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China’s biggest Ponzi scheme

Home truths for HSBC
The secrets of freezing human organs
Life in a Manila call centre
FEBRUARY 6TH– 12TH 2016 Ted Cruz, Baptist of fire

How to manage the

migrant crisis

and keep Europe from tearing

itself apart
The Economist February 6th 2016 3
6 The world this week 33 Ben Carson
Green grass roots
34 Political advertising
Leaders A bit MEH
9 Europe’s refugees 35 School choice
How to manage the A lottery to lose
migrant crisis
35 Confederate monuments
10 Interest rates Recast in stone
Negative creep
36 Lexington
11 Libya Falling towards Hillary
The third front
America’s primaries Who is
11 Britain and the EU
The Americas the Republican victor of Iowa,
The accidental Europhile
39 Mining in Latin America and what sort of president
12 HSBC’s domicile dilemma might he make? Page 31. Ted
Asian dissuasion Conflict and co-operation
On the cover Cruz may have won, but Marco
41 Miners and aboriginals
A European problem demands Rubio came out on top, page 32.
in Canada
a common, coherent EU Letters Heard on the trail, page 33
I’ll see you in court
policy. Let refugees in, but
14 On economics, American 42 Bello
regulate the flow: leader,
politics, immigration, The endgame in Venezuela
page 9. Europe desperately
divorce, oil, Donald
needs to control the wave of
migrants breaking over its Special report: Turkey
borders. This is how to go
about it, pages 19-22 Erdogan’s new sultanate
After page 42
19 Europe’s migrant crisis
Forming an orderly queue
The Economist online 20 Schengen’s impact Middle East and Africa
Daily analysis and opinion to Putting up barriers 43 Jihadists in Libya
supplement the print edition, plus Islamic State
audio and video, and a daily chart 44 Jordan Asia Assessing Britain’s EU deal
At boiling point David Cameron’s weedy
E-mail: newsletters and 23 Democracy in Myanmar
45 Algeria renegotiation makes a
mobile edition A new parliament opens
Who is in charge? muscular pro-European 24 Asian nuclear weapons argument: leader, page 11. The
45 The International
Print edition: available online by A race beneath the seas plan is mainly theatre, but it
Criminal Court
7pm London time each Thursday 24 North Korean missiles Mutual protection may be enough for Mr Going ballistic again Cameron’s domestic audience,
46 Kenya’s flower trade
Audio edition: available online 25 Politics in Japan Leaving on a jet plane page 51
to download each Friday Negative rates, positive polls
26 Banyan Europe
Singapore and the art of 47 France’s Socialists
political survival Macron the iconoclast
48 Migrants and youth
Girl, not abducted
Volume 418 Number 8975 48 German Russophiles
27 Financial fraud
Published since September 1843 Xi’s Ponzi worries
to take part in "a severe contest between 49 Russia and Chechnya
intelligence, which presses forward, and 28 Television news
an unworthy, timid ignorance obstructing Putin’s enforcer
Evening propaganda
our progress."
50 Charlemagne
28 Diplomatic insults Call centres They have created
Editorial offices in London and also: The safe-harbour battle
Atlanta, Beijing, Berlin, Brussels, Cairo, Chicago, How feelings get hurt millions of good jobs in the
Lima, Mexico City, Moscow, Mumbai, Nairobi,
New Delhi, New York, Paris, San Francisco, emerging world. Technology
São Paulo, Seoul, Shanghai, Singapore, Tokyo, Britain threatens to take those jobs
Washington DC
United States
51 The EU referendum away again, pages 55-56
31 Ted Cruz
Slings and arrows
The man in the
ostrich-skin boots 52 The elderly
Shades of grey
32 Iowa and beyond
Trump bumped 54 Bagehot
London’s next mayor
33 The campaigns
Heard on the trail

1 Contents continues overleaf

4 Contents The Economist February 6th 2016

International Science and technology

55 Call centres 71 Organ preservation
The end of the line Wait not in vain
56 Night shifts and health 72 Guinea-worm disease
I’ll sleep when I’m dead Going, going...
73 Voice-powered devices
Business Good vibrations
57 The consumer v the 73 Doping
corporation No more horsing around
Handling disputes 74 Winging it
China’s biggest Ponzi scheme Convergent evolution Freezing human organs
58 Oil companies
Financial scams may pose as 74 The scientific method After decades of piecemeal
In the dark ages
big a political problem for Xi Let’s just try that again progress, the science of
Jinping as the stockmarket 58 The chemicals industry cryogenically storing human
crash, page 27 Bad romance organs is warming up, page 71
59 Agribusiness Books and arts
Feeding the dragon 75 Chamber music
Subscription service
60 Alphabet Four into one does go For our full range of subscription offers,
Of profits and prophesies 76 Egypt’s uprising including digital only or print and digital
combined visit
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by mail, telephone or fax at the details below:
61 Pilot Flying J Once upon a time Telephone: +65 6534 5166
A truck-stop recovery 77 Neurosurgeon’s farewell Facsimile: +65 6534 5066
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67 The American consumer Obituary
Still kicking 82 Henry Worsley
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69 Free exchange Rue de l’Athénée 32
Making trade work 1206 Geneva, Switzerland
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1301 Cityplaza Four,
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Japan has joined the Tel: 852 2585 3888
negative-rates club. But there Other commercial offices:
is a limit to how low rates can Chicago, Dubai, Frankfurt, Los Angeles,
go: leader, page 10. Shinzo Paris, San Francisco and Singapore

Abe weathers the exit of a

scandal-hit minister with
surprising ease, page 25
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6 The Economist February 6th 2016
The world this week
Guatemala put on trial two long-range ballistic missile. The EU reached a provisional
Politics former military officers Japan has ordered its armed deal with America about data
charged with letting their forces to shoot down any protection. Last year a ruling
soldiers kidnap and rape 11 missile that threatens to fall on by the European Court of
Mayan women during the Japanese territory. Justice abrogated the “Safe
country’s 36-year civil war. Harbour” agreement that let
This is the first time that any- Police in China arrested 21 firms store individuals’ private
one has been tried for wartime people for their involvement online data in America. Euro-
sex-slavery charges in the in an alleged Ponzi scheme run pean data-protection agencies
country where the crimes by Ezubao, an online firm. The gave a cautious welcome to the
were allegedly committed. company has been accused of new “Privacy Shield”.
defrauding 900,000 investors
Argentina said it would repay of 50 billion yuan ($7.6 billion). Aivaras Abromavicius,
Italian investors who had Ukraine’s economy minister,
refused earlier offers of a debt Games of chance resigned, complaining that the
restructuring after the country Talks in Geneva aimed at government was doing noth-
The long process to choose defaulted in 2001. If Congress bringing an end to the civil war ing about corruption.
America’s presidential candi- approves the deal, the govern- in Syria were suspended only
dates got under way, in Iowa. ment will pay $1.35 billion, days after they began. Oppo- A general election was called
Ted Cruz won the state’s Re- 150% of the face value of the nents of the regime of Bashar in Ireland for February 26th.
publican caucuses, upending bonds, to 50,000 investors. It al-Assad are demanding a The governing party led by
Donald Trump, who had led hopes this will set a precedent ceasefire, but fighting is instead Enda Kenny, the prime min-
recent polling. Mr Trump came for negotiations with holdout intensifying, especially around ister, is ahead in the polls.
second, not far ahead of Marco investors in bonds with a face the city of Aleppo. The talks
Rubio, considered to be the value of $6 billion. may resume in three weeks. A David Cameron presented a
viable moderate alternative to conference on aid to the region draft deal to “renegotiate” the
the populist front-runners. On began in London, amid warn- terms of Britain’s member-
the Democratic side Hillary ings that Lebanon and Jordan ship of the European Union.
Clinton eked out a win over are almost overwhelmed by The prime minister’s agitated
Bernie Sanders by 0.3 of a the cost of housing Syrian Eurosceptic critics in his party
percentage point, the thinnest- refugees. and the press said he had
ever margin of victory in the failed to match the robust
party’s Iowa caucuses. South Africa’s president, promises he made in the
Jacob Zuma, agreed to pay party’s election manifesto last
Ash Carter, America’s defence back some of the $23m in year. A former minister said
secretary, said the Pentagon public money that was spent that possibly a quarter of the
would ask for $583 billion in on his private residence, poten- cabinet are “certain” to cam-
the White House’s forthcom- tially drawing some of the paign to leave the union in a
ing budget. Spending on fight- The Cuban government is to sting from a scandal that may forthcoming referendum.
ing Islamic State is to double, to allow residents of two districts damage the African National
$7.5 billion, and support for in Havana, the capital, to have Congress in local elections that
central and east European broadband connections to the are due to take place in May.
countries in response to Rus- internet. Cafés, restaurants
sia’s invasion of Ukraine will and bars will also be permitted At least 86 people died in the
quadruple to $3.4 billion. this huge privilege. most brutal attack in months
by Boko Haram, a Nigerian
Facebook moved to ban the Siphoned away jihadist outfit. The attack took
private sale of guns through its The Swiss authorities said they place close to the regional
network and Instagram, a would ask the Malaysian capital of Maiduguri, which
photo-sharing site it owns. government to help them houses the army’s headquar-
investigate claims that as much ters. Boko Haram lost control
Recognising a risk as $4 billion has gone missing of the city in 2014.
The World Health Organisa- from Malaysian state-owned Another baffling issue, almost
tion declared that a rise in birth firms. A small amount of the If at first you don’t succeed as old as Britain’s EU member-
defects in Brazil, thought to be money had been transferred to King Felipe of Spain asked the ship, was cleared up this week
caused by the mosquito-borne bank accounts in Switzerland. Socialist party, headed by when a death certificate was
Zika virus, is a global emer- Officials in Singapore said they Pedro Sánchez, to form a gov- issued for Lord Lucan. The
gency. The virus probably had frozen “a large number” of ernment. The Socialists control enigmatic aristocrat disap-
caused more than 4,000 cases accounts as part of investiga- only 90 seats in the 350-seat peared in 1974 after his chil-
of microcephaly among new- tions into transactions linked parliament, which has been dren’s nanny was murdered in
born children in Brazil and has to 1MDB, a Malaysian state- deadlocked since an election London. Decades of specu-
been found in more than 20 investment firm. in December proved inconclu- lation about his guilt ensued,
countries in the Americas. The sive. In order to become prime as did alleged sightings, but
WHO thinks the virus is North Korea declared that it minister, Mr Sánchez will have Lucan was never seen again.
spreading “explosively”. It is would launch a satellite some- to win the support of Pode- The court ruling means that his
thought that a case detected in time between February 8th mos, an anti-austerity move- son, Lord Bingham, can inherit
Texas was probably transmit- and 25th. Analysts believe the ment, and several other par- the family title and become the
ted through sex. country’s real aim is to test a ties. It will be tough. 8th Earl of Lucan. 1
The Economist February 6th 2016 The world this week 7

der, will again reassert control been feared. Alphabet’s share Once lauded for its fresh ingre-
Business by taking the CEO’s job on an price rose, briefly nudging it dients, Chipotle Mexican
interim basis. past Apple to become the Grill, a fast-food chain, said
In by far the largest foreign world’s most valuable listed the publicity from an outbreak
takeover bid by a Chinese Sumner Redstone stepped company. of E.coli at some outlets had hit
company to date, ChemChina down as chairman of CBS, sales in the last quarter of 2015,
offered $43 billion to buy after months of pressure from The French finance minister, contributing to a 44% drop in
Syngenta, which is based in investors worried about his Michel Sapin, dismissed sug- profit. This week federal health
Switzerland and is one of the ability to perform his duties at gestions that he would reach a authorities in America
world’s biggest providers of the American broadcaster. For deal with Google over paying declared that the E.coli scare
agricultural chemicals and years questions have been back taxes, saying that France appears to be over.
seeds. It is the second big raised about the health of the “does not negotiate” over
acquisition in the chemical 92-year-old mogul, whose money it is owed. Critics con- Ferrari’s share price slid after it
industry in recent months, position as chairman of Via- tend that the agreement Goo- issued a disappointing earn-
after the merger announce- com, a big media group, has gle recently struck to pay ings forecast. Despite a strong
ment of Dow Chemical and also come into question. £130m ($190m) in back taxes in order book, profits at the Ital-
DuPont. Syngenta’s board Britain let it off the hook. ian maker of luxury cars are
recommended shareholders projected to be only slightly
accept the bid from ChemChi- Share prices Yahoo announced a strategic higher than those it made last
na, which is state-controlled. January 1st 2013=100 review of its core internet year. Ferrari’s share price has
Closing price*, $
The deal will be scrutinised by 250
business, acknowledging that fallen by a third on the New
antitrust regulators in several 749.38 it might examine the option of York Stock Exchange since its
countries, especially America, 200 selling the unit. Yahoo is to IPO there last October. An
which accounts for a quarter 150 shed a further15% of its work- announcement of a racy new
of Syngenta’s sales. 96.35
force to cut costs. It reported a convertible might turbocharge
Apple quarterly net loss of $4.4 bil- its share price.
The decline in oil prices was 50 lion, mostly because it wrote
reflected in a gloomy set of 2013 14 15 16 down the value of some of its It’s good to be the king
Source: Thomson Reuters *February 3rd
earnings from oil companies. assets, including Tumblr, a A venture capitalist who wrote
Chevron reported its first Alphabet, the holding com- blogging site. an open letter online criticising
quarterly loss since 2002. pany that Google created last the launch event for Tesla
Exxon Mobil’s annual profit year, reported a bumper set of Sharp, a struggling Japanese Motors’ Model X said his
fell by half, to $16.2 billion; it is annual earnings. Revenue at its maker of electronics goods, order for the car has been
slashing capital spending by internet and Android busi- was reportedly holding take- cancelled by Elon Musk, Tesla’s
25% this year. BP posted an nesses climbed to $74.5 billion, over talks with Foxconn, a founder. Mr Musk tweeted that
annual headline loss of $5.2 pushing operating profit up to Taiwanese firm that assembles he was surprised at the fuss
billion, its worst ever. $23.4 billion. Its Other Bets the iPhone. Foxconn is one of over “denying service to a
projects, such as self-driving two suitors to have emerged: a super-rude customer”.
Positive negative cars and smart thermostats, Japanese government-backed
The Bank of Japan cut its made a $3.6 billion loss, but fund is also interested in Other economic data and news
benchmark interest rate be- that was not as steep as had Sharp, though its bid is lower. can be found on pages 80-81
low zero, to -0.1%. Japan has
joined the European Central
Bank, Switzerland and others
by implementing a negative
rate, though its policy applies
only to new reserves that
banks place with the BoJ.

Credit Suisse reported an

annual pre-tax loss of SFr2.4
billion ($2.4 billion), its first
since 2008, mostly because it
booked a hefty write-down in
the fourth quarter related to
the restructuring of its busi-
ness. Pre-tax profit at the Swiss
bank’s investment-banking
division was down by 90%.

There was more management

turmoil at Luxottica, an Italian
maker of eyewear and owner
of the Ray-Ban and Oakley
brands, as its third chief exec-
utive in 18 months resigned.
Leonardo Del Vecchio, the
company’s 80-year-old foun-
The Economist February 6th 2016 9
How to manage the migrant crisis
A European problem demands a common, coherent EU policy. Let refugees in, but regulate the flow

R EFUGEES are reasonable

people in desperate circum-
stances. Life for many of the 1m-
much as Germans spend on chocolate every year. Far more is
needed and will be needed every year for several years.
Europe’s money should be used not only to feed and house
odd asylum-seekers who have refugees but also to coax host countries into letting them work.
fled Syria, Iraq, Afghanistan and For the first four years of the conflict Syrians were denied work
other war-torn countries for Eu- permits in Turkey, Jordan and Lebanon. Recently Turkey has
rope in the past year has become begun to grant them. Donors should press Jordan and Leba-
intolerable. Europe is peaceful, non to follow. European cash could help teach the 400,000 ref-
rich and accessible. Most people would rather not abandon ugee children in Turkey who have no classes.
their homes and start again among strangers. But when the al-
ternative is the threat of death from barrel-bombs and sabre- Sometimes the answer is no
wielding fanatics, they make the only rational choice. The next task is to require asylum-seekers to register and be
The flow of refugees would have been manageable if Euro- sorted as close to home as possible, probably Turkey, Lebanon
pean Union countries had worked together, as Angela Merkel, and Jordan. Ideally those who travelled by boat to Europe
Germany’s chancellor, has always wished (and The Economist would be sent back to a camp in one of those three coun-
urged). Instead Germany and Sweden have been left to cope tries—to prove that they had just wasted their precious savings
alone. Today their willingness to do so is exhausted. Unless Eu- paying people-traffickers to take them on a pointless journey.
rope soon restores order, political pressure will force Mrs Mer- But that would meet legal and political objections, partly be-
kel to clamp down unilaterally, starting a wave of border clo- cause of Turkey’s human-rights record (see our special report
sures (see pages 19-22). More worrying, the migrant crisis is this week). So, there should also be processing camps in the
feeding xenophobia and political populism. The divisive first EU country they reach, probably Greece or Italy.
forces of right-wing nationalism have already taken hold in The cost of this should fall on the whole EU, since the aim is
parts of eastern Europe. If they spread westward into Ger- to establish control over its external borders. Dealmaking is
many, France and Italy then the EU could tear itself apart. possible. In exchange for hosting large refugee hotspots and
The situation today is a mess. Refugees have been free to camps on its soil, Greece should get help with its debt and bud-
sail across the Mediterranean, register and make for which- gets which it has long sought to ease its economic crisis.
ever country seems most welcoming. Many economic mi- Refugees will fall in with this scheme (rather than cross the
grants with no claim to asylum have found a place in the EU illegally) only if they are confident that genuine applica-
queue by lying about where they came from. This free-for-all tions will be accepted within a reasonable time. So the EU
must be replaced by a system in which asylum applicants are needs to spend what it takes to sort through their claims swift-
screened when they first reach Europe’s borders—or better still, ly. And member states ought to agree to accept substantial
before they cross the Mediterranean. Those who are ineligible numbers of bona fide asylum claimants. Some refugees may
for asylum should be sent back without delay; those likely to prefer Germany to, say, France—and there is little to stop them
qualify should be sent on to countries willing to accept them. crossing borders once they are inside the Schengen area. But, if
they are properly looked after, most will stay put.
Order on the border The crisis needs a bigger resettlement programme than the
Creating a well-regulated system requires three steps. The first one run by the UN’s refugee agency, which has only 160,000
is to curb the “push factors” that encourage people to risk the spaces. Countries outside the EU, including the Gulf states, can
crossing, by beefing up aid to refugees, particularly to the vic- play their part. Priority should go to refugees who apply for
tims of the civil wars in Syria and Iraq, including the huge asylum while still in Turkey, Jordan or Lebanon—to reduce the
number who have fled to neighbouring countries such as Tur- incentive for refugees to board leaky boats to Greece.
key, Jordan and Lebanon. The second is to review asylum Ineligible migrants will have to be refused entry or de-
claims while refugees are still in centres in the Middle East or in ported. This will be legally difficult, and it is impossible to repa-
the “hotspots” (mainly in Greece and Italy), where they go triate people to some countries, such as Syria. But if the system
when they first arrive in the EU. The third element is to insist is not to be overwhelmed or seen as unfair and illegitimate by
that asylum-seekers stay put until their applications are pro- EU citizens, the sorting must be efficient and enforceable. EU
cessed, rather than jumping on a train to Germany. governments should sign and implement readmission agree-
All these steps are fraught with difficulty. Consider the ments allowing rejected migrants to be sent home quickly to,
“push factors” first. The prospect of ending Syria’s civil war is say, Morocco or Algeria. If such agreements are impossible (or
as remote as ever: peace talks in Geneva this week were sus- if, as with Pakistan, governments fail to honour them), the
pended without progress. But the EU could do a lot more to prospect of waiting indefinitely in Greece will make economic
help refugees and their host countries. Scandalously, aid for migrants who want to reach Germany hesitate before coming.
Syrians was cut in 2015 even as the war grew bloodier: aid Once these measures are in place, it will become possible to
agencies got a bit more than half of what they needed last year, take the most controversial step: halting the uncontrolled mi-
according to the UN. Donors at a conference on Syria in Lon- grant flow across Greece’s northern border with Macedonia. It
don this week were asked for $9 billion for 2016—about as has become clear over the past five months that Europe cannot 1
10 Leaders The Economist February 6th 2016

2 gain control over the numbers or the nature of the migrant plan we outline would require a big chunk of cash and a lot of
stream while border officials wave asylum-seekers through testy negotiations. But it is in every country’s interest to help—
and bid them safe travel to northern Europe. because all of them would be worse off if the EU lapses into a
Since the start of the refugee crisis, we have argued that Eu- xenophobic free-for-all.
rope should welcome persecuted people and carefully man- There is an encouraging precedent, too. When more than
age their entry into European society. Our views have not 1m “boat people” fled Vietnam after the communists took over
changed. Countries have a moral and legal duty to provide in 1975, they went initially to refugee camps in Hong Kong and
sanctuary to those who flee grave danger. That approach is dis- other parts of Asia before being sent to America, Europe, Aus-
ruptive in the short term, but in the medium term, so long as tralia and wherever else would take them. They arrived with
they are allowed to work, refugees assimilate and more than nothing but adapted astonishingly fast: the median household
pay for themselves. By contrast, the chaos of recent months income for Vietnamese-Americans, for example, is now above
shows what happens when politicians fail to take a pan-Euro- the national average. No one in America now frets that the
pean approach to what is clearly a pan-European problem. The boat people will not fit in. 7

Interest rates

Negative creep

The negative-rates club is growing. But there is a limit to how low rates can go

Deposit rates
Latest, %
I MAGINE a world in which tax
offices harry people who file
their returns promptly; where
banks from the full effect by setting up a system of tiered inter-
est rates, in which the negative rate applies only to new re-
serves.) If interest rates go deeper into negative territory, profit
1.0 0.5 – 0
Japan* big supermarket chains pay margins will be squeezed harder—even in places where central
Euro area their suppliers before the goods banks have tried to protect banks. And if banks are not profit-
fly off the shelves and not able, they are less able to add to the capital buffers that let them
Sweden months afterwards; and where operate safely.
*Effective February 16th
a pre-paid annual gym member- That would put pressure on banks to charge their own cus-
ship is more costly than paying month by month. It sounds tomers for deposits. Such pressure is already starting to tell.
fanciful, absurd even. Yet such a world came a step closer on Banks in Europe have started to pass on some of the cost of
January 29th, when Japan’s central bank cut the interest rate negative rates to big corporate depositors. Their only ready al-
on bank reserves to -0.1% (see page 25). ternative to stashing large pots of cash is safe and liquid gov-
Like its peers in Denmark, the euro area, Sweden and Swit- ernment bonds, whose yields have also turned negative, for
zerland, the Bank of Japan will charge commercial banks for terms of up to ten years in Switzerland. Rich personal-account
holding deposits with it. Almost a quarter of the world’s GDP holders are next. The boss of Julius Baer, a Swiss private bank,
now comes from countries with negative rates. Though they said this week that if interest rates in Europe go further into the
defy convention, they have proved a useful addition to the red, it might have to charge depositors.
central-banking toolkit. The lowest deposit rate set by the cen- Retail customers are more resistant to charges, because
tral bank acts as a floor for short-term interest rates in money small stashes can easily be stored in a mattress or a home safe.
markets and for borrowing rates generally. Borrowing costs Savers might stomach a modest fee for making bank deposits,
across Europe have tumbled, helping the fight against defla- but as rates go deeper into negative territory, they will find
tion and driving down exchange rates. ways to avoid charges. Switching to cash is the obvious sol-
Emboldened, Haruhiko Kuroda, the governor of Japan’s ution, which is why some have suggested getting rid of bank-
central bank, this week claimed there is no limit to measures to notes altogether, but it is not the only one. Small savers would
ease monetary policy. On interest rates, at least, that is wrong. use any available form of prepayment—gift vouchers, long-
The limit may no longer be zero but it does still exist. term subscriptions, urban-transport cards or mobile-phone
SIM cards—to avoid the cost of having money in the bank.
Tiers are not enough That would be only the start of the topsy-turviness. Were
Not so long ago it was widely thought that, if interest rates interest rates negative enough for long enough, specialist secu-
went below zero, banks and their depositors would simply rity firms would emerge that would build vaults to store cash
switch to cash, which pays no interest but doesn’t charge any on behalf of big depositors and clear transfers between their
either. Yet deposits in Europe, where rates have been negative customers’ accounts. Firms would seek to make payments
for well over a year, have been stable. For commercial banks, a quickly and receive them slowly. Tax offices would discourage
small interest charge on electronic deposits has proved to be prompt settlement or overpayment of accounts: one Swiss
bearable compared with the costs of safely storing stacks of canton has already stopped discounts for early tax payment
cash—and not yet onerous enough to try to pass on to individ- and said it wants to receive money as late as possible. Far from
ual depositors. being incentivised to lend more, banks worried about shrink-
That has resulted in an unavoidable squeeze on profits of ing deposits would be warier of extending credit.
banks, particularly in the euro area, where an interest rate of As avenues to avoid negative rates are closed off, human in-
-0.3% applies to almost all commercial-bank reserves. (As in genuity will ensure that others open up. It may not be zero, but
Switzerland and Denmark, Japan’s central bank has shielded there is still a lower bound to interest rates. 7
The Economist February 6th 2016 Leaders 11


The third front

It is time to take action against Islamic State in Libya

ARACK OBAMA is far from
B and working with competent forces on the ground who can

Mediterranean Sea
Mediter ranean
Sea Shahat
achieving his declared aim seize back territory from extremists and hold it. Western forces
Zawiya Beida
n Moun

Sirte Benghazi
n s
Gulf of Sir te
Benghazi Gree Tobruk

Nafusa Moun t ai Walid

to “degrade and ultimately de-

would, ideally, be invited in by a new unity government. But
stroy” Islamic State (IS), the self-
UN-led talks have dragged on for months, stymied by the refus-

L I B Y A Sebha
styled caliphate that straddles al of the Islamist-influenced government in Tripoli to accept
Areas of control


Government Anti-gov. parts of Iraq and Syria. But at that it lost an election in June 2014 and to make peace with the
300 km
a h a r a
Area controlled least it is being rolled back in Kufrah winners of that poll, who fled to Tobruk. More recently they
by Islamic State
some places. Ramadi in Iraq was are being held up by the refusal of both parliaments to accept
L i b y a n

NIGER D e s e r t

retaken in December. Oil installations controlled by IS have the UN’s latest proposal for a unity government.
been bombed, sapping the economic and the fighting power More intensive diplomacy is needed to push the two sides
of the jihadists. In Libya, though, the picture is more alarming: into a deal, using whatever leverage is available. As part of that
the caliphate is building a sprawling new “province” on the process, the West will have to support the new Libya generous-
southern shore ofthe Mediterranean, just a few hundred miles ly with money, as well as military backing, humanitarian relief
from Europe. This is the new front in the war against jihadism. and investment to get the oil flowing again. America, which
Unchallenged by Western forces, and exploiting the ab- has been negligently absent from Libya since the killing of its
sence of a functioning state as rival national governments in ambassador and three others in attacks in Benghazi in 2012,
Tripoli and Tobruk bicker and skirmish, IS has taken control of needs to apply its muscle, too.
the city of Sirte and controls roughly 180 miles (290km) of
coastline. It already counts 5,000 or so fighters, threatens not The sands of time
just Libya’s duelling governments but also neighbours such as Many in the West still prefer to wait for a political deal. But
Tunisia, Algeria and Egypt. It has attacked Libyan oil terminals there are growing dangers in allowing IS to expand. The jiha-
and ports, and raided towns ever closer to Tripoli. The expan- dists must be contained, lest they gain control of Libya’s oil fa-
sion of IS could prompt another flood of refugees from Libya to cilities, or destroy them to hasten the break-up of the country
Europe, with the obvious potential of terrorist infiltration. Lib- by denying it its main source of revenue.
ya has burned through most of its foreign reserves—perversely, The West could first help train and stiffen the mostly ineffec-
oil exports are paying gunmen from both the Tripoli and To- tive 27,000-strong Petroleum Facilities Guard. Second, it could
bruk alliances—and one-sixth of its 6m people are suffering declare no-drive zones around key facilities, and bomb IS units
from malnutrition. This year Libya is predicted to have the from the air if they get too close. Third, Western air forces could
world’s fastest-shrinking economy. go after IS arms dumps and command-and-control centres, as
It makes little sense to squeeze IS in one battlefield only to they have done in Syria. This need not involve large numbers
let it grow somewhere else. Belatedly, Italy, France and Britain— of Western troops, and it might even be possible to gain UN
and, crucially, America, too—are drawing up plans for military support. None of this will defeat IS but it would buy more time
action. If there is one lesson from the interventions of the past, to reach a political deal. Ultimately, that still offers the best
it is the importance of securing a degree of political legitimacy chance of shutting down the caliphate’s third front. 7

Britain and the European Union

The accidental Europhile

David Cameron’s weedy renegotiation makes a muscular pro-European argument

recent British standards Da-
vid Cameron has long had a Eu-
B tic MPs, on the other hand, branded it a joke (“The great delu-
sion!” bellowed one headline). Who is right?
Both, to some extent. The deal, it is true, was more of a
rosceptic bent. In 2013 this out- throat-clearing exercise than a roar of reinvention. Mr Camer-
look was combined with a on did not fulfil his ambition to overturn Europractice on im-
growing anti-EU clamour in the migration limits, treaty changes and repatriated powers. His
Conservative Party, leading him “emergency brake” on migration is a graduated restriction of
to promise a grand “new settle- newcomers’ benefits; the “red card” that lets national parlia-
ment” that would put Britons’ Euro-cavils to rest. Three years ments block EU decisions will have little effect, because the
later, on February 2nd, after an election victory and several threshold to do so is high. Yet the prime minister has won
months spent bustling about Europe, Mr Cameron sealed a some valuable, if mostly symbolic, concessions to the British
draft offer with the European Council (see page 51). In a speech vision of a plural, open and liberal union. Pledges to cut bur-
the next day he declared it a triumph. The press and Euroscep- eaucracy, respect currencies other than the euro and let mem- 1
12 Leaders The Economist February 6th 2016

2 bers opt out of “ever closer union” are airy but welcome. Non- European peregrinations have given the lie to tabloid bluster
euro-zone economies can assert their interests, thanks to a about almighty Eurocrats. The shape of his deal has been ham-
mechanism that delays an agreement if they fear being strong- mered out in Europe’s capitals with the elected leaders ofother
armed by Europe’s core. governments—just like all the most important Eurodeals.
At home the deal will not change any of the minds that are
already made up. But it should help Mr Cameron sway a few A seat at the table
undecided voters ahead of the in/out referendum (which is This highlights the unattractive alternative, of leaving the EU.
likely to take place on June 23rd if this deal clears the European The trials of renegotiating Britain’s membership would pale in
Council later this month). The first, minor reason is that it comparison with those of securing a favourable Brexit. At least
makes the union work a smidgen better for Britain. The sec- now the EU and most of its members are on the prime minis-
ond, larger one is that the very process of renegotiating has ter’s side. An out vote would reverse their incentives: the
neatly shown the force of the pro-Europeans’ arguments. harsher the terms of Britain’s flounce, the lower the odds of
It has exposed a series of anti-EU fallacies. A giant govern- other countries following it out of the door. Being outside the
mental audit that Mr Cameron claimed in 2013 would identify club would exclude Britain, like Norway and Switzerland,
areas where powers needed to be repatriated found the bal- from the continental perma-churn of alliance-building and
ance broadly appropriate. And if, as Eurosceptic campaigners deal-cutting that forges decisions.
insist, the “emergency brake” will not reduce immigration, Only partly by design, the Eurosceptic Mr Cameron has
that is because EU nationals come to Britain to work, not thus vindicated what pro-Europeans have been saying for
scrounge. The brake is unlikely to be renewed in the future be- years: some of the popular hostility to Brussels is misplaced
cause Britain will struggle to show that its migrants constitute and, even where it is not, Britain sits at more tables, sells more
an “emergency” (far from it: they pay more into the state than stuff and talks more loudly thanks to its EU membership. Time
they take out in services). Meanwhile the prime minister’s to close the deal and take that conclusion to the country. 7

HSBC’s domicile dilemma

Asian dissuasion

Despite Britain’s bank-bashing mood, HSBC should stay in London

L IKE many firms with roots in

Hong Kong, HSBC has tradi-
tionally consulted a feng shui
charges, “bail-in” bonds and liquidity buffers. Britain says it
will lower the levy. But over time Asia, which accounts for 60%
of the bank’s profits, will grow faster than Britain, and so HSBC
master on the design of its head- will too. The tension between HSBC’s ambitions and Britain’s
quarters’ buildings. The bank’s suspicion of giant banks is not going away.
dilemma today is more serious: Hong Kong is keen for the bank’s return, which would boost
in which country should its confidence after a torrid time for Chinese markets. HSBC’s big-
headquarters be? For the past gest subsidiary is already based in the territory and supervised
year HSBC has debated moving its domicile, which in turn de- by the Hong Kong Monetary Authority (HKMA), its impressive
termines its tax base, lead regulator and lender of last resort. regulator. By moving, HSBC would not ease its tax bill or capi-
One option is to stay in Britain, with its bank-bashers, latent tal levels by much. But it would avoid the levy, butt heads with
hostility towards the City of London and ambivalence about Western regulators less and be closer to its biggest markets.
Europe. The alternative is to move back to vibrant-but-riskier
Hong Kong, where HSBC was founded 151 years ago and was From a dirty old river to a fragrant harbour
based until the 1990s. It is not an easy choice, but in the end pub Time to pack the bags? One objection is that HSBC is already
grub and stability trump dim sum and political uncertainty. thriving in greater China: it does not need to be domiciled
HSBC matters. Regulators judge it to be the world’s most im- there to succeed. Nor would moving to Hong Kong insulate
portant bank, alongside JPMorgan Chase. A tenth of global HSBC from a British exit from the European Union (see page
trade passes through its systems and it has deep links with 63). But the biggest worry is that Hong Kong is small and a terri-
Asia. (Simon Robertson, a director of the bank, is also on the tory, not a country. The HKMA has $360 billion of foreign re-
board of The Economist Group.) Its record has blemishes— serves but it lacks the crisis toolkit of a central bank. It cannot
most notably, weak money-laundering controls in Mexico. But print an infinite amount of money without undermining its
it has never been bailed out; indeed, it supplied liquidity to the currency peg and it lacks a credit line from America’s Federal
financial system in 2008-09. It is organised in self-reliant silos, Reserve to supply it with dollars, HSBC’s operating currency.
a structure regulators now say is best practice. With a balance-sheet nine times bigger than Hong Kong’s
For Britain, the departure ofits best bankwould be perverse GDP, HSBC’s ultimate backstop would be mainland China’s
(if only it could deport Royal Bank of Scotland instead). But government, whose approach to finance is as transparent as
HSBC is fed up with Blighty. A levy charged on its global bal- Victoria Harbour. That might deter some customers. It would
ance-sheet cost 10% of last year’s profits; rules on ring-fencing also annoy America, which might not be keen on HSBC play-
its retail arm will cost $2 billion. Both are meant to protect Brit- ing a big role in the dollar-clearing system, a privilege that is vi-
ain from global banks blowing up, but they duplicate other tal for HSBC’s business. For an Asia-centric bank to be based in
measures aimed at the same problem—silos, capital sur- London is an anomaly. But, for now, one worth keeping. 7
14 The Economist February 6th 2016
Science v politics whims and agendas of politi- president like McKinley) is is possible that Western cou-
cal ideology. nothing more than a fancy ples loathe their partners just
Your perceptive Free exchange Economics is both a policy façade. Lest the author’s lean- as much as do the Chinese but
on the ideological divisions in tool and a political weapon. Its ings were in doubt, his main simply don’t need to fill out the
economics (January 23rd) put reach is too central to political character is aided by the Cow- analogous paperwork to reme-
its finger on key factors in the visions, and its hypotheses are ardly Lion (Bryan) and has to dy the situation.
unsettled status of economics too dependent on the incalcu- evade the Wicked Witch of the MATTHEW McBRYAN
today. It is hard to think of a lable crooked timber of hu- East (eastern industrialists). London
Nobel prize in natural sciences manity for it ever to be a The way the current cam-
being shared between two “hard” science. But we can at paign is going we voters most- Crude calculations
recipients of opposing views, least be more honest about its ly still hope that a Sanders v
as has often been the case in theoretical foundations. A Trump contest is just a figment As your excellent overview on
economics. Nor does it boost “reputation for impartiality” of our imagination. oil states, the rivalry between
the credibility of the Nobel could actually aggravate the YACOV ARNOPOLIN Saudi Arabia and Iran makes it
prize in economics if two joint controversy, obscuring and New York seem unlikely that they and
econometric recipients subse- masking economists’ biases. OPEC can agree on production
quently precipitate the Long A thorough and transparent The sex discrepancy cuts needed to rebalance sup-
Term Capital Management solution would look more ply and demand and raise oil
collapse and its derivative interdisciplinary: presenting The gender imbalance among prices (“Who’s afraid of cheap
consequences based on their empirical findings alongside asylum-seekers and potential oil?”, January 23rd). As an old
model. the economist’s larger policy migrants to Sweden is unusual Texan, I suggest restoring the
Economists are indeed goals and ideas of a just polity. in Europe, but is far from ex- past pro-ration action of the
fortunate to have avoided the CONNOR STRANGLER traordinary by international Texas Railroad Commission
fate that befell three Italian Kansas City, Missouri comparison (“Oh, boy”, Janu- (TRC) whose main function
seismologists a few years ago, ary 16th). Although in the EU, from the 1930s until the 1960s
when they were jailed for You reminded me of one my there are 1.06 men for every was to keep production con-
having failed to forecast an father’s favourite quotes: “If all woman, in Qatar and the strained in Texas so that Amer-
earthquake in their region! the nation’s economists were United Arab Emirates men ican and world oil markets
There were acrimonious laid end to end, they would outnumber women by two to were in balance and price
debates following the financial point in all different direc- three times, largely because of stability was achieved.
crisis of 2008: one plausible tions.” He also often said: “The immigration (and the heavy Texas currently produces
explanation for economists’ devil can cite scripture to his reliance of these countries on about 3.5m barrels per day. If
misreading was that, given the purpose.” For economists it is migrant labour). the TRC were to force Texas
growing dominance of math- statistics they cite. The solution to Sweden’s producers collectively to cut
ematics in economics, it be- VIC ARNOLD predicament may be closer to this in half (as they did in the
came difficult to detect eco- Westerly, Rhode Island home: Ukraine, Belarus and 1950s), this would just balance
nomic fallacies. Another is that Russia, with 0.85-0.86 man for world markets. The net result
the traditional division be- Because because because… every woman, have the lowest could double the total revenue
tween positive and normative male/female ratios in Europe. of Texas oil companies, miner-
economics has been allowed The citizens of each of these al-right owners and the state’s
to deteriorate to the point at countries would have good treasury—plus better employ-
which ideological bias has reasons to seek better and safer ment for the strippers you
become more salient, raising livelihoods abroad. mentioned—all because the
the risk of error. Is there a case for a targeted world oil price might rise from
John Maynard Keynes still refugee-recruitment policy? $30 back to $120.
best describes the challenge JAN FIDRMUC PHILLIP HAWLEY
facing the discipline today: Department of Economics and La Jolla, California
“Economics is the science of Finance
thinking in terms of models Brunel University Rather you than me
joined to the art of choosing Uxbridge, Hillingdon
models which are relevant to I was glad to see that Parlia-
the contemporary world.” A bicycle built for one ment refused to ban Donald
RAYMOND PARSONS Lexington missed the opportu- Trump from Britain (“Petition
North West University nity to mention Henry Little- I read with interest your article against Trump”, January 23rd).
Mahikeng, South Africa field’s popular thesis that L. about divorce in China becom- It leaves open the possibility
Frank Baum’s “The Wonderful ing increasingly in vogue, with he might end up over there
It was comforting to see your Wizard of Oz”, was inspired by the corresponding chart show- with you instead of over here
column addressing the ideo- the 1896 Bryan v McKinley ing its incidence per thousand with us.
logical dimensions of a profes- electoral face-off (January individuals, which also high- STUART BEAL
sion that too often takes its 23rd). Dorothy, or Everyman, lighted the decreasing divorce Annandale, Virginia
own “scientific” aspirations wearing silver shoes—ruby in rates in America and Britain
too seriously. As the story the 1939 film version—(Bryan’s (“Divorce: a love story”, Janu-
indicates, economics lies pro-silver stance) travels the ary 23rd). Surely a more com- Letters are welcome and should be
addressed to the Editor at
somewhere between science yellow brick road (the gold pelling graph would show the The Economist, 25 St James’s Street,
and politics—victim to the standard), witnesses the op- rate per thousand people who London sw1A 1hg
same shifts in language and pressed munchkins (citizens), are married? Having read your E-mail:
framework that Thomas Kuhn and discovers that the suppos- recent analysis on the decline More letters are available at:
identified, as well as to the edly omnipotent Wizard (a of marriage as an institution, it
Executive Focus 15

The Economist February 6th 2016

Executive Focus

SRI Executive has been retained by the Ramsar Convention Secretariat to
assist with their search for an exceptional candidate to fill the position of
Secretary General.

The Convention on Wetlands, signed in Ramsar, Iran, in 1971, is fully

recognized by the international community as an intergovernmental
agreement. The Secretariat operations are administered by the International
Union for Conservation of Nature (IUCN) and is co-located with the world
headquarters of IUCN in Gland (near Geneva), Switzerland.

The Secretary General is the most senior position in the 22-member

Ramsar Convention Secretariat. The principal responsibility of the
Secretary General will be to manage and lead the Ramsar Convention
with purpose and vision for effective programmes and policies.

Expressions of interest together with a full CV (MS Word format) and

supporting statement should be directed in confidence to SRI Executive

The closing date for receipt of applications is 5pm GMT, February 29th

SRI Executive T: +353 1 667 5008

HQ - Dublin, 40 Grand Canal E:
Street Upper, Dublin 4 W:

Director, Children Without Worms

The Task Force for Global Health in Atlanta, GA, USA is recruiting a
Director of the Children Without Worms (CWW) program. The CWW
Director will have the extraordinary opportunity to influence the
direction and impact of a major global health initiative and improve the
health and development of hundreds of millions of children. S/he will be
responsible for the success of CWW by providing strategic leadership,
program management, and international collaboration.

Founded in 2006, CWW is a leader in the global effort to control soil-

transmitted helminthiasis (STH) – a disease caused by intestinal
worms, which affects more than one billion people worldwide. CWW
facilitates global networks and national efforts to reduce the burden
of STH and its profound impact on poverty and development. CWW is
supported by Johnson & Johnson, GSK, and the Children’s Investment
Fund Foundation.

The ideal candidate will have an MD or PhD with at least 10 years of

global health experience at a senior level and demonstrated success
in disease control programs.

Candidates should apply through the Emory University

Careers website.
Requisition # 58337BR

The Economist February 6th 2016

Executive Focus 17

The Economist February 6th 2016

Executive Focus


The Wardenship
The College invites applications for the post of Warden, in succession to
Professor Margaret MacMillan who retires as Head of the College on 30
September 2017 after 10 years in office. St Antony’s is a postgraduate
college of the University of Oxford which devotes itself to international
and area studies.

The Warden will provide academic and institutional leadership to advance

the interests of the College as a centre of academic excellence both within
and beyond the University of Oxford.

Ideal candidates will offer intellectual leadership with an interest in

international and area studies, a commitment to research and postgraduate
education, and the energy and ability to raise funds and to operate
collegially in a diverse community. Candidates will be educated to degree
level or beyond or demonstrate equivalent experience.

The salary for the post is £80,033pa with accommodation provided in

College equivalent to a rental value from £6,000 per month. For further
information about the College and the Wardenship please visit our website: For further details and how to apply please visit:

The closing date for applications is Friday 11 March 2016.

The College is an equal opportunities employer.

Centre for East European and International Studies

(Zentrum für Osteuropa- und internationale Studien)
The German Bundestag has allocated funds to enhance expertise on Russia and Eastern
Europe in Germany. On this basis, the Federal Government is establishing the Centre for
East European and International Studies (Zentrum für Osteuropa- und internationale Studien,
ZOiS) as a foundation under German Civil Law. The Centre is expected to begin its work as an
independent, non university research institution based in Berlin towards the middle of 2016.
It will be tasked with conducting applied basic research, promoting the training and education
of junior scholars and providing expertise on Eastern Europe for policy-makers, the business
community and the public at large. The target regions for its academic activity are Eastern
Europe (including the Russian Federation), the Caucasus and Central Asia.
The Centre will have at its disposal an annual budget of 2.5m.
We are seeking to appoint an
Academic Director (m/f)
from 1 June 2016.

The successful candidate will have

− a demonstrated track record of academic excellence in research on contemporary Eastern
Europe (e.g. in political science, sociology, economics or contemporary history),
− conceptual and methodological expertise (and a high degree of interest in the
development of new area studies approaches for the target region),
− outstanding academic qualifications and the ability to supervise doctoral students,
− management experience and outstanding organisational skills as well as substantial
experience in organising research groups and communicating research findings,
− a very good knowledge of German as well as the languages of the target region,
particularly Russian.

The initial appointment will be for a period of up to five years. The successful candidate may
be appointed for a second term. Remuneration will be above the collectively agreed pay scale.

Applications from suitably qualified female candidates are particularly welcome.

Pursuant to Book IX of the Social Code, given equivalent skills and qualifications, special
consideration will be given to applications from individuals with severe disabilities and those
granted the same treatment as severely disabled individuals.

