Islamic State driven out of Ramadi

Xi Jinping’s first tweet

The mad world of travel visas
Japan and South Korea mend fences
JANUARY 2ND– 8TH 2016 Fin-tech: whaling and venture capital

Brazil’s fall
Dilma Rousseff and the disastrous year ahead
 Contents The Economist January 2nd 2016 3

6 The world this week Asia

27 Japan and South Korea
Leaders Apologies
7 Latin America 28 Family planning in
Brazil’s fall Vietnam
Running deer
8 Travel visas
Sticker shock 28 Thailand’s insurgency
No end in sight
8 Republican tax plans
Be serious 30 India’s economy
One country, many markets
9 Global inflation
Republicans The candidates’
Low and behold
tax plans are welcome for their
10 Internet security China
detail, but not their contents:
When back doors backfire 31 Social media leader, page 8. Some of the
On the cover Weibo warriors schemes for fixing America’s
Disaster looms for Brazil: Letters 32 Supply-side economics taxes are exorbitant, page 17.
leader, page 7. Latin Reagan’s Chinese ghost Opinions vary on whether
11 On business, species,
America’s biggest economy firms can be “socially
elections, whistleblowers,
faces another lost decade, responsible” and still avoid
plurals, Donald Trump Middle East and Africa
pages 13-15 paying taxes: Schumpeter,
33 Iraq page 52
Briefing Reclaiming Ramadi
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The chore of the Spanish
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1 Contents continues overleaf

4 Contents The Economist January 2nd 2016

Britain Science and technology

43 Funding the police 59 Aircraft engines
Counting up the coppers Flying’s new gear
44 Floods 60 The Nobel prizes
Northern waterhouse Throw caution to the wind?
45 Bagehot 61 Meteorology
Bring on the tempest Barmy weather

International Books and arts

46 The undiscovered world 62 The consequences of 1916
Xi Jinping’s first tweet The Weather The rain gods have
A new breed of explorer A most terrible year
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social media is bitterly fought, 63 Kennedy’s other crisis around the world, page 61.
page 31 Business China, India and the CIA The anger rises in pace with
49 Travel visas 64 Ukraine’s history the water across England’s
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6
The world this week The Economist January 2nd 2016

Iraq’s armed forces recaptured appointed. It will also make it the United States’ policy of by anti-graft officials. The
Ramadi, the capital of Anbar much harder to strike down accepting émigrés from Cuba if businessman, Chang
province, which fell to Islamic new laws. The opposition they reach American soil. Xiaobing, is among several
State in May and is just 100km staged furious demonstrations. senior executives who have
from Baghdad. The country’s Argentina lifted exchange been targeted in an anti-
prime minister, Haider Spain held an election before controls and allowed the peso corruption campaign being
al-Abadi, said that IS would be Christmas, which resulted in to float freely, days after the waged by President Xi Jinping.
driven from his country by the no stable majority. The ruling inauguration of its new presi-
end of 2016. IS also suffered People’s Party of Mariano dent, Mauricio Macri. This Japan and South Korea agreed
fresh reverses in Syria; on Rajoy came first and the Social- forms part of a liberalisation to settle a long-standing
December 26th it lost the ists second. Two smaller par- programme to reverse populist dispute over women forced to
important power-generating ties took seats, breaking the policies of the outgoing gov- work in Japanese brothels
Tishreen dam to a mainly traditional two-party system. ernment of Cristina Fernández during the second world war.
Kurdish force. de Kirchner. Japan apologised and said it
Brazil’s finance minister, would pay ¥1 billion ($8.3m) to
Saudi Arabia’s stockmarkets Joaquim Levy, resigned on Carlos Rosales Mendoza, the help victims.
fell sharply after it announced December18th. He came into founder of La Familia Michoa-
swingeing spending cuts to office in January 2015 with a cana, a Mexican drug gang, The bodies of six American
close a gaping budget deficit. mandate to slash the budget was found dead along with the troops killed by a Taliban
Saudi public finances have deficit but was thwarted by a bodies of three other people suicide-bomber near Bagram
been hurt by declining oil severe recession and political near a motorway in western air base in Afghanistan were
revenues. In the middle of 2015 turmoil. His successor is Nel- Mexico. He was on the most- flown home. It was the dead-
Brent crude was trading at $65 son Barbosa, who was the wanted list of the Drug liest attack on American per-
a barrel; now it is under $38. planning minister. Enforcement Agency in the sonnel in the country in years.
United States. A sizeable contingent of troops
An outbreak of Ebola that A group of Central American is to remain in Afghanistan
rampaged through three Afri- countries plus Mexico reached A landslide in the southern until at least the start of 2017.
can countries officially ended an agreement to allow some of Chinese city of Shenzhen
when the World Health Orga- the 7,000 migrants from Cuba killed seven people and left The season of goodwill ex-
nisation declared that Guinea who are stuck on Costa Rica’s dozens of others missing. tended to America’s House of
was free of the disease. The border with Nicaragua to Officials called it an “industrial Representatives, which passed
outbreak, which started two travel to the United States. safety accident”, caused by a a $1.8 trillion spending mea-
years ago, killed some 11,000 Nicaragua had blocked their collapsing heap of construc- sure before Christmas with
people, most of them in Guin- entry. The migrants will now tion waste. An official who little argument and thus avoid-
ea, Liberia and Sierra Leone. be airlifted to El Salvador and had once overseen the site ed a government shutdown.
continue by bus. The number committed suicide. Paul Ryan, the new Speaker,
Stockmarkets responded of migrants from Cuba has was commended for his adroit
positively to the Federal increased since a diplomatic The chairman of one of handling of the bill.
Reserve’s decision on Decem- thaw with the United States China’s largest state-owned
ber16th to raise interest rates began in 2014. Many fear that mobile operators, China Other economic data and news
for the first time since 2006. the rapprochement will end Telecom, is being investigated can be found on page 68-69
After months of dithering the
central bank lifted the range for
its benchmark rate by a quarter
of a percentage point to
between 0.25% and 0.5%.

Martin Shkreli was arrested by

the FBI on December17th and
charged with securities fraud.
Mr Shkreli made the headlines
in 2015 when a drugs company
he ran bought the rights to a
medicine and raised its price
by 5,000%. The (unrelated)
charges against Mr Shkreli,
which he denies, pertain to his
time as a hedge-fund manager.

Poland’s right-wing govern-

ment passed a law requiring
the constitutional court to
approve decisions by a two-
thirds majority, and with at
least 13 of the 15 judges present.
The law will force the court to
accept disputed new judges
whom the government has
 Leaders The Economist January 2nd 2016 7

Brazil’s fall
Disaster looms for Latin America’s biggest economy

A T THE start of 2016 Brazil

should be in an exuberant
mood. Rio de Janeiro is to host
seff cannot afford to lose another finance minister. One early
test will be whether Mr Barbosa persuades a recalcitrant Con-
gress to reinstate an unpopular financial-transactions tax.
South America’s first Olympic A central target should be pensions. The minimum benefit
games in August, giving Brazil- is the same as the minimum wage, which has risen by nearly
ians a chance to embark on 90% in real terms over the past decade. Women typically retire
what they do best: throwing a when they are 50 and men stop work at 55, nearly a decade ear-
really spectacular party. Instead, lier than the average in the OECD (a club of mostly rich coun-
Brazil faces political and economic disaster. tries). Brazil’s government pays almost 12% of GDP to pension-
On December16th Fitch became the second of the three big ers, a bigger share than older, richer Japan.
credit-rating agencies to downgrade Brazil’s debt to junk status. If Brazil is to fulfil its promise, much, much more is needed.
Days later Joaquim Levy, the finance minister appointed by the A typical manufacturing firm spends 2,600 hours a year com-
president, Dilma Rousseff, to stabilise the public finances, quit plying with the country’s ungainly tax code; the Latin Ameri-
in despair after less than a year in the job. Brazil’s economy is can average is 356. Labour laws modelled on those of Musso-
predicted to shrink by 2.5-3% in 2016, not much less than it did lini make it expensive for firms to fire even incompetent
in 2015. Even oil-rich, sanction-racked Russia stands to do bet- employees. Brazil has shielded its firms from international
ter. At the same time, Brazil’s governing coalition has been dis- competition. That is one reason why, among 41 countries
credited by a gargantuan bribery scandal surrounding Petro- whose performance was measured by the OECD, its manufac-
bras, a state-controlled oil company. And Ms Rousseff, accused turing productivity is the fourth-lowest.
of hiding the size of the budget deficit, faces impeachment pro- To reform work and pensions, Ms Rousseff must face up to
ceedings in Congress. problems that have been decades in the making. Some 90% of
As the B in BRICS, Brazil is supposed to be in the vanguard public spending is protected from cuts, partly by the constitu-
of fast-growing emerging economies. Instead it faces political tion which, in 1988, celebrated the end of military rule by en-
dysfunction and perhaps a return to rampant inflation. Only shrining generous job protection and state benefits. Because it
hard choices can put Brazil back on course. Just now, Ms Rous- is so hard to reform, Brazil’s public sector rivals European wel-
seff does not seem to have the stomach for them. fare states for size but emerging ones for inefficiency. Long a
drain on economic vitality, Brazil’s overbearing state is now a
Dismal Dilma chief cause of the fiscal crisis.
Brazil’s suffering, like that of other emerging economies, stems Overcoming such deep-rooted practices would be hard for
partly from the fall in global commodity prices. But Ms Rous- any government. In Brazil it is made all the harder by a daft po-
seff and her left-wing Workers’ Party (PT) have made a bad situ- litical system, which favours party fragmentation and vote-
ation much worse. During her first term, in 2011-14, she spent buying and attracts political mercenaries who have little com-
extravagantly and unwisely on higher pensions and unpro- mitment either to party or to programme. The threshold for a
ductive tax breaks for favoured industries. The fiscal deficit party to enter the lower house of Congress is low; today 28 are
swelled from 2% of GDP in 2010 to 10% in 2015. represented, adding to the legislative gridlock. Congressmen
Brazil’s crisis managers do not have the luxury of waiting represent entire states, some as populous as neighbouring Lat-
for better times to begin reform (see pages13-15). At 70% of GDP, in American countries, which makes campaigning ruinously
public debt is worryingly large for a middle-income country expensive—one reason why politicians skimmed off huge
and rising fast. Because of high interest rates, the cost of servic- amounts of money from Petrobras.
ing it is a crushing 7% of GDP. The Central Bank cannot easily It is therefore hard, despite Mr Barbosa’s advantages, to feel
use monetary policy to fight inflation, currently 10.5%, as high- optimistic about the prospects for deep reform. Voters hold
er rates riskdestabilising the public finances even more by add- politicians in contempt. The opposition is bent on impeaching
ing to the interest bill. Brazil therefore has little choice but to Ms Rousseff, a misguided battle that could dominate the politi-
raise taxes and cut spending. cal agenda for months. The PT has no appetite for austerity.
Mr Levy made a game attempt to renovate the building Achieving the three-fifths support in both houses of Congress
while putting out the fire. He trimmed discretionary spending needed for constitutional reforms will be a tall order.
by a record 70 billion reais ($18 billion) in 2015 and tightened el-
igibility for unemployment insurance. But it was not enough. Reckless Rousseff
The recession dragged down tax revenues. Ms Rousseff gave And if Ms Rousseff fails to bring about change? Most of Brazil’s
her finance minister only lukewarm support and the PT was borrowing is in local currency, which makes default unlikely.
hostile towards him. The opposition, intent on ousting the Instead, the country may end up inflating away its debts. Bra-
president, was in no mood to co-operate. zil’s achievement has been to lift tens of millions of people out
Although he was a senior treasury official during Ms Rous- of rag-and-flip-flop poverty. Recession will halt that, or even
seff’s disastrous first term, Nelson Barbosa may be able to ac- begin to reverse it. The hope is that Brazil, which has achieved
complish more as finance minister. He has political support hard-won economic and democratic stability, does not lapse
within the PT. He also has bargaining power, because Ms Rous- once again into chronic mismanagement and turmoil. 7
8 Leaders The Economist January 2nd 2016

Travel visas

Sticker shock

They have their uses, but the burden visas impose on travellers and recipient countries is too high

V ISAS are necessary evils.

They offer governments a
way to control their borders,
jumped by a third; when restrictions were reintroduced in
2009, after a rise in asylum applications, arrivals fell by 70%
over three years. Rather than gumming up all travel, it made
whether to regulate the flow of more sense to process asylum claims faster. The rules have
immigrants or to pick out threats subsequently been relaxed again.
to security. But the paperwork Governments can take three steps to ease the burden of
and fees they entail also deter visas without simply throwing borders open to all-comers.
legitimate tourists and business The first is to slash the length of their forms. Britain, a grave of-
travellers. Researchers at the Cato Institute, a libertarian think- fender when it comes to high fees and piles of paperwork, re-
tank, reckon that eliminating all travel visas to the United quires visa applicants to fill in a ten-page form, provide a list of
States would add between $90 billion and $123 billion in annu- every foreign trip over the past decade and declare that they
al tourist spending. By one estimate, introducing visa restric- have never incited terrorism to boot. This is absurd. Schengen-
tions can lower trade and foreign direct investment between a area bureaucrats in continental Europe manage to screen visi-
pair of countries by as much as 25%. tors in just two pages. America’s visa-waiver programme al-
The job of policymakers is to strike the right balance be- lows citizens of 28 countries to visit by filling out a simple on-
tween such costs and benefits. On short-term business and line form with basic personal information.
tourist visas, they have failed. Take security. Visas, proponents Second, government departments need to get better at shar-
say, keep countries safer by controlling who is able to enter. ing that information, both within borders and across them.
That is true, but they are not very efficient. Terrorists can be Most big receiving countries now demand biometric data such
home-grown as well as foreign, qualify for visas (as the 9/11 at- as fingerprints and retinal scans. Many also require “advance
tackers did) or slip across borders illegally. Imposing restric- passenger information” before a traveller is allowed to board
tions on the basis of nationality is the bluntest of instruments, an aeroplane. Cross-checking these data against intelligence
scooping up legions of ordinary tourists and travellers as well and criminal databases will usually obviate the need for
as the occasional suspect. America’s decision to tighten the lengthy inquisitions.
rules for anyone who has recently been to Iran, Iraq, Sudan
and Syria will affect aid workers and plotters alike. La visa loca
It is a similar story with unauthorised migration. Identify- Usually, but not always. Countries will want to investigate
ing visitors who might overstay their welcome is a core duty of some applicants in greater detail. So the third step is to grant
visa officers. Western countries often require several months’ longer visas to those people who have easily cleared the neces-
bank statements, pay slips, proof of financial and property sary hurdles. America routinely grants ten-year visas; Europe
holdings, tax returns and letters from bosses promising that routinely grants ten-day ones. That means travellers to the
their employees will return (see page 49). These strictures also Schengen area must repeatedly prove their good intentions,
put off legitimate travellers. When Canada lifted visa require- leading to more otiose paperwork, and fewer visits. Necessary
ments for Czech citizens in 2007, the number of Czech tourists as they are, visas need not be so evil. 7

Republican tax plans

Be serious

The Republican candidates’ tax plans are welcome for their detail, but not their contents

A MONTH before the first

primary contest in Iowa, the
Republican race is more warlike
ent, tangled-up tax system. America’s corporate tax is a toxic
combination of a high rate—the highest in the OECD—and a se-
ries of complex distortions, which encourage bad behaviour
than wonkish. Yet the candi- such as gorging on debt and stashing cash in foreign subsidiar-
dates have found time to write ies. Republicans rightly want to cut the rate and put an end to
sometimes intricate plans to re- most of the distortions. Marco Rubio and Jeb Bush would also
form America’s taxes (see page let businesses deduct the cost of their investments from their
17). Though no one blueprint taxes immediately, rather than as their assets deteriorate and
will become law, if America chooses a Republican president, lose value. This would encourage investment and boost eco-
he may well have a Republican Congress to work with. At that nomic growth.
point, the winner’s tax plan will seem less like a campaign The candidates have interesting ideas for helping low earn-
gimmick and more like a promise to be kept. ers, too. Mr Bush and Donald Trump want to raise the standard
Republicans are right to seek to reform America’s incoher- deduction (the amount Americans can earn before paying in- 1
 The Economist January 2nd 2016 Leaders 9

2 come tax). That would be a simple way to encourage work and that income-tax cuts for high earners boost growth is thin at
to help low- and middle-income households: a similar policy best. Predictions that tax cuts in the early 2000s would cause
has proved a success in Britain. Mr Bush would also double the enough growth to pay for themselves look foolish today.
earned-income tax credit, a wage top-up for low-earners, for This is no time to be taking chances with America’s budget.
childless workers. Mr Rubio wants to replace the standard de- Retiring baby-boomers are increasing the cost of providing
duction with a universal payment to those in work, which pensions and health care for the old. There is no appetite
would help even those who earn too little to benefit from an among Republicans for defence cuts, and other day-to-day
increased tax allowance. spending has already been cut by 22% in real terms since 2010.
These ideas, though, are mere footnotes to the plans’ central If tax cuts were paid for with more borrowing rather than low-
chapters: huge tax cuts for high earners. At 39.6%, America’s er spending, they would end up as deadweight for the econ-
top federal income-tax rate is hardly high by global standards. omy rather than as fuel.
Yet the candidates are racing to see who can promise to cut it The plans would also greatly exacerbate inequality, which
most. Mr Bush aims for 28%; Mr Trump 25%. Ted Cruz wants to has increased in the 15 years since George W. Bush cut taxes for
replace income tax entirely with a 10% flat tax and a value-add- high earners. Under Mr Trump’s plan, for instance, the top 1%
ed tax. Mr Rubio, whose promise of a 35% top rate seems timid ofearners would receive a windfall worth 18% oftheir after-tax
by comparison, serves up largesse elsewhere by promising to income. Middle-earners have to settle for a 5% boost; the bot-
abolish levies on capital gains and dividends. tom fifth, just1%. This belies Mr Trump’s claim to champion the
The first problem with these schemes is their cost. On to- cause of ordinary working people. The other plans are little
day’s growth forecasts, even Mr Bush’s relatively moderate better; Mr Rubio’s plan is probably more generous at the bot-
plan would reduce revenues by $715 billion, or 13.5%, a year by tom than at the top, but he gives middle-income Americans lit-
2026—more than the projected national defence budget. Pay- tle to cheer about.
ing for Mr Trump’s plan with reduced day-to-day spending (as The Republicans have spent much ofBarackObama’s presi-
opposed to mandatory spending on things like pensions and dency denouncing debt and deficits. Yet their proposals to in-
health care) would require cutting budgets by a staggering 82%. troduce unaffordable tax cuts for the rich would send both bal-
The candidates claim that tax cuts will spur the economy, looning. So long as such schemes are a prerequisite for
filling the government’s coffers with new revenue. But the winning the Republican nomination, a party that prides itself
pace of any economic acceleration is uncertain. The evidence on economic management will lack a credible policy. 7

Global inflation

Low and behold

Another year of low prices will create strains in the world economy

Brent crude oil

$ per barrel
E CONOMISTS don’t forecast
because they know, said J.K.
Galbraith; they forecast because
Start with Saudi Arabia. The falling price of crude is in part a
consequence of its commitment (reiterated by OPEC ministers
on December 4th) to produce at full tilt. The idea is to flush out
120
they’re asked. A question that is the weaker producers in America’s shale-oil industry and else-
80
increasingly put to them is where. This is proving a costly gambit. Saudi Arabia needs a
40
whether inflation, which has barrel of oil to fetch around $85 to finance public spending and
0 been remarkably quiescent for around $60 to keep its current account in balance. Yet the oil
2014 2015
years, will spring a surprise in price recently fell below $36, to an 11-year low, before rebound-
2016. After all, the debt troubles that have weighed down rich ing a little. America has sustained oil production of above 9m
economies since 2007 are fading; labour markets in America, barrels a day, despite a sharp fall in the number of oil rigs, sug-
Britain and Germany are increasingly tight; housing markets gesting that shale firms are becoming more efficient.
are gathering steam; and the Federal Reserve has just raised in- This week Saudi Arabia said that it would cut local subsi-
terest rates for the first time in almost a decade. dies on petrol, electricity and water in order to chip away at a
Inflation in America and Europe should indeed pick up budget deficit that reached 367 billion riyals ($98 billion), or15%
from its present, near-zero state as the big declines in energy of GDP, in 2015. The Saudis are burning through their (ample)
prices at the turn of 2015 drop out of the headline rate. But a glut foreign-exchange reserves to pay for imports while maintain-
in the supply of crude means that oil prices are falling again. If ing the riyal’s peg with the dollar. But the cost of this strategy
debt is receding as a problem in rich countries, it looms larger has already forced two other oil exporters, Kazakhstan and,
in emerging markets, where overcapacity brought on by binge- more recently, Azerbaijan, to abandon their dollar pegs. The
borrowing exerts a downward force on prices. There is infla- public finances of other big oil producers, such as Russia and
tion in commodity-exporting countries, such as Brazil, whose Nigeria, are also under pressure. No wonder a devaluation of
currencies have been trashed. But global inflation is a tug-of- the riyal this year is a favoured tail-riskfor currency forecasters.
war between bottlenecks in parts of the rich world and im- A second place to watch is China. A construction boom has
ported deflation from emerging markets, and the enduring fall left it with a mountain of debt and excess capacity in some in-
or stagnation of prices looks set to dominate for a while yet dustries—notably steel, whose falling global price has claimed
(see page 53). Indeed, this “lowflation” means that three as- jobs in Europe’s industry and led to growing complaints of
pects of the world economy are worth watching in 2016. Chinese dumping. Factory-gate prices have fallen in China for 1
10 Leaders The Economist January 2nd 2016

2 45 consecutive months. Further fiscal and monetary stimulus in emerging markets is likely to keep downward pressure on
should help to boost demand, but will also hinder the man- commodity prices and on their currencies. A strong dollar has
agement of China’s exchange rate, which is already under already driven a wedge between the performance of Ameri-
pressure from an outflow of capital. ca’s manufacturing and service industries. Further apprecia-
As with the riyal, the yuan has just about kept pace with the tion would make it harder for the Federal Reserve to push
dollar’s ascent over the past two years, leaving it looking ex- through more increases in interest rates.
pensive. Beijing has signalled that it wants to benchmark the
yuan against a basket of currencies, and some forecasters ex- Strong on jobs, weak on prices
pect a gradual decline in its value against the dollar in 2016. But All this would make for a strangely configured economy by the
there is an understandable fear that the yuan may slip anchor, end of the year. An unemployment rate of 4%, a Fed Funds rate
potentially touching off a round of devaluations in Asia. below 1%, an overvalued dollar, a strong housing market and
A third outcome from continued lowflation will be increas- inflation below the Fed’s target of 2% is a plausible, if very odd,
ingly lopsided economies in the rich world, particularly in mix, which could portend either a sudden burst of inflation or
America, where recovery is more advanced than in Europe. If enduringly feeble demand (see page 58). An honest economist
productivity stays as weak as it has been recently, unemploy- will admit the uncertainties in any forecast. But another year
ment is likely to fall still further. At the same time, slow growth of lowflation will surely tax policymakers. 7

Internet security

When back doors backfire

Some spy agencies favour “back doors” in encryption software, but who will use them?

W ITHOUT encryption, in-

ternet traffic might as well
be written on postcards. So gov-
danger is that back doors introduced for snooping may also
end up being used for nefarious ends by rogue spooks, enemy
governments, or malefactors who wish to spy on the law-abid-
ernments, bankers and retailers ing. It is unclear who installed Juniper’s back door or used it
encipher their messages, as do and to what end.
terrorists and criminals. Intelligence agencies argue that back doors can be kept se-
For spy agencies, cracking cret and are sufficiently complex that their unauthorised use is
methods of encryption is there- unlikely. But an outsider may stumble across a weakness or
fore a priority. Using computational brute force is costly and steal details of it. America, in particular, has a lamentable re-
slow, because making codes is far easier than breaking them. cord when it comes to storing secrets safely. In the summer it
One alternative is to force companies to help the authorities became known that the Office of Personnel Management,
crack their customers’ encryption, the thrust of a new law just which stores the sensitive personal data ofmore than 20m fed-
passed in China and a power that Western spy agencies also eral employees and others, had been breached—allegedly by
covet. Another option is to open “back doors”: flaws in soft- the Chinese. Some call that the biggest disaster in American in-
ware or hardware which make it possible to guess or steal the telligence history. It is rivalled only by the data taken by Ed-
encryption keys. Such back doors can be the result of program- ward Snowden, a former NSA contractor now living in Mos-
ming mistakes, built by design (with the co-operation ofthe en- cow. (The authorities responsible for airport security also let
cryption provider) or created through unauthorised tinkering slip the details of master keys that can open most commercial-
with software—or some combination of the three. ly available luggage—a form of physical back door.)
The problem with back doors is that, though they make life
easier for spooks, they also make the internet less secure for Push back against back doors
everyone else. Recent revelations involving Juniper, an Ameri- Calls for the mandatory inclusion of back doors should there-
can maker of networking hardware and software, vividly fore be resisted. Their potential use by criminals weakens over-
demonstrate how. Juniper disclosed in December that a back all internet security, on which billions of people rely for bank-
door, dating to 2012, let anyone with knowledge of it read traf- ing and payments. Their existence also undermines
fic encrypted by its “virtual private network” software, which confidence in technology companies and makes it hard for
is used by companies and government agencies worldwide to Western governments to criticise authoritarian regimes for in-
connect different offices via the public internet. It is unclear terfering with the internet. And their imposition would be fu-
who is responsible, but the flaw may have arisen when one tile in any case: high-powered encryption software, with no
intelligence agency installed a back door which was then se- back doors, is available free online to anyone who wants it.
cretly modified by another. The back door involved a faulty Rather than weakening everyone’s encryption by exploit-
random-number generator in an encryption standard champi- ing back doors, spies should use other means. The attacks in
oned by America’s National Security Agency (NSA); other Paris in November succeeded not because terrorists used com-
clues point to Chinese or British intelligence agencies. puter wizardry, but because information about their activities
Decrypting messages that involve one or more intelligence was not shared. When necessary, the NSA and other agencies
targets is clearly within a spy agency’s remit. And there are can usually worm their way into suspects’ computers or
good reasons why governments should be able to snoop, in phones. That is harder and slower than using a universal back
the interests of national security and within legal limits. The door—but it is safer for everyone else. 7
 Letters The Economist January 2nd 2016 11

Changing gears The data you presented to Legitimacy at the polls tached to someone before I am
challenge the widely held comfortable having sex with
It is true that businesses need view that the speed of busi- Venezuela’s Bolivarian revolu- them” (December12th).
to make deliberate decisions ness is increasing are not con- tion was “resoundingly reject- RONALD MACAULAY
about clock speed, and there- vincing. The measures chosen, ed” in the recent parliamenta- Claremont, California
fore strategy, according to their such as years of job tenure, ry election, you say (“A
individual circumstances bond durations and length of democratic counter-revolu- Better than the primaries
(“The creed of speed”, Decem- shareholdings, merely capture tion”, December12th). Yet the
ber 5th). Research for our re- the churn of business, not its defeated party of President The qualities associated with
cent book, “Your Strategy speed. They capture how fast Nicolás Maduro got 41%. That strong leadership are well
Needs a Strategy”, showed that the engine of business is rev- was a larger share of the vote known. Potential business
competitive conditions overall ving, but not its velocity. than the 37% that the victo- leaders are often evaluated on
have accelerated in some For time-based competi- rious Conservatives gained in their verbal and non-verbal IQ,
important respects. For ex- tion, the critical measures of Britain’s election last May. communication skills, tem-
ample, the volatility of com- speed are the response time to JULIA BUXTON perament, physical fitness and
petitive rankings has increased customers and the devel- Professor of comparative politics health, and the ability to han-
several fold in many indus- opment time for new products Central European University dle stressful situations.
tries, and the five-year mortal- and services. In most indus- Budapest Rather than dwelling on the
ity rate for public corporations tries these dropped dramati- buffoonery of Republican
has increased from around 5% cally in the 1970s and 1980s. Rewarding whistleblowers candidates for president (“The
to over 30% in recent decades. JOSEPH BLACKBURN greatest show on earth”,
However, a more important Professor of operations Whistleblowing has increased December 5th), why not call
finding is that there has been a management, emeritus because of the success of for formal leadership testing?
marked divergence in compet- Vanderbilt University American whistleblower- Those who are likely to excel
itive conditions, requiring Nashville, Tennessee reward programmes (“The age will relish in brandishing their
companies to adopt very of the whistleblower”, Decem- credentials. Those who refuse
different approaches to strat- Invasive species ber 5th). These programmes testing would be branded
egy according to what they offer monetary awards, confi- cowards. Those who are tested
face. Although short-term Although eradicating invasive dentiality and job protection. and perform poorly would be
adaptive strategies are appro- species is indeed difficult In 2015 British regulators failed exposed and humiliated,
priate for some fast-moving, (“Day of the triffids”, Decem- to enhance their anti-fraud giving the voting public a
unpredictable businesses, ber 5th), the primary goal of efforts in the financial industry picture of their true calibre.
others will be best served by most management efforts is to when they decided against GOUTHAM RAO
more classical plan-based reduce their damage. In the introducing such incentives. Clinical associate professor
approaches. Furthermore, case of invasive brown tree My law firm has been contact- Pritzker School of Medicine
large companies will need to snakes on Guam, the eco- ed by dozens of people in University of Chicago
master the art of running nomic and ecological damage Britain hoping to participate in
strategies with different clock is clear. Only two of the 12 American whistleblower
speeds in different parts of native forest-bird species programmes.
their business. remain, $4m is lost a year in In instances where their
One might say that busi- productivity from the snakes claims did not fall under Amer-
nesses need not only an accel- electrocuting themselves on ican jurisdiction, every one of
erator pedal, but a gearbox too. power lines and one out of them chose to keep quiet
MARTIN REEVES 1,000 emergency-room visits is rather than contact British
Director from a snake bite. If the snakes regulators. Without the
BCG Henderson Institute were to colonise Hawaii, the potential for financial rewards,
New York estimated damage could be as not one was willing to risk his
high as $2 billion a year. livelihood by stepping
I am amazed that your leader It is important to note the forward.
(“Hyperactive, yet passive”, difference between exotic and In the financial world, it’s I was relieved to read of Nate
December 5th) cited length- invasive species. The latter all about risk versus benefit. Silver’s calculation that only
ening maturities of company cause great harm ecologically For whistleblowers, it’s the about 6-8% of the electorate—
bonds as evidence against and economically. But there same calculation. roughly equal to the propor-
corporate short-termism. are numerous exotic species, ERIKA KELTON tion who think the moon
Rather, that is evidence of such as rainbow trout, which Phillips & Cohen LLP landings were faked—really
companies locking-in histori- are not considered invasive. Washington, DC support Donald Trump.
cally low interest rates driven We agree that a knee-jerk Can I assume we are talking
down by governments’ mone- reaction to all exotic species is Plural sex about the same 6-8%?
tary policies. The proceeds of not the best policy. However, JOSEPH FRAZIER
this low-cost debt have been when an exotic species be- According to Dennis Baron’s Yachats, Oregon 7
used to repay high-cost debt, or comes injurious and its costs Web of Language Distin-
to fund share buy-backs, both high, investing in control mea- guished Usage Panel, singular
enhancing earnings per share sures is justified. “they” is the word of the year. Letters are welcome and should be
addressed to the Editor at
in the short term. This is hardly LARRY CLARK But I may not be the only The Economist, 25 St James’s Street,
value-creating for the economy Director one of your readers to be trou- London sw1A 1hg
at large. USDA National Wildlife Research bled by the ambiguity of a E-mail: [email protected]
FRANK KNOWLES Centre proposition in “Pot luck”: More letters are available at:
Economist.com/letters
Clavering, Essex Fort Collins, Colorado “I have to be closely at-
12
Executive Focus

The Economist January 2nd 2016

 Briefing Brazil’s crisis The Economist January 2nd 2016 13

After a “lost decade” of stagnation and hy-

Irredeemable? perinflation ended in the mid-1990s the
economy was knocked sideways by the
emerging-markets turmoil of 1997-98. In
the mid-2000s politics was beset by the
scandal of a bribes-for-votes scheme
known as the mensalão (“big monthly”, for
RIO DE JANEIRO
the size and schedule of the payments),
A former star of the emerging world faces a lost decade
which eventually saw Lula’s chief of staff

T HE longest recession in a century; the

biggest bribery scandal in history; the
most unpopular leader in living memory.
ting members of Congress, mostly from
the coalition led by her left-wing Workers’
Party (PT), are under investigation for ac-
jailed in 2013.
Yet rarely, if ever, have shocks both ex-
ternal and domestic, political and eco-
These are not the sort of records Brazil was cepting billions of dollars in bribes in ex- nomic, conspired as they do today. During
hoping to set in 2016, the year in which Rio change for padded contracts with the state- the original lost decade global conditions
de Janeiro hosts South America’s first-ever controlled oil-and-gas company, Petrobras. were relatively benign; in the crisis of the
Olympic games. When the games were On December 15th the police raided sever- late 1990s the tough measures to quell in-
awarded to Brazil in 2009 Luiz Inácio Lula al offices of the Party of the Brazilian flation and revive growth taken after Mr
da Silva, then president and in his pomp, Democratic Movement (PMDB), a partner Collor’s departure stood Brazil in moder-
pointed proudly to the ease with which a in Ms Rousseff’s coalition led by the vice- ately good stead; when scandal rocked the
booming Brazil had weathered the global president, Michel Temer. 2000s commodity markets were booming.
financial crisis. Now Lula’s handpicked Brazil’s electoral tribunal is investigat-
successor, Dilma Rousseff, who began her ing whether to annul Ms Rousseff’s re-elec- A sad convergence
second term in January 2015, presides over tion in 2014 over dodgy campaign dona- Now prices of Brazilian commodities such
an unprecedented roster of calamities. tions. In December members of Congress as oil, iron ore and soya have slumped: a
By the end of 2016 Brazil’s economy began debating her impeachment. The Brazilian commodities index compiled by
may be 8% smaller than it was in the first proceedings were launched by the speaker Credit Suisse, a bank, has fallen by 41%
quarter of 2014, when it last saw growth; of the lower house, Eduardo Cunha (who since its peak in 2011. The commodities
GDP per person could be down by a fifth though part of the PMDB considers himself bust has hit economies around the world,
since its peak in 2010, which is not as bad as in opposition) on the grounds that Ms but Brazil has fared particularly badly, with
the situation in Greece, but not far off. Two Rousseff tampered with public accounts to its structural weaknesses—poor productiv-
ratings agencies have demoted Brazilian hide the true size of the budgetary hole. ity and unaffordable, misdirected public
debt to junkstatus. Joaquim Levy, who was Some see the impeachment as a way to di- spending—exacerbating the damage. Re-
appointed as finance minister last January vert attention from Mr Cunha’s own pro- gardless of what she may or may not have
with a mandate to cut the deficit, quit in blems; Brazil’s chief prosecutor wants him done with respect to the impeachment
December. Any country where it is hard to stripped of his privileged position so that charge, Ms Rousseff’s cardinal sin is her
tell the difference between the inflation his role in the Petrobras affair can be inves- failure to have confronted these problems
rate—which has edged into double digits— tigated more freely. Mr Cunha denies any in her previous term, when she had some
and the president’s approval rating—cur- wrongdoing. political room for manoeuvre. Instead, that
rently 12%, having dipped into single fig- Brazil is no stranger to crises. Following term was marked by loose fiscal and mon-
ures—has serious problems. the end of two decades of military rule in etary policies, incessant microeconomic
Ms Rousseff’s political woes are as crip- 1985, the first directly elected president, Fer- meddling and fickle policymaking that
pling as her economic ones. Thirty-two sit- nando Collor, was impeached in 1992. bloated the budget, stoked inflation and 1
14 Briefing Brazil’s crisis The Economist January 2nd 2016

