The Economist - January 2nd - 8th 2010

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The Economist January 2nd 2010 3

Contents 5 The world this week

On the cover Women are gradually taking over the workplace: leader, page 7. Coping with this quiet revolution will be one of the great challenges in coming years, pages 49-51. Feminism and management theory: Schumpeter, page 48

Leaders 7 Women and work We did it! 8 Colombia’s presidential non-campaign Time to enter history 8 Iran in turmoil The beginning of the end? 9 Climate change Planet B 10 Japan’s two lost decades An end to the Japanese lesson Letters 11 On carbon taxes, public-sector workers, Britain, violins Brie ng 17 Waziristan The last frontier

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Volume 394 Number 8663 First published in September 1843 to take part in "a severe contest between intelligence, which presses forward, and an unworthy, timid ignorance obstructing our progress." Editorial o ces in London and also: Bangkok, Beijing, Berlin, Brussels, Cairo, Chicago, Delhi, Frankfurt, Hong Kong, Jerusalem, Johannesburg, Los Angeles, Mexico City, Moscow, New York, Paris, San Francisco, São Paulo, Tokyo, Washington

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United States America, al-Qaeda and home-made bombs From shoes to soft drinks to underpants Housing and mobility O the road Asian carp advance on Chicago The invaders Tourism in Hawaii Hoping for an Obama eect The politics of rum Sir Henry’s legacy Health reform The home stretch

Brie ng 25 Emerging markets and recession Counting their blessings The Americas 29 Álvaro Uribe’s Colombia Not yet the promised land 30 Reforming Canada’s Senate Adapt or die

Asia 31 Harsh justice in China Don’t mess with us 32 Taiwan and China Trade talks 32 Hmong refugees in Thailand Shown the door 33 Sri Lanka’s displaced Tamils A market-based solution 33 Pakistan’s embattled president Zardari at bay Middle East and Africa 34 Iran’s crackdown Signs of desperation 35 Yemen’s multiple wars A worry for the West 36 Ghana and its oil Dangerously hopeful 36 East Africa’s common market It really may happen

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Europe Germany Angela Merkel’s shaky restart Turkey and its generals These cursed plots The Balkans and the European Union Lightening gloom? An autonomous Vojvodina Exit strategy

Britain 40 The election campaign Under starter’s orders 41 The economy and the election The gures that will count 42 Extraditions to Poland Wanted, for chicken rustling 42 English libel law Taking away the welcome mat

Waziristan The headquarters of Islamist terror has repelled outsiders for centuries. Now the Pakistani government is making a determined eort to control the place, pages 17-20. Pakistan’s president under pressure, page 33

Terror above Detroit The attempted bombing of an airliner highlights gaps in intelligence-sharing and airport security, page 21 . The Yemen connection, page 35

Iran A
oundering regime may have weakened itself with its latest bloody crackdown: leader, page 8. This bout of increasingly erce repression suggests that the mullahs have begun to fear for their future, page 34

1 Contents continues overleaf

4 Contents

The Economist January 2nd 2010

International 43 After Copenhagen China’s thing about numbers 44 Agriculture and climate Farms and forests

45 Japan’s two lost decades The country has taught the world a great deal about coping with the nancial crisis. Now the West is on its own: leader, page 10. Twenty years on, Japan is still paying its bubble-era bills, page 52

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Climate change The Copenhagen accord could yet turn into a useful document: leader, page 9. A draining diplomatic marathon, page 43. Farms and forests, page 44. The response from business, page 47. Better sewage treatment is the latest thing in clean energy, page 59

Business Government and business in France Dirigisme de rigueur Pay-TV in emerging markets Finding El Dorado Taser diversi es its arsenal Proto-RoboCop Clean technology after Copenhagen Waiting for a green light KEPCO wins a nuclear contract Atomic dawn Schumpeter Why feminists do not make good recruiters

Brie ng 56 Mobile-phone culture The Apparatgeist calls Science and technology 59 Renewable energy The seat of power 60 New sources of rubber Blow out 60 Flood defences Dambusterbusters 61 Genetics Monogamouse Books and arts 62 A history of objects Creative impulses 63 The Berlin airlift Magni cent men and machines 64 Water Through the aqueous humour 64 Biography Another eld

Brie ng 49 Women in the workforce Female power

Obituary 65 Oral Roberts Preacher of prosperity

Finance and economics 52 De
ation in Japan To lose one decade may be misfortune 53 Buttonwood 2010 previewed 54 Global house prices Ratio rentals 55 Economics focus Procrastination

69 Economic and nancial indicators Statistics on 42 economies, plus closer looks at GDP growth forecasts for 2010 and mergers and acquisitions

The history of the world A new radio series based around 100 objects at the British Museum shows how the things people made, even more than the events they saw, can be compelling witnesses to the past, page 62 Principal commercial oces: 25 St James’s Street, London sw1a 1hg Tel: 020 7830 7000 Fax: 020 7839 2968/9 6 rue Paul Baudry, 75008 Paris, France Tel: +33 153 936 600 Fax: +33 153 936 603 111 West 57th Street, New York NY10019 Tel 1 212 541 0500 Fax 1 212 541 9378 60/F Central Plaza 18 Harbour Road, Wanchai, Hong Kong Tel 852 2585 3888 Fax 852 2802 7638 Other commercial oces: Chicago, Frankfurt, Los Angeles, San Francisco and Singapore

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The Economist January 2nd 2010 5 Turmoil in Iran increased after security forces
red on antigovernment demonstrators in several cities. State television said that eight people had died, including a nephew of last June’s thwarted presidential candidate, Mir Hosein Mousavi. More than a thousand people were reportedly arrested, including a former foreign minister. Divisions in the ruling clerical establishment deepened. Barack Obama ordered an investigation into why America’s security apparatus failed to stop a man from boarding a jet in Amsterdam, which he then allegedly tried to blow up as it made its
nal approach to Detroit on Christmas Day. Umar Farouk Abdulmutallab was overpowered by fellow passengers after he attempted to detonate explosives on the plane, causing a
re. An alQaeda-aliated group in Yemen claimed responsibility. At least 38 people died in clashes between the police and members of a radical Islamist sect called Kala Kato in Nigeria’s north-eastern state of Bauchi. The violence started when police tried to enforce a ban on open-air preaching. The UN imposed sanctions on Eritrea to punish it for backing Islamist militias in Somalia. Governments in the region, along with the African Union, have been demanding such measures for several months. A South Korean consortium beat French, American and Japanese rivals to win a coveted $40 billion contract to build and run four nuclear reactors in the United Arab Emirates, which will form part of the
rst civilian nuclear-energy project in the Arab world. Mr Obama and his fellow Democrats were con
dent of passing a signi
cant reform of health care in early 2010 after the Senate voted, along party lines, in favour of a bill. Dierences between legislation in the Senate and the House need to be thrashed out before the president gets a bill to sign.

The share prices of Fannie Mae and Freddie Mac soared in response to the Treasury’s recent decision to remove limits on the amount of federal aid to the companies. Fannie and Freddie, America’s biggest government-sponsored enterprises , were bailed out in 2008 amid huge mortgage losses. The amount of public money each could obtain was capped at $200 billion (neither has received that amount), but the Treasury now wants to leave no uncertainty about its commitment to the
rms. In a setback for President Álvaro Uribe’s security policy, Colombia’s FARC guerrillas kidnapped and killed the governor of Caquetá department, south-east of Bogotá. Just hours after his funeral, the mother and three other grieving relatives of a soldier who died during a government raid that killed Arturo Beltrán Leyva, one of Mexico’s top drug-trackers, were murdered in a revenge attack that shocked Mexicans. At a ceremony in Ushuaia in Tierra del Fuego, two Argentine men became the
rst gay people in Latin America to get married. Meanwhile, Mexico City’s legislature voted to legalise gay marriage.

The candidate of the ruling party was eliminated in the
rst round of Croatia’s presidential election, suggesting that voters are grumpy despite more steps towards joining the European Union. In midDecember Serbia, Croatia’s neighbour, formally applied to join the EU. In a sign of renewed tension between the Turkish army and the government, eight special-forces soldiers were briey arrested for allegedly plotting to assassinate a senior politician from the ruling Justice and Development (AK) party. The Basel committee on banking supervision, which sets capital standards for banks around the world, published a consultation document on December 17th that was more stringent than many bankers had expected. Among other things, the committee is calling for a shake-up in the way banks’ capital is measured. Liu Xiaobo, one of China’s best-known political dissidents, was sentenced to 11 years in prison for inciting subversion . Mr Liu had been instrumental in drafting a petition in December 2008 known as Charter 08, calling for radical political reform.

Akmal Shaikh, a Briton convicted of smuggling heroin into China, was executed by lethal injection in the northwestern region of Xinjiang, despite pleas for a review of the man’s mental health. Gordon Brown said he was appalled . More than 4,000 ethnic Hmong refugees were repatriated from Thailand to Laos, despite fears that some of them might face persecution. More than 40 people were killed in a suicide-bombing in Karachi, Pakistan’s biggest city, that targeted a procession of Shia Muslims. There were complaints as India tightened rules for longterm tourist visas, after the arrest of a Pakistani American who was accused of involvement in planning the November 2008 attack on Mumbai. He had travelled to India several times. The governor of the Indian state of Andhra Pradesh, N.D. Tiwari, resigned after a television news channel aired pictures purporting to show him having sex in the company of three women. Mr Tiwari is 84. Other economic data and news can be found on pages 69-70

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Leaders

We did it! The rich world’s quiet revolution: women are gradually taking over the workplace

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T A time when the world is short of causes for celebration, here is a candidate: within the next few months women will cross the 50% threshold and become the majority of the American workforce. Women already make up the majority of university graduates in the OECD countries and the majority of professional workers in several rich countries, including the United States. Women run many of the world’s great companies, from PepsiCo in America to Areva in France. Women’s economic empowerment is arguably the biggest social change of our times. Just a generation ago, women were largely conned to repetitive, menial jobs. They were routinely subjected to casual sexism and were expected to abandon their careers when they married and had children. Today they are running some of the organisations that once treated them as second-class citizens. Millions of women have been given more control over their own lives. And millions of brains have been put to more productive use. Societies that try to resist this trend most notably the Arab countries, but also Japan and some southern European countries will pay a heavy price in the form of wasted talent and frustrated citizens. This revolution has been achieved with only a modicum of friction (see pages 49-51). Men have, by and large, welcomed women’s invasion of the workplace. Yet even the most positive changes can be incomplete or unsatisfactory. This particular advance comes with two stings. The rst is that women are still under-represented at the top of companies. Only 2% of the bosses of America’s largest companies and 5% of their peers in Britain are women. They are also paid signicantly less than men on average. The second is that juggling work and childrearing is dicult. Middle-class couples routinely complain that they have too little time for their children. But the biggest losers are poor children particularly in places like America and Britain that have combined high levels of female participation in the labour force with a reluctance to spend public money on child care. Dealing with the juggle These two problems are closely related. Many women feel they have to choose between their children and their careers. Women who prosper in high-pressure companies during their 20s drop out in dramatic numbers in their 30s and then nd it almost impossible to regain their earlier momentum. Lessskilled women are trapped in poorly paid jobs with hand-tomouth child-care arrangements. Motherhood, not sexism, is the issue: in America, childless women earn almost as much as men, but mothers earn signicantly less. And those mothers’ relative poverty also disadvantages their children. Demand for female brains is helping to alleviate some of these problems. Even if some of the new theories about warm-hearted women making inherently superior workers are bunk (see Schumpeter, page 48), several trends favour the more educated sex, including the
war for talent and the

growing exibility of the workplace. Law rms, consultancies and banks are rethinking their
up or out promotion systems because they are losing so many able women. More than 90% of companies in Germany and Sweden allow exible working. And new technology is making it easier to redesign work in all sorts of family-friendly ways. Women have certainly performed better over the past decade than men. In the European Union women have lled 6m of the 8m new jobs created since 2000. In America three out of four people thrown out of work since the
mancession began have been male. And the shift towards women is likely to continue: by 2011 there will be 2.6m more female than male university students in America. The light hand of the state All this argues, mostly, for letting the market do the work. That has not stopped calls for hefty state intervention of the Scandinavian sort. Norway has used threats of quotas to dramatic effect. Some 40% of the legislators there are women. All the Scandinavian countries provide plenty of state-nanced nurseries. They have the highest levels of female employment in the world and far fewer of the social problems that plague Britain and America. Surely, comes the argument, there is a way to speed up the revolution and improve the tough lives of many working women and their children? If that means massive intervention, in the shape of armative-action programmes and across-the-board benets for parents of all sorts, the answer is no. To begin with, promoting people on the basis of their sex is illiberal and unfair, and stigmatises its beneciaries. And there are practical problems. Lengthy periods of paid maternity leave can put rms o hiring women, which helps explain why most Swedish women work in the public sector and Sweden has a lower proportion of women in management than America does. But there are plenty of cheaper, subtler ways in which governments can make life easier for women. Welfare states were designed when most women stayed at home. They need to change the way they operate. German schools, for instance, close at midday. American schools shut down for two months in the summer. These things can be changed without huge cost. Some popular American charter schools now oer longer school days and shorter summer holidays. And, without going to Scandinavian lengths, America could invest more in its children: it spends a lower share of its GDP on public childcare than almost any other rich country, and is the only rich country that refuses to provide mothers with paid maternity leave. Barack Obama needs to measure up to his campaign rhetoric about
real family values. Still, these nagging problems should not overshadow the dramatic progress that women have made in recent decades. During the second world war, when America’s menfolk were o at the front, the government had to summon up the image of Rosie the Riveter, with her exed muscle and
We Can Do It slogan, to encourage women into the workforce. Today women are marching into the workplace in ever larger numbers and taking a sledgehammer to the remaining glass ceilings. 7

8 Leaders

The Economist January 2nd 2010

Colombia’s presidential non-campaign

Time to enter history Álvaro Uribe should stand aside and let would-be successors campaign to lead Colombia

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ITH a presidential election due on May 30th, Colombians should be plunging into a debate about their troubled country’s priorities for the next four years. Instead, politics is held hostage by a battle begun by Álvaro Uribe, the president since 2002, to change the constitution to allow him to run for a third consecutive term. Later this month or early next the Constitutional Court will rule on the validity of a law that would clear Mr Uribe’s path. The court might reject it, over procedure, or rule that Mr Uribe could stand only in 2014. If it upholds the measure, this must then be approved in a referendum in which at least a quarter of voters turn out, probably to be held in midMarch. If, despite his great popularity, Mr Uribe were unable to secure a high enough turnout, his would-be successors would have only a few weeks to secure a popular mandate. That is an indulgence Colombia cannot aord. Mr Uribe has made his country a better and safer place. Through tireless and determined leadership and by expanding the security forces, backed by American aid, he has reduced the FARC guerrillas from a mortal threat to the democratic state to a scattered, if still dangerous, band. He persuaded tens of thousands of right-wing paramilitaries to disband, albeit under a awed agreement. Greater security has helped to bring a revival of economic growth and national self-con
dence. That is why polls suggest that if Mr Uribe ran, he would win. Mr Uribe has indeed accomplished much. But for Colombia to progress it needs strong institutions rather than an eternal strongman. The ultimate success of Mr Uribe’s tough security policies depends on them being continued by others and on being adjusted. FARC’s kidnap and murder of a provincial governor in late December was a grisly throwback to the bad

old days of a decade ago. There are also new threats from criminal gangs made up of recycled paramilitary types. The next government faces other urgent issues (see page 29). Mr Uribe has failed to reform burdensome labour laws that force younger Colombians into a vast informal economy. His government has spent years talking about improving transport links without doing so. Then there is the judiciary. It has done a vital job of holding government allies and the army to account for their paramilitary links and their human-rights abuses respectively. But in other respects its combination of judicial activism and legal paralysis is damaging. Mr Uribe, who has clashed with judges and upset constitutional balances designed for four-year presidencies, is the last man to be able to reform the judiciary in good faith. The risk of emulating Hugo Chávez Many of the capable Colombians in business and academia who once supported Mr Uribe now want change. His third administration would have to sta itself from a shallow pool of talent on the hard right. These backwoodsmen whisper in the president’s ear that if he relinquishes oce he will be hauled before the International Criminal Court. Yet there is no evidence that Mr Uribe is a criminal. Colombia has several other plausible candidates to choose from who could build on Mr Uribe’s achievements. Other hugely popular and respected democratic leaders in Latin America, such as Brazil’s Luiz Inácio Lula da Silva and Chile’s Michelle Bachelet, have refused to abolish term limits. By following their example Mr Uribe might enter history as a democrat who saved his country. Yet he seems bent on emulating Hugo Chávez, the caudillo of Caracas. It is high time that Mr Uribe let his country begin the stringent presidential debate it so badly needs. He should pre-empt the court judgment, and say now that he will not run this year. 7

Iran in turmoil

The beginning of the end? A oundering regime may have weakened itself with its latest bloody crackdown. Let’s hope so

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O ONE knows whether the Iranian regime’s latest bout of violent repression marks an ill-judged step towards its own much-merited demise or if it will cow the dissenters into sullen but long-lasting acquiescence. But the violence marks a change in the nature of the struggle that has been fought out since last June’s tainted presidential election. The regime may catch its breath before it embarks on another round of shooting and clubbing. But the prospect that it is losing its grip, perhaps even terminally, has now become a lot more credible.

For one thing, the government has become readier to kill its opponents. By its own initial count, 15 people were killed in demonstrations on December 28th, the day of Ashura, one of the holiest in the Shia Muslim calendar; one of the dead was a nephew of Mir Hosein Mousavi, the main victim of the stolen election in June (see page 34). For another thing, divisions within the clerical establishment have become deeper. Inuential clergymen no longer want their religion to be tarred by a regime that would, among other things, punish mourners at services for Grand Ayatollah Hosein Ali Montazeri, in religious terms the most distinguished of the foes of the president, Mahmoud Ahmadinejad, and of the country’s supreme leader, 1 Ayatollah Ali Khamenei.

The Economist January 2nd 2010 2

It is understandable why so many clerics are nervous. The opposition remains largely spontaneous and without a clear leader, but its animus is now directed as much against the hitherto untouchable Mr Khamenei as against his buoonish presidential protégé. The regime’s assorted opponents are becoming a lot readier to question the legitimacy of the entire system of clerical rule that the thwarted candidates for the presidency in June had wanted merely to improve. The fate of Iran will be decided inside the country. Iranians remain quick to resent foreigners’ meddling, real or imagined, and the regime has eagerly sought to exploit such deep-seated feelings. So Barack Obama was right, after the June election when the protests were still young, to step cautiously into Iran’s argument, in the hope
forlorn, as it turned out
that his conciliatory hand might soften the regime towards both its own people and its supposed adversaries abroad. Last weekend, however, the protests came of age. It is hard to gauge opinion in Iran, but one of the protesters’ wishes seems to be better relations with the outside world. So Mr Obama is right again
along with other Western leaders
to speak out forcefully in defence of the opposition. He cannot keep his hand of friendship outstretched while Iran’s rulers, with their own sts, are bashing so many innocent heads. The nuclear conundrum is a separate matter. Iran’s turmoil is making it a lot harder, if not impossible, for the country’s negotiators to strike a deal, even if they wanted to. With the re-

Leaders 9

gime divided, any conciliatory gesture is too easily painted as weakness by one faction or another. The West has proposed a deal whereby Iran would send uranium abroad for further enrichment to feed some reactors for medical purposes in the country, but the government is nigh-certain to miss the end-ofyear deadline for progress. With Mr Khamenei’s very being seeming to depend on hating and mistrusting America, that has led to renewed murmurings about American military action against Iran. That would be a mistake. Not only would a strike be of uncertain military value, but it would also iname the entire region; even those Iranians who detest the regime might then rally to Mr Khamenei. Why sanctions might help So tougher economic sanctions seem sure to follow, with perhaps even Russia and China giving the nod at the UN Security Council. Some of Iran’s admirable dissidents, such as the exiled winner of the Nobel peace prize, Shirin Ebadi, argue that such sanctions would be mistaken, since they hurt the poor hardest and might help consolidate the regime. Sanctions are indeed a blunt and sometimes weak tool. But as Iran’s economy ags, one of the starkest changes wrought by its increasingly ugly regime is that Iranians are beginning to blame their leaders more than foreigners for their woes. The tide may indeed be turning against the supreme leader, his dreadful president and even the cracking carapace of clerical tyranny. 7

Climate change

Planet B How the underwhelming Copenhagen accord could yet turn into a useful document

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ACED with the undoubted grandeur of climate change, World, tonnes bn a grand response seems in order. 30 But, to the immediate disap20 Developing pointment to most of those par10 ticipating and watching, the Industrialised 0 much anticipated UN climate 1990 93 96 99 2002 05 08 conference held in Copenhagen in December led to no such thing. Initial ambitions for a legally binding agreement with numerical targets for big emitters had already been abandoned in favour of a politically binding deal in which developed and developing countries would commit themselves to numerical targets to cut emissions. In the event a few countries produced a short accord that sets down no specic limits for future emissions beyond those that its signatories volunteer (see page 43)
and the commitments they have made so far do not look tough enough to limit the rise in temperature to 2°C above pre-industrial levels, the widely accepted boundary beyond which scientists do not recommend going. Hardly a grand response. Yet the Copenhagen accord is not the disaster that it at rst appears. On two issues in particular the Copenhagen conference may yet mark the beginning of a new way forward. First, the UN’s climate process has for more than a decade been bedevilled by a binary split between developed and developing countries. Under the Kyoto protocol, only developed countries committed themselves to cutting emissions; develIndustrial CO2 emissions

oping countries made no such promises. That was the main reason why Kyoto failed, because America would not accept a treaty that required nothing of countries such as China, and China insisted that the rich world should bear most of the necessary costs of constraining emissions. At Copenhagen developed countries were determined to move beyond this structure; many developing countries to hang on to it. That was the obstacle on which the conference foundered. Yet the Copenhagen accord makes some progress towards closing this split. Developing, as well as developed, countries signed up to it, and have agreed to an international role in monitoring any cuts they commit themselves to. That is a crucial concession. More than they can chew The second reason for hope is that Copenhagen’s failure may have encouraged the development of political structures better suited to the challenge. Climate change is not just an unusually grand problem. It is also an unusually complex one, which crosses and confounds the boundaries that normally dene our world; from farming to forestry, shipping to sovereignty, all sorts of interests are brought together in new ways that demand new actions. Trying to deal with all the sources of the many gases involved in a single set of negotiations, in a forum of 193 countries, was always a tall order. The Copenhagen accord edges towards allowing negotiations to take place in new forums. Some of its provisions, notably on mechanisms for funding mitigation eorts in develop- 1

10 Leaders

The Economist January 2nd 2010

2 ing countries, can take eect outside the UN process. That

could mark a new pluralism in climate politics, allowing coalitions of the willing to form for specic purposes
such as slowing deforestation, or stemming emissions from shipping. There are risks to slicing up the problem into smaller pieces. Bundling everything together, so that all parties need to oer some give in order to get their take, is a time-honoured format for negotiations; and stepping back from doing everything in one forum may mean doing less overall. But the world has twice, at Kyoto and at Copenhagen, tried to deal with the problem in one go, and failed. Smaller groups such as the G20 or the Major Economies Forum oer a better prospect for haggling over dicult issues. The UN process still has a role, in ensuring a workable and trusted system of accounting for car-

bon, and in debating and approving or rejecting agreements whose details will largely be worked out elsewhere. Many problems lie ahead
and not just as a result of Copenhagen’s failures. The main danger lies in the American Senate, which at some point over the next few months will decide whether to approve or reject legislation to set up a capand-trade system to put a price on carbon. That will have more impact than any international conference, including Copenhagen, on the future levels of greenhouse-gas emissions. But global negotiations will need to continue
and the participants need to learn one useful lesson from Copenhagen. Climate change is too big a problem to be swallowed in a single bite. Smaller groups, dealing with more manageable-sized chunks, have a better chance. 7

Japan’s two lost decades

An end to the Japanese lesson Japan has taught the world a great deal about coping with the nancial crisis. Now the West is on its own

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EW Year rally expected on Tokyo market next week. That was a typically boosterish Japanese newswire headline on December 29th 1989, the day that one of the world’s biggest ever asset-price bubbles reached bursting point. Exactly 20 years later the Japanese are still paying the price for such hubris (see page 52). The Nikkei 225 index, which peaked at 38,916, now languishes at just over one-quarter of that level (though once again there is talk of a New Year rally). Japan’s economy has barely grown in nominal terms after two lost decades , and is again suering from deation. Where Japan was once bearing down on America, it now feels the hot breath of China on its neck. Remember Japan as Number One ? These days the country’s chief claim to fame is having a gross government debt burden approaching 200% of GDP. For the Japanese this has all been deeply troubling. But in the past two years, as the Western world has faced many of the same problems that Japan has been grappling with since 1989 (the collapse of asset prices, a surge in distressed debt and a looming threat of deation), Japan has provided some useful lessons on how governments should, and should not, tackle potentially systemic nancial meltdowns. Thanks to the precedent set by Japan, many of these lessons were quickly put into practice. Acting far more swiftly than the Japanese authorities did (the Japanese had the misfortune of having to learn through trial and error), Western policymakers provided liquidity to their banks and forced them to rebuild capital, while pumping in generous doses of scal stimulus to oset the collapse in private-sector demand. And like the Bank of Japan, they slashed interest rates and took extraordinary measures to try to keep credit owing. The ecacy of these steps has led to growing optimism about the world economy. So what is the Japanese lesson now? In many ways, the analogy is no longer terribly helpful. That is partly because the pupils are in a worse pickle than the teacher ever was. The most vulnerable countries, such as Greece, now face a risk that Japan never did: that markets will lose faith in their creditwor-

thiness. Japan, for all its woes, has beneted from a huge pool of domestic savings and investors happier to keep their money at home than abroad. Meanwhile, the scale of the global upheaval makes Japan’s problems, which had little impact overseas and took place against a backdrop of global growth, look small by comparison. And with huge decits in so many nations, the risk of a sudden loss of scal credibility is more acute than it ever was in Japan. But there are other ways in which the pupils are in better shape. That is partly because they have less rigid systems. In the more adaptable Western economies there has been less resistance to structural changes in order to maintain productivity. There are also usually fewer political barriers to dealing with bad private-sector debts than there were in Japan. Moreover Westerners are also reaping the rewards of having acted more decisively than the Japanese did
especially when it came to pumping money into the economy and cleaning up nancial balance-sheets. With fewer zombie banks, fewer signs of entrenched deation and much earlier signs of growth, the West is in uncharted territory: it has arguably already got to a stage that Japan never really did. Nothing more will I teach you today That makes it very dicult to keep on drawing particular lessons from Japan’s sad plight. It does, however, still leave a general lesson common to all economic disasters: don’t be suckered by false signs of economic recovery. In Japan’s case, such hopes have led it repeatedly to tighten scal policy before private demand was strong enough to sustain a recovery. That entrenched deation. Japan also left its banks too short of capital to cope with subsequent shocks. Policymakers in the developed world still have an enormous task on their hands. Many banks have huge writedowns to make on their loans, economies are burdened with excess capacity and households’ debt levels remain high. It would be disastrous to tighten policy too soon, as Japan’s example shows. But Japan provides no useful guidance on when the right time would be. For that, there is only trial and error. And the more errors there are, the more the West’s next decade may look like Japan’s two lost ones. 7

The Economist January 2nd 2010 11

Letters Carbon tax or trade? SIR
The Economist continues to propagate the myth that a carbon tax is preferable to carbon trading (Stopping climate change , December 5th). There are three good reasons for not favouring a carbon tax over a cap-andtrade solution. First, a one size ts all tax requires an impossible calculation of the average cost of reducing emissions over a given period of time. Compare this with an emissions-trading system that works on the free-oating marginal cost of abating emissions. Second, carbon taxes would be levied locally and so impossible to properly administer on a global scale. A global carbonmarket price is perfectly pervasive. And third, taxation cannot guarantee a reduction in greenhouse-gas emissions; emitters could opt to pay the tax and continue emitting at will. Conversely, a cap-andtrade solution introduces a carbon ceiling and the price acts as no more than a useful barometer of how close we are to achieving that goal; prices will tend to zero as the requisite level of emission reductions is achieved. The latter point dispels the political myth that we need to establish a carbon price . Why does it matter if we achieve the necessary quantity of emission abatement at $2 per tonne of CO2 or at $50 per tonne? Our objective ought to be to achieve the environmental goal at the lowest unit cost. This goal can only be accomplished through the exibility of emissions trading. The carbon-tax argument is as extinct as the dinosaurs. James Emanuel Commercial director CantorCO2e London SIR
You asserted that, economists prefer carbon prices, especially those set by taxes rather than cap-and-trade systems, which are more vulnerable to capture by the polluters. This implies that someone has actually polled economists on the question, or

counted pro and con arguments in the environmentaleconomics literature, or at least made some eort to ascertain what economists prefer. Those assumptions would be wrong, as there is still plenty of disagreement on carbon pricing versus cap and trade. Your only argument for dismissing cap and trade is its supposedly greater vulnerability to capture. That in itself is doubtful. Consider an important, and not doubtful, argument on the other side. Finding the correct price, or tax, on carbon emissions requires huge amounts of detailed knowledge of the processes behind the emissions and the marginal costs faced by polluters. It is not possible to appeal to trial and error for establishing the right price because of the lags and the ineciencies implied by the inevitable errors. The great virtue of cap and trade is that the system can be taken directly to the targeted emission reductions. The price that arises out of the market, then, is by denition the correct one. Clifford Russell Professor emeritus of economics Vanderbilt University Nashville, Tennessee SIR
You have published a special report on climate change (December 5th) that is pivoted on the apparent acceptance of projections based on data that neither you nor I have been allowed to see or question openly. It is sad to see the newspaper that I have held in such high esteem blindly prostitute itself to the warmistbrigade consensus on alleged man-made climate change. Be brave like the small child who saw and said that the emperor was wearing no clothes. Carl Thuey Tunbridge Wells, Kent SIR
It is important to keep the debate on climate change alive, so both sides should be grateful for each other. We could learn a lesson from the lm, 12 Angry Men . Henry Fonda’s lone sceptic holds rm against 11 angry jurors to prevent a possibly wrongful conviction. He does this by focusing on the evidence and

not making personal attacks. Each side of the debate on global warming would do well to consider how they measure up to this standard. Benjamin de Foy Assistant professor Department of earth and atmospheric sciences Saint Louis University St Louis, Missouri Valued workers SIR
That you regard publicsector workers to be coddled and spoiled rotten because of their health-care benets and pensions says more about you than the workers (Welcome to the real world , December 12th). You even distorted the evidence, claiming that public employees earn more than those in the private sector. As the Bureau of Labour Statistics makes clear, when comparing pay within occupations public employees do not receive more than their counterparts in the corporate world. We believe that all American workers deserve decent health care and a secure retirement. The decline of unions in the private sector is one reason why those benets are not shared by more families. Contrary to what you might think, it is not government employees who brought the American economy and state and local budgets to the brink of disaster. Rather than attack public employees for negotiating good contracts, we should expand the ability of all workers to bargain for better wages and benets so that they and their families can share in the American Dream. Gerald McEntee President American Federation of State, County and Municipal Employees Washington, DC Britain’s got talent SIR
Bagehot made the point that ‘Good luck to him’ was once a characteristic British attitude to self-made wealth (December 12th). Unlike you, I believe it still is. What riles the British is wealth made through inherited or institutional privilege, monopoly, manipu-

lation of regulation, consumer rip-os, and, as in bankers’ bonuses, gambling with other people’s money, losing, being rescued by the taxpayer, having no bloody gratitude and expecting to start the whole scandalous round all over again. I believe that Britons have as much regard, admiration and absence of jealousy as they ever did for entrepreneurs who succeed through talent or a bright idea exploited through sheer hard work. We also like (though we might be jealous of) a truly lucky winner like a lottery millionaire and admire (though we might think them cocky) a successful TV talentshow contestant who has the guts to run the gauntlet of judges and audience. Baroness Sarah Ludford, MEP London String symphony SIR
Italian violin-makers were not the sole master craftsmen of the art during the 18th century (Older and richer , December 19th). Around 1715 Daniel Parker, an English violin-maker working in London, visited Stradivari’s Cremona workshop, where he acquired an abundance of the master’s secrets, such as the ingredients used to varnish the instrument, wood-ageing and carving techniques, which were unknown to the outside world. Upon returning to London, Parker produced instruments with so gorgeous a tone that when Fritz Kreisler performed on his Daniel Parker violin two centuries later, no one in the audience, not even violinmakers or music critics, could believe that he was not playing his own Strad. Les Dreyer Retired violinist of the Metropolitan Opera orchestra New York 7 Letters are welcome and should be addressed to the Editor at The Economist, 25 St James’s Street, London sw1A 1hg E-mail: [email protected] Fax: 020 7839 4092 More letters are available at: Economist.com/letters

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We release a series of podcasts in which our journalists discuss the likely big events of the coming year

E

ACH Friday The Economist publishes a 20-minute podcast assessing what events political, economic, business or cultural might dominate the news in the forthcoming week. Now, to mark the turn of the year, we are devoting three of these podcasts to weighing up what will make the news over the coming 12 months. The football World Cup, to be held in South Africa in June and July, will be a global showstopper and should draw a cumulative television audience of about 30 billion viewers. For China, however, an Expo in Shanghai may be the bigger occasion. In politics, elections in several countries a

general one in Britain, a presidential one in Brazil, mid-terms in America could see a shift away from centre-left incumbents to centre-right parties. Anxieties over Iran, Iraq and Afghanistan are likely still to dominate international a
airs. A great deal, not least in the economy and business, remains uncertain, but it is clear that governments all over the place will have to grapple with battered public nances and growing debts. Listen to the discussions and brace yourself for the year to come. 7

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Executive Focus

The Economist January 2nd 2010

13

14

Executive Focus INTERNATIONAL TRADE CENTRE APPOINTMENTS OF

DEPUTY EXECUTIVE DIRECTOR AND

CHIEF, STRATEGIC PLANNING, MONITORING AND EVALUATION The International Trade Centre (ITC) provides trade related technical assistance directed at strengthening of the capacity of the business sector, particularly SMEs, in developing countries and countries with economies in transition to increase trade and export potential leading to employment and poverty reduction. Today’s increasingly complex global environment requires the promotion of inclusive development and ITC’s goal of achieving ‘Export Impact for Good’, is at the core of our work. If you are a passionate and committed professional and want to make a lasting difference for exports as a tool for poverty reduction, ITC is the right place to be. The ITC is seeking to appoint two new members to its senior leadership team. The Deputy Executive Director (DED) is the ITC’s chief operating officer. The DED will ensure its human and financial resources are aligned to deliver practical solutions to the countries and businesses ITC seeks to serve. S/he will be results-focussed, will bring a thorough understanding of the way in which global trading systems work and will be familiar with international organisations. The DED will be an experienced senior manager, with a track record of leading complex teams in successful programme delivery in the international environment. The DED will also be a compelling ambassador for ITC, interacting at a senior level with its partners in WTO, UNCTAD and other UN and International Organizations and with politicians, businesspeople and policymakers around the globe. The Chief of Strategic Planning, Monitoring and Evaluation will report directly to the Executive Director and help guide the senior management team in key planning decisions. This person will be a seasoned and insightful strategic planner and bring experience of budgeting, resource allocation and programme delivery. An understanding of the public policy context in which ITC acts will be crucial, as will substantial experience interacting at board level. The successful candidate will possess a wide breadth of perspective on ITC’s activities and an articulate, balanced and confident approach. The ITC has appointed Russell Reynolds to assist it in these recruitments. For further information and details of how to apply, please visit www.rrapublicsector.com or www.intracen.org The closing date for applications is 29th January 2010 ITC does not discriminate on the basis of gender, race, nationality, religion or other social criteria. ITC is fully committed to the implementation of the resolutions of the United National General Assembly for gender mainstreaming and applications from qualified women and men are equally welcome. Applications from women and nationalities from developing and least developing countries are particularly encouraged.

Team Leaders and Senior Policy Analysts Ministry of Foreign Affairs (MoFA) of the UAE The Ministerial Policy Unit has been established to deliver policy advice to the Minister and assist in developing longterm policy. The unit will also be tasked with delivering critical projects and supporting near term objectives. Operating in small teams, members of the unit will work on the department’s highest priorities, including issues of strategic interest. We are looking for team leaders and senior policy analysts to join the unit. Candidates may come from a variety of backgrounds but all should have a record of academic and professional excellence and experience working on major strategy or policy projects. Candidates for the team leader positions should preferably hold a graduate degree from a top international university, and have at least three years professional experience, ideally with an international management consultancy. Senior policy analysts should have a graduate degree in a relevant policy field combined with substantive work experience either in consultancy or at a recognized international think tank or institution. Arabic language skills are not required but are advantageous. Competitive packages will be available for the best candidates. To apply, please send a CV and accompanying letter to [email protected]. Applications should be received by no later than Monday, 10th of January.

