The Saudi revolution begins

The Saudirevolution begins

A SPECIAL REPORT

JUNE 23RD–29TH 2018

Migrant furore in America and Europe

AMLO, Mexico’s answer to Donald Trump

Would a trade war wreck the economy?

China’s super-cities

The Economist June 23rd 2018 5

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Volume 427Number 9097

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Contents continues overleaf

Contents

1

Immigration Cruelty and thelaw: leader, page 13. DonaldTrump’s policy will hurt his partymore than him: Lexington,page 40. Immigration andAngela Merkel’s hold onpower, page 24. The leader ofItaly’s Northern League ismaking waves, page 25.Europe’s passport-free zonefaces a grim future:Charlemagne, page 27

On the coverMuhammad bin Salman, thecrown prince of Saudi Arabia,wants to transform hiscountry. His taste forautocracy is making the jobharder: leader, page 11.Radical reforms in SaudiArabia are changing the Gulfand the wider Arab world, saysAnton La Guardia. See ourspecial report after page 40

7 The world this week

Leaders

11 Reform in Saudi ArabiaThe revolution begins

12 TurkeyTime to go, Erdogan

12 The world economyDon’t crash it

13 ImmigrationSeparation anxiety

14 Urban transportOff the rails

15 Mexican politicsAMLO, Mexico’s answer toDonald Trump

Letters

16 On football, DonaldTrump, RBS, California,speed limits, Tom Wolfe,reincarnation

Briefing

20 MexicoTropical messiah

Europe

23 Turkey’s electionsCould Erdogan lose?

24 Germany’s migrationstand-offMerkel’s moment of peril

25 German military dronesInnocence lost

25 ItalySalvini the scrapper

26 France’s SocialistsFrom solidarity to solitary

27 CharlemagneSave our Schengen

Britain

28 The NHS at 70Theresa May’s sticking-plaster

29 Brexit and ParliamentA rebellion stalled

30 BagehotPodsnappery and itsreverse

Middle East and Africa

31 Private schools in KenyaLess rote, more play

32 Bridge InternationalAcademiesTaking on its foes

32 Passport sagasDiplomatic impunity

33 Tropical diseasesDe bodi fine

34 Gaza and the UNSqueeze and suffocate

34 Football and piracyQatar calls foul

United States

35 CitiesIn praise of gentrification

36 America and the UNAn empty gesture

37 Detroit’s railway stationThe Ford Phoenix

38 University admissionsAffirmative dissatisfaction

39 Small-town newspapersStill kicking

40 LexingtonChild migrants

Special report: The Gulf

A wild rideAfter page 40

The Americas

41 Colombia’s new presidentDuque’s dilemmas

42 Bello“Closed because of football”

Asia

43 Pakistan’s meddling armyGeneral dysfunction

44 The MaldivesDemocracy under water

45 Administering DelhiCity bickers

45 Sex education inMyanmarSpeak no evil

46 Lawmaking in IndonesiaBad acts

48 BanyanThe South China Sea

Mexico There are manyreasons to worry aboutMexico’s most likely nextpresident: leader, page 15.Andrés Manuel López Obradoris a left-wing populist, page 20.A portrait of the relationshipbetween Mexico and America,page 71

Turkey Recep Tayyip Erdogandeserves to lose the electionon June 24th: leader, page 12.Opposition leaders have achance to beat or crimp adomineering president, page 23

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6 Contents The Economist June 23rd 2018

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China’s super-cities Thegovernment tries to create acountry of 19 giant regionalurban clusters, page 49

Public transport It is ailing inthe rich world: leader, page 14.Blame remote working, Uber,cheap car-loans and theinternet, page 51. How electrictwo-wheelers are becoming afamiliar way of getting around,page 53

World economy A trade war isthe worst of many threats toglobal growth: leader, page 12.As the Trump administrationthreatens China with furthertariffs, the prospect of alast-minute deal is receding,page 59. China mulls itsresponse, page 60. Sino-American interdependencehas been a force for geopoliticalstability: Free exchange,page 66

Bad science Some scientificjournals that claim to screenacademic papers with rigorouspeer review do not bother, page 67

China

49 UrbanisationA tale of 19 mega-cities

International

51 Public transportMissing the bus

Business

53 Urban mobilityElectric invasion

54 BartlebyGet with the program

55 Iliad in ItalyBattle ready

56 Mining in CongoEvasive action

56 Shipping’s emissionsFeeling green

57 The sharing economySeabnb

58 SchumpeterFrench philosophy andbusiness

Finance and economics

59 US-China trade (1)Battle-lines drawn

60 US-China trade (2)Planning manoeuvres

61 Emerging-marketcurrenciesFed and Federico

61 Reforming the euro zoneA modest proposal

62 Sweden’s housing marketKeep the roof on

63 Hedge funds and dataWary scouts

63 Abraaj GroupAfter pride, the fall

64 ButtonwoodFAANG: the lucky few

66 Free exchangeTrading peace for war

Science and technology

67 Scientific journalsPublish and don’t bedamned

68 Football penaltiesThe lucky 12 yards

69 Chinese space flightFire arrows

69 ArchaeologyDead apes telling tales

70 Insect migrationMagnetic moment

Books and arts

71 Mexico and AmericaLove thy neighbour

72 Rodrigo DuterteInner demons

73 A Habsburg revivalThe empire strikes back

73 American short storiesSwamp creatures

74 JohnsonOut of their wherevers

76 Economic and financialindicatorsStatistics on 42 economies,plus a closer look at theeuro area

Obituary

78 Miguel Obando y BravoPriestly duties


1

Donald Trump signed anexecutive order allowing thechildren of illegal immigrantsto stay with their parents indetention centres if caughtcrossing the Mexican border.Previously, under the WhiteHouse’s “zero-tolerance” poli-cy for illicit border-crossing,there had been a sharp rise infamilies being forcibly split up.Pictures of tearful children tornfrom their parents provoked anoutcry, though a poll foundthat a small majority ofRepub-licans supported the policy.Amnesty International saidofficials had intentionallyinflicted “severe mental suf-fering” on the migrants.

The director of the FBI, Chris-topher Wray, said his agencywould not repeat the mistakesuncovered in a report by theJustice Department’s internalwatchdog, which criticised thehandling of investigations intoHillary Clinton and DonaldTrump during the election in2016. Among other things, itfound that James Comey, thenthe FBI chief, had broken poli-cy by making the investigationinto Mrs Clinton’s e-mailserver public, but that he hadnot acted with political bias.

Paul Manafort, Mr Trump’sformer campaign manager,was sent to jail by a judge afterhe allegedly tried to sway thetestimony of two witnesses athis forthcoming trail on a rangeofcharges, which includemoney-laundering. He hadbeen on bail ahead of the trial.

America withdrew from theUN Human Rights Council, abody that includes China,Cuba, the Democratic Republic

ofCongo and other paragonsofvirtue. Nikki Haley, Ameri-ca’s ambassador to the UN,said the body protected abus-ers ofhuman rights and was a“cesspool ofpolitical bias”,especially against Israel. Thecouncil’s supporters retort thatthe council does some good,and that ifdemocracies suchas America pull out it willprobably do less.

If at first you don’t succeedNew talks were held to try toend South Sudan’s five-yearcivil war. It is the first time thetwo key leaders in the conflicthave met in two years. Allprevious attempts to broker apeace deal have failed.

Israeli jets struck25 targets inGaza linked to Hamas. Thestrikes were in response toalmost 50 projectiles fired atIsrael, said the Israeli military.

The UN said that war crimeswere committed by forcesloyal to the regime ofBasharal-Assad in the Eastern Ghoutaregion ofSyria. The UN is stillinvestigating whether chemi-cal weapons were used in anattackon rebels in Douma.

The World Health Organisa-tion said that the Ebola out-break in the DemocraticRepublic ofCongo has largelybeen contained, but officialswarned against complacency.

Hello Duque

Iván Duque, a conservativewho opposes parts of thepeace agreement betweenColombia’s government andthe FARC guerrilla group, wonthe country’s presidentialelection. He took54% of thevote in a run-off, defeatingGustavo Petro, a far-left formermayor ofBogotá.

Masaya, a town near Mana-gua, Nicaragua’s capital,declared that it no longerrecognises the presidency ofDaniel Ortega and will governitself. At least three peoplewere killed in an operation toregain control of the town.More than 170 people havedied in protests since April.Mediators from the Catholicchurch suspended negotia-tions between the governmentand the opposition becausethe government refused toallow foreign human-rightsobservers into the country.

Canada’s parliament voted tolegalise the recreational use ofcannabis. The law regulates itscultivation, sets limits onpossession and prohibitsmarketing that would encour-age consumption. When ittakes effect in October, Canadawill be the second country inthe world, after Uruguay, tomake it legal to puffmarijuanafor pleasure.

Europe’s critical pointA political crisis rockedGermany. The alliance be-tween Angela Merkel’s Chris-tian Democrats and its moreconservative Bavarian sisterparty, the CSU, looked as if itmight breakdown over how tohandle migrants. Mrs Merkelseems to have won two moreweeks to solve the problem.

Italy’s interior minister, Mat-teo Salvini, called for a censusofRoma. He threatened todeport Roma who are notItalian citizens, but said that“unfortunately” those Romawho were Italian would beallowed to stay.

The Hungarian parliamentpassed a law that would sendanyone who helps illegalimmigrants, including lawyerswho assist asylum-seekers, toprison for a year. Thenationalist government callsmigrants a security threat.There are hardly any of themin Hungary, but many passedthrough on their way to Ger-many in 2015.

The British government fend-ed offanother attempt byRemainers to ensure that MPs

have the final decision shouldthe Brexit talks end with nodeal. The government won avote in Parliament by 319 to 303votes after giving further assur-ances that MPs would have a“meaningful vote”. One ToryRemainer said that meant a“real say”. Brexiteers saidnothing had changed and MPswould get no say.

Mounting troubleIndia’s ruling Hindu-nationalist Bharatiya JanataParty pulled out ofan alliancewith the People’s DemocraticParty in Kashmir, promptingthe state government to col-lapse. Kashmir’s governor,who is appointed by the BJP-led central government, willassume control of the state.Separately, unknown attackersmurdered Shujaat Bukhari,one ofKashmir’s most respect-ed journalists.

New Zealand’s prime min-ister, Jacinda Ardern, has givenbirth to her first child, a babygirl. She will now take sixweeks ofmaternity leave,during which her duties willbe performed by the deputyprime minister. She is only thesecond elected leader in mod-ern history to give birth inoffice. The first was BenazirBhutto, a prime minister ofPakistan, in 1990.

Kim Jong Un’s makeover con-tinued with a two-day visit toChina, where the North Kore-an dictator was hailed as aleader trying to develop hisimpoverished nation. Mr Kim,who keeps babies in prisoncamps and has had membersofhis own family killed, at-tended a banquet hosted by XiJinping, China’s president. Thepair discussed Mr Kim’s recentsummit with Donald Trump,which was held in Singapore.

Politics

The world this week

“Together we can tackle climate change.”

Gregorio Magno, Founder of Ciclogreen, Spain

Frustrated with rising pollution levels in Spanish cities, Gregorio turned

to technology to create change. His app Ciclogreen converts sustainable

travel into rewards, ranging from a free coffee to a ticket for a concert.

Developing on Android ’s open-source operating system enabled him

to reach the greatest number of people and make the biggest

environmental impact. Gregorio is now on a mission to

transform cities around the world.

Watch the mini-documentary about the app that rewards

sustainable mobility: g.co/androidstories

10 The world this week The Economist June 23rd 2018

The prospect ofan all-outtrade war between Americaand China became real. Do-nald Trump said he wouldimpose tariffs on $50bn ofChinese goods, because Bei-jing was not dealing withAmerican complaints aboutstealing intellectual property.China responded in kind byannouncing penalties on$50bn ofAmerican goods,which prompted Mr Trump tothreaten to levy additionaltariffs on goods worth $400bn.

Taking the war seriouslyGlobal stockmarkets tookfright at the trade news, nonemore so than in China. TheShanghai Composite fell by 4%in a day to its lowest level in 20months. The Shenzhen Com-posite dropped by 6%. Yi Gang,the governor of the People’sBank of China, said investorsshould “stay calm and ratio-nal”. The central bankpumped200bn yuan ($31bn) intofinancial institutions, followedby a smaller intervention, toensure they remain liquid.

Oil prices swung up anddown in part because ofChi-na’s plan to target tariffs atAmerican energy supplies.Investors were also jitteryahead ofan OPEC meeting onJune 22nd to discuss whetherto increase oil production afteran 18-month freeze in output.

Germany’s central bankcut itsforecast of the country’seconomic growth rate this yearto 2%, from 2.5%. TheBundesbankthinks the“external environment” isdriving up uncertainty in theGerman economy.

Mario Draghi hinted that theEuropean Central Bank couldrestart its bond-buying pro-gramme ifeconomic condi-tions deteriorate, just daysafter the bankannounced thatit would phase out its purchas-ing ofassets. The ECB’s presi-dent emphasised that interestrates would remain ultra-lowuntil at least September 2019.The ECB is to halve the amountofassets it buys each month to

€15bn ($17bn) from this Sep-tember and will end allpurchases in December.

MSCI, a company that designsstockmarket indices, said thatArgentina would return to itsemerging-market index in 2019after an absence of ten years.That should lower the coun-try’s borrowing costs andincrease investment in its stockand bond markets, a boost forArgentina, which is battling arun on the peso and has had toturn to the IMF for help. SaudiArabia will also be added tothe MSCI emerging-marketindex for the first time.

Chasing the FoxDisney raised its bid for thebulkof21st Century Fox’sassets to $71bn, almost halfofwhich is in cash and the rest inshares. That tops an unsolicit-ed rival all-cash offer of$65bnfrom Comcast.

The White House announcedthat Kathy Kraninger would benominated to head theConsumer Financial Protec-tion Bureau, a bugbear forRepublicans ever since itscreation as part of the Dodd-Frankreforms. The agency isbeing led by MickMulvaney,who is also the head of theWhite House budget office,where Ms Kraninger currently

works. Some (mostly Demo-crats) questioned Ms Kran-inger’s appointment, claimingthat—as a White House insid-er—she lacks the experience torun an independent office.

The flow ofEuropean venturecapital hit its highest level for adecade last year, according toInvest Europe, a trade associa-tion for the industry. Of the€6.4bn ($7.2bn) in invest-ments, 45% went to infor-mation and communicationsstartups and 23% to biotechand health care.

In the biggest banking mergerin Britain in a decade, CYBG,the owner ofClydesdale andYorkshire banks, agreed to pay£1.7bn ($2.3bn) for Virgin Mon-ey. The deal creates Britain’ssixth-largest bank.

Ford and Volkswagen saidthat they were talking about a“strategic alliance” whichcould see them develop com-mercial vehicles together. Fordalso unveiled plans to create ahub for electric and autono-mous cars, technologies whereit has lagged behind its rivals.

Rupert Stadler, the chiefexec-utive ofAudi, Volkswagen’sluxury brand, was sent to jailin Germany while a judgelooked into allegations that he

might try to interfere with aninvestigation into VW’s emis-sions cheating. He is the mostsenior executive at the VW

group to have been arrestedover the scandal.

Down and out

General Electric was bootedout of the Dow Jones Industri-al Average. The company hadbeen on the index of30 shareprices continuously since 1907and was one of its originalcomponents in 1896. It is re-placed by Walgreens Boots, apharmacy chain. GE was themost valuable Americancompany in 2000, but its shareprice has halved over the pastyear owing to a difficult re-structuring process.

Business

Recent changes to the Dow Jones Industrial Average

Source: S&P Dow Jones

Year Out In

2009 Citigroup Travelers

2009 General Motors Cisco

2012 Kraft Foods UnitedHealth

2013 Alcoa Goldman Sachs

2013 Bank of America Nike

2013 Hewlett-Packard Visa

2015 AT&T Apple

2018 General Electric Walgreens Boots

For other economic data andnews see Indicators section


ONE Saudi cleric thunderedthat letting women drive

would lead to immorality and alackofvirgins. Anotherdeclaredthat women were incapable oftaking the wheel because theywere half-brained. Still anotherdrew on science, ruling that

driving would damage their ovaries. Such tosh is at last beingcast aside. On June 24th Saudi women will be allowed to drivetheir cars. That is one step towards emancipation; among theothers must be an end to male “guardianship”, for example, indeciding women can study or travel abroad. Yet getting wom-en behind the wheel isa welcome blowagainst the idea that Is-lamic piety is best shown by repressing them.

Female driversare the mostvisible aspectofa social revolu-tion, one brought about not from the streets but the palace ofMuhammad bin Salman, the crown prince. Cinemas haveopened; music is performed in public; the killjoy morality po-lice are off the streets. Social liberalisation is part of the crownprince’s ambition to wean the economy away from oil. But asour special report sets out, his changes come with more au-thoritarianism at home, and recklessness abroad. The worldmust hope that the bold prince triumphs over the brutish one.

Can’t buy me loveSaudi Arabia is uniquely disliked by Westerners ofall politicalstripes. They are appalled by its sharia punishments and mis-treatmentofwomen, and scared by itsWahhabi form of Islam,which has fed gruesome jihadist ideologies such as that of Is-lamic State. Despite the kingdom’s wealth, businessmenwould ratherworkin freewheelingDubai than Riyadh. FellowArabs often deride Saudis as rich, lazy and arrogant.

Yet the world has a vital interest in Saudi Arabia’s fate. It isthe biggestoil exporter, and home to Islam’s two holiest sites. Itis central to the Gulf, the Arab region and the Islamic world.Successful reforms would help spread stability to a region inchaos, and dynamism to its economies. A more normal SaudiArabia should moderate the Islamic world, by example andbecause the flowofpetrodollars to zealotswould slow. Failure,by contrast, could spread turmoil to the Gulf, which broadlyavoided the upheaval of the Arab spring of2011.

It is thus worrying that Saudi Arabia faces such dauntingproblems. Volatile oil revenues make up more than 80% ofgovernment income, the IMF reckons. Even with rising crudeprices, the country is grappling with a large budget deficit. Forall the gains in health and education, GDP per person has beenflat for decades. Saudis work mostly in cushy governmentjobs. Oil wealth has hidden a woefully unproductive econ-omy, and fuelled Islamic ultra-puritanism around the world.

To his credit, Prince Muhammad recognises that change isneeded. However, he is unnecessarily adding to his task.Abroad, he hasproved rash. Hiswaragainst the Houthis, a Shiamilitia in Yemen—now centred on the battle for the port ofHo-deida—has brought disease and hunger to Yemenis, a missilewar over Saudi cities and embarrassment to Western allies

that provide weapons and other help. Last year Saudi Arabiasullied itself by detaining the Lebanese prime minister, SaadHariri, releasing him only under international pressure. Withits main ally, the United Arab Emirates (UAE), it has led the wayin isolating Qatar, a contrarian emirate, by cutting land, seaand air links (the Saudis even want to dig a canal to make theplace an island). In doing so they have split the Gulf Co-oper-ation Council, the club ofoil monarchies. As the Arab cold warspreads, Iran and other foes are gaining advantage.

At home Prince Muhammad has developed a taste for re-pression. The number ofexecutions has risen. More dissentersare in jail, among them, perversely, women who campaignedto drive. Everything, it seems, must be a gift from the Al Sauds:the name of the country, the oil bounty and now the right todrive a car. He has also adopted the view that all Islamists,even the non-violent offshoots of the Muslim Brotherhood,are as grave a menace as Sunni jihadists and Shia militias.Thus, the Saudis and Emiratis are leading a counter-revolutionagainst the Arab spring and the hope of democracy. Sadly,America has all but given them carte blanche.

And the crown prince’s effort to boost the private sector isstrangely centralised. Even the promotion of entertainment isrun by a government agency. His focus on “giga-projects”, no-tably plans to build NEOM, a futuristic city in the north-westwith separate laws, looks mega-risky. Previous attempts tocarve out copycat versions ofDubai, the business and tourismhub in the UAE, have been a disappointment. The King Abdul-lah Financial District in Riyadh stands almost empty.

Instead of planning a dream city, the crown prince shouldaim to make all of Saudi Arabia a bit more like Dubai—open tothe world, friendly to business, efficiently run, socially liberal,religiously tolerant and, above all, governed by a predictablesystem oflaws. Hisdecision to lockup hundredsoftycoons, of-ficials and princes arbitrarily in a gilded Saudi hotel last year inan “anti-corruption campaign” frightened investors.

He should also study the UAE’s federalism. The loose unionof seven emirates in 1971may be unique, but a country as largeand diverse as Saudi Arabia has much to gain from devolvingpower. It would let different parts of the country express theiridentities more freely and adapt religious rules to their tradi-tions—more relaxed in Jeddah, more strict inland in Riyadhand allowing more space for Shias in the east. It would alsopermit experimentation with economic reforms. Above all, itcould lead to forms of local representation.

Crowning successIn carrying out his transformation, Prince Muhammad isweakening the old pillars ofAl Saud rule—the princes, the cler-ics and the businessmen. Democracy can help him build anew base of legitimacy. The crown prince could turn his popu-larity among the young and women into a political force. Thatwould help him in what is likely to be a long reign once he be-comes king. Right now, he is on the road to becoming anotherArab strongman. As the Arab spring showed, autocracy is brit-tle. Better to become a new sort of Arab monarch: one whotreats his people as citizens, not subjects. 7

The Saudi revolution begins

Muhammad bin Salman could transform the Arab and Islamic world for the better. Howto ensure he succeeds

Leaders

12 Leaders The Economist June 23rd 2018

WHAT does a presidenthave to do to destroy the

trust of Turks? Debauching thecurrency, poisoning relationswith Europe and America, lock-ing up tens of thousands of in-nocent people, muzzling thepress, reigniting a civil war and

fiddling with the constitution to gain the powers of a sultansurely ought to be enough. Recep Tayyip Erdogan has done allthat and more in recent years. When voters cast their ballots inpresidential and parliamentary elections on June 24th, theyshould show him the door ofhis vast new palace in Ankara.

There was much to admire in Mr Erdogan when his Justiceand Development (AK) party first took power in 2002. Heshowed that an Islamist party could govern with moderation;women in Turkeyare free to wearwhat they like. The economyhas boomed. GDP has more than doubled, and the results, interms of roads, bridges and, above all, plentiful and cheaphousing, are plain for all to see. The army was tamed, Kurdish-language rights were recognised and accession talks to join theEuropean Union began in 2005.

But power rots leaders. As he becomes more autocratic, MrErdogan is reversing his own achievements (see Europe sec-tion). Artificially low interest rates have caused a slump in thelira (down 55% in the past four years), pushed inflation up todouble digits and led firms to overload themselves with debt.After a period of breakneck growth, a hard landing seems im-minent. The war against Kurdish militants has resumed, bothin the south-east of the country and across the border in Syria.As relations with NATO and the EU deteriorate, Mr Erdoganhas struckup an alliance ofconvenience with Russia.

The vicious attempted coup of July 2016 deserved to fail.But Mr Erdogan’s revenge has been indiscriminate and dispro-

portionate. Some 110,000 people have lost their jobs in thearmy, schools and the bureaucracy; more than 50,000 peoplewere arrested, of whom 35,000 have been convicted. Takingadvantage of a climate of fear and a state of emergency, Mr Er-dogan pushed through a constitutional reform that turns Tur-key from a parliamentary to a presidential system, greatly re-ducing the power of the legislature to check a now-mightypresident, ie, himself. These changes were approved by a closereferendum in 2017, amid credible allegations ofcheating.

A vote for pluralismFor all these reasons, Mr Erdogan should go. Who should re-place him is less obvious. Of the alternatives, Selahattin De-mirtas, the leader of the HDP, the main Kurdish party, is im-pressive buthasno chance ofwinning—not justbecausehe is aKurd in a country that mistrusts them, but also because he iscampaigning from behind bars, having been jailed ontrumped-up terrorism charges. On balance, Muharrem Ince, aformer teacher who now represents Kemal Ataturk’s old party,the CHP, is the best option. Despite the CHP’s statist instincts,Mr Ince isa strong-minded and decent candidate. He has madea point of visiting Mr Demirtas in prison; as the child of obser-vant Muslims, he could win over some AK voters.

Polls suggest that Mr Ince will find it hard to win even if hecan force Mr Erdogan into a run-offon July 8th. That makes theparliamentary ballot especially important. There is a goodchance that AK (and a smaller ally) will lose its majority. Forthat to happen, though, the HDP will have to cleara10% thresh-old or itwill getno seatsatall. Voters should opt for itwhereverthey can. Even if Mr Erdogan wins re-election, an opposition-controlled chamber will be able to speak out against hisabuses, blockhis decrees and perhaps reverse his constitution-al changes. Any checks and balances are better than none. Tostop the sultan, Turkey needs an effective opposition.7

Turkey

Time to go

Recep Tayyip Erdogan deserves to lose the election on June 24th

LOOK at the headlines, andyou would struggle to be-

lieve that the global economy isin good health. President Don-ald Trump continues to fire offvolleys in his inchoate tradewar, throwing financial marketsinto turmoil and drawing retali-

ation. The Federal Reserve is raising interest rates—an activitythatusuallyends in a recession in America. Tightercredit and arising dollar are squeezing emerging markets, some of which,such as Argentina, are under severe stress.

Yet the world economy is thriving. Growth has slowed

slightlysince 2017, but still seems to be beating the languid paceset in the five years before that. America may even be speedingup, thanks to MrTrump’s taxcutsandspendingbinge. Ahigheroil price, which in past economic cycles might have been adrag, is today spurring investment in the production of Ameri-can shale. Some forecasts have growth exceeding4% in the sec-ond quarter of2018.

This sugar rush, however, brings dangers. The first is that itprovides temporary political cover for Mr Trump’s reckless-ness. The second is that, if America accelerates and the rest ofthe world slows, widening differentials in interest rates wouldpush up the dollar still more. That would worsen problems inemerging markets and further provoke Mr Trump by making it

The world economy

Don’t crash it

World GDP

% increase on a year earlier

2.5

3.0

3.5

4.0

2012 13 14 15 16 17

Atrade war is the worst ofmanythreats to global growth

1

The Economist June 23rd 2018 Leaders 13

1

IN TEXAS an infant is separatedfrom his mother by the federal

government to deter othersfrom coming. In the Mediterra-nean a boat with some 630 mi-grants on board is preventedfrom docking at an Italian port,and Italy’s deputy prime minis-

ter seeks to boost his popularity by threatening to expel Romapeople. In Berlin a coalition government may fall over how tohandle immigration (see Europe section). These things mightlookseparate; in fact they are connected.

The failure to gain political consent for immigration hasbeen implicated in the biggest upheavals in the West: Brexit,Donald Trump’s victory, the grip Viktor Orban has over Hun-gary, the rise of the Northern League in Italy. All these eventshave pushed politics in a direction that is worrying for thosewho prefer their markets free and their societies open. Thiscreates a painful trade-off. Resist the demands for more brutalimmigration enforcement, and electoratesmaykeep voting forcandidates who thrive on blaming foreigners for everything.Accept the solutions proposed by the likes of Mr Trump (seeUnited States section) or Mr Orban, and Western societies willoffend against their fundamental values.

Take the White House’s approach, which resulted in 2,342children being separated from their families last month. To usechildren’s suffering as a deterrent was wrong. It is the sort ofthing that will one day be taught in history classes alongsidethe internment of Japanese-Americans during the secondworld war. To argue that the administration had to act in thisway to uphold the law is false. Neither George W. Bush nor Ba-rack Obama, who deported many more people annually thanMrTrump, resorted to separations. To claim it was necessary tocontrol immigration is dubious. In 2000 the governmentstopped 1.6m people crossing the southern border; in 2016,when Mr Trump was elected, the numbers had fallen by 75%.Deterrence no doubt played its part, but prosperity and a low-er birth rate in Mexico almost certainly mattered more. Nowonder, aftera publicoutcry, MrTrump abandoned the policy.

Otherexamples ofdeterrence have fared no better. Britain’sgovernment concluded from the Brexit referendum that itshould redouble efforts to create a “hostile environment” forimmigrants. It ended up sendingnotices to people who had ar-rived in Britain from the Caribbean in the 1950s, ordering themto produce documents to prove they were British. The harass-ment, detention and deportations that followed resulted in theresignation of the home secretary. Likewise, in 2015 Europeangovernments argued that rescuing boats carrying migrants

Immigration

Separation anxiety

When immigration policies clash with values, the values usuallywin

harder for him to achieve his goal ofbalanced trade.The trade war is the biggest threat to global growth (see Fi-

nance section). On June 15th the White House confirmed that a25% tariff on up to $50bn of Chinese imports would soon gointo effect. Three days later, after China promised to retaliate,the president expanded, by as much as $400bn, the othergoods America is threatening to tax. If he follows through,nine-tenths of roughly $500bn-worth of goods imported fromChina each year will face American levies. Meanwhile, theEuropean Union is poised to impose retaliatory tariffs in re-sponse to America’s action against EU steel and aluminium.No wonder markets have caught the jitters.

I’ll see you and erase youThe president is unafraid of escalating trade disputes becausehe believes he has a winning hand. America buys from Chinaalmost four times as much as it sells there, limiting China’sability to match tariffs. The White House hopes this imbalancewill lead China to yield to its demands, some ofwhich (cuttingthe theft of American firms’ intellectual property) are morereasonable than others (shrinking the bilateral trade deficit).

But MrTrump overestimates his bargainingpower. If Chinaruns out ofAmerican goods to tax, it could raise existing tariffshigher. Or it could harass American firms operating in China.More important, the president’s mercantilism blinds him tothe damage he could inflict on America. He thinks it is betternot to trade at all than to run a trade deficit. This folly also dic-tateshis tactics towardsCanada, Mexico and the EU. MrTrumpcould yet withdraw from the North American Free-TradeAgreement and slap tariffs on cars.

The problem is not that America depends on trade. In fact, itis a big enough free-trade area for the eventual damage to GDP,even from a fully fledged trade war, to be limited to a few per-centage points (smaller, specialised economies are more de-pendent on trade and would suffer a lot more). Such self-in-flicted harm would impose a pointless cost on the averageAmerican household of perhaps thousands of dollars. Thatwould be bad, but it would hardly be fatal.

The bigger issue is the vast disruption that would occur inthe transition to more autarky. America’s economy is config-ured for designing iPhones, not assembling their components;the innards of its cars and planes cross national borders manytimes before the final product is ready. Faced with tariffs, firmshave to redirect labour and capital to replace imports.

Some analysts attribute Mr Trump’s presidency to the eco-nomic shock from trade with China after 2000. The turmoilcaused by reversing globalisation would be just as bad. Oneestimate puts American job losses from a trade warat 550,000.The hit to China would also be severe. Any adjustment wouldbe prolonged by Mr Trump’s unpredictability. Without know-ing whether tariffs might rise or fall, what company wouldthink it wise to invest in a new supply chain?

It is difficult to imagine such a realignment without a globalrecession. Tariffs temporarily push up inflation, making itharder for central banks to cushion the blow. The flight to safe-ty accompanying any global downturn would keep the dollarstrong, even as America’s fiscal stimulus peters out after 2019.

So be wary. The trade war may yet be contained, to the ben-efit of the world economy. But America is the engine of globalgrowth. In Mr Trump, a dangerous driver is at the wheel. 7

2

14 Leaders The Economist June 23rd 2018

2 from north Africa merely encouraged more to risk that jour-ney. Then as many as 1,200 people drowned in ten days, andEuropeans were horrified at the cruelty being meted out intheir name. European leaders concluded that voters were notpro-drowning after all.

Shockand awfulnessThe left often concludes from this that people calling for en-forcement are cruel and racist. But that is wrong, too. In princi-ple countries must be able to secure their borders and upholdthe law. In practice a policy of neglect invites a backlash thathelps people like Matteo Salvini, leader of the NorthernLeague (slogan: “Italians First”), or Horst Seehofer, Germany’sinterior minister, who has threatened to bring down AngelaMerkel. The outrage feeds on itself. Mr Salvini wants to deporthundreds of thousands of migrants from Italy; Mr Seehofer

wants to send tens of thousands ofmigrants to Italy.The Platonic ideal of an immigration policy is one that has

the consent of the host country. It treats migrants humanelybut also firmly, swiftly returning those who arrived illegally orwhose claims to asylum have failed. This is easy to prescribebut hard to enact. Courts are overstretched, many cases arehard to adjudicate and poor countries may not want their citi-zens back. And so rich countries tend to pay poorer ones to setup vast holding-pens for humans, as Italy does with Libya andthe EU does with Turkey. This involves something whichwould not be tolerated at home, but is somehow acceptablebecause it is out ofsight.

Europeans were right to condemn the separation of chil-dren. But they face a wave of migrants from their populous,poor, war-torn neighbours. When they draw up their ownpolicies, they should remember their discomfort this week.7

TO THOSE who have tosqueeze onto the number 25

bus in London, or the A train inNew York, the change might notbe noticeable. But public trans-port is becoming less busy inthose cities, and in others be-sides. Passenger numbers are

flat or falling in almost every American metropolis, and insome Canadian and European ones, too. That is despitehealthy growth in urban populations and employment. Nose-to-armpit travellers may be even more surprised to hear thatthe emptying ofpublic transport is a problem.

Although transport agencies blame their unpopularity onthings like roadworks and broken signals, it seems more likelythat they are being outcompeted (see International section).App-based taxi services like Uber and Lyft are more comfort-able and convenient than trains or buses. Cycling is nicer thanit was, and rental bikes are more widely available. Cars arecheap to buy, thanks to cut-rate loans, and ever cheaper to run.Online shopping, home working and office-sharing meanmore people can avoid travelling altogether.

The competition is only likely to grow. More than one lab-oratory is churning out new transport technologies and appli-cations (see Business section). Silicon Valley invented Uberand, more recently, apps that let people rent electric scootersand then abandon them on the pavement. China created dock-less bicycles and battery-powered “e-bikes”, both ofwhich arespreading. Some inventionswill fail, orwill be regulated outofexistence (at one point, Segways were the future). But newideas, includingdriverless taxis, are comingaround the corner.Mass transport is much less nimble. As New York’s Second Av-enue subway, London’s Crossrail and Amsterdam’s North-South metro line have shown, building new train lines is nowincredibly complicated and expensive.

This is a headache for the operators of public-transport sys-tems. It is also a problem for cities. Like it or not—and manypeople do not—mass public transport does some things very

well. It provides a service for people who are too old, tooyoung, too poor, too fearful or too drunkto drive or ride a bike.Trains and subways cause less pollution than cars and movepeople at far higher densities. The danger is that public tran-sport could become a rump service, ever less popular and everlessgood, partlybecause ofitsunpopularity. Fewerpassengersmean fewer trains and buses, which leads to longer waits forthose who persist with them. Cars, whether driven or driver-less, will clog the roads.

To some extent, that dystopian future can be seen off bypricing road use properly. Many cities, particularly in America,generously subsidise driving by forcing developers to providelots of parking spaces. Elsewhere, cities have created conges-tion-charging zones. But that is a hopelessly crude tool. Mostcongestion zones in effect sell daily tickets to drive around asmuch as you like within the zone—and charge nothing to vehi-cles such as taxis and minicabs. It would be much better tocharge for each use ofa road, with higher prices for busy ones.

Transport agencies should also embrace the upstarts, andcopy them. Cities tend either to ignore app-based services or totry to push them off the streets. That is understandable, giventhe rules-are-for-losersattitude offirms like Uber. But it isan er-ror. Although new forms of transport often compete with oldones in city centres, they ought to complement each other insuburbs. Taxi services and e-bikes could get people to andfrom railway stations and bus stops, which are often inconve-niently far apart outside the urban core.

She’s got a ticket to ride, but she don’t careIt isdoubtful thatmostpeople make hard distinctions betweenpublic and private transport. They just want to get somewhere,and there isa cost in time, moneyand comfort. An ideal systemwould let them move across a city for a single payment, trans-ferring from trains to taxis to bicycles as needed. Building aplatform to allow that is hard, and requires much sweet-talk-ing of legacy networks as well as technology firms—though afew cities, like Helsinki and Birmingham, in England, are try-ing. It is probably the secret to keeping cities moving.7

Urban transport

Off the rails

Public transport is ailing in the rich world. It should co-opt the competition

The Economist June 23rd 2018 Leaders 15

THESE days Mexicans agreeon two things. Their football

team’svictoryoverGermanyonJune 17th was magnificent. Andthe elections on July 1st will bethe most important in decades.The front-runner for the presi-dency, Andrés Manuel López

Obrador, leads a coalition called “Juntos haremos historia”(“Together we will make history”). His opponents fear that hewill achieve just that, in a bad way.

Mr López Obrador, who has run for the presidency twicebefore, has a folksy air of incorruptibility that enchants manyMexicans. He promises a “radical revolution”. Some hear thatas a threat. Mr López Obrador has at times opposed the mea-sures earlier governments have taken to modernise the econ-omy. His critics liken him to Hugo Chávez, whose “Bolivarianrevolution” has brought ruin to Venezuela. The nationalistpopulism he offers is unlike anything Mexico has seen sincethe early1980s. And if the polls are right, he will win.

With that, Latin America’s second-biggest country will joina clutch of democracies where electorates have rebelledagainst the established order. What is about to happen in Mex-ico feels akin to the election ofDonald Trump in America, Brit-ain’svote to leave the European Union and Italy’s turn towardspopulism. It may be repeated in Brazil, where the front-runnerto win the presidency in October is JairBolsonaro, who speaksviciously about gay people but warmly ofmilitary rule.

The causes of popular anger vary. In Latin America, as else-where, voters are furious at elites they regard as corrupt, inef-fectual and condescending. Just as American populists decrythe “swamp” in Washington and Brazilians are aghast at thefilth of their political class, Mr López Obrador fulminatesagainst the “mafia ofpower” that he claims controls Mexico.

A leap into the unknownThe charismatic leaders who ride these resentments to powerare almost always false prophets, promising security and pros-perity even as they erode their foundations. The danger theypose to new democracies is greater than in more deeply rootedones. Mr Trump is constrained by Congress, an independentjudiciary, a free press and a bureaucracy with a long traditionof following the law. Mr López Obrador, by contrast, will gov-ern a country that has been democratic only since 2000, andwhere corruption is widespread and growing worse. The nextpresident’s main job should be to reinforce the institutionsthat underpin a modern economy, democracy and above allthe rule of law. The risk with Mr López Obrador, who will bethe first non-technocratically minded president in 36 years, isthat he will do precisely the opposite (see Briefing).

Mexican technocracy has had its successes. Orthodox eco-nomic policies have ensured relatively steady ifunspectaculargrowth since the 1990s. Thanks to the North American Free-Trade Agreement (NAFTA) with the United States and Canada,which took effect in 1994, Mexico is the world’s fourth-biggestexporter of motor vehicles. The outgoing president, Enrique

Peña Nieto, opened energy and telecoms to competition and istrying to impose higher standards on a failing school system.Alas, progress has been slower than politicians promised andis uneven. Mexico’s south, where a quarter of the populationlives, has ox-drawn ploughs rather than assembly lines. ByMexico’s own measure, nearly 44% of its citizens are poor.

The main source of Mexicans’ discontent is not inequalitybut crime and corruption, which have run riot under Mr Peña.The murder rate has broken a record set in 2011. The rulingparty has seen countless scandals. It emerged that Mr Peña’swife’s $7m home had belonged to a government contractor. Inan ordinary election, Mexicans would ditch Mr Peña’s Institu-tional Revolutionary Party and turn back to the conservativeNational Action Party. But after its last crime-ridden years inpower, from 2006 to 2012, they are fed up with that, too. Theywant change, which Mr López Obrador certainly offers.

The firebrand from TabascoWhatsortofchange remains to be seen. The biography thatbe-guiles his supporters is replete with danger signals. Time andagain he has shown contempt for the law. He has urged peoplenot to pay their electricity bills. After he lost in 2006 his sup-porters proclaimed him the “legitimate president” andblocked Mexico City’s main street for weeks. He has said thatthe courts should be an instrument of“popular sentiment”.

His supporters say he has matured, and that his record asMexico City’s well-liked mayor from 2000 to 2005 shows thathe was always pragmatic. He has made his peace with NAFTA

and no longer talks of reversing the energy reform. He prom-ises to run a disciplined budget, to respect the independence ofthe central bankand not to raise taxes. Some ofhis ideas, like anationwide apprenticeship programme, make sense.

But he seems to have little idea how a modern economy ordemocracy works. He disparages independent institutions,such as the supreme court. He talks of making Mexico self-suf-ficient in food and ofbuildingoil refineries, which are unlikelyto make business sense. His ideas are simplistic. He wants tohalve the salaries of senior officials, including the president,and to subject himself to a recall referendum every two years.Though personally clean, he has formed alliances with politi-cians who are anything but. He denounces Mr Peña’s educa-tion reform, which offers poor children a chance of a brighterfuture. Yes, Mr López Obrador has reinvented himself, but as abundle ofcontradictions.

That makes his presidency a risky experiment. The finan-cial markets might tame a López Obrador government. But acongressional majority for his party might equally encourageradicalism. It might go well if, say, he curbs corruption orstands up to America over trade. More likely, progress will re-main elusive. Mexico cannot stop graft without the institu-tions Mr López Obrador scorns. And with protectionists at thehelm in its two biggest member-states, NAFTA could well col-lapse. That would further poison relations with the UnitedStates, possibly imperillingco-operation overdrugs and immi-gration. We worry about Mr López Obrador’s presidency, butwish him luck. Ifhe fails, worse may follow. 7

Andrés Manuel López Obrador

Mexico’s answer to Donald Trump

There are manyreasons to worryabout Mexico’s most likelynext president

16 The Economist June 23rd 2018

Letters are welcome and should beaddressed to the Editor atThe Economist, The Adelphi Building,1-11 John Adam Street,London WC2N 6HT

E-mail: [email protected] letters are available at:Economist.com/letters

A game of two ideologies

“How to win the World Cup”(June 9th) presented theheartening conclusion that“dictatorships are rubbish atfootball”. It would be neat ifthe beautiful game could onlythrive in democracies. But thisconclusion, which is based ondata for the period between1990 and 2018, is mistaken.Italy won two World Cupsduring Benito Mussolini’sdictatorship in the 1930s (beat-ing an authoritarian Hungaryin 1938). Latin American coun-tries, such as Argentina, Braziland Uruguay, have had excel-lent international sides both indemocratic periods and whenunder military dictatorship.

Countries in communisteast Europe, including Hunga-ry, whose “Golden Team” lostjust one match between 1950and 1956 (the World Cup finalin 1954), Czechoslovakia(World Cup finalist in 1962),Yugoslavia and the SovietUnion (four-time finalist in theEuropean Championship),were an equal match for anynational team in democraticWestern Europe. Spain underFrancisco Franco won theEuropean Championship in1964 and produced the mostdominant club team ofanyperiod, the formidable RealMadrid side that won fiveconsecutive European Cups inthe 1950s.

A study of the relationshipbetween democracy andfootball performance based ondata after1990, when commu-nism had broken down in eastEurope and military dictator-ships had fallen in Latin Amer-ica, suffers from selection bias.The countries that do welltoday are by and large thesame countries that did well inthe interwar period and in thedecades after the second worldwar, namely countries inEurope and southern LatinAmerica. They have domin-ated football irrespective oftheir political stripe. Dictator-ships are, alas, not necessarilyrubbish at football. But thecountries that are stilldictatorships today are.PROFESSOR JORGEN MOLLER

Aarhus UniversityAarhus, Denmark

Summit view

Say what you want aboutDonald Trump—and you go onat length about his penchantfor upending the post-1945rules-based internationalorder and its long-term conse-quences (“Demolition man”,June 9th)—but he has succeed-ed in getting Kim Jong Un tothe negotiating table andcommitting to denuclearisethe Korean peninsula. Perhapswhat Mr Kim needed to hear tobring him to his senses was notanother carrot offered in theform ofyet another interna-tional gabfest, such as thewholly ineffective six-partytalks on Iran, but an Americanpresident who had the gump-tion to call him “rocket man”and growl that “mine’s biggerthan yours”.SANJIV MEHTA

Montreal

The cost of rescuing a bank

The British government paid£5.02 per share for Royal BankofScotland in 2008 and recent-ly sold 925m shares at £2.71,representing a loss to taxpay-ers of£2.1bn, or $2.8bn (“Cutyour losses”, June 9th). Youreported the National AuditOffice’s estimate that the costofbailing out RBS was actuallymore like £6.25 per share. Thistakes the loss to taxpayers to£3.3bn. But the real loss is fargreater, namely the opportuni-ty forgone. Had the £6.25 costper share been put instead intothe FTSE all-index tracker, itwould have almost doubled invalue since, to £12 per share. So,the real cost to the taxpayer ofthe recent sale ofRBS sharesamounts to more than £8.6bn.JONATHAN MICHIE

PresidentKellogg CollegeUniversity of Oxford

The top two

“Almost blue it” (June 9th)described California’s primarysystem, where the two candi-dates in a primary who get themost votes go on to the generalelection regardless ofparty, as“dysfunctional”. The articlethen proceeded to describe theprimary elections in Orange

County, where voters werespoiled for choice, an under-funded candidate beat hiswealthy rivals, and both aRepublican and a Democratadvanced to November’sgeneral election in a districtevenly split between the twoparties. These are the exactkind ofoutcomes that Califor-nia’s voters wanted when theyapproved the top-two system.

Ifyou consider competitionand choice dysfunctional, Ihate to imagine the words youreserve for closed primariesthat limit voter choice, empow-er special interests, and createeven greater polarisation inCongress.CONYERS DAVIS

Acting directorSchwarzenegger InstituteUniversity of Southern CaliforniaLos Angeles

You got a fast car

I agree that the costs andbenefits ofspeed on publicroads have to be balanced, butI was surprised that yourleader supporting the reduc-tion ofspeed limits in Francedid not mention Germany(“Live fast, die fast”, June 2nd).Sections of the German Auto-bahn have unrestricted speedlimits. Its roads are as safe as itsEuropean neighbours andsignificantly safer than Ameri-ca’s. This shows that govern-ments do not have to control“humanity’s love ofspeed” byimposing limits, but by in-vesting in smart technology tocontrol traffic flows and main-tain roads. Enforcing the ruleson safe driving and strict testsalso help. Taking away a free-dom should never be a modelifeffective alternatives exist.MARTIN IHRIG

Associate deanDivision of business New York University

Frenchmen who complainabout reducing the speed limitshould be glad they did notlive in their grandfathers’ time.In 1923 Rudyard Kipling tookatour ofFrance in a chauffeur-driven Rolls-Royce, passing thetime by writing “A Song ofFrench Roads”. One linecelebrates how “Ninety to thelawless hour the kilometres

fly”. Lawless indeed. Thespeed limit outside towns wasthen a mere 30kph.PHILIP HOLBERTON

Kempsey, Australia

Radical chic

I enjoyed your obituary of thesartorial Tom Wolfe, in whichhe fixed “A proper Windsorknot!” on his tie (May 26th).But in the picture accompa-nying the article, Mr Wolfeused a four-in-hand knot onhis tie, which tends to belonger and narrower than theWindsor. Of the two, the four-in-hand knot is actually themore traditional, having a longhistory associated withdriving horse-carriages. TheWindsor is the relatively newinvention, attributed to theDuke ofWindsor, who desireda wider knot with a moresymmetrical appearance.JOHN GRAVES

Houston

Reliving the future

I do not for one momentbegrudge James Carville hisfun in his wish to be reincar-nated as the bond market,because he could then“intimidate everybody”(“Matteo Salvini’s quest forpower”, June 2nd). Personally Iwould like to come backas thelaw ofunintended conse-quences, which I suspectwould be a laugh a minute.PETER WILKINSON

Wheathampstead, Hertfordshire7

Letters

17

The Economist June 23rd 2018

Executive Focus

18


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Executive Focus

19


Property


1

EVEN a short walk in Tabasco can feel un-bearable. When Graham Greene visit-

ed Mexico 80 years ago, he lamented thetropical southern state’s “blinding heatand the mosquito-noisy air” that left “noescape for anyone at all”. Now Tabascanscan at least endure the humidity with fansand air-conditioning. But half of the state’sresidents are poor and electricity prices areamong the highest in the country. Twenty-three years ago a local politician decided todo something radical. Andrés Manuel Ló-pez Obrador (known as AMLO), fresh froman unsuccessful run for governor, organ-ised a campaign of “civil resistance”, in-structing Tabascans not to pay their elec-tricity bills.

The campaign has lasted for over twodecades. Some 570,000 Tabascan house-holds have racked up debts with the Feder-al Electricity Commission (CFE) averaging10,500 pesos ($500) each. In 2015 the CFE

began another bout of cutting off non-pay-ers. Mr López Obrador, by then head of hisnewly created party, the Movement for Na-tional Regeneration (Morena), summoneda brigade of vigilante electricians to recon-nect them. He also warned the state’s go-vernor, Arturo Núñez Jiménez, that his pa-latial office would suffer power cuts werehe to try disconnecting people again.

These events sum up what many Mexi-

cans have long liked about Mr López Obra-dor, and what others fear. His concern forthe poor and wish to improve their lot issincere. However, Mr López Obrador has ashaky grasp of economics—urging somepeople not to pay their bills tends to driveup prices for everyone else, for example.And he has little respect for rules or institu-tions. Thismattersbecause MrLópezObra-dor is set to become Mexico’s president inan election on July1st. He has a poll lead of25 points over his nearest challenger, Ricar-do Anaya of the conservative National Ac-tion Party (PAN). José Antonio Meade, anon-party candidate picked by the rulingInstitutional Revolutionary Party (PRI), isfurther adrift. There is also a chance that acoalition led by Morena, founded fouryears ago, will win control ofcongress.

Mexicans are likely to deliver a voto decastigo (punishment vote) because thepresident, Enrique Peña Nieto of the PRI, isthe least popular leader for decades. Peo-ple are also angry at the PAN. Though thePAN turfed the PRI from power in 2000,ending seven decades of one-party rule, itfailed to govern much betterand the PRI re-turned under Mr Peña in 2012.