The successful candidate will be selected by an independent committee composed of academic

experts. Should you have any questions, please contact the Chair of the academic selection
committee (Prof. Dr. Jan Kusber, kusber@uni

Applications should be submitted by e-mail no later than 11 March 2016 to:

Auswärtiges Amt, Planungsstab (Federal Foreign Office, Policy Planning Staff),
Werderscher Markt 1, 10117 Berlin, Germany,

The Economist February 6th 2016

The Economist February 6th 2016 19
Briefing Europe’s migrant crisis

Forming an orderly queue Also in this section

20 Schengen’s economic impact


Europe desperately needs to control the wave of migrants breaking over its
borders. This is how to go about it

S YRIA’S five-year civil war has killed

hundreds of thousands of people and
displaced millions more. It has sucked re-
yet force Angela Merkel, Germany’s chan-
cellor, to close her country’s doors, setting
off border closures across the continent.
Greekislands fell to just under 2,000 in Jan-
uary compared with almost 7,000 last Oc-
tober. But Germany is taking in 3,000 mi-
gional powers into a geopolitical vortex. It Jean-Claude Juncker, the president of the grants a day, suggesting that the true
has inspired terrorists and fanatics, and ex- European Commission, says the end of number reaching Europe is somewhat
ported violence to a historically volatile re- Schengen could cause the collapse of the higher. When spring arrives the flows will
gion. It has also given rise to Europe’s worst euro and even the single market, one of the surely return to their autumn peaks.
refugee crisis in recent times. EU’s outstanding achievements. That is an Most proposed solutions look unfeasi-
The numbers are, in themselves, not exaggeration, but it would threaten Euro- ble, repugnant or pointless. A settlement in
overwhelming: the European Union, with pean co-operation in other areas and Syria is more remote than ever. This week
a population of 500m, received 1m illegal knock back a club already beset by crises. the latest attempt to start peace talks were
migrants last year, slightly fewer than the More broadly, the migrant crisis is fuel- suspended without making progress. Lib-
number of Syrian refugees accepted by ling the rise of right-wing populist parties ya, the gateway to Italy, has no functioning
Lebanon, which has only 5m people. But across Europe. Anti-immigrant violence is government. Inside Europe, the fences
the chaos of the flows and the determina- growing in countries that have shouldered built by politicians like Hungary’s prime
tion of migrants to reach a handful of the largest burden: this week a German po- minister, Viktor Orban, merely displace the
wealthy countries has set governments lice chief spoke of a “pogrom atmosphere” problem. Yet EU governments are bound
against each other and opened cracks in after a spate of attacks on asylum centres. by law to provide refuge to those fleeing
Europe’s piecemeal approach to asylum. The Paris killings and sexual assaults by war. They cannot push back migrant-laden
No country can resolve the problem alone. asylum-seekers in Cologne have added ter- boats from Greece (as a Belgian politician
But most have responded by unilaterally rorism and cultural neuralgia to a toxic reportedly suggested). Ejecting Greece
closing borders and tightening asylum brew. Xenophobic nationalism has al- from Schengen, as some urge, would deter
rules, leaving migrants to endure danger- ready set parts of eastern Europe against nobody, for it shares no land borders with
ous journeys at the hands of criminal Germany. The resentments that it creates other Schengen countries.
smuggling networks—which elude every are a threat to the EU, too. Plans cooked up in Brussels, mean-
attempt at disruption. While Europeans bicker, the migrant sit- while, are too ambitious, leaving govern-
An ever-growing number of border uation remains grave. The death rate in the ments to squabble while the migrants
controls undermines the EU’s supposedly Aegean Sea has soared in wintry condi- pour in. A quota scheme to relocate asy-
border-free Schengen area, hampering tions: 365 migrants crossing from Turkey to lum-seekers across Europe has succeeded
trade, commuting and tourism (see box on Greece died or went missing last month only in reviving an east-west split in the EU.
page 20). Political pressure at home may (see chart 1). Registered daily arrivals in the Mutual recognition of positive asylum de- 1
20 Briefing Europe’s migrant crisis The Economist February 6th 2016

2 cisions across the EU, which would give of whom have started to join the highway Syrian, and partly because it has become a
refugees the freedom of movement that or- to Europe. gathering ground for refugees and mi-
dinary citizens enjoy, is years away. These immediate measures should buy grants from elsewhere. There are two parts
Instead, the priority must be to restore a time for Europeans to provide protection to the European strategy. The first is a deal
sense of order to the migrant flows. That for those who need it, to work out how to hastily assembled last year that rewards
will help overburdened countries like Ger- share the asylum burden more equitably Turkey for reducing the migrant flows—in-
many plan for arrivals and reassure wor- and ultimately to accept more refugees in cluding a pledge of €3 billion ($3.3 billion)
ried citizens who see no end in sight. Eu- an orderly fashion. But for that to happen, to help refugees and visa-free access to the
rope also needs to get much better at all the pieces in the puzzle need to fall into EU for Turks in exchange for the implemen-
distinguishing refugees with a genuine place, and in the right order. tation of a plan to take back migrants.
claim for international protection from mi- The work begins in Turkey, partly be- The grand bargains envisaged in the
grants fleeing hardship, a growing number cause it hosts 2.7m refugees, most of them deal are probably too ambitious in the lim-
ited time Europe has; all EU governments
will have to approve the visa deal, which
Schengen’s economic impact
seems unlikely. The EU dithered before
Putting up barriers finding the cash this week—and then it is
only a fraction of what is needed. The
agreement has had some effect: Turkish po-
lice targeting smugglers have made 3,700
A permanent reintroduction of border controls would harm trade in Europe
arrests. But the number of migrants land-

L ONG lines of lorries once blotted the

chocolate-box alpine landscape of the
Brenner Pass, an important road link
daily. Malmo in Sweden and Copenha-
gen, the Danish capital, have in effect
become one big city. Border controls at
ing on Greek shores has not fallen by as
much as the Europeans had hoped.
Other elements of the deal might prove
between southern and northern Europe. the bridge that connects them add more fruitful. Turkey recently introduced a
The Schengen agreement, which came around 30 minutes each way. A nuisance limited work-permit scheme for Syrian ref-
into effect in 1995 and has now abolished could become a deterrent to cross-border ugees. Freeing tens of thousands of them
border controls between 26 European employment, reducing job opportunities from the grip of the country’s vast grey
countries, kept those lorries moving. But and the pool of labour employers can economy could help keep some in place. It
where trucks go, so do refugees. To stem draw upon. has also slashed the number of Syrians ar-
the flow Austria, Denmark, France, Ger- The greatest pain will be felt by ex- riving from Jordan and Lebanon, many of
many, Norway and Sweden have tempo- porters. Over a third of road-freight traffic whom were travelling onwards to Europe,
rarily reintroduced controls. Others have in Schengen crosses a border. Delays are by imposing visa requirements.
increased spot checks in border regions. creeping up. Around Salzburg in Austria
Open borders ease the flow of exports lorries now sit for up to three hours be- Unburdening the poor
as well as individuals. Every year people fore getting into Germany. Strict EU rules Much more must be done to ensure that
make 1.3 billion crossings of the EU’s dictate that such waiting times still count the burden on those countries does not be-
internal borders along with 57m trucks as hours behind the wheel for drivers, come intolerable. This is the second part of
carrying €2.8 trillion ($3.7 trillion) of who are obliged to rest when they hit an Europe’s approach. Together, Turkey, Jor-
goods. As well as speeding the passage of upper limit. If waiting becomes a perma- dan and Lebanon host over 5m refugees,
Greek olives and German dishwashers, nent feature DSLV, a German association including 2m children. Most are poor. Un-
borderless travel allows hotels in the east of shippers, puts the direct costs at €3 der huge strain, governments are now do-
of Germany to have their sheets cleaned billion a year for the EU as a whole, based ing their best to keep refugees out. Some
in Poland, where wages are lower, and on a one-hour delay for every lorry. 20,000 Syrians languish in the desert next
workers in Italy to commute to Swit- Businesses likely to suffer most in- to Jordan, which refuses to let most in. Leb-
zerland (also in Schengen though not in clude those with perishable goods, such anon has closed its borders.
the EU), where wages are higher. as fruit, vegetables and fish. Others will Conditions inside these countries are
Reintroducing controls such as check- pass on costs. Suppliers will need to store bad and getting worse, making the hazard-
ing passports and searching lorries is extra inventory across the continent to ous journey to Europe seem more appeal-
mostly an irritation, though the costs are ensure customers get deliveries on time. ing. Half the Syrians in Jordan say they
mounting. A strategy unit of the French The German chamber of commerce says want to leave. Up to 150,000 Syrians sailed
government estimates that in the short that once indirect costs, such as renting from Lebanon to Turkey last summer, seek-
term border checks within Schengen storage and the impact on transit-trade ing to join the migrant trail to Europe. 1
would cost France €1 billion-2 billion a with non-EU countries, are taken into
year by disrupting tourism, cross-border account the extra costs for Germany
The cruel sea 1
workers and trade. If Schengen collapses alone could run to €10 billion per year.
the economic consequences would be Calculations of potential costs de- Migrants crossing the Mediterranean
more serious, it says: curtailing the free pend on what happens if Schengen Dead and missing Arrivals, ’000
passage of goods permanently would disappears: will spot-checks merely
1,500 300
amount to a 3% tax on trade within increase or will countries reintroduce
Schengen. The overall effect of hamper- border posts with barriers and barbed 1,250 250
ing cross-border activity would reduce wire? Many firms, particularly those used
1,000 200
output in the Schengen area by 0.8%, or to sending goods to non-Schengen coun-
€110 billion, over the next decade. tries such as Britain, may adapt swiftly to 750 150
Not only will money have to be found stricter border checks. Far worse than the 500 100
to patrol long-abandoned frontiers. direct costs to trade, says Guntram Wolff
Around 1.7m Europeans cross a border to from Bruegel, a Brussels-based think- 250 50
get to work and in some regions as much tank, would be the signal that European 0 0
as a third of the workforce makes this trip integration can go into reverse. 2014 15 16
Sources: International Organisation of Migration; UNHCR
The Economist February 6th 2016 Briefing Europe’s migrant crisis 21

Schengen Area EU but not Schengen Detections by route, ’000

The route of the problem Main EU
Main European migration routes Schengen
entry point “Hotspots” - registration Western Balkans
but not EU & processing centres
Detections of illegal border crossings, 2015 NORWAY 300

Balkans 0
BRITAIN 764,038 2012 13 14 15
Mainly secondary
POLAND EU entrants
(via Greece) Eastern Mediterranean
From: 300
SLOVAKIA Not specified 73%
SWITZ. HUNGARY Syria 12% 200
ITALY Afghanistan 7% 100
SPAIN Mediterranean
ALBANIA TURKEY 2012 13 14 15
From: Central Mediterranean
GREECE Lesbos Syria 56%
From: Afghanistan 24%
Guinea 28% 200
From: Pakistan 11% SYRIA
MOROCCO Western Eritrea 25% IRAQ
Algeria 15% TUNISIA 100
Mediterranean Central
7,164 Nigeria 14%
Morocco 12% Med. JORDAN
153,946 0
Sources: Frontex; The Economist LIBYA Somalia 8% 2012 13 14 15

2 A donors’ conference in London on Feb- On other Greek islands locals have held move 66,400 asylum-seekers from Greece
ruary 4th, as we went to press, aimed to se- up the establishment of hotspots, fearing (and 39,600 from Italy), is supposed to
cure nearly $9 billion of funding for the re- the impact on tourism. The army is now re- tackle this problem. For Brussels bureau-
gion. Britain this week pledged £1.2 billion sponsible for opening the remaining four; crats the plan holds much promise: it turns
($1.75 billion) of new money. Cash is need- officials say all will be operational by mid- unpredictable flows of asylum-seekers
ed for schools and overburdened infra- March. But a spring surge could still over- into orderly distribution and shares the
structure, such as Lebanon’s strained wa- whelm the hotspots, and there is plenty of burden equitably across Europe. “It is not
ter supply. One idea is for donors to press anecdotal evidence of migrants evading for migrants or refugees to choose where to
Jordan and Lebanon to ease restrictions on registration or gaming the system. go,” says Dimitris Avramopoulos, the EU’s
refugees seeking jobs. European countries A bigger problem is that registering im- migration commissioner.
can help by ensuring that markets are migrants will not stop them moving on if But fewer than 500 asylum-seekers
open. If refugees have reasons to stay, few- they have no fear of being sent back. Since have been moved so far. EU countries have
er will risk the trek to Europe. November officials on Greek-Macedonian refused to play their part, smothering the
Stemming the flow across the Aegean border have only let through Syrians, Ira- process in red tape. The migrants who
saves lives and dents the smugglers’ pro- qis and Afghans, who have good grounds agree to move are often woefully ill-in-
fits. But the clamour to reach Europe will for asylum (see chart 2). Other countries on formed. One group of Eritreans, preparing
continue: routes are too well established, the route are starting to do the same. The to leave Rome for Sweden, remarked to
smuggling networks too strong and de- idea is that word of stricter controls will journalists that they were looking forward
mand too robust. Perhaps two-thirds of spread, deterring some from making the to leaving Italy’s cold weather behind.
Syrians reaching Greece are fleeing the journey in the first place. Sub-Saharan Afri- The EU is sticking to its guns, but even
country directly rather than upping sticks cans, once a common sight in the Serbian the most optimistic projection will not
from Turkey, Jordan and Lebanon. border town ofPresevo, are almost entirely cope with the short-term build-up in
Large numbers will therefore continue gone, bar the odd Somali. North Africans Greece should its northern border close.
to land in Greece. In response the EU has are trying to get across, but must use smug- The government expects to have 40,000
tried to establish “hotspots” on the five is- glers or act alone, traipsing through woods reception places ready in a few months,
lands where most migrants land. But only or ripping up fences. Some are robbed or but may need many more. The UNHCR
one of these processing and registration beaten. Many freely admit that they are and EU governments are preparing sup-
centres, on Lesbos, is fully functional. (Of coming to Europe for a better life. port. In exchange for Greek co-operation
the six in Italy, one is reportedly working Making borders harder to cross is one some in Berlin and Brussels have mur-
well.) Here, migrants are screened, finger- thing. But Germany and the European mured about treating Greece’s vast public-
printed and interviewed. Interpreters test Commission are considering sealing Mac- debt pile more leniently when the issue
the claims of self-identified Syrians; many edonia’s border with Greece altogether. Ni- comes up later this year.
other Arabs claim to come from Syria to kola Poposki, Macedonia’s foreign minis- If there is an iron law of illegal migra-
improve their chances of getting asylum. ter, says that is not feasible, and that the tion, it is that border closures shift routes—
Identity cards are checked for fraud under priority is clamping down on illegal routes. even fewer people take them. Anticipating
ultraviolet lights. At the end, confirmed But border closures farther up the line a sealing ofGreece’s northern border, crim-
north Africans are taken to Athens, from would leave Macedonia with no choice, if inals in neighbouring Albania are sniffing
where they are supposed to lodge an asy- it wanted to avoid a vast build-up of mi- out smuggling opportunities. Officials
lum claim or face deportation. Most others grants on its own soil. have observed more flows through Bosnia
are given a document that allows them to Sealing the border to asylum-seekers via Serbia. Italy fears the re-emergence of
move on to the Greek mainland indepen- could create huge bottlenecks in Greece. the central Mediterranean route, which is
dently. Most do so immediately. The EU’s relocation scheme, which aims to more dangerous than the Aegean crossing. 1
22 Briefing Europe’s migrant crisis The Economist February 6th 2016

2 More could cross into Norway or Finland once they have reached their chosen desti- deals with sending countries. The EU is
via Russia. It is harder than ever to predict nation is hard. Some disappear; others ex- working on a common list of “safe coun-
what sort of diversion will emerge, says ploit generous legal systems. In Germany tries”, to which it is assumed most asylum-
Elizabeth Collett of the Migration Policy In- three-quarters obtain temporary permis- seekers can be returned. Last year Ger-
stitute Europe, a think-tank. sion to stay after their asylum bids fail, of- many slashed claims from Kosovars and
Europe’s hardening mood appears to ten on dubious grounds like the absence of Albanians by placing their countries on its
be inspiring many to move now, before it is a passport or self-diagnosed post-trau- own such list. This week it did the same for
too late. “You can feel the fear,” says a UN- matic stress disorder. Sweden’s recent an- Morocco, Algeria and Tunisia.
ICEF worker on the Macedonian border. nouncement that 80,000 of its asylum-
“They want to get through as fast as possi- seekers were probably eligible for deporta- Let’s get resettling
ble.” It is only that rapid flow that stopped tion is more a cry of despair than a plan for Rich countries should not rely on poor
Greece from collapsing under the weight action. Countries are often reluctant to ac- ones to shoulder as much of the refugee
of migrants last year. No one can be sure cept the return of their nationals, not least burden as they have. Once flows have
that this year will be better. “We may be because they can be a useful source of re- started to fall, Europe could begin a much
talking about millions of people,” says a mittances. No wonder just 40% of failed more ambitious attempt to resettle refu-
Greek official. “No matter what contingen- asylum-seekers across the EU are returned. gees directly from the region around Syria.
cy we put in place, it will overtake us.” So what will work? Not simply dump- A starting point might be 250,000 a year,
ing people on planes, as Greece learned in with the bulk coming from Turkey. To reach
Too hot to handle? December when most of the 39 Pakistanis this number countries may need to be less
One way to alleviate Greece’s burden it returned home were sent straight back by picky about who they take in. Some may
would be to hasten the return of some mi- the authorities in Islamabad on spurious want to work with Turkey directly, bypass-
grants to Turkey from Greece. “Hot returns” administrative grounds. Similarly, there ing the UNHCR, which usually brokers re-
ofmigrants whose asylum bids fail, or who has been a misguided focus on the bureau- settlements. EU countries could join forces
choose not to lodge one, are controversial. cratic fictions of readmission agreements in identifying and screening candidates to
But an existing deal between Greece and cooked up by the EU with sending coun- save time and money. Reuniting divided
Turkey to send back asylum-seekers could tries. Instead European governments must families will be a priority.
work if Greece declares Turkey a safe place build partnerships with their developing- Countries such as Germany and Neth-
for third-country nationals and Turkey up- world counterparts that go far beyond mi- erlands will have to be in the vanguard of
grades its rules to allow them to apply for gration policy. The success stories in Eu- resettlement; with luck, others will follow.
full asylum (currently only Europeans are rope involve bilateral relationships with The failed attempt to impose relocation by
eligible). In theory returns could take place long and deep histories: Britain and Paki- diktat from Brussels shows that quotas in-
in days; in practice it is often more compli- stan, Spain and Morocco, Italy and Tunisia. spire only rancour. But some of the huge
cated. The aim should be to convince na- The focus should thus be political, not unused relocation numbers (from within
tionals with little chance of protection, legal. The Germans are thinking about Europe) can be shifted to the politically
such as Moroccans or Pakistanis, that there how trade and aid may be used as dip- easier task of resettlement (from outside).
is no prospect of moving on if they reach lomatic leverage and a source of jobs, par- Britain and France can do much better.
Greece. Sources say Turkey may be willing ticularly with countries that rely on remit- A series of international refugee confer-
to take such people back, though not the tances. Improved channels for legal labour ences this year, culminating with a summit
far larger numbers of Syrians or Afghans. migration would help. Governments in New York in September, will offer a
But deporting failed asylum-seekers might also club together to forge return chance to do more. European action might
inspire rich countries like Canada and Aus-
tralia to chip in. The Gulf states could add
From there to where? to their informal share of Syrians by for-
European asylum-seeker decisions mally resettling more. The presidential
Main origin and destination countries, October 2014 - September 2015 campaign may rule out any contributions
Origin Destination Total Decisions by origin from America before November, but after
decisions* % accepted that, if there is international momentum,
even a Republican president might help.
The consequences of inaction look
clear: tighter borders, more people-smug-
Syria Syria gling, misery for refugees. Crucially, if the
91,825 95.7
numbers do not fall Germany may lose its
Germany appetite for a European solution and fol-
146,355 ACCEPTED
low the unilateral course charted by oth-
ers. Yet there is an astonishing lack of real
Kosovo Kosovo urgency among Europe’s leaders. Only
31,630 3.0 Mrs Merkel appears to think beyond the
constraints of national politics.
Albania Albania That may not change. But even self-in-
27,340 3.7
n terest demands a more pressing approach.
Serbia 30,185 Serbia Otherwise governments that value Schen-
1.2 gen may find themselves locked out of it,
15,980 REJECTED and countries that thought themselves im-
Eritrea rej
96,475 Eritrea
25,590 Netherla
lands 12,955 86.3
mune to migration may see their territory
turned into refugee marching grounds.
Iraq Switzerl
land 12,260 Iraq
17,895 89.3
Failure to contain the crisis would be a ter-
Britai 11,520
Britain rible outcome for Europe as it battles to
Afghanistan 13,310 Italy 5,005 Afghanistan 72.2 hold itself together. It would be worse still
Source: Eurostat *First-instance decisions only for the refugees it has a duty to care for. 7
The Economist February 6th 2016 23
Also in this section
24 India’s nuclear submarine
24 North Korean missiles
25 Shinzo Abe weathers a scandal
26 Banyan: Political reform in Singapore

For daily analysis and debate on Asia, visit

Democracy in Myanmar dent, Thein Sein, ends.

Given the NLD’s bicameral majority,
A strange new world there is no doubt which party will deter-
mine who becomes president. But it is still
a mystery who that person will be. It is un-
likely to be Miss Suu Kyi: the constitution
bars anyone with a foreign spouse or chil-
dren from the job (her sons are British). But
she may try to get the constitution changed
Myanmar awakes to new order: a parliament with a freely elected majority
in her favour. Speaking to journalists on

I T FELT like the first day of school. On Feb-

ruary 1st freshly sworn-in legislators be-
longing to the National League for Democ-
government. Tin Thit, a poet, environmen-
tal activist and ex-prisoner, said the day felt
“like a dream”.
February 3rd, she noted that parliament
had until March 31st to choose a president,
prompting speculation that she may even
racy (NLD), the party led by Myanmar’s With its promise to transform impover- be looking for a way to get the constitution
Nobel peace-prize winning campaigner ished Myanmar after more than 50 years revised before then. Whoever ends up get-
for democracy, Aung San Suu Kyi (pictured, ofcontrol by the army, the NLD won 80% of ting the job, she has been clear about who
in pink), walked uncertainly through the contested seats in November. That has will call the shots: she will.
parliament’s cavernous corridors in Nay- created high expectations—unrealistic Miss Suu Kyi’s power will be restrained,
pyidaw, Myanmar’s capital. Some looked ones, some fear. “People expect that the however. Despite the NLD’s landslide, the
bewildered. Others smiled and chatted NLD will solve all their problems,” says Mr army is still powerful. It controls the home,
with old friends, brimming with excite- Bo Bo Oo. “But it will take at least ten years defence and border-affairs ministries, as
ment. A small kiosk selling souvenirs did before we see real change.” This view is well as the country’s security forces and
brisk business as new MPs bought key echoed by Tin Oo, a co-founder of the NLD. civil service. It can thus frustrate the NLD’s
rings, fridge magnets and postcards depict- The 88-year-old ex-general calls parlia- attempts at reform. Revising the constitu-
ing their unfamiliar new workplace. It is ment’s opening just “a first step” in a long tion may prove even more difficult. That
part of a sprawling complex of official struggle. would require a parliamentary superma-
buildings built by an unelected junta to jority exceeding 75%. The army’s reserved
withstand a popular uprising. Now, for the Behind the throne, or on it seats give it a veto. Its newspaper said this
first time, it is about to be controlled by an So far, procedural issues have dominated week that the constitutional provisions re-
elected government. the new parliament’s agenda: the swear- garding the presidency should remain un-
For some, getting to parliament on that ing-in of new members and the election of changed “for the good of the mother coun-
opening day had involved an arduous trek. speakers for the upper and lower houses. A try”. In a national crisis, as defined by the
It took two of the MPs 15 days by foot, on bigger task looms: choosing the country’s generals, the army can still legally seize
horseback and by bus just to reach the air- president. The NLD’s victory gives it com- control again.
port nearest their village, high up in the fortable majorities in both houses, despite Many expect that Miss Suu Kyi will try
mountains near Tibet. Others had endured the 25% of seats reserved by law for the to avoid confrontation with the army, and
greater hardship: more than 100 of the army. Each house selects one presidential that she will even appoint ministers who
NLD’s MPs served time in prison for the candidate, as does the army. The winner is worked in the outgoing administration.
crime of belonging to the party. One, Bo Bo chosen by parliamentary vote, with the She is likely to focus first on ending con-
Oo, spent 20 years in jail for supplying two others automatically appointed as flicts involving ethnic minorities living in
medicine to students who had fled to a re- vice-presidents. The president-elect then border areas. As Khin Maung Myint, an
mote area after a failed uprising in 1988. chooses a cabinet. The new administration ethnic Kachin MP from northern Myan-
While in prison, he says, he remained con- will officially begin work at the end of mar, puts it: “Everything that parliament
vinced that one day the NLD would form a March, when the term of the current presi- will do is worthless without peace.” 7
24 Asia The Economist February 6th 2016

Asian nuclear weapons relative safety of the South China Sea. Paki-
Dangerous contest stan, for its part, is in the early stages of a
What lurks Estimated number of nuclear warheads
By range and type, 2015
lower-cost approach. This involves arming
diesel-powered subs with nuclear-armed
beneath Missile-borne ranges
Short (<1,000km)
Aircraft-borne cruise missiles with a range of 700km.
A report for the Lowy Institute, an Aus-
Medium (1,000-3,000km)
Intercontinental (>5,500km)
tralian think-tank, predicts “a long phase of
initial instability” as China and India start
0 30 60 90 120 150 180 deploying nuclear missiles on submarines
A nuclear arms race at sea
China without adequate training or well-devel-

F IGHTER jets roar overhead, spitting out

decoy flares. Helicopters clatter past,
bearing commandos rappelling down Pakistan
oped systems for communicating with
them. It says the build-up may aggravate
maritime tensions, as China and India
ropes. Warships lurk in the waters beyond. seek to dominate local waters in an effort
All week the crowds on the beaches of Vi- India to turn them into havens for their SSBNs.
sakhapatnam, a coastal Indian city, have And the submarines may not even provide
Source: Hans Kristensen, Robert Norris
been thrilled by the dress rehearsal for the the security the two countries are looking
Indian navy’s great martial show: the In- for. The institute says the Chinese and Indi-
ternational Fleet Review between Febru- missiles (see box). an submarines are noisy. This makes them
ary 4th and 8th. The extravaganza will China is ahead of the game. It has a fleet easier to detect.
draw ships from more than 50 countries. of four second-generation Jin-class SSBNs A more immediate worry to India is
The last review took place 15 years ago and is testing JL-2 missiles to install in Pakistan’s development and deployment
in Mumbai, on the west coast. This time it them. These weapons have a range of of smaller “tactical” nuclear weapons for
is being held on the east side—a signal to 7,400km (4,600 miles)—too short, for now, use on the battlefield. These may make it
another rising naval power in that direc- to reach the American mainland from the more likely that any war between India 1
tion: China. India wants to show that in the
Indian Ocean, it is supreme. Still, for the
North Korean missiles
sake of good-neighbourliness, China has
agreed to participate in the review.
Many will be looking out for one vessel Satellite of Kim
in particular: the INS Arihant, India’s first
nuclear-powered submarine armed with
North Korea prepares another provocation
ballistic missiles (SSBN, in military jargon).
The 6,000-tonne boat will provide India
with the third leg of its nuclear “triad”—it
already has land- and air-launched nukes.
I N ITS quest for nuclear weapons, North
Korea is a master of braggadocio. On
January 6th the dictatorship of Kim Jong
atomic sort. The seismic signature of the
test, in an underground complex near the
border with China where earlier ones
But in doing so, it will also risk accelerating Un declared that it had detonated its were conducted, suggested the device
a nuclear arms race in Asia (see chart). first-ever hydrogen bomb, and had thus was similar in size to the one used in the
Arihant has been undergoing sea-trials “guaranteed the eternal future of the previous test in 2013. At most, experts say,
and weapons tests. Naval chiefs had nation”. But even its more low-key an- North Korea tested a “boosted-fission”
hoped formally to commission it during nouncement this week that it now in- device that uses an additive to achieve a
the review. But as The Economist went to tends to launch an “earth observation bigger bang.
press, it was not clear whether this would satellite” some time between February There are also big doubts about the
happen. The SSBN programme has suf- 8th and 25th has caused global jitters. missiles. North Korea’s tests of ICBM-
fered delays. Indian submarines have It is the oldest trick in the nuclear book type rockets have a patchy record—de-
been plagued by accidents. to pretend that the testing of interconti- spite its claims to the contrary. In October
India believes SSBNs are a vital part of nental ballistic missiles (ICBMs) is noth- North Korea paraded what looked like a
its nuclear strategy, which forswears the ing but a satellite launch. A rocket that scary ICBM: the KN-08. Some analysts
first use of nuclear weapons. The Indian can place a large satellite into orbit can believe this is designed to have a range of
navy’s latest statement of maritime strat- just as easily propel a nuclear warhead to about 9,000km (5,600 miles), which
egy, published in October, says the coun- the other side of the world. means it could reach America’s western
try’s nuclear-deterrence doctrine involves Japan has placed its forces on high seaboard. Whether it works is another
having a “credible minimum deterrent” alert. Its defence minister, Gen Nakatani, matter. North Korea probably does not
that can deliver “massive nuclear retalia- said they had orders “to shoot down any yet have the ability to fire nuclear weap-
tion designed to inflict unacceptable dam- ballistic missile threat”. South Korea has ons reliably at America—though every
age” in response to a nuclear strike against warned the North that it will “pay a test will bring it closer to that objective.
India. Because they can readily avoid de- harsh price” if it goes ahead with the For all the chorus of international
tection, SSBNs can survive a surprise attack launch. America is calling even more outrage, the only country that can realisti-
and thus ensure India’s ability to launch a loudly for fresh UN sanctions against the cally divert Mr Kim from his ruinous
retaliatory “second strike”. North. Even China, North Korea’s ally, nuclear quest is China: it provides North
Some nuclear theorists argue that sub- said it was “extremely concerned”. Korea with fuel and food, and is the main
marine-based deterrents promote peace Experts are unsure how much pro- conduit for its financial transactions. But
by making the other side more frightened gress North Korea is making with its it is reluctant to endorse America’s de-
to attack first. But the extension of the nuc- nuclear-weapons project. North Korea’s mands for tougher sanctions. However
lear arms race to Asia’s seas may still have boasting is certainly no guide. For ex- much China may be embarrassed by its
worrying implications—all the more if ample, it is highly unlikely that the det- wayward ally, it fears the collapse of the
North Korea gets in on the act. It appears onation in January involved a hydrogen North Korean regime more than Mr Kim’s
determined to find a way of sticking nuc- bomb, which is more powerful than the headlong quest for nukes.
lear warheads on the end of its erratic
The Economist February 6th 2016 Asia 25

2 and Pakistan will go nuclear. They also in- nukes of its own. Instead, it will rely on the cash, from the representative of a construc-
crease the risk of Pakistan’s weapons being threat of massive retaliation against any tion company seeking favourable treat-
used accidentally—or falling into the hands use of nuclear weapons by Pakistan. Still, it ment from a government agency, proved
of extremists (such weapons are under the may be another decade before India has a too much. Within a week, he announced
control of lower-level commanders whose fully-fledged sea-based deterrent. Ari- his resignation. In his first, disastrous term
professionalism and loyalty may be du- hant’s Russian nuclear-power generator is as prime minister between 2006 and 2007,
bious). Pakistan says tactical nukes are unsuited to long patrols. Initially, the sub is Mr Abe had allowed ministerial scandals
needed because of an Indian doctrine due to be armed with the K-15 missile, with to drag on with damaging effect.
known as “cold start”. Though never for- a range of 750km—not enough to reach big Mr Amari’s exit came at an awkward
mally adopted, “cold start” foresees Indian cities in northern Pakistan. Striking Chi- time for Mr Abe as he tries to boost a stub-
units being ready to respond to Pakistani nese ones would be harder still. From the bornly lacklustre economy (though it may
provocation (eg, a terrorist outrage) with beaches of Visakhapatnam the world will get a lift thanks to the Bank of Japan’s inter-
little or no notice, by seizing parts of Paki- witness not only India’s ambition, but also est-rate decision). The scandal has delayed
stani territory to use as a bargaining chip. the many gaps it has yet to fill in order to debate in the Diet (parliament) over the
India says it will not develop battlefield achieve it. 7 government’s budget for the coming finan-
cial year, which starts on April 1st, though
there is little doubt this will be approved
Politics in Japan eventually.
One of Mr Abe’s boldest attempts to
Negative rates, positive polls promote structural economic reform (there
are not many of them), namely getting Ja-
pan into the Trans-Pacific Partnership
(TPP)—an ambitious 12-country free-trade
agreement that includes America—may
also suffer delays. Mr Amari was Japan’s
chief negotiator for TPP entry. Without his
Shinzo Abe weathers the exit of a scandal-hit minister with surprising ease
guidance, it will be far harder for the gov-

R ECENT days have witnessed unusual

phenomena in Japan. On January 29th,
for the first time in its history, the central
ing following its defeat in a general election
in 2012. It has yet to find a new message
that appeals strongly to voters. Its cam-
ernment to get the terms of accession rati-
fied by the Diet during its current session
(due to end on June 1st), says Heizo Tak-
bank adopted negative interest rates as a paign for an election this summer for the enaka, a former economy minister. Even
way of dealing with the threat of deflation. parliament’s upper house is not inspiring. though farmers are to receive some ¥110
Then came the public’s equally striking re- “I do not like the DPJ,” one of the DPJ’s post- billion ($890m) to help them adapt to low-
sponse to a bribery scandal involving ers imagines a voter musing, “but I want to er tariffs, opposition to TPP from the farm
Akira Amari (pictured), the economy min- protect democracy.” lobby is expected to be strong.
ister, who had resigned a day before the Mr Abe’s skilful handling of the Amari Mr Amari’s successor is Nobuteru Ish-
bank’s move. The government was braced affair helped to minimise the damage. ihara, who leads the second-smallest fac-
for a drop in its approval ratings, but in- After the scandal broke in the Shukan Bun- tion of Mr Abe’s Liberal Democratic Party
stead public support for it rose in three shun, a conservative weekly magazine, Mr (he is the son an ultranationalist former go-
polls, to over 50%. Shinzo Abe, the prime Amari appeared confident of the prime vernor of Tokyo). Backers of economic re-
minister, may be wondering at his luck. minister’s backing. He was mistaken. Mon- form bemoan the younger Mr Ishihara’s
The Democratic Party of Japan (DPJ), ey scandals have been rife in Japanese pol- relative lack of economic-policy experi-
the biggest opposition party, had been pre- itics due partly to vague rules on reporting ence and his proneness to gaffes .
paring to make hay from Mr Amari’s de- political donations. But the magazine’s al- But apart for his enthusiasm for TPP, Mr
parture—the fourth such scandal in Mr legations that Mr Amari’s office accepted Amari was hardly a gung-ho promoter of
Abe’s cabinet. But the DPJ is still flounder- ¥12m ($100,000), including envelopes of reform himself. And Mr Abe has his eye on
other goals. Such is the opposition’s disar-
ray that there is now even speculation that
he may call a snap election for the Diet’s
lower house as early as this spring. Though
the economy is weak, voters tend to blame
China’s slowdown rather than Mr Abe’s
policies, says Koichi Nakano of Sophia
University in Tokyo.
Mr Abe may use his political strength
not so much to push for economic reforms,
but to change the constitution to make it
easier for Japan to operate as a normal mil-
itary power, instead of being bound by its
post-war commitment to pacifism. For this
he would need the support of two-thirds
of legislators in both houses of the Diet
(never mind that he lacks it with the pub-
lic). With the help of like-minded parties,
that may be thinkable if the LDP does well
in both the upper-house election and a
snap poll for the lower house. A strangely
resilient Mr Abe may decide that now is
Sorry the time to try. 7
26 Asia The Economist February 6th 2016

Banyan Old shoes and duckweed

Singapore’s ruling party plans for its next half-century in power

tions of no-confidence (not that such a heresy is on the cards).
Now Mr Lee proposes increasing the minimum number of op-
position MPs to 12 (Parliament currently has 89 elected members),
and to give NCMPs full voting rights. Yet the opposition’s reaction
has been churlish. Low Thia Khiang, of its biggest group, the
Workers’ Party, said NCMPs were like “duckweed” in a pond—ie,
they lacked roots (in a constituency) and were merely ornamen-
tal. A greater cause for worry is that the reform may actually re-
duce the opposition vote. Many Singaporeans want to see the
government held more fiercely to account, but are wary of the in-
experienced opposition coming anywhere close to office. Indeed,
the Workers’ Party campaigned last year not to form a govern-
ment but to be a stronger opposition. If that outcome is guaran-
teed, why not vote for the government?
The second proposed change is to so-called “group represen-
tation constituencies” (GRCs). These ostensibly ensure that the
ethnic-Malay and -Indian minorities are represented. The public-
housing estates where most Singaporeans live are subject to eth-
nic quotas, so everywhere probably has an ethnic-Chinese ma-
jority. Much of Singapore is now divided into four-, five- or six-
member electoral constituencies, with parties compelled to in-

I T SEEMS odd for Lee Hsien Loong, Singapore’s prime minister,

to tamper with the political system. His country’s style of gov-
ernment has many admirers. Europeans and Americans envy
clude minority candidates on their slates. But these winner-take-
-all GRCs have had other uses: it is hard for small parties to find
enough qualified candidates; weak PAP candidates can be swept
how efficient and clean it is. Authoritarians, not least in China, into parliament on the coat-tails of a cabinet minister; and the dis-
gaze in awe at the ruling People’s Action Party, in power since 1959 torting effect of Singapore’s first-past-the-post system is magni-
despite facing regular, unrigged elections. The most recent, last fied, increasing the PAP’s majority. It was only in 2011 that the op-
September, returned the PAP with some 70% of the votes. One of position first won a GRC. It barely clung on to it last year. Now Mr
the world’s best-paid political leaders, Mr Lee is also one of its Lee wants to create more single-member constituencies and to re-
most successful. Why fix a machine that ain’t broke? duce the size of GRCs; the opposition still wants them abolished.
Three simple reasons explain why Mr Lee, in a speech to Par- The third proposed reform is to the largely ceremonial presi-
liament last month, outlined a set of political reforms. First, this is dency, which since 1990 has been an elected post, with important
a tinkering at the edges of the Singapore system, not an overhaul. powers of veto over government appointments and the spend-
He borrowed a metaphor from his father, Singapore’s first prime ing of its vast financial nest-egg. The idea was to introduce a check
minister, Lee Kuan Yew. Constitutions, he said, are like a fine old on the government. Now, however, the worry is probably about
pair of shoes: “Stretch them, soften them, resole them, repair the possibility of a rogue president. In the most recent election, in
them.” They will always be better than a brand-new pair. 2011, in a four-horse race, the government’s favoured candidate
Second, the PAP’s landslide last September means Mr Lee is only scraped home. The election, inevitably, had become politi-
proposing change from a position of strength. He cannot be ac- cal—a contest between the government and its critics. So Mr Lee
cused of panic measures to shore up PAP rule, as he might have announced the formation of a constitutional commission to re-
been after the previous election in 2011, when the party recorded view, among other things, the qualifications a presidential candi-
its worst performance since independence (a mere 60% of the date needs—and, presumably, to tighten them.
popular vote). And third, Mr Lee, like his father, thinks for the long
term. These, he said, are not changes for the next five or ten years Checks and fine balances
but for the decades to come. What he did not say is that the re- Singapore’s leaders like to attribute their country’s phenomenal
forms will help the PAP extend its rule far into that misty future. economic success in part to the political system: one just con-
All involve further refinement of the Westminster-style parlia- tested enough to keep the government honest; but not so much
mentary system Singapore inherited from Britain. The first covers that it risks losing power, meaning it can withstand populist
“non-constituency members of parliament” (NCMPs). These temptations and plan for the future. Mr Lee’s proposed reforms
posts date back to 1984. As Mr Lee told it, the PAP, having faced no are in that vein—making sure that the system has checks and bal-
parliamentary opposition at all from 1965 to 1981, when it lost a by- ances, but only ones the government can control. As opposition
election, decided to its surprise that it was good for government leaders were quick to point out, they do not even touch some of
to have opposition voices represented. (This might also have sur- the main sources of the PAP’s electoral magic: its public-housing
prised the late J.B. Jeyaretnam, that solo voice of dissent, who was programme; a pliant mainstream press; an election commission
hounded into bankruptcy, and was dismissed by the elder Mr Lee that is under the prime minister’s office; and a political climate,
as a “dud”.) So the government mandated a minimum number of even now, where dissent seems a terrible career choice. That Sin-
opposition seats—at present nine. Since the opposition never gapore has thrived with so little real restraint on the government
wins enough at elections, the others go to its best-performing de- is also a tribute to the incorruptibility of the Lee family and their
feated candidates. But NCMPs have not been allowed to vote on colleagues. Whether it can continue to thrive without them, and
money bills, for example, or constitutional changes, or on mo- without more far-reaching political reform, is a gamble. 7
The Economist February 6th 2016 27
Also in this section
28 The art of good news
28 The causes of national hurt

For daily analysis and debate on China, visit

Financial fraud dominated by state-owned firms that offer

depositors artificially low interest rates
Ponzis to punters and make most of their loans to other big
state-owned enterprises. P2P lending (of
the sort Ezubao pretended to offer) has
rushed into the gaps, matching depositors
who want higher rates of return with small
firms that cannot get credit from big banks.
Financial scams may pose as big a political problem for Xi Jinping as the
Total P2P loans quadrupled in 2015, to 980
stockmarket crash
billion yuan, more than in America.

I N 1997 the collapse of several large Ponzi

schemes in Albania precipitated mass
disorder, the overthrow of the government
ited by new ones, meaning liabilities ex-
ceeded assets and the firm was perma-
nently insolvent. When the police arrested
But the business is very poorly regulat-
ed. Realising this, the authorities in Decem-
ber proposed a strict set of rules, including
and the deaths of2,000 people. The failure, its bosses on January 31st Ezubao had over banning P2P companies from financing
in another country lacking robust financial 900,000 investors who had lost about 50 their own projects or guaranteeing a rate of
regulation, of a huge Ponzi scheme is not billion yuan ($7.6 billion) between them. return. But this comes very late. About a
going to lead to the overthrow of its presi- No known Ponzi scheme has had so many third of the 3,600 P2P sites were classed as
dent, Xi Jinping. But it could cause the gov- victims. To evade scrutiny, managers had “problematic” by the China Banking Regu-
ernment political problems. And it shows buried their account books deep under- latory Commission at the end of 2015.
that China is as vulnerable as anywhere ground. Police took 20 hours to dig them Many are doubtless proper businesses but
else to the chaos that can result from finan- out with excavators. financial information in China is not reli-
cial shenanigans. Ponzi schemes abound in China. Be- able enough to help investors tell pyramid
The company that failed was Ezubao, tween 2007 and 2008 the founder of the schemes from ventures that are honest.
China’s largest peer-to-peer (P2P) lender great ant-farm scam stole $400m from in-
(one of its now sealed-up offices is pic- vestors in the supposed health benefits of Foiling the phoney pharaohs
tured). P2P websites connect borrowers the insects before he was arrested and sen- One of the big questions is whether finan-
and lenders without a bank’s intermedia- tenced to death. Last year in Kunming, a cial fraud will have a political impact. Chi-
tion. Founded in 2014 by Ding Ning, who, city in the south-west, Fanya Metals Ex- na’s stockmarket meltdown caused ruc-
according to state media, had done well for change, which mostly traded rare earths, tions worldwide, but relatively few
himself manufacturing can-openers, Ezu- froze $6.4 billion of funds. The chairman demonstrations in China itself. The oppo-
bao quickly became one of China’s best- disappeared in December (he is thought to site has been true for pyramid schemes. In-
known new financial firms. Mr Ding spent have been arrested). Meanwhile police in vestors in Fanya staged a “citizen’s arrest”
millions on an advertising blitz, ordered Guangzhou, according to a newspaper in of the chairman at a hotel in Shanghai and
employees to sport luxury brands or glitzy the southern city, are looking into what has drove him to the police station. Protests
jewellery and was interviewed on the gov- happened to 40 billion yuan deposited about Ezubao have broken out in 34 cities
ernment’s web portal about his company’s with GSM, a firm that no longer exists at its and the police were told to prepare for the
contribution to Chinese growth. registered place of business. occupation of official buildings in Beijing.
But it was dodgy from the start. One ex- China is probably no more prone to fi- Investors think financial firms are regulat-
ecutive said that “95% of investment pro- nancial fraud than other emerging markets ed by the government, even when they are
jects on Ezubao were fake”. Another called (in 2012 the Reserve Bank of South Africa not, and blame the state accordingly. “My
it, accurately, a Ponzi scheme: instead of said it had investigated 222 suspicious question is simple,” wrote “Mexican man”
paying investors out of revenues from schemes). But its scams are larger in abso- on Weibo, a microblogging site. “What on
business projects, it was paying long- lute terms—and reflect its financial sys- earth were the regulators doing?” Mr Xi
standing investors with the money depos- tem’s distortions. Chinese banking is might ponder that, too. 7
28 China The Economist February 6th 2016

Television news
Diplomatic insults
No news is bad A world of hurt
Poor China: so vast and so sensitive
How the Communist Party creates the
world’s most-watched TV news show
“I ’VE hurt the feelings of the Chinese
people.” So said Peter Dahlin, a
Swedish citizen, in a televised “confes-
“hurting the feelings of the Chinese
people” in the People’s Daily, the Com-
munist Party’s mouthpiece, since 1959,

E ACH night at 7pm, many of China’s tele-

vision channels beam the state broad-
caster’s flagship news programme into
sion” after his arrest in Beijing in January.
There were several disturbing aspects
about the admission, including the likeli-
when India became the first to be ac-
cused by the party of doing it—during a
border dispute.
Chinese homes: a remorseless half-hour hood that it was made because of pres- Since then, Japan has upset China
diet of where Xi Jinping went today, how sure exerted on Mr Dahlin, who ran a most often, with 51 offences, followed by
well the economy is doing and (for a few Beijing-based legal-advice group (he has America, with 35. But you do not have to
minutes at the end) a look at all those peo- since been expelled). But why would the be a rival or neighbour to do it: the tiny
ple in foreign countries killing each other. government put those particular words Caribbean nation of St Lucia hurt the
Despite China’s transformation over the into his mouth? feelings of China’s 1.3 billion people by
past 40 years, the evening news has Other countries, especially authoritar- reopening diplomatic ties with Taiwan in
changed very little. Around a tenth of the ian ones, also like to express outrage 2007. How many of them had heard of St
population still watch it—a remarkable about the state of their citizens’ emotions. Lucia is not clear.
number given the profusion in recent years But China is a world leader in this spe- Albanian insults aimed at Mao Ze-
oflivelier news sources in print and online. cialised form of righteous indignation. dong in the 1970s; the defection of a
News Simulcast, usually known by its David Bandurski of the China Media tennis player to America in 1982; the
Chinese name, Xinwen Lianbo, has chron- Project at the University of Hong Kong accidental bombing of China’s embassy
icled the country’s extraordinary meta- has counted 143 instances of the phrase in Belgrade in 1999: all have caused emo-
morphosis with almost unremitting lead- tional scarring. But three things are partic-
enness since it was first aired in 1978. The ularly offensive: being nice to Taiwan (28
same opening tune has been used for near- occasions of bruised feelings); sympathy
ly 30 years (though the orchestra has im- with the plight of Tibet (12); and failure to
proved). News is chosen not for its impor- come to terms with the second world
tance or human interest but for its political war (hence Japan’s multiple offences).
value in bolstering the Communist Party. It Oddly, general complaints about China’s
is translated into eight minority languages, human-rights abuses are usually
just to be sure its message is understood by shrugged off—the People’s Daily has
as many people as possible. reported only two cases of hurt feelings
The fare has barely changed in decades. relating to those.
A typical programme in the 1980s high- The public’s supposed outrage is a
lighted the development of a self-opening useful tool: it enables the party to put
umbrella and a contest in which happy aside its principle of non-interference in
only children (China had recently intro- the internal affairs of other countries. For
duced a one-child-per-couple policy) per- example, it often complains about Japa-
formed household chores. Today the back- nese politicians’ visits to the Yasukuni
drop is just more high-tech. Scenes of shrine in Tokyo, where war criminals are
bullet-trains and microchip makers have among those honoured. But the party is
replaced those of dreary state-owned fac- rarely keen on letting people express
tories. Now, as then, reports featuring Chi- their feelings for themselves. It regards
nese leaders—no matter how trivial their spontaneous public outbursts as a poten-
activities—nearly always take precedence tial threat to the party’s control, loss of
over other news. A popular rhyming ditty which would truly hurt.
accurately describes the format: “The lead-
ers are always busy, the people are per-
fectly healthy, the world outside China is when Xinwen Lianbo started broadcast- ful clues to the party’s latest thinking, and a
extremely chaotic.” ing. But as China entered the age of mass chance to see leaders who rarely appear in
Early newscasters—almost always one consumption a few years later, TV news public. Propagandists have used the news
man and one woman—were chosen for became the perfect vehicle for the party to to try to demystify President Xi, says
their standard Mandarin pronunciation try to guide public opinion. Xinwen Chang Jiang of Renmin University in Beij-
and stolid demeanour; the same few read Lianbo’s ratings peaked in the mid-1990s, ing. The president is shown as a man of the
the news for decades. These have been re- when 200m-250m tuned in. Now the audi- people, drinking tea with villagers or kick-
placed with younger, more glamorous pre- ence is 130m-140m, though the fall is not as ing footballs. His voice is often heard, notes
senters (though they still need official per- big a worry for the party as it might seem: Mr Chang—perhaps because, unlike his
mission to change their hairstyles). To in 2003 China Central Television launched predecessors, he speaks standard Manda-
make broadcasts seem more newsy, banks a 24-hour news channel, giving viewers rin and is therefore widely understood.
of TV screens flicker in what appears to be complete freedom to choose when to catch Ratings apparently rise when his elegant
a newsroom behind. But live reports are up with the latest propaganda. Xinwen wife, Peng Liyuan, appears. But such cos-
rare; they create too big a risk of something Lianbo still has more viewers than any metic innovations are as far as the party
embarrassing making it to air. other TV news on Earth. will go in tinkering with a brand they con-
A fraction of households had TV sets For many, the programme provides use- sider successful. 7
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The Economist February 6th 2016 31
United States
Also in this section
32 Iowa, where the winner came third
33 On the trail
33 Ben Carson’s unusual campaign
34 Political advertising
35 School choice in Louisiana
35 Confederate monuments
36 Lexington: Falling towards Hillary

For daily analysis and debate on America, visit

Ted Cruz Founding Fathers, Americans’ rights are

bestowed by God—and by his background.
The man in the ostrich-skin boots Before he fled Cuba, Rafael Cruz was tor-
tured, which helps to explain why, for his
son, freedom is always imperilled and gov-
ernment constantly on the verge of despo-
tism. To hear him tell it, Obamacare is not
just regrettable but tyrannical; gun controls
are the high road to the gulag. That vigi-
Who is the victor of Iowa, and what sort of president might he make?
lance over liberty is widespread in Texas,

O F THE top two Republicans in Iowa,

one is a universally recognisable type.
Short on policy, long on ego and bombast,
yerly fashion, he stretches the bounds of
taste and honesty rather than blatantly vi-
olating them.
where he spent most of his childhood (he
was born in Canada, which Mr Trump says
might disqualify him). He was among a
promising to redeem a nation he dispar- Yet for all these formulaic talents, in his group of teenagers who learned a mne-
ages through the force of his will, Donald outlook and appeal Mr Cruz is an idiosyn- monic version of the constitution and re-
Trump’s strongman shtick is familiar from cratic product of the convulsions that fol- gurgitated it at clubby lunches. Daniel
Buenos Aires to Rome, inflected though it is lowed the financial crisis and Barack Hodge, a former colleague and now the go-
by reality TV and the property business. Obama’s election, and of his upbringing. vernor’s chief of staff, reckons Mr Cruz is a
The other, Ted Cruz, champion of the cau- Like many of his core beliefs, his evangeli- Texan “from his head to his boots”. His
cuses, is the scion of a particular version of cal faith—“To God be the glory”, began his lucky pair are made of ostrich skin.
America and of a peculiar era in its history; victory speech in Iowa—came from his fa-
a politician who repels or baffles many of ther Rafael, a Cuban refugee who fled to Defying Reagan
his compatriots, even as others rally to his Texas, turned to drink, then found God and Calling him a demagogue overlooks the
godly standard. is now a zealous preacher. By all accounts, authenticity of these convictions. Better to
Superficially the senator from Texas is a Mr Cruz’s Christianity is profound and sin- say that his beliefs, skilfully angled and
classic overachiever, whose ability to sur- cere: Chip Roy, formerly his chief of staff, promoted, have fortuitously chimed with
mount Himalayan obstacles—such as win- recalls visiting his condo to pick up his suit the evolving mood of conservative voters,
ning that office in his first-ever political and spying a Bible and other devotional especially with the emergence of the Tea
race—bespeaks and fuels an adamantine texts at his bedside. It is audible in his ca- Party and the backlash against Mr
self-confidence; the sort whose warp- dences and susurrations, his frequent refer- Obama’s agenda and the bail-outs that fol-
speed ascent is powered by strenuous cal- ences to scripture, disgust at the Supreme lowed the crash. The fights Mr Cruz picked
culation and fearsome intelligence. Don Court’s defilements, and injunctions to as solicitor-general—for religious liberty,
Willett, a judge and long-term acquaint- prayer: “Father God, please”, he asks sup- the death penalty and states’ rights, against
ance, describes Mr Cruz as a “freakishly porters to murmur, “continue this spirit of abortion and gun control—both reflected
gifted” lawyer; watching him argue at the revival, awaken the body of Christ.” his philosophy and set up his long-shot
Supreme Court, during his stint as Texas’s In Iowa, some were plainly impressed. campaign for the Senate. (He is said to have
solicitor-general, was “like watching Mi- “He’s a man of faith,” purred a cheering relaxed by playing several chess games at
chael Jackson unveil the moonwalk.” woman at a restaurant that poked from the once.) His hardline antics in Washington—
Like many modern politicians, if not Mr snow of Manchester into the milky sky. Mr most strikingly, his flamboyant effort to
Trump, he is uncannily disciplined. On the Cruz would be the most insistently reli- “defund” Obamacare, which helped to
trail he tells the same jokes, accompanied gious Republican nominee in decades. bring about a partial shutdown of the gov-
by the same gestures and self-satisfied He would also be the most ardently de- ernment in 2013—both served his instincts
chuckles, reproducing chunks of his book, voted to the constitution, a fervour itself and laid the ground for a presidential run.
“A Time for Truth”, verbatim. In good law- influenced by his creed—for him, as for the Critics say the Obamacare stunt tar- 1
32 United States The Economist February 6th 2016

