMags.net
 The Economist March 22nd 2014 53
Middle East and Africa
WorldMags.net Also in this section
54 Syria’s government gains ground
55 A bitter Palestinian succession
55 Mali’s dithering rulers
56 South Africa’s Somali traders…
56 …and why its president was booed

For daily analysis and debate on the Middle East

and Africa, visit
Economist.com/world/middle-east-africa

Iraq Falluja, the province’s second city, which

has long been a hotbed of jihadist opposi-
As bad as it gets tion; it was the site of the fiercest battle in
Iraq fought by the Americans ten years ago.
Only an hour’s drive west of Baghdad, Fal-
luja is ringed by Iraqi soldiers and special
forces in a stand-off; 300,000 civilians
BAGHDAD
have had to flee their homes—the biggest
As an election draws near, the rifts between Iraq’s three main communities are
displacement of Iraqis since the splurge of
getting even deeper
sectarian violence that intensified in 2007.

I RAQI military helicopters flying over

Baghdad have been dropping leaflets.
Unlike those that fluttered down from
T U R K E Y
Many now live in squalor in makeshift
dwellings north of Baghdad. The Iraqi gov-
ernment has promised aid but has failed so
American helicopters at the start of the in- Erbil far to supply it.
Mosul
vasion 11 years ago urging Iraqi soldiers not Kirkuk The American administration, worried
S Y R I A NINEVEH
to resist, these ones are meant to persuade lest Iraq implode just when it hoped it
citizens to vote in national elections on could forget about it, has hastily autho-
JORDAN Samarra
April 30th. “In Saddam’s time they used to I R A N rised the dispatch of air-to-ground Hellfire
drop money from helicopters on national Ramadi Baghdad missiles to hit ISIS camps in Anbar’s west-
holidays,” recalled a wistful Baghdad resi- ANBAR Falluja ern desert, where fighters go to and fro be-
dent, looking at a leaflet depicting the new I R A Q Ti
tween Iraq and Syria. Mr Maliki is also
electronic voter-registration card. buying Apache helicopters from the Un-
gr
is

Euph
Nuri al-Maliki, prime minister since rate ited States. Viewing his security needs as
s
2006, is expected to stay in power, though 250 km desperate, the Americans seem to have
Basra
he may struggle to form another coalition Iraqi territories: turned a blind eye to purchases of small
government, given the bitter infighting Kurdish arms by Iraq’s government from Iran, in
within the present one. But, with violence Sunni Arab SAUDI KUWAIT contravention of international sanctions.
rising to its worst level since sectarian strife Shia Arab ARABIA For his part, Mr Maliki has accused Sau-
Sparsely
gripped the country in 2007 and 2008, Ira- populated
di Arabia and Qatar offunding Sunni terro-
Sources: CIA, The Economist
qis are more preoccupied with staying rists in Iraq in order to destabilise the coun-
alive than with exercising their democratic try. The Saudi and Qatari governments
rights. And in some parts of the country Maliki, and locals, nearly all Sunnis loyal deride him as a puppet of Iran.
the violence will surely prevent people to tribal leaders. Some of them are allied to Meanwhile, the death toll continues
from voting, even if they want to. the Islamic State of Iraq and Greater Syria, alarmingly to rise; 9,000 Iraqis are reck-
The most wretched area is Anbar, a vast better known as ISIS, which is tied to al- oned to have been killed last year. So far
province west of Baghdad with a border Qaeda. Failing to meet local demands for this year another 2,000 have died in
abutting Syria and Jordan. Violence there political and judicial reform and better ser- bombings, most of them in Baghdad. On
intensified in December, when Mr Maliki vices in Anbar, Mr Maliki and his govern- some days more than a dozen car-bombs
sent in special forces to dismantle a protest ment have portrayed the protesters simply have gone off, mainly in Shia districts. Sun-
camp in Ramadi, the province’s capital, as an al-Qaeda front. ni jihadist suicide-bombers, many of them
and arrested a clutch of local politicians. In the past month or so, the security reckoned to have been trained in Syria, tar-
This led to all-out fighting between the se- forces have regained most of Ramadi but get Iraqi security forces and ministries.
curity forces, most of them Shias, like Mr are no closer to driving rebel fighters out of The fighters also single out fellow Sun- 1
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54 Middle East and Africa The Economist March 22nd 2014

WorldMags.net
2 nis who are remnants of the Sahwa
(“Awakening”) movement led by tribal
intended to raise $150 billion for 2014 has
been stalled in parliament. The Kurds and
lieves Damascus of what had, as recently
as November, seemed a real threat of encir-
leaders who were persuaded by the Amer- factions loyal to the Speaker, Osama al-Nu- clement by rebel forces. Its fall marks the
icans to turn on al-Qaeda in 2007 and who jaifi, a leading Sunni from Mosul, have boy- most telling victory for the regime since it
are now being picked off. Gunmen recent- cotted the proceedings. recaptured Qusayr, a town of similar size,
ly attacked a Sahwa leader’s home near Sa- Americans involved in trying to regen- still closer to the border with Lebanon, in
marra, north of Baghdad, killing his wife erate the country are dismayed. “We tried May last year.
and sons, then beheading them. to give them the opportunity to build a Varied rebel militias still control areas
It is unclear whether Mr Maliki and his new Iraq,” says Zalmay Khalilzad, Ameri- in striking distance of central Damascus.
generals will contain, let alone defeat, the ca’s ambassador in 2005, when a new con- On March 19th they fired mortar rounds
Sunni rebellion. What is certain is that stitution was pushed through. “We had into the district where Mr Assad lives. But
Iraq’s fractious components are increasing- high expectations and, yes, we were in a Yabroud had formed the tip of a salient,
ly minded to ignore the writ of the central hurry so that things would be done as stretching to the Lebanese border, which
government; some seek autonomy, if not quickly as possible. We have fallen signifi- served as a vital smuggling route for the re-
secession. Oil-rich Nineveh province sur- cantly short—and paid a high price.” It is bels and threatened to cut the main road
rounding Mosul is just one of them. the Iraqis who are still, metaphorically and linking the capital to the regime-held coast.
Tensions between Mr Maliki and the literally, picking up the bill. 7 What remains of this salient is a patch of
government of Iraq’s autonomous Kurdish rocky, mountainous terrain with few set-
region are as bad as ever. A row recently tlements, difficult for rebels to hold, since
erupted over his decision to withhold fed- Syria’s civil war Mr Assad has a monopoly of air power
eral budget payments to punish the Kurds and heavy artillery.
for striking separate deals with foreign oil
companies to export oil through Turkey.
Back and forth Yabroud’s fall may prove to be a minor
watershed. The town had been in rebel
The Kurds’ three main parties are acri- hands for nearly two years, and resisted an
moniously struggling to form a regional intense government assault for months.
government almost six months after pro- Crucial to the final assault was the partici-
CAIRO
vincial elections. But they are united by a pation of hundreds of well-trained and
Bashar Assad is advancing on one front,
shared fear that a strong Iraqi government -equipped fighters from Hizbullah, the
but is retreating on others
may again threaten them and their autono- Iran-backed Lebanese Shia militia. Its
my. “This election is not about the budget,”
says Fuad Hussein, chief of staff to Masoud
Barzani, the Kurds’ president. “It is about
O N MARCH 18th the Syrian cabinet
proudly announced the creation of a
national space agency. The timing seemed
forces make up the bulk of an estimated
8,000 foreign Shia soldiers, including vol-
unteers from Iraq, who now bolster Mr As-
the culture behind cutting the budget. The odd, seeing that the government of Presi- sad. A growing reliance on these fighters
next election will either save Iraq or push it dent Bashar Assad controls only chunks of suggests that the government, despite its
into disintegration.” a ravaged country now entering the fourth superior firepower, still lacks the men to re-
year of a civil war that has left 40% of its take and then hold the swathes of territory
And yet it moves 23m people homeless, sent 3m abroad as still in opposition hands.
Despite the violence and chaos, the coun- refugees, and killed at least 150,000. But In the north of the country, for instance,
try staggers ahead. Baghdad is a patchwork Syria’s regime prides itself on retaining a government troops made only minor ad-
of building sites. Huge shopping malls are veneer of normality; Mr Assad blithely in- vances this winter, despite the outbreak of
going up. Ambitious government projects, sists he will run for re-election in June. full-scale warfare between two rebel fac-
some of them half-finished, proliferate Yet with rebels suffering setbacks as tions, the extreme jihadist group, the Is-
next to buildings bombed in 2003 and nev- well as continued infighting, government lamic State of Iraq and Greater Syria (ISIS),
er repaired. Restaurants, cafés and shops efforts to keep up a cheery narrative have and a broad coalition of rival militias, in-
sell everything—amid concrete blast-walls lately appeared less absurd. In recent cluding some under the umbrella of the
and road-blocks—from bodybuilding weeks Mr Assad’s forces have regained the Western-backed Free Syrian Army. As ISIS,
equipment to ladies’ evening dresses, cre- initiative on the most crucial of the coun- which is led by Iraqi veterans of al-Qaeda
ating a veneer of prosperity. In Baghdad’s try’s multiple battlefronts, the region and largely manned by foreign fighters, has
genteel district of Mansour, re-emerging as around the capital, Damascus. The capture retreated to a stronghold around the city of
a diplomatic quarter after years of vio- on March 15th of Yabroud, a strategic town Raqqa in north-central Syria, nationalist re-
lence, a vast mall and a posh 33-storey ho- 80km (50 miles) to the north, in effect re- bel groups have resumed local offensives.
tel are rising near the site of Baghdad’s in- They seem to have secured their hold on
ternational trade fair, where arms dealers 100 km the eastern half of Aleppo, Syria’s second
T U R K E Y
recently gathered to display their wares. city, which had grown tenuous in the face
The fortified “green zone”, where the of relentless government bombing and
Aleppo
prime minister’s office, parliament, many Raqqa small advances on the ground. ISIS, mean-
embassies and the UN mission are based, Idleb while, has been battered in fighting against
Deir
is a bubble. Access to it is tightly restricted. Latakia Hama ez-Zor Kurdish rebels in Syria’s east. This means
IRAQ
Its clean wide streets, lined with palm trees Tartus Homs S Y R I A that the group, widely despised by ordin-
decked in twinkling coloured lights, lends LEBANON Qusayr
ary Syrians, could be less of a threat to re-
Eu

an air of unreality at the heart of the Iraqi ra bel unity in future.

ph

Yabroud t es
government. Beirut In the far south, meanwhile, rebels de-
Damascus
Moreover, though it is the world’s clared a big symbolic victory on March
eighth-biggest oil producer, Iraq is running ISRAEL Deraa 19th, overrunning a prison in Deraa, a city
out of money. Last year’s budget slipped JORDAN near the border with Jordan. Not only did
into deficit, notes the IMF, adding that the Areas of control the capture, part of an expanding opera-
country is overestimating oil revenue by High/low population density, city tion that has left the government control-
10%; it already accounts for more than 90% Anti regime Syrian army Contested Kurdish ling only isolated outposts resupplied by
of total earnings. A proposed new budget Source: Noria Research air, lead to the freeing of some 250 prison- 1
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 The Economist March 22nd 2014 Middle East and Africa 55

WorldMags.net
2 ers. It also took place on the anniversary of star-chamber to purge the ranks of his own Mali

Hurry up, or it’ll be

the protests three years ago in Deraa that Fatah movement.
are widely seen as the launch of Syria’s Mr Abbas had already chased Mr Dah-

too late
uprising. Mr Assad’s vulnerability was lan out of Palestine and expelled him from
also noted on March 19th, when Israeli jets Fatah in June 2011, but from his seat in Abu
and artillery hit several Syrian sites to re- Dhabi his rival refuses to fade. On March
taliate for an attack on an Israeli border pa- 16th, the night before Mr Abbas’s White
BAMAKO
trol blamed by the Israelis on Hizbullah. House meeting, Mr Dahlan appeared on
As Mali’s feuding parties dither, the
Recent diplomatic successes by Mr As- Egyptian satellite television, promising to
extremists may get stronger again
sad’s allies, Russia and Iran, had lately also challenge Mr Abbas on his return. In recent
boosted the Syrian leader’s confidence. But
as Western attitudes to the Kremlin harden
in the wake ofevents in Ukraine, Syria may
days gunmen have opened fire on the
homes of Mr Abbas’s security advisers and
ministers in the Palestinians’ administra-
I N THE lobby of Bamako’s El-Farouq ho-
tel, Ould Mohamed Ousmane Omar, a
middle-aged Malian Arab whose life has
seem an appealing venue for a show of tive capital, Ramallah; they have also chal- been one of exile, rebellion and plot, is gos-
Western grit. Barack Obama is due to visit lenged Mr Abbas’s representatives in Jor- siping about friends and enemies. Take the
Saudi Arabia in the next few weeks. The dan’s Palestinian refugee camps and killed Tuareg rebels, whose 2012 rebellion precip-
Saudis hope he may be persuaded, at long a senior Abbas man in Lebanon. itated the fall of northern Mali to al-Qaeda-
last, to give the go-ahead for a large in- Mr Abbas’s Western-trained security linked extremists. “They’re only in it for
crease of military aid to Syria’s rebels, in- forces have so far proved adroit at curbing their own gain,” he says, adjusting the
cluding the anti-aircraft missiles they have unrest and rounding up troublemakers, at white veil of his turban to reveal a wisp of
long pleaded for. In any event, Syria’s mis- least in the West Bank’s city centres. But goatee. Or Mali’s new government, which,
ery looks set to continue. 7 they are less able to thwart another of Mr he grimaces, “knows nothing—not the
Dahlan’s game-plans: staging a comeback north, not the Tuareg, not the problems. It’s
in Hamas-ruled Gaza, where he was born. so easy to fool.” As for his own faction, the
Palestinian politics Desperate to lift the grinding siege still im- Arab Movement of Azawad (as the Tuareg

A succession crisis
posed on them by both Egypt and Israel, call their homeland), Mr Omar can only la-
Gaza’s Islamists are said to have offered ment that an international conspiracy to
their old foe a deal: use your close ties with thwart its potency has cracked it down the
Egypt’s generals to reopen the border be- middle. But then again, he says, few of his
tween Gaza and Egypt, and we will let you erstwhile colleagues were ever more than
return. As a sweetener, they have freed sev- “second-class” and “drug dealers”.
RAMALLAH
en of Mr Dahlan’s men from prison. Mr Omar is one of dozens of delegates
Mahmoud Abbas is being challenged by
Mr Abbas abolished parliament seven from a mosaic of armed groups meeting in
a fearsome rival
years ago and has since ruled by decree as Bamako to thrash out differences with the
government and each other. At UN-spon-
A S HE struggles to realise a Palestinian
state, pressures are mounting on Mah-
moud Abbas, the Palestinians’ ageing pres-
a supposedly benign dictator with barely a
semblance of accountability. His own four-
year term expired in 2009. Though 78, he
sored workshops on March 13th-14th gener-
als and gendarmes milled about in uni-
ident. They come from among his own has refused to appoint a deputy, leaving form. Dignitaries in robes and turbans
people. His erstwhile security chief, Mu- loyalists as well as foes jostling for the suc- communicated with barely perceptible
hammad Dahlan, has turned on his former cession. Set against Mr Abbas’s white hair flickers of the eye. And government minis-
master, accusing him of complicity in poi- and plodding demeanour, 53-year-old Mr ters made fine promises about bringing
soning his predecessor, Yasser Arafat, of Dahlan, with his black locks, looks young services to Mali’s convalescent north. Yet
promoting his two sons to the pinnacle ofa and dynamic. Without elections to decide nine months after a preliminary peace ac-
kleptocracy and of throwing Palestine’s fu- Palestine’s leadership, the succession bat- cord set out a strict timetable for negotia-
ture away by engaging in futile negotia- tle may take other, more brutal forms. 7 tions, this was only the second occasion
tions with Israel. Senior Palestinian intelli- that the various sides had sat down togeth-
gence men have joined Mr Dahlan’s side. er. “It’s taken a long time,” says a European
So, too, have powerful sponsors in the Un- diplomat. But these talks, he hopes, may
ited Arab Emirates’ royal court and among yet turn out to be “a breakthrough”.
Egypt’s generals, who see Mr Dahlan as the Blame for the slow progress is laid
leader of the Palestinian flank in their re- partly on Mali’s president, Ibrahim Bouba-
gional war on the Muslim Brotherhood. car Keita, who came to power with a
Mr Abbas’s loyalists emblazon the front pledge to unify the country but has since
pages of Palestine’s press with banners aggressively reinterpreted the original
pledging support, but Mr Abbas looks in- road map. In the place of the confidence-
creasingly irked. When he assembled 120 building measures that it stipulated, he has
senior people for a pep-talk on March 10th, made provocative and impractical de-
a week before he was to meet Barack mands, such as the complete disarmament
Obama in Washington, he devoted over of the rebel groups before talks begin. Mr
half of his speech to denouncing Mr Dah- Keita has also sidelined the UN mission to
lan. He accused him of feeding Mr Arafat Mali, whose presence he resents.
poisoned pills, acting as Israel’s informant In the face of his stonewalling, the
in a spate of assassinations and surrender- armed groups have grown increasingly di-
ing Palestine’s seaside enclave of Gaza to vided. Earlier this month the National
the Islamist movement, Hamas, in a Movement for the Liberation of Azawad,
botched military campaign in 2007. To the original instigator of the rebellion of
ward off the risk of a coup, Mr Abbas re- 2012, broke in two. Its leaders refuse to take
cently cut the pay of around 100 pro-Dah- part in a process which they say the gov-
lan men in his security forces, and set up a Darkly dynamic Dahlan ernment is sabotaging. But dissenters styl- 1
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56 Middle East and Africa The Economist March 22nd 2014

WorldMags.net
2 ing themselves as the Azawadi People’s
Coalition want closer relations with the
South Africa
rulers in Bamako, and have castigated their
former comrades in the press and on air. Why they booed him
Mr Omar’s Arab Movement of Azawad is
JOHANNESBURG
one of a clutch of pro-government militias
A watchdog says an improperly lavish sum was spent on the president’s home
that are racked by internal rows.
All this is manna to the violent extrem-
ists of Ansar ed-Dine, al-Mourabitoun and
al-Qaeda in the Islamic Maghreb, who are
M ANY a homebuyer is tempted by a
down-at-heel residence that might
be profitably resold after redecorating.
Zuma can begin.
A third of ANC voters said they were
less likely to vote for the party because of
regrouping, recruiting and re-equipping— Often they misjudge the scale of the work the scandal, according to a poll in Decem-
even as French forces reduce their presence needed and end up out of pocket. The ber. The booing he endured that month
and UN peacekeepers languish at half- president of South Africa, Jacob Zuma, in front of world leaders at a memorial
strength. Gunmen flying jihadist flags have made a different sort of error. His is prov- for Nelson Mandela was in part fuelled
been seen in Mali’s distant north, in its far- ing costly not because he overpaid for by anger at Nkandla’s grandeur.
thest east, and in a number of settlements rebuilding but because the taxpayer did. The ANC will still win the election on
in between. The non-violent factions in Ba- On March 19th the public protector, a May 7th. The shadow of far more serious
mako need to hurry up, settle their differ- watchdog, published a 447-page report corruption allegations against Mr Zuma
ences and get moving towards a proper on the 215m rand ($20m) of public money did not stop the ANC winning 65% of the
peace deal. 7 spent on Mr Zuma’s private home at vote last time, in 2009. But this scandal
Nkandla, in KwaZulu-Natal. Its findings should make the election the hardest it
were damning. The notion advanced by has yet fought.
South African business the ruling African National Congress
(ANC) that the cost was justified for secu-
Somali shop-swap rity reasons was quashed. There was no
basis for believing that many of the fea-
tures installed—a cattle enclosure, swim-
ming pool, amphitheatre, extensive
paving—were for security, it said. By his
SOWETO
tacit acceptance of the scale and cost of
In a few years immigrant traders have
the upgrade, Mr Zuma failed to protect
come to dominate informal retailing
public money. That amounted to “con-

W HEN he is not studying, Mohlomi

Tauhadi works in his uncle’s spaza
(an informal store) in Mapetla, a suburb of
duct that is inconsistent with his office”.
Because Mr Zuma “benefited unduly”,
he should repay some of the cost, says
Soweto, the vast urban sprawl west of Jo- the public protector. The Democratic
hannesburg. The store is a small kiosk in Alliance, the main opposition party, has
front of a single-storey house. It stocks asked for Parliament to be recalled so that
mostly staples and treats: rice, maize-meal, impeachment proceedings against Mr
sugar, eggs, biscuits and cakes. There are
perhaps 90,000 such outlets across South
Africa. On a weekday morning, business is ing. There is no xenophobia in Soweto, he a 1kg bag. They are more likely to offer cred-
slow. The spaza has lost customers to two reckons. Most foreign shopkeepers have it. And they open for longer hours.
local rivals, one run by a Pakistani trader, assimilated. Those who are attacked tend Spazas run by other foreigners have
the other by a Somali. Mr Tauhadi is candid either to be new arrivals or to operate in similar business practices. Single cigarettes
about the reason: “They are cheaper.” newer, more divided settlements. are a frequent purchase from the Bangla-
An influx oftraders from the Horn ofAf- Informal retailing has swiftly become a deshi-run spaza in Mdeni, another Sowe-
rica and Asia has been a headache for spa- foreign speciality. Suppliers have noticed. tan suburb. Musharraf, who works here,
zas run by South Africans. In less settled Spazas account for much of the wholesale says he will give credit to grandmothers
places than Soweto, they are also a target business ofthe giant Kit Kat cash-and-carry (who receive regular social grants) but not
for violence. Last month in Refilwe, a shack in Soweto. A few years ago around 90% of to youngsters (“they’ll never come back”).
settlement east of Pretoria, the capital, its customers were South African and 10% The changes to informal retailing coin-
more than a dozen foreign-owned shops foreign. Now 70% are foreign, says Essak cided with an influx of refugees from So-
were looted when a ten-year-old boy died Karrim, the manager. They come two or malia as its civil war intensified after 2007.
in hospital after he was reportedly beaten three times a week to restock, spending up- Migrants from other countries also sensed
by a Pakistani shopkeeper for stealing wards of 2,000 rand ($200). They flit be- a business opportunity. The start-up costs
sweets. In September Somali-owned spa- tween Kit Kat and other cash-and-carries of a spaza are fairly low. Newcomers rent
zas were looted over a four-day spree for the best deals. from South Africans who were struggling
around Port Elizabeth, a big coastal city. An in-depth study of Somali traders by to compete with supermarket chains.
Immigrants with jobs might well be re- Vanya Gastrow and Roni Amit of the Afri- Many migrants can draw on clan networks
sented when barely two-fifths of working- can Centre for Migration and Society in Jo- to help get them started and generations of
age indigenous adults are in work. Yet such hannesburg explains how they have best- retailing experience to keep them going.
feelings are far from universal. The low ed their local rivals. They sell goods at The locals are adapting. “We are trying
prices and wider choice offered by foreign- lower mark-ups, preferring to rely on fast our best to keep up”, says Mr Tauhadi. One
run shops are a boon to South African con- turnover of stock for profit. They pay more reason his uncle’s store has kept some of its
sumers. Bangladeshi, Pakistani and Somali attention to customer service. For instance, customers is that they are offered credit.
vendors have their own loyal customers, Somali spazas will devise smaller servings The store is already open all hours. “Maybe
says GG Alcock of Minanawe, a marketing of goods for cash-strapped shoppers; a you can’t beat them on price but you can
agency that specialises in informal retail- small plastic pouch of sugar, say, instead of beat them on service,” he says. 7
WorldMags.net
 The Economist March 22nd 2014 57
Asia
WorldMags.net Also in this section
58 Haze over Sumatra
59 The decline of Osaka’s mayor
59 Tasmania’s forests
60 A census in Myanmar
61 Banyan: China and the Philippines

For daily analysis and debate on Asia, visit

Economist.com/asia
Economist.com/blogs/banyan

Indonesia’s elections hands-on approach to fixing the problems

The chosen one

that blight ordinary people’s lives: season-
al flooding, poor housing and traffic jams,
for example. Above all, Jokowi makes a
point of moving among the people and lis-
tening to their concerns. Not so much char-
ismatic as practical, his approach is as dif-
ferent as could be from the usual aloofness
JAKARTA
shown by Indonesian leaders. As presi-
The path to the presidency opens up for Indonesia’s most popular politician
dent, however, Jokowi could hardly gov-