Mr López Obrador promises drasticchange. Mexico will have a charismaticpresident for the first time since the 19thcentury, says Enrique Krauze, a historian

who first called him a “tropical messiah”.On the campaign trail he says that a“fourth transformation” of Mexico is com-ing, after independence in 1821, a civil warand liberal reforms in the 1850s and 1860s,and a revolution that began in 1910. Thechange will be “as profound” as the revolu-tion, but “without violence”, he promises.He vows to overthrow the “mafia of pow-er”, that he believes holds backMexico.

When he says he will “uproot the cor-rupt regime”, he is talking about everyonein the political class except himself and hiscircle. His opponents say he wants to un-ravel the market-friendly policies that thePRI and PAN have cleaved to since the1980s. Some fear that in a country wheredemocracy is barely old enough to order atequila, a charismatic populist might seri-ously undermine it.

Third time luckyMexicans are fed up. During 30 years ofgrowing democracy and economic liberal-isation, they were told that Mexico wouldbecome a rich country. Income per headhas risen by 40% over the same period. Butgrowth has been uneven. The parts of thecountry near the United States have pros-pered while peasants in the south still toiloutdoors in the sun. The economy hasbeen sluggish in recent years, partly thanksto a low oil price. Meanwhile, Mexicansare furious about corruption and terrifiedofgang violence.

Mr López Obrador governed MexicoCity between 2000 and 2005, before un-successful presidential runs with the cen-tre-left Party of the Democratic Revolution(PRD) in 2006 and 2012. The question as heseeks the presidency for a third time is

Tropical messiah

Mexico City and Villahermosa, Tabasco

Voters are so fed up with theirruling class that they are taking a chance on apopulist, Andrés Manuel López Obrador

Briefing Mexico

The Economist June 23rd 2018 Briefing Mexico 21

1

2 whether he will fix some of what is wrongwith Mexico, or replace its (admittedly im-perfect) institutions with a more personaland messianic style ofgovernment.

The acronym of Mr López Obrador’sparty is an allusion to La Virgen Morena ofGuadalupe, Mexico’s patron saint. It is alsoa term used to describe darker-skinnedMexicans, who often live in the poorsouth. The gap between Mexico’s richestand poorest regions is twice as wide as thenext-biggest one in the OECD, in Chile.That is partly because the North AmericanFree-Trade Agreement largely benefitednorthern Mexico, where American firmsbuilt factories and created millions of jobs.Mr Núñez says Tabasco is “forgotten” bycentral government, a feeling many south-erners share.

Mr López Obrador, who would becomethe first president born south of MexicoCity in half a century, wants to redress theimbalance. He has plans for new infra-structure in the south, vowing to pave ev-ery road in Oaxaca, a mountainous statewith a poverty rate of 70%. He also prom-ises a railway from Quintana Roo to Chia-pas, and a road and rail corridor across theIsthmus of Tehuantepec, in Oaxaca andVeracruz, paid for with loans from China.He would also build two oil refineries, inCampeche and Tabasco. Afanciful schemefor “food self-sufficiency” would includeprice guarantees for crops produced bysouthern farmers.

Winning votes in the south was neverhard for Mr López Obrador. What is differ-ent this time is that northerners, who usedto worry that he would wreck the econ-omy, are warming to him. Incredibly, he isnow more popular among the richest thirdof voters than among the poorest. “He hasmatured,” insists Rafael De Dávila, a previ-ously PAN-voting electrical engineer in Es-cobedo, a suburb of Monterrey, the state

capital of fast-growing Nuevo León.That may be true. Mr López Obrador

has courted voters who wearily recall hisantics in 2006, when his protesting sup-porters shut down Mexico City for monthsafter he lost the presidential election nar-rowly to Felipe Calderón. He is makingfewer mistakes on the campaign trail thistime. Advisers have, for example, persuad-ed him to drop contentious plans for a ref-erendum to repeal energy reforms, whichin 2014 allowed foreign oil firms into Mexi-co for the first time since 1938.

His campaign produces lightheartedvideos, most recently a series featuringmiddle-class Mexicans confessing tofriends and family that they are “AMLOv-ers”. Crucially, he is more relaxed. Whenrumours spread that Russia was meddlingin the election to favourhim, he respondedwith a video on social media. Standing bya harbour, he introduced himself with asmile as “Andrés Manuelovich” and saidhe was waiting for a submarine to arrivewith a delivery ofRussian gold.

His argument that the political systemis broken has been assisted by the torridtenure of Mr Peña, who entered office on a

wave of optimism. Mr Peña forged a co-alition of Mexico’s main parties to passsweepingreforms and aimed forgrowth of6% by the end of his term. But the most im-portant changes—to energy and educa-tion—will take years to be felt. The collapseof oil prices in 2014 hurt the economy. Un-der Mr Peña the economy has grown byonly 2.5% a year (see chart).

Mr Peña is unpopular mainly becausehis government has been passive and un-accountable on the two issues that mattermost to Mexicans, corruption and security.Mr Peña vowed to halve a murder rate thathad rocketed after his predecessor, Mr Cal-derón, sent the army to fight drug cartels.But after locking up several drug kingpins,his administration did not respond whentheir would-be heirs began to fight eachother and diversify beyond drug smug-gling. Mexico is on course for 32,000 mur-ders this year, a record high and double thetoll in 2014.

The best-known violent crime duringMr Peña’s tenure was the disappearance in2014 of 43 student teachers, who werepulled off buses and almost certainly mur-dered. An early investigation was botched.Later ones showed that local officials anddrug gangs were shockingly entwined. MrLópez Obrador’s rivals talkabout a “smart-er” approach to crime. He offers a vague“amnesty” to low-level drugdealers. ManyMexicans, hungry for peace, think he can-not do worse than today’s government.

Another hard jobThen there is corruption. Under Mr Peña, ithasgrown more blatant, orat leastbeen ex-posed more effectively. Two ministries runby Rosario Robles, now secretary of agrari-an development, saw 1.3bn pesos vanishfrom their coffers. Several governors fromthe PRI face charges of treating state fundsas personal piggy banks. The governmentis accused of shelving a bribery investiga-tion into Emilio Lozoya, a member of MrPeña’s campaign team who went on to runPemex, the state oil firm. During Mr Peña’stenure Mexico has fallen 30 places in Tran-sparency International’s corruption index.It is now135th, tied with Russia.

Any public faith that Mr Peña wouldcurb graft melted away in 2014 when ajournalist revealed that his wife’s $7mhouse had belonged to a businessmanwho had won several contracts under hispresidency. Under previous governments,crooked bigwigs would typically build,say, a road and take a cut, explains Ar-mando Santacruz of Mexico UnitedAgainst Crime, an NGO. Now, he says, theyinvoice for the road, funnel the moneythrough phantom companies, build noth-ing and run offwith all the loot.

Corruption has grown more visible notbecause the state is adept at investigating itbut because of a nascent civil society andsocial media. In 2015 when David Koren-

G u l f o f

M e x i c o

P A C I F I C O C E A N

BAJACALIFORNIA

BAJACALIFORNIA

SUR

C H I H U A H U A

NUEVOLEÓN

TAMAULIPAS

D U R A N G OSINALOA

S O N O R A

NAYARIT

JAL ISCO

ZA C A -TEC AS

SANLUISPOTOSÍ

VERACRUZMICHOACÁN

GUERRERO

PUEBLA

O A X A C ACHIAPAS

CAMPECHETABASCO

YUCATÁN

QUINTANAROO

1

432

5

8

6

COLIMA

GUATEMALA

BELIZE

HON-DURAS

7

U N I T E D S T A T E S

C O A H U I L A

M E X I C O

Tehuantepec

SEEENLARGEMENT

Monterrey

500 km

MexicoCity

1AGUASCALIENTES

2

GUANAJUATO3

QUERÉ-TARO

4HIDALGO

5 MÉXICO8

MORELOS

7TLAXCALA

6 FEDERALDISTRICT

10.3

10.1

11.4

24.0

12.3

8.53.2

9.6

19.2

7.0

7.2

4.1

5.5

9.1

5.5

5.3

6.0

6.0

14.2

3.8

5.4

11.3

10.6

7.9

7.7

12.1

9.8

8.6

4.6

5.8

7.0

6.2

GDP per person, 2016, $’000

Sources: National ElectoralInstitute; Oraculus; INEGI *Projection

10 155– +051015

Change in vote share for Andrés Manuel López Obrador2006-18*, % points

00

Slowing progress

Source: IMF

Mexico, GDP, % change on a year earlier

8

6

4

2

0

2

4

6

8

10

+

–

1980 85 90 95 2000 05 10 17

22 Briefing Mexico The Economist June 23rd 2018

2 feld, boss of the state water authority, tooka government helicopter to go on holidaywith his family, a neighbour snappedsome photos of them and their suitcases.Mr Korenfeld, an old friend of Mr Peña, re-signed after the images went viral.

Mr Peña’s government has hamperedthe fight against corruption. Civil-societyleaders and journalists say they report cor-ruption to ministers, but nothing happens.Institutions to catch and prosecute graft re-mainpliableand neglected. Criticspoint toa bribery scandal involving Odebrecht, aBrazilian construction firm, which has ledto people being charged in nearly everyLatin American country. The exceptionsare despotic Venezuela—and Mexico.

Mr López Obrador promises to “elimi-nate, not reduce” corruption through an at-titude of zero tolerance and the shining ex-ample of his own incorruptibility. Yet in2003 while he was mayor of Mexico CityRené Bejarano, a close political associate,was caught on video accepting $45,000 incash from a businessman. As mayor he re-fused to enforce rulings from the supremecourt, including one to clear a bottling fac-tory taken over by striking workers. Hewas the superior arbiter in this case, he ex-plained, because the court lacked “socialsensitivity”. He seems uninterested in cre-ating the independent institutions neededto expose and prosecute graft effectively.“He thinks there will be a bigbagofcorrup-tion money he can find and spend on thepoor,” huffs an aide to a rival candidate.

Mexican stand-offMr López Obrador openly scorns civil soci-ety and the supreme court, neither ofwhich will bend to hiswill aspresident. Hepledges referendums to solve policy ques-tions, including a recall vote every twoyears duringhis presidential term. To somethat looks like accountability. To others it isa troubling break with representative de-mocracy and the principle of single-termpresidencies enshrined by the revolution.

In stump speeches Mr López Obradortouts a brand of austere populism. Therecan be “no rich government with a poorpopulace,” he says. He vows to halve thepresident’s salary and those of senior bu-reaucrats, refrain from spending publicmoney on clothes, sell the presidentialplane and move the official residence tosomewhere more humble. He derides a$13bn airport proposed for Mexico City,saying that its construction was unneces-sary and riddled with corruption. Govern-mentministries in the capital are to be scat-tered around the country. He is alsosocially conservative, opposing both legalabortion and gay rights.

Strangely absent from this populistbrew is anti-Americanism, despite the un-popularity of America’s president. Mr Ló-pez Obrador insists he will not recklesslyprovoke Donald Trump. “We have to have

enough patience to get to grips with Presi-dent Donald Trump, to maintain the rela-tionship,” he said on June10th.

To soothe fears thathe would be fiscallyirresponsible, he is rumoured to be addingto his team Guillermo Ortiz, a former chiefof the central bank, and Santiago Levy ofthe Inter-American Development Bank.Their task will be to find the money to payfor their boss’s policies. The most expen-sive include a universal pension for the el-derly and disabled, scholarships for poorstudents and an overhaul of water infra-structure. Those promises alone wouldcost 1.7% of GDP each year at a time whenthe budget deficit is 2.9% ofGDP.

Unlike Mr Trump, who abhors policydetails, Mr López Obrador obsesses overthem. One adviser recounts his poringover the party’s 461-page election manifes-to and crossing out policies he deemed un-affordable. As mayor of Mexico City heworked with the private sector to refurbishthe city centre. He did not run up hugedebts and left office with an approval rat-ing of 85%. All this points to a pragmaticstreak. Optimists hope that he will offsetextra spending with cuts elsewhere.

Pessimists note that Hugo Chávez ini-tially posed as a moderate, too. Mr LópezObrador will surely not plunge Mexicointo tyranny and destitution the way Chá-vez did Venezuela. But many question hissincerity. If he really cares about curbingcorruption, why did he enlist NapoleónGómez Urrutia, a mining-union leader ac-cused of embezzling millions of dollars, asa senate candidate for his party? If the PRI

is part of the mafia of power, why is he en-couraging its senior officials to join him?And if he truly cares about the poor, whydoes he vow to roll back reforms thatwould make their schools better by hiringteachers on the basis ofmerit?

The most likely answer to these ques-tions is a cynical one. His young party

needs foot-soldiers to knock on doors andget out the vote. Last year it had just320,000 members, according to the Na-tional Electoral Institute. The PRI had dou-ble that in the state of Puebla alone. By op-posing education reforms, Mr LópezObrador wins the support of a 100,000-strong teachers’ union. His overtures to MrUrrutia, whose union boasts 120,000members, will bringmore recruits and lureother union bosses. The trickle of PRI offi-cials defecting to Morena may become aflood if the PRI is thrashed on election day.

AMLO aims highSome suspect that Mr López Obrador’splan is not only to dislodge the PRI but toadopt its model as a big-tent party. He seesechoes of the social division and violenceduring the revolution, which subsidedwhen the PRI centralised power and invit-ed everyone to join it. The strongerMorenagrows, he may think, the more governableand harmonious Mexico will become.

One thing looks certain. In whicheverdirection he takes Mexico, resistance willbe weak. For the first time a single party isset to control the presidency, capital andcongress all at once. Presidents in the 20thcenturywere subservient to the PRI. MrLó-pez Obrador has created a party which an-swers to him. Every other party faces de-struction at the polls with only a dividedPAN in a position to oppose him.

Mr Nuñez, who has known Mr LópezObrador since the 1980s, criticises his doc-trine of “civil resistance”. It has created aculture ofnon-payment in Tabasco not justfor electricity bills, but also for land taxesand water bills. He recalls telling Mr LópezObrador in 1996 about the importance ofelectoral reforms to formalise democracy.“He told me: ‘They are not important. Thiscountry is going to advance with popularmobilisations, not with legal reforms.’ ”The time to test that theory has arrived.7

Victory is in AMLO’s palm


For daily analysis and debate on Europe, visit

Economist.com/europe

1

MUHAMMAD SHEIKHOUNI came toTurkey from Syria in 2006, long be-

fore his native country plunged into civilwar, and fell in love with Recep Tayyip Er-dogan. Adecade later, aftersettingup a tou-rism and construction company in Bursa,the former seat of the Ottoman empire, thebusinessman joined the president’s rulingJustice and Development (AK) party. Thisyear, after Mr Erdogan called early elec-tions for June 24th, MrSheikhouni decidedto run for a seat. In the meantime, he alsochanged his last name—to Erdogan.

Inside his election tent, pitched on oneside of a large square in Bursa, Muham-mad Erdogan can hardly peel his eyes fromthe president’s image, printed on one ofthe walls, as he delivers his talking points.“There’s no one else like our reis,” he says,using the Turkish word for chief. “Heopened his doors to the people of Syria, hehelped the Somalisand he stood up for Pal-estine. He’s not only the leader of Turkey,but of the whole Muslim world.”

After 15 years in power—more than Ke-mal Ataturk, the founder of modern Tur-key—Mr Erdogan has left an indelible markon his country. To many of his supporters,he has turned into a father figure, the sym-bol of a return to Ottoman glory, the archi-tect of Turkey’s boom years, and a beaconof hope for oppressed Muslims across theglobe. Turks routinely complain about theproblems posed by the 4m refugees who

increasingly unscrupulous autocrat. Tur-key’s president already had a taste forhounding opponents long before the abor-tive putsch of 2016. Over the past couple ofyears, he has indulged it as never before.Out for revenge against the Gulen move-ment, a sect that colonised parts of the bu-reaucracy and spearheaded the coup, hehas filled Turkey’s prisons with tens ofthousands of former officials, only a frac-tion of whom were involved in the vio-lence; thousands of Kurdish activists; overa hundred journalists; and a dozen mem-bers ofparliament, includingone ofhis op-ponents in the presidential election, Sela-hattin Demirtas. His tolerance for dissentwithin his own party has reached zero.

Mr Erdogan has also made sure to stackthe deck before the vote by forcing the me-dia to march to his beat. Most Turkishnewspapersnowread like AK election leaf-lets. The state media have, in effect, placedtwo of the three main presidential con-tenders under embargo. According to a re-cent report, the main state broadcaster de-voted a total of 13 minutes of coverage toMeral Aksener and her newly hatched Iyi(Good) party in the last two weeks of May,compared with 68 hours for Mr Erdoganand his allies. The imprisoned Mr Demir-tas and his Peoples’ Democratic Party(HDP) did not get even a single minute ofairtime.

Turkey’s president used to campaign asa leaderwho brought jobs, growth and ser-vices. Since 2013, after a wave of anti-gov-ernment protests, a corruption scandaland a messy split with the Gulen move-ment, Mr Erdogan has reinvented himselfas the commander of a country at war. Inthe universe he and many of his suppor-ters inhabit, Turkey isunderattackby West-ern powers jealous of its bridges and high-ways, by currency speculators and by their

have poured into the country since thestart of the Syrian war. But even Mr Erdo-gan’s critics acknowledge that he has donemore for the displaced than practically anyforeign government. Many of them alsocredit him with rescuing Turkey from thebloodiest coup attempt in its history, in2016. An entire generation has alreadycome of age under Mr Erdogan. Armedwith constitutional changes that give himfull control of the executive and up to threemore terms as president, Mr Erdogan couldrule the country well into the 2030s.

There is just one problem. Close to halfof the electorate views Mr Erdogan as an

Turkey’s elections

Can anyone stop Erdogan?

BURSA

Opposition leaders have a chance ofending, orat least crimping, the president’sincreasingly autocratic rule

EuropeAlso in this section

24 Merkel’s moment of peril

25 German military drones

25 Italy’s pugnacious interior minister

26 France’s vanishing Socialist Party

27 Charlemagne: Save our Schengen

Closing in

Source: National polls

Turkey, parliamentary election pollingSelected parties, %

Jan Feb Mar Apr May Jun

2018

0

10

20

30

40

50

60

CHP

HDP

SPMHP

IYI

AKP

24 Europe The Economist June 23rd 2018

1

2 home-grown helpers (meaning the oppo-sition). “Are we going to teach these terro-rist consorts another lesson on June 24th?”the Turkish strongman asked ata recent ral-ly. “We might die on this path,” he added,“but we will never turn back.”

There is reason to think that most Turkshave no intention of dying or being forcedto live in a country at war with itself andwith the rest of the world. Mr Erdogan’sstrongest challenger, Muharrem Ince (pic-tured, on previous page), the candidate ofthe Republican People’s Party (CHP),seems to have offered them a palatable al-ternative. Mr Ince has promised to end thestate ofemergency, dismantle the new con-stitution, restore the rule of law and con-vert Mr Erdogan’s 1,150-room presidentialpalace into an educational centre.

He has also pledged to resume attemptsto bring peace to the Kurdish south-east,ravaged by years of war between the armyand separatist insurgents, and to reinstatehundreds of academics sacked for protest-ingabout security operations in the region.By running a spirited campaign, and bypulling few punches, the former physicsteacher has put Mr Erdogan on the defen-sive, emboldening many Turks who havefelt afraid to speak up since the coup. Pollsnow suggest Mr Ince may have an outsideshot at the presidency if the contest headsto a second round, which would take placeon July 8th. However, Mr Erdogan is stillclose to winning the contest outright onJune 24th.

The opposition has a much betterchance of success in the parliamentaryvote—though a lot will depend on whetherthe HDP achieves the 10% threshold it re-quires to be represented in parliament.Polls suggest it will do so. Exactly what thiswould imply under the new constitutionremains unclear. CHP and Iyi party offi-cials insist that an opposition-held parlia-ment could rein in Mr Erdogan, assuminghe wins the election. That may be difficult,though. Under the new changes, adoptedlast year in a referendum marred by fraudallegations, the president will have en-hanced veto powers, as well as the right toissue decrees and to write the budget with-out input from parliament. He will also ap-point his own ministers—the post of primeminister will go—and other senior officials.

Mr Erdogan has already faced the pros-pect of cohabitation, in 2015, when AK lostthe majority it had held for more than 12years. He responded by sabotaging co-alition talks with the opposition, wooingnationalist voters with a brutal offensiveagainstKurdish militantsand then calling asnap election, which his party won in alandslide. The president’s aides have al-ready suggested their boss might marchvoters to the polls once again if the opposi-tion wins parliament. Mr Erdogan certain-ly knows how to amass power. But he nolonger knows how to share it. 7

GERMANY’S centre-right ChristianDemocratic Union (CDU) can move

fast and brutally against a leader whosetime is up. In 1999 Angela Merkel knifedWolfgang Schäuble in a steely newspaperop-ed implicitly linking him to the corrup-tion scandal that had consumed HelmutKohl, his political mentor. Support for thethen-leader dissolved and within weeksshe had taken his place.

Ghosts of the past haunt the party. Nowit is Mrs Merkel, twelve-and-a-half yearsinto her chancellorship, who is wobbling.The Christian Social Union (CSU), theCDU’s more conservative sister party, facesan election in its home state of Bavaria inOctober at which it fears the anti-immi-grant Alternative for Germany will deny itits traditional majority. To dissociate them-selves from the chancellor’s decision tokeep Germany’s borders open during therefugee crisis, the Bavarians are pushingher to the brink. Whether she goes over itdepends on the CDU.

The dispute concerns an immigrationplan presented to Mrs Merkel in early Juneby Horst Seehofer, the CSU interior minis-ter. At successive meetings the chancellortold him bluntly that she could not acceptits proposal to turn back migrants regis-tered in other EU countries at German bor-ders. “I can’t work with this woman anylonger!” Mr Seehofer fumed to colleagues.

Monthly asylum-seeker arrivals in Ger-many have fallen from roughly 200,000 amonth at the peak of the refugee crisis in

2015 to 13,000 now and (despite recenttweets to the contrary by Donald Trump)crime recently hit a 25-year low. Yet publicangst remains high, thanks partly to high-profile cases like the recent murder of aJewish teenager by an asylum-seeker. InBavaria, a border state, voters bridle atwhat the CSU calls “asylum tourists”: mi-grants who under the EU’s Dublin regimeshould be processed in the countrieswhere they first arrive, like Italy andGreece, but come to Germany and thanksto foot-dragging are not sent back withinthe six months allowed by the regulations.

Asa long-term answerMrSeehofer pro-poses nationwide “anchor centres” likethose already operational in Bavaria. Thefacility at Zirndorf, near Nuremberg, is typ-ical: a high fence topped with barbed wiresurrounds barrack-like dormitories; newlybuilt offices are stocked with the latest de-vices for taking fingerprints and detectingforged passports. New arrivals are broughthere on their first contact with the authori-ties. Applications to stay are administeredat the centre, with those denied asylumtransported directly to the airport.

Mrs Merkel approves of the model, butcannot force it on federal states that preferto house migrants in smaller, less formalhostelswhere theycan better integrate intoGerman society. Mr Seehofer considersthis decentralised system unfit for purpose(an impression not helped by a recentbribes-for-visas scandal in Bremen), so hedeems entry bans on migrants registeredelsewhere the only stopgap. Almost 71% ofBavarians think the CSU should imple-ment this measure or quit the government.Yet Mrs Merkel retorts that unilateral ac-tion by Germany could prompt a disas-trous domino effect of unilateral immigra-tion policies throughout the EU.

The showdown came on June 14th

The politics of migration in Germany

Merkel’s momentof peril

ZIRNDORF

A Bavarian uprising threatens thechancellor’s hold on power

The German labyrinth

Source: The Economist

Yes No

Yes

Yes

Yes

Yes

Yes

Yes

Yes

No

No

No

No

No

No

No

Can Angela Merkel get a credible repatriation deal with Italy and

others by July 1st 2018?

Horst Seehofer accepts it?

Merkel fires Seehofer?

Is it coherent?

CDU/CSU splits?

Merkel forced out?

Can Merkel form majority with

Greens or FDP?

New chancellor, possibly new

elections

Merkel survives as lame duck

Merkel survives with

credibility

Seehofer implements new border controls?

The Economist June 23rd 2018 Europe 25

1

2 when, in a rare step illustrating their mutu-al animosity, CDU and CSU MPs met sepa-rately. Both hardened their positions: MrsMerkel’s troops backing her request fortwo weeks to reach European agreementstackling the problems; CSUers pushing MrSeehofer to stand his ground. Days laterthe CSU leadership gave him its blessing toimplement the new border controls—though not before July 1st, when Mrs Mer-kel will present her European solution, ifthere is one, to colleagues in Berlin.

On June 24th the chancellor will attendan informal meeting of countries particu-larly affected by migration, ahead of an EU

summit on June 28th. At best she might se-

cure the outlines of a long-term reform tothe Dublin rules, probably involving moreresources for sealing the EU’s external bor-ders, and of bilateral deals with southernEuropean states trading German cash forcommitments to speedier repatriations ofmigrants. The CSU has already accused herof trying to “buy” solutions, suggesting it ispreparing to dismiss her proposals.

If so, the mood in the CDU is all-impor-tant. The Bavarians are betting on a 1999moment, when support for Mrs Merkel inher own ranks dissolves. Mr Seehofer maytest this by implementing the new bordercontrols against her will (his constitutionalright to do so is questionable), leaving her

little option but to fire him, ejecting theCSU from her coalition and forcing its re-maining parts—the CDU and the centre-leftSocial Democrats—to seek the support ofthe centre-left Greens or centre-right FreeDemocrats to make up its majority or backit as a minority government. That wouldchallenge the CDU to decide whether MrsMerkel had become a greater force for in-stability than stability.

In a historical irony, Mr Schäuble, nowthe Speaker of the Bundestag, will be cru-cial. He commands respect across theCDU’s factionsand so farhas rallied itsMPsto Mrs Merkel’s side. The deposed crownprince may yet turn kingmaker.7

German military drones

Innocence lost

TO THE reliefofcommanders and thedismay ofpacifists, Germany’s armed

forces have crossed a threshold. On June13th a Bundestag committee voted toapprove the spending ofnearly €1bn($1.1bn) to lease from Israel five droneswhich can be equipped with deadlyweapons. Hitherto Germany has beenthe only big Western country not to buy“killer robots”. In part this reflects antipa-thy to America’s use of remotely con-trolled missiles for “targeted killings” ofterrorist suspects (and the people stand-ing next to them) in places like Pakistanand Yemen.

The Israeli order does not instantlychange that situation: the machines aredescribed as “weaponisable” but not“weaponised”. A new decision will beneeded to endow them with destructivepower. However, critics and supportersfeel their eventual use in combat is al-most certain. In the words ofUlrikeFranke, a German expert on unmannedaircraft, “It would be absurd to pay for theuse of these expensive drones and thennot to arm them.”

Combat in Afghanistan, where Ger-many has about1,000 soldiers, hasbrought the drone debate to a head.

German generals have felt frustrated insituations where they saw dangers facingtheir troops but could not react. However,German voters have darkmemories ofan air strike in Afghanistan in 2009,called in by their forces but executed bythe Americans, in which civilians per-ished and their government had to com-pensate the bereaved.

The path to the Israeli deal has beentortuous. A year ago, Social Democraticpartners in the ruling coalition abruptlywithdrew their support; as a result of thedelay, the price has risen.

In a few years, Germany may nolonger have to turn to foreign suppliersfor remote-controlled air power. It is theprime mover in the so-called Eurodroneproject, working with France, Italy andSpain to construct a pilotless plane andboost the continent’s aerospace skills.German governments can tell a squea-mish electorate that the new machine’smissile-firing feature is being includedonly in deference to more belligerentpartners; they will retain the option ofordering a version that simply looksrather than shoots. Few people willbelieve that, but it may be a politicallynecessary fiction.

BERLIN

Europe’s bastion ofpacifism joins the dash forpilotless warplanes

ANGELA MERKEL is not the only head ofa European governmentwith a disrup-

tive interior minister. Since entering theItalian cabinet on June 1st Matteo Salvinihas managed for different reasons to an-noy the governments of Tunisia, Malta,France and Spain. And he can scarcelyhave endeared himself to Mrs Merkel byopenly making common cause with hisGerman counterpart, Horst Seehofer. OnJune 18th Mr Salvini even picked a fightwith Cambodia. In the latest of several ex-cursions outside his ministerial bailiwick,Mr Salvini, who is also a deputy primeminister and leader of the hard-rightNorthern League, threatened to ban shipscarrying Cambodian rice from docking inItalian ports. He claimed the rice, which isexempt from EU tariffs, was competing un-fairly with Italian produce.

With his bull-in-a-china-shop approachMr Salvini has dominated the politicalagenda from the start, even though hisparty is the junior partner in a coalitionwith the anti-establishment Five StarMovement (M5S); polls now show hisparty in the lead. His cocktail of provoca-tive sound-bites and radical action (nota-bly his refusal on June 10th to grant entry toan NGO rescue vessel laden with mi-grants) has made it seem as ifhe is decidingItalian foreign policy. But Nathalie Tocci,director of the Istituto Affari Internazion-ali, a think-tank, is sceptical that he willmake a lasting impact. “I struggle to seeanything meaningful coming out of it all,”she says.

On migration, Italy’s populist govern-ment is hemmed in by constraints: the re-fusal of Italy’s EU partners to take anagreed quota of arriving migrants and the

Italy

Salvini thescrapper

ROME

The leaderof the Northern League issetting the agenda

26 Europe The Economist June 23rd 2018

2 refusal of the countries of origin to havebackthose migrantswho do notqualify forasylum. On June 15th the prime minister,Giuseppe Conte, agreed with France’sPresident Emmanuel Macron on setting upfacilities outside the EU where migrantscould have their asylum requests pro-cessed without exposing themselves to theperils of a clandestine Mediterraneancrossing. But, as both men know, the maintransit country is Libya, which is in violentdisarray. Actually creating these facilitieswill be hard.

Nor does everyone in the governmentidentify with the rumbustious Mr Salvini.The foreign minister, Enzo Moavero Mila-nesi, worked for 20 years at the EuropeanCommission. The M5S, led by Luigi DiMaio, the other deputy prime minister, isalso more moderate than the League. It hasalready shelved a demand for a referen-dum on membership of the euro and aplan for withdrawing Italian forces fromAfghanistan. This week saw the first opendisagreement between the coalition part-ners, when Mr Di Maio criticised a propos-al by Mr Salvini to make a special count ofRoma people in Italy that would lead tonon-citizens being deported (“a masscleansing, street by street, neighbourhoodby neighbourhood,” said Mr Salvini).

Mr Conte was sponsored by the M5S.

But like his foreign minister, he is anothertechnocrat without a power base, and theM5S ismore interested in economicand so-cial affairs than foreign policy. Mr Conte ispainfully at sea in international affairs. Atthe G7 meeting this month he backed Do-nald Trump’s call for the readmission ofRussia, only to be swiftly talked round byItaly’s EU partners. As for the 31-year-oldMr Di Maio, he is no match for the media-savvy leader of the League. Mr Salvini isstill a man to watch. And, many feel, onewho needs watching.7

When in Rome, persecute Roma

THE 19th-century mansion on the chicleft bank of Paris, with its tiled floors

and sweeping stone staircase, was for de-cades an iconic part of French Socialist his-tory. François Mitterrand arrived there in1981 to celebrate his victory as the first So-cialist president of modern France. Ségo-lène Royal, the party’s presidential candi-date in 2007, waved valiantly to crowdsfrom the building’s balcony after her de-feat. Late last year, however, the cash-strapped party had to sell its grand head-quarters and find new premises in a mod-ern office in an unfashionable suburb. Theepisode serves as a cruel metaphor for theailing party.

Last year, a party that has supplied twoFifth Republic presidents and nine primeministers was rudely rejected at the ballotbox. Its presidential candidate, Benoît Ha-mon, came in a humiliatingfifth place withjust 6% of the vote. At the legislative elec-tions that followed the party was almostwiped out, losing 90% of its deputies andendingup with just 30 seats out of577. Sup-porters swung instead either to EmmanuelMacron’s new centrist party, La Répu-blique en Marche (LREM), or to Jean-LucMélenchon’s far-left France Insoumise.Fully 47% of those who had supported theSocialist candidate, François Hollande, in2012, voted for Mr Macron in 2017.

Since then, the party has bled talent.Manuel Valls, the (Spanish-born) primeminister under Mr Hollande, has quit theparty and now sits with LREM in parlia-ment. He is said to be considering a run formayor of Barcelona, the town in which hewas born. Mr Hamon, meanwhile, has leftto set up his own political movement, Gé-nération.s, whose use of the modish pointmédian, or middle full stop, is doubtless anod to the young metropolitan types hehopes to attract.

Battered and financially fragile, the So-cialist Party has tried to pick itself up. It ismoving to new premises, in Ivry-sur-Seine,south-east of Paris. In March it held a lead-ership election, picking Olivier Faure, a 49-year-old longtime party hack, who haspromised a Socialist “renaissance”. Hedoes have some interesting ideas, includ-ing backing a plan to introduce a pilot ex-periment for a universal basic income in 13Socialist-run regional departments.

Mr Faure is hoping that the party canyet benefit from second thoughts on theleft about Mr Macron, who served as aminister in Mr Hollande’s government but

was only briefly a member of the SocialistParty. This month the president’s approvalrating dropped by fully 12 points amongthose who have previously voted Socialist,according to a poll by Elabe, while it edgedup by four points among those whobacked the centre-right. Mr Macron hasbeen tagged the “president of the rich” forhis tax cuts for business and the wealthy, aperception he tried to counter on June 13thwith a speech promising more generoushealth reimbursements to all. Mr Hol-lande, who has published a bookreflectingon his spell in office and is suspected ofplanning a comeback, retorted on a FrenchTV show recently that this epithet was notfair. Mr Macron, the former presidentquipped, visibly amused by his own joke,is the “president of the very rich”.

Originally founded by Jean Jaurès asthe French Section of the Workers’ Interna-tional (SFIO), in1905, the SocialistParty hasbeen behind some of France’s landmarksocial legislation, from the first mandatorypaid holidays in 1936 to the legalisation ofgay marriage in 2013. Yet today it is crushedby Mr Macron’s mighty LREM on one side,and MrMélenchon’s firebrands on the oth-er. The most vocal opposition to the gov-ernment these days comes not from thetraditional mainstream parties on the leftor the right but, in line with Europeantrends, from the populist extremes.

Mr Faure has struggled to breathe. Hisspeeches and interviews seem to leave lit-tle impression. A mere 10% of those polledhave a positive image of him, a figure thatrises only to 15% among left-wing voters—aquarter of Mr Mélenchon’s score. The So-cialist Party is seen as tired and outdated.Trade unionists accuse it of “treason” forimposingaderegulationofthe labourmar-ket in 2016. At a rally in Paris this spring MrFaure, jeered by unionists, had to be escort-ed to safety. A party with a great historyrisks consigning itself to the past.7

France’s Socialists

From solidarity tosolitary

PARIS

A veteran partyfinds that its supportershave fled

They ran out of other people’s votes

The Economist June 23rd 2018 Europe 27

FIVE junior politicians, chuckling away on a pleasure boat.There is only one known photo of the day, in 1985, when Bel-

gium, Luxembourg, France, Germany and the Netherlandsagreed to end border controls between their countries. It was alow-key start for what was to become one of the European Un-ion’s signature achievements. The Schengen accord, named afterthe Luxembourgish village nestled along the river on which itwas signed, is the world’s only large passport-free zone. It nowcovers 26 countries, including four non-EU members.

The village itself, just yards from borders with France and Ger-many, took a while to cotton on to the potential that history hadgiven it, but now offers tourists a museum, sculptures made fromLuxembourgish steel and two slabs of the Berlin Wall. The mostemotional reactions come from visitors outside the zone, saysMartina Kneip, the museum’s director. In the 2000s eastern Euro-peans made pilgrimages to the village whose name had becomesynonymous with the freedom they were denied fordecades. To-day, Turkish visitors not yet ready to surrender the fading dreamofEU membership leave heartfelt notes in the visitors’ book.

Schengen embodies the dream of frictionless movementacross the EU’s single market. It eases transport of goods, booststourism and enables the cross-border commute of most of theEU’s 1.7m “frontier” workers. Michel Gloden, Schengen’s mayor,recalls the tiresome passport and customs checks of his youth.West German guards would sometimes wave you through; theFrench gendarmes, with their machineguns, were more threaten-ing. Today’s arrangements suit his village’s multinational identi-ty, and have put it on the map. “When you tell people you’re fromLuxembourg, they say, ‘Whatever’,” he chuckles. “But if you sayyou’re from Schengen, everybody knows it. Even in Australia!”

Yet Schengen is in trouble. The officials who set it in motionwere only dimly aware that eliminating internal borders re-quired strengthening external ones. But the logic of the systemhas unfolded remorselessly as pressure from illegal migrationhas built against Europe’s southern flanks. The first jolt came in2011, as refugees fled the upheaval of the Arab spring. A few yearslater Schengen came close to buckling, as over 1m migrants ex-ploited the borderless zone, testing the asylum systems of somecountries to the limit. Greece, the Schengen landing-point for

most refugees, was nearly expelled. Instead, countries began toimpose their own checks.

This week new figures showed steep declines in both asylumapplications and illegal border crossings. But numbers that lead-ers could once tolerate have become unacceptable. Six Schengencountries maintain some form of internal border checks. Someare tougher than others. The motorist between Belgium andFrance is less likely to be inconvenienced than the traveller cross-ing the Oresund bridge between Copenhagen and Malmo. But allhave stretched the rules that allow temporary controls to break-ing point, or beyond. When governments feel that they mustchoose between upholding national security and EU rules, theywill always choose security, says Raphael Bossong of the SWP

think-tank in Berlin. Few expect the six countries’ supposedlytemporary controls to be lifted when they expire in November.

That rankles with eastern European governments, like Hunga-ry and Slovenia, who fear a Schengen collapse could relegatethem to a new second tier of the EU. But Schengen has become acasualty of the EU’s crisis of trust. Northern European states donot believe that Greece and Italy guard their borders properly,and recall how they would once wave through migrants in theirthousands. Anti-migration political insurgencies at home makecompromise harder, as Angela Merkel is learning in Germany.

Fixing this requires overcoming the EU’s deadlocked asylumdebate. It is pressure from asylum-seekers making, in the jargon,“secondary movements” from one Schengen state to another,that leads politicians to throw up the walls. Horst Seehofer, Ger-many’s interior minister, has come close to exploding his coun-try’s coalition over a proposal to turn back from Germany’s bor-ders asylum-seekers registered elsewhere in the EU. His planimplies a closing of frontiers along migratory trails, including theBrenner Pass between Italy and Austria. Pressure could comefrom the otherdirection, too. There are halfa million illegal immi-grants in Italy. The new government, which has vowed to deportthem, may instead find it easier to nudge them northward.

Building fences, not bridgesIf today’s checks are worrying rather than devastating, a gloomi-er future looms. Elizabeth Collett of the Migration Policy InstituteEurope, a think-tank in Brussels, outlines three possibilities. First,the slow spread ofborder controls across Schengen, quietly toler-ated by Brussels. Second, the expansion of controls via technol-ogy such as number-plate recognition and spot checks, includingracial profiling (for years French police have been roaming trainscrossing from Ventimiglia, an Italian border town, and returningillegal migrants). The third outcome is a regression to a smallernumber of separate passport-free zones: Benelux, the Nordics,Iberia and so on.

The only way out is for Europe’s leaders somehow to resolvetheirdifferenceson managing illegal immigration. The call isnowfor complete control of the EU’s external border; a laudable butill-defined goal. Some want deals with north African countries toreduce departures; others seek to establish camps for failed asy-lum-seekers in the Balkans. Leaders will discuss these ideas atwhat is sure to be a fractious EU summit next week.

The sharp decline in immigrant arrivals ought to offer space tothrash out a deal. But instead the EU is struggling to get over its mi-gration hangover. Ms Collett compares it to the muggy period be-fore a thunderstorm, when the squirrels have scarpered and theair is pregnant with foreboding of trouble ahead. 7

Save our Schengen

Europe’s passport-free zone faces a grim future

Charlemagne


For daily analysis and debate on Britain, visit

Economist.com/britain

1

ON JULY 5th 1948 Sylvia Beckinghamwas admitted to Park Hospital in

Greater Manchester. The 13-year-old wasthe inaugural patient of the NationalHealth Service (NHS), the world’s first uni-versal health system free at the point ofuse. At her bedside Aneurin Bevan, thehealth secretary, called the NHS the mostcivilised step any country had ever taken.

Elsewhere patients lined up at clinicswith horrendous coughs, festeringwounds and hernias spilling into trusses.Pregnant women queued, too; one in 350mothers were dying in childbirth, aboutthe same as in Gabon today. Bevan as-sumed that demand would eventuallymoderate. It did not. “We never shall haveall we need,” he soon realised. “Expecta-tion will always exceed capacity.”

Call it Bevan’s law. Seven decades on itis still true. In a speech on June 18th to markthe NHS’s 70th birthday, Theresa May ac-knowledged that rising demand and yearsof low growth in funding had put the ser-vice “under strain”. Promising that spend-ing would rise more quickly from April2019, the prime minister vowed to do morethan apply “a sticking-plaster” to the NHS’sailments. Yet that is all she has done.

In recent years the NHS has deteriorat-ed. Five years ago more than 90% of pa-tients waited less than 18 weeks from beingreferred by their family doctor to receivingtreatment in hospital. Today less than 75%do so. The share of patients seen within

social-care funding, which has shrunk by1.5% a year in real terms since 2009-10. Thishas increased pressure on hospitals bymaking it harder for them to send mostlyelderly patients home.

At times of poor performance, critics ofthe NHS always exhort the service to bemore efficient. There are obvious areas forimprovement. Primary care remains a cot-tage industry. It is also difficult for high-per-forming hospitals to take over laggards. Yetsince 2010 productivity in the NHS seemsto have grown faster than ithas in the econ-omy overall.

In a nod to reality, Mrs May has pledgedto increase spending on the NHS in realterms by an average of 3.4% a year from2019-20 to 2023-24. Breathless reportscalled the rise “massive” and “extraordi-nary”. The truth is more mundane. It is lessthan the annual average growth of 3.7% inspendingsince 1948. It falls shortofthe 4% ayear that think-tanks like the Institute forFiscal Studies (IFS) and the Health Founda-tion say is the minimum required to im-prove services. And important things areexcluded from Mrs May’s pledge, such astraining staffand building hospitals.

Nor is it clear where the extra moneywill come from. Mrs May says part is “aBrexit dividend”. But this is nonsense.Brexit will shrink the available cake forpublic spending, not expand it. The truth isthat extra money for the NHS must comefrom lower spending elsewhere, highertaxes or more borrowing.

Mrs May has limited room for manoeu-vre. Over the past40 yearspublic spendingon health has, in effect, been paid for byspending less on other things, such as de-fence. Today public spending on health is7.3% of GDP, similar to the average in otherlongstanding members of the EU, up from4% four decades ago. Mrs May cannot noweasily swap soldiers for surgeons. More-

four hours at accident and emergency(A&E) departments—another key indica-tor—is the lowest since records began in2003-04. This winter, hospitals fromNorthampton to Nottingham were cancel-ling all non-urgent operations.

Such grim symptoms need a dose ofhistorical perspective. In 1987 average in-patient waiting time was 45 weeks. TheNHS has not suddenly regressed to the1940s. Yet the trend in its performance re-mains noticeably downwards. And thecause is that demand is outstripping theNHS’s ability to supply care. Not only aremore patients turning up at hospital, butthey are presenting with more complexcases. The number of patients at A&E is up26% on a decade ago. The number ofemer-gency admissions has risen by 42%. One inthree patients admitted as an emergencyhas at least five conditions, against one inten nearly a decade ago.

The NHS has been spared cuts made toother public services. Since 2009-10 healthspending has increased by 1.4% a year inreal terms. But that is barely enough tokeep pace with a growing and ageing pop-ulation. And the reality is even worse thanthis suggests, for two reasons.

The first is that the cost of medical tech-nology (drugs, scanners and so on) keepsrising faster than inflation. Between 2011-12and 2016-17 the total bill for prescriptionsfrom hospital pharmacies rose by about70%. The second arises from cuts in adult

The NHS at 70

Theresa May’s sticking-plaster

Birthday celebrations for the NHS belie the health service’s problems

BritainAlso in this section

29 Brexit and Parliament

30 Bagehot: Podsnappery and itsreverse

The Economist June 23rd 2018 Britain 29

2 over she has also promised to stick to her“fiscal rules”, meaning that a lot of extraborrowing is unlikely. That leaves tax rises.But rather than make the case for thesenow, the prime ministerhaspostponed theinevitable until November.

Mrs May was equally cowardly in herapproach to social care. Analysis by the IFS

and the Health Foundation suggests that,given England’s ageing population, spend-ing on such care will almost double, from£17.1bn ($25.7bn) in 2015-16 to £33.2bn in2033-34. Several reviews have proposed re-forms. Most come down to a choice be-tween some form of social insurance, as inJapan and Germany, or getting more peo-ple to pay for care themselves. Yet MrsMay’s experience with a so-called “de-mentia tax” proposed in last year’s Toryelection manifesto makes her nervous. Allshe is doing is promising a green paper.

Social care is not the only area where re-form is problematic. In theory the frame-work for the NHS is the Health and SocialCare Act, passed in 2012. But Jeremy Hunt,the health secretary, and Simon Stevens,the chief executive of NHS England, haveignored as much of it as possible. The lawwas meant to stop micromanagement byWhitehall. Yet the NHS is more reliant thanever on central control.

Reforms made by Mr Hunt and Mr Ste-vens are also undoing the act’s aim of get-ting 200 or so local teams ofdoctors to buyhospital services in a version of the “inter-nal market” backed by every health secre-tary since the late 1980s. The current plans

do the exact opposite, by encouragingmoney to be pooled across different partsof the service so that care can be more “in-tegrated”. This might be a sensible ap-proach, but it rests on shaky legal groundsand depends on keeping both Mr Huntand Mr Stevens in their jobs. When one ofthem leaves his job, the momentum for re-form will surely slow.

Mrs May’s lack of ambition means thatthe NHS still faces a difficult future. But it issymbolic of Britons’ approach to theircherished service. There is no shortage ofsepia-tinged nostalgia about the NHS. Forthis anniversary NHS-themed tea partiesare planned, Westminster Abbey is hold-ing a special ceremony and the Royal Minthas struck a commemorative coin. Wal-lowing in the past has become an excuse toavoid the rigours of the future.7

The NHS cuckoo

Source: IFS

Britain, % of government spending

0

1955 65 75 85 95

Fiscal years beginning April

2005 16

5

10

15

20Health

Defence

Education

ATTEMPTS to defeat a government in theHouse of Commons rarely succeed,

even when (as now) it lacks a clear major-ity. MPs’ natural wish to support theirprime minister, their own ambitions forpreferment and the whips’ cruel ways allmake for a reluctance to rock the boat. So itproved again this week, when TheresaMay saw off threats to amend the Euro-pean Union withdrawal bill to give MPs,not the government, the decisive say overwhat should happen if a no-deal Brexitlooms next year. She yielded on justenough points to lure most would-be re-bels into the government lobby.

This produced the bizarre spectacle ofDominic Grieve, a former Tory attorney-general who had drafted the text underscrutiny, voting against his own amend-ment on June 20th. Shortly afterwards the

Lords too acquiesced, and the EU with-drawal bill will now duly become law.

Mr Grieve claimed to have won last-mi-nute concessions. David Davis, the Brexitsecretary, promised that parliamentarytime would be made available for debate.He also said the Speaker would decide if amotion in such a debate could be amend-ed by MPs. The government had earliertried to insist that a motion on a no-dealBrexit must be unamendable, deprivingMPs of influence over what to do.

It is also true that, if Parliament rejects aBrexit deal this winter or the governmentfails to secure any deal at all, there will be ahuge political crisis. MrsMaymighthave toresign, and there would be pressure for anelection. Yet the rebels’ failure to go to thewire leaves them weaker. They com-plained loudly that Mrs May had broken a

promise to accommodate their wishes,and vowed not to be intimidated. They stillthreaten next month to require the govern-ment to join a customs union with the EU.But the suspicion must be that, unlike theimplacable Brexiteers, they are willing towound but not to strike.

This is all the clearer since the argu-ments Mr Davis used against the rebelswere so thin. His complaint that they wereimproperly trying to take over the negotia-tions was unpersuasive. They merelywanted the Commons to have a meaning-ful vote on a Brexit deal, not to be told thatthe only alternative was leaving with nodeal, which they see as disastrous. Norwould a defeat for Mrs May automaticallyweaken her hand in Brussels. The truth isusually the reverse: national leaders oftenwin the day by explaining that they cannotaccept EU proposals they dislike becauseof recalcitrant MPs at home.

The charge that Tory rebels are reallyseeking to overturn the referendum resultis more telling. Acampaign against Brexit isindeed under way. To mark this weekend’ssecond anniversary of the vote, a marchwill call for a fresh referendum on anyBrexit deal. Public opinion is slowly shift-ing towards the view that Brexit is not justbeing mismanaged but is also a mistake.Yet the main concern of the rebels is toblock a no-deal Brexit that does not haveparliamentary backing. Mrs May’s govern-ment also has no appetite for it. Few prep-arations have been made for leaving withno deal, and the cost of doing so is increas-ingly clear. Indeed, as she makes ever moreconcessions to the EU, Mrs May’s old man-tra is being reversed. A bad deal, it nowseems, is better than no deal.