The Economist January 2nd 2010

15

Executive Focus

Economists - Consultants London James Alexander Search is currently engaged by a number of leading economic consultancies recruiting experienced economists at various levels to join their established, successful and growing teams.

•

Associate Partner – Competition and Regulatory Economics. Provision of support to clients during investigations by competition and regulatory authorities. Developing the competition and disputes practice and managing a team of dedicated consultants across a range of industry sectors. The successful candidate will have a proven track record in consultancy, a strong academic record in economics and the ambition to sustain and grow the consultancy’s varied client base.

•

Manager/Senior Manager – A number of positions are available in the areas of - competition economics, energy regulation and regulatory cost modelling. The job responsibilities include providing expert advice to internal and external clients in your field, forecasting, market design and definition, spreadsheet modelling, identifying and developing business opportunities and assisting with preparations of client proposals. Strong communication skills both written and oral will be needed. Successful candidates are likely to have previous experience in consultancy, a regulated industry or a regulatory body. Experience in the telecoms, broadcasting and energy sectors would be particularly valuable. Please email your cv in confidence to [email protected] Website www.jamesalexandersearch.com Tel 0208 943 0114

The Economist January 2nd 2010

16

Executive Focus Board of Directors

Lead the generation that defeats child mortality The Global Alliance for Vaccines and Immunization (GAVI) has vaccinated 256 million children and saved 4 million lives. Since 2000, GAVI has invested $3.4 billion in 76 poor nations to combat preventable diseases that still kill 2 million children each year. Now GAVI is rolling out new vaccines to stop the two biggest killers of kids, pneumonia and diarrhea. The GAVI Fund Board seeks new directors to help dramatically scale-up resources to save an additional 11 million children by 2030. Candidates should have the capacity to become vested partners in this endeavor, and possess senior executive experience and/or knowledge of the philanthropic and charitable giving community. For more information: http://everychild.gavialiiance.org Send confidential letters, resumes, and nominations to [email protected] by January 31, 2010

The Economist January 2nd 2010

The Economist January 2nd 2010 17

Brie ng Waziristan

The last frontier Peshawar and Wana

Waziristan, headquarters of Islamist terror, has repelled outsiders for centuries. Now the Pakistani government is making a determined e ort to control the place


Y

OU should enjoy this, said a Pushtun from Waziristan, the most remote and radicalised of the tribal areas in North-West Pakistan that border Afghanistan, as he proered a bottle of Scottish whisky. It was an excellent Sutherland single-malt; but the man was referring to the bottle’s more recent provenance, not its pedigree. He had been given it by a fellow Waziristani working for Pakistan’s Inter-Services Intelligence (ISI) agency. This spy had received the illegal grog from an American CIA ocer. Your correspondent’s friend returned homewards, Scotch in hand, driven by another Waziristani, who is also employed as a xer by al-Qaeda. Waziristan, home to 800,000 tribal Pushtuns, is a complicated place. It is the hinge that joins Pakistan and Afghanistan, geographically and strategically. Split into two administrative units, North and South Waziristan, it is largely run by the Taliban, with foreign jihadists among them. If Islamist terror has a headquarters, it is probably Waziristan. For terrorists, its attraction is its erce independence. Waziristanis (who come mostly from the Wazir and Mehsud tribes) have repelled outsiders for centuries. Marauding down onto the plains of northern Punjab now North-West Frontier Province (NWFP) their long-haired warriors

would rape, pillage and raise a nger to the regional imperialist, Mughal or British, of the day. No government, imperialist or Pakistani, has had much control over them.
Not until the military steamroller has passed over [Waziristan] from end to end will there be peace, wrote Lord Curzon, a British viceroy of India at the turn of the 19th and 20th centuries. With 50,000 Pakistani troops now battling the Taliban in Waziristan, even that may be optimistic. One of the current drivers of the steamroller is Major-General Tariq Khan, head of the army’s 60,000strong Frontier Corps (FC), whose forebears, rulers of neighbouring Tank, were often robbed by the hill-men. For him, Waziristan is
the last tribal area. Despite their remoteness, these tribesmen have often had a hand in the fates of governments in Kabul, Delhi and elsewhere. In 1929 a British-backed Afghan, Nadir Shah, used an army of Wazirs to seize the Afghan throne. A force of Wazirs and Mehsuds was dispatched in 1947 to seize Kashmir for the newly formed Islamic republic, sparking the rst Indo-Pakistan war. In the 1980s Pakistan, America and Saudi Arabia armed them to ght the Soviet army in Afghanistan. In 2001 thousands of Afghan Taliban and their al-Qaeda guests ed to Waziristan. They have resumed their jihad from across the border,

this time against NATO troops aided, Afghans say, by the ISI. Fighting and spying on the frontier is often described as a Great Game, after the 19th-century Russo-British sparring for which the phrase was coined. And on a ve-day visit to South Waziristan in December as a guest of the FC a rare privilege for a foreigner and in interviews with Wazirs and Mehsuds in Peshawar, Islamabad and Lahore, your correspondent was struck by how many used this phrase, speaking of the crises that periodically buet the frontier as a
game, and themselves, through their alliances with one power or another, as
players.
It is all a great game, said Rehmat Mehsud, a Waziristani journalist.
The army, the Taliban, the ISI, they are all involved, and we don’t know who is doing what. Tribal kin may nd themselves playing on dierent teams. For example, a Mehsud army ocer, a member of the most radical Pushtun tribe, whose militant chiefs head a frontier-wide conglomeration of tribally based Islamists known as the Pakistani Taliban, admits that several of his cousins are high-ups in the Taliban. Yet he bears them no ill-will.
We are all Mehsud, he says, over a beer or two.
So long as one family earns, the rest can eat, said another South Waziristani, explaining the advantages of thus spreading political bets. Making for the hills The journey to Waziristan began on December 7th in Peshawar, NWFP’s capital, with a thunderous roar, as just across the street a man blew himself up. Black smoke spewed from the blast-site, a police checkpoint, now obliterated, at the entrance to the province’s high court. Eleven were kil- 1

18 Brie ng Waziristan 2 led. Bloodied policemen and lawyers stag-

gered from the wreckage. As a military convoy carrying your correspondent tried forcing its way through this throng from the adjacent Bala Hisar fort, the FC’s citadel, there was chaos. Horns blared and men and boys shrieked and yelled. Cars attempted impossible Uturns. A police wagon loaded with dead or injured rattled along the pavement, bloodstained limbs apping from its open back. The FC men, representing a medley of frontier tribes, Afridis, Mohmandis, Yusufzai, bullied their way through. At speed, the convoy headed south out of Peshawar for Waziristan. Since mid-October, when over 30,000 Pakistani troops launched an attack on Mehsud territory, a retaliatory terrorism spree has ripped through every large Pakistani city, including Peshawar, Islamabad, Rawalpindi, Lahore and Multan. Over 500 have been killed and thousands injured, mostly by suicide-blasts executed by indoctrinated young Mehsuds. Senior army ocers, who have lofty status in a country ruled by them for half its history, have been among the dead. Among 40 killed in a commando-style attack on a crowded mosque in Rawalpindi last month was the only son of Lieutenant-General Masood Aslam, commander of Pakistan’s northwestern campaign. Bowling along the frontier, over castellated ridges, boulder-strewn plains and rounded limestone hills, there was much evidence of recent explosions. A jagged crater, in the Indus highway that spans Pakistan north-south, showed where a police check-point had been almost erased. Two recently mined road-bridges were under repair. Nearing the arms-making town of Darra Adam Khel, which is inhabited by Afridis, whom the British considered almost as erce as the Waziristanis, the convoy accelerated again. A one-street mudbuilt huddle, dedicated to making counterfeit modern weapons, Darra was once a favourite of western backpackers; for a few dollars, they got to re an anti-aircraft gun or lob a grenade. It is now Taliban-infested. Nearing Tank, a town swollen with Mehsud refugees, the hills unfold into a large dusty plain. This is the last settled area , as parts of NWFP that touch the tribal areas are known: a civilised status emphasised by a sign on its main drag, advertising the Oxford high school . Looking up to the north-west, the mountains of South Waziristan, faintly outlined behind a wintry mist, rise steeply to jagged peaks. That is Mehsud country, only a night’s journey away for tribal raiders. The Mehsud have attacked and looted Tank for centuries. They’re the biggest thieves, crooks, liars, everything bad, they’ll kill you for what’s in your pocket, says Nawab Zadar Saadat Khan, the septu-

The Economist January 2nd 2010 agenarian chief of Tank’s historic ruling family. The Taliban are, in his view, just as bad: Taliban! These are people who used to stand outside our door begging for food! he says inside the crumbling mud walls of his ancestral fort, where Sir Henry Durand, a British lord of the frontier whose son drew the line that remains the border between Pakistan and Afghanistan, met his fate in 1871. He was a victim not of treacherous tribesmen but of an elephant he was riding, which reared and brained him on a stone archway he was passing through. But the British had a similar view of the Mehsud to Mr Khan. According to an 1881 report, no tribe had been more daring or more persistent in disturbing the peace of British territorynot a month passed without some serious crime, cattle-lifting, robbery accompanied by murder being committed by armed bands of marauders from the Mehsud hills.

Leaving Tank, the convoy climbed through brittle yellow hills into South Waziristan, aboard Toyota pickups, not elephants. But the view was much the same as in 1859, when British troops rst marched into Waziristan. Stony ridges rise up from ravines, dry riverbeds and hardly vegetated plains, and curl around each other. Houses are thinly sprinkled alongside South Waziristan’s one good road, which runs 80km (50 miles) from Tank to its main town of Wana. Every one has 20feet-high walls, built of sun-baked mud studded with pebbles to withstand machinegun bursts. On the grander dwellings a multi-storey tower, with lavish brickwork decoration and ring-slits, rises up to improve the household’s eld-of-re. But outside the ramparts are scenes of everyday peasant life. Women in bright headscarves stump along under bundles of rewood. (In Waziristan, as in Afghanistan, most tribal women wear burkas only

to town.) Swarms of children, also brightly coloured against the ubiquitous yellow backdrop of mud and rock, run shrieking from the convoy. Bearded men, squatting together in the pale afternoon sun, stare impassively as the FC goes by. With the annexation of Punjab in 1849, British India reached the frontier. The British had no immediate interest in these barren tribal territories, which were mostly claimed by Afghanistan. But to keep the tribes at bay, they were forced to launch a big military operation on the frontier almost every year for the next half-century. This was tiresome and expensive, so around the time the frontier was demarcated in 1893, the strategy changed, and the British began a concerted eort to buy o tribal elders, or maliks. In egalitarian Pushtun society, where prestige is won in battle, these grey-beards initially had limited authority. But through British patronage it grew, creating for the colonialists a pliable tribal elite. With this toehold established, the British then took a rmer grip on the area, developing a system of indirect rule that has hardly changed since. In Wana, a two-road town 40km from the Afghan border, surrounded by orchards and a vast FC camp, Syed Shahab Ali Shah explains the system that he runs. He is South Waziristan’s political agent (PA), the government’s chief representative in the area and the man whose job it is to keep the tribes in check. He imposes nes and taxes
on transport, trade, and whatever else he chooses
and returns this money to the maliks, in the form of allowances or other sweeteners. Representatives of a network of tribal police, known as khassadars, also get a share. In return, these local leaders are charged with ensuring the security of government property, including roads, and personnel. When they fail, the maliks must produce the culprit, his guilt attested by a tribal jirga, or council, for punishment by the PA (until recently up to 14 years in prison with no appeal). If they fail to do that, the PA can call up the FC to weigh collective punishments against the oending tribe, for example by taking prisoners or bulldozing houses. On occasion the PA may take notice of extraneous crimes, including the bloodfeuds that are a fact of Pushtun life
We would never allow two tribes to ght each other indenitely, says Mr Shah. But the tribes are mostly free to decide such matters among themselves, which they do, remarkably harmoniously, through jirgas and riwaj
tribal customary law. In Waziristan, as in most of the tribal areas, there is no written land register. Nor, until 2001, was there much crime. The tribal areas was lawless only in the sense that there are no laws. But they have a certain way of going about things there, says Major Geoffrey Langlands, 92, a British colonial ocer who stayed on, serving as headmaster of 1

The Economist January 2nd 2010 2 North Waziristan’s only secondary school

for a decade. His tenure ended, in 1988, after he was kidnapped by an aggrieved Wazir. He considered his detention, in a frozen mountain hut, to be quite tolerable, on the whole . Major Langlands is now headmaster of a school in Chitral; his former school in North Waziristan was closed in July after the Taliban kidnapped 80 of its pupils and ten teachers. The British frontier eort was cemented by a tough and accomplished breed of Pushtu-speaking British PAs, several of whom were murdered in Waziristan. The enmity between the two big tribes, which they encouraged by giving the Mehsuds a disproportionately high share of loot, helped keep them in check. Mehsuds, now as then, consider Wazirs slow-witted, mercantile and untrustworthy
If your right hand is a Wazir, cut it o, advises a Mehsud. Wazirs mainly consider Mehsuds as vagabonds and cattle-rustlers, often quoting as evidence for this a prayer that Mehsud women are said to chant to their infants: Be a thief and may God go with you! Mehsuds also quote this, to illustrate their people’s cunning and derring-do. The maliki system, reinforced by the draconian Frontier Crimes Regulation, still the only law in the tribal areas, worked remarkably well. Nonetheless, every decade or two, the British faced a major tribal revolt, typically led by a charismatic mullah. A frontier trait, this was nowhere more pronounced than among Waziristanis. Their warrior mullahs included Mullah Powindah, an Afghan-backed Mehsud, who in 1894 led an attack on the British team demarcating the frontier. Taking the title, Badshah-e-Taliban, King of the Taliban, he was a two-decade-long headache for the British, who decried him as an irredeemable fanatic, but were not above trying to buy him. Curzon wrote that Powindah was a rst-class scoundrel that we are

Don’t mess with the Waziristanis

Brie ng Waziristan 19 taking under our wings . A Wazir of North Waziristan, Mirza Ali Khan, known as the Faqir of Ipi, was a harder case. From 1936 to 1947 he led a freedom struggle that at one point sucked in 40,000 British Indian troops, and was quelled only by brutal aerial bombing. Khan was also backed by the Afghans, and was allegedly in contact with Nazi Germany. But when he died, in 1960, the London Times mourned him as a doughty and honourable opponent . From the ocers’ mess of the South Waziristan Scouts, the FC’s Wana-based contingent, formed in 1899, it is tempting to think Waziristan has hardly changed since those colonial days. The heavy silver beer tankards of its former British inhabitants stand, dutifully polished, ready for use. The incumbents, Punjabi army ocers on secondment to the FC, in fact drink Sprite with their curried dinner
yet their conversation is in a time-worn tradition. Mostly, they discuss their belief that India is behind the current troubles on the frontier. Lieutenant-Colonel Tabraiz Abbas, just in from ghting the Mehsud militants, describes nding Indian-made arms on the battleeld. Substitute Russian for Indian and you have the standard British Great-Game gripe. As late as 1930, a senior British ocial, in dispatches stored in India’s national archives, reported that a clutch of Russian guns had been found in Waziristan: Of these 36 are stamped with the ‘Hammer and Sickle’ emblem of the Soviet government, while one is an English rie bearing the Czarist crest. Yet Waziristan is greatly changed. Its administrative system, overrun by militancy, now functions only weakly in Wazir areas. There, the PA has a shaky peace agreement, brokered by maliks, with the Taliban who are to be seen lounging in Wana bazaar. But the government has been entirely absent from Mehsud areas for three years.

Mr Shah, the PA, sees the origin of this collapse in the anti-Soviet war, which glamorised Islamic militancy and ooded the tribal areas with sophisticated weapons. Wana was an important mujahideen headquarters during that war, with many willing recruits among some 80,000 Afghan refugees encamped near the town. At a gathering of a dozen lavishly turbaned Wazir maliks in Wana, your correspondent asked if anyone had fought the Soviets. Everyone raised a hand
and one man a leg, to reveal an ugly scar left by a Soviet bullet. When the Taliban and many foreign jihadists were forced to ee Afghanistan in 2001, Wana made an obvious retreat. Several hundred Uzbeks
members of the exiled Islamic Movement of Uzbekistan
and a smaller number of Arabs and Turkmen came, guided by a local ne’er-do-well, Nek Muhammad, who had won fame ghting with the Afghan Taliban. And the Wazirs opened their doors to these fugitives. It is our custom to give sanctuary to whoever requests it, said Mir Khajang, a malik with a black beard and golden turban. The Uzbeks said they had been forced to leave Afghanistan and were good Muslims. So we took them in. Indeed the Pushtun tribal code imposes a duty of hospitality. Yet the Wazirs are also said to have charged the foreigner jihadists hefty rents. Under pressure from America, the army moved into the tribal areas to mop up the al-Qaeda fugitives. It at rst oered amnesty to other foreign ghters, provided they registered and behaved themselves. But in March 2004 it encountered erce resistance near Wana, mostly from the Uzbeks. The ghting left over 50 soldiers dead, and ended in a peace settlement in April, signed with Nek Muhammad
who was killed in an airstrike shortly afterwards. The Uzbeks and their local allies then set out to control the area. Their rst 1

20 Brie ng Waziristan 2 step was to kill its maliks. Seven of Mr Kha-

jang’s close relatives were accordingly hanged by the Uzbeks. The army often stood by, unsure whether to ght the militants or negotiate with them. Meanwhile a tide of militancy spread from Wana across the frontier. Its rallying-cry was the presence of foreign troops in Afghanistan, where a Taliban insurgency began gathering pace in mid-2003. But the upheaval was also a response to the weakness of an outworn administrative system
which the presence of the army, a powerful alternative command structure, further undermined. The Mehsud militants, for example, have been led by veterans of Afghanistan’s wars, such as Baitullah Mehsud, supreme leader of the Pakistani Taliban until he was killed by an American drone in August. Yet certainly compared to the Wazirs, the tribe has little interest in Afghanistan. Among them, the uprising is an obvious power grab by a jihad-pumped underclass. The tribe’s maliks, widely reviled as corrupt puppets of the British Raj , according to a high-up Mehsud, were again the rst victims. Across South Waziristan over 600 have been murdered. In addition, an assistant PA was kidnapped in North Waziristan and several lower-level civil servants killed. All were blamed for a chronic lack of development. According to a decadeold census, the literacy rate across the tribal areas is 17%
and just 3% for women
compared to 44% across Pakistan. The tribal areas have only one doctor for every 8,000 people
and no decent hospital for over half a million Mehsuds. With the army still grappling for a strategy, two events in 2007 demonstrated that the insurgency’s centre had shifted to the Mehsud. First, egged on by the ISI, the Wazir tribes were incited to rise up and drive the Uzbeks from Wana, whence most went to Mehsud areas. Then, in July 2007, the

A soldier’s lot is not a happy one

The Economist January 2nd 2010 army’s stormed an Islamabad mosque, the Lal Masjid, that had been taken over by well-armed jihadists, killing over 100. This sparked an ongoing Pakistan-wide terrorism campaign, including around 300 suicide blasts to date, for which the Mehsud have been largely blamed. Benazir Bhutto, a two-time former prime minister, assassinated in a suicide and gunre attack in late 2007, was allegedly among their victims. For the next 18 months or so, the news from the frontier was grim. Flush with foreign cash and through their own extortion rackets, the Mehsud militants and their allies seized a broad swathe of territory, from Waziristan through Orakzai and Khyber to Bajaur, and including much of NWFP’s Malakand region. Across the settled areas, the slogan Meezh dre Maseet
I belong to the Mehsud
struck terror. Wealthy Peshawaris ed the city, fearing bearded kidnappers. Last April the Taliban seized Malakand’s Buner district, just 100km (62 miles) from Islamabad. This said little for Pakistan’s army. It had long been accused of tolerating, even harbouring, the Afghan Taliban. Now it seemed neglectful of its country’s very security, as blasts ripped through Pakistan’s cities. And there was something to both charges. Many senior army ocers considered that the Afghan militants were no concern of Pakistan’s, and reckoned it was better to come to terms with the Pakistani Taliban rather than ght them. This was to some degree understandable: the frontier campaign was unpopular in Pakistan, the army was coming o badly against the irregulars, and making deals with rebels was, after all, how the frontier had been contained for 150 years. Unfortunately, however, that method was no longer working. So this year the strategy was changed, with considerable success. In May the army swept the Taliban from Malakand, to

national acclaim. And in October and November, after a three-month blockade of the Mehsud ef, displacing over 200,000 people, it routed the militants there. On the road from Tank to Wana, perfect round shell-holes, punched through the mudwalls of now-empty houses, show where the army advanced. In Sarwakai, a former Taliban logistics hub, army bulldozers were levelling a bazaar as open-backed trucks loaded with prisoners, blindfolded and bare-headed, drove by. Most of their comrades, including the Pakistani Taliban’s current leader, Hakimullah Mehsud, escaped
some to Orakzai, where they are again under attack. Several thousand more are believed to be in Miran Shah and Mir Ali, in North Waziristan, and the army is currently deciding whether to pursue them there. Pakistan will struggle to pacify Waziristan so long as Afghanistan is ablaze. Yet it is at last giving itself a fair chance, on the heels of its advancing troops, by launching a serious-looking bid to rebuild its shattered administration. South Waziristan’s development budget has been increased 15-fold and, with improved security, the PA should actually be able to spend it. To sideline the weakened maliks, he will be given command of a new, 4,000-strong, tribal police force. The agency may also be divided, to ensure greater attention is given to the marginalised and seething Mehsuds. And political reform is coming, too, with a law passed last August granting political parties access to the tribal areas. For more meaningful democracy, some far-sighted ocials advocate setting up agency-level councils, with powers over development projects. This would be overdue. Many young Waziristanis are hungry for the political freedoms enjoyed, alas tfully, by the rest of the country
as their enthusiasm for an abortive eort to introduce local government in 2005 showed. Even the Wazir maliks assembled in Wana, prime beneciaries of the old order, admitted this. Our youngsters want reform, adult franchise, no collective punishments, admitted one of the old men, Bizmillah Khan. But they also want our culture, our traditions and our freedom to remain intact. They will be disappointed. When Waziristan is merged with Pakistan proper, as eventually it must be, good things will be lost. The jirga system, so much more ecient than Pakistani courts, will be weakened or erased. Corruption, rife in Pakistan, will become endemic. And the furious spirit of independence that has impelled Wazirs and Mehsuds to resist outsiders for centuries will recede. For the most part, that would be a blessing. Yet in that calmer future, when Pakistan’s current agonies are largely forgotten, many may hark back fondly to a world enlivened by such remarkable people. 7

The Economist January 2nd 2010 21

United States

Also in this section 22 House prices and mobility 22 Asian carp advance on Chicago 23 Tourism in Hawaii 23 The politics of rum 24 Health reform Lexington is on holiday

Democracy in America, our blog on American politics, is open to commentary daily at Economist.com/democracyinamerica

America, al-Qaeda and home-made bombs

From shoes to soft drinks to underpants london and washington, dc

The attempted bombing of an airliner highlights gaps in intelligence-sharing and airport security

T

HE charred underpants of Umar Farouk Abdulmutallab tell the story of a terrorist attack averted only by luck. The 23-year-old son of a prominent Nigerian banker had hidden a stful of high explosive in a package sewed into the crotch of his underwear. As Northwest Airlines ight 253 from Amsterdam prepared to land in Detroit on Christmas Day, with 290 people on board, he covered himself with a blanket and injected a chemical to detonate the explosive. Mr Abdulmutallab succeeded only in starting a re, which was put out by passengers and the cabin crew as they wrestled him down. Al-Qaeda’s latest attempt to blow up an America-bound airliner after Richard Reid’s failed shoe-bomb in 2001, and the arrest in 2006 of Britons planning to destroy several aircraft with liquid explosives in soft-drink bottles will bring yet more misery for travellers. Security queues immediately lengthened. Despite worries about privacy, there were calls for the introduction of full-body scanners to identify items under clothing that cannot be found with metal-detectors. Some passengers were even being told to stay in their seats, without blankets or even books on their laps, for the last hour of their ight. Al-Qaeda’s branch in Yemen quickly took the credit, hailing Mr Abdulmutallab as a
brother hero for evading security screening and intelligence monitoring. More attacks were in the works:
With Allah’s permission, we will come to you from where you do not expect.

Yet the attack should not have been unexpected. Al-Qaeda’s Yemeni branch has been resurgent (see story on page 35) since it merged a year ago with the remnants of the decimated Saudi franchise to relaunch
al-Qaeda in the Arabian Peninsula, boosted by the inux of several veterans of Guantánamo Bay. It has moved from attacks against targets in Yemen to a regional agenda, and now to global jihad. A Yemeni preacher, Anwar al-Awlaki, exchanged emails with Major Nidal Hasan, the American army psychiatrist who killed 13 people in November at a base in Fort Hood, Texas. The Yemeni branch seems to have pioneered the underpants-bomb in August, when it nearly killed Prince Muhammad bin Nayef, Saudi Arabia’s deputy interior minister. Mr Abdulmutallab is said to have obtained the same explosive, known as PETN, in Yemen and carried it undetected as he travelled through Ethiopia, Ghana and Nigeria to Schiphol airport in Amsterdam, where he boarded ight 253. Other chances to foil the attack were missed. Nigerian authorities, and the American embassy in Abuja, were told in November by Mr Abdulmutallab’s father that his son had become an extremist and had disappeared, maybe to Yemen. The younger Mr Abdulmutallab was placed on the least important of America’s four terrorism watch-lists, and he kept his multipleentry visa to the United States. In Britain, though, ocials said Mr Abdulmutallab had
crossed the radar screen of MI5, the domestic intelligence service,

for radical links during his time as a mechanical-engineering student (and at one point president of the Islamic Society) at University College London between 2005 and 2008. He was placed on an immigration watch-list in May 2009, after he was denied another student visa for applying to a bogus college. Why nobody linked all these danger signals is the subject of urgent investigation, and the cause of growing embarrassment for the Obama administration. Janet Napolitano, the homeland-security secretary, declared initially on December 27th that
the system has worked really very, very smoothly, only to accept the next day that the system had in fact
failed miserably. Then Barack Obama twice broke away from his holiday in Hawaii to speak in increasingly blunt terms about the
mix of human and systemic failures that contributed to this potential catastrophic breach of security. Mr Abdulmutallab was a
known extremist. The warning from his father had not been eectively distributed in the intelligence system; even without it there were other
bits of information that should have raised red ags and kept him o planes ying to America. Ocials say these
bits included reports that an unnamed Nigerian was being prepared for an attack, and that al-Qaeda wanted to strike over Christmas. Mr Obama promised
accountability at every level, and ordered that a preliminary review be completed by December 31st. The blame game Many Republicans already argue that Mr Obama is soft on terrorism; he prefers to denounce
violent extremists than to refer to George Bush’s
war on terror. Ms Napolitano has been mocked for talking of
man-caused disasters in order, she says, to avoid the politics of fear. The loudest complaints have been prompted by Mr Obama’s promise to close the prison at 1

22 United States 2 Guantánamo Bay (where nearly half the

remaining detainees are Yemeni) and the decision to try ve suspected terrorists (including Khalid Sheikh Mohammed, the alleged September 11th mastermind) in civilian courts. It is dicult, though, for Mr Obama’s opponents to make a persuasive case so soon after he decided to send an additional 30,000 troops to Afghanistan. On his watch American drones and special forces have been busier than ever, not only in Afghanistan and Pakistan but also, it is reported, in Somalia and Yemen. Mr Obama restated that every element of America’s power would be used to disrupt, to dismantle, and defeat the violent extremists who threaten us
whether they are from Afghanistan or Pakistan, Yemen or Somalia, or anywhere where they are plotting attacks against the US homeland. Intelligence analysts reckon that strikes have weakened al-Qaeda’s core leadership in Pakistan’s lawless border region. Perhaps so. But al-Qaeda is adaptable, inventive and is seeking new bases. Joe Lieberman, the hawkish independent senator, says he was warned by an American ocial in Yemen: Iraq was yesterday’s war. Afghanistan is today’s war. If we don’t act pre-emptively, Yemen will be tomorrow’s war. 7

House prices and mobility

O the road Washington, dc

During this recession too many Americans are rooted to the spot

W

HEN the going gets tough, it’s said, the tough get going. Sadly, this does not seem to apply to unemployed Americans any more. A high degree of population mobility has traditionally been one of America’s great economic strengths, providing a exibility that allows for more efcient labour markets and lower unemployment. However, during this recession Americans have been hunkering down, not moving on. Declining mobility has in fact long been a feature of the post-war American economy, thanks to the ageing of its workforce and rising rates of home ownership. In the two decades after the second world war, the domestic migration rate hovered around 20%, but by 2000 it had fallen to under 15%. And amid the recent economic troubles mobility has declined even more. There are exceptions. In the deep recession of 1981-82 domestic migration jumped from below 17% to almost 20%, driven by workers moving out of a deindustrialising Midwest. Between 2000 and 2001, in con-

The Economist January 2nd 2010 trast, the migration rate fell from over 15% to under 14%. Today workers are all but stuck, thanks to the paralysing eect of the housing bust. Nearly one in four mortgage borrowers owe more on their loans than their homes are worth. These underwater borrowers face a stark choice: foreclosure or staying put. Millions of Americans now nd themselves pinned down in places where unemployment rates are well above the national average. In 2008 the domestic migration rate was just under 12%, and the rate of migration between states fell to 1.6%
less than half the level that prevailed in the post-war decades. One might expect the problem to be most severe in the bubbliest of markets, where homeowners routinely nd themselves owing twice the value of their homes. In fact, the opposite is true. High rates of foreclosure in bubble states have freed workers to leave for more promising markets, including the once too-expensive cities from which such migrants previously ed. The reversal of fortune has been abrupt for former magnet states such as Florida and Nevada (see chart). In 2005, over a quarter of a million Americans moved to Florida. During the past two years the state has experienced a net population loss to other states of 50,000 people. A few bright spots have managed to attract mobile Americans. Texas and Oklahoma weathered the downturn better than most, thanks to strong local energy industries and the absence of a housing boom and bust. The same is true for the Washington, DC, area, where an all-but-recession-proof economy based on the federal government has already managed a return to pre-downturn output levels. Slowing migration has, ironically, helped California, among the most economically battered of states. California’s housing boom coincided with a large increase in out-migration, as expensive housing drove residents to neighbouring states. Those neighbours no longer seem so attractive next to increasingly aordable, entertaining and surf-fringed California. Between 2008 and 2009 fewer than 100,000 Californians left the state, the best

Staying put Net domestic migration*, ’000 300

Florida

200 Arizona

100 +

Nevada

0 –

100

California

200 300 400

2000 01 02 03 04 05 06 07 08 09 Source: Census Bureau

*Mid-year estimates

performance since 2003. In some parts of the country the decline in out-migration may be a welcome sign. In the north-east population loss began slowing in the middle of the decade, thanks to a broad-based economic revival. But elsewhere, falling migration means little more than pain. In Michigan the rate of population loss declined between 2008 and 2009, even as the unemployment rate soared above 15%. Workers whose jobs have disappeared for ever are, for a variety of reasons, unable to move on. 7

Asian carp advance on Chicago

The invaders chicago

Desperate e orts to keep a piscine predator from the Great Lakes

T

HEY came to America in the 1970s, where they were employed to eat up algae in the sh farms of Arkansas. Before long, however, they had found their way to the vast Mississippi River basin. Gobbling plankton and spawning fast, they competed with native species. Steadily they moved north, closer and closer to the Great Lakes, which hold 90% of America’s surface freshwater. And then, on November 20th 2009, federal and state agencies announced that DNA from Asian carp had been found about eight miles (13km) from Lake Michigan, in a canal near Chicago. Panic has reigned ever since. More than a dozen federal, state and local agencies are trying to fend o the invaders. Since November there have been poisonings and press conferences, announcements and legal manoeuvres. On December 21st, cheered on by environmentalists, Michigan’s attorney-general led a lawsuit in the Supreme Court, demanding that the waterways connecting Lake Michigan to the Mississippi be closed. In the battle of man versus carp, man seems thoroughly outmatched. Biologists fear the sh will devastate the lakes’ $7 billion shery and damage an already fragile ecosystem. Yet the problem is wholly man-made. Asian carp belong in Asia, not Arkansas. And the Great Lakes have no natural connection to the Mississippi. It was engineers who dug the Chicago Sanitary and Ship Canal to divert the city’s sewage away from its drinking water. The canal now has two underwater electric barriers designed to repel sh, but these were installed after years of delay. Ocials are trying various tactics. In early December 2,200 gallons (8,300 litres) of poison was dumped into the canal. More than $3m was spent and thousands of dead sh were dragged from the water. 1

The Economist January 2nd 2010 2 But there was only one Asian carp among

them. Then, on December 14th, the Environmental Protection Agency announced that $13m would be spent to prevent carp from washing into the canal from nearby waterways. Such eorts are dismissed as footling by many environmental-advocacy groups, who want to separate the lakes from the Mississippi for good. This would, of course, disrupt freight trac. There is also the issue of Chicago’s sewage. Fights over such changes could drag on for years, and in the meantime Asian carp could surge into Lake Michigan. No one can say for certain what would come next, but the possibilities are ugly. At the very least, boaters might have to adapt. Duane Chapman of the United States Geological Survey has spent years studying Asian carp in the Mississippi basin. A jumping silver carp once smacked his boat’s throttle, sending his vessel careering up the river bank. 7

Tourism in Hawaii

Hoping for an Obama e ect MAUI

A fall in tourism has hit Hawaii hard

B

ARACK OBAMA’s decision to spend Christmas in Hawaii was welcome news for an island state battered by the brutal waves of recession. The state needs all the media attention and tourism dollars it can get, and is eagerly linking itself to the presidential holiday. Its ocial tourism site has a page dedicated to Mr Obama’s favourite activities in Hawaii (where he was born and partly brought up), which quotes his wife as saying that You can’t really understand Barack until you understand Hawaii. Tour companies shuttle people between places Mr Obama used to frequent, including the building where he lived. Mr Obama’s occasional presence in Hawaii, however, has not been enough to lure people to America’s 50th state. Luxury holidays were one of the rst things people gave up when the economy slid into re-

United States 23 The politics of rum

Sir Henry’s legacy Ponce, Puerto Rico

A dispute over Caribbean distillation has tempers aring in Washington, DC

S

to Rico respectively, introduced warring bills on Capitol Hill last year. Ms Christensen’s bill would make permanent the territories’ remittance from the federal rum tax
as things stand, Congress must vote every two years to keep it at $13.25 a gallon, otherwise it falls to $10.50. Mr Pierluisi’s bill would cap the proportion of funds that can be returned to rum producers at 10%. Members of the congressional black caucus are backing the USVI and representatives of Puerto Rican descent have taken Puerto Rico’s side. In December Diageo engaged a prominent rm of lobbyists and John deJongh, the governor of the USVI, made the rounds in Washington, DC, to explain his position. Mr deJongh says Puerto Rico’s bill would set a dangerous precedent for federal involvement in matters between local and state governments and companies . He and Diageo also point out that the company was considering moving production out of the United States altogether; this keeps it in the country, though at the cost of many jobs at Serralles in Puerto Rico, 85% of whose rum is used for Captain Morgan. But Puerto Rico has another worry: if the rebates are simply seen as corporate subsidies, they could now prove a tempting target for a cash-strapped federal government.

cession, and travelling to Hawaii is expensive; the ight time is around ve hours from California. Tourism declined by more than 10% in 2008, and probably slid by a further 5% or so in 2009. Visitors, when they do come, are staying fewer days and spending less. Last June, hotel-room occupancy hit a low of 61%. The University of Hawaii Economic Research Organisation does not expect tourism to return to its 2006 peak levels of over 7m visitors until 2012. That hurts: around three-quarters of Hawaiian jobs

are tied in some way to the tourism industry according to Leroy Laney, an economist at Hawaii Pacic University. The slump has helped drive unemployment from 2.6% in 2007 to an estimated 7% in 2009. In order to entice people to travel to Hawaii, hotels have lowered room rates and are oering free nights. But although discounting has helped oset even steeper declines, it has eaten up the revenues of hotel chains and of the government. Linda Lingle, the state’s governor, recently announced measures to close a $1.2 billion 1