I T WAS what many Indonesians had

waited months to hear. On March 14th
Megawati Sukarnoputri, a former presi-
candidate by itself. Opinion polls, giving
the PDI-P the support of about 20% of vot-
ers, suggest this could be close-run. The
ern Indonesia the same way.
It is clear he owes at least part of his suc-
cess in Jakarta to his hard-working deputy,
dent and head of Indonesia’s main opposi- party hopes Jokowi’s star power will push Basuki Tjahaja Purnama, known as Ahok.
tion party, the Indonesian Democratic it over the threshold. If not, it will have to Extraordinarily for such a prominent Indo-
Party ofStruggle (PDI-P), at last anointed Ja- team up with at least one other party, to nesian, Ahok is both ethnic Chinese and a
karta’s popular governor, Joko Widodo, as which it could offer the vice-presidency. Christian. Now, finding the right person to
her candidate for president. This appears That is not ideal, but at least Jokowi would work alongside Jokowi as vice-president
to make Mr Joko, known to all as Jokowi, a have his pick of partners, who would fall will be critical. With the election itself
shoo-in to succeed Susilo Bambang Yud- over each other to associate themselves seemingly in the bag, this has become a
hoyono, who is coming to the end of his with the likely winner. chief focus of the PDI-P. An obvious choice
second and final term as president. Perhaps the only surprise is that it took would be to balance Jokowi’s relative
Most opinion polls put support for the Ms Megawati so long to anoint Jokowi— youth and inexperience by picking a sea-
52-year-old Jokowi at about 40%, twice that too long, many said. But she is the proud soned politician, or even a former or active
of his closest rival, Prabowo Subianto, a daughter of Indonesia’s founding presi- general, from somewhere other than Java,
former special-forces commander, who is dent, Sukarno, and at times seems to have the political and cultural heartland. Ms
now patron of the Greater Indonesia regarded the presidency as hers by right. Megawati, who holds sway over the PDI-P
Movement Party (Gerindra). Barring an She did indeed hold the office in 2001-04— much as Sonia Gandhi does over India’s
unforeseeable disaster, Jokowi seems un- though she assumed it after the impeach- Congress party, will have a big say in the
beatable. He may even secure the 50% of ment of her predecessor, and in both 2004 choice, although she has a mixed record
votes he needs on July 9th to win the elec- and 2009 was defeated in direct elections here. She came very close to losing another
tion in the first round, and avoid a run-off by Mr Yudhoyono. of its rising stars, Tri Rismaharini, or Risma,
in September. After what is widely per- For all the Javanese deference Jokowi the mayor of Surabaya, Indonesia’s second
ceived as years of drift under the likeable has bestowed on her, she may instinctively city, by foisting an unwanted deputy on
but ineffective Mr Yudhoyono, many be- have regarded him as a usurping upstart, her.
lieve Jokowi is the man to galvanise a slug- thwarting yet another tilt at the presidency. The PDI-P will announce no running
gish bureaucracy, clean out corruption and Or perhaps he was the chosen one all mate until after the parliamentary vote.
boost the economy. That includes the mar- along and delaying the announcement of There are now three weeks of raucous
kets: on news of his nomination, Indone- his candidacy was just tactical. As Jakarta’s campaigning by a dozen parties ahead of
sia’s stockmarket and currency both rose. governor, he has never had to answer hard that poll. The prospect of a Jokowi presi-
The only slight hiccup might come on questions about foreign policy, the econ- dency looms over the contest. If he wants a
April 9th, when Indonesia holds a parlia- omy or other big national issues. taste of how hard it will be to tackle deep-
mentary election. By law, the PDI-P must Jokowi’s style in Jakarta, as it was in his seated problems, he might travel to Suma-
win at least 25% of the popular vote, or 20% previous job as mayor of the central Java- tra (see next story), where the air pollution
of the seats, to nominate a presidential nese city of Solo, has been to take a is worse than ever. 7
WorldMags.net
58 Asia The Economist March 22nd 2014

Indonesia’s haze WorldMags.net Successive governments have passed a

mountain of laws and regulations outlaw-
Leaders fiddle as Sumatra burns ing burning, yet enforcement is so poor
that people carry on regardless. On March
16th, when he dropped in on Riau on an
emergency visit, President Susilo Bam-
bang Yudhoyono said he was “ashamed”
of the situation .
PEKANBARU AND SINGAPORE
One recent fire illustrates many of the
The fires that cause much of the region’s haze have started early this year
problems. Between Pekanbaru and the

P EKANBARU, the capital of Riau prov-

ince on the Indonesian island of Suma-
tra, has been shrouded in an acrid white
Forest fires,
March 9th
S
MALAYSIA
east coast is Giam Siak Kecil Bukit Batu, a
huge UNESCO-listed peatland and forest
reserve that is home to the Sumatran tiger,
t r Kuala
cloud of smoke so dense that visibility is a Lumpur among other species. It has been invaded
i t
down to 50 metres (about 160 feet). The air Jakarta by over 2,000 people from north Sumatra
o
f
quality is officially described as “danger- M who are clearing the land by burning
a SINGAPORE
ous”, and most people are wearing face NORTH l a about 3,000 hectares. Local village heads
SUMATRA c
masks, even indoors. Nearly 50,000 peo- c are suspected of selling plots of land to the
a
ple in Riau have already been treated for newcomers, aided and abetted by a local
respiratory, eye or skin problems. All flights Giam Siak military officer previously convicted of il-
Kecil Bukit
last week were cancelled, and only a few Batu RIAU legal logging in western Sumatra.
R I A U ISLANDS
have got through since. The provincial go- That points to the habitual collusion be-
Pekanbaru
vernor has declared a state of emergency. tween the authorities and those illegally
The haze is back, and has arrived earlier I N D O N E S I A clearing land, both of whom profit from
this year than usual. S u m a t r a the lucrative palm-oil business. In re-
Drive to Pekanbaru from the ferries that INDIAN sponse to this case, the head of the army in
OCEAN WEST
dockat a north Sumatran port, and you can SUMATRA
Riau, Prihadi Agus Irianto, has said that it is
Source: NASA J A M B I 75 km
see what the cause of the problem is: mile time for the armed forces to acknowledge
upon mile of smouldering or charred land. that officers are involved in illegal logging
Much of it is peat-bog, where fires can burn Malaysia this month; the night air in Singa- and burning. On March 12th a former go-
up to two metres underground and take pore smelled of bonfires before rain pro- vernor of Riau, Rusli Zainal, was found
weeks to end. A few minutes in, the inferno vided some relief. Last year the haze shat- guilty of graft, including issuing logging li-
stings the eyes and sets off a hacking tered all air-pollution records in both cences that resulted in forest destruction.
cough. These fires have been burning for countries, and diplomatic rows broke out He was sentenced to 14 years in prison.
nearly two months. According to Green- with Indonesia. It will take only a slight Yet, as some Indonesian politicians are
peace, a pressure group, more than 1,000 change in wind direction for Sumatra’s keen to point out, the problem is not all
fires covering at least 12,000 hectares fires to cause an even bigger haze over the down to official corruption. About half of
(30,000 acres) of forest and peatland are region this year. the fires burn on plantations owned by big
burning in Riau. And that is just one prov- Everyone knows why the haze hap- palm-oil and logging corporations. By law,
ince among several with fires blazing. pens, yet it keeps on occurring. That angers they are supposed to be responsible for
For Sumatra, it is an annual environ- Indonesians as much as Singaporeans and preventing and putting out fires on their
mental trauma. But when the haze drifts Malaysians. The fires are usually started concessions, but the regulations are sel-
across the Strait of Malacca to cover Singa- deliberately, often to clear land to make dom enforced. This year, using satellite im-
pore and Malaysia, it is a regional night- way for palm-oil plantations. Indonesia is agery, Greenpeace claims to have found
mare, too. Some schools began to close in the world’s biggest producer of palm oil. fires on land owned by 36 pulp-and-paper
companies and 15 palm-oil companies.
Many of these are local subsidiaries of Ma-
laysian and Singaporean giants.
Yet proving a deliberate intent to start
the fires has always been hard. The case
against one company, Adei Plantation and
Industry, a subsidiary of Kuala Lumpur Ke-
pong, listed in Malaysia, is being watched
closely. The firm was one of eight accused
last year of starting fires, and now—a first in
Riau—a local manager and a director have
been brought to trial. If found guilty, they
face up to ten years in jail and the company
could lose its permit.
The director of a local NGO, Muslim Ra-
syid of the Network for Riau Forest Rescue,
argues that this is a landmark trial, and that
if the company is punished, it could act as a
deterrent to others. Perhaps, but first the
trial has to reach its conclusion. Proceed-
ings have been delayed. The judge, who is
based in Jakarta, the capital, could not at-
tend the courtroom last week because
Not enough pressure planes could not land in the haze. 7
WorldMags.net
 The Economist March 22nd 2014 Asia 59

Japanese politics WorldMags.net bemused. “How many old-people’s

Flaming out
homes will you build?” interrupted one.
Another headache is the opposition of
Osami Takeyama, mayor of Sakai, a small-
er city in Osaka prefecture. He loathes the
idea of Sakai being restructured into a sin-
gle administration, and this week pub-
lished a book about his campaign against
OSAKA
the diminished Mr Hashimoto.
The decline of Toru Hashimoto
Failure to bring off the metropolis plan

L OCALS in Osaka, Japan’s second city, are

glued to their television screens watch-
ing the spring sumo-wrestling tourna-
could lead to Mr Hashimoto’s exit from
politics altogether. Though for now it still
has some clout, the JRP is expected to lose
ment. The final round falls on March 23rd. seats in the next lower-house election, due
They are considerably less enthralled by by December 2016. It has suffered partly be-
the political contest of the week. For the cause most of Mr Hashimoto’s best ideas
mayor, Toru Hashimoto, has called a snap were stolen by the government ofMr Abe’s
election on the very same day as the sumo Liberal Democratic Party. In an ambitious
final. Yet he is, in effect, voters’ only choice plan to revive Japan’s economy, Mr Abe
in the poll. No other serious political party has joined talks on the Trans-Pacific Part-
is fielding a candidate, because Mr Hashi- nership, a free-trade agreement, as Mr
moto will still win, but it will be with a Hashimoto recommended. The govern-
very low turnout. As one local joke has it, ment wants to loosen stifling regulations
he is wrestling only himself. Hashimoto blinks and to give more power to the regions in a
It is all a far cry from a year and a half series of freewheeling special economic
ago, when the young, right-wing Mr Hashi- meito, a Buddhist-backed party, which zones, to include Osaka. Yet blame also
moto electrified the political scene with a prompted a furious Mr Hashimoto to call rests squarely with Mr Hashimoto for al-
new political outfit, the Japan Restoration the snap election. lowing his revisionist views on history to
Party (JRP). His radical ideas about decen- That is not going down well with Osa- overwhelm his reforming zeal. The ques-
tralisation, committing Japan to trade liber- kans. Many struggle to understand how tion is whether Mr Abe can avoid the same
alisation and abolishing the upper house the metropolis plan would benefit them, fate. His announcement on March 14th that
of parliament made him seem a reformist says Isao Kinoshita, editor of Osaka Nichi- he will not seek revision of an apology
heavyweight who could go far in national Nichi Shimbun, a local paper. Campaigning made to comfort women in 1993 by the
politics. In the election for the lower house this week, Mr Hashimoto was reduced to chief cabinet secretary of the time, Yohei
of parliament in December 2012, the JRP, complex diagrams and a red-tipped point- Kono, suggests that Mr Abe may have
co-led by the still-more-nationalist Shin- er to explain his scheme. Voters seemed learned from Mr Hashimoto’s mistakes. 7
taro Ishihara, a former governor of Tokyo,
took 54 seats, just behind the Democratic
Party of Japan. Tasmania’s forests

Logging on
In fact, Mr Hashimoto’s right-wing
views proved his undoing. In May 2013 he
stated that Japan’s wartime system of us-
ing “comfort women” from South Korea
and other countries to provide sexual ser-
vices to Japanese troops was necessary at
the time. He was aiming to lend support to
CANBERRA
earlier comments in parliament by his
Tony Abbott reignites an environmental battle
friend, Shinzo Abe, the prime minister,
which also called into question whether
Japan had been an aggressor during the
war. Condemnation followed, both inter-
M OST people believed the island state
of Tasmania had at last found peace
after a 30-year war between environmen-
the new premier, vows to do Canberra’s
bidding and tear up the peace deal. After 16
years in opposition, the Liberals reduced
nationally and locally. The public’s verdict talists and loggers. Both sides signed a deal the centre-left Labor Party to six seats in the
was also clear. In the election for the upper two years ago that gave everyone some- 25-seat parliament. But, despite Mr Hodg-
house of parliament two months later, the thing: secure supplies for timber compa- man’s strong mandate, ripping up the for-
JRP won just eight seats. nies and protection for native forests. est deal will not be easy.
Now things are going wrong on Mr Now, though, Tony Abbott, Australia’s Mr Abbott laid the groundwork in a
Hashimoto’s home turf, too. The reform he prime minister, has reignited the war. Aus- speech on March 4th to a gathering of for-
holds dearest is his plan, called “Osaka Me- tralia, he says, has too much “locked-up est-industry grandees in Canberra. The en-
tropolis”, to unify the city’s government forest”. Mr Abbott wants to open up a vironment, he told them, “is meant for
with that of the prefecture. One aim is to swathe of Australia’s most fought-over for- man, and not just the other way around”.
save money. Having a dual system of gov- est and hand it to loggers. His government He saw loggers not as “environmental ban-
ernment, he says, has already wasted has asked UNESCO to remove 74,000 hect- dits”, but as “people who are the ultimate
some ¥1.6 trillion ($16 billion). The reform ares (183,000 acres) from the World Heri- conservationists”. Even for a leader who
also fulfils his broader aim to wrest power tage-listed wilderness region that covers has made political combat his hallmark,
from the central government in Tokyo. But about a fifth of Tasmania. this was provocative stuff.
now, emboldened by the mayor’s fading On March 15th the Liberal Party, a pro- The areas Mr Abbott wants to strip from
national popularity, local figures are turn- logging soul mate of Mr Abbott’s federal World Heritage listing belong to 170,000
ing against the plan. It was the dissent of conservative coalition, swept to power in hectares that the organisation recognised
formerly loyal politicians from New Ko- Tasmania’s state election. Will Hodgman, only last year. This approval brought to 1
WorldMags.net
60 Asia The Economist March 22nd 2014

WorldMags.net
2 about 1.5m hectares the World Heritage- A census in Myanmar mar’s government has been at war for de-

Too much
listed wilderness region covering central cades with most ofthe country’s ethnic mi-
and south-west Tasmania. This latest addi- norities, which make up about 40% of the

information
tion was a crucial part of the 2012 peace country’s population.
deal, known as the Tasmanian Forests There was virtually no consultation
Agreement, signed by timber companies, with groups such as the Karen, Shan and
unions and green groups. Chin in drawing up the list. If the authori-
YANGON
Forests cover half of Tasmania: in Aus- ties had asked them, argues Cheery Zahao,
An ill-considered headcount stirs anger
tralia as a whole it is less than a quarter. an ethnic-Chin human-rights activist, they
and mistrust
Battles over access to the land harmed the might have realised how inaccurate and in-
logging industry. Fearing that supplies
would be disrupted, customers in Asia had
started looking elsewhere for their timber.
I T seemed like a good idea at the time.
Among the many things Myanmar lacks
after half a century of military dictatorship
sulting the categories are. There are 53 Chin
subgroups on the list, for instance, many of
which the Chin themselves do not ac-
For this reason alone, many loggers wel- are data, ofany sort. For a new government knowledge, raising old suspicions that the
comed the calm that came with the peace managing the transition to democracy, ba- census results will be used by the Burmans
as much as greens did. Ta Ann, a Malay- sic facts about the country are essential. to keep the Chin politically divided and
sian-based outfit that turns eucalyptus logs Hence, a census. There has not been one in thus weaker. Moreover, the Chin list in-
into veneer, says it was ready to quit Tas- Myanmar since 1983, and it is a normal step cludes groups that are not Chin at all, such
mania, but the peace deal persuaded it to in the economic development of any pov- as the Naga and Meithei. Both of these are
stay. erty-stricken country. separate minorities that live in Chin state
Mr Hodgman plans talks with timber But however well-intentioned, the cen- in Myanmar, though most of their ethnic
companies, although his ideas for manag- sus has provoked a political crisis at a time kin live over the border in India.
ing the island’s forests remain a mystery. when the country can ill afford one. The The categories do not acknowledge the
He will not include environmental groups, questions stray beyond the collection of millions of mixed-race people or people of
he says, unless they drop their demand to run-of-the-mill data—household incomes South Asian descent. Respondents are free
stick to the peace deal. But the unlikely alli- and the like—into the minefields of race to define their own ethnicity, but people
ance created by the deal seems to have pre- and religion. These are extremely sensitive are fearful that if they do enter a category
empted the premier. Two days after the issues in a diverse country with a long his- that is not on the list of prescribed “nation-
election, industry leaders, unions and en- tory of ethnic conflict. Sensitivities are par- alities”, they will be classed as foreigners.
vironmentalists met in Hobart, Tasmania’s ticularly acute at a time when relations be- Consequently, says Ms Cheery Zahau,
capital, to reaffirm their support for the tween the Buddhist majority and the “most people don’t trust the process.”
agreement. Terry Edwards, head of the For- Muslim minority have been scarred by se- Indeed, the census has deepened a
est Industries Association of Tasmania, rious violence. sense of suspicion just as the government
which signed the deal, says it was “abso- Among the 41 questions that the wants to sign a nationwide ceasefire agree-
lutely imperative” in giving the industry 100,000 or so census-takers, mostly young ment with Myanmar’s armed ethnic
certainty. Mr Abbott’s talk of World Heri- school-teachers, have to ask every house- groups and their political representatives.
tage excisions is “not warranted”, says Mr hold in Myanmar is one on race. But re- The census, and the way it has been con-
Edwards. Indeed, ditching the deal could spondents can only choose from an ana- ducted, looks like the work of a govern-
upset its plan to certify Tasmanian timber chronistic, inaccurate and divisive list of ment that cannot throw off the shackles of
to the sustainable international standards 135 ethnic groups. The list reinforces the im- its old, authoritarian ways.
that many customers ask for. pression of a government that represents In particular, the census has sparked
Questions remain about Mr Abbott’s only the ethnic-Burman majority. Myan- further tension in Rakhine state, in the
reasons for stripping 74,000 hectares from west, scene of sectarian violence between
World Heritage listing. He suggests the en- the Buddhist—ethnic Rakhine—majority
tire area had already been logged, “degrad- and the Muslim Rohingya minority. Hun-
BHUTAN
ed” or planted with timber to be logged. dreds were killed in 2012 as Sittwe and oth-
The Wilderness Society, one of the envi- INDIA CHINA er towns were ethnically cleansed of Ro-
ronmental groups that signed the deal, cal- hingyas; about 140,000 of those displaced
culates that just 10% of the area had in fact BANGLA- CHINA now live in refugee camps near the coast.
been logged; about 40% was “old-growth” DESH On March 16th Rakhine mobs protested
forest, barely disturbed before; and much across the state, egged on by Wirathu, a
of the rest was natural vegetation. MYANMAR Buddhist-chauvinist monk. They demand-
CHIN ed that the census be stopped or changed.
L AO S
A real feller R The Rakhine do not want the Rohingyas to
Naypyidaw
At 7.6% Tasmania’s unemployment rate is be able to define their ethnicity. They fear
AK

Sittwe
HI

Australia’s highest (compared with 6% na- this will confer the status of a separate
NE

tionally). Mr Abbott blames “Green ideolo- Bay of group, boost their numbers (by encourag-
gy” for many of the island’s woes, even for Bengal ing illegal immigration from Bangladesh)
T HAIL AND
Australia’s lowest life expectancy. He and help them win some rights.
wants a “renaissance” of forestry in Tasma- 200 km
Yangon The Rakhine mobs may yet get their
nia. The industry employs around 4,000 way, which would make a flawed census
Myanmar’s main
people, about 2,000 fewer than six years ethnic groups even worse. There are also fears of a back-
ago. The Australia Institute, a think-tank, Burman Rakhine
lash from Buddhist nationalists, should the
reckons that Tasmania’s industry can sur- Kachin Mon
Andaman census show, as many think it will, that the
vive only with government subsidies. De- Karen
Sea Muslim population is more than double
Shan
listing World Heritage regions, it argues, Chin Other
the official estimate of 4m (out of a popula-
will create hardly any jobs. The World Her- Source: “Burma-Insurgency and
tion of 60m). Sensible though it seemed at
itage Committee is due to rule on the Ab- the Politics of Ethnicity”,
by Martin Smith
the time, a census is something Myanmar
bott government’s request in June. 7 could do without. 7
WorldMags.net
 The Economist March 22nd 2014 Asia 61

Banyan WorldMags.net
The pressure on the Sierra Madre

A beached ship risks becoming the South China Sea’s latest flashpoint
dicate sovereignty, and says that, if the tribunal accepts the case
and rules in the Philippines’ favour, it will ignore it. But the Philip-
pines, which has hired an impressive team of international law-
yers, surely has a point. China is a signatory to UNCLOS, yet bases
its claim in the South China Sea on a “nine-dash line” in maps
from the 1940s, which show virtually the entire sea as Chinese.
UNCLOS stipulates the territorial waters and EEZs countries are
allowed, based on the land over which they have sovereignty.
The nine-dash line—which China has never fully explained—im-
plies the opposite principle, apparently giving China sovereignty
over the sea and, as a consequence, everything within it.
For the Philippines, recent events form part of a pattern of Chi-
nese bullying, which has included turning water-cannon on Fili-
pino fishermen near the Scarborough shoal. The bullying is all
the more resented as China seems to threaten Philippine access to
the sea’s fertile fishing grounds, and its purported wealth of hy-
drocarbon resources. China’s military expansion has left the Phil-
ippines feeling weak and cornered. Its navy’s newest ships are
two retired US Coastguard cutters and three Royal Navy vessels
once used to patrol Hong Kong waters. The Philippine Air Force
has no jetfighters or bombers—all air and no force, say Filipinos.