2 nished the Republican brand, jeopardised evangelical Christians who, his team be- foreign alliances than he does in domestic
America’s economy, and had just one ben- lieves, can swing elections when they are ones; the only foreign leader he name-
eficiary: Mr Cruz. Yet distancing himself galvanised to vote. Conversely his appeal checks approvingly is Binyamin Netan-
from his fellow Republicans is as central to to moderates is limited. He has had little to yahu. He evinces an unholy relish for “car-
his pitch as excoriating Hillary Clinton. In say to or about the poor, beyond his per- pet-bombing” Islamic State and making
his book Mr Cruz quotes Ronald Reagan’s petual gratitude that, when his father was the desert glow. Indeed, the violence of his
11th commandment: “Thou shalt not speak washing dishes for 50 cents an hour, no language might interest a psychoanalyst.
ill of another Republican.” Despite Rea- one was sent by the government to help He says he would “rip to shreds” the nuc-
gan’s status in his personal pantheon, him. His flagship economic policy is a re- lear deal with Iran; after introducing his
alongside God and the constitution, he gressive flat-rate income tax of 10%. Black flat tax, he would abolish the IRS, along
does not observe it. In 2013 he likened Americans, anyone concerned about cli- with numerous other agencies. His insur-
those who eschewed his kamikaze tactics mate change (which he denies) and non- gent approach to government mostly in-
to appeasers of Nazism; now, on the Christians should look elsewhere. Ditto volves destroying things. He denounces
stump, he lambasts mainstream Republi- homosexuals: “This shall not stand,” Mr Mr Trump as a man others in Washington
cans as corrupt and pusillanimous. Cruz declares of gay marriage. That gran- can do business with, and, compared with
This push to portray himself as the lone diloquent but fuzzy pledge exemplifies his Mr Cruz, he may well be.
ranger of true conservatism seems to be gambit: making impossible vows to disori- One of the scriptural aphorisms Mr
working. “Talk doesn’t do it for me,” said a ented voters which are all, at bottom, a pro- Cruz likes to cite is: “You shall know them
man wearing an NRA jacket at Bogie’s mise to reverse history and revive a fairy- by their fruits.” He deploys it to support the
Steak House in Albia, where, positioned tale idea of America. claim that he would conduct himself in the
beneath a stuffed deer, Mr Cruz made his His game-plan may itself betray a form White House as he has in the Senate. His
usual, casually thuggish attack on the of cognitive dissonance—because, beyond supporters believe that. “He’ll do what he
mainstream media: “You’ve got to look at Iowa and parts of the South, those elusive says he’s going to do,” said a woman hold-
what somebody’s done.” Not surprisingly, evangelical legions may not exist. If the bet ing a baby and wearing a Cruz football
however, it has incurred a cost. comes off, though, the rest ofthe world is in shirt at a campaign event in Centerville. If
Politicians often get on better with the for a period of abrasive unilateralism. Mr so, the fruits of a Cruz presidency would be
public than with people they actually Cruz demonstrates little more interest in confrontation and rancour. 7
know; to label one ambitious—especially a
45-year-old junior senator running for
president—is tautological. But the antipa- Iowa and beyond
thy inspired by Mr Cruz transcends the rou-
tine gripes. It has followed him through the
litany of elite institutions in which, for all
Trump bumped
his digs at the establishment, he has spent
his adult life: from Princeton, to Harvard
Law School, to a clerkship on the Supreme
Court and his bumptious spell on the cam-
paign for George W. Bush in 2000. (His
Ted Cruz may have won, but Marco Rubio came out on top
wife, whom he met on the campaign, is a
managing director at Goldman Sachs.) He
went back to Texas, later to criticise Mr
Bush’s bloated conservatism, only after be-
D ONALD TRUMP, flanked by his thor-
oughbred offspring and wife, showed
admirable qualities in Des Moines on Feb-
ing passed over for jobs in the administra- ruary 1st. Acknowledging his defeat by Ted
tion he felt he deserved. He became an out- Cruz in the Iowa caucuses, which polls had
sider, at least rhetorically, after flopping as suggested he would win, the Republican
an insider. As both Bob Dole and Mr front-runner congratulated “Ted and all
Trump recently put it, “Nobody likes him.” the incredible candidates”, thanked his ac-
tivists, expressed his love for Iowans and
Father, son and the ghost of holiness said he was “honoured” with second
In fact that isn’t altogether fair. David Pan- place. He was gracious, touching even. But
ton, his room-mate at both Princeton and humility was not what the visibly deflated
Harvard, describes him as “a loyal friend” crowd wanted from Mr Trump.
and “extremely polite, kind and respect- Boastfulness is his schtick. Just hours
ful”. At least some of his former colleagues before the caucuses, he delighted a crowd
like as well as admire him, speaking fondly in Cedar Rapids with a promise that, under
of his wit, impersonations of characters his presidency, Americans would get so
from “Scarface” and “The Princess Bride” bored of winning they would beg him to
and generosity to underlings. In Texas Mr lose for a change. No wonder his suppor- The winner came third
Hodge remembers him as “the guy who ters were downcast at his loss to Mr Cruz,
came with his wife to my mother’s 60th by 24% to 28%—and almost to Marco Rubio, caucuses and demanded a rerun.
birthday party”. But the damning judg- whose 23% surpassed expectations. Mr Mr Trump lost in Iowa because the con-
ment does seem to hold for one influential Trump’s balloon has not popped. Iowa, test was more normal than anticipated, as
subset of Mr Cruz’s acquaintances: his Re- where 60% of Republican voters are evan- politics usually is. The Republican turnout
publican colleagues in the Senate. Not one gelical Christians, had always seemed an was high; first-time voters represented 45%
has endorsed him. awkward fit for an irreligious divorcee. But of the total and, as expected, many backed
As he must, Mr Cruz strives to make a he now has to win in New Hampshire on Mr Trump. But that effect was mitigated by
virtue of this unpopularity. His strategy February 9th. Campaigning there this a big turnout of evangelicals for Mr Cruz.
rests on mobilising alienated conserva- week, he was back to his old self in no time: His assiduous effort to get them out on an
tives, in particular the millions of white he accused Mr Cruz of having stolen the icy evening made Mr Trump’s campaign 1
The Economist February 6th 2016 United States 33

The campaigns

Heard on the trail

Banana Republican Participation trophy

“Ted Cruz didn’t win Iowa, he stole it. “If I get one vote, frankly, in Iowa, I’ll
That is why all of the polls were so wrong consider it a victory.”
and why he got far more votes than Jim Gilmore got 12 votes out of the 180,000
anticipated. Bad!” cast in the Republican caucuses
Donald Trump’s humility did not last long
They really love me
Aw shucks “I have the most loyal people, did you
“What the team […] should have done ever see that? I could stand in the middle
was send around the follow-up state- of 5th Avenue and shoot people and I
ment from the Carson campaign clari- wouldn’t lose voters.”
fying that he was indeed staying in” Mr Trump on his fans.
Mr Cruz sort-of apologises for suggesting
on voting day that Ben Carson was quitting Kill or cure
“Voters are sick of me.”
It’s not brain surgery Mike Huckabee ends his campaign Election spending
“Dr Carson needs to go home and get a
fresh set of clothes.”
Ben Carson’s campaign after Iowa
Too much information
“I’m a Catholic, but I’ve used birth con-
Green grass roots
trol, and not just the rhythm method.”
Best official campaign item Governor Chris Christie, August 2015
“Make America Great Again”
Trucker hats sold by Donald Trump’s Bad to the bone
Ben Carson’s campaign is doomed and
campaign became a hot item for hipsters “You may have seen I recently launched a
its governance tawdry
Snapchat account. I love it. I love it. Those
Best unofficial campaign item
“Make America Gay Again”
From the Human Rights Campaign, a gay-
messages disappear all by themselves.”
Hillary Clinton, August 2015 A N INTERESTING sideshow in Iowa on
February 1st was the demise of Ben
Carson’s campaign. In the state most sus-
rights group endorsing Hillary Clinton Heads it’s Hillary ceptible to his Bible-infused right-wingery,
“In a case where two or more preference the former neurosurgeon, who in October
Burning Bush groups are tied for the loss of a delegate, a and November surged to a double-digit
$2,800 coin shall be tossed to determine who lead in Iowa and briefly led the Republican
Jeb Bush’s campaign expenditure in Iowa loses the delegate.” field, came fourth, with 9%. Polling in New
divided by the number of votes he won The Iowa Democratic caucus guide Hampshire puts him in eighth place be-
hind Carly Fiorina, a businesswoman with
a patchy record and hypertense style of or-
2 look dilettantish. and Mr Bush. But Mr Rubio is now the fa- atory. He says he is not quitting; he would
On the Democratic side, similarly, Ber- vourite to consolidate it and leave New save himself some bother if he did.
nie Sanders, a leftist outsider, hoovered up Hampshire as the establishment’s man. Iowans did not underrate Dr Carson.
support from 20-somethings. Yet Hillary If Mr Trump recovers, that augurs a pro- His surge was fuelled by a remarkable life
Clinton’s superior organisation rallied tracted three-horse race—because Mr Cruz story—brought up by a semi-literate single
enough middle-aged voters to foil him— is unlikely to fizzle as previous Republican mother, he was a medical pioneer—and his
just. Mrs Clinton was adjudged the winner winners in Iowa often have. In New reputation as a high-achieving outsider. He
by a handful of votes, which represented Hampshire he will go easier on the preach- fell after both attributes lost their sheen. He
an indignity of sorts. Her rival is a dishev- ing, make the constitution his lodestar and was revealed to have embellished parts of
elled septuagenarian with, according to hope for a top-three finish. That this is a re- his biography: he claimed to have been of-
the Committee for a Responsible Federal alistic ambition also suggests the extent to fered a non-existent “full scholarship” to
Budget, a hole of at least $3 trillion in his which the contest remains far from nor- West Point. He meanwhile revealed him-
health-care plans. But given that Mrs Clin- mal. Anti-establishment sentiment is run- self to be confused by foreign policy, which
ton has a poor record in Iowa and little ning high; Mr Cruz, Mr Trump and Ben Car- mattered after a terrorist attack, inspired by
prospect of winning in New Hampshire, it son, who are all dedicated to stirring it, Islamic State, in California. Dr Carson’s ig-
was still a good result for her. took over 60% of the vote in Iowa. norance of the Middle East was so marked,
Mr Rubio’s support came mainly from So there will be more rabble-rousing, someone suggested that he thought the
members of the “somewhat conservative” perhaps especially from Mr Cruz. Before Kurds were a variety of Wisconsin cheese.
Republican mainstream. Many had previ- Iowa, he had launched an appeal for estab- His campaign is also notable for some-
ously vacillated between the first-term lishment support, arguing that he alone thing else. That is the novel and opaque
senator and several like-minded rivals—in- could stop Mr Trump. The tycoon’s wobble ways in which it has been burning through
cluding Jeb Bush, who won only 3% of the and Mr Rubio’s good result make that seem a war-chest of nearly $54m, mostly raised
vote. The establishment field is even more less plausible. Increasingly, then, Mr Cruz in small gifts from the doctor’s fellow de-
split in New Hampshire, between John will try to appeal to Mr Trump’s disaffected vout social-conservatives.
Kasich and Chris Christie, governors of ranks; he will argue that he alone can foil For much of the contest, it has had one
Ohio and New Jersey, as well as Mr Rubio the establishment. 7 of the highest “burn rates” of any cam- 1
34 United States The Economist February 6th 2016

Campaigning been aired in that state about each candi-

Hot for the doc date during the previous week. We then
Burn rate, campaign spending, 2015
As % of receipts
A bit MEH compared this ratio with the two contend-
ers’ relative positions in the state’s RCP
Total, $m
AVERAGE polling average. If there were any pay-off
50 60 70 80 90 to media spending, then candidates who
Carson 47.5
appeared in lots of positive ads and few
Christie 6.0
negative ones should have gained ground
Rubio 22.6
when compared with their rivals.
Bush 24.3 Does political advertising work?
Polls can be influenced by too many fac-

Kasich HANNEL-SURFING was no escape. In tors to identify the causes of their fluctua-
Trump 12.4
late January presidential campaigns tions with precision. We tried to control for
Fiorina 6.9
bought up almost all the advertising on ev- the impact of news events—such as the rev-
Cruz 28.4
ery television channel in Iowa, turning elation of Ted Cruz’s failure to disclose
DEMOCRATS AVERAGE everything from “Sunday Night Football” loans he received from Goldman Sachs, or
Clinton 77.6 to “The Big Bang Theory” into brief inter- Sarah Palin’s endorsement of Donald
Sanders 46.7
missions between rounds of political Trump—by conducting the study on the dif-
WrestleMania. On January 29th, three ference between each candidate’s national
Source: Federal Election Commission
days before the state’s caucus, 20 hours’ polling average and their polling in Iowa or
worth of election propaganda saturated New Hampshire (where the adverts aired).
2 paign—by the end of December, Dr Carson Iowa’s airwaves. By January 25th cam- Even after this, however, the numbers are
had spent 88% of what he had raised. For a paigns had spent $53m advertising there; still affected by campaign rallies, local me-
political greenhorn, needing to build cam- that number will climb once figures for the dia coverage and a healthy dose of random
paign infrastructure, that is perhaps under- contest’s final days become available. variation.
standable; but it was striking how little of For all the talk of data-driven outreach We found that paid TV airtime did mat-
his expenditure went on hiring staff and and micro-targeted get-out-the-vote efforts, ter, accounting for a modest 13% of the
how much on raising more money. In the television advertising is still the staple on week-to-week changes in polling. In some
third quarter of last year over half of every campaign shopping lists. Yet proof that cases it was more significant: from January
dollar raised went on fund-raising, chiefly candidates are getting a return on this in- 24th to 30th, TV viewers in New Hamp-
through expensive, pre-digital methods vestment has long been hard to find. Study shire saw 866 more positive spots and 220
such as mailshots and telephone market- after study has shown that few voters are fewer attack ads about Mr Rubio than they
ing largely eschewed by Dr Carson’s rivals. motivated or persuaded by advertising—a did about Mr Trump. After adjusting for
It was also striking that much of the finding political scientists have repeated so their standing in national polls, the front-
cash went to companies linked to Dr Car- often that it is now known as the “mini- runner’s advantage over the Florida sena-
son’s associates. The biggest marketing mal-effects hypothesis” (MEH). tor duly shrank by 5.1 percentage points.
contracts went to firms with ties to his se- To measure the impact of advertising so Overall, holding nationwide polls con-
nior adviser on fund-raising, Mike Murray, far in the 2016 campaign, The Economist di- stant, we found that candidates could ex-
including contracts worth $5.6m to a com- vided the Republican field into pairs of pect to gain a one-point edge over their ri-
pany called TMA Direct of which he is candidates in Iowa and New Hampshire. vals in the next week’s early-state polling
chief executive. A spokesman for Dr Car- For each of the days in which both politi- for roughly every 200 net positive ads
son acknowledged that raising money cians scored above 10% in either the state or about them, or every 500 net negative ones
from small contributions was expensive, national polling averages published at about their opponents.
but said the campaign’s contracts repre- RealClearPolitics (RCP), we counted how So do these results vindicate the ad
sented good value. Others doubt that. “It’s many ads, both positive and negative, had men after all? Not entirely. First, the effects 1
probably fair to say that the vendors that
were used and the activities undertaken
were not as qualified or efficient as in
many other campaigns,” suggests Antho-
ny Corrado, a campaign-finance expert at
Brookings Institution, a think-tank.
There is nothing illegal about that.
Campaign-finance laws place tight restric-
tions on whom cash may be collected
from, but not on how it can be spent. “You
cannot make yourself rich from your cam-
paign funds,” notes Paul Ryan, of the Cam-
paign Legal Centre. “There is no law
against making your friends rich.” It is
harder to see what Dr Carson’s 700,000
benefactors, fans of his modest demea-
nour and scathing attacks on evolution
and homosexuality, stand to gain.
After his campaign is over, the compa-
nies that served it will likely retain access
to the lists of donors they have compiled,
which they may then rent to other cam-
paigns. For their donation, in short, Dr Car-
son’s fans may have stored up years of beg-
ging letters and nuisance calls. 7 And would you like ribs with your propaganda?
The Economist February 6th 2016 United States 35

2 of paid media tend to be short-lived: dur-

Confederate monuments
ing the current Republican campaign, the
impact of positive ads on polling has been
4.4 times greater during the week they Recast in stone
aired than in the subsequent week. This
suggests that candidates may do well to
A middle way between complacency and destruction
imitate Mr Trump and skimp on their me-
dia purchases until shortly before the elec-
tion. Moreover, just because adverts seem
to have some persuasive power doesn’t
A STATUE’S fate might seem a binary
issue: it is either up, like that of Cecil
Rhodes, a British imperialist, at Oxford
table generals scattered across the South
could commemorate that injustice, in-
stead of their supposed gallantry.
make them the best bang for a campaign’s University, or down, like those of Lenin Some historians endorse this additive
buck. Political scientists have generally recently toppled across Ukraine, or the approach, already used in Colorado to
found that “ground game” investments, Confederate leaders soon to be ousted clarify that a legendary battle against
like knocking on doors and get-out-the- from their perches in New Orleans. The native Americans was actually a massa-
vote efforts, deliver a superior payoff. The Atlanta History Centre, however, thinks cre. The obvious question, though, is
victory in Iowa of Mr Cruz, who was there is a middle way between icono- who writes the text? Lots of exposition
heavily out-advertised there but was wide- clasm and inaction—an approach that accompanies the giant Confederate
ly considered to have the best caucus-day might help to salve historiographical carving at Stone Mountain, for example:
operation in the state, shows that ruling rows raging across the South and beyond. it demonises Abraham Lincoln and
the airwaves is not the only way to win. 7 Since Sheffield Hale, a thoughtful ignores slavery. (A plan to place a memo-
former lawyer, took charge in 2012, the rial to Martin Luther King on the moun-
museum has become a lively propagator taintop, another sort of compromise, has
School choice of regional history. Mr Hale himself foundered.) Mr Hale says communities
comes from on old southern family— should negotiate their own panels,
A lottery to lose many of his ancestors fought for the
Confederacy—and says that, in the past,
though the centre offers a template, in-
ternet links and an even-handed com-
he didn’t appreciate how painful tributes mentary on the war’s legacy. “The more
to slavery’s defenders could be for black you take out of the landscape,” he reck-
Americans. He still believes the like- ons, “the more you diminish it.”
nesses of Robert E. Lee and the rest
An enlightened scheme to benefit poor
should stay on their plinths, but not quite
children seems to do the opposite
as they are: educational panels should be

I N THEORY it works perfectly. Rather than

oblige parents to send their children to
the nearest state-run or –funded school,
added to explain their backgrounds, with
scannable codes that link to more infor-
mation, such as encyclopedia entries, in
give them a voucher to be spent at a private the ether.
school of their choice. “The adoption of Wisely, Mr Hale thinks these blurbs
such arrangements”, argued Milton Fried- should focus as much on the memorials’
man in 1955, “would make for more effec- origins—many were demonstratively set
tive competition among various types of up 100-odd years ago, serving to buttress
schools and for a more efficient utilisation segregation—as on their subjects, detail-
of their resources.” As part of its recovery ing when, why and by whom they were
from Hurricane Katrina, which destroyed erected. Thus they would become “arte-
many schools in New Orleans, Louisiana facts, not monuments”; instruments of
undertook one of America’s largest school- education rather than objects of ve-
choice schemes. According to a new paper neration, and more striking in town
by Atila Abdulkadiroglu of Duke Universi- squares than they would be “in safe
ty, Parag Pathak of MIT and Christopher places” like museums. Mr Hale points out
Walters of Berkeley, it has not gone well.* that relics of the segregation era have
Increasing school choice is a favourite mostly disappeared; in time the indomi- Ben Tillman, lyncher on a plinth
policy of Republican governors and state
legislatures. Since the party’s bumper elec-
tion year in 2010 the number of voucher for more than 6,000 vouchers to attend 126 hypothesis did not stand up.
schemes has increased from 25 to 59, ac- private schools. Lotteries are loved by so- Schools in New Orleans have improved
cording to the Friedman Foundation for cial scientists because the winners and los- dramatically since Hurricane Katrina:
Educational Choice. The thinking behind ers, distinguished by chance alone, are sta- high-school-graduation rates have risen
this is sound: the well-off already exercise tistically identical. That means differences from 55% to 73% and drop-out rates have
school choice by moving into neighbour- in outcomes can reasonably be attributed fallen by half. But this has been a victory
hoods with better schools. Why not allow to the programme rather than, say, differ- for central control rather than the market:
poorer families to do the same? Yet the evi- ences in family circumstances. bureaucrats at the state’s powerful Recov-
dence from the voucher programmes that It turned out that this was a lottery to ery School District have closed many
have been evaluated has been under- lose. The three economists found that schools and presided over the opening of
whelming: parents like them, but they of- those who received vouchers and moved many more. More parental school choice
ten do little for their children’s test scores. to private schools had worse test scores in seems to have had little to do with it. 7
Louisiana’s scheme, brought in by a maths, reading, science and social studies
conservative governor, added a feature than those who missed out. Hunting for an ................................................................
that ought to delight progressives: a lottery explanation, they wondered whether the “School vouchers and student achievement: first-year
evidence from the Louisiana Scholarship Programme” by
to assign the vouchers. In 2014 12,000 stu- weakest private schools had mopped up Atila Abdulkadiroglu, Parag A. Pathak and Christopher R.
dents from low-income families applied voucher pupils to fill their seats. But this Walters, NBER.
36 United States The Economist February 6th 2016

Lexington Falling towards Hillary

Even among her supporters, there was no great enthusiasm in Iowa for Mrs Clinton
non-incumbent to run since George Washington.”
David Leitson is the head of “Grinnellians for Hillary”, a cam-
paign group at Grinnell College, a campus gripped by Bernie-ma-
nia. Ahead of the caucus he made three main arguments to class-
mates. First, that Mrs Clinton is ready to serve as president “on
day one”. Second, that her plans to make college more affordable
or regulate big banks overlap with the Sanders agenda but are
more feasible. Lastly, that she has been “battle-tested” by years of
ferocious conservative attacks—a trial that Mr Sanders would
surely face as a nominee, as a self-described democratic socialist
who wants to raise taxes, hugely expand the government and
break up big banks. Unbidden, many Iowa Democrats describe a
tussle between their heads, which tell them that pragmatic, cen-
trist Mrs Clinton offers their best shot at beating the Republicans,
and their hearts, which sing when Mr Sanders growls that Ameri-
ca is a corrupt oligarchy. Mr Leitson sees no reason why electabil-
ity cannot co-exist with excitement. Explaining his passion for
the Clinton campaign, the undergraduate said: “My heart is in it
because my head is in it.” He is a rarity, though: across Iowa, poll-
sters estimate, Mr Sanders won eight in ten caucus-goers under
the age of 30. Mrs Clinton’s salvation was her support among old-

O F THE checks on executive power in the constitution, per-

haps the least needed is the amendment limiting presidents
to two terms. Americans often invest sky-high hopes in those
er Iowans, who turned out in larger numbers than the young.
Not all Poweshiek Democrats found striking the balance be-
tween excitement and electability so easy. Rebecca Petig, a moth-
they send to the White House, choosing someone they believe er of four and an elected prosecutor, was surprised to find herself
will correct the flaws of a now-despised predecessor. After their undecided hours before welcoming fellow party members to her
first terms, presidents seeking re-election are frequently helped own home, which was to serve as an official caucus precinct (un-
by the trappings of office. But after eight years the mood sours: sure about the etiquette of feeding voters, she thought she might
Americans then long for change, and for someone younger, more offer banana bread and coffee). Ms Petig sighed that Mr Sanders
competent or less mired in scandal. describes politics “as I’d like it to be, but realistically it’s not going
The rules of presidential politics have never been applied to to be that way”. She admires Mrs Clinton’s achievements, and ex-
someone quite like Hillary Clinton. In the public eye for decades pects her to become the Democratic nominee. But unexpectedly,
as a First Lady, senator, unsuccessful presidential candidate and she finds that she cannot hold Mrs Clinton up as a role model for
then secretary of state, she is neither a serving world leader nor a her teenage daughter. The problem is Mrs Clinton’s “baggage”, in-
fresh face. Mrs Clinton risks finding herself an unhappy hybrid: a volving years of alleged scandals and charges of dishonesty.
candidate weighed down by all the disadvantages of incumben-
cy, while enjoying rather few of the benefits. There isn’t anyone else, alas
The Iowa caucuses on February 1st—the first electoral contest Talk of baggage was rife at the Democratic caucus in Poweshiek’s
of the 2016 presidential cycle—saw Mrs Clinton held to a virtual 8th precinct, held in a Grinnell elementary school. Iowa Demo-
tie by her populist rival for the Democratic nomination, Senator crats caucus in public, showing their preferences by standing in
Bernie Sanders of Vermont. Iowa is a state that holds horrid corners of the room assigned to each candidate. Seeking to lure
memories for Mrs Clinton: it is where Barack Obama beat her in undecided voters to their corner, Sanders supporters did not cite
2008, halting what had seemed her almost regal progress to the the specific misdeeds of which Republicans accuse Mrs Clinton
Democratic nomination. This year, addressing supporters in Des (most recently involving her alleged mishandling of top-secret
Moines on caucus night, Mrs Clinton voiced “a big sigh of relief” government e-mails). Instead Sanders backers called Mrs Clinton
after her razor-thin win, before rushing to catch a plane for New part ofa sleazy and unequal status quo, especially as the recipient
Hampshire, scene of the next nominating contest. of donations and speaking fees from billionaires and “banks that
Iowa is not very like most of America. It is 90% white. Many of bankrupted the middle class”.
its Democrats are deep-dyed lefties huddled in college towns sur- Mrs Clinton has “been around so long, you sort of get fa-
rounded by conservative, God-and-guns farm country. Yet Iowa’s tigued”, conceded Catherine Rod, a wavering voter at the caucus.
caucuses still offer lessons that will last, starting with the double- She listened as a fellow Democrat urged her to cross to the Sand-
edged nature of Mrs Clinton’s strongest suit: her experience. ers corner so that “his ideas can get momentum”. But Ms Rod, a re-
In 2008 Mrs Clinton was thumped by Mr Obama in the east- tired librarian, worried about the harm that defeat in Iowa might
ern county of Poweshiek, notably in the handsome Victorian col- do to Mrs Clinton, fretting: “I don’t want to trash Hillary.”
lege town of Grinnell. This time Poweshiek gave her almost half Lots of Democrats feel similarly trapped. They have only one
its votes. That improvement was hard won. Mrs Clinton and her plausible general-election candidate, Mrs Clinton, and under-
husband both visited. Caucus day saw volunteers fanning out stand why lots of Americans are unexcited by her. Assuming that
from a field office to knock on supporters’ doors. A poster in the she survives her latest legal woes involving classified e-mails,
office asked volunteers why they backed their heroine. At the top, Mrs Clinton will be the nominee. But Iowa was an early warning.
someone had neatly written: “Because she is the best qualified A long, grinding slog awaits. 7

e dandgr owinglibrar
yofov er300long-f
onsf r
om thewor l
onomi s

The Economist February 6th 2016 39
The Americas
Also in this section
41 Miners and aboriginals in Canada
42 Bello: The endgame in Venezuela

Mining in Latin America conflict over the past 15 years, according to

Semana Economica, a magazine.
From conflict to co-operation Battles over the exploitation of natural
resources have become common through-
out Latin America. The Observatory of
Mining Conflicts in Latin America, a co-
alition of NGOs, logged 215 of them in 19
countries in 2014, led by Mexico, Peru and
Big miners have a better record than their critics claim. But it is up to governments to
Chile (see map, next page). In 2013 Chile’s
balance the interests of diggers, locals and the nation
Supreme Court suspended Pascua-Lama, a

A COUPLE of hours drive south of Are-

quipa, Peru’s second city, the Pan-
American highway drops down from the
project. Although his government ap-
proved Tía María, Ollanta Humala, Peru’s
president, gave it only lukewarm support.
gold mine straddling the border with Ar-
gentina, over fears that it would pollute riv-
ers; Barrick Gold, its Canadian developer,
high desert of the La Joya plain and threads Southern is waiting for a new government had already spent $5 billion on the mine.
its way through tight defiles patrolled by to take office in July. Even then it will be dif- Colombia’s Constitutional Court has
turkey vultures before reaching the green ficult to win local consent. “The conditions blocked exploration of a copper and gold
braid of the valley of the river Tambo. The will never exist for the company to oper- deposit at Mandé Norte, north of Medellín,
river burbles past fields of rice, potatoes ate,” declares Jesús Cornejo, the president at the request of Embera Indians and Afro-
and sugar cane. It is a tranquil, bucolic of the water-users’ committee in Cocacha- Colombians in the area.
scene. The only hint of anything untoward cra. Nearly all the houses in the valley are Oil drilling, too, has sparked protests in
is the five armed policemen guarding the adorned with flags saying “Farming Yes, Ecuador and Peru; so have big infrastruc-
bridge at the town of Cocachacra. No to the Mine”. ture projects such as hydroelectric dams in
Last April the valley was the scene of a Tía María is just one of many conflicts Brazil and a proposed road through a na-
month-long “strike” that saw pitched bat- in Peru between mining, hydrocarbons ture reserve in Bolivia. But it is mining that
tles between the police and hooded pro- and infrastructure companies and com- has become the biggest source of strife.
testers hurling stones from catapults (see munities. In September three people were
picture). Two protesters and a policeman killed in a protest over last-minute changes Slicing off the mountain tops
were killed; 150 police and 54 civilians to the design of Las Bambas, a giant copper In the 1990s Andean countries opened
were hurt. The protest was over a plan by mine bought in 2014 for $7 billion by MMG, their economies to private investment. The
Southern Peru Copper Corporation, a Mex- a Chinese group, from Glencore, a Swiss result was a boom, featuring vast open-cast
ican-owned company, for a $1.4 billion commodities company, and which began mines. These often involve slicing the tops
copper and gold mine, called Tía María, on production last month. In February 2015 in off mountains or drying up lakes. In the
the desert bluffs overlooking the valley. Pichanaki, in the eastern Andean foothills, past people in the Andes tended to wel-
Southern, as Peruvians know the firm, says one person was killed and 32 were injured come mining; disputes were over labour
the mine would generate 3,000 construc- when police opened fire on a mob op- relations. Modern projects have met grow-
tion jobs and 650 well-paid permanent posed to natural-gas exploration by Plus- ing resistance, partly because democracy
posts and would add more than $500m a petrol, an Argentine firm. In 2012 protests has taken root in the region. People are
year to Peru’s exports. Local farmers insist halted Conga, a copper and gold mine in more conscious of the projects’ impact on
it would kill their livelihoods by polluting which an American-Peruvian consortium their environment, of the big money that is
the river. The company denies this: after a had invested $1.5 billion. at stake and of their rights.
previous round of protests in 2011 in which In all 53 people have been killed and al- Opponents of mining often claim it
three people died, it redesigned the project most 1,500 injured in social conflicts in brings no benefit to Latin America, just
to include a $95m desalination plant as a Peru, mostly related to extractive indus- “poverty…serious environmental harm
way to avoid drawing water from the river. tries, since Mr Humala took office in 2011. and…human-rights violations”, as a re-
So far the farmers are winning. Because Peru has foregone investment of $8.5 bil- port by a group of Canadian NGOs put it.
of the protests, Southern suspended the lion in mining projects blocked by such Some left-wingers argue that Latin Ameri- 1
40 The Americas The Economist February 6th 2016

2 ca should abandon large-scale extractive Piura

Marañó n
400 km
a S E

industries altogether, saying they are in- Lodes of conflict



imical to development.

ra ñ
Yanacocha P E R U


Ongoing mining Chimbote

Modern mining is capital-intensive and 3 Nevado Huascarán


disputes per
generates relatively few jobs (though these country DOMINICAN Comas Pichanaki


Lima Las Bambas

Mine Huancayo
tend to be skilled and well-paid). Yet the re- BELIZE Pen. Paracas

ality is much more nuanced than critics al- E

Arequipa Titicaca


Tía María
Arequipa Volcán
El Misti

low. By providing foreign exchange, tax 3 EL SALVADOR NICARAGUA 4 Cocachacra


revenues and investment, mining has & TOBAGO P A C I F IMINES
SELECTED Quellaveco Arica


helped to speed economic growth and 6 VENEZUELA 1 ENLARGEMENT

2 Mandé
poverty reduction in several South Ameri- Medellín Norte
can countries over the past15 years. In Peru, Bogotá FRENCH GUYANA 1
P A C I F I C 13 (to France)
for example, where poverty fell from 49% COLOMBIA
in 2005 to 23% in 2014, mining exports O C E A N 7 ECUADOR
amounted to $27.4 billion at their peak in on
2011, or 59% of the total. In Chile and (to a Amaz

lesser extent) in Peru, industries have Mining, contribution to GDP PERU B R A Z I L

sprung up to supply mines with equip- 2014, %
ment, spare parts, software and other ser- 0 3 6 9 12 Limaa 20
vices. Tellingly, left-wing governments in Chile BOLIVIA
Bolivia and Ecuador have backed mining Peru Tambo


and hydrocarbons projects, in the latter Paraguay SEE ENLARGEMENT
case riding roughshod over opposition. Ecuador PARAGUAY
The latest conflicts come as the mining Mexico
boom has turned to bust. Faced with Colombia Pascua-Lama
plunging prices and profits, miners are Uruguay
slashing investment and suspending pro-
jects. That in turn has contributed to an
Argentina 26
economic slowdown in the region.
Despite the slump, it remains vital for
Nicaragua A T L A N T I C
Latin American countries to find ways of
reconciling the interests of diggers, local Guatemala O C E A N
people and the nation as a whole. This is Brazil
not easy. Unlike in the United States, min- Venezuela
erals in Latin America belong to the state, Honduras Sources: The Observatory of Mining
Conflicts in Latin America; Thomson
rather than the private owners of the land Costa Rica Reuters; Haver Analytics 1,500 km
under which they lie buried. The state
grants mining concessions to companies,
which must then reach agreement with the tors, such as political movements and people to self-identity as indigenous. But
communities whose lives will be disrupt- NGOs, may fan conflicts—or help to resolve many conflicts involve mestizos.
ed. Most of the benefits accrue to the na- them. The second big change is in regulation.
tion; many of the costs, such as pollution, Over the past two decades the balance In Peru and Chile all projects are required
are borne locally. of power has shifted in favour of local pop- to submit an environmental impact assess-
There is a huge asymmetry ofpower, re- ulations. Fourteen Latin American coun- ment (EIA). In Peru, this was supervised by
sources and information between big min- tries are among only 22 to have signed the the Ministry of Energy and Mines, whose
ers and peasant farmers and herders high International Labour Organisation’s Con- main job is promote investment. “People
in the Andes. Expectations, which may be vention 169 on the rights of indigenous and don’t believe in the rigour of EIAs,” says
unrealistic, are aroused. Modern mines of- tribal peoples. This requires governments José de Echave of CooperAcción, an NGO
ten operate as near-enclaves: local people to ensure that these groups are consulted that works with communities affected by
lack the skills to work there and the scale to about projects or laws that may affect mining. Only this year has an autonomous
supply food and other provisions. them. Many governments did not foresee environmental certification agency begun
Disputes can arise over land purchases, the impact the convention would have, work. Peru devolves half a mine’s cor-
relocation of the population and compen- says Carlos Andrés Baquero of Dejusticia, porate income tax to regional and local
sation payments. Water is increasingly a a think-tank in Bogotá. Several countries, governments in the area. This has show-
flashpoint. Mines insist that they clean up including Chile, Colombia and Peru, have ered some mining districts with more
waste water—and this is usually true. But written the requirement of prior consulta- money than they can spend, often foster-
sometimes things can go badly wrong. In tion into law. ing corruption.
Brazil in November 17 people were killed There is debate as to whether this gives Third, spurred by activists in their
and thousands of tonnes of mud released locals a right of veto. In Colombia mining home countries as well as by changes in
into the river Doce when a tailings dam bosses complain that prior consultation host-country laws and politics, some
burst at an iron-ore mine that is a joint ven- has become a means to extort money from multinational miners nowadays take envi-
ture between Vale and BHP Billiton. In companies. Peru has decided that it ronmental and social responsibilities
Mexico in 2014, 40m litres of copper sul- doesn’t confer a veto, and has applied the much more seriously than in the past. In
phate from a mine owned by Southern’s law only to Amazonian tribes and not to many cases mutually beneficial agree-
parent company leaked into a river. Quechua-speaking people in the Andes. ments can be struck between miners and
In remote areas of the Andes, compa- There the new system has worked to pre- communities, provided there is trust and
nies have come under pressure to supply vent conflicts in most, though not all, of the goodwill. Communities “are not necessar-
basic services that the state fails to, such as oil and gas projects over which it has been ily against mining but they are very con-
electricity, schools and clinics. Outside ac- invoked. The convention has encouraged cerned that their decision-making capacity 1
The Economist February 6th 2016 The Americas 41

2 about their land not be taken away from trust. “The company might be right but the Miners and aboriginals in Canada
them,” says Tim Beale of Revelo Resources, population feels unprotected,” says Helar
a Vancouver-based exploration company.
If the mining firm understands that, “it will
Valencia, the mayor of Cocachacra. Tía
María only has a chance of going ahead if
I’ll see you in court
have a much bigger chance of success.” local peoples’ concerns are addressed
One example is Gold Fields, a South Af- “with concrete confidence-building mea-
rican company, which developed a medi- sures” such as the government building a
um-sized gold mine in Hualgayoc in north- reservoir to ease water shortages, says Ya-
Indigenous groups are suing loggers,
ern Peru. The circumstances seemed mila Osorio, the regional governor.
miners and pipeline-builders
unpropitious: the project began in 2004, Despite the headlines, more mines go
just when mass protests stalled an expan-
sion by Yanacocha, a big gold mine nearby.
Gold Fields began by holding many meet-
ahead than don’t in Peru, points out An-
thony Bebbington, a geography professor
at Clark University in Massachusetts.
“Y OU want certainty? Knock at our
door and ask our permission.” Dean
Sayers, chief of the Batchewana First Na-
ings with local people, at which managers Mainly because it has cheap energy and tion of Ojibways, a Canadian indigenous
explained the project and listened to con- high-grade ores, many of Peru’s mines are group, delivered this blunt advice to a
cerns. The company promised to employ competitive even at today’s prices. Thanks room packed with mining executives last
some locals and train others to use the to Las Bambas and other new mines, the year. He came to the industry’s annual con-
money they received from the sale of their country’s copper output is forecast to rise vention because he was tired of “the hill-
land to set up service businesses. It brought from 1.7m tonnes in 2015 to 2.5m tonnes this billy attitudes” of developers “who want
in an NGO to work with herders to im- year, second only to Chile’s. to do business in our neck of the woods”,
prove pastures, dairy cattle and cheese Ironically, the end of the boom may in- on the north-eastern corner of Lake Supe-
production. It worked with local mayors to crease both government and public sup- rior. In 1849 Ojibways fired a cannon into a
install electricity and drinking water. port for mining. In Arequipa, for example, copper mine that had gone ahead without
the regional government’s revenue from their approval.
Shut up and listen mining will fall this year to a tenth of its These days Canada’s aboriginal groups
People protest “because they want things peak, says Ms Osorio. Although low prices use public pressure, backed by legal action,
rapidly, they fear missing a golden oppor- have halted some projects, they poten- to protect their lands against exploitation
tunity,” says Miguel Incháustegui, a Gold tially offer more time for consultations. by outsiders. This month the government
Fields manager. He says the keys to achiev- Reconciling the national benefits and of British Columbia reached agreement
ing social consent were to listen more than local costs of mining is ultimately a prob- with forest companies, environmental
talk and to ensure that living standards im- lem of democracy. The days when big groups and 26 First Nations communities
prove for people in the surrounding area. mines could simply be imposed are over. to protect from logging an area on the Pacif-
Mitigating social and environmental In that regard, something has been learned ic coast larger than Belgium—newly dub-
risks is not expensive: it typically adds from the conflicts of the past two decades. bed the Great Bear Rainforest. The deal,
about 1% to a company’s total costs, esti- Complaints about pollution are “a means which allows logging and mining in areas
mates Janine Ferretti, head of the Inter- of demanding a better state presence”, ar- aboriginals have agreed to, is the culmina-
American Development Bank’s environ- gues Vladimir Gil, a Peruvian anthropolo- tion of a long public-relations campaign
ment division. But that is not always true. gist, in a study of Antamina, a big copper (choosing the Kermode bear as its mascot
At the Quellaveco copper project in Peru, mine developed in the 1990s. The opposi- was a masterstroke). It would have got no-
Anglo American, a British firm, made an tion such projects arouse can be seen “as a where without centuries of treaty-making
expensive offer to pay upfront to restore a petition to achieve greater participation in and decades of case law to back it up.
river to its original course after the mine national affairs”. In some areas govern- Aboriginals’ rights were outlined in a
closed. The project is now in limbo. ments might reasonably decide that big royal proclamation of 1763, when Euro-
Some miners find it hard to change. mining should not be allowed because of pean settlers needed their help to survive,
They see their strengths as understanding its impact on the environment or on farm- and restated in Canada’s 1982 constitution. 1
geology and managing projects, not engag- ing. That is what Costa Rica has decided; El
ing in grassroots politics. Others apply best Salvador is close to doing so.
practice in some countries but not in oth- When a project does serve the national
ers, notes Mr Beale. interest, it is important that the govern-
Southern seems to be in that group. ment backs it. That does not always hap-
Pinned to the wall of Mr Cornejo’s office in pen. Carlos Gálvez, the president of
Cocachacra is a decree issued by Peru’s SNMPE, a mining-industry lobby in Peru,
government in 1967 that gave Southern six points out that after this year’s new copper
months to halt emissions of sulphur diox- mines and one other project, the pipeline
ide from its nearby smelter and compen- is now empty. To remedy that, he says the
sate local residents for air pollution. Only next president should defend mining more
in 2007 did it stop the emissions. Tía María robustly.
is not a stereotypical conflict: Cocachacra Mining is a long-term business. Explo-
is one of the 300 least poor of Peru’s nearly ration can take ten years, development of a
2,000 districts; it has basic services; and its project another five and construction from
people are mestizo commercial farmers, three to five, says Mr Galvéz. The minerals
not indigenous peasants. Guillermo Fajar- bust is a reminder that governments
do, Southern’s manager for the project, should invest the windfall gains from ex-
blames outsiders for the violence. Nobody tractive industries in areas such as infra-
in the area agrees. Certainly, the communi- structure and education to try to develop
ty is divided, and those who support the less cyclical economic activities. But it is
mine have faced intimidation; the oppo- not a reason to put off the institutional
nents have the support of a far-left party. changes needed to give mining a sustain-
The underlying problem is a lack of able future in Latin America. 7 Don’t mess with my rainforest
42 The Americas The Economist February 6th 2016

2 As they became savvier, and resource com- Columbia, finally won in 2014 and now nas, a Malaysian state-owned firm, has of-
panies grew more ambitious, litigation in- have title to 1,750 square km (1,100 square fered C$1 billion ($726m) in benefits over
creased. The federal aboriginal affairs miles). But the Innu of Ekuanitshit in Que- 40 years to the Lax Kw’alaams nation of
agency is party to 554 proceedings involv- bec last year lost their bid to stop the Musk- northern British Columbia. That has not al-
ing such rights (not all of which concern re- rat Falls hydropower project, which they layed fears that the project would destroy
source firms). That does not include dis- say will affect caribou herds. salmon fisheries.
putes between aboriginal groups and Some big projects are caught in legal When such disputes are unresolved,
firms. Projects as diverse as seismic testing limbo. The Northern Gateway pipeline, the price can be high. The Northern Gate-
for mineral deposits in Arctic waters and which is to bring crude oil from Alberta to way pipeline would add C$300 billion to
fracking in the west face challenges. Until Canada’s west coast, has been stalled for Canada’s GDP over 30 years. Aboriginals
1951 such lawsuits were barred. more than a decade, largely because of op- are finding ways to share gains from such
They are expensive and can drag on for position from First Nations groups along its projects while minimising the damage
years; the outcome is never assured. The route, some of them parties to the Great they cause. The courts “are getting closer to
Tsilhqot’in, who filed suit in 1998 against Bear agreement. The Pacific Northwest liq- what we want”, says Mr Sayers. “But they
logging on their ancestral lands in British uefied natural gas project, backed by Petro- are not there yet.” 7

Bello The endgame in Venezuela

The country is on the brink of a social explosion that only a negotiated transition can prevent

A T 9.30am on a Thursday six Venezue-

lans wait for a guided tour of the for-
mer military museum that is now the
Henry Ramos, the speaker of the as-
sembly, has given the president six
months to solve the economic crisis or
mausoleum of Hugo Chávez, the coun- face removal by constitutional means. On
try’s populist president of 1999-2013. paper these include a recall referendum,
Across the road around 120 people are an amendment to shorten his six-year
queuing for food at government-con- term or a constituent assembly, which
trolled prices from a state-run supermar- could rewrite the constitution. In practice,
ket. The food queue starts at 3am. “Some- the rigged court and the chavista electoral
times there’s food and sometimes there authority can block or stall all of these. So
isn’t,” one would-be shopper says. the first step, says Mr Ramos, is for the
In this district of Caracas, once a Chá- new assembly to replace the 13 justices.
vez stronghold, his aura is fading amid the That, too, would be vetoed by the court.
struggle for daily survival. Long gone are Stalemate is costly. Violent scuffles in
the days when he used a massive oil food queues and localised looting are
windfall triumphantly to impose his “Bo- everyday occurrences. “We are seconds
livarian revolution”, a mishmash of indis- away from situations that the govern-
criminate subsidies, price and exchange Asdrúbal Oliveros, a consultant. According ment can’t control. It’s a very thin line,”
controls, social programmes, expropria- to a survey by a group of universities, 76% says Henrique Capriles, a moderate op-
tions and grand larceny by officials. The of Venezuelans are now poor, up from 55% position leader who narrowly lost to Mr
collapse in the oil price has exposed the in 1998. Drugmakers warn that supplies of Maduro in the 2013 presidential election.
revolution as a monumental swindle. medicines have fallen to a fifth of their nor- Most in the opposition and some cha-
The government has admitted that in mal level. Many pills are unavailable; pa- vistas believe a negotiated transition is
the 12 months to September 2015 the econ- tients die as a result. In Caracas food the only way to prevent a descent into
omy contracted by 7.1% and inflation was queues at government stores grow longer bloodshed. The outlines of such a deal are
141.5%. Even Nicolás Maduro, Chávez’s by the week. Shortages will get even worse clear. The regime would concede an am-
hapless heir and successor, called these in March, worries a food-industry manag- nesty for political prisoners and agree to
numbers “catastrophic”. The IMF thinks er. Violent crime is out of control. restore the independence of the judiciary,
worse is in store: it reckons inflation will Rising discontent brought the opposi- the electoral authority and other powers.
surge to 720% this year and that the econ- tion victory in an election for the National In return the opposition would support
omy will shrink by 8%, after contracting Assembly in December. Stalemate has fol- essential, but doubtless unpopular, mea-
by 10% in 2015. The Central Bank is print- lowed. Chávez turned the institutions of sures to stabilise the economy.
ing money to cover much of a fiscal deficit state—including the Supreme Court and Mr Ramos says that there are “some
of around 20% of GDP. the electoral authority—into appendices of conversations” but no formal dialogue.
The government has run out of dol- the presidency. The court, packed by the le- On the street, time is running out. Many in
lars—liquid international reserves have gally dubious naming of 13 new justices by the opposition want Mr Maduro’s resig-
fallen to just $1.5 billion, thinks José Ma- the outgoing assembly, threw out four leg- nation as the price for such a deal, and ei-
nuel Puente, an economist at IESA, a busi- islators, depriving the opposition of the ther a fresh election or his replacement by
ness school in Caracas. While all oil-pro- two-thirds majority needed to change the Aristóbulo Istúriz, his new and moderate
ducing countries are suffering, Venezuela constitution. Mr Maduro shows no sign of vice-president. But would Mr Maduro go
is almost alone in having made no provi- changing course. Last month he issued an along? He seems transfixed by the
sion for lower prices. “economic emergency” decree, rejected by thought that resignation would be a be-
This spells misery for all but a handful the new assembly, that mainly offered trayal of Chávez’s legacy. In fact, what re-
of privileged officials and hangers-on. more controls. His government seems par- mains of chavismo would be better off
Real wages fell by 35% last year, calculates alysed by indecision and infighting. without him.
February 6th 2016

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Erdogan’s new sultanate

Under Recep Tayip Erdogan and his AK party, Turkey has become
richer and more confident. But the party’s iron grip is becoming
counterproductive, says Max Rodenbeck
SEEN IN SILHOUETTE from a commuter ferry bustling across the Bospo- CO N T E N T S
rus, parts of Istanbul seem to have changed little from centuries past.
Looking to the west, towards Europe, the old walled city is still capped by 5 Politics
multiple domes and spiky minarets. But turn to the east, towards Asia, Getting off the train
and a different picture unfolds.
6 The AKP
Standing as sentries to the narrow strait, giant gantry cranes heave
Softly, softly
containers onto waiting ships. Beyond them, along the low-slung Mar-
mara shore, march soaring ranks of high-rise buildings. To the north, the 8 The economy
hills on the Asian side of the Bosporus prickle with a metallic forest of Erdoganomics
communications towers. And on the highest of those hills rises a startling
10 Identity
mirror to the old Istanbul: the giant bulbous dome and six rocket-like
Proud to be a Turk
minarets of a colossal new mosque (pictured). When finished later this
year, this will be Turkey’s biggest-ever house of prayer. 12 Urban development
The scale and symbolism of the mosque, like so much of the fren- The lure of the city
zied construction that is reshaping this city, reflect the will and vision of
14 Foreign policy
one man: Recep Tayyip Erdogan. After over two decades in power, from
Alone in the world
1994 as mayor of Istanbul, from 2003 as Turkey’s prime minister and since
ACK NOW L E D G ME N T S August 2014 as president, Mr Erdogan towers over his country’s political 16 Looking ahead
landscape. To detractors he is a would-be sultan, implacable, cunning A melancholy mood
The author owes a special debt to and reckless in his ambition. To admirers he is the embodiment of a re-
the inspiration of the late Tahir Elci,
as well as thanks to numerous wise
vived national spirit, a man of the people elevated to worldly glory, a
and helpful interlocutors not pugnacious righter of wrongs and a bold defender of the faith.
mentioned in the text, among them Mr Erdogan has presided over some startling transformations. In
Toni Alaranta, Selin Sayek Boke, two short decades his country, and most dramatically its long-neglected
Cengiz Candar, Vahap Coskun, Urs
Fruehauf, Metin Gurcan, Cemalettin
Anatolian hinterland, has moved from relative poverty and provincial-
Hasimi, Gareth Jenkins, Ibrahim ism to relative wealth and sophistication. An inward-looking nation that
A list of sources is at
Kalin, Ersin Kalaycioglu, Mehmet exported little except labour has become a regional economic power-
Kaya, Ertugrul Kurkcu, Sefer Levent, house, a tourist magnet as well as a haven for refugees, and an increasing-
Soli Ozel, Safak Pavey, Lale Sariibra- An audio interview with
himoglu, Emma Sinclair-Webb, Ozgur
ly important global hub for energy, trade and transport. the author is at
Unluhisarcikli, Emine Usakligil, In many ways Turkey’s 78m people have never had it so good. Since
Mesut Yegen and Murat Yetkin. the 1990s the proportion of those living below the official poverty line 1 specialreports

The Economist February 6th 2016 3


2 has declined from the teens to low single digits, and the share of September he engineered the replacement of 31 members (out of
the middle class has doubled to over 40%. By every measure of 50) of the party’s politburo with people personally loyal to him.
living standards, the gap between Turkey and fellow members of One of these, his son-in law, is now also a cabinet minister; and
the OECD, a club of mostly rich countries, has shrunk markedly. one of the party’s new members of parliament is Mr Erdogan’s
Under the subtle but relentless Islamising influence of the former chauffeur.
Justice and Development (AK) party, co-founded and led by Mr Today there is no doubt about who is boss. Bureaucrats in
Erdogan until he became the nation’s (theoretically non-parti- Ankara, the capital, respond to the merest whisper from the sa-
san) president, the Sunni Muslim component of Turkey’s com- ray (palace), the grandiose 1,000-room presidential complex,
plex national identity has strengthened. The long shadow of Ke- built atop a hill on the city’s outskirts at a reported cost of $615m
mal Ataturk, the ruthless moderniser who 90 years ago built a and opened in 2014. The famously short-fused Mr Erdogan will
secular republic on the ashes of the Ottoman Empire, has faded. almost certainly continue to dominate Turkish politics until the
The AK party has marched the army, long given to ejecting elect- end of his term in 2019, and very possibly beyond: some say he
ed governments from power, back to its barracks. Turkey has re- has set his sights on 2023, the 100th anniversary of the Turkish re-
sumed its role as turntable between east and west. public. By then he would have served at the helm of the Turkish
When the AK party stumbled badly in parliamentary elec- state for far longer than Ataturk himself.
tions in June 2015, pundits were quick to herald an end to Mr Er- To his party’s pious core constituency, that is something to
dogan’s long winning streak. Whiffs of corruption and abuse of rejoice in. Much of the country’s urban working class, as well as
power had tainted his party, and terrorist acts by Islamic State (IS) those living in the stretch of central Anatolia sometimes known
and the influx of more than 2m Syrian refugees into the country as Turkey’s Koran belt, share this cult-like devotion to the former
had made Turks question his judgment. food vendor and semi-professional footballer turned statesman.
Other AK voters, such as small businessmen and property devel-
Who dares, wins opers, may be warier of Mr Erdogan. They support the party
Shorn of a parliamentary majority for the first time since mainly because ofits record ofeconomic growth and relative sta-
2002, the AK party should have sought a coalition partner, but in- bility after decades of turbulence. The AK’s swift comeback be-
stead Mr Erdogan boldly gambled on a new election on Novem- tween the June and November polls reflected fear of a return to
ber 1st. To everyone’s astonishment his party surged back, political volatility as much as enthusiasm for its policies.
trouncing a trio of rival parties. With 317 seats in the Grand Na- The collapse last summer of peace talks between the gov-
tional Assembly, Turkey’s unicameral 550-seat parliament, the ernment and the Kurdistan Workers’ party (PKK), an armed rebel
party can now again legislate at will. group, raises the spectre of more bloodshed. The talks had made
However, its majority is insufficient to allow it to revise Tur- little progress but did much to calm the restless south-east, a re-
key’s 1982 constitution on its own. That was what Mr Erdogan gion dominated by ethnic Kurds, who make up 15-20% of Tur-
had been trying to achieve in the June election, in the hope of cre- key’s population nationwide. Fighting in the region in the 1980s
ating a presidential system that would greatly widen his ostensi- and 1990s had left some 40,000 soldiers, rebels and civilians
bly limited (but in fact extensive) powers as president. In the ab- dead and displaced perhaps 1m Kurds from their homes. Soon
sence of a two-thirds majority, he must work in tandem with his after the June election, clashes between security forces and Kurd-
hand-picked prime minister, Ahmet Davutoglu, who is a less di- ish activists, which had been suspended for two years, resumed.
visive figure. In the months since, heavily armed police have clamped curfews
Ahead of the November election Mr Erdogan wisely toned on Kurdish towns. The clashes have left well over a hundred ci-
down rhetoric about expanding his own powers but quietly vilians dead, in addition to scores of Turkish security men and,
strengthened his control over the party. At a party meeting last says the Turkish army, more than 400 alleged PKK guerrillas. 1