That does not make no deal an impossi-bility. The clock is ticking inexorably to-wards Brexit day on March 29th 2019. Nextweek’s EU summit was supposed to take adecisive step towards a settlement. Yet thedraft conclusions of the summit expressconcern over slow progress in the talks andover the failure to reach final agreement ona way to avert a hard border in Ireland.They also call for greater preparation for allpossible outcomes, implicitly including ano-deal Brexit.

EU leaders have no desire for a big rowwith Mrs May now, not least because theyhave much else to discuss besides Brexit.But they worry that her cabinet is still di-vided and her government has not yetfaced up to the trade-offs needed for a deal.The fact that her promised Brexit white pa-per is not appearing until after the summitis another annoyance. The talk in Brusselsnow is ofputtingoffthe endgame until No-vember or even December. That will leaveprecious little time for last-minute bargain-ing—and even less for securing approval,which is needed from the European Parlia-ment in Strasbourg as well as from Parlia-ment in Westminster.7

Brexit and Parliament

A rebellion stalled

Theresa May finally fends offToryrebels to get the EU withdrawal bill through. Butshe still faces problems overBrexit in Parliament—and in Brussels

30 Britain The Economist June 23rd 2018

JOHN PODSNAP is a minor character in Dickens’s last complet-ed novel,“OurMutual Friend”, but he is impossible to forget. Heis convinced that England is the best of all possible countries

and the rest of the world is nothing more than “a mistake”. His in-variable verdict on the manners and morals of other countries is“Not English”, delivered “with a flourish of the arm and a flush ofthe face”. Encountering a Frenchman at dinner, he gives the “un-fortunately born foreigner” a lecture on “le constitution Britan-nique”. “We Englishmen are very proud of our constitution…itwas bestowed upon us by providence. No other country is so fa-voured as this country.”

The word Podsnappery has since found its way into the Ox-ford English Dictionary. But as E.P. Thompson, a Marxist histori-an, pointed out, many English people sufferfrom the opposite de-formation: reverse Podsnappery. This proceeds from the premisethat other countries are superior in every way (particularly whenit comes to food and sex) and Britain is infinitely ghastly. ReversePosdnappery is particularly common among the better classes.There is something about an expensive education in privateschools and Oxbridge that disposes people to despise their owncountry. A depressing amount ofEnglish literature is an extendedversion of Cyril Connolly’s complaint that England is “a dyingcivilisation—decadent but in such a damned dull way”.

The Brexit vote has similarly divided Britain into two camps.Podsnaps are delighted that England is breaking away from thecontinent, with its meddling bureaucrats and Napoleonic legalcode (Podsnaps may say “Britain” but they really mean “Eng-land”). Reverse Podsnaps think Britain is rejecting cosmopolitanvalues in favourofa repulsive Little Englandism. What makes theargument frustrating is that both have truth on their side.

Thus Podsnaps start with good points. Britain does have auniquely fortunate history. It never experienced revolutionaryterror like France or eastern Europe or collective madness likeGermany. It contrived ways of limiting the power of the statethrough parliament and the common law before any other bigcountry. It played the pivotal role in saving the continent fromNazi Germany. This is a history to be proud of.

But this sense turns into nonsense when Podsnaps echo theirhero’s view that Britain possesses these virtues “to the direct ex-

clusion of such other countries as there may happen to be”, orwhen they think being proud of your country means lookingdown on others. It is an oddity ofmodern Britain that the leadingpractitionerofturningsense into nonsense—MrPodsnap in mod-ern dress—should be the foreign secretary. Boris Johnson seemsto regard foreigners as figures of fun and likes to point out that allgood things were invented in Britain. During the 2008 Olympicshe claimed that, even though the Chinese might be champions attable tennis, the game was “invented on the dining tables of Eng-land in the 19th century…it was called ‘wiff-waff’.”

Reverse Podsnaps also start with good points. British historyis marred by imperialism and exploitation. A great virtue of Brit-ain has been its openness to foreign ideas and intellectuals. Somepeople voted for Brexit for discreditable reasons. But reverse Pod-snaps take good insights to ridiculous lengths. Emily Thornberry,now the shadow foreign secretary, once posted a tweet mockinga “white-van man” who draped his house with flags ofSt George.Tom Gann, editorofNew Socialist, maintains that “Britain has themost morally and intellectually degraded and degrading publicsphere in the world”. A YouGov poll last October found that 46%of Londoners named “Londoner” as their primary identity, 25%European, 17% British and only12% English.

Reverse Podsnappery is defined by double-think when itcomes to nationalism. Although English nationalism is the sumof all evils, other forms of nationalism (Irish, Scottish, Palestin-ian) are ferventlyembraced. It is also defined byparochialism. Re-verse Podsnapsare less interested in othercountries than in usingthem to attack their own. Once upon a time they would fixate onthe Soviet Union as a way of criticising Britain. Now they aremore likely to fixate on Germany.

Jeremy Corbyn is to reverse Podsnappery what Mr Johnson isto Podsnappery. Despite being brought up in a manor house inShropshire, the Labour leader has spent his life in revolt against“Englishness”. On leaving school he decamped to Jamaica(where he was known as “beardie”) and Latin America. As ayoung MP he liked to relax in Irish bars singing Irish freedomsongs. He supports an alphabet soup of national-liberationmovements. He brought the same starry-eyed credulity to Vene-zuela that Sidney and Beatrice Webb did to the Soviet Union.

Podsnaps and reverse Podsnaps are both in the grip of thesame mistake. They refuse to recognise that all advanced coun-tries struggle with common problems such as low growth, pres-sure from refugees and rising inequality. They fail to see that eco-nomic decisions are about trade-offs, not discovering eternalsolutions. The German emphasis on training and the British pref-erence for flexibility both have costs and benefits. But rather thanconfronting this error they delight in egging each other on.

Time to scrap both PodsnapsThis is at its most dangerous in the Brexit negotiations. Podsnapssee the EU as a plot to destroy “le constitution Britannique”. JacobRees-Mogg calls soft Brexit “the equivalent of a ‘Norman Con-quest’ that would reduce Britain to the level ofa ‘vassal state’.” Re-verse Podsnaps see the European Commission as the embodi-ment of universal wisdom and EU negotiators as reasonablepeople negotiating with bigoted fools. Taking the countrythrough the complexities of Brexit without splitting it down themiddle will be hard even for rational people. Itwill be impossibleif the British refuse to dump the twin bigotries ofPodsnap and hisalter ego in the dustbin ofhistory.7

Podsnappery and its reverse

A great divide in British politics is between MrPodsnap and his alterego

Bagehot


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Economist.com/world/middle-east-africa

1

LAST year stories appeared in the press, il-lustrated bypictures ofbloody clothing,

of an initiation ceremony at Alliance HighSchool outside Nairobi, in which boyswere beaten and made to lie on the foun-ders’ graves. The country was shocked, inpart because Alliance is regarded as one ofthe country’s top schools, and the head-master resigned. The scandal has hasteneda shift that is changing Kenyan education.

Alliance, which sits in wooded groundsin Kikuyu, a small town north-west of Nai-robi, was founded in 1926 by missionariesto educate brightAfricansand, byselectingboys from all the country’s regions andtribes, to build a country. After indepen-dence in 1963 it became one ofKenya’s “na-tional” schools, similar to Britain’s selec-tive state “grammar” schools. Eightministers in the post-independence cabi-net in 1963 were Alliance old boys. Alumnistill proliferate in the top ranks of the pro-fessions, government and business.

On a hilltop 20 miles to the east are theNova Pioneer boys’, girls’ and primaryschools. They were founded in 2015 byChris Khaemba, headmaster of Alliancefrom 1998-2007. Secondary-school fees are500,000 shillings a year ($4,945). At Alli-ance, tuition is free; boarding fees are54,000 shillings a year.

The pupils at both establishments havesimilarly impeccable manners and many

in the past decade, to 1,600, and class sizeshave increased from an average of 42 to50-55. “We are a little bit stretched,” saysJames Kinyanjui Kuria, Alliance’s deputyhead. A new curriculum may reduce therote element in state education, but thereare fears that teachers are not prepared, soit may put a further strain on state schools.

Duncan Olumbe, an Alliance alumnus,decided that his son Roy should not followhim to his old school. Roy was put off bythe stories of bullying; Mr Olumbe and hiswife liked the ways of Nova Pioneer andthought that “the transition from a privateprimary to an overcrowded [state second-ary] may be a bit difficult.” He is pleasedwith his investment, but some customersare trickier. “Most parents are middle-class[by which Kenyans mean the top 2% or so].Catering to the needs of a very discerningdemographic brings with it a certain ele-ment of challenge,” says Charles Tsuma,the head ofNova Pioneer Boys, delicately.

Super NovaNova Pioneerhas plenty ofcompetition: in2013-17 the number of private primaryschools almost doubled and the numberof private secondaries rose by half. Someschools are said to be struggling, especiallyat the top end of the market (1m-2.5m shil-lings a year) which is beyond the reach ofall but the richest Kenyans, and thereforerelies to a large extent on expats.

Supply is growing to meet demand,thanks in part to international capital. Edu-cation has a particular appeal to long-terminvestors, for children are locked in for upto 12 years. Growth prospects are good be-cause governments are not satisfying therisingdemand forgood education. And theregulatory environment for privateschools in the three big African markets,

come from similarly prosperous back-grounds. But they reflect the past and fu-ture ofKenyan elite education.

In the past, rich Kenyans tended to sendtheir children to private primary schools,in the expectation that they would do wellenough to get a place in a national schooland thus a free, rigorous secondary educa-tion. But in recent years, several thingshave changed.

One is the growth of a class of prosper-ous Kenyans, many of whom take foreignholidays, clog Nairobi’s streets with 4x4cars and have novel views about educa-tion. Kenyan schools tend to feature largeclasses and rote-learning. At Nova Pioneer,classes are smaller—32 pupils, on average—and more participatory. “Many parentswant a wholesome experience that isn’tjust drilling,” says Rose Nduati, the headteacher of Nova Pioneer Girls. “We’re be-ing taughtcoding,” saysStaceyWanyoike, aYear10 student. “I find that really cool. Andin the other lessons, you’re not just readingnotes, you’re taking part.”

Government policy is encouraging thegrowth ofprivate schools. The state is com-mitted to providing free secondary educa-tion for all, and although that has not yetbeen fully implemented, risinggrants fromcentral government have brought feesdown. Pupil numbers have therefore beenincreasing. At Alliance they have doubled

Private schools in Kenya

On the playing fields, not beaten

NAIROBI

Foreign investment in Kenyan schools is changing elite education, and society

Middle East and AfricaAlso in this section

32 Bridge Academies fights its foes

32 Boris Becker, African diplomat

33 How to beat tropical diseases

34 Gaza and the UN

34 Football and piracy

32 Middle East and Africa The Economist June 23rd 2018

1

2 South Africa, Nigeria and Kenya, is general-ly favourable. That is not the case every-where: in India, for instance, which wouldotherwise be a very attractive market, al-though private schools are proliferating,for-profit education is banned.

Nova Pioneer, which was formedthrough a merger between Mr Khaemba’sschools and a South African chain, is fi-nanced by Fairfax Africa, a Canadian fund.ADvTECH, a South African chain, boughtMakini, a group of nine schools in Kenyaand Uganda, earlier this year. In 2015Brookhouse, a posh Kenyan school, wasbought by Inspired, an international chain,which then opened a new campus.

The growth ofthe business has implica-tions for society. The old system had its vir-tues: although, over time, it was capturedby the elite, in its early days it gave poorclever children from far-flung areas a

chance, and helped build the idea of a na-tion. The private schools will encouragesocial stratification by allowing well-offparents to buy their children educationaland thus professional advantage, as hap-pens in Britain and America. Kenya mayfollow the same path as Brazil and Argenti-na, where a shift into private education inthe 1970s and 1980s led to neglect of thepublic sector. But the trend will also meanmore investment in schools, a better, morequestioning, education and an increasedflow ofKenyans into universities abroad.

And, in its way, the new model of eliteeducation brings together people from dif-ferent parts of society. Wilson Sossion, forinstance, the head of the teachers’ union,who has been campaigning for the closureofthe low-costBridge International Acade-mies (see box) sends his children to Brook-house, which charges1m shillings a year.7

Cheap, private and being punished

A Bridge too far

“BRIDGE is unauthorised and illegal,”says Wilson Sossion, the secretary-

general of the Kenya National Union ofTeachers. “The curriculum they teach andthe medium they use are not approved.The teachers are untrained and unqual-ified. They should be closed down.”

Bridge International Academies is theworld’s most controversial low-costfor-profit chain ofschools. It has raisedabout $140m in investment from the likesofBill Gates, MarkZuckerberg and theInternational Finance Corporation (IFC),the private-investment arm of the WorldBank. Some120,000 children are en-rolled in its schools in Kenya, Uganda,Liberia, Nigeria and India. It gets results:in Kenya, its biggest market, costs perpupil are $190 a year (parents pay anaverage of$84 a year), compared with$313 in government schools, and 86% ofchildren score well enough to pass intosecondary school, compared with anational average of76%. Since half theprimary-school pupils in the developingworld cannot read or write a sentence,such schools are doing a crucial job.

Yet Bridge is the bête noire ofunionsand NGOs around the world. ManyNGOs disapprove offor-profit education,and unions clearly have an interest inundermining it. In Kenya, teachers arepaid less than those in governmentschools (though more than in most priv-ate schools) and are rewarded or firedpartly on the basis of their performance.

Bridge says Mr Sossion’s claim thatthe schools are illegal is nonsense: theyare not registered because the govern-

ment has been sitting on the paperwork.It maintains that most of its teachers aregovernment-trained. “The reason he [MrSossion] campaigns against us”, saysShannon May, one ofBridge’s founders,“is that we show that governments don’tneed to increase budgets and pay teach-ers more in order to improve education.”

Bridge’s opponents are making head-way. The ombudsman for the IFC saidlast month that it would investigate a27-page complaint by a consortium ofunions and NGOs. Ms May is delighted.“It gives us the opportunity to have thesefalse assertions rebutted once again.”

In Uganda, meanwhile, the presi-dent’s wife, Janet Museveni, said earlierthis year that Bridge schools were illegaland should be closed. In Kenya enrol-ment fell from100,000 in 2015 to 80,000in 2017, and is still falling. Mr Sossionclaims credit. “When a union campaignsagainst a company, parents will listen.Their business model will collapse.”

But things could take a turn in Bridge’sfavour. In Kenya, opposition to Mr Sos-sion within the union has raised ques-tions about how long he can last. InUganda, Bridge schools remain open.And in Nigeria, Bridge is exploring a lesspolitically contentious way ofoperating.It has a contract with the government ofEdo state to improve primary schoolingfor halfa million pupils. “The govern-ment-pay market has vast potential forthis business,” says Steve BeckofNova-star Ventures, a fund that has invested inBridge. Partnership with governmentsprobably beats being a punchball.

The campaign against the world’s most controversial school chain intensifies

WHEN people say “diplomatic ser-vice”, they seldom mean an envoy

who can slam an ace over the net at 130miles per hour. Yet Boris Becker, a Germanformer tennis star who could once do justthat, told a London court on June 14th thathe should be excused from proceedingsbecause he has diplomatic immunity.

After Mr Becker was declared bankruptlastyearhe faced claims to hisassets from aprivate bank. Instead of coughing up, MrBecker said that he is, in fact, a representa-tive of the Central African Republic (CAR),a failed state wedged between Congo andChad. This, Mr Becker said, should end the“farce” ofhis being pursued by creditors.

In fact the farce had only just begun. OnJune19th officials in the CAR’s foreign min-istry told AFP, a newswire, that the dip-lomatic passport was a fake, possibly froma batch of passports stolen in 2014. MrBeckerhad claimed to be a sportsenvoy forthe country, workingout of its Brussels em-bassy. The officials said that the job did notexist. That is despite a picture of Mr Beckeron the embassy’s website, and a photo (be-low) of his meeting the CAR’s president,Faustin-Archange Touadéra, in April, whenhe claimed to have been appointed.

What is the reality? It is hard to say; per-haps Mr Becker really is a diplomat. TheCAR is a country with a state budget ofaround $380m, which is not quite doublethe annual revenue of the All England Ten-nis club at Wimbledon, where Mr Beckerwon his first major title in 1985. It is known

Passport sagas

Diplomaticimpunity

NAIROBI

Boris Becker is not Africa’s mostunlikely diplomat

His Excellency, Baron von Slam

The Economist June 23rd 2018 Middle East and Africa 33

2 for civil war and anarchy and, like MrBecker, struggles to pay itsdebts. It isplausi-ble that one arm of the CAR governmentdoes not know what the other is doing.

It would not be the first time that a dip-lomaticpassporthas found itsway into un-likely hands. In 2013 Alma Shalabayeva,the wife of a Kazakh billionaire, MukhtarAblyazov, was arrested in Rome with justsuch a passport, also issued by the CAR.Until his death in 2015, Antonio DeindeFernandez, a Nigerian billionaire, servedas the CAR’s ambassador to the UN for 18years. Curiously, he had also served as adeputy ambassador to the UN for Mozam-bique. Others who have apparently beenmade diplomats by the CAR include an Is-raeli businessman and an adviser to Lib-ya’s former dictator, Muammar Qaddafi.

The countries that have the most diffi-culty keeping track of all their diplomatsare often small and plagued by graft. In De-cember, the tiny Comoros Islands can-

celled “at least” 158 diplomatic passports.They had been used for all sorts of pur-poses, including breaking sanctions onIran. In 2011 a Danish filmmaker, MadsBrugger, made a documentary in which heapparently travelled around the CAR on afraudulently-acquired Liberian passport,bought through a Dutch intermediary. Inthe documentary he assumed the identityof a dandy diamond merchant by thename ofMads Cortzen.

In 2016 Walid Juffali, a wealthy Saudi,claimed immunity from divorce proceed-ings in Britain on the basis that he was StLucia’s representative to the UN’s Interna-tional Maritime Organisation. Philip Ham-mond, then Britain’s foreign secretary, sup-ported his claim, arguing that overruling itmight set a precedent that could later hurtBritish diplomats overseas. However, acourt ruled that Juffali’s diplomatic statuswas irrelevant to his divorce, and he had topay his ex-wife a fortune.7

SIXTEEN years ago Hannah Taylor wokeup with a fever. Her legs began to swell

to four times their normal size. They havebeen that way since. People shunned herbecause of their putrid smell. “For sixyears, I thought my big fut was caused byevil witchcraft,” she said outside her shackin Freetown, the capital ofSierra Leone.

The lymphatic filariasis (elephantiasis)ailing her was caused by a mosquito-borninfection that could have been treated safe-ly with a pill costing no more than $0.50before it progressed. Instead, microscopicworms infested her body, causing cata-strophic and irreversible damage.

Elephantiasis isone of17 neglected trop-ical diseases (NTDs) that affect 1.5bn peo-ple, disabling children and keeping multi-tudes poor. Huge progress has been madeagainst these diseases since an agreementin 2012 by pharmaceutical firms to donatebillions ofdollars’ worth ofdrugs. Even so,many African countries struggle to get thenecessary pills to those in need.

Strangely Sierra Leone, one of theworld’spoorest countries, isdoingbetter atbeating back such diseases than almostanywhere else in Africa. This is despite adevastating civil war from 1991 to 2002 thatclaimed 70,000 lives and wrecked thehealth system. What little remained of itwas gutted by an Ebola outbreak in 2014that killed lots of doctors and nurses. As aresult the country has only some 400 doc-

tors to treat its 7m people. Corruption alsomakes the nation sicker. Most people haveto pay bribes to doctors and nurses for ba-sic treatments.

Fifteen years ago as much as half thepopulation was infected with the wormthat causes onchocerciasis, or river blind-ness (see map). Many villagers in thesoutheast used to think it was perfectlynormal for people to go blind after 30, saysMary Hodges, from Helen Keller Interna-tional, a charity that works on blindnessand malnutrition. Yet by 2017 only 2% ofpeople carried the worm, and there hadbeen no new cases recorded of people go-ing blind from onchocerciasis in a decade.Elimination is expected by about 2022.

Other illnesses are also being beaten.Schistosomiasis, also known as snail feverand bilharzia, is a parasitic worm infectionthat slowly destroys the kidneys and liver.

It, too, is in retreat among children. So aresoil-transmitted helminths, infectionscaused by roundworms that can stuntmental and physical development. Theworm that caused Hannah’s elephantiasiswas also once widespread. But there havebeen no new cases since 2011.

There are several reasonswhySierra Le-one has pulled offthis remarkable feat. Par-adoxically, one of the reasons is the ex-traordinarily high prevalence of NTDs.Because the entire population was ex-posed to at least one NTD, the governmentmade it a priority early on, says Dr JosephKoroma, who managed its programme.

In the case ofschistosomiasis, Sierra Le-one has had a national control plan inplace for almost a decade. That is in con-trast to South Africa, a relatively wealthystate that still does not have a mass treat-ment programme for the illness—eventhough it suffers some 3m infections, saysThoko Elphick-Pooley, from Uniting toCombat NTDs, a coalition of aid agencies,companies and charities.

Common sense also helps. Instead ofdealing with these diseases separately,which donors unwittingly encourage bygiving different pots of money for eachone, Sierra Leone tackles them all at once.Each year it provides drugs for four majordiseases to everyone at risk. Treating peo-ple at roughly the same time reduces thechances of them reinfecting one another. Italso saves money because health workerscan visit each village only once instead ofseveral times a year.

Ending the stigma is also important. Ra-dio programmes where panels of experts,victimsand local leadersanswercalls fromlisteners about their concerns have helpedto break down misconceptions and en-courage people to get treatment. It is nogood just lecturingvillagers about how riv-er blindness is caused by the black flywhen they think it is witchcraft, says DrHodges. There has to be a conversation.

Hannah, who was depressed about hercondition for years, later put on a braveface and campaigned to raise awarenessabout it and to break down taboos. “Debodi fine,” she said, slapping her swollenlegs with a cheerful smile, “de bodi fine.”Hannah, who passed away last week, re-cently said she was pleased her childrenwould not suffer as she had.7

Tropical diseases

De bodi fine

FREETOWN

A surprising medical victory in the wake ofEbola

Worming out

100 km

Source:Helen KellerInternational

Prevalence of onchocerciasis (river blindness) wormBy district, %

2002-04 2010 2018

Freetown

SIERRA LEONESIERRA LEONESIERRA LEONE

4 10 20 500

34 Middle East and Africa The Economist June 23rd 2018

Football and piracy

Qatar calls foul

ARABS have little to cheer in this year’sWorld Cup. The four teams from the

region lost all seven of their early match-es. Russia and Uruguay beat both Egyptand Saudi Arabia. Morocco beat itself,scoring an own goal against Iran. Tunisialost to England. The real competition isoffthe pitch: in the Middle East, evenwatching the game is fractious.

A Qatari network, beIN Sports, paid asmall fortune for the broadcast rights. Ithad planned to recoup that by chargingfees ofup to $150 per subscriber. But lastyear four Arab countries imposed ablockade on Qatar. The embargo exclud-ed beIN from its largest market, SaudiArabia, where it had 900,000 customers.And it left Saudis wondering how theywould watch their team, which hadqualified for the first time since 2006.

The answer came from a mysteriousgroup ofhackers. In August someonelaunched a bootleg version ofbeIN,cheekily known as “beoutQ”. With acheap decoder, Saudis (and other Arabs)can watch with only a slight delay. Qataris furious about the piracy. BeIN exec-utives accuse Saudi Arabia ofcomplicity,claiming the hackers are rebroadcastingusing Arabsat, a satellite in which thekingdom is the largest shareholder. (Boththe Saudis and Arabsat deny that they are

helping the pirates.)The controversy is a preview of2022,

when Qatar will host the tournament. Itplans to welcome fans from the Gulf. Butif the blockade continues, Saudis mightbe barred from attending. They might notwant to, either. The kingdom has mootedturning part of the border into a nuclearwaste dump.

Egyptians have a different problem.Although their government joined theblockade, it did not ban people fromsubscribing to beIN. Even so, many can-not afford a World Cup package that costshalfa month’s average pay. Instead theyturn their satellite dishes in a surprisingdirection. On June15th fans huddled in acafé in Cairo to watch a free broadcast ofthe Pharaohs playing Uruguay. The com-mentary was in Arabic—but it came fromIsrael’s public broadcaster, Kan.

The networkdenies that it is helpingnon-Israelis watch the cup free, but Isra-el’s foreign ministry has enthusiasticallypromoted the broadcasts in Arabic onsocial media. Even Cairo taxi drivers canrattle offits satellite co-ordinates. “I’dwatch it in Hebrew before I gave moneyto Qatar,” jokes one fan. Though he mightwish he hadn’t watched at all. The Pha-raohs lost their first two matches and willprobably head home soon.

CAIRO

The blockade ofQatarhas turned the World Cup into a geopolitical feud

YOU may think that after a dozen yearsof blockade by Israel, three devastating

wars and the rule of a harsh Islamist gov-ernment, life in Gaza could hardly getworse. But the prospect of another warand a dire shortage of cash to pay for theUN’s Relief and Works Agency, betterknown as UNRWA, mean that it can. Lastyear President Donald Trump’s adminis-tration said it would withhold $305m ofthe $365m that has annually serviced theagency, which has supported most ofGaza’s 2m people for the past seven de-cades. Now the cash is running out.

Moreover, since the end of March a se-ries of protests near the border fence withIsrael has seen at least 120 Gazans shotdead by the Israeli army. Hamas, the Islam-ist movement that runs Gaza, has beensending a defiant wave of home-maderockets and mortars into Israel, plus make-shift kites laden with devices to set fire toIsraeli farmland. Israel has responded withair raids. Gazans are terrified that Israelmay be preparing for another full-bloodedwar to crush Hamas or even force it tomake way for Fatah, the Palestinian move-ment’s more amenable wing that runs theWest Bank, the bigger chunkofa would-bePalestinian state.

UNRWA is in crisis. It has been beggingrich Arab countries to make up some oftheshortfall. The agency, which educates270,000 children in Gaza and runs a scoreof clinics there, says that about $200m isneeded to keep the showgoing. “We do nothave enough money in the bank to openour schools when the academic year be-gins in August,” says Chris Gunness, the

agency’s spokesman. “We feed a millionfood-insecure refugees in Gaza, where thesituation has reached breaking point.”

UNRWA’s American and Israeli detrac-tors say that many of its beneficiariesshould not be counted as refugees at all,since most are second- or third-generationdescendants of the 700,000 or so Palestin-ians who fled or were evicted from whatbecame Israel in 1948. They accuse theagency of pandering to a false notion thatthe Palestinians will get back their old

homes in Israel. Earlier this year Americapromised a sharp increase in aid to Jordan,which hosts 2m registered Palestinian refu-gees and is strapped for cash. Some Pales-tinians fear that this American largessecould depend on Jordan eventually revok-ing their status as refugees.

Some Israeli generals, however, fear theprospect of UNRWA’s being gutted. Theysee it as a safety valve for keeping Palestin-ians more or less quiescent. Otherwise,they reckon, Gaza may blow up again.7

Gaza and the UN

Squeeze andsuffocate

GAZA

America’s withdrawal ofaid isbeginning to bite


For daily analysis and debate on America, visit

Economist.com/unitedstatesEconomist.com/blogs/democracyinamerica

1

GENTRIFIER has surpassed many wor-thier slurs to become the dirtiest word

in American cities. In the popular telling,hordes of well-to-do whites are descend-ing upon poor, minority neighbourhoodsthat were made to endure decades of dis-crimination. With their avocado on toast,beard oil and cappuccinos, these peoplesnuff out local culture. As rents rise, life-long residents are evicted and forced toleave. In this view, the quintessential scenemight be one witnessed in Oakland, Cali-fornia, where a miserable-looking home-less encampment rests a mere ten-minutewalkfrom a Whole Foods landscaped withpalm trees and bougainvillea, offering chiaand flaxseed upon entry. An ancient, sinis-ter force lurks behind the overpriced pro-duce. “‘Gentrification’ is but a more pleas-ing name for white supremacy,” wroteTa-Nehisi Coates. It is “the interest on en-slavement, the interest on Jim Crow, the in-terest on redlining, compounding acrossthe years.”

This story is better described as an ur-ban myth. The supposed ills of gentrifica-tion—which might be more neutrally de-fined as poorer urban neighbourhoodsbecoming wealthier—lack rigorous sup-port. The most careful empirical analysesconducted by urban economists havefailed to detect a rise in displacement with-in gentrifying neighbourhoods. Often,they find that poor residents are more like-

time resident must be chucked out. Thesurprising result is explained by three un-derlying trends.

The first is that poor Americans are ob-liged to move very frequently, regardless ofthe circumstances of their district, as thePrinceton sociologist Matthew Desmondso harrowingly demonstrated in his re-search on eviction. The second is that poorneighbourhoods have lacked investmentfor decades, and so have considerableslack in their commercial and residentialproperty markets. A lot of wealthier citydwellers can thus move in without push-ing out incumbent residents or businesses.“Given the typical pattern of low-incomerenter mobility in New York City, a neigh-bourhood could go from a 30% povertypopulation to 12% in as few as ten yearswithout any displacement whatsoever,”noted Messrs Freeman and Braconi in theirstudy. Indeed, the number of poor peopleliving in New York’s gentrifying neigh-bourhoods barely budged from 1990 to2014, according to a study by New YorkUniversity’s Furman Centre. Third, citygovernments often promote affordable-housing schemes, such as rent control orstabilisation, in response to rising rents.

Gentrification has been so thoroughlydemonised that a mere discussion of itsbenefits might seem subversive. That doesnot make them any less real. Residents ofgentrifying neighbourhoods who owntheir homes have reaped considerablewindfalls. One black resident ofLogan Cir-cle, a residential district in downtownWashington, bought his home in 1993 for$130,000. He recentlysold it for$1.6m. Busi-nesses gain from having more customers,with more to spend. Having new shops,like well-stocked grocery stores, andsources ofemployment nearby can reducecommuting costs and time. Tax collection

ly to stay put if they live in these areas. Atthe same time, the benefits of gentrifica-tion are scarcelyconsidered. Longtime resi-dents reap the rewards of reduced crimeand better amenities. Those lucky enoughto own their homes come out richer. Theleft usually bemoans the lack of invest-ment in historically non-white neighbour-hoods, white flight from city centres andeconomic segregation. Yet gentrificationstraightforwardlyreverseseach ofthose re-grettable trends.

One in, none outThe anti-gentrification brigades often citeanecdotes from residents forced to move.Yet the data suggest a different story. An in-fluential study by Lance Freeman andFrank Braconi found that poor residentsliving in New York’s gentrifying neigh-bourhoods during the 1990s were actuallyless likely to move than poor residents ofnon-gentrifying areas. A follow-up studyby Mr Freeman, using a nationwide sam-ple, found scant association between gen-trification and displacement. A more re-cent examination found that financiallyvulnerable residents in Philadelphia—those with low credit scores and no mort-gages—are no more likely to move if theylive in a gentrifying neighbourhood.

These studies undermine the widelyheld belief that for every horrid kale-munching millennial moving in, one long-

Cities

In praise of gentrification

NEW YORK, OAKLAND AND WASHINGTON, DC

Accusations levelled at gentrification lackforce, meanwhile its benefits go unsung

United StatesAlso in this section

36 The UN Human Rights Council

37 Detroit’s railway station

38 Race and admissions at Harvard

39 Small-town newspapers

40 Lexington: A blot against America

36 United States The Economist June 23rd 2018

2 surges and so does political clout. Crime,already on the decline in American citycentres, seems to fall even further in gentri-fying neighbourhoods, as MIT economistsobserved after Cambridge, Massachusetts,undid its rent-control scheme.

Those who bemoan segregation andgentrification simultaneously risk contra-diction. The introduction ofaffluent, whiteresidents into poor, minority districtsboosts racial and economic integration. It

can dilute the concentration of poverty—which a mountain of economic and socio-logical literature has linked to all mannerof poor outcomes, including teenage preg-nancy, incarceration and early death. Gen-trification steers cash into deprived neigh-bourhoods and brings people intodepopulated areas through market forces,all without the necessity of governmentalintervention. The Trump administration isunlikely to offer large infusions of cash to

dilapidated cities. In these circumstances,arguing against gentrification can amountto insistence that poor neighbourhoods re-main poor and that racially segregatedneighbourhoods stay cut off.

What, then, accounts for the antipathytowards gentrification? The first reason isfinancial. Though the process has been go-ing on for a few decades, the increased at-tention comes in the middle of a broaderconcern about the costofhousing in Amer-ican cities. The share of households thatare “rent burdened”—those spending morethan 30% ofpre-tax income on rent—has in-creased from 32% in 2001 to 38% in 2015.Things are worse among the poor; 52% ofthose below the federal poverty line spendover half their income on housing. Rentshave risen dramatically, though this can bethe fault of thoughtless regulations whichhinder supply more than the malevolenceof gentrifiers. The net creation of jobs hasoutpaced additional housing in New YorkCity by a rate of two to one. In San Francis-co, perhaps the most restricted Americanmetropolitan area, this ratio is eight to one.

A second reason gentrification is dis-liked is culture. The argument is that the ar-rival of yuppie professionals sipping kom-bucha will alter the character of a place inan unseemly way. “Don’t Brooklyn my De-troit” T-shirts are now a common sight inMotor City. In truth, Detroit would do wellwith a bitmore Brooklyn. AcrossbigAmer-ican cities, foreverygentrifyingneighbour-hood ten remain poor. Opposing gentrifi-cation has become a way for people todisplay their anti-racist bona fides. Thisleads to the exaggerated equation ofgentri-fication with white supremacy. Such objec-tions parallel those made by white NIM-

BYs who fret that a new bus stop orapartment complex will bring people whomight also alter the culture of their neigh-bourhood—for the worse.

Porcini progressivesThe term gentrification has become tarred.But called by any other name—revitalisa-tion, reinvestment, renaissance—it wouldsmell sweet. Take Shaw, a historical centreof black culture in Washington whichlimped into the 1970s as a shadow of itselfafter a series of race riots. Decades of de-cline followed, in which a crack epidemiccaused the murder rate to spike. Today,crime is down. The O Street Market, whereone person was killed and eight were in-jured in a shoot-out in 1994, is now a tran-quil grocery store. Luxury flats with angu-larchairsand oversized espresso machinesin the lobby have sprouted opposite liquorstores. An avant-garde speakeasy beckonsfrom the basement beneath a humbledoughnut store. At the Columbia Room, awood-panelled bar with leather chairs,mixologists conjure $16 concoctions ofscotch, blackberry shrub and porcinimushrooms. This is how progress tastes.7

America and the UN

The art of the empty gesture

OF ALL the international arrange-ments President Donald Trump has

forsaken, the UN Human Rights Councildeserves the least sympathy. In announc-ing America’s withdrawal from the Gene-va-based body, America’s ambassador tothe UN, Nikki Haley, called it, “a protectorofhuman-rights abusers and a cesspoolofpolitical bias.” Given that it currentlyincludes abusers such as Congo andVenezuela among its 47 members, and isdisproportionately fixated on allegedIsraeli abuses, that was hard to deny. YetAmerica’s withdrawal will only make itharder to improve a body that has, de-spite its flaws, shown recent signs ofpromise. It also represents another small,but conspicuous, dent in America’s inter-national leadership.

The council was formed in 2006, asthe successor to the terminally discredit-ed UN Commission on Human Rights, abody now best remembered for havinghad Muammar Qaddafi, Libya’s thendictator, as its chairman a couple of yearsbefore its unlamented demise. The coun-cil was designed to be smaller, moreorderly and more accountable. Its mem-bers are elected to three-year terms by theUN General Assembly, which can alsovote, by a two-thirds majority, to removeany deemed to have committed “grossand systematic violations ofhumanrights”. Not many have been. Yet theassembly performs valuable work.

It carries out regular human-rightsaudits, known as “universal periodicreviews”, on each UN member state. Ithas also sent investigators to the scene ofmany alleged atrocities, including recent-ly in Burundi, Eritrea, Myanmar, NorthKorea and Syria. Last month the councilvoted to send another mission to Gaza, toinvestigate the killing ofPalestinianprotesters by Israeli troops. That wasjustified, notwithstanding the body’santi-Israel bias, which is symbolised by astanding agenda item on the PalestinianTerritories that must be raised at every

council meeting.Moreover, under America’s influence,

the anti-Israel animus has been growingless evident. Between 2006 and 2009,when America last boycotted the coun-cil, at the instigation ofGeorge W. Bush,six of its12 “special sessions” were de-voted to Israel. After America rejoined,under BarackObama, only one of the 14or so sessions was on Israel. The lesson isclear. IfAmerica truly wanted to standwith Israel and improve the UN body, itwould not now join Eritrea, Iran andNorth Korea in refusing to take part in it.

That suggests its decision is motivatedmore by Mr Trump’s general aversion tointernational bodies. After all, he haspreviously talked ofwithdrawing fromthe UN altogether. Quitting the council isfar short of that, but it is damaging toAmerican leadership nonetheless. In-deed, that is especially true given thetiming. Withdrawing from the world’smain human-rights forum even as itspresident was grappling with his policyofdividing migrant children from theirfamilies is not a good lookfor the shiningcity upon a hill.

WASHINGTON, DC

America withdraws from the UN Human Rights Council

Haley storm

The Economist June 23rd 2018 United States 37

DETROITERS still know how to throw aparty. On June 19th more than 4,000

of the Motor City’s residents, governmentofficials, artists, employees of Ford andmembers of the Ford family gathered atMichigan Central Station, a huge, dilapi-dated 18-floor Beaux-Arts hulk coveredwith graffiti, to celebrate its planned re-birth with speeches, music and poetry.Once the world’s tallest railway station,the vacantbuildingbecame emblematic ofthe city’s descent into bankruptcy and de-spair. ‘“The train station isdead’ meant ‘De-troit is dead’,” said Mike Duggan, themayor of Detroit, who was among the rev-ellers. From the moment the last train leftthe station in1988, its demolition was oftendiscussed. Then Ford struck a deal to buywhat Detroiters now hope will become asymbol of the city’s rebirth.

Detroit’s comeback is still tentative.Nearly all the recovery has happened indowntown and midtown, an area cover-ing just seven of the city’s139 square miles.City officials hope that such a symbolic in-vestment will direct more developmentwestward, even beyond Corktown, De-troit’s oldest neighbourhood, where therailway station stands. Once the fief ofIrish Detroiters, Corktown has a fewtrendy places to eat, but many of its Victor-ian houses are abandoned. “This marksthe first time where the whole renaissanceof Detroit that we have seen happeningdowntown starts to flourish into the neigh-bourhoods,” says Big Sean, a rapper whoperformed at the Ford party alongsideTracy Smith, America’s poet laureate; Josh-ua McClendon, a Detroit-born cellist; andthe Detroit Children’s Choir.

Ford is making a big bet on the gargan-tuan ruin. The first thing the company hadto work out was whether the building waseven structurally sound. Bill Ford, chair-man of Ford and great-grandson of HenryFord, will not say how much the companypaid orwhat the renovation might cost, buthe insists that a budget has been set asidefor such big construction projects. “We un-derinvested for too long in our facilities,”says Mr Ford.

After surviving the recession as thehealthiest of Detroit’s big three carmakers,Ford is going through a rough patch. Lastyear Mr Ford fired MarkFields, his chief ex-ecutive, and replaced him with Jim Hack-ett, a former boss of Steelcase, a maker ofoffice furniture whose previous experi-ence in carmaking consisted of 15 monthsas boss ofFord’s tech incubator.

Mr Hackett has announced a turna-round plan that involves cost cuts of $14bnover five years and a $1bn investment inArgo, a self-driving start up. But he has yetto persuade investors that he can trans-form Ford into a successful maker of elec-tric and driverless cars while not losingsight of petrol-drinking vehicles, the com-pany’s core business. Uber, Tesla andWaymo (Alphabet’sdriverless-carunit) areall worth more than Ford or General Mo-tors (GM), the otherbigdomestic carmaker,even though they lose money, and bring inno more sales in a year than Ford or GM doin less than a month. Perhaps an alliancewith Volkswagen that was announced onJune 19th, at first to develop new commer-cial vehicles, will eventually deepen. Acloser association might strengthen andenergise Ford.

As well as the railway station, Ford isalso spending $1bn on the redesign of the80 buildings forming its headquarters inDearborn, a Detroit suburb. It hopes thatthese two big renovation projects will helppersuade shareholders that it is ready forthe revolution in carmaking technologies,as well as ride-hailing and ride-sharing. MrFord wants Corktown to become the cen-tre for the development ofFord’s driverlessand electric cars. He hopes to lure youngtalent away from Silicon Valley to becomepart ofDetroit’s comebackstory.

Plans for the renovation are still vague,but Ford expects to use the ground floor forcafés, restaurants, shops and performancevenuesand to turn the higherfloors into of-fice space. The firm has been promisedsubsidies by the city and the state of Michi-gan, and has already received a few callsfrom potential tenants. It is planning to usehalfof the station’s 500,000 square feet for2,500 new and existing employees and tolease out the other half, preferably to tran-sport start ups.

For those with long memories, this ini-tiative has a familiar ring. Henry Ford II,grandson of the firm’s founder, tried to re-vive the city’s fortunes in 1970 with theconstruction of the Renaissance Centre, agroup ofseven interconnected skyscraperson the riverfront. It cost around $350m tobuild. The skyscrapers changed owner-ship several times and were finally boughtbyGM, Ford’sarch-rival, foronly$72m. Theexperience has not deterred the Fords fromtrying again. “We have an emotional at-tachment to Detroit,” explains Mr Ford,and also a sense of responsibility to thecity that made Ford a household name.

He can pride himselfon already accom-plishing one successful reinvention in Mo-tor City. He remade Ford’s River Rougeplant, once a huge factory of belchingsmokestacks with its own electricity plantand integrated steel mill, into a test lab forgreen manufacturing methods. “What theRouge was in the industrial age, Corktownwill be to Ford in the information age,”reckons Mr Hackett. 7

Detroit’s railway station

The Ford Phoenix

DETROIT

Ford has ambitious plans for the city’s most beautiful ruin

Fixer-upper


ABBOTTLAWRENCE LOWELL, the presi-dent of Harvard from 1909 until 1933,

thought the university had too many Jews.In the first yearofLowell’s presidency, theymade up 10% of the student body. By 1922their numbers had more than doubled. Toaddress what he called “the Hebrew pro-blem”, Lowell proposed an explicit Jewishquota of15%. When that proved controver-sial, he set about making “a rule whosemotive was less obvious on its face” todeny admission to students suspected ofbeingJewish.AdmissiontoHarvard,previ-ously granted by meeting a clear academiccut-off, became more nebulous—basedmore heavily on the “character and fit-ness” of applicants. The new “holistic” ad-missions policy worked as intended, suc-cessfully suppressing Jewish admissions.

Harvard, like many of America’s topuniversities, retains a holistic admissionsprocess. Unlike elite universities in mostother countries, American colleges do notsimply select the cleverest pupils—theyalso take into account extracurricular ac-tivities, family wealth and race. To critics,this system still operates as an engine ofunfairness, except that the victims havenow become Asian-Americans, who out-perform their white peers on academicmeasures but still face stiffer odds whenapplying to Ivy League colleges. StudentsforFairAdmissions (SFFA), an organisationfounded by Edward Blum, a conservativeactivist opposed to race-based affirmativeaction, filed a lawsuit against Harvard al-leging discrimination against Asian-Amer-ican students in 2014. Despite a furious ef-fort to quash the suit, Harvard was forcedto turn over 90,000 pages on its tightlyguarded admissions process. On June 15thboth sides revealed duellingstatistical ana-lyses of admissions-decision data in courtfilings. Harvard’s reputation for fairnessand impartiality emerges bruised.

By the admission office’s own ratings,Asian-Americans rank higher than whiteapplicants in both their academic prowessand the quality of their extracurricular ac-tivities. Yet their admission rates are muchlower. For Asian-Americans in the top dec-ile of academic skill, just 13.4% are admit-ted, compared with 18.5% of whites (seechart). Asians are scored much worse onanother measure of applicant quality—the“personal rating”—by admissions officers.Unlike the other two metrics, personalityis judged subjectivelyand isdecided byad-missions officers who have not met the ap-

plicants. The alumni who conduct in-per-son interviews rate Asian-Americans ashighly as white applicants. To SFFA, thisconstitutes clear proofofdiscrimination.

Peter Arcidiacono, an economist atDuke University employed by the plaint-iffs, built a statistical model of the effect ofrace on admissions. He estimates that amale, non-poor Asian-American applicantwith the qualifications to have a 25%chance of admission to Harvard wouldhave a 36% chance if he were white. If hewere Hispanic, that would be 77%; if black,it would rise to 95%. Damningly for the de-fendants, an internal report by Harvard’sresearch arm, obtained during discovery,reached the same conclusions. Harvard of-ficials claim that the reportwas incompleteand the analysis oversimplified.

Fighting statistics with statistics, Har-vard’s lawyers hired David Card, a promi-nent labour economist at the University ofCalifornia, Berkeley. His model includesfactors like the quality of a candidate’shigh school, parents’ occupations and thedisputed personal rating. Under these con-trols, Mr Card claims that Asian-Americanapplicants are not disadvantaged com-pared with whites. But given that these fac-tors are themselves correlated with race,Mr Card’s argument is statistically ratherlike saying that once you correct for racialbias, Harvard is not racially biased.

The duelling economists disagree be-cause they cannot agree on what consti-tutes fairness. Susan Dynarski, an econo-mist at the University of Michigan, arguesthat MrArcidiacono’s model tests for racialbias in an idealised system. Mr Card’smodel searches for racial bias in the con-text ofhow Harvard actually operates.

For those unconvinced by fancy maths,the basic statistics also lookworrying. Har-vard insists that it has no racial quotas orfloors, which would fall foul of SupremeCourt rulings and jeopardise the universi-ty’s federal funding. Yet the share of Asian-Americans it admits has stayed near 20%over the past decade. This is true even asthe number of Asian-Americans in highschools has increased. Caltech, a top uni-versity without race-based affirmative ac-tion, saw its share of Asian-Americans in-crease dramatically over the same period.

Court filings also reveal how legacypreferences, which give significant advan-tages to the relatives of alumni, skew Har-vard’s admissions system. A suppressedinternal report shows that the preference isthe same size as that given to black appli-cants. Roughly 34% of legacy applicants areadmitted—more than five times the rate ofnon-legacy applicants. This is tantamountto affirmative action for well-off white stu-dents. According to a survey of freshmenconducted by the Harvard Crimson, thecollege newspaper, 88% of legacy studentscome from families making more than$125,000 a year. Recruited athletes, whichHarvard admits in droves to fill its lacrosseteams and rowing eights, are also dispro-portionately white. By Mr Arcidiacono’sreckoning, 22% of white students are lega-cies and 16% are recruited athletes.

Even if Harvard does not actually dis-criminate against Asian-Americans, its in-sistence on preserving hereditary prefer-ences undermines its case. RakeshKhurana, the dean of Harvard College, jus-tified the policy on the grounds that itwould bring those with “more experiencewith Harvard” together with “others whoare less familiar with Harvard”. Others saythat it is necessary to ensure fundraising.Aside from the moral questions this poses,it is worth noting that nearby MIT, whichdoes not favour legacy applicants, man-ages to do just fine.7

University admissions

Affirmative dissatisfaction

A lawsuit reveals how peculiarHarvard’s definition ofmerit is

Source: Peter Arcidiacono,for the plaintiffs

*Excluding legacies andrecruiting athletes

0

10

20

30

40

50

60

White

Black

Hispanic

Asian

Colour in the lines

United States, Harvard University admission rates*By ethnicity and academic ranking, 2010-15, %

Academic decilesWorse Better

1 2 3 4 5 6 7 8 9 10

Admission of gilt

The Economist June 23rd 2018 United States 39

JAY NOLAN surveys his media empirefrom a shed-like building outside Lon-don, Kentucky. On his desk is a stack of

eight newspapers, including the Berea Citi-zen (“established in 1899”, circulation 4,511),the Mountain Advocate (“since 1904”, circu-lation 4,500) and the Pineville Sun-Cumber-land Courier (“celebrating109 years”, circu-lation 1,646).

Each paper is under local management,with its own publisher and editor, but No-lan Group Newspapers owns a majoritystake in all of them and prints them at itspress outside London. Together, the eightpapers have a combined circulation ofabout 25,000 and employ a dozen journal-ists and nine ad-sales representatives.They bring in around $2m in revenue, per-haps $3m in a good year, with a profit mar-gin ofabout10%, says Mr Nolan.

The local-newspaperbusiness isnot go-ing to make him rich. Which is why he alsoowns J. Frank Publishing, which under-takes contract printing work for othernewspapers and commercial clients, andproduces banners and signs where mar-gins are juicier. Mr Nolan, a third-genera-tion newspaperman, took over the busi-ness in March, when his father retired toFlorida. It is not a role he planned. Afterfive years in the army, including deploy-ments to Afghanistan, he returned home,initially taking a job in finance in Califor-nia. “I can make a lot more money in the

sign business,” he says, but local newspa-pers are important. “If journalists aren’there, Kentucky will become as corrupt asAfghanistan.”

This is a worry that animates discus-sion of local news in America. Circulationand ad revenue have been shrinking foryears, as has the number of newsroomstaff. Papers have become thinner or shutdown altogether. America has lost a fifth ofits newspapers since 2004.

Media-watchers worry about “newsdeserts”, or areas without any newspa-pers. The mere presence of reporters atcity-council meetings can help keep themstraight, says Al Cross, the director of theInstitute for Rural Journalism at the Uni-versity ofKentucky.

Yet look beyond the headline figures,and the health of small-town newspapersmay not be as bad as it appears. Fully 61%of weekly papers and 70% of dailies thathave ceased publication since 2004 are incounties with more than 100,000 people.Just 20% of weeklies and 11% of dailies dis-appeared in counties with fewer than30,000 people, according to researchers atthe University of North Carolina (UNC).The number and variety of newspapersthat continue to exist—in tiny towns withpopulations in four figures, at gas stationsin poor rural counties, and in villagesclumped near each other—give hope toeven the most pessimistic observer.