HREWD dealmaking or modern Caribbean piracy? That is the question surrounding a contract between Diageo, the world’s largest drinks company, and the government of the United States Virgin Islands (USVI). The deal, signed in June 2008, provides Diageo with nearly $3 billion in tax breaks over the next 30 years
including marketing subsidies, a 90% reduction in corporate-income taxes, exemption from property taxes and a new distillery and warehouses to be paid for by government bonds, all to produce Captain Morgan, a swiftly growing brand of spiced rum currently made by the Serralles distillery in Ponce, Puerto Rico. The money for this exceptionally generous deal comes from excise-tax rebates. The federal government in Washington, DC, returns $13.25 of every $13.50 it collects per proof-gallon of rum to Puerto Rico and the USVI. Puerto Rico uses most of those funds for infrastructure, land conservation and to boost its general fund; it returns no more than 10% of its rebate to its rum industry. The USVI is proposing to return nearly half of its rebate to Diageo alone. Puerto Rico is now crying foul, pitting two American insular possessions against each other. Donna Christensen and Pedro Pierluisi, the (non-voting) congressional representatives from the USVI and Puer-

24 United States 2 budget gap that would otherwise open up

by 2011. She wants to delay tax refunds and divert hotel-tax revenue from county governments to the state. That, however, will leave local governments impoverished. The Hawaiian economy will not see brighter times until tourism rebounds, and that will not happen until the economies of the United States mainland and Japan, Hawaii’s largest markets, stabilise. So far, Hawaii has focused on advertising
deploying hula dancers to tour various states, for example. It is also setting its sights on China. Hainan Airlines plans to start direct ights from Beijing to Honolulu. Mike McCartney of the Hawaii Tourism Authority says that Hawaii is trying to market the points of cultural connection, such as the fact that Sun Yat-sen, the founder of modern China, went to school in Hawaii. Much like a certain American president. 7

Health reform

The home stretch new york

Democrats are one step from turning dreams of health reform into reality

R

ONALD REAGAN would not be pleased by what is happening in Congress today. Over the past century many other presidents tried to expand healthcare coverage to all Americans. But as far back as 1961 Reagan argued that this would lead to socialised medicine, from which will come other government programmes that will invade every area of freedom as we have known it in this country until one daywe have socialism. Undaunted by such conservative fears of rationing and death panels , Barack Obama has pushed his party’s congressional leaders to draft a sweeping health-reform law. After much ugly bickering and bribing throughout 2009, the Democrats passed a version of reform through the House of Representatives in November by a vote of 220 to 215. The ght was bloodier and the pay-os more brazen in the Senate, but on Christmas Eve the upper chamber passed a health-reform bill on a party-line vote of 60 to 39 (60 being the minimum number required to overcome Republican procedural obstacles). Democrats are savouring this victory over the holiday recess, but when they return in January the joy will fade. That is because coming up with a nal law that Mr Obama can sign before his rst state-ofthe-union message (usually delivered by the end of January) will require merging the eorts of the two chambers. A casual glance might suggest that not much separates the two bills: both would

The Economist January 2nd 2010 dramatically expand health coverage by forcing insurers to end discrimination based on health, introducing a requirement for everyone to buy insurance along with subsidies to help those who have trouble nding the money to do so, and creating heavily regulated insurance exchanges. And some of the dierences will be easy to reconcile. Each bill has timid efforts at cost control (the House has lots of pilot programmes on payment reform, while the Senate calls for an independent commission to propose future payment reforms) which, if combined, will improve the nal product. Alas, there are also several big dierences between the bills that will not be easy to reconcile. The most controversial involves the creation of a government-run insurer (or public option ), a shibboleth of the political left. The House bill has a weak version of a public option, but the Senate bill lacks one altogether. Howard Dean, a former presidential candidate and leading leftist, argues that the whole reform eort is thus a sham and should be scrapped. Yet all conservatives and many moderates, especially in the Senate, say they will not vote for any nal bill that contains a public option. Another big dierence is in how the two bills pay for the expansion of coverage. The likely nal cost is around $900 billion over the next decade, a limit imposed by Mr Obama. The House version soaks the rich with a 5.4% income surtax on individuals making more than $500,000. That proposal was deeply unpopular in the Senate, which chose instead to impose a 40% tax on the most generous health-insurance plans. The most dicult rift may be over abortion. The House bill contains a severe clause that makes it impossible for insurers that accept federal subsidies to offer abortion cover at all. The Senate bill al-

Obama’s Christmas present and future

lows insurers to do this, but forces patients receiving subsidies to write separate cheques for abortion cover. The usual way bills are reconciled in Congress is by cabal. A committee of elders from both chambers meets in secret and hashes out a compromise, and the revised oering is put to both chambers at the same time. That could take weeks given the size of the bills and the procedural blocking tactics likely to come from Republicans. Some insiders are now talking of an unusual, and possibly speedier, approach that involves any compromise being rushed through one chamber rst on an up-or-down vote; if it passed, the other chamber would then try to pass an identical bill quickly. What next? Whatever the manoeuvres, the hard part will be the substantive compromises to come. The current betting is that the Senate version will prevail on most points; the vote was so close that Democrats cannot aord to lose even one senator. This means that the public option will probably wither on the vine. On nancing, too, the Senate is unlikely to accept the House income-tax proposal as it stands, though a watereddown version may be combined with a weaker tax on expensive health plans. Though the odds are now strongly in favour of some sort of health bill landing on Mr Obama’s desk within a month, it is by no means a certainty. Abortion, an issue on which many American politicians nd compromise impossible, may yet doom this eort altogether. Senator Christopher Dodd, a grizzled veteran from Connecticut, assesses the prospects this way: There are large dierences between the House and the SenateThis is very precarious. Anybody who thinks this is done hasn’t been around here very long. 7

The Economist January 2nd 2010 25

Brie ng Emerging markets and recession

Counting their blessings Developing countries have come out of the recession stronger than anyone had expected. This will have profound consequences for the rest of the world

T

HE political and social consequences of the worst economic crisis since the Great Depression have been milder than predicted. In developing countries, at least, governments have not fallen in a heap, as they did after the Asian crisis of 1997-98. They have not battled their own people on the streets, as happened in Europe during the 1930s. Social-protection programmes have survived relatively unscathed. There have been economic-policy shifts, naturally, but no panicky retreat into isolation, populism or foreign adventures. The good news has not been spread evenly, of course: some countries have ridden the storm more successfully than others. And these are only rst-round eects: things could still get worse. So far, though, resilience has been the order of the day. This was not expected a year ago. Then, it seemed likely that normal rules would apply that when the rich world sneezes, developing countries get swine u. In the fourth quarter of 2008, when rich economies were contracting by 5% to 10% a year, real gdp fell at an average annualised rate of around 15% in some of the world’s most dynamic economies, including Singapore, South Korea and Brazil. The fall in Taiwan’s industrial output down by a third during 2008 was worse than America’s worst annual fall during the Depression. Emerging markets seemed likely to suf-

fer disproportionately because of their trade and nancial links with the West. Exports in that dreadful last quarter of 2008 fell by half in the Asian tigers at an annualised rate; capital ows to emerging markets went over a cli as Western banks
deleveraged. The Institute of International Finance (IIF), a think-tank in Washington, DC, forecast that net private capital ows into poor countries in 2009 would be 72% lower than at their peak in 2007, an unprecedented shrinkage. As people peered ahead into 2009, no forecast looked too dire.
The end of globalisation was a common refrain. Some thought emerging markets would turn inward to protect themselves from the conta-

V for vigour Stockmarkets, % change on previous year, $ terms

Brazil China India Indonesia Malaysia Mexico South Korea Taiwan Source: Thomson Reuters

2008 -55 -68 -62 -57 -42 -40 -56 -47

2009 +142 +125 +88 +114 +46 +56 +61 +78

gion of the West. Others forecast that hundreds of millions of people would be tipped into hunger. The IMF’s managing director, Dominique Strauss Kahn, fretted that unless governments did the right things at the right time, there was a
threat of civil unrest, perhaps even of war. At the start of 2010 there are indeed a billion hungry people, for the rst time in 40 years. But the other forecasts now look excessively gloomy. Whereas the last three months of 2008 saw one disaster after another, the end of 2009 was a period of healthy recovery, as measured by capital, bond and stockmarkets. During 2009 the largest developingcountry stockmarkets recouped all the losses they had suered during 2008 (see table below). October 2009 saw the largest monthly inow into emerging-market bond funds since people started tracking the numbers in 1995. Russia’s central bank estimated that the country would attract $20 billion of capital inows during the fourth quarter, compared with capital outows of $60 billion in the rst nine months. The IIF now reckons that net private capital ows to developing countries will more than double in 2010 to $672 billion (still a long way below their peak). So much new money is ooding into emerging markets that calls for capital controls are echoing around the developing world. This craze for emerging-market paper could perhaps prove a bubble. But as a measure of reputational change, it is accurate. Countries that were disaster zones at the start of 2009 achieved gold-rush status by the end of it. This turnaround reects a resilient economic performance during the recession. It also reects a stunning de1 gree of political and social cohesion.

26 Brie ng Emerging markets and recession 2

The most important economic reason for this is that emerging markets were less aected by the rich world’s recession than seemed likely early in 2009. Big populous countries
China, India, Indonesia
did not tip into recession; they merely suered slower growth. Brazil and the Asian tigers saw output fall but bounced back. The pattern, though, was variable. The Baltic states endured a depression; Mexico suered from its dependence on America; eastern Europe was harder hit than Asia; poor African countries suered more than middleincome Asian ones. Overall, the loss of output in emerging markets during 2007 was somewhat greater than it had been in the Asian crisis of 1997-98, but less than had been expected and much less than the fall in world gdp (see chart 1). Emerging markets beneted from their own economic-stimulus programmes and from policy activism in rich countries. Rich-country bail-outs and monetary loosening stemmed worldwide nancial panic and helped stoke an appetite for emerging-market exports and assets. In addition, some developing countries built up big cushions of foreignexchange reserves after the Asian crisis which aorded them some protection. Surprising stability This economic resilience has had big political and social benets. Politically, the most striking feature of the crisis is how little instability it caused. The worst slump in decades has so far led to the fall of just one emerging-market government: Latvia’s (Iceland’s government also collapsed). Other east-European governments have come under pressure, notably Hungary’s. But two of the biggest emerging markets
India and Indonesia
held national elections in 2009, and both were won by the ruling party. This was unusual in India, which traditionally votes against incumbents. In another emerging giant, Brazil, the outgoing president is likely to leave ofce in 2010 with poll ratings in the stratosphere (Luis Inácio Lula da Silva’s favourability ratings stayed above 60% for most of 2009). The global crisis seems to have consolidated, not undermined, the popularity of large developing-country governments, presumably because the economic crisis was perceived to have begun elsewhere and been dealt with eciently. Contrast that with what happened during the Asian crisis of 1997-98. Widespread rioting in the wake of abrupt devaluation led to the fall of Suharto’s 30-year dictatorship in Indonesia. Devaluation added to popular discontent in the Philippines, culminating in the overthrow of President Joseph Estrada. There was mass discontent in Thailand as millions of urban workers lost their jobs and wandered back to their villages. Financial collapse in Russia produced a political crisis and led to the sack-

The Economist January 2nd 2010 1

A bigger bounce GDP, % change on previous year

Developing countries

FORECAST

10 8 6

World

4 2 +

0

Rich countries

–

2 4 2007

2008

2009

2010

Source: IMF

ing of the prime minister, Sergei Kiriyenko. A couple of years later, Argentina defaulted on its debt and ran through three presidents in ten days at the turn of 2001-02. (What did you do for Christmas? , ran the contemporary joke. I was president. ) In country after country, governments reacted to nancial stress and plunging currencies by imposing emergency austerity measures which brought them into conict with rioters on the streets. That has been much rarer this time. The second striking feature of the crisis has been that, with one or two exceptions, it seems not to have caused any fundamental shift of popular opinion. There has been no upsurge of angry pessimism, nor any signicant backlash against capitalism or free markets. That doubtless explains much of the political composure. Compared with people in the West, those in big emerging markets seem in almost sunny mood. In China, India and Indonesia, according to the Pew Global Attitudes Project in Washington, DC, more than 40% of respondents say they are satised with their lives (in China the gure is 87%). In France, Japan and Britain, the share is below 30% (see chart 2 on next page). This is unusual: measures of life satisfaction tend to rise with income, so you would expect levels to be lower in emerging markets, as they were in 2002-03. The reversal of that pattern may reect a sense in those countries of their quick recovery. It is true that the overall levels hide some disturbing trends. A study of Bangladesh, Indonesia, Jamaica, Kenya and Zambia by the Institute of Development Studies at the University of Sussex found that people there said they were saving less, celebrating together less often and thought that neighbourly support was declining. People also thought children and old people were being abandoned more often. But, overall, such concerns are as great or greater in rich countries. The mood in emerging markets is both unusual and consequential. To see how, compare what is happening there with trends in parts of the West. Americans, for example, seem to be hankering for isola-

tionism. According to Pew’s polling, 49% of Americans now think their country should mind its own business internationally. That is more than 30 points higher than when the question was rst asked in 1964. Jim Lindsay of the Council on Foreign Relations points out worrying parallels between what is happening now and America’s reaction to the Great Depression, which sparked a period of introspection that ended only with the second world war. Developing countries are not suering such anger or frustration. That same resilience informs their attitudes to markets. Arvind Subramanian, of the Petersen Institute for International Economics in Washington, DC, argues that the recession has set o no serious questioning of the role of the market in developing countries. It is true that China has seen a disproportionate rise in lending to stateowned enterprises, but this is not necessarily regarded with favour. China’s media have been ooded with reports of abuses by state rms, all featuring a newly popular, negative-sounding term guojin mintui, which means the state advances and the private sector retreats . Asked Are you better o under free markets? , people in emerging markets are more likely to say yes than those in rich ones. The share of respondents who think they are better o fell in 2009 by between four points (Germany) and ten points (Spain). In most emerging markets, the share either rose (in India and China) or stayed at (in Brazil and Turkey). No sign of an anti-capitalist backlash there. The combination of political stability and popular composure has given emerging markets what might be called policy space in which to act. They have used it to the full
and mostly for the better. This, in turn, has enhanced their reputations for economic management. Little big spenders At the start of 2009 falls in foreign-trade taxes, remittances, aid, commodity prices and capital inows all threatened developing countries’ scal positions, and their social spending especially. For a few, the threat materialised: 20 countries, many in eastern Europe, signed standby arrangements with the IMF and tightened scal policy. But by and large, the slash-andburn approach to crisis management associated with previous bouts of economic trouble was avoided. For the rst time in a global recession, emerging markets were free to loosen scal policy. Some produced big stimulus programmes. China’s is the best known, but Russia, Hong Kong, Kazakhstan, Malaysia, Vietnam, Thailand, Singapore, Brazil and Chile also unveiled large anti-crisis budgets or counter-cyclical spending programmes. As a share of GDP, stimulus spending by the emerging-market mem- 1

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28 Brie ng Emerging markets and recession 2 bers of the G20 was larger than spending

by the rich members. In that sense, emerging markets did more than their Western counterparts to combat global recession. Even countries that could not aord emergency programmes like China’s let their scal balances deteriorate as counter-cyclical spending got under way. In Africa, oil importers let their budget decits rise from 2.2% of gdp in 2008 to 6% in 2009. By ring-fencing social spending, developing countries managed to protect some of their poorest people. Brazil expanded the coverage of its assistance programme for the poor, called Bolsa Familia, by over 1m households to 12m. India expanded to the whole country a programme that guarantees 100 days’ employment on public works each year to any rural household that wants it. China’s massive stimulus programme may have forestalled disaster in the migrant-labour force. Half the 140m labourers working in Chinese cities returned home in early 2009; a fth stayed there, and another fth could not nd work when they returned to the cities. But as spending on infrastructure started to kick in, employment surged; by the middle of the year, joblessness among rural migrant workers was down to less than 3%. Beyond China, fear of social unrest associated with jobless migrants (as in 1997-98) has not materialised. A forthcoming study of 11 countries by Oxfam, a British NGO, found that migrants took new jobs, often at lower wages or with longer hours. In Vietnam some were even given money to stay in the cities by their families in the countryside
a kind of reverse remittance. But there was no mass return to the villages. Flexibility is strength The Oxfam study describes the myriad ways in which countries resisted the recession. Remittances held up better than expected. Parents refused to take their children out of class, or else switched them from private to public schools. Some even cut down on their own food to keep children in education. There were outright job losses in some parts of countries’ economies, such as export sectors and mining. But the commoner reaction to falling demand was to cut hours and wages, reduce benets and insist on more exible working conditions. In other words, the main result of the slowdown was not unemployment (though there was some) but a move towards more exible labour markets. How long this can go on is unclear. Cash-transfer and make-work schemes are expensive: most poor countries cannot afford them. Worse, the poorest were more vulnerable than middle-income countries anyway because of the food-price spike of 2007-08: hence the rise in the number of hungry people to 1 billion, the highest gure since 1970. In general, the informal sector (home workers, ragpickers, street ven-

The Economist January 2nd 2010 2

Miserable rich People “satisfied with national conditions”, 2009, % Developing countries

0

10

% points change 2008-09

20

30

40

50 87 +1

China India

+2

Indonesia

+10

Brazil

-3

Russia

-27

Rich countries

0

% points change 2008-09

10

20

30

40

50 +9

Germany United States France

+13

Japan

+2

Britain

-9

-2

Source: Pew Global Attitudes Project

dors) has been hit harder than the formal sector and is beyond the reach of government anti-poverty programmes. Although developing countries have done what they can, it would be wrong to think their people have escaped the recession entirely. It is worth adding that not all the actions of developing-country governments have been equally enlightened. Emerging markets have been the worst sinners in a new round of protectionism. Whether you look at the number of new trade-damaging measures tracked by the World Trade Organisation, or the numbers of sectors or trading partners hurt, Russia, China and Indonesia are all among the top ve protectionists; Argentina is in the top ten. Rich countries have been slightly less destructive. Still, as Simon Evenett, a professor of trade at the University of Saint Gallen, Switzerland, points out, this is not as dreadful as it might have been, or as it was in the 1930s. Only four countries have implemented restrictions aecting more than a quarter of their product lines: across-theboard tari barriers are not the fashion. But as growth picks up and ghts for market share increase, these restrictions could lay a basis for further trade disputes. The tectonic consequence When the Earth’s tectonic plates grind against one another, they do not always move smoothly; sometimes they slip. A year after the West’s slump began to spread to emerging markets, it has become clear that the recession has been a moment of tectonic slippage, a brief but powerful acceleration in the deep-seated movement of economic power away from rich nations towards emerging markets. Since 2007, according to Goldman Sachs, the biggest emerging markets
Brazil, Russia, India and China
have accounted for 45% of global growth, almost twice as much as in 2000-06 and three times as

much as in the 1990s. It used to be said that although emerging markets were contributing an expanding share of world growth, they could not claim to be the real engine for the global economy because nal demand for their exports lay in America. But that argument is weaker now that China has overtaken America as the main market for the goods of the smaller Asian exporters. The recession showed that economic power is leaching away from the West faster than was thought. Previous recessions have left most developing countries with their reputations for economic management in tatters, and with credibility to regain in capital markets. This time, it is the rich whose reputations have been damaged. The scal response of many emerging markets has enhanced their credibility, and they nd themselves with an unexpected reputation for scal prudence. The debt-to-gdp ratio of the 20 largest emerging markets is only half that of the top 20 rich nations. Over the next few years rich countries’ debt will rise further, so emerging markets’ indebtedness will be only one-third of theirs by 2014. Already there are signs that nancial markets are rewarding them for good behaviour. Sovereign-risk spreads have been lower in the biggest emerging markets than in some euro-zone countries; in 2009, Hong Kong did more initial-public oerings than New York or London. At the start of the crisis, a Mexican minister sighed: At least this time it’s not our fault. The comment was laden with sad irony: like everyone else, he expected that Mexico’s innocence would make no dierence and that emerging markets would be hammered anyway. But they have not been. So far the story of global recession in emerging markets has had that rarest of themes: virtue rewarded. 7

The Economist January 2nd 2010 29

The Americas

Also in this section 30 Reforming Canada’s Senate

Álvaro Uribe’s Colombia

Not yet the promised land Soacha

A safer and richer country, but one that needs more jobs and better socioeconomic policies as well as constant vigilance

W

ILSON VEGA used to run a small farm near Barrancabermeja, in the broad, tropical valley of Colombia’s Magdalena river. He was negotiating to buy the farm from its owner. But FARC guerrillas began to visit. They sought to recruit his eldest daughter, who was then aged 14. In November 2006 the guerrillas called a town meeting and shot
ve people whom they accused of collaborating with the army and right-wing paramilitaries. Mr Vega says he received glancing bullet wounds to his head and back. That was enough to persuade him and his wife to gather up their seven children and ee. Their new home is a one-room hut of corrugated iron and board on a steep hillside overlooking a dried-up lake bed in Soacha, a sprawling poor suburb of Bogotá, the capital. For this, Mr Vega pays 55,000 pesos ($27) a month in rent. He earns around 5,500 pesos a day recycling rubbish. As displaced people, his family get some money from the government, and he has bought a broken-down pickup. If he can scrape together the cash to get it running, he hopes to start a business selling fruit. But he also dreams of returning to farming in another, safer, rural area. Mr Vega’s two dreams are shared by many other Colombians. Creating the conditions in which they can be realised will be among the tasks facing the government to be chosen in a presidential election in May. In his two terms since 2002 Álvaro Uribe has made Colombia less violent.

With American aid and a new wealth tax he has expanded the security forces by half. Better security in turn helped to boost economic growth (see chart). But there have been several recent security setbacks most dramatically the kidnapping and murder by the FARC just before Christmas of the governor of Caquetá department, in the south-eastern lowlands. Mr Uribe himself says that the improvement in security is not yet irreversible and that is why he is seeking to change the constitution to run for a third term. Yet Juan Manuel Santos, his former defence minister, who aspires to succeed him (if the president does not run again himself), is one of many politicians who diers. Although more needs to be done on security, he thinks this is now a less im-

Diminishing returns Colombia Murders per 100,000 population

GDP, % change on a year earlier

80

9

60

6

40

3 *

20

‡

†

0

+

0 –

3 2002 03 04 05 06 07 08 09 10

Sources: Colombian Ministry of Defence; IMF

*To November 30th †Estimate ‡Forecast

portant issue than the lack of decent jobs and other socioeconomic problems. That is a sign of Mr Uribe’s achievement. His security build-up drove the FARC from heavily populated central Colombia to remoter areas. The FARC has shrunk to less than half its 2001 peak of 20,000
ghters and has lost several of its leaders (a dozen mid-level commanders were killed in 2009). The government persuaded some 30,000 right-wing paramilitaries to demobilise. It is trying to integrate many of them (and guerrilla deserters) into civilian life through education and training involving 34,000 people. In an ambitious, if awed, attempt to secure a modicum of justice, the attorney-general’s oce has so far obtained confessions by 158 former paramilitaries to 4,300 crimes, and identi
ed some 40,000 victims who are supposed to be compensated. But problems persist. Urban violence rose again in 2009: a doubling of murders in Medellín, the second city and previously seen as successfully paci
ed, is particularly worrying. Several thousand former paramilitaries have returned to arms in what Mr Uribe says are criminal, drug-traf
cking gangs. (His left-wing critics claim they have political aims.) There are some signs that the FARC has reorganised, relying on landmines and snipers to demoralise the army. Although cocaine production has fallen by around half since 2001, according to estimates by the United Nations, drug money continues to fuel the guerrillas and other criminal gangs. It is their battles to control territory that have uprooted people like Mr Vega. According to CODHES, an NGO, some 4.6m Colombians have been displaced since 1985, and 380,000 in 2008 alone. But the government puts the overall
gure at 3m since 1959 and says the trend is downward. A more powerful criticism is that Mr Uribe has shown little will to help 1

30 The Americas 2 displaced people to recover their land by

reversing the land seizures by paramilitaries over the past two decades. The security forces have their own problems. The attorney-general’s oce is investigating claims (most unproven) that the army murdered up to 1,800 civilians and passed them o as dead rebels (a practice dubbed false positives ). When this scandal came to light after the kidnapping of several young men in Soacha in 2008, Mr Uribe sacked 27 ocers, including three generals. Army units are no longer judged by their body count. Detectives are now own in to investigate all deaths reported

The Economist January 2nd 2010 in combat. CINEP, a human-rights group, found only two incidents of false positives in the rst half of 2009. But the aair damaged the army, and according to some reports, has undermined its morale. Similarly damaging have been repeated scandals at the civilian intelligence agency, where some ocials have been charged with colluding with paramilitaries. The agency is belatedly being wound up. In security, the task of the next government will be to consolidate Mr Uribe’s achievement while adjusting his policies to new threats. It’s no longer just giving orders from the top but developing and im-

Reforming Canada’s Senate

Adapt or die Ottawa

Stephen Harper prods a relic

N

OBODY can accuse Canadians of haste in reforming the Senate, the 105-seat upper chamber in their Westminster-style Parliament, modelled on Britain’s House of Lords. Debate on whether senators should be elected or named by the prime minister began even before the rst senators took their appointed seats in 1867. It continues to this day. The only change (in 1965) has been to require senators to shu
e out of the door when they turn 75 rather than waiting to be carried out feet rst. Stephen Harper, the Conservative prime minister, wants to overhaul a body he calls a relic of the 19th century . This month he is expected to name Conservatives to ll ve senate vacancies, making his party the largest in the upper house. Further retirements should give it a majority before the end of the year. But to reform the Senate Mr Harper, who leads a minority government, needs the support of at least one of the three opposition parties in the House of Commons. The two smaller parties, the New Democrats and the Bloc Québécois, neither of which have senators, want to abolish what they see as an expensive, unrepresentative body. In theory the Liberals, the main opposition, are open to reform. In practice they have used their control of the Senate to stymie Mr Harper’s eorts to achieve it. Sweeping change would also need the support of seven provincial governments representing at least half of the population. But the ten provincial premiers are divided between abolition and reform. Mr Harper tried a short cut in 2006, with modest bills that would limit senators to eight years and allow the prime minister’s choice of appointments to be guided by national advisory elections. He saw this as a rst step to persuading

the provinces to back more radical change. But the bills failed to gain opposition support. So Mr Harper reversed his earlier decision not to ll a growing number of senate vacancies, naming 27 Conservatives in 2009. The Senate’s defenders argue that it works well as a revising chamber, applying greater thought and less partisanship to legislation than does the Commons. Senators tend to do much of the work on the joint committee that ensures government regulations match underlying legislation, an important if unexciting job. But polls suggest that 75% of Canadians want the Senate reformed. Should the Liberals continue to block Mr Harper’s reform bill, he may opt to seek the Senate’s abolition. Canadians understand that our Senate, as it stands today, must either change orlike the old upper houses of our provincesvanish, he said when addressing the Australian Parliament in 2007. The do-nothings have been warned.

plementing plans to control territory and protect the population, says a former ocial. And Colombia now needs police on city streets as much as troops in its jungles. It also needs jobs, if it is to prevent its youth joining the illegal economy of drug gangs and armed groups. The economy has suered only mild recession. But open unemployment stands at 11.8%, compared with a Latin American average of 8.3%. Some 60% of Colombians work in the informal economyagain, more than the regional mean. Alejandro Gaviria, an economist at Bogotá’s University of the Andes, points out that there are fewer formal jobs for people without higher education than in 1995. Public policy has contributed to this dismal trend. Steep payroll taxes discourage employment. So does a minimum wage that is disproportionately high in relation to the country’s income levels. Part of the blame belongs with the constitution approved in 1991. This introduced some welcome democratic reforms. But it also empowered everyone and created chaos, as Roberto Steiner of Fedesarrollo, a think-tank, puts it. Much social and economic policy is now dictated by the judiciary. Court decisions have helped to bankrupt the national health-insurance system, only 45% of whose members now pay full contributions. That obliged the government to announce emergency nancing measures last month. Sluggish recovery But Mr Uribe has himself undermined the tax system, decreeing tax breaks for favoured companies and then making these permanent through tax stability contracts. He defends these as necessary to attract investment. Guillermo Perry, a former nance minister, argues that this would have come anyway because of better security and high commodity prices. These problems may weigh heavily in the coming years. The economy is recovering more slowly than others in the region. Half of Colombia’s exports went to the United States and Venezuela in 2008: but American demand remains sluggish and Venezuela’s government has imposed trade sanctions on Colombia in protest at a recent defence co-operation agreement between Mr Uribe and the United States. Back in 2002 Colombia was in serious danger of becoming a failed state. Millions of its brightest citizens had migrated abroad. Travellers on the roads between its main cities risked being kidnapped or killed. It is a tribute to Mr Uribe that today’s problems look so much more manageable. He points out that younger Colombians haven’t known a single day of peace. He insists the country needs to stick to his policies without stagnation or sudden swerves . Yet his growing number of opponents argue that progress cannot continue unless there is a change at the top. 7

The Economist January 2nd 2010 31

Asia

Also in this section 32 Taiwan and China talk trade 32 Laotian Hmong refugees in Thailand 33 Sri Lanka’s displaced Tamils 33 Gunning for Pakistan’s president Banyan is back next week

Harsh justice in China

Don’t mess with us Beijing

No forgiveness; no quarter. Happy Christmas

A

SEASON of good cheer in much of the world, late December saw a typically harsh apportionment of justice by China’s legal system, and a typically rigid display of governmental indierence to foreign opinion. On Christmas Day a Beijing court sentenced Liu Xiaobo, a veteran humanrights activist, to 11 years in prison for
inciting subversion of state power. China swatted away all criticism about this as groundless meddling in its internal aairs. In a separate case that was not entirely an internal aair, China’s reaction was not much dierent. On December 21st Akmal Shaikh, a 53-year-old Briton charged with smuggling drugs, had his death sentence upheld by China’s Supreme People’s Court. Rejecting pleas for clemency from Mr Shaikh’s family, international humanrights groups, and the British government, Chinese authorities executed him by lethal injection on December 29th in the northwestern region of Xinjiang, where he was rst arrested in late 2007 after carrying roughly 4kg of heroin into the country. Family members claimed Mr Shaikh suered from bipolar disorder, and was the victim of manipulation by the drugs trackers who, they claimed, tricked him into carrying the contraband. British ocials announced news of the execution before China did. Hours after it took place China’s foreign-ministry spokeswoman, Jiang Yu, said it would brook no outside interference in the workings of its legal sys-

tem, and expressed
strong dissatisfaction and resolute opposition to Britain’s complaints. The prime minister, Gordon Brown had said he was
appalled and condemned the execution
in the strongest terms. Ms Jiang said Mr Shaikh’s case was handled appropriately and all his legal rights had been honoured at trial. A day after the execution, Chinese newspapers were full of angry commentary over Britain’s attempt to intervene. Many drew comparisons to the Opium War. Although it ended in the rst known execution of a European in China since the 1950s, Mr Shaikh’s case was otherwise not unusual. According to available (and incomplete) statistics, China executed 1,700 convicts in 2008, or nearly ve each day. Neither was the harsh treatment meted out to Mr Liu unusual by Chinese standards. Criticism of the government, though always risky, is sometimes tolerated. Attempts to organise criticism, however, as Mr Liu had by helping draft a petition calling for political freedoms, are routinely met with a rm thumping. Jailed twice before for his political activities Mr Liu knew this as well as anyone. He had said he was ready to face prison again. The document he helped write in December 2008 was called Charter 08. It soon attracted more than 300 other Chinese signatures. Its publication marked the 60th anniversary of the Universal Declaration of Human Rights. In the year since its re-

lease, thousands more have signed it. Charter 08 calls for sweeping changes in China’s political order, including an end to limits on free expression, political activity and religious practice. It proposes drastic reforms that would dismantle one-party rule, allow public supervision of government ocials, and free the army and judiciary from Communist Party control. Mr Liu was detained just before the release of the manifesto and held for six months before charges were lodged. His sentencing came two days after a trial lasting less than three hours. The 11-year term exceeds any other known sentence for the vague crime of
inciting subversion. Within days of the sentencing, Chinese media published a speech by a senior security ocial who warned of threats to China’s social stability from
hostile forces stirring up chaos and called for
pre-emptive attacks against them.
In the new year, there will be no relaxation of stability preservation, and no lightening of pressure on stability, said Yang Huanning, a deputy minister of public security. Mr Liu won supporters on the internet, a central theatre these days in the struggle for civil liberties. The authorities are moving to tighten their control there. Besides stepping up monitoring and blocking
unsuitable web trac, regulators have put new restrictions on the registration and operation of websites by individuals. The founder of a web-hosting service in Beijing says that internet servers have been unceremoniously unplugged under new rules and new standards of enforcement.
For nine years I have run a successful and legal business, and now I have suddenly been told that what I do makes me a criminal. Worried that his company may not survive, and angry about the arbitrary changes, he will not, however, circulate a protest petition not if he is wise, that is. 7

32 Asia

The Economist January 2nd 2010

Taiwan and China

Strait talking Taichung, Taiwan

Progress in talks with China is a mixed blessing for Ma Ying-jeou

R

ELATIONS between Taiwan and China may be better than at any time since Nationalist forces routed in China’s civil war ed for Taiwan in 1949. But not everyone is cheering. Chen Yunlin, China’s most senior Taiwan negotiator, visited Taichung in central Taiwan in December to sign three technical accords (covering co-operation on shing, industrial standards and the quarantine of agricultural products). But public support in Taiwan for President Ma Ying-jeou’s China-friendly policies seems to be eroding. The opposition Democratic Progressive Party (dpp) claimed 100,000 people had joined its protest rally on December 20th. (The police estimated 30,000.) They condemned the pact the government wants to sign with China, formally known as the Economic Co-operation Framework Agreement, or ECFA, saying it would cause thousands of job losses and lead to an inux of cheap Chinese goods. Mr Chen was dogged by protesters, albeit in far smaller numbers than on his rst visit in November 2008. In the worst scu
e, a policeman was badly hurt and six people detained. Mr Chen and his Taiwanese counterpart, Chiang Pin-kun, agreed they would negotiate ECFA at a summit in China in the rst half of 2010. Mr Ma hopes it will be signed then, but Chinese negotiators would not promise this. ECFA is the cornerstone of Mr Ma’s cross-strait policies but he has provided scant details. It is born out of his fear that Taiwan, already ravaged by the nancial crisis, will be marginalised as a free-trade pact between China and the Association of South-East Asian Nations (ASEAN) takes eect this January. China puts pressure on other countries not to sign free-trade agree-

Trade winds China’s trade with Taiwan, $bn 25 +

0 –

25 50 75 Exports Imports

100 125

1990 Source: CEIC

95

2000

05

09*

*January-November

ments with Taiwan. Mr Ma hopes that will change once Taiwan and China have their agreement, although there are no guarantees. Singapore is expected to be rst. Even disregarding other markets, however, China’s are attractive enough. Taiwan’s exports face taris ranging from 5% to 15% in China. ECFA is expected to call for immediate liberalisation of some goods. Ocials say they are likely to include products most vulnerable to ASEAN competition, such as textiles, automotive parts and petrochemicals, along with some services. China’s long-term goal is political unication. It does not entirely trust Mr Ma, who says this will not happen during his presidency, but much prefers him to the pro-independence DPP. It hopes that help-

ing Mr Ma in the economic talks will both generate public goodwill towards China, and boost his chances of re-election. But Mr Ma himself faces a dilemma. He is in a rush to sign ECFA. But the public is not yet feeling the benets of the nine past agreements signed with China. The few thousand Chinese tourists who come every day are making little economic impact. Moreover, the DPP fared well in local elections in early December, when it won 45.5% of votes compared with 47.9% for Mr Ma’s ruling Kuomintang, the KMT, a far cry from the 58.5% Mr Ma achieved in the presidential election in May 2008. That means Mr Ma may feel electoral pressure to go slow on ECFA. He will certainly have to do a better job of selling it at home. 7

Laotian Hmong refugees in Thailand

Shown the door Bangkok

Its hospitality exhausted, Thailand sends refugees back to an uncertain future

A

RELATIVELY peaceful haven in a bad neighbourhood, Thailand has taken in hordes of South-East Asians eeing war, persecution and poverty. But the welcome is wearing thin. This week the Thai army loaded 4,351 ethnic Hmong onto lorries and drove them to the border with Laos, whence they had ed. None was allowed access to United Nations ocials, who might have classied them as refugees deserving protection and eventual resettlement. Yet Thai ocials called their eviction voluntary . Recruited by the CIA to ght in the 1960s, the Hmong were among the losers in the Vietnam war. Hundreds of thousands ed Laos after the Communist victory in 1975 and eventually moved to America. In 2004 America agreed to take in another 14,000 or so Hmong who had been staying at a Thai temple. Those bundled back to Laos this week had drifted to another makeshift camp in Phetchabun province, hoping to claim international asylum. A separate group of 158 refugees were deported from a detention centre on the border. A barrage of American, EU and UN criticism failed to stop the expulsion. António Guterres, the UN High Commissioner for Refugees, said the repatriation would set a very grave international example . Human-rights groups say the Hmong may face persecution in Laos and that their forced return violates international law. Those linked to ragtag Hmong rebels in remote mountain areas are deemed particularly vulnerable. Laos has insisted that all who return will be resettled peacefully. It denies discriminating against the Hmong, one of dozens of minorities in a poor, land-

locked country. But Thailand’s refusal to grant the UNHCR access to the camp makes it unknowable how many had genuine fears of persecution and how many were merely economic migrants. Thailand’s prime minister, Abhisit Vejjajiva, came to power a year ago promising to restore the rule of law. That pledge does not seem to extend to refugees. Last January the Thai army was revealed to have pushed back hundreds of Rohingya Muslim boat people from Myanmar who then drowned or went missing at sea. For Hmong insurgents in Laos, relief may ultimately come from California, from where an exiled former leader, Vang Pao, occasionally plots armed revolution at home. Now 80, Vang Pao said recently that he wants to go home to make peace with his Communist foes. Nearly 35 years after the fall of Saigon, America’s Indochina war is not over yet.