2015 parliamentary election, party with most votes, by province RUSSIA

Justice & Development Republican People’s Peoples’ Democratic Nationalist Action
BULGARIA party (AK) party (CHP) party (HDP)* party (MHP)
*Encompassing Peace and Democracy party (BDP)
Bosporus Black Sea
Istanbul AZER-
Sea Batman Van
Diyarbakir AR I R A N
Gaziantep OF
Ceyhan KU
Mediterranean CYPRUS S Y R I A
250 km

4 The Economist February 6th 2016


2 At the same time Mr Erdogan faces rising economic head- With lukewarm support from its allies, Turkey has tried to
winds. Between 2002 and 2007 Turkey’s GDP grew at an annual calm the excitement. But given its support for militias fighting
average of 6.8% and its exports tripled, but since then GDP against Syria’s president, Bashar al-Assad, and Russia’s growing
growth has settled at around 3.5% a year and exports have re- military commitment to his survival, there could well be more
mained virtually flat. Income per person, which the AK party clashes. Turkey seems in danger of stumbling into an unplanned
four years ago rashly promised would rise to $25,000 a year but potentially costly fight. It imports most of its gas from Russia,
within a decade, is stuck at around $10,000. and Turkish construction firms have well over $10 billion-worth
None of this is disastrous, and Tur- of Russian contracts on their books.
key’s economy is far more robust than it Now Turkey faces a new threat. A double suicide-bombing
used to be. The trouble is that Mr Erdo- in Ankara on October 10th last year aimed at a march by leftist
gan’s government has continued to be- trade unions and Kurdish activists killed more than 100 people.
have as if the good times had kept rolling. In January suicide-bombers struck again, this time in the heart of
Although the country’s chronic current- Istanbul, killing ten tourists. Both attacks were attributed to Is-
account deficit has narrowed lately, lamic State. In a country that has long seen itself as insulated
thanks to falling energy prices, Turkey re- from Middle Eastern turmoil, the intrusion of violent radical Is-
lies heavily on foreign capital and is find- lam came as a particular shock. Worse, it partly reflected Mr Erdo-
ing it increasingly difficult to attract mon- gan’s slowness to recognise the danger of blow-back from his
ey from abroad. Yet in recent years its own policies in Syria, where Turkey for too long indulged radical
government has shied away from reforms Islamists so long as they opposed the Assad regime.
Rather than blame the party in pow-
er for such setbacks, worried voters in No-
Worried voters in November rallied behind Mr Erdogan, vember rallied behind Mr Erdogan, back-
ing a strong, tested government rather
backing a strong, tested government than risk rule by a possibly weaker co-
alition. It helped that the ruling party, in
effect, controls Turkey’s mainstream me-
to boost the meagre domestic savings rate or promote industry, dia, which pumped up nationalism in the face of danger. Mr Er-
even as a consumer credit binge and heavy infrastructure spend- dogan had carried the 2014 presidential election with a slim ma-
ing have crowded out private investment. Rigid labour and tax jority of 52%, and his AK party, for all its success, enjoys the
rules remain a burden. Mr Erdogan himself has shaken confi- support of just half the Turkish public. Many of the rest remain
dence further by bullying his central bank to keep money cheap sceptical or even bitterly opposed to him.
and by hitting the business interests of political rivals. Without a This special report will argue that Turkey’s leaders, with
serious policy shift, including an effort to deal with concerns their ambitions still set on mastery, are not doing nearly enough
about institutional independence and the rule of law, Turkey’s to heal such internal rifts. The Kurdish issue looms as one big
economy will continue to underperform. danger, and so does the Turkish economy’s growing vulnerabili-
Darker scenarios have less to do with the country’s domes- ty to external shocks. Mr Erdogan’s blustering, bulldozing style,
tic market than with geopolitics. Because of the way it straddles together with his party’s growing intolerance for dissent, por-
cultures and continents, Turkey has always held a complicated tends trouble. 7
hand. In recent years the mayhem on its southern borders, cou-
pled with renewed tension pitting its NATO and European allies
against an expansionist Russia, have made its position all the Politics
more delicate. Yet Mr Erdogan’s government has failed to show
much diplomatic finesse.
Everyone agrees that Turkey has been immensely generous
Getting off the train
in accommodating well over 2m refugees from Syria’s civil war. It
has also worked hard to resolve long-standing squabbles with
neighbours such as Greece, Bulgaria, Cyprus and Armenia. But it
has often appeared aloof and suspicious, failing to communicate
effectively or to work with allies.
Mr Erdogan’s commitment to democracy seems to be
The most important of these, and Turkey’s dominant trad-
ing partner, is the European Union. Fear of a continuing tidal fading
wave of migrants has lately prompted Europe to proffer aid and a FOR 400 YEARS, says a founding myth common to Turkic
resumption of stalled talks on Turkish membership in exchange peoples from China to the Aegean sea, forebears of the
for tighter border controls. But there is little warmth in the rela- Turks were trapped in the rocky valley of Ergenekon. But one day
tionship. Most European governments still see Turkey as a buffer an ingenious blacksmith learned to melt stone, and a grey she-
more than a partner. And Mr Erdogan’s government has ap- wolf appeared to lead the tribe from its mountain fastness into
peared more concerned to extract concessions than to adopt the rich plains. Similarly, Kemal Ataturk has for generations been
European norms as a good thing in their own right. depicted in Turkish schools as a hero who after the first world
The danger of isolation was sharply underlined in Novem- war rallied a beaten people, repulsed a swarm of invaders and
ber when Turkish jets shot down a Russian fighter over Syria that forged a strong new nation. In some ways the story of the rise of
had briefly entered its air space. The Russian president, Vladimir the Justice and Development party echoes those tales, with Re-
Putin, swiftly responded with a broadside of sanctions. The Rus- cep Tayyip Erdogan presented as leading Turkey from a dark era
sian measures could trim up to 0.7% from Turkish GDP growth of Kemalist faithlessness into a bright Islamic future.
this year, according to the European Bank for Reconstruction and But now that the party has risen, the story is getting darker.
Development. Early in his career Mr Erdogan made a telling remark he was later 1

The Economist February 6th 2016 5


Softly, softly
How the AK party gained power by stealth
WHEN THE AK party was founded in 2001, few reforms introduced in 2001, which caused the vote rose to 47% and in 2011 to 49%. In
would have predicted its success. Just four short-term pain but produced long-term 2007 the party’s candidate, Abdullah Gul,
years earlier the army had intervened, for the gains for which it took the credit. won a parliamentary vote to become presi-
fourth time since 1960, to depose an elected With both the economy and politics dent. Following two referendums to approve
government, on this occasion an Islamist-led stable for the first time in years, Mr Erdogan constitutional changes, Mr Erdogan succeed-
coalition. The Islamists were then banned, seized the opportunity to push Turkey’s bid to ed him as directly elected president in 2014.
but the squabbling secularists that succeed- join the European Union. His overture to the And after the brief hiccup of the parliamen-
ed them proved ineffective and corrupt. The West assuaged fears that the AK party har- tary election last June, the AK party surged
economy was in tatters. boured an unstated Islamising agenda. The back in November with 49.5% of the vote.
At its birth the AK party represented a 2001 terrorist attacks on America also helped Political analysts put the party’s core
mixed bag of interests. Its supporters ranged persuade the West that the democratically constituency of pious Muslims and Islamist
from hard-core Islamists to members of more elected, mild-mannered and pro-business AK ideologues at 20-30% of the electorate. A
traditional religious fraternities, Islamist party was worth supporting. similar-sized but less committed group is
modernisers, socially conservative busi- Leftists in Turkey were seduced by Mr made up of conservative nationalists and
nessmen and even secular reformists and Erdogan’s populist rhetoric and his ambi- businesspeople. The AK party has shown
Kurds. Some of its founders had made their tious social agenda that quickly produced great skill at keeping both groups happy. Yet
name in local politics; in 1994 Mr Erdogan was better housing, health care and education. as it becomes more powerful, it is relying less
elected mayor of Istanbul, where he was seen Conservatives liked the AK party’s economic on charm and persuasion and more on
as energetic and effective. He gained extra policy, which promoted growth but kept threats and rewards. That is making even
glory among Islamists in 1998 by being taxes low. Traditionalist Turks were pleased some party stalwarts uncomfortable.
briefly imprisoned for “inciting hatred based that women could now wear headscarves.
on religious differences”, having publicly Voters of many political stripes also
recited a nationalist poem. cheered as the party took on the country’s
The party’s surprise triumph in nation- “deep state”, the matrix of military, security, Back on form
al elections in 2002 owed much to Mr Erdo- judicial and even criminal bodies that had for Elections, % of vote
gan’s formidable powers of oratory and decades exerted control behind a veneer of
organisation, but also something to luck. Its democracy. Through a series of massive AK
34.3% share of the vote translated into a trials, the influence of these unaccountable 40
whopping two-thirds of all parliamentary agents was slowly punctured.
seats, ironically because Turkey’s generals, “We all honestly wished them well,” 30
intent on keeping Islamists and Kurds out of says a Turkish professor of the AK party’s early CHP
the legislature, had set the threshold for any years. “It was a quietly revolutionary move- 20
party to enter parliament at a steep 10% of ment, a corrective to so many years of bul- MHP
the national vote. Of 16 quarrelling secular lying.” Many of his secular friends were soon HDP 10
parties, only one, the Republican People’s voting for and even joining the party. Independent block Others
party (CHP), founded by Ataturk himself, won Over the past decade the AK party has 0
2002 07 11 2015
any seats, leaving the AK party with little notched up some remarkable electoral victo- Jun, Nov
opposition. It also benefited from economic ries. In the 2007 general election its share of Source: Supreme Electoral Council of Turkey

2 to regret. Democracy is like a train, he said; you get off once you concerned both the shape and the size of judicial bodies.
have reached your destination. Now many of his party’s critics In the name of democratising a board that oversees judicial
fear that Turkey’s president may be getting close to that goal. appointments, the AK party expanded its membership, and in
It is not just that Mr Erdogan wants to rewrite the constitu- the fine print also increased its own powers to select those mem-
tion to award himself executive presidential powers. The trouble bers. A subsequent move to expand the number of state prosecu-
is that he hardly needs them. Sometimes overtly, but often by tors, with the ostensibly laudable aim of speeding up the creaky
stealth and dissimulation, the AK party has spread its tentacles justice system, enabled the party to appoint thousands more loy-
across Turkish society. The courts, the police, the intelligence ser- alists. The result is a judicial apparatus that, except for the highest
vices, the mosques, the public education and health systems and courts, increasingly dances to the AK party’s tune.
the media are all, in one way or another, subject to the party’s One example is the use of legislation that penalises insults
overweening influence. to the head of state. Turkey’s criminal code has contained such a
The judiciary makes an instructive example. Turkish courts law since 1926, but it was rarely applied before Mr Erdogan was
and state prosecutors have never enjoyed a sparkling reputation elected president in August 2014. Opposition MPs say that since
for neutrality. Mr Erdogan’s own spell in jail in the 1990s, for the then state prosecutors have investigated more than 1,500 people
“crime” of reciting a poem, represents one of the milder perver- for insulting the president, a crime that can carry a sentence of
sions of justice that prevailed before the AK party’s rise. Most more than four years. In the first ten months of 2015 nearly 100
Turks cheered as the party undertook a series of reforms, billed people were held in custody on such charges, including cartoon-
as raising Turkish justice to European standards. These changes ists and journalists, but also teenage boys who had defaced cam- 1

6 The Economist February 6th 2016


2 paign posters or posted Facebook messages. A woman in Izmir showed live footage of law enforcers invading its Istanbul head-
was recently sentenced to 11 months in prison for a rude hand quarters before abruptly going off air. So far 74 of Koza Ipek’s em-
gesture directed at Mr Erdogan. ployees have lost their jobs. Since the takeover the group’s flag-
An illuminating case of a different kind is that of Sevan Ni- ship newspaper has typically featured a large picture of Mr
sanyan, a 59-year-old linguist and author of an etymology of Erdogan above the fold.
modern Turkish. Mr Nisanyan is also known for his work to re- Figures released by an opposition representative on the
store a semi-derelict village near Turkey’s Aegean coast, a rare ex- board that monitors the state broadcasting service show that the
ample of careful conservation in a region better known for ram- AK party enjoyed overwhelming dominance of air time during
pant tourist development. Since January 2014 he has been in the election campaign. Mr Erdogan personally got 29 hours of
prison, sentenced to an astonishing16 years for various minor in- coverage in the first 25 days of October and the AK party 30
fractions of building codes, in a country where illegal construc- hours. By contrast, the Peoples’ Democratic party, or HDP, was
tion is commonplace; even Mr Erdogan’s new presidential pal- given a grand total of just 18 minutes on air. Even so, it attracted
ace violates zoning laws. Mr Nisanyan is of Armenian extraction, 5.1m votes.
as well as being an outspoken atheist and a critic of the AK party. Turkey’s private channels are little better. As the biggest
Education is another field in which the party’s ideological street protests in Turkey’s history erupted in Istanbul in the sum-
bent is increasingly evident. As mayor of Istanbul, Mr Erdogan mer of 2013, the country’s most popular news channel, CNN
once said he would like every state school to become an imam Turk, ran a documentary on penguins. Like the parent compa-
hatip, a vocational high school with an emphasis on religious nies of other media outlets, its owner, Dogan Holding, feared
training. When such schools first opened in the 1950s, the idea government retribution.
was to supply mosques with preachers. When the AK party took According to one media expert in Istanbul, the takeover of
power, they accounted for barely 2% of Turkey’s students. Fol- Koza Ipek has left just three news channels out of Turkey’s top 40
lowing a series of reforms, that proportion has risen fivefold, to that are critical of the AK party. Reporters Without Borders now
more than 1m students. Some 1,500 non-religious schools have ranks Turkey 149th out of 180 countries on its World Freedom In-
been converted to imam hatips. Thanks to a well-endowed chari- dex, just three places above Russia and 51 down on 2005.
ty run by Mr Erdogan’s son, these schools are often better Turkey’s increasingly beleaguered liberals debate among
equipped than ordinary state ones. Some parents now find they themselves just when the AK party reached a turning point.
have no choice. Some point to 2007, when the army ineptly tried to stop the
party from installing its own man (then Abdullah Gul) as presi-
Keep your mouth shut dent, prompting the AK party to adopt a harder line. Others say
The most glaring example of the AK party’s creeping annex- the Arab Spring of 2011, which saw the emergence of powerful
ation of the public sphere, however, are Turkey’s media. By put- like-minded Islamist movements in Tunisia and Egypt, may have
ting pressure on private owners and making vigorous use of laws emboldened the party. And some suggest May 2013, when the
against incitement, defamation and the spread of “terrorist pro- violent police response to a campaign against plans for a shop-
paganda”, the party has come to exercise control over all but a ping mall in Istanbul’s Gezi park sparked drawn-out protests
handful of broadcasters and news publishers. “I don’t remember across the country. This coincided with the overthrow in Egypt
any time when it was like this,” says Erol Onderoglu of Reporters of Muhammad Morsi, whose Muslim Brotherhood government
Without Borders, a watchdog group. “Hundreds of journalists the AK party had loudly cheered.
have been fired or arrested in the past five years, and we expect Mr Erdogan’s furious response to the Gezi protests, say crit- 1
more every day.”
In recent months the assault on
press freedom has involved not just
threats and spurious judicial procedures
but outright violence. In September mobs
attacked the offices of Hurriyet, one of
Turkey’s few remaining independent
newspapers, after Mr Erdogan criticised
its editors on national television. Soon af-
terwards thugs, several of whom were lat-
er found to be AK party members, beat up
a popular television presenter, Ahmet Ha-
kan, in front of his Istanbul home, break-
ing his nose and several ribs. In December
Mr Hakan found himself threatened with
an investigation for “propagating terro-
rism” after a guest on his programme said
it was a mistake to dismiss the PKK as a ter-
rorist organisation.
A particularly dramatic case of state
interference in the press involved the
takeover by the government, days before
the November election, of Koza Ipek
Holding, an industrial group. One of Koza
Ipek’s television stations, already con-
fined to the internet after Turkish satellite
carriers were asked to drop its broadcasts, What Koza Ipek supporters thought of the state takeover

The Economist February 6th 2016 7


2 ics, reflected paranoia about a plot to undermine Islamist re-

gimes. He repeatedly blamed the protests on a nebulous “inter-
est-rate lobby,” supposedly bent on weakening the Turkish
economy. Other AK party officials hinted at a global Jewish con-
spiracy. The Gezi protests petered out by the end of that summer,
but prosecutions of troublemakers continued. In October last
year 244 people received jail sentences of up to 14 months for
their part in the protest movement. They included four doctors
accused of “polluting” a mosque. The court ignored testimony
that they had entered the mosque at the invitation of its imam,
using the sanctuary to treat injured people.
The most commonly cited tipping point in both the AK
party’s and Mr Erdogan’s stance, however, is December 2013,
when financial police arrested 47 members of an alleged corrup-
tion ring, including businessmen, state officials and the sons of
several AK party cabinet ministers. Recordings of embarrassing
personal calls, including some apparently with Mr Erdogan—
who has denied their authenticity—soon appeared on the inter-
net. They painted a picture of nepotism and influence-peddling,
much of it involving lucrative construction contracts handed to
party favourites. Dozens of officials were forced to resign.
The motive for the arrests and the leaks was not hard to
find. For several years trouble had been brewing between the AK
party and Hizmet, a shadowy religious-nationalist movement
founded by Fethullah Gulen. a charismatic prayer leader who The economy
preaches a mild, Sufism-inspired and public-service-oriented
form of Islam. Mr Gulen has lived in self-imposed exile in Ameri-
ca since the 1990s, but his influence in Turkey, created over de-
cades, has remained strong.
In the AK party’s early years Hizmet was a powerful ally. Its
media outlets boosted the Islamist cause, and graduates from its
universities provided a useful pool of white-collar talent for the
AK party. Not unlike the Freemasons, the movement had follow-
Turkey is performing well below its potential
ers throughout Turkey’s government, but particularly in the po-
lice and the judiciary. After the AK party’s election victory in “THE PEOPLE HAVE voted for stability,” proclaimed Presi-
2002 they were seen as key to the dismantling of Turkey’s “deep dent Erdogan after his party’s electoral landslide in Novem-
state”, and particularly to the show trials of military officers. The ber. The markets applauded, too. Istanbul’s stock index jumped
leaking of tapes that damaged the reputation of secular rivals to and the Turkish lira rose against the dollar, both reversing long
the AK party was also linked to Hizmet. slides. Year-end indicators showed an upward trend in GDP
The Gulenists may have been prompted to air the AK growth, from a rate of around 3% to nearer 4%. But business eu-
party’s dirty laundry by Mr Erdogan’s decision in late 2013 to phoria quickly faded. Stability certainly beats chaos or months
close hundreds of Gulen-affiliated schools. Whatever the reason, of coalition haggling, the markets seemed to say, but if stability
the AK party’s response has been ferocious, amounting to a means “more of the same”, we are not so sure.
witch hunt against Hizmet supporters and sympathisers. Since That may seem a churlish reaction. Turkey has made great
January 2014 some 6,000 police officers have been transferred or economic strides in the past15 years. It has become a trusted sup-
fired on suspicion of ties to the group. Waves of arrests have tar- plier of high-quality consumer goods and is now Europe’s big-
geted journalists, lawyers and academics, among others. gest manufacturer of television sets and light commercial vehi-
cles. Its capital goods pass muster in Germany for their precision.
The enemy within Turkey is also the world’s eighth-biggest food producer and sixth-
In December 2014 Mr Gulen, who is 74, was officially de- most-popular tourist destination. Forty-three ofthe top 250 inter-
clared the head of a terrorist organisation bent on establishing a national construction firms are Turkish.
“parallel state”. That has allowed prosecutors to charge alleged Moreover, Turkish business has often proved nimble. Ten
associates, including newspaper editors, with terrorism of- years ago the country’s textile industry was foundering, priced
fences. The government also reversed earlier convictions that out by East Asia, but it has since discovered a lucrative niche sup-
had been secured with the Gulenists’ help. Nearly all military of- plying higher-quality goods to Europe on shorter time scales. As
ficers who had been subjected to show trials were released. prospects in the Middle East have dimmed, Turkish contractors
Some of the charges of attempted Gulenist infiltration may have switched to markets such as Russia and Africa.
well be justified. Yet most Turks other than core supporters of the The AK party is justly proud of having presided over plung-
AK also feel that the allegations of corruption against the ruling ing inflation, shrinking sovereign debt and a jump in exports (by
party cannot be dismissed out of hand. To many, Mr Erdogan’s a whopping 325% in the ten years to 2012). However, most of
furious persecution of this “enemy within” is a way of deflecting those things were achieved a while back. Between 2002 and
attention from the AK party’s own plans for capturing the state. 2007 Turkey’s economy expanded by an average of 6.8% a year,
“They are not just crushing what exists,” says Mr Onderoglu of but since then it has been more volatile. Over the past decade,
Reporters Without Borders. “They are building new media, a annual average growth has been a modest 3.5%. Income per per-
new civil society and a new deep state.” 7 son has barely been rising for the past four years. The same is true 1

8 The Economist February 6th 2016


2 for exports. Average inflation has been above the central bank’s pendence for the central bank and moves towards more open
target in all but one of the past ten years. and better-regulated markets. But once the IMF’s cure had
Much of the slowdown is due to the vagaries of the global worked and the EU became cooler about Turkish accession, the
business cycle. Around 60% of Turkey’s trade is with Europe, impetus for reform waned.
which also accounts for three-quarters of foreign direct invest- In a recent paper two Turkish economists, Daron Acemoglu
ment in the country. The continent’s recent economic troubles of MIT and Murat Ucer of Koc University in Istanbul, point out
are not Turkey’s fault. Nor is the mayhem in the Middle East, that although AK governments have maintained laudable fiscal
which a decade ago was Turkey’s fastest-growing export market. discipline, in other respects their economic management has
A deep recession in Russia, a big supplier of energy and tourists been less impressive. “The AK government that had supported
and a market for farm exports, has also hit growth prospects. Tur- the economic opening made an about-face once it became suffi-
key’s recent political spat with Russia has made things worse. ciently powerful,” they write. “Gradually, the de jure and de facto
Other external events have been more helpful. Thanks to a control of the ruling cadre intensified, amplifying corruption
sharp fall in the oil price, Turkey’s current-account deficit nar- and arbitrary, unpredictable decision-making.”
rowed to around $35 billion in the 12 months to November, the A paper by two other economists, Esra Gurakar of Okan
lowest in over five years. Even so, the loans piled up to fund the University and Umut Gunduz of Istanbul Technical University,
big external deficits ofthe past have left the economy vulnerable. illustrates the point. The adoption of a law in 2001 to regulate
Much of Turkey’s foreign debt, notably to its companies, is in dol- government procurement at first improved transparency, it says.
lars, which have become more expensive to service as the lira With time, however, the number of exceptions to the law grew
has steadily weakened. and the share of public contracts awarded via open auction
shrank. By 2011 some 44% of government contracts were being
From know-who to know-how awarded by unaccountable bureaucrats.
The economy also suffers from a range of home-grown Businesses without friends in government have suffered.
troubles. Onerous regulations make it hard for small businesses One of Turkey’s most successful construction conglomerates,
to grow bigger and more efficient. The World Economic Forum, a with a fat international order book and an annual turnover of
think-tank, ranks Turkey 131st out of144 countries by labour-mar- close to $6 billion, has not won a big Turkish government con-
ket efficiency. Most economists agree that without substantial tract since the AK party took power. Some say this is because it is
structural reform, weak growth is here to stay. “Our new normal seen as too close to Western governments that have been critical
seems to be 3-3.5%,” says Emre Deliveli, a columnist on economic of the party. Similarly, companies that own media outlets have
affairs. “For America or the EU that would be fine, but with our been cut out of business in other fields if they fail to toe the line.
demographics we need 3.5% as a minimum just to keep unem- The share price of Dogan Holding, which owns some of the few
ployment flat.” remaining independent newspapers and TV channels, fell by
Turkey is a classic case of what economists call the “middle- 16% on news of November’s election results.
income trap”: the difficulty encountered when countries that Firms with the right contacts, say critics of the government,
have recently emerged from poverty try to move up into the club have done well, winning not just direct state contracts but privi-
of rich countries. They may, like Turkey, have learned how to as- leged access to deals involving state-owned land and getting ear-
semble cars or washing machines, boost agricultural productivi- ly warning of regulatory and zoning changes. One example is
ty or mobilise capital and labour, but they find it harder to add TOKI, the state agency for affordable housing, which the AK has
value through research, design, branding and marketing. Accord- turned into a partner for private developers. “There is a cycle,”
ing to World Bank data, the share of high-tech goods in Turkish says Mustafa Sonmez, an economist: “I give you public land, you
manufactured exports has been stuck at 2% since 2002. build, we share—it’s a great way to reward friends.”
Martin Raiser, until recently Turkey director for the World Slippage is also in evidence over the independence of Tur-
Bank, has described the kind of shift required as a move from the key’s central bank, or TCMB. The bank is generally held in high re-
“know-who” to the “know-how” economy. The key, he believes, gard, but in recent years it has failed either to rein back inflation,
is to develop institutions that are resilient to changing regimes currently around 9%, or to prevent a steady decline in the value
and can sustain long-term growth. This is where Turkey has fall- of the Turkish lira, which has fallen by half against the dollar
en short. Connections all too often still outweigh competence. since 2010. Many economists and businessmen pin the blame on
Big privately held holding companies dominate many sectors, Mr Erdogan, who has publicly badgered the bank to keep interest
squeezing out smaller, more innovative firms. rates down. On one occasion he accused its governor, Erdem 1
“We are not in a middle-income trap,
we are in a reform trap,” says Zumrut Ima-
moglu, chief economist of TUSIAD, a
think-tank funded by Turkey’s biggest So-so
private firms. She sees the AK govern- GDP Unemployment rate Consumer confidence Inflation
ment drifting away from a pro-growth % change on a year earlier % Below 100=pessimism % increase on a year earlier
agenda towards a programme that more
narrowly serves the party’s own interests. 10 15 100 12
Consumer and business confidence have
taken a knock. 75 10
5 10
When the Turkish economy crashed + 50 8
in 2001, an IMF-enforced remedial pro- 0 5
gramme provided useful discipline, rein- 25
– 6
forced by hopes of EU membership. Tur-
5 0 0
key’s subsequent boom owed much to
2004 10 15* 2004 10 15* 2004 10 15 2004 10 15*
stringent controls on state spending, in-
Sources: Economist Intelligence Unit; Turkish Statistical Institute *Estimate
creased budget transparency, more inde-

The Economist February 6th 2016 9


tions in Turkey in recent years and have launched no big green-

Outlook: dreary field projects, notes Mr Sonmez, the economist. This is due partly
Manufacturing index of business conditions to a general wariness of emerging markets, but partly also to Tur-
50=no change on previous month key’s perceived political volatility, a weak currency, relatively
65 high inflation, proximity to a turbulent Middle East and ques-

60 tions about the rule of law. “This is a government that has a habit
55 of changing rules after the match has started,” says a prominent
economic columnist. “If a foreign company fears it cannot de-
fend itself in court, why should it invest?”

Since the AK party’s success at the polls, the signs from the
40 new government have been only partly reassuring. It is already
35 committed to costly election promises such as a higher mini-
30 mum wage, bigger pensions and more social spending, and min-
25 isters have also spoken of boosting infrastructure investment to
promote growth. A senior adviser to Mr Erdogan hints that in fu-
2005 06 07 08 09 10 11 12 13 14 15 ture the party might be less fiscally prudent than in the past, aim-
Sources: Istanbul Chamber of Industry; Markit ing to create more jobs and increase competitiveness.
Outsiders such as the EU, the IMF, the World Bank and the
OECD, along with Turkish economists and businesses, suggest
2 Basci, of being a traitor to the nation for championing a higher different priorities. A tighter monetary policy would strengthen
rate. A recent analysis ofTCMB policies by economists at the Cen- savings and reduce inflation, which would have a useful
tre for Financial Studies at the Goethe University in Frankfurt knock-on effect across the economy. Labour markets need to be-
reckons that between 2010 and 2014 Turkey’s central bank on av- come more flexible and education must be geared more closely
erage set the official interest rate about 7 percentage points too to their needs. Most importantly, sustained growth will require a
low, judging by its own policy responses in the previous decade. change of attitude, beginning at the top. A sophisticated market
It is not clear why Mr Erdogan is so concerned about interest economy cannot be run by offering favours for loyalty. “They
rates. Speculation about possible motives ranges from trying to used to be giving, sacrificing for the public good,” says an Istan-
woo voters with cheaper money to religious concerns about usu- bul news editor. “Now they are taking, using all the redistributive
ry. His economic advisers have often hinted at a shadowy global power of the state.” 7
“interest-rate lobby” seeking to damage Turkey’s economy.
Mr Basci is due to leave his job in April, perhaps with some
relief. Turkish businessmen want his successor to be given more Identity
leeway to set credible policies. They reckon that the country’s po-
litically determined loose monetary policy has been partly re-
sponsible for a surge in consumer debt, which grew from an aver-
Proud to be a Turk
age of about 5% of household income in 2002 to 55% in 2013. The
credit binge made Turkish consumers feel rich: nominal house-
hold wealth has tripled in the past decade. But the cheap money
has also steadily eroded Turkey’s savings rate. At just 12.6% of
GDP in 2014, it was the lowest in any big emerging market.
But what does it mean?
Artificially low interest rates have also directed investment
away from industry into sectors with quicker returns, such as “I AM A Turk, honest and hard-working.” So began the oath
consumer imports and property speculation. According to the of allegiance to their country chanted by generations of
IMF, between mid-2012 and mid-2014 the proportion of bank schoolchildren before the practice was scrapped three years ago.
credit earmarked for construction rose from less than 50% to over This proud, flag-waving nation takes it as read that Turkishness
70% of all loans. Across the country, fancy new housing estates, goes beyond nationality. But what does it mean to be a Turk? La-
office complexes and shopping malls are far more in evidence bels of ethnicity, language, religion and social class overlap in
than new factories. Since 2012 property prices have risen smartly, complex patterns. As a result, some citizens consider themselves
helped in part by looser rules on foreign ownership. In July 2015 more Turkish than others.
the average price of a house in booming Istanbul was 20% up in The modern Turkish republic emerged from a crucible of
real terms on a year earlier. war, as the waning Ottoman empire between 1908 and 1922
The fall in domestic saving has also made Turkey even more fought in succession against Bulgarian nationalists and Italian
dependent on foreign finance. Its foreign debt is approaching colonisers in Libya, then against the British Empire, Russia and
$400 billion, or about 50% of GDP. Much of this is short-term, Arab nationalists during the first world war, and lastly against
and the vast bulk of it is private. Last July Fitch, a ratings agency, Greece. Genocide or not, awful things happened to Anatolia’s
singled out Turkey as the large emerging market most vulnerable Armenians in 1915-17. There were many, and now there are few;
to the effects of a long-expected rise in American interest rates. nearly all of Turkey’s remaining 50,000 ethnic Armenians live in
The Fed’s initial move, in December, was smaller than expected, Istanbul. After the Greco-Turkish war of 1921-22 Turkey lost some
but Turkey still gets poor marks from ratings agencies. Moody’s 1.5m Greeks too, in a population exchange that brought half a
and Fitch both put its sovereign debt at the lowest investment million ethnic Turks “home” from Greece. More ethnically Turk-
grade, and Standard & Poor’s rates it as junk. ish or Muslim refugees poured into the new nation, fleeing from
Foreign direct investment, which reached a peak of about Russian revolution or from persecution in the Balkans, the Cri-
$22 billion in 2007, has been on a downward trend ever since, mea and the Caucasus.
sliding to around $12.5 billion in 2014 and probably staying at the Most of those incomers were quickly assimilated, but not
same level last year. Foreign firms have made no major acquisi- the Kurds, indigenous Muslims whose presence in Anatolia far 1

10 The Economist February 6th 2016


2 predates the Turks (who arrived from Central Asia a mere millen- divide between “white” Turks and “black”, marking the gap be-
nium ago). In the 1920s and 1930s the new Turkish republic tween those who cherish Ataturk’s legacy and those who resent
crushed successive rebellions in the country’s south-east, where it as an imposition.
Kurds predominate not only within Turkey’s own borders but in Mr Erdogan has capitalised brilliantly on the deep grudge
adjacent parts of Syria, Iraq and Iran. Repeated counter-insur- felt by “black” Turks. His credentials include his origins as the son
gencies, accompanied by aerial bombing and widespread pil- of rural immigrants to a tough, working-class part of Istanbul,
lage, left the region impoverished and depopulated. Yet even having worked as a pushcart vendor of simit, Turkey’s sesame-
though hundreds of thousands were killed, ethnic Kurds still sprinkled progenitor of the bagel, and a pithy, populist style of
make up 15-20% of Turkey’s people. delivery. On Republic Day last year, which handily fell just be-
The young republic was mostly Turkish-speaking and over- fore November’s election, he made a speech evoking times
whelmingly Sunni Muslim. Assimilation and urbanisation have when some people celebrated the holiday “with frocks, waltzes
made it even more so. Yet Turkey retains more of the ethnic and and champagne” while others gazed at this scene “half-starved,
religious diversity of the Ottoman empire than is generally real- with no shoes and no jackets to wear”. Now, he concluded, Tur-
ised. Some 10m-15m of its citizens are Alevis, adherents to a syn- key is united. Even after two decades of such rhetoric, it goes
cretic offshoot of Shia Islam that is unique to Turkey. Other reli- down well with many voters.
gious minorities include Jaafari Shia Muslims, Jews, Christians
and Yazidis. Among the ethnic minorities, apart from Kurds and Not quite united
Armenians, are large numbers of Arabs, Albanians, Azeris, Bos- Yet a look at Turkey’s political map suggests a less than com-
niaks, Circassians, Georgians, Laz and Roma. Turkey is now also plete picture of unity. The half of the electorate that votes for Mr
home to well over 2m refugees, mostly from Syria but also from Erdogan does include some minority groups, but mostly repre-
Iraq, Iran, Afghanistan, Egypt and elsewhere. sents the narrower, ethnically Turkish and Sunni Muslim main-
To Kemal Ataturk and his immediate successors, whose for- stream. Of the three rival parties that make up the parliamentary
mative experience was Ottoman implosion and foreign inva- opposition, the Nationalist Movement, or MHP, is also “proper-
sion, the paramount need was to forge a strong nation from these ly” Turkish but represents the extreme right. Its most distinctive
disparate parts. For long periods and until quite recently, the pub- trait is reflexive hostility to all non-Turks, especially Kurds. “We
lic use of Kurdish languages was strictly banned. The govern- don’t call it a peace process, we call it a terror process,” says Zuhal
ment encouraged religious uniformity by creating a powerful Topcu, a party vice-chairman, of the government’s on-off talks
agency, Diyanet, to oversee the mosques, which preached a sin- with Kurdish rebels. “You cannot sit at a table with them, they
gle version of Sunni Islam. Other versions and other faiths got no have to surrender and be tried.”
support from the state; indeed, it outlawed the mystical Sufi or- The largest opposition party, the CHP, sees itself as the di-
ders that had heavily inflected Ottoman-era Islam. rect heir to Ataturk. Pro-Western and centre-left, it embraces secu-
In their determined push for modernisation, Ataturk’s fol- larists of all stripes and has sought to focus on issues rather than
lowers imposed customs and ways of thought that came easily identity politics. Yet to the dismay of its own leadership the
to sophisticates in Istanbul or Izmir but were resented further CHP’s core constituency, as well as most of its MPs, are Alevis.
east. The superior airs of secular, cosmopolitan Kemalists have Many in this headscarf-shunning, alcohol-tolerant minority re-
rankled ever since, particularly with country folk and with im- main strident Kemalists, seeking refuge from what they see as the
migrants to the big cities. Some speak half-jokingly of a lingering uncomfortable encroachment of Islamism.
The third component of the opposi-
tion, the People’s Democratic party, or
HDP, is outwardly an alliance of small
parties and leftist groups that recently
joined forces to cross the 10% threshold
for entering parliament. But for all its in-
clusiveness, most of the HDP’s supporters
and candidates are Kurds. The party gets
the bulk of its votes in the chronically
troubled south-east and few in the rest of
Turkey. “It’s a problem,” admits Ayse Er-
dem, an HDP party leader in Istanbul
who is herself an ethnic Turk. “A lot of
people can’t bring themselves to vote for
a Kurd, they just don’t see them as equal.”
Yet to many the problem with the
HDP lies not with its ethnic profile but
with what they see as its too-cosy rela-
tionship with the PKK, a Kurdish guerrilla
group that has fought a sporadic insur-
gency against the state since the 1980s and
is officially deemed a terrorist organisa-
tion. Plenty of Kurds are also wary of the
PKK, both because of its vaguely Maoist
ideology and its violent intolerance of ri-
val Kurdish groups. Yet the brutality of
Turkish security forces, which in the 1990s
Another day, another Kurdish funeral in Diyarbakir destroyed hundreds of villages to flush 1

The Economist February 6th 2016 11


2 out rebels, has repeatedly recharged Kurdish nationalism.

The PKK’s stated aims have changed over time, and particu-
larly since the capture, trial and imprisonment in 1999 of its char-
ismatic founder, Abdullah Ocalan. PKK leaders now say they
seek not an independent Kurdistan but a form of autonomy that
Mr Ocalan has described as democratic confederalism. To its
credit the AK party has eased away from the Kemalists’ uncom-
promising rejection of Kurdish claims, loosening official stric-
tures on Kurdish languages, opening a dialogue with Mr Ocalan
and agreeing to indirect peace talks with the PKK.
A ceasefire during the most recent round, from 2013 until
last spring, prompted a construction and investment mini-boom
in the still-poor south-east. Hopes rose further last February,
when leaders of the AK party and the HDP—which the PKK had
tacitly appointed as its interlocutor—announced a ten-point road
map for peace. In essence, this required the PKK to lay down its
arms and affirm respect for Turkish sovereignty, in return for an
amnesty, formal recognition of the Kurds as a distinct people and
mutual commitments to resolve issues democratically.
There is much finger-pointing about what happened next.
AK party supporters maintain that the agreement was merely an
informal understanding. Their critics contend that Mr Erdogan,
sensing resistance from the army and from diehard nationalists
and with elections looming in June of last year, made a calculat-
ed decision to scupper the deal.
Events in neighbouring Syria, with 2m Kurds scattered thin-
ly along the open plain abutting the Turkish border, also played a
part. Five years of appalling civil war provided a chance seized Urban development
by the PKK’s Syrian affiliate, which ruthlessly crushed rival Kurd-
ish groups and took control of Kurdish areas. Its success at fight-
ing Islamic State impressed Western powers, which provided
The lure of the city
support last year to relieve the besieged Kurdish city of Kobane.
But as the PKK’s Syrian branch carved out an autonomous
canton, Turkish officials grew fearful of its growing power. As
tens of thousands of Kurdish civilians poured into Turkey to es-
cape IS’s assault on Kobane, the government in Ankara dithered
Turkey’s urban centres are modernising at the double
for weeks before allowing in aid. Turkish Kurds were outraged.
“We found that Ankara is still so blinkered that it could not see it NAPOLEON WAS IMPRESSED with Istanbul. If all the
faced a simple choice: would you rather have Kurds as neigh- world were a single state, he said, this city should be its capi-
bours or Islamic State?”, laments a Kurdish intellectual. tal. A generation ago, when it looked musty and neglected, that
From the government’s perspective the success of Syria’s would have seemed far-fetched, but now this great metropolis at
Kurds is a worrying precedent. The fear is that the PKK, by virtue the confluence of Europe and Asia pulses with trans-global traf-
of its tacit alliance with the West in Syria, will have gained inter- fic. Some 50,000 ships a year traverse the narrow waterway that
national legitimacy. bisects the city. A colourful mix of Polish package tourists, Indo-
nesian pilgrims, Ghanaian textile traders, Kazakh students and
Back to battle stations honeymooning Saudis passes through its snaking airport immi-
For now, talk of peace between Turks and Kurds is over. In gration queues, and a polyglot crowd ceaselessly throngs Istiklal
June the Turkish air force resumed bombing raids on PKK targets Street, attesting to Istanbul’s growing magnetism.
in Iraq. Paramilitary police have clamped curfews on restive In 2010, the city’s Ataturk International airport ranked as
Kurdish towns and arrested hundreds of alleged PKK supporters; the world’s 37th-busiest by number of passengers. By 2014 it had
guerrillas have struck back with roadside bombs and shootings. vaulted to 13th place. Istanbul already has a second airport and is
Well over 600 people have died so far in this round of violence. furiously building a third, scheduled to open in 2018. When fully
In electoral terms Mr Erdogan’s switch in tactics has paid operational, it will be the world’s largest, ready to handle 150m
off. With pro-AK party television relentlessly showing funerals passengers a year.
of slain policemen, patriotic Turks voted for his party in droves in The project, worth around $30 billion, has caused plenty of
November. Even many conservative Kurds abandoned the HDP. controversy. It is rising amid protected wetlands and faces char-
They had seen it as a democratic alternative to the PKK, but felt ges of cronyism in awarding construction contracts. But few Is-
the party was not distancing itself enough from the guerrillas. tanbullus doubt the need for a giant new air hub. Measured by
Many Kurds, as well as Turkey’s allies, still cling to hopes “international connectivity”—the frequency of flights to foreign
that the two sides will resume talks. But attitudes among ordin- destinations—the city comes fifth in the world, but it is advancing
ary Turks, which had softened towards the idea of some kind of faster than its rivals. London, the leader, became 4% more “con-
expanded Kurdish autonomy, are now hardening under the gov- nected” between 2009 and 2015, according to Mastercard; over
ernment’s barrage of bellicose rhetoric. With Mr Erdogan’s men the same period Istanbul’s connectivity grew by a roaring111%.
apparently convinced that they can win by force, the Kurdish is- The city is racing ahead in other ways, too. It already has
sue seems to be moving into another cycle of despair. 7 about 16m people, compared with barely 2m in 1975, and be- 1

12 The Economist February 6th 2016


A new their own revenues, make their own deals with private firms and
start their own businesses, though the central government keeps
motorway enough of a hold on the purse strings to ensure fiscal discipline.
will cut Cumulatively, these undramatic changes have had a re-
markable effect. “Local democracy really seems to have worked
through in this sense,” says Yasar Adanali, an urban planner in Istanbul.
forests to “To climb up the ladder in their party or be seen at the national
level, municipal managers have to shine.” Mr Erdogan himself
link to a rose out of local Istanbul politics, and many of his closest asso-
new, third ciates came to prominence in the same way. The city’s 39 districts
are showcases for their mayors, who compete to provide better
bridge services. In most of the city, streets are swept and rubbish collect-
across the ed at least once a day.
The Greater Istanbul Municipality, for its part, has the re-
Bosporus sources to build or sponsor big investments in infrastructure,
with notable results. The first underground line of its metro sys-
tem opened only in 2000, but progress has been rapid, with an
underground linking the Asian side of the city to the European
one completed in 2013.
Yet the picture is not all rosy. Despite all the investment,
only15% ofjourneys in Istanbul are made by public transport; the
city has more congested roads than any other in Europe. Increas-
ingly, too, the growth of Turkish cities has been driven less by
careful planning than by business interests, often backed by
powerful politicians.
Istanbul’s new airport is a case in point. The municipality’s
own 2009 master plan provided for it to be built to the west of
2 tween now and 2018 it will overtake both London and Moscow the city, in flatter lands already connected to Istanbul’s main traf-
as the most populous urban area in Europe. According to Euro- fic axis. Ministers in Ankara intervened to move it to the north,
monitor, a research firm, six of Europe’s ten fastest-growing cities amid forested hills that were meant to be preserved for recrea-
are in Turkey (see chart, next page). tion and as the main catchment for Istanbul’s water supply. The
Countries such as India and China have witnessed similar giant site was largely public land, but to attract private builders
urban explosions, but Turkish cities stand out for also offering an much of it will be turned over to commercial use for hotels,
impressive quality of life. The proportion of Turks living in cities shops and airport services. Connecting the airport to the city
has swollen from about half the population 30 years ago to 75% will require millions more trees to be felled: as part of the project
today. Between 2000 and 2015 its major urban areas absorbed a new motorway will cut through forests to link to a new, third
15m new residents. Yet despite their rapid growth, Turkish cities bridge across the Bosporus.
are by and large admirably free of squalor and crime. Middle- Environmentalists and urban planners argue that the pur-
class parts of Istanbul, Ankara or Izmir, in Turkey’s relatively pose of the motorway is not so much to relieve traffic as to open
prosperous west, are indistinguishable from their far wealthier new areas to property development. Already, Istanbul’s once-
West European counterparts. Yet even the slums in big eastern green northern reaches are being covered over by gated luxury
cities such as Gaziantep and Diyarbakir have proper sanitation, communities and shopping centres. “With the current planning
tidy paved streets, parks and well-maintained schools. structure we know there is no way to stop the building,” says
It was not always thus. Thirty years ago the hills around Akif Burak Atlar of the Turkish Union of Urban Planners. “The in- 1
Turkish cities looked much like Brazil’s, stacked higgledy pig-
gledy with unlicensed shantytowns appropriately known as ge-
cekondu (built overnight). Istanbul had worse public transport,
Black Sea Built-up area
worse water quality and worse pollution than shambolic Cairo; PROPOSED
the cheap lignite used for home heating clouded its winter skies AIRPORT Bosporus
in a perpetual acrid fug, and the soupy waters of the Golden
Horn, a sea inlet that bisects the European side of the city, were THIRD
too polluted to sustain fish. BRIDGE
A better place to live GEZI PARK
Istanbul’s skies are now notably clear, and the fishermen TAKSIM SQ.
who crowd the railings of the Galata Bridge into the wee hours
hoist up sardines by the bucketful. The radical change is not just a Ataturk MARMARAY
result of better sewerage and cleaner heating fuel in the form of TUNNEL
natural gas piped from Russia. Starting in the 1980s, Turkey made
a series of important legislative changes. Various amnesties Istanbul
granted legal title to gecekondu dwellers, making them stronger
stakeholders and allowing them to leverage property assets. A Bursa
TURKEY Se a o f M a r m a ra
sweeping reform in 1984 consolidated big urban areas into pow- Konya
erful municipalities with elected mayors. Further reforms in the Antalya Gaziantep
20 km
2000s did the same thing at district level. Cities now generate

The Economist February 6th 2016 13


the second world war Turkey stuck to its own business and re-
Teeming mained a staunch ally of the West, both in NATO and as a found-
Fastest-growing European cities with over one million inhabitants ing member of the OECD, yet it was not strong. Its economy was
2012-20*, % increase doing badly, and under the generals it mostly avoided putting
0 5 10 15 20
Istanbul much effort into foreign affairs—with rare exceptions, such as
Konya when it invaded and partitioned Cyprus in 1974. Troubles with
Bursa neighbours such as Greece, Bulgaria and Armenia were allowed
Newcastle upon Tyne (Britain) to fester, and ties with Europe and America remained formal and
Diyarbakir cool. With Israel, it maintained a tacit, businesslike alliance. As
Antalya for its Muslim backyard, Turkey shunned it altogether.
Bristol (Britain) This aloofness, mirroring a national penchant for mistrust-
Oslo (Norway) ing outsiders, came to an abrupt and welcome end when the AK
Bordeaux (France) party took power. Under the guidance of Ahmet Davutoglu,
Gaziantep who served as a foreign-policy adviser and then foreign minister
Source: Euromonitor *Forecast before becoming prime minister, the country proclaimed a poli-
cy of “zero problems with neighbours”. The sudden wave of
warmth from Ankara produced immediate results. Old quarrels,
2 centives for business and government are too strong.” even with such once bitter foes as Armenia or the Kurds of north-
The consortium of Turkish developers that won the build- ern Iraq, were set aside. Europe seemed ready to open its doors to
own-operate lease for the new airport includes firms thought to Turkey, if only by a crack. Russia became an important trading
be close to the AK party. Foreign financiers, not least the World partner. Turkey’s Arab neighbours welcomed back their former
Bank, have kept away, partly because of a corruption investiga- Ottoman master with enthusiasm. Exports to the Middle East
tion involving several ofthe firms’ senior executives, launched in boomed. For a time the forthright Mr Erdogan was the most pop-
2013 but suspended after the government intervened. ular leader in the region. Turkey looked strong.
Across the country vast areas of state lands, and in some
cases city parks, have been handed to private developers. The Don’t mention the EU
one that caught the most public attention was Istanbul’s Gezi As for being responsible, in many ways it has performed
Park, a rare patch of green in the heart of the city. A century ago less well. That is not entirely Turkey’s fault. Part of the reason its
this had been the site of an army barracks where Ottoman sol- accession to the EU has got nowhere has been the EU’s muddled,
diers protested against encroaching secularism. For symbolic many-headed set of policies. In the wake of the recession and the
reasons Mr Erdogan strongly backed a project to recreate the debacle over Greece, Europe also looks less attractive now than
long-demolished structure as a faux-Ottoman shopping centre. when talks began in 2005. Yet the AK party’s leadership has been
But the green space held equally strong symbolism for many Is- irresponsibly quickto take offence. Even ifthe EU did unilaterally
tanbullus. The scheme was blocked by a massive urban protest, freeze negotiations on about half the 33 “chapters” that have to
an eruption of the cumulative anguish felt by many locals about be completed before accession, Turkey need not have relaxed its
runaway development in which dozens of skyscrapers rose and efforts to comply with what the EU calls its acquis (its common
more than 90 other shopping malls sprouted between looping set of rules). By doing so, the AK government signalled that it sees
motorways. “Gezi was just one too many of the crimes that have things like freedom of the press, judicial independence and fight-
been committed against Istanbul,” says Mr Adanali. 7 ing corruption as part of the price of membership rather than as
valuable goals in their own right.
Such legacies have lately put Mr Erdogan and his European
Foreign policy counterparts in an uncomfortable spot. Faced with the deluge of
refugees passing through Turkey on their way to western Europe,
Alone in the world they have horse-traded stronger Turkish border controls and se-
curity measures for European cash, travel concessions for Turks
and promises to revive Turkey’s stalled plans for EU entry. Nei-
ther side has come out looking good. Turkish officials have indi-
cated that they regard Europe’s €3 billion aid package for the ref-
ugees as merely a first instalment. The EU, for its part, has voiced
growing concern over issues ofcivic freedoms and human rights,
The consequences of not talking to the neighbours
and in particular Turkey’s renewed suppression of the Kurds.
FEW COUNTRIES OCCUPY a geopolitical space of such There are bright spots: the accession process is moving
sensitivity as Turkey, or have played such a range of critical again, and growing pragmatism from all parties to the Cyprus
and overlapping international roles. It has been a gateway and a conflict, including Turkey, bodes well for a peace deal. Still, Mr Er-
bridge to Europe, most dramatically in recent months for hun- dogan’s hope to take Turkey into the EU by 2023, when it will cele-
dreds of thousands of Syrian refugees, as well as a conduit for en- brate 100 years as a republic, looks as forlorn as ever.
ergy supplies. It has been a buffer to revolutionary Iran, and a But it is in the Middle East, and in particular over the civil
barrier to Russia’s southward ambitions since long before it war in Syria, that responsibility comes most into question. In-
joined NATO in 1952 (and even more so since Vladimir Putin de- stead of being a wise friend and mentor to troubled neighbours,
cided to leap into Syria’s maelstrom). It has been an anchor to the Turkey has been in turn overly naive, overly indulgent and over-
ever-turbulent Middle East, and in some ways also a model to ly stubborn. Above all, it has shown that it does not have much
other Muslim countries of a relatively tolerant, relatively demo- of a grasp of the region’s combustible complexity. “Frankly, I
cratic and economically quite successful government. don’t know what they are trying to achieve,” says an exasperated
Yet the country has all too often failed to show both UN official closely involved with Turkey and Syria.
strength and responsibility at the same time. For decades after That may be partly because of its aloofness. Between the 1