2 sapped confidence. of Insper, a university in São Paulo. But not

Poor though her record has been, some Deteriorating much more: perhaps a year or two.
of these problems have deeper roots in Brazil Despite this pressing economic need for
what is in some ways a great achievement: Federal government*, as % of GDP speed there seems to be no political capaci-
20 ty for it. Members of Congress are con-
the federal constitution of 1988, which en-
Revenues
shrined the transition from military to sumed by Ms Rousseff’s impeachment. By
18
democratic rule. This 70,000-word door- February they must decide whether to
stop of a document crams in as many so- send her case to the Senate, which would
16
cial, political and economic rights as its require the votes of three-fifths of the 513
Spending
drafters could dream up, some of them deputies in the lower house. To fend off
14
highly specific: a 44-hour working week; a such a decision Ms Rousseff is rallying her
retirement age of 65 for men and 60 for 12 left-wing, anti-austerity base.
women. The “purchasing power” of bene- † ‡
fits “shall be preserved”, it proclaims, creat- 1998 00 2002 04 06 08 10 12 14 16 Gently doesn’t always do it
ing a powerful ratchet on public spending. These efforts are meeting with some suc-
Since the constitution’s enactment, fed- As % of GDP cess: in December pro-government rallies
eral outlays have nearly doubled to 18% of 10 drew more people than anti-government
Interest payments
GDP; total public spending is over 40%. ones for the first time all year. It looks un-
5
Some 90% of the federal budget is ring- + likely that the impeachment will indeed
fenced either by the constitution or by leg- Primary balance move to the Senate (which would trigger a
0
islation. Constitutionally protected pen- – further six months of turmoil). But this
sions alone now swallow 11.6% of GDP, a 5 hardly provides a political climate condu-
higher proportion than in Japan, whose Budget deficit cive to belt-tightening, let alone to the
citizens are a great deal older. By 2014 the 10 amendment of the constitution which Mr
government was running a primary deficit † Barbosa has said is needed to deal with the
15
(ie, before interest payments) of 32.5 billion 1998 00 2002 04 06 08 10 12 15 ratchet effect on benefits. Fiscal adjustment
reais ($13.9 billion) (see chart). Sources: Codace; *Excludes interest payments and is anathema to the government workers
Mr Levy tried to live up to the nickname IBRE/FGV; Economist transfers to states and municipalities
†Estimate ‡Forecast
and union members who are Ms Rous-
Intelligence Unit
he had earned during an earlier stint as a seff’s core supporters.
treasury official—“Scissorhands”—with re- Like the country’s economic problems,
cord-breaking cuts of 70 billion reais from twice that of Greece. its political ones, while specific to today’s
discretionary spending. But Mansueto Al- Unable to increase taxes, Ms Rousseff’s particular scandals and manoeuvring, can
meida, a public-finance expert, points out government may prefer something even be traced to the transition of the 1980s. His-
that this work was more than countered by more troubling to investors and consum- tory reveals a consistent tendency towards
constitutionally mandated spending in- ers alike: inflation. Faced with the infla- negotiated consensus at Brazil’s political
creases; government expenditure as a tionary pressure that has come with the watersheds; it can be seen in the war- and
share of output rose in 2015. On top of that, devalued real, the Central Bank has held its regicide-free independence declared in
a new scrupulousness in government ac- nerve, increasing its benchmark rate by 1822, the military coup of 1964, which was
counting surely not unrelated to the im- three percentage points since October 2014 mild compared with the blood-soaked af-
peachment proceedings has seen 57 billion and keeping it at 14.25% since July in the fairs in Chile and Argentina, and the transi-
reais in unpaid bills from years past newly face of the recession. But despite this juicy tion that created the new constitution. One
recognised by the treasury. rate the real continues to depreciate. aspect of this often admirable trait is a re-
Nor could Mr Levy easily fill the fiscal There is a worry that the bank may be sistance to purging. The mid-1980s saw a
hole by raising taxes. Taxes already con- unable to raise rates further for fear of mak- lot of institutions—the federal police, the
sume 36% of GDP, up from a quarter in 1991. ing public debt unmanageable—what is public prosecutor’s office, the judiciary, as-
And the recession has hit tax receipts hard. known as “fiscal dominance”. This year sorted regulators—overhauled or created
On December18th, days after Fitch, a rating the treasury spent around 7% of GDP ser- afresh. But many of the old regime kept
agency, followed the lead of Standard & vicing public debt. What is more, raising their jobs in the civil service and else-
Poor’s in downgrading Brazilian debt, Mr rates may have the perverse effect of stok- where. The transition was thus bound to
Levy threw in the towel. His job went to ing inflation rather than quenching it; an be a generational affair.
Nelson Barbosa, previously the planning increasing risk of default as borrowing So it is now proving, with a retiring old
minister, who insists he is committed to costs grow is likely to see investors dump- guard being replaced by fresh blood often
following the same policies. But before his ing government bonds, provoking further educated abroad. In 2013 the average judge
elevation Mr Barbosa made no secret of fa- currency depreciation. was 45 years old, meaning he entered uni-
vouring a more gradual fiscal adjustment— A handful of economists, including versity in a democratic Brazil. Civil ser-
for example, a primary surplus of 0.5% of Monica de Bolle of the Peterson Institute vants are getting younger and better quali-
GDP in 2016, against Mr Levy’s preferred for International Economics, believe that fied, says Gleisson Rubin, who heads the
0.7% (and an original promise of 2% a year Brazil is on the verge of fiscal dominance. National School of Public Administration.
ago). The real and the São Paulo stockmark- And once interest rates no longer have a More than a quarter now boast a postgrad-
et tumbled on news of his appointment. hold on inflation, she says, it can quickly uate degree, up from a tenth in 2002. Sérgio
Analysts at Barclays, a bank, expect spiral out of control. Forecasts by Credit Moro, the crusading 43-year-old federal
debt to reach 93% of GDP by 2019; among Suisse warn that prices could be rising by judge who oversees the Petrobras investi-
big emerging markets only Ukraine and 17% in 2017. Three-quarters of government gations, and Deltan Dallagnol, the case’s
Hungary are more indebted. The figure spending remains linked to the price level, 35-year-old lead prosecutor, are the most
may still seem on the safe side compared embedding past inflation in future prices. famous faces of this new generation.
with 197% in Greece or 246% in Japan. But That said, the economy as a whole is much Unfortunately, this rejuvenation does
those are rich countries; Brazil is not. As a less indexed than it was in the hyperinfla- not extend to the institution most in need
proportion of its wealth Brazil’s public tionary early1990s. That leaves the govern- of it: Congress. Its younger faces typically
debt is higher than that of Japan and nearly ment a bit more time, thinks Marcos Lisboa have family ties to the old guard. “Party 1
 The Economist January 2nd 2016 Briefing Brazil’s crisis 15

2 politics is a market for lemons,” says Fer- they just about can. They forecast a “mud- rency terms and remains a worry. But
nando Haddad, the fresh-faced PT mayor dling-through” in which Ms Rousseff holds much of it is hedged through the firms’
of São Paulo and a rare exception to the dy- on to her job, Congress passes a few mod- own dollar revenues or with swaps—
nastic rule, nodding to George Akerlof’s est spending cuts and tax rises, including a though settling some of those swaps has
classic analysis of adverse selection in the financial-transactions levy, the Central cost the government, which sold them,
market for used cars: it attracts the venal Bank continues to fight inflation, the cheap some 2% of GDP this year.
and repels the honest. Consultants who real boosts exports and investors don’t The sardonic Mr Lisboa observes with
have advised consecutive Congresses panic. After three years of this, the theory uncharacteristic optimism that “at last peo-
agree that each one is feebler than the last. goes, an electorate fed up with stagnation ple are talking seriously about Brazil’s
Brazilians have noticed the decline, and and sleaze will give the PSDB a clear man- structural problems”. Fiscal dominance
are transferring their hopes accordingly. date for change. Ms Rousseff narrowly de- has left arcane discussions among eco-
“Judges and prosecutors are becoming feated the party’s candidate in 2014 by de- nomic theorists and burst onto newspaper
more legitimate representatives of the Bra- riding his calls for prudence as heartless columns. Mr Barbosa is openly discussing
zilian people than politicians,” says Nor- “neoliberalism”, only to propose a similar pension reform and the constitutional
man Gall of the Braudel Institute, a think- agenda (through gritted teeth) immediate- change that would have to go with it. In
tank in São Paulo. Everyone wants a selfie ly after winning. If proposed by a PSDB in October the PMDB, which tends to lag be-
with Mr Moro and, disturbingly, nearly power that actually believed in them, such hind public opinion more than to lead it,
half of Brazilians think that military inter- measures might receive cross-party sup- published a manifesto that talked about
vention is justified to combat corruption, port—though given the PSDB’s spiteful un- privatising state businesses and raising the
according to a recent poll. Barely one in five willingness to support Mr Levy’s measures retirement age. Even the famously stub-
trusts legislators; just 29% identify with a in 2015 this would not be without irony. born Ms Rousseff has begun to listen rath-
political party. Such a scenario is possible. Figures for er than to hector, says a foreign economic
the third quarter of 2015 show exports pick- dignitary who met her recently.
Monthly, oily, deeply ing up. Price rises could slow down as But the fact that muddling through may
That last fact is perhaps particularly im- steep increases in government-controlled be possible does not mean it is assured. It
pressive given that they have so many par- prices for petrol and electricity put in place hinges on the hope that politicians come to
ties to choose from. Keen to promote plu- in 2015 run their course. Politicians and their senses more quickly than they have
ralism the constitution’s framers set no policymakers are keenly aware that Brazil- done in the past (witness the lost decade
national cut-off below which a party’s ians are less tolerant of inflation than in the begun in the 1980s). It also assumes that
votes would not count. It is possible to get 1980s and 1990s, when rates of 10% would Brazil’s penchant for consensus will hold
into Congress with less than 1% of the vote: have seemed mild. its people back from social unrest on the
in principle, it could be done with 0.02%. Investors are staying put, at least in ag- sort of scale that topples regimes in other
As a result the number of parties has gregate. Yield-hungry asset managers are countries. The anti-government protests of
grown from a dozen in 1990 to 28 today. taking the place of pension and mutual 2015 were large, drawing up to a million
The three biggest—the PT, the PMDB and funds that left in anticipation of Brazil’s in- people in a single day. But they were mid-
the opposition centre-right Party of Brazil- evitable demotion to junk status. The real dle-class affairs which took place on spo-
ian Social Democracy (PSDB)—together ac- has fallen 31% since the start of 2015 and the radic Sundays, causing Ms Rousseff more
count for just 182 of 513 seats in the lower stockmarket is down by 12.4%; but though annoyance than grief. As wages sag and
house and 42 out of 81 senators. battered they are not knocked flat. The unemployment rises, though, tempers
One of the causes of the mensalão scan- banking system is well capitalised and, ob- could flare. If they do there will be every
dal was corruption that provided Lula’s servers agree, diligently monitored by the chance of a facile populist response that
government with a way to get the votes it Central Bank. The $250 billion in foreign- does even deeper economic damage.
needed from the disparate small parties. denominated debt racked up by Brazilian Should Ms Rousseff be booted out—
The petrolão (“big oily”, as the Petrobras af- companies during the commodity-price- through impeachment, annulment of the
fair is widely known) apparently shared a fuelled binge has ballooned in local-cur- election or coerced resignation (none of
similar aim. Such ruses may have helped which looks likely just now)—chaos would
PT governments pass some good laws, surely ensue. Her core supporters may be
such as an extension of the successful less numerous than they once were, but
Bolsa Família (family fund) cash-transfer she has many more than Mr Collor had in
programme. But the party was not able to 1992. They would close ranks against the
do all that it had said it would; potentially “coup-mongers”.
helpful reforms in which it was less invest- The strength of Brazil’s institutions sug-
ed fell by the wayside. Raphael Di Cunto of gests something shy of the failed populist
Pinheiro Neto, a big law firm in São Paulo, experiments of some South American
points to many antiquated statutes in need neighbours. And the fact that voters in Ar-
of an update, such as the Mussolini-in- gentina and Venezuela rebuffed that popu-
spired labour code (from 1943) and laws go- lism in the past few months has not es-
verning foreign investments (1962) and caped the notice of Brazil’s politicians. But
capital markets (1974). every month of dithering and every new
A Congress in which dysfunction feeds petrolão revelation chips away at Brazil’s
corruption which feeds further dysfunc- prospects. The 2010s are already certain to
tion is not one likely to take the hard deci- be another lost decade; GDP per person
sions that the economy needs. But this is won’t rebound for years to come.
the Congress Brazil has: though there will It will be a long time before a president
be local elections in October 2016, congres- can match the pride with which Lula
sional elections, like the next presidential showed off his Olympic trophy. But if Bra-
poll, are not due until 2018. Can Brazil’s zil’s politicians get their act together, the
public finances hold out that long? 2020s could be cheerier. Alas, if they do
Many prominent economists think not, things will get a great deal worse. 7
 United States The Economist January 2nd 2016 17

Also in this section

18 Race on campus
19 Policing and technology
22 Predicting 2016
23 Lexington: Pat Buchanan’s lessons
for Donald Trump

For daily analysis and debate on America, visit

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

Republican tax plans ing economists. One thing keeping the

plan on the shelf is that Mr Bush lags be-
Indecent disclosure hind in the polls. But thanks to its detail—
and the scrutiny poured on it as a result—it
is a useful benchmark.
Mr Bush rightly wants to reduce the
number of income tax bands, to three. In
doing so, though, he calls for a whopping
WASHINGTON, DC
reduction in the top rate of income tax to
The Republican candidates’ tax proposals are exorbitant
28%, from 39.6% today. Mr Bush would

A SK Republicans how best to reform tax-

es, and they will inevitably mention
Ronald Reagan. In 1986 the Gipper slashed
and your marginal tax rate ends up at 38%.
Load up on risky debt and the rate plum-
mets—in fact, you will benefit from a 6%
slash the corporate tax rate to 20% and all
but abolish the tax incentive to borrow. To-
day, if a firm buys a new computer or piece
levies on earnings; the highest income-tax subsidy. Across industries, average tax of machinery, it can knock the cost off its
rate tumbled from 50% to 28%. At the same rates range from 40% for making software tax bill only incrementally as the new
time, Reagan simplified taxes by closing to 15% for building mineshafts. The World equipment loses value; but under Mr
loopholes and killing off exemptions. To- Bank and PricewaterhouseCoopers, an ac- Bush’s plan it could deduct the full cost up-
day’s Republican presidential contenders counting firm, ranks America’s tax system front. That should encourage investment.
would dearly love to repeat the trick. But 53rd in the world, wedged between Jordan The plan is hugely expensive. Before ac-
they have given up a key ingredient in the and Vanuatu. It takes American businesses counting for its economic effects, it would
recipe. The 1986 reform cost nothing, main- 87 hours, on average, to pay their taxes; in cost $6.8 trillion, or 2.6% of GDP, over a de-
ly because taxes on businesses went up. In France it takes just 26 hours. cade, according to the Urban-Brookings
starkcontrast, today’s Republican tax plans Tax reform, then, is essential, and Re- Tax Policy Centre, a think-tank. About two-
are jaw-droppingly expensive. publicans have embraced the cause. thirds of the bill comes from income-tax
American taxes are a mess. There are Among the presidential candidates, Jeb cuts. Cuts for high-earners are costly, be-
seven different rates of federal income tax, Bush has proposed the most detailed plan, cause the highest-earning 1%—who would
up from three after Reagan’s reform (in and is cheered on by a crew of right-lean- see a 12% increase in after-tax income un- 1
Canada there are four; in Britain, three).
Endless exemptions and deductions cost
just over 7% of GDP. These distort incen- Laffer patter
tives and benefit mainly richer folk, but are Republican candidates’ tax proposals, %
hard to keep track of because their cost Top rate of tax on: income capital gains dividends Standard deduction, $
stays off the government’s books. Filling in Jeb Bush 28* 20 20 11,300
tax returns takes the average non-business Donald Trump 25† 20 20 25,000
filer eight hours and costs $110 every year. Marco Rubio 35† nil nil na‡
By one recent estimate, the inconvenience Ted Cruz (flat tax) 10 10 10 10,000
costs of filing add up to 1.3% of GDP.
Business taxes are no better. At 39%, the Percentage increase in after-tax income in 2025 under the tax plans of:
tax on corporate profits is the highest in the By income
quintile Poorest 2nd 3rd 4th Richest of which: top 1% top 0.1%
OECD. In reality, businesses pay less be- Jeb Bush 1.4 1.8 2.5 2.5 5.8 11.9 13.0
cause of a whirlwind of incentive-distort-
Donald Trump 1.1 3.1 4.9 5.2 9.5 17.6 18.3
ing exemptions. Want to invest in Ameri- †On income over $150,000 ‡Replaced by $2,000 tax credit
Sources: Tax Foundation; Tax Policy Centre *On income over $85,750
ca? Issue shares to finance your project,
18 United States The Economist January 2nd 2016

2 der the plan—produce almost half of in- Done right, reforming and simplifying There is better evidence that tax cuts for
come-tax revenues. By 2026 the $715 billion taxes would boost growth. Yet the gargan- businesses help the economy. But that
annual cost of the plan exceeds the project- tuan cost of the plans comes from tax cuts does not mean they would pay for them-
ed budget for national defence. for high earners, and the evidence that selves—as Mr Trump suggests—or make up
The plan would wrench on purse- these help the economy is patchy. Cru- for expensive giveaways elsewhere. The
strings that are already stretched. By 2025 cially, whether tax cuts boost growth de- best evidence suggests that taxes on divi-
government health-care and pensions pro- pends on how they are paid for. If they dends, which Mr Rubio would abolish,
grammes will have nearly 60% more bene- cause deficits to gape larger, tax cuts will have no effect at all on investment. More
ficiaries than in 2007. Mr Bush, like most weigh on growth rather than support it, by than most proposals, Republican tax plans
Republicans, wants to increase rather than gradually pushing up interest rates. are articles of faith. 7
cut defence spending. And non-defence
day-to-day spending has already been
slashed by 22% in real terms since 2010. Race on campus
Mr Bush’s plan, then, looks unachiev-
able. Incredibly, though, it is one of the
most modest in the pack. Donald Trump,
Of slavery and swastikas
who tops opinion polls, wants to cut in-
come taxes still further; under his plan, the
top rate of tax falls to 25%. Whereas Mr
Bush would nearly double the standard
COLUMBIA, MISSOURI
deduction, the amount that can be earned
The University of Missouri’s efforts to placate protesters have created a backlash
before paying income tax Mr Trump
would quadruple it. The Donald would cut
business taxes more aggressively, too.
Though he talks about raising taxes on
W ISHING for his death “in a fiery car
accident” was only one of many
messages directed at Chuck Henson when
African-Americans both with other stu-
dents, and with the overwhelmingly
white faculty, have frequently been un-
hedge-fund managers by removing the he became the University of Missouri’s easy. Anger boiled over in November, lead-
“carried interest” provision, Mr Trump’s new interim vice-chancellor for inclusion, ing to the resignation of Tim Wolfe, the uni-
cuts to income tax are so deep that the pro- diversity and equity. Mr Henson does not versity’s president and chancellor, after
vision barely matters. In all, reckons the follow social media, but his wife does. Re- weeks of protests by students outraged by
Tax Policy Centre, Mr Trump’s plan is al- cently she agreed to stop reading the death what they saw as Mr Wolfe’s failure to deal
most 40% more expensive than Mr Bush’s. threats and other missives intended for her with racism on campus.
husband, and instead to help him focus on Offensive incidents last year included a
Must be funny his task, which is to end the racial turmoil swastika smeared with faeces on the wall
Where to look for realism? Marco Rubio of- that has made the university the centre of a of a dormitory bathroom and racial epi-
fers more modest income-tax cuts, but nationwide campus protest movement thets hurled at black students, including
would eliminate most taxes on capital over race for the past three months. Payton Head, the president of the student
gains and company dividend payments. “We have a unique history and we have body. Cynthia Frisby, a member of faculty,
Many economists view these taxes as inef- a unique problem,” says Mr Henson, a law recounted in a Facebook post how, when
ficient. Yet capital is mostly the preserve of professor. Missouri was a slave state until jogging along a road, a white man in a lorry
the well-off: only a fifth of adults who earn 1865; its first public university was founded flying the Confederate flag stopped, spat at
less than $30,000 tell pollsters they have in 1839 by James Rollins, an owner of her, delivered racist abuse, gave her the fin-
stockmarket investments, compared with slaves. It first admitted black students only ger and drove off. “I have been called the N-
nearly nine in ten who earn more than in 1950 (Yale’s first black student graduated word too many times to count”, she wrote,
$75,000. Citizens for Tax Justice, an advoca- in 1857, Harvard’s in 1870). The relations of including, she says, by other members of1
cy group, reckons Mr Rubio’s plan would
make the pockets of the top 1% of earners
bulge more than Mr Bush’s would.
Ted Cruz has the boldest plan. The Tex-
an senator promises to replace all income
taxes—including payroll taxes which fund
Social Security and Medicare payments—
with a10% flat tax. Business taxes would be
replaced with a value-added tax of 16%.
This plan is roughly as expensive as the
Bush plan, before accounting for its eco-
nomic effects, according to the Tax Founda-
tion, a right-leaning think tank. But it
would be still more generous to the highest
earners, as value-added taxes are less pro-
gressive than income tax.
The candidates all say their plans will
increase economic growth, boosting tax-
revenues and dramatically bringing down
costs. Mr Bush’s cheerleaders say his plan
will add 0.5 percentage points to growth
each year, knocking two-thirds off the so-
called “static” cost. Mr Trump claims—with
a straight face—that his plan is revenue-
neutral. Where intersextionality meets microaggressive adultism
 The Economist January 2nd 2016 United States 19

2 faculty. The student protests gained mo-

Rating police officers
mentum when Jonathan Butler, a graduate
student, staged a hunger strike to force Mr
Wolfe to resign. Yet the turning point was Revenge of the nerds
the announcement by members of the
ATLANTA
football team that they would not play or
How one family of high-school students is policing the cops
practise and boycott a game against
Brigham Young University (BYU) unless
Mr Wolfe stepped down. The footballers’
boycott of the game would have cost the
T HE Christian siblings were doing
their homework when the police
arrived. Two officers entered the house,
iPhones. The long-term plan is to include
Britain, Brazil, Canada and Russia, mak-
ing Five-O, as Asha puts it, “a global re-
university around $1m. guns drawn, pursuing what was evident- pository of unbiased police data”.
Mr Wolfe was replaced as president of ly a prank tip-off about a captive being That is an ambitious goal for teenagers
the university, temporarily, by Michael held at their address. The guns stayed out who mostly taught themselves to code.
Middleton, a long-standing member of the even when the mistake became appar- (Their parents used to work for an in-
law faculty and graduate of the university, ent. The officers ran the details of the ternet start-up and, Caleb recalls, noticed
who founded its Legion of Black Colle- children’s father—who, like them, is youngsters “getting paid insane amounts
gians in 1968. Mr Middleton promises to black—through the police system on the of money” for programming.) In 2016
meet all the demands of “Concerned Stu- off-chance of turning something up. they aim to launch another app through
dent 1950”, the group of black students The family was traumatised. The their firm, Pinetart Inc: this one, Coily, lets
leading the protests, which include the cre- incident, in 2013, brought home to Ima women rate hair-care products, and so
ation of a “comprehensive racial aware- Christian, now 18, that Americans could avoid shower-stall accumulations of
ness and inclusion curriculum” and an in- be vulnerable to rough policing “no half-empty bottles. Studies permitting,
crease in black members of faculty to 10% matter where you live, or who you are”; that is. Ima is a freshman at Stanford
from around 3%. Mr Middleton cautions, her sister Asha, who is 16, says it is “not University; Asha—who is finishing high
however, that some demands will be until you are face to face with an officer school online, to free up time for en-
tricky to meet by the deadline the student that you realise what the deal is.” The terprise—hopes to join her or go to Co-
group proposes, adding that he will ex- sisters—from Stone Mountain, just out- lumbia. “I’m very proud of them,” says
plain why. side Atlanta—didn’t get even, exactly. their mother Karen.
Mr Middleton insists that racism at the Instead, with their brother Caleb (now
University of Missouri, nicknamed Miz- 15), they developed an app, called Five-O,
zou, is no worse than at other big universi- intended to help improve police behav-
ties. He calls the often inadvertent “micro- iour and community relations. It lets
aggressions” against minority students a citizens rate their experiences with offi-
“national problem” that is embedded in cers, record both parties’ race and sex and
American history, and adds: “We are the the purpose of the interaction, and find
first in finding effective solutions.” So far aggregate scores for county forces.
that has meant a clean-out of the universi- Five-O (a slang term for cops) was
ty’s leadership. Seven temporary officials, launched in 2014, but will get a boost this
in addition to Mr Middleton, are now run- spring from the €20,000 ($22,000) prize
ning the university, including Mr Henson it won at an international contest for
and Hank Foley, Mizzou’s new interim justice-related initiatives, organised by a
chancellor. think-tank in the Netherlands. The mon-
Yet while the university is making ey will go towards marketing the tool in
changes, the student protests have also set Baltimore and Chicago. Attracting input
off a different kind of reaction. Kurt Bahr, a from broad cross-sections of such com-
Republican state representative, says some munities is one of the ways the Chris-
of his constituents have told him that they tians believe they can neutralise an obvi-
regret attending Mizzou and do not want ous potential bias—ie, that the ratings will
their children to go there, because they do be skewed by the aggrieved, legitimate as
not trust the new leadership of the univer- those grievances may sometimes be.
sity. One of his constituents even said that That composite picture, combining good
he feared for the safety of his daughter on and bad feedback, is, they reckon, one of
campus thanks to the “instability” there. the ways their product differs from other
Mr Bahr co-sponsored a bill in Decem- police-related apps, which concentrate
ber that would strip scholarships from any on uploading video. They also want to
athlete who “calls, incites, supports or par- extend its availability from Android to Steve McGarrett, awaiting feedback
ticipates in any strike”, and would require
colleges and universities to fine coaching
staff who encourage them. The bill has our university system?” he asks. spect for all minority groups. It includes
been withdrawn since because its author, The backlash against the changes at terms such as “adultism” (prejudice against
Rick Brattin, another Republican state law- Mizzou is likely to continue, led by self- the young), “minoritised” (when under-
maker, realised that the state could not styled defenders of the First Amendment represented groups are made to feel inferi-
mandate the revocation of privately fund- (which protects free speech). Yet the First or) and intersextionality (obscure). Some
ed athletic scholarships such as the foot- Amendment does not give people a free will see this stuff as movement in the right
ball scholarships at Mizzou. But Mr Bahr pass to go round saying hateful things, direction. But it is also likely to increase the
insists that the proposed bill “made its points out Mr Henson. To help students ire of those who watched the protests and
point”, which is that a strike is not a good and faculty realise this, Mizzou has devel- thought they saw a group of privileged col-
way to cope with a possible systemic pro- oped a new guide to “inclusive terminol- lege students complaining about how ter-
blem. “Are we promoting anarchy within ogy” which ensures a healthy level of re- rible their lot is. 7
22 United States The Economist January 2nd 2016

Election forecasting ulty could wager modest sums on the up-

coming general election.  Four years later,
Prediction 2016 America’s Commodity Futures Trading
Commission (CFTC) authorised the Iowa
Electronic Markets to take money from the
public because they were at heart an aca-
demic enterprise, though the regulators
capped bets at $500 to prevent speculation
NEW YORK
with meaningful sums.
How Jesse Jackson inadvertently revived political betting
For the next 20 years the IEM consistent-

I F YOU believed the pollsters, America’s

2012 presidential election looked like a
nail-biter. Most national surveys had Mitt
gest survey, which relied on readers mail-
ing in postcards, had over-sampled the
well-off and called the election for the Re-
ly out-performed polls in various execu-
tive, legislative, national and local elec-
tions in a dozen different countries. But the
Romney and Barack Obama tied; Gallup, publican Alf Landon, while Gallup accu- logistical difficulty of placing bets on the
the country’s oldest scientific polling out- rately predicted an easy victory for the in- exchange (particularly before internet ac-
fit, had the challenger ahead, 49% to 48%. cumbent, Franklin Roosevelt. Punters were cess became widespread), along with the
When the votes were counted, however, not fooled by the Digest’s “poll”, and also low wagering ceiling, limited it to trivial
Mr Obama won by four percentage points. forecast that Roosevelt would win. But the volumes of a few hundred thousand dol-
To many political pundits, as to Mr Rom- dawn of scientific polling made gambling lars a year. It was not until 2008, after the
ney, Mr Obama’s margin of victory came odds look amateurish, and allowed news- internet had globalised both information
as a shock. Among bettors, however, it papers to publish campaign updates with- and financial flows, that pre-war predic-
barely elicited a shrug: prediction markets, out having to cite markets of dubious legal- tion markets found a worthy heir.
in which punters wager on the outcomes ity and (in their view) morality. During the 2004 presidential campaign
of elections, had always considered the in- Nonetheless, the markets might have an Irish sports-betting site called Intrade
cumbent a heavy favourite. An Irish book- soldiered on had history not conspired started taking bets without the low limits
maker, Paddy Power, was so confident of against them. The industry was centred in ofthe IEM. Even though credit-card compa-
his chances that it paid out £400,000 New York, and during the second world nies in America would not process depos-
($640,000) two days before the election to its to the site, punters flocked to it. A whop-
people who had bet on Mr Obama. Will ping $230m was wagered on the 2012
this trick be repeated in 2016? Revival election—an even greater sum in constant
Though now a fringe asset class, predic- Articles in major US newspapers* dollars than on the Hughes-Wilson contest
tion markets are in fact among the oldest containing selected phrases of 1916. And like its predecessors, Intrade
exchanges in America. In the 1820s promi- “election bet” or “prediction market” or “Intrade” was deadly accurate. Its markets correctly
“election betting” or “PredictIt” or “PredictWise”
nent supporters of candidates frequently 120 predicted the results of 47 of the 50 states in
offered public wagers on them as a demon- 100
the election of 2008, and 49 of 50 in 2012.
stration of their conviction. Punters who But just like the street-corner action of
80
could not afford to pony up cash would the 1930s, Intrade soon came under legal
compensate with offers of public humilia- 60 scrutiny. In November 2012 the CFTC or-
tion: one common wager made losers trun- 40 dered the site to stop offering contracts on
dle winners around in a wheelbarrow; an- 20 the price of goods under the agency’s over-
other required them to roll peanuts up and 0 sight, such as oil and gold. Four months lat-
down streets with toothpicks. Some losers 1860 1900 50 2000 15 er, the risks of investing in Intrade’s unreg-
had to eat real crow. Sources: News clips; *New York Times, Washington Post ulated marketplace were laid bare when
The Economist and Wall Street Journal
Half a century later, these expressions the site abruptly shut down after it dipped
of bravado had evolved into semi-formal into its clients’ funds to transfer money to
financial markets. Trading volume began war Fiorello La Guardia, the city’s mayor, its late founder. It took months for account-
to approach that of actual shares: in 1916 launched a crackdown on unauthorised holders to be made whole. The site’s un-
$10m ($218m in current dollars) was wa- gambling. His raids drove political book- timely demise provided fresh ammunition
gered on the photo-finish race between makers deep underground or out of town. for those who regard prediction markets as
Woodrow Wilson and Charles Hughes. At the same time, competing forms of wa- unsavoury speculation.
The markets were wrong that year, predict- gering began to offer alluring substitutes. The collapse of Intrade did not annihi-
ing a win for Hughes. But in 11 of 12 elec- In 1939 the state legalised betting on horse late prediction markets, though. The IEM is
tions between 1884 and 1940 when bettors races, allowing punters to slake their thirst alive and well, and in late 2014 PredictIt, an
had identified a clear favourite by mid-Oc- for action dozens oftimes a day rather than online exchange sponsored by Victoria
tober they were vindicated, despite operat- once every four years, without any risk University of Wellington in New Zealand,
ing in an era without any reliable polling. that a bookie would fail to pay out. entered the fray with an $850 wager cap
Newspapers diligently reported presiden- By the late 1940s, what was once an and official authorisation from the CFTC.
tial betting odds: according to Paul Rhode eight-figure marketplace had all but van- But these operations still fall far short of re-
and Koleman Strumpf, the economists ished. Electoral betting would not make a alising prediction markets’ full potential.
who unearthed the records of these mar- comeback until 1988, when Jesse Jackson Their low betting limits prevent investors
kets, the press published prices five days a defied expectations to win Michigan’s with extremely valuable information—say,
week in the month before an election. Democratic presidential primary. His vic- a looming scandal—from cashing in on the
The death knell for the electoral mar- tory highlighted how unreliable polls value of their knowledge and incorporat-
kets of yesteryear sounded in 1936, when could be, and led a group of professors at ing it into the market price.
George Gallup of the American Institute of the University of Iowa to hunt for an alter- At the time of writing, PredictIt reckons
Public Opinion stationed pollsters on native. Though unaware of prediction that the fight for the Republican nomina-
street corners and asked passers-by whom markets’ pre-war history, they reinvented tion is between Ted Cruz and Marco Rubio,
they would vote for, thus obtaining a ran- the idea by setting up an “Iowa Political and that Hillary Clinton has a 54% chance
dom sample. The well-known Literary Di- Stock Market”, in which students and fac- of becoming the next president. 7
 The Economist January 2nd 2016 United States 23

Lexington Pitchfork politics

A pioneer of Trump-style populism wonders if it can succeed in today’s America

with Trump”. Asked about the slogan’s Nixonian overtones by
the Washington Post, Mr Trump denied the connection, scoffing:
“Nah. Nobody remembers that.”
Speaking in his home in northern Virginia, Mr Buchanan does
not grumble about Mr Trump’s swiping of his phrase. He is too in-
terested in a new question of political timing. As a candidate, he
was less successful than as an adviser. His high point was his win
in the 1996 New Hampshire primary, after a populist surge that
saw him declare: “The peasants are coming with pitchforks.” A
full-size silver pitchfork (a gift from campaign aides) hangs in his
wood-panelled study, alongside a souvenir mug that asks: “What
would Nixon Do?”
Back in the 1990s moderate Republicans agreed that Candi-
date Buchanan was doomed by his ferocious opposition to abor-
tion, homosexuality and feminism: in 1992 he told his party’s na-
tional convention that America faced a “cultural war”. He also
caused alarm with intemperate talk about Israel’s clout in Wash-
ington. Today, though, he argues that his timing was off when it
came to three big issues: immigration, globalisation and non-in-
terventionism. “Those issues are mature now,” says Mr Buchan-
an, rattling off statistics on undocumented immigrants in Ameri-

B EFORE Donald Trump, there was Patrick Buchanan. More

than two decades before Mr Trump kicked over the Republi-
can tea table, Mr Buchanan, a former speechwriter and White
ca (their numbers have more than tripled since 1991) and factory
closures since such pacts as the North American Free Trade
Agreement (NAFTA) was signed. At 77, Mr Buchanan writes news-
House aide to Presidents Richard Nixon and Ronald Reagan, paper columns and is a frequent public speaker. He reports that
launched his own revolt against Republican grandees. He made people “constantly” voice the same complaint to him: “This isn’t
bids for the Republican presidential nomination in 1992 and 1996, the country I grew up in.” He lists reasons why he thinks they are
the first of which challenged a sitting president, George H.W. right: immigrants have reached even small communities, factory
Bush. Like his billionaire successor, Mr Buchanan ran against free jobs have vanished and interventionist wars launched by George
trade and called for restrictions on immigration. As early as 1991 W. Bush left Americans “with ashes in our mouths”.
he called for a fence on the border with Mexico (talk of a “great, Mr Buchanan was called a fringe candidate, a protectionist
great” wall would have to wait for Mr Trump). and an isolationist in the style of the America First Committee,
On foreign policy, the end of the cold war turned him into a which argued against declaring war on Nazi Germany. Now to-
non-interventionist. Mr Buchanan—who in 1972 accompanied day’s frontrunner, Mr Trump, echoes his scorn for free-trade pacts
Nixon on his trip to Maoist China—now concluded that America and nation-building overseas, and praises Vladimir Putin (Mr Bu-
should shun foreign entanglements and defend only vital nation- chanan has long admired the Russian president’s ethno-national-
al interests. In January1991 Mr Buchanan found himself speaking ism). Senator Ted Cruz of Texas, Mr Trump’s big rival on the hard
in New Hampshire during the American-led operation to expel right, recently said: “I believe in an “America first” foreign policy.”
Iraqi forces from Kuwait, which he opposed. Stepping from the
podium, he was given a message: America had just started bomb- The silent majority, outnumbered
ing Baghdad. There goes my non-interventionist line, he recalls Yet Mr Buchanan cannot conceal a thought that grieves him. Evi-
telling the watching governor of New Hampshire, Judd Gregg: it is dence to support his beliefs is, to him, now irrefutable. But if he
“all over once the bombs begin to drop”. Mr Bush’s approval rat- was early in the 1990s, demographic and cultural shifts now
ings rose to 90%. Yet by the time of the 1992 election the president make it too late to rally the conservative majorities that elected
was not saved by victory in the Gulf. Nixon or Reagan. If given $100 to bet on the Republican nomina-
Timing matters—a political lesson that Mr Buchanan learned tion, Mr Buchanan would put at least $40 on Mr Trump and at
early. He was one of the first aides to describe a new voter co- least $30 on Mr Cruz, whom he compares to an earlier “down-
alition that Nixon might assemble. This would unite business the-line” conservative, Barry Goldwater (who lost the 1964 presi-
bosses with doctrinaire conservatives, southern whites, socially dential election by a landslide). If he were Mr Trump, he would
conservative Roman Catholics and middle Americans who liked attack Hillary Clinton over free trade in rustbelt states such as
such government safety nets as pensions for the old, but despised Ohio, Pennsylvania and Michigan that are key to winning the
Democrats for seeming to condone social unrest—whether race White House. He would tell voters that “she and her husband”
riots, campus radicals or flag-burning protesters opposed to the backed NAFTA and deals that “sent your jobs overseas”. No other
war in Vietnam. In a memo of 1968 Mr Buchanan spoke of a “si- Republican has Mr Trump’s potential to win some blue-collar
lent majority” to be won. Nixon made the phrase his own. Democrats, he says: “It is hard to see how Cruz, for example, takes
Today Mr Trump calls his own supporters a “silent majority”, Ohio.” For all that, he thinks the odds probably favour Mrs Clin-
though his borrowing comes with a twist. In the late 1960s Nixon ton to win the election. Either way he sees a country “at war with
asked the “great silent majority” for their support. In 2015 the itself ideologically and politically, culturally”, triggering a mea-
businessman assumes he has already sealed the deal. Printed sure of foreign policy “paralysis”. If even half-right, it is a bleak
signs handed out at his rallies declare: “The silent majority stands prediction: America first nationalism, in a divided America. 7
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 The Americas The Economist January 2nd 2016 25