The Economist January 2nd 2010 Sri Lanka’s displaced Tamils

A market-based solution Vavuniya

Eking a living from handouts

S

QUATTING under an umbrella bearing an EU logo, a woman in a faded sari dips into her blue UNICEF bag and pulls out two towels, some toothbrushes and toothpaste, sanitary napkins and a small bottle of disinfectant. She is soon ringed by hagglers wanting her paltry wares for even less than the pittance she asks. Another woman clambers from a bus lugging a sack of our donated by the World Food Programme. She jostles for space among the throngs of internally displaced Tamils peddling their rations near the hospital in Vavuniya in the north of Sri Lanka. Just months ago, many of them were treated here for injuries sustained as the Sri Lankan army defeated Tamil Tiger rebels. After the rout of the Tigers in May, nearly 300,000 Tamils who ed the ghting were fenced inside sprawling camps near Vavuniya. After concerted foreign pressure the government opened the camps on December 1st. It was also swayed by the need for Tamil votes in the hotly contested presidential election to be held on January 26th. Almost at once dozens of displaced civilians started taking their staple dry rations to town. They sell lentils, wheatour, parboiled rice, curry powders, chickpeas and toiletries. There are mosquito nets and cloth nappies, tea, slippers and even a vegetable grater. Traders are arriv-

Show him the way to go home

Asia 33 ing from other parts of the country. Prices are at wholesale levels or below, and one says she had heard she could get things cheap for her grocery shop. Some of the poorer camp inmates make money from occasional odd jobs and manual labour. But there is too little work to go around. So selling the rations seems the natural thing to do
not, one adds earnestly, that they are given too much. Rather, it is the only way to earn money to pay for other needs. Vavuniya may soon lose its pavement hawkers, however. President Mahinda Rajapaksa has promised to resettle all displaced civilians in their home villages by January 31st. His main electoral challenger is his former army commander, Sarath Fonseka. They will split the vote of the Sinhalese majority. So both need to court minorities, notably the Tamils.

U.L.M. Haldeen, of the Ministry of Resettlement, says hundreds of families have already been taken back to their villages and given tin roong sheets, a cash grant and cooking utensils to help them rebuild their lives. He says only 101,113 of the 300,000 remain in camps, and denies allegations that the displaced are being quietly moved into other temporary housing, as the government ounders around in search of a coherent resettlement plan. Many of the displaced show no interest in the election. One says he will vote, but only because it means he can visit his village. Another stares back blankly when asked if she knows the candidates. No idea, she says, distracted by a uniformed policeman who wants to buy a mosquito net. His small change matters more than the would-be presidents’ promises. 7

Pakistan’s embattled president

Peccavi Lahore

Just because Zardari sounds paranoid does not mean they are not out to get him

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VER since pressure from the public and the army forced President Asif Zardari to reinstate Iftikhar Mohammad Chaudhry as Pakistan’s chief justice in March, he has looked rattled. Now he sounds almost unhinged. On December 27th, the second anniversary of the murder of his wife, Benazir Bhutto, a former prime minister, he accused non-state actors of wanting to break up Pakistan by pitting state institutions against each other. He meant press commentary claiming that he is at odds with the powerful army over foreign policy and that his Pakistan People’s Party (PPP) government is tussling with the judiciary. He said the press had been giving dates for his downfall, but that he would not ee the country as predicted by his enemies. I will stay in the presidency or go to jail, he thundered. The undignied outburst came at Naudero in Sindh province, the burial site of his wife and her similarly martyred father Zulkar Ali Bhutto. Of late Mr Zardari has been playing the Sindh card by whipping up sub-nationalist sentiment against the anti-PPP conspiracies hatched in the dominant province, Punjab. Mr Zardari has looked vulnerable since December 16th, when the Supreme Court struck down the National Reconciliation Ordinance (NRO) promulgated by the previous president, Pervez Musharraf, in October 2007. This had aorded Mr Zardari and other PPP leaders amnesty from criminal proceedings in corruption cases. Overnight, facing a clamour of resigna-

tion calls, senior government ministers had to scurry to the courts for bail before they were arrested. Mr Zardari enjoys presidential immunity from criminal, but not civil, action. The court’s judgment relies on hitherto unused Islamic provisions of the constitution to declare the NRO immoral . Similar devices may be used when the court starts hearing civil petitions to unseat Mr Zardari for moral turpitude . Earlier, the government’s lawyer in the NRO case made the astonishing claim that army headquarters and the CIA were conspiring against the PPP government. Following an uproar, he retracted his comment. But senior army ocers do not hide their contempt for Mr Zardari and America doubts the value of lending support to an increasingly isolated president. Mr Zardari angered the army when, at America’s urging, he tried to tame its inuential Inter-Services Intelligence agency, or ISI. The army was also infuriated by American legislation passed in October promising $7.5 billion in assistance to Pakistan. This insists on civilian control of the army, a condition the army suspects was inserted at the behest of the Zardari government. The coming weeks are critical for Mr Zardari. The court will be mulling petitions seeking his removal as president. So he will face pressure to mend fences with the opposition, by repealing the constitutional amendment that strengthens the presidency and empowers him to re service chiefs and dismiss governments. But even that concession may be too little, too late. 7

34

Middle East and Africa

The Economist January 2nd 2010 Also in this section 35 Yemen’s multiple wars 36 Ghana’s dangerously oil-rich future 36 East Africa’s hopeful common market

Iran’s turmoil

Growing signs of desperation The latest bout of increasingly erce repression suggests that the Islamist regime has begun to fear for its future

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HAT more can Iran’s ruthless rulers do to squash their opponents? Since nationwide protests broke out last June over the disputed results of presidential elections, the ocial winner, Mahmoud Ahmadinejad, has pulled few punches. His security apparatus has beaten and arrested thousands, tried scores of dissidents in kangaroo courts, hounded others into exile, throttled the press and jammed the airwaves. But the massive and violent demonstrations that engulfed the capital, Tehran, and other cities on December 26th and 27th suggested that repression only deepens and broadens the opposition. Footage of the protests, shot by mobile phones and spread via the internet, revealed scenes of mayhem unprecedented since the 1979 revolution that toppled the shah. Mobs of youths, including many women, attacked and in some cases overcame squads of riot police. The rioters, mostly unmasked in contrast to previous protests, apparently chanted as many slogans against Iran’s supreme leader, Ayatollah Ali Khamenei, as against Mr Ahmadinejad. They set police vehicles on re and torched at least one police station. Plainclothes government thugs fought back, bludgeoning isolated protesters and apparently shooting several at close range. State television at rst said 15 people were killed, a gure later reduced to eight,

including a nephew of Mir Hosein Mousavi, a former prime minister widely thought to have truly won the June election; he has become an opposition gurehead. Some opposition sources say the nephew was targeted as a warning to Mr Mousavi. Kayhan, a newspaper that echoes hardline views, countered with the charge that Mr Mousavi had himself orchestrated his nephew’s shooting. The violence was particularly shocking since the protests coincided with Ashura, a solemn day in the Shia calendar that commemorates the martyrdom of Hosein, a grandson of the Prophet Muhammad. Reecting Iran’s stark polarisation, government supporters and opponents accused each other of desecrating Hosein’s memory. Reecting a fear of generating new martyrs
to fuel further protests, security forces took over Tehran’s cemeteries and nabbed the bodies of some of those killed, preventing their immediate burial in accordance with Muslim rites. State news agencies say police arrested more than 1,000 protesters during the riots. Dozens more campaigners have been jailed in a dramatic widening of the purge against reformists that began in June. They include such luminaries as the 78-year-old Ebrahim Yazdi, the Islamic Republic’s rst foreign minister and now head of a banned liberal party, as well as numerous

close relations of prominent dissidents, including a sister of Shirin Ebadi, a Nobel laureate and human-rights lawyer. This tactic has often been used in Iran to frighten prominent people, without stoking more public anger by detaining them directly. So far the authorities have refrained from arresting such gures as Mr Mousavi himself, but a new wave of arrests has swept up many of their close associates. As in the past, conservatives have blamed foreign powers for stirring up the protests. Yet with the clashes persisting despite Iran’s isolation from the outside world, this charge is carrying ever less weight with the people. On the contrary, the government’s tactics, along with Mr Khamenei’s silence and the increasingly ungloved intervention of the Revolutionary Guards, the elite military corps that commands the plain-clothes baseej militia used for crowd control, may reect a growing sense of desperation. Signs of the regime’s fading legitimacy are numerous. In December, for instance, the head of Iran’s central bank issued a stern warning that from January 8th it would no longer accept bank notes defaced by extra words. In practice, this would mean taking millions of notes out of circulation, following a quiet campaign by oppositionists to mark them with antiregime slogans. Funereal opportunities More embarrassing still for a regime that describes itself as Islamic is the government’s treatment of dissident clerics, including some prominent ayatollahs. The most senior was Grand Ayatollah Hosein Ali Montazeri, a condant of the Islamic Republic’s founding father, Ayatollah Ruhollah Khomeini, with whom he fell out of 1

The Economist January 2nd 2010 2 favour shortly before the old man’s death

in 1989. Placed under house arrest for a decade, Mr Montazeri continued to criticise the government, siding openly with the reformists after the tainted June elections. Despite his isolation, Mr Montazeri remained popular, so his death on December 20th was yet another occasion for protest. Rather than risk demonstrations, the government saturated his funeral with baseej agents and banned memorial rites elsewhere, sparking clashes in several cities. More recently baseej forces have ringed the homes of two other prominent dissident ayatollahs in a blunt eort to block them from becoming a focus for protest. Perhaps worse yet for Iran’s government, its troubles at home have crippled its

Middle East and Africa 35 foreign policy, at a time when it faces rising pressure to curb its controversial nuclear programme. Western countries that had shied from too strong a condemnation of Iran’s human-rights record, for fear of empowering the more extreme nationalists and threatening nuclear diplomacy, are losing patience. Even the pragmatists among Iran’s friends, such as Russia and China, now fear their longer-term and potentially lucrative interests in Iran may be hurt by too close an embrace of the regime. If they refuse to vote against tougher sanctions expected to be proposed soon against Iran at the UN Security Council, even Messrs Ahmadinejad and Khamenei may start to fear that their days in power may be numbered. 7

Yemen’s multiple wars

A growing worry for the West Cairo

A tribal rebellion in the north and al-Qaeda elsewhere are jangling nerves

S

TRUGGLING to fend o many threats, Yemen’s government has looked increasingly beleaguered. Yet over the past few weeks it has taken the initiative, scoring what amounts to a hat trick. In concert with neighbouring Saudi Arabia, Yemen’s air force has hammered rebellious tribesmen in the north. Some reports claim that the leader of the uprising, Abdul Malik alHouthi, was among those who have been killed. Security forces have also raided alQaeda targets in the south and centre of the country, killing several commanders and arresting others, in their most sustained oensive yet against the jihadists. That campaign parried a third dangerous challenge. Foreign donors have grumbled that their crucial support for the government has not been matched by action, even as evidence accumulates that Yemen’s rugged fringes have become a secure base for jihadist terrorism. Umar Farouk Abdulmutallab, the Nigerian student who tried to down an American airliner with explosive underpants on Christmas Day, had been in Yemen since August. AlQaeda’s local aliate claimed responsibility for his failed attack. Yet in the context of Yemen’s complex politics, all these apparent gains come with caveats. Despite the army’s superior repower and help from the far betterarmed Saudis, little headway appears to have been made on the ground in the north. The Houthi rebels, an alliance of tribesmen who complain of state neglect and discrimination against the minority Zaydi Shia sect, have pressed their claims in a bitter, ve-year-long guerrilla war that

An al-Qaeda man preaches Yemeni jihad has generated more than 175,000 refugees. The involvement of Saudi Arabia, a regional Sunni power whose dominance Yemenis tend to resent, simply adds to their grievances. Some Yemeni commentators, meanwhile, worry that a mooted cease re, whose terms Mr Houthi had apparently agreed on, could be postponed by his asyet-uncon rmed demise. Others in the region fear that the Saudi intervention may draw the Iranians indirectly into the fray; they have already been accused, so far without independent corroboration, of arming and nancing the Houthis. Clobbering the jihadists Bolder action against al-Qaeda may, however, have produced more solid gains. The government claims that ve separate raids, including air attacks on December 17th against an alleged training camp in Abyan

province and others on December 22nd and 24th that targeted jihadist conclaves in Shabwa province, have killed at least 60 ghters. Its says a further 29 are now in custody, including members of a suicide cell that had planned to hit the British embassy. Several of the alleged al-Qaeda people killed in the bombing raids belonged to the Awlaki tribe, so were kinsmen of Anwar al-Awlaki, a fugitive American-born Yemeni preacher who is accused of inspiring a killing spree by a Muslim American major in Texas in November. These are big blows to al-Qaeda, considering that Yemen itself has, by the government’s own tally, suered some 61 alQaeda attacks since 1992. Until recently, the state had shied from all-out con
ict with the jihadists, adopting instead a carrotand-stick approach that created such embarrassments as the suspiciously easy escape of 23 al-Qaeda convicts from a maximum-security prison in 2006. But early last year the group’s Saudi branch, many of whose members had
ed to safety in Yemen, formally accepted Yemeni leadership under a new name: al-Qaeda in the Arabian Peninsula. Since then it has launched numerous small-scale attacks against Yemeni security forces and has struck in Saudi Arabia too. And it appears to have secured tribal protection as well as some political backing from groups in southern Yemen which demand a repartition of the country, which was formed from two chunks in 1990. Yet though the oensive against alQaeda shows a new determination, it also carries risks. America has admitted to providing only intelligence and logistical support for the bombing raids. But local witnesses say they have also sighted American drone aircraft or cruise missiles. As in Pakistan, reports of foreign interference anger many locals, particularly since women and children were among the victims of the Abyan raid. The south of the country, which contains oil and gas, is already roiled by unrest. So further ghting against al-Qaeda could provoke a wider civil con
ict, which in turn could undermine a regime that has rattled many of its own people by throwing in its lot with the West. 7

36 Middle East and Africa Ghana and its oil

Dangerously hopeful

The Economist January 2nd 2010 East Africa’s common market

It really may happen Kigali

The region’s leaders take another step towards building a common market accra

Can one of Africa’s best-governed countries beat the curse of black gold?

A

T AGBOGBLOSHIE market in Accra, Ghana’s capital, Rose Kamina struggles to sell T-shirts in the stiing heat. Business is small-small, says the 22-yearold wearily. This year we could only afford fowl for Christmas. Then, unexpectedly, her face brightens a little. But maybe next year we will buy a goat. As Ghana prepares to pump oil in the second half of 2010, hopes are rising, both among hard-pressed market traders at home and in the far-ung diaspora, where Ghanaians are quitting jobs in American banks to head back to an optimistic homeland. Oil was found o Ghana’s coast in 2007 and, even without further discoveries, is now expected to earn an average of $1.2 billion in annual state revenues for almost two decades. For a country with 23m people and a GDP of $16 billion, it could be a big boost
or a crippling blight. Perky economic growth, a decent human-rights record and two consecutive changes of government by the ballot box have made Ghana one of the past decade’s success stories in Africa. In 2009 it won the accolade of being sub-Saharan Africa’s only country to be visited by Barack Obama as president. Yet some people worry that it could slip back into its corrupt and violent ways once the oil begins to ow: witness other countries in the region, such as huge Nigeria and tiny Equatorial Guinea, where cliques of big men have stolen stacks of bounteous oil money while most of the people have been left to live in poverty. This is the curse of black gold. Ghana still has a good chance of getting it right. Unlike many of its neighbours, Ghana has struck oil under democracy. Its ocials entrusted with drawing up legislation have been scrutinising oil-revenue laws from Norway to Trinidad and TimorLeste. A draft bill proposes that part of the oil money should go directly into the national budget, with the rest split between a stabilisation fund to support the budget if oil prices drop and a heritage fund to be spent only when the oil starts to run out. Putting the money into ring-fenced funds should prevent a free-for-all among politicians and the corruption that could ensue. But there are countervailing pressures. President John Atta Mills, who took oce a year ago after a tense election won by less than half a percentage point, inherited a scal decit of 14.5%, almost two-thirds more than the previous year’s. The former ruling party, it transpired, had embarked

F

REE-TRADE ngers crossed, some time this summer goods should start being sold without taris across borders within the ve countries of the East African Community (EAC). The new common market will take in 130m-plus people in Burundi, Kenya, Rwanda, Tanzania and Uganda. The next step is monetary union, with political federation a far remoter prospect. The agreement signed last year at the EAC’s headquarters in the Tanzanian city of Arusha was a rst step. Optimists say the EAC should join free-trade blocks in southern and western Africa before 2030. The EAC is working o a small base. Its combined GDP of $75 billion is a sixth of Belgium’s. But scrapping taris should boost regional trade and improve competitiveness. The EAC should be better placed to trade with Congo, Ethiopia and Sudan. And if it can build its own wider manufacturing base, its goods may start to compete with cheap stu from China. Kenya, which has the region’s strongest manufacturers, retailers and banks, is sure to gain most. But for the EAC to succeed, others must win too. Rwanda and Burundi should benet from cheap-

on a pre-election spending spree to woo voters. Because of Ghana’s recent record of good management, donors have helped out: the World Bank tripled direct assistance in 2009 and the IMF has agreed to lend $600m over three years. But Mr Mills has still had to cut spending, with a partial freeze on hiring in the public sector, the biggest employer. And the opposition says the government is creating mistrust by spending too much time weeding out civil servants close to the previous administration rather than preparing for petroleum. None of this is endearing Mr Mills to the electorate. After an austere year the government may yet be tempted to blow its early oil revenues on restoring popularity. That would set a dangerous precedent; it would also be a lot easier if the government was not restricted by laws to stop it. For all the ne talk of heritage funds, the oil bills are behind schedule; none has yet been put to Parliament. If you get the revenues before the laws, it will be very grey, warns Moses Asaga, a member of the ruling National Democratic Congress who chairs Parliament’s energy and mining subcommittee. Everybody will be struggling for the money. So decisions taken this year will strongly aect Ghana’s future. With proven re-

er and quicker transport of goods to and from the ports of Mombasa and Dar es Salaam. Uganda is well placed to expand its agriculture for export. Tanzania is less certain to gain. It wants to keep some taxes on goods from Kenya. And it is wary of the free movement of labour, fearing that, in many professions, pushier and better-educated Kenyans will come and snatch plum jobs. Faustin Mbundu, a Rwandan who chairs the East African Business Council, says the real benets of the common market will accrue only with more and better roads, railways and power stations. Some say a new capital for the EAC must be built from scratch, perhaps on a shore of Lake Victoria, with a new international airport to match Nairobi’s. But simpler things will be needed a lot sooner. For instance, border crossings will have to be kept open at night. Mr Mbundu wants to end the scourge of informal police checkpoints. Above all, the governments will have to avoid policy reversals that pander to their own industries, a tendency that has hitherto stood in the way of a proper common market.

Oil isn’t everything serves of just 1.2 billion barrels of crude (against Nigeria’s 36 billion), Ghana’s windfall may last only a generation. As Joe Amoako-Tuour, a senior ocial working on the oil laws, puts it: We must decide how many of these eggs to eat today and how many to keep and hatch into chickens. But we are a poor country and we are hungry. The temptation is to eat now. 7

The Economist January 2nd 2010 37

Europe

Also in this section 38 Turkey and its generals 38 The Balkans and the European Union 39 An autonomous Vojvodina Charlemagne is back next week

Europe.view, our online column on eastern Europe, appears on Economist.com on Thursdays. The columns can be viewed at Economist.com/europeview

Germany’s fractious government

Angela Merkel’s wobbly restart BERLIN

Coalition squabbles and a row over Afghanistan have made the beginning of Angela Merkel’s second term as chancellor shaky

E

VEN its supporters cannot claim that Germany’s centre-right government has got o to an impressive start. Since the coalition of Angela Merkel’s Christian Democrats (CDU) with Guido Westerwelle’s Free Democrats (FDP) took oce in late October, a row over Afghanistan has toppled one minister and engulfed a second; the government has enacted tax cuts nobody seems to want; and it has feuded bitterly over a minor appointment to a museum. Ms Merkel, the supposed climate chancellor
, failed to rescue the planet in Copenhagen (see page 43). Her Christmas holiday, mostly spent cross-country skiing, must have come as a relief. Ms Merkel’s main legislative achievement is a growth acceleration law
that has drawn ridicule from economists and split the CDU but left voters cold. The economists expect little acceleration from 8.5 billion ($12 billion) of tax cuts that include relief for families, much of which will be saved, plus a cut in value-added tax for hotel stays. Without spending reductions or other revenue rises, such cuts are unserious
, complained the ocial committee of economic wise men. Only a fth of voters want them, says Forsa, a pollster. CDU premiers from cash-strapped states hate giveaways that eat into their own revenues. The government’s shaky start suggests that the black-yellow
coalition (consisting formally of the CDU and its Bavarian sister party, the Christian Social Union,

along with the FDP) was never the dream team that Ms Merkel claimed ahead of September’s federal election. The FDP spent 11 years in opposition agitating for tax cuts and could not relent once in power. It also had the support of the CSU. But these two smaller parties have been at loggerheads over a new museum for refugees. The CSU wants a seat on the advisory board to go to a controversial leader of ethnic Germans expelled after the war by Poland and Czechoslovakia, because their descendants are a key voting group in Bavaria. But Mr Westerwelle, who as foreign minister has made much of good relations with Poland, says no. In many ways, some in the CDU are muttering, life was easier in the grand coalition
with the Social Democratic Party (SPD) that ruled with a big majority until October. The CDU and SPD may be ideological and political foes, but both are broad-based people’s parties that understand the responsibilities of oce. The FDP needs to grow up, some grumble. Afghan angst Ms Merkel got her tax cuts through both houses mainly by promising extra aid to the states. Her troubles over Afghanistan will not be so easy to settle. They began in September with a NATO airstrike called by a German colonel against a group of Taliban who had hijacked two fuel trucks in Kunduz. Franz Josef Jung, then defence

minister, initially denied that any civilians were killed. He was forced to resign as labour minister in November when it became clear that the defence ministry knew early on that many of the 142 casualties were civilian. The new defence minister, Karl-Theodor zu Guttenberg, then sacked the most senior general, Wolfgang Schneiderhan, and a top bureaucrat for failing to inform him fully. But General Schneiderhan has, in eect, called Mr zu Guttenberg a liar. A parliamentary committee plans to summon all those concerned, probably including Ms Merkel. This adds up to an ugly blemish on a promising debut. Young, charismatic and with a reputation for straight talk, Mr zu Guttenberg had bonded well with the troops and told voters bluntly that they faced warlike conditions
in Afghanistan, which counts as daring candour in a country that still sees itself as exempt from warfare. The Kunduz ap will make it harder for Germany to back NATO’s surge in Afghanistan with more troops. Mr zu Guttenberg has not ruled this out, though he has lately sounded less bellicose by calling for negotiations with moderate Taliban leaders and talking of a date for withdrawal. He may yet bounce back. Many soldiers think General Schneiderhan went too far in questioning the minister’s honesty; and they like the new army chief. In the long run, argues Jan Techau of the German Council on Foreign Relations, the Kunduz aair may even help the country to come to terms with its military obligations. The politicians have allowed an escalation of Germany’s military role abroad but done their best to disguise it. If Mr zu Guttenberg survives, the Kunduz incident will pave the way for a new kind of language
, hopes Mr Techau. Ms Merkel could use a fresh start herself. She wants to shift from the economic- 1

38 Europe

The Economist January 2nd 2010

2 recovery phase of her second term, of

which tax cuts are a big part, to sustainability , her label for various initiatives ranging from promotion of green industry to more investment in education. This last includes more money for education in early childhood, especially for immigrants, and expanding university scholarships. A greying population will also be encouraged to save more for long-term care. There are ambitious if vague plans to sharpen competition in health care and shift some of the costs from employers to the insured. Yet the sustainability agenda may not advance much more smoothly than the recovery one. The FDP and CSU disagree over health-care reforms. Ms Merkel has yielded to a CSU demand for a subsidy to mothers who stay at home, to go with an expansion of state-nanced child-care. Critics, including some in the FDP, worry that stay-at-home children will be those who most need to get out of the house. More tax cuts are also promised for 2011, which may also mean more internal squabbling. Nobody knows how to reconcile them not only with higher spending on education but also with a new constitutional obligation to cut the federal government’s budget decit almost to zero by 2016. Wolfgang Schäuble, the steely nance minister, promises to raise taxes or cut other spending if need be. He is unlikely to be more specic until after a state election in North Rhine-Westphalia, Germany’s most populous state, in May. Its black-yellow coalition is up for reelection. If it loses, the government would surrender its majority in the upper-house, the Bundesrat. But if it wins, that could give Ms Merkel a new zing and greater room for manoeuvre in Berlin. She has not veered wholly o-course
yet. 7

Turkey and its generals

These cursed plots ISTANBUL

The latest episodes in various alleged conspiracies against the government

I

T HAS been a rotten year for Turkey’s generals. A series of leaked documents, tapped phone calls and sometimes plain accidents have exposed enough instances of shenanigans and mischief to shake the faith of even the most hard-core secularist. Recep Tayyip Erdogan, the prime minister, has spoken of historic changes . The days when civilians took their orders from generals in Turkey may be gone for good. The most recent scandal concerns two ocers from Turkey’s special forces who were arrested just before Christmas on suspicion of trying to assassinate Bulent

Keep out, investigators about Arinc, the (overtly pious) former speaker of parliament who is now a deputy prime minister. One of them apparently tried to eat the piece of paper on which Mr Arinc’s address was written when they were arrested near his Ankara home. The army’s explanation that the ocers were spying on a colleague after an anonymous tip-o that he was passing secrets on to Mr Arinc failed to impress prosecutors: several other ocers were briey detained in connection with the alleged murder attempt. Against sti initial resistance, investigators combed the special forces’ once-impregnable Ankara headquarters over several days for evidence of other plots to destabilise the country and unseat Mr Erdogan’s ruling Justice and Development (AK) government. They may have found some old dastardly plans. The Tactical Mobilisation Group of the Special Forces Command is believed, among other things, to have orchestrated the provocations that led to the mass exodus of ethnic Greeks from Istanbul in 1955. The latest operation marks perhaps the rst time that civilian ocials have carried out such an action against the army. Their ability to do so was enshrined in a landmark law, passed by the AK government in June 2009, that allows men in uniform to be tried in civilian courts. After some wobbling, Mr Erdogan now seems ready to take the army on. Many ocers, including several retired generals, are languishing in jail in connection with the so-called Ergenekon trial of a group of would-be coup plotters. With each new revelation that taints the armed forces, ever more Turks fret that the army may be undermining the state. This week General Ilker Basbug, the chief of the general sta, admitted that the raids on the Special Forces Command were carried out within the law. Despite occasional growls about unnamed enemies blackening the army’s name, General Basbug seems quietly to be co-operating

with the government in its investigation. Over the years the army, which has toppled four governments since 1960, has been among the biggest obstacles to a stable democracy in Turkey. But the squabbling politicians are little better. The main opposition leader, Deniz Baykal, has at times seemed even keener on a coup than are the generals themselves. More than seven years after AK was rst elected to government, laws restricting free speech remain. The most heartening aspect of the recent scandals may be that so many were revealed by ocers who exposed rogues within their own ranks. 7

The Balkans and the European Union

Lightening gloom? BELGRADE

A somewhat more optimistic start to the new year in the western Balkans

O

NLY a few months ago a deep gloom hung over the western Balkans. Both Croatia and Serbia had been stopped in their separate tracks towards the European Union. Foreign investment had dried up during the recession. There was even doom-laden talk of a renewed conict in Bosnia. But now the atmosphere has generally improved; maybe not everywhere, but particularly so in Serbia. Serbia had been blocked by the Dutch, who wanted it to arrest Ratko Mladic, the fugitive Bosnian Serb general indicted by The Hague war-crimes tribunal on charges of genocide. But, satised that the authorities are genuinely looking for General Mladic (a Serbian minister has just resigned for failing to catch him), the Dutch have for now lifted their veto. Just before Christmas, Serbia’s government applied 1

The Economist January 2nd 2010 2 for EU membership.

The idea was that Serbia should end the year with a bang. Three days previously Serbs, along with Macedonians and Montenegrins, had regained the right to travel without visas to most EU countries that they lost during the wars of the 1990s. Soon afterwards Fiat, an Italian carmaker, at last acquired a full 67% stake in Serbia’s main carmaker, Zastava, which was already turning out Fiat Puntos. That deal was planned in 2008 but frozen by the economic crisis. Mladjan Dinkic, Serbia’s deputy prime minister, claimed the takeover signalled the end of Serbia’s recession. Mr Dinkic may be too optimistic. Serbia’s economy has been hit hard and GDP is expected to have contracted by 3.5% in 2009 and to grow by only 1% in 2010. Yet the Fiat deal matters as a sign of renewed con dence in the country. What is not clear is whether ordinary Serbs will be much cheered by it. In February the government will begin ring 8,500 workers as it tries desperately to cut public spending. On December 6th in a local election in Vozdovac, a Belgrade municipality that President Boris Tadic’s ruling Democratic Party sees as its natural territory, the opposition parties were the winners. The leading opposition party, the Serbian Progressives, was founded only in October 2008. It emerged from the extreme nationalist Radicals, now just a rump party. The Radicals’ irredentism had turned into irrelevance, so Tomislav Nikolic, the acting party leader, chose to follow the example of Croatia’s nationalists and fashion a modern centre-right party, shorn of warlike rhetoric and no longer anti-EU. The latest opinion polls give the new party a similar share of the vote to Mr Tadic’s Democrats. In the meantime, Croatia’s own former nationalist party, led by Jadranka Kosor, the prime minister, is crestfallen. For much of 2009 Croatia’s EU accession talks were blocked by a trivial border dispute with Slovenia. Despite recently raising some fresh concerns, the Slovenes have now lifted their veto. Croatia could join the EU as soon as 2012. Yet in the rst round of a presidential election on December 27th, Mrs Kosor’s candidate was beaten into third place. The second round on January 10th will pitch Ivo Josipovic, a lacklustre Social Democrat, against Milan Bandic, the controversial mayor of Zagreb. Ines Sabalic, a magazine columnist, notes another big shift. In the past, proving one’s patriotism was the way to win votes, but no longer. Today, she says, anti-corruption is the new nationalism and everyone outdoes everyone else with promises to clean up the country. Organised crime, corruption and a judiciary buried under a backlog of hundreds of thousands of cases are only the most urgent tasks. The campaign was boring, the candi-

Europe 39 An autonomous Vojvodina

Exit strategy Backa Topola and novi sad

A Serbian province wins greater self-governance

S

ERBIAN nationalists are outraged over a new autonomy statute for Vojvodina, their northern province. Their country has in eect been shrinking for two decades, and this may be the thin end of a wedge leading to Vojvodina’s independence. After all, Kosovo and Vojvodina had equally extensive autonomy until Slobodan Milosevic scrapped it in 1989. And in February 2008 Kosovo, whose population is overwhelmingly Albanian, declared independence. Such scaremongering is nonsense, says Bojan Pajtic, Vojvodina’s prime minister. So are comparisons with Catalonia and Scotland, where autonomy is based on language or history. Some 65% of Vojvodina’s 2m people are Serbs who have no wish for independence. Moreover, compared with the autonomy the province had between 1974 and 1989, the powers now being devolved look modest. Indeed, sceptics say what is really at stake is a battle for party power, in
uence

and money between Mr Pajtic and Serbia’s president, Boris Tadic. Mr Pajtic rejects such claims. What Vojvodina has gained, he says, is the ability to develop just like other European regions. But Relja Drazic, a publisher based in Novi Sad, the region’s capital, who otherwise welcomes more autonomy, sees this as grandstanding. Most locals seem not to care much, partly because they do not know what more autonomy will mean in practice. In the past Vojvodina has seen devastating wars and big migrations that have made it one of the most ethnically mixed places in the Balkans. After the second world war, ethnic Germans were driven out and their empty villages repopulated, mainly by Bosnian Serbs. The Balkan wars of the 1990s led to more migration. Vojvodina has six ocial languages, including Ruthenian and Slovak. Hungarians (some 14% of the population) comprise the biggest minority. But over the past two decades younger Hungarians have drifted back to Hungary. In the small town of Backa Topola, whose population is mostly Hungarian, Janos Hadzsy, a journalist, laments that anyone with enough brains runs away. Yet though much of Vojvodina remains poor, some parts have done well. Much of the province is
at and fertile farmland, and there is some thriving small industry as well. Vojvodina is also home to Serbia’s most successful brand: the Exit music festival, created in 2000, which has done more than anything else to improve Serbia’s post-war image. Its manager, Bojan Boskovic, talks of turning Novi Sad into the Edinburgh of the Balkans. He is speaking of culture, not politics.

dates dull and people are fed up, says Ivo Banac, a historian and commentator. Croats are the richest people in the western Balkans and the closest to following Slovenes into the EU, but polling by Gallup and the European Fund for the Balkans nds 84% of respondents in Croatia, more than anywhere else, think their country is heading in the wrong direction. Much as others in the western Balkans may resent it, Serbia and Croatia are the two countries that matter most in the region. Many obstacles stand athwart the EU ambitions of Montenegro and Macedonia, as well as Bosnia, Kosovo and Albania (these three have not even won visa-free travel yet). But if the big two make pro-

gress, the eect will be positive for all. Enlargement is hardly a priority in Brussels these days, and Spain, which does not even recognise Kosovo’s independence, has just taken over the rotating EU presidency. With the exception of Croatia, the others have many years of work before they can even come close to joining the EU, so today’s hostile mood may be less worrisome and discouraging than it appears. Only a decade ago Slobodan Milosevic, president rst of a disintegrating Yugoslavia and then of a belligerent Serbia (and Montenegro), was still comfortably in power in Belgrade. In the Balkans progress tends to be painfully slow. But it is progress, all the same. 7

40

The Economist January 2nd 2010

Britain

Also in this section 41 The economy and the election 42 Extraditions to Poland 42 English libel law Bagehot is back next week

The election campaign

Under starter’s orders

The contest sharpens as it enters its nal few months

B

RITAIN was once renowned for its mercifully brief election campaigns. Americans subjected to almost ceaseless electioneering envied the four-week ocial hustings from the dissolution of Parliament to polling day itself. But just as prime ministers have become more presidential, so general elections have come increasingly to resemble those across the Atlantic. The actual vote in 2010 is likely to be in May and must be held by early June. Yet politicians have been campaigning since last autumn’s party conferences. Set-piece events, such as the pre-budget report on December 9th, have been more nakedly political than usual. Labour ministers grumble that civil servants are hoarding ideas and energy for the Tories, the new masters they may soon be serving. Political discourse even at a time of war in Afghanistan and the most serious economic slump since the second world war is dominated by the micro-politics of campaign tactics and opinion polls. The latter point to the most open election since 1992 when John Major, the then prime minister, pulled o a surprise fourth consecutive victory for the Conservatives. Now the Tories enjoy a comfortable lead (see chart), but one that has shrunk in recent months. That is a worry for them because uneven constituency sizes and other vagaries of the electoral system discriminate against the party. It needs a swing of

seven percentage points in its favour the second biggest ever to win an overall majority in Parliament of just one seat. True, this assumes a uniform swing across all constituencies, and the Tories are targeting their superior resources on the most marginal seats. But there remains a serious prospect of a hung parliament. Such an inconclusive election outcome has not happened since 1974, when Britain faced not just an economic but also a political crisis caused by overmighty trade unions. Today the trouble aicting the country is economic and
scal: news on both fronts over the next few months may sway the election’s outcome (see next story). The Tories want rapid spending cuts to deal

Clear blue water Voting intention, poll of polls, % 50 Conservative 40 30 Labour 20 Liberal Democrat 10 2005