I N ONE respect, the meeting in Singapore this week between of-

ficials from the Association of South-East Asian Nations and
China could not have come at a better time. Tensions are mount-
Diplomatically, China has sought to isolate the Philippines. Its
government has been buttering up the other nine members of
ASEAN, even though two of them (Malaysia and Vietnam) also
ing dangerously in the much-disputed waters of the South China have territorial disputes with it in the sea, and its nine-dash line
Sea and this meeting was trying to renew seemingly intermina- violates the EEZs of two others (Brunei and Indonesia). But it has
ble attempts to agree on a “code of conduct” to lower the risk of ostracised and vilified Benigno Aquino, the Philippine president.
conflict. Just nine days earlier the Chinese coast guard prevented This strategy may not be working, however. China’s behav-
Philippine vessels from delivering supplies to a grounded ship iour has unnerved other ASEAN members. Vietnam, with which
near one of the many disputed land features in the sea. And by its dispute is even more extensive, has been alarmed by new
March 30th the Philippines is to make its submission to a UN tri- rules introduced this year by Hainan province in China, requiring
bunal, arguing that the basis of China’s claim to much of the foreign vessels to seek China’s permission to fish, and by a report-
South China Sea is invalid under international law. ed attack on a Vietnamese ship near the disputed Paracel islands,
Yet China’s attitude to both the ship and the tribunal suggests controlled by China since it evicted the garrison of the former
that this is as bad a time as any to try to reach an agreement. In South Vietnamese regime in 1974. And Indonesia, which has
neither case does it seem interested in a compromise. The South liked to portray itself as a potential mediator, having no territorial
China Sea looks destined to remain a source of anxiety in the re- stand-offs with China in the sea, is now accepting that it too is in
gion and rivalry between China and America for years to come. dispute, because of the nine-dash line’s scope. Malaysia, oddly,
The ship, the Sierra Madre, originally built by America in the denied China’s claim that in January three of its warships had pa-
second world war, was deliberately scuttled in 1999 in the Second trolled the southern perimeter of the nine-dash line, near fea-
Thomas shoal, an area known in the Philippines as Ayungin, and tures that it claims. But its relations with China have anyway
in China as Ren’ai. Now it is a leaky rustbucket, manned by a soured under withering attacks from Chinese officials over its
handful of Philippine marines to symbolise that these waters are handling of the disappearance of flight MH370 (see page 65).
within the Exclusive Economic Zone (EEZ) the Philippines claims
under the UN Convention on the Law of the Sea (UNCLOS). But Yankee, come back
China also claims them, and, as before with the Philippines—at Another consequence of China’s approach is a welcome else-
the Mischief reef in 1996 and the Scarborough shoal two years where in the region for America’s proclaimed “pivot” to Asia, and
ago—seems intent on simply asserting control. This was the first especially its military aspects even—indeed especially—in the
time China has blocked the supply boats. It claimed they were Philippines, an American treaty ally. Popular anti-American sen-
carrying building materials, and that construction would change timent there led in 1992 to the removal of America’s military
the status quo, and breach a “declaration” ASEAN and China bases—the last vestiges of its colonial rule. But the government
signed in 2002 on the intended code of conduct. But since the faces no popular uproar today as it negotiates an arrangement to
Sierra Madre was already there in 2002, fixing it up a bit seems al- “rotate” American forces through the country.
lowable. After its ships were blocked, the Philippines resupplied China must also be aware that America is for now preoccu-
the marines with food and water by air. Now it is mulling taking pied with a bigger land-grab in Europe by another dominant re-
the risk of another attempt by sea. gional power. America has recently been explicit in condemning
This more aggressive Chinese approach is part of China’s pun- the nine-dash line, and backed the Philippines in its legal battle at
ishment of the Philippines for the temerity of its small, upstart UNCLOS. But China knows that, in the battle of the Sierra Madre,
neighbour (population, some 105m) in challenging it under UN- America is more likely to be restraining the Philippines than
CLOS. China points out that the law was never intended to adju- goading it into aggression. 7
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 China The Economist March 22nd 2014 63

WorldMags.net Also in this section

64 A big new urbanisation plan

For daily analysis and debate on China, visit

Economist.com/china
Economist.com/blogs/analects

Housing markets building. China now has almost as much

Double bubble trouble

floorspace per person as Italy enjoyed in
2009, Nomura calculates. GK Dragonom-
ics, a consultancy, thinks China needs to
build roughly10m homes a year to keep up
with the growing size and aspirations of
the urban population (see next story). Un-
til 2011, China’s annual homebuilding was
HONG KONG
below that figure. In 2012, it surpassed it.
China’s property prices appear to be falling again
In most countries, that would be report-

C AN bubbles ever pop twice? In late

2009 the world began to worry about
a Chinese property bubble, symbolised by
months of the year, compared with a year
earlier. And other statistics paint a darker
picture, points out Nomura, a bank, which
ed as good news. A rapid expansion of the
housing stock means fewer people living
in the boondocks or in urban discomfort.
Ordos, a newly built city, bereft of citizens, believes that property now poses a sys- In China, however, this building frenzy is
in Inner Mongolia. In the spring of 2010 temic risk to China’s economy. seen as an economic threat, not a triumph.
China’s government broadened its curbs Nomura (among others) calculates an One fear is that China’s developers are
on multiple home purchases and mort- alternative property-price index by divid- building houses for the wrong people
gage borrowing. The following spring, ing the official figures for the value of hous- (speculators) in the wrong places (backwa-
prices in nine big cities fell at last, according ing sold nationwide (599 billion yuan, or ters). Instead of accommodating China’s
to one widely watched index. “The Great $96 billion, in the first two months of 2014) overcrowded urban masses, too many
Property Bubble Of China May Be Pop- by the floorspace sold (94m square me- houses stand empty, serving as stores of
ping” declared the Wall Street Journal in tres). That suggests the price per square me- value for people dissatisfied with bank de-
June of that year. tre was about 6,400 yuan. By this (volatile) posits and distrustful of the stockmarket.
This week the same newspaper cited measure, prices fell by 3.8% compared with Another fear is that if homebuilding falls
“compelling signs the Chinese property a year earlier (see chart). That has not hap- sharply, China may struggle to shift labour
boom is over,” noting that “Cassandras” pened since February 2012. and capital quickly enough to avoid an
have been predicting a crash for years. (The Falling prices would be a natural out- abrupt slowdown in the overall economy.
Cassandra of Greek myth could tell the fu- come of China’s frenetic pace of home- But the first fear should allay the sec-
ture but was never believed. For China’s ond. China’s building boom has left some
property Cassandras, things are the other parts of the country with too much floor-
way round: their direst predictions are of- Flawed space space and other parts with too little. Nearly
ten believed, but have yet to come true.) China’s national property prices (yuan per m2) half of all migrant workers still live in dor-
Bubbles often go on longer than expect- % change on previous year mitories or on worksites. Where housing is
ed. This newspaper warned about Ameri- 25
oversupplied, prices will have to fall, in-
ca’s internet and housing bubbles years 20
flicting losses on homeowners. But where
before they burst. What is unusual about housing needs remain unmet, scope re-
15
China’s bubble is not its persistence but its mains for further construction to fill the
10
prevarication. It seems to be bursting for a gap. For example, the government has said
5
second time. Property prices did peak in + it will spend more than 1 trillion yuan this
0
2011, as the Journal noted. But the following – year renovating shoddy housing. This will
5
year, they started to rise again. help keep homebuilders busy.
Prices are still rising in 69 of the 70 cities 10 Realignment of the industry will be
tracked by the official statistics (Wenzhou 15 painful for local developers that cannot
2011 12 13 14
in Zhejiang province is the exception). But diversify across regions. These smaller
Source: Nomura
residential sales fell by 5% in the first two firms have also suffered disproportion- 1
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64 China The Economist March 22nd 2014

WorldMags.net
2 ately from the government’s efforts to curb
bank lending to the sector. Cut off from
zens”. The plan calls for the “gradual elim-
ination” of the chief cause of this: the hu- City slippers
banks, they have borrowed at punishing kou system of household registration that China’s urban population as % of total
rates from less regulated trust companies was introduced in the 1950s to prevent in- Actual* Hukou
instead. Some went further. The biggest ternal immigration and which, though 60
shareholder of Zhejiang Xingrun, a proper- much relaxed since then, remains a hidden
50
ty firm, was recently detained for “illegal barrier. Even migrants who have lived in
fund-raising”, local reports say. It has debts cities for many years, or the urban-born 40
of 3.5 billion yuan ($565m) that it seems un- children of such migrants, are given far less 30
able to repay. It would not be the first prop- access to government-funded health care
erty default in China. But it would be one and education than other city dwellers. 20
of the biggest. This is because their rural hukou is often 10
Because China has misallocated hous- impossible to change.
ing, some parts of the country remain over- By 2020, according to the plan, 100m 0
1997 99 2001 03 05 07 09 11 13
crowded while others remain empty. A migrants are to obtain urban hukou. This is
Source: Haver Analytics *Resident for six months or longer
bubble is always bursting somewhere, a cautious target. The government admits it
even as another inflates elsewhere. In Chi- would still leave 200m people—by then
na’s patchwork housing market, the Cas- roughly two-thirds of migrants—without fearful of having to spend a lot more on
sandras are never right everywhere but city-resident status. Some state-run news- public services such as health care, educa-
they are often right somewhere. 7 papers say it would mean, on average, that tion and subsidised housing, which barely
17m migrants a year would get urban hu- reach most non-urban hukou holders. The
kou. That would be a step up, but in recent new plan gives few details of how beefing
Urbanisation years the numbers have already been ris- up these services will be paid for, an omis-

Moving on up
ing fast, albeit from a low base. The govern- sion that suggests much bickering remains
ment said last year that between 2010 and to be done. It sets a modest target for urban-
2012 an average of 8.4m a year had been isation of 60% in 2020, up from nearly 54%
granted urban status. today. This would imply a slowing down
Crucially, the plan does not suggest of the growth rate; that is not a bad signal to
when the hukou system might be scrapped send given how local governments have
BEIJING
altogether. And it still allows bigger cities, been using high urbanisation targets as a
The government unveils a new
which migrants prefer, to continue using pretext to continue grabbing land from
“people-centred” plan for urbanisation
hukou barriers as a way of trying to limit farmers and engaging in an orgy of often

A FTER months of bickering among offi-

cials, on March 16th the government
revealed a long-awaited plan for managing
population growth. In the 16 cities with
more than 5m people, officials will be al-
lowed to give hukou only to migrants who
wasteful construction.
The plan also gives a nod to the aspira-
tions of China’s new middle-class, some of
what has been the world’s largest migra- gain a certain number of points (in cities whom are pressing for a greater say in how
tion of rural residents into cities. The docu- that have experimented with this, points their cities are run. The “level of democrati-
ment admitted that much was going are awarded on the basis of educational sation”, it says, should be increased in the
wrong: the spread of “urban disease” with qualifications, property ownership and drawing up of city plans. Officials, how-
worsening congestion and pollution and a other factors that rule out most migrants). ever, chose to keep the plan secret until
rising risk of social tension. It called for a Even in the smallest cities only migrants after the closing of the annual session of
“new style” of urbanisation, focused on with “legal and stable” work and accom- the National People’s Congress, the coun-
making cities fairer for migrants. This will modation—which many do not have—will try’s legislature. It would have been a pity
require considerable government spend- be able to get urban hukou. to spoil it with debate, even by a rubber-
ing, and will meet tough resistance. Local governments are likely to inter- stamp parliament from which migrants are
It is remarkable that a government so pret this as strictly as they can. They are all but excluded. 7
fond of planning has taken this long to pro-
duce a plan for urbanisation; in the past 35
years the population of urban China has
grown by more than 500m people, far out-
stripping the pace of city expansion that
was seen in the developed world during
the early industrial era. Individual cities
love to plan. Big ones, such as Shanghai,
are fond of grandiose exhibitions showing
off their dreams (see picture). But uncer-
tainty over how to handle the influx of mi-
grants has complicated efforts to produce a
plan on a national scale. Chinese leaders
wanted bigger cities, but worried about the
cost of giving migrants full access to urban
welfare and public services.
The new document reflects a shift in
city-building strategy that has become evi-
dent since new leaders took over in China
in 2012; it recognises that urban China risks
being destabilised by the creation of a
huge mass of what the Chinese media
sometimes admit are “second-class citi- Build it and they might come
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 International The Economist March 22nd 2014 65

WorldMags.net

The enigma of flight 370 Also in this section

The sound of silence 66 The future of internet governance

The disappearance of a Malaysia Airlines passenger jet shows how air-traffic

communications need to be updated

“A LL right, good night,” were the last

words heard by air-traffic control-
lers from Malaysia Airlines flight MH370
wild. Commentators of varying degrees of
authority have attempted to fill the blank
canvas with theories ranging from an acci-
several hours under the control of a skilled
aviator, lent credence to the assertion.
But this version of events was later re-
on March 8th. That makes them a rarity in dent to suicidal tendencies on the flight vised by the Malaysian authorities. The
the baffling story of the disappearance of a deck, and conspiracies ofa complexity that ACARS, which sends messages intermit-
Boeing 777 carrying 239 passengers and would seem farfetched in a disaster film. tently, might have ceased functioning at ex-
crew from Kuala Lumpur to Beijing: an un- Hijacking seems unlikely: flight-deck actly the same time as the transponder, it
disputed fact. In the days following, the doors are locked and sturdy. And investiga- turned out. This makes the notion of an
Malaysian government provided informa- tions into the backgrounds of the crew and emergency more likely, perhaps a fire that
tion only in dribs and drabs, much of it passengers have so far turned up no plausi- incapacitated crew and passengers, leav-
confusing, even contradictory. ble motive. The first credible theory was ing the plane to fly on ungoverned. The risk
As The Economist went to press, it that the plane had suffered a catastrophic of an electrical fire is one reason why pilots
seemed possible that the agonising wait mechanical failure and crashed, probably are able to switch off on-board equipment,
for the passengers’ families might be near- at sea. But a search along its flight path including that responsible for communica-
ing an end. On March 20th Australia’s failed to turn up any sign of wreckage. tions. But many are now calling for an
prime minister, Tony Abbott, told parlia- Then news emerged that Malaysian automatic alert to be sent in such circum-
ment that satellite pictures showed debris military radar had tracked the plane appar- stances, so that ground authorities know
in the southern Indian Ocean, some ently turning west off its route shortly after that they should start tracking the plane
2,500km southwest of Perth, in an area the final radio message. Malaysian au- with conventional radar.
where the 777 might plausibly have thorities added that its ACARS, an on- The ACARS has at least provided infor-
crashed. At 20 metres or so, one object board system which transmits intermittent mation about the jet’s continued path, al-
seemed the size ofa wing or tail fin. Aircraft data about the performance of engines beit wildly imprecise. Though it stopped
and ships were headed to the area to inves- and other parts, appeared to have stopped transmitting data it continued to “ping”
tigate further. If the plane’s wreckage is functioning just before that, and that the (send out a signal with no information oth-
found, and especially if its “black box” transponder, another device that commu- er than that it was still operating) for six
flight recorder can be recovered, what hap- nicates a plane’s position to air-traffic con- hours. That is about how long the plane’s
pened to flight 370 should become clearer. trol radars, appeared to have been fuel tanks would have taken to empty. But
What is already beyond doubt is that air- switched off around the time of the turn. the pings were only picked up by one satel-
traffic communication protocols need to The fact that the pilots had not reported the lite, making triangulation to establish the
be updated to ensure that, however rare, switch-off led the authorities to infer foul plane’s path during that time impossible.
such a disappearance cannot be repeated. play. On March 15th the Malaysian prime Malaysian military radar apparently
The distressed relatives of the mostly minister blamed “deliberate action”, with lost contact with the plane as it flew over
Chinese passengers are not alone in their suspicion falling on the pilot or co-pilot. the Indian Ocean. (According to reports on
bewilderment that, in a world of pervasive That the plane vanished between signing March 19th, Thai military radar may also
electronic surveillance, a 200-tonne pas- off with Malaysian air-traffic controllers have tracked it turning off course.) That
senger plane can vanish. With little con- and establishing contact with Vietnamese suggests it is somewhere on an arc hun-
crete information, speculation has run ones, and apparently continued flying for dreds of miles wide running from Kazakh- 1
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66 International The Economist March 22nd 2014

WorldMags.net
2 stan almost to Antarctica (see map). Planes Internet governance

Doing the ICANN-can

and ships from 26 countries have now
joined the hunt. The northern part seems
less plausible: it approaches land and
passes through several countries with mil-
itary radar primed to look for unidentified
aircraft. But to the south, where the search
is now focused, there is little coverage.
America promises to release its grip on the internet’s phone book—and opens up a
The information age is taking to the
debate on how to govern cyberspace
skies only slowly. Planes far out at sea keep
in touch using VHF radio, and the newer
ones send ACARS data continuously via
satellite. Many are also equipped with
I S THE internet about to fall apart? Just a
few weeks ago it seemed possible. First
Dilma Rousseff, Brazil’s president, said her
vernance,” says Laura DeNardis of the
American University in Washington, DC.
Her recent book, “The Global War for Inter-
ADS-B, another system that uses satellites country would seek to circumvent internet net Governance”, includes only one chap-
and GPS to pinpoint their location when services based in America; then Angela ter on ICANN. More serious, she argues, is
they are out of radar range. But flight 370’s Merkel, Germany’s chancellor, said she the failure of a hotch-potch of organisa-
ADS-B seems to have stopped transmitting would back calls to create a separate Euro- tions with ill-co-ordinated roles to tackle
about the time its transponder went off. pean internet. Both were furious that growing problems such as freedom of
America’s National Security Agency (NSA) speech and intellectual-property rights.
Clearer skies had spied on their communications. Several international meetings this and
Aircraft-tracking websites use several of But on March 14th the likelihood reced- next year seek to make progress on these
these newer sources of data. They will ed that either would embark on a costly, fronts. The first is NETmundial, a shindig in
eventually replace radar when their safety damaging and quixotic redesign of the in- São Paulo on April 23rd and 24th organised
and reliability are beyond dispute, a long ternet’s architecture. America’s Depart- by the Brazilian government in reaction to
process in the plodding world of aviation ment of Commerce said it planned to relin- the NSA scandal. It aims to draw up broad
regulation. And the next generation of quish its role in managing the internet’s principles for internet governance, includ-
communications technology, due in address system, preferably by September ing how to protect human rights and pri-
around a decade, will relay all flight infor- 2015. The move may also have cleared the vacy online, and to start the process of in-
mation at once, acting like a real-time ver- way for a much-needed wider reform of stitutional reform. “The current set-up
sion of the black box that all planes now the way the internet is governed. doesn’t address issues such as privacy and
carry. Adding internet connectivity, as America’s role in administering the in- cyber-security,” explains Virgílio Almeida,
many airlines are doing, will provide an- ternet’s phone book is a wonkish delight, Brazil’s secretary for IT policy.
other way to get a message to the ground. but also highly symbolic. The Internet Cor- NETmundial is unlikely to produce firm
Until parts of the plane are examined, poration for Assigned Names and Num- proposals, but several will soon emerge. In
how it came to grief will remain unknown. bers (ICANN), which unites all those with mid-May a panel of the internet’s great and
In the meantime, for the grieving relatives, a direct interest in the smooth running of good, including Fadi Chehadé, ICANN’s
there is little comfort to be taken from the the network (internet-service providers, boss, and Vint Cerf, one of the network’s
fact that such mysteries should soon be a governments, users and so on) does most fathers, will publish its blueprint. Early
thing of the past. 7 of the work. But the approval of the com- signs suggest it will recommend tackling
merce department is still required in cer- new problems with ad-hoc groups of exist-
1,500 km tain areas, including changes that affect the ing organisations, to be disbanded once
Known route of
flight MH370 “root file” of the internet’s domain-name the issue at hand is resolved, rather than
Beijing
Initial search area, system—a vestige of the history of the in- creating a new overarching global body for
March 8th (based on last
civilian-radar contact) ternet, which started as a project of Ameri- internet governance.
Expanded search areas, ca’s Department of Defence. It may take years to arrive at a consen-
March 10th (based on last C H I N A
military-radar contact) In practice much of the task is automat- sus. In the meantime, the question of who
INTENDED
Indian and American
search area, March 14th FLIGHT PATH ed and America’s government has never ICANN should report to, if not America’s
PACI FI C
blocked changes proposed by ICANN. In- government, is bound to sow further dis-
INDIA MYAN- deed, it has always said it would relinquish cord. Lawrence Strickling, the official at the
MAR LAOS OCEAN
Bay of THAI- its role as the internet’s final arbiter at some Commerce Department in charge of
Bengal LAND PHILIPPINES future moment. But in recent years more ICANN, has made it clear that America will
VIETNAM
and more countries have chafed at the de- not hand over the reins to just anybody—in
Last civilian-
radar contact lay. Most of the internet’s 2.8 billion users particular, not to an organisation led by an-
MALAYSIA now live outside America’s borders and a other government or group of govern-
Last military-
Kuala growing share of traffic no longer passes ments. Finding a solution that is acceptable
radar contact Lumpur
over American cables. The NSA’s snoop- to America is likely to keep armies of dip-
IND IA N O C E A N I N D O N E S I A
ing, though technically unrelated to man- lomats busy for some time.
aging internet addresses, was the final After Mr Strickling’s announcement it
straw. “Large-scale surveillance and intelli- took Newt Gingrich, the former Republi-
gence activities have also led to a loss of can speaker of the house of representa-
Last radar
confidence in the internet and its present tives, just minutes to tweet: “Every Ameri-
contact governance arrangements,” the European can should worry about [President]
Satellite signal
suggests two Commission declared in February. Obama giving up control of the Internet to
possible flight
corridors,
More important than who runs ICANN an undefined group. This is very, very dan-
March 15th is the fact that arguments over the issue gerous.” No matter how reasoned the dis-
Australian lead have long blocked broader reforms. “Inter- cussions about who should oversee
search area, Perth
March 18th net names and numbers are a critical re- ICANN, and about internet governance
Sources: National
sources; Malaysia Airlines
source and need centralised co-ordination, more generally, they risk falling victim to
but they are only one part of internet go- America’s divided domestic politics. 7
WorldMags.net
 The Economist March 22nd 2014 67
Business
WorldMags.net Also in this section
68 Sweden’s musical trendsetting
69 The transformation of Adobe
69 Chinese internet firms go public
70 Reliance and BP in India
72 Schumpeter: Head-office bloat

For daily analysis and debate on business and

our weekly “Money talks” podcast, visit
Economist.com/business-finance

The music industry only 4-5% of music consumers in America

Beliebing in streaming
and Britain have so far signed up for sub-
scription streaming, says Mark Mulligan of
MIDiA Consulting. But if just 10% of the
people in rich countries were to subscribe,
the industry’s fortunes would be trans-
formed, says Claudio Aspesi of Sanford C.
OAKLAND, CALIFORNIA
Bernstein, another research outfit.
Record bosses now hope that online streaming could become a big enough
YouTube, Google’s popular online
business to arrest their industry’s long decline
video service, is expected to launch a paid-

A T THE headquarters of Pandora, an

online-radio firm, in Oakland, about a
dozen headphone-clad analysts fill in a
each time someone clicks on a song.
Streaming’s rise makes music bosses as
giddy as a bunch of teenage “Beliebers”
for music-streaming service in the coming
months, which should help boost the
numbers. So might bundling music with a
long questionnaire as they listen. They queuing to see Justin Bieber (pictured). Yet mobile-phone subscription, as AT&T is
rank whether a song’s mood is “joyful” or at first glance a report on March 18th by doing with Beats, a seller of headphones
“hostile”, the vocalist “breathy” or “gravel- IFPI, a record-industry group, suggests that that has branched into subscription music.
ly”. They note whether they can hear elec- things are still getting worse. Music labels’
tric guitars, lutes or bagpipes. Their ratings worldwide revenues fell by 4% last year to Arms around the world
help to shape algorithms that push music $15 billion, a reversal of 2012’s slight rise. Having previously fought losing battles
to the service’s 76m users. But much of the fall was due to Japanese against technological change, record exec-
Pandora is in the vanguard of a revolu- consumers finally giving up on CDs, as utives have been quicker to embrace
tion in which ever more consumers are much as the rest of the world had already streaming’s surge. Until recently Apple’s
streaming music over the internet to their done. A closer look shows that streaming iTunes was the sole king reigning over the
smartphones or computers, instead of services are starting to bring the business digital-music realm; now there are dozens
owning collections of songs. For the first back into profit in countries that have suf- of princelings. This gives more negotiating
time since Apple popularised the paid fered steady declines, such as Italy. power to the surviving three major record
download in 2003, the record business is Streaming now has around 28m paying labels (Universal, Warner and Sony),
changing key again. From wax cylinders subscribers, and several times as many down from six15 years ago. “I see myself as
via vinyl, cassettes and CDs to MP3s, it is who use free versions. Last year subscrip- an arms dealer selling to everyone who
undergoing another format shift—maybe, tion-based versions like Spotify had com- will buy,” says a gleeful record executive.
some in the business muse, its last. bined revenues of more than $1 billion, up Streaming is also good news for inde-
Streaming services give music-lovers more than 50% from 2012. That figure does pendent labels, some of which are enjoy-
access to millions of songs, but the services not include online-radio firms, which last ing double the market share they had on
are not all alike. Online-radio versions, in- year had revenues of $590m in America CDs. It is also making it easier for music to
cluding Pandora and Apple’s iTunes Radio, alone, a rise of 28% from the year before. In travel beyond national boundaries. “We
choose what consumers hear, and the America, the largest music market, 21% of are getting revenue from markets where
firms make their revenues through adver- the industry’s 2013 revenues came from we never had a presence in the physical
tising. Others, such as Spotify and Deezer, streaming, whose growth more than offset world,” such as Brazil, says Fredrik Ekan-
let customers select songs from a catalogue declines in CD sales. der, the boss of Cosmos, a Swedish label.
of 20m-30m, charging premium subscrib- Streaming services have taken off Charles Caldas of Merlin, a licensing
ers a monthly fee. Free services that stream thanks to wider smartphone adoption, agency for independent labels, says
music videos, such as YouTube, also get faster internet connections (including 4G streaming also helps “monetise the nostal-
plenty of play. All the variants pay the mobile) and the spread of cheap online gia market” (ie, artists’ past work). In the
record labels some fraction of a penny “cloud” storage for music files. Even so, physical world more than two-thirds of 1
WorldMags.net
68 Business The Economist March 22nd 2014

