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5
9 The world this week
On the cover Immigrant networks are a rare bright spark in the world economy. Rich countries should welcome them: Leader, page 13. Mass migration in the internet age is changing the way that people do business, pages 76-78. Anger in America, page 49. Britain's border row, page 34. British visas, page 34. The science of trust networks, page 92
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Vol ume 401 Number 8760 First published in September1843 to take part in "a severe contest between intelligence, which presses forward, and an unworthy, timid ignorance obstructing
Leaders 13 The world economy The magic of diasporas 14 India's dynastic politics Must it be a Gandhi? 14 Syria Time is running out for Bashar Assad 16 The euro crisis The German problem 18 Free trade in the Pacific Asmall reason to be cheerful Letters 20 On the Republicans, bluegrass, Guatemala, Edmund Burke, Nicolas Sarkozy, clutter Briefing 25 South Asia's water Unquenchable thirst Britain 31 Drug use and abuse The fire next time 32 Regional drink and drug trends Sober London 34 The border-control fracas He says, she says 34 Visiting Britain Please sir, I want a visa 36 Fuel duty Road rage 36 A green Isle of Wight Pleasant island 38 EMI and British music Revenge of the Sex Pistols 38 Schools reform Follow my leader 39 Bagehot Recessions and the young
41
our progress. " Editorial offices in London and also: Atla nta, Beiji ng, Berlin , Brussels, Cai ro, Chicago, Hong Ko ng, Jo han nes burg, Los Angeles, MexlCo C1ty, Moscow, New Delhi, New Yo rk, Paris, Sa n Francisco, Sao Pau lo, Singapore, Tokyo, Washington DC
42 44 46
Europe Italian politics The full Monti Spain's election Manana is too late Russia's future Putin his place Russia and NATO An absence of trust
47 Crime in southern France Rio on the Med 47 Germany's neo-Nazis A horror from the past 48 Charlemagne Germany and Europe United States 49 Immigration Crying wolf 50 Tar sands and the environment Keystone cop-out 51 Natural gas in Oklahoma We will frack you 51 American highways The efficiency conundrum 52 Transparent government Sunshine or colonoscopy? 52 Crowdfunding Many scrappy returns 54 American soccer The Becks effect 54 Circular infrastructure What goes around 55 Lexington The trouble with Newt The Americas 56 Mexican politics Left in the lurch 57 Protests in Peru Honeymoon over 57 Human rights in Brazil It isn't even past 58 Canada's aborigines Get organised
59 60 60 61 62 62
Middle East and Africa Syria The tide is turning Israel's courts Left v right Arab freedom The right to be hidden Liberia's election Winner takes all South African populism Malema will be back Sudan north and south Rumours of war
Europe Why Germany is wrong on the European Central Bank: leader, page 16. Italy's new government, page 41. The ECB and the euro crisis, page 79. Angela Merkel's actions fall short of her rhetoric about political union: Charlemagne, page 48. Spain goes into its election , page 42
Syria Though Bashar Assad seems bent on self-destruction keep offering him a sensible ' exit: leader, page 14. Governments in the region and beyond a returning against an increasingly beleague red president, page 59
Water Agrowing rivalry over South Asia's great rivers, for water and for energy, may be threatening the region's peace, pages 25-28. Time for another Gandhi , or something braver? Leader, page 14. Rahul Gandhi, a slow learner, will be tested as he steps up to nationalpo~tics,page66
~~
Contents continues overleaf
The Economist November 19th 2011
6 Contents
63 64 64 65 Japan Its economy works betterthan pessimists think, at leastfor the elderly, page 84. An inspiring idea to liberalise transpacific trade hinges on the courage of America and, especially, Japan: leader, page 18
French managers They must shoulder some of the blame for France's troubled relationship with work: Schumpeter, page 75
65 66 67
Asia America and Asia The China pivot Taiwan's presidency A narrowing race China's economy Fearful symmetry Pacific islands Going South Pacific Mekong mayhem New water sheriff The Gandhi dynasty Golden Rahul Banyan Seeing and believing
International 68 Technocrats Minds like machines 69 Selling state territory Pass the hemlock Business 71 Retailing in America 'Tis the season to be frugal 72 Agood shopper's guide Values for money 73 Google Music Battle of the bands 73 Indian airlines Natural selection 74 Chinese jewellers Beijing bling 75 Schumpeter The French way of work Briefing 76 Migration and business Weaving the world together
Technocrats Government by experts sounds tempting. It can work-but only briefly, page 68. Italy welcomes in Mario Monti, page41
Finance and economics 79 The European Central Bank Brink think 80 Buttonwood Voters v creditors 82 Hedge funds and banks Turning trash into treasure
82 Middle-market banking Pockets of credit 83 China's capital markets The bounty of the muni 84 Japan's economy Whose lost decade? 86 Economics focus Technology and unemployment Science and technology 91 Stem cells and medicine Repairing broken hearts 92 Influenza Attention, citizens! 92 The evolution of co-operation Make or brea k? 93 Silk from the sea No sow's ear
Next week We publish a special report on women and work. Women have made huge progress in the workplace, but still get lower pay and farfewertop jobs than men. Barbara Beck asks why Pri ndpal commercial offices: 25 St James's Street, London SW1A1HG Tel: 020 7830 7000
Books and arts 94 Afghanistan's haunted battleground Looking for the exit 95 Advice from Bill Clinton Yes, we can 95 Fighting urban violence The power of jaw-jaw 96 Memoir of Palestine Mourid Barghouti's dreams 96 New French film Untouchable friends 97 W.G. Sebald's poems Placing words 97 New American film Dirty Hoover
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9
Politics
Mario Monti, a former European commissioner, was sworn in as Italy's prime minister following Silvio Berlusconi's resignation. Mr Monti's technocratic cabinet contains bankers, ambassadors and bureaucrats but no politicians. Mr Monti reserved the finance portfolio for himself and said he intends to serve a full term, until2013. Greece's new government of national unity, headed by Lucas Papademos, another technocrat, won a parliamentary vote of confidence. The government enjoys the backing of Greece's main parties, but is likely to serve only until an election in February. At the annual congress of her Christian Democratic Union, Germany's Angela Merkel said that Europe was facing its worst crisis since the second world war. Although she said that "political union" was necessary to save the euro, she also ruled out the use of Eurobonds.
About time The Arab League voted to suspend Syria's membership and apply sanctions, after President Bashar Assad's regime failed to implement a plan to end the violence sweeping the country. Turkey joined the calls for action and King Abdullah of Jordan said Mr Assad should go. The league gave Syria three days "to stop the bloody repression". Seventeen members of Iran's Revolutionary Guard Corps died in a blast at an arms depot near Tehran, the capital. The
dead included Hassan Tehrani Moghaddam, an architect of Iran's missile programme. Officials said the explosion was an accident. An Egyptian court ruled that members of former President Hosni Mubarak's National Democratic Party, which was dissolved after he was ousted in February, will be allowed to run in forthcoming parliamentary elections. A lower court had banned party members from standing. Fighting between rival Libyan militias near the city of Zawiya left at least ten people dead. Leaders of the ruling National Transitional Council said the dispute had been resolved, but the episode raised concerns about the stability of Libya.
gangs. They captured Antonio Francisco "Nem" Bonfim Lopes, the neighbourhood's kingpin. Mexico's interior minister, Francisco Blake Mora, died in a helicopter crash. He is the second interior minister to be killed in an aviation accident during the presidency of Felipe Calderon. No signs of foul play have been detected. Mexico's leftist Party of the Democratic Revolution (PRD) chose Andres Manuel Lopez Obrador as its candidate in the 2012 presidential election. He finished a close second in the 2006 race, which he believes he lost because of fraud.
Darwin selection
Swaziland failed to pay more than $10m in grants to AIDS orphans because of the country's financial crisis. South Africa offered to bail out Swaziland if the kingdom enacted political and economic reforms. King Mswati has so far refused its money.
Comrade Timochenko Colombia's FARe guerrillas named Rodrigo LondoiioEcheverry, better known as "Timochenko", as their new leader. His predecessor, Alfonso Cano, was killed by the army earlier this month. Alvaro Colom, the president of Guatemala, said that he would authorise the extradition of his predecessor, Alfonso Portillo, to the United States on embezzlement charges.
Kazakhstan's long-serving president, Nursultan Nazarbayev, called a parliamentary election for January. The vote is supposed to usher in a multiparty system, though the only other party expected to join the race is sympathetic towards Mr Nazarbayev. The president brought forward the date of the election, he said, in anticipation of a global economic crisis; politicians shouldn't be campaigning at such a time, apparently.
A healthy deliberation
In Canberra Barack Obama announced that America would begin stationing marines near Darwin, on Australia's north shore, strengthening America's presence around the disputed South China Sea. The deployment is expected to reach 2,500 men over the coming years. Mr Obama told the Australian Parliament that America was ready to play "a larger and long-term role" in shaping the region, which will include providing humanitarian relief. The floodwaters that have surrounded central Bangkok for the past few weeks started to recede. Three months of flooding in Thailand have killed more than 500 people. It will take several more months for Thailand's many tech factories to recover capacity.
Police in Brazil moved into Rocinha, Rio de Janeiro's biggest favela (slum), regaining control of the area from drug
popular Twitter-like microblogs.Journalists are to be banned from passing along rum our or information that has been gleaned from the microblogs, unless they have verified it in other ways. "Critical" reporting of any kind will now require at least two sources.
Authorities in China issued new directives aimed at controlling the news media, in line with a broader effort to curtail the influence of radically
America's Supreme Court said it would hear a challenge to Barack Obama's health-care law, the implementation of which is in a muddle following mixed decisions in the appeals courts. Opponents of the law contend that the mandate to buy health insurance is unconstitutional. The ruling will come by the end of June. Protesters from the Occupy Wall Street movement tried to regroup in lower Manhattan, after police cleared their main camp at Zuccotti Park in an early-morning operation. The protesters moved into the park in September. Authorities in other cities around the world are also taking action to dismantle anti-capitalist sites that have sprung up in their jurisdictions, including in London outside St Paul's Cathedral. America's total outstanding public debt rose above $15 trillion for the first time. The yields on American Treasury bonds remain at close to record lows. Correction: In our issue dated November 5th we said that the UN General Assembly had voted to admit Palestine as a full member of UNESCO, when in fact the General Assembly did not conduct any vote regarding Palestine's membership of the cultural agency. Sorry.
~~
10 The world this week
Business The European Central Bank reportedly intervened heavily in the bond markets again, by purchasing Italian and Spanish government debt. In a worrying portent of contagion the spread of Austrian, French and Dutch bond yields over German Bunds also shot up, though to levels still well below those of Italy and Spain. The markets were rattled by uncertainty about the willingness of the ECB to stand behind euro-zone governments, as senior German officials insisted that the bank should not be a lender of last resort. Junk status Credit-rating agencies criticised formal proposals from the European Commission that would require companies to rotate rating agencies and also give regulators the power to approve the methodology behind the agencies' analyses. But the commission backed away from recommending an outright ban on providing credit ratings for countries seeking a bail-out. Josef Ackermann stunned colleagues at Deutsche Bank by deciding that he would not take up the position of chairman. Mr Ackermann is stepping down as the German bank's chief executive. A succession plan was in place that envisaged Mr Ackermann staying on at the bank as chairman, with the job of chief executive being shared between Anshu]ain and]Urgen Fits chen, but shareholders disliked the idea. Deutsche Bank now wants Paul Achleitner, Allianz's chief financial officer, as chairman. UBS unveiled its new strategy,
which curtails its investmentbanking activities and focuses on its core wealth-management business. The Swiss bank also appointed Sergio Ermotti as chief executive (after some speculation that Mr Ackermann would get the job). Mr Ermotti took the position on an interim basis, when Oswald Grube! resigned over
The Economist November 19th 2011 the lack of supervision of an alleged rogue trader. The British Treasury sold Northern Rock, the "good" part of a failed British bank that was taken into public ownership, to Virgin Money for £747m ($1.2 billion). Price components
I
US consumer prices % increase on a year ea rlier October2011
01
2
345
Energy Food Clothing All items Transport Housing Source: US Bureau of l abou r Statistics
America's annual overall inflation rate fell in October, for the first time in four months, to 3.5%, mostly because the fast pace of rising energy prices slowed a bit. Britain's annual inflation rate also dropped, to s%. The Bank of England indicated that it would undertake more quantitative-easing measures over the coming months, as it reported that the prospects for the British economy have "worsened". Britain's unemployment rate rose to 8.3%, the highest since 1996.
The price of West Texas Intermediate oil jumped sharply after a Canadian company agreed to buy a stake in a pipeline that helps feed an important storage hub at Cushing, Oklahoma, and reverse the flow in order to relieve a build-up of oil there. The glut of oil in Cushing has dragged down the price of WTI, causing it to diverge from other oil prices. The pipeline's oil will in future flow to refineries in the Houston area. China's regulators announced an antitrust investigation into whether China Telecom and China Unicorn, state-owned giants that dominate the communications sector, are abusing their position in the market for broadband internet connections. The move surprised many, given the government's previous tolerance of anticompetitive practices by favoured local firms. Sceptics are unlikely to be won over unless the tough talk leads to tough action to curb abuses. Boeing sealed its biggest single order for commercial aircraft to date when Emirates, an airline based in Dubai, announced that it would buy so 777 jets with a listed dollar value of $18 billion, with an option to buy another 20.
The auction to find a buyer for EMI concluded with the music label being split in two. Universal Music is to pay $L9 billion for EMr's recordedmusic division, and a consortium which includes Sony Music and the estate of Michael Jackson will buy EMr's music-publishing unit for $2.2 billion. Rolling in the deep Google launched its own online music store, in an ambitious attempt to challenge Apple's iTunes. Along with more established players in the market, Google is basing its service in the cloud. Warren Buffett revealed that his Berkshire Hathaway investment company has been buying shares in IBM since March, the value of which amounts to a stake of around s.s% in the information-technology company. It is the first time that Mr Buffett has taken such a big bet on a stock in the tech industry, on which he has been famously lukewarm. He said he made an exception for IBM as he is impressed with its long-term strategy and because IBM treats its share price "with reverence". Other economic data and news can be found on pages 106-107
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13
The magic of diasporas Immigrant networks are a rare bright spark in the world economy. Rich countries should welcome them HIS is not a good time to be foreign. Anti-immigrant parT ties are gaining ground in Europe. Britain has been fretting this week over lapses in its border controls (see page 34). In America Barack Obama has failed to deliver the immigration reform he promised (see page 49), and Republican presidential candidates would rather electrify the border fence with Mexico than educate the children of illegal aliens. America educates foreign scientists in its universities and then expels them, a policy the mayor of New York calls "national suicide". This illiberal turn in attitudes to migration is no surprise. It is the result of cyclical economic gloom combined with a secular rise in pressure on rich countries' borders. But governments now weighing up whether or not to try to slam the door should consider another factor: the growing economic importance of diasporas, and the contribution they can make to a country's economic growth.
Old networks, new communications Diaspora networks-of Huguenots, Scots, Jews and many others-have always been a potent economic force, but the cheapness and ease of modern travel has made them larger and more numerous than ever before. There are now 215m firstgeneration migrants around the world: that's 3% of the world's population. If they were a nation, it would be a little larger than Brazil. There are more Chinese people living outside China than there are French people in France. Some 22m Indians are scattered all over the globe. Small concentrations of ethnic and linguistic groups have always been found in surprising places-Lebanese in west Africa, Japanese in Brazil and Welsh in Patagonia, for instance-but they have been joined by newer ones, such as west Africans in southern China. These networks of kinship and language make it easier to do business across borders (see pages 76-78). They speed the flow of information: a Chinese trader in Indonesia who spots a gap in the market for cheap umbrellas will alert his cousin in Shenzhen who knows someone who runs an umbrella factory. Kinship ties foster trust, so they can seal the deal and get the umbrellas to Jakarta before the rainy season ends. Trust matters, especially in emerging markets where the rule of law is weak. So does a knowledge of the local culture. That is why so much foreign direct investment in China still passes through the Chinese diaspora. And modern communications make these networks an even more powerful tool of business. Diasporas also help spread ideas. Many of the emerging world's brightest minds are educated at Western universities. An increasing number go home, taking with them both knowledge and contacts. Indian computer scientists in Bangalore bounce ideas constantly off their Indian friends in Silicon Valley. China's technology industry is dominated by "sea turtles" (Chinese who have lived abroad and returned). Diasporas spread money, too. Migrants into rich countries not only send cash to their families; they also help companies
in their host country operate in their home country. A Harvard Business School study shows that American companies that employ lots of ethnic Chinese people find it much easier to set up in China without a joint venture with a local firm. Such arguments are unlikely to make much headway against hostility towards immigrants in rich countries. Fury against foreigners is usually based on two (mutually incompatible) notions: that because so many migrants claim welfare they are a drain on the public purse; and that because they are prepared to work harder for less pay they will depress the wages of those at the bottom of the pile. The first is usually not true (in Britain, for instance, immigrants claim benefits less than indigenous people do), and the second is hard to establish either way. Some studies do indeed suggest that competition from unskilled immigrants depresses the wages of unskilled locals. But others find this effect to be small or non-existent. Nor is it possible to establish the impact of migration on overall growth. The sums are simply too difficult. Yet there are good reasons for believing that it is likely to be positive. Migrants tend to be hard-working and innovative. That spurs productivity and company formation. A recent study carried out by Duke University showed that, while immigrants make up an eighth of America's population, they founded a quarter of the country's technology and engineering firms. And, by linking the West with emerging markets, diasporas help rich countries to plug into fast-growing economies. Rich countries are thus likely to benefit from looser immigration policy; and fears that poor countries will suffer as aresult of a "brain drain" are overblown. The prospect of working abroad spurs more people to acquire valuable skills, and not all subsequently emigrate. Skilled migrants send money home, and they often return to set up new businesses. One study found that unless they lose more than 20% of their university graduates, the brain drain makes poor countries richer.
Indian takeaways Government as well as business gains from the spread of ideas through diasporas. Foreign-educated Indians, including the prime minister, Manmohan Singh (Oxford and Cambridge) and his sidekick Montek Ahluwalia (Oxford), played a big role in bringing economic reform to India in the early 1990s. Some soo,ooo Chinese people have studied abroad and returned, mostly in the past decade; they dominate the think-tanks that advise the government, and are moving up the ranks of the Communist Party. Cheng Li of the Brookings Institution, an American think-tank, predicts that they will be 15-17% of its Central Committee next year, up from 6% in 2002. Few sea turtles call openly for democracy. But they have seen how it works in practice, and they know that many countries that practise it are richer, cleaner and more stable than China. As for the old world, its desire to close its borders is understandable but dangerous. Migration brings youth to ageing countries, and allows ideas to circulate in millions of mobile minds. That is good both for those who arrive with suitcases and dreams and for those who should welcome them. •
The Economist November 19th 2011
14 Leaders India's dynastic politics
Must it be a Gandhi? Whatever the young heir's merits, modern India surely needs a broader choice for its effective ruler HE Congress party which T has dominated India since even before the British left is in turn dominated by the NehruGandhi family, the democratic world's most successful political dynasty. Its current leader, Sonia Gandhi, seems sadly to be ill: she has not resumed full duties since receiving treatment abroad for an undisclosed illness, probably cancer. Her son, Rahul, has long been cultivated to take charge of the family firm. But there is a problem with the mild-mannered heir. Mr Gandhi, a quietly clever 41-year-old free of the accusations of graft that dog so many Indian politicians, is popular. But he seems neither enthusiastic about the job of leading a billion people, nor especially well-equipped to manage India's feuding politicians (see page 66). He has spurned the front-line, preferring to confine himself in youth and rural politics. Two years ago he turned down the offer of a cabinet post from the prime minister, Manmohan Singh. He hardly ever speaks in India's boisterous parliament. When helping deal with a populist anti-corruption campaign this summer he seemed diffident. Some dream of one day persuading his sparkier sister, Priyanka, to come into politics instead, though she has ruled that out (and also comes with a somewhat controversial business-tycoon husband in tow). To be fair to Rahul, the Gandhi clan has often produced slow starters. Even Indira was tongue-tied and bashful early in her career. The more timid of her two sons, Rajiv, Rahul's late father, was desperately reluctant to enter politics. His Italianborn widow, Sonia, took years of cajoling before becoming the force behind Congress and India's most powerful person. She has turned shyness into an art form, wielding power from the shadows. If Rahul brings a victory for Congress next year
in crucial regional elections in Uttar Pradesh, a vast state of 2oom people, his critics would no doubt forget about his sister rapidly. He could then ascend to the prime ministerial job after elections in 2014. But the apprentice's time is running short-and not just because of the worries about his mother's health. India's politics is also ailing. In the face of slowing growth, high inflation and awful corruption, the government is looking increasingly fossilised. No notable legislation has passed since the general election in 2009. Next year Mr Singh turns So. He needs bright new talents to rediscover his sense of purpose. A big reshuffle is long overdue, yet Congress seems wary of promoting any young ministers, for fear of outshining the crown prince. There are a billion other people Anyone who wants India to succeed should hope that Mr Gandhi turns into the leader the country so desperately needs. Yet for Congress and India, it is a sorry choice. The consequence of being in thrall to a bloodline is a weak party that lacks shared policies or common values. Promotions are made not on merit, but on closeness to the ruling family. Burgeoning India is hard enough to govern without disqualifying almost the entire population from becoming head of the country's biggest party. India needs the best possible Congress party, under the control of the best available leader. As it happens, Mr Gandhi is a rare voice willing to admit some of this. He says he wants to change a system where "politics depends on who you know or are related to." As Indians shift to the cities and become more literate and informed, they will surely want to hold their government to account-over corruption, economic performance, social security and more. They will care ever less about bloodlines. Eventually dynastic rule will have to give way to something more openly contested and democratic. Let it be sooner rather than later. •
Syria
Time is running out for Bashar Assad Though Syria's embattled president seems bent on self-destruction, keep offering him a sensible exit N THE past fortnight, Bashar Iboth Assad's regime has become lonelier and bloodier. As the isolation of the president and his country have become more stark, you would think that he would become keener to negotiate his way out of his murderous impasse. Yet he seems to be doing the precise opposite. After the Arab League's offer to mediate, his security forces have sharply increased their rate of killing. Rather than engage seriously with the democratic opposition, Mr Assad seems ever more determined to crush it. As a result, the league
took the dramatic step, on November 12th, of suspending Syria from membership. Unless Mr Assad changes course, he risks ending up like Muammar Qaddafi in Libya. Yet even at this late hour it is still worth trying to make him see sense (see page 59). As peaceful protests against Mr Assad's regime gathered steam, he had reckoned that Syria's pivotal place in the Arab world would dissuade his fellow Arabs, as well as Turks and Persians, from turning against him. Instead the pace at which he is running out of friends seems to be quickening. Turkey, his biggest neighbour to the north, and the region's emerging power, has abandoned hope that he can reform his country or save his regime. Turkey now plays host to Syria's political opposition. The king of Jordan, to the south, hitherto cautiously
~~
16 Leaders
The Economist November 19th 2011
~ neutral,
has bluntly told Mr Assad to go. Most of Mr Assad's counterparts in the Gulf, after initially hedging their bets, are now spurning him. Iraq's Shia-led government, which used to fear the prospect of a Sunni regime displacing Mr Assad and his Alawites, has become chillier. Even Iran, his strongest local backer, betrays doubts over whether to stick with him for ever. Just as worrying for Mr Assad, China and Russia, which have blocked a blanket imposition of sanctions against Syria in the UN Security Council, may be forced to reconsider their stand. China is edging away from wholehearted diplomatic support and even Russia now thinks it prudent to hobnob with the leader of Syria's main opposition front. The international tide is plainly turning against Mr Assad.
Still time for talking Even at this late stage, it is to be hoped that all-out civil and sectarian war can be avoided. Though a large majority of his compatriots surely hate Mr Assad's gangster regime which his father established over 40 years ago, a substantial minority may still back him. The Alawites and Christians that each make up a tenth of the populace are especially nervous about change. In Horns, Syria's third city, sectarian strife has taken an ugly turn. If the country were to fall into chaos, the suffering would be grievous and could spill across borders. On paper, Mr Assad accepted the Arab League's sensible if optimistic plan to bring the fighting to an end. Under its terms he should have withdrawn his forces from the towns, freed po-
litical prisoners (estimated by human-rights groups at between 10,000 and 2o,ooo), let in foreign journalists and alegion of Arab League diplomats and observers, and undertaken talks with the opposition, eventually leading to multiparty elections. In fact Mr Assad let out a few hundred prisoners but ignored the other recommendations. For sure, if his army had withdrawn from the cities, Syria would probably have been enveloped in vast rallies that might have swept away his regime. Mr Assad avoided that outcome by intensifying the repression and, in an act of crass stupidity, allowed his thugs to attack the diplomatic missions of Jordan, Qatar, Saudi Arabia and Turkey, whose governments had had the temerity to criticise him. Even so, the Arab League plan is still on the table and on Novemben6th the league threatened sanctions if Mr Assad did not co-operate within three days. So he has a last chance. Western governments, while squeezing Mr Assad with economic sanctions and seeking to widen and tighten them via the UN Security Council, should encourage the league, rejuvenated by the Arab awakening. If the conflict in Syria descends into a bloodbath, the league may eventually invoke still more robust measures, as it did towards Qaddafi's Libya. It is much harder to intervene in Syria than in Libya. Members of its opposition are unwisely calling for Western intervention immediately. It would be much better if Mr Assad were eased out by his compatriots and by fellow Arabs in the region. If he refuses to heed them, a worse fate may befall him. •
The euro crisis
The German problem To save the single currency, Angela Merkel must take on her own country's economic establishment VEN by Europe's cacophonous standards, German policymakers sent mixed signals on the euro this week. At her party's conference on November 14th the chancellor, Angela Merkel, left no doubt about the gravity of the euro crisis (see Charlemagne). "If the euro fails, then Europe fails," she said. On the same day }ens Weidmann, the president of the Bundesbank, roiled financial markets with hardline comments designed to close off options for managing the crisis. He ruled out relying on the European Central Bank (ECB) as a lender of last resort to governments, arguing it would be illegal and wrong for the bank to hold down bond yields. Even the current (limited) bond purchases needed to stop. The only way to restore investor confidence in countries such as Italy, he believes, is for their governments to introduce bold reforms. Mr Weidmann is not a lone ideologue. Mario Draghi, the ECB's new Italian president, has ruled out acting as a lender of last resort to governments, albeit less categorically (see page 79). Mr Weidmann has his supporters among the Finns and the Dutch, too. But the rigidity of his argument is embedded in the solid rock that is Germany's economic establishment, which holds that big rescues are counterproductive because they both dull governments' incentives to act and create new dangers. Pooling risks through Eurobonds would tempt dodgy
E
southern European governments to greater profligacy. Centralbank bond-buying would fuel inflation. Far better, goes the standard German line, to remain principled and just say no. And it is true that soaring bond yields, or the fear thereof, have pushed governments, including France and Spain, to act. Were it not for pressure from the bond markets, Silvio Berlusconi might have blundered on in Italy, delaying difficult decisions on the economy. The Germans and others are also right to worry that a central bank that buys boatloads of government bonds will eventually cause inflation. The problem is that the dogmatic prescriptions of the "German orthodoxy" are pushing the single currency towards collapse. If Mrs Merkel wants to save the euro, therefore, she must challenge her country's economic establishment, and explain to voters why the revered Bundesbank's rigidity is wrong.
Drowning the euro in dogma German orthodoxy ignores the possibility that rising bond yields are being driven by a self-fulfilling panic in financial markets. Investors who once regarded Italian bonds as a safe asset now worry about everything from the integrity of the credit-default-swap market to a possible break-up of the single currency. The result is a stampede for the exit, which cannot be stopped by Italian policy reforms alone. So by adding to the pressure on the governments of countries in crisis, the Germans and their allies succeed in forcing reform, but at the cost of making it far harder to rescue the euro.
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The Economist November 19th 2011
18 Leaders ~
Emerging economies which borrow in a foreign currency have long been vulnerable to these kinds of self-fulfilling crises of confidence. As the pool of euro assets deemed "safe" dwindles, more countries may face such runs. Judging by this week's leap in yields, France looks to be next in line. The big difference, however, is that average emerging-market debt is less than 40% of GDP. Italy's debt ratio is more than three times higher; France's twice as high. The euro zone's most recent plan-to amplify the existing rescue fund with financial engineering and money from China-has failed miserably. That leaves two alternatives. Either Europe's governments will have to assume explicitly some joint liability for each other's debts. Or they will have to do so implicitly, by allowing the ECB to counter a panic with purchases of government bonds: in effect, letting it act as a lender of last resort. The danger lies in eschewing both options.
Each route has risks, but both are exaggerated by the German dogma. With demand weak and the fiscal vice tightening, it is hard to see an imminent danger of inflation. In theory, if joint liability was designed properly, errant countries would be stopped from going on a bender at other Europeans' expense. But such rules are hard to craft, and Europe's governments move slowly. For the foreseeable future, the ECB is the only institution that can staunch market panic quickly. The ECB could still keep pressure on the likes of Italy, and prevent them from backsliding on reform, by making sure that its support was at a sufficiently punitive interest rate. Technically, there are ways around German opposition. Mr Weidmann, for instance, could be outvoted at the ECB. But, in practice, any solution must be blessed in Berlin. That is why Mrs Merkel must make the case for greater pragmatism. Otherwise Teutonic rigidity will wreck the European project. •
Free trade in the Padfic
A small reason to be cheerful An inspiring idea to liberalise transpacific trade hinges on the courage of America and, especially,Japan
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%of world tota l, 2010
economy, it was easy to miss a bright piece of news last weekend from the other crucible of world trade, the Pacific Rim. In Honolulu, where Barack *Trans-Pacific Partnership Obama hosted a summit of Asia-Pacific leaders, Canada, Japan and Mexico expressed interest in joining nine countries (America, Australia, Brunei, Chile, Malaysia, New Zealand, Peru, Singapore and Vietnam) in discussing a free-trade pact. Altogether, the possible members of the Trans-Pacific Partnership (TPP) produce 40% of world GDP-far more than the European Union. Regional trade deals are not always a good idea. If they distract policymakers from global trade liberalisation, they are to be discouraged. But with the Doha round of global trade talks showing no flicker of life, there is little danger that the TPP will derail a broader agreement; and by cutting barriers, strengthening intellectual-property protections and going beyond a web of existing trade deals, it should boost world trade. The creation of a wider TPP is still some way off. For it to come into being its architects-Mr Obama, who faces a tough election battle next year, and Japan's Yoshihiko Noda, who faces crony politics laced with passionate protectionismneed to show more leadership. 10
20
30
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The Noda showdown Mr Noda's announcement on November nth that Japan was interested in joining the TPP negotiations was an exceedingly bold move. Signing up would mean dramatic changes in Japan, a country which has Boo% tariffs on rice and exports 65 vehicles to America for every one that is sent to Japan. Mr Noda's move could also transform the prospects of the TPP, most obviously by uniting two of the world's leading three economies but also by galvanising others. Until he expressed an interest, Canada and Mexico had also remained on the sidelines. Unwittingly or not, Mr Noda has thrust mercantilist
Japan into a central position on a trade treaty in which free movement of everything except labour is on the table. Immense obstacles loom for Mr Noda. He came into office in September casting himself as a conciliator of Japan's warring political factions. Many of those groups are opposed to the TPP. Farm co-operatives, which feather many a politician's nest, argue that it would rob Japan of its rice heritage. Doctors warn of the risks to Japan's cherished health system. Socialists see the TPP as a Washington-led sideswipe at China, which had hoped to build an East Asian trade orbit including Japan. Mr Noda will have to contend not just with opposition from rival parties but also with a split on the issue inside his Democratic Party of Japan. Since Honolulu, Mr Noda has already pandered to protectionists by watering down his message. Having beamed next to Mr Obama in a summit photo, he then protested that the White House had overstated his intention to put all goods and services up for negotiation. Polls, however, suggest the Japanese are crying out for leadership on the issue, not pusillanimity. More support the idea of entering TPP negotiations than oppose it. On their behalf Mr Noda should lead Japan forthrightly into the discussions, confident that the country can bargain well enough to give its sacred industries such as farming and health care time to adjust. It is also a test for Mr Obama's new strategy of coping with China's rise by "pivoting" American foreign policy more towards Asia (see page 63). He must stand up to the unions in the car industry which have long bellyached about the imbalance of trade with Japan. He should energetically promote the potential gains for jobs of his pro-Asia strategy-both at home and abroad. America should also stress that the TPP is meant to engage and incorporate China, rather than constrain it. Such steps would help win support in Japan, while costing America little. And in joining the TPP,Japan would be forced to reform hidebound parts of its economy, such as services, which would stimulate growth. A revitalised Japan would add to the dynamism of a more liberalised Asia-Pacific region. That is surely something worth fighting for. •
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The Republican revolution? SIR- I agree with your characterisation of some of the Republican candidates for president as the "new Jacobins" ("A dangerous game", November sth). I would go further and suggest that the current Republican contest is more like a Robespierre sound-a-like competition than a process to determine who is electable. As an independent who leans Democratic on social issues and has mixed ideas economically I would like to see Barack Obama replaced in the White House, but not by any of the current Republican crop. The tea party has destroyed the credibility of the Republicans with its radicalism. ZACHARY BLAKE Bristol, Virginia SIR- You wrote of a "merciless purge" carried out by teapartiers, "Jacobins ... on the warpath again" who "scalp" their political opponents. That is nonsense. The heinous crimes at issue turn out to be democratic attempts to unseat congressmen through elections. In contrast, your pages are filled with reports of actual purges, wars and mutilations going on all over the world. Diluting the meaning of these terms by cranking up the hyperbole serves no one. RADU COSTINESCU Washington, DC SIR- I wonder why I, along with countless other Americans, bother to follow the Republican race at all, as none of the candidates is providing a compelling vision to challenge Mr 0 bam a in next year's election. One reason for remaining interested could be that the dramas which unfold each week are yet another type of sensationalist reality television. Perhaps politics could learn something from that format, by kicking candidates off the island, making them leave the house, orallowing a sharp-tongued Simon Cowell to berate their performance and decide upon their legitimacy. A weekly voting system to get the clowns off the stage
does not at this point seem such a terrible idea, especially since the prize is the nomination for a run at the chance to be ruler of the free world. JEFFREY GU Philadelphia Name that tune sIR- It was odd of you to claim that Mississippi is "famous for bluegrass" ("Painting by numbers", November sth). That is rather like saying England is famous for bagpipes. Bluegrass comes from Kentucky, home of Bill Monroe, the creator of that particular musical style. Mississippi is famous for the blues, spawning musicians such as Muddy Waters and Robert]ohnson. Bluegrass is a form of country music, inspired by the traditional music of English, Scottish, Welsh and Irish immigrants living in the Appalachians. Blues is rooted in African-American traditions of the Deep South, especially the Mississippi Delta. MICHAEL WILSON Department of anthropology University of Minnesota Minneapolis Carlos Castresana SIR- I want to express my surprise and disappointment at the remarks you made about me in your article on the International Commission Against Impunity in Guatemala (CICIG), which I headed until June 2010 ("Parachuting in the prosecutors", Octobensth). Your description of me as a "clever, cavalier and publicityseeking Spanish prosecutor" was unfair to say the least. My team and I did our best during three years, risking our families, lives and careers. I was also offended by your statement that I left CICIG in June 2010 after allegations about my private life. I refer you to a complete and balanced explanation of the circumstances of my resignation in your own pages from an article at the time ("Kamikaze mission",June 19th 201o). But more disturbing was your observation that "there was little oversight of Mr
Castresana, causing dis comfort in New York about how CICIG was operating". In fact, CICIG was permanently supervised and its accounts audited by the United Nations Development Programme, as that was the agency which managed the donor countries' trust fund. All substantive matters were exhaustively controlled by the UN Department of Political Affairs and supervised by the secretarygeneral himself. I sent 314 cables to the UN and reported daily by telephone, and in person in New York every couple of months, as well as filing ten quarterly reports to the secretary-general throughout the three years of my mandate. Furthermore, while you were publishing your biased report a selection process was under way for an international judicial position for which I was included as a candidate. You might not have been aware of that ongoing process, but surely some of your sources were. I am persuaded that those who made the decision were not influenced at all by your publication, but the fact is that your article appeared just after the interviews, when a decision was being made. I made many enemies in Guatemala. I am not worried about that, it comes with the job of prosecutor. But on future occasions, before you publish such disinformation, please call me and give me the opportunity to defend my name and my professional work in advance. That way you might get a better and complete story. CARLOSCASTRESANA Prosecutor of the Supreme Court of Spain Madrid Representative democracy SIR- Bagehot reminded us that Edmund Burke warned his Bristol electors in 1774 that he would not take instructions from them and would deliberate in Parliament in the nationa! interest, not theirs (October 29th). However, in the following election, in 1780, Burke lost his seat. When seeking anoth-
er he said, "The people are the masters", and wrote that, "No man carries further than I do the policy of making government pleasing to the people. I would not only consult the interest of the people, but I would cheerfully gratify their humours." Somewhat older and perhaps wiser, in his letter to Miss Mary Palmer in 1786, he noted, "I never conformed myself to the humours of the people. I cannot say that opinion is indifferent to me; but I will take it, if I can, as my companion, never as my guide." Good advice for politicians today? SIR ROBERT WORCESTER London The French president SIR -I have noticed that "mercurial" has become a rather overused word to describe Nicolas Sarkozy in The Economist. It has been used no less than ten times since March this year alone, most recently in your October 22nd issue ("Sauce Hollandaise"). AIthough it aptly epitomises Mr Sarkozy, perhaps you will permit me to suggest some alternatives: capricious, changeable, erratic, expansive, fickle, impulsive, inconstant, irregular, irrepressible, lubricious, spirited, unpredictable, unstable, variable, volatile. ROSS HOBART London Catching up on some reading SIR -Thanks for the story nine years ago on the benefits of office clutter ("In praise of clutter", December 21st 2002). I located the article this week in a pile of important material set aside for review. The system has worked perfectly, as you said it would. MICHAEL ROSE Sydney • Letters are welcome and should be addressed to the Editor at The Economist, 25 StJames's Street, London SWlA lHG E-mail:
[email protected] Fax: 020 7839 4092 More letters are available at: Economist.comfletters
The physics of Christmas How does Santa deliver all those presents in one night? Science suggests he has an ultra-high-tech operation beneath the North Pole that uses an algorithm about time zones and a stealth sleigh with cloaking technology to give his millions of e~es18secondstospendineachhouse
The site of America's elections In just under a year's time, Americans will vote on whether to keep Barack Obama in office for a second term. There is much to say in the interim: this new page brings together all our articles, blog posts and multimedia items examining the road to the White House
Big Blue Buffett No one ever got fired for buying IBM, goes an adage. By betting more than $10 billion on Big Blue then watching the share price rise, Warren Buffett, who runs the investment firm Berkshire Hathaway, demonstrates once more that no one ever gets fired for investing Like him
Economist.comjnode/21538546
Economist.comjworldjus-elections-2012
Economist.comjnode/21538531
Business: The Russians are coming Boeing and Airbus are facing new competition in their bestselling category of narrowbody planes from aircraft-makers in Canada, China and Russia
United States: Awonderful weirdness Aslides how of photos showing candidates, big and small, preparing for the New Hampshire primary
Asia: Ashot heard around the Pacific Japan's prime minister makes a bold case for free trade as his country Looks to join the trans-Pacific Partnership talks
Economist.comjnode/21538463
Economist.comfnode/21538395
Europe: All the fun of the Tirana book fair Politics Leaves the streets of Albania's capital and settles into an armchair
Britain: David Cameron's Euroscepticism Membership of the European Union is very often maddening but, on balance, the alternatives for Britain are worse
Technology: Totalcontrolofthe heart Apacemaker without Leads should help cardiac patients
Economist.comjnode/21538516
Economist.comjnode/21538543
Business education: Mind ifl cut in? Businesses could benefitifthey turned a blind eye to queue-jumping
Culture: It's a helluva town New York memoirs are a subgenre all of their own. They tend to share a few things: memories of Low rents, favourite bars and creeping disillusionment
Economist.comjnode/21538477
Economist.comjnode/21538540
Middle East: Join the debate Should Israel and America bomb Iran's nuclear faciLities? Economist.comfnode/21538557
Economist.comjnode/21538342
Asia: The few, the proud Nepal's Maoist rebels are joining the national army or being cashiered. Avisitto their old camp finds few of them cheering
Sport: Thanks but no thanks Why America's basketball players' union is disbanding
Economist.comjnode/21538549
Economist.comfnode/21538521
Economist.comjnode/21538460
Links to all these stories can be found at Economist.comfnode/21538597
22
Executive Focus
~ WW
for a living planet •
AI WWF Swi1Zel1and 180 employees and a large team of volunteers e dediCated to the tSSU of nature conservatm and en ironmental proleetion They follow the goal of pro ng btoloOk:al diVerSity enc
Our long·Standlllg CEO wtll be rebring tn
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CEO WWF Switzerland assume thiS posltoo from thls bme In thiS rote you w•D be respons for developfl!l and llllplementlllg strategy programmes and dtverse projeCtS of WWF Swttzerland both 111 Swt12erland and oad You will wor to ensure that all of organisation's actl s ate performed as eftectwely and elflc1ently as PQSSible On the basis of d ined objectives, you wtU moi!Yate both your employees and the 24 cantonal sectlOOS supported by pnmma ly 1,000 volooteers our resporiSib es wtll also mclude representing the programmes and pol•ttcal concerns of the WWF in pubic w as to the aulhon • the medta. the buSiness commumty benefactors other foundations and NGOs. and WI In the r~ternational
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Chair and Members The Natural Capital Committee will provide the Government with Independent expert advlce on English natural capital. It will report to the Economic Affairs Committee, chaired by the Chancellor of the Exchequer, and will advise on wher natural assets are being us d unsustainably and how the Government can prioritise action to Improve natural capital, growing a green economy. We are looking for a Chair and tve committee members to dnve forward this vital work. To join the Committee. you will need t an acknowledged expert w ith a global reputation in yo r field - be it economics, economic policy, public policy, natural ience. biodiversity or sustainable development. To make you r knowledge count, please visit www.def ra.gov.uk/naturalcapitalcommm.e for more infonnatlon. To apply, please email naturalcapitalcommitteeOdefra.gsi.gov.uk or call 020 7238 1266. The closing date fo r the Chair competition Is noon. 9 December 2011 , and for the Members, noon. 13 January 2012. The Committ will run until2015, with 5-6 meetings a ar. Roles are unpaid, with an honorarium available for the Chair.
