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Leaders
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How to set Syria free
On the cover Getting rid of Bashar Assad requires a united opposition, the creation of a safe haven and Western resolve: leader, page 11. In Syria the resistance grows and the blood flows, pages 25-28. How Israel views the Arab spring, page 50
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55 Finland's new president A conservative first
40 Brazil's airports
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Fasten your seat belts
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57 Charlemagne 1789 and all that
Pakistan In daring to take on the army, the Supreme Court is striking a blow for the rule of law: leader, page 13. Pakistan has a lotgoingforit, but optimism about its future is nevertheless hard to sustain, says our special report, after page 48. A clutch of experts ponder the country's fragile future in a new book, page 83
•• Contents continues overleaf
The Economist February 11th 2012
4 Contents 75 Credit cards in China
Britain
Citi building
58 The coalition Pulled hither and thither
59 Quantitative easing
America's jobs churn
59 Weak beer Brewers' droop
Science and technology
60 Bagehot The death of meritocracy
of recovery have multiplied, but the risks have not yet gone away: leader, page 12. Employment springs to life; will it fade again? Page 34. The number ofjob-to-job moves by American workers tells a bleak story: free exchange, page 77. Down to the wire in Athens, page 56
61 Swiss banking secrecy Don't ask, won't tell
The modern matchmakers Professor Facebook
80 Pollution in China Clearing the air
62 Copyright and the internet
Dating and sex The sdence of internet matchmaking, page 79. Sexual liberation in 18th century England, page 82
81 Why zebra are striped Horse sense
ACTA up
Books and arts
Business 63 Model economics
82 The first sexual revolution
The beauty business
Beauty and the beasts
65 Glencore and Xstrata Ore inspiring
Pleasure principles
83 Pakistan's future Resilient mess
83 Mitt Romney The puzzler
84 Documentaries on Russia
65 Underpaid bosses
Off balance
They really exist
66 Aircraft and pollution China snubs the EU
67 India's telecoms scandal Megahurts fashion models and a global talent pool are changing the catwalk, page 63. Men are spending money on their looks too, page 64
79 Sex and love 80 Social networking
International
64 Cosmetic treatment for men
Model economy Brainy
Taxi economies
77 Free exchange
Has it worked?
Rich-world economies Signs
76 Building competitiveness
68 Corporate governance Not King Coal
70 Schumpeter Of companies and closets
Finance and economics
Local hero
85 Jewish fiction Books of laughter and forgetting
92 Economic and financia1 indicators
Statistics on 42 economies, plus a closer look at football wealth
Obituary
73 Buttonwood
94 Wislawa Szymborska
The lump oflabour
Poland's muse
74 Short-selling
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The Economist February 11th 2012 7
The world this week Politics
famine was officially declared. Aid efforts have been ham pered by the Shabab, the al Qaeda-affiliated group that controls swathes of Somalia. Into the PAN
Josefina Vazquez Mota won the primary for Mexico's ruling National Action Party (PAN), and will be its candi date in the July 1st presidential election. She is the first female presidential contender from any of the three main parties. China and Russia blocked an Arab League-backed UN Secu rity Council resolution that condemned the violence in Syria and called for President Bashar Assad to cede powers. Government forces com menced the worst assault on protesters yet, firing rockets and heavy weaponry at rebel held areas of Horns and leav ing scores dead. In response America closed its embassy and several European coun tries and Gulf states withdrew their ambassadors from Syria.
Brazil auctioned a 51% stake in
three airports, including Sao Paulo's main international airport, in deals worth 24.s billion reais ($14.3 billion). The winning bidders included the pension funds of big state owned companies and oper ators based in Argentina, France and South Africa.
Egyptian officials said 43
charity workers, including 19 Americans, would be put on trial for illegally receiving foreign funds. Critics con demned the move as an at tempt by the ruling military council to clamp down on foreign support for pro-democ racy groups. Cairo continued to be roiled by battles between police and protesters, follow ing the deaths of 74 people in clashes at a football match in Port Said that the military council blamed on elements of the old regime. In South Africa an appeals panel at the ruling African National Congress backed the five-year suspension ofJulius Malema, the firebrand leader of the party's youth wing. Mr Malerna was suspended in November for tarnishing the party's image and sowing division. He is likely to appeal to the national executive. The UN said that Somalia's famine had ended but warned that a third of the population still requires emergency aid. Tens of thousands of people have died since July, when
Striking police in the Brazilian state of Bahia said that unless their pay demands were met, carnival celebrations later this month would have to be called off. Murder rates have doubled since the strike began. Smokescreen on the waters China issued a second water
border between Sudan and South Sudan. The rebels claimed they were keeping the Chinese safe and demanded that China ask Sudan to stop bombing the South Kordofan region. Yousaf Raza Gilani, Pakistan's prime minister, appealed against a charge of contempt brought by the Supreme Court, in a case that could potentially plunge the country into a political crisis. Mr Gilani is accused of failing to reopen a corruption investigation against the president, Asif Ali Zardari. The court readied a panel to hear the appeal. America and Japan revised a
2006 accord on relocating the us Marines' Futenma air base in Okinawa, after the process had stalled because of local opposition. Under the new plan America will transfer some troops to Guam without waitingfor progress on relocat ing the Futenma base on Oki nawa, which had been a pre condition for the transfer. Decoupiing the issues resolves the question of relocating troops, but does not settle the controversy over the proposed site of the new air base. A dozen militants were killed in an airstrike in the Philip pines, including senior mem bers of the Jemaah Islamiah and Abu Sayyaf groups. Among them was Zulkifli bin Hir, a Malaysian with a bounty of $sm on his head. The Philip pines also suffered an earth quake that killed1s people.
pollution alert within a month, when phenol, a dan gerous chemical, leaked into the Yangzi river near Shanghai. In Guangxi province six peo ple were arrested and seven officials sacked after cadmium spilled into the Longjiang river. The spill occurred last month but was not reported for two weeks, during which time people continued to use the affected water. Twenty-nine Chinese work ers who had been abducted in Sudan were freed. They were handed over to the Red Cross by a rebel group fighting on the
The Republican presidential nomination race took another unexpected turn when Rick Santorum won party caucus es in Colorado and Minnesota,
two states that plumped for Mitt Romney in the 2008 primaries. The caucuses in Nevada went as expected, with Mr Romney claiming victory on so% of the vote. The Obama administration was set to announce an agree ment with five big banks over alleged abuses in housing foreclosure practices. The revelation in 2010 that the banks evicted some home owners without following proper procedures caused a public furore and led to an investigation by ali so state attorneys-general. A panel of federal appeals judges upheld a lower court's ruling that a 2008 ballot initia tive in California that banned same-sex marriage in the state was unconstitutional. The issue is likely to rumble on all the way to the Supreme Court. Real pros Finland's presidential election
was won by Sauli Niinisto, the main centre-right candidate. Assuaging fears over the rise of Finnish Euroscepticism, both he and the Green runner-up, Pekka Haavisto, are pro-Euro pean Union and pro-euro. The Socialist Party in Spain chose Alfredo Perez Rubalcaba as its new leader. The Socialists are languishing behind the ruling People's Party, which won an absolute majority in November's election. The government led by Roma nia's prime minister, Emil Boc, stepped down. The president, Traian Basescu, chose as his replacement a former head of the intelligence service, Mihai Razvan Ungureanu. Chris Huhne resigned as Brit ain's energy minister after prosecutors said they would charge him with perverting the course ofjustice over a speed ing incident. Mr Huhne, a Liberal Democrat, was a con stant critic of Conservative policies at the coalition gov ernment's cabinet meetings. David Cameron, the prime minister, said he had "made �� the right decision" to resign.
The Economist February 11th 2012
8 The world this week
Business
Glencore and Xstrata un
veiled the details of their proposed $90 billion merger, which would create a giant in mining and natural resources. The offer of a share swap would result in Glen core owning 55% of a newly com bined company to be headed by Mick Davis, Xstrata's chief executive. The companies have longstanding business links, but there was some criticism of the deal from institutional investors in Xstrata, who worry that it is a takeover on the cheap. Rio Tinto announced a record
underlying annual profit of $15.5 billion. But the mining company also booked an $8.9 billion charge related to the falling value of its aluminium business.
China's inflation rate unex
weakness" of the labour mar ket as it does not count people who have given up looking for work or can find only part time employment.
pectedly crept up in January, to 4.5% from 4.1% in December, mostly because of higher food prices. Inflation is a headache for the central bank, which only recently started to loosen monetary policy as prices looked to be under control. Adding to the mix, the IMF this week urged Beijing to ready a stimulus plan in case the glo bal economy worsens.
The trading of shares in Alibaba was suspended amid rumours that the Chinese e-commerce firm is to buy back the 40% stake held in it by Yahoo! It is thought that Ali baba has obtained loans from a syndicate of banks to buy back some or all of that stake, which could be worth $13 billion. Meanwhile, Yahoo! took more steps to restore investor confidence, as Roy Bostock announced he was stepping down as chairman.
Putting it in perspective
I
US unemployment rates
%
Including marginally attaclred worke� Total
lttllllll!tllt J f M A M J J A S 0 » D J 2011
18
15 12 9
6
China barred its airlines from taking part in Europe's emis sions-trading scheme (ETS), hardening its opposition to an attempt to get carriers to pay for carbon emissions on flights into and out of the EU. Russia, America and India are also opposed to their airlines' inclusion in the ETS.
�
2012
Souru; US BuroauoflaboutSlatl'�
Ben Bernanke warned that America's labour market was
Paying div;dends BP posted a 38%jump in quar
terly profit, to $7-7 billion, and increased its shareholder divi dend for the first time since the 2010 disaster at one of its oil wells in the Gulf of Mexico. A trial that will apportion liabil ity for the oil spill among BP and its partners is due to start in Louisiana on February 27th, unless the company reaches a settlement before then.
still a "long way" from recov ery, despite the unemploy ment rate falling to 8.3% in January, the lowest for three years. Stockmarkets had surged in response to the employment data, with the Dow Jones index reaching its highest mark since May 2008. But the Fed's chairman re minded Congress that the official figure "understates the
Air France was forced to can
cel about half its long-haul flights because of a four-day strike by pilots and crew, who walked out in protest against government plans to require them to give at least 48-hours advance notice of strike action.
UBS went further than most
other banks and reduced its bonus pool by a comparatively large 40% (and by 6o% at its investment-banking division), as it reported that net profit in 2011 had fallen by almost half, to SFr4.2 billion ($4.6 billion). But the Swiss bank will pay "special" share bonuses to around 5% of its most senior bankers as it fights to retain talent amid a downsizing of its investment bank. The Bank of England stood poised to launch a third round of expansionary asset pur chases, or quantitative eas ing, to help the ailing British economy. The British Retail Consortium reported that shoppers drastically reduced spending in January after splashing out at Christmas.
Verizon announced a venture with Coinstar, the owner of
the handy Redbox DVD rental kiosks in American super markets, in which the pair will combine forces to challenge Netflix's dominance in the business of streaming and renting films online. Coinstar, which also operates in-store coin-sorting machines, saw its profit surge in the fourth quar ter of last year. Groupon released its first set
of earnings since going public in a much ballyhooed initial public offering. Although revenue at the online discount site almost trebled in the final quarter of 2011 it made an unexpected net loss of $43m. Its share price sank. Jackpot! Caesars Entertainment,
which owns Caesars Palace and other glitzy places where people can lose money, floated a small amount of shares in an IPO. The debt-laden com pany's casinos are in America and Europe, rather than fast growing Asia. It abandoned a more ambitious flotation in 2010, but this week's gamble paid off: its share price rose by 71% on the first day of trading. Other economic data and news can be found on Pages 92-93
. H9WEY£R, Nr/ CENTRAL
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11
Ho-w to set Syria free Getting rid of Bashar Assad requires a united opposition, the creation of a safe haven and Western resolve N HOMS they are burying I their dead under cover of
darkness, for fear that the mourners themselves will be
Army (FSA), mainly soldiers who have deserted the regime. The most direct answer is to even up the fight by flooding Syria with arms or, perhaps, bombing Mr Assad's troops in their barracks. But such a focus on firepower would play into
come the next victims. Syrian government forces are setting out to strike the city's makeshift
Mr Assad's hands: the grounds on which he would most like to fight are military. Foreign bombing would satisfy outsiders' urge to do something-anything-to show their outrage. But
are no match for the army's tanks. And yet the butchery seems only to fire the conviction among the city's inhabitants that state violence must not prevail against the popular will.
Qaddafi's forces. In Syria it would have less military value. The time may come when supplying weapons to the oppo sition makes sense. But such a policy would not suddenly turn
clinics, where the floor is al ready slick with blood. The rebels in Horns have guns, but they
The outside world, to its shame, has shown no such resolve. A vote on February 4th, in the UN Security Council, condemn ing Syria's president, Bashar Assad, and calling on him to hand powers to his deputy, was defeated thanks to vetoes from Rus sia and China. For Mr Assad, this was the impunity he needed
to redouble the killing. Earlier a ramshackle mission to Syria by the Arab League had ended in bickering. Division has eviscer ated international co-operation just when the turmoil whipped up by the Arab spring makes it essential. The people of Syria deserve better. With the number of dead rapidly climbing above 7,000, the world has a responsi
even in Libya, which had a front-line and a terrain more vul nerable to aerial attack, bombing took a long time to weaken
the opposition into a fighting force. And a country awash with weapons would be plagued by the very violence that the
world was seeking to avoid. The guns that flooded into Af ghanistan to arm locals against the Soviet Union helped create
the chaos that spawned the Taliban. Far better to attack Mr Assad's regime where it is vulner able-by peeling away his support, both at home among Syr ia's minorities and abroad, especially in Russia, its chief de fender on the UN Security Council. Both Syria's Alawites and
Vladimir Putin cling to this dictator because they think that, despite his faults, he is better than the alternative. Yet under Mr
bility to act. It also has an interest. Syria occupies a vital posi tion in the Middle East, jammed between Turkey, Jordan, Iraq, Israel and Lebanon, and allied with Russia and Iran. The coun
Assad Syria has no future. Before the Arab spring his attempts to modernise the economy enriched a coterie of his cronies but did little for ordinary Syrians. Were he to see off today's
bloody reckoning if Syria's Sunnis, the largest group, are victo rious. A lengthy civil war in Syria would feed mayhem and re
Stand up as one
try is a cauldron of faiths, sects and clans seething with grudges and mistrust. Many of Syria's minorities are shelter ing with Mr Assad's Alawite sect only because they fear a
uprising, he would be left ruling over an isolated, impover ished and angry country. Surely the opposition can offer enough Syrians of all creeds a better future than that?
ligious strife in an unstable part of the world. So shifting Mr Assad from power as fast as possible is essen tial. It is too late for him to negotiate an accommodation with
To make that promise credible, Syria's fractious opposition must unite. A contact group of outside powers and the opposi tion could channel money into Syria, as well as help with com
permanent distrust of most of his people. Any freedom they gain would immediately become a means to resist him. For the
Kurds and Christians who back Mr Assad that they will be saf er and more prosperous without him. The Russians would also begin to shift ground. Mr Putin enjoys standing up to the
his people by overseeing reform and an increase in democra cy. Mr Assad's repeated resort to violence has earned him the
good of Syria and the region, therefore, the aim must be both to dethrone Mr Assad and also to minimise the loss of life. The pity is that, just now, those goals are at odds. Bombing and other sorts of hand-wringing As tyrants go, Mr Assad has two advantages (see page 25). One
is his willingness to do whatever it takes to put down the rebel lion. Whereas the troops in Cairo's Tahrir Square would not fire into the crowd, Syrian soldiers are steeped in blood. Al though some have switched sides rather than kill their compa triots, Mr Assad commands crack units and a relatively loyal officer corps, as well as tanks, heavy artillery and an air force. Syria's rebel irregulars could not beat them in a head-on fight. His second advantage is others' lack of unity-not only at
the UN and in the Arab League, but also among Syria's opposi
tion. The Syrian National Council is a divided gaggle of exiles, with only limited authority in a place they still call home. In side Syria there is a ragtag of militias, gangs and the Free Syrian
munications and logistics. With a single voice and a credible leader, the opposition could seek to reassure the merchants,
interfering West, not least for domestic political reasons (see next leader), but sticking with a doomed leader could cost Rus sia its naval-supply base in Tartus and its arms exports. The
more senior officials and army officers defect from the regime, the more likely Mr Putin is to change sides too.
To help persuade them, Turkey, with the blessing of NATO and the Arab League, should create and defend a safe haven in north-western Syria. The FSA can train fighters there, and a credible opposition can take shape. Turkey seems willing to do
this, providing it gets Western support. The haven would be
similar to that created for the Kurds in northern Iraq; Mr Assad
would suffer only if he attacked it. A haven carries risks, if only because the opposition is so fractious. But it is likely to cause less bloodshed than joining the civil war directly or letting Mr Assad slaughter his people at will. And a free patch of Syria would be powerful evidence that Mr Assad's brutal days are numbered. •
12 Leaders
The Economist February 11th 2012
Change in Russia
A Moscow spring? Both Vladimir Putin and the West should heed the message behind the protests in Russia IG, peaceful demonstrations in the run-up to a presiden· tial election may look like signs of a healthy democracy. Not in
B
Russia. Rather, the protests in Moscow reflect growing disen·
chantment with the system of "managed" democracy under Vladimir Putin, who plans to return as president next month. The protests have two striking features. First, they are re· strained and orderly, as befits their mostly middle-class, inter· net-using participants. A few rabid nationalists aside, these are
not revolutionaries demanding the overthrow of a regime, as in 1917. They are ordinary Russians who have enjoyed the fruits of a decade of economic growth but yearn for more political freedom, a more accountable state, less vote-rigging and less corruption. They have been driven on to the streets by the fear that Mr Putin, who was president in 2ooo·o8 and then let Dmi· try Medvedev rule for four years, will now stay in power until 2024, without even a glimmer of hope for reform.
A second feature is that the protesters have no obvious leaders who might replace Mr Putin. They are not calling for
his overthrow, or even backing another candidate in the elec· tion (partly because liberals have been barred from standing). Unlike the sweeping "colour" revolutions in Ukraine and Georgia or the Arab spring, the protesters have narrow, specific
demands, such as a rerun of December's Duma election and the dismissal of the election commission's boss, that show a broader wish for the rule of law and for properly functioning
institutions in Russia. The demonstrators seek evolutionary not revolutionary change, a point they could underline were they more willing to negotiate with liberal voices in the estab·
lishment, instead of spurning them (see page 53).
As for Mr Putin, he has so far been wise to respond cau· tiously, not confrontationally. The protests are being allowed to continue. There have been no threats to use force. State tele· vision has begun giving airtime to opposition figures even as it still disparages them. There is talk of returning to a limited sys· tern of elected regional governors, scrapped in 2004.
But there are clearly limits to Mr Putin's tolerance. He has re· jected demands for a new Duma election. He seems deter·
mined to win the presidential election on the first round, even though this will require more overt rigging. The fear is that he may react to post-election protests not with renewed dialogue
but with a crackdown. And the chances of this are raised be· cause Mr Putin, with all his talk about stability, has given no sign that he is ready for liberalising reform. The likelihood of
slower economic growth in future will undermine his legiti· macy in the eyes of many ordinary Russians; if dissent in·
creases, the odds of fresh repression are worryingly high.
Let Russians free themselves The West is in an awkward position. Although Russia would benefit from the rule of law and fair elections, the West cannot afford to be seen cheering on the protesters. Mr Putin was elected and, until recently, popular. In Russia, more than in most countries, critics are often depicted as tools of America. Already the Kremlin has accused the new American ambassa· dor of openly consorting with the protesters. But the West should still be blunt in warning Mr Putin of the consequences of any resort to force after the election. That
means tough, specific sanctions if need be. The Russians are rich and sophisticated enough to sort out their politics them· selves. Open repression, however, must be resisted.
•
The rich world's economy
Not quite p arty time Signs of recovery have multiplied, but the West's economies are not yet out of danger
I
MSCI World index
S terms, October 3rd 2011•100
-'---'---'--+---'-'- 90 Oct Nov Oec Jan Feb 2011 2012
NEW self-assurance has spread through financial markets. The MSCI index of glo·
A
hal stocks is up by more than 7% since the start of the year and by almost 20% since early October. Bond yields in Spain and Italy, the two biggest of Europe's em·
battled peripheral economies, have fallen to their lowest lev· els in three months. Greece's fraught negotiations with its cred· itors have dulled the rally this week-but only a bit. Given that a huge sovereign default could occur in scarcely more than a month, there is strangely little nervousness. Why the exuberance? In part it reflects genuinely good eco· nomic news, especially in America, where January's far stron·
ger-than·expected employment figures, along with upbeat sta· tistics from manufacturing and services, suggest that recovery in the world's biggest economy really is gaining momentum
(see page 34). The cheerier mood is also based on a belief that the European Central Bank (ECB) has vanquished the worst dangers for the single currency with its massive provision of three-year liquidity to the region's banks. Calamities that seemed all too plausible a couple of months ago, such as the collapse of a big European bank or a series of failed bond auc· tions leading to the imminent fracturing of the single currency itself, now seem highly unlikely. In addition, the market rally is a natural reaction to the fact
that central bankers have doubled down on their commitment to cheap money. The Federal Reserve recently made clear that it does not expect to raise interest rates until the end of 2014, ��
The Economist February 11th 2012
Leaders 13
�much later than expected. The Bank of England, which was due to meet on February 9th after The Economist went to press, is likely to launch another round of bond-buying. The ECB, which meets the same day, may cut rates again soon. Will the good news last? Recent history suggests caution. A year ago America's economy was widely expected to acceler ate, boosted by the Fed's second round of bond-buying. In
December 31st and a slew of automatic spending cuts kick in. Together they would amount to a fiscal tightening of almost 4% of GDP, more than enough to drag the economy down
stead growth slumped, pulled down by a combination of out side shocks (higher oil prices as a result of the Arab spring,
again. At the same time America needs a credible plan to fix its medium-term finances, a plan that would include tax reform
disrupted supply chains after the Japanese earthquake) and policy errors at home and abroad (wrangling over America's
and measures to rein in spending on health care and pensions. The political calendar makes all this hard enough. A stronger economy will tempt politicians to even more partisan rigidity. The dynamic is not dissimilar in Europe, where the ECB's
debt ceiling and the ever-deepening euro mess). Too soon to celebrate America's economy is in better shape this time, not least be cause households have reduced their debt further and the housing market is closer to a bottom. But the euro zone's debts are bigger than ever; many of its economies are in recession. And the list of potential spoilers is uncomfortably similar to that of a year ago. Tensions with Iran could spawn a 2012 oil shock. Meanwhile, the risk of policy mistakes remains worry ingly high on both sides of the Atlantic: central bankers may have saved the day, but politicians could still mess things up.
both of which are set to expire at the end of February. Failure to extend them might not kill the recovery, but would surely weaken it. Far more dangerous is the budget debacle looming later in the year. Under current law the Bush tax cuts expire on
bold provision of liquidity has calmed nerves and limited the severity of the bond crisis and the recession. The trouble is that the ECB's success has reinforced Germany's conviction that its preferred solution to solving the single currency's underlying problems-namely, a hefty dose of austerity for all-is the right one. A lasting solution for the euro will require a more bal anced approach, one which includes a greater focus on growth. Unfortunately, today's calm makes it less likely that German politicians will countenance such a shift, with the re sult that the euro zone's troubles will fester. It may sound churlish to dwell on the potential for politi cians to spoil the party when, at last, the news is better than ex
In America that could happen because good economic news, oddly enough, reinforces partisan gridlock. With unem ployment falling and optimism rising, both Republicans and Democrats in Congress have less incentive to set aside elec tion-year posturing. The most imminent decision is whether
pected on both sides of the Atlantic. Sadly, based on the recent past, it's plain prudent. This newspaper will be ready to cele brate only when politicians, and not just central bankers, start
to extend the payroll-tax cut and unemployment insurance,
making the right choices.
•
Pakistan's army and the law
The men in blacl{ v the men in green In daring to take on Paldstan's army, the Supreme Court is strildng a blow for the rule of law
I
FTIKHAR CHAUDHRY, Paki-
stan's chief justice, is not short of chutzpah. In 2007 he was
sacked as a troublemaker by Pervez Musharraf, the former military dictator, after pursuing investigations
into
suspected
killings by the security forces. The movement for his reinstatement played a big part in bringing Mr Musharraf down and restoring civilian government. But Mr Chaudhry has also been at odds with the new administration-so much so that President Asif Ali Zardari's men have painted him as a stooge of the army. Now the judiciary is taking on the military establishment as well. It may be because Mr Chaudhry's court is sensitive to these slurs on its independence; it may be because it has genuin ely come round to the view that the powers of the army need to be curbed. Either way, this development is to be applauded: as our special report this week argues, the army's belief in its impunity is one of the country's biggest problems. The seeds of the army's excessive power lie in Pakistan's origins. Born out of India, and created through a bloody partition, the country has always feared being swallowed up by its bigger neighbour. As a result, it has had since inception an army that is too big for the country's size, greedy for resources
and dangerously interventionist. The army's perception of itself as the guarantor of national security has led it to abuse its position. For half of Pakistan's 64-year life, it has governed the country; for the other half, it has rigged elections, financed politicians it favoured and un dermined those it didn't. Politicians who want to make peace with India are a particular target. The army's power shapes Pakistani foreign policy, too. Soldiers are more focused than civilians on the military threat from India, and that fear has dangerously influenced the coun try's dealings abroad. Pakistan plays a double game in Afghan istan, where the Taliban are at once its enemies (because they are the enemies of its ally America) and its friends (because they are the enemies of its enemy India). And few doubt that the Pakistani army's intelligence wing, the Inter-Services Intel ligence (ISI) has also been in cahoots with groups responsible
for atrocities in India as well. The Supreme Court's political role is another consequence of the way the army has distorted the country's political life. Long periods of military rule, when the courts were the civilians' only defence against the soldiers, boosted the relative power of the judiciary while weakening the politicians. This has been compounded by Mr Chaudhry's determination to pursue corruption charges against President Zardari. In a coun try as riddled with graft as Pakistan, it is hard to complain ��
14 Leaders
The Economist February 11th 2012
� about a judge trying to ferret out wrongdoing. But since Mr Zar dari enjoys constitutional immunity, the practical effect of the judge's onslaught will be to tie up the rest of the government's term-unlikely to last until its natural conclusion next year with constitutional haggling. At last the right target So it is a relief that the Supreme Court is now turning its fire on the armed forces as well. It is to hear three petitions relating to
stanis are likely to hear will surprise them. However, each case does touch on a different aspect of the many ways in which the security services have abused their power over the past few decades. Even the suggestion that soldiers accused of abuses might be brought to book would begin to erode the army's sense of impunity. I t could also set the stage for Pal
the conduct of the army and the ISI. One petition asks what has happened to 11 alleged terrorists taken into custody, where
move much military activity from civilian jurisdiction and tackling its outsized role in the economy. The country needs to
four apparently died. Another tackles the security forces' be haviour in a vicious counter-insurgency campaign in Baluchi
spend less of its money on soldiers and more on educating its people: with its literacy rate a shameful 58%, Pakistan is below
stan. The third dates all the way back to 1990 and the rsr's role in rigging an election.
far poorer countries such as Haiti and Congo. There is a huge amount to set right. But the move by the judiciary against the army could at least start to make Pakistan's army accountable,
By themselves, these cases will do little to shift the balance of power from the army to the civilians. Nothing that Paki-
if not to the political process, than at least to the law.
•
Resource nationalism in Africa
More for my people Mining is booming, but some African governments are in danger of squandering the benefits
Z
jubilant mood. Mining out-
The crudest example, inevitably, is Zimbabwe, where Robert Mugabe's cronies have proceeded from grabbing white
put and prices reached an alltime high last year, as did local sales of bar drinks and luxury cars. Foreign companies-the only ones with enough capital
owned farmland to seizing foreign mining firms, starting with a reasonable sounding 10% ownership share, soon to go up to 51% and probably beyond. There is little sign of that wealth go ing to the Zimbabwean people. Others have been less blatant, but they still subject miners to arbitrary rule changes: firms are
and expertise to do the diggingare ramping up production. Meanwhile the government has increased mining levies. The extra money will be used to build
suddenly forced into partnerships with locals who have no in dustry experience. In South Africa, where private mining has a long history, the government has conspicuously failed to shut
much-needed roads, hospitals and power stations. Zambia is one of many places where an African government has decided to take a bigger share of the profits from for-
down talk in its own ranks of planned nationalisations. The impact on investment is catastrophic. Building a modern mine can take billions of dollars and several decades. Few
eign-operated mines. In countries as distant as Ghana and
firms will commit their money to a country where the busi ness climate is highly unpredictable. Those who are prepared to take the risk tend to be of the cowboy variety. They come in for only a few years and pillage what they can as quickly as
AMBIA'S copper belt is in a
South Africa populist politicians have declared open season on foreign miners' profits. In some cases the companies have more or less graciously accepted higher taxes. Elsewhere they are infuriated by the threat of expropriation (see page 51).
There is nothing new about resource nationalism, often accompanied by allegations of colonial exploitation by the mul-
tinationals. In the past it was mostly focused on oil companies and driven by anti-market ideologies. The new resource na
tionalists, however, have embraced capitalism and shifted in dustry. Few governments think they can do a better job of ex tracting the minerals themselves; they just want a bigger pay-off from those whom they allow to do the mining. And rightly so. Mineral wealth belongs to local people and their leaders are only doing their job when they extract the maximum rent over the long term. But they must do so sensi bly. Zambia's government notified companies in advance of levy increases, consulted them on the details and did not go beyond what is sustainable. Botswana is another example of a country that has played the minerals game well-especially in its relations with De Beers, the diamond giant. Diamonds ac count for about half of government revenues and Botswanans now are among the richest Africans by income per head. But other African countries have played their hand badly.
they can. Their interest is in paying off enough local officials to buy them time. Many (but by no means all) of these firms are Chinese, which has given Chinese miners a bad name. Dig for victory One lesson for governments is tactical: offering a fair deal to miners is actually the best way to stuff your treasury with roy alties. Mining needs long-term partners, so excessive rent seeking means less rent in the end. But there is also a philo sophical lesson: minerals are a country's long-term inheri tance. The money from the bonanza should go on infrastructure and other long-term investment. The more ad vanced countries should at least be aiming to put part of the revenues into a separate long-term investment fund for their people (as various energy-rich countries have done). Nigeria recently announced such a scheme for its oil money. And the mining firms could help. They should support Western efforts to impose greater transparency on the indus try. This will drive away at least some of the cowboys and make competition more open. Time to side with the sheriff.
•
16
Capitalism and China
s I R - I enjoyed your special report on state capitalism (January 21st) but felt it em braced a false comparison between a warts-and-all view of China and an idealised version of the Western world. In this ideal Western world capital is efficiently allocated and politics and commerce are neatly isolated from one an other to create a stable system. This is hard to square with the complex relationships be tween lawmakers, lobbyists, bankers, corporations, audi tors, regulators and ratings agencies and the financial crisis we are now enduring. We impotently lament our crumbling infrastructure, declining educational stan dards, high unemployment and shortage of skills, but apparently these are social goals that shouldn't interfere with the serious business of making money. I don't think the Chinese have the same priorities as us. I think they are just as interested in the exercise of state power and technological supremacy as they are in profits and stock markets. I was left wanting to understand more about their motivations rather than hear ing about how they don't do things the way we would. It seemed rather like telling the guy who's eating your lunch that you think it would taste better with some ketchup.
now. This has boosted the coffers of state enterprises, which, as you know, are often big national oil companies and commodities producers. This cash has given managers and their political masters tremen dous latitude to advance the state-capitalist model without worrying too much about profit and loss. If commodity prices were to fall, forcing these state en terprises to slash expenses like their private-sector brethren, the state-capitalist model might begin to crumble.
You quote critics of state enterprises who say they produce a "self-obsolescing" ruling class, who confuse their own interests with those of the customer and mix politics with economics. That sounds about right for the West. Why doesn't the West stop bemoaning the excesses of state power in China and start applying it to the benefit of all its own people by exercising proper state regulation, which is what Adam Smith recom mended after all.
CARL ROSS
Dongguan, China
Atlanta
sIR - Contrary to your argu ment, handing over the Chi nese government's huge hold ings in favoured companies to private investors should not be the first stage in the unwinding of state ownership. What is of more importance is to allow local governments to privatise the state ownership of land, especially if China's goal is to maintain the "social harmo ny" that is constantly ex pounded by Hu]intao. This would introduce markets and develop an eco nomic opportunity cost that would result in transfers of ownership based on enforce able sales contracts, instead of "land grabs" as exemplified by the recent Wukan riots. BERTRAND HORWITZ
Asheville, North Carolina
DAVID S U N BURY
SIR - The Economist thinks that
London
state capitalism has flaws, despite cataloguing its many advantages. You suggest that state capitalism is not a compe tent model for regulating state enterprises. One might very well say the same thing of the free-market theories that brought the credit crunch to the West. You ask, how can state capitalism stop good money going after bad? And yet the West could not stop irresponsi ble banking. You complain that state capitalism does not allow the freedom to experi ment. But isn't that what China is successfully doing by adapt ing capitalism to its own self interests? (Adam Smith would surely approve of that.)
SIR - You placed a lot of emphasis on state capitalism as a reaction to the economic chaos in the West. To that point I would add at least two oth ers. First, the past 20 years have brought unprecedented technological advancement, which has been made available relatively cheaply to the emerging world. This unfettered access to the innovation of others has made it easier for state enterprises to grow. Without it, they would probably have remained the inefficient dinosaurs of the past. Second, commodity prices have been high for many years
LIU QIONG YAO
A Greek tragedy S I R - Your coverage of Greece ("An economy crumbles", January 28th) failed suffi ciently to emphasise the main cause of the current debacle and still the greatest obstacle to a way out. The country has a corrupt political class, people who featherbed benefits for themselves and their preferred trade unions, operate state owned enterprises as vehicles for employing cronies rather than as businesses, and ob struct the functioning of the private sector to neutralise potential competition. The laws protecting parliamentari ans from prosecution would make Silvio Berlusconi blush. Under these circumstances, to discuss economic statistical aggregates such as output, employment and growth is meaningless, as the economy is dysfunctional. There has been almost no reform in the 18 months since the crisis started, because the political class still reckons at the end of the day Greece is too big to fail and will always be rescued. The Greeks have a word for those who are recipients of the state's favours: the volemme noi, loosely meaning those "made comfortable". The newly unemployed are almost all casualties from the private sector. The state is growing, in effect, so why should poli ticians risk antagonising their cadres with reform? They would welcome a return to the drachma because freshly printed money would be handed in the first instance to
the volemmenoi, who would benefit from inflation at every one else's expense. Only foreign pressure for a root-and-branch clean-up of politics can allow Greece to start healing. A. MANTHOS
Begnins, Switzerland
Economy class
SIR- I had to laugh when I saw the photograph illustrating your article on the so-called 1%-two people sitting in un comfortable aircraft seats watching tiny television screens ("Who exactly are the 1%?",January 21St). How ter ribly common. As anyone who glances at the advertisements in The Economist knows, the super rich spend all their time in airborne castles watching enormous flat-screen TVS from their private suite with fully flat beds, while being served charming local cuisine by a smiling flight attendant. AMY BERG
San Diego
SIR - Imagine my disappoint ment to be tempted by this little nugget: "The wealthiest 1% of Americans ... get more of the pie, see chart", only to find that the accompanying graph was not, in fact, a pie chart. SUSANNE FISHER
Gloucester
Like?
SIR- I smiled as you ques tioned investors' sanity, given their view that Facebook is more valuable than Boeing ("A fistful of dollars", February 4th). Yahoo! made a similar claim in its publicity some years ago and has been de scending ever since. Sit back, relax, and watch Facebook take the same trajectory. ANDREW FINDLAY
London •
Letters are welcome and should be addressed to the Editor at The Economist, 25 StJames's Street,
London SWlA lHG E-mail:
[email protected]
Fax: 020 7839 4092 More letters are available at:
Economist.comfletters
Revolution 2.0
Debate: Social networking
What the Dickens
Wael Ghonim, a Google marketing executive, was imprisoned after helping co-ordinate the initiaL stages of the uprising in Egypt Last year. He spoke to us
Does society benefit when personal information is shared online? Or do social networks prompt the publishing of
To mark the 200th anniversary of Charles Dickens's birth, we tried to work out which of his novels sold best during his Lifetime.
in London about the power ofthe internet and the progress made since Hosni Mubarak's fall
unhea lthy amounts of personal data to little benefit? Author Andrew Keen and j ourn alism professor Jeff Jarvis Lead the arguments for and against in our debate
19th-century record-keeping being what it was, the answer comes with many caveats, but fans of"Hard Times" should not hold out too many hopes
Economist.comfnode/21546944
Economist.com/debates
Economist.comjnode/21546930
United States: America, Syria and the UN
China: Dragons aplenty
Sport: Up for review
America learns how to win friends and influence countries
A collection of cartoons to celebrate the
The recent Test series between Pakistan and
Economist.com/node/21546927
Chinese new year Economist.comjnode/21543400
England demonstrated how a new video-replay scheme is changing cricket Economist.comjnode/21546875
Europe: Lessons from Georgia
Americas: Sealing the deal
The progress that Georgia has made in its fight against corruption should be studied by other countries Economist.comfnode/21546924
Canada tries to increase pressure on China to implement an agreement permitting the
export of seal meat
Business education: 21st-century knocks Is an overhaul a t the Kellogg School of
Ma nagement a sign that the traditional two-year MBA is in trouble?