Radio Nowhere
WorldMags.net a well-established download market, such
as America and Britain, where industry ex-
Music in Sweden
Average number of plays required to generate
the equivalent income of one download
ecutives worry that streaming may canni-
balise downloads. However, the bigger I have a stream
2014, by recipient
issue for artists is that so few people overall
Record Label Artist STOCKHOLM
pay for music, says Will Page, an economist
0 250 500 750 The land of Abba takes to streaming
at Spotify: “Half the population in the West
Paid stream

Free stream
spends nothing on music. You can’t canni-
balise zero.”
For years music has been a toxic place
“W E THINK the whole world will
look like Sweden,” says Daniel
Ek, the 31-year-old boss of Spotify, a
YouTube to invest. But the internet is at last “bringing streaming service headquartered in
Web radio sexy back”, as Justin Timberlake, a pop star Stockholm. The world’s music exec-
turned actor and entrepreneur, might say. utives hope Mr Ek is correct. They have
Source: MIDiA Consulting
Since 2009 investors have poured more been sending delegations there to study
than $1 billion into digital-music services how Sweden pulled off its musical
2 sales are for new releases; on Deezer only a in private transactions. Speculation is makeover. Between 2008 and 2013 the
third of songs streamed are new. mounting that Spotify, which was report- turnover of the country’s recorded-
To distinguish themselves from rivals edly valued last year at more than $5 bil- music market rose by around 27%, to
and help users navigate their vast cata- lion, will soon go public. Shares in Pan- SKr991m ($155m). Streaming now makes
logues, streaming firms are offering dora, already listed, have nearly tripled in up more than 70% of revenues.
curated playlists, compiled by algorithms, the past year. Its market capitalisation is Spotify’s launch in 2008 was vital in
celebrities and consumers themselves. now almost $7 billion. Sweden’s movement from diminuendo
Users can also see what their friends on Such valuations assume that the ser- to crescendo. Sweden was early to have
social networks are playing, and share vices’ popularity will continue to grow, fast broadband. At first this facilitated
tracks and playlists, which helps new acts and that subscription-based ones will per- piracy (The Pirate Bay, a site used for
take off. Avicii, a Swedish DJ, has become suade a sufficient proportion of those us- illegal file-sharing, started in Stockholm),
the most streamed artist on Spotify. ing their free versions (on which they lose but later it helped streaming to gain
Streaming is forcing a creative but un- money because of the royalties they pay momentum. Bundling of services was
disciplined industry to pay more attention the record labels) to upgrade to paid variet- instrumental too. Spotify offered free
to data. In early March Spotify reportedly ies. Worryingly, churn tends to be high: trials with Telia, a local mobile operator,
paid $200m for Echo Nest, which analyses around 46% of users of subscription ser- which encouraged a lot of consumers to
data for music services and helps shape vices have either switched or say they plan give it a go. A 2009 anti-piracy law prob-
playlist algorithms. Beats soon followed by to, according to Mr Mulligan of MIDiA. ably nudged some to switch from illegal
purchasing TopSpin Media, which collects Nevertheless, people in the record downloading. Because Sweden is a rich
data to help artists connect with their fans. industry are talking about another “golden country, monthly subscriptions are
Warner Music Group recently launched a age”. There is bound eventually to be a easier to peddle to the masses.
new label in partnership with Shazam, a shake-out among the many new streaming Today the question preoccupying
music-recognition app. Together they will services. But for the music labels, it now Swedish music bosses is how much
trawl Shazam’s listener data to identify ris- seems clear that, once the physical CD has further streaming can grow. Already
ing artists to sign up. eventually gone the way of the wax cylin- around 3m Swedes are believed to have
Providing the streaming services can be der, they will still have a profitable way to streaming accounts, about a third of the
persuaded to share their data, record labels exploit their catalogues, based on music population, of whom two-thirds are
will be able to see the response to new fans being offered instant access to a near- paying subscribers. If every market
songs immediately, and put marketing dol- limitless online jukebox. 7 could reach such critical mass, the record
lars behind those that strike a chord. Per- industry would look very different. So
formers will get a better idea where their far America has 6m paid subscriptions—
fans live, to optimise their tour schedules. only 2% of the population.
The economics of streaming look quite Sweden is not a perfect template for
different from those of earlier music for- other countries. Digital downloads
mats. On-demand streaming services pay never became popular there, so there
a record label about three-tenths of a cent was not a rival digital technology to
each time one of its songs is played, and cannibalise. The switch to streaming
online-radio services even less (see chart). may take a lot longer in countries where
But music fans may play a favourite tune there is not such a high proportion of
dozens, maybe hundreds of times, so those technophile consumers and where there
fractions of pennies can add up. Streaming is no successful homegrown streaming
subscribers pay around $120 a year, which service to rally behind.
is more than double what the average But the most realistic lesson from
American music consumer spends. Sweden may be that although streaming
Yet some performers are unconvinced. can help the record industry grow again,
Thom Yorke, the lead singer of Radiohead, it may not restore previous highs. Swe-
has called Spotify “the last desperate fart of den’s recorded-music industry is only
a dying corpse”. Music services have around 60% as big as it was at its peak,
responded by being more open about how says Ludvig Werner of IFPI, a trade
artists are paid, and arguing that their group. Even so, the business is energised
cheques will grow larger as more people by proof that streaming can bring in
sign up, as has happened in Sweden (see “money, money, money”, in the words of
box alongside). Sweden’s most successful band.
It is more complicated in countries with Online-radio Gaga
WorldMags.net
 The Economist March 22nd 2014 Business 69

Adobe WorldMags.net A leap of faith

the success of the firm’s Marketing Cloud

Super subs
business, a separate set of software appli-
Adobe’s: cations that help marketers do everything
net profit, $m share price, $ from measure the success of social-media
250 70 campaigns to manage content across com-
puting platforms. This business, which
200 60 had been built through acquisitions, also
SAN FRANCISCO
150 50 relies on online subscriptions and has
Adobe’s bold embrace of the computing
been growing at a double-digit rate for sev-
cloud should inspire others 100 40 eral years.

O N MARCH 18th Adobe published its

latest quarterly results, showing net
income of $47m, down by 28% on a year
50

0
30
Still, juggling the competing demands
of different business models has not been
easy. “It gets to the point where you have to
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1
earlier. It was the fifth quarter in a row in burn your boats to signal there is no going
2012 13 14
which the maker of professional graphics back to the old way of doing things,”
Source: Bloomberg
software, such as Photoshop and Illustra- explains Brad Rencher, who oversees
tor, had reported a sharp drop in year-on- Adobe’s Marketing Cloud. The company lit
year earnings. At most listed firms that the spat is now “in the rear-view mirror” the fire when, in May 2013, it said it would
would trigger a stockmarket bloodbath. and that the firm is focused on making its no longer release future disc versions of its
Yet Adobe’s share price has soared by 63% foray into the cloud a success. This week Creative Suite software. This provoked out-
over the past 12 months (see chart). Adobe revealed that more than 1.8m users rage in some circles, but the firm dug in its
It has defied gravity because investors had signed up for Creative Cloud, an in- heels. (Adobe also had to ride out an em-
are bullish about the dramatic shift that the crease of 405,000 over the previous quar- barrassing security breach, late last year,
firm is making from being a purveyor of ter’s total. And it said that for the first time when hackers stole the names and en-
pricey, shrink-wrapped software to one over half of its quarterly revenue of $1 bil- crypted credit- or debit-card details of 2.9m
that charges users a monthly subscription lion came from “recurring” sources, such of its customers.)
fee to access its applications online via the as software subscriptions and fees for Some Creative Cloud users fret that
computing “cloud”—vast warehouses of maintenance contracts. Adobe has deliberately kept subscription
servers run by Adobe and other firms. Like Subscriptions tend to provide a more prices low to tempt people online and will
the music industry (see previous articles), predictable source of revenue, which is raise them sharply when it unveils new
Adobe is abandoning selling its wares on why investors like them. Under its previ- features in the coming months. Mr
physical discs to rent them out online. ous strategy, Adobe revamped its packaged Narayen does not rule out price rises, but
Plenty of big software firms—and ones software every 18 months or so, which he says Adobe will have to deliver more
in other industries—are developing cloud meant it was vulnerable to a sharp drop in value to justify them. To achieve this, the
strategies too. But few have been as bold in revenue if customers shunned an update. firm’s employees will have to keep think-
their approach as Adobe. “The transforma- Now it can tweak its products far more fre- ing outside the (shrink-wrapped) box. 7
tion of its business model has been pretty quently online, with users barely noticing,
drastic,” says Brent Thill of UBS, an invest- thereby greatly reducing the risk of a sud-
ment bank. So has the transformation of its den slump in turnover. Chinese internet firms

Migrating finches
bottom line. Instead of forking out up to The cloud model offers other benefits.
$2,600 for Creative Suite, its flagship de- David Wadhwani, who oversees the com-
sign package, on a disc, customers can now pany’s digital-media business, which
use its Creative Cloud service, which offers includes Creative Cloud, says it makes it
the same applications (plus a few addition- easier for Adobe to combine various appli-
al ones) online, with a 12-month subscrip- cations to tailor its offering to particular
SHANGHAI
tion costing $50 a month, or a month-by- types of customer. For instance, it has been
China’s online firms are flying to
month fee of $75. This has caused Adobe’s selling a package aimed at photographers
American stockmarkets
profits to crater in the short term, but inves- for $10 a month that combines Adobe’s
tors are betting that they will rebound over
time, as the subscription model attracts
many new customers who had balked at
software with an online community
where snappers can publicise their photos.
For other firms tempted by the cloud,
D ICK COSTOLO, the boss of Twitter,
was in Shanghai this week to see first-
hand what the Galapagos islands of the in-
the prices of its packaged software. Adobe’s experience offers valuable les- ternet look like. He follows in the footsteps
Their faith is all the more striking given sons. The company first tested the appeal of Mark Zuckerberg, Facebook’s founder,
that just a few years ago Adobe was in the of online subscriptions in Australia, one of who also came for a study tour. Thanks to
doldrums. Sales of Creative Suite, which is its smaller markets, before rolling them out censorship and hostility to foreign internet
popular among such folk as magazine de- elsewhere. When it made the announce- firms, otherwise global giants such as Face-
signers, had stagnated, even as the volume ment at the end of 2011 that it was whole- book, Twitter, Google and eBay are banned
of digital content being produced world- heartedly embracing the cloud, its senior or irrelevant. Weird and wonderful local
wide was exploding. Some pundits executives spent lots of time communicat- variations have, like Darwin’s finches,
thought Adobe would be overtaken by a ing the rationale behind the change, both evolved in this isolated market instead.
hot startup with sexier software. And their internally and externally. Salespeople Even as American technology bosses
belief was reinforced by a public row that were encouraged to boost recurring rev- are exploring China, some of those esoter-
broke out in 2010 when Steve Jobs of Apple enue. At a sales conference, the audience ic local firms are bursting to get out. A
lambasted the quality of Adobe’s Flash was shown a spoof video of a support moratorium, only recently lifted, on initial
multimedia software in a blog post that group for “revenue addicts”, as a light- public offerings on mainland exchanges
kicked off a slanging match between the hearted way of driving home the message has led to a big backlog of IPOs. So China’s
two firms. that subscriptions now mattered more best online firms are now hoping to list on
Both sides eventually buried the hatch- than sales of big-ticket boxed software. American exchanges. In January JD, an e-
et. Shantanu Narayen, Adobe’s boss, says Adobe’s managers could also point to commerce firm akin to Amazon, launched 1
WorldMags.net
70 Business The Economist March 22nd 2014

WorldMags.net
2 a share offering in America that may value
the firm at $20 billion. On March 14th Sina
investors will see them as “proxies for Chi-
na’s emerging consumer classes”. Helpful-
The other risk arises from growing com-
petition. Firms like Alibaba grew domi-
Weibo, the nearest Chinese equivalent to ly, various hot American startups, such as nant when local rivals were scarce and for-
Twitter, announced an IPO that would Airbnb and Square, are unlikely to list eign ones absent, but things are changing.
raise up to $500m, reportedly valuing it at soon, leaving investors hungry. Tencent, a gaming goliath, this month took
around $7 billion. However, potential buyers of the Chi- a big stake in JD, thus turning it into a
These announcements were put in the nese firms’ shares should consider two potent force in e-commerce. This week Ali-
shade a day later when Alibaba, an e-com- risks. The first is regulatory uncertainty. In baba spent $215m on a stake in Tango, an
merce colossus rapidly expanding into its prospectus, Sina Weibo warns that offi- American messaging app. Alibaba, Ten-
internet finance, ended months of flirta- cial censorship may threaten its business cent and Baidu (China’s answer to Google)
tion with the Hong Kong exchange by de- model. Also, China and the United States have gone on acquisition sprees to prepare
claring it will soon float its shares in New are in a dispute that may see the mainland for a battle royal, and this is eroding mar-
York. It is rumoured that the firm plans to units of the Big Four accountants banned gins: Tencent reported disappointing earn-
raise over $15 billion. David Chao of DCM, from auditing Chinese firms listed in ings this week. As its tech stars expand into
a venture-capital firm, predicts that it will America. And there is a slim chance that overseas markets, China will be pressed to
be “bigger than Facebook”. The American either country’s regulators may object to let foreign rivals in. If one day it agrees to
social network’s offering two years ago the offshore vehicles (“variable-interest this, instead of Galapagos finches its local
raised $16 billion. Analysts expect the flota- entities”, usually based in the Cayman firms may come to resemble Europe’s red
tion to value Alibaba at $140 billion or Islands) used by Alibaba and other Chi- squirrels, devastated by the arrival of their
more, compared with Facebook’s current nese technology firms to list overseas. pushy grey cousins from North America. 7
market capitalisation of $175 billion.
The Hong Kong exchange lost out on
Alibaba’s flotation because it rejected de- Reliance and BP in India

Deep controversy
mands by Alibaba to allow a clique
around Jack Ma, its founder, to retain con-
trol using special shares. The exchange was
wise to uphold its ban on such arrange-
ments, because unlike those in America,
ordinary investors cannot easily seek re-
dress through the courts when they feel
BAY OF BENGAL
they have been abused by a company’s
India’s biggest energy project has produced more squabbles than gas
controlling shareholders. Fortunately for
the Hong Kong market, a flood of other
IPOs is headed its way.
Will Americans welcome Alibaba and
I F YOU look north from a helicopter hov-
ering 30km (19 miles) off India’s east
coast, the Bay of Bengal looks just as it must
dia as a barren place.
Dhirubhai Ambani, who had started
his working life in a lowly job with Shell in
its peers? It was not long ago that they got have done centuries ago. Tiny fishing boats Yemen, disagreed. He asked the experts,
burned by a series of fraudulent Chinese with white sails pitch and yaw across the “How come God made India with no oil or
offerings. Duncan Clark of BDA, a consult- ocean. But look down and you will see the gas?” When a new licensing regime came
ing firm, argues that those “fraud caps” new India. A landing pad says “Dhirubhai” into place in 1999-2000, he piled in. Reli-
were obscure firms with complex, hard-to- in big letters—the name of the founder of ance bought 16 exploration blocks in two
verify assets. Today’s IPOs are of promi- Reliance Industries. His son, Mukesh Am- auctions, even as the global firms shied
nent, well-understood firms, so he thinks bani, now runs the firm (which is India’s away, deterred by a low oil price and
second-most-valuable), and is India’s rich- India’s patchy record. Dhirubhai died in
est man. July 2002. Four months later his company
The helipad sits on a vast processing struck gold.
ship. Oil and gas rise from the seabed 1km What was good for India was good for
down. The vessel siphons off the oil while Reliance. As excitement built, analysts be-
the gas is piped onshore. It is one part of an gan to speculate that the firm might even-
$11billion project by Reliance and BP, a Brit- tually evolve into the next “major” energy
ish oil giant, which was hailed as the firm, rivalling the likes of Shell, Total and
answer to India’s energy problems—and is Exxon Mobil. As late as December 2009
now embroiled in controversy. Dhirubhai’s dream seemed on track. That
When Reliance found gas in 2002 in a month tests at KGD6 yielded production of
block called KGD6, it was the world’s big- 80 million standard cubic metres per day
gest gas discovery that year and India’s (mscmd). Huge capital investments had
largest since the 1970s. For the country it been made onshore in anticipation of a
was wonderful news. Rather than import flood of gas, including at least $15 billion in
oil from the Middle East, blowing a hole in gas-fired electricity plants built by a variety
the balance of payments, or burn more of power firms. The Ambanis spent $2 bil-
filthy local coal, India could, it seemed, lion-3 billion on a new cross-country gas
turn to a cheap and clean source of energy. pipeline (owned by them rather than by
The discovery also showcased the pow- Reliance at regulators’ insistence, they say).
er of India’s private sector. For decades That euphoria is long gone. Production
Soviet-style state-run oil firms had started falling in late 2010 and today stands
searched for offshore energy. Only one big 80% below the peak. When KGD6 was first
field, off the coast of Mumbai, had ever en- being developed Reliance reckoned it
tered production, in the 1970s. After spo- might contain 10 trillion cubic feet of gas.
radic exploration efforts over the years, the Proven and probable reserves today are
big global energy firms had dismissed In- just 3 trillion. Power plants lie idle. And 1
WorldMags.net
 The Economist March 22nd 2014 Business 71

WorldMags.net
2 Reliance is under fierce attack from some
officials and politicians. Arvind Kejriwal is
the leader of Aam Aadmi, an anti-corrup-
tion party that is contesting the national
elections due in April and May. He thinks
the gasfields are a giant scam.
What went wrong? An old saying about
India is that whatever you say about the
country is true—and its opposite. In this
case two violently different views exist.
The first is conspiratorial. It accuses Reli-
ance of “gold-plating”. Under the produc-
tion-sharing contract that governs the
block, it can recoup its costs before any
profits are split with the state. India’s
national auditor has implied that Reliance
deliberately inflated its costs, and hinted
that it thinks some of the contractors used
were secretly related to Reliance.
Worse still, Reliance is accused by some
of holding India to ransom, deliberately
suppressing production ofgas until it could
get a higher price for it. Under the original Mukesh Ambani grins and bears it
contract Reliance receives a “market-
based” price, which in reality is set by the tractors in question is Aker, a listed Norwe- are only viable at a gas price of $11 per BTU,
government. Until March this was fixed at gian firm no more related to Reliance than well above the new price that Reliance will
$4.20 per million British Thermal Units Roald Amundsen was to Gandhi. be receiving. (Since their gas production ex-
(BTU), about a quarter of the price India What about the charge that production ceeds that of Reliance, ONGC and other
pays for imports of liquefied natural gas. was deliberately suppressed, with BP as state-run energy firms will be the main
From April a new formula will apply, supposed partner in crime? Past and pre- beneficiaries of the planned price rise.)
partly based on global benchmarks, which sent executives at the British firm say that it For now Reliance is trying to raise the
should see the price rise to about $8. knew when it signed the deal that the geol- output of existing fields and bring new
A disgraceful stitch-up, say anti-graft ogy in KGD6 was tricky—it was brought in ones online. In May it announced a “signif-
campaigners. They argue that Reliance, partly because of its expertise in subsea icant” discovery 4.5km below sea level, un-
with its cash-rich balance-sheet and legacy fields. It paid top dollar partly for the explo- derneath the main field in the KGD6 block.
of political influence, had every incentive ration potential in the five other blocks that BP expects the production of their joint
to suppress production until it could bully Reliance and its partners still control today venture to recover to 40-50mscmd by 2018.
the government to raise prices. In support and partly for the potential of a “down- But the political and regulatory risks are
of this view they point to the presence of stream” joint venture for marketing gas. acute. The consortium may be asked to
BP. It bought into the project in 2011, as pro- The financial incentives of the main provide bank guarantees to the govern-
duction was falling, at a valuation (it paid players do not support the idea of a ment, so that any extra revenue from the
$7 billion for a 30% stake) that implied it stitch-up. Mr Ambani has lost out on the gas-price rise can be clawed back if Reli-
was still a raging success. By this account gas pipeline he owns personally, which is ance is found to have suppressed produc-
the British firm knew that there would be a thought barely to break even. His foreign tion or inflated costs. Campaigners are ask-
short-term “crisis” in output—and that partners were under pressure to maximise ing the courts to intervene. The govern-
once gas prices in India rose to more attrac- short-term profits, not feign a production ment may yet abandon the price rise, or rip
tive levels the field’s production would slump. After the Deepwater Horizon acci- up the production-sharing contracts.
miraculously “recover”. dent in April 2010, BP faced a liquidity There are two lessons from the episode.
It is hard for outsiders to evaluate the squeeze, a huge cash drain from litigation The first is for India, an energy-hungry
geology of KGD6; Reliance and its partners payments and the threat of a takeover. The country whose vast east-coast waters now
say that water had flooded parts of the smallest partner in the field is Niko Re- have only three deepwater rigs, from a
field, giving a misleading initial impression sources, a Canadian firm with a 10% stake. peak of13, according to one executive’s esti-
of its potential, and that some gas pockets Its shares have fallen by 98% since 2010 and mates. The main barrier to attracting more
are isolated and hard to get to. But the con- it has suffered financing problems. investment is not geology, but politics and
spiracy theory does, in totality, look regulation. The country combines the
implausible. On the charge of gold-plating, Underwater in more ways than one worst of both worlds—nit-picking day-to-
most analysts concede that there are some It is not clear that the project will make an day regulation and long-term uncertainty.
scenarios in which the small print of the acceptable return on capital, even at the The second lesson is for Reliance. Secre-
production-sharing contract could give higher gas price. Total cumulative capital tive, clannish and forceful, it used to be
Reliance an incentive to overinvest. But investments will amount to $15 billion-20 both famed and resented for its ability to
most also think it almost impossible to billion, the bulk of them made before 2013. work the government behind the scenes.
fine-tune a big project to exploit these theo- Estimates vary wildly, but total gross pro- Now, in an era of activism against business
retical gains. Costs shot up because there fits might amount to $20 billion-30 billion, and popular demands for transparency,
was a global boom, inflating the price of most of them generated after 2016. Taking this heritage is a liability. Even when the
hiring drilling rigs and equipment. into account the time value of money, and firm has a plausible case, few listen. Reli-
Besides denying all other wrongdoing, income tax, the project could well be an ex- ance is sitting on a huge reservoir—of mis-
Reliance’s exasperated executives say it is ample of value-destruction, not profiteer- trust. As well as drilling more gas beneath
ridiculous to suggest that contracts were ing. ONGC, India’s largest state-owned en- the Bay of Bengal, Mr Ambani needs to dig
handed to related parties. One of the con- ergy firm, says some offshore discoveries deep and modernise his firm. 7
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72 Business The Economist March 22nd 2014