Also in this section

26 Mauricio Macri’s fast start
Bello is away

Human rights in El Salvador both leftist and conservative politicians

agree. “We chose peace over justice,” says
Digging for justice Mauricio Vargas, a retired general who rep-
resented the army in the peace process.
Without the amnesty, “the whole building
comes crashing down.” Salvador Sa-
mayoa, who represented the guerrillas,
warns that if the left demands trials of for-
EL MOZOTE
mer military officers the right will go after
Survivors of wartime atrocities are questioning the country’s amnesty
ex-guerrillas, including the president, Sal-

O NE afternoon eight months ago in the

mountains of eastern El Salvador, Ro-
sario Sánchez peered into a pit where fo-
are grave enough to qualify.
Some human-rights advocates argue
that impunity for war crimes is one reason
vador Sánchez Céren. He was a command-
er of the FMLN, which became a political
party after the war.
rensic experts were at work. They were un- why El Salvador has the world’s highest Other countries in Latin America, per-
earthing human remains—two skinny leg murder rate, although other factors, such haps surer that their democracies are sta-
bones, several ribs and two halves of a as the lack of economic opportunity, un- ble, are testing whether justice in the courts
skull. One held up a thin chain hardened doubtedly also play a role. “The same sys- will jeopardise peace. In Guatemala, a UN–
with blood and soil. Ms Sánchez gasped. tem that was incapable of investigating hu- backed commission to investigate corrup-
“My sister loved that necklace,” she said. man-rights violations has found itself tion has strengthened the justice system.
Over three days in December 1981 sol- incapable of confronting post-war vio- That helped make it possible for prosecu-
diers from the Salvadorean army, who had lence and crime,” says David Morales, El tors to bring several human-rights cases,
been trained by the United States, Salvador’s Human Rights Ombudsman. including against the former dictator,
machinegunned hundreds of unarmed The country’s post-war reconciliation Efraín Rios Montt. Colombia, which is
men, women and children in the village of was in many ways exemplary. Both sides close to a peace agreement with leftist
El Mozote and surrounding hamlets. It was disarmed, the army shrank and the securi- FARC guerrillas, whom it has been fighting
the worst atrocity committed during the 12- ty forces were transformed into a civilian for more than 50 years, will not offer a gen-
year-long war between leftist guerrillas police. After the war’s end in 1992, a UN eral amnesty, although just how criminals
and El Salvador’s right-wing government, Truth Commission spent six months inves- will be punished has yet to be decided.
in which some 75,000 Salvadoreans died. tigating “serious acts of violence”. It regis-
No one has been punished for the massa- tered 22,000 complaints, 85% of them Not even past
cre, and almost no one has been held to ac- against the armed forces, paramilitary The United States, once a haven for crimi-
count for any other human-rights crime groups and right-wing death squads. Their nals from Latin America’s wars, has
committed during the conflict. An amnes- left-wing foe, the Farabundo Martí Nation- changed its stance. It is seeking to deport
ty law in 1993 shielded perpetrators on al Liberation Front (FMLN), was accused in José Guillermo García, a former Salvador-
both sides from prosecution, and helped 5% of the cases. The commission’s report ean defence minister, on charges that he
make a political settlement possible. blamed the army’s elite Atlacatl battalion bears responsibility for the El Mozote mas-
As the exhumations in La Joya, near El for the murder of six Jesuit priests in 1989 sacre and the murder in 1980 of three
Mozote, show, the amnesty is being called and for the El Mozote massacre, among American nuns and a lay worker. A pro-
into question. El Salvador’s Supreme other findings. posed $750m aid package for three Central
Court is considering a constitutional chal- For the leaders of post-war El Salvador, American countries sets as one condition
lenge to it. The court ruled in 2000 that the the commission’s revelations were justice that governments must prosecute soldiers
amnesty does not apply to violations of enough. Five days after its report was pub- and police officers suspected of human-
“fundamental” rights, but left it to judges lished the government enacted the amnes- rights violations, including past war
and prosecutors to decide which crimes ty law. It is one of the few things on which crimes. 1
26 The Americas The Economist January 2nd 2016

2 In El Mozote daily reminders of the sentatives sent a letter to legislators in El 30%, a further boost to exporters. It has sta-
atrocity keep alive the demand for an ac- Salvador urging them to choose a “new at- bilised at around 13 pesos to the dollar.
counting. One farmer, digging the founda- torney-general focused on defeating cor- “Substantive” talks with holdout bond-
tion for a new house, recently uncovered ruption and organised crime”. This was holders starting in early January could lead
skeletons of 15 of his relatives. He recog- widely interpreted as a slap at the incum- to a return to credit markets in 2016.
nised his mother’s skull from the crown on bent, Luis Martínez, who hopes to be re- But the devaluation has pushed up the
a tooth. Still isolated and poor, the village elected by El Salvador’s Congress. inflation rate, already more than 25% when
trades on its tragedy: locals sell mementos The families of El Mozote hope that Mr Macri took office. To rein it back, on De-
of the massacre at stalls near the site and pressure to investigate and punish today’s cember15th the central bank raised interest
jostle to relate the story to tourists in ex- crimes will lead to prosecutions for past rates on short-term fixed deposits by eight
change for small tips. atrocities. In December laboratory tables percentage points to 38%. The government
The demand for justice is chipping in the San Salvador headquarters of the Le- hopes to persuade business and trade-un-
away at El Salvador’s amnesty. In 1990 rela- gal Medicine Institute were covered with ion leaders to keep tight control of prices
tives of the victims, helped by Tutela Legal, the bones of Ms Sánchez’s murdered rela- and wages. But that may prove difficult: the
a human-rights group, filed a suit at the In- tives. Brittle and brown, they lay among unions are fragmented and little disposed
ter-American Court of Human Rights. bundles of tattered clothing and stacks of to help Mr Macri, a centre-right politician;
Twenty-two years later the court ordered El rusted coins. Other tables displayed larger, businesses may balk at holding down
Salvador’s government to investigate the lighter-coloured bones. They belonged to prices. Barclays, a bank, expects the econ-
massacre, punish the culprits and compen- unidentified victims of recent gang vio- omy to contract by 1.1% in 2016. But in-
sate victims’ relatives. El Salvador’s then- lence. The government—and probably still creased foreign investment should lead to
president, Mauricio Funes, admitted the most Salvadoreans—think going after to- renewed growth of 3.5% in 2017.
state’s responsibility and, weeping public- day’s murderous gangs should be the pri- Mr Macri’s attempts to bring fresh tal-
ly, begged forgiveness. A trickle of aid to El ority: 95% of murders are unsolved. To the ent into institutions dominated by Ms Fer-
Mozote followed: a clinic, computers for survivors of El Mozote, both groups of vic- nández’s kirchneristas have run into resis-
the school and road repairs. tims are entitled to the same justice. 7 tance, from both foes and allies. On
But the messy conduct of the exhuma- December 14th, with the Senate in recess,
tion shows how little official enthusiasm Mr Macri temporarily appointed by decree
there is for investigation and punishment. Argentina’s new president two Supreme Court judges. He then
The human-rights unit of the attorney-gen- booted out the chief of the media regula-
eral’s office, which promised in 2013 to in-
vestigate El Mozote and seven other mas-
A fast start tor, Martín Sabbatella.
In both cases his motives were worthy.
sacres, put in charge of the dig a systems He wants independent jurists in the courts.
engineer with no formal training in exca- Mr Sabbatella had clashed with Grupo
vation. Work started in the rainy season, Clarín, a big media group. Mr Macri thinks
BUENOS AIRES
when floods threatened to damage DNA his removal will strengthen press freedom.
Mauricio Macri’s early decisions are
evidence. The villagers received no ad- But critics say he misused his authority. On
bringing benefits and making waves
vance notice, and at first no counselling the judges, at least, he has relented. He will
from psychologists. Instead of healing
wounds, the investigation reopened them,
their lawyers said.
M AURICIO MACRI, who took office as
Argentina’s president in December,
has wasted little time in undoing the popu-
now wait for the Senate’s approval.
Touring northern Argentina, where
20,000 people have been displaced from
The intervention of the government’s list policies of his predecessor. On Decem- their homes by floods, Mr Macri blamed
forensics agency, the Legal Medicine Insti- ber 14th he scrapped export taxes on agri- the former president, saying she had failed
tute, improved matters, and showed that cultural products such as wheat, beef and to invest in flood defences (see page 61). For
the government’s apparent hostility to the corn and reduced them on soyabeans, the now, Argentines are likely to believe their
investigation is not uniform. The agency biggest export. Two days later Alfonso Prat- new president. However, if the economic
assigned three Canadians—two anthropol- Gay, the new finance minister, lifted cur- slowdown is prolonged, the honeymoon
ogists and an archaeologist—to help with rency controls, allowing the peso to float will not be. 7
the excavation. The attorney-general’s of- freely. A team from the new government
fice sought to undermine the three wom- then met the mediator in a dispute with
en, claiming that they were unqualified. foreign bondholders in an attempt to end
The director of the human-rights unit, Ma- Argentina’s isolation from the internation-
rio Jacobo, declined to comment on the al credit markets.
conduct of the excavation. He recently lost This flurry of decisions is the first step
responsibility for it. A judge suspended it towards normalising an economy that had
after two weeks of digging, and said it been skewed by the interventionist poli-
should resume under the direction of the cies of ex-president Cristina Fernández de
Legal Medicine Institute. Work is likely to Kirchner and her late husband, Néstor
restart in early 2016. Kirchner, who governed before her. They
Although opinion may be shifting, carry an immediate cost, which Mr Macri
many Salvadoreans are loth to unpick an will seek to pin on the Kirchners. Some of
amnesty that has served the country well the new president’s other early initiatives
in many ways. There is speculation that are proving more controversial.
the Supreme Court will strike a compro- The economic reforms seem to be
mise: uphold the amnesty law, but compel working. Farmers who had hoarded grain
prosecutors and judges to pursue viola- in the hope that the tariffs would be lifted
tions of fundamental rights, rather than are now selling, replenishing foreign-ex-
leaving the decision to them, as its earlier change reserves that had been drained to
ruling did. On November 23rd six mem- defend the artificially strong peso. The
bers of the United States House of Repre- newly freed currency fell by more than Nice sash, horrible inheritance
 Asia The Economist January 2nd 2016 27

Also in this section

28 Family planning in Vietnam
28 Thailand’s southern insurgency
30 India’s endangered economic reform
Banyan is away

For daily analysis and debate on Asia, visit

Economist.com/asia

Japan, South Korea and their history wars legal responsibility, which was settled in
Japan’s normalisation treaty with South
Saying sorry for sex slavery Korea in 1965. “We didn’t give an inch,” says
a government adviser. Indeed, one observ-
er critical of Japan’s attitudes towards his-
tory, Tessa Morris-Suzuki of the Australian
National University, says that the agree-
TOKYO
ment rows back from the landmark Kono
A surprise deal over forced prostitution during the war may soothe troubled
statement of 1993, Japan’s first official ac-
relations between two democratic neighbours
knowledgment of wartime coercion. For it

T HE bronze statue of a teenage “comfort

woman” in Seoul, South Korea’s capi-
tal, is intended as a daily rebuke to the Japa-
eign ministers called a “final and irrevoca-
ble” resolution to an issue that has poi-
soned the relationship for years. South
refers only to the imperial army’s “involve-
ment” in the recruitment of comfort wom-
en, while excluding references to the use of
nese embassy opposite. The figure repre- Korea’s president, Park Geun-hye, hailed deception or force.
sents one of many thousands of Korean the deal—hastened by the two leaders’ first The agreement is more likely to face
women who were forced to serve as prosti- bilateral meeting in November—as a key to problems in South Korea. Groups repre-
tutes in wartime military brothels catering improved relations. senting the survivors say that the women
to imperial Japanese soldiers. Citizens’ The administration of Barack Obama is were not consulted, and at least one of
groups paid for the figure to be erected in cock-a-hoop that its two closest Asian al- them has already railed against it as a be-
2011 when relations between Japan and lies are making up. It had long pressed trayal. South Korean activists will oppose
South Korea were at a nadir. Well-wishers South Korea to do so. Better relations be- moving the statue, something Japan cares
bring her flowers, shoes and, in stormy tween the two should help America’s strat- deeply about. Calls may grow for Mr Abe
weather, even a hat and raincoat. Yet now egy to balance China’s rise. to come and make a personal apology to
the statue is meant to move elsewhere as But some South Korean policymakers survivors, rather than through Ms Park.
part of a landmark agreement struck be- had also grown uneasy that relations with Whether he would swallow his pride to do
tween the two countries on December Japan were at a dead end and—though so is unclear. Chung-in Moon of Yonsei
28th to try to settle their dispute over com- they would not say it out loud—that Ms University in Seoul says it is a fragile deal
fort women once and for all—and trans- Park sometimes seemed to hew too closely born of diplomatic necessity.
form dangerously strained relations. to China. Meanwhile, a stronger trilateral
Of former sex slaves who have come relationship with Japan and America Make it work
forward in South Korea, only 46 survive. would help in dealing with dangerous Yet both sides have good reason to try to
Under the deal, South Korea will set up a North Korea. It has taken time for Ms Park make it stick, for the bilateral relationship
fund for them into which the Japanese gov- to see all this, and her family history helps could quickly improve, on military matters
ernment will pay $8.3m for their medical explain why. Her late father, Park Chung- as well as others. For instance, an agree-
and nursing care. The Japanese prime min- hee, was a star officer in the Japanese impe- ment to share military intelligence that
ister, Shinzo Abe, has expressed “sincere rial army, and later the South Korean dicta- was scuppered in 2012 could be revived.
apologies and remorse” for their suffering, tor who normalised relations with Japan. The benefits could also show in trade di-
which was appalling. In all, there were tens These were liabilities for the cautious Ms plomacy, with Japan and America work-
of thousands of comfort women. Many Park as anti-Japanese hysteria grew. ing together to bring South Korea into the
were raped dozens of times a day, beaten A question now is whether a deal will Trans-Pacific Partnership, a free-trade
and infected with venereal diseases. hold. Some of Japan’s loony ultranational- grouping recently agreed among a dozen
It is a big change for Mr Abe, who has in ists will feel betrayed by Mr Abe. But he is countries. With luck, the idea of two de-
the past questioned whether the comfort too politically dominant at home to be mocracies in a dangerous corner of the
women were coerced at all. But he hopes to worried by that. Besides, the government world not talking to each other will soon
have found what the two countries’ for- can argue that saying sorry does not imply look too absurd to go back to. 7
28 Asia The Economist January 2nd 2016

Family planning in Vietnam

Running deer

HANOI
A draft population law looks
ill-considered and discriminatory

B RIGHTLY coloured plastic flowers greet

patients at the reception desk of
Nguyen To Hao’s abortion clinic. Yet the
mood in her waiting room is grim. Ms Hao,
an obstetrician and gynaecologist, says
that many of her patients are teenagers
who know shockingly little about sex or its
consequences. Some young women with
late-term pregnancies are sent to a nearby
hospital for abortions; others carry their Voiding the topic ain’t gonna stop it
pregnancies to term and leave their new-
born babies in the care of Buddhist monks. law, and the National Assembly may take it posed law in a letter to the health minister.
Unwanted pregnancies could be avoid- up this spring. Such pressure may prompt the govern-
ed if only Vietnam had better sex educa- It is not a moment too soon. A whop- ment to extend the proposed 12-week limit.
tion in secondary schools. A Vietnamese ping two-thirds of the country’s 90m peo- However, the population-control mea-
adage claims that avoiding discussions of ple are of working age. That gives Vietnam sures being mulled by the ministry contain
sex is the surest way to “prevent the deer a chance to boom economically over the another troubling feature: a pre-natal focus
from running”. Yet the deer are “already next three decades. But the “demographic on “population quality”. That sounds
running”, Dr Hao insists, and the govern- dividend” may then stop abruptly. Fertility harmless enough, but the underlying idea,
ment is failing to guide them. rates in some Vietnamese cities have fallen according to a foreign health-policy expert
Vietnam’s abortion rate is not known to below the population replacement rate, in Hanoi, is that health officials could en-
for certain, but is thought to be among the a trend that could eventually lead to a courage mothers to abort fetuses showing
world’s highest. According to researchers shortage of workers, as Japan and other signs of disability.
at the Central Obstetrics Hospital in Hanoi, rich countries have learnt to their cost. The Some in the ministry have also pro-
the capital, two-fifths of all pregnancies in difference is that Vietnam risks growing posed lifting the two-child policy in cities
Vietnam end in abortion—double the gov- old before it grows rich. while continuing to enforce it in the coun-
ernment’s tally. The new population law, in its current tryside—ie, encouraging the better-educat-
Ignorance about sex and contraception wording, would not help. It proposes to ed and better-off to have more children
is one glaring factor. Some women who leave the two-child policy in place and ban while denying the same right to poor folk,
have abortions never meant to get preg- abortion after 12 weeks, down from the including ethnic minorities, who view
nant. Others desperately wanted a boy, current limit of 22 weeks, except in cases of their children and grandchildren as their
since male children keep the family blood- rape. That may send even more pregnant only social safety net. That would allow
line going and are traditionally expected to Vietnamese into shadowy abortion clin- the bureaucrats in charge of the two-child
look after their elderly parents. Sex-selec- ics. In September some 17 public-health policy to keep their jobs. But the idea is re-
tive abortions have been illegal since 2003, professionals complained about the pro- gressive, unfair and needs to be junked. 7
but the ban is hard to enforce. Ultrasounds
are widely available. Nguyen Thi Hien, a
mother of two in Hanoi, says that for $75 Thailand’s southern insurgency
doctors at the capital’s private clinics are
happy to tell couples the sex of their fetus.
So for every 100 girls, 111 boys are born
No end in sight
in Vietnam, according to the UN Popula-
tion Fund—a sex ratio at birth nearly as lop-
sided as neighbouring China’s. Vietnam’s
Communist Party worries that this sex im-
TOH CHUD
balance will leave a generation of men
A southern village tries to remain united as divisions elsewhere grow
struggling to find a mate. As in other societ-
ies with lots of frustrated single men, that
may mean more trafficking and prostitu-
tion, more rape and a greater risk of politi-
S ITTING on the floor with neighbours,
Sakariya uses a mobile phone to flick
through photos of his son. In one, Kholid
Kholid was one of four to die that day—
victims of a botched operation seeking to
collar murderous separatists who for years
cal instability. stands dressed in his school uniform. In have dreamed of resurrecting an indepen-
Vietnam’s reproductive and demo- another he sits hunched over his universi- dent sultanate in Thailand’s southern bor-
graphic policies are in flux. China’s recent ty work. In a third he is dead—lying cold on derlands. Nearly two dozen villagers were
decision to relax its one-child policy may a mortuary slab. The picture was taken in detained and interrogated but later re-
prompt Vietnam to reconsider its own March, only hours after soldiers sur- leased. The men who were shot may have
(more loosely enforced) two-child policy, rounded a group of men at a construction tried to run, perhaps for fear ofbeing found
says a former official from Vietnam’s site in Toh Chud, their home in Thailand’s with soft drugs on them. A fact-finding
health ministry. The ministry is now solic- restive south. Seven bullet holes perforate panel says the killings were an error. Com-
iting public comments for a revision of that his chest. pensation is promised. But what the fam- 1
 The Economist January 2nd 2016 Asia 29

2 ilies want is justice, says Mohammad, an- national jihadism, some people fret that Is-
other parent whose son is among the dead. Bangkok lamic State’s flashy propaganda may yet

M YA
Toh Chud up in the hills had mostly find an audience among the region’s un-
managed to escape the nightmares suf- happy young. Lately someone in cyber-

NMAR
fered by so many communities in Thai- space has been adding Thai subtitles to the
C A M BO D I A
land’s southernmost provinces. Of 2m- jihadists’ video-nasties.

A n d a m a n
odd people in the region, over four-fifths A deeper worry is that the bubbling
are ethnic-Malay Muslims. Hotheads southern war may fuel Buddhist chauvin-
among them have long agitated against the Gulf VIETNAM ism. Perhaps a tenth of Thais are Muslim,
Thai government in Bangkok and its poli- THAILAND of most of them living well-integrated lives
cies of assimilation—denying the region Thailand far from the conflict zone. On a recent pub-
autonomy, for instance, and even recogni- lic holiday girls in black headscarves cy-

S e
tion of the local Malay language. In 2004 Pattani cled cheerfully around the Haroon
Toh Chud
secretive insurgent groups began a cam- mosque, one of Bangkok’s oldest, which

a
paign of exceptionally violent attacks on was festooned with royal flags. Yet Thai-
security forces as well as on their own Bud- M A L AY S I A 250 km
land’s Muslims are gradually growing
dhist neighbours. more conservative under the influence of
Since then about 6,500 people have shadowy separatist groups has formed a Middle Eastern doctrines, which unnerves
died in this lush coastal strip, most of them common political wing. The violence has their Buddhist compatriots. And some
civilians. Terrorists have bombed shops ebbed markedly in recent months. But Don people think that Buddhist authorities are
and restaurants and murdered scores of Pathan, a local security analyst, speculates growing more strident as the influence of
schoolteachers, who are seen as agents of that militants may be swapping frequent Thailand’s royal establishment, which has
the state; victims’ bodies are sometimes small assaults for better planned and more traditionally checked them, begins to
beheaded or set alight. Moderate ethnic- lethal ones. As for dialogue, hardliners wane. In October a senior Buddhist monk
Malays considered to be collaborators are within BRN, the most powerful rebel said that Thais should set fire to a mosque
also targets. On December 13th an ethnic- group, say they will play no part in the every time southern “bandits” kill a monk.
Malay Thai soldier and his father were junta’s proposed talks. The locals gathered at the house in Toh
blown up in a graveyard, where they had Peace-builders on the ground complain Chud worry that outsiders are seeking to
gone to bury his mother. that it is getting harder to discuss unpopu- sow division. Unlike nearby ghettos, their
State violence has done much to boost lar solutions. The army has long refused to village of 300 households includes 30 Bud-
the body count. The apparent legal immu- countenance international mediation, one dhist families, and the tragedy in March
nity enjoyed by trigger-happy soldiers and of the separatists’ principal demands, for has tightened their village bonds. On the
pro-government vigilantes continues to fear of legitimising separatist claims. And it day of the raid local Buddhists helped to
radicalise new generations of combatants. is hardly likely to consider devolving pow- conceal one young man who had escaped
Kholid’s family say his killers placed an as- ers when it is busily recentralising the state, the soldiers’ cordon.
sault rifle next to his body to make him in part to neuter the government’s oppo- As lunch approaches, Somkhuan, a
look like an insurgent. nents in other provinces and in part to keep Buddhist who once served as village head-
Over the past decade seven Thai gov- a lid on the dissent which may follow a man, joins the group for a smoke. When
ernments, swept in and out of power by looming royal succession. his daughter got married he threw two par-
broader political problems, have grasped Matt Wheeler of the International Cri- ties, his neighbours recall enthusiastically,
for a resolution. Officials say that regional sis Group, a research outfit, thinks the gen- one of them halal. Such good relations are
autonomy of the type that has soothed Is- erals are simply “kicking the can down the not a big deal, Somkhuan says: it has al-
lamist insurgencies in Indonesia and the road”. Yet that carries two risks. Although ways been this way. But what if Toh Chud
Philippines is off the table. But so are small- the insurgents have largely rejected inter- started to become the exception? 7
er concessions, such as formal recognition
of the region’s odd Malay language. Some
argue that the fat budget the security forces
get to prosecute the conflict gives them lit-
tle incentive to end it. Three checkpoints
clog the road out of Pattani, a seaside town,
each manned by a different force.
Some energy has gone into boosting
the deep south’s economy, which depends
greatly on its rubber trees. Though it re-
mains far poorer than Bangkok, the region
is not as hard-up as some other far-flung
parts of Thailand. But locals tend to com-
pare their fortunes with those of ethnic kin
across the border in Malaysia, where laws
grant the Malay majority a host of advan-
tages over ethnic-Chinese and Indian mi-
norities. Christopher Joll, an academic,
says the region is like “meat in a sand-
wich”, squeezed by inflexible national-
isms from either side.
Thailand’s ruling junta, which had said
it would try to fix the conflict by the end of
2015, trumpets progress. Lured by the pro-
mise of fresh peace talks, a gaggle of once- He’s backed by a fat budget
30 Asia The Economist January 2nd 2016

these two categories currently account for

a large share of states’ revenues (and of il-
licit party funding) is no coincidence. The
bill also still stipulates a temporary central
sales tax, of1%, on interstate trade.
Even this watered-down law has been
stuck in Parliament’s upper house, where
the BJP lacks a majority. When Congress
was in office, its own attempt to introduce a
GST was blocked by the BJP. Now it acts as
the spoiler. Congress rightly objects to the
central sales tax. But its demand that the
constitution should enshrine a maximum
rate for the GST of18% makes little sense. (A
third demand is for a different mechanism
to resolve disputes over the working of the
tax.)
Simplifying Indian taxes For more than a year Mr Modi haughti-
ly ignored the opposition. He no doubt
One country, but no single market hoped that the momentum from his gen-
eral-election victory would carry him to
wins in subsequent state elections, auto-
matically sending delegates to the upper
house and giving him a majority there, too.
But lately the BJP has been defeated in key
DELHI
places, most recently in Bihar, the third-
India’s excitable politics is blocking the best chance of promoting growth
most-populous state.

N ARENDRA MODI likes to make a

splash abroad. On December 25th he
turned up in Pakistan, the first visit by an
in India” into reality is through a single
market—“Make in India by Making One In-
dia”, as a recent government report put it.
So Mr Modi has become a bit humbler.
He belatedly invited Sonia Gandhi, presi-
dent of Congress, and Manmohan Singh,
Indian prime minister in more than a de- The existing system, senior officials say, his predecessor as prime minister, to tea in
cade, for an impromptu summit with his taxes production more than consumption the hope of finding a deal on a GST. A com-
counterpart, Nawaz Sharif. At home, and, in effect, subsidises importers at the mittee led by the finance ministry’s chief
though, Mr Modi appears less impressive. expense ofdomestic producers. Perversely, economic adviser, Arvind Subramanian,
Despite his Bharatiya Janata Party (BJP)’s trade between states is taxed, through a offered some concessions: scrapping the
thumping general-election victory in 2014, central sales tax of 2%. Some states also im- central sales tax and setting two bands for
his promises of business-friendly reforms pose duties on products entering from else- the GST (a standard rate of17-18% and a low-
are stuck. where in India. Lorries are held up at inter- er 12% rate for certain sensitive goods)
The passage of an all-embracing value- nal checkpoints (see picture). which are within Congress’s declared ceil-
added tax, known as the goods and ser- An executive from a prominent Indian ing. The committee also proposed that al-
vices tax (GST), has become the litmus test firm explains that, because trade between cohol as well as property transactions
of his liberalising credentials. It is the one one state and another is subject to the cen- should be subject to the GST; in return,
reform that both the BJP and the opposi- tral sales tax while the transfers of inven- states could levy “sin taxes” on things like
tion Congress party ostensibly agree on. tory are not, his company has set up ware- alcohol and tobacco of up to 40%.
Raising funds for both the federal govern- houses in every state to avoid the tax. And
ment at the centre and the states, it is meant because duties paid on inputs often cannot Taxing times
to replace a monstrous excrescence of tax- be claimed back, there is a “cascade” of tax- The committee’s report appeared to bring
es, duties, surcharges and cesses levied by es levied upon previous ones. Among oth- a much-improved GST bill within reach.
the centre, the states and local authori- er things, it discourages investment in ma- But Congress took to disrupting the upper
ties—a system that fragments the economy chinery. “The entire ecosystem”, he says, house. The cause of its rowdy outrage at
and gives huge scope for corruption by offi- “works to optimise tax, not productivity.” first was the government’s “intolerance” of
cials and politicians. Replacing most taxes One study suggests that a “flawless” minorities (especially Muslims); then a
with a GST would, for the first time, create a GST—with a single rate for all goods and minister’s allegedly derogatory remarks
single market in India—of1.3 billion people. services, and minimal exemptions—could about low-caste dalits; then the BJP’s sup-
The latest and perhaps most promising boost Indian growth by anything between posed “vendetta” in a court wrangle in-
attempt to pass the necessary constitution- 0.9 and 1.7 percentage points a year. Anoth- volving Mrs Gandhi, her son Rahul, and
al amendment failed with the closing of er benefit would be to create a paper trail the allegedly corrupt disposal of a failed
the winter session of parliament in De- and an incentive for firms to declare tran- party newspaper; and lastly the party’s de-
cember. Mr Modi will try again in the bud- sactions in order to claim tax credits, so re- mand that the finance minister, Arun Jait-
get session, which opens in February. But if ducing overall tax evasion. ley, should step down over claims of cor-
he is to succeed, he will have to overcome Attempts to streamline indirect taxes ruption in cricket.
India’s cynical politics. date back to liberalisations in the 1990s, yet Congress might have claimed victory in
The economy grew at a pleasing annu- moves towards forms ofvalue-added taxes forcing Mr Modi to see sense over the GST,
alised rate of 7.4% from July to September— have been partial at best. A version of a even as it challenged his excesses. Instead
faster than China’s. Yet many economists more encompassing GST bill was passed it chose obstructionism. If he is to secure
cast doubt on the official figures, and Mr by the lower house in May. Unwisely, it any economic legacy, Mr Modi may now
Modi’s attempt to boost manufacturing is postponed imposing the tax on oil pro- have to spend more time on the art of but-
not making much progress. Indeed, the ducts (a vital input) till an unspecified fu- tering up opponents at home rather than
best chance of turning his slogan of “Make ture date. It exempted alcohol entirely. That fellow leaders abroad. 7
 China The Economist January 2nd 2016 31

Also in this section

32 Xi’s new economic catchphrase

For daily analysis and debate on China, visit

Economist.com/china

Social media of rule by law,” said Zhang Ming, a politics

professor in Beijing, to his following of
Weibo warriors nearly 790,000 people.
Mr Pu’s prosecutors also provided evi-
dence of the censors’ weaknesses. They
said one of his allegedly criminal mes-
sages, which suggested that a terrorist at-
tack in 2014 may have reflected failings in
the government’s policies in the western
The Communist Party’s battle with social media is a closely fought one
region of Xinjiang, had garnered 1,930 ret-

O N DECEMBER 25th, some three years

after taking over as China’s leader, Xi
Jinping posted his first tweet. For a man
Mr Xi is the first Chinese leader to come
to power amid the rapid growth of a mid-
dle class whose members are equipped
weets—remarkable given Mr Pu’s well-
known propensity to criticise officialdom.
Outside the court, dozens of Mr Pu’s
clearly rattled by the rapid spread of social with a powerful means of airing dissent supporters defied a heavy police presence,
media, and grimly determined to tame and linking up with like-minded malcon- which included the deployment of thug-
them, the venue was fitting. Uniformed tents. He inherited an army of internet cen- gish men in plain clothes (oddly wearing
military officials stood around as he typed sors, but despite his efforts to give them smiley badges during the trial). Several
his message into a computer in the office of more legal muscle (the country’s first coun- protesters were dragged away, some after
an army-run newspaper (see picture). His ter-terrorism law, passed on December chanting “Pu Zhiqiang is innocent”.
new-year greeting was not to China’s more 27th, includes restrictions on the reporting Internet users showed similar disdain
than 660m internet users, but to the armed of terrorist incidents), Mr Xi is still strug- for the censors on the anniversary on De-
forces—most of whose members are gling. Support for Mr Pu both online and cember 26th of the birth of Mao Zedong
banned from tweeting. off has shown the scale of the challenge he (“He wreaked greater destruction on hu-
It was clearly in part to intimidate feisti- faces. Some had feared that Mr Pu would man civilisation than any other villain,”
er members of the country’s online com- be jailed for years. It is possible, in the face one businessman told his more than
munity that the authorities arrested one of of huge support for the activist and a lack 106,000 followers). They piped up, too,
the country’s most prominent civil-rights of strong evidence, that officials blinked. after an avalanche of construction waste
activists, Pu Zhiqiang, in 2014 and eventu- on December 20th in the southern city of
ally put him on trial on December 14th. On Napping net nannies Shenzhen that killed at least seven people
the basis of seven messages posted on Social-media messages relating to Mr Pu and left more than 70 others missing. One
Weibo, China’s heavily censored version were quickly purged from the internet. Yet Weibo user with nearly 75,000 followers
of Twitter, Mr Pu was charged with “pick- it is likely that some were seen by many lamented how effective a modern city like
ing quarrels and stirring up trouble” as people before disappearing. Some sensi- Shenzhen was at downplaying such news.
well as “inciting ethnic hatred”. The court tive postings were retweeted by users with “What’s frightening is that this is the way
handed down a three-year suspended pri- large followings before they were eventu- China as a whole will be,” he said.
son sentence, which means that Mr Pu will ally deleted, suggesting that censors occa- Mr Xi need not worry about his own so-
not be allowed to continue his widely ac- sionally failed to keep up. “If you can be cial-media pulling power. By the time The
claimed work as a lawyer (less than three found guilty on the basis of a few Weibo Economist went to press, his first post on
years ago, he was the subject ofa laudatory postings, then every Weibo user is guilty, Weibo—sent through the account of an un-
cover story in a state-controlled magazine). everyone should be rounded up,” wrote a named journalist at the newspaper he vis-
“It was not the worst outcome, but it set the Beijing-based journalist to his more than ited—had been retweeted more than
most odious of precedents,” said a Weibo 220,000 followers. “I don’t understand the 380,000 times and had garnered more
user in Beijing in a message to his nearly law, but I do know that [handling Mr Pu than 50,000 comments. Most of these are
57,000 online followers. this way] was absolutely against the spirit fawning—of those still visible, at least. 7
32 China The Economist January 2nd 2016

Economic ideology parts worry about the opposite: excessive

production causing deflation and unsus-
Reagan’s Chinese echo tainably rapid growth. Still, the language
used in China can sound just as radical.
“We can no longer delay the clean-up of
zombie corporations,” Chen Changsheng
of the Development Research Centre, a
government think-tank, wrote recently.
SHANGHAI
“Taking painkillers and performing blood
The mystery of Xi Jinping’s supply-side strategy
transfusions is not enough. We need the

R ONALD REAGAN, a sworn enemy of

communism, and Xi Jinping, a
doughty defender of Communist rule in
made to sound like a call to action. Xinhua,
a state news agency, neatly tied the two
phrases together: “supply-side structural
determination to carry out surgery.”
There may be another similarity as
well: a revolution that falls short of its
China, ought to have little in common. reform is the new growth driver under the hype. Reagan had to work with a Congress
Lately, though, Mr Xi has seemed to chan- new normal.” controlled by his political opponents, and
nel the late American president. He has But what does it mean? Those who first the policies he enacted were more moder-
been speaking openly for the first time of a pushed supply-side reform onto China’s ate and muddled than supply-side purists
need for “supply-side reforms”—a term political agenda want a clean break with had hoped. Mr Xi faces no such democratic
echoing one made popular during Rea- the credit-driven past. Jia Kang, an outspo- checks, but China’s ruling party is split be-
gan’s presidency in the 1980s. It is now Chi- ken researcher in the finance ministry who tween rival interest groups, and economic
na’s hottest economic catchphrase (even co-founded the new supply-side academy, policy is often implemented in fits and
featuring in a state-approved rap song, re- defines the term in opposition to the short- starts as party leaders try to reconcile their
leased on December 26th: “Reform the term demand management that has often competing demands.
supply side and upgrade the economy,” characterised China’s economic policy—
goes one catchy line). the boosting of consumption and invest- Supply us with a slogan
Reagan’s supply-side strategy was nota- ment with the help of cheap money and Mr Xi’s adoption of the supply-side mantra
ble, at least at the outset, for its controver- dollops of government spending. marks the start of protracted tiptoeing.
sial focus on cutting taxes as a way of en- The result of the old approach has been Over the past two months, party propa-
couraging companies to produce and a steep rise in debt (about 250% of GDP and gandists have asked economists at top uni-
invest more. In Xiconomics, the thrust of counting) and declining returns on invest- versities and research institutions to ex-
supply-side policy is less clear, despite the ment. Supply-siders worry that it is creat- pound on their views of what supply-side
term’s prominence at recent economic- ing a growing risk of stagnation, or even a reforms should entail, according to insid-
planning meetings and its dissection in nu- full-blown economic crisis. Mr Jia says the ers. It is a slogan in search of content.
merous articles published by state media. government should focus instead on sim- In the recent proliferation of articles
Investors, hoping the phrase might herald plifying regulations to make labour, land and speeches about supply-side reforms,
a renewed effort by the leadership to boost and capital more productive. Making it eas- there are clearly differences over what the
the economy, are eager for detail. ier for private companies to invest in sec- emphasis should be. The National Devel-
Mr Xi’s first mentions of the supply tors currently reserved for bloated state- opment and Reform Commission, a pow-
side, or gongjice, in two separate speeches run corporations would be a good place to erful planning agency, argues that China
in November, were not entirely a surprise. start, some of his colleagues argue. needs to become more innovative and effi-
For a couple of years think-tanks affiliated There are plenty of differences between cient in making the kinds of things its con-
with government ministries had been pro- China’s supply-siders and those who sumers want to buy. But its version of “sup-
moting the concept (helped by a new insti- shaped Mr Reagan’s programme, not least ply-side reform” would look more like
tute called the China Academy of New in their diagnosis of their respective econo- stimulus than surgery. Tax cuts since 2014
Supply-Side Economics). Their hope is that mies’ ills. The Americans thought that pro- on purchases of electric cars offer a taste of
such reforms will involve deep structural duction bottlenecks were fuelling inflation what may lie ahead; sales of these vehicles
changes aimed at putting the economy on and stifling growth. Their Chinese counter- have surged nearly fourfold this year.
a sounder footing, rather than yet more Some fret that the supply-side talk is a
stimulus. Since Mr Xi gave the term his dangerous distraction. As Yao Yang of Pe-
public blessing, officials have been scram- king University puts it, the economy’s
bling to fall in line with supply-side doc- main ailment now is a lack of demand, not
trine, designing policies that seem to fit it a problem with supply. The cure for that,
or, just as energetically, working to squeeze he believes, is a short-term burst of mone-
existing ones into its rubric. tary easing, the very thing that ardent sup-
Mr Xi’s aim may be to reinvigorate re- ply-siders have been hoping to banish.
forms that were endorsed by the Commu- For all the recent debate, early signs are
nist Party’s 370-member Central Commit- that the supply-side shift may not amount
tee in 2013, a year after he took over as to a serious change of course. Measures
China’s leader. They called for a “decisive” proposed by the government in late De-
role to be given to market forces, with the cember include lower corporate borrow-
state and private sectors placed on an ing costs, an easing of entry barriers in
equal footing. But Mr Xi lacked a catchy underdeveloped sectors such as health
phrase to sum up his economic vision. The care and a reduction of excess capacity in
one he most commonly used was simply sectors such as property. It just so happens
that the economy had entered a “new nor- that all these policies have already been in
mal” of slower, more mature, growth. That place for months or even years. If nothing
phrase had its detractors, for it seemed to else, Mr Xi’s supply-side reforms will prove
imply passive acceptance of a more slug- that China is among the world’s most ac-
gish future. “Supply-side reform” is being complished suppliers of slogans. 7
 Middle East and Africa The Economist January 2nd 2016 33