Economist.comjnode/21546926
Economist.comjnode/21547150
Asia: Street legalin Jakarta
Dri nk-drivi ng is legal in Indonesia, where politicians seem to think a crackdown on ba rs and clubs is in order instead Economist.comjnode/21546922
Technology: Gestures of intent Soon, merely holding your hand to your ear
Business: Smoke, mirrors, carbon credits
may start a telephone call
China threatens to stop its airlines
Economist.comjnode/21546904
complying with the EU's emissions-trading scheme. But, sooner or later, they will have to pay for their pollution Economist.comfnode/21547175
Technology: Difference engine Middle East: Try, try, try again
Digital technology to deliver
The Palestinians strike yet another unity deal-but wi ll it come to anything? Economist.comjnode/21547174
superior-quality music exists. Now it's a matter of educating the ears of consumers Economist.comfnode/21546923
"• Prepare for opportunity
Links to all these stories can be found at Economist.comjnode/21547170
Economist Intelli gence Unit
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vigorous and ambitious strategy to pu\h the School forw.trd, including hir.ng over thirty new ac.tdemlc \talf, obtaining ma,or research funding. d evclopmg a new and ouHtandin g Behaviourill Science
We are tool<1ng for people who want to come and lig ht for the values of Soc1al Justtce and fa11 Globalization advocated by the ILO. If you would like to work Wtlhtn an Internationally d1verse, glob"lly challeng1ng, highly pnnc1 pled environment, 1f you want to become pa rt of h1story as th1s UN spec1ahzed agency reinvents 1tself 1n order to make 1ts VlSton a reat1ty and you hcwe a proven track record of h1gh performance. then the ILO � the r�ht �e for you
The ILO IS hmng professionals 1n many U!Chn1cal and managerial areas. For further mformat1on on o u r vacanc1es 1nclud10g deld1ls of terms and .ondthons and hew to apply, please v1s1t https.://erecrult.llo.ort The los.ng date lor appl\AhOOs IS 4th March, 2012
resear<.h and teaching group. forming innovative srrateg1c partnerships with world dan organisations such as the Royal Shakespeare -
Company and the Design Counc1l. and updatmg and extending our
tcachmg programmPs to respond to the needs of busine)�, industry
,
govt>rnmrnt and �0C1ety. Wr are contmuing our iearch for top·
flight talent to join our outstanding faculty and help us achieve our
ambitious targets. Applications are invited in any of the followtng areas at the level of Professor. Assoc1ate Profeuor and Awstant Professor.
i:!
Accounting
o
•
• •
•
•
a Behavioural Science
bet!n a more exc1tmg lime lo be part of the ILQI
International Labour Standards •
...o....noC
P.;hc1 .&. �bour Market
Occupational Safety & Heillth • Employment • labour Admlntstrauon
•
•
Translation & Ed1tine Knowlcd&e Mana2ement • Social 01alogue • Soc1al Securtty • Statistics • News & Medta • Resource Mobihzauon • Internal Management, Fmance, IT, Aud1t1ng, HR & Admt n1strat1on •
•
Business Ethics & Corporate Social Responsibility
a Entrepreneursh1p & lnnOViltton !:1 Finance
Global Water Partnership
Global Energy
:. Governance & Public Management
1
Human Resource Management & Employment Relations
a lnformahon SYi tt'm� & Management
Ch a i r
a International Bu\i ness
!l
L
Food msecurity, chmate change, rapid urbantzatton: thest are some of the key global challenges of today. They all have one thing in common - watef - needed to grow crops. harnessed to mitigate droughts and floods, and required to supply growing populations.. Addressing theS( global challenges successfully reqwes countnes to b«ome mon: water
Marketing Operatiom Management
Operational Research & Management Scu�n«'
t Organhahonal Analys•s & Organi�ational Behaviour
• StrategicManagement
S(CUn:, with Integrated management of water n:souites as a key tool
For the position of Professor, you will enJOY an International reputation a� a leader in your field and have a �trong record of publ1sh1ng m the world's top reseilrch JOu rnals. For t he pos1t10n of Assoc•ate
Professor you will have several years experience in a buslne�s school .
environment or equivalent, have demonwated 1he ab11ity to publi sh
conSIStently in leading research JOurnals and show the potential for
promotion to Professor. For the position of Assistant Professor,
you
wtll be at or near the completion of your doctoral stud1e\, have an ouutanding academ1c record and show dear promise of developing a top bu\ineu school cJreer. Cand1dates lntereHed in
W W W . g W p . 0 rg
professorial pos tt ions who wish to make
The Global Water Partne�hip (GWP) is seeking an outstanding leader with proven I nternationally recognized abilities to S(IVe as its Chair, guide the global Networl of over 2500 Partners, and serve as head of the GWP Organization. The new GWP Chair is expected to be appotnted by August 2012. to take office by January l, 2013. Women and developing country candtdates are h1ghly encouraged to apply. For further information please visit the GWP website at www.gwp.org The deadline for submitting nominations or applications is 23 March 2012
mformal conhdenual enqutries are aho welcome to contact
The- Dean of WBS. Professor Mark Taylor.
0 TheDeanC!'wbs.ac.uk
Further information, indudlng details of the application procedure, can be found online at
0 wbs ac ulc/go/recru11 .
.
WBS - we mean business
Tlll UNIVIUITY Of
WA �lCK
The Economist
February 11th 2012
Executive Focus
21
I ntegrity a n d
expert i se i n p u b l i c healt h Panel Members - Public Health Experts
Prestigious part-time poshions (2-4 weeks p.a.)
mon1torlng and evaluation processes and is now seekmg new
The GAVI Alliance was launched In 2000 to Increase Immunisation coverage and address global dtspanties 1n access to new vacanes.
applicants to JOin the IRC panel
Governments In donor and developing countnes. UNICEF.
Suitable post-graduate-qualified and experienced public health
WHO.
the World Bank. civil society, foundations, vaccine manufacturers, and research and technical lnsututions work together a� partners
experts w1th a range of backgrounds are tnVtted to apply. Applicants must possess strong English wnting skills. Appltcattons
ln the GAVI Alliance to achteve common goals. in re
from su1tably qualified and expenenced French speakers and
that only through a strong and united effort can higher levels of
women are encouraged
support for global tmmunisation be generated
For more infonnation about these positions. please visit our
GAVI has e)tabllshed a panel of Independent Review Commtttee (IRO members to support Its innovative grant proposal and
dedlc.at•d website which provides details of th• applic.ation process.
www.gav1-1rc.org •
•
Clos•ng date for applications Is 1 1 March 2012.
Interested applicants should contmue to monttor the website to see •f this changes. .AV!
"• M
'
copoble of taking clear and considered deetSIOns under pressure Naturally, you will understand the onti-froud ogendo and criminal investigofion process, ond you wtll be o capable ond confident manager who con deliver poSitiVe change wtlhtn poli1•colly �nsr hve mullrdisctplinory settings
Director of Investigations
(Grode AD14) COM/2012/10323
Operating with statutory md!!pendence, you will overwcs lhe condiJCI of ontdroud mveshgolions to deled and deter lroud and corruphon and any other •llegol odtV11y olfecttng the finonciol tnterests or the repulohon of the European Union. In particular, you w•ll dnve the developmen1 of your Dttedorote's operational copob1illtes, build procludive relottonsh•ps w•th tnvestigotory partners and nohonol tudiciol outhorihes. and oss•s1 tn .nit.ofing prosecutions os reqwed To join us, you should be skilled in monogtng Iorge teams Wttl11n onh-froud settmgs, fomilior With crimmol i nolly quoltfied in low. investigation procedures ond profe$$o
.
Full lob descriptions with detailed eligibility and selection criteria os well os application details con be found In Official Journal C 027 A of 1 February 2012 or on the EUROPA website:
http://ec.europo.eu/dgs/humon·resources/working_senior_ mgt_en.htm
Director of Investigation Support
If you wont to apply, you must register via the Internet by going to the website:
{Grode AD 14) COM/20 12/1 032.4
https./Iec. europa.eu/dgslhumon-resources/
Responsible for the strolegic o"entohon ond management of your Directorate, you will ensute the deliVery of comprehensive support to the two D.rectorotes responsible for investigations. We wtll look to you to put in place effective policies ond procedures to improve the efficiency, speed and transparency of the inveshgotive process, so you mus1 be
eu
careers
The Economist February 11th 2012
sen•ormonogementvoconctes/CV Encodexi _
The closing dote for applications Is 29 February 2012. Online registration will not Brussels time.
be possible after 12.00 noon
-
htte: iAec. eunioP.a ..
tUROPIAN (QMj,IJS$1011 LUJlOHAH ANTI•fii:AUD OHIO
22
Executive Focus Members Titc Trustt!i!S oftl!A:' International Financial Report:ing Standards (IFRS) Foundatlon lnvi.te applicatiOns from suJtable candldat� to fl1l up to four v.k'andes ou the IFil� Interpretations Commltt� TI1e IFRS Jnterprctauon� Comrnlllt't' is th� mterp�tallllt' body of the International Acrounung Standard\ Board IIASB) and. ;�fter the new appomunents. will const�t of fourteen voun�t mem�rs under the non· voung ch:urman!Jup ofWayne Upton The rolt' of the lFRS lnterpreuuons Commut� 15 to mterpret the appbcauon oflnternational FtnatlCJal Reporting Standards (lFRSsJ to ensure consistent acrountmg prncticcs throughout the world and to provtde un1ely gutdanCt' on linancial reporting IS\Ut"i not !pcCifk:tlly addrt'
In malang these appomtmenb. the Trlmees Will place �penal emphasiS on a candtdate's abili ty to tdenuJy and addrt"is ts�ucs concermng the practical apphcauon or !'FRS�
The Tru�Let'S �ill appotnt up to lour mt>mbers to the trRS lnll"rprel.g�n on I july 2012 and thnt Will expire on �0 june 2015 Two or the four po�itions are rurrently OCC'\Ipt�'
DEPUTY DIRECTOR, INNOVATIVE FINANCE The GAVI Alliance is a public-private partnership dedicated to saving lives and improving health by increasing access to immunisation
in the world's poorest
countries. It is also a world leader in innovative finance, pioneering the International Finance Facility for Immunisation (IFFim) and the Advance Market Commitment for pneumococcal vaccines. The GAVI Campaign, a US-based charitable organisation,
works in close collaboration with GAVI and is looking for a dynamic team member to develop and manage private sector partnerships, particularly outside of Europe. This role is critical to building and maintaining long-term fundraising relationships, with
a
focus
on
developing
corporate
partnerships,
especially
for
the
GAVl
Matching Fund (http://www.gavialliance.org/funding/give-to·gavi/gavi-matching·fund/). The successful candidate will also be expected to make a mean ingful contribution to GAVI's broader innovative finance objectives. Duties and responsibilities include business development and account management, Matching Fund promotion, working
with the Geneva head office. high net worth individual giving. and reporting back to
private sector partners.
Applicants must have an advanced degree, preferably in business or marketing. Global
health experience is an asset. A min imum of 10 years of relevant experience in multi· disciplinary teams in a professional. corporate or non-profit environment is required. Required skills and competencies include: excellent experience and competence engaging with executive corporate leadership; good knowledge of institutional or organisational policies, systems and procedures; exceptional sales, marketing and fundraising skills; strong oral, written and interpersonal skills; exceptional
organisational skills; strong team player; demonstrated ability to deliver high quality, accurate work within target deadlines; excellent ability to work in and with complex project teams and processes; good use of tact and discretion; ability to work in a multi-cultural environment; and ability to travel at least 20% of the time. Written and spoken fluency in English is required; fluent French or Spanish (spoken and written) is an asset.
Please send your cover letter and CV directly to [email protected] and mention "Deputy Director, Innovative Finance" in the subject tine of the email. Only short-listed candidates will be contacted. GAVI is committed to diversity in the workplace.
UNITED NATIONS U N IVERSITY The United Nations University
(UNU) is the academic arm of the United Nations system. Its mission is
to contribute through collaborative research and postgraduate education, dissemination of knowledge and
advisory services, to efforts to resolve the pressing global problems of human survival, development and
welfare that are the concern of the United Nations, its Peoples and Member States. The University functions
as a think-lank for the United Nations system and for UN Member States providing knowledge-based policy
advice.
Economist lnteUigence Unit Analysts and senior a nalysts, Custom Research, Asia Locations: Shanghai, Beijing, Hong Kong and Tokyo The Economist Intelligence Unit helps business leaders prepare for opportunity, empowering them to act with confidence when making strategic decisions. Success when operating internationally means understanding how tomorrow will differ from today. From such insi ght comes opportunity. Our forecasting and advisory services have informed entrepreneurs, financiers and government
DIRECTOR, D-1 Level UNU·INTERNATIONAL INSTITUTE FOR GLOBAL HEALTH (UNU·IIGH) (DUTY STATION: KUALA LUMPUR, MALAYSIA) The UNU·IIGH Director serves as the Chief Academic and Administrative Officer of the Institute and has
overall responsibility for the direction, organization, administration and programmes of the Institute, under the direction of the Rector of the UNU.
Qualifications: a Doctorate in the field of Health Systems and Policies, Public Health, Epidemiology or other health related discipline with high impact publications in nationally and internationally recognized journals
or books edited by internationally recognized publisher. Associate or Full Professorship or equivalent appointment at an academic institution.
Experience: Broad knowledge in the field of Public Health with proven experience in promoting successful
PhD theses. Has postgraduate teaching experience and didactical qualities.
CLOSING DATE: 31 MARCH 2012
The successful candidate will have at least 10 years of management experience, ideally in a leadership role within an academic institution or international organization. Candidates should possess excellent communication skills with fluency in English and at least one other official language of the United Nations. Applications from suitably qualified women candidates are particularly encouraged.
figures around the world since 1946.
We are currently recruiting for analysts and senior analysts. Worki ng alongsi de the Asia Custom Research director, you witt help bui ld and maintain a thrivi ng Custom Research business in Asia, with a focus on China and Japan. Key responsibilities include working on research projects and supporting our sates team with business development. Senior analysts wilt addi ti onally manage key client relationships and take the lead in project design and execution. Successful candidates are expected to have a strong academic background in economics, business, statistics, international relations or related fields, and will need to demonstrate in-depth understanding of international business, industry and govern ment issues wit hin multiple Asian countries. Excellent written English
and editorial skills are essentiaL
research and consulting environment is also required. A knowledge of Mandarin
or Japanese would be hi ghly desi rable. If you want to develop your career with a dynamic global leader, please send your CV by e-mail with a covering tetter and details ofyour current salary to [email protected].
Closing date for aU applications is February 24th 2011. Th� Economist Gmupvalu�s diversity. Wearecommitted to equalopportu•lities and creating aninclusive environmentfor aU our employees. VIe welcome applicants regardless ofethnic origln, gender, religious beliefs, disability, sexuatorientation orage.
Prepare for opportunity.
Please visit http://www.unu.edu/employment for the full job description, requirements and application
procedures. Application by email is highly encouraged.
P rior experience of worki ng in a client-facing
An Economist Group busine-ss
The Economist February 11th 2012
Executive Focus
23
World Health Organization
�([; ·- +J
The World Health Organization (WHO) is the United Nations
"' "' � Q.J
School of Environment and Development
c: c:
Unl'vtr�ty 01 Manch!Stel set-ks to makC' two profes'iOrral
�..c ·- u
specialized agency for health. WHO is seeking applications for positions on its Independent External Oversight Advisory Committee (IEOAC).
:J rn
• The primary purpose of the Independent External Oversight Advisory
...c "+1-- 0
Q.J�
Committee is to provide expert advice on financial and accounting policy, risk management and the effectiveness of oversight mechanisms. • Service on the Committee is without compensation, except for travel
Tht Sdool ol Envuonment and Ot'VI!Iopment at the
appo1ntmtnts 1n the areas of GlobJI Urbantsm and UrbJn
Stud1es Both posts art tenable from 1 September 1012
Chair in Global Urbanism Sallllry will be on the Professorial Sale
Ref: HUM·oo68S
'rOu wll have sp.;.:tattst 1ntertsts m poverty. mequahty
and per-diem expenses. Members are expected to attend an average of three sessions each year.
and t'xduston in c1t1es of the global South Through lhts
appointment SFD set-ks to .1dv.mce It� already strong
reputat•on for developing new unde•standmgs of thl'
• Applicants must be independent from the WHO Secretariat and the
proces� of urban1sm tn the global South and 1dent1fy
Executive Board. Once selected, they shall serve in their personal capacity and shall neither seek nor accept instructions from any government or other authority.
p1act1cal means for ontervt'nmg u1 1 rt>·Shoplng these
procesS!S so that they cootnbute to human wetfare
and sooal JUStice Vou should be experienced In
• Applicants should have relevant professional financial qualifications and
ctoss·d•sclpltnary rese.l!Ch and may come from
recent senior-level experience in accounting, auditing, risk management and other relevant and administrative matters.
a vanety ofd 1 sopltnary bJckgrounds such as
< turt>, development stud1es, anthropology, arch1te
• Interested applicants are invited to submit an application by e-mail
elonom1a. geography, plann1ng. politiCS.
at [email protected]. Further information on WHO and the IEOAC's full terms of reference can be found on the following website: http://apps.who.int./gb/ebwha/pdf_files/EB125/EB125. R 1 -en.pdf
sociology
or urban stud1es
Chair in Urban Studies
Sa�ry will be on the ProfMsoriai Sc.1le
Deadline for applications: March 5, 2012
Ref: HUM•00713
You Wll contllbute tor ... tarch and teachtng 1n urban stud•es pnmauly based m the Plann1ng diSCipline, but al'iO
connectmg to utban researchers across the School and Faculty You are expeaed to make a central rontnbutton to
rtsearch leadetshlp both 1n Ptannmg .Jnd 1eross the School,
as well as contubute h1gh quality te.Jchlng
International
One of the key
asp1rat10ns for th1s post •s that It w1ll help us to further
Corporation
Manchester's reputation tor •nnovatrve, hogh quality rest>arch
Director, Marketing, Brussels
on c•tles We welcome cand•dates from any d1sdpl.nary
The International Post Corporation, (IPC}, is a co-operative association of 24 postal operators in Europe, North America and the Asia-Pacific region. IPC provides its members with systems and p rog rammes that ensure that international mail is delivered efficiently and competitively. IPC members carry the majority ofthe world s mail, delivering 80% of global volumes - more than 330
research .lnd te.Jclung on C1toes wtthtn f'tanmng and creatf'
'
billion letters each year. Based in Brussels, !PC is a company supplying services to its members and
other
postal
organisations and is governed by a Board composed of CEOs from 11 member postal operators plus the CEO ofIPC.
!PC is seeking a Director, Marketing, who will be the key external face of !PC. The primary
responsibility is to lead, manage and promote IPC's activities in market and regulatory analysis sustainability, events, intercompany pricing, digital business/e-commerce and communication amongst IPC's members and partners.
.
The ideal candidate will have an extensive track record in marketing and commercial strategy
development and management within a regulated service ind ustry. As well as possessing strong leadership skills, candidates must have excellent persuasive ability and be able to demonstrate successin relationship managementin a multi-stakeholder, preferablyinternational, environment.
The successful candidate will be creative and possess the ability to recognise new cross-border opportunities and identify gaps in the market. Preferably, the individual 1vill have experience in developing digital product solutions that facilitate e-commerce and digital business. The appointee will be qualified with an undergraduate degree in any discipline, with a second
degree in a business-related discipline.
The individual will be international in outlook, having worked across cultures, and a good proportion oftheir time will be spenttravelling. He/she will be fluent in English and speak at least one other language to a high standard.
Please submit a CV before 24 February to [email protected]
The Economist February nth 2012
background to bu1ld on and further d e .. e lop key artas of
!>tronger linkages across the SchOOl. Informal enqwr!S mJy
be mJd" to Professor Simon Guy.
Head of School (Simon guyf'rnanc:hesteracuk),
P10fessor Da111d Hulme (daVId [email protected]),
or Profe�sor Graham Haughton
(graham hau�htonfln'I<Jnch!Ster"'uk) For fu�r Information and to apply for th�e vacancies
please visit our website. Ifyou are unable to apply online please request an application form by calling +44 (o)161 275 8838
or emafling hrreaultment4Pmanc:hesteuc.uk quoting the refe-enc:e number.
Closing date for both posts: 30 March 2012. For further onformatoan on the xhool,and for mformc�llon on the School's und�rgraduate, postgr.lduJte taught
and postgradu1te rt!>ear(.h programmes 1n the areas of.Aidutecture, PIJnn1ng c1nd L.unds
Dellelopmenl and Geography IIISit wwwsed manchester.de uk
or ematl stdadmiSSIOfls�manchestera< uk T�UnollfntryofMtmcMJitrwvlvn 11 dlvrrw
�r1111<1*f'l(ortft'S opp!i(urIOitlfrom 1111 Jolt louoflh•tomtrtUnlty
24
Executive Focus Director of Council and Global Relations Secretariat
IFC a member or the World Bank Group, IS the largest global development .nsli t utlon focused on the pnvate sector m developmg countnes We create opportunity lor people to escape poverty and 1mprove ltte1r lives We do so by provldmg linanc1ng to help busmesses employ more people and supply essential seMces. by mob1hzmo caprtal from others. and by dellvenng adv1sory servtees to ensure sustainable development IFC recruits
(Paris-based position with an attractive remuneration package)
The OECD Is a unaque forum where the governments of 34 market democracies work together with other major economies to address the economic. social and governance challenges of the globalising world economy - promoting the econom1c and social well-bemg of people around the world.
SENIOR/PRINCIPAL INVESTMENT OFFICER
&s!d Moscow. Pos T20283 (O&ldllne Feb 29. 2012) Jommg IFC's Infrastructure and Natural Resources group m the Europe and
The Councal & Global Relaborls Secretanat sl.C)pOrts the Secretary-General
and advances the Organ1sat1on's strategiC objectives by strengthenmg and mamtaming strong relat1ons with member countries and ensuring 1mplementat1on of mandates related to work w•th different reg1ons. It IS responsible for advancmg the strategic agenda w1th emerging economies and engaging with other key non-OECD members It prov1des strategic mput for agenda-setting and various forms of •nslltut•onal advice. provid1ng support to the Secretary-General, the OECD Secretanat and Delegat1ons on issues related to OECO governance. protocol and liaison. We are looking for a dynamtc and vistonary individual to work under the direct supervision of the Secretary-General. He/She will have demonstrated h1gh level management. leadersh•P and political skills with a proven ab11ity to foster agreements w1th h1gh-level stakeholders and ability to establish networks With key players from non-member econom1es
Full details can be found at www.oecd.org.hnn/vacancies, ref 08085.
Applications from OECO member country nationals should be submitted on hne by 29 February 2012, midnight Paris time.
Central Asta region. he/she w111 develop new buSiness. negohate, structure
and
close transactions. and manage a portfolio of existing projects in the
Infrastructure. chemiCalS. extracove industnes and subnatJOnal (municipal) f1nance sectors
INVESTMENT POLICY GLOBAL PRODUCT SPECIALIST Ba�ed Washmgton
0 C. Pos t20258 (Dead/me Feb 24, 2012)
Jommg the World Bank Group Investment Climate Department he/she wll be the program manager lor the mvestment pOlicy product and lead a team in O.C and reg1ons to prov1de advisory services to governments of developmg economies In the1r efforts to remove key barriers and nsks stimulate and retam pnvate Investment. attract FOI, and 1mprove the tntegrabon ol m'lestment in the economy Helshe will shape the directions ol th1s product. develop a portfolio, mob1hze resowces and assure quality i
I
All cand•dates are expected to have an advanced un1vers1ty degree and years el
8+
IFC offers rewardmg careers 10 a global work env1ronmenL For lull JOb descnpbons and to apply on·hne. please VISi t IFC's career webSite at: www.itc.org/careers
Women are encouraged to apply
Creating Oppor:tunity Where It's Needed Most.
-
THE WORLD BANK Business Continuity Management Officer The Business Continuity Management (BCM) Program OHlce facilitates actions to Implement and maintain the World Bank Group's BCM program at headquarters and overseas. The Bank seeks to recruit a BCM Officer to be ba!>ed In Washington, D.C., to facilitate the BCM program Implementation and review with clients In business units and country offices. This Is a 2 yur renewable term appointment. BCM Officer's main responsibilities will be to review business units and country ofnces' Business Impact Analyses (BIA's) and develop, update and implement business units and country otnces' crisis management and business continuity plans. The BCM Officer will also coordinate recovery efforts In cases of emergencies and significant disruptions, assisting the WBG Emergency Management Team (EMT) (and local EMTs as applicable) and the time critical business units.
Selection Criteria:
Candidates should have a Master's degree In a relevant field or equivalent combination of education/experience. A strong understanding of Industry standard BCM planning principles, tools and techniques Is required, with a minimum of six years work eJiperience In BCM or operational risk management in financial services. Business Continuity Planner Certillcatlon {BS25999/ BCI GPG) or equivalent accreditation will be o1n advantage. Details (vacancy # 120074) are available in the World Bank Careers website: www.wortdbank.org/tareers. The World Bank Group Is committed to achieving diversity in terms or gender, nationality, culture and educational background. Individual!> with disabilities are equally encouraged to apply. All applications will be treated In the strictest confidence. Closing date Is February 19, 2012.
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Economist Intelligence Unit Regional director
to cover Asia and Australasia Yt are the t�ad111g provider of country, inJunry lllld m.&na�m�nt lln.ll�J. dt-ti�nng information that helps orgJrriQtlons st•y on top of �mrk� opportuntties •rounclt� world. folanllg•ng • tum of analY1{� bMed 1n Lolldon alld �J'IICJ, yoo wiU m.atou1n 1nd dewlop the qUJiity incl range of co�� of our servic�s. combining outstandtng edltori•l sund.Jrds alld mteu�tual le•dership With •n ibihty to rep�ent t� company both lottmally anct �xt�rnatly. With man.1gement ex�ntnce. mong editoli.ll ind maetoeconomK rorec11ting skills. ind en.� analytic•! operitnc�. you wid be organised •nd haV1! the !lillf to mspire your team •lid our cltents. Elt�Uent wn�n Engh� itld e�hton.t �ldl15 •nd a thOrough knowledgt of t� region, 1tS ec:onon11cs alld pohncs are •II essential You Will be based in centl'lll london, •nd �xcetlent benefits.
we
off� a compet�tl� saluy plus
If you would like to apply. please CIOwnload Jnd complete tht appticatlOn fo!TII5 at: htt p : / f-'w .ecooomistgroup.com/pdfs/EIU Regionaldirector Asia . doc PIUW! W\d yoor CV (preferably by t•m.all) With 1 co�ring letter illd det.ills of current saliry to rKrUitlllent�[email protected] or by post to RecrUlt�t Offict, 16 Red LIOn Squa'<'. london WClR '1-10. Non·EEA ipplicants will � to obtllln • Ul( w11rk Pftnlit. Closing d.lte fo1 �ll appticat'IOos 1i Friday febrwry 2'th 2012. ho (...,_bl '-II •.W.. Cl"l\l.'l W. 110 ._,.IUocl\0 �� OIIIitlot IOIItoft •I'd aoHkiQ •• - ....,_ ...., ltw "'lou:� W. ...teo.,. �-· · • 90'dl .. • ol.tll,..{ on;il\. ,. ,.Ugloon bollt,to �J. u I oo1toUtloft 01 "'
Prepare for opportunity.
The Economist February 11th 2012
25
The long road to Damascus
DAMASCUS AN 0 DERAA
There are signs that the Syrian regime may become still more violent
ECURITY men, most in plain clothes, speckle the main market square of De raa, a town of 350,000 near Syria's border with Jordan. Yet in the brief time given for visiting journalists to stray from a scripted tour that highlights "terrorist" attacks on state property, a few ordinary citizens dare to speak. "We are so scared," says a woman clutching a boy's hand. "I come out to buy food, which costs more every day, but nev er know if I can make it home again." A young man with burning, bloodshot eyes lifts his shirt, revealing two bullet scars. "We will never give up," he declares as men in leather jackets approach to hustle him off. A middle-aged shopper pauses briefly before slipping into an alley. "God help us," he whispers in deliberate English. It was in Deraa that Syria's uprising be gan last March, with riots protesting against the arrest and nail-pulling torture of teenage boys who, inspired by other Arab revolts unfolding on satellite televi sion, had daubed a wall with the words, "The people demand the fall of the re gime". An ongoing government crack down has left perhaps1,000 civilians dead in the town and surrounding villages, im posing an ice-thin calm. Most shops and schools are open only some of the time. In ternet-video footage reveals daily combat between chanting, rock-throwing citizens
S
and soldiers shooting live rounds. Officials speak of sporadic "terrorist" attacks on sandbagged checkpoints. As proof they parade a collection of captured pipe bombs and rusted firearms. Clearly though, should the government withdraw its armoured vehicles, combat troops, roof top snipers and gun-toting thugs, then De raa would swiftly revert to rebel rule. The poison in New York
Meanwhile, the world looks on impotent ly. At the UN Security Council on February 4th, Russia and China raised Western ire by vetoing a mild resolution that would have urged Bashar Assad, the president, to ad here to a peace plan drafted by the Arab League. It pressed him to cede at least some unspecified powers to a deputy, pending the outcome of reconciliation talks. Russia objected to this, and more generally to the West imposing a diktat on a sovereign state it considers an ally. Sergei Lavrov, the Russian foreign min ister, accompanied by the overseas intelli gence chief, Mikhail Fradkov, flew to Syria on February 7th. Mr Lavrov describe d their meeting with Mr Assad as productive, in sisting that the Syrian president was com mitted to speedy reforms, including a new constitution and elections, an end to vio lence and dialogue with his foes. The Rus-
sians said that, as a first step, Mr Assad had directed a vice-president, Farouk Sharaa, to initiate talks with opposition groups. "Only Syria can decide the fate of Mr As sad," Mr Lavrov declared. America and many of its European al lies, along with Arab Gulf states, respond ed with outrage to the UN vetoes. Saying that Russia and China had granted Mr As sad a licence to kill his own people, they jointly withdrew their ambassadors from Damascus. Sanctions on Syria include ex port bans on American technology, a Euro pean ban on oil imports and strict financial controls, including a freeze on the overseas assets of members of the regime. Diplomats now speak of further op tions to press Mr Assad's regime, such as ta bling a vote of condemnation at the UN General Assembly, where no country wields a veto, and forming a contact group together with neighbouring Turkey and Jordan to co-ordinate stronger action. This might include the imposition of safe ha vens along Syria's borders as well as direct aid to the Free Syrian Army, a patchwork of guerrilla cells led by defecting soldiers that has harassed government forces across the country. Even as international diplomacy has degenerated into a power tussle reminis cent of the cold war, Syrians are confronted with scenes of bloody wreckage in their own cities. Since the uprising began n months ago, the pattern has been for gov ernment forces to single out one rebellious village or urban district at a time for pun ishment. Some 7,ooo civilians have per ished as a result of such tactics. Since De cember frequent protests have taken place even in the heavily populated suburbs ��
The Economist February 11th 2012
26 Briefing Syria in crisis � ringing Damascus, the capital, and Aleppo, the second city and the country's commer cial hub. Usually, government troops have then withdrawn, taking "terrorist" prison ers with them but leaving behind only to ken checkpoints. More recently, the state-owned press has spoken ominously of the need to shift away from what it terms "restraint". A new security plan does indeed seem to have been launched on February 3rd, a day seared in Syrian memories as the anniver sary of a merciless 1982 artillery assault on the then-rebellious city of Hama, during the rule of Mr Assad's father, Hafez, that left the ancient town's picturesque old quarter in ruins and some 2o,ooo dead. Since that date, Bashar Assad's troops have mounted an unprecedentedly brutal show of force. They have showered artil lery and rocket fire on Baba Amr and Khal diyeh, two rebel-held districts of Horns, Syria's third-largest city and the hub of the current uprising. They have also attacked the nearby town of Rastan, the mountain resort of Zabadani, near the Lebanese bor der, the city of Idlib, close to Turkey, and other towns. Attacks have taken place si multaneously and relentlessly. Opposition sources say they think the shelling is a pre lude to ground assaults on all these areas. With up to several hundred projectiles raining into Horns every hour, the nation wide casualty toll has surged from around 20 a day to more than so. nansport and telephone links, along with power, water and fuel supplies have been severed to many of the stricken areas, which were poor to begin with and have seen their in comes shrivel during the long months of unrest. With thousands of civilians choos ing to abandon their homes despite cold winter weather, Syria is likely soon to con front a grave internal refugee crisis within its sealed borders. "We ask for nothing from the world, except for coffins, since there are not enough of them here for our bodies," declares a sarcastic tweet from Horns.
Zahra ��� EUoz Karm 0 Predornina ntly
T
Alawite districts Rebel areas:
• Report.ed protesls/fighting • Under heavy attac�
Soorce: syri�lll.lp.wordpress.com
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U
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Foreign friends and foes Syria's relations with selected countries Historical
Current
neighbouring countries
$9
Strategic ties since 1979. Syria is transit route for weapons to Iranian proxies in
Iran
Elite Iranian units advising regime on q uashing protests and monitoring internet. Reportedly sent
billion to help Syria weather sanctions
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Patron and supplier of weapons for four
Russia
decades. Syria is its last toehold in the
Middle East
Turkey
After decades of mutual suspicion
Gulf states
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America .
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JanuaJY
relations warmed in recentyears. This led to a trade pact in 2004 and visa-free travel in 2009 . . . .. . . . . . ... . . .. . . . . .. .. long suspicious over Syrian ties to Iran and interference in Lebanon but recent thaw in relations; Saudi ambassa do r withdrawn in 2008, returned a year later . .. .
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France led efforts to bring Syria back from international isolation a er assassination of lebanese PM, Rafik Hariri, in 2005 . . Long-stan ding animosity. Ambassador returned to Da mascus in January 2011
After initial attempts to mediate, turned against Assad regime. Hosts refugees army defectors and helps opposition. Yet has fai led to apply sanctions ,
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. .. .. . .. . . . . . . . . . .. . . . . . . .. . led Arab le ag ue efforts against Syria. Qatari emir suggested miitary intervention. May arm Syrian rebels
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Europe
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Vetoed resolutions against Syria in the UN Security Council. Sold $550m of fighterjets to Syria in
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ft
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Keen to see Assad go. France has suggested safe havens. Britain says it will send secure communications equipment to rebels
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after five-year absence
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Closed embassy on FebruaJY 6th. Working with opposition but says it will not arm rebels. Suggested setting up contact group for rebel allies
Source: The Economist
Mr Assad's government seems to be lieve that such tactics will succeed in stanching the revolt. A Syrian business man recounts that in a chance meeting with a senior security official at a posh gym he was told confidently that the cur rent offensive would be decisive. It would in effect "decapitate" the Free Syrian Army, the official boasted. There are nearby precedents for such success. Saddam Hussein, the former Iraqi dictator, ruled for more than a decade fol lowing his brutal suppression of an upris ing in the country's south after the first Gulf war. Turkey's army has put a fairly tight lid on Kurdish separatism, just as Isra el has crushed two Palestinian intifadas. And Mr Assad's own father outlived the re bels in Ham a. There are other reasons why Mr Assad might feel he will prevail. The centre of Da mascus does, on the surface, appear sur prisingly normal. Shops and cafes are open, if largely empty. naffic is busy at times. Syria's president felt secure enough recently to venture out to a restaurant. Despite the rotting of state institutions under one-party rule, Mr Assad's army and security forces have, to general sur prise, so far suffered relatively few defec tions. Conscripts typically serve far from their hometowns, and the army is be lieved to have culled potentially disloyal soldiers from active units. Nor has Syria's army yet unleashed its full array of fire power, which could include helicopter gunships andjet bombers. Despite mal
of his crackdown has, ironically but per haps deliberately, bolstered loyalty among minorities that together make up a third of Syria's 23m people. The Assad clan, which has ruled since 1970, are Alawites, an eso teric branch of Shiism that dominates Syr ia's coastal mountains as well as the armed forces. Poor Alawites also make up much of the rank and file of more shadowy gov ernment militias, such as the plainclothes thugs known as the shabiha. Vicious gov ernment tactics have served to implicate the Alawites as a whole, raising fears of ret ribution should the regime fall. Sectarian quicksands
Other minority sects, including half a doz en Christian groups as well as Shias and Druze, are less privileged by or attached to the state. Yet they have benefited from the regime's secularist doctrine, which has maintained a degree of religious freedom unique in the region. Although Syria's op position leadership is cross-sectarian, on the streets it is the country's Sunni Arab majority that has suffered the brunt of the oppressiOn. It is no accident that the areas which have fallen under rebel control are almost entirely Sunni. In line with much of the re gion, Syria's Sunnis have grown religiously conservative in recent decades, and in creasingly influenced by the harsh anti Shia rhetoric propounded by Saudi Ara bia. As in Iraq, the Sunnis' predicament has pushed many into outright radicalism. Comments posted below a YouTube video of an Alawite tank commander captured by the Free Syrian Army, for instance, pro posed that he should be sodomised before being ritually slaughtered as an "infidel an imal". Many of the rebel army's local bri gades carry names associated with Sunni triumphalism. Mosque sermons in rebel areas habitually describe government �� forces as satanic hordes.