WorldMags.net
Schumpeter Fighting the flab

Corporate headquarters have put on weight, and need to slim down again

“O NE of the most extraordinary corporate centres in Ameri-

ca.” This is how Trian Partners, a disgruntled shareholder
of PepsiCo, described the headquarters of the snacks-to-soft-
broke a long-standing “no pictures” policy to show off his head-
office team, just 24 strong. Mr Buffett’s last big acquisition, of
Heinz, was made in partnership with 3G, a Brazilian private-equ-
drinks company in a recent letter to its board. Set amid lakes and ity firm whose boss, Jorge Paulo Lemann, has a passion for cost-
fountains in 100 acres of wealthy Westchester County, New York, saving. Heinz had already undergone a round of cuts under pres-
PepsiCo’s HQ features seven interconnected three-storey office sure from Mr Peltz. But 3G found plenty more to trim, as it applied
buildings designed in the 1960s by Edward Durell Stone, a its “zero-based budgeting” approach, in which all spending must
pioneering American modernist architect. Its crown jewel is the be justified from first principles each year. Swathes of managerial
Donald M. Kendall Sculpture Gardens, named after a former jobs were axed, as was the company’s “aviation department”,
chief executive, which has works by artists such as Alexander which ran its corporate planes. Mr Buffett is impressed: hitherto
Calder, Henry Moore and Auguste Rodin. Mr Kendall reportedly he has mostly bought well-run firms that he could largely leave
intended the garden to reflect his vision for the company by creat- alone, but now he wants to do more deals like the Heinz one.
ing an atmosphere of “stability, creativity and experimentation”. Of course there are many reasons, other than differing levels
Two years ago PepsiCo began a $243m upgrade ofthe complex of bloat, why businesses vary greatly in which functions are per-
to make space for more staff and “create a more collaborative and formed centrally, and in how many people and other resources
innovative work environment”. Trian, run by Nelson Peltz, a are needed at head office. But there is evidence that companies
veteran activist investor, thinks shareholders would be better have piled on the pounds in recent years. A study by Sven
served by selling it and shedding many of its 1,100 workers, as Kunisch, a management professor at the University of St Gallen
part of a broader cost-cutting and productivity-boosting strategy in Switzerland, and others looked at the head offices of 761 big
that would see PepsiCo split in two. companies in Europe and America between 2007 and 2010. By
The raiders of the 1980s, who made fortunes by seizing and the end of the period, a quarter of them had more than 600 staff
shaping up flabby conglomerates, were supposed to have put an at HQ, whereas another quarter had fewer than 63. Two-thirds of
end to corporate extravagance and administrative bloat. But the firms said they had made significant changes during the per-
PepsiCo is not alone in now being accused of these. A recent iod, generally strengthening centralised control over their divi-
report by Sanford C. Bernstein, a research firm, reckoned that sions. Some 44% of the firms had increased the headcount at HQ,
Coca-Cola, which is spending $100m on upgrading its home in whereas only 28% trimmed. Of the 21countries in which the head
Atlanta, has overheads (general, administrative and sales costs offices were located, only ones based in Denmark and Greece
minus advertising spending) that are 30% of sales, almost as high reduced staff numbers on average. All this at a time, in the wake
as PepsiCo’s 32%. Activist investors such as Trian, which also has of the financial crisis, when companies were striving to protect
its guns trained on DuPont, a chemicals firm, may find inspiration their profit margins by cutting jobs elsewhere in the workforce.
in other examples highlighted by Bernstein. Procter & Gamble’s
overheads ratio is far higher than that of its consumer-goods All aboard the mother ship
archrival, Unilever; so is Estée Lauder’s compared with that of What might explain the return of head-office bloat? The crusade
L’Oréal, another big cosmetics firm (see chart). for leaner, more focused companies, which began in the 1980s,
It is hard to thinkofmany big companies that could not benefit ran out of steam after the turn of the century. And three other
from taking a fresh look at their overheads. One, perhaps, is Mars, issues moved up bosses’ agendas, each seemingly justifying extra
a family-run confectioner with a tiny, frugal HQ in suburban Vir- staff at HQ: globalisation meant that the mother ship had more
ginia. Another is Berkshire Hathaway. In this year’s letter to share- far-flung operations to oversee; new digital technology made it
holders, sent last month, the conglomerate’s boss, Warren Buffett, easier, in theory, to centralise control and oversight; and, starting
with America’s Sarbanes-Oxley act in 2002, deregulation gave
way to a growing regulatory burden, bringing with it a bigger
Same business, different costs head-office compliance operation.
Sales, general and administrative expenses*, 2013, as % of total sales Various events, from the September 11th 2001 terror attacks to
0 5 10 15 20 25 30 35 40
the financial crisis, may have made bosses view the world as an
increasingly complicated and uncertain place. It would not be
Estée Lauder surprising if many of them responded in the same way as Jeffrey
L’Oréal Immelt, the boss of GE: in his latest annual letter to shareholders,
he confessed that “We attempted to manage volatility through
PepsiCo
layers and reviewers. Like many companies we were guilty of
Coca-Cola
countering complexity with complexity...more inspectors, multi-
ple reviewers.” The result was a “higher cost structure, an artifi-
Carlsberg
cial sense of risk management, and we were insulating our
Heineken
people from the heat of the market.” Mr Immelt has now decided
Danone
to reverse course. GE has launched a new simplification strategy,
General Mills
with a goal of cutting overheads to 12% of sales from 16%, includ-
ing a 45% reduction in the cost of the corporate headquarters, by
Procter & 2016. Other bosses would be wise to do the same, or expect to
Gamble
Unilever have Mr Peltz and his fellow activists on their case. 7
Source: Sanford C. Bernstein *Excluding advertising
Economist.com/blogs/schumpeter

WorldMags.net
 The Economist March 22nd 2014 73
Finance and economics
WorldMags.net Also in this section
74 Buttonwood: Markets and growth
75 Green bonds
75 Widening the yuan’s band
76 Janet Yellen’s debut
76 Reforming American housing finance
79 Exiting the Portuguese bail-out
80 Free exchange: The case for
unconventional monetary policies

For daily analysis and debate on economics, visit

Economist.com/economics

Infrastructure financing sets are invested in infrastructure projects.

That seems too low, given the natural
A long and winding road match between the long-term liabilities of
such investors and the long-term cash
flows that come from these projects.
Better yet, returns from debt secured
against real assets are high relative to simi-
larly rated corporate or sovereign bonds.
Financial instruments linked to infrastruc-
The world needs more infrastructure. How will it pay for it?
ture are typically hedged against inflation

A S INVESTMENT opportunities go, lend-

ing money to a consortium building
three prisons in rural France does not have
toll road in America, that figure is down to
something like 70% now. This forces the
backers to come up with more of their own
and offer stable returns, with low volatility
and little correlation with other asset class-
es. They are illiquid, but that is of little con-
the cachet of backing the latest Silicon Val- cash. In the same way that housebuilding cern if you are intent on holding on to stuff
ley IPO. A new subway line in Seoul or en- slows when banks cut the supply of cheap for decades. And when things go wrong,
ergy pipelines in Texas will not set many mortgages, infrastructure construction investors have a better chance of recover-
pulses racing, either. Unglamorous as they dries up when financing gets tighter. ing most of their money, says Mike Wilkins
may be, such investments are vital for eco- All this is contributing to a widening of Standard & Poor’s, a ratings agency.
nomic growth. Yet financing infrastructure gap between the amount that is being in- Enthusiasts speak of a budding asset
is falling out of favour with banks. Can oth- vested in infrastructure and the amount class. Long-term investors have snapped
er investors plug the gap? that ought to be. It will cost $57 trillion to up loans which were originally made by
European lenders, which used to domi- build and maintain the world’s roads, banks, or are figuring out ways to issue
nate infrastructure financing, are now power plants, pipelines and the like be- their own. Natixis, a bank, put together the
busy repairing their dented balance- tween now and 2030, reckon consultants €300m ($417m) loan to the trio of French
sheets. Meanwhile the new “Basel 3” rules at McKinsey (see chart). That is more than prisons, but nearly €100m will go straight
are steering banks away from the long- the value of today’s infrastructure. By one onto the balance-sheet of Ageas, a Belgian
term loans (often stretching beyond 20 estimate, infrastructure spending currently insurer. Such arrangements are becoming
years) required by backers ofinfrastructure amounts to $2.7 trillion a year (about 4% of more common. Many bank teams have
projects. The one exception is Japanese global output), yet $3.7 trillion is needed. been poached by institutional investors. Is- 1
banks, which have stronger balance-sheets With public finances straitened, gov-
and are keen to put money to work. ernments are unable to make up all of the
Banks are not only wary of making shortfall. Some, notably China, can pay Planes, trains and sewers
long-term loans, they are also reluctant to outright for the stuff that needs to be built. Global infrastructure investment required
take as much risk as before. Whereas they But most others (and private investors such 2013-30, $trn, 2010 prices

used to be happy to lend 90% of the con- as telecoms firms) rely on financing of a Roads Power
struction cost of a large project, such as a sort which has not been as readily avail- 16.6 12.2
able since the financial crisis.
Applications are invited for The Economist’s 2014 That is creating a need, and opportuni- Ports
Marjorie Deane internships. Financed by the Marjorie 0.7
Deane Financial Journalism Foundation, the awards are ty, for new entrants. Long-term investors Total: Water
designed to provide work experience for a promising such as insurers and pension funds are ea- $57trn 11.7
journalist or would-be journalist, who will spend three Airports
ger to plough money into infrastructure, as 2.0
months at The Economist writing about economics and
finance. Applicants are asked to write a covering letter are endowments and sovereign-wealth
and an original article of no more than 500 words that funds. These financial titans have over $50 Rail Telecoms*
they think would be suitable for publication in the trillion to invest. Nobody is suggesting that 4.5 9.5
Finance and economics section. Applications should be
sent to deaneintern@economist.com by April 18th. For their entire pile should be used to fill the Source: McKinsey *Brazil, China, India
Global Institute and OECD countries only
more information, please visit www.marjoriedeane.com. $57 trillion hole. But only 0.8% of their as-
WorldMags.net
74 Finance and economics The Economist March 22nd 2014

WorldMags.net
2 suance of bonds linked to infrastructure
projects has soared, albeit from a low base.
less-than-stellar public-finance initiatives).
The three prisons in France will be built by
and pension funds tend to dislike “green-
field” projects. Beyond construction delays
Sovereign-wealth funds and others a contractor which will bear the risk of cost and cost overruns, they worry assets will
after the raciest returns are keen on owning overruns, for example. Unlike lackadaisi- not prove as profitable as advertised. Much
infrastructure assets rather than just lend- cal local authorities, the companies in- of their focus is on putting together
ing to them. Private-equity firms have volved will be deeply bothered if the pri- straightforward deals—for roads and other
raised $250 billion to spend on infrastruc- sons open late, as payments will kick in well-understood kit—in predictable places
ture, up from $9 billion a decade ago, says only once they are available. If operating such as Europe. Investing in 30-year pro-
Preqin, a data provider. Blackstone, a buy- them is dearer than expected, investors jects farther afield is too risky for most.
out firm, is among those that financed a will suffer. Private-sector rigour can thus The main concern of investors is a
$900m hydroelectric dam in Uganda that bring down the cost of public services. shortage of suitable projects. In Europe, a
provides half the country’s electricity. However, the transition from banks to wealth of capital is chasing a dearth of
Bringing in private investors has benefits other investors is not seamless. Projects deals. For governments digging for growth,
beyond shifting debt off public balance- that are ideally suited for banks often don’t smarter planning could result in a lot more
sheets (a wheeze behind many of Britain’s appeal to the new moneymen. Insurers of the infrastructure they crave. 7

Buttonwood Peering into the entrails

Downbeat signals from the markets

A RE financial markets useful indicators

of how an economy is about to per-
form? If they are, then they are not telling
Mixed picture
January 1st 2014=100, $ terms
other commodities, although this di-
vergence is not necessarily good news:
higher food and gas prices squeeze con-
an upbeat story. This year equity markets 105 sumers’ wallets.
are flat-to-lower, government-bond mar- MSCI world equities Most economists think that America
kets are up and, as for commodities, the 100
will recover strongly in the second quar-
“wrong” raw materials are falling in price. ter, and that the Chinese slowdown will
Economists have adopted some finan- Industrial- be modest. That may help explain why
cial variables for their soothsaying efforts. metals price index 95 rich-world equity markets have not taken
In America, for example, the composite a bigger hit, despite the geopolitical wor-
US ten-year
leading indicator uses, among other government- 90 ries over Ukraine. If the economy was
things, the change in the S&P 500 index bond yields really heading over the cliff, equity mar-
and the spread between short- and long- 85 kets would surely have fallen more.
term interest rates. January February March The importance of monetary policy
2014
The theoretical link between markets should not be underestimated. It is not
Sources: Thomson Reuters; The Economist
and economies runs like this. When an just that low interest rates tempt investors
economy expands, spare capacity starts to move money out of cash and into equi-
to shrink. This puts upward pressure on commodity prices fell in 2013, but that was ties. Low rates also appear to enhance the
wages and prices of raw materials as com- good news for Western consumers: the ef- fundamental attraction of equities.
panies compete for resources. As inflation fect was the same as a tax cut. The picture It is a neat trick. Barclays Capital calcu-
picks up, bond yields rise and the spread was far less positive for those parts of the lates that companies have taken on more
between short- and long-term rates wid- emerging world which produce commod- leverage: the ratio of their debt to earn-
ens. Profits rise rapidly in the first stages of ities; indeed, emerging-economy equity ings, before interest, depreciation and tax,
recovery; the corporate sector has a high markets were generally weak last year. has increased. This debt is used to buy
level of fixed costs, and increased de- That weakness has continued into 2014. back shares. In America buy-backs are
mand usually leads to improved margins. Several developing countries have been running at an annual rate of $400 billion,
The influences on the markets change forced to tighten monetary policy in the or 2.3% of GDP, according to Smithers &
when the economy starts to overheat. The face of wide current-account deficits and Co, a consultancy. Higher profits are then
central bank gets nervous about inflation falling currencies. Even in the developed divided among fewer shares. The effect
and raises interest rates. Companies suf- world, data have been disappointing: Citi- boosts earnings per share for the S&P 500
fer from lower margins as their costs rise bank’s economic-surprise index, which index by around 2%, reckons Barclays.
faster than their revenues. Equity markets compares published data with the forecast And another familiar theme of bull mar-
run out of steam. If the slowdown looks numbers, has shown its biggest decline in a kets has started to appear: takeovers. The
like turning into a recession, then equities year. Industrial-metals prices, usually sen- combination of cheap borrowing costs
and commodities fall. Government-bond sitive to the state of the global economy, and high share prices is ideal for merger
markets, by contrast, gain (and yields fall) have been dropping. More generally, infla- mania, boosting the buying power of ac-
for two reasons: first, inflation is lower in tion is low and deflation in the euro zone quisitive chief executives.
a recession and, second, government seems not too far away. All this suggests that, until the central
bonds are perceived to be safe assets. Special circumstances may explain banks start to tighten monetary policy,
Given this picture, the record of the fi- some of this. Severe winter weather has af- equity markets will be supported. High
nancial markets in 2013 looked pretty pos- fected America’s economy. Falling prices share prices are an indicator of confi-
itive for developed economies as they for metals may be the result of a crack- dence in Janet Yellen and Mario Draghi,
headed into this year. Equity markets in down on speculation in China, where cop- more than in the economy itself.
the rich world did well in 2013 and gov- per was used as collateral for financial tran-
ernment-bond yields rose. Admittedly sactions. Metals have been weaker than Economist.com/blogs/buttonwood

WorldMags.net
 The Economist March 22nd 2014 Finance and economics 75

Green bonds WorldMags.net hoc. Each morning, it sets a new bench-

Spring in the air

mark, often stronger. At times, it lets the
currency move freely within the trading
limits. On other occasions it intervenes.
Ting Lu of Merrill Lynch thinks China
would benefit from a more principled ap-
proach, such as Singapore’s. Under its Bas-
ket, Band and Crawl (BBC) model, the Mon-
Bonds tied to green investments are
etary Authority of Singapore manages the
booming
value of the Singapore dollar relative to the
HRISTOPHER FLENSBORG of SEB, a
C Swedish bank, calls it another tipping-
point for “green bonds”, and he should
country’s trade partners and rivals. Its ex-
change rate is allowed to fluctuate within a
trading band. And that band crawls up-
know: he invented them. Green bonds tie wards or downwards as the central bank
the proceeds of an issue to environmental sees fit.
activities. On March 19th Unilever, the But unlike China’s system, Singapore’s
world’s second-largest consumer-goods is relatively systematic. Every six months,
firm, issued a £250m ($415m) bond ear- the monetary authority declares whether
marked for reducing waste, water use and the currency will crawl up or down, faster
greenhouse-gas emissions. The issue takes or slower, and it sticks with its decision.
green bonds into new areas and could turn The system has served Singapore well,
them from a niche product into a main- preventing both inflation and big currency
stream financial instrument. Securitise me misalignments. Exchange-rate stability
For most of their history such bonds also suits its entrepôt economy, which
have been the preserve of international fi- sue brings the value of green bonds record- traded goods and services equal to 370% of
nancial institutions (IFIs). Because it is ed so far this year by Dealogic, a market-in- GDP in 2012.
hard for investors to know what is green formation firm, to about $6 billion, four But the BBC does entail sacrifice. Be-
and what isn’t, green projects meant those times as much as in the same period in cause Singapore is open to capital flows, it
designated as such by the World Bank’s en- 2013. Last year’s total was $11 billion. Jim can keep its grip on the exchange rate only
vironment department. Starting in 2008 Kim, the World Bank’s president, thinks it by surrendering control over monetary
the bank issued bonds to finance its pro- will rise above $50 billion next year. At this policy. That would not suit China—a bigger,
jects: the first green bonds. The sums were rate, SEB’s forecast that green bonds will ac- less trade-dependent economy—over the
small—tens of millions. Investors were few. count for10-15% ofthe corporate-bond mar- long run. As it relaxes its capital controls, it
That started to change in 2013. In Febru- ket by 2020 does not seem optimistic. 7 will need to give up currency stability so as
ary last year the World Bank’s private-sec- to retain monetary control. Until then, the
tor arm, the International Finance Corpo- Singaporean system is worth emulating.
ration, raised a $1 billion green bond—large People’s Bank of China Another peculiarity of the model may

The charm of the

enough for money managers to take no- also appeal to China: its coyness. Although
tice. In November a French energy group, the monetary authority describes its
EDF, raised €1.4 billion ($1.9 billion), the
BBC
stance every six months, it does not quanti-
first euro-denominated green bond from a fy it. The basket’s composition, the band’s
large company. This marked the point at width and the crawl’s trajectory are all un-
which corporate issuers took over from disclosed to keep speculators guessing.
IFIs as the main issuers of such bonds. If the central bank’s decisions conform
Lessons for China’s currency regime
EDF’s was twice oversubscribed. Toyota is to a systematic rule, as Singapore’s do,
from Singapore
raising $1.75 billion to help finance sales of eventually analysts will infer it. At that
car loans for hybrid and electric vehicles.
That bond was even more heavily over-
subscribed. Unilever changes the business
S INGAPORE has always kept a close eye
on the evolution of China’s currency. As
an Asian financial hub, the city-state hopes
point there is little reason to keep it secret.
The only way to truly keep speculators
guessing (and the worst way to manage a
again. The bonds of EDF and Toyota were to profit from the yuan’s growing use currency) would be to be capricious and
for new, self-evidently green projects: re- abroad. But could Singapore’s currency mercurial. But China has nothing to learn
newable energy and electric vehicles. Un- also hold lessons for China? from Singapore about that. 7
ilever’s is to reduce the environmental The economic giant is experimenting
footprint of its ordinary activities. with a new exchange-rate policy. It allows
Just as issuers have changed, so have in- the yuan to move within a daily limit ei- Easing the shackles
vestors. At first they were public-sector in- ther side of a benchmark set each morning China’s yuan-dollar exchange rate
stitutions, such as the California state by the central bank. On March 17th those Inverted scale

teachers’ pension fund and Sweden’s AP limits widened from 1% to 2%. 6.00
Stronger band
pension funds. But in November 2013 Zu- The yuan soon explored its new roam- 6.05
rich, an insurance firm, said it would invest ing room, falling by more than 1% from its
6.10
$1 billion in green bonds. It appointed benchmark during trading on March 19th Spot
BlackRock, an investment-management and 20th. The central bank has recently 6.15
giant, to run its portfolio. Other money been intervening to cheapen the currency 6.20
managers are piling in. In 2012, 95% of in- so as to wrongfoot speculators accus- Weaker band
6.25
vestors were owners of assets (mostly pen- tomed to steady appreciation. It may still
sion funds, according to Mr Flensborg). be doing so. Or currency traders may have 6.30
January February March
Now more than half are asset managers. taken the hint and sold yuan themselves.
2014
Some teething problems remain but The central bank’s actions are hard to
Sources: CFETS; Thomson Reuters
overall the market is soaring. Unilever’s is- divine because its currency policy is ad
WorldMags.net
76 Finance and economics The Economist March 22nd 2014

WorldMags.net Fannie Mae and Freddie Mac

Deconstruction delays
NEW YORK
A flawed reform of America’s housing-finance market

A RARE area of agreement about the

financial crisis of 2008 is that Fannie
Mae and Freddie Mac were at the core of
bureaucracy, with a regulator atop other
entities devoted to overseeing functions
such as syndicating loans or bundling the
the meltdown and are in urgent need of loans of small banks.
reform. On March 16th the leading Re- When the plan was announced, the
publican and Democratic members of price of shares in Fannie and Freddie,
the key Senate Banking Committee belat- which account for about two-thirds of
edly released a plan for restructuring the the mortgage market, did not budge at
two publicly traded mortgage giants. first. Then they tanked—presumably
The plan has received widespread because investors reached page 387 of the
attention in part because it appears to 442-page text and found enshrined in
address the most evident problems of legislation an earlier 2012 order by the
Fannie and Freddie and because it is Treasury that expropriated from private
deemed likely to be approved by Con- investors all profits made by Fannie and
gress. Yet neither of these assumptions, Freddie. The move is unlikely to help
on deeper examination, seems to be true. attract the private money needed to
Janet Yellen To satisfy those who want low-priced supply the 10% in equity underpinning
mortgages on terms that private markets bonds issued under the new plan.
Clarity gap would never endorse, the plan makes
explicit the government guarantee on
Opponents of Fannie and Freddie
contend that the two played a key role in
debt which had been implicit for Fannie the crisis by encouraging the issuance of
and Freddie. This would lower the in- loans with tiny downpayments through
terest rate on high-risk loans, while ob- a benign-sounding “affordable housing”
scuring the cost of the subsidy. To placate mandate. Nothing much has changed.
The Federal Reserve’s new forward
those who worry that this in turn would Under the new plan, downpayments of
guidance is hazy
leave the government stuck with moun- as little as 3.5% of the loan value would be

A MERICA’S top economist faced a tough

task in her first press conference. Janet
Yellen (pictured), the 15th chair of the Fed-
tains of dud loans, a 10% capital cushion
must be provided by investors to absorb
initial losses.
permitted. Strewn through the proposed
law are words such as “affordable”,
“equal access” and “underserved com-
eral Reserve, had to explain her commit- A fee of 0.1% would be charged on all munities”, which suggest that lending
tee’s decision to continue cutting back the mortgage-backed bonds, with the pro- decisions will be based on political rath-
bank’s quantitative easing (QE) pro- ceeds going to three funds, two pre-exist- er than credit criteria. “The result”, says
gramme, and set out its new “forward guid- ing, that will provide subsidies for hous- Edward Pinto of the American Enterprise
ance” about future interest rates. She fell ing. An as-yet undetermined insurance Institute, a think-tank, “will be risky
short. charge will be levied on top. The result, lending for those least able to cope.”
The shift in QE was no surprise. Pur- said Mike Crapo, the ranking Republican The underlying problem with the new
chases will slow by $10 billion to $55 bil- senator on the committee, “would be a plan is that, like Fannie and Freddie
lion a month starting in April, with this gra- strong step forward” to fixing “our flawed before it, it tries to reconcile two conflict-
dual “taper” continuing until QE grinds to a housing system”. ing goals: protecting the financial system
halt, potentially as early as October. When If only, say critics, who include in- and providing low-cost housing loans to
QE ends the Federal Reserve will own vestors and both friends and foes of favoured groups. A better approach
bonds worth around 22% of GDP. Fannie and Freddie. The first objection is would be to handle these goals separate-
The economy, Ms Yellen explained, can that the law would create an unwieldy ly and explicitly.
cope with this. She repeatedly returned to
labour-market improvements: falling un-
employment rates and other indicators quantitative estimate of spare capacity. Optimists pin soft data on harsh weath-
such as the number of “marginally at- Soft guidance buys flexibility at the ex- er. Yet winter building in the warmer west-
tached” workers, and those that work part- pense of making the timing of rate rises ern states fell too, suggesting other factors
time but would prefer a full-time job. If the opaque. Ms Yellen thinks increases are a are at play. One culprit could be tighter
recovery continues, unemployment, cur- long way off. But at one stage she said they mortgage credit. In mid-2013 government-
rently 6.7%, should be back to its long-run could come six months after QE ends, bond yields rose by over1 percentage point
level (around 5.5%) by the end of 2016. which suggests mid-2015. With some mem- as the Fed started to moot tapering its QE
Forward guidance had helped, Ms Yel- bers on the bank’s rate-setting committee programme. This fed through to mortgage
len said. The bank’s previous promise was favouring a 2015 rise, her guidance will do rates and may have dampened demand
to hold rates below 0.25% at least until un- little to soothe fears of the debt-laden. for new houses.
employment is below 6.5%. Yet with that Nor are the data as rosy as the QE cut It points to another worry. Other im-
threshold approaching, Ms Yellen dropped suggests. For a start, there is little sign of in- portant interest rates, including those firms
it. Future rate rises will be assessed using a flation. Prices are rising at an annual rate of pay in debt markets, are also closely linked
range of economic data, with no single tar- 1.1%, well below the Federal Reserve’s tar- to government-bond yields. If those yields
get. The guidance is even looser than the get of 2%. Wages are hardly running away rise again America may need a fresh mone-
Bank of England’s, which also uses many either, growing at 2%. House building has tary boost. Ms Yellen’s guidance may have
indicators, but puts them together to give a fallen sharply in recent months. to get much stronger. 7
WorldMags.net
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WorldMags.net