There are two main reasonsfor the resil-ience of small-town newspapers. The firstis that size matters. Businesses in smallcommunities know that every reader of alocal paper is a potential customer, and ad-vertise accordingly. Newspapers in biggercities do not enjoy this advantage. Nor arethey representative of the industry. Al-though much attention is lavished onnewspapers in metropolitan areas, theyrepresent less than 2% of all Americannewspapers, according to a paper entitled“Despite losses, community newspapersstill dominate the US market”. Communitydailies and weeklies, by contrast, accountfor 60% ofall the papers sold.

Second, small communities rally roundtheir newspapers in ways that bigger onesdo not, with rates of loyalty twice that ofreaders of national or regional papers, ac-cording to research by Penelope Muse Ab-ernathy of UNC. The Shawangunk Journal,published from Ellenville, New York andserving the region around it, was on theverge of shutting down when its publishertried a new tactic: a subscription drivewith an annual price of at least $55 a yearand as much as subscribers could afford togive. Some people contribute as much ev-ery month, says Amberly Jane Campbell,who describes herself as “publisher, dis-tributor, managing editor, and everythingelse”. The paper is now back in the black.Asking for donations is an increasinglypopular business model.

Small papers are not relying on good-will alone. They are experimenting withthe same things the big papers are trying,including digital advertising, events, spon-sored content, glossy supplements andmagazines, and price increases. Some,such as the Sentinel-Echo in London, areeven expecting modest growth, mostlyfrom online.

Taking the FirstThe survival of small-town newspapers inAmerica is far from guaranteed. The townsthey serve are growing older and thinningout as working-age Americans migratefrom small towns to cities, often never toreturn. Mandatory advertising by localgovernment, a significant source of rev-enue, is increasingly under attack as statelegislatures try to save money. Tariffs onimported Canadian newsprint have raisedcosts. Another worrying trend is of localowners selling to big media companies asthe industry consolidates, robbing localnewspapers of the very thing that makesthem valuable. Yet they may be “in a stron-ger position than their metro cousins”, ac-cording to a recent report by the Tow Cen-tre forDigital Journalism. That is crucial. AsMr Nolan puts it, “We have to have a freeand vibrant press in America to be great inAmerica.” That is as true of little towns inthe hills and hollows of Kentucky as it is inWashington, DC. 7

Small-town newspapers

Still kicking

LONDON, KENTUCKY

Reports of the death of local newspapers have been greatly exaggerated


THERE is a moment in “The Plot Against America”, PhilipRoth’s tale of America succumbing to 1930s-style authoritar-

ianism, when the nine-year-old protagonist experiences a pro-found revulsion at the foibles on which wickedness thrives.“Never in my life had I so harshly judged any adult,” he recalls ofhis Jewish aunt’s preening over a brief interaction with the anti-Semitic president, Charles Lindbergh. “Nor had I understood tillthen how the shameless vanity of utter fools can so strongly de-termine the fate ofothers.” That is as much respite as the recentlydeceased author, who combined a stubborn faith in Americawith a gloomy view of its politics, allows his reader. There is nochance of America sharing his awakening. The power of theboy’s epiphany lies not only in its clarity, but also in its futility.

Roth’s pessimism about the prospect of national redemptionshould be instructive to critics of President Donald Trump’s poli-cy ofcagingmigrant children in isolation from theirparents. Theyhope voters will recoil from both this ill-fated debasement ofAmerican values and its architect. But not even the policy’s can-cellation on June 20th will achieve that. Though America has ex-perienced many moral corrections, from abolitionism to the civ-il-rights movement, they have never come in the emetic momentMrTrump’s criticspine for. The tortured issuesofrace and nation-al identity that explain its dark times, as they do now, are too con-tested. America’s moral shortcomings under Mr Trump, includ-ing his attempted Muslim ban, slashing of the refugeeprogramme and draconian border policy, were the promises ofhis election campaign. There are indeed too many echoes of2016in this latest row for his opponents to feel triumphant.

Mr Trump entered American politics, three years ago thismonth, with a campaign-defining rant against Mexican “rapists”and other illegal immigrants. Itwas reprehensible and effective inseveral ways. It positioned him with voters, most of them Repub-licans, who worried about immigration, and against the party’spatrician leaders, including his main rivals at that time, the Bushclan. It also showed, notwithstanding legitimate worries aboutthe effect of immigration on wages, how well he understood theissue’s ability to connect with the racial anxiety of America’sdwindling white majority. He thereby engineered the most ra-cially divisive election in years. Many Republicans disliked it. Yet

because the Democrats are associated with the immigrant com-munities Mr Trump attacked, his tactic also turbocharged parti-san enmity, which helped mollify them. In the run-up to whatareexpected to be gruelling mid-terms for Republicans, Mr Trump’sfamily separations were an effort to dust offa winning script.

There are many clues to that, starting with the erratic ways theadministration defended it. Restrictionists such as Jeff Sessions,the attorney-general, presented family separation as a deterrentagainst illegal crossings. Kirstjen Nielsen, the secretary of home-land security, said it was not the administration’s policy. MrTrump said it was because of a law passed by the Democrats,which is pretty much his 2016 strategy. The conservative media,now as then, tried to normalise his latest transgression withsnarky jokes about what a no-big-deal it was and yet how crazy itmade liberals. On Fox News, Laura Ingraham described MrTrump’s strip-lit child cages as “essentially summer camps”. Thepresident’s roster of outraged critics was also the same. It consist-ed of Democrats, pro-immigrant groups, Hollywood celebritiesand Never Trump Republicans (including Laura Bush, whose in-tervention was not the game-changer her admirers hoped).

With only a small majority of Republican voters in favour ofthe policy, it had long looked like a misstep nonetheless. Yet MrTrump’s decision to change course represents neither a disas-trous retreat nor a major moral repulse. Indeed, the farrago sig-nalled his strength as well as his weakness. Though prominentTrump supporters were unhappy with the policy, includingsome evangelical Christians, few blamed him for it. Franklin Gra-ham called it “disgraceful”, but blamed “politicians for the last 20,30 years”. Republicans in Congress, while working to find a legis-lative climbdown for the president, similarly restrained them-selves. The policy’s cancellation by executive decree looks morelike a precautionary step by a president enjoying his best ratingssince his inauguration. There may even be a modest upside forhim. The row provides Republicans facingdifficult mid-term con-tests—including Senator Ted Cruz, who tried to provide a legisla-tive escape route—with a rare issue on which they can claim tohave disagreed slightly with the president.

Mr Trump’s opponents need to tread carefully. If politics wereabout being right, not winning arguments, Mr Trump would notbe president. Most Americans want migrants to be treated hu-manely but, as his election showed, they also want strong bor-ders. The ever-sprung trap MrTrump sets his opponents is that, infeverish concern for the first, they neglect the second.

A dish best served coldThe danger forMrTrump’s Republican supporters is less immedi-ate, but greater and perhaps insurmountable. The history ofAmerica’s moral corrections suggests that what they lack in spon-taneity they make up for with momentum. Democrats’ opposi-tion to the civil war cost them the presidency for over two de-cades. Republicans’ opposition to civil rights cost them most oftheir non-white support, leading them to the white-identity poli-tics from which Mr Trump is now wringing the last drop of juice.

It would be a short-term strategy, in an increasingly non-whiteAmerica, even if he were a more ruthless demagogue than he is.Asked to compare Mr Trump with his fictional villain, Roth saidLindbergh was imposing, a heroic aviator, and Mr Trump “just acon artist”. His dog-whistle on immigration may sustain his presi-dency; it will not interrupt how America is changing. That combi-nation spells a long-term disaster for his party.7

A blot against America

But Donald Trump’s ill-fated policy ofcaging children will hurt his partymore than him

Lexington

June 23rd 2018

S P E C I A L R E P O R T

T H E G U L F

The new Arabrevolution


THE GULF

SPECIAL REPOR T

5 How oil shaped the GulfFrom pearls to black gold

6 The politics of IslamMuslims but not brothers

7 Regional politicsCold war in the heat

8 GeopoliticsInsecurity complex

9 Beyond oilBreaking the curse

10 One emirate leads the wayDo buy

12 The dangers of reformWaiting for the backlash

CONTENTS

1

YEAR AFTER YEAR Arwa Alneami’s pictures of women at an amuse-ment park captured the obsessions of Saudi Arabia’s killjoy religious po-lice. On “the ship”, a wild-swinging ride, black-clad women and white-robed men were made to sit at opposite ends. When they started throw-ing telephone numbers to each other, men and women had to take turns(pictured). The ship then sprouted opaque plastic sides to prevent menfrom looking at the women, and bright lights to dazzle the gawpers.

Then suddenly last year the mutawaeen disappeared. The Commit-tee for the Prevention of Vice and the Promotion of Virtue, to give themtheir formal title, no longer have the power to enforce public morality.These days the Saudi state is all about promoting fun: concerts, fashion,art, sport. The ratchet ofsocial rules has gone into reverse. Alongwith themuezzin’s call to prayer the unfamiliar sound of laughter can be heard.

Ms Alneami’s pictures also capture the pathos, humour and de-fiance of women riding bumper-cars at funfairs, the closest most couldcome to driving real cars. But on June 24th they will, at last, be allowed totake the wheel on Saudi roads. The artist says she and her four sisters aretorn. One thinks it is too dangerous to drive. Anotherwill dispense with adriver and pick up her children from school herself. Ms Alneami and theothers will be patient. She has driven in the desert but will wait until therush ofwomen applying for driving lessons slows and the cost falls.

Saudi women have a long way to go—they are still subject to legalguardianship by husbands or male relatives who must, for instance, givethem permission to travel. But Saudi Arabia is becoming less exceptional.The quest for normality is part of a remarkable revolution; an attempt torefashion Saudi society away from ultra-strict Islamic codes and diver-sify its economy away from dependence on oil. The kingdom is theworld’sbiggestoil exporterand home to Islam’s two holiestplaces, so thesuccess or failure of the reforms will affect the rest of the world, startingwith the Gulf Co-operation Council (GCC), a regional body that also in-cludes Bahrain, Kuwait, Oman, Qatar and the United Arab Emirates. Asone Saudi official put it: “Where Saudi Arabia goes, the GCC follows.Where the GCC goes, the Arab world follows. Where the Arab world

A wild ride

Radical reforms in Saudi Arabia are changing the Gulf and thewider Arab world, says Anton La Guardia

ACKNOWLEDGMENT S

In addition to those quoted in thisSpecial Report, many other peoplegave generously of their time andoffered their invaluable insight.Some, given their position, couldnot be quoted. Others did not feelable to speak openly in the currentpolitical climate of the region. Theauthor wishes to express his warmthanks to them all. He is alsograteful for the kindness andexpertise of: Elliott Abrams, JonAlterman, Mohammed Baharoon,Alfred Bloom, Toby Dodge, HRH TurkiAl Faisal, Nicolas Farah, PhilipGordon, Shadi Hamid, BernardHaykel, David Hobbs, Hussein Ibish,Martin Indyk, Nadine Kettaneh, JaneKinninmont, Ali Lootah, RobertMalley, Helal Almarri, Sheikh Nahyanbin Mubarak al-Nahyan, Ghanimal-Najjar, Zaki Nusseibeh Ahmed AlOmran, Faisal Alothinah, Minaal-Oraibi, William Patey, Madawial-Rasheed, Bruce Riedel, NasserSaidi, Ali Shihabi, Fahad al-Sumait,Karen Young and Khalifa al-Zaffin.


SPECIAL REPOR TTHE GULF

2

1

goes, the Muslim world follows.”The country’s first new public cine-

ma since 1979 opened in April to enthusi-astic audiences in a never-opened metrostation in Riyadh, designed by the lateZaha Hadid, an Iraqi-born architect. Theinitial screenings were of superhero spec-taculars: “Black Panther” and “The Aveng-ers: Infinity War”. But the most eye-pop-ping aspect was the fact that men andwomen were allowed to sit together.

Saudis might think they are in a fan-tasy film of their own. The superhero isMuhammad bin Salman, the powerfulcrown prince, still just 32. “He has aston-ished people by breaking the rules of reli-gious extremism and pushing for moder-ate Islam,” says Ms Alneami. Many peopleworry God will be angry because somuch is haram (forbidden), she says.“Some ladies struggle to breathe whenthey talk about the changes. I tell them‘You go to the cinema in Dubai. Is Godonly in Saudi Arabia and not in Dubai?’ ”

Most young Saudi men are de-lighted, too. A group offriends in their 20s,sitting at a coffee-shop in a mall, stand outin their T-shirts and baseball caps. A year ago, they say, the muta-waeen would nothave let them in. “They treated usas though wemight be wolves,” says Fahad. His friend, Ahmad, chips in: “Pre-viously, minds were closed. Now they are open.” But, for some inthis group, not so open as to allow their own sisters to work inmixed offices. As one put it: “Our families and tribes would askus: ‘Are you not men?’ ”

Two years ago, when he set out his reforms, known as “Vi-sion 2030”, Prince Muhammad’s focus was almost entirely on re-viving the economy, as oil prices were dropping sharply. Wom-en’s right to drive would be left for society to decide, he declared.These days, social habits are changing so fast that some wonderwhether the prince is, in fact, pursuing a social and religioustransformation under the guise ofan economic one.

Unlike many of his peers, the crown prince has not beeneducated in the West. He sees himself as the champion of theyoung (under-30s form a majority of the population). Hischanges amount to a youth revolution directed from the topdown, by a prince in his palace, rather than from the bottom up,by angry demonstrators on the streets. The GCC states mostlyavoided the uprisings of the Arab spring in 2011, and the chaosthat ensued (unrest was quelled in Bahrain). Gulf leaders havelong known that they could not rely on oil forever, but fearedchange. The motto of the late King Abdullah was yawash, ya-wash (slowly, slowly). Prince Muhammad, by contrast, “is flyinghigh and fast”, says Abdulrahman al-Rashed, a columnist. “Ihave not yet recovered from shockafter shockafter shock.”

Although he is seen as the superhero, the crown prince alsohas much of the villain about him. The country has becomemore authoritarian. Critics ofall stripes have been jailed; severalwomen’s-rightsactivistswere arrested in May. The number ofex-ecutions has risen sharply. Hundreds of princes, officials andbusinessmen were hauled into the Ritz-Carlton hotel last yearand made to hand over part of their wealth in a surreal “anti-cor-ruption campaign”. “We have the right to dance,” notes one Sau-di businessman. “But we do not have the right to speak.”

Still, there is new energy in the Gulf. For Abdulkhaleq Abd-ulla, a political scientist in the UAE, the Arab world is living what

he calls “the Gulf moment”. The oil monarchies of the Arabian(or Persian) Gulf have moved to the centre of the Arab world. Inan audio recording leaked in 2015, Egypt’s President Abdel-Fattahal-Sisi and his advisers are heard to dismiss the monarchies asmere “half-states” with so much money that they treat it “likerice”. But for all of their contempt, Egyptian rulers have becomemendicants at the feet of the kings, emirs and sultans of the Gulf.Never before have Gulf states wielded such power. “The small-est Gulf state has more influence than the biggest Arab state,” de-clares Mr Abdulla. The GCC accounts for about 60% of the Arabworld’s GDP but only 12% of its population (or half that, exclud-ing foreign workers). It produces 24% of the world’s crude oil. Du-bai in the UAE has become a global city.

Riyadh is the centre ofregional diplomacy. Donald Trump’sfirst trip as America’s president was to an Islamic-world summithosted by King Salman. Gulf states have become even biggerbuyers of weapons, and have been more willing to use them—most controversially in Yemen. Culture is blossoming, too. Gulfstates have bought up much of the Arabic-language media, andlaunched several satellite-news channels, the most famous andcontroversial of which is Al Jazeera, based in Qatar. A branch ofthe Louvre museum is housed in a sumptuously latticed domeon Abu Dhabi’s seafront; and Doha boasts one of the finest mu-seums of Islamic art. Some of the world’s best-known universi-ties are establishing outposts in the region.

Shifting sands

This special report will examine how Gulf monarchiesachieved all this, and the consequences of their new promi-nence. In part, they stand tall because so many of the old bas-tions of Arab power have toppled. Cairo is stagnant after theuprising of 2011 that ejected Egypt’s strongman, Hosni Mubarak,and the coup of 2013 that brought another, Mr Sisi, to power. Da-mascus is contendingwith Syria’s appallingcivil war. Baghdad isonly just recovering from Iraq’s succession of conflicts. Beirutnever regained its place after the Lebanese civil war of 1975-90.

Yet Gulf states can boast achievements of their own. Inmany countries there was poverty in living memory. “The water

EGYPT

33.6

82.0 36.4

99.4

41.5

15.2

28.9

1.0

4.5

4.2

39.318.3

9.9

6.1

8.5

6.5

1.6

2.7

9.5 4.8

TURKMENISTAN

SAUDI ARABIA

AFGHANISTAN

Somaliland andPuntla

PAKISTAN

ETHIOPIA

DJIBOUTI

SOMALIA

ERITREA

KUWAITJORDAN

ISRAEL

GazaStrip

West Bank

SUDAN

YEMEN

QATAR

BAHRAIN

OMANUAE

SYRIA

LIBYA

IRAQ

IRAN

I N D I A N

O C E A N

TheGulf

RedSea

Gulf of Aden

MediterraneanSea

Medina

Mada’in Saleh

NEOM project (proposed)

Petra

Mecca

Jeddah

AdenSocotra (to Yemen)

Mukalla

Dubai

Ras TanuraDammam

Abu DhabiJebel AliRiyadh

Cairo

Beirut Damascus

Sana’a

Baghdad

Tehran

Doha

LEBANON

TURKEY

GDP per person2018 forecast, $’000

Population2018 or latest, m

20-39

>39

10-19

5-10

No data

1-5

< 1

Sources: IMF; UN

Nile

500 km


THE GULF

2

SPECIAL REPOR T

was yellow and my father used to filter it with his headscarf,”says Sara al-Amiri, a minister in the United Arab Emirates. Nowthe UAE is a model of success. According to the annual ArabYouth Survey, issued byASDA’A Burson-Marsteller, a public-rela-tions firm, the UAE is the country where 18- to 24-year-old Arabswould most like to live, ranking well ahead of countries such asAmerica, Germany or Canada.

Yet there is much uncertainty. Social transformation re-quires Saudi Arabia, in particular, to grapple with Islamic ultra-puritanism. In abandoning its past caution, it has waded into anunwinnable war in Yemen and split the GCC in a feud with Qa-tar. It hopes America will do more to push back Iran. Above all,Gulf states have to overcome their dependence on volatile oiland coax their pampered people into productive work. Theymust do all this without a destabilising backlash.

Much will depend on the impulses of three headstrongyoung men: Muhammad bin Salman of Saudi Arabia; Muham-mad bin Zayed, the crown prince ofAbu Dhabi and the real pow-er of the UAE; and Sheikh Tamim bin Hamad, the emir of Qatar.These royals are less constrained by the traditions and obses-sionsofthe past, notably the question ofPalestine. Neither Qatarnor the UAE existed as independent states when Israel humiliat-ed Arab armies in 1967. Given the fear of Iran, many Gulf leadersthese days regard Israel as an ally rather than a foe.

Rich, ambitious, unconstrained by democratic institutionsand too often untempered by experience, the three royals havethe daring to lead their countries to a post-oil future, and to pro-mote more moderate forms of Islam. But they also betray a rash-ness, especially in foreign policy, that could just as easily lead tothe next round ofchaos and war in the Arab world. 7

NATURE GAVE THE Gulf two bounties. Above,in the shallow waters of the sea, oyster bedshave yielded pearls since antiquity. In the19th century they were sold across the worldthrough merchants in Mumbai. Belowground, in ripples of rock where the Arabianplate pushes under the Eurasian one, some ofthe world’s richest oil deposits were discov-ered in the early 20th century—in Iran in1908, Iraq in 1927, Bahrain in 1932 and,above all, in Saudi Arabia in 1938.

Until then the Gulf had mostly been ofmarginal importance to surrounding em-pires. Notions of sovereignty were vague andapplied to people more than land. Nomadic,tribal lifestyles meant that rulers had limitedmeans to enforce their will, since dissenterscould move elsewhere.

The Al Khalifas who settled in Bahrainsplit from the Al Sabahs of Kuwait; both tracetheir origins to a migration from centralArabia in the 17th century. The Al Thanis ofQatar, in turn, rebelled against the Al Kha-lifas. The Al Maktoums of Dubai split awayfrom the Al Nahyans of Abu Dhabi. Tribesstraddle modern borders, and many of theGulf’s ruling clans intermarried.

Starting in the 18th century, the Gulfemirs came under the protection of theBritish empire, which sought to keep rivalsaway from the approaches to India. TheBritish imposed truces on the internecinefights of the emirs (hence the region’s name,“the trucial coast”).

In the Arabian interior, meanwhile, theAl Sauds in the Nejd struck a pact in the 18thcentury with a puritanical cleric, Muhammadibn Abdel-Wahhab, and his followers. To-gether they conquered much of the peninsulaand the alliance persisted through the ebband flow of the Al Sauds’ rule.

The first Saudi state of 1744-1818 wascrushed by the Ottomans. The weak secondSaudi state of 1824-91collapsed from in-ternal turmoil. The third and current one wasreconstituted by Abdel Aziz Al Saud andnamed Saudi Arabia in 1932. He receivedsome help from Britain. It acquiesced whenhe defeated the Hashemites, Britain’s ally inthe first world war, and took the holy cities ofMecca and Medina. But Britain preventedhim from overwhelming, among other places,the trucial coast and Oman.

President Franklin Roosevelt met KingAbdel Aziz in Egypt in 1945 after the Yaltasummit, laying the foundation for an endur-ing, if troubled, alliance. The British with-drew from east of Suez in 1971and werereplaced by America as the region’s protectorfrom 1979, after the Iranian revolution and

From pearls to black gold

How oil transformed the Gulf

the Soviet intervention in Afghanistan.Oil turned the poor and loosely organ-

ised tribes of the Arabian peninsula intosome of the world’s wealthiest states. Incontrast with most countries, which must taxcitizens to raise the money needed to provideservices and security, Gulf rulers collectedrents from oil and distributed some of thebounty to citizens. These “rentier states”provided cradle-to-grave benefits in returnfor obedience. In Saudi Arabia, the rulersgave Wahhabi clerics leeway to impose socialnorms and in return received religious legiti-macy for their rule.

Gulf citizens were propelled frompoverty to a life of comfort. Standards ofhealth and education improved quickly. Thethinly populated Gulf states hired Westernexperts to help them build their countriesand an army of Asians to do the menial la-bour. Foreigners make up about half thepopulation of Gulf states, ranging from 90%in the UAE and Qatar to 30% in Saudi Arabia.

For all the benefits of oil, however,some lamented the passing of the hardydesert life. Bandar bin Surur, a 20th-centurySaudi poet, wrote: “The chiefs of Nejd’s tribeswho uprooted mighty armies/have becomedocile and content to feed, like chickens, ongrain thrown to them on dirt.”

Because benefits for citizens are sogenerous, rentier states define citizenshipnarrowly, even cruelly, excluding hundreds ofthousands of Arabs known as bidoon, who arenot deemed to qualify. Foreign workers, too,are largely kept in a state of bondage throughthe kefala system, whereby local sponsors ofexpatriates must give consent for them tochange jobs or leave the country. As withmuch else, citizenship in the Gulf is a giftfrom the ruler, not a right.Supertankers of the desert



HOWTO OVERTURN God’s law? Or, rather, how to changewhat you had previously said was God’s law? This is the

question facing Muhammad bin Salman as he loosens social re-strictions. His conclusion? Blame it all on Iran. The crown princesays his country took a wrong turn in 1979. That was the yearwhen Shia Islamists overthrew the Shah of Iran, Sunni extrem-ists opposed to the Saudi monarchy stormed the Grand Mosquein Mecca and the Soviet army marched into Afghanistan.

Before that, so the story goes, Saudis could enjoy cinemasand concerts. Even in the time ofAbdel Aziz Al Saud, the founderof the modern Saudi state, women worked in the fields and rodecamels alone. But after 1979 Saudi kings, who call themselvescustodians of the two holy mosques, resolved to outdo theirfoes, both Shia and Sunni, in Islamic piety.

The more relaxed social rules now being introduced arethus no heresy, says the crown prince; they are simply a return toa pre-existing normality. “Islam is moderate inits ways. It is unfortunate that extremism has hi-jacked this religion,” says Sheikh MohammadAlissa, head of the Muslim World League, abody that has long spread ultra-puritanical ide-ology. It is a sign of the new times that, thesedays, it is busy making ecumenical contactswith Christians, Jews and others.

For Stephane Lacroix of the Sciences-Pouniversity in Paris, the crown prince is buildinga myth: “Saudi Arabia’s religious authoritieswere extreme even before Ayatollah Khomeiniruled over Iran.” The difference, he says, is thatafter 1979 they were given free rein to imposetheir rules in corners of the kingdom fromwhich they had previously been kept out, suchas wealthy neighbourhoods of Riyadh. Withthe emergence ofglobal jihad, Saudi rulers havestruggled to avoid association with extremistgroups such as al-Qaeda, the Taliban and Islam-ic State (IS), whose religious practices and doc-trines resemble those of Saudi clerics except inwhen and where to resort to political violence.

How can Saudi authorities distance Wahhabism from jiha-dism? One argument is semantic. They deny that there is anysuch thing as Wahhabism; what they practice, they say, is plainIslam as it existed among the salaf, the generation of the Prophetand his companions (thus they accept “salafism”). A second de-fence is doctrinal. Real salafism is quiet and non-political, theysay. “It dictates that we should obey and hear the ruler,” saysSheikh Mohammad. A third contention is that, if salafists havebecome rebellious, that is because they have been infected bythe ideas of the Muslim Brotherhood. Founded in Egypt in 1928during the agitation against British rule, the Brotherhood has in-spired political Islam across the Arab world under differentnames, and with various degrees of militancy—from Ennahdha,the “Muslim democrats” of Tunisia, to Hamas, the armed Pales-tinian movement that rules Gaza.

Brothers are often less puritanical in Islamic practices than

salafists but, because they permit rebellion against impious rul-ers, they are regarded as more subversive. Still, early on theBrothers enjoyed good relations with Gulf rulers, who thoughtthem useful against nationalists and leftists. But after the Iraqi in-vasion of Kuwait in 1990, when part of the Brotherhood sup-ported Saddam Hussein, the Islamists were regarded with great-er suspicion. In many Arab countries the Brothers establishedthemselves by providing social services for the poor. In the richGulf, the Brotherhood developed a form of“rentier Islamism” inwhich opposition was based on religious issues, says CourtneyFreer of the London School of Economics. “Islamists have nottended to focuson economicpolicy,” she argues. “Theirs isa mor-alising agenda. For them, governments have to prove that theyare guardians of the morality of the nation.”

Muhammad bin Zayed of Abu Dhabi, the main power inthe United Arab Emirates, regards the Brothers as a menace. TheUAE has arrested scores of their activists. Sheikh Tamim bin Ha-mad of Qatar, by contrast, has been a principal sponsor of theBrotherhood (see next article). Under Muhammad bin Salman,the hitherto ambiguous Saudis now side with the Emiratis. Hespeaks of a “triangle ofevil” encompassing Iran, IS and the Mus-lim Brotherhood. As such he seems to be drawing a dividing linebetween Arab states (and tame salafists) on one side, and allforms of Islamism on the other—be they non-violent Brothers orjihadists. “It is a crazy analysis about the threat of a pan-Islamicempire,” says Jamal Khashoggi, a former editor of al-Watan, a

Saudi-owned newspaper, who now works as acolumnist in exile in America. “He treats IS andthe Brotherhood as the same thing—the only dif-ference being that IS tried to create the caliphateimmediately by violence while the Brother-hood wants to create the caliphate slowly,through democracy.”

Although the Brotherhood never seemedvery strong in the Gulf, its election victory inEgypt in 2012 unnerved Gulf rulers. Saudi Ara-bia and the UAE enthusiastically supported thecoup that overthrew President MuhammadMorsi of the Brotherhood, not least because hewas moving closer to Iran. For Mr Khashoggi,the campaign against the Brothers is an attemptto extinguish the last embers of the Arab spring:“Democracy and political Islam go together.”

The Saudi push for “moderate Islam” mayhave one paradoxical boon. Many Shias hope itwill quieten the worst anti-Shia utterances ofWahhabi clerics. Shias form substantial minor-ities across the Gulf (see chart). Many of themlive over the richestoilfields. So episodes ofShia

rebelliousness carry not just the fear of separatism, or of Iranianinterference, but ofeconomic disaster, too.

To varying degrees, Shias feel discriminated against acrossthe GCC. They are often the downtrodden “other”, regarded as afifth column for Iran if not as outright infidels. During the Arabspring in 2011, many Shias took to the streets to demand greaterfreedom. The worst unrest took place in Bahrain, where Sunnirulers crushed protests by the majority-Shia population.

In Saudi Arabia, protests broke out in the Qatif region. Re-pression set offa spiral ofbloodshed, and armed clashes in Awa-miyah, home to a radical preacher, Nimr al-Nimr, who was exe-cuted in 2016. The unrest has been quelled and the town centrebulldozed. Prince Muhammad now seeks to distinguish be-tween Shias and Iran. But resentment runs deep. “The peoplewho took up arms were criminal,” says one local Shia activist,“but the Saudi government is even more criminal.” 7

The politics of religion

Muslims but not

brothers

Saudi Arabia turns against political Islam

All God’s children

Source: M. Izady, Columbia University

Religion, % of total populationLatest available

Kuwait

Bahrain

SaudiArabia

Qatar

UAE

ShiaSunni

200 40 60 80

“AT FIRST EVERYBODY thought it was a sort of joke. Butafter four or five days we got a call saying we had to go back

to Bahrain or our passports would be withdrawn. We wouldhave to leave our mother. We would lose everything.” AlanoudAljalahma, a 22-year-old premedical student, recounts how therift between the Gulf’s royal clans threatened to sunder her ownfamily. Her mother, a Qatari doctor, is divorced from her father, aBahraini general. Under the Gulf’s patriarchal rules, she and hertwo siblings have their father’s nationality. But they live withtheir mother in Doha, the capital of Qatar, and consider them-selves to be Qataris.

None of this mattered much when Gulf citizens could tra-vel freely within the GulfCo-operation Council (GCC). “Physicalborders did not exist for us; our countries shared a lot of tribes incommon,” explains Ms Aljalahma. But in June 2017 four coun-tries—SaudiArabia, theUAE, Bahrain andEgypt—suddenlyostra-cised Qatar. They cut all land, air and sea links, and some toldtheir nationals to return home. The dispute is the most seriousrift in the GCC since its creation in 1981. America is worried thatthe enmity among its allies is damaging its effort to increase eco-nomic and political pressure on Iran.

The feud is being waged through social media, televisionchannels,newspapersand lobbyists in theWest.TheQatari emiris “the reckless prince”; Qataris in turn call the Saudi crownprince “the boy”. The UAE has threatened anyone expressingsympathy for Qatar with up to 15 years in jail. As the Gulf’s coldwar spreads, conflicts from Libya to the Horn of Africa often fea-ture Qatar and the UAE backing rival groups. At home, the dis-putehasstirred ostentatiousnationalism. In Dohabumper-stick-ers on cars and posters, even on skyscrapers, display the emir inheroic pose over the words: “Tamim theGlorious”. In the UAE the ubiquitous im-age is ofSheikh Zayed, the late founder ofthe federation, to commemorate the100th year ofhis birth.

Qatar has been contrarian since the1990s. With perhaps 300,000 nationals—the smallest indigenous population in theGCC—it is the richest emirate per head be-cause of its vast gasfields. In its quixoticforeign policy it hosts both America’slargest air base in the region and many Is-lamists. Its dynastic politics have beenpoisonous. In 1972 the founding emir wasdeposed by his cousin, who was then top-pled in 1995 by his own son, Hamad binKhalifa. The deposed emir mounted afailed counter-coup in 1996, amid suspi-cions of Emirati and Saudi help. SheikhHamad abdicated in 2013 in favour of hisson, Tamim bin Hamad.

The Saudis and Emiratis say SheikhHamad still calls the shots and has neverforgiven them for trying to unseat him. Ina leaked recording of a supposed tele-

phone conversation around 2008 with Muammar Qaddafi, theLibyan dictator later killed during the Arab spring, Sheikh Ha-mad is heard to predict that the “corrupt” Saudi leadershipwould be swept away, and to boast about supporting Saudi op-position groups. Saudi officials talkofQataris giving suitcases ofcash to clients ranging from Saudi dissidents to Syrian jihadists.

Over the years, Qatarhas sought influence by promoting Is-lamist groups. The UAE has tried to magnify its role by binding it-self closely to Saudi Arabia; this month the two allies signed 20economic and military accords, vowing to create an “exception-al” partnership that may well supplant the GCC.

Sheikhly politics require gentle manners. A similar rowwas patched up in 2014. Why the bust-up now? One reason is therise ofMuhammad bin Salman in Saudi Arabia. Anothermay bethe election of Donald Trump. The Emiratis and the Saudis haveclose ties with Jared Kushner, Mr Trump’s son-in-law. Perhaps,think some, Mr Trump gave the anti-Qatar “quartet” the nod at asummit in Riyadh a fortnight before the crisis. Mr Trump latertweeted: “During my recent trip to the Middle East I stated thatthere can no longer be funding of Radical Ideology. Leaderspointed to Qatar—look!”

Since then MrTrump hasdemanded thatGulfleaders settletheir dispute quickly. Iran has gleefully stepped in to help relievethe blockade ofQatar. With all sides lobbying the Trump admin-istration, American officials have been working with Qatar tohalt the flow of money to terrorist groups, and say it compliesmore fully than some Gulfstates. AnwarGargash, the UAE’s dep-uty foreign minister, retorts: “It is not enough for Qatar to discussconcerns with America and Europe. It has to discuss them withus. It cannot be part ofa club when it undermines the club.”

The quartet has issued 13 demands, which include cuttingties with Iran and the “terrorist” Muslim Brotherhood. The mostprominent is that Qatar should close Al Jazeera, whose gritty re-porting broke the conventions of supine, regime-directed Arabjournalism. When Hosni Mubarak visited the network in 1999,barely two years after it was launched, he exclaimed. “All thisnoise is coming out of this matchbox?” Twelve years later thematchbox would help light the revolution that consumed him.

Over the years Al Jazeera has been seen as both a force forfree speech and a mouthpiece for terrorism. American officials

Regional politics

Cold war in the heat

Why are theGulf countries feudingwithQatar?

Face time with Tamim


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hated its reporting of the wars in Afghanistan and Iraq; Arab au-tocrats detested the voice it gave to their opponents. MostefaSouag, its acting director-general, dismisses claims that it was re-sponsible for the Arab spring: “That is disrespectful to the Arabpeople. People were fed up with the situation in their countries.”

Critics thinkAl Jazeera, especially itsArabic-language chan-nel, has become the mouthpiece of the Qatari government. Itwas fawning in its coverage ofSyrian jihadist groups linked to al-Qaeda, and largely ignored the humanitarian cost of the war inYemen until the intra-Gulf bust-up. It fails to subject Qatar to thesame hard reporting it applies to other countries. That may ex-plain why the annual Arab Youth Survey, issued by ASDA’A Bur-son-Marsteller, a public-relations firm, finds that Al Jazeera hasbecome one of the least trusted news sources.

There is much hypocrisy in the charges against Qatar. Tooclose to Iran? Kuwait and Oman have good relations with themullahs. Supports the Muslim Brotherhood? Islamists are prom-inent in the Kuwaiti and Bahraini parliaments. Interferes in othercountries? The UAE is close to separatists in Yemen and Somalia.But Qatar is hardly consistent. It struts as the patron of Arab de-mocracy, but does not allow it at home. The feud could go on in-definitely, if only because the main protagonists are rich enoughto take the hits. Qatarhas suffered some economicpain, but isde-veloping new industries and is undergoing an infrastructureboom ahead of the football World Cup it will host in 2022.

Other Gulf states are worried. The GCC, created to counter-balance larger neighbours and promote economic integration, issplit, perhaps irreparably. “If they can do this to Qatar, why not toKuwait and Oman?” asks Shafeeq Ghabra of Kuwait University.He points to the danger of countries run as “one-man shows”.The late Saddam Hussein wasfascinated bytechnologyand edu-cation, yet invaded both Iran and Kuwait, he notes, “and nobodycould tell him he was leading Iraq to disaster.” 7

EVERY FEW DAYS fiery rockets and explosions in the nightskyremind Saudisofthe war in Yemen. Missilesfired by the

Houthi militia, a Shia group that overthrew the Yemeni govern-ment in 2015, are usually intercepted orfall harmlessly in the Sau-di desert. But the volleys are evidence that, after three years ofwar and relentless air bombardment, the Houthis are undefeat-ed. The range of their missiles has increased to reach Riyadh.

The detritus of the missile war is on display at the OfficersClub in Riyadh, where the Saudis hold military briefings. Thecentrepiece is the wreckage of a Qiam missile. It bears roughweld-marks showing where it had been cut into more transpor-table pieces and later reattached. Parts bear the stamp of the Sha-hid Bagheri Industrial Group, an Iranian firm that is blacklistedby the UN. Such evidence of Iran’s missile-smuggling strength-ens Saudi Arabia’s claim that the Houthis are an arm of Iran; it isalso used as justification for the blockade ofHouthi ports.

The war highlights the fear the Saudis and their allies haveof encirclement by Iran and its allies, who sometimes boast ofcontrolling four Arab capitals—Baghdad, Damascus, Beirut and

Sana’a. Above all, Gulf states fear beingabandoned by America.

For the Saudis, the Houthis are akinto Hizbullah, the Iranian-backed militiathat dominates Lebanon, alarms Israeland props up the Syrian regime. Againstthe Houthis, the Saudis have mustered acoalition with the UAE, and smaller con-tributions from Egypt, the GCC and otherSunni states—and a variety of Yemeni mi-litias. But the campaign hasdragged on forlonger than they expected, and talk ofseeking a political deal is growing. “Thereis no military solution,” says one Gulfminister, “but we still need military pres-sure on the Houthis.”

The allies this month assaulted Ho-deida, the last major Houthi port, despitethe UN’s call to avertan attackthat, it fears,could worsen what it says is already the world’s worst humani-tarian crisis. Western officials fear that the longer the war goeson, the more Iran can entangle the Saudis at low cost to itself, andthe more the Houthis become a fully-fledged Iranian proxy.

The war in Yemen was perhaps the first instance of Mu-hammad bin Salman’s instinct for forceful, ifnot reckless, behav-iour. Another is the fortnight-longdetention in Riyadh ofthe Leb-anese prime minister, Saad Hariri, a longtime client of SaudiArabia’s, who displeased the crown prince. He was eventuallyreleased as a result of international pressure.

Gulf leaders feel a profound frustration. They are richerthan Iran, and have stronger alliances, yet they cannot beat Iranin the game of proxies. “The Iranian dollar is elastic—it stretchesso far. Why do our dollars not do the same?” asks the Gulf min-ister. There are several answers. It is easier to undermine a fragilestatus quo than to keep it. Iran is focused, whereas Gulf statesscatter their money among different groups. Iran has a foreign le-gion, in the form ofthe RevolutionaryGuards’ QudsForce, that isgood at building effective sub-state militias such as Hizbullah.

Worse, in the view of Gulf states, America is no longer a re-liable protector. Relations with Barack Obama were particularlytesty. His “pivot to Asia” was a shift away from the Middle Eastand its endless wars. In the view of Gulf leaders (and Israel) heforsook Hosni Mubarak in Egypt during the Arab spring, thentried to cosy up to Iran by signing a nuclear deal with the mul-lahs. The reality was more complicated, not least because the ad-vance ofIslamic State (IS) kept America fighting in Iraq and Syria.

Although Mr Trump had campaigned with anti-Muslimrhetoric, Arab leaders such as KingSalman and MrSisi embracedhim at a summit in Riyadh, where they clasped a glowing orb to-gether (pictured). “Donald Trump is 100 times better thanObama,” declares the Gulf minister. Mr Trump does not havequalms about befriending strongmen. He sees Iran as a foe to beconfronted, not a power to be accommodated. Gulf leadershailed his move to abandon Mr Obama’s nuclear deal with Iran.Still, theyworryabouthis commitment to confronting Iran. WithIS weakened, Mr Trump said in March, “We’ll be coming out ofSyria very soon. Let the other people take care of it now.”

Gulf leaders were scarcely charmed by his remark that“they wouldn’t last a week” without American protection. Hiscovetous attention to their wealth, though useful, can be awk-ward. Pitching American weaponry to the Saudi crown prince atthe White House in March, Mr Trump commented about oneitem costing $525m, “That’s peanuts for you.”

In 2017 Saudi Arabia became the highest military spenderin the world after America and China. Even so, the Saudis’ mili-

Geopolitics

Insecurity complex

Arab oil monarchies fear being encircled by Iran andabandoned by America

tary capabilities are questionable. They appear to have scored acoup in April with an air strike in Yemen that killed the Houthis’second-in-command. More often, though, the air operationsmake the headlines because they prove inaccurate. Apart from afew advisers, the Saudi army has not deployed to Yemen.

By contrast, the small but hardened armed forces of theUAE have been honed with the NATO-led coalition in Afghani-stan and are the speartip of the Saudi coalition in Yemen. TheEmiratis have retaken Aden from the Houthis and Mukalla fromal-Qaeda’s branch in Yemen. Like Qatar, the UAE has introducedmilitary conscription. James Mattis, the American defence secre-tary, calls the UAE “little Sparta”. For Anwar Gargash, the Emiratideputy foreign minister, America’s strategy in the region is “influx”. Gulf states, he says, understand they are living in an era of“multiple polarity”. They must act to defend their interests, andthey must show America that they can be capable allies.

Increasingly, the Emiratis are pursuing their own war aims.They seem to be acquiescing in the break-up of Yemen, if notpushing for it, by forming an alliance with southern separatists.Their military deployment on the Yemeni island of Socotra, inthe Gulf of Aden, infuriated the exiled Yemeni government thatthe coalition is supposed to be restoring to power. In Somalia,meanwhile, the Emiratis are building ports in the breakaway re-gions ofPuntland and Somaliland.

Their objectives are murky. As a shipping hub for trade be-tween Asia, Europe and Africa, the UAE has an interest in thesafety of shipping lanes such as the Bab al-Mandab strait. AndDPWorld, which runs the Jebel Ali port outside Dubai, has beendiversifyingby buyingports across the world. But, given the pov-ertyand strife in Yemen and Somalia, investing in harbours thereseems strange. Perhaps the UAE is gambling that harboursaround the Horn ofAfrica mayone dayprovide access to Africa’sinterior. And ports on Yemen’s shore might become alternativehubs to Jebel Ali, shortening journeys and avoiding the narrowStrait ofHormuz—especially ifwar breaks out with Iran.

As they hedge their bets, Gulf states have kept quiet aboutRussia’s intervention in Syria even though, by supporting Basharal-Assad, Russia is acting as the air force of the Shia axis that theGulf leaders so fear. Moreover, Saudi Arabia has sought to wooRussia, buying weapons, signing defence-industrial agreementsand striking an unprecedented deal in 2016 to cut oil output todrive up the price of crude. Perhaps the most intriguing dip-lomatic signals have been directed at the old enemy, Israel. SaudiArabia now says Jews have a right to their own state. Bahrainsays Israel has a right to defend itself against Iran. How long be-fore Israeli and Gulfministers start to meet openly?7


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CALL IT THE world’s most important filling station. Thecomplex of piers, artificial islands and offshore moorings

on the finger of land curling into the Gulfat Ras Tanura is the big-gest oil-export terminal of the world’s biggest oil exporter. Tank-ers appear out of the haze to suckup the crude oil and refined fu-els that, these days, mostly power Asian economies. For decadespumping oil and gas was all Gulf states had to do to build sky-scrapers and shopping malls, and provide citizens with enoughbenefits to keep them quiet. Every bust in the oil cycle broughtcalls for diversification; with every boom, the talk faded.

Might the same happen again? Crude prices have morethan doubled since their low point in 2016, touching $80 a barrel,though they are still far below the peak of $146 a decade ago (seechart). Global economic growth has pushed the price recovery,as have the loss of production in Venezuela, the pact betweenRussia and Saudi Arabia to curb production and, above all, theprospect ofsanctions on Iran and perhaps war with it.

For now, Saudi Arabia seems determined to keep proppingup prices in the hope of maximising the earnings from itsplanned sale ofa 5% stake in Saudi Aramco, the national oil com-pany. Given its budget deficit of9% ofGDP last year, and plans forrecord expenditure this year, Saudi Arabia needs oil to rise to $87a barrel to breakeven, the IMF reckons. Thisdespite the fact that ithas imposed a new 5% value-added tax, taxes on tobacco andsweetened drinks, cuts to fuel and electricity subsidies and high-er charges on foreign workers. It plans to sell parts of severalstate-owned firms. By the end of the year, the IMF thinks, it willhave burned through nearly 40% of its huge foreign-currency re-serves, worth more than $700bn (96% ofGDP) in 2014.

Saudi Arabia has lots of oil left, and the world’s depen-dence on the Gulf is likely to increase as production in otherparts of the world falls away. But short of a war in the region,prices still seem unlikely to return to the boom of 2001-14. The

world, particularly China, ismoving towards low-carbonand renewable sources ofen-ergy. A sustained rise in oilprices will prompt more in-vestment by Saudi Arabia’scompetitors—not least shale-oil firms that have helpedmake America the world’sbiggest oil producer.

Steven Wright of Ha-mad bin Khalifa Universityin Qatar argues that, if theGulf faces a prolonged per-iod of low prices, some coun-tries may be forced to aban-don their currency pegs tothe dollar. That would causeturmoil in foreign-exchangeand bond markets, andcreate an inflation shock.Bahrain, with a budget defi-

Beyond oil

Breaking the curse

Diversifying Gulf economies will be hard

?

Pumped up

Source: Thomson Reuters

Brent crude, $ per barrel

1970 80 90 2000 10 180

25

50

75

100

125

150


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cit and public debt of15% and 90% of GDP respectively last year,and reserves to cover barely a month’s worth of imports, looksvulnerable. It will be hoping that a recent large oil find generatesrevenues soon—or that Gulfneighbours bail it out ifnecessary.

With higher oil prices than forecast helping Gulf states bal-ance the books, some in the IMF worry that complacency aboutreform will set in. Yet the need to diversify economies is undi-minished. Oil accounts for about 30% ofGDP and 80% ofgovern-ment revenues in Gulf states on average. Much non-oil output isdependent on petroleum revenues through government spend-ing on capital projects and salaries. And much of that publicspending leaks out, through imports of materials for firms and

consumer goods, or because wages are spent on foreign travel.Given high rates ofpopulation growth, real GDP perperson

in most countries of the Gulf Co-operation Council (GCC) hasbeen flat or in decline for decades. Qataris may be among therichest people in the world, but Saudis rank about 40th, along-side the Portuguese. Productivity, the underlying source of long-term growth, has been stagnant. In an IMF paper in 2014, RedaCherif and Fuad Hasanov argued that Gulf states suffer from anacute form of “Dutch disease”, in which oil revenues crowd outother activity in the tradable sector. To improve their productivi-ty, Gulf states have to diversify their exports as, say, Indonesia,Mexico and Malaysia have done.

DUBAI HAS THE world’s tallest building, itsbusiest airport by international passengersand the busiest container port betweenSingapore and Rotterdam. It is building theworld’s largest concentrated solar powerplant. It is the Arab world’s most importantfinancial centre and, as the world’s fourth-most-visited city, an exuberant playground.

No ambition is too outlandish. TheUnited Arab Emirates, of which Dubai is apart, wants to help colonise Mars. It is build-ing a space probe, to be launched in 2020, tofind out how the planet lost its water. And,fittingly for a city-state built in the desert,Dubai is building a “Mars City” to study howhumans might live on the red planet. It isexperimenting with driverless pods as well asa “hyperloop” to transport people and goodsin pods at high speed through the region(artist’s impression pictured).

The desire to do business has long beenpresent, its history visible along the creek inold Dubai where the souk boasts frankin-cense from Oman and saffron from Iran. Goldchains hang like curtains. Older merchantsstill remember trading in rupees, so closelywas business linked with India.

Free trade, openness, security andpredictable rules have turned the pearl-

fishing village into one of the world’s greatentrepots. It is also a haven for money in atroubled region. Somewhat like Hong Kong inrelation to China, Dubai acts as the point ofaccess for trade with Saudi Arabia and therest of the Gulf. Just as Hong Kong benefitedfrom the British legal system, so Dubai hasimported British-style common law for theDubai International Finance Centre, a citywithin a city where foreign lawyers adjudicateon business matters within its confines.

Lacking much oil, Dubai sought toestablish itself as a trading port even beforeindependence in 1971. Its then ruler, SheikhRashid, took a loan from Kuwait to dredge thecreek and create a port. It later built a largeport and special economic zone at Jebel Ali,south of the city, creating a hub to serve theGulf, Africa and Asia.

Similar thinking applied to aviation,with the creation of the Emirates airline andthe establishment of Dubai as the world’sleading hub for international flights. Tourismfollowed close behind. Through iconic pro-jects, such as its palm-shaped beach-frontdevelopment, Dubai found the knack forturning dull desert into prime property.

Others in the region try to copy Dubaiwith ports, airports and airlines, as well as

Do buy

One emirate is a model for free trade, openness and ambition

artificial islands and financial districts. Butnone has matched the original. In part that isbecause rivals embark on top-down projects,whereas Dubai has tended to develop ideas inclose co-operation with businesses.