Wlletne�
28 Briefing Syria in crisis �
Such talk, seemingly reflecting a Sunni rage that has long simmered under the sur face, frightens other Syrians-and with good reason. Alawites recall that what prompted the atrocity in Hama was a far smaller massacre of Alawite army cadets, carried out by members of the Muslim Brotherhood. Fear of empowered Sunni radicals has pushed many Christians, who are keenly aware of the decimation of neighbouring Iraq's equally large and an cient Christian community, grudgingly to accept the government's characterisation of the rebels as terrorists. "We were all with the revolution so long as the demon strations were peaceful," says a Christian housewife in Damascus. "But how can we support an armed criminal mob?" For reasons of class, many Sunnis, par ticularly among the privileged business elite that has profited under the Assads, also fear the revolutionaries. Middle-class Syrians, too, are often warier of growing economic hardship than of oppressive rule. Even the country's long-repressed15% Kurdish minority, which is mostly Sunni Muslim, has only tepidly embraced the uprising. "They are hedging bets," says a Syrian analyst. "What they want is guaran tees of Kurdish national rights, and so long as the opposition cannot give these, they can hope Bashar will reward them for stay ing quiet." Divided opposition
The fissures within Syrian society have stymied efforts to organise opposition to the regime. When Mr Assad succeeded his father 12 years ago, a flush of optimism em boldened intellectuals to demand demo cratic reforms in a movement known as the Damascus spring. Most were eventual ly jailed or exiled and have lost credibility. But even with much coaxing from Western powers, products of the uprising such as the Syrian National Council (sNc) and a ri val group, the National Co-ordination Body (NCB), have gained little diplomatic traction. Neither do they have much influ ence in Syria, where local committees or ganise resistance. The two main opposi tion groupings have bickered over strategy, as the NCB at first counselled dialogue with the state and the SNC backed foreign intervention. In fact, neither course has proved fruitful. Some Syrians suspect the Muslim Brotherhood of being too power ful within the SNC, whereas others say it is a tool of America. Even the head of the Free Syrian Army has complained that the exiled opposition groups are dominated by plotters and traitors. All this has comforted Mr Assad, who appears to reckon that he is not as isolated as some think. True, 19 of the Arab League's 22 member states now shun him, along with the West and even countries such as India, Brazil and South Africa. And Hamas, the Palestinian Islamist group that was
The Economist February 11th 2012
long backed by Syria, has abandoned its Damascus headquarters. But two crucial neighbours, Iraq and Lebanon, are politi cally dominated by Shia parties with no love for Mr Assad's foes. Hizbullah, the powerful Lebanese Shia party-cum-mili tia, is a staunch friend. Strong rumours sug gest that Iraq's prime minister, Nuri al-Ma liki, has quietly funnelled money to his beleaguered neighbour. And Iran, the Shia superpower and a longstanding ally, views Mr Assad's regime as its most important strategic buffer. Two of Syria's other neighbours, mean while, may have little interest in seeing radical change. Israel would dearly love to break the axis linking Iran to Hizbullah. Yet despite Syria's rhetoric about liberating the Golan Heights, captured by Israel in 1967, the Syrian border has in fact been Israel's quietest for the past 40 years. Fearing that Syria's stockpile of missiles and chemical weapons could fall into less restrained hands, Israel may also calculate that main taining a feeble, delegitimised Assad re gime is in its interest. Despite his own fam ily's history of tense relations with Syria, Jordan's King Abdullah, too, may prefer the devil he knows to the possibility of an Islamist republic next door, though he has publicly called for Mr Assad's ouster. As for Russia, Mr Assad seems to be lieve that much as in his father's time, when Syria was a Soviet client state, the Kremlin will be willing to pay a high dip lomatic price to prop him up. Syria has cer tainly been an avid customer for Russian arms-though whether it will have money to spend in future is another matter. It has encouraged Russia to revamp a naval sta tion at Tartus that represents Russia's only military base outside the old Soviet Union. Yet on all these scores, Mr Assad could
Look, no blood
be overplaying his hand. Russia is driven less by nostalgic delusions than by cold calculation. Perhaps it believes that, as in Chechnya, a scorched-earth policy can fix a deathly peace. Like Israel, it would prefer to see its southern flank bordered by weak and polarised states, rather than an emerg ing Sunni Islamist bloc dominated by an increasingly powerful Turkey. Russia may also be happy to cock a snook at Western powers it regards as hypocritically manip ulative of public opinion, particularly in advance of next month's presidential elec tion. But only if the price is right. The zombie regime
That price could soon rise, dramatically. Most independent observers in Damascus believe that indeed, in the short term, the Syrian regime's savage offensive may suc ceed in containing most forms of armed re sistance. But if Deraa is any indication, Mr Assad has little chance of long-term sur vival. As in a vampire film, citizens go through the motions of daily life, fearful of contact with officials. In the eyes of most, the government is totally discredited, at best an evil to be suffered. The cold fury that clearly burns in many homes, linked now in many hearts to religious fervour, may flare at any time. Even with the army's offensive at its peak, flash protests are frequently breaking out across Syria, including in the security infested heart of Damascus. Over a recent weekend, protesters staged some 400 sep arate demonstrations. Israel's military-in telligence chief reported in a recent public briefing that only a third of conscripts an swered the latest call-up for Syria's com pulsory military service. He also cited in telligence of cracks in Syria's command structure, with officers speaking of the need to replace Mr Assad and his clan. This may be disinformation, designed to dismay Israel's enemy, Iran. But in eco nomic terms Syria is pitching into a deep ening crisis. The central bank's reserves are believed to have topped $20 billion before the uprising. Since then they are thought to have fallen by as much as two-thirds. Syr ia's currency has slipped by nearly so% in the past few weeks, stoking already fierce inflation. Power cuts and fuel shortages are common, and many of the country's fac tories have closed. The tourist industry is all but dead. Syria's modest oil exports, the staple of government revenue, have virtu ally dried up. Many Syrians are convinced that, even tually, Mr Assad will go. What worries them is how. Few expect the opposition to seize Russia's bait and engage in talks with the regime. Nor do they see Mr Assad retir ing willingly. On the other hand, few ex pect much help from the outside world ei ther. Those who can are leaving the country. Those who cannot are waiting, re signed to their fate. •
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Also in this section 32 The Republican nomination
33 Indecency and television 33 Gay marriage 34 The economy
34 Segregation in decline
35 Technology and the election
36 lexington: Obama's "war on
religion"
For daily analysis and debate on America, visit
Economist.comfunitedstates
Drugs policy
Pills and progress ATLANTA AN 0 AUSTIN
Signs of compassion mixed with pragmatism are emerging in America's treatment of drug users, who are also changing their habits
0 N A recent evening, some so people
turned up for their weekly reckoning atJudgeJoel Bennett's drug court in Austin, Texas. Those who had had a good week gone to their Narcotics Anonymous meet ings and stayed out of trouble-got a round of applause. The ones who had stumbled received small punishments: a few hours of community service, a weekend in jail, a referral to inpatient treatment. Most were sanguine about that. Completing the pro gramme will mean a year of sobriety and the dismissal of their criminal charges. After the session, Mr Bennett noted that the drugs problem has grown worse dur ing his nearly 20 years on the bench, large ly due to poverty, poor education and cy cles of abuse. Still, he reckoned, less punitive approaches to drug users are gain ing acceptance. That is largely because the punitive approach has failed. More than 40 years have passed since Richard Nixon declared a federal "war on drugs", and drug use is still a big problem. In 2008 roughly 8.9% of Americans aged 12 and older used an illegal drug, up from 5.8% in 1991-93. Nor have the consequences abated: in 2008, according to preliminary data from the Centres for Disease Control (CDC), there were 37,792 drug-induced deaths, compared with 14,218 in 1995. The drugs of choice have also changed. Methamphetamine use, which spiked sev eral years ago, has fallen off. But the past ten years have seen a rapid increase in rec reational use of prescription drugs. In 20001.2% of Americans had misused these
drugs, mostly powerful painkillers; by 2010, the proportion of users had doubled to 2.7%, second only to marijuana, long the most commonly used illegal drug. In 2008, according to the CDC, some 15,000 people died after overdosing on pre scription opioids and narcotics like oxyco done and hydrocodone. That is more than heroin and cocaine combined, and up from 4,000 in 1999. They are also far easier to obtain: 70% of users get them from friends or family. That last feature presents a particular challenge for the police. Pre scription drugs are legal and often legiti mately prescribed, and hence not suited for a zero-tolerance approach. Rates of heroin and cocaine use have re mained relatively constant over the same period-and compared with rates of pre scription-drug use, quite low-despite tough penalties for distribution and pos session. However, urban violence, tradi tionally associated with drug markets and dealing, has plummeted. Trafficking-relat ed violence remains brutal along Mexico's northern border, but America's cities, even those along the border, are far safer than they were ten or 20 years ago. But if Ameri ca's war on drugs has failed to curb drug use, it has been a boon to the prison indus try: in 2008 non-violent drug offenders ac counted for a quarter of American prison ers, up from less than 10% in 1980. The cost of jailing so many people, par ticularly in straitened times, together with a lessening in the pressure on politicians (because of the declining violence) have
led to a change in the tough-on-crime rhet oric. In 2009 Gil Kerlikowske, the director of the Office of National Drug Control Poli cy, announced that the office would no longer use the phrase "war on drugs". Six teen states have legalised marijuana for medical use, and over a dozen have similar legislation pending. In 2010 Barack Obama signed the Fair Sentencing Act, which lets judges take mitigating factors into account when sentencing a prisoner, reversing the mandatory-minimum policies that led to long jail terms for non-violent crimes. It also reversed the sentencing disparity be tween convictions for crack and powder cocaine, enacted in 1986 when crack was believed to be more addictive and danger ous than powder (as well as more popular with poor blacks than rich whites). At least 23 states have passed or are con sidering similar reforms. Proposals vary, but many would grantjudges more leeway in sentencing and also steer low-level, non-violent drug offenders away from pri son and toward alternatives: community supervised treatment, probation, halfway houses and daily reporting. Drug treat ment is included in Mr Obama's health care reforms, with effect from 2014. Public health experts have long supported such policies, arguing that addicts are not much moved by the threat of prison. "By that stage, they've got so many other pro blems," says Jane Maxwell, an epidemiol ogist at the University of Texas. Still, the national drug-control budget provides more money for Jaw enforce ment than for treatment. States have struck out with their own efforts to expand treat ment and harm reduction, but these pro grammes can be controversial, labour-in tensive, and hard to scale up. New Mexico, for example, has a harm reduction programme that trains partici pants (mostly heroin users) in rescue tech niques, and equips them with doses of naloxone, a drug that blocks the effects of ��
The Economist February 11th 2012
32 United States � an opiate overdose. Michael Landen, the deputy state epidemiologist, says that this programme has dealt with some 3,000 overdoses since 2001. Prescription drugs are the one area where there is a drive for more stringent laws on the supply side. In 2000 pharma cies dispensed 174m prescriptions for opioids; in 2009 they dispensed 257m. Not all those prescriptions are phoney, of course, but presumably America did not become a 48% more painful place during those nine years. Over that same period a number of states saw a proliferation of "pill mills," at which doctors distribute pre scriptions, often for cash and following at best a cursory exam. Last year Florida, which had been a par ticular hub for pill mills, passed laws tight-
ening prescription regulations and increas ing penalties for over-prescription. Michael McAuliffe, state's attorney for Palm Beach County in south Florida, says the number of clinics in his county has since dropped by half. He calls prescrip tion-monitoring databases, which allows doctors to see what medications their pa tients have been given, "a critical tool"; to day 48 states either have or will soon have such databases. The federal Office of Na tional Drug Control Policy has made mon itoring a critical part of its strategy to com bat prescription-drug abuse as well. The sad truth remains, though, that the courts, thankfully a bit more enlightened these days, are likely to remain the princi pal way of dealing with drug users. Some habits are hard to break. •
The Republican nomination
The Santorum surge
LAS V EGAS
Far from uniting behind Mitt Romney, the Republicans may bicker for months
T OOKING
around at her fellow volun teers making phone calls to voters on behalf of Mitt Romney, Lee Weiss could not help but chuckle. "I've never seen such a clean-cut looking crowd," she said, "and I'm clean-cut looking myself." Indeed, even though many of them were not Mor mon, as Mr Romney is, the people bustling through the temporarily leased factory space in Las Vegas all seemed to be clad in Mormon chic, an immaculate version of business-casual. They also seemed seized by the work ethic of Mormon missionar ies, placing their calls relentlessly and with imperturbable good humour. This was the prodigious organisation of the Romney campaign on display. That particular phone bank, and Mr Romney's entire machine, was successful
L
Next stop, Michigan
in Nevada, where Mr Romney won the Re publican caucuses on February 4th (as he had won that state in 2008). But on Febru ary 7th, the machine fell badly short, when Rick Santorum, a Catholic conservative on social issues whom gays love to hate, swept all of the three contests held. Most stunningly, these included an upset in Col orado, which was supposed to be similar to Nevada-western and with many Mor mons among the Republican voters-and thus a safe bet for Mr Romney. Mr Santorum, steadily improving as a debater and campaigner, succeeded where Mr Romney has notably failed: in inspiring enthusiasm among voters rather than the establishment. In Minnesota, for example, the ex-governor, Tim Pawlenty, was cam paigning for Mr Romney. Mr Romney had easily won the state in 2008, walloping John McCain with 41% of the vote. None theless, Mr Santorum triumphed, and Mr Romney came in a dismal third, with just 17% this time. The final vote, in Missouri, was admit tedly a mere beauty contest, resulting in no delegates being allocated (that will hap pen, confusingly, at another ballot in March). And Newt Gingrich, the other can didate trying to outflank Mr Romney on the right, was not even on Missouri's bal lot. But Mr Santorum's victory was deci sive here as well, adding to his momentum and probably helping him to raise a lot more money. More important, this Santorum surge, after his earlier victory (following a re count) in Iowa, is a reminder that Mr Rom-
ney has a problem with evangelical and blue-collar conservatives in general, and with the Midwest as a region, an area that includes several crucial swing states. Mr Santorum can now argue that he, rather than Newt Gingrich, is the best conserva tive alternative to Mr Romney, not least be cause he has less personal baggage than the thrice-married Mr Gingrich. Mr Gingrich, by contrast, has a hard February ahead of him. Already in Neva da, he had to dispel rumours that he would drop out of the race, insisting that he would "go to Tampa"-ie, stay in the race and collect delegates until the Republican convention there in August. Indeed, only 219 delegates had been allocated as The Economist went to press, out of 1,144 need ed for the nomination. So Mr Gingrich's strategy is to battle on through the remain ing contests in February (Maine, Michigan and Arizona) until Super Thesday on March 6th, when the race visits several states in the South more amenable to him, including his own former home of Geor gia. If he can manage that, he will reach for the big prize of Texas, probably in April. The contest is thus turning into a night mare for the party elders. They had begun to unite behind Mr Romney, hoping to fo cus all attacks on Barack Obama. Instead, Messrs Romney, Gingrich, Santorum, and even Ron Paul, must now attack one an other. Many of their one-liners are good, meaning dangerously memorable even in November. Mr Gingrich, for example, de lights his crowds by belittling Mr Romney as "little Food Stamp" next to Mr Obama's "big Food Stamp"; Mr Santorum calls him a "well-oiled weather-vane". All this prevents Mr Romney from fol lowing his preferred strategy. All along, he has tried to look presidential by attacking Mr Obama rather than other Republicans. But each loss is forcing him to descend into the gutter of attack ads against his Republi can rivals. He hopes to do well in the next several contests, from Maine to his native Michigan and Mormon-friendly Arizona. But things are getting ever more ugly. •
I
Roller-coaster ride Republican presidential candidates
2012 primary/caucus election results. % ofvote
• Mitt Romney - Rick Santorum
Newt Gingrich • Ron Paul
0 20 40 60 80 100
Iowa (Jan Jrd)
New Hampsl)ire (Jon 10th) South Carolina (Jan 21st)
Florida (J a n 31st) Nevada (F e b 4th)
Colorado (Feb 7th) Minnesota (Feb7th) Missouri {elllth) F Sources: r>ationalsources; State's Republica" parties
The Economist February 11th 2012
United States 33 Gay marriage
Equal protection indeed A federal appeals court overturns California's gay-marriage ban "
Indecency and television
Giving the FCC the finger DC
Are indecency rules outdated?
WASHINGTON,
I
T WAS not that noticeable amid all the razzmatazz. Many viewers missed it. But on February sth, during the half-time show of the Super Bowl, the apogee of both the sporting and broadcasting year, MIA, a British pop star, unexpectedly sang "I don't give a shit" and raised a middle fin ger to the cameras. NBC, the network air ing the show, swiftly apologised for her "inappropriate gesture". But that, said the Parents Television Council (PTC), which campaigns for more wholesome program ming, was an inadequate response to what its members felt was a "slap in the face" to families across America. Whether any Supreme Court justices were watching, or considered themselves slapped, is unknown. As it happens, how ever, they are currently mulling over just this sort of incident. Last month they heard arguments in cases involving two other broadcast networks, Fox and ABC, which are challenging the Federal Communica tions Commission's restrictions on inde cency. The broadcasters think their output should be free from any form of censor ship, just as cable television and the inter net are. In particular, they object to the Fcc's rules about "fleeting expletives" (isolated, and in many cases, unscripted swearing) and brief glimpses of titillating body parts, which are subject to heavy fines. Those rules, in turn, were adopted in part thanks to the uproar prompted by the half-time show of a previous Super Bowl, in which the breast of another wayward
T
HE freedom to marry", wrote Earl Warren, chiefjustice of the United States Supreme Court, "has long been recognised as one of the vital personal rights essential to the orderly pursuit of happiness by free men." Warren wrote that sentence in 1967, by way of explain ing why he and his colleagues unani mously ruled that laws banning inter racial marriages violated both the equal protection and due process clauses of the fourteenth amendment. Supporters of gay marriage would like to see that same court apply that same reasoning to their cause. On February 7th a federal court in California brought them one step closer. The United States Court of Appeals for the Ninth Circuit ruled that Proposi tion 8, a ballot initiative passed by Cali fornia's voters in November 2008 amending the constitution to prohibit gay marriage, was unconstitutional. That initiative passed five months after Cali fornia's Supreme Court overturned an earlier ban on gay marriage; during that time, California granted marriage li cences to some 18,ooo gay couples. The appeals court upheld a lower court's ruling in 2010 that Proposition 8 violated the fourteenth amendment, but did so on far narrower grounds, leaving
unanswered the broad question of whether states could ever restrict mar riage to heterosexual couples, and find ing instead that California's measure visited a unique harm upon gays and lesbians by stripping them of a right they once enjoyed. Under California law, gays retained the rights to adopt children, file taxes jointly and share bank accounts. Proposition 8 simply denied them the "official, cherished status" of marriage, leading the court to conclude that its sole purpose was "to lessen the status and human dignity of gays and lesbians in California". The case now seems certain to be appealed to the United States Supreme Court, though other states are simply pushing ahead with allowing gay mar riage: on February 8th Washington's state legislature voted to allow it, though the decision could yet require approval at a referendum. Marriage, far beyond such mundane matters as pensions and bank accounts, is of course a hugely emotive subject. As the Ninth Circuit noted in handing down its judgment, "Had Mari lyn Monroe's film been called 'How to Register a Domestic Partnership with a Millionaire', it would not have conveyed the same meaning."
Onwards and upwards pop star was momentarily bared, suppos edly due to a "wardrobe malfunction". The Fcc has long barred profanity and nudity during waldng hours, although it used to take a laxer attitude towards isolat ed incidents. The Supreme Court upheld its rules in 1978, despite their impingement on free speech, on the basis of a law ban ning smut on the radio. But the broadcast ers complain that the FCC's drive for de-
cency is inconsistent, unnecessary and increasingly quixotic. Why, they ask, should swearing be permissible in some circumstances (broadcasts of "Saving Priv ate Ryan", a gritty war film) but not in oth ers (awards shows populated by foul mouthed celebrities)? Is it really necessary to protect the public from swear words, when viewers can so easily vote with their remotes? Above all, while the court al- �•
February 11th 2012 tsunami disrupted supply chains. The threat of more such setbacks still hangs over the economy. Europe's crisis has not been solved. The intensifying con frontation between Iran and the west has driven petrol prices up 25 cents per gallon since mid-December. Federal austerity re mains a threat: Congress is once again locked in confrontation over a payroll-tax break that expires at the end of this month, and a raft of other tax increases and spend ing cuts will kick in next year unless it in tervenes. In the economy, as in football, there is no guarantee that the second half will be easier than the first. The Economist
34 United States
� lowed the airwaves to be policed in 1978 because they were a scarce, publicly owned resource, does that still make sense in an era of cable, satellite and YouThbe? After all, some 85% of households in Amer ica now subscribe to some sort of pay tele vision, and almost 70% have broadband and thus face constant exposure to cursing and smut. Judging by their questions to the broad casters' lawyers, however, not all the jus tices are convinced. All the government is asking for, said john Roberts, the chiefjus tice, "is a few channels where you...are not going to hear the s-word, the f-word". Moreover, as the PTC points out, in spite of the proliferation of viewing options, broadcasters remain pre-eminent. Of the 100 most popular shows last year, 89 were on broadcast networks, not cable. Some 114m people watched this year's half-time show, making it-swearing, middle finger and all-the most widely seen television programme in American history. •
Jobs and the economy
A game of two halves WASHINGTON, D C
Employment springs to life; will it fade again?
jumped 243,000 in January, or 0.2%, from December, the best in nine months, led by manufacturers, who boosted payrolls by so,ooo. Government statisticians also re vised data for the previous year and found that at year-end there were 266,ooo more jobs than had previously been thought. The unemployment rate, which has re peatedly surprised economists with the speed of its descent, did so again: it fell to 8.3%, a three-year low, from 8.s%. Its decline from a peak of 10% in October 2009 has been helped by unusually stagnant growth in the labour force. When fewer people want to work, fewer are counted as unemployed. That, however, was not the case in january when the labour force grew by 250,000. The unemployment rate dropped anyway because the number of employed people leapt by 631,000. The report was greeted with relief bor dering on joy by the stockmarket and, no doubt, by Mr Obama's campaign team. But their happiness should be tempered by the reflection that in both 2010 and 2011, job growth started out briskly only to fizzle out agam. Will it do so again this year, possibly dooming Mr Obama's re-election? Two factors explain the economy's previous false starts. First, banks, households and governments are paring their debts. That "deleveraging" has further to go, but seems to have slowed as rock-bottom interest rates coax consumers to indulge some of their pent-up demand for homes and cars. State and local government lay-offs have also slowed. Meanwhile firms that were able to meet increased demand by boost ing the productivity of their existing work force no longer can. Productivity growth, which topped 6% in the wake of the reces sion, slowed to just o.s% in the fourth quar ter (from a year earlier). In December em ployers reported total job vacancies of 3-4m, close to its highest since 2008. The second stumbling block has been bad luck. In both 2010 and 2011 Europe's sovereign debt crisis flared up, damaging confidence in America. Last year the Arab spring sent petrol prices soaring, pinching incomes, while Japan's earthquake and
VEN people who don't normally care E much for football tune in to the Super Bowl to watch the bestcommercials Madi son Avenue can dream up. The most talked about this year was Chrysler's gritty tri bute to the economic revival of America and Detroit. More short film than commer cial, it ends with the actor Clint Eastwood huskily declaring that "Our second half is about to begin." The muscular patriotism brought lumps to the throats of sentimental view ers; the more cynically minded called it a re-election ad for Barack Obama, whose administration saved Chrysler from obliv ion with a bail-out in 2009. A better expla nation may simply be timing: it coincides with the best evidence in months that America's economy, led by manufactur I ing, really is on the mend. Five days before its ad aired, Chrysler, now part of Italy's Fiat, reported its best january sales since 2008, up 44% from a year earlier. The next day it announced it would hire 1,800 people at a plant in Bel videre, Illinois, to build its new Dodge Dart. The good news is hardly confined to Chrysler. The auto industry as a whole sold L2m vehicles in january, many more than expected, and a 4% increase from De cember. Then on February 3rd the government reported that non-farm employment
Closing the gap Privatejob vacancy rate•
Unemployment rate, %
10
10
8
8
6
0
6
I I n t i It t !! ' ! fl H I! 11 II ! t· 1 11 II ! t t tll t l! l! l!t !l lt l
2007
08
Source: Bure�u of labourStali$tiCS
09
:10
11
12
0
by employment plus vacancies
·�umber ofvacancies divided
•
Segregation
The dream is getting closer NEW YORK
A report shows that America's cities are steadily becoming more integrated
" A LL-WHITE neighbourhoods are ef.t"\. fectively extinct," according to "The End of the Segregated Century", a recent report by the Manhattan Institute, a New York think-tank. Only 0.5% of America's 70,000 neighbourhoods are now all white. In fact, American cities are today more integrated than they have been since 1910. And since 1960 the proportion of black Americans living in "ghetto neigh bourhoods" (more than 8o% black) has dropped from nearly half to about 20%. Until the Great Migration north, begin ning around 1910, most of the black popu lation lived in the rural South. Then they were pushed into ghettos because of re strictive deed covenants and blatant dis crimination by landlords. Although the Su preme Court ruled against race-based zoning in1917 and New York City outlawed housing discrimination in 1958, real change did not begin until the 1960s during the civil rights era when segregation was still near its peak. Gentrification has also helped: Wash ington, oc's Navy Yard for instance, 95% black in 2000, is now less than a third black. America is also no longer a biracial country. Latinos and Asians are moving into so-called white and black neighbour hoods. The typical black American now lives in a neighbourhood that is 14% His panic, aboutthe same figure as for whites. Depopulation of ghettos, rather than integration of them, has also contributed to the decline in segregation. Thanks to bet ter access to credit, there has been a move ment out of the cities to the suburbs, partic ularly in sunnier states. "The biggest drop in segregation over the past decade has been in places that had the most subprime lending", notes Jacob Vigdor, the report's ��
The Economist
February 11th 2012
United States 35
� co-author. Places like Chicago's South Side are still almost entirely black, though overall the Windy City is a much more culturally mixed place than it used to be. Still, John Logan, a Brown University sociologist, thinks the Manhattan Institute's assess ment is over the top. Segregation is still per vasive, he reckons. There are still barriers to people moving away from black neigh bourhoods, even for those making good money. The Urban Institute, a Washington, think-tank, recently compiled a report card on a range of measures of racial and ethnic nc,
equity in the country's 100 biggest metro politan areas. The ten best cities for black white equity are mostly in the South and in the West, while the ten worst are in the north-east and in the Midwest. Margery Thrner, who compiled the report, hastens to say there are still significant gaps to ad dress. Even in metro areas scoring high marks, the average black American is more likely to live in poorer neighbourhoods, go to weaker schools, less likely to find a job and is less likely to own a home than the average white. However, these gaps are two to three times bigger in the worst met ro areas. •
Technology and the election
Boffins wanted
CHICAGO
Scientists are already helping to shape the Obama campaign
N A presidential election the incumbent having too much confidence in models
I enjoys many advantages. One of the less that simply fit past data well. Charles obvious may be the leisure to recruit a strong team of boffins. Team Obama has long been scouring the nation for scien tists. It has sought out computing experts, mathematicians, programmers and statis ticians. Many are already hard at work at the campaign's headquarters in Chicago. The campaign is not willing to say any thing about this aspect of its work, but Ba rack Obama's new chief scientist is Rayid Ghani, previously the head of analytics re search at Accenture Technology Labs. He is a leading light in an area ofapplied science called knowledge discovery and data-min ing-techniques that are frequently used by corporations wishing to crunch vast quantities of data in the search for interest ing patterns about customers. Last year Mr Ghani gave a revealing talk about using such tools for political cam paigns. He said that the challenge was to make best use of the vast amounts of data available to campaigns on the actions, be haviour and preferences of voters. These days electoral rolls have been linked with commercially available consumer data, and names and addresses of voters are cross referenced with everything from magazine subscriptions and home owner ship, to hunting licenses and credit scores. Along with this data comes informa tion from canvassing, phone-bank calls and any personal information volun teered by those who come into contact with the campaign. Mr Ghani and his team will attempt to mine this torrent of data and predict voting patterns, allowing the Obama campaign to target its spending more accurately and cost-effectively. Pollsters are sometimes criticised for
Franklin, an expert on polling at the Uni versity of Wisconsin-Madison, notes that Mr Ghani has expertise in "out-of-sample prediction", a method that aims to avoid such pitfalls. It uses small samples which are then used to create a hypothesis which can then be tested across larger data sets. This method is reckoned to give a better idea of the real errors and uncertainties in polling predictions. As for the internet, this remains an im portant frontier in this campaign, says Har old Ickes, once Bill Clinton's deputy chief of staff and now president of Catalist, a company that provides voter data to left-
There's no escape
leaning organisations. Usama Fayyad, chairman of ChoozOn, a shopping web site, and an expert in data mining, says the Obama campaign will use online experi ments to work out which messages are most effective. In 2008, he says, "Learn more" was a far more effective button than "Sign up now" as a means of getting peo ple to submit their e-mail addresses. Simi larly, it is possible to test the appeal of dif ferent video messages from the candidates to different sorts of voters. Mr Obama's presidential run in 2008 made striking use of the internet's social sphere to obtain donations, organise sup porters and win votes. This is still going on, and Mr Obama still needs the younger vot ers he can find online. But these days the social media landscape is rather different. Facebook is a lot more crowded and all the campaigns can expect less free, word-of mouth, advertising on it. Rather conve niently, one new option on Facebook makes it possible to target paid advertise ments by zipcode, as well as by political af filiation, age and interests. The campaign will have to look at ev ery online opportunity for free publicity. For example Mr Obama recently joined the slightly hip photo-sharing network In stagram-to much fanfare. As for Twitter, both sides are still trying to figure out how best to use it, but the campaigns and their supporters are avidly tweeting. TWitter's greatest use in elections may be not for scoring childish micro-victories over one's opponent but for quickly find ing out which messages are the most effec tive rebuttals-the ones that go viral, thus giving either party the joy of the free pub licity that comes when voters forward messages to each other. These days the game is not just about raising the most money, but about spending it wisely. •
36 United States
Lexington
The Economist
February 11th 2012
Obama's "war on religion"
The president picks an unnecessary fight with the mighty Catholic church
ARACK OBAMA is a Christian whom millions of Americans B insist on thinking of as a Muslim. Mitt Romney belongs to the Mormon church, which plenty of Americans consider a non Christian cult. If ever there was an election campaign both main candidates had an interest in keeping religion out of, you might suppose that this was it. In politics, however, some opportunities arejust too temptingto pass up. Whatever chance there once was for a religious non-aggression pact evaporated after one of Mr Obama's recent decisions gave powerful new ammunition to those who accuse him of waging a "war on religion". The decision in question is a gift to Republicans not only be cause it is controversial in itself, but also because it springs from the unloved Patient Protection and Affordable Care Act, or "Oba macare", as it is nicknamed. The Republicans say they will repeal Obamacare because its main idea-making everyone buy health insurance on pain of a fine-violates personal freedom. Now the Department of Health and Human Services has planted in the weeds of the legislation something its critics call even more ob jectionable: nothing less than a violation ofreligious freedom. The Affordable Care Act says that employers must provide health insurance to their workers (or pay a fine), and allows the government to lay down minimum standards of cover when they do so. Last summer the health department decreed that all new health-insurance policies should cover birth-control ser vices for women, including the morning-after pill (which most pro-lifers consider a form of abortion) and sterilisation. Churches are exempt; but church-affiliated hospitals, schools and universi ties, most of which employ and serve people of many faiths, are not. Once the new rule comes into effect, in 2013, they will have to include such services in their insurance packages, at no extra cost to the employee. This decision has upset many denominations, but the Catho lic church is especially furious. "Never before", says Timothy Do lan, president of the Conference of Catholic Bishops, "has the federal government forced individuals and organisations to go out into the marketplace and buy a product that violates their conscience." Angry letters from the bishops have been read out from pulpits across the land. Having won their vote by 54% to 45% in 2008, Mr Obama may now be in deep trouble with America's
70m Catholics. Peggy Noonan, a columnist for the Wall Street ]oumal, thinks this decision might even cost him the election. Does the new rule really prevent the free exercise of religion? One governor, Maryland's Martin O'Malley, a Democrat and a Catholic, accuses the Catholic leadership of "hyperventilating". Nothing in the new rule interferes with the freedom to worship. Nor will it require anybody to practise contraception against their will (and most Catholics use contraceptives anyway). But the rule will require institutions to pay for contraceptive drugs and ser vices they find objectionable on grounds of conscience. The ad ministration points out that 28 states already impose such re quirements, but its critics say the new rules are tougher. Ms Noonan complains that there was no reason "exceptideol ogy" for the administration to make its decision. But ideology is just a pejorative word for principles in which you happen not to believe. This is a case of two principles colliding. Catholic institu tions are making a principled stand for what they see as the sanc tity of life. The administration argues with no less conviction that the well-being of women depends on affordable access to contra ception no matter where they work. It did not pluck this idea out of thin air: this was advice from the august Institute of Medicine. At some point, the courts will probably decide. The Becket Fund for Religious Liberty, a non-profit legal foundation,has filed lawsuits on behalf of two Christian colleges. But as to which principle has the higher moral claim, no simple rule provides an answer. Plenty of laws in America trump religious belief. For ex ample, Muslims may take only one wife. A better question than which principle takes precedence is whether Mr Obama could have avoided the collision altogether by taking evasive action. He could and should have. Much as the absolutists on each side relish such clashes between church and state, forcing the issue risks damaging something worthwhile. Michael McConnell, a professor of law at Stanford University, calls this a self-inflicted wound, "a typical culture-war issue" in which one tribe uses governmental power to damage the other. Whatever happened to the art of the possible?
