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3
6 be wodd_tbis w_e_e_ Leaders 7 111.erican po_Liti_cs The right Republican 8 o11b_Ko_r:_ea after KiiUl [;tQJJg lU We need to talk about Kim 9 llieligi_ousJre_edo_ml Christians and Lions
10 On the cover Although the presidency is theirs for the taking, America's Republicans a rein danger of throwing it away: leader, pageJ. After many ups and downs, Mitt Romney looks best placed to win the nomination, lpageig. The "tea party" loses a fight over economic stimulus, page 21. Ron Paul: Lexington, page 2i The Economist online Daily analysis and opinion from our 19 blogs, plus audio and video content, debates and a daily chart Economist.comf blogs E-mail: newsletters and mobile edition Economist.comf email Print edition: available online by 7pm London time each Thursday Economist.comf print Audio edition: available online to download each Friday Economist.comfaudioedition
I ht·
I: t nnn mi\t Volume 401 Number 8765
First published in September1843
to take part in •a severe contest between intelligence, which presses forward, and an vnworthy, timid ignorance obstructing ovrprogress. • Editorial offices in London and also:
Atlanta. Beijing, Bertin, Brussels, Cairo, Chicago, Hong Kong, Johannesburg, los Angeles, Mexico City, Moscow, New Delhi, New York, Paris, San Francisco, Sao Paulo, Si ngapore, Tokyo, Washington DC
bl o.g ALess dismal debate ECOJl.QnUCS
Letters
Briefing 15 lSucces_sion in North' Ko_re _ Grief and fear United States 19 The R~pu_blic.a n Into Iowa 21 IJhe__N_at:iQlla_lJ.abouri elat:ionsJtoard Workingman's blues 21 Th_e_p_ayroll-taxJo_ Backfiring brin ksmen 22 [L_e>dngt_o_ol Ron Paul's big moment The Americas 23 [Chexr.oJLand Brazil' s_oill Oil, water and trouble 24 1Aige_nti_J]_a_and the! lfalkland_ Rocking the boat 24 The.Jtominic_an Rep_u_b_li Stateless
Asia 25 1Pa.kistatLs febti_le_p_o_Liti..csl Open spats 26 [Unre_stin Kaz.a kbs_ta.n' Thicker than oiL 26 tJaQ.aK.s_crammi.ngl s_ch_oo_ls] Testing times 28 [Baoya.nl Indian demographics Middle East and Africa 29 1Ira_q_wi_t ho.uiAm..erikal Sovereign but unstable ·+-=' • o_u_~_u_. niht 30 _Pra_le_s_~.j_ma _,_ Rivals needing each other 31 li'tigeria's s_u_b_sidie_s' End them at once!
North Korea The world should hope, and plan, for regime change in North Korea: leader, pag.e 8. It seems unlikely that KimJong Un will want to reform North Korea, but even less likely that t he regime can go on resisting change, pages 15-lil. Kim Jong Il: obituary, pa.ge..74
Briefing 32 l\LadavJ::la_vel1.93_6-2o:iil Living in truth Europe 35 Spain's new governmen Rajoy goes to work 36 litu_s_si!Ls_prote_s_t.s First we take Sakharov Avenue 36 [Danish goliticil Helle's horrid honeymoon 37 'sweden's SociaV De_mocrat_ Fading charms 37 Turke , France andl Armerrlal Watch your words 38 l\Lis_a_s in Eur.ope' Keep out
Religion and violence The world's most widely followed faith is th riving, but it is also battling persecution: leader, page 9. In some quarters, study of the Koran is getting increasingly daring, page 43. The departure of American troops fro mIraq has already been followed by a resurgence of sectarian hatred, page 29
Britain 39 fSin t~es1 The high cost of virtue 40 England's booze culture' Always with us 40 islum landlord~ Down and out in London 42 Bag_ehjL Olympic Britain v royal Britain Vaclav Havel The unassuming man who taught, through plays and politics, how tyranny may be defied and overcome, 'pag_es 32-3ft
~~lC.ontents..wntinues..o.verieaJI
The Economist December 31st 2011
4 Contents
International 43 lMuslims...an.dJ:lteJ(or.anl In the beginning were the words 44 irextual criticism] Believe it or not
Financial terrorism Policymakers worry about attacks on America's financial system, .page 5l
China and America The year in which the Chinese economy will eclipse America's is in sight: Economics focus, page 6~
Fringe economics Slogging makes economics debates rowdier, richer and more readable: leader, p_age 10. The crisis, and the blogosphere, have opened mainstream economics up to new attack, pages 51.::54
Business 45 IInfrastructure in_ln.dial Balance sheets under strain 46 'I be ris.e of_co-wo.rkingl Looki ng for a desk 48 'AmericanJwsinessl Hard times, lea n firms 48 thnkad'lertising One message, or many? 49 llnsulting_ad.vertisements' Ad hominem 50 :s.cbump.etell Too much social media Briefing 51 ..etero.dox.e.conomics Marginal revolutionaries Finance and economics 57 IEinan.dal tenods.ml The war on terabytes 58 utto.ow_o_od Prospects for 2012 59 Eur.opeao_b.ank Hose and dry 59 :Cbioese so_v._er_eigo_d_e.b_ The bonds that tie 60 o_u __reyjsjte_d Charting the year 61 co.n.oJtti.cs_focus China v America
Science and technology 63 flu_research...an .iolo.gical warfa.r Adeadly balance 64 S.olar_p_ow.e Building a better suntrap 64 1Comet_Lo.vejoy1 Surviving the sun 65 L Ca.nceuesearc . Ta ke five Books and arts 66 [Gift.oHonguesl Hyperpolyglots and their world 67 ITheJ:rencb in_Algeri War by any other name 68 iWilliam Carlos_Williamsl Outside looking in 68 IMen otlettersl George Whitman and Christopher Hitchens 68 !Jobn.Brigh Third man 69 'wo_men_of.substancel Rebecca West and Dorothy Thompson Economic a nd financial indicators Statistics on 42 economies, plus a closer look at initial pub lic offerings Obituary 74 imJ.o.ogJl The Great Illusion
Science When does research enhance security, and when does it diminish it? The case of the bird flu studies, page 63 Prindpalcommerdaloffices: 25 StJames's Street, London sw1A 1HG Tel: 020 7830 1000 Boulevard des Tranchees 16 1206 Geneva, Switzerland Tel: 4122 566 2470 750 3rd Avenue, sth Floor, New York, NY 10017 Tel: 1212 541 0500 60/F Central Plaza 18 Harbour Road, Wanchai, Hong Kong Tel: 852 2585 3888
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6
KimJong II, North Korea's dictator since 1994, died on Decemben7th of a presumed heart attack in one of his palaces, though the official version said he died of overwork on a train. The nuclear-tipped regime quickly fell behind Kim's third son, KimJong Un, thought to be in his late 20s. So, too, did China, the North's crucial ally. KimJong Un's uncle,Jang Song Taek, may prove to be a powerful regent in the hereditary dictatorship. Kim's funeral was a Communist set piece of loyalty and emotion, though most North Koreans remain wretched. The death toll from a recent typhoon that hit the Philippines climbed to oven,2oo. Pakistan rejected the findings of an investigation by the Pentagon into an American air strike on the Afghan border in November that killed 24 Pakistani soldiers. The report blamed "inadequate co-ordination" by American and Pakistani officers for the incident. But in a letter to the American Congress, Pakistan said the episode "has raised suspicions in the rank and file of the Pakistan army that it was a premeditated attack". Japan abruptly reversed a 45-year-old policy banning the export of weapons-related goods and technologies. The decision will enable Japanese firms to participate in more joint development programmes with allies, though Japan will continue to prohibit exports to areas in conflict or under arms embargoes. India's lower house of parliament passed the Lokpal (antigraft ombudsman) bill, at last. The bill has been talked about for 40 years, and is central to the public protests that have rocked the Indian government. A dozen bombs went off across Baghdad on December 22nd, a few days after the last American troops left Iraq. Sectarian animosity rose again, with the prime minister, Nuri al-Maliki, a Shia, saying that the country's vice-presi-
dent, Tariq al-Hashemi, a Sunni, had been charged with terrorism. A fundamentalist Islamist group,Boko Haram, claimed responsibility for a series of bombs that went off near churches in Nigeria, including on Christmas Day, leaving at least 40 people dead. Mercosur, the South American trade block led by Brazil and Argentina, said that it would ban vessels flying the flag of the Falkland Islands from using its ports. Mexican troops arrested Felipe Cabrera Sarabia, the alleged security chief of the Sinaloa cartel, Mexico's most powerful drug mob. Cuba's government pardoned more than 2,900 prisoners, including 86 foreigners but not Alan Gross, an American contractor jailed for distributing internet equipment. President Raul Castro damped down speculation that he would abolish restrictions on foreign travel by Cubans.
Barack Obama signed a law that extends both a payroll taxcut for employees and unemployment-insurance benefits. It was a big, and increasingly rare, political victory for the president and came after Republicans in the House of Representatives, under pressure from a vexed public, abandoned their opposition to the legislation. Moscow's biggest demonstration yet against a rigged parliamentary election saw around 8o,ooo people take to the streets on December 24th. But Vladimir Putin, prime minister and president-to-be, said the election would not be rerun. Vaclav Havel, a dissident playwright and the first president of post-communist Czechoslovakia, died on December 18th. David Cameron, Nicolas Sarkozy and Hillary Clinton were among the mourners at his funeral in Prague.
At least 38 Haitian migrants died when their overcrowded boat sank off the Cuban coast. Cuba's civil-defence force saved 87 others.
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The European Central Bank provided €489 billion ($628 billion) in cheap three-year loans to more than soo eurozone banks in the week before Christmas. Demand for the loans was stronger than expected and amounted to the ECB's largest single liquidity operation to date. Japan's Sony and South Korea's Samsung said they would end a seven-year joint venture making LCD television panels. Samsung will buy Sony's so% share of the venture for $940m. Sony expects to save ¥50 billion annually (around $640m), as it will be able to buy panels from many suppliers, including Samsung. Though 22om flat-panel televisions were sold in 2011, none of the firms making LCD screens is profitable because of overcapacity in the industry. International Airlines Group, the parent company of British Airways, won its bid to buy bmi, giving it an even greater share of the runway slots at Heathrow. Virgin Atlantic vowed to stop the deal, saying it would "tilt the competitive landscape dangerously" towards BA, its arch-rival. Other economic data and news can be found on !pages 12-73
7
The right Republican Although the presidency is theirs for the taking, America's Republicans are in danger of throwing it away N JANUARY the battle to become the world's most powerful person begins-with small groups of Iowans "caucusing" to choose a Republican nominee for the White House. It is a great opportunity for them. Barack Obama is clearly heatable. No president since Franklin Roosevelt has been re-elected with unemployment as high as it is now; Mr Obama's approval rating, which tends to translate accurately into vote-share, is down in the mid-4os. Swing states like Florida, Ohio and even Pennsylvania look well within the Republicans' grasp. Yet recent polls show the president leading all his rivals: an average of two points ahead of Mitt Romney, eight points over Ron Paul and nine points over Newt Gingrich, according to RealClearPolitics.com. No doubt some rather flawed personalities play a part in that; but so does the notion that something has gone badly wrong with the party of Abraham Lincoln, Theodore Roosevelt and Ronald Reagan. Rather than answering the call for a credible right-of-centre, pro-business party to provide independents, including this newspaper, with a choice in November, it is saddling its candidate with a set of ideas that are cranky, extreme and backward-looking. That matters far beyond this election- and indeed America's shores. Across the West nations are struggling to reform government. At their best the Republicans have combined a muscular foreign policy with sound economics, individualism and entrepreneurial pragmatism. It is in everybody's interests that they become champions of such policies again. That is not impossible, but there is a lot of catching up to do.
I
Please sign on the dotted line Optimists will point out that the Republicans, no less than the Democrats, tend to flirt with extremes in the primaries, then select an electable moderate (with Mr Romney being the likely winner this time). America is a conservative place; every Republican nominee, including those The Economist has backed in the past, has sign ed up to pretty uncompromising views on God, gays and guns. But even allowing for that, the party has been dragged further and further to the right. Gone are the days when a smiling Reagan could be forgiven for raising taxes and ignoring abortion once in office. As the Republican base has become ever more detached from the mainstream, its list of unconditional demands has become ever more stringent. Nowadays, a candidate must believe not just some but all of the following things: that abortion should be illegal in all cases; that gay marriage must be banned even in states that want it; that the 12m illegal immigrants, even those who have lived in America for decades, must all be sent home; that the 46m people who lack health insurance have only themselves to blame; that global warming is a conspiracy; that any form of gun control is unconstitutional; that any form of tax increase must be vetoed, even if the increase is only the cancelling of an expensive and market-distorting perk; that Israel can do no wrong and the "so-called Palestinians", to use Mr Gingrich's
term, can do no right; that the Environmental Protection Agency, the Department of Education and others whose names you do not have to remember should be abolished. These fatwas explain the rum list of candidates: you either have to be an unelectable extremist who genuinely believes all this, or a dissembler prepared to tie yourself in ever more elaborate knots (the flexible Mr Romney). Several promisingly pragmatic governors, including Mitch Daniels, Chris Christie and Jeb Bush, never even sought the nomination. Jon Huntsman, the closest thing to a moderate in the race (who supports gay marriage and action to combat climate change), is polling in low single figures. More depressingly, the fa twas have stifled ideas, making the Republican Party the enemy of creative positions it once pianeered. The idea of requiring every American to carry health insurance (thus broadening the insurance pool and reducing costs) originated in the conservative Heritage Foundation as a response to Clinton-care, and was put into practice by thenGovernor Romney in Massachusetts. All this Mr Romney has had to disavow, just as Mr Gingrich has had to recant his ideas on climate change, while Rick Perry is still explaining his appalling laxity as governor of Texas in allowing the children of illegal immigrants to receive subsidised college education. On the economy, where this newspaper has often found the most common ground with the Republicans, the impact has been especially unfortunate. America's commercial classes are fed up with a president they associate with big government, red tape and class warfare. A Republican could stake out a way to cut the deficit, reform taxes and refashion government. But instead of businesslike pragmatism, there is zealotry. The candidates have made a fetish out of never raising taxes (even when it involves getting rid of loopholes), while mostly ignoring tough decisions about cutting spending on defence or pensions. Such compassionless conservatism (slashing taxes for the rich and expenditure on the poor) comes with little thought as to which bits of government spending are useful. Investing in infrastructure, redesigning public education and maintaining unemployment benefits in the worst downturn since the Depression are hardly acts of communism.
We didn't leave you; you left us Elections are decided in the middle. If the Republicans choose an extreme candidate, they can hardly be surprised if independents plump for Mr Obama, or look to a third-party candidate. But there could be two better outcomes for them. The first would be if Mr Romney secures a quick victory, defies his base and moves firmly to the centre. In theory, there is enough in his record to suggest that he may yet be the chief executive America needs, though such boldness is asking a lot of a man who still seems several vertebrae short of a backbone (John McCain, a generally braver man, flunked it in 2008). The alternative is that the primary race grinds to a stalemate, with neither Mr Romney nor one of his rivals able to secure victory. Then a Bush, Daniels or Christie just might be tempted into the contest. It is a sad commentary that this late in the day "the right Repu blican" does not even seem to be running yet. •
8 Leaders
The Economist December 31st 2011
North Korea after Kim Jong ll
We need to talk about Kim Regime change in the worst country on earth should be planned for, not just hoped for
O HIS many victims, and to anyone with a sense of justice, it is deeply wrong that Kim Jong II died at liberty and of natural causes. The despot ran his country as a gulag. He spread more misery and poverty than any dictator in modern times, killing more of his countrymen in the camps or through needless malnutrition and famine than anyone since Pol Pot. North Koreans are on average three inches shorter than their well-fed cousins in the South. One in 20 has passed through the gulags. Once somebody is deemed a political enemy, his whole family can be condemned to forced labour too. Now, KimJong 11 will never be held to account. Kim was pathologically indifferent to the misery of his people. By his own lights, life was sweet. He enjoyed cognac, fine cheeses and sushi. He relished wielding power over his people and his ability, through nuclear provocation, to milk and manipulate the outside world. He bombed an airliner. He indulged his passion for cinema by kidnapping a South Korean director. The whole country was his movie set, where he could play God and have the people revere him (see our obituary). He was often portrayed as a platform-heeled, bouffanted buffoon-a cartoon villain. Yet he was coolly rational and, in the final reckoning, successful. Not only did he himself die at liberty, but he protected an entire generation of the narrow elite who rose with him. And above all, Kim, the family man, ensured that he passed his movie set to a chosen heir, his pudgy third son, KimJong Un. That is the second reason why there cannot be unalloyed joy at KimJong Il's going. The younger Kim represents the third generation of a dynastic Stalinist dictatorship that has ruled North Korea since 1948. Vicious factional fighting or family squabbles may rage behind the scenes, but the staging of his father's funeral on December 28th was designed to show that, in public, the regime has fallen into line behind the son, with his uncle and aunt as regents. Continuity is the imperative. Since more of the same means more misery at home and more nuclear blackmail abroad, that is no reason to be cheerful.
T
The Chosun Un
In 1994, at the death of Kim Jong Il's father, Kim 11 Sung, The Economist hoped, as it does now, for the regime's swift collapse and the North's reunification with the South. At the time, Kim Jong II lacked his father's authority. The irresistible logic, we claimed, was for economic reform and for the regime to crumble. Today, Kim Jong Un inherits two valuable prizes: nuclear weapons (and the leverage they offer) plus unambiguous support from China. These are not the only reasons to hesitate before predicting the dynasty's imminent destruction. Among the North Koreans who have greatest reason toresent the regime are rural dwellers too remote and impoverished to challenge it. And if they did, a countrywide system of repression allows no room for dissent. The elites around the Kim family-almost all revolutionary princelings-know that
their own survival is linked to the regime's. Meanwhile, the capital, Pyongyang, made up only of loyalists, is doing relatively well. Hardest for an outsider to grasp is that the Kim personality cult flows from powerful myths about race and history. Above all is North Koreans' sense of racial purity. They have been taught to think of the Kims as warm, doting parents, fiercely guarding a vulnerable nation from American and Japanese and even Chinese abuse. Some of the weeping that followed KimJong Il's death may thus have been genuine. Yet even North Korea cannot avoid change altogether. The famine of the late 1990s engendered unprecedented cynicism towards the regime, as well as survival mechanisms that have proved more durable than the state's capacity to stamp them out. Black markets have sprung up, along with a thriving petty trade across the border with China. North Koreans watching South Korean soap operas on smuggled DVD players now know that their leaders have lied about the supposedly poor and oppressed people in the South. All this is altering the country in irreversible ways-and one of these days will threaten the regime's survival (see pa~es 15-1:z). This presents China with a conundrum. The strategists in Beijing have propped up the regime both because they fear instability on their border and even more because they worry about a unified Korea, perhaps with American troops hard up against the Chinese frontier for the first time in over 6o years. Their dilemma is that whatever they do, North Korea will eventually collapse. On the one hand, the lack of reform is leading North Korea down a dead end. On the other, a more open country would surely spell the end of the Kim dynasty. It is why KimJong Il never blessed change, no matter how many times the Chinese showed him their economic miracle. For fear of something worse
Now surely it is time for China to accept that change is better brought forward-and managed. Even if North Korea collapses chaotically, the potential long-term benefits not just for North Koreans but also for their neighbours, including China, of a peninsula at peace with itself greatly outweigh the potential instability. Some in Beijing claim to see a reformist in the uncleregent,Jang Song Taek. If so, they should encourage him. China is much likelier to do this if South Korea and the United States work harder to minimise the dangerous consequences of collapse. The Americans and the South could do much to reassure China (and vice versa)-for instance, by cooperating to prevent the North's nuclear, chemical and biological weapons from falling into the wrong hands. And they could make it far clearer to the Chinese that once the peninsula is at peace there will be no need for American troops to stay. The regrettable truth is that not just China but also America (fearful of another global crisis), South Korea (fearful of the costs of adopting a country that seems alien to many young Koreans) and Japan (fearful of a united Korea) have propped up a murderous regime. But the Kims cannot survive for ever. The sooner a dialogue begins about how to replace them, the better-not just for the stability of the region, but also for North Korea's forgotten and downtrodden people. •
The Economist December 31st 2011
Leaders 9
Religious freedom
Christians and lions The w orld's most widely fo llowed faith is gathering persecutors. Even non-Christians sho uld w orry about that
HRISTIANITY is growing al- gles, such as those within Islam, little blood is being spilt. But most as fast as humanity it- the brutality matters. Even if Western powers no longer see self, but its 2.2 billion adherents promoting Christianity's interests as a geopolitical priority, it is cannot count on safety in num- hard to imagine American evangelicals ignoring a full-scale bers. That is partly because the clampdown on house churches in China. And whatever their locus of the world's largest reli- own beliefs, Western voters have other reasons to worry gion is shifting to hotter (in sev- about the fate of Christians. Regimes or societies that perseeral senses) parts of the world. cute Christians tend to oppress other minorities too. Sunni According to a report published by the Pew Forum in Decem- Muslims who demonise Christians loathe Shias. Once religion ber, the Christian share of the population of sub-Saharan Afri- is involved, any conflict becomes harder to solve. ca has soared over the past century, from 9% to 63%. Meanwhile, the think-tank says, the Christian proportion of just don't call it a crusade Europeans and people in the Americas has dropped, respec- Among liberal values, the freedom to profess any religion or none has a central place. America's government is bound by tively, from 95% to 76% and from 96% to 86%. But moving from the jaded north to the dynamic south law to promote that liberty. In line with its own ideals, Ameridoes not portend an easy future. In Nigeria scores of Christians ca is rightly as concerned by the persecution of Muslims of any have died in Islamist bomb attacks, targeting Christmas pray- stripe as by the travails of Christians in China or Jews and Baers. In Iran and Pakistan Christians are on death row, for "apos- hais in Iran. And it objects when Christian lands, like Belarus, tasy"-quitting Islam-or blasphemy. Dozens of churches in In- practise persecution. Other more secular Western countries donesia have been attacked or shut. Two-thirds of Iraq's should do more to defend that right. pre-war Christian population have fled. In Egypt and Syria, What about those who see persecuting other religions as where secular despots gave Christianity a shield of sorts, polit- part of their calling? No faith is blameless: from Delhi to Jerusaical upheaval and Muslim zeal threaten ancient Christian lem many of those stirring up hatred are men of God. But there groups. Not all Christianity's woes are down to Muslims. The is a specific problem with Islam. Islamic law (though not the faith faces harassment in formally communist China and Viet- Koran) has often mandated death for people leaving the faith. nam. In India Hindu nationalists want to penalise Christians There are signs of change. The 57-member Organisation of Iswho make converts. In the Holy Land local churches are lamic Co-operation has, with American encouragement, caught between Israeli encroachment on their property and Is- toned down its bid to outlaw "blasphemy" in various UN resolamist bids to monopolise Palestinian life. Followers of Jesus lutions. It also condemned the attacks in Nigeria. But more may yet become a rarity in his homeland. Muslim leaders need to accept that changing creed is a legal Compared both with the wars of religion that once tore right. On that one point, the West should not back down. OthChristendom apart and with various modern intra-faith strug- erwise believers, whether Christian or not, remain in peril. •
C
Iraq
Make it federal If their country is to function, Iraqis need to share power
ARACK OBAMA put a brave face on the ignominious exit, just before Christmas, of all American troops, once numbering around 170,000, from Iraq. He was fulfilling an election promise to extricate America from a war he never supported, that cost more than 4,400 American lives and $8oo billion, and earned his country the enmity of much of the world, especially of Arabs and Muslims. The president sought to reassure those who worry about an over-speedy exit that Iraq is not the bloodbath it once was. It has held pretty fair elections. It has a coalition government led by a solid-looking prime minister. Its copious oil is flowing faster again. And it is again undeniably
B
sovereign. Time, then, for the West to heave a huge sigh of relief and for Iraqis to stride towards democracy and prosperity? If only. For one thing, the manner of Mr Obama's retreat was not what he had chosen. He had been persuaded by his generals and by his new CIA boss, General David Petraeus, a former commander in Iraq, that a residual American force of 10,000 or so troops should stay, with Iraqi acquiescence, to help keep the peace for a year or two, while the country's still fragile democracy was more firmly entrenched. Instead, the most anti-American of Iraq's leading politicians, Muqtada alSadr, who is close to Iran, forced Nuri al-Maliki, the prime minister, on pain of rekindling an insurgency, to tell all American soldiers to leave. However glossily presented, America's influence in Iraq is now negligible, its clout in the region severely diminished. And Iraq itself, once one of the Arab world's leading ~•
The Economist December 31st 2011
10 Leaders
is an unloved and unenvied cockpit of regional rivalry, especially between Saudis, Persians and Turks. Perhaps it is just as well that the Iraqis should have to sort out their future themselves. But, judging by the past few years, they do not look set to do so sensibly (see~p.age_2.9). Iraq is still as dangerous as Afghanistan. Baghdad, Basra and Mosul, its three biggest cities, are still unsafe for investors unless they take elaborate and costly precautions. Al-Qaeda still has a lurking presence. Sectarian fissures still gape. Iraq's necessary three-way compact between Shia Arabs (around 60% of the people), Sunni Arabs (20%) and Kurds (20%) is still holding, but only just. Mr Maliki, a Shia, is steadily becoming less democratic and more vindictive towards Sunnis, including those within his ruling coalition who will not kowtow to him. Immediately after the Americans left, he saw to it that Iraq's Sunni vice-president was charged with terrorism and called for a deputy prime minister, another Sunni, to be ousted. The belligerent Mr Sadr is as menacing as ever. The Shias are reluctant, after a century as underdogs, to grant a decent share of power to the Sunnis, who ran the show under Saddam Hussein and before. Arab Iraqis of all stripes still tend to view the Kurds as a fifth column bent on peeling off
~ countries,
altogether, grabbing some of the best oilfields and breaking up the Arab nation. Few Iraqi politicians seem able to put country above religious sect or ethnicity. Minority rights are disrespected. Intolerance prevails. Whether occupied by Americans or not, Iraq woefully lacks a sense of nationhood. An American legacy after all
The least bad way ahead, if the country is to avoid another bloodbath or an eventual break-up, is to enact a federal formula, already provided for by the constitution. The Kurds, enjoying an unprecedented measure of autonomy, have long been keen on this. Most of Iraq's Sunni Arabs have hitherto loathed the idea, seeing it as a conspiracy to do them down and to belittle a great nation. But they should now think again. Mr Maliki's best chance of making Iraq work is to go federal. Having had a crude democracy thrust upon them, Iraqis missed out on the Arab spring. But if there is one good precedent for them to set it would be to fashion a functioning federal system. This would be a first for Arabs. Even under democracy, they tend to view a strongman at the centre as a prerequisite for stability. But Iraq should be shared-and then America might yet claim to have left a worthwhile legacy after all. •
Economics blogs
A less dismal debate Blogs are blamed for cheapening debate in some fields. Yet they have enriched economics ~
' ' T ET Truth and Falsehood
L grapple; who ever knew Truth put to the worse, in a free and open encounter?" asked John Milton in Areopagitica. his rousing defence of a free press, in 1644. But in an era when a • blog can be set up with a few clicks, not everyone agrees that more voices and more choices improve the quality of debate. Cass Sunstein, a Harvard law professor, has argued that by allowing people to retreat into "information cocoons" or "echo chambers" in which they hear only views they agree with, the blogosphere fosters polarisation-a fear widely shared by politicians. Forbes once called blogs "the prized platform of an online lynch mob spouting liberty but spewing lies, libel and invective". Previous publishing revolutions, such as the advent of printing, prompted similar concerns about trivialisation and extremism. But whatever you think about the impact of blogging on political, scientific or religious debate, it is hard to argue that the internet has cheapened the global conversation about economics. On the contrary, it has improved it. Research (by two blogging economists at the World Bank) suggests that academic papers cited by bloggers are far more likely to be downloaded. Blogging economists are regarded more highly than non-bloggers with the same publishing record. Blogs have given ideas that failed to prosper in the academic marketplace, such as the "Austrian" theory of the business cycle, another airing (see~e51-5_4D.They have also given voice to once-obscure scholars advancing bold solutions to America's economic funk and Europe's self-inflicted crisis. A good example is Scott Sumner of Bentley University, who
believes that America's Federal Reserve should promise to restore "nominal" GDP (as opposed to "real" GDP, which takes account of inflation) to its pre-crisis path. Since inflation is in line with the Fed's implicit target yet nominal GDP is more than n% below its pre-crisis path, Mr Sumner's proposal might require a far more expansive monetary policy than anything the Fed has so far considered. This idea was discussed decades ago, but fell into obscurity in the years before the crisis, when inflation-targeting seemed to work. Alternatives to that conventional wisdom are suddenly a live topic, and blogs have brought experts on them out of the shadows. There once were two cats of Kilkenny
The back-and-forth between bloggers resembles the informal chats, in university hallways and coffee rooms, that have always stimulated economic research, argues Paul Krugman, a Nobel-prizewinning economist who blogs at the New York Times. But moving the conversation online means that far more people can take part. Admittedly, for every lost prophet there is a crank who is simply lost. Yet despite the low barriers to entry, blogs do impose some intellectual standards. Errors of fact or logic are spotted, ridiculed and corrected. Areas of disagreement are highlighted and sometimes even narrowed. Some of the best contributors do not even have blogs of their own, serving instead as referees, leaving thoughtful comments on other people's sites and often criss-crossing party lines. This debate is not always polite. But was it ever? The arguments between John Maynard Keynes and Friedrich Hayek in the 1930s, some of them published in academic journals, were not notable for their tact. One observer likened their exchanges to the brawling of "Kilkenny cats". Both men, one suspects, would have relished taking their battle online. •
11
Time to sell the family silver
SIR - If over a long period of time a family borrows more money than it is able to earn, it will find debt collectors at the door. The situation of the weaker countries in the euro zone is not any different ("A comedy of euros", December 17th), and thus there is a simple, logical and efficient solution for their predicament. Just as the family will go bankrupt unless it can repay its debts by selling the car, the table silver and other luxury items, so must the overburdened euro-zone countries give up their state companies and other luxuries. All other so-called creative solutions to the debt crisis will fail. Shuffling debt around, or pooling one's debt with that of one's similarly distressed neighbours, will provide no permanent solution. An orderly sale of Italy's state-owned industries and Greece's land holdings would take time, which is no longer available, so the immediate solution to the crisis is to place such hard assets in a euro-zone trust that would then issue euro-zone bonds backed by those assets. The capital thus attracted would be used to pay down the government debts of the affected countries. There would be no sacrifice by German taxpayers, as the hard assets would gradually be sold, whereupon the bonds would be redeemed. Through an orderly sale of state assets each euro-zone country would be able to pay off as much sovereign debt as necessary. There is no serious moral or practical objection; only vanity and certain ideologies prescribe that utilities, land and other property should be owned by a state rather than by its citizens. In fact, the current crisis would not have occurred if past euro-zone governments had financed their bloated bureaucracies and overly generous welfare systems not by borrowing against the savings of future generations but instead by asset sales. The transfer of ownership of state assets to private owners will
not be a new and decisive act, but simply the correct settlement of bills long past due. WOLF BARLEUGH
London
Recapitalising Irish banks
sIR - I refer to "The world this year" in your Decemben7th issue, which claimed that Ireland got "a second rescue package of €24 billion" in 2011. This is not in accordance with the facts. The €24 billion is the additional capital requirements of the Irish banks, quantified on the basis of a Prudential Capital Assessment Review (PCAR 2011) conducted by the Central Bank of Ireland. The restructuring and recapitalisation of the Irish banks is a key element of the December 2010 European Union/IMF Programme of Support, in which an envelope of €35 billion was included for recapitalisation purposes. The €24 billion capital requirement announced in March was significantJy less than the original estimate and clearly does not amount to a second rescue package. Furthermore, the recent European Banking Authority capital exercise showed that Irish banks do not need additional capital under the higher standards now required. This outcome reinforces the robust and conservative nature of our PCAR exercise. In terms of resilience, Irish banks are now very well capitalised and capable of withstanding very distressed scenarios. PAUL BOLGER
over, any price advantage at supermarkets tends to be in the goods that the middle classes buy. The Indian government rushed to allow foreign retailers in to the market because of pressure from Brussels during free -trade talks. Its quick reversal was necessary to protect the interest of the majority of Indians.
The general acceptance of women's, and only women's, right to a work-life balance can thus be more of a curse than a blessing, as it gives companies an alibi for continuing to expect fathers to work longer hours. This in turn perpetuates the predominance of fathers over mothers in management positions.
PAUL SPRAY
JOHANNA BERNSEL
Traidcraft
Brussels
London
Jobs in the Midwest A sad statistic
SIR - There was an impressive list of statistics included in your article on the problems faced by America's returning soldiers(" A hard homecoming", December 17th). Except for one. On average,18 veterans commit suicide, every single day. TOM MCNAMARA
Assistant professor Ren nes School of Business Rennes, France
Women at work
SIR - You reported a McKinsey estimate that the increased female labour-force participation since 1970 has made America's GDP 25%higher (Special report on women and work, November 26th). Although this social shift produced tremendous benefits, that number tells us more about how GDP statistics value non-market work than about the gains from having more women in the workforce. JONATHAN DINGEL
New York
Department of Finance Dublin
Supermarket sweep
sI R- The recent decision by the Indian government to reverse course on allowing foreign supermarkets to operate in the country might actually help millions of poor people ("Off their trolleys", Decembenoth). Research presented to the European Parliament suggests that foreign supermarkets risked destroying between two to three times as many jobs as they intended to create. More-
sIR - Your analysis of the "ambition gap" left out one of the most obvious reasons for the gap: the poor recognition of the importance of fatherhood. Most people have children at home for about half their worldng life, children whose need for care and attention does not stop when school closes in the afternoon. That is why parents in top management positions, typically fathers, still tend to have a spouse whose work-life balance allows her to assume the main responsibility for the kids over a couple of decades.
SIR - You asserted that companies are threatening to leave Illinois because the state budget is a mess and corporate taxes are stultifying ("Illinoyed", December 3rd). But leave for where? Illinois added 30,000 jobs to the payroll in October, a sign that the business climate can't be that inhospitable. In nearby Wisconsin Governor Scott Walker took office in january with measures designed to open up his state to business, such as billions in corporate tax breaks and a gutting of public unions. Mr Walker boasted that Wisconsin would poach work from Illinois, yet Wisconsin has been haemorrhaging jobs. Perhaps we can put to rest the simplistic notion that corporate taxes are the piper that calls the tune. ELUOTT VANS KIKE
Madison, Wisconsin
Vladimir, meet Vladimir
SIR - VladirnirPutinmust be trying to emulate Lenin, judging by Russia's election ("The cracks appear", December 10th). At the start of the Bolshevik Revolution, when Lenin realised that his Communist Party had lost the confidence of the people, he concluded that "it will be necessary to get a new people." BERNARD BLOOM
Saratoga Springs, New York •
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
Mystery theatre Dandong, a Chinese town on the Yalu river, ordinarily bustles with trade across its bridges to North Korea. In the week after Kim Jong Il's death, traders were joined by Korean mourners, Western spooks and the odd journalist, all hoping for a peek inside the enigma to the south
Abibl;ophHe ;n Paris Over the 60 years since George Whitman bought his shop on the left bank of the Seine with inherited money, an estimated 40,000 travellers and would-be writers have slept among the books, on makeshift beds orthefloorin his "socialist Utopia that masquerades as a bookstore"
The b;rth of scientifiction "Ralph 124C 41+: ARomance of the Year 2660", a novelserialised in 12 parts in Modern Electrics, is a century old. This important, badly written book has a good claim to be the first work of what its author, a struggling inventor called Hugo Gernsback, called "scientifiction"
Economist .comj node/ 21542067
Economist.comj node/21542141
Economi st.com/ node/ 2154213 2
Un;ted States: Ron Paul in Iowa The candidate's support wi ll erode as he faces the scrutiny afforded to front-runners. If he does win, it will be a squeaker
Europe: The bourgeois revolutionaries Acorrespondent spends a day with Moscow's growing opposition movement Economist .comj node/21542111
Economist.comj node/21542038
Science and technology: Thinking big Paul Allen, the co-founder of Microsoft, wants to build the world's largest aeroplane, from which to launch a private spaceship Economist .comj node/21541774
Science and technology: Babbage awards We celebrating the most weirdly wonderful research to grace our pages in 2011
Science and technology: Powerpointless The decline of the keynote address at a big technology trade show illustrates the story of an industry
Culture: Make things with your hands Terence Conran, a designer, talks about the importance of paper and penci l
Economist.comjnode/21542129
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Economist .comj node/21542091
Europe: Hungary off the air The closing down of a popular talk-radio show adds to concerns about freedom of the press
As; a: Disobeying the Nursultan The oil town ofZhanaozen has been living under a curfew since an outbreak ofviolence there left at least 14 dead
Economics: The dating game Put your assumptions about real GOP growth, inflation and the ua n/ dollar exchange rate into this interactive chart to determine when China's economy will become bigger than America's
Economist.comjnode/21542088
Economist .comj node/21542035
Africa: Bloody Christmas What is Boko Haram, the Isla mist sect that claimed responsibility for a series of deadly bombs in Nigeria on December 25th?