H lh s htghly chattengtng yet tnteresbng postiJOn appeals to you, plea send your v e-mall to 11\e Cha•rman of Ill Board of Trustees by 8 December 2011 : roberlschen er@wwf ch
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Unit ed Nat ions Relief and Wor ks Agency for Palest i ne Refugees i n th e Near East UNRWA
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United Nations Relief and Works Agency for Palesti ne Refugee s i n the Near East UNRWA UNRWA 15 the Unoted attons gency res nsobt• lor re< pondtng to th humanotanan and ck>velopm nt requo m nl of a populatiOn of ~m S moll ion P lt!srone r lu hv1ng In the Gaza Smp. 1M W t Bank, Jor n, lebanon nd lh Syn n A b R publtl UNRWA os comm•lled to assJStong Pale ltne refugees 1n mamtamtng a decent standard of hvong. acqu1rong approprtdlt know! dg nd sk•ll•. nJoytng the full st poss•ble ext nt of human roghts. nd ludong long and he llhy hve UNRWA os th larg 1 UN o~r lion 1n the M1ddl E• 1 M01o1 U RWA staff re !'¥fug 1 m!.t'lves, worlung d11 tly to ben ht thetr communtll s -a~ 1 ach~rs. doctors, nul"'' or SCKI l worl<er UNRWA os •eekong to employ seasoned nd mternattonally e•peroenced pl'rsonnel lor the loltow-119 2 sen•or po Is:
Deputy Director of UNRWA Affairs, P- 5 Th~ O•rec:tor of UNRWA Op~rallons act~ as U RWAreprest>ntaiiV 1n Gaza dorec:tmg UNRWA s programmes, operations and resources lnctudmg ~due lion, health. relief and oc1al rviCes, and m1Crof1nance rendered lor a populiltoon of pprox•mately I 1 molloon 1"1!9•!>1ered Pa\e$ltne refugees. S/h os also responsoble lor all programm support lunc:t1ons (hnance. human resoun;es. procurem nt & logo 1CS, con truct1on ng1n ermg, ge rat ad mono trallon and public mformauonl The Gaza Ft ld Olltce employs more than 11,400 all and has an annual oper loon I budg 1 of ppro<~m 1 ly 210 moll ton US dollars 1n ddttoon 10 a I rg prot~ct, emt'rg• ncy nd rvcon tructoon budget Und r th o rail d•recllon of th Comm•ss1on r·G n rat and With d leg ted authoroty 1~ Oti"'K:tor pi ns. m nillJ nd dii"'K:I .all pt!
nl r'l!stroct•ons and ewre .-Esourcl! llmllatoon , requonng strong nt set ong of pnonto r., ngorous efhcumcy manag<>ment and dtfftcult dPCJsoon· makmg on allocatoon of rnourtes wherlt n eds ••ce•d va•laboluy of funds . Ford taot g rthnq tht< vacancy nd onform uon on how to pply VI 11 http://jobs.unrwa.org UNRWA encourages applications from quallh d and expenenced women Clos ng datltlor 1ppUcatlona ls 24 Dectmber 2011 .
B ed 1n 0 m u • th Dtpuly O~rutor m n g a substantov portfoliO ol org 011 toolllll upport rMpon••b•lolle for programm ervong populat0.000 regostered Palestone refugee The org n•zauonal support portfOliO tnvolv management dnd overs1ght of f1nance, human resourc s. procurem nt,log•~ll s. engm ermg. IT, and ecun y Th Deputy Ou·ector contnbuli!S to lh • ld' trateg1c nd op uonat plans and budg t gutd s nd dortets ~c1 II 1 stall, ensunng opumal use of resourtH S/he ltaos~~ woth tall represent;lltves and dfrn.Jimt rtocutoo; mt1ud1ng U country teams, host gowrnmtnt representall\l s. and the refuge communoty Th Syn F• ld Office employ sam 3600 tall and has an ennu I operaloonal budget oflpprollmately 'iO m1111on dollal"' In add1toon to a rg prote
Deputy Chief Accounts Division, P-4 Bas don UNRWA• headquao ter on Amman. the Deputy Chill Accounts Division upports th Ch• f A< count Otvlliton 1n lh control of 1nd prop r accounltng tor lin ncoal tr ns lions of the Ag ncy l$500 m1llton GF and S400 m•ll•on for pror ctsl. nd m the prov •on ol 1 th01cal gut~nce to relat d ac!lvllt s tn the loeld Slhe manages th Ag ncys move low rd IPSAS accountong, ensunng coordonat10n With all lilk hold
The Economist November 19th 2011
23
Executive Focus
IDRC
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The Int erna tional Development Rtsnrch Cen t re (IORC), i Canadt n Crown corporatiOn. supportS flr~anda nd throu h capaoty-buddmg. re~ rch '"developing regiOr~s of the world to promote growth and development Trn! result 15 Innovative, I s~~ngloc Isolu ns that bnng choK:e nd change to th~ who nR
VICE-PRESIDENT PROGRAM AND PARTNERSHIP Ottawa, Canada Reportmg to the PreSident. the VIce-Pres dent Program and Partnersh p d~rects the wo o a ti nted multJdtsctpltnary team In Ouaw nd across stx regoonal offices an vanous parts of e developing world, and provides leadershtp to lnnovauve prtKJrams 1n r se rch ar as hat 1r1clud Agr~eul ure the Er~vlronmen , Global He I h Polley, Sd nee &Innovation and Social &Econom•c Pohcy An integr I mff!l~r of tile ~lor management t m, th new xe
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MANAGER OF EVENTS AND VISITS Salary expectation £30k-£40k
Senior Vice-President, Geographic Programs (EX-05) Canadian International Development Agency (CIDA), Gatineau, Canada CIDA leads the Government of Canada's international efforts to help people living in poverty. It is a recognized leader in results-based management of development assistance and has comprehensively restructured, focussed and streamlined all of its programs and operations with a singular focus on aid effectiveness. CIDA ' s Senior Vice-President, Geographic Programs leads some 800 Canadabased and locally-engaged staff working in over 30 countries and is accountable for an annual budget of about $1.5 billion. CIDA in vites highly-seasoned development leaders to apply for this position. You have: a passion for achieving concrete results; extensive experience in the field and at headquarters leading development professionals, directly advising and working with Ministerial-level heads of organizations; deep knowledge of the challenges and opportunities fac ing developing country partners in least-developed, low income, middle-income and fragile and conflict affected countries, as well as deep and practical knowledge of best practices among leading national, multilateral and non-governmental development organizations; extensive understanding of Canada' s national interests and of the Government of Canada's priorities. Preference will be given to Canadian citizens but the position is open to others should no qualified Canadian be identified. Ability to work and manage in both French and English is required and as well as eligibility for a Secret level clearance. For detailed position description, screening criteria (education and experience), application submission requirements and more information visit: http://jobs-emplois.gc.ca/. Applications for this position must be submitted to [email protected] by December 2, 2011. Reference number IDAUJ-010680-00006. CIDA is committed to Employment Equity. Only those considered for follow-up will be contacted. Taus les renseignements concernant ce processus sont aussi disponibles enfranrais.
The Economist November 19th 2011
We are a high profile global consultancy headquartered in London, undertaking events and visits in numerous countries across the world. We work with blue chip corporates, high profile individuals and senior dignitaries to deliver exceptional service to our clients. We are currently seeking an outstanding individual to join our organisation as the Manager of Events and Visits. The successful candidate will demonstrate:
• Extensive experience working with high profile clients, speakers and dignitaries to coordinate and deliver exceptional events for clients. • A history of negotiating terms and the timing of participation in events with clients and agents. • The ability to research and compile background information on the client and/or event. • Specific working knowledge of the demands of successfully co-ordinating events internationally, particularly in the United States of America. • Excellent understanding of national and international protocols for senior dignitaries and high profile individuals. • Significant experience coordinating the travel, hotel accommodation, and logistics for speaker, staff and security as necessary with vendors and hospitality organisations. • Continuous success in managing the flow of actual events or visits to ensure the highest standards of delivery and client satisfaction. • A track record of delivering results in fast-paced, complex and uncertain environments.
• The ability to work independently, think strategically and translate strategies into delivery plans with particular emphasis on attention to detail. • Flexibility and resilience to work extended hours through multiple time zones. • Appreciation and understanding of cultural expectations and differences between various clients. • Impeccable integrity with a high level of tact and discretion. The role will likely involve extensive international travel. Applicants should send their CV by 5 December 2011 to the following email address (anonymous domain due to confidentiality):
[email protected] We strongly welcome early applications. Only shortlisted candidates wi ll be contacted.
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Unquenchable thirst DELHI, DHAKA , ISLAMABAD AND SRI NAGAR
A growing rivalry between India, Pakistan and China over the region's great rivers may be threatening South Asia's peace
ONAULLAH PHAPHO has spent half a century picking a living from Wular lake S high in Indian-controlled Kashmir. Today he is lucky if he scoops a fish or two out of the soupy mess. Push a boat into the kneedeep lake and the mud raises a stink of sewage. A century ago Wular and its surrounding marshes covered more than 217 square kilometres (84 square miles), making it one of Asia's larger freshwater lakes. Now, thanks to silt and encroachment, the extraction of water by nearby towns and tree planting on the shore, it measures only 87 sq km and is shrinking. Compared with much of South Asia, Kashmir, a disputed territory in northern India, has many rivers and relatively few people. But even here fresh water is running short. To see how contentious this can be, drive half a day south to where the Baglihar dam (shown above) is rising up. An enormous wall bisects the valley, dressing it in white spray, and three huge jets of water blast from its sluices. Half complete, the dam is already a local wonder that tourists gape at. It generates 450MW for the starved energy grid of Jammu and Kashmir. Once the scheme fully tames the water, by steering it
through a tunnel blasted into the mountain, the grid will gain another 450MW. The river swirls away, white-crested and silt-laden, racing to the nearby border with Pakistan. But there Baglihar is a source of bitterness. Pakistanis cite it as typical of an intensifying Indian threat to their existence, a conspiracy to divert, withhold or misuse precious water that is rightfully theirs. Officials in Islamabad and diplomats abroad are primed to grumble about it. Pakistan's most powerful man, the head of the armed forces, General Ashfaq Kayani, cites water to justify his "Indiacentric" military stance. Others take it further. "Water is the latest battle cry for jihadis," says B.G. Verghese, an Indian writer. "They shout that water must flow, or blood must flow." Lashkar-e-Taiba, a Pakistani terror group, likes to threaten to blow up India's dams. Last year a Pakistani extremist, Abdur Rehman Makki, told a rally that if India were to "block Pakistan's waters, we will let loose a river of blood." Assorted hardliners cheer them on. A blood-curdling editorial in Nawa-i-Waqt, a Pakistani newspaper, warned in April that "Pakistan should convey to India that a
war is possible on the issue of water and this time war will be a nuclear one." Upstream such outbursts are usually dismissed as proof that troubled Pakistan is, as ever, spoiling for a fight. Water is merely the latest excuse. India is not misbehaving, says Mr Verghese placidly. It fails to take all it is entitled to from cross-border rivers in Kashmir. Run-of-the-river dams like Baglihar consume nothing, since water must flow to run turbines. Such a dam, he says, merely briefly delays a river. Indians point out, too, that Pakistan enjoys a rare guarantee: the Indus Water Treaty, struck in 1960 by far-sighted engineers and diplomats who saw that after the partition of land, water had to be shared out too. The treaty, which has survived three wars, details exactly how each side must use cross-border rivers. Mostly this applies to the tributaries that flow from Kashmir to form the massive Indus river, Pakistan's lifeblood. If Indians abide by the treaty, then in theory at least they cannot be misbehaving. They see Baglihar as proof of co-operation, not a threat. When Pakistan objected to the dam's design, India accepted international arbitration, the first case in the treaty's history. Outside experts studied the dam and ordered small changes. But in effect they said it posed no threat to Paidstan. And last year the dispute was officially ended by the two governments. Downstream, however, few sound satisfied. "The Baglihar decision ... allowed a reservoir on a river coming into Pakistan, and now a precedent is set," laments John
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The Economist November 19th 2011
26 Briefing South Asia's water ~ Briscoe,
a water expert formerly of the World Bank who advises Pakistan. The Pakistanis fear Indian control over the headwaters of the Indus. And Indian bureaucrats fuel these fears with obsessive secrecy about all water data. Bashir Ahmad, a geologist in Srinagar, Kashmir who studied the Baglihar dam, gives grim warning about the Indians' future intentions: "They will switch the Indus off to make Pakistan solely dependent on India. It's going to be a water bomb." A less excitable report in February by America's Senate offered a similar assessment: "The cumulative effect of [many dam] projects could give India the ability to store enough water to limit the supply to Paidstan at crucial moments in the growing season." Dams are a source of "significant bilateral tension", the report concludes. More dams are to come, as India's need to power its economy means it is quietly spending billions on hydropower in Kashmir. The Senate report totted up 33 hydro projects in the border area. The state's chief minister, Omar Abdullah, says dams will add an extra 3,000MW to the grid in the next eight years alone. Some analysts in Srinagar talk of over 6o dam projects, large and small, now on the books. Any of these could spark a new confrontation. The latest row is over the Kishanganga river (called the Neelum in Paidstan) as each country races to build a hydropower dam either side of Kashmir's line of control. India's dam will divert some of the river down a 22km (1.4-mile) mountain tunnel to turbines. To Pakistani fury, that will lessen the water flow to the downstream dam, so its capacity will fall short of a planned 960MW. Pakistan also claims (though the evidence is shaky) that 6oo,ooo people will suffer by getting less water for irrigation. Again it insisted on international arbitration at The Hague. In September, to Paldstani delight, India was ordered to suspend some of its building for further assessments to be made. But India still looks likelier to come away happy in the end, as the treaty foresaw and permitted the Indian design, and India is likely to finish its dam ahead of Pakistan in any case, by 2016 rather than 2018. When China's upstream Countries downstream have genuine reasons to fret. Pakistan is exposed. Like Egypt it exists around a single great river, though the Indus is nearly twice the Nile's size when it reaches the sea. It waters over 8o% of Pakistan's 22m hectares (54m acres) of irrigated land, using canals built by the British. In turn that farming provides 21% of the country's GDP, as well as livelihoods for a big proportion of its 18om people. Many of them are already thirsty. On average each Indian gets just 1,730 cubic metres of fresh water a year, less than
Arabian Sea
a quarter of the global average of 8,209 cubic metres. Yet that looks bountiful compared with each Pakistani's share: a mere 1,000 cubic metres. Worse yet, South Asia's fresh water mostly falls in a few monsoon months. The dreadful floods this year and last showed that untamed and unpredictable rivers can be both resource and threat. More rows between India and Pakistan are certain. India may keep on dismissing them as Pakistani bluster, an easy thing to do if you are upstream. But India is downstream in another highly tricky area: its border with China. Tension already exists over the status of India's Arunachal Pradesh state, which China refuses to recognise. A quarrel over rivers in the region could serve as a focus for wider disputes about territory. A measure of the recent slump in relations came when, to the fury of India's authorities, China blocked an attempt by the Asian Development Bank to prepare for a dam project in Arunachal Pradesh. And one of India's largest rivers, the Brahmaputra (Tsangpo in China), flows south from the Tibetan plateau and into Assam not far from the disputed land. Angry Indian politicians, activists, bloggers and journalists claim that waterstarved China (with 8% of the world's fresh water but 20% of its population) has plans to divert the Tsangpo/Brahmaputra to farmers in its central and eastern regions. Feelings are running so high that India's prime minister, Manmohan Singh, felt obliged to issue a statement on August 4th saying that China's leaders had assured him there were no such plans afoot. And though a few run-of-the-river hydroelectric schemes are being built upstream on the Tsangpo, none of these could change the river's course. Cool heads point out that speculation about China channelling the torrent from near the border, at a spot known as the Great Bend, looks fantastical, at least at present.
Chinese engineers would need to use nuclear explosions to have a chance of making tunnels through a series of ridged mountains to get water east from the Great Bend. Although plans have existed since the fourth century to take water from China's west to the east, and the scheme was pushed by Mao Zedong, the engineering, at least for now, appears to be technically impossible. Yet broader Indian strategic fears-the fact that the Chinese control the Tibetan plateau, which is the source of water for parts of densely populated northern India-will evaporate no more easily than Pakistani fears of India. An ever-thirstier region The scarcity of water in South Asia will become harder to manage as demand rises. South Asia's population of 1.5 billion is growing by 1.7% a year, says the World Bank, which means an extra 25m or so mouths to water and feed: imagine dropping North Korea's entire population on the region each year. Greater wealth in South Asia brings with it a soaring demand for food, especially for water-intensive meat and other protein. Industry and energy-producers also use water, though unlike farms they return it, eventually, to the rivers. Worse, overall supply will not only fail to keep up with rising demand but is likely to fall (unless a cheap way is found to turn sea water fresh). The Himalayan glaciers are melting. A Dutch study last year of the western Himalayas reckoned that shrunken glaciers will cut the flow of the Indus by some 8% by mid-century. Flows may also get less regular, especially if glacial dams form, withholding water, and then collapse, causing floods. Others give even scarier predictions. Sundeep Waslekar, who heads a Mumbai think-tank, the Strategic Foresight Group, which has picked water as a long-term threat to Asian stability, sees a "mega-arc of
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28 Briefing South Asia's water ~
hydro insecurity" emerging from western China along the Himalayas to the Middle East and farther west. The strain of bigger populations, diminishing water tables and a changing climate could all conspire to produce a storm of troubles. South Asia is especially vulnerable: Mr Waslekar sees a cut of 20% in total available fresh water over the next two decades. The greatest threat of all would be from any change to the monsoon, which delivers most of the region's fresh water each summer. Here, again, worries arise. Indian meteorologists who have studied rainfall data from 1901 to 2004 have noted signs in recent decades of more dry spells within the peak monsoon months. If these lead to weaker, or less predictable, monsoons in future (though this year's was about normal) the consequences for farmers could be dire. In any case, the cost of running short of water is already becoming clearer. The Lancet, a British medical journal, reported last year that up to nm Bangladeshis had been poisoned by arsenic-the largest mass-poisoning in history. It was the result of villagers pumping up groundwater from ever deeper aquifers. The same poison is now entering crops and more of the food chain. Filthy water and bad sanitation spread diseases, such as diarrhoea and cholera, which kill hundreds of thousands of Indian children every year, says Unicef, the UN's children's agency. Several South
When the water ran out
The Economist November 19th 2011 Missing map? Sadly, India censors maps that show the current effective border, insisting instead that only its full territorial claims be shown. It is more intolerant on this issue than either China or Pakistan. Indian readers will therefore probably be deprived of the map in this briefing. Unlike their government, we think our Indian readers can face political reality. Those who want to see an accurate depiction of the various territorial claims can do so using our interactive map at Economist.comfasianborders
Asian rivers, suffering from weaker flows, have become a sludge of human and animal waste, dangerous to drink and wash in and unsafe even for watering crops. All over the region water tables are dropping as bore holes drive deeper. In the dry season even some of the larger rivers slow to a trickle. Knut Oberhagemann, a water expert in Dhaka, Bangladesh, says that the flow of the mighty Ganges where it enters Bangladesh is at times a pitiful few hundred cubic metres a second, so low that "you can walk across the river". When the same river, at this point called the Padma, reaches the coast, it is often so feeble that the sea intrudes, poisoning the land with salt. The same problem curses the delta of the Indus in Pakistan. There a semi-desert was turned into some of the most fertile land on earth by British-built irrigation canals. But as the sea encroaches on low, flat land, rivers at times are flowing backwards, laments a local environmental activist. Take away the fresh water-around 6o% of which is now lost to seepage and evaporation because of the bad management of those canals-and the desert will eventually come back. Save or snatch Governments in South Asia can respond to growing scarcity in one of two ways. The first is to improve the way they use the water they have, both by managing it better and by co-operating with one another. The second is to try to grab as much water as they can from their neighbours. Better management of irrigation canals and better farming techniques would help hugely to cut waste. In Pakistan bitter rows between provinces have long scotched coherent planning. Wealthy Punjab, a big farming province, is routinely accused by downstream Sindh (and by others too) of taking an unfair share of the water. And Pakistan badly needs more dams to control floods, store monsoon water and make electricity (China is said to have offered to help Pakistan build a series of big dams, and has already sent engineers to help speed along the new one on the Neelum/Kishanganga). Only about 10% of the potential hydropower of the Indus has been tapped so far, and only 30 days' average river flow can be stored (by contrast, the Colorado in America has dams to store 1,000 days'-worth). Many governments are at least thinking
in terms of dams and co-operation. Mr Waslekar reckons that 6o-8o big dams (mostly for energy) will be built in South Asia in the next two or three decades, at a cost of hundreds of billions of dollars. In many cases-as for example in mountainous Bhutan, where the economy gets a huge boost from selling hydropower to India-this can foster economic and diplomatic co-operation. India has visions of one day persuading unstable but immensely water-rich Nepal to follow suit. The country is the source of more than 40% of the Ganges's water, and Indian analysts talk dreamily of 40GW of hydropower potential waiting to be used. Other cross-border water deals are pending. Cosy ties with Bangladesh's government mean that India can more easily build dams on some of the several dozen rivers that cross their shared frontier. In September Mr Singh visited Dhaka to sign a deal with Bangladesh to allow the latest hydro dam to go up on the Teesta river. Though the deal was postponed at the last minute by a row with a regional Indian leader, it now looks set to go ahead. However there are bitter memories in Bangladesh of an earlier deal, on the Ganges, which allowed India to put up a barrage to block the river's flow in the dry season. Tentative signs of wider co-operation exist. China issues twice-daily reports on the Tsangpo river flow in the flood season, separately to India and to Bangladesh. This could be seen as encouraging, if the two giants of the region wished to consider getting together over water. Indeed if fullscale friendliness were ever sought, an immense opportunity awaits. Mr Verghese points out that the Tsangpo/Brahmaputra falls 2,450 metres (8,ooo feet) over a few kilometres in China just before it reaches the Indian border. Send it through a 1ookm tunnel from the Tibetan plateau down to Assam and an enormous 54,000MW could be generated. One day its power could light not only much of north-east India and Bangladesh, but nearby Myanmar and beyond. Such a megastructure would become a keystone for regional co-operation. It will almost certainly never be built. Analysts have suggested that, given the generally dire relations between South Asian countries, water will provoke clashes rather than co-operation. A 2009 report for the erA concluded that "the likelihood of conflict between India and Pakistan over shared river resources is expected to increase", though it added that elsewhere in the region "the risk of armed interstate conflict is minor". And a Bangladeshi security expert, Major-General Muniruzzaman, predicts that India's "coercive diplomacy", its refusal to negotiate multilaterally on such issues as river-sharing, means that "if ever there were a localised conflict in South Asia, it will be over water." •
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31 Also in this section 32 London, capital of sobriety 34 The border-control row 34 Elusive, expensive visas 36 Fuel duty and dodgy economics 36 A self-sufficient Isle of Wight 38 EMI and British music 38 Schools reform stalls 39 Bagehot: Recessions and the young
For daily analysis and debate on Britain, visit Economist.comfbritain
Drug use and abuse
The fire next time Drug use is changing fast. Old drugs are falling from favour, new ones are growing, and the economic slump may shake things up again T IS not often that the drugs scene proIrennial duces good news for Britain, Europe's pebad boy, but a report on November 15th from the European Monitoring Centre for Drugs and Drug Addiction offers a few scraps. After years leading the league tables on cannabis use, England and Wales fell below the EU average in 2010 for the first time. People aged between 15 and 34 no longer hold the big-country record for amphetamine use. The rate of drug-induced deaths remains high in a country where drug use is relatively widespread, but at least it has fallen. Domestic studies confirm this picture. As the chart shows, the proportion of young people who have used cannabis in the past year continues to decline from a peak im998, according to the British Crime Survey (Bcs). Use of class A drugs such as cocaine and heroin has not declined as much, but prior-year use of powder cocaine fell by a third in the two years from 2008·09. Figures from the National Treatment Agency suggest that heroin and crack cocaine are mostly confined to an ageing cohort. National Health Service surveys show that schoolchildren aged between 11 and 15 are going straighter, too (see next story): in 2010 only 18% said they had ever used drugs, down from 29% in 2001. In all, 8.8% of adults, or almost 3m people, admit to having used drugs in the past year, well below the11.1% who confessed to it in1996.
Perhaps the public-health campaigns are working. Perhaps the ceaseless vigilance of the police has dramatically reduced the availability of drugs on the street. Or perhaps taste in drugs is changing rather than diminishing. For against the reassuring trend of the falling use of traditional drugs is the growing use of new ones, some of which are not caught in official statistics. The 2011 Street Drug Trends Survey by DrugScope, a drugs-information charity, which was released on November 16th, provides some details. It highlights the rapid rise of ketamine. Use of the anaesthetic, once seen as a niche club drug, has doubled since it was banned in 2006. Another
I
Lower highs Drug use in past year, 16 to 24 year olds,% 35 30 25 20 15 10
199ill7 98 9'l'OOIID1 02 03 04 05 06 07 08 09 10 Source: British Crime Survey
change is the rise of tranquillisers such as benzodiazepine and diazepam. Used for decades as cheap alternatives to heroin and methadone, their resurgence now (like the growth of heavy ketamine use) may reflect a shortage of good-quality heroin from late 2010. As for the rest, high-grade ecstasy is making a comeback (use fell in recent years when the purity fell too), at a price, and there is concern about anabolic steroids. But these are just the known drugs. Novel psychoactive substances, mainly stimulants and cannabinoids from China sold on the internet, proliferate too quickly for anyone to keep track of them (though websites such as Erowid.org make an impressive attempt). And the line between the optimistically-named "legal highs" and the illegal drugs whose effects they often mimic has been blurred. Legal mephredone, for example, flourished when decent ecstasy was scarce until it too was banned in April 2010. It was still the club drug of choice in London last summer, says Fiona Measham, of the University of Lancaster. She reports the ubiquity now of cheap and cheerful "bubble" in north-west England: no one knows just what is in it and no one much cares. In Liverpool a powerful but legal cannabinoid called black mamba is all the rage, says Russell Newcombe of 3D Research, an independent researcher and consultant in the field. It is all part of the rapid diversification of recreational drugs, fuelled by chemical ingenuity in response to prohibition and by new distribution possibilities opened up by the internet. In her conversations with clubbers and pubbers in north-west England, Ms Me as ham says, almost no one knows anyone who has been caught, still less processed by the police: "in places it
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32 Britain ~ amounts to informal
decriminalisation." There are no hard data on how prevalent such substances are, or how harmful. This worries many, not least a government committed to cutting drug use. A new law gives it power to ban a mystery substance temporarily while its independent Advisory Council on the Misuse of Drugs tests it further. A voluntary group of dedicated folk with day jobs elsewhere, the committee is already overworked.
Breakers ahead But a bigger worry lies in the mounting evidence of an economic slowdown. Youth unemployment now tops rm, it was revealed on November 16th. The Bank of England says the economy will stagnate until mid-2012 and expand for the full year by only around 1%. Britain may struggle to grow much at all for years. Will the most troubling kind of hard drug use increase again in response? Few academics have studied the link between drug use and macroeconomic performance, and what work exists is inconclusive. The desire to forget one's troubles may be stymied by having less money to do it. But most drug prices are lower now than they were a decade ago; and young people, in particular, may augment their income by dealing. It could go either way. Britain is scarred by the memory of the 1980s, when de-industrialisation and mass unemployment were accompanied by a rapid rise in heroin use, especially in places where whole industries were closed down and communities flattened. Things are different now, says Martin Barnes, the chief executive of DrugScope. Unemployment is more diffuse, and services are better. There are no clear signs yet that the use of really harmful drugs is ticking up. "But there is always a lag," he points out, "and an awful lot of young people are not in education, employment or training." Maggie Telfer, who runs the Bristol Drugs Project, points out that seeing first-hand the harm that heroin did to relatives and friends inoculated a generation against the stuff, but "there isn't that collective memory to protect people now." A big concern for Roger Howard, head of the UK Drug Policy Commission (UKDPC), a charity, is that the government's twin commitment to fiscal austerity and localism may mean that resources are not available to handle a new drug wave. A UKDPC survey in October found that over half of England's cash-strapped police forces expect to reduce the time and money they spend on controlling illicit drugs next year. Local youth drug services are also being chopped. In the planned devolution of public-health services to local decision-makers in 2013, the current ringfence around central-government grants for drug treatment will be lost. That will be good news for no one. •
The Economist November 19th 2011 Regional drink and drug trends
Sober London Why young people in the capital shun drink and drugs "TOP BOY", a drama shown on Channel Four earlier this month, depicted a London housing estate awash with guns, gangs and illicit substances. Almost every young person who was not selling drugs seemed to be buying them. As television, it was rather good. As sociology, it was questionable. Compared with other English youngsters, Londoners are oddly abstemious. Surveys by the National Health Service show that Londoners aged between nand 15 are less likely to smoke than are youngsters in every other English region. They drink alcohol much more rarely Qust12% did so in the week before the survey, compared with between 19% and 26% in the other regions) and are no more likely to take illicit drugs. Another largescale survey for the Department of Education rolls drink and drug use among young people into a single measure (see map). Again, London stands out for its sobriety. London's teenagers may be lying. Other surveys show that people in their late teens and early 20s are slightly more likely to take drugs if they live in the capital (although, confusingly, Londoners become abstemious again in their 30s). Another explanation is that the capital contains a lot of immigrants from places where youthful drinking and smoking are rare-particularly the Indian subcontinent. Eating, which is heavily Asian, has
London's lowest rate of youthful substance abuse. But if stricter Asians were the explanation, northern cities like Bradford would also be abstemious. They are not always. London's odd social make-up may help to explain the pattern. In addition to an immigrant-heavy working class, the capital has a lot of affluent professionals, who may be unusually keen to steer their children away from mind-altering chemicals. Wealthy counties like Buckinghamshire and Hertfordshire also have belowaverage rates of youthful drink and drug abuse, although not as low as London's. There is a more startling possibility: London represents the future. Alex Stevens, a criminologist at the University of Kent, points out that the capital generally leads drug trends. Heroin emerged in London and a few other large cities in the 1980s, then spread. So did cocaine. Home Office surveys show that adults in the capital were twice as likely to take powder cocaine as were adults elsewhere in the late 1990s. Having declined in London and risen everywhere else, the drug is now as popular in the far north of England as it is in the capital. Britons have been hooked on drink and drugs for so long that it is hard to imagine them dropping the habit. But if the country were to become less intoxicated, the earliest signs of change would probably appear in the city.
Substance misuse 11-to 15-year-olds*, by local authority, 2009-10
0
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0
5.0-7.4
.
12.5-14.9
D
7.5-9.9
•
15.0 and over (worst)
10.0-12.4
*%reporting frequent drug, alcohol or solvent use
Sources: Department of Education; Based on OS mapping AM085/ 11
Buckinghamshire
The Economist November 19th 2011
34 Britain The border-control fracas
He says, she says The home secretary looks safe, butthe row harms the government and Britain
NDER different circumstances, Theresa May and Brodie Clark might identiU fy with each other's dry, diligent (and some might say dull) approach to public life. As it is, the home secretary and the former head of Britain's border force are squabbling over who is to blame for the alarming relaxation of passport controls revealed earlier this month. It will never be known how many undesirables entered Britain this year as the result of border staff not checking biometric passport chips or consulting the "warnings index" of terror suspects. Ms May was piloting a policy that eased checks on lowrisk passengers, such as children from Europe. But, she claimed, Mr Clark had allowed staff to go further. Her account was supported by his boss, Rob Whiteman, who suspended him. Mr Clark then resigned on November 9th, claiming that such criticism had made his position untenable. He is suing the government for unfair dismissal. In front of a parliamentary committee on Novembensth, Mr Clark denied that he had stretched the terms of the pilot. The dispute hinges on one control in particular: fingerprint matching. Ms May had refused to allow this check to be waived as part of her pilot. But Mr Clark let staff do it anyway without telling her. He believes that this was allowed under arrangements introduced by the previous Labour government in 2007. These permitted checks to be eased when queues at passport control become dangerously long. He therefore did not breach the pilot itself, he argued. Members of the committee said Mr Clark should nonetheless have told Ms May about what he was doing. On November 16th he said that she should have expected that checks were being eased under the 2007 policy but admitted that he could have "more thoroughly checked what the home secretary knew or did not know". Ms May appears more secure than she did before Mr Clark's testimony. Still, the wrangle will go on. Three separate inquiries have been launched. Mr Clark could win his claim for compensation, embarrassing the government and costing taxpayers thousands of pounds. And the inability of successive governments to master something as fundamental as the country's borders will vex voters already skittish about immigration. Another danger is that a worthy experiment with risk-based border controls will
Your name's not on the list, you're not getting in
perish. Evidence from the pilot was encouraging: more illegal immigrants were detected and more banned substances were seized. A targeted approach might also save money at a time when the Home Office is having to make do with a smaller budget. But the uproar of recent weeks will make it politically risky to move beyond the standard policy of checking all passengers with roughly equal rigour. The politics of the row do not end there. Ms May's opposite number on the Labour
benches, Yvette Cooper, has shone of latelanding blows on the home secretary without demanding a resignation that, on current evidence, is not warranted. She is increasingly seen as the most likely replacement for Ed Miliband, the struggling Labour leader. One reason for Ms May's durability is the reluctance of David Cameron, the prime minister, to lose one of only five female cabinet members. But the border row may be remembered for its effect on another woman's career. •
Visiting Britain
Please sir, I want a visa Getting into Britain can be trickier than you might think
RITAIN may not always check passB ports properly, but it is sadly good at erecting other barriers in front of people who want to visit the country. At a recent British-Turkish conference, the rigidity of Britain's visa policy provoked many complaints. The British embassy's website suggests applying for a visa any time up to three months in advance, but Turks at the meeting complained that they had no hope of getting one unless they applied at least 30 days before travelling. Getting permission to visit America and the European Union's borderless Schengen zone is far easier, they said. Many embassies and consulates ask visitors to apply for visas online-tricky for those without easy internet access. Then they must make an appointment at a visa application centre, which could be thousands of miles away. Russia has five centres, all in the south-west corner of the country. For those in the rest of the Russian vastness, the months it can take to get an appointment at least give them time to organise getting to it. Iraqis are less fortunate. The British embassy in Baghdad does not issue visas, so they
have to travel to Lebanon, Jordan or Turkey to apply. It is an expensive business, too. Syrians who wish to sojourn in London have to pay 6,100 Syrian pounds (£78, or $123), half a month's average salary. That is assuming they don't have to pay extra to get all their documentation translated from Arabic into English. Russian officials complain about the cost of obtaining British visas in their country, which can reach £300. The forms are long. Again, America is cheaper and easier. Most frustrating is the arbitrary nature of the process. Fill in the forms correctly, answer the questions, pay the fees, and you still may not get a visa. For that, politics is often to blame. A tit-for-tat principle applies to visas: when diplomatic relations are strained, they become scarce. Since the murder of Alexander Litvinenko, an ex- KGB man, in London, Russian officials have only been granted visas for the precise duration of their business in Britain. A meeting on Monday means leaving on Tuesdayhumiliating and inconvenient for London-property-owning bureaucrats.
"RBS wants to do more now to support the economic recovery, especially for the smallest firms that are so crucial for job creation and growth " STEPHEN HESTER, CEO RBS.
More than 40p in every £1 lent to small businesses in the UK comes from RBS. We have already lent £30. 7 billion in the first 9 months of this year.
~~RBSGroup
36 Britain Fuel duty
Road rage
The Economist November 19th 2011 A self-sufficient Isle of Wight
Green and pleasant island The Isle of Wight wants to become self-sufficient in energy
High petrol prices hurt, but will not throttle the economy HOUGH Britain is a small, densely T populated island, it costs a lot to get around it. The petrol price stands at £1.34 a litre, just a few pence below its May peak. Grumbles are growing. On Novembensth an electronic petition signed by more than 1oo,ooo people prompted a debate in Parliament. MPS passed a motion calling on George Osborne, the chancellor, to scrap plans to put up fuel duty in January in line with inflation. The long-standing anger over prices has flared repeatedly. In 2000 truckers blocked refineries, prompting a run on petrol. Then, unemployment stood at s% and inflation was low. People feel far more pinched now. Politicians ignore the current fuss at their peril. The price of fuel is controversial because Britain is car mad-three-quarters of miles travelled are by cars and vans-and because a large chunk of pump receipts go directly into government coffers. Taxes on fuel, including VAT, account for 63% of its cost. That is a slightly lower proportion than in Greece or Sweden, but far higher than in America, where raising fuel taxes is nonetheless said to be a "third rail", deadly to politicians. Aware of petrol's political potency, in March Mr Osborne cut duty by a penny per litre and delayed a further 3P of rises. He had previously touted the idea of a fuel "stabiliser" to smooth fluctuations in oil prices. He gave up that plan. Instead, he will raise taxes in line with inflation and add an extra penny to them only if oil prices plummet. A brief holiday from price increases has not appeased motorists' ire. High fuel duties were once justified because owning a car was deemed a luxury; now 78% of households have one. There are alternatives for some trips: 20% of journeys are less than one mile long. But unlike other "sin taxes" on alcohol and cigarettes, many people need to drive, particularly those in remote areas, and poor people spend a higher portion of their income on petrol. These groups now risk being priced off the roads, claims Edmund King of the AA, a motoring lobby, who warns of a divided nation: the "drives" and "drive-nots". Another complaint, that costly fuel will stall the economy, makes it tempting to delay another tax rise-after all, Mr Osborne, enamoured of austerity, also seeks growth. But raising duty will be a short-term squeeze on household spending, with
COISLAND is a group so green that the invitations it sent to an event at Britain's House of Commons were printed on recycled paper embedded with meadow-flower seeds Gust plant, water and watch them grow). Its aim is to make the Isle of Wight, off Britain's south coast, energy-independent by 2020. The island is often viewed as a quaint place a decade or so behind the times. But if the project, launched on November 15th, comes off, the Isle of Wight could be in the vanguard of an environmentally friendlier future. Ecoisland plans to install solar panels on roofs (the island is one of the sunniest places in England), insulate houses better, make greater use of geothermal, wind and tidal energy, and generate power from waste. There are also plans for electric vehicles that residents and visitors alike can hire. Locally grown food would be delivered through island-wide supply hubs. A concerted effort is under way to reduce water use and capture more rainwater (about one-third of the island's fresh water at present is pumped from the mainland). This all seems very cosy, but what
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gives Ecoisland an edge-apart from its energetic and auspiciously named chief executive, David Green-is the array of national and international companies which have agreed to take part. These include IBM, Cable &Wireless and Silver Spring Networks, which together with Toshiba, will be working on smart-grid technology and energy-storage systems. Toshiba is doing similar work for the Japanese island of Miyako. British partners include Southern Water, a utility, SSE, an electricity supplier, and ITM Power, which makes electrolysis systems that generate hydrogen from water. The hydrogen can be used as an energy store and to power cars and vans. Graham Cooley, ITM's chief executive, says an island provides a natural boundary within which the benefits of integrating sustainable services can be more easily explored. Mr Green says that the partnership has already raised £2oom ($315m) in private funding. Ultimately, he hopes, the acquired eco know-how can be exported to other places. By then his business cards, which are also meadow-seeded, could be blooming all over the place.
Population: 140,000 tree-huggers nothing like the hit of a vAT increase, for example, which affects all products. Though filling up a tank feels like being gouged, motoring costs have actually fallen in real terms over the past decade, according to the Office for National Statistics, because new cars are cheaper. Businesses are sitting on so much cash at the moment that high fuel prices are unlikely to lead to a drop in investment. Fuel duty has also served as a useful environmental weapon, since it accurately targets a pollutant and changes behaviour. Thanks to pricey fuel and tax incentives,
car and van mileage has fallen for four consecutive years and fuel efficiency has increased, notably because new cars have better engines. The main point of fuel duty, though, is as a fiscal wheeze: it made up 5% of the tax take in 2010. That makes a tax freeze unpalatable to the chancellor: it would leave the treasury's tank short at a time when every drop is needed, and is unlikely to spur enough growth to compensate. The economics of petrol pricing are fairly simple. It is the politics that could yet leave the chancellor in a jam. •
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The Economist November 19th 2011
38 Britain The sale of EMI
Revenge of the Sex Pistols
Teaching the world to sing Trade balance, selected music-royalty collecting societies, 2010, $m 100 - 0 + 100
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As Britain loses its last major record label, its independent scene thrives OR decades the British have shrugged F as their car manufacturers, energy firms, airports and even football teams have been bought by foreigners. On November nth they lost their last major record label too, when EMI was sold. Terra Firma, a private-equity group, acquired EMI in 2007 with a plan to cut costs. But artists such as Radiohead left in protest at the stringent new regime and losses grew as the industry struggled with digitisation and rising piracy. Citigroup, the bank which financed Terra Firma's acquisition and took control of EMI in February, has sold its recorded-music division to Universal Music, a French-owned label. Already the biggest company in the industry, Universal is expected to sell other assets to get around competition rules. EMI's publishing arm, which owns the rights to over a million songs by artists old (The Pretenders) and new (Kasabian), went for fl-4 billion to a consortium led by Sony. EMI loomed over British pop for half a century. Its artists, including the Beatles, dominated the 1960s. It launched its own "British invasion" of America by buying Capitol Records (home to Frank Sinatra and the Beach Boys). When it fired a troublesome young act called the Sex Pistols, the ratters immortalised the label with a scathing song. But the loss of EMI is a largely symbolic blow to British music, which is comparatively perky. Britain is a large net exporter of pop songs, along with America and Sweden (see chart). According to government figures, Britons spend more per head on music-related products than any other nation, ensuring a big domestic market for artists without a global audience. Independent record labels are thriving. Beggars Group is the biggest collection of "indies" in Europe; its labels include XL and Rough Trade, an outfit that was born out of the punk movement. On November 15th Adele, a London singer signed to XL, became the first artist to sell a million copies of an album in Europe via iTunes. Even if her huge sales are stripped out, indie labels saw an 8% increase in album sales between January and September compared with the same period last year, according to Music Week, an industry magazine. The big four corporate labels-Sony BMG, Universal, Warner Music Group and EMI-have seen album sales decline. Some of this success is an accident of timing: many popular indie acts released
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albums this year. But it also owes something to the sector's entrepreneurial wiles. The coolest indie labels used to celebrate their aversion to commercial ambition. Now they sign foreign acts and break them globally, sell records at gigs, and have capitalised on the growing niche demand for vinyl records. On November 10th, at the first annual awards held by the Association of Independent Music, the sector's trade body, prizes included "independent entrepreneur of the year" and "innovative marketing campaign of the year". The Sex Pistols would shudder. • Schools reform
Follow my leader Why schools have so far failed to use their new-found freedoms NGLAND'S schools are churning. Under Tony Blair's academies programme, some 200 failing schools gained control over budgets, curriculum and working conditions. In May 2010 Michael Gove, the Conservative education secretary, allowed schools judged "outstanding" by the schools inspectorate to follow. More than 1,000 excellent schools and 200 poor ones have since converted. A third of secondary schools are now academies. They are joined by a clutch of "free schools" set up by parents, teachers and charities. Mr Gave's idea is to free schools from the grip of local-authority control, making them more responsive to local parentsand raising standards. The OECD, a richcountry think-tank, suggests that children taught in autonomous schools do better than those who attend schools where teaching is tightly prescribed. Mr Blair's academies have broadly improved, although that is perhaps to be expected: the worst schools got new head teachers and had nowhere to go but up. A secondary
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goal of Mr Gave's reform was to enfeeble the powerful teachers' unions by giving schools the freedom to override national agreements on staff pay and hours. That aim has not been achieved: almost all state schools in England are expected to close on November 30th as teachers strike over proposed changes to their pensions. More worryingly, there is also little evidence yet that schools are making use of their new-found freedoms. Dale Bassett of Reform, a think-tank that generally supports the government's education reforms, points out that many schools may have quit local-authority control not because they seek the freedom to innovate in the classroom but to get more money. Schools that control their own budgets receive extra cash to commission services that the local authority used to provide. Few have departed much from the national curriculum or changed the length of the school day. Rather than answering to parents, academies and ordinary state schools alike are scrambling to hit ever-moving central government targets. Irked that so many pupils have been steered into easy-to-pass subjects, Mr Gove has created a new measure of school success: the proportion of pupils gaining a decent grade in five traditional subjects. The response has been swift. The proportion of students sitting exams in those subjects will rise from a little over one-fifth in 2010 to one-third in 2012. Half of all students are on course to be examined in traditional subjects in 2013. On November 14th David Cameron railed against "coasting" schools in the "prosperous shires and market towns" where good pupils get merely respectable results. From January secondary schools will be judged by how well they serve those who were high-achievers in primary school, among other measures. Good point. But this doesn't look like freedom. The coalition government's highest-profile, most successful reform to date appears caught between localism and a desire to steer things from Westminster. •
The Economist November 19th 2011
Britain 39
Bagehot I Recessions and the young Britain's most promising reforms may be derailed unless jobs return, soon realm of public opinion. The Conservatives came to office with a bold plan to reshape Britain's labour market. First, they are trying to fix an education system that has long put quantity ahead of quality, churning out young Britons with debased qualifications that fail to impress employers. Second, they are radically simplifying the welfare system with the aim of making work pay-ending the scandal that saw millions moulder on out-of-work benefits even at the height of the last boom.