He is surely right. America is lucky to possess alongside its public institutions a rich ecosystem of hospitals, universities and schools that are largely secular in function and serve all faiths, but are animated by a religious vocation. Why punish them? It cannot be beyond the wit of man to give their employees access to contraception without making the employers trample deeply heldbeliefs bypaying directly. Hawaiitells religious employers in this predicament to point staff to alternative low-cost providers. That said, it would be naive to expect such a compromise to stifle all Republican complaints. Well before this battle, Texas's governor, Rick Perry, was wailing about gays serving openly in the armed forces and children not being allowed to celebrate Christmas in school. These he blamed on "Obama's war on reli gion". Newt Gingrich has been denouncing the president's "sec ular-socialist machine" for more than a year. Yet Mr Gingrich's own views on church and state are astonishing. He says he wants a government that "respects our religion". Yes, you readthatright: not religion (the former House speaker is "tired" of respecting "every religion on the planet") but "our" religion. It is baffling that a serious candidate for president canhave misunderstood the let ter and spirit of the first amendment quite so thoroughly. •
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39 Also in this section 40 Ptivatising Brazil's airports 40 Women in Mexican politics
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Venezuela's presidential campaign
Mano a mano CARACAS
The opposition has got its act together at last. Will that be enough to topple a convalescent vulnerable Hugo Chavez?
and OR the moment, Henrique Capriles has F reason to be confident. The governor of Miranda state is the front-runner in the Democratic Unity (MUD) coalition's primary, due on Februarynth. According to Datanalisis, a pollster, he leads Pablo Perez, his closest rival, by 62% to 16%, though the margin of error is high and turnout could have a big effect on the results. Assuming Mr Capriles (pictured) wins, however, he will not get such an easy run from his next rival, Hugo Chavez, seeking a third six-year term as Venezuela's president. Mr Chavez underwent surgery for cancer last June. But he says he is "cured" and has already nominated himself as the candidate of his United Socialist Party (Psuv). "I wish him a long life," Mr Capriles said recently, "because I want him to see the changes in Venezuela with his own eyes." In 2006, the previous time Mr Chavez ran for re-election, the opposition was in disarray. Its bevy of anti-Chavez parties was still tainted by association with a coup attempt in 2002. They could agree on little save their distaste forthe government, and had unwisely boycotted the 2005 legislative elections, leaving them with no lawmakers. Moreover, the opposition parties were dominated by media, business and trade-union leaders and by pressure groups, rather than by politicians. They chose their presidential candidate, Manuel Rosales, via back-room consensus instead
of a primary. Mr Chavez trounced him. They have learned from their mistakes. In 2008 a dozen opposition parties formed the MUD, an alliance modelled on the Concertacion coalition that ousted Au gusto Pinochet's dictatorship in Chile. Two years later they fielded ajoint slate of legis lative candidates, which narrowly won the popular vote and took 67 of 165 congressional seats in mid-term elections. The forthcoming MUD primary is open to all Venezuelans registered to vote. "There's a new generation of leaders," says Alonso Moleiro, a political analyst. "They are total ly committed to the electoral road to pow er, and to co-existing with chavismo." By publishing a detailed platform, the MUD has also insulated itself from the charge that it stands only for removing Mr Chavez. Its plan aims to reverse the presi dent's blurring of the distinctionsbetween the executive, the PSUV and the state as a whole. It would restore the central bank's autonomy; relieve the state oil company, PDVSA, of its role as a welfare agency; abolish the president's personal militia; move control of social-welfare schemes to the ministries; and put the army at the ser vice ofthe state instead ofMr Chavez's "so cialist revolution". However, it takes a gradualist approach to restoring confiscat ed property, undoing currency controls and abolishing unconstitutional laws. Five of the six of the original primary contenders supported the platform. The
two early front-runners were Mr Perez, the governor of Zulia state, and Mr Capriles. Although both have won the support of parties with diverse ideologies, Mr Perez is broadly seen as representingthe centre-left and Mr Capriles the centre-right. Mr Perez says his social-democratic views will appeal to disgruntled former chavistas. His darker skin may help per suade them that he is a man of the people. But despite a wealthy background, Mr Ca priles has also run as a moderate, focusing on education and social issues. And he has implicitly accused Mr Perez, who is backed by the two dominant parties of the pre Chavez era, of representing the machine politics that alienated voters and made Mr Chavez's rise possible. Mr Capriles all but secured the nomination when the third placed Leopolda Lopez withdrew from the race last month to run his campaign. Mr Capriles has reason to be optimistic about his chances in the October general election. At 39, he has already been a mayor, a governor and the vice-president of congress. And Mr Chavez has never looked so weak, politically or physically. Venezuela has South America's highest rates of both inflation and murder. Basic goods and housing are scarce. His illness will probably hinder his campaign, under mining his image of invincibility. Yet the challenger will still face an up hill battle. Mr Capriles cannot match the charisma of Mr Chavez, who remains Ven ezuela's most popular politician. The presi dent has freely spent public money in past campaigns, and has packed the electoral authority with supporters, letting him flout campaign rules and perhaps even tweak the result. "If you don't have wit nesses [at polling stations]," Mr Capriles warns, "you can be absolutely sure your votes will be stolen." Mr Capriles hasjust a few days left before the hard part begins. •
h
The Economist
40 T e Americas Privatising Brazil's airports
Fasten your seat belts
February 11th 2012
Women in Mexican politics
The XX factor MEXICO CITY
Can a woman candidate count on female voters' support?
SAO PAULO
Sky-high prices raise the prospect of more sell-offs
HEN the winning bid for the privati Wsation of Guarulhos, Sao Paulo's main international airport, was read out on February 6th, the crowd at the city's stock exchange gasped. At 16.2 billion reais ($9-4 billion), it was nearly 4 billion reais more than the second-highest bid, and12.8 billion reais above the government-speci fied minimum. On offer was 51% of a pub lic-private partnership with Infraero, Bra zil's lumbering state-owned operator. The partnership will have to pay the sum in in flation-linked instalments over 20 years, and also give the government 10% of its turnover. From what is left, money will have to be found for investment of more than 4.5 billion reais fixing up decrepit, overcrowded terminals. A third of that sum must be spent before hordes of foot ball fans arrive for the 2014 World Cup. Controlling stakes in two more of In fraero's 66 airports were also on offer. Vira copos, wokm from Sao Paulo, needs huge investment to cope with overflow from Guarulhos, which has no room to grow. BrasHia's airport is to be expanded as a hub for domestic flights. All told, the govern ment pocketed a cool24.5 billion reais. Some 30% of the country's air passen gers and 57% of its air cargo pass through the three airports. They should be gold mines. Passenger numbers in Brazil have doubled in a decade and hectic growth is expected to continue. Since Infraero is heavily overstaffed and travellers have few opportunities to spend money, costs can be slashed and revenues raised. Even so, the winning bid for Guarulhos astonished Eduardo Padilha of Insper, a business school. "They must have plans that no one else has thought of, maybe hotels and con ference centres," he says doubtfully. Sceptics have wondered if the price was so high because the government was dealing with itself. The consortium that won Guarulhos was led by the pension funds of Petrobras, a giant oil company, and Banco do Brasil, the country's biggest banl<. Both firms are state-controlled. And BNDES, the state development bank, will finance the deal. However, the pension funds are independently managed, and the consortium also includes ACSA, a priv ate South African airport operator. Corpo racion America, from Argentina, and Egis, a French firm with airports in Africa, will run Brasilia and Viracopos respectively. If the operators are indeed purely pro fit-seeking, then the size of their bid brings
NTIL this year, no woman had ever U been the presidential candidate for any of Mexico's main political parties. That changed on February 5th, when Josefina Vazquez Mota, a former secre tary of education and of social devel opment, won the primary of the conser vative National Action Party (PAN). "I will be Mexico's first presidenta" (female president), she said in her victory speech. Ms Vazquez is a clear underdog in the July 1st election. Polls taken before the primary put the centrist Institutional Revolutionary Party (PRI) nearly 20 points ahead of the ruling PAN (see chart). Voters have tired of the PAN, which has presided over slow growth and rising violence duringn years in power. Ms Vazquez could even finish third behind Andres Manuel Lopez Obra dor ofthe Party of the Democratic Revo lution, a left-winger who narrowly lost the 2006 race. No one knows if Mexico's supposedly macho voters are open to a female candi-
I
Slowly gaining ground Mexico, presidential voting intentions,%
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the government risks as well as rewards. First, they could plead poverty and de mand easier terms in future. Such renegoti ating is common in Latin America, and Corporacion America has managed it in Argentina before. A bigger worry, says An dre Castellini of Bain & Company, a consul tancy, is that travellers will bear the burden of the inflated bids. "The regulator will have to strike a balance between the guys who paid 25 billion reais and want a re turn, and the passengers who want a bet ter service at a reasonable price," he says. Since Brazil has only privatised one small airport so far, the government has little ex perience in handling such trade-offs.
date. Women only gained the right to vote in1953. But Mexican politics is not especially male-dominated: women hold over a quarter of congressional seats. That is a higher proportion than America's and twice as high as the share in Brazil, which elected a female presi dent in 2010. Ms Vazquez has said she considers her sex an advantage. It certainly helps to distinguish her from Felipe Calderon, the unpopular current president and a fellow PAN member. According to Mitofsky, a polling firm, women outnumber men by a fifth among her supporters. Meanwhile, her rivals' attempts to woo female voters have not gone well. The PRJ's handsome Enrique Pefla Nieto, whose rallies draw throngs of swooning senoritas, was thought to have an edge with them. But when he was recently asked if he knew the price of meat and tortillas, he replied that he was not "the lady of the house". A few weeks later an ex-girlfriend accused him of neglecting children he fathered outside marriage. The fiery Mr Lopez has tried to soften his image by promising a "loving republic". But women seem unmoved. A majority of both candidates' fans are male. Women have always been less likely to vote than men in Mexico. Might that change this year? The gender gap has disappeared in school-attendance and literacy rates. A third of women work outside the home, helped by a fall in the fertility rate from nearly seven children per woman in the 1960s to around two today. But younger Mexicans of both sexes are less likely to vote than others; and Ms Vazquez's opposition to abortion may not appeal to the new generation of empowered women. She clearly needs their support to close the gap. More sales are expected soon. Wagner Bittencourt, the minister for aviation, an nounced on February 8th that plans to auc tion two more airports are already under way. In the1990s a centrist government off loaded energy, telecoms and mining firms. But its left-wing successors stopped priva tisations. Only the prospect of complete collapse during the World Cup forced a change of heart, says Mr Castellini. Brazil is creaking at the seams. With public investment low, private money is needed to upgrade not just airports but roads and ports as well. The hope is that a successful airport privatisation will tempt the government to further pragmatism. •
41
Myanmar's startling changes
Also in this section
Pragmatic virtues
42 A coup in the Maldives 43 India's last hangman 43 Japan's electricity industry 44 Mobile phones in North Korea
SINGAPORE AND YANGON
Unravelling the mysteries of a-so far-peaceful revolution
ANOTHER day, another milestone: there .l"\.appears to be no let-up in the frenetic pace of Myanmar's political transforma tion. In early February, for the first time in memory, the finance minister revealed de tails ofthe government budget. In a speech to parliament (of all places: the place had been considered a joke), he also divulged how much Myanmar owed in foreign debt ($n billion). Then, a couple of days later, the hitherto secretive and repressive dicta torship told a UN human-rights envoy that it will now consider allowing monitors into the country for by-elections on April 1St. It would be an extraordinary step. These will be the first parliamentary seats to be contested by Aung San Suu Kyi's op position party, the National League for De mocracy (NLD), since it was unbanned by the governmentjust a few months ago. Ms Suu Kyi herself is running for a seat, and she recently held her first political rallies outside the capital since being released from house arrest in November 2010. The by-elections will be a test of the govern-
ment's sincerity. If they are seen to be free and fair, that might go a long way to per suading American legislators to start lifting sanctions imposed on Myanmar in the mid-1990s. Parliament is also considering a new media law that would, in theory, give Myanmar one of the most liberal reporting environments in the region. Only a year ago papers were not allowed even to men tion Ms Suu Kyi's name, and the few inde pendent-minded publications had to re sort to imaginative ruses. On Ms Suu Kyi's release from house arrest, a sports paper jiggled around with some innocuous headlines from English football. The list "Sunderland Freeze Chelsea", "United Stunned by Villa" & "Arsenal Advance to Grab Their Hope" was highlighted in vary ing colours to give readers the real news: "Su Free Unite & Advance to Grab the Hope". It all seems like ancient history. Yet the question remains why an entrenched mil itary regime, in power since 1962, is doing all this now, and so fast. In comparison
46 Banyan: My brothers' keepers
with the bloody political upheavals in the Middle East, Myanmar's political revolu tion has been top-down and largely peace ful. The changes may yet prove to be more profound than in Libya or Egypt. Long-term anxieties contributed to the generals' change of heart. After decades of failed socialist planning followed by a few more of military crony capitalism, the re gime became increasingly aware that once-rich Myanmar had in its hands fallen embarrassingly far behind the neighbours. At some point, this humiliation trumped the ability of a few to make very corrupt fortunes. In the spirit of openness now sweeping the country, officials acknowledge that the economy was in no shape, for instance, to prosper after Myanmar's planned entry into a single market among the ten-coun try Association of South-East Asian Na tions in 2015. What is more, many in gov ernment badly want their country to be reconnected to sources of international fi nance, especially the IMF and the World Bank. Myanmar has been denied this un- ��
The Economist February 11th 2012
42 Asia �
der Western sanctions. If prisoners must be freed to get sanctions lifted, so be it. Many presumed that these sanctions did not worry the generals because they could rely on Chinese aid instead. Not so. Particularly in northern Myanmar, the of ten arrogant and sometimes brutal behav iour of Chinese companies in the end alienated even the government. What is more, the sort oftechnical and educational assistance-"capacity-building" in the jar gon-that Myanmar now craves is just what China does not do. Thus the generals have been obliged to turn back to the West, and political reform. Government types now acknowledge that other factors were at work, too. One high-up official concedes that the reform process was greatly accelerated last yearby the Arab spring. This scared the generals: "it was a very critical time for us". The re gime was afraid that opposition groups would take to the streets again, as they had done in 1988 and 2007, maybe in conjunc tion with the many armed groups, includ ing among the Karen and Kachin minor ities, fighting ethnic insurgencies in the border regions. It was time, this official says, to pursue national reconciliation. Then there was the emergence of Thein Sein, a former general who became the new president in March 2011, succeeding the hardline General Than Shwe. Even his own officials were surprised by how en thusiastically Mr Thein Sein embraced re forms. In stark contrast to his predecessors, Mr Thein Sein is ready to admit to the re gime's failures and says the country must learn from others. One person who dealt with him described the president as "a lis tener, sincere and sympathetic....it's large ly down to his personality". Some Bur mese think that his loyalties to the army were largely cut once he took off his uni form. One visiting foreign minister has re ported that Mr Thein Sein told him last year that it was ages since he had spoken to General Than Shwe (who was presumed still to be pulling the strings). Another person who testifies to the president's sincerity isMs SuuKyi. The per sonal trust that the two have established has enormously contributed to moving Myanmar's changes along. The govern ment knows that Ms Suu Kyi has the first and last word on lifting any sanctions, a powerful bargaining position. Yet Ms Suu Kyi has had to be flexible too. To the bewil derment of those who admired her intran sigence, by running for parliament she seems to have reneged on her principled opposition to participating in politics un der the terms of a constitution, passed in 2008, which, above all, entrenches the army in politics. Both Mr Thein Sein and Ms Suu Kyi have learned the virtues of pragmatism. At their crucial meeting last August, which Ms Suu Kyi will not discuss, some sort of
deal was worked out, and after that the pace of change quickened. Broadly, it seems that Mr Thein Sein promised to push ahead with the release of political prisoners, and give the nod to political re forms that might one day allow the NLD to take power. In exchange, Ms Suu Kyi prom ised to rejoin (and so legitimise) the politi cal process, and to work to lift sanctions. Tacitly, at least, the NLD seems to have agreed that no retribution or prosecutions will follow against the generals for past crimes and misdemeanours, should they one day lose power.
This last demand is critical, and has probably allowed Mr Thein Sein to win the sceptical generals round. Fears of the junta being dragged off to The Hague have stymied progress before. Now the army will feel a bit more secure about relaxing its grip on power. Certainly, interlocutors from the opposition play down expecta tions of holding the army to account, in stead cajoling everyone to look firmly to the future. Thus in Myanmar the generals and their families may get to keep their Fer raris, while peace may prevail over justice. Such is the price of change. •
The Maldives
Reverting to type
the voters hope " N POLITICS in this country," Mo took to the streets, leading a rally of his J hamedNasheed told The Economistin Maldivian Democratic Party (MOP) which 2006, "you're either in government or in ended in arrests and violent scuffles, in jail." Under house arrest at the time, he which he was hurt. seemed more at ease than later, when, bi The vice-president, Waheed Hassan, zarrely, he became the Maldives' president. had been sworn in as his replacement. Mr Having fallen prey this week to what pre Nasheed's supporters see the new man as sents itself as a popular revolt but looks an ineffectual puppet, with the real power much like an old-fashioned coup, Mr grabbers being close to Maumoon Abdul Nasheed, known by his nickname "Anni", Gayoom. Mr Gayoom's nasty 30-year dic is back in a familiar predicament, as a be tatorship was overthrown in the Maldives' leaguered activist bewailing the injustice first multiparty election, in 2008. of Maldivian politics. Then, Mr Nasheed won 54% ofthe vote. He relinquished his presidency in a Young and charismatic, he came to power brief press conference on February 7th-a bearing the hopes of liberals among the performance forced on him at gunpoint, Maldives' 400,ooo-strong population. He he later said. After a night "in protective soon charmed the outside world with custody", he was freed and the next day shrewd publicity stunts that were aimed at �� Democracy is never as easy as
P . ·
...,... ...
•
Anni returns to his old job
...
February 11th 2012 � drawing attention to the particular danger climate change poses to the Mal dives-1,200 tiny islands, barely above sea level. Mr Nasheed held the world's first (scuba-enabled) underwater cabinet meet ing, and suggested his country set aside some of its tourism earnings to buy a new homeland. But from the beginning, the MDP has struggled to remake the Maldives. In par ticular, the judiciary has blocked efforts to reform and to prosecute members of the Gayoom regime. Mr Nasheed's detractors allege that, in response, he acquired some of the intolerance of dissent that marked The Economist
Asia 43
the Gayoom era. What precipitated his downfall was the arrest of ajudge accused of being in Mr Gayoom's pocket. That ar rest, which was condemned as unconstitu tional, galvanised nightly protests in Male, the crowded capital. When some ofthe po lice mutinied and joined the protesters, it seemed clear that Mr Nasheed's days were numbered. (The offending judge has now issued an order for Mr Nasheed's arrest.) One element of the opposition to him is Islamic. After he resigned, there were soon stories of the alcohol and "hash oil" alleg edly found in his home. The stress on Is lamic virtue seems odd for a country
whose main industry relies on pandering to the sybaritic excesses of honeymooning couples. But the Maldives operates touris tic apartheid. The resorts are on uninhabit ed islands. Tourists need have no truck with Maldivian culture or currency, let alone its politics. They may be thankful for that in the weeks to come. The ugly clashes on Febru ary 8th-9th are a warning of the potential for violence. In his resignation speech, Mr Nasheed said he did not want to rely on force to stay in power. Whatever else one thinks about his rule, at least Anni did not get his gun. •
India's last hangman
Japan's electricity industry
An executioner's tale
Power politics
A dying family business N THE crumbling Muslim quarter of I Lucknow, the capital of Uttar Pradesh, Indian's most populous state, a man with white beard and lilac kurta pyjamas weaves briskly through the alleys. Ah madullah does not want to be seen at home talking to strangers, but agrees to meet in a nearby park. He is not, he says, ashamed of his job, but he does not want nosy neighbours discovering his profes sion. "People do not look with a very good view on it," he says, "and they would want to come and gawk at me, a hangman." With a gentle smile he recalls that in 1965, when he took over from his father as Lucknow's chief executioner, the state paid 25 rupees ($5 in those days) a hang ing, on top of a salary. He thinks he has conducted 40 in all, being called to work in Delhi, Assam and Madhya Pradesh in the years when India'sjudges-and politicians-had few qualms seeing the death sentence carried out. Today, though still on the books and paid monthly, he is idle. He says he last hanged a man over two decades ago: an insurgent in Assam, who had kidnapped and killed a child. (The rate per execution had, by then, risen to 10,000 rupees.) Though the death sentence is frequently passed on defendants, its use is extreme ly unusual since a Supreme Court order, in 1983, reserved it for the "rarest of rare" cases. A single hanging has taken place in India in the past17 years. Led by retiredjudges and the Hindu newspaper, a campaign is under way to remove it altogether from the statute books. The issue flares into mainstream debate only when prominent killers such as Ajmal Kasab, the surviving at tacker among a group of Islamists who carried out a massacre in Mumbai in November 2oo8-appear to be heading LUCKNOIV
A troubled utilityisto be asgood as TOKYO
nationalised
N MORE ways than one, things are hot I ting up at Tokyo Electric Power (TEPco), which runs the Fukushima Dai-ichi nuc lear power plant crippled by an earth quake and tsunami last March nth. In re cent days temperatures in one of the plant's reactors may have hovered too close for comfort to the level where a chain-reaction might reoccur from melted fuel. Since February 7th TEPCO has been pouring in 14 tonnes of water an hour in the hopes of keeping things cool. It is an uneasy reminder for ordinary Japanese that nearly a year after the disaster the re actors are not yet stable. Back in Tokyo, TEPCO faces more hot One hand, one speciality water. The government is laying plans to nationalise the troubled utility, overhaul to the gallows. Mr Kasab's latest appeal its management, and bring much-needed against his execution went before the competition to the energy market. Supreme Court late inJanuary, but is The Nuclear Damage Liability Facilita likely to march on for years yet. tion Fund (NDF), which the government Ahmadullah favours the penalty, though he talks of the harrowing execu created in September to oversee vast com tion of three brothers convicted of mur pensation payments related to the Fukush ima disaster, is preparing to inject ¥1 tril der, one of whom pleaded his inno lion ($13 billion) of public money into cence-convincingly, Ahmadullah TEPCO later this year, in return for perhaps says-to his anguished last breath. Oth erwise the hangman talks with pride of two-thirds of the company. A stream of lawyers and accountants has joined the his professionalism, ensuring as quick NDF to serve as a sort of shadow manage and painless a death as possible: "he ment team for the utility. The model being drops dead, not even alive when he contemplated is close to Japan's successful drops, this is my speciality." Yet he sees no future in it. British rulers bank nationalisations a decade ago, when ordered "so many murders", he says, "my the state-backed bail-out agency replaced bank boards, but let many managers con father was unable to sit, he was always tinue in their jobs under new supervision. called for a hanging". Today there is Because of the scale of Fukushima's nothing to do. Though he would work costs, TEPCO may see its liabilities exceed again, if ordered, he expects not to. Nor its assets when it reports its financial re does he wish to see his son continue in the family business. "I will be the last of sults, which are due by February 14th. This would throw into doubt its ability to raise the hangmen." capital. The public money would be used ��
The Economist
44 Asia
February 11th 2012
Mobile phones in North Korea
Also available to earthlings SEOUL
Some North Koreans get better connected
A NORTH KOREAN professor appar ..t'\. ently posted footage on YouTube last
State employees?
�solely to pay compensation. By saving TEPCO from bankruptcy, the bail-out might ensure that banks put in a further ¥1 trillion to be used as working capital. The utility is also being pressed to cut costs and sell assets. It wants to raise electricity rates by as much as 17% for business users. The price rise should not only help pay for im ported fuel to replace lost nuclear power, but might, officials think, also encourage competition in the energy sector by push ing big industrial users of electricity to shop around for the best deal. The government also wants to restart nuclear power plants that have been shut down for scheduled maintenance but are now in limbo. None switched off after the earthquake have restarted, and only three of 54 reactors in the country are operating, because local governors refuse to grant ap proval to others. The International Atomic Energy Agency endorsed the govern ment's "stress test" of reactors on January 31St. But it did so based on criteria that pre dated the Fukushima accident and do not incorporate the lessons that might come from it. Popular distrust of nuclear power continues. The utility is fighting against a state takeover. The government, it contends, has no business running an energy company. TEPCO's banks also dislike nationalisa tion, since it will mean taking a loss on part of their loans; but they fear bankruptcy more. And the Ministry ofFinance is wary, thinking politicians will just put the state in hock, with unlimited debts. So long as the final tab for decontamination, decom missioning and compensation remains uncertain, so will the question of who pays-but count on the poor public being hit either with higher taxes or with higher electricity bills. •
year boasting that his country was devel oping applications for the Android mo bile-phone operating system. Ordinary North Koreans are more likely to be pining for a humble mobile phone of any sort, and now their chances of owning one are increasing. Smuggled mobiles have been used on Chinese networks near the border for years, but now busi ness is booming for Koryolink, the North's only official cellular network, based in the capital, Pyongyang. The service-7s%-owned by Orascom, an Egyptian firm, and 25%-owned by the North Korean state-has gone from 30o,ooo to subscribers in 18 months. For a hermit kingdom whose rulers resent their subjects keeping closely in touch with each other, this is a remark able development. Koryolink earns a gross margin of 80%, making North Korea by far the most profitable market in which Orascom operates. The company has worked hard to court the regime, its chairman travel ling to Pyongyang last year to meet the late supreme leader, KimJong II. North Korean mobile-phone users spend an average of $13.90 a month on calls and text messages, and they tend to pay in hard currency. According to a foreign diplomat, many customers turn up at Koryolink shops with bundles of euro notes. There are even incentives for paying in euros, such as free off-peak calls. This provides foreign currency for a government that craves it. Mobile-phone customers obtain the hard currency from the informal private 1m
Thumbs at work
trading on which many North Koreans depend. Such business is forbidden, but the government has failed to feed its people, forcing it to turn a blind eye to some capitalist practices. Many insiders benefit: Pyongyang's "golden couples" consist of a government-official husband and an entrepreneur wife. Mobile usage now appears to be spreading beyond Pyongyang. The gad gets are a common sight in other cities such as Nampo, not far from the capital, and increasingly are owned by non officials. As yet, though, only a sixth of the country has a mobile signal. The authorities are not naive. Some outside observers believe that North Korea's first experiment with mobile telephony came to a sudden end in 2004 because a mobile phone was used to detonate a huge bomb at a train station that nearly killed KimJong ll. Koryolink is a walled garden: users are not able to make or receive international calls, and there is no internet access. It would be hard to imagine that calls and text messages are not monitored. As in China, the network is even becoming a means by which the state disseminates propaganda. Rodong Shinmun, the gov ernment mouthpiece, sends out text messages that relay the latest news to phone subscribers. Orascom's slogan is "Giving the world a voice". For Koryolink's users, that may literally be true, as North Korean mobile phone users enjoy some of the benefits of modernity that other countries take for granted. Their phones are not yet the tools ofrevolution, but mark an amazing change for all that.
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46 Asia
Banyan
The Economist
February 11th 2012
My brothers' l<eepers
In Sri Lanka the grip of the Rajapaksas only tightens
\
,
•
tJt14 .
,
-
HE president of Sri Lanka, Mahinda Rajapaksa, may well feel Tpleased with himself. On the face of it, more than six years after his first election, his prospects are still remarkably rosy. The economy clips along at about 7% a year. Mr Rajapaksa's coalition controls over two-thirds of parliament, and opposition parties are so weak that a senior minister chuckles about not being held to account. The chief political threat, Sarath Fonseka, a former general turned popular presidential candidate, is in a Colombo jail. There, says an MP who has visited him, he wears short trou sers and passes his days in a cell known as the "Scouting Room", complete with a portrait of Baden-Powell. Confidence lay behind the heavy hint dropped on February 8th by Basil Rajapaksa, the economy minister, that Mr Fonseka, a classmate chum, might soon leave prison and even return to poli tics. Basil is one of several Rajapaksa brothers, the one reckoned to be the brains of the ruling family. Possibly he thinks that Mr Fonseka may make a fool of himself atlarge, while enjoying mar tyr status behind bars. On independence day, February 4th, the president chided his countrymen, urging them to be more grateful. It is true that since a bitter end in 2009 to a long, wretched ethnic civil war, the lot of many Sri Lankans has steadily improved. The state of emergency is gone, even if other draconian laws remain. Many of the tens of thousands of Tamils detained in the north at the war's end have been released. New roads, ports, railways and power stations are spreading. In Colombo, the capital, various swanky structures are rising and the ground has been cleared for a lotus-shaped tower intended to be South Asia's tallest. How, then, to explain a persistent grouchiness among Sri Lan kans? The past months have brought strikes, riots and protests by students, railwaymen, prisoners and public workers. The opposi tion Tamil National Alliance swept local elections in the north, leaving the president's party in the dust. Rani! Wickremasinghe, the main Sinhalese opposition leader, no ball of energy himself, claims to see wide "protests and agitation against unfulfilled promises". Hushed cafe talk about a "Colombo spring" overstates things, but Mr Rajapaksa may remember how such grumbles and prot ests helped his own rise to power. Most outsiders focus on his
headaches abroad. In March the United Nations will consider a resolution on Sri Lanka over suspected killings of thousands of Tamil civilians and rebel prisoners in the last days ofthe war. Last month Hillary Clinton, the secretary of state, said America would vote against Sri Lanka. A retired senior official frets about an "adversariallock" closing on his country. Yet matters at home may be more troubling. Furious recrimi nations followed the murder in October of a senior politician, an old friend of the president, in a shoot-out with a fellow MP. Ru mours of graft in infrastructure deals persist. A big investor calls the government "extremely corrupt and arrogant". In the past this businessman went along with kickbacks of a "few million dollars: this is a developing country, after all"; but he balked once demands rose to tens ofmillions of dollars to win tenders forpro jects funded with Chinese loans. The bribes, he suggests, are split between Chinese state-owned partners and members of the rul ing clique. Morals aside, he says this makes it impossible to turn a profit. He has been threatened, including with violence, for speaking out. In the capital, commentators, activists and business types who all demand anonymity on the topic of the Rajapaksas warn of a family rule that has become more centralised, heavy handed and authoritarian. Here, the defence secretary, Gotabaya Rajapaksa, is most often mentioned. Whereas the president has an earthy charm that appeals to rural Sinhalese, Gotabaya Raja paksa wields power more bluntly. He presides over both army and police, 300,000 armed men in all-just what a good democ racy needs, he says. This year the defence budget will top $2 bil lion, a fifth of all public spending-an alarming share for a coun try now at peace. The army's role in business is also growing. An economist and opposition figure, Harsha de Silva, says the army is getting into hotels, farming, construction, golf courses, sports stadiums and even running roadside tea stalls. The veget i n strongman The defence secretary, curiously, also oversees urban develop ment, giving Gotabaya wide powers of patronage. His brother, Basil, calls him "fully vegetarian...the nicest, kindest person in the family", yet he is widely feared. A Tamil leader says the army oversees "oppressive, insulting, humiliating" rule in the north, with tales of land grabs, murders and rape. In Colombo political observers worry about the militarisation of politics. And though Gotabaya rejects the natural comparison with Pakistan, he en thuses about his recent expansion of what he calls his "huge" in telligence agencies. A suggestion that spooks can undermine de mocracy is dismissed as merely "hypothetical". Yet some local journalists are warned by editors never to write about him. Asked if he frightens people, he says: "If they don't criticise me, it is because there is nothing to criticise." Some think that growing army clout could be the defence sec retary's personal route to power. It presumes potential discord among the brothers, of which there is no sign yet. Gotabaya dis avows any interest in politics: he is an army man, he says. A hu man-rights lawyer, whose home was once attacked by assailants with grenades, raises a greater fear. If the ruling family feels it can rely on the army, it may worry less about appealing to voters; one day, it may even refuse to "go home". Unsurprisingly, the Raja paksas see it otherwise. "We brothers are a very successful family, maybe because we grew up close," says Gotabaya. The brothers' rule looks assured for a while yet. ar a
•
47 Also in this section 48 Reporting Chinese politics
For daily analysis and debate on China, visit
Economist.comfchina
Religion and the Communist Party
Render unto Caesar
BEIJING
The party's conservative wing finds religion-and dislikes it
HERE was a time when Devon Chang mates for the number of Christians vary
Thad difficulty reconciling his two cho wildly from som to 100m (they are hard to
sen faiths: Christianity, which he em braced in 2005 at the age of 19, and the Communist Party of China, which had embraced him a year earlier. Did his sub mission to an almighty God not mean he must renounce the godless club of Marx and Mao? Not necessarily. A fellow convert's uni versity lecturer suggested that if all Com munist Party members found Jesus, then Christianity could rule China. "So it's a good thing for me to become a Christian," Mr Chang reasoned. The party does not quite see it that way. Although people join the party more for career reasons these days than for ideolog ical ones, it still officially forbids religious belief among its members. In practice, this has for some years been a "don't ask, don't tell" policy. But signs are now growing that the party is about to become tougher on believers within its ranks. And behind it might be Mr Chang's notion of Christian ity as a Trojan horse. If you can't beat 'em. . . Experts say that, of China's 1.3 billion peo ple, 200m to 300m now practise religion (though the government admits to only 100m), and far more engage in the venera tion of ancestors. The vast majority of the religious are Buddhists or Daoists. Esti-
count because so many believers go to un derground "house churches"). Across the country, local governments have rebuilt temples and constructed new ones to capi talise on religious tourism. In rural areas, temples and churches have helped pro vide education and health care, with the unofficial blessing of local party chiefs. Some of those leaders also act as temple chiefs. In the absence of official figures on reli gious believers within the party, Western and Chinese scholars often quote a 2007 survey, carried out by Horizon, a Beijing polling firm, in co-operation with Ameri can academics. The poll found that one in six party members had a religious belief. This would equate to more than 13m mem bers today. The vast majority of those are Buddhists. Close to 2m are Christians. The signals of a harsher approach are coming from Zhu Weiqun, a deputy minis ter of the party's United Front Work De partment and an influential ideologue, who warned in a December essay in a party journal, Qiushi (Seeking Truth), against the rise of religious believers in the ranks. If party members are allowed to be lieve in religion, Mr Zhu wrote, it will result in "shaking and losing the guiding position of Marxism, and in dividing the party ideologically and theoretically". Mr Zhu
cautioned that religious figures inthe party might gain control over policy on religion. That would undermine the party's fight against religious "extremism" in China's west, especially against followers of the Dalai Lama. Mr Zhu is known as a loud public voice of the party's opposition to the exiled Tibetan leader, whom he has de nounced as a "splittist", who is "evil" and "deceitful". The party's relationship with religious believers who are not party members is complicated enough. They are allowed to believe in one of the state-approved reli gions (Buddhism,Daoism,Islam, as well as Protestant and Catholic Christianity) and to attend registered places of worship. In the countryside the party tolerates folk re ligion despite an official ban on supersti tions. But recently the party has pursued a hard line against some old spiritual foes. The biggest concern is separatism, which the party fears is fuelled by Buddhism in Tibet, and Islam in the north-west. But un· derground Catholic churches that are loyal to the pope and some ofthe more confron· tational Protestant house churches are also controlled tightly. Perceived threats to social stability are provoking the party's soul-searching more than any need for thought control. The past four years have seen a succession of crises that have rejuvenated hardliners on the conservative wing of the party, where Mr Zhu resides, and where venom against religion is most in evidence. In the run-up to this autumn's transition of the party's top leaders, some officials are taking an even more conservative line as the safer path to power in nervous times. During last year's Arab spring, online calls for a Chinese "jasmine revolution" triggered a tightening of control. Beijing's highest-profile house church, known as ��
48 China � Shouwang, took what even many of its
supporters felt was too confrontational a stand in a dispute about its venue and its leaders were detained. Other house churches that stay out of politics are still mostly left alone. But anything that smacks of civil society organising itself is consid ered suspect. The fact that few in China ap peared to heed the call for an Egyptian style revolt may have been taken as proof that harsh tactics work, not that they are unnecessary. Even as greater prosperity and integra tion with the world transform Chinese society, the political climate is as icy as it has been since the early 1990s, when age ing hardliners criticised the role of religion in society. There was almost an opening a decade ago, when Pan Yue, a government official then handling economic reforms, published an article calling for a reassess ment of the relationship between religion and the party. He argued that Marx was not as opposed to the "opium of the peo ple" as is assumed, and that religion could help the party maintain stability. President Hu Jintao's predecessor, Jiang Zemin, ap peared to accept that religion was a force that had a lasting place in Chinese society, and even dedicated a number of Buddhist temples with his calligraphy. But Mr Jiang kept party membership closed to believ ers, while admitting some of Marx's less spiritual enemies: the capitalists. Other party leaders have also made public allowances for religion, as long as it stays within the broad tent of party con trol. Some even privately suggest that reli gious faith may bring ethical benefits in the widely lamented moral vacuum of ram pant materialism. But that need for a new moral code is tempered by a continued suspicion, especially of a faith such as Christianity, which is still tainted by its his torical links to foreign imperialism. So for believers such as young Mr Chang, the convert in Beijing, some ten sions remain. He says he joined the party at the behest of his parents (his father is a member), because it would help him find a job. But his lack of party connections hin dered his job search. God, he says, an swered his prayers instead. Now he works for a government ministry, but he cannot tell his co-workers about his faith or he will be fired. He says he wants to leave his job, despite objections from his parents, who argue that success within the party can help the family more than God can. Mr Chang and two other party mem bers who attend the same church in Beijing insist the two faiths can co-exist. The coun try needs the party, they say, whereas indi viduals need faith. Christian party mem bers note what Jesus taught his followers: "Render unto Caesar the things which are Caesar's, and unto God the things that are God's.". Mr Chang's party dues are $1-60 a month. He plans to keep paying them. •
The Economist February Reporting Chinese politics
Hidden news
BEIJING
The rumour mill goes into overdrive
I
N AN earlier era, it would have been the sort of scurrilous rumour picked up by scandal sheets in Hong Kong but only whispered in Beijing: the high-profile right hand man of a prominent Politburo mem ber gets wind that he is about to be cash iered by the authorities and flees to an American consulate seeking protection (fate unknown). Even 15 years ago, most of mainland China would have heard noth ing and Chinese officialdom could have re mained comfortably silent. Today such rumours, scurrilous or not, are not so much whispered as bruited by megaphone by Chinese citizens them selves, via websites and microblogs. Chi nese-language news outlets and websites based in America and Hong Kong, many of them notoriously unreliable, now have a potential audience of hundreds of mil lions for their political gossip, and just as many possible sources. More than 300m Chinese internet users have at least one microblog account, and some use virtual private networks (VPNs) to get around the infamous "great firewall" of China. The Chinese government is being dragged, click by click, out of its cone of silence. So it is with the drama of Wang Lijun, once celebrated as the mob-busting police chief of the south-western metropolis of Chongqing. Mr Wang also serves as a dep uty mayor under the city's ambitious party boss, Bo Xilai, who may join the all-
11th 2012
powerful standing committee of the Polit buro this year. On February 1St Mr Wang was shuffled to other duties in Chongqing. The next day Mingjing News, a website in New York which trades in gossip about the Chinese leadership, reported that Mr Wang was under investigation for corrup tion. The report initially drew only minor notice among China-watchers. That changed on the night of February 7th, when netizens reported, via Sina Weibo, a '!Witter-like microblog service, a heavy police presence outside the Ameri can consulate in the nearby city of Chengdu. From this thin reed of fact came a thicket of online rumours that Mr Wang had fled to the consulate to seek asylum. It turns out he did go to the consulate, meet ing officials "in his capacity as vice mayor", according to America's State Department. He walked out of his own accord. On February 8th the Chongqing au thorities chose to speak up. Mr Wang, they said on their microblog, had health pro blems, and was receiving "vacation-style treatment". The statement was retweeted more than 30,000 times within an hour. One person who seized on the phrase was Li Zhuang, a lawyer who served 18 months in prison after defending a gangland boss arrested in a crackdown orchestrated by Mr Wang. "I would like to offer free legal advice to all the 'sick people' who are hav ing vacation-style treatments," he tweeted. Censors seemed unable or unwilling to block the flood ofjoking and commentary. Ho Pin, who publishes Mingjing News, thinks the flood is unstoppable. "There's unprecedented support for exposing the rich and powerful," he says, which means watching Chinese politics may become more enjoyable-unless you are an official. What really happened at the American consulate in Chengdu? And what has be come of Mr Wang? In the absence of a de tailed official statement, many will be keeping an eye on another China-watch ing website, Duowei News based in Ameri ca. It was founded by Mr Ho but is now un der new management. In July Duowei was first to debunk a report that Jiang Zemin, a former Chinese president, had died. Chi na's official news service, Xinhua, quashed the rumour the following day. Gathering news about Chinese leaders remains a risky business, especially if the news is accurate, when it is open to the catch-all charge of "revealing state secrets". No surprise perhaps that the office inside a vast office complex on the outskirts of Beij ing that apparently houses Duowei's Chi na bureau has no brass plate in the lobby; the man inside refused to greet The Econo mist. The Hong Kong media mogul who owns the website, Yu Pun-hoi, also de clined to be interviewed, saying that Duo wei is "a very small business". Its busi ness-the news of Chinese politics-is, however, only going to get bigger. •
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PAKISTAN
Perilous journey
Pakistan has a lot going for it, but optimism about its future is nevertheless hard to sustain, says Simon Long
EARLY LAST YEAR the Pakistan Business Council, a lobby group of local conglomerates and multinationals, drew up a "national economic agen da", setting out some desperately needed reforms. It took out newspaper advertisements to press its case and made presentations to the four big gest parties in parliament. Rather to everyone's surprise it achieved a consensus, which was to be announced on a television chat show on May 2nd. But that morning it was revealed that American commandos had killed Osama bin Laden in a town not far from Pakistan's capital, Is lamabad. Television had other priorities, and the moment passed. For many in Pakistan, this anecdote is typical of the way geopolitics gets in the way of sen sible policymaking. Their coun try, they say, has so much going for it, yet all the foreign press writes about is the dark side: war fare, terrorism, corruption and natural disasters. Asad Umar, the Pakistan Business Council's chairman, compares his coun try's condition to that of the pas sengers in a cable car over a fire. They can see the lush greenery of their destination, but it is getting hot, and they cannot be sure that the cables will hold. This report on Pakistan will, like so much foreign reporting on the country, be looking at the flames. Pakistan is at risk of utter disaster, though probably not im mediately. But, preoccupied with dousing fires, its leaders are neglecting Pakistan's longer-term needs, or, as optimists would have it, failing to exploit the country's tre mendous potential. Before looking at Pakistan's manifold problems, it is worth putting these optimists' case. They normally cite five reasons for hope: demography; geography, geology, culture and democracy.