United States: Newt Hampshire Aslideshow looks at the early, somewhat chaotic, days of the Gingrich ca mpaign
Economist.comj node/21542139
Economist .com/ node/ 21542100
Economi st.com /node/ 21540911
Unks to all these stories can be found at Economist.comj node/ 21542140
13
Executive Focus Unfed NollOrll
careers Chief Economist
Chief of the Peacekeeping Evaluation Section (P-5) A ro you motiv~tt"" to m aj(e
The role of Chjcf Econom.ist. a new se-nior appointment tOr the Uni ted Natjons Development Progromnlc (UNOP). wiiJ be one of the most exciting and strategic development positions i o the United Nations.
dtffer "'ce i the wotfd7
The United Nations Office of Internal Oversight Services. New York, is looking fo r a dynamic leader to head the Peacekeeping Evaluation SectiOn and lead high ·qualrty, timely peacekeeping inspection and evaluation assignments on behalf of the Secretary-General and M ember States.
As Chief EconomisLin Lhe Bureau of Devcloptnclll f>oUcy al UNDP, you will passionalely advance UNDP's comribution to global. development policy. You wiiJ play a leading role in shaping the organization's voice and and dc.batc.
dire<.~tion
in inte.m ationa l development d ialogue
As tl1e ideal candidate. you will be an internationally respected Economist and tl1ought lc:adc.r amongst your peers. You must have an outstanding tntck rcc:ord or leadership. strate-gic.: dccision-outk.ing and proven managcotcnt skills. You will have proven ability to conceptuali ze. plan and dcU vcr rcsulls. with experience in change management at an executive Jcvel and a strong understanding of the development sector. You wiU have an Sconomks degree or equi valent in a related secto1·.
Education: A M aster's degree or equivalent in social sciences. public administration. programme evaluation or a re lated area.
You will have-demonsttated capacity to eng_age a1td inspire developmem practitioners and leaders, as you will with UNDP's senior manageme.nt team and pe.ers across tlle wider United Nations and other multi-lateral agencies.
This role is based in UNDP Headquarters in Nc\v York. USA.
Work experience: A m inimum of ten years of progressively responsible experience in programme management and oversight assessment, i ncl uding the conduct of evaluation or i nspection assignments. Apph~.; ,tuCJn::.
As the leading global development agency for transformational c hange, UNDP hc.Jps empower lives and build resilient nations. \Ve are on the ground in 177 countries and territories. working with gove rnments and people on their own solutions to global and national development challenges. UNDP is c:ommiucd to diversity in terms of gender. nationality, culture and educational background. Applications from women are strongly encouraged. UNDP o ffc.rs a compe.titivc rcv...ard package and attractive t·ondilions of employment com.rnensuratc wi th the position.
Closing date is Ftbruary 3, 2012. Expressions or interest together wilh a fuJI CV and s upporting sHHcmcnt, highlighting your experienc:e and skills against tbe requirements of tbc role should be directed in confidence to Ms. Lisa Governale, Director. SRJ Executive Sc-an:h www.sri-executive. com,
[email protected] OE' for d irect telepbonc contact please caJI Ms Colette Coffey i n our Head Office on +353 ( I) 6479204.
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DFID currently has the following vacancy:
Founding Faculty Fellowship
Director - International Finance Division
The Skolkovo Ins titute o f Science a nd Techno logy
c£90,000 london o r East Kilbride
The SI
mdTechnology (SkTec:h). ~ cooper-aiM ln.t101dve Wlth MIT. is proud to announce the creatiOn of a l•m•ted nufYIW of Found•ng Faculty FclloW~hlps ft~culcy FelloW~ will partiCipate In laui\Chma and shap;ng thiS , _ umvenlty In Its cruCial rormalto/'1! sages. SkTech .s a nartup unrver'Jlty, to be located 111 the lnnovadon ~one ailed Skolk.o110, outside of Moscow • someumes c:allcd the "'RuuQn S.hc;on Valley"
We seek candidates wlsh•ng to explore the funcoon of unlveniues. the creatron of new re:u!ardl pro,.-ms. the de&lgn or advanced cdun1.10nal environments and prognms.and the w1terfaces betwnn unlversitsel i.lld Industry th:lt dnve 1nnovadon Appliants must be permanent f.Kulty mem~r$ Of' senior admlnlscrati~
scaff at major universities or sen10r staff from 1ndustnal or nauonal researdl bbora tones. Faculty fellows would be expected co spend at least half tJme w ith
The
SkTech. working for a penod of at least roor months and up to one year. but Individual ume c:ommnments are ne&Qt
The Department for International Development (DFID) is seeking a highly skilled leader for a critical senior role. Reporting to the Director-General, Policy and Global Programmes, the Director of International Finance Division leads financing, shareholder and policy relations with the World B.:~nk Group, IMF. reg1onal development banks. global health and education funds and CDC.
l>o$itlons are avatbble sunlng immedluely and running through at lean june 2013 ~dons should be submitted to httpa://fJ.proy.munlt.cdul Questions on the goals and plalls for the program an be directed to Professor 1'1 Khael ~ at [email protected]. Add•oon:al lnformaoon an be found at the SkTechiMIT ln•u;~o~ webs:~te· http://WC!b.mlt.edulskr.ech.
To find out more about this vacancy please visit our website www.dfid.gov.uk
SkTech Is committed to diversity and equh:y, and 11.11 ~~ mvned to apply w1c:hout reg<~rd for gender, race or nauonal or•g•n
Oosing date for applications: noon (GMl) on Friday 27 January 2012.
In colbbonUon ...U. M1uaetluseus 11\WCUW of Tech~
Economist December 31st 2011
IIIii
This post calls fo r in~depth knowledge of international finance concepts and the geo-political context of the multi-lateral system. Expert negotiation skills are also essential, together w ith a strong belief in our work and values.
DFID is an equal opportunities employer and selection is on merit. Candidates should be UK nationals. nationals of a member state o f the European Economic Area (EEA), Swiss or Turkish nationals or Commonwealth cit izens.
www.dfid.gov.uk CIV
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14
Executive Focus Associate Director (Strategic Research), P-6 l ocation: Office of Research. Florence, Italy Closing Date: 13 January 2012 UNICEF soon a roaearch leader who w111 provldo touderah1p for th11 development of 11 strategic: research agenda for UNICEF. bu1ld pennersh1p1 around rosoorch for ch1ldron, and peooeor 1nnovruve approaches 1n research deslgn end lmptementauon You Will toad tho development of strategic multldtsciphnery research on children. As a member of the son1or rllSearch m011agement toam. you well • ArtiCulat e the mo,or components of t he global research agenda lor children and contnbute to the translation of the agenda Into practical and appropriate research tHks; • Identify gaps ond weakntlllses In global research on children to be oddriiSSe
Minimum Requirements: • PhD level in socu11 aerence or rotevent development field, with advanced multJdiiCiphnary study in specialized areas relevant to children • Tw elve to thll1een yea.-. of expenence 10 research and research management in rel.want technical areas Expenencc In leadong the lmplementotoon of a pol.ey rotated research agenda St rong profeu1onat pro fi le as demonstrated by a aubstantive publiCatiOn record on mues related to the rewarch agenda • Fluency In Enghsh and at le<~st one othet UN workrng language To apply, please ~end your epphcauon, 11lCiud1ng a United Nations Personal History form (available at our web site) quoting VN·11.001 to rec:ruetSSR un1cef org Vosit us at www unicef.orgl obout/employ
hnnonu•t Educat1on
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United Nations Relief and Works Agency for Palestine Refugees in the Near East
Competitive salary plus benefits The Economist Group is the l~tding ~urce of a111lysi~ on lnttrl'ationll busintsS ind world •ffaus. We deli~r our information thtough • r~nge of formats, from newspaptfl and magazines to conferences and tlectrooic sttvices. Wtlat oes us together is the obj«tiVIty of our opinion, the originality of our insight and our .ldvocacy of economic and political freedom around the world. Education is a otw Economist b!HilleU. We •~ entering the c.orporatt e-luming matlcet in the UK. neanng and ITiilrketlng Economtst-br~nded online courses to !!quip txtcutiVI!s with thl! know~ and skili.J they otl!d to be l!ffl!
executi~ ~na9ff,
yov will execute t~ UK sales strategy. taking responsibility
for driving all revenul! for thl! Ute Economist Education business .ttross en~rpnse sates and direct to consumer rnaritet111g. T~rgellng senior human lt'source and ~~rning ilnd ta~ntleaders at multlnation•l organisations, you wiU di!VI!lop chinntls and formutatt strategic alliances. Thl! sales manager wiU prestnt Economist Eduution products and solutions to decision-make~ in a definoed stt of ~ strategic a«OIII!ts whil.t also building 1 rwtworit of pottnml ditnts and beqinning to 6t.Jbbsll new long·term bus1ness 1t'l.Jttonsh1ps.
As an eJq~e~rud illd motivated salH manager, you wiU hold a dl!<jree (or equivalent) and hall@ sales/account management L'Xpe~nce eithl!r stlling editoriil content or in a ~arni119ftralning/deVI!Iopment environment. You wiU have broad conctptual underttanding of thl! corpoliltt and busines~ environ111fllt and will be ab~ to demonstrate an Interest In management and business rd~Kation. Our sal6 m.~nage1 w!U be a wlf·starter who wiU need to ln~nce executiii'I!S effecttvely and hr~e strong neqotiation and l!lCC~nt commoniUtion siriUs.
l'lsst e-lllill your CV in c.omplrte confidence to rupert.waUis@llll!dla-cootiiCU.co.llk or cal Rupert Wallis on 020 7359 8244 for further infom1iltion. Non-EEA ~plkants will need to obt.11n 1 UK work permit. Closing date Is Frid.Jy January 13th 2012. 0. (<-011,! , _ ..... d >on~~ trr• "' ,,.....,liM I<>~... ·~""r1lii\1Uft ~"" CINd. . ooloocioAiw -·~..."'too all our
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The IMF's FIScal AHatrs Depanment 1s seek1ng expens to ftll rwo Regional Public Financial Management (PFM) Advisor p0$itions at the Caribbean Regional Technical Assistance Center (CARTACI, based in Barbados The appointments would be for an tnrtl!ll periOd of one year. on a renewable bas1s. subject to strong performance Applicants should have a uniVerSity degree, a1least 10 years of expenence 1n a sen1or hne or advisory poSitiOn w1th1n a rnn•stry of ftnance. treasury, or a related budgetary tnsututoo; and/or have acuvety managed, or part1CIP<)ted 1n. techntcal ass•stance (TA) m one or more of the folloWing PFM holds • budget lormulat10n. tndudtng budget c:lass•hcauon, med1um-term budgetary frameworks. periormance-oneoted budgeting, and program budgeting. • budQet executiOn, •nclud•ng 1nternal controls. treasury operauons and cash management. • government accounung and I1SCill reporung systems and standalds. • the legal and regulatOI)' framework for PFM. • g
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UNRWA IS the Unned Nat1ons agency rupons;ble tor rupondeng to the humanttanan and development requ1remen~ of a popult111on of some 5 mcU1on Palesttne rt'fugees llvtng 1n the Gau Strcp, the West Bank, Jordan. LPbanon and I he Synan Arab Repubhc UNRWA rs comm1tted to as<.~shng Pal&$!1ne refugees en ma1nta•mng 1 decent standard of liVIng, acquer1ng appropnate knowledge end skJII.$, enJoylllg tt.. fullest pOSSible tXlent of human nghts. and leadmg long and healthy hve<s UNRWA IS thelarge<st UN operation 1n thi! Mrddl,. East Most UNRWA staff llrt' refugees ihem$elves, work1ng dorec;tly to benehl tht>lr commumtees ~ teilchers. doctors. nuN~es or soc1al worker!> UNRWA rv1ces of a seasont:d, lnnov;)llve manager highly molrvated to provide sktl!ed leadership 10 ttw! postlion of.
Di r ector, Extern al Rel a t ion s a nd Co m munica t ions Dep a rtm e nt,
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The Oerector, External Rel.111on~ and Commun1cahons Department 1s the Commrsstoner General.., prtnCipal support 10 the effort to mob1h1e the htgh volumes of funds and ruoun::es needed to assure the ach1evement of UNRWA"s moss1on en en envcronment whero ~url"1!nt and sev.re lund1ng shortfalls constrain 1t" aboltty to maentaen 5ervrces to the requrs1te IP.Yels of quahty and conslfo!ency. The 01~tor leads 1n1tfat!V9$ and aciiVItle~ to obtam tilt> fundr. and resources needed to susca1n and 1mprovt' UNRWAs programmes. operauonro and So>rvcces. u well <Js lead~ and coord1n.ltl'S tl"!e A.genc:y· W1dl' rmpl~mentat1on of the RMOun::e Mabllizauon Agenda Thos Agenda ;nctudr. 110t only nurtunng relationships wllh UNRWA"s traditiOnal b1later;al and mullllllteral donor5 but d~~~elopong a ni'W capoc1ty for publtc pnvate partner5h1ps aod ensurrng more strateg1c me-.sag1n9 through trad111onat and new mt'dla to our mult1pl" stalleholders Slhe 15 mscrumental m dewlopong and 1mplementeng In coonltrwtoonw1th the Spokttspenon llnd lh• Comm•!i!olonl!f ~nerat's Olf1C1 communlcauons str11191ts and coherent mes~>.tgtng that enhance the elfechVf'n.ss and 1mpact of UNRWA"s external ret.t•ons, fundracs•ng and resoun::e mOblhlitiiOI\ Objl!CtMlS For detaols ol the vacancy and the mformatoon on how to apply VISrl http:// jabs.unrwa.org UNRWA encourages applJcateons from quahhed and e~penenced women. Closing date for lppllcahons Is 31 January 2012.
The Economist December 31st 2011
15
Grief and fear It seems unlikely that KimJong U n will want to reform North Korea, but even less
likely that the regime can go on resisting change F NORTH KOREA were not so tragic and dangerous, the scenes broadcast to the world after the funeral of Kim Jong II would have been comic. Waves of mourners outdid each other in grief. Men, women and children tore at their clothes in homage to a man who for 17 years kept his people in a state of isolation, poverty and indoctrination unparalleled in the modern world. According to the state news agency, "even the sky seemed to writhe in grief" at the demise of the "great saint born of Heaven". There was pathetic gratitude when tin mugs of warm milk were put into trembling hands- proof, it was reported, of the solicitousness of Kim }ong Un, third son of the "Dear Leader" and heir to his murderous regime. In his glass coffin, the dead Kim had lain in the Kumsusan mausoleum, his head on a white cushion, his body draped in a red blanket whose colour matched the flowers- his cherished Begonia kimjongiLiathat surrounded his corpse. If the mass grieving filmed in Pyongyang was a mixture of brainwashed reverence, genuine fear of the unknown, choreography, and the seditious risk of looking nonchalant,
I
the images of the young Un at the foot of his father's coffin were a study in how to make a ruling clique look sombre, steadfast and united. That was quite a feat for what by North Korean standards was a hastily arranged succession. For over two years the Dear Leader had been ailing, which was not much time to groom Kim Jong Un- his father had decades to cement his succession to Kim ll Sung, the Great RUSSIA
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Leader, who died in 1994. Kim}ong Il's own death on December 17th, of heart failure, came as no surprise. But next April is the tooth anniversary of Kim Il Sung's birth, and his son was to have overseen the celebrations, which North Koreans have been promised will mark the country's elevation to something like developed-country status. Presided over by the callow Kim Jong Un, the milestone will now look even more hollow. The dead Kim has left a failing, nucleararmed, totalitarian state in the hands of a youth who has rarely if ever made a public utterance, and who is so unknown outside his small circle of advisers that it is not clear whether he is 27 or 28. He may have got the job in part because his elder brother, Kim}ong Nam, was caught trying to enter Japan to go to Tokyo Disneyland in 2001; he subsequently moved to, and gambled in, Macau. Just 15 months after he was named as heir-apparent, Kim Jong Un was officially dubbed the "Great Successor" on Decemben9th, when state media finally reported his father's death. Nominally, at least, that puts North Korea's 24m people, many of whom are so destitute they supplement their meagre maize-based subsistence with grass and whatever else they can forage, under his heel. They are spied on by neighbours, and live in a fearful uncertainty, not knowing what might befall them or their families if they step out of line. To keep order at home, and enemies abroad at bay, Mr Kim inherits a standing ~~
16 Briefing Succession in North Korea
The Economist December 31st 2011
~ army of perhaps 1m soldiers, with
ballistic missiles aimed at South Korea and Japan, and a small arsenal of nuclear weapons. China and America, which keep troops on his country's northern and southern flanks respectively, have been pressing the regime to give them up; but their disagreements on how to treat the rogue regime have not helped defang it. The fate of Muammar Qaddafi after he gave up his nuclear-weapons programme will not encourage Mr Kim to abandon North Korea's. He is not alone at the controls. Standing conspicuously behind the heir are an apparent troika of regents: his aunt, Kim Kyong Hui, her husband, ]ang Song Taek, both longtime confidants of his father, and another ally of his father, General Ri Yong Ho, the boy king's umbilical cord to the army. Together with his late father, the regents appear to have purged potential rivals and promoted allies in clearing the path for succession. China, North Korea's closest ally and begrudging patron, has, at the urging of Pyongyang, ratified the ascension in its official condolences, addressed to the nation "under the leadership of Comrade Kim Jong Un". South Korea and America chose not to convey official sorrow at the passing of a dictator who terrorised their countries with bombings, kidnappings and nuclear provocations. When South Korea indicated it would allow only a small delegation to travel north to express their condolences, Pyongyang's propaganda machinery, true to form, threatened to meet any obstructions from Seoul with "unpredictable catastrophic consequences". Avoid ing chaos Since the elder Kim first fell gravely ill from a suspected stroke in 2008, North Koreawatchers in Washington, oc and elsewhere have predicted that a chaotic succession would be the greatest threat to the regime. However, after the 51-hour hiatus before Mr Kim's death was announced, many say that every step has been taken to signal, both to outsiders and to the nation, that the country remains firmly in the grip of its founding family. The organs of state have begun churning out paeans to the young Kim, who appears set to assume his father's huge collection of titles, including (most prosaically) supreme leader of the revolutionary armed forces, and head of the Korean Workers' Party. Visitors to North Korea say that after more than 6o years there is still reverence for the Kim name, partly because of nostalgia for Kim 11 Sung, the revolutionary father of the nation, who had the good fortune to die just before a famine killed about 1m people and the state's food-distribution system collapsed. Kim Jong Il has overseen mass starvation and diverted huge resources to his dream of building a nuclear weapon to blackmail
Normality in a st range country the outside world. But his subjects have no avenues to express dissatisfaction; and, for many, the Kim family mythology- with all its fascistic xenophobia- is all they have to believe in. What is more, the clique of Kim family members, generals and senior government officials whose loyalty has stood the test of purges may have as much to lose as their young protege from the collapse of the regime. Bradley Martin, author of a comprehensive account of the Kim dynasty, believes the ruling clique has every reason to fear the loss of its privileges. That keeps personal ambitions in check. When communism fell in Eastern Europe, North Korean media showed videos of formerly high-ranking East German officials reduced to selling sausages on the street. "This was intended to remind the elite where their loyalties needed to lie," Mr Martin says. They are not the only beneficiaries of the regime. In Pyongyang visitors say life has improved recently for Kim family loyalists, which may explain the berserk expressions of grief. Though power cuts persist, tens of thousands of cars throng the streets, compared with empty thoroughfares just five years ago, and a middle class is developing that is separate from the power elites. There are now hundreds of thousands of mobile-phone users on the regime's network, with international calls for some. And a few department stores are wellstocked, with no need any longer to usher foreign visitors quickly past shops with prices, but no goods, on their shelves. Indeed, Kim Jong Il's last public appearance was at an upscale Pyongyang supermarket; its staff, it was reported, wailed and threw themselves into each other's arms on hearing of his death. Foreigners who travel to other cities say
these too have some residents with what one visitor calls "semi-disposable income". In one city, Hamhung, a charity worker reports high-heeled shoes, clean imported clothing, nice winter jackets, all alongside tattered old clothing. The benefits, though, come to those with family connections in the party and the army and to those with relatives in China. That allows them to take part in the semi-tolerated black-markets which have sprung up in the void left by the collapse of the food-distribution system. Yet even in the early months of the regime, internal stability cannot be taken for granted. Surrounded by crusty generals three times his age, an insecure young leader might just resort to hot-headed measures to assert himself. Analysts point to rumours that he helped orchestrate murderous attacks on South Korean targets in 2010 as evidence of a brattish malevolence. Old tensions between the army and the party could resurface, especially over the former's involvement in the cross-border trade that fosters the black markets. Perhaps the biggest risk to the regime's stability comes from the black markets and the taste for freedoms and better living they bring. Near the border with China, North Koreans can use Chinese mobile networks to call South Korea, either directly or by paying brokers to put them through. ovos on sale on the black market show what life in the outside world, especially South Korea, is like. Growing understanding of North Korea's economic backwardness seems likely to breed hunger for change. Food or bullets? From a dictator's perspective, the markets may be the trickiest issue to manage. Shut them down and risk revolt; leave them alone and a growing number of wealthy traders could form a threatening constituency. Kim}ongll experienced this. These illegal bastions of capitalism had sprung up throughout much of the country, establishing a semblance of a working economy alongside the nonfunctioning state system, and enriching a dangerous new merchant class. A 2009 currency confiscation wiped out the wealth of the most successful traders, but the move brought with it hunger and widespread anger. Adding to the potential pressure on the young Kim, 2012 marks the 1ooth anniversary of his revered grandfather's birth when North Korea is to become a "strong and prosperous nation". Some believe Mr Kim will mark the occasion by using a phrase attributed to him, that "food is more important than bullets." Dovish Chinese analysts express their usual hope that there will be a shift toward economic liberalisation. For years Chinese leaders tried in vain to convince Kim Jong n to embrace Chinese-style economic reforms; they ~~
Briefing Succession in North Korea 17
The Economist December 31st 2011 ~ might
yet choose to push those reforms with renewed vigour. Optimists suggest that, to justify reform, the young Kim could argue that his father built the nuclear weapons that made his nation "strong"; now it is the time to make it "prosperous". But pessimists, whose views North Korea's recent history has tended to support, argue that the elite will be reluctant to abandon the patronage and rent-seeking from which they have benefited. Much of the investment from Chinese firms has gone to secure mineral rights, providing little benefit to the people at large. Rajin-Sonbong, a special economic zone near China's border, has lingered as a failed promise of reform and opening for years. Korea Taepung International Investment Group, which is trying to strike mineral deals and promote Rajin-Sonbong, is overseen directly by central leaders, including Mr Kim's uncle, Jang Song Taek, who has done business with the Chinese for years. It is hard to see how the economy could be modernised without abruptly destroying the state's paternalistic ruling mythology. Much of the dark interior of North Korea is bereft not only of consumer goods but also of trustworthy information, on anything from prices to politics. Although an increasing number of people, especially in the border areas, are aware of the vast disparity between capitalist South Korea and their own workers' paradise, defectors say many still do not fully grasp how wide that chasm is. As one defector puts it, explaining why his relatives cling to their belief in the Kim family state when he sends them cash from South Korea: "There is a gap between what you know and what you believe." North Koreans are educated from early childhood to believe in the purity and superiority of their race, in the evils of the Americans and the Japanese, and of their need for an all-powerful, protecting figure to lead them. That explains the lure of juclte (loosely, self-reliance, or autarky), which is the sole ideological pillar of this mythology. Any more information would expose how pathetically the Kim family regime has failed to provide what even their poor cousins in neighbouring China mostly take for granted: not just food, but transport links, and fuel and electricity to heat homes in the winter. As it is, North Koreans need only look to the plunging value of their local currency to realise how fragile their situation is. The official rate is 15 won per Chinese yuan. Charity workers say that a black-market exchange rate of 340 won in June had plunged to 6oo won in November. With average salaries of 3,0oo-6,ooo won per month the currency is, in effect, worthless. That helps explain why much of the population is stunted by malnutrition. China, the only power with much influence over the country, is less troubled by
the long-term grinding suffering of the North Koreans than by the prospect of a leadership vacuum leading suddenly to economic collapse and a flood of refugees. Such a prospect threatens to cause wider instability. If China tried to control the ensuing chaos by moving troops to the North Korean side of the border, hackles would rise in South Korea, which fears China's territorial demands on a piece of the peninsula that it considers almost sacredly Korean. It would also send shock waves through Asian countries fearful of Chinese . . expansiOmsm. The nuclear option In the case of full-scale collapse, American troops stationed south of the 38th parallel would try to secure North Korea's nuclear, chemical and biological weapons and their production facilities. The locations of some of these are known- but there may be others. Such a move could lead to confrontation between American and Chinese troops on North Korean soil. America would also feel bound to support Seoul against China. For its part, South Korea, whose economy is 30 times larger than North Korea's, sees uncontrolled unification, and the refugee crisis it would probably create, as a huge threat to its stability. These fears are real, but they have led North Korea's neighbours to accept a worse evil- the status quo. Instead of abandoning the regime and hoping it would collapse, they have been vainly negotiating for it to abandon the nuclear weapons on which its survival depends. Under the late Kim the North Koreans appeared twice to promise to denuclearise, but both times they went back on their word, as well as selling nuclear technology to rogue states elsewhere. The six-party talks with North Korea, chaired by China and including America, South Korea, Japan and Russia, have been stalled since 2008.
Kim Jong Un will live in interesting times
America's then defence secretary, Robert Gates, took a tough line on North Korea's deceptions, saying: "I'm tired of buying the same horse twice." Yet just before Mr Kim's death, America was negotiating ways to restart food aid to North Korea, and there was speculation that it was seeking nuclear concessions in the process. Park Syung-je, of the Asia Strategy Institute in Seoul, believes the young Mr Kim will play upon his father's death to recommence the merry-go-round. The North Korean strategy, "provoke, negotiate, rinse, repeat", will, he believes, make fools of its six-party interlocutors again. Perhaps the most confounding aspect of North Korea is that, however much it has depended on Chinese investment and Western aid since the collapse of the Soviet Union, the outside world cannot do much to influence its internal dynamics. So deprived are its people of both external and internal sources of information that theregime has been able to assert control. So dependent are they on its favour that North Koreans have become accustomed to policing themselves. Yet the country that Mr Kim inherits is not as unchanging as it appears. Mobile phones, cross-border profiteering, corruption and inequality have all flourished. The failed currency reforms led to unprecedented public anger. A few outsiders with contacts inside the country say North Koreans quietly mock the young heir who, educated in part at a smart Swiss boarding school, is hardly cut from the same revolutionary cloth as his grandfather. The Kim dynasty's biggest achievement is that, despite its fearsome cruelty, its leaders have twice died of natural causes and have even been mourned by their subjects. But even those who think the young Mr Kim will have a grip on power for some time doubt that they can keep it up. "I don't envy the boy ruler," says Mr Martin. "I just don't think he's going to die in bed." •
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For daily analysis and debate on America, visit Economist.com/ unitedstates
The Republicans
Into Iowa CEDAR FALLS, IOWA
America's primary season at last gets under way on january 3rd. After many ups and downs, as of today Mitt Romney looks best placed to win the nomination
A T EVERY stop that Rick Santorum 1""\..makes in Iowa he pointedly reminds prospective voters that he is the only Republican presidential candidate to have visited all99 of the state's counties. He will not be able make that boast for long, however: Michele Bachmann, one of his rivals, is in the middle of a bus tour that will whizz her through the full complement in just ten days. The other candidates are also racing breathlessly around the state, trying to glad-hand as many waverers as possible before the Iowa caucuses on january 3rd. That vote, which kicks off the state-by-state process of selecting the Republican nominee, marks the first formal step of the 2012 presidential election. The final burst of campaigning is particularly frenetic because the Iowa race is completely up in the air. Three candidates-Ron Paul, Mitt Romney and Newt Gingrich- are competing to win, while another three-Mr Santo rum, Mrs Bachmann and Rick Perry-must put in a solid performance just to keep their campaigns afloat. The field in Iowa has been especially fluid this year, with no fewer than six candidates topping local polls at one point or another. No candidate has polled over 25% in recent days, and most soundings show large proportions of undecided and irresolute voters, setting the stage for almost anything to happen next week. The race is so fluid in part because the sizeable chunk of caucus-goers who are evangelical Christians do not seem to have
rallied round any of the candidates. It was their support that allowed Mike Huckabee, a former Baptist minister and governor of Arkansas, to triumph in 2008 over the much better funded and organised Mr Romney. Mr Santorum has picked up the endorsement of a few prominent Christian activists this time, including Bob Vander Plaats, head of the Family Leader, an influential evangelical pressure group. But at a coffee shop in the small town of Newton he manages to turn out only a few dozen voters, many of whom say they are still shopping around. The family-values vote appears hopelessly divided between him, Mrs Bachmann, Mr Perry, and even Messrs Gingrich and Paul to some extent. The best organised campaign, by all accounts, is that of Mr Paul, a libertarian congressman from Texas, who is the current leader with just over 20% support in most MINN E SOTA I ~~ ~-------------------\ WISCONSIN ~
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polls (see Lexington). His unstinting advocacy of much smaller government and sounder money goes down well with local Republicans. His calls for an end to foreign entanglements and the legalisation of drugs are popular with the young. At an event on the campus of the University of Northern Iowa in Cedar Falls, throngs of giddy students leap to their feet when he appears and drown out most of his rambling stump speech with rapturous applause. He will have plenty of staff and eager volunteers to usher people to the 1,774 precinct meetings where votes will be cast. But his isolationist foreign policy makes many Republicans wary. It puts off evangelicals in particular, according to Steve Deace, a prominent Christian radio host, for fear that it might undermine Israel's special place in God's scheme. Christian voters also have misgivings about Newt Gingrich, a former speaker of the House of Representatives and the previous front-runner. One Iowa pastor, referring to his two divorces, both preceded by extramarital affairs, calls him "a very fine, empty suit with a broken zipper". His rivals, meanwhile, have taken him to task for a variety of past sins, including teaming up with despised liberals such as Nancy Pelosi and Al Gore to urge action on global warming, and espousing the most controversial element of Barack Obama's hated health-care reforms, the requirement that everyone should buy health insurance. The likeliest beneficiary of Mr Gingrich's recent slump is Mr Romney, a former governor of Massachusetts who has maintained steady local support of 20% or so since the summer. After his defeat last time round at the hands of Mr Huckabee, Mr Romney has taken great pains to play down his chances. He has spent barely two weeks in Iowa this year, compared with Mr Santorum's l4 and Mr Gingrich's eight. But Mr Romney's staff have been quiet- ~•
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stepping up their efforts in Iowa. An event at an animal-feed factory on the outskirts of Cedar Rapids is slickly managed, with stirring music from the film" Air Force One" and mini-cupcakes and nutritional supplements (courtesy of the factory) for all. Mr Romney is impressive on the stump, speaking with authority about his plans for the economy and sounding convincing about his conversion from a centrist governor into a much more conservative candidate. He could yet eke out a victory, if the field remains divided enough. Unless he does dreadfully in Iowa, Mr Romney should remain the candidate best positioned to clinch the nomination. He has a commanding lead in the polls in New Hampshire (see chart), which is the next state to vote, on January 1oth. Mr Gingrich may win the contest after that, in South Carolina on the 2JSt, keeping his hopes alive, but Mr Romney is better prepared for a protracted campaign. He has been the most durable force in the race over the past year, retaining his support as a succession of other candidates surge and slump. He has raised far more money (and has plenty of his own if needed) than any of his rivals, both for his own campaign and for Restore Our Future, a notionally independent group that has been rubbishing the other candidates on Mr Romney's behalf. Critically, almost every poll rates him as the candidate best placed to beat Mr Obama. It is the very centrism that makes Mr Romney appealing to the mainstream, however, that worries Republican primary voters. He presents himself as a sound manager who can turn the economy around, citing his 15 years as boss of Bain Capital, a private-equity firm, and his success in righting the foundering Salt Lake City Olympics. He also likes to talk about his record as governor, when he eliminated a big budget shortfall without raising taxes, despite opposition from Massachusetts's strongly Democratic legislature. But Mr Romney's record both at Bain and as governor are not quite as straightforward as he makes them sound. Bain did back phenomenally successful firms such
as Staples, an office-supply chain, helping to create many jobs in the process. But part of Mr Romney's job, after all, was to turn struggling firms around, often by cutting costs and closing factories. Moreover, like all private-equity firms, Bain loaded up its acquisitions with debt. Some of them subsequently collapsed under the weight of their obligations. Although a precise accounting is impossible, Mr Romney argues, doubtless rightly, that Bain created far more jobs than it destroyed, and that risk-taking fuels economic growth. But it is still easy, if unfair, for his opponents to portray him as a heartless capitalist who enriched himself at the expense of the little guy. By the same token, as governor, Mr Romney was not as much a champion of small government as he claims. He did not raise basic tax rates, but he did increase all manner of fees levied by the state and eliminate various tax exemptions and credits- all of which raised hundreds of millions of dollars in revenue. That is just the sort of pragmatism that could help eliminate America's deficits at the federal
Gingrich's magic appears to be fading
level- and just the sort of approach that the Republicans in Congress emphatically rejected earlier this year. In keeping with the present Republican orthodoxy, Mr Romney now says he would not accept any deficit-cutting deal that raises taxes. He has signed a no-newtaxes pledge as a presidential candidate, although he refused to do so when running for governor. That is just one of many about-turns. Although he now says a national cap-and-trade scheme to limit greenhouse-gas emissions would place too heavy a burden on business, he endorsed the idea as governor. Although he now says he is opposed to abortion and would seek to make it illegal, he promised to preserve it as governor. Most alarming to the Republican faithful, although he says the centrepiece of Mr Obama's health reforms, the individual mandate, is a terrible idea at federal level, he championed just such a measure in Massachusetts. All this makes Mr Romney seem like a hopeless flip -flapper. But the inconsistencies are not as dramatic as they appear. He has always expressed personal opposition to abortion, for example, but agreed as governor to set that aside out of deference to the majority view in Massachusetts. He always argued that the cost to business of emissions curbs should be kept low, and withdrew Massachusetts from a fledgling regional scheme when his demands in that respect were not met. He says that states should be allowed to experiment with different solutions to grave problems of public policy, such as providing universal access to health care, without the federal government forcing a particular prescription down their throats. In short, for Mr Romney, practicality trumps ideological purity. Many Americans will view that as an asset. Unfortunately for him, many Republican primary voters do not. •
The Economist December 31st 2011 The National Labour Relations Board
Workingman's blues
United States 21 The payroll-tax row
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The "tea party " loses a fight over economic stimulus ATLANTA
Internal strife and external hostility plague America's labour watchdog ITI ROMNEY says its actions contravene the rule of law. Newt Gingrich wants to cut off its funding. House Republicans have called it a "rogue" agency, and tried to curb its power through legislation. The National Labour Relations Board (NLRB), the fe deral agency charged with enforcing America's labour laws, is never popular among Republicans when Democrats comprise the majority of its five members (the reverse is also true). Its illconsidered battle with Boeing, in which it sought to restrain the aircraft maker from opening a plant in the non-union state of South Carolina and instead force it to expand production in its unionised plants in Washington state, did it no favours. Now Barack 0 bama and congressional Republicans are in a standoff, and it appears likely that the board will become unable to issue decisions from}anuarylSt. The NLRB is supposed to have five members, with no more than three from either party. The president appoints them, and they take their seats once the Senate confirms them. The current board has just three: Mark Pearce and Craig Becker, both Democrats, who worked respectively as a union-side labour lawyer and an associate general counsel to two of America's biggest trade unions; and Brian Hayes, a Republican, who practised managementside labour law before joining the board. The Senate approved Messrs Pearce and Hayes; they blocked Mr Becker amid concerns that his views were slanted too heavily towards unions. So Mr Obama made him a recess appointment, meaning he appointed Mr Becker while the Senate was not sitting, bypassing the confirmation requirement but resulting in a shorter term. The appointment runs out on December 31st, which will shrink the board to just two members, making it inquorate. This will not entirely hobble the bodyits general counsel and regional offices can still issue complaints, and administrative law judges can hear them. But the board itself, which acts as a court of appeal for labour questions, will be unable to issue rulings. So if any party appeals the decision of one of those administrative law judges to the board, which happens often, that appeal will be stuck in limbo. Mr Obama will not renominate Mr Becker, but he has nominated two other members: Richard Griffin, general counsel for the International Union of Operating Engineers, and Sharon Block, who worked
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INCE the 2010 mid-term elections, "tea party" Republicans have enjoyed influence out of proportion to their numbers. They force d Barack Obama and congressional Democrats to accept spending cuts without any tax increases to keep the government from shutting down in April, 2011, and from defaulting on its bills in August. This intransigence, however, backfired rather spectacularly just before Christmas when John Boehner, the speaker of the House of Representatives, was forced to reverse his earlier position and agree to an extension of a two-percentage-point cut in the payroll tax and to the payment of unemployment benefits for up to 99 weeks. Both measures, previously agreed to as a form of temporary stimulus, were due to expire at the end of the year. Mr Obama and Republican leaders had earlier agreed to extend both for one more year, but not on how to pay for them. To buy more negotiating tim e, Democratic and Republican leaders in the Senate agreed to extend the two measures for two more months. In the House, however, tea-party members revolted. Some said that setting tax policy for just two months was silly, others claimed that stimulus does not work anyway, and yet others warned of (non-existent) threats to pensions, which are funded by the payroll tax. Democrats wasted no time in claiming that the Republicans were holding 16om workers hostage to extremists. Under intense pressure from fellow Republicans in the Senate and in the presidential campaign, Mr Boehner finally relented. The measure passed on December 23rd without so m uch as a roll-call vote. The deal lifts, if only for a couple of months, one shadow over the economy and thus Mr Obama's re-election pros-
pects. Recent data have shown the economy to be perking up notably in the fourth quarter; it may have grown 3.6% in the period, reckons Macroeconomic Advisers, a consultancy. That would be the fastest rate since mid-2010. If the two measures, worth roughly 1% of GD P, had expired, the economy could have relapsed in 2012. The political implications are less clear. Mr Boehner wisely cut his losses early on an issue that was trivial in the scheme of things. Public disenchantment with the tea party has grown, but Republican legislators are unlikely to pay a very high price. David Wasserman of the Cook Political Report reckons aU but five of the 6o House Republicans who form the tea-party caucus are in safe districts. Mr Obama will probably find Republicans no more disposed to compromise on taxes or anything else in 2012 than in 2011- starting with January's negotiations to turn the two-month extension into one lasting the full year.
for both Senator Edward Kennedy and the NLRB in the 2000s. Senate Republicans have warned Mr Obama that recess appointing these two would "provoke a constitutional conflict". This is a little hyperbolic. The constitution requires the Senate to approve appointees to many high federal offices, but it also allows the president to "fill up all Vacancies that may happen during the Recess of the Senate". Mr Obama's predecessors used that privilege with abandon: Bill Clinton made 139 recess appointments, while George Bush junior made 171. Mr Obama
has so far made only 28. Should he add a couple of appointees to the NLRB, however, they will be entering a deeply divided agency. Messrs Hayes and Pearce have been sniping at each other in open letters. Mr Hayes accused the Democrats of concealing information and steamrolling dissent. Mr Pearce responded that Mr Hayes has "declin[ed) to participate in a meaningful way" with the board, and instead made his grievances public. So the NLRB will enter the new year either statutorily impotent, politically riven, or both. That suits Republicans fine. •
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The Economist December 31st 2011
Lexington Ron Paul's big moment The obstetrician, numismatist and h ater of the Fed a nd the UN who just might win in Iowa must be prevented from debasing the currency. Not all of Mr Paul's positions are unpopular. Like other conservatives, he defends the God-given right to keep and bear arms, "the guardian of every other right". He is pro-life, which he believes begins at conception. He champions home-schooling. But only he combines a general dislike of the overweening federal government with a particular, obsessive hatred of what he considers the corrupt system of money at its secret heart.