Dubai has benefited from the uniquefederal structure of the UAE in which each ofthe seven emirates can experiment witheconomic and governance models, saysAbdulkhaleq Abdulla, a political scientist:“The UAE is a bird that flies with two wings,Dubai and Abu Dhabi.” Dubai has focused ongrowth through private enterprise, whileAbu Dhabi provides much of the country’s oilwealth and geopolitical heft. Thanks toDubai, the UAE is the Gulf’s most diversifiedeconomy. But the IMF says the country stillcompares poorly with other states that havemoved away from commodity exports.

Many complain that the city-state isbeing run, in effect, as the personal holdingcompany of the Al Maktoums. One cost of itssuccess is that local citizens form just 8% ofDubai’s population. Another is that it hasincurred large debts. Dubai had to be bailedout by Abu Dhabi in 2009. The soaring BurjDubai tower was renamed Burj Khalifa inhonour of the ruler of Abu Dhabi—a reminderthat Abu Dhabi now calls the shots.

Whizz, Khalifa


THE GULF

2

SPECIAL REPORT

The biggest problem, says SteffenHertog of the London School of Econom-ics, is the Gulf’s distorted labour market.The rentier model is exceptionally gener-ous, but it isunproductive. Gulfstates givetheir citizens subsidised fuel, electricityand water, as well as loans or grants formarriage and scholarships to expensiveforeign universities. Saudi Arabia spendsmore than most comparable countries oneducation, yet achieves results that aremarkedly inferior.

Public-sector jobs in the GCC payabout three times more than private-sec-tor ones, where foreigners predominate(see chart). With two-thirds of Saudiworkers already hired by the govern-ment, the state cannot afford to createmore do-nothing jobs. Just to steady the current rate of unem-ployment—nearly13%, not counting the majority ofwomen whoare excluded from the labour market—Saudi Arabia must create1m private-sector jobs over the next five years, double the num-ber it managed in 2007-16.

For Mr Hertog, Gulf countries face “a unique developmenttrap” with a mix of expensive but low-skilled national workers,cheap (butnotcheap enough) imported labourers, and protecteddomestic markets. As a result, they struggle to make competitiveexports. In other words, Saudi Arabia is too rich for mass indus-trialisation, yet lacks the skills to make high-value goods.

One place to start diversifying might be to extract more val-ue from oil. Saudi Arabia is already a leading refinerof crude andhas long made basic petrochemicals. But at Sadara, near the portof Jubail, a joint venture between Aramco and the Dow Chemi-cal Company came on stream last year to make more advancedpetrochemicals that used to be imported. An industrial park isbeing set up alongside the giant plant for others to make finishedproducts. Dow, for instance, is making re-verse-osmosis membranes for water de-salination. But such schemes rely on feed-stock at below-market prices, so divertresources that might be better used else-where. Such capital-intensive projectsalso create few jobs for Saudis, and are ul-timately dependent on oil.

A more promising idea is to coax more business from the20m annual foreign visitors, most of them Muslim pilgrims toMecca and Medina, particularly outside the peak haj season.Meanwhile, the new focus on entertainment and culture isaimed in part at ensuring that some of the $20bn that Saudisspend each year on foreign travel remains in the country.

A third policy is to increase the number of Saudis in jobs—particularly women (see chart)—by squeezing out foreign work-ers. The government is raising the cost of hiring foreigners from200 riyals ($50) a month per worker to 400 riyals this year and800 in 2020. It is also excluding foreigners from a growing list ofjobs, such as selling mobile phones, receiving guests in hotelsand selling gold. The gig economy may also be helping. Thoughmany Saudis think driving a taxi demeaning, a growing numberuse their cars to work part-time for Uber, a ride-hailing firm, orCareem, its regional rival.

In the eastern cityofDammam, Abdullah Zamil, boss ofZa-mil Industrial, whose companies make everything from con-struction materials to air-conditioners, says that the cuts to pub-lic spending, as well as the new taxes and levies, have squeezedhis profits by about 30%. Hiring Saudis simply to meet quotas for

indigenous labour no longer makes sense, he says. Getting Saudimen to be productive requires them to undergo extensive on-the-job training. Theirworkethic is often poor, and they tend to leavequickly in search of a better job. However, Mr Zamil has discov-ered, to his delight, that Saudi women make better workers:“more disciplined, more punctual and higher-quality work,” hesays. He has put up a wall in his air-conditioner factory to make aseparate space for women, and has moved it several times astheir numbers have grown. “I keep telling the boys: ‘In the pastyour competitors were foreign workers. Now it’s your sisters.’ ”

Many of Muhammad bin Salman’s reforms are overdue.But in one respect—his love of “giga-projects”—the crownprince’s vision is more questionable. One plan is to build a vast“entertainment city” outside Riyadh more than twice as large asDisney World. Another is to turn a 200km stretch of pristine RedSea coast into a destination forupscale tourists. (No drunken rev-ellers, please—reform has its limits.) It will include the archaeo-logical remains of Mada’in Saleh, a Nabataean site related to the

rock-carved monuments ofPetra in Jordan. His most ambitious project is NEOM, a futuristic city in a

special economic zone nearly the size ofBelgium, which will ex-tend to bitsofJordan and Egypt. Itwill be run undera separate le-gal system with international judges. Details are sketchy, but theaim is to plug into the internet cables beneath the Red Sea andcreate a hub for innovation, powered by renewable energy.

In pushing such grandiose schemes, the crown prince maywant to create the sense of a bright future, and a testing-groundfor new ideas. But giga-projects are risky at a time of austerity.And they betray a central-planningmindset that has already pro-duced white elephants. The King Abdullah Financial City in Ri-yadh lies almost empty. In a world full offailed special economiczones, reform mustultimately focuson the country itself, not justDubai-like bits carved out ofit. Saudi Arabia ranks a poor 92nd inthe World Bank’s ease-of-doing-business index. Big projects riskdistracting attention from the hard work of, say, improving legalstandards. Foreign direct investment fell sharply last year; theanti-corruption campaign does nothing to reassure would-bepartners, “What is the law in Saudi Arabia?” asks one diplomat.“The law is the last thing the king said.” 7

The gulf between

Sources: IMF; World Bank *15- to 64-year-olds

Employment of national and foreign workersBy sector, 2013 or latest available, m

Labour-force participation rate*, 2017, %

PUBLIC SECTOR PRIVATE

024

Bahrain

Kuwait

Oman

Qatar

S. Arabia

UAE

0 2 4 6 8

Nationals ForeignersFemale Male Total

0 20 40 60 80 100

Qatar

UAE

Bahrain

Oman

Kuwait

Saudi Arabia

High income

World

Mr Zamil has discovered, to his delight, that Saudiwomen make better workers: “more disciplined, morepunctual and higher-quality work,” he says.

“He has many enemies. Ifthey see he is weak they willpounce on him,” says one Gulfminister. His advice to the West?“Support Saudi Arabia. SupportSaudi Arabia. Support SaudiArabia.” The crown prince hascreated an unexpected opportu-nity to change the discourseabout Islam, he says. “If it can bemore moderate then we will allreap the benefits.” Some dip-lomats think King Salman, now82, will step down to ensure thathis son ascends the throne.

In many ways, Saudi Ara-bia and other Gulf states aregrappling with an old question:why has Arab civilisation falleninto such an abject state? Arabsgive one of two contradictoryanswers: “because we havestrayed from the path of ourrighteous forebears” or “be-cause we have failed to embraceWestern modernity”.

For decades Saudi leadersembraced the first answer, im-posing religiosity in an attemptto recapture ancient Islamic glo-ries. The bounty of oil made themodel appear workable; Saudiscould have both the good life and piety (those who disliked reli-giosity could always go abroad). But oil rents alone are no longerenough. And the notion that Islam can provide all the answershas hit a dead end, whether in the form of strict but obedientSaudi salafism, the political Islam of the Muslim Brotherhood orthe murderous jihadism ofal-Qaeda and Islamic State.

Successive Saudi leadersmighthave looked outoftheir pal-aces and marvelled at how far their country has come. Theyoungcrownprince insteadappears tonoticehowfar ithasbeenleftbehind: the Israelisare richerand knowhowto fight; the Emi-ratis live better and have more fun; the perfidious Iranian riyalseems to buy more friends than the Saudi one; and the West isless ofa guardian than it used to be. “What has Saudi Arabia con-tributed to the world?” asks the Saudi businessman. “Mecca andMedina? They were made by God. We have not contributed onething. If the oil goes, we will not even have water.”

So Muhammad bin Salman is pursuing a form of modern-isation, albeit ofa strange, upside-down sort. Diversification andliberalisation are directed from the royal palace; even simple en-tertainment requires central planning and a “giga-project”. Andmore social freedom is accompanied by greater political repres-sion. “Muhammad bin Salman isdoingmanyofthe things I havebeen fighting for: empowering women, fighting radicalism andpurging corruption,” says Jamal Khashoggi, a Saudi columnistexiled in America. “That’s great news. But why intimidate peo-ple? Why arrest people? This is the model of Arab dictators likeGamal Abdel Nasser.”

The crown prince is thus repeating one tragedy of the Arabworld—liberalisation by illiberal means. In doing so he may beheeding Niccolò Machiavelli’s advice that it is better for a princeto be feared than loved. But there is an all-important rider to thedictum: “A prince ought to inspire fear in such a way that, if hedoes not win love, he avoids hatred.”7



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Fixing the internet June 30thAmerica’s Democrats July 14thSpain July 28thTQ: Cryptocurrencies September 1st

MUHAMMAD BIN SALMAN has accumulated power likeno other Saudi royal. He has taken control of the economy,

the armed forces, the national guard and the intelligence ser-vices. Yet, in the process, the crown prince has undermined allthe pillars of the Saudi state. He has antagonised Al Saud princesby taking their fiefs. He has broken with Wahhabi clerics by de-nying them the power to enforce public morality. He has upsetbusinessmen by raising their costs and forcing some of them tohand over part of their wealth. And he is undoing parts of therentier system that served to buy the loyalty of the people.

Perhaps the crown prince is movingso fast on social reformto keep his opponents off-balance. But it makes for erratic gov-ernment: austerity measures are imposed and then removed;appointments are made and unmade. A backlash would sur-prise nobody. Rumours of coups may be false, but say muchabout the mood. Many remember the assassination of King Fai-sal in 1975 in a family dispute that was ultimately about the intro-duction oftelevision. The current silence ofclerics leads some of-ficials to think that the worst danger is past. Others feelunnerved. “I support the change, but I am afraid of the speed ofchange,” says one ex-official, “The religious people are quiet fornow. Will they continue to be quiet, or will they react violently?”

A Saudi businessman says royal rulers, in their volte-faceon puritanism, “have been exposed as hypocrites”. He thinks so-cial liberalisation “will cause debates in every family”; the anti-corruption measures were arbitrary; and despite talk of promot-ing the private sector, Saudi Arabia remains “a family business”.Right now the crown prince acts with the authority of the kingand controls the coercive powers of state. Beyond that, he castshimself as the champion of women and the young against thecorrupt old elites. But in the absence of political parties, or realconsultation, it will be hard for him to turn popularity into a po-litical force. And popularity may prove fickle.

The dangers of reform

Waiting for thebacklash

Can the crown prince’s gamble work?

MBS on guard


1

WHEN Colombia’s news channels de-clared Iván Duque the winner of the

presidential election on June 17th, 45 min-utes after polls closed, many Colombianswere relieved. “I was terrified of GustavoPetro,”—Mr Duque’s left-wing rival—said awoman waiting for the winner to give hisacceptance speech at a convention centrein Bogotá. When Mr Duque came on stagehe sought to overcome the campaign’s bit-terness. He would “turn the page of polar-isation”, he promised.

Mr Duque’s victory, with 54% of thevote, was comfortable. The job that awaitshim, starting on August 7th, will be ardu-ous. He campaigned as a sceptic of thepeace agreement with the FARC, a guerrillagroup thatended its52-yearwaragainst thestate in 2016.Hemustnowworkouthowtorevise the accord without pushing someformer guerrillas into taking up arms. MrDuque will have to control corruption,which fuelled the anger that gave Mr Petro8m votes, more than any other left-wingcandidate in Colombia’s history. He mustspeed up sluggish economic growth. Andhe will also have to step out of the shadowofhis mentor, Álvaro Uribe, a former presi-dent who inspires as much fear and loath-ing as Mr Petro.

The son of a prominent politician, MrDuque has wanted to be president since hewas a child. But until six months ago fewColombians knew who he was. He began

jorities in congress, the new president willhave to strike bargains with parties otherthan the Democratic Centre and its conser-vative allies.

His trickiest task will be to modify thepeace accord, as demanded by the uribis-

tas, without wrecking the peace itself.Their biggest objection is to the “transi-tional-justice” provisions, which offer le-nient sentences to FARC members if theyconfess to their crimes. Ten members ofthe FARC, nowapoliticalparty,willbeableto take their seats in congress before theyserve any prison time. While the accordsays the government should co-operatewith farmers to replace coca, the raw mate-rial for cocaine, with legal crops, Mr Duquewants to return to the practice, ended byMr Santos, of fumigating coca from the air.

In his victory speech Mr Duque prom-ised not to tear up the deal, bits of whichare part of the constitution. His govern-ment will see to it that “justice and securi-ty are suitable sisters”, he said. But his no-tion ofjustice contradicts thatoftheFARC’sleaders. Old and war-weary, they are un-likely to return to jungle hideouts. But MrDuque’s confrontation with the groupmay add to the growing number of FARC

“dissidents” who refuse to accept the ac-cord. They are fighting the ELN, anotherguerrilla group, and the Clan del Golfo, amafia linked to demobilised paramilitarygroups, for control of the cocaine trade.

A return to aerial fumigation could en-courage farmers to sell coca to such groupsand to join their ranks. The new presidentmight also end the peace talks Mr Santos

his career as a protégé of the current presi-dent, Juan Manuel Santos. As Colombia’sdeputy representative to the Inter-Ameri-can Development Bank (IDB), Mr Duquehelped lead negotiations in 2010 to in-crease its capital base. He did “the carpen-try work of talking to every country”, saysLuis Alberto Moreno, who was then theIDB’s president.

MrDuque’s ticket to the presidency wasMr Uribe, who fervently opposed thepeace process launched by Mr Santos.They bonded when Mr Uribe, mandatedby the UN to investigate an attack by Israelon a Turkish flotilla in 2010, asked MrDuque to help. In 2014 Mr Duque waselected to the senate as a candidate of theDemocratic Centre, the party Mr Uribeformed to oppose Mr Santos.

For the Democratic Centre, “Duque is agreat invention,” says Carlos Cortes, a po-litical analyst. His mentor is a hate figurefor many Colombians, who associate thesuccessful offensive against the FARC dur-ing his presidency with atrocities by para-military groups. Mr Duque is unstained bythat history. He is young, charming andsings vallenato, a type of Colombian folkmusic. Unlike some ofMrUribe’s allies, heis not under investigation for corruption orlinks to paramilitary groups.

He will have to prove that he is his ownman without alienating Mr Uribe, who re-mains a powerful senator. To obtain ma-

Colombia’s election

Duque, príncipe, presidente

BOGOTÁ

The new president wants to be a healer. His alliances and campaign promises willmake that difficult

The AmericasAlso in this section

42 Bello: “Closed because of football”

Correction: A story last week on infectious diseases inLatin America (“Disease déjà vu”) stated that a case ofparalysis in Venezuela had been caused by polio. ThePan-American Health Organisation later clarified that,according to further analysis, the cause of the paralysiswould not lead to an outbreak of polio.

42 The Americas The Economist June 23rd 2018

2 has started with the ELN. Mr Duque has setstrict conditions, such as requiring the ELN

to gather in designated zones before talksbegin. The ELN is unlikely to accept that.

Although smaller than the FARC, thegroup is as resilient. In the 1970s an offen-sive reduced it to just 36 fighters; ithas sincebuilt itself back up to about 2,000. Thegroup shelters in next-door Venezuela.

Corruption is as difficult to fight. Likevoters elsewhere in Latin America, Colom-bians are fuming about serial scandals, in-cluding revelations that Odebrecht, a Bra-zilian construction company that bribedpoliticians across the region, paid some of

Mr Santos’s campaign expenses. In con-gress it is commonplace for representativesto demand porkfor theirdistricts, and kick-backs from pork-related contracts, in ex-change for passing laws. Mr Duque needsto clamp down on such practices. “If thismess continues, Petro will be president infour years,” says Mauricio Vargas, a politi-cal consultant.

Mr Duque will inherit an economy thatis recovering from a slump in oil prices thatbegan in 2014 and continued until lastyear.Unlike Mr Petro, he is friendly to businessand does not frighten the financial mar-kets. But the economy suffers from plenty

ofmaladies, including high public debt, anunaffordable pension system that funnelsmoney to the relatively well off, and lowproductivity. Mr Duque’s main economicproposal is to cut regulation and businesstaxes, but that will not be enough. To con-tain the budget deficit, he will need to cou-ple that with higher taxes charged on per-sonal income.

Wherever he turns, Mr Duque will facedifficult choices. In pleading for unity, hetold his supporters, “I do not recognise ene-mies in Colombia.” But he belongs to a po-litical clan that has been defined by its ene-mies. He has work to do.7

THIS football World Cup is barely aweek old, but already Latin America

has stolen the limelight. There have beenmemorable performances on the pitch:Mexico’s humbling ofGermany, Peru out-playing Denmark but contriving to lose,flashes of magic from Brazil and threegoals for Diego Costa, Spain’s Brazilian-born striker. There have been shocks, too,such as Argentina’s draw with Icelandand a battling ten-man Colombia losingto Japan. But more than the players, it isthe fans who have caught the eye.

Multitudes of Latin Americans havepacked the stadiums in deepest Russia asif they were attending home games. Ac-cording to FIFA, the organisers, five of theseven countries that (after Russia itself)snapped up most tickets in advance wereLatin American. They were Brazil(73,000), Colombia (65,000), Mexico(60,000), Argentina (54,000) and Peru(44,000). Many of the fans from the Un-ited States (89,000), too, are Latinos whomay support their countries oforigin, andto them should be added Latino migrantsin European countries. Supporters fromSouth America have paid up to $10,000for the pleasure ofwatchingtheirnationalteam, in some cases financing the trip byselling cars or taking out loans.

What explains such devotion? TheWorld Cup has a unique appeal in LatinAmerica. During each tournamentEduardo Galeano, a leftist Uruguayanwriter who died in 2015, would settle infront of his television having hung a signon the front doorofhis flat in Montevideosaying “Cerrado por fútbol” (Closed be-cause of football). For European fans, cluboften comes before country. For LatinAmericans it is the reverse. Howevermuch they may despair at their countries’problems, Latin American patriotism isstrong and uncomplicated. As a Colombi-

an fan in Moscow put it to DW.com, a Ger-man news agency, “We love football andwe love our country.” Grown men burstinto tears when singing “Contigo Peru”, anunofficial national anthem, before thematch against Denmark that marked theircountry’s return to the final stages of aWorld Cup for the first time since 1982.

Another reason is that football is one ofthe few things at which Latin America isworld class. Between them, three SouthAmerican teams (Argentina, Brazil andUruguay) have won the trophy nine out ofthe 20 times it has been contested. Foot-ballers are a leading export: European clubsidesare stuffed with Latin American stars.With 8.5% of the world’s population, LatinAmerica accounts for a quarter of theteams in this year’s tournament. AlthoughBrazil does not always practise o jogo bo-nito (the beautiful game), Latin Americanteams are more likely than their Europeanrivals to turn football into an art form.

Football also fits two characteristic fea-tures of Latin American culture like aglove. It is a shared public party in a regionwhere the fiesta is paramount. And it is apassion, in the original sense of the word

of religious suffering. “Football is the lastsacred ritual of our time,” argued PierPaolo Pasolini, an Italian film director.That may be true in Europe. In LatinAmerica, where popular religiosity re-mains strong, football borrows from thedevotional intensity of its fans.

This is not to romanticise the sport.With the partial exception of Mexico, do-mestic leagues reflect many of the re-gion’s ills: they are often poorly financed,tainted by corruption and feature violentclashes between rival fans. But football isalso a democratising force. As in the restof the world it is a route for upward socialmobility. In Latin America that meansthat the racial mixofnational teams tendsto reflect the country more accuratelythan do political or business elites.

Above all, the World Cup can be asource ofnational redemption. Take Peru.In the 1970s it had a fine team. In the quali-fying round for the tournament in 1986, italmost displaced the Argentina of DiegoMaradona, the Cup’s eventual winner.Then tragedy struck: the next year severalmembers of the national team and somerising stars were killed in a plane crash.Peru at that time was racked by hyper-inflation and terrorism. Recovery came,but by then football was poorly run. Itwas only with a new boss of the footballfederation and a new coach, Ricardo Ga-reca, an Argentine colleague of Mr Mara-dona in 1986, that a dysfunctional groupof individuals became an attractive teamof mainly young players. For Peruvians,football has gone from being a source ofnational shame to being one ofpride.

Latin America could do with more ofthat. The tournament comes with muchof the region in a funk because of crime,corruption and sluggish economies. Afootballing victory wouldn’t change that.But it would provide some joy.

“Closed because of football”Bello

A search fornational redemption on the pitch


For daily analysis and debate on Asia, visit

Economist.com/asia

1

EARLIER this month a spokesman forPakistan’s army decided to respond to

claims that it was attempting to fix nextmonth’s general election. It would not bethe first time. In 1990, for instance, thearmy-dominated spy agency, Inter-Ser-vices Intelligence, funnelled cash to oppo-nents of the left-wing Pakistan People’sParty (PPP), helping to secure its defeat. Themilitary spokesman, General Asif Gha-foor, sternly denied that any such “engi-neering” was going on this time around.But a pile of evidence to the contrary ispoking through the camouflage.

The object of the army’s meddling isNawaz Sharif, who was ousted as primeminister by the courts last year. Mr Sharifhad been the beneficiary of the army’s lar-gesse in 1990, when he began his first stintas prime minister. But they soon fell out.

He resigned under pressure from thearmy in 1993 and was toppled again by it ina coup in 1999. MrSharifreturned to powerin 2013 eager to assert civilian control offor-eign and security policy, which the armyregards as its exclusive domain. In reply,the army undermined Mr Sharif, backing amonths-long street protest by a big opposi-tion party, the Pakistan Movement for Jus-tice (PTI), aimed at overthrowing his gov-ernment. It also refused the government’srequest for help in dispersing another

bers went on to form the pro-military Balo-chistan Awami Party (BAP), which then se-cured several of Balochistan’s seats in thesenate. The new senators, in conjunctionwith an improbable alliance of otherwisefeuding opposition parties, together mus-tered enough votes to defeat the PML-N’scandidate for chairman of the senate. (AnUrdu-language newspaper carried detailsofhow the army allegedly helped senatorsto remember how to vote, by marking thecorners of their ballot papers.) That, inturn, put paid to the PML-N’s hopes ofpass-ing legislation to scrap the woolly articlesof the constitution that the courts had usedto justify Mr Sharif’s dismissal.

Imran Khan, the leader of PTI, does notdenythat the armyinterferes in politics. Hesays a stronger civilian government(meaningone led by him) is the answer. Hemay have his way. PTI has benefited from awave of defections from the PML-N in themost populous province, Punjab. In priv-ate, many politicians admit to beingpressed, in some cases with the threat ofcorruption charges, to leave the PML-N. Ifthe PTI can make headway in Punjab,where the PML-N won 116 of148 seats at thelast election, in 2013, Mr Khan stands agood chance of becoming the leader of acoalition government. Such a governmentwould be “preferable” to the army, addsHussain Haqqani, a former diplomat.

Media outlets that caterwaul about allthis become the victims of commercial cri-ses. Geo, the most popular television sta-tion in the country, was mysteriouslydropped by cable companies. They relent-ed when it toned down its criticism of thejudiciary and its support for Mr Sharif. GulBukhari, a journalist who supports thePML-N, was recently abducted for several

group ofprotesters thathad blocked a busyintersection last year. A general was photo-graphed at the scene handingmoneyto theprotesters. The army bristles at claims thatit steered the Supreme Court to remove MrSharif last year on flimsy charges of “dis-honesty”. But Mr Sharif (pictured, withgun) blames its unseen hand.

Indeed, Mr Sharif is trying to turn theimpending election into a referendum onhis treatment by the generals, although hecoyly refers to them using such codewordsas “the establishment” and “aliens”. Lastmonth he accused the armyoffacilitating aterrorist attack in India in 2008, in which166 people were killed. Never has the armyfelt its privileged position so threatened,says Talat Masood, a former general.

Misguided democracyIndirect elections to the upper house ofparliament earlier this year give a sense ofhow the army operates. Weeks before thecountry’s four provincial assemblies weredue to select the new senators, the govern-ment of the sparsely populated provinceof Balochistan, which was led by Mr Sha-rif’s party, the PML-N, collapsed owing tothe abrupt defection ofseveral lawmakers.One of Mr Sharif’s allies accused the ISI oforchestrating the insurrection. At any rate,independents and the formerPML-N mem-

The army and politics in Pakistan

General dysfunction

Islamabad

Even as the army corrals politicians, humblerPakistanis are protesting at itsunchecked power

AsiaAlso in this section

44 The Maldives’ drowning democracy

45 Bickering while Delhi chokes

45 Sex education in Myanmar

46 Indonesia’s incompetent lawmakers

48 Banyan: China militarises the SouthChina Sea

44 Asia The Economist June 23rd 2018

2 hours. This week Dawn, a liberal newspa-per, announced that it is being barred fromdistributing in much of the country. We are“110% muzzled”, sighs one journalist.

The only thing standing in the way ofthe army’s plan is voters’ apparent sympa-thy for Mr Sharif. His rallies draw largecrowds.PollingbyGallupputs thePML-N13points ahead of the PTI nationally, and 20points up in Punjab. “We know the estab-lishment might attempt to manipulate theelections,” says Muzzafar Mughal, a resi-dent ofa swingdistrict in the city of Rawal-pindi, “but we will vote for him again.”

Indeed, many Pakistanis have recentlybegun expressing unheard-of criticism ofthe army. A burgeoning civil-rights organi-sation, the Pushtun Protection Movement(PTM), was formed last year to protestagainst the army’s tactics in its campaignagainst Islamist insurgents. The PTM accus-es the army of indiscriminately flatteningvillages. It wants the UN to investigate thefate of20,000 missing people, and calls forthe removal of military checkpoints andcurfews in the tribal regions where most ofPakistan’s 30m Pushtuns live.

The army’s response has been fierce: 37PTM activists have been arrested for “sedi-tion”. Manzoor Pashteen, the movement’scharismatic 24-year-old leader, was lastmonth prevented from boarding a flight toa rally in the southern city of Karachi. Hedrove for two days to get there instead.When he arrived, he found10,000 suppor-ters sitting on the ground in the dark. Thefirms contracted to provide chairs andlights for the event had suddenly pulledout—yet another of the unexplained rever-sals that are so common when criticism ofthe army is involved.

Non-Pushtuns are starting to supportthe PTM, a source of particular concern forthe army. At the rally in Karachi, a 66-year-old woman from Balochistan, where localshave also long complained of militaryabuses, held up a picture of her son, miss-ing for a year, for the cameras. Some gener-als counsel a softer response. The PTM ac-tivists awaiting trial have belatedly beengranted bail, possibly a sign that the armyis relenting slightly. But it does not seem tohave the courage needed to make a broad-er retreat from politics.7

ALOW-SLUNGarchipelago in the middleof the Indian Ocean, the Maldives

faces long-term danger from the global risein sea level. In the shorter term, it riskssink-ing in a different sense. Ten years after be-ing launched, its experiment with democ-racy is listing badly, unable to keep afloat.

The 19-month jail sentence handeddown on June 13th against an ex-president,Maumoon Abdul Gayoom, is just the latestofmany distress signals. Mr Gayoom, whois 80, ran the Maldives for three decadeswith an iron fist before being voted out ofoffice in 2008. He was convicted of aidingan alleged coup plot against his own half-brother, Abdulla Yameen, the country’spresident since 2013. His imprisonmentmarks the end of a long feud between thetwo siblings and also the culmination of acampaign by Mr Yameen to clear the way,ahead of national polls set for September23rd, for his own re-election.

The campaign got going in February,when Mr Yameen imposed a state ofemer-gency after the country’s top court, show-ing surprising wilfulness, ordered that allpolitical prisonersbe freed. Had that rulingbeen followed, the president would havelost his majority in parliament and mighthave been impeached. Moreover, numer-

ous convicted or jailed opposition leaderscould have stood for election. Amongthem was Mohamed Nasheed, the winnerof the Maldives’ first free election in 2008,whom Messrs Gayoom and Yameen laterforced from office. Mr Nasheed has lived inexile since being granted asylum in Britaintwo years ago, after fleeing a conviction onscarcely credible charges of terrorism.

With less than a month for candidatesto register for the country’s third-evermulti-party election, however, it looks in-creasingly likely that Mr Yameen will endup running virtually unopposed. His take-over of the Progressive Party of the Mal-dives, long a vehicle for his half-brother’srule, appears complete. An attempt by MrYameen’s opponents to agree on a jointcandidate appears to have failed. The sec-ond-largest opposition group, the Jumhoo-ree Party, is rumoured to be seeking a dealwith Mr Yameen.

The larger Maldivian Democratic Partyhas gone ahead and put the exiled MrNasheed on its posters, even though policerecently issued him with a summons to re-turn and complete his prison sentence. InMay police had confiscated ballot boxes ata party primary in an unsubtle attempt tothwart Mr Nasheed. With ballots collected

instead in empty jerrycans and even a ce-ment mixer, the former president still won99.8% ofvotes. But although he has provedthat his party remains loyal, and securedbacking for his own right to contest elec-tions from the UN, which regards his con-viction as illegal, Mr Nasheed has been un-able to stop the steady accumulation ofpower in Mr Yameen’s hands.

New defamation laws have been ac-companied by attacks on journalists andthe suppression of opposition protests.Media outlets have received stern warn-ings not to promote candidates the govern-ment deems ineligible. Mr Yameen, mean-while, campaigns on a mix of warningsabout threats to the country’s Islamic faithand boasts of his record in luring invest-ment. On this score he gets a big helpinghand from non-democratic patrons, chiefamong them China and Saudi Arabia. Chi-nese labourers toil around the clock on the“Friendship Bridge”, which will link thecapital, Malé, to the main airport; it is sup-posed to be ready in time for the election. Agiant, Saudi-sponsored mosque is rising inthe city centre.

Such concrete signs of change may, inthe end, prove weightier than protestsabout the slide towards dictatorship. So farMr Yameen has been able to brush asideWestern criticism of his darkening recordon human rights. India, a giant neighbourthat has in the past waded in to upholdconstitutional norms, and which is anx-ious about growing Chinese influence, hasshown no appetite for confrontation. Itsdiplomats do not have much faith in theMaldivian opposition, and have found ithard to counter charges that India’s owngovernment does not always respectdemocratic niceties. In short, even as thetide of dictatorship rises, there are fewhands working to bail out the Maldives’foundering democracy.7

Democracy in the Maldives

Sleeping with the fishes

Malé

The president sinks a divided opposition

Mr Gayoom’s new milieu

The Economist June 23rd 2018 Asia 45

1

Sex education in Myanmar

Speak no evil

MASTURBATION does not exist inMyanmar—not the practice, which

is presumably common enough, but theword itself, which is absent from thegovernment-approved dictionary. Whenit comes to sex, accepted terms are hard tofind. Linguists disagree as to whether“vagina” and “penis” have proper equiv-alents in Burmese. Most people simplypoint at their body parts or use euphe-misms, says Nandar, a local activist whotranslates feminist literature. Parents tendto speakcoyly of“flowers” and“pumps”—if they talk to their children atall about the birds and the bees.

In theory, sex education is offered inschools, but most teachers skip the topic.They are often too embarrassed to talkabout sex in the classroom. Most parentsdo not want them to anyway (it couldarouse children’s curiosity, many argue).Last year an MP from the ruling NationalLeague for Democracy proposed givingthe subject more prominence. The gov-ernment did not take up her suggestion.

Laws about sex are a muddle. Themorning-after pill is freely available onsupermarket shelves for less than a dollara pack. Abortion is illegal, but widelypractised. Sodomy, or “unnatural of-fences”, as the criminal code inheritedfrom colonial times puts it, is outlawed.So is adultery. Even holding a woman’shand can be considered an “outrage toher modesty”. Marital rape remains legal.During a recent Burmese New Year festi-val, Yangon officials banned the sale ofcontraceptives and Viagra in the hope ofcurbing sex crimes.

The urban elite is loosening up a bit.“The Vagina Monologues”, a risqué play,was recently performed in Yangon, thecommercial capital. (A few years ago themere publication of the V-word, in Eng-lish, in a local paper created such a furorethat the paper apologised.) But in muchof the country, old wives’ tales still holdsway. Women are told that washing theirhair when menstruating could be fatal.

Eating tea-leafsalad or guava at thewrong time of the month is also dicingwith death. Women’s underwear mustbe washed separately from men’s, so asnot to jeopardise masculinity. Thoseexpecting babies should not eat spicyfood, let alone have sex.

But even if the sexual revolution hasnot reached Myanmar, the technologicalone has. Smartphones are changing theway ordinary Burmese understand theirbodies. In anonymous chats, youngwomen dare to askdoctors questionsthey would never broach in person, saysMichael Lwin, who developed maymay,an app providing guidance about ma-ternal, child and female health.

But it is mainly from porn that teen-agers are learning about subjects theirelders won’t discuss. Demand is high.The trailer for “Violet ofMyanmar”,allegedly the country’s first high-defini-tion adult movie, created a storm when itwas posted online last year. The offend-ing material was quickly taken down, butnot before the police launched an in-vestigation into how it ever came to beput up in the first place. On the plus side,at least they now have indisputable proofthat masturbation does indeed exist.

YANGON

Teens must asktheirsmartphones how little Burmese are made

AMONG the world’s megacities, Delhi,India’s capital, has a good claim to sev-

eral dubious distinctions: foulest air, hot-test summer, most precarious water sup-ply. It is currently in the running for a newdistinction, too: the world’s most dysfunc-tional metropolis. As a dust-storm swirledearlier this month, its chief minister andotherelected officials held a sit-in and hun-ger strike at the residence of the lieutenant-governor, who is appointed by the centralgovernment. The main opposition leadersheld a similarprotest at the chiefminister’soffice. And the city’s top-ranking bureau-crats pursued a work-to-rule boycott oftheir elected bosses.

Considering the way Delhi’s govern-ment is set up, it is a wonder that the cityfunctions at all. Like India’s 29 states, Delhiis run by a government drawn from anelected assembly. In contrast to the states’,however, the powers it exercises are se-verely restricted. The unelected lieutenant-governor must sign off on nearly any ap-pointment or expenditure. Delhi has nopolice force of its own: its finest answer notto any local official but directly to the na-tional government. Unlike Indian states,Delhi cannot run its own civil service: thecity’s administrators are appointed, trans-ferred orsacked at the whim ofthe (nation-al) home ministry. Yet the city governmentis expected to provide schools, health care,water, sewage and other services.

This unfair division has created troublefor decades. But the fallout has been limit-ed because the party running the capitalhas often happened to be the same as theone in charge of the national government.For ten of the 15 years before the last elec-tion in Delhi, in 2015, for instance, the Con-gress party held sway in both.

In that election, however, the AamAadmi party (AAP), an upstart anti-corrup-tion group, swept out the Congress and allother rivals, capturing an unprecedented67 of 70 seats in the Delhi assembly. Anequally dramatic sweep the year beforehad seen the Hindu-nationalist BharatiyaJanata Party (BJP) win power at the centre.The stage was set for a test ofwills.

The clash between the parties was notso obvious at first as the AAP, fired by re-formist zeal, focused on local affairs. Theparty is widely acknowledged to havebrought rapid improvements to local ser-vices. Delhi public schools now producesome of the country’s best exam results forstate institutions. Anetworkof local clinics

for the poor has won praise as a model forpublic health. Ordinary Delhi-wallahs saypetty corruption in services provided bythe city has been drastically curtailed.

But as the AAP and Delhi’s chief minis-ter, Arvind Kejriwal, showed growing am-bitions in national rather than local poli-tics, the BJP hasgrown more hostile. “Everyinstrument of central government controlhas been used against us,” says Atishi Mar-lena, a former adviser. “We are outsiders,

we don’t represent business as usual, sothey are determined to stop us.”

Delhi police have routinely blockedAAP events, arrested its workers, andcharged its members of the assembly withpetty offences. The home ministry, sayAAP supporters, has handicapped the cityadministration by serially declining to ap-point bureaucrats to vacant posts, transfer-ring those judged sympathetic to the AAP

and installing BJP loyalists instead. Under

Administering India’s capital

City bickers

Delhi

The national government and the cityofDelhi are feuding


2 the BJP the city’s lieutenant-governorshave routinely cancelled appointmentsand vetoed proposals, even for projectsvetted by the bureaucrats appointed by thehome ministry.

Ms Marlena, who claimed a token sala-ry of just one rupee, was among nine ex-perts dismissed in April on the groundsthat the home ministry had not approvedthe creation oftheirposts, several of which

had existed under previous governments.In another instance the lieutenant-gover-nor cancelled a carefully conceived projectto improve the distribution of medicineswith the terse note, “I am not sure this is agood idea.”

The AAP’s riposte is to agitate for Delhito gain full statehood. That campaign, ofcourse, will be another alluring target forthe saboteurs in the central government.7

THIS May, to mark the start of Ramadan,Sharp Indonesia, an offshoot of a Japa-

nese electronics giant, launched theworld’sfirsthalal fridge. Nota fridge forha-lal food; an appliance that is itself suppos-edly sharia-compliant (though the Korandoes not mention fridges). At a press con-ference the firm’s executives donned batik

shirts and huddled around it, giving acheery thumbs-up.

The stunt was primarily a marketing ex-ercise, but soon Indonesian shoppers willbe able to snap up manymore improbable,halal-certified goods. For that they canthank a vaguely worded law which comesinto effect in Octobernextyear. It stipulatesthat most products must be halal-certified,without precisely defining which productsit means. Lawyers argue that it could applyto inedible goods, such as fridges, and evento services like consulting.

That is by no means Indonesia’s onlywoolly law. Under an open-ended oneagainst defamation, creators of internetmemes have been arrested for embarrass-ing politicians. An anti-pornography lawallows officials to prosecute people whoperform “actions deemed indecent” inpublic. A counter-terrorism statute, passedin May, is equally imprecise. Even thosewho harm the environment can be cast asterrorists. Such broad-brush rules couldeasily be turned on political protesters,points out Andreas Harsono of HumanRights Watch, a pressure group.

Other regulations, enacted to strength-en the economy, are simply ill-thought-through. In an attempt to capture more val-ue from Indonesia’s abundant minerals,the government in 2014 banned exports ofunprocessed ore. But instead of buildingrefineriesand smelters, manyminingfirmssimply shut up shop. By 2015 the produc-tion ofnickel, a big export, had dropped by60% from its peak. A similar edict said thatonly Indonesian ships could export coaland palm oil and import rice, though the

wording was characteristically vague. Thatwas shelved in June, following protestsfrom industry.

Lawmakers are also unproductive. Lastyear parliament set itself a target of ap-proving 52 bills, but in the end passed onlysix—a figure which is not unusually low.That irks voters. “They do nothing; theyjust talk,” laments Pochaki, a manager inJakarta. That means that draft laws typical-ly take an agonisingly long time to be en-acted. Take the new criminal code, whichmay at last become law in the next fewmonths. The one now in force, adaptedfrom a Dutch colonial precursor written in1918, has not been revised since1981. Talkofan update started in the1980s, with the firstofmany drafts appearing in1993.

Why is Indonesia so bad at lawmaking?One reason is a lack of expertise. It hasbeen a democracy foronly 20 years. Beforethat, the government, rather than the legis-lature, drew up most laws. Whereas inmany other countries legal boffins do the

drafting, in Indonesia the job can fall topoliticians, many of whom are inexperi-enced. After the most recent election in2014, well over half the members of parlia-ment were new to the job.

Another concern is graft. Polls routinelyfind that the national parliament is consid-ered the country’smostcorrupt institution.A graft-busting commission has foundgrounds to arrest MPs from all ten of theparties represented in it.

Yet another factor is Indonesia’s politi-cal culture. Consensus is prized, and gov-ernments generally include a motley arrayof parties. There is very little party disci-pline. Instead, as bills are thrashed out incommittee, everyone weighs in, includingvarious government departments, whichare often at loggerheads. The counter-terro-rism bill was held up for months becauseof a dispute between the police and thearmy, for instance.

The problem is compounded by region-al legislation. Provinces and regencies(roughly equivalent to counties) have thepower to produce their own laws. Thiscreates a “jungle” of often-contradictoryregulation, says Simon Butt, a professor ofIndonesian law at Sydney University.When local laws conflict with regulationsissued by the central government, it is notclear which have precedence. Some func-tions of government, such as granting log-ging permits, end up being done at bothlevels, creating confusion.

In 2016 the home-affairs ministry triedto simplify the legal system by voiding3,000 local regulations, only to be reversedby the constitutional court last year. Its de-cision has emboldened provincial gover-nors and regents and adds to the impor-tance of regional elections to be held onJune 27th. However, such polls are usuallywon on personalityand local issues, ratherthan lawmaking ability. Indonesia’s legaljungle will not be cut down soon. 7

Legislation in Indonesia

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LESS than three years ago, Xi Jinping stood with Barack Obamain the Rose Garden at the White House and lied through his

teeth. In response to mounting concern over China’s massive ter-raforming efforts in the South China Sea—satellite imagesshowed seven artificial islands sprouting in different spots—thecountry’s president was all honey and balm. China absolutelydid not, Mr Xi purred, “intend to pursue militarisation” on its is-lands. Its construction activities in the sea were not meant to “tar-get or impact” any country.

As Steven Stashwick points out in the Diplomat, a journal onAsian affairs, these denials were always suspect, given the grow-ing evidence of radar installations and bomber-sized bunkersmade ofreinforced concrete. Last month came the revelation thatChina had installed anti-ship and surface-to-air missiles on threeislands in the Spratly archipelago west of the Philippines—far, farfrom its own shores. (Some or all of the Spratlys are claimed byBrunei, China, Malaysia, the Philippines, Taiwan and Vietnam.)That follows China’s biggest ever naval review, in the South Chi-na Sea in April. Later in May China declared that several bombershad landed in the Paracel Islands, which it disputes with Viet-nam. It seems only a matter of time, says Bill Hayton of ChathamHouse, a think-tank, before the final step in China’s militarisationof the sea: the deployment ofattackaircraft in the Spratlys.

While other claimants continue to dredge, expand and rein-force the islets they occupy, the scale of China’s reclamation—which has slowed at last but which covers about 3,200 acres(1,300 hectares) in the Spratlys alone—dwarfs all the others’ ef-forts put together. China had claimed to be serving the commongood: making navigation safer by building lighthouses, for in-stance. That never rang true. For one thing, the reclamation is anecological catastrophe. Reefs are crucial spawning grounds forthe sea’s fast-diminishing fisheries, which account for 12% of theglobal catch. China’s recent actions further undermine its profes-sions of altruism and redraw the strategic map. Admiral PhilipDavidson, the new head of America’s Indo-Pacific Command,says that “China is now capable of controlling the South ChinaSea in all scenarios short ofwar with the United States.”

The question is what others will do about it. To date, Chineseexpansionary tactics have for the most part involved incremental

steps: moves not so provocative as to incite a response. One trickis not always to deploy the navy, but the coastguard and “mari-time militias”, when intimidating neighbours. That, as AndrewErickson of America’s Naval War College argues, has allowedChina to get itswaywith less fuss. PresumablyChina thinks it cannow get away with it again.

It may be right. Two years ago, a UN tribunal at The Hagueruled against China’s grandiose territorial claims in the sea in acase brought by the Philippines. But Rodrigo Duterte, who hadjust become president, made it clear that he would put the case toone side. He has since sucked up to Mr Xi while often slammingAmerica, his country’s historical ally. The Philippines needs Chi-nese investment. MrDuterte will even consider jointexploitationof gas reserves with China in disputed waters. The Philippines’existing gasfields may run out in the mid-2020s.

Compared with the Philippines, Vietnam has much morepowerful armed forces. And as a communist state, like China,with a history of people’s wars, it can counter China’s militiaswith its own, made up offishermen and other sailors. When Chi-na hauled an oil-exploration rig into Vietnamese waters, Viet-nam eventually managed to get the rig to withdraw. In public,Vietnam takesa more robust stand againstChinese assertiveness.

That, however, hides behind-the-scenes discussions, whichalso include joint development. China is the giant. Neighbourshave little choice but to rub along with it. Yet there are politicalrisks. Bloody protests broke out in Vietnam during the stand-offin 2014, with anger directed not only at China but also at Viet-nam’s own rulers. There were more anti-Chinese protests earlierthis month. And on June 12th, Philippine independence day, MrDuterte was thrown off guard by protests over Chinese seizuresof fish from Filipino vessels near Scarborough Shoal. In 2012 Chi-na reneged on a promise to withdraw from this reef, which is onthe Philippine continental shelf, almost four times further fromChina than it is from the Philippines. Mr Duterte thought he hadstrucka deal to allow Filipino fishermen back. The Chinese claimthe seizures were a mistake. But if Mr Duterte cannot show morefruit from his pro-China policy, says Jay Batongbacal of the Uni-versity of the Philippines, the political cost will rise.

Untruth and non-consequencesAs for America, President Donald Trump’s administration ap-pears to have a strategy of pressing China on several fronts, in-cluding trade and more robust support for Taiwan. It has rescind-ed China’s invitation to annual naval drills off Hawaii, whileinviting Vietnam instead. It has increased “freedom ofnavigationoperations” in the South China Sea (sending vessels close to Chi-na’s new islands) and persuaded France and Britain to conductthem too. Presumably the red line set by Mr Obama—no Chineseconstruction on Scarborough Shoal—still holds.

America’s defence secretary, James Mattis, promised “largerconsequences” ifChina does not change track. Yet for now Mr Xi,while blaming America’s own “militarisation” as the source oftension, must feel he has accomplished much. He has a choke-hold on one ofthe world’sbusiest shippingroutesand is in a posi-tion to make good on China’s claims to the sea’s oil, gas and fish.He has gained strategic depth in any conflict over Taiwan. And,through the sheer factofpossession, he hasunderpinned China’sfatuous historical claims to the South China Sea. To his people,MrXi can paint itall asa return to the rightful order. Rightnow, it isnot clear what the larger consequences of that might be. 7

A Chinese lake

China has broken its promise, militarised the South China Sea and got awaywith it

Banyan


1

CHINA’S urbanisation is a marvel. Thepopulation of its cities has quintupled

over the past 40 years, reaching 813m. By2030 roughlyone in five ofthe world’s city-dwellers will be Chinese. But this mush-rooming is not without its flaws. Rules re-stricting migrants’ access to public servicesmean that some 250m people living in cit-ies are second-class citizens (see chart),who could in theory be sent back to theirhome districts. That, in turn, has crimpedthe growth of China’s cities, which wouldotherwise be even bigger.

Restraining pell-mell urbanisation maysound like a good thing, but it worries thegovernment’s economists, since bigger cit-ies are associated with higher productivityand faster economic growth. Hence a newplan to remake the country’smap. The ideais to foster the rise ofmammoth urban clus-ters, anchored around giant hubs and con-taining dozens of smaller, but by no meanssmall, nearby cities. The plan calls for 19clusters in all, which would account fornine-tenths of economic activity (see mapon next page). China would, in effect, con-dense into a country of super-regions.Three are already well on track: the PearlRiverDelta, next to HongKong; the YangtzeRiver Delta, which surrounds Shanghai;and Jingjinji, centred on Beijing.

Forsome urban planners, the strategy is

the firm’s headquarters in Shanghai. Shecould have based herself in either city, butliving costs were much lower in Wuxi. Atfirst she wondered whether her commutewas unusual. It was not. “I see familiarfaces on the train every day,” she says.

For those in bedroom communitiesnear London or Manhattan, Ms Hu’s trainrides probably sound familiar. But threefeatures make China’s super-regions ex-ceptional. The first is scale. The biggest ex-isting city cluster in the world is greater To-kyo, home to some 40m people. When it isfully connected the Yangtze delta, whereMs Hu is based, will be almost four timesas big, with 150m people. The average pop-ulation of the five biggest clusters that Chi-na hopes to develop is110m. Part of the rea-son is that the physical area of most of theChinese clusters will also be bigger. Themost prosperous, the Pearl delta, is expect-ed to cover 42,000 square kilometres,about the same as the Netherlands.

Given that spread, it might seem non-sensical to talkof the clusters as unified en-tities. But the second point is the speed oftransport links, notably the bullet trains be-tween cities. This expands the viable areaof China’s clusters. The Jingjinji regionaround Beijing has five high-speed trainlines today. By 2020 there should be 12more intercity lines, and another nine by2030. Towns that are woven into the net-works can see their fortunes change al-most overnight. Plans for a new intercitytrain to Haining, a smaller city in the Yang-tze River Delta, partly explain a doublingof house prices there. “The way that wemeasure distances has changed from spaceto time,” says Ren Yongsheng of Vantown,a property developer in Haining.

The third difference is the top-down na-

beguiling. They see the clusters as enginesfor growth that could transform China intoa wealthy, innovative powerhouse. Butothers think it is a trap—a government-dri-ven exercise in development that will leadto gridlockand waste.