Also in this section

34 Beleaguered Christians
35 Vice police in the Middle East
36 Setting Ethiopia free

For daily analysis and debate on the Middle East

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

Iraq city and start rebuilding it. That means pro-

viding material support for the Sunni
Reclaiming the ruins from Islamic State tribes and local police to garrison Ramadi,
while freeing up the overstretched Iraqi
army to take on IS elsewhere in Anbar. The
jihadists still control not only Fallujah, but
also Ana, Rawa, Hit and al-Qaim, towns
which between them have (or had) a pop-
ulation of over 700,000.
By retaking Ramadi, Iraq’s security forces have won a morale-boosting victory
The Iraqi army will have little choice
more than 1,000 IS fighters, the difficulties
I T HAS been a long time in coming. But on
December 27th Iraq’s security forces an-
nounced they had recaptured the city of
should not be underestimated. IS had time
to construct a multilayered defence based
but to work with the Shia militias in the
continuing attempt to recapture Fallujah,
which has seen only intermittent progress
Ramadi from Islamic State (IS), with only on booby traps and a network of tunnels in the past year. The tactics used in Ra-
pockets of resistance remaining. This fol- that allowed shooters and suicide-bom- madi—encirclement and air strikes—are be-
lowed a week of heavy fighting by the Iraqi bers to move around the town unseen by ing applied to the city, which is now more
army, local police and Sunni tribal fighters, surveillance drones. The Iraqi army had to or less completely cut off. But Fallujah,
all backed by American air strikes. spend months encircling the city and slow- which was al-Qaeda in Iraq’s first strong-
The expulsion of jihadists from the cap- ly cutting IS off from outside help. This al- hold and the scene of bitter fighting with
ital of Anbar, a mainly Sunni province, is a lowed Iraqi units to move cautiously into American troops in 2004, will be much
morale-boosting victory for the belea- the ruined city, street by street. harder to crack.
guered government of Haider al-Abadi in Significantly, Iranian-backed Shia mili- Mr Abadi promised on December 28th
Baghdad. It will go some way towards ex- tias, who have often been in the vanguard that IS will be driven from his country by
punging the memory of the humiliating of the fight against IS during the past 18 the end of 2016. “We are coming to liberate
flight of the army from the city seven months, were largely excluded from the Mosul, which will be the fatal blow to [IS],”
months ago, when a numerically inferior battle. This was at the insistence of the he said. A concerted attempt to retake
IS force launched a stunning assault, spear- Americans, who want to encourage a Sun- Iraq’s second city (seized by IS 18 months
headed by at least 30 vehicular suicide- ni uprising against IS, like the one they fo- ago) does now appear more likely, al-
bombs, some of them armoured bulldoz- mented against its predecessor, al-Qaeda though it will have to wait until Fallujah is
ers packing enough explosive to demolish in Iraq, in 2006. But the results have been restored to government control and the
entire streets. Outflanked and outgunned, patchy, because the promised supply of Iraqi army can field more effective units to
even the army’s Golden Division, a highly American weapons to Anbari Sunni tribes join with Kurdish Peshmerga fighters.
regarded American-trained special-forces has been blocked by the predominantly Estimates differ as to how many IS com-
unit, succumbed to panic. Shia government in Baghdad. batants there are in Mosul. IS says it has
The carefully orchestrated campaign to 30,000. Iraqi government sources put the
recover Ramadi, which saw much closer Next stop, Fallujah number at a more modest 1,500. But IS has
co-ordination between troops on the Given the deep sectarian divisions, limit- had a long time to dig itself in to the north-
ground and coalition air power than in the ing the role of the Shia “Popular Mobilisa- ern city, and at least some of the people
past, is an indication of how other battles tion Forces” in Anbar remains a priority for there are said to prefer the so-called caliph-
to expel IS from Iraqi cities may be con- the Americans. Most are backed and fi- ate, for its all brutality, to rule from Bagh-
ducted. Air strikes are claimed to have nanced by Iran—and Mr Abadi has little in- dad. Mosul is a huge source of funding for
killed at least 350 IS fighters in the days be- fluence over such groups. IS, because it has so many people for the ji-
fore the ground offensive began in earnest. If the government is to build on its suc- hadists to tax. If it should fall, IS’s preten-
While it is true that Iraqi forces some cess in Ramadi, it must show displaced sions to being a state will fall with it. But
10,000 strong were needed to defeat no Sunni inhabitants that it can both hold the there is still quite a way to go. 7
34 Middle East and Africa The Economist January 2nd 2016

Christians in the Middle East Haitham, a refugee from Mosul, says the
pleas go “in one ear, out the other”.
And then there were none In the decades before the Arab spring,
many Christian leaders lent their support
to authoritarian rulers in return for the pro-
tection of Christians—and their own lofty
status. But the deals broke down when the
dictators fell or wobbled, leaving Chris-
BEIRUT, BETHLEHEM AND CAIRO
tians in a predicament. “In Iraq, when Sad-
Fed up and fearful, Christians are leaving the Middle East
dam Hussein was removed, we lost a mil-

F AR from spreading cheer this holiday

season, Pope Francis has been in a
Grinch-like mood. “There will be lights,
lion Christians,” said Bechara Boutros
al-Rahi, Lebanon’s Maronite Christian Pa-
triarch, to AFP in 2012. “Why? Not because
parties, Christmas trees and Nativity the regime fell, but because there was no
scenes,” he said in late November. “It’s all a more authority, there was a vacuum. In
charade.” As the Vatican unveiled its own Syria, it’s the same thing, Christians do not
giant spruce, he sounded downright de- back the regime [of Bashar al-Assad], but
pressed: “We should ask for the grace to they are afraid of what may come next.”
weep for this world, which does not recog- Christian leaders have often supported
nise the path to peace.” whichever strongman is in power. The late
It is easy to see why the pope is so Pope Shenouda III, head of the Coptic
downhearted. Look no further than Beth- church, the largest in the Middle East,
lehem, where young Palestinians throw backed Hosni Mubarak, Egypt’s former
stones at Israeli soldiers manning the wall dictator, and discouraged Copts from join-
separating the West Bank from Israel. From ing the protests that would eventually top-
afar, the Israeli tear gas looks like the smoke ple him. In 2012 Shenouda was succeeded
from frankincense, of the sort that pilgrims by Tawadros II, who supports the current
burn when visiting the Church of the Na- strongman, Abdel-Fattah al-Sisi. He has de-
tivity. But there were few pilgrims this Cryin’ Christmas tears scribed the Arab spring as being more like
Christmas—they were too scared. a “winter, plotted by malicious hands” in
Most victims of war and terrorism in hadists entered the city in 2014, they report- order to break up the region into smaller
the Middle East are Muslims, since they are edly tagged Christian houses with an “N” states.
by far the majority of the population. But for “Nazarene”, and gave their occupants a Yet the Copts have gained little from
the tiny Christian minority often feels sin- choice: convert, pay the jizya, a tax on non- their leaders’ loyalty. Mr Mubarak stood by
gled out. Their numbers are declining Muslims, or face possible death. Most fled. as relations between Christians and Mus-
where the fighting is worst (see chart). In July 2014 IS announced that the city was lims deteriorated and sectarian violence
Overall, the proportion of Middle Eastern- free of Christians. increased. Mr Sisi is seen as better than the
ers who are Christian has dropped from Many who left Mosul went to Erbil, the Islamist government that he toppled. A
14% in 1910 to 4% today. Church leaders and Kurdish capital of northern Iraq, where draft law would make it easier to build
pundits have begun to ask whether Chris- they have trouble finding work or obtain- churches. But Copts are still expelled from
tianity will vanish from the Middle East, its ing public services. Even there, some refu- villages for such crimes as falling in love
cradle, after 2,000 years. gees chafe at the enforcement of Muslim with a Muslim.
An exodus is under way. Many Chris- customs. “You wouldn’t want to live Even in Lebanon, where Christians
tians feel more at home in the West and there,” says Samir, a Christian refugee now were once a majority and still hold consid-
have the means to get there. Some are leav- in Lebanon. In general, Christians com- erable power, their political leaders have
ing because of the general atmosphere of plain that their Muslim neighbours are disappointed. Under the country’s unique
violence and economic malaise. Others growing increasingly intolerant. system, government posts are shared out
worry about persecution. A recent video Some retort that Westerners exaggerate based on sect. The presidency goes to a
of three Assyrian Christians in orange tales of Christian persecution to justify in- Maronite, the largest group of Christians.
jumpsuits being made to kneel before be- terventionist policies. “There is talk as if But in recent decades many Christians 1
ing shot in the head by Islamic State (IS) ji- the West is genuinely interested in Chris-
hadists fuelled this fear—though IS treats tians, but most of the time they only use
many other groups equally badly. them for their own political ends,” says Mi- Exodus
tri Raheb, pastor of a church in Bethlehem. Christians, as % of population
Fewer births, virgin or otherwise He says that the Israeli occupation hurts 20
Egypt
The Christians who remain tend to have Palestinian Christians far more than perse-
fewer babies than their Muslim neigh- cution by Muslims, but provokes less out- Syria
15
bours, according to the Pew Research Cen- rage in the West.
tre. Regional data are unreliable, but in Christian leaders are in a tough spot. “I Palestine
Egypt the fertility rate for Muslims is 2.7; for cannot preach to people: ‘Do not leave,’” 10
Christians it is 1.9. says Father Raheb. But other priests have. Israel
Mosul, in northern Iraq, was once In an open letter published in September Iraq
5
home to tens of thousands of Christians. one of Syria’s most senior Catholic leaders, U.A.E
Perceived as supporting the Americans, Melkite Patriarch Gregory III, wrote: “De- Saudi
they were targeted by insurgents after the spite all your suffering, stay! Be patient! Arabia 0
1910 70 2010 25*
invasion. A wave of killings in 2008, in- Don’t emigrate! Stay for the church, your Available years
cluding that of the local Chaldean arch- homeland, for Syria and its future!” Ran- Source: “Ongoing Exodus: Tracking the Emigration
bishop, seemed to mark the low point for kling many, he then urged Europe not to of Christians from the Middle East” by T. Johnson
and G. Zurlo, 2015 *Forecast
the community. Then came IS. When the ji- “encourage Syrian Christians to emigrate”.
 The Economist January 2nd 2016 Middle East and Africa 35

2 have left. Muslims are now a majority, and sation, but has otherwise supported its the religious police whipping a man; his
want power to match their numbers. Christians. The number of churches in the supporters think the police are taking re-
Christian political leaders complain of per- country has grown from 24 in 2005 to 40 venge. Saudi Arabia beheads people for
secution, but many seem more concerned today. The emirate’s rulers often provide moral transgressions. Iran hangs them.
with enhancing their own power. Bicker- churches with free land, water and electric- Since the 1970s Arab populations have
ing between politicians has left the presi- ity. But these new Christian enclaves may grown more devout. This makes it easier
dency vacant for18 months. not last. Migrant workers in the Gulf can- for rulers to use “morality” to keep them in
Oddly enough it is the Gulf, home to the not easily become citizens or put down line. Women, especially, are told how to
most conservative brand of Islam, which roots. dress and under what circumstances they
has welcomed the largest number of Chris- In any case it is the loss of ancient com- may have sex. In Morocco and Algeria,
tians recently, though not from Iraq or Syr- munities that most concerns church lead- women who are raped are sometimes
ia. A wave of migrant labourers from the ers. “Christians are not guests in the Mid- made to marry their rapist.
Asia-Pacific has dramatically increased the dle East,” says Father Paul Karam, the Social censure is pervasive, and can be
share of Christians in countries such as president of Caritas, a Catholic charity, in deadly. Even in moderate countries such as
Saudi Arabia and the United Arab Emir- Lebanon. “We are the original owners of Jordan, men sometimes kill women to up-
ates (UAE), which had few before. Toler- the land.” But none of the Christian refu- hold family “honour”. The murderers—
ance varies between countries. Saudi Ara- gees who spoke with your correspondent usually a father or brother—often escape
bia, for example, bans the practice of plans to return home. “We don’t belong with light sentences. “If I go out with a boy-
Christianity (though many Christians wor- there,” says Samir, who expects Iraq soon friend in Beirut it’s fine,” says a Lebanese
ship in private). The UAE restricts proselyti- to be empty of Christians altogether. 7 Christian woman. “But in the villages, peo-
ple will say, ‘Look, she’s seeing him and
they’re not married’.”
Enforcing morality Some among the region’s ever more
globalised young are pushing back. Grindr
No sex please, we’re Middle Eastern and Tinder, two hook-up apps for gays and
straights respectively, have a fair number
of users in the Middle East. Men and wom-
en mix and, more and more, choose their
own partners. When parts of films are cut,
such as an explicit scene in “The Wolf of
BEIRUT
Wall Street”, people go online to watch the
The bossiness of the vice police
full version. In Jeddah, if not Riyadh, col-

I T WAS a disquieting announcement. On

November 25th Egypt’s President Abdel-
Fattah al-Sisi approved a committee tasked
would be fined 1000 riyals ($266).
Police in Algeria, Morocco and Sudan,
too, have powers to stamp out immorality.
ourful abayas swing open as unrelated
men and women mingle in cafés.
A few leaders say they want to give peo-
with “improving the morals and values” in Sudan’s criminal code, which outlaws ple a break. Hassan Rohani, Iran’s relative-
his country. Efforts to reduce littering or adultery and women wearing trousers, is ly moderate president, has talked about
sexual harassment, both plagues in Egypt, particularly harsh. Vague laws across the stopping the religious police from fining
might be welcome. But experience in the region such as causing offence and encour- women for failing to conceal their hair,
Middle East suggests that the boot will be aging indecency are broad and open to wrists and bottoms. Such small freedoms,
put into more harmless activities. abuse. Violators can be flogged. so far only very partially implemented,
In September, for example, Egypt In November Saudi Arabia sentenced would be popular.
locked up two belly-dancers for “inciting Ashraf Fayadh, a poet, to death. He was ac- Some of the region’s moral arbiters do
debauchery” after they showed a little skin cused of apostasy and of having illicit rela- not practise what they preach, as bartend-
in online videos; one of the dancers, tions with women, whose images he ers and madams in posh parts of Europe
known as “Egypt’s Shakira”, is most fam- stored in his phone. He denies the charges. can attest. Imagine if the vice police
ous for a video which features much sug- He had previously posted a video showing cracked down on hypocrisy. 7
gestive use of a pestle and mortar, but no
more flesh than is revealed by a low-cut
blouse and an above-the-knee skirt. A
young Egyptian couple tells of police ac-
cusing them of being together without be-
ing married, something that is not banned
in the country. Across the region gay peo-
ple, atheists and dissidents are punished
for their supposed moral transgressions.
Saudi Arabia and Iran, regional and reli-
gious rivals, are the bossiest. Both regimes
claim to be Islamic. Both have vice squads.
In Iran they berate women for showing too
much fringe; in Saudi Arabia, for wearing
too flirty an abaya, the big, usually black,
cloak that is mandatory for females there,
or being in the company of unrelated
males. They enforce bans on alcohol, par-
ties and other things that normal people,
even the most morally upright, enjoy. Sau-
di media recently reported that female bu-
reaucrats wearing too much make-up Endangered pleasures
36 Middle East and Africa The Economist January 2nd 2016

dis, two days’ drive away, is irregular and

private haulage minimal. The postal ser-
vice barely works. Fuel at Lalibela’s sole
(state-owned) petrol station runs out. Visi-
tors can fly up from Addis on Ethiopian
Airways every morning, but private air-
lines are pretty well kept out.
Many of these annoyances could be re-
moved—if only the government were
brave enough to set the economy free. “The
service sector here is one of the most re-
strictive in the world,” says a frustrated for-
eign banker. The government’s refusal to
liberalise mobile-telephone services and
banks is patently self-harming. Ethiopians
have one of the lowest rates of mobile-
phone ownership in Africa (see chart); the
World Bank reckons that fewer than 4% of
households have a fixed-line telephone
and barely 3% have access to broadband.
The official reason for keeping Ethio Te-
lecom a monopoly is that the government
can pour its claimed annual $820m profit
straight into the country’s grand road-
building programme. In fact, if the govern-
ment opened the airwaves to competition,
as Kenya’s has, it could probably sell fran-
chises for at least $10 billion, and reap taxes
and royalties as well; Safaricom in Kenya is
Ethiopia the country’s biggest taxpayer.
Moreover, Kenya’s mobile-banking ser-
What if they were really set free? vice has vastly improved the livelihood of
its rural poor, whereas at least 80% of Ethio-
pians are reckoned to be unbanked. For en-
trepreneurs like Ms Aitchison and her
partner, Habtamu Baye, local banks may
suffice. But bigger outfits desperately need
ADDIS ABABA AND LALIBELA
the chunkier loans that only foreign banks,
If the government let people breathe, they might fly
still generally prevented from operating in

T HE Ben Abeba restaurant is a spiral-

shaped concrete confection perched on
a mountain ridge near Lalibela, an Ethiopi-
investors must overcome if Ethiopia is to
take off. Electricity is sporadic. Refrigera-
tion is ropey, so fish is off the menu. So are
the country, can provide. A recent survey
of African banks listed 15 Kenyan ones in
the top 200, measured by size of assets,
an town known for its labyrinth of 12th- butter and cheese; Susan Aitchison, the whereas Ethiopia had only three.
century churches hewn out of solid rock. restaurant’s resilient co-owner, won’t use Land reform is another big blockage,
The view is breathtaking: as the sun goes the local milk, as it is unpasteurised. Hon- though farmers can now have their plots
down, a spur of the Great Rift Valley ey, mangoes, guava, papaya and avocados, “certified” as a step towards greater securi-
stretches out seemingly miles below in grown on farmland leased to the enterpris- ty of tenure. Given Ethiopia’s not-so-dis-
subtly changing hues of green and brown, ing pair, who have planted 30,000 trees, tant feudal past and the dreadful abuses
rolling away, fold after fold, as far as the eye are delicious. All land belongs to the state, that immiserated millions of peasants in
can see. An immense lammergeyer, or so it cannot be used as collateral for bor- days of yore, especially in time of drought,
bearded vulture, floats past, showing off its rowing, which is one reason why commer- the land issue is sensitive; the late Meles 1
russet trousers. cial farming has yet to reach Lalibela. Con-
The staff, chivvied jovially along by an sequently supplies of culinary basics are
intrepid retired Scottish schoolmarm who spotty. Local chickens are too scrawny. The Disconnected
created the restaurant a few years ago with government will not yet allow retailers Per 100 people
an Ethiopian business partner, wrap yel- such as South Africa’s Shoprite or Kenya’s Mobile-phone Internet
low and white shawls around the guests Nakumatt to set up in Ethiopia, let alone in subscriptions penetration
against the sudden evening chill. The most Lalibela, a UNESCO World Heritage site. 75 75
popular dish is a spicy Ethiopian version of Bookings at Ben Abeba are tricky to Kenya
60 60
that old British staple, shepherd’s pie, with take, since the internet and mobile-phone
minced goat’s meat sometimes replacing service are patchy. Credit cards work 45 45
lamb. Ben Abeba, whose name is a fusion “about half the time”, says Ms Aitchison. Rwanda Kenya
of Scots and Amharic, Ethiopia’s main lan- Imports for such essentials as kitchen 30 30
guage, is widely considered the best eatery spares are often held up at the airport, Rwanda
in the highlands surrounding Lalibela, where tariffs are sky-high: a recent batch of 15 15
nearly 700km (435 miles) north of Addis T-shirts with logos for the staff ended up Ethiopia Eth.
Ababa, the capital, by bumpy road. costing three times its original price. Wine, 0 0
2000 05 10 14 2000 05 10 14
Yet the obstacles faced by its owners il- even the excellent local stuff, is sometimes
Source: International Telecommunication Union
lustrate what go-ahead locals and foreign unavailable, because transport from Ad-
 The Economist January 2nd 2016 Middle East and Africa 37

2 Zenawi, who for 21 years until his death in sion, slumped to one and now none.

Re
2012 ran the country with an iron fist and a The opposition is crushed, fragmented

d
SUDAN ERITREA

Se
fervent desire to reduce poverty, was deter- YEMEN and feeble. Prominent dissenters have fled

a
mined to prevent a rush of landless or des- or are behind bars. Human Rights Watch, a
T I G R AY
titute peasants into slums edging the big monitoring group based in New York, reck-
towns, as has happened in Kenya. But the Blue Lalibela DJIBOUTI ons there are “thousands” of political pris-
Nile
increasing fragmentation of land amid the Addis oners. Torture is routine. “Ethiopians are
rocketing increase in population is plainly Ababa cowed,” says a longtime analyst. It was no-

I A
unsustainable, even though productivity E T H I O P I A table, at a recent Economist conference in
has risen fast through government-provid- Addis, that virtually no businessman, Ethi-

L
Omo
SOUTH

A
ed inputs such as fertiliser and better seed. SUDAN opian or foreign, had the nerve to dispar-

M
(Ethiopia is Africa’s second-most-popu- O age any of the government’s policies. In
S
lous country after Nigeria; by some esti- public Ethiopians tend dutifully to echo
UGANDA Lake
mates it has nearly 100m people.) Most Turkana INDIAN the government line; in private, though,
women still have four or five children. The KENYA OCEAN they can be franker.
standard family plot has shrunk to less After Meles’s death, Hailemariam De-
500 km
than a hectare. salegn emerged as prime minister. In Sep-
Yet, despite these self-imposed brakes, It promotes industrial parks, which are tember of 2015 he was confirmed as head
Ethiopia’s economic progress has been supposed to boost their share of GDP from of the ruling Ethiopian People’s Revolu-
spectacular. Its growth rate, if the latest offi- 5% today to 20% within a decade—and tionary Democratic Front, itself a coalition
cial figure of11% is true, is the fastest in Afri- create millions of jobs for a population whose key component is still Meles’s Ti-
ca; and even the lower figure of around 8%, whose median age is only 19. grayan front. But Mr Hailemariam, a south-
which the IMF and many Western analysts Though the government invokes no ern Pentecostalist from a small ethnic
prefer, is still very perky. Social and eco- precise model, it has various Asian ones in group outside Meles’s circle of revolution-
nomic indices are reckoned to have im- mind, most obviously China’s system of aries from the north, has yet to achieve his
proved faster than anywhere else in Africa, state capitalism under the strict control of a predecessor’s authority.
albeit from a low base. Extreme poverty, dominant political party. Meles rose to
defined as a daily income of under $1.25, af- power at the head of the Tigrayan People’s Just take the plunge
flicted 56% of the population in 2000, ac- Liberation Front, a revolutionary regional He says he favours a loosening of econom-
cording to the World Bank, but had fallen party that originally drew its inspiration ics and politics. But so far he has been ten-
to 31% by 2011 and is thought to be dipping from Enver Hoxha’s Albanian brand of tative. “He’s a compromise guy encircled
still. The average Ethiopian lifespan has ris- communism and which, after years of by old-guard Leninist ideologues, the Ti-
en in the same period by a year each year, guerrilla warfare in the mountains, over- gray boys,” says Beyene Petros, a veteran
and now stands at 64. Child and infant threw a vicious Soviet-backed Marxist re- leader of the opposition. One of Mr Haile-
mortality have dived. Protection for the ru- gime, known as the Derg, in 1991. mariam’s close advisers, Arkebe Oqubay, a
ral poor in time of drought, which present- Meles gradually began to open the reformist who promotes industrial policy
ly afflicts swathes of the north and east, is country’s economy, but he also felt obliged (especially the creation of industrial parks)
more effective than before. The govern- to close down an experiment in multiparty and craves foreign investment, cagily sug-
ment has “the most impressive record in democracy after an assorted opposition gests that banking will open up “in five
the world” in reducing poverty, says a Brit- made big advances in a general election years”. Yet the ruling front still reflects a
ish aid official. (Britain gives its fattest dol- (which it claimed to have won) in 2005. deep wariness of foreigners who, in the
lop of largesse to Ethiopia.) The two main opposition parties, which words of a long-standing expatriate, re-
Nonetheless, at least 25m Ethiopians both want to liberalise the economy and main widely suspected of plotting to “get
are still deemed to be “extremely poor”. A privatise the land, were eventually al- rich at the expense of Ethiopians”.
waitress at Ben Abeba, a university gradu- lowed to keep 161 seats in the 547-strong Most independent observers feel that,
ate in biology, seems happy to get a month- parliament. In the post-election fracas, overall, Ethiopia is on the rise, and may
ly wage of $26. A labourer earns a lot less. about 200 people were killed and at least even emerge as an African powerhouse
20,000 are reckoned subsequently to have alongside South Africa and Nigeria—and
How they made a miracle done stints in prison. In the next two ahead of Kenya, its regional rival. It is
The core of the government’s economic rounds of elections, in 2010 and again in proud of having the African Union’s head-
policy is to improve agriculture, nurture in- May 2015, the tally of opposition MPs, after quarters and of providing more UN peace-
dustry and build lots of infrastructure. This a government campaign of outright repres- keepers than any other African country. It
includes a series of huge dams on the Blue is a leading mediator in the region, espe-
Nile (which provides most of the water cially in war-torn South Sudan, and has
that flows into Egypt via Sudan) and on the African lion won plaudits from the West for its fierce
Omo river, which flows south into Kenya’s Ethiopia’s GDP, % change on a year earlier stand against jihadism. It also caters for
Lake Turkana. The mass electrification that more refugees than any other African
14
is expected to ensue should eventually country—some 820,000 at last count.
help Ms Aitchison’s kitchen and commu- 12 On the home front, Ethiopia’s infra-
nications in Lalibela. 10 structure plans have attracted the interest
Roads and railways are also being built of potential investors from across the
8
apace. Driving east from the town on a dirt globe. Yet unless the government gets a
track to join a paved road 80km or so away, 6 move on frustration will grow, at home
your correspondent saw not a single other 4 and abroad. If the ruling party had the
vehicle in two hours. The government puts 2
courage to open up the economic and po-
its hope in industrialisation and light litical system, the pace of Ethiopia’s pro-
manufacturing, spurred on by investment 0 gress towards prosperity and stability
2004 06 08 10 12 14 15*
and also by mass education (more than 32 would quicken. Even lovely, remote Lali-
Source: IMF *Estimate
universities have been created since 2000). bela would gain. 7
Where things get interesting.
 Europe The Economist January 2nd 2016 39

Also in this section

40 Vladivostok’s new casino
40 Forming a Spanish government
41 Poland’s pious politics
41 Educating refugees
Charlemagne is away

For daily analysis and debate on Europe, visit

Economist.com/europe

Russia’s Far East will be the development of the East,” Mr

Putin said, in a rare echo of Mr Gorbachev.
Snow job But after the conference, Moscow’s at-
tention shifted and funds dried up. Devel-
opment projects fell by the wayside. Two
five-star Hyatt hotels went unfinished. The
government says funds allocated to re-
build the Pogranichny border area were
VLADIVOSTOK AND KHABAROVSK
stolen (by contrast, a shopping mall and a
Russia’s much-ballyhooed turn towards China is less than it seems
Holiday Inn await on the Chinese side).

D OWN a bumpy two-lane road through

the hills north-west of Vladivostok,
the Pogranichny border crossing is where
rouble weak, bilateral trade shrank by
around 30% in the first half of 2015. Corrup-
tion, bureaucracy and the rickety infra-
The clash with the West over Ukraine
turned Russia’s focus eastward again. In
May 2014, two months after the annex-
Russia meets China. Bilateral relations are structure of Russia’s Far East cloud the ation of Crimea, Mr Putin met Mr Xi and
blossoming, and trade should be booming. business climate. announced a 30-year, $400 billion gas
Yet lorries loaded with timber idle on the Mr Putin is not the first Russian leader to deal, ending a decade of talks. Russia’s rail
roadside, as obstructive bureaucrats keep turn towards Asia. Chinese and Soviet monopoly awarded a tender to the state-
them waiting for days. On a recent visit, the communists feuded during the cold war, controlled China Railway Group to design
electricity was out; candles flickered in the but by the time of perestroika Mikhail a high-speed train between Moscow and
truck stop’s lavatories. “Nothing new Gorbachev was calling Vladivostok a Kazan. Moscow agreed to sell Beijing so-
here,” said a shopkeeper. “window to the East” and declaring the So- phisticated S-400 anti-aircraft missiles and
Over the past two years, as its relations viet Union “an Asian and Pacific country”. Su-35 fighter jets. China extended a yuan
with the West have soured, Russia has pro- Nor is Mr Putin’s interest in the Pacific Rim currency-swap agreement.
claimed a “pivot to the East”. Officials envi- new: when Vladivostok hosted the Asia- In the autumn of 2015 Russia declared
sioned China replacing Western capital Pacific Economic Co-operation (APEC) con- several Far Eastern regions priority devel-
markets and hoovering up Russian exports ference in 2012, he poured resources into opment zones. Investors will enjoy a five-
of oil, minerals and food. Vladimir Putin the city, building two bridges and a sprawl- year break on most taxes and streamlined
and Xi Jinping, the countries’ presidents, ing campus for the talks. “In the 21st cen- bureaucracy. Foreigners arriving through
visited each other’s capitals for ceremonies tury, the vector of Russia’s development Vladivostok will be allowed in without
commemorating the end of the second visas. Some firms have moved in: En+
world war; Western leaders stayed away. Group, an energy holding company con-
Big deals in energy, transport and arms Giant tiger, small bear trolled by Oleg Deripaska, a Russian oli-
seemed to augur a new friendship. In Sep- Total trade in goods, 2014, $bn garch, has signed a deal with China’s Hua-
tember Mr Putin declared that Sino-Rus- Russia with: 0 20 40 60 80 100 wei to build data centres in Siberia.
sian relations had “probably reached a 1 China* But it has not exactly been a gold rush.
peak in their entire history”. Western sanctions have made Chinese
2 Netherlands
That was the official story, at least. “The lenders cautious about Russian firms. Chi-
3 Germany
turn to the east is happening, but in a char- nese foreign direct investment in Russia
acteristically Russian way: slowly, fool- China* with: 0 200 400 600 more than doubled in 2014, but collapsed
ishly and with unrealistically high expec- during the first half of 2015. Gas export vol-
1 United States
tations,” says Alexander Gabuev, the umes are up, making Russia China’s largest
chairman of the Russia in the Asia-Pacific 2 Hong Kong supplier, but falling oil prices have slashed
programme at the Moscow Carnegie Cen- 3 Japan revenues. And although China is now Rus-
tre, a think-tank. The Russian recession and sia’s largest trading partner, Russia does
…9 Russia
China’s slowdown have put a damper on not crack China’s top five—a fact not lost on
Source: IMF *Mainland
grand plans. With oil prices low and the Chinese businessmen. “They believe, and 1
40 Europe The Economist January 2nd 2016

350km tough restrictions on businesses because Spanish politics

of unfounded fears that the Chinese will

ur
The chore of the

Am
take over its sparsely-populated Far East.
R U S S I A
Chinese businessmen complain about re-
Fuyuan Khabarovsk strictions on hiring foreign labourers.
Deals to lease farmland draw the ire of Rus-
Spanish succession
sian nationalists.
Lake MADRID
Khankha Even innocuous projects can incur the
A fissiparous electorate makes for
C H I N A wrath of Russian apparatchiks. In Novem-
difficult coalition negotiations
Pogranichny ber Cai Shangjun, an internationally ac-

Vladivostok
JAPAN claimed Chinese film director, brought
more than 50 cast and crew to Khabarovsk
to shoot a new movie, but customs officials
I N MOST places, when 3,030 people take
an up-or-down vote, some sort of deci-
sion will probably emerge. But one should
NORTH KOREA held his camera equipment at the border. never underestimate the contentiousness
The frustrated cinéaste was left cooling his of the Catalans. On December 27th an as-
2 not without good reason, that they can dic- heels in his hotel for over a week. “It’s a sembly of the far-left Popular Unity Candi-
tate the conditions,” says the boss of a tragedy,” said Mr Cai, as his crew lingered dacies (CUP) party deciding whether to
Vladivostok-based shipping firm. aimlessly in the lobby. His film “Under the back Catalonia’s acting president, Artur
Russia, meanwhile, frets about being Ice”, about two Chinese lovers who meet Mas, split the vote evenly—1,515 on each
exploited. The desire to get closer to China in Russia, has since resumed production. side. The deadlock means that, three
is offset by a fear of becoming dependent, But like most things under ice, and Russia’s months after elections, Mr Mas still cannot
says Victor Larin of the Russian Academy eastern pivot itself, it is moving slower form a government to carry out his pro-
of Sciences in Vladivostok. Russia imposes than hoped. 7 gramme of moving steadily towards seces-
sion from Spain.
The Catalan impasse is part of a wider
Vladivostok’s new casino
Spanish gridlock. Elections on December
Russian roulette 20th splintered the political landscape.
The duopoly of the conservative People’s
Party (PP) of the prime minister, Mariano
VLADIVOSTOK
Rajoy, and the opposition Socialists (PSOE),
How to lure rich Chinese to take a chance on Russia
who have traded turns in power for the

T HE shiny new Tigre de Cristal casino

looks like a black glass and steel space-
craft that has landed in the Siberian
The fate of such foreign-backed pro-
jects depends on Russia providing the
conditions for success. For Tigre de Cris-
past 33 years, has been upended. The insur-
gent left-wing Podemos and liberal Ciuda-
danos parties grabbed a third of the parlia-
forest. A neon sign advertises “Seafood tal, little went smoothly. A bizarre legisla- mentary seats between them, making a
delicacies from the Sea of Japan”. Inside, tive oversight means that it is illegal to coalition or minority government a neces-
Russian ladies deal out baccarat cards to advertise the casino: with the exception sity. But Spain has little culture of coalition-
Chinese gamblers. The casino itself of a handful of special gaming zones, building, and forming a government is a
represents a bit of a bet: that Russia can gambling is banned in Russia. The launch tall order. Fresh elections are also possible.
tap some of the cash from rising Asian was postponed because of bureaucratic After losing over a third of the PP’s seats,
economies to help develop its own Far hassles. Even with the delay, the local Mr Rajoy’s attempts to form a new govern-
East, a territory larger than the European government failed to revamp the main ment seem destined to fail. Meanwhile Pe-
Union that is home to just 6m people. road from the airport in time for the dro Sánchez, the Socialist leader, led his
Though the Far East is staunchly Rus- grand opening, much to the chagrin of party to a historic low with barely one in
sian, it has grown dependent on its Asian casino staff. “When Disneyland opened,” five votes. A “grand coalition” between
neighbours. Some regions do 85% of their Mr Ballantyne notes pointedly, “the them, possibly backed by Ciudadanos,
foreign trade with China. Europe feels a Santa Ana highway was finished.” would be the most stable option. But de-
world away. When Russia’s economy cades of enmity make that unlikely.
was booming, locals took their holidays Instead Mr Sánchez fancies himself as
at Chinese resorts and popped over the the next prime minister. He would need to
border for cheap massages and shopping. include the far-leftists of Podemos, which
Since the collapse of the rouble the would be a triumph for southern Europe’s
flow has reversed. Chinese shoppers anti-austerity rebellion. But Podemos de-
come to buy Russian food, which they mands that Catalonia be granted a referen-
think safer than their own chemical- dum on independence, which the Social-
ridden produce. Others come for a bit of ists refuse to accept. Mr Sánchez himself
Europe. Li Tsang, a hairdresser from may soon face a leadership challenge, es-
Fuyuan, raves about Khabarovsk, just pecially if party heavyweights, led by Su-
across the Amur river: “It’s so clean!” sana Diez, the president of Andalusia,
At Tigre de Cristal, the brainchild of think he is selling them out. And even if Mr
Lawrence Ho, son of the Macao mogul Sánchez and Podemos reach agreement,
Stanley Ho, investors are banking on an they do not have enough deputies; they
influx of gamblers from north-east China, would need the backing of either Ciudada-
South Korea and Japan. “Within a two- or nos or Catalan separatist parties.
three-hour radius, you have 200m-300m Podemos and Ciudadanos would make
people under-served from a gambling strange bedfellows. One party rails against
perspective,” says Craig Ballantyne, the neoliberalism; the other backs liberal re-
casino’s upbeat Scottish manager. A billion on Siberia, please forms. The leaders of Podemos, Pablo Igle-
sias, and of Ciudadanos, Albert Rivera, 1
 The Economist January 2nd 2016 Europe 41