EOPLE who say that politicians are all the same may be in for a surprise next week. Heading the polls in Iowa, whose caucuses on January 3rd mark the true start of the Republican race for a presidential candidate, is a 76-year-old libertarian from Texas with a worldview so wacky and a programme so radical that he was recently discounted as a no-hoper. Even if he wins in quirky Iowa, Ron Paul will never be America's president. But his coming this far tells you something about the mood of Republican voters. A substantial number like a man who wants to abolish the Federal Reserve, introduce a new currency to compete with the dollar, eliminate five departments of the federal government within a year, pull out of the United Nations and close all America's foreign bases, which he likens to "an empire". How did such a man rise to the top of the polls? One thing to note is that his support has a ceiling: in no state do more than about a third of Republican voters favour him, though in Iowa's crowded race that could be all he needs. Also, liking the man does not require liking his policies. During the candidates' debates of 2011, Mr Paul won plaudits for integrity. Where slicker rivals chop, change and pander, the rumpled Mr Paul hews to his principles even when they are unpopular. Unlike Newt Gingrich, who seldom misses a chance to play on fears of Islam, Mr Paul insists on the rule of law and civil liberties and due process for all- including suspected terrorists. Unlike Michele Bachmann and Rick Santorum, who adore Israel and can sound impatient to bomb Iran, Mr Paul has no great love for the Jewish state, even though this hurts him with the evangelical voters of Iowa. He opposed the Iraq war from the start and wants America to shun expensive foreign entanglements that make the rest of the world resent it. These, however, are sideshows compared to the central belief that animates Mr Paul's politics. Born in 1935, he remembers the tail-end of the Depression and the shortages during the second world war. At five, he and his brothers were put to work helping their father run a small dairy from their basement. His job was to check that the bottles were clean. For each dirty one he spotted, he received a penny. Thus, he says in "Ending the Fed", the book he wrote after the financial collapse of 2008, was born a fascination with numismatics. This flowered into a preoccupation with the money supply and a lifelong conviction that governments
P
Pauline conversion In1972, though hard at work as an obstetrician and gynaecologist, he travelled so miles to Houston to hear the elderly Ludwig von Mises offer an "inspiring" denunciation of socialism. Several years later he dined with Friedrich Hayek. The good doctor's conversion to the Austrian school of economics turned him into a crusader who has come to see the operations of the Fed- indeed the entire banking system, with its reliance on paper money no longer backed by gold- as a dangerous confidence trick. The Fed has "ominous powers that Congress barely understands," he says. "'frillions of dollars can be created and injected into the economy with no obligation by the Fed to reveal who benefits." Though ending the Fed would take time, this is his panacea: it would end dollar depreciation, remove America's ability to fund endless wars and stop the growth of government. One consequence of Mr Paul's rise in the polls has been a flurry of speculation about his true intentions. Having run for president twice before, he is not naive about politics. He has served a dozen terms in the House of Representatives, failing to find allies for his radical measures. He cannot expect actually to win the nomination, let alone become president. His real aim appears to be didactic: he wants the widest possible hearing for his ideas. And since the financial collapse of 2008, more Americans have indeed been listening. His quest for the Republican nomination that year gave him respectability and an audience he could not reach as the nominee of the Libertarian Party in 1988. How long will Mr Paul stay in the race? Though the nomination may be out of his reach, he has dedicated supporters and the ability to raise lots of money through small donations. That could keep him going longer than most of his rivals, and perhaps give him enough delegates to shape August's nominating convention in Tampa. Or he could run as a third-party candidate. But that would help Barack Obama, embitter a mainstream party on which he has at last made a big impact and damage his like-minded ophthalmologist son, Rand, now a Republican senator. As Mr Gingrich has learned, rising poll numbers bring extra scrutiny. The Christmas period has revived interest in a group of newsletters published under Mr Paul's name in the 1990s, some of which included toxic remarks about blacks and Jews. Mr Paul says that he neither wrote nor approved of those words, and that they do not reflect his opinions. That still leaves him with some explaining to do. It is true that in recent years Mr Paul has stuck to his core principles: sound money, small government, individual liberty and bringing the troops home. But the newsletters shed light on some of the unsavoury fellow-travellers he has collected on his long political road. In the end, Mr Paul's obsession with the Fed is an anti-government conspiracy theory. And in America, anti-government conspiracy theories attract a lot of wingnuts, some of whom have never read Hayek or von Mises. • Economist.comfblogsflexington
23
Also in this section 24 rg_en.tina and th_e_Falklands 24 [o_omtnk ans-o_r_H_aitiaos?'
For daily analysis and debate on the Americas, visit Economist.com/ americas
Chevron and Brazil's oil industry
Oil, water and trouble SAO PAULO
The exaggerate d reaction to a small oil spill is cause for alarm, not reassurance HE flow of oil from cracks in the seabed off the coast of Rio de Janeiro has long since slowed to a mere trickle. Not so the retribution against Chevron, an American oil company that was drilling in the Frade oilfield on November 7th when a sudden rise in pressure caused a leak. Brazil's environment agency, IBAMA, has fined the company som reais ($28m) for the leak. On December 23rd it levied a further 10m reais for poor contingency planning. The National Petroleum Agency (ANP), the industry regulator, has closed one of Chevron's Frade wells and suspended the firm's drilling rights. The Rio de Janeiro state government is suing for 150m reais. A federal prosecutor in Campos, a city in the north of the state, is demanding 20 billion reais in punitive damages and seeking an injunction to halt all operations in Brazil by both Chevron and Transocean, the subcontractor drilling for it in Frade. Federal police, meanwhile, want to bring criminal charges against bosses of both compames. After the 4.9m-barrel spill from the Macondo well in the Gulf of Mexico in 2010, oil regulators around the world are in no mood for leniency. But the blitz against Chevron, for a leak of no more than 3,000 barrels, makes some industry-watchers wonder whether Brazil wants foreign oil companies at all. "The reactions are out of proportion with the size of the leak," says Jose Goldemberg, an energy and environment specialist at the University of Sao
T
Paulo. Petro bras, Brazil's state-controlled oil giant, holds a minority stake in Frade, but none of the lawsuits or fines names it as a respondent. "I don't think there would have been the same enthusiasm for big fines if Petro bras had been drilling." Brazil ended Petro bras's monopoly and opened up its oil industry to private and foreign investment in the 1990s. But its recent oil policy has been "nationalist and populist", says Adriano Pires, a Rio-based energy consultant and form er ANP official. It has restricted foreign companies to secondary roles in most new projects. A law approved in 2010 requires that in the recently discovered ultra-deep pre-sal ("subsalt") fields, Petro bras must be the operator with a minimum 30% stake (existing concessions are unaffected). Mr Pires fears that Chevron's mishandling of communi cations will only harden the new mood. The company was slow to m ake details of the accident public, he says, and arrogant when it did; press conferences in English went down particularly badly. "It gave the authorities another chance to claim that foreign oil companies drilling in Brazil act carelessly," he laments. Chevron does not try to defend its initial media response, but says that from a technical point of view it did everything right and that it is co-operating fully with Brazilian agencies. The blowout preventer (the gadget that failed so disastrously in Macondo) worked as designed, preventing a larger spill. None of the oil that did leak
reached the shore; a successful clean-up has left less than half a barrel's worth of oil on the surface, far out to sea. The firm has accepted full responsibility for the accident (though it will fight the criminal charges and giant lawsuits). In fact, the lawsuits, as opposed to the fines, may have more to do with internal Brazilian politics than foreigner-bashing. The federal government wants to put much of the pre-sal royalties in a national fund and give every state and municipality a share too. But negotiations in Congress have stalled. The Frade spill has given oilproducing states and municipalities, like Rio and Campos, which currently get the lion's share, a new argument. That quarrel will eventually be resolved. But a pullback of foreign companies risks hurting Brazil's prospects of becoming a new oil power. Developing the pre-sal fields requires global expertise. And oil companies everywhere rely on a few huge service providers: Transocean, for example, operates many of Brazil's offshore platforms, including some for Petro bras. According to David Zylbersztajn, a former ANP director, the Frade mishap shows just how unprepared Brazil is for a serious spill. He points to the unco-ordinated response of different tiers of government, the navy and oil companies. "If there is a national contingency plan, then nobody knows about it," he says. The federal government seems more interested in spending the money from the pre-sal oil than making sure it is drilled safely, says Ildo Sauer, a former Petrobras manager. Neither IBAMA nor the ANP is qualified to oversee safety and accident prevention. IBAMA knows more about forests than oilfields and the ANP's main focus is auctioning drilling rights. "They are all responsible," he says. "They are demonising Chevron to absolve themselves from their own sins." •
24 The Americas
The Economist December 31st 2011
Argentina and the Falklands
The Dominican Republic
Rocl{ing the boat
Stateless SANTO DOMINGO
When is a Dominican not one?
T VISA FRANSUA was born in 1959 in
BU ENOS AIRES
Another diplomatic victory for President Fernandez T IS becoming a familiar ritual: each time a significant anniversary of Argentina's 1982 war with Britain over the Falkland Islands looms, its government starts rattling sabres. In 2007 Nestor Kirchner, the country's then-president, cancelled an oil-andgas agreement with Britain and banned energy companies active in the islands, which Argentina calls the Malvinas, from operating on the mainland. With the war's 30th anniversary falling in April, the tradition has been upheld by Cristina Fermindez, Mr Kirchner's widow and successor, who is due to step aside for 20 days on January 4th 2012 in order to receive treatment for thyroid cancer. On December 2oth she got Argentina's partners in the Mercosur trade block- Brazil, Paraguay and Uruguay-to declare that they would ban civilian ships flying the Falklands' flag from entering their ports. Although up to $300m in maritime trade to and from the Falklands passes through Uruguay each year, this decision may have little practical effect. Most of the 30 or so vessels hoisting the Falklands' flag- a British red ensign with a coat-ofarms featuring a ram and tussock grassbelong to Spanish fishing companies. British merchant ships will still be allowed to dock in South American ports. Nevertheless, the new Mercosur policy is the latest in a string of small diplomatic victories for Argentina, which is keen toregionalise what has always been a bilateral dispute. Mercosur already does not welcome in its ports British warships on Falk-
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lands duty. Earlier in December a meeting of the newly formed 33-country Community of Latin American and Caribbean States unanimously backed Argentina's "legitimate rights in the sovereignty dispute" over the Falklands and South Georgia. UNASUR, the putative South American union, has done likewise. In 2010 Hillary Clinton, America's secretary of state, called for talks over the dispute, a contrast to 1982 when the United States backed Britain. The British government insists that its control over the islands, which dates back to 1833, is clear under international law, and that the right of the Falklanders to self-determination is not negotiable. Ms Fernandez has been especially exercised by recent oil exploration in Falkland waters. The small deposits found so far may not be profitable, though a rig will shortly start to drill in previously unexplored blocks to the south of the islands. But Argentina responded to the resumption of drilling in 2010 by requiring ships travelling between the islands and the mainland to receive permission. In a speech at the UN in September, Ms Fernandez threatened to disrupt the weekly flight between Chile and the Falklands, operated by Chile's LAN. She accused David Cameron, Britain's prime minister, of "mediocrity and near-stupidity" for refusing to negotiate sovereignty. Argentina has forsworn another attempt to seize the islands by force. It anyway lacks the military means. Despite cuts in public budgets, Britain still spends heavily on the islands' defence. But if oil starts to flow, Argentina might seek regional support for an economic blockade. Would it get it? Most Latin American governments are left-of-centre, strongly nationalist and increasingly confident of their growing clout in the world. Argentina has persuaded them that the Falklands are a colonial anachronism. Mr Cameron said in a Christmas message that he would "never" negotiate on sovereignty "unless you, the Falkland Islanders, so wish." The 3,000 islanders do not: as a people, they have been in the Americas as long as many Argentines, and they resent being bullied. But they- and Britain- have faile d to explain their case to the rest of South America. British diplomats doubt that the region will offer more than rhetorical support to Argentina's claims. That looks complacent. •
L the Dominican Republic (DR), has never left her country and her socialsecurity card reads "Nationality: Dominican". But she has not been able to get a licence to practise as an educational psychologist, nor renew her passport in order to visit her daughter in Germany. The government says she is a foreigner because her parents were Haitian. For 75 years the Dominican Republic's constitution granted citizenship to almost everyone born in the country. But since 2007 the government has sought to deny the citizenship of people whose parents were illegal migrants, a policy incorporated in an amended constitution in 2010. Up to 20o,ooo Dominicans of Haitian origin may be affected. Almost 500 of them have complained to the Inter-American Commission on Human Rights (IACHR) that they have been left stateless. The IACHR has condemned the new policy. But on December 1St the DR's Supreme Court endorsed the new rule by rejecting a Dominicanborn man's request for a birth certificate. Relations between the two countries that share the island of Hispaniola have often been tense. Haiti occupied the DR for part of the 19th century. Rafael Trujillo, a Dominican dictator, ordered the murder of thousands of Haitian migrants in1937. Ties have improved of late: Leone! Fernandez, the DR's president, was quick to send aid after Haiti's earthquake in 2010. But anti-Haitian sentiment in his country remains strong. In the DR birth certificates are needed for such matters as buying a mobile phone, enrolling in school or getting married. Absurdly, they must have been issued no more than 90 days before; the state makes money by charging to renew them. People who had previously replaced their certificates many times were suddenly rejected. Officials deny that these people are stateless, saying that as the children of Haitians they can apply for Haitian citizenship. But many no longer have any ties to the country of their parents' birth. The DR's ambassador to the Organisation of American States says that the new policy is intended to "clean up irregularities", not to discriminate. Dominican-Haitian activists disagree. They protested on the steps of the Supreme Court a week after the ruling. They plan an international campaign to push the government to change its mind.
25
Also in this section 26 !u nrest inJ~azakhstanl 26 IJ_ap_an' s_cramm_ers
28 I_B_aoy_an.:_t he_daugbteL.uetum'
For daily analysis and debate on Asia, visit Economist.comf asia Economist.comf blogsfbanyan
Pakistan's febrile politics
Open spats ISLAMABAD
The president returns-to a viper's nest partly of his own making
N DECEMBER 19th the president of Pakistan, Asif Zardari, returned to the country after a two-week absence in Dubai. Officially, Mr Zardari (pictured above, left) had been getting treatment for a mild stroke. But the belief was growing that the army was forcing him into exile. For the time being, Mr Zardari's return appears to have scotched these rumours. Still, his troubles have not gone away. They include a scandal over a leaked memo that drew the president into an open spat with the country's military establishment; a political opposition pressing him hard for early elections; a dire economy; and imploding relations with the United States. Perhaps the mere survival of the government, led by Mr Zardari's Pakistan Peoples Party (PPP ), for almost four years is a feat of sorts. But the government has achieved pitifully little, while the ruling cabal has lined its pockets with gusto. With the president determined to hang on, the armed forces, which seem incapable of staying out of politics, have a problem. They want to be rid of Mr Zardari, but they do not want to stage another coup. Nor do they want to see the opposition leader, Nawaz Sharif, come to power, since they do not trust him. Mr Zardari knows that if he tries to sack the army chief, General Ashfaq Kayani, then he may well get the coup he fears. Mr Sharif, meanwhile, wants to force elections (not due until February 2013) without play-
O
ing into the hands of the generals. There is what Cyril Almeida, a columnist, describes as a Mexican standoff. The opposition lacks the numbers in parliament to impeach Mr Zardari. And so the action has moved to the courts in looking for grounds on which to pursue him, even though it is unclear how a sitting president's constitutional immunity from prosecution might be circumvented. After the president's return from Dubai, his prime minister, Yo usaf Raza Gilani (pictured above, right), spoke openly of coup fears for the first time, claiming that "conspiracies are being hatched here to pack up the elected government"; the army should not act as a "state within the state". The army's tactic appears to be to apply pressure until Mr Zardari snaps, or at least to weaken his government so that it can merely limp on until a more agreeable administration can somehow be installed. At the heart of the current coercion is a labyrinthine scandal in which the government is accused of plotting against its own armed forces, by making a "treacherous" offer to the United States that took the form of a mysterious memo. These days in Pakistan, America is regarded more as an enemy than as the ally it is supposed to be. The anonymous memo was delivered in May to America's top brass. It offered to rein in Pakistan's armed forces in return for more robust American support for the civilian government. The messenger was a
Pakistani-American businessman, Mansoar Ijaz. He claimed to be acting on the instructions of Pakistan's then ambassador to Washington, oc, Husain Haqqani. In November Mr Haqqani, who was close to Mr Zardari, was fired over the claims, which he denies. Pakistan's activist Supreme Court has taken up "Memogate". Although the government has asked the court to dismiss the "non-issue", the army demands that the judges investigate the matter fully. On December 27th, the fourth anniversary of the death of his wife, Benazir Bhutto, Mr Zardari demanded to know why the courts hounding him were not going after the assassins instead. Memogate is also about Pakistan's troubled alliance with America, one that seems unlikely to recover from body blows it has received in the past year. The latest was a "friendly-fire" assault by American helicopters on a Pakistani border post with Afghanistan, in which twodozen Pakistani soldiers were killed. Americans are coming to terms with the fact that a broad, decade-long security relationship with Pakistan, seen as essential to producing stability in Afghanistan, is coming to a close with little to show for it. Into all this has charged a cricketerturned-politician. Imran Khan has spent 15 years in the political wilderness, but in the past few months he has gained huge momentum. On December 25th Mr Khan staged the second blockbuster rally in as many months, in the volatile city of Karachi. He is riding high on an anti-corruption and anti-American agenda. Many believe that the army would like to see Mr Khan come to power, and that it may be providing him with help. In recent weeks Mr Khan has gathered around him a gang of army-friendly defectors from other political parties. Chalk up one more challenge for Mr Zardari. •
The Economist December 31st 2011
26 Asia Unrest in Kazakhstan
Thicker than oil
Japan's cramming schools
Testing times TOKYO
A controversial institution has some surprising merits A LMATY
Violence in a fading oil tow n shatters the country's reputation for stability
HE perception had grown in Kazakhstan that the country's long-serving autocrat, 71-year-old President Nursultan Nazarbayev, was like an ageing lion, getting milder and more aloof with age. Doubts were growing about how much his close circle of loyalists was still filling him in on everything that was going on in the country, or about whether he really cared beyond an obvious and active interest in economic matters. Rumours since this summer that Mr Nazarbayev suffered from prostate cancer, for which he may have sought treatment in Germany, had led to speculation about who might succeed him. Then bloody riots on December 16th-17th in the Mangistau region of western Kazakhstan brought Mr Nazarbayev back to the fore. The rioting left 16 people dead at the hands of the security forces and over 100 injured. The details of the violence around the oil town of Zhanaozen, where over 40 buildings were torched, remain unclear, including the circumstances under which police shot at demonstrators, among them sacked workers from the oilfields. Since May oil workers in Zhanaozen had been on strike demanding better pay and working conditions. Attempts by the government in the distant capital, Astana, to address their concerns appeared to be half-hearted. Several hundred oilmen were laid off. On Decemben6th people had gathered in Zhanaozen's main square in preparation for the celebrations that day of the 2oth anniversary of Kazakhstan's independence. Men wearing oil-company jackets stormed the stage, broke sound equipment and chased away police. What followed is uncertain. Chilling video footage uploaded on the internet shows police shooting at unarmed people near the square. The regional governor has since resigned, and the president has replaced him with a former minister of the interior. Mr Nazarbayev has also fired the heads of the national oil giant,Kazmunaigaz (KMG) and its London-listed production unit. Most strikingly, on December 26th Mr Nazarbayev sacked his billionaire son-in-law, Timur Kulibayev, from his post at the head of the sovereign-wealth fund, Samruk-Kazyna, which manages $8o billion in state assets, including KMG. Mr Kulibayev had been tipped as Mr Nazarbayev's possible successor, and perhaps as the next prime
T
HE yells of children pierce the night, belting out the elements- "Lithium! Magnesium!"- as an instructor displays abbreviations from the periodic table. Next, two dozen flags stream by as the ten-year-olds shout out the names of the corresponding countries. Later they identify 20 constellations they have committed to memory. Timers on desks push older students as they practise racing through tests. The scene at Seiran Gakuin, a juku or crammer on the edge of Tokyo, repeats itself nightly at so,ooo juku across Japan. Seen as a brutal facet of Japan's highspeed post-war growth, crammers are as powerful as ever. Almost one in five children in their first year of primary school attends after-class instruction,
rising to nearly all university-bound high schoolers. The fees are around ¥26o,ooo ($3,300) annually. School and university test-scores rise in direct proportion to spending on juku, often a matter of concern in a country that views itself as egalitarian. The schools are also seen as reinforcing a tradWon of rote learning over ingenuity. Yet the sweatshop image is outdated. As Japan's population declines, some schools are becoming a source of grassroots policy innovation, says Julian Dierkes, a rare expert on juku, who happens to be at the University of British Columbia. Many juku operators were left-wing activists in the 1960s, later shut out of business and academia. The share of enrolled students is higher than a quarter-century ago. In a 2008 government survey, two-thirds of parents attributed the growing role of juku to shortcomings in public education. Their service is more personalised, and many encourage individual inquisitiveness when the public system treats everyone alike. "The juku are succeeding in ways that the schools are not," an O E C D report says. In Tokyo, students say, they are a relief from cramped quarters, siblings, television and the internet. Oddly, Japan's education ministry refuses to recognise juku, dismissing them as a mere service businesses. The powerful teachers' union resists them on grounds of undermining equality. Meanwhile the juku concept is being exported. Japanese operators are expanding to China and elsewhere in Asia. There, too, they may prove a response to broken state systems.
minister after parliamentary elections on January 15th. Mr Nazarbayev also imposed a 20-day curfew and state of emergency on Zhanaozen. For the time being, the president is firmly in the saddle. But whether his moves are the answer to the bloodletting, and to the eight-month labour dispute behind it, is another matter. Khazakhstanis on social networks as well as members of the toothless opposition have been calling for an official day of mourning. That has been ignored by the authorities. Mr Nazarbayev visited Zhanaozen only on December 22nd, after first attending an informal summit of the Commonwealth of Independent States in Moscow. There, his star appears to have fallen, as he failed to secure his usual seat at the table to the
immediate right of the Russian president, Dmitry Medvedev. At a time of mass demonstrations in Russia following falsifie d parliamentary elections, the coveted spot went to Almazbek Atambayev, Kyrgyzstan's new president, democratically elected in contrast to all other Central Asian leaders. Zhanaozen is a one-industry town of about 90,000 people centred on the ageing oilfield of Uzen.Jobs there are now hard to find, and social problems have grown. Mr Nazarbayev says employment will be created in enterprises to be set up in the town, or jobs, training and accommodation provided elsewhere. A generous offer. A pity it was not made before Kazakhstan's reputation as a beacon of stability in Central Asia was shattered. •
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The Economist December 31st 2011
28 Asia
Banyan
The daughter's return
A glimmer of hope in the sad tale of sex-selective abortion in India
HE march of sex-selective abortion in Asia seems relentless. Not every society adopts the practice, but those that do-and they include the two largest countries on earth- have seen it spread through every social group, unhampered by growing wealth. Indeed, middle-income couples seem more willing and better able to manipulate the sex of their children than are the poor. And they are more likely to want smaller families, increasing the premium on sons in countries where males are seen as more valuable. As a result, richer areas have more sex selection than poorer ones and sex selection tends to rise as countries get richer. In China the sex ratio at birth is much more distorted in rich Shanghai and Guangzhou than in poor Tibet. From 2001-11, India's GDP more than doubled and the census of 2011 found only 914 girls aged o-6 for every1,ooo boys, worse even than the abysmal tally in 2001, when there were 927 girls per 1,000 boys. (India counts the sex ratio differently from the rest of the world, which expresses the idea as the number of boys per 100 girls; using the international measure, India's child sex ratio rose from 108 in 2001 to 109.5 in 2011.) In 2001 India had 6m fewer girls than boys aged o-6; by 2011 the number had risen to 7m. It has long been assumed the process of reversing sex selection does not happen until countries are richer than India or China are now. One of the few to have succeeded in ending the practice is South Korea, where the sex ratio at birth peaked in1990 and has since fallen to near-normal levels. South Korea did not manage fully to reverse the trend until its GDP per person had reached about $12,000. China's is now $8,400, India's $3,700. Both countries have been campaigning against sex-selective abortion for years, making it illegal to terminate pregnancies just because parents want a son (or indeed to inform parents of the sex of a fetus), launching "save the daughter" campaigns, and- in India's caseenlisting Hollywood stars to sing the praises of girls. All, it seems, to no avail. Now, however, comes evidence that India may in fact be succeeding. In a pair of articles in the Indian Express, Surjit Bhalla, an economist, and Ravinder Kaur, a sociologist, use a different set of figures to get a different result. On the basis of the national sample surveys (NSS), they calculate that India's sex ratio at birth
T
swung from 924 females per 1,000 males in 2004-os to 977 in 2011, a stunning turnaround in favour of girls. The NSS figure is not comparable to the census. It shows the sex ratio at birth, whereas the census shows the ratio for children aged o-6 (census figures for the sex ratio at birth have not been published). But there are reasons for thinking the NSS is reliable. The sample size, of 125,000 households, is large. And when the NSS does produce figures comparable to the census, they closely match it (for example, the NSS and census figures for the child sex ratio in 2001 and 2011 are almost identical). The new figure represents a very big change. A sex ratio of 977 girls to 1,ooo boys is closer to what prevailed in the 1960s than it is to more recent decades. So it is possible that the sex ratio has begun to change recently in ways not captured by the census. If so, why? Mr Bhalla and Ms Kaur pin the explanation squarely on the behaviour of parts of India's middle class. What they call the mature middle class, those with an annual income of 17o,ooo rupees ($3,200) for a family of five, no longer practises sex selection. Ms Kaur's research in five Indian states finds that richer middle-class families are no longer using sons as vehicles for upward mobility. A combination of female education, the spread of "modem" social attitudes through television, government policies and a dawning sense that daughters are more likely than sons to look after parents in old age are all having a cumulative effect. This is persuading the richer parts of the middle class that girls are as valuable as boys. The authors reckon this slice of the population has almost doubled in size in six years, from 27% in 2005 to so% in 2011, so its preferences explain the change in the figures. The argument might seem to contradict the view that sex selection rises as people get richer. In fact, at slightly lower levels of income, the link is as strong as ever. Mr Bhalla and Ms Kaur find sex selection has run rampant among what they call the emerging middle classes- those with an income of 90,000-170,ooo rupees a year. But since this group has declined as a share of the population, from 68% in 2000 to 41% now, their preferences have a smaller impact.
Thank you, Mr and Mrs Middle Until further evidence appears (more census numbers, for example) the conclusion that India is reducing sex selection in the mature middle class will remain tentative. Still, regional data back it up. Monica Das Gupta of the World Bank points out that the 2011 census shows the sex ratio is beginning to return to normal in Punjab and Haryana, states where sex-selective abortion used to be common, but which now report big changes in attitudes to girls. These are rich states with many mature middle-class families. Meanwhile, in nearby Gujarat, Uttar Pradesh, Rajasthan and Maharashtra, the sex ratio is getting worse. These are states with more of the emerging middle classes. Because there are many such states and some, like Uttar Pradesh, are huge, they explain why the national child sex ratio became more distorted in 2001-11. When the 2011 census appeared, some Indians agonised that the whole country was going the way of Punjab and Haryana. That looks unduly pessimistic. The distortions in the newly offending states are small compared with those that once gripped Punjab and Haryana. India's efforts to cut sex selection may be starting to pay off, after all. And it is pretty clear why: "We can thank", say Mr Bhalla and Ms Kaur, "the education- and equalityof-the-sexes-oriented middle class for this turnaround." •
29
Also in this section 30 alestiojao unity at last.? 31 [Nigeria' s_w_astefu_lo_i_ls_u bsidy]
, ••
••
For daily analysis and debate on the Middle East and Africa, visit Economist.comfworld/ middle-east-africa
Iraq without America
Sovereignty without security BAGHDAD
The departure of American troops has already been followed by a resurgence of sectarian hatred
N DECEMBER 18th America withdrew from Iraq, as the last convoy headed south into Kuwait, where around 4,000 of its troops will remain for an undisclosed length of time. An optimistic Iraqi government had recently begun toremove some of the capital's checkpoints and blast-walls, easing traffic and boosting morale. But the better mood did not last long. On December 22nd at least a dozen car bombs exploded within two hours of each other in Baghdad, killing more than 60 people and injuring another 200- one of the highest death tolls of the year. With security as patchy as ever and politics entering a new phase of sectarian hatred, few Iraqis now think the American withdrawal heralds a joyful new era. Some even wonder whether, without a ringholding American military presence, the country will even stay together. The latest wave of violence followed hard upon a row between Nuri al-Maliki, the Shia who has been prime minister since 2006, and two of Iraq's most prominent Sunni politicians who were supposed to be helping him maintain a sectarian balance in government. After one of them, Saleh al-Mutlaq, a deputy prime minister, had called Mr Maliki a "dictator", the prime minister swiftly called for a vote of no confidence in him in parliament; tanks surrounded his house. Then, even more menacingly, Mr Maliki declared that a warrant had been is-
O
sued for the arrest of another leading Sunni, Tariq al-Hashemi, Iraq's vice-president, on charges of terrorism. Mr Hashemi fled to Iraq's semi-autonomous Kurdish area. Mr Maliki told the Kurdish authorities to send him back to Baghdad, which they refused to do. In the absence of an American military presence, the American vice-president,Joe Biden, telephoned Mr Maliki and several other leading Iraqi politicians to urge compromise, evidently in vain. No independent analyst suspects Messrs Hashemi or Mutlaq of involvement in the dozen bombings on December 22nd, which had the hallmark of al-Qaeda, ever eager to exploit sectarian divisions. Mr Maliki has been gradually consolidating his position and that of Iraq's new Shia-led establishment since he became prime minister. In March 2010 his mainly Shia front narrowly lost a general election, winning 89 seats out of 325 in Iraq's parliament; a rival front led by a secular Shia, Iyad Allawi, with broad support from Iraq's Sunni Arabs, pipped him with 9L But after eight months of drift as various shifting alliances failed to accommodate each other, Mr Maliki eventually managed to patch together a majority a year ago, on the understanding that a number of leading Sunnis, such as Mr Hashemi and Mr Mutlaq, as well as the aggrieved Mr Allawi, would be granted influential posts. But many key positions were never agreed upon, and the powers of jobs with
grand-sounding titles, such as Mr Allawi's proposed chairmanship of a strategy council, were never clarified. Meanwhile, for the past year, Mr Maliki has been acting as justice, interior and defence minister, concentrating ever more power in his own hands and ensuring that the security forces, in particular, are run by his men. Sunni leaders say that their co-religionists are unfairly singled out for detention and intimidation. noops loyal to Mr Maliki are said to have recently carried out a string of arrests of people linked to the opposition. Sunni Arabs, loth to admit that they number only around a fifth of Iraqis, yet still mindful that they ran Iraq since the country's inception under British tutelage nearly a century ago, are again becoming fearful. In Dora, a mainly Sunni suburb in south Baghdad that is still surrounded by blast-walls and speckled with bullet holes, a woman puts a brave face on the future. Security, she says, is much better than it was a few years ago, when sectarian cleansing was rife and mixed neighbourhoods were torn apart. For sure, she admits, explosive devices still go off occasionally at checkpoints; "sticky" bombs sometimes blow up cars; a mysterious branch of the security forces is still liable to make random arrests. But she is afraid that even this relative calm may not last. "Fear still plagues Iraq," she sighs. "Honestly, I didn't want the American forces to go." Meanwhile a radical cleric, Muqtada alSadr, who already holds the balance of power in parliament, is flexing his political muscle anew. It was he who insisted, against Mr Maliki's initial wish, that all American troops should be out by 2012- or face a new insurgency from his Iranianarmed militia, which Mr Maliki has curbed in the past but which still frightens many Iraqis, especially Sunnis. Mr Sadr's people now want parliament dissolved and fresh ~~
30 Middle East and Africa ~ elections
held. If he came out on top, Iraq would be even less palatable to the United States and to Sunni powers in the region. But it is not all gloom. Since the American military "surge" of 2007, which ended the worst period of sectarian bloodshed, security has improved enough to let the economy start growing again. Business is thriving in Sadr City, the most densely populated Shia part of Baghdad. The place is crammed with foreign-made cars. Markets are bustling. Iraq's GDP per person before the fall of Saddam Hussein was estimated by the IMF at $518. Now it is said to be $3.306. Iraq's towns have become richer since 2003, the year of the American invasion. Government salaries have rocketed. Public-sector workers have started to spend more money. Foreign companies have swarmed in. lUrks build housing estates, Italian oil-service providers create jobs in Basra, the southern capital. Iranians run new hotels in Najaf, a Shia holy city that pilgrims visit en masse. Foreign and local businessmen complain about corruption, Iraq's impenetrable bureaucracy and weak work ethic, but concede that such defects are outweighed by the profits. The electricity supply, cited by Iraqis as the worst of all their country's public-service deficiencies, remains patchy, but imports of such goods as refrigerators, televisions and air-conditioners have soared.