14 The Economist February 6th 2016


been allowed to work, though under new

rules introduced in January they can now
apply for work permits after six months.
Most worrying is Turkey’s role in the
war itself. Having excommunicated the
brutal Assad regime, it has found itself
sucked ever deeper into the Syrian
swamp. Together with Western and Arab
allies it has aided rebel factions. It has
also—sadly to deaf ears in the West—re-
peatedly called for the creation of a zone
to protect civilians inside Syria. But its se-
cretive military aid, say Western observ-
ers, was for too long handed out with little
discrimination, and its volume was never
enough to turn the tide.
Nor did Turkey back up its dip-
A haven for Syrian refugees lomatic pleas with firm offers or action.
Despite being a NATO member, and de-
spite the evident nastiness of Islamic
2 Ottoman defeat in the Middle East in 1918 and Mr Erdogan’s arriv- State, it did not let the American-led coalition fighting IS use its
al in office, Turks had scarcely glanced at the place. As the Arab air bases, or even its air space, until about nine months after air
Spring erupted in 2011, the government chose to view events strikes against IS began in September 2014. Since then its role in
through the prism of Turkey’s own story: the true people, which the coalition has mostly involved bombing not IS but the Kurdish
is to say the pious Sunni Muslim working class, were at last cast- rebels of the PKK.
ing out their Westernised military elites. The AK party warmly The Turkish security establishment’s wings may have been
embraced the region’s newly emerging Islamists and suddenly clipped at home, but its obsessive view of the Kurdish issue as
turned a cold shoulder to the autocrats it had only recently the country’s pre-eminent threat has been allowed to prevail
wooed as customers for Turkish goods. abroad. This has increasingly entangled the country in both Iraq
In Iraq, Turkey voiced support for Sunni parties as protests and now Syria, whose Kurdish minority has carved out an en-
mounted against discrimination by the Shia-majority govern- clave along Turkey’s border. To Turkey’s horror, the West has
ment, only to be blindsided when Islamic State exploited Sunni praised it as the most effective force on the ground against IS.
grievances to carve out a caliphate. In Egypt, say well-informed Perversely, when suicide-bombers ripped apart a peaceful
Turks, Mr Erdogan’s people advised the Muslim Brotherhood anti-government protest by mostly Kurdish groups in Ankara in
during its brief stint in office to replicate such AK party tactics as October, killing over 100 people, AK party spokesmen pointed
flooding the supreme court with their own loyalists. The military fingers at the PKK. Yet it quickly became clear that the perpetra-
junta now in power is furiously hostile to Turkey. tors of Turkey’s worst-ever terrorist atrocity in modern times
In Syria Mr Erdogan, who had only recently spent time on were members of a Turkish IS cell.
the beach with the Assad family at a Turkish resort, lent full sup- Until stricter controls were imposed last year, Turkey al-
port to the uprising against the Syrian dictator. Like many West- lowed virtually unhindered transit to anyone heading to or from
ern intelligence agencies, his own was convinced that the coun- the war in Syria. Within Turkey hundreds of suspected Islamist
try’s 70% Sunni majority would quickly prevail. It seriously radicals were released from police custody after cursory investi-
underestimated the tenacity and viciousness of a minority re- gation. At the same time the government has slapped charges of
gime with its back to the wall. “What were we thinking? We are terrorism on police and journalists exposing the supply of weap-
not a mukhabarat country,” says a critical columnist, using the Ar- ons to Syrian rebel groups by Turkey itself. And until recently Tur-
abic word for secret police. “And here we were marching into a key had suspended security co-operation with France, out of
place with the meanest mukhabarat on the planet, backed by pique over French statements on Armenian genocide.
two mukhabarat superpowers, Iran and Russia.” Since the Ankara bombing, and even more since an IS sui-
cide-bomber killed ten tourists in Istanbul on January 12th, Tur-
Thanks two million key’s government has begun to take the internal threat from IS
To its immense credit, Turkey has offered a haven from the radicals far more seriously. Shocked by Russia’s forceful interven-
fighting to refugees from the Syrian civil war. “In Europe we’ve tion in Syria, Turkey has also begun to reassess its relationship
had no concept of just how generous the Turks have been,” says a with that country. At the end of November Turkish jets shot
diplomat in Ankara. Well over 2m Syrians have sought shelter in down a Russian warplane which they claimed had strayed into
Turkey. Its government has spent perhaps $10 billion building Turkey’s airspace, causing a storm of Russian indignation. De-
spotless camps and providing free schools, health care and food. spite threats of sanctions and a spike in Russian air strikes against
The vast majority of Syrian refugees live outside the camps but Turkish-backed rebels in Syria, Turkey held its ground.
receive the same benefits and are free to move inside Turkey. Further afield, Turkey has quietly eased strains with Israel,
Yet Turkey has been prickly about guarding its sovereignty. edging away from its aggressive reaction to an Israeli attack on a
Foreign agencies say their money is welcome, but their pro- Turkish aid ship destined for Gaza in 2010. Mr Erdogan’s govern-
grammes and supervision are not. The UN has not been allowed ment also appears to be sincere about wanting to get its EU agen-
to register or process refugees, and refugee camps are strictly off- da back on track. Rather than throwing its weight behind Saudi
limits to visitors, including members of Turkey’s own parlia- Arabia, a fellow Sunni power, in its struggle against Shia Iran, Tur-
ment. Although Syrians are grateful for Turkey’s help, few want key has kept doors open to both sides. Perhaps in foreign affairs
to live on handouts. As “guests” of the country, they have not at least, it has begun to balance power with responsibility. 7

The Economist February 6th 2016 15


Looking ahead On the economic front, the

AK party failed to shift strategy Offer to readers

A melancholy mood when leaner times arrived. It

has also grown addicted to kick-
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spirit turns milky white when you add water. It is a surprising dent in Turkey. “Rich people all
For more information on how to order special
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Future special reports
The repressed voice of Turkey’s conservative working class too suddenly and too hard. It got
needed to be heard. The overweening influence of its military mired in Syria and entangled Indonesia February 27th
had to be contained. The entrepreneurial energy of its business- with a Russian bear. When it Technology and politics March 26th
Business in Africa April 9th
men had to be unleashed. And the Kemalists’ obsessive preoccu- needed friends, there were few International banking May 7th
pation with the West, once described by the writer Nuri Pakdil as to be found.
a national “pain in the neck” caused by looking in only one direc- The country’s malaise is Previous special reports and a list of
forthcoming ones can be found online:
tion, needed to be redressed. “The Turkish state used to have two partly cultural. Orhan Pamuk,
phobias, Islam and the Kurds,” says Mr Okumus. “The main Turkey’s best-known writer, has
thing we owe to the AK party is having normalised Islam.” written eloquently on the na-
tional predilection for hüzün, or
Overcorrecting the course melancholy. Even the current triumphalism of Mr Erdogan’s
Alas, under the guidance of Mr Erdogan, Turkey now risks hard-core followers is tinged with wary mistrust.
leaning too far in the opposite direction. By propagating a culture Yet not so long ago Turkey was a far more ebullient place,
of grudge and grievance, Turkey’s president has widened the with a purring economy and plenty of friends. There is a reason
many cleavages of an unusually complex society. By relentlessly for the darkening mood. “People are too quick to use the F-word,
pursuing suspected enemies, he has undermined the rule of law. but honestly I think we can now speak of creeping fascism,” says
And by whipping up ethnic Turkish nationalism, he is dashing Mustafa Akyol, a Turkish writer whose early enthusiasm for the
the hopes of Turkey’s 20m Kurds. AK party has increasingly soured. “We have the cult of a demi-
god, the labelling of dissidents as traitors
and saboteurs, and the mobilisation of
the party base against everyone else.”
The Western consultant agrees. “I am
more worried now than in the 26 years I
have lived here,” he says. “There is much
more latent violence here than many
people realise, the rule of law is breaking
down, and it’s getting scary.”
In early January, police in Izmir raid-
ed a sweatshop where they found Syrian
child labourers making fake life jackets.
Stuffed with packaging rather than flota-
tion material, the cheap copies were more
likely to kill than save anyone. Yet Tur-
key’s prime minister, Ahmet Davutoglu,
jarringly blamed the UN Security Council
for the migrants’ deaths.
Turkeyis a nation of enviable poten-
tial, packed with cultural treasures, natu-
ral beauty, energy and talent. If only Mr
Erdogan and his cohorts could see that
strength comes from diversity, and from
the freedom to express it, that potential
Time to lighten up might be realised. 7

16 The Economist February 6th 2016

The Economist February 6th 2016 43
Middle East and Africa
Also in this section
44 Keeping Jordan safe
45 Who rules Algeria?
45 A president on trial
46 Kenya’s Valentine roses

For daily analysis and debate on the Middle East

and Africa, visit

Jihadists in Libya that was signed in Morocco on December

17th by delegates from the rival parlia-
The next front against Islamic State ments. Lacking broad support, the agree-
ment was premature. Both assemblies in-
sisted that the signatories represented only
themselves. Nevertheless, the UN appoint-
ed a presidential council, which in turn
named a new government under prime
Libya’s civil war has given the “caliphate” fresh opportunities. Western military
minister Fayez Sarraj, a member of the Tri-
intervention will be needed sooner rather than later
poli-based parliament, that is now waiting

F IVE years after Western air power

helped remove Muammar Qaddafi, the
chances of another intervention in Libya
supporters. Operation Dignity is led by
General Khalifa Haftar, who backs a rival
parliament, the internationally recognised
in a hotel in Tunis.
On January 25th the parliament in To-
bruk rejected the proposed government,
are steadily increasing. Islamic State may House of Representatives, which is based while affirming the peace plan, if changes
be retreating in Iraq and under pressure in in the eastern city of Tobruk. were made. The most important demand
Syria, but in Libya it is a growing menace. It has not all been plain sailing for IS. It is for the removal of Article 8 of the agree-
At a meeting in Rome on February 2nd of suffered a setback in mid-2015 when its at- ment, a provision that would give the pres-
the international coalition against Islamic tempt to take over the eastern town of Der- idential council the right to appoint the
State (IS), Libya was high on the agenda. na met resistance from local tribes, re- heads of the armed forces and the security
That followed talks in Paris on January pelled by its brutality, and rival Islamist services. That would threaten the position
22nd in which General Joe Dunford, the militias. But since absorbing the most mil- of General Haftar, who harbours ambi-
chairman of America’s Joint Chiefs of Staff, itant members of a powerful local jihadist tions to be Libya’s next strongman. Sup-
agreed with his French opposite number group, Ansar al-Sharia, it has succeeded in ported by outside powers, including Egypt,
that they were “looking to take decisive establishing an area of control spreading General Haftar still holds much sway in
military action” against IS in Libya. It has out about 100 miles (160 km) on either side the east, where his forces have cracked
since been confirmed that American and of Sirte, Qaddafi’s old coastal stronghold, down on dissent. But he has a growing
British special forces are already on the which sits between Tripoli and Benghazi. number of critics.
ground there in small numbers, making From Sirte, now described as the new
contact with local militias. Raqqa (IS’s capital in Syria), IS is expanding Deal or no deal
Unsurprisingly, the same conditions east and attacking oil installations at Sidra The UN has said that it will not reopen the
that have made Libya such fertile territory and Ras Lanuf. The militia-based Petro- deal. The parliament in Tripoli has not vot-
for IS are also making it hard to plan an in- leum Facilities Guard, although hugely ed, but its prime minister, Khalifa al-
tervention that would have a good chance outnumbering the 5,000 or so IS fighters in Ghawi, has threatened to arrest the new
of success. The spread of IS has been the area (the UN estimates 3,000, which government’s guards if they enter western
helped by a 20-month-long civil war in may be on the low side), appears unable or territory. It does not help that Tripoli is also
which it has been happy to attack both unwilling to prevent IS from doing further the location of the Libyan state’s only func-
sides. In the west it faces Operation Dawn, damage to an industry that has seen out- tioning institutions: the national bank, the
a cobbled-together alliance of Misratan, put fall to less than a quarter of the 1.6m state oil firm and the sovereign wealth
Berber, Islamist, and other militias that barrels a day being pumped in 2011. fund. “The entire plan is looking pretty for-
back the so-called National Salvation Gov- The mounting concerns about IS in Lib- lorn and anaemic,” says Frederic Wehrey
ernment in Tripoli. In the east it faces Oper- ya have spurred diplomatic efforts to end of the Carnegie Endowment for Interna-
ation Dignity, an equally loose-knit co- the civil war through the creation of a gov- tional Peace, a think-tank.
alition of militias and regular military ernment of “national accord”. Hopes were Divisions within the army may ulti-
forces that includes some former regime raised by a peace deal brokered by the UN mately undermine General Haftar in the 1
44 Middle East and Africa The Economist February 6th 2016

200 km gees, not to mention hundreds of thou-

Mediter ranean sands of Iraqis and long-term Palestinian
Tripoli Sea Shahat residents, many of whom are keen to head
Zuwara Derna
TUNISIA Zawiya Beida to Europe.
Zliten Misrata Benghazi Moreover, the Hashemite Kingdom is
Zintan Bani G u l f of Sir te no stranger to the problems that sparked
Walid turmoil in other Arab states. People took to
Brega Ajdabiya the streets in 2011 demanding that the royal
court relinquish some of its powers, calling

Ghadames for corruption to be stamped out and prot-
Marada esting about the dire state of the economy.
Little has improved since then. But Jor-
dan’s King Abdullah has so far managed to

L I B Y A ward off disaster through a combination of

skill and good fortune.
Sebha Abroad, he has managed to keep
friends in a divided region. He has resisted
Ubari Areas of control pressure from Saudi Arabia, his bulky
Government Anti-government Jihadists Oil
neighbour and regular grant-giver, which
Dignity Libya Dawn Islamic State
Ghat Tebu Amazigh Other Refineries
wanted Jordan to let weapons flow across
Tuareg Sources: Thomas van Linge; Petroleum Economist Storage its border to Syria. Instead, he is trying to
create a sort of buffer zone to stop the refu-
gee flow from southern Syria by quietly
2 east. He is already despised in the west, own, Western air strikes can do more than arming some of the rebels there, but not
where he is seen as a scourge of the Islam- contain IS. But Ms Grazzini says putting forcefully enough to incur Bashar al-As-
ists. But for now Libya is no closer to a uni- large foreign forces on the ground would sad’s wrath. He manages to have relations
fied command that could bring together its be “unwise and risky”, and efforts to pick with Iran, Saudi’s nemesis, too.
various combatants and ally with Western militias deemed worthy partners might At home, Jordan has gained from a fear
powers to fight IS. Much of the public dis- just mean strengthening them in their bat- that set in across the region as countries fell
trusts the UN, not least because its former tles against other local groups. Mr Wehrey apart. The criticisms remain, but “now
envoy to Libya, Bernardino León, took a agrees on the need to proceed carefully, but people just want a safe haven in Amman, a
job with an official think-tank in the Un- says that “we can’t wait” for a unity gov- weekend retreat at the Dead Sea and tour-
ited Arab Emirates, which supports Mr ernment to be “pushed over the line”. He is ists to come to Petra,” says a foreign resi-
Haftar, after stepping down last year. But more hopeful that special forces on the dent. To be fair, Jordan is doing more than
they have also grown tired of the fighting. ground can work with local militias, such most countries to meet some of its citizens’
Nearly half the population needs humani- as the Misratans, who have repeatedly demands. For one, its security forces do not
tarian assistance, says the UN. Over1m Lib- asked for military assistance from America shoot at protesters. There is more lip ser-
yans are thought to be suffering from mal- as “co-ordinator, broker and referee”. Air vice than real reform, but a new election
nutrition, and 500,000 have been forced strikes, he believes, can play an enabling law has made some people keener on
from their homes. role and disrupt IS operations. In a situa- polls, which must take place by the end of
Where does this leave the plans for a tion where there are no good options, do- next January, says Jumana Ghneimat, the
Western intervention against IS? In Rome ing nothing may be the worst. 7 editor of Al Ghad, a local paper.
John Kerry, America’s secretary of state, This uneasy peace will not be easy to
suggested that once the unity government keep. The king is warning that his country
is formed outside powers will respond to Jordan is at “boiling point”. Jordan is refusing to
any request for military help, not least be- take any more refugees unless foreign do-
cause they want to defeat IS. That assumes,
however, that the international pressure
At boiling point nors, gathering in London on February 4th,
give more. Angst towards (and despair
on the two parliaments in Tobruk and Tri- among) refugees is growing. Jordanians,
poli is close to yielding a deal that sticks. like the Lebanese and Turkish, have be-
But as Claudia Grazzini of the Internation- come more and more annoyed at the pres-
al Crisis Group says, Article 8 is the “corner- ence of so many Syrians. They are blamed
The country is stable, but it will not be
stone” of the agreement. Tobruk’s opposi- for a host of ills, from a rising rate of child
easy to keep it that way
tion to it, she says, means that all the other marriage (for which there is some evi-
guarantees contained within it, such as
consensual government based on a sepa-
ration of powers, “just crumble”.
I T IS sometimes dubbed “the Hashemite
Kingdom of Boredom”. That may not be
very flattering. But while Jordan will never
dence) to increased crime rates (for which
there is none) and unemployment.
Though Jordan’s Azraq camp is only a
Meanwhile, by targeting oil and petro- be an economic or political powerhouse, third full, some 20,000 Syrians are strand-
leum infrastructure, the jihadists of IS are you can do a lot worse than be boring in ed at the north-eastern border of the coun-
trying to destroy any chance that anyone the Middle East these days. try near Iraq, waiting to cross. Jordan is let-
will be able to put the Libyan state back to- Jordan, after all, shares frontiers with ting in only a few dozen every day. The
gether. The central bank has burned both Syria and Iraq. From its foothold government is in a bind, but could help it-
through much of its foreign reserves pay- there, Islamic State (IS) has ambitions to ex- self. Until very recently it had not allowed
ing salaries and subsidies to both sides, pand the borders of its “caliphate”. Jordan any Syrian refugees to work for fear they
while the Libyan Investment Authority’s itself has bred many a jihadist. Some have would stay for good. Rather than see them
funds remain frozen. If oil production falls climbed to the top ranks of al-Qaeda or in- as a burden, Jordan could look at how they
even further, the humanitarian disaster spired it; 2,000 or so have joined IS; others could contribute to economic growth, says
will only get worse. are biding their time at home. Jordan is al- Andrew Harper, who heads the UN’s refu-
Nobody has any illusions that, on their ready home to roughly 1.3m Syrian refu- gee agency in Amman, Jordan’s capital. 1
The Economist February 6th 2016 Middle East and Africa 45

2 Improving the economy would ease Algeria

Jordanians’ gripes. The regional crises
have, unsurprisingly, deterred tourists and
investors. Only half the number of people
Who is in charge?
visit Petra today as in 2010. The economy
depends on charity from the Gulf rather
than what it produces itself: unemploy-
ment is around 30%. The debt-to-GDP ratio
Rumours swirl around an ailing
reached 91% last year from 67% in 2010. As
prices go up, people are feeling the pinch.
Youngsters, who are a majority of the
country’s people, are almost absent from
politics. The prime minister, Abdullah En-
I T SOUNDS like a missing-person notice:
78-year-old man, wheelchair-bound, not
seen in public for over two years. But this is
sour, is 77. “The politicians come from a a description of Algeria’s president, Abd-
museum,” says Amer Sabailah, a local ana- elaziz Bouteflika, whose ill health, includ-
lyst. “Jordan has taken for granted the peo- ing two strokes in recent years, has led to
ple’s fear of the regional situation to keep rumours of a palace coup. Anyone seen this man?
business as usual.” Mr Bouteflika can hardly speak and is
Muslim Brotherhood types are side- said to communicate by letter with his subsidies, social housing and big pay rises
lined too, despite making up the bulk of ministers, who nevertheless insist that the for state employees. But collapsing oil rev-
the opposition. “Elections are a decora- old man is compos mentis and in charge. enues make this system unsustainable.
tion,” says Nimr al-Assaf, a Brother, who But several close associates of the presi- Protests over rising prices and stagnant in-
says the king has met party members only dent aren’t buying it. Having not seen Mr comes are now common. Unrest in neigh-
once since taking power in 1999. The parlia- Bouteflika for over a year, they have de- bouring Libya and Tunisia, and the spectre
ment is still fairly toothless. manded a meeting with him—so far to no of jihadism, have added to the anxiety.
Jordan’s biggest worry is an attack by IS avail. Missing person is right, they say. Revisions to the constitution, promised
or its sympathisers. But Ms Ghneimat Algerian politics is nothing if not during the Arab spring and handed to par-
thinks the focus on security alone is mis- murky. For decades a cabal of unelected liament only last month, are meant to ap-
guided. She regularly runs articles criticis- power brokers has run the show. Known as pease the public. They would limit presi-
ing the state’s inattention to ideology and le pouvoir (the power), the shadowy clique dents to two terms, reversing a move by Mr
radicalisation. The government has only is composed of members of the economic, Bouteflika who, if alive, is currently serv-
recently started to overhaul religiously in- political and military elite. But with Mr ing his fourth term, and make the Berber
tolerant schoolbooks; too many preachers Bouteflika’s health in decline, there ap- language official. Otherwise, they mostly
in mosques whip up hatred. Even though pears to be a struggle within the group maintain the status quo. There was some
2% of Jordan’s 6.5m people are Christian, over who will succeed him. debate over creating a post of vice-presi-
around Christmas many imams declared The divide has manifested itself in dent to grease the succession process. This
the festival haram (forbidden). “The pro- changes to the security services ostensibly was rejected. By whom is unknown. 7
blem is IS has offered a vision to our young, enacted by Mr Bouteflika since his re-elec-
disenfranchised people,” says Ms Ghnei- tion in 2014. Several top figures have either
mat. “Jordan will not survive unless our been pushed out or arrested, most notably The International Criminal Court
leaders offer the same.” 7 General Muhammad “Toufik” Mediène,
who was sidelined after leading Algeria’s
intelligence service, known as the DRS, for
Africa’s leaders
25 years. With a file on nearly everyone, Mr
Mediène was a political kingmaker (and a
protect each other
brutal foe of Islamist rebels).
In January the DRS was dissolved and
As a former president faces trial, his
replaced by three new directorates under
incumbent colleagues vilify the court
the president. The moves seem aimed at
clearing out independent figures, such as
Mr Mediène, from le pouvoir. More power
now rests with Ahmed Gaid Saleh, the
O N JANUARY 28th the Ivory Coast’s
Laurent Gbagbo became the first for-
mer head of state to go on trial before the
army chief of staff, who is a close ally of Mr International Criminal Court (ICC) at The
Bouteflika, and with the president’s youn- Hague. Three days later the African Union
ger brother, Said, who some say is calling (AU) resolved, among other rude com-
the shots. But experts say Said does not ments about the court, to support Sudan’s
have the support of the army, or the public. President Omar al-Bashir in his determina-
Algerians have grown accustomed to tion to ignore the warrant for his arrest on
mystery. Few knew that Houari Boumé- charges of genocide in Darfur. It also ex-
diène, Algeria’s second president, was pressed “deep concern regarding…the wis-
even ill until he died in 1978. At the time, Mr dom of the continued prosecution” of Afri-
Bouteflika was seen as a potential succes- can leaders including Kenya’s deputy
sor, only to be passed over by the army. president, William Ruto, who faces charges
Two decades later the generals finally of orchestrating violence after an election
tapped him for the job. eight years ago. Kenya’s President Uhuru
But today’s uncertainty comes at a bad Kenyatta, who faced similar charges which
time for Algeria, which largely avoided the the ICC dropped in 2014, is urging African
tumult of the Arab spring. The government members of the ICC to withdraw from it.
Barely coping has been able to buy peace at home with That may not happen soon, if at all, and 1
46 Middle East and Africa The Economist February 6th 2016

Kenya’s flower trade

Leaving on a jet plane

The long journey of those special stems

I F YOU come home to a vase full of roses

on Valentine’s Day in Europe there will
be a good chance they were picked a few
tourism and remittances. After a series of
exposés of poor conditions, most farms
now abide by health-and-safety stan-
days earlier on the shores of Lake Nai- dards and pay for workers’ medical care.
vasha in Kenya. The fertile Rift Valley soil, Wages have fallen in real terms over the
warm days and cool nights make for past decade, thanks to rampant inflation,
perfect flower-growing conditions. but the jobs are still sought after: around
The Netherlands still dominates the 150 men and women recently queued up
global horticulture industry, but Kenya is to apply for 20 posts at Nini, a 44-hectare
digging itself a growing niche. Its cut- farm employing over 500 people.
flower exports increased 12-fold to Flower farms are also managing and
137,000 tonnes between 1988 and 2014 as recycling water better after being accused
buyers realised it was cheaper, and coun- of draining and polluting Lake Naivasha.
ter-intuitively greener, to fly blooms It makes sense for overseas buyers to
thousands of miles than to heat Dutch demand high standards: there’s nothing
greenhouses. More than 30% of the Euro- romantic about environmentally un-
pean Union’s cut-flower imports now friendly roses harvested by miserable
The plague in The Hague come from Kenya. Most are roses. workers.
After being cut from inside the pale,
2 it is unclear how many African countries plastic greenhouses crouched by the
may wish to bunk out of the court’s juris- lakeside, the thorny stems are stripped of
diction: not, presumably, the Ivory Coast, excess leaves and packaged to customers’
whose current president delivered Mr specifications. The bunches are then
Gbagbo to The Hague. But the episode stirs shepherded into 5°C cold rooms by work-
yet more bad blood between the conti- ers in quilted boiler suits before being
nent’s rulers and governments of the rich driven to Nairobi airport, landing at
world, most of which back the court, and Amsterdam’s auction or with in-country
makes it harder to promote the notion that agents around 48 hours after being
no leader who commits atrocities should plucked.
enjoy impunity anywhere. For many farms this is the busiest time
Unlike the elusive Mr Bashir, Mr of year—Britain’s Mother’s Day and
Gbagbo, now 70, was unable to prevent his Women’s Day in Russia come just three
enemies from landing him in the ICC’s weeks after Valentine’s. Maridadi Flow-
dock. Having lost a presidential election in ers in Naivasha, for instance, will sell
2010 after a decade in office, he refused to around 10.5m roses over the period, 15%
step down—and is now accused of egging of its annual harvest. Others opt to keep
on his militias and security forces to com- production steady. Cultivating plants for
mit a string of atrocities in a bloodily vain such a short spurt of demand is “a dan-
effort to stay in power. In April 2011 he was gerous game”, says a farmer: a cold snap
captured, and seven months later sent to could mean flowers take longer to bloom
The Hague, where he has been accused of and miss the bouquet-giving season.
prompting his henchmen to commit mur- The industry is one of Kenya’s biggest
der, rape and other heinous crimes. foreign-exchange earners, alongside tea, Roses are green
The court is vulnerable to the charge of
exercising victors’ justice, because militia-
men who backed the Ivory Coast’s current court’s creation. And though it is true that tigate the court for tackling their peers
president, Alassane Ouattara, against Mr the first nine “situations” (as the court calls sound less protective of smaller African fry
Gbagbo also committed atrocities—but its sets of cases) to be put before the court who fall into the ICC’s net. Niger’s govern-
none of them has been indicted. The have all been African, six were brought to it ment was happy to send a Malian jihadist
court’s doughty chief prosecutor, Fatou by the relevant African governments to The Hague last year. The Democratic Re-
Bensouda, a Gambian, says she will inves- themselves; two were referred to it by the public of Congo has allowed the ICC to
tigate all sides. But Mr Ouattara seems loth UN Security Council; and the cases to do send back a warlord, Germain Katanga, to
to co-operate with her over crimes com- with Kenya were taken to it with the co-op- face further charges at home after serving a
mitted by his friends. eration of Kenya’s then government, after sentence handed down at The Hague. And
In any event, the court must still refute Kofi Annan, a Ghanaian former head of Uganda’s President Yoweri Museveni, a ve-
the more damaging charge of bias against the UN, had mediated an end to the dread- hement critic of the ICC, was no doubt con-
Africa. When it began to operate, in 2002, ful post-election violence and endorsed tent when Dominic Ongwen, a leader of
African leaders were among its keenest the ICC’s involvement. The latest situation the murderous Lord’s Resistance Army
backers, mindful of recent horrors in such to be investigated by the ICC prosecutor that has blighted northern Uganda, stood
places as Rwanda, Congo and South Africa concerns atrocities committed in Georgia before the court in The Hague at the end of
under apartheid. Most African govern- during its war with Russia in 2008. last month. But unlike Mr Gbagbo he
ments signed the statute that led to the Moreover, the African leaders who cas- plainly wasn’t “one of us”. 7
The Economist February 6th 2016 47
Also in this section
48 The migrant rape that wasn’t
48 German Russophiles
49 Putin’s Chechen enforcer
50 Charlemagne: Swords and shields

For daily analysis and debate on Europe, visit

France’s Socialists choose. They want to protect incumbents,

such as taxi drivers; he knows that con-
Beardless youth sumers like Uber. They are suspicious of
wealth (Mr Hollande once said he didn’t
like rich people); he urges young French to
aspire to become billionaires. “We need to
move beyond the conservative left that is
afraid of change,” says Mr Macron.
This line may offend the orthodox left,
Manuel Valls was the iconoclast of the left. Then came Emmanuel Macron
but it appeals to France’s broad middle. Mr

S ELDOM has facial hair become an ob-

ject of such frenzied political debate.
When France’s popular young economy
gan to capture the French imagination. His
predecessor, Arnaud Montebourg, special-
ised in irking foreign investors by declaring
Macron, who is no longer a member of the
Socialist Party and has never been elected,
draws as many, if not more, admirers out-
minister, Emmanuel Macron, returned that France had no need for them. Mr Mac- side his camp. One poll finds that he is the
from his Christmas break sporting a hip ron turned on the charm. At ease in Davos second-most popular politician on the cen-
beard, it set off political chatter. Was it an or Silicon Valley, and a champion of French tre-right, ahead of Nicolas Sarkozy, leader
attention-grabbing gimmick? A visual high-tech start-ups, he can claim a fair of Les Républicains, the centre-right oppo-
symbol of the outspoken minister’s de- share of the credit for France’s improved sition party (see chart).
fiance? An appeal to the metrosexual high- image among foreign investors. In contrast to the grey heads who popu-
tech crowd? Mr Macron, feigning surprise The great mystery, however, is not that late parliament, Mr Macron also under-
at the fuss, insisted that he had just wanted Mr Macron appeals abroad. It is that he has stands his generation: those who use Uber,
a break from shaving, and soon after won over the French. Many of Mr Mac- hold business meetings on Skype in co-
dropped the beard. But the impact lasted: ron’s ideas rub against everything that the working cafés, and shun hotels in favour
at a time of disillusion with most politi- French left and its union friends have tradi- of Airbnb. “He is in sync with society, not
cians, there is one dynamic nonconformist tionally stood for. They defend the 35-hour political parties,” says one French tech
leader whom the French find fascinating. working week; he urges flexibility for firms boss. Mr Macron’s can-do political energy
The 38-year-old Mr Macron has become to negotiate longer hours. They consider stands out in morose France, home to 10%
the most popular politician on the left, and Sunday trading an assault on workers’ unemployment and growth last year of
the second-most popular of any stripe. Yet right to rest; he wants employees to just 1.1%. Since the double terrorist attacks
18 months ago he was unknown outside of 2015, Mr Hollande now wears a calcified
the corridors of government. A one-time frown. Manuel Valls, the prime minister,
investment banker and product of the elite Enfants terribles declares that “history is fundamentally
civil-service college, the Ecole Nationale Positive opinions of French politicians tragic.” Mr Macron smiles, a lot.
d’Administration, Mr Macron became eco- January 2016, % polled This insolent popularity is not to every-
nomic adviser to François Hollande after 0 10 20 30 40 50 60 body’s liking, especially within govern-
the Socialist’s election as president in 2012. Alain Juppé ment. “He oversteps the mark, because he
His efforts to coax the president away from lacks a political sense,” says one source.
Emmanuel Macron
his dafter ideas did not always succeed. Mr Most awkwardly, Mr Macron’s rebellious-
Macron once called Mr Hollande’s prom- Manuel Valls ness is showing up Mr Valls, who before
ised 75% top income-tax rate “Cuba with- Marine Le Pen becoming prime minister in 2014 was him-
out the sun!”; it was implemented, for two François Hollande self an insubordinate Socialist moderate.
years, all the same. Nicolas Sarkozy Like Mr Macron, Mr Valls has used his pop-
It was only after being propelled into ularity to legitimise charges against Social-
Source: Odoxa
government, in 2014, that Mr Macron be- ist orthodoxy, calling the party “backward- 1
48 Europe The Economist February 6th 2016

German youth

Girl, not abducted

An adolescent’s fib blows up into an international incident

L ISA F. is a 13-year-old Russian-German

girl who lives in Berlin. On January
11th she disappeared for about 30 hours.
people in Russia and Germany are eager
to believe such a message. Among them
are many “Russian-Germans”: ethnic
When she resurfaced, she claimed to Germans who lived for centuries in
have been abducted and raped by a Russia but in recent decades have moved
group of migrants. Russian media back to Germany, where they number
pounced on the story, whipping their about 2m. Many watch Russian televi-
audiences into a frenzy. Even the Kremlin sion. Thousands of them took to German
got in on it. On January 26th Sergei Lav- streets to protest for Lisa. They were
rov, Russia’s foreign minister, accused joined by German nationalists and some
Germany of hushing up the case in order supporters of the NPD, a neo-Nazi party
“to paint over reality with political cor- eager to spread any negative rumour
rectness”. The charge was that Germany, about refugees.
a victim of Western decadence and the Berlin’s police, ever conscientious
naive refugee policy of its chancellor, about upholding the law and exercising
could not or would not protect “our Lisa”. discretion, kept their initial statements German Russophiles
In the current political climate, many matter-of-fact. They had no evidence of
any abduction, but were investigating the
possibility that Lisa had engaged in con-
sensual sex earlier on (which might con-
stitute statutory rape). Of two suspects,
neither was a migrant.
Undaunted, the Russian media con-
Nostalgia for “Ostpolitik” is fouling up
tinued to peddle conspiracy theories.
German diplomacy
Germans gradually became outraged by
their failure to respect due process. Even
Germany’s foreign minister, Frank-Walter
Steinmeier, who usually displays an
T HIS week Horst Seehofer, the premier
of Bavaria and an unruly ally of Chan-
cellor Angela Merkel, ruffled German dip-
embarrassing eagerness to accommodate lomatic feathers by visiting Vladimir Putin,
Russian vanity, called Moscow’s state- Russia’s president. Mr Seehofer’s trip car-
ments “political propaganda”. Mr Lavrov ried no official weight. But hugging a
replied that he interpreted that as an leader whom Mrs Merkel treats warily fur-
admission of guilt. ther confused Germany’s muddled “east-
On January 29th the police explained ern policy”, or Ostpolitik.
what had actually taken place. Lisa F. The term dates back to the rapproche-
spent the night of January 11th with her ment with the communist bloc begun in
19-year-old boyfriend. She had had pro- 1969 by Willy Brandt, West Germany’s first
blems at school, the prosecutor’s office Social Democratic chancellor. It set in mo-
says, and didn’t dare to go home. Crises tion the normalisation of relations with
The wisdom of crowds of trust wherever one looks. East Germany and other Warsaw Pact na-
tions, as well as easing tensions with the
Soviet Union. Today Social Democrats still
2 looking” and “haunted by a Marxist super- council. credit Ostpolitik for the eventual fall of the
ego”. As prime minister, Mr Valls has made The Macron phenomenon suggests Berlin Wall. After German reunification,
economic policy more business-friendly, something more important too: that there which required Soviet blessing, the concil-
forcing a deregulation bill drafted by Mr may be a far broader centre ground in iatory spirit spread to the centre-right
Macron through parliament last year France than is usually visible under its po- Christian Democrats, led today by Mrs
(against Socialist rebels). Yet high office has larising two-round presidential system. Merkel. It has also spawned the notion of
tempered his iconoclasm. Last year, for example, Socialist deputies Russlandversteher (“Russia-understan-
For now, it is more useful for Mr Hol- resisted the government’s deregulation ders”), Germans who mix sympathy for
lande, whose post-terrorism poll bounce bill. Yet 54% of the public now want re- Russia with antipathy for America.
has vanished, to have the popular duo in- forms to accelerate, and one poll says 69% The chancellor suspended her belief in
side government. But with presidential want to loosen the 35-hour working week Ostpolitik’s underlying principle of
elections coming up next year, it also suits rules. Hard-line unions are still blocking “change through rapprochement” after Mr
him to maintain some tension between Sunday opening for some shops. Yet many Putin seized Crimea and sent Russian
them. Mr Hollande is France’s least popu- employees, promised generous overtime troops to back separatists in Ukraine. She
lar modern president, but still hopes to run pay on Sundays, are in favour. Mr Valls and has orchestrated a firm European response
for re-election. Managing his would-be ri- Mr Macron have helped nudge French that combines tough economic sanctions
vals will feed into the calculation for an up- public opinion towards the centre. The with dialogue to avoid further escalation.
coming government reshuffle, when Lau- question is how, politically, to harness the But a ten-minute taxi ride away from
rent Fabius, the foreign minister, is energy of this quiet but emerging French Mrs Merkel’s office, in Germany’s foreign
expected to move to the constitutional consensus. 7 ministry, the old Ostpolitik lives on. Frank- 1
The Economist February 6th 2016 Europe 49

2 Walter Steinmeier, the foreign minister, is a mercy of powerful (and historically un- Nemtsov was assassinated near Red
Social Democrat. He was also chief of staff friendly) neighbours. The European Com- Square in February 2015 by Zaur Dadaev,
for Gerhard Schröder, the Social Demo- mission sees it similarly. In 2014 it blocked the former deputy head of a battalion con-
crats’ last chancellor. After losing to Mrs another pipeline project, under which Rus- trolled by Mr Kadyrov. The investigation
Merkel in 2005 Mr Schröder, a friend of Mr sian gas was to run through the Black Sea sheds little light on who ordered the kill-
Putin, became chairman of the board of and central Europe. America, worried that ing, or why. The investigator ignored re-
Nord Stream, a German-Russian pipeline Nord Stream 2 would deprive Ukraine of quests from Nemtsov’s lawyers to ques-
that carries Russian gas under the Baltic transit fees, is also opposed. tion Mr Kadyrov or his entourage. The
Sea to Germany. Today Mr Steinmeier reli- So are many Germans. Norbert Rött- Chechen leader defends Mr Dadaev as a
ably plays dove to Mrs Merkel’s hawk. gen, a Christian Democrat who leads par- Russian patriot.
Social Democratic fingerprints are all liament’s foreign-policy committee, finds Rank-and-file security officers resent
over plans for a second Baltic pipeline, the government’s line that Nord Stream 2 is Mr Kadyrov, seeing him as one of the rebels
Nord Stream 2, which is to be built even a commercial, not a geopolitical, matter they fought during the first Chechen war.
though the existing one is operating at only “indefensible”. No doubt this formulation But Mr Kadyrov enjoys protection from Mr
half capacity. A deal between Russia and has been forced on Mrs Merkel to keep the Putin, who responded to his protégé’s lat-
Germany was announced in Moscow last peace with her Social Democratic coalition est provocations by calling him an effective
autumn by Sigmar Gabriel, the economics partners. But Mr Röttgen says that Ger- worker. The Kremlin awarded Mr Kadyrov
minister and the Social Democrats’ boss. many’s interests—be it energy indepen- a medal the day after Nemtsov’s murder,
Nord Stream 2 has few friends outside dence from Russia or solidarity with the and he continues to receive ample funding
Russia and the Social Democrats. Poland, EU—would be better served by opposing from Moscow. Last year, while overall bud-
Slovakia and the Baltic countries are Nord Stream 2. Germany’s relations with get transfers to Russia’s regions declined by
aghast at what they see as a sinister pact to Poland and Hungary are already troubled 3%, funding for Chechnya rose by 8%. Mr
boost German business at the expense of by nationalist governments there. By cling- Putin has ordered his cabinet to transfer
their energy security. Russia could junk its ing to an Ostpolitik focused on Russia, the ownership of a large oil and gas company
pipelines that run through Poland and Uk- Social Democrats are rendering relations in Chechnya from federal control to that of
raine, leaving them gas-strapped and at the with the wider east increasingly fraught. 7 Mr Kadyrov’s government.
Ever since the Soviet collapse, Chech-
nya has divided Russian society. Ironically,
Russia and Chechnya in the early 1990s when Mr Kadyrov was
fighting against Moscow, Russian liberals—
Putin’s Chechen enforcer including Nemtsov—campaigned against
Russia’s Chechen war. Nemtsov collected
a million signatures in support of stopping
it. Conversely, the rabid nationalists who
once cheered Russia’s brutal campaign
against the Chechens now see Mr Kadyrov
as their hero in a battle against liberals and
The alarming world of Ramzan Kadyrov

R AMZAN KADYROV has few inhibi-

tions. Last week, just before the first an-
niversary of the murder of Boris Nemtsov,
able. Konstantin Senchenko, an indepen-
dent politician from Krasnoyarsk, called
Mr Kadyrov “a disgrace to Russia” on his
Mr Kadyrov has turned Chechnya into
a caricature of Russian authoritarianism,
with his own personality cult and system
a liberal Russian opposition leader, by a Facebook page. The next day, after threat- of extortion, torture and killings to keep
member of Mr Kadyrov’s security services, ening calls from Chechnya, Mr Senchenko the population in line. As Alexander Bau-
the Chechen strongman posted a video on was forced to apologise profusely. nov of the Moscow Carnegie Centre ar-
his Instagram page. It depicted Mikhail Ka- Kirill Rogov, a Russian political analyst, gues, Mr Kadyrov appeals to Russians who
syanov, a former prime minister, in the says Mr Kadyrov’s threats epitomise a consider the current regime too soft. They
crosshairs of a sniper rifle. “Kasyanov is in transformation of Russia’s regime in the see in Chechnya a model for Russia’s fu-
Strasbourg to get money for the opposi- face of a shrinking economy. “This is a new ture. Mr Kadyrov’s impunity brings that
tion,” Mr Kadyrov commented under the type of repression. In the past the regime one step closer. 7
video, in a clear warning to opposition pol- dealt with its opponents by charging them
iticians. “Whoever still doesn’t get it, will.” with economic crimes. Now the stakes
Mr Kadyrov has been ratcheting up the have been raised,” he says.
invective for a while. Last month he called Russian repression is unlike that of the
liberals “vile jackals” who should be Soviet regime, which had a monopoly on
treated as “enemies of the people”. In an violence. Mr Putin outsources his terror to
article in the pro-Kremlin newspaper Izves- thugs like Mr Kadyrov, who ensures that
tia, Mr Kadyrov offered psychiatric treat- Mr Putin routinely draws over 99% of the
ment to opponents of President Vladimir vote in elections in Chechnya. In Decem-
Putin. He also staged a large rally in Grozny, ber 2014 Mr Kadyrov paraded some 20,000
Chechnya’s capital, lest anyone doubt his of his own well-armed troops through
popular support. Grozny, Chechnya’s capital. “Kadyrov can
For many Russians, and not only oppo- do the dirty work for [the Kremlin] and say
sition figures, Mr Kadyrov’s latest antics things which they cannot yet afford to ut-
went too far. Ella Panfilova, a human-rights ter,” says Ekaterina Sokiryanskaya of the
ombudsman in the Kremlin, said his state- International Crisis Group, a think-tank.
ments should be examined for signs of “ex- Mr Kadyrov’s threats arrived just as the
tremism”. The Levada Centre, an indepen- Russian government completed its investi-
dent pollster, found 60% of Russians gation into Nemtsov’s murder. Once
thought Mr Kadyrov’s threats unaccept- groomed for the job of Russia’s president, 99% of voters can’t be wrong
50 Europe The Economist February 6th 2016

Charlemagne Swords and shields

America and the European Union have reached a deal on data protection
foreign and domestic personal data on the same footing as far as
bulk collection is concerned.
Moreover, European countries’ spy agencies benefit hugely
from intelligence-sharing with America about terrorism, organ-
ised crime and the activities of countries such as Russia and Chi-
na. That politicians fail to acknowledge this to their own voters
smacks of timidity and ingratitude. There may be disguised pro-
tectionism involved too: European privacy worries mask a de-
gree of envy of America’s digital dominance. Europe has signally
failed to develop rivals to Amazon, Apple, Facebook or Google.
Against that difficult background, this week’s outline deal on a
new agreement to replace Safe Harbour looked like something of
a triumph. Under heavy pressure from internet and technology
companies on both sides of the Atlantic, and with the prospect of
a transatlantic trade war on data looming, both sides have
moved. In the new “Privacy Shield”, America has offered to insti-
tute safeguards and limits on its surveillance programmes. Euro-
peans will be able to complain individually or at an institutional
level about breaches, including to a new ombudsman in the State
Department. The new deal will be reviewed annually.
Many obstacles lie ahead. Europe’s national data-protection

N AIVETY and paranoia markthe European Union’s attitude to

espionage. The EU does not have a spy agency, nor does it
have access to the intelligence collected by its members and their
agencies welcomed the deal but said they wanted more de-
tails—to be provided by the end of the month. If any one of these
regulators is unhappy, it can ban its country’s companies from
allies. That has advantages: EU decision-makers need not worry sending data to America. That would prompt another long legal
about keeping secrets (because they do not know any); nor must battle, probably ending in the ECJ.
they grapple with the legal and political practicalities of intelli- Even if the bureaucrats give grudging approval, privacy cam-
gence oversight—such as what access spooks have to private data. paigners find the Privacy Shield farcical. Given that intelligence
The downside is that they do not see the benefits of espionage, agencies operate in secret, how will anyone know—unless anoth-
and have a lurid fear (mixed perhaps with envy) of what spy ser- er Snowden blows the whistle—that their data are being snooped
vices, particularly American ones, get up to. on unlawfully? The next administration may change the rules.
Yet it is the European Parliament which votes on data-protec- And in any case, why should anyone believe what American
tion rules, the European Commission which negotiates agree- spymasters say? A legal challenge to the new deal looms. But
ments with other countries, and the judges of the European once the Commission has issued a beefed-up “adequacy deci-
Court of Justice (ECJ) who have the final say on whether those sion”, it will be harder for the ECJ to strike it down. In the mean-
deals meet the right standards. And in October 2015 the ECJ, on time, the transatlantic data economy can keep humming.
the advice of the Commission and to the applause of many par-
liamentarians, upended the “Safe Harbour” agreement which for Control all, delete
the past 15 years had allowed foreign companies to store Euro- For all its real and imagined flaws, the new deal shows that trans-
peans’ personal data on American computers. atlantic negotiations still work. It gives hope for the ailing Trans-
The arrangement had been extremely useful, both for the atlantic Trade and Investment Partnership (TTIP), a counterpart
giants of the internet economy, which could market their services to the Trans-Pacific Partnership which America and 11 Pacific-rim
seamlessly on both sides of the Atlantic, and for much smaller countries signed on February 4th. It also shows a realistic grasp
businesses—for example those which outsource payroll and oth- on both sides of the importance of transatlantic ties. European
er services to American contractors. But it rested on the idea that neuroses madden America just as American swagger intimidates
America protected privacy to European standards. After the reve- and annoys Europeans. But each side needs the other. Europe is
lations of Edward Snowden, an American intelligence contractor America’s biggest trade partner. America is the keystone of Euro-
who has fled to Moscow, many found that hard to believe: “mass pean security. (That was highlighted this week by America’s an-
surveillance”—to use the Orwellian term favoured by Mr Snow- nouncement that it will quadruple defence spending on deter-
den’s supporters—of all data held in America seemed a funda- ring Russia in NATO’s eastern frontline states.)
mental breach of Europeans’ right to privacy. Perhaps even more important, the Privacy Shield may stop the
From an American point of view, that looked like self-indul- slide towards the fragmentation of cyberspace along national
gent posturing. The Snowden material was grossly misinterpret- lines. Since its inception, the internet has struggled to stay a bor-
ed. All foreign-intelligence outfits spy on foreigners: the clue is in derless space for ideas and commerce. Countries such as China
the name. “Bulk collection” (to use the spooks’ preferred term) is a have established what they see as sovereignty over their comput-
necessary part of modern intelligence work: all spy agencies that ers and networks, protecting themselves from threats such as “in-
can collect and sieve information from the internet will do so. But formation weapons” (also known as “news”). Others are itching
America’s spies operate under a level of legislative and judicial to follow. If America and the EU, with their shared history, inter-
oversight that no European country can match. Indeed, since a ests and values, could not reach agreement over safeguarding
presidential directive in January 2014, America, uniquely, puts their citizens’ data, there would be little hope for anyone else. 7
The Economist February 6th 2016 51
Also in this section
52 The wealthy, unequal elderly
54 Bagehot: London’s next mayor

For daily analysis and debate on Britain, visit

Britain and the EU take). The European Commission has

played along, agreeing that Britain’s migra-
Slings and arrows tion situation constitutes an “emergency”,
though it is no such thing.
Together with Mr Tusk, the prime min-
ister must now convince the other 27 EU
countries to approve the deal at a summit
in Brussels on February 18th-19th, before
The renegotiation of Britain’s EU membership is mainly theatre, but it may be
persuading Britons to vote to stay in the un-
enough for David Cameron’s domestic audience
ion, in a referendum now likely to be held