CONTENTS
5 Afghanistan Too close for comfort
7 Foreign policy State of vulnerability
8 Politics Captain's innings
10 Religion In the shadow ofthe mosque
11 The economy Lights off
13 Education A taste of Hunny
14 Poverty Always with us
14 Violence Dripping with blood
15 Water Going with the flow
The bright side
Pakistan has a very young and rapidly urbanising population. Its workforce is growing by about 3% a year and its share of the total popula tion, currently about 6o%, is rising steadily, thanks to a falling birth rate. Similar demographic bulges have been accompanied by prolonged booms in East Asia and elsewhere. Moreover, Pakistan borders the world's two fastest-growing big economies, China and India. Its new port at Gwadar on the Arabian Sea offers another route into China. It is also the nearest seaport for much of Central Asia. The hydrocarbon riches of Turkmenistan could flow through a pipeline across Pakistan to India. And Pakistan itself is blessed with natural resources, including gas, coal and copper. It is already a cot ton producer and a big exporter of textiles. Its farmers have proved re markably resilient to successive natural disasters, but they have the potential for big increases in productivity. The Economist February 11th 2012
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I R A N credit: the 18th amendment to : '$ (0.0) Population, by : the constitution restored a ci· province, 2009, m � s 1 vilian structure and intro· � Proposed dams l duced a welcome devolution National totals: of power from central governPopulation, 2009 181.5m fl-1'cr....r-� --"'\ --r�) Gwadar ) GOP, 2011 $204bn ment. most recent The IHD I 250 km "award", in 2010, by the Nation!ST API BANGLA Sources: !M F; Pakistan Bureau al Finance Commission, which A r a b i a n Se a DESH ofStatistics; US Census Bureau G U J A R A r allots Pakistan's resources to its in / ', Interactive: Our online map demonstrates how Sir Creek. dividual provinces, managed the the territorial claims ofIndia, Pakistan and China would change the shape ofSouth Asia politically difficult feat of giving PunEconomlst.comfaslanborders jab, the biggest and richest, a smaller share than its proportion of the population. Pakistan's army, meanwhile, has driven an insurgency out of part of one ally, to a new low. And they raise serious questions about the army's influence in domestic politics, too. It is not, as it portrays province, Khyber Pakhtunkhwa, and is containing it in most of the often lawless Federally Administered Tribal Areas (FATA). itself, the neutral arbiter of the national interest, keeping venal ci· vilian politicians in check; rather, it pursues what it perceives as The downside its own institutional interest. This report will begin by considering Pakistan's policy in But even Pakistan's biggest boosters find it hard not to be distracted by the fires. The growing population is mostly poor Afghanistan. That will be a burning international concern as and badly educated. Pakistan borders not only China, India and America and its NATO allies prepare to withdraw most of their 130,000 combat troops by the end of 2014 or, as American offi Iran but also Afghanistan, and is infused by the venom of the cials are now suggesting, even 18 months earlier. But it also high war being fought there. Much of the mineral wealth is in areas lights the way in which a misguided military strategy trumps where Pakistan itself suffers from poor security, and the planned policymaking, at times seeming to threaten Pakistan's future. pipeline from Turkmenistan would actually cross Afghanistan. Leaders of the American-dominated International Security Traditional tolerance is fraying and violence spreading. Assistance Force (ISAF) in Afghanistan no longer dream of a de· The president, Asif Ali Zardari, and his civilian government finitive defeat of the Taliban insurgency by 2015. Nor does there are far from certain to see out their terms. They have lasted this seem much prospect as yet of an overarching peace settlement. long only by backing away from every confrontation with the The "victory" now hoped for is to leave behind an Afghan gov body that sees itself as the true representative of Pakistan's sovereignty and, in many ways, the country's rightful ruler: the ernment that has security forces equipped to carry on the fight, army. Fiercely protective of their budget and big business inter and the legitimacy to get them to do so. Compared with the ests, and with a veto over foreign and security policy, the gener· hopes held for Afghanistan's future after the swift toppling of the als make Pakistani "democracy" seem a stunted, sickly infant. Taliban regime in November 2001, this looks like failure. And for that, ISAF's commanders and their political masters have been Even one of this democracy's most impressive trappings, a ever more vocally blaming the malign role played by Pakistan. free and vibrant press, has limits. Elements of the armed forces Not only has it provided sanctuary from which terrorists are believed to be behind death threats to senior journalists, have mounted attacks in Afghanistan. Not only is the Taliban's which, to put it mildly, act as a dampener on the freedom of ex· most senior leadership-the Quetta shura-believed to be based pression. Indeed, so successfully has the army merged its image in Pakistan. Worse, elements of the Pakistani state are accused of with that of the nation that many commentators trumpet its complicity in all this. And worse still, partly because of that com views without coercion. A BBC television documentary made late last year, accusing the army of links with terrorist groups at plicity, Pakistan itself is prey to a fierce xenophobic Islamist in surgency. Rather than being able to declare victory in Afghani· home and in Afghanistan, led the cable companies themselves to block the BBC World television channel. stan, a wild country of some 30m people, the West fears a But those accusations wiJI not go away. They have played a nightmare: defeat in Pakistan, a country of nearly 2oom that was once seen as a firm ally and a bastion of moderation. • big part in bringing relations with America, Pakistan's traditional ---:::;-- r
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The Economist February 11th 2012
PAKISTAN
Afghanistan
Too close for comfort
In the warin Afghanistan it is not always obvious which side Pakistan is on PAKISTAN REACTS WITH understandable resentment to criticism of its role in Afghanistan. During the long war there it has provided sanctuary to millions of refugees. It has lost far more troops fighting terrorists than has ISAF. After September nth 2001 it swiftly repudiated the Taliban and threw in its lot with America and its "war on terror". In 2004 it was named a "major non-NATO ally" by America. Its territory has provided ISAF with vital supply routes and bases for attacks on suspected terrorists by unmanned drone aircraft. Many of its civilians have also died in those and other attacks. It has provided intelligence that has led to the capture of a succession of al-Qaeda leaders. And the "American" war in Afghanistan has fuelled the rise of violent Islamist extremists in Pakistan itself, the "Pakistani Tali ban", bent on overthrowing the government. Now, too, there is a reciprocal grudge against Afghanistan. Armed fighters from the Pakistani Taliban, defeated in the Swat region of Pakistan in 2009, have set up camp in eastern Afghani stan and continue to launch attacks on Pakistan. All of this helps fuel popular anti-Americanism, which is steadily worsening. The war is a political liability for the government. Yet American politicians seethe at Pakistan's refusal-de spite large amounts of American aid lavished on the army-to start operations in the tribal area of North Waziristan against the Haqqani network, a group that Mike Mullen, then chairman of America's Joint Chiefs of Staff, last year called a "veritable arm" of the Inter-Services Intelligence agency (ISI), Pakistan's main spy service. This year a NATO report leaked into the public do-
main alleged that "Pakistan's manipulation of the Taliban senior leadership continues unabated." Yet even American diplomats believe that some of these charges are overstated. Having helped form, train and arm the Taliban in the 1980s (with American backing) to fight the Soviet occupation of Afghanistan, and having in the 1990s used other terrorist outfits against India in Kashmir, the ISI has deep links with the extremists. But that does not make them all passive tools of the Pakistani state. Publicly, the ISI plays down its links with such groups, mocking the tendency to see its shadowy hand everywhere. "We are a very responsible organisation," says an ISI spokes man. "People think we are responsible for absolutely every thing." Yet at the same time the ISI somehow manages to give the impression that it has more control over the extremists than it probably does. The army's explanation for its restraint in North Waziristan is capacity. Roughly150,000 soldiers are already deployed in the tribal areas; 10,000 are on UN peacekeeping missions; and 6o,ooo-7o,ooo were diverted to providing flood relief in 2010 and 2011. Add in troops kept in reserve, and that leaves only around 2oo,ooo to keep an eye on 2,9ookm (1,8oo miles) of Paki stan's eastern border with the traditional enemy: India. Ann us horribilis In fact by late 2011 there were plenty of other reasons too for restraint in North Waziristan, argues Rifaat Hussain of the Quaid-i-Azam University in Islamabad. A severe humanitarian crisis in which one-third of the population of the Federally Ad ministered 'friba! Areas had already been displaced would have been made even worse by intervention. Divided tribal loyalties in the region might have coalesced in a united anti-army front. A relative lull in the second half of 2011 in suicide-attacks else where in Pakistan might have been broken. And the army might not have won but instead got bogged down, as has happened to so many foreign armies in similar rugged terrain, across the bor der in Afghanistan. The need for caution on the Indian border helps explain ��
It was an accident, said ISAF The Economist February 11th 2012
5
PAKISTAN
�
why Pakistan's strategic objectives in Afghanistan seem at odds with ISAF's. Its main goal is to thwart the establishment of any government that might align Afghanistan firmly with India. Partly this reflects its abiding fear of Indian invasion and the need for "strategic depth" to withstand it. Also, Pakistan sees the administration of President Hamid Karzai as dominated by for mer members of the anti-Taliban Northern Alliance, which was close to India and Russia. Officials in Islamabad claim India is al ready using Afghan territory to foment unrest in Pakistan, espe cially in the restive province of Balochistan. Another reason why this does not seem Pakistan's war is that the Taliban are dominated by Afghanistan's largest ethnic group, the Pushtuns, many of whom also live on the Pakistani side of the frontier. And the Afghan government has never recog nised the border with Pakistan dating from the British colonial era, the Durand Line. If a hostile Afghan government were to re surrect the dispute, recollecting old calls for a separate "Pushtu nistan" that incorporates not just the tribal areas but most of Khyber Pakhtunkhwa and Balochistan, Pakistan would be destabilised further. In 2on the continuing tensions be Pakistan 's tween America's and Pakistan's objec strateg1c tives in Afghanistan became acute. From the perspectives of the American and Af objectives ghan governments, the evidence of Paki 1n stani double-dealing became more fla grant. When bin Laden was found to have Afghanistan been living in Abbottabad, a town not far seem at from Islamabad that is known for its elite military academy, it was hard to believe odds with that no part of the Pakistani establishment ISAF's was aware of his presence. After that, Ad miral Mullen seemed to accuse the ISI of complicity in bloody attacks on America's forces in Afghanistan and on its embassy in Kabul, blamed on the Haqqani network (though Hillary Clinton, the Secretary of State, later said there was no evidence implicating the ISI). Af ghan politicians, for their part, blamed Pakistan for the assassi nation in September of Burhanuddin Rabbani, a former Afghan president involved in seeking a peace settlement.
terrible ISAF blunder. On November 26th 2011, 24 Pakistani sol diers were killed by the air support called in by Afghan and American troops on the border with the Pakistani tribal area of Mohmand. NATO called it an accident and said its troops had acted in self-defence. Many Pakistanis believed it was a deliber ate attack. Barack 0bama offered condolences but no apology. In protest, Pakistan withdrew from a big conference in Ger many in December on Afghanistan's future. It ordered America to quit the base in the Pakistani province of Balochistan from which it was believed to be mounting drone attacks. And it cur tailed the intelligence co-operation which presumably helped identify targets for those attacks, as well as lead to terrorist sus pects in their hideouts. It also closed the two border crossings through which large quantities of ISAF supplies had been pass ing. ISAF has three other land routes, through Russia, Central Asia and the Caucasus, but they are more expensive and have political complications of their own. Pakistan, for all its denials, can also influence the outcome
•
•
With friends like these
From Pakistan's perspective, however, 2on was a year of ever more egregious American violation of its sovereignty. In January an American CIA contractor, going about his murky business, shot dead two robbers in Lahore. A third man was killed by the car sent to rescue him. America claimed the CIA contractor, Raymond Davis, had diplomatic immunity, and eventually had him set free. Pakistanis were appalled that an un known number of trigger-happy Americans appeared to have a licence to kill on their streets. The Navy SEAL raid in which bin Laden was killed was kept secret from the Pakistani government and army, apparently be cause they could not be trusted not to alert the target. That caused far greater outrage in Pakistan than did the revelation of the al-Qaeda leader's whereabouts. Indeed, some Pakistanis, typically for a country where any event spawns countless con spiracy theories, believe the army's commanders did know of the raid. In this theory, revealing for what it says about how the army is viewed, the generals thought it less damaging to their im age at home-and, crucially, within their own lower ranks-to ap pear inept, rather than complicit in the killing of an old jihadi ally. Most Pakistanis blame the al-Qaeda attacks of September nth 2001 on America or Israel. Hopes of repairing ties were dashed by what was, at best, a 6
in Afghanistan through the presence in its territory of the insur gent groups. They will not be defeated unless they are beaten in Pakistan, nor brought into a process of national reconciliation until Pakistan has helped nudge them to the table. ISAF com manders in Kabul believe that some Afghan Taliban leaders are chafing at their dependence on Pakistan and the ISI and might be willing to return home if it did not mean abandoning their fam ilies in Pakistan. ISAF has tried to coax them back with offers of safe passage. Recent agreement for the Taliban to open an office for negotiations in Qatar is another way of prising the group away from Pakistan and has brought a formal peace process a lit tle closer. But it will still need Pakistani help. In recent times Pakistan has often looked more like Ameri ca's enemy than its ally. An article published in November and December 20n in the National journal and the Atlantic, two American magazines, called it "The Ally from Hell". It was deep ly resented in Pakistan. In fact, the country's ultimate objectives in Afghanistan are not that different from the West's. It does not have an interest in perpetuating a war in which, as it points out, Pakistani soldiers and civilians are victims. Only a small minor ity in Pakistan hankers after a Taliban restoration in Kabul, which would encourage the Pakistani Taliban. In any event, such a res toration is highly unlikely, since any government ISAF leaves be hind will probably be able to hold the big northern cities. So Pakistan's Afghan policy at times appears to be self-de feating. Partly this is a consequence of the ISI's links with mili tant groups, both domestic and Afghan, which have created bonds of loyalty and patronage that are hard to untangle. But it is also a consequence of Pakistan's abiding fears of the two coun tries best placed to help it, if only mutual trust could replace in stinctive suspicion: America and India. • The Economist February 11th 2012
Foreign policy
State of vulnerability
Threatened by India, betrayed by America, Pakistan casts a lovelorn eye at China VIEWED FROM ISLAMABAD, the history of relations be tween America and Pakistan has been a saga of serial American betrayals. In the 1950s the two countries were close friends. Yet when Pakistan went to war with India in 1965, Ameri ca stayed neutral. Nor was Richard Nixon much help when East Pakistan seceded to become Bangladesh in 1971, despite Paid stan's role in facilitating his opening to China. After the collapse of the Soviet Union, close co-operation in the 1980s over arming and training the mujahideen fighting the Soviet occupation of Afghanistan soon turned into sanctions against Pakistan's nuc lear programme. In his memoirs, Pervez Musharraf, Pal
To Mumbai, with hate
stanis, and it is hard to believe there was no official connivance. The aim would have been to heighten tension with India, justi fying the army's concentration of its resources on the eastern frontier. Since both India and Pakistan are nuclear powers, that would make it a breathtakingly risky tactic. Yet Pakistan's nuc lear deterrent might have emboldened the alleged plotters. In deed, Pakistan, watching India's economy and defence budget grow, is believed to be expanding its nuclear arsenal as fast as it can. Unlike India, it has never promised to use its nuclear weap ons only in retaliation. Many Pakistani strategists argue that the subcontinent is more stable with nuclear weapons than with out, since they helped restrain India after an attack on its parlia ment in 2001, as well as after the Mumbai and other atrocities. This remains a terrifying state of affairs, even if relations be tween Paldstan and India are recovering from the post-Mumbai slump. A "composite dialogue" between the two countries has resumed and limps on. And in November 2011 Pakistan at last agreed to reciprocate India's decision in 1996 to grant its neigh bour's exports most-favoured-nation status. But none of the countries' differences has been settled-even where, as with the armed stand-off over the Siachen glacier in the Himalayas, or the disagreement over the maritime boundary in the Sir Creek be tween Sindh and the Indian state of Gujarat, a solution seems �� 7
PAKISTAN
� within reach and is in both sides' obvious interests. Even on the biggest dispute, Kashmir, that has twice brought the two countries to full-scale war, a solution of sorts seems tantalisingly close. Before the Mumbai attacks, talks be tween Mr Musharraf and Manmohan Singh, India's prime min ister, along with back-room negotiations, had reached the out lines of a settlement: one that looks very like the status quo, which is almost the only conceivable outcome. India would re tain control of the Kashmir Valley, and the less populated but big ger parts of Kashmir in Pakistan would remain with that country. But the borders would be softened, with travel and trade made easier, and some cross-border institutions would be set up. There would be huge obstacles to this, notably trying to persuade Pakistanis and Kashmiris that this would not be a hu miliating defeat. But at least in Pakistan the issue has dropped down the agenda. As fewer young Pakistanis train as fighters and sneak across the "line of control" tojoin thejihadin Kashmir, and as television propaganda about alleged Indian atrocities be comes rarer, the conflict there seems less immediate. In Pakistani conversations listing India's crimes, it features mainly as the lo cation of dams denying Pakistani farmers water. So now might not be a bad time to make another push for a Kashmir settlement. But Pakistan's government is too preoccu pied with its internal troubles to try, even if the army, with its need for an "India threat" to justify its size and its budget, were to allow it to, or,just as unlikely, were India ready to offer some face. savmg concesswns. .
River deep and mountain high So for the foreseeable future Pakistan's relations with both India and America will be stormy. There is, however, one all weather friend: China. When the two countries' leaders talk of this relationship, they sound more like lovestruck adolescents than statesmen. "Higher than mountains, deeper than oceans, stronger than steel and sweeter than honey," was how Pakistan's prime minister, Yousaf Raza Gilani, described their ties last year. Zhou Rong, correspondent in Islamabad for Guangming, a Chinese daily, says the bilateral relationship, uniquely, refutes Palmerston's adage about nations having no permanent friends, only permanent interests. China has dealt uncomplainingly with whatever ghastly regimes Pakistan's elections and coups have thrown up. And it was grateful for Pakistan's swift reaffir mation of friendship after the Beijing massacre in 1989. All the same, it is a relationship based on mutual interests. Pakistan likes to feel it is not entirely beholden to America, and China's backing of Pakistan is a way of hedging against the rise of India as a regional power. There is an economic interest too. China helped build the port at Gwadar and has been improving the roads on the border with its western region of Xinjiang. It is eyeing the mineral wealth in Pakistan itself, and a new route for energy and other imports. But it has little to show for all this. In apparent reprisal for America's nuclear assistance to In dia, China is to sell Pakistan two nuclear power plants, despite its customer's failure to join the international non-proliferation re gime. But the friendship has its limits. China's main concern in Paldstan now probably mirrors America's-the export of Islam ist-inspired violence, in China's case to its own restive Muslims in Xinjiang. Like America, too, it would be most afraid of a Pakistan run by a hardline Islamist regime. Of all the assertions in the Atlan tic's "Ally from Hell" article, the one that probably upset Paid stan's soldiers the most was the suggestion that, following secret talks, China and America had reached an understanding that "should America decide to send forces into Pakistan to secure its nuclear weapons, China would raise no objections." • 8
Politics
Captain's innings
The emergence oflmran Khan reflects disillusionment with both politicians and generals "HE'S THE MAN!" purrs the cosmopolitan young media studies graduate at Punjab University in Lahore. A group of a dozen or so contemporaries broadly shares her enthusiasm for Imran Khan, the rising star of Pakistani politics. Even an angry sceptic, who sees him as "the new blue-eyed boy of the estab lishment", admits that he would vote for him. Politically, Mr Khan has been on a slow-burning fuse that did not go off unti115 years after he formed his party, Pakistan Tehreek-e-Insaf (PTI), and nearly 20 after he captained his coun try to its only victory ever in the cricket world cup. After the PTI boycotted the most recent general election, in 2008, his political career seemed destined to fizzle out. But a huge rally in Lahore in October 2011 showed that he would be an important figure in the general election to be held by early 2013. The Lahore rally was fol lowed by several others, including a massive gathering in Kara chi on Christmas Day, the birthday of Pakistan's founder, Mu hammad Ali Jinnah. Mr Khan likes to talk of the "tsunami" he has created. Many observers assume that Mr Khan's emergence has been assisted by "the establishment", a common euphemism for the army. It is true that the army has a history of trying to bolster "third forces" in Pakistani politics, to weaken the two big civilian �� The Economist February 11th 2012
PAKISTAN
� parties that it has in the past turfed out in coups-the Pakistan Muslim League (Nawaz), or PML(N), and the Pakistan Peoples Party (PPP), which heads the present ruling coalition. Yet, whatever behind-the-scenes help or encouragement Mr Khan is receiving, there is no doubting his popularity among the young urban middle classes ("the pious but unbearded", as one academic puts it). Ijaz Gilani, of Gallup Pakistan, a pollster, attributes his success to even-greater-than-usual disillusionment with the two big parties, and the emergence over the past decade of a new class of educated professionals. Mr Khan's appeal stems from the attractive simplicity of his message: end corrup tion and stop fighting the "American war". He has managed to present himself as an "anti-politician", different from the rest of the breed, which is widely seen as universally corrupt.
Stumping chance
blies, so it is poised to win control of the Senate in March (with its allies' help). This matters not just for passing legislation, but also because the Senate, together with the elected lower house and four provincial assemblies, will form the electoral college for next year's presidential election. Also, were the president to be incapacitated, the Senate's chairman would take over until a new president is elected. So the P PP's opponents were keen to see its government fall before March. It has been under threat from three sides. The least significant of these was the political one. The PML(N), led by Mr Sharif, sought to take advantage of the government's flounder ing. He would prefer elections before the PTI bandwagon gathers further momentum (the "pious unbearded" are also an impor tant PML(N) constituency). But Mr Sharif, once seen as a creature of the army, has become an outspoken critic of its political ambi tions, so he cannot expect its support for an early bid for power; and his ambitions depend on civilian government enduring. The other potential sources of trouble for the government were more dangerous: the judiciary and the army. A lawyers'
This makes for rousing rallies, but not necessarily electoral success. Pakistan has a first-past-the-post system which, as else where, tends to favour two-party politics. And the PPP and PML (N) have deep roots. Both are family fiefs. The PPP is the party of the Bhuttos, from The administration of Mr Zardari is widely viewed as Sindh province; the "N" in PML(N) is for Nawaz Sharif, a former prime minister, hopelessly inept and irredeemably corrupt, and there who, with his brother Shahbaz, the chief are always rumours that its days are numbered minister of Punjab province, lords it over the party. Their organisations and patron age networks provide strong defences against upstart parties and movement was instrumental in bringing down Mr Musharraf, stack parliament with rich landowners who can deliver the and the reinstated chief justice, Iftikhar Chaudhry, seems to see the courts not so much as independent of the government as su votes of their clans and dependants. perior to it. The Supreme Court has been pursuing corruption al Elections are never free of all fraud, but nor, these days, are legations against Mr Zardari, having declared illegal an amnesty they susceptible to massive rigging in favour of the "establish granted under Mr Musharraf. ment" candidate. So most analysts think the PTI's best hope in the election is to emerge as the third party and the power-broker It has also been investigating a scandal known as "Memo in a coalition. Even to achieve that, however, it needs to attract gate". This involves a document delivered by an American busi defectors from other parties with their own local power bases. nessman of Pakistani origin, Mansoor Ijaz, to America's former Two notable recruits are Shah Mehmood Qureshi, a former PPP national security adviser to pass to the chairman of the joint foreign minister, and Makhdoom}aved Hashmi, a PML(N) veter chiefs of staff in May, just after the raid that killed bin Laden. It sought America's help in reining in the army, humiliated by the an. Mr Khan also enjoys some help from Jamaat-e-Islami, the bin Laden episode. Pakistan's ambassador to America, Husain biggest Islamist party, which, like the PTI, boycotted the 2008 election. And he has attracted some members of the PML(Q), the Haqqani, was alleged to have prompted and approved the memo and was forced to resign. The implication was that Mr Zar "king's party" cobbled together in the early 2ooos to give a civil ian underpinning to the rule of Pervez Musharraf when he was dari himself had initiated the approach. still army chief. The government asked the court to drop the "non-issue", This is problematic for Mr Khan. Mr Qureshi and Mr but the army chief, General Ashfaq Kayani, and the head of the Hashmi have unusually clean reputations, but the same cannot ISI, General Ahmed Shuja Pasha, insisted there was a case to an be said of many established politicians. Enlisting the candidates swer, despite the oddity of accusing a head of state of treason who can win electoral seats risks tarnishing Mr Khan's brand against armed forces of which he is the titular commander. The impression was of a judiciary and army joining forces to topple among his idealistic young core of supporters. It also provokes some resentment among longer-serving PTI stalwarts who stuck the government, which certainly appeared to wobble. Mr Zardari has never shaken off the allegations of corrup- �� with Mr Khan when times were tough. For now, however, he is profiting from the exceptionally toxic political atmosphere. The administration of Mr Zardari is widely viewed as hopelessly inept and irredeemably corrupt. Families and friends And, predictably in a country that has seen three coups in its 64Number of seats in nationa l assembly, latest year life, there are always rumours that its days are numbered. Coalition government: • The immediate deadline is March, when so of the 100 seats in the upper house of parliament, the Senate, are up for indirect �101-1 25 -election by the four provincial assemblies. The 2008 national ----� Opposition: P'4 (0I and provincial elections were held not long after the assassina P�UNJ tion of the PPP's leader, Benazir Bhutto, a former prime minister 90 and daughter of the party's founder, Zulfikar Ali Bhutto. Her wid .At\;P JZ ---' ower, Mr Zardari, is holding the party in trust for their young son, Total seats: Bilawal. He became president after the PPP emerged from the PPP 335 125 -------' general election as the largest party in parliament. The PPP also made a good showing in the provincial assem-
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The Economist February 11th 2012
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PAKISTAN
� tion that in the past put him in jail twice for a total of 11 years. His
government's flailing response to catastrophic flooding in 2010, and his own decision to drop by his chateau in France at the height of the floods, further damaged his reputation. In Decem ber his response to criticism was not to defend his government's record but to point to his dynastic lineage. Referring to himself as Zulfikar Ali Bhutto's "spiritual son", he asked the nation "to have faith in the trust reposed by Benazir Bhutto in him". Around that time a friend of his gave a dark warning that "the distance be tween Islamabad and Rawalpindi [the adjacent city housing the army's headquarters] is growing." The president and his prime minister hinted at conspiracies against democracy. This year both legal threats have intensified. Of the two, Memogate seems likely to fade as a threat to the government. However, contempt of court proceedings have been initiated against Mr Gilani, because of the government's failure to act on the Supreme Court's instruction in 2009 to write to the Swiss au thorities to seek the reopening of a money-laundering case against Mr Zardari. His government argues that the president en joys constitutional immunity. The confrontation ensures that the rest of its term will be haunted by constitutional and legal wrangling. But Mr Gilani has various avenues of appeal that can drag out the legal process. Meanwhile all parties seem close to a tacit understanding that there will be no coup. Speaking at the World Economic Forum in Davos in late January, Mr Gilani denied both that he was on bad terms with his generals and that democracy was under threat. But it seemed likely that the election would be called early, in Oc tober or November of this year. The probable outcome would be another fractured coalition.
Fourth time lucky? That would probably suit the army quite well. Mismanage ment of the economy is hitting it hard and it might welcome a re gime of competent technocrats, but there is no obvious way of installing one. And indeed it is hard to see why the army would want to take power now. In the past few years it has successfully beaten off whatever challenges the Zardari government has thrown at it. In July 2008 the government announced that the ISI would be brought under civilian control, through the interior ministry. It retracted the idea within hours. Having ruled Pakistan for more than half its existence, the generals know that even broadly popular seizures of power, such as the one that ousted Mr Sharif and installed General Musharraf in 1999, usually end with the army discredited. Hav ing been far more effective than the civilian authorities in pro viding flood relief, the army, despite the humiliations of 2011, is now less unpopular than it was. So a coup seems unlikely, unless Mr Zardari tries to sack or otherwise meddle with the top brass, or the army is instructed to take unpopular pro-American ac tions, such as tolerating a big American operation against the Haqqani network. A complete rift with America would make the generals worry less about the international implications of un constitutional action. They would be confident that China at least would not condemn them publicly; but China probably could not give them the money, technology and respectability that America provides. The reason that a coup is talked about so often is not just that it has happened before. It is also that the army is still widely seen as the country's most effective and disciplined organisa tion. Given its disastrous history, notably in the brutal war that led to the secession of East Pakistan in 1971, and its poor record in running the country when it has tried, this seems curious. Sadly, however, it is probably true-though civilian rulers have never really been given the chance to do better. •
10
Religion
In the shadow of the mosque Religion is becoming less tolerant, and more central to Pakistan THE CLEAN-SHAVEN, middle-aged academic in Lahore is under fire from his wife and his bushy-bearded 2o-year-old son, a student. Last year he completed the haj, the pilgrimage to Mecca that every Muslim is expected to make at least once. Now, after a lifetime of weekly attendance at the mosque, on Fridays, he is told by his family that he should make the half-hour trip there to say his prayers five times a day. "Pakistan", he says, "has become very religious-minded and anti-West." Since 2001, these sentiments-piety and anti-Westernism have become inseparably fused. Pakistan's founder,Jinnah, still revered as the greatest of national heroes, created a homeland for Muslims but was a Westernised intellectual, often photo graphed in Savile Row suits, puffing on a cigarette. Now, though, many Pakistanis see the West as waging war with Islam. The out ward forms of piety have become more visible everywhere. Far more women now cover their heads. Even before 2001, life in Pakistan was becoming Islamised. Zia ul Haq, the military dictator who ruled from 1977 to 1988, was a religious fanatic. Under him the school curriculum became far more rigidly Islamic. The failings of state education have meant that more and more children attend religious schools, madras sas, of which according to one recent study there are about 2o,ooo, with a student body of 2m-3m. The large numbers of Pakistani migrant workers in Saudi Arabia and elsewhere come home inculcated with stricter forms of Islam than the tolerant, mystical saint-worship of Pakistan's Sufi tradition. The spread of stricter forms of Islam has been disguised by the electoral failure of avowedly Islamist parties. Even in the general election in October 2002, when Jamaat and five others campaigned as a united alliance and enjoyed their best result ever, they won only 11% of the votes, despite some alleged help from the ISI. But supporters of the mainstream parties are not voting for secularism. With the rise in religious observance society has become ��
Visibly more pious The Economist February 11th 2012
�
less tolerant. In late 2011, as Pakistan was rocked by crisis after cri sis, the press still agonised over the antics of Veena Malik, a Paki stani actress who had posed on the cover of an Indian men's magazine, apparently wearing nothing but a tattoo reading (she claimed the photo had been doctored). It was hard to count how many taboos Ms Malik had flouted, but the ones governing female modesty were among the most important. In a studio stacked high with his artwork and antiquities rescued from Hindu temples, Iqbal Hussain, a well-known painter, shrugs off the many threats he receives. His subjects are the working women of his neighbourhood, the red-light district of Lahore. His only customers seem to be foreigners. If intoler ance stopped at public prudishness it would be less worrying, but all too often it is also a pretext for violence. Last year saw the assassination of two leading politicians for daring to call for re form to Pakistan's pernicious blasphemy law, which carries a mandatory death sentence and is often abused to persecute al leged blasphemers on the basis of hearsay evidence. "ISI"
Murderers as heroes
One critic of the law, Salman Taseer, governor of Punjab province, was shot dead in the street in Islamabad in January 20u by his own bodyguard, Mumtaz Qadri. His murderer was feted as a hero. Not long after Taseer's murder, PervezHoodbhoy, a physicist and leading advocate of liberal secular ideals, con fronted two Islamic spokesmen in a television debate. The stu dio audience of 100 or so students clapped when his interlocu tors called for death for blasphemers. When Mr Hoodbhoy accused one of them of having Taseer's blood on his hands, the response was a plaintive "How I wish that I did!" The Ahmadi minority, who consider themselves Muslims but are regarded by the law as infidels, suffer particular persecu tion. In May 2010 at least 93 were killed in bomb explosions at two of their mosques in Lahore during Friday prayers. Chris tians, too, complain of victimisation. The explosions in Lahore were blamed on the Pakistani Taliban. But the tolerance and even encouragement of violence by mainstream clerics must surely be one reason armed extremism flourishes. As noted, the state, too, has played a big partin that, encour agingjihadis to fight first in Afghanistan, then in Kashmir and, it is widely believed, elsewhere in India too. Now it has itself be come the target ofjihad. Muhammad Amir Rana, of the Pakistan Institute for Peace Studies, an Islamabad think-tank, says the Pakistani Taliban gain their political legitimacy from the war in Afghanistan, but their ideological legitimacy from radical Islam and the aim of establishing theocracy in Pakistan. A 2009 treatise on Pakistan's constitution by Ayman al-Zawahiri, at the time sec ond to bin Laden in the al-Qaeda hierarchy, called for the de struction of the Pakistani state. Mr Zawahiri may still be hiding out in North Waziristan, in the Federally Administered 1fibal Areas (FATA) bordering Af ghanistan. The Pushtun tribes there have provided fertile recruit ing grounds for the groups that have coalesced into the Pakistani Taliban. As in Afghanistan, their appeal stems from their ability to deliver swiftjustice and settlement of disputes. Mr Rana says the radical groups have no big support base. They have, how ever, become a serious threat to the Pakistani state, notjust in the tribal areas but in "settled" Pakistan as well. No army wants to be at war with its own people, and the campaign against the Pakistani Taliban is complicated by the po litical legitimacy Mr Rana refers to. So from time to time peace talks are held, which give the extremists a chance to regroup. Moreover, the army's record in fighting both in Swat and FATA has been marked by allegations of brutality, torture and extra-ju dicial killings. This has further boosted militant recruitment. •
The Economist February 11th 2012
The economy
Lights off
Shortages of electricity and credit are bad for growth
KAMRAN, A TAILOR in Rawalpindi, is enjoying a little boom. He and his staff-two men perched on a platform above the counter in his tiny shop-have increased production fivefold this year, to five or six suits a day. They charge 300 rupees (about $3.30) each, with the customers supplying the material. The secret of their success is simple. They have access to credit, in the form of a15,000-rupee loan from TameerBank, a microcredit lender, and, thanks to that, to a reliable supply of electricity. They have invested the money in a battery that enables them to keep sewing through the power cuts that bedevil Rawalpindi, and in deed most of Pakistan, for much of the day and night. Multiply Kamran's experience across the Pakistani econ omy, and the common estimate that power cuts knock about three percentage points offthe growth rate seems extremely con servative. To make matters worse, natural gas, widely used for heating and cooking and to fuel buses and cars, has been in short supply. The shortages have become a serious deterrent to invest- •• 11
PAKISTAN
How not to do it f'alcistan's:
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losses of about 6oo billion rupees a year. Besides the state owned electricity distributors, the railways, the national airline and a steel company are all bleeding cash. Most are seen as cor rupt. The chief justice, Iftikhar Chaudhry, started an investiga tion into the non-payment of salaries and pensions by Pakistan Railways. He asked why it was so interested in buying new loco motives, and why it had retired 104 out of the 204 it had acquired since 2008. The implication was that the purchase of new rolling stock brought lavish commissions.