Lubrication at last In the past two years the world's big oil companies, eyeing the world's fourth-largest reserves, have begun to invest heavily as the government has offered old fields for renovation and new ones for exploration and exploitation. Foreign companies are again operating in the oil-rich south. But oil production has yet to match its peak under Saddam Hussein. And foreign firms are taking risks if they make oil deals in the Kurdish north, since the government in Baghdad and the Kurds' regional authorities have failed to agree on how to divide the spoils, despite years of acrimonious negotiation. After ExxonMobil decided, in frustration, to sign a deal with the Kurds in October, the central government responded furiously, threatening to penalise any company that dealt with the Kurds without its agreement. Iraq has yet to find its place in the Arab world. Sunnis, who dominate it, are deeply suspicious of the new Iraqi order, often singling out Mr Maliki for derision. The Saudis, most hostile of neighbours, have yet even to send an ambassador to Baghdad, saying that Iraq is already a eat's paw for Iran, the region's leading Shia power. Many of Iraq's prominent political, religious and militia groups are indeed close to Iran, which will surely seek to strengthen its influence with Mr Maliki and his Shia allies. But most of Iraq's Shia religious
The Economist December 31st 2011
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and political leaders are keen to stay independent of their theocratic neighbour; ordinary Iraqis often resent Iran's apparent eagerness to interfere in their politics. The prospect of Iraq sliding into an Iranian orbit clearly rattles the American administration, which had wanted to keep a residual force in Iraq of at least 10,000 troops. Instead, the Americans will retain one of its biggest embassies in the world, with some 17,000 diplomats and advisers, secured by a military force of fewer than 200 troops. It also expects to sell a lot of weapons, including F-16 fighter aircraft, to the newly sovereign country. America still has some 40,000 troops spread around the Gulf region. But its ability to influence events in Iraq has plummeted. In a new political departure, some of Iraq's Sunni leaders in the provinces, such as Diyala, north of Baghdad, are pondering the possibility, provided for in the constitution, of creating autonomous Sunni-led regions, with powers akin to those of Iraqi Kurdistan. Hitherto, most Sunnis have loathed the notion of federalism, much vaunted by the Kurds, portraying it as a Western plot to divide and weaken an Arab nation. But Mr Malild has made plain his distaste for the idea that Sunnis, despairing of wielding power at the centre, might set up their own federal fiefs. Iraq's own government now threatens to undermine the democracy imposed on it by the Americans. Saddam Hussein's security men, informants and torturers have gone, and several sets of elections have been held that were free and fair within the constraints of civil strife. But Iraqi freedoms look far from guaranteed. Newspapers, magazines and websites abound, but journalists have been imprisoned and beaten, both in Baghdad and in the Kurdish region, for reporting on anti-government protests earlier this year that sought to echo Arab uprisings elsewhere. One law recently presented to a parliamentary committee proposes life impris-
onment and a fine of $40,000 for actions (including on the internet) that "affect the country's interdependence and unity". Another would make it illegal for a group to gather in a university or mosque for any reason other than study or worship. Religious laws may also be more strictly enforced. A human-rights activist says that, during Ramadan in August, rules were brought in to punish anyone who publicly broke the daylight fast, with brief jail terms. As the Arab spring spread, an Iraqi protest movement flourished briefly but fizzled in part because of intimidation and curfews that prevented demonstrations. Many Iraqis, however much they hated Saddam Hussein, would surrender some of their hard-earned freedoms and comforts in exchange for real security. On balance, the Shia Arab majority that numbers some 60% probably prefers the new status quo. And the Kurds, safer than other Iraqis in their autonomous zone, are enjoying a golden age, albeit amid growing corruption and now without Americans to watch over Kurdish-Arab fault lines. But Iraq will not be fully democratic or truly prosperous until its three main components- Sunni Arab, Shia Arab and Kurdish- genuinely come to terms with each other. That prospect is still woefully remote. •
Palestinian unity
Rivals who may need each other Palestine's beleaguered president may turn to the Islamists for help IVE years after Western governments sought to turn the West Bank into a model of statehood for peace-minded Palestinians, the Palestinian Authority (P A) that runs it is being cast adrift- possibly with dramatic consequences. The cafes of Ramallah, the Palestinians' fledgling seat of government near Jerusalem, have been bereft of chattering aid workers from the West since the American administration withdrew its support in the wake of President Mahmoud Abbas's controversial bid for full statehood at the UN in late 2011. As a result, Mr Abbas may solicit political and material help from elsewhere. Binyamin Netanyahu, Israel's prime minister, always ambivalent about the merits of Palestinian statehood on the West Bank (let alone Gaza), seems to have cooled on the idea; many of his coalition partners have always seen it as a threat to their vision of a Greater Israel extending east to the Jordan river. Whereas he once promised to build an "economic peace" with Palestinians, now he threatens economic sanctions against them, intermit- ~~
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The Economist December 31st 2011 ~
tently withholding the customs revenues that Israel collects on Palestine's behalf, which, with foreign donor aid, make up So% of the PA's budget. Europe, with its own economic crisis, has drastically cut its aid. America's Congress, to punish Mr Abbas for his UN bid, has withheld two-thirds of its $6oom annual support programme. Even before the UN bid, the PA was short of cash. Its prime minister, Salam Fayyad, once the darling of Western donors, is threatening hefty tax increases on businesses, hitherto his biggest backer, and may slash the PA's payroll. The PA's security forces may struggle to contain the protests that could erupt. As the PA's fortunes in the West Bank have waned, those of Hamas, the Islamist movement that runs the Gaza Strip, have waxed. After Hamas won a Palestinian election in 2006, America and Israel, with broad Western endorsement, sought to stifle the place, to display the benefits that would accrue to the West Bankers by cooperating with Israel. But Gazans withstood the siege, partly by burrowing tunnels to Egypt. With Hamas's Muslim Brother friends there on the rise, Gaza is looldng a lot more prosperous. "We're the ones now under siege," says the owner of Che Che, a hubbly-bubbly cafe in Ramallah. With the region's winds blowing the Islamists' way, Mr Abbas may be tiring of trying to persuade the West to give him a state. The Americans are still bent on vetoing any early bid. Mr Abbas has refused to resume negotiations with Mr Netanyahu until Israel stops building Jewish settlements on the West Banl<. In September the mediating Quartet (comprising the United States, Russia, the UN and the EU), gave Israelis and Palestinians three months to submit maps for a two-state deal. The Palestinians have complied but the Israelis argue that the clock starts ticking only once the two sides actually meet. So Mr Abbas is earnestly pondering the prospect of conciliating Hamas and reuniting the two halves of his severed realm. In Cairo on December 22nd he presided over a meeting of a "temporary leadership forum", a new body of a dozen factions, including Hamas, which will steer the Palestine Liberation Organisation (PLO), the Palestinians' paramount decision-making body that until now has resolutely excluded Hamas, largely because it has rejected the PLo's decision to recognise Israel. Hamas and Fatah, bitter enemies for many years, are still not close to a full rapprochement. And Israeli and Western governments might withhold even more cash from the PA if Hamas were to join it while still failing unequivocally to recognise Israel or to disavow violence. But Khaled Meshal looks keener to reach out to Mr Abbas- and to make emollient noises about Israel. He recently agreed with Mr Abbas that "the current phase [of policy towards
Middle East and Africa 31 Nigeria's subsidies
End them at once! LAGOS
The president w ill be a brave man if he fulfils his promise to end cheap petrol
ETROLsubsidies are thought to cost Africa's second-largest economy $7 billion a year- and Nigeria's president, GoodluckJonathan, says it is a priority for him to get rid of them in 2012. But most Nigerians think cheap fuel is the only benefit they get from living in an oil-rich country. As the prospect of life without subsidies looms, queues at petrol stations are lengthening, strikes are threatened and tension is rising. Nigeria churns out 2m barrels a day (b/d) but imports almost its entire refine d-fuel needs, owing to decades of mismanagement and corruption that have left its refineries to rot. Subsidies keep the pump price at $0.41 a litre but if Mr Jonathan has his way, this could rise to $0.74, in a country where most people live on less than $2 a day. Successive governments have tried and failed to deregulate fuel imports. Mr Jonathan may show more backbone. But despite promises of safety nets to protect the poor and the need for new infrastructure and for improvements to the ragged electricity supply, Nigerians fear that the money saved by cutting fuel subsidies will be swallowed up by political fat cats. The fuel subsidy drains cash from the
P
state. The government has revealed that the chief beneficiaries are the1oo-odd companies owned by Nigeria's richest people, including Oando, the country's largest indigenous private oil-and-gas firm, which alone netted $L4 billion. The subsidies also highlight the tortuous ways of the Nigerian National Petroleum Corporation (NNPC), which has deliberately overestimated the cost of importing refined products and then pockets what is left over. The NNPC admitted in parliament that it could not account for 65,000 bid of crude oil it should be refining, worth $7m a day at today's price. The government's chronic failure to build working refineries has benefited middlemen. Imported petrol is siphoned off by third parties who take advantage of the cheap fuel in Nigeria, then smuggle it over the border to neighbouring countries where unsubsidised fuel costs three times Nigeria's price. Billions of dollars earmarked for renovating refineries has vanished over the years. The country's four refineries barely function: fine for those with political connections who make fortunes from imported fuel. If Mr Jonathan stops the scam yet keeps ordinary people calm, it will be a triumph.
Israel] be confined solely to peaceful resistance acceptable to the international community". Some Hamas people have aired the idea of dropping the name Hamas, an acronym for "the Islamic Resistance Movement", rebranding it as the less jihadistsounding Palestinian branch of the Muslim Brotherhood. After all, says a Hamas leader in Gaza, "we never left it."
Hamas's ideological shift is partly because of geography- and events elsewhere. The group clearly thinks it sensible to edge out of the shadow of the beleaguered Syrian regime, its main sponsor, and become more friendly with Egypt's new order, where the Muslim Brothers are on the rise. Three-quarters ofHamas's people are said to have left turbulent Damascus. Hamas has quietly opened a fledgling office in Cairo. The next Hamas-Fatah meeting is to take place in Jordan, whose king banished Mr Meshal in 1999. Hamas has infuriated its other big sponsor, Iran, with the news that Gaza's prime minister, Ismail Haniyeh, on his first foreign tour in four years, may hobnob with some of Iran's sworn enemies. Messrs Abbas and Meshal have agreed on a new election commission to prepare for Palestinian elections in 2012. But unity is still far off. Western governments are still loth to see Mr Abbas dish Mr Fayyad, a longstanding precondition of Hamas for agreeing to team up in a unity government. Moreover, Israel could make life even more unpleasant for West Bankers if the PA were to include Hamas. All the same, a dramatic shift in the Palestinians' political centre of gravity is in the offing. •
Abbas and Meshal, pals at last
32
Living in truth Th e unassuming man w ho taught, through plays and politics, how tyranny m ay be defied and overcome AD communists not seized power in his homeland in 1948, Vaclav Havel would have been simply a distinguished Central European intellectual. That is how, triumphantly, he ended his career. In between came imprisonment, interrogations, house searches, isolation, heartbreak and betrayals- and adulation on the national and international stage. Although a highly successful politician, three times head of state and the leader of one of the most famous revolutions in history, he was not a natural public figure. A sincere, impatient and humble man, he detested the pomposity, superficiality and phoney intimacy of politics. Nor was he like most of his fellow dissidents, mainly ex-communist intellectuals whose glittering careers had been cut short by the Soviet-led invasion of 1968 and the purges that followed it. Mr Havel was never a communist. And he lacked formal academic education. He came from a rich family that had had most of its property nationalised after 1948. As a further punishment, he had to leave school at 15 and was allowed only a technical education, not the literary one he craved. He worked as a laboratory assistant, did military service (in mine-clearing, a task reserved for the politically suspect), and became a stage hand, studying drama by correspondence.
H
As Czechoslovak communism softened in the 1960s, talented outsiders could begin to make their mark on the country's cultural life. His first full-length play, "The Garden Party", was performed in 1963. It was a wry look at the nonsense world of communist cliches. A middle-class family, hoping to help their son Hugo, sends him to meet some influential apparatchiks. He readily learns their meaningless office language and his career flourishes- though his parents can no longer understand him. Scrupulously careful in his choice of words, Mr Havel was especially alert to, and annoyed by, the atrocious effects of communism on his mother tongue. His next play, "The Memorandum", first performed in 1966, dealt with an invented language, Ptydepe, designed (like communism) to eliminate ambiguity and promote efficiency, but with little regard for practicality or humanity. Its introduction, in an absurd workplace filled with sinister snoopers, creates chaos and deadlock. Such mockery of the system was tolerated, even encouraged, before and during the Prague Spring, when reformist communists under Alexander Dubcek abolished censorship and tried to create what they called "socialism with a human face". But that experiment was intolerable to Leonid Brezhnev's Soviet Union, just as Mr
Havel's work was to the grey apparatchiks installed by the Warsaw Pact's tanks. The plays were staged in New York and elsewhere, but their author- like millions of others now a prisoner in his own country- was unable to see them . Banned from working in the theatre, he briefly took a menial job in a brewery; he wrote about that in another play, "Audience". Few had the stomach to struggle on against communism after such a comprehensive defeat. Many Czechs and Slovaks glumly resolved to make the best of a bad situation. Not Mr Havel: words were his weapons, and he intended to use them. In early 1975 he wrote a caustic letter to the communist leader Gustav Husak, saying that the "calm" which the authorities regarded as their great achievement was in fact a "musty inertia... like the morgue or a grave." Under the coffin-lid of communism, the country was rotting: "It is the worst in us which is being systematically activated and enlarged- egotism, hypocrisy, indifference, cowardice, fear, resignation, and the desire to escape every personal responsibility .. ." With a handful of allies Mr Havel then collected 242 public supporters for what would be the first open manifestation of dissent inside the Soviet empire: Charter 77, a declaration that highlighted the authorities' breaches of the international human-rights standards to which they had notionally subscribed. The reaction was venomous. Those who refused to denounce the document brought severe punishments on themselves and their families. One of the three founding spokesmen, Jan Patocka, a philosophy professor, died during a gruelling n-hour interrogation. Mr ~~
The Economist December 31st 2011 ~ Havel,
another, spent five months behind bars in 1977, with a further three months in 1978. But the crackdown spurred rather than deterred him. Taking advantage of lax border controls in a national park on the Czechoslovak-Polish border, Mr Havel led a bunch of friends in the summer of 1978 to meet a group headed by Adam Michnik, the brainbox of the Warsaw opposition. Mr Michnik recalls a "magic moment" as Mr Havel (Vasek to his friends) pulled cheese, bread and vodka from a knapsack and they began to "build the foundations of the international anti-Communist community ... we had decided to shed our gags and to confront the totalitarian dictatorship face to face." The greengrocer's tale
The practical result of the cross-border meeting was a joint collection of essays. One was Mr Havel's: "The Power of the Powerless", a reflection on the mind of a greengrocer who obediently puts a poster "among the onions and carrots" urging "Workers of the World- Unite!" In gentle, ironic but scathing prose, Mr Havel exposed the lies and cowardice that made possible the communist grip on power. The greengrocer puts up the poster partly out of habit, partly because everyone else does it, and partly out of fear of the consequences if he does not. Just as the "Good Soldier Svejk" encapsulated the cowardly absurdity of life in the Austro-Hungarian army, Mr Havel's greengrocer epitomised the petty humiliations of "normalised" Czechoslovakia. Yet the greengrocer would balk if he were told to display a poster saying: "I am afraid and therefore unquestioningly obedient." That was the difference between the terrified conformity of the Stalinist era
Appropriate uniforms
Briefing Vaclav Havel 1936-2011 33
and the collusive charade between rulers and ruled that prevailed in the 1970s. The people pretended to follow the Party, and the Party pretended to lead. Those shallow foundations were vulnerable to individual acts of disobedience. Just imagine, Mr Havel wrote, ... that one day something in our greengrocer snaps and he stops putting up the slogans merely to ingratiate himself. He stops voting in elections he knows are a farce . He begins to say what he really thinks at political meetings. And he even finds the strength in himself to express solidarity with those whom his conscience commands him to support. In this revolt the greengrocer steps out of living within the lie. He rejects the ritual and breaks the rules of the game. He discovers once more his suppressed identity and dignity. He gives his freedom a concrete significance. His revolt is an attempt to live within the truth ...
That would bring ostracism and punishment, but imposed for compliance's sake, not out of conviction. His real crime was not speaking out, but exposing the sham: He has shattered the world of appearances, the fundamental pillar of the system...He has demonstrated that living a lie is living a lie. He has broken through the exalted fa~ade .. . and exposed the real, base foundations of power .. .He has shown everyone that it is possible to live within the truth. Liv· ing within the lie can constitute the system only if it is universal. .. everyone who steps out of line denies it in principle and threatens it in its entirety ...
The phrase "living in truth" was Mr Havel's hallmark. No single phrase did more to inspire those trying to subvert and overthrow the communist empire in Europe. In 1979 he received a five-year prison sentence. This was the darkest time of his life. The outside world showed little interest. The dissident movement was shrivelling under the harassment of the stB, the Czechoslovak counterpart of the KGB. In Poland, Solidarity was crushed by martial law. And in prison he could not write, barring a weeldy letter to his wife. The commandant, a Stalinist-era veteran, enjoyed tormenting his top prisoner, confiscating the whole letter if any bit breached prison rules (personal matters only, no foreign words, no underlining, no discussion of philosophy). The result, in elliptical and sometimes baffling prose, was "Letters to Olga", a book that could be published only abroad. He was released early, with severe pneumonia, in 1983. His health never recovered, and his heavy smoking gave it little chance to. That gloom proved to be the nadir. Once the enforcer of communist orthodoxy, the Soviet Union under Mikhail Gorbachev became a spur to change: that shift inspired democrats and sapped their persecutors. In Hungary and Poland theregimes were weakening visibly by the late
1980s, but Czechoslovakia's Communist blockheads continued to beat, bully and jail their opponents. Mr Havel was sentenced to eight months for "hooliganism" in early 1989. But this time his jailing sparked outrage, not apathy. In Poland one of his plays was performed publicly- with the communist prime minister in the audience. Citing his "exemplary behaviour", the Prague regime in April free d its most famous prisoner early. That evening stokers, street-sweepers and window-washers- in earlier life musicians, philosophers and writers- partied at the former stagehand's home. By the year's end, they would be toasting his presidency. A moral compass
Yet Czechoslovakia's dissident movement was still tiny and amateurish, way behind Poland's Solidarity in muscle, or Hungary's activists in sophistication. Mr Havel and his pals were all but unknown in their own country. Change was in the air, but many were uneasy about what it might bring: economic upheaval, American imperialism, the return of vengeful emigres, German revanchism or Jewish property claims. The authorities tried to tar the dissidents as CIA stooges, and Mr Havel as the scion of a family of Nazi collaborators. But propaganda was no substitute for reform. Though the dissidents were feeble, they were kicking at a rotten door. Mr Havel was fast becoming a political leader. It was not a role he enjoyed. Foreign visitors queued outside his apartment, cutting into his time for reading, writing, thinking and talking. At times he retreated to his country cottage for peace and quiet. When in Prague he kept his appointments on a small scrap of fo lded paper in his pocket: he was not a politician and was not going to behave like one. His main defence was a venerable old man called Zdenek Urbanek (author of the country's best translation of "Hamlet", but disgraced after 1968), whose stately good manners and quavering English could deter even the pushiest television crews. But events brushed diffidence aside. As the Soviet empire crumbled the Communist Party leader, Milos Jakes, in a leaked recording, could be heard complaining to his comrades (in ludicrously ungrammatical Czech) that the country was "the last pole in the fence". Hungarians and Austrians picnicked on what had once been the Iron Curtain's barbed-wire cordon. Even loyal East Germany wobbled and toppled. When the Prague riot police brutally broke up a student demonstration on November 17th 1989, Mr Havel and his colleagues set up the Civic Forum- a determinedly nonpartisan group with, at first, no leaders. Day after day and in ever-increasing numbers the demonstrators of the Velvet Revolution filled Wenceslas Square, chanting "Truth will triumph" and "We've had ~~
34 Briefing Vaclav Havel1936-2011 ~ enough".
Intellectuals had played a vital role in fostering Czech and Slovak national feelings during the Habsburg empire and in building pre-war Czechoslovakia. Now they were taking charge again. Behind the scenes (literally) of the Magic Lantern Theatre, where Civic Forum set up its headquarters, Mr Havel's quiet authority and moral compass made him the unquestioned head of the opposition. Others were more forceful, self-important or impetuous. But it was the playwright's voice that counted. On November 24th, during a press conference, the news came through that the entire leadership of the Communist Party had resigned. Someone produced a bottle of fizzy wine. Mr Havel, next to a beaming Dubcek (hotfoot from his job as a humble forester), declared a toast: "Long live a free Czechoslovakia." The regime had in effect surrendered, and the country's destiny was in the writer's hands. In 24 hours in early December, in what he later said was the most difficult decision of his life, Mr Havel reluctantly agreed to stand for president; posters saying Havel na Hrad (Havel to the Castle) already festooned Prague. Duty (and perhaps a sense of mischief) had triumphed over his craving for a return to normal life. He was elected unanimously by the discredited communist-era parliament, and again in June by its freely elected successor. Many dissidents' political careers flared in 1989 but fizzled thereafter: they were too individualistic, or principled, or eccentric for the demands of public life. Mr Havel was the glorious exception. He confounded those who thought he was too dilettantish and self-effacing to be a proper president. He and his pony-tailed, scooterriding advisers romped through the corridors of Prague Castle, exorcising the ghosts of the communist usurpers with humanity and humour. He ordered spectacular floodlighting, and gloriously elaborate comic-opera uniforms to replace its guards' grim garb. Almost his first act in office was to invite the rock musician Frank Zappa to a joyful victory concert in Prague. In what would be a hallmark of his later political life, he made a point of helping beleaguered but like-minded figures. He became a close friend of the Dalai Lama, who was almost the first foreign dignitary he received as president. In1991he lobbied for Aung San Suu Kyi's Nobel peace prize, when it could have been his. His last public statements were to support political prisoners in Belarus and the opposition protests in Russia. In return, the Kremlin issued insultingly sparse condolences. But in Moscow on December 24th (see i~e 31) 8o,ooo pro-democracy demonstrators held a minute's silence in his memory. Mr Havel banished many demons. He opened warm diplomatic ties with Israel and befriended Germany, then a bogey-
The Economist December 31st 2011 man for many Czechoslovaks. He brought Pope John Paul II to Prague, overcoming a neurotic anti-Catholicism and secularism among some of his compatriots, who harboured lively resentments of the counterReformation and priestly privilege. His record at home was more mixed. The parliamentary system gave the president little executive power. With first-hand experience of the flaws in the justice system, he freed many prisoners: some blamed that for a subsequent crime wave. He disliked the arms industry, and tried to block some important deals. But making weapons was a big source of jobs in Slovakia. long the poorer part of the country, where many felt Mr Havel had a tin ear for their concerns. He was unable to stop the ambitious politicians in Prague and Bratislava who were scheming to dissolve Czechoslovakia. That seemed a big failure at the time. Yet the smooth and peaceful "velvet divorce" of 1992 was a huge achievement. Mr Havel is much mourned in Slovakia; the two countries now get on better than ever. Laying ghosts He returned as president of the Czech Republic in1993 and again in1998, making the most of his largely symbolic role. The great triumphs were accession to NATO (in1999) and laying the foundations for European Union membership in 2004. The country could not have had a better ambassador. In 1994 he lured President Bill Clinton into a joyful impromptu saxophone session at a Prague nightclub. He was profoundly uneasy (rightly, in retrospect) with the shaky moral foundations of post-communist capitalism. The economic reformers understood markets, but not mankind: loose rules and weak institutions created a spivs' paradise, with a malign and lasting legacy of corruption. The stB was disbanded, but with almost
Soulmates
no accounting for its crimes. Mr Havel himself reckoned that the biggest failure on his watch was the handling of the secret police files, a toxic mix of guilty secrets and malicious invention that leaked into public view in the 1990s. Some Czechs disliked him: too preachy, too elitist, they said (too brave and honest for a country prone to moral flexibility, said others). His critics' main charges were that he regained family property (entirely lawfully) and then got bogged down in a squabble about its division (not his fault). After his wife Olga died in 1996, he remarried, just under a year later, a lively and rather younger actress, Dagmar, whom some found vulgar in comparison. (Mr Havel said plaintively: "We are in love and want to be together.") His plays were overrated (perhaps, but his essays deserved every plaudit). He enjoyed the fruits of commercial success (entirely merited, unlike some of his compatriots' fortunes). Out of office, Mr Havel's restless Bohemian energy stayed with him even as his physical strength ebbed. He resumed his literary career, fulfilling a lifetime dream of directing a film-about a politician leaving power. An engaging memoir of his time as president captured the atmosphere of Prague Castle in what to his friends were fairytale years. It was Mr Havel's genius that he not only toppled communism, but offered a way out of its ruins that all could follow: calming nerves, laying ghosts and precluding revenge. He had a better claim to resentment than most. But he showed no sign of being burdened by the past. He was far happier about things that had gone successfully than cross about those that had gone wrong. Although humble enough to know he was not a perfect man, he was confident that his ideas were right. His favourite motto summed it up: "Truth and love must prevail over lies and hate." •
35
Also in this section 36 lllaois_b p_oli_tics' 37 LS_we_deo's S_odatD_e_m_ocr.at 37 J_u(key's row_wi_th_f.rance 38 'lisas_io_Eur_op .!.ba.de_m_agn_e i_s ooJl..oJid_a
For daily analysis and debate on Europe, visit Econornist.cornfeurope
Spain's new government
It's off to work he goes MADRID
Marian o Rajoy takes office at a dismal time for Spain
A FTER nearly eight years in opposition ./"\..Spain's conservative People's Party (PP) is back in power. But the ministers appointed by Mariano Rajoy, the new prime minister, are unlikely to be in the mood to celebrate. A shocking year for Spain, 2ou saw unemployment climb close to 23% and yields on sovereign debt break euroera records. Yet the PP's first year in office could be worse. Joblessness is still rising and growth will be anaemic; Luis de Guindos, the new economic-affairs minister, says that Spain is returning to recession. Speaking two months before Spain's general election on November 2oth, Mr de Guindos provided a handy list of the country's woes. "Spain has a big debt problem, a big real-estate problem, a big solvency problem in some financial entities," he said. That was not all. "It has a competitiveness problem and deteriorating public finances. Above all what makes Spain vulnerable is its unemployment." By splitting the finance ministry, Mr Rajoy has separated the two main economic tasks facing Spain. Mr de Guindos must chase growth. Meeting deficit targets falls to Cristobal Montoro, the new minister of the treasury and public administration. Mr Rajoy dislikes tax rises. So Mr Montoro will have to squeeze the regional governments, which are responsible for health and education, and where overspending has almost certainly prevented
Spain from meeting 2ou's budget-deficit target of 6% of GDP, which was agreed on with the European Union. Moody's, a credit-rating agency, believes that the target will be missed by more than one percentage point. Angel Laborda of Funcas, a thinktank, thinks it could be closer to two. Every extra percentage point on the deficit means an extra €1o billion ($13 billion) of tightening to meet 2012's deficit target of 4.4%. Even if the 2ou target were met, that would still leave €16.5 billion to be found to stay on track. Reducing the deficit by, say, €30 billion in one year without tax rises looks extremely difficult. By comparison the "Save Italy" plan announced by Mario Monti, Italy's new prime minister, amounts to €30 billion spread over three years (although the country has other austerity plans running in parallel). Mr Rajoy's first cabinet meeting, on December 23rd, did little more than appoint junior officials. Stronger stuff was expected from the next gathering, on December 30th. Mr Rajoy has already signalled where some savings will be made. The number of publicly owned companies and state foundations will be slashed. Overlapping areas of government administration will be brought into line. There will be a civil-service recruitment freeze. But the plan has holes. Much of the public sector, including the police and "basic services" (presumably health and edu-
cation), will be exempt from the freeze. And Mr Rajoy is committed to letting pension payments rise with inflation. Happily for him the Socialist opposition is in disarray, squabbling about who will take over the party leadership from Jose Luis Rodriguez Zapatero, the outgoing prime minister. The initial opposition to Mr Rajoy's government will probably come from the streets, in the form of tradeunion and indignado protesters. A decade ago a previous PP government, led by Jose Maria Aznar, backtracked on a proposed labour reform after unions organised a general strike. But with a big majority and his party in control of most of the Spanish regions, Mr Rajoy is in a strong position. He knows that the markets and Spain's European partners are watching. He also knows that Spain needs reform, not just austerity. Labour reform is the first test. Mr Rajoy has given the unions until mid-January to strike a deal with employers. That is unlikely to happen, so he will use his parliamentary clout to act alone by the end of March. The law needs to become clearer and simpler, especially for small businesses. "It is still easier to fire people than change their working conditions," says Salvador del Rey of the Cuatrecasas International Institute, a labour-law think-tank. "We need deep change, and then stability." Financial services are another priority. The Spanish banks rescued so far have turned up larger losses than they had previously reported. Mr Rajoy admits that some banks' balance-sheets contain "latent or hidden losses". Under new plans soured property assets will have to be sold or priced to market. That will usher in a fresh wave of consolidation. Mr de Guindos, formerly of Pwc and Lehman Brothers, knows this territory. The ~~
36 Europe
The Economist December 31st 2011
~ problem
is not as bad as some believe, he has said, but only transparency will prove him right. The government wants to act fast. Banking reform, Mr Rajoy has pledged, will be done by the summer. None of this will count for much if the euro zone goes into meltdown. Soraya Saenz de Santamaria, the new deputy prime minister and a powerhouse in Mr Rajoy's administration, says that her boss will personally oversee economic policy. Much of that work will be done at increasingly frequent summits of euro-zone leaders. Mr Rajoy has already said that Spain's structural budget deficits will be limited to 0-4% of GDP by 2020. That puts Spain ahead of the field in readying itself for the euro zone's coming fiscal treaty. To help him negotiate this new terrain, Mr Rajoy will be squired by two young lieutenants: Jorge Moragas, his chief of , staff and a former diplomat, and Alvaro Nadal, head of his economic office. Unlike Mr Rajoy both men speak English, and Mr Nadal knows Angela Merkel's Germany well. In his embrace of austerity and reform Mr Rajoy is talking Mrs Merkel's language. But will she listen if Spain needs her help? • Russia's protests
First we take Sal{harov Avenue MOSCOW
The capital sees its biggest dem onstration yet against the Kremlin 0 ONE knew whether Russia's protest
movement would fizzle or flare. But N when crowds of Muscovites streamed to a rally in the north of the capital on December 24th, the answer was clear. Police put the turnout at 29,000; the organisers said 12o,ooo people had shown up. Most estimates settled at around 8o,ooo, roughly double the number that attended a warmer protest a fortnight earlier. Both gatherings were a response to the results of a Duma (parliamentary) election crudely fixed by the Kremlin on December 4th. Officially, the ruling United Russia party, led by Vladimir Putin, the prime minister, won almost half the votes. That, reckon analysts, inflated the true figure by between 6% and 15%. Mr Putin is the lightning-rod for Russia's sudden craclde of discontent. His announcement in September that in spring 2012 he would reclaim the presidency from his one-term understudy, Dmitry Medvedev, promised more stale politics. He stirred anger after the election when he compared demonstrators to a tribe of unruly monkeys from "The Jungle Book" and their white protest ribbons to condoms.
Not quite, but it's a start It was a mixed crowd that shuffled
through snow to Sakharov Avenuenamed after a Soviet-era dissident- on December 24th. People carried inflated condoms or wore chimpanzee masks in response to Mr Putin's slights. On a stage emblazoned with the words "Russia will be free! " leaders of the anti-government opposition gave speeches. "We've been assured for decades that we are sheep," said Ilya Yashin, a leader of the liberal Solidarity movement. "But. .. we have shown the whole country, the whole world, that we are a free and proud people." Another speaker was Alexei Navalny, a 35-year·old lawyer and the heartthrob of the opposition movement. Mr Navalny was fresh from serving a 15·day prison sentence he was handed after a previous protest, but here he was in high dudgeon, suggesting that there were enough demonstrators to storm the Kremlin. Now what? Mr Medvedev has offered electoral reforms but they are too late for this cycle. In a cynical newspaper interview Vladislav Surkov, a Kremlin fixer, implied that he was in tune with the mood of change. "The best part of our society ... is demanding respect," he said. In a further sop, on December 27th Mr Surkov was sacrificed, losing his job to Vyacheslav Voladin, a United Russia man. But the regime can still respond with aggression when it chooses. On December 25th a judge sentenced Sergei Udaltsov, a radical protest organiser, to ten days in jail. It was the latest in a string of spurious detentions apparently designed to provoke supporters of the hunger-striking Mr Udaltsov into lashing out. Two days later Mr Putin ruled out a rerun of the Duma election, the protesters' key demand. After years of repression the opposition is in such disarray that no candidate can expect to defeat Mr Putin in March's presidential vote. The best it can hope for at this stage is to erode his authority. Mr Navalny
says it will hold more rallies and focus on the slogan: "Not a single vote for Putin." Waiting in the wings is Alexei Kudrin, a former finance minister and long-term Putin ally who surprised some by showing up on stage at Sakharov Avenue. Mr Kudrin suggested he could act as a mediator between the authorities and dissenters. But the opposition is sceptical, eager not to be tainted by contact with the ruling elite or with United Russia, dubbed a "party of crooks and thieves" by Mr Navalny. As Russia heads into its ten-day newyear torpor, the future is looking unpredictable. That in itself is progress, of a sort. • Danish politics
Helle's horrid honeymoon COP ENHAGEN
The new prime minister is already flailing
TARTING a new government is never easy. But Helle Thorning-Schmidt has had a surprisingly tough time of things since becoming Denmark's prime minister in October. A Voxmeter opinion poll published shortly before Christmas gave her Social Democrats 19.9% support- the lowest figure the pollster had ever recorded for the party that was Denmark's dominant political force for most of the 2oth century. The fortunes of the first Danish female prime minister began unravelling even before her cabinet was in place. Her first choice for the finance portfolio was briskly shuffled to the backbenches after failing to pass a security check. Other scandals fo llowed. The Danish press has jumped on tales of alleged sexual misconduct by prominent Social Democrats. The junior member of Ms Thorning- ~~
S
The Economist December 31st 2011 ~ Schmidt's three-party coalition, the Social-
ist People's Party, has also fared badly. Villy Sovndal, the foreign minister, has been slammed for wearing a crumpled suit to a meeting with Hillary Clinton, the American secretary of state, and for his poor English. The minister for business has been hounded by allegations (which he denies) that he had dodgy dealings with the Kremlin 21 years ago, when he briefly led the Danish Communists. Perhaps the most harmful development is a row over the tax affairs of Ms Thorning-Schmidt's husband, Stephen Kinnock (son of Neil, a former leader of Britain's Labour Party). Allegations that Mr Kinnock, who spends his working weeks in Geneva, had fiddled his taxes emerged before the election. An audit cleared him of any misconduct, but many Danes did not like what they saw of the first couple's complex tax arrangements. Members of the previous administration are now being investigated by a judicial commission for allegedly attempting to smear Mr Kinnock. Although the probe could see former cabinet ministers impeached, it is also harming Ms Thorning-Schmidt by keeping the controversy in the public gaze. Yet Ms Thorning-Schmidt's troubles run deeper than passing scandals. The opposition's attempts to paint her party as a serial breaker of election pledges have chimed with Social Democratic voters, who bemoan the dismantling of an earlyretirement scheme and the failure to impose a promised tax on millionaires. Other interventions, such as higher taxes on fatty foods, congestion charges in Copenhagen
Europe 37
and increased public-transport fares, are draining the government's popularity. The backdrop to this is a deteriorating national economy. GDP fell by o.8% in the third quarter of 2011, and growth is forecast at a sluggish 1%for both 2011 and 2012. Unemployment is climbing and banks are increasingly reluctant to lend. Although much of the trouble was racked up by the previous government, voters are taking it out on Ms Thorning-Schmidt. It is not clear how she will extricate herself from the mess. Denmark will hold the rotating presidency of the European Union for the first six months of 2012, but this may present more pitfalls than prizes. Danes' enthusiasm for the EU has plunged. One recent poll found that 6o% of respondents regarded it as incapable of tackling the debt crisis.]ust24% favour joining the euro. During its previous EU presidency, in 2002, Denmark led negotiations on the expansion into central and eastern Europe. But to day's EU is consumed not with grand new projects but with saving an old one: the euro. Not being a member of the currency, Denmark will have limited influence. Besides, the presidency is not the opportunity to shine it once was. At least that should free Ms Thorning-Schmidt to attend to her mounting problems at home. •
Watch your words I STANB UL
A French proposal to outlaw genocide-denial infuriates Turkey
EW Turks had heard of Valerie Boyer, a deputy for Nicolas Sarkozy's ruling UMP party in France. That was until she sponsored a bill that would make it a crime in France to deny that the mass killings of Ottoman Armenians in 1915 constituted genocide. On December 21st France's lower chamber approved the bill, which would make denying any officially recognised genocide punishable by a one-year prison sentence and a fine of € 45,000 ($59,000). Within hours Turkish hackers had defaced Ms Boyer's website. The deputy says she has been inundated with death and rape threats. (Separately, the Israeli Knesset has begun discussing whether to recognise the 1915 killings as genocide.) "This is politics based on racism, discrimination and xenophobia," thundered Recep Tayyip Erdogan, Turkey's prime minister, before announcing a set of sane- ~~
F
Sweden's Sodal Democrats
Fading charms STOCKHOLM
The party that once ruled Swedish politics is s truggling
AKAN ]UHOLT, leader of Sweden's opposition Social Democrats, has just concluded a two-month tour of the country. Fresh from a failed attempt to topple him following an expenses scandal, Mr Juholt was seeking to rebuild trust in his leadership and his party. It has not worked. One recent opinion poll found just 28% support for the Social Democrats, a record low for the party and a far cry from the 40% or more that it once took for granted. The Social Democrats were once the natural party of government in Sweden. They have been in office for 66 of the past 8o years. They introduced the country's famous cradle-to-grave welfare system, funded by high taxes. But since losing power to Fredrik Reinfeldt's centre-right coalition in 2006, the party has lost ground. Some think it may never recover. One reason is its fading appeal to Sweden's aspirational middle class. Critics say the Social Democrats are stuck on issues like welfare and sick pay. Mona Sahlin, the previous leader, agrees. "We cannot only be a party for when life is hard," she said after stepping down in March. "We also have to be a party for
H
Giving them Helle
Turkey, France and Armenia
people who have jobs and believe in the future." She tried to yank the party to the centre but its left wing pulled harder. Alliances with the Left Party and the Greens have not helped. Neither has the appointment of Mr Juholt, a compromise candidate barely known to voters when he won the leadership. A passionate speaker with a walrus moustache, he was expected to restore the party's core values. Instead he has made personal blunders and flipflopped on issues ranging from the shadow budget to whether Sweden should have sent fighter jets to Libya. To compound Mr Juholt's troubles, the government looks strong. Presiding over a growing economy and a small budget surplus- rare sightings in Europe- Mr Reinfeldt won re-election in September 2010. The Social Democrats will struggle to rival the government's economic credibility. Mr Juholt brushes aside his party's poor ratings, saying that the next general election, due in 2014, is the only poll that matters. That may be true for his party, but if he does not pick up support in 2012 he may find himself out of a job.