2 have good personal chemistry, and both much religious fanatics as the socially vul-
see themselves as crusaders ridding Span- nerable. It speaks to Poles alienated by eco-
ish politics of corruption. They agree on nomic and cultural change. Religious sym-
the need to depoliticise the judiciary and bols are their means of showing
some regulatory agencies. Yet a govern- discontent, says Tomasz Szlendak, a sociol-
ment of the Socialists, Podemos and Ciu- ogist at the University of Torun; Radio Ma-
dadanos would lack the votes to change ryja is the only media outlet that “speaks
the constitution, making it hard to resolve their language”. PiS, too, blends religious
Spain’s biggest looming problem: Catalo- and nationalist symbolism with a focus on
nia’s threat to secede. social injustice; a new monthly child bene-
Mr Mas and his Catalan Democratic fit crowns the government’s list of election
Convergence party have been plodding to- promises. Some term PiS the “pious left”.
wards secession for years. To secure the The party castigates its critics as heathen
CUP’s backing, the once business-friendly liberals. “Every hand raised against the
leader is now dabbling in anti-austerity Church is a hand raised against Poland,”
populism, promising to scrap a privatisa- said Mr Kaczynski in December.
tion programme and commit his indebted Like Father Rydzyk, Mr Kaczynski
region to an extra €270m ($296m) of social speaks of PiS’s election as the first step in a
spending. His next steps towards indepen- spiritual renaissance that will remake the
dence are likely to clash with Spain’s con- Polish state. But his party’s interference
stitution and may prod the new govern- with the constitutional tribunal has raised
ment to employ legal force against him. Communists, communists everywhere hackles in Brussels. The European Com-
After four years without dialogue between mission had asked the Polish government
Madrid and Barcelona, however, the two subdued. Liberals and centrists have taken to put the process on hold; Mr Duda ig-
new governments may both be too weak to the streets in protest. nored the request. On January 13th the
to sort the problem out. Observers wondering why a stable EU commission will meet to discuss the stat-
Spain’s economy grew by an estimated member with a growing economy has sud- ute and whether it infringes EU treaty com-
3% in 2015, but the recovery remains fragile denly plunged into such turmoil might do mitments to the rule of law.
and inadequate. Unemployment is 21% well to visit Torun, a small city in northern Meanwhile, Father Rydzyk, too, is dis-
and GDP is still lower than in 2007. The Poland. Torun is home to Radio Maryja, an appointed in the new government. After a
most recent report by Fitch, a ratings agen- ultra-conservative radio station run by Fa- spat over access to the president, he threat-
cy, stated the obvious: a long period of po- ther Tadeusz Rydzyk, a Roman Catholic ened to break off co-operation, saying he
litical uncertainty and reversals of reforms priest. From its gated headquarters, guard- expected his media outlets to be “treated
will damage business confidence. Spain ed by silver-haired devotees, it broadcasts differently”. It remains to be seen whom
could use a strong government. It looks warnings against “gender ideology” (an Mr Kaczynski and his party fear more: the
likely to get a weak one. 7 umbrella term for feminism and gay rights) EU, or Radio Maryja. 7
and the “Islamisation” of Europe. The sta-
tion’s audience is small, under 2% of all lis-
Poland’s religious politics teners. Yet its political ideology is close to Educating refugees
that of the new government. PiS would not
Courting disaster have won without Radio Maryja, said Ja-
roslaw Kaczynski, the party’s leader, at the
Learning the hard
broadcaster’s 24th anniversary celebration
in December.
way
The 70-year-old Father Rydzyk does not
TORUN STOCKHOLM
think much of the way Poland has evolved
An attack on judicial independence Integrating migrants into schools will
since the end of communism. The country
reveals the government’s ideology not be easy
needs a spiritual renaissance, or it will be-

W HEN the far-right Law and Justice

(PiS) party won Poland’s parliamen-
tary elections on October 25th, it was clear
come a “republic of bandits, thieves and
perverts”, he said in an October interview
with Nasz Dziennik, the daily newspaper
A FTER Aida Hadzialic’s parents fled war-
torn Bosnia for Sweden in the early
1990s, they put their five-year-old daughter
that the country was headed for change. he publishes. Like PiS, Radio Maryja pro- in a school full of native Swedes and made
But few expected anything like what has pounds social conservatism, suspicion of sure she studied hard to get ahead. It
followed: purges of senior security offi- Brussels and hostility towards refugees worked. Today Ms Hadzialic, 27, is Swe-
cials, threats against public broadcasters, a from the Middle East. The station’s listen- den’s minister for upper secondary educa-
police raid on a NATO–affiliated office and ers are sympathetic to conspiracy theories tion. Like her counterparts across Europe,
a deepening crisis over the constitutional positing that the parties that have ruled Po- she faces a new challenge: ensuring that a
court. On December 28th President Andr- land since the 1990s (apart from PiS) are se- fresh wave of refugee children can inte-
zej Duda (nominated by PiS, though tech- cretly controlled by communist appara- grate as successfully as she did.
nically non-partisan) signed a law that tchiks. Right-wing demonstrators (see Even before this year’s surge, western
would, among other things, require Po- picture) often demand that the constitu- Europe had lots of immigrant students. Ac-
land’s constitutional tribunal to approve tional court be “decommunised”, a request cording to the Organisation for Economic
all verdicts by a two-thirds margin, crip- that leaves its moderate justices bemused. Cooperation and Development (OECD),
pling its ability to review legislation. PiS Radio Maryja’s listeners are not so the proportion of 15-year-old schoolchil-
has appointed five additional judges to the dren in Spain who are foreign-born rose
tribunal, in a move the standing judges Correction: In “The gauge of history” in our Christmas from 3% to 8% from 2003 to 2012 (though in
ruled unconstitutional. PiS politicians refer issue, a portrait was wrongly described as showing Germany it fell by about the same
Fyodor Shekhtel, a Russian architect. The subject was in
to the court as a bastion of the previous fact Savva Mamontov, a Russian industrialist and patron amount). The new wave of migrants from
Civic Platform government that must be of the arts. Syria, Afghanistan, Iraq and elsewhere has 1
42 Europe The Economist January 2nd 2016

who arrive aged 12 or over.

Better when not together The German system has its strengths. In
Share of immigrant students enrolled in schools where Mathematic performance of schools with high less than a decade, Germany has improved
at least half of the students are also immigrants concentrations of immigrants* versus those without the mathematics grades of second-genera-
2012, % 2012, difference in PISA score† tion migrant children by the equivalent of
40 50 60 70 80 80 60 40 20 – 0 over a year of schooling. In some German
Greece Denmark states school days are being extended, and
the government has made a big invest-
Italy OECD average§
ment in preschool education. In Sweden,
Denmark Germany meanwhile, older refugees are being
OECD average‡ Italy trained as teaching assistants to speed inte-
gration. Ronna School and others
Belgium Slovenia
scrapped separate “introductory lessons”
Netherlands Netherlands for refugees after realising they led to immi-
Slovenia Belgium grants being segregated and bullied.
Germany Greece But far more could be done. Pupils
†OECD average PISA score=494 ‡20 countries §25 countries
could be distributed throughout the school
Source: OECD *Schools where over a quarter of students are immigrants
system more effectively. In Aarhus, a city in
Denmark, the proportion of pupils from
2 redoubled the strains on school systems. Schleicher says the system lacks a culture migrant backgrounds cannot exceed 20%
In the countries accepting the most ref- of accountability. in each school; a similar distribution in
ugees—Sweden and Germany—lack of Germany’s PISA rankings remain high, Germany and Sweden could help fight
space is not a problem. Before the migrant but its school system is “almost the worst ghettoisation. And refugee children should
surge, both countries faced declining num- you could pick” for migrants, says Maurice be getting more preschool. According to
bers of pupils because of low birth rates. In Crul, an expert on immigrant youth at Eras- the OECD, 15-year-old immigrant children
Sweden the number of children in ninth mus University in Rotterdam. Unlike are 20% less likely to have attended pre-
grade fell from 120,000 in 2005 to 96,000 France or Sweden, where most children primary education than the native-born,
in 2015. “We have places for a hundred start preschool before age three, German but those who have score 49 points higher
more pupils,” says Henrik Ljungqvist, the children tend to start school at four or five. in reading than those who have not.
headmaster of Ronna School in Sodertalje, Many schools have only half-day classes. Most important, European govern-
a city near Stockholm. (His school admits Moreover, the German system streams ments need to treat refugee children as an
two to four new refugee pupils a week.) In pupils at 10 into either vocational or aca- opportunity rather than a problem. Driven
Germany, without the new migrants, the demic systems—and immigrant children by a desperate desire for a better life, they
number of students was projected to de- are 44 percentage points more likely than and their parents tend to be hard-working
cline by 10% over the next decade, says natives to be sent to vocational courses. and ambitious. Europeans worried about
Ludger Woessmann of the University of Unlike other vocational systems such as migrants studying beside their children
Munich. that in the Netherlands, Germany’s makes should take comfort: the most important
The biggest problem for education sys- it hard to move from a vocational track to predictor of pupils’ school results is their
tems is that refugee children tend to be con- an academic one. Lack of native language parents’ level of education, and about half
centrated together. Many attend schools skills can steer bright immigrant children of the refugees reaching Europe from Syria
near refugee centres or in immigrant neigh- away from a university education. The sys- have university degrees, according to
bourhoods. In Norway, Denmarkand Swe- tem’s inflexibility also makes it harder to UNHCR, the UN refugee agency. “Some-
den about 70% go to schools where at least integrate older immigrant children. Ger- times I joke that Syrian children may help
half of the pupils are immigrants. This many has one of the world’s biggest gaps reverse [our decline in] PISA results in
means they are partially segregated and in reading proficiency between those who maths,” quips Ms Hadzialic. If they are in-
less likely to learn the local language. arrive aged between six and 11 and those tegrated properly, she may be right. 7
Moreover, immigrants tend to find
housing in poor areas with lower educa-
tion standards. Schools where more than a
quarter of students are immigrants usually
perform worse than those with no immi-
grants (see chart), although the gap shrinks
when economic status is accounted for. At
Mr Ljungqvist’s school, where about 350 of
the 750 students were born abroad, many
of the brightest pupils have left.
Swedish schools faced problems well
before the latest migrants began arriving.
From 2002 to 2012 Sweden’s rank in the
OECD’s Programme for International Stu-
dent Assessment (PISA) fell more than any
other country’s, to 28th out of 34 countries
in mathematics and 27th in reading and
science. Pupils in Sweden are more likely
to arrive late to school than in any other
rich-world country. The government has
responded to declining scores by increas-
ing teachers’ pay, but it still does little or no
inspecting of schools. The OECD’s Andreas That’s an ä not an å
 Britain The Economist January 2nd 2016 43

Also in this section

44 Flooding in northern England
45 Bagehot: Bring on the tempest

For daily analysis and debate on Britain, visit

Economist.com/britain

Funding the police Fiscal Studies, a think-tank, those forces

that increased their local funding most
Counting up the coppers were those that had done least well under
the old system of direct grants, which fa-
voured populous places with high crime
rates. Forces covering England’s largest cit-
ies—Greater Manchester, Merseyside, West
BEDFORD
Midlands and London’s Metropolitan Po-
As the police get more control over their budgets, different forces are taking very
lice—all raised their local taxes less than av-
different approaches to fundraising
erage. The most enthusiastic taxers were

O N A recent Sunday night in Bedford-

shire, north of London, a damp-look-
ing officer enters police headquarters. He
their finances—and they are using this
power in very different ways.
The shift began in 1995, when forces
small or rural forces: after North Yorkshire,
the biggest increases were in Durham,
Cambridgeshire and Cleveland.
has been fishing a possible murder victim gained the ability to raise money by add- After entering office in 2010, the Conser-
out ofthe river, he says, but “had nothing to ing a supplementary “precept” to council vative-led coalition put a brake on local
fish him out with”. Under the gaze of tax, a local property levy. Police precepts fundraising, forbidding police bosses from
throngs of Christmas shoppers, he found were small at first: about £70 ($100) per raising taxes by more than 2% without
he also had no tent with which to cover the household in today’s terms. They crept up holding a referendum, a feat none has yet
body, and “embarrassingly” had to borrow in the 1990s, before soaring in the 2000s: in managed. (Only one force, Bedfordshire,
one from an ambulance. the decade to 2010, forces increased local has tried it; Surrey considered it, but
Following big increases in spending on charges by an average of 98%. backed down in 2015 after a Conservative
the police in 2000-10, the past five years There was wide variation. Whereas minister branded it a “lazy option”.) Yet the
have been austere. Police spending per per- some forces increased their precepts by government has increased reliance on lo-
son has been remorselessly trimmed back just a few percent each year, others went cal funding in another way, by reducing the
to roughly where it was in 2003, account- for broke: in North Yorkshire the police central grant. Central funding for the police
ing for inflation. Further cuts were expect- more than trebled the amount raised from was cut by one-fifth across the board in
ed to be imposed in 2015, but after inten- local taxation in 2000-10. In the main, ac- 2010-14. The forces that suffered least were
sive lobbying by officers, and the jolt of the cording to an analysis by the Institute for those that had plenty of local income. The
Paris terrorist attacks, on November 25th differences are stark: overall, North York-
the government announced that the police shire’s total budget is now 30% higher in
would be protected from cuts for the next A more local beat real terms than in 2000, whereas in North-
five years. Police spending, £bn, 2014-15 prices umberland, which increased its local pre-
Amid rises and falls in police funding England and Wales cept the least, it is 8% lower.
there has been one constant trend. The po- From: local funds central funds The devolution of funding allows lo-
lice in England and Wales long received al- 15 cals to decide for themselves how much to
most all their money in the form of a grant 12
spend on security. But it may lead to more
from the central government. But over the being spent in wealthy areas—an odd way
past two decades they have been raising 9 to approach crime, which is strongly corre-
more and more of their money locally. lated with poverty, points out Tom Kirch-
6
Whereas in 1995 only 12% of police funding maier, a policing expert at the London
was local, by 2014 30% of it was earned in 3 School of Economics. The reliance on rais-
this way (see chart). Tweaks announced in ing money from households also punishes
November mean that in five years’ time the 0 districts that combine sparsely populated
1995-96 2000-01 2005-06 2010-11 2014-15
proportion will be higher still. Britain’s po- rural areas with troublesome urban patch-
Source: Institute for Fiscal Studies
lice forces are slowly gaining real control of es. Bedfordshire falls into this category: of1
44 Britain The Economist January 2nd 2016

2 the 43 forces in England and Wales, it ranks SCOTLAND for sandbags on Leeds council’s website
Flood warnings were met with error messages.
32nd in the number of police officers per 80* Nov 28th to
person, yet the presence of Luton, a run- Dec 28th 2015 Hard-up local authorities have strug-
down town with an international airport, Cumbria 100 km gled to do much beyond leading search-
521
gives it the fourth-highest rate of gun crime and-rescue efforts. In Leeds and York, the
407 York
per head, as well as what local officials be- council response mainly consisted of orga-
Bradford Leeds
lieve to be a high terror threat. There are nising evacuations. The stripped-down
Manchester service is part of a wider trend of councils
sometimes so few officers on duty, says
Kate Rowley, a local copper, that she knows “becoming more like emergency services”,
that if she pressed her emergency panic- ENGLAND says Simon Parker of the New Local Gov-
9* 108 15 ernment Network, a think-tank. Forced to
button no one would come.
WALES
Police forces are finding new ways to London make deep cuts to their budgets in the past
supplement their incomes. In April the five years, they have sacrificed long-term
Home Office raised the modest fee charged 9 investment: in 2010-15 councils’ capital
by police for licensing firearms for the first 82 spending fell by 25% in real terms, and their
time in 14 years. More controversially, the outlay on planning and development by
police make money by sending dangerous *At December 30th 50%. Saving so much money without seri-
Sources: Environment Agency; ©2015 OS. Media 028/15
drivers on remedial “speed awareness” ously denting voter satisfaction has been a
courses costing £85. Between 2010 and marvel, but the apparently thin prepara-
2014, as forces’ central funding was time of writing (with more storms fore- tion on display this week suggests how the
squeezed, twice as many motorists were cast), no one had died; the floods pale in trick has been pulled off.
sent on such courses. Some police bosses comparison with recent disasters in other In the absence of much help from gov-
have threatened to raise money by fining parts of the world (see page 61). But the ernment, people have helped each other.
motorists who stray only fractionally rampaging waters, and the limp official re- “The spirit round here has been very
above speed limits. sponse to them, are a problem for David good,” says Mr Heald, whose neighbours
Like doctors, police officers report that Cameron, who has put the project of creat- have rallied to help him out; one spent
they are increasingly “dumped on” by so- ing an economic “Northern Powerhouse” hours scooping water out of his salon.
cial services, whose budgets have been at the centre of his second term. “A North- Groups such as Bingley Flood Support,
drastically cut. In November the govern- ern Powerhouse is nothing when it is un- near Bradford, have been organising
ment announced that social services, too, der several feet of mucky water,” thun- clean-up operations, using Facebook to co-
would be supplemented in future by an dered the Yorkshire Evening Post. Splashing ordinate efforts: in Bingley members of a
optional local levy, to be determined by around York on December 28th, the welly- local mosque have brought food, a local
councils. Increasingly, it will be for local shod prime minister was heckled. newspaper has donated old newsprint to
people to decide what sort of services they He deserved it. After entering office in soak up water, and a bouncy-castle firm
are willing to pay for. With a round of elec- 2010, he reduced flood-protection spend- has lent its van to run errands.
tions of police commissioners due in May, ing by one-fifth, and in spite of a splurge in Social media have also eclipsed the
voters will get a chance to say just how thin 2014, after severe floods in Somerset, it has conventional sort. Twitter and Instagram
a blue line they want. 7 dropped back to below its level when he have provided updates and advice quicker
entered Downing Street. The cuts have re- than the local press, whose skeleton staff
sulted in hundreds of relatively cheap were caught on the hop over Christmas.
Floods flood-defence schemes being cancelled, in- Mr Cameron has long wanted to encour-
cluding one that could have prevented age a “Big Society” of volunteers. The
Northern Leeds city centre flooding this week.
The Environment Agency, which ad-
floods have provided it—though perhaps
not in quite the way he wanted. 7
waterhouse ministers most flood-defence spending in
England, funds only defences against sea
and river flooding, not surface or ground-
YORK
water, which cause more than 60% of the
Anger rises as fast as the water across
damage done by water to houses. A “com-
inundated northern cities
plete rethink” is needed, the agency’s act-

E ARLY on December 27th, residents of

Huntington Road in York were woken
by cries warning them of torrents of water
ing head said this week (his unfortunate
boss was found on holiday in Barbados).
Climate change has increased the frequen-
gushing down the street; the River Foss had cy of the intense rains that cause severe
burst its banks. The flooding was the worst flooding; some parts of Cumbria with a
in the neighbourhood since the last great one-in-100-years chance of it have been in-
inundation in 1982, says one local, John. undated three times in the past decade.
With his house situated on a slight rise, the Yet if central government was found
waters lapped at his front steps but rose no wanting, the local response was little bet-
further. Most of his neighbours were less ter. “It was a poor show,” complains Ken
fortunate: by the afternoon most of the Heald, a York hairdresser, with obvious un-
houses had to be evacuated. Here and derstatement. He phoned a council help-
there a few car tops were still just visible line to request sandbags for his salon,
poking above the muddy waters. Mamselle, as soon as he saw water seeping
York was one of several northern cities under the front door. Nobody got back to
to be swamped by the latest round of him, nor replied to two more pleas. Over-
floods in Britain’s wet winter. By Decem- all, the council was “no help at all”, he says.
ber 29th at least 6,700 properties had been And for all the talk of e-government, the
inundated in northern England. At the online response was glitchy, too: requests The Venice of the north
 The Economist January 2nd 2016 Britain 45

Bagehot Bring on the tempest

Britain’s interlocking political dramas may be just what the country needs
don, claims Britain’s seafaring history has made it flexible but
cautious; more comfortable tacking with the winds than its un-
compromising continental neighbours.
On the other hand, a penchant for the zigzag and the gentle
curve over the straight line comes at a cost. Consider the Palace of
Westminster. Bombed during the war, it was quickly repaired and
is now crumbling. A rolling programme ofrestoration struggles to
keep up with its decay. Muddling through, in other words, can
leave big problems unresolved. It stores up contradictions that oc-
casionally unleash thoroughly un-British political earthquakes:
the Labour landslide of1945 would have been unthinkable with-
out the hemming and hawing of pre-war governments, just as
Margaret Thatcher’s economic revolution would have been with-
out her predecessors’ procrastinations.
The same pattern is in evidence now. Thatcherism created
doubts about Britain’s place in Europe, divided England from oth-
er parts of the union, propelled London towards vast wealth and
presented socialists with an existential challenge. Labour inherit-
ed these tensions when it came to power in 1997, but a combina-
tion of political skill and benign economic circumstances al-
lowed it to fudge them. It sought European integration without

B RITONS have much to look forward to in 2016. Street parties

will take place on the queen’s 90th birthday. The English,
Welsh and Northern Irish football teams will all contest the Euro-
convincing voters of the need for it; devolved powers to Edin-
burgh, Cardiff and Belfast without reforming the architecture of
the union; encouraged the capital to boom without building up a
pean Championship. The Royal Shakespeare Company is pro- counterweight and made its peace with markets without finally
mising the biggest-ever celebration of the Bard’s work to mark the defeating anti-capitalists on the left. Today’s crises are, in other
400th anniversary of his death, and the Globe theatre will stage a words, Tony Blair’s unfinished business.
new production of “The Tempest”.
Yet in politics, as in the skies, storms loom. Jeremy Corbyn, the O brave new world
far-left leader of the Labour Party, is consolidating his grip on the Thus Britain’s current period of upheaval is not just overdue. It is
opposition. In an imminent shadow-cabinet reshuffle he will necessary. The EU referendum forces pro-Europeans to make the
show moderates the business end of his proverbial ice-axe. North gutsy case for continental co-operation. If they succeed, the vote
of the border, the pro-independence Scottish National Party will should give British leaders a fresh mandate to build and wield in-
consolidate its political hegemony at elections in May. Another fluence in Brussels. Scotland’s swerve towards independence,
vote on separation is now only a matter of time. London’s mayor- and the accompanying grievances in England, should push poli-
al election, also in May, will accentuate the growing divide be- ticians to transform Britain into a federation, at last putting the
tween the rich, worldly capital and the rest of Britain. And with union on a stable footing. This should also precipitate the long-
its EU referendum expected to take place as early as June, the overdue decentralisation of England (a process that has already
country’s status as a leading European power hangs by a thread. begun; Manchester will run its own health service from April).
Small wonder, then, that its allies are perturbed. Barack Lastly, Mr Corbyn’s leadership should force his moderate MPs to
Obama privately talks of Britain’s “mid-life crisis”. As a commen- take on a reality that even Mr Blair ducked: Labour has always
tary in the New York Times in 2014 put it: “Britain is having a kind been two parties, one social democratic and the other anti-capi-
of nervous breakdown, and its friends aren’t sure whether to say talist. Over the years it has muddled through, as concessions,
something or just look away.” Such observers are right to imply feints and tactical battles have postponed a decisive confronta-
that the traumas were long in the making; more than freak intru- tion. No longer: as Mr Corbyn bears down on the moderates, they
sions on a country that has been calm and stable for decades. will have to decide whether to push back, concede the party to
Why? Each polity has its pathology and Britain’s, as Walter him or quit—en masse, not in a dribble, as did their predecessors
Bagehot noted, is muddling through. Just as its people pride in 1981 when Labour last swung left—and form a new party.
themselves on their—only partly imagined—“mustn’t grumble” Britain’s crises may yet go to waste. But today’s flux gives the
stoicism, its leaders possess the institutional equivalent of the country a rare chance: to forge happier relations with continental
stiff upper lip: a preference for patching and fudging over abolish- Europe, to federalise the union and to update creaky institutions
ing and remaking. It has no written constitution; its union is the (asked to vote on a painfully expensive renovation of the Palace
messy product of years of tweaks; its political bodies, from local of Westminster in the spring, MPs should demand that Parlia-
councils to the Lords, are great mounds of sticking plasters. ment move to a new, modern building). It is a test not just of Brit-
This predilection has its pros and cons. On the one hand, ain’s ability to evolve, but also of the very practice of muddling
Britons’ mistrust of wide-eyed ideas (“Don’t you know it’s gonna through. A political entity can only be sceptical and incremental
be all right”, the Beatles sang in their sceptical hit, “Revolution”) most of the time if, when events demand it, it can bring about a
explains their historical aversion to political extremism. It steers sea-change. So let Britain’s leaders take in “The Tempest” and
the country away from risky ventures like, some would argue, the heed its wisdom: storms may be destructive, but they can also
euro. Thomas Kielinger, a veteran German correspondent in Lon- bring redemption. 7
46
International The Economist January 2nd 2016

ples who have never been in contact with

the outside world, and whose languages
remain untranslated and unclassified.
Start with mountains. All 14 higher than
8,000 metres have been scaled; the tallest
of all, Mount Everest, has been climbed
more than 7,000 times. But many thou-
sands of peaks across the world are still un-
conquered, including hundreds in the Hi-
malayas rising to 6,000-7,000 metres. Only
200-odd of the 2,800 Nepalese mountains
that are higher than 6,000 metres may
have been climbed, guesses Glyn Hughes,
the archivist of the London-based Alpine
Club. The highest unscaled mountain is
Gangkhar Puensum, in Bhutan, near the
border with China: the authorities have
closed it to climbers to respect local beliefs.
Muchu Chhish, in Pakistani Kashmir, is
thought to be the highest unscaled moun-
tain that it is still possible to get a permit to
climb. It defeated a British team in 2014.
Shifting geopolitics have opened some
new ranges to Westerners wanting to dis-
play their derring-do, especially in the for-
mer Soviet republics but also in Chinese-
run Tibet. Kyrgyzstan and Kazakhstan offer
many challenging virgin peaks. And of
course mountaineers are for ever seeking
new “lines”, as they call routes, up moun-
tains whose tops have already been
reached. The sheer faces of the range of ta-
ble-top mountains known as tepuis, near
where Venezuela, Brazil and Guyana meet,
offer a host of staggeringly hard tests. Even
in Europe’s Alps new lines still beckon.
Mountains apart, Antarctica is the con-
tinent we know least about, says Julian
Dowdeswell, director of the Scott Polar Re-
search Institute in Cambridge, England. It
The unexplored world is the coldest, driest and windiest, and
probably offers the greatest opportunity
A new age of discovery for old-style glory-seekers wanting to se-
cure a “first”—if they can find a sponsor
rich enough. In the past 20 years numerous
new feats (crossings and climbs by new
routes, “unsupported” by mechanical de-
vices, for instance) have been achieved,
The glory-seeking adventurer of old is giving way to explorers who want to
but many more are still to be tackled.
understand the planet rather than dominate it
The most impressive endurance cham-

T WENTY years ago this newspaper pub-

lished an essay that hailed a coming
“golden age of discovery”. Great expanses
the world still tempt the purely adventur-
ous. The most obvious are mountains:
thousands remain unconquered. Then
pion is probably Rune Gjeldnes, a Norwe-
gian. Already the first person to cross the
Arctic Ocean bringing all his provisions
of the Earth were beckoning the intrepid to there are caves: speleologists, as cavers are with him, in 2006 he became the first per-
put their footprints on untrodden ground, more grandly known, reckon that a good son to cross the Antarctic continent on skis
scale unclimbed mountains, peer into un- half of them have never even been poked without being resupplied. He is reckoned
scrutinised forest canopies, plumb unvisit- into. Antarctica, larger than the United to be the only person to have traversed the
ed caves and dive into unfathomed seas. States and Mexico combined, and Green- North Pole, the South Pole and Greenland
Many such challenges remain. But ex- land still offer vast, untouched icebound without resupplies.
ploration for the sake of being the first, and stretches for the ultra-hardy. (The picture Caving offers explorers opportunities
testing willpower, nerve and endurance, above shows a crevasse on Ross Island, to test themselves that until recently were
has been giving way to a higher-minded Antarctica.) Millions of hectares of forest not even known to exist. Speleology “has
thirst to preserve the planet for future gen- canopy in the Amazon Basin and in Africa changed massively” in the past two de-
erations. As technology advances, espe- and East Asia, especially Borneo and New cades, says Andy Eavis, widely considered
cially in photography and telecoms, it is Guinea, are yet to be inspected. Least the world’s foremost caver. The Krubera
getting easier for ordinary citizens to play a charted of all is the seabed. Oliver Steeds, a cave in Georgia, near the Black Sea, down
part. Exploration is becoming both more leading British ocean explorer and film- which a Ukrainian team descended in
scientific and more democratic. maker, reckons that barely 1% of it has been 2004, is twice as deep, at more than 2,000
All the same, vast unknown chunks of explored. Lastly, there are still isolated peo- metres, as the Pierre St Martin cave in the 1
 The Economist January 2nd 2016 International 47

2 French Pyrenees, which had been reck- Brazil but also extending into Bolivia, Co-
oned the deepest when Mr Eavis plumbed lombia, Ecuador, Peru and Venezuela. (Par-
it in 1971. A new technique of laser scan- aguay, though not Amazonian, may also
ning can measure such “chambers” far host an uncontacted people.) Estimates of
more accurately than before. Mr Eavis still the number of uncontacted groups are ris-
marvels at the great chambers still being ing, says Fiona Watson of Survival Interna-
found in the Malaysian state of Sarawak, tional, an organisation that seeks to protect
on the island of Borneo. In 1981 he was the tribal peoples and their lands, and to help
first to explore a cave there that is still the them determine their own future. Ten
largest by area in the world—it could en- years ago the Brazilian government depart-
close the Hollywood Bowl. Now South ment that deals with the country’s indige-
China, among other places, is offering new nous people reckoned there were between
opportunities for cavers. Its Miao Room, 20 and 30 such groups. Ms Wilson now
penetrated in 1989, is 852 metres long, and thinks there are between 70 and 80.
the largest by volume. The other last bastion of uncontacted
Access to forest canopies is also being people (or isolated people, as some anthro-
transformed by technology. Towers, bal- pologists prefer to call them) is New Guin-
loons, inflatable rafts, light aerial walk- ea, an immense island whose western
ways, drones and even giant cranes that chunk, West Papua, is part of Indonesia
have been helicoptered into place allow and whose eastern side comprises a coun-
scientists to see what is going on under try of its own, Papua New Guinea (PNG).
once-inaccessible foliage. A new remote- Halfa century ago, many ofits people lived
sensing technology known as lidar can il- in complete isolation from the rest of the
luminate objects high up under the canopy world: even, often, from nearby groups. In Krubera, the world’s deepest known cave
and analyse them through reflected light. the 1990s, says Sophie Grig of Survival In-
The world’s most extensive unexplored ternational, missionaries made contact for the fringes in isolated valleys, sub-ranges
place is undoubtedly the seabed. At first the first time with at least 40 distinct and forests,” he says. A tribe may be la-
the aim was to get to the ocean’s very bot- groups in West Papua. But recent experi- belled as contacted, but “perhaps only 20%
tom. In 1960 Jacques Piccard, a Swiss ocea- ences in Amazonia lead the group to be- of the villages have actually been visited…
nographer, and Don Walsh, an American, lieve that there are still isolated people in Whole sections of mountain ranges and
touched the floor of the Mariana Trench, various areas of West Papua. It would gen- valleys have had no recorded visits by re-
the ocean’s deepest point, off the Pacific is- erally be best for them if they stayed that searchers or travellers.”
land of Guam. It is nearly 11,000 metres way, Ms Grig thinks. Finding and saving endangered lan-
down; for comparison, Mount Everest rises “All of the tribes in PNG have had con- guages is yet another challenge. Early this
8,848 metres. Since then only one other tact with the modern world to one degree century Tom Headland, an expert on tribal
person, a film-maker, James Cameron, has or another,” says Jonathan Claussen, an languages in the Philippines at SIL Interna-
achieved the feat, in 2012. American linguist-cum-explorer who tional, a non-profit organisation formerly
Lastly, there is one of the old-school roams PNG. But many have seen only one known as the Summer Institute of Linguis-
Western explorers’ oldest quests: to find or two visitors in the past 40 years, he adds; tics, reckoned there were 6,809 known lan-
people who have never made contact with many outlying regions have yet to be visit- guages, but half had fewer than 6,000
other human beings. The richest area in ed. “The last uncontacted people are usual- speakers each; a quarter, fewer than 1,000.
this respect is the Amazon Basin, mainly in ly clans and families of a tribe that live on Five hundred, he wrote, had no more than 1

Greenland VENEZUELA
San Francisco
Pierre St ARCTIC COLOMBIA
ALASKA
Martin cave North O C E A N ECUADOR Tepuis
Pole Amazon
An

PERU es Basin
d

BOLIVIA BRAZIL
C E I F I C

Krubera cave RUSSIA C PARAGUAY

A n des

F I
I
A N

C
KAZAKHSTAN A N A
C

A T
E L
A

P C
KYRGYZSTAN A
P

O O
O

C
N
T I

Muchu
E

CHINA
A

Chhish Mariana
C
Hi

m TIBET
N

(Kashmir) ala Trench

ya Miao
NEPAL Room Guam FIJI
OMAN E R N
Mount Everest T H O C
U E
Gangkhar New O
Puensum
A

Guinea
S

IN
DI
AN
OCE Cairns Ross Island South Pole
AN
Sarawak A n ta r c t i c a
Borneo Chamber
48 International The Economist January 2nd 2016