"'l '1 JE
are all in this together," promises David Cameron's
VV government, as it tries to fix shattered public finances
and set Britain on a path of sustainable growth. It matters that voters should believe this. Not because the claim will soothe those suffering most from spending cuts or lost employment. Instead, a sense of fairness is vital to the broad mass of voters who keep their jobs in even nasty recessions, and whose households will survive this crisis. Fairness gives the majority permission to support policies needed to fix the mess, but which will impose real pain on some. That is why it spelled danger for the government when new figures were released on November 16th, showing that youth unemployment had crossed the one million mark: its highest level in a generation. Several caveats surround that number. Youth unemployment has been rising in Britain since before the credit crunch. Within the headline total for jobless 16- to 24-year-olds, more than a quarter are students looking for part-time work. Exclude those in full-time education, and Britain's youth unemployment rate is 2L9%-far below countries like Spain. The overall unemployment rate of 8.3% looks better because companies are hunkering down and retaining staff in the hope of a recovery. This happens when economies slump: adults are not hurt until they are fired, the young are hurt when they are not hired. Yet caveats can only help a government so much. Ministers are alarmed, and rightly. The coalition has enjoyed unexpected success in making the case for deficit reduction. Not every voter likes every cut, but "they know we have a plan," says a cabinet minister. Those same voters, he worries, are less sure that the Conservative-Liberal Democrat coalition has a plan for growth. As the prospect of a recovery slips over the horizon, there is a widespread perception that Britain's young are suffering most of all-hit as teenagers by the removal of some means-tested benefits, as students by soaring university tuition fees, as young adults by a lack of affordable homes and at every turn by a lack of jobs. Amid headlines about a "lost generation", voter support for deficit reduction may be tested, suggests the minister. "People will make sacrifices for their kids and grandkids," he says. If the young look like sacrificial victims, that is "socially corrosive". In fact, youth unemployment signals problems beyond the
For work to pay, you need work Coalition plans have much to recommend them. While ditching the worst of Labour rule-endless targets, micro-management and welfare rules so fiddly that even officials don't understand them-ministers are keeping Labour's best policies, including autonomous "academy" schools and payment-by-results for private providers who place the unemployed in work. There is a new whiff of rigour in the air. For three decades, British ministers have hailed the marvels of Germanic apprenticeships, and stressed the need to value vocational skills as highly as university book-learning. They then did the opposite, turning jobs like nursing into graduate-only professions and slapping the apprenticeship label on low-level courses and on in-house training for adult workers. The government this week urged higherquality apprenticeships, and announced new funding for them. Yet talk to those on the ground, and deepening economic gloom has them worried about the viability of government reforms. Bagehot headed this week to Hampshire, a southern county that is home to gritty ports and ex-factory towns as well as leafy villages. A local MP admits that some voters blame Poles and other immigrants for taking jobs. In truth, he says, Poles are often more skilled. A growing headache is university students taking part-time jobs: employers prefer them to local teenagers. Overall, things are still better than in the 1980s, says David Harris, a council officer from Havant. Then, there were "lines out the door" at the job centre. But employers are wary of school leavers. They complain about recruits who won't listen or who fail to wake up for work. The worst include children of unfortunates who left school during the 1980s recession and have never worked since. The Wheatsheaf Trust, a Hampshire charity, has coaxed 4,000 such hard cases into work over the past decade. This week, it celebrated the end of an employment course for ten single mothers. Tearfully they related how they had been shown they could make work fit around raising children. Three had landed jobs already. Three years ago local employers were struggling to fill vacancies, says the charity's boss, Jonathan Cheshire. Now, he frets, every client that Wheatsheaf places in work merely displaces other job-seekers, notably young ones. Mr Cheshire applauds the government's goal to simplify welfare and make work pay, but worries that the policy was designed for the labour market of 2008. The whole approach rests on expanding the pool of employable labour, with intensive careers guidance paid for by welfare savings, he notes. "Without jobs growth, none of this works." Without growth, a lot of the coalition's reforms will not work. That would be tragic: Britain can ill-afford another lost generation. Though the young may doubt it, they and the government are indeed in this together. • Economist.comfblogsfbagehot
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41 Also in this section 42 Spain's election 44 Russia and Vladimir Putin 46 Russia and NATO 47 Crime in southern France 47 Neo-Nazi crimes in Germany 48 Charlemagne: Germany and Europe
For daily analysis and debate on Europe, visit Economist.comfeurope
Italy's new prime minister
The full Monti ROME
Mario Monti holds out for a technocratic government until2013
N ITALY things seldom happen abruptly. Isures Italians prefer compromise, half-meaand gradual change. But in just four days in mid-November, the pendulum of Italian public life has swung giddily from one extreme to another. Silvio Berlusconi, a prime minister notorious for his buffoonery, scandalous private life and iffy business methods, has given way to a sober, monogamous academic and former European commissioner, Mario Monti. The TV mogul's cabinet included a former calendar girl, a minister who walked a pig on land earmarked for a mosque and another said to have links to the Cosa Nostra. The new government sworn in on November 16th has the chairman of NATO's military committee, Admiral Giampaolo DiPaola, as defence minister; the boss of Italy's biggest retail bank, Corrado Passera, as minister for economic development and infrastructure; and no fewer than seven professors, including the prime minister, out of a cabinet of 17. Mr Monti himself takes the finance portfolio. Only one of three women in the Berlusconi government had a heavyweight job. All three of those in Mr Monti's will have onerous responsibilities. Anna Maria Cancellieri, a former prefect, becomes interior minister. Paola Severino, a law teacher and courtroom advocate, is the justice minister. Elsa Fornero, a pension expert, takes employment and welfare. The new government's only defect may be that it contains
no young people. It is rare for the intellectual firepower of so many technocrats to be trained on a country's problems (see page 68). But it is also rare for the problems to be as grave as those left by Mr Berlusconi's tragicomic administration. Even as Mr Monti conferred with party politicians this week, the interest rate on Italy's government bonds twice leapt above 7%. That was the level at which Greece, Ireland and Portugal all needed bail-outs. The problem-not just for Mr Monti, but for the euro zone and the world economy-is that Italy, the zone's biggest debtor, is too large to be bailed out with the resources currently available. It is hard to exaggerate the responsibilities placed on Mr Monti when President Giorgio Napolitano asked him on November 13th to become prime minister. The 75year-old Mr Berlusconi had quit the night before, booed from office by a crowd outside the presidential palace. He had to leave ignominiously from a side door-an end to his fourth government that he will not lightly forgive or forget. Characteristically, he promptly made a video for television in which he sang his own praises and denied that the end of his government marked the end of his political career. Mr Berlusconi was forced out because he had lost his majority in the lower-house Chamber of Deputies. But he has not lost control of the upper-house Senate. He and his allies in the Northern League (vehe-
mently against Mr Monti's government) can still block legislation there. That has weighed heavily on the birth of the new government. But thanks either to his negotiating skills or simply to the gravity of the situation, the new prime minister has still got most of what he wanted. Like other parties, Mr Berlusconi's People of Freedom (PdL) movement is happy for Mr Monti and his team of technocrats to take responsibility for the unpalatable reforms and deficit-cutting measures demanded of Italy by the European Union and the European Central Bank. These were put into a bill given final parliamentary approval on November 12th, clearing the way for Mr Berlusconi to go. But the PdL's leaders wanted an election as soon as the reforms were passed. They demanded a fixed time limit for Mr Monti's government, a programme containing only the previously agreed reforms and a place in the cabinet for Mr Berlusconi's right-hand man, Gianni Letta. Mr Monti welcomed this third demand, because the inclusion of Mr Letta, balanced by a prominent figure from the left, would give the big parties a stake in his administration. But the opposition Democratic Party (PD) vetoed the plan, so the new government has no political figures at all. As for the other demands, Mr Monti said he would stand aside rather than accept a time limit, insisting on serving until 2013. He may also have faced down the PdL's desire for a narrow mandate (that will become clear only from his full programme). Neither demand was realistic: the way ahead is too uncertain. But by pulling together a team of exceptionally wellprepared ministers, Mr Monti has taken a big step towards establishing the truth of Mr Passera's claim, after swearing his oath of allegiance, that "Italy amounts to more than the markets have thought". •
42 Europe
The Economist November
Spain' s election
Manana is too late BARCELONA, CIUDAD REAL AND MADRID
Mariano Rajoy seems sure to be Spain's next prime minister. He must act fast
OR a taste of the real Spain, try CasF tile-La Mancha. This is the land of Manchego cheese and saffron. The vast plains are dotted with the windmills at which Don Quixote once tilted. Squatting in congruously among them is a €1.1 billion ($1.5 billion) white elephant: Ciudad Real's airport. Other than the chirping of autumn crickets, the silence is absolute. The last commercial flights ceased at the end of October (the airport remains open to private planes). The only signs of life at the visitor centre are bats in the ventilation shafts. This airport tells a tale about Spain. In the past decade, during el boom, money poured in, inflating a huge construction bubble. Grand infrastructure projects like Ciudad Real airport sprouted. Many of Spain's 17 regional governments channelled cash into trophy schemes-universities, art galleries, high-speed rail-with no concern for whether they would pay their way. They were abetted by the cajas, small unlisted savings banks, often with opaque ownership structures, that lent recklessly on the assumption that property prices could move only in one direction. All these sins are evident in Ciudad Real's airport. Although private, it was backed by Castile La-Mancha's Socialist government. It was part-funded by a caja that went bust. After a couple of years of misery, in which passenger numbers came nowhere near estimates, the airport's managers filed for bankruptcy. It is temptingto call the project quixotic, but the owners got there first: the airport was opened under the name "Don Quijote" in 2008. The story also explains why, in a general election on November 2oth, Spain will eject its prime minister-the last of the five most troubled euro-zone countries to do so since the crisis broke. At least the exit of ]ose Luis Rodriguez Zapatero, Spain's Socialist prime minister since April 2004, looks graceful next to the chaotic departures of George Papandreou of Greece and Silvio Berlusconi in Italy. Mr Zapatero's days have been numbered since April, when he said he would not seek a third term. Instead, he made Alfredo Perez Rubalcaba his party's candidate. Mr Zapatero's legacy will be unhappy. When the crisis hit in 2008 the construction boom was already over. Yet Mr Zapatero would not accept that Spain was vulnerable. Its well-regulated banks had avoided dodgy subprime ventures, he insisted. But over the years the economy had
grown unproductive, uncompetitive and unbalanced. By 2008 construction accounted for 10% of output, twice the eurozone average. Wages had outpaced productivity. Although public debt remained low, private-sector indebtedness had soared. By the time Mr Zapatero saw the light in May 2010, it was too late. His reform efforts since have been halting at best. The results are ugly. Unemployment in Spain, at 22.6%, is the highest in the European Union and the OECD. Among 18- to 24-year-olds it is an eye-watering 46%. The economy is heading into another recession. Spain is going to miss its budget-deficit target of 6% of GDP for 2011. The markets will ask some hard questions next year. And the man charged with answering them will be Mariano Rajoy, leader of the centre-right People's Party (PP ). Mr Rajoy is no stranger to Spaniards, having led the PP to defeat in general elections in 2004 and 2008. This time, thanks to disillusionment with the Socialists, his party has a double-digit poll lead and looks set to win an absolute majority, a feat that eluded Mr Zapatero. The stars have aligned neatly for Mr Rajoy. Unlike the new technocratic prime ministers in Greece and Italy, he will have a strong mandate for reform. He will be constrained neither by pre-election promises (he has made few) nor, probably, by the need to placate smaller parties. After sweeping local and regional elections in May, the PP
Bouncing, nervously, into power
19th 2011
runs most of Spain's regions, which account for one-third of public spending; this should make fiscal consolidation easier. Yet the euro crisis will not wait. Mr Zapatero's belated reforms have eased some of the pressure. At a euro summit in Brussels on October 26th, the Financial Times reported that an early draft of the communique included a long section applauding Spain for its reforms above a section on "Italy" that was left blank. Bond investors agree. Since the European Central Bank first intervened to buy debt from the two countries in August, Spain has partly "decoupled" from Italy (see chart, next page). For how long? Italy's difficulties only make Spain more vulnerable. The size of the PP's poll lead and investors' faith in Mr Rajoy have won time. But the new government, which will take office in mid-December, will still have to move fast. Luis de Guindos, an economist at IE, a business school, widely tipped to be Mr Rajoy's finance minister, says it must have a "comprehensive plan" by the end of February. Spain's destiny may lie beyond its control; this week it paid almost 7% in a ten-year bond auction, its highest since 1999. "Our short-term fate is in the hands of the ECB," says Jorge Galindo, a public-policy analyst. Do not underestimate the quiet man What can Spaniards expect from their next prime minister? Mr Rajoy's enigmatic personality fits the Spanish archetype of the gallego, a native of his home region of Galicia. "People who work with him often don't understand what he wants," says Carlos Cue, a correspondent for El Pais. "This is entirely intentional." Lacking in public charisma, Mr Rajoy is said to be charming and witty in private. Although he lacks the belligerent streak of Jose Maria Aznar, his predecessor as PP leader and a previous prime minister, his persistence at
~~
The Economist November 19th 2011
44 Europe ~
the top of the party suggests a certain steeliness. "He's not an active leader," says Mr Cue. "He waits for others to make mistakes. Over 30 years this has proved a very successful strategy." Mr Rajoy is not keen on international travel (to the despair of advisers) and, typically for Spaniards of his generation, not fluent in English. He has been taking intensive lessons this year, helped by his two young bilingual sons. Some observers fear that Mr Rajoy is more likely to give Spain a gentle prod than the smack of firm government. But others say his conciliatory style is just what is needed: the more he can drag his country with him through the painful reforms, the more likely he is to succeed. "He is a man of dialogue," says Jorge Moragas, Mr Rajoy's chief of staff and a possible foreign minister. There may even be an attempt to work with the Socialists in parliament. Either way, a degree of public disquiet seems certain. A general strike may come next year. But the unions are weak: a previous strike in September 2010 fell humiliatingly flat. ]osep Lobera of Metroscopia, a pollster, says that no more than 20% of Spaniards will be implacably opposed to Mr Rajoy. "Spanish society is prepared to accept reform," says Mr Moragas. In the run-up to the election the PP has talked tough on the need for reform but been short on specifics. Mr Rajoy says unemployment will be his first priority, and he is likely to take up Mr Zapatero's unfinished work on labour-market reform. Antiquated rules, some dating from Franco, have left a deeply distorted system. Collective arrangements for wage bargaining create inflexibility. Spain's array of job contracts sets up rigid distinctions between protected insiders and vulnerable outsiders, especially the young, who toil on temporary contracts without job security, if they find work at all. No wonder thousands have become indignado protesters. Another issue is the banks. Earlier this year Spain's central bank took on the cajas, nationalising some and forcing others to merge. But their asset books are clogged with bad debts and repossessed property. Shrinking credit is a big threat to the economy. "Banks need to be helped to do their job," says Ignacio Muiioz Alonso, CEO of Addax Capital, a fund manager. "That is to lend money, not to be large real-estate managers." Worse may be to come: property prices are only 22% off their 2008 peak. Guesses at the recapitalisation needs of the cajas run as high as €100 billion. Then there is the question of where Spain can turn for growth, now that its construction adventure has juddered to a halt. Spain lacks Italy's broad industrial base, but as Rafael Domenech of BBVA, a bank, points out, it has a number of strong, diversified international companies. Exports are doing well, shrinking the gaping current-account deficit. There is a well-
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educated cadre of scientists and engineers, though links between academia and business are weak. With public spending shrinking the private sector has a lot of slack to take up. Cristina Garmendia, Spain's outgoing science minister, warns that slashing R8m in a fit of deficit mania will harm Spain's prospects. One piece of good news is that Spain is so riddled with inefficiencies that there are relatively obvious reforms to be made. Powers in such areas as health and education are distributed across central, regional and local levels, with inevitable duplication. Mr Rajoy has indicated that he plans to tackle this issue. "There is an opportunity to introduce some rationality into theregional accounts," says Mr de Guindos.
A potential trouble-spot is Catalonia, which accounts for a fifth of Spain's economy. The Catalan government, run by the nationalist, pro-business Convergence and Union (ciu) since an election last November, is at one with the PP on the need to control spending. "On issues like labour reform we should coincide," says Andreu Mas-Col ell, the Catalan economy minister. But, as several speakers at the party's glitzy election launch in Barcelona made clear, ciu is spoiling for a scrap with Madrid over the distribution of powers and revenues. Its first aim is to secure for the Catalans the right to raise more of their own taxes. The Basques enjoy this privilege, they say; why should they not as well? Another priority is to keep more of their own money. Transfers to Madrid from Catalonia, one of Spain's richest regions, amount to 8-9% of the Catalan economy. Interviewed at his 14th-century palace in Barcelona, Artur Mas, the Catalan president, likens himself to Margaret Thatcher demanding a budget rebate from Britain's European partners. This "Catalan agenda", says Mr Mas, will be the price of his support for a Rajoy government in Madrid should the PP fail to secure a majority. Mr Rajoy will be hoping that the outcome for his party on November 2oth will be as happy as the polls predict. He looks likely to get his wish. But for his sake and Spain's, he must hope that his reserves of luck extend far beyond election night. •
Russia's future
Putin his place
MOSCOW
A once and future president seems confident-too confident
HE SWANKY equestrian club outside T Moscow where Vladimir Putin hosted foreign academics and analysts for the annual Valdai dinner on November nth exudes wealth and confidence. With a solarium and organic oats for the horses, and French haute cuisine and an 1880 Armagnac for their owners, the club shows the benefits of Mr Putin's 12-year rule as president and prime minister. It is also redolent of the power he wants for 12 more years after returning as president in March. Strolling in only two-and-a-half hours late, Mr Putin appeared fit, confident and relaxed. But he offered little by way of new ideas, vision or plans for his next term. Challenged with the view that Russia and its exhausted political system were heading towards stagnation, he disarmingly said, "I have nothing to object to in what you are saying", adding later that "our system is not perfect." But he then argued
once again for all the advantages brought by his rule. "There was a civil war in this country in the early and mid-1990s ... the economy and the social sphere were in an utter collapse." In fact the first Chechen war was over by 1996 and the economy was recovering before Mr Putin came to power. But contrasting himself with the 1990s remains essential to his political appeal. After a decade with the unruly Boris Yeltsin, Russia longed for the stability that Mr Putin promised. He was different from Mr Yeltsin in age and temperament. Boosted by strong growth on the back of rising oil prices, he was able to eliminate rival sources of power while retaining broad popularity. But12 years on stability has soured into stagnation-and Mr Putin's brand has gone out of fashion. Stunts such as posing halfnaked on a horse, riding a Harley Davidson or shooting tigers have become the
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The Economist November 19th 2011
46 Europe ~ subject of ridicule
and irritation. A symbol of hope for a return to normality has mutated into a symbol of hopelessness, much exacerbated by his proposed job swap with Dmitry Medvedev, Russia's president. Mr Medvedev may never have been a real alternative to Mr Putin, but he held out the faint possibility of a transition of power. This has now been shut off. The thought of Mr Putin and his system carrying on for another 12 years depresses the many Russians who want change. This general tiredness with Mr Putin is beginning to be reflected in his ratings. He is still be backed by a seemingly impressive 6o% of the population, but his support is fragile as it is largely passive and based on a lack of alternatives. Moreover, the index of his popularity (ie, the gap between approval and disapproval) has fallen from 57% to 24%, a lower level than it reached in the crisis of 2008-09. "The nature of his popularity rating is that it looks solid, but could turn into dust very quickly," says Kirill Rogov, a political commentator. Whether it does depends largely on the state of the economy. Throughout his remarks to the Valdai group, Mr Putin seemed blithely confident that Russia's economic growth would not be affected by the global crisis. Others are more doubtful, including his former fi-
Reform Russia? Me?
nance minister, Alexei Kudrin, who predicts that the oil price could fall to $6o a barrel, presenting Russia with challenges as serious as those in Europe and America. Mr Kudrin's resignation, after Mr Putin's promise to make Mr Medvedev prime
Russia and NATO
An absence of trust Why Russia is no closer to working with NATO on missile defence
HE hopes at NATO's 2010 Lisbon T summit that Russia might be a partner in the missile-defence system meant to protect Europe from a nuclear-armed "rogue" state are looking increasingly forlorn. NATO governments had promised "to explore opportunities for missiledefence co-operation with Russia in a spirit of reciprocity, maximum transparency and mutual confidence." But at his Valdai dinner on Novembernth, Russia's prime minister, Vladimir Putin, claimed that the Russian ambassador toN ATO, Dmitry Rogozin, had been told by an American senator that missile defence was aimed at Russia's nuclear deterrent. Mr Putin even drew a diagram on a napkin to make his point. At this week's meeting of the NATORussia Council, a body meant to improve relations, Russia's deputy defence minister, Anatoly Antonov, was equally blunt. He complained that NATO was pressing ahead even though Russia's conditions for co-operation had not been met. Chief among his gripes was America's refusal to give Russia a legal guarantee-in effect a treaty-that NATo's missile shield would never be used to protect
Europe or America from Russian nuclear weapons. He suggested that Russia might take "military-technical measures". The heart of the problem is a lack of trust, made worse by what Russia sees as NATO's cynically broad interpretation of the UN Security Council resolution on Libya-a "betrayal", say some Russians. Russian leaders cannot bring themselves to believe repeated Western assurances that plans to defend Europe against nuclear missiles are aimed solely at irrational states with a handful of weapons (diplomat-speak for Iran), and are not meant to blunt the effectiveness of Russia's array of nuclear weapons. Russian military analysts concede that the phased approach to European missile defence adopted by the Obama administration is less threatening than George Bush's plans for a shield based on long-range interceptors and radars in Poland and the Czech Republic. They also accept that, even in its final phase of deployment, the system would be overwhelmed by any Russian attack. But they persist in seeing missile defence as part of a long-term American plot to undermine Russia's nuclear arsenal.
minister, also lowers the chances of the sort of authoritarian modernisation that some liberals had once hoped for. In foreign policy Mr Putin remained unrepentantly blunt, notably on missile defence (see box). He promoted his pet idea of a Eurasian union to foster economic integration with Russia's former Soviet neighbours. But the Kremlin has neither the money nor the popular support for this-and Ukraine, the biggest potential prize, remains unenthusiastic. The scandalous imprisonment of a Russian pilot in Tajikistan and Russia's response of rounding up and deporting Tajik workers from Moscow speak louder than all the windy rhetoric in Mr Putin's Eurasian manifesto. The two main concerns of ordinary Russians today are corruption and nationalism. But Mr Putin can exploit neither. He might initiate an anti-corruption show case, but he cannot fight the corruption that glues his system together. Nor can he play on popular anti-Caucasian sentiment, if only for fear of driving off his ally, Ramzan Kadyrov, who keeps Chechnya under control. In any case, Mr Putin does not really see any need for radical change. As Alexander Voloshin, a former Kremlin chief of staff, puts it, "everyone tells us that there will be a catastrophe if we don't do something. We don't do it and there is no catastrophe." So Mr Putin's next term is likely to be about preservation and stagnation. In this spirit Dmitry Peskov, Mr Putin's press secretary, recently talked up Leonid Brezhnev as a "huge plus" for the country. Yet his era led to collapse. With its big cash reserves and low debt, Russia may find that economic problems now take time to hit home. But when they do, their effect is likely to be unusually severe-just as at the end of the Soviet Union. •
The Economist November 19th 2011 Crime in southern France
Rio on the Med
Europe 47 Neo-Nazi crimes in Germany
A horror from the past BERLIN
Angst over a ten-year killing spree by a neo-Nazi group MARSEILLE
The hard task of containing a crime wave in France's biggest port SHORT walk from the yachts and fishA ing boats of the old port, in a maze of streets known as Noailles, the local Socialist mayor is checking on street crime. Passing shops selling Afro hair extensions, yams, halal meat and tagine pots, Patrick Mennucci hears a litany of complaints. One man grumbles about a nightly poker game on car bonnets, another about illicit alcohol-trading, a third about rubbish in the gutter. The mayor will take their grievances to the police chief. "We want families to live in this neighbourhood," he insists. "I don't want it to become the Bronx." Marseille has been hit by a new crime wave. In the first half of 2011, the local department recorded a 40% increase in armed robbery and a 9% rise in murders. In June a man was gunned down in a bar on the port. Weeks later, another was shot dead in a cyber cafe. In September a man was sprayed with machinegun fire. There have been 71 murders in six months, with talk of a city abandoned to violent lawlessness. The public prosecutor has even compared Marseille to the favelas of Rio. Less than six months before France's presidential election, the effort to curb crime in Marseille has become political. Before he was elected president in 2007, Nicolas Sarkozy was a tough centre-right interior minister who vowed to clamp down on crime. His record is now on the line. In the year to September crimes like car theft and arson fell nationally. But others have risen: violent theft by 4%, rape by 5%, drug-related crime by 6%. In one poll 57% of respondents were critical of the government's record on crime. Hence the drastic action in Marseille. In August the government installed a new police chief from Paris, Alain Gardere-the third man in the job in two years. The previous one said he could not alone "solve the difficulties linked to a poor city that suffers from 50 years of immigration and a tradition of banditry." Mr Gardere has gone for shock therapy, with hundreds of extra policemen and riot police, more officers on the beat and a crackdown on petty offences such as illegal parking. Video cameras are being installed. The city has even made aggressive begging an offence. The strategy, Mr Gardere argues, is to "reappropriate public space". He distinguishes between organised crime, driven by drug-trafficking and gang rivalry, which involves a long-term national effort, and more visible daily street violence. "In Mar-
HE murderers' boasts are as chilling T as their crimes. From 2000 to 2006 the "National Socialist Underground", an unknown group with just three core members, apparently killed nine people, eight of them of Turkish origin. In 2007 they shot a policewoman in the head. They claim credit for a 2004 bombing in Cologne that injured 22 people, mostly Turkish. A mocking video celebrates all this but has little to say about the group's goals, promising "deeds, not words". The end came on November 4th when Uwe Mundlos and Uwe Bohnhardt staged the last of some 14 bank robberies in Eisenach, in Thuringia. They set their mobile home on fire and apparently shot themselves as the police closed in. Be ate Zschape, their female comrade, turned herself in after torching the group's house in Zwickau in Saxony. Yet this was no triumph for the law enforcers. The far-right trio were long known to Thuringia's intelligence agency. They disappeared in 1998 on the point of being arrested. Nobody linked them to the "doner murders", so called because two victims worked in kebab shops. The authorities "trivialise" right-wing seille," he says, "there is a greater inclination to cross the line of violence than in the Paris banlieues." Street violence is not the only concern. The docks lost 33 days in a single strike last year and streets overflowed with rubbish. The local department leader, Jean-Noel Guerini, also a Socialist senator, has been
Beauty above, mean streets below
violence, says Hajo Funke, who studies it. To day's violent right is the offspring of unification in 1990, which disrupted the eastern economy and traumatised families. The Federal Office for the Protection of the Constitution, the domestic intelligence service, thinks 25,000 people belong to far-right groups, of whom 9,500 could be violent. Mr Funke says they have committed more than 100 murders since 1990. Yet the authorities worry more about Islamist terrorists, who have done less damage. The doner killers may force a reassessment. Their decade-long career exposes weaknesses in detection and prevention. Undercover informants can be more useful to the groups they monitor than to their paymasters. The interior ministry now plans a new centre to co-ordinate work on far-right violence by Germany's many police forces and intelligence agencies. The ruling Christian Democratic Union is reconsidering its opposition to a ban on the far-right National Democratic Party, which is said to have links to more extreme groups. The Thuringian gang which made video jokes about its victims was itself no joke. charged in connection with a vast publicworks corruption case. In a city that one study says is 30% Muslim, there is tension over prayer space. In October a permit for a new landmark mosque was revoked, ostensibly on technical grounds. Yet Marseille is keen to reb rand itself. It has been chosen as a European city of culture in 2013, and is building two new museums and a business quarter in the renovated docks. Zaha Hadid, a British architect, has designed the city's first skyscraper. The container port may be in decline, but the city is luring cruise liners. Officials want to make an asset of its open, international spirit. "Not everything is rosy," concedes Yves Moraine, head of the ruling UMP party at the town hall. "But whether you are from Senegal or Tunisia, there is an identity based on Marseille, football and the sea, which avoids the sense of total exclusion found in the Paris banlieues." Much depends on restoring security to the streets. Back in Noailles, locals say crime has dropped since the new police chief took over. "He has really tightened things up," says Said Djamel, a butcher. Even Mr Mennucci agrees. "Has there been an improvement? Yes. Will it last beyond next year's presidential election? That's the question I'm now asking." •
The Economist November 19th 2011
48 Europe
Charlemagne Step by step to disaster I
The German chancellor's actions fall short of her rhetoric about political union
ANGELA MERKEL, the German chancellor, did her best to re-
rt vive Germany's European spirit this week. At the congress of
her Christian Democratic Union (cnu) in Leipzig, she spoke of past wars and of modern Europe's role in building peace. She hailed her predecessors, Konrad Adenauer and Helmut Kohl, for uniting Europe and Germany. And she appealed to self-interest: Germans' prosperity depended on Europe's well-being. Now that Europe faced its "darkest hour since the second world war", it was time to push for more integration to save the euro. "The task of our generation is to complete economic and monetary union, and build political union in Europe, step by step." The rebirth of European federalism in Germany? Not quite. Mrs Merkel's rhetoric was oddly empty and detached from events across Europe. She ignored the call by France's Nicolas Sarkozy to turn the euro zone into the "federal" core of the European Union along with his divisive notion of breaking away from the ten non-euro members (many of them Germany's neighbours). She seemed oblivious to strident British demands for the repatriation of EU powers. On substance, Mrs Merkel's proposals were thin: automatic sanctions for fiscal rule-breakers (though the EU has just passed rules that come close to this) and new powers to take miscreants to the European Court of Justice (as if judges should be the arbiters of economic policy). The cnu also talks of allowing countries "voluntarily" to leave the euro. The chancellor's call for political union is at its most incongruous when set against German obstruction of almost all ideas for resolving the euro crisis. Issue joint Eurobonds? Nein, that would encourage debtors to fall back into their sinning ways. Urge the European Central Bank (ECB) to be lender of last resort to vulnerable sovereigns like Italy? Nein, that would risk inflation. Pool the reserves issued to each country by the IMF (special drawing rights) to boost the euro zone's underpowered rescue fund? Nein, that would amount to taking the Bundesbank's gold. Germany often argues its case in legal terms: such remedies would be illegal under the treaties or the German constitution. And yet Germany is pushing hard for a new treaty, against the wishes of most others. It wants only "limited" changes that might come into force by the end of next year. Its amendments merely tighten up fiscal rules and the monitoring of national economic
policies; it will not hear of moves to enhance fiscal integration, whether by expanding the mandate of the ECB or through Eurobonds, as the European Commission will outline next week. One well-placed Eurocrat sums up the sense of despair. "Germany is not the cause of the problem, but it is not part of the solution. It has a tremendous responsibility for escalating the crisis. It is impeding all avenues for a solution." Naturally Germany sees things differently. In abandoning the n-mark, Germany has already made the biggest sacrifice of all for European unity. It feels cheated by Greece, Italy and others that mismanaged their economies and now demand Germany's help. It has staked hundreds of billions in order to rescue collapsed economies. Austerity may be painful and unpopular. But for Germany, the only answer to Europe's ills is to reduce borrowing and debt. For such a cautious politician, Mrs Merkel has strayed deliberately close to the edge of catastrophe. One reason is the belief that only fear of bankruptcy will force countries to mend their ways. Italy and Greece, under new technocratic governments, may now be more serious about living within their means and reforming their faults. France, which has run budget deficits since 1974, is adopting austerity. Spain has introduced a constitutional debt brake. "Suddenly Europe is speaking German," boasts Volker Kauder, the cnu's parliamentary leader. This slow approach may also limit Germany's liability; step-by-step often means a piece-by-piece defence of taxpayers. Whenever she has been forced to yield ground, Mrs Merkel has justified the concession only as a necessity to avert disaster. But her strategy could yet prove self-defeating. Delay highlights the risks of debt default and a euro-zone break-up. Indecision has helped to spread the crisis from peripheral to core countries. This, perversely, has endangered the euro and perhaps even the EU itself. Mrs Merkel also risks exhausting her political credit with German voters who see no end to serial bail-outs. The prolonged crisis is draining belief in the euro and smothering therecovery. Above all, it is inexorably raising the costs of fixing it. Had today's rescue mechanism and firewalls been created from the outset, the crisis might not have spread so far. And were the ECB ready to provide unlimited liquidity to solvent states, as it does for banks, it might not have to buy so many dodgy bonds. Think big Rather than seek incremental improvements through another disruptive treaty negotiation, Mrs Merkel would do better to seek a grand bargain that fixes the euro convincingly. Like other central banks, the ECB should ensure the stability of the financial system. If this creates moral hazard, countries helped by the ECB could be placed under an official reform programme. Similarly, Germany could agree to introduce Eurobonds, but only for countries that meet exacting criteria. This could be used to create an incentive for reform, not a licence to misbehave. The Germans are right to argue that, if euro-zone countries want to save their currency, they must surrender much economic sovereignty. But the argument would be more persuasive if, in return, countries knew they would get more mutual protection. This could be a real step to political union. If it is not what Mrs Merkel wants-and it is unclear how many German voters would support it-then she might have to abandon her rhetoric and start planning how to manage a euro break-up instead. • Economist.comfblogsfcharlemagne
49
Also in this section 50 Tar sands and the environment 51 Natural gas in Oklahoma 51 America's highways in peril 52 Transparent government 52 Crowdfunding start-ups 54 David Beckham and American soccer 54 Circular infrastructure 55 Lexington: Newt Gingrich
For daily analysis and debate on America, visit Economist.comfunitedstates
Immigration
Crying wolf EL PASO
The Republicans are fretting about a disappearing problem
ASK any Republican presidential candi1'"\.date, and they will tell you without hesitation: America's border with Mexico is as leaky as a sieve. Mitt Romney thinks all 1,969 miles (3,169km) of it must be fenced. Michele Bachmann wants a double fence. Rick Perry was pilloried for suggesting that in some rugged areas, more "aviation assets in the ground" might be better than fencing. Bemused by such talk, Barack Obama joked earlier this year that Republicans would not be happy until there was a moat full of alligators to keep illegal immigrants at bay. A few months later Herman Cain said there should be an electrified fence, with a charge strong enough to kill. He later explained that he too was joking, but would never apologise for standing up for America. At the border itself, all this talk seems otherworldly. At a "processing centre" in El Paso, where the fingerprints of those caught crossing from Mexico illegally are taken and checked against various databases, there is precious little processing going on. Of the 20-odd workstations, only two are manned. The Border Patrol agents sitting at them chat idly to themselves. Just two detainees, their paperwork complete, sit timidly in the corner of an enormous holding cell. An adjacent cell for women stands empty. Next door, three more agents scan 25 screens relaying footage from video cameras along the border, looking for possible incursions. In some of the grainy pictures, scrubby and deserted patches of
creosote and mesquite sway in a gentle wind; in others, herons peck at fish in the shallow trickle of the Rio Grande. Asked whether anything is going on, an agent replies, "it's really quiet today." It's quiet most days in the El Paso sector, as the Border Patrol dubs this 268-mile slice of the border. Back in 1993, agents arrested 285,781 people trying to enter America illegally. In those days, the holding cells in the processing centre, explains Scott Hayes, a Border Patrol agent, were full to bursting. In 2010, however, agents picked up only 12,251 illegal immigrants in the area-a 96% decline. Much the same is true of the border as a whole: last year's tally, of 447,731 arrests, is barely a quarter that of the peak year, 2000, when 1,643,679 people were intercepted. This year's figure will be under
I
Borderlines Southern border
Illegal aliens apprehended, m
Border patrol agents, '000
1.8
18
1.5
15
1.2
12
0.9 0.6 0.3 0
0 199239495969798900001020304050607080910 Fiscal years ending September 30th
Source: US Border Patrol
350,ooo; a fifth of the peak. The drop in arrests reflects not laxer enforcement, but stronger. There are over 17,000 Border Patrol agents on the border with Mexico, a fivefold increase over 1993. They patrol in cars and all-terrain vehicles, on bicycles and horses, in boats, planes and helicopters. When there are no agents around, cameras, reconnaissance drones and three different types of sensors-seismic, magnetic and infra-red-keep tabs on things. A third of the border is fenced, and most of the rest is in areas so remote or rugged as to make fences pointless or impractical. Some parts of the fence are 17 feet high, with metal plates extending ten feet below ground to prevent tunnelling. Along a two-mile stretch of the border just outside El Paso, five Border Patrol vehicles wait, ready to give chase should anyone manage to get past the fence. In the centre of town, where it is easiest for people to dash across from Ciudad Juarez on the other side and disappear in the busy streets, the entire border is floodlit. Elsewhere, agents have access to mobile lighting units, as well as hand-held infra-red cameras akin to night-vision goggles. There is even a special unit to chase hapless migrants through the city's storm drains. If anyone makes it past all these obstacles, there are checkpoints at the bus station, at railroad yards and on the main roads out of town, complete with dogs to sniff out stowaways. And there is more manpower and clever kit on the way. The budget for border enforcement and immigration has quadrupled over the past decade; the Border Patrol is still hiring. Agents used to be so outnumbered by the crowds flooding across that they could not give chase to all of them. They would return to their posts after arresting one group to find the tracks of several others who had crossed while they were away, Mr Hayes says. Nowadays plenty of agents
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The Economist November 19th 2011
50 United States ~ respond
to each breach. Those caught are not simply sent back across the border as they used to be: 90% suffer some sort of punishment-typically a few weeks in jail. What is more, the government has quietly started handing out more temporary visas for Mexican farm workers and the like, making it easier to enter legally. America's weak economy, and the falling birth rate in Mexico further reduce the incentives to cross. The Border Patrol will never manage to apprehend every last suspect, says Mr Hayes, but it is not that far off. Yet as Mr Obama suggested, the Republicans who have been bleating about the border are far from satisfied. They have hauled officials charged with policing it before Congress to berate their efforts. In states such as Arizona and Alabama, they have passed laws cracking down on illegal immigrants, on the grounds that the federal government has abdicated responsibility in that area. They refuse to discuss policies aimed at resolving the status of the
nm-odd illegal immigrants already in the country until they deem the border secure. Mr Obama himself has succumbed to this mindset to a great extent. He has repeatedly requested increases in spending on Customs and Border Protection, which includes the Border Patrol, even as he has suggested cutting the budgets of other agencies. He has prolonged the deployment of some 1,200 National Guard troops along the border, to provide backup for the Border Patrol. The administration has boasted of deporting record numbers of illegal immigrants. Yet there are some who question the entire premise of attempting to seal the border. Historically, says Doug Massey of Princeton University, the number of illegal immigrants from Mexico correlates most closely with economic growth in America and with the number of visas handed out, not with increased policing of the border. The whole thing is a colossal waste of money, he complains. •
Tar sands and the environment
Keystone cop-out WASHINGTON, DC
Once again, Barack Obarna seems to have found a way to annoy everyone YOU can't think of anything nice to say, Iless,Fdon't say anything at all. That, more or seems to have been the philosophy behind the State Department's decision, after careful consideration of the pros and cons of a proposed oil pipeline from Canada to Texas, to make no decisions until after next year's presidential elections. Thus Barack Obama can face the voters without having passed judgment on a project that had prompted a showdown between the business lobby and environmentalists. Businesses and the unions like the proposed Keystone XL pipeline because it
would generate orders and jobs-20,000 of them, says TransCanada, the firm behind the scheme. Environmentalists dislike it because it would be filled with oil from Alberta's tar sands, the extraction of which involves copious emissions of greenhouse gases. To bolster their case, each side has marshalled secondary arguments: that the pipeline would enhance America's energy security by displacing imports from unfriendly places, in the case of the pros, and that it would imperil a huge aquifer in Nebraska, for the cons. In the end, it was concerns about the
aquifer that gave the State Department its out. Many Nebraskans, Democrats andRepublicans alike, were unhappy with the proposed route. The governor had called a special session of the legislature to pass a law giving the state the power to modify it. Moreover, the State Department's own inspector-general is investigating its choice of a firm that does business with TransCanada to conduct a review of the pipeline's environmental impact. All this, said the State Department, which has pondered the pipeline's merits since 2008, would necessitate an extra 15 months' review to consider alternative routes. That is tremendously convenient for Mr Obama. He has offended environmentalists during his time in office by failing to push through a cap-and-trade scheme for greenhouse gases, as he had promised on the campaign trail, and more recently by delaying new rules to reduce smog. Activists decided to make the pipeline a test of Mr Obama's verdancy. They recruited such celebrities as Daryl Hannah and the Dalai Lama to their cause, and earlier this month encircled the White House with sinister black tubing. Big green pressure groups threatened to withhold support from Mr Obama's re-election bid unless he fell in line. He appears to have calculated that unions would back him regardless, and that the business lobby was probably lost to him, whereas environmentalists would respond to appeasement. The greens' victory is already looking rather pyrrhic, however. Trans Canada this week signalled its willingness to alter the pipeline's route, saying it will work with the Nebraska legislature to that end. It also suggested it would press ahead with the last segment of the pipeline, from Oklahoma to Texas, which may not require the State Department's approval because it does not cross an international frontier. That would give oil from the tar sands much easier access to refineries in Texas, even if the rest of the project remains in limbo. And by defusing the concerns of conservationists in Nebraska, TransCanada is shrewdly undermining the coalition against the pipeline. The irony of all this is that the pipeline is not nearly as important as either its defenders or critics make it out to be. On the one hand, America already imports plenty of oil from the tar sands. The impact on the environment of pressing ahead (and on energy security, for that matter) would be marginal at best. On the other hand, the economic boost from building the pipeline would be marginal too. Most of the jobs it would create would be temporary ones, in construction. The states across which the pipeline will run already have the lowest unemployment rates in the nation. And none of them is likely to plump for Mr Obama in next year's election-making the local politics marginal too. •
The Economist November
United States 51
19th 2011
Natural gas in Oklahoma
We will frack you OKLAHOMA CITY
The rise of shale gas continues PRAIRIE wind whips the flags that fly A from a Chesapeake Energy rig near Kingfisher, Oklahoma, but the noise of the drill drowns out the weather. A clutch of roughnecks, smudged with dirt and tattoos, are coring the earth, bringing up a little slice from the shale formation below. If the tests prove promising, the well will be hydraulically fractured or "fracked". That process is transforming the natural-gas industry. Ten years ago virtually all of America's natural-gas production came from traditional gas or oil wells reached by vertical drills. But companies were learning how to drill horizontal wells and how to use high-pressure water to break up the shale formations to release the gas inside. Such techniques have become increasingly cost-effective as companies have got more practice. In 2009, according to the Energy Information Administration, about 14% of America's natural gas came from shale. By 2035 that is projected to rise to 46%. At the current rate of consumption, between shale and the conventional sources, the United States could have enough natural gas to last a century. Some assumptions about the energy mix are therefore being revisited, particularly in states with big shale formations, such as Oklahoma. On November 9th several hundred people gathered in Oklahoma City for the governor's energy conference. Natural gas was the star of the show. Mary Fallin, the governor, announced a joint pledge with John Hickenlooper, governor of Colorado, to stock their state fleets with cars powered by compressed natural gas (eNG), if America's carmakers will provide some more options. But she also called for more wind power, as a complement to fossil fuels, and greater energy efficiency, an area where Oklahoma lags behind most of the country. The ecumenical approach seemed to annoy some executives. "There's a little too much emphasis on wind here for my taste," said Aubrey McClendon, the CEO of Chesapeake. The argument from this quarter is that natural gas is a proven good, while wind and solar are unreliable and need lots of government handouts. But natural gas has sceptics too. Though cleaner than oil or coal, it does emit greenhouse gases when burned. Critics continue to worry that fracking fluid can get into aquifers via accidents, or that fracking simply uses too much water. A growing concern on the part of some is "seismicity".