38 Europe
The Economist December 31st 2011 Visas in Europe
Keep out Europe's restrictive visa policies irk some big neighbours ARLY in December the Russian embassy in London hosted a "visa-free" barbecue to draw attention to the European Union's visa regime. Russia says the system contradicts the spirit of the 1975 Helsinki declaration, which pledged to make exit and entry easier. An EU/Russia summit a week later returned to the theme. Visa liberalisation is also a priority for Turkey, which has been relaxing the rules for many of its eastern neighbours. Given its economic problems Europe might be expected to solicit visitors. Yet both Britain and the 26-country borderless Schengen area make it difficult for outsiders to obtain visas. Forms are lengthy and complex, costs are high and applications can take months. Nationals of the western Balkans (bar Kosovars) can get short-stay visa waivers to enter Schengen. Romania and Bulgaria, both EU members, are hoping to join the area in 2ou. But Russians still need a stamp in their passports and must pay a fee (although residents of the Kaliningrad exclave have secured special arrangements to visit Poland). Thrks must pay €60 ($78) and wait in long queues outside consulates. Business visas can be issued more quickly but are rarely valid for more than a few days. Applicants to enter Schengen must provide a ream of documents, including proof of health insurance, travel tickets and hotel reservations. If they want to visit France they must produce their most recent bank statement; for Switzerland they will need a statement covering three months that includes a salary payment. Spain wants evidence of funds to cover €64 for each day of a visit, although pricey Finland is happy with €30 a day. One in 17 applications to visit the
E
No closer to resting in peace ~
tions. These included recalling the ambassador in Paris, banning French military aircraft and warships from landing and docking in Turkey, freezing political and economic consultations and deciding on a case-by-case basis whether to let French military aircraft use Thrkish airspace. Mr Erdogan has threatened to take further action should the French Senate approve the bill. Thrkish officials have ruled out trade sanctions because they would violate Turkey's customs union with the European Union, but have suggested that "consumers might take matters into their own hands." A popular Bosphorus fish restaurant soon declared it was no longer calling itself "Le Pecheur". France is Thrkey's fifth biggest trading partner. 1Wo-way trade is worth around $14 billion and France is lobbying to build a multi-billion nuclear plant on Turkey's Black Sea coast. French manufacturers account for a fifth of Turkey's lucrative car market. The chill in relations has been prompted largely by Mr Sarkozy's fierce opposition to Turkish membership of the EU. Expanding the club to take in a large, poor and Muslim country would dilute French influence. Moreover, Mr Sarkozy is facing a difficult re-election battle in the spring and may be seeking to exploit the genocide to court ethnic-Armenian votes. Not everyone in France is convinced by the merits of the bill. Alain Juppe, Mr Sarkozy's foreign minister, describes it as "unhelpful and counterproductive". But Turkey is hardly in a position to preach about free speech. Its own laws, in a mirror image of the French proposal, prohibit descriptions of the 1915 killings as genocide. More than 100 journalists are in jail, many of them on flimsy charges of
backing terrorism. As for Mr Sarkozy's manoeuvres, many Armenians would say they are no more cynical than Turkey's decision in 2009 to sign a set of protocols establishing formal ties and reopening borders with Armenia just as the United States Congress was gearing up to pass a genocide-recognition bill. In the event Barack Obama convinced American lawmakers to desist. Turkey promptly shelved the protocols, reverting to its old line that they could be enacted only if Armenia withdrew from territories it occupies in Azerbaijan. Yet civil-society initiatives between Turkey and Armenia are flourishing. Debate about the fate of the Ottoman Arme-
Schengen area is rejected. But not all destinations are equal. In 2010 Belgium turned away almost one-fifth of applications for transit and short-stay visas, whereas Finland rejected only 1.3%. Once a long-stay visa is secured for one country, short-stay rights apply to all. In 2010 Poland issued 7% of all Schengen visas, but as many as one-fifth of long-stay ones. France gave out 2.2m visas, the most of any Schengen country, but many had only limited territorial validity. Britain is even more difficult. A shortstay visa costs Russians €88 and Turks €92. For long-stay visas costs range from €390 to a staggering€875. An application can take two months to process. Why are the walls of fortress Europe so high? Officials cite security concerns. But few migrants who pose a threat seek to obtain legal visas. Europe is shutting out tourists and businesspeople- exactly the sorts it should be cultivating.
I
"! ,
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RUSSIA
\
0
Mediterranean Sea d'
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Iii Visa-free for 90 days
[J Visa required
Non-Schengen EU countries • Also includesIceland
nians in Turkey is louder and more vocal than ever. But the passage of the French bill has rekindled nationalist anger, and with it fears of reprisal among Turkey's tiny ethnic Armenian community. One of the loudest critics of the French law, which first came before parliament in 2006, was Hrant Dink, an Armenian newspaper owner who was murdered in Istanbul by an ultranationalist youth in 2007. Mr Dink had said that he was willing to be jailed in France for denying that the events of 1915 counted as genocide, just as he was willing to be jailed in Thrkey for saying the opposite. Healing the wounds of history was best left to Thrks and Armenians, he said, not to vote-mongering politicians. •
39
Also in this section 40 nglamts booze culturel 40 lsJumJandlo_rds' 42
~eho_t:_Oly_mpic_B..ritajo_v_toy_a.l
lBJitainl
For daily analysis and debate on Britain, visit Economist.comfbritain
Sin taxes
The high cost of virtue Britons are cu tting back on many vices. Unfortunately, abstinence makes the Treasury grow poorer
MAGINE a Briton's new year resolutions: he vows to stop smoking 20 cigarettes a day, forgo his daily bottle of claret and nightly whisky, and stop betting on football. Confronting his enlarging gut, he promises to make his ten-mile round-trip commute by bike, not car. He may even go walking at weekends. What admirable goals. And since this gentleman's annual vice bill comes to around £7,500 ($11,750) he will be well-rewarded for his virtue even before considering the effect on his health. But the 'freasury might rejoice a little less. More than half of that vice bill flows directly into government coffers. In the fiscal year 2010-u nearly1o% of all taxes collected came from duty on alcohol, tobacco, gambling and fuel as well as from vehicle excise duty, a tax that falls most heavily on the least efficient cars. Sin taxes have a long history as a fiscal wheeze: Parliament first introduced levies on beer and meat in 1643 to finance its fight against the Crown. Levies on alcohol have persisted: tax is now around 53P on a pint of beer, £2.18 per bottle of wine and £8.54 on a bottle of whisky. Tobacco was originally taxed as an imported luxury; today, duty on cigarettes accounts for about three-quarters of the price of a packet of cigarettes. Laziness is a harder sin to target, but one weapon against it is fuel duty: 23% of car journeys are of less than two miles, so walking or cycling are reasonable alter-
I
natives for at least some trips. Fuel taxes also target a greater ill- the exhaust fumes that contribute to global warming. Tax, including vAT, accounts for 63% of the price of petrol. New year resolutions are notoriously short-lived. But the longer-run trend looks bad for the exchequer. Because many vices are in decline, so are receipts. That pattern will continue, predicts the Office for Budget Responsibility (OBR), the independent fiscal watchdog (see chart). Smoking rates have been falling for decades. Some 45% of people smoked in the mid-1970s; now 21% do. High taxes are one reason. So are public health campaigns, changing social mores and a smoking ban in workplaces introduced across Britain in
I
Fall of duty Government receipts as% of GOP
2.5 FORECAST
2.0 1.5
- l
!!
2000
1.0 Tobacco
!! l l t l ! l l l l l l l l l l l !!
4 !!
lllll
05 10 15 20 25 Financial years beginning April
Source: Office for Budget Responsibility
29
0.5
0
2007. The OBR predicts that tobacco receipts, now o.6% of GOP, will supply half of that by 2030. The government could respond by increasing sin-tax rates. But when duties rise so do the incentives to get around them, by buying abroad or on the black market. This is particularly common with cigarettes, which are easy for individual smokers to import. In 2000 non-duty consumption reached a peak of 78%, according to the Tobacco Manufacturers' Association- a consequence of the weak euro as well as a sudden increase in taxes of inflation plus 5%. Declining gambling receipts reflect a similar problem: many operators have moved parts of their business offshore to escape high British levies. Petrol taxes are leaking more quickly. As with smoking, behaviour is changing: car and van mileage has fallen for four consecutive years, partly because petrol is so expensive. And new vehicles have better engines. In 2000 the average new car did 34.6 miles to the gallon. Last year it achieved 44. These trends, as well as the rise of electric and hybrid cars, are forecast to compress receiptsfrom1.8% of GOP in2010 to justl.l% in 2030. Vehicle excise-duty receipts are also expected to decline. Yet because oil prices have also pushed up pump prices, increasing the duty to compensate for greater efficiency is politically toxic. Under attack from newspapers and Conservative backbenchers, George Osborne, the chancellor, waived the 3P of rises planned for this financial year. The exchequer cannot even rely on Britain's culture as a nation of boozers (see box on !next p~e). Drinking increased in the 1990s but has been going down since 2002, says the Office for National Statistics. Still, the OBR forecasts that alcohol duties, which accounted for £9.5 billion in 2010-n, will fall more slowly as a proportion of the ~~
The Economist December 31st 2011
40 Britain ~..,
England's booze culture
Always with us Binge drinking used to be the height of fashion
HE debate about problem drinking and how to stop it nowadays centres mostly on the working-class young. They are highly visible- and audible- as they clog city centres on Saturday nights. But a chapter in a forthcoming book, "Intoxication and Society", by Philip Withington, a Cambridge historian, argues that it was the educated elite who taught Britons how to drink to excess. In the 17th century, England experienced a rise in educational enrolment unsurpassed until the early 20th century. Illiteracy declined and the universities of Cambridge and Oxford, as well as the Inns of Court and Chancery where barristers learned their craft, brimmed with affluent young men. This was the crucible in which modern drinking culture was formed. Mr Withington's description of 17thcentury drinking practices will sound familiar to anybody who has been within a few miles of a British university. It was characterised by two conflicting aims. Men were to consume large quantities of alcohol in keeping with conventions of excess. Yet they were also supposed to remain in control of their faculties, bantering and displaying wit. Students and would-be lawyers formed drinking societies, where they learned the social- and drinking- skills required of gentlemen. A market in instruction quickly emerged. Miscellanies filled with jokes, quotes and fun facts proliferated, promis-
T
ing to teach, as john Cotgrave's "Wits Interpreter" put it, "the art of drinking, by a most learned method". Mirroring the standardisation of language after the invention of the printing press, codes of intoxication were disseminated to a wider audience as society became more literate and censorship declined. Outside London, ritualised heavy drinking arrived not just in pamphlet form but also in the shape of returning sons as men of influence. One story unearthed by Mr Withington involves a cleric and two lawyers in Yorkshire. Sitting in an alehouse, the trio "began to be merry" in a manner that started with a faux-Latin competition and ended with the cleric's penis hanging out of his trousers while one of the lawyers burned it with his pipe. Although intoxication was a classless pursuit in the 17th century, it was the privileged who turned it into a cultural phenomenon. The affluent are still boozy. The Institute for Fiscal Studies, a think-tank, finds that 83% of the richest one-tenth of households by expenditure regularly buy alcohol, compared with just 29% of the poorest one-tenth. Fiona Measham, a criminologist at Lancaster University, has used surveys to show that British women in managerial or professional jobs drink more alcohol overall and at a sitting than do women in lowerpaying jobs. The wit is still there, tooalthough it is likely to seem funnier after the listener has had a few drinks as well.
• tax take than tobacco or fuel duties. There are, of course, advantages to Britons giving up their filthy habits. Smoking is the leading cause of preventable illness and premature death in Britain. It cost the National Health Service more than £5 billion a year in 2005-06, some 5.5% of its budget at the time, according to an Oxford University study. Giving up saves money as well as lives: there were 1,200 fewer emergency admissions for heart attacks in the first year after the smoking ban was introduced in England, according to a 2010 paper in the British Medical Journal. But any benefit to the NHS may be short-lived. Those who do not perish from diseases associated with smoking are likely to die more slowly of age-related illnesses. Sin taxes are often a rather inaccurate weapon, too. Although high alcohol duties have helped to cut overall consumption, they have not stopped Britons from bingeing. Whereas smoking causes ill-health in the long-term, a single night of excess can land a boozer in accident and emergency. Alcohol-related hospital visits are typically shorter, cheaper and still less frequent than tobacco-related ones. But, worryingly, the number of drink-related admissions doubled between 2003 and 2010. In moral terms, a decline in sin tax receipts suggests a job well done. But in fiscal terms, a hole is a hole. As the OBR sees it, falling Treasury income means Britons will be getting, in effect, an unannounced tax cut. Other taxes could therefore rise without leaving people worse off in aggregate. The maths makes sense. For the virtuous, though, being clobbered with new taxes may seem a rather poor reward. • Slum landlords
Down and out in London New ham cracks dow n on Dickensian housing conditions
EW tourists find their way to the borough of Newham in London's East End, though that will change in 2012 when the Olympic games arrive. Tucked between Tower Hamlets and the Thames, Newham is a poor place, the second most deprived local authority in England. Its people have long been diverse and transient, many of them immigrants who came to escape persecution, or to work in its docks and factories, and left when they could. Today only about a third of Newham's residents are white Britons, and almost one in three residents has moved in since 2007. High Street North in East Ham is a dizzying melange of South Asian fabrics, Polish stores, Africans clustering outside telecoms shops ••
F
The Economist December 31st 2011 ~ and room-for-rent notices in Tamil.
Given the low levels of income and high levels of churn, it is no surprise that housing is a particular problem in Newham. The borough has a roughly ten-year wait for public council housing. There is high demand for private-rented homes, which account for about one-third of Newham's stock of housing. Despite the economic slump, rents are rising by about 6-7% a year. Yet many of the properties are scandalously inadequate. One such is in Latham Road. The blue garage door in a street of two-storey terraced houses gives no indication that people rather than cars are housed within. Access to living space totalling at most six metres by four, all of them visibly damp, is through a dilapidated lavatory. A small frosted window above a rickety strip of kitchen gives what little natural light there is. The double bed takes up most of the rest of the floor, with a table jammed next to it holding a laptop and a printer. On these machines Shaheen Akhter Hamid, a university lecturer in her native Bangladesh and in Malaysia, produced 1,000 flyers to push under neighbouring doors, vainly advertising her services as a tutor. Mrs Hamid and her half-British husband moved to England this year to be near his elderly mother. They agreed to pay £350 ($547) a month for the garage, plus electricity, and handed over £1,100. Within 15 days everything was broken, they sayshower, toilet, oven. The landlord neither fixed the appliances nor returned their money when they found another place to live. Newham council inspected the property and deemed it unfit. On December 9th the landlord issued an eviction notice. Others are even unluckier. Among Newham's horror stories is the small house in Forest Gate where inspectors found 32 people living last summer (another trip to the area on December 13th revealed u people sharing a single room). A commercial refrigerator in Romford Road was housing two. "Where you have lots of desperate people there are lots of opportunistic crooks," says Toby Lloyd, director of policy at Shelter, a charity. Newham's housing problems are extreme. But the borough also signals a bigger, and growing, problem. Throughout Britain, private landlords are absorbing all the pressure in the market at a time when council housing is harder to get, not many homes are being built and fewer people can raise the money to buy a home. In 2010 the private-rental sector provided 17% of all accommodation in England, up from 9% in 2000. Things are likely to get rougher as central-government cuts to housing subsidies come into full effect next year. Other welfare reforms too will probably push people from the pricier parts of London into places like Newham. The borough is cracking down on rogue
Britain 41
landlords. Officials have started bringing cases under the Proceeds of Crime Act, designed for use against drug dealers and the like, which allows stiffer penalties including prison sentences. Five cases have gone all the way, with the biggest recovery to date over £62,ooo (the council gets to keep less than half). There are 45 cases in the works, and Newham is out looking for more. Scrutinising aerial photographs for signs of inhabited outbuildings, its gumshoes have inspected 13,000 properties since October. Another section of town will be overhauled in January. Like other local authorities, Newham wants to use planning rules to restrict sharply the conversion of family homes to "houses in multiple occupation". The results of a consultation on the matter are due to be presented in January. It is also consulting on setting up mandatory licensing of all private landlords throughout the borough. If this goes ahead, it will be the first such scheme in England. No room at the inn For Sir Robin Wales, Newham's mayor, these moves are part of a bigger plan. Newham has an opportunity, thanks partly to money pouring in before the Olympics, to become a place where people put down roots. This means making sure there is decent housing (as well as jobs) available. As for what happens to people who lose their homes, however appalling those may be, "that is not my responsibility," he says. "All we can do is squeeze the supply here until a reasonable number of people are living in reasonable accommodation." Is Newham right to throw the book at private landlords? Some argue that basic accommodation fills a need. Some young male migrants choose rock-bottom properties in order to save money. Others point out that the sector attracts rogue tenants as
well as rogue landlords. "There are multiple examples of sharp practice on both sides," says Julie Rugg of York University, the author of a study commissioned by the previous government. Landlords complain about rent arrears, damage to property and anti-social behaviour. A third argument is that landlords can sort out problems on their own. The poor condition of many private rental properties reflects their age; standards are rising as newer homes come on the market. Over-regulation in the past arguably led to the dwindling of rented accommodation, which was in no one's interests. The government has made clear that it wants the private-rented sector to expand, and as far as possible to regulate itself Considered from inside the Hamids' mouldy garage, these arguments are not persuasive. The property is not so much cheap as degrading. It is not just able-bodied young Poles or Tamils who are moving into garden sheds and boxrooms; over 1m families with children are now in privately rented properties in England, a good many of them substandard. And less than a fifth of landlords have so far joined avoluntary accreditation scheme in Newham. It is precisely because of the soaring demand for cheap private housing that Newham and other like-minded boroughs need to crack down on offending landlords. They should be tough on themselves, too. Local authorities are large and frequent purchasers in the privately-rented sector- Newham spends about £12om a year subsidising rents for poor peopleand should make sure they inspect the properties they send people to. When demand outstrips supply against a background of profound housing need, tough action is required. Especially when the Olympic games are bringing millions of visitors to the doorstep. •
To let: bijou residence, airy and well-ventilated, patio garden
42 Britain
The Economist December 31st 2011
Bagehot Olympic Britain v royal Britain The risks and rewards of hosting the 2012 Olympics and a royaljubilee in austerity Britain
RITISH voters are braced for a horrible 2012: the country nearly tops international rankings for economic pessimism. But David Cameron has a cheerier plan- a couple of parties to hold off the gloom. Though his coalition government also expects a tough year, ministers hope that the public mood will be lifted by the Diamond Jubilee marking Queen Elizabeth II's 6o years on the throne and, a few weeks later, by the London Olympics. Together, these events should dominate the summer. The festivities should serve a dual purpose, the prime minister wrote in an end-of-year letter to Conservative members of Parliament: they must celebrate what is "already great" about Britain, and show a watching world that the country is open, strong, confident and "moving forward to a better future." Amid grumbling from Londoners about the cost and inconvenience of hosting the Olympics, the capital's mayor, Boris Johnson, has urged people to recall the 1948 "Austerity Olympics", hosted by a London so pinched by post-war rationing that alarmed French officials sent to Paris for food. In the run-up to the 1948 games, the London press was filled with calls for their cancellation, yet they were a triumph, says the mayor. Add on the Diamond Jubilee in June, and London will enjoy a "summer like no other", promises Mr Johnson, a Conservative (and something of a rival for Mr Cameron) who is seeking re-election in the spring, weeks before the festivities kick off. Yet politicians are being glib if they present the 2012 London Olympics and Diamond Jubilee as almost a single event, offering a summer of cheer to hard-pressed voters at home as well as a chance to show off to the world, "putting the great back into Great Britain", as one minister puts it. The country is in an odd mood. There is no national consensus about what Britishness means. And the summer's two set-piece events will present quite different accounts of the nation. The Diamond Jubilee, an historical rarity last seen inl897, unfashionably celebrates a hereditary elite. Yet, oddly, it is so far proving less contentious than the Olympics, a popular festival of global sport and celebrity. Start with the question of Britishness. A discussion of the merits of a monarchy, from first principles, must wait for another day. But at a time when the political union of England with
B
Wales, Northern Ireland and especially Scotland is fraying, royal bonds are proving more flexible than sporting ones. Alex Salmond, the pro-independence first minister of the Scottish devolved government, has embraced the Diamond Jubilee, agreeing to a long weekend of celebrations in June coinciding with festivities south of the border. Mr Salmond- whose Scottish National Party (SNP) secured a majority at Scottish elections in 2on- has already said that an independent Scotland would keep the queen as its monarch,just as she is queen of Canada and Australia. Part of this is intended to reassure his voters, many of whom would probably prefer big new transfers of powers to outright secession, at least for now. Partly, Mr Salmond is making mischief: he recently suggested that Scots enjoy a special, less class-ridden relationship with the royal family, so that there is a "better case" for an English republic than a Scottish one. In contrast, Mr Salmond's SNP has used the Olympics to stoke Scottish grievances, disputing the idea that the games are a national event and demanding millions of pounds in "compensation" from the British government, under a formula that links spending levels in England to those elsewhere in the British Isles. Though Britain fields a unified team at each Olympics, the SNP has denounced talk of inviting Scottish players to play for the Team GB football squad at the London games. It is the same story when it comes to presenting Britain to the world. To borrow Mr Cameron's formulation, the jubilee will be about celebrating what many Britons feel is "already great" about their country, from its history to its democratic stability, the second world war (in which the queen served) and its flair for ceremony. It will be Britain's event, to which others will be invited. The Olympics will show the country in a different light. The games will be the world's event, at which the British will dream of coming fourth in the medal tables. London will function rather like a global concierge, providing services to a hyper-mobile sporting elite. It is good at this sort of thing- London already provides services to a hyper-mobile finan cial elite. But, following the credit crunch, there are many in Britain who resent that role.
Gold medals or crow n j ewels? Perhaps the greatest irony is that the royal jubilee may have a better chance of navigating the British public's deep rage at high-level extravagance and abuses of power. The monarchy is hardly an egalitarian's dream. But it can draw on centuries of historical and material capital to put on a decent show with little fresh outlay. The jubilee promises a distinctly homely grandeur, tailored to austerity Britain. Beacons will be lit, the queen will ride the Thames in a pleasure cruiser disguised as a royal barge with flowers from her gardens, street parties will be encouraged and a wood will be planted in Leicestershire. The Olympic movement, a juggernaut controlled by an unaccountable sporting elite, is less flexible. The danger signs are in place, with newspapers reporting on the five-star hotel rooms reserved for foreign Olympic bigwigs and the miles of special traffic lanes that will be reserved for Olympic V IPS. Perhaps sporting success will neutralise public resentment, and the country will feel only pride at hosting a splendid games, fuelling new confidence in Britain's future. But, for now, the Olympic debate revolves around material costs and benefits rather than glory. If you want certain cheer, bet on a celebration of Britain's past. • Economist.comfblogsjbagehot
43
Muslims and the Koran
Also in this section
In the beginning were the words
44 lBible_critidsml
Muslims revere the Koran. But its study is not taboo-and is in some quarters increasingly daring ELIGIONS invite stereotypes, holy texts even more so. Non·Muslims often see Islam as a faith followed by people who hew so closely to an unchanging set of words that they ignore awkward new facts sooner than contradict its message. For critics, this attachment to a text encourages extremists-like Boko Haram, a group that in December attacked Nigerian churches: hotheads can generally find a passage that seems to justify their violence. Such passages abound in the Koran, just as they do in the founding texts of Christianity, Judaism and many other religions. There is also a long tradition of interpreting such verses in reassuring ways. For example, it is often stressed that the Koran's injunction to "slay the unbeliever wherever you find him" relates to a specific historical context, in which the first Muslims were betrayed by a pagan group who had signed a truce. But when it comes to parsing holy writ, there is one big difference between Islam and most other text-based faiths. Barring a brief interlude in the ninth and tenth centuries, and a few modern liberals, Muslims have mostly believed that the Koran is distinct from every other communication. As God's final revelation to man, it belongs not to earthly, created things but to an eternal realm. That is a bigger claim than other faiths usually make for their holy writings.
R
The Koran may be interpreted but from a believer's viewpoint, nothing in it can be set aside. Yet, at least in the calm, superfi· dally courteous world of Western academia, debating the precise text of the Koran is increasingly common- as at a conference hosted by the School of Oriental and African Studies (SOAS), part of the University of London, in November. One organ· iser was Muhammad Abdel Haleem, an Egyptian-born professor who has translated the Koran into stylish modern English, drawing acclaim from many, but grumbles from purists. Other contributors included a professor from Turkey, and a scholar based in Iran. But most were non-Muslims who study the text as they would any other written material-as prose whose evolution can be traced by comparing versions. New techniques, such as the use of digital photography, help compare variations and solve puzzles. All participants implicitly accepted the idea that methods used to analyse Homer, say, or German myths might elucidate the Koran. In much of the Islamic world, even the agenda of such a meeting would be controversial. What can be debated in most Muslim countries differs hugely from what is discussed in the West. Staff at a Londonbased Islamic research body, the Institute for Ismaili Studies, have ranged from radicals like Mohammed Arkoun, a leader of
the French deconstructionist school, to traditional Sunni or Sufi scholars. They follow the trail of al-Suyuti, a 15th-century Egyptian who accepted the existence of slightly different versions of the Koran. Such diversity under a single roof would be impossible now in Karachi or in Cairo, the bastion of Islamic scholarship. There, the interpretation of Islam and its history is strictly a task for believers. NonMuslim offerings would be called "orientalism", based on colonial arrogance. Muslims in such places who take a different view face not only academic ostracism but physical danger. Egypt's leading advocate of a liberal reading of the Koran-Nasr Abu Zayd, who died in 2010- was denounced as an apostate, forcibly divorced from his wife and had to spend his later life abroad. The rise of Islamism in Egypt offers no prospect of a friendlier climate. Meanwhile, scholars in Europe, stimulated by the manuscripts in great European libraries, are working hard to find out how and when the Koran's written form was standardised. In America more effort has gone into relating the Koran to what is known from other sources about political and social history. Patricia Crone, of Amer· ica's Institute for Advanced Study, once argued that Islam originated in a revolt by Semites against Byzantine and Persian power. She has revised her views, but ~•
44 International ~ copies of her 1977 book "Hagarism" change
hands for hundreds of dollars. A burst of new Koranic scholarship erupted at SOAS in the198os. These days, it is one of several British campuses where scholars say they find it hard to get funding for work that threatens orthodoxy- a change they ascribe to the influence of conservative Saudi donors. But in France, the home of literary theory, and Germany, the fatherland of textual analysis, freeranging study of the Koran continues. If you want to argue that partial versions of Hebrew and Christian stories are visible in the Koran, or that its historical portions are inaccurate, nobody will stop you. Most Muslim children are told that they need lmow only one thing about the Koran's origin: that it was revealed over a period of 23 years by the angel Gabriel to Muhammad. But Islam has more to say than that. A well-known narrative tells how the fourth ruler of the Muslims, Caliph Uthman, realised that several variants of God's revelation were circulating, and established a single version, ordering the destruction of all the others. Non-Muslim scholars, too, see signs of a conscious, but not wholly successful, effort to settle on a definitive form. The continuing variations are not all trivial. Dots over a single letter can change the tense or person of a verb, notes Keith Small, an American participant in the SOAS event. His book, "Textual Criticism and Qur'an Manuscripts", says efforts to standardise went on for four centuries after Uthman. Before the beginning Excitement surrounds the study of some Koranic material found in Yemen in 1972. Early analysis of images of these folios suggests some may precede the first big standardisation. This study is being undertaken in Germany, not Yemen. But in the light of the Uthman story, the survival of divergent early material (which escaped the standardisers' efforts) need not be unbearably shocking. After all, Islamic tradition also credits Muhammad with accepting at least seven oral versions of the Koran, albeit differing only a little. Turkey and Iran stand out as mainly Muslim countries where, in academia at least, it is possible to talk about the Koran's textual origins. Turkey's secular constitution helps to safeguard free inquiry. Ankara University and Istanbul University still reflect the rationalist ethos of a secular republic; the Islamist tone of Turkey's present government affects newer campuses. If Iran is a little more open than most Arab countries, that is because of Shia Islam's stress on theology, and the interpretation of texts, as a continuous enterprise. A Paris-based Shia writer, Mohammad Ali Amir-Moezzi, has caused a stir recently by arguing that the Sunni/Shia split was really over the text of the Koran.
The Economist December 31st 2011 Most Shias would say this overstates the schism. On core beliefs Iran's Shia clergy remain united: they agree that the text they now have is exactly what Muhammad was told. Such tenacity is a reminder that if people expect Islam to change into something like liberal Christianity- treating scripture as a useful but fallible aid to belief- they are wrong. As Mustafa Akyol, a Turkish writer, says: "If you say the Koran is a human text, then you cease to be Muslim." Over hadiths, sayings about Muhammad's life, there is flexibility; some can be weeded out as unsound or outdated. But nothing in the Koran can be dismissed.
Yet some attitudes can shift, Mr Akyol adds. His book, "Islam without Extremes", cites slavery as an issue where the Koran's words can be reread. The text favours freeing slaves, but does not demand the abolition of the practice. "Does that mean God condones slavery, or that God spoke within the norms of the seventh century which are open to change?" he asks, noting that several Muslim theologians have said the latter. As it happens Christians have made similar points, picking over the words of Saint Paul. Islam, like Christianity, offers rigidity for those who yearn for it. But it leaves room for nuance too. •
Textual criticism
Believe it or not For most Christians, scholarship illuminates the Bible, rather than undermining its message
URN a lens on a familiar text- or better still, on several similar but not identical versions of a story- and all manner of unexpected insights will pop up: not necessarily about the apparent subject matter, but about who wrote the material, for whom and why. That approach was first used by German scholars, and then British ones,just over a century ago, on the texts sacred to Christianity, using techniques honed on the writings of Greece and Rome. From small differences in the four Gospels, they drew big conclusions. Matthew speaks of a lamp giving light to "all those in the house"; Luke speaks of a lamp to guide "those coming into the house". For Martin Dibelius, a German scholar, that was one clue- among many- that the material collected by Matthew was prepared for a Hebrew public, who were in a sense already illuminated; Luke's words were aimed at "Gentile" newcomers. Dibelius reckoned the Gospels were collections of mini-sermons, collated rather than written by the Gospel authors; and he tried to work out who the target audiences had been. Christians were initially uneasy with
T
I
such academic scrutiny. The Vatican only dropped its objections to critical scholarship after the second world war; Pope Benedict XVI, for example, might challenge the scholars' conclusions but he would not object to their method. Many evangelical Christians still stress the "inerrancy" of the Bible and feel that apparent inconsistencies can somehow be reconciled. In these circles the very word "criticism" when applied to the Bible raises eyebrows. But few people could deny that the holy texts of Christianity have a complex literary and political history, in which certain bits were included or rejected after bitter argument; nobody could claim they are the fruit of a single flash of revelation. The more complex the better, some Christians reckon. A learned Anglican bishop, Brooke Westcott, sniffed in the 1890s that in more or less standardising the Koran, Caliph Uthman had "provided for ... uniformity at the cost of ... historical foundation." As a good classicist, Bishop Westcott loved poring over divergent texts and fitting them together like a jigsaw. For better or worse, the scribes of Islam denied him that rarefied pleasure.
Wholly writ Sacred texts and thei r surroundi ng con troversies Religion
Text
Doctrinal view
Scholarly critique
Hottopic
Christianity New Testament
Many authors, all Gospel accounts clash, Were Dead Sea scrolls divinely inspired not all epistles by St Paul held by proto-Christia ns? ........................~ · ········ ··· · · ··· · · · · ·· · · · · · · ··· · ·· . h·······································.-·············. . ·· · ·· · ····· · ······· · ··· · ·~·· · · ·· · · Judaism Ta nakh* Early books Ahistorical, reflects early Was Exodus historical? pagan influences revealed to Moses Islam Koran Dictated by an angel Influenced by early Jewish Do early Koran versions and Ch ristian texts suggest.......................... multiple authorship? to Muhammad ... ...................... .. .. ........ ................................ .. ' ...................................... . ............ .. Hinduism Upanishads Divinely revealed Legitimises caste system Were Rama and Sita "cosmic sound of truth" spouses or siblings? .................................................................................. ................................................................... . . . . .. . .
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45
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For daily analysis and debate on business and our weekly" Money talksn pod cast, visit Economist.comfbusiness-finance
Infrastructure in India
Infrastruggles
MUMBAI
One of India's most important industries has a knackered balance-sheet
0
NE recent evening in Mumbai a tangerine Lamborghini could be seen taxiing past a sign prohibiting bullock carts, wheeling left and then letting rip on the Sea Link toll-bridge, one of the city's few bits of decent infrastructure. For three miles all the driver's Michael Schumacher fantasies must have came true. But by the fourth he drove off the bridge back into reality: roads whose surfaces often wash away during the monsoon and whose repair is said to be in the hands of mafias. The supercar returned to rickshaw speed. For the past half decade India's infrastructure industry has enjoyed a Sea Link moment; a blast of growth when one could imagine that the private sector could deliver all the new roads, bridges, power stations and airports that the country needs so badly. The government says the boom will continue. Over the next five years it predicts that infrastructure investment will reach a new high relative to GDP, with some $1 trillion spent, half of it by the private sector. The trouble with this rosy prediction is that the balance-sheets of many Indian infrastructure firms are as potholed as the roads they resurface. The backdrop is a slowing economygrowth has dipped below 7%- and a deep ditch of debt at infrastructure firms (which typically build, own or operate projects, or do a combination of the three, sometimes in partnership with the state). Government decision-making has slowed, partly
due to drift at the top and because officials are scared of being accused of graft. All this has led to a "triple whammy" of distress, says Vinayak Chatterjee of Feedback Infra, a consultancy and engineering firm. First, new business has all but ground to a halt. Larsen & Toubro, one of the biggest infrastructure and engineering firms, saw a 2% quarter-on-quarter rise in its domestic order book at its last set of results. This is much less than it is used to.