2 100 speakers, 200 had fewer than ten. Two in a solar-powered aircraft—“to promote lution of the camera trap” means images of
languages every month were reckoned to clean technologies”. animals can be captured seemingly with
be dying out. Yet previously unknown and “The key word nowadays is discovery no interference by humans. Drastic im-
not properly deciphered languages are rather than exploration,” says John Hem- provements in nocturnal and underwater
still, he reckons, occasionally found. The ming, a former director of Britain’s Royal photography have opened whole new vis-
Ethnologue, a scholarly compendium pub- Geographical Society and an expert on the tas of knowledge. Apps nowadays make it
lished by SIL, has recently put the tally of Amazon. “The term ‘explorer’ has been di- possible to identify the species of a bird by
“living languages” at 7,102, but says that minished and debased by headline-grab- its chirp, often on the spot. Shane Winser,
2,447 are “in trouble” or “dying”. bing stuntmen and adventurers.” The RGS another RGS stalwart (and wife of Nigel),
now gives grants almost solely for re- points also to the benefits of television,
Don’t just show off search. Mr Hemming quotes Robert Bal- since it brings the best aspects of explora-
While the prospect of reaching new places lard, an American oceanographer famous tion into the public domain, not least
and even people still tantalises the adven- for discovering the wrecks of the Titanic thanks to sponsorship; witness David At-
turous, explorers have become far more and the German battleship Bismarck—but tenborough and Alastair Fothergill, cre-
conscious of a duty to preserve the envi- who is far prouder of his work on hydro- ators of “Planet Earth” and more recently
ronment and less keen to be seen as no thermal vents. “Science gives legitimacy “The Hunt”, two BBC television series.
more than frostbitten action heroes. Even and worth to exploration,” wrote Mr Bal- Not that the new zest for scientific dis-
mountaineers, still often obsessive indi- lard. “You see lots of stunts today, but if covery has quenched the desire to see
vidualists seeking to pit themselves against you’re not doing worthwhile science, what is over the horizon, behind the tree,
the forces of nature, now tend to stress you’re not an explorer.” up the mountain or under the sea. What
their role in advancing science and protect- Most good research, Mr Hemming con- Robin Hanbury-Tenison, another British
ing the environment and local people. Mr tinues, involves patient observation, often explorer, who is president of Survival In-
Gjeldnes took regular samples of his blood in the same spot, under concealment and ternational, calls “the gosh factor”—that
as he crossed the Antarctic to help research for a long time. “It is near-impossible to do rush of amazement and catharsis when a
into the functioning of the immune system that if you’re doing it solo or travelling by pinnacle is reached or a mad exploit in
under extreme conditions. Community some awkward method.” He notes hope- some jungle or desert achieved—still moti-
Action Nepal, a charity founded by a Brit- fully that many countries that once took vates many an explorer.
ish mountaineer, Doug Scott, who in 1975 less interest in the environment, including There is still no limit to the feats of en-
was the first Briton to scale Mount Everest, China and Brazil, along with smaller coun- durance that people seek to achieve with-
is supported by thousands of climbers tries, such as Oman and various African out a tangible scientific purpose—though
across the globe. It works to improve edu- ones, are becoming keener on conserva- often for a charitable one. Just after Christ-
cation, health care and living conditions in tion. Brazil has improved its once-dismal mas a 53-year-old Briton, John Beeden, be-
the Middle Hill Regions ofNepal, the home treatment of indigenous peoples. Mr came the first man to row solo non-stop
of most of the porters who assist Himala- Mitchell says the world should be grateful across the Pacific Ocean (from San Francis-
yan climbing expeditions. to them for helping to preserve the rainfor- co to Cairns in Australia). As Ranulf
Today’s ocean explorers, too, think at est, which in turn provides the Earth with Fiennes, a British explorer, once said, peo-
least as much about scientific progress as so much of its potable water. ple are still trying to cross the oceans “in
about being the first to reach the bottom of Nigel Winser, another British explorer- ever tinier gin-bottles”, claiming firsts that
another seabed. Considering its vast ex- scientist and long-time RGS luminary who have no bearing on science. Mountaineer-
panse, remarkably little is known about it. more recently worked for the Earthwatch ing still offers the same thrills it always has
“Only 0.05% of the ocean floor has been Institute, a charity founded in the United done. Even Everest has an almost endless
mapped in detail,” says Mr Steeds, who States to study and protect the environ- list of feats yet to have been achieved. In
has switched from desert and jungle to the ment, praises what he calls “citizen’s sci- 2006 Mark Inglis, a New Zealander, be-
ocean. The “blue economy”, he reckons, ence”. Advances in technology, particular- came the first double amputee to scale it.
could provide a wealth of minerals such as ly in photography and the internet, make it But, however admirable, this is not ex-
cobalt and manganese, and new plant and possible for far more people to carry out ploration or discovery. The gosh factor has
fish life. He talks poetically about the five valuable research. What he calls “the revo- been overtaken by the “do-good factor”. 7
watery zones: “sunlit” means down to 200
metres; “twilit”, descending to 1,000; “mid-
night” to 4,000; “abyssal” to 6,000; and fi-
nally “hadal”, meaning the deepest trench-
es, where (not being immune to the lure of
being first) he has filmed a fish at a deeper
level than anyone else.
Virtually all today’s leading explorers
stress climate change. “We’ve learnt a total-
ly new way of presenting rainforests to the
world,” says Andrew Mitchell, a British
zoologist who runs the Global Canopy
Programme. “It’s like understanding the
lining of your lungs.” Forest coverage, he
reckons, hosts 40% of the world’s terrestri-
al biodiversity. Mr Eavis says that caving of-
fers climatologists “an incredibly detailed
history of the planet” in terms of the com-
position of water and the atmosphere. Ber-
trand Piccard, son of the late Jacques, is try-
ing, with a British balloonist, Brian Jones,
to achieve the first around-the-world trip Exploring an underwater cave off Fiji
 Business The Economist January 2nd 2016 49

Also in this section

50 Carl Icahn and resources firms
50 Companies’ investment plans
51 Cruise lines bet on China
52 Schumpeter: Socially responsible,
tax-avoiding companies

For daily coverage of business, visit

Economist.com/business-finance

Travel visas which is part of Kuoni, a Swiss tourism

company. Starting from a single premises
A strange sort of welcome in Mumbai in 2001, handling applications
for American visas, VFS now has more
than 1,900 visa centres in 124 countries,
processing paperwork for 48 governments.
Of the 113m visa applications made
worldwide in 2013, one in three went
Governments are deterring business travellers and tourists with cumbersome visa
through a contractor, reckons VFS, which
requirements that do little to make their countries more secure
has about half the market. Its main rivals
are CSC, with around 10% of the market,
T HE rise of big emerging economies like
China and India, and the steady march
of globalisation, have led to a surge in the
ing details of every trip abroad for the past
ten years. Business travellers to India must
provide two references. Mexico has
and TLScontact, with around 7%. Dozens of
smaller firms make up the remainder of
numbers of people wanting to travel scrapped a rule requiring visa applicants the market. The private contractors collect
abroad for business or tourism. As a result, (including women) to submit a description and verify the applicant’s paperwork, en-
demand for visas is at unprecedented lev- of their moustaches. But in 2016 America sure that forms are filled in properly, take
els. In the fiscal year to the end of Septem- will start requiring visas for some travel- fingerprints and other biometric informa-
ber 2014 the United States granted just un- lers who currently do not need them—if, tion and collect the fees. The consular staff
der 10m visas—up from around 6m in 1997, for example, they have visited Iran, Iraq, of the destination country simply decide
despite blips in the wake of the terrorist at- Syria or Sudan in the previous five years. whether to grant the visa, and slap a sticker
tacks of September11th 2001 and the global In many cases, instead of simplifying in the passport of successful applicants.
financial crisis of 2007-08 (see chart 1). the visa process, governments have off- For the contractors, it is a nice little earn-
Citizens of America, Britain and some loaded it to private contractors. Travellers er. VFS probably enjoys operating margins
other rich countries can travel to most may now have to pay a service fee to the of 20%, reckons Kathleen Gailliot, an ana-
places without a visa. Chinese and Indian company handling their application on lyst at Natixis, a French bank. The compa-
travellers are far more likely to have to ap- top of the standard visa fee. The biggest nies are given a free hand to pad their earn-
ply for them. And citizens of a few benight- firm in this growing business is VFS Global, ings with pricey “premium” services. In
ed places, such as Iraq and Afghanistan, Mumbai, for example, VFS offers Indians
have to submit to the cost and bureauc- applying for British visas a text on their
1
racy—and often the humiliation—of the Coming to America mobile phones to notify them that their
visa-application process to get to most Visas granted by United States, m passports are ready for collection, at 128 ru-
places (see chart 2, next page). To citizens of: pees ($2) a shot. For an extra 2,548 rupees,
The most sensible response to this China India rest of world applicants can use a special “lounge” area
10
surge in demand for short-term visas while submitting their documents, and
would be for governments to streamline 8 have their passports posted back to them.
the application process and scrap the most VFS accounts for just 5% of Kuoni’s rev-
onerous requirements. But governments 6 enues but more than 60% of its operating
are often not sensible about such things. profits. So bright are the division’s pros-
The 26 European countries with a com- 4 pects that its parent company is getting out
mon visa policy—the “Schengen group”— of the tour-operator business, which it has
require tourists from India and other de- 2 been in since 1906, to concentrate on visa-
veloping countries to provide several processing and a few other specialist travel
months’ worth of bank statements and 0 services.
1997 2000 05 10 14
pay slips. Visitors to Britain often have to Until VFS opened its Mumbai office, ap-
Source: US Department of State
fill in a ten-page application form, includ- plicants had to queue for an average of five 1
50 Business The Economist January 2nd 2016

Open doors, for some 2 Activists and resources companies

Number of countries that can be visited
without a visa, by citizens of: Icahn, you can’t
Selected countries, 2014

0 50 100 150 200

United States Swashbucklers of the commodities boom meet their match
Germany
Britain
Sweden
“P EOPLE call us pioneers. Well...some
people say pioneers end up with
arrows in their back.” So James “Jim Bob”
estration fits a pattern.
In mid-December Mr Icahn increased
his stake in Cheniere Energy, which is
Finland Moffett, one of the great wildcatters of preparing to export the first-ever ship-
Russia the past half-century, presaged his fate in ment of liquefied natural gas (LNG) from
India 2012. On December 28th Freeport-McMo- America’s lower-48 states. After he did so,
China Ran, the firm he founded and built into a Cheniere’s board pushed out Charif
Pakistan global mining and oil giant, said he was Souki, its co-founder and chief executive,
Somalia stepping aside as executive chairman. because it opposed his strategy of betting
Iraq
He seems to be the latest casualty of even bigger on LNG, despite a global glut.
Afghanistan
the “Icahn effect”, the toppling of larger- Acknowledging the changing times, Mr
than-life entrepreneurs of the commod- Souki displayed no hard feelings: “Am I
Source: Henley & Partners
ities boom after Carl Icahn, a veteran the best person to manage a quasi-utility?
activist investor, buys stakes in their firms I’m a builder, not a cost-cutter,” he told
2 hours in the sweltering heat outside the and seeks to shift their focus to cost- Forbes magazine.
American consulate. After the job was cutting. Though Mr Moffett, a geologist, Two years earlier one of the biggest
handed to the contractor, the typical wait- found one of the world’s largest copper mavericks of the shale boom, Aubrey
ing time fell to one hour. However, appli- and gold mines, Grasberg, in the moun- McClendon, also came a cropper after Mr
cants still have no choice but to submit to tains of Indonesia, in 1988, his costly Icahn invested in his firm, Chesapeake
whatever petty demands contractors pursuit of the appropriately named Davy Energy. Other commodities chiefs with
make—such as, say, banning them from us- Jones gasfield in the Gulf of Mexico, as an overdeveloped risk appetite, such as
ing mobile phones while they sit waiting well as controversial takeovers, upset Ivan Glasenberg of Glencore, a debt-
for their appointments. If the staff are rude, many shareholders. So did a 70% drop in ridden mining and trading firm, should
the queues are badly managed or the “ex- Freeport’s share price during 2015. keep looking over their shoulders.
tras” extravagantly priced, travellers can Since it invested in Freeport in August, Mr Icahn’s victories can be pyrrhic,
hardly take their business elsewhere. Mr Icahn’s firm has acquired two seats on though. Almost all his energy invest-
The application-processing firms are the board, and the miner has halted the ments were deep in the red in 2015. And
profiting both from travellers’ lack of dividend and shrunk operations to stabil- Mr Moffett’s arrow in the back comes
choice and from governments’ failure to ise its debt. Mr Icahn has not commented with a painkiller. He will become “chair-
consider the economic damage caused by on Mr Moffett’s removal, but the defen- man emeritus”, on $1.5m a year.
their visa requirements. There is scant evi-
dence that making all travellers submit the
same documents every time they want to Companies’ investment plans their jobs—see box). So where are compa-
travel, or provide extensive financial de- nies looking to invest now? A new study by
tails, protects countries from terrorists or il-
legal immigrants. In contrast, there is evi-
From diggers to Hugo Scott-Gall, of Goldman Sachs, a
bank, crunches the numbers for capital in-
dence of how liberal visa regimes bring in
the bucks. A report in 2014 from the Euro-
data centres vestment at more than 2,500 firms world-
wide, forecasting how things will look in
pean Parliament, “A Smarter Visa Policy for 2017 compared with 2014. It finds a startling
NEW YORK
Economic Growth”, estimated that over- divergence across industries (see chart,
Computers, research and software will
strict visa rules probably cost the EU econ- next page).
be the big-ticket items in 2016
omy 250,000 jobs and €12.6 billion ($13.8 Energy, mining and chemicals firms are
billion) a year in lost output. It recom-
mended requiring fewer documents from
applicants, handing out longer visas and
T HERE have been three great waves of
corporate investment in the past two
decades. First came the dotcom splurge of
expected to slash their capital-investment
budgets by 20-50%. Property firms are cut-
ting back too, in part reflecting the end of
simplifying the whole process. 1997-2001, when cash was poured into China’s building boom. This has a
Since Britain is not part of the Schengen building mobile-phone networks and the knock-on effect on those capital-goods
group, Chinese people taking a tour of Eu- internet’s backbone. Then there was the firms that supply equipment to these in-
rope have to apply for a second visa to emerging-market frenzy of 2003-10. West- dustries. For example, Caterpillar, which
cross the Channel. Only 6% of them do so, ern firms threw about $2 trillion into fac- makes diggers used by mining and con-
says Euromonitor, a research firm. The Brit- tories and other facilities in places like Chi- struction firms, expects its capital invest-
ish Tourist Authority has complained that na and India. In 2005-13 there was a craze ment in 2016 to be half the level of 2012.
the country’s visa policies cost it £2.8 bil- for commodities, partly driven by insatia- In contrast, internet, software and other
lion ($4.1 billion) a year in lost revenue. ble Chinese demand. Global energy and tech firms are on a high, with their budgets
However, amid worries about the wave metals firms spent $6 trillion digging in the expected to expand by a quarter or more.
of asylum-seekers from Syria and else- Australian outback and drilling for oil in Though some tech firms have gone asset-
where, governments in Europe and be- North Dakota and deep beneath Brazil’s light, renting their processing power and
yond will face pressure to keep making life coastal waters. data storage in the online “cloud”, others—
hard for tourists and business travellers— The dotcom boom turned to bust, including cloud-providers themselves—
even as other departments of those same emerging markets are now in poor shape are splurging on hardware. In 2016 the
governments spend heavily on promoting and commodity prices have slumped in combined capital spending of Google and
tourism and foreign investment. 7 the past year (costing some firms’ bosses Apple will be $24 billion, almost equal to 1
 The Economist January 2nd 2016 Business 51
2 Exxon’s $28 billion budget. Cruise lines
Measured in dollars, the overall picture
is of a 15% fall in corporate capital spending
by 2017. Allowing for the greenback’s big
Eastward ho!
rise since 2014, the fall will be just 5% or so
in local-currency terms. And the figures
exclude research-and-development (R&D)
spending. That is rising quickly. America’s
The biggest cruise operators are sailing
national accounts, for example, show an
full steam ahead to China
economy-wide decline in investment in
physical plant being offset by a rise in R&D
and software spending.
However you slice the numbers,
E VERY New Year, cruise lines brace them-
selves for “wave season”—the first three
months of the year, in which nearly a third
growth in capital investment is unusually of all holidays at sea are booked. They will
concentrated. Of the industries that Gold- do well to improve on their 2015 results. On
man studied, 22 are forecast to have shrink- December 18th Carnival, the world’s larg-
ing budgets in dollar terms and 12 are ex- est operator, with more than 40% of a glo-
pected to grow. The top 20 spenders on bal market worth nearly $40 billion a year,
R&D—firms such as Samsung, Roche, No- announced a record $2.1 billion in full-year
vartis and Microsoft—account for 25% of earnings, 40% up on 2014, thanks to bu-
worldwide R&D spending by listed firms, oyant demand and cheap fuel oil. Along
according to Bloomberg, an information with Royal Caribbean Cruises (RCL) and
provider. The corporate world seems most- Norwegian Cruise Line (NCL), the trio now
ly destined to stagnation, with only a few control around 80% of the industry. Sailing and shopping, the perfect mix
hotspots of investment and growth. Amid worries that demand for cruises
So investors might hope that an elite of may be peaking in some rich countries, the cruise-lines business together with the
investment-intensive, technology-based big three are now piling into the biggest po- building of the ships it uses, as part of a re-
firms will conquer new markets and in- tential market of all, China. Although Car- balancing of the economy towards con-
crease profits faster than all others. That is nival based its first ship—the Costa Alle- sumption in its latest five-year plan.
certainly what Silicon Valley’s boosters gra—at a mainland Chinese port back in The Chinese market is also very profit-
think will happen. They cheer each time 2006, only in the past year have the big able. This is partly because higher daily
tech firms unveil some new area of expan- three got serious about moving capacity rates can be charged for the short, four-to-
sion—smart watches, driverless cars, virtu- there from America and Europe. six-night cruises that are more popular in
al-reality goggles, delivery drones. In 2016 Carnival plans to increase the China, but also because the Chinese spend
Yet history suggests that whenever number of its ships in China from four to far more onboard. They are less interested
there is a near-unanimous view on what to six. In October it announced the launch of than Americans or Britons in boozing and
invest in, disaster follows as firms in those a joint venture with a Chinese shipbuilder spa treatments, but keener on gambling,
industries lose their spending discipline. and China Investment Corporation, a and really go to town in the onboard
The shares of Western firms exposed to en- sovereign-wealth fund, to establish the shops, buying such things as foreign-made
ergy and emerging markets have lagged first new cruise brand aimed at the domes- appliances. One recent shopping craze on
the S&P 500 index by over 50% in the past tic Chinese market. RCL, which had three Carnival’s Chinese ships was for Japanese
two years. In 2016 it should become clearer ships based in China in 2014, now has four rice cookers, Mr Buckelew says.
whether the present funnelling of invest- and will add a fifth in the next few months. If China’s economic slowdown intensi-
ment into tech-based industries reflects a NCL, which has hitherto stayed away, fies, or if consumer interest in cruises turns
step change in the way the economy plans to enter the Chinese market in 2017. out to be a fad, the operators risk being left
works, or is just a symptom of a stagnant Carnival and RCL no longer send elder- with excess capacity and having their mar-
climate in which pockets of opportunity ly cast-off hulks from America and Europe gins squeezed. Even so, betting on the rise
are hyped beyond their true potential. 7 to China. Now they send their newest and of the Chinese holidaymaker looks more
best, such as RCL’s Quantum of the Seas, a attractive than sticking to the main West-
megaship that can carry 4,180 holidaymak- ern markets.
Another dotcom boom ers, which has been based in Shanghai In Europe bookings have been hit by re-
Change in worldwide capital spending*, % since June 2015. cent terrorist attacks in France and north
2014-17 forecast Such are Carnival’s hopes for the Chi- Africa, according to Greg Badishkanian, a
60 40 20 – 0 + 20 40 60 nese market that it recently moved its chief cruise-line analyst at Citigroup, a bank.
Internet operations officer, Alan Buckelew, to And in Britain cruise-passenger numbers
Software Shanghai to oversee the firm’s expansion have been falling since 2013 because newly
Tech hardware there. The number of Chinese households retired people, staple customers, have less
earning over $35,000 a year—the figure the disposable income than the previous gen-
IT services
industry sees as the point at which foreign eration of pensioners, who are now too
Health care
travel takes off—has increased from 6m to old to travel. The future plans of the big
Total more than 27m over the past decade, ac- three operators suggest they have conclud-
Leisure cording to Oxford Economics, a consulting ed that the American market is saturated
Chemicals firm. The number of mainland holiday- and has poor growth prospects. In 2017
Oil, gas and fuels makers going on cruises—a comparatively there could be the first fall on record in
Metals and mining fuss-free way of travelling abroad for the North American cruise-ship capacity, ac-
Property first time—has been growing by around cording to Robin Farley, an analyst at UBS,
80% a year, and is expected to keep doing another bank. For the moment, the deci-
Energy equipment
so despite China’s slowing growth rate. sion by the big three to sail for China is a
Source: Goldman Sachs *In dollar terms
The government wants to promote the choice. But it could become a necessity. 7
52 Business The Economist January 2nd 2016

Schumpeter Social saints, fiscal fiends

Opinions vary on whether firms can be “socially responsible” while avoiding taxes
with large CSR programmes find it easier to attract talented work-
ers (particularly among the millennial generation) and to gener-
ate a buzz around their products. Baruch Lev of New York Univer-
sity has found that companies with higher CSR scores have
higher revenue growth. Yet the more vigorous companies are in
reducing their taxes, the more they destroy any social capital that
they have accumulated through CSR. Starbucks recognised how
much damage its British operation had done to its reputation
when the extent of its tax planning was exposed in 2012, and
promised to pay around £10m (then $16m) a year in each of the
following two years, whether or not it was profitable.
The second possible explanation is that companies regard
CSR and taxes as substitutes for each other: the less you pay in tax-
es, the more you have left over for good works. Firms might even
convince themselves that they have a moral obligation to reduce
their tax bills: they have no control over what governments do
with their taxes, whereas they can select their CSR projects and
ensure they are run efficiently.
These rival theories reflect conflicting ideas on what counts as
a socially responsible company. The view put forward by various
international bodies that seek to set standards for corporate

P FIZER has always prided itself on its commitment to corporate

social responsibility (CSR). The drugs giant talks loftily about
“embracing our responsibility to society”. It insists that it does as
behaviour, and accepted by many big European firms, is that
responsible firms should pay a fair share of taxes while privately
sponsoring some do-gooding on top of this. The Global Report-
much as it can to make sure that the world’s poor can gain access ing Initiative, which issues guidelines on how companies should
to its products. It is particularly proud ofthe workthat it does with report their “sustainability” efforts, recommends that they pro-
NGOs and “other global health stakeholders” to strengthen and vide detailed information on their tax payments, since the public
improve health-care systems. But this has not deterred it from wants to know what they are contributing to the sustainability of
seeking a gargantuan “tax inversion”. The company intends, as “a larger economic system”. The UN Global Compact, a body that
part of a $160 billion takeover of Allergan, to shift its tax domicile presses firms to align themselves with universal social goals, en-
from America to Ireland, where Allergan is domiciled, and where courages them to collaborate with governments and other orga-
corporate-income taxes are considerably lower. Pfizer’s share- nisations to “generate more taxes”.
holders no doubt rejoiced: in 2014 the company would have
saved $1 billion of the $3.1 billion it paid to the US Treasury. But The business of business: discuss
many Americans were outraged: Hillary Clinton, the front-run- However, many CEOs, particularly in America, take a different
ner for the Democratic presidential nomination, promised to view: that the best way for companies to contribute to the com-
impose an “exit tax” on companies that engage in such tactics. mon good is to succeed as businesses. Furthermore, they argue,
A paper in the January issue of the Accounting Review suggests the more money they can keep from the government’s clutches,
that Pfizer is far from unusual in trying to perform this pro-CSR, the more they can invest in new plants (which create jobs in the
anti-tax straddle. David Guenther of the University of Oregon’s short term) or research (which creates jobs in the longer term).
Lundquist College of Business and his co-authors compared the And the more money they will have left over for good causes as
effective tax rates paid by a sample of American firms between well: thus Intel’s 2011 CSR report stated that the company “be-
2002 and 2011 with a measure of those companies’ CSR pro- lieves in promoting tax policies that encourage innovation and
grammes compiled by MSCI, an index provider. It found that the competition around the world”, while 3M’s sustainability report
companies which do the most CSR also make the most strenuous for the same year stated that its top public-policy objective was
efforts to avoid paying tax—and that those with a high CSR score “To make the case for tax reform and lower US corporate-tax rates
also spend more lobbying on tax. for a more level global playing field”.
The most obvious explanation for this inverse relationship is The CEO school of corporate responsibility has something go-
hypocrisy. Surely CSR depends on the idea that firms have an ob- ing for it. Such bosses are right to argue that a business’s main con-
ligation to society, not just to shareholders? And surely the most tribution to society is to provide jobs and income. They are also
basic obligation to society is to pay the taxes that support the right to argue for tax harmonisation: America has only itself to
poor and vulnerable? Another explanation is that firms are not blame if firms revolt against its high corporate-tax rate. But they
monoliths but collections of rival fiefs with different priorities. should recognise that there is a big difference between moving to
The department that oversees the CSR programmes, and thus has a place like Ireland because it has made a more sensible trade-off
an interest in boosting their budgets, may never talk to those in between collecting taxes and promoting business, and indulging
the finance department who are paid to minimise the tax bill. in contortions such as the “Double Irish with a Dutch Sandwich”,
Mr Guenther and his colleagues suggest two more intriguing whose only aim is to avoid paying taxes anywhere. They also
explanations. The first is that companies intentionally embrace need to recognise that there is a big difference between worrying
CSR for exactly the same reason they try to reduce their taxes—to that government is inefficient and pretending that it is irrelevant,
maximise their profits. There is some evidence that companies and thus that contributing to its upkeep is unnecessary. 7
 Finance and economics The Economist January 2nd 2016 53

Also in this section

54 The first venture capitalists
55 Buttonwood: Demystifying 2016
56 A test for European insurance firms
57 Free trade in South-East Asia
58 Free exchange: Has America really
left low rates behind?

For daily analysis and debate on economics, visit

Economist.com/economics

Global inflation bottlenecks in the jobs market will emerge

and higher inflation may not be far behind.
Low for longer For instance, if America’s GDP grows by
2.3% in 2016, its recent average, and growth
in output per worker also matches its re-
cent sluggish trend, the unemployment
rate would decline further, to around 4%,
reckons Mr Lupton. The lower the jobless
Inklings of inflation in the rich world are outweighed by downward pressure on
rate goes, the more likely it is that wages—
prices elsewhere
and eventually inflation—will pick up.
In America the PCE index rose by just 0.4%
E VER since the financial crisis of 2008,
forecasters have scanned the horizon
for the next big disruption. There are plen-
year on year in November—but that is in
large part because of a sharp fall in con-
As rich countries were wrestling to re-
duce their debts, emerging markets went
on a credit binge for which the reckoning is
ty of candidates for 2016. China’s economy, sumers’ energy prices in early 2015, which just beginning. Debt in China in particular
whose might acted as a counterweight to will soon drop out of the annual compari- has risen sharply relative to GDP since
the slump in the rich world in the years son. The core measure, which excludes 2008. Some of the resulting stimulus went 1
after the crisis, is now itself a worry. Other food and energy prices, has been stable at
emerging markets, notably Brazil, remain 1.3% for months. It might also be somewhat
in a deep funk. The sell-off in the high- suppressed by the sharp fall in oil prices, Reality check
yield-debt market in December has which has held down the cost of produc- Inflation, %
prompted fears of a broader re-pricing of ing other sorts of goods and services. An Target range Target rate
corporate credit this year. analysis by Joseph Lupton of J.P. Morgan Core rate*, November 2015
Yet one worry is absent: financial mar- finds that core inflation worldwide has 0 4 8 12 16
kets are priced for continued low inflation crept up to 2.3%, a rate that has rarely been Russia
or “lowflation”. A synthetic measure, de- exceeded in the past 15 years. In biggish Brazil
rived from bond prices, puts expected con- emerging markets, including Brazil, Russia Turkey
sumer-price inflation in America in five and Turkey, core inflation is above the cen- Colombia
years’ time at around 1.8%. That translates tral bank’s target (see chart).
South Africa
into an inflation rate of around 1.3% on the
price index for personal-consumption ex- A low blow Chile
†
penditure (PCE), the measure on which the In the view of some, lowflation is a relic of India
Federal Reserve bases its 2% inflation tar- the past. Even the euro zone is recovering Norway
get. Ten-year bond yields are just 2.3% in from its prolonged recession; the business South Korea
America, and are below 2% in Britain and cycle in other rich economies is more ad-
Canada
below1% in much of the rest of Europe. The vanced. The debt hangover that has trou-
price of an ounce of gold, a common hedge bled them for almost a decade has faded. China
against inflation, has fallen to $1,070, far be- Job markets are also a lot tighter than a few United States
low its peak in 2011 of $1,900. Yet market ex- years ago, when deflation was a serious Britain
pectations are often confounded. Eco- concern. Unemployment in America has Thailand
nomic recoveries are maturing. Labour fallen to 5%, a rate which is close to many
Euro area
markets are tightening. Could inflation be estimates of full employment. The jobless
Japan
less subdued than expected in 2016? rate in Britain is 5.2%. In Germany it is 6.3%.
Rich-world inflation is currently de- If the recent trend of low productivity Sources: Central banks; HSBC; *Excl. food & energy
†By January 2016
Haver Analytics; Thomson Reuters
pressed because of temporary influences. growth in these economies continues,
54 Finance and economics The Economist January 2nd 2016

2 into factories, leading to overcapacity and

falling global prices for various goods, from
steel to solar panels. But a lot of China’s
debt went on financing housing and infra-
structure, rather than its export capacity.
Moreover, the Chinese authorities’ desire
to avoid big lurches downwards in the
yuan ought to minimise the risk that it ex-
ports lowflation to the rest of the world.
Nonetheless, the expectations project-
ed by bond markets—that lowflation will
persist—have sound underpinnings. For a
start, the price of oil and other commod-
ities does not yet seem to have reached bot-
tom. The price of a barrel of oil fell to an 11-
year low of under $36 before Christmas,
before rallying a little on hopes of renewed
stimulus in China. Saudi Arabia is pump-
ing at close to capacity, in an effort to force
out high-cost producers such as America’s
shale-oil firms and thus grab a bigger slice
of the global market. The strategy has had The first venture capitalists
some success. For instance, the number of
oil-rigs operating in America has fallen
from around 1,500 a year ago to just 538, ac-
Fin-tech
cording to Baker Hughes, an oil-services
firm. But oil production in America re-
mains above 9m barrels a day, and Iran’s
exports are likely to increase in 2016,
NEW BEDFORD
thanks to the lifting of Western sanctions.
Before there were tech startups, there was whaling
For the time being, the oil market heavily
favours buyers over sellers.
Where inflation can be found in the
world, it is not obviously a function of ca-
F EW industries involve as much drama
and risk as whaling did. The last voyage
of the Essex, which inspired Herman Mel-
New Bedford was not the only whaling
port in America; nor was America the only
whaling nation. Yet according to a study
pacity constraints. The biggish economies ville’s classic, “Moby Dick”, and is the sub- published in 1859, of the 900-odd active
in which core inflation is above the central ject of a new film, “In the Heart of The Sea”, whaling ships around the world in 1850,
bank’s target tend to be commodity export- gives a sense of the horrors involved. The 700 were American, and 70% of those
ers that have suffered big falls in their cur- ship left Nantucket in 1819 and sailed for came from New Bedford. The town’s whal-
rencies. That, in turn, has stoked domestic over a year before being destroyed by a ers came to dominate the industry, and
inflation. Core inflation is typically well whale it was hunting. The 20 crew mem- reap immense profits, thanks to a novel
below target in countries that are import- bers survived the sinking, but found them- technology that remains relevant to this
ers of raw materials. And despite tighter la- selves adrift in the Pacific in three long- day. They did not invent a new type of
bour markets in rich countries, wages are boats, with little food and no water. Three ship, or a new means of tracking whales;
not rising very fast. That might in part be opted to stay on a desert island, from instead, they developed a new business
because of low expectations of inflation. which they were rescued three months lat- model that was extremely effective at mar-
It seems likely, also, that the debt bur- er, on the verge of starvation. The others shalling capital and skilled workers de-
den in emerging markets, and the slower sailed on, hoping to reach South America spite the immense risks involved for both.
growth that usually comes after a credit but dying one by one. At first the survivors Whaling all but disappeared as an indus-
binge, will bear down on global prices for a buried the dead at sea; then they resorted try after mineral oil supplanted whale oil
while. Even if China’s spare capacity is not to eating the corpses of their crewmates. as a fuel. But the business structures pio-
fully exportable, plenty of other emerging When they ran out of bodies, they drew neered in New Bedford remain as relevant
markets have built mines and factories in lots to decide whom to shoot and eat. Only as they ever were. Without them, the tech
expectation of higher Chinese growth that five of the 17 were eventually rescued. By booms of the 1990s and today would not
will now prove redundant. As nervous in- then, they were so delirious that they did have been possible.
vestors creep back to the comparative safe- not understand what was happening. Most historians trace the origins of the
ty of developed markets, the upward pres- The only reason that anyone could be modern company back to outfits like the
sure on big currencies, notably the dollar, induced to take part in such a dangerous Dutch East India Company and its British
will increase—adding to downward pres- business was the fabulous profit that could equivalent. These were given national mo-
sure on local prices. be made. Gideon Allen & Sons, a whaling nopolies on trade in certain goods or with
As was the case in the late 1990s, rich- syndicate based in New Bedford, Massa- certain places. This legally buttressed sta-
world policymakers will find that they chusetts, made returns of 60% a year dur- tus allowed them to fund themselves by
have to keep their domestic economies ing much of the 19th century by financing selling shares to the public, helping to get
primed with low interest rates to offset dis- whaling voyages—perhaps the best perfor- stockmarkets off the ground. The manag-
inflation from abroad. The strong dollar mance of any firm in American history. It ers ofthese multinational enterprises were
has already caused a split in American in- was the most successful of a very success- professionals with only small ownership
dustry between strong services and weak- ful bunch. Overall returns in the whaling stakes. Lower-level employees generally
er manufacturing. Lopsided economies business in New Bedford between 1817 and had no shareholding at all.
may prove as hard for policymakers to 1892 averaged 14% a year—an impressive re- By eliminating dependence on individ-
steer as deleveraging ones. 7 cord by any standard. ual owners or managers, these entities be- 1
 The Economist January 2nd 2016 Finance and economics 55

Buttonwood Tales of the unexpected

Five potential surprises for 2016

I NVESTORS often start the calendar year

in a buoyant mood, only to be caught
out by unexpected events. It is almost in-
These two surprises may have a com-
mon cause: the failure of the global econ-
omy to grow as rapidly as some hope. In
Britain, which is likely to hold a referen-
dum on leaving the European Union in
2016. It is widely assumed that Britons
evitable that the consensus will be turn, economic sluggishness seems likely will vote for the status quo: that outcome
proved wrong in some respects, not least to drive voter discontent. And that may has a 78% probability on the PredictIt
because the views of most investors will lead to the third and fourth surprises. website. But opinion polls show that the
already be reflected in market prices. American political risk could dog the “remain” and “leave” camps are almost
So this column would like to suggest markets in late 2016. At the start of 2015, in- deadlocked and the press is fairly Euro-
five potential surprises for 2016. The defi- vestors probably anticipated a dynastic sceptic. Voters might use the referendum
nition of a surprise is something that the clash between Jeb Bush and Hillary Clin- as a means of protesting against high lev-
consensus (as judged by betting sites or ton. But the Republican candidate seems els of immigration, which the govern-
polls of fund managers) does not expect. more likely to be either Donald Trump or ment has promised, but failed, to reduce.
The first surprise may be that the dol- Ted Cruz. The former has argued for a ban If Britain votes for exit, there will be
lar weakens, not strengthens. The consen- on Muslims coming to America and a wall much uncertainty about the country’s at-
sus view is that the Federal Reserve, hav- on the southern border; the latter’s propos- tractiveness to foreign investors. Scottish
ing pushed up rates before Christmas, als include a flat income tax, a sales tax and voters are much more pro-EU than Eng-
will tighten monetary policy two or three a monetary system linked to gold. Al- lish ones, and Brexit would prompt calls
more times in 2016. Higher rates will make though Mrs Clinton would be the favourite for a second independence referendum
investors eager to buy the dollar, especial- in a race against either man, she is a flawed so Scotland could stay in the single mar-
ly as both the European Central Bank and candidate, mistrusted by many voters. The ket. David Cameron, Britain’s prime min-
the Bank of Japan will keep their rates prospect of a Cruz or Trump presidency ister, would surely have to resign if his ref-
near zero. However, the dollar has already would lead to considerable uncertainty in erendum gamble backfired. All this might
had a very good run, so higher rates may the markets: should either man be elected, be good reason to sell the pound.
already be priced into the currency. As it would they try to stick to their campaign The final surprise might be more be-
is, investors seem to doubt that the Fed pledges and would Congress let them? In- nign: emerging markets could perform
will tighten as much as the central bank deed, this uncertainty might be another rather better than investors expect. A poll
currently projects. The actual outcome reason why the dollar may struggle in 2016. of fund managers in December by Bank
may be feebler still (see Free exchange). Political risk might also be a problem in of America-Merrill Lynch found that pes-
The second surprise may be too famil- simists on emerging markets outnum-
iar to deserve the name. Commentators bered optimists by 27 percentage points.
have been calling an end to the bull mar- Submerging There is plenty ofbad news: China’s slow-
ket in government bonds for many years January 1st 2010=100 down, falling commodity prices and re-
now, and the pundits are expecting much cessions in Brazil and Russia, for example.
160
the same in 2016. But persistently low in- But this may have been built into prices;
MSCI rich world
flation and the support of central banks 140
the MSCI emerging-market index has fall-
have kept yields low to date, and may en by 20% over the past six years while
keep doing so. It is all reminiscent of Ja- 120 the S&P 500 index is up by 40% (see chart).
pan: since 2000, so many investors have It may be time for a rebound.
failed to profit from betting on higher Jap- 100 Not all of these surprises will come to
anese yields that the trade is known as the pass, of course. But it seems likely that at
“widowmaker”. In the developed world, 80 least one or two will. Predicting which
MSCI emerging markets
pension funds, insurers and retired work- ones may mark the difference between
ers are all eager buyers of fixed-income as- 60 success and failure for investors in 2016.
2010 11 12 13 14 15
sets. Perhaps bond yields will edge higher
Source: Thomson Reuters
in 2016, but not by very much. Economist.com/blogs/buttonwood

2 came self-perpetuating. But their monopo- tend to the interests of the handful of out- Allen, responsible for the purchase and
lies also embroiled them in politics and led side investors. Their stakes were held outfitting of the ship, the hiring of the crew
inevitably to corruption. Both the British through carefully constructed syndicates and the sale of the catch. To give them an
and Dutch versions ended up requiring and rarely traded; everyone was, financial- incentive to cut the best deals possible, the
government bail-outs—a habit giant firms ly at least, on board for the entire voyage. agents put up a big share of the investment.
have not yet kicked. Payment for the crew came from a cut of Those with the best reputation received
The whaling industry involved a radi- the profits, giving them a pressing interest better terms from the other investors. Cap-
cally different approach. It was one of the in the success of the voyage as well. As a tains, who ran the show while the ship
first to grapple with the difficulty of align- consequence, decision-making could be was at sea, often put up capital as well. A
ing incentives among owners, managers delegated down to the point where it really similar system of incentives is used in the
and employees, according to Tom Nicholas mattered, to the captain and crew in the riskier reaches of the investment-manage-
and Jonas Peter Akins of Harvard Business throes of the hunt, when risk and return ment business today, notes Mr Nicholas.
School. In this model, there was no state were palpable. Investors received half to two-thirds of
backing. Managers held big stakes in the At the top of the New Bedford hierarchy the profits. The rest was divided among the
business, giving them every reason to at- was an agent or firm of agents like Gideon crew in what was known as the “lay” sys- 1
56 Finance and economics The Economist January 2nd 2016