Hu Qiuping, a safety manager for achemicals company, is in the urban van-guard. She lives in Wuxi, a city of6m about150km west of Shanghai. A trip betweenthe two used to take a couple of hours. To-day the bullet train takes just 29 minutes.Every Monday and Friday she works inWuxi, inspecting the chemicals factory.From Tuesday to Thursday she travels to

Urbanisation

A tale of 19 mega-cities

KUNSHAN

The country tries to reshape itself into a series ofconurbations

China

Paperless cities

Sources: CEIC; CICC;National Bureau of Statistics

*Methodologychanged in 2015

China, % of total population

0

10

20

30

40

50

60

1990 95 2000 05 10 15 17

Urban resident

Urban hukou*

50 China The Economist June 23rd 2018

2 ture of the clusters. China is far from alonein wanting to knot cities together. “Clusterpolicy” has been in vogue in urban plan-ning for years, with governments trying todevise the right mix of infrastructure andincentives to conjure up the next SiliconValley, or something like it. But China hasintervened more heavily than most. To en-courage people to disperse throughoutclusters, it has raised the barriers to obtain-ing a hukou, or official residency permit, inthe wealthiest cities and lowered them insmaller ones nearby. Whereas Shanghai ispicky about granting permits to migrants,Nanjing, to its west, has flung its doorsopen to university graduates. As construc-tion gets underway in Xiong’an, a new citydesigned to relieve pressure on Beijing, ef-forts to push people outofthe capital couldbecome more aggressive. The scenes of po-lice forcing thousands of migrant workersto leave Beijing last winter might prove tohave been a preview.

The concept of city clusters is groundedin the theory of agglomeration benefits,which holds that the bigger the city, themore productive it is. A large, integrated la-bour market makes it easier for employersto find the right people for the right jobs. Ascompanies gather together, specialisedsupply chains can take shape. Knowledgealso spreads more easily. In advancedcountries, the doubling of a city’s popula-tion can increase productivity by 2-5%, ac-cording to the Organisation for EconomicCo-operation and Development, a clubmostly of rich countries. Studies havefound that the potential gains in China areeven bigger, perhaps because of its cities’surprising lack of density. Take Guang-zhou, one of China’s more crowded cities.If it had the same density as Seoul, it couldhouse an additional 4.2m people on its ex-isting land, according to the World Bank.

But China’s government has long resist-ed the emergence of true megacities. Itaims to prevent the population of its twobiggest cities, Beijing and Shanghai, fromexceeding 23m and 25m, respectively, in2035—little bigger than they are today. Cityclusters are a workaround. In the jargon ofurban planners, they represent “borrowedsize”: cities can, in principle, have the bene-fits of agglomeration with fewer of thedownsides such as congestion. Alain Ber-taud ofNew YorkUniversity says that, if in-tegrated well, China’s city clusters could,thanks to their size, achieve levels of pro-ductivity never seen in other countries. Hesays it would be comparable to the differ-ences between England and the rest of theworld during the Industrial Revolution.

This vision of hyper-productive Chi-nese clusters is a pipe dream for now. Thegovernment first mentioned city clustersas a development strategy in 2006. It wasnot until 2016 that it elaborated the con-cept. Of its 19 identified clusters, just a fewhave published detailed plans so far. The

gap between talk and policy remains vast.Officials have called for more region-widegovernance, a welcome change from themunicipal turfbattles that have bedevilledChina. In January the Yangtze River Deltaarea established an office for regional co-ordination, the first of its kind. But it is a bu-reaucratic minnow, with little more than adozen employees. Stefan Rau of the AsianDevelopment Bank says it is essential thatregional offices have poweroverbudgets ifthey are to play a useful role.

Lustrous clusters

Evidence about economic gains from clus-tering in China is promising, if limited.Counties enjoy a 6% boost in productivityfrom being tied into the Yangtze super-re-gion, according to an article published lastyear in the Journal of the Asia Pacific Econ-omy. But the researchers found few suchgains in other regions. That might be be-cause they looked at old data. A more re-cent study, published in April by the Na-tional Bureau of Economic Research inAmerica, supported the idea of big knowl-edge spillovers in super-regions. When cit-ies were connected by high-speed rail, thequantity and quality of academic papersby local researchers increased by nearly athird, according to the authors.

Sceptics, however, note that the mostsuccessful clusters tend not to be creationsof the government. As China’s economyhas modernised, the tendency towardsconcentration has been irresistible, espe-cially in coastal areas. Some towns havespecialised in electronics, others in theclothing industry and so on. There has alsobeen much more migration to the coastthan to other regions. It is the clusters thathave coalesced naturally, especially the

deltas of the Pearl and Yangtze rivers, thathave the brightest prospects.

Beyond these coastal conurbations, theoutlook is dimmer. Several of the 19 desig-nated clusters seem fanciful. An economiczone linking Nanning, a poor provincialcapital, to Haikou, a port on Hainan island,some 500km and a ferry crossing away, isunlikely to amount to much. The proposedcluster in the middle reaches of the Yang-tze, a territory larger than Poland, is too ex-pansive to make sense. Even within pro-mising areas, government plans can becounter-productive. Beijing could benefitfrom shifting some of its universities andbusinesses to other cities in the Jingjinji re-gion. But Xi Jinping, the president, has de-cided that an entirely new city, Xiong’an,should be created, some 100km away. Asimilar development closer to Beijingwould have a better shot at success.

The main concern for those trying tolead productive lives across the vast super-regions is more mundane: how easy it is toget from A to B. The government classifiesclusters as “one-hour economic zones” or“two-hour economic zones”, dependingon the time it takes to cross the cluster byhigh-speed rail. But it often takes longer toget to train stations within cities than to tra-vel by train between cities. DingShu worksin Shanghai and lives in Kunshan, a satel-lite town linked to Shanghai by a subway.Factoring in her bus ride to the subway, se-curity checks to enter the station, walkingtime and waiting time, she spends aboutfour hours a day commuting. She says sheis thinking about looking for a job closer tohome. New rail lines to Shanghai mighteventually help. But for now, Ms Ding seesherself as a victim of urban sprawl, not thedenizen ofa seamless city cluster. 7

Beijing

HAINAN

Guangzhou

Changchun

Chongqing Changsha

Nanchang

HangzhouHaining

Shenyeng

Shenzhen

Hong Kong

ShanghaiKunshan

Wuxi

Wenzhou

Yinchuan

Chengdu

Kunming

LanzhouLuoyang

Qingdao

Nanning

Guiyang

Shijiazhuang Xiong’an

Taiyuan

Anshan

Kaifeng

Zhengzhou

Xiamen

Fuzhou

Hohhot

Urumqi

Baotou

Wuhan

Haikou

Zhuhai

Harbin

TianjinDalian

Xining

Yantai

Zunyi

Jinan

HefeiNanjing

Hami

Baoji Xi’an

Ordos

Qujing

City cluster

Pearl RiverDelta

YangtzeRiverDelta

Jingjinji

M O N G O L I A

R U S S I AKAZAKHSTAN

N. KOREA

S. KOREA

MYANMAR

INDIA

BANGLA-DESH

BHUTAN

NEPAL

C H I N A

VIETNAM

LAOS

THAILAND

JAPAN

TAIWAN

PHILIPPINES

P h i l i p p i n eS e a

B a y o fB e n g a l

RU

SS

IA

112m

Population, 2016

152m

60m

Source: Wind Info 500 km


1

JUANA, who came to America from Gua-temala, used to take the bus to and fromcleaning jobs. It wore on her. Walking to

the bus stop after a long day at work wasexhausting, especially when it rained, as itoccasionally does in Los Angeles. NowJuana drives everywhere, even to her localsupermarket, a few blocks away. She hadtwo aspirations: to learn English and to geta car. She has accomplished both.

Although Los Angeles has organised it-self around the car since the second worldwar, it has tried harder than many otherAmerican cities to change this. Since 1990voters have approved three tax rises to payfor public transport. A railway and rapid-bus network has been built quickly—byrich-world standards, if not Chinese ones.Public-transport users, however, are dwin-dling. In the past five years the number oftrips taken in metropolitan Los Angeleshas dropped by19%.

The CityofAngels is leadinga broad de-cline. The American Public TransportationAssociation’s figures show that the num-ber of journeys in the country as a wholehas fallen in each of the past three years. In2016-17 every kind ofmass public transportbecame less busy: buses, subways, com-muter trains and trams. New Yorkers took2.8% fewer weekday trips on public tran-

2018 the number of Tube journeys fell by19m, or 1.4%. That was despite annual pop-ulation growth in London of about 1% anda 3.3% rise in employment in the past year.The Paris Metro carried only as many pas-sengers in 2017 as it did in 2012. In Berlin,public transport journeys are growingabout halfas quickly as employment.

There are exceptions. More people aretaking public transport in Sydney and To-kyo. And some transport agencies canpoint to specific reasons for their emptyingbuses and trains. London and Paris havesuffered terrorist attacks. New York’s sub-way is creaking—a consequence of pro-longed underinvestment in repairs. Else-where, bad weather or roadworks are saidto deter people from taking buses.

But demand for mass public transporthas weakened in so many rich-world citiesat the same time that one-off explanationsseem inadequate. Not longago annual pas-senger growth of more than 2% was nor-mal, and transport-watchers mused thatthe private car was on its uppers. The re-cent decline, which is bad enough on ayear-to-year basis, looks even worse whenset next to transport agencies’ forecasts. InNew York, for example, bus trips in the firstfour months of this year were 7.6% lowerthan the transport agency expected. Some-thing seems to be driving people off thetrains and buses. But what?

One explanation, which is convincingin some cities, is that public transport hasdeteriorated. Look at Madrid, says RichardAnderson, a transport analyst at ImperialCollege London. Public-transport trips fellthere beginning in 2008, as you would ex-pect in a recession-hit country where un-employment was rising. In response to the

sport and 4.2% fewer weekend trips in the12 months to April 2018, compared with thepreviousyear. In Chicago and Washington,DC, the decline in public-transport tripshas been even steeper.

Public transport is holding up better inother rich countries, but not by much. InToronto, adult trips have fallen every yearsince 2014 (the city made public transportfree for young children, so their numbersare up). In London, bus journeys are downby 5% since the 2014-15 fiscal year. The Lon-don Underground has remained morepopular, although in the year to March

Public transport

Missing the bus

LOS ANGELES

Public transport is declining in many wealthy cities. Blame remote working, Uber,cheap car loans and the internet

International

Down the tubes

Sources: Census Bureau; TransitCenter

United States, public-transport use, per person2008=100

70

80

90

100

110

2008 09 10 11 12 13 14 15 16 17

Boston

Chicago

Washington, DC

LosAngeles

New York SanFrancisco

52 International The Economist June 23rd 2018

2 downturn, the city cut services. People no-ticed, and stayed away. Between 2007 and2013 the Madrid Metro lost 19% of its cus-tomers. Service levels, perceptions and de-mand have all improved since then, butthe Metro remains quieter than it used tobe before the financial crisis.

Elsewhere, though, customers are van-ishing even though public transport is asgood as it was, or better. Perhaps publictransport has come to seem relatively dis-mal because people have acquired betteroptions. Uber, Lyft and other “ride-hailing”car services are probably luring peopleawayfrom trainsand buses, justas they aredemolishing the taxi trade. In San Francis-co public transport accounts for 16% of allweekday trips, ride-hailing for 9%. Peoplemostly seem to use Uber and Lyft to get toplaces well-served by mass transport (seemap). One study of the city by five Califor-nian academics asked ride-hailingcustom-ers how they would have made their mostrecent trip if the service did not exist. One-third replied that they would have takenpublic transport. In a study of Boston, 42%said the same thing.

Self-driving taxis are likely to steal evenmore riders in future, because they will beso cheap. They can threaten public tran-sport even before they appear on theroads. Last month voters in Nashville over-whelmingly rejected a plan to build sever-al tram and rapid-bus lines. Opponents ofthe plan had argued that autonomous carsand buses would soon be a cheaper andbetter way of transporting people.

Two wheels goodMeanwhile, other technologies nibble atbuses and trains. Many cities have tried toencourage cycling by creating bike lanesand allowing app-based bike-rental outfits(and, in some, scooter-rental outfits) to setup on pavements (see Business section). InBerlin, the network of cycle paths hasgrown from 856km to 1,433km since 2002.App-based rental schemes—the largest ofwhich is run by Lidl, a discount supermar-ket—have grown from 2,000 to 16,000bikes in two years. Cycling, although stilluncommon, is proportionally the fastest-growing commuting mode in America.

The consequences of the rise in two-wheeled travel are not entirely clear. Cy-cling could boost public transport by help-ing people get to stations; or it could under-mine public transport by providing acheap alternative to buses and trains. Su-san Shaheen, a researcherat the Universityof California, Berkeley, suggests that bothof these can happen at once. In Washing-ton, DC, bicycle-sharing seems to bringmore people to public transport in the sub-urbs but draw them away in the city centre.

Another possibility is that city-dwellersare simply travelling less. Footfall in Lon-don’s shops was 1.5% lower in May than ayear earlier—a slump that the British Retail

Consortium blames on the growth of on-line shopping and weak consumer confi-dence. It means fewer travellers, especiallyto West End stations such as Oxford Circus.“When the retail sector suffers, we suffer aswell,” says Shashi Verma, the chief tech-nology officer at Transport for London. Inseveral cities, including Paris and San Fran-cisco, weekday trips have held up betterthan weekend trips, hinting thatpeople aredropping unnecessary outings.

Working habits are changing, too. Gal-lup, a pollster, found in 2016 that 43% ofAmerican workers spend at least some oftheir time working remotely, up from 39%in 2012. Remote working also intensi-fied—ie, telecommuters spent more of theirtime telecommuting. In Britain, the num-bers working exclusively at home grewfrom 2.9m in 1998 to 4.2m in 2014, accordingto official statistics.

“Most people who I know work at leastone day a week at home,” says SandraJones, an experton London propertyat Da-taloft, a consultancy. She points to two oth-er changes that may have kept people offbuses and trains. Even when workers doget out of the house, many travel to flexible“co-working” offices, which might be closeto home. The second change is a rash of of-fice development around railway stations.The Office Group, a fast-growing outfit, ac-tually rents offices inside stations. Thecompany says these are popular amongcommuters from outside London, who cantake a train to work and no longer have totransfer to a Tube train or a bus.

In almost every city in the rich world,the fiercest competition for public trans-port comes not from Uber, cycling or theappeal of working from one’s back garden.Rather, it comes from driving. In America76% of commuters drive to work alone,and the share has risen fractionally in thepast decade. The final explanation for theemptying buses and trains is that the lone-lycar journeyhasbecome more appealing.

It is certainly cheaper. The oil price be-gan to fall in the summer of 2014. It hassince rebounded, butnot to itselevated lev-els of five years ago. Meanwhile, car en-

gines have become more frugal. Cheaperoil greatly cuts the cost of driving aroundAmerica, where fuel is only lightly taxed.Even in Britain, data from the RAC Founda-tion, a research group, suggest that driving-cost inflation (which includes fuel as wellas insurance and so forth) has been lowerthan bus- or train-ticket inflation over thepast ten years.

Despite a loudly trumpeted urban re-vival, America’s suburbs and more distant“exurbs” are growing faster than its centralcities. Many ofthese places have poor pub-lic transport and plenty of room for cars,thanks to rules that oblige developers toprovide a minimum number of parkingspaces. Some European cities are sprawl-ing, too. Berlin, long a cheap city (and anartists’ haven as a result) is turning costly.Knight Frank, an estate agent, says thathome prices in the city have risen by 21% inthe past year. Those who leave Berlin insearch of cheaper housing find an impov-erished railway network, with only onetrain an hour on some lines. So they drive.

Four wheels betterIn southern California, public transport isheavily used by poor immigrants, particu-larly immigrants from Mexico and CentralAmerica. But research by Michael Man-ville and others at the University of Cali-fornia, Los Angeles, finds that this groupare rushing onto the roads behind theirown steering-wheels. Between 2000 and2015 the proportion of Mexican immigranthouseholds without a car fell from 16% to5%. Meanwhile, the immigrant populationof Los Angeles and its environs is becom-ing a little less Hispanic and a little moreAsian. “The countries that were most likelyto send us transit riders are sending us asmaller proportion of immigrants,” saysMr Manville.

Along with other working-class Ameri-cans, Mexican immigrants find it easier tobuy their own cars these days becauseloans have become so much cheaper andeasier to obtain. Since 2015 some of themhave also benefited from a Californian lawthat allows illegal immigrants to have driv-ing licences. Perhaps more of them are ar-riving in America knowing how to drive,too. Car ownership is rising quickly inMexico, as it is in other countries, such asthe Philippines, that send lots of immi-grants to America.

However, even in the cities where pub-lic transport is faringworst, it seems unlike-ly to disappear. People will keep using itwhen it is convenient, when they are feel-ing pinched, or when it is raining. But thedays when commuters and shoppers fol-lowed regular tracks around cities, like mi-grating birds, appear to be over. Tony Trav-ers, an urbanist at the London School ofEconomics (and a convert from the Tube tocycling) calls it: “a fragmentation of theworld as we knew it”.7

MarketStreet

FinancialDistrict

GoldenGate Bridge

Pier 39

BayBridge

S a n F r a n c i s c o

3 km

Muni rapid bus

Uber/Lyft drop-offs per square mileMonday 9am (2016 Autumn average)

Source: San Francisco County Transportation Authority

Muni metro rail Rail lines

<100 7,000


For daily coverage of business, visit

Economist.com/business-finance

1

THE streets of Beijing are thronged withtwo-wheeled contraptions. Some ap-

pear to be conventional petrol mopeds butas they zoom through red lights at pedestri-an crossings their eerie silence and lack ofexhaust reveals them as electric. Execu-tives in suits cruise by on electric kick-scooters, looking like big kids on their wayto school, though travellingmuch more en-thusiastically. Electric bicycles, hacked to-gether with a battery strapped to the frameand wired to a back-wheel hub containinga motor, crowd the edges of roads.

China’s cities are at the forefront of aquiet swarm of electric two-wheeled vehi-cles. Millions now roam their centres. Thistransformation of urban mobility is alsohappening in the West, albeit with a nota-ble addition that has yet to take off in Chi-na: firms that rent out electric kick-scoot-ers. These are taking many American citiesby storm and are arriving in Europe.

In the bike-mad Netherlands nearlyone in three newly bought bikes last yearwas electric, up from one in 20 a decadeearlier. Commuters, from the sweat-averseto the environmentally conscious, arekeen. Some 40% of Dutch e-cyclists usethem to replace car journeys. Ridingfor funis on the rise, too: a best-selling model inEurope last year was the e-mountain-bike.

In Germany, 15% of new bikes sold in2016 were electric, with sales up by13% andexports by 66% compared with 2015. Bel-

sure riders. Bike-sharing services are rush-ing to include them. Nearly a third of Par-is’s Vélib fleet, for example, is electric,though the roll-out has been tricky.

For riders in American cities, however,e-scooters may steal the show. Their char-acteristics fit even more neatly into rentalmodels than e-bikes do. Powered not justby electricity, but by volleys of venturemoney, e-scooters are the latest craze com-ing out of California. Revenue for some ofthe firms renting them is increasing so fastas to surprise even seasoned Silicon Valleyventure capitalists. Bird Rides, a pioneer ofthe business, and not yet a yearold, has be-come a “unicorn” faster than any otherAmerican startup before it. Its valuationhas now reportedly reached $2bn.

In some places, such as Santa Monica,one of the first places where Bird intro-duced e-scooters, using them to get aroundhas already become a habit. With a fewtaps on an app riders can unlock them andoff they go. Once they have reached theirdestination they park the scooter at a spotwhere it can be picked up by another rider.Each ride costs $1plus15 cents per minute.

Anotheraspectofthe model is that peo-ple can make money by charging them.Freelance “bird hunters” pick up scooterswith empty batteries and plug them in athome. The startup pays between $5 and$25 per vehicle charged, depending onhow hard they are to find (the locations of“dead” scooters are shown in anotherapp). Charging mostly happens at nightand the vehicles must be backon the streetin specified locations before 7am the nextday. That Bird and other firms can out-source thisactivityexplainswhythey havebeen able to launch their services so quick-ly in so many cities. Hot on Bird’s wheels isLime, co-founded by Toby Sun, a Chineseentrepreneur, which boasts a similar

gium and France are big markets too.Whereas exports ofregularbikes from Chi-na, Taiwan and Vietnam to the EuropeanUnion fell by15% between 2014 and 2016, e-bike exports more than doubled. Business-es are also joining the ride. One of Ger-many’s largest electric fleets is owned byDeutsche PostDHL, a logisticsgiant, and in-cludes around 12,000 e-bikes and e-trikes(three-wheeled ones).

For consumers the vehicles do notcome cheap. They typically cost a coupleof thousand euros—more once you addbells and whistles. Hence new businessesare popping up to rent or lease them out.Some of these serve couriers working inthe gigeconomy. Others go afterhipster lei-

Urban mobility

Electric invasion

AMSTERDAM AND BEIJING

How e-bikes and scooters are weaving theirway into the transport system

BusinessAlso in this section

54 Bartleby: Get with the program

55 Iliad in Italy

56 Glencore and American sanctions

56 Shipping’s sulphurous emissions

57 The sharing economy afloat

58 Schumpeter: French philosophy andbusiness

The road less pedalled

Source: Confederation of the European Bicycle Industry

European Union, electrically power-assistedbicycle sales, m

0

0.5

1.0

1.5

2.0

2010 11 12 13 14 15 16

54 Business The Economist June 23rd 2018

1

2 growth rate and valuation (its chargers arecalled “juicers”). Launching in Paris thisweek, Lime will beat Bird to Europe.

The spread of e-bikes and e-scooters isin future likely to be further accelerated byride-hailing giants keen to offer the fullrange of urban e-mobility options. Uber inApril bought Jump, an e-bike-sharing start-up.And Lyft is said tobeon the vergeoftak-ing over Motivate, another e-bike firm.Both firms are reportedly also interested inrenting out e-scooters—as is Ofo, the Chi-nese pioneer ofdockless bike rentals.

On both sides of the Atlantic two-wheeled e-vehicles raise three big ques-

tions: how to regulate them; whether theireconomics work over time; and what hap-pens to the data they generate.

A need for regulation is certainly evi-dent in Amsterdam’s Vondelpark: themorning rush looks like chaos. Cyclistsride in every direction, some amblingslowly, others pedalling furiously. Since e-bikes have been added to the mix the term“granny-pace” has a whole new meaningas riders—often the elderlyorparents ferry-ing children—overtake young racers with-out breaking a sweat. Crashes are still rare,but their number has been rising. In theNetherlands last year a quarter of bike

deaths happened on e-bikes, and most ofthe deceased were over 65.

Regulators have started to react. SinceJuly 2017 Dutch law distinguishes betweene-bikes whose motor allows riders to goslower or faster than 25 kilometres perhour. The faster ones now need a licenceplate and riders have to follow the samerules as those of mopeds, such has wear-ing a helmet and having insurance. OtherEuropean countries have introduced simi-lar limits. The city council of Santa Monicadecided on June 12th to require firms rent-ing e-scooters to text customers if theyhave been riding unsafely.

WANT a job with a successful multi-national? You will face lots of com-

petition. Two years ago Goldman Sachsreceived a quarter of a million applica-tions from students and graduates. Thoseare not just daunting odds for jobhunters;they are a practical problem for compa-nies. Ifa team offive Goldman human-re-sources staff, working 12 hours every day,including weekends, spent five minuteson each application, they would takenearly a year to complete the task of sift-ing through the pile.

Little wonder that most large firms usea computer program, or algorithm, whenit comes to screening candidates seekingjunior jobs. And that means applicantswould benefit from knowing exactlywhat the algorithms are looking for.

Victoria McLean is a former bankingheadhunter and recruitment managerwho set up a business called City CV,which helps job candidates with applica-tions. She says the applicant-tracking sys-tems (ATS) reject up to 75% ofCVs, or résu-més, before a human sees them. Suchsystems are hunting for keywords thatmeet the employer’s criteria. One tip is tostudy the language used in the job adver-tisement; if the initials PM are used forproject management, then make sure PM

appears in your CV.This means that a generic CV may fall

at the first hurdle. Ms McLean had a clientwho had been a senior member of thearmed forces. His experience pointed topotential jobs in training and education,procurement or defence sales. The beststrategy was to create three different CVsusing different sets of keywords. And job-hunters also need to make sure that theirLinkedIn profile and their CV reinforceeach other; the vast majority of recruiterswill use thewebsite tocheckthequalifica-tions ofcandidates, she says.

Passing the ATS stage may not be thejobhunter’s only technological barrier.Many companies, including Vodafone andIntel, use a video-interview service calledHireVue. Candidates are quizzed while anartificial-intelligence (AI) program ana-lyses their facial expressions (maintainingeye contact with the camera is advisable)and language patterns (sounding confi-dent is the trick). People who wave theirarms about or slouch in their seat are likelyto fail. Only if they pass that test will theapplicants meet some humans.

You might expect AI programs to beable to avoid some ofthe biases ofconven-tional recruitment methods—particularlythe tendency for interviewers to favourcandidates who resemble the interviewer.Yet discrimination can show up in unex-pected ways. Anja Lambrecht and Cather-ine Tucker, two economists, placed advertspromoting jobs in science, technology, en-gineering and maths on Facebook. Theyfound that the ads were less likely to beshown to women than to men.

This was not due to a conscious bias onthe part of the Facebook algorithm. Rather,young women are a more valuable demo-

graphic group on Facebook (because theycontrol a high share of household spend-ing) and thus ads targeting them are moreexpensive. The algorithms naturally tar-geted pages where the return on invest-ment is highest: for men, not women.

In their book* on artificial intelligence,Ajay Agrawal, Joshua Gans and Avi Gold-farb of Toronto’s Rotman School of Man-agement say that companies cannot sim-ply dismiss such results as an unfortunateside-effect of the “black box” nature of al-gorithms. If they discover that the outputof an AI system is discriminatory, theyneed to workoutwhy, and then adjust thealgorithm until the effect disappears.

Worries about potential bias in AI sys-tems have emerged in a wide range of ar-eas, from criminal justice to insurance. Inrecruitment, too, companies will face a le-gal and reputational risk if their hiringmethods turn out to be unfair. But theyalso need to consider whether the pro-grams do more than just simplify the pro-cess. For instance, do successful candi-dates have long and productive careers?Staff churn, after all, is one of the biggestrecruitment costs that firms face.

There may also be an arms race as can-didates learn how to adjust their CVs topass the initial AI test, and algorithmsadapt to screen out more candidates. Thiscreates scope for another potential bias:candidates from better-off households(and from particular groups) may bequicker to update their CVs. In turn, thismay require companies to adjust their al-gorithms again to avoid discrimination.The price of artificial intelligence seemslikely to be eternal vigilance.

Get with the programBartleby

How an algorithm may decide yourcareer

Economist.com/blogs/bartleby

..............................................................*Prediction Machines: The Simple Economics ofArtificial Intelligence

The Economist June 23rd 2018 Business 55

1

2 How to deal with e-vehicle rental firmsmore generally is another pressing matter.In summer last year dockless bikes sud-denly littered Amsterdam. In Septemberthe city council had thousands removedfrom the streets and announced a tempo-rary ban on bike-share schemes. It hassince promised that it will lift the ban, butin a controlled way. The number of sharedbikes will probably be limited to 9,000.

Several American cities have reacted tothe invasion of e-scooters by throttlingtheir introduction, although they reducecar traffic and pollution. San Franciscobanned the vehicles in early June and isnow introducing a 24-month pilot pro-gramme: the city will only issue permits toup to five companies and they will be al-lowed to operate a maximum of 2,500scooters in total. Santa Monica has optedformore flexibility: a “dynamic” cap on thenumber of scooters each firm is allowed todeploy, which will depend on how muchuse its vehicles get. Its approach could be-come a model, hopes David Sacks of CraftVentures, an investor in Bird.

As regulatoryproblemsare worked out,the second big question is coming to thefore: who will make money with e-vehi-cles and how much? They are certainlygood business for their makers. Many e-bikes are powered by gear from Bosch, aGerman conglomerate. It only started tin-kering with the technology in 2009. Todaythe firm provides drive units, displays andbattery packs—the highest-margin compo-nent—to more than 70 e-bike brands.

The Bosch of e-scooters is Ninebot, aChinese firm, which also owns Segway,the maker ofself-balancing “personal tran-sporters”. Most rental firms started by buy-ing off-the-shelf scooters from the firm,which cost between $300 and $400. ButLime, in particular, is increasingly deploy-ing more customised vehicles that aremore robust and have a longer battery life.

Yet even e-vehicles with a shorter bat-tery life can bring in good money, particu-larly scooters—which helps to explain thesky-high valuations of Bird and Lime. Bothhave claimed in pitches to investors thatthey are able to pay offeach scooter withinjust ten to 14 days: they bring in more than$20 per day on average. The revenues theygenerate across America alone could behuge. If 2m get deployed (a low forecast),they could earn nearly $15bn a year.

The firms that have the broadest offer-ing—those able to provide access to allkinds ofmodes of transport—are most like-ly to win. As well as e-scooters, Lime alsorentsoute-bikesand the normal kind ofcy-cle. Some predict that the likes ofUber andLyft will emerge victorious by subsuminge-vehicle rentals. That raises the questionofwho will control the data they generate.

Bird, Lime and others are rarely usingsuch information other than to improvetheir services, for instance by ensuring that

their vehicles are well distributed across acity. But data could become a side product.Ofo, a Chinese dockless rental-bike pio-neer, is collecting a lot of data and hasplans to sell them to property developersand local retailers. Mr Sun of Lime thinksthat its scooters could one day become mo-bile sensors, collecting data on everythingfrom pollution levels to street conditions.

Many companies and organisationswill have designs on such data. In SantaMonica, Bird and other firms have alreadyagreed to provide the city with informa-tion so it can see how often scooters areused and whether poor areas are under-served. In the future citiesmayrequire datato be fed into municipal mobility plat-

forms to allow citizens to switch easily be-tween different modes of transport. Vehi-cle makers, too, are hopingto get their pieceof the digital pie. Bosch encourages cus-tomers to install an app with extra features,such as navigation.

It is possible that e-scooters could turnout to be a fad and e-bikes prove to be bet-ter for many trips. But e-vehicles are sure tobecome a permanent part of the urban-mobility mix. And, who knows, e-bikesand e-scooters may both evolve further.Work is already under way to make themself-driving (thinkofa Segwayon steroids).That may eventually bring method to themadness on the streets of Amsterdam,Beijing and beyond. 7

“CHOOSE truth. Choose Iliad,” en-treats the voice-over of a television

advertisement after images of PresidentDonald Trump speechifying and football-ers feigning injuries flash across the screen.That may seem pretentious for a mobileprovider, but the advert is part of Iliad’s en-try into Italy, which began on May 29th.The group, led by one of France’s mostprominent businessmen, Xavier Niel (pic-tured), is credited with having shaken upthe telecoms industry at home. He wantsto have a similar impact in Italy.

MrNiel startedoutwithaporn-chat ser-vice for Minitel, a French antecedent to the

internet. In 2002 he launched his Freebox,which combined cheap web access, TV

and fixed-line telephony, and in 2012 start-ed selling low-cost mobile telephony.Growth came easily for years, allowing MrNiel to spend time on other things, such aslaunching Station F, the world’s largeststartup incubator, in Paris, and free codingschools in Paris and Silicon Valley.

In France, Iliad, the third-largest mobileoperator, is looking rather mature. In thefirst quarter it lost broadband customersfor the first time, and missed revenue fore-casts. Its share price is down by 32% thisyear. Nicolas Didio of Berenberg, a privatebank, says Iliad had become like “a teen-ager who grew quickly and became toolanky”. Its lean cost structure—eschewinghigh ad spending and a heavy physical re-tail presence in favour of online sales—hadbeen its competitive advantage. But it ex-pected customers to run to it, says Mr Di-dio, and forgot they can be couch potatoes.

To its credit Iliad has reacted swiftly, byshuffling management, bringing in newtalent and adjusting its broadband offerand its promotional activities. It is tolaunch a new Freebox in September. “Themarket is more mature and competitive,”says Thomas Reynaud, its boss, “so we’readapting our commercial strategy.”

Yet the timing of its recent troubles, justas it ventures abroad, is undeniably awk-ward. A report by Macquarie, a bank, en-visages a scenario in which Iliad could endup being one of the smallest operators inboth France and Italy.

Iliad’s Italian venture is the upshot of amerger between Wind of VimpelCom, aRussian firm, and Tre, of Hong Kong-based

Iliad

Battle ready

MILAN

The timing ofa French telecoms company’s entry into Italy may be awkward

From Station F to Milano Centrale


1

2

THE shipping industry has encounteredrough seas over the past decade. Be-

tween 1985 and 2007 trade volumes shotup at around twice the rate of global GDP

but since 2012 their rate of growth hasbarely kept pace, leaving the industry withovercapacity. Freight rates for containershave plunged by a third since 2008. Worsemay be to come. The industry does not re-gard as good news President DonaldTrump’s announcement on June 15th of ta-riffs of 25% on up to $50bn of Chinesegoods, which will slow trade growth fur-ther. Now a veritable hurricane of new en-vironmental laws is about to hit.

Shipping accounts for only around 2%of global carbon emissions, but is quitedirty. Burning heavy fuel oil, the industryproduces 13% of the world’s sulphur emis-sions and 15% of its nitrogen oxides. And by2050 ships will be producing17% of all car-bon emissions if left unregulated, accord-ing to research by the European Union.

The International Maritime Organisa-tion (IMO), the United Nations agency forshipping, last September brought in rulesforcing owners to install equipment by2024 to clean the dirty ballast water theirships suck in and discharge. That may costthe industry as much as $50bn. In April theIMO agreed to halve the industry’s carbonemissions from 2008 levels by 2050. Thebiggest worries are new rules that cut theglobal limit on sulphur content of marinefuel from 3.5% to 0.5% from January 1st

The shipping industry

Feeling green

A wave ofnew environmental laws isworrying shipowners

Life on the ocean haze

Sources: UNCTAD; Goldman Sachs

Global shipping

Fuel mix, m b/d

0

3

6

9

12

15

0

1

2

3

4

5

2000 05 10 15 20 25

0

2

4

6

2015 17 19 21 23 25

Total seaborne tradeTonnes bn

Fuel sulphur limit%

High-sulphurfuel oil

Scrubbed

Low-sulphur fuel oil

Diesel

Liquefied natural gas

FOREC AST

Mining in Congo

Evasive action

AMONG Africa’s many foreign fixersand mining tycoons, few are more

colourful than Dan Gertler, an Israelidiamond trader. Just over 20 years ago atthe age of23 he tooka punt on LaurentKabila, the rebel who in 1997 had justseized the Democratic Republic ofCongo(then Zaire) from Mobutu Sese Seko, itsdictator for the previous 32 years. Havingmet him through his son, Joseph, he lentthe president $20m to buy weapons. Hecould have lost everything, but insteadmade it backa hundredfold. By the timeJoseph Kabila tookover from his father,after the latter’s murder in 2001, he hadbecome the man largely in charge ofdistributing Congo’s mining licences tointernational mining companies.

Two decades on, Mr Gertler’s clout inCongo is undiminished. That was provedon June 15th when Glencore, the world’slargest commodities trader, decided itwould rather evade sanctions than notpay the billionaire the royalties he wasowed from a Glencore-owned mine. TheAmerican government imposed sanc-tions on Mr Gertler in December forusing his friendship with Mr Kabila tosiphon offCongo’s mineral wealth, acharge he has denied. The sanctions hadleft Glencore in a hole: Mr Gertler hadsued it in Congo, and had won a freezingorder on its assets. Now Glencore says itwill pay the royalties—but in euros ratherthan dollars, and using an undisclosednon-American bank.

That was Glencore’s second boldmove in a week in Congo. A few daysbefore, the firm solved a different pro-blem by agreeing to recapitalise another

of its indirectly-owned mines whichGécamines, the Congolese state miningfirm, had threatened to close. The minehad such high debts that it would notmake a profit (on which to pay taxes) orpay dividends to shareholders (whichinclude Gécamines). To resolve the dis-pute, Glencore paid $150m directly toGécamines and converted a large part ofthe mine’s debt to equity.

The moves seem to have boughtGlencore a reprieve in the country. Amonth ago, some people in Kinshasawondered if the firm had a future there atall. It says it spoke to American officialsbefore making its decision to pay MrGertler. Congo provides over halfof theworld’s cobalt, a by-product ofcopperused in electric cars, and ifGlencorecannot mine it, Chinese firms couldcorner the market, they argue. (Inaccu-rately—Indian and Kazakhstani firms alsomine cobalt in Congo.)

But will it work? Though paying ineuros and using non-American banksmay avoid breaking the rules in theory, inpractice it may not be so easy, says Elisa-beth Caesens, director ofResource Mat-ters, a Brussels-based NGO. It will bedifficult to keep American employees outof transactions. “They’re exposing theirpeople,” she says. And the firm itselfcould be hit with sanctions for its connec-tions to Mr Gertler. Nor is America theonly risk. Though no probe has officiallybeen launched, Britain’s Serious FraudOffice is looking into Glencore’s relation-ships in Congo. IfGlencore gets awaywith it, it will show that America’s sanc-tions can easily be sidestepped.

NAIROBI

Glencore dodges American sanctions rather than spurn its friends in Congo

CK Hutchison, which was approved by theEuropean Commission in 2016 on the con-dition that space be made fora fourth oper-ator. Iliad was able to buy frequencies, anduse the Wind-Tre network (which will takeanother year or so to fully merge), while itbuilds its own.

Yet gaining traction will be challenging.Market conditions are unlike those whenIliad launched its low-cost offer in Francein 2012: prices are already low. In a pre-emptive move last year, TIM, a former statemonopoly, launched Kena Mobile, a low-costbrand. David MarcusofEvermore Glo-bal, a shareholder in TIM, argues that “if[TIM] didn’t lose to other players, it won’tlose to Iliad.” Bynowall the large operatorsincluding Vodafone, one of the world’slargest, have launched lower-cost offers. It-aly also differs in that pre-paid SIM cards

dominate, so there is little novelty in beingwithout a contract. And the law stipulatesthat providers identify their clients beforeactivation, an added cost given Iliad’ssparse retail networkand online focus.

Another hurdle will be building a con-sumer brand. When Iliad launched its mo-bile service in France, it was an establishedbroadband provider with millions of cli-ents, but it is unknown in Italy. Launchingat a time of political and stockmarket vola-tilitymayhave limited the press coverage itreceived, suggests Mr Didio, though hequips thatMrNiel’smaverickpersona mayfit with the anti-establishment mood. Heexpects Iliad to grab around a tenth of themarket within a few years. If successful, itmay expand into broadband. Italy’s entre-preneurs doubtless hope Mr Niel importsstartup camps and coding schools, too. 7

The Economist June 23rd 2018 Business 57

2The sharing economy

Seabnb

ONE of the busiest times of the year atArzal marina on the coast ofwest-

ern France is a wooden sailing-boatfestival in early summer. Hundreds ofenthusiasts join Breton dances on thequayside, but as usual most of the1,000-or so yachts, catamarans, day-sailers and motor-cruisers remain tied tothe pontoons.

Few boat-owners make regular use oftheir expensive assets. By one estimate, aFrench yacht slips its moorings on aver-age for just ten days a year, and for Ameri-ca’s12m recreational boats, typical annu-al usage is two weeks. Meanwhile,would-be sailors have had few options,beyond pricey short charters.

Marine versions ofproperty-sharerAirbnb or ride-sharer BlaBlaCar aretrying to match the two. In Europe aFrench firm founded in 2013 by JeremyBismuth and Edouard Gorioux sets thepace. Click&Boat has 70 staff crammedonto a barge, its headquarters, on theSeine in Paris. They manage bookings fora fleet of22,000 private craft, mostly inEurope. Rental costs vary widely but canbe remarkably cheap—one eight-berthyacht in Arzal is advertised for just €40 aday, for example. The firm takes a15%commission and is profitable. Last yearbookings were worth €15m.

America’s leader is six-year-old Boat-setter, based near Miami. Founded by asailing enthusiast, Jackie Baumgarten, ithas raised $17m ofventure-capital fund-ing and notched up over 26,000 rentals.Ms Baumgarten sees three broad catego-ries ofcustomer: aspirational types who

want to pose on a luxury yacht; fishingenthusiasts who opt for less glitzy craft;and families.

The business is not all smooth sail-ing—regulation, for one thing, varieswidely. French law allows boatsharing,but in Greece, a tempting market, privateowners face more difficulties. Rentersusually need a boating licence, or musthire skippers. Demand to get on thewater is seasonal. Building up a big fleetofboats takes time. Owners tend to bemiddle-aged and are reachable mainly byword ofmouth or at boat shows.

Undeterred, both firms are trying toscale up, partly by pursuing a flotilla ofpotential rivals. Click&Boat bought one,Sailsharing, in 2016, to access more craft.Boatsetter has gobbled up Americanstartups including one last year, Boat-bound, that Click&Boat also eyed. InApril the American company addedSmart Charter Ibiza, a conventionalcharter firm, in Spain, part ofa move intothe Mediterranean.

Boatsetter has also developed aninsurance product, with a third party, forpeer-to-peer rentals, and has partneredwith Airbnb to offer experiences such aswakeboarding in Miami or eating paellaon a boat near Barcelona. Click&Boat hasstarted a separate site, Click&Yacht, forchartering luxury craft for thousands ofeuros a day in places like the Côte d’Azur,for which there is plenty of internationaldemand. It is one thing to stay in some-one else’s flat. It’s another to captain asuperyacht—especially when it looks likeyou own it.

ARZAL

Boat-sharing startups vie to rule the waves

The yacht-sharing market could be this big

2020 to slash emissions from sulphur,which cause air pollution and acid rain. Ifeveryone complies by buying dearer low-sulphur fuels, the bill could hit $60bn, saysSuresh Sivanandam ofWood Mackenzie, aresearch firm—roughly equivalent to theentire industry’s fuel bill in 2016.

Given that either2020 or2025 had beenagreed as possible dates for bringing in thesulphur cap, firms have had time to pre-pare, but have gone into panic mode in re-cent months. In part this is because 2020was only recently chosen after a study byFinland found that without it there couldbe 570,000 more deaths from air pollutionworldwide in the five years after 2020.Many firms have belatedly realised thehuge sums involved. If they cannot passthem on in higher freight rates, “we’re allgoing to go bust,” Junichiro Ikeda, boss ofMitsui OSK Lines of Japan, has warned.

Neither are the technological choices inadjusting to the new rules easy, says Ste-phen Gordon of Clarksons, a shipbroker.Shipowners will have to switch to pricierlow-sulphur fuels, invest in “scrubbers”which remove it from the smoke of dirtierfuels, or use greener alternatives such asliquefied natural gas (LNG). Although thereare suggestions for how the 50% cut in car-bon emissions can be achieved by 2050,such as batteries and hydrogen fuel cells,none has been tried on big ships yet.

For neither goal is it clear which optionmakes most sense financially. On meetingthe sulphur cap, there is no consensus.Maersk, the largest container line, thinkslow-sulphur fuel is the best choice, butFrance’s CMA-CGM has opted for LNG andMediterranean Shipping Company (MSC)for scrubbers. Shipowners worry that therules will not be uniformly enforced, saysDavid Vernon ofBernstein, a research firm.They fear being the only buyers of scrub-bers and the like in an industry with tightmargins, or losing money by picking a badsolution. So the industry isholdingfire. De-mand for low-sulphur fuel oil and marinediesel is expected to double overnight in2020, sending prices soaring (see chart onprevious page).

Eventually more shipowners will in-vest in scrubbers and LNG. Bigger linessuch as Maersk and CMA-CGM, will notfind this a problem. But smaller, more in-debted shipownerswill notbe able to raisefinance to pay for the conversions, says Ba-sil Karatzas, a shipping consultant in NewYork. They may have to scrap their ships,which could help address the overcapacitythat has crippled industry profits since thefinancial crisis. “Even this dark cloud has asilver lining,” he says—ifonly for some.7

Correction: In our briefing on American business, “Aboom like no other”, published in the edition of May26th, chart 3 contained the wrong figures forinvestment by the top five firms in the S&P 500 for thefirst quarter of 2018. The figures shown were in fact fora year earlier. This has been corrected online. Sorry.


NOTmanybusinesspeople studypost-warFrench philosophy,but they could certainly learn from it. Michel Foucault, who

died in 1984, argued that how you structure information is asource of power. A few of America’s most celebrated bosses, in-cluding Jeff Bezos and Warren Buffett, understand this implicitly,adroitly manipulating how outsiders see their firms. It is one ofthe most important but least understood skills in business.

Foucault was obsessed with taxonomies, or how humanssplit the world into arbitrary mental categories in order “to tamethe wild profusion of existing things”. When we flip thesearound, “we apprehend in one great leap…the exotic charm ofanothersystem ofthought”. Imagine, forexample, a supermarketorganised by products’ vintage. Lettuces, haddock, custard andthe New York Times would be grouped in an aisle called “itemsproduced yesterday”. Scotch, string, cans ofdog food and the dis-counted Celine Dion DVDs would be in the “made in 2008” aisle.

Most industries have established taxonomies that hide theirflaws. Wall Street firms disguise their risky proprietary-tradingprofits by lumping them together with the more stable fees paidby clients. India’s IT outsourcing giants split their sales into blandcategories such as “solutions” and “application development”,which sound better than “work outsourced by American clientsto our lowly paid staff in Mumbai and Bangalore”. Mining firmsare organised by commodity type—copper, say, or iron ore. A geo-graphic taxonomy would reveal that their production is often inunstable countries and that they rely on one bigcustomer: China.

Afew astute bosses know how to remould taxonomies, bend-ing the perceptions of investors, counterparties and staff. A daz-zling case is Mr Bezos at Amazon. In early 2015 investors wereworrying that it was a low low-margin retail business and werelosing their nerve. Mr Bezos changed its taxonomy by “breakingout” AWS, its cloud-hosting business, which was producing theholy grail of high, consistent and fast-growing cashflow. Thismove has been central to Amazon’s resurgent stockprice.

The AWS technique is being adopted by younger, loss-mak-ing, tech firms that want to go public. Uber, for example, encour-ages outsiders to split it up by cities and vintage. In the placeswhere it has brokered rides for longest its margins are positive,suggesting that it is just a matter of time before the entire firm

makes money. WeWork, a trendy office-rental firm, revealed inApril a new profit measure, “community-adjusted-Ebitda”. Thelabel was moronic, but not the concept, meaning “the gross pro-fitsofoffices thathave been open fora while”. Like Uber, WeWorkwants to show that it has a profitable core that can be scaled up.

Some firms have the opposite problem and need to show that,as well as being steady cash cows, they have new thrills up theirsleeve. For instance, Google still relies on search ads for its profits.But in 2015 it changed its name to Alphabet, which became aholding firm split into two divisions, Google and “other bets”,which contains its new projects such as driverless cars. It hiredRuth Porat from Morgan Stanley to become its finance chief. Thechanges were meant to show that it has a serious framework forinvesting in new ventures. Investors have lapped it up.

Stodgy Western banks keen to prove they can do fintechwould be well advised to study DBS, a Singaporean bank with amarket value of $51bn. Piyush Gupta, its boss, wanted to show-case the digital initiatives takingplace at the firm. DBS tagged eachcustomer as “digital” or “traditional” based on whether they pri-marily used digital products or not, and allocated costs to bothgroups. The bank can now divide itself into two businesses andshow that the digital one is more profitable and is a rising share ofthe total. The exercise helps explain a soaring share price.

The most accomplished corporate taxonomists play a stillgrander game; controlling not only how the firm is subdivided,but also whether it is viewed as a company at all. This is at theheart of Warren Buffett’s accomplishment at Berkshire Hatha-way, which he insists is neither a conglomerate nor an invest-ment vehicle, but a one-offthat can only be analysed using a spe-cial setofrules thathe hasprovided in an “owners’ manual”. Thishas shielded Berkshire from scrutiny and criticism over the pastdecade, even as it has underperformed the stockmarket.

Masayoshi Son, the bossofSoftBank, a Japanese telecoms andtech conglomerate, has just executed a similarly mind-bendingclassification leap. The firm has long been criticised for its weakcashflow and high debt, so starting in 2017 Mr Son began to de-scribe it as a venture-capital (VC) operation, to be assessed usingthe VC measure ofinternal-rate-of-return, which isboth flatteringand unverifiable. He has since completed the shift by setting upthe Vision Fund, a giant $100bn affiliated investment vehicle.

But it is Elon Muskwho has taken recategorisation to its logicalend point. Tesla, his car firm, he infers, cannot be judged in thepresent, but only the future, which he predicts using long-termproduction and market-value targets. So far ithasworked. Even asTesla has struggled to produce a modest volume of cars, WallStreet forecasts of its sales in 2023—a total guess—have been eerilystable at $60bn, supported only by the intensity ofhis vision.

Is it a bird? Is it a plane?Taxonomies are not alchemy. If firms do not succeed, eventuallythere is nowhere to hide, as Tesla may discover. General Electric(GE) and IBM have tried to classify parts of their empires as espe-cially “high tech”, but since overall profits have been falling inves-tors are not fooled—indeed, GE has just lost its spot in the eliteDow Jones index. Nonetheless, by controllinghow theirfirms areclassified and subdivided, managers can often change percep-tions, and in turn reality, lowering the cost of capital and intimi-dating competitors. Foucault had no interest in business. But ifhehad he mighthave split companies into two categories: those thatunderstand the power of taxonomies and those that don’t.7

French connection

Forget McKinsey. AGallic intellectual is the key to controlling how businesses are perceived

Schumpeter


For daily analysis and debate on economics, visit

Economist.com/economics

1

IT IS becoming increasingly likely that thephoney trade war between America and

China will develop into the real thing. OnJune 15th the Trump administration pub-lished two lists of Chinese products itplans to hitwith tariffsof25%, worth $50bnin 2018. The first will come into force onJuly 6th. The Chinese snapped back withtheir own list, laying out a retaliation ofequal size. Then on June 18th President Do-nald Trump directed Robert Lighthizer, theUnited States Trade Representative (USTR),to draw up a further list of products worth$200bn that would face tariffs of 10%, andthreatened yet another, covering an addi-tional $200bn of goods, if the Chinese re-taliated again. At least some of these toughwords will probably turn into deeds. Bothsides can expect to take casualties.