Money pits Second, cash flows are under strain. Firms get paid when they begin a project and when they reach milestones towards finishing it. Banks and investors are reluctant
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to hand over more funds. Finally there are worries about long-term profits. During the boom, firms bid recklessly for contracts (including an extension to the Sea Link bridge, won by the Reliance Group, run by Ani! Ambani). With high interest rates and inflation a number of these deals may turn out to be duds. Some completed projects, including Delhi's new airport, are losing money. The warning lights are flashing. But figuring out exactly what is going on is not easy. The industry is fond of financial engineering that has a whiff of sub prime about it. Individual projects- for example an airport, power plant or stretch of road-are typically put in special-purpose vehicles which issue non-recourse debt. Infrastructure firms, which are often listed, have several kinds of links to these vehicles. In their accounts they may consolidate them on their balance-sheet, or, if they do not con· trol them, treat them as investments. The result is dauntingly complex. Taking six big infrastructure firms' disclosures in their annual reports, it is possible to find no fewer than 531 subsidiaries, joint ventures or associated entities. It gets more fiddly. Firms may lend money to projects they own no stake in and to contractors. They invite in minority investors at multiple levels in their holding structures, including private-equity funds that may use debt to finance their purchases. And overlaying all this is sloppy disclosure and a habit of focusing on firms' "stand-alone" accounts. Roughly speaking, these try to capture the core business, pretty much as defined by the managers, rather than the "consolidated" accounts which try to include all subsidiaries and investments, warts and all, and which are the accounting benchmark globally. Those consolidated figures are at least published annually (and more frequently ~•
46 Business
The Economist December 31st 2011
~ by
some noble firms) and are the best guide to what is going on. Take 70 or so listed infrastructure firms from the BSE-500 index, broadly defined to include power, telecoms, construction and asset owners, and the effects of the boom are plain to see. Leverage has risen dramatically (see chart on the previo.us page). Just over half of these firms had ratios of net debt to gross operating profits (or "EBITDA") of over three times last financial year, and/or have net debts in excess of their current market value, two rules of thumb to identify knackered balance-sheets. Thanks to heavy investment, the 70-odd firms were cashflow-negative (defined as EBITDA less capital expenditure) to the tune of $12 billion. Assuming a 12% interest rate, their accounting operating profits last year only just exceeded their interest costs. Exclude state-owned and telecoms firms and leverage is worse (see table). From public disclosures it is impossible to work out the liquidity position of these firms, but it is likely that most will have to refinance existing credit lines in today's far less forgiving world, a process not helped by high local rates and a weak rupee. It looks like a mess. Shareholders have taken a beating, with the market value of those 70-odd stocks having fallen by some two-fifths since March 20n. India's banks may be next in line for a thrashing. TheReserve Bank of India (RBI), the regulator, reckons they have 13% of their loan book in infrastructure (vaguely reassuringly, the RBI'S implied absolute debt figure roughly matches the $130 billion of gross debt of the 70 listed firms). Thus far non-performing loans are low-so low it suggests banks are fibbing. But the RBI is probably right that a rickety infrastructure sector does not endanger the banking system. What it does endanger is India's growth prospects. Those new airports, roads and
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Builders oflndia Leverage of big private-sector infrastructure firms•, end of latest financial year Net debt, Sbn
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bridges are essential. And the country does not need financial zombies, slashing their investment in order to shore up dodgy balance-sheets. Some reckon the solution is to develop a bond market, so that more debt can be raised. But while a more sophisticated capital market might mean more funds available and might even reduce the amount of financial engineering going on, it is not the solution to today's predicament. Instead, two things need to happen. The government needs to unsnarl stalled projects. And infrastructure firms need to raise lots more equity- not debt. That might dilute the stakes which are held by some of the magnates who control these businesses, but would be a fair price to pay to resuscitate the balance-sheet of a vital industry. Even on selfish grounds it makes sense, hastening the day when an honest Indian oligarch can at last put the pedal to metal in his supercar for more than three miles in a row. • The rise of co-working
Setting the desk jockeys free Another alternative to the office
INE hours of isolation or 30 minutes trapped by the office bore? The attentions of the boss or the distractions of daytime TV? The choice between slogging to the office and working from home can be pretty unappealing. For increasing numbers of people, the answer is "co-working". The concept of co-working is elastic but at its broadest means working alongside, and often collaborating with, people you wouldn't normally. Users book a space in a co-working office, plonk themselves down where they can and start beavering away. (Opening the laptop in a Starbucks is not quite the same thing: enough stick-in-themuds go to coffee shops to drink coffee that it is not a proper working environment.) The idea first surfaced a few years back, but according to Steve King of Emergent Research, a California-based outfit, it reached an inflection-point about 18 months ago. The absolute numbers are still small: Mr King reckons there are now around 760 office-based co-working facilities in America, up from 405 in 2010. Their rise is fuelled by several things, including technologies such as cloud computing; more women and freelancers in the workforce, which means greater demand for flexible work arrangements; and economic pressure on firms' property costs. Nor is the trend confined to office workers. An organisation called BioCu-
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Oh for a co-worker rious recently opened a community biology lab in California's Bay Area. Budding chefs share kitchens; communal workshops known as "maker spaces" are springing up too. Some co-working spaces are dedicated facilities, others are set up within business incubators or company offices. Campbell McKellar, who runs a website called Loosecubes where people can find spaces to work, says that 65% of the 2,800 workplaces available are inside small, private companies with desks to spare. Creative and media businesses with a culture of bringing lots of people together to work on specific projects are heavily represented among both users and space providers. New co-working chains are emerging, with names like The Hub and NextSpace. More established firms have also cottoned on to the trend. Regus, a big provider of managed office space, has a product called Businessworld that offers cardholders flexible access to its facilities. Mark Dixon, Regus's boss, likens it to having airport business lounges in city centres, and says that products like this already account for 20% of the firm's revenue, up from almost nothing before the financial crisis. Purists are sniffy about the likes of Regus. Generation Y-ers do not aspire to work in airport lounges: Loosecubes offers people a choice of working atmospheres that include the "hacker vibe" (black Tshirts and not much in the way of light, apparently). The benefits of collaboration are stressed. One strand of the co-working movement is the "jelly", an informal event, often held at specific times of the week, where people gather to work together. Coworking evangelists also emphasise the role of each facility's "host", a person who organises social events for users, introduces people to each other and spots opportunities for collaboration. Still, there should be room for many different styles of co-working, particularly if it takes off among larger companies. Some big firms are trying to soup up innovation by getting people to co-work internally: the striking new Sydney offices of Macquarie, ~~
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InTUIT. Payroll
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bank, have no personal desks and emphasise collaborative working. Others have already started shedding their own properties: Yell, a directories business, is now using Regus memberships to give its salespeople in Britain access to office space when they want it. Drew Jones, co-author of a book on co-working, thinks that there is scope to turn empty retail space in the suburbs of big cities into large co-working facilities . Compared with city-centre offices, these would take less time for people to commute to and cost less for firms to buy or rent space in. None of this signals the end of the conventional office. Corporate cultures move slowly, for one thing. Managers worry about how to deal with issues such as confidentiality. Some job functions will always benefit from being in one location. But co-working multiplies the options that people have when they ask themselves: "Where shall I work today?" For that reason alone, it will keep spreading. •
American business
Hard times, lean firms NEW YORK
How much longer can America keep increasing productivity? VERYONE complains that corporate America is reluctant to hire additional workers. Far less attention has been paid to the flip side of the jobless recovery: theremarkable improvement in American productivity. How long can this continue? "I see no limit," says William Hickey, the boss of Sealed Air, a packaging-maker. Is he right to be so optimistic? American firms were slow to react to the downturn at the beginning of the century, and paid the price. They learned their lesson. W hen the economy slumped in 2008, they were much quicker to adjust. There was little of the fall in labour productivity that normally accompanies a recession, and this was not just a one-off "batting average" effect (in which average productivity rises because the worst performers are fired). Rather, it was a productivity boost that has continued in defiance of expert predictions that workers can only be squeezed so hard for a short while. After falling in the first half of the year, American labour productivity (output per hour) was 2.3% higher in the third quarter of 2011 than in the same period a year earlier. This was the fastest quarterly rise in 18 months. Manufacturing productivity in that quarter rose by 2.9% compared with a year earlier. America's productivity growth has been more robust than most other rich countries'- a feat many ascribe
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The Economist December 31st 2011 to its flexible labour market and a culture of enterprise. Yet some analysts expect productivity growth to stall soon. Hard-pressed workers are feeling grouchy: workforce surveys report record levels of job dissatisfaction. Many firms have been "starving the organisation to see how it can do with a lower cost structure," says Carsten Stendevad of Citigroup, a bank. Unless the economy picks up, he predicts that productivity growth will slow in 2012. (He admits, however, that he wrongly predicted the same thing would happen in 2on.) TWo things could keep productivity rising. First, workers are terrified of losing their jobs. This makes it easier to persuade them to put in extra hours or shoulder new tasks. Even in unionised firms, there have been reports of greater flexibility. Workers have been staying on the job longer rather than "featherbedding" their hours by, for example, queuing up early to clock off as soon as the shift ends. Second, tough times are forcing firms to strain every brain cell to become more efficient. Sealed Air, for example, has made numerous incremental tweaks, such as upgrading a machine that makes absorbent pads for supermarket meat trays so that its output increased from 400 units per hour three years ago to sso- with the same number of workers. The willingness of firms to invest in such enhancements has varied enormously. Some would rather hoard cash or buy back their own shares than spend it on more efficient machinery or information technology. Yet there are signs that leading industrial firms are starting to increase their capital spending, says Jeff Sprague of Vertical Research Partners, a research outfit. In particular, he has noticed firms investing in "debottlenecking" which, as its name suggests, means removing hold-ups in production processes, sometimes with
Robots sparking
an additional production line. There are hefty gains to be made from using more automation, says Mr Hickey, adding that although he worries about diminishing returns, "we haven't hit the wall yet." Service businesses, too, are wringing efficiency improvements from new technology. Hertz allows customers to rent cars at automated kiosks, just as airlines have for some time allowed passengers to check in without talking to anyone. Fast-food firms, such as McDonald's and Starbucks, are continuously innovating with their products and service. In short, the recession has forced American firms to become more muscular. This should help them thrive when the good times return. It should also give them an edge over foreign rivals. But all such a dvantages are temporary. As Mr Hickey points out, a factory that Sealed Air opened in Mexico was expected to be far less productive than one in America, but within four years had caught up. •
Ethnic advertising
One message, or many? The uses and limitations of ethnic ads N THE television series "Mad Men", a 1960s adman makes a pitch to a television-maker whose sales are flat. "Among Negroes sales are actually growing," he chirps. He proposes making "integrated" ads that appeal to both black and white consumers. His idea bombs. This being the era of segregation, one of his listeners wonders if mixed-race ads are even legal. Such days are long gone. America's minorities will eventually be a majority of the population: by 2045, according to the most recent census. Advertisers have noticed. Many now favour cross-cultural ads that emphasise what black, Hispanic and Asian-American consumers have in common. This approach is thought to work well with the young, who often listen to the same music, eat the same food and wear similar clothes regardless of their ethnic background. Ogilvy & Mather, a big ad agency, formed OgilvyCulture in 2010 as a unit specialising in cross-cultural marketing. "The ethnic ad model has not changed since the 1960s," says Jeffrey Bowman, head of OgilvyCulture. It was the census data that made Ogilvy change its model. In 2010 Burger King stopped employing ethnic agencies such as LatinWorks, which specialised in the Hispanic market, to address its consumers as a whole rather than taking a segmented approach. ~~
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Yet some admen feel ethnicity remains relevant. "Every ten years we go through a rethink of targeted versus one voice," says McGhee Williams Osse, co-chief executive of Burrell, a Chicago-based agency specialising in the African-American market. She argues that ethnic origin is the key to people's identity, much more than education, income, religion, sex and sexual orientation. She would say that, of course.
Business 49 Maurice Levy, the boss of Publicis Groupe, the French ad giant that owns 49% of Burrell, says that ethnic advertising makes sense for advertisers that are very big (and so can afford multiple ad campaigns), or very specialised. A maker of cream for black skin, for example, will probably not bother marketing it to Asians. Nestle, a huge food firm, aims some ads at Hispanics, America's largest minority. It
Insulting advertisements
Ad hominem When rudeness sells HEIsraeli government recently raised an interesting question for advertisers: whom can you safely insult?"American Jews" is the wrong answer. An ad campaign urging Jews to return to Israel showed a boy calling his father "daddy" instead of"abba". DiasporaJews were outraged at the implication that they are not properly Jewish. Companies don't usually make such elementary errors. The list of people or groups an advertiser can be rude about is very short, reckons Bob Jeffrey, the boss ofJWT, a big ad agency. He recalls adverts from the 1960s such as "You don't have to be Jewish to love Levy's", which depicted people of various ethnicities munching on a Brooklyn baker's rye bread sandwich. Such slogans would not be kosher today. But "if you say you're not going to annoy anyone, you might as well give up," adds MrJeffrey. Insulting dictators ought to be safe, so long as you do not operate in the same country. Nando's, a South African restaurant chain, forgot that with an ad showing a Robert Mugabe lookalike glumly alone at dinner (after many of his fellow despots had been deposed). He reminisces about happy days shooting water pistols with Muammar Qaddafi, playing in the sand with Saddam Hussein and riding a tank, "Titanic"-style, with Idi Arnin. The ad was broadcast in South Africa, where Nando's middle-class target audience found it hilarious. But Nando's also has restaurants in Zimbabwe. Threats ensued. Fearing violence against its staff there, the ad was pulled. Outside America, companies can probably get away with insulting George Bush junior. In Malaysia, his face has been used to sell cars, contrasting the "not smart" president with Smart cars. However, a Toyota ad featuring Brad Pitt was banned there for being an "insult to Asians" by promoting a Western ideal of male beauty. Indeed, the existence of Mr Pitt is irritating to men everywhere. In Britain, the government takes a dim
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to love~ . . . I I, ... No longer kosher view of television ads that mock living people. In 2002 an ad was banned for depicting David Beckham, a footballer not known for his academic accomplishments, asking his wife how to spell "ovo". The advertiser's protest- that it was for a satirical TV show with much ruder lines- did not succeed. It is often profitable to stir controversy. An ad that upsets people and thereby generates headlines is an excellent source of free publicity. But if it alienates potential customers, it has gone too far. Benetton, a fashion brand, reels in young shoppers by annoying their parents, for example with a recent ad showing the pope kissing Ahmed al-Tayeb, an Egyptian imam. An edgy image helps sell clothes, but it works less well with cars, as Toyota found with an ad in Australia that mocked both Range Rover and the British queen: "Don't worry, Your Majesty. You're not the only British export that's had its day." Monarchists howled. Toyota apologised.
recruited four Hispanic mothers to blog on a new bilingual website, El Mejor Nido (The Best Nest), offering tips about parenting and healthy eating. Hispanics are younger than other Americans, have more children and spend more on food, says Juan Motta, who heads the Californiabased unit running Nestle's Hispanic campaign in the United States, which promotes both the firm's Latin American brands, such as La Lechera and Abuelita, and the rest of its larder. McDonald's has been a pioneer of ethnic advertising since the 1960s. Minorities represent about 40% of its customers in America. Neil Golden, the firm's American chief marketing officer, argues that other Americans often follow trends set by ethnic minorities. So he watches minorities for insights he can use in ads aimed at the general market. In 2010 McDonald's learned that African-Americans liked sweeter, weaker caramel mocha, so it started offering such blends everywhere, with great success. A similar thing happened with its mango and pineapple smoothies, a big hit with Hispanics. McDonald's featured the drinks in restaurants nationwide and they quickly overtook strawberry banana, the traditional favourite. David Burgos, co-author of a book on marketing to the "new majority", says that in spite of the increasing importance of minority consumers, advertisers still put ethnic ads into a separate budget- which tends to be cut first when the economy goes sour. Only 7% of marketing dollars are spent on targeted ethnic campaigns, although nearly half of Americans belong to ethnic minorities. He thinks ad-agency staff need to be more diverse. Getting the right ethnic perspective is tricky. Hispanics are a varied lot. An ad that delights Cuban-Americans may irritate migrants from Venezuela. Asians are hardly monolithic, either. Even the wittiest Korean catchphrases will provoke only bafflement in Chinatown. Saul Gitlin of Kang & Lee, an agency specialising in selling to Asian-Americans, argues that recent Chinese and Korean immigrants are best reached with communications in their mother tongue. They are generally ignored by advertisers, however, with the exception of financial firms. This is a mistake, he reckons: the median household income of Asian-Americans is some $1o,ooo higher than that of non-Hispanic whites. Many modern Mad Men think digital media will allow them to know their audiences better, and fee d them more precisely-tailored messages. This can be costly (see Schumpeter on ~ag~sQ). But many consumers seem to like it. When Latinas disagree with something the four mommybloggers at El Mejor Nido have written, they can go to the El Mejor Nido Face book page, and let loose. •
The Economist December 31st 2011
50 Business
Schumpeter Too much buzz Social media provides huge opportunities, but will bring huge problems
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HE only area of business that seems to be recession-proof is social media. Industrial firms are battening down the hatches. Banks are tossing thousands of workers overboard. But Face book is looking to raise $10 billion for a small fraction of its shares when it goes public in 2012. A recent conference in Madrid, put on by the Bankinter Foundation of Innovation, captured the enthusiasm. The assembled cyber-gurus argued that "social technologies" that allow people to broadcast their ideas (eg, Twitter), or form connections (eg, Linkedln), are some of the most powerful ever devised. They can be supersized quickly, linked together easily and spread by customers. And they can be accessed from almost anywhere. Two billion people are already online. E-commerce sales are $8 trillion a year. So, the argument goes, this more "social" element to the internet is the next great revolution. Over-caffeinated cyber-champions talk of "empowerment" and "transparency". But is all this as wonderful as it sounds? Or is it a new bubble in the making? The great virtue of social technologies, say their boosters, is that they break down the barriers between companies and their customers. They allow firms to gather oodles of information: big companies now obsessively monitor social media to find out what their customers really think about them. Social media also allow companies to respond to complaints more quickly: firms as different as Chrysler and Best Buy employ "Twitter teams" toreply to whinging tweets. More information ought to be useful, but only if companies can interpret it. And workers are already overloaded: 62% of them say that the quality of what they do is hampered because they cannot make sense of the data they already have, according to Capgemini, a consultancy. This will only get worse: the data deluge is expected to grow more than 40 times by 2020. Responding quickly to bitter tweets sounds like a nifty way to soothe angry customers. But there is a risk that companies will concentrate on a handful of activists (who tweet a lot), while neglecting average customers (who don't). They may also ignore non-customers (who are the biggest potential source of growth) and the elderly (who seldom tweet). Many firms think that they can improve customer service by using social media to respond to complaints quickly. Really? It is already virtually impossible to
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talk to a real person on the telephone. Will it be any easier online? Undaunted, cyber-enthusiasts maintain that social technologies are shifting power from a few Goliaths to many Davids. Ordinary people can easily broadcast their opinions and extend their networks. Big firms have to adjust to this new reality or go under. (As the digerati put it: "All businesses will end up looking like the internet.") But big firms can use social data to add to their already formidable influence over the consumer: Ford, PepsiCo and Southwest Airlines monitor postings on social-media sites to gauge the impact of their marketing campaigns and then adjust their pitch accordingly. And some of the most successful internetsavvy companies, such as Google and Microsoft, are as secretive about what they do as any old-line company. The "Army of Davids" argument- to borrow a phrase from Glenn Reynolds, an American blogger- is often applied to politics. For example, Ilya Ponomarev, a member of the Russian Duma, argues that social media make it easier for protesters in Russia to organise. (Russians spend more time on the internet than western Europeans, not least because they have no faith in state television.) This is true, but the secret police in many countries are equally excited about technology. New tools allow them to eavesdrop retrospectively, and to trace networks of dissidents. During the Egyptian uprising the advantage was clearly on the side of the dissidents, since the Egyptian secret police were digital dullards. But this may not be the case in China, where the regime's online snoops are highly sophisticated. Cyber-enthusiasts gush about the way social media help entrepreneurs. They have a point: disruptive technologies reconfigure old businesses and create new ones. Facebook could let companies aim their ads more accurately. Firms are starting to use internal social-networking tools, such as Yammer and Chatter, to encourage collaboration, discover talent and cut down on pointless e-mails. Youngsters are happy to embrace it, but older managers may be less keen. The use of social media within companies could be quite disruptive to traditional management techniques, particularly in strongly hierarchical firms. Dreaming up new companies is not terribly difficult: at the conference Andreas Weigend, the founder of Social Data Lab, came up with the idea of "another person's hat"; a product that allows you to don the digital identity of, say, an Islamic fundamentalist and see what the world looks like through his eyes. This sounds neat, but some of the new social-media technologies have a clown-suit quality to them. They are amusing the first time, but rapidly become tedious. A new medium: neither rare nor well-done Most commentary on social media ignores an obvious truththat the value of things is largely determined by their rarity. The more people tweet, the less attention people will pay to any individual tweet. The more people "friend" even passing acquaintances, the less meaning such connections have. As communication grows ever easier, the important thing is detecting whispers of useful information in a howling hurricane of noise. For speakers, the new world will be expensive. Companies will have to invest in ever more channels to capture the same number of ears. For listeners, it will be baffling. Everyone will need better filterseditors, analysts, middle managers and so on-to help them extract meaning from the blizzard of buzz. • Economist.comfblogsfschumpeter
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Marginal revolutionaries AUB URN ALABAMA, CHARLESTON SOU TH CAROLI NA AND ST CROIX
The crisis and the blogosphere have opened mainstream economics up to new attack OINT UDALL on St Croix, one of the us Virgin Islands, is a far-flung, windwhipped spot. You cannot travel farther east without leaving the United States. Visitors can pose next to a stone sundial commemorating America's first dawn of the third millennium. A couple named "Sigi • Ricky" have added a memento of their own, an arrow struck heart scrawled on the perimeter wall in memory of "us". Warren Mosler, an innovative carmaker, a successful bond-investor and an idiosyncratic economist, moved to St Croix in 2003 to take advantage of a hospitable tax code and clement weather. From his perch on America's periphery, Mr Mosler champions a doctrine on the edge of economics: neo-chartalism, sometimes called "Modern Monetary Theory". The neo-chartalists believe that because paper currency is a creature of the state, governments enjoy more financial freedom than they recognise. The fiscal authorities are free to spend whatever is required to revive their economies and restore employment. They can spend without first collecting taxes; they can borrow without fear of default. Budget-makers need not cower before the bond-market vigilantes. In fact, they need not bother with bond markets at all. The neo-chartalists are not the only people telling governments mired in the aftermath of the global financial crisis that
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they could make things better if they would shed old inhibitions. "Market monetarists" favour more audacity in the monetary realm. Tight money caused America's Great Recession, they argue, and easy money can end it. They do not think the federal government can or should rescue the economy, because they believe the Federal Reserve can. The "Austrian" school of economics, which traces its roots to 19th-century Vienna, is more sternly pre-Freudian: more inhibition, not less, is its prescription. Its adherents believe that part of the economy's suffering is necessary, an inevitable consequence of past excesses. They do not think the Federal Reserve can rescue the economy. They seek instead to rescue the economy from the Fed. You tell me it's the institution These three schools of macroeconomic thought differ in their pedigree, in their beliefs, in their persuasiveness and in their prospects. Yet they also have a lot in common. They have thrived on the back of massive disillusion with mainstream economics, which held that the economy would grow steadily if central banks kept inflation low and stable, and that there were no great gains in the offing from fiscal expansion, nor any great cause for concern over financial instability. And they have
benefited hugely from blogging. Economics, perhaps more than any other discipline, has taken to r blogs with gusto. Mainstream fig- .• ures such as Paul Krugman and Greg Mankiw have commanded large online audiences for years, audiences which include many of their peers. But the crisis has made the academic establishment fractious and vulnerable. Highly credentialed economists now publicly mock each other's ignorance and foolishness. That has created an opening for the less decorated members of the guild, and the truly peripheral. In the blogosphere anywhere can be, as the title of Mr Mosler's blog has it, "The Center of the Universe". In a world beset by doubt, there are great opportunities for those happy to pursue their beliefs to their logical conclusions and thrillingly thoroughgoing in the way they do so. Is fiscal stimulus not working? Then do more of it, say the neo-chartalists. Are monopolies and price controls a problem? Then get rid of the central bank's monopoly in setting the price of credit and the supply of government money, say the Austrians. Damn the torpedoes and never mind the naysayers- acolytes in the comments section will sort them out. What's more, put into the context of a pathetic response to the current crisis, the ideas offered by these very different schools all take on a similar form: that policymakers are overly worried about something that should concern them less. The Austrians see the bogeyman as deflation, the fear of which inflates bubbles. The market monetarists, diametrically opposed, see exaggerated fear of inflation. And the economy is getting too little help ~~
52 Briefing Heterodox economics ~ from fiscal stimulus, according to neo-char-
talists, because of the government's superstitious fear of insolvency. The clearest example of the power of blogging as a way of getting fringe ideas noticed is "The Money Illusion", a blog by Scott Sumner of Bentley University, in Waltham, Massachusetts. In the wake of the financial crisis Mr Sumner, a proponent of market monetarism, felt he had something to say, but no great hope of being heard.
We'd all love to see the plan And so on February 2nd 2009 he started to blog. He was not, he admitted, a "natural blogger", which is to say his posts were long, tightly-argued and self-deprecating ("consider me an eccentric economist at a small school taking potshots from the sidelines"). But he attracted thoughtful comments and replied in kind. On February 25th, he earned a link from JYler Cowen, a professor at George Mason University whose "Marginal Revolution" blog is widely respected. And one month after he started Mr Krugman devoted a short post to rebuffing him. To be noticed by Mr Krugman is a big thing for a blogger; all the current heterodoxies court such attention, with neochartalists churning up his comment threads and Austrians challenging him to set-piece debates. The more Mr Krugman wrestles with them, the more attention they gamer- a correlation that has made him wary. "I'll link to any work I find illuminating, whoever it's from," he ./'7 writes. "I'll link to work I think is deeply wrong only if it comes from someone who already has a following." Otherwise,
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The Economist December 31st 2011
"why give him a platform?" Mr Sumner's blog not only revealed his market monetarism to the world at large ("I cannot go anywhere in the world of economics ... without hearing his name," says Mr Cowen). It also drew together likeminded economists, many of them at small schools some distance from the centre of the economic universe, who did not realise there were other people thinking the same way they did. They had no institutional home, no critical mass. The blogs provided one. Lars Christensen, an economist at a Danish bank who came up with the name "market monetarism", says it is the first economic school of thought to be born in the blogosphere, with post, counter-post and comment threads replacing the intramural exchanges of more established venues. This invisible college of bloggers focuses first on the level of spending on American products: America's domestic output, valued at the prices people pay for it. This is what economists call "nominal" GDP (NGDP), as opposed to "real" GDP, which strips out the effects of inflation. They think the central bank should promise to keep NGDP on a steady upward path, rising at, say, 5% a year. Such growth might come about because more stuff is bought ("real" growth) or because prices are higher (inflation). Mr Sumner's disinhibition is to encourage the Fed not to care which of the two is doing more of the work. Central banks set targets to make their currencies credible and their policies predictable. The target for many is to keep consumer prices growing at 2% a year or thereabouts. For the past few decades that has largely succeeded in stabilising inflation; but in the current crisis it has singularly failed to stabilise the economy. In America NGDP plunged overn% below its pre-crisis path and remains there; what people buy at the prices they pay for it is much less than most would want.
The market monetarists point out that their s% target is consistent with inflation of about 2%, provided the economy grows at about 3% a year, its rough average for the pre-crisis years. If growth slowed to 1%, inflation would have to be permanently higher, ie 4%. If output suffered a one-time drop, inflation might have to surge temporarily above 5%. But as growth returned to normal, inflation would recede. In pursuing this target, the central bank would use many of the same tools as today: tweaking the short-term interest rate and, when that reaches zero, increasing NGDP byprintingnewmoneyto buy more assets (ie, quantitative easing). And the very creation of the NGDP target would make such intervention more effective, Mr Sumner says. If people expect the central bank to return spending to a 5% growth path, their beliefs will help get it there. Firms will hire, confident that their revenues will expand; people will open their wallets, confident of keeping their jobs. Those hoarding cash will spend it or invest it, because they know that either output or prices will be higher in the future. A real solution If the target were not believed, the Fed would have to do whatever it takes to hit it. That might include "heroic" purchases of assets, on a bigger scale than anything yet tried by the Fed or the Bank of England. Even then, people might refuse to spend the newly minted money, or the banks might also refuse to lend it. But there are ways to make people spend, say market monetarists like Bill Woolsey of The Citadel, a military college in South Carolina. The Fed could impose a fee on bank reserves, leaving banks to impose a negative interest rate on their customers' deposits. That might simply serve to fill up sock-drawers as people took the money out of their accounts. But eventually, instead of hoarding currency, they would spend and invest it, bidding up prices and, with luck, boosting production. Thanks largely to Mr Sumner's campaign, a growing number of mainstream economists- including Mr Krugman- now favours looking at a change to NGDP targeting. At its November meeting the Fed's policy committee discussed the pros and cons of such a move- remarkable in itself for an idea so marginal just a couple of years ago. It did not, though, sweep all before it. Some committee members worried that switching to a new targeting regime could "risk unmooring longer-term inflation expectations". If inflation were allowed to rise to 5%, for example, people might regard that as permanent and set wages accordingly, even as output returned to normal. To show its mettle, the Fed would then have to restrict growth; the costs of proving its seriousness might swamp the benefits of the new regime. ~~
The Economist December 31st 2011 ~
Blogging has served Mr Sumner well, both as a medium of expression and as a venue for drawing together like-minded colleagues. But blogs are not the only way to promote unorthodox ideas. To help spread the neo-chartalist gospel, Mr Mosler ran as an independent "Tea-Party Democrat" in the 2010 Senate race in Connecticut, his home state. His belief that America is "grossly overtaxed" is one that common-or-garden tea-partiers would happily endorse; his belief that fear of national insolvency is a mirage and that there is plenty of scope for borrowing more would have them reaching for their pitchforks- or at least their balancedbudget amendments. His campaign did not meet with electoral success. Candidate Mosler's boast was that he was "right on the money". A country with its own central bank can generate an unlimited supply of money and guarantee demand for it by requiring it as payment for taxes. That gives the state scope to spend without worrying about going bust, Mr Mosler argues. It can always pay its bills, because it prints the stuff with which bills are paid. The policy conclusions neo-chartalism draws from this owe a lot to Abba Lerner, John Maynard Keynes's "militant prophet". Lerner believed governments should judge their fiscal policy by its economic results- its impact on jobs and inflation- and ignore any red ink it might spill. Governments should seek high employment and stable prices, much as the Fed does today. But instead of relying on monetary policy to meet these objectives, they should use fiscal policy instead. If private spending is too strong, pushing up prices and threatening inflation, the government should raise taxes or cut its own spending. If, on the other hand, private spending is too weak, jeopardising jobs, the government should cut taxes or increase its own spending. So far, so Keynesian. But most Keynesians, anxious to appear fiscally responsible, say that budget deficits in bad times should be offset by surpluses in good times, keeping the level of debt seemly. Lerner admitted this might not be possible. Private spending might be chronically weak. If so, the government should run chronic deficits, adding continuously to the national debt. Lerner did not see that as much of a problem, though he recognised that many others were "easily frightened by fairy tales of terrible consequences". One reason for this extraordinary tolerance towards red ink is straightforward macroeconomics. If firms, households and the rest of the non-government sector collectively refuse to spend all that they earn, they must lend the remainder to someone else. They cannot collectively lend more to each other than they borrow. So they must lend to the government in-
Briefing Heterodox economics 53
criticism. But its application has made him a lot of money. He turned a profit of over $som for his fund and his clients buying Italy's lira bonds in the early 1990s, when prominent economists flagged the danger of default. In 1996 he earned them over $10om after he pledged to buy more of a certain type of Japanese paper than the government had issued. And his bank made a monthly return on required equity of oveno% in 20nlargely by buying American Treasury bonds, betting against celebrated investors like Bill Gross of Pimco, the world's largest bond fund, who sold his fund's Treasuries in early 2011 before recognising his mistake later on. You say you'll change the constitution
stead. Private underspending creates both a need for fiscal stimulus and a simultaneous demand for the government liabilities a stimulus entails. Eventually, Lerner argued, the public would accumulate so much of this government paper that it would feel wealthy enough to spend again, sparing the government the need for further stimulus. What if the public refused to spend, but also spurned government bonds, for fear perhaps of default? That cannot happen, according to the neo-chartalists, because the government can print the money these securities promise to pay. Such a response summons hyperinflationary nightmares of the Weimar Republic, or Zimbabwe. But neo-chartalists would argue that those regimes resorted to the printing press as a way to grab more resources than the private sector was willing to yield. The government and the private sector combined wanted to buy more than the economy could produce. In Lerner's scheme, printing money serves a different role. It gives the private sector something to hold, should it not wish to buy things. Printing money is not a way to increase the deficit. It is simply an alternative way to finance a deficit of given size, one big enough to keep employment up, but- crucially- small enough to keep prices flat. This insouciance towards debt opens up Mr Mosler's ideas (which he used to call "soft currency economics") to all sorts of
In the neo-chartalist view of the world, fiscal policy comes to resemble monetary policy. When the Treasury spends, it adds to the supply of money in circulation. When it taxes, it withdraws money. So for neo-chartalism to work as intended, budget-makers must both tighten policy once demand has been restored and inflation threatens and also be credible in their commitment always to do so. Otherwise selffulfilling expectations of inflation will take root, as they did in the 1970s. That period of stagflation demonstrated the need to leave macroeconomic stabilisation to forward-looking technocrats- central bankers- thought responsive to economic news and unresponsive to political demands. If you can imagine fiscal policymakers in Congress allowing the economy to be run in such a way, then you too can be a neochartalist. Clearly the tea-partiers who would not party with Mr Mosler during his Senate bid will have none of this. Ron Paul, the libertarian Texas congressman whose 2008 presidential campaign was one of the foundations of the tea party, and whose 2012 campaign is currently enjoying an enthusiasm few would have predicted, is a balanced-budget zealot, and from his pulpit as chair of a House subcommittee on monetary policy lambasts quantitative easing as "financial malfeasance"; indeed he advocates abolishing the Fed itself. Mr Paul thus shows his colours as an advocate of Austrian economics- a resurgent school of thought that, unlike market monetarism, has not been doing much to change the minds of most mainstream economists but, unlike neo-chartalism, has built up a broad constituency on and through the web. Its adherents (including Mr Paul's fellow Republicans Paul Ryan and Michele Bachmann) differ a lot in their preoccupations and prescriptions. But they agree that interest rates should reflect the fundamental forces of thrift rather than the whims of central bankers. The Austrian school's thinking centres ~~
54 Briefing Heterodox economics ~ on
the way "malinvestment" orchestrated by central banks distorts the business cycle. By keeping interest rates artificially low, central banks trick entrepreneurs into believing that society is more abstemious than it really is. The entrepreneurs then embark on ambitious, long-gestation investment projects, only to discover that the men and materials they require are otherwise engaged in the production of more immediate gratifications. Once this realisation dawns, the entrepreneurs abandon their follies, firing their workers. If wages are flexible and workers mobile, this bust need not be too bad. But misguided attempts by the government or the Fed to prevent unemployment will delay the necessary reshuffling of labour from industries too tied up in the future to those catering to the needs of the present. Scholars such as Lawrence White of George Mason University see in this the grounds for replacing central banks with "free banking" in which private institutions take deposits and issue their own banknotes without government permission or protection. To make these liabilities credible, free banks would probably have to make them redeemable into something else, such as gold. As a consequence, banks will hesitate before expanding too quickly, lest their gold reserves come under threat. This, Mr White argues, would impose a natural check on overexpansions of credit. The resurgence of Austrian analysis is not merely a web-based phenomenon. In 198:1. Margit von Mises approved the establishment of an institute in the name of her late husband, Ludwig von Mises, one of the giants of the Austrian tradition of economic thinking. The Mises Institute set up shop at Auburn University in Alabama, attracted by a couple of "Austrian-friendly" faculty members and a timber owner willing to donate money to the cause. From early days in the shadow of the football stands, the institute now boasts its own amphitheatre, conservatory, recording studio and library. At one of the institute's soirees, accompanied by a recital on its Bosendorfer piano, Vienna may not seem so very far away. Yet the institute's impressive web presence, with ever more signing up for its online classes, makes its ideas, if not its ambience, available to all. Austrians still struggle, however, to get published in the principal economics journals. Most economists do not share their admiration for the gold standard, which did not prevent severe booms and busts even in its heyday. And their theory of the business cycle has won few mainstream converts. According to Leland Yeager, a fellow-traveller of the Austrian school who once held the Mises chair at Auburn, it is "an embarrassing excrescence" that detracts from the Austrians' other ideas. While it provides insights into booms and their ending, it fails to explain why things
The Economist December 31st 2011
must end quite so badly, or how to escape when they do. Low interest rates no doubt helped to inflate America's housing bubble. But this malinvestment cannot explain why 21.8m Americans remain unemployed or underemployed five years after the housing boom peaked. Brother you have to wait
America is suffering from a shortfall of spending. Both market monetarism and the neo-chartalists are right about that. They disagree about whether the best response is monetary or fiscal. The market monetarists argue that fiscal stimulus should be redundant, because a central bank can always revive spending- if it sets its mind to it. If the Fed's efforts have disappointed, it is not because market monetarism is wrong, but because the Fed is not sufficiently committed to the cause. This is probably true. But it makes it hard for the market monetarists to clinch their case. Until a central bank truly commits to their policy, they cannot prove their point. But until they prove their case, central banks will be reluctant to commit to their policy. The market monetarists do not fret about the side effects of the activism they seek, which can misdirect capital, inflate bubbles and seduce people into over-borrowing. But these side effects give Austrian economists the heebie jeebies- and also worry the neo-chartalists, who are not convinced that private spending stimulated by easy money will restore full employment. Yet Austrians and market monetarists are united in their distaste for neo-chartalist fiscal stimulus. Mr Sumner considers it wasteful; the Austrians, downright harmful. Meanwhile mainstream economists continue to look at all the options askance, though not equally so. Some, particularly on the left, are getting quite enthusiastic about the market monetarists' NGDP targeting. Few are as keen on neo-chartalism. The late Bill Vickrey, a Nobel prize-winner, had sympathy for its take on debt, but it remains largely confined to academic redoubts in Kansas City, Missouri and Newcastle, New South Wales. As for the Austrians, Brad DeLong, a Keynesian Berkeley professor who also blogs, has called an acquaintance with their ideas a useful part of a diversified intellectual portfolio. But his frequent comrade in arms, Mr Krugman, does not seem to have revised his view that their business-cycle theory is "as worthy of serious study as the phlogiston theory of fire". His analogy implies that economics, like chemistry and physics, makes enough intellectual progress to allow economists to ignore some old thinkers. But is economics that kind of sci-
ence? Its practitioners cannot run controlled experiments on whole economies. The natural experiments that might help falsify theories do not come around often. And when they do, the refutations provided are only ever partial. What is more, intellectual schools are not simply about the rights and wrongs of specific cases. Compared to the oxygen theory that replaced it, quasi-alchemical phlogiston provided a poor account of combustion. But it captured an idea about the tendency of the world to require replenishment on which its immediate successor was silent, and which prefigured some ideas that thermodynamics would bring to science most of a century later. The bygone and the marginalised always look strange. But would it not also be strange to imagine that, in 30 or so years, economic historians will look back on the current crisis and say that mainstream macroeconomics offered the best analysis and prescriptions that could have been conceived? If they agree that it did not, then there seems a chance that they will think perspectives outside the mainstream might have helped. Decades ago macroeconomics resembled an "intellectual witch's brew", according to Olivier Blanchard, chief economist of the International Monetary Fund. It contained "many ingredients, some of them exotic- many insights, but also a great deal of confusion". Things then became more rigorous and refined: disagreements remained, but within set limits. Now, on the blogs, the economic conversation boils and bubbles again. That ferment is surely spreading into the academy- and in time some new quintessence will be • brought forth, perhaps from C materials now consideredbase. •
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For daily analysis and debate on economics, visit Econornist.cornfeconomics
Financial terrorism
The war on terabytes NEW YORK
Policymakers worry about attacks on America's financial system HE financial industry has done such a good job of bringing itself to its knees over the past four years that it is easy to overlook the threats it faces from outside. High among them is electronic attack. In 2010 Symantec, a cybersecurity firm, estimated that three-quarters of all "phishing" attacks, in which people are deceived into surrendering private details such as account numbers, are aimed at the finance sector. Bob Greifeld, the boss of NASDAQ, has described his bourse as being under "literally constant attack". Many of these assaults are carried out by hackers bent on mischief. Some are the work of organised criminal groups in pursuit of loot. But plenty of people fret that some attackers are aiming to cause more serious damage. Leon Panetta, America's defence secretary, has suggested that a cyberattack on financial markets, the power grid and government systems could be "the next Pearl Harbour". In a move that received surprisingly little attention, Barack Obama signed an unprecedented executive order in July declaring the infiltration of financial and commercial markets by transnational criminal groups to be a national emergency. It also pointed to "evidence of growing ties between [these groups] and terrorists". In a sign that Congress, too, is twitchy, its latest appropriations bill calls for a report into the risks posed by financial terrorism.