Cleaner than it looks Several days before the governor's conference Oklahoma experienced a 5.6-magnitude earthquake-its strongest in nearly 6o years. At present, Ms Fallin said, there was no scientific evidence linking it to drilling or fracking. A pragmatic argument against the rage for gas is its subsidiary costs. In Kingfisher a petrol station was selling CNG at $L39 a gallon, compared with $3.29 for regular
fuel. But the CNG refuelling system at the side of the station would cost several hundred thousand dollars, and CNG vehicles currently sell for several thousand dollars more than models with conventional engines. Finally, though the reserves discovered now may last for decades, shale gas is ultimately an exhaustible resource. In energy terms, America has not yet found the silver bullet. •
American highways
The efficiency conundrum ATLANTA
A combination ofless driving and more fuel-efficient vehicles is imperilling America's highway system AMERICANS pay a federal fuel tax of 18-4 .t"\.cents per gallon. That amount was set in 1993, when the average new passenger car on American roads got 28-4 miles per gallon (mpg), and the best-selling American car got18mpg in the city and 27 on highways. In 2010 the average new passenger car got 33.7mpg. The best-selling car got 22mpg in the city and 33 on highways. And just as cars are growing more fuelefficient, Americans are driving less. In 2010 they drove just under three trillion
I
Leaner and greener New passenger cars, average miles per gallon 36 34 32 30 28 26 1'
199929394959697989!!0000020304050607080910 So urce: Burea u ofTran sportation Statistics
miles-less than they did in 2006. While better fuel-efficiency is good news for Americans' wallets and less driving good for the country's air, for its highways and mass-transit systems, it is something of a disaster. That is because federal funds, mostly derived from fuel-tax revenue, account for 22% of all highway funding and 17% of mass-transit funding nationally (with the rest coming from state and local governments). Fuel taxes go into the Highway Trust Fund (HTF), which was created in 1956 to finance highway construction nationally. The HTF still spends most of its funds on highway and bridge maintenance and construction, but in 1982 Congress created a Mass Transit account within the HTF. Today 15-44 of every 18-4 cents in fuel-tax per gallon funds highways, while 2.86 funds mass transit and 0.1 cents funds clean-up of leaking underground storage tanks. And the HTF receives some revenue from taxes on truck tyres, diesel, and other driving-related sources, but most of its money comes from petrol taxes. As the HTF pays for long-term, largescale construction projects, it has never been required to have the full funding a
~~
The Economist November 19th 2011
52 United States ~ project
will require on hand when that project is authorised; consequently, it has long paid out more than it took in each year. As long as Americans drove more each year, that arrangement worked, and for much of the HTF's existence, that is exactly what happened. America's workforce grew. Its workers abandoned tightknit cities for ever more far-flung suburbs, requiring longer commutes. But as that trend has slowed, the HTF has suffered: monies paid into the HTF fell by around one-seventh from 2007 to 2010. From 2005 to 2009 every state received more from the fund than they paid in. Between 2008 and 2010 Congress transferred
$34.5 billion in general revenues into the HTF-the first time it had ever received such an infusion. Earlier this year the Congressional Budget Office forecast that the HTF will be unable to fund highway maintenance by 2013. That money will be difficult to find elsewhere. Around half of all surface-transportation funding and 20% of mass-transit funding comes from the states, many of which face budgetary woes of their own. Both Barack Obama and his transportation secretary, Ray LaHood, oppose raising the gas tax; a tax on miles travelled is probably a political impossibility. There has been some movement in
Congress-in November a Senate committee approved legislation maintaining highway funding at its current levels for two years, while House Republicans plan to introduce a six-year transportation bill this month-but it is little and late. America's transportation infrastructure can ill afford to wait. The American Society of Civil Engineers estimated in 2009 that 36% of America's major urban highways are congested, costing $78.2 billion each year in wasted time and fuel costs. According to Transportation for America, an advocacy group, one in nine highway bridges are "structurally deficient"-a quality they seem to share with America's Congress. •
Transparent government
Crowdfunding
Sunshine or colonoscopy?
Many scrappy returns
ALBUQUERQUE
Disclosure is all the rage in local government
ESIDENTS of Albuquerque, New Mexico, may, if they so desire, log on to their city's website to discover that their mayor, Richard Berry, charged $26.75 on his city-issued credit card for AT&T service in September, and that he has earned $91,871 so far this year. If this sounds fascinating, why stop there? Daniel Marzec, an intern, made $5,132. Indeed, as of last month, the name and salary of each of the more than 6,ooo city employees is posted online. The city's vendor contracts, expense reports and various other things have already been there for about a year. Benefits packages are next, says Mr Berry. He is very proud of this transparency. Albuquerque's first Republican mayor in three decades, Mr Berry is, at 49, an upand-coming sort. A self-professed wonk ("I will put GPS systems into garbage trucks for better routing"), he based his 2009 campaign on clean government, in a city and state that "was not known for its transparency and accountability", as he puts it. Now he would like to be seen as a leader of a national movement. In a sense he is. Michael Barnhart, president of Sunshine Review, a wilddriven organisation that grades state and local governments for their transparency, says that Albuquerque is "certainly among the best" cities in the country. Sunshine gives it an A+, putting it in the company of cities like San Diego and (surprisingly) Chicago. Technology has certainly made putting arcane data online easier in recent years. But the real push for transparency has come from the scandals that often breed in opaque government. The most notorious example, uncovered last year, is Bell, a tiny blue-collar city near Los Angeles, whose leaders paid themselves
R
A new plan to allow ordinary investors to bet on start-ups
N NOVEMBER 3rd, surprisingly, a bill was passed by the House of Representatives with strong bipartisan support. The Entrepreneur Access to Capital Act aims to make it easier for small businesses to raise money through "crowdfunding". For the first time ordinary investors would be allowed to put up to $10,000 in small businesses that are not registered with the Securities and Exchange Commission, enabling ]oe Schmo to win big if the company becomes the next Google. Some non-profits and small businesses already raise money through crowdfunding. Websites allow entrepreneurs to post information about their business plan and to offer perks, such as T-shirts, in return for "donations"; but current securities laws allow only "accredited investors", rich folk supposedly aware of risks of the venture, to buy a financial stake in the business. In spite of this crowdfunding has thrived. Slava Rubin of In die GoGo, one of the first crowdfunding websites to launch, three years ago, reckons around 250 competitors have sprung up. Brian Lamb of Satarii, which sells a device that helps people film themselves with their iPods, raised around $25,000 through IndieGoGo. Their successful online campaign helped attract a further $65o,ooo from sophisticated "angel" investors. But Mr Lamb thinks they would have been able to raise even more if average investors had been allowed a stake in the firm. Start-ups are especially needy now, since many banks are loth to lend even to well-established companies. Optimists, including the White House, which supports the bill, say that if small businesses get bet-
O
exorbitant amounts and, in effect, used the city coffers as personal banks. We "fear that there are dozens or hundreds of Bells around America," says Mr Barnhart. Hence the need to let sunshine penetrate the dark bureaucracies spending taxpayers' money. Yes, most of the data are boring, he admits. But journalists and think-tanks should have them, to browse and crunch and snoop. Freedom of information laws already do allow the press and the public to demand specific information. But the process is too cumbersome to hold governments to account. There are, naturally, associated risks. Mr Berry was concerned at first about identity theft, but has seen no cases of it yet. Yes, a few employees may have been embarrassed, and some may not have enjoyed finding out that their dull cubicle mate earns more than they do. In the talent-hunting private sector, radical transparency is too much to ask. But, says Mr Berry, this is government, after all.
~~
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The Economist November
54 United States ~
ter access to funding they can help create jobs. Start-ups in America already add around 3m jobs a year, according to the Kauffman Foundation, a think-tank. But making it easier for start-ups to tap ordinary folk for money online could encourage fraudsters, too. "I am terrified," says Heath Abshure, the Arkansas securities commissioner, who warns about "the wild, wild West". Jack Herstein, president of the North American Securities Administrators Association, says the only jobs created will be "more jobs for securities investigators". The current bill does not require start-ups to give detailed information about their business plan, and since stakes in businesses are illiquid, investors will not be able easily to get their cash back. But conventional investing is not exactly safe either. It is quite legal, as one crowdfunding supporter says, "to go to Vegas and lose all your money". Perhaps this isn't the best mantra, however, for those who want to ease America's securities laws. •
American soccer
The Becks effect NEW YORK
Major League Soccer's big investment seems to have paid off F ALL goes to plan, on November 2oth ILeague David Beckham will lift the Major Soccer Cup and provide a storybook ending to his American adventure. The English soccer star has yet to deliver much on-field success, but LA Galaxy, the team that he joined on a record-breaking salary (for America) in 2007, has been dominant this year and enters the final as hot favourite. Victory will add to the clamour for him to sign a new deal, but the smart money is on Mr Beckham, 36, playing out what is left of his career back in Europe, perhaps for the Qatari-bankrolled Paris Saint-Germain. When Major League Soccer (MLS) recruited Mr Beckham, it was more interested in what he could do off the field. Unlike any soccer player before him, the former Manchester United and Real Madrid midfielder had figured out how to commercialise his fame through a range of endorsements. Aspiring footballers might want to "bend it like Beckham", but America's aspiring league wanted to brand it like him. The cost of doing so, some $250m, was spread evenly among the then 14 MLS teams (there are now 18 of them) rather than picked up just by LA Galaxy because the goal was to boost the standing in America of professional soccer as a whole, previously a poor relation to the country's indigenous sports.
When he arrived, Timothy Leiweke of Anschutz Entertainment Group, which owns LA Galaxy, predicted that Mr Beckham would have "a greater impact on soccer in America than any athlete has ever had on a sport globally". He has not done that. Yet MLS seems pleased with its investment, and not just because of the 6oo,ooo shirts that Mr Beckham shifted in his first year alone or the record average attendances (7% up on last season) that the league has enjoyed this year. "David has been a huge catalyst in helping soccer make the paradigm shift to being cool," says Will Chang, the owner of DC United, MLs's most successful team. Where once the best athletes would switch from soccer to other sports, such as American football, as they got older, due to a combination of the better prospects for enrichment and of dates with cheerleaders, now they say "David is making as much as Tom Brady" (an American football star), "he has a beautiful wife like Brady, and is photographed by the paparazzi, so they are more likely to keep playing soccer," says Mr Chang. Television viewing figures are rising only slowly from low levels, but Mr Beckham's star power has helped legitimise the league, encouraging other stars to follow (such as Thierry Henry of France) and leading to an influx of investment in new clubs in Seattle, Portland and, in Canada, Toronto and Vancouver. Certainly, this is a positive story at a time when some other American sports are flailing (the National Basketball Association is on strike, college football is mired in a paedophile scandal). If professional soccer really does take off, Mr Beckham may reap the benefit, assuming he takes up the option he negotiated in 2007 to buy an MLS team of his own. •
Thierry and friend
19th 2011
Circular infrastructure
What goes around CARMEL, INDIANA
Learning to yield
"I
MEAN, it's round, how difficult can it be?" asks the front-desk attendant at the Renaissance Hotel in Carmel, exasperated, when asked whether visitors struggle to navigate the town's many roundabouts. Carmel, just north of Indianapolis, has 70 of them-more than any other city in America. But while locals love them for their speed and efficiency, visitors are apprehensive. One recent out-of-towner was so terrified by the strange formations that he preferred to travel by taxi. The mayor, Jim Brainard, built the first roundabout in Carmel in1997 after seeing them in Britain. Instead of a fourway intersection with traffic lights, a circular bit of road appeared. It was so successful that today Carmel is the roundabout capital of America, and the mayor plans to rip out all but one of his remaining 30 traffic lights. The modern, safe roundabout first entered service in Britain back in 1966, after it adopted a rule that at all circular intersections traffic entering had to give way, or "yield", to circulating traffic. This innovation, along with the sloping curves of the entry and exit of a roundabout (which slow traffic down), created a design that is now found worldwide. Though tens of thousands of roundabouts exist across Europe, America still has only 3,000 of them. One of their main attractions, says Mayor Brainard, is safety. The Insurance Institute for Highway Safety, an independent research group, estimates that converting intersections with traffic lights to roundabouts reduces all crashes by 37% and crashes that involve an injury by 75%. At traffic lights the most common accidents are faster, right-angled collisions. These crashes are eliminated with roundabouts because vehicles travel more slowly and in the same direction. The most common accident is a sideswipe, generally no more than a cosmetic annoyance. What locals like, though, is that it is on average far quicker to traverse a series of roundabouts than a similar number of stop lights. Indeed, one national study of ten intersections that could have been turned into roundabouts found that vehicle delays would have been reduced by 62-74% (nationally saving 325,000 hours of motorists' time annually). Moreover, because fewer vehicles had to wait for traffic lights, 235,000 gallons of fuel could have been saved.
The Economist November 19th 2011
United States 55
Lexington The trouble with Newt I
After Mr Dopey and Mr (too) Friendly, Mr Grumpy gets his turn
AN something inevitable also be highly improbable? That is the question raised by the arrival this week of Newt Gingrich C at the front of the pack in the race for the Republican presidential nomination. It was inevitable, after the successive implosions of Rick Perry and Herman Cain, that Republican voters desperate to nominate anyone but Mitt Romney would cast their eyes down the list and alight on one of the last remaining contenders. And what, after all, is so very wrong with Mr Gingrich? Unlike Mr Cain, the man has been a serious politician-Speaker of the House, no less, and architect of the Republican resurgence of the mid-1990s. Unlike Mr Perry, Mr Gingrich does not go blank in the middle of television debates. If anything he has during the recent debates been a bit of a star, albeit a dark one, sneering contemptuously at the "absurd" gotcha questions posed by the journalists. And although nobody can accuse him of wearing his learning lightly, he does at least have a goodly amount of it, darting apparently effortlessly in discussion from the minutiae of federal social policy to the grand sweep of world history. And yet the rise of Mr Gingrich is also improbable. It is improbable, first, in that his campaign got off to such a terrible start that his resurrection at this late stage, just in time for the Iowa caucuses in January, is a minor psephological miracle. In June he suffered what should have been a devastating blow when much of his campaign staff resigned en masse, allegedly in protest at his decision to cruise the Greek islands with his third wife, Callista, instead of raising money and pressing the flesh in Iowa and New Hampshire. He put a brave face on this setback, claiming that he knew how to campaign in a new way, by generating ideas and raising big issues in the televised debates. Unlikely as it seemed at the time, this strategy has now been vindicated: chapeau! There is, however, another way in which Mr Gingrich's high standing in the polls is improbable. A whole regiment of skeletons has taken up residence in his closet. Once these rattle back into view, as they surely will, many of the Newtly enamoured Republican primary voters will surely drop their search for an alternative and reconcile themselves to the inevitable nomination of the less exciting but more electable Mr Romney. A good place to start, since it is what did for Mr Cain, is character. The likeable former pizza mogul faded in the polls when it
emerged that a succession of women had accused him of sexual harassment. No charge that grave is laid against the far less likeable Mr Gingrich. The former speaker is, however, a serial adulterer, who divorced his first wife when she was recovering from cancer, when he was already bedding Marianne, the mistress who became his second wife but was ditched in her turn for Callista, his present one. At the same time as he was conducting a secret affair of his own he was pressing for the impeachment of Bill Clinton over the Monica Lewinsky affair. Should marital cheating be a disqualification? Not in the eyes of this column. But voters in socially conservative and early-voting Iowa and South Carolina may think so. It is bad luck for Mr Gingrich that one of his former wives has been so willing to disparage his fitness for the presidency. In an Esquire profile last year, Marianne said her former husband "was impressed easily by position, status, money" and believed "that what he says in public and how he lives don't have to be connected". Even after allowing for the bitterness of a woman scorned, and for the forgiving propensity of conservative Christians, this is not a testimonial that will help at the polls. He will also have to explain again the $300,000 penalty the House of Representatives made him pay in 1997 for violating tax rules, the first time it had ever disciplined a Speaker for ethical wrongdoing. A new controversy has now flared over $1.6m or so he has earned in fees from Freddie Mac, the government-supported mortgage giant which has since been blamed for pumping up the housing market and helping to cause the financial collapse of 2008. Mr Gingrich claimed in a recent debate that he had been taken on as an "historian" and had warned the organisation that the housing market was a bubble and that its business model was "insane". But a Bloomberg story this week avers that officials who worked at Freddie Mac at the time deny having received any such advice. Isaiah versus the management consultant Few people question Mr Gingrich's energy or originality. He was the dynamo behind the Republicans' Contract with America in 1994 and remains a pyrotechnician of ideas: a "21st-century" sequel to the Contract is under construction. The worry is that he lacks the wisdom to distinguish between his occasional good idea and the dozens of duff and sometimes dangerous ones. He offers an odd mixture of pragmatism (he once favoured compulsory health insurance) and demagoguery. It is as if he cannot decide whether he is Isaiah or a management consultant. Over the past year the demagoguery has got the upper hand. Mr Gingrich prophesies the end of "America as we know it" under a president running a "corrupt, Chicago-style political machine" from the White House. In the summer of 2010 he reacted to plans to build a mosque in lower Manhattan by saying that American Muslims should not be allowed to do so until Saudi Arabia permitted the building of churches and synagogues. He claims that Islamic sharia law is taking over the American legal system by stealth and he wants to abolish the Court of Appeals for the Ninth Circuit because its judges are too liberal. That such a flawed and divisive politician has come to be seen as the shrewd elder statesman of the Republican presidential field is testimony only to the paucity of the alternatives. Unless they are feeling particularly suicidal, the Republicans will reject him, just as they have rejected Mr Perry and Mr Cain. • Economist.comfblogsflexington
56 Also in this section 57 Peruvian mining protests 57 Human rights in Brazil 58 Aborigines in Canadian politics
For daily analysis and debate on the Americas, visit Economist.comfamericas
Mexican politics
Left in the lurch MEXICO CITY
Mexico's divided leftist party has chosen a veteran radical as its presidential candidate. Will he pull it out of its hole, or dig it in deeper? N A quiet street in central Mexico City 0 is a bright-yellow building claiming to be the headquarters of the "Legitimate Government of Mexico". This curious outfit is run by Andres Manuel Lopez Obrador, a charismatic leftist who narrowly lost the presidential election of 2006, which he believes was fraudulent. In the weeks after the election his followers brought the capital to a standstill with a protest that inspired millions of Mexicans and infuriated millions more. Mr Lopez Obrador, known to friends and foes alike as AMLO, is still a polarising figure. His party's decision on November 15th to select him again as its candidate in next year's presidential race added uncertainty to the contest and to the party's own future. Mr Lopez Obrador began the 2006 campaign as the favourite. This time, the Party of the Democratic Revolution (PRD), under whose banner he will run again, languishes a distant third. The Institutional Revolutionary Party (PRI), which ruled Mexico for 71 years until 2000, leads the pack and looks set to return under the slick candidacy of Enrique Peiia Nieto, a former governor of Mexico's most populous state. The ruling centre-right National Action Party (PAN) of Felipe Calderon is clinging on to second place, buffeted by soaring crime and a subdued economy. The outlook for the left under Mr Lopez 0 brador is grim. Granted, he is one of Mex-
ico's most famous faces: some 96% of the population knows his name, according to Mitofsky, a pollster. He still fills a plaza as few others can. But half his fame is infamy: he is the only major presidential candidate with a negative approval rating. Though he has moderated his economic views and is as conservative as most Mexicans on social issues like abortion and gay marriage, his radical history and the 2006 debacle mean that "he has a terrible image problem" among moderates, says Joy Langston of CIDE, a Mexico City university. "There are voters who would consider the left as an option, but not with AMLO." For that reason, many PRD leaders preferred Marcelo Ebrard, the moderate mayor of Mexico City. But the party's polls suggested that Mr Lopez Obrador had slightly more support from voters, and so Mr Ebrard-who at 52 is young enough to bide his time-stood aside. Rival parties are privately relieved. The big question now, says Marco Cancino of CIDAC, a Mexico City think-tank, is which party will attract liberals put off by Mr Lopez Obrador's "noisy left". The ideologically amorphous PRI will swoop on the centre-left territory that Mr Ebrard would have occupied, Mr Cancino predicts. The same party may prove popular among the over 10m young Mexicans able to vote for the first time, who are too young to remember the corruption and stagnation of the PRI era and
have borne the brunt of the violence and unemployment that have dogged the PAN. All parties face some obstacles. Mr Peiia Nieto has so far seemed impervious to attack. But the president of the PRI, Humberto Moreira, is embroiled in an accounting scandal in Coahuila, where he was governor until January. With a federal investigation under way into millions of dollars in unexplained debts, it is surprising that Mr Moreira still has his job. The PAN still lacks a firm candidate, though Josefina Vazquez Mota, a former education secretary, is emerging as the favourite. The drug war, Mr Calderon's signature policy, continues to be costly. On November nth the government suffered another setback when Francisco Blake Mora, the interior minister, died in a helicopter crash along with four other officials and three crew members. Early tests found nothing suspicious in the wreckage. Whatever happens in the presidential race, the PRD has deeper concerns. The number of states it controls is dwindling: last year it lost Zacatecas, and on Novemben3th it lost Michoacan, coming third behind the PRI and the PAN (which fielded the president's sister as its candidate). Not including a handful of states where it has a hand in a coalition, it now controls only two of Mexico's 31 states, plus the Federal District, which makes up the centre of Mexico City. Polls show that it could lose its grip on the capital next year, when Mr Ebrard's term expires. Whereas the PRI is planning to field Beatriz Paredes, a wellknown figure with close ties to her party's machine in the capital, the PRD has struggled to unite behind a strong candidate. It is likely that, in return for bowing out of the presidential race, Mr Ebrard has secured a promise from Mr Lopez Obrador to back his choice of successor in the capital. But it
~~
The Economist November 19th 2011 ~ will be
an uncomfortably close race. Mexico's electoral rules mean that losing territory hurts parties' capacity to compete in future, because party funding and television airtime in presidential campaigns are allocated mainly according to votes in recent general elections. Doing well in legislative contests requires recruiting and campaigning for hundreds of candidates. Losing governors means parties lose coat-tail effects and the opportunity to exploit state resources for congressional campaigns, which in turn makes it harder to gain financing and airtime. "If you don't have many governors, you're in trouble. The PRD is in serious trouble, and will be in even worse shape if it loses the Federal District," says Ms Langston. For Mexico's left, there is far more at stake next year than just the presidency. • Protests in Peru
Honeymoon over CAJAMARCA
Ollanta Humala struggles to contain opposition to mining projects
URING his successful presidential campaign this year, Ollanta Humala D promised to walk the finest line in Peruvian politics: maintaining the flow of mining and gas investment while placating the social movements that oppose such industries. Nearly four months into his term, the new president is finding that keeping both parties happy at once may be impossible. Mr Humala has tried to appease his leftist base. He has set up a ministry of "development and social inclusion", required that native groups be consulted on extractive projects and raised mining taxes. In early October his government cancelled a hearing on an environmental study for an $Boom expansion of the Southern Copper Corporation's Toquepala mine, forcing the firm to redraft its plans. And he backed the overturning of a law promoting hydroelectric plants on northern jungle rivers. Nonetheless, the highland department of Cajamarca is getting restless. It is the place where, in 1532, the Spanish found the last Inca emperor and killed him after he had paid a ransom of gold and silver. Today it houses Yanacocha, the world's second-biggest gold mine. Its owner, Minera Yanacocha, is controlled by Newmont Mining, an American firm. Peru's Buenaventura and the World Bank's International Finance Corporation also have stakes. In October protesters blocked the road to Yanacocha and burned vehicles, closing the mine for four days. They demanded that the firm set up a $74m "social fund". Jorge Vasquez, the mayor of nearby La En-
The Americas 57
caiiada, accused the company of having a "nefarious" record, though the two sides later agreed to co-operate. Minera Yanacocha has also faced unrest in Celendin, to the east. In July Newmont announced it would proceed with Minas Conga, a $4.8 billion gold and copper project that will be Peru's biggest ever mining investment. It is due to open in 2015, and would pay $3 billion in taxes over 19 years. Half would stay in Cajamarca. Yet green groups and local authorities are unimpressed. Milton Sanchez, who leads an anti-Conga coalition, says the project would devastate a watershed that drains into the Maraiion river, Peru's second-longest. On November 13th the regional and local governments requested a temporary halt to the project. Gregorio Santos, Cajamarca's president, wants the government to review the environmental study for Conga it approved a year earlier, under the business-friendly Alan Garcia. He says it did not properly consult residents or include thorough water studies. Minera Yanacocha counters that the 32 communities closest to the project supported it. The firm also cites five studies by foreign consultants, which show that the project would increase the water available for Conga's neighbours once a series of reservoirs are built. Progress on Conga would cease if the study's approval is revoked. The native-consultation law could also prove perilous for Mr Humala. By January the government must decide which groups should be consulted, and how recommendations will be made. Formally, the process only applies to indigenous groups, prompting squabbling over who can use that label. "The situation in Cajamarca is heating up and could boil over if people feel excluded," says Mr Santos. Peru's economy grew rapidly under Mr Humala's two predecessors, Mr Garcia and Alejandro Toledo. Yet both left office with poor approval ratings. Mr Humala can take solace in the $so billion of resource investment expected by 2016. Yet the more relevant number for his political future might be the 217 protest movements now on the government's register. •
.....
100 km
-J
Human rights in Brazil
It isn't even past SAO PAULO
Better late than never, Brazil is re-examining the legacy of dictatorship
ILMA ROUSSEFF was tortured; Luiz D Inacio Lula da Silva was jailed; Fernando Henrique Cardoso was forced into exile. Brazil's president and her two most recent predecessors all suffered under the country's 1964-85 military regime. Yet only now is the country planning a closer look at the crimes committed in those years. By November 23rd Ms Rousseff is expected to sign a law setting up a truth commission, passed by Congress in late October. Its seven members will have two years to examine murder, torture and "disappearances" perpetrated by both the government and the resistance between 1946 and 1988. A law on freedom of information will strengthen this shift towards openness. First proposed in 2003, it was given a shove in September, when Ms Rousseff agreed to lead an international "open government initiative" with Barack Obama. Brazil's constitution is strong on the right to information. But it had no legislation to flesh out the details, making winkling out facts a matter of persistence and lucie Documents can remain secret indefinitely. In October Congress passed laws to make the constitution's promise a reality. Soon the secrecy of sensitive documents will be limited to 25 years, renewable once. Those to do with human-rights abuses will have to be released immediately, and most material will have to be handed over within 30 days of a request, barring a valid reason for continued secrecy. Compared with its neighbours, Brazil has been slow to revisit its dictatorship's crimes. Argentina started prosecuting soldiers for their misdeeds shortly after theregime collapsed in 1983; Alfredo Astiz, sentenced to life on October 26th for torture and murders, is only the most recent culprit. (It has not reopened cases of left-wing guerrilla terrorism, however.) Chile's supreme court decided in 2004 that "disappearances" were ineligible for amnesty. On October 27th the Uruguayan parliament overturned an amnesty law, despite two referendums in favour of keeping it. Brazil, by contrast, has kept an amnesty law passed in 1979. It was intended to allow exiled dissidents to return without fear of prosecution, but later deemed to protect criminals within the regime too. The Supreme Court upheld that interpretation earlier this year, even though the InterAmerican Court on Human Rights has found it violates Brazil's treaty obligations. The truth commission's work will there- ~~
58 The Americas ~
fore not lead to prosecutions. "There can be no justice when no one is held responsible," says Pedro Taques, a senator. But others want to hear the truth even if nobody is punished. Those who tortured and murdered will "still die in bed, but this way, at least they'll be known for who they are," says Matias Spektor of the Funda~ao Getulio Vargas (FGV), a research institute. One reason Brazil is doing things differently, says Eduardo Gonzcilez of the International Centre for Transitional Justice, a lobby in New York, is that its transition to democracy was slow and controlled. The regime did not collapse after a disastrous war as Argentina's did, or face threats of prosecution abroad like Chile's Augusto Pinochet. It is remembered for overseeing economic growth. And although Brazil's generals killed an estimated 400 people, that compares with 2,ooo-3,000 in Chile and 13,000-30,ooo in Argentina. Glenda Mezarobba of the University of Campinas attributes Brazil's refusal to revisit its amnesty to the law's roots: it was first passed to protect those who fought the regime, not the generals themselves. Others diagnose a Brazilian tendency to collective amnesia. Mauricio Santoro, also of the FGV, contrasts Brazil, once famously called "the country of the future", with backward-looking Argentina, "obsessed with the golden era a hundred years ago." One consequence of leaving Brazil's history unexamined is that repression continues today, though violence is now the business of the police rather than the army. "It's not by chance that the police replicate a pattern of human-rights violations like that in a military dictatorship," says Atila Roque, Amnesty International's Brazil director. Brazil's security apparatus was built by the generals and has barely been reformed. Each year Rio de Janeiro state police alone kill around 1,000 civilians, most of them poor and black. They are often accused of resisting police action-even those who are shot in the back of the head or show signs of beatings. Many police officers take part in protection rackets and kill those who get in their way. Patricia Acioli, a judge who had sentenced around 6o officers belonging to death squads and militia groups, was herself shot dead on August nth. A senior police officer has been arrested on suspicion of ordering the attack. Torture by the police is rarely punished and often applauded as the only alternative to anarchy. On November 12th Brazilians cheered as security forces moved into Rocinha, a Rio de Janeiro slum previously run by gangs. Some audiences stand and clap when the special-forces policeman and torturer in the popular "Elite Force" films gets to work on his victims. Humanrights activists hope the truth commission will change such views. "Some things happen if and when a society is ready," says Mr Roque. "I think we are ready." •
The Economist November 19th 2011
Aborigines in Canadian politics
Don't get mad, get organised OTTAWA
Long excluded from national debates, native groups want their voices heard HEN Romeo Saganash, a member of the Cree First Nation in northern W Quebec, decided to run for Parliament as a member of the New Democratic Party (NDP) in last May's federal election, the incumbent expected to do even better than usual because of popular resistance to an aboriginal candidate. The timing of the vote also hurt Mr Saganash, since it fell during goose-hunting season, meaning many Cree were off in the bush. Yet Mr Saganash, who was already the first Cree to have become a lawyer in Quebec, won easily. That made him the first aborigine to represent a sprawling riding that covers the northern half of the province. He has since added another first: first aborigine to run for the leadership of a national Canadian political party. The NDP will vote in March. Mr Saganash exemplifies the increasing involvement in politics of aboriginal Canadians-who, counting First Nations, Inuit and mixed-ancestry Metis, make up almost 4% of the population. The groups have historically been under-represented, sometimes by choice but often because of prejudice. First Nations living on a reserve could not vote in federal elections until 1960. Just 31 of the 4,201 MPS in Canadian history have been aboriginal. This seems to be changing. A record seven of the House of Commons' 308 MPs are aborigines. In the Northwest Territories, where the Dene Nation's chief encouraged members to run for the Legislative Assembly this year, 25 of the 47 candidates were aboriginal. And on November 7th aborigi-
nes won five of the 58 seats in the Saskatchewan legislature. "Aboriginal peoples realise that decisions regarding their future, their territories, their resources are being made in Quebec City, Montreal, Ottawa, and perhaps in Shanghai and New York," says Mr Saganash. "So they understand they have to participate in the democratic institutions of this country." The increase in aboriginal involvement stems mainly from Canada's rapid economic growth. As mining, forestry and hydroelectric companies push deeper into the wilderness, they are disturbing traditional lifestyles more than ever. On November 7th nine First Nations in northern Ontario asked a federal court to stop development in the "ring of fire", a lucrative chromite deposit, until a more comprehensive environmental assessment is conducted. Now that the United States has delayed a decision on the Keystone XL oil pipeline (see page so), Canada's government wants to build an alternative pipeline to carry crude oil from Alberta's tar sands to the Pacific coast and then to Asia. But First Nations who claim territory on the route vow to oppose it. Facing such resistance, mining firms have been signing deals with First Nations-117 so far-to give them a greater say and share in resource projects. Moreover, as the rest of Canada gets wealthier, aborigines are falling further behind. First Nations and Inuit have much worse housing, health care and education than the national average: their tuberculosis rate is 28 times the rate for Canadianborn non-aborigines, and infant mortality is three times as high. Their incarceration rate is seven times the national average. In the past poverty and poor schooling have depressed aborigines' political activity. But a study of their turnout at federal elections in three western provinces commissioned by the national electoral agency found that dissatisfaction with the government is now mobilising the aboriginal youth vote. Not enough historical data have been collected on aborigines' political activity to determine whether the recent uptick is statistically significant. Some First Nations, such as the Mohawks of Kahnawake near Montreal, still want to deal with Ottawa on a government-to-government basis, as they did when signing sovereign treaties with early European arrivals. And greater participation will not lead to vastly different policies any time soon. Even though the aboriginal population grew six times faster than the rate for the rest of the country from 1996 to 2006, they will remain a small minority for the foreseeable future. Yet the more active aborigines get, the more likely it is that one will become a leader capable of moving their issues up the agenda. Mr Saganash has his sights set on the biggest prize. First he has to take over the NDP. But his goal is to be Canada's first aboriginal prime minister. •
59 Also in this section 60 Left v right in Israel's courts 60 Arab freedom of expression 61 Liberia's sorry election 62 South Africa's unbowed populist 62 Sudan north v south, again
For daily analysis and debate on the Middle East and Africa, visit Economist.comfworldfmiddle-east-africa
Syria
The tide turns against Bashar Assad CAIRO AND DAMASCUS
As the violence inside Syria intensifies, governments in the region and beyond are turning against an increasingly beleaguered president HE city of Horns, the third-biggest in Syria, is close to civil war. Sitting astride T a sectarian fault-line between the city's mainly Sunni centre and an area to the north-west dominated by members of the Alawite faith, a minority Muslim sect whose followers form the core of Bashar Assad's regime, it is now the hub of the conflict. In the past fortnight, more than 100 people in the city are reported to have been killed. The security forces are struggling to regain control. Between Horns and Idlib in the northwest, Mr Assad's men, despite an increasing proliferation of checkpoints, are facing tougher opposition than ever before. After months of mainly peaceful protests, Hama, Syria's fourth city, to the north of Homs, is becoming more violent too. Across the country, the scale of bloodshed has increased, as a growing number of defectors from the army, along with civilians who have been acquiring weapons in greater numbers, have joined the fray. On Novemben6th army defectors attacked an intelligence base in a Damascus suburb. The nationwide death rate in the past fortnight may, say human-rights monitors, have doubled, with nearly 400 people perishing so far this month. Thanks to military conscription, most male Syrians have a basic knowledge of firearms. Many young men who were in university a few months ago are now toting guns. "The number of defectors involved is unclear," says an activist in
Horns. "But we're seeing street fighting." On the eastern side of the country, in Deir ez-Zor, the regime is "lucky if it goes a day without losing a handful of security men," says a resident. In Deraa, on Syria's southern rim, where the revolt first erupted in March, clashes between loyal soldiers and defectors have become common. "We don't want a war," says a local sheikh. "But it seems inevitable." Though central Damascus and Aleppo, the second city, have yet to witness vialence on the scale of Horns and Hama, dissent is growing there too. Most notably, big businessmen who had hitherto sided with the regime have been taking their assets abroad and vacillating in their support for Mr Assad, whose family have long cultivated an effective culture of crony capitalism. Even among Christians and Alawites,
I
whose communities each make up around a tenth of the populace and who have feared Mr Assad's replacement by a Sunni and perhaps Islamist regime, loyalty to him may be less assured than before. The government still manages to orchestrate big rallies in support of the regime in Damascus and Aleppo, but many of those who attend do so under duress; universities and public institutions are closed to ensure that people have no excuse to stay away. Several people who broke off into anti-regime displays were shot dead on Novemben3th. Even as Mr Assad struggles to contain the waves of protest, the diplomatic tide is running sharply against him. On November 2nd he accepted a set of proposals laid out by the 22-country Arab League, including a promise to withdraw his security forces from the cities, to release political prisoners (said to number between 10,000 and 2o,ooo), to let in some sao diplomatic monitors along with the foreign media that had hitherto been barred, and to engage the opposition in talks that would lead eventually to multiparty elections. Mr Assad freed several hundred prisoners but entirely flouted the rest of the deal, thereby prompting the league, on November 12th, to suspend Syria from membership. Four days later, in Morocco, the league said it would impose sanctions if Mr Assad did not relent within three days. These are devastating blows to Mr Assad and his regime. He must have been stunned by the near-unanimity of the vote on November 12th. Only little Lebanon, which is still in Syria's shadow, and turbulent Yemen voted to keep him in. And Lebanon's support may be increasingly tepid. Its government faces internal pressure from an influential banking sector that fears Western sanctions as well as from a reinvigorated anti-Syrian opposition. Hamas, the Palestinian Islamist faction long
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in Damascus, has also quietly distanced itself from Mr Assad. Algeria and Sudan, usually on the side of repression, voted against him. Shia-led Iraq, an important neighbour to the east, which has feared the onset of a Sunni regime to replace Mr Assad's Alawites, abstained. Jordan's King Abdullah, another influential neighbour, who had hitherto been cautiously neutral, bluntly called for Mr Assad to go. Saudi Arabia, the beefiest member of the six-country Gulf Co-operation Council, long ago turned against him. Of the other regional heavyweights, Turkey, the neighbour with the biggest punch, has been fiercest in calling for Syria's regime to reform or die. Its government hosts the main political opposition, the Syrian National Council (SNC), and harbours the leaders of the Free Syrian Army, a burgeoning group of defecting soldiers. More recently Turkey has threatened to cut off electricity to northern Syria. Tensions between Syria's internal and external opposition inevitably persist, though the SNC is doing quite well in maintaining a broad front that includes a strong component of Muslim Brothers as well as secular liberals. Some council members may be drawing premature hope from Libya's experience, in the unwise expectation that the West and the UN may impose a no-fly zone over Syria and invoke a "responsibility to protect" civilians. Despite the Arab League's increasingly robust demands that Mr Assad should engage in a proper dialogue, he still seems unlikely to do so. But his room for manoeuvre is a lot more limited than it was even a monthago. •
Israel's courts
Left v right JERUSALEM
A battle is under way for the control of Israel's judicial system HEREAS Israel's voters have been moving to the nationalist and reliW gious right, most of its top judges have clung to a more liberal and secular view of the world. On November 1oth Salim Joubran, one of three Supreme Court judges deciding the fate of the country's former president, Moshe Katzav, upheld his conviction for rape. Almost no Israeli batted an eyelid, even though the judge who dispatched the eighth head of the Jewish state off to jail was an Arab, from a community that now makes up one in five of Israeli citizens. Liberal Israelis, however, complain that legislators in Binyamin Netanyahu's ruling national-religious coalition are seeking to
Arab freedom of expression
The right to be hidden CAIRO
Some women want the right to be veiled, others to be seen naked OON after the liberation of Tripoli, the Libyan capital, this correspondent met S a woman sporting a niqab, or face veil, along with a floor-length black dress and black gloves. Her eyes, all that could be seen, gleamed as she revelled in a newfound freedom. For 40 years under what she disdainfully termed the "liberalism" of Colonel Muammar Qaddafi, the niqab had been forbidden. "But now we can wear what we like!" Aliaa el-Mahdi, a 2o-year-old university student in Cairo, has found a very different way to celebrate the Arab spring. She recently posted an alluring photograph on Face book, Twitter and her personal blog.lt showed herself standing unclothed, bar thigh-length stockings and a pair of bright-red shoes. The public airing of a nude self-portrait, an act of almost unheard-of daring in a conservative Arab country, stirred instant controversy, as well as more than a million page views. Ms el-Mahdi, who describes herself as an atheist, says she meant to echo "screams against a society of violence, racism, sexism, sexual harassment and hypocrisy". Her detractors have, predictably, damned her as an attention-seeker, a disgrace or a pervert. Such starkly contrasting notions of freedom find expression in politics, too. As elections loom in Egypt, puritanical
Salafist parties, which believe women should wear full veils and stay at home, have found unusual ways of abiding by a law requiring them to field female candidates. Campaign posters for the Nour Party showed photographs of seven bearded candidates on its list for one district, but in place of an image for the eighth, a woman, was a picture of a rose. The party explained that since she wears a niqab there was no point in showing her picture. Another Salafist party insisted that for a television interview a curtain should separate its spokesman from the female host. Liberal parties have chosen an opposite course, in one case fielding a wellknown actress and in another a candidate whose sultry looks have spawned fan pages on Twitter and Face book. The secular-minded have also harnessed ridicule to embarrass the Salafists. One widely shared cartoon shows a future heavily bearded Egyptian president, framed by identically veiled First, Second, Third and Fourth Ladies. Yet to many Egyptians such a scenario looks too realistic to be funny. Some of the sharpest criticisms of Ms el-Mahdi came not from Islamists but from fellow secular-minded people, who fear that her daring only serves to tarnish liberal ideals.