2 tem. A captain might get a 12th lay (one- voyages, but also to win over other inves- oceans of whales, even as other lucrative
twelfth of the remaining profit). In Mel- tors. Hetty Howland Green, one ofthe rich- opportunities emerged for daredevils de-
ville’s novel, Ishmael, who was new to the est agents, was said to have made her own termined to strike it rich, such as the Cali-
business, was originally offered a 777th lay shoes and to have owned only one dress. fornia gold rush. “The same industrial
but managed to haggle a 300th. Although It also helped that they were open- growth that initially supplied markets and
that would probably have proved a paltry minded: they readily employed anyone profits for whaling activity ultimately
amount, it was a stake nonetheless, and set who could contribute to their ventures. yielded opportunities more attractive than
a benchmark for future pay. Ishmael’s Perhaps the single most important techno- whaling to local capital,” wrote David Mo-
friend Queequeg, a cannibal from the logical innovation used by New Bedford’s ment, a student at Harvard Business
South Sea islands, got a 90th lay because whaling fleet was the “Temple Toggle”, a School, in 1957. In short, with returns dwin-
he had experience with a harpoon. De- harpoon tip devised by Lewis Temple, a dling, the crews and the capitalists turned
mand for experienced crewmembers was former slave from Virginia. to other ventures. But the business prac-
so high that the Essex’s ill-fated captain, But the whalers’ main asset was their tices they developed are used in high-risk,
George Pollard, was immediately given a business model. In the 1830s, the legisla- high-return industries to this day. 7
second command on the ship that rescued tures of six American states approved
him (which sank as well). charters for whaling corporations giving
Every participant wanted to bring in re- them the right to raise capital by selling European insurance firms
turns quickly, but there were no artificial shares to the public—much the same cor-
deadlines—nothing resembling what is
now called “quarterly capitalism”. When
porate structure as the Dutch and British
East India Companies. None of the six sur-
One rule to bind
whales became rare in accessible places,
the crews from New Bedford extended
vived the 1840s. “The diffuse ownership
structure of the corporations, and the re-
them all
their search to every corner of every ocean, duced stakes held by their managers, likely
however many years that took. diminished the incentives for the manag-
New regulations will give a better sense
ers to perform their role diligently,” con-
of the soundness of Europe’s insurers
Safety in numbers cludes Eric Hilt of Wellesley College. Given
To ensure that they were not ruined by a
few disastrous voyages, the whaling firms
invested in multiple expeditions at the
the expense of buying, outfitting and
launching a boat into the perilous ocean,
the linkbetween riskand reward needed, it
L IKE banks, insurers need a cushion of
capital to ensure that they can meet cus-
tomers’ claims in the event of unexpected-
same time, much as the venture capitalists seems, to be tighter. ly big payouts or poor investment perfor-
of today “spray and pray”. A study pub- The lay system could work to the crew’s mance. As at banks, these cushions have at
lished in 1997 concluded that, of the 787 disadvantage, however. In an effort to re- times proved woefully thin. In theory, all
boats launched from New Bedford during duce claims on the crew’s share of the pro- that changes on January 1st—in the Euro-
the 18th century, 272 sank or were de- fits, ruthless captains were said to abandon pean Union, at least—when a new set of
stroyed. The firm that belonged to George men on the trip home. (Similar shedding regulations known as Solvency 2 comes
Howland was not atypical: of its 15 ships, of employees is not unheard of at contem- into force. After more than ten years of ne-
between four and nine were at sea at any porary tech startups before a big payout.) gotiation, all European insurers will have
given moment. One was sunk by a whale, Other schemes existed to cheat crew mem- to follow uniform rules on capital that are
three lost at sea, two burned by their crews, bers, such as forcing them to buy clothing designed to make the firms more robust
one destroyed by a Confederate gunboat at inflated prices or to pay usurious interest and allow investors and customers to as-
during America’s civil war and five aban- on advances on their pay. And open-mind- sess their strength much more easily.
doned in Arctic ice. Yet Howland died a edness went only so far: although black Not everyone is thrilled at this prospect.
millionaire in 1852. sailors were not discriminated against in Mention “upcoming regulatory changes”
It helped that most of the whalers of terms of pay, they were treated less well in to an insurance executive and a tirade inev-
New Bedford were strict Quakers, who other respects, receiving less food and itably follows about ambiguities and in-
prized frugality and shunned ostentation. worse quarters. consistencies within the new rules, dis-
This helped them not only husband their Yet the New Bedford system was unde- crepancies in enforcement and the
own capital, which was needed to finance niably effective. It soon emptied the mountains of paperwork involved. Some
firms have had to bolster capital in antici-
pation: Delta Lloyd, a Dutch insurer, an-
nounced in November that it would raise
€1billion ($1.1billion). The rules favour div-
ersified firms, so those that offer just one
form of insurance are under pressure to
merge. That impetus contributed to several
deals involving specialist insurers in 2015,
including Fairfax’s purchase of Brit in Feb-
ruary and XL’s takeover of Catlin in May.
Anxious bosses have trimmed the indus-
try’s own debts to relatively low levels.
Some of the disgruntlement is legiti-
mate. Regulators themselves seem to agree
that the current risk weightings unduly pe-
nalise investments in long-term debt tied
to infrastructure; some government bonds,
in contrast, may be considered too safe.
European firms with big international op-
erations say it is not clear to what extent
The investors often ended up underwater too Solvency 2 applies to their non-European 1
 The Economist January 2nd 2016 Finance and economics 57

2 subsidiaries. Transitional rules designed to

make life easier for German life insurers in
particular will shield them from some ele-
ments of the new rules for up to 16 years.
Then there is the question ofhow many
insurers will be allowed to substitute inter-
nal models for the standardised formulae
used to calculate capital requirements.
Some big firms, including 19 in Britain,
have persuaded their national regulator
that their own calculations are at least as
good as the prescribed ones. More firms
will apply in 2016, in the hope of trimming
the amount of capital required and thus in-
creasing profits.
To some extent that undermines the
logic ofa uniform system, by making insur-
ers using internal models and those using
the standard one hard to compare, says Jim
Bichard of PwC, an accounting firm: “The
solvency ratios will be all over the place
and there’s a high risk of misinterpreta- Opening up, ASEAN-style
tion.” It also raises the concern that some
of the national regulators charged with ap- in the middle. For one thing, much of the Behind those aggregate figures, though,
plying the new rules will be more lenient work towards economic integration has lie vast differences, not all of which are
than others. The British and Dutch ones, been done: by ASEAN’s reckoning, 79.5% of conducive to economic integration. Viet-
for example, are thought to be more exact- the measures the AEC involves have al- nam and Laos are communist dictator-
ing than their Italian counterpart. ready been implemented. ASEAN already ships; Brunei an absolute monarchy; the
Yet whatever Solvency 2’s failings, the attracts large amounts of foreign invest- Philippines and Indonesia rowdy democ-
new regime will still provide a continent- ment, and its leaders have been talking up racies. Singapore was founded as a trading
wide benchmark for the first time. “It will integration and regionalism since the orga- entrepot in 1819; Indonesia has a history of
confirm who is strong and who is weak,” nisation was founded in 1967. So the AEC protectionism. Perhaps inevitably, the
says David Prowse of Fitch, a rating agency. represents less a radical change than an at- commitment of such a diverse bunch to re-
The strong will presumably start to put tempt to accelerate existing trends. gional integration, and the pooling of
their excess capital to work, making acqui- But anyone hoping that ASEAN is about sovereignty it implies, is not as strong as
sitions or returning cash to shareholders. to turn into an Asian version of the Euro- ASEAN’s triumphant statements suggest.
The weak, meanwhile, will have to boost pean Union will be disappointed. Euro- There is no mechanism to enforce the
their capital, trim their liabilities by offer- pean integration is fundamentally a politi- group’s many agreements and treaties. Re-
ing stingier policies, sell capital-intensive cal project with an inward focus, argues gional banking systems and capital mar-
parts of the business or fall into the arms of Jayant Menon of the Asian Development kets remain unintegrated. Tariffs may van-
one of their brawnier counterparts. 7 Bank, which has led to a mushrooming of ish, but non-tariff barriers pop up in their
institutions. The AEC, in contrast, is an eco- place. Members continue to set their own
nomic project, with almost no institutional intellectual-property, land-use and immi-
South-East Asian integration heft—just a small secretariat—devoted to gration policies.
“outward-oriented regionalism”. It is de- The rules regarding the free movement
More hat than signed to make the region an easier and
more attractive place for foreign compa-
of “skilled labour” provide a good illustra-
tion of the AEC’s limitations. Under its mu-
cattle nies to do business and thus to boost trade
and investment.
tual-recognition arrangements (MRAs),
certain professional qualifications from
Those missions are helped by ASEAN’s any member are deemed valid in all the
SINGAPORE
economic dynamism. Between 2007 and others, allowing holders of them to work
A seamless regional economic bloc is
2014 regional GDP doubled, from $1.3 tril- throughout the region. But the AEC’s MRAs
just around the corner—as always
lion to $2.6 trillion, and GDP per person cover only eight professions, accounting
for just 1.5% of ASEAN’s total workforce.
G RANDIOSE statements from the Asso-
ciation of South-East Asian Nations
(ASEAN) are the region’s Christmas crack-
grew from $2,343 to $4,135. Total internal
and external trade grew from $1.6 trillion to
$2.5 trillion, and foreign direct investment
Moreover, even in these fields, other do-
mestic regulations inhibit foreign workers.
ers: they appear at regular intervals, create rose from $85 billion to $136 billion. Nursing, for instance, is among the eight
a commotion but contain little of sub- Viewed as a single economy, ASEAN is the professions subject to an MRA, but to work
stance. In November the leaders of the world’s seventh-largest and Asia’s third- in Thailand nurses still must pass a qualify-
club’s ten members declared that the largest, behind China and Japan. And ing exam in Thai. As Mr Menon points out,
ASEAN Economic Community (AEC)—a while China and Japan are ageing rapidly, this is short-sighted: English-speaking Fili-
single market around which goods, ser- ASEAN remains young, with more than pino nurses would be a boon to Thailand’s
vices, capital and “skilled labour” are sup- half its population under 30. China’s slow- burgeoning medical-tourism sector.
posed to flow freely—would come into be- down has taken its toll on the region—par- Knitting South-East Asia together eco-
ing on December 31st. So will South-East ticularly on commodity exporters such as nomically sounds appealing, but the polit-
Asia’s 622m people wake up in a new Malaysia and Indonesia—but its young ical will to make it happen is hard to find.
world in 2016, or will the AEC prove anoth- workforce, improving infrastructure and For the moment, ASEAN seems more fo-
er paper crown? rising incomes leave it poised for strong fu- cused on the letter than the spirit of region-
The answer probably lies somewhere ture growth. al integration. 7
58 Finance and economics The Economist January 2nd 2016

Free exchange Exit, pursued by bear

The Fed has at last raised rates. What happens next?

I T IS more than two weeks since the Federal Reserve raised inter-
est rates for the first time in over nine years, and the world has
not (yet) ended. But it is too soon to celebrate. Several central
tant future, the economy returns to health. The promise of higher-
than-normal inflation in future, if believed, reduces the real, or in-
flation-adjusted, interest rate in the present, since money used to
banks have tried to lift rates in recent years after long spells near repay loans will be worth less than the money borrowed. Expec-
zero, only to be forced to reverse course and cut them again (see tations of higher future inflation therefore provide the stuck econ-
chart). The outcome of America’s rate rise, whatever it may be, omy with the sub-zero interest rates needed to escape the rut.
will help economists understand why zero exerts such a power- Governments pursued both these policies in the 1930s to es-
ful gravitational pull. cape the Depression. But when they reversed course prematurely,
Recessions strike when too many people wish to save and too as America’s did in 1937, the economy suffered a nasty and imme-
few to spend. Central banks try to escape the doldrums by slash- diate relapse. The liquidity-trap explanation suggests the Fed’s
ing interest rates, encouraging people to loosen their grip on their rate rise was ill-advised. The American economy, after all, is far
money. It is hard to lower rates much below zero, however, since from perky: it is growing much more slowly than the pre-crisis
people and businesses would begin to swap bank deposits for trend; inflation is barely above zero; and expectations of inflation
cash or other assets. So during a really nasty shock, economists are close to their lowest levels of the recovery. If this view is cor-
agree, rates cannot go low enough to revive demand. rect, the Fed will be forced by tumbling growth and inflation to re-
There is significant disagreement, however, on why econo- verse course in short order, or face a new recession.
mies become stuck in this quagmire for long periods. There are
three main explanations. The Fed maintains that the problem Stuck in a glut
stems from central-bank paralysis, either self-induced or politi- There is a third version of events, however. This narrative, which
cally imposed. That prevents the use of unconventional mone- counts Larry Summers, a former treasury secretary, among its
tary policies such as quantitative easing—the printing of money main proponents, suggests that the problem is a global glut ofsav-
to buy bonds. The intention of QE is to buy enough long-dated ings relative to attractive investment options. This glut of capital
debt to lower long-term borrowing rates, thereby getting around has steadily and relentlessly pushed real interest rates around the
the interest-rate floor. Once QE has generated a speedy enough re- world towards zero.
covery, senior officials at the Fed argue, there is no reason not to The savings-investment mismatch has several causes. Damp-
raise rates as in normal times. ened expectations for long-run growth, thanks to everything
If the Fed is right, 2016 will be a rosy year for the American from ageing to reductions in capital spending enabled by new
economy. The central bank expects growth to accelerate and un- technology, are squeezing investment. At the same time soaring
employment to keep falling even as it lifts rates to 1.5% or so by the inequality, which concentrates income in the hands of people
end of the year. Yet markets reckon that is wildly optimistic, and who tend to save, along with a hunger for safe assets in a world of
that rates will remain below 1%. That is where the other two ex- massive and volatile capital flows, boosts saving. The result is a
planations come in. shortfall in global demand that sucks ever more of the world
The first is the “liquidity trap”, an idea which dates back to the economy into the zero-rate trap.
1930s and was dusted off when Japan sank into deflation in the Economies with the biggest piles of savings relative to invest-
late 1990s. Its proponents argue that central banks are very nearly ment—such as China and the euro area—export their excess capi-
helpless once rates drop to zero. Not even QE is much use, since tal abroad, and as a consequence run large current-account sur-
banks are not short of money to lend, but of sound borrowers to pluses. Those surpluses drain demand from healthier
lend to. economies, as consumers’ spending is redirected abroad. Low
Advocates of this theory see only two routes out of the trap. rates reduce central banks’ capacity to offset this drag, and the
The government can soak up excess savings by borrowing heavi- long-run nature of the problem means that promises to let infla-
ly itself and then spending to boost demand. Or the central bank tion run wild in the future are less credible than ever.
can promise to tolerate much higher inflation when, in the dis- This trap is an especially difficult one to escape. Fixing the glo-
bal imbalance between savings and investment requires broad
action right across the world economy: increased immigration to
Oh no you don’t! countries with ageing populations, dramatic reforms to stagnant
Interest rates following the first increase from near-zero levels, % economies and heavy borrowing by creditworthy governments.
2.0 Short of that, the only options are sticking plasters, such as cur-
Sweden (June 2010) rency depreciation, which alleviates the domestic problem while
1.5 worsening the pressure on other countries, or capital controls de-
Euro zone (March 2011) signed to restore monetary independence by keeping the tides of
1.0 global capital at bay.
Canada (May 2010)
If this story is the right one, the outcome of the Fed’s first rises
0.5 will seem unremarkable. Growth will weaken slightly and infla-
Japan (June 2006) + tion will linger near zero, forcing the Fed to abandon plans for
0 higher rates. Yet the implications for the global economy will be
Japan (July 2000) grave. In the absence of radical, co-ordinated stimulus or restric-
Denmark (March 2011) –
0.5 tions on the free flow of capital, ever more of the world will be
12 24 36 48 60 72 84 96 108 120
drawn, indefinitely, into the zero-rate trap. 7
Months since rate increase
Sources: Central banks; Chicago Mercantile Exchange
Economist.com/blogs/freeexchange
 Science and technology The Economist January 2nd 2016 59

Also in this section

60 The future of the Nobel prize
61 Weird weather

For daily analysis and debate on science and

technology, visit
Economist.com/science

Aircraft engines the back of the jet of fast-moving gas. This

gas generates thrust in proportion to its
Flying’s new gear mass and to the speed with which it is be-
ing ejected. In the early, ear-splitting jet en-
gines designed by Whittle and his contem-
poraries, the thrust came from air that
entered the engine’s core at the front (see
diagram overleaf) where it was squeezed
by a compressor, mixed with fuel and ignit-
A quieter, more economical jet engine, fitted with a gearbox, is about to arrive
ed to produce hot gases that rushed out of

E VERYONE remembers the Wright broth-

ers, who made the first powered, heavi-
er-than-air flights by human beings on a
building geared turbofans, which Pratt &
Whitney brands “PurePower”, is a gamble.
The firm has spent two decades and more
the rear. Though the mass of this exhaust
gas was small, its velocity was high, so the
resulting thrust kept an aircraft fitted with
beach in North Carolina in 1903. Few, by than $10 billion developing them. Con- such an engine aloft. The compressor,
contrast, remember Charlie Taylor, a me- necting an engine’s inlet fan to the com- meanwhile, was turned by a turbine pro-
chanic at the brothers’ bicycle business in pressor and turbine in its core through a pelled by the exhaust gases.
Dayton, Ohio. Yet it was Taylor who, by gearbox should give better fuel economy A turbofan works in a broadly similar
building an internal-combustion engine and make the thing quieter—both desir- way, but with a fan also turned by the tur-
out of aluminium castings rather than iron able outcomes. But the bigger the engine bine to push some of the air around, rather
ones, created a device both light enough the bigger the forces on the gearbox and than through, the core. Though this core-
and powerful enough to lift Orville and the more likely it is that something will go bypassing air is not moving as fast as the
Wilbur into the sky. wrong. So, though gearboxes are found in exhaust gases, there is a lot of it—so it, too,
Engine design has always been crucial turboprops (jet engines that turn a propel- produces a great deal of thrust. The upshot
to aviation. To start with, more powerful ler) and in a few executive jets, no one had is a system that is more efficient and quiet-
versions of the piston-driven motor pio- until now managed to scale one up to cope er than earlier jet engines.
neered by Taylor ruled the roost. Then, a with the 30,000 horsepower delivered by The proportion of air going around the
radical, new approach emerged as the de- the core of an airliner’s engine. core compared with that going through it is
signs of Frank Whittle, a British engineer, Pratt & Whitney has persevered be- known as the bypass ratio. Some of the lat-
ushered in the jet age. The jet has since cause it thinks the conventional, ungeared est turbofans have bypass ratios as high as
evolved into the turbofan, whose gaping turbofan is reaching its limits, and that only 9:1. It is to achieve this that fans (and there-
intakes have—as seasoned air travellers by adding a gearbox can airlines achieve fore inlets) have increased in size. But as fan
will have noticed—grown larger and larger the performance and economy which will blades get longer, their tips travel faster—
over the years, to accommodate ever big- be required of them in the future. Airlines, and now those tips are going at close to the
ger and better fans. And now, as 2015 turns though, are notoriously conservative, and speed of sound. Accelerating them any fur-
into 2016, another new design is being are wary of new, complicated kit like gear- ther would cause shock waves, and these
rolled out. This is the geared turbofan, boxes, which are yet one more thing that might result in dangerous vibrations.
which is available as an option on the can go wrong. So Pratt & Whitney has had A gearbox gets around this by letting the
A320neo, the latest product of Airbus, Eu- its work cut out to persuade them. fan turn more slowly than the compressor
rope’s biggest aerospace group. and the turbine. This means the fan can be
Geared turbofans, as their name sug- Meshing it together made bigger (and can thus accelerate a
gests, include a gearbox as part of the A jet engine works according to Newton’s greater volume of air) without slowing
mechanism. Those on the A320neo are the third law of motion: to every action there is everything else down to its rev rate. This ar-
brainchildren of engineers at Pratt & Whit- an equal and opposite reaction. The reac- rangement permits all parts to be engi-
ney, a division of United Technologies, an tion is forward movement. The action neered for optimal performance. As a re-
American conglomerate. Designing and which provokes that is the ejection from sult, PurePower has a bypass ratio of 12:1. 1
60 Science and technology The Economist January 2nd 2016

This will be available later in 2016 and is

Three jet ages Compressor Combustion Turbine claimed by the partners to provide fuel sav-
chamber ings similar to those of a geared arrange-
TURBOJET
ment. The Leap is a conventional turbofan,
In early jets incoming air
was directed to the but it is made using some unconventional
AIRFLOW THRUST
compressor and ignited techniques. These include new composite
with fuel to create thrust materials and also additive manufacturing
and drive a turbine (popularly known as 3D printing). Rolls-
Compressor Royce, too, aims to get greater efficiency
Fan Combustion from its turbofan designs, though it does
chamber Turbine
also have a gearbox-development pro-
TURBOFAN gramme, with a view to making a geared
A fan is used to drive a
proportion of the air more
turbofan that might enter service on large
AIRFLOW THRUST passenger aircraft in around a decade’s
slowly around the core of
the engine, to provide time.
thrust more efficiently As to PurePower itself, so far the opin-
ion of airlines is divided. Airbus has taken
Gearbox Compressor orders for more than 4,400 A320neos.
Fan About a third of these will sport Pure-
Combustion
chamber Turbine Power, a third Leap, and in the cases of the
GEARED TURBOFAN remaining third, the customer has yet to
A gearbox allows a bigger make up his mind.
fan to rotate more slowly
Pratt & Whitney, though, does not plan
than the rest of the AIRFLOW THRUST
engine, to push an even to be tied only to Airbus. It is also offering
larger volume of air versions of PurePower to firms trying to
around the jet’s core break the duopoly enjoyed on short-to-me-
dium-range aircraft by that firm and Boe-
ing. Bombardier of Canada is one such. Its
competitor to the A320 is called the C-
2 Doing all of this does, though, require Pratt & Whitney’s two big rivals in the jet- Series. The Mitsubishi Regional Jet, from Ja-
an utterly reliable gear box. Pratt & Whit- engine business, General Electric (another pan, is another plane which Pratt & Whit-
ney uses advanced nickel-based alloys for American firm) and Rolls-Royce (a British ney hopes might use PurePower. And there
the components of the box itself. The fan one). These companies are also working are also the MC-21, a 180-seat airliner from
blades are made from a lightweight alloy on more efficient aircraft engines. Both, Irkut, a Russian aerospace company better
of aluminium and lithium. And the tur- though, think improvements can still be known for its Sukhoi fighter jets, and the E-
bine is composed of titanium aluminide, a squeezed from the conventional turbofan Jet from Embraer, of Brazil. Whether Pratt &
substance developed in collaboration design without resorting to a gearbox. Whitney’s PurePower play will pay off re-
with MTU, a German firm, that has twice General Electric, in partnership with mains to be seen, but as Charlie Taylor
the strength of the conventional cast alloys Snecma, a French firm, is offering a rival en- knew over 100 years ago, gearing up for
used to make turbines. gine, called the CFM Leap, for the A320neo. success does mean taking risks. 7
The upshot is that a pair of PurePower
engines slung under an A320neo’s wings
promise to reduce fuel consumption by15% The future of the Nobel prize
compared with a standard A320. This
could save an airline more than $1.5m a
year per aircraft in fuel costs. Geared turbo-
Throw caution to the wind?
fans also give the plane a longer range and
are markedly less noisy.
There have, inevitably, been teething
problems. Industry reports suggest that the
Stockholm
geared turbofan needs a slightly longer
For everything to stay the same, everything may need to change
period to cool down than was expected, to
avoid uneven wear when it is restarted.
This might sound trivial, but at a busy air-
port it could cost a plane its take-off slot.
F EW events exceed the splendour of the
Nobel ceremony and gala dinner held
every December in Stockholm. After
Nobel, who made his money by invent-
ing dynamite, set things off with a bang. In
1895 he bequeathed 31m kronor (roughly
For that reason Qatar Airways, which had champagne toasts to Sweden’s king, and to $200m at today’s values) to create a foun-
been expected to be the first to take deliv- the memory of Alfred Nobel, 1,300 guests dation, the income from which would pay
ery of the A320neo, is believed to have sitting in the city hall cheer the latest crop for the prizes. The endowment is now
postponed receipt. The honour of being of laureates in chemistry, physics, physiol- worth 4 billion kronor (some $500m). That
first now looks like going to Lufthansa, a ogy or medicine, literature and economics. sounds like a lot, but it hardly represents a
German carrier. Pratt & Whitney says the (The peace prize is awarded at a separate spectacular return after120 years.
geared turbofan meets or exceeds all its shindig, in Oslo.) For many of the winners, As a result, the prizes have suffered. To-
performance requirements. During rou- perhaps more used to sporting white coats day, an individual award—which can be
tine flight testing, ways to improve the en- than white ties, the occasion is a career-de- split up to three ways—is worth 8m kronor
gine were identified, but the company fining moment of glamour. No other prize in addition to the 18-carat gold medal each
adds that any modifications will be minor. has anything like the stature of a Nobel. In recipient receives. A handy sum, but one
Whether geared turbofans will sweep scientific circles it is known simply as “the whose lavishness has fallen as cautious in-
all before them remains to be seen—and trip to Stockholm”. But some do whisper vesting has failed to increase the pot as fast
depends, at least in part, on the response of the question, “for how much longer?” as economic growth has increased peo- 1
 The Economist January 2nd 2016 Science and technology 61

2 ple’s incomes. According to the founda- or adding to the Nobel list, though, has not (even if these are restricted to the personal,
tion’s boss, Lars Heikensten, who was once found favour. Even the economics prize, in- rather than the corporate, and perhaps to
governor of Sweden’s central bank, when troduced in 1969, is looked down on by tra- legacies rather than lifetime gifts that
the first prizes were awarded, in 1901, they ditionalists as not being a proper Nobel. might be seen as involving some quid pro
represented 25 times the annual salary of a Then there is the question of replenish- quo) might be sensible, to boost the prizes’
professor at a typical university in Europe ing the coffers. A praiseworthy desire to value. For reputation is a funny thing. Scan-
or America. Now, the ratio is more like ten. preserve independence by not taking do- dal can destroy it overnight, of course, and
Meanwhile rivals, such as the Kavli and nations into the endowment has become the foundation’s trustees might fairly ar-
Breakthrough prizes, are being endowed something of a drawback. This, as much as gue that their cautious approach has avoid-
by more recent plutocrats. Many of these overcautious investing, is responsible for ed that fate. But reputation can also slip
(see chart) pay out more than the Nobel the prizes’ diminished financial value. A away, unnoticed, as the world’s attention
Foundation—in the case of the Break- more welcoming attitude to donations shifts elsewhere. 7
through prize, three times as much. The
Nobel brand may thus be in danger of ero-
Meteorology
sion, as the foundation itself admits in its
most recent annual report. This says that
“ensuring the importance of the Nobel Barmy weather
prize in the long term continues to pose a
significant challenge”.
The rain gods have brought a dreadful Christmas
Mr Heikensten is trying to take matters
in hand. He has overseen a big awareness-
raising push on social media, and through
conferences and debates that carry the No-
T HE year 2015 was probably the hottest
since meteorological records began. It
certainly ended with a flourish. On North
Storm chasing
Approximate location of storm centre* Previous
December 2015 dates, route
bel name. And, sometime in the next 12 America’s east coast, dreams of a white 12:00 GMT Forecast
months, work will start on a Nobel visitor Christmas were banished by springlike North
Pole
centre and conference venue in the heart temperatures. In New York, for instance,
of old Stockholm. This controversial cube the mercury hit 22°C (72°F) on Christmas
of glass, costing 1.2 billion kronor, will be Eve. Europe, too, enjoyed unseasonal 30
25
paid for by private donors, with much of warmth. But this was no festive gift, for UNITED
STATES 24 27 29
the money coming from two families of the warm, moist air that caused it also 23 UNITED
Swedish billionaires, the Wallenbergs and brought humungous storms. KINGDOM
New York
the Perssons. Which is all well and good, In South America flooding has forced
but does not really get to the heart of the 130,000 Paraguayans from their homes. A T L A N T I C
matter—that the whole Nobel proposition In the United States tornadoes before and O C E A N
needs dragging into the 21st century. after Christmas have killed at least 29
One ticklish question is whether the people. Thirteen more have drowned in
prize categories are still relevant. The sci- floods caused by a storm that this week
ence prizes—the core of the foundation’s tracked across the Atlantic (see map), PARAGUAY
*Area of low
fame—reflect the academic priorities of the where it may add to the misery of people atmospheric
founder’s era. Things have changed. Gall- in large parts of northern England, who ure originating in
Source: Windyty southern United States, Christmas 2015
ing though it is to the memory of Nobel, a have already been inundated several
chemist, pure chemistry is largely worked times this year, the Christmas period
out as an academic discipline. These days, included (see page 44). Another factor is that the polar vortex,
most of the winners of the chemistry prize As The Economist went to press, fore- which traps cold air in the Arctic, has
could have fitted just as easily into the casters were warning that this storm, taken a form which permits balmier than
physics or physiology-or-medicine catego- dubbed Frank by British meteorologists, normal weather in much of the northern
ries. Meanwhile, biology has hypertro- may develop into what is known as a high latitudes. This week’s bomb cyclone
phied. Shoe-horning it into “physiology or bomb cyclone, undergoing a sudden, may change that, though. Bits of Europe
medicine” seems bizarre, and excludes im- drastic drop in air pressure at its centre in could be in for a cold new year.
portant fields such as ecology. a way that will suck warm air from the Climate change is a contributor too.
Rivals have prizes for categories such as tropics and funnel it northward. If these The greenhouse effect warms the oceans
neuroscience and nanoscience. Changing predictions prove correct, the tempera- as well as the atmosphere, and they have
ture at the North Pole is likely to rise a stored up quite a lot of heat in recent
little above freezing. Though that is still years. The oceans are therefore unusually
Prize fight chilly by most people’s standards, it is an warm—not just the eastern Pacific, but the
Prize money, 2015 or latest, $m extraordinary 30°C above the average for Indian and Atlantic, too.
this sunless time of year. Kevin Trenberth of the National Cen-
0 1 2 3
One explanation for the weird weath- tre for Atmospheric Research, in Boulder,
Breakthrough prize er, at least in the Americas, is El Niño—a Colorado, points out that a lack of hurri-
Queen Elizabeth prize phenomenon in which a slackening of canes—which most people would wel-
for engineering trade winds over the Pacific allows warm come—may explain some of the effects
Tang prize water to slosh back eastward, increasing around the Atlantic at the moment as
the amount of heat and moisture in the heat normally released by summer hurri-
Kavli prize atmosphere in a way that has various canes stayed in the ocean. As ever, con-
predictable effects across the tropics. The necting weather patterns across the
Nobel prize
floods in South America are part of a seasons and across the globe is difficult.
Blavatnik national award typical Niño pattern, and the tornadoes But learning how to do so is becoming
for young scientists
in the United States tend to fit, too. ever more important.
Source: Award organisations
62
Books and arts The Economist January 2nd 2016

Also in this section

63 Kennedy’s forgotten crisis
64 Ukraine’s war-torn history
65 Non-Western classical music
65 New film: “The Revenant”

For daily analysis and debate on books, arts and

culture, visit
Economist.com/culture

The Great War at midpoint widespread feeling on both sides that the
sacrifices had already been so great that
A most terrible year the possibility of a negotiated peace had
ceased to be politically conceivable. The
only way forward, it seemed, was to pre-
vail in a fight to the finish whatever the
cost. That was one reason why 1916 saw
two of the most terrible confrontations of
Two long battles of attrition engulfed the European powers in 1916, a year crammed
the war: the battle of Verdun, which began
both with horrors and with consequences, many of which still endure
in February, and the battle of the Somme,

B OOKS that focus on what happened in

a particular year have become a pub-
lishing phenomenon. So Keith Jeffery, a
ground to a halt, France and Germany had
between them suffered over 1.5m casual-
ties—a loss rate that was not exceeded until
which was launched on July 1st.
During the whole of 1915 there were
1.8m casualties on the Western Front; in
British academic historian whose last manoeuvre returned to the battlefield in just eight months of 1916, thanks to those
work was a fascinating, if slightly plod- the final months of fighting. By1916 most of two epic struggles, France, Britain and Ger-
ding, official history ofBritain’s secret intel- the soldiers on both sides had not only lost many together sustained 2.2m casualties.
ligence service, MI6, must have thought it a faith in imminent victory, but had become For the German chief of staff, Erich von Fal-
clever idea to go for 1916, the midpoint of fatalistically resigned to the war as perma- kenhayn, the fortress at Verdun was cho-
the first world war. Mr Jeffery’s purpose is nent crucible for their generation which sen as the place where “the forces of France
to show that not only was it a year of tre- civilians and politicians at home could not will bleed to death”. Verdun, writes Mr Jef-
mendous events, but one in which the begin to comprehend. fery in “1916: A Global History” (Blooms-
effects of the war spread across most of the The last hope that the war might be bury, $32 and £25) “became a byword for
world, often with consequences that can brought to a swift conclusion by a stroke of the manifest horrors of industrialised, ‘to-
still be felt a century later. strategic brilliance had faded with the ab- tal’ war”. But for France, the defence of Ver-
By 1916, the war that some had believed ject failure of the Gallipoli campaign to dun in the face of Germany’s greatest on-
would be over by Christmas 1914 had be- deal the expected blow to the Ottoman slaught of the war so far became the
come an attritional slog on both the largely Empire. Just a few days before the close of ultimate symbol of national heroism. For
static Western Front and on the rather 1915, the Allied forces withdrew stealthily the British, the battle of the Somme came
more fluctuating front in the East. To break from the beaches at Suvla Bay and “Anzac” to represent something less noble. At the
the deadlock, the general staffs of all the Cove (the acronym for the Australian and outset, the British army suffered its great-
main belligerents continued to work on New Zealand Army Corps, which fought est-ever loss in a single day (more than
new tactics, such as the creeping artillery there with great gallantry, but, contrary to 57,000 casualties). The shock of July 1st 1916
barrage, and to seek new technologies, in- national myths, did not suffer the bulk of came to stand for not just the suffering and
cluding the tank, which first saw action in the casualties). The withdrawal, in contrast courage of the soldiers, but, later, anger
September 1916. Contrary to a widely held to the rest of the shambolic campaign, was over the human cost of flawed tactics and
view, the second half of the war was a per- rather brilliantly conducted. But the lesson supposedly callous military leadership.
iod of unprecedented military innovation. was still a painful one: although “side- Yet at the time the battle, which contin-
The idea that sheer offensive élan could shows” continued to exercise the imagina- ued until November, was not regarded as a
overcome well-entrenched defences tion of those with an imperialistic mind- disaster. The French made significant gains
equipped with modern weaponry, in the set, the grim reality for Britain and France during September, which, William Phil-
form ofaccurate artillery and the machine- was that the war would be won or lost on pott, author of “Bloody Victory” (2009),
gun, had died during the appalling blood- the Western Front. believes was the “tipping point” of the war.
letting of late 1914. In the four months be- That realisation fed into something He argues that the Somme “relieved the
fore the war of movement in the West else. By1916 sentiment had hardened into a pressure on Verdun, restored the initiative 1
 The Economist January 2nd 2016 Books and arts 63