WorldMags.net
 The Economist March 22nd 2014 Finance and economics 79

Portugal’s bail-out WorldMags.net the current account is small. But non-fuel

Final call
goods have also been doing well. Their
overall value rose between 2010 and 2013
by 21%, led by a jump in exports beyond the
European Union of 51%. Tourists have also
been favouring Portugal, with revenues
from their visits rising by a fifth since 2010.
The strength of exports is puzzling, giv-
Lisbon
en that Portugal has clawed back only
Portugal’s economy is in better shape. But it is vulnerable to any turbulence
some of the competitiveness it lost in the

I N JUST two months’ time, Portugal’s

three-year bail-out programme will end.
As recently as last autumn the country’s
first decade ofthe euro. One reason may be
that the economy is benefiting belatedly
from pain in the early 2000s, when Asian
chances of returning fully to the markets competition hurt former mainstays of the
without a safety net seemed remote. But industrial economy like textiles. Adjusting
this year there has been a remarkable rally, to such a shock takes time as new ventures
with bond yields falling to about 4.5% (see provide fresh sources of growth. An en-
chart). New bond issues have been over- couraging sign is that firms set up after
subscribed even though the Portuguese 2000 contributed a quarter of exports in
government’s credit rating remains poor. 2012, according to the Bank of Portugal.
Like Ireland in December, Portugal looks The vitality of the trading sector will be
set to make an exit without a precaution- boosted by structural reforms. According
ary back-up line of credit. to Carlos Moedas, who is co-ordinating the
Portugal has benefited from a general reforms, this part of the adjustment pro-
reappraisal of risk by investors, as angst gramme is the most crucial, since it offers a
about the euro zone breaking up has faded way to achieve competitiveness in a cur-
and worries about emerging markets have rency union.
mounted. But the economy is also now of- There are three main objectives: mak-
fering more promise, even though its per- ing it easier to set up businesses and tack-
formance has been mixed since the elec- A hazardous exit ling court delays that hamper commerce;
tion in June 2011 brought in a new loosening a labour market notorious for its
right-of-centre coalition government head- er than the 115% previously expected. rigidity; and lightening the burden im-
ed by Pedro Passos Coelho. Despite these economic and fiscal set- posed on market-oriented firms by high
A recovery got under way in the spring backs, Portugal has outperformed in tack- charges from the more protected non-
of 2013, but it followed a gruelling reces- ling its external imbalances. The current traded sector (such as utilities). Altogether
sion that was deeper and lasted longer account has moved from a deficit of over 400 measures have been adopted. Though
than had been forecast at the time of the 10% of GDP in 2010 to a surplus of 0.5% in the reforms will take time to bear fruit, they
bail-out by the “troika” (representing the 2013, the first in two decades. The swing, are likely to raise potential GDP by as much
IMF and the European authorities). Output which was much bigger than expected as 3.5% by 2020, according to the OECD.
declined by 5.7% between 2010 and 2013. three years ago, reflects in part the swoon Portugal needs this boost because of
Unemployment climbed to a peak of 17.6% of domestic demand and associated fall in two handicaps. One is poor skills, reflect-
and would have gone higher but for an ex- imports. But exports have contributed ing historical neglect of education: 65% of
odus of many young people. even more to the trade adjustment as Por- those aged between 25 and 64 lack a high-
Fiscal progress has fallen short of the tugal, which once sent forth great seafaring school diploma, compared with 25%
goals set three years ago. The bail-out plan explorers, has rediscovered markets out- across the OECD. The other is excessive
envisaged an improvement in the structur- side slow-growing Europe. debt, not just in the public but even more in
al primary budget balance (ie, before inter- The headline figures are exaggerated by the private sector, with firms particularly
est and adjusted for the cycle) of ten per- a surge in energy exports, mainly of fuel, weighed down by too much borrowing.
centage points of GDP. In fact the the value of which has doubled between The process of deleveraging still has sever-
improvement between 2010 and 2013 has 2010 and 2013 as Galp, a big energy firm, al years to go and will slow growth.
been about three-quarters of that. Public has stepped up its refining activities. Since The condition of banks is another cause
debt is peaking at almost 130% of GDP rath- the crude oil is imported the net effect on for concern. Although Portugal avoided a
property boom and bust, its banks became
heavily dependent on external funds, with
Signs of life the loan-to-deposit ratio rising to a high of
Portugal’s current-account balance, €bn Ten-year government-bond yields, %
167%. That has now fallen to 117%, but the
banks are still big borrowers from the Euro-
5 16 pean Central Bank. And though their capi-
+ Portugal tal has been reinforced, the banking sector
0
Ð 12 is expected to stay unprofitable for a fourth
5 successive year in 2014.
10 8
Given these vulnerabilities, Portugal
would still benefit from a precautionary
15 credit line from the euro zone’s rescue
4
20 Ireland
fund. But the German government is reluc-
tant to sanction this. As things stand Portu-
25 0 gal seems set to exit its bail-out without the
1990 95 2000 05 10 13 2011 12 13 14
safety net needed by an economy that is in
Sources: OECD; IMF; Thomson Reuters
better shape but remains fragile. 7
WorldMags.net
80 Finance and economics The Economist March 22nd 2014

WorldMags.net
Free exchange Staying unconventional

New research suggests central bankers should be bolder and more innovative
of over 4,000 pension funds concurs: despite extended QE and
A FTER half a decade of bucking convention, the Federal Re-
serve is settling into more familiar routines. The central bank
announced on March 19th that monthly bond purchases under
low interest rates, there is no sign of a dangerous search for yield.
And bold monetary policy has a big upside, suggests a new
its quantitative easing (QE) programme will be cut by $10 billion paper on Japan’s “Abenomics” by Joshua Hausman of the Uni-
to $55 billion, starting in April. For many in the staid world of cen- versity of Michigan and Johannes Wieland of the University of
tral banking it will be a relief: QE and other “unconventional” po- California, San Diego. Japan’s monetary boost is huge, including
lices used when interest rates hit rock bottom in December 2008 a new 2% inflation target, unlimited asset purchases and a dou-
have always been controversial. Yet a new set of papers released bling of the money supply. Many worried, however, that it would
on March 20th at the Brookings Institution, a think-tank (and not work. Japan’s slump is decades old and QE had already been
now home to the Federal Reserve’s previous chairman, Ben Ber- tried. Between 2001 and 2006 the Bank of Japan boosted the cash
nanke), give a different view. Taken together, they suggest a return that lenders held from ¥5 trillion ($46 billion) to almost ¥35 tril-
to monetary normality may be coming too soon. lion using QE. Yet not much happened. Although inflation
Jitters about market bubbles are one reason the Federal Re- nudged above zero, policymakers increased rates too soon. By
serve is dialling down its bond buying. A new study by Gabriel the time Shinzo Abe took office in December 2012 prices were fall-
Chodorow-Reich of Harvard University shows that since 2013 ing by 0.1% a year and the economy was drifting sideways.
Federal Reserve committee members, including Mr Bernanke, But Abenomics has lifted Japan’s GDP by up to 1.7%, according
have cited concerns over increased financial-sector risk-taking as to Messrs Hausman and Wieland: up to a percentage point of that
a reason to mute QE. Their anxiety is understandable: central may be due to monetary policy. The market effects are clear: stock
bankers are still scarred by the lessons of the mid-2000s when indices jumped and the exchange rate depreciated sharply when
banks “searched for yield” amid low interest rates, financing risk- the policy was announced (see left-hand chart). The effects on
ier projects and pumping up leverage to improve profits. After five broad money, which rises with bank lending, have been much
years of shedding risk since the crisis that followed, some fret stronger than with previous QE attempts (see right-hand chart).
they could flip back into risk-seeking mode. Inflation expectations explain the difference. Abenomics was
But those worries wither under closer scrutiny, as Mr Chodo- announced not as a temporary boost but a permanent change in
row-Reich shows. He starts his hunt for a link between QE and policy. People quickly anticipated that prices would begin rising
risk with banks and life insurers, examining market reactions to by 2% a year, instead of remaining flat. Long-run inflation predic-
14 Federal Reserve policy announcements between 2008 and tions have risen too. This means borrowing looks more manage-
2013. Using minute-by-minute data, and isolating small windows able and gives shoppers confidence to spend more. Nonetheless,
either side ofeach statement, Mr Chodorow-Reich measures mar- Japan’s economy remains weak. Reinforcing the commitment to
ket perceptions of risk. He finds that QE extensions are associated monetary boldness would give it a boost, the researchers say.
with a drop in the costs ofdefault insurance that protects against a
bank or insurer going bust. Markets, then, are not worried about Moving the target
QE, even if the central bank is. There are even more radical options. Kevin Sheedy of the London
Money-market funds (MMFs) are another worry. These firms School of Economics reckons that gains may be made from re-
collect deposits, investing the cash in short-term liquid assets placing an inflation target with a nominal-GDP (NGDP) target.
such as Treasury bills. But the returns on these assets tend to track Typically central banks focus on inflation as this helps stabilise
central-bank rates—they are so low that the MMFs’ service char- the value of pay, which might otherwise be eroded by rising
ges might outweigh their customers’ gain. The concern is that prices. But wages are not the only rigid contracts workers face—
MMFs might switch into riskier assets to lift returns and justify their debts are fixed too. This means that a GDP shock which low-
their fees. But an examination of over 500 MMFs shows they are ers incomes can cause a big jump in their debt burden.
taking a safer option, cutting their fees rather than increasing risk A central bank focused on NGDP would help, Mr Sheedy ar-
in an effort to maintain them. An analysis of balance-sheet data gues. Take a supply shock, which tends to lower GDP without
causing prices to fall. A central bank focused on prices might not
respond at all due to the absence of inflation. An NGDP targeter
The case for more would be bolder, stimulating the economy to generate inflation
Yen per $ Nikkei Topix Broad money in Japan
and keep the value of debt and GDP aligned. Hard-wiring a shift
Inverted scale Jan 2007=100 % change on previous year like this into the monetary system will take a lot of persuasion.
60 120 5
But household debt-to-income ratios were much lower when in-
ABE BECOMES QE (Mar 2001) flation targeting was set up in the early1990s. In today’s high-debt
PRIME MINISTER
4 world, an NGDP target looks more attractive.
80 100 Abenomics
(Dec 2012) How influential these studies will be remains to be seen. With
3 central banks so far from “normal” monetary policy, new aca-
100 80 2
demic insights have recently tended to have a bigger impact than
in more ordinary times. And this trio of papers—by quelling fears
120 60 1 over QE’s downsides, praising Japan’s monetary expansion and
providing new arguments in favour of targeting nominal GDP—
0 make a clear case for bold thinking and big action. Conservative
140 40 -30 -20 -10 0 10 20 30
Months before/after policy change
central bankers, take note. 7
2007 09 11 13 14
Sources: OECD; BIS; Bloomberg; Federal Reserve *Nominal
Economist.com/blogs/freeexchange

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Property 81

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The Economist March 22nd 2014

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82 The Economist March 22nd 2014
Science and technology
WorldMags.net Also in this section
83 An ancient fern
83 More stem-cell controversy
84 Cuckoos that help their hosts
84 Fats and heart disease

For daily analysis and debate on science and

technology, visit
Economist.com/science

Astrophysics being flat, this needs explaining. Similarly,

BICEP flexes its muscles

the distribution of matter in the universe,
at least at the grandest scales, is strikingly
homogenous when it might be expected to
be random.
Inflation disposes of these difficulties.
The more you inflate a balloon, to give a
two-dimensional example, the less pro-
A telescope at the South Pole has made the biggest cosmological discovery so far
nouncedly curved its surface gets. If you
this century
could inflate it to an infinite diameter, its

O NE useful feature of a scientific theory

is that it make testable predictions.
Such predictions, though, do not have to be
which is the modern theory of gravity.
They have never been seen directly,
though an indirect proof of their existence,
surface actually would be flat. Similarly,
any irregularities on the surface of a deflat-
ed balloon are quickly smoothed away by
testable straight away. Physics is replete based on studying a pair of collapsed stars, blowing it up. Since inflation expanded the
with prophecies that could be confirmed was rewarded with the 1993 Nobel prize in size of the universe ten billion billion bil-
or denied only decades later, once the tech- physics. Dr Kovac’s team have not changed lion-fold, it had an effect that is, mathemat-
nology to examine them had caught up. this state of affairs. But they have inferred ically, almost indistinguishable from that
The Higgs boson, for example, was 50 the waves’ presence from their effect on of an infinite expansion.
years in the confirming. the cosmic microwave background radia- This inflationary expansion would,
Now something similar is happening in tion—a faint afterglow of the universe’s hot theory predicts, have generated huge
cosmology. On March 17th the Harvard- youth that now forms an electromagnetic quantities of gravitational waves. And the
Smithsonian Centre for Astrophysics, in mist which pervades the cosmos. data from BICEP2 suggest this is exactly
Cambridge, Massachusetts, announced Dr Kovac used BICEP2, a telescope (pic- what happened. The specifics of the traces
that a team led by John Kovac, of Harvard tured above) near the South Pole, to look Dr Kovac has seen should let physicists
University, had spotted signs of gravita- for a subtle “curl” in this mist, which infla- start working out which versions of infla-
tional waves—ripples in the fabric of tion theory suggests should be there. And, tion theory best match the data.
space—that had formed when the universe after months of staring into the Antarctic The most exciting part of BICEP2’s re-
was but a trillionth of a trillionth of a tril- sky and more months of checking and re- sults, though, is not their confirmation of
lionth of a second old. In doing so, Dr Kov- checking the data, that curl has turned up. predictions past, but the crack they open in
ac and his colleagues have confirmed a 30- the doorway to the future. Inflation took
year-old idea called cosmic inflation, The Big Bang theory the universe from a scale at which quan-
which proposes that shortly after it was Inflation was conceived in the 1980s by tum mechanics (which is a theory of the
born the universe underwent a sudden, theorists such as Alan Guth and Andrei very small) dominates proceedings to one
enormous expansion. Linde as a “beautiful fudge”, as Chris Lin- at which relativity (a theory of the very
For cosmologists, this is a big advance. tott, an astrophysicist at the University of large) does so. Studying the transition may
The primordial gravitational waves Dr Oxford, puts it. It was attractive because it bring the eight-decade search for a link be-
Kovac and his colleagues have found not let cosmologists explain, or explain away, tween them to fruition.
only confirm inflation, they may also help some inconvenient facts about the uni- There is general agreement that the way
physicists forge the long-sought link be- verse—chiefly, how boring it is. forward is to “quantise” gravity, and nu-
tween quantum theory and relativity, two Geometrically, the universe is flat (ie, merous mathematical treatments have at-
presently irreconcilable ways of explain- parallel lines within it remain the same dis- tempted to do so. The gravitational waves
ing the universe. tance apart no matter how far they are pro- detected by BICEP2, formed by inflation, a
Gravitational waves are a prediction of jected). Since there are an infinite number quantum-mechanical process, prove gravi-
Einstein’s general theory of relativity, of ways of being curved and only one of ty can be quantised and thus provide a 1
WorldMags.net
 The Economist March 22nd 2014 Science and technology 83

be examined.
WorldMags.net
2 lens through which these treatments can Peer review found a simple way to reprogram ordinary
mouse cells, persuading them to transform
All in all, then, a big day for cosmolo-
gy—assuming the results hold up. Al-
Acid test themselves into pluripotent cells.
Making pluripotent cells by reprogram-
though there have been quibbles, the con- ming ordinary cells avoids the need to har-
sensus among those physicists to whom vest them from embryos, their natural hab-
The Economist has spoken is that the data itat, which is an ethically delicate matter.
look solid and that Dr Kovac’s team have The first researchers to work out how to do
Doubts over ground-breaking stem-cell
been diligent in their attempts to excise it, in 2006, used genes for proteins called
research are just what the field needs
sources of error that might pollute them. transcription factors, which switch other
As Andrew Jaffe, a cosmologist at Imperial
College, London, puts it, “It’s hard to imag-
ine that these results could be completely
P LURIPOTENT stem cells are the source
of an animal’s tissues. They have be-
come a hot topic in medicine. Researchers
genes on and off, to make cultured skin
cells pluripotent. This process (for which
they received the 2012 Nobel prize in medi-
wrong, but it’s conceivable that some of hope to use them to test drugs, to make cine) is, however, finicky. Dr Obokata’s pa-
the numbers might change a little once we models of diseases, to grow transplantable pers suggested there was no need to bother
start getting more data.” organs and, one day perhaps, even to let with transcription factors. Instead, simply
Happily, such data should soon be patients regenerate missing or damaged shocking ordinary cells—by pressure or a
forthcoming. BICEP2 itself is still churning parts of their own bodies. short bath in a mild acid—was enough to
them out. Planck, a now-defunct satellite Great promise, though, often brings do the job.
that belonged to the European Space Agen- great hype—and even scandal. The low It did not take long for doubts to emerge.
cy, also studied the cosmic microwave point came in 2006 when Hwang Woo- The internet has accelerated the process of
background and its data are now being suk, a prominent South Korean researcher, peer review, by which researchers try to
crunched. Other ground-based missions, was charged with fraud and violations of poke holes in each other’s findings. Blogs
too, are on the case. ethics laws after the revelation that he had and websites picked up on apparent irreg-
If these efforts ended up unifying quan- faked much of his apparently pioneering ularities in images and diagrams in the pa-
tum mechanics and relativity, that really work in the field. pers. One picture appears to have been
would be the discovery of the century. Now a different set of research is under copied inappropriately from Dr Obokata’s
Whether such a unified theory would be, the spotlight. On January 30th Nature pub- doctoral thesis. And a chunk of one of the
or would lead to, the much-sought “theory lished two papers by a team led by Haruko papers seems to have been copied verba-
of everything” which physicists hope will Obokata of the RIKEN Centre for Develop- tim from elsewhere. Researchers around
describe reality without fear, favour or mental Biology in Japan. In them, she the world, intrigued by the possibilities of-
fudge is impossible to know. But it might. 7 claimed that she and her colleagues had fered by the new technique, tried to repli-
cate it. The Knoepfler Lab Stem Cell Blog, a
site that is keeping track of these efforts, re-
ports nine failures and two pieces of en-
couraging news that nevertheless fall short
of full replication.
The most definitive piece of bad news
arrived on March 13th, when Kenneth Ka
Ho Lee, a researcher at the Chinese Univer-
sity of Hong Kong, posted the results of his
attempts at replication to ResearchGate, a
social network for scientists that aims,
among other things, to shake up the pro-
cess ofpeer review. Having repeated the ex-
periment three times, he found he could
not replicate Dr Obokata’s results.
The day after, RIKEN held a press confer-
ence. The institute has formed a committee
to investigate the claims. So far, it has decid-
ed that some cases of image manipulation
were innocent mistakes, but is still investi-
gating the rest of the worries—and RIKEN’s
boss, Ryoji Noyori, has described Dr Obo-
kata’s work as “sloppy and irresponsible”
while Masatoshi Takeichi, the director of
the developmental-biology centre, has
An ancient fern suggested the papers be retracted. One of
the authors, Teruhiko Wakayama, agrees.
This picture is of a cross-section of a fossil fern from 180m-year-old rocks in what is now Another, Charles Vacanti, of Harvard, is
southern Sweden. It is part of a paper published in this week’s Science by Benjamin sticking to his guns for the moment.
Bomfleur of the Swedish Museum of Natural History and his colleagues. The fern’s This may look ugly, but it is the way sci-
exquisite state is the result of its having lived and died near a mineral-rich hydrothermal ence is supposed to work. The point of
spring, whose waters impregnated it with calcite before it could rot. Its cells are so well peer review is to catch errors, to stop them
preserved that their nuclei, and in some cases their individual chromosomes, are visible polluting the record with unreliable
(though not at this magnification, which instead shows the plant’s central stem knowledge. It may look unseemly to wash
surrounded by frond bases and rootlets). Though it dates from the early Jurassic, it is in dirty linen in public. But that way every-
essence similar to its modern relatives, the royal ferns, which might thus reasonably be one can check whether it has been proper-
described as living fossils. ly cleaned. 7
WorldMags.net
84 Science and technology The Economist March 22nd 2014

Animal behaviour WorldMags.net Nutrition

Paying guests Fat chance
How much fat you eat matters to your health. What sort of fat matters less

Having a cuckoo in your nest is not

always a bad thing
T HOSE who micromanage their diets
instead of following Michael Pollan’s
sensible rule of thumb—eat food, not too
Omega-3 fats are widely sold in cap-
sule form as food supplements. This
makes them easier than other fats to

T O THE people of Europe, cuckoos are

harbingers of spring. Each year, writers
of letters to one British newspaper, the
much, mostly plants—may be thrown
into confusion by a paper just published
in the Annals of Internal Medicine. It
incorporate into experiments of the sort
that administer something to one group
while denying it to another. In their case,
Times, vie to be first to claim they have describes a meta-analysis (a technique therefore, Dr Chowdhury’s meta-analysis
heard one. To European birds, though, the which uses entire studies as single data was based on such experiments. Indeed
cuckoo’s call is less welcome—for cuckoos, points in an overarching statistical analy- two big, new trials of omega-3 supple-
notoriously, are parasites of others’ nests. sis) of 72 pieces of research involving ments are going on at the moment. But
They lay their eggs in them and leave the more than 600,000 people. such trials are hard to do on other sorts of
hapless foster-parents to do the hard work Some of these were of what those fat, since these are simply part of people’s
of bringing up baby. people ate, or said they ate. Some were of diets. Many people do not mind being
But are those parents always so hap- the levels of various fats circulating in asked either to pop a capsule regularly, or
less? How the cuckoo gets away with it has their bloodstreams. Some were of both. to refrain from doing so. It is understand-
been the subject of much speculation, and All had looked for relations between ably harder to persuade them to let some-
some biologists think that, at least some of these facts and a person’s subsequent one else decide their entire food con-
the time, cuckoos may bring subtle bene- cardiac health. And the meta-analysis sumption for the several years needed to
fits which help offset the undoubted costs comes to what will, to many, be counter- conduct trials like these.
they impose. And, as a paper just pub- intuitive conclusions. This sort of unwillingness is, indeed,
lished in Science outlines, for one sort of Rajiv Chowdhury of Cambridge one reason heart disease is a problem.
cuckoo and one sort of surrogate parent, University and his colleagues found that Most people do not have the willpower
that does appear to be the case. one bugbear, trans-fats, are indeed associ- to stick to a diet, any diet, prescribed by
ated with heart disease—though they someone else—even the simple one
Friend or foe? caution that only five of the studies they offered by Mr Pollan, who is the author of
Daniela Canestrari of Oviedo University, looked at had pertinent data on these. “Food Rules: An Eater’s Manual”. But
in Spain, and her colleagues looked at rela- Other common beliefs, however, were eating a reasonably Spartan, mixed-
tions between great spotted cuckoos and not supported. ingredient diet, along with a regimen of
carrion crows. Unlike some nest parasites, They found no evidence that eating moderate exercise, still seems the best
great spotted cuckoos do not evict the eggs saturated fats or having high levels of route to a long and healthy life. Dr
or young of their hosts. They do, however, circulating saturated fatty acids (the Chowdhury and his colleagues are not
compete with them for food. The upshot is digested products of such fats) had any suggesting that the amount of fat you eat
that crows which raise both their own and effect on cardiac disease. Nor did they has no bearing on your risk of having a
cuckoo nestlings to the point when they find that omega-3 fatty acids, the current heart attack. What their research does
can fly fledge fewer of their own chicks poster-boys of healthy eating, protect suggest is that, trans-fats aside, the type of
than do crows which fledge a clutch with- against heart disease. fat may not matter.
out cuckoos. This suggests, as might be ex-
pected, that cuckoos are a bad thing.
Dr Canestrari, however, decided to look compensate for the lower number of fledg- phenols, from their cloacas—and adult
a little deeper. She suspected that though lings per nest. cuckoos do not. This suggests these chemi-
their fledged clutches were smaller, crows Her idea was that cuckoo nestlings en- cals have a nestling-specific purpose, rath-
with cuckoos in the nest were more likely gage in a form of chemical warfare with er than being mere waste products. And
to fledge at least some young than were un- predators. They certainly secrete a noxious when she offered meat smeared in cuckoo-
parasitised crows. That might be enough to mixture of chemicals, including acids and nestling secretion to feral cats and birds of
prey, which are predators of crow nests in
the study area, they would not touch it.
That indicates having a cuckoo or two in
the nest really is a defence.
To prove the point, she did some experi-
ments—swapping cuckoo nestlings from
the nests where they had hatched into oth-
er nests without cuckoos. The receiving
nests duly turned out to be more likely to
yield at least some fledgling crows than did
either the donor nests (now cuckoo-free) or
control nests that had never had cuckoos in
them. Moreover, 16 years’ worth of obser-
vations of nests not experimented upon
suggested that, though the difference was
small, having cuckoo chicks in the nest was
actually a better strategy on average than
Parasitic? Moi? not having them. 7
WorldMags.net
 The Economist March 22nd 2014 85
Books and arts
WorldMags.net Also in this section
86 New York’s mega-rich
86 The war on cancer
87 William Kent at the V&A
87 Learning Chinese
88 New Chinese fiction