destroy this pluralistic ethos in the courts, as well as in other institutions of state, including the armed forces and civil service. In particular, worried liberals cite a series of bills apparently designed to promote right-wingers to the Supreme Court. National-religious politicians have long been riled by the gap in attitudes between Israel's top judges and the electorate. The Supreme Court is dominated by members
of Israel's "white tribe" of secular liberal Jews of European origin who founded the state and provided its first elite. Only one of the court's 13 judges is of Mizrahi, or eastern, origin, and he is set to retire. Another is Orthodox. By contrast, a growing proportion of Israel's parliament, the Knesset, belong to fast-growing communities that are by tradition Orthodox or originate from Arab or Muslim countries-or both. Under
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The Economist November 19th 2011 ~
the Supreme Court's selection process, Mr Netanyahu's ministers complain, the present judges can veto candidates, thus allowing them to choose people of like mind. Under the proposed bills, Knesset members will have a veto too. Many liberals, who feel they are a waning minority in Israel, fear that the bills will weaken the judicial checks and balances that have prevented a judicial slide into populism or religious zealotry. They particularly worry about the rise of judges such as Noam Solberg, a religious-nationalist from Alon Shvut, a Jewish settlement in the West Bank, whom right-wingers want appointed to the Supreme Court. In judgments in Jerusalem's district court, where Mr Solberg sits, a policeman was controversially acquitted of the manslaughter of an unarmed Palestinian. The same district court has also backed libel actions against journalists who claim that they have merely reported abuses by members of Israel's security forces in the Palestinian territories under Israeli occupation. "We are falling sway to Israel's version of Iran's Revolutionary Guard," says a noted liberal journalist, who fell foul of Mr Solberg. To some extent, the underlying beliefs of Israeli society are bound to be represented in the country's institutions. Religious nationalists have been climbing the rungs of the courts almost as fast as their counterparts have been rising up the ranks of the armed forces, where they now, by some estimates, comprise a good 40% of officers. Civil-rights lawyers say that they are losing a lot more cases in the lower courts than before. If Mr Solberg is appointed to the Supreme Court, he will be the first judge at that level to be a West Bank settler. Since he is only 49, he could in due course become the chief justice. In the past, ultra-orthodox and national-religious Jews in Israel have felt so estranged from the judiciary's largely liberal mainstream that they have set up their own arbitration courts, applying laws from the Torah, Judaism's basic text, sometimes with the tacit sanction of the state. The most extreme members of this camp have argued that the killing of opponents is sometimes permissible-that was the claim of the religious student who in 1995 assassinated Yitzhak Rabin, a former prime minister and architect of a plan to solve Israel's conflict with the Palestinians. If religious nationalists were better represented at the top judicial level, such extremists-it is contended-would be less likely to take the law into their own violent hands. In any event, parliamentarians in Mr Netanyahu's coalition have been hounding human-rights groups, which consist mainly of secular left-wingers who often depend on funds from European governments and charities. The cabinet has just
Middle East and Africa 61
Acourt that may be resigned endorsed two bills to stop foreign governments from giving grants of more than $6,ooo to Israeli human-rights outfits. Another bill raises tenfold the ceiling for libel fines. Yet another threatens to ban Arabs who shy from singing Israel's anthem, which celebrates the Jewish yearning for Zion, from playing football for Israel. •
Liberia's election
Winner takes all MONROVIA
An unhappy poll does not augur well for the future
RUN-OFF presidential election on NoA vember 8th turned sour well before results were announced. Liberia's main opposition called for a boycott after losing the first round amid dubious allegations of fraud. The day before the second poll police opened fire on protesters at an opposition rally, leaving at least two dead. Ellen Johnson Sirleaf, the incumbent, won a handsome 91% of the vote but turnout was a derisory 39%. Lacking solid legitimacy, she may now face a rocky second term unless she manages to mend fences with her opponents. Many of their claims of fraud are outlandish, yet some of their concerns are valid. The president's party restricted their access to public spaces and dismissed the head of the Liberia's state broadcaster who had sought balanced coverage of the election. Ms Johnson Sirleaf, co-winner of this year's Nobel peace prize, did allow a free and fair vote. But she failed to stop her underlings from taking dodgy steps before-
hand to ensure victory. This bodes ill for Liberia. The poll has reinforced the country's perennial divide between a small elite of Americo-Liberians, descendants of freed American slaves who largely back the president, and the indigenous "country people", albeit that their presidential candidate, William Tubman, is from a noted Americo-Liberian family. The best course forMs Johnson Sirleaf would be to bring the opposition into government. But she will need money for that. Many Liberian politicians expect to feed patronage networks when in power. At the moment she might be able to afford it. Demand for Liberian minerals is robust. ArcelorMittal, a big Indian investor, began exporting iron ore in September. New plantations have boosted agricultural output. Further investments are in the offing. But if money becomes tight, disgruntlement will be harder to soothe. One Western oil company has just packed up its drilling gear after an offshore deposit proved disappointing. The economy needs to grow if civil harmony is to prevail. Liberia still has 8,ooo UN peacekeepers, unlike neighbouring Sierra Leone, whose own war ended in 2002, only a year before Liberia's. Its blue helmets left in 2005. Violence in Liberia before the run-off exposed the weakness of the country's security forces and their lack of discipline. After they began to fire on protesters on the day before the run-off, Nigerian UN troops physically restrained them. One UN policeman shouted in desperation at a local officer, "They are Liberians!" The UN presence probably prevented a bloodbath. But the mission costs around $soom a year. The UN is loth to continue with it. The United States is Liberia's largest bilateral donor, providing almost $230m last year. Its aid programme is its second biggest in Africa. A large new American embassy is being built. But foreign aid, in the form of money or military men, may not be enough to ensure that Liberia under Ms Johnson Sirleaf stays on an even keel. •
Turning over a new Sirleaf
62 Middle East and Africa
The Economist November 19th 2011 Sudan north and south
Rumours of war NAIROBI
Fighting on the two Sudans' border risks a renewal of war between them
UFFETED by financial squalls and B fearful of a Libyan-like upheaval, Sudan's president, Omar al-Bashir, is
South Africa's leading populist
He'll be bacl< JOHANNESBURG
Despite the sacking of Julius Malema (pictured above), don't write him off
JACOB ZUMA, South Africa's president, he has removed an irritating thorn IinFthinks his flesh by getting Julius Malema suspended for five years from the ruling African National Congress (ANC) and thrown out as leader of its powerful youth wing, he should think again. Once one of Mr Zuma's most ardent supporters, but now counted among his most implacable opponents, Mr Malema has made it clear that he has no intention of quietly fading into the background-particularly not in the run-up to the ANC's five-yearly conference in December next year when all the party's office-bearers face re-election. Many ANC people would like to see Mr Zuma, who will turn 70 in April, removed as the party's president at that conference, just as his predecessor, Thabo Mbeki, was ousted by Mr Zuma at the ANC's last "elective" conference in Polokwane in 2007. Nine months later, party leaders ditched him as the country's president with only a few months of his mandate left, replacing him with an interim president, Kgalema Motlanthe, until parliamentary elections in April 2009 swept Mr Zuma to power. That created a precedent which could come back to haunt its chief beneficiary. Widely criticised for weak leadership and for failing to fulfil promises to create jobs and alleviate poverty, Mr Zuma has appeared for too long to want to be all things to all men. Recently, however, he has begun to show a more decisive streak. He has suspended the chief of police and sacked cabinet ministers amid allegations
digging in hard. He is hammering groups opposed to his National Congress Party, while using his army andre bel proxies to bait South Sudan, his diminished country's newly independent neighbour. Fighting in the south's Unity state, close to the border, has left scores dead. A lot more have died in South Kordofan, a state within his rump Sudan, just north of the new border, where ethnic Nuba are pressing for control of a mountain range. Mr Bashir is wanted by the International Criminal Court in The Hague for crimes against humanity in Darfur, his country's ravaged western province. Some of his genocidal generals are still in operation. One of them probably gave the order to bomb a refugee camp in South Sudan on November 1oth. According to eyewitnesses, bombs were pushed out of the back of an Antonov transport plane-a signature method of Sudanese air raids in the past. America has urged South Sudan to have "the wisdom and restraint not to take the bait". President Salva Kiir accused the north of stoking war and infiltrating saboteurs into his country. At the same time, he has exploited the heightened tension to silence critics at home. His government has the moral high ground for the moment, but claims by Mr Bashir that it is backing his eneof corruption and has set up an independent judicial inquiry into a $5 billion arms scandal involving leading ANC members. Now, after much hesitation, he is taking on one of South Africa's most controversial political leaders, the fiery, loud-mouthed and brazenly ambitious Mr Malema. The ANC disciplinary committee that found Mr Malema and five other Youth League leaders guilty of "serious misconduct" on November 1oth could not have acted without a nod from Mr Zuma. Mr Malema and Floyd Shivambu, the league's abrasive spokesman, were immediately suspended from the party and lost their salaried full-time jobs, while the other four have had their sentences suspended for up to three years. All say they will appeal. If Mr Malema's punishment is upheld, he may yet face criminal proceedings over his opaque business affairs. Born to a single mother in a poor black township, the 30-year-old Mr Malema has always insisted that his only income is what he gets
mies are hard to disprove. South Sudanese people who have chosen to stay in the north, despite their homeland's independence in July, may be vulnerable to retribution. The new country is a brittle construct. Power-sharing across tribal lines is shaky. Military and oil interests are dominated by one ethnic group, the Dinka, themselves riven by differences. Others are disgruntled-and armed. An immediate return to war looks unlikely. But for peace to prevail in the long run both Sudans must exercise a restraint they have so far lacked. John Prendergast, an American human-rights campaigner with long experience in the region, wants renewed international engagement on both sides of the border. Otherwise, he says, there is a real risk of "full-blown war".
from the Youth League. But he has never fully explained his high living, replete with a string of houses, flashy cars and collection of Breitling watches each said to cost around $30,000. Police are investigating allegations of fat "commissions" in return for his help in the award of public contracts in his home province of Limpopo. He denies any wrongdoing. The ANC's national executive committee could still get him off the hook if it decides to review the ruling against him, but that is considered unlikely, as it might split the party. And yet Mr Malema is a fighter who still has a lot of powerful friends on high. His populist calls to nationalise South Africa's mines and banks and to expropriate white-owned land without compensation may have embarrassed Mr Zuma, but they resonate with the country's millions of disillusioned, unemployed poor. "Even if I'm on the streets for five years, I'll be back," he promises. He may well be right. •
63 Also in this section 64 Taiwan's presidential race 64 China's economy 65 Mekong mayhem 65 Padfic islands 66 The Gandhi dynasty, continued 67 Banyan: Seeing and believing
For daily analysis and debate on Asia, visit Economist.comfasia Economist.comfblogsfbanyan
America in the Asia-Padfic
We're back
SYDNEY AND WASHINGTON, OC
America reaches a pivot point in Asia
ORN in Hawaii, raised for some of his childhood in Indonesia, Barack Obama has since his election wanted to be known as America's first "Pacific President". Until recently, he has not done much to earn the title. That, Mr Obama declares, is now changing. Allies in Asia have complained about only intermittent American attention to their region. But in a speech to Australia's parliament on November 17th Mr Obama announced that America is back. "Let there be no doubt: in the Asia-Pacific in the 21st century, the United States of America is all in." It was, he said, a "deliberate and strategic decision": America was "here to stay". Senior administration officials back up the president. They talk of a new "pivot" in foreign policy towards Asia. They say that much of Mr Obama's first term has been spent dealing with "inherited" issues, many of them linked to George Bush's war on terror. But America is now (almost) out of Iraq, and there is a deadline to extricate itself from Afghanistan (see page 67). So Asia is coming more into focus. Of course, old problems, such as Iran, can rapidly force themselves back to the top of the president's in-tray, and old European allies still command the most trust. But insiders hope that the Pacific will be the new strategic focus. The new commitment has both an economic and a security aspect. The Asia-Pacific region is the world's most economi-
B
cally vibrant, a point underscored by Europe's travails. It may also prove to be the source of the greatest threats to security over the coming decades. In both respects, a resurgent China is at the heart of things. Hosting an Asia-Pacific trade summit in Hawaii a few days earlier, Mr Obama laid out the case for open, liberal trade in Asia. He invited China to share in this vision, while jabbing at it for perceived protectionism. In Canberra, Australia's capital, the president dwelt on security. He and the Australian prime minister, Julia Gillard (pictured above), announced that America will put rotating units of marines in Darwin, in northern Australia, for training and exercises. About 250 will arrive next year, rising to 2,500. This is Crocodile Dundee territory, but the move is more about facing up to a distant dragon than to the local saltwater crocs. It is intended to drive home the administration's new and insistent message: that withdrawal from Afghanistan and wide-ranging defence cutbacks do not mean America is retreating from Asia. America is around to ensure that China's "peaceful rise" remains just that. Americans hope that the Australian deal will set an example of closer co-operation with other allies, especially in SouthEast Asia. There, islands in the South China Sea, beneath which oil and gas are thought to lie, are subject to several disputes involv-
ing China and South-East Asian neighbours. These see growing Chinese intimidation over the claims. As part of a concerted diplomatic push, on November 16th Hillary Clinton, the secretary of state, was on the deck of an American warship in Manila Bay in the Philippines, to strengthen the two countries' military ties. Mrs Clinton talks of "updating" relations with five treaty-bound allies in the region: Australia, Japan, the Philippines, South Korea and Thailand. Mr Obama intends to raise the matter of territorial disputes in the South China Sea at the East Asia Summit in Bali at the weekend. China will see that as meddling. Mr 0 bam a is adamant that none of this is designed to stop China's "peaceful rise", which he welcomes. Rather, the new commitment is to reassure the region. Shortly before Mr Obama's visit, the deputy chief of the People's Liberation Army happened to be in Australia for annual bilateral talks. His hosts briefed him about the Darwin plan, explaining it as continuation of a longstanding military partnership under the ANzus Treaty signed in 1951. It was just "hedging" and "insurance"-anything but "containment". China may beg to differthough all a spokesman has yet said is that: "It may not be quite appropriate to intensify and expand military alliances and may not be in the interest of countries within the region." Not everybody among America's AsiaPacific allies is happy either. Hugh White, a former defence official now at the Australian National University, worries about "America's muscular approach to China's growing power". He warns against the emergence of a "structurally adversarial relationship" between China and the United States and its regional friends. The hope is that "balancing" does not have to come to that. •
The Economist November 19th 2011
64 Asia Taiwan's presidential race
Narrowing TAIPEI
An old bruiser enters the race, threatening to split the pro-China vote AIWAN'S president, Ma Ying-jeou of the Kuomintang (KMT), who is running T for re-election on January 14th, was once thought to have a clear advantage. Elected in a landslide in 2008, Mr Ma brought tensions with China to their lowest state in six decades, forged business agreements across the Taiwan Strait, and help keep an export-dependent island from being swept up in the global financial crisis. In contrast to his wealth of experience (Mr Ma has also been mayor of Taipei, the capital), his chief opponent, Tsailng-wen of the pro-independence Democratic Progressive Party (DPP), is a rather owlish academic who has never before been elected to public office. Now things are not looking nearly as certain. In recent weeks the president's popularity has dropped. A prediction market run by National Chengchi University, accurate in the past, says the probability of his winning the election dived from over 59% on October 16th to under 42% on November 14th; Ms Tsai stands at 49%. Opinion polls in the island's media, which usually leans towards the KMT, also show slumping popularity, though Mr Ma still leads by a few percentage points. A victory forMs Tsai, a moderate in her party, might yet raise tensions with China, which has growled that Taiwanese moves towards independence will be met with force. What has changed for Mr Ma is the arrival of a second China-friendly presidential candidate. James Soong was once a KMT stalwart, popular in the 1990s as governor of "Taiwan province" (a vestigial position from the days when the Taiwan government, losers in the Chinese civil war, pretended to represent all of China). Mr Soong fell out with his colleagues, and was expelled from the KMT more than a decade ago. Today his popularity ratings stand as high as 15%. In a tight race he could easily shave off votes from Mr Ma, leading to a DPP victory. Just that happened in 2000, when Mr Soong contested the presidency and split the pro-China vote. It ensured victory for the DPP's hardline pro-independence candidate, Chen Shui-bian, who is now serving a life sentence in jail for corruption. China favours a victory for Mr Ma. Mr Soong claims China tried to persuade him not to run, though he is probably saying that to earn kudos-even pro-China candidates must not be seen at home as too cuddly towards the Communists.
On November 15th Mr Soong cleared a hurdle when Taiwan's Central Election Commission confirmed that he had collected enough signatures in support of his presidential bid. A Soong-KMT compact has occasionally been mooted, but now seems very unlikely. Mr Soong vows to fight to the end for Taiwan's presidency. But Mr Ma's popularity was falling even before Mr Soong's formal candidacy. He dropped a bombshell on October 17th by saying that he favours signing a peace treaty with China within the next decade, provided the public and parliament supported it. It was the first time that Mr Ma had given a timetable for negotiating such a hugely sensitive issue, and it has whipped up alarm in the media and among a China-wary public. The DPP accuses Mr Ma of steering the island towards unification. Mr Ma later backtracked, suggesting, among other things, that a treaty would need a referendum. Ms Tsai's popular focus, meanwhile, is on social welfare. Despite stellar economic growth of over 10% last year, Mr Ma's China policies are still perceived to benefit big business at the expense of ordinary folk. In cities rising prices put property beyond the reach of many. At DPP rallies, supporters approve of Ms Tsai's higher subsidies for elderly farmers. Now, darkening economic clouds in the world economy may help her case and hurt Mr Ma's. Already exports to Europe have suffered, and reports are rising of people being laid off or asked to take unpaid leave. Mr Ma still has some cards to play: an economy that would be the envy of many elsewhere, as well as the support of those in favour of closer mainland ties who think it silly to split the pro-China vote. • China's economy
Fearfulsynnnnetry HONG KONG
China's great economic tightening is over. Its easing has barely begun HINA'S policymakers are a wary and watchful bunch. Their party's sole C claim to legitimacy is economic stability, and they guard it jealously. In the euro area's crisis, there is plenty for them to guard against: the European Union accounts for a fifth of China's exports. This external problem comes on top of twin dangers at home. China's efforts to tighten credit have starved the country's small enterprises of badly needed finance, forcing them into the clutches of blackmarket lenders who charge usurious rates of interest. The housing market is also slowing. Sales fell by almost 12% in Octo-
I
Demanding times China,% change on previous year*
60
06
07
08
Source: NBS; GaveKaL Dragonomics
09
10
11 *Three-month
moving average
ber, compared with a year earlier. In response, China's policymakers are easing their macroeconomic grip one finger at a time. In October Wen Jiabao, the prime minister, visited the eastern city of Wenzhou, where entrepreneurs have suffered gravely from the credit crunch. Taxmen and regulators should go easy, he said, on banks that lend to small companies. Mr Wen later visited a special economic zone in Tianjin and said banks and local governments should give high-tech firms their full support. In October bank lending quickened, filling some of the gap left by shadow lenders. But this easing remains subtle. Mr Wen and other officials have begun to talk of "fine-tuning", suggesting existing controls may be a semitone too sharp, but no more. Interest rates have not been cut; nor have the reserve requirements that oblige larger banks to set aside over a fifth of their deposits. The clampdown on loans made off the books or outside the banking system remains in force. Some are beginning to wonder if China's wary policymakers are too cautious. But the truth is that fears about growth are tempered by two other lingering concerns: that inflation might revive and that the property market might catch fire once more. Inflation has fallen from 6.5% in the year to July to 5.5% in October. But 5.5% is still too high for policymakers' comfort. Nor do they yet think they have stabilised the property market. On a trip to Russia Mr Wen emphasised that "there will not be even the slightest faltering in the propertymarket curbs." These curbs include restrictions on multiple home-purchases, stiff down payments for home buyers, and a lid on lending to developers. Zhuhai, a city in Guangdong province, has even imposed price controls on advance sales. Such curbs are designed to rein in developers, but not to retard house building overall. Policymakers in Beijing have harried local governments to start work on 10m affordable units this year. They want prices to fall modestly without halting construction. That would appease home- ~~
The Economist November 19th 2011 ~ buyers
and keep concrete-pourers in jobs. China claims already to have met its affordable-housing target for the year. But these efforts have prevented neither a marked slowdown in China's demand for steel and cement over the past 18 months (see chart on previous page), nor a more recent plunge in steel and iron-ore prices. This suggests the strong construction figures are overstated, says Rosealea Yao of GaveKal Dragonomics. One official admits work on a third of the social-housing units has not got beyond a hole in the ground. Property accounts for a quarter of China's fixed investment, and investment makes a big contribution to growth. The upshot, says Paul Cavey of Macquarie Securities, is that property needs a soft landing if the economy is to have one too. If construction does slump or the euro crisis deepens, China's policymakers will eventually let go of their worries about inflation and speculation. They will feel compelled to loosen further. Never fear. • Pacific islands
Going South Pacific CANBERRA
Ping-pong politics roil three island nations
F YOU think euro-zone governments are Ilook a mess, then Pacific states make them like models of stability. On November nth the Solomon Islands' prime minister, Danny Philip, resigned to avoid a no-confidence motion, after allegations of misappropriation of aid from Taiwan. The day before, the president of Nauru, Marcus Stephen (a Commonwealth gold-medal-winning weightlifter) stood down after allegations that he took kickbacks on earnings from phosphate exports. His replacement, Freddie Pitcher, lasted six days before he too was ousted in a no-confidence vote. Nauru is on its third president in a week. In Papua New Guinea (PNG), the new government survives, but only just. Its leader, Peter O'Neill, became prime minister in August, after the speaker ruled that the post was vacant. The previous incumbent, Sir Michael Somare, was then convalescing in Singapore after complications from heart surgery. He returned in September, unsuccessfully reclaimed the top job and briefly appeared on the floor of parliament in a wheelchair to avoid losing his seat. The Supreme Court is due to pronounce on the constitutionality of Mr O'Neill's government in December. His ministers are worried. On November 1oth the deputy prime minister, Belden Namah, and the attorney-general, Allan Marat, ordered the suspension of the chief
Asia 65 Mekong mayhem
New water sheriff CHIANG SAEN
An unprecedented Chinese response to a river's lawlessness
IST -DRAPED mountains and the M serene ambience of the Thai city of Chiang Saen beguile visitors to the Mekong river in an area dubbed the Golden Triangle. This is where the borders of three countries, Myanmar, Laos and Thailand, converge. But the serenity was shattered on October sth by the sight of corpses floating downriver. Thirteen Chinese from two commercial vessels had been shot dead near Chiang Sa en port and their bodies tossed overboard. Thailand's police found over 920,000 amphetamine tablets on board the boats, plying between China's Yunnan province and the Thai port. An angry Chinese government suspended its shipping on the Mekong until better security could be put in place. The ministers of China's three Mekong neighbours were summoned to Beijing for urgent talks. At first the Thai army unit with responsibility for anti-narcotics and border security blamed the killings on an armed group of drug-trafficking bandits led by the notorious Naw Kham. But then a huge investigation led by the head of the Thai police, General Priewpan Damapong, sprang a surprise. It uncovered evidence that the shots were fired not from the guns of drug gangs or river pirates, but from the weapons of Thai soldiers. Nine Thai officers from the anti-narcotics unit have since been charged with murder. Embarrassed, Thai authorities insist this is a rogue group, on
the payroll of a drug warlord. The killings have triggered a flurry of measures to beef up security along the waters of the Mekong. Hurriedly, aregional-security agreement was signed on October 31st. All four countries pledged to share intelligence and engage in joint patrols along the stretch of the Mekong between China and the Golden Triangle. The agreement also allows for "special campaigns to eradicate criminal organisations". Reports from China suggest up to 1,000 of the country's armed police will fan out along the river: an unprecedented projection of armed force beyond China's borders. Waterborne traffic between Yunnan and Thailand is expected to resume soon, with armed Chinese guards. To some neighbours, armed Chinese patrols taking on river pirates and insurgents (much of the drug business is linked to border insurgencies in Myanmar) conjures up images of gunboat diplomacy. They worry about a loss of sovereignty as China polices beyond its borders. One Thai businessman thinks that the new agreement will let China send its own security forces to protect local Chinese interests, such as a casino across the river in Laos and Myanmar. Reports of extortion, kidnapping and drugs at a casino on the Lao border with China forced its closure this year. Much anti-Chinese feeling attends casinos in Laos. China's gunboats, meant to still tensions, may stoke them instead.
justice, Sir Salama Injia, who was due to hear the constitutional case, claiming he had mishandled the deeds to the estate of a deceased judge. The president of PNG's law society described the action as "a way to sabotage, disrupt and derail the final judgment of the full bench". The Supreme Court countered by ordering the arrest of Messrs Namah and Marat. Fears of a full-
blown constitutional crisis were averted when the politicians appeared before the Supreme Court, and the cabinet withdrew the chief justice's suspension. On the surface, these latest events might give little cause for alarm. Politicians facing corruption allegations have been obliged to stand down, and the wheels of justice have been allowed to turn. Only Fiji, among Pacific Island nations, has seen its constitution abrogated, its judiciary dismissed and its army assume control. But what Solomon Islanders call ping-pong politics-frequent government changes, side-switching by politicians in search of more lucrative jobs and an obsession with the parliamentary numbers game-is taking its toll, increasing public disillusionment and leading to outbursts of violence. Take the Solomon Islands. The new prime minister, Gordon Darcy Lila, is the sixth leader since 2006. He served as finance minister until sacked by Mr Philip
~~
66 Asia ~ on
November 9th. He outflanked his former boss and now leads more or less the same government. His victory sparked angry protests in the capital, Honiara, and the deployment of riot police. Papua New Guinea has also had its share of rioting, most recently in Lae, the country's secondlargest city, when marauding youths left nine people dead. The possibility of further violence sharpens the dilemma for PNG's Supreme Court. If, as many expect, it pronounces Mr O'Neill's government illegal, the ailing Sir Michael or his deputy might be reinstalled. Yet most former government MPS
The Economist November switched sides to support Mr O'Neill in August, and Sir Michael's National Alliance is now deeply split. Mr O'Neill might force a no-confidence vote which would lead to an early election. PNG's next election is due in mid-2012 anyway. An earlier poll could be a problem. The elections office is poorly prepared, as usual, and legislation to increase the number of parliamentary seats has not been passed. This bodes ill for regional stability. Unlike in the previous election in 2007, there is no experienced incumbent to play the part of Sir Michael's once-robust National Alliance and glide to victory. •
The Gandhi dynasty, continued
The golden Rahul
AMETHI , UTTAR PRADESH
Rahul Gandhi, a slow learner, will be tested as he steps up to national politics TINGER by the wheat fields and scruffy
L villages of Amethi, Rahul Gandhi's constituency, and praise rings out for Congress's heir apparent. "I never thought he'd be so damn handsome", trills one student, recalling the 41-year-old's visit to her campus. The head of Amethi's swanky charitable hospital was equally smitten when he inspected its new blood bank. Not the usual poker-stiff Indian politician, Mr Gandhi strides past security cordons to grab voters' hands, tries out Awadhi, the local dialect, and holds late-night chats in low-caste homes. Draped in a red and gold sari, Shiv Kumari, a widow in Semra village, happily recalls three hours he spent in her tumbledown cottage. They nibbled vegetables and puri, though she admits "I don't know why he came". Breaking bread with dalits once considered untouchable is a trademark of Mr Gandhi's campaigns. But the Amethi MP seems happier on rural walkabouts, chatting to roadside tea-wallahs and farm workers, than dabbling in national politics, mixing with better educated or urban voters and speaking in Parliament (which he has done only six times in seven years). His political model is clear. Sonia Gandhi, his mother and president of the ruling Congress Party, is similarly reticent, perhaps stemming from early anxiety over her facility in Hindi and a wish to avoid personal attacks over her Italian birth. Yet the more "Madam" has been an enigma, the greater has been her strength. "She has negated people with her silence," says a friend. "I think that is her biggest weapon". Mrs Gandhi arranged for her son to take the traditional family route to politics, as MP in Amethi, the heartland of the dynasty. If a Gandhi failed to flourish there,
he would be in trouble. Yet it takes little prodding for locals to voice doubts about him. As dusk falls, a long-serving Congressman grumbles that his MP is not "fast-forward"-slow to take decisions and quick to spurn colleagues. "Rahul Gandhi walks alone," he says, "there are not so many people he is talking with." A more senior party figure goes further, saying he shuns local bigwigs, not even bothering to say when he is visiting. His behaviour "has been very badly received [in the party], it is hurtful and might backfire on him one day." Doubts persist over state elections in Uttar Pradesh, due next year. These require "a lot of introspection, action, planning-and frankly I'm not seeing that." Mr Gandhi will be judged on whether he gets a strong result, meaning at least so seats in the state assembly. Local carping might not matter, but it chimes with national grumbles. Two years
Rather here than Parliament
19th 2011
ago Rahul spurned an offer of a cabinet post from the prime minister, Manmohan Singh, preferring to continue working in the party. Yet his performance has been underwhelming. Though his reforms of the youth wing are well-intentioned, his push for Congress to reject allies and promote young candidates in state elections earned poor returns from voters in Bihar and Kerala in the past year. Nor have his interventions been inspiring. He claimed in May to have evidence that villagers in Uttar Pradesh, run by an opponent, had been murdered for their land. The accusation turned out to be baseless. No less troubling was a limp effort as part of a quartet of leaders delegated to lead Congress during the summer, when an anti-corruption populist, Anna Hazare, ran rings around the party. Newspapers and other media are unforgiving. The Hindu, a left-leaning broadsheet, summed him up in May as "Rahul in Blunderland". If he had time to get his footing, this might not matter. But now rumours swirl that he will soon get a big party job, even replacing his mother as boss. On November 14th Congress's general secretary, Digvijay Singh, said the young "national leader" must take on bigger tasks. "The time has now come for Mr Rahul Gandhi to move into the mainstream." His role in Uttar Pradesh will keep him to the fore. The bigger reason is Mrs Gandhi's undisclosed but serious illness, which required a month of treatment in the summer, reportedly at a New York cancer hospital. Stony official silence on her health encourages observers to assume the worst. Equally pressing is the exhaustion of Mr Singh's ageing government, whose five top ministers now average nearly 74 years. No significant law has been passed since its re-election over two years ago, despite signs of slower growth, rising inflation and a storm over corruption. On November 12th Mr Singh said he would welcome a new party role for Mr Gandhi. A kick-start is sorely needed. •
The Economist November 19th 2011
Banyan
I
Asia 67
Seeing and believing
As foreign forces draw down, Afghans need to know the foreign commitment does not
T IKE a shrine to the futility of foreign intervention, the Nesaji L cotton-and-wool factory is empty and idle but surprisingly well-kept. Bird droppings dapple the floor of the vast facility, in Kandahar in southern Afghanistan, heartland of the extremist Tali ban regime that was toppled in 2001. But the textile machinery from the former East Germany looks as if it might even work. From one loom, a serviceable roll of blue cloth still hangs. It is said that Nesaji used to employ 3,000 people. But since the mid-1970s, when it was financed by Iran and built by the Soviet Union, it has operated for fewer than 6o days. Endless warfare has precluded production. That the factory survived in such good nick is thanks to a local strongman, a former mujahideen fighter against the Soviet Union, who gave it his protection. Now the local government and the American-led "Provincial Reconstruction Team" (PRT) that nurtures it would like to put Nesaji back to work. As foreign forces prepare to leave Afghanistan over the next three years, the PR TS across the country hope to help lay the foundations for a successful economy. Cotton-growing is resurgent in a neighbouring province, Helman d. At present most is sold across the border to Pakistan, a big textiles exporter. Nesaji could add value for Afghanistan-and jobs, producing denim for the expanding Afghan army. But the East German looms are narrow and inefficient. Nesaji could not compete without subsidy. Even if it could, there is as yet no electricity. Plenty more obstacles exist to reviving business in Afghanistan. The most obvious is security. The International Security Assistance Force (ISAF), the130,ooo-strong foreign army helping the Afghan government fight the Taliban insurgency, reports big improvements, with territory reclaimed from Taliban control and fewer armed attacks. But its statistics are disputed. And this year has seen a string of high-level murders, including of the Kandahar mayor and of Ahmed Wali Karzai, the province's most powerfullocalleader and half-brother to the president, Hamid Karzai. PRT officials tour Kandahar in armoured convoys. Through the narrow, bulletproof windows, shops look well-stocked, and even bustling. To the insecurity is added uncertainty about the future, as most foreign forces will leave by the end of 2014, gradually handing over to the Afghan armed forces. America, with 90,000
troops in ISAF, is trying to negotiate the terms of a "strategic partnership" with Afghanistan, covering future relations. That was for discussion this week in Kabul, at a loy a jirga, a grand council of 2,000 leading Afghans. The president has assured ISAF that this will not harm the partnership's prospects. But he will have worried it, by calling on the first day, Novemben6th, for "an end to night raids"-ISAF's practice of rounding up and sometimes killing its enemies in private homes. ISAF says they are vital to its operations. Stopping or restricting them would be a deal-breaker. The strategic partnership matters. To believe in their government's future, Afghans need to have confidence that the outside world will provide the resources to train and pay its soldiers and civil servants, and back them up. An earlier regime, after all, was abandoned by its former patrons, when the Soviet Union fell apart in 1991 (see page 94). But it will be hard-especially at a time of extreme financial stringency-for America and others to make expensive promises that will be kept by future governments. In the absence of firm and specific commitments beyond 2014, the Tali ban will be more inclined to wait and see rather than engage constructively in peace talks. Pakistan, too, will continue to hedge its bets; and leading Afghan politicians, including former warlords, worry they will be left to fight again. Some are already kicking the tyres of their militias. And private investors will stay away. There is money in Kandahar. In Aino Mina, a "gated" development of broad avenues and tinkling fountains, mansions are springing up. With few obvious sources of legitimate wealth, other possibilities are foreign spending and opium poppies. Productive investment is scarcer. At an industrial park with foreignfinanced infrastructure, a raisin-processing plant, also foreign-financed, is going up. Negotiations are under way with private investors in ice-cream and juice factories. It is better than nothing. The PRT speaks enthusiastically of the improvement in local governments. A particular favourite is Fazluddin Agha, governor of Panjwa'i district, once a centre of al-Qaeda and Taliban activity, and a hotbed of insurgent violence. The governor has won trust, he says, by going out and talking, village to village, and opening schools and clinics. And he has enticed some Tali ban to "reintegrate" with the government. Given charge of the province, he claims, he would bring peace in three months. Asked who pays for all the development of which he boasts, Mr Agha seems nonplussed by the stupidity of the question: "Foreigners", he answers. And that is the way he expects it to remain. Leading them a song and dance "Our government is not yet ready to look after us," says a young, English-speaking member of Kandahar's middle class, waiting for the weekly flight to Dubai. General]ohn Allen, ISAF's American commander, says people remember Taliban rule as "the darkness". It is true that this 20-year-old enjoys luxuries unimaginable in 2001. But his memory-perhaps filled by his parents-is of the "good security" under the Taliban, though "education was poor". He seems unaware of the fierce puritanism and medieval punishments for which the Tali ban are notorious in the West. He and his friends are big fans of Hollywood movies, with their dashing, unbearded Muslim male leads, their infectious tunes and their voluptuous heroines, none of which would please the Tali ban. What they really want to know is: are those Indian actresses really that beautiful? Or is it, as their elders tell them, all just make-up and trickery? Afghans have learned that foreign promises are rarely to be trusted. •
Technocrats
Minds lil<e machines
Also in this section 69 Trading land for cash
Government by experts sounds tempting, especially in a crisis. It can work. But brief stints have the best chances VEN before Plato conceived the philosopher-king, people yearned for clever, dispassionate and principled government. When the usual run of rulers proves cowardly, indecisive or discredited, turning to the wisdom and expertise of a technocrat, as both Italy and Greece have done in recent days, is particularly tempting. Part of the attraction of the term "technocrat", however, is that the label is so stretchy. Does it mean just any expert in government, or one from outside politics? How many technocrats, and in which positions, justify a government's "technocratic" label? Does such an administration operate within the political system, or supplant it? For how long? Can a technocrat evolve into a politician and vice versa? The answers are imprecise and shift over time. Technocracy was once a communist idea: with the proletariat in power, administration could be left to experts. But the appliance of science to politics was popular under capitalism too. A fully fledged Technocratic movement flourished in America in the inter-war period: it believed in an economy based on measuring energy inputs rather than prices, and in what would now be called crowd-sourced solutions to political problems. This paper first used "technocracy" in March 1933, when a book reviewer bemoaned the "lurid prominence" of the term. He derided its proponents as "half-scientist. .. half-charlatan", decried their "indefensible" conceptual
E
basis, and ascribed their popularity to "extraordinary" American credulity. Howard Segal, an historian at the University of Maine, says the movement imploded when its leading light, Howard Scott, was unmasked as a failed wax salesman, not the great engineer he claimed to be. Mandarin classes Crankishness aside, technocracy and autocracy have long been natural bedfellows. When political power is not publicly contested at all, electability is irrelevant and expertise can give the ambitious an edge. In China all but one of the nine members of the Politburo Standing Committee are engineers. This marks a shift: many of Mao's revolutionary generation had no higher education at all. And it may be temporary. Li Keqiang, likely to take over from Wen Jiabao as prime minister in 2013, has degrees in law and economics. Other upcoming leaders are similarly schooled. Such unconstrained technocracy is no guarantee of good ideas or decisions. China's engineer-kings threw their weight behind the Three Gorges dam, for example, despite the prophetic advice of some more eminent scientists. In the SARS epidemic in 2003, the technocrats were initially inept too, putting face-saving ahead of epidemiology. A rapid rollout of China's highspeed rail network was followed in July by a slowdown after a fatal train crash: technocracy did not prevent corruption and
poor quality-control. It is not only one-party states that like technocracy. Military officers justifying a coup may use technocratic parlance when they highlight their independence of lobbies and their focus on the national interest. Such juntas often also bring civilian technocrats into government, or hand over to them when they step down. A common outcome is a technocratic-military hybrid where civilian experts have the economic and social portfolios, but military men the defence and interior ministries (Egypt's current regime resembles that too). Singapore is perhaps the best advertisement for technocracy: the political and expert components of the governing system there seem to have merged completely. British-ruled Hong Kong would be a runner-up. The leadership of Mexico's Institutional Revolutionary Party (PRI) has evolved from revolutionary generals to lawyer-politicians and finally economisttechnocrats, but with less success. Countries where electoral mandates are the ultimate source of political legitimacy usually turn to full-scale technocratic governments only for a short time, under a specific mandate and in unusual circumstances. But even outside such cases, technocrats rule big chunks of public life: central bankers are one example, typically enjoying huge constitutional protection from politicians' interference. So are regulators and, in a sense, the unsacka-
~~
The Economist November 19th 2011 ~
ble legal experts who work as judges. Even highly political governments set up independent or bipartisan panels to make difficult decisions (such as closing military bases, setting electoral boundaries or making spending cuts). They create independent agencies to run everything from health care to education. They put outside experts in top jobs-such as the economist Larry Summers in the Clinton and Obama administrations. Even a wholly technocratic government can never fully escape politics. In any country powerful lobbies bargain and wrangle. In a parliamentary system technocrats must deal with the partisanship and intrigues of an elected legislature (in Athens and Rome, lawmakers are eagerly waiting to trip up the newcomers). They also face public ire if they are seen as sharing out gains or pains unfairly. A brilliant economist see exactly the needed fiscal adjustment. But deciding how and where to cut spending or raise taxes requires acute political senses. Few technocrats arrive in office with those; learning them can be a slow, costly and politically fatal process. To overcome these obstacles, a technocratic head of government needs personal stature: such clout makes up for the lack of a formal electoral mandate. A second important condition is a clear external constraint, widely accepted at home by both the public and other political parties. This can be meeting the tough conditions of an IMF bail-out or surmounting some other financial crisis. It can also be joining a club: several ex-communist countries turned to technocratic governments as they struggled to meet the membership standards set by the European Union. Failing that, political backing at home-usually from a popular monarch or president-can give a technocratic government political ballast. Cincinnatus redux The best kind of technocrat is uneasy about being in power at all. Jan Fischer, the Czech Republic's chief statistician, became an acclaimed prime minister in 2009 when the government collapsed in the midst of the country's six-month stint running the European Union. His main message, he says, was to tell everyone to "protest against this kind of government"; it was a lamentable departure from normal democratic principles, justified only by the most serious circumstances. History suggests that technocrats do best when blitzing the mess made by incompetent and squabbling politicians. But the problem for the new leaders of Greece and Italy is that the source of their woes, the euro zone's design flaws, stems from mistakes made in Brussels-not least by other unelected experts. Remedying that will take many years, far longer than technocrats' usual political lifespan. And it will need more than just brains and integrity. •
International 69 The market for state territory
Pass the hemlocl< Just imagine that countries still traded land for money
ELLENIC opinion was outraged last year when Frank Schaffler, a German politician, advised "bankrupt Greeks" to "sell your islands ... and sell the Acropolis too!" That is hardly practical politics: as long as Greece remains a democracy, the political, and perhaps biological, lifespan of a leader who proposed hauling down the flag over even the tiniest Aegean outcrop would be measured in hours. The furore obscured what Mr Schaffler was proposing: lease, commercial sale or a transfer of sovereignty. The government is already selling some land. The Institute for Strategic and Development Studies, a think-tank in Athens, says the Greek state has €35 billion ($47 billion) of property immediately available, which could cover 10% of its debt. KAPPA, a business lobby, suggests €75 billion. Stefanos Manos, an ex-finance minister, says a new state investment company could manage and dispose of property worth €200 billion. But just imagine that the exasperated northerners were dreaming of something more radical: fully ceding sovereign authority. Territorial swaps for cash seem unthinkable today. But they were once common, especially when European powers were jostling for land in the New World. The United States' 1803 purchase of the Louisiana territory from Napoleon for $15m (now $312m) is the most famous case. Germany bought the Caroline Islands, in the Pacific, from Spain in 1899 for 25m pesetas ($107m today). And during the first world war America paid Denmark $25m ($530m) for what are now the United States Virgin Islands, mainly to stop Germany buying them. In an era of self-determination sales of
H
A sunnier outlook in Alaska than in Greece
territory have come to seem anachronistic. But leases, involving a de facto transfer of control, are common. In 2010 Russia extended a deal granting Finland a canal for so years, and gave Ukraine concessions worth €30 billion to park its fleet at Sevastopol for 25 more years. Michael Strauss of the Centre for Diplomatic and Strategic Studies in Paris sees "no obvious reason" why countries have stopped buying and selling land. "It's a totally legitimate way for sovereignty to change under international law." Arturas Zuokas, the mayor of Vilnius, has made a teasing offer to Greece; he suggested his country acquire an island as "an exclusive place for rest in the Mediterranean" and "a great global advert for Lithuania", featuring a spa, museums and a theatre. But he did not say whether he wanted title or sovereignty. Lithuania is forecast to be the euro zone's fastest-growing economy in 2012, but the €7m on offer would only nibble at Greece's debts. The thinness of the market gives little indication of what sovereignty is worth. One guide might be the net present value of future tax payments, minus the net costs of public services disbursed there. Greece's unusual habits with tax and spending could distort that indicator; but it could tempt an outsider to try to run the territory better. Auctions are the best way of setting prices-but would risk jangling nerves. Iran might find an Aegean island a handy way of foiling NATO's planned missile-defence shield. Perhaps Greece could scare Germany into softer terms just by threatening such a sale. Many a private-equity firm has overestimated the profits to be wrung from buy-outs, and the sovereignty market may be no exception. When America bought Alaska from Russia for $7.2m (now $113m), in 1867, some called it folly-and how wrong they were, American schoolbooks declare. But the sceptics might be right. David Barker, a professor at the University of Iowa, says that despite its oil wealth, Alaska was so costly to develop that the Treasury has lost money on the deal. •
71 Also in this section 72 The good shopping guide 73 Google's music machine 73 Turbulence for Indian airlines 74 Chinese jewellers 75 Schum peter: The French way of work
For daily analysis and debate on business and our weekly "Money talks" pod cast, visit Economist.comfbusiness-finance
Retailing in America
'Tis the season to be frugal
NEW YORK
Some retailers will thrive this holiday season, but most won't HANKSGIVING DAY, which this year T falls on Thursday November 24th, is fast approaching and retailers in America are getting ready to lay out their wares in the hope that the annual stampede by shoppers will be bigger and better than ever before. But for some, it will not be. Normally the big day is "Black Friday", so named because the day after the holiday is when retailers supposedly move into the black and become profitable. Some stores, it seems, cannot wait that long and are going nocturnal. They are rolling out their special offers at midnight on the Thursday or earlier in the evening. An online petition organised by a disgruntled employee has been raised against the midnight opening by Target, a big retailing chain. It has been signed by over 1oo,ooo people asking Target to reverse its decision. But that is unlikely. Target is not alone among the large retailers in moving the big shopping day forward. Macy's, Best Buy and Kohl's plan to be open at midnight on Thanksgiving. As for the biggest of all, Walmart, most of its stores are open 24 hours. It will, though, make special offers available on toys, home goods and clothing from 10pm on Thanksgiving. And to stop shoppers scampering off to rivals, it will unveil bargains on electronic goods as the clocks strike
midnight. It will also post maps on its website and on Facebook to show buyers the location of its most coveted wares. Bricks and clicks What all this will do for retail sales remains to be seen. "Bricks-and-mortar retailers are opening on Thanksgiving night to preempt people shopping online after their Thanksgiving dinner," says Christopher Donnelly at Accenture, a consultancy. Some analysts predict humdrum sales for traditional retailers, but booming ones for internet retailers. Cyber-shopping is con-
I
Cyber-shopping %change on previous year
American online retail $bn
spending~
25
50 40
20
30
15
20
10
10 0
0 2007
08
09
10
11
*Excludes auctions, cars and Source: comScore
large corporate purchases
tinuing to prove popular and online spending is growing (see chart). According to the National Retail Federation (NRF), sales in November and December will increase by only 2.8% to $465.6 billion, compared with a 5.2% rise last year. On the other hand, 68% of online retailers say they expect their sales to grow by 15% or more, according to a survey by Shop.org, the digital division of the NRF. This holiday the average consumer is expected to do more than a third of their shopping online. American consumers have not bounced back since the massive wealth destruction of the financial crisis. According to research by Nomura, a stockbroker, American household assets shrank by $13 trillion in 2008 and have regained only a fraction of their losses in 2009 and 2010. Recent declines in the housing markets as well as the equity market's gyrations are eating away at what had been won back. Moreover, the high price of petrol, large numbers of unemployed, food inflation and uncertainty over taxes are weighing heavily on low-income Americans. Not surprisingly, then, most shoppers are single-mindedly focused on low prices. The "off-price sector" that exploded during the financial crisis continues to thrive. According to Accenture, low-end retailers such as Family Dollar and Dollar General saw average revenue grow by 19% in total over the past three years and delivered a 78% return to shareholders. Dollar General is now the largest retailer in America by store count, and is adding 6oo shops a year. By contrast, retailers catering to the squeezed middle classes, such as JC Penney, Kohl's and Sears, grew by only 6% in the same period and delivered a negative 5% return to shareholders. Shares in Best
~~
72 Business ~
Buy are worth barely half what they were a year ago, and the firm has abruptly scaled back its international-expansion plans, offloading its stake in earphone Warehouse in Britain. Shares in Dollar General, however, are trading near an alltime high. The decline in Americans' buying power has redefined the meaning of low price. Walmart used to be considered the leader in what it calls every day low pricing, but the Bentonville-based behemoth has underperformed the broad market in the past two years. Walmart is now investing in massive price cuts that are eating away at the firm's profitability. It also reintroduced so-called layaways, which allow customers to pay for a product in instalments while Walmart holds on to it until the full payment. On November 15th Walmart reported a 2.9% drop in net profits in the third quarter compared with the same period a year ago, in spite of an increase in sales. Many small and medium-sized retailers are aggressively slashing the price of certain items to tempt shoppers into their stores in the hope that, once there, they can be persuaded to buy regular-priced goods. Don't bet on it. According to Michael Silverstein of Boston Consulting Group, there is a growing trend for consumers to concentrate on buying all the loss leaders in their favourite stores, but nothing else. Mobile devices are increasingly popular, especially those with applications that let a consumer scan a bar code and find out if a product is priced competitively and, indeed, many other attributes (see box). This could well drive down prices and margins in stores further still, as it is likely to show that buying online means better bargains. An application which provides local price comparisons has been developed by eBay. It even directs shoppers to nearby stores if they can get a better deal (for which eBay receives a referral fee). Up the Amazon Traditional retailers are scrambling to respond to the omnipresent threat of Amazon, the world's biggest online retailer, and to the use of mobile devices by jazzing up their own digital offering. Walmart recently restructured its internet business. It is experimenting with two tiny Walmart.com shops in California to encourage customers to shop on their website. And it is rolling out a smartphone app which lets shoppers scan products, get information on inventory, receive vouchers from participating brands and make shopping maps to navigate the vast Walmart outlets. "We are at a much earlier stage of the online revolution of retail than people think," says Lewis Paine at GfK, a research company. The migration of market share to online retail will be significant for years to come. There is another type of retailer, besides online ones, bound to end up with
The Economist November 19th 2011 Aguide to goodness
Values for money NEW YORK
Want to know if a product is virtuous? There's an app for that
AS HE applied sunscreen to his young ./"\.daughter's face, Dara O'Rourke, a professor of environmental and labour policy at the University of California, Berkeley, found himself wondering if the lotion was safe. He realised there was no readily available answer. The result-two years, a team of chemists, lots of testing and a chunk of venture capital later-is GoodGuide.com. Launched in 2008, this is a website and smartphone app that rates 140,000 consumer products (currently only in America) according to their safety, environmental sustainability and the ethics of the firms that make them. Now Good Guide has created a new "purchase analyser" app designed to inform consumers not just about the values embedded in products, but also about whether they are the virtuous shoppers they say they want to be. Using the new app requires selecting a series of characteristics, which can range from whether the user favours organic products to buying only from firms with a good human-rights record. (It also rates how competitively things are priced, via a partnership with Price Grabber) The consumer then scans the bar code on a product with the camera in their smartphone. The app identifies it and checks in a database to score how it shapes up. Much therefore depends on the quality of the data, which Good Guide gathers from various sources, including government reports and scientific studies, and research by its own staff. If the product scores badly, the app will recommend an alternative item which is rated more highly. The app also tracks a consumer's purchases to see how well they fit with their selected values, giving a sort of personal virtue (or hypocrisy) rating. So far, Good Guide has mostly been used by shoppers who are already keen to know about any issues connected with products they buy. They are mothsmiles on their faces. These are the highend shops with luxury goods. As American society is bifurcating into a small, wealthy elite and a growing number of low-income households, fancy shops such as Tiffany, Saks Fifth Avenue and Nordstrom are doing well. Victoria's Secret, a lingerie shop, and the American business of Coach, a maker of handbags and accessories, recently reported strong results. Yet there is a silver lining this Thanksgiving even for struggling middle-market
Someone spilled hypocrisy on aisle five ers concerned about a child's health, older people facing a chronic illness or supporters of a cause, such as animal rights. The hope behind the app is that the idea of finding out about a product's background will become mainstream. Consumers rarely change their buying habits, even when confronted with scientific and other data, says Mr O'Rourke. So he has drawn on insights from behavioural economics, which show shoppers can be greatly influenced by peer pressure and by information passed on to them by people they know. The app tries to take advantage of these pressures. The virtue rating will inform a consumer how well they are doing according to the values which they espouse. That measurement gives an incentive to do better. Soon, the rating will be able to be shared with others on social-media sites such as Facebook, which could inspire (or pressurise) a shopper to consume more thoughtfully. It might even, believes Mr O'Rourke, turn being a good shopper into an online game. shops. Most retailers are better prepared financially to withstand a disappointing holiday season than they were two or three years ago, reckons David Kuntz of Standard & Poor's, a ratings agency. They have cut costs, inventories are lean and their balance-sheets are stronger. They will need all their resilience in the near future. Americans are unlikely to recover their former household wealth any time soon, so retailers had best get used to night-time openings on Thanksgiving. •
The Economist November 19th 2011 Google Music
Battle of the bands SAN FRANCISCO
The web giant launches a rival to Apple's iTunes "BREAK Ya Neck" is the title of one of the many ditties to have tripped off the tongue of Busta Rhymes over the years. On November 16th the rapper and anumber of other well-known musicians were on hand to help mark the launch of Google's new online music service. Although the internet giant is not planning to snap any necks, it would dearly like to break the vice-like grip that Apple has on the $6.3 billion a year digital-music business thanks to the success of its iTunes online store and devices such as the iPod. But doing so will not be easy. Google's decision to launch its own music store is the latest salvo in a wider conflict being waged by the titans of the tech world. Like spiders spinning vast webs, Apple, Amazon and Google are doing their best to create huge "ecosystems" of tightly linked electronic devices and online services that snare consumers and discourage them from switching to rivals' offerings . Digital music has a special place in these systems because of its popularity and because Apple has shown that it can be a money-spinner too. Hence Google's determination to take on Apple and Amazon, which is also developing an online-music business of its own. Earlier this year, Google launched Music Beta, a service limited to the American market that lets consumers upload songs to a digital "locker" on its servers and then listen to them on any PC with a web connection or any mobile device using the search firm's Android operating system. This service, which lets people store up to 20,000 songs free in Google's computing "cloud", will form part of the company's broader Google Music offering, initially limited to America too. Another element of this is a new online music store that will be embedded in the Android marketplace. This virtual emporium will eventually offer over 13m digital songs that people can buy and add to their personal collections held on Google's servers. Although it is a latecomer to the music market, Google hopes other bits of its ecosystem will help close the gap with its big rivals and see off a challenge from new, subscription-based online music services such as Spotify. In particular, it is betting that the rapid spread of Android devices will create a huge audience, and it will leverage its social network, Google+, to help drive sales: users who buy individual songs or entire albums from Google's digi-
Business 73
tal store will be able to let their friends on Google+ play the same music once without having to pay for it. Google is also offering some songs from bands such as The Rolling Stones and Coldplay free in a bid to get people to try its new service. These advantages are not to be sniffed at. But they cannot disguise several weaknesses in Google's strategy. The biggest of these is that it has been unable to strike deals with all of the companies that dominate the music industry. The firm has inked agreements with Universal Music Group, EMI Group (which Universal has just signed a deal to buy) and Sony Music Entertainment, but has been unable to do so with Warner Music Group. Unless it can find a way to bring Warner into the fold soon, it will find it hard to match the iTunes store, which has over 20m songs on its virtual shelves. Then there is the fact that Google's fledgling music locker still requires users to upload songs to it manually. Apple, on the other hand, has agreed terms with music publishers that have allowed it to create iTunes Match, which launched in America
on November 14th. The service, which costs $24.99 a year, scans a user's songs and if there are high-quality copies available automatically drops them into the user's virtual music locker on the Apple servers. Music aficionados with oodles of songs are likely to find this especially compelling. And whereas Google has focused on selling online advertising to companies, both Apple and Amazon have a history of pitching to consumers. "They know how to take people's money quickly and efficiently," says Mike McGuire of Gartner, a research firm. Apple, for instance, already has some 225m iTunes accounts complete with credit-card details attached to them. All this means that it will be tough for Google to dislodge Apple from its digitalmusic throne. Yet it would be a mistake to underestimate it. Google's experience with Android, which has become the dominant operating system on new smartphones, shows it is not afraid of a scrap in the consumer arena. It therefore seems appropriate that Busta Rhymes was at this week's launch. The title of one of his other songs is "Respect My Conglomerate". •
Indian airlines
Natural selection MUMBAI
Kingfisher, a big Indian airline with an even bigger boss, fights for survival
T IKE many airline promoters, Vijay MalL lya of Kingfisher (pictured above) has long cultivated a flamboyant image, from his Branson-esque facial hair, sponsorship of sports teams and collection of flash cars to his promotion of a swimwear calendar and innuendo-laden promise, replayed on in-flight videos during take-off, that he has personally selected each of the Indian airline's routinely gorgeous cabin crew.