“T O BE, or not to be together, that is the

question,” tweeted the president of
the European Council, Donald Tusk, on
tion from the EU, which currently stands at
around 180,000 a year and is many voters’
main reason for wanting to leave.
in late June. Mr Cameron’s chances of vic-
tory improve the sooner he holds it. He
does not want another terror attack or
February 2nd as he published a draft plan Second, a “red card” mechanism would more refugee chaos to turn the referendum
offering Britain new terms of membership allow national governments to block some into a vote on immigration.
of the European Union. David Cameron, EU legislation if 15 or more joined forces. His job will be easier if he can win the
who had hammered out the bargain with Eurosceptic Tories had wanted a straight backing of his cabinet. Theresa May, his Eu-
Mr Tusk, was clearly feeling less lyrical. veto for Britain, a deliberately implausible rosceptic home secretary and one of sever-
Rather than face questions in the House of demand. In practice, the red card is a red al would-be successors, indicated her sup-
Commons, the prime minister jumped on herring: it is hard to imagine circumstances port for the In camp following the deal.
a train to visit a German-owned factory in in which 15 countries could be rallied Boris Johnson, London’s mayor and her ri-
Wiltshire, while his Europe minister took against a plan that had not already been val, harrumphed that the prime minister
the parliamentary brickbats. Newspaper voted down. was “making the best of a bad job” and
headlines the following day were hardly Britain and other non-euro countries was promptly promised a juicy cabinet
poetic. “Who do EU think you are kidding, will be allowed to slow some European post. Mr Cameron is also expected to pass
Mr Cameron?” demanded the Sun. legislation, as a safeguard against their a law to state the primacy of Britain’s Par-
Liam Fox, a Eurosceptic former defence steamrollering by single-currency mem- liament over European institutions. These
minister, said none of the changes in Mr bers. Finally, Mr Cameron secured a com- concessions will not stop a few mainly ju-
Tusk’s plan “even come close to the funda- mitment to limit the legal force of the nior cabinet members joining the Outs.
mental changes promised to the public”. phrase “ever closer union”, a goal en- But the campaign to leave the EU is di-
Mr Cameron, however, claimed that he shrined in EU treaties which many Britons vided, and in danger of being hijacked by
had got the concessions he promised in do not share. Under the new plan, Britain the right-populist UK Independence Party,
2013 when he sought to close down Brit- would be recognised as “not committed to which most voters consider faintly loony.
ain’s never-ending debate about EU mem- further political integration”. Again, this The economy is improving (hence all the
bership by offering an in/out referendum. was in effect already assured by earlier dec- immigration). Polls suggest Mr Cameron is
The proposed deal has four main fea- larations to the same effect. narrowly on course to win.
tures. Most prized by Mr Cameron is an The changes are insubstantial, but the Poles could prove more troublesome.
“emergency brake” that would allow Brit- negotiation’s importance is symbolic. Mr Though they fear Brexit, eastern European
ain (with other EU governments’ permis- Cameron, who has said he would vote to governments do not want a precedent of
sion) to restrict EU migrants’ in-work bene- leave an unreformed EU, needed to secure their people being treated as second-class
fits, such as wage-boosting tax credits and concessions of some sort to justify cam- citizens in western Europe. Mr Cameron
housing benefit, for their first four years in paigning to stay in; the deal also aimed to booked a ticket to Warsaw on February 5th
the country. Mr Cameron insisted this show swing-voters that he could influence for a diplomatic push. Now he must avoid
would “make a difference” to net immigra- Brussels (though some may share the Sun’s a renegotiation of his renegotiation. 7
52 Britain The Economist February 6th 2016

The elderly from those of others. The modern labour

market favours workers with brains, not
Shades of grey brawn. Across the world pay has risen for
the highly educated, who continue to reap
rich rewards into old age. Today’s educated
elderly are more productive than their pre-
decessors. The skills that complement
computers, like creativity and manage-
Pensioners’ incomes are now higher than those of working households. But some
ment, do not necessarily decline with age.
are doing much better than others
This is particularly evident in Britain,

B RITAIN has a long and undistinguished

history of treating its elderly badly. In
the 1960s about 40% of pensioners were
which relies on the service sector more
heavily than almost any other country.
With plenty of jobs in finance, the media
living in poverty, compared with less than and the like, 27% of 65- to 69-year-olds with
10% of working-age folk. In an influential degrees are employed, compared with 14%
study published in 1979 Peter Townsend, a of those in that age group with only sec-
sociologist, argued that pensioners were ondary-school education or below. In-
systematically ignored by politicians and deed, retirees are now putting in longer
the public, with “barbarous effects” on hours than many youngsters: in Britain
their standard of living. someone over the state-pension age but
These days, the elderly are living it up. under 70 who has a degree is now more
In 2000-14 spending by the over-75s on din- likely to be in the labour force than a 16- to
ing in restaurants rose twice as fast as simi- 24-year-old with no qualifications.
lar spending by the under-30s; on cinema With the growth of the post-retirement
and theatre tickets, it rose five times as fast. labour market, oldsters’ incomes have di-
Over-65s currently account for less than verged. Between 1984 and 2014 the gap in
one-fifth of overall consumer spending; disposable income between the richest
this will rise to one-quarter within two de- and poorest retired households grew by
cades, says Vicky Redwood of Capital Eco- one-third, a similar increase to that seen in
nomics, a consultancy. Businesspeople working households. Pensioners in the top
smell opportunities. A complex billed as income quintile have seen their earnings
London’s first luxury retirement commu- from salaries and self-employment rise in
nity will open in the spring, with a swim- real terms by 60% in the past 30 years. The
ming pool and views over Battersea park strong performance of private pensions
from penthouses that are on the market for has topped up these earnings.
up to £3m ($4.3m). Into extra time The brainy will continue to benefit.
At first glance it is difficult to see how Businesses’ complaints about finding la-
Britain’s 12m pensioners can afford all this ticularly expensive—by one estimate only bour are growing, according to surveys by
high living. The country’s replacement Monaco is pricier—owning a home the Bank of England, especially when it
rate—what public pensions pay compared amounts to a big implicit income boost. comes to skilled workers. Demand for the
with pre-retirement earnings—is near the Over-65s own 60% of the houses in Britain educated—of whatever age—will keep ris-
bottom of a 34-country ranking calculated whose mortgage has been paid off. ing. And so inequality will widen. The IFS
by the OECD, a rich-country club. The basic After subtracting housing costs, pen- forecasts that in 2010-22 the income gap be-
state pension is just £116 a week, compared sioners’ incomes surpassed those of the tween a pensioner in the 90th percentile
with the median full-time salary of £530. non-retired in 2011, finds the Institute for and the median one will double.
Relative to what those of working age earn, Fiscal Studies (IFS), a think-tank (see chart). Inequality between older pensioners
it was on a sharp downward trend in 1980- Poverty among pensioners is now below and new retirees may also be rising. Ian
2009 (though it is now rising). that of working-age people without chil- Tonks of the University of Bath reckons
State pensions may look measly but dren (and far below those with them). that, with low equity returns in recent
oldies have other sources of income. In the The rise of swanky retirement homes years (and, with the current market tur-
past 30 years other welfare benefits, such hints at another trend: that the wealthiest moil, no sign of that improving soon), peo-
as those related to housing and disability, pensioners’ incomes are soaring away ple retiring today will have more meagre
have increased by 14% in real terms for the pensions than those who hung up their
average retired household, against 7% for boots at the turn of the millennium. The
the non-retired. Private pensions have also Slow and steady number of private-sector “defined benefit”
done well, since for much of the 20th cen- Pensioners’ income as % of non-pensioners’ pension schemes—in which the worker re-
tury stockmarket returns were high. For a Britain ceives a juicy payout based on his earn-
retiree in the top income quintile, a private 110 ings—that are open to new members has
After housing costs
pension now pays out 2.5 times as much as 100 fallen by 90% in the past two decades.
one from the state, up from less than 1.5 Wages are still below their pre-crisis peak;
times in the early 1980s. After accounting as workers struggle to save, pension pots
for private pensions, Britain sits at the 80 will not grow much.
OECD average for incomes in retirement. 70 Small wonder then that nearly half of
Yet even this underestimates the pros- 60
working-age Britons doubt they will save
perity of the elderly. When measuring in- Before housing costs enough money for a “comfortable” retire-
comes, economists often subtract the cost ment; three-quarters believe they will be
of rent or mortgage payments, to give a bet- worse off than their parents. Today’s pen-
1961 70 80 90 2000 13
ter idea of the person’s disposable re- sioners are living in a golden age, but the
Source: IFS
sources. In a country where housing is par- spending spree may not last for long. 7
Call for entries for
SOPA 2016 Awards
for Editorial Excellence 2016 WARDS

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54 Britain The Economist February 6th 2016

Bagehot Sadiq Khan’s road to power

A cosmopolitan Muslim is set to become London’s next mayor

gave me and my family the chance to fulfil our potential,” argues
Mr Khan convincingly. Firmly pro-European, comfortable with
immigration and a model of liberal Islam (he backed gay mar-
riage and fought to keep a local pub open), he encapsulates the
city’s contradictions: internationalist and parochial, swaggering
and insecure, original and clichéd, socialist and capitalist.
Would he make a good mayor? His programme, which he
launched on February 2nd, is mixed. He has promising plans to
improve Londoners’ skills and to accelerate the construction of
Crossrail 2, a new subterranean railway that will run from Lon-
don’s south-west to its north-east. Most excitingly, he wants to ex-
pand the debilitatingly meagre scope of the city’s mayoralty,
pledging to lobby for new tax-raising abilities and local health
powers to rival those which Manchester will acquire, ahead of
the capital, in April.
On the other hand, his “pro-business” programme seems to
be more about what firms can do for the mayor (building infra-
structure and houses, raising wages, advising on policies) than
what the mayor can do for firms (beyond vague talk of the “jobs
of tomorrow” and “engines of growth”). Meanwhile his housing
policy—introducing rent controls, bolstering tenants’ protections

A SK Sadiq Khan for a case study and he gives you seven. Having
casually inquired of London’s would-be mayor whether he
draws on any particular international example, Bagehot was
and mandating a larger proportion of “affordable” homes while
refusing to countenance building on the often ugly and mostly
pointless green belt—does not match the scale of the task (40% of
bombarded with the municipal merits of Detroit, New York, Chi- Londoners experience damp and the average house price could
cago, Houston, Paris, Berlin and Los Angeles (“The previous reach £1m, or $1.5m, in 2030). His stance on airport expansion is
mayor wanted to green LA and expand the port, but Barack similarly disappointing: London’s probable next mayor opposes
Obama couldn’t get it through Congress or the he new runways at Heathrow, its only hub airport.
jumped in a plane and went to China to get the funding.”). For
such is Mr Khan: frenetic, keen to show that he is on top of his London’s turning
brief and—every bit the politician—even keener to say what he The good news is that Mr Khan will probably abandon these
thinks his interlocutor wants to hear. commitments if he wins office. When pushed, he struggles to jus-
His selection last September as Labour’s candidate for the tify his views on either Heathrow or the green belt. Mr Goldsmith
mayoralty and his subsequent success in the opinion polls have may have had a point when he called his rival’s stance on the for-
defied expectations. Tessa Jowell, a doyenne of the party’s liberal mer “as authentic as Donald Trump’s hair”. That need not be a
right (and a member of The Economist Group’s board) had ap- bad thing: if this, as is often asserted, is the age of mayors, it is thus
peared better equipped to win over the centrist suburbs of Brit- also the age of pragmatism and ideological flexibility. Youthfully
ain’s left-wing capital in its election on May 5th, but fell short. Mr energetic despite his grey streaks, punchily ambitious (he boxes
Khan’s campaign has since proven too thin-skinned; howling to keep fit) and hyperactive, Mr Khan—who even talks too fast,
that (admittedly unfair) Conservative accusations that he is a slamming one word into another—may just be the real deal. “I
“radical” and a “lab rat” for Labour’s leadership were respectively have heard him speak a number of times and he gets better and
anti-Islam and anti-London. His bid has been weakened by Je- better,” says a senior Labourite close to Ms Jowell.
remy Corbyn, the party’s hard-left leader who in his victory The best argument for him is that, by all accounts, he is a good
speech last September—horror flitting across Mr Khan’s face—pro- and likeable manager, aware ofhis weaknesses and (as his mono-
claimed: “Sadiq, we’re going to be campaigning together.” logue about London’s rival cities suggests) open to external ideas.
Nonetheless, it seems the MP for Tooting is comfortably ahead Unlike Boris Johnson and Ken Livingstone, London’s previous
of Zac Goldsmith, his thoughtful but posh Tory rival—by 45% to mayors, he is a team player. Unlike Ed Miliband, the former La-
35%, according to a recent poll by YouGov. It helps that the hard- bour leader whose campaign to run the party he led in 2010, he
left Mr Corbyn is driving moderate Labour activists towards Mr can take criticism. “If there’s a good idea I’ll replicate it; I’m not
Khan, even though he is on the party’s soft-left. And Labour’s can- precious if it’s a Labour idea, a British idea, or not,” he insists.
didate has worked hard to distance himself from his leader, There is one caveat. If—as seems likely—Mr Khan wins on May 5th
pledging to be London’s most pro-business mayor ever and de- he will need to build a team that can anchor his mayoralty and
crying Mr Corbyn’s policies on tax and finance. give it public-policy ballast. Andrew Adonis, the Labour peer ob-
Mr Khan’s main strength is that he exemplifies the city he sessed with detail and currently leading the government’s infra-
wants to run. His parents moved there from Karachi, in Pakistan. structure commission, would be an excellent choice of policy
The son of a bus driver, he grew up in a council flat in south Lon- chief. With someone like that on board, Mr Khan could prove a
don and lived out of a bunk-bed there until he was 24. He trained fine mayor indeed. 7
as a lawyer and subsequently ended up in Gordon Brown’s cabi- ................................................................................................
net (by contrast, Mr Goldsmith was gifted the editorship of the Read a transcript of Bagehot’s interview with Sadiq Khan:
Ecologist, an environmental magazine, by his uncle). “London
The Economist February 6th 2016 55
Also in this section
56 Night shifts are bad for you

Call centres an export industry and cut their taxes. And

firms wanted to diversify beyond India. A
The end of the line fourth reason, which Filipino businessfolk
discuss rather delicately, is their customers’
prejudice. Americans, in particular, simply
prefer talking to Filipinos than to Indians.
Filipinos often describe their accents as
“neutral” or deny that they have one. This
Call centres have created millions of good jobs in the emerging world. Technology
is mostly the charming human delusion
threatens to take those jobs away again
that everybody except oneself talks funny;

W HETHER in Nairobi or Albuquerque,

a shopping centre is not really a shop-
ping centre unless it has at least two anchor
fined industry now employs some 1.2m
people and accounts for about 8% of the
Philippines’ GDP. The country is especially
yet there is something to it, says David
Rizzo of Teleperformance. When Ameri-
can callers hear Indian accents, they know
tenants. These can be department stores, strong in call centres: it has already overtak- they are talking to a call centre in India. But
cinemas or bookshops—anything that will en India, even though India has about 12 they cannot quite place the Filipino accent.
fill a large space and lure customers past times as many people (see chart). To add to the confusion, Filipinos are ex-
smaller boutiques. The idea is that a Yet the Philippines is also, probably, the perts on American culture, a legacy of mil-
cinema-goer might pause to buy a leather end of the line. New technologies are itary occupation in the early 20th century.
jacket; and, in a lovely symbiosis, the mon- poised to abolish many call-centre jobs American football and basketball fill the
ied youngsters who shop for clothes and and transform others. At best, jobs will be sports pages of Manila newspapers.
sunglasses might decide to catch a film. created more slowly in the Philippines and The relative preference for Filipino ac-
Take a lift to the top floor of the new SM India; at worst they will vanish. And it is cents has become so strong that large Indi-
Aura shopping centre in Manila, and you likely that nowhere else will be able to talk an outsourcing firms such as Infosys and
will find not a cinema or a Neiman Marcus its way out of poverty as they have done. Tata Consultancy Services have moved
but an enormous call centre. In the Philip- There might never be another Manila. some of their “voice work” to Manila. Yet it
pines, the arrangement makes perfect Companies put call centres in the Phil- creates a problem. Late morning in New
sense. Like shops, call centres need young, ippines for three reasons, says Alfredo York is midnight in the Philippines. So a Fil-
middle-class people—but as workers, not Ayala of the Ayala Corporation, a con- ipino serving the American market—as
customers. This one, run by Teleperfor- glomerate, who set up one of the first ones. about 70% do, in business-process out-
mance, a multinational based in France, ex- The country’s telecoms market had been sourcing as a whole—will probably have to
pects to get about 100 walk-in job appli- deregulated, holding costs down. The gov- work through the night. The night shift has
cants a day. Yet Manila’s call centres do not ernment designated call centres, or “con- become so common that some karaoke
just need monied youngsters. They also tact centres”, as they are formally known, bars in Manila stay open around the clock.
produce them, in huge quantities. Were Jobs with more civilised hours tout the fact
there no call centres in the Philippines, as though it were a novelty. “Wake up
there would be many fewer middle-class Hanging on the telephone when the sun rises and sleep after it sets!”
people, and hence fewer shopping centres. Full-time contact-centre jobs by location promises one advertisement.
Seldom has any country been so trans- 2014, % of total Night work is tough, say a dozen call-
Latin America 10
formed by one industry as the Philippines Western Europe 12 centre workers who have come off their
has by call centres. The first “business- shift at 7.30am, and are sipping coffee in
process outsourcing” jobs appeared in the Philippines India North Manila. They find it hard to sleep by day
1990s: the term covers tasks from answer- 26 24 21 (see box on next page) and see too little of
ing phones to processing invoices and ani- Eastern Europe and Middle East 7
their families. And the job makes those
mating TV shows, mostly for rich-world who do it “toxic”, says one woman. For all
Source: Everest Group Research
firms and governments. This loosely de- that Americans prefer Filipino accents to 1
56 International The Economist February 6th 2016

2 Indian ones—which these Filipinos can im-

Night shifts and health
personate, amusingly if not accurately—
they still suspect they are talking to foreign-
ers, and may be angry and rude. What do I’ll sleep when I’m dead
Americans say? “Fuck you,” chime these
polite young people, in unison.
Working through the night probably shortens your life
Some officials and politicians claim
that call-centre workers are behind a rise in
HIV infections (albeit from a low base).
Workers often cram into shared flats, and
W ORKING all night to answer Amer-
ican phone calls does not sound
healthy. “You’re seated much of the time,
French study in 2014 found that ten years
of shift work was associated with cogni-
tive decline equivalent to an extra six-
their odd hours unmoor them from ordin- and then you binge on junk food,” says and-a-half years of ageing.
ary life. A report by the University of the Jose Mari Mercado, head of the main People who work at night suffer in
Philippines in 2009 found that call-centre outsourcing association in the Philip- two ways, says Derk-Jan Dijk of the Uni-
workers in Manila were slightly more like- pines. Call-centre workers try to catch up versity of Surrey. First, a new schedule
ly than other young people to take drugs, on lost sleep during the day, but often fail, throws the body’s “circadian clock”—the
and were much more sexually active. and then flop at the end of the week. inbuilt mechanism that regulates waking
More than half of the men reported having New research suggests that night work and sleeping—out of alignment. Night
had casual sex—a quarter of those with is very unhealthy indeed. One study workers eat when their bodies are not
other men. Only 44% said they had used found that the longer nurses in South ready for food and try to sleep when they
condoms on the last occasion. Women said Korea had worked the night shift, the are not tired. That leads to the second
the share was even lower. more likely they were to be obese. Anoth- problem: night-shift workers simply do
Overall, though, the call-centre explo- er study, of retired car workers in China, not sleep enough.
sion has been a colossal boon for Filipinos found that shift work was associated It is hard to know whether sleep
who speak good English. With so many with high blood pressure and diabetes. A disruption or exhaustion causes ill-
employers to choose from, they can de- health—or both together. A link between
mand gyms, cafés and computer-games night work and type 2 diabetes, for ex-
rooms, as well as higher pay. Experienced ample, might be because eating at the
workers can often find managerial jobs. wrong times leads to more free fatty acids
And though the night shift is hard, it is far or because exhausted people eat more, or
better than being a maid in Saudi Arabia. even because it can be hard to get whole-
The Philippines has long exported work- some food in the middle of the night.
ers: remittances are worth around 10% of In theory, night workers could avoid
GDP. But business-process outsourcing is health problems by completely switching
catching up fast. Many of the 1.2m people to a night-time schedule. But weekends,
who found jobs in outsourcing in recent social obligations and sunlight make that
years would otherwise have gone abroad, impossible for most. Mr Dijk says the
reckons Mr Ayala. only people who seem to manage it are
So it is no surprise that other places shift workers on offshore oil rigs, who
would like to repeat Manila’s trick. Out- labour in windowless rooms and do not
sourcing firms are already building call take weekends off. But they suffer from jet
centres in provincial cities in the Philip- It’s been a hard day’s night lag when they return home.
pines, where employees are less picky.
And other countries, some of them in bet-
ter time zones, are trying to grab a share of these inquiries. The cleverest systems, This might already be happening. Be-
the business. South Africa is especially such as the one Celaton, another British tween 2013 and 2014 America’s share of
keen. But they are likely to be disappoint- firm, has built for Virgin Trains, refer the global contact-centre employment rose
ed, because the call-centre industry is on most complex questions to human opera- slightly, from 19% to 21%, according to Ever-
the verge of profound change. tors and learn from the responses. The lon- est. Outsourcing contracts that move work
ger they run, the better they get. Software is overseas have become rarer. Western
Operator, what’s wrong? also making call-centre workers more effi- banks are especially keen on repatriating
Much of the call-handling and data-pro- cient. It can quickly retrieve and display work, says Arie Lewin of Duke University,
cessing work sent overseas is basic and re- customer data on their screens, reducing an expert on outsourcing. That is partly be-
petitive, says Pat Geary of Blue Prism, a the need to transfer callers to other depart- cause of America’s stringent but vague
British technology firm. When somebody ments (where, irksomely, they will have to Dodd-Frank Act, which has made them
challenges a gas-meter reading or asks to prove their identity yet again) or log on to a paranoid about their suppliers’ activities.
move an old phone number to a new SIM creaky IT system (“I’m sorry, our comput- This might work well or badly for the
card, many databases must be updated, of- ers are down at the moment”). Philippines. Perhaps software robots will
ten by tediously cutting and pasting from Software robots are only going to be- wipe out the dullest jobs, freeing Filipinos
one to another. Such routine tasks can of- come faster, cleverer and cheaper. Sarah for more interesting conversations. Lately,
ten be done better by a machine. Blue Burnett of Everest, a research firm, predicts for example, qualified nurses have been in
Prism makes software “robots” that carry that the most basic jobs will vanish as a re- demand to advise American patients on
out such repetitive tasks just as a person sult. Call-centre workers will still be need- whether their sneezes and rashes might be
would do them, without requiring a ed, not for repetitive tasks, but to coax cus- serious—one result of cost-cutting inspired
change to underlying IT systems—but tomers into buying other products and by Obamacare. Or it is possible that com-
much faster and more cheaply. The firm services. That is a harder job, demanding puters will learn to handle almost all sim-
has contracts with more than 100 outfits. better language skills. So automation ple inquiries, leaving humans to deal with
Increasingly, Western companies prod might mean fewer jobs, or at least less the most incoherent, irate customers. If
customers to get in touch via e-mail or on- growth, in India and the Philippines, but that happens, Filipinos will widen their
line chat. Software robots can often handle more jobs in America and Europe. repertoire of Anglo-Saxon insults. 7
The Economist February 6th 2016 57
Also in this section
58 Oil companies’ woes
58 The chemicals industry
59 ChemChina’s Swiss move
60 Alphabet opens up a bit
60 The world’s most valuable firms
61 A truck-stop recovery
62 Schumpeter: Succession in the Gulf

For daily coverage of business, visit

The consumer v the corporation print, clauses that block participation in a

class suit and make private arbitration
The big fight binding in the event of a dispute. The Su-
preme Court has sided with this rearguard
action. Today such clauses are the norm.
The corporate lawyers behind this shift
argue that arbitration is cheaper, quicker
and more flexible than court action, and
The handling of disputes between companies and their customers is done better in
that those who prevail get bigger payouts
Europe than in America
($5,000 on average). But there are pro-

T -MOBILE touts itself as America’s mo-

bile-phone “Uncarrier”, having vowed
to shake up its industry with customer-
growth of “alternative dispute-resolution”
(ADR) bodies, which offer mediation, often
online, in an effort to avoid disputes reach-
blems with it. It is done behind closed
doors; it sometimes costs a lot more than
the basic filing fee ($200 and up); and arbi-
friendly ideas like ditching annual service ing court. “The emphasis is moving from trators have an in-built bias towards cor-
contracts. In January, though, a complaint judicial protection to building out-of-court porate defendants, because they bring re-
was lodged with regulators alleging that structures that provide effective redress,” peat business. Perhaps not surprisingly,
the firm generated unauthorised fees by says Pablo Cortés of Leicester University. then, arbitration is little-used. A New York
placing customers on services they hadn’t Mr Rule reckons there are 130 outfits Times investigation found that in 2010-14
requested, such as handset-insurance hawking dispute-resolution technology only 505 consumers went to arbitration
plans. In Britain, broadband providers and related services. Resolver, a free-to-use over a dispute of $2,500 or less (it’s not
stand accused of hitting customers with website, provides details of thousands of known how many saw it resolved to their
whopping cancellation fees, even when companies’ dispute-handling systems and satisfaction before reaching that stage). The
they move to an address outside the area helps channel complaints to them. Other leader in the field, the American Arbitra-
of service. One study found the average services batch identical customer claims, tion Association, handles just 2,000-3,000
early-termination fee to be £190 ($317). for instance over airline delays, and negoti- consumer cases a year, compared with
Small-value disputes between consum- ate on their behalf as an informal class. over10,000 business-to-business cases.
ers and companies over contract terms are Regulators are now pushing back. Hav-
a fact of life. Ofcom, a British regulator, Class action or concealed clauses ing studied the issue, as required by the
handles 70,000 telecoms complaints a There remain differences in approach, Dodd Frank act of 2010, the Consumer Fi-
year; how many are fought over or re- however. Consumer rights in Europe have nancial Protection Bureau is likely to pro-
solved without recourse to the regulator is grown steadily stronger, and ADR enjoys pose a rule which would ban class-action-
anyone’s guess. Colin Rule of Modria, a official support. America offers less en- blocking arbitration clauses in businesses
dispute-resolution technology firm, reck- couragement of new approaches, and the agency oversees, such as credit cards
ons that 1-3% of e-commerce transactions there the legal pendulum has swung away and payday loans. Business would chal-
worldwide generate a dispute (though from the consumer towards business. lenge any such rule in court, says Alan Ka-
many of those are between private buyers America is the home of the class-action plinsky of Ballard Spahr, the lawyer who
and sellers on online marketplaces). lawsuit. Though this is a useful way to came up with the idea of arbitration
How bust-ups are handled is evolving. batch together lots of small, similar claims, clauses. They are “not a conspiracy”, as
Small-claims courts are ubiquitous, but, as businesses have long moaned that class ac- plaintiff lawyers contend, but “a way to
the saying goes, you have to be “a lunatic tions are driven by fee-hungry lawyers level the playing field”, he argues. The pro-
or fanatic” to use them for a $100 claim. Re- rather than harmed consumers (who typi- blem is education, he says: consumers shy
cent years have seen the rise of the indus- cally get only a small share of any settle- away from arbitration because they don’t
try ombudsman, particularly in heavily ment). Firms started to push back by add- understand the benefits.
regulated sectors like finance; and the ing into contracts, often deep in the small Europe, where class actions are rare, has 1
58 Business The Economist February 6th 2016

2 taken a different tack. Consumer-protec- Oil companies

tion laws are generally stronger: arbitra- Reservoir dogs
tion clauses are not banned but courts
have greatly restricted their use, and the
In the dark ages Global oil industry
Upstream ROACE*, % Brent oil price, $
customer can always sue as a last resort. A 25 150
reasonableness test is applied to the fine
print in contracts. Under Britain’s Consum- 20 120
er Rights Act, for instance, key terms, in- 15 90
Supermajors suffer from self-inflicted
cluding price, can be subjected to a “fair-
wounds as well as falling oil prices
ness test” unless they are both written in 10 60
plain language and displayed prominently.
(Clarity alone used to be sufficient ground
to claim exemption from the test.)
F LORENCE is a city more associated with
oil on paintings and salads than the
stuff that comes out of the ground. Yet ev-


This more consumer-friendly stance ery February GE, an engineering conglom- 1980 85 90 95 2000 05 10 16
did not just evolve in the courts but was to erate that makes machinery in the city, Sources: Bernstein; *Return on average capital
Thomson Reuters employed, 2014-16 estimate
a large degree the result of a decision by the gathers oil executives there to discuss the
European Commission more than 20 years industry. This year there was more than a
ago to make all small print subject to being touch of mea culpa in the air. “The oil and clobbering productivity. Partly this was be-
examined and potentially overturned by gas industry is in need of its own renais- cause equipment costs mounted as prices
the courts. This was set in stone in an EU di- sance,” admitted Harry Brekelmans, head of steel and other commodities rose. But
rective of 1993. More directives have fol- of technology at Royal Dutch Shell, an An- Thierry Pilenko, chiefexecutive ofTechnip,
lowed. The most recent, approved last glo-Dutch oil major. a French engineering firm, says it was also
year, gives a shot in the arm to ADR, by for A spate of gloomy year-end earnings re- due to “pure inefficiency”. He says the
instance forcing businesses to inform com- ports underscored how bad things already number of man-hours to operate a piece of
plaining customers of their dispute-resolu- were in the final quarter of 2015, in the equipment doubled in a decade despite
tion options, such as ombudsmen and good old days when oil prices averaged computerisation, and even simple valves
private ADR services, and setting mini- $44 a barrel (on February 2nd they hovered come with documents 80 pages long.
mum standards for how these operate. around $30 a barrel). Britain’s BP reported Energy firms have failed to embrace
Firms won’t be forced to sign up to an ADR an unexpected loss of $6.5 billion in 2015, digital systems to improve performance
scheme, but the hope is that most will feel one of its worst on record. That followed along the supply chain. The industry is rid-
obliged to do so as the directive takes hold. news of a fourth-quarter loss by Chevron, dled with unplanned shutdowns that raise
Consumer surveys point to much greater an American counterpart. Exxon Mobil, costs. Standards vary so much that one
satisfaction with ADR than with courts. America’s biggest oil major, made a rela- firm ended up with 127 different colours for
Europe also leads the way in develop- tively healthy $16.2 billion in 2015, but that subsea equipment that only fish would
ing online mechanisms for mediating the was still half the prior year’s profit (like ever see. Tech advocates like GE naturally
millions of cross-border e-commerce dis- Chevron it is losing money drilling for oil hope that the latest crisis will spur a “tech-
putes that arise each year. (One estimate in America). Shell’s profits also dived. In nological revolution”. For now, though,
puts their number at 750m.) Your Europe, Florence an executive quipped that the in- survival is the priority. 7
an EU portal, will be launched in each of dustry had turned into “a giant non-profit”.
the bloc’s official languages later this Companies are slashing jobs, costs and
month. This will serve as a hub to receive capital spending to maintain promised The chemicals industry
complaints. Firms operating in the EU will dividend payouts. But the lower prices go,
have to provide a link to it on their web-
sites. “The aim is to hold your hand
the more they borrow to honour those
pledges. Exxon Mobil and Chevron piled
Bad romance
through the process, like TurboTax [a tax- on $9.6 billion and $10.8 billion of debt re-
return-filing software],” says Amy Schmitz spectively during 2015, and BP added $4.6
of the University of Colorado. billion. Standard & Poor’s, a rating agency,
For all these efforts, some cases will in- downgraded Chevron and Shell this week
Big mergers may give only temporary
evitably end up in court. Here, too, new and is reviewing BP and Exxon Mobil,
relief in an industry under pressure
thinking is percolating. In Britain there is partly because of their rising debts. A
growing political and judicial support for
replacing the clunky small-claims courts
with a new type of quasi-court, dubbed
downgrade of the latter would be signifi-
cant: Exxon Mobil is one of only three
American companies whose AAA rating is
S HAREHOLDERS cheered in December
when Dow Chemical and DuPont, the
world’s fourth- and fifth-most-valuable
Her Majesty’s Online Court (HMOC). Each higher than the government’s. chemicals companies, worth a combined
case would move through as many as Falling oil prices may have upended the $130 billion, announced plans to merge.
three stages. Only at the third stage, if it industry but it also has itself to blame for Their share prices each shot up by nearly
could not be resolved by mediation and its troubles. Returns of private global oil 12% in one day. In the hope of persuading
case officers, would it go before a judge. companies peaked a decade ago, well be- competition regulators not to block the
This triage-before-trial approach would fore crude hit record highs, indicating that merger, Dow and DuPont said that within
be easier and less costly than the current they squandered the boom on vanity pro- two years they would split their combined
set-up: documents could be posted elec- jects aimed at increasing production, with operations into three listed firms, con-
tronically, and cases brought without hav- little thought for profitability (see chart). cerned with agriculture, materials science
ing to hire a lawyer. HMOC is already being In Florence the engineers and geolo- and “specialty” products. But doubts have
touted as a model for other countries. As gists who run the rigs, wells and pipelines since grown as to how much this rational-
one lawyer (who may soon have less admitted that costs soared uncontrollably isation will help the resulting firms cope
work) puts it, most consumers would rath- as high prices led them to search for in- with the pressures the industry is under.
er be faced with a clearer and cheaper pro- creasingly hard-to-access oil. Shell’s Mr Since markets first got wind of the deal,
cess, and lose quickly, than a victory that is Brekelmans says that between 1996 and the shares of Dow have dropped by 18%,
painful, protracted and pyrrhic. 7 2014 capital costs per barrel quadrupled, and DuPont’s by 21%. The S&P 500 fell by 1
The Economist February 6th 2016 Business 59

2 7% over the same period. Deteriorating research firm.

performance at DuPont, which on January Indeed, there are already signs that this Chemical imbalance
26th revealed a $253m loss in the fourth is happening. The Dow-DuPont tie-up was Prices, $ terms, January 2010=100
quarter of 2015, has shaken Dow’s share- in part a reaction to merger talks between
holders. They now fear the tie-up could be Monsanto, an American agrichemicals Polypropylene
too generous to the other company’s inves- giant, and Syngenta, a Swiss rival. They got 140
tors: on February 2nd Dow said that its pro- nowhere but on February 3rd ChemChina Polyethylene
fits had increased fivefold, to $3.5 billion, in offered $43 billion to buy Syngenta, form-
the same quarter. ing the world’s largest maker of pesticides 100
Hammered out under pressure from ac- and fertilisers, a formidable competitor to Polyvinyl
tivist investors, most notably Trian Part- even the merged agrichemicals businesses chloride 80
ners, a New York hedge fund, the merger is of Dow and DuPont (see box). 60
designed to boost investors’ returns by Under this pressure, the most sustain- Chlorine
combining the competing businesses of able way to boost margins is to focus on 40
2008 09 10 11 12 13 14 15 16
the two, cutting costs in the process. The higher-tech niches where competition is
Source: Bloomberg
deal is, in part, a response to the sharp falls more limited. Other firms in the industry
in the prices of many chemicals over the have already undergone this transition
past few years (see chart). Although raw over the past decade. For instance, Akzo- The high-end markets with the best
materials, such as those derived from Nobel, a Dutch group, has concentrated on growth prospects are for specialty chemi-
crude oil, have also got cheaper, the chemi- highly specialised paints and coatings; and cals used in industries that are doing rela-
cals firms’ margins have been squeezed. Bayer, a German firm that used to be a tively well, such as health care and aero-
Those on polyethylene have fallen by a broad chemicals conglomerate, has spe- space, according to analysts at UBS, a bank.
third since 2014, with another 25% tumble cialised in pharmaceuticals. Dow and Du- Yet ChemChina’s hunger for more deals
forecast for 2016. Pont were heading in this direction before will make life tougher for Western firms in
The market for agricultural chemicals is their proposed tie-up. DuPont has, for in- these areas, too: China’s latest five-year
also shrinking, in dollar terms, mainly due stance, sold divisions making relatively plan instructs its chemicals industry to fo-
to low crop prices and weak currencies in low-end stuff like titanium dioxide and cus its expansion efforts on specialty pro-
big markets such as Brazil and Russia, says Teflon; and last year Dow spun off its chlo- ducts. Dow, DuPont and others need to fo-
John Kovacs at Capital Economics, a con- rine operations in a deal worth $5 billion cus on climbing up the value chain to deal
sulting firm. DuPont’s agricultural-science with Olin. with this threat. 7
division, which is a big draw for Dow, suf-
fered an 11% drop in sales last quarter.
Jeffrey Zekauskas, an analyst at J.P. Mor-
gan, an investment bank, thinks Dow and
DuPont may be too optimistic in forecast- Feeding the dragon
ing $3 billion in cost savings by 2018, partic-
ularly given the restructuring costs they
ChemChina, an acquisitive state enterprise, buys Switzerland’s Syngenta
will incur. And if the resulting three spe-
cialist companies do not continue to shift
into higher-value-added products, there is
a risk that any increased profits from econ-
W ITH roughly a fifth of the world’s
population but less than a tenth of
its arable land, China has had to look
giants would also have met with harsh
regulatory scrutiny.
The Sino-Swiss deal should see
omies of scale will be competed away, as outside its borders to feed itself. In the smoother sailing. ChemChina has a
rivals also strengthen through mergers, past, clumsy and sometimes corrupt state much smaller presence in agribusiness
says Dave Witte, head of IHS Chemical, a enterprises foraged in Africa and Latin than Monsanto. Because Syngenta has
America for farmland and commodities. operations in America, officials there will
Now, savvier Chinese firms are looking probably review the deal for national-
abroad for advanced technologies that security implications. Last month the
can boost yields and efficiency at home. Committee on Foreign Investment in the
This week, China National Chemical United States blocked the sale by Philips,
Corp pulled off a coup that advances a Dutch group, of part of its lighting busi-
China’s national goal of “food security”. ness to a consortium that included Chi-
ChemChina, as the state group is known, nese firms. Even so, it may approve this
has already made a string of acquisitions deal, as it did the controversial acquisi-
in Europe, including Pirelli, an Italian tion in 2013 of Smithfield, a pork pro-
tyremaker. On February 3rd it persuaded ducer, by Shuanghui Group.
the board of Switzerland’s Syngenta, a Ren Jianxin, the politically connected
big maker of pesticides and seeds, to boss of ChemChina, said the right things
accept its takeover bid. When completed, this week. He vowed that the running of
the $43 billion deal will be the biggest Syngenta would remain in Swiss hands,
Chinese foreign takeover ever. with Michel Demaré, Syngenta’s chair-
In accepting its Chinese suitor, Syn- man (who will be vice-chairman of the
genta spurned a rival offer from Mon- new group) cooing that the deal would
santo, an agribusiness giant. Syngenta “minimise operational disruption”. Mr
was reluctant to fall into the arms of the Ren also promised the “highest corporate
American firm, whose aggressive at- governance standards” and even hinted
tempts to promote genetically modified that a public flotation of the unlisted
foods have caused a backlash in Europe. ChemChina may be in the offing “in the
The combination of two of the industry’s years to come”.
Another cost to cut?
60 Business The Economist February 6th 2016

Alphabet from Google Fibre, a high-speed internet the firm is spending. Last year Alphabet set
business in several American cities, and aside a whopping $5.2 billion for stock-
Of profits and Nest, a maker of smart household devices
that Google bought in 2014 for $3.2 billion.
based compensation, and expanded its
headcount to nearly 62,000, an increase of
prophesies But most of Alphabet’s investments are
likely to take years to pay for themselves,
more than 15% on the year before. Mark
Mahaney, an analyst at RBC Capital, an in-
and some almost certainly never will. Like vestment bank, thinks that many internet
the high-altitude balloons that Alphabet is companies, such as AOL and Yahoo, fal-
using to blanket the world with internet ac- tered in the past by skimping on invest-
Google’s parent company is riding high
cess as part of an initiative called Project ments to shore up their businesses while

A GOOGLY is a ball bowled in cricket

with unexpected spin. For years, Goo-
gle was similarly hard to read, sharing only
Loon, its startup projects will either fly high
or crash.
For the time being, Alphabet can do as it
they were still thriving, and therefore does
not mind seeing Alphabet invest with its
future in mind. Such tolerance is common
basic figures about its business. Alphabet, pleases. Investors and analysts do not during winning streaks, but it can quickly
Google’s newly formed parent company, is seem overly concerned about how much disappear. 7
bowling a bit straighter. When it reported
earnings on February 1st, Alphabet dis-
closed for the first time how much it was
Corporate hegemony World’s most valuable company by market
spending on its “moonshot” projects, in-
cluding self-driving cars, fibre internet and capitalisation, 1991-present*, $bn
When Cisco was crowned as the world’s
space exploration. In 2015 Alphabet lost biggest company by market value in April Alphabet 1,000
around $3.6 billion on these ambitious ini- 2000, its boss hoped it would go on to be-
tiatives—a large sum, but less than some come the first firm worth over $1 trillion. But 500
had feared. Meanwhile Google, its core its reign was to prove short-lived: deposed
business, saw revenues and profits rise. by Microsoft two days later, it never regained 0
1991 95 2000 05 10 16
As a result, Alphabet’s shares surged top spot. It is now in 53rd place.
this week, helping it, albeit briefly, over- Cisco may be a cautionary tale for Al- Apple 1,000
take Apple to become the world’s largest phabet, Google’s parent, which on February
listed company by market value (see box). 2nd usurped Apple to become the world’s 500
Today Alphabet is a giant advertising com- most valuable listed company, only to slip
pany with the potential to become a giant back behind the Cupertino-based firm the 0
1991 95 2000 05 10 16
in other sectors as well—although exactly next day. Come what may, however, Alphabet
which ones, no one is yet sure. Almost all is now a member of a select club of firms that PetroChina 1,000
of the $75 billion in revenue it made last have led the league over the past quarter-
year came from advertising, most of it century (see chart). 500
search advertising, where Google places What do these companies have in com-
ads relevant to what someone is looking mon? Age doesn’t appear to be a significant 0
1991 95 2000 05 10 16
for online. The firm has around 70% of the factor in determining dominance. Among
global search market. the dozen are the old and established (like Cisco 1,000
Google has profited handsomely from Exxon Mobil, founded as Standard Oil in
foreseeing two important trends: the rise 1870), and the new and innovative. Apple 500
of mobile phones and online video. It now was 35 years old when it reached the summit
has seven products that claim a billion or in 2011. Google turned 17 in September. 0
1991 95 2000 05 10 16
more users each, including search, maps, Just two non-American firms have
Gmail, YouTube, the Google Play store, the claimed the title. Nippon Telegraph and Microsoft 1,000
Android operating system and the Chrome Telephone, a Japanese utility, was the
browser. That is more than any other inter- world’s most valuable quoted firm between 500
net company. As users spend more time 1992 and 1996. The other, PetroChina, beat
with Google’s services, the company Cisco to that $1 trillion valuation in 2007. 0
1991 95 2000 05 10 16
learns more about them and sells more Some companies claim their crowns
ads. Other firms have struggled to profit as thanks to irrational exuberance: Cisco’s General Electric 1,000
much from users’ engagement. On Febru- share price was 230 times earnings at its
ary 2nd Yahoo, a struggling rival, an- peak. Alphabet currently trades at 34. Apple, 500
nounced it was cutting 15% of its workforce meanwhile, has a price-earnings ratio of just
and suggested it would consider selling its 10, which suggests that investors doubt its 0
1991 95 2000 05 10 16
core internet business, which could put its remarkable run of profits will last. Were it to
boss, Marissa Mayer, out of a job. trade in line with the S&P 500 p/e ratio, it Nippon T&T 1,000
Alphabet fans argue that it is set to go would be worth $900 billion.
from strength to strength. The firm has Tech-boosters would doubtless love to 500
started to look like a conglomerate, with in- see a prolonged bout of jostling for top spot
terests in areas such as cars, health care, fi- between Alphabet and Apple (which before 0
1991 95 2000 05 10 16
nance and space, as it tries to find the next this week had held on to its crown for 653
big thing. Although most of its projects out- consecutive days). But an obvious threat to Exxon Mobil 1,000
side its advertising business do not make both comes from a company that isn’t even
any money, some are showing tentative listed yet: Aramco, Saudi Arabia’s state- 500
signs of promise. owned oil giant, which is almost certainly
Last year its moonshots claimed some the world’s most valuable firm and is toying 0
1991 95 2000 05 10 16
$450m in revenue. Although Alphabet did with an initial public offering.
Sources: Bloomberg; The Economist *To February 2nd
not spell out the source, it probably comes
The Economist February 6th 2016 Business 61

lams speak about their business, Ameri-

can-football metaphors tend to come up.
Big Jim, once an avid football player at the
University of Tennessee, has said that he
used his university coach’s maxims to beat
his business rivals. One of them is that
“The team that makes the fewest mistakes
will win.” Another is “If the game goes
against you…put on more steam.” Jimmy
is even more football-obsessed. In 2012 he
spent a chunk of his fortune to buy the
Cleveland Browns, a successful team.
When the game went against him in
2013 he needed his father’s maxims more
than ever. After the FBI raid, the firm’s lend-
ers and suppliers were nervous about the
potential for gargantuan penalties, com-
pensation payments and an exodus of cli-
ents. However, Pilot put on more steam,
and cleaned up its mess relatively quickly.
In November 2013 it paid $85m to settle a
class-action lawsuit launched by more
Pilot Flying J than 5,500 hauliers who had been short-
changed on their rebates. A few companies
If the game goes against you continued to pursue separate lawsuits, of
which one is still pending. In July 2014 Pilot
accepted responsibility for the criminal
conduct of its employees and paid the Jus-
tice Department a fine of $92m.
Its prompt actions to put things right
meant that most of Pilot’s users stayed loy-
A giant, reclusive private firm recovers from a scandal
al to the company, says Ben Bienvenu, an

I T IS one ofAmerica’s biggest family firms,

with revenues last year of more than $30
billion. Yet unlike peers such as Mars, a
$6,000 for a filling station in Virginia. The
firm grew rapidly over the years, mainly
through acquisitions of smaller truck-stop
analyst at Stephens, a financial-services
firm. The same was true for most of its sup-
pliers and lenders. “They are on a stable fi-
maker of confectionery, Pilot Flying J is all chains and independent operators. Its big- nancial footing now,” says Manoj Chadha
but unknown overseas. And it is more re- gest deal was the takeover in 2010 of the of Moody’s, a credit-rating agency. The
clusive than other private family groups bankrupt Flying J chain, for $1.8 billion. company also made lots of changes to pre-
such as, say, Koch Industries, a conglomer- Today Pilot Flying J is the biggest in an vent a repeat of the rebate scandal. Accord-
ate headed by Charles and David Koch. industry dominated by three firms that to- ing to Samantha Stone at Standard &
Pilot Flying J’s business, operating fill- gether have around two-thirds of the mar- Poor’s, another rating agency, the sales
ing stations on America’s highways, focus- ket: the others are Travel Centers of Ameri- team at head office was largely replaced, all
es mainly on a narrow group of customers: ca, a public company based in Ohio, and transactions have been automated and
lorry drivers. It has little need to make itself Love’s, another family firm, from Oklaho- customers can now demand that an inde-
known except among those knights of the ma. Jimmy Haslam and his brother Bill, pendent auditor review their rebates.
road. Furthermore, the company has been who is the governor of Tennessee, appear As it has cleaned up after the scandal,
recovering from the biggest scandal in its regularly on lists of America’s richest. Pilot has also benefited in the past couple
history, making it more taciturn than ever. Thanks to their philanthropy the clan has of years from the slowly recovering econ-
In 2013 the FBI raided its headquarters made many friends, especially in Tennes- omy and the slump in oil prices, both of
in Knoxville, Tennessee. An affidavit un- see, where even the lion cubs at the Knox- which have lifted demand for fuel. The
sealed by a federal judge accused individ- ville zoo were named after Haslams. firm will remain on the lookout for smaller
uals at the firm of running a scheme for at In the 1970s the company realised that rivals that it can swallow. It costs on aver-
least five years to swindle small haulage its roadside sites could lucratively double age $9m to take over and renovate an exist-
firms out of millions of dollars in rebates up as convenience stores. Today a typical ing filling station at a good location, but be-
on purchases of fuel. (For small firms, dis- Pilot stop in Michigan, for instance, still in tween $14m and $20m to build one from
counts were calculated manually, which retro brownish decor, sells anything from scratch, explains Bryan Maher of FBR, an
facilitated the cheating.) According to the sweets and toys to DVDs and mugs. More investment bankin Virginia. Greenfield de-
affidavit, an informant told the FBI that than 400 of the firm’s 678 stops also house velopments are slow and tricky because of
Jimmy Haslam, Pilot Flying J’s chief execu- a fast-food franchise, such as Subway or environmental and safety regulations.
tive, knew about the scheme. Mr Haslam Arby’s. The margins of the non-fuel busi- Pilot Flying J was lucky that the rebate
has steadfastly denied any knowledge of nesses are higher than those from selling scandal did not erupt during the recession,
fraudulent practices. The company did not diesel and petrol, but it’s the pumps that when fewer lorries were on the road and
respond to our repeated requests for an in- pull in the punters. Around 90% of Pilot’s the company, like its main rivals, was suf-
terview or to e-mailed questions. revenue comes from fuel, but close to half fering losses. Its efforts to rebuild its reputa-
The accusations shook the Haslam fam- of its gross profit is generated by non-fuel tion coincided with a boom in its business.
ily. Until then it had been a textbook exam- sales. Pilot is also meticulous about the The firm seems to have turned the page. To-
ple of the American dream come true. Its cleanliness of the stops’ showers, which day the headlines about Jimmy Haslam
patriarch, “Big Jim” Haslam, the father of encourages truckers to stay loyal. are mostly related to the changing fortunes
Jimmy, founded Pilot in 1958 when he paid On the rare occasions when the Has- of the Cleveland Browns. 7
62 Business The Economist February 6th 2016

Schumpeter Succession failure

Family businesses in the Arabian Gulf need to address the problem of succession planning
competent leaders and feuds. Family tradition often conspires
against merit: families routinely favour the eldest son regardless
of his ability. Locals say there are examples of incompetents “all
around”, though they are reluctant to name names. The scope for
feuds is increased by the complexity of family structures, thanks
to high fertility rates and occasional polygamy. Abdulaziz Al Ghu-
rair, chairman of the Family Business Network, a regional body,
predicts that more than half the businesses will split over succes-
sion. A less obvious consequence is what might be called “func-
tioning dysfunction”: companies get around incompetent heads
by creating parallel structures so that the real power is held by
people with minor titles, or by avoiding naming a CEO at all.
One of the most famous family disputes was reportedly
solved by royal intervention. Two relatives, Abdullah and Majid,
inherited joint control of Al-Futtaim Group, a Dubai-based em-
pire, part of which now operates the Mall of the Emirates with its
famous ski slope. The dispute proved so damaging that Sheikh
Mohammed bin Rashid al-Maktoum, then crown prince and
now emir, stepped in, locking them in a room and refusing to let
them out until they had divided up the empire. But even the most
enlightened royal intervention is no substitute for reliable rules.