China regards the first round of Ameri-can tariffsasa unilateral violation ofglobaltrading rules. It has lodged a complaint atthe World Trade Organisation (WTO). ButMr Trump’s team maintains that Chinastarted the conflict, by stealing America’sintellectual property and engaging in un-fair industrial policy. Once tariffs havebeen imposed, the rights and wrongs—andeven the role of the WTO itself in the dis-pute—could be forgotten.

There is still a faint hope that July 6thwill pass without the tariffs coming intoforce. The fact that the tariffs were not im-

specialised components go through allsortsofquality-control processesand regu-latory approval. But of the 34 products thefirm asked to be removed from the list, nota single one was.

Inflicting pain on China could also beeasier said than done. The Trump adminis-tration wants to stymie China’s ambitionsin the strategic sectors it has identified aspart of its “Made in China 2025” policy. Butaccording to Yang Liang of Syracuse Uni-versity and Mary Lovely ofthe Peterson In-stitute for International Economics, athink-tank in Washington, DC, 55% ofhigh-tech Chinese exports to America in 2013came from wholly foreign-owned enter-prises. The $3.6bn of semiconductor im-ports from China in the firing line are most-ly from subsidiaries of Americancompanies, contain chips designed andmade in America, and are in China only forlabour-intensive assembly and testing.

Collateral damageChina’s openingblows will hit agriculturalproducts that largely come from stateswhich voted for Mr Trump. But as a tradewar escalates, the pain becomes more in-discriminate. In 2017 America imported$505bn of goods from China. If tariffs areexpanded to cover Chinese imports worth$250bn, let alone $450bn, avoiding con-sumer products such as clothes and elec-tronics will become impossible. Productswith few alternative suppliers will be hit.American importers will find it harder toavoid passing on rising costs to consumers.A trade war, says Dmitry Grozoubinski ofthe International Centre for Trade and Sus-tainable Development, a think-tank, in-volves “blowing up your own cities andwafting the resulting smoke across the bor-der in the hopes it will sting their eyes.”

posed immediately could allow time forfurther negotiation. But the prospects forpeace are dimming. On June 19th Peter Na-varro, Mr Trump’s adviser, said there wereno immediate plans for talks. The delay be-tween announcing the tariffs and impos-ing them was to give American customsauthorities time to prepare.

The office of the USTR has also taken itstime to decide which products should besubject to tariffs. It wants to inflict as littlepain as possible on American consumers,and as much as possible on Chinese ex-porters. Of the products announced onJune 15th, 95% bythe value ofAmerican im-ports were capital or intermediate goods.That should lessen the immediate effect onconsumer prices in America, as only a frac-tion of production costs will rise becauseof tariffs. The USTR has also sought to en-sure that American importers would beable to find alternative suppliers. Accord-ing to the International Trade Centre, amultilateral agency, China accounts forjust 8% ofAmerica’s total imports of the af-fected products.

Still, tariffs will hurt American compa-nies by imposing costs their competitorsdo not face. Even forproducts where Chinaaccounts for a small share of imports, re-building supply chains may be easier saidthan done. In public testimony GE, an in-dustrial conglomerate, pointed out that its

US-China trade (1)

Battle-lines drawn

WASHINGTON, DC

As the Trump administration threatens further tariffs, the prospect ofa last-minutedeal with China is receding

Finance and economicsAlso in this section

60 China’s response to tariffs

61 Emerging-market currencies

61 Reforming the euro zone

62 Sweden’s frothy housing market

63 Hedge funds and data

63 The fall of Abraaj

64 Buttonwood: The lucky few

66 Free exchange: Trading peace for war

60 Finance and economics The Economist June 23rd 2018

2 China’s room to charge tariffshasa low-er ceiling: in 2017 it imported just $130bn ofgoods from America. But it has other op-tions. It could stop Chinese students andtourists going to America. It could find reg-ulatory pretexts to disrupt the Chinese op-erations of American firms. According tothe US-China Business Council, the Chi-nese government has discussed with Chi-nese firms finding replacements for the

American products they use.In normal times, that would give China

leverage, as American businesses clam-oured for relief. But these are not normaltimes. For some within the administration,making investment in China less attractiveis not an unfortunate side-effect of a tradewar, but one of its aims. Whatever formthis conflict takes, and however long itlasts, there will be no winner.7

FOR now, at least, when speaking of thetrade dispute with America, China’s

government is taking a more-in-sorrow-than-in-anger tone. That helps explain theChinese public’s surprisingly measuredviews ofDonald Trump, and gives the Chi-nese government some breathing room toconsider its options.

The state media have so far taken thehigh ground. True, the Global Times, achest-thumping tabloid, accused theAmerican president of “gambling” thatChina will be cowed by his “capriciousand obstinate attitude”. No country canisolate itself from globalisation, said theXinhua news agency: “The wise manbuilds bridges, the fool builds walls.” Anew Xinhua web page popped up on June20th, tracking multilateral deals that MrTrump has quit, includingon trade, climatechange and Iranian nuclear arms.

But China has yet to debate, publicly,how to handle an American presidentwho is an avowed populist and won officeby playing on the fears and grievances ofworkers in such places as the midwesternrustbelt, handing him an America Firstmandate to reshape global trade. China isuncomfortable with discussions of demo-cratic mandates, voter grievances or elec-tions that overthrow establishments.

The results can be heard in a straw pollof factory workers in the eastern city ofYantai, who will be among the first to suf-fer from the American tariffs planned forJuly 6th. Yantai is home to a car factoryowned by SAIC-General Motors, a jointventure that makes the only Chinese-builtcar to be sold in America in significantnumbers. The DongYue carplantproducesthe Buick Envision, a faintly dowdy four-wheel drive exported to America since2016, and which will cost about $8,000more once tariffs bite. American driversbought 41,000 Envisions last year

On a muggy morning this week, thenews had reached workers wheeling mo-

peds and electric bicycles through a sidegate as they headed home. Kong Xiangbao,a machinery repairman, fretted that hissalary could suffer if fewer cars are madefor export. Li Tongxiao admitted to ratherliking Mr Trump, citing his “charisma”,wealth and success before entering poli-tics. Mr Li takes comfort in the domesticsuccess of Buick in China, where driverslookingfora practical, upper-middle-rangecar last year snapped up more than200,000 Envisions. GM sells more cars inChina than in America, and this—alongwith years of watching news broadcaststhat present world affairs as formulaicmeetings between powerful men—has en-gendered fatalism. “The American market,though it isn’t small, isn’t big either. Be-sides, this is an issue between two coun-tries. Even if I were worried, there is noth-ing I can do about it,” Mr Li shrugged.

Qu Yang, a salesman at a Buick show-

room in Yantai, is puzzled by the very ideathat an unusual, outsider president mightbe the cause of tensions. “The Americanpresident and the American government,for Chinese people it’s one and the same,”he says. Sales of Japanese cars suffered inprevious spats. He hopes a trade disputewith America will have less impact thanthe “historical feud” with Japan.

In 2012 jingoistic reports and online de-bates about islands claimed by both Japanand China prompted nationalists to attackJapanese noodle shops, rip flags and dam-age Japanese cars before authoritiesclamped down. More recently, a South Ko-rean supermarket chain was, in effect,kicked out by official harassment and aconsumer boycott, because of a row overAmerican anti-missile defences in SouthKorea. But so far state media and officialspokesmen have avoided the slogans thatoften prefigure outbreaks of public rage—the charge, say, that a foreign power hashurt the feelings of the Chinese people.

One reason is the need to preserve theprestige of Communist leaders. State me-dia presents President Xi Jinping as a confi-dent and hospitable patriarch, more thancapable of handling men like Mr Trump.And, notes William Zarit, the chairman ofthe American Chamber of Commerce(AmCham) in Beijing, signs of softening inthe Chinese economy mean “this is not agood time fora trade war.” He sympathiseswith American officials’ loss of patiencewith Chinese moves to skew markets intheir favour, notably through unfair en-forcement of regulations. The most recentAmCham survey of business sentimentfound most of its members reporting risingrevenues and healthy profits, but 75% alsosaying that foreign companies have be-come less welcome in China. Mr Zaritvoices concerns that America “could paintChina into a corner, and not adequatelyconsider Chinese domestic politics”.

Western businesses and diplomats inChina long to see the country reach a newgrand bargain between its model of asser-tive state capitalism and the more market-driven Western model. Team Trump’s at-tacks on forced technology transfers andstate subsidies are broadly welcomed. Butbusinesses and allied governments wantMr Trump to pick the right fights. It is onething to ask China to behave differently. Itis another to ask it to stop climbing up theindustrial value chain, with such policiesas the “Made in China 2025” plan.

That would smack of containment,which does stir Chinese public opinion,even at the gates of a plant making Ameri-can cars on the shores of the Yellow Sea,6,700 miles from Detroit. Americans are“fearful of China’s development”, says MrKong, the machinery repairman. “Theyworry it will affect America’s dominantstatus.” Plenty of Trump voters wouldagree. Therein lies trouble. 7

US-China trade (2)

Planning manoeuvres

YANTAI

China considers its response to Donald Trump’s proposed tariffs

The serried ranks

The Economist June 23rd 2018 Finance and economics 61

IMAGINE if Milton Friedman had beenput in charge of a central bank, only to

lose his job for expanding the money sup-ply too quickly. Or if Robert Shiller, theNobel-prizewinning author of “IrrationalExuberance”, were given a similar post,only to depart having allowed a stock-market bubble to inflate. That is the kind ofirony that attended the resignation underpressure ofFederico Sturzeneggerasgover-nor of Argentina’s central bank on June14th, a casualty of deepening turmoil inemerging markets.

Mr Sturzenegger was a former profes-soratUniversidad Torcuato Di Tella in Bue-nos Aires. His most-cited paper showedthat stated currency policy was often apoor guide to actual policy. Many coun-tries claim to let their currencies float freelybut in fact “intervene recurrently to stabil-ise their exchange rates”. Their deeds oftenbelie their words.

Mr Sturzenegger lost his job for muchthe same thing. Financial markets strug-gled to reconcile his statements on the cur-rency with his management of it, erodinghis credibility. After Argentina agreed on a$50bn loan from the IMF, he said he wouldintervene in the foreign-exchange marketonly in “disruptive situations”. But whenthe peso soon came under renewed pres-sure, he resumed selling foreign-exchangereserves, which fell by $665m on June12th-13th. He gave up the fight on June 14th,allowing the currency to drop by 5.3%against the dollar on a day that ended withhis departure.

Whydo policymakers in emergingmar-kets fret so much over exchange rates? Aweak currency, after all, makes a country’sexports and assets more competitive. Andwhen capital flees, it can be better to let thecurrency fall than to put up interest rates(and throttle growth) in an effort to keepthe exchange rate stable.

One reason to worry is inflation. Weak-er currencies push up import costs, jeopar-dising price stability. The plummetingTurkish lira, for example, has hamperedthe fight against inflation in a countrywhere prices respond quickly to currencyweakness. In response, Turkey’s centralbank, like Argentina’s, has been forced toraise interest rates dramatically, despite theopposition of Recep Tayyip Erdogan, whois seeking re-election as president.

According to Capital Economics, finan-cial conditions in both countries havetightened by more this year than they did

in the same period of 2013, the year of the“taper tantrum”, when America’s FederalReserve said it would eventually slow itspace of quantitative easing. In many othercountries, however, this year’s tantrum isnot yet as bad as its forerunner. Brazil’s cur-rency has fallen by 9% since mid-April. Butthe central bank has refrained from raisinginterest rates, insisting that there is no “me-chanical relationship” between recentshocks and monetary policy.

Another reason to worry about ex-change rates is debt: a weaker currencymakes dollaroreuro liabilities harder to re-pay. According to the Institute of Interna-tional Finance, the combined foreign-cur-rency debt of Argentina’s government andnon-financial companies exceeds 50% ofGDP. In Turkey, it is 47%. But the burdenelsewhere is modest. It is less than 25% ofGDP in Mexico and South Africa, less than20% in Brazil and Malaysia, and closer to10% in India, China and Thailand.

In Indonesia, both inflation (3.2%) andforeign-currency debt (19% ofGDP) are low.Its central bank nonetheless raised ratestwice in May to stabilise the rupiah. Thecountry, still haunted by the Asian finan-cial crisis, associates a falling currencywith a faltering economy. And like otheremerging markets, it fears that currencyweakness can feed on itself, as declinesfuel speculation about further declines.

This is presumably the kind of “disrup-tive situation” that Mr Sturzenegger had inmind when positing exceptions to his ruleof non-intervention. He was perhaps un-fortunate that such a situation arose soshortly after he had promised to step back:the sharp drop in Argentina’s peso on June11th was exacerbated by the Federal Re-serve’shawkish signalsafter itsmeeting onJune 12th-13th. In emerging markets, cur-rency policy can be complicated—not leastbecause of the financial markets’ demandfor simplicity.7

Emerging markets

Fed and Federico

Why emerging markets get in a tizzabout theircurrencies

THE president ofthe European Commis-sion, Jean-Claude Juncker, likes to com-

pare the euro zone to a house in need of re-pair. Fix the roof, he counsels, while theeconomic weather is favourable. Leadersfrom across the European Union will havethe opportunity to take that advice whenthe European Council meets in Brussels onJune 28th-29th.

In preparation Emmanuel Macron,France’s president, and Angela Merkel,Germany’s chancellor, laid out joint pro-posals for reforms on June 19th. The resultof weeks of ministerial negotiation, theyreconciled long-standing differences onthe future of the currency bloc and set thescene for discussion at the wider summit.In a victory for Mr Macron, the Germanshave consented to a euro-zone budget. Inother areas, notably banking reform, pro-gress is likely to be halting.

The reforms aspire to mend the institu-tional weaknesses revealed during theyears followingthe financial crisis. Lackingcontrol over interest rates and the ability todevalue their currencies, some countriesstruggled to cope with violent economicshocks. Some, like Greece, were stuck in a“doom loop” where wobbly banks desta-bilised the governments supporting them,which in turn weakened the banks hold-ing government bonds.

To be fair, the bloc has already donequite a lot. At the height of the crisis, a bail-out fund was cobbled together for emer-gency lending to countries that lost accessto capital markets. In 2012 the euro zoneagreed to establish a banking union to con-tain risks and break the doom loop. TheEuropean Central Banknow supervises allthe euro zone’s systemically importantbanks. If a bank needs winding down, theSingle Resolution Board provides short-term funding and imposes losses on credi-tors, limiting the cost to the taxpayer.

But more than five years on, bankingunion remains incomplete. Mr Macron iskeen both to push through those remain-ing reforms, and to go further. His proposalfor a euro-zone budget aims to ensuremembers’ economies continue to con-verge and to help those buffeted by exter-nal events. New prime ministers in Italyand Spain appear to agree.

The Germans, Dutch and Nordics, how-ever, resist the pooling of risks across thebloc. They worry that fiscally prudentcountries would end up subsidising profli-gate ones. Italy, where an earlier version of

Reforming the euro zone

A modest proposal

BRUSSELS

At last, France and Germany have acommon position on reform

1


the new governing coalition seemed toscorn the euro zone’s spending rules, willnot have reassured them.

The Franco-German compromise givesthe nod to various proposals from theEuropean Commission. The first involvesreforms to the euro zone’s sovereign bail-out fund, the European Stability Mecha-nism (ESM). It would act as a backstop to itsbank-resolution board,beefingup bankingunion. And countries that have been pru-dent, but suffer an economic shock, wouldbe given access on relatively lenient termsto a precautionary line of funding, so theycould seek money before they lose accessto the markets. So farmostESM lendinghasbeen to countries already cut offfrom mar-kets, and conditional on implementingtough structural reforms.

All this would be a step forward, saysGuntram Wolff of Bruegel, a think-tank.But he thinks the reforms should go fur-ther. The French and Germans agreed tokeep the governance of the bail-out fundunchanged. But it is too complicated. In or-der for it to be tapped, finance ministersmust reach unanimous agreement. Na-tional laws mean that parliaments in somecountries, notably Germany, must granttheir approval. That could stop the fundwinding down a failed bank swiftly over aweekend, as it may need to.

But the Germans insisted on nationalcontrol, saying that it has not held up deci-sion-making so far. Their reservations alsostymied immediate progress towards acommon deposit-insurance scheme. MrJuncker had hoped to soothe northerners’fears with a gradual implementation dur-ingwhich the common fund would lend tonational schemes in times of trouble. Hishope that banking union would be com-plete by 2019 now seems unrealistic. A pro-posal from the commission to create secu-rities backed by a pool of sovereign bondshasbeen nixed. Without it, bankswill havelittle incentive to diversify sovereign risk.

Mr Macron’s prize is a concession fromGermany on the euro-zone budget. For thefirst time, the French point out, Germanyhas acknowledged that macroeconomicstabilisation is not a matter for nationalgovernments only, but a common concern.Though Mr Macron envisions a budget inthe region of several percent of GDP, MrsMerkel is known to want something muchstingier. Nevertheless, as Mr Macron says,it would be a “real budget with annual rev-enues”. He would like to see it raise rev-enues directly, possibly from a financial-transactions tax, though that would becontentious.

Most of the money would be investedin innovation, helping economic conver-gence. There is a mention, too, ofan unem-ployment-stabilisation fund to act as anemergency credit line for national unem-ployment-insurance schemes. But such adesign, which accords with German ner-

vousness about fiscal transfers, might notbe enough in deep downturns.

Mr Macron and Mrs Merkel may finallyagree on the merits of a central budget. Butothers must now be convinced. Mrs Mer-kel’s coalition partner, the Christian SocialUnion, has expressed scepticism. TheDutch prime minister, Mark Rutte, has saidhe sees little point in it if countries keeptheir public finances in order. Yet even awell-maintained roofmay spring a leak.7

Roofers’ convention

ULF DANIELSSON is thinking ofbuyinga holiday home—or even a new

house, so that he, his wife and two chil-dren can have a garden and more spacethan in their flat in Uppsala. He can affordeither, he says, and as a professor of astro-physics is surely able to work that out. Buthe is hesitating, lest the giddy rise in Swed-ish property prices end in an ugly crash.“You risk having a big loan that’s worthmore than the house,” he says.

The property market has fallen a littlecloser to Earth: prices dropped by 9% be-tween September and January, largely be-cause of a surfeit of pricey new flats. Theythen steadied, and are around 5% belowthe peak—and 50% higher than at the startof 2013, calculates Valueguard, a data pro-vider. As Swedes have borrowed to buy,their debts have risen. Finansinspektionen(FI), the financial-stability supervisor, esti-mates that borrowers’ debts rose by 36%

between 2012 and 2017, while disposableincomes went up by 13%. Almost a fifth ofhouseholds with new mortgages owemore than six times net income.

Low interest rates—the central bank’sbenchmark is -0.5% and banks chargearound 1.5% annually on home loans—have both helped fuel the boom and keptmortgages affordable. The share of in-comes going on interest has tumbled evenas the debt ratio has climbed (see chart).Swedes also save plenty: 9% of disposableincome, and 16% including pensions, ac-cording to Swedbank, a leading lender. ButAnna Breman, Swedbank’s chief econo-mist, notes thatalthough households in ag-gregate are in “fantastic” shape, it is hard toknow how many would be vulnerable tohigher rates. The abolition of a wealth taxin 2007 deprived economists of valuabledata on individual households’ finances.

Indebtedness worries both FI and thecentral bank, the Riksbank, which fearsthat a sharp fall in house prices could leaddebt-laden households to spend less,knocking backgrowth and employment. Itworries that banks, of which just four ac-count for 75% of mortgages, could findloans harder to fund. They do this by sell-ing bonds, some in foreign currency, withthe loans as collateral.

Prudential regulation, however, is thedomain of FI—even though the Riksbank’sgovernor, Stefan Ingves, heads the Baselcommittee, which sets international pru-dential standards. As long ago as 2010 FI

capped mortgages at 85% of property val-ues (some Swedes top up with unsecuredloans). Since 2016 it has obliged borrowersto repay 1% of new mortgages each year ifthey exceed 50% of the value of the home,and 2% if above 70%. Since March theyhave had to repay a further 1% if the mort-gage ismore than 4.5 timesgross income. Inaddition, banks typically lend only tothose who can bear interest rates of7%.

Loan-to-value ratios have levelled off.Erik Thedéen, FI’s director-general, hopesthe repayment obligations will make peo-ple “think once or twice” about taking ondebt and foster an “amortisation culture”in a country where mortgages can take

Sweden’s housing market

Keep the roof on

STOCKHOLM

Giddy prices and rising household debtare testing policymakers

Burden? What burden?

Source: Statistics Sweden

Sweden, households

0

5

10

15

20

0

50

100

150

200

1980 85 90 95 2000 05 10 17

Interest payments as % of disposable income

Debt as % ofdisposable income

2

1

The Economist June 23rd 2018 Finance and economics 63

1

2

UNTIL recently the Abraaj Group, aprivate-equity firm based in Dubai,

was riding high. It was one of just a fewsuch firms focused on emerging markets,and a darling of “impact investors”, whoseek social or environmental returns, notjust financial ones. Assets under manage-ment of $13.6bn made it the largest private-equity firm in the Middle East, and the42nd-largest globally in 2017. Its Pakistanifounder and boss, Arif Naqvi, a regular atDavos and a patron of the arts, had wonawards for philanthropy. It is all the moresurprising, then, that basic corporate-governance missteps led his firm to file forprovisional liquidation on June14th.

The problems began in late 2017 whenfour investors in its $1bn health-care fund,including the Bill & Melinda Gates Founda-tion and the private-sector arm of theWorld Bank, grew worried. Nearly $280mof $545m they had been asked for was notpromptly spent on acquisitions, as is stan-dard in the industry. Abraaj blamed delaysin the construction of hospitals in Pakistanand Nigeria. The investors asked for proofthat the funds had not been misspent; un-satisfied, they hired a forensic auditor tocomb through Abraaj’s accounts.

News of the investigation broke in Feb-ruary. Later that month Abraaj ceased in-vesting and Mr Naqvi stepped down fromthe fund-management unit. The firmstopped raising money for its newest fund

Abraaj Group

After pride, the fall

The Middle East’s largest private-equityfirm files for liquidation

manydecades to be repaid. He would havetightened them sooner, too, but had toawait a change in the law. In a “severe cri-sis”, he says, the rules could be eased.

FI has also bolstered banks’ capital re-quirements for mortgages, despite low de-fault ratesonhome loans. Evenso, theRiks-bank is urging FI to do more to insulatelenders from possible trouble. It thinksbanks should face more stringent rules forboth leverage and liquid assets in kronor.Mr Thedéen is resisting both calls.

Lars Svensson of the Stockholm Schoolof Economics, a former deputy governorof the Riksbank, thinks FI has already donetoo much. There is no evidence that debt isexcessive, he says in a recent paper; the re-payment rules merely make it harder forsome people to get credit, in particularyoung people with modest incomes andlimited savings. They are in effect forced tosave, or stopped from buying homes theycould actually afford.

Just about all agree that underlying allthis is a dysfunctional housing market.Mortgage payments are still tax-deduct-ible, which encourages borrowing andsupports prices. Tight controls choke priv-ate renting. For years, population growthand housing demand have outrun supply,despite the recent blip. (Migration, a hottopic in September’s election, also requiresmore public housing in the short run; refu-gees are not likely buyers.)

Such distortionsneed sortingout. Butfi-nancial policymakers have one thing go-ing for them. “We are having a slowdownin the housing market when the economyis still strong,” says Olle Holmgren of SEB,another of the big banks. “That’s the bestscenario we can hope for.”7

“QUANT” (quantitative) hedge funds,which craft elaborate algorithms tomake trading decisions, rely on ac-

cess to information. That used to meanmarket data, such as prices and trading vol-ume. But some now seek an edge in novelsources. An industry has sprung up toserve them with, and help them analyse,“alternative” data, such as those gleanedfrom satellite images or by scraping web-sites. Many of these data firms have beenfounded by entrepreneurs, but somequant funds themselves are getting in-volved. Winton, a large London-basedfund, is spinning off Hivemind, a data-analysis unit. A full-time management

team was announced on June 18th. For funds making macroeconomic bets

by trading in, say, currencies or govern-ment bonds, real-time measures of infla-tion (scraped from e-commerce sites) ortrade flows(from shippingdata) can be bet-ter and more timely than the output of na-tional statistics agencies. Funds trading inindividual firms’ shares can infer informa-tion on sales from satellite photos of theircar parks, and on footfall in shops fromdata bought from mobile-phone and cred-it-card companies, rather than having torely on company reports or quarterly earn-ings statements. Manyofthese datasets arefine-grained. Quandl, a data provider, sellsinformation on the number of Tesla carssold each day, broken down by each Amer-ican state.

But amid the new wave ofdata vendorsare some that are pushing the boundariesof legality. John Funge of Winton’s SanFrancisco office says some are carelessabout privacy. Anoosh Lachin of AspectCapital, another London quant fund, wasonce offered data by a former employee ofthe American government, who founded afirm to “predict” the statistics released bythe agency he had worked for. JonathanStreeter of Dechert, a law firm, says hedgefunds are waking up to the risks of poten-tiallysuspectdata. The main pitfalls are pri-vacy laws and insider-trading rules.

The biggest risk is reputational; onlyegregious transgressions are likely to leadto penalties. In America, a conviction forinsider trading requires not only proof thatthe information is material and non-pub-lic, but also proof of a “breach of duty”;that it was obtained without the owner’sconsent, for example. Since many phoneand credit-card companies include clausesin their contracts allowing them to sell in-formation, that condition is rarely fulfilled.In Europe, though no breach of duty isneeded to prove insider trading, the bar ishigher in other ways. But privacy is a muchgreater concern. A new EU-wide data-pro-tection law is backed by hefty fines.

Some fundsare seekingways to explorenewdatasetswithoutbreachingprivacy. In

a pilot project intended eventually to feedinto its trading algorithms, Winton hasworked with researchers at the Universityof California, Berkeley, to use “differential-privacy” techniques to analyse datasetsthat Winton was wary of looking at alone.Differential privacy works by adding noiseto data, thus obscuring personal, identifi-able information without destroying thedataset’s useful features. It is already usedby tech firms including Google and Apple,and by America’s Census Bureau.

The nascent industry is cleaning up itsact, too. Emmett Kilduff of Eagle Alpha, analternative-data provider, points to the In-vestment Data Standards Organisation, anon-profit body set up earlier this year. It isunsurprising that firms such as Eagle Al-pha and Quandl are moving into analysis,rather than merely providing raw data.Amid the proliferation, the need to sortuseful from pointless, and legal from du-bious, has never been greater. 7

Alternative data

Wary scouts

Hedge funds start to worry about thelegal risks ofalternative datasets


IN his book about the use of language,“The King’s English”, Kingsley Amis de-

scribes a tug-of-war. On one side are“berks”, careless and coarse, who woulddestroy the language by polluting it. Onthe other side are priggish “wankers”,who would destroy it by sterilisation.

The battle lines look similar in invest-ment. The divide is not on points of gram-mar but on attitudes towards a handful ofmodish companies, known as FAANG.These stocks (Facebook, Amazon, Apple,Netflix and Google) have been the motorof the S&P 500 (see chart). All but Applehit record highs on June 20th. Fill yourboots is the attitude ofcoarse stockmarketberks. FAANG makes more sense thanstocks in dying industries. For the prigs,the mania for FAANG stocks is as abhor-rent as a split infinitive. The high-mindedinvestor stands apart from the herd.

In matters of grammar, the unsure of-ten follow the sticklers. They at least haverules. But they are often too rigid. Stock-market sticklers can similarly lead othersastray. For most investors, it is often a mis-take to shun individual stocks simply be-cause other people are keen on them.

A recent paper* by Hendrik Bessem-binder of Arizona State University ex-plains why. Since 1926, most stockmarketreturns in America have come from a tinyfraction of shares. Just five stocks (Apple,ExxonMobil, Microsoft, GE and IBM) ac-counted for a tenth of all the wealthcreated for shareholders between 1926and 2016. The top 50 stocks account fortwo-fifths of the total. More than half the25,000 or so stocks listed in America inthe past 90 years proved to be worse in-vestments than Treasury bills.

The sway that FAANG stocks haveheld recently is not out of the ordinary. Anew report by analysts at Macquarie, abank, find that the clout of leading stocks

in the S&P 500 has often been higher in thepast. Mr Bessembinder’s results comple-ment the verdict of another strain of re-search, which says that most stock returnsare made on relatively few trading days.Just as it is important not to be out of themarket on those days, it is important not toomit key stocks from your portfolio.

Double or nothingTo understand why, it helps to think of in-vesting as a game of chance. Imagine thereis an equal chance that a stock will rise orfall by50% each year. A$100 stockthatgoesup 50% in year one would be worth $150; ifit falls by 50% in year two, it is worth $75,less than when the game started. In con-trast, a lucky stock that rises by 50% in twosuccessive rounds is worth $225. Aftermany rounds, most stocks lose money. Buta few stocks make a lot of it.

It would be foolish, though, to take thisas cue to invest solely in FAANG. There isno guarantee that today’s winners will stillbe winners tomorrow. Sticklers will rightlypoint out that if you overpay for a streamofearnings, howevergood the company is,you cannot hope to make money from in-

vesting. Are modish stocks a trap, then? Itmight seem so. The “Nifty Fifty”, a groupof popular (and thus expensive) stocks inthe late1960s, fell hardest in the bear mar-ket of the 1970s. Then again, many ofthem—GE, IBM, Johnson & Johnson, CocaCola and so on—are also on Mr Bessem-binder’s list of the 50 biggest wealth cre-ators. To have bought and sold them atthe right moments required deft timing.

Wise investors who do not know howto pick tomorrow’s winners, or how totime markets, opt to hold a broad index ofstocks passively. Even this approach hasdrawbacks. Bull markets tend to narrow,says Robert Buckland, of Citigroup, be-cause ofrisingpressure on fund managersto buy the recent winners. “A bubble iswhat I get fired for not owning,” one toldMr Buckland. The stockmarket index thustilts ever more heavily towards a fewshares. And these may not turn out to bethe big winners in the long term.

The best defence is to diversify broad-ly across markets and assets as well asstocks. That includes bonds and cash, ofcourse. Anotherway to offset a concentra-tion ofa certain kind ofstockis to invest inequity markets outside America. Theeuro zone’s indices, for instance, have afar lower weight in technology compa-nies. You won’t avoid a crash in modishstocks, should one occur. But at least youwill be able to survive it.

Such a middle-of-the-road approachmightappear to lackpersonality. It ismoredistinctive to be a stickler for conventionor a flouter of it. Yet it is the right ap-proach—and it works for language, too.English survives and prospers becausemost of its users are neither style sticklersnor utterly slapdash.

The lucky few

FAANG-tastic

Source: Thomson Reuters

Share prices, January 1st 2015=100

2015 16 17 1850

100

150

200

250

S&P 500

FAANG (Facebook, Amazon,Apple, Netflix and Google)

S&P 500 excluding FAANG

Buttonwood

The bulkofstockmarket returns comes from a tiny fraction ofall shares

..............................................................*“Do Stocks Outperform Treasury Bills?” Forthcoming,Journal of Financial Economics (2018)

and released investors from $3bn alreadycommitted. A review by Deloitte, an audi-tor, concluded that it had covered its ownexpenses with investors’ money from thehealth-care fund and another. The moneywas replaced in the health-care fund, butthe other fund was left short of$95m.

Even before the review was finished,Abraaj had started lookingforbuyers for itsfund-management arm, hoping to use theproceeds to pay off its creditors. But somegrew impatient. On May 22nd Kuwait’s so-cial-security fund filed a petition in a courtin the Cayman Islands, where Abraaj is in-corporated, seeking to force it into bank-

ruptcy proceedings. In response Abraajfiled for provisional liquidation, akin toAmerica’s Chapter11proceedings, to give itgreater control over its restructuring.

Abraaj’s downfall is highly unusual.Debt is generally taken on by the individ-ual funds run by private-equity firms, orthe companies that those funds own, rath-er than by the firms themselves. LudovicPhalippou of the Saïd Business School atOxford University says he cannot recallany other private-equity firm declaringbankruptcy.

A charismatic boss can sometimes lullinvestors in a private-equity fund into

complacency. Although they will carefullyscrutinise any new fund-managementcompany, when it comes to establishedones they typically focus their due dili-gence on the individual funds it runs. Andthey may gloss over the fine print in agree-ments that govern relations between in-vestors and funds, says Sunaina Sinha ofCebile Capital, a placement agent thathelps private-equity firms find investors.Abraaj’s actions seem not to have brokenits agreements with investors. Its collapsehighlights the need for vigilance, especial-ly when it comes to fashionable asset class-es and fast-growing firms. 7

2

economiststore.com


IN THE 1990s America and Europe had a trade dispute over ba-nanas. No one worried that tanksmight soon roll asa result. But

trade is about more than economics. The European Union, theworld’s most ambitious free-trade area, was founded on the ideathat trade integration would make war between members “notmerely unthinkable, but materially impossible”. As the risk of aserious Sino-American trade war grows, attention is mostly fo-cused on the prospect of dearer iPhones and unhappy soyabeanfarmers. But the stakes are much higher.

China’s economic miracle could not help but provoke geo-political stress, given its size and illiberality. Relations betweenAmerica and China are built on mutual suspicion. Geopoliticalrivalry has been moderated, however, by economic interdepen-dence: a mutual entanglement some economics wags havedubbed “Chimerica”.

As China opened up, American consumers hoovered upcheap Chinese goods. American firms built China into their sup-ply chains, enjoying low labour costs and gaining a presence in adomestic market that would one day be the world’s largest.Export-oriented development created vast numbers of Chinesejobs, and American investment allowed Chinese firms to gaintechnological expertise. As China grew richer, it purchasedAmerican bonds to keep its currency low and its exports compet-itive. That allowed America to consume beyond its means yearafter year. This circular flow of money saw America’s current-ac-count deficit grow in pace with China’s surplus.

Both countries have strained at these ties. Even before DonaldTrump became president, America bristled at the theft of its intel-lectual property, aggressive government support for Chinese in-dustry, and the destabilising currency manipulation. China de-plored its dependence on foreign technology and consumers.These vulnerabilities were highlighted by the financial crisis,when plummeting global demand threatened to plunge Chinainto recession, even though it is quite separate from the global fi-nancial system.

Support within America for a tougher line with China hasbeen building for a while. And China is ever keener to achievetechnological self-sufficiency. The share ofdomesticvalue-addedin its exports has been rising steadily. “Made in China 2025”, thenational development strategy, aims to create high-tech substi-tutes for foreign products from computer components to robots,cars and planes.

Yet an end to Sino-American interdependence is not inevita-ble. China mightyethewmore closely to rich-country trade rules,and intervene less in its economy and foreign-exchange markets.Trade between America and China could continue to grow, evenas the technological gap between them, and their bilateral imbal-ance, shrink. Expensive goods, investment and services couldflow both ways, as between America and Europe.

But this sunny future looks increasingly remote. America al-ready limits some Sino-American trade on national-securitygrounds. Past spatsoverdumpingand otherunfair trade practicesled to punitive duties on some goods, as allowed under WTO

rules. An all-out trade war would blow the two economies apart. The higher tariffsbeingmooted on half, ornearlyall, ofAmeri-

ca’s imports of Chinese goods would cause serious economicpain in both countries. In America the prices of many goodswould jump and those of others, like the soyabeans exported toChina by the shipload, would plummet. A sudden drop in Chi-na’s trade surplus with America, now over 3% of Chinese GDP,would be a heavy blow. Even though a weaker currency wouldmake it easier to export more to other countries, China wouldprobably need both monetary and fiscal stimulus to avoid a so-cially disruptive rise in unemployment.

Bad break-upThen the real trouble would start. Howeverwarily American andChinese leaderseye each other, economicself-interestkeeps theirmost hawkish impulses in check. The interests of American con-sumers and firms constrain officials keen to keep sensitive tech-nology out of Chinese hands (or snooping Chinese technologyout ofAmerican households). China’s dependence on Americanspending and technology limits diplomatic and military adven-turism. The break-up of Chimerica would mean an end to thoseconstraints.

It might also shove the world economy back towards mercan-tilism and competing spheres of economic influence. China is al-ready cultivating its economic imperium via the Belt and RoadInitiative, a plan to build infrastructure for trade and to investheavily in resource-rich developing economies. Cut off fromAmerican consumers, China would seek to strengthen ties withits neighbours in the hope of selling them more stuff. As MrTrump’s economic sabre-rattling has grown louder, China hasstarted to cultivate relations with Japan and South Korea. MrTrump would probablyviewAmerica’sallies strengthening theirtrade ties with China as a strategic blow—even though he haspicked trade fights with them, too. He might limit access to theAmerican market for countries that do not join his anti-Chinacampaign. A world of mutually beneficial trade could turn intoone in which there are no winners without losers, and no victorywithout conflict.

America has become embroiled in trade spats with fast-grow-ing upstarts before; with Japan in the 1980s, for example. Butthese involved democratic countries grateful for American pro-tection during the cold war—and American presidents with quitedifferent characters. A closer analogy might be the early 20th cen-tury, when economic interdependence proved no match for ris-ing nationalism and bad leadership. The fear is that Mr Trump’stariffs are less a way to correct legitimate trade grievances than astep towards a much darker world. 7

Trading peace for war

Sino-American interdependence has been a force forgeopolitical stability

Free exchange

Economist.com/blogs/freeexchange

Fair trade is no robbery

Source: US Census Department

United States trade with China, $bn

400

200

0

200

600

+

–

1995 2000 05 10 15 17

Exports

Imports

Deficit


For daily analysis and debate on science andtechnology, visit

Economist.com/science

1

WHETHER to get a promotion or mere-ly a foot in the door, academics have

longknown that theymustpublish papers,typically the more the better. Tallyingscholarly publications to evaluate their au-thors has been common since the inven-tion of scientific journals in the 17th cen-tury. So, too, has the practice of journaleditors asking independent, usually ano-nymous, experts to scrutinise manuscriptsand reject those deemed flawed—a quality-control process now known as peer re-view. Oflate, however, this habit of accord-ing importance to papers labelled as “peerreviewed” has become something of agamble. A rising number of journals thatclaim to review submissions in this way donot bother to do so. Not coincidentally, thisseems to be leading some academics to in-flate theirpublication listswith papers thatmight not pass such scrutiny.

Experts debate how many journalsfalsely claim to engage in peer review. Cab-ells, an analytics firm in Texas, has com-piled a blacklist of those which it believesare guilty. According to Kathleen Berry-man, who is in charge of this list, the firmemploys 65 criteria to determine whethera journal should go on it—though she is re-luctant to go into details. Cabells’ list nowtotals around 8,700 journals, up from a bitover 4,000 a year ago. Another list, whichgrew to around 12,000 journals, was com-piled until recently by Jeffrey Beall, a librar-ian at the UniversityofColorado. Using MrBeall’s list, Bo-Christer Björk, an informa-

even when he turned to journals on awhitelist of supposedly trustworthy open-access journals, 38% of the 167 he ap-proached fell into the trap.

Dr Bohannon’s experiment did lack atrue control—submission to journals thatstill charge subscriptions. Nevertheless, hisfindings were worrying and since then, hesays, “things have only gotten darker”.

One aspect of that darkness is that com-pilinga blacklisthas itselfbecome risky. MrBeall stopped adding to his last year andleft his job at the University of Colorado inMarch. He claims to have been subjectedto pressure from a superior, to a research-misconduct investigation by the universityand to threats of lawsuits by publishers.The university, for its part, says that nopressure was put on him to take down thelist. As far as it is aware that decision washis, and his job was never in jeopardy be-cause of his work researching open-accessjournals. It cannot, however, disclosewhether or not there was a research-mis-conduct investigation. Disclosure happensonly after a finding has been made in suchan investigation. Mr Beall’s list has beentaken up by another researcher who hassince appended 690 new journals to it. Butthis new custodian refuses to be named.

Meanwhile, at Cabells, Ms Berrymanreckons the publishers of bogus journalsare getting ever cannier. She has seen casesof journals she regards as suspect claimingto be on whitelists, fabricating citationscores for papers, stating plausible timeframes for peer review (claims of rapid re-view are often associated with question-able journals) and brazenly listing as sit-ting on their editorial boards scholars whoare not in fact doing so.

Ms Berryman says, too, that some web-sites copy wording and graphics used bylegitimate journals. Other sites go further,assuming a name that is confusingly simi-lar to that of a reputable journal. And ac-

tion scientist at the Hanken School of Eco-nomics, in Helsinki, estimates that thenumber of articles published in question-able journals has ballooned from about53,000 a year in 2010 to more than400,000 today. He estimates that 6% of ac-ademic papers by researchers in Americaappear in such journals.

Behind all this is a change in the way alot of journals make their money. Over thepast decade, many have stopped sellingsubscriptions. Instead, theycharge authorsa publication fee and permitpeople to readthe result for nothing. This “open access”business model has the advantage of in-creasing the dissemination of knowledge,but it also risks corrupting the knowledgethus disseminated.

Trouble with lichenThe truth of this was shown as far back as2013, in an experiment conducted by JohnBohannon, a journalist with a doctorate inmolecular biology. Dr Bohannon set up asting operation by writing versions of a pa-per falsely claiming that a molecule foundin lichens inhibits cancer. The papers fea-tured, he says, “laughably bad” method-ology and a shocking conclusion that themolecule is “a promising new drug” de-spite an absence ofclinical trials. He attrib-uted the papers to fictional biologists atmade-up African medical institutes andthen submitted them to open-access jour-nals. Of121chosen from a blacklist, 69% of-fered to publish the paper for a fee, and

Scientific journals

Publish and don’t be damned

Some journals that claim to screen academicpapers with rigorous peerreview donot do so

Science and technologyAlso in this section

68 How to win a penalty shoot-out

69 Commercial space flight in China

69 A new gibbon species—in a tomb

70 Moths and magnetism

68 Science and technology The Economist June 23rd 2018

1

2 cording to Ivan Oransky, co-founder of Re-traction Watch, a pressure group,questionable journals now also occasion-ally retract articles in a bid to appear re-sponsible, in what can only be describedas a superb piece ofsubterfuge.

None of this would matter if institu-tions hiring academics were appropriatelyvigilant about checking candidates’ publi-cation histories against blacklists, and sim-ilarly inquisitive about the publications ofthose already employed. But some, appar-ently, are not. According to Brian Nosek,head of the Centre for Open Science, a not-for-profitorganisation in Virginia that stud-ies the matter, many institutions that hireand promote researchers seem uncon-cerned about where those researchershave been publishing—a problem madeworse by recent requirements by theAmerican and Canadian governmentsthat taxpayer-funded research must bepublished in open-access journals.

Unsurprisingly, this is an area in whichdata are hard to come by. But one academichas been prepared to stickhis neckout andinvestigate his own institution. Last yearDerek Pyne, an economist at ThompsonRiversUniversity’sbusiness school, in Brit-ish Columbia, published a paper in theJournal of Scholarly Publishing, itself pub-lished by the University of Toronto Press.In it, he reported that many of the businessschool’s administrators, and most of itseconomics and business faculty with re-search responsibilities, had published injournals on Mr Beall’s blacklist. Dr Pynealso claimed that these papers seemed tofurther their authors’ careers. Of the pro-fessors who had published in the black-listed journals, 56% had subsequently wonat least one research award from theschool. All ten instructors promoted to fullprofessorduring the studyperiod had pub-lished in a journal on Mr Beall’s list.

Subsequently, Dr Pyne told school offi-cials that an administrator up for promo-tion had published widely in blacklistedjournals. This earned Dr Pyne an e-mailfrom the university’s human-resources de-partment on June 15th, threatening himwith disciplinary action for “defamatorylanguage and accusations”. When asked,the university declined to comment.

Review peer reviewWhat can be done about all this is hard tosay. Dr Pyne thinks part of the problem isthat too many academic administratorshave no research experience, and so eithercannot tell good publications from bad, ordo not care. Few researchers, though, thrillto the idea of a career in administration, sochanging that might be difficult. An ex-treme reaction, albeit one supported by agrowing minority of researchers whothink the peer-review system is anywaycreaking under the weight of publicationpressure, would be to abandon anony-

mous peer review altogether, and makethe process open and transparent. Thiscould be done (as sometimes happens al-ready) by publishing unreviewed paperson special servers and then inviting criti-cism conditional on the name of the criticbeing public. That, though, brings otherrisks. Anonymous critics often find it easi-er to be honest, especially in fields wheremost researchers know each other.

One far-fetched solution is a return tojournal subscriptions. These have for solong been excoriated as rent-seeking profit-inflators restricting the flowofinformationthat a change of course would now be un-thinkable. But those who pushed for theirelimination might be wise to pause forthought. As the old proverb has it, be care-ful what you wish for. You might get it.7

WHEN the World Cup, now underwayin Russia, progresses to the knockout

phases of the competition on June 30th at-tention will focus on the dreaded penaltyshoot-out. Forty years ago, if a game waslevel after120 minutes, the winner was de-cided by luck: a simple coin-flip. But in 1978the rules were changed to create resultsthat, at least in some sense, depend onskill. The question is, how much skill?Since 1982, the first competition in whichpenalty shoot-outs actually happened,there have been 26 of them—with seven ofthe 18 teams in the nine pertinent finalshaving arrived there thanks to success atpenalties, and two of the finals themselveshaving been decided by them.

The format of a shoot-out is simple.Teams take it in turn to try to kick five pen-alties past the opposing team’s keeper intothe goal. If the score is even afterfive penal-

ties a side then “sudden death” ensues: vic-tory is achieved by a single winning kickthat is not successfully replied to. Whetherthis is truly less dependent on luck is moot.Analysis suggests that no relationship ex-ists between a team’s general quality andits success in such shoot-outs. What analy-sis does suggest, though, is ways to im-prove the odds ofvictory.

The first is to go first, if given the option.That option is, admittedly, dependent onthe toss of a coin. But if you win the cointoss you should take it, according to Igna-cio Palacios-Huerta of the London Schoolof Economics. After analysing data on1,000 penalty shoot-outs in the World Cupand other competitions, Dr Palacios-Huer-ta found that teams which kick first win60% of the time. Moreover, toss-winningcaptains do usually take this option, soFIFA, world football’s governing body, istrying out a system similar to a tiebreak intennis, in which teams A and B take turnsto shoot first: AB then BA then AB and soon. The current World Cup, however, willkeep the AB then AB format.

The toss having been won or lost, theteams decide the order in which playerswill take their kicks. Coaches typically se-lect the best players to kickfirst, leaving theworst until last. Kickers are successfulthree-quarters of the time, on average, ac-cording to an analysis of penalties by TheEconomist. Yet the success rate falls by 12percentage points for the fourth of the fivepre-sudden-death penalties. This is wherefirst-mover advantage appears to matter.The success rate in the fourth penalty forthe team shooting first is 70%, whereas forthe team shooting second it is just 56%.Thorough analysis of player sequencingby Dr Palacios-Huerta suggests that the im-portance of the five penalties is U-shaped:the first and fifth matter most; the third,least. So the best penalty takers, either intechnique or those who can cope withstress, should be selected with thatin mind.

Once the sequence of kickers is settledthe ball is placed on the spot, 11 metres (36feet) from the goal, the mouth of which is2.4 metreshigh and 7.3 metreswide. Awell-

Football penalties

The lucky 12 yards

There is an optimal strategy to penaltyshoot-outs

Aim high

Sources: Opta; The Economist

Success during penalty shoot-outs* by shot placement, 1976-2016

*434 individual penalties in 44 World Cup and European Championship games

Goal Save Miss

TOP LEFT

BOTTOM LEFT BOTTOM CENTRE

TOP CENTRE TOP RIGHT

BOTTOM RIGHT

The Economist June 23rd 2018 Science and technology 69

1

2 struck ball arrives at the goal line in justhalfa second, meaning that the goalkeepermust dive pre-emptively in the directionthat he expects the kicker to shoot. Goal-keepers find high balls the hardest to dealwith—just 3% of penalties aimed halfwayup the goal or more are saved. Yet there is atendency for these shots to miss the target:18% ofhigh shots do so, as opposed to 5% oflow shots. Overall, though, allowing formisses and saves, high shots are successful79% ofthe time compared with 72% for lowshots (see chart on previous page).

As to the direction, left, right or centre,of both the kicker’s shot and the goalkeep-er’s pre-emptive dive, it is best to be as un-predictable as possible. The data suggestthere is little difference in success rates be-tween shots that are aimed left, right ordown the middle. Yet it is easier for a right-footed player to give the ball speed by aim-ing towards what is, from his point of view,the left-hand side of the goal (the keeper’sright), and vice versa for left-footed play-ers. On average, kickers strike the ball inthis more natural direction 25% more fre-quently than in the other direction. Goal-keepers know these preferences and divein those directions in matching propor-tions, in an attempt to exploit this bias.

Preparation helps, too. The Nether-lands substituted in a specialist penaltystopper, Tim Krul, justahead oftheir shoot-out with Costa Rica in the 2014 World Cup.It worked. He dived in the correct directionall five times and saved two penalties.Conversely, there is no substitute for kick-ing accuracy. Germany, with an 86% penal-ty success rate, has the best record of anytop international team. England’s record,by contrast, is a dismal 66%.7

THE first rockets were Chinese. In the1230s the armies of the Song dynasty,

who were fighting Mongol invaders, start-ed launching “fire arrows” propelled bygunpowder some 300 metres into enemylines. When the Song’s artillerymen real-ised that these arrows continued to flystraight even after their fiery exhaust hadburned away their feathers, they removedthe fletching and the rocket was born.

Almost eight hundred years later ShuChang, the head of a company calledOneSpace, is trying to build on that histori-cal tradition—though not for military pur-poses. The charred and twisted remnantsof OS-X, the firm’s first launch, are strewn

across the floor of its laboratory in Daxing,a suburb of Beijing. The launch took placein May, from an undisclosed location in thenorth-west. OS-X, nine metres tall, climbedto an altitude of40km and travelled 287kmdownrange. It remained airborne for fiveminutes before crashing into desert sands.