On November 15th, though, he struck a more sober and articulate note as he faced a press pack in Mumbai hungry to know if his airline, India's second-biggest, is going bust. Mr Mallya insisted that "to write the epitaph of Kingfisher constantly is not fair," adding, "We realise our responsibility to our customers and our country." Despite his goatee, Mr Mallya deserves a hearing. From a customer's perspective
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The Economist November 19th 2011
74 Business ~
his airline is excellent. And over the decades since he inherited the family firm he has also built up a bigger operation in beer and spirits (the Kingfisher logo graces bottles of lager as well as Airbus A320s) which has delivered strong shareholder returns. Yet the financial facts speak for themselves. Kingfisher Airlines has net debt of $1.45 billion, has lost almost $400m in the past 18 months and has not made a fullyear profit since it was floated in 2006. It now aims to cut costs, reconfigure its planes and scale back in the no frills end of the market, where Mr Mallya predicted a "bloodbath". For all that, though, there is no easy path for any Indian airline. Demand is growing fast but so is capacity, says Anirudha Dutta of CLSA, a broker. Fierce competition and pricey fuel mean almost everyone is struggling. That makes it a game of who runs out of cash first. Kingfisher has partly relied on handouts from other bits of Mr Mallya's empire, which have reached some $7oom in total and $150m this year alone. But this source of liquidity may be near exhausted. "I suspect that he is now running out of the ability to do that," says one former director of a rival airline, referring to Mr Mallya's habit of spending his beer money on buying more planes. Ravi Nedungadi, president and chief financial officer of the UB Group, Kingfisher's parent, says he hopes to win new credit lines in the coming weeks. The banks have already softened the terms of their loans once-and got a rocket from their own investors for doing so. But the government is loth to let Kingfisher fail and will probably lean on lenders to keep it flying. Further out Kingfisher needs to raise lots of equity. In theory other local airlines could get involved, but they are wary. Both ]et Airways, the biggest, and Kingfisher itself have burned their fingers doing deals before. A foreign carrier might want to take a stake, but that would require the present lethargic government to lift the prohibition on such investments, the kind of simple issue on which its indecision is final. Kingfisher will thus probably need to rely on institutional investors. Perhaps they will judge that this is the low point for the industry and that competition will recede. Prices are now rising in other beaten-up sectors, such as mobile telecoms, where a long boom has also been good for consumers but bad for investors. But airlines may be different, since not all the players are rational. State-owned Air India has its autopilot locked on a kamikaze course of slashing prices but not costs and getting the public to pick up the tab. And, in a country where every decent oligarch owns a cricket team, more tycoons might fancy starting up their own airlines too, increasing capacity further. "They'll be another billionaire who wants to be a millionaire," predicts the industry veteran. •
Chinese jewellers
Beijing bling
HONG KONG
The world's largest jeweller goes public AT FIRST blush, Chow Tai Fook (CTF) 1""\.may seem to be in a spot of bother. The secretive Hong Kong-based chain of jewellery stores, which on some measures is the world's largest, has long wanted to float shares on the Hong Kong stock exchange. Alas, this week it was forced to scale back both the valuation and the size of its planned offering. Market rumours now suggest it will float about $3 billion-$4 billion-worth of shares next month. That may be less lucrative than it hoped for, but do not shed any tears for Cheng Yutung, the firm's billionaire boss. The weakness of this deal (which would still rank as one of the bigger placements this year) has more to do with market turmoil than any specific snags confronting CTF. Though almost unknown in the West, the firm is a goliath, with a reported $4.5 billion in sales last year, leaping ahead at a rate of over so% a year. It is already more than twice the size of Tiffany & Co, a posh American jeweller. A recent analysis by George Washington University and L2, a thinktank, found the brand is better known in
China than Rolex, Bulgari or Tiffany. Considering the booming market in China, where most of the firm's 1,500 or so outlets are located, the future positively glisters for CTF. On some estimates, China's jewellery market is already a 250 billion yuan ($39 billion) business, growing at perhaps 15% a year. Part of the growth comes from the surge in wealth among the very richest. The firm's real strength, however, lies in its ability to reach the rising middle classes who live outside the biggest cities and who are also splashing out to buy gems and gold (CTF can claim credit for getting mainland Chinese to embrace the more lucrative 24-carat variety). The World Gold Council reckons that China is the world's fastest-growing market for gold jewellery and the second-biggest after India. There are now signs that Chinese consumers, confronted with rising inflation, are buying gold as a hedge. It is true that CTF has rivals, but it seems better positioned to conquer China. Luk Fook, for example, is another Hong Kong jeweller expanding rapidly on the mainland-but its strategy relies chiefly on using franchisees, whereas CTF ensures high quality and branding by directly controlling its far-flung outlets. Foreign firms are also expanding-Prada had a $2.5 billion stock placement in Hong Kong earlier this year, and Cartier has more than no bustling stores on the mainland-but they rarely stray outside the big cities. Indeed, CTF could even profit by offering global rivals a distribution channel in remote regions. Local knowledge matters, for tastes differ widely: jade is popular in interior provinces, for example, while coastal regions prefer simple designs. CTF has just struck a deal with De Beers to market one of the diamond company's brands in its outlet in Changsha, the capital of Hunan province. Global markets may be punishing CTF today, but the heartland of China looks likely to reward its investors for years to come. •
I
The gold standard China 's top brands in jewellery and watches, 2011 Brand di gital presence score, maxi mum=170
0
20 40
Swarovs ki Cartier Omega Longines Chow Tai Fook Hub lot Rolex Jaeger-LeCoultre
In "Sexual harassment: Nasty, but rarer" (November 12th) we said that the number of cases tracked by the Equal Employment Opportunity Commission has risen . In fact the number of cases has fallen con siderably and preliminary figures for 2011 show that the number continues to drop. Sorry.
Raymond Weil Tiffany & Co Sources: L2 ; Geo rg e Was hing to n University School of Business
60
80 100 120
The Economist November 19th 2011
Business 75
Schumpeter: l The French way of work Managers must shoulder some of the blame for France's troubled relationship with work
VERY year, Sophie de Menthon, a French entrepreneur, holds an event called ]'aime ma boite (I love my firm) in Paris. The idea is to counter the notion that the French don't like work. Employees are enticed to make lip dubs (a video of them lip-synching to music, if you need to ask), massage each other, vote for the nicest colleague, arrange for the accountant to swap jobs with the secretary and other stunts to celebrate their firm. The much-mocked campaign has not had much luck. In 2007 a national strike interrupted the festivities, and in 2009 a series of suicides at France Telecom spoilt the atmosphere. This year employees showed less love for their boite than ever before. Only 64% of those polled liked their company, down from 79% in 2005. A truer reflection of work attitudes came this summer when French workers covered office windows with huge pictures made up of Post-it notes. Employees at GDF-Suez, a utility, stuck thousands of them to the windows of its HQ near Paris to represent Tin tin, a comic-strip hero. Societe Generate's bankers responded with a picture of Asterix and Obelix across six storeys. A few employers cracked down on the time-wasting, but most did not dare. Many outsiders conclude that French workers are simply lazy. "Absolument De-bor-dee!" ("Absolutely Snowed Under"), a book which came out last year, described how state employees compete to do nothing at work. Another title in this bestselling genre on avoiding toil, "Bonjour Paresse" ("Hello Laziness") by Corinne Maier, an economist, explained how she got away with doing nothing at EDF, another utility. In fact studies suggest that the problem with French employees is less that they are work-shy, than that they are poorly managed. According to a report on national competitiveness by the World Economic Forum, the French rank and file has a much stronger work ethic than American, British or Dutch employees. They find great satisfaction in their work, but register profound discontent with the way their firms are run. Two-fifths of employees, according to a 2010 study by BV A, a polling firm, actively dislike their firm's top managers. France ranks last out of ten countries for workers' opinion of company management, according to a report from 2007. Whereas twothirds of American, British and German employees say they have friendly relations with their line manager, fewer than a third
E
of French workers say the same. Many employees, in short, agree with Ms Maier, who recommends that chief executives be guillotined to the tune of "La Carmagnole", a revolutionary song. If French work attitudes are out of the ordinary, French management methods are also unusual. The vast majority of chief executives of big firms hail from one of a handful of grandes ecoles, such as Ecole Polytechnique, an elite science school. Through what is known as parachutage, they can arrive suddenly from the top ranks of the civil service. Air France KLM, for example, announced unexpectedly last month that its new chief executive would be Alexandre de]uniac, formerly chief of staff to Christine Lagarde when she was France's finance minister. Although the grandes ecoles are superbly meritocratic-candidates compete against each other in a series of gruelling examstheir dominance of corporate hierarchies makes workplaces much less so. At a big French bank recently, a manager promoted an executive, only to be reproached by a furious rival who said he should have been given the job because he had done better in the final exams at the same grande ecole. As Thomas Philipp on, a French economist, pointed out in "Le Capitalisme d'Heritiers", a 2007 book, too many big French companies rely on educational and governmental elites rather than promoting internally according to performance on the job. In the country's many family firms, too, opportunity for promotion is limited for non-family members. This overall lack of upward mobility, argues Mr Philippon, contributes largely to ordinary French cadres' dissatisfaction with corporate life. A study of seven leading economies by TNS Sofres in 2007 showed that France is unique in that middle management as well as the lower-level workforce is largely disengaged from their companies. For those farther down the ladder, French companies are hierarchical, holding no truck with Anglo-Saxon notions of "empowerment". And bosses are more distant than ever. A big change in French management, says Jean-Pierre Basilien of Entreprise & Personnel, a Paris research centre, is that industrial managers now seldom rise through the ranks. Fifteen years ago a leading graduate would have worked in factories before moving to headquarters. Now many come up via finance or strategy. From the ranks There are important exceptions. Danone, a food-products firm, is one. It has made a big effort to promote people solely on competence, says Charles-Henri Besseyre des Harts, a professor at HEC, a business school which is one of the elite grandes ecoles. The 2006 merger of Alcatel, a French telecoms-equipment firm, and Lucent, an American one, created a less hierarchical group. Akatel-Lucent even encourages teleworking, uncommon in France because it means trusting workers not to goof off. Jean-Pascal Tricoire, chief executive of Schneider Electric, an ambitious energymanagement firm, came up from the ranks. French companies have particular reason to worry now about their bad boss-worker relations. An important factor in the growing gap in industrial competitiveness between France and Germany, said a recent study by Coe-Rexecode, an economic-research centre, is that German bosses and employees are better than French ones at working together. French bosses badly need to follow in the footsteps of Danone and other modernisers. If they try and fail, then at least they can blame the workers. • Economist.comfblogsfschumpeter
Weaving the world together DELHI , ENUGU AND JAKARTA
Mass migration in the internet age is changing the way that people do business N THE flat world of maps, sharp lines Iother show where one country ends and anbegins. The real world is more fluid. Peoples do not have borders the way that parcels of land do. They seep from place to place; they wander; they migrate. Consider the difference between China and the Chinese people. One is an enormous country in Asia. The other is a nation that spans the planet. More Chinese people live outside mainland China than French people live in France, with some to be found in almost every country. Then there are some 22m ethnic Indians scattered across every continent (the third Indian base in Antarctica will open next year). Hundreds of smaller diasporas knit together far-flung lands: the Lebanese in west Africa and Latin America, the Japanese in Brazil and Peru, the smiling Mormons who knock on your door wherever you live. Diasporas have been a part of the world for millennia. Today two changes are making them matter much more. First, they are far bigger than they were. The world has some 215m first-generation migrants, 40% more than in 1990. If migrants were a nation, they would be the world's fifth-largest, a bit more numerous than Brazilians, a little less so than Indonesians. Second, thanks to cheap flights and communications, people can now stay in
touch with the places they came from. A century ago, a migrant might board a ship, sail to America and never see his friends or family again. Today, he texts his mother while still waiting to clear customs. He can wire her money in minutes. He can follow news from his hometown on his laptop. He can fly home regularly to visit relatives or invest his earnings in a new business. Such migrants do not merely benefit from all the new channels for communication that technology provides; they allow this technology to come into its own, fulfilling its potential to link the world together in a way that it never could if everyone stayed put behind the lines on maps. No other social networks offer the same global reach-or commercial opportunity. The immigrant song This is because the diaspora networks have three lucrative virtues. First, they speed the flow of information across borders: a Chinese businessman in South Africa who sees a demand for plastic vuvuzelas will quickly inform his cousin who runs a factory in China. Second, they foster trust. That Chinese factory-owner will believe what his cousin tells him, and act on it fast, perhaps sealing a deal worth millions with a single conversation on Skype.
Third, and most important, diasporas create connections that help people with good ideas collaborate with each other, both within and across ethnicities. In countries where the rule of law is uncertain-which includes most emerging markets-it is hard to do business with strangers. When courts cannot be trusted to enforce contracts, people prefer to deal with those they have confidence in. Personal ties make this easier. Chike Obidigbo, for example, runs a factory in Enugu, Nigeria, making soap and other household goods. He needs machines to churn palm oil and chemicals into soap, stamp it into bars and package it in plastic. He buys Chinese equipment, he says, because although it is not as good as European stuff, it is much cheaper. But it is difficult for a Nigerian firm to do business in China. Mr Obidigbo does not speak Chinese, and he cannot fly halfway around the world every time he wants to buy a new soap machine. Worse, if something goes wrong neither the Chinese government nor the Nigerian one is likely to be much help. Yet Mr Obidigbo's firm, Hardis and Dromedas, manages quite well with the help of middlemen in the African diaspora. When he wants to inspect a machine he has seen on the internet, he asks an agent from his tribe, the Igbo, who lives in China to go and look at it. He has met several such people at trade fairs. "When you hear people speaking Igbo outside Nigeria, you must go and greet them," he laughs. He trusts them partly because they are his ethnic kin, but mostly because an Igbo middleman in Guangdong needs to maintain a good reputation. If a middleman
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The Economist November 19th 2011 ~
cheats one Igbo, all the others who buy machinery in Guangdong will soon know about it. News travels fast on the diaspora grapevine. Thanks in part to Mr Obidigbo's diaspora connections, Hardis and Dromedas is thriving. It employs 300 workers and sells about 300m naira-worth ($2m) of products each year. And it is just one of many African firms that use migrants as their eyes and ears in distant lands. The number of Africans living in China has exploded from hardly any two decades ago to tens of thousands today. One area of Guangzhou is now home to so many African traders that the locals call it Qiao-ke-li Cheng (Chocolate City). The ability to use informal networks built on trust and a sense of belonging is not restricted to honest businesses such as soap making. Those with dirty hands can build criminal networks on a very similar basis. Many past diasporas have housed a "thing of our own", or Cosa Nostra, as the Sicilians put it, and some still do. But new technology may tip the scales in favour of those abiding by the law, at least a little. National police forces still do not co-operate seamlessly, but they are much easier to connect than once they were. And the ability of migrants to communicate with home directly leaves less room for sometimes criminal middlemen. In through the out door The Chinese and Indian diasporas have long been commercially important. In previous generations, however, China and India themselves were closed economies, so overseas Chinese and Indian traders had to content themselves with linking foreign ports to each other (the Chinese in SouthEast Asia, for example, and the Indians in parts of Africa). That has completely changed. The overseas Chinese now connect the world to China and China to the world. The Indians do the same for India. Consider the Riadys, an ethnic Chinese family who have lived in Indonesia for nearly a century. Mochtar Riady established the family fortune after the second world war, first as a bicycle trader, then by buying a bank, then by founding the Lippa Group, a conglomerate. Throughout his career he relied on his relationships with other Chinese exiles. Rosabeth Moss Kanter, a professor at Harvard Business School (HBS) who has written a study of the Riady family, argues that for the Lippa Group, "networking is not just supportive of the business strategy; networking is the business strategy," and that ethnic ties serve as an "entrepreneurial springboard." Mr Riady would probably agree. "Without a network, we can do nothing," he once said. The Riadys spread from Indonesia into Hong Kong and Singapore. In the 1980s they moved into America, hooking up
Briefing Migration and business 77
I
It's who you know China's top providers of foreign direct investment* 2010
Country/territory
$bn
As% Chinese of total residents, m
.H. 0 .~9..~?.~.9 .......... ..~?:.~...... ~.~ : ~............ ?:.~~ .... . Taiwan 6.7 6.3 23.16
S!~~-ap_o;~ ............ 5.-.J.......5 :~..... .. .~?.~~n...... ... ......... ...~--~....... ~: ?........
2.79
0.52 United States 4.1 3.8 3.46 2.7 2.5 ..South ....... ..Korea ..... ...................... ........... .. 0.70 Britain 1.6 1.6 0.30 ................................................................... France 1.2 1.2 0.23...... . ... ........... ...... . ........ .. ..... . ..... ...... Netherlands 1.0 0.9 0.15
.G.e:~~~X .................?·.?........o:?............ o.-.o?..... . Others
10.2
Sources: CEIC; OCAC; US Census Bureau
9.6
31.88
*Including through tax havens
with Chinese-American firms engaged in trans-Pacific trade. After Indonesia restored normal diplomatic ties with China in 1990, Mr Riady spent eight months touring the Middle Kingdom by car, sniffing out opportunities and forging new friendships. The Lippa Group-which has interests that range from property to supermarkets and newspapers-is investing in a variety of businesses in second-tier Chinese cities, where Western multinationals have been slow to penetrate. John Riady, Mochtar Riady's grandson, says Chinese contacts "really make us feel at home." The government in Beijing has set up a ministry to deal with the overseas Chinese. Small wonder. Most of the foreign direct investment that flows into China is handled by the Chinese diaspora, loosely defined. Of the $105 billion of FDI in 2010, some two-thirds came from places where the population is more or less entirely ethnic Chinese (see chart). That includes Hong Kong and Taiwan, which are officially part of China. But these two places operate as if they are part of the diaspora. Citizens of Taiwan are entirely outside Beijing's control. Hong Kongers are not, but they enjoy secure property rights and the rule of law
in much the same way that Chinese Americans and Chinese Singaporeans do. These data may be misleading. Mainland Chinese businesses sometimes launder money through Hong Kong to exploit Chinese government incentives for foreign investment. Nevertheless, it is clear that ethnic Chinese are far more confident about investing in China than anyone else. They understand the local business culture. They know whom to trust. Which is why they also serve as a bridge for foreigners who wish to do business in China. A study by William Kerr and Fritz Foley of HBS showed that American firms that employ lots of Chinese Americans find it much easier to set up operations in China without the need for a joint venture with a local firm. While some migrants settle down, others study or work abroad for a while and then return home, and others go first to one place, then another. "People don't have to choose between countries," says Kathleen Newland of the Migration Policy Institute in Washington, D c. "They can keep a foot in two or more." Their ceaseless circulation spreads ideas and expertise as the body's blood spreads oxygen and glucose. Bringing it all back home The benefits can be seen at places such as Fortis, a chain of so private hospitals in India. Malvinder and Shivinder Singh, the brothers who built the company up, both studied business in the United States. That imparted what Shivinder calls "a certain discipline". "If you live only in India, you naturally measure yourself against Indian standards," he says. "If you have lived abroad, you measure yourself against the best in the world." During their father's terminal cancer the brothers had a sad opportunity to see the American health-care system up close. Shivinder observed that the best American hospitals did not just have good doctors. They were also superbly organised. Doctors follow carefully documented pro- ~~
• Russia
Trinidad and Tobago
Peru
Two diasporas, top 20 countries •
e
~ -·--·- 2.0
Chinese outside mainland China*, m
~- ~ 6:~
Indians outside India, m
f r\J
Sources: CEIC; OCAC; MOIA; US Census Bureau
0
South Africa 'Taiwan (23 .2m) not shown
78 Briefing Migration and business ~
cedures instead of relying solely on their instincts, as Indian doctors tended to. This might cramp the style of one or two medical geniuses, but it also raised ordinary physicians to a consistently high standard. Fortis hospitals reimagined that American excellence to fit a frugal Indian setting. A leading surgeon in America might perform 250-350 operations a year. A surgeon at a Fortis hospital will perform 1,200. An army of helpers takes care of all the mundane tasks, leaving surgeons free to concentrate on the surgery. So even though the Singhs pay their doctors well, a kidney operation that might cost $100,000 in America costs less than $10,000. To keep up with cutting-edge medicine, Fortis "very aggressively" recruits Indian doctors who have studied or worked abroad, says Shivinder. They bring back specialised skills, some of which were not previously available in India, such as transapical procedures for heart patients and ballooning techniques in spinal surgery. They also bring contacts: when a tough problem arises, they know whom to email for advice. Because migrants see the world through more than one cultural lens, they often spot opportunities invisible to their monocultural neighbours. For example, Cheung Yan, a Chinese woman living in America, noticed that Americans threw out mountains of waste paper and that ships carrying Chinese goods to America often steamed back half-empty. So she gathered up waste paper and shipped it to China for recycling into cardboard boxes, many of which were then returned to America with televisions inside. Her insight made Mrs Cheung a billionaire. Going to California The world is full of budding Cheung Yans. Immigrants are only an eighth of America's population, but a quarter of the engineering and technology firms started there between 1995 and 2005 had an immigrant founder, according to Vivek Wadhwa of Duke University. The exceptional creativity of immigrants doubtless reflects the sort of people who up sticks and get visas. But work by William Maddux of INSEAD (a business school) and Adam Galinsky of Northwestern University suggests that exile itself makes people creative. They compared MBA students who had lived abroad with otherwise similar students who had not, using an experiment in which each was given a candle, a box of matches and a box of drawing pins. The students' task was to attach the candle to a wall so that it burned properly and did not drip wax on the table or the floor. This Duncker candle problem, as it is known, is considered a good test of creativity because it requires you to imagine something being used for a purpose quite different
The Economist November 19th 2011
from its usual one. Some 6o% of the migrants saw the solution-pinning the drawing-pin box to the wall as a makeshift sconce-against 42% of non-migrants. The creativity of migrants is enhanced by their ability to enroll collaborators both far-off and nearby. In Silicon Valley, more than half of Chinese and Indian scientists and engineers share tips about technology or business opportunities with people in their home countries, according to AnnaLee Saxenian of the University of California, Berkeley. A study by the Kauffman Foundation, a think-tank, found that 84% of returning Indian entrepreneurs maintain at least monthly contact with family and friends in America, and 66% are in contact at least that often with former colleagues. For entrepreneurs who return to China, the figures are 81% and ss%. The subjects they talk about most are customers
New York, new yorker (61% of Indians and 74% of Chinese mention this), markets (62% of Indians, 71% of Chinese), technical information (58% of Indians, 68% of Chinese) and business funding (31% of Indians, 54% of Chinese). Mr Kerr has devised an ingenious study which uses patent information to measure how knowledge moves through diaspora networks. Looking at the names on American patent records, and guessing that an inventor called Zhang was probably ethnic Chinese, whereas someone called Rubio was probably Hispanic, he calculated that foreign researchers cite researchers of their own ethnicity based in America 30-50% more often than you would expect if ethnic ties made no difference. It is not just that Brazilian scientists in Sao Paulo read papers written by Brazilian scientists in America. There's also gossip. Brazilian scientists in America will often
alert their old classmates in Sao Paulo to intriguing research being done at the lab down the hall. And the information flows both ways. A study in 2011 by the Royal Society found that cross-border scientific collaboration is growing more common, that it disproportionately involves scientists with diaspora ties and that it appears to lead to better science (using the frequency with which research is cited as a rough measure). A Chinese paper co-written with a scientist in America is cited three times as often as one produced solely in China. Ramble on Diaspora ties help businesses as well as scientists to collaborate. What may be the world's cheapest fridge was conceived from a marriage of ideas generated by Indians in India and Indians overseas. Uttam Ghoshal, Himanshu Pokharna and Ayan Guha, three Indian-American engineers, had an idea for a cooling engine, based on technology used to cool laptop computers, that they thought might work in a fridge. In India visiting relatives they decided to show their idea to Godrej & Boyce, an Indian manufacturing firm. Mr Pokharna wheedled an introduction from a young member of the Godrej family, exploiting the fact that both had been at the University of Pennsylvania's Wharton business school. They discovered that Godrej was already working on a cheap fridge for rural Indians too poor to fork out the $200 normally required, let alone the subsequent electric bills. Jamshyd Godrej, the firm's chairman, was determined to make a cheap batterypowered fridge. With the help of Mr Ghoshal's cooling chip, his team produced the Chotu Kool ("little cool"): light, portable, small and cheap. Mr Ghoshal's firm in Texas, Sheetak Inc, is working with Godrej to make it more efficient. The "new type of hyperconnectivity" that enables such projects is fundamental to today's networked diasporas, according to Carlo Dade, of the Canadian Foundation for the Americas, a think-tank. "Migrants are now connected instantaneously, continuously, dynamically and intimately to their communities of origin ...This is a fundamental and profound break from the past eras of migration." That break explains why diasporas, always marginalised in the flat-map world of national territories, find themselves in the thick of things as the world becomes networked. Shrewd firms are taking notice. China's high-tech industry is dominated by returnees from abroad, such as Robin Li and Eric Xu, the founders of Baidu, China's leading search engine. Asked how many of his top people had worked or studied abroad, N. Chandrasekaran, the boss of Tata Consulting Services, a big Indian IT firm, replies: "All of them." •
79
Also in this section 80 Buttonwood: Voters versus creditors 82 Hedge funds on the prowl 82 Middle-market banking 83 China's capital markets 84 Japan's economy revisited 86 Economics Focus: Technology and unemployment
For daily analysis and debate on economics, visit Economist.comfeconomics
The European Central Bank
Brinl< thinl<
The Bundesbank's chief and the ECB's Italian president have much in common
"{ 1. ]HEN Mario Draghi took over as presVV ident of the European Central Bank at the beginning of this month, it was felt that he had to prove his credentials in Germany. That task is made harder by calls on the ECB to act as backstop to troubled Italy, Mr Draghi's home country, and to contain a sovereign-debt crisis that is raising borrowing costs for most euro-zone countries, while driving them down in Germany. This week}ens Weidmann, the head of the Bundesbank, Germany's central bank, raised the bond-market pressure on Italy and on Mr Draghi by saying that centralbank support for government finances would be illegal. Mr Weidmann told the Financial Times that the ECB could not act as a lender of last resort for countries, because in doing so it would transgress EU treaties banning direct financing of states. It would be counter-productive as well, argued Mr Weidmann. The roots of the eurozone crisis lay with governments, and providing them with cheap financing would only reduce pressure for reform. With bond markets so febrile, Mr Weidmann's comments were ill-timed. Yet his views were scarcely surprising. He became head of the Bundesbank in May after Axel Weber resigned because of his discomfort with the ECB's (then small-scale) interventions in sovereign-bond markets, which were designed to keep credit flowing to banks and businesses. Mr Weidmann's views are similarly circumscribed by the
tenets of German economic thinking: a distrust of policy discretion; an emphasis on the long term; a deep-seated fear of inflation; and an obsession with moral hazard. For Mr Weidmann, rules are paramount. Italy is not in danger of default and can turn itself around and the ECB's independence must be preserved at all costs. Bundesbank-watchers say Mr Weidmann's comments were directed at his domestic audience in Germany, which fears that the ECB is losing its bearings. But was the bank's new president also among the intended audience? Mr Draghi comes from a different tradition from Mr Weidmann. He completed his PhD in economics at the Massachusetts Institute of Technology (MIT) in the 1970s. His advisers included
I
The euro tunnel Ten -year government-bond yields, %
4.0 3.5 3.0
2.0
1.5 -f/
2011 Source: Thomson Reuters
Stanley Fischer, now head of Israel's central bank, and Rudiger Dornbusch, a German economist known for his work on currency markets. In that way Mr Draghi shares an intellectual heritage with Ben Bernanke, the Federal Reserve chairman, Olivier Blanchard, the IMF's chief economist, and Paul Krugman, a New York Times columnist. All are MIT alumni from about the same time. That background might predispose the new ECB president to the sort of monetary-policy activism that the Fed has gone in for. Yet his worldview is probably closer to Mr Weidmann's than it appears at first. Italy's technocratic class is quite Germanic, observes Julian Callow of Barclays Capital, an investment bank The academic work that suggests budget-cutting is good for growth (a popular belief among German economists) has been largely produced by Italian economists. An early and influential paper in the literature was coauthored by Francesco Giavazzi, who was at MIT with Mr Draghi and is still a close associate. A chapter of Mr Draghi's thesis addressed the issue of how an economy can boost its long-term growth when it faces immediate financial pressures. Moreover, Mr Draghi's experience in Italy makes him wary of giving politicians a soft option. After a spell in academia and six years at the World Bank, he spent a decade from 1991 as a senior official at the Italian Treasury. There he was in charge of privatisation and managing the public debt, which had exploded in the late 1980s and early 1990s. Italy adopted economic and public-finance reforms only under heavy bond-market pressure. So Mr Draghi will probably be wary of swiftly stepping in to cap Italy's interest rates. His knowledge of Italian politics, public finances and financial markets may make him willing to play games of brinkmanship, says Marco An-
~~
The Economist November 19th 2011
80 Finance and economics ~
nunziata, the chief economist at GE. Indeed, Mr Weidmann's strong opposition to ECB purchases of government bonds might even be helpful to Mr Draghi, who said at his first press conference that unlimited lending to governments would be outside the ECB's remit. If the ECB gives the impression that it will do the minimum to abate the bond-market panic, it would increase the pressure on Italy's politicians to support a reform-minded cabinet and to push through the right policies quickly. The markets may be panicking but Mr Draghi is said to be calm in a crisis. That
calm will sit well with the Bundesbank's view that panics blow themselves out, and that what matters most is long-term stability. The hope is that reform (and high yields) will tempt buyers back into Italian bonds and that markets will calm down. Sadly, it seems that panic is not abating but is spreading to the heart of the euro zone and is no longer easily explained by deficits or public debts. Public finances in France are not nearly as bad as in Britain. But yields on French ten-year bonds are now far higher than for the equivalent British bonds (see chart on previous page). The
growing gap between borrowing costs in Germany and those in other euro-zone countries suggests that investors now fear a break-up of the euro zone. As much as reform in Italy and elsewhere is needed, it seems unlikely that promises to be austere will halt what looks like a run from all euro-zone bonds but German ones. The ECB, despite its misgivings, is the only institution with the power to reverse a self-fulfilling panic. If the pressures become so great that a break-up of the euro seemed likely, could even the Bundesbank really say no? •
Buttonwood I Market discipline works when other controls fail
ANGELA MERKEL, the German chan.1'"\.cellor, spoke for many Europeans when she said last year that "We must reestablish the primacy of politics over the markets." The Europeans created the euro to prevent the crises caused by currency speculators, only to find themselves pushed around by bond investors. Politicians have often cursed the markets. Harold Wilson, a British prime minister, used to fulminate against the "gnomes of Zurich" who speculated against the pound. In the mythology of the British Labour Party, a "bankers' ramp" pushed the party out of office in 193L James Carville, a political adviser to Bill Clinton, wanted to be reincarnated as the bond market so he could "intimidate everybody". In theory, there is an easy answer. If you don't want to be bothered about the bond markets, don't borrow from them. The finance ministers of Norway and Saudi Arabia have no cause to worry about their borrowing costs because they are net creditors. Not all nations can be creditors, of course. But John Maynard Keynes's plans for the post-1945 monetary system were aimed at limiting the imbalances that arose in the interwar system, and have popped up again in the past 20 years. Since this involved restricting the rights of surplus nations, his plans were circumscribed by Washington, a nice irony now that America is a debtor nation. After the Bretton Woods system collapsed in 1971, trade imbalances ceased to be much of a constraint on the developed world. Financial markets seemed happy to provide the money to allow countries to run deficits on both the fiscal and trade accounts. This may have led to a fatal complacency on the part of governments, which assumed that their credit was limitless. But rather like Northern Rock, the
British bank that became too dependent on the wholesale markets for funding and collapsed in 2007, countries such as Greece and Italy have discovered that investors can suddenly withdraw their favours. Is the latest run the action of speculators, as Silvio Berlusconi mused in his farewell statement? On the contrary, the selloff is probably down to caution. The Greek debt deal required private-sector investors to take a so% hit, while official investors would be repaid in full. This made privatesector investors worry about potential losses elsewhere. They have shifted their assets into the perceived safety of Germany and Britain. In addition, it seems that banks are selling off bonds in an attempt to shrink their balance-sheets and meet new rules designed to make them safer. Countries can escape from the tyranny of the markets by turning to official lenders: other countries, the International Monetary Fund or the European Financial Stability Facility. But such creditors are just as keen on extracting their pound of flesh (in terms of economic reform) as the private sector.