For daily analysis and debate on books, arts and

culture, visit
Economist.com/culture

Narcissism cause an exaggerated erotic attachment to

Know thy selfie

their mothers made them want to love oth-
ers in the same way that their mothers had
loved them.
As Ms Lunbeck notes, the good aspects
of self-love were neglected by Freud and
by his most influential followers, who
started to see bad narcissism everywhere.
It is time to stop invoking narcissism in the diagnosis of so many modern ills.
In the 1930s some analysts tried to get a bet-
Self-love has its virtues
ter press for a “healthy” adult narcissism

W AS Narcissus a narcissist? Arguably

not. Consider the difference between
the famously beautiful boy, who spurned
Mirror, Mirror: The Uses and Abuses of
Self-Love. By Simon Blackburn. Princeton
which, they argued, underpinned a well-
adjusted life. But their voices were
drowned out by other analysts, and by the
University Press; 209 pages; $24.95 and
the advances of others, and another unfor- £16.95 jeremiads of social critics who were eager
tunate character from Ovid’s “Metamor- to find a pseudo-scientific framework for
phoses”. Actaeon, a keen hunter, instantly The Americanization of Narcissism. By their attacks on consumer culture.
realised that he had been turned into a stag Elizabeth Lunbeck. Harvard University In “Mirror, Mirror: The Uses and
when he saw his head and antlers “mir- Press; 367 pages; $35 and £25.95 Abuses of Self-Love”, Simon Blackburn, an
rored in a stream”. Yet when Narcissus fell emeritus professor of philosophy at Cam-
in love with a reflection, a few lines later in bridge University, and one of the best pop-
Ovid’s poem, he did not recognise himself. Vanderbilt University in Nashville, Ten- ularisers of his discipline, comes at narcis-
Indeed, he recoiled in horror as soon as it nessee, explains how narcissism came to sism from a different angle. He examines it
dawned on him that it was his own face be “the pundits’ favourite diagnosis”. By through philosophical debate on ethics, in-
that he had been admiring in a pool. Nar- 1979, when an influential historian, Chris- tegrity, hubris, self-respect and temptation,
cissus was, one might say, enraptured not topher Lasch, published “The Culture of among other things, and through the lens
by a “selfie”, but by what he took to be a Narcissism”, many American intellectuals of literature. He does not spend much time
non-selfie. The poor boy, notorious for al- spoke the language of psychoanalysis as if on the speculations of professional psy-
leged self-absorption, may have been un- it were their mother tongue. There was a chologists. But, like Ms Lunbeck, he too
fairly judged for the past 2,000 years— receptive audience for the Freudian idea suggests that self-love is not always as bad
though he was certainly guilty of pride. that repressed self-hatred could lead to self- as it has been painted. A sense of self is a
In 2013 Oxford Dictionaries anointed absorption, grandiosity and shallowness precious thing, he argues, and he reminds
“selfie” its word of the year, to mark the ex- in individuals, and for the notion that this us what a disaster it is to lose it—to demen-
ploding popularity of this novel term for a personality disorder could somehow be tia, for example. Although self-conscious-
self-portrait, usually one taken by a smart- reflected in the spirit of a wealthy, coddled ness can be debilitatingly intense, as in ad-
phone and posted on a social network. As and self-indulgent age. olescence, the lack of it has its perils too,
the blurbs for two new books note, the rise For Sigmund Freud, there was a good not just for propriety but for morality.
of this form of self-promotion has been sort of narcissism, at least in early life, and Finding the right value to put on oneself
widely taken as evidence of a boom in self- a bad sort. Narcissistic drives—urges aimed is a balancing act, Mr Blackburn sagely ob-
regard or selfishness. If there is such a at nurturing the self—were a component of serves, though there are no simple rules
boom, it is presumably a repeat outbreak healthy development. But they could go that can steer us between the Scylla of ex-
of the epidemic of narcissism diagnosed awry, resulting in excessive self-love of va- cessive self-love and the Charybdis of its
by critics in the 1970s—“the Me-Decade”, as rious sorts, and you were supposed to opposite. The matter of “positioning one-
Tom Wolfe, an American journalist, grow out of them. Sometimes the Freudian self among others in the social world” is a
dubbed it. picture got rather convoluted. Male homo- complex one, so discovering the right mix
In “The Americanization of Narcis- sexuals, Freud suggested in 1910, looked for of attitudes and feelings “may be like find-
sism”, Elizabeth Lunbeck, a historian at partners modelled on themselves, be- ing the centre of gravity of a cloud”. 1
WorldMags.net
86 Books and arts The Economist March 22nd 2014

2 WorldMags.net
Sometime, he writes, it is plain that the The war on cancer

Enemy of the state

balance between self-interest and a proper
concern for others has been seriously up-
set. For him, a clear example of this is “the
‘greed is good’ culture that spread across
banks and boardrooms in the last thirty
years”. Few will disagree when Mr Black-
burn says there has been no recent short-
On the Cancer Frontier: One Man, One
age of financial egotism, though the inclu-
Disease, and a Medical Revolution. By Paul
sion of Rupert Murdoch in his gallery of
Marks and James Sterngold. PublicAffairs;
financial villains suggests a certain nebu-
251 pages; $26.99
lousness in his conception of it.
In a tongue-in-cheek prefatory ac-
knowledgment to L’Oréal, a cosmetics
firm, Mr Blackburn reveals that his despair
H OPES were high when Richard Nixon
declared war on cancer in 1971. Ifscien-
tists could build a nuclear bomb, send a
at the company’s slogan “Because you’re man to the moon and cure polio, they
worth it” was an important stimulus to this could surely defeat cancer. But over 40
book. It is presumably little comfort to him years later millions still die from the dis-
that the slogan has metamorphosed over eases that fall under this broad banner.
the years from “Because I’m worth it” to Can it therefore be said that the war on
“Because you’re worth it” to “Because cancer has failed?
we’re worth it”. The trouble with such a No, says Paul Marks in “On The Cancer
line, for Mr Blackburn, is that what it is real- Frontier”. But the goal should be contain-
ly saying is that you’re not in fact worth it New York leisure centre ment, not victory, because the enemy is
unless you buy the products. This may be uniquely intractable. Cancer sabotages
as questionable an interpretation as 15CPW, as it is known locally, has spe- cells, then uses their resources to destroy
Freud’s account of male homosexuality. Ei- cial appeal to the new-money types the body. Treatments often kill good cells
ther way, perhaps it is time to stop invoking frowned upon by the sniffy blue-bloods along with the bad. Even when forced to
poor Narcissus in the diagnosis of so many across the park on Fifth Avenue. There are retreat, cancers return in more potent
major ills and minor annoyances. 7 hedgies and investment bankers galore, es- forms. “Medical science has never faced a
pecially from Goldman Sachs, which more inscrutable, more mutable, or more
helped the Zeckendorf brothers finance ruthless adversary,” says Dr Marks.
New York’s mega-rich the development, and got a discount for its He would know. As the former head of

Boom with a view

boss, Lloyd Blankfein, when he splashed Memorial Sloan-Kettering, a leading can-
out $26m on a duplex. Russian oligarchs, cer centre in New York, Dr Marks has taken
left out of the initial sales process due to part in many of the developments that
concerns about their character, have been have enhanced the understanding of the
busy buyers in the secondary market. Ce- disease. Like an intellectual Forrest Gump,
lebrity residents include Sting, Denzel he has worked with Nobel prizewinners,
Washington and Alex Rodriguez, a steroid- counselled first ladies and been sought out
House of Outrageous Fortune: Fifteen
pumping batter for the New York Yankees by a shah. But it is the story behind the sci-
Central Park West, the World’s Most
who, one anonymous neighbour tells Mr ence that makes this book a compelling
Powerful Address. By Michael Gross. Atria
Gross, is “not a nice guy, an unfriendly nar- read, even for non-boffins, who can rely on
Books; 394 pages; $28
cissist” and is thus the “exact opposite” of good metaphors to decipher the jargon. (A

“L IMESTONE JESUS” is the nickname of

15 Central Park West, Manhattan’s
residential building of the moment, and
the delightful Mr Blankfein. (For anyone
expecting serious tittle-tattle, this is about
as good as Mr Gross gets, alas, along with
virus that contains only RNA, and no DNA,
is like “a functioning automobile with a
transmission but no engine”.)
not just because its 201 extraordinary his account of Mr Loeb’s failed attempt to Human cells mystified scientists until
apartments are clad in expensive rock. “It lower the temperature of the water in the the 1950s, when James Watson and Francis
represents the resurrection and the life of swimming pool and subsequent resigna- Crick discovered the structure of DNA. As
our era’s aristocracy of wealth,” writes Mi- tion from the building’s gym committee.) researchers began to unravel how cells
chael Gross in “House of Outrageous For- When the Occupy Wall Street move- worked they also began to understand
tune”, the “story of the property-lust-mak- ment heard that Mr Blankfein lived in the how cancer attacked and reprogrammed
ing building and the cohort that calls it building it organised a protest outside, and them. But the medical community, long fo-
their tower of power”. Bill de Blasio, New York’s mayor, got elect- cused on visible symptoms, was slow to
If anyone needs convincing that the ed last year by attacking the sort of wealthy embrace the idea of looking at cancer from
richest of the rich have continued to get people who call 15CPW home. If only Mr the inside out. And when the government
richer, unaffected by the financial crash of Gross had made a serious attempt to ana- began pouring money into the anti-cancer
2008 and the subsequently misfiring econ- lyse whether their rise is really due to poli- effort in the 1970s, the debate over how to
omy, here is the proof. In 2005 when Carl cies that simultaneously harmed the less confront the scourge intensified.
Icahn, a septuagenarian billionaire activist well-off, and whether there have been Although the science behind cancer
investor, was outbid for a penthouse in the more of the sort of special favours for resi- was still in its infancy, some argued that the
then-unbuilt building, his successful rival, dents like those apparently extended by funds should go to finding cures quickly
Daniel Loeb, a younger hedge-fund boss, the police to the triple-parked limos out based on existing, but incomplete, leads—
paid $45m. In 2011 Sandy Weill, a former front. Still, he demonstrates conclusively the “moon shot” approach. Penicillin, after
boss of Citigroup, sold his slightly smaller the abiding truth ofClare Boothe Luce’s ob- all, had been discovered without anyone
penthouse for $88m, twice what it had cost servation, “Money can’t buy happiness, knowing its exact molecular workings.
him four years earlier and the highest price but it can make you awfully comfortable Sceptical scientists wanted to continue
ever paid for a Manhattan apartment. while you’re being miserable.” 7 studying cancer’s biology—they still hardly 1
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 The Economist March 22nd 2014 Books and arts 87

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2 knew how the enemy worked. But Nixon’s
war led to high expectations. “The politics
Learning Chinese
had got way ahead of the science,” says Dr
Marks. The result was a muddled policy The memory game
and a disappointed public.
Nevertheless Dr Marks claims America
is winning this particular war. The death
rate from cancer has fallen, though total Chineasy: The New Way to Read Chinese. ers to create stories for each ideogram.
deaths are up because of a growing and By Shaolan Hsueh. Thames & Hudson; 192 “Person” becomes “big” with the addi-
ageing population. If Dr Marks is right, pages; £12.95 tion of a line, like “a man stretching his
then some of the credit must go to efforts arms wide”. This can be turned into
aimed at prevention—the fact that Ameri-
cans smoke less than they used to has little
to do with advances in cellular biology. But
H UNDREDS of millions of children
and adults across China are learning
English. Yet despite the country’s grow-
“sky” by adding a further line to repre-
sent “the spiritual level above man and
earth”; and so on.
he gives this short shrift. And though he ing influence, rather fewer people outside Many of Ms Hsueh’s engaging expla-
encourages screening in order to catch the Middle Kingdom are learning Chi- nations will be familiar to those already
more cancers early, he makes little of the nese. One obvious reason is that the learning the language: “to sit” is “two
controversy surrounding the needless language is notoriously hard. people sitting on the soil”; “disaster” is a
treatments that can result. Two things make the two main Chi- fire under a roof. The book also brings in
These quibbles hardly detract from Dr nese languages, Mandarin history: the character for
Marks’s fascinating journey through the and Cantonese, so fiendish to “beautiful” is made up of
world of cancer research. Scientists have master. First, they are tonal, “sheep” and “big”, apparent-
made great strides in working out how so a rising, falling or dipping ly because sheep were con-
cancer cells conduct their guerrilla war on pitch changes a word’s mean- sidered auspicious in ancient
the body. As a result, they have been able to ing. Second, they have no China; “good” combines
develop precision weapons to replace the alphabet, relying instead on “woman” and “son” because
carpet-bombing treatments of old. Cancer ideograms, or characters, to a good woman was thought
is now a less lethal enemy. Still, Dr Marks represent each word. To be to be one who bore a boy.
doubts it can be eliminated. Many will literate requires memorising “Chineasy” succeeds in
have trouble seeing that as success. 7 thousands of characters, making these familiar ideas
compared with manipulat- memorable. It gives the
ing no more than 33 letters in beginner, confronted by a
William Kent at the V&A most other major languages. seemingly random scrawl of

Gilty secret
A new book, “Chineasy”, ideograms, somewhere to
aims to change that by of- start in deciphering them. But
fering an approachable in- nothing can downplay the
troduction. Shaolan Hsueh, sheer number of characters
its Taiwanese author, devel- that anyone studying the
oped her system after watch- language must learn—or the
ing her British-born children leaps of logic that face them.
A long-forgotten Georgian designer
struggle with characters. It is easy to remember that
returns to the limelight
With striking illustrations by two mouths together mean

H ORACE WALPOLE, an 18th-century

British author and collector, wrote
that William Kent “was so much consulted
Noma Bar she has conceived
an appealing, if not exactly
easy, primer for foreign audi-
“shout”, for example, but the
word’s pronunciation (xuan)
bears no resemblance to that
by all who affected taste that nothing was ences learning Mandarin. for a single mouth (kou).
thought complete without his assistance”. Her method uses a tech- At the beginning of “Chi-
Kent was both prolific and polymathic—an nique already popular with Chinese neasy”, Ms Hsueh talks of the “Great Wall
architect, sculptor, painter, decorator and schoolchildren to turn many of the basic of Chinese” that stops East and West from
designer who dazzled Georgian Britain characters on which the language is built communicating effectively. As alluring as
with his glitzy brand of Palladianism. into illustrations. The character for “per- it is, her tome cannot break down that
His surviving work includes the Trea- son” is easier to remember if the student wall, or even provide a door through it.
sury and Horse Guards buildings in Lon- imagines a head and two feet on it. But it does at least give keen learners a
don, and the interiors and furniture for “Mouth” gets a tongue and teeth, and few footholds as they start to climb. As a
some of Britain’s treasure houses, includ- “soil” a sprouting leaf. Since many of the Chinese proverb famously notes, even a
ing Chiswick House in west London and more complicated characters combine journey of a thousand miles begins
Houghton Hall in Norfolk. He was the orig- basic ones, Ms Hsueh’s idea is for learn- beneath one’s feet.
inator of the English landscape garden and
was responsible for the reintroduction of
Palladian architecture to the country. The his lifetime he was divisive. William Ho- the Adam brothers and the Gothic revival.
newly installed Hanoverian royal family garth, a satirical printmaker and a self-ap- Obituaries were perfunctory: most took
became patrons: he was commissioned by pointed champion of Britishness, despised the same tone as the General Advertiser,
Queen Caroline, wife ofGeorge II, to create the Italianate Kent. Hogarth called him a which brusquely reported that Kent had
a library at St James’s Palace, and by Freder- “contemptible dauber” and, in a popular died “of a Mortification of his Bowels”.
ick, the king’s eldest son, to design a royal print titled “The Bad Taste of the Town”, A new show aims to bring “Kentis-
barge. So why has Kent spent the better showed “KNT” at the apex of the many fol- sime”—a term coined by Walpole—back to
part of the two-and-a-half centuries since lies unfurling over London. By the time the limelight. The exhibition is the third in
his death being largely disregarded? Kent died in April 1748 the fickle eye of fash- a collaborative series of monographs ex-
A principal reason is that even during ion had moved on to the neoclassicism of ploring Georgian “tastemakers”, organised 1
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88 Books and arts The Economist March 22nd 2014

WorldMags.net later as a favourite of the third Earl of Burl-

ington, a young, fantastically wealthy gen-
fall in the 1960s: one day he makes a simple
mistake and in a moment his genius crum-
tleman architect with a deep desire to be- bles. The national hero spends the rest of
come the central arbiter of British taste. It his days in a care home for former spooks.
was under his patronage and influ- Those hoping for revelations about Chi-
ence that Kent became one of the na’s secret services will be disappointed.
most sought-after designers and Mr Mai instead illuminates the peculiar
landscape gardeners of the day. psychology of code-breaking: “One genius
The exhibition contains around 200 trying to work out what another genius
pieces of Kent’s work, including plans, nev- has done—it results in the most appalling
er realised, for redesigned Houses of Parlia- carnage.” The book wears its harsh history
ment. It also includes examples of his gilt lightly. Jinzhen writes a self-criticism for
furniture, much loved by some, but the “feudal superstition” ofinterpreting his
loathed by detractors as exemplifying his colleagues’ dreams, for example. His body-
Fancy that showy, deceitful style. Julius Bryant, one of guard will shoot Jinzhen if he is threat-
the show’s curators and a long-standing ened, in order to protect his secrets.
2 by the Victoria and Albert Museum in Lon- Kent fan, says it will challenge ideas of This strange, twisting tale is told in fizzy,
don and the Bard Graduate Centre in New good taste. “People who come expecting vivid and often beautiful prose. To break a
York. It sketches out Kent’s career, from his English understatement are in for a nasty code is to extend a hand to grasp the sky
humble start as the son of a rural joiner surprise,” he says. “He was in-your-face and hope to catch a bird. Every character is
and his first job as a coach-painter in Hull. and brash. And his clients loved it.” 7 larger than life, including the non-sentient
It shows how his fortunes changed at the ............................................................... ones: a cipher Jinzhen tries to decode is
age of 23 when he persuaded benefactors “William Kent: Designing Georgian Britain” is at the “singularly freakish and malicious”. The
to send him to Italy. He returned a decade Victoria and Albert Museum, in London, until July 13th book is flooded with the emotion of
wrecked lives, but its expression is taut:
Jinzhen cannot endure “the myriad idio-
New Chinese fiction syncrasies of other people”. He falls in love

Get into characters

with his future wife, who “appears with no
sound, she leaves in silence”.
Mr Mai has been labelled the “Dan
Brown of China” because both have sold
millions of books, but there the compari-
son ends. This novel has the expansive

F INALLY, a great Chinese novel. The past

35 years have seen an outpouring of fic-
tion in China, only a small fragment of
Decoded. By Mai Jia. Farrar, Straus and
Giroux; 315 pages; $26. Allen Lane; £18.99
sweep of Gabriel García Márquez’s magi-
cal realism; like Peter Carey he plunges
fully into a new world; his extraordinary
which has been read overseas. Much of protagonist, tender and heartless in equal
this literature has been pored over and ac- fragile adult he daubs his walls with multi- measure, recalls that of Tom McCarthy’s
claimed for the insight it offers into a coun- coloured diagrams and numbers, and is “C”. Yet Mr Mai’s authority is his own. He
try so newly influential. There have been dismissed as a lazy loon until he cracks an plays with the reader: his story, he begs,
good books, of course—some provocative elusive code. “hungers to be trusted”, but in the next
or sensationalist, many bravely political. The novel is a hunt for the truth about paragraph he seeks forgiveness for adorn-
There have even been two Nobel prize- this solitary cryptographer. But “Decoded” ing the facts. He offers a beguiling and mag-
winners. Yet almost none of the thousands is no thriller. An unnamed narrator tries to ical mystery tour of China. It is an absolute
of translated works has held its own as a unravel the mystery surrounding Jinzhen’s joy to read. 7
novel that book-lovers with no special in-
terest in China will relish.
“Decoded”, the debut work of Mai Jia,
breaks the mould. Written under a pseud-
onym by a former member of the intelli-
gence services, it was published as “Jiemi”
in China in 2002, and has now been trans-
lated into English with great verve and flu-
ency by Olivia Milburn. It stands out
among Chinese novels for its pace, liveli-
ness and the sheer novelty of the tale it
tells. It grips from the first page.
This is the story of Rong Jinzhen, an or-
phan who becomes an obsessive maths
genius. He is twice adopted before being
forcibly recruited into Unit 701, the elite
code-breaking unit of China’s secret ser-
vices. The child Jinzhen counts ants, calcu-
lates the number of days that his adoptive
father lived and eats pear blossom. As a

Correction: “Cosmos” was a TV series made by America’s

Public Broadcasting Service, not its Public Broadcasting
System as we suggested in a recent piece
(“Starry-eyed”, March 8th).
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Courses 89

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The Economist March 22nd 2014

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90 Courses
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Appointments
HFC is striving to be a global leader in the Food Business and is focused on growth and
development in accordance with its Mission, Vision and Strategic Objectives. Current
focus is on Grain, Livestock, Rice and Sugar commodities. HFC wishes to recruit the
following vacancies to be based in Qatar:-

Manager of Commodity (Rice or Protein or Grain) - (Tertiarry qualifications in a field of relevance with postgraduate
qualifications in business economics or related discipline, Demostrated executive leadership experience across
international business development, investment, operations management and entrepreneurial functions)

Responsibilities
• Take overall responsibility for ensuring the efficient and effective management of HFC’s (Commodity) business including
the financial performance.
• Lead the process of development and reviewing of the business strategy including ensuring they reflect corporate strategy
and expectations
• Provide leadership and guidance to business related executive management of local and foreign subsidiaries.
• Oversee the implementation of HFC corporate governance framework
• Support the further development on implementation of HFC’s HSE policies and CSR objectives.

Business Development Managers of Commodity (Rice or Protein or Grain) - (Bachelor Degree in Business/
Agribusiness and 10+ years of global commercial experience, English is must, Arabic speaking preferred)

Responsibilities
• Managing day-to-day business activities (follow-up on leads, identify potential acquisition targets, support activities
during communication, negotiation, conclusion phases).
• Manage the implementation of the investment strategy and develop the investment investigations, feasibility studies, due
diligence tasks, evaluation, valuation analysis, business planning, technical or financial assessments, commercial reviews
and any other necessary business-relevant exercises/tasks.
• Development of the portfolio investment strategy for certain commodities.
• Management of investment opportunities through to conclusion and handover to the operations sector.
• Develop and prepare research materials, written reports & presentations and business plans.
• Provision of advice, recommendations, solutions and options to Executive Management.

Senior Financial Analyst (Investment Advisor) – (BS and Masters degree in Finance with Chartered Financial
Analyst, CPA preferred, 10+ years experience in reputable firm. English is a must, Arabic preferred)

Responsibilities
• Mergers and acquisition
• Financial planning and analysis including development of business plans
• Financial modeling and commercial due diligence
• Transaction management & structuring
• Valuation of potential targets and supervise (junior) financial analysts

Requirements: Only qualified candidates with exceptional skills, experience and related educational background are requested
to apply. Please reference the job title in the Email subject. Please send your application by email to : recruitment@hassad.com
Or you can post your application to www.hassad.com.