2 of the Allies, wore down the enemy’s man- Habsburg resistance. But his offensive China and India
power and morale and…stretched Ger- proved to be another major turning point.
man resources dangerously thin”. With Austria-Hungary was more or less de-
stroyed as a military power, increasingly
Clash of the titans
their superior manpower and resources,
the Allies believed the Somme was “a stra- dependent on Germany to stay in the fight.
tegic victory in a war of attrition” which Less obviously, exhausted by the inconclu-
they would eventually win. sive effort of its greatest feat of arms in the
Paradoxically, the great naval battle of war, the Russian army turned in on itself,
JFK’s Forgotten Crisis: Tibet, the CIA and
Jutland, two months before the Somme of- creating the conditions for the revolution
the Sino-Indian War. By Bruce Riedel.
fensive, looked at best like a costly draw for the next year that was hijacked by Lenin
Brookings Institution Press; 256 pages; $29
the Royal Navy, which lost more ships and with help from Germany.
men than Germany’s High Seas Fleet, but
was in fact a strategic success. Although, as
Mr Jeffery points out, contrary to myth, it
The battles on the Eastern Front in 1916
“crucially accelerated the political and so-
cial destabilisation of both the Russian and
I N THE autumn of1962 Chinese troops in-
vaded Indian-held territory, attacking
across the 1,800-mile (2,880km) border
was not the last time the High Seas Fleet Habsburg empires”, as Mr Jeffery notes. that stretches along the Himalayas be-
ventured out of Wilhelmshaven, the dam- Nearly all the areas where the fighting took tween the two giants of Asia. Mao Zedong
age done to its smaller naval force at Jut- place were in the colonised spaces of east- instructed his army to expel Indian sol-
land underlined the risks of seeking a de- ern Europe: that is to say, in places where diers from territory that China claimed in
finitive engagement. As a result, there was “the population felt itself under the domi- Kashmir. In Washington the Chinese offen-
no further real threat to Britain’s naval nation of a foreign power”. The war en- sive was seen as a serious communist
blockade of Germany which, according to couraged people to challenge the imperial move in the cold war.
German apologists for their eventual mili- status quo and assert their right to national It was an inconvenient moment for the
tary defeat, led to deteriorating conditions self-determination, still a relatively new White House. President John Kennedy was
on the home front (malnutrition and sick- concept and one that has remained a absorbed in an even bigger crisis with
ness if not actual starvation) and the myth source of conflict and controversy. communism closer to home: the flow of
of the “stab in the back” by treacherous With every major belligerent by 1916 in Soviet missiles to Cuba which threatened a
republican politicians. extremis, it was not just in eastern Europe nuclear conflict. Luckily for Kennedy, he
A further consequence of Jutland was and the Balkans that nationalist move- had his own man in New Delhi. His friend
that with waning appetite for another ments surfaced to exploit the distraction of from Harvard, John Kenneth Galbraith,
major fleet action and its attendant risks, the colonial power. Ireland saw the Easter was the American ambassador. So in a rel-
German U-boats went back to a largely Rising when 1,400 armed republicans atively easy act of delegation, Galbraith
commerce-raiding role. It was the fateful seized a number of Dublin landmarks, in- was put in charge of the “other” crisis.
decision early in 1917 to expand into unre- cluding the GPO building, only surrender- Galbraith proved up to the task, in part,
stricted warfare that led directly to Ameri- ing when British artillery was used to shell as Bruce Riedel writes in “JFK’s Forgotten
ca’s entry into the war a few months later, their positions. The subsequent execution Crisis”, because he had access to the presi-
in April. A thread thus leads from Jutland to of 15 of the rebels and the imposition of dent and his aides. Most ambassadors re-
the single event that perhaps did most to martial law increased opposition to Ire- port to the State Department, but the blunt
ensure that Germany would lose the war. land’s role in the war and gave a boost the Galbraith told the president that going
The attritional struggles on both the republican cause that led to the establish- through those channels was “like trying to
main fronts were directly connected to the ment of the Irish Free State six years later. fornicate through a mattress”.
wider impact of the war as the fragile re- In the Middle East, the British and The border war did not last long. The
gimes of three of the belligerents, Austria- French pursued a policy offomenting Arab Chinese crushed the Indians. Mao de- 1
Hungary, Russia and the Ottoman Empire, nationalism as a means of undermining
began to crack under the strain. Austria- the Ottoman Empire and staving off Ger-
Hungary, whose attempt to chastise rebel- man attempts to promote a pan-Islamist ji-
lious Serbia fuelled the initial descent into had against the two older colonial powers.
war, was by 1916 buckling at the seams. Ne- In May 1916 two rather obscure diplomats,
glecting the struggle against Russia in the François Georges-Picot and Sir Mark Sykes,
East, Austria-Hungary’s chief of the gen- reached an agreement that divided Arab
eral staff, Franz Conrad von Hötzendorf, Ottoman provinces into areas of future
had sent his best troops to fight the Italians, British and French control or influence. The
but had still got bogged down. Things baleful results of their insouciant map-
turned from bad to worse when the Rus- drawing are still being felt today, notably in
sian general Aleksei Brusilov launched a the turmoil of Syria and Iraq.
brilliantly conceived offensive in June. The That 1916 was an extraordinary year is
Russian advance put intolerable pressure not in doubt. It was the pivotal year of the
on the fragile loyalties of the multi-ethnic Great War, which as Fritz Stern, a German-
Habsburg armies. There were mass defec- American historian, rightly observed, was
tions of Czech, Ukrainian, Croat and Slove- “the first calamity of the 20th century, the
nian units who were deeply reluctant to calamity from which all other calamities
fight fellow Slavs. sprang”. The intensity and scale of the
Brusilov eventually ran out of steam fighting was the trigger for a wave of politi-
when German divisions arrived to stiffen cal, economic and social upheavals that
destroyed empires and forged national
Correction: In a piece on historical agony aunts in our
Christmas issue ("Whatever should I do?"), we identities, sometimes for the better, very
described a British bigamist as having been transported often for the worse. Historians have been
to Australia before Captain Cook "discovered" the place. hard at work teasing out the threads; read-
The two-timer may well have been shipped to another
colony, such as America. Thanks to an alert reader for ers can expect a deluge of new books in the
spotting this. coming months. 7 Kennedy and Nehru step out
64 Books and arts The Economist January 2nd 2016

2 clared a unilateral ceasefire a month later Ukraine’s war-torn history he writes, “language, folklore, literature
and withdrew Chinese forces. He had pre- and, last but not least, history became
vailed over his Asian rival, humiliating the Keeping hope building blocks of a modern national iden-
Indian prime minister, Jawaharlal Nehru. tity”. He pays particular attention to the
But victory was not just about Chinese alive linguistic complexities. Ukrainians may
might. At Galbraith’s urging, the Ameri- speak Russian yet also identify profoundly
cans had quickly backed the distressed with the Ukrainian state. The real linguistic
Nehru. An emergency airlift of supplies divide is with Polish: western Ukraine was
The Gates of Europe: A History of Ukraine.
was sent to Calcutta and a carrier battle for many decades under Polish rule. Mem-
By Serhii Plokhy. Basic Books; 395 pages;
group was dispatched to the Bay of Bengal. ories of massacres and oppression are re-
$29.99. Allen Lane; £25
In the end, Mao judged that the Americans cent and vivid, making the reconciliation
might actually come to the help of India.
He did not want to suffer huge losses of
Chinese soldiers so soon after the Korean
R OWS over inheritances are bitter—with-
in families and between countries. At
the heart of the conflict between Russia
between those two countries all the more
remarkable.
The epilogue to “The Gates of Europe”
war. Thus American deterrence worked, and Ukraine is the contested legacy of a rightly describes the Ukraine crisis as cen-
and a confrontation between America and long-forgotten superpower: Kievan Rus. tral to Russia and Europe as a whole. It is
China was avoided, Mr Riedel writes. Both Vladimir Putin’s Russia and post- widely known that the Ukrainian national
The actual war is just one facet of this Soviet Ukraine lay claim to the mantle of anthem begins: “Ukraine has not yet per-
high-wire story of the geopolitics of the Vladimir the Great, a prince who just over ished”. Mr Plokhy points out that the
period, with its outsized characters and de- 1,000 years ago accepted Christian bap- Polish one begins in similarly mordant
cisions that still reverberate today. Mr Rie- tism for his unruly tribes of Slavs and Vi- style. The question for Ukrainians—and for
del puts his experience as a former CIA an- kings. To patriotic Russians, that was the Europe—is whether the country can sum-
alyst and a senior adviser on the National founding action of their statehood. For Uk- mon up the determination that Poland has
Security Council to canny use, uncovering rainians, the story is the other way round: shown to tread the hard road which his-
details about an American covert opera- their country, so often wiped off the map tory has set before it.
tion in Tibet that has been mostly forgot- by its neighbours, is the true descendant. The stakes are high: a successful, stable
ten, though not by China. That dispute underlies today’s smoul- Ukraine would be a strong candidate to
Between 1957 and the early 1970s Amer- dering war. Many Russians find it hard to join and strengthen the European Union. It
ica spirited young Tibetans out of their accept that Ukraine is really a state; more- would also be a devastating refutation of
homeland through Bangladesh (then East over, Ukrainians (especially if they speak the Putin regime’s contention that belli-
Pakistan), trained them in Colorado, and Russian as a first language) are essentially cose autocracy is the best way of running a
parachuted them back into Tibet, where Russians. The territory they inhabit is large ex-Soviet Slavic country.
they fought the Chinese army. Galbraith therefore part of Moscow’s patrimony. But the odds are uncomfortably long.
described the covert effort as “a particular- Ukraine’s identity and its enemies over Ukraine returned to statehood in 1991
ly insane enterprise”. But the CIA pre- the past ten centuries are the central shorn of its elites, thanks to famine, repres-
vailed. In 1961 the Americans were so threads of Serhii Plokhy’s admirable new sion and Russification. The creeps and cro-
starved for information about China that history. He eschews polemic—almost to a nies who have so signally misruled the
the CIA bragged about the ambush of a fault, given the horrors he describes. The country since then have acquired great
Chinese army truck by the Tibetan rebels. subject material could seem dauntingly riches, and put down deep roots. Two
Mr Riedel describes how a bloodstained dense: few readers will be familiar with democratic upheavals—the Orange revolu-
satchel of Chinese documents from the the twists and turns of the history, and tion that began in late 2004 and the Mai-
truck was taken to the White House as unfamiliar names and places abound. But dan protests of 2013—have failed to dis-
prized bounty. The Americans were so ig- Mr Plokhy—a Harvard historian whose lodge this parasitic ruling class.
norant about the early years of communist previous book, “The Last Empire”, was a Yet belief in Ukraine’s history of toler-
China, he writes, that the operation was notable account of the Soviet Union’s ance and legality, rooted in European
deemed worth the risk because of the doc- downfall—treads a careful path. Christian civilisation, keeps hope alive. In
uments’ descriptions of the status of Sino- The story is not just of high politics, his elegant and careful exposition of Uk-
Soviet relations, and the grim conditions in gruesome and enthralling though that is. raine’s past, Mr Plokhy has also provided
the Chinese countryside. Even when Ukraine did not exist as a state, some signposts to the future. 7
The current alliances on the subconti-
nent and the unsettling arms race between
Pakistan and India hark back to the war of
1962. Kennedy’s decision to help India
drew Pakistan closer to China. India start-
ed down its path to becoming a nuclear
power after its defeat by China. When In-
dia tested a nuclear weapon in 1998, the
rationale was the threat from China.
Today China and India are competitors,
not enemies. But more than 50 years after
the war, the border dispute remains unre-
solved. The two countries account for
more than a third of the world’s popula-
tion. In July 2014 at the first meeting be-
tween the Chinese leader, Xi Jinping, and
Narendra Modi, India’s prime minister, Mr
Xi said: “When India and China meet, the
whole world watches.” This superb his-
tory shows why. 7 Remembering the revolution
 The Economist January 2nd 2016 Books and arts 65

New film

Bearing down
“The Revenant” comes so close to being an action classic. Why does it fail?

W HEN one online reviewer misinter-

preted a key sequence in “The
Revenant”, Alejandro Iñárritu’s harrow-
anything other than what it is: the reorga-
nising of pixels on a computer screen.
Watching Mr Iñárritu’s visceral film, the
ing wilderness-survival drama acquired viewer feels Glass’s pain. Every plunge
a nickname: “The Bear Rape Movie”. It is into an icy river, every mouthful of
important to clarify, then, that Leonardo twitching raw fish, every arrow through
DiCaprio’s character, a shaggy-bearded the throat seems excruciatingly real.
19th-century frontiersman called Hugh It is unfortunate, then, that the direc-
Glass, is not raped by a bear, although tor has given in to his fatal weakness for
ursine sexual assault is just about the distracting subplots and mystical halluci-
only ordeal he is spared. nations. If Mr Iñárritu had not fallen for
Non-Western classical music At the start of the film, Mr Iñárritu’s padding out his primal revenge yarn to
first since his Oscar-winning Broadway an unnecessary 156 minutes, the over-
Voyages of farce, “Birdman”, Glass is a member of a powering scenes of Glass struggling
fur-trading party that is ambushed by against the bear, his human enemies and
discovery Arikara natives. The ensuing forest battle nature itself would have made “The
has the nerve-shredding immediacy of Revenant” into a classic of the action-
the D-Day set piece in “Saving Private movie genre.
Ryan” (1998), Steven Spielberg’s second-
The Other Classical Musics: Fifteen Great
world-war drama. Shortly afterwards,
Traditions. Edited by Michael Church.
Glass is bitten, clawed, trodden on and
Boydell Press; 426 pages; £25
flung around (but not raped) by a hulking

A NY self-respecting arts-lover living in

America or Europe is familiar with a
smattering of writers, painters and sculp-
grizzly, and then left for dead by a treach-
erous colleague (Tom Hardy). But he
forces himself to trek for hundreds of
tors from outside the West. But few cultural miles to his associates’ fort, via frozen
buffs could name a single composer from, landscapes as hostile and beautifully
say, China or Turkey, let alone give any de- strange as the surface of an alien planet.
tail about them. A collection ofessays, enti- Mr DiCaprio has said that his notori-
tled “The Other Classical Musics”, shows ously gruelling experiences on the set of
how much they are missing. “Titanic” nearly 20 years ago were a
Intelligently edited by Michael Church, breeze compared with making “The
a British critic, the book looks at the canons Revenant” on location in Canada and
of different parts of the world (India and Argentina. But his tribulations have paid
China are deemed worthy of two chapters off. Like Mr Hardy’s recent hit, “Mad Max:
each, though Latin America is ignored). Fury Road”, “The Revenant” is a thunder-
Written by different scholars, each chapter ous riposte to those blockbusters in
has a common structure, with a concise which digitally rendered cities are flat-
outline of the instruments, the style and tened, but the violence never registers as Dealing with the wildlife
the social relations behind the music. Lots
of beautiful pictures and extracts of musi-
cal notation break up the text. chapter on classical Japanese music there many readers this chapter will be rather fa-
The chapters on Indian classical music is a wonderful illustration of two sheets of miliar; but for those who know little about
will be of particular interest to many read- musical notation, one from 1303 and the composers like Pérotin (who was born in
ers, who may already have a vague under- other from the present day; their different Paris and active in the late 12th century,
standing of it through the works of Ravi styles hint at how the form has evolved. when he came to be known as Pérotin the
Shankar, a sitar-player (pictured). The book Classical Iranian music has likewise Great) or John Dunstable (c.1390-1453), a
shows important differences between seen much change. During the 1950s it fell celebrated English composer of polyphon-
north (Hindustani) and south (Carnatic) under the sway of European musical prac- ic music, it will be just as interesting as the
Indian styles. For instance, tablas—drums tices, but as the government grew con- others. And in fewer than 30 pages it offers
with heads usually fashioned from goat cerned about Westernisation it sponsored as good a summary of the Western canon
skin—are more commonly used in Hindu- efforts to reassert a Persian flavour. As for as can be found anywhere.
stani music; Carnatic melodies tend to con- India, before the 20th century the coun- Readers should not try and digest the
tain more flourishes. (Shankar played try’s music was no more than “a variety of whole book in one go; far better to use it for
largely Hindustani music.) musical traditions performed in different reference. Indeed, the best way to appreci-
Such characterisations are helpful for places by different social groups”. Some ate it is to read it while listening to the mu-
the lay reader; but the contributors also historians argue that Indian “classical” mu- sic under discussion (your reviewer
show a keen eye for historical nuance. sic was really a cobbling together of differ- searched for the relevant compositions on
Many of them question the usefulness of ent traditions by 20th-century nationalists. YouTube and played the extracts of nota-
the term “classical”, arguing that what peo- Alongside other chapters on places like tion on the piano). There is a treasure trove
ple may now perceive to be traditional has Tajikistan, north Africa and Java, the book of underappreciated music out there; this
in fact constantly changed over time. In the has one on European classical music. For book will convince many to explore it. 7
66 Property

Rome Ljubljana (17 Veselova Street) Pretoria

(42 Romagna Street and 153 Sardegna Street) The property is a listed building situated in a prime (Stanza Bopape 1008)
The property is located within the historic center of residential area, protected by cultural heritage The property is located in Hatfield area, at the most
Rome, 300 m. directly south of the Villa Borghese regulations. The surrounding area accommodates central Avenue of Pretoria, in Stanza Bopape 1008, and
gardens. The property benefits from its close proximity a number of embassies (of U.S.A. and Austria), in short distance from the Union Building. The building
to both Roma Termini (Rome’s main railway station) as government buildings, many retail stores, as well as complex includes a two-storey building with a total
well as the “METRO A” underground line. It is arranged the famous Tivoli Park. It is a two-storey building with built area of 350 m² and an auxiliary self-contained
in ground floor level, five upper floors, basement and basement and attic with a total built area of 1215 m² building of total built area 50 m². The surface of the
attic and provides a gross floor area of c. 1,600 m². The and two independent parking lots of 20 m² and 15 m² plot is 1,766 m².
property operated as a hotel until 2007. respectively.

For further inquiries: For further inquiries: For further inquiries:

Cushman & Wakefield LLP (Via Vittorio Veneto, 54/B, Coreside Savills (115v Boulevard Mihajla Pupina, 11 000 KLC Law Firm (2 Ypsilantou Str., Athens 10675, Greece
Roma, 00187, Italy) Belgrade, Serbia) Tel. +30 210 7264500)
Carlo Vanini, e-mail: [email protected] Srdjan Vujicic, e-mail: [email protected] Nikos Pittas, e-mail: nikos_pittas@klclawfirm.com and/or
Tel. +39 06 420079 45 Tel. +381 11 301 0000 Eleana Pastra, e-mail: eleana_pastra@klclawfirm.com
Sara Pesino, email: [email protected]
F: +39 06 42007950

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The Economist January 2nd 2016

Tenders 67

The Economist January 2nd 2016

68
Economic and financial indicators The Economist January 2nd 2016

Economic data
% 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* 2015† latest latest 2015† rate, % months, $bn 2015† 2015† bonds, latest Dec 29th year ago
United States +2.1 Q3 +2.0 +2.4 -1.2 Nov +0.5 Nov +0.2 5.0 Nov -456.6 Q3 -2.5 -2.6 2.24 - -
China +6.9 Q3 +7.4 +6.9 +6.2 Nov +1.5 Nov +1.5 4.1 Q3§ +275.9 Q3 +3.1 -2.7 2.67§§ 6.49 6.22
Japan +1.6 Q3 +1.0 +0.6 +1.6 Nov +0.3 Nov +0.7 3.3 Nov +126.2 Oct +2.6 -6.8 0.28 120 121
Britain +2.1 Q3 +1.8 +2.4 +1.7 Oct +0.1 Nov +0.1 5.2 Sep†† -134.2 Q3 -4.5 -4.4 1.99 0.68 0.64
Canada +1.2 Q3 +2.3 +1.1 -4.0 Oct +1.4 Nov +1.2 7.1 Nov -54.1 Q3 -3.2 -1.8 1.41 1.38 1.16
Euro area +1.6 Q3 +1.2 +1.5 +1.9 Oct +0.2 Nov +0.1 10.7 Oct +340.3 Oct +3.0 -2.1 0.64 0.92 0.82
Austria +1.0 Q3 +1.9 +0.8 +1.5 Oct +0.6 Nov +0.9 5.6 Oct +10.7 Q3 +1.7 -2.1 0.91 0.92 0.82
Belgium +1.3 Q3 +0.9 +1.3 +0.7 Oct +1.5 Dec +0.6 8.7 Oct -5.8 Jun +0.1 -2.6 1.04 0.92 0.82
France +1.1 Q3 +1.0 +1.1 +3.6 Oct nil Nov +0.1 10.8 Oct +0.2 Oct‡ -0.3 -4.1 0.99 0.92 0.82
Germany +1.7 Q3 +1.3 +1.6 +0.2 Oct +0.4 Nov +0.2 6.3 Nov +275.8 Oct +7.9 +0.7 0.64 0.92 0.82
Greece -0.9 Q3 -3.5 +0.5 -1.7 Oct -0.7 Nov -1.1 24.6 Sep -1.6 Oct +2.5 -4.1 8.34 0.92 0.82
Italy +0.8 Q3 +0.8 +0.8 +2.9 Oct +0.1 Nov +0.2 11.5 Oct +37.8 Oct +1.9 -2.9 1.63 0.92 0.82
Netherlands +1.9 Q3 +0.6 +1.9 +2.1 Oct +0.7 Nov +0.4 8.3 Nov +74.8 Q3 +10.6 -1.8 0.73 0.92 0.82
Spain +3.4 Q3 +3.2 +3.2 -0.3 Oct -0.3 Nov -0.6 21.6 Oct +19.1 Sep +0.9 -4.4 1.85 0.92 0.82
Czech Republic +3.9 Q3 +2.2 +3.4 +3.8 Oct +0.1 Nov +0.3 5.9 Nov§ +2.0 Q3 -0.1 -1.8 0.70 24.8 22.8
Denmark +0.6 Q3 -1.8 +1.6 +0.3 Oct +0.3 Nov +0.5 4.5 Oct +22.0 Oct +6.8 -2.9 0.95 6.84 6.11
Norway +3.0 Q3 +7.3 +0.7 -2.6 Oct +2.8 Nov +1.7 4.6 Oct‡‡ +37.3 Q3 +9.3 +5.9 1.55 8.73 7.45
Poland +3.5 Q3 +3.6 +3.4 +7.8 Nov -0.6 Nov nil 9.6 Nov§ -2.4 Oct -1.4 -1.5 2.92 3.88 3.53
Russia -4.1 Q3 na -3.8 -3.5 Nov +15.0 Nov +15.2 5.8 Nov§ +64.3 Q3 +4.7 -2.8 9.52 72.1 57.2
Sweden +3.9 Q3 +3.4 +3.0 +4.0 Oct +0.1 Nov nil 6.2 Nov§ +31.8 Q3 +6.4 -1.2 1.06 8.39 7.83
Switzerland +0.8 Q3 -0.1 +0.9 -2.8 Q3 -1.4 Nov -1.1 3.4 Nov +84.1 Q3 +8.1 +0.2 -0.07 0.99 0.99
Turkey +4.0 Q3 na +3.0 +14.7 Oct +8.1 Nov +7.6 10.3 Sep§ -38.1 Oct -5.0 -1.6 10.72 2.91 2.32
Australia +2.5 Q3 +3.8 +2.3 +1.9 Q3 +1.5 Q3 +1.6 5.8 Nov -49.5 Q3 -4.1 -2.4 2.75 1.37 1.23
Hong Kong +2.3 Q3 +3.5 +2.4 -1.9 Q3 +2.4 Nov +3.1 3.3 Nov‡‡ +9.3 Q3 +2.8 nil 1.55 7.75 7.76
India +7.4 Q3 +11.9 +7.3 +9.8 Oct +5.4 Nov +5.1 4.9 2013 -22.7 Q3 -1.2 -3.8 7.76 66.4 63.7
Indonesia +4.7 Q3 na +4.7 +5.2 Oct +4.9 Nov +6.3 6.2 Q3§ -18.4 Q3 -2.4 -2.0 8.81 13,745 12,447
Malaysia +4.7 Q3 na +5.4 +4.2 Oct +2.6 Nov +2.5 3.1 Oct§ +7.8 Q3 +2.5 -4.0 4.22 4.29 3.50
Pakistan +5.5 2015** na +5.7 +5.2 Oct +2.7 Nov +3.9 6.0 2014 -1.3 Q3 -0.7 -5.1 9.00††† 105 101
Philippines +6.0 Q3 +4.5 +6.4 -1.8 Oct +1.1 Nov +2.4 5.6 Q4§ +9.6 Sep +4.1 -1.9 4.10 47.1 44.7
Singapore +1.9 Q3 +1.9 +2.9 -5.5 Nov -0.8 Nov +0.2 2.0 Q3 +68.6 Q3 +21.2 -0.7 2.45 1.41 1.32
South Korea +2.7 Q3 +5.3 +2.5 -0.3 Nov +1.0 Nov +0.7 3.1 Nov§ +105.6 Oct +7.3 +0.3 2.06 1,170 1,098
Taiwan -0.6 Q3 -1.2 +3.2 -4.9 Nov +0.5 Nov +0.1 3.8 Nov +77.2 Q3 +12.8 -1.0 1.03 32.8 31.8
Thailand +2.9 Q3 +4.0 +3.4 +0.1 Nov -1.0 Nov +0.8 0.9 Oct§ +31.2 Q3 +2.4 -2.0 2.48 36.1 33.0
Argentina +2.3 Q2 +2.0 +1.1 -2.5 Oct — *** — 5.9 Q3§ -8.3 Q2 -1.8 -3.6 na 12.9 8.55
Brazil -4.5 Q3 -6.7 -3.1 -11.3 Oct +10.5 Nov +9.3 7.5 Nov§ -68.0 Nov -3.8 -6.0 16.41 3.87 2.69
Chile +2.2 Q3 +1.8 +2.8 -0.6 Oct +3.9 Nov +3.9 6.3 Oct§‡‡ -2.7 Q3 -1.2 -2.2 4.64 709 606
Colombia +3.2 Q3 +5.1 +3.3 +1.3 Oct +6.4 Nov +4.2 8.2 Oct§ -20.8 Q3 -6.7 -2.1 8.28 3,148 2,381
Mexico +2.6 Q3 +3.0 +2.4 +0.5 Oct +2.2 Nov +2.8 4.1 Nov -29.9 Q3 -2.5 -3.4 6.27 17.2 14.7
Venezuela -2.3 Q3~ +10.0 -4.5 na na +84.1 6.6 May§ +7.4 Q3~ -1.8 -16.5 10.98 6.31 6.29
Egypt +4.5 Q2 na +4.2 -3.0 Oct +11.1 Nov +10.0 12.8 Q3§ -12.2 Q2 -1.4 -11.0 na 7.83 7.15
Israel +2.4 Q3 +2.5 +3.3 -5.3 Oct -0.9 Nov -0.2 5.4 Nov +12.5 Q3 +4.9 -2.8 2.08 3.90 3.91
Saudi Arabia +3.4 2015 na +2.7 na +2.3 Nov +2.7 5.7 2014 -1.5 Q2 -2.7 -12.7 na 3.75 3.76
South Africa +1.0 Q3 +0.7 +1.4 -1.1 Oct +4.8 Nov +4.7 25.5 Q3§ -14.0 Q3 -4.3 -3.8 9.56 15.3 11.6
Source: Haver Analytics. *% change on previous quarter, annual rate. †The Economist poll or Economist Intelligence Unit estimate/forecast. §Not seasonally adjusted. ‡New series. ~2014 **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, October 25.52%; year ago 41.05% †††Dollar-denominated
 The Economist January 2nd 2016 Economic and financial indicators 69

Markets GDP forecasts

% change on 2016, % change on a year earlier
Dec 31st 2014 Worst Best
Index 8 6 4 2 – 0 0 + 2 4 6 8
one in local in $
Dec 29th week currency terms Libya Turkmenistan
United States (DJIA) 17,721.0 +1.7 -0.6 -0.6
China (SSEA) 3,730.4 -2.4 +10.1 +5.3 Venezuela Laos
Japan (Nikkei 225) 18,982.2 +0.5 +8.8 +8.2
Equatorial Guinea Cambodia
Britain (FTSE 100) 6,314.6 +3.8 -3.8 -8.8
Canada (S&P TSX) 13,245.8 +1.2 -9.5 -24.3 Syria Myanmar
Euro area (FTSE Euro 100) 1,109.2 +3.2 +7.0 -3.6
Euro area (EURO STOXX 50) 3,314.3 +3.1 +5.3 -5.1 Macau India
Austria (ATX) 2,396.3 +1.3 +10.9 nil Brazil Bhutan
Belgium (Bel 20) 3,753.1 +3.8 +14.2 +3.0
France (CAC 40) 4,701.4 +2.9 +10.0 -0.8 Timor-Leste Ivory Coast
Germany (DAX)* 10,860.1 +3.5 +10.8 -0.2
Greece (Athex Comp) 617.6 -0.2 -25.3 -32.6 Burundi Rwanda
Italy (FTSE/MIB) 21,661.3 +2.9 +13.9 +2.7 Trinidad Vietnam
Netherlands (AEX) 447.7 +3.9 +5.5 -4.9
Spain (Madrid SE) 978.1 +2.8 -6.2 -15.4 Greece Djibouti
Czech Republic (PX) 955.7 +2.8 +1.0 -6.7
Source: Economist Intelligence Unit
Denmark (OMXCB) 906.1 +3.4 +34.2 +20.7
Hungary (BUX) 23,964.5 +2.2 +44.1 +30.8
Norway (OSEAX) 648.4 +3.4 +4.6 -10.2
Poland (WIG) 47,042.2 +1.3 -8.5 -16.2 Other markets The Economist commodity-price index
Russia (RTS, $ terms) 769.6 +0.9 +17.0 -2.7 % change on 2005=100
% change on
Sweden (OMXS30) 1,453.0 +2.8 -0.8 -7.4 Dec 31st 2014 one one
Switzerland (SMI) 8,883.0 +4.3 -1.1 -1.1 Index Dec 15th Dec 22nd month year
one in local in $
Turkey (BIST) 73,912.6 +1.1 -13.8 -30.7 Dec 29th week currency terms Dollar Index
Australia (All Ord.) 5,315.6 +2.9 -1.4 -11.9 United States (S&P 500) 2,078.4 +1.9 +0.9 +0.9 All Items 126.1 126.4 +0.8 -18.0
Hong Kong (Hang Seng) 21,999.6 +0.8 -6.8 -6.7 United States (NAScomp) 5,107.9 +2.1 +7.9 +7.9
India (BSE) Food 148.5 147.5 -1.0 -15.8
26,079.5 +1.9 -5.2 -9.9 China (SSEB, $ terms) 418.1 -3.1 +50.3 +43.8
Indonesia (JSX) 4,569.4 +1.1 -12.6 -21.2 Japan (Topix) 1,543.4 +0.6 +9.7 +9.1 Industrials
Malaysia (KLSE) 1,685.4 +2.6 -4.3 -22.1 Europe (FTSEurofirst 300) 1,453.1 +3.7 +6.2 -4.3 All 102.8 104.6 +3.5 -21.1
Pakistan (KSE) 32,811.9 +0.5 +2.1 -2.1 World, dev'd (MSCI) 1,685.6 +2.1 -1.4 -1.4 Nfa† 108.9 110.5 +2.8 -12.1
Singapore (STI) 2,888.2 +1.2 -14.2 -19.6 Emerging markets (MSCI) 799.7 +0.6 -16.4 -16.4 Metals 100.2 102.0 +3.8 -24.7
South Korea (KOSPI) 1,966.3 -1.3 +2.6 -3.5 World, all (MSCI) 404.6 +2.0 -3.0 -3.0 Sterling Index
Taiwan (TWI) 8,293.9 nil -10.9 -14.2 World bonds (Citigroup) 870.5 -0.3 -3.5 -3.5
Thailand (SET) All items 152.4 155.1 +2.5 -14.2
1,283.8 +1.8 -14.3 -21.9 EMBI+ (JPMorgan) 704.8 +0.5 +1.9 +1.9
Argentina (MERV) 11,698.4 +2.3 +36.4 -10.6 Hedge funds (HFRX) 1,173.1§ +0.2 -3.7 -3.7 Euro Index
Brazil (BVSP) 43,654.0 +0.4 -12.7 -40.0 Volatility, US (VIX) 16.1 +16.6 +19.2 (levels) All items 143.6 143.4 -2.2 -9.0
Chile (IGPA) 18,078.8 +1.4 -4.2 -18.0 CDSs, Eur (iTRAXX)† 77.8 -4.9 +23.6 +11.4 Gold
Colombia (IGBC) 8,529.7 +1.5 -26.7 -44.6 CDSs, N Am (CDX)† 88.5 -4.3 +33.8 +33.8 $ per oz 1,061.4 1,076.2 +0.1 -8.7
Mexico (IPC) 43,391.8 +0.1 +0.6 -13.9 Carbon trading (EU ETS) € 8.3 +0.5 +11.8 +0.8 West Texas Intermediate
Venezuela (IBC) 14,515.6 -0.8 +276 na Sources: Markit; Thomson Reuters. *Total return index.
Egypt (Case 30) 6,794.8 +0.4 -23.9 -30.5 †Credit-default-swap spreads, basis points. §Dec 28th. $ per barrel 37.3 35.5 -14.3 -37.8
Sources: Bloomberg; CME Group; Cotlook; Darmenn & Curl; FT; ICCO;
Israel (TA-100) 1,321.0 +2.6 +2.5 +2.3
Saudi Arabia (Tadawul) 6,930.6 -1.7 -16.8 -16.8 Indicators for more countries and additional ICO; ISO; Live Rice Index; LME; NZ Wool Services; Thompson Lloyd &
Ewart; Thomson Reuters; Urner Barry; WSJ.
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70
Obituary Elsie Tu The Economist January 2nd 2016

khaki shorts in the narcotics trade.

Her relentless exposure of the police, in
reports and letters to the South China
Morning Post (her favourite, “restrained”
modus operandi), became an all-out war,
especially when after 1963 she sat on the
Urban Council. In 1966, when she cam-
paigned against a fare rise on the Star Ferry
linking Hong Kong island and Kowloon,
the police accused her of inciting violence
among the protesters; she proved them li-
ars and became wildly popular, as well as
later winning the CBE for her anti-corrup-
tion efforts. To her backers she was invalu-
able, a British gadfly with pretty good Man-
darin and passable Cantonese, who could
intercede easily with those in power and
could neither be silenced nor deported.

Love and politics

The authorities themselves, in the gover-
nor’s office and on the Legislative Council
(where she also sat, from 1988 to 1995), were
less certain what to make of her. She had
no stated ideology, beyond “justice for the
people”, but was scornful of the favours
shown to Taiwanese and would not cen-
sure China. In the run-up to the handover
From missionary to firebrand of the colony to China in 1997 she attacked
the “disgraceful” reforms belatedly intro-
duced by the British, and belittled the self-
styled democrats who attacked the Basic
Law agreed on, with some input from her,
with the Chinese. In 1995 she lost her seat
at the age of82 to a “pro-democracy” candi-
Elsie Tu, campaigner for the people of Hong Kong, died on December 8th, aged 102
date whose hand she refused to shake.

H AD you visited the squatter slums of

Kai Tak in Kowloon, Hong Kong, in the
1950s, a curious sight might have met your
to be washed in the blood of the Lamb.
Otherwise she made no noise, for women
in the Plymouth Brethren were consigned
Her motivations were in fact rather sim-
ple. She hated colonialism, believing that it
brought out the worst sort of arrogance in
eyes. Among the thousands of tiny dilapi- to silence. But gradually, surrounded by the British. She championed the Chinese
dated wooden huts, crammed with refu- such privation, she grew restless. Eventual- because, to her, they were its victims. But
gees from newly communist China, ly she left both the Brethren and her hus- she embraced them, too, because she fell in
threaded with muddy paths where adults band. Christian witness, to her, meant be- love with—and, in 1985, married—a Chi-
clopped in wooden sandals and children ing “good and useful”, the motto she had nese patriot from Inner Mongolia, Tu
splashed in storm-drains, a prim English- adopted as a timid, studious schoolgirl. It Hsueh-kwei. He had joined her church and
woman would be picking her way with meant speaking out, too—even, as her pac- co-founded her school; they had taught
care. Her fair hair was brushed in an im- ifist father had hoped, getting into politics. each other their respective languages. She
maculate shape, her flowered dress suit- Hong Kong in those days had no social called him “Andrew” after the apostle who
able for Cheltenham; a large handbag was welfare. It was run by British officials and cared for the needy. Through him she ab-
on her arm. Her large eyes and prominent rich businessmen for themselves alone. sorbed the philosophy and poetry of Chi-
teeth gave her a look of keen concern. The poor Chinese who wandered into her na, the songs ofthe Beijing Opera, the habit
Her name then was Elsie Elliott. Later tiny church had boils from malnutrition of patience and an enhanced sense of ra-
she was Elsie Tu. Under both names she and fungus-encrusted feet; she set up a cial injustice. In return he supported her in
was a formidable advocate for the rights of clinic to treat them. Children, desperate to every way he could—except publicly,
the downtrodden in Hong Kong, shaming learn, sat in the street devouring cheap which might have meant deportation.
and tormenting the police, the Legislative comics; in 1954 she set up Mu Kuang Mid- With him she experienced a strange re-
Council and successive British governors dle School, which grew from a 30-desk versal of her first role in Hong Kong. Then,
for more than 30 years. Wherever second- army tent, flapping in winds and summer as a missionary wife, it was she who had
class citizens—that is, Chinese—lacked tran- downpours, to a seven-storey block with been silent and second-class, reduced to
sport, housing, education, fair wages or a 1,300 pupils by 2015. Buying land and making the refreshments at meetings.
voice, she would be there, on their side. buildings, hurdling regulations and deal- Now it was Andrew who would greet her,
This transformation surprised even her. ing with the Education Department intro- after another rowdy day on the Legislative
She had arrived in the colony in 1951 as a duced her to Hong Kong’s subculture of Council, with a cup of tea just as she liked
meek missionary’s wife from the north of corruption, in which the ba wong, or triads, it. But then, reverting to the natural shyness
England, ready to support her husband, extorted protection money from every hut- she always felt she had, she would say
Bill Elliott, in the saving ofsouls. The merry dweller and even from street hawkers; in “Thank you, husband,” and sip demurely,
notes of her piano accordion rang out then which everyone expected backhanders; as if the order of things were not inverted;
over the huts of Kai Tak, inviting everyone and where the police were up to their and as if she posed no threat to anyone. 7
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