T HE grand mufti of Saudi Arabia recently added a surprising

new item to the familiar list of worries plaguing his region.
Chess, he pronounced, is “a waste oftime and money and a cause
Badr Jafar, the 36-year-old head of Crescent Enterprises, a con-
glomerate, is leading a campaign to provide just such rules. He ar-
gues that regulators should compel companies to make a clearer
for hatred and enmity between players.” Without disputing the distinction between corporate property and family property. But
mufti’s judgment, Schumpeter would like to add a different wor- he adds that companies need to change from within. They
ry: succession in family businesses. Like chess, poorly planned should borrow mechanisms that are popular with family compa-
succession is a “waste of time and money and a cause for hatred nies around the world—such as family constitutions, family meet-
and enmity”; unlike chess, it has the potential to undermine ings and family offices—and adapt them to local traditions.
some of the country’s foremost economic institutions. Mr Jafar is the perfect man to make this pitch: his company is
Succession is a problem for family businesses the world over. based in Sharjah, one of the most conservative emirates, but he
The Family Business Institute calculates that only 30% of such was educated at Eton and Cambridge. He has helped establish a
businesses survive into the second generation, only 12% into the pressure group, the Pearl Initiative, to support the case for better
third generation and only 3% into the fourth. But the problem corporate governance. He has secured the support of global orga-
may be bigger in the Gulf than anywhere else. Around 80% of the nisations, including the World Economic Forum.
companies in the region, producing more than 90% of its non-oil
wealth, are family-owned or controlled. The number of relatives Capitalism with Gulf characteristics
clamouring for a job in these firms is surging, partly because the Mr Jafar can also point to several notable advances in the region,
population is so young (the average age of citizens in the Middle some of which predate his activities. W.J. Towell, an Omani com-
East and north Africa is well below the global average) and partly pany that employs 150 family members, has introduced regular
because governments are desperate to shift workers from the family gatherings to promote family cohesion. The Zamil Group,
public to the private sector (in the United Arab Emirates 90% of a Saudi conglomerate with more than 100 family members on
employed citizens work for the state). the payroll, demands that both family and non-family executives
These family firms are mostly fairly recent creations—the pro- go through a “future leaders programme”, which uses psycho-
ducts of the oil and property booms of the 1970s and 1980s that metric tests to assess their abilities. The Abdullatif Alissa Group,
turned people who were lucky or well-connected enough to own another Saudi conglomerate, has gone even further, replacing all
prime bits of land into moguls. Over the next decade up to half family members with professional managers and limiting the
the region’s business families, controlling assets worth perhaps a family’s role to board membership. A growing number of compa-
trillion dollars, will hand the reins to the next generation. nies are creating family offices to help make the distinction be-
That is a worrying prospect. A proper succession requires tween family and corporate resources. Ten years ago almost no-
good governance. Yet too many of the region’s businesses blur body was talking about this subject, says Mr Jafar. Today 50% of
the line between what belongs to the firm and what belongs to business families “have it on their minds, 30% in their mouths
the family: they spend company money as if it were their own and 20% on paper.”
and employ family members without subjecting them to proper With luck, even more companies will put it on paper soon.
vetting. And if disputes occur, the region’s courts are not Corporate governance might sound like an ineffective way to
equipped to cope. The World Bank reports that they take an aver- take on serious problems such as Islamist extremism and state
age of 575 days to resolve a commercial dispute. An estimated breakdown. But the region has no chance of escaping from these
70% of Saudi families have at least one succession problem tied conflagrations without improving its economy and creating jobs
up in court. for the young. The last thing it needs is for companies to be ruined
The two most obvious results of a botched succession are in- by incompetent heirs or torn apart by pointless disputes. 7
The Economist February 6th 2016 63
Finance and economics
Also in this section
64 Buttonwood: Valuing equities
65 Argentina’s disputed debts
66 A fintech unicorn takes on banking
67 America’s doughty consumers
68 Finland’s economic winter
69 Free exchange: Making trade work for

For daily analysis and debate on economics, visit

HSBC: London v Hong Kong sets have soared by half since 2010.
HSBC’s seesawing skew towards Asia is
East is Eden one of four factors that explain its 151-year
quandary over where it should be based.
The others are the ethnicity of its manag-
ers, Britain’s love-hate relationship with fi-
nance and the status of Hong Kong.
In the 1980s all four pointed to London.
The bank was diversifying into America
Banking’s longest, and most successful, identity crisis
and Europe (by 2004 Asia yielded just a

H SBC—one of the two most pivotal

banks in the global financial system,
according to regulators, alongside JPMor-
The decision is partly about technicali-
ties: tax, regulation and other costs. But it
also reflects big themes: London’s status as
third of profits). London felt natural to the
cadre of expatriate Brits that ran it. Britain
was welcoming, particularly after HSBC
gan Chase—exudes permanence. Its build- a financial centre, the dominance of the bought Midland, a local lender. And HSBC
ings are guarded by lions cast in bronze dollar and Hong Kong’s financial, legal and was cushioned from the danger that China
which passers-by touch for luck. HSBC has political autonomy from mainland China, would rip up the agreement over Hong
never been bailed out, nationalised or which is supposedly protected until 2047 Kong. “As night follows day...we would be-
bought, a claim no other mega-bank can under the pledge of “one country, two sys- come a Chinese bank,” the bank’s chair-
make. It has not made a yearly loss since its tems”. HSBC’s most recent move, from man at the time said about keeping its
foundation in 1865. While its peers took Hong Kong, was announced on the radio domicile in the territory after1997.
emergency loans from central banks in the by China’s premier of the day, Li Peng. Its Three ofthe four factors now point back
crisis of 2008-10, HSBC, long on cash, sup- return would be news too, a coup for Chi- towards Asia. Asia yields 60% of profits.
plied liquidity to the financial system. na when its economic credibility is low. For This could rise to 75%. Mr Gulliver plans a
Yet behind that invincible aura lurks an Britain, the departure of its largest firm big push in the Cantonese-speaking Pearl
insecurity: where is home? When Western would be an embarrassment. River delta. Rising interest rates would
and Indian merchants founded the bank in That HSBC is considering moving at this boost lending margins most in Asia, which
Asia in 1865, they considered basing it in moment may seem astonishing; it is knee- has a surplus of deposits, which need not
Shanghai before settling on Hong Kong. deep in a restructuring. Since taking the be repriced as quickly as debt. HSBC is far
Faced with wars, revolutions and the helm in 2011 Stuart Gulliver has reversed more Asian than its Western rivals (see
threat of nationalisation, the bank has cho- the empire-building that took place in the chart on later page). Not even a hard land-
sen or been compelled to move its head- 2000s to refocus the bank on financing ing in China, a banking crisis there or a de-
quarters, or debated it, in 1941, 1946, 1981, trade. He has sold 78 businesses and al- valuation of the yuan would alter that.
1986, 1990, 1993, 2008 and 2009. most halved the bank’s exposure to Ameri- HSBC’s management is now multi-na-
HSBC believes its itinerance explains its ca. Vast sums have been spent on compli- tional, although its board has too few
survival. Countries and regimes come and ance systems after the bank was fined for Asians on it. (Simon Robertson, its deputy
go. The bank endures. Now it’s decision money-laundering in Mexico. chairman, is also a director of The Econo-
time again. The results of a ten-month re- The group’s return on equity hovers at mist Group.) AIA, an insurance firm,
view of its domicile are likely to be an- 8-11%—poor by its standards but on a par moved to Hong Kong after it was spun out
nounced on February 22nd. The main with JPMorgan Chase. Outside Asia, re- of American International Group in 2010.
choice is between staying in London— turns are about 5%. To raise them, Mr Gulli- It shows it is possible to domicile a big fi-
where HSBC shifted its holding company ver is inflicting a new dose of austerity, nance firm there that is not Chinese-run.
in 1990-93, in anticipation of the return of with big cuts at its investment bank. Retreat And Britain has got hostile. Briefly after
Hong Kong to Chinese sovereignty in from the Western hemisphere has freed re- the crisis public and elite opinion distin-
1997—or going back to its place of birth. sources for Asia, where risk-weighted as- guished between the British banks that 1
64 Finance and economics The Economist February 6th 2016

2 blew up and those that did not. Having a lion a year, or about a tenth of profits. It from Asian savers who are providing
bank so plugged into emerging markets also underpins the requirement that banks cheap funds to Britain’s financial system.
was seen as strategically helpful. But now ring-fence their British retail arms, which George Osborne, Britain’s chancellor,
HSBC (cumulative profits of $101 billion will cost HSBC $2 billion. has belatedly turned on the charm. In July
since 2007) is often lumped in with the Yet these policies duplicate others de- he tweaked the levy and the tax regime—
likes of Royal Bank of Scotland (cumula- signed to tackle the same problem, includ- although not by enough to make much dif-
tive losses of $80 billion), a target of attacks ing capital surcharges, stress tests, living ference to HSBC over the next five years.
from foaming parliamentary committees wills and a push to “bail in” bondholders The financial watchdog has been shaken
and a hatchet-wielding media. when disaster strikes. And they ignore up, and Mark Carney, the boss of the Bank
Critics worry that British depositors HSBC’s safety-first structure. It has more of England, which has ultimate responsi-
and taxpayers subsidise the bank by fund- cash than it owes in debt (bonds and loans bility for the banks, has hinted that they
ing its foreign operations and implicitly from other banks). It is already run in self- have enough capital.
guaranteeing its liabilities. This is the ratio- reliant geographic silos. And 68% of its de- But unless the government concedes
nale behind Britain’s levy on banks’ global posits are raised outside Britain. Arguably that the size ofHSBC’s global balance-sheet
balance-sheets, which costs HSBC $1.5 bil- the subsidy flows in the other direction, is not a gauge of its risk to Britain, HSBC will 1

Buttonwood False comfort

Low bond yields don’t always help equity returns

M ANY a gloomy pundit, Buttonwood

included, has been tut-tutting about
equity valuations in America for the past
earlier numbers a poor guide. This makes
equities look only 20% overvalued.
Then there is the way that the post esti-
brings future dividend growth down to
0.7%, making equities less alluring than
Messrs Blanchard and Gagnon think.
year or two. After all, by historical stan- mates future returns. One approach is The authors also use a valuation ap-
dards, they are high. Yet there is no short- based on dividends; the authors assume proach based on the relationship be-
age of cheerleaders to explain why equi- future dividend growth of 2.2%, matching tween the earnings yield (the inverse of
ties are not such a bad deal after all. A real GDP. But why assume that real divi- the price-earnings ratio) and the real bond
notable one now is Olivier Blanchard, un- dends keep up with GDP? The London yield. Cliff Asness of AQR, a fund-man-
til recently the chief economist of the IMF. Business School keeps a database on the agement group, examined this issue in a
He and Joseph Gagnon, a colleague at the actual growth rate of dividends over time. paper about the “Fed model”, a similar
Peterson Institute for International Eco- Since 1900 American dividends have method which bulls used during the in-
nomics, a think-tank, have published a grown at 1.67%, well below real GDP ternet bubble to argue that equities were
blog post* arguing that American equities growth (ofaround 3% a year). And America cheap. Mr Asness found the model was a
are not overvalued, in particular com- is an outlier: the dividend growth rate for poor guide to the subsequent perfor-
pared with the values seen ten years ago. all the countries covered is just 0.57%. mance of equities. What really matters is
Alas, there is reason to quibble with Why the shortfall? Economic growth the p/e ratio. “Long-term expected real
the data underpinning the post. It refers to does not arise entirely from quoted com- stock returns are low when starting p/es
the cyclically adjusted price-earnings ra- panies; many fast-growing firms have yet are high and vice versa, regardless ofstart-
tio compiled by Robert Shiller of Yale Uni- to list. And then there is new share issu- ing nominal interest rates,” he wrote.
versity, which averages profits over ten ance. Research shows that earnings have Worries about growth have prompted
years. Mr Shiller has calculated the ratio long been diluted by around 2% a year be- central banks to keep rates near zero since
back to 1881. The average since then is 16.7, fore existing shareholders get their hands 2009. If future growth prospects are poor,
so the current ratio, 24, suggests shares are on them. Despite the rise of buy-backs this then estimates of future profits and divi-
44% overvalued by historical standards. is still happening, thanks to the use of dends need to be revised lower. Equity
But the Peterson post compares current share awards as incentives for managers. valuations, in other words, do not have to
valuations with the 60-year average of 20, Assume the dilution effect is only three- rise just because rates are low.
arguing that accounting and tax changes quarters of what it was (ie, 1.5 points off the Japan provides a good illustration of
and the impact of the Depression make assumed GDP growth rate). That still all this. Its government-bond yields have
been low for two decades. Has this made
Japanese equities a great investment, as
The Fed model didn’t work the reasoning of Messrs Blanchard and
Japan Gagnon would imply? Not a bit of it. By
Yields, % Total return, $ terms, January 1995=100 the mid-1990s, there had been a big shift
10 250
in the relative valuation of equities and
Ten-year government bonds Government bonds bonds (see left-hand chart). But over the
past 20 years, the return on Japanese
5 200
bonds has easily outstripped returns on
equities (see right-hand chart). America is
0 150 not Japan, but its foundering stocks and
Equity earnings yield
– falling bond yields look eerily familiar.
5 100
10 50 * Studies cited in this article can be found at
1990 95 2000 05 10 16 1995 2000 05 10 16
Source: Thomson Reuters
The Economist February 6th 2016 Finance and economics 65

2 worry that its size is capped. Asia will grow

faster than Britain, and thus so will the A foot in each hemisphere
bank’s assets. If the bank is too big for Brit- HSBC adjusted pre-tax profits Revenue, 2014, $bn
ain today, with assets equivalent to 89% of January-June 2015, $bn
Net revenue From Asia Outside mainland China
GDP, what will it look like in 2030? A Brit- 14
Latin America
ish exit from the European Union would 0 25 50 75 100
Middle East & North Africa 12
complicate things further, requiring HSBC ICBC
to beef up operations in France or Ger- North America
JPMorgan Chase
many (although it would have to do this 10
Europe China Construction Bank
whether based in London or Hong Kong).
What about the fourth factor, Hong 8 Bank of America
Other Asia
Kong? It has changed a lot since Mr Gulliver Singapore Citigroup
first lived there in the 1980s. The skyscrap- Mainland China
Bank of China
ers of China’s opaque lenders, Bank of Chi-

na and ICBC, now loom over HSBC’s build- 4 HSBC
ing, beneath which pro-democracy Hong Kong BNP Paribas
protesters camped during the Occupy Cen- 2
Deutsche Bank
tral movement in 2012.
Standard Chartered
Hong Kong’s government would wel- 0
Sources: Company reports
come the bank back, as would its regulator,
the Hong Kong Monetary Authority
(HKMA). Moving to Hong Kong would in August, a mainland official formerly in briefly prevented BNP Paribas, a French
probably cut HSBC’s tax bill and capital re- charge of financial matters said Chinese bank, from clearing dollar transactions.
quirements a bit and the degree of regula- regulators would expect to have a say over A move to Hong Kong is thus a risk for
tory and political friction a lot. It might also HSBC. China desperately wants a global HSBC. It is a bet that China will grow, but
help HSBC’s ambitions on the mainland, bankto represent its interests. Mainland of- that its legal and financial systems will re-
although it already has a privileged spot ficials might be tempted to meddle. main backward enough that Hong Kong
there—the largest presence of any foreign That might annoy American officials, will still have a vital role as the mainland’s
bank. Like Hong Kong, HSBC wants to be who have become chauvinistic about ac- first-world entrepot. It is a bet that even as
close to China but not integrated with it. cess to their financial system since the 9/11 they meddle in Hong Kong’s politics and
Head-to-head competition with the cod- attacks and the 2007-08 crisis. HSBC man- on occasion break its laws, mainland offi-
dled mainland banks would be suicidal. ages about 10% of the world’s cross-border cials will ultimately respect the principle
The logistics of a move would be less dollar payments. Its ability to do so is es- of “one country, two systems”. It is a gam-
daunting than you might think. Half of sential to the bank’s operations. In the ble that America will resist its worst urges.
HSBC’s business already sits in a subsid- event, say, of a military skirmish between In Hong Kong HSBC would be a catastroph-
iary in Hong Kong that the HKMA regu- America and China, it is not impossible ic mistake away from losing its indepen-
lates. HSBC’s shares are listed in Hong there would be a backlash from Congress dence—but then the bank has never made
Kong as well as London. and New York’s populist regulator against a catastrophic mistake. Viewed from an in-
But how could the territory safely host a “Chinese” bank having such a privileged sular Britain, Hong Kong is dangerous and
a bank nine times as big as its GDP? Hong role in the dollar system. In 2014 regulators alluring, just as it was 151 years ago. 7
Kong officials say there are three lines of
defence. First, they set more store than Brit-
ain on HSBC’s innate strength: its culture, Argentina’s disputed debts
capital and vast pot of surplus cash. Sec-
ond, they believe that in a crisis its geo-
graphical silos would get assistance from
Feeding the vultures
the local central bank: the Bank of England
would help the British arm, the Federal Re-
serve the American one, and so on.
Last, there are the HKMA’s foreign re-
Buenos Aires
serves of $360 billion. They exist to protect
The government has struck one deal with holdout creditors. Others will be harder
the currency peg with the American dollar
and “the stability and integrity” of its fi-
nancial system. Were HSBC ever to cock up
as badly as, say, Citigroup has, it might take
I T MAY have taken 14 years, but the hold-
ers of $900m of bonds on which Argenti-
na defaulted in 2001 should soon be re-
ever, are not promising.
Argentina’s $82 billion sovereign de-
fault in 2001 was the largest-ever at the
$50 billion to re-capitalise it—within Hong paid. On February 2nd Alfonso Prat-Gay, time. Some 93% of bondholders subse-
Kong’s capacity. A liquidity run so bad that Argentina’s new finance minister, an- quently agreed to exchange their defaulted
it drained even HSBC’s cash pile could be nounced a deal with Italian bondholders debt for new securities, accepting a write-
harder for the HKMA to manage. It runs a worth $1.35 billion, or150% of the principal. down of 65%. But the original bonds had
currency board so cannot print Hong Kong The “pre-agreement” (it still has to be ap- not included “collective-action clauses”,
dollars in unlimited quantities. HSBC proved by Argentina’s Congress) is fairly under which a restructuring could be
largely operates in American dollars, small: it covers only 15% of the “holdouts” forced on all bondholders if a certain pro-
which the HKMA cannot create, and unlike who rejected restructurings in 2005 and portion of them agreed. The remaining
the Bank of England, the HKMA does not 2010. But it sets an important precedent. creditors rejected the offer, with some pur-
have a dollar swap line from the Fed. The creditors had been seeking $2.5 billion, suing full payment through the courts in-
Wrinkles like this mean that HSBC including outstanding interest payments, stead. A group of them, led by Elliott Man-
would ultimately rely on the unspoken and Argentina hopes to persuade the re- agement, a hedge fund, has secured a
backing of mainland China, with its vast fi- maining 85% to accept a similar write- number of victories in courts in New York,
nancial resources. Speaking anonymously down. The omens for a wider deal, how- under whose law the original bonds were 1
66 Finance and economics The Economist February 6th 2016


Getting more
A payments unicorn seeks to become a
dray-horse bank

T HERE is a through-the-looking-glass
quality to the blue-lit tunnel that leads
into the headquarters of Klarna, a Swedish
online-payments firm. And there is some-
thing back-to-front about the company it-
self. It is a startup firm that grew up in Eu-
rope, and is now seeking to expand into
America—the reverse of the usual pattern.
Unlike most tech unicorns galloping to ex-
pand their market share, it already makes a
profit. Even more strikingly, it plans to
move from an area of financial ferment—
One man’s vulture is another man’s victim mobile payments—into the sterile old busi-
ness of retail banking. Investors are giddy
2 written. One of those rulings barred Ar- Argentina at the World Bank and Inter- about its plans, however unusual: a fund-
gentina from paying interest on the restruc- American Development Bank. Argentina ing round last year valued the firm, whose
tured debt unless it also paid the holdouts has also persuaded private banks to lend it name is Swedish for “getting clearer”, at
in full. The court also forbade banks with money. On January 29th Argentina’s cen- $2.25 billion, up by almost a billion on the
operations in America from facilitating tral bank announced that it had secured a year before.
such payments. $5 billion bridging loan from a group of in- Klarna’s business “is quite basic”, says
As a result, Argentina defaulted on the ternational banks, including HSBC, JPMor- Sebastian Siemiatkowski, its founder and
restructured bonds in 2014. (An attempt to gan Chase and Santander. boss. Some 65,000 online merchants have
get around the ruling by making payments That eases the immediate pressure on so far hired it to run their checkouts. Its
to the restructured bondholders in Argen- Argentina. But Mr Macri’s political pro- main appeal, for both retailers and their
tina, beyond the reach of New York’s gramme still hinges on a return to interna- customers, is the simplicity of its system.
courts, fizzled.) The defaults upon defaults tional capital markets. Argentina’s fiscal Shoppers do not have to dole out credit-
have restricted Argentina’s access to inter- deficit is an estimated 7% of GDP. The gov- card details or remember a new password.
national credit markets and hampered ef- ernment will need $30 billion in financing Instead, they can simply give an e-mail and
forts to resuscitate its ailing economy. In this year, according to Miguel Kiguel, direc- a delivery address, and leave the payment
December Mauricio Macri, Argentina’s tor of EconViews, a local consultancy. The to be sorted out later. (Klarna pays the re-
new president, took office promising to central bank, for its part, has only $30 bil- tailer in the meantime, and bears the risk
strike a deal with the holdouts and return lion of foreign-exchange reserves. “Argen- that shoppers will not stump up in the
the country to economic health. It helps tina is in a race against time,” he says. “It end—something few other payment firms
that a clause in the restructuring deals would be very difficult to raise that kind of do.) Customers who have previously used
obliging Argentina to extend any im- money in Argentina.” one Klarna-run checkout are recognised
proved deal it strikes with the holdouts to Any deal with holdout creditors will when they visit another, further reducing
all the original bondholders has expired. have to be approved by Congress, where the need to fill out online forms. All this
After preliminary meetings in Decem- Mr Macri’s party is in a minority. It will take hugely increases the “conversion” rate—the
ber and January, Argentine officials skill to sell an accord to opposition politi- proportion of customers who actually
opened formal negotiations with Daniel cians who have spent years resisting a make a purchase after putting an item into
Pollack, a court-appointed mediator, and a compromise with “vulture funds” like El- their online “basket”.
number of the holdout bondholders in liott Management, which bought the debt Like many fintech firms, Klarna be-
New York on February 1st. The first day of in question at a hefty discount. lieves that its algorithms do a better job of
meetings lasted only four hours; Argentina During the first round of restructuring identifying creditworthy customers than
conceded that it was “still working” on a in 2005 Argentina introduced the “Ley Cer- the arthritic systems used by conventional
new offer. rojo” (Padlock Law) which was intended to financial firms. It relies on the e-mail and
Mr Pollack estimates that the holdouts’ prevent negotiations from being re- delivery addresses supplied, as well as the
claim, including accrued interest, now opened at a later date. It was suspended for size and type of purchase, the device used,
amounts to 400% of the principal, a figure a year to enable a second restructuring in time of day and other variables. This not
which equates to $9 billion. The holdouts 2010, but remains on the books. The law only allows it to bear the risk that custom-
have disdained discounted offers from Ar- under which Argentina attempted to steer ers fail to pay when Klarna bills them, but
gentina in the past, and would presumably money to the holders of the restructured also to offer them extended payment
turn their noses up at 150%. bonds could also impede the ratification of plans, for a fee. These loans have higher
But Argentina has worked hard in re- any new deal. “Congress will have to re- margins than the cut-throat online-pay-
cent weeks to strengthen its negotiating peal them,” says Mr Kiguel. ment business—although the giants of the
hand. After meeting Mr Prat-Gay on Janu- Many Argentines dislike the idea of re- industry, such as PayPal, are experiment-
ary 21st in Davos, Jack Lew, America’s trea- warding the holdouts for their obstinacy. ing with similar offerings.
sury secretary, pledged that the United But Mr Macri may like the idea of a distract- Klarna handled sales of roughly $10 bil-
States would no longer oppose lending to ing feud with them even less. 7 lion in 2014 (compared with PayPal’s $235 1
The Economist February 6th 2016 Finance and economics 67

2 billion), generating $300m in revenue, all most regulated bit of finance: retail bank- to undermine the dictum that cheap petrol
in Europe. (It has not yet made public fig- ing. It is licensed as a bank in Sweden, boosts consumption. Overall GDP
ures for last year.) It handles 40% of online which allows it to collect deposits from all growth—which clocked in at 2.4% for the
payments in Sweden. In 2014 it bought a over Europe. Mr Siemiatkowski sees this as year—has disappointed because of two
German firm, Sofort, expanding its pres- a cheap source of financing, but also as a other factors. The first is sluggish invest-
ence there. It thinks it can continue to grow big opportunity. Just like online shoppers, ment, thanks to the sickly oil industry. The
in Europe, but its main focus now is Ameri- he argues, bank customers are desperate second is the strong dollar, which has
ca, where it launched in September. for a safe-but-simple mobile interface like dragged down exports. Consumption con-
Klarna has not been signing up Ameri- the one Klarna offers in payments. The tributed 1.5 percentage points to growth in
can retailers as quickly as it had anticipat- firm’s 45m users provide it with a big and the final quarter of 2015; but investment
ed. But it hopes two global trends will growing pool of potential banking custom- and trade knocked off 0.9 percentage
speed its expansion. The more that online ers who already have an inkling of the sort points. If consumers had not spent most of
shopping moves to phones, the more of service it can provide. “In the longer their savings from petrol, in other words,
pressing it is for all online traders to make term we need to reimagine what banks growth would have been lower still.
their checkouts quick and easy to use, but really are,” he says, sounding like a typical In general, Americans do save more
still safe. Customers particularly detest fintech boss at last. 7 than before the financial crisis. From
typing in credit card numbers on their 2005-07 the savings rate hovered around
phones, especially if asked to do so in pub- 3%, which pushed debt to unsustainable
lic—while riding a busy bus, say. Klarna The American economy heights. Thanks in part to their newfound
reckons over 60% of its business today in- prudence, Americans now have much
volves mobile shopping, compared with
less than 10% two years ago. Some retailers,
Still kicking healthier finances. Household net worth
stands at 630% of income—only just shy of
such as sellers of shoes and clothes, report its high point in 2007. But unlike then,
an especially rapid shift to mobile. household debt has been falling. Lower
The other broad trend is for shopping debt and lower interest rates have reduced
across national borders. Online markets, households’ debt-service costs from 13% of
Reports of the death of the American
such as, connect bargain-hun- income on the eve of the crisis to 10% of in-
consumer are greatly exaggerated
gry consumers in rich countries to produc- come today, close to an all-time low.
ers of clothes, watches, toys or jewellery in,
for example, China. Klarna works with
Wish on European sales, letting customers
W HAT are America’s consumers up to?
When the plunging oil price made
petrol (gasoline) cheap, economists expect-
Consumers remain optimistic about
the economy. The University of Michigan’s
consumer-confidence index remained
pay for goods ordered cross-border only ed them to head to the shops and spend largely unchanged in January, despite the
after getting them, which can take weeks. more. But growth failed to pick up, causing turmoil in financial markets. It helps that
That reassures shoppers not ready to trust a rethink. Data released on January 29th Americans are not much exposed to
an anonymous Chinese T-shirt firm to de- showed that the economy grew by just shares: only 14% of household wealth is in-
liver. Many sellers are appalled by the pros- 0.7% (annualised) in the final quarter of vested in the stockmarket and 45% of
pect of having to comply with different 2015, with slowing consumption partly to Americans do not own shares at all.
countries’ financial laws, say on extending blame. Spending might fall if consumers are
credit, so they readily outsource payments. Now many analysts are claiming that spooked by gloomy headlines from Wall
Klarna, in contrast, is a glutton for regu- consumers have saved the fuel-price wind- Street, but the bigger threat is if wages and
latory punishment. In fact, it is entering the fall. The reality, though, is more nuanced. job growth stall at the same time as the
Americans—though more cautious since one-off gain from cheaper oil dries up.
the financial crisis—have spent most of As for the slight slowdown in consump-
their recent income gains. And consumer tion at the end of 2015, December was both
spending continues to drive growth. the warmest and the wettest on record.
In 2014 consumers spent an average of The warmth reduced spending on heating;
$2,500, or 4.2% of their income after tax, on the wet may have kept people indoors.
petrol. A year later refilling the tank had be- Spending at restaurants fell by 1.7%, notes
come almost a third cheaper. That gave Paul Ashworth of Capital Economics, a
households a windfall of about $650, or consultancy. Now that the heavens have
1.1% of their 2014 income. Rising employ- closed, wallets should reopen. 7
ment and modest wage growth chipped in
to boost their real (ie, inflation-adjusted) in-
come by 2.7%. Money in the bank
Consumers did put some of those gains United States
in their piggy-banks. The savings rate rose Disposable income
per person* Personal savings*
from 4.8% in 2014 to 5.2% in 2015. In Decem- $’000, 2009 dollars As % of disposable income
ber it was 5.5%, the highest level in three 39 5.5
years (see chart). But most of the 2.7% rise in
real incomes was spent. In October the
JPMorgan Chase Institute, a think-tank at- 38 5.0
tached to the bank, compared the accounts
of customers in gas-guzzling areas with 37 4.5
those of customers in places where people
drive less. They found that for every dollar
36 4.0
consumers saved on petrol, they spent up
to 89 cents elsewhere. 2013 14 15
That means they saved 11cents—enough
Source: Federal Reserve Bank of St. Louis *Annualised
Caution: reimagining under way to push up the savings rate, but not enough
68 Finance and economics The Economist February 6th 2016

tive to promote growth over the next three

years will foster the use of new technology.
Overall, however, the government,
which has been running a deficit ofaround
3% of GDP, is administering the same
medicine of austerity and structural re-
forms that countries in southern Europe
have had to swallow. The austerity pro-
gramme, only partially offset by the tem-
porary growth package, will eventually re-
alise savings of €4 billion—around 2% of
GDP—in 2019, mainly through spending
cuts. Even then, further parsimony will lie
ahead for a country whose public expendi-
ture is 58% of GDP, the highest in the Euro-
pean Union (the average is 47%).
The most important reform is an over-
haul of the labour market, says Olli Rehn,
Finland’s economic winter the economy minister, who as a former
European commissioner used to prescribe
Permafrost similar treatment elsewhere in the euro
area. Finland’s system of national collec-
tive bargaining was once a strength, en-
abling wage agreements to take into ac-
count overall economic constraints, but it
is now keeping wages too high. The gov-
ernment advocates a more flexible system,
The euro zone’s only Nordic member struggles to thaw its economy
in which firms will have greater freedom to

T HE harbour may be frozen, but that

does not stop a ferry with a few intrepid
tourists on board from making its way
Nordic laggard
Quarterly GDP, pre-crisis peak=100
reach their own deals with workers.
This should help to restore Finland’s
lost competitiveness by ensuring that
through the ice to Suomenlinna, a former wage increases stay below those in the rest
fortress and popular sightseeing spot near of the euro area and through higher pro-
Helsinki. Finns, whose country stretches Sweden ductivity at individual firms. A more im-
from the Baltic Sea to the Arctic, are inured 105 mediate boost should come from reforms
to hostile conditions, but their economy Portugal that bring down costs by increasing work-
seems less hardy. It is stuck in an unrelent- 100 ing time—for example, by scrapping two
ing freeze. A centre-right coalition govern- Euro area 19 national holidays and curbing public-sec-
ment formed last spring is trying to break Spain tor leave. The government wants employ-
the ice, but has not yet got far. ers and unions to agree upon such a pack-
After thriving for several years both be- Finland age, but they have failed four times. If they
fore and after joining the euro in 1999, Fin- 90 cannot reach a deal, the government will
2007 08 09 10 11 12 13 14 15
land ran into trouble after the financial cri- impose measures in the spring, warns
Source: Eurostat
sis of 2007-08. Output plunged by 8.3% in Alexander Stubb, the finance minister.
2009. Although GDP grew in 2010 and 2011, One obstacle to Finland’s revival goes
it then declined for the following three baby boom and subsequent bust takes its largely unmentioned. Had the country re-
years—and may have contracted again in toll. The number of Finns aged 15-64 is fall- tained its own currency, the long, hard ad-
2015. Short-term data suggest that the econ- ing by almost 0.5% a year. Markku Kotilai- justment that it is now seeking to achieve
omy will be flat in early 2016, says Jussi nen of ETLA, an economic think-tank, reck- by lowering domestic costs could have
Mustonen, chief economist at the Confed- ons that potential growth has halved from been attained much more easily by allow-
eration of Finnish Industries. around 3% a year before the financial crisis ing the markka to depreciate. Finland’s
Erkki Liikanen, governor of the central to less than 1.5% now. On top of all of this, economic woes stand in contrast with the
bank, explains that Finland has suffered an exports to Russia have plunged by a third robust performance of its neighbour, Swe-
extraordinary combination of adverse in the past year, owing to an economic den, which kept the krona. Finland’s out-
shocks. The most important of these was slump there as well as trade sanctions. Rus- put is now 7.3% lower than at its previous
the decline of Nokia, once Finland’s big- sia now buys just 5.8% of Finland’s exports, peak—worse than in Spain or Portugal (see
gest company and the world’s biggest mak- down from 10% in 2012. The Finnish eco- chart). Sweden’s, in contrast, is 8.6% higher.
er of mobile phones. Just as the rise of No- nomic and social model is being chal- But there is more to the outperfor-
kia did much to propel the Finnish lenged, says the OECD in a new survey. mance of Sweden, whose economy is
economy in the decade before the finan- twice as large and more diversified, than
cial crisis—accounting for nearly a quarter Faith in Finn tech keeping its own currency. And lamenting
of growth—so its fall in the smartphone era Finland is well-placed to find new sources the constraints of the euro is not much help
has contributed to subsequent weakness. of growth. According to a report on com- to the Finnish government. If one thing has
Another problem was that wages carried petitiveness from the World Economic Fo- been learnt during the euro crisis, it is that
on rising despite sagging productivity: unit rum, it ranks second globally for innova- leaving the single currency would be haz-
labour costs are 10-15% higher than those of tion. Startups are an ideology among ardous and costly. The only path for Fin-
Finland’s trading partners. young Finns, says Mr Kotilainen. Encour- land is to regain lost ground within the
Meanwhile the workforce is shrinking aging them is a priority of the government. monetary union, however painful that
as an especially pronounced post-war Much of a €1.6 billion ($1.8 billion) initia- may be. 7
The Economist February 6th 2016 Finance and economics 69

Free exchange Trade in the balance

Globalisation can make everyone better off. That does not mean it will

T HE past two decades have left working-class voters in many

countries leery of globalisation. Donald Trump, the billion-
aire television star who promises to slap a 45% tariff on Chinese
The gain to China from this opening up has been enormous.
Average real income rose from 4% of the American level in 1990 to
25% today. Hundreds of millions of Chinese have moved out of
goods if elected president of America, has partly based his candi- poverty thanks to trade. A recent NBER working paper suggests
dacy on this angst. Economists tend to scoff at such brash protec- Americans will benefit too: over the long run trade with China is
tionism; they argue, rightly, that trade does far more good than projected to raise American incomes. In parts of the economy
harm. Yet new research reveals that for many, the short-term costs less susceptible to competition from cheap Chinese imports, the
and benefits are more finely balanced than textbooks assume. authors argue, firms profit from a larger global market and re-
David Autor of MIT, David Dorn of the University of Zurich duced supply costs, and should also gain—eventually—from the
and Gordon Hanson of the University of California, San Diego, reallocation of labour away from shrinking manufacturing to
provide convincing evidence that workers in the rich world suf- more productive industries.
fered much more from the rise of China than economists thought But those benefits are only visible after decades. In the short
was possible. In their most recent paper*, published in January, run, the same study found, America’s gains from trade with Chi-
they write that sudden exposure to foreign competition can de- na are minuscule. The heavy costs to those dependent on indus-
press wages and employment for at least a decade. tries exposed to Chinese imports offset most of the benefits to
Trade is beneficial in all sorts of ways. It provides consumers consumers and to firms in less vulnerable industries. Economists’
with goods they could not otherwise enjoy: without it only Scots assumption that workers would easily adjust to the upheaval of
would sip lovely Islay single malts. It boosts variety: Americans trade seems to have been misplaced. Manufacturing activity
can shop for Volvos and Subarus in addition to Fords. Yet its big- tends to be geographically concentrated. So the disruption
gest boon, economists since Adam Smith have argued, is that it caused by Chinese imports was similarly concentrated, in hubs
makes countries richer. Trade creates larger markets, which al- such as America’s Midwest. The competitive blow to manufac-
lows for greater specialisation, lower costs and higher incomes. turers rippled through regional economies, write Messrs Autor,
Economists have long accepted that this overall boost to pros- Dorn and Hanson, battering suppliers and local service indus-
perity might not be evenly spread. A paper published by Wolf- tries. Such places lacked growing industries to absorb displaced
gang Stolper and Paul Samuelson in 1941 pointed out that trade workers, and the unemployed proved reluctant (or unable) to
between an economy in which labour was relatively scarce (like move to more prosperous regions. Labour-market adjustment to
America) and one in which labour was relatively abundant (like Chinese trade was thus slower and less complete than expected.
China) could cause wages to fall in the place that was short of As a result, the authors found in a 2013 paper, competition
workers. Yet many were sceptical that such losses would crop up from Chinese imports explains 44% of the decline in employ-
much in practice. Workers in industries affected by trade, they as- ment in manufacturing in America between 1990 and 2007. For
sumed, would find new jobs in other fields. any given industry, an increase in Chinese imports of $1,000 per
For a long time, they appeared to be right. In the decades fol- worker per year led to a total reduction in annual income of
lowing the second world war, rich countries mostly traded with about $500 per worker in the places where that industry was con-
each other, and workers prospered. Even after emerging econo- centrated. The offsetting rise in government benefits was only $58
mies began playing a larger role in global trade, in the 1980s, most per worker. In a paper from 2014, co-written with Daron Acemo-
research concluded that trade’s effects on workers were benign. glu, of MIT, and focusing on America’s “employment sag” in the
But China’s subsequent incorporation into the global economy 2000s, the authors calculate that Chinese import competition re-
was of a different magnitude. From 1991 to 2013 its share of global duced employment across the American economy as a whole by
exports of manufactured goods rocketed from 2.3% to 18.8%. For 2.4m jobs relative to the level it otherwise would have enjoyed.
some categories of goods in America, Chinese import penetra- The costs of Chinese trade seem to have been exacerbated by
tion—the share of domestic consumption met through Chinese China’s large current-account surpluses: China’s imports from
imports—was near total. other countries did not grow by nearly as much as its exports to
other countries. China’s trade with America was especially un-
balanced. Between 1992 and 2008, trade with China accounted
Trader woes for 20-40% of America’s massive current-account deficit; China
United States Current-account balance, $bn imported many fewer goods from America than vice versa.
Manufacturing Imports from China United States
as % of total China Sub-Pareto
employment as % of GDP 600
18 3.0 Trade generates enormous global gains in welfare. Generous
trade-adjustment assistance, job retraining and other public
15 2.5 200 spending that helps to build political support for trade are there-
12 2.0 0 fore sound investments. To make any of these policies work,

200 however, economists and politicians must stop thinking of them
9 1.5
as political goodies designed to buy off interest groups opposed
6 1.0 to trade. They are essential to fulfilling trade’s promise to make
everyone better off. 7
3 0.5 800
0 0 1,000 * Studies cited in this article can be found at
1990 95 2000 05 10 15* 2000 05 10 15*
Sources: US Census Bureau; US Bureau of Labour Statistics; IMF *Estimate
70 Property

The Economist February 6th 2016

The Economist February 6th 2016 71
Science and technology
Also in this section
72 Eradicating Guinea worms
73 Voice-powered medical devices
73 Detecting doped horses
74 Convergently evolved insects
74 Publicising scientific errors

For daily analysis and debate on science and

technology, visit

Organ preservation ar, trehalose, as the vitrifying “cryoprotec-

tant”. The advantage of trehalose over
Wait not in vain glucose is that it is less reactive, and thus
less likely to damage tissue in high concen-
trations. Its disadvantage is that it is not so
readily absorbed into cells. Dr Toner has
overcome that, though, by decorating it
with molecular titbits called acetyl groups.
After decades of piecemeal progress, the science of cryogenically storing human
These act as chemical keys, granting en-
organs is warming up
trance to otherwise inaccessible places.

O VER the course of an average winter

North American wood frogs, Rana
sylvatica, may freeze solid several times.
when it freezes. If that water is in living tis-
sue, it does all sorts of damage in the pro-
cess. But an alliance of experts, ranging
This seems to work. In June 2015 he and his
colleagues showed that their acetylated
trehalose could allow frozen rat cells to be
They are able to get away with this by re- from surgeons and biochemists to me- revivified, just as they had hoped.
placing most of the water in their bodies chanical engineers and food scientists, is Revivification brings its own dangers,
with glucose mobilised from stores in their attempting to overcome this inconvenient though. Warming cryopreserved tissue
livers. That stops ice forming in their tis- fact. And, after years of labour, many of must be done rapidly—otherwise, para-
sues as temperatures drop. When things them think they are on the threshold of doxically, it can cause ice to form where
warm up again, the frogsicles thaw out, success, and that cryopreservation will once there was only glass. This is because
with no evident ill effects. soon become a valuable technology. the non-aqueous part of the glass melts
What frogs do without thinking, hu- into a proper liquid before the water does,
man researchers are trying, with a great In from the cold and thus separates out. The now-pure wa-
deal of thinking, to replicate. The prize is Some human tissue is already cryopre- ter then crystallises, with all the destruc-
not the freezing and reanimation of entire served. The trick was managed with sperm tive consequences that follow.
people—that idea is somewhere between a and red blood cells six decades ago and This rapid warming must, though, be
fantasy and a fraud—but the long-term three decades ago with early-stage embry- done uniformly—lest, in the words of John
preservation of organs for transplant. Ac- os. But these are special cases. Spermato- Bischof of the University of Minnesota,
cording to the World Health Organisation, zoa and blood corpuscles are single cells, “the organ crack like an ice cube dropped
less than 10% of humanity’s need for trans- and also have little water in them. Frozen into water”. Dr Bischof has hit on a novel
plantable organs is being met. The supply embryos have a couple of hundred cells, solution to the problem. He and his col-
has fallen as cars have become safer and in- but are still tiny structures. Freezing full- leagues propose adding tiny particles of
tensive-care procedures more effective, sized organs has proved more problematic. magnetite, a form of iron oxide, to the cryo-
and part of what supply there is is lost for Mehmet Toner of Harvard Medical protectant. Put the organ in a rapidly fluctu-
want of an instantly available recipient. School is following the wood frogs’ ap- ating magnetic field and the magnetite will
Cooled, but not frozen, a donated kidney proach. Surprising as it sounds, these am- heat up fast. If the particles are scattered
might last12 hours. A donated heart cannot phibians survive the winter by turning uniformly though the tissue, this heating
manage even that span. If organs could be their insides into glass, not ice. Though a should also be uniform. And recent experi-
frozen and then thawed without damage, layman may not realise it, glasses are tech- ments Dr Bischof has conducted on heart
all this would change. Proper organ banks nically liquids, not solids. The crucial dif- valves and arteries suggest it is.
could be established. No organs would be ference is that when a glass cools it does Ido Braslavsky, of the Hebrew Universi-
wasted. And transplants that matched a not form crystals, with the sudden, tissue- ty in Jerusalem, is taking a different tack.
patient’s requirements precisely could be damaging change in volume this entails. Many species of cold-resistant fish, insects
picked off the shelf as needed. Wood-frog “glass” is a concentrated glu- and plants employ proteins that actively
The problem is that water expands cose solution. Dr Toner uses a different sug- inhibit the formation of ice crystals, even 1
72 Science and technology The Economist February 6th 2016

2 though they do not lower water’s freezing Health, the American government’s medi- tion, started by Peter Thiel, who helped
point. Dr Braslavsky has spent a long time cal-research arm, is also paying for work launch PayPal, has given a grant to Arigos
studying such proteins, and he has built a on cryopreservation. Biomedical, a firm working on high-pres-
special microscope to do so. By attaching Venture capitalists, charities and indi- sure vitrification. New firms abound: Tis-
fluorescent tags to individual protein mol- vidual philanthropists are queuing up to sue Testing Technologies is working on
ecules, he can see exactly where they go add to the rising pile of cash. The XPRIZE ways of warming organs uniformly; Syl-
and how they stymie the growth of ice Foundation, for example, is considering of- vatica Biotech is perfecting recipes for cryo-
crystals by attaching themselves to incipi- fering an award to any team that can trans- protectants; X-therma is attempting to
ent crystals in ways that stop them extend- plant into five animals organs that have mimic cryoprotective proteins. The cryo-
ing themselves. (He applies this knowl- been cryopreserved for a week. The re- preservation race is on, then. And the win-
edge too, to the way ice formation search-funding arm of the Thiel Founda- ning post is the organ bank. 7
influences the texture of ice-cream.)
Researchers have also devoted much ef-
fort to avoiding the deep freeze altogether, Guinea-worm disease
by perfusing organs with a cooled cocktail
of preservatives, oxygen, antioxidants and
the like. In a sense this is tantamount to
Going, going...
keeping an organ on its own dedicated life-
support system. Last year Korkut Uygun of
Harvard Medical School, in collaboration
with Dr Toner, demonstrated that a combi-
nation of cooling and perfusion could pre-
An awful infestation has nearly been wiped out
serve a rat liver for four days.
All of these approaches, though, are
quite intrusive. Kenneth Storey, ofCarleton
University in Canada, thinks a better tack
I T LOOKS like something out of a Gothic
movie: a metre-long monster that
emerges slowly through blistered human
Chasing the dragon’s tail
Dracunculiasis cases, by country 70
is to try to understand and emulate the un- skin, its victim writhing in agony. No one is 2014 2015
derlying molecular biology of cold-resis- spared. It can creep out from between the
tant creatures. He has studied in detail the toes of a child or from the belly of a preg-
changes to cell proteins and genes that go nant woman. In the mid-1980s Dracuncu-
on in such organisms, including the ac- lus medinensis, the Guinea worm, as this
tions of “micro-RNAs”—small molecules horror is called, afflicted 3.5m people a year
that can interrupt a cell’s gene-expression in 20 countries in Africa and Asia. But last
or protein-making machinery. year that number was down to just 22, all
In December he published a catalogue of them in Chad, Ethiopia, Mali and South 13
of 53 micro-RNA changes that occur in Sudan. Dracunculiasis is thus poised to be- 3 3 9
5 5
wood frogs as they freeze. Hibernating come the second human disease to be Ethiopia Chad Mali South
mammals, insects and even nematode eradicated, after smallpox. Sudan
Source: WHO
worms all seem to turn off their cells in This blessed state ofaffairs is thanks to a
similar ways to frogs. He therefore thinks 30-year campaign led by the Carter Centre,
there may be an overarching molecular a charity set up by Jimmy Carter, a former of those with worms hanging out of them.
signal which, if it could be found, would president of America. Mr Carter picked his They also distribute filters of cloth-like
prepare organs for the freezer. target well. Most Guinea worms grow in mesh for households’ drinking-water
human beings, and their only other host is buckets, and straw-like filters equipped
Leapfrog the domestic dog. Both humans and dogs with a string, so that they can be worn
There are, then, many cryopreservationist can be monitored closely, in ways wild ani- around the neck for people to use when
ideas around—so many that some think a mals cannot. This means, in principle, that drinking away from home. These filters
little co-ordination is in order. That is the every case of dracunculiasis can be tracked strain copepods from the water. They, as
purpose behind the Organ Preservation and the worm involved prevented from re- well as larvicide used for treating water
Alliance (OPA), an American charity producing. The task the Carter Centre set it- sources suspected of contamination, are
which was set up in 2014. It has enjoyed self was to turn this principle into reality. all donated by their manufacturers.
some success. A year ago it held a hack- The worm releases its larvae as it These measures—and meticulous sur-
athon—a kind of DIY-tinkering party to emerges, a process that takes about ten veillance—have brought the Guinea worm
find novel solutions. The winner, Peter Kil- weeks. These larvae normally become in- close to extinction. Mr Carter’s star power
bride of University College, London, de- fectious only if swallowed by copepods, has helped, too. He and his wife, Rosalynn,
vised an ingenious vitrification method tiny crustaceans which live in stagnant wa- have travelled to dozens of affected vil-
that uses tiny particles of silicon dioxide— ter. If someone drinks such water, the lar- lages, bringing the attention of health min-
sand, in essence—in lieu of the usual, po- vae then migrate to his skin to grow, emerg- isters and wealthy benefactors to an other-
tentially toxic cryoprotectants. It is a poten- ing about a year later. About 90% of worms wise neglected disease. In 1995 Mr Carter
tially transformative idea that has already emerge from the lower part of the leg. Suf- negotiated the longest humanitarian
been submitted for patent. ferers spread the larvae when they dip ceasefire in history: the six-month “Guinea
The OPA is also good at lobbying. Last their feet in water to relieve the pain. worm ceasefire” in Sudan, which was used
year it persuaded America’s defence de- Breaking this cycle of transmission to distribute filters, and also medicines and
partment, an organisation with an obvi- means doing two things: stopping the lar- vaccines for other diseases.
ous interest in transplants, to seed seven vae reaching copepod-inhabited water, Mr Carter says he hopes to outlive the
cryopreservation-research teams with and stopping people ingesting infested co- last Guinea worm. Though he is now 91,
money. In January the department ex- pepods. To do so, local volunteers trained that is a plausible ambition. All 22 of the
panded the project with three new streams by the Carter Centre and its partners worms that were recorded last year have
of money. The National Institutes of spread the message and tend the wounds now emerged, and are dead. It is therefore 1
The Economist February 6th 2016 Science and technology 73

2 likely that Mali, Ethiopia and South Sudan Dr Choo’s power plants are small plant, rather than having to be separate
are now rid of the awful creature, though sheets of lead zirconate titanate, a sub- from it.
there needs to be a worm-free period of stance that is piezoelectric—meaning it gen- Since most people are not chatterboxes,
three years to be sure. erates electricity when it vibrates. He knew talking all the time, a practical system will
That leaves only Chad, where an un- from past work that sheets of the size he still need batteries to build up charge so
usual development is keeping eradicators chose (just under 1cm2) resonate at around that the surplus can be used when needed.
on their toes. There, disease detectives 690Hz. This is close to the F in the octave Intriguingly, this might even be possible
found that the worm’s nine human vic- above middle C, and thus well above the when someone is asleep. Part of the sound
tims last year had ingested the larvae by normal range of the human voice. Using of snoring is in the experimental device’s
eating raw fish, rather than by drinking un- larger sheets would lower the resonant fre- sweet spot. That may not be much consola-
filtered water. Worryingly, hundreds of quency, just as long organ pipes produce tion for the partners of snorers. But at least
dogs were infested this way, too. Measures lower notes than short ones. Larger sheets, their bedmates will no longer be able to
to prevent new cases were swiftly de- though, would be less deployable inside turn a deaf ear to their complaints. 7
ployed. Eradication teams have been urg- the body. So, instead, he sought to lower a
ing people to make sure the fish they eat is sheet’s resonant frequency without in-
fully cooked, to bury raw fish entrails (to creasing its area by carving a sinusoidal Doping
prevent dogs from eating them) and to teth- shape out of it (see picture). Such a shape
er infested canines.
The Carter Centre’s field workers reck-
must inevitably be longer than its parent
rectangle’s longest sides, albeit that its
No more horsing
on people are 70-80% compliant with the
second and third measures on this list.
length is now zigzagged. A sinusoidal sheet
should thus have a lower resonant fre-
Compliance with the first is harder to esti- quence than its rectangular parent.
mate, since it would mean a mass invasion It worked. When Dr Choo and his col-
A way to tell if geldings are having their
of people’s kitchens. Whether these mea- leagues tested the carved sheets by expos-
testosterone boosted
sures will be enough to break the chain of ing them to a range of frequencies and
transmission remains to be seen. But those
workers’ vigilance is such that any new
cases, whether human or canine, are likely
monitoring the amount of electricity gen-
erated, they found that the voltage spiked
at between 100Hz and 120Hz (approxi-
T HE murky world of sports doping has
been in the news recently, as accusa-
tions fly concerning the use, on a scale pre-
to be noticed quickly. With luck, it will not mately the dominant frequencies of adult viously unacknowledged, of perfor-
be long before the world’s last Guinea male voices), and also between 200Hz and mance-enhancing drugs in athletics. But
worm becomes a celebrity—preserved for 250Hz (the female voice’s dominant fre- human beings are not the only animals
posterity in a formalin-filled jar at the Car- quencies). And, although the amount of doped to enhance their performance.
ter Centre’s headquarters, in Atlanta. 7 power produced is not huge, it seems ade- Racehorses are similarly afflicted. Catch-
quate for the task proposed. ing cheats in the world of horse-racing has,
As Dr Choo reported on January 26th, however, proved hard. Human and eques-
Voice-powered medical devices to the International Conference on Micro trian biology are different, and techniques
Electro Mechanical Systems in Shanghai, developed for the one do not necessarily
Good vibrations he and his team were able to harvest a
tenth of a milliwatt per square centimetre
transfer to the other. Terence See Ming
Wan, of the Hong Kong Jockey Club’s Rac-
of lead zirconate titanate from the voice of ing Laboratory, hopes to change that. As he
a man talking at 70 decibels, which is nor- explains in a paper in Analytical Chemis-
mal speaking volume, and three-tenths try, he has developed a technique for spot-
from someone shouting at 100 decibels. ting doped horses that should make it easi-
A generator that runs off the vocal cords
Implants usually require a tenth of a milli- er to catch cheats.
may improve the efficacy of implants
watt or less to function, so this prototype’s These days, artificial anabolic steroids