06

07

08

09

Sources: BPIX; ComRes; ICM; Ipsos MORI; Populus; YouGov

with an alarming de
cit of 12.6% of GDP in 2009-10. Gordon Brown says this betrays complacency about a prospective economic recovery that is, to the prime minister’s mind, too fragile to do without continued government largesse. He also hopes that the Conservatives’ zeal to wield the axe will undo their hard-won trustworthiness as guardians of the public services. But the government itself is split on just how much austerity is needed. The Treasury wanted a stingier pre-budget report than the one that emerged after aggressive lobbying from Mr Brown and other ministers. Cuts to university funding recently announced by Lord Mandelson suggest that the powerful business secretary is among the
scal hawks in the cabinet. Ed Balls, the schools secretary, is the most prominent advocate of big spending. Labour is also divided on the wisdom of making class-based attacks on the Tories, a line favoured by both the prime minister and Mr Balls. By contrast, the likes of Lord Mandelson and Tessa Jowell, the Cabinet Oce minister, are wary of alienating the more prosperous south. Yet the Conservatives may be vulnerable to such an oensive. The party says that raising the threshold of inheritance tax (a promise they made in fatter times for the national coers) is now a low priority but will eventually happen. By contrast, reversing the government’s planned increase in national-insurance contributions is a high priority, but not a guarantee. This line may not survive the heat of an election campaign. Neither of the two main parties commands much enthusiasm in the country. They can blame much of this on an antipolitics atmosphere, which pre-dates the MPs’ expenses scandal that broke last May but was intensi
ed by it. Britain is in no 1

The Economist January 2nd 2010 2 mood to replicate the euphoria that greet-

ed Labour’s sweeping victory in 1997. But there is still scope for the parties to improve their own pitch to voters. Labour may have a clear spend to grow message on the economy, but it has less to say about Britain after the recession. The Tories have plenty of promising futurology to do with decentralising power and reviving civil society. But they are shakier on the economic here-and-now, and run the risk of sounding too bleak. Labour, insist many in the party, is a strong team fronted by a hopeless leader. In David Cameron, the Tories boast an admired leader in charge of a largely anonymous shadow cabinet. The problem for Labour is that Mr Cameron can shift the spotlight to some of his promising colleagues (there are a few). Rebranding Mr Brown, whose personal ratings remain dismal, seems a lost cause. A series of American-style televised debates, the rst of their kind in Britain, will pit the two men against each other before the election (Nick Clegg, the Liberal Democrat leader, will also take part). The home stretch The prime minister does have the advantage of being able to choose the timing of the election, but his decision now seems less in doubt than in recent weeks. There had been speculation that Mr Brown would go to the polls in March, to spare himself the ignominy of another budget exposing the desperate state of the public nances. But that argument has been weakened since the pre-budget report, which went down less badly with voters than feared, maybe because of its crowdpleasing tax raid on bank bonuses. And the weather argues against an early election; a dark and cold polling day is thought to work to Labour’s disadvantage by keeping more of its voters at home. Whenever the election is held, the government can achieve little of substance before it. Parliament rose even earlier than usual for the Christmas holiday. A urry of policy announcements that the Tories are planning for January will force day-by-day responses from ministers already distracted by the call of the campaign trail. Merely surviving to ght the general election is an achievement of sorts for Mr Brown, whose leadership has been under threat for most of his time in power. Indeed, the sense that he has seen o defenestration may explain his untypically perky mood, which was visible even before his party’s recent mini-recovery in the polls. And if the unpopular leader of a 13year-old government that has presided over a wretched recession ends up limiting his opponents to a narrow majority in Parliament, or even a minority government, that would warrant some cause for satisfaction on his part. 7

Britain 41 The economy and the election

The gures that will count News about recovery and in ation may sway the voters

P

ARTY leaders draw up elaborate plans to woo voters during election campaigns; but economic events can upset them. In June 1970, for example, unexpectedly bad trade gures tripped up Harold Wilson, as he seemed set to win another term for Labour. These days recovery from the recession, rather than the balance of payments, is the crucial economic indicator. In 2010 Gordon Brown will be hoping that the voters give him credit for steering the economy back to growth. That hope took a knock when GDP continued to shrink in the third quarter of 2009. Although gures published on December 22nd showed that the decline in national output was 0.2%, rather than the initial estimate of 0.4%, they conrmed that Britain was the only big economy still stuck in recession. Now Labour is looking forward to January 26th, when ocial statisticians will present their rst report on what happened to GDP in the nal quarter of 2009. There are underlying grounds to expect the long-awaited recovery to materialise, such as the stimulus to exports from a weak pound and a turnaround in the stockbuilding cycle. There is also a more specic reason. On January 1st the main rate of VAT returns to 17.5%, after 13 months in which it was reduced to 15% to help combat the downturn. That has given consumers a strong incentive to boost purchases in the closing months of 2009. They were certainly out in force after Christmas, when retailers reported a surge in the number of shoppers. Yet this rush may have a downside for Labour too. After bringing forward purchases to beat the VAT rise, consumers are likely to cut back in early 2010. The

initial estimate of GDP in the rst quarter will be published on April 23rd, close to the most likely election date, May 6th. Data suggesting a setback to the recovery
faltering growth or even a dip in GDP
will damage Mr Brown. Moreover, the rise in VAT will push up ination. Already, consumer-price ination has risen from a recent low of 1.1% in September to 1.9% in November, largely because petrol prices have been rising whereas they were falling steeply a year earlier. The increase in VAT could push ination above 3%, requiring Mervyn King, the governor of the Bank of England, to explain why the 2% target has been overshot to such an extent. The surge in ination will be temporary because the recession has opened up so much spare capacity; but the timing is awkward for Labour, and could further dent voters’ faith in its competence. Alongside economic performance, the public nances will be a central campaign theme. Labour is vulnerable to a loss of condence among the investors who must nance the government’s huge borrowing requirement. A failed gilt auction, in particular, could send sterling tumbling. So, too, could a spring budget that, like December’s pre-budget report, failed to spell out a credible plan to reduce the decit. Even if the economic news is promising and the nancial markets jitter-free, Labour will have a hard job to convince voters that it deserves to manage the economy and public nances for a fourth term. It has after all presided over the longest and deepest recession and biggest budget decit since the second world war. Whatever happens in early 2010, that dire record will stain its reputation.

Labour hopes they will crowd out the recession

42 Britain

The Economist January 2nd 2010

Extraditions to Poland

Wanted, for chicken rustling

Poles apart Extraditions from Britain to: 350 300

Why one country accounts for half of Britain’s European extraditions

200 150

E

VERY fortnight an aeroplane carrying Polish policemen touches down at an airport in southern England. Waiting for them each time is a glum band of 20 or so handcued men who are to be own back to face trial in Poland. Extradited prisoners are normally transferred on ordinary commercial ights, but a surge in the number being sent from Britain to Poland means that now a fortnightly Con Air service is being laid on by the Polish authorities. Astonishingly, Poland now accounts for more than half of all Britain’s extraditions to Europe (see chart). The number of transfers grew from four in 2005 to 186 in the
rst nine months of 2008. That is about ten times the number being sent to Ireland, despite the fact that Irish migrants easily outnumber Poles in Britain. What explains this sudden plague of hardened criminals? A look at the charge sheet suggests that they may not be so hard after all. The crimes for which people have been extradited include theft of a chicken , theft of a piglet and theft of a cupboard door . Whereas most countries are happy to put minor oences on hold until the suspect re-enters the country, Poland requests extradition for almost any crime, however petty. Some of its eastern neighbours take a similarly
nicky approach. Britain has to take the requests seriously because of the European arrest warrant, which since 2004 has allowed courts to order the arrest of suspects anywhere in the European Union. The warrant has accelerated the process of extradition and made it harder for border-hopping criminals to evade justice. But, like other legal innovations passed in the wake of the attacks on America in 2001, it has become more widely used than expected. Britain’s High Court ruled in October that it could not stop the extradition to Romania of a man wanted for stealing ten chickens. Pressure groups such as Fair Trials International worry about the standard of justice in some of the countries to which suspects are being fast-tracked. The trivial requests are also wearing thin with the British police. Fugitives are tracked down by the Serious Organised Crime Agency, an out
t designed to bust international crime syndicates, which now
nds itself a partner in the war on poultry pinching. In 2008 Britain sent a delegation to Poland to plead for a let-up, but to no avail. In November a meeting of EU members in Brussels again tried to forge a compromise,

250

other EU countries

100 Poland

50 0

2004

05

Source: Home Office

06

07

08*

*January to September

fruitlessly. The Poles say they are constitutionally bound to pursue every oender. Others say that Poland uses more discretion at home, where its own resources are at stake. The number of extraditions looks set to grow. In April Britain will join a technologically whizzy pan-European informationsharing scheme, which will replace the current system of faxes and phone calls. The Home Oce reckons it will mean that British police have to make about three times as many extradition arrests as they do now. Processing the extra trac will cost £17m a year even before police and court-stang costs are factored in. Surprisingly, dissent among British politicians is muted. The opposition Conservatives are wary of kicking o an argument about Europe within their own ranks, and the Liberal Democrats are supportive of the scheme, partly because it was their European Parliament grouping that pushed the arrest warrant through in the
rst place. For now, Britain will remain shoulder-to-shoulder with Poland in the crusade against chicken rustling. 7

English libel law

Taking away the welcome mat Overdue reforms may be on the way

M

OST tourists come to Britain for the palaces, the pubs and the history. But a few come to take advantage of England’s ferociously claimant-friendly libel laws (Scotland’s are dierent). A string of cases in which plaintis with tenuous links to England have taken advantage of these rules has fuelled worries about legal forum shopping . Belatedly, politicians are taking notice. On December 27th Jack Straw, the justice secretary, said that a hurriedly assembled (but as yet unnamed) panel of lawyers, ac-

ademics and newspaper editors will meet to ponder improvements, with a plan for reform due by March. Libel tourism will be top of the list for change. The most famous example is the case of Rachel Ehrenfeld, an American who wrote a book about the funding of Islamic terrorism. It sold a mere 23 copies in Britain, over the internet. But a Saudi businessman sued her in a London court and was awarded over £100,000 ($160,000). In other cases brought in England, a Ukrainian tycoon silenced a Ukraine-based paper and won a case against a website that published only in Ukrainian; and Kaupthing, an Icelandic bank, won damages from Ekstra Bladet, a Danish newspaper. Such legal expansiveness worries countries with more robust traditions of free speech. Several American states have passed or are pondering laws protecting their citizens from English libel judgments. Some sort of proportionality test seems likely, whereby English courts can assert jurisdiction only if a signi
cant share of sales (10% is one
gure being bandied about) are in England. That would make forum shopping harder, although it would not strengthen the position of defendants themselves in cases that do make it to trial. It is not just journalists and writers who are unhappy. Scientists worry that claimant-friendly rules are stiing the criticism on which science depends. Henrik Thomsen, a Danish academic, is being sued by GE Healthcare after he suggested at a conference in Oxford that one of the company’s drugs might have potentially fatal side-eects. Peter Wilmshurst, a British cardiologist, is facing a lawsuit from an American
rm, NMT Medical, over comments he made on an American website about a study into using heart implants to treat migraines. The British Chiropractic Association is suing Simon Singh, a popular-science author, after he wrote in a newspaper that chiropractic remedies are bogus . A separate government inquiry is looking into the question of costs, and will also report in 2010. Defending a libel action can be so costly that many defendants settle immediately or simply do not publish at all. Mr Singh has spent over £100,000 defending himself so far. Index on Censorship, a pressure group, has suggested a £10,000 cap on damages to reduce the advantages enjoyed by the rich. Libel reform may seem an obscure subject for an unpopular government to pursue with a general election looming. Yet an internet-led campaign for change has gained thousands of signatures, plus support from Richard Dawkins, a prominent science writer, and Lord Rees, the head of the Royal Society. And although few voters are interested in the ins and outs of libel law, the newspaper and television editors who provide those voters with their news most certainly are. 7

The Economist January 2nd 2010 43

International

Also in this section 44 Agriculture and climate change

Green.view, our online column on the environment, appears on Economist.com on Mondays. The columns can be viewed at Economist.com/greenview

Climate change after Copenhagen

China’s thing about numbers Copenhagen

How an emerging superpower dragged its feet, then dictated terms, at a draining diplomatic marathon

A

MID the alphabet soup and baing procedures of last month’s climatechange conference in Copenhagen, it was easy to forget the overall aim: to move from a world in which carbon dioxide emissions are rising to one in which they are falling, fast enough to make a dierence. How fast is enough? A fair measure is carbon and other greenhouse emissions in 2050; if by that date they are only half their 1990 level, most people agree, then things would be on the right track. Another widely accepted calculation: if developing countries are to grow a bit between now and then, rich countries would need to slash emissions to a level at least 80% below what they were in 1990. Many prosperous states have duly accepted that target; and in recent years the expression
80% by 2050 has become a familiar, if optimistic, touchstone for discussions about climate change both in the rich world and among most other parties to the UN Framework Convention on Climate Change (UNFCCC). When drafts of a last-ditch agreement began circulating on December 18th, which should have been the meeting’s nal day, the
80% by 2050 formula was still in place. But, hours later, it vanished. By this stage, eorts to nd consensus among almost 200 delegations had given way to bargaining sessions among small-

ish groups of countries behind closed doors. When the fruits of that back-room trading were presented to the world by Barack Obama, the numbers were conspicuous by their absence. So too were a number of other conditions that Europeans and others would have liked, such as a date for peak emissions.
Why?, a cluster of journalists asked Lars-Erik Liljelund, the Swedish government’s point man on climate, in the early hours of Saturday December 19th. Why would a pledge that applied only to rich nations, and to which all those nations seemed to agree, have vanished from the nal document? After maybe ten seconds of what-can-I-say silence came the at reply:
China don’t like numbers. This is not entirely true. President Wen Jiabao’s speech to the conference that morning included a lot of numbers. There had been 51% growth in China’s renewable-energy output over the three years to 2008; China had planted 20m hectares of forests between 2003 and 2008; developed countries had produced 80% of emissions over the past 200 years; and so on. The numbers that China had resisted were those that could be read in any way as commitments. It had insisted on stripping all gures, even ones that did not apply to China, out of the text that nally became the Copenhagen accord.

In their zeal to avoid being pinned down, the Chinese went further. They secured the removal of language contained in early drafts that spoke of a Copenhagen deal as a step on the road to a legally binding treaty. As the world’s largest emitter (without which any agreement is dead), China was in a strong position, and it took full advantage. Such was the messy denouement of ten days of largely fruitless UN-guided negotiations, in which China did nothing to push things along. Indeed, some suspected China of doing something worse than just folding its arms. The atmosphere was poisoned, early in the meeting, by the leaking of a draft (one of several texts circulated by the Danish chair) that favoured the rich world; various parties thought the Chinese were the leakers. On the nal day, tension rose when President Obama was obliged to conduct negotiations with comparatively junior Chinese delegates. At one point, Mr Obama expected to meet his Chinese opposite number one-on-one but instead found himself with the leaders of South Africa, Brazil and India as well. All that said, China also gave some ground. It satised the Americans on one sticking-point: the principle of
monitoring, reporting and verication of actions promised by developing countries. Unless China, in particular, can be shown to live up to its promises, it will be very dicult to get a climate bill through America’s Senate. To Mr Obama’s relief, the accord allows for an international role in such monitoring, which China and India had been resisting. This is not just an academic point; China has pledged a reduction, of between 40% and 45% by 2020, in the level of its
carbon intensity the amount of carbon emitted 1

44 International 2 in proportion to output. It is hard to tell

how big a change the Chinese promise represents from business as usual; but it has an impressive ring. Among the accord’s other features were a new system for recording pledges on emission reduction and other actions; a review of those commitments, due in 2015; and an as yet undened mechanism for North-South technology transfer. And there is money on the table: an initial promise of $10 billion a year, for three years, from developed countries to help poorer states mitigate climate change and adapt to it. Some of this money will go to towards implementing a REDD-plus deal on deforestation, an issue on which real progress was made. Part of the rich-to-poor transfers will ow through a Copenhagen Green Climate Fund , which some poor countries prefer to the World Bank. The process will, in theory, accelerate. Rich countries vowed to mobilise $100 billion a year by 2020 for more ambitious adaptation-and-mitigation projects in the poor world. The UN is supposed to set up a high-level panel to work out the details of who gets what. Maddeningly vague? Almost everybody admitted that the deal was not nearly as ambitious as they would have liked. According to most climate models, the commitments made in Copenhagen fall a long way short of what would be needed to keep global warming to 2°C. Still, it was widely held to be better than nothing
though, in the nal moments, nothing nearly triumphed. On the evening of December 18th heads of state claimed victory as they drove o to the airport; but their ostage bargains were unlikely to make much dierence without a nod, at least, from the whole meeting. So the bigwigs left it to more junior negotiators to present the result of their horse-trading to the world’s grumpy, exhausted delegates. When it was introduced to a conference plenary in the small hours of Saturday morning, a few countries
notably Cuba, Venezuela, Bolivia and Nicaragua
tried to thwart any such benediction. They insisted that, as it had not been drafted by any ocial procedure, the deal struck by handpicked leaders was just a miscellaneous document of no practical consequence. The accord would throw Africa into the furnace , added Lumumba Stanislaus DiAping of Sudan, who spoke for the G77 plus China group of developing nations, and compared the rich countries’ heartlessness to Hitler’s genocide. Such rhetoric proved self-defeating; more passion was expended on countering it than could be mustered for the accord itself. I call on my brother from Sudan to rethink his conclusions and get hold of his emotions, said Dessima Williams of Grenada, representative of the Alliance of Small Island States, as she accepted a deal that fell far short of the islanders’ hopes.

The Economist January 2nd 2010 After more than three hours of back and forth, the British energy and climatechange minister, Ed Miliband, called for an adjournment just as Lars Lokke Rasmussen, the Danish prime minister, who was chairing the session, seemed to be accepting that the accord would founder. Only after more hours of back-room wrangling did a restarted plenary, with a new chair, get the accord adopted after a fashion. Thanks to rapid gavelling, the world’s delegates found they had decided to take note of the leaders’ agreement
a formula that was held both to permit the deal to come into eect and to allow some nations to renounce it. A bid to reinsert the notion of a future binding treaty was rmly quashed by China, India and Saudi Arabia. The next step is for the nations signing

up to the accord to do so, and to ax to it any commitments they are making, which is due to happen by February 1st. At that point, it appears, various steps to implement the accord and distribute the money that it speaks of can begin. How that implementation will t into the ongoing UN talks
the next full conference will be in Mexico on November 29th
is, as yet, unclear. Equally uncertain is the degree to which it can breathe new life into market mechanisms for helping poor countries, and how the promised verication regime will actually build trust. At some stage documents with numbers, and even long-term aspirations, will become necessary again, and the nation that invented the abacus will have to overcome its aversion to arithmetic. 7

Agriculture and climate change

Why farms may be the new forests In the war against climate change, peasants are in the front line

F

OR people who see stopping deforestation as the quickest climatechange win, Copenhagen seemed a success. Although there is still work to be done on the initiative known as REDD (Reducing Emissions from Deforestation and Forest Degradation), the deal struck in Copenhagen made it into a real thing, not just an idea. The notion of reducing net deforestation to zero was not explicitly mentioned, but it looks much more credible than it did two years ago. As well as giving heart to the protectors of trees, this outcome is encouraging for people whose focus is not on forests but on elds. Climate and agriculture matter to each other in several ways. On the downside, farming is a cause of deforestation, and also emits greenhouse

Into battle in the eco-war

gases in its own right
perhaps 14% of the global total. On the upside, agriculture can also dispose of heat-trapping gases, by increasing the carbon content of soils. And because farmers (unlike say, coal-producers) feel the eects of the changes their activities may be causing, they have a role in adapting to climate change. Farms, particularly marginal ones, are the rst to suer when the climate shifts; increase their resilience and you help a lot of people. Whether the aim is adaptation to climate change or slowing it, there is an obvious need for more research on the benign contributions that agriculture can make. For people who are seized of this need, there was a welcome boost on December 16th when 21 countries pledged $150 billion to a Global Research Alliance on Agricultural Greenhouse Gases. One of the attractions of a focus on agriculture is that even poor countries have farms; in some cases credits for carbon newly locked away in their soil may be a more plausible way of attracting money than rewards for low-carbon industrialisation. A more remote possibility is that such countries will earn credits by hosting eorts to pump carbon dioxide out of the air and store it away. Such geoengineering is still seen as far-fetched and in some circles misguided, but a reference to it was made in the Copenhagen documents. It was cited as a possible future direction for the Clean Development Mechanism, which provides credits for carbon-saving projects in poorer countries. In the aftermath of negotiations with a hint of slash-andburn, new seeds may be taking root.

The Economist January 2nd 2010 45

Business

Also in this section 46 Pay-TV in emerging markets 46 Taser diversi es its arsenal 47 Clean technology after Copenhagen 47 South Korea’s nuclear triumph 48 Schumpeter: Why feminists do not make good recruiters

Business.view, our online column on business, appears on Economist.com on Tuesdays. Past and present columns can be viewed at Economist.com/businessview

Government and business in France

Dirigisme de rigueur Paris

Nicolas Sarkozy is reversing the French state’s gradual withdrawal from the world of business

W

HEN Vivendi, a French telecoms and media group, announced a deal to buy GVT, a Brazilian telecoms rm, for 2 billion ($2.9 billion) in September, the last thing it expected was a scolding from the Elysée Palace, the ocial residence of France’s president, Nicolas Sarkozy. His sta complained that they should have been briefed as the deal was being negotiated, which might then have allowed Mr Sarkozy to bask in the glory during his recent visit to Brazil. Phone calls from the Elysée are becoming a frequent feature of French business. In February Eutelsat, a satellite rm in which the state is a minority shareholder, decided to use a Chinese
Long March rocket to launch a satellite. It wanted to diversify its suppliers and keep costs down. Soon afterwards the company’s board members were summoned to the Elysée. Eutelsat should have used a rocket built by Arianespace, a French rm, they were told by one of Mr Sarkozy’s advisers. Until the nancial crisis struck successive French governments had been reducing their involvement in business. The state sold majority stakes in big rms such as France Telecom in the 1990s and early 2000s, and let those rms still largely in government hands, such as Electricité de France (EDF), take a more market-oriented approach. But the crisis has prompted a creeping return to an earlier tradition.
The tide was going in one direction for years even the socialists privatised, we had less

political interference and more nancial savvy, says an investment banker in Paris,
but now we’re stepping backwards. To be sure, intervention is newly in style in several countries, with governments around the world taking stakes in banks and America’s taking charge of two carmakers. But as might be expected, France is going further. Not content with the state’s existing stakes in many big French rms, Mr Sarkozy has set up a new fund, the Fonds Stratégique d’Investissement (FSI), to make further investments. Half owned by the Caisse des Dépôts, a public nancial institution, and half directly by the government, the FSI aims to invest 2 billion a year in French companies. Its boss, Gilles Michel, says it will act as a long-term minority shareholder for promising French rms, encouraging private investors to invest alongside it. But business people see a return to the
noyau dur system of the late 1980s, when the state created a web of cross-shareholdings to protect rms against foreign takeovers. Mr Sarkozy encouraged one of the FSI’s rst investments, in Valeo, a troubled carparts rm, as a defence against an American activist fund, Pardus Capital.
If there’s a hostile oer for, say, Danone, the FSI will be ready, says an adviser. Mr Michel, however, argues that cases where the FSI has resisted pressure to invest
demonstrate our independence and mandate to invest only in rms with potential.
The crisis has deepened Mr Sarkozy’s

determination to promote French national champions, whether state-owned or private, says Alain Minc, an inuential consultant in Paris,
and he intends to use all the tools at his disposal to achieve his aim. The government recently decided to sell the transmission and distribution arm of Areva, a state-owned nuclear rm, to Alstom and Schneider Electric, two French companies, despite a higher bid from Japan’s Toshiba Corporation. Mr Sarkozy would even like to resurrect Péchiney, a French aluminium rm taken over by a succession of foreign rivals, which cut managerial jobs in France and changed its name. The FSI is now looking into investing in its remains and reviving the brand. In October the FSI invested 7.5m in DailyMotion, a successful video-sharing website which competes with YouTube outside America, and took a seat on its board.
It’s the only decently successful French start-up in the internet industry, explains an adviser to Mr Sarkozy. The FSI’s involvement has angered privateequity funds, which wanted to participate in DailyMotion’s capital raising, but found themselves outbid by the more generous terms oered by the government, according to one of them. Mr Sarkozy has also made his presence felt by appointing associates to prominent business jobs. Critics bayed last year when he chose an economic adviser, François Pérol, as head of BPCE, a mutual bank whose formation through a merger he had just overseen. Most recently, the rise of Stéphane Richard, another friend, at France Telecom, in which the government retains a 27% stake, has raised eyebrows. He joined the rm in May with no experience in telecoms save a prior stint on the board, but is due to become boss within two years. Mr Sarkozy’s most controversial appointment has been that of Henri Proglio as the head of EDF, a state-owned utility. 1

46 Business

The Economist January 2nd 2010

2 Mr Proglio has insisted on keeping a role at

Veolia Environnement, an environmentalservices company where he had spent most of his career. Mr Proglio’s position at the top of two rms in related businesses is regarded in French boardrooms as a shocking breach of good corporate governance. The head of the stockmarket regulator recently called the set-up baroque . Mr Proglio is also thought to favour a share swap involving EDF which would raise the state’s interest in Veolia from 13% to 23%. There are limits to Mr Sarkozy’s inuence. An outcry forced his 23-year-old son to abandon a bid for the top job overseeing the agency that runs La Défense, Paris’s business district. On December 18th France’s telecoms regulator awarded a new mobile licence to Iliad, an upstart telecoms rm, even though Mr Sarkozy had publicly voiced misgivings. Nor has the government prevailed in the case of Accor, a hotels and services group where two big active shareholders are pressing for a break-up. The FSI opposes the split, but with just 7.5% of the rm’s shares it has not been able to prevent a decision by the board in December to press ahead. Some business people reckon Mr Sarkozy’s interventions may yield results. When, as nance minister, he intervened in the case of Alstom, injecting public money in 2004, he saved the company and eventually made a big prot for the state. But executives also worry that French industry may face a backlash abroad because of his desire to promote national champions. Above all, French bosses dread a call from the Elysée. 7

Pay-TV in emerging markets

Finding El Dorado Big media rms are quietly building empires overseas

F

OR a long time pay-television has essentially been an American business, much more popular (and lucrative) there than anywhere else in the world. But the balance is about to tip. In 2010 more will be spent on subscriptions to multichannel television outside the United States
about $96 billion
than in it, according to SNL Kagan, a research outt. The eect on big American media rms is profound. The rest of the world has lagged America in pay-TV both because relatively few people subscribe to it and because, in some countries, it has been dicult to sell advertising. In Japan, for example, just 24% of television-owning households pay for more channels, and ad revenue is puny. Yet other countries are catching up, with

The lure of the unknown Penetration of pay-TV among households with televisions, %, 2009 0

25

50

75

100

United States

0.6

Poland

12.4

India

6.2

China

6.3

Mexico Turkey

% increase 2007-09, annual average

7.8 12.6

Source: SNL Kagan

poorer countries often speeding past richer ones (see chart). Brazil’s Net Serviços grew from 1.8m subscribers in 2006 to 3.6m in 2009. American media companies hope that they will be lifted by a rising tide of pay-TV subscribers in emerging markets. It has worked for Discovery Networks, which puts out programmes about wild animals and grizzled men. The rm’s channels (ve of them, on average) are available in 174 countries. In the third quarter of 2009 34% of Discovery’s revenues came from pay-TV outside America. Because it ventured abroad early Discovery was able to grab the best channel positions, says David Zaslav, the rm’s boss. A network that is number 11 on a multichannel menu tends to get a lot more viewers than one that is number 211. Discovery is trying to seize a similar rst-mover advantage in high-denition television. The path blazed by Discovery is now well-trodden. In the nancial year 2008-09 Fox International Channels, part of News Corporation, had turnover of more than $1 billion
up from less than $200m seven years earlier. That does not include wholly owned enterprises like Star, an Asian network, or part-owned ones like Fox Sports Australia. Even public broadcasters are getting in on the act. BBC Worldwide, the public corporation’s commercial arm, has launched 17 channels since March 2008 and now has 46 around the world. Media companies approach foreign markets in dierent ways. News Corporation looks to combine content and distribution by investing in satellite companies. That allows it to glean information about consumers’ tastes and eventually to sell them higher-margin broadband and phone services
a model that has worked well in Britain. Sony nurtures brands like Animax, originally a Japanese animé channel, in Asia before exporting them to the rest of the world. Viacom and Disney aim to use their television shows to promote products such as CDs and clothing. There is less variation in the countries that media conglomerates are targeting. The hottest market is India, where the combination of a staid state broadcaster with a

free-to-air monopoly and erce competition among cable and satellite companies has boosted pay-TV. Most rms are keen on Latin America and eastern Europe, particularly Poland. China is almost universally viewed with despair. It has a large, fast-growing number of pay-TV households, but it is a regulatory nightmare. This global expansion has generated oddly few charges of cultural imperialism. One reason is that content is often altered to t local tastes. Reality television, which is popular almost everywhere, is an inherently local genre. So there is a Latin American Idol and an India’s Got Talent . MTV can deliver local content when the market demands it (as in India) or international content (as in the Czech Republic). Discovery and National Geographic, a joint venture with News Corporation, have perhaps the best model. They create programmes about exotic wildlife and locations that can be shown anywhere, foreignness being part of their appeal. In any case, the trac is not one-way. As the Indian population of places like California’s Bay Area has grown, American media rms have reimported channels developed for foreigners. MTV India came to America in 2007. The Hindi version of Sony Entertainment Television is now available in more than 200,000 American homes. So it is not just money that is coming back to America from abroad. 7

Taser diversi es its arsenal

Proto-RoboCop New York

The iconic maker of stun-guns aims to take policing into cyberspace

Y

OU know you have made it when the name of your rm mutates into a verb, as with Google and Hoover. A recent addition to this select group is Taser International. To be tasered is to be briey paralysed by an electrically charged dart red from one of the rm’s stun guns, usually by police seeking to pacify someone without resort to rearms. But the rm hopes it will soon come to mean much more. The device’s success has been electrifying. In the 15 years since it rst came on the market, it has become an essential bit of kit. It is used by 14,000 of the 18,000 lawenforcement agencies in America, along with many foreign ones. Half the cops in America carry a Taser as well as a gun, says Rick Smith, Taser’s boss. Having come to dominate what Mr Smith calls the less-lethal weapon space , Taser has begun a burst of rapid-re innovation that could, he believes, turn it into a business with sales of $1 billion a year
ten 1

The Economist January 2nd 2010

Business 47

2 times its current size. Last June it launched

the XREP (extended range electronic projectile), a wireless device that can be red from a shotgun to zap someone up to 100 feet (30 metres) away. Unlike the pinprick caused by the original wired dart, which has a range of up to 35 feet, this will leave an ugly mark, but it won’t kill you, says Mr Smith. In November it launched the X3, a semi-automatic stun-gun that allows three shots, in case the rst one misses . The biggest innovation, however, has been sparked by the controversy Tasers cause. In November there was outcry after a 10-year-old American girl was tasered by police called in by her mother when she refused to take a shower. Police have so often been accused of using Tasers gratuitously that the rm started tting them with digital cameras that recorded every ring. This Taser-cam got the rm’s bons thinking: why not equip police with cameras that can record entire incidents (not just the brief moment when a Taser is used) and even beam the recordings instantly back to the higher-ups at headquarters? The result is a tactical on-ocer network computer called AXON, which is being tested by several police forces in America. Recordings are uploaded to a restricted website, evidence.com, to be viewed by approved personnel. Mr Smith says that the creation of a sort of secure YouTube of global law enforcement could be benecial both for the public, who would get more accountable police, and for ocers on the beat, who could be vindicated more quickly if falsely accused of brutality. But the biggest winner would be Taser, which expects to charge $1,700 for the hardware, plus $99 per device per month to manage all the data. 7

Clean technology after Copenhagen

Waiting for a green light BERLIN and SAN FRANCISCO

Business comes to terms with a disappointing outcome

S

O KEEN were many energy and cleantechnology executives to see a robust agreement to cut emissions of greenhouse gases emerge from December’s climate summit that thousands of them trekked to Copenhagen to cheer policymakers on. It was to no avail: the participants failed to agree on a global mechanism to put a price on emissions, making it harder for energy rms to justify big investments in unproven green technologies, such as advanced biofuels or carbon capture and storage. Almost all areas of clean technology will get a little less investor interest because there is no mandate, predicts Vinod

KEPCO wins a nuclear contract

Atomic dawn Seoul

Korean reactors trump Western ones

I

It’s still on the loose Khosla, a prominent venture capitalist. Clean-tech executives were encouraged by commitments to improve energy eciency made by India and China, as well as a promise by rich countries to funnel billions to poor ones to pay for green investments. Many shrug o events in Copenhagen on the grounds that national, regional and local regulations are the main drivers of clean-tech investment, not international deals. Paul Holland of Foundation Capital, a venture rm, points out that many municipalities in America have promised to reduce carbon emissions to 1990 levels. This is driving strong demand for smart grids, green building materials and the like. Many states have green initiatives too. A recent survey of big investors in Europe by Jeeries, an investment bank, has found that they, too, believe sustained national support for clean-tech industries matters more than an international deal on climate. Clean-tech investment is also driven by concerns about the security of energy supplies, says Bruce Huber of Jefferies. In Germany, which has generously subsidised renewable energy, big rms such as Siemens have stressed they will press ahead with their ambitious plans to invest in greenery in spite of the disappointing outcome at Copenhagen. Yet there are some signs of green fatigue even in as environmentally minded a place as Germany. Before the Copenhagen meeting Wulf Bernotat, the boss of E.ON, a giant German power company, said that if the summit delivered a rm commitment to cut emissions, his rm would be willing to accelerate a plan to cut its carbon emissions to half of their 1990 level by 2030, by bringing the deadline forward to 2020. Since the Copenhagen meeting ended, Mr Bernotat has backed away from the idea, citing the need for greater co-ordination among governments. This will depend

T IS usually the northerly of the two Koreas that attracts attention for its nuclear prowess. But on December 27th a South Korean consortium seized the limelight by winning a $20 billion contract to build four nuclear reactors in the United Arab Emirates. The consortium, led by Korea Electric Power (KEPCO), a state-controlled utility, could earn another $20 billion running the plants over their projected lifespan of 60 years. Competition for the contract had been sti. GE and Hitachi, two engineering giants, had launched a joint bid, as had a consortium led by France’s nuclear champion, Areva. France’s president, Nicolas Sarkozy, had lobbied energetically on behalf of the latter group. But South Korea’s president, Lee Myung-bak, was equally keen. As a former boss of Hyundai Construction, he has rst-hand experience both of vying for contracts in the Gulf and of building nuclear plants. Mr Lee is said to have promised to share some tips on boosting manufacturing, a fond ambition of the Emirates. But the chief allure of the Korean bid was price. It was reportedly billions of dollars cheaper than the others, albeit for smaller and less hardened plants. KEPCO’s nuclear subsidiary, which runs 20 nuclear plants in South Korea and plans to build 20 more, has a record of building reactors quickly and running them eciently
unlike many of its Western counterparts. We’re cheap, durable and dependable, says Kevin Kang of KEPCO, which is also hoping to build reactors in India, Jordan and Turkey among other places. Although the consortium includes Westinghouse, a subsidiary of Toshiba of Japan, most of the technology is Korean. In developing countries, at least, the West’s nuclear giants face a formidable new rival.

on further progress not only at the UN level, but also on the reaction of the European Union and the dierent national governments, not only in Europe, he said. Some clean-tech executives give warning that companies need to lobby harder for a global emissions deal rather than pretending that getting an agreement doesn’t really matter. Policymakers hear a lot from the NGO community and from environmental activists, but not from companies, says Amit Chatterjee, the boss of Hara, an American rm that produces software that helps clients reduce their energy use. It is time that changed. 7

48 Business

The Economist January 2nd 2010

Schumpeter Womenomics Feminist management theorists are irting with some dangerous arguments