T
Officials' anxiety has grown amid circumstantial evidence that malefactors helped to exacerbate the market turmoil in late 2008. A report on the risks of economic warfare by Cross Consultingwhich was written in 2009 for the Pentagon's Irregular Warfare Support Programme (IWSP) but which surfaced only in 2on- cites a paper prepared for law-enforcement officials by a group of anonymous moneymen who were alarmed by trading patterns around the time that Lehman Brothers failed. The paper analyses trading data from American exchanges. It shows that a handful of small and midsized regional brokers saw their market share in equities trading skyrocket in 2008 to the point where some were, for a while, doing more business than giants such as Goldman Sachs and JPMorgan Chase. The brokers' business was conducted under multiple trading symbols, the market-making identities used in electronic trading so that counterparties know whom they are dealing with. The bulk of the trading appears to have been "sponsored access" agreements, under which established brokers can in effect rent their identities to other traders so that the latter do not have to jump through the usual regulatory hoops. There is no suggestion that the brokers in question were doing anything wrong. They say they were doing business with regulated entities, in-
eluding other brokers, but the report raises questions about the trades these sponsored entities were conducting. These trades were heavily concentrated in big, troubled stocks such as Citigroup and Wachovia, the survival of which was seen as critical to the stability of the financial system. They were mostly short-selling, the paper concludes, and a good deal of the shorting may have been of the illegal "naked" kind, where the short-seller does not bother to locate and borrow the shares first. (Borrowing a broker's identity could have made this easier, since marketmakers were exempt from the ban on naked shorting in certain circumstances.) Supporting this conclusion is a huge spike in trades that failed to settle at the time-in Lehman's case, the number shot from tens of thousands to tens of millions. One cause of "fails" is naked shorting, because you cannot deliver a share that you have not really borrowed.
Sponsors not being thanked Trading data alone are insufficient to draw firm conclusions about motives, but the anonymous paper raises red flags. If the brokers were inadvertently greasing the wheels for bear raiders, then who was doing the raiding? The obvious suspects are hedge funds looking to make a killing. But rumours persist of involvement by those with non-economic motives. Regulators have been tightening the rules. In November America's Securities and Exchange Commission (SEC) voted through various restrictions on sponsored access, which Mary Schapiro, the SEC's chairman, had previously likened to handing car keys to an unlicensed driver. In private, SEC staffers worry that some of the driving might be deliberately dangerous. Not every jurisdiction is moving as fast as ~~
58 Finance and economics ~ America. In an October report, the Interna-
tional Organisation of Securities Commissions (IOSCO) expressed concern that some countries' monitoring of sponsoredaccess agreements was inadequate. Sponsored access is not the only way that a determined assailant could create havoc. The "flash crash" of May 6th 2010, in which American equities spectacularly nosedived, showed the damage that can be done by high-speed algorithmic trading. It is much easier to drag markets down when they are already reeling, by the use of such things as short-selling, options and swaps, points out James Rickards of Tangent Capital, an expert on financial threats. This is what the military would call a
The Economist December 31st 2011 "force multiplier". Just how much danger America's fmancial system is in from deliberate attack is hard to judge from the outside. What is clear is that politicians, regulators and the industry have struggled to forge a coherent response. The Financial Services Sector Coordinating Council (Fsscc), an industry group that works under the auspices of the us Treasury, has developed a "threat matrix" in consultation with a group of financial regulators with an equally snappy name, the Financial and Banking Information Infrastructure Committee. But information is not always shared promptly. Banks were miffed that regulators did not tell them about a big attack on NASDAQ in
2010 until more than three months later. Within government, responsibility is fragmented. In America the Treasury, other financial regulators, the Department of Homeland Security, the Pentagon, the FBI, the National Security Agency and others all have a hand in financial cybersecurity. Dots are not always joined even within departments. The Treasury has been keenly focused on combating the financing of terrorists, for example, but appears to have given less thought to how they might use that money to undermine banks and markets. That is unfortunate. As policymakers wrestle to protect finance from its own instability, they shouldn't neglect the potential for threats from outside. •
Buttonwood Investors approach 2012. with cautious optimism NVESTORS nearly always enter a new year with a sense of hope. The mistakes of the previous year- the bad share picks, the wrong guesses on exchange-rate movements- are forgotten. New cash is put to work and there is often a "January effect" as share prices rise. It would be no surprise if history repeated itself in 2012. nue, Europe may already be in recession and the region's politicians have not yet come up with a solution to the sovereign-debt crisis. But 2on was such a dismal year for European equities that many investors must hope that the bad news is already in the price. After all, equities look more attractive than government bonds. Ten-year German bonds yield less than 2%; German shares have a yield of 3.6%, with the prospect of dividend growth thrown in. "Trailing" price-earnings ratios in Europe are barely in the double digits; in Germany the multiple is under ten. And the corporate sector is in good shape, having generated high margins in recent years and built up cash on its balance-sheet. Investors can be pretty sure about the direction of monetary policy. The Federal Reserve has already indicated that it will not raise rates, and another round of quantitative easing might be introduced if the American economy wobbles. The Bank of England seems likely to follow a similar path. In Europe it is hard to see the European Central Bank repeating its 2on mistake, when it raised rates prematurely; further cuts are possible. The developing world will probably present a more mixed picture, but easing will be more common than tightening. Central banks can be so supportive in part because headline inflation rates are expected to fall, as the commodity-price
I
rises seen in early 2onslip out of the annual comparisons. But central banks will also be conscious of the need to offset the effects of fiscal policy, which is likely to be contractionary. America may have reached a short-term deal on extending the payroll-tax cut, but austerity is likely to hold sway across Europe as the region seeks to reassure investors (and German voters) about its long-term fiscal probity. It is this issue that suggests that any initial investor optimism may be tempered as 2012 unfolds. Like children asked to eat spinach for breakfast, lunch and dinner, it is not clear how long voters will submit to a diet of austerity. The implicit deal between northern and southern euro-zone countries- bail-outs in return for deficit reduction- is unpopular with electorates on both sides. The so-called "tail risk" of a euro-zone break-up may not materialise, but it will not go away either. Nor will the political outlook in America necessarily be helpful. Markets traditionally favour Republican candidates. But were the Republicans to take control of the
presidency and both houses of Congress, there would be the prospect of aggressive fiscal tightening in 2013, along with a political leadership hostile to further quantitative easing. Meanwhile, to shore up his political base, President Barack Obama might amplify the millionaire-bashing theme of his re-election campaign. Geopolitical risks could undermine the market, too. The Middle East remains volatile. Egypt's revolution could go sour, Syria is a charnel-house and Iran is prone to sudden eruptions. The fundamental problem that has dogged the economy, and equity markets, since 2008 will remain. Growth is likely to be slow as economies emerge from a debt crisis. Authorities can intervene to prevent a repeat of the Depression but the result is still likely to be sluggish rebounds with more fre quent recessions. Add in the effect of high commodity prices (a consequence of the developing world's increased importance) and it is hard to generate the kind of multi-year rally that marked the 1980s and1990s. This does not mean investors cannot make money. Even Japan has had some so% rallies within its long bear market. But it does mean that "buy and hold" is not necessarily a winning strategy. At the start of 2on almost everyone (with honourable exceptions, such as the strategy team at Societe Generale) was bullish. The outcome was deeply disappointing. As 2012 begins, the mood is more restrained. A Bank of America Merrill Lynch survey in December found that 8% of fund managers were overweight equities (relative to their normal portfolio allocation). Such caution looks realistic. Econonrist.comfblogsfbuttonwood
The Economist December 31st 2011
Finance and economics 59
European banks
Hose and dry BERLIN
The ECB fills ban ks w ith funds
l 'I ] HEN economists think of the fmanVV cial system, it is usually as a frictionless conduit through which money flows to areas of the economy where it is most needed. A better analogy right now might be of a hosepipe with a knot tied in it. The European Central Bank (ECB) is pumping unprecedented amounts of money into one end of the pipe, but how much of that will find its way to the parched real economy is another question entirely. Start with the liquidity flowing into the euro-area banking system. On December 21St the ECB made available an eye-popping €489 billion ($628 billion) in threeyear loans to more than soo banks across Europe. The money was released in response to an almost total freeze since July in the bond markets that are an important source of long-term funding for banks. Demand for this ECB funding was much higher than expected, signalling just how much stress there is in the system. The ECB had previously tried to ease pressure by offering one-year loans to banks. Yet this had done little to encourage them to lend to companies or people, since the money banks owed the ECB would have to be repaid before they were due to be repaid by their customers. A shortage of longer-term funding also contributed to an increase in the riskiness of the whole financial system, since banks were being forced to rely ever more on short-term financing that needs to be rolled over. The flood of money being pumped into banks by the ECB goes a long way towards easing these funding pressures. Analysts at Morgan Stanley, an investment bank, reckon that the new facility adds about €235 billion in additional funding to the banks (since some of the money is being used to replace shorter-term loans) and takes the central bank's total lending to the banking system to €979 billion. More important is the fact that it only has to be repaid in three years, which takes the average maturity on ECB loans to about 2l. months, up from a mere ten weeks before the auction. This should help insulate most large banks from turmoil in the funding markets. But not all will be protected. Although the ECB has essentially made an offer of unlimited funds, banks are still constrained in how much they may borrow by the quality of the collateral that they are able to hand over. This is because their collateral is subject to an initial "haircut", or reduction in value. A portfolio of relatively
Many a slip 'twixt pump and nozzle safe government bonds might attract a small haircut, whereas one consisting of loans to small businesses might be reduced in value by 40% or more. A bank focused on this area of business, as many of Europe's smaller savings banks are, might thus only be able to borrow 60% of the value of its outstanding loans. A second constraint is that if the collateral the ECB holds falls in value, then banks
need to post more. This also happens if there are credit downgrades on the bonds posted as collateral. The ECB's haircut on sovereign bonds that are rated above "A-" is just 1.5%, but if they fall another notch this jumps up to 6.5%, Morgan Stanley notes. Weak banks in peripheral countries remain vulnerable to a downward spiral in which their holdings of government bonds are downgraded and fall in value, forcing them to come up with ever more collateral to keep borrowing from the central bank. It was this sort of collateral spiral that felle d MF Global, a bust American broker, in its ill-fated bet on euro-area government bonds. Now that banks are getting funding, the big worry is whether they will do more than merely hoard it. The early signs are not encouraging. Over the Christmas weekend bank deposits at the ECB rose to a record €412 billion. That partly reflects a traditional year-end rush to tidy up banks' balance-sheets but also nervousness about lending directly to others. Banks also have to present plans in January showing how they will raise an extra €us billion in core capital to meet a new threshold imposed by the European Banking Authority. This capital shortfall has already prompted asset sales by banks, which would rather shrink their balancesheets than tap shareholders. The ECB's auction may make a credit crunch less severe, but it is not enough to avoid one. •
Chinese sovereign debt
The bonds that tie TOKYO AND HONG KONG
Japan wants to buy Chinese government bonds
N THEautumn of 2010, when he was Japan's finance minister, Yoshihiko Noda decried it as "strange" that China had bought up as much as ¥2.3 trillion (then $25.5 billion) in Japanese government bonds while its own debt was off-limits to outsiders. Now prime minister, Mr Noda is redressing the balance. At a summit in Beijing on December 25th the two countries announced an agreement to let Japan buy Chinese sovereign debt. No sum or timetable was disclosed, though Japanese news media reported the amount will reach $10 billion once China approves Japan's application. Both countries say the agreement symbolises the growing importance of their economic ties, which have long been warmer than their diplomatic ones. China is Japan's largest trading partner; Japan counts as China's biggest after America. But the deal may also be a signal. Officials in Tokyo fret that China's purchases of Japanese bonds fuel the yen's appreciation. By negotiating for
I
approval to own Chinese debt,Japan can register its discomfort with China's actions and gain some influence of its own. Japan will not simply be able to buy whatever it likes, however. China seems happy for foreign central banks to hold limited amounts of its bonds as another step in the internationalisation of the yuan. Malaysia reportedly already enjoys the privilege, among others;Japan is set to be the first G7 country to do so. But China will not do anything to compromise its control of the exchange rate. Fred Bergsten at the Peterson Institute for International Economics, a think-tank in Washington, oc, once argued that America should dispense with the niceties and exert upward pressure on the Chinese currency via the offshore market instead. He advised America to buy instruments such as the yuan-denominated "dim sum" bonds now on offer in Hong Kong. Quite what effect that would have on the exchange rate is unclear, but the message would be unmistakable.
The Economist December 31st 2011
60 Finance and economics 2011 revisited
Charting the year N 2008 banks were saved by governments. The question that dominated 2011 was how to save governments. The euro-area sovereign-debt crisis metastasised from a problem affecting small, peripheral states to one that threatens the single currency itself. The rise in Italian bond yields in particular marked a dangerous new stage in the saga (chartl). European banks, stuffed full of government bonds, have suffered a severe funding squeeze since the summer (chart 2). The euro was oddly resilient against the
I
I
dollar, but Switzerland and Japan intervened to hold down their currencies as investors sought shelter (chart 3). Faced with skittish creditors, countries in Europe tried to instil confidence by cutting spending (chart 4). Austerity and growth do not mix, however. Euroarea GD P remains below its pre-crisis level. American output did at least regain that mark in 2011 (charts) but us unemployment remained very high. The emerging economies again outshone their rich-world counterparts
in terms of growth andjobs.Butfears about inflation (chart 6) slowly gave way to fears about growth as the year went on and Europe's problems worsened. Emerging-market stocks dropped sharply in the summer as investors put their money into less risky assets (chart 7). Gold also benefited from another year of fear. The metal was set to post its nth consecutive annual gain in 2011 (chart 8). Go ogle searches for "gold price" rose whenever measures of market uncertainty did (chart 9). If governments aren't safe, after all, what is?
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2011
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Fear indices
140 Gold
Google searches in US for "gold price~ January 3rd=100
S&P500
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60
250
50
200
40
150
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The Economist December 31st 2011
Finance and economics 61
Economics focus How to get a date The year w hen the Chinese economy w ill truly eclipse America's is in sight
N THE spring of 2011 the Pew Global Attitudes Survey asked thousands of people worldwide which country they thought was the leading economic power. Half of the Chinese polled reckoned that America remains number one, twice as many as said "China". Americans are no longer sure: 43% of us respondents answered "China"; only 38% thought America was still the top dog. The answer depends on which measure you pick. An analysis of 21 different indicators chosen by The Economist (the full set is at economist.com/chinavusa) finds that China has already overtaken America on over half of them and will be top on virtually all of them within a decade. Economic power is best gauged by looking at absolute size rather than per-person measures. On a few indicators, such as steel consumption, ownership of mobile phones and beer-guzzling (a crucial test of economic superiority), the milestone was reached as long as a decade ago. Several more have been passed since. In 2011 China exported about 30% more than the United States and spent some 40% more on fixed capital investment. China is the world's biggest manufacturer, and partly as a result it burns around 10% more energy and emits almost 40% more greenhouse gases than America (although its emissions per person are only one-third as big). The Chinese also buy more new cars each year than anybody else. The country that invented the compass, gunpowder and printing is also challenging America in the innovation stakes. We estimate that in 2011 more patents were granted to residents in China than in America. The quality of some Chinese patents may be dubious but they will surely improve. The World Economic Forum's "World Competitiveness Report" ranks China
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Overpowering Year in which China:
overtakes
the United States
China/ US ratio
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$
*Purchasing-power parity
Interactive: Make your own predictions for which year China's GOP will eclipse America's, and find even more indicators at Economist.comfchinavusa
31st out of 142 countries on the quality of its maths and science education, well ahead of America's 51st place. China's external financial clout also beats America's hands down. It has total net foreign assets of $2 trillion; America has net debts of $2.5 trillion. The chart shows our predictions for when China will overtake America on several other measures. Official figures show that China's consumer spending is currently only one-fifth of that in America (although that may be understated because of China's poor statistical coverage of services). Based on relative growth rates over the past five years it will remain smaller until 2023. Retail sales are catching up much faster, and could exceed America's by 2014. In that same year China also looks set to become the world's biggest importer- a huge turnaround from 2000, when America's imports were six times those of China. What about GDP, the most widely used measure of economic power? The IMF predicts that China's GDP will surpass America's in 2016 if measured on a purchasing-power parity (PP P) basis, which adjusts for the fact that prices are lower in poorer countries. But America will only really be eclipsed when China's GDP outstrips it in dollar terms, converted at market-exchange rates. In 2011 America's GDP was roughly twice as big as China's, down from eight times bigger in 2000. To predict how quicldy that gap might be closed, The Economist has updated its interactive online chart (also at econornist.com/chinavusa) which allows you to plug in your own assumptions about real GDP growth in China and America, inflation rates and the yuan's exchange rate against the dollar. Our best guess is that annual real GDP growth over the next decade averages 7-75% in China (down from 10.5% over the past decade) and 2.5% in America; that inflation (as measured by the GDP deflator) averages 4% and 1.5% respectively; and that the yuan appreciates by 3% a year. If so, then China will overtake America in 2018. That is a year earlier than our prediction in December 2010 because China's GDP in dollar terms increased by more than expected in 2011. Second place is for winners Even if China became the world's biggest economy by 2018, Americans would remain much richer, with a GDP per head four times that in China. But Rupert Hoogewerf, the founder of the annual Hurun Report on China's richest citizens, reckons that it may already have more billionaires. His latest survey identified 270 dollar billionaires but the true total, he says, is probably double that because many Chinese are secretive about their wealth. According to the Forbes rich list, America has 400 billionaires or so. America still tops a few league tables by a wide margin. Its stockmarket capitalisation is four times bigger than China's and it has more than twice as many firms in the Fortune global soo, which lists the world's biggest companies by revenue. Last but not least, America spends five times as much on defence as China does, and even though China's defence budget is expanding faster, on recent growth rates America will remain top gun until2025. Being the biggest economy in the world does offer advantages. It helps to ensure military superiority and gives a country more say in fixing international rules. Historically, the biggest economy has become the issuer of the main reserve currency, which is why America has also been able to borrow more cheaply than it otherwise would. But it would be a mistake for American leaders to try to block China's rise. China's rapid growth benefits the whole global economy. It is better to be number two in a fastgrowing world than top dog in a stagnant one. •
62
Property
certain information. interested parties will be provided with access to the online dealroom (including access to det ailed draft contracts).
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6. Conditions relating to the contract: Deposit s. guarantees, parent company guarantees, bonds, collateral warrant ies or other forms 1. Contracting authority: Olympic 1 of securit y m ay b e required. Bids Park Legacy Company Umited (OPLC). from companies. consortia or joint ventures will be considered. 2. Contact: Further inform ation, 7. Conditions relating to including in relation to registration partidpation: The invitation to o f interested parties, can be tender will contain certain minimum obtained at : www.legacycompany.co.ukJstadium requirem ents that must be included All reque5ts for informat ion and any in each bid. Bidders m ay be req uired questions should be sent by email to to team with other bidders, to t ake a particular legal form or to undertake [email protected] joint and severa l liabil ity. Additional 3. Object, type and delivery of condit ions w ill be provided in the the contracts: The London 2012 invitat ion to tender, w hich will be Olympic St adium (the Olympic Stadium) Is an 80,000 seat stadium, available in the online deal room. w hich is situated in the Olympic Park in the London Borough of Newham. Post-201 2 Ga mes, the Olympic Stadium will be t ransformed into a 60,000 seat multipurpose stadium (the Stadium). Interested parties are invited to bid for a concession to provide sporting. entertainment and/or cultural content in the Stadium after the 201 2 Olympic and Paralympic Gam es.
8. Pre-qualification Requirements and Evaluation Criteria: The invitation to tender w ill contain inform ation regard ing the prequalificat ion requirem ents and the eva luation criteria.
4. The Competition: OPLC is providing a competit ion information and clarification day (including an outline o f the tender process) for a m aximum of two representatives per interested party at 10 a.m . on 6th January, 2011 in l ondon. Subject to interest ed parties signing a confidentiality agreem ent and providing
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Please note that this is not the deadline for submission of bids. The deadline for submission of bids will be set out in the invitation to tender. The Economist December 31st 2011
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Also in this section 64 lS_olar_p_ow.eL.s thi rd_way 64 'rite d_urable_Comet_Loy_ejo_y1
For daily analysis and debate on science and technology, visit Economist.comfscience
Flu research and biological warfare
A deadly balance NEW YORK
When does research enhance security, and when does it diminish it?
EMPTING fate is never wise; tempting a flu pandemic is downright foolish. Yet it is impossible for scientists to understand influenza or create vaccines without at least some risk. The question, then, is what level of risk is acceptable. On December 20th the American authorities said they had asked the world's leading scientific journals to withhold research on the matter. The request, to Science (an American publication) and Nature (a British one), is unusual. But so is the research in question. Two separate teams, led by Yoshihiro Kawaoka at the University of Wisconsin-Madison, and Ron Fouchier at Erasmus Medical Centre in Rotterdam, have tinkered with H5N1, otherwise known as bird flu. The resulting strains are dramatically more dangerous. According to the World Health Organisation, bird flu has killed more than 330 people since 2003. That is a staggering 6o% of the 570-odd cases recorded worldwide in that period. (The actual fatality rate may be lower since non-fatal cases of bird flu are more likely to escape detection than fatal ones.) The "Spanish flu" of 1918-20, which infected 500m people, claimed the lives of no more than one in five sufferers. H5N1's toll would certainly have been greater than hundreds had it not been for an important limitation: unlike its Spanish sister it is not easily transmitted to humans, or between them. But if the virus ever evolved to hop nimbly from person to per-
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son it too could wreak a pandemic. That evolution has now occurred, helped by the researchers in Madison and Rotterdam. Each team engineered the virus so that it could be transmitted through the air from ferret to ferret (ferrets, surprisingly, are good proxies for humans). Details of both studies are still under wraps but a paper Dr Fouchier presented in September at a virology conference in Malta outlined his team's approach. According to reports from the meeting, his team first tried to fiddle with the flu genome directly, introducing bespoke changes to it in an effort to create an airborne strain. When this did not work, he resorted to the low-tech method of passing the virus- with a few engineered mutations that had not themselves done the trick-from one ferret to another a number of times, giving it an opportunity to evolve naturally. After several generations evolution worked its (in this case black) magic: the flu had gone airborne. The nasty strain had five mutations in two genes. Each of these has, notes Dr Fouchier, already been found in nature, only in separate strains and never clumped together. So far, the new, deadlier flu strains exist only in laboratories, of course. However, the fear is that if the researchers are allowed to describe the genetic changes needed to create them and the precise methods used to do this, then terrorists or other mischief-makers will be able to copy
the techniques. H5N1 could become the atom bomb of biological warfare. American officials want to prevent this from happening. After the anthrax attacks of 2001, America created the National Science Advisory Board for Biosecurity (NSABB) to advise the health department. Until now the body has exercised a light touch. For example, it did not flinch when, in 2005, researchers at the Armed Forces Institute of Pathology in Maryland reconstructed the Spanish flu virus. The work was subsequently published in Science andNatureafterthe NSABB concluded that the benefits of making it public outweighed the risks. Non-proliferation entreaty This time the NSABB has not asked the two journals to withhold the new research altogether. Rather, it has tried to strike a balance, suggesting that they publish enough information to encourage further understanding and responsible research, but not enough to allow the researchers' methods to be put to nefarious use. It also suggested that the revised manuscripts explain the potential public-health benefits of the research, as well as the safety and security measures in place at the labs where it is being conducted. Bruce Alberts, the editor of Science, which accepted Dr Fouchier's work for publication, said in a statement that the journal was pondering what to do. (Dr Kawaoka submitted his findings to Nature.) It would wait for the government to suggest how the sensitive data might be shared with scientists confidentially. Knowledge about the new virus, Dr Alberts wrote, "could well be essential for speeding the development of new treatments to combat this lethal form of influenza". Blunt censorship would be counterproductive. The NSABB might urge other scientists ~~
64 Sdence and technology ~ to
put the publication of similar studies and their presentation at scientific meetings- though not the studies themselves- on hold. Paul Keirn, a microbial geneticist at Northern Arizona University who chairs the NSABB, told Science that such a moratorium would not prevent other areas of influenza research from carrying on as usual. He said it need not last more than three months, during which scientists could weigh the risks and benefits of disseminating contentious research. There is plenty to discuss. Laurie Garrett at the Council on Foreign Relations, an American think-tank, has pointed out that some deadly viruses, such as smallpox, are kept under countless locks and keys in secure facilities. The new strains are not quite so well protected. The two labs where they reside have been rated at "biosafety level3, enhanced", like the lab where the Spanish flu was resuscitated but still a notch below the highest "level 4" required for facilities which handle the very nastiest bugs. As such, there is a slim chance that the potentially lethal strains could be unleashed not by terrorists, but by simple error. That is probably one risk not worth taking. • Solar power
Building a better suntrap A novel approach to solar power may
h elp to improve its efficiency O MAKE electricity from sunlight you can convert it directly, using a photovoltaic cell. Or you can use the heat of that sunlight to boil water, and then drive a turbine with the resulting steam. These are both established technologies. But there is, in principle, a third way: use heat directly, without steam or turbines. In this case, unlike a standard solar cell (which is sensitive to some frequencies of light, but not others), almost all of the incident energy is available for conversion. Yet unlike the boiling-water method, no messy mechanical processes are involved. Once set up, such a system could run with the minimum of attention. Unfortunately, devices that turn sunlight into heat and then into electricity in this way do not get much warmer than boiling water when they are exposed to direct, unconcentrated sunlight. The reason is that at temperatures significantly higher than this the laws of thermodynamics dictate that they shed heat as fast as they absorb it. That has proved problematic, because a direct converter of this sort needs to reach 700°C to become properly efficient, and that is impossible without using special (and expensive) parabolic mirrors
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The Economist December 31st 2011 to concentrate the incident light. Peter Bermel of the Massachusetts Institute of Technology and his colleagues, however, think they have found a way round this difficulty. As they describe in Nanoscale Research Letters, they have invented a way of concentrating the energy in the sun's rays without the need for mirrors. It is, quite literally, a suntrap. Dr Bermel's proposed trap is a thin sheet of tungsten (a heat-resistant metal) that has been processed in quite a complicated way. One surface, which faces the sun, is covered in microscopic pits. The other, which faces a specialised type of solar cell made of a material called indium gallium arsenide, is sculpted into a structure called a photonic crystal that causes it to emit infra-red radiation selectively at the frequency best absorbed by the cell. Both of these surfaces would be created by photolithography, the process used to make computer chips. It is the pits, which are three-quarters of a micron in diameter, three microns deep and arranged in a grid four-fifths of a micron apart, that do the trapping. When the device is aligned so that its pits are pointing straight at the sun, most of the incident radiation goes down them to their bottoms. Here, it is absorbed by the tungsten. As the laws of thermodynamics demand, it is then rapidly reradiated. Heat radiation coming from inside a pit, however, is more likely than not to encounter the pit's wall before it escapes into the outside world. If that happens, the whole process of absorption and reradiation starts again. The result is that the pitted tungsten becomes much hotter than a plain sheet of the metal could manage. To turn that heat into electricity, it is directed towards the solar cell by the photonic crystal. This is a regular geometric pattern etched onto the surface of the tungsten. It acts to amplify infra-red emissions at some frequencies and suppress them at others. The trick is to tune the crystal, by modi-
Let's catch some rays fying the details of pattern, so that as much of the emitted energy as possible is at the frequency most efficiently captured by indium gallium arsenide. The process of capture knocks electrons free inside the material and creates a current. The result, according to Dr Bermel's calculations, would be a system that converts 37% of sunlight into electricity. This compares with a maximum of 28% by standard silicon-based solar cells that have not had the incident light concentrated by parabolic mirrors, and 31% by those that have- a significant enhancement. The next step, of course, is to try it for real, but Dr Bermel is pretty confident his sums are correct. Tungsten, as a material, was much used in the filaments of incandescent electric light bulbs. These are going out of fashion because they convert too much of the electricity passing through them into heat, rather than light. A nice irony, then, that running the process backwards may not only give tungsten a new lease of life, but might also help solve the world's shortage of renewable energy. • Comet Lovejoy Being wrong can be more interesting than being right. In November Terry Lovejoy, an Australian amateur astronom er, spotted a comet on a collision course with the sun. Comets fall i nto the sun all the time, but the advance warning let professionals get their instruments ready to record the immolation. Yet the comet-named Lovejoy after its discoverer-confounded boffins. Despite coming within 140,000km (87 ,ooo miles) of the solar surface, well inside the corona, a cloud of million-degree plasma that envelops the sun, it survived. In the picture, taken by Dan Burbank, an astronaut aboard the International Space Station, a singed Lovejoy heads defiantly back into space.
The Economist December 31st 2011
Sdence and technology 65
Cancer research
Take five NEIVYORK
An ambitious plan for curing cancer in a businesslike way is in the works
R
ON DEPINHO is a man on a mission. Oddly, though, he does not yet know exactly what that mission is. Dr DePinho is the new president of the MD Anderson Cancer Centre in Houston, Texas. (He took over in September, having previously headed the Belfer Institute, part of Harvard's Dana-Farber Cancer Institute.) Mindful of his adopted city's most famous scientific role, as home to Mission Control for the Apollo project, he says his own rnissian is akin to a moon shot. He aims to cure not one but five varieties of cancer. What he has not yet decided is: which five? That it is possible to talk of curing even one sort of cancer is largely thanks to an outfit called the International Cancer Genome Consortium. Researchers belonging to this group, which involves 39 projects in four continents, are using high-throughput DNA -sequencing to examine 50 sorts of tumour. They are comparing the mutations in many examples of each type, to find which are common to a type (and thus, presumably, causative) and which are mere accidents. (The o N A-repair apparatus in malignant cells often goes wrong, so such accidents are common.) The consortium's work is progressing fast, and preliminary results for many tumours are already in. But such knowledge is useless unless it can be translated into treatment. That is where Dr DePinho comes in- for his career has taken him into the boardroom as well as the clinic. He is a serial entrepreneur: he helped found Aveo Pharmaceuticals, which is developing a drug to block the growth of blood vessels in tumours, Metamark Genetics, which works on diagnosing cancers, and Karyopharm Therapeutics, which is trying to regulate the passage of molecules into and out of the cell nucleus, and thus control the nucleus's activities. His aim in coming to MD Anderson, he says, is to "industrialise" other aspects of biological research in the way that genetics has been pushed forward by high-throughput sequencing. That will cost billions of dollars. Fortunately, the state of Texas- no pushover when it comes to spending taxpayers' cash-is creating a $3 billion cancer-research fund to help pay for it. Local philanthropists, including T. Boone Pickens and Ross Perot, are chipping in, too. Their model is the original Human Genome Project, during which the cost of sequencing a single genetic "letter" (a DNA base pair) fell from $10 in 1991 to ten cents in 2001- and is
now 3,000 base pairs a cent. They hope their dollars will encourage people working with what are now, essentially, craft technologies to think about how they might industrialise them. Several techniques look ripe for such industrialisation. Dr DePinho sets great store, for example, by the use of genetically modified mice (he calls them "little patients") in which mutations found in human cancers can be replicated precisely, but one at a time, to discover the shape of each piece of the jigsaw. If this process can be scaled up it will, as he puts it, allow cancer's genetic generals to be distinguished from the foot soldiers.
Cancer, you have a problem Another field that has great potential is imaging technology- in particular, a combination of positron-emission tomography (which uses radioactive sugar to measure how metabolically active tissue is) and computerised tomography (which uses x-rays to map the body's internal anatomy). Together these can show whether a treatment is reducing a cancer's energy consumption, and thus its metabolism. This gives a good indication of how well that treatment is working.
A family business Dr DePinho himself will have more duties at MD Anderson than just dealing with the five chosen tumours. The donkey work of creating the Institute for Applied Cancer Science, as the new mission control is to be known, will be done by Lynda Chin. Dr Chin, too, worked at the Belfer Institute. She is part of the International Scientific
Steering Committee of the cancer-genome project. And she is also Dr DePinho's wife. Dr Chin will be assisted by some 55 other scientists from the Belfer, who are making the journey to Texas with her and her husband. That sort of team poaching is common in investment banking but rarer in academic research. Dr DePinho refers to it, jokingly, as metastasis, since a clone of his primary creation will be taking root elsewhere in the country. As to which five cancers to attack, that decision will be made by the middle of 2012. A crucial consideration will be how likely it looks that research into the tumour in question could get rapidly to the "proof of concept" stage- the point at which it could be taken forward by a business that relied on commercial sources of capital, rather than on the sorts of grants that usually propel academic research. At that moment a new firm might be spun out of the institute, or a deal might be done with an established pharmaceutical firm, to try to get a new drug developed. In recent years many big drug companies have gutted their research departments. This is partly because those departments have failed to come up with new "blockbuster" drugs of the sort that created Big Pharma in the first place, and partly because the big firms' bosses had hoped that smaller biotechnology companies, of the sort Dr DePinho has helped set up, would do the hard work of drug discovery instead, and then let themselves be bought by the big firms . Unfortunately, it hasn't quite worked out like that. The output of the biotech firms has been a trickle, rather than a torrent. They have been one of the worst-performing parts of the private-equity market since 2007, according to Dr DePinho. He hopes to change that- and in the matter of new anti-cancer drugs, the science is looking auspicious. For example, a drug caJJed vemurafenib, which was approved for use in America in August 2o:u, gives months of extra life to people with metastasising melanoma, one of the deadliest cancers. Vemurafenib is so powerful that some people call it a "Lazarus" drug, after the chap Jesus is said to have raised from the dead. Crucially for Dr DePinho's project, the development of vemurafenib was stimulated by the identification of a mutated gene often present in melanomas. He and others like him hope that the cancer-genome consortium will throw up dozens of similar genes, and that they, too, will prove tractable targets for drug development. Of course, if Dr DePinho had a penny for every time a "cure for cancer" headline proved premature, he wouldn't need munificent donors. But if his bets on the science and on adopting business methods pay off, the drug industry and millions of patients will benefit. That would be one benign sort of metastasis. •
The Economist December 31st 2011
Books and arts 67
~ of traits. Supposedly resulting from
abnormal antenatal exposure to hormones, this cluster includes maleness, homosexuality, left-handedness, poor visual-spatial skills, immune disorders, and perhaps also language-learning talent. Brain areas are also keyed to certain skills. The left Heschl's gyrus is bigger than average in professional phoneticians. People who learn new vocabulary quickly show more activity in the hippocampus. Krebs's brain, preserved in slices at a laboratory in Dusseldorf, shows various unusual features. The discovery of the FOXP2 brain gene, a mutation of which can cause language loss, was met with considerable excitement when it was announced over a decade ago. But the reality is that many parts of the brain work together to produce speech and no single gene, region of the brain or theory can explain successful language-learning. In the end Mr Erard is happy simply to meet interesting characters, tell fascinating tales and round up the research without trying to judge which is the best work. At the end of his story, however, he finds a surprise in Mezzofanti's archive: flashcards. Stacks of them, in Georgian, Hungarian, Arabic, Algonquin and nine other tongues. The world's most celebrated hyperpolyglot relied on the same tools given to first-year language-learners today. The conclusion? Hyperpolyglots may begin with talent, but they aren't geniuses. They simply enjoy tasks that are drudgery to normal people. The talent and enjoyment drive a virtuous cycle that pushes them to feats others simply shake their heads at, admiration mixed with no small amount of incomprehension. • Algeria and France
War by any other name Algeria: France's Undeclared War. By Martin
Evans. Oxford University Press; 457 pages; $35 and £20 N 2006 Franc;ois Hollande, now the Socialist Party's candidate in France's forthcoming presidential election, declared "in the name of the Socialist Party" that the Section Franc;aise de I'Internationale Ouvriere, the forerunner of his party, "lost its soul in the Algerian War. It had its justifications but we still owe an apology to the Algerian people." Indeed so. It was a Socialist prime minister, Guy Mollet, who in 1956 ordered a campaign of "pacification" against Algeria's nationalists. Opposed to colonialism, Mollet may well have acted out of good intentions, but "pacification" amounted to
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Outstaying his welcome
repression and countless acts of brutality and torture by the French army. But Martin Evans, a British academic, is too good an historian to present a one-sided story of its quest for independence. The insurgent Front de Liberation Nationale (FLN) was ruthless in its determination to be the sole representative of Algerian nationalism, willing to kill and maim not just French settlers but also the rival nationalists of Messali H adj's Mouvement National Algerien. The cruelty was exercised even within the FLN's own ranks, witness the cold-blooded strangling of Abane Ramdane or the assassination of Mohamed Khider, another of its leading figures. Mr Evans's title reminds the reader that the Algerian conflict was officially only a "police operation". Recognition that it was a full-scale war, France's worst conflict since the second world war, came only with a vote by the National Assembly in 1999, some 37 years after Algeria's independence. But the thoroughness of this book is that it traces the origins of the war all the way back to the French invasion of 1830. What followed were dismal decades of discrimination, poverty and famine. In retrospect, it is hard to see how metropolitan France could ever have imagined a secure and peaceful hold on "French Algeria". Once the war erupted, there was never much hope that France's politicians, from Mollet through to Charles de Gaulle, could win Muslim Algerian "hearts and minds". Nor could they win the trust and support of the European settlers, the pieds noirs (literally "black feet", see picture above) whose sense of betrayal led them to side with the futile rebellion against de Gaulle by the dissident French soldiers of the OAS (Organisation de I' Armee Secrete). As Mr Evans describes, it was not just Algeria's history that militated against it
being an inseparable part of the French nation, but also the context of contemporary geopolitics. The tide of anti-colonialism after the second world war was forcing Europe's imperial powers to grant independence almost everywhere. France had already been defeated in Vietnam; Britain's prime minister Harold Macmillan talked of the "wind of change" sweeping across Africa; and America's President Eisenhower swiftly compelled France (which accused Egypt's Gamal Abdel Nasser of aiding the FLN), Britain and Israel to pull back from their 1956 seizure of the Suez Canal. The implications were recognised by de Gaulle: if France were to be a power to be reckoned with in a world now defined by the cold war, it had to rid itself of the Algerian millstone- whatever the objections of the settlers who would then have to seek refuge in France. But what of today? Mr Evans's excellent book is marred only by the occasional editing error (ORAF, the Organisation of the French Algerian Resistance, exists only as an acronym, and Mr Evans, when talking of the founding members of the European Economic Community, omits the Netherlands). It ends with a somewhat depressing postscript chapter. In France, citizens of Algerian and other north African descent are disproportionately poor and discriminated against; at times their young, caught between two different cultures, react with violence, as in the urban upheavals of 2005. As Mr Evans says: "The riots of 2005 were just one example of how the legacy of the Algerian war is still being played out." Meanwhile, in Algeria itself, the country struggles with the aftermath of another undeclared war: the brutal repression by the army of the Isla mist forces who two decades ago were about to be voted into office. •
68 Books and arts William Carlos Williams, American poet
On the outside looking in "Something Urgent I Have to Say to You": The Life and Works of William Carlos Williams. By Herbert Leibowitz. Farrar, Straus and Giroux; 496 pages; $40 and £23.99
O HIS patients in Rutherford, New Jersey, William Carlos Williams was just the local boy who had become their local doctor. And yet, as he made house calls, administered vaccinations or listened to their complaints, he heard not just what they said, but how they said it. A doctor but also a poet, Williams spent his life trying to capture the "infinite variety" of American speech, and to use it to create a uniquely American form of poetic verse. It was not an easy task. As Herbert Leibowitz's new biography shows, Williams remained on the periphery of 2oth-century literature as he spent a lifetime in the "grey-brown landscapes" of suburbia. He was disgruntled, with a severe dislike of many of his fellow poets, especially T.S. Eliot (Williams was both admiring and disdainful of "The Waste Land"), but his poems are now held up as some of the most daring examples of modern American poetry, and he was posthumously awarded the Pulitzer prize in 1963. During his lifetime, however, Williams was "lil Bill" to his bigger, more successful friend Ezra Pound, who laughed at his insistence on staying in Rutherford. The son of immigrants who never naturalised, Wil-
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The Economist December 31st 2011
Iiams's dedication to America did not flag, though it was a country that often disappointed him. Peopling his poems with "nurses and prostitutes, policemen andreligious fanatics, farmers and fish peddlers, drunkards ...blues singers and barbers", Williams wanted to pin down the whole messy country with his short, punchy lines of poetry. Sometimes he succeeded, as when he describes the euphoric crowds at a baseball game, or when he catches a glimpse of "A big young bareheaded woman/in an apron" on the pavement, bending down to remove a nail from her shoe. With the eyes of a doctor, he recorded the quotidian and the overlooked. He coined the maxim "no ideas but in things". To his critics, the saying exposed him as an anti-intellectual, or as a poet who could only create "American speech barking at song." Mr Leibowitz, a New York literary editor, is keen to defend Williams against these charges, and focuses instead on the radical aspects of Williams's work. Banned in 1952 from being poetry consultant to the Library of Congress for his leftleaning views, Williams wrote poems in which the Rosenbergs appeared next to Geoffrey Chaucer. As a young doctor just starting out, he had mainly served the Italian, Greek and Polish communities around Rutherford, or attended to bruised prostitutes or addicts at the French Hospital of New York. As an elderly man with a respected practice, he still preferred the company of the socially marginalised: "I have known the unsuccessful, [and think them) far better persons than their more lucky brothers". However, in emphasising this side of Williams Mr Leibowitz skates over the less
George Whitman/ Christopher Hitchens Two men of letters to remember upon a winter's night are George Whitman (pictured left) , who died on December 14th, and Christopher Hitchens, who died the following day. Both men lived for words and for writing, Whitman as a patron of impecunious poets and owner of a landmark Paris bookshop, Shakespeare and Company, and Hitchens as a magazine columnist, late-night bard and scourge of hypocrites and windbags everywhere. We have published obituaries of both on our website.