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Not everyone agrees with Mr Umar that the privatisation of the banks has been a success. Most of the big ones are indeed doing very well. But they are doing so by indulging in what Ra kesh Mohan, a former deputy governor of India's central bank, dubbed "lazy banking": simply investing their deposits in gov ernment bonds. Mian Mohammad Mansha, chairman of MCB, a large and highly profitable commercial bank, says it is lending less than half its deposits. Most of its assets are in treasuries, which he understandably sees as a better investment than loans to state-owned companies. For small businesses-which means 70% of Pakistan's firms-credit is hard to come by. So Kamran the tailor is lucky to have made contact with Ta meer, which is backed by Britain's aid agency, DFID. With the for mal banking sector doing well by lending to the government and big companies, small business is neglected. The economy does not collapse, says Werner Liepach of the ADB, because so much activity is shifting into the informal sector. Moneylenders-usu rers-are having a field day. According to Yaseen Anwar, the go-
ment and a big cause of social unrest. At the other end of the economic scale from Kamran, Asad Umar, who besides his role at the Pakistan Business Council is boss of Engro, a big Pakistani conglomerate, also has access to credit. Even so, Engro's ammonia-urea fertiliser plant in northern Sindh-the biggest in the world and the largest private-invest ment project in Pakistan-shut down only four days after it start ed production in December 2010 and was closed for half of last year because its feedstock, natural gas, was unavailable. Yet En gro's fertiliser business is profitable, so subsidised is the price it pays for the gas. Engro has promised to cut its fertiliser prices as soon as it has a reliable supply of gas. Neither gas nor generating capacity Neither gas nor generating capacity need be in such need be in such acutely short supply. The power cuts are largely the result of bad acutely short supply. The power cuts are largely the policy and mismanagement. What started result of bad policy and mismanagement as a financial problem is now crippling the real economy. The electricity industry is beset by "circular" debts. Fuel suppliers are owed money by gen vernor of the SBP, 56% of Pakistan's adult population have no ac erators who are owed money by distributors who cannot get cess at all to financial services, with a further 32% served only informally-among the lowest levels of financial penetration in consumers to pay. At the end of November last year unpaid elec the world. tricity bills reached 326 billion rupees. Among the big defaulters were the railways, the prime minister's secretariat, the army and There is a crying need for microfmance, and not just for its the IS!. traditional purpose of providing seed money for the poor start ing their first, tiny business but as working capital for small firms. A lot of the electricity used is never billed in the first place. Estimates of "transmission and distribution" losses-in large Just over the road from Kamran, Tahir Mahrnud has borrowed measure a euphemism for theft-vary from 11% to 37% of total 30,000 rupees, like Kamran at an annual interest rate of 20%, to supply, according to the central bank, the State Bank of Pakistan expand his thriving business of designing and decorating custo (SBP). About two-thirds of generation comes from inefficient, mised motorcycle petrol tanks. But so far the number of active high-cost oil-fired plants. Generating costs have doubled in the micro finance borrowers stands at just 2m or so. past two years. In the long run much hope is invested in the What enables banks to be lazy is the government's appetite planned Diamer Bhasha dam and hydropower plant in the for borrowing. Its deficit in the fiscal year that ended in june 2011 north of Pakistan-held Kashmir, backed by the Asian Develop was 6.6% of GDP, if electricity subsidies are included. The budget ment Bank (ADB). But it will be hugely expensive, at an estimat for the current fiscal year sets a target of a deficit of 4%, but that is ed $12 billion, and worries some observers because of the risk of likely to be missed by a wide margin for the third year run earthquakes. And it is opposed by India (because of where it is). ning. The target had been For Mr Umar, the solution to both the gas and electricity cri ot emerging ses are obvious: deregulate and finish privatising the energy agreed with the IMF, which in GOP per person, annual average market. He points out that there is never a shortage of phos November 2008 approved a growth, 1990-2011,% phate-based fertiliser because it is in the private sector, with standby arrangement of $11.3 prices set by the market. He also cites two examples of privatisa billion for Pakistan. The ar Chi na tion working in Pakistan: telecommunications, where the cost of rangement was put on hold in May 2010, by when $7.6 billion a call from Karachi to Lahore is now s% of what it used to be; and India banking, where some 85% of assets are now held in private had been disbursed, and termi lndoresia banks, compared with only 10% in 1990. nated in September 2011. Pakistan The IMF withdrew be It is true that the government's performance in running cause the government failed to businesses is poor. Government-owned companies are piling up
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The Economist February 11th 2012
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So the government does not have much to spend and, as the SBP noted in its annual report, risks being caught in a debt trap because it is borrowing for recurrent as well as capital spending. Spending on health, welfare and education is further constrained by a big outlay on defence, which accounts for near ly 20% of the 2011-12 budget expenditure, compared with less than 8% for education. Some analysts worry that the fiscal deficit is about to take a dire toll on Pakistan's external accounts. This month the first re payment to the IMF, of $1.2 billion, falls due. Fears that this is going to precipitate a crisis seem overblown. But Pakistan's cur rent account-in a small surplus last year-is likely to tilt into deficit. The healthy flow of repatriated income from overseas workers may be reduced by the deterioration in the world economy and by Saudi Arabia's plan, if implemented, to Try harder cap remittances. Pakistan's net female school enrolment rate Exports did surprisingly well in 2010,% 2010, despite the floods, thanks in large • Secondary measure to a rise in the price of cotton. That trend has reversed, and with the 70 power shortages plaguing the textile in 60 dustry, and falling glohal demand, exports are unlikely to maintain their growth. It is 30 possible that Pakistan, which has foreign 20 exchange reserves to cover four to five 10 months of imports, will run into balance 0 of-payment difficulties in the next couple d'4imal}5 Se
meet its fiscal targets. In particular, it needs to raise taxes. Govern ment tax revenues as a proportion of GDP are about 10%, among the lowest in the world. In 2010 and 2011 floods hindered efforts to raise more taxes, but the fundamental problem is political. No democracy finds it easy to raise taxes, and in Pakistan that diffi culty is compounded by the main parties' perception of their support bases. The PML(N) does not want to alienate business, which opposes indirect taxes, and the PPP rejects land or other taxes that would hurt its landowner friends.
A taste of Hunny THE HUN NY SCHOOL, a private institution occupying two cra m ped buildings in Rawal pindi's back streets, seems a happy place. The boys and girls packed into its little classrooms look pleased to be there. Some look much older than their classmates. They have a lot of catching up to do. Many were street children whose parents could not afford to send them to school. A future of illiteracy and perhaps crime and drugs
beckoned. Ofthe school's 900 students, over 400 are financed by the Punj ab Education Foun dation (PEF), a statutory body under the provincial government which in turn re ceives aid from donors such as Britain. It provides vouchers to pay the fees ofap proved schools such as Hunny, which range from 200 to 350 rupees a month. It is an attempt to tackle one of Paki stan's worst problems: the huge number of children who receive no education at all.
One-tenth oftheworld's primary-age
Striking it lucky The Economist February 11th 2012
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Poverty
Always with us
Natural catastrophes have shown up the depth of poverty in Pakistan THREE TIMES IN recent years Pakistan has suffered from cataclysmic disasters. The earthquake that struck Kashmir in October 2005 killed over 70,000 people and made 3m home less. In 2010 the Indus river spilled over its banks, flooding one fifth of the country and affecting 20m people. More than 1,700 people lost their lives. The following year unusually heavy rains-one monsoon's-worth in a day-brought renewed flood ing in Sindh and Balochistan. Of the inundated area, 35% had also been flooded the year before. Over 5m people were affected. On each occasion appeals for emergency aid were launched, but by 2011 the response was tepid. That may have been because there were so many competing disasters else where, or because the world was weary of Pakistan's woes. But it also reflected some donors' exasperation with the government's handling of the crisis. The economic impact of these disasters was not as great as might be expected. In 2005, the earthquake year, Pakistan's GDP grew by 7.7%, one of its best-ever performances. The floods in 2010 and 2011 had a big impact on people's lives, but again did not dent overall growth that much. In 2010, according to the State Bank, 6.6m workers were unemployed for two to three months and capital stock worth $2.6 billion, or 1.2% of GDP, was de stroyed. But agriculture recovered remarkably quickly, with a bumper winter-wheat crop; and, buoyed by the high cotton price, so did textile exports, despite the waterlogging. The minis try of finance estimated that the huge but somewhat less cata strophic floods in 2011 would shave just 0.5 percentage points off growth for the fiscal year ending in June 2012. The relatively small macroeconomic impact of these disas ters reflects the extraordinary resilience of rural Pakistan. It is also a tribute to the international aid effort and to the work of the army and Pakistani charities. One factor mitigating the govern ment's desperately low tax take is that Pakistan has one of the highest rates of private charitable donations in the world-al most 5% of GDP. For all the criticism, the government has also brought in some admired relief measures, in particular its system for pro viding direct cash payments to flood-affected households (virtu ally none of which has a bank account). Families are issued with smart, machine-readable "Watan" cards issued by the big banks that allow holders to collect cash from branches or local agents. Some 1.7m of these were issued after the 2010 floods. Although impressed with the scheme, one foreign aid professional never theless describes it as "palliative care for a bad macro-economy". Indeed, the main reason that the disasters seem to have such a limited effect on growth is that the people they hit are mostly so poor that the loss of their production has no impact on GDP. Most are among the roughly two-thirds of the population who live in the countryside and depend on agriculture, which contributes about one-fifth of GDP. Besides the natural disasters they have also had to cope with high inflation: food prices rose by about lo% in the year to last November. According to the Asian Development Bank, the proportion of Pakistan's population living on less than $2 a day (adjusted for
14
After the flood purchasing power) has fallen from 83% in 1996 to about 6o% now. But in 2007 the bank also found that Bangladesh and Pakistan were the only countries in Asia where the poorest fifth of the population were worse off than they had been a decade earlier. Foreign aid workers administering flood relief have been shocked by the high levels of malnutrition they found. One calls it "the other emergency". According to figures from UNICEF, 44% of Pakistani children are suffering from chronic malnutrition, in cluding15% who are acutely malnourished. This is partly to do with feeding practices. Only 37% of Paki stani babies are exclusively breastfed. But a national survey also found that 58% of households were "food insecure" and 30% were suffering moderate or severe hunger. In flood-affected ar eas the numbers were even worse, with 18% of children "acute ly" malnourished and 7% suffering "severe acute malnutrition". Given the effect of malnutrition on children's develop ment, it is perhaps not surprising that Pakistan is further down the United Nations league table of human-development indica tors (145th out of 187 countries) than that of GDP per head (138th). That, too, is an emergency of a sort. •
Violence
Dripping with blood
Too many disagreements in Pakistan are fatal ON DECEMBER 29TH Syed Baqir Shah, a police surgeon, was gunned down in Quetta, the capital of the province of Balochistan. A few days later the police said that some 50 sus pects had been arrested but there had been no "major break through". Few were surprised. Among the prime suspects were the police themselves and the Frontier Corps, a paramilitary out fit that in theory reports to the provincial government but takes orders from the army. Dr Shah was just one of more than 300 people in the prov ince believed to have fallen victim to the security forces' "kill and dump" policies last year. He had testified to an inquiry looking into the death of five unarmed foreigners from Russia and Taj iki stan earlier last year. Contradicting the official account, he said �� The Economist February 11th 2012
PAKISTAN
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they had been killed by the security forces. Shortly after that he was beaten up, but did not change his professional opinion. Of all the sordid little wars under way in Pakistan, the con flicts in Balochistan, Pakistan's biggest but sparsely populated province, are among the dirtiest. A long-running secessionist campaign intensified after the killing of a Baloch nationalist leader, Nawab Akbar Bugti, in August 2006. As usual, Pakistan's government blames the troubles on India. Some Western intelli gence sources believe it is meddling, but the prime cause of the unrest is Pakistan's own handling of the province. Nor is secessionism the only cause of violence. Last Octo ber a bus outside Quetta was held up by gunmen on motorcycles and 13 of the passengers shot dead. The previous month 26 peo ple had been killed when travelling on a bus to Shia holy sites in Iran. They were ethnic-Hazara Shias, of whom, according to Hu man Rights Watch, a research and lobby group, over 300 have been killed by Sunni extremist groups since 2008. Baloch-nationalist extremists have introduced a further poison: a form of selective ethnic cleansing, killing migrants from Punjab and Sindh. Schoolteachers have proved particular ly vulnerable, leading to the closure for much of the year of schools in parts of rural Balochistan. Fuelling the conflict is Balo chistan's natural wealth-oil, gas and especially copper. The province complains that the federal government does not give it enough money, though it now receives 9% of federal funds, with only about 5% of the total population.
A nation at war with itself Balochistan is an extreme example of a national phenome non. Pakistan, a tolerant, hospitable and friendly country, has be come a very violent place. Over 30,000 Pakistanis have lost their lives in terrorist-related violence in the past four years. Even in the comparative lull in suicide-bombings in late 2011, the news papers carried a litany of horror stories: terrorist attacks; "hon our killings"; ethnic violence in Karachi; assassinations. Not all the carnage can be blamed on "the American war". According to the Human Rights Commission of Pakistan, at least 675 women and girls were murdered in the first nine months of 2011, mostly for having "illicit relations". Some were raped or gang-raped be fore being killed. Of course this is illegal, but the state is too weak and too unwilling to enforce the law consistently. Very few of the culprits will be brought to justice. Violence also permeates politics, from top to bottom. One former president and prime minister, Zulfikar Ali Bhutto, was hanged in 1979; a serving president, Muhammad Zia ul Haq, was assassinated in an aeroplane explosion in 1988; Benazir Bhutto was killed in a bomb attack in Rawalpindi in 2007. At the grass roots, landowner-politicians rely on muscle-power as well as pa tronage. In the cities, too, politicians have their guns and goons as well as gold. Nowhere is this truer than in Karachi, a city of 18m people, plastered everywhere with the flags and posters of political parties and prey to appalling levels of violence. In the past four years 7,ooo people have been killed, includinp ,891last year. The prime minister has, again, hinted at the involvement of "foreign hands". A more credible explanation is the fusion in Ka rachi of gangland, political and ethnic battle lines. Since the late 1980s the city's administration has been dominated by a party now called the Muttahida Qaumi Mahaz, or MQM. Its ethnic base is among the mohajirs, the Urdu-speaking descendants of immigrants from India at the time of partition. Its rivals are the PPP, whose base is among Sindhi-speakers (Karachi is in Sindh), and the Awami National Party, or ANP, with Pushtun supporters. In recent years the ethnic and commercial balance has shifted as large numbers of Pushtuns have moved to Karachi from the Afghan frontier, making it the largest Pushtun The Economist February 11th 2012
Body count Pakistan's fatalities from terrorist violence, '000 • Terro1ists
• Security forces • Civilians
2003
04
05
06
07
08
09
to
t:
0
city anywhere. The Pushtuns have gained clout thanks to their dominance of the transport business: Karachi is the port where supplies for ISAF in Afghanistan arrive. The three parties and their gangster allies are engaged in a vicious turf war. The endemic violence makes Pakistan the deadliest coun try in the world for the press, according to the Committee to Pro tect Journalists, an NGO. Eleven journalists died last year going about their jobs, of whom seven were murdered. In May last year the body of Saleem Shahzad was found, showing signs of torture. He had been writing for Asia Times, an online newspa per, about ai-Qaeda's alleged infiltration of the Pakistani navy. This was the reason, he claimed, for a 17-hour siege of a naval base in Karachi that month. Coming on the heels of the discov ery of bin Laden, this was highly embarrassing to the army. Mr Shahzad had told colleagues that he had been receiving threats from the IS I. Others have received threats, too. In December two senior journalists, Hamid Mir and Najam Sethi, a longstanding contrib utor to The Economist, made public that they had received death threats from extremist groups and "state actors". They gambled that publicity might afford them some protection-not least from the organs of the state whose job it is to provide security. •
Water
Going with the flow To fix the country's Long-term problems, action needs to start now FOR MILLIONS SUFFERING the misery of the past two years' floods it must seem the cruellest of jokes, but Pakistan is one of the world's most arid countries. Average annual rainfall is less than 24omm, and the total availability of water per person has fallen from about 5,000 cubic metres in the 1950s to about 1,100 now, just above the 1,ooo cubic-metre-per-head defi nition of "water-scarce". A shortage of water is a more serious peril than any of the others mentioned in this report. Combined with continued fast growth in its population, it is the true exis tential threat to Pakistan. Pakistan is arranged along the Indus river basin and the world's largest contiguous irrigation system which it feeds. From ��
15
PAKISTAN
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the air much of Pakistan looks brown, dusty and infertile. Only about one-quarter of the land is cultivated. According to a 2009 study by the Woodrow Wilson Centre in Washington, at least 90% of Pakistan's fresh water is used for irrigation and agricul ture. But, it says, "intensive irrigation regimes and poor drainage practices have caused waterlogging and soil salinity throughout Pakistan's countryside. As a result, vast expanses of the nation's rich agricultural lands are too wet or salty to yield any meaning ful harvests." The study forecasts that by 2025 Pakistan's annual water supply will fall short of demand by around100 billion cubic me tres, about half of the entire present flow of the Indus. In parts of the country the shortage of water is already acute. Around Quet ta in Balochistan, for example, the water table is now 330-400 metres (1,ooo-1,200 feet) below the surface and estimated to be falling by 3.5 metres a year. Over 2,ooo tube wells have dried up. Electricity subsidies . . I Burgeoning encourage expensive pumpmg by of scarce water. age group. John Briscoe, a water spe Male��� cialist who used to work for the World Bank and is now en gaged in a study for the Friends of Democratic Pakistan, a do nor group, says that in any event some 6o% of water sup plies around Quetta are unac counted for-leaked or stolen. The only solution, he argues, is to stop pumping except for ur ban use and put a price on it. Without some drastic action, Quetta, with more than peo ple, may have to close down. Quetta's thirst could be come a national phenomenon. Already more than two-fifths of Pakistan's population lacks access to safe drinking water. The glaciers of the western Hi malayas, whose snowmelt and rains provide the Indus with its water, are dwindling as the world warms up. In the short term this, and spectacular rains such as those seen in the past two years, could lead to more floods. In the longer run, river flows could fall by what the World Bank calls a "terrifying" 30-40%. Much could be done to avert disaster: repairing and modernising canal systems; de veloping spate irrigation schemes that divert flash floods to replenish aquifers; stopping electricity subsidies that en courage water-intensive agri culture; and building small and medium-sized dams. But many experts believe that Pakistan also needs some megadams, which are more controversial. Arid debates Pakistan's population sex and 201t, m 12
80+
60
40
20 0
1m
16
8
4
0
Female 4
8
12
They point out that, whereas America and Australia have dams that can hold 900 days worth of river run-off, Pakistan can barely store 30 days-worth Reprints in the Indus basin. For Mr Briscoe, storage 10% would be the main benefit of fered by Diamer Bhasha, be sides the much-needed electric ity generation and flood control. Another big dam, Kalabagh, un der discussion for years, may never be built, because it would be in Punjab province and Sindh has objected. For some, despairing of Pakistan's perpetually messy politics, such disputes are rea sons for suspending democracy. t Only a strong government, they argue, undistracted by the quo Future special reports tidian dealmaking and corrup tion of parliamentary politics, can take the tough decisions needed: to combat Islamist ex tremism, broaden the tax base, curb political violence and g counter the environmental and demographic threats to Paid stan's future. Such were the hopes for decisive, impartial, "executive" government that accompanied Mr Musharraf when he took over. And in Pakistan, it is still to the army that people look for strength. But military rule is not the answer. After all, it has been tried for half of Pakistan's exis tence. What has not been tried is truly civilian rule backed by a wholly supportive army. It is too much to hope that the army will withdraw from politics altogether. But itis nottoo muchto dream that an enlight ened high command might try to put its house in order. It might realise that the flirtation with terrorist groups has become a threat to the nation's future as well as to its own image; that a true peace with India is in Pakistan's interests; that politics would be less messy ifthe army meddledless; and even, at a mundane lev el, as a member of parliament said of the last November, that "when they can finance political parties and interfere in demo cratic affairs, why can't they pay electricity bills?"
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Missing map? Sadly, India censors maps that show the current effective border, insisting instead that only its full territorial claims be shown. It is more intolerant on this issue than either China or Pakistan. Indian readers will therefore probably be deprived ofthe map on the second page of this special report. Unlike their government. we think our Indian readers can face political reality. Those who want to see an accurate depiction of the various territorial claims can do so using our interactive map at Economist.comfasianborders
ISI
Bananas are not the only fruit
The BBC documentary that prompted cable operators to block the channel indefinitely included an interview with Am rullah Saleh, a former head of Afghanistan's intelligence ser vices. He describes a meeting in 2007 with Mr Musharraf, Paki stan's president at the time, at which he was told of Afghan suspicions that bin Laden was living in a settled area ofPakistan. Mr Musharraf lost his temper and shouted: "Am I the president of the Republic of Banana?" He need not have worried. The only sense in which Pakistan is a banana republic is that parts of the army are out of civilian control, and unaccountable. •
The Economist Februa ry 11th 2012
49 Also in this section 50 Judging the Arab spring 50 Egypt's turmoil 51 Divorce Sudan-style 51 Resource nationalism in Africa
For daily analysis and debate on the Middle East and Africa, visit
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Israel and Iran
Closer to take-off
Momentum is growing for an Israeli airstrike on Iran-with or without American support
I
S IT all part of a carefully calibrated cam paign of bluff and rumour intended to support tightening sanctions and bring Iran to the negotiating table, or is the ground really being prepared for an attack on Iranian nuclear facilities in the next few months? Perhaps it is neither and the peo ple who count, yet to make up their minds, are frantically hedging and debating. In early February the annual Herzliya security conference in Israel provided a platform for the country's military and in telligence elite to air their concerns about Iran's progress toward a nuclear weapon. Israel's hawkish defence minister, Ehud Barak, said that the "window" for an effec tive strike was rapidly closing because the continuing movement of essential ura nium-enriching centrifuges to the Fordow underground facility, close to the holy city of Qom, would give Iran a "zone of immu nity" in which it could construct a bomb regardless of any intervention by the out side world. Attacking the case for waiting to assess the impact of the latest round of sanctions, due to come into effect by midyear, Mr Ba rak warned that "whoever says 'later' may find that later is too late." He added that "the assessment of many experts. . .is that the result of avoiding action will certainly be a nuclear Iran, and dealing with a nuc lear Iran will be more complicated, more dangerous and more costly in lives and money than stopping it."