This lift-off was a first not only for One-Space but also for China, for it was the firstin that country ofany rocket built by a priv-ate space company rather than a govern-ment agency. It was also the world’s firstflight of a rocket intended to pave the wayfor a commercial, solid-fuelled orbitallauncher.

Solid fuel is easier and cheaper to han-dle than the liquid variety, which requirestanks and pumps, and its higher densitymeans that rockets which use it can bemade smaller than their liquid-fuelledbrethren of equivalent lifting capability.Fine-tuning the flight of a solid-fuelledrocket is harder, though, because the sup-ply of fuel to the motor cannot easily beregulated. For that reason American spacecompanies have followed the liquid-fu-elled path trodden by government spaceagencies around the world. The relativedisadvantagesofsolid fuel do, however, di-minish as rockets get smaller. And sinceOneSpace is not planning to hoist into or-bit the multi-tonne loads carried by, say,the Falcon Heavy lifter of SpaceX, Ameri-ca’s leading private space company, thefirm hopes that the simplicity of solid fuelwill offset its disadvantages.

OS-X was assembled in the laboratorywhere its remnants now reside. But OS-M,the next generation, will be built in a fac-tory now nearing completion in Chong-qing. These solid-fuelled rockets will be 20metres tall and are destined for orbit. Theywill be able to launch payloads of up to205kg—a load the firm hopes eventually toincrease to 750kg by adding four boosterrockets to the main one.

OneSpace’s target is the rapidly grow-ing market for small, short-lived satellitesthat will observe Earth’s surface for va-rious purposes. At the moment these de-vices, which weigh only a kilogram or two,are launched mainly as makeweights onmissions whose principle purpose is to puta large satellite into space. Demand forsmall-satellite launches is now so great,though, that businesses can be built on it.Rocket Lab, an American firm, has recentlybegun offering dedicated small-satellitelaunches, using a liquid-fuelled rocket.OneSpace hopes the first OS-M should belaunched before the end of the year.

The firm, which was founded in August2015, owes its birth to government policies,promulgated a year earlier, that permittedprivate capital to enter the space industry—previously a state monopoly. It is backedby several Chinese venture-capital firms,including Legend Star, Zhengxuan Capitaland the Hongtai Fund. It says it has already

signed a number of contracts to launchsmall satellites for Chinese customers. Itmay not, though, keep its lead for long. Several other firms, including LandSpaceand LinkSpace in Beijing, and ExPace, inWuhan, have similar plans and are press-ing it hard.

It seems, then, that in the small-satel-lite-launch market the Chinese are comingin earnest. With luck, at least from the cus-tomer’s point of view, OneSpace and itsmodern fire arrows are about to ignite aprivate space race. 7

Commercial space flight in China

Fire arrows

BEIJING

A Chinese company plans to launch arocket into orbit this year

ROYAL burials are just not what theyused to be. While still a child, Qin Shi-

huang, who founded the Qin dynasty andunified China in 221BC, ordered a mausole-um built for himself that would measure6.3km across at its widest point and in-clude over 8,000 terracotta figures. Hisgrandmother, Lady Xia, was also buriedwith several companions. When her tombnear Xi’an was excavated in 2004, archae-ologists found in it the remains of a leop-ard, a lynx, a crane and a gibbon—a type ofsmall ape.

Gibbons were treasured in ancient Chi-na. They served as pets for the elite in LadyXia’s time and as models for fine art a few

Archaeology

Dead apes tellingtales

A new species ofgibbon is found in a2,200-year-old tomb

70 Science and technology The Economist June 23rd 2018

2 hundred years later. But the bonesfrom thetomb are particularly extraordinary. In apaper published this week in Science, Sam-uel Turvey of the Institute of Zoology, inLondon, and his colleagues, show thatthey match those of no gibbon alive, somust come from a species that has becomeextinct since Lady Xia’s day.

The gibbon received a burial fit for aqueen—or, at least, a queen’s compan-ion—so its remains were reasonably intact.Dr Turvey and his colleagues were thusable to compare the animal’s skull, jawand teeth with those of modern gibbons.They checked characteristics, such as thedistance between eyes and the outline ofmolars, that are used to distinguish be-tween modern gibbon species, and discov-

ered differences significant enough to mer-it the classification of Lady Xia’s pet as anentirely new one.

The disappearance of this species,dubbed Junzi imperialis by Dr Turvey andhis team, is the firstdocumented extinctionof an ape since the end of the last ice age,about 10,000 years ago. It was probablycaused by habitat loss as China’s humanpopulation expanded at the expense of thecountry’s wild animals. Today, thoughChina still supports wild gibbons, they arerestricted to its southern fringes. Moreover,two gibbon species that once lived therehave recently become locally extinct,though they are still found farther south.Time, perhaps, for another powerful spon-sor to take up the gibbons’ cause?7

BOGONG moths are not as glamorous asmonarch butterflies. Their name

means “brown” in Dhudhuroa, a now-ex-tinct language once spoken in eastern Aus-tralia, where they live. And that is whatthey are—in contradistinction to a mon-arch’s glorious orange and black. But drabthough they may be, bogongs surely matchmonarchs in migratory tenacity.

Monarchs, famously, fly across much ofNorth America, starting or ending theirjourneys in one of a few groves of trees incentral Mexico. An adult monarch, though,migrates only once. During their lifetimes,bogong moths that survive to do so willmake a pair of 1,000km journeys. One isfrom their winter birthing grounds in sun-scorched Queensland and New SouthWales to a small number of cool caves inthe mountains of Victoria where they willspend the summer months resting. Theother is backagain.

How they find their way to and fromthese caves is a mystery. But it is less myste-rious in light of work by David Dreyer andEric Warrant at the University of Lund, inSweden, published this weekin Current Bi-ology. Dr Dreyer and Dr Warrant suggestthat bogongs use a combination of mag-netic compasses and topography.

Several types of animals, includingbirds, turtles and fish, are known to senseand navigate by Earth’s magnetic field, butevidence for such powers in migratory in-sects has been tenuous. A lone experimenthas suggested monarchsmaybe able to de-tect magnetism—but, if so, that is probablyjust a back-up mechanism. Abundant oth-er evidence suggests monarchs navigate

mainly by the sun. For a night-flying moth,though, that is not an option.

To explore any magnetic sense bogongsmight possess Dr Dreyer and Dr Warrantused light traps to capture hundreds of themoths during their migrations over thecourse of two seasons. They and their col-leagues then glued stalks to the moths’backs and, using those stalks, tethered theinsects inside a flight simulator in whichthey were free to “fly” in any direction theywished—though, of course, they could notactually move. The simulator was sur-rounded by a pair of magnetic coils thatcancelled out Earth’s field and replaced it

with one of similar strength that could beturned through 120°. Because experimentslike these, conducted on birds such as pi-geons, have revealed that those animals douse Earth’s magnetic field for navigation,the researchers hoped their set up wouldto do the same with the moths.

It did not. Unlike birds, the moths eitherfailed to react to the movement of the fieldorreacted in an unpredictable manner. Un-willing to give up theirhypothesis, though,Dr Dreyer and Dr Warrant wondered ifthey had simplified their apparatus toomuch. Many nocturnal insects have exqui-site night vision so the two researchersthought that perhaps the absence ofvisualcues within their flight simulator, whichhad been intentional, might actually haveconfounded their experiment.

To test this, they lined the simulator’sinterior with white felt and introduced atriangular black “mountain” above a blackhorizon as a landmark. During the experi-ment they started by keeping theirmagnet-ic field in alignment with Earth’s and then,after five minutes, began moving it. Themoths continued to travel in the same di-rection with respect to the field for aboutthree minutes after the field began movingbut then, presumably as they realised thattheir visual cue and their magnetic cuewere now in conflict with one another,they became disoriented.

This finding suggests that the moths doindeed depend on a magnetic sense tonavigate during their long journey, but thatthey cannot, as it were, fly on instrumentsalone. They have rather to have sight of vi-sual markers as well.

The test of this will be in the next seriesof experiments Dr Dreyer and Dr Warrantare planning, which will move the “moun-tain” and the magnetic field simultaneous-ly. That, they hope will fool the insects intothinking they are flying home.7

Insect migration

Magnetic moment

The first clearevidence ofa sense ofmagnetism in insects

Compass bearing?


For daily analysis and debate on books, arts andculture, visit

Economist.com/culture

1

ON THE Mexican-American border inTijuana stands a building that resem-

bles the hull of a ship. In 2004 authoritiesdiscovered a tunnel that gangsters had duginside it, to smuggle drugs beneath the bor-der wall. Officials jammed the tunnel withconcrete; the building was taken over by across-border arts council, which aims topromote cultural integration betweenMexico and America. These days La Casadel Túnel hostsexhibitionsand workshopsfor aspiring artists. Among the paintingsthat adorn the walls is a diptych of AdolfHitler and Donald Trump.

Up on the roof, with its view across theborder and into southern California, TitoArveola is building the gallery’s café. Wallshave sprung up throughout his life, Mr Ar-veola observes, yet the two countries haveonly grown closer. As a child in the 1970she would cross the border without papersto carry bags for Mexicans buying grocer-ies in American stores. Later he spent threedecades in America legally, cleaning carsfor a living. His current place of work em-bodies a neighbourly bond that is tighten-ing even as politics becomes more vituper-ative. This process is the subject of newbooks by Alfredo Corchado, a Mexican-American journalist, and Andrew Selee,president of the Migration Policy Institute,a think-tank in Washington.

Mr Trump wants the wall to rise higherand stretch farther across the 3,145km fron-tier. He won the White House by telling

nomic forces binding the countries togeth-er are irresistible.

American companies in search ofcheap, diligent labour attract poor Mexi-can migrants or erect factories in Mexico.Products are increasingly made in bothcountries, with some zipping across theborder several times along the way. In Ti-juana the benefits are mutual: once a hubfor factories with unskilled labourers, itnow boasts many educated workers withsophisticated jobs. Meanwhile, securityagencies work together to counter a drugracket that subsists on American demandand respects no boundaries.

Mr Selee’s book shows that what MrTrump characterises as a zero-sum game isin fact a win-win arrangement. At La Casadel Túnel, that is Mr Arveola’s conclusion,too. He thinksMexicanschange when theycross the border. The same people whodrop litter on the streets of Tijuana refrainfrom doing so in San Diego, he says.Though Americans come to Tijuana forbeaches and bars at weekends, on week-days the roadsare full ofMexicansheadingnorth for jobs. “You can tell it is a goodthing to work in America, the cars are allnice models,” Mr Arveola notes.

In this tale ofstrengtheningties, the bor-der-hoppersare the main protagonists. Thenumber in America grew from 3m in 1962to 36m today. Whereas Mexican men oncewent north for seasonal farm work beforereturning home, now whole families ar-rive and put down roots. The remittancesthey send home enrich some of Mexico’spoorest places. At the same time their dis-persal beyond the borderstatesmeans thatmuch of America has become familiarwith Mexican culture. But their visibilityhas also fuelled the nativist backlash thathelped elect Mr Trump.

Mr Corchado, a journalist at the DallasMorning News, has lived this story. In

voters that Mexico was sending its “worst”people, and that trade between the twocountries was unfair to American workers.Many expected his victory to lead to a fun-damental change in relations. Yet in 2017bilateral trade increased. Security co-oper-ation continues. In “Vanishing Frontiers”,Mr Selee argues that the relationship willdeepen further.

Homes are where the heart isBeginning with the sister cities of Tijuanaand San Diego, “Vanishing Frontiers” is anaccount of the people and places at theforefront of this integration. As Mr Selee re-ports, the two cities plan their futures to-gether; theirmayors talkofgoverning a sin-gle urban region. A new privately fundedbridge, which crosses the wall and allowsSan Diegans to walk straight into TijuanaAirport, is a striking symbol of collabora-tion. The practical difficulties of sharing aborder persist, but the underlying eco-

Mexico and America

Love thy neighbour

TIJUANA

Despite the recent surge in nativism, the relationship between Mexico and Americais likely to deepen

Books and artsAlso in this section

72 A biography of Rodrigo Duterte

73 Austro-Hungary revisited

73 Floridian Gothic

74 Johnson: The great debasement

Vanishing Frontiers: The Forces DrivingMexico and the United States Together.By Andrew Selee. PublicAffairs; 336pages; $28 and £20

Homelands: Four Friends, Two Countriesand the Fate of the Great Mexican-American Migration. By AlfredoCorchado. Bloomsbury Publishing; 304pages; $27 and £18.99

72 Books and arts The Economist June 23rd 2018

2 “Homelands” he recounts his experiencesand those of three friends—altogether,three Mexicans and an American of Mexi-can descent—as they grapple with havingtwo countries to call home. The book be-gins in Philadelphia, where the friendsmet, in the 1980s (back when no good te-quila was imported). It eloquently chroni-cles the effects of the North American Free-Trade Agreement between Mexico, Ameri-ca and Canada, the militarisation of theborder after the attacks of September 11th2001and Mr Trump’s victory.

In the early 1990s, when he lived in ElPaso, Texas, and wrote a weekly columnabout trade, Mr Corchado was recognisedat the drive-through window ofa fast-foodchain. “Is it true free trade will rescue usfrom these shitty jobs?” asked the atten-dant who handed over his meal. Twenty-five years later, El Paso has been trans-formed by new highways and bridges, andhas a newfound sense of relevance. Since1994 unemployment in the city has fallenby half. Yet in Mexico, beyond the borderregion, politicians’ predictions aboutNAFTA’s dividends have proved less accu-rate. Despite progress in places like Tijua-na, overall wages have barely budged; dis-illusioned Mexican voters are about toelect a populist president of their own.

The decades-long wave of migrationthat Mr Corchado documents has nowlargely abated. But it has made Mexican-American relations more intimate. Familyties improved Mexicans’ views of theirneighbour (though attitudes have beendamaged by Mr Trump). One American innine is now ofMexican origin, and compa-nies from Netflix to NASCAR are courtingthem. So are Mexican firms which peddlethe comforts of home. Mexican customshave duly found broader followings—notjust tacos and soccer but also drinkable yo-gurt and pay-as-you-go phone contracts, aMexican habit. Cultural influences run theother way, too. The children of Mexicanmigrants prefer English to Spanish, Ameri-can music to Mexican and—increasingly—Protestantism to Catholicism.

At La Casa del Túnel, Mr Arveola con-fides that he was deported back to Mexicoin 2002. “I screwed up,” he says, addingthat, in America, small infractions can leadto deportation. Every morning, perched onthe gallery’s roof, he watches illegal immi-grants jumping the border fence below.Personally he is now content to live in Ti-juana, where he has a wife and youngdaughter, and feels no need to return toAmerica. Still, he would like to obtain avisa for his child, so she can visit her half-dozen aunts and uncles in California.

She will get her first English lessonswhen she starts school later this year, MrArveola says. He wants her to be fluent inboth cultures (and to understand their dif-ferences). Her American name, Hannah, isa testament to his hopes.7

AFTER Rodrigo Duterte won his first elec-tion in 1988—to become mayor of Da-

vao, a city on the troubled southern islandof Mindanao in the Philippines—the shad-ow of the Moon passed over his victory.The local word foran eclipse is also that fora fabulous, fanged sea-serpent: bakunawa.This dark omen epitomises the ghoulishdetail in Jonathan Miller’s biography. Italso captures the almost fantastical natureof Mr Duterte’s life. Since he became presi-dent in 2016, his monstrous tendencieshave emerged in a brutal anti-drugs cam-paign, his treatment of critics and authori-tarian rants. As Mr Miller, a TV journalist,poignantly shows, one of Asia’s oldest de-mocracies and its 103m people are suffer-ing—even ifmany seem to approve.

Mr Duterte presents himself as astraight-talking outsider among Manila’selites. “Duterte Harry” portrays him as thetearaway son of the governor of the prov-ince of Davao, whose upbringing was un-usual but privileged. One of five siblings,he skipped school, chased girls and hungaround with paramilitarypolice who weresupposed to guard him; Mr Miller thinkshis foul language derives from those days.While his devoutly Catholic mother re-tained some control overhim, his antics in-curred a cruel punishment: kneeling onmarbly mung beans with his arms out-stretched. He went on to study law beforeturning his attention to his home town.

For 22 years Mr Duterte ran the city ofDavao, apparently maintaining popularityratings of 96% during that time. When hestood down, the local economy was grow-

ing at more than 9% per year. His toughstance on shabu (crystal meth), and againstthe criminal networks supplying it, laterappealed to voters nationally. Mr Miller il-luminates the darkness behind his boasts.More than 1,400 people are thought tohave been murdered between 1998 and2015 by vigilante killers known as the “Da-vao Death Squad”. Mayor Duterte spokefreely ofcriminals being“legitimate targetsof assassination”, but denied responsibil-ity. One of the book’s most compellingchapters relays a former killer’s account ofthe grisly tasks he says he performed.

Since becoming president, Mr Dutertehas applied his methods on a bigger scale,at a cost ofmore than 12,000 lives so far, ac-cording to human-rights groups. In thecountry’s slums, arbitrary lists of sup-posed drug-users determine who will beshot to death. Notorious for his misogyny,Mr Duterte excoriates female critics withparticular savagery. Senator Leila de Limalanguishes in prison on trumped-up nar-cotics charges afterdaring to investigate hisdealings with the Davao Death Squad.Maria Lourdes Sereno, formerly chief jus-tice of the Supreme Court, was oustedfrom her post in May after she spoke up forjudicial independence.

Yet Mr Duterte remains popular—in apresidency defined by contradictions. Hejokes about rape but has enacted progres-sive sex-discrimination laws; he supportssame-sex marriage and has pushed forgreater access to contraception. He cru-sades against drugs but acknowledged us-ing patches of fentanyl, a synthetic opioid,to relieve lingering pain from a motorbikeaccident (later he claimed he was joking).

Mr Miller’s conclusions echo a psychol-ogist’s report written in 1998 as Mr Du-terte’s marriage broke down. That de-scribed “a highly impulsive individual”who “has difficulty controlling his urgesand emotions” and “seldom feels a senseofguilt or remorse”. “Duterte Harry” deftlyguides readers through this warped politi-cal landscape to reveal the vulnerability ofa tempestuous leader. 7

Rodrigo Duterte

Inner demons

Duterte Harry: Fire and Fury in ThePhilippines. By Jonathan Miller. Scribe; 346pages; £14.99. To be published in America as“Rodrigo Duterte” in September; $17.95

Make his day

The Economist June 23rd 2018 Books and arts 73

1

FLORIDA is a gift to writers. Beneath itsartificial shine lies dark, primeval

swampland; a gulf divides the seen fromthe unseen. Visitors to the Sunshine Statecan quickly find themselves in the realm ofthe gothic, at once fascinated and repelled.

Born and raised in Cooperstown, NewYork, Lauren Groff is one such transplant,and a connoisseur of the tension betweenappearance and depth. Her dazzling thirdnovel, “Fates and Furies”, a portrait of amarriage built on secrets, was nominatedfor the National Book Award. Her new col-lection plunges into similarly murky ter-rain. Many of the 11 stories in “Florida” de-scribe experiences of upheaval, violentdisruptions to life’s placid surface.

There is more than a little of DavidLynch in Ms Groff’s Floridian landscape:exotic and bright, yet pulsing with hidden

American short stories

Swamp creatures

Florida. By Lauren Groff. Riverhead Books;288 pages; $27. William Heinemann; £14.99

What lies beneath

IN HIS novel “The Radetzky March”, pub-lished in 1932, Joseph Roth traces the

changing fortunes of the Trotta familyamid the demise of the Austro-HungarianEmpire. “People lived on memories,” Rothwrites of the era before the first world war,“justasnowthey live by the capacity to for-get quickly and completely.” To the Trottas,life seems to be accelerating; nationalism,militarism and class antagonism are rife.Rumour runs amok. Little wonder that Vi-enna’s Burgtheater recently staged a ver-sion of the story. “We thought it fit thetimes we live in,” says Johan Simons, theplay’s Dutch director.

This reinterpretation of Roth’s novel isone instance of a widespread interest inthe art and style of the old Habsburg em-pire. Last year, for example, Arthur Schnitz-ler’s play “La Ronde”, set in Vienna in the1890s, was staged in London; FedericoTiezzi, an Italian director, is reinterpreting aseries of Schnitzler’s works outside Flor-ence. “Morir”, a Spanish film released lastyear, was also inspired by him.

The revival encompasses painting andmusic too. Spotify, a streaming service, list-

ed Serialism, Arnold Schoenberg’s 12-tonemusical technique, among the “biggestemerging genres” of 2017. Egon Schiele, anAustrian artist, was the subject of a recentbiopic. A current show in Liverpool juxta-poses his workwith modern photography;an installation in Paris focuses on Schieleand Gustav Klimt. Nudes by the pair fea-ture in a forthcomingexhibition at the Met-ropolitan Museum ofArt in New York.

Habsburg culture is back. “Every fewweeks I do a search on Twitter and there isan incredible benevolence about the Habs-burgs,” says Eduard Habsburg, Hungary’sambassador to the Vatican and the formerruling family’s unofficial social-media ma-ven. “There is definitely renewed interest.”

The reasonsfor thisburstofenthusiasmare nuanced, even contradictory. Thisyear’s centennial of the end of the firstworld war, and of the empire’s collapse, ispart of the explanation. So is a sense thatthe anxieties of the late imperial period,years ofdisorientingchange in politics andsociety, overlap with today’s. “It’sa danger-ous time and we need to look very closelyat signs from the past,” says Mr Simons.“We do live in worrying times,” agrees MrHabsburg; “everything is shifting, youhave a feeling you are walking in a fog.”

Yet this notion of the late Habsburg per-iod as a warningcoexistswith nostalgia forits glamour, epitomised by the gold leaf ona Klimt painting. Forever 21, a teen-fashionretailer, has emblazoned the lush art of Al-fonse Mucha (see above), a Czech contem-porary of Klimt, on its denim jackets andsweatshirts. In the same glossyvein, a jointAustrian-Czech-Hungarian-Slovak pro-duction reached farther into the past todramatise the life of the Empress MariaTheresa in the 18th century. The mini-se-ries—eithera celebration ofa Catholic, con-servative epoch ora tale offemale empow-erment, depending on the viewer’sbias—drew big ratings throughout centralEurope. In the Czech Republic, a formerHabsburgterritory, a whopping47% oftele-vision viewers tuned in.

Last train to BudapestAs Philipp Blom, a historian, notes, “peo-ple tend to idealise” the Habsburg empire,even though it was “ultimately torn apartby nationalism”. No one embodies thedual nature ofthe Dual Monarchy’sappealbetter than Stefan Zweig, an Austrian nov-elist with a cult following.

Zweig’s elegant society novels are set ina charmingly liberal Vienna. By contrast,his memoir, “The World of Yesterday”, is arequiem for lost cosmopolitanism. Zweigwas the subject ofa searingbiopic releasedin 2016; he also inspired Wes Anderson’swhimsical film “The Grand Budapest Ho-tel” (2014). In December Brazil posthu-mouslyawarded him the country’shigheststate honour for foreigners, 75 years afterhe and his wife committed suicide there,

having left first Austria and then Europe.“There is an element of escapism into

the great Habsburg era,” says Daniel SetonofPushkin Press, which has reissued sever-al of Zweig’s books in translation, “butthere also seems to be this underlyingsense of tragedy.” Another figure from thelate Habsburg period, Sigmund Freud,might conclude that its culture has becomea canvas on which readers and audiencesproject their own desires and fears. 7

Austro-Hungary revisited

The empire strikesback

With its glitz and neuroses, the cultureof the late Habsburg era is backin vogue

74 Books and arts The Economist June 23rd 2018

2

MOST adults know all the words thatwill appear in this column. But they

may still be shocked to hear them used inpublic, even distinguished, places. RobertDe Niro won a standing ovation at the re-cent Tony Awards for shouting “FuckTrump!” Samantha Bee, in a tirade on hercomedy news show against DonaldTrump’s immigration policy, calledIvanka Trump, his daughter, a “fecklesscunt”. Their main target responded asusual, punchingbackat“no talentSaman-tha Bee” and “Robert De Niro, a very LowIQ individual” on Twitter.

Of course the great pioneer of vulgarpolitical language sits in the Oval Office.During his campaign in 2016, Mr Trumppromised to “bomb the shit” out of Islam-ic State, said voters should tell firms thatmove overseas to “go fuck themselves”,and smirkingly repeated an audiencemember’s dismissal of an opponent as “apussy”. Mr Trump said that a female jour-nalist who had asked him tough ques-tions had “blood coming out of her wher-ever”. In office, he has deridedimmigration from “shithole” countries.

His opponents, flummoxed by hispopularity, have sometimes tried to imi-tate him. It never works, but they neverlearn. When Marco Rubio, a rival for theRepublican nomination, took a puerilepotshot at the size of Mr Trump’s hands—“you know what they say about a manwith small hands”—Mr Trump breezilydefended his genitals at the next debate.Mr Rubio was demeaned; Mr Trumpcruised on. When Michelle Wolf, a come-dian, delivered a foul-mouthed routineattacking the president—“the one pussyyou’re not allowed to grab”—at the WhiteHouse Correspondents’ Dinner in April,her crudeness was more widely discuss-ed than her wit (and there were indeedsome good jokes in there).

In fact, the language ofpolitics has beengrowing more informal for half a century.The 1960s and 1970s—which featured as-sassinations, Watergate and Vietnam inAmerica, and left-wing uprisings in Eu-rope—led people to mistrust their “betters”and their lofty, crafted rhetoric. Television,seeming to close the physical distance be-tween viewers and viewed, rewarded anintimate, apparently genuine style inwhich politicians sounded like their vot-ers, not above them. The impersonalityand spontaneity of social media, whichare edging out newspapers in news deliv-ery, is fuelling the trend.

This is not only an American phenome-non. Russia’s Vladimir Putin once vowedto pursue terrorists everywhere—even “inthe shithouse”. Rodrigo Duterte of the Phil-ippines has called both BarackObama andthe pope a “son of a whore”. Both presi-dents remain popular in their countries,practising a rhetorical form of violence

alongside the physical kind.But in America the combination of

vulgarity with the country’s extreme po-larisation is producing a toxic mix. Politi-cians and public figures are literally dehu-manising theiradversaries. MrTrump hascalled some illegal immigrants “animals”and said they are “infesting” America. Ro-seanne Barr, an actress, called Valerie Jar-rett, a black adviser to Mr Obama, an off-spring of the film “Planet of the Apes”.Michael Avenatti, a lawyer who is suingthe president, called one of Mr Trump’slawyers, Rudy Giuliani, a “pig”; New Yorkmagazine depicted Mr Trump as a pig onits cover. It is not altogether panicky tonote that genocides are preceded by de-humanisation: the Nazis and the Rwan-dan genocidaires called their victims ver-min. If your opponents are pigs or apes, itis worth doing almost anything to keepthem from power.

America has entered a rhetorical vi-cious circle that may be impossible to es-cape. During the election of2016 MichelleObama, then the First Lady, said that“when they go low, we go high.” Thosegrand words have withered in the heat ofthe new era. Neither side is willing tostand down unilaterally in an escalatingwar of words. In this climate, Democratswill have little cause for complaint whenthe vilest of language is flung at theirnominee in 2020.

Is the country ofLincoln, MLK and JFKon an irreversible slide towards the rheto-ric of the sewer? In 2016 many voterswanted a candidate who reflected theiranger. Today many are troubled by thetone of debate, too. The problem is that,even if they prefer civil politics in general,they want the toughest possible fighter ontheir side. If they continue rewardingloathsome language, they should prepareto hear a lot more of it.

Out of their whereversJohnson

American political language has crossed a rhetorical Rubicon, and there may be no going back

malevolence. In “Eyewall”, a wife drinksher faithless late husband’s expensive Bur-gundy; a hurricane that batters her houseinduces a series of spectral encounters. In“Dogs Go Wolf”, two little girls are aban-doned on a blistering fishing atoll. In “TheMidnight Zone”, a mother and her sons aremarooned in “an old hunting camp ship-wrecked in twenty miles ofscrub”.

Real and metaphorical storms prolifer-ate, along with ghosts, alligators andsnakes. Two menaces in particular slitherthrough Ms Groff’s work: the obliterationof women by marriage and motherhood,and looming environmental collapse. The

same unnamed woman features in twinstories that frame the collection. In one sheroams the gentrified neighbourhoods ofher town, ambivalent about both Floridaand the pernicious expectations underwhich mothers labour. There is a hilariousriff on her failed attempt to make Hallow-een outfits; beleaguered costume-makerseverywhere will smile in recognition.

Less whimsically, the same charactercontemplates the brutality of contempo-rary politics. She finds a young womanwho has been attacked in an alley; she“can feel in [her] bloodstream the new ven-om that has entered the world”. At the

same time she is preoccupied by “glaciersdying like living creatures, the great Pacifictrash gyre, the hundreds of unrecordeddeaths of species, millennia snuffed out asif they were not precious.”

Against these threats Ms Groff sets theparticularity of individual lives, love andabove all language. Her own is alive toFlorida’s lush, beguiling beauty. Lost in theswamp at night, her unnamed characterobserves how screen doors “pulsed withthe tender bellies of lizards”. Ms Groff’swriting is marvellous, her insights keen,each story a glittering, encrusted treasurehauled from the deep. 7

75


Courses

Economic data% change on year ago Budget Interest Industrial Current-account balance balance rates, % Gross domestic product production Consumer prices Unemployment latest 12 % of GDP % of GDP 10-year gov't Currency units, per $ latest qtr* 2018† latest latest 2018† rate, % months, $bn 2018† 2018† bonds, latest Jun 20th year ago

United States +2.8 Q1 +2.2 +2.8 +3.5 May +2.8 May +2.5 3.8 May -465.5 Q1 -2.6 -4.6 2.93 - -China +6.8 Q1 +5.7 +6.6 +6.8 May +1.8 May +2.3 3.9 Q1§ +121.0 Q1 +1.1 -3.5 3.47§§ 6.47 6.83Japan +1.1 Q1 -0.6 +1.3 +2.6 Apr +0.6 Apr +1.1 2.5 Apr +196.2 Apr +3.9 -4.7 0.02 110 112Britain +1.2 Q1 +0.4 +1.4 +1.8 Apr +2.4 May +2.5 4.2 Mar†† -106.7 Q4 -3.8 -1.8 1.43 0.76 0.79Canada +2.3 Q1 +1.3 +2.3 +4.9 Mar +2.2 Apr +2.1 5.8 May -53.8 Q1 -2.6 -1.9 2.18 1.33 1.33Euro area +2.5 Q1 +1.5 +2.3 +1.7 Apr +1.9 May +1.6 8.5 Apr +485.5 Apr +3.2 -0.8 0.38 0.86 0.90Austria +3.4 Q1 +9.7 +2.9 +3.9 Mar +1.9 May +2.2 4.9 Apr +7.7 Q4 +2.3 -0.6 0.48 0.86 0.90Belgium +1.5 Q1 +1.3 +1.7 +3.5 Mar +1.8 May +1.8 6.3 Apr -0.8 Dec -0.3 -0.9 0.73 0.86 0.90France +2.2 Q1 +0.7 +2.0 +2.1 Apr +2.0 May +1.8 9.2 Apr -7.8 Apr -1.0 -2.4 0.67 0.86 0.90Germany +2.3 Q1 +1.2 +2.2 +2.0 Apr +2.2 May +1.7 3.4 Apr‡ +322.8 Apr +7.9 +1.1 0.38 0.86 0.90Greece +2.3 Q1 +3.1 +1.8 +1.9 Apr +0.6 May +0.7 20.1 Mar -2.9 Apr -1.2 -0.3 4.36 0.86 0.90Italy +1.4 Q1 +1.1 +1.4 +1.9 Apr +1.0 May +1.2 11.2 Apr +53.5 Apr +2.7 -2.0 2.56 0.86 0.90Netherlands +2.8 Q1 +2.1 +2.8 +5.0 Apr +1.7 May +1.5 4.9 Apr +84.9 Q4 +9.7 +0.8 0.54 0.86 0.90Spain +2.9 Q1 +2.8 +2.7 +11.0 Apr +2.1 May +1.5 15.9 Apr +26.2 Mar +1.8 -2.2 1.19 0.86 0.90Czech Republic +3.7 Q1 +1.6 +3.5 +5.5 Apr +2.2 May +1.8 2.3 Apr‡ +0.9 Q1 +0.7 +0.9 2.19 22.3 23.7Denmark -1.3 Q1 +1.7 +1.8 +6.1 Apr +1.1 May +1.1 4.0 Apr +20.9 Apr +7.7 -0.7 0.42 6.44 6.69Norway +0.3 Q1 +2.5 +1.9 -1.3 Apr +2.3 May +2.2 3.9 Mar‡‡ +22.8 Q1 +6.5 +4.9 1.78 8.17 8.56Poland +5.2 Q1 +6.6 +4.2 +5.3 May +1.7 May +1.9 6.1 May§ -0.8 Apr -0.7 -2.2 3.17 3.73 3.81Russia +1.3 Q1 na +1.8 +3.7 May +2.4 May +3.0 4.7 May§ +41.7 Q1 +3.3 +0.3 8.13 63.6 59.7Sweden +3.3 Q1 +2.9 +2.7 +3.2 Apr +1.9 May +1.7 6.5 May§ +16.8 Q1 +3.4 +0.8 0.49 8.89 8.80Switzerland +2.2 Q1 +2.3 +2.2 +8.7 Q4 +1.0 May +0.8 2.6 May +66.6 Q4 +9.2 +0.8 0.01 0.99 0.98Turkey +7.4 Q1 na +4.3 +5.1 Apr +12.1 May +10.9 10.1 Mar§ -57.1 Apr -5.5 -2.8 16.88 4.74 3.55Australia +3.1 Q1 +4.2 +2.8 +4.3 Q1 +1.9 Q1 +2.2 5.4 May -36.8 Q1 -2.5 -1.0 2.62 1.36 1.32Hong Kong +4.7 Q1 +9.2 +3.6 +1.0 Q1 +1.9 Apr +2.5 2.8 May‡‡ +14.7 Q4 +3.7 +1.9 2.30 7.85 7.80India +7.7 Q1 +10.1 +7.3 +4.9 Apr +4.9 May +4.7 5.3 May -48.7 Q1 -2.2 -3.5 7.83 68.1 64.5Indonesia +5.1 Q1 na +5.3 +4.7 Apr +3.2 May +3.6 5.1 Q1§ -20.9 Q1 -2.2 -2.5 7.23 13,932 13,289Malaysia +5.4 Q1 na +5.6 +4.5 Apr +1.8 May +1.9 3.3 Apr§ +12.2 Q1 +2.7 -3.3 4.23 4.01 4.28Pakistan +5.4 2018** na +5.4 +4.2 Apr +4.2 May +5.0 5.9 2015 -16.7 Q1 -5.8 -5.4 8.50††† 121 105Philippines +6.8 Q1 +6.1 +6.4 +31.0 Apr +4.6 May +5.1 5.5 Q2§ -1.9 Mar -1.2 -1.8 6.35 53.5 50.1Singapore +4.4 Q1 +1.7 +3.2 +9.1 Apr +0.1 Apr +0.8 2.0 Q1 +61.7 Q1 +20.4 -0.7 2.54 1.36 1.39South Korea +2.8 Q1 +4.1 +2.9 +0.9 Apr +1.5 May +1.8 4.0 May§ +69.2 Apr +4.8 +0.7 2.62 1,105 1,135Taiwan +3.0 Q1 +0.8 +2.7 +3.1 Mar +1.6 May +1.5 3.7 Apr +84.8 Q1 +13.5 -0.9 0.97 30.2 30.4Thailand +4.8 Q1 +8.1 +4.1 +4.0 Apr +1.5 May +1.4 1.1 Apr§ +50.2 Q1 +9.8 -2.9 2.61 32.8 34.0Argentina +3.6 Q1 +4.7 +2.2 +3.2 Apr +26.4 May +25.1 7.2 Q4§ -30.8 Q4 -4.6 -5.1 8.23 27.8 16.1Brazil +1.2 Q1 +1.8 +2.2 +8.9 Apr +2.9 May +3.4 12.9 Apr§ -8.9 Apr -1.1 -7.1 9.59 3.75 3.31Chile +4.2 Q1 +4.9 +3.7 +7.6 Apr +2.0 May +2.4 6.7 Apr§‡‡ -3.1 Q1 -1.1 -2.0 4.60 640 664Colombia +2.8 Q1 +2.8 +2.5 +10.4 Apr +3.2 May +3.3 9.5 Apr§ -9.8 Q1 -3.0 -2.0 6.61 2,922 3,029Mexico +1.3 Q1 +4.6 +2.1 +3.8 Apr +4.5 May +4.4 3.4 Apr -15.9 Q1 -1.7 -2.3 7.83 20.4 18.1Peru +3.2 Q1 +5.6 +3.7 +20.3 Apr +0.9 May +1.7 7.0 Mar§ -2.9 Q1 -1.6 -3.5 na 3.28 3.28Egypt +5.3 Q4 na +5.4 +3.7 Apr +11.5 May +17.5 10.6 Q1§ -9.3 Q4 -3.2 -9.6 na 17.9 18.1Israel +4.0 Q1 +4.5 +3.8 +4.2 Mar +0.5 May +1.5 3.9 Apr +9.7 Q1 +2.6 -2.4 1.99 3.63 3.55Saudi Arabia -0.9 2017 na +1.0 na +2.6 Apr +4.4 6.0 Q4 +15.2 Q4 +7.0 -4.4 na 3.75 3.75South Africa +0.8 Q1 -2.2 +1.9 -1.6 Apr +4.4 May +4.8 26.7 Q1§ -8.6 Q4 -2.7 -3.5 9.02 13.7 13.1

Source: Haver Analytics. *% change on previous quarter, annual rate. †The Economist poll or Economist Intelligence Unit estimate/forecast. §Not seasonally adjusted. ‡New series. **Year ending June. ††Latest 3 months. ‡‡3-month moving average. §§5-year yield. †††Dollar-denominated bonds.

76 The Economist June 23rd 2018Economic and financial indicators

The Economist June 23rd 2018 Economic and financial indicators 77

Other markets% change on

Dec 29th 2017

Index one in local in $Jun 20th week currency terms

United States (S&P 500) 2,767.3 -0.3 +3.5 +3.5

United States (NAScomp) 7,781.5 +1.1 +12.7 +12.7

China (Shenzhen Comp) 1,612.6 -6.9 -15.1 -14.6

Japan (Topix) 1,752.8 -2.6 -3.6 -1.1

Europe (FTSEurofirst 300) 1,498.1 -1.3 -2.1 -5.7

World, dev'd (MSCI) 2,111.4 -1.3 +0.4 +0.4

Emerging markets (MSCI) 1,085.0 -4.5 -6.3 -6.3

World, all (MSCI) 510.8 -1.7 -0.4 -0.4

World bonds (Citigroup) 937.3 -0.1 -1.4 -1.4

EMBI+ (JPMorgan) 777.9 -0.7 -7.0 -7.0

Hedge funds (HFRX) 1,270.8§ -0.3 -0.4 -0.4

Volatility, US (VIX) 13.4 +12.9 +11.0 (levels)

CDSs, Eur (iTRAXX)† 68.6 -0.8 +51.9 +46.3

CDSs, N Am (CDX)† 62.9 -1.1 +28.1 +28.1

Carbon trading (EU ETS) € 14.2 -7.0 +75.2 +68.7

Sources: IHS Markit; Thomson Reuters. *Total return index.†Credit-default-swap spreads, basis points. §Jun 18th.

The Economist commodity-price index2005=100

% change onone one

Jun 12th Jun 19th* month year

Dollar Index

All Items 156.2 149.2 -5.1 +5.7

Food 155.0 147.9 -8.2 -3.6

Industrials

All 157.5 150.6 -1.7 +17.1

Nfa† 148.1 141.6 -4.2 +9.4

Metals 161.5 154.4 -0.7 +20.5

Sterling Index

All items 212.8 206.0 -3.3 +1.2

Euro Index

All items 164.8 160.4 -3.4 +1.7

Gold

$ per oz 1,298.9 1,274.1 -1.4 +2.5

West Texas Intermediate

$ per barrel 66.4 65.1 -9.9 +49.6

Sources: Bloomberg; CME Group; Cotlook; Darmenn & Curl; FT; ICCO;ICO; ISO; Live Rice Index; LME; NZ Wool Services; Thompson Lloyd &Ewart; Thomson Reuters; Urner Barry; WSJ. *Provisional†Non-food agriculturals.

Markets % change on

Dec 29th 2017

Index one in local in $ Jun 20th week currency terms

United States (DJIA) 24,657.8 -2.2 -0.2 -0.2

China (Shanghai Comp) 2,915.7 -4.4 -11.8 -11.3

Japan (Nikkei 225) 22,555.4 -1.8 -0.9 +1.6

Britain (FTSE 100) 7,603.9 -1.3 -1.1 -3.7

Canada (S&P TSX) 16,421.0 +1.0 +1.3 -4.4

Euro area (FTSE Euro 100) 1,198.8 -1.3 -0.9 -4.6

Euro area (EURO STOXX 50) 3,435.3 -1.3 -2.0 -5.6

Austria (ATX) 3,268.6 -2.6 -4.4 -8.0

Belgium (Bel 20) 3,745.8 -1.8 -5.8 -9.3

France (CAC 40) 5,390.6 -1.1 +1.5 -2.3

Germany (DAX)* 12,678.0 -1.6 -1.9 -5.5

Greece (Athex Comp) 766.1 -0.5 -4.5 -8.0

Italy (FTSE/MIB) 22,084.3 -0.6 +1.1 -2.7

Netherlands (AEX) 554.6 -1.7 +1.8 -1.9

Spain (IBEX 35) 9,755.4 -1.5 -2.9 -6.5

Czech Republic (PX) 1,068.2 -1.3 -0.9 -5.7

Denmark (OMXCB) 888.8 -0.8 -4.1 -7.8

Hungary (BUX) 34,972.4 -2.5 -11.2 -17.8

Norway (OSEAX) 1,007.7 -1.0 +11.1 +10.7

Poland (WIG) 55,912.0 -4.7 -12.3 -18.3

Russia (RTS, $ terms) 1,096.9 -4.4 -5.0 -5.0

Sweden (OMXS30) 1,564.9 -0.4 -0.8 -9.2

Switzerland (SMI) 8,463.4 -2.0 -9.8 -11.7

Turkey (BIST) 94,436.8 +1.0 -18.1 -34.4

Australia (All Ord.) 6,274.6 +2.3 +1.7 -3.7

Hong Kong (Hang Seng) 29,696.2 -3.3 -0.7 -1.2

India (BSE) 35,286.7 -1.3 +3.6 -3.2

Indonesia (JSX) 5,884.0 -1.8 -7.4 -9.8

Malaysia (KLSE) 1,709.8 -3.1 -4.8 -3.8

Pakistan (KSE) 43,682.8 +0.4 +7.9 -1.4

Singapore (STI) 3,315.9 -2.3 -2.6 -4.2

South Korea (KOSPI) 2,363.9 -4.2 -4.2 -7.5

Taiwan (TWI) 10,927.4 -2.2 +2.7 +1.3

Thailand (SET) 1,664.3 -3.1 -5.1 -5.8

Argentina (MERV) 29,118.5 -3.7 -3.2 -34.2

Brazil (BVSP) 72,123.4 nil -5.6 -16.5

Chile (IGPA) 27,383.8 -2.0 -2.1 -6.3

Colombia (IGBC) 12,069.1 -1.9 +5.1 +6.8

Mexico (IPC) 46,759.4 nil -5.3 -10.0

Peru (S&P/BVL)* 20,445.3 -3.3 +2.4 +1.0

Egypt (EGX 30) 16,067.8 -0.7 +7.0 +6.3

Israel (TA-125) 1,376.1 -1.2 +0.9 -3.8

Saudi Arabia (Tadawul) 8,270.5 nil +14.4 +14.4

South Africa (JSE AS) 56,253.3 -3.7 -5.5 -15.1

Indicators for more countries and additionalseries, go to: Economist.com/indicators

Euro area

Sources: OECD; Eurostat

GDP, Q4 2007=100

2007 08 09 10 11 12 13 14 15 16 17 1870

80

90

100

110

120

Euro area

Germany

Greece

Spain

France

Italy

The euro area is five years into an eco-nomic upswing. Though growth is likelyto slow, loose monetary policy and recov-ery elsewhere in the world mean GDPwillincrease by 2.2% in 2018 and 2.1% in2019, according to the OECD, a club ofmostly rich countries. Labour markets areimproving and support for the commoncurrency is at an all-time high. However,high levels of public debt still burdenseveral countries. The legacy of thefinancial crisis of 2007-08 remains stark:the Greek economy is 24% smaller than in2007 and the Italian economy 4% small-er. Aggregate investment in the euro areais not expected to reach pre-crisis levelsuntil 2019.


WHEN the news came through in 1970that Miguel Obando y Bravo had

been appointed Archbishop of Managua,the capital of Nicaragua, a journalist fromLa Prensa was despatched to find him. Itwas not an easy task. He was not in hishouse in Matagalpa, of which he was thenauxiliary bishop. But after fording fast riv-ers, trekking through forest and bravingmountain roads, the journalist found him.He wasmounted on a mule, in a wide som-brero and rough riding trousers, makinghis usual rounds of the diocese. The onlyhint of priestliness lay in the spectaclesgleaming on his broad, dark mestizo face,and the high-collared white jacket strain-ing its buttons across his boxer’s chest.

The new archbishop saw himself as apriest of the common people, a good Sale-sian (for that was his formation) carryingout the Catholic church’s “option for thepoor”. He had been born poor himself, in acamp outside the shabby ranching-and-mining town of La Libertad in Chontalesprovince, the illegitimate son of a prospec-tor and an Indian peasant woman. Butnow he faced quite different pressures. Thefirst came in the form of a shiny new Mer-cedes sent to him by Anastasio Somoza,Nicaragua’s dictator. He enjoyed it, this“wedding present” that bound him to hisarchdiocese, until colleagues pointed out

that it also tied him to Somoza. That op-pressor of the ground-down campesinosnow called him “my little Indian”. He raf-fled the car and gave the money to thepoor, but this was the start of many sharpswerves between right and left.

In his own mind, his career had clearthemes. He was not a complicated man.Hiseducation in variousCentral Americanseminaries had been wide, but intellectu-alism seemed, to him, a foreign thing. HisCatholicism was simpler, more Nicara-guan, and of the old hierarchical style thepeople loved: vestments, incense, prayersto the saints, spiritual instruction. When asavage earthquake struckManagua in 1972,he took to the streets in his broken shoesand torn soutane to succour his sheep. Hisepiscopal motto, from 1 Corinthians, wasMe hice todo para todos, “I did everythingfor everyone.”

The kingdom ofGodSo tyranny had to be resisted, but oblique-ly, with a biblical reference or a parable inhis slowly spoken sermons; he preferred tobe a drop of eroding water, not a spear-head. Under Somoza, he urged respect forhuman rights and signed the bishops’ let-ter of June 1979 that called revolution legiti-mate “in the case ofevident and prolongedtyranny”. Though the call to arms was care

ful, Somoza never forgave him. The littleIndian was now “Comandante Miguel”.

When the Sandinistas took over laterthat year, he broadly welcomed it. A pasto-ral letter warned against “false socialism”,but he still hoped Nicaragua might pro-claim the justice of the Kingdom of God. Avain hope; the regime of Daniel Ortegaemerged as Marxist-Leninist, and the arch-bishop’s sermons began to warn of ty-ranny again. Increasingly he backed theright-wing contras, funded by the UnitedStates, despite their atrocities in the civilwar. In 1985 John Paul II made him a cardi-nal, the first from Central America, in partforhis resistance to the almost Godless left.

Yet he wanted to be a mediator, surelythe proper role for a Christian and a priest.Since the mid-1970s, when he had helpedto end a hunger strike by political prison-ers, he had won a reputation as a peace-maker. When he got his red hat, he hoped itwould mark him out as a man beyond fac-tion. Sandinista leaders did not agree. Al-though, under his aegis, the contras gradu-ally disarmed, for years he was not trulyneutral. Before the elections of 1996 he re-peated, in a sermon, Aesop’s fable of thefrozen viper that revived to bite the handthatwarmed it: a warning to voters that therepackaged Sandinistas had not changedtheir ways. Partly as a result, they lost.

By now he was seen as a man of theright, sometimesa caudillo himself. He wascaught up in financial scandals, such as theimport of luxury cars tax-free (a long wayfrom mules, as people said). His satin vest-ments looked finer, and he hobnobbedwith the rich and corrupt. Yet he had notdone with U-turns; and he was about toperform the strangest of all. He ended upas the adviser and firm friend of thattreacherous snake, MrOrtega, who in 2007became Nicaragua’s president again.

Their paths had crossed before. Cardi-nal Obando, when a priest, had taught himat the Salesian college in San Salvador. Un-der Somoza, he had negotiated his releasefrom jail. Nonetheless, they hated eachotheruntil, in 2004, MrOrtega turned backto Catholicism and, in 2005, CardinalObando officially married him to his long-time mistress. To shocked observers he ex-plained himself, with his usual simplicity,by preaching of the prodigal son.

In fact it was simpler even than that.They both came from La Libertad, underthe mountains and the open-cast mine,where in 2010 they went together for thefeast of La Virgen de la Luz, with proces-sions and brass bands. There they saun-tered, two familiar native sons, and Mr Or-tega opened a new road. Neither mantalked much, because both liked silence.The president may have been contemplat-ing his next betrayals of liberty; but hisstocky old chaplain was perhaps just mar-velling at the convoluted ways ofGod. 7

Cardinal Miguel Obando yBravo, Archbishop ofManagua and sometime striverforpeace in Nicaragua, died on June 3rd, aged 92

Obituary Miguel Obando y Bravo

Priestly duties

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