T

HE late Paul Samuelson once quipped that
women are just men with less money. As a father of six, he might have added something about women’s role in the reproduction of the species. But his aphorism is about as good a one-sentence summary of classical feminism as you can get. The rst generations of successful women insisted on being judged by the same standards as men. They had nothing but contempt for the notion of special treatment for
the sisters, and instead insisted on getting ahead by dint of working harder and thinking smarter. Margaret Thatcher made no secret of her contempt for the wimpish men around her. (There is a joke about her going out to dinner with her cabinet.
Steak or sh? asks the waiter.
Steak, of course, she replies.
And for the vegetables?
They’ll have steak as well.) During America’s most recent presidential election Hillary Clinton taunted Barack Obama with an advertisement that implied that he, unlike she, was not up to the challenge of answering the red phone at 3am. Many pioneering businesswomen pride themselves on their toughness. Dong Mingzhu, the boss of Gree Electric Appliances, an air-conditioning giant, says atly,
I never miss. I never admit mistakes and I am always correct. In the past three years her company has boosted shareholder returns by nearly 500%. But some of today’s most inuential feminists contend that women will never full their potential if they play by men’s rules. According to Avivah Wittenberg-Cox and Alison Maitland, two of the most prominent exponents of this position, it is not enough to smash the glass ceiling. You need to audit the entire building for
gender asbestos in other words, root out the inherent sexism built into corporate structures and processes. The new feminism contends that women are wired dierently from men, and not just in trivial ways. They are less aggressive and more consensus-seeking, less competitive and more collaborative, less power-obsessed and more group-oriented. Judy Rosener, of the University of California, Irvine, argues that women excel at
transformational and
interactive management. Peninah Thomson and Jacey Graham, the authors of
A Woman’s Place is in the Boardroom, assert that women are
better lateral thinkers than men and
more idealistic into the bargain. Feminist texts are suddenly full of references to tribes of mon-

keys, with their aggressive males and nurturing females. What is more, the argument runs, these supposedly womanly qualities are becoming ever more valuable in business. The recent nancial crisis proved that the sort of qualities that men pride themselves on, such as risk-taking and bare-knuckle competition, can lead to disaster. Lehman Brothers would never have happened if it had been Lehman Sisters, according to this theory. Even before the nancial disaster struck, the new feminists also claim, the best companies had been abandoning
patriarchal hierarchies in favour of
collaboration and
networking, skills in which women have an inherent advantage. This argument may sound a little like the stu of gender workshops in righteous universities. But it is gaining followers in powerful places. McKinsey, the most venerable of management consultancies, has published research arguing that women apply ve of the nine
leadership behaviours that lead to corporate success more frequently than men. Niall FitzGerald, the chairman of Reuters and a former boss of Unilever, is as close as you can get to the heart of the corporate establishment. He proclaims,
Women have dierent ways of achieving results, and leadership qualities that are becoming more important as our organisations become less hierarchical and more loosely organised around matrix structures. Many companies are abandoning the old-fashioned commitment to treating everybody equally and instead becoming
gender adapted and
gender bilingual in touch with the unique management wisdom of their female employees. A host of consultancies has sprung up to teach rms how to listen to women and exploit their special abilities. The new feminists are right to be frustrated about the pace of women’s progress in business. Britain’s Equality and Human Rights Commission calculated that, at the current rate of progress, it will take 60 years for women to gain equal representation on the boards of the FTSE 100. They are also right that old-fashioned feminism took too little account of women’s role in raising children. But their arguments about the innate dierences between men and women are sloppy and counterproductive. People who bang on about innate dierences should remember that variation within subgroups in the population is usually bigger than the variation between subgroups. Even if it can be established that, on average, women have a higher
emotional-intelligence quotient than men, that says little about any specic woman. Judging people as individuals rather than as representatives of groups is both morally right and good for business. Caring, sharing and engineering Besides, many of the most successful women are to be found in hard-edged companies, rather than the touchy-feely organisations of the new feminist imagination: Areva (nuclear energy), AngloAmerican (mining), Archer Daniels Midland (agribusiness), DuPont (chemicals), Sunoco (oil) and Xerox (technology) all have female bosses. The Craneld School of Management’s Female FTSE 100 Index reveals that two of the industries with the best record for promoting women to their boards are banking and transport. Women would be well advised to ignore the siren voices of the new feminism and listen to Ms Dong instead. Despite their frustration, the future looks bright. Women are now outperforming men markedly in school and university. It would be a grave mistake to abandon old-fashioned meritocracy just at the time when it is turning to women’s advantage. 7

The Economist January 2nd 2010 49

Brie ng Women in the workforce

Female power Across the rich world more women are working than ever before. Coping with this change will be one of the great challenges of the coming decades

T

HE economic empowerment of women across the rich world is one of the most remarkable revolutions of the past 50 years. It is remarkable because of the extent of the change: millions of people who were once dependent on men have taken control of their own economic fates. It is remarkable also because it has produced so little friction: a change that aects the most intimate aspects of people’s identities has been widely welcomed by men as well as women. Dramatic social change seldom takes such a benign form. Yet even benign change can come with a sting in its tail. Social arrangements have not caught up with economic changes. Many children have paid a price for the rise of the two-income household. Many women and indeed many men feel that they are caught in an ever-tightening tangle of commitments. If the empowerment of women was one of the great changes of the past 50 years, dealing with its social consequences will be one of the great challenges of the next 50. At the end of her campaign to become America’s rst female president in 2008, Hillary Clinton remarked that her 18m votes in the Democratic Party’s primaries represented 18m cracks in the glass ceiling. In the market for jobs rather than votes the

ceiling is being cracked every day. Women now make up almost half of American workers (49.9% in October). They run some of the world’s best companies, such as PepsiCo, Archer Daniels Midland and W.L. Gore. They earn almost 60% of university degrees in America and Europe. Progress has not been uniform, of course. In Italy and Japan employment rates for men are more than 20 percentage points higher than those for women (see chart 1). Although Italy’s female employment rate has risen markedly in the past decade, it is still below 50%, and more than 1

The Swedish work ethic Difference between male and female employment rates, 2008, percentage points 0 Sweden Denmark France Germany United States Britain Japan Italy Source: Eurostat

5

10

15

20

25

20 percentage points below those of Denmark and Sweden (chart 2, next page). Women earn substantially less than men on average and are severely under-represented at the top of organisations. The change is dramatic nevertheless. A generation ago working women performed menial jobs and were routinely subjected to casual sexism as
Mad Men, a television drama about advertising executives in the early 1960s, demonstrates brilliantly. Today women make up the majority of professional workers in many countries (51% in the United States, for example) and casual sexism is for losers. Even holdouts such as the Mediterranean countries are changing rapidly. In Spain the proportion of young women in the labour force has now reached American levels. The glass is much nearer to being half full than half empty. What explains this revolution? Politics have clearly played a part. Feminists such as Betty Friedan have demonised domestic slavery and lambasted discrimination. Governments have passed equal-rights acts. Female politicians such as Margaret Thatcher and Mrs Clinton have taught younger women that anything is possible. But politics is only part of the answer: such discordant gures as Ms Friedan and Lady Thatcher have been borne aloft by subterranean economic and technological forces. The rich world has seen a growing demand for women’s labour. When brute strength mattered more than brains, men had an inherent advantage. Now that brainpower has triumphed the two sexes are more evenly matched. The feminisation of the workforce has been driven by 1

50 Brie ng Women in the workforce

The Economist January 2nd 2010

2 the relentless rise of the service sector

(where women can compete as well as men) and the equally relentless decline of manufacturing (where they could not). The landmark book in the rise of feminism was arguably not Ms Friedan’s The Feminine Mystique but Daniel Bell’s The Coming of Post-Industrial Society . Demand has been matched by supply: women are increasingly willing and able to work outside the home. The vacuum cleaner has played its part. Improved technology reduced the amount of time needed for the traditional female work of cleaning and cooking. But the most important innovation has been the contraceptive pill. The spread of the pill has not only allowed women to get married later. It has also increased their incentives to invest time and eort in acquiring skills, particularly slowburning skills that are hard to learn and take many years to pay o. The knowledge that they would not have to drop out of, say, law school to have a baby made law school more attractive. The expansion of higher education has also boosted job prospects for women, improving their value on the job market and shifting their role models from stay-athome mothers to successful professional women. The best-educated women have always been more likely than other women to work, even after having children. In 1963, 62% of college-educated women in the United States were in the labour force, compared with 46% of those with a high school diploma. Today 80% of American women with a college education are in the labour force compared with 67% of those with a high school diploma and 47% of those without one. This growing cohort of university-educated women is also educated in more marketable subjects. In 1966, 40% of American women who received a BA specialised in education in college; 2% specialised in business and management. The gures are now 12% and 50%. Women only continue to lag seriously behind men in a handful of subjects, such as engineering and computer sciences, where they earned about one-fth of degrees in 2006. One of the most surprising things about this revolution is how little overt celebration it has engendered. Most people welcome the change. A recent Rockefeller Foundation/Time survey found that threequarters of Americans regarded it as a positive development. Nine men out of ten said they were comfortable with women earning more than them. But few are cheering. This is partly because young women take their opportunities for granted. It is partly because for many women work represents economic necessity rather than liberation. The rich world’s growing army of single mothers have little choice but to work. A growing proportion of married women have also discovered

2

Rising force Female employment rate*, % Denmark Sweden Britain

United States Germany France

Japan Italy 75 65 55 45 35

1997

99

Source: Eurostat

2001

03

05

07 08

*15-64 age group

that the only way they can preserve their households’ living standards is to join their husbands in the labour market. In America families with stay-at-home wives have the same ination-adjusted income as similar families did in the early 1970s. But the biggest reason is that the revolution has brought plenty of problems in its wake. Production versus reproduction One obvious problem is that women’s rising aspirations have not been fullled. They have been encouraged to climb onto the occupational ladder only to discover that the middle rungs are dominated by men and the upper rungs are out of reach. Only 2% of the bosses of Fortune 500 companies and ve of those in the FTSE 100 stockmarket index are women. Women make up less than 13% of board members in America. The upper ranks of management consultancies and banks are dominated by men. In America and Britain the typical full-time female worker earns only about 80% as much as the typical male. This no doubt owes something to prejudice. But the biggest reason why women remain frustrated is more profound: many women are forced to choose between motherhood and careers. Childless women in corporate America earn almost as much as men. Mothers with partners earn less and single mothers much less. The cost of motherhood is particularly steep for fast-track women. Traditionally female jobs such as teaching mix well with motherhood because wages do not rise much with experience and hours are relatively light. But at successful rms wages rise steeply and schedules are demanding. Future bosses are expected to have worked in several departments and countries. Professional-services rms have an up-or-out system which rewards the most dedicated with lucrative partnerships. The reason for the income gap may thus be the opposite of prejudice. It is that women are judged by exactly the same standards as men. This Hobson’s choice is imposing a high cost on both individuals and society.

Many professional women reject motherhood entirely: in Switzerland 40% of them are childless. Others delay child-bearing for so long that they are forced into the arms of the booming fertility industry. The female drop-out rate from the most competitive professions represents a loss to collective investment in talent. A study of graduates of the University of Chicago’s Booth School of Business by Marianne Bertrand and her colleagues found that, ten years after graduating, about half of the female MBAs who had chosen to have children remained in the labour force. It also leaves many former high-yers frustrated. Another American study, this time of women who left work to have children, found that all but 7% of them wanted to return to work. Only 74% managed to return, and just 40% returned to full-time jobs. Even well-o parents worry that they spend too little time with their children, thanks to crowded schedules and the everbuzzing BlackBerry. For poorer parents, juggling the twin demands of work and child-rearing can be a nightmare. Child care eats a terrifying proportion of the family budget, and many childminders are untrained. But quitting work to look after the children can mean nancial disaster. British children brought up in two-parent families where only one parent works are almost three times more likely to be poor than children with two parents at work. A survey for the Children’s Society, a British charity, found that 60% of parents agreed that nowadays parents aren’t able to spend enough time with their children . In a similar survey in America 74% of parents said that they did not have enough time for their children. Nor does the problem disappear as children get older. In most countries schools nish early in the afternoon. In America they close down for two months in the summer. Only a few places
Denmark, Sweden and, to a lesser extent, France and Quebec
provide comprehensive systems of after-school care. Dierent countries have adopted dierent solutions to the problem of combining 1 3

Household expenditure Public spending on family benefits* % of GDP, 2005

0

1

2

3

4

France Britain Denmark Sweden Germany Italy Japan United States Spain Source: OECD

*Cash, services and tax benefits

The Economist January 2nd 2010 2 work and parenthood. Some stress the im-

portance of very young children spending time with their mothers. Austria, the Czech Republic, Finland and Hungary provide up to three years of paid leave for mothers. Germany has introduced a parent’s salary , or Elterngeld, to encourage mothers to stay at home. (The legislation was championed by a minister for women who has seven children.) Other countries put more emphasis on preschool education. New Zealand and the Nordic countries are particularly keen on getting women back to work and children into kindergartens. Britain, Germany, Japan, Switzerland and, above all, the Netherlands are keen on mothers working part-time. Others, such as the Czech Republic, Greece, Finland, Hungary, Portugal and South Korea, make little room for part-time work for women. The Scandinavian countries, particularly Iceland, have added a further wrinkle by increasing incentives for fathers to spend more time caring for their children. The world’s biggest economy has adopted an idiosyncratic approach. America provides no statutory paid leave for mothers and only 12 weeks unpaid. At least 145 countries provide paid sick leave. America allows only unpaid absence for serious family illness. America’s public spending on family support is low by OECD standards (see chart 3 on the previous page). It spends only 0.5% of its GDP on public support for child care compared with 1.3% in France and 2.7% in Denmark. It is dicult to evaluate the relative merits of these various arrangements. Dierent systems can produce similar results: anti-statist America has roughly the same proportion of children in kindergartens as statist Finland. Dierent systems have different faults. Sweden is not quite the paragon that its fans imagine, despite its familyfriendly employment policies. Only 1.5% of senior managers are women, compared with 11% in America. Three-quarters of Swedish women work in the public sector; three-quarters of men work in the private sector. But there is evidence that America and Britain, the countries that combine high female employment with reluctance to involve the state in child care, serve their children especially poorly. A report by Unicef in 2007 on children in rich countries found that America and Britain had some of the lowest scores for well-being . A woman’s world The trend towards more women working is almost certain to continue. In the European Union women have lled 6m of the 8m new jobs created since 2000. In America three out of four people thrown out of work since the recession began are men; the female unemployment rate is 8.6%, against 11.2% for men. The Bureau of Labour Statistics calculates that women make up more than two-thirds of employ-

Brie ng Women in the workforce 51 ees in ten of the 15 job categories likely to grow fastest in the next few years. By 2011 there will be 2.6m more women than men studying in American universities. Women will also be the beneciaries of the growing war for talent . The combination of an ageing workforce and a more skill-dependent economy means that countries will have to make better use of their female populations. Goldman Sachs calculates that, leaving all other things equal, increasing women’s participation in the labour market to male levels will boost GDP by 21% in Italy, 19% in Spain, 16% in Japan, 9% in America, France and Germany, and 8% in Britain. The corporate world is doing ever more to address the loss of female talent and the diculty of combining work with child care. Many elite companies are rethinking their promotion practices. Addleshaw Goddard, a law rm, has created the role of legal director as an alternative to partnerships for women who want to combine work and motherhood. Ernst & Young and other accounting rms have increased their eorts to maintain connections with women who take time o to have children and then ease them back into work. Home-working is increasingly fashionable. More than 90% of companies in Germany and Sweden allow exible working. A growing number of rms are learning to divide the working week in new ways
judging sta on annual rather than weekly hours, allowing them to work nine days a fortnight, letting them come in early or late and allowing husbands and wives to share jobs. Almost half of Sun Microsystems’s employees work at home or from nearby satellite oces. Raytheon, a maker of missile systems, allows workers every other Friday o to take care of family business, if they make up the hours on other days. Companies are even rethinking the structure of careers, as people live and

The next generation

work longer. Barclays is one of many rms that allow ve years’ unpaid leave. John Lewis oers a six-month paid sabbatical to people who have been in the company for 25 years. Companies are allowing people to phase their retirement. Child-bearing years will thus make up a smaller proportion of women’s potential working lives. Spells out of the labour force will become less a mark of female exceptionalism. Faster change is likely as women exploit their economic power. Many talented women are already hopping o the corporate treadmill to form companies that better meet their needs. In the past decade the number of privately owned companies started by women in America has increased twice as fast as the number owned by men. Women-owned companies employ more people than the largest 500 companies combined. Eden McCallum and Axiom Legal have applied a network model to their respective elds of management consultancy and legal services: network members work when it suits them and the companies use their scale to make sure that clients have their problems dealt with immediately. Governments are also trying to adjust to the new world. Germany now has 1,600 schools where the day lasts until mid-afternoon. Some of the most popular American charter schools oer longer school days and shorter summer holidays. But so far even the combination of public- and private-sector initiatives has only gone so far to deal with the problem. The children of poorer working mothers are the least likely to benet from femalefriendly companies. Millions of families still struggle with insucient child-care facilities and a school day that bears no relationship to their working lives. The West will be struggling to cope with the social consequences of women’s economic empowerment for many years to come. 7

52

The Economist January 2nd 2010

Finance and economics

Also in this section 53 Buttonwood: 2010 previewed 54 Have house prices fallen far enough? 55 Economics focus: Procrastination

De ation in Japan

To lose one decade may be misfortune Tokyo

Twenty years on Japan is still paying its bubble-era bills

F

OR many Japanese the boom years are still seared on their memories. They recall the embarrassing prices paid for works by Van Gogh and Renoir; the trophy properties in Manhattan; the crazy working hours and the rush to get to the overcrowded ski resorts at the weekend, only to waste hours queuing at the lifts. The bust, when it came, was less perceptible. The world did not come crashing down after December 29th 1989, the last trading day of that decade, when the stockmarket peaked. The next year Japanese buyers were still paying record prices for Impressionist art at Christie’s. It was not until 1991 that the property bubble burst. There was no Lehman-style collapse or Bernie Mado-type fraud to hammer home the full extent of the hubris. But once the Nikkei 225 hit 38,916 points 20 years ago this week, life began to leach out of the Japanese economy. In the third quarter of 2009 nominal GDP though still vast by global standards sank below its level in 1992, reinforcing the impression of not one but two lost decades. Deation is back in the headlines. On December 29th the Nikkei stood at 10,638, 73% below its peak, though an expansionary budget drafted on December 25th has given it a recent lift. Urban property prices have fallen by almost two-thirds. Some ski apartments are worth just one-tenth of what the
bubble generation paid for them.

What eect has this steady erosion of value had on the psychology of Japanese people? The bust did not lay waste to Japan, after all, as the Depression did to America in the 1930s. Homelessness and suicide have risen, and life has got much harder for young people seeking good jobs. But Japan still has ¥1,500 trillion ($16.3 trillion) of savings, its exporters are worldclass, and many of its citizens dress, shop and eat lavishly. As a senior civil servant puts it:
Japanese people have never really felt that they are in crisis, even though the economy is slowly withering away. For individuals the damage lies below the surface. One of the rst bubbles to pop, says Peter Tasker of Arcus Research, who

Twice decayed Japan’s:

ten-year government-bond index, ¥ terms, December 30th 1988=100

Nikkei 225 share average

40,000 35,000 30,000 25,000 20,000 15,000 10,000 5,000 0

150 140 130 120 110 100 90 80 1989

95

Source: Thomson Reuters

2000

05

09

has written several books on the bust, was a psychological one: condence. Instead of getting angry, people lost faith in Japan’s economic prowess.
It became all about declining expectations and how society coped with it, Mr Tasker says. The mood among investors swiftly turned risk-averse. Remarkably, retail investors were among the rst to get out of the stockmarket and were net sellers of equities from 1991 to 2007, says Kathy Matsui, chief strategist for Goldman Sachs in Japan. Though there have been four bearmarket share-price rallies since 1989, they have all been driven by foreigners. The Japanese parked their money instead in government-backed shelters such as the post oce, which in turn invested in safe bonds. The result has been a 78% rally in ten-year government bonds since their trough in 1990 (see chart).
Fixed income has been one of the longest-duration bull markets in the world, Ms Matsui notes. A deationary mindset started to take hold. With prices falling, even inert money in the bank or post oce earned, in real terms, a small tax-free return. Once the banking system began to look frail, there was a boom in the sale of safes for people to keep their cash at home. A long period of zero interest rates led a few to hunt for higher yields abroad. The mythical gure of Mrs Watanabe housewives in Japan manage the family money invested in New Zealand dollars and Icelandic kronur. These days she is placing large bets on Brazilian bonds, leading to the quip that although Tokyo failed to secure the 2016 Olympics, the Japanese will nance the games in Rio de Janeiro anyway. Yet individual Japanese investors are still only gingerly returning to their own stockmarket. The most pernicious eects of the bust, economists say, have been transmitted via 1

The Economist January 2nd 2010 2 banks and businesses. Banks found them-

selves loaded down with non-performing loans. Belatedly they faced up to many of their losses, restructured and consolidated. But according to Takuji Aida, an economist at UBS in Japan, long-term yields remained very low because of deationary expectations, thereby attening the yield curve (the dierence between short- and long-term interest rates). That prevented banks from earning their way out of crisis, so lending remains weak. Companies, meanwhile, have been focused on paying down debt, as well as coping with deation in the domestic econ-

Finance and economics 53 omy and competition from cut-price imports. Large exporters were forced to restructure and enjoyed a long boom from 2002 to 2007. But rms in more protected areas of the domestic economy have fared badly: protability, wages and investment have declined in the past decade. This has fed back to households. As rms cut back, the proportion of full-time contract jobs has fallen from almost 80% of the labour force in 1990 to 66% in 2007, according to the OECD. The proportion of lower-paid non-regular jobs has risen correspondingly. This is partly down to the increasing role of women in the workforce,

as declining wages and benets force families to rely on two incomes. But there are long-term social costs to this extended income drought. The slow wear-and-tear of the recession has made people much less condent of their ability to nance children, Mr Tasker says. A weak culture of consumer borrowing means that people have been forced to rely even more on their savings
or those of their parents. But as society ages, growth in the stock of savings has dwindled. Savings are bound to fall as more people retire. For the younger generation the next decade may be even tougher than the past two. 7

Buttonwood Paying the price Choosing between workers and creditors

T

HE air of immediate crisis is over. The monetary and scal doctors wheeled out the crash trolley and applied an electric shock to the global economy’s chest. The patient is recovering but is still rather too dependent on the drug of government support. The coming year will be dominated by a debate about how quickly that support can be taken away. Two shocks have reduced the standard of living of Western economies. One is a terms-of-trade shift. Thanks mainly to China, the prices of the manufactured goods that rich countries sell have fallen; those of the commodities they buy have risen. The other is a leverage shock, in which the credit crisis has stopped people from borrowing to nance consumption. In response to this second shock, governments have deliberately taken on the debts of the private sector. In most cases it has been assumed that governments have almost limitless capacity to assume such burdens. But you can see welfare states as national Ponzi schemes in which governments grant benets and take on spending responsibilities, condent in the expectation that the next generation of citizens will pick up the bill. Such promises have worked so far because of continued economic growth and rising populations. But with populations starting to fall in some countries, and the tax base shrinking in others, the strain is starting to show. The nancial crisis has piled on further stress. Iceland, a tiny island state, was overwhelmed by the debts of its banks. Dubai has shown that the distinction between government debt and the debt of government-controlled entities can be a fuzzy one. Greece has been downgraded by two rating agencies, Fitch and Standard & Poor’s. All this may lead to a turbulent year in the currency markets. The idea of the

law of volatility is that you can control risks in some parts of the system but not in them all. A zero-interest-rate policy has supported risky assets, particularly equities, while quantitative easing, by allowing central banks to buy government bonds, has prevented massive scal decits from pushing up bond yields. But having taken those two steps the authorities cannot also prop up their currencies, even if they had the desire to do so. In the absence of inationary pressure, a depreciating currency seems a painless way of boosting the prospects of a country’s exporters. So the American and British authorities have been happy to let the dollar and sterling slide. Of course, not all currencies can depreciate. Some must rise. By rights this should be those of the emerging Asian economies. But China in particular is unwilling to let the yuan appreciate as fast as the markets, or its trading partners, would like. That puts even more pressure on the losers in this game of deationary pass-the-parcel. Brazil has reimposed a levy on capital imports to weaken the real. Japan’s new government has been pressuring the central

bank to ease monetary policy further in the face of the strengthening yen. In Europe the single currency has removed the old escape route of devaluation. Countries that have seen fasterthan-average cost growth must accordingly face years of austerity if their manufacturing sectors are to remain competitive against Germany, let alone Asia. But will electorates be willing to swallow such unpleasant medicine? The temptation, as in Britain, is to attempt to solve the crisis by raising taxes, rather than cutting spending, especially if those taxes can be aimed at an unpopular group like bankers. However, a high-tax strategy in a world of highly mobile labour and capital seems doomed to failure in the long run. The pain is likely to fall on the broad mass of the population. The battle then is between taxpayers and public-sector workers, with the former broadly represented by right-wing parties (the Republicans in America, the Conservatives in Britain) and the latter by left-wing ones (the Democrats and Labour). Even if the right-wing parties win the argument in the legislature, they could still lose on the streets, if strike action forces governments to back down. The gold standard broke down in the 1930s because countries would not pay the political price, in the form of austerity, to maintain the link. They chose domestic workers over foreign creditors. The Bretton Woods system broke down because America was unwilling to bear the burden of being the linchpin of the system. Now, the system that prevailed in the 1980s, 1990s and 2000s, in which creditors trusted central banks to maintain the value of debtor countries’ currencies, is breaking down as well. Economist.com/blogs/buttonwood

54 Finance and economics

The Economist January 2nd 2010

basis America’s house price-to-rents ratio is still some 14% above its average. But that Ratio of house prices to rents measure may not fully capture how far valLong-run average=100 ues have fallen, as it excludes homes that Spain Britain United States (FHFA) were paid for with subprime mortgages, United States (Case-Shiller national index) for which re sales are more common. The correction in house prices has not 180 House prices are still far above their fair gone as far in other countries. In Britain, 160 value in many countries though no where prices are increasing again, housing 140 longer in America still looks expensive (if not quite as dear as 120 in Australia). Prices in China are rising, too, HEN The Economist last published its 100 but its market does not yet look bubbly. round-up of global house prices in 80 Hong Kong is a dierent matter. Its notoriSeptember there were only two countries ously volatile market is booming again, 60 (Switzerland and China) in which prices even though the price-to-rents ratio is alwere higher than a year earlier. Since then 40 ready more than 50% above its historical many housing markets have strengthened. 1975 80 85 90 95 2000 05 09 average. At least house prices are still fallThe latest survey shows that house-price Sources: FHFA; Nationwide; Standard & Poor’s; ing in the euro area’s overvalued markets, in
ation has turned positive in six counThomson Reuters; government offices; The Economist such as France, Spain and Ireland. tries, and in Hong Kong the rate of increase No valuation measure is perfect. One is now in double digits. Even where prices are still falling year on year, markets are passed Japan and Germany by, so it is not
aw with the price-to-rents gauge is that it healing. In America the S&P/Case-Shiller surprising to learn that housing is cheap takes no account of shifts in real interest index of prices in ten big cities was un- there. A more striking nding is that Amer- rates. Spain and Ireland have enjoyed far changed in October, after ve monthly in- ica’s housing bust has taken prices back to lower real rates than they did before they creases. That has left prices 6.4% below their long-run average value against rents. joined the euro in 1999. These might justify their levels 12 months earlier; go back a Based on the Case-Shiller national index, smaller rental yields and thus a higher fairyear and house-price de
ation was almost American house prices had fallen to 3% be- value price-to-rents ratio than suggested by low their fair value by the third quarter of history. That would help explain why three times as high. That markets are now stabilising could 2009, well down from their in
ated values Spain’s price-to-rents ratio has trended upsuggest that prices have fallen far enough at the start of 2006 (see chart). Another in- wards over time, in contrast with Britain’s, to correct the excesses of the global hous- dex from the Federal Housing Finance which has
uctuated more obviously ing bubble. To test that hypothesis The Agency, the regulator of Fannie Mae and around its long-run average. Partly for this reason, fair-value gauges Economist has created a fair-value measure Freddie Mac, tells a dierent story. On that can also be sensitive to how far for property based on the ratio of back the gures go for each counhouse prices to rents. The gauge is The Economist house-price indicators try. Ireland may look less overmuch like the price/earnings ratio % change valued than Spain because the used by stockmarket analysts. Just Latest Q3 2008 Under(-)/ available data go back only to as the worth of a share is deteron a year earlier 1997-2009* over(+) valued† 1990 and omit a period of less mined by the present value of fuHong Kong 13.9 18.5 -20 +52.9 bouncy markets. If the average ture earnings, house prices China 8.0 5.3 na +2.2 price-to-rents ratio is calculated should re
ect the expected value Australia 6.2 1.4 181 +50.0 from 1990 onwards, Spain’s marof bene ts that come from home ket is overvalued by 24%, rather ownership. These bene ts are South Africa 4.8 2.5 418 na than the 55% shown in the table captured by the rents earned by Switzerland 4.1 3.7 28 -9.0 (based on gures from 1975). That property investors, which are Britain 2.7 -10.4 175 +28.8 would make both markets simiequivalent to the tenancy costs New Zealand 1.0 -6.7 101 na larly overpriced. saved by owner-occupiers. Sweden -0.4 1.8 152 +34.7 In spite of these blemishes, Shares are deemed pricey Canada -2.1 1.8 65 +20.6 the price-to-rents gauge is a usewhen the p/e ratio is above its Germany -3.9 -0.5 na -15.2 ful check on how pued-up long-run average. Similarly, Japan -4.0 -1.8 -36 -33.7 property markets are. A housing homebuyers are likely to be overUnited States (FHFA) -4.1 -3.9 75 +14.0 boom turns into a bubble when paying for property when the Italy -4.1 2.7 96 +15.0 prices are driven up by expectaprice-to-rents ratio is higher than tions of future price gains. Scarcinormal. By that yardstick house United States -6.4 -17.9 98 +3.3 (Case-Shiller ten-city index) ty of supply or population shifts prices seem low in only a handful Netherlands -7.1 nil 87 +21.2 are often used to rationalise high of countries in our survey, as the house prices, but such fundaFrance -8.0 0.8 132 +39.8 nal column in the table shows. mentals should push up rents, One is Japan, where steadily fallSpain -8.0 0.4 167 +55.1 too. That house prices in Ameriing property prices mean the United States -8.9 -16.4 64 -3.1 (Case-Shiller national index) ca are back in line with rents sugprice-to-rents ratio is 34% below gests the worst of its correction is its average since 1975. SwitzerSingapore -11.0 8.3 -4 na over (although a further downland’s ratio is also less than its Ireland -13.9 -10.0 159 +29.8 ward leg is possible since past long-run average. Germany looks Denmark -16.4 -4.6 89 +18.4 housing busts have pushed cheap as well, and since our valu*Or most recent available figure †Against long-run average of price-to-rents ratio prices below their fair value and ation benchmark goes back only Sources: ABSA; ESRI; Hypoport; Japan Real Estate Institute; Nationwide; Nomisma; NVM; FHFA; Quotable Value; Stadim; Swiss National Bank; Standard & Poor’s; there is a large stock of unsold to 1996 and so misses out a period Thomson Reuters; government offices; The Economist houses to clear). Europe’s houswhen German house prices were Interactive: Compare countries’ housing data over time at: ing correction, however, seems frothier, may be cheaper still. Economist.com/houseprices far from over. 7 The global housing bubble

Global house prices

Ratio rentals

W

Back to earth

The Economist January 2nd 2010

Finance and economics 55

Economics focus New-year irresolution How to combat the natural tendency to procrastinate

E

ACH New Year’s Day lots of people make plans to do more exercise or give up smoking. But by January 2nd many of them have not moved from the sofa or are lighting another cigarette. Such triumphs of optimism over experience are common enough. But like other examples of repeated procrastination, they are hard to explain using standard economic models. These models recognise that people prefer to put o unpleasant things until the future rather than do them today. Asked on January 1st to pick a date for that rst session in the gym, say, you may well choose to start in two weeks’ time rather than tomorrow. But the standard models also assume that your choices about future actions are
time-consistent they do not depend on when you are asked to make the choice. By January 14th, in other words, you should still be committed to going to the gym the next day. In the real world, however, you may well choose to delay your start-date again. In a 1999 paper* on the economics of procrastination, Ted O’Donoghue and Matthew Rabin pointed out that people are often unrealistically optimistic about their own future likelihood of doing things such as exercise or saving that involve costs at the time they are done, but whose benets lie even further ahead. Mr O’Donoghue and Mr Rabin showed that this sort of behaviour can be explained if people are time-inconsistent.
Presentbiased preferences mean that people will always tend to put o unpleasant things until tomorrow, even if the immediate cost involved is tiny. As long as they are unsure of the precise extent of this bias, they believe (incorrectly) that they will in fact
do it tomorrow. But since they feel this way at each point in time, tomorrow never quite comes. Such a model can therefore explain endless procrastination. It can also suggest ways to change behaviour. A recent NBER paper by Esther Duo, Michael Kremer and Jonathan Robinson argues that a tendency to procrastinate may explain why so few African farmers use fertiliser, despite knowing that it raises yields and prots. In trials on the farms of maize farmers in western Kenya, the three economists found that using half a teaspoon of fertiliser per plant increased seasonal prots by an average of 36% per acre, even if farmers made no other changes to their farming techniques. Doing so after it was clear that the seeds had sprout-

ed eliminated most of the risk of paying for fertiliser in a year of poor weather. Only 9% of the farmers believed fertiliser would not increase their prots. Yet only 29% had used any in either of the two preceding seasons. When asked why, almost four-fths of farmers said that they did not have enough money to buy fertiliser for the land they farmed. Yet fertiliser was readily available in multiples of a kilogram, so even poor farmers earned enough to buy fertiliser for at least a fraction of their elds. Better intentions made little dierence: virtually all farmers said they planned to use fertiliser the following season, but only 37% actually did so. The reason for this gap between intent and action, the economists argue, is that many farmers are present-biased and procrastinate repeatedly. Right after the harvest, when farmers are cashrich, most can aord to buy fertiliser. But going to town to buy it imposes a small cost: a half-hour walk, say, or a bus ticket. So farmers postpone the purchase, believing they will make it later. But they overestimate their ability to put aside enough money to do that, ensuring that their plans to buy fertiliser meet much the same fate as a typical new-year resolution. A model of such preferences generates several interesting predictions. It suggests that a tiny discount enough to make up for the small costs associated with buying fertiliser should induce present-biased farmers to make the purchase. The model also suggests that a given discount would be more eective if oered immediately after the harvest rather than just before the next planting period, by which time it would be useful only for those farmers who had no problems with saving money. Solving St Augustine The economists devised a scheme in which farmers paid the full market price for fertiliser, but had it delivered to their homes by a non-governmental organisation at no additional cost. A subset received this
discount at harvest time, while another group were also oered free delivery, but only when planting time was imminent. Still others were oered a 50% subsidy on the market price, an approach commonly taken by governments to encourage fertiliser use. As the model of time-inconsistent preferences predicted, the oer of free delivery early in the season pushed up usage of fertiliser by 11 percentage points over a control group who were not oered anything. The same discount late in the season, however, had a statistically insignicant eect. A 50% subsidy later in the season, a much costlier policy than free delivery, pushed up usage by about as much as the early discount. Interestingly, nearly half of a group of farmers who were offered a choice picked early rather than late free delivery. Early delivery means advance payment, with any interest that might have been earned in the interim being forgone. Many farmers, it seemed, were well aware of their own tendency to procrastinate and were looking for a way to force themselves to buy fertiliser. Such devices can help other procrastinators, too. In recent eld trials in the Philippines some smokers who wanted to quit were oered a
commitment contract. Those who signed up put money into a zero-interest bank account. If they passed a test certifying that they were nicotine-free six months later, they got their money back. If not, it went to charity. The contract increased the likelihood of quitting by over 30% over a control group. Those new-year resolutions need not turn to ash. 7

................................................................................................ * See papers referred to in this article at www.economist.com/procrastination

56

The Economist January 2nd 2010

Brie ng Mobile-phone culture

The Apparatgeist calls How you use your mobile phone has long re
ected where you live. But the spirit of the machines may be wiping away cultural di erences

T

ECHNOLOGIES tend to be global, both by nature and by name. Say television
, computer
or internet
anywhere and chances are you will be understood. But hand-held phones? For this ubiquitous technology, mankind suers from a Tower of Babel syndrome. Under millions of Christmas trees North and South Americans have been unwrapping cell phones or celulares. Yet to Britons and Spaniards they are mobiles or móviles. Germans and Finns refer to them as Handys and kännykät, respectively, because they t in your hand. The Chinese, too, make calls on a sho ji, or hand machine
. And in Japan the term of art is keitai, which roughly means something you can carry with you
. This disjunction is revealing for an object that, in the space of a decade, has become as essential to human functioning as a pair of shoes. Mobile phones do not share a single global moniker because the origins of their names are deeply cultural. Cellular
refers to how modern wireless networks are built, pointing to a technological worldview in America. Mobile
emphasises that the device is untethered, which ts the roaming, once-imperial British style. Handy highlights the importance of functionality, much appreciated in Germany. But are such dierences more than

cosmetic? And will they persist or give way to a global mobile culture? Such questions bear asking. It is easy to forget how rapidly mobile phones have taken over. A decade ago, there were fewer than 500m mobile subscriptions, according to the International Telecommunication Union (ITU). Now there are about 4.6 billion (see chart). Penetration rates have risen steeply everywhere. In rich countries subscriptions outnumber the population. Even in poor countries more than half the inhabitants have gone mobile. Dial a number and the odds are three to one that it will

Ubiquitous by any name Telephones, bn Mobile-phone subscriptions

5 4 3 2

Fixed line 1 0 1997

99

2001

Source: International Telecommunication Union

03

05

07 * 09* *Estimate

cause a mobile phone, rather than a xedline one, to ring somewhere on the planet. As airtime gets cheaper, the untethered masses tend to use their mobiles more. In early 2000 an average user spoke for 174 minutes a month, according to the GSM Association (GSMA), an industry group. By early 2009 that had risen to 261 minutes, which suggests that humanity spends over 1 trillion minutes a month on mobiles, or nearly 2m years. Nobody can keep track of the ood of text messages. One estimate suggests that American subscribers alone sent over 1 trillion texts in 2008, almost treble the number sent the previous year. Now a further mobile-phone revolution is under way, driven by the iPhone and other smart
handsets which let users gain access to the internet and download mobile applications, including games, social-networking programs, productivity tools and much else besides. Smart-phones accounted for over 13% of the 309m handsets shipped in the third quarter of 2009. Some analysts estimate that by 2015 almost all shipped handsets will be smart. Mobile operators have started building networks which will allow for faster connection speeds for an even wider variety of applications and services. All alike, all di erent Yet these global trends hide starkly dierent national and regional stories. Vittorio Colao, the boss of Vodafone, which operates or partially owns networks in 31 countries, argues that the farther south you go, the more people use their phones, even past the equator: where life is less organised people need a tool, for example to rejig 1

The Economist January 2nd 2010 2 appointments. Culture inuences the life-

style, and the lifestyle inuences the way we communicate, he says. If you don’t leave your phone on in a meeting in Italy, you are likely to miss the next one. Other mundane factors also aect how phones are used. For instance, in countries where many people have holiday homes they are more likely to give out a mobile number, which then becomes the default where they can be reached, thus undermining the use of xed-line phones. Technologies are always both constructive and constructed by historical, social, and cultural contexts, writes Mizuko Ito, an anthropologist at the University of California in Irvine, who has co-edited a book on Japan’s mobile-phone subculture. Indeed, Japan is good example of how such subcultures come about. In the 1990s Americans and Scandinavians were early adopters of mobile phones. But in the next decade Japan was widely seen as the model for the mobile future, given its early embrace of the mobile internet. For some time Wired, a magazine for technology lovers, ran a column called Japanese schoolgirl watch , serving readers with a stream of keitai oddities. The implication was that what Japanese schoolgirls did one day, everyone else would do the next. The country’s mobile boom was arguably encouraged by underlying social conditions. Most teenagers had long used pagers to keep in touch. In 1999 NTT, Japan’s dominant operator, launched i-mode, a platform for mobile-internet services. It allowed cheap e-mails between networks and the Japanese promptly signed up in droves for mobile internet. Ms Ito also points out that Japan is a crowded place with lots of rules. Harried teenagers, in particular, have few chances for private conversations and talking on the phone in public is frowned upon, if not outlawed. Hence the appeal of mobile data services. The best way to grasp Japan’s mobile culture is to take a crowded commuter train. There are plenty of signs advising you not to use your phone. Every few minutes announcements are made to the same eect. If you do take a call, you risk more than disapproving gazes. Passengers may appeal to a guard who will quietly but rmly explain: dame desu
it’s not allowed. Some studies suggest that talking on a mobile phone on a train is seen as worse than in a theatre. Instead, hushed passengers type away on their handsets or read mobile-phone novels (written Japanese allows more information to be displayed on a small screen than languages that use the Roman alphabet). Might the Japanese stop talking entirely on their mobiles? They seem less and less keen on the phone’s original purpose. In 2002 the average Japanese mobile user spoke on it for 181 minutes each month, about the global norm. By early 2009 that

Brie ng Mobile-phone culture 57 had fallen to 133 minutes, then only half the world average. Nobody knows how many e-mails are sent, but the Japanese are probably even more prolic than text-crazy Indonesians, who average more than 1,000 messages per month on some operators. No wonder that Tokyo’s teenagers have been called the thumb generation . Handy if you’re thrifty Others are quiet, too. On average Germans
who are fond of saying that talk is silver, silence is golden
spend only 89 minutes each month calling others for Handy-based conversation. This may be a result of national telephone companies on both sides of the Berlin Wall having exhorted subscribers for years to keep it short because of underinvestment in the East and rapid economic growth that overtaxed the network in the West. Germans are also thrifty, suggests Anastassia Lauterbach of Deutsche Telekom. For longer calls, she says, consumers resort to much cheaper landlines.