Mr Barak's American opposite number, Leon Panetta, who was travelling with journalists to a meeting with his NATO counterparts in Brussels, confided soon af terwards that there was a strong likelihood of Israel attacking Iran in April, May or June, when the skies are usually clear. Mr Panetta was not speaking on the record, but later turned down an opportunity to disown his remarks. Iran's supreme leader, Ayatollah Ali Khamenei, responded by using his nation ally broadcast Friday sermon on February 3rd to commit the country to continuing its nuclear programme no matter what, and to threaten both Israel and America. He de scribed Israel as a "cancerous tumour" that "will be removed" and declared that if war broke out "it would be ten times deadlier for the Americans" than for Iran. Mr Khamenei also called on regional al lies to attack Israel. "Iran would assist any country or organisation that would fight the Zionist regime, which is now weaker than ever," he said. It is a call that may, however, fall on deaf ears. Iran's main ally in the region, the Syrian government, has other things on its mind. If it falls, pro-Irani an groups in Lebanon and Gaza will find their supply-lines cut. Amid the escalating war of words, the military preparations for a conflict are in deed underway. The head of ground forces at the Iranian Revolutionary Guard has an nounced exercises in the south of the
country, near the Strait of Hormuz, and America has begun its largest amphibious landing drill for a decade, described by Ad miral John Harvey of the us Fleet Forces Command as "informed by recent history" and "applicable" to the Strait of Hormuz. Meanwhile, DEBKAfile, an excitable but at times well-informed Israeli security web site, reported that "many thousands" of American troops have arrived at two is lands close to the Strait, Masirah in Oman and Socotra in Yemen. Yet for all the alarums and excursions, there are few hard conclusions to draw about whether an attack on Iran is immi nent, or whether Israel is prepared to act unilaterally. And it is not clear whether, if it was convinced this was about to happen, America would feel compelled to hold Is rael back and carry out the strikes itself. Only Israel's senior leadership (and per haps the Americans) know whether the Is raeli air force is capable of carrying out an effective attack on its own. Attempting to calm things down, Ba rack Obama said on February sth that he did not think Israel had "made a decision on what they need to do" and that the two countries would work in "lockstep as we proceed to solve this, hopefully diplomati cally''. Mr Obama will be mindful that an attack would dominate his bid for re-elec tion in November-though it is unclear whether he would gain as a war president or lose ground because of a surge in oil prices and an economic reversal. The consequences might not be as cata strophic as some fear. On the other hand they fall into the disturbing category that Donald Rumsfeld, a former American de fence secretary, once called "known un knowns". Unfortunately for Mr Obama the decision is more likely to rest with Mr Barak and his prime minister, Binyamin Netanyahu, than with him. •
50 Middle East and Africa Eyeing the Arab spring
Gloom and bloom HERZLIYA
What Israelis are making of the yearlong racket on their border
T
HE Jewish state was founded as para dise for the persecuted. Overshadowed by the terrible legacy of anti-Semitism and bruised by its frequent wars, the country now faces, Israel's politicians proclaim, the danger of annihilation by Iranian nuclear bombs. Yet for long years Israel has en joyed one relative comfort. Most of the time its angry neighbours have been con veniently weak and divided. Could that change? Some Israelis fear the Arab spring is set to produce an Islam ist winter. Religiously inspired parties, mostly linked to the Muslim Brotherhood, have emerged as the strongest political force in half a dozen Arab states. The Broth erhood itself now dominates Egypt, the largest Arab nation. Its rise there in effect ends the isolation of the Brothers' offshoot in the Gaza Strip, the Palestinian group Ha mas, which has warred with Israel for de cades. Jordan's wobbly king, reliably ac commodating to Israel, faces a rejuvenated Islamist opposition. When the smoke clears in Syria, Islamist forces could emerge triumphant there too, seemingly completing Israel's encirclement by like minded, hostile governments. Israel's leaders also sensed danger on February 6th at news that Hamas and Fa tah, the rival Palestinian party that runs a secular rump state on the West Bank, have agreed to end a bitter feud and form a unity government. Binyamin Netanyahu, Isra el's right-wing prime minister, warned that in collaborating with what he deems a ter rorist group, Fatah's leader, Mahmoud Ab bas, has abandoned the search for peace. Yet Israelis are hardly shaking in their boots. With or without peace, a system of walls, checkpoints and bypass roads, soon to be bolstered by a high-tech shield against short-range missiles, keeps them relatively safe from Palestinian reprisals. Militarily, Israel towers over its neigh bours. "We are the strongest power within a 1,soo-km radius," says Efraim Halevy, a former head of Mossad, a spy agency. "We should talk like a power, act like a power and win the fruits of being a power." Aviv Kochavi, the director of Israeli mil itary intelligence, predicts that internal in stability will enfeeble neighbouring Arab states for several years to come. As for Iran, aside from its nuclear potential, it presents little challenge. The ruling elite is ideologi cally isolated and relies for strategic clout on an axis with Syria's floundering regime. Many Sunni Arab countries are in fact
The Economist February 11th 2012 more worried by the threat coming from the Persian Shias of Iran than by Israel, reckons Dore Gold, a former official who posits an opportunity for pacts of mutual interest. "What pulled Europe together was not coal and steel but fear of the Soviet Union," he says. Israel's governing coalition, mean while, is unusually stable and well placed to endure beyond elections that are not scheduled until 2013. In the short term Eu rope's preoccupation with its economy, and America's with presidential elections, will lessen diplomatic pressure for Israel to make any concessions for peace. In the lon ger term, Israeli leaders believe the inti mate military ties they have forged with emerging powers, particularly India and China, will continue to insulate them from demands, for instance, to undo Jewish con trol of the West Bank. Even outside Israel's ruling caste tem pers are surprisingly sanguine. Pragmatic relationships may be forged with Islamist parties, admit right-wingers. Others say the country should focus on its own pro blems, such as the Palestinians, persistent poverty and a rising wealth gap. •
Egypt's turmoil
It goes on and on CAIRO
The newly elected Islamists struggle to keep up with events
A
MESSY transition to democracy in Egypt is getting messier still. Protesters and police are once again fighting street battles. Foreign pro-democracy activists face prosecution for helping civil society groups. Newly elected parliamentarians are struggling to stay on good terms with both the revolutionaries who forged their path and the generals who are set to stay in charge for a few more months. The latest clashes were sparked by the deaths of 74 people at a football match in the city of Port Said onFebruary1st. Fans of the local team, al-Masri, took to the pitch after winning the game and attacked the fans of the rival team, al-Ahly. Security forces failed to heed numerous warnings about the rivalry between them, outraging the public and persuading vengeful fans to join demonstrators in Tahrir Square, the revolution's ground zero. Egyptians are generally unhappy with the stewardship provided by the Supreme Council of the Armed Forces since the top pling of Hosni Mubarak. Apart from loom ing economic disaster, lack of any real re form and recurrent bloody clashes with protesters that have claimed over 100 lives in recent months, the generals are increas-
ingly perceived as unable to provide stabil ity and security. In recent weeks sensation al kidnappings and robberies have dominated newspaper headlines. Against this unhappy backdrop have appeared growing divisions between the protest movement that launched last year's revolution and the Islamist-domin ated parliament. Before the clashes, MPS backed the generals' timetable for presi dential elections on June 15th. Protesters objected and accused the Islamists of be ing in cahoots with the army, as was the previous ruling party. After the Port Said ri ots the mood in parliament changed and presidential elections were moved up, al though no new date has been set. Secular MPS closest to the protest movement are trying to embarrass the ls lamists. Young liberal politicians are pub lishing evidence of police abuse and pro posing legislation that would exclude the army from oversight of the elections or the writing of a new constitution. Meanwhile, activists have opened a new front against the generals by calling for a boycott of goods made by firms under the army's control. They have also called for a general strike on February nth, the anniversary of the old regime's demise. All of this puts the Islamists of the Free dom and Justice Party in a bind. As Egypt's most potent political force, which domi nates parliament, they must stabilise the country and negotiate a han dover of pow er from the generals, who fear for their privileges. That could become even harder if America responds to the prosecution of 44 pro-democracy activists, including 19 Americans, by cutting $1.3 billion in mili tary aid, as has been mooted. With the gen erals losing the support of the public and possibly America, the Islamists may have taken sides too soon. The Egyptian street is once again making the running. •
You have to listen to us
The Economist February 11th
2012
Middle East and Africa 51
Sudan and South Sudan
The mother of all divorces KHARTOUM
And still they row about their split
IX months after the two Sudans formal ly split into separate countries they are still haggling over the divorce settlement. The tense negotiations, often accompa nied by violent clashes along their border, are being described in both capitals as an "oil war" since the main prize is petroleum revenues. Recent South Sudanese threats to cut the north out of them completely have made a return to sustained conflict a real possibility. Sudan's president, Omar al-Bashir, said war is nearer than peace. When South Sudan seceded last July following decades of civil war, it took with it three-quarters of the old country's daily production of around 480,000 barrels. But its only way of getting the oil to market is via the north, which has pipelines, refiner ies and export terminals. Talks over how much South Sudan should pay in transit fees have yielded no result. In December Sudan decided to con fiscate oil as payment in kind. South Sudan calls this theft. In January it announced the shutdown of all production, even though this will deprive it of 98% of its official rev enue. It also signed a memorandum of un derstanding with Kenya to build a new pipeline to Lamu, an Indian Ocean port, though experts warn this would take years and cost billions of dollars. The decision has proven very popular in South Sudan. "This is the day we truly became an independent nation," says one Juba resident. But that feeling is unlikely to last. "South Sudan has set off its economic doomsday machine," warns Alex de Waal, a Sudan expert who is advising the African Union. During recent mediation talks the Ethi opian prime minister, Meles Zenawi, came close to convincing both sides to sign a temporary deal. But the South Sudanese president, Salva Kiir, in the end refused. The north reacted with outrage but in truth it had employed similar brinkmanship in the past. Both sides fight like alley cats in negotiations. They will risk annihilation to carry a point. Two years ago when Pagan Amum, South Sudan's lead negotiator, was push ing for a parliamentary vote in the Suda nese legislature on a referendum law that would eventually pave the way for seces sion, he and several other politicians goaded the government into arresting them. The resulting flurry of publicity sped up the talks. "It worked perfectly," he said witha wink. •
S
Resource nationalism in Africa
Wish you were mine JOHANNESBURG
African governments are seeking higher rents and bigger ownership stakes from foreign miners
HE true extent of Africa's vast wealth
Tof resources is hard to guess. Geologists
have picked over most of the rest of the globe in search of minerals, yet huge swathes of Africa remain largely un probed. But the immense ore deposits so far discovered and soaring commodity prices on the back of rip-roaring Chinese demand have convinced the world's min ers that the continent is the next big fron tier. Bumper profits have also spurred min eral-rich countries to seek a bigger share of the spoils. The list of African governments that have miners in their sights is a long one. South Africa, home to the greatest mineral wealth in the world, estimated to be worth $2.5 trillion, is considering imposing a swingeing so% windfall tax on mining "su per profits" and a so% capital-gains tax on the sale of prospecting rights. Those are among the proposals put forward by an in dependent panel of experts, set up by the ruling African National Congress (ANC) to study the possibility of greater state inter vention in the mining sector. Ghana, Africa's second-biggest gold producer, recently announced a review and possible renegotiation of all mining contracts to ensure that mining profits are "maximised. . . [for] the good of the coun try". It plans to raise taxes on mining com panies, from 25% to 35%, and a windfall tax of 10% on "super profits" in addition to ex-
isting royalties on output of s%. Zambia, which is Africa's biggest copper producer, recently doubled its royalties on the metal, to 6%. Guinea, home to the world's largest bauxite reserves as well as one of the world's biggest iron-ore deposits, is help ing itself to a 15% stake in all mining pro jects and an option to buy a further 20%. Namibia has decided to transfer all new mining and exploration to a state-owned company. If miners in these countries feel hard done by, they should count themselves lucky that they are not wielding their shov els in Zimbabwe. Its "indigenisation" poli cy will force foreign firms to "cede" a 51% stake to locals. Nigeria may renegotiate off shore oil contracts, because today's "unfair fiscal terms" are costing the country $5 bil lion in lost revenue, it claims. And so it goes on. Right across the continent govern ments are seeking new ways to squeeze more out of foreign-owned firms growing rich off what lies beneath Africa's soil. Resource nationalism is nothing new. Big Oil has suffered periodic bouts of na tionalisation and sometimes seen con tracts torn up in the Middle East and be yond that had run for more than so years. Nor is the practice confined to developing countries that feel they came off second best when negotiating resource deals in years gone by. Australia is set to raise some $8 billion a year through a controversial ��
52 Middle East and Africa
The Economist February 11th 2012
� new tax on miners; Britain has previously dipped into the profits of oil companies in the North Sea. However, in the past year resource na tionalism has jumped to the top of the list of things that worry the 30 biggest global miners. This was prompted by 2S countries worldwide announcing plans to boost their take of profits, according to a survey by Ernst & Young, a consultancy. A rapid re bound after commodity prices collapsed in the aftermath of the financial crisis in 2009 convinced cash-strapped govern ments that large multinationals were easy targets. In Africa mining companies are of ten especially vulnerable-they are usually the biggest corporate beasts around. Wide spread poverty has provided a ready ex cuse for governments dependent on in come from resources. The trick for miners is to ensure not only that the money keeps flowing but also that the miners agree to the spending on roads, railways, schools and s hospitals that are now a cus tomary part of the package the industry offers to acquire mineral rights. Many feel abused but they do not have much choice. In a world where big new ore bodies are hard to find, most will keep coming back to Africa. Of the ten biggest min ing deals to be completed last year, seven were in Africa, according to Ernst & Young. Even as governments move to grab bigger slices of the cal<e, high prices mean the miners remain profitable. Anglo Ameri can, a mining giant, has earmarked $8 bil lion for new platinum, diamond, iron ore and coal projects; Brazil's Vale said in June that it plans to spend more than $12 billion over the next five years. Rio Tinto, which has not had an easy time with its mam moth African investment at Simandou in Guinea, also signalled it will stick with Af nca. Many of the resources are spread across the continent fairly evenly, leaving miners with a choice about where to go. Given that mining investments can cost many bil lions of dollars and take up to a decade to show a profit, miners are understandably wary of working in countries where the fiscal rules change unpredictably. Zimbabwe's new law requiring indige nisation, apparently without compensa tion, is clearly not designed to attract new foreign investment. The three biggest min ers already operating there-Zimplats, Rio Tinto and Anglo Platinum-also face a dou bling of royalties on platinum toto%, along with a ban on raw platinum exports, that will oblige them to build a refinery in Zim babwe at a cost of some $2 billion. Regardless of Zimbabwe's heavy-hand ed treatment, mining companies do not necessarily object in principle to giving lo cals a larger stake in their operations. After
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the end of apartheid in South Africa, white mining bosses were at the forefront of drafting the country's black-economic-em powerment laws. These require mining firms to sell stakes of at least 26% to black shareholders by 2014. The ANc-commissioned panel recom mends that this be increased to 30%. The Chamber of Mines recently announced that on average its 33 members, represent ing three-quarters of the industry, had al ready achieved today's target. Nonethe less, the government puts the black share at just 9%, as most black-owned shares were bought with borrowed money. This could mean trouble. Investors have been even more wor-
southern African countries such as Bo tswana, Mozambique and Namibia were becoming increasingly attractive mining destinations at the expense of South Afri ca, which has slipped 18 places since 2008, to 67th out of 79 countries in the annual survey of mining-investment attractive ness compiled by the Frazer Institute, a Ca nadian think tank. Miners and governments often look en viously at Debswana, the successful so-so diamondjointventure between Botswana and De Beers, the world's leading dia mond firm. Set up over 30 years ago, it ac counts for nearly a third of Botswana's GDP, half of government revenues and around three-quarters of export earnings. Even though So% of the profits go directly into government coffers, De Beers consid ers Debswana one of its best investments. "'---\.. So why is the model not being adopted f""'. -..) �-� everywhere? \\ \ LIBvA Because, says James Suzman, public afEGYPT fairs director at De Beers, Botswana is unique. It has rich and productive mines, a stable and tr stworthy government with MAli NIGER one of Af n_ ca s best records of good gover5 u 0 ERH REA nance and it is a small country of BURKINA FASO _.2m people where the impact on ETHIOPIA ordinary folk is huge, so everySOUTH C . A . R . SUDAN one feels they are benefiting. In , :--� � .-:. " OA Namibia, where De Beers also oper,��" C 0 N G '0 ates, the cash-strapped government \.GABON seems reluctant to carry its share of the in ,TANZANIA I� vestment burden. And even Botswana is Major resources not above a bit of resource nationalism. mined in AfriCll
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that go with it-in return for extending · · S 0 UtH ·Ia· d tOr h ItS d t e renegotiating peno 1: g; oun &Y � Er rou�; G J'f.RICA � usGeoll><J urv e y; _ 0 8awcile mond-sales agreement from five ' tiJlS Th# fconor!l15! .r� years to ten. Meanwhile Namdeb, a similar joint venture between De Beers ried by the persistent demands of the rul and Namibia, has run into a trouble. With ing ANC's powerful Youth League for na out new investment of around $1 billion, with or tionalisation, without Namdeb says, its mines will have to close compensation. The ANC's expert panel in the next couple of years. With it, they has come out strongly against the idea on could probably be successfully exploited for another five decades. the grounds that the official purchase of Populist advocates of greater state par listed mining companies' shares, at an esti mated cost of1 trillion rand ($130 billion), is ticipation in mining often forget that na tionalisation, partial or complete, means far beyond the government's means and implementing a Zimbabwe-style asset that when the going gets tough, as it even grab would be unconstitutional and coun tually will in a cyclical industry like min ter-productive. ing, the state must be prepared to cough up, Most ministers are privately opposed to like any other shareholder, to keep the nationalisation. Many lived in exile in business afloat. Zambia in the 1970s and 1980s when Presi It is much easier for states to impose dent Kenneth Kaunda nationalised the royalties on production volumes. These can be reaped whether or not the com country's copper mines-with disastrous pany is profitable. The art is in striking the effect. South Africa's president, Jacob Zuma, continues to insist that nationalisa right balance. African governments must tion "is not government policy". But inves not wring so much out of their resources tors remain nervous. today that the mining companies fail to in Ernst & Young recently suggested that vest for the future. • •
53 Also in this section 54 Romanian politics 55 Spanish politics 55 Finland's new president
"'"'""""' •"r
56 Greece's woes
Sy�YUC•��ey
npe:aHA•tnyt
56 German dialects 57 Charlemagne: 1789 and all that
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Russia's protests
Just mal
Large street protests are transforming Russia's political landscape-with unpredictable consequences
A FTER several years of political slumber and mild depression, Moscow has suddenly woken up in a state of commo tion and excitement, simmering with prot ests, counter-protests, political debates and revolutionary ideas. On February 4th no fewer than four political demonstra tions took place in the city. Talk of emigra tion, the favourite subject of Moscow's most successful and active people a few months ago, has been replaced by talk of change. With less than a month to go before the presidential election on March 4th, the dis cussion is not about whether Vladimir Pu tin will win (he wilD, but about how long he will last and what may come next. The atmosphere of danger and excitement among protesters two months ago has been replaced by one of giddiness and cel ebration. The first mass protest, triggered by blatant vote-rigging in Moscow in the December 4th parliamentary elections, gathered some 7,ooo people and was fol lowed by police clashes with the activists. Two months later, on February 4th, ten times as many people strolled, unhin dered, towards the Kremlin chanting "Rus sia without Putin". It was billed as a march, but it turned into a festive promenade. Politically affili ated columns consisting of communists, nationalists, anarchists, monarchists and liberals were overtaken and outnumbered by private citizens united in their dislike of
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political parties and uniforms. There were students, businessmen, journalists, pen sioners, teachers and managers of differ ent backgrounds and views. Some sported ski jackets previously worn on European slopes; others wore Russian felt boots and sheepskin coats. What they had in common was not their incomes, but their unwillingness to be treated as imbeciles by their govern ment. Many carried white balloons with the slogan "if you blow us out again we will burst", a reference to the December election. This appeared to be not just a protest aimed at the Kremlin, but also a de monstration to one another of their num bers and resolve. Although the majority of protesters lack political representation, to gether they represent the politicisation of the urban middle class-a social shift that is transforming Russia's political landscape. The main role in organising the protests belongs not to political parties or even to an official steering committee, but to Face book. It has a concentration of the liberal minded and affluent Moscow intelligen tsia that is disproportionately larger than that of other social networks, according to Ilya Faybisovich, a Facebook activist. In the aftermath of the rigged Duma election, he helped a dozen journalists, activists and opinion-makers to form a private chat group that has over time evolved into the brain centre of the protest movement. One of them is Yuri Saprykin, editorial
director at Afisha-Rambler, a media group that publishes A.fisha, a popular listing and entertainment magazine. He says the group's role is not to lead the protesters but to "sense their demands and formulate them". Yet magazines like A.fisha have shaped the expectations of Moscow pro fessionals who travel abroad and spend time in art galleries and cafes. As Mr Sapry kin notes, in recent years the image con structed by A.fisha of Moscow as a Euro pean city has become incompatible with the reality of social inequality, corrupt po lice, bent courts and rigged elections. Instead of adjusting expectations to re ality or leaving the country, this successful and emancipated creative class is now starting to demand political changes that match its own view of the world. Its mem bers want the Kremlin to give them the same freedom to choose and the same re spect to which they have become accus tomed in other spheres of their life. For many younger urban intellectuals, includ ing A.fisha's editor, Ilya Krasilshchik, Mr Pu tin and the Kremlin establishment "belong to a different civilisation". But so does much of the rest of the country. Dmitry Peskov, a spokesman for Mr Pu tin, duly portrays the protests as local events limited to some 20o,ooo affluent and bored Muscovites seeking political ex citement. He is right that a large part of the Russian population from outside Moscow still backs Mr Putin because they fear insta bility. Yet sociologists and analysts say that the discontent of the urban middle class in Moscow is now mirrored in other large Russian cities. Even more important, al though Russia's middle class may still be a minority, it has the capacity to set trends and form public opinion. The Kremlin has been quick to realise this, but its response has been uncertain. It has made symbolic concessions such ��
The Economist February 11th 2012
54 Europe � as bringing back elections for governors (but at the same time reserving the right to sack them). It has let some opposition poli ticians appear on the tightly controlled state television channels, while at the same time portraying them as agents of America. It has registered Mikhail Prokhorov, a billionaire tycoon, as a presidential contender who could appeal to the middle class, but disqualified Grigory Yavlinsky, the veteran leader of the liberal Yabloko party. All this, says a senior Russian busi nessman, suggests that Mr Putin will con tinue to simulate change instead of open ing the political system to genuine competition. The Kremlin's latest gesture was a rally organised to counter the protest march. On February 4th tens of thousands of state employees and people were brought in buses from nearby towns to Moscow to stage a show of public support for Mr Pu tin. Speeches by pro-Kremlin propagan dists were meant to stir hysteria against the West and the protest movement they call the "orange plague". Yet the more likely ef fect of this propaganda was to stoke anger against Mr Putin. Alfred Kokh, a former deputy prime minister, predicts that Mr Putin's populari ty rating and legitimacy are likely to suffer, not least because of the economic reforms he will have to undertake. "A wave of ha tred of Putin personally will grow and his most pragmatic supporters will start aban doning him," Mr Kokh writes. If Mr Putin tries to crack down, it would worsen his conflict with the elite. Alexei Kudrin, a former finance minis ter, has tried to act as an intermediary be tween the Kremlin and the protesters. So far neither side has taken up his offer. Mr Prokhorov, who is backed by part of the ruling elite, has also failed to win the prot esters' support, because he is seen as an other Kremlin project and part of the estab lishment. "What do we need him for?" asks Kirill Rogov, a popular columnist and ideologist of the protests. He argues that Russia needs institutional change, not an other backroom deal. An honest election is the only way to ensure a transfer of power to a government committed to the rule of law. This has never happened in Russia. Intriguingly, the most moderate voice is that of Mikhail Khodorkovsky, the jailed former head of the Yukos oil company. In a recent appeal to the protesters, which they have largely ignored, he argued that the best strategy would be to increase civil control over the bureaucracy, while engag ing with those bureaucrats who are willing to co-operate. "Kudrin and his colleagues from Putin's entourage should not be re jected. Putin may see them as agents of in fluence, but we must see them as our fel low citizens. We are talking about whether we can get through without a civil war-no more and no less." •
Romanian politics
New government, old problems Cross voters and corruption: a familiar menu for Romania's new rulers
T
RAIAN BASESCU has many qualities, but the good ones (earthy humour, boundless energy) are wearing thin and the tiresome ones (unpredictability, poor judgment) increasingly rile even his sup porters. Now Romania's president has lost his prime minister, the low-key Emil Boc, amid protests over austerity, corruption and general incompetence. In January Mr Basescu, in typically im pulsive style, phoned a live television pro gramme to denounce Raed Arafat, a popu lar Palestinian-Romanian who founded and ran the ambulance service, for his "leftist views". Mr Arafat promptly re signed. After violent demonstrations, the government junked plans to privatise the emergency services and reinstated Mr Ara fat. Two members of the Senate then de fected to the opposition, costing Mr Ba sescu's Democratic Liberal party, which languishes in the low teens in the opinion polls, its hold on the upper house. The street protests have continued. Their causes range from ecological to mon archist, but are mostly about government arrogance. After two weeks Mr Basescu apologised for the "blunders I sometimes make in public". Mr Boc, in office since 2008, stepped down on February 6th, along with his cabinet, to "diffuse social tensions" and stabilise the economy. By the standards of nearby Hungary and Greece, Romania's economy is actual ly quite stable. This is chiefly thanks to its
A cold coming they had of it
central-bank governor, Mugur Isarescu, who is the country's most-respected pub lic figure and was a linchpin of a $27 billion IMF-led bail-out in 2009. This year's growth forecast is 1.5-2%, only marginally down on previous estimates despite the euro-zone crisis. That said, the deal still re quires Romania to cut the budget deficit from 4-4% of GDP in 2011 to1.9% this year. The government plans to adopt the euro in 2015. Romanians, weary of tax rises, pay cuts and poor public services, would find austerity policies more palat able if politicians stole less and communi cated better. On that count, many find the opposition National Liberals and Social Democrats, though riding high in the polls, not much better than the incumbents. Another big task is meeting European Union worries about the rule of law, which are holding up Romania's accession to the Schengen passport-free travel zone. An ex-prime minister, Adrian Nastase, has just been sentenced to two years in jail for fraud (part of a vendetta by Mr Basescu, say his supporters). But no big fish have been netted on big charges; a culture of im punity is barely dented. An EU report on February 8th praised some modest pro gress in corruption prosecutions, but be moaned "clear shortcomings" in dealing with criminality amongjudges. Mr Basescu has nominated Mihai Raz van Ungureanu as prime minister. A poly glot Oxford-educated historian who previ ously headed the foreign-intelligence service, he should win approval this week in parliament's lower house. The ruling co alition (including an ethnic Hungarian party and independents) still has a major ity there. It will be hard for his fresh-faced new team to regain lost ground before par liamentary elections in November. Mr Ba sescu's own mandate lasts until 2014. Most Romanians already seem tired of him. •
The Economist February 11th 2012
Spanish politics
Rubalcaba's cube MADRID
The new Socialist leader is a chip off the old block-but he may not last
PAIN'S Socialist Party specialises in nail biting leadership contests. Its new head, Alfredo Perez Rubalcaba, followed this tra dition on February 4th, scraping to victory by just 22 of the 955 votes cast at a conven tion in Seville. His opponent, Carme Cha con, a 40-year-old female former defence minister, would have made a more striking choice, but it was not to be. Mr Rubalcaba is a party veteran who became deputy to Jose Luis Rodriguez Za paterojust as the prime minister's popular ity plummeted in 2010. An aura of defeat already surrounds the 6o-year-old. He was the party's candidate for prime minister at November's general election, when Mr Za patero decided not to run again. The So cialists lost a third of their deputies, their worst result in 35 years, as the People's Party (PP) led by Mariano Rajoy swept to an absolute majority. Mr Rajoy may now stay in power for at least eight years. The Socialists' ills extend beyond par liament. They preside over just two of Spain's 17 regional governments and could lose their stronghold of Andalusia to the PP in March. That would be a big blow to Mr Rubalcaba's standing. Today the big gest Socialist-run city is Zaragoza, fifth in size behind the PP-run Madrid, Barcelona, Valencia and Seville. How can a man so closely linked to Mr Zapatero's failures expect to win back vot ers? Mr Rubalcaba's answer is to veer left. He supports bank taxes, looser budgets and less power for the Roman Catholic church. But Spaniards recall him as a mem ber of the government that increased the retirement age, froze pensions, cut civil-ser vice pay and raised sales tax in 2010. He of fered not a squeak of complaint then. Moreover, Mr Rajoy has stolen some of the Socialists' clothes. He has raised pen sions and taxes on high earners, and also capped salaries for bankers who receive state funds. He wants the EU to relax Spain's tough deficit targets. At the behest of France's Nicolas Sarkozy, Mr Rajoy even backs a Tobin tax on financial transactions. Yet unemployment in recession-hit Spain, already running at 23%, could stay high for at least four more years-long enough for voters to start blaming Mr Rajoy. And the PP's determination to reverse some popu lar Socialist measures, including abortion on demand, may open fresh fronts. Mr Rubalcaba is said by some to be pre paring for a bruising battle as opposition leader before handing over to a fresh face,
S
Europe 55 who would then take on Mr Rajoy. Poten tial candidates include the Basque regional premier, Patxi Lopez, and another parlia mentary deputy, Eduardo Madina. Ms Chacon is also still an option. Yet Mr Rubal caba promised to step down after Novem ber's election, only to run again. Who is to say he will not want another go? That would mean an even longer wait for Spain's first woman leader of a party and potential prime minister. But remem ber that she might not be a Socialist at all. Look out for Soraya Saenz de Santamaria, Mr Rajoy's impressive deputy, who is the same age as Ms Chacon. •
Finland's new president
A conservative first HELSINKI
The outcome suggests that Finland is broadly conservative and pro-European
A S GUARDIANS of the EU's longest bor1"\. der with Russia, the Finns tend to
make prudent choices. So they did in the second round of their presidential election on February 5th. Sauli Niinisto, a centre right former finance minister, romped home with 63% of the vote, against 37% for the Greens' Pekka Haavisto. Mr Niinisto will be Finland's first conservative head of state since the 1950s. He will also become the first president to come from the same party as the sitting prime minister. Mr Niinisto's popularity owes much to his reputation as a pragmatist who kept a tight rein on state finances (and also saw Finland into the euro). His appeal was en hanced by his devotion to raising two young children alone after his wife died in
a car crash, and by his improbable survival of the 2004 Indian Ocean tsunami. But if there was a controversial issue in the elec tion, it was the EU and the euro. Although the run-off was between two pro-Eu, pro euro candidates, Finland still has a Euros ceptic undercurrent. Euroscepticism may, however, have peaked. Timo Saini, leader of the anti-euro True Finns, who took 19% of the vote in last April's general election, was trounced into fourth place in the first round of the presidential election. Even so Finnish voters remain, as one minister puts it, "pissed off" about the way in which other euro countries have broken the rules. Finland is one of only two origi nal euro members to have stuck through out to the Maastricht treaty's fiscal limits. That makes it harder for the government to support bailing out Greece, which has nev er once observed those limits. Mr Saini's diatribes against "shipping Finnish money out of Finland" to Greece continue to reso nate. So Finnish negotiators will continue to be tough over the terms of rescues for weaker euro countries. And the six-party coalition Jyrki Katainen, the prime minis ter, formed last June to exclude the True Finns will remain both awkward and po tentially fractious. At one time the Finnish president had a big role in foreign and EU affairs, but recent constitutional changes have made the job more ceremonial. Yet Mr Niinisto's victory could change debate on one area: defence. His predecessor, Tarja Halonen, was fierce ly against NATO membership. But Finns are aware that just across the sea all three Baltic countries are in. Mr Katainen's gov ernment has agreed not to considerjoining NATO in its current term, and Mr Niinisto is cautious about the issue. But he says he favours more Nordic defence co-operation as well as moves to strengthen Europe's defence role. The idea of joining NATO may not stay taboo for much longer. As a big exporter, Finland suffered bad ly in the 2009 recession and the country's biggest company, Nokia, has had a hard time recently as mobile-phone users mi grate to hipper appliances. But the under lying economy remains strong and Fin land scores exceptionally well in surveys of education, health care and high technol ogy. It always comes near the top of the World Economic Forum's annual ranldngs for competitiveness. And although, like other Nordic countries, it also has a gener ous welfare state, it is keen to stay there. This election has confirmed that, as in Sweden (if not Denmark), the centre-left in much of Europe is weak and it is the con servatives who are making the running on policy. Finns are more concerned to boost jobs and growth than to protect welfare, re inforcing the strong economic perfor mance of the Nordic model that has made their region into one of the world's richest and most successful. •
The Economist February 11th 2012
56 Europe Greece's woes
Brinl{manship in Athens
German dialects
Teenagers' argot KREUZBERG, BERLIN
Purists may disapprove, but multi-ethnic dialects are spreading ATHENS
Tough fiscal negotiations run into hard political reality
T
AKING big decisions on Greece's fu ture suggests high drama. But the de lays, muddle and political posturing dog ging efforts to win a €130 billion ($170 billion) bail-out from its European Union partners could be from an old Athenian comedy. This week the three political lead ers supporting a fractious government were arguing over the details of an auster ity package with Lucas Papademos, the caretaker prime minister. Their meeting was repeatedly delayed as the "troika" (the European Commission, the European Cen tral Bank and the IMP) grappled with Evan gelos Venizelos, the finance minister, over €3 billion of spending cuts. Foot-dragging over reform is a big rea son for Greece's sick state. The economy may shrink this year by around 3%, after 6% last year. Unemployment hit19% inJan uary. Almost one in two young Greeks is without a job. Given the outlook, investors have unsurprisingly shied away from new privatisations. Delays by finance-ministry officials have also infuriated the troika. Only after it had dismissed their latest pro posals as "unrealistic" and "farcical" did Mr Venizelos cave in. A 20% reduction in the minimum wage, another round of pen sion cuts and 15,000 public-sector job cuts are among the measures the politicians are being asked to swallow in the next15 days. Once the deal is done, Greece can ar range a "voluntary" debt swap, in which private owners of Greek bonds would write off 70% of their value, but could eventually recoup a chunk if the economy recovers. The debt would be reduced by €100 billion (from €350 billion) but would still be 120% of GDP in 2020 (from 16o% now). Greece might one day be able to pay back the full amount, argue the project's backers, though many are sceptical that a full-scale default can be avoided. The politicians care only about the short term. As soon as the bond swap is ap proved, the EU and IMF will release fresh funding, a €:1.4-4 billion bond expiring on March 2oth will be repaid and an election campaign can begin. Mr Papademos, a for mer ECB vice-president, will not run; he is expected to take an academic post in America. Antonis Samaras, leader of the conservative New Democracy party, has called for an election on April 8th. His party holds an unassailable lead in the opinion polls, yet not enough for an out right majority. New Democracy would win 33% of the vote, says a recent poll,
T
HIRTEEN languages in Germany are on UNEsco's endangered list. Kiez deutsch, the argot of inner-city teenagers, is not one. "Morgen ich geh Kino," mean ing "Tomorrow I'm going to the cinema," a young Kreuzberger may say. In standard German that would be "Morgen gehe ich ins Kino", with the verb restored to sec ond place and a missing "to the" added. Words borrowed from Turkish (!an, meaning dude) and Arabic (yalta!, or come on!) might also intrude. You will hear such language in Berlin and other big cities. Most Germans as sume that the speakers are immigrants or their children. Not necessarily, says He ike Wiese, a linguist at the University of Potsdam who has written a new book on the topic. "All types of kids in multi lingual areas," including those with German roots, speak Kiezdeutsch. There are foreign analogues: straattaal (street language) in the Netherlands; Rinkeby svenska, named for a multi-ethnic Stock holm neighbourhood in Sweden. Kiezdeutsch is a new dialect, Ms Wiese says, noticed by scholars in the 1990s but perhaps a decade or more older. It has its own grammat-
ahead of the 18% for the Democratic Left, led by Fotis Kouvelis, a veteran left-winger. Greece needs political stability to turn the economy around. Yet there is no obvi ous coalition partner for Mr Samaras apart from the right-wing Laos (People's) party under George Karatzaferis, now enjoying its first taste of power as a junior partner in Mr Papademos's government. The once powerful Panhellenic Socialist Movement has plunged to 8%, a record low, say the polls. A leadership battle started after George Papandreou, who handed power to Mr Papademos only halfway through his four-year term, announced he would step down, though without saying when.
ical rules, which can allow for greater expressiveness than standard German. By shoving the verb over, Kiezdeutsch can emphasise not just who is doing some thing but when. "Musstu" is a pungent fusion of "you" and "must". Linguists are used to mourning the death of dialects; now they can watch one grow "in real time", Ms Wiese says. Such opinions can make people an gry, in some cases enough to send Ms Wiese obscene e-mails. At least a third of children with non-German roots and a tenth of those growing up in German speaking homes do not speak standard German properly. Unless they learn they will be hard to employ and may end up on the dole. To babble in Kiezdeutsch instead of proper Hochdeutsch can sug gest acceptance of a parasitical future. Kiezdeutsch is not a dialect but a style of speaking, says Helmut Gluck, profes sor of German at the University of Bam berg. Such patois often develops among students, soldiers and other groups to foster a sense of belonging. Purists com plain of its shrunken grammar and vocabulary. Yet Kiezdeutschis not "broken German", insists Ms Wiese, though she thinks teenagers should speak the standard language, too. It encourages mixing of people of different origins, not exclu sion. Some Kiezdeutsch-speakers even embrace the stigma. The lingo got buzz from "Kanak Sprak", a book published in 1995 (Kanake is an insulting word for certain foreigners). Comedy amplified it. Now you hear ech oes among teenagers who never set foot in Kreuzberg. Kiezdeutsch is here to stay, la11.
J
He is unlikely to run again. Mr Venizelos, the front-runner to succeed him, may have to put in a longish spell in opposition. Voters brought up on Greece's "rela tionship" politics, in which party connec tions win public-sectorjobs and perks, feel betrayed. A new popular movement, "I won't vote", may attract strong support. Smaller left-wing parties will make gains. So will the far-right, anti-immigrant Chryssi Avgi (Golden Dawn) group, which is close to reaching the 3% threshold for en try into parliament, according to recent polls. Greece's fragmented and increasing ly polarised politics could become the real obstacle to reform. •
The Econombt February 11th 2012
Europe 57
Charlemagne 1789 and all that
The history of fiscal federalism may offer the euro zone some lessons
T
RYING to coerce a group of sovereign states to follow com mon rules is ultimately doomed. Leagues and confederacies are like feudal baronies: breaches lead to anarchy, tyranny and war. That was Alexander Hamilton's case for a strong American federal government. After the adoption of America's constitu tion, Hamilton became treasury secretary. The federal govern ment assumed the war debts of the ex-colonies, issued new na tional bonds backed by direct taxes and minted its own currency. Hamilton's new financial system helped transform the young re public from a basket-case into an economic powerhouse. Does Europe, in its chronic financial crisis, need such a "Ham iltonian moment"? The European elite is looking across the At lantic for ideas. There is little danger, as Hamilton put it in the Fed eralist papers, of returning to "bloody wars in which one half of the confederacy has displayed its banners against the other half". But there is a surging resentment in creditor and debtor countries, and the risk of collapse. As a type of confederation, the euro zone struggles to take decisions, and to impose austerity and reforms on recalcitrant members like Greece. Nicolas Sarkozy, the French president, has spoken vaguely of the need for European federalism. Angela Merkel, the German chancellor, envisages a step-by-step process to "political union" but offers little detail. Some in Germany talk of one day changing the constitution to allow more transfers of power to Brussels. Cit ing Hamilton, the German council of economic advisers last year proposed that euro-zone national debt exceeding 60% of GDP should be pooled and paid off over time. The European Commis sion thinks this one-off plan could presage joint Eurobonds. Outsiders, notably the perfidious "Anglo-Saxons", are ac cused of plotting to destroy the euro. But the opposite is often truer: the criticism from America and Britain is that the euro zone lacks the integration needed to save the currency. In Davos re cently David Cameron argued that successful currency unions had vital features in common: a lender of last resort for the state, economic integration and flexibility to deal with shocks, fiscal transfers and collective debt. "Currently it's not that the euro zone doesn't have all of these; it's that it doesn't have any of these." The most passionate Euro-idealist could not have put it better. The euro zone is not about to make a great federalist leap.
America in Hamilton's time was a young, post-revolutionary re public. Its founding fathers had the prestige to refashion the na tion to confront military and economic threats. Hamilton's as sumption of state debt was contentious: virtuous states did not think they should pay for lax ones. Allowing speculators to make fortunes from the junk debt they had bought, often from destitute revolutionary warriors, rankled. Sounds familiar? Yet for Hamil ton, assuming the debt was a necessary price of liberty. Europe, by contrast, is an older and more diverse place. Ameri ca created political union followed by fiscal union. But Europe is doing things backwards, creating the euro partly in the hope of fostering political union. So fiscal integration is being pushed not to preserve freedom and a new nation, but to save a failing cur rency. In any case the embers of Europeanism are dying. French and Dutch voters killed the proposed EU constitution in 2005. In ter-governmentalism is the new fashion. Who among today's mediocrities could pretend to be a new Hamilton? Still, the study of America's history-and that of Canada, Bra zil and even Germany-offers lessons. A new booklet by Bruegel, a Brussels-based think-tank, looks at America's public finances. The reforms of 1789 were followed by a "no-bail-out" policy in 1840 that forced some states into default. The Federal Reserve was set up in 1913 to act as lender of last resort. The 1930s slump led to much-expanded federal spending under Roosevelt. American states are now constrained by balanced-budget rules, but the fed eral government borrows hugely to bolster demand. In the euro zone, each country is responsible for its own fi nances, within specified limits on deficits and debt. The no-bail out rule was meant to ensure that markets kept up the pressure. But the markets at first ignored the risks and then panicked, threatening to bankrupt even solvent states. Weak sovereigns weaken the banks, and vice versa. The European Central Bank is barred from lending to governments (though it is doing a lot to sustain euro-zone banks). Austerity stunts growth. The wrong lesson?
The euro zone has, in effect, tried to create America's no-bail-out doctrine of 1840 with neither Hamilton's federal structure nor Roosevelt's counter-cyclical tools. Euro members are walking on a wobbly tightrope without a safety net. When the storm has blown they have found themselves tied together by the financial markets, meaning that if one were to fall, all would risk doing so. A rescue fund has been improvised, though it is not big enough for the largest debtors, such as Italy. Tougher fiscal rules, with monitoring and penalties, including a new treaty requiring members to adopt balanced-budget rules, will strengthen the confederal set-up. But as Hamilton might have predicted, deeper intrusion into national policies may in time mean growing strife. The euro zone will not become the United States of Europe any time soon. But it needs to consider elements of fiscal federal ism to deal with its biggest weaknesses. A European-level bank deposit-guarantee scheme could avert bank runs. A one-off pool ing of debt could arrest the run on sovereigns. Even without a big budget, a European unemployment-insurance scheme could be created to help deflect asymmetric shocks. Germany wants tough rules? Look at Brazil's measures of 2000, including the threat ofjail for breaches of fiscal rules. The euro zone has much to learn from others. • Economist.comfblogsfcharlemagne
58 Also i n this section 59 Has QE worked? 59 Weak beer 60 Bagehot: The death of meritocracy
For daily analysis and debate on Britain, visit Economist.comfbritain
The coalition's performance
Pulled hither and thither
A once resolute government has started being tugged by events
MPRESSIVELY for a government led by a former public-relations man, the co alition avoided responding tactically to the news of the day in its first18 months. David Cameron took big strategic decisions-on fiscal policy, education, policing, welfare, health care-and, for the most part, stuck to them. The government seemed to offer a sense of direction in convulsive times. Some of this has been lost in recent weeks. First the prime minister zig-zagged on the issue of a new European Union treaty designed to save the euro. Having re fused to support it in December, to domes tic acclaim, he has softened his opposition to the signatories using EU institutions to enforce their "fiscal compact". Europhiles and Eurosceptics alike doubt that he ever had a diplomatic game plan to begin with. This is policy by pragmatic reaction. Meanwhile the government trims and tilts on its proposed reform of the National Health Service. The initially radical bill, which would give family doctors more power to commission services and allow private provision to expand, enraged health workers. The coalition has mangled the legislation with so many concessions that even many reformers now suggest abandoning it. By bowing to pressure-to the extent of undermining Andrew Lan sley, the health secretary, in private brief ings-the government is likely to achieve neither popularity nor meaningful reform. Shabbiest of all has been the govern-
I
ment's handling of executive bonuses at the Royal Bank of Scotland, which has been mostly owned by the state since its bail-out in 2008 (see Bagehot). Stephen Hester was hired as chief executive by the previous Labour government to cut the bank's colossal debts. Having made pro gress, he was in line for a bonus of around Elm ($1.6m). The government was in a bind. It could give in to the anti-City mood by leaning on RBS to cancel the bonus (or on Mr Hester to waive it). Or it could refuse to get involved, pointing out that the bank is run as an independent entity. It equivo cated before plumping for the crowd pleasing option. Again, this sacrificed credibility for not much popularity. Business figures accused the government of a capricious approach to executive pay. Michael Spencer, a usual ly circumspect financier and Conservative donor, is among those who have spoken out. There has also been intense criticism in parts of the media. The Sunday Times, whose daily equivalent is perhaps the newspaper taken most seriously in Down ing Street, called the prime minister "weak and shifty". Part of the problem is coalition politics. Mr Cameron must heed the Lib Dems, who implore him to mend ties with Eu rope, dilute the health reforms and get tough on the City. Their growing assertive ness is unlikely to be much checked by the resignation on February 3rd of Chris
Huhne, who had learned he would be charged with passing on points incurred by a speeding offence to his then wife. The most ornery of Lib Dem cabinet members, Mr Huhne was replaced as energy secre tary by the more Tory-friendly Ed Davey. Tory backbenchers, knowing that the Lib Dems are unlikely to provoke a snap election while they are languishing at around 10% in the polls, implore Mr Cam eron to override their concerns. But Tory strategists are not confident of winning the next general election outright. They want to keep on good terms with a party which, even in its diminished state, could yet hold the balance of power in 2015.
The permanent campaign
Indeed, the extent to which an election that is officially more than three years away already intrudes upon the thoughts of senior Conservatives is something to behold. Few policy decisions are taken without the electoral implications being gamed out. This is why the so% top rate of income tax, which many in government would like to scrap as a boost to Britain's competitiveness, is likely to stay. The Tories are fearful of compounding their image as a party of the rich. The coalition is at its best when it avoids short-term political calculation in favour of its original strategic vision: a smaller, less centralised state. Quiet pro gress is being made. Spending cuts are pro ceeding. Welfare is being reformed. The mission to open up schools to non-state providers is ahead of schedule. Elections for city mayors and police commissioners have been brought forward to November, and high-profile candidates are lining up to run. The state could look very different by 2015. But it will require more strategic disci pline than the government has shown so far this year. •
The Economist February 11th
Britain
2012
Quantitative easi ng
Beer
Just more of the same?