palatable aspects of his subject's character. A serial philanderer who publicly described his wife as "no Venus de Milo", his poetry is occasionally voyeuristic and antagonistic towards women: "What I got out of women/was difficult/to assess." Bitter from his lack of success in America or abroad, and obsessed with what he saw as the "European virus" in poetry, the Williams of this biography is not easy company. His poems, composed of short lines like "be a song- made of/particulars", often resist Mr Leibowitz's lengthy analysis. Just as he preferred the quiet meadowlands around Rutherford to the glamour of literary New York, so too Williams manages to evade his biographer's gaze. Like a figure in one of his poems, he remains on the sidelines, looking in. • 19th-century British politics
Third man John Bright: Statesman, Orator, Agitator. By Bill Cash. I. B. Tauris; 328 pages; $55 and £25
ILL CASH, a Conservative British backbench politician, has written a book about another backbench politician, who also happens to be an ancestor. Mr Cash frets that his great-grandfather's cousin has been forgotten, but he hasn't really. No historian doubts the importance of John Bright; it is just that he has slipped out of the popular consciousness. So, for the layman, who was he? The very question, Mr Cash tells us, would have flabbergasted anyone in the 19th century. In 1878 Punch published a series of cartoons of the three Britons whom they deemed to be the greatest statesmen of the age- Benjamin Disraeli, William Gladstone and Bright. Born in 1811 and with a political career spanning nearly so years as a member of parliament for Durham, Manchester and Birmingham, Bright would be "the one contemporary statesman whose fame and accomplishments transcended the age," according to Walter Bagehot, this newspaper's editor from l86o-n A biography by G.M. nevelyan, which came out in 1913, described him as"a rare example of the hero as politician". A Quaker born in Rochdale, Bright made his name campaigning for the repeal of the protectionist Corn Laws, distinguishing himself, as Karl Marx testified, as "one of the most gifted orators that England has ever produced". He was inspiring as well as courageous, and his passion for free trade was allied to his passion for democracy. He crusaded against monopoly, aristocracy, slavery and more. It was Bright ~~
B
The Economist December 31st 2011 ~ who
said that "England is the mother of Parliaments", a phrase that has passed into idiom. He fought tirelessly for the Reform Act of 1867 which gave the vote to workingclass men. A radical as well as a nonconformist, Bright was vocal in his opposition to the Crimean war, which he believed to be un-Christian, a stance that eventually lost him his parliamentary seat. Whether you rated him a hero or a villain depended on your point of view. His pugnacity fascinated and repelled people in equal measure. Early tales include a furious quarrel with a local Anglican vicar, both of them hollering from tombstones in the parish churchyard. He was, says Mr Cash, "an independent Radical by principle, with a persistent strain of innate conservatism. He was in the Liberal Party as it evolved but not always of, or even with, the Liberal Party". His relationships with Gladstone and Disraeli were complex. He loathed Lord Palmerston, a former prime minister, and the feeling was mutual. Mr Cash is a lawyer by training and a politician by profession. He has a sharp
Books and arts 69 eye for detail and he presents a strong case. What he does not explain is how Bright slipped out of view. His own interest, he tells the reader, has increased "in inverse proportion to the decline in the vibrancy, accountability and sovereignty of our Parliament". But the underlying lament, that Bright has been censored out by fashion "as people became cynical of moral and political certainties" is too marbled with nostalgia to be believable. Bright was a political force, but he never held high office, so he was rather like a midfielder who forever sets up the strikers: assists don't count as much as goals. A fullscale revival of his reputation would have to rouse the reader's imagination. Mr Cash quotes Bright's dictum that "my life is in my speeches", many of which are rhetorical masterpieces; but the reader wants more of the man, more of the life outside the speeches. Bright believed that biographies "are soon forgotten, and of no influence in the future". Historians will enjoy this fine political portrait, but it is unlikely to make Bright famous again. •
20th-century women
Dandy dames
Rebecca West and Dorothy Thompson were remarkable- by any standards
OROTHY THOMPSON and Rebecca West were career women long before the term had been invented. In the 1930s, when Thompson and West were making their mark as established professionals, a Gallup poll recorded that 82% of the American population believed women "should not have paying jobs outside the home" if their husbands were employed. Yet both women worked consistently from their early 20s in occupations that were almost entirely male-dominated- Thompson as a foreign correspondent and then a political commentator; West (pictured right) as a literary critic, lauded novelist, historian and travel writer. Susan Hertog's biography, an accomplished synthesis of these two lives and the remarkable parallels between them, is also a history of the 2oth century, a study of female emancipation and literary culture, and an acute analysis of dysfunctiona! family life. The most striking similarity between Thompson and West is their seemingly in-
D
Dangerous Ambition: Rebecca West and Dorothy Thompson, New Women in Search of Love and Power. By Susan Hertog. Ballantine Books; 493 pages; $30 and £19.99
nate self-belief and fearlessness. On her 27th birthday in 1920 the American-born Thompson sailed for England. With no contacts but with portfolio in hand, her goal was to gain credentials as a freelance reporter and make her way across Europe to witness the aftermath of the revolution in Russia. By1927 she was living in Berlin as the first female head of a news bureau in Europe. West, the daughter of an AngloIrish journalist who abandoned the family when she was eight, was a reviewer and essayist by the time she was 19, when "regardless of reputation" she published cutting critiques of established writers such as Arnold Bennett and George Bernard Shaw. West wrote consistently until her death at 90 im983, and was in the enviable position of having Harold Ross, the editor of the New Yorker, write to her, pleading: "Please write any story you want for us, fact or fiction." In 1941 West published her best-known book, "Black Lamb and Grey Falcon", a history of the Balkans and a meditation on the rise of Nazism. Ms Hertog's style is frequently novelistic, which is less irritating than might be anticipated. In her description of Thompson's life in Berlin, for example, Ms Hertog assumes the voice of an omniscient narrator: "As Dorothy walked to the small office
she kept on Motzstrasse, she remembered the first time she had met Rebecca ... " Her writing style can be fanciful, as when Ms Hertog imagines the colour of Thompson's dress and how her hair might have been styled for her un-photographed first wedding. But it works well in the passages where the author attempts to draw out the romantic and family dramas which so defined the lives of both women. When she was 21 West had an illegitimate son with H.G. Wells, 26 years her senior and then on his second wife, before marrying Henry Andrews, a banker, who was frequently unfaithful and suffered early from a form of dementia. Thompson was married three times and also had a son, with Sinclair Lewis, her second husband and winner of the Nobel prize in literature. Resentful of their mothers after lonely childhoods, both sons married young before abandoning their first wives, pursued unrealistic ambitions, and, when they proved unsuccessful, demanded lifelong financial assistance. The danger of the book's title refers to the effects of their ambitions to be, as Thompson put it, "something no other woman has been yet". Both women turned out to be poor parents, even if they came up to roughly the standard expected of working fathers of the time; both chose work and travel over their child, sent them away to school and placated them with lavish gifts. Ms Hertog poignantly renders the conflict between maternal instinct and the desire for realisation of ambition, backed by a fear of diminished "intellectual lustre" and of becoming lost in a "cocoon of domesticity". Thompson and West undoubtedly chose work over family, but in doing so helped to break down barriers, not only for women journalists but for all working women. •
Woman of substance
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dunng the academiC year (1 September- 30 June] equiValent to a &0 to 50% futl·t1me pos1t10n • The management and the development of the European Econom1c Stud1es Programme m 1ts vanous ram1hcattons w1thm the gUidelines set by the Academ1c Counc1l, and supervlston and coordma!lon of the work of a team of teachmg and research ass1stants Further mformatton on the programme 1s ava1labte
The Economist December 31st 2011
on the websate http://www.coleurope.eu/template.asp?pagename•ecolntro • Teach the core course on European Econom1c lntegratton as well as other courses to be determ1ned, and to superv1se a number of Master's theses • Work under the aulhonty of the Rector of the College . • Be a member of the Academac Counc1l. Conditions The fee or salary Will correspond to a proportion of what a full professor earns tn a Belgtan un1vers1ty. The mit1al contract wtll be of a three year durat1on • The College w1ll provtde accommodat1on dunng the penods the pos1llon holders are requtred to s tay m Bruges and will support the cost of roundtnp travel between the European country of res1dence and Bruges. Applications comprising a detailed curriculum vttae, two letters of reference, a list of publications, research projects and courses taught should be submitted before 1 February 2012 to Professor Paul Demaret, Rector, College of Europe by e -mail to ann.vertlnd elikoleu rope.eu. Should you require any further Information on t his position, please contact Mrs. Angela O' Neill, Di rector of Communication I a ngela.onelllfacoleu rope.eu J.
72
Economic and finandal indicators
The Economist December 31st 2011
Economic data %change on year ago Gross domestic product latest gtr* 20111
Industrial production latest
Current-account balance Consumer prices Unemployment latest 12 %of GOP latest 20111 rate I,% months, $bn 20111
Budget Interest balance rates, % %of GOP 10-year gov' t 2011 t bonds, latest
Currency units, per$ Dec 28th yea r ago
United States +1.5 03 +2.0 +1.8 +3.7 Nov +3.4 Nov +3.2 8.6 Nov -466.8 03 -3.1 -8.7 2.01 +9.5 +9.2 +12.4 Nov +4.2 Nov +5.6 6.12010 +259.3 03111 +2.9 -1.8 3.57 6.32 6.62 China +9.1 03 Japan -0.7 03 +5.6 -0.3 -4.0 Nov -0.5 Nov -0.3 4.5 Nov +139.1 Oct +2.3 -8. 3 0.97 77.8 82.1 Britain +0.5 03 +2.3 +0.9 -1.7 Oct +4.8 Nov! +4.4 8.3 octll -40.9 02 -1.5 -8.8 2.04 0.64 0.65 Ca~c1! ___ +2:i 03 _ _:t~_ .;!_2_d ___ +4j_ Oct _ .;!_2~~v- _f£:_8_ __ Li!2.Y. _ __ -!JJ.:l. Q? _ _ Jl... ___ -4. Q_ _ _ _1.1j. ____ _l.02 ___ .hQ.Q. _ Euro area +1.4 03 +0.6 +1.6 +1.3 Oct +3.0 Nov +2.7 10.3 Oct -83.2 Oct -0.5 -4.1 1.94 0.77 0.76 Austria +2.9 03 +1.4 +2.9 +3.0 Oct +3.6 nil +3.2 4.1 Oct +11.2 02 +2.6 -3.6 2.96 0.77 0.76 Belgium +1.9 03 -0.5 +2.1 +4.8 Sep +3.8 Nov +3.3 6.6 Octll +7.0 Jun +1.7 -3.8 4.18 0.77 0.76 France +1.5 03 +1.2 +1.6 +2.1 Oct +2.5 Nov +2.2 9.8 Oct -67.8 Oct -2.4 -5.8 3.04 0.77 0.76 Germany +2.5 03 +2.0 +3.0 +4.0 Oct +2.4 Nov +2.4 6.9 Nov +189.6 Oct +5.2 -1.0 1.94 0.77 0.76 Greece -5.2 03 na -5.3 -12.2 Oct +2.9 Nov +2.9 17.5 Sep -28.9 Oct -8.4 -9.5 34.74 0.77 0.76 Italy +0.8 02 +1.2 +0.6 -4.2 Oct +3.3 Nov +2.8 8.5 Oct -78.9 Oct -3.7 -4.0 6.84 0.77 0.76 Netherlands +1.1 03 -1.0 +1.5 -12.2 Oct +2.6 Nov +2.4 5.8 Novtt +66.6 03 +7.1 -4.2 2.28 0.77 0.76 ~ain_ _ _ _ +0.8 03 _ _ nil_ +0j_ ___ ~,_£0ct _ .;!_2~ Nov__+},0___21._&_o~ _ _ _-56~ Oct __ 3& ___ -6. ~ __ _2.61 _ _ _ _ ~. 77 ___ Q}6 _ Czech Republic +1.2 03 -0.3 +2.1 +1.7 Oct +1.8 Nov +1.9 8.0 Nov -5.6 03 -3.1 -4.6 3.65 19.7 19.3 Denmark +0.1 03 -2.2 +1.1 -0.5 Oct +2.6 Nov +2.7 4.2 Oct +22.2 Oct +5.7 -3.9 1.79 5.69 5.68 Hungary +1.4 03 +2.2 +1.5 +3.0 Oct +4.3 Nov +3.9 10.8 octtt +3.2 02 +1.5 +1. 2 9.43 234 213 Norway +3.8 03 +5.8 +0.8 -5.6 Oct +1.2 Nov +1.4 3.3 Oct!! +70.2 03 +13.6 +13.1 2.44 5.96 5.95 Poland +4.2 03 na +3.8 +8.7 Nov +4.8 Nov +3.9 12.1 Novll -26.1 Oct -4.8 -6.0 5.83 3.37 3.04 Russia +4.8 03 na +4.0 +3.9 Nov +6.7 Nov +8.5 6.3 Novll +86.3 03 +5.0 -0.8 4.73 31.5 30.3 Sweden +4.6 03 +6.6 +4.1 +4.7 Oct +2.8 Nov +2.8 6.7 Novll +39.7 03 +6.7 ni l 1.71 6.85 6.86 Switzerland +1.3 03 +0.9 +1.8 -1.4 03 -0.5 Nov +0.4 3.0 Nov +86.1 02 +13.3 +0.8 0.70 0.93 0.95 Turkey_ ___ +8:.£02 __ .!!_a_ +7.,2. ___ +7]_Oct _ +9.:.?_ Nov__+.2.:_3_ -- ~!ij~l___ - 78.6 Oct_ - ~& ___ -.H ___ _1.59_ _ _ _ _1.90 ___ .1:.56 _ Australia +2.5 03 +3.9 +1.7 +0.8 03 +3.5 03 +3.4 5.3 Nov -32.6 03 -2.3 -2.6 3.74 0.98 0.99 Hong Kong +4.3 03 +0.4 +5.4 +0.3 03 +5.7 Nov +5.1 3.4 Novtt +13.6 03 +4.2 +1.8 1.37 7.78 7.78 India +6.9 03 na +7.6 -5.1 Oct +9.4 Oct +9.0 10.8 2010 -46.2 02 -3.5 -5.4 8.51 53.0 45.1 Indonesia +6.5 03 na +6.5 +8.0 Oct +4.2 Nov +5.3 6.6 Aug +3.6 03 +0.4 -1.0 4.14111 9,075 9,025 Malaysia +5.8 03 na +4.5 +2.7 Oct +3.3 Nov +3.3 3.0 Oct +32.7 03 +10.4 -5.6 3.151!1 3.17 3.09 Pakistan +2.4 2011•• na +2.4 -1.5 Oct +10.2 Nov +12.2 5.6 2010 -0.2 03 -1.3 -5.9 14.10111 90.0 85.7 Singapore +6.1 03 +1.9 +5. 1 -9.6 Nov +5.7 Nov +5.1 2.0 03 +49.2 Q3 +1 7.7 +0.6 1.58 1.30 1.30 South Korea +3. 5 03 +3.3 +3.8 +6.2 Oct +4.2 Nov +4.2 3.1 Nov +22.2 Oct +2.0 +2.4 3.81 1,159 1,148 Taiwan +3.4 03 -0.6 +4.4 - 3.6 Nov +1.0 Nov +1.5 4.3 Nov +38.6 Q3 +8.0 -2.7 1.28 30.3 29.5 Thailand +3. 5 ~ +2.1 +2.5 -48.6 Nov +4.2 Nov +4.2 O.!LS~ .... +13.2 Oct +4.1 -2.9 3.29 31.4 30.2 Argentina +9.3 03 +4.5 +8.5 +0.8 Nov +9.5 Nov• .. +9.9 7.2 0311 nil 03 -0.3 -1. 4 na 4.30 3.97 Brazil +2.1 03 -0.2 +3.0 -2.2 Oct +6.6 Nov +6.7 5.8 Octll -47.3 Oct -2.2 -2.7 11.38 1.86 1.69 Chile +4.8 03 +2.6 +6.3 -0.8 Oct +3.9 Nov +3.2 7.2 octttll -1.2 03 -0.5 +0. 2 2.28tlt 522 470 Colombia +7.7 03 +7.1 +5.1 +5.0 Oct +4.0 Nov +3.4 9.0 octll -10.6 02 -2.7 -2.5 3.56111 1,920 2,036 Mexico +4.5 03 +5.5 +3.9 +3.3 Oct +3.5 Nov +3.3 5.0 Novll -10.0 02 -1.9 -2.9 6.27 14.0 12.4 Venezuela __ +4:.£03 __ .!!_a_ +2.9 ___ +2~~-+28.9 Nov_ +2.2.:_3___ ~s_o3u ___+26.0 03 __ +6& ___ -5.s_ __ ....Q.55~ ___ .2_.30 ____na _ Egypt +0.3 02 na +1.8 -1.8 02 +9.1 Nov +10.2 11.9 0311 - 2.8 02 -1.7 -1 0.0 8.32111 6.03 5.81 Israel +5.1 03 +3.4 +4.4 +5.5 Oct +2.6 Nov +3.3 5.6 03 +1.8 03 -0.1 -2.8 3.50 3.78 3.56 Saudi Arabia +6.7 2011 na +6.7 na +5.2 Oct +4.9 na +75.3 201oltl +25.9 +14.3 na 3.75 3.75 South Africa +3.1 03 +1.4 +3.1 +1.7 Oct +6.1 Nov +5.0 25.0 0311 -11.6 03 -4.1 -5.5 7.87 8.13 6.69 *%change on pre,1ous quarter, annual rate. IThe Economist poll or Economist Intelligence Unit estimate/forecast. !National definitions IRPI inflation rate 5.2 in November. **Year ending June. II Latest 3 months. II Not seasonally adjusted. !!Centred 3-month average. ***Unofficial estimates are higher. Itt Dollar-denominated bonds. ltlfstimate.
The Economist December 31st 2011 Markets
Economic and financial indicators 73
%change on
Dec 31st 2010 Index on e in loca l in$ Dec 27th week currency terms United States (DJIA) 12,291.4 +1.6 +6.2 +6.2 China (SSEA) 2,269.4 -2.2 -22.8 -19.6 8,440.6 +1.2 -17.5 -14.0 Japan (Nikkei 225) 5,512.7 +1.7 -6.6 -6 .5 Britain (FTSE 100) Canad~(S&P TS.!) _ _ _ 11,926.7 _ +1 &_ _ -11.:1 _ -131. Euro area (FTSE Euro 100) 740.5 +1 .2 -17.2 -19.4 2,290.3 +1 .2 -18.0 -20.1 Euroarea (DJSTOXXSO) 1,895.1 +2.8 -34.8 -36.5 Austria (ATX) -20.3 -22.4 Belgium (Bel20) 2,054.2 +0.2 France (CAC 40) 3,103.1 +1.6 -18.4 -20.6 Germany (DAX) * 5,889.8 +0.7 -14.8 -17.0 Greece (Athex Comp) 669.5 +1.4 -52.7 -53.9 14,924.0 -0.3 -26.0 -27.9 Italy (FTSE/ MIB) 309.4 +2 .5 -12.7 -15.0 Netherlands (AEX) 853.6 +0.9 -15.0 -17.2 Spain (Madrid SE) Czech Republic (PX) 906.4 +4.4 -26.0 -29.9 Denmark (OMXCB) 350.9 +0.8 -17.8 -19.8 17,350.8 -1.7 -18.6 -27.9 Hungary (BUX) Norway (OSEAX) 440.9 +2.4 -9.4 -11.6 J.7 ,_§?6.5 :!J.9 -20.3 _ -1Q.1 Poland @0 Russia (RTS, $terms) 1,398.5 +0.2 -18.6 -21.0 976.9 +1.8 -15.5 -17.0 Sweden (OMXS30) 5,886.9 +1.4 -8.5 -8.8 Switzerland (SMI) 52,561.2 +0.8 -20.4 -35.4 Turkey (ISE) 4,192.1 +2.1 -13.5 -14.1 Australia (AllOrd.) Hong Kong (Hang Seng) 18,629.2 +3.0 -19.1 -19.2 15,874.0 +4.6 -22.6 -34.7 India (BSE) Indonesia (JSX) 3,789.4 +1 .0 +2 .3 +1.6 !l_a~sia_ll
I
Initial public offerings DESPITE a strong start, the number of initial public offerings (IPOs) fell by more t han two-fifths in 2011 from 2010. Almost as many deals were withdrawn or postponed as during the heightofthe global fi nandalcrisis in 2008. Worries about many countries' fi nancia l health soured investor confidence. Hong Kong's excha nge was the most popularforiPOs fo r the third year running. Some 17% ofthe $167 billion of new shares issued in 2011 were listed t here. Mainland China's two big exchanges floated more tha n 20% ofthe global total between them. Of the 1,275 IPOS this year, t he largest deal, at $10 billion, was issued in London and Hong Kong by Glencore, a Swiss commodities trader.
Top exchanges by I PO value* January 1st- December 26th 2011, $bn 5
10 15
20 25
30
35
Ho ng Kong
~
New York
12]
London
~
GJ
Shanghai
~ ~
Shenzhen Sh en zhen (ChiNext) Nasdaq
~
Singapore
~
Madrid Sao Paulo
CD
....------. Number of offerings ~~
I
(Novo Mercado)
'Dual-listings are given full value at each exchange
Source: Dealogic
The Economist commodity-price index
Other markets % change on Dec 31st 2010 Index o ne in local in $ Dec 27th week currency t erms United States (S&P 500) United States (NAScomp) China (SSEB, $terms) Japan (Topix)
1,265.4 +1.9 2,625.2 +0.8 211.1 -2.1 724.3 +0.8 Eu~~(FTSEurofirstl!!Ql _ 990.4 _ +1-i. _ 1,183.6 +1.7 World, dev'd (MSCI) Emerging markets (MSO) 924.3 +2.6 World, all (MSO) 300.1 +1.8 World!_ondu Citigro!:!PL _ 924.3 _ -O.l _ _ EMBI+ (JPMorgan) 600.9 +0.3 1,109.0 +0.1 Hedge fu nds (HFRX)I 21.9 +23.2 Volatility, US (VIX) CDSs, fur (iTRAXX) t 172.4 -2.4 CDSs, N Am (COX) I 120.6 -3. 2 Carbon tradi ng (EU ETS) € 8.2 -8.4
+0.6 +0.6 -1.0 -1.0 -33.4 -30.6 -19.4 -16.0 -ll.:Z. _ -14.0 -7. 5 -7.5 -19.7 -19.7 -9. 2 -9. 2 _-:5~ _ +5 .~ +9.0 +9 .0 -8.9 -8.9 +17.8 (levels) +64.8 +60.5 +41. 7 +41.7 -42.3 -43.8
'Total return index. ICredit-default-swap spreads, basis points. !Dec13t h Sources: National statistics offices, central ba nks and stock exchanges; Bloomberg; CBOE; CBOT; C~I!E; Cotlook; Oarmenn & Curl; EEX; FT;HKMA; ICCO; !CO; ISO; Jackson Rice; JPMorgan Chase; NZ 1'/oolServices; Thompson Lloyd & Ewart; Thomson Reuters; Urner Barry;WSJ; WM/ Reuters
2005=100 13th Dollar index All items 177.2 Food 194.7 Industrials All . .. .. ... .158.9 ' .. Nfat 173.0 Metals 152.8 Sterling i ndex
December 20th
26th.
176.3 196.7
179.0 198.9
% change on one one month year
158.3 ....155.1 " .. . . . ..
+0.3 . .. ..
..-24.5 ..
-1.3 +1.1
208.2
+0.3
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74
KimJongll Kim]ong II, dictator of North Korea, died on Decem her 17th, aged 69 or 70 T WAS all bogus, he said once. The gaggle of pretty young women jumping up and down at a state reception, screaming out praises of Kim Jong II, didn't really mean it. It was a lie, too, he said, to show North Korean children on television with plump, rosy cheeks singing hymns to the Motherland. It would have been more truthful to show them in rags and starving. But he preferred to maintain the illusion. Had he not been born the son of Kim II Sung- still North Korea's Great Leader and eternal president- and therefore Son of God, Mr Kim might have been a filmmaker. He wrote a book "On the Art of Cinema" and owned perhaps 20,000 films, of which his favourites were "Friday the 13th" and "Godzilla". Because North Korean films seemed perfunctory to him, he kidnapped a South Korean director, Shin Sang-ok, to shoot a "Godzilla" of his own devising. There was really no need. He had inherited his own set, North Korea, on which to shoot his own disaster movie: small fat man, with nuclear capability and supreme indifference to the fate of his own people, runs rings round world. To many, the plot seemed absurd. The hero was improbable, with Babygro zipped-up suits stretched over his pot belly, oversized sunglasses, platform shoes and bouffant hair, all adding precious height
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and heft to his five feet two inches. For years, too, he was invisible: not seen by the world until the 1970s, improbably taking English lessons from Dom Mintoff in Malta, and never heard in North Korea until he came briefly to the microphone, at a parade in 1992, to cry "Glory to the heroic soldiers!" Yet since the 1960s he had been a feared force in his father's Propaganda and Agitation Department: eliminating internal rivals, possibly plotting foreign assassinations (the Korean Air bombing of 1987, in which 115 died, and the Rangoon bombing of 1983, killing three South Korean ministers, were both attributed to him), building up the cult of his father in statues and birthday celebrations and, incidentally, stoking high the cult of himself.
Sun and fog That fairytale film began with his birth, in 1942 in a log cabin frosted with February snow at a revolutionary training camp on holy Mount Paektu: his coming foretold by a swallow, accompanied by a double rainbow and a new star in the heavens. (His actual birth, in Russia's Far East a year earlier, was dull and forgotten .) He learned to walk in three weeks, to talk in eight; he wrote six operas and 1,500 books while a student at Kim II Sung University, and scored five holes-in-one in his first game of
golf. Apart from being "the greatest writer who ever lived" and "greatest musical genius", he was, by diktat, the Glorious General from Heaven, the Guiding Star of the 21St Century, and more than 200 other things. His bad temper could shake buildings; his cheerier moods could melt ice; and on a visit to South Korea fog shrouded him to keep him safe from snipers. The ideas that guided North Koreafrom juche, or self-reliance, to songun, or "military first", were also his own great creation, as much as his father's. Both were disastrous in a country which, after 1991, had lost its Soviet subsidies and was on the brink of economic collapse. The subsequent famine of the mid-1990s killed perhaps 1m people, or 5% of the population: most from sheer starvation, others from the effects of eating grass. Meanwhile the Dear Leader dined on sharl<'s-fin soup, gulped sashimi cut from living fish, sent his chefs to Naples to learn the art of thin-crust pizza, and chose wines from a cellar of 1o,ooo bottles- as well as deciding, in his "warm benevolence", that the answer to hunger was to breed giant rabbits. No one advised him. Where his father had accepted counsel, young Mr Kim saw it as a sign of disloyalty. The groups of extravagantly capped commanders who attended him were there to smile fawningly in the background as he made his minute, tireless inspections of cucumbers, cheese, pipe-valves or barley fields. And they were also there to prove that the army was important to the man who had been made head of it, in 1991, without a shred of military experience- unless you counted the cinematic days when, as a child, he trained alongside his father's fighters with a wooden rifle, and dreamed of killing Japanese with it. That was his best toy until, in 2006, he tested a nuclear device, using it to scare the Americans witless and to pressure the world into sending in food. Even as it did so, outsiders mocked him. Inside the country, n o one dared. Mr Kim knew exactly how the population lined up: loyal core, 5-25%; wavering, 50-75%; hostile, 8-27%. But those who dissentedeven in a whisper, even by hanging his portrait askew- ended in prison camps, subject to forced labour and starvation. Perhaps one in 20 North Koreans passed through Mr Kim's gulags. Possibly 200,000 remain there. The rest were either brainwashed or, as he said, pretended to be. His death, too, might well have been scripted by himself: on one of his beloved trains (he feared flying) , as he visited his people to offer "on-the-spot guidance", while a snowstorm paused, and the holy mountain of his birth glowed red with the rising Sun. "Forgive me," he once said to Shin, as he half-heartedly apologised for kidnapping and imprisoning him. "I was playing a role." To the bitter end. •
THE FEDERAL REPUBUC OF NIGERIA FEDERAL MINISTRY OF POWER IN COLLABORATION WITH INFRASTRUCTURE CONCESSION REGULATORY COMMISSION (ICRQ Transaction Advisor for the Development of Small & Medium Hydro Power through the Public Private Pa rtnership REQUEST FOR EXPRESSIONS OF INTEREST (EOI The federal M inistry of Power (FMP) has completed Feasibility studies, engineering design & Environmental Impact Assessment (EIA) for Small and Medium Hydropower plants in different locations nationwide. Consequentty, the M inistJY in collaboration with the Infrastructure Concession Regulatory Commission (ICRC) and in continuation of the Federal government of Nigeria Power Sector Reform through Public Private Partnership (PPP) for stable, reliable and efficient power supply would like to engage the services of reputable and highly qualified consultants for the concessions of the (10) dams for power generation through Public Private partnership (PPP). The engagement of the Transaction Adviser will foiJow the National Policy on PPP (N4P) published by ICRC. The FMP and ICRC now seel<s Transaction advisors to provide a broad scope of advisory services to assist in the procUJement of the concessions. The FMP and ICRC therefore invite qualified Transaction Advisors to express intarest in providing such services. The 10 dams are in three (3) lots as follows: Lot 1: 10MW Oyan Dam Ogun State, 6MW lkere Gorge Dam Ctyo State and 450KW Owena Dam Ondo States Lot 2: 3MW Bakolori Dam Zamfara State, 500KW Kampe Dam Kogi state and 1MW Ooma Dam Nasarawa State. Lot 3: 4MW Jibia Dam Katsina State.300KW Zobe Dam Katsina State, 10MW liga Dam Kano State and lOMW Challawa Dam Kano state.
T•m• of Refee ...-.c:es The services to be provided include but not limited to the following: •Completion of project preparation. including PPP transaction structuring; •Market sounding to confirm decisions on scope. structuring, and timing of transaction; •Financial analysis and modelling; •Upgrade the feasibility studies report to outline business case (OBC) In line with the National Policy on PPP (N4P); •Assistance In designing and managing the procurement and evaluation process and support to FMP Project Delivery Team (POn during that process; •Analysis of enabling legal framework; •Readiness for market assessment; ·Preparation of information memorandum and tender documentation (including concession contracts etc); •Support in marketing; •Organisation and preparation, where necessary of supporting documentation to be made available to bidders {including technical analysis); •Assistance In negotiation with one or more parties prior to contract award; and •Management of other advisory Inputs and overall management of the advisory team to ensure a sucoossful transaction. Transaction Advisers may consist of a single firm or a consortium of flrms with the financial, legal. technical. PPP. and other specialist expertise required to suooossfully bring the transaction to financial close. In the case of a consortium, the consortium members must jointly submit the required information and must also clearly identify one of the firms comprising the consortium as the Lead Transaction Adviser. The lead Transaction Adviser will have primary responsibility for liaising with FMP and ICRC Project Delivery Team tPDn and for managing the consortium's advisory inputs as a whole. Firms comprising the consortium with speciali2ed expertise in the finance, legal, and technical f~elds should be identified, respectively, as the Finance Transaction Adviser, Legal Transaction Adviser, and Technical Transaction Adviser. International Consultants are encouraged ro form partnerships with reputable and accredited Nigerian consulting firms. ~S$JOO .QF E2reBES.sJOlliS OF !NTEB£SI (EOJJ
Prospective Transact.i on Advisers should indicate their interest by providing the following:
•Full name and nationality (country of registration of the company): •Profile of firm/consortium including ownership structure and role of each corporate entity with full contact details including email of lead firms: ·Details of direct experience advising government in the structuring of PPP transactions; •Track record of successful closing of PPP concessions, particularly In the Power Sector. •Description of roles played in at least five (5) PPP Power Transactions closed in emerging markets during the past seven (7) years Cat least one which should be in past (3) years); •Relevant experience in the Power sec1or (Including technical competence); •Experience working in Nigeria and/or sub-Saharan Africa; ·Financial Capacity Profile of the firm and Evidence of Tax Clearance Certificate for 2008, 2009. 2010 for Nigeria Firms: •Submission of three (3) years Audited Account with an annual turnover of over N13 million In each of the last 3 years. ·Evidence of Employees Open Retirement Savings Account (RSAJ with a Pension Fund Administrative (PFA) of the last three years for Nigerian f irms; Advisor will be selected in accordance with the procedures set out in the BPP Standard Request for Proposals (RfPI for the selection of Consultancy firms (Complex Lump Sum) January 2008.
FURTHER INFORMATION: Expressions of interest must be submitted in six (6) copies (one original & five copies) in a sealed envelope clearly marked " Expression on Interest" Advisor on concessioning of Small & Medium Hydropower PlantsN, clearly stating the lot number, and it should be hand delivered not later than 15:00hrs Nigerian time on 16 January, 2012 to the address below: The Secretary I Ministerial Tenders Board I Federal Ministry of Power 1 Room 347 Phase 1, Annex Ill I Federal Secretariat Complex I Abuja All EOis will be opened immediatety after the deadline in the Permanent Sectetary's Conference Room in the presence of all the interested firms In attendance. Plellse note thllt: •Only shortlisted firms will be invited for further consideration. ·late submission will be rejected. •This advertisement shall not be construed as a commitment on the part of FMPJICRC to appoint any consultant nor shall it entitle any consultant submitting documents to claim any indemnity from FMPJICRC. ·FMP/ICRC reserves the right to take final decision on any of the document received in your proposals. •The Transaction Advisor can express interest in one or more lots.
ENOUIRJES ON THE INVITATION All enquires are to be addressed to: Director CEISI 1Room 330 1Federal M inistry of Power 1Federal Secretariat C-omplex I Phase 1 Annex 111 1Abuja. Nigeria. Signed: Mrs lbukun Odusote Permanent Secretary
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