In contrast, Americans won’t shut up. Their average monthly talk-time is a whopping 788 minutes, though some of this is a statistical illusion because subscribers also pay for incoming calls. Yet talk is cheap: there is no roaming charge within the United States. Americans are often in their cars, an ideal spot for phone calls, especially in the many states where driving and talking without headsets is still legal. The chattiest of all are Puerto Ricans, who have by far the highest monthly average in the world of 1,875 minutes, probably because operators on the American island oer all-you-can-talk plans for only $40, which include calls to the mainland. This allows Puerto Ricans to chat endlessly with their friends in New York, but may also have arbitrageurs routing cheap international phone calls through the island. Just how people behave when talking on a mobile phone is a question of culture, at least at rst, according to Amapro Lasén, a sociologist at Universidad Complutense in Madrid. In the early 2000s she studied

phone users in the Spanish capital, in Paris and in London. Mobiles were a common sight, but Parisians and Madrileniens felt freer to talk in the street, even in the middle of the pavement. Londoners, by contrast, tended to gather in certain zones, for instance at the entrances of tube stations
the sort of place Ms Lasén calls an improvised open-air wireless phone booth . In Paris people openly complained when bothered by others talking loudly about intimate matters, but complaints were rare in London. In both places, people tended to separate phone and face-to-face conversations, for instance by retreating to a quiet corner. But subscribers in Madrid often mixed them and even allowed others to take part in their phone conversations. The Spanish almost always take a call and most turn o voicemail. For Ms Lasén, who has lived in all three cities, such variations reect how people traditionally use urban space. In London, she says, the streets are mainly for walking, like the bed where the river ows . Paris, however, is a place to stroll, the home of the âneur. In Madrid people inhabit the streets to talk together. As for their aversion to voicemail, the Spanish consider it rude to leave a call unanswered, even if it is inconvenient. This may be the result of a strong sense of social obligation towards friends and family. Elsewhere, too, culture and history may help determine whether people talk in public or take a call. The Chinese often let themselves be interrupted, fearing that otherwise they could miss a business opportunity. Uzbeks use their mobiles only rarely in public, because the police might be listening. And Germans can get quite aggressive if people disobey the rules, even unwritten ones. In 1999 a German man died in a ght triggered by his ill-mannered Handy use. Economics and other hard factors also shape habits. Olaf Swantee, the head of Orange’s mobile business, notes that pricey handsets are less popular in Belgium than in Britain because Belgian operators have long been barred from subsidising phones, a strategy widely used on the other side of the Channel. Italy, however, exhibits both low subsidies and many highend handsets. Subscribers there do not want to spend much on airtime, but are keen to buy a ashy phone. China is distinct because of economics and relatively lax regulation. Many consumers use shanzhai (bandit ) phones, produced by hundreds of small handsetmakers based on chips and software from Mediatek, a Taiwanese rm. Knock-os are common, with labels such as Nckia and Sumsung . Other innovative manufacturers have developed specialised phones, for instance handsets that can respond to two phone numbers, or models with giant 1 speakers for farmers on noisy tractors.

58 Brie ng Mobile-phone culture 2

Elsewhere the physical environment determines which kinds of handsets prevail, says Younghee Jung, a design expert at Nokia, the world’s largest maker of handsets. In hot India, for instance, men rarely wear jackets, but their shirts have pockets to hold phones
which therefore cannot be large. Indian women keep phones in colourful pouches, less as a fashion statement than as a way to protect the devices and preserve their resale value. It also makes for a noteworthy contrast with Japan, says Ms Jung. If women there keep phones in a pouch and decorate them with stickers and straps, that has nothing to do with economics, but reects the urge to personalise the handset. Phones are highly subsidised in Japan and the resale value is essentially nil, so it is not unusual to see lost units lying in the gutter. In some countries it is a common habit to carry around more than one phone. Japanese workers often have two: a private one and a work one (which they often turn o so bosses cannot get them at any hour). I have one phone for work, one for family, one for pleasure and one for the car, says a Middle Eastern salesman quoted in a study for Motorola, a handset-maker. Having several phones is often meant to signal importance. Latin American managers, for instance, like to show how well connected they are: some even have a dedicated one for the boss. As this example suggests, softer factors may inuence the choice and design of hardware, even for networks. If coverage in America tends to be patchy, it is not least because consumers seem willing to endure a lot and changing operators is a hassle. Elsewhere the reverse is true. Italians demand good reception on the ski slopes, the Greeks on their many islands and Finns in road tunnels, however remote. If coverage is poor, subscribers will switch. Paradoxically, however, it is in Italy and Greece that people are especially worried about the supposed health risks of electromagnetic elds. A 2007 survey commissioned by the European Commission found that 86% of Greeks and 69% of Italians were very or fairly concerned about them, compared with 51% in Britain, 35% in Germany and only 27% in Sweden. It may be that people fret when they lack reliable information
or that in some countries local politicians stir up fears. Whatever the reasons, the public reaction explains why phone masts in Italy are often disguised, for instance as the arches of a hamburger restaurant, as a palm tree or even as the cross on a famous cathedral. In Moldova, by contrast, such masts are monuments to prosperity. Every time we put up a mast, they had a party. It connected them, says Orange’s Mr Swantee. Yet digital technologies change quickly, and so do attitudes towards them. Will such dierences between cultures persist

The Economist January 2nd 2010 and grow larger, or will they diminish over time? Companies would like to know, because it costs more to provide dierent handsets and services in dierent parts of the world than it would do to oer the same things everywhere. Enter the Apparatgeist A few years ago such questions provoked academic controversy. Not everybody agrees with Ms Ito’s argument that technology is always socially constructed. James Katz, a professor of communication at Rutgers University in New Jersey, argues that there is an Apparatgeist (German for spirit of the machine ). For personal communication technologies, he argues, people react in pretty much the same way, a few national variations notwithstanding. Regardless of culture, he suggests, when people interact with personal communication technologies, they tend to standardise infrastructure and gravitate towards consistent tastes and universal features. Recent developments seem to support

him. When Ms Lasén went back to London, Paris and Madrid a few years later, phone behaviour had, by and large, become the same in the dierent cities (although Spaniards still rejected voicemail). Yet it is not just the Apparatgeist that explains this, argues Ms Lasén. In all three cities, she says, people lead increasingly complex lives and need their mobiles to manage them. Ms Ito agrees. American teenagers now also text madly, in part because their lives are becoming almost as regulated as those of the Japanese. This convergence is likely to continue, not least because it is in the interest of the industry’s heavyweights. Handsets increasingly come with all kinds of sensors. Nokia’s Ms Jung, for instance, is working on a project to develop an Esperanto of gestures to control such environmentally aware devices. Her team is trying to nd an internationally acceptable gesture to quieten a ringing phone. This is tricky: giving the device the evil eye or shushing it, for instance, will not work. Treating objects as

living things might work in East Asia, where almost everything has a soul, but not in the Middle East, where religious tenets make this unacceptable. In the long run most national dierences will disappear, predicts Scott Campbell of the University of Michigan, author of several papers on mobile-phone usage. But he expects some persistence of variations that go back to economics. In poorer countries subscribers will handle their mobile phones dierently simply because they lack money. Nearly all airtime in Africa is pre-paid. Practices such as beeping are likely to continue for quite a while: when callers lack credit, they hang up after just one ring, a signal that they want to be called back. A few dierences may remain within borders, suggests Kathryn Archibald, who works at Nokia and tries to understand consumers in dierent parts of the world. Only a few countries, mainly in Africa and Asia, still need special cultural attention when designing a phone (which is why some models in India double as torches). We see more dierences within countries than between them, she says. Nokia breaks down phone users into various categories, rather than by geography. Simplicity seekers barely know how to turn on their phones and use them only in case of trouble. At the other end of the spectrum, technology leaders always want the latest devices and feel crippled without their phones. Life jugglers need their handsets to co-ordinate the many parts of their lives. Ms Archibald says Nokia’s aim is to oer the right handset to each such group. But when it comes to content
the services oered via the phones and the applications installed on them
Nokia pays considerable attention to local culture. In India and other developing countries the rm has launched a set of services called Life Tools , which ranges from agricultural information for farmers to educational services such as language tuition. In many rich countries, by contrast, handsets come bundled with a subscription to download music. We need to operate globally, but be relevant locally, concludes Ms Archibald. All this raises a question: as dierences fade, are people becoming slaves to the Apparatgeist? Because of our evolutionary heritage, we want to be in perpetual contact with others, argues Mr Katz. Just as technology allows people to overeat, it now lets them overcommunicate. If this is a problem now, imagine what would happen if telepathy become possible. The thought is not entirely far-fetched: researchers at Intel, a chipmaker, are devising ways to use brain waves to control computers. A phone that can be implanted in your head may be just a few years away
at which point the Germans will no longer be able to call it a Handy. 7

The Economist January 2nd 2010 59

Science and technology

Also in this section 60 A new source of rubber 60 Better ood defences 61 Genetics and the single vole

Tech.view, our online column on personal technology, appears on Economist.com on Fridays. The columns can be viewed at Economist.com/techview

Renewable energy

The seat of power

Better sewage treatment is the latest thing in clean energy

W

HERE there’s muck, there’s brass or so the old saying has it. The cynical may suggest this refers to the question of who gets what, but thoughtful readers may be forgiven for wondering, while they are recovering from the excesses of Christmas in the smallest room in the house, what exactly happens when they ush the toilet. The answer is encouraging. Less and less waste, these days, is actually allowed to go to waste. Instead, it is used to generate biogas, a methane-rich mixture that can be employed for heating and for the generation of electricity. Moreover, in an age concerned with the ecient use of energy, technological improvements are squeezing human fecal matter to release every last drop of the stu. Making biogas means doing articially to faeces what would happen to them naturally if they were simply dumped into the environment or allowed to degrade in the open air at a traditional sewage farm namely, arranging for them to be chewed up by bacteria. Capturing the resulting methane has a double benet. As well as yielding energy, it also prevents what is a potent greenhouse gas from being released into the atmosphere.

ty company, uses heat. Instead of running at body temperature, the rm’s process rst stews the excrement at 40°C for several days. It then transfers the fermenting liquid to a tank that is ve degrees cooler. This two-tank system produces more methane than conventional methods because dierent strains of bacteria, which chew up dierent components of faeces, work better at dierent temperatures. The result of giving diverse groups of bugs a chance to operate in their ideal environments is, according to Mohammed Saddiq, GENeco’s boss, about 30% more methane from a given amount of excrement. In Germany a team at the Fraunhofer Institute in Stuttgart, led by Walter Trösch,

Flushed with pride Electricty generated from sewage Per person, kWh, 2007

0

50 100 150 200 250 300

Germany Czech Republic Britain Netherlands Finland

Tanked up Several groups are testing ways of making the process by which faeces are digested into methane more ecient. GENeco, a subsidiary of Wessex Water, a British utili-

Sweden Belgium Slovakia Source: Swedish Water & Wastewater Association

is using a dierent approach. Dr Trösch has reduced the amount of time it takes to digest sewage from two weeks to one, by employing a pumped mixing system. This works faster than traditional methods for two reasons. The rst is that stirring the sludge causes methane to bubble to the surface faster. From the bacterial point of view, methane is just as much of a waste product as faeces are from the human viewpoint. Encouraging this poison to escape allows the bacteria to survive longer and thus produce yet more methane. The second reason is that mixing the sludge moves bacteria away from chunks that they have been digesting and on to
fresher material that has not had as much bacterial contact. The result is a quicker digestion of the whole. The Fraunhofer pump system, which has already been deployed in 20 sewage plants in Brazil, Germany and Portugal, needs to operate for only a few hours a day, so does not require a large amount of energy. Sadly, that is not true of the approach used by researchers at the Tema Institute in Linkoping University, Sweden. They are developing a technique that employs ultrasound, rather than pumps, to break up the sludge. This increases methane yields by 13% but, at the moment, the process of generating the ultrasound consumes more energy than it yields. The consequence of techniques such as these is that an ever-larger proportion of sewage is being used as a raw material for energy generation. Germans already process about 60% of their faeces this way, and the Czechs, Britons and Dutch are close behind (see chart). GENeco reckons the gure in Britain by the end of 2010 will have leapt to 75% enough, when converted into electricity, to power 350,000 homes. And the latest thinking is to improve yields still fur- 1

60 Science and technology 2 ther by cutting out the middle man. Faeces

are food that has been processed by the human digestive system to extract as much useful energy as possible. An awful lot of waste food, though, never enters anyone’s mouth in the
rst place, and this is an even more promising source of biogas. In America in particular numerous sewage plants have begun processing undigested food in large quantities over the course of 2009. This is the result of a collaborative policy by the country’s Environmental Protection Agency and its Department of Energy, to encourage the recycling of waste food in this way. In Britain, alas, public policy actually discourages such activity. Waste-water facilities there must pasteurise food scraps before they are processed, according to Michael Chesshire, the head of technology at BiogenGreen
nch, a company that modi
es sewage digesters to use food scraps. That is a serious waste of brass. 7

New sources of rubber

Blow out The tyres of the future may be made from dandelions

O

THER than being an ingredient of the more recherché sorts of salad, herbal tea or wine, dandelions are pretty useless plants. Or, at least, they were. But one species, a Russian variety called Taraxacum kok-saghyz (TKS), may yet make the big time. It produces molecules of rubber in its sap and if two research programmes, one

Tremble, Michelin, tremble

The Economist January 2nd 2010 going on in Germany and one in America, come to fruition, it could supplement or even replace the traditional rubber tree, Hevea brasiliensis. Despite the invention of synthetic rubbers, there is often no good substitute for the real thing, for nothing arti
cial yet matches natural rubber’s resilience and strength. This is because natural-rubber molecules, the product of a stepwise synthesis by enzymes, have a more regular structure than the arti
cial ones made by chemical engineering. Around a
fth of an average car tyre is therefore made of natural rubber. In an aeroplane tyre that
gure can be more than four-
fths. Moreover, the price of synthetic rubber is tied to that of the oil from which it is made, rendering it vulnerable to changes in the oil price. Because oil is likely to become more costly in the future, natural rubber looks an attractive alternative from an economic point of view as well as an engineering one. Natural rubber has problems, though. Growing Hevea in the Americas is hard. A disease called leaf blight means the trees have to be spaced widely. Even in Asia, currently blight-free, planting new rubber trees often means cutting down rainforest, to general disapproval. And trees, being large, take time to grow to the point where they can yield a crop. A smaller plant that could be harvested for its rubber therefore has obvious appeal. One proposal is to use guayule, a shrub that grows in arid regions and produces rubber that is free from allergenic proteins, which makes it useful for items such as surgical gloves. Desert plants, however, tend to be slow growing guayule takes two years to mature. Yulex, a
rm that has commercialised guayule, gets an annual crop of 400 kilograms per hectare. Hevea can yield four or
ve times that
gure. Which is where TKS could come in. Dandelions are regarded as weeds for a reason they are robust, fast-growing plants that can be pulled up for processing and resown easily, possibly yielding two harvests a year. If they could be turned into usable crops, they could outstrip even Hevea. To this end, Christian Schulze Gronover of the Fraunhofer Institute for Molecular Biology and Applied Ecology in Aachen, Germany, and his colleagues have identi
ed the genes that allow TKS to produce usable rubber. In particular, they have discovered an enzyme called polyphenoloxidase that is responsible for making its rubbery sap coagulate. From the plant’s point of view this coagulation is a good thing. The evolutionary purpose of rubber, and the reason why it has appeared independently in plants as diverse as trees, guayule and dandelions, is that it gums up the mouthparts of herbivorous insects. Human users, however, do not want it to coagulate too soon, and Dr Schulze Gronover has found a way to

switch polyphenoloxidase o, using a technique called RNA interference. This intercepts and destroys the molecular messengers that carry instructions from the polyphenoloxidase gene to make the enzyme, meaning that rubber can be extracted more easily from the plant. Meanwhile, in America Matthew Kleinhenz of Ohio State University is working on increasing the yield of rubber from TKS. Dr Kleinhenz is doing things the old-fashioned way, growing dierent strains of TKS, grinding up the roots (where most of the sap is found) to see which have the highest rubber content, and crossbreeding the winners. His aim is to create a plant that is both high-yielding and has roots chunky enough to be harvested mechanically by the sort of device now used to pick carrots. Combining the two approaches hightech bioengineering and low-tech plant breeding may produce that rarity in the modern world, a whole new crop species. It would also mark a step on a journey that some see as the way forward: a return to the use of plant-based products that have, briey, been overshadowed by the transient availability of cheap oil. 7

Flood defences

Dambusterbusters Some clever, new ways of stopping rivers ooding

T

HE destruction of New Orleans by Hurricane Katrina in 2005 showed the importance of keeping levees the arti
cial banks that contain the ow of partly canalised rivers in tip-top condition. In practice, though, that is hard. Levees fail for many reasons, not all of them associated with violent storms, and there are so many of them (100,000 miles-worth in America alone) that keeping an eye on all of them is an almost impossible task. It is good, therefore, to have a backup plan to block up unexpected holes before they can cause too much damage. The traditional approach is to throw bags
lled with sand or rocks into a breach. Such bags, though, are heavy and unwieldy particularly if they have to be
lled far from the breach and then carried there. William Laska of the Science and Technology Directorate at America’s Department of Homeland Security has therefore sought out alternatives. He has found several technologies that have a common theme: they all use water itself to help stem the ood. The largest of the new devices is designed to block deep breaches. The Porta- 1

The Economist January 2nd 2010 2 ble Lightweight Ubiquitous Gasket (PLUG)

is a sausage-shaped balloon made of polyester and PVC, and tted with motorised pumps. When dropped into a river (usually by helicopter), PLUG’s pumps switch on automatically and begin forcing water into the balloon through a valve. The air thus displaced is expelled through a second valve until the device is 80% full, at which point the pumps shut themselves down. Filled thus far, PLUG is still buoyant and will oat wherever the current carries it. If it has been dropped in the right place, that will be towards the breach it is designed to ll. And there, if all goes well, it will stick
blocking the hole in a manner suitable to its rather contrived acronym. Prevention, however, is always better than cure, and the second of Mr Laska’s devices is designed to stop levees being breached in the rst place. In this case the acronym of choice is REPEL (Rapidly Emplaced Protection for Earthen Levees). REPEL is made of the same material as PLUG, but instead of being thrown into the water and carried to its destination by the current, it is laid out at on a levee that is in danger of being overtopped and thus eroded by the river it is supposed to contain. In normal circumstances merely placing a layer of protective material on top of a levee in this way would not do much good. The force of the water would quickly wash it away. However, REPEL has a series of tubes that sit on top of it and can be pumped full of water in a manner similar to that employed by PLUG. The weight of these tubes holds the protective layer in place, while the gaps between the tubes permit the overspill to escape. Some ooding from that overspill results
but not as much as if the spill were allowed to erode and destroy the levee itself. Yet simply halting oodwaters and preventing short-term damage is not enough. Neither PLUG nor REPEL can be used permanently. It is the third of Mr Laska’s acronyms, REHAB, that allows engineers to make permanent repairs. The Rapidly Emplaced Hydraulic Arch Barrier, made of the same material as the other two devices, can be put in place around a plugged breach to keep it sealed and dry once the PLUG has been removed. First, the arch is lled with air and oated to the desired location. Then, once it is in place, it is partly ooded and allowed to sink to the riverbed around the breach, making a tight seal. That done, a second set of pumps evacuates the gap between the arch and the PLUG, allowing workers access to the site. Not only is installing REHAB easier and faster than building a conventional temporary dam, it is also less wasteful. A conventional temporary structure is demolished after use. REHAB can simply be oated away and reused
it will have rehabilitated itself, in other words. 7

Science and technology 61 Genetics

Monogamouse Genetically modi ed prairie voles may illuminate the human condition

L

OVE, of course, is what makes the world go round, but what makes love go round? To aesthetes, such a question is imponderable. To scientists, it is not only ponderable but increasingly open to scrutiny
the more so now that Zoe Donaldson and her colleagues at Emory University in Atlanta, Georgia, have succeeded in creating a new kind of transgenic prairie vole. For, unlikely as it might seem, these tiny rodents could be the key to understanding bonding, trust and even decision-making in humans. For those unfamiliar with the delightful prairie vole, it is a small rodent found in the grasslands of central North America. What makes it unusual among mammals is that it is both sociable and monogamous. Prairie voles groom each other, nest with one another, collaborate to guard their territory and are aectionate and attentive parents who form, for the most part, devoted couples. Their close relatives the meadow voles, by contrast, prefer a solitary, promiscuous existence. It turns out that these large behavioural dierences between the two species are caused by small genetic ones. To be precise, they have been linked to a hormone called vasopressin and the protein molecule that acts as its receptor. Prairie voles have many vasopressin receptors in the reward centres of their brains. It seems as though these are wired up in a way that causes the animal to take pleasure from monogamy. In people, by contrast, certain

Behold, the moral rodent

variations of the vasopressin receptor have been linked with rocky marriages, and overenthusiastic journalists have dubbed it the divorce gene . Being able to create genetic variants of prairie voles to order would therefore be helpful to research. And that, as they describe in the December issue of Biology of Reproduction, is what Dr Donaldson and her team have done. Using viruses as carriers, they have introduced novel genetic material into embryonic prairie-vole cells, and then grown each modied cell into a complete animal. In this case, to prove the point, the gene they introduced was for green uorescent protein
a molecule derived from jellysh. This molecule, as its name suggests, glows bright green when exposed to light of a suitable frequency. The resulting glowing prairie voles were evidence that the embryos had indeed been altered, and that the alteration had been transmitted to every cell in the vole’s body, including its sex cells. The ospring of such voles will therefore carry the change as well. Having proved the principle, Dr Donaldson
or anybody else who wishes to
will now be able to make voles that do more than just glow in the dark. Biologists will thus be able to test theories about how behaviour is governed by the vole’s various genes. This, in turn, should help explain complex social interactions seen in both rodents and people. In some cases the monogamous rodents will, no doubt, become promiscuous. Certainly, the reverse can happen. One study has already shown that it is possible to inject a viral vector for the vasopressin receptor into the brains of the ckle meadow voles and make them better partners and parents. It may be some time before such interventions are available for human males, but women can always live in hope. 7

62

The Economist January 2nd 2010

Books and arts

Also in this section 63 The Berlin airlift 64 A history of water 64 An Englishman on the land

Art.view, our online column on art markets, appears on Economist.com on Saturdays. Past and present columns can be viewed at Economist.com/artview

A history of the world in 100 objects

Creative impulses A new BBC radio series shows how the things that man made can be even more compelling witnesses to the past than the events he witnessed

M

AN is one of a number of animals that make things, but man is the only one that depends for its very survival on the things he has made. That simple observation is the starting point for an ambitious history programme that the BBC will begin broadcasting on January 18th in which it aims to tell a history of the world through 100 objects in the British Museum (BM). A joint venture four years in the making between the BM and the BBC, the series features 100 15-minute radio broadcasts, a separate 13 episodes in which children visit the museum at night and try to unlock its mysteries, a BBC World Service package of tailored omnibus editions for broadcasting around the world and an interactive digital programme involving 350 museums in Britain which will be available free over the internet. The presenter is Neil MacGregor, the BM’s director, who has moved from the study of art to the contemplation of things. Objects take you into the thought world of the past,
he says. When you think about the skills required to make something you begin to think about the brain that made it.
From the rst moment (the ghostly magnetic pulse from a star that exploded in the summer of 1054, as recorded at the Jodrell Bank Centre for Astrophysics) this series is radio at its best: inventive, clever, and yet always light on its feet. In the mid-17th century Archbishop James Ussher, an Irish prelate and scholar, totted up the lifespans of all the prophets mentioned in the Old Testament and concluded that the world had been created on

the night preceding October 23rd 4004BC. Mr MacGregor, a more modern historian, begins nearly 1.8m years before that with the Swiss Army knife of the stone age, a handaxe found by Louis Leakey at Olduvai Gorge in Tanzania in the 1930s. Discovering how to chip stones to make a tool that would cut esh was the moment man learned to be an opportunist. Once invented, the handaxe would hardly change over 1m years. It became a passport to the world, and was carried from east Africa to Libya, Israel, India, Korea and even to a gravel pit near Heathrow airport where one was buried 600,000 years ago. Mr MacGregor is less interested in advertising the marvels of the 250-year-old universal museum he heads than in considering who made the objects he discusses. That involves drawing together evidence of how connected seemingly disparate societies have always been and rebalancing the histories of the literate and the non-literate. Victors write history; the defeated make things,
he says. This is an especially important distinction when considering Africa. The great Encyclopedia Britannica
of 1911 assumed that Africa had no history because it had no written history. The statues of black pharaohs that Mr MacGregor discusses in an early programme, for example, are the best visual evidence that a Nubian tribe once seized control of ancient Egypt and that Africans ruled over the Nile for more than a century. The BM’s curators spent two years choosing the objects Mr MacGregor examines. In particular, they sought out things

that would help him draw out universal themes. Periclean Athens, Confucian China and Achaemenid Iran existed at moreor-less the same time, between 500BC and 450BC. By examining objects from each place, Mr MacGregor is able to compare three dierent ways of constructing a highly ecient state and nimbly reassesses Athens in the context of the Persia it was ghting and the China it did not yet know. The importance of trade is another theme. A 16th-century Aztec mosaic of a double-headed serpent (pictured above) exemplies the way cultures have long been connected through the movement of people and ideas. It is, he says, a document of the tribute system of the empire
, with pieces of turquoise from mines that were over 1,000 miles apart, white teeth carved from shells found on both coasts of Mexico, and red details made out of Spondylus, a thorny oyster shell found 60 metres below the surface of the sea. Silver pieces of eight were another passport to trade, and, as the rst object of a global economy, a key step in the history of money. Minted in South America from the end of the 15th century, they crossed both the Pacic and Atlantic oceans. So widely were these silver coins used that interruptions in the production of silver in Mexico and Peru had a severe knock-on eect. In Europe silver shortages led to a sudden massive expansion of the money supply and the hyperination of the mid-17th century. In China they helped cause the collapse of the Ming dynasty. Mr MacGregor also uses coins, the simplest common sign of a centralised rule, to explore the personication of power as well as the history of money and of trade. In the Middle East the head of the Byzantine emperor was stamped on coins for several centuries. But in the early 690s, for example, Umayyad dinars from Damascus suddenly switched from displaying heads of rulers to showing the shahada, the declaration of belief in the 1

The Economist January 2nd 2010 2 oneness of Allah. It was the rst time polit-

ical power, as represented by coinage, was connected to a set of unchanging universal ideas rather than a person. Religion as a way of organising dierent interests in societies is another theme. How and why, for example, did dierent religions acquire their own particular look? Why does God in Judaism and Islam have no face while Buddha is a crosslegged man? And when do you begin seeing the connection between the food that man ate and the gods he worshipped? When man started farming at the end of the ice age was the moment his gods began farming too. Dependent on regular seasons, man prayed for rain, and, in Honduras, started making statues of maize gods. Freedom and the battles against slavery and totalitarianism dominate the 20th century. A Russian imperial porcelain plate

Books and arts 63 showing a Leninist worker trampling on capital and taking over a factory is one starting point, as is a suragette penny, with Votes for Women stamped across the head of King Edward VII. Closer to our own time, Mr MacGregor describes a chair made from decommissioned guns collected since the Mozambique civil war ended in 1992, including AK-47s (both Russian and Czech), a second-world-war Sten gun and a Belgian assault rie. The BM’s throne of weapons provides a neat symbol of the postcolonial moment when the Soviets and the West fought their proxy wars across the continent. Of the 100 objects, only one has not been selected yet. Mr MacGregor is waiting until the last possible moment to pick out the best symbol of our own time. Suggestions, please, on a postcard to: British Museum, London WC1B 3DG. 7

The Berlin airlift

Flying coal

A human history of the allies’ airlift that saved West Berlin

H

EROISM, geopolitics and new technology make an ideal mixture for a popular historian. The story of the Berlin airlift in 1948-49 has all that and more. The Anglo-American decision to circumvent the arbitrary Soviet closure of road and rail routes to the German capital marked the start of the cold war. For the rst time, the Western allies were signalling their willingness to resist the creeping Soviet takeover of the eastern half of Europe. The airlift’s end, with Soviet acceptance of a new West German currency in West Berlin, was a stalemate that remained in place in Europe until the collapse of communism 40 years later. By the end of the airlift, an astonishing 2.25m tonnes of cargo had own in and out of the city, more than three-quarters of it on American planes. Among the fatalities, the proportions were rather dierent: 39 British citizens and 32 Americans. The airlift was not just the only time in history when large quantities of coal have been delivered by air. It also brought leaps in air-trac control and cargo handling. It even featured a primitive but eective electronic data interchange, jury-rigged from telex machines. But as the book’s title suggests, Richard Reeves’s main emphasis is on the human side. At centre-stage are General Lucius Clay, the iron-willed military governor of the American sector of Berlin, and the workaholic logistics chief William Tunner, who during the war had supervised a

Daring Young Men: The Heroism and Triumph of the Berlin Airlift, June 1948-May 1949. By Richard Reeves. Simon & Schuster; 304 pages; $28 and £16.99 trans-Himalayan military airlift. Behind them stands the gure of Harry Truman, the American president who overruled his entire military, diplomatic and security sta to insist that Berlin be saved. The veterans’ stark descriptions of ying in foul weather, the exhaustion and danger, the rickety under-maintained aircraft and the newly wed brides stranded

Learning to chew gum

on the other side of the world, are undimmed by time. (Indeed, in some cases, a sceptical reader might wonder if memory has honed the wisecracks and dialogues, transcribed verbatim after 60 years.) In Berlin and the other Western-occupied parts of Germany, the airlift marked the start of a shift from life as a defeated and distrusted adversary to one as an inseparable friend and American ally. At the beginning of the blockade, Berliners were still a brutalised and resentful subject people, expected to do their caps to the occupying forces. A year later, they were still cold and hungry and living in bombed-out cellars
but cheering the airmen who had saved them from starvation and slavery. Had the airlift failed, the revenge of the communist authorities on those contaminated by contact with the Western allies would have been ruthless. In passing, Mr Reeves mentions some hapless policemen from West Berlin arrested at the city’s town hall (in the Soviet sector); most were never seen again. In one of the many compelling vignettes the author describes how the allies hired German mechanics and loading hands. Only three years earlier, American or British pilots shot down over Germany risked being lynched. Now they were trusting their lives to the Germans who maintained their planes and stacked the cargo. Although highly readable, the book includes no groundbreaking historical research. It mentions no German-language sources. A prolic American author, Mr Reeves is writing for a home audience. But he gamely tries to widen his focus to include at least a bit of the British viewpoint. Few Americans will know that rationing in Britain was worse after the war than during it, making the cost of the airlift sharply greater. American pilots liked to drop sweets in little parachutes as a personal gift to the hungry children waiting at the airport’s edge. Their British counterparts had no sweets. 7

64 Books and arts Water

Through the aqueous humour Water. By Steven Solomon. Harper; 563 pages; $27.99. Harper Collins; £18.99

T

O WRITE a history of water was a good idea. Since life depends on water, it has been man’s constant companion from the moment his forebears emerged from the sea and, you could say, even before. Human aairs have therefore been intricately related to water. But man has mistreated his friend, and now, it is said, the world faces a water crisis. There is too much of it in some places, too little in others. It has been acidied, dirtied and squandered. It should no longer be taken for granted. The rst three-quarters of Steven Solomon’s book is an account of the ascendancy and decline of various civilisations, seen through a watery lens. The survey starts in antiquity with Egypt, Mesopotamia and the areas round the Indus and the Yellow River. It runs through the Roman empire, the building of China’s Grand Canal in the seventh century and the Islamic era that followed. Then come the stirrings of mechanical development in medieval Europe that preceded the invention of the steam engine in Britain, the arrival of the industrial age and the mass production, and consumption, of the American century. Along the way the reader learns about aqueducts, dams, canals, waterwheels and devices for lifting water, as well as sanitary inventions, naval battles and maritime voyages of discovery. The thesis is that enduring civilisations are underpinned by eective water control. As a contention, this may seem banal, yet the tour d’horizon might also have been a tour de force. One diculty, though, is that Mr Solomon so often strains to make water more important than it actually was. The Roman empire, it seems, fell apart because it lacked the unifying impetus of an inland waterway like China’s. It was hydroelectric power, ie, water, that powered the aircraft factories and aluminium smelters that in turn played a decisive role in America’s victory in the second world war. Sewers and piped water gave the West comparative economic and politically legitimising advantages over its cold-war rivals . The distance-shrinking Panama Canal was another triumph for water. And it was water, or rather its absence, that obliged eighth-century Islam to go out and trade and conquer. Indeed, the Muslims’ use of camelsa proxy for the precious liquidin crossing deserts just showed the importance of water. No surprise then to learn that the dening geographical condition of America’s Far

The Economist January 2nd 2010 West was not its Far Westernness but, yes, water scarcity. Matching the over-claiming is the overwriting. Clashes are existential, audacity is breathtaking. Almost every change is a revolution, every expansion an explosion. Catalysts abound. Indeed, water, it is said at the outset, has an extraordinary capacity
to catalyse essential chemical reactions , making it the Earth’s most potent agent of change . In truth, water is hardly ever a catalyst in ordinary conditions. In other respects, the problem is under-, not over-performance. The 97.5% of water that is salty, for example, is hardly considered, except as a means of transport. This leaves quite a hole in a history of water. And though much is made of the steam engine, ice scarcely merits a mention. In the last quarter of the book, Mr Solomon abandons history and turns to the

water shortages of today and the political clashes they may cause. Competition for Nile water is acute between Egypt and Ethiopia. Fierce disputes also divide Turkey and its southern neighbours in the Jordan basin. With India and China, both prodigious consumers of ever-scarcer fresh water, the rivalries are mostly, though not entirely, internal. And in many places, notably the United States, north Africa and the Middle East, aquifers whose water may have lain undisturbed for 10,000 to 75,000 years are now being recklessly drained, with no prospect of a rell for an aeon or two. Everywhere it is the poor who suer most. Mr Solomon is not despairing. He gives some reasons for hope. Too bad he did not devote more of his book to the present and the future, and to the policies that could alleviate the situation he describes. 7

Biography

Another eld The Plot: A Biography of an English Acre. By Madeleine Bunting. Granta; 304 pages; £18.99

I

N 1944in fact, on D-DayMadeleine Bunting’s father, then just 16 years old, stumbled on a small green patch, with a ruined farmhouse, in the Hambleton hills on the edge of the North York Moors. Here, over subsequent years, he built a chapel, decorating it with his own muscular sculptures of Noah, the Virgin and an Unknown Soldier. This place, the Plot , became a site of family pilgrimages and picnics, tense, happy and haunted all at once. While his marriage

disintegrated, John Bunting’s love for the Plot endured. His daughter has written the story of this tiny patch of land as a way of understanding the father she never really knew. The Plotlike most acres in welltrampled Englandhas had a busy history. Stone-age man left arrowheads there; bronze-age man built barrows. William the Conqueror got lost on the moors nearby. Herds of cattle came down the drovers’ road that crosses it. White-robed Cistercian monks from Byland Abbey tilled the soil, and Scottish forces in 1322 defeated the English army. More recent invaders have included grouse-shooters, tourists and that bane of Britain’s wild places, the Sitka spruce, marching in regular plantations. The countryside around it has shrunk, and now the farmers are leaving. The Plot remains as Ms Bunting’s father intended it, a sanctuary from the chaos and rottenness of the world, tenderly lled with handcrafted monuments in the style of the vanished monks. As a way of analysing a dicult relationship, this book is a wonderful device. Though she is focusing on the landscape, not the man, Ms Bunting gets very deep. She comes to understand her father’s grim embrace of beauty and continuity, and his guilt at being left alive after others died during the war. The Plot could be shorter: much of the social commentary gets humdrum after a while. But as it stands it also provides a contemplative, wistful and sometimes disturbing view of England.