I MPLANTED devices, such as heart pace-

makers, are a valuable part of modern
medicine’s armamentarium. Their use,
performance suggests a practical device
might be within reach—especially as the vi-
brations produced by the voice travel effi-
are easily detected, so athletes (male ones,
anyway) are turning instead to com-
pounds like luteinising hormone to bulk
however, is limited by the need to renew ciently up through the skull, meaning the up their muscles. This hormone does not
their batteries—and this is a particular pro- generator could be integrated into an im- act directly. Rather, it stimulates a man’s
blem for those, such as cochlear implants testes to produce natural testosterone,
(which improve hearing), that are inside which then does the muscle-bulking. For
the wearer’s head. those doping male racehorses, though, this
For obvious reasons, surgeons do not option is often not available, because
like opening heads up unless it is strictly many such horses are geldings. Instead,
necessary. Sometimes, therefore, the bat- gelding-dopers tinker with another source
tery packs that power head implants are of testosterone, the adrenal glands—their
put in the wearer’s chest. But this means weapons of choice being drugs that en-
running a wire up through the patient’s hance the effect of this more meagre testos-
neck, from the one to the other, which is terone supply.
scarcely satisfactory either. A way to pow- In the natural course of events, testos-
er such implants without replacing their terone levels are regulated by an enzyme
batteries at all would thus be welcome. called aromatise, which converts the hor-
And Hyuck Choo of the California Insti- mone into oestrogens. There are, however,
tute of Technology and his colleagues two drugs—androstanediol and androsta-
think they have one. They plan to scavenge dienedione—that block aromatase’s ac-
the necessary energy from the vibrations tion, increasing testosterone levels, and
of the vocal cords that occur when some- therefore muscle mass. Using androstane-
one is talking. Ring my chimes diol and androstadienedione is particular- 1
74 Science and technology The Economist February 6th 2016

2 ly desirable from the doper’s point of view The scientific method

because their levels become undetectable
two to four days after administration.
Dr Wan suspected, however, that these
Let’s just try that again
aromatise inhibitors might not affect just
testosterone levels; they might also alter
concentrations of other steroids, such as
androstane, androstadien and androster-
one. That would be a sign that a horse had
Reproducibility should be at science’s heart. It isn’t. But that may soon change
been dosed with them.
To test this, he and his colleagues ran a
study that monitored 31 naturally pro-
duced steroids in the urine of 32 thor-
T HE Journal of Irreproducible Results is a
long-running satirical magazine, de-
signed for the amusement of scientists. If
company, attempted to reproduce the re-
sults of 53 high-profile cancer-research pa-
pers they found that only six lived up to
oughbred geldings over the course of nine the title were not already taken, though, it their original claims.
days. Before the study started, four of the would be a good one for another, more se- This figure is probably typical. What
animals were deliberately doped with the rious publication that is being launched on was not typical was that Amgen actually
two aromatise inhibitors. Dr Wan, how- February 4th. The Preclinical Reproducibili- offered it for publication, and it was, in-
ever, did not know which four. ty and Robustness Channel, an electronic deed, published (in 2012, by Nature). Most-
As he and his colleagues had hoped, rather than a paper journal, is dedicated to ly, journal editors, like academic scientists,
they were able to pick the doped horses the task, found tedious by most academic are more interested in new work than in
from the others on the basis of the crea- researchers, of replicating and testing the the refutation ofold stuff. Amgen’s submis-
tures’ steroid profiles. Seven steroids dif- experiments of others. Professional egos, sion was spectacular, because so many pa-
fered significantly in concentration be- the exigencies of career-building and the pers were involved at one go. This may
tween doped and control animals. Most restricted sizes of grants and budgets all have been what got it over the bar. If each
important, these differences were detect- conspire against the rerunning, in universi- refutation had been written up and sub-
able for between four and nine days after ties, of old studies instead of the conduct- mitted separately, the outcome would
the horses had been given the inhibitors. ing of new ones. probably have been different. As for the six
Even though the drugs themselves were no Commercial researchers cannot afford successful replications it included, why
longer present, the impressions they had to be so choosy. If they pick an idea up from would anyone bother to publish work con-
left behind were—which is good news for academia, they have to be sure that it firming what was already known?
those who believe that racecourses should works. Often, it doesn’t. For example, Yet knowing which previous research is
also be level playing fields. 7 when staff at Amgen, a Californian drug and is not correct is crucial to the progress
of science, and a repository of such infor-
mation would be useful. Hence the Preclin-
ical Reproducibility and Robustness Chan-
nel. Its publishers, Faculty of1000, based in
London, hope to provide an outlet for the
accumulated replications gathering dust in
commercial laboratories (Amgen has
promised its trove to the venture), and also
to stimulate academic scientists to follow
suit and provide more.
The problem, though, is not restricted to
medicine. An analysis of 98 psychology
papers, published in 2015 by 90 teams of re-
searchers co-ordinated by Brian Nosek of
the University of Virginia, managed to rep-
licate satisfactorily the results of only 39%
of the studies investigated. Again, it was
the very size of this project that got it into
print, as smaller studies languished.
Things may now be changing. Both re-
producibility and the whole openness of
the scientific process are discussed much
Winging it
more than once they were. An entire insti-
The fossil on the right-hand side of this picture is not, as comparison with the modern tute dedicated to the matter, the Meta-Re-
insect on the left might suggest, a butterfly. It is a lacewing called Oregramma search Innovation Centre at Stanford, in
illecebrosa. It and its relatives, the kalligrammatids, flew in the forests of the Jurassic California, opened for business in 2014.
and Cretaceous periods between 165m and 125m years ago, dying out 69m years before If this institute flourishes—and even
the first-known butterfly fossil. They are thus, as Conrad Labandeira of the Smithsonian more so if it is emulated—it may even be-
Institution in Washington, DC, and his colleagues describe in the Proceedings of the come possible to make a career out of be-
Royal Society, examples of convergent evolution: the emergence in unrelated groups of ing a buster of others’ questionable efforts:
similar bodies, to permit the pursuit of similar ways of life. Just as ichthyosaurs (marine a forensic scientist of science, as it were.
reptiles contemporary with the kalligrammatids) and dolphins evolved basically the That is by no means certain, and there will
same shapes, in order to hunt fish and other sea creatures, so kalligrammatids seem to probably be few Nobel prizes in it. But
have evolved “butterfly-ness”, complete with large, scale-covered wings, eye spots to mopping up messes is an honourable ac-
distract predators and mouth parts formed into a proboscis. They acted, Dr Labandeira tivity, and this week’s launch of a new out-
thinks, as pollinators for the gymnosperm trees that preceded modern angiosperms, let for the publication of duplication is part
now the food plants of real butterflies. of the clean-up. 7
The Economist February 6th 2016 75
Books and arts
Also in this section
76 Egypt’s uprising
76 Latin’s Greek roots
77 A neurosurgeon examines his life
77 A Jewish English memoir
78 Art and the internet

For daily analysis and debate on books, arts and

culture, visit

Chamber music English, everyone else was Hungarian, and

he soon realised that he was being put to
Four into one does go the test not so much for his prowess on the
violin—given his training, that was taken
for granted—but for his musical ideas, his
personal qualities and his ability and will-
ingness to work with colleagues. He felt
green and rather nervous about playing
with such a cohesive and experienced
A life spent at the summit of chamber music—playing Beethoven’s string quartets
group, and also conscious that the others

T HE string quartet is an invention of the

classical age, brought to perfection by
Mozart and Haydn. Goethe once defined it
Beethoven for a Later Age: The Journey of
a String Quartet. By Edward Dusinberre.
came from a different and somewhat more
laid-back culture. But they offered him the
job, or so he thought; it was only later that
as “four rational people conversing with Faber & Faber; 262 pages; £18.99. To be one of them told him that what he was tak-
each other”, which suggests that a book on published in America by University of ing on was not a job but a family and a life.
the subject might not be very exciting. But Chicago Press in May; $30 A lot of the time the work is just hard
that would do an injustice to Edward Du- grind. The Takacs Quartet plays about 100
sinberre’s memoir “Beethoven for a Later a later age.” concerts annually, does a lot of recording
Age: The Journey of a String Quartet”. Mr A century later, Igor Stravinsky still and tours for around half the year. This is
Dusinberre is the lead violinist of the Ta- judged the quartets “contemporary”, and hard on spouses and children (who barely
kacs Quartet, one of the world’s most high- thought they always would be. Another get a mention). When not touring, the play-
ly regarded string ensembles, and he has century on, Mr Dusinberre clearly feels the ers practise on their own and then rehearse
written a fascinating book about the musi- same way. He links each chapter in his together for hours every day. They endless-
cal life of this group of players. Interwoven memoir to a particular quartet, moving ly debate their different approaches to the
with that is the story of Beethoven’s 16 back and forth between the story of the music, often argue, and try out each other’s
string quartets, works of extraordinary composition (and the personal, social and ideas even if they don’t think they are very
power written over a quarter-century that political context it was written in) and the good. Every time they play they try to do
moved the genre on from the earlier mas- life of his quartet. something new, which may help explain
ters and are now regarded as the apogee of Founded in 1975, the Takacs Quartet still why they have been so successful.
the chamber-music repertoire. retains two of its original members. Mr Du- Anyone who has ever watched a good
In Beethoven’s day many of them met sinberre joined more than 20 years ago to string quartet in concert will be familiar
with incomprehension and dismay, which replace the founding first violinist, Gabor with the subtly effective way the players
the short-tempered composer had to learn Takacs-Nagy. Even the most recent arrivals communicate—here a raised eyebrow,
to accommodate. When his now famous have been around for more than ten years, there a glance or a nearly imperceptible
“Grosse Fuge”, originally the last move- so all four musicians know each other very nod. It is almost as though they were a sin-
ment of one of his late quartets, was shred- well, both musically and personally. The gle instrument, not four working in harmo-
ded by critics, Beethoven grudgingly wrote book is admirably kind about every one of ny. And at its best, the experience of play-
a new ending. At a performance of another the players, but at times the constant en- ing in a quartet can be sublime. In a
quartet he got his musicians to play the forced proximity must become claustro- performance of Beethoven’s quartet in A
whole thing twice over, hoping that the au- phobic. When the four are on tour together minor, Mr Dusinberre explains: “We were
dience might gain a better insight into the they generally try to keep away from each taken far out of ourselves, liberated from
music the second time. And when a player other as much as possible. the confines of individual personalities as
complained in the composer’s hearing that When Mr Dusinberre auditioned for we surrendered to the music, a blissful
the quartets were “not music” at all, he re- the part in 1993 he was only 23, almost a state.” An achievement that makes all the
plied: “Oh, they are not for you; they are for generation younger than the rest. He was grind worthwhile. 7
76 Books and arts The Economist February 6th 2016

Egypt’s uprising common by the end of Mr Mubarak’s reign zeitgeist is matched at least by his hope for
that it is difficult to mark a turning-point. the future. “A significant proportion of the
Reading Piketty on But Mr Shenker highlights disputes over Egyptian population no longer thinkabout
compensation at the enormous textile themselves and about politics in the same
the Nile plant in Mahalla, a “cauldron of rebellion”, way, and are no longer prepared to put up
in 2006. Nothing exposed the state-labour with the old crap,” says one of the tired
relationship more than the seating ar- young revolutionaries who fill his book.
rangement during talks between the par- Western journalists have tried hard to take
The Egyptians: A Radical Story. By Jack
ties. On one side of the table sat the head of something—anything—positive away from
Shenker. Allen Lane; 528 pages; £15.99
the company and local politicians. Next to the failed uprising. In this regard, Mr

A FTER nearly three decades in power

and 18 days of unrest, it seemed as if
Hosni Mubarak was finally ready to relin-
them was the appointed president of
Egypt’s official trade-union federation, fac-
ing the elected leaders of the striking work-
Shenker is more convincing than most. But
for now Abdel-Fattah al-Sisi, the current
strongman, has “rebooted” the patriar-
quish his grip on Egypt. But as the old dic- ers, whom he ostensibly represented. chy—and been embraced by a large num-
tator took to the microphone on the night Most of Egypt’s problems can be traced ber of Egyptians. “I love Egypt’s youth and
of February 10th 2011, it became clear that back to the market reforms of its leaders, consider them my children,” he says. On
he was not willing to go quite yet. “I am ad- claims Mr Shenker, who often sounds as if the surface, Egypt looks and sounds much
dressing you all from the heart, a father’s he is quoting passages from Thomas Pi- as it did before the uprising in 2011. 7
dialogue with his sons and daughters,” he ketty’s “Capital in the Twenty-First Cen-
said, before offering a few worthless con- tury”. Egypt, he laments, suffers from the
cessions. Mr Mubarak was merely the lat- “deep-rooted international patterns of Classical literature
est Egyptian ruler to claim the mantle of privileged accumulation and mass dispos-
national patriarch. For once, the people re- session” that are a direct result of neolib- Once upon a time
fused to play the role of deferential chil- eral capitalism. You can hardly blame Mr
dren. He resigned the next day. Shenker for thinking as he does. Facing
Jack Shenker, a reporter for the Guard- economic crisis in the early 1990s, Egypt
ian, was in Tahrir Square, the heart of the signed on to the standard IMF stabilisation
uprising, as Mr Mubarak lost control of plan that called for cutting budgets, slash-
Beyond Greek: The Beginnings of Latin
Egypt. What distinguishes his account ing subsidies and privatising public enter-
Literature. By Denis Feeney. Harvard
from others is his presence in the slums, prises. Mr Mubarak moved at a breakneck
University Press; 377 pages; $35 and £25
factories and homes where Egyptians first pace, with little regard for average Egyp-
began to question their relationship with
rulers who, under the pretence of eco-
nomic reform, enriched only themselves
tians, who depended on government
handouts. International financial institu-
tions, impressed by the country’s strong
I N RECENT years there has been a revival
of interest in the classics. Still, things are
not what they were. In the 1930s Latin
and a small elite. To many in the West, the GDP growth, lauded the president. might consume almost half of a 12-year-old
hip, young liberals who made up a portion But the benefits did not trickle down, boy’s lessons at a British private school. To-
of the protesters in Tahrir are the embodi- and the public became disillusioned. Mr day, university classics courses accept stu-
ment of Egypt’s uprising. But it was sea- Shenker uses Egypt’s woes to discredit dents with little Latin and no Greek.
soned labourers in obscure cities who neoliberalism, yet he describes vividly It takes “a good classics undergraduate”
struck the first and biggest blows against how Mr Mubarak’s reforms were a fraud, to tell you what every child used to know,
authoritarian rule. creating only the “façade of competition that the Minotaur was “the half-brother of
That is fitting. Over 3,000 years ago the and pluralism”. Egypt replaced public mo- Ariadne, and that he was killed by The-
craftsmen of Ramses III, while building the nopolies with private ones, and the story is seus”. With over120 pages of notes and ref-
tombs of pharaohs in the Valley of the better understood as an indictment of abu- erences, Denis Feeney’s study of the begin-
Kings, laid down their hammers and de- sive rent-seeking than of free markets. nings of Latin literature is not designed to
manded more food. Labour unrest was so Mr Shenker’s despair at the economic attract more first-year students. It is written
by the professor of Latin at Princeton Uni-
versity for other academics. However, his
bold theme and vigorous writing render
“Beyond Greek” of interest to anyone in-
trigued by the history and literature of the
classical world.
With hindsight—since the Romans fol-
lowed the Greeks, as even today’s school-
children know—it can seem obvious that
the Latin works of Cicero, Virgil and Hor-
ace would succeed those ofHomer, Sopho-
cles and Aeschylus. Not so, says Mr Feeney.
It was “one of the strangest…events in
Mediterranean history” that the Romans
began producing Greek-style tragedies,
comedies and epics before developing a
fresh vernacular literature of their own.
After all, other powers such as Persia and
Egypt, also in contact and conflict with
Greece, did nothing of the sort.
It probably started in 240BC when the
Ludi Romani, the great annual festival, al-
They’ve had enough of patriarchs and patronising lowed a Greek play to be staged in Latin 1
The Economist February 6th 2016 Books and arts 77

A neurosurgeon examines his life

As he lay dying

When Breath Becomes Air. By Paul ophy” while using his inert body in a
Kalanithi. Random House; 238 pages; $25. children’s game. At university he studied
Bodley Head; £12.99 literature, “the richest material for moral
reflection”, and human biology, for lay-

M ANY people avoid discussing death.

Doctors face it daily, reading scans
blotted by tumours the way others scour
ing out “the most elegant rules of the
brain”. This was a person obsessed by the
way people find meaning.
market data. But years of training cannot Kalanithi writes about the small
dull the pang when, glancing at a scan events that are the meat of human experi-
and seeing a patient’s dim chances, those ence: his wanderings through the Arizo-
prospects happen to be his own. Paul na desert as a boy, his joy at reading
Kalanithi died at 37. He had spent years Thoreau and Camus, conversations with
training to be a neurosurgeon; his doctor his wife and the strange sense of nor-
first ascribed his sharp pains and dwin- mality felt while dissecting a cadaver. At
dling frame to the demands of residency. work he faced not intimations of mortal-
Homer, a father of Latin literature But instead it was cancer, which had ity but the constant reality of it. He de-
spread from his lungs to his spine and scribes his mild shame when, having
2 translation. The Romans were no strangers liver. Faced with such news, Kalanithi abandoned an ice-cream sandwich to
to other cultures. With their defeat of Car- said, a person’s understanding of time treat a dying patient, unsuccessfully, he
thage and emergence as the dominant changes. In his last months of life he gingerly reclaims the melting dessert. He
power, they were confident and suffered chose to become a father. He also chose writes about what science can explain
no “cultural cringe”. But it was the transla- to write. His essays were published by and “its inability to grasp the most central
tions, in a Latin metre, of Homer and Attic Stanford University, where he worked, aspects of human life: hope, fear, love,
drama by Livius Andronicus, “not a natu- and by the New York Times. “When hate, beauty, envy, honour, weakness,
ral or inevitable thing to happen”, that Breath Becomes Air” is a deeper explora- striving, suffering, virtue”.
paved the way for later literature. They tion of the themes he raised, less a mem- Most interestingly, he writes about
were helped by Greeks accommodating oir than a reflection on life and purpose. language, about the parts of the brain
the rising power. Whereas translators to- It is an unusual little book, written by an that control it and its centrality to what
day mostly convert texts into their first lan- unusual man. makes us human. This is an urgent mis-
guage, Livius was a Greek, a native speaker Kalanithi was a doctor by training and sive, the power of words revered by a
of the source language, and Naevius, who a philosopher by temperament, the type man whose words were leaving him. He
followed him, though born in Italy, had of person who, inspired by Aldous Hux- describes the birth of his daughter mov-
Greek as a childhood language. Only later ley, used his university-admissions essay ingly—frail, he lay swaddled as his wife
did it become the norm for a Roman such to argue that happiness was not the point laboured beside him—and the soul-filling
as Cicero to translate into Latin. of life. As a 20-year-old camp counsellor, love for his new baby. This vital book is
A colonising power tends to impose its he read a book called “Death and Philos- dedicated to her.
language on a subject land. However, for
several generations, the relative status of
Greek and Latin was in flux: to Romans, A memoir of the 20th century fervour, but also with the immigrant’s
“Greek” was both the vernacular of slaves anxiety, is at the heart of this affectionate,
and the classical Attic standard of revered England, my well-told memoir. It is a tension most
literature. But by the time Ennius, consid- acutely felt at moments of crisis, when
ered the father of Latin poetry, died in England dual loyalties can be hard to maintain. At
169BC, Latin literature “had achieved es- the end of the first world war, Win wrote to
cape velocity”. Self-assured Roman elites her future fiancé how pleased she was that
had become happily bilingual and biliter- “the two countries to which we both owe
Their Promised Land: My Grandparents in
ate, and in time this helped them rule a all that we have, are no longer enemies.”
Love and War. By Ian Buruma. Penguin
widespread and polyglot empire. A distinguished historian, Mr Buruma
Press; 320 pages; $26.95. To be published in
Mr Feeney contrasts the Romans with approaches his subject with the loving eye
Britain by Atlantic Books in March; £18.99
the Etruscans and the Carthaginians, nei- of a grandchild and an awareness of the
ther of whom appear to have possessed a
literature; and he provides interesting com-
parisons, for example with Japan’s bor-
I AN BURUMA begins his biography of his
grandparents Win and Bernard with a
recollection of picture-book Christmases
larger forces that shaped their lives. His
sensitive portrayal of the immigrant’s di-
vided loyalties and divided identity is
rowing of Chinese characters, first to write in the English countryside. As a child he, timely in light of Europe’s current struggle
in Chinese and only later adapted to write his parents and various aunts and uncles with colliding national, religious and eth-
Japanese. What was astonishing about En- would descend upon their Berkshire vicar- nic identities. While the Schlesingers’ story
nius’s “Annales” is that he superimposed age to indulge in “a day-long feast of Ed- does not directly parallel today’s refugee
Roman history upon that of the Greeks, “in wardian gluttony”. Later the reader is told crisis, it does shed light on the fault-lines
a Homeric epic written in a language that that Mr Buruma’s grandparents, and al- that remain even in the most successful of
was not Homer’s”. By now the growth of most everyone else present, were Jewish. cultural mergings. As Mr Buruma puts it, “a
Latin literature was as certain as the expan- This tension between an Englishness Jew in a society of mostly Gentiles, a Mus-
sion of Roman power. 7 embraced with an immigrant’s touching lim in Europe, a black in a predominantly 1
78 Books and arts The Economist February 6th 2016

2 white country, or a homosexual, especially forms ages with it.

in places where love of your own sex is un- The first room, which looks at the per-
accepted, is forced to consider his or her iod from 2000 to 2016, is a cacophony of art
place more deeply, to make up his or her made using the technologies and visual
own story.” language ofsocial media, gaming, 3D print-
The ability of these Jews to thrive in ing, computer-generated imaging, browser
their adopted land represents something interfaces and smartphones. In subse-
of a storybook ideal. Grandpa Bernard was quent rooms the technology becomes, like
the rugby-playing, Cambridge-educated the bulky wall of analogue TV monitors
son of a prosperous London stockbroker that comprise Paik’s “Internet Dream”
who had emigrated from Germany. De- (1994), nostalgic for older visitors, and a
spite battles with persistent anti- mere historical curiosity for younger ones.
Semitism—described euphemistically in Artists working with technology today
letters as “the old, old story”—Bernard be- are acutely aware that their work is ageing.
came a successful doctor, taking time off To reflect—or deflect—the inevitable out-
from a busy career to serve king and coun- dating of their material, some, such as
try in two world wars. After marrying his Cory Arcangel or Petra Cortright, use low-
childhood sweetheart, Winifred Regens- tech graphics, outmoded software and re-
burg—from an almost identical back- tro hardware as an ironic aesthetic. Others
ground—the two embarked on a long, hap- take the internet’s visual vocabulary to ex-
py life together, filled with more joy than Art and the internet tremes. They include Ryan Trecartin, who
loss, united in love of family and country. populates video and installation work
Win spells out her creed in a letter written
to Bernard in 1940 while he was serving in
When new grows with hyper-real, extravagantly costumed
characters; or Camille Henrot, whose film
the Norway campaign. “Next to you,” she
declared, “I love England more than any-
old “Grosse Fatigue” layers video clips, photo-
graphs and internet screen-grabs over one
thing else in the world.” another as proliferating browser windows.
For all their fervent Britishness, they ad- Harun Farocki, a German film-maker
Artists working with technology
mirably refused to deny their heritage, of- who made “Parallel I-IV” just before he
struggle to stay current
ten at great personal cost. Marking Yom died in 2014, predicted of online culture
Kippur, Judaism’s holiest day, Bernard told
Win, “is only a matter of policy on my part
in which ‘I tell the world’, as the Yank
I N 1968 the Institute of Contemporary
Arts in London held an exhibition called
“Cybernetic Serendipity”, Britain’s first
that “Reality will soon cease to be the stan-
dard by which to judge the imperfect im-
age. Instead, the virtual image will become
would say, that I am by birth a Jew, a Jew show exploring connections between art the standard by which to measure the im-
still and proud of it too.” He maintained and new technology. It was hugely popu- perfections of reality.” Amalia Ulman re-
this stance even in the face ofprejudice that lar and in hindsight, well timed. It coincid- cently provided a literal illustration of this
shut him out of many of London’s best ed with two crucial developments in the in a social-media performance piece called
hospitals. And in 1938, shortly after Kristall- relationship between art and technology: “Excellences & Perfections”, using her In-
nacht, they rescued 12 German-Jewish chil- the pop-art movement, which was demol- stagram and Facebook profiles to create a
dren, whom Win cared for while Bernard ishing boundaries between high art and fake approval-seeking persona, and to
went off to war. everyday life, and ARPANET, the comput- stage her body having hoax plastic surgery.
“Their Promised Land” is about love er-to-computer network which would be- Douglas Coupland’s portraits (of which
and loyalty, to family and to country, even come the internet. one is shown above) respond to the auto-
when that country fails to reward that de- The internet has continued to erode es- matic face-recognition technology used by
votion as fully as it should. As Mr Buruma tablished notions of what qualifies as art, security services and Facebook. Geometric
concludes, “For many Jews, Israel is the ul- and who can claim to be an artist. New cat- shapes in primary colours over their fea-
timate safe haven…This was not true for egories flourish:, new media art, the tures highlight how, to a computer, a face is
Bernard and Win…England was their safe New Aesthetic, internet art, post-internet just a series of abstractable properties.
haven, England and the Family.” 7 art. Online-only sales and exhibitions are “Every large online corporation (Face-
increasingly common, as is art existing book, Twitter, Amazon, eBay) is optimising
solely in digital form, bought and sold you,” Jonas Lund, an artist, has said. “So
through websites such as Electric Objects why shouldn’t an artist also use the same
(on a mission “to put digital art on a wall in techniques?” His work incorporates analy-
every home”). Successful careers and ex- sis of viewer behaviour itself. “VIP (Viewer
pensive collections are built using social Improved Painting) 2014” contains an algo-
media, such as Instagram, the image- and rithm that creates a fluctuating, abstract
video-sharing app that has users posting composition based on where the viewer
80m photographs a day. looks. In effect handing over the creative
“Electronic Superhighway (2016-1966)”, prerogative, Mr Lund sardonically gives
a new show at the Whitechapel Gallery in the same impression as Instagram seeks to
London, looks at how artists have respond- give: everyone is an artist. Indeed, it is a
ed to technology and change. The exhibi- problem that plagues the Whitechapel
tion, which takes its name from a phrase show: it is often difficult to find any sense
coined in 1974 by Nam June Paik, a video of individual identities or even real human
artist, to describe the potential of telecom- feeling. Breaking down barriers between
munication systems, is arranged in reverse technology and art can raise technology to
chronological order. This calls particular the level of art, but it also risks working the
attention to how quickly technologies be- other way round, reducing art to the banal-
come obsolete, and how art tied to those ity of an algorithm. 7
Tenders Courses 79



No ._______ Prot., Tirana on ___ / ___ / 2016


Name and address of the contracting authority: Ministry of Energy and Industry,
Boulevard “Dëshmorët e Kombit “, tel. +355 4 2222245.
Name and address of the person responsible: Etleva Kondi, Ministry of Energy and
Industry, (e-mail:
Type of contracting authority: Central Institution
The scope and type of contract: Granting the concession of hydropower “Poçem”
and the type of contract “Work”
Contract duration: 35 years
The location of the contract: Construction of the hydropower plant with the
dam Poçem, on Vjosa tail water (downstream) up to 70 m.a.s.l operation quota
(downstream of Kalivac HPP).
Legal, economic, financial and technical: In accordance with Appendix 9 of ToR
Criteria for the selection of the winner: In accordance with Appendix 10 of ToR
Deadline for submission of bids: Within and not later than: Date 17/03/2016, 12:00
Deadline for opening of bids: Within and not later than: Date 17/03/2016, 12:00
Period of validity of bids: 150 days



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The Economist February 6th 2016

80 The Economist February 6th 2016
Economic and financial indicators
Economic data
% change on year ago Budget Interest
Statistics on 42 economies, plus our Current-account balance balance rates, %
Grosspoll of forecasters
domestic product production Consumer prices Unemployment latest 12 % of GDP % of GDP 10-year gov't Currency units, per $
latest qtr* 2015† latest latest 2015† rate, % months, $bn 2015† 2015† bonds, latest Feb 3rd year ago
United States +1.8 Q4 +0.7 +2.4 -1.8 Dec +0.7 Dec +0.1 5.0 Dec -456.6 Q3 -2.5 -2.6 1.87 - -
China +6.8 Q4 +6.6 +6.9 +5.9 Dec +1.6 Dec +1.5 4.1 Q4§ +275.9 Q3 +3.0 -2.7 2.75§§ 6.58 6.26
Japan +1.6 Q3 +1.0 +0.6 -1.6 Dec +0.2 Dec +0.7 3.3 Dec +131.5 Nov +2.8 -6.8 0.08 118 118
Britain Economic
+1.9 Q4 +2.0data
+2.2 +1.0 Nov +0.2 Dec nil 5.1 Oct†† -134.2 Q3 -4.3 -4.4 1.69 0.69 0.66
Canada +1.2 Q3 +2.3 +1.2 -3.3 Nov +1.6 Dec +1.2 7.1 Dec -54.1 Q3 -3.2 -1.8 1.16 1.38 1.25
Euro area +1.6 Q3 +1.2 +1.5 +1.1 Nov +0.4 Jan nil 10.4 Dec +346.9 Nov +3.0 -2.1 0.28 0.91 0.87
Austria +1.0 Q3 +1.9 +0.8 +2.6 Nov +1.0 Dec +0.9 5.8 Dec +10.7 Q3 +2.2 -2.1 0.60 0.91 0.87
Belgium +1.3 Q4 +1.2 +1.3 +1.4 Nov +1.7 Jan +0.6 7.9 Dec +1.1 Sep +0.2 -2.6 0.72 0.91 0.87
France +1.3 Q4 +1.0 +1.1 +2.8 Nov +0.2 Jan +0.1 10.2 Dec +3.5 Nov‡ -0.2 -4.1 0.65 0.91 0.87
Germany +1.7 Q3 +1.3 +1.5 nil Nov +0.5 Jan +0.1 6.2 Jan +279.0 Nov +8.0 +0.7 0.28 0.91 0.87
Greece -0.9 Q3 -3.5 +0.5 +1.9 Nov -0.2 Dec -1.1 24.5 Oct -1.1 Nov +2.5 -4.1 9.46 0.91 0.87
Italy +0.8 Q3 +0.8 +0.7 +0.9 Nov +0.3 Jan +0.1 11.4 Dec +39.3 Nov +1.9 -2.9 1.44 0.91 0.87
Netherlands +1.9 Q3 +0.6 +2.0 +2.2 Nov +0.7 Dec +0.3 8.2 Dec +74.8 Q3 +10.4 -1.8 0.44 0.91 0.87
Spain +3.5 Q4 +3.2 +3.2 +5.8 Nov -0.3 Jan -0.6 20.8 Dec +18.6 Nov +1.1 -4.4 1.69 0.91 0.87
Czech Republic +4.1 Q3 +3.0 +3.4 +5.7 Nov +0.1 Dec +0.3 6.2 Dec§ +2.0 Q3 -0.1 -1.8 0.59 24.5 24.2
Denmark +0.6 Q3 -1.8 +1.4 +0.2 Nov +0.5 Dec +0.5 4.5 Dec +21.3 Nov +7.1 -2.9 0.58 6.75 6.50
Norway +3.0 Q3 +7.3 +0.7 -0.3 Nov +2.3 Dec +1.7 4.6 Nov‡‡ +37.3 Q3 +9.3 +5.9 1.40 8.63 7.56
Poland +3.5 Q3 +3.6 +3.4 +6.7 Dec -0.5 Dec nil 9.8 Dec§ -1.6 Nov -1.4 -1.5 3.16 4.00 3.64
Russia -4.1 Q3 na -3.8 -4.4 Dec +12.9 Dec +15.4 5.8 Dec§ +65.8 Q4 +4.4 -2.8 10.30 78.5 66.3
Sweden +3.9 Q3 +3.4 +3.3 +6.2 Nov +0.1 Dec nil 6.7 Dec§ +31.8 Q3 +6.3 -1.2 0.59 8.47 8.24
Switzerland +0.8 Q3 -0.1 +0.8 -2.8 Q3 -1.3 Dec -1.1 3.4 Dec +84.1 Q3 +9.2 +0.2 -0.32 1.01 0.92
Turkey +4.0 Q3 na +3.4 +3.6 Nov +9.6 Jan +7.3 10.5 Oct§ -34.7 Nov -4.7 -1.6 10.75 2.93 2.40
Australia +2.5 Q3 +3.8 +2.3 +1.9 Q3 +1.7 Q4 +1.5 5.8 Dec -49.5 Q3 -4.3 -2.4 2.52 1.41 1.30
Hong Kong +2.3 Q3 +3.5 +2.4 -2.0 Q3 +2.4 Dec +3.1 3.3 Dec‡‡ +9.3 Q3 +2.8 nil 1.73 7.80 7.75
India +7.4 Q3 +11.9 +7.2 -3.2 Nov +5.6 Dec +4.9 4.9 2013 -22.7 Q3 -1.1 -3.8 7.85 68.1 61.7
Indonesia +4.7 Q3 na +4.7 +6.5 Nov +4.1 Jan +6.4 6.2 Q3§ -18.4 Q3 -2.5 -2.0 8.16 13,770 12,654
Malaysia +4.7 Q3 na +5.4 +1.9 Nov +2.7 Dec +2.5 3.2 Nov§ +7.8 Q3 +2.5 -4.0 3.95 4.22 3.63
Pakistan +5.5 2015** na +5.7 +4.7 Nov +3.3 Jan +3.9 5.9 2015 -1.4 Q4 -0.7 -5.1 9.56††† 105 101
Philippines +6.3 Q4 +8.2 +6.4 +7.5 Nov +1.5 Dec +2.4 5.6 Q4§ +9.6 Sep +4.1 -1.9 4.17 47.9 44.1
Singapore +2.0 Q4 +5.7 +2.9 -7.9 Dec -0.6 Dec +0.2 1.9 Q4 +68.6 Q3 +21.2 -0.7 2.18 1.42 1.35
South Korea +3.0 Q4 +2.3 +2.6 -1.9 Dec +0.8 Jan +0.7 3.2 Dec§ +106.0 Dec +7.1 +0.3 1.87 1,219 1,097
Taiwan -0.3 Q4 +3.2 +3.2 -6.2 Dec +0.1 Dec +0.1 3.9 Dec +77.2 Q3 +12.8 -1.0 0.89 33.6 31.5
Thailand +2.9 Q3 +4.0 +3.4 +1.3 Dec -0.5 Jan +0.8 0.7 Dec§ +32.1 Q3 +2.4 -2.0 2.25 35.8 32.6
Argentina +2.3 Q2 +2.0 +1.0 -2.5 Oct — *** — 5.9 Q3§ -8.3 Q2 -2.2 -3.6 na 14.1 8.65
Brazil -4.5 Q3 -6.7 -3.7 -11.9 Dec +10.7 Dec +9.5 6.9 Dec§ -58.9 Dec -3.6 -6.0 15.85 3.94 2.70
Chile +2.2 Q3 +1.8 +2.8 -3.3 Dec +4.4 Dec +3.9 5.8 Dec§‡‡ -2.7 Q3 -1.2 -2.2 4.47 708 628
Colombia +3.2 Q3 +5.1 +3.3 +4.8 Nov +6.8 Dec +4.2 8.6 Dec§ -20.8 Q3 -6.7 -2.1 8.66 3,373 2,374
Mexico +2.6 Q3 +3.0 +2.4 +0.1 Nov +2.1 Dec +2.7 4.4 Dec -29.9 Q3 -2.6 -3.4 5.97 18.5 14.8
Venezuela -7.1 Q3~ -4.9 -4.5 na na +84.1 6.0 Dec§ -17.8 Q3~ -1.8 -16.5 10.98 6.31 6.29
Egypt +4.5 Q2 na +4.2 -10.2 Nov +11.1 Dec +10.0 12.8 Q3§ -14.7 Q3 -1.4 -11.0 na 7.83 7.63
Israel +2.4 Q3 +2.1 +3.3 +2.7 Nov -1.0 Dec -0.2 5.2 Dec +12.5 Q3 +4.9 -2.8 1.83 3.95 3.89
Saudi Arabia +3.4 2015 na +2.7 na +2.3 Dec +2.7 5.7 2014 -32.6 Q3 -2.7 -12.7 na 3.75 3.75
South Africa +1.0 Q3 +0.7 +1.3 -1.8 Nov +5.2 Dec +4.6 25.5 Q3§ -14.0 Q3 -4.2 -3.8 9.30 16.2 11.4
Source: Haver Analytics. *% change on previous quarter, annual rate. †The Economist poll or Economist Intelligence Unit estimate/forecast. §Not seasonally adjusted. ‡New series. ~2014 **Year ending June. ††Latest
3 months. ‡‡3-month moving average. §§5-year yield. ***Official number not yet proven to be reliable; The State Street PriceStats Inflation Index, December 26.85%; year ago 38.48% †††Dollar-denominated bonds.
The Economist February 6th 2016 Economic and financial indicators 81

% change on The Economist poll of forecasters, February averages (previous month’s, if changed)
Dec 31st 2014 Real GDP, % change Consumer prices Current account
Index one in local in $ Low/high range average % change % of GDP
week currency terms
Markets Feb 3rd 2015 2016 2015 2016 2015 2016 2015 2016
United States (DJIA) 16,336.7 +2.5 -8.3 -8.3
Australia 1.9 / 2.5 1.9 / 3.0 2.3 2.5 1.5 (1.6) 2.2 (2.4) -4.3 -3.9 (-4.0)
China (SSEA) 2,866.4 +0.1 -15.4 -20.3
Brazil -3.9 / -3.2 -4.2 / -2.0 -3.7 (-3.4) -2.9 (-2.6) 9.5 (9.6) 7.7 (7.4) -3.6 (-3.7) -2.7 (-2.9)
Japan (Nikkei 225) 17,191.3 +0.2 -1.5 +0.1
Britain 2.1 / 2.4 1.7 / 2.6 2.2 (2.4) 2.1 (2.2) nil (0.1) 0.9 (1.1) -4.3 (-4.4) -4.0
Britain (FTSE 100) 5,837.1 -2.6 -11.1 -16.8
Canada 1.0 / 1.3 1.2 / 2.3 1.2 (1.1) 1.8 (1.9) 1.2 1.8 -3.2 (-3.3) -2.1 (-2.6)
Canada (S&P TSX) 12,593.0 +1.7 -13.9 -28.0
China 6.8 / 7.0 5.8 / 6.8 6.9 6.4 1.5 1.7 3.0 3.1 (2.9)
Euro area (FTSE Euro 100) 979.2 -4.3 -5.6 -13.8
France 1.0 / 1.2 1.0 / 1.6 1.1 1.3 (1.4) 0.1 0.6 (0.8) -0.2 (-0.3) -0.3
Euro area (EURO STOXX 50) 2,896.6 -4.8 -7.9 -15.9
Germany 1.4 / 1.7 1.3 / 2.0 1.5 1.7 0.1 (0.2) 0.7 (1.1) 8.0 (8.1) 7.6 (7.5)
Austria (ATX) 2,092.1 -2.1 -3.1 -11.6
India 6.0 / 7.5 5.9 / 7.9 7.2 7.5 4.9 (5.0) 5.1 (5.2) -1.1 -1.2 (-1.3)
Belgium (Bel 20) 3,375.4 -2.5 +2.7 -6.2
Italy 0.6 / 0.8 0.9 / 1.6 0.7 1.3 0.1 0.5 (0.8) 1.9 1.7
France (CAC 40) 4,227.0 -3.5 -1.1 -9.7
Japan 0.5 / 0.7 0.5 / 1.7 0.6 1.1 0.7 0.6 (0.9) 2.8 (3.3) 3.2 (3.4)
Germany (DAX)* 9,434.8 -4.5 -3.8 -12.1
Greece (Athex Comp) 529.7 -2.8 -35.9 -41.5 Russia -4.3 / -3.5 -2.5 / nil -3.8 -0.9 (-0.3) 15.4 (15.3) 8.2 (8.0) 4.4 (5.2) 3.5 (4.9)
Italy (FTSE/MIB) 17,412.0 -7.6 -8.4 -16.4 Spain 3.1 / 3.2 2.3 / 3.1 3.2 (3.1) 2.7 -0.6 0.2 (0.7) 1.1 (1.0) 1.0 (0.9)
Netherlands (AEX) 416.2 -1.9 -1.9 -10.5 United States 2.4 / 2.5 1.6 / 2.8 2.4 (2.5) 2.3 (2.4) 0.1 (0.2) 1.4 (1.6) -2.5 -2.6
Spain (Madrid SE) 838.3 -5.0 -19.6 -26.6 Euro area 1.5 / 1.6 1.3 / 2.0 1.5 1.6 (1.7) nil (0.1) 0.5 (0.9) 3.0 2.7
Czech Republic (PX) 886.7 -1.8 -6.3 -12.3 Sources: Bank of America, Barclays, BNP Paribas, Citigroup, Commerzbank, Credit Suisse, Decision Economics, Deutsche Bank,
Denmark (OMXCB) 825.4 -4.7 +22.2 +11.4 EIU, Goldman Sachs, HSBC Securities, ING, Itaú BBA, JPMorgan, Morgan Stanley, Nomura, RBS, Royal Bank of Canada, Schroders,
Scotiabank, Société Générale, Standard Chartered, UBS. For more countries, go to:
Hungary (BUX) 23,395.7 -1.6 +40.7 +30.3
Norway (OSEAX) 579.6 -0.9 -6.5 -18.8
Poland (WIG) 43,630.6 +0.9 -15.1 -24.6 Other markets The Economist commodity-price index
Russia (RTS, $ terms) 697.0 -1.1 +15.4 -11.9 % change on 2005=100
Other markets % change on
Sweden (OMXS30) 1,305.5 -4.4 -10.9 -17.6 Dec 31st 2014 The Economist commodity-price indexone
Switzerland (SMI) 8,123.7 -2.4 -9.6 -10.9 Index one in local in $ Jan 26th Feb 2nd* month year
Turkey (BIST) 73,267.4 +1.7 -14.5 -31.8 Feb 3rd week currency terms Dollar Index
Australia (All Ord.) 4,930.8 -1.4 -8.5 -19.7 United States (S&P 500) 1,912.5 +1.6 -7.1 -7.1 All Items 123.8 125.3 +0.5 -13.9
Hong Kong (Hang Seng) 18,991.6 -0.3 -19.5 -20.0 United States (NAScomp) 4,504.2 +0.8 -4.9 -4.9
India (BSE) 24,223.3 -1.1 -11.9 -18.4 Food 145.5 146.0 +0.3 -10.9
China (SSEB, $ terms) 348.5 +2.1 +27.1 +19.8
Indonesia (JSX) 4,596.1 +0.3 -12.1 -20.9 Japan (Topix) 1,406.3 +0.4 -0.1 +1.5 Industrials
Malaysia (KLSE) 1,633.3 +0.1 -7.3 -23.2 Europe (FTSEurofirst 300) 1,295.7 -3.4 -5.3 -13.5 All 101.3 103.8 +0.8 -17.9
Pakistan (KSE) 32,084.1 +3.2 -0.1 -4.2 World, dev'd (MSCI) 1,540.9 +0.6 -9.9 -9.9 Nfa† 106.4 107.0 -0.9 -10.2
Singapore (STI) 2,550.7 +0.2 -24.2 -29.5 Emerging markets (MSCI) 721.6 +0.8 -24.5 -24.5 Metals 99.2 102.4 +1.6 -21.0
South Korea (KOSPI) 1,890.7 -0.4 -1.3 -11.0 World, all (MSCI) 369.4 +0.6 -11.4 -11.4 Sterling Index
Taiwan (TWI) 8,063.0 +2.7 -13.4 -18.5 World bonds (Citigroup) 896.9 +1.7 -0.6 -0.6
Thailand (SET) 1,291.8 +1.1 -13.7 -20.8 All items 157.2 158.6 +2.5 -9.4
EMBI+ (JPMorgan) 707.3 +0.4 +2.2 +2.2
Argentina (MERV) 11,121.4 +3.1 +29.6 -22.4 Hedge funds (HFRX) 1,138.9§ +0.1 -6.5 -6.5 Euro Index
Brazil (BVSP) 39,588.8 +3.2 -20.8 -46.6 Volatility, US (VIX) 21.7 +23.1 +19.2 (levels) All items 141.9 142.9 -1.1 -9.5
Chile (IGPA) 17,700.6 +0.9 -6.2 -19.6 CDSs, Eur (iTRAXX)† 104.5 +13.5 +65.9 +51.5 Gold
Colombia (IGBC) 8,610.7 +2.1 -26.0 -47.8 CDSs, N Am (CDX)† 107.8 +2.7 +63.1 +63.1 $ per oz 1,117.4 1,127.0 +4.6 -10.4
Mexico (IPC) 43,257.5 +2.7 +0.3 -20.0 Carbon trading (EU ETS) € 5.6 -7.4 -24.3 -30.9 West Texas Intermediate
Venezuela (IBC) 14,694.4 +2.7 +281 na Sources: Markit; Thomson Reuters. *Total return index.
Egypt (Case 30) 6,066.5 +1.8 -32.0 -37.9 †Credit-default-swap spreads, basis points. §Feb 2nd. $ per barrel 31.3 30.0 -16.4 -43.1
Sources: Bloomberg; CME Group; Cotlook; Darmenn & Curl; FT; ICCO;
Israel (TA-100) 1,244.2 -0.4 -3.5 -4.9
Indicators for more countries and additional ICO; ISO; Live Rice Index; LME; NZ Wool Services; Thompson Lloyd &
Saudi Arabia (Tadawul) 5,927.4 +4.0 -28.9 -28.8 Ewart; Thomson Reuters; Urner Barry; WSJ. *Provisional
South Africa (JSE AS) 48,535.5 +1.3 -2.5 -30.4 series, go to: †Non-food agriculturals.
82 The Economist February 6th 2016
Obituary Henry Worsley
could he be as decisive as Shackleton, as in-
trepid and optimistic? Could he, to quote
his hero, “Put footstep of courage into stir-
rup of patience”? Throughout his long and
distinguished army career, including com-
mands in Bosnia, “special duties” in North-
ern Ireland and tours with the SAS in Af-
ghanistan, he would keep comparing
himself. Trapped in a café by a violent mob
in Bosnia, he psyched himself up for a
breakout by asking “What would Shacks
do?” Meeting, unarmed, with tribal elders
in Helmand to lay the trail for the British
army in 2005, he would start by making
them laugh at his lamentable Pushtu;
Shacks had always believed in the power
of laughter. In Afghanistan, camping out in
wadis in desert camouflage, he was read-
ing “The Heart of the Antarctic”.
As an army officer, he was deeply im-
pressed by Shackleton’s leading of his
men. Nothing, even reaching the Pole, had
meant more to him than their welfare; in
return, they had trusted “the Boss” com-
pletely. It was in Shackleton’s footsteps that
“General” Worsley, as his teams called
him, insisted on regular hot meals on polar
treks and berated himself, as well as them,
In Shackleton’s shadow for idle slips. And the same loyalty to com-
rades impelled him on his third journey,
starting last November, to raise money for
“my wounded mates”: the soldiers who
had not, like him, returned whole from
active duty.
That journey he made alone, intending
Henry Worsley, soldier and Antarctic adventurer, died on January 24th, aged 55
to be the first to pull a 148kg sledge for 1,100

T HE compass did not belong to him. But

when he felt it in his trouser pocket—
and with every stride of his skis over the
dry polar air; and he later also placed it cer-
emonially at the South Pole, completing
what Shackleton had always hoped to do.
miles right across the continent, unaccom-
panied and unassisted, in honour of
Shackleton’s abortive bid a century before.
Antarctic ice, he felt it—it powered him on. Yet there was a Shackleton compass in He did not mind being solitary. On his two
When the light was flat, crevasses lurking his head in any case. He collected anything previous expeditions, both heading for the
and nothing before him but “white dark- to do with him: books, autographs, ciga- Pole, he had made a point of wandering off
ness”, he remained aware of it, his silent rette cards. At Grytviken whaling station, each evening to commune with the land
companion. If team morale was low in the in South Georgia, he slept beside his grave. and with ghosts. For he did see ghosts, in
tent in the evenings, with socks drying at His family gamely encouraged him, accept- that extraordinary, mesmerising panora-
head-height and the winds hurling out- ing that the white continent held him fast. ma of blue ice and white peaks: a pair of
side, he would pass it round. It was not Other loves, such as cricket, paled beside it; snow petrels, which he thought might be
much bigger than an old penny, but alive, even his unusual liking for sewing, which Shackleton and Scott, and a solar parhe-
spinning and jittering, as excited as he was he taught to inmates of Wandsworth pri- lion that might, perhaps, contain their safe-
to be so close to the South Pole. For it had son, seemed part-inspired by the “ditty guarding spirits. He imagined his hero
been there before, a century earlier. Inside bags” of needles, buttons and thread that murmuring advice beside him.
the lid the owner had scratched his initials: were vital gear on polar expeditions. The Antarctic, though, turned on him as
EHS, for Ernest Henry Shackleton. fiercely as it had ever turned on them.
On his three expeditions to Antarctica, Stirrup of patience Whiteouts blinded him. Storms kept him
in 2008-09, 2011-12 and 2015-16, Henry Wor- It was easy to pinpoint when the obsession pinned in his tent. The sheer scale of the
sley went equipped with GPS, video cam- had started: at prep school, in the library, as challenge began to daunt him. Day by day,
eras, satellite phones, solar panels, energy he read of the great explorers and stared, his audio diary for his website stayed
bars. No item was more important than the with amazement, at Frank Hurley’s photo- chirpy; but the selfies showed a face in-
compass. It accompanied him physically graphs of Shackleton’s ship Endurance list- creasingly exhausted. Eventually, like
only on his first trip, a centenary recreation ing, like the ghost ship in “The Ancient Shackleton with his “astonishing deci-
of Shackleton’s march towards the Pole in Mariner”, among towering pack-ice in the sion” at 88.23oS, he had to admit he had
1908-09 which, at 88.23oS, he had been Weddell Sea. That third attempt on the Pole “shot his bolt” and, 30 miles from success,
forced to abandon for weakness and lack had been abandoned, in 1916, almost be- could not go on. Unlike his hero, he left it
of food. On that journey Colonel Worsley fore it had begun; a distant relative, Frank too late, and died in a Chilean hospital.
took the compass into Shackleton’s hut, Worsley, had been the ship’s captain. There In a whiteout, he radioed on Day 24,
from which the trek had started, placing it lay another reason for the haunting. “one’s head is always bent downwards in
back among the blankets, boots and gold- For decades, though, he doubted that reverence to the compass.” It might have
en-syrup tins all perfectly preserved by the he was bold enough for the Antarctic. How been his epitaph. 7
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