Vague plans for a fiscal union seem to depend on a bargain in which Germany agrees to transfer money to debtor countries but the debtors agree to limits on their ability to run a deficit. This implies that someone in Brussels (or Frankfurt) will have a veto over a debtor country's budget. In short, having lost their ability to control their monetary policy, voters may have to lose control over their fiscal policies as well. National politics will be reduced to dealing with social issues, such as smoking bans. Perhaps this is inevitable. Just as voters cannot repeal the laws of gravity, they cannot insist that foreign creditors lend them money. Domestic wealth, alternatively, can be taxed or confiscated, although this is a strategy that is likely to be successful only in the short term or during national emergencies such as the second world war. Capital controls worked under the Bretton Woods system but it is not clear whether they can be enforced in an age where money can be transferred through the click of a mouse. The prospect of financial ruin was one reason why many people feared the introduction of democracy. "The ignorant majority, when unrestrained by a superior class, always sought to tamper with sound money," said Thomas Hutchinson, a lieutenant governor of Massachusetts in 1753. Alexander Hamilton described the progressive accumulation of debt as "perhaps the natural disease of all governments." Over the centuries, countries have tried various rules-the gold standard, balanced-budget requirements, independent central banks-in an attempt to limit government profligacy. But when those rules fail, the markets assert their own grim discipline. Economist.comfblogsfbuttonwood
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82 Finance and economics
The Economist November 19th 2011
Hedge funds and deleveraging
Waiting to turn trash into treasure Hedge funds and private-equity firms have big plans for Europe
"THIS is going to be the next great trade," one American hedge-fund executive effused early this year. For more than two years funds have been salivating over the slew of assets that Europe's banks will have to sell. Many have been opening offices in London and hiring to prepare for this "tidal wave" of opportunities. Up for grabs will be distressed corporate loans, property debt and non-core businesses as European banks shrink their balance-sheets to meet stricter capital requirements. Huw Van Steenis of Morgan Stanley estimates that banks will have to downsize their balance-sheets by €1.5 trillion-2.5 trillion ($2 trillion-3-4 trillion) over the next18 months. Funds have only about $150 billion to spend on distressed debt in Europe, he reckons, which means they should have their pick of assets. For now the "next great trade" is not looking that good, mainly because there have been no fire sales. Most banks that are selling assets have priced them close to face value, providing little to entice buyers. Even where sales are agreed, financing is scarce. In July Blackstone, a large alternative-asset manager, agreed to buy a £1-4 billion ($2.2 billion) real-estate loan portfolio from Royal Bank of Scotland, but has yet to raise an estimated £6oom to pay for it. Worse still, many banks may not be able to sell assets cheaply even if they wanted to, because it would force them to take losses that would erode scarce capital. "We've been lying in wait for this opportunity since 2008. But it will come piecemeal. It will take years and years and years," says Joe Baratta, head of European private equity at Blackstone. Some predict that Europe could go the way of Japan's glacial deleveraging and take a decade or more to clean up its banks. Politics play a role too. European politicians, no hedgefund lovers, won't want to see them buying up assets at truly distressed prices and profiting from Europe's gloom. It may even be "politically impossible" for banks that got a government bail-out to write down assets significantly, says Jonathan Berger, the president of Stone Tower, a $20 billion alternative-asset firm. What could turn things around? Some fund managers hope a plan to recapitalise Europe's banks to the tune of €106 billion by next June will at last force disposals at banks. So too may the introduction of Basel 3 rules that will require banks to hold more high-quality capital. Marc Lasry, the
Mingling with the Locals for the next great trade boss of Avenue Capital, a distressed-debt hedge fund, wants to buy from these "forced sellers", because they will offer lower prices. Banks aren't the only prey that funds are hunting. A wave of refinancing that will hit private-equity-owned firms over the next few years may prove profitable for distressed-debt funds. And plans by some European governments to privatise infrastructure assets may also be enticing. In the meantime, inventive fund managers are figuring out other ways to do deals. Some, such as Highbridge, a large American hedge fund that is owned by JPMorgan, and KKR are scaling up their lending operations as banks cut back. They are able to charge high interest rates, because companies are desperate for cash. Banks are being inventive too. Unable to sell assets, they have come up with a compromise of sorts, and have started agreeing to "synthetic risk transfer" arrangements with hedge funds. For example, BlueMountain Capital, an American hedge fund, has agreed to take on some risks on a credit-default swap portfolio from Credit Agricole, a French bank. Another hedge fund, Cheyne Capital, has reached an arrangement with two big banks in Europe to take the first 4% or so of losses from a portfolio of securitised loans, in exchange for a very healthy return. Funds' investors may need convincing, given that "synthetic" became a dirty word after 2008. The deals can also be risky, says Galia Velimukhametova of GLG Partners, a European hedge fund. "You could lose 80-90% of your capital if things go very wrong, but make 10-15% if everything goes right," she says. Robert Koenigsberger of Gramercy, an emerging-market hedge fund focused on distressed investing, insists it is best to look elsewhere. "The best distressed opportunities created by Europe are now outside of
Europe," he says. He believes opportunities are particularly bright in emerging markets. Many of them are undervalued because investors are selling everywhere as a result of worries about the stability of the euro zone. For those hedge funds set on playing Europe, the main dilemma they face is how long to wait before buying. Steve Schwarzman, the boss of Blackstone, insists that it is important to stay put. "It's like dating someone," he says. "You can say let's wait two years. But she probably won't be around then." •
Middle-market banking
Pocl{ets of credit NEW YORK
Nineteenth-century banking makes a comeback
ONSIDER the priorities of the leaders of big American financial institutions C in the aftermath of the financial crisis. They must cope with a deluge of murky new rules, respond to reams of litigation, reorganise mind-boggling capital structures, pacify anti-banker mobs (and antibanker reporters), and cut compensation while artfully preserving their own perks. Put simply, says the head of one vast and troubled financial institution, risk must be reduced, liquidity increased and costs controlled. Missing from the list: providing credit for borrowers. One of the many vacuums this emphasis has produced is for middle-market lending-a statistically murky category whose rough definition could be credit for companies small enough to lack access to public markets but big enough to require vastly
~~
The Economist November 19th 2011 ~
more funding than informal channels such as friends and family could provide. Not long ago this was prime territory for banks. It has not been entirely abandoned. GE Capital, CIT, SunTrust, Wells Fargo, us Bank and Bank of America are significant participants. But thousands of smaller banks, once a mainstay of this market, are no longer in business. Others have merged and lend less to midsized
Finance and economics 83 firms than their constituent parts once did. Among the reasons for this withdrawal are the managerial challenges of analysing the creditworthiness of small companies with none of the crutches that come from credit-rating agencies and the public data disclosed by larger firms . New, onerous regulatory demands tied to lending, not least rules requiring banks to set aside more capital against loans, do not help.
China's capital markets
The bounty of the muni HONG KONG
Shanghai's government borrows in its own name for the first time in decades
N 1861 Shanghai came under attack from the Taiping rebellion, a bloody Iuprising led by the self-proclaimed younger brother of Jesus Christ. To help pay for their defence, China's provincial governments borrowed money from foreign investors. As collateral, they offered claims on Shanghai's customs revenues. Foreigners were happy to accept, because foreigners themselves ran the custom house. Provincial debt has its uses. Besides saving Shanghai from a divine sibling, it is also a rational way to finance longlived infrastructure, spreading costs over the same period as the benefits. But since 1994 China's provincial and municipal governments have been prohibited from borrowing. That changed on November 15th when Shanghai sold the first bonds under a new scheme, raising 7.1 billion yuan ($1.1 billion). In allowing the sale the central government is quietly acknowledging that the 1994 ban has become counterproductive. It conspicuously failed to stop China's sub-national governments from borrowing indirectly. They have set up more than 10,000 financing vehicles, which took out loans from banks to pay for public works, such as roads and irrigation. The central government has struggled to count this debt, let alone control it. Analysts guess that 30%-60% of these loans may turn sour. If local governments are going to borrow, it is surely better that they do so on their own balance-sheets, using instruments everyone can count and price. By selling bonds they can replace opaque debt with transparent debt, "formalising their past misdeeds," says one analyst. But the central government is still a long way from allowing local governments unfettered access to the capital markets. The pilot scheme is so far confined to two of China's richest cities, Shanghai and Shenzhen, and two of its most prosperous provinces, Guangdong and Zhejiang. The amounts scheduled
are also tiny. The central government will not let provincial governments abuse the bond markets. And even if they did, it would surely not let them go under. That is perhaps why Shanghai's five-year bonds yielded only 3.3%, the same as the central government's own paper and half the coupon offered by one of the city's financing vehicles less than a month ago. Judging by the yields, investors see Shanghai's bonds as central-government securities in all but name. The coupon payments will even pass through the central government's systems, just as Shanghai's customs revenues once passed through foreigners' hands. This suggests the bond-sale is a way to raise money from the same savers, on the same terms, as the central government, but not on the same balance-sheet. It is, in other words, the beginnings of a bail-out in disguise. China's sub-national governments may be issuing their own paper, but they are not yet writing their own fiscal destinies.
How big is your balance-sheet?
That has provided an opening for a raft of new entrants. Golub Capital, which is thought to be a leading participant, receives special notice, not only because its loan portfolio grew by 25% this year to $5 billion, but also because it says much about the shifting financial landscape. After spending time at various wellknown banks, Lawrence Golub created a debt-oriented investment fund in 1998 on the premise that the market for loans to firms had already thinned. His timing initially appeared disastrous-it was the peak of easy money from stockmarket investors-but now looks clever. It took him three years to invest a piddling $150m in seed money and only another three to become a significant force. Golub's scope is limited. It provides credit to about 150 borrowers within a handful of categories: including business software, aerospace, health care and direct marketing. Property, biotech, energy extraction and commodity manufacturing are shunned. It is structured with a parent company running various funds, each of which targets a different kind of debt, from senior secured to mezzanine, tied to the risk preferences of investors. Most importantly, loans are always held to maturity. Credit analysis is everything. Early this year Medley, another middlemarket lender, launched a public fund. It had been founded in 2005, as was CIFC, an asset manager that is indirectly backed by Harvard's endowment. In 2006 yet another middle-market lender emerged, Churchill Financial, and its founder had worked at too many places to count. Although all of these companies have different operating models, they share certain characteristics beyond the size of their target investments: their primary managers come from prominent firms, funding is by institutions or family offices rather than insured deposits, and loans are held to maturity. They also appear to be doing well. "There are lots of growing companies to finance even in a flat economy," says Joe Schmuckler, Medley's managing partner. Whether their success continues is absolutely not guaranteed. New competitors are sniffing opportunity, including some specialised hedge funds. The institutions providing these lenders with capital require meaty returns, not merely a modern replacement for a mattress. That has huge implications for their funding costs, which will be relatively high. Moreover, since deposits are not insured, there are no provisions for public bail-outs. Some of these companies may be successful; others may disintegrate. That makes them radically different from modern banks, but not all that different from what banks looked like in the 19th century. In short they will be institutions that will take risks on the real economy-a trait that at the moment is all too rare. •
The Economist November 19th 2011
84 Finance and economics Japan's economy
Whose lost decade? TOKYO
Japan's economy works better than pessimists think-at least for the elderly
HE Japanese say they suffer from an economic disease called "structural pessimism". Overseas too, there is a tendency to see Japan as a harbinger of all that is doomed in the economies of the euro zone and America-even though figures released on November 14th show its economy grew by an annualised 6% in the third quarter, rebounding quickly from the March tsunami and nuclear disaster. Look dispassionately at Japan's economic performance over the past ten years, though, and "the second lost decade", if not the first, is a misnomer. Much of what tarnishes Japan's image is the result of demography-more than half its population is over 45-as well as its poor policy in dealing with it. Even so, most]apanese have grown richer over the decade. In aggregate, Japan's economy grew at half the pace of America's between 2001 and 2010. Yet if judged by growth in GDP per person over the same period, then Japan has outperformed America and the euro zone (see chart 1). In part this is because its population has shrunk whereas America's population has increased. Though growth in labour productivity fell slightly short of America's from 2000 to 2008, total factor productivity, a measure of how a country uses capital and labour, grew faster, according to the Tokyobased Asian Productivity Organisation. Japan's unemployment rate is higher than in 2000, yet it remains about half the level of America and Europe (see chart 2). Besides supposed stagnation, the two other curses of the Japanese economy are debt and deflation. Yet these also partly reflect demography and can be overstated. People often think of Japan as an indebted country. In fact, it is the world's biggest creditor nation, boasting ¥253 trillion ($3.3 trillion) in net foreign assets. To be sure, its government is a large debtor; its net debt as a share of GDP is one of the highest in the OECD. However, the public debt has been accrued not primarily through wasteful spending or "bridges to nowhere", but because of ageing, says the IMF. Social-security expenditure doubled as a share of GDP between 1990 and 2010 to pay rising pensions and health-care costs. Over the same period tax revenues have shrunk. Falling tax revenues are a problem. The flip side, though, is that]apan has the lowest tax take of any country in the OECD, at just 17% of GDP. That gives it plenty of
T
And the laggard is ... Annual average% increase, 2001-10 •
GDP per person
•
GDP 1.4 1.6
Japan United States Euro area Unemployment rates, % 12 10 8 6
4 Japan
2001 02 03 04 05 06 07 08 09 10 11 Sou rces: IMF; Eu rostat; Thomson Reuters
room to manoeuvre. Takatoshi Ito, an economist at the University of Tokyo, says increasing the consumption tax by 20 percentage points from its current s%-putting it at the level of a high-tax European country-would raise ¥50 trillion and immediately wipe out Japan's fiscal deficit. That sounds draconian. But here again, demography plays a role. Officials say the elderly resist higher taxes or benefit cuts, and the young, who are in a minority, do not have the political power to push for what is in their long-term interest. David Weinstein, professor of Japanese economy at Columbia University in New York, says the elderly would rather give money to their children than pay it in taxes. Ultimately that may mean that benefits may shrink in the future. "If you want benefits to grow in line with income, as they are now, you need a massive increase in taxes of about1o% of GDP,"he says.
Demography helps explain Japan's stubborn deflation, too, he says. After all, falling prices give savers-most of whom are elderly-positive real yields even when nominal interest rates are close to zero. Up until now, holding government bonds has been a good bet. Domestic savers remain willing to roll them over, which enables the government to fund its deficits. Yet this comes at a cost to the rest of the economy. In short, Japan's economy works better for those middle-aged and older than it does for the young. But it is not yet in crisis, and economists say there is plenty it could do to raise its potential growth rate, as well as to lower its debt burden. Last weekend Yoshihiko Noda, the prime minister, took a brave shot at promoting reform when he said Japan planned to start consultations towards joining the Trans-Pacific Partnership. This is an American-backed free-trade zone that could lead to a lowering of tariffs on a huge swath of goods and services. Predictably it is elderly farmers, doctors and small businessmen who are most against it. Reforms to other areas, such as the tax and benefit system, might be easier if the government could tell the Japanese a different story: not that their economy is mired in stagnation, but that its performance reflects the ups and downs of an ageing society, and that the old as well as the young need to make sacrifices. The trouble is that the downbeat narrative is deeply ingrained. The current crop of leading Japanese politicians, bureaucrats and businessmen are themselves well past middle age. Many think they have sacrificed enough since the glory days of the 1980s, when Japan's economy seemed unstoppable. Mr Weinstein says they suffer from "diminished-giant syndrome", nervously watching the economic rise of China. If they compared themselves instead with America and Europe, they might feel heartened enough to make some of the tough choices needed. •
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86 Finance and economics
The Economist November 19th 2011
Economics Focus Marathon machine I
Unskilled workers are struggling to keep up with technological change
HE rich world's crisis of unemployment would be painful enough on its own, but it comes on the heels of a generation T of labour-market stagnation. Growth in inflation-adjusted incomes in the rich world slowed sharply as early as the 1970s. In America, median household income has actually fallen since 1999. Economic growth continues, but not all see the rewards. By some estimates, the top 1% of American earners captured 58% of the country's economic growth between1976 and 2007. Scapegoats, from crony capitalists to foreign-currency manipulators, are in no short supply, but technology is increasingly fingered as a culprit. Some economists reckon the problem with technology is that there is too little of it. Tyler Cowen, an economist at George Mason University, says in a recent e-book that a "great stagnation" is under way. The gains from the big inventions of previous eras-electricity, jet engines and antibiotics, for example-are now exhausted, and new, comparable innovations are exceedingly rare. Fewer grand inventions mean less productivity growth and a slower improvement in living standards. It is a troubling diagnosis, but not the only one available. Erik Brynjolfsson, an economist, and Andrew McAfee, a technology expert, argue in their new e-book, "Race Against the Machine", that too much innovation is the bane of struggling workers. Progress in information and communication technology (ICT) may be occurring too fast for labour markets to keep up. Such a revolution ought to be obvious enough to dissuade others from writing about stagnation. But Messrs Brynjolfsson and McAfee argue that because the growth is exponential, it is deceptive in its pace. Progress in many areas of ICT follows Moore's law, they write, which suggests that circuit performance should double every 1-2 years. In the early years of the ICT revolution, during the flat part of the exponential curve, progress seemed interesting but limited in its applications. As doublings accumulate, however, and technology moves into the steep part of the exponential curve, great leaps become possible. Technological feats such as self-driving cars and voice-recognition and translation programmes, not long ago a distant hope, are now realities. Further progress may generate profound economic change, they say. ICT is a "general purpose technology", like steam-power or electrification, able to affect businesses in all industries.
Watson, the IBM supercomputer which dazzled audiences in throttling human competition on the game show "Jeopardy!", is now being adapted for use in medical diagnoses. Autonomous vehicles, such as the Google creations that have logged some 140,000 miles on American roads, could make transport dramatically cheaper, safer and more efficient. The long-awaited wonders of the space age may finally be at hand. There will also be growing pains. Technology allows firms to offshore back-office tasks, for instance, or replace cashiers with automated kiosks. Powerful new systems may threaten the jobs of those who felt safe from technology. Pattern-recognition software is used to do work previously accomplished by teams of lawyers. Programmes can do a passable job writing up baseball games, and may soon fill parts of newspaper sections (those not sunk by free online competition). Workers are displaced, but businesses are proving slow to find new uses for the labour made available. Those left unemployed or underemployed are struggling to retrain and catch up with the new economy's needs. As a result, the labour force is polarising. Many of those once employed as semi-skilled workers are now fighting for low-wage jobs. Change has been good for those at the very top. Whereas real wages have been falling or flat for most workers, they have increased for those who have advanced degrees. Owners of capital have also benefited. They have enjoyed big gains from the increased returns on investments in equipment. Technology is allowing the best performers in many fields, such as superstar entertainers, to dominate global markets, crowding out those even slightly less skilled. And technology has yet to cut costs for health care, or education. Much of the rich world's workforce has been squeezed on two sides, by stagnant wages and rising costs. Rage against the machines A similarly bleak view inspired acolytes of Ned Lucid to smash mechanical looms. Still, the industrial revolution ultimately improved the living standards of workers of all skill levels. It would be surprising if progress in ICT did not do the same. Messrs Brynjolfsson and McAfee emphasise the importance of educational reform and investment in helping workers adapt. Big gains may arrive as firms find better ways to use new technologies. As a new paper by Tim Leunig and Joachim Voth explains, process innovations may be as valuable as inventions themselves. Henry Ford didn't invent the car, but his moving assembly line led to dramatic declines in car prices and produced a gain to consumers equivalent to about 2% of G DP in1923. More ICT in sectors such as education and health care could similarly generate significant gains for consumers. As Messrs Leunig and Voth note, falling car prices led to a surge in American car sales, from 64,000 in 1908 to 3.6m in 1923. This leap allowed Ford to employ hundreds of thousands of workers in its factories. A golden age of manufacturing is unlikely to return, but Messrs Brynjolfsson and McAfee reckon that matters aren't hopeless for those without PhDs (a great relief). They describe "freestyle" chess tournaments in which teams of amateur chess players using computers are able to beat both powerful computers and human grandmasters. The human brain is an impressive and dexterous organ. It would be strange indeed if markets, given room to experiment with new technologies, couldn't devise ways to combine man and machine in fruitful-and profitable-new ways. • Papers cited in this article can be found at economist.comj machines
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91 Also in this section 92 Tracking influenza 92 The evolution of co-operation 93 Silk from the sea
For daily analysis and debate on science and technology, visit Economist.comfscience
Stem cells and medicine
Repairing broken hearts Heart disease may be treatable with stem cells. But a project to repair spinal cords is being shelved HAS been a mixed week for propoItheTnents of regenerative medicine. This is idea that worn-out organs might be repaired-or even replaced-using stem cells. A stem cell is one that, when it divides, spins off some offspring that remain as stem cells while others turn into functional tissue. Stem cells found in embryos can spin off a wide range of tissue types. Those found in adults are more limited: turning into blood cells, say, or muscle cells. The bad news for those who have hopes of the field is that Geron, an American firm that was a pioneer of the therapeutic use of stem cells, is pulling out of the business. It is ending (or selling, if it can find a buyer) a project that was testing embryonic stem cells as a treatment for people paralysed by injuries to their spinal cords. The reason, it said, is financial. At a time when it is hard to raise new capital, the firm has decided to concentrate on anticancer therapies that, it hopes, are nearer to being commercial propositions than the stem-cell study is. The good news for the field of stem-cell therapy comes from a paper published in this week's Lancet by Roberto Bolli of the University of Louisville and his colleagues. They have used more specialised stem cells-ones that spin off only cardiac cells-to repair the hearts of people with
heart failure. If their method can be made routine, it will bring enormous benefits. Coronary heart disease is the world's biggest killer. It ended 7.3m lives in 2008 (the most recent year for which figures are available). That is one in every eight people who died that year. A patient with heart failure (caused, for example, by a muscledamaging heart attack) may benefit from a transplant, but there are not enough spare thumpers around for all those who need them. Hence the idea of doing running repairs on a patient's existing organ. Be not still, my beating heart The participants in Dr Bolli's study were 23 unfortunates who had each had at least one heart attack in the past, and were thus lined up for coronary-bypass surgery, in which the furred-up blood supply to the heart is replaced with an alternative artery crafted from a blood vessel taken from elsewhere-usually the leg. On average, these patients had hearts pumping out 30% of the optimal volume of blood. Seven of the 23 acted as a control group, andreceived no intervention from Dr Bolli after the surgery. From the othen6, the researchers collected tissue samples during surgery. They broke these up, in order to extract cardiac stem cells from them (these cells can be identified by the presence on their sur-
faces of a particular protein), and then bred the stem cells in tissue cultures until they numbered millions. About four months after each patient's original operation, when their hearts had stabilised, Dr Bolli used a catheter to deliver 1m of the newly bred stem cells to their damaged heart muscle. The results were remarkable. Although two patients dropped out of the study, the remaining 14 saw significant benefits. Four months after the infusion their hearts were pumping an average of 38.5% of the optimal volume, and this had risen to 42.5% a year after the transfusion. No such improvement was seen in the hearts of the control patients. The amount of dead tissue in the infused hearts had shrunk, too. Just how the cardiac stem cells achieved this feat remains unclear. It could be that the injected cells form new muscle themselves. Alternatively, chemicals they secrete may stimulate changes in cells already present in the heart-a suggestion encouraged by the work of Paul Riley at University College, London, who has (in mice) stimulated stem cells which were already present to turn into cardiac muscle by adding a protein called thymosin beta 4 that throws a crucial genetic switch in stem cells, and thus activates them. Other lines of inquiry into heart repair are also being followed. Eduardo Marbcin, the director of the Cedars-Sinai Heart Institute of Los Angeles, plans to test whether stem cells from a general cell bank, rather than specifically from the patient to be treated himself, might do the trick-or whether they would, instead, be rejected by the immune system. Deepak Srivastava of the Gladstone Institute of Cardiovascular Disease, in San Francisco, meanwhile,
~~
The Economist November 19th 2011
92 Science and technology ~ thinks
he can go one better, by not using stem cells at all. He has managed to reprogram mouse connective-tissue cells so that they develop into cardiac muscle cells, and has tested them in the hearts of mice that have had heart attacks. He is moving on to pigs-and has people in his sights. Dr Bolli, too, has plans. He hopes soon to begin a bigger trial, based on the success of his small one. The day may not be far off, then, when a dicky heart can be serviced in mid-life and made good for a few more years. That is no excuse for complacency: prevention will always remain a better course of action than cure. But for those for whom prevention has not succeeded, the work of Dr Bolli and his collaborators and rivals brings hope that a heart attack will, in the future, not be quite the fearful prospect it is today. •
Influenza
Attention, citizens! A new project to study the spread and seriousness of flu
AS THE influenza season splutters into ./'"\.life across the northern hemisphere, millions will head to their computers in search of information, advice and remedies. Since 2008 Google has used these inquiries to track influenza-like illnesses (Ius)-as symptoms not backed up by a definitive viral test are officially knownamong its users around the world. Google Flu Trends (google.org/flutrends) displays whizzy graphs and colourful maps showing the intensity and progress of each seasonal epidemic. This approach is not perfect, though. In order to stay accurate, Google has to tweak its algorithms regularly, to match the inci-
dence of illness in the world. For this, it relies on data provided by America's Centres for Disease Control and Prevention, and similar institutions in other countries. But different countries have different reporting cultures. Belgium, for example, typically reports five times as many ILls as its neighbour, the Netherlands (employees' need for a doctor's certificate to take more than one day of medical leave is probably to blame), and even England and Scotlandsupposedly part of the same United Kingdom-cannot agree on what constitutes a flu epidemic. The system is also prone to false alarms. When the HlNl swine-flu pandemic stole headlines in the summer of 2009, Go ogle searches went through the roof long before most people fell ill. John Edmunds, of the London School of Hygiene and Tropical Medicine, and his colleagues hope they might be able to do better by recruiting volunteers in advance, for a "citizen science" project designed to discover how much influenza is really out there, how it spreads and how effective flu vaccines are. Citizen science is an increasingly popular technique that involves recruiting a large number of laymen into a study, and using them as observers and, sometimes, as data processors. The Flu Survey (www.flusurvey.org.uk) is the first such project to ask people across Europe to sign up and report cold- or flulike symptoms over the winter. It will operate in ten countries, posing identical questions; the organisers hope to recruit 50,000 participants. It will also, Dr Edmunds hopes, capture the kind of information that epidemiologists crave but that Google Flu Trends cannot provide. These elusive data include the age and sex of those affected, and whether they are part of a risk group, such as being asthmatic. The project should help, too, to catch new strains presenting novel symptoms, such as the unexpected diarrhoea that was associated with swine flu. A digital survey carried out in Britain in 2009 showed the usefulness of this approach. Family doctors reported a big surge in HlNlinfections in July and a smaller one in the autumn. The survey, however, found the summer peak to be largely bogus, caused by a flood of anxious patients. In fact, according to Dr Edmunds, the real peak occurred in October, by which time fewer people were seeking medical help. This led to official figures that eventually underestimated the true number of cases in Britain by more than 300,000 (the official number was 784,000; the correct one, according to the survey, 1.1m) and overestimated HlNl's fatality rate by 35%. Online surveys do have their own problems, however. In contrast to Google's millions of users, previous citizen-science projects designed to look into influenza have attracted only a few thousand respondents. This means that some of their
findings, including the suggestion that past flu jabs may provide some protection against current strains (which is intriguing, because of the virus's annual variability) cannot be stated with much confidence. The self-selecting panels also lack representation from those most susceptible to flu: the very young and the very old. The new survey could change that. And 50,000 is also a big enough number to answer some previously unanswerable questions, such as whether you really are at especial risk of catching influenza on public transport. All told, it should prove that citizen science is an approach that is not to be sneezed at. • The evolution of co-operation
Make or break?
Social networking tames cheats
H ow
people collaborate, in the face of numerous temptations to cheat, is an important field of psychological and economic research. A lot of this research focuses on the "tit-for-tat" theory of co-operation: that humans are disposed, when dealing with another person, to behave in a generous manner until that other person shows himself not to be generous. At this point co-operation is withdrawn. Fool me once, in other words, shame on you. Fool me twice, shame on me. When he encounters such a withdrawal of collaboration, the theory goes, the malefactor will learn the error of his ways and become a more co-operative individual. And there is experimental evidence, based on specially designed games, that tit-for-tat does work for pairs of people. Human societies, though, are more complex than mere dyads. And until recently, it has been difficult to model that complexity in the laboratory. But a paper published this week in the Proceedings of the National Academy of Sciences by Nicholas Christakis and his colleagues at Harvard has changed that. Dr Christakis arranged for a collaboration-testing game to be played over the web, with many participants. As a result, he and his team have gained a more sophisticated insight into the way co-operation develops. Dr Christakis used what is known as a public-goods game for his experiment. At the beginning of such a game, points are doled out to each participant. During every round, players are given the opportunity to donate points to their neighbours. Points so donated are augmented by an equal number from the masters of the game. If everyone co-operates, then, every- ~~
The Economist November 19th 2011 ~ one
ends up richer. A "defector" who refuses to donate to his co-operating neighbours will, however, benefit at the expense of those neighbours. At the game's end, the points are converted into real money, to ensure that proper incentives are in place. To play his large-scale public-goods game, Dr Christakis recruited 785 volunteers via Mechanical Turk-a service provided by Amazon, an online retailer, that works by farming out small tasks to an army of individual workers. Each volunteer was randomly assigned links to, on average, eight other players. Together, they played repeated rounds of one of three variations of the game. In the first, participants always interacted with the same group of people. In the second, the connections were randomly reshuffled after each round. In the final version, one-third of the possible pairings between participants were chosen at random after each round (such pairs may or may not, therefore, have been dealing with each other in the previous round). One player from each pair was first told or reminded of how the other had behaved in the previous round, and was then asked whether he wanted to break his connection with that player, if he already had one, or form a new connection, if he had not. In all versions of the game, roughly 6o% of players started out co-operating. However, in the first two, this decreased over time as the pernicious influence of the freeloaders spread. The larger the fraction of a subject's partners who defected in a given round, the less likely that person was to co-operate in the next-classical tit-fortat. However, this tit-for-tat retaliation was not enough to save co-operation, and after a dozen rounds only 10-20% of the players were still willing to co-operate. In the variant where participants had some choice over whom they interacted with, though, the amount of co-operation stayed stable as the rounds progressed. When Dr Christakis and his team looked at how the relationships between players were evolving in this third version, they found that connections between two cooperators were much more likely to be maintained than links that involved a defector. Over time, the co-operators accumulated more social connections than the defectors did. Furthermore, as they were shunned, the defectors began to change their behaviour. A defector's likelihood of switching to co-operation increased with the number of players who had broken links with him in the previous round. Unlike straightforward tit-for-tat, social retaliation was having a marked effect. The next question, then, is whether such a mechanism holds outside the laboratory. To find out, Dr Christakis has forged links with some anthropologists. They hope to report the answer soon. •
Science and technology 93 Silk from the sea
No sow's ear A species of crustacean makes silk underwater
PIDER silk is impressive stuff. Stronger S than steel, flexible and exceedingly light. Barnacle glue is equally special. It holds an animal whose ancestors swam freely in the sea to rocks that are often battered by powerful waves. What, then, might a combination of the two achieve? Fritz Vollrath, of Oxford University, hopes to find out. As he describes in Naturwissenschaften, he and his colleagues have found that a small marine crustacean called Crassicorophium bonellii produces a material which has the adhesive characteristics of barnacle glue and the structural properties of spidersilk fibres. It is water-resistant and flexible, but also somewhat sticky, and is employed by the animals to construct tubular homes in the sediments of the sea bed. Dr Vollrath's examination of Crassicorophium showed that the material is secreted by glands similar to those used by barnacles to make their cement. Given that Crassicorophium and barnacles are both crustaceans, albeit ones whose common ancestor lived 1oom years ago, that suggests a single origin for the ability to make this type of goo. Indeed, it might explain the mystery of how barnacles settled down in first place. Possibly, a Crassicorophium-like ancestor used the material to anchor itself to rocks and feed on passing titbits by catching them with its legs, as modern barnacles do. (The protective plates presumably came later.) To examine the relationship between the newly discovered goo and barnacle glue, Dr Vollrath's colleagues, Katrin Kronenberger and Cedric Dicko, took a look at the chemical composition of both. The proteins of barnacle glue, they discovered, are dominated by amino
A spinster of rare beauty
acids called proline and isoleucine. These like to form cross-links between protein molecules, and thus tend to hold such molecules together. Crassicorophium goo, by contrast, is dominated by lysine, glycine and aspartic acid. These encourage protein molecules to stretch out and form fibres. In addition, whereas barnacles just ooze out their cement, Crassicorophium processes its material in a spider-like spinning duct. The goo emerges from holes in the crustacean's legs and is spun into gossamer filaments by being stuck to a surface and then pulled out as threads. This way of spinning silk is remarkably similar to that used by spiders, which pull the material from their bodies using their legs. That similarity, though, is almost certainly the result of convergent evolution rather than a common origin, since the last joint ancestor of Crassicorophium and spiders lived way longer ago than the ancestor of Crassicorophium and barnacles. Beyond its curiosity value, the discovery of Crassicorophium silk could have practical benefits. There is great interest, in biotechnological circles, in using silk more extensively as an industrial material. Its lightness, flexibility and strength would make it widely deployable. Adding Crassicorophium silk-or, at least, knowledge derived from its analysis-to the mix would extend that range. Dr Vollrath, for example, suggests that Crassicorophium silk's tolerance of salt water means it might find uses in medical applications where it would come into contact with salty bodily fluids. Thus, with luck, can curiosity-driven research of the most esoteric kind lead to good, solid human benefits.
Also in this section 95 Advice from BiLL Clinton 95 Fighting urban violence 96 Memoir of Palestine 96 New French film: "Intouchables" 97 W.G. Sebald's poems 97 New American film: "J. Edgar"
Prospera, our online blog on books, arts and culture, appears every day. For analysis and debate, visit Economist.comfculture
Afghanistan' s interminable war
Looking for the exit
A bleak but authoritative assessment of foreign intervention TAKING office in 2009, President Obama found a longstanding 0 NBarack
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Ghosts of Afghanistan: The Haunted Battleground. By Jonathan Steele. 437 pages; $26. Portobello;
He soon acceded, though not in full. According to Bob Woodward's book, "Obama's Wars", which came out in 2010, the late Richard Holbrooke, Mr Obama's envoy to Afghanistan and Pakistan, reminded his boss that Lyndon Johnson had faced similar demands during the Vietnam war. "Ghosts", whispered Mr Obama. They haunt him still, as he seeks to bring most American troops home before 2015, without leaving Afghanistan prey to a new extremist Taliban regime or an intensification of its three-decade-long civil war. "Ghosts of Afghanistan" is a good title for this fine modern history by Jonathan Steele, a British journalist. This is not just because of the many people who have died in its wars, but because "the spectres of past mistakes" still complicate decisionmaking by the NATO-led, Americandominated International Security Assistance Force (ISAF). These include both the quagmire in Vietnam and the Soviet Union's disastrous nine-year occupation of Afghanistan in the 1980s, which was cheered by Western cold warriors as "the Soviet Union's Vietnam". An experienced writer and commentator for the Guardian, Mr Steele has
visited Afghanistan in every phase of the civil war and is well placed to compare the end of the Soviet era and the present "transition", the favoured common euphemism for foreign withdrawal. He demolishes some Western myths about Afghanistan that betray short memories and government spin. The Soviet years, for example, tend to be portrayed as a period of bitter repression under a puppet regime, which was defeated by a popular, Islamist uprising, backed by America and Pakistan, and which crumbled as soon as the Soviet Union withdrew its occupation forces in 1989. There is another way of looking at the same history. At no stage did the Soviet Union have as many troops in Afghanistan as America and ISAF do now. It was never defeated. It withdrew because Mikhail Gorbachev realised the Soviets could never win. The regime they left behind was quite resilient. Only as the Soviet Union began to unravel in 1991 and withdraw its aid did the regime collapse shortly after. The mujahideen boast of having brought down the Soviet Union. The reverse is just
~~~nterpoint;
as true: it was the collapse of the Soviet Union that brought the mujahideen to power. There are some uncanny echoes between the two interventions. The Soviets and the Americans both allocated 15 times as much to military spending in the country as to civilian spending. Soviet resentment at the ingratitude of the client regime is matched in America. This month ISAF had to sack an American general for voicing it. Neither the West nor the Soviet Union is predominantly Muslim, enabling their enemies to decry the "infidel" regimes they back. Both wars became very unpopular at home. ISAF, like the Soviet army, has established solid-looking structures in the north, which is largely inhabited by smaller ethnic groups, such as Tajiks, Uzbeks and Hazaras. But it still faces a serious insurgency in the Pushtun-dominated south and east, fuelled from Pakistan. With the war in stalemate now, as it was 20 years ago, Mr Steele argues for peace talks with the Taliban and the regional powers. That, of course, is how wars end. But it is hard when the enemy, known in convenient shorthand as "the Taliban", is fragmented and ISAF is trying to kill or co-opt as many of its fighters as possible. Moreover, America has committed itself to a timetable for withdrawal-an invitation to its enemies to play a long game. In one respect the Soviet precedent is not encouraging. That withdrawal was preceded by years of ultimately fruitless diplomacy. But the foreign presence is not the only reason Afghans fight. So the lesson some ISAF strategists draw from the Soviet experience is less to do with the necessity for peace talks than about the durability of the post-occupation Afghan government until its plug was pulled from a socket in Moscow. If the West can commit
~~
The Economist November 19th 2011 ~
enough in military and civilian assistance, the present government should muddle through, at least in the cities. That is not a very encouraging outcome, measured against the high hopes after the swift toppling of the Taliban in 2001. But Mr Steele gives almost the last word in his book to an even gloomier scenario, spelled out by Francese Vendrell, a wise diplomat formerly with the UN and the Eu: "Having failed dismally to make the Afghan people our allies, we will inevitably abandon them to a combination of Taliban in the south and the warlords in the north, and (having somehow redefined success) we will go home convinced that it is the Afghan people who have failed us." Mr Steele and Mr Vendrell are not the only ones to be haunted by the ghosts of Afghanistan's future. • Advice from Bill Clinton
Yes, we can Back to Work: Why We Need Smart Government for a Strong Economy. By Bill Clinton. Knopf; 196 pages; $23.95. Hutchinson; £16.99
ECENTLY the American public's growR ing criticism of Barack Obama has been accompanied by warmer feelings for the Clintons. More and more Democrats now wonder if they should have chosen Hillary in his place, and it is increasingly common for the president's lacklustre handling of the economy to be contrasted with the surer leadership and much happier economic times when Bill ruled the White House. Mr Clinton has now written a book full of ideas about how to revive the economy and get America's unemployed millions back to work-advice that, by drawing further attention to their contrasting styles, Mr Obama may find less helpful than Mr Clinton intends. Mr Clinton says he was prompted to write by the success in the 2010 mid-term elections of what he calls the "antigovernment" movement, which has prevented much of the action that is necessary to tackle joblessness. He bemoans the end of an era when Republicans and Democrats in Washington, oc, could disagree on policies but essentially share a common set of facts and the view that, one way or another, government was there to help. Still, he can't resist mentioning his joke on the campaign trail that "my feelings were hurt because I wasn't the Tea Party's favourite politician"-a roundabout way of tooting his own horn, having left office with a budget surplus, higher employment, fewer people on welfare, lower taxes
Books and arts 95 for much of the population and having scrapped lots of government red tape. The book has two main strengths that Mr Obama would do well to emulate. First, while arguing, rightly, that in the short run the American economy urgently needs a boost from government spending, it spells out in simple terms why Uncle Sam also needs a credible strategy for sorting out the country's long-term fiscal problems. Mr Clinton shows far more enthusiasm for the report of the Simpson-Bowles deficitreduction commission than has so far been mustered by its creator, Mr Obama. Second, Mr Clinton is at his famously wonkish best in scouring America and the world (Singapore and Germany, in particular) to find practical ideas for getting people back to work. Many of these require "smart government", which more often than not means partnering with private businesses and non-profit organisations. Some ideas are even borrowed from the Republicans, including at least one from his old foe, Newt Gingrich. Mr Clinton is especially keen on the idea of modernising America's infrastructure and creating environmentally friendly "green jobs", but he also sees merit in more trade liberalisation, immigration and getting at the country's huge reserves of cheap natural gas through fracking. Some of the former president's suggestions are not as convincing as others. Yet, through the sheer number and range of his ideas, Mr Clinton manages to convey a badly needed sense of hope. With an optimism that is currently in short supply among his countrymen, he concludes by predicting that America will rise yet again; after all, "for more than 200 years, everyone who's bet against the United States has lost." In other words, as Mr Obama once put it, "Yes, we can." •
Still a player
Urban violence
The of . power .