The Economist January 2nd 2010 65

Obituary

prayed for all who asked him to. Most insistently, God told Mr Roberts that He wanted him to be rich. One day in 1947, when he had pranged his car, Mr Roberts opened the Bible to 3 John 2:
I wish above all things that thou mayest prosper and be in health, even as thy soul prospereth. Almost instantly, he found he could aord a Buick, rather than one of those smaller economy cars. He began to preach that word. God would return a miracle harvest from the seed sown (1 Cor. 3: 7; Gal. 6: 7-9). Every dollar given to the Oral Roberts Evangelistic Association
or $30, Amex, Visa, whatever the Lord leads you to do would eventually return to the giver multiplied as much as a hundredfold. Those who doubted could survey the ORU campus at 7777 South Lewis, and see what God had wrought through the man who was now a director of the Tulsa Chamber of Commerce and the Bank of Oklahoma.

Oral Roberts Oral Roberts, preacher and televangelist, died on December 15th, aged 91

T

HE rst time Oral Roberts heard Jesus’s call on his life, he was 17 and had been bedfast with TB for ve months. He was a stuttering, faltering, disbelieving young man, much like the young Moses in his pride. But as his impoverished family knelt round his bed in their cabin in the dust of Oklahoma, praying a desperate prayer to the Lord, he saw his father’s face fade into the countenance of Jesus. It broke him up. He had never seen Jesus before, though his preacher-father and his mother often spoke with Him, and he knew Him as a friendly presence, unlike terrifying God. His sins ooded up within him and he wept out his repentance, crying
Jesus, I’ll even preach for you if you’ll save my soul. Jesus took him up on it. Mr Roberts next saw Him, in 1980, as he stood praying by a giant unnished skyscraper in Tulsa. This was his City of Faith Medical Centre, built on the Lord’s instructions but running into nancial delays. He was now a rich man, in an Italian silk suit and with solid gold bracelets on his wrists. His annual income from donations was $120m; he bought a new Mercedes every six months, and had a luxury home in Palm Springs. His inspirational shows were broadcast on hundreds of radio and TV stations. Richard Nixon and Elvis Presley had sought his spiritual counselling, as had millions of

other hurting people. But Jesus towered over all this. He was 900 feet tall, with eyes that burned to the very pit of Mr Roberts’s soul. He assured him the Centre would be nished and, just to show him how easy it would be, He picked it up. These encounters stoked high the re of the spirit in Mr Roberts, enabling him to travel and broadcast coast to coast and as far as Australia with a heavy anointing. But they were not strictly necessary. God spoke to Mr Roberts all the time. He told him to preach from the age of 18 in sweltering 3,000-seater tents across the southwest, and in 1954 to let the television cameras in, so that the Pentecostal spirit rolled all across the land. He told him he could heal with his right hand, know the number and names of demons, and cast them out, so that thousands saw him in sweatsoaked shirt and tie gripping and wrenching the believers and yelping, weeping his praise (
Oh God, loosen that little foot up! Glory to God! Glory to God!). Mr Roberts was empowered to heal via TV screens and through prayed-over handkerchiefs sent by the mail. The Lord told him to build a major university: the result was Oral Roberts University in Tulsa, with 5,400 students who, by a miracle, neither drank nor fornicated. There in the Prayer Tower, under the eternal gas ame, Mr Roberts

Weeping and fasting To help the process along, his followers were sent sachets of healing water to anoint their wallets, as well as any part of their body where they had need. Mass mail-outs and computerised lists were mobilised, for the rst time, to do the Lord’s work. The Precious Seed sent in return ended up with Mr Roberts, but
Do ye not know that they which minister about holy things live of the things of the temple? (1 Cor. 9: 13). Yet God also worked in mysterious ways, for His thoughts were higher than men’s thoughts (Isaiah 55: 9). In 1986 He ordered Mr Roberts to send out medical missionaries in His Name, and to raise $8m in scholarships for them, or He would call him home. Mr Roberts prayed, fasted, wept on prime time and raised the money, but the City of Faith closed down within two years, despite what Jesus had assured him. God said:
I did not want this merging of My healing streams of medicine and prayer localised in Tulsa. God also decreed that Mr Roberts should be persecuted for this eort, as well as for saying that he once had to interrupt a sermon to raise a child from the dead. Over the years therefore the harvest appeared to dwindle in dollar terms, and his debts grew. But Mr Roberts was still elegant, with a ne head of hair lled with the Holy Spirit. A multitude of preachers and healers had been raised up in his image, with their own TV shows and motivational books, to carry on the work. And God spoke to him one last time, telling him that although his heavenly home was prepared, he was not about to be taken from Oklahoma. He would rule and reign over the ORU campus until the end of time, when hoodlums and sodomites and disbelievers together would be repaid for laughing at him with everlasting re. 7

66

Courses

Announcements

The Economist January 2nd 2010

Appointments

67

ECONOMISTS £Competitive + excellent benefits package Location: London, UK As a world leader in finding, mining and processing the earth’s mineral resources, Rio Tinto supplies essential metals and minerals that the world relies upon. Our operations are diverse, both geographically and by commodity, but what we share as a group is our commitment to excellence and achievement, underpinned by a responsible and sustainable approach to business and community. We are currently seeking two Economists to join our Economics Department, based in our global head office in London. As a member of the Economics team you will identify, set and lead the market research activity and agenda across the group for your assigned commodities. Through your analysis and insights you will help shape the direction of our business and provide input into strategic decision making at all levels of the group. This will entail conducting in-depth research in collaboration with colleagues across our global operations, encouraging best practice in the application of economic methodologies and presenting your findings to the business. As an economics graduate with a minimum 2:1 degree or equivalent, and preferably a higher level of qualification, you’ll have a strong track record of success as an economist or in a related role in a resource company, government function or consultancy. Excellent verbal and written communication skills will be required as well as high levels of accuracy and attention to detail.

Energy Economist: Working with the Principal Energy Economist you will focus specifically on the energy industry and energy commodities. Taking the lead on certain aspects of research, market analysis and project evaluation prices, a strong knowledge of energy markets is essential.

Metals Economist: You will focus primarily on the research and analysis of base and precious metals markets as well as work on broader industry and macroeconomic issues. Previous knowledge of metals markets is preferable but not essential. Interested candidates should send a CV to the following link: https://riotinto.taleo.net/careersection/4/jobdetail.ftl?lang=en&job=Lon0001Q

Closing date: 15th January 2010

NAMED PROFESSORSHIPS at BILKENT UNIVERSITY Bilkent University in Ankara, Turkey, invites applications and nominations for Named Professorships in the fields of International Relations, Economics, and Education. The applicants/nominees are expected to have an excellent scholarly publishing record. Although these positions are meant to be permanent, possibilities for shorterterm visiting appointments may also be considered for interested candidates of distinguished record. Bilkent University is the leading research university in Turkey (www.bilkent.edu.tr). The language of instruction is English. It houses the best library and electronic access available in Turkey, and has many other facilities like a state-of-the art sports facility on campus. It has its own symphony orchestra that performs nationally and internationally. An international PreK-12 school on campus offers PYP, IGCSE and IB curricula. Rent-free furnished accommodation on campus, roundtrip tickets, participation in a savings fund and membership in a fairly comprehensive health plan are among the benefits. Salary is competitive and commensurate with the credentials. The positions entail a research fund useable for attending international conferences as well as organizing various scholarly activities at Bilkent. The applications/nominations, accompanied by a current cv and names and contact details of three references, should be sent by post or by email to: Professor Metin Heper, Dean, Faculty of Economics, Administrative and Social Sciences, Bilkent University, Bilkent 06800, Ankara, Turkey ([email protected]). Review of applications will begin immediately.

The Economist January 2nd 2010

United Nations Development Programme Afghanistan UNDP Afghanistan is supporting the Government to find innovative solutions to its development challenges. Key priority areas for UNDP assistance are in strengthening democratic governance, crisis prevention and recovery and reducing poverty. UNDP is Afghanistan strengthening the institutional capacities of key national government and sub-national authorities which aim to enhance human security, human development, peace and stability in Afghanistan. The Afghanistan Sub-national Governance Programme (ASGP) is the UNDP’s flagship governance programme and plays a key role in developing the institutions and systems to ensure effective implementation of the sub-national governance strategies outlined in the Afghan National Development Strategy and the Afghanistan Compact. The Afghanistan Sub – National Governance Programme (ASGP) works with and through the Government of Afghanistan to build the institutional structures required for effective service delivery at the central, provincial, district, and municipal levels. UNDP Afghanistan is seeking to fill the following posts: Afghanistan Sub – national Governance Programme (ASGP) Technical Specialist (Governance, ASGP) (five regional posts), P4 level The selection criteria and background for the positions are: • Master’s Degree in Urban or Regional Development, Economics, or Public Administration or related field with at least 7 years of relevant work experience; • Experience in management, public reform, and organisational development in sub-national governance, decentralization or local autonomy, preferably in developing countries; • Experience in providing strategic policy advice to government officials in local administration and decentralisation. Ability to lead strategic planning, results-based management and reporting; • Proven ability to build partnerships among partner governments, donors and other key stakeholders on policy and strategic issues, and strong communication skills. Technical Specialist (Provincial Governance, ASGP) (two regional posts) P3 The selection criteria and background for the positions are: • Master’s Degree in a field relevant to Urban or Regional Development, Economics, or Public Administration. • Minimum of 5 years of relevant experience in development in a governmental, multilateral or civil society organization in a multi-cultural setting, preferably in the context of sub-national governance and reform, decentralization or local autonomy; • Experience in design, monitoring and evaluation of local development projects is desirable; • Professional experience in preparation of presentations and other communication or training tools. An internationally competitive compensation package, inclusive of local living conditions allowance, is offered for the post. Detailed job description and selection criteria can be found at http://www.undp.org.af/Jobs/index.htm UNDP is an equal opportunity employer and encourages applications from female candidates.

68

Tenders

Business & Personal THE MINISTRY OF TOURISM OF THE ARAB REPUBLIC OF EGYPT - TOURISM DEVELOPMENT AUTHORITY (TDA)

REQUEST FOR EXPRESSION OF INTEREST FOR THE DEVELOPMENT OF TOURIST SITES IN WEST CAIRO The Tourism Development Authority (TDA) wishes to inform private investors on the opportunity to become, through a competitive bidding process, the real estate developers and investors of two different plots of land located in the Western part of the Greater Cairo area (the “Projects”). The first plot overlooks the Great Pyramids of Giza (~5 km) and has a size of ~2.3 sq.km. The second plot has a size of ~4.6 sq.km. Both plots are intended to be mixed use developments including tourist (hotels, cultural and entertainment facilities), retail, residential (villas, townhouses and apartments) and office space elements. Prospective investors are requested to send their Expression of Interest for the Projects in English no later than 15th January 2010, 1 p.m. Cairo time to: Eng. Khaled Mohamed Makhlouf, Tourism Development Authority, 21 Giza street, Nile Tower Building, 7th floor, Giza, Egypt or [email protected]. The Expression of Interest (maximum 50 pages) should include (i) the name and contact details (including e-mail address) of the individuals who may be contacted in relation to this request, (ii) a description of the prospect investor’s profile (including consolidated audited financial statements for last 3 years and details of highly qualified staff permanently employed with the company), (iii) a description of similarly developed projects (in terms of type of development and/or in the MENA region) and (iv) any other relevant information. By 19th January 2010, a short list of prospective investors will be invited to attend a Road Show that will be held in Cairo and in other relevant locations on January 24 -28, 2010. Prospective investors will then be invited to submit their proposal following the issuance of a Request For Proposal (RFP). TDA reserves the right, without incurring any liability, to change without prior notice the process (including postponing or terminating it) as described herein, and to exclude any prospect investor from further consideration at any stage of the process without disclosing the reason for such exclusion. For further information please contact: [email protected]

OFFSHORE COMPANIES OFFSHORE TRUSTS SWISS TRUST COMPANIES OFFSHORE FOUNDATIONS OFFSHORE BANKING www.GLOBAL-MONEY.com

Readers are Recommended to make appropriate enquiries and take appropriate advice before sending money, incurring any expense or entering into a binding commitment in relation to an advertisement. The Economist Newspaper Limited shall not be liable to any person for loss or damage incurred or suffered as a result of his / her accepting or offering to accept an invitation contained in any advertisement published in The Economist.

The Economist January 2nd 2010

The Economist January 2nd 2010 69

Economic and nancial indicators Overview

Output, prices and jobs

The S&P/Case-Shiller index of home prices in ten big American cities was unchanged in October, leaving it 6.4% lower than a year earlier. Before stalling in October, prices had edged up in each of the previous ve months. The housing sales gures were mixed. New home sales fell by 11. 3% in November but existing home sales rose by 7.4%. Consumer con dence in America increased in December, according to the measure published by the Conference Board, a research rm. Its index rose from 50.6 to 52.9. America’s GDP growth was revised down for a second time. The economy is now thought to have grown at an annualised rate of 2.2% in the third quarter, less than the previous estimate of 2.8%. The decline in Britain’s GDP in the third quarter of 2009 was revised to 0.2% from an earlier estimate of a 0.3% fall. The economy has shrunk by 5.1% since the third quarter of 2008. The current-account de cit widened to £4.7 billion ($7.7 billion) from £4.4 billion, or 1.3% of GDP, in the third quarter. Business con dence in Italy rose to its highest for more than a year in December. The ISAE Institute’s manufacturing-sentiment index rose to 82.6, from a revised reading of 79.4 in November. Industrial production in Japan increased for a ninth consecutive month in November, by 2.6%. The consumer price index, excluding fresh foods, fell by 1.7% in the year to November. That compares with a fall of 2.2% in the year to October.

Indicators for more countries, as well as additional series, can be found at

% change on year ago Gross domestic product latest qtr* 2009† United States –2.6 Q3 +2.2 –2.5 Japan –5.1 Q3 +1.3 –5.4 China +8.9 Q3 na +8.2 –5.1 Q3 –1.2 –4.5 Britain Canada –3.2 Q3 +0.4 –2.5 –4.1 Q3 +1.5 –3.8 Euro area –3.7 Q3 +2.1 –3.4 Austria Belgium –3.4 Q3 +2.0 –3.0 France –2.3 Q3 +1.0 –2.1 Germany –4.8 Q3 +2.9 –4.9 Greece –1.7 Q3 –1.7 –2.5 Italy –4.6 Q3 +2.3 –4.8 –3.7 Q3 +1.7 –3.9 Netherlands Spain –4.0 Q3 –1.2 –3.6 +3.3 –4.3 Czech Republic –4.1 Q3 Denmark –7.2 Q2 –9.9 –4.6 Hungary –7.1 Q3 –6.9 –7.0 Norway –0.7 Q3 +3.5 –1.8 Poland +1.7 Q3 na +1.0 Russia –8.9 Q3 na –7.0 –5.0 Q3 +0.7 –4.6 Sweden Switzerland –1.5 Q3 +1.2 –1.7 Turkey –3.3 Q3 na –5.7 Australia +0.5 Q3 +0.8 +0.8 Hong Kong –2.4 Q3 +1.6 –3.2 India +7.9 Q3 na +5.5 Indonesia +4.2 Q3 na +4.2 Malaysia –1.2 Q3 na –2.4 Pakistan +2.0 2009** na +3.7 Singapore +0.6 Q3 +14.2 –4.5 South Korea +0.9 Q3 +13.6 –1.0 Taiwan –1.3 Q3 na –3.6 Thailand –2.8 Q3 +5.5 –4.3 Argentina –0.3 Q3 +0.2 –0.5 Brazil –1.2 Q3 +5.1 nil Chile –1.6 Q3 +4.6 –1.2 Colombia –0.5 Q2 +2.7 +0.2 Mexico –6.2 Q3 +12.2 –7.1 Venezuela –4.5 Q3 na –3.0 Egypt +4.9 Q3 na +4.7 –0.8 Q3 +2.2 –0.1 Israel Saudi Arabia +4.4 2008 na –1.0 South Africa –2.1 Q3 +0.9 –2.2

2010† +2.7 +1.5 +8.6 +1.3 +2.4 +1.2 +1.0 +1.4 +1.3 +1.6 +0.2 +0.9 +1.3 –0.1 +0.9 +1.0 –1.0 +1.4 +1.9 +2.5 +1.9 +1.0 +3.0 +2.7 +2.7 +6.3 +4.5 +3.9 +2.4 +3.8 +2.8 +3.5 +3.3 +1.4 +3.8 +3.5 +2.4 +3.0 –3.4 +4.5 +2.4 +3.3 +3.1

The Economist commodity-price index

GDP growth forecasts, 2010, %

2000=100

Fastest ten

Slowest ten 2

4

6

Qatar

8

10 12

4 24.5

Hungary

Turkmenistan

Jamaica

Azerbaijan

Barbados

China

Estonia

Uzbekistan

Belarus

CongoBrazzaville

Ireland

Angola

Latvia

Ethiopia

Puerto Rico

India

Venezuela

Sri Lanka

Lithuania

Source: Economist Intelligence Unit

Consumer prices Unemployment latest year ago 2009† rate‡, % +1.8 Nov +1.1 –0.4 10.0 Nov –1.9 Nov +1.0 –1.3 5.2 Nov +0.6 Nov +2.4 –0.8 9.2 2008 +1.9 Nov§ +4.1 +2.1 7.9 Oct†† +1.0 Nov +2.0 +0.4 8.5 Nov +0.5 Nov +2.1 +0.4 9.8 Oct +0.7 Nov +2.3 +0.5 4.7 Oct –0.1 Nov +3.1 +0.1 11.9 Oct‡‡ +0.4 Nov +1.6 +0.1 10.1 Oct +0.7 Dec +1.1 +0.3 8.1 Nov +2.0 Nov +2.9 +0.1 9.1 Sep +0.7 Nov +2.7 +0.8 7.8 Q3 +1.0 Nov +2.3 +1.1 5.3 Nov†† +0.3 Nov +2.4 –0.3 19.3 Oct +0.5 Nov +4.4 +1.1 8.6 Nov +1.3 Nov +2.7 +1.3 4.2 Oct +5.2 Nov +4.2 +4.8 10.4 Oct†† +1.5 Nov +3.2 +2.3 3.1 Sep§§ +3.1 Oct +4.2 +3.4 11.4 Nov‡‡ +9.1 Nov +13.8 +12.2 7.7 Oct‡‡ –0.7 Nov +2.5 –0.3 8.0 Nov‡‡ nil Nov +1.5 –0.5 4.1 Nov +5.5 Nov +10.8 +5.9 13.4 Sep‡‡ +1.3 Q3 +5.0 +1.9 5.7 Nov +0.5 Nov +3.1 –0.3 5.1 Nov†† +11.5 Oct +10.4 +9.8 9.1 2008 +2.4 Nov +11.7 +4.7 8.1 Feb –0.1 Nov +5.7 +0.4 3.6 Q2 +10.5 Nov +24.7 +14.2 5.2 2008 –0.2 Nov +5.5 +0.5 3.4 Q3 +2.4 Nov +4.5 +2.8 3.5 Nov –1.6 Nov +1.9 –1.1 6.0 Nov +1.9 Nov +2.2 –0.9 1.2 Sep +7.1 Nov +7.9 +6.2 9.1 Q3‡‡ +4.2 Nov +6.4 +4.9 7.4 Nov‡‡ –2.3 Nov +8.9 +1.9 9.7 Oct††‡‡ +2.4 Nov +7.7 +4.5 12.6 Jul‡‡ +3.9 Nov +6.2 +5.3 5.3 Nov‡‡ +28.6 Nov +32.7 +27.3 8.3 Q3‡‡ +13.3 Nov +20.3 +10.1 9.3 Q3‡‡ +3.8 nil +2.9 +3.4 7.8 Q3 +3.5 Oct +10.9 +4.3 na +5.8 Nov +11.8 +7.2 24.5 Sep‡‡

*% change on previous quarter, annual rate. †The Economist poll or Economist Intelligence Unit estimate/forecast. ‡National definitions.- §RPI inflation rate 0.3 in November. **Year ending June. ††Latest three months. ‡‡Not seasonally adjusted. §§Centred 3-month average

Economist.com/indicators

0

Industrial production latest –5.1 Nov –3.9 Nov +19.2 Nov –8.4 Oct –12.4 Sep –11.1 Oct –13.7 Sep –12.7 Sep –8.4 Oct –12.4 Oct –9.3 Oct –11.8 Oct –7.1 Oct –12.9 Oct –7.2 Oct –13.9 Oct –10.8 Oct –4.9 Oct +9.8 Nov +1.5 Nov –16.1 Oct –6.7 Q3 +6.5 Oct –3.8 Q2 –8.6 Q3 +10.3 Oct +2.8 Oct +0.7 Oct –2.6 Sep –8.2 Nov +17.8 Nov +31.5 Nov +1.3 Oct –3.6 Oct –3.2 Oct –6.6 Oct –2.8 Oct –5.2 Oct –19.8 Oct +6.4 Q2 –3.1 Sep na –9.3 Oct

3

2

1

–

0

% change on one one Dec 22nd* month year

Dec 15th Dollar index All items 212.9 211.3 Food 214.4 210.2 Industrials All 211.1 212.8 Nfa† 177.0 176.9 Metals 229.6 232.3 Sterling index All items 198.5 201.1 Euro index All items 135.3 137.3 Gold $ per oz 1126.60 1079.50 West Texas Intermediate $ per barrel 70.72 77.78 *Provisional †Non-food agriculturals.

+2.2 +1.2

+37.3 +15.4

+3.4 +2.4 +3.9

+81.2 +58.1 +92.9

+6.3

+26.6

+7.3

+34.5

–7.4

+28.5

+3.8

+98.9

70 Economic and nancial indicators

The Economist January 2nd 2010

Trade, exchange rates, budget balances and interest rates Trade balance* latest 12 months, $bn United States –523.9 Oct Japan +27.9 Oct China +218.4 Nov –126.8 Oct Britain Canada –3.4 Oct +14.5 Oct Euro area Austria –6.4 Sep Belgium +16.6 Oct France –55.6 Oct Germany +168.8 Oct Greece –44.7 Sep Italy –6.0 Oct Netherlands +46.6 Oct Spain –76.7 Sep Czech Republic +6.6 Oct Denmark +8.0 Oct Hungary +5.2 Oct +51.2 Nov Norway Poland –8.3 Oct +100.9 Oct Russia Sweden +12.6 Oct Switzerland +17.9 Nov Turkey –36.0 Oct Australia –3.0 Oct Hong Kong –26.1 Nov India –77.0 Oct Indonesia +16.6 Oct Malaysia +33.9 Oct Pakistan –13.6 Nov Singapore +22.4 Nov South Korea +38.4 Nov Taiwan +20.4 Nov Thailand +20.1 Nov Argentina +16.4 Nov Brazil +25.5 Nov Chile +11.5 Nov Colombia +0.5 Oct Mexico –6.5 Nov Venezuela +6.7 Q3 Egypt –25.2 Q2 Israel –5.4 Nov Saudi Arabia +212.0 2008 South Africa –2.8 Oct

Current-account balance latest 12 % of GDP months, $bn 2009† –465.3 Q3 –3.1 +126.5 Oct +2.7 +364.4 Q2 +6.1 –28.2 Q3 –1.9 –34.8 Q3 –2.7 –109.6 Oct –0.9 +9.2 Q2 +1.0 –11.8 Jun –2.0 –61.3 Oct –2.0 +143.1 Oct +3.8 –37.1 Oct –6.6 –72.6 Oct –3.0 +34.8 Q3 +5.8 –87.1 Sep –5.7 –2.6 Oct –2.1 +11.2 Oct +2.2 –2.1 Q3 –2.8 +58.4 Q3 +15.3 –7.7 Oct –0.8 +40.8 Q3 +2.2 +33.0 Q3 +7.2 +26.1 Q2 +7.7 –11.4 Oct –2.0 –32.7 Q3 –3.6 +26.2 Q3 +13.3 –26.6 Q2 –0.3 +6.9 Q3 +1.2 +36.7 Q2 +13.6 –5.5 Q3 –1.5 +20.9 Q3 +16.0 +41.9 Nov +3.8 +38.6 Q3 +9.6 +17.7 Oct +5.8 +8.5 Q3 +4.8 –21.2 Nov –0.8 +0.8 Q3 –0.3 –6.0 Q2 –3.1 –11.2 Q3 –1.1 –2.1 Q3 +0.7 –4.4 Q2 –1.7 +5.2 Q3 +2.9 +134.0 2008 +1.4 –12.0 Q3 –5.4

Markets

Budget Interest rates, % balance Currency units, per $ % of GDP 3-month 10-year gov’t Dec 29th year ago 2009† latest bonds, latest – – –11.9 0.18 3.81 91.9 90.2 –7.7 0.34 1.27 6.83 6.84 –3.4 1.83 3.70 0.63 0.69 –14.5 0.66 4.17 1.04 1.22 –2.4 0.19 3.80 0.69 0.71 –6.5 0.71 3.36 0.69 0.71 –5.7 0.72 3.81 0.69 0.71 –6.0 0.73 3.64 0.69 0.71 –8.2 0.72 3.55 0.69 0.71 –4.6 0.72 3.35 0.69 0.71 –6.8 0.72 5.72 0.69 0.71 –5.3 0.72 4.02 0.69 0.71 –4.7 0.72 3.51 0.69 0.71 –10.8 0.72 3.95 18.3 18.8 –4.8 1.54 3.93 5.17 5.27 –2.8 1.55 3.62 189 189 –4.3 6.18 8.01 5.78 7.00 9.9 2.04 4.12 2.87 2.95 –2.3 4.26 6.24 30.1 29.3 –8.0 8.75 8.11 7.17 7.74 –3.8 0.16 3.38 1.03 1.05 –1.3 0.25 1.85 1.51 1.52 –6.3 7.12 5.15‡ 1.11 1.45 –3.6 4.26 5.83 7.76 7.75 –1.9 0.14 2.46 46.7 48.5 –8.0 3.75 7.71 9,435 10,950 –2.6 7.06 5.60‡ 3.43 3.48 –7.9 2.17 1.57‡ 84.2 79.2 –4.3 12.34 11.10‡ 1.40 1.44 –3.2 0.50 2.63 1,171 1,260 –4.5 2.85 5.31 32.3 32.8 –5.0 0.86 1.24 33.4 34.8 –5.7 1.35 3.46 3.82 3.45 –1.0 11.94 na 1.74 2.33 –3.2 8.65 6.16‡ 506 641 –4.2 0.72 1.67‡ 2,049 2,241 –3.0 4.11 5.22‡ 13.0 13.8 –4.0 4.50 7.80 5.90§ 5.20§ –7.6 14.60 6.55‡ 5.49 5.52 –6.9 9.84 1.77‡ 3.79 3.76 –5.4 1.17 4.15 3.75 3.75 –0.9 0.77 na 7.40 9.36 –5.0 7.23 9.05

*Merchandise trade only. †The Economist poll or Economist Intelligence Unit forecast. ‡Dollar-denominated bonds. §Unofficial exchange rate.

Mergers and acquisitions Goldman Sachs advised on 233 mergers and acquisitions in 2009, more than any other rm, according to league tables compiled by mergermarket, a research group. But Morgan Stanley was the leading M&A adviser when measured by the value of transactions: it was involved in deals worth a total of $574 billion. The remaining places in the top ve (ranked by the value of deals) were also taken by big American banks. The next four spots went to their main European rivals
including Barclays Capital, a bank with rather less M&A pedigree than the Swiss banks, UBS and Credit Suisse, ranked just above it. Lazard made the top ten ahead of two other independent advisory rms, Evercore Partners and Rothschild.

Top advisers, 2009*, value of deals, $bn 0

150

300

450

600

Morgan Stanley

221

Goldman Sachs

233

JPMorgan

218

Citigroup Bank of America Merrill Lynch Credit Suisse

167

UBS

184

Barclays Capital

68

Deutsche Bank

137

Lazard

150

161 191

Evercore Partners Rothschild Source: mergermarket

24 Number of deals

162

*Up to December 21st

Markets United States (DJIA) United States (S&P 500) United States (NAScomp) Japan (Nikkei 225) Japan (Topix) China (SSEA) China (SSEB, $ terms) Britain (FTSE 100) Canada (S&P TSX) Euro area (FTSE Euro 100) Euro area (DJ STOXX 50) Austria (ATX) Belgium (Bel 20) France (CAC 40) Germany (DAX)* Greece (Athex Comp) Italy (FTSE/MIB) Netherlands (AEX) Spain (Madrid SE) Czech Republic (PX) Denmark (OMXCB) Hungary (BUX) Norway (OSEAX) Poland (WIG) Russia (RTS, $ terms) Sweden (OMXS30) Switzerland (SMI) Turkey (ISE) Australia (All Ord.) Hong Kong (Hang Seng) India (BSE) Indonesia (JSX) Malaysia (KLSE) Pakistan (KSE) Singapore (STI) South Korea (KOSPI) Taiwan (TWI) Thailand (SET) Argentina (MERV) Brazil (BVSP) Chile (IGPA) Colombia (IGBC) Mexico (IPC) Venezuela (IBC) Egypt (Case 30) Israel (TA-100) Saudi Arabia (Tadawul) South Africa (JSE AS) Europe (FTSEurofirst 300) World, dev’d (MSCI) Emerging markets (MSCI) World, all (MSCI) World bonds (Citigroup) EMBI+ (JPMorgan) Hedge funds (HFRX)† Volatility, US (VIX) CDSs, Eur (iTRAXX)‡ CDSs, N Am (CDX)‡ Carbon trading (EU ETS) ¤

Index Dec 29th 10,545.4 1,126.2 2,288.4 10,638.1 915.9 3,368.7 250.5 5,437.6 11,701.8 922.0 2,992.1 2,502.9 2,525.9 3,960.0 6,011.6 2,196.0 23,376.2 337.3 1,251.6 1,125.7 315.3 21,570.3 423.7 40,281.2 1,445.2 965.8 6,608.5 51,786.0 4,856.7 21,499.4 17,401.6 2,519.0 1,275.2 9,410.7 2,869.8 1,672.5 8,053.8 742.2 2,318.4 68,296.0 16,547.1 11,568.9 32,626.3 55,080.7 6,257.9 1,060.1 6,121.8 27,655.2 1,046.9 1,178.0 980.6 301.2 834.7 492.4 1,155.3 20.0 72.0 117.8 12.6

% change on Dec 31st 2008 one in local in $ week currency terms +0.8 +20.2 +20.2 +0.7 +24.7 +24.7 +1.6 +45.1 +45.1 +2.5 +20.1 +21.5 +1.4 +6.6 +7.9 +5.3 +76.2 +76.1 +5.3 +126.0 +125.8 +2.0 +22.6 +39.9 +0.6 +30.2 +51.8 +1.4 +23.5 +29.6 +1.6 +22.2 +28.2 +1.5 +43.0 +49.9 +1.5 +32.3 +38.8 +1.6 +23.1 +29.1 +1.1 +25.0 +31.1 –0.8 +22.9 +28.9 +1.7 +20.1 +26.0 +1.4 +37.1 +43.8 +1.1 +28.2 +34.5 +1.3 +31.2 +40.7 +0.6 +39.4 +46.2 +4.0 +76.2 +77.7 +1.6 +56.8 +91.3 +1.2 +47.9 +53.2 +2.0 +126.4 +128.7 +0.4 +45.8 +61.1 +0.4 +19.4 +22.7 +0.5 +92.8 +97.7 +2.8 +32.7 +69.5 +1.9 +49.4 +49.4 +4.3 +80.4 +88.3 +2.1 +85.8 +114.0 +1.2 +45.4 +47.0 +0.8 +60.5 +50.5 +1.6 +62.9 +68.3 +1.0 +48.7 +60.8 +2.5 +75.4 +78.2 +2.5 +64.9 +72.8 +3.4 +114.7 +94.5 +1.3 +81.9 +142.6 +1.3 +46.1 +86.9 nil +53.0 +71.7 +1.2 +45.8 +59.1 +0.1 +57.0 +69.0 –2.9 +36.1 +36.5 +1.0 +87.9 +88.2 –1.7 +27.5 +27.6 +0.1 +28.6 +61.1 +1.2 +25.8 +32.0 +1.6 +28.0 +28.0 +2.8 +72.9 +72.9 +1.8 +32.3 +32.3 +0.2 +3.1 +3.1 +0.1 +25.8 +25.8 +0.5 +13.2 +13.2 19.5 40.0 (levels) –2.3 –64.4 –62.6 –1.4 –49.5 –49.5 –0.5 –24.2 –20.5

*Total return index. †Dec 28th. ‡Credit-default-swap spreads, basis points. Sources: National statistics offices, central banks and stock exchanges; Thomson Reuters; WM/Reuters; JPMorgan Chase; Bank Leumi le-Israel; CBOE; CMIE; Danske Bank; EEX; HKMA; Markit; Standard Bank Group; UBS; Westpac

Indicators for more countries, as well as additional series, can be found at Economist.com/indicators

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