The Economist March 22nd 2014

WorldMags.net
Appointments 91

WorldMags.net
Shaping a more livable world.
The secretariat of the
United Nations Framework Convention on Climate Change
Currently Recruiting – Senior Thought Leaders and
is recruiting for the senior position of
Management for Making Markets Work for the Poor (M4P)
programmes across Africa and the Middle East Coordinator
Administrative Services
DAI is a global development company dedicated to shaping a more Background:
livable world. We tackle fundamental social and economic development The United Nations Framework Convention on Climate Change (UNFCCC) is the
problems caused by inefficient markets, ineffective governance, and focus of the political process to address climate change. The Convention secretariat
promotes the implementation of the Convention and its Kyoto Protocol by a range
instability. Currently, DAI is delivering results that matter in more than of activities, including the provision of substantive and organizational support
80 countries. to meetings of the Parties. The secretariat has a staff of more than 500 staff and
manages about EUR 200 million on funds per biennium.

We are looking for a Team Leader to oversee implementation of Key Responsibilities:

the Department for International Development’s seven-year M4P The Coordinator contributes to the implementation of the secretariat’s mandate by
planning and directing the full range of administrative operations, including in the
programme in Ethiopia. Focused on agricultural value chains, access areas of budget, finance, human resources management, knowledge management,
to finance, and women’s entrepreneurship, the programme builds on procurement, travel and general services; provides strategic vision to the continuing
the success of the developing economy to support the emergence of review and development of administrative systems, policies and procedures, and
ensures the optimal utilization of administrative resources; represents the Executive
a sustainable private sector in the country. This leadership position Secretary and the secretariat in negotiations and consultations on a full range of
represents an exciting opportunity to assist in the further development administrative matters; leads or contributes to organizational change initiatives.
of the Ethiopian economy and enhance its contribution to the Qualifications and skills required:
development of the region and the continent as a whole. • Advanced university degree in business or public administration, finance,
accounting, law, human resources or social sciences, or related field. A first
level university degree in combination with qualifying experience may be
Given DAI’s expanding portfolio of M4P projects, we are looking for
accepted in lieu of the advanced university degree.
additional advisors with experience implementing successful M4P and • At least 15 years of relevant, progressively responsible, experience in human
economic development programmes in Africa and the Middle East. resources management, finance/accounting and/or budget or change
management of which at least 5 years must be in an international setting.
• Knowledge of fund-raising, the management of funds in an
For information on current vacancies, please visit dai.com/careers or intergovernmental context, and the UN regulatory frameworks.
contact Ben Salt in our recruitment team on benjamin_salt@dai.com. • Proven track record of excellent management and technical leadership skills
including policy development and change management within organizational
settings, with particular focus on human resources management; experience
Announcements with implementing complex ERP systems in organizations; proven skills
in producing high quality reports and position papers on administrative
technical issues.
• Fluency - oral and written - in English.

For details of this vacancy and how to apply, please use the on-line application
system available at http://unfccc.int/secretariat/employment/recruitment.

UNFCCC is committed to gender and geographic equality in delivering on it mandate

and in the composition of its staff. Qualified and experienced women and nationals from
developing countries are especially encouraged to apply.

Business & Personal

Readers are recommended

to make appropriate enquiries and take
appropriate advice before sending money,
incurring any expense or entering into a
binding commitment in relation to an
advertisement.
The Economist Newspaper Limited shall not
be liable to any person for loss or damage
incurred or suffered as a result of his/her
accepting or offering to accept an invitation
contained in any advertisement published in
The Economist.

The Economist March 22nd 2014

WorldMags.net
92 The Economist March 22nd 2014
Economic and financial indicators
Economic data
WorldMags.net
% change on year ago Budget Interest
Industrial Current-account balance balance rates, %
Gross domestic product production Consumer prices Unemployment latest 12 % of GDP % of GDP 10-year gov't Currency units, per $
latest qtr* 2014† latest latest 2014† rate, % months, $bn 2014† 2014† bonds, latest Mar 19th year ago
United States +2.5 Q4 +2.4 +2.8 +2.8 Feb +1.1 Feb +1.6 6.7 Feb -379.3 Q4 -2.2 -2.9 2.77 - -
China +7.7 Q4 +7.4 +7.2 +8.6 Feb +2.0 Feb +2.8 4.1 Q4§ +188.6 Q4 +1.7 -1.9 4.19§§ 6.20 6.22
Japan +2.6 Q4 +0.7 +1.4 +10.3 Jan +1.4 Jan +2.5 3.7 Jan +23.0 Jan +0.9 -8.1 0.61 102 94.8
Britain +2.7 Q4 +2.9 +2.8 +2.9 Jan +1.9 Jan +2.0 7.2 Dec†† -94.9 Q3 -3.2 -5.6 2.73 0.60 0.66
Canada +2.7 Q4 +2.9 +2.3 +2.7 Dec +1.5 Jan +1.5 7.0 Feb -58.9 Q4 -2.9 -2.6 2.48 1.12 1.03
Euro area +0.5 Q4 +1.1 +1.1 +2.1 Jan +0.7 Feb +0.9 12.0 Jan +288.7 Dec +2.1 -2.6 1.60 0.72 0.78
Austria +0.9 Q4 +2.1 +1.3 -0.6 Dec +1.5 Feb +1.7 4.9 Jan +9.6 Q3 +2.9 -1.9 1.88 0.72 0.78
Belgium +1.0 Q4 +2.0 +1.2 -0.4 Dec +1.0 Feb +1.2 8.5 Jan -12.6 Sep -0.5 -2.9 2.21 0.72 0.78
France +0.8 Q4 +1.2 +0.8 -0.1 Jan +0.9 Feb +1.1 10.9 Jan -45.3 Jan -1.7 -4.2 2.16 0.72 0.78
Germany +1.4 Q4 +1.5 +1.8 +5.0 Jan +1.2 Feb +1.4 6.8 Feb +281.9 Jan +6.6 +0.3 1.60 0.72 0.78
Greece -2.3 Q4 na nil +1.1 Jan -1.1 Feb -1.0 27.5 Dec +1.6 Dec +1.6 -2.5 6.80 0.72 0.78
Italy -0.9 Q4 +0.3 +0.4 +1.4 Jan +0.5 Feb +0.8 12.9 Jan +16.2 Dec +0.8 -3.3 3.39 0.72 0.78
Netherlands +0.7 Q4 +2.8 +0.8 +2.0 Jan +1.1 Feb +1.2 8.6 Jan +83.1 Q4 +9.5 -3.4 1.80 0.72 0.78
Spain -0.1 Q4 +0.7 +0.7 -0.1 Jan nil Feb +0.4 25.8 Jan +9.5 Dec +1.1 -5.8 3.30 0.72 0.78
Czech Republic +0.9 Q4 +7.9 +1.6 +5.5 Jan +0.2 Feb +1.5 8.6 Feb§ -2.9 Q4 -0.6 -3.6 2.22 19.8 19.9
Denmark +0.6 Q4 -2.0 +1.3 -5.0 Jan +0.5 Feb +1.4 5.4 Jan +24.4 Jan +6.1 -1.8 1.62 5.37 5.78
Hungary +2.7 Q4 +2.2 +2.1 +6.0 Jan +0.1 Feb +1.4 8.9 Jan§†† +3.1 Q3 +1.9 -3.0 5.78 223 237
Norway +1.1 Q4 -0.7 +2.2 +1.3 Jan +2.1 Feb +2.1 3.6 Dec‡‡ +54.5 Q4 +12.5 +12.0 2.92 5.99 5.83
Poland +2.7 Q4 na +2.9 +5.3 Feb +0.7 Feb +1.5 14.0 Jan§ -7.6 Jan -1.8 -3.5 4.25 3.02 3.23
Russia +1.2 Q3 na +2.9 +2.0 Feb +6.2 Feb +5.8 5.6 Jan§ +33.0 Q4 +1.9 -0.5 9.19 35.9 30.9
Sweden +3.1 Q4 +7.1 +2.3 +0.8 Jan -0.2 Feb +0.7 8.5 Feb§ +34.6 Q4 +6.0 -2.0 2.12 6.36 6.46
Switzerland +1.7 Q4 +0.6 +2.1 +0.4 Q4 -0.1 Feb +0.4 3.2 Feb +79.9 Q3 +11.4 +0.5 0.96 0.87 0.95
Turkey +4.4 Q3 na +2.2 +7.2 Jan +7.9 Feb +9.1 10.0 Dec§ -64.0 Jan -6.0 -2.7 10.87 2.22 1.82
Australia +2.8 Q4 +3.2 +2.6 +2.8 Q4 +2.7 Q4 +2.7 6.0 Feb -44.2 Q4 -3.2 -2.8 4.06 1.11 0.96
Hong Kong +3.0 Q4 +4.4 +3.5 +0.5 Q4 +4.6 Jan +3.6 3.1 Feb‡‡ +5.4 Q3 +2.6 +1.4 2.26 7.77 7.76
India +4.7 Q4 +0.4 +6.0 +0.1 Jan +8.1 Feb +8.8 9.9 2012 -49.2 Q4 -2.9 -4.9 8.78 61.0 54.4
Indonesia +5.7 Q4 na +5.4 +0.9 Jan +7.7 Feb +7.0 5.8 Q4§ -28.5 Q4 -3.8 -2.3 na 11,314 9,712
Malaysia +5.1 Q4 na +5.1 +3.6 Jan +3.4 Jan +3.2 3.0 Dec§ +11.7 Q4 +5.3 -4.1 4.07 3.28 3.12
Pakistan +6.1 2013** na +3.9 +2.6 Jan +7.9 Feb +6.9 6.2 2013 -4.0 Q4 -2.1 -6.3 12.73††† 98.3 98.2
Singapore +5.5 Q4 +6.1 +4.2 +3.9 Jan +1.4 Jan +2.7 1.8 Q4 +54.4 Q4 +19.5 +0.7 2.42 1.27 1.25
South Korea +4.0 Q4 +3.7 +3.3 -3.8 Jan +1.0 Feb +2.0 4.5 Feb§ +72.0 Jan +4.4 +0.5 3.52 1,070 1,111
Taiwan +2.9 Q4 +7.3 +3.2 -1.8 Jan nil Feb +1.0 4.1 Jan +57.4 Q4 +11.1 -2.1 1.58 30.4 29.7
Thailand +0.4 Q4 +2.4 +3.0 -7.4 Jan +2.0 Feb +2.4 0.6 Dec§ -2.8 Q4 +0.6 -2.6 3.63 32.1 29.3
Argentina +5.5 Q3 -0.7 -0.6 -2.6 Jan — *** — 6.4 Q4§ -3.5 Q3 -0.2 -2.4 na 7.95 5.10
Brazil +1.9 Q4 +2.8 +1.8 -2.4 Jan +5.7 Feb +6.0 4.8 Jan§ -81.6 Jan -3.6 -4.0 13.18 2.33 1.99
Chile +2.7 Q4 -0.3 +4.1 -1.7 Jan +3.2 Feb +3.2 6.1 Jan§‡‡ -9.5 Q4 -4.2 -1.0 5.02 569 473
Colombia +5.1 Q3 +4.5 +4.7 +0.6 Jan +2.3 Feb +2.7 11.1 Jan§ -12.6 Q3 -3.5 -0.7 6.91 2,014 1,810
Mexico +0.7 Q4 +0.7 +3.0 +0.7 Jan +4.2 Feb +4.5 4.8 Jan -22.3 Q4 -1.6 -3.2 7.75 13.2 12.4
Venezuela +1.1 Q3 -0.8 -1.8 +0.8 Sep +57.4 Feb +65.2 9.5 Jan§ +6.9 Q3 +1.7 -12.2 12.77 6.29 6.29
Egypt +1.0 Q3 na +2.0 -6.8 Jan +9.8 Feb +9.9 13.4 Q4§ -4.5 Q3 -2.4 -12.7 na 6.96 6.79
Israel +3.6 Q4 +2.7 +3.4 +7.4 Dec +1.2 Feb +1.5 5.9 Jan +7.2 Q4 +2.5 -2.8 3.35 3.46 3.69
Saudi Arabia +3.8 2013 na +4.0 na +2.8 Feb +3.3 5.6 2013 +139.3 Q3 +13.0 +1.7 na 3.75 3.75
South Africa +2.0 Q4 +3.8 +2.5 +2.4 Jan +5.9 Feb +5.7 24.1 Q4§ -20.5 Q4 -6.2 -4.3 8.42 10.8 9.27
Source: Haver Analytics. *% change on previous quarter, annual rate. †The Economist poll or Economist Intelligence Unit estimate/forecast. §Not seasonally adjusted. ‡New series. **Year ending June. ††Latest 3
months. ‡‡3-month moving average. §§5-year yield ***Official number not yet proven to be reliable; The State Street PriceStats Inflation Index, February 32.22%; year ago 25.71% †††Dollar-denominated bonds.

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 The Economist March 22nd 2014 Economic and financial indicators 93

Markets
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% change on World GDP*
Contribution to growth from:
Dec 31st 2013 The world economy appears to be increas- Percentage points
Index one in local in $ ingly healthy. Calculations by The Econo- United States Other rich countries
Mar 19th week currency terms
mist indicate that global growth in the China Other emerging economies
United States (DJIA) 16,222.2 -0.7 -2.1 -2.1
China (SSEA) 2,116.5 +1.2 -4.4 -6.6
final quarter of 2013, weighted by GDP at 6

Japan (Nikkei 225) 14,462.5 -2.5 -11.2 -8.1 purchasing-power parity, was just below Total, % change on a year earlier
Britain (FTSE 100) 6,573.1 -0.7 -2.6 -2.2 3%, the fastest rate since the start of 4
Canada (S&P TSX) 14,334.0 +0.1 +5.2 nil 2012. The rich world, led by the United
Euro area (FTSE Euro 100) 1,008.2 +0.4 -1.1 -0.2 States, is now contributing one-fifth of
2
Euro area (EURO STOXX 50) 3,076.4 +0.4 -1.0 -0.1 global growth. But this healthy picture
+
Austria (ATX) 2,483.7 +1.3 -2.5 -1.5 remains dangerously reliant on China,
Belgium (Bel 20) 3,083.0 nil +5.4 +6.4 which last year confounded expectations 0
France (CAC 40) 4,308.1 nil +0.3 +1.2 of a marked slowdown: around half of –
Germany (DAX)* 9,277.1 +1.0 -2.9 -2.0
global growth originated from the Middle 2
Greece (Athex Comp) 1,364.4 +0.3 +17.4 +18.5
Italy (FTSE/MIB) 20,977.0 +0.9 +10.6 +11.6
Kingdom in 2013. And growth is vulner-
Netherlands (AEX) 388.9 -0.6 -3.2 -2.3 able to politics: an escalation of the
4
Spain (Madrid SE) 1,032.3 +0.2 +2.0 +3.0 conflict in Crimea or a disruption to 2009 10 11 12 13
Czech Republic (PX) 989.4 +2.2 nil +0.5 Russian energy supplies could knock the Sources: Haver *Estimates based on 54 economies representing
Denmark (OMXCB) 632.3 -0.6 +11.7 +12.7 world economy off track. Analytics; IMF; 90% of world GDP. Weighted by GDP
The Economist at purchasing-power parity
Hungary (BUX) 17,052.5 +4.3 -8.1 -11.3
Norway (OSEAX) 607.0 +0.3 +0.7 +2.0
Poland (WIG) 50,360.1 -0.3 -1.8 -1.8 Other markets The Economist commodity-price index
Russia (RTS, $ terms) 1,155.8 +5.1 -12.4 -19.9 % change on 2005=100
% change on
Sweden (OMXS30) 1,360.5 +1.0 +2.1 +3.1 Dec 31st 2013 one one
Switzerland (SMI) 8,226.6 -1.0 +0.3 +1.9 Index one in local in $ Mar 11th Mar 18th* month year
Turkey (BIST) 65,487.1 +3.5 -3.4 -6.7 Mar 19th week currency terms Dollar Index
Australia (All Ord.) 5,372.9 -0.5 +0.4 +1.8 United States (S&P 500) 1,860.8 -0.4 +0.7 +0.7 All Items 174.3 172.5 +2.3 -4.4
Hong Kong (Hang Seng) 21,568.7 -1.5 -7.5 -7.6 United States (NAScomp) 4,307.6 -0.4 +3.1 +3.1
India (BSE) 21,832.9 -0.1 +3.1 +4.6 Food 203.0 202.6 +6.3 -0.8
China (SSEB, $ terms) 228.4 +1.3 -7.8 -9.9
Indonesia (JSX) 4,821.5 +2.9 +12.8 +21.3 Japan (Topix) 1,164.3 -3.5 -10.6 -7.5 Industrials
Malaysia (KLSE) 1,817.4 -0.1 -2.7 -2.7 Europe (FTSEurofirst 300) 1,305.1 -0.2 -0.9 +0.1 All 144.5 141.3 -3.2 -9.2
Pakistan (KSE) 27,258.7 +0.5 +7.9 +15.5 World, dev'd (MSCI) 1,658.0 -0.5 -0.2 -0.2 Nfa† 157.7 156.3 -0.1 -7.1
Singapore (STI) 3,080.8 -0.5 -2.7 -3.0 Emerging markets (MSCI) 950.6 +0.6 -5.2 -5.2 Metals 138.9 134.8 -4.6 -10.1
South Korea (KOSPI) 1,937.7 +0.3 -3.7 -5.0 World, all (MSCI) 405.6 -0.3 -0.7 -0.7 Sterling Index
Taiwan (TWI) 8,689.5 +0.1 +0.9 -1.1 World bonds (Citigroup) 934.5 +0.4 +3.1 +3.1
Thailand (SET) 1,364.3 +0.6 +5.0 +7.4 All items 190.7 189.3 +3.0 -12.8
EMBI+ (JPMorgan) 661.5 +0.2 +1.5 +1.5
Argentina (MERV) 5,867.0 +2.7 +8.8 -10.8 Hedge funds (HFRX) 1,239.2§ nil +1.1 +1.1 Euro Index
Brazil (BVSP) 46,567.2 +1.5 -9.6 -8.5 Volatility, US (VIX) 15.1 +14.5 +13.7 (levels) All items 156.3 154.2 +1.1 -11.4
Chile (IGPA) 18,013.0 +0.3 -1.2 -8.8 CDSs, Eur (iTRAXX)† 70.5 -4.7 +5.5 +6.5 Gold
Colombia (IGBC) 13,029.0 +1.1 -0.3 -4.4 CDSs, N Am (CDX)† 64.7 -0.7 +4.3 +4.3 $ per oz 1,341.5 1,358.5 +2.7 -15.8
Mexico (IPC) 38,811.9 +0.5 -9.2 -9.7 Carbon trading (EU ETS) € 6.1 -7.8 +20.7 +21.8 West Texas Intermediate
Venezuela (IBC) 2,588.2 -2.3 -5.4 na Sources: Markit; Thomson Reuters. *Total return index.†Credit-de-
Egypt (Case 30) 8,286.9 +2.3 +22.2 +22.0 $ per barrel 99.8 99.7 -2.8 +8.2
fault-swap spreads, basis points. §Mar 18th.
Sources: Bloomberg; CME Group; Cotlook; Darmenn & Curl; FT; ICCO;
Israel (TA-100) 1,282.2 +1.3 +6.2 +6.4
Indicators for more countries and additional ICO; ISO; Live Rice Index; LME; NZ Wool Services; Thompson Lloyd &
Saudi Arabia (Tadawul) 9,318.6 -0.3 +9.2 +9.2 Ewart; Thomson Reuters; Urner Barry; WSJ. *Provisional
South Africa (JSE AS) 46,666.5 -1.1 +0.9 -1.7 series, go to: Economist.com/indicators †Non-food agriculturals.

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94
Obituary The Economist March 22nd 2014

WorldMags.net ing (as Margaret Thatcher had also, but

wrongly, pointed) to the promised land.
The route he preached was “pure” so-
cialism. Not the Marxist sort, though he fell
out often with the party over clause four of
its constitution, which committed the
party to nationalising the means of pro-
duction, distribution and exchange;
though he scorned the free market New La-
bour so hotly embraced, and found global
capitalism disgusting. No, he meant social-
ism in the tradition of the Peasants’ Revolt,
the Tolpuddle Martyrs and the Chartists,
campaigners for the rights of the working
man. All progress came from underneath.

The tea-powered megaphone

Mr Benn was really a Leveller, the 17th-cen-
tury group who rejected all authority and
preached absolute equality. He was not
merely a republican who, like Cromwell,
fought to get the royal head removed (from
Britain’s stamps, when he was postmaster-
general). He was also sceptical about par-
liamentary democracy itself. Power was
only on loan to Parliament from the peo-
ple; therefore, most MPs being useless, it
was better if the people ran things them-

Tony Benn selves. Hence his indulgence of Trotskyites

and rabble-rousers in the unions; his eager-
ness to prop up Britain’s heavy industries,
mostly in vain, with workers’ co-opera-
tives; and his hatred (he was a good hater)
Anthony Wedgwood Benn, spear-thrower of the British left, died on March 14th, of those who seemed to stand in the way.
aged 88 Where did this drive to be difficult
come from? Not his happily middle-class

S OMETHING was wrong, humphed

Tony Benn, when the right-wing Daily
Telegraph called him a national treasure.
field. He had had to fight to sit in the Com-
mons at all, campaigning for eight years to
renounce the peerage he had inherited
family life, though Liberal-Labour politics
had filtered through from his father, and
non-conformist piety (altered by him to
Ludicrous, in fact. He was no harmless old from his father. He had been a minister, for humanism) from his mother. Not from fee-
man in a cardigan, but a member of the industry and later for energy, under Harold paying Westminster school, where he
awkward squad. “The most dangerous Wilson and Jim Callaghan in the 1970s: wore top hat and tails, an attendance he ex-
man in Britain”, the Tory press had called right-wing governments both, in his view, cised from his entry in “Who’s Who”. But
him in the 1970s. That was still true. His though Labour in name. So his industry his battle to take his Commons seat, with
house was full of butane gas to light his bill, demanding more state planning and his local constituents pitted against the Es-
sempiternal pipe, threatening an explo- nationalisation, was dead on arrival in tablishment, committed him to people-
sion. Shelves groaned with the speeches 1975; and he was never elected to the party power. And the death of his elder brother
(two volumes) and the diaries (eight vol- leadership because his opponents inexpli- on active service in 1944 filled him with
umes) in which he made his relentless, un- cably disliked his programme of disarma- such deep and abiding hatred of war that
apologetic case for change. His rooms were ment, import controls, a wealth tax, and he even visited Saddam Hussein to divert,
loud, too, with clocks, advising him wheth- the handing of more political power to mil- single-handed, the American invasion.
er he was making good use of his time or itant shop stewards. His campaign for a better world was
not: meaning whether he was moving Brit- Many said he had wrecked the Labour generally conducted alone. After the late
ain another inch or so in what was mani- Party, which in 1979 lost power for a gener- 1970s (when he mustered a band of Jaco-
festly the best direction. ation. Mr Benn thought that nonsense. The bins around him) he seemed to need no
That direction was socialist. Not social- party leaders had wrecked it by losing faction, having enough tea-fuelled energy
ism as professed by the Labour Party, in touch with the people. They might even for several men. Enemies were every-
which there were too few socialists and have gone into the Common Market with- where, of course. The Murdoch-and-Max-
too many kings of the Tony Blair variety; in out popular consent, had he not insisted well press called him bonkers for years.
which the people were not represented, on a referendum in 1975 (in which, dismay- The Thought Police were out to get him.
but managed; and in which, far from ingly and despite his untiring “No” cam- MI5 went through his rubbish. Nonethe-
changing society, the government tried to paign, the people voted “Yes”). Labour less the books kept appearing and, well
change the people to fit the status quo. Mr leaders had sold out to Europe, NATO and into old age, Mr Benn himself, plummily
Benn belonged to the Labour movement, the IMF—just as Mr Blair sold out later to eloquent as ever through pipe, micro-
broad-based and active; not to the party, the warmongering Americans. He would phone or megaphone. No, not a treasure,
elitist and more or less ossified. never do so; because though most leaders but worth protecting all the same, as a curi-
True, he’d served 51years in the party, as were unprincipled weathercocks, he was ously resilient artefact from Labour’s mis-
an MP for Bristol South-East and Chester- one of the few unbending signposts, point- spent past. 7
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 WorldMags.net
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