JaW-JaW
Don't Shoot: One Man, A Street Fellowship, and the End of Violence in Inner-City America. By David Kennedy. Bloomsbury; 320 pages; $28 and £12.99
N THE mid-1990s, the national homicide I100,000. rate in America was around ten per The rate for gang members in Boston was1,539 penoo,ooo. Boston at the time had more than 6o active gangs; if you happened to be in one, you had a roughly one-in-seven chance of being shot to death within a nine-year period, and even if you avoided a fatal gunshot wound, you were all but guaranteed to receive a non-fatal one at some point. If the violence was extreme, so was the rhetoric. In "Body Count" (1996) William Bennett, John Diiulio and John Walters, who had all worked in domestic policy for President George Bush junior or his father, fretted that America was "home to thickening ranks of juvenile 'superpredators'radically impulsive, brutally remorseless youngsters ... who murder, assault, rape, rob, burglarise, deal deadly drugs, join gun-toting gangs and create serious communal disorders." But what if they weren't monsters? What if they were just kids who were terrified of being shot? David Kennedy, then at Harvard's Kennedy School, ventured across the river into Boston and found just that: "The guys on the street are not crazy, they don't like what's going on, they're rational, they're a community, too," he writes. "They're doing awful things, but they're trapped and they want out." He found something more interesting too. For the most part, the police not only knew, but could in large measure predict who was doing the killing. It was not rampaging packs of "radically impulsive" kids, but a small number of people, a tight network of known gangs (one of the pleasures of reading Mr Kennedy's book is the gang names, the best among them being the Tiny Rascals, Shorties Taking Over, the Rough Tough Somalis and, from Los Angeles, the Grumpy Winos). And so the police, co-ordinating with state and federal prosecutors and an alphabet soup of federal agencies, made an example of one of the more violent groups. In April1996 they entered the Vamp Hill Kings' territory, not only making drug arrests, but searching probationers' homes, doing curfew checks, raising bail amounts, even calling in the animal-cruelty cops to take away gang members' dogs. Six weeks later, police, social workers, probation officers, local and federal prosecu-
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The Economist November 19th 2011
96 Books and arts ~ tors invited Kings
both in and out of prison to a meeting in an empty courtroom in Dorchester and told them they had been out in force not at random, not to keep the area drug-free, not to stop all crimes, but because of the shooting. Stop the shooting, they said, and we will go away. Keep shooting and it will get worse. After several more forums with other gangs, the shooting slowed, dramatically. In 1999, less than four years after Operation Ceasefire came into effect-there were 31 homicides in Boston, down from 152 in 1990. And Boston turns out not to have been an exception. Programmes that grew out of Operation Ceasefire have been implemented in so jurisdictions across America. Mr Kennedy does not offer a complete solution to gun crime (who could when it is so hard to tell the good guys from the bad) and his programme is more easily explained on paper than implemented. But when it is implemented his programme certainly achieves results. This is a hopeful and intelligent book. • Memoir of the Middle East
Scent of dreams I Was Born There, I Was Born Here. By
Mourid Barghouti. Bloomsbury; 216 pages; £14.99. To be published in America in July by Walker & Co; $25 ERTAIN images reappear in all recent Palestinian literature. Mangled olive C groves, the trees, like their owners, uprooted; cardamom-scented coffee, its fragrance percolating through the Palestinian exile; endless waiting, daily to cross checkpoints, every year to return home. Mourid Barghouti evokes them all in his memoir, "I Was Born There, I Was Born Here", which continues the story begun in his 2003 work, "I Saw Ramallah". Driving to Jericho, he passes fields of olive trees, "uprooted and thrown over under the open sky like dishonoured corpses", the fields around them an "open collective grave". Crossing the border from Jordan, "at the threshold of Palestine", he must wait for hours at checkpoints where "sweat oozes with sticky insistence" and the air is fried. These images lose none of their poignancy or power in this familiarity. Instead they distil the Palestinian experience of exile into something real. Much of the book concentrates on Mr Barghouti's efforts to take his Egyptianborn son to Deir Ghassanah, the village of his birth. That homecoming culminates in the moment he stands in the room where he was born; when he can say, "I was born here," not there. He and his son wander
New French film
Friends united PARIS
An unlikely comic hit RENCH film-makers are good at turnF ing out silly comedies that foreigners find unwatchable. They have a better export record with highbrow, low-plot movies, set in chic apartments with parquet floors, that feel moodily French. Just occasionally, however, they come up with a comic gem. "Intouchables", directed by Olivier Nakache and Eric Toledano, is one of those cleverly pitched, wellscripted, feel-good comic films typically crafted in Hollywood; it is a delight to see that the French can sometimes pull them off too. With more than 4m tickets sold since it opened earlier this month, the film is set to be a boxoffice smash. Based on a true story, it follows the improbable relationship between Philippe, a quadriplegic aristocrat (Fran~ois Cluzet), and Driss (Omar Sy), a gregarious Senegal-born youth from the banlieues, the grim housing estates that ring Paris. On his release from prison, Driss is hired by Philippe in a moment of recklessness as a live-in help at his Paris mansion. Philippe is warned that banlieue youths have "no pity". No pity, replies the wheelchair-bound former paraglider wryly, is just what I want. Less deftly handled, the treatment of such a subject could have fallen into a number of traps. Instead, the film's light touch finds comedy in both men's handicaps: the one physical, the other social. Each, in his own unsentimental way, understands the other better than do those around them. This unlikely chemistry is captured in the opening sequence, when Driss roars through the streets of night-time Paris, funk music at full blast through the Old City of Jerusalem, snapping photos as they go. Their actions unsettle Mr Barghouti. Who takes photographs of their own home? Growing up, "the Via Dolorosa was just a street we used." Cameras normally belong to tourists, who are anxious to hold onto places they may never see again. Fearful that the very act of recording what they see will ensure its loss, he and his son toss their cameras aside, desperate to re-establish their right to belong and to call this city home. More than anything, Mr Barghouti captures the Palestinians' frustration at the lack of control over their lives. An endless journey to Jericho is punctuated by checkpoints and crossing a mud-filled chasm in the road with the help of a crane, which picks up the car like a mechanical claw at a fair and swings it across. After this, there is
and Philippe in the passenger seat, giving his employer the thrill of the Maserati he owns but cannot drive. French critics have been thoroughly charmed. Le Figaro newspaper called the film "faultless". Paris-Match described it as "the best scripted, best acted, funniest and most moving that we have seen in a long time". It has surely launched Mr Sy, a black comedian best-known for a short nightly sketch on Canal Plus, a television channel, on the way to stardom. Bob and Harvey Weinstein, two Hollywood producers, have acquired the rights for America and Britain. Here's hoping that English-language audiences will get to see the original French version, and not just a remake.
A story with legs
relief in returning to the certainties of Jordan, where "you know how many minutes you will need to get from one place to another". He can offer no reassurance to his mother as she tells him to take care of himself. "If an Arab ruler wishes to arrest me, he will without doubt arrest me. If a policeman wants to kick me in the stomach and liver, he will without doubt kick me." In this impotence lies the point of the Palestinian occupation. Mr Barghouti's frustration boils over at the well-meaning curiosity of friends who wonder at his fixation with his village and who point to the beautiful vastness of the world beyond Palestine. The author reminds them, and the reader, that he, unlike them, had no choice in his wanderings and has little hope of returning home. A salutary lesson. •
The Economist November 19th 2011
Books and arts 97
W.G. Sebald's poems
Placing words Across the Land and the Water: Selected Poems 1964-2001. By W.G. Sebald, translated by lain Galbraith . Hamish Hamilton; 240 pages; £14.99. To be published in America in April by Random House; $25
INCE W.G. Sebald's sudden death in the cult of the Britain-based GerS man writer has spread fast. Known for his 2001,
exquisite prose works that, in their combination of the real with the fictional, push at the limits of what novels can be, he is considered one of the foremost German writers of his generation. He was also a poet. "Across the Land and the Water" brings together a selection of the poems he never published in book form, if at all. Translated by lain Galbraith, the volume sketches out a life on the move. Stretching over 37 years, the volume includes poems that Mr Galbraith found jotted down in Sebald's archives on scraps of paper, others written on menus, theatre programmes or headed paper from hotels. They emerge on trains or at the "unmanned/station in Wolfenbuttel", Sebald covertly observing fellow commuters as he evokes the differing landscapes shuttling past. Unlike his epic, vertiginous prose, these poems are often condensed and sparse. And yet they contain many of the themes that would obsess Sebald throughout his writing life. The poet spent his later years in Britain, working at the Universities of Manchester and East Anglia. Preoccupied with memory, desire and the ghostliness of objects, Sebald can evoke in one poem the faded glamour of "a forgotten era/of fountains and chandeliers" or a "turn-ofthe-century/frock-coat and taffeta bow" while in another he will speak of an "uglyI tower block" or "moribund supermarkets". This shift between differing eras could seem forced or artificial. And yet Sebald manages such movement with a lightness of touch. Indeed, the driving force behind his work is a search for the past, for the forgotten or overlooked: "I wish to inquire/Into the whereabouts of the dead." As in "Austerlitz", his 2001 work of prose fiction, this search for the dead circles around the occurrence that haunts Sebald's writing, and which often prompts him to write in the first place-the Holocaust. In one short poem, "Somewhere", for example, the opening line "behind Turkenfeld" becomes, with the help of Mr Galbraith's introduction, a far more specific and terrifying location than Sebald's title suggests. Along with being a town the then eight-year-old Sebald would frequently
pass on his way to Munich in 1952, Turkenfeld was one of the 94 sub-camps of Dachau, and a train station on the notorious "Blutbahn" (blood track). Even in a seemingly simple six-line poem, the sudden weight of historical events can be felt. This broad collection also shows Sebald's writing in a less melancholy light. He may speak of "the pain my happy/ memories bring" but can also, in one of the two poems originally written in English, write playfully of a young woman in New York describing how much she loves the air-conditioning in her office as opposed to the summer heat: "There,/she said, I am/ happy like an/opened up oyster/on a bed
of ice." His poetry can refer to such heavyweights as Goethe or Freud, but it also takes inspiration from the Brothers Grimm or the films of Alain Resnais. Mr Galbraith does a good job translating these shifting tones and influences. However, it is a shame that this volume does not include Sebald's original poems in the German. Concerned with the transitory or the ghostly, it is easy to suspect that no one translation could pin Sebald down. Sebald himself seemed aware of this: "If you knew every cranny/of my heart/you would yet be ignorant." And yet as these poems show, his talent lay in making the experience of such ignorance delightful. •
New American film
Dirty Hoover Clint Eastwood's portrait of J. Edgar Hoover is quite a surprise
AUDIENCES expecting a hard-hitting
I\. expose will have the rug pulled out from under them by"]. Edgar", Clint Eastwood's biopic about the long-serving founder of the FBI, masterfully played by Leonardo DiCaprio. Film critics have been especially curious about how Mr Eastwood would portray the private life of the original Dirty Harry. Is Hoover shown wearing a dress? (Yes, but .. .) Does the film portray his rumoured love affair with his aide, Clyde Tolson? (Absolutely, but. . .) The screenplay, by Oscar-winner Dustin Lance Black, hopscotches across the decades, requiring a sizeable cast. Yet this is an intimate, interior story of a man who merges truth and self-aggrandising fictions. Thus it is immaterial that the FBI's slight involvement in the Lindbergh kidnapping case becomes the backbone of the memoir that Hoover is dictating in the film, or that Alvin Karp is, a gangster, was, if truth be told, arrested by someone other than Hoover. The memoirist's habit of stealing credit from others to burnish his crime-busting image has infected the
narrative. Mr Eastwood is slyly amused by the energy that America's top cop puts into seeing his exploits glorified in films, comics and even on cereal packets, until the underlying sadness of it all rises up and becomes the film's real subject. At heart, "J. Edgar" is a love story between two men: the ferocious bulldog sitting atop his empire of wiretaps and blackmail and the handsome young clothes-horse he made his longtime companion without ever daring to become his lover. Already gay enough to use the word "camp" circa 1940, Clyde (Armie Hammer) loves more than he is loved in return, thanks to the repressions instilled in Edgar by his ambitious mother Uudi Dench). But his love never wavers, and neither does Edgar's. Forget "Broke back Mountain", with its distracting scenery. Mr Eastwood's camera bores straight into his characters' souls, discovering the sweetness hidden inside his monstrous protagonist. His "J. Edgar" turns out to be one of the most beautiful and affecting gay love stories to come out of Hollywood.
98
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Appointments
International Organization of Securities commissions (IOSCO) Seer tary General The lnt mational Organization of Securiti s Commissions (IOSCO) 1s the leadmg mternational pohcy forum for securities regulators and Is recogmsed as the global ndard setter for securities regulat1on. The organisation's memb rship regulates more than 95% of the world's securitieS markets m 115 JUrisdictions and Its memb rsh1p continues to grow. IOSCO aims through Its work to: • • •
promote the protection of mvestors; ensure that markets are fair, efficf nt and lr nsparent; and reduce systemic n k.
The Secretary General is IOSCO's senior full-time ex cutJVe, appointed by and accountable to the orgamsatlon through the Execullve Commrttee, and Is responsible for pursuing IOSCO's strateg c objectrves and leading the General Seer tanat, which Is based tn Madnd, Spau1. The Role Th uccessful cand1dat will be r sponsibl for le d•ng the work of the Gen ral Secretariat which serves as th pennan nt base for the organisation's global membership, and is staffed by a multtnational team of 22. Your mam responsibilities will focus on support•ng IOSCO's work 1n pursuit of 1ts aims and obJectrves wh1ch wtll nvolve mamta1mng nd r lnforclng IOSCO's position as the tnt rnat1onal standard tter for securit 1es r gulat1on; I admg IOSCO's ~ gulatory capacity buildtng in1t1atJVeS; while ra•s•ns IOSCO's Visibility and prof1le One of your key tasks will be 1mplem nting the organ is lion's Strat g1c Direction for 2010-15. The Candidate You are an exp rienced s curitl s markets profes ion I with a strong r gulatory b ckground, fluent n English and possess d of e cellentl adership and communications skills. Applications Detail d mformation about the po ltion and the pphcatton process is available at https://www.IOSco.org/about/jndex.cfm?section=vac ncies. For any quen s pleas contact Eduardo Manh3es at SG -Vacancy@10 co.org. Apphcat1ons should be subm1tted to the Nommations Committee at SG [email protected] by close of business on Friday 2 December 20U.
The Economist November 19th 2011
Appointments
103
Nominations and applications invited for the Doris Drucker Chair in Global Management at the Peter F. Drucker and Masatoshi Ito Graduate School of Management of Claremont Graduate University. Preference given to candidates who are internationally recognized scholars and preeminent expens in global management. Candidates must have a doctoral degree; and must have at least five years of post-doctora l teaching experience at the graduate/executive level. In addition, candidates must have a strong record of scholarship; interest in diverse teaching approaches, students, and populations; and a demonstrated ability to make their intellectual contributions accessible to both graduate students and experienced managers through their teaching and published work. Please submrt curriculum vita and evidence of scholarshtp by December 16, 2011 to the Office ofthe Dean, Peter F. Drucker and Masatoshi Ito Graduate School of Management, Claremont Graduate University. 1021 Nonh Dartmouth Avenue, Claremont CA 91711, USA Women and underrepr sented minorities ar strongly encouraged to apply.
CREi
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Research positions in macroeconomics, international economics and related fields The Center for Research tn lnternaltonal EconomiCs (CREQ. inv1tes applicatiOns for research pos1hons Fields of mterest Include: • • • • •
MacroeconomiCs Intern honal F1nartee Monetary EconoiTIICs Growth and Dev lopment Trade nd Economic Geog phy
CREI 1s a research 1nstJtute sponsored by the Gov rnm nt of Catalonia and Umvers1tat Pompeu Fabra (UPF) With the a•m of prornohng economic research su teet to the htghest tand rds It 1 toe ted in Barcelon , w1th1n th campus of UPF. Current open1ng are bo at enior and juniOr I Jun10r res rchers are subject to an evaluation Iter Six years . Though CREI 's res rs have no teach1ng oblig tlon such, they are encouraged to pamcipat t1 ty rn UPF's acaderruc progr ms. Terms or appointment are fl 1ble nd competrtive AppliCants must hold PhD •n EconomiCS or be in the process of obtainrng ' . Apphcattons mclud1ng a curriculum v1 nd a sample of recent wor1< shou be mailed to Anna Cano t cret .recruttmen crel.ca Apphcants should so rrange for two or more re rene 1 tt rs to be ent by e1ther the placement officer/ coord~nator or referee. The deadline for applicatiOn is December 1, 2011 'Ml will be holding 101 rviews with ected cand•dat s at the ASSA M ltng 10 Chtc go
The Economist November 19th 2011
Claremont Graduate University, established in 1925, is a graduate only research-extensive university in the United States. Its nine schools are dedicated solely to graduate udy and research in a broad range of fields. Renowned throughout its history, its diverse student body - more than 2,000 strong - experiences a unique transdisciplinary education of the highest academic standards in an intimate learning environment As part of the prestigious Claremont Colleges consortium in Southern California, Claremont Graduate University excels in creating and applying new thinking to real-world problems. CGU produces graduates - among the World's finest - able and eager to engage society's greatest challenges. For funher information about these opponunities, visit our website at http://www.drucker.cgu.edu or e-mail: m rilyn. [email protected]. lnclud in Subject Doris Drucker Ch ir nd
lOll in mploym nt Gradu te Umv rsity is commttted to ffirmauve pracuc reg rdlng thnic mmontl , the physrcally handicapped, Vtetn m- ra v r ns, and women In addition to meetmg ' oblig tion und federal and state law, Clar mont Gradu te Umverslty is commltt 10 mere ing faculty d1versity.
104
Appointments
THE FOOD AND AGRICULTURE ORGANIZATION OF THE UNITED NATIONS
Prevention Support (BNAPS) Project
mvites applications for the position of
The Government of Botswana signed a 5 year grant agreement with the World Bank to implement the Botswana National HIV and AIDS Prevention Support Project (BNAPS). The mentioned program has a budget of US$50 million which will be invested in:
DIRECTOR, FOREST ECONOMICS, POUCY AND PRODUCTS DIVISION
at its Headquarters in Rome, Italy Responsibtli fl! Advose the AsSistant D~re or·Genen.l. Forestry D part:rnen 1 the regoon I nd natoon I lev Is on m rs rei ung to th DoVltion's foelck of .aMty; eruure It 1~on and coordonatoon woth and supptyonform.Juon, guid hlle$ nd support to FAO members, UN and speCI
1. Strengthening the institutional capacity of NACA,
r R pr~nuuves
Thr complete Vacancy Announcementos av 11 bleat http:flwww.lao.org/employmttn mpl·ntUOrl vel/e n/ white gener lin forma on on the Org noza tOn, 1 jlfogrammes nd muaure can be found at http;//www.fao.org/employment/em!*homt/w Cand.odatures: Applocatoons, tncludtng a full curroculum vo and P rsonal Honory Form (a11a1lable on MS Word {AA nd I tter formats). quotmg VA FOnsl/t I, should be subm11ted to the 011 ctor. Human R sources Management Dovis1on (CSH), FAO, Vtale delle Terme dl CarolQllla, 001 Sl, Rome, Italy or sen by e-ma1l to : sen or·va canciesOfao. org o rfaxed to 1 I)' 06-S70S 5131
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3. Funding HIV and AIDS prevention activities at Civil Society Organizations/Private Sector Organizations level through a "call for proposal" system. The project is currently in its third year. NACA is looking for candidates to fill the following positions
1. Senior Procurement Consultant 2. Senior Behavior Scientist Interested candidates can request detailed information and terms of reference by email to [email protected], [email protected] or [email protected] or call Mrs Bekoe/Ms Rakabane at 00267 3710314.
Tenders United States Department of State
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GRIDCo REQUEST FOR EXPRESSIONS OF INTEREST Date: October 31st, 2011. COUNTRIES: COMPANIES:
GHANA & BURKINA FASO GHANA GRID COMPANY LIMITED (GRlDCo) AND SOCIETE NATIONALE D'ELECTRICITE DU BURKINA (SONABEL) SERVICES: CONSULTING SERVICES FOR PROJECT MANAGEMENT, ENGINEERING AND CONSTRUCTION SUPERVISION SERVICES FOR THE 225 kV BOLGATANGA (GHANA)OUAGADOUGOU (BURKINA FASO) INTERCONNECTION PROJECT Credit No.: 4971-0001-GH I H179- BF Project ID No: P094919 Contract I Bid No. GBI P - 001 This Request for Expressions of Interest follows the General Procurement Notice No wp00010239 published on August 9, 20 11 for the Burkina Faso Section and on August 24, 20 11 for the Ghana Section of the 225 kV Bolgatanga (Ghana)- Ouagadougou (Burkina Faso) Interconnect ion Project under the 1st Phase of the Inter-zonal Transmission Hub Project, WAPP APL3 Program on line in t he dgmarket. The Government s of Ghana and Burkina Faso have received financing from the World Bank I Internat ional Development Association (IDA) and intend t o apply part of t he proceeds for the provision of Project Management, Engineering and Construction Supervision Services on the 225 kV Bolgatanga (Ghana) - Ouagadougou (Burkina Faso) Interconnection Project including a shield wire rural electrification component along the righ t of way in Burkina Faso. The services include assisting the respective Project Implementation Units of the Ghana Grid Company Limit ed (GRIDCo) and Societ e Nationale d'Eiect rici t e du Burkina (SONABE L) in the overall project management , review of tender documents, engineering, procuremenVinspection, const ruction coordina tion/qualit y assurance, scheduling, monitoring the implementation of Environmental measures and testing/ commissioning of the facilities on the 225 kV Bolgatanga (Ghana) - Ouagadougou (Burkina Faso) Interconnection Project GRIDCo and SONABE L, the Implementing Agencies acting on behalf of the Governments of Ghana and Burkina Faso respectively now jointly invite eligible Consultants to indicate their interest in providing the services . Int erest ed Consult ants must provide information indicat ing that they are qualified t o perform t he services (brochures, description of similar assignments, experience in similar conditions, availabilit y of appropriate skills among staff, etc). Consultants may associate to enhance their qualifications. A Consult ant will be select ed in accordance wi t h t he procedures set ou t in t he World Bank's Guidelines: Selection and Employment of Consultants under IBRD Loans and IDA Credits & Grants by World Bank Borro wers, January 2011 Edition. " Interested Consultants may obtain further information at the address below from 09:00 to 15:00 hours GMT: Project Manager, CTB WAPP Project Ms. Nicholina N. YEMB ILAH 225 kV Bolgatanga (Ghana) Ouagadougou (Burkina Faso) Interconnection Project (Akuse) Ghana Grid Company Limited (GRIDCo) P.O. Box CS7979, lema Ghana Tel: + 233 03430 212 89 I + 233 03430 206 20 Fax: + 233 03430 212 90 I + 233 03026 600 40 Email : [email protected]
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Asia David E. Smith -Tel: (852) 2585 323 2 [email protected]
The Economist November 19th 2011
Chef de Projet M. Nazounou YE Projet d'interconnexion 225 kV Bolgatanga (Ghana) Ouagadougou (Burkina Faso) Societe Nationale d'Eiectricite du Burkina (SONABEL) 01 BP 54 Ouagadougou 0 1 Burkina Faso Tel: +226 50 34 65 65 Fax: +226 50 34 10 73 Email: nazounou [email protected] mailto:[email protected]
Expressions of Interest, in English and in French, in sealed envelopes marked "EXPRESSION OF INTEREST - PROJECT MANAGEMENT, ENGINEERING AND CONSTRUCTION SUPERVISION SERVICES ON TH E 225 kV BOLGATANGA (G HANA) OUAGADOUGOU (BU RKINA FASO) INTERCONNECTION PROJECT- 1st PHASE OF TH E INTER-ZONAL TRANSMISSION HUB PROJECT, WAPP APL3 PROGRAM" must be delivered by 15:00 GMT hours to the address below by November 30th, 2011. Monsieur le Directeur General Societe Nat ionale d'Eiect rici te du Burkina (SONABEL) 55, Avenue de Ia Nation 0 1 BP 54 Ouagadougou 0 1 Burkina Faso Tel. : +226 5o 30 61 oo Fax: +226 50 3 1 03 40 Email : [email protected]
Copied to The Chief Execut ive Ghana Grid Company Limited (GRIDCo) P. 0 . Box CS7979, l ema Ghana Tel. : +233 0302 70 11 185 Fax: +233 0303 30 33 27 +233 0302 67 61 80 Email: [email protected]
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106
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.
Economic data Current-account balance
Budget balance
Interest rates, %
%of GOP 2011 t
%of GOP 2011 t
10-year gov't bonds, latest
%change on year ago
Gross domestic roduct latest
United States China Japan Britain
+1.6 +9.1 nil +0.5
qtr*
2011 t
Industrial production latest
Consumer rices Unemployment latest 2011 t rate*,%
latest 12 months, $bn
03 03 03 03
+2.5 +1.7 +3.2 Sep +3.5 Oct +3.1 +9.0 Oct -469.9 02 -3.2 -9.0 2.00 +9.5 +9.1 +13.2 Oct +5.5 Oct +5.7 +6.1 2010 +259.3 03111 +3.9 -1.8 3.66 6.35 6.64 +6.0 -0.5 -4.0 Sep nil Sep nil +4.1 Sep +150.0 Sep +2.3 -8.3 0.95 77.0 83.1 +2 .0 +0.9 -0.7 Sep +5.0 Oct' +4.3 +8 .3 Sept! -40.9 02 -1.9 -8.8 2.17 0.63 0.63 ~~c!! ___ .±.?l_tg_ _ _:Q,.4_ .:t_2.1_ _ _ _ .:!) 1.~g_ .:t_3.1. ~P_ _:t-b.9_ __+l::U ~ --- -2.3~sg _ _ .:.?:2.. ___ -~Q_ __ _.?..D ____ _l.Q.E ___ .LQ?.. _ 1.81 Euro area +1.4 03 +0.8 +1.6 +2 .2 Sep +3.0 Oct +2 .6 -85.6 Aug -0.6 -4.0 0.74 0.74 +10.2 Sep -3.6 Austria +5 .6 Aug +3.4 Oct +3.0 +3 .9 Sep +11.2 02 +2 .8 03 +2.9 3.59 +1.3 +3.0 0.74 0.74 Belgium +1.9 03 nil +2 .3 +10.0 Aug +3.6 Oct +3 .3 +6 .7 Sepll +7.0 Jun +1.4 -3.8 4.84 0.74 0.74 France +1.6 03 +1.6 +1.6 +2.3 Sep +2.3 Oct +2.2 +9.9 Sep -64.5 Sep -2.5 -5.8 3.69 0.74 0.74 Germany +2.8 02 +0.5 +2.9 +5 .7 Sep +2.5 oct +2.4 +7.0 oct +193.7 Sep +5 .0 -1.0 1.81 0.74 0.74 Greece -5.2 03 na -7.5 -2.1 Sep +3.0 Oct +2 .9 +18.4 Aug -30.1 Aug -9.6 -9.1 29.04 0.74 0.74 Italy +0.8 02 +1.2 +0.6 -2.7 Sep +3.4 Oct +2.7 +8.3 Sep -81.9 Aug -3.7 -3.7 7.32 0.74 0.74 Netherlands +1.1 03 -1.1 +1.7 -8.8 Sep +2.6 Oct +2 .3 +5 .8 octtt +66.0 02 +7 .3 -3.8 2.44 0.74 0.74 ~~n_ _ _ _ .!9~~ -- .!!il_.:t_O.:§. ____:.E~p_ ..:!)_,Q.QEt _ _:t-l:_0_ _ ..±.2.b§2~ _ _ _ ±0~~g_ _ 3~ ___ -,£;'2.._ __ _.E_."}] ____ _Q.zj. ___ Q}.i _ Czech Republic +1.5 03 na +2 .0 +2 .5 Sep +2 .3 Oct +1 .9 +7 .9 Oct -7.1 02 -2.9 -4.5 3.89 19 .0 18.2 Denmark +1.8 02 +4.1 +1.4 -2.0 Sep +2.8 Oct +2 .6 +4 .2 Sep +21.5 Aug +5.4 -3.9 1.96 5.50 5.51 Hungary +1.4 03 +2 .0 +1.2 +3 .0 Sep +3.9 Oct +3 .9 +10.7 Septt +3 .2 02 +0.7 +1.2 8.78 232 204 Norway -0.4 02 +1.5 +0.7 +4.2 Sep +1.4 Oct +1.4 +3.2 Aug' ' +54.1 02 +12.9 +13.1 2.42 5.76 6.03 Poland +4.3 02 na +4.0 +7 .8 Sep +4.3 Oct +4.0 +11.8 Oct** -26.2 Sep -5.6 -6.0 5.80 3.27 2.92 Russia +4.8 03 na +4.0 +3.9 Sep +7 .2 Oct +8 .5 +6.0 Sep** +86.3 03 +5.0 -0.8 4.73 30.7 31.3 Sweden +4.9 02 +3.6 +4.2 +4.8 Sep +2.9 Oct +2 .8 +6 .8 Sepll +35.0 02 +6.4 +0.2 1.62 6.77 6.93 Switzerland +2 .3 02 +1.4 +1.9 +2 .3 02 -0.1 Nov +0 .5 +3.0 Oct +86 .1 02 +12 .2 +0.8 0.84 0.92 0.99 Turkey +8 .8 02 na :!].5 +12 .0 ~P +7.7 Oct +5 .9 +9 .2_Augll -]] .5 Sep -10 .0 -1 .7 9.69 1.80 1.46 Australia +1.4 02 +4.8 +2.0 -3 .3 02 +3 .5 03 +3 .4 +5 .2 Oct -33.5 02 -2 .2 -2.6 4.01 0.99 1.02 Hong Kong +4.3 Q3 +5.8 Sep +5 .1 +3 .3 octtt +14.3 Q2 +2.0 Q2 +0.4 +5.4 +4.2 +1.8 1.12 7.78 7.76 +1 .9 Sep +10.1 Sep +8.3 +10.8 2010 -46.2 02 -3.7 -4.9 India +7. 7 02 na +7 .9 50.7 9.11 45.3 Indonesia +6.5 03 na +6.5 +10 .1 Sep +4.4 oct +5 .4 +6.8 Feb +3.6 03 +0.6 -1.0 4.02 ttt 9,015 8,946 Malaysia +4.0 02 na +4.5 +2 .5 Sep +3.4 Sep +3.3 +3 .1 Aug +30.3 02 +10.4 -5.6 2.88ttt 3.15 3.13 Pakistan +2.4 2011.. na +2.4 +6.8 Aug +11.0 oct +12 .1 +5 .6 2010 -0.2 03 nil -5.9 12.86ttt 87.0 85.6 Singapore +5 .9 03 +1.3 +5.1 +12.8 Sep +5.5 Sep +5 .1 +2.0 03 +51.3 02 +17.7 +0.6 1.50 1.29 1.30 South Korea +3.4 03 +3 .0 +3.9 +6.8 Sep +3.9 Oct +4.4 +3.1 Oct +24.4 Sep +2.4 +1.5 3.76 1,137 1,145 Taiwan +3.4 03 nil +4.4 +1 .6 Sep +1.2 Oct +1 .5 +4 .3 Sep +38.3 02 +8 .0 -2.7 1.34 30.2 30.4 Thailand ;!J.6 02 -0.8 +2 .5 _:9 .5 Sep +4.2 Oct__+~2+O. '!_J un _ _ _+15.8 Sep_ _ +4.1 _ _ -2.9 __] A7 30.8 30.0 Argentina +9.1 02 +10.2 +8.5 +4.3 Sep +9.7 oct .. * +9 .6 +7 .3 Q2 11 +1.1 02 -0.4 -1.4 na 4.26 3.98 Brazil +3.1 02 +3.1 +3 .0 -1.6 Sep +7.3 Sep +6 .7 +6 .0 Sep** -48.0 Sep -2.2 -2.7 11.28 1.77 1.73 Chile +6.8 02 +5 .7 +6.7 +5 .2 Sep +3.7 Oct +3 .3 +7 .4 Septtll +1.4 02 -0.5 +0.6 2.36ttt 510 484 Colombia +5.1 02 +8.5 +5.1 +9 .5 Aug +4.0 Oct +3 .5 +9.7 Sep** -10.6 02 -2.7 -2.5 3.63 ttt 1,915 1,874 Mexico +3.3 02 +4.5 +3 .4 +3.6 Sep +3.2 Oct +3.4 +5.7 Sep** -8.9 02 -2.1 -2.5 6.20 13.6 12.4 ~~~e~ __ .±.?,2tg_ __ .!:!!l_ .±..2~ _ _ _ .:!] l. ~-+IL!..QEt_ .±?§.:.L _ _+~~~ ---+1.2~sg _ _ .:':§,Q, ___ -2: L_ __ ...E_.2?!.!!. ___ .2· ~ ----~ 6.61 ltt -2.8 02 -3.2 -9.7 5.75 Egypt +0.3 02 na +0.6 +7 .1 Oct +13 .3 5.98 +11.8 02 ** -1 .8 02 3.72 Israel +2 .6 Aug +2.7 Oct -2.4 3.68 +3.4 +4.3 +3 .4 +5 .5 02 +0.4 +5.1 03 +2.5 02 3.63 +75.3 2010111 +25.5 3.75 3.75 Saudi Arabia +6. 7 2011 na +6. 7 na +5 .0 na na +13.9 +5.3 Sep 8.16 7.02 South Africa -4.1 -5 .2 -10.7 02 +3 .0 02 +1.3 +3 .1 +7 .7 Sep +5.7 Sep +5 .0 7.93 +25 .0 03** *%change on previous quarter, annual rate. tThe Economist poll or Economist Intelligence Unit estimate/forecast. tNationa l definitions §RPI inflation rate 5.4 in October. **Year ending June. tt Latest 3 months .
** Not seasonally adjusted. ''Centred 3-month average. ***Unofficial estimates are higher. ttt oollar-denominated bonds.
Ill Estimate.
The Economist November 19th 2011 Markets
%change on Dec 31st 2010 Index one in local in$ Nov 16th week currenc~ terms 11,905.6 +1 .1 +2.8 +2.8 United St~ls China (SSEA) 2,583.8 ·2.3 ·12.1 ·8.7 Japan (Nikkei 225) 8,463.2 ·3.3 ·17.3 ·12.8 5,509.0 +0.9 Britain (FTSE 100) ·6.6 ·5.8 ~'!!d~(~I?_TS1) ___ ll-11~ - 2:!].1_ _ ...:9~ _-_D,i Euro area (FTSE Euro 100) 735.4 +0.5 -17.8 -17.1 2,268.0 +0.8 -18.8 -18.1 Euro area (OJ STOXX 50) 1,864.1 -3.1 -35.8 -35.3 Austria (ATX) Belgium (Bel20) 2,062.5 -0.7 -20.0 -19.3 France (CAC 40) 3,064.9 -0.3 -19.4 -18.8 Germany (DAX) • 5,913.4 +1 .4 -14.5 -13.7 -49.2 -48.8 Greece (Athex Comp) 717.9 -6.4 15,419.2 +2.3 -23.6 -22.9 Italy (FTSE/MIB) Netherlands (AEX) 294.5 nil -17.0 -16.2 -17.1 -16.3 Spain (Madrid SE) 832.5 -0.4 -27.6 -28.7 Czech Republic (PX) 886.4 -2.0 -18.8 -18.0 Denmark (OMXCB) 346.9 +2.0 Hungary (BUX) 16,730.1 +3 .3 -21.6 -29.7 -9.1 -8.4 Norway (OSEAX) 442.1 +1.2 ~land ~~) ---- ~·2EU _ 2:.Q ..l_ _ :l5.:Q _ -n .2 Russia (RTS, $terms) 1,520.8 +0.5 -13.6 -14.1 961.2 +1 .5 -16.8 -17.4 Sweden (OMXS30) 5,685.8 +1.4 -11.7 -10.2 Switzerland (SMI) 55,927.5 -0.4 -15.3 -27.6 Turkey (ISE) Australia (All Ord.) 4,313.8 -2.1 -11.0 -12.3 Hong Kong (Hang Seng) 18,960.9 -5.3 -17.7 -17.8 16,775.9 -3.4 -18.2 -27.9 India (BSE) 3,814.1 -1.1 Indonesia (JSX) +3.0 +2.9 ~a§'~a_(_K~Q ___ _1 ,i?~_ .:Q,i_ _ _:2_! _ ~,2. 11,992.8 +0.3 -0.2 -1.8 Pakistan (KSE) 2,807.4 -1.8 -12.0 -12.7 Singapore (STI) 1,856.1 -2.7 -9.5 -9.6 South Korea (KOSPI) -17.7 -20.6 Taiwan (TWI) 7,387.5 -2.3 Thailand (SET) 997.1 +3.0 -3.5 -5.6 2,625.9 -1.9 -25.5 -30.5 Argentina (MERV) Brazil (BVSP) 58,560.0 +1.8 -15.5 -20.7 Chile (IGPA) 20,875.6 +1 .5 -9.2 -16.6 Colombia (IGBC) 12,723.2 -0.5 -17.9 -17.7 36,708.4 +0.4 -4.8 -13.6 Mexico (IPC) __1lM§0.1 ilL +75.2 ~nezuela (IBC) "2. -41.1 -42.9 Egypt (Case 30) 4,170.7 -5.6 1,007.9 +1.4 -17.8 -21.8 Israel (TA-100) 6,220.0 +0.1 -6.1 -6.1 Saudi Arabia (Tadawul) South Africa (JSE AS) ...]1,672 .7 +2.0 +1.7 -17.5
Economic and financial indicators 107
I
Patent applications The number of patent applications in the world rose from around soo,oooin the early 1980s to 1.8m in 2009, according to the World Intellectual Property Report 2011, newly published by the World Intellectual Property Organisation (WIPO). Companies have become more eager to create and exploit intellectual property: WIPO notes that spending on research and development has risen even faster than patent applications. Most of the growth in applications has come from second and subsequent filings, reflecting a growing demand for protection in more than one country. "Strategic" patenting-for example, to build portfolios of patents for use in licensing negotiations-has also been on the rise.
'000 Japan
-
United States
-
European Patent Office
China -
-
South Korea
India
500
r
400
300
200
100
..r--P
0 1950
60
70
80
90
2000
09
Source: WIPO
Other markets
The Economist commodity-price index
%change on Other markets Dec 31st 2010 Index one in local in$ Nov 16th week curren~ terms -1.6 -1.6 United States (S&P 500) 1,236.9 +0.6 -0.5 -0.5 United States (NAScomp) 2,639.6 +0.7 -19.7 -16.6 China (SSEB, $terms) 253.8 -0.8 Japan (Topix) 724.1 -3.4 -19.4 -15.1 !!!~~(~S~~~tl_OQ} _ 2_ZQ,? _ :!:Q.2._ _ :l3~ --~·l 1,178.9 -0.1 -7 .9 -7 .9 World, dev'd (MSCI) Emerging markets (MSCI) 960.0 -2.0 -16.6 -16.6 World, all (MSCI) -9.1 -9.1 300.5 -0.4 ~o.!!.dJ!.o!!!!uC.!!!9!.o!!.PL _ 2?0 _ ..:2·1... _ 2 6.1 _ .:!:§.~ EMBI+ (JPMorgan) 599.0 -0.2 +8.6 +8.6 1,123.2§ +0.1 -7.7 -7.7 Hedge funds (HFRX) Volatility, US (VIX) +17.8 (levels) 33.5 +36.2 CDSs, Eur (iTRAXX) t 183.9 +0.5 +75.8 +77.3 CDSs, NAm (COX) t 134.0 +3.5 +57.4 +57.4 -30.3 -29.8 Carbon trading (EU ETS) € 9.9 -0.2
2005=100
*Total return index. tcredit-default-swap spreads, basis points. §Nov 15th Sources: National statistics offices, central banks and
stock exchanges; Bloomberg; CBOE; CBOT; CMIE; Cotlook; Darmenn & Curl; EEX; FT;HKMA; ICCO; !CO; ISO; Jackson Rice; JPMorgan Chase; NZ WoolServices; Tho mpson Lloyd & Ewa rt; Thomson Reuters; Urner Barry;WSJ; WM/Reuters
Nov 8th
Nov 15th*
%change on one one month year
Dollar index ~lJ.t:.e~s___ _}~l_
__ .Ml§.:.2__ _: ~8-- ~ ·l - ~~0__ ..!9.:_2_ - :!:2·.Z.
fQQ£ - ___ _?Q§&_ _ Industrials All ..Nfat.. Metals Sterling index All items Euroindex All items Gold
..
... 16 ~ .9. 1.8~._2
163.- 4... . 1.~?:2 .
~ 2.) .. . ~ 1 ~: 9
157.8
155.4
:9._1 . .. ~.29-.8 -11.6 +1.8
212 .8
214.0
-2.0
-3.7
169 .5
171.2
+0.4
-4.1
1,779.6
+8.8
+32.6
99.5
+12 .5
+21.0
1,795.0 1~ West Texas Intermediate $ per barrel 96.9
.
•Provisional !Non-food agriculturals.
Indicators for more countries and additional series, go to: Economist.comfindicators
he hated him. Hated the big mouth that called him ugly, flat-footed and a gorilla (punching a little rubber gorilla as he said it, contemptuously), while Frazier would sit with his plain, solid, patient face wondering whether he could get one word in. Especially he hated Ali calling him an Uncle Tom, a white man's black boxer. Ali had been stripped of his world heavyweight title in 1967 for refusing the Vietnam draft. That made some whites go to Frazier's corner, and made many blacks go on calling Ali champion even when Frazier was. That hurt. Ali talked a streak about civil rights; Frazier didn't mention them much. But it was he, the sharecropper's son, who had felt the sharper edge of segregation, "the animosity, hatred, bigotry, you name it". He punched his bag at home because the town playgrounds were closed to him. From childhood he picked okra for white farmers until one day he defied them, threw in his job and left the South on a Greyhound bus, already sure at 15 that he could never make a life there.
Joe Frazier
"Smokinjoe" Frazier, heavyweight boxer, died on November 7th, aged 67 O SAY that Joe Frazier had a left hook T was like saying the Tomcat jet fighter is an aeroplane. This one was devastating. You knew it was there, but he kept it hidden. For most of a fight he would press in, head down like a bull charging, fists close to the chest. He was short for a heavyweight, five feet eleven, and made himself look shorter, hunching his shoulders and punching close with his stumpy, jabbing arms. He didn't dance around, but worked away at it, bobbing and weaving relentlessly, throwing away perhaps two punches for every one he landed. His style was to keep aggressively on, wear a man down, get him winded. Then-boom!-the dazzling left hook that sent his opponent sprawling. His craft had been honed for years. First on the heavy bag he'd made himself that hung from the oak tree in the yard of the family shack in Beaufort, South Carolina: just an old burlap bag stuffed with rags and corn cobs, Spanish moss and rocks. Anything that could take a punch. His mamma whupped him with a braided vine and his daddy whupped him with a belt when he deserved it, and then he'd pummel that bag. His uncle had told him at eight years old, as he watched the "Wednesday Night Fight" on the blurry black-and-white TV with the other men, that he could be an-
other Joe Louis. He aimed to do it. Later he practised on the hanging sides of beef at Cross Brothers' slaughterhouse in Philadelphia, Rocky Balboa in real life. One, two in the refrigerated room, breath smoking, gloves smoking. That was what his first trainer told him to do when he signed on at the police gym in 1961: make his gloves smoke. Out of 37 professional fights, he won 27 with knockouts. His left hook won him gold at the Tokyo Olympics in 1964, toppling Hans Huber, even though his left thumb was so hurt it was probably broken. It earned him the world heavyweight crown, besting Jimmy Ellis in the fifth at Madison Square Garden in 1970. And most spectacularly it was how he beat Muhammad Ali in "The Fight of the Century" at the Garden in 1971, when after 14 rounds of increasing ferocity Gust throw punches, he was thinking. Just throw punches) he landed a blow on that bragging jaw that won him the fight on points and sent Ali round to the hospital. Nothing was sweeter to him than that one punch. He kept a photo of it, blown up huge, in the office of the gym where he had trained in Philadelphia and later trained young boxers himself. His rivalry with Ali was the most intense in boxing. It may have thawed at moments, but deep down
Buying the plantation He enjoyed his celebrity time: the fur coats and the diamond rings, the maroon Cadillac limousine in which her Billy Boy swept back into Beaufort to buy a 368-acre plantation for his mamma. He would joke and sing at the drop of a hat (stylish hats, too), heading a musical revue for some years called Smokin Joe Frazier and the Knockouts. Generally he rolled with the punches, a gentleman when it counted. When George Foreman knocked him down six times in 1973 and took the world title from him he could only say, laughing, that Foreman punched good. Very good. With Ali it was a different matter. They fought three times, and he lost twice. On the third occasion, the "Thriller in Manila" in 1975, when they pulverised each other in smothering heat until he could no longer see Ali's right coming and was stumbling round blind, his trainer pulled him out in the 14th. He never forgave him. Ali was spent too, Frazier still wanted "to show him the error of his foolish pride", and who knows what his left hook could have done to that pretty face. "How much did you want that title?" he was asked later. Beaming, he replied: "Like hogs love slop." In his last years the money seemed to vanish; none was left for his funeral. His gym became a bedding outlet, and at the Spring Garden Deli, where he went to eat his lunch of grits with spinach and tomatoes, the waitress didn't know who he was. Gamely, he would let her beat him at armwrestling. And he could still be induced to sing sometimes, in a voice slurred and croaky after hundreds of punches to the head, his own version of his favourite song: "I fought them fair, I fought them square, I fought them my-y-y-y way." •
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