Brewers' droop Pints are becoming weaker
The Bank of England's monetary easing could be bolder. It may well need to be
HREE years ago the Bank of England, which had already cut interest rates to the lowest level in its history, wheeled out a new, unconventional tool to stimulate the economy. It would buy government debt using newly-created cash-a policy known as "quantitative easing" or QE. The Bank is now a market mammoth, owning over 30% of the £940 billion ($1.5 trillion) pool of outstanding government bonds. It is set to get bigger: on February 9th the Bank's monetary-policy committee autho rised £so billion of new purchases over the next three months. But is this strategy working? A surge of demand from a new buyer will push up prices in any market. Indeed, this is the Bank's aim. Its current purchases outstrip the supply of new bonds by around £5 billion per month. This causes bond prices to rise, lowering yields and making them less attractive as invest ments. That, combined with the cash that investors receive from the Bank, ought to nudge them towards assets offering better yields, like corporate debt and equity. That, in turn, should lower businesses' financ ing costs and boost investment. Market movements suggest quantita tive easing has achieved most of these things. Yields on ten-year government debt, a favoured purchase, have fallen from around 4% to 2% since the pro gramme began. Over the same period the FTSE 100 index has risen by nearly 70%, al though actions taken in America and Eu rope were probably the main reason for that. The Bank estimates its first injection of QE boosted Britain's GDP by up to two percentage points and inflation by up to 1.5 points. Inflation is projected to fall well be low the Bank's 2% target in 2013, justifying
T
I
Don't bank on it Funds raised and rePQid by British business, £bn • Equity and debt"
• loans 16 8
8 rrrrrr1' 1rr1rrr t-rr
2009
Source: Bank of England
rr1'1r'' rrr-rt- 16
' • •
10
• 1
11
'Including commercial paper
RITAIN is known for its lager louts and beer bellies. But after two de cades of drinking strong, continental style lagers, their beer is weakening. Several brewers have launched new lower-alcohol lines in the past five years, including a new range of 2.8% brews. Even flagship brands are getting weaker. Carlsberg Export, Stella Artois, Bud weiser, Beck's and Cobra are all cutting their alcohol content from 5% to 4.8% in Britain. The shift is small-brewers hope consumers will not notice-but it will save money at a time when ingredients are pricey. Duty on beer, which is paid by producers, accounts for a large part of its cost. Of a typical £3 ($4.75) pub pint, around £lis tax, far higher than elsewhere in Europe. Unlike wine and cider, beer is taxed on a sliding scale according to its strength. For big brands, a small adjustment can make a big difference, notes Neil Williams of the British Beer & Pub Association, a trade body. It is smart to get drinkers used to weak tipples, since the government seems determined to raise the cost of getting drunk. To lure punters some supermarkets and booze stores currently sell alcohol at a loss, but from April 6th they must charge at least the duty and sales tax due on a drink. The Scottish Parliament is consid ering a bill to introduce minimum pricing per unit of alcohol; David Cameron, the prime
B
further easing, according to }ens Larsen at RBC Capital Markets. Yet QE has not made life much easier for British businesses. nue, since the begin ning of 2009 firms have been able to raise £46 billion in new debt and equity. But banks have slashed business lending by £85 billion. In December 2011, the latest month for which figures are available, £2.4 billion of market financing was raised by British firms. In the same month banks cut business lending by £2-4 billion (see chart). Britain's tight-fisted banks are draining away the QE stimulus, and more. Small businesses, which cannot access debt mar kets, are suffering an unrelenting squeeze. Anaemic business lending has led Adam Posen, a member of the Bank's monetary-policy committee, to call for ad ditional measures to be tried. To help small businesses, the Bank could buy other as sets, as the Federal Reserve and European
minister, is keen on this idea. And duty is likely to rise again in the March budget. Beer of less than 2.8% alcohol by volume made up less than 1% of drink sales in 2010, but retailers clearly think it is a promising niche: since January Tesco has stocked n types. Such brews are much cheaper-a tax tweak cut duty on very weak varieties from October 2on. These changes, it is hoped, will im prove people's health and the economy: alcohol-related visits costs the National Health Service more than £3 billion a year in England. But the exchequer will lose out on the extra duty. And a small shift in strength will do little to cut Britain's binge-drinking habit, which is often fuelled by wine and spirits. The question is whether diluting pints will also dilute their appeal. Brewers in Britain are already shed ding customers. Although beer is still the nation's favourite tipple, its market share has shrunk from 76% of all alcohol drunk in 1956 to 37% now, according to the Institute of Alcohol Studies, a think-tank. For much of that time overall alcohol con sumption per head was in creasing. But that trend reversed in2004. Microbreweries and other small beermakers are already gaining ground on big brands. Pete Brown, a beer writer, reckons that by skimping on alcohol main stream beers are becoming "progressively more bland".
Central Bank have done, including pack ages of business debt. But this proposal has gained little traction. Other committee members, including the Bank's governor, Sir Mervyn King, regard it as a quasi-fiscal action. If this purist stance endures, a £20 billion scheme under which the Treasury provides banks with funding guarantees if they can prove they are lending to business may need to be expanded. Mr Posen and others are right to think beyond quantitative easing. A recent paper by Jonathan Ashworth and Charles Good hart (a member of the monetary-policy committee between 1997 and 2ooo) of Morgan Stanley shows that small busi nesses have created at least 41% of the new jobs in Britain since 2001. And a change in direction could be less unconventional than is supposed. In 1857, in response to the first global crash, the Bank lent directly to merchants, as well as to banks. •
59
The Economist February 11th 2012
60 Britain
Bagehot
The death of meritocracy
A bitter row about executive pay s i about something bigger
T
WICE during the 1970s, a stroppy decade, leftish British poli ticians tried to turn the monarchy into a nationalised indus try. There were plans to place Queen Elizabeth II and a few close relatives on state salaries and sack the rest of her family, and-a few years later-for a Department for Royal Affairs, bringing the crown under Whitehall's management. Both attempts were re sisted. Since then, royal aides have cannily worked to secure au tonomy and arms-length financing from government. Just now, the mood behind palace walls must be giddy relief. The queen has rarely been as popular as she is now, in her Dia mond Jubilee year. The contrast with other arms of the establish ment is striking, and revealing. For most people at the top of the public sector, this is a perilous time. For months there has been angry scrutiny of the sums paid to the bosses of public or publicly controlled bodies, from the BBC to the railways and the bailed out Royal Bank of Scotland (RBS). The BBC says that its next director-general will take a big pay cut. Network Rail directors this week bowed to ministerial nagging and promised to donate any annual bonuses they receive to a fund for improving safety at level crossings. Stephen Hester, the RBS chief executive recruited on a com mercial contract by the previous Labour government to salvage the stricken bank, found himself pilloried on tabloid front pages (photographs of him riding to hounds saw heavy use). He was threatened with a vote in the House of Commons, organised by the now-opposition Labour Party, on whether he should take his annual bonus. When Conservative ministers offered tepid sup port, Mr Hester buckled and gave up the bonus. In a BBC interview on February 8th, Mr Hester mounted a val iant defence of high pay in his bank and elsewhere. RBS was a "time-bornb" saddled with £45 billion ($71 billion) in losses, he said. He had scoured the world for the best people to defuse it, and if they did a good job they deserved recognition. He warned Britain not to seek fairness by "cutting down success". Yet Mr Hes ter's arguments will not end the storm. Ed Miliband, the Labour leader, presents today's voter anger as a yearning for "fairness in tough times". The Conservative chancellor of the exchequer, George Osborne, vows to fight un named foes trying to create an "anti-business culture in Britain".
On the streets, another explanation can be heard. Interview voters almost anywhere, and they couch their anger in terms of natural justice. The bankers caused this mess but are doing fine while ordinary folk suffer, is the invariable charge. Ask them about bonuses in particular, and they wonder why well-paid bosses need extra for doing their jobs properly. None of these explanations is wholly wrong. But none really explains the depth of national outrage. Start with Mr Miliband. His talk of "fairness" is, in part, a coded call for redistribution. Higher taxes on millionaires are strongly backed in opinion polls, but-unluckily for the left-voters also overwhelmingly back a government plan to cap payments to those on welfare. Britons are only partly in Robin Hood mode: they want to take from the rich, but also to kick the poor to look for work. Nor are Mr Osborne's warnings about anti-business forces convincing. Although Britons are cross about high pay, few seek capitalism's overthrow: they dislike corporate fat cats for being fat, not for being cats. As for voters' stated desire to see bankers suffer just retribution, they need to explain their dislike of well paid BBC or railway bosses who did not cause the credit crunch. Other explanations are needed for the public mood. Perhaps surprisingly, one clue may lie in the popularity gap between the queen and bankers such as Mr Hester. The Diamond Jubilee has prompted a slew of new royal biographies, making familiar points about how the monarchy has shrewdly adapted to mod em mores. A new biography by Andrew Marr, a writer and broadcaster (and former Bagehot) makes a less familiar point. It quotes palace advisers who believe the queen has the "humility of the hereditary principle", meaning a sense of duty rooted in knowing she did nothing to earn her extraordinary position. Listen carefully to Mr Hester, and he stands for an opposing principle: the idea that the unusually talented may deserve ex traordinary rewards. Yes, people are paid unequal amounts, but don't forget how wealth is created and the successful motivated, he says. In essence, he is making the case for meritocracy. Merit is a fine principle. But the most painful revelation of the debate on high pay may be this: many Britons are not convinced that they live in a functioning meritocracy. Are the bosses bluffing?
Assuming that voters are not suicidally casual about who holds Britain's biggestjobs, their desire to slash bosses' pay leads to one conclusion: the public does not believe that executives are as ex ceptional as today's pay levels would suggest. Some voters may be ready for a gamble, believing that bosses are not as globally mobile as they claim to be and would stick around if their pay was cut. Others may be more cynical, suspecting that bosses are not as unusually talented as they claim, so that others could do as good (or as mediocre) a job for less. This is a dangerous mood, transcending labels of left and right. Indeed, it sometimes feels as if all political parties are fol lowing, not leading, public opinion. Even the queen's popularity, though mostly rooted in 6o years' service, is a warning sign: she is also admired because she does not claim to deserve her status. Britain, an unusually free-market minded place, likes to think it is organised around such principles as open competition and rewards for merit. Cut through the noise about bankers and their bonuses, and it turns out that many voters think the fix is in. • Economist.comfblogsfbagehot
61 Also in this section
62 Internet freedom and copyright law
•
Swiss banking secrecy
Don't asl<, won't tell
BRUSSELS, NEWYORKANDZURICH
Amid a global squeeze on tax evasion, Switzerland s i the prime target
ITTINGLY for a business that has ped-
F died discretion for 271 years, the Zurich
office of Wegelin is easy to miss. But according to an indictment unsealed in New York on February 2nd, Switzerland's oldest bank brazenly helped its clients dodge American taxes on $1.2 billion in offshore accounts and poached American clients from UBS, a giant Swiss bank that prosecutors ensnared earlier. This first indictment of a Swiss bank has rocked the country's financial industry. Konrad Humrnler, Wegelin's boss, had bluntly defended the right of banks to shield clients from their governments' tax regimes; he once dismissed critics as "tax cartels" and "illegitimate states". Now even humble pie may not save his bank from a criminal conviction in America. Governments once turned a blind eye to their wealthy citizens' offshore tax acro batics. Now they are strapped for cash and hungrily hunt every penny in tax revenue. So a cold war on banking secrecy is turning hot. Tax evasion costs governments $3.1 trillion annually, according to Tax Justice Network, a lobby group. America, Britain and Germany have sought deals with Switzerland, Liechtenstein and other ha vens; the European Union is tightening up. Emerging powers like India are waging their own campaigns, too. Swiss law entrenched bank secrecy in 1934, making it a criminal offence to reveal a client's identity. This has created the world's biggest tax haven: Switzerland's
banks house around $2.1 trillion, or 27%, of offshore wealth, according to the Boston Consulting Group (see chart). Swiss bank ers and regulators have long dodged and blunted outsiders' efforts to erode banking secrecy: out of a principled deference for their respectable and prudent customers' privacy, they insist; because of the fat fees paid by crooks, tax-dodgers and dictators, say critics. America has taken the toughest stance. It wants n Swiss banks to hand over their American clients' names. In the first big breach in Swiss secrecy, UBS agreed in 2009 to pay a $780m fine for aiding tax eva sion and turned over data on more than 4.400 accounts. Last month several more
I
The shores of El Dorado Sources and sites of offshore wealth 2010. Strn
• Europe latin America
• t4iddle East and Africa • North America Asia-Pacific 0
0.5
1.0
1.5
2.0
Switzerland Britain, Channel Islands & Ireland C!ribbean & Panama Hong Kong & Singapore
United States luxembourg
Other Source: Boston Consulting Group
-·
J
banks handed over client details, but en crypted the data pending a final deal. This, plus the indictment of Wegelin, is expected to scare many Americans with offshore accounts into voluntarily coming forward. America's Internal Revenue Ser vice (IRS) has launched its third amnesty programme in as many years. But more woes loom. Starting in 2013, the Foreign Ac count Tax Compliance Act (FATCA) will put the burden on foreign financial institu tions to look for and report American ac count-holders or face a 30% withholding tax on American investments. Though FATCA may raise $10 billion over ten years, the costs for the foreign banks that have to implement it could be a lot more. America gave some ground on February 8th, outlining a gentler timetable and an easier ride for low-risk banks. Other governments have taken an alto gether softer tack. Rather than trying to force Switzerland to abandon its policy of keeping client accounts anonymous-and risk getting nothing-Germany and Britain last year both negotiated bilateral "Rubik" deals (named after a cubic puzzle that can be solved only with moves in strict se quence). Offshore-account holders must pay a lump sum to make up for unpaid tax es, plus an annual withholding tax. Swit zerland then collects the money and passes it along. But the names stay anony mous. Many see that as a big Swiss win. Critics also say British hopes that the deal could raise up to £7 billion ($n billion) are hugely optimistic. Now America's stance is stiffening spines elsewhere. German politicians claim their Rubik deal lets Switzerland off too easily. And the European Commission says both deals may be illegal under the EU savings-tax directive of 2005, because they let offshore-account holders pay a lower rate of withholding tax without having to reveal their identities. Algirdas Semeta, the ��
The Economist February
62 International � commissioner for taxation, says the deals must be renegotiated. Britain and Ger many, he says, have quietly agreed to do so rather than risk ending up in the European Court of Justice. Officials in London and Berlin had no specific comment on that. Mr Semeta's "top priority" this year is to toughen the EU savings-tax directive fur ther. He hopes to gain a negotiating man date this month. Assuming Luxembourg and Austria, the EU's own two tax havens, agree, that could mean more withholding taxes, and a squeeze on discretionary trusts (complicated and murky entities adored by tax lawyers). The big goal is automatic information exchange between countries' fiscal au thorities. This would spell the end of Swiss banking secrecy and be a fatal blow to oth er tax havens. For now, the standard im posed by the Organisation for Economic Co-operation and Development, a Paris based good-government club, is "informa tion on request". Switzerland agreed to this only when threatened with blacklisting. A government can ask for data about specific offenders; but no fishing expeditions are allowed, and the number of requests per mitted each year is capped. "It's as if the OECD has been asked to drain a swamp and they're handing out drinking straws," says Nicholas Shaxson, a former Econo mist journalist and author of "'freasure Is lands", a book about tax havens. Mr Semeta insists he is ready to take a harder line with Switzerland this time around and will use "sticks", not just "car rots". One such weapon could be to restrict Swiss access to EU markets. The secret's out
The sparring has bruised the Swiss. Many were furious about the indictment of We gelin. "During peace talks you don't at tack," says Martin Naville of the Swiss American Chamber of Commerce. But others are growing weary. Public support for secrecy is waning. When Philipp Hilde brand, the central-bank boss, resigned in January over a currency trade by his wife, public concern centred on his possible lapse of judgment, not the privacy breach that revealed it (the trade was leaked by an employee at a private bank). In years past, it would have been the other way round. Even in financier-friendly Switzerland, the economic crisis has dented bankers' popularity, as have public revelations about money laundering and shady con duct. Two whistle-blowers have rocked the banks: Rudolf Elmer, who gave documents to WikiLeaks about the Cayman opera tions of Julius Baer, another Swiss private bank, and Bradley Birkenfeld at UBS. Both have had legal troubles as a result. The uncertainty is bad for business. Even bankers talk resignedly about the need to reach a settlement soon, although few agree what it should look like (and
even fewer would countenance automatic information exchange). At the very least, banks are going to have to write some hef ty cheques. On February 6th the boss ofJu lius Baer, the largest Swiss private bank, said he was expecting to have to pay a fine to the IRS. Booz & Company, a Consultancy, says that the Swiss financial sector may lose SFr47 billion ($51 billion) in assets and SFn.1 billion in revenues as a result of just the German and British deals. And those were the lenient ones. Some say clients are already shifting as sets to more fortress-like jurisdictions like Singapore (such outflows are all but im possible to measure). As they fight off at tacks, Swiss bankers are trying to come up with an alternative business model. "Plan B" is to focus more on rich customers in po litically unstable developing countries. In
11th 2012
short, if Switzerland cannot peddle secre cy, it can at least offer stability. Helping rich people in poor, weak countries hang on to their ill-gotten gains may be lucrative, whatever the reputational risk. The embattled Swiss bemoan the pres sure and even like to label their detractors "imperialists". A common (and reason able) complaint is that many of the coun tries pressing them are also tax havens in their own right. The United States houses money from Latin America in its Florida banks, and under Delaware and Nevada law it is easy to set up a tax-friendly shell company. Britain has the Channel Islands. "They have no moral right to push Switzer land on this, because they haven't cleaned up their own mess," harrumphs a Swiss proponent of secrecy. But, clearly that is not stopping them. •
Internet freedom and copyright law
ACTA up Protests across Europe may kill an anti-piracy treaty
0 SOONER was the Anti-CounterfeitingTrade Agreement (ACTA) signed than Kader Arif, the European Union's chief negotiator, called it a "masquerade" and resigned. Slovenia's envoy, who signed the deal at a powwow in Japan, called her own behaviour an act of "civic carelessness". Romania's prime minister (now resigned) admitted he couldn't say why his country had signed it. In Poland, where lawmakers protested by wearing Guy Fawkes masks associated with the Anonymous hacker-activist collective, the prime minister said he would suspend ratification. The Czech Republic and Slovakia (which has not signed it) later did the same. The unusual remorse and wobbles come amid unprecedented protests against the treaty, an attempt by rich
N
Polish lawmakers: anonymously united
countries to protect their intellectualproperty industries. Groups affiliated to Anonymous have hacked government websites. More thanL8m people have signed an online petition. Many Poles and Swedes have demonstrated. Organisers plan protests in hundreds of European cities on February nth. The row follows the collapse of America's Stop Online Piracy Act (soPA) which beefed up penalties on infringers. That was stalled in Congress after internet protests that included a one-day Wikipedia blackout. ACTA, signed so far by 30 states and the EU, creates an international regime for imposing civil and criminal penalties on internet piracy and counterfeiting. Critics say it could mean innocent travellers having their laptops searched for pirated music, or being jailed for carrying a generic drug. That is probably exaggerated: ACTA is intentionally vague (signatories are left to draw up precise rules themselves). But it is potentially draconian. Infringers could be liable for the total loss of potential sales (implying that everyone who buys a pirated product would have bought the real thing). It applies to unintentional use of copyright material. It puts the onus on website owners to ensure they comply with laws across several territories. It has been negotiated secretively and outside established international trade bodies (despite EU criticisms). This means it has ignored the views of other countries it will affect, chiefly emerging markets. Internet activists used to be dismissed as a bunch of hairy mouse-clickers with little clout. Not any more.
63 Also in this section 64 Cosmetic treatment for men 65 Xstrata and Glencore 65 The most underpaid bosses 66 Planes and pollution 67 India's telecoms scandal 68 A bumpy ride for Bumi 70 Schumpeter: Why gay-friendly firms do well
For daily analysis and debate on business and our weekly" Money talks" podcast, visit
Economist.comfbusiness-finance showing up to photo-shoots hours late or drug-addled. This wasted a huge amount of time and money. Fashion houses are now keen to avoid trouble. Many find that educated models show up to work on time and don't go doolally as often. Trends in the modelling business also follow those in the global economy. From the 1960s to the 1990s, America reigned su preme. The hottest "supermodels" were Americans such as Cindy Crawford and Christy Turlington. They were figures whose glossy confidence mirrored Ameri ca's. They never woke up for less than $10,000. They were cultural icons, too, cel ebrated in songs such as Billy Joel's "Up town girl", the video of which starred Christie Brinkley, who became his wife. As in so many fields, the rewards for a handful of stars have shot up. Contracts are wrapped in secrecy, but sources say that a one-off deal for a shoot with a top model can begin at $75,000, rising to $1.5m for a global advertising campaign. For ad vertisers, the right face is lucrative. Procter & Gamble's campaign featuring Gisele ��
Model economics
The beauty business
Brainy models and a global talent pool are changing the catwalk
N FEBRUARY 17th London's spring fashion week begins. Across the capi tal, young women in vertiginous shoes and skimpy dresses will be teetering along catwalks. And thousands of young dough nut-dodgers will be inspired to queue out side agents' offices for the slim chance of becoming the next Kate Moss. Careers in modelling are typically short-lived, badly paid and less glamorous than pretty young dreamers imagine. Yet the business is changing. For one thing, educated models are in. This may sound improbable. In the film "Zoolander", male models are portrayed as so dumb that they play-fight with petrol and then start smok ing. But such stereotypes are so last year. Lily Cole, a redheaded model favoured by Chane! and Hermes, recently left Cam bridge University with a first-class degree in history of art. Edie Campbell, a new Brit ish star, is studying for the same degree at the Courtauld Institute in London. And Jac quetta Wheeler, one of Britain's estab lished catwalkers, has taken time out from promoting Burberry and Vivienne West wood to work for Reprieve, a charity which campaigns for prisoners' rights. Natalie Hand of London's Viva model agency, who represents Ms Campbell, says there has been a shift away from the "very young, impressionable models", who
O
were popular in the past ten years, to "more aspirational young women". "There is an appetite now for models to be intelligent, well-mannered and educated," says Catherine Ostler, a former editor of Tatler, a fashion and society magazine. This is new. The best-known models of yesteryear often led rags-to-riches lives, courtesy of the rag trade. Twiggy, a star of the 1960s, was a factory worker's daughter. Ms Moss's mother was a barmaid. But the big fashion houses and leading photographers are tiring of the drama that comes with plucking girls as young as 15 from obscurity and propelling them to sudden stardom. Too often, models were
I
Fat cheques The world's best-paid models
2011 earnings, $m
Name Gisele Bundchen
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Giraffe-legged Brazilian; owns global underwear franchise. Has promoted Oior, Versace and Procter & Gamble's Pantene shampoo
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Kate Moss
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Chirpy Brit from Croydon Launched "heroin chic" look in 1993. Honoured with gold statue in British Museum .
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Ooutzen Kroes Sources: Forbes; models.com
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Brazilian newcomer; her GQ cover was the biggest-selling ever; Super Bowl ad hinted that flowers buy sex
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Dutch ex-skater, known as Helen ofTroy" for launching so ma ny products. Less well-known for promoting Friesian language "
The Economist February
64 Business � Bundchen is said to have raised sales of its Pantene shampoo in Brazil by 40%. The stars pull in more from sidelines such as franchising goods in their own name (Elle Macpherson's underwear, Kate Moss's lipstick). Heidi Klum, a German model, serves as a judge on "Project Run way", a televised fashion-talent contest. Pay for lesser models has fallen sharply, however. This is partly because the labour pool has globalised and therefore grown much bigger. International agencies now scout for talent in emerging economies. In the 1990s they hired hordes of high cheeked Slav teenagers. Now the hottest hunting-ground is Brazil, which produces Amazonian height and athletic looks. Ashley Mears, an American sociologist and author of "Pricing Beauty", a study of the economics of modelling, says that al though the industry has grown in the past decade, individual contracts have shrunk Too many faces are chasing too few lenses. Television fees have fallen, not least be cause technologies like TiVo allow audi ences to skip commercials. One British model told your correspondent that rates for the major fashion shows have roughly halved in recent years, and that many ca reers are now over in two seasons (a calen dar year) rather than around six. The Mod el Alliance, an outfit that agitates for higher wages, estimates that the average regularly-employed model makes $27,000 a year. Part-timers and men make less. The juiciest prize is to become the face of a luxury brand such as Dior or Burberry. To have any chance, a model must first have magazine shoots under her designer belt. This fact allows fashion magazines to pay peanuts, even for a cover-shoot. There remains an iron divide between "editorial" models, who appeal to the ex pensive designers, and "catalogue" mod els, who are often slightly larger and more conventionally pretty. The catalogue mod els pose in normal clothes, which is less glamorous. But they earn a steadier in come, and are less likely to be dropped by the time they reach their late 20s. Agents take around 20% of a model's fee, plus another 20% from the client. De spite these high levies, agencies struggle. Since the financial crash, clients have been scrimping. And agencies must find models whose faces somehow capture the Zeit geist, as defined by the big brands and their capricious artistic directors. Large agencies are competing with a crowd of smaller upstarts, such as Viva London and DNA in New York. The giant Elite Model Management agency lost an American antitrust case on price-fixing in 2004 and drowned in a sea of recrimina tions. It has since been refounded under new ownership, though its Dutch branch faces a fresh lawsuit, brought by the win ner of a contest who claims the agency sacked her for putting on weight.
11th 2012
Cosmetic treatment for men
Beauty and the beasts LON DON AND N ElY YORK
More men are enduringjabs and cuts to look younger
I
N GEORGES ROMAN'S clinic in Lon don, women queue to see a cosmetic dermatologist renowned for zapping wrinkles and smoothing brows. These days, alas, they have to share the waiting room with men. In the past few years Dr Roman has treated a succession of bank ers and businessmen in London and Paris. They don't want to look beautiful, he says, just "fresher and less worried". Typically, a swift shot of Botox, a toxin which freezes muscles, targets the deep forehead cleft which can descend on men over 40, especially if they spend all day frowning at a screen. Other favoured treatments are lasers, which perk up
But the picture in my attic is hideous The sheer randomness of fashion makes it a tough business. Change is more predictable in other industries. IT firms, for example, can safely assume that comput ers will keep getting faster. But foreseeing next year's hot look is impossible. No one could have anticipated Kate Moss's early "grunge" look, which set a fashion for tan gled long hair, boyish hips and pale com plexions. Now the fashion is for models who look a little healthier, such as Doutzen Kroes, a former speedskater. The exquisitely sensitive Karl Lagerfeld
Despite angry campaigns against the cult of "Size o", skinny models are still in de mand. This is partly because designers think clothes look better when there is no distracting flesh beneath them. Ms Mears adds that the industry keeps models thin to "signify elite luxury distinctiveness". Rough translation: if normal women have curves, then the elite want something dif-
skin-tone, and cosmetic fillers for those deep grooves between the nose and the mouth. Englishmen, says Dr Roman, are big spenders. This is just as well: Botox treatment starts at £300 ($477). Fiddlier procedures can cost twice as much. The French tag along with their wives; Britons sidle in alone. Botox was used 336,834 times by American men in 2010, up 9% from 2009, according to the American Society of Plastic Surgeons. But women are stil115 times more likely than men to have their faces frozen. "I can't understand what puts people off," grouses David Pyott, the boss of Allergan, which makes Botox. Looks matter in the marketplace. "Do you want to have working for you a really old investment banker, a really old lawyer?" asks Mr Pyott. Less invasive male maintenance is growing, too. Mintel, a market-researcher, says sales of men's beauty products in France, Germany, Spain, Britain and Italy rose by 8% between 2005 and 2010, de spite the recession, and will grow anoth er 8% by 2014. Moisturisers dominate in France, Britain and Spain. Germans and Italians prefer to buy deodorants. Matthew Soobroy, a stylist with Lon don's Charles Worthington hairdressers, detects a "major leap" in men wanting their hair dyed, or their beards trimmed precisely to emulate the facial foliage of actors such as Michael Fassbender. The mere male may be getting smoother, but he's still a rugged beast at heart.
ferent. This infuriates those who blame fashion for fostering eating disorders among the young. But the attitude shows little sign of shifting. Karl Lagerfeld, a de signer, made headlines this week by de scribing Adele, a pop singer, as "fat". Power in the fashion business depends on fame. "Super-brands" such as Gucci and Burberry don't hesitate to throw their weight around. Gucci flustered London's fashion week last autumn by ordering a clutch of the "mega-girls" to leave London early and fly to Milan for a more commer cially important show. Marc Jacobs, a prominent New York de signer, caused a further shortage of models for British shows by detaining some pros pective bookings in New York. Agents complained, but Mr Jacobs is bigger than any of them. "Where's the camaraderie?" asked Carole White of Premier Model Management, a London agency. On the catwalk, you walk alone. •
The Economist
February 11th 2012
Glencore and Xstrata
Ore inspiring
Huge mining mergers may look good on paper but are hard to pull off
A NALYSTS have been poring over the .l""l. mathematics of the proposed all
Business 65
sort to pricier hostile takeovers or open tenders for new assets; the merger would make their task harder. A larger company should also be better equipped to cope with the risks of digging in countries where politics is making life more difficult for foreign miners (see page sl). Size can cause problems with officials as well as create advantages. It is possible that the world's antitrust authorities may not like the look of a merger that unites a dominant commodity trader and a leading miner of lead and zinc as well as coal and copper. Yet Glencore already sellsplenty of what Xstrata hoicks out of the ground and the combined company's market share would be up to 12% (in zinc). Trade in these commodities is highly competitive. Of late both Glencore and Xstrata have favoured fairly small acquisitions. How ever, their union could be the first in anoth er round of big mergers, of the sort that re shaped the mining industry several years ago. Mr Glasenberg has spoken of the merged company playing a "decisive role in industry consolidation". Several an alysts have identified Anglo American, the smallest ofthe five global mining giants, as the likeliest target, even though buying An glo would mark a change of style for Glen core and Xstrata. Glencore has bought
smaller mining companies; Xstrata's skill lies in wringing more out of mines more cheaply by rejigging operations and fi nancing. Anglo's vast mines are already among the most efficient. The merger's logic may be hard to dis pute. But Xstrata's shareholders are unhap py. They believe that in the attempt to create a mining behemoth they are being short-changed. A couple of large institu tional investors have threatened to block a deal that they believe favours Glencore. Xstrata brings better assets, a stronger bal ance-sheet and rosier prospects for growth, according to Andrew Keen of HSBC, a bank. Investors have had trouble understanding and valuing Glencore's trading business. Its shares change hands for much less than their initial offer price. Xstrata's investors are probably hoping to improve the terms of the deal rather than to stop it. The chances are that the mergerwill go ahead, in which case Mr Da vis and Mr Glasenberg will have broken a recent trend. Several proposed giant min ing mergers have come unstuck. Efforts to merge all or parts of BHP Billiton and Rio Tinto foundered. Anglo American re buffed Xstrata. Glencore blocked the pur suit of Xstrata by Brazil's Vale. In mining one plus one often adds up to nothing.
share merger between Glencore and Xstrata, announced on February 7th, try ing to work out which side has the better of the deal. Is one share of Xstrata, a mining company based in Switzerland but listed in London, a fair swap for 2.8 of its Swiss neighbour, Glencore, a miner and by far the world's biggest commodities trader? Mick Davis, Xstrata's boss, proposed a dif ferent equation for investors to ponder. "One plus one...equals was his sum mary ofthe merger's merits. Mr Davis, an accountant by training and a qualified cricket umpire, is generally given to more soberjudgments. Perhaps he can be excused his excitement. A deal would forge the world's fourth-largest mining company with a market capitalisa tion not far shy of $90 billion, and Mr Da vis will be its chief executive. The return of the mining mega-merger Which bosses are underpaid? was no surprise. Ivan Glasenberg, Glen core's boss, has long talked as if a merger A chief executive's pay should depend on the earnings growth and total shareholder had already taken place. His company returns of his company. That, at any rate, is what Hermann Stern, the boss of Obermatt, owns 34% of Xstrata, which was formed by a financial-research firm, believes. Yet at big American firms (ie, those in the S&P 100), a spin-offof Glencore's coal mines in 2002. a typical boss's pay is correlated neither with performance nor with market Part of the motivation for Glencore's initial capitalisation. By measuring performance against a peer group, Obermatt calculates the public offering last year was to put a value "excess pay" companies gave their bosses between 2008 and 2010. Occidental on the company and give it a currency Petroleum, an energy firm, was the worst offender. lts boss, Ray Irani, who earned over with which to strike a deal. $200m in 2008 alone, received almost eight times his "deserved" pay. Some bosses, The alliance would extend Xstrata's however, were dramatically underpaid. Apple should have given the late Steve Jobs lead as the world's biggest thermal-coal another $85m, by Obermatt's measure (though he owned a lot of shares in addition to miner, giving it more than one-tenth of the his $1-a-year salary). Others who delivered value for money included Eric Schmidt of market, and make it the global number Google, Scott Davis of UPS and Warren Buffett of Berkshire Hathaway. three in copper. With more mines in more countries, the new firm's risks would be spread more widely. Half of Glencore's I US executive pay and performance* "deserved" (company), $m business is buying and selling commod ities. With all Xstrata's output at its dispo sal, it would be better able to blend coal 0 80 120 120 80 40 and ores to customers' specific require ments and exploit price differentials (Occidental Steve around the world. Schmidt {Cioogle) A combined company would also be (UnitecfHealthGroup) Scott able to grow more quickly than two sepa rate ones in a business where scale is Buffett (Ser*shire Hathaway) everything. It should have a lower cost of (Weyemaeuser) capital, which would help it buy yet more companies. Xstrata went from tiddler to giant in a decade thanks to a string of can (SchlumQe!ger) Steve ny purchases by Mr Davis. Teaming up with Glencore's worldwide network of Ivan Pandit (Cirigroup) traders, always on the lookout for a deal, would give it a head start over competitors. Glencore has snapped up mines in Africa and Asia before anyone else knew they total were for sale. Big rivals already have to ren,"
S&P 100 CEOs' actual pay minus "Most overpaid"
pay.
•
2008-10,
"Most underpaid"
0
40
Ray Irani
Petroleum) Stephen Hemsley
John Martin {GileodSaences)
Jobs (Apple)
Eric
Davis (UPS)
Mark H11rd (Hew/ett·Pockord)
\'lare11 r
Richard Adkerson (Fmpott M<Mollon Ccp11er& Gold)
Daniel Fulton
Thomas Ryan (CVSCC/felflark) Andrew Gould
I
Joseph Saunders (lliso)
Ballmer (HiCJosoft)
$ei(jenberg (VerizonCommunications)
Vikram
Hugh Grant {Mcmsanw)
Frank Blake (/lome DepOt)
Boblg.er (llloitDisney)
Charles Moorman (NoifolkSou.them)
Source: Obermatt
�Measured by profit growth and
shareholder return CDmparedwith peers
The Economist February
66 Business Planes and pollution
Trouble in the air, double on the ground
HONG KONG
China objects to European efforts to curb its airlines' emissions
OULD a fresh row over airline emis sions lead to a global trade war? That is the scariest prospect raised by China's ob jections this week to the European Union's new plan for controlling greenhouse-gas emissions from aeroplanes. The scheme, which came into effect on January 1st, forces airlines flying into the EU to buy tradable carbon credits as part of its broad er emissions-trading system. Many countries are unhappy with the policy, but China's proclamations this week-official news agencies report that China has "banned" its airlines from par ticipation without specific government ap proval-appear to be an escalation. Not least because Chinese and European offi cials are expected to meet for high-level talks in Beijing next week. It also raises the temperature of the row in advance of a meeting of 26 dissenting countries, includ ing India, China, Russia and America, in Moscow on February 21st. As an effort to make airlines pay for their pollution, the EU's action is overdue. In global terms, their emissions are mod est, about 3% of the total. Yet they are rising fast: between 2005 and 2010 they grew by 11.2%. Meanwhile the UN'S International Civil Aviation Organisation (ICAO), which was charged with taking steps to mitigate them, has done nothing of the sort. In 2004 it ruled out negotiating a global deal to curb the emissions of all airlines, and in stead recommended that countries in clude their airlines in whatever national
C
If the skies were clear, you'd see the planes
mitigation scheme they had in place. In 2010 it changed its mind, announcing that it would, after all, initiate a "framework" whatever that might be-for a global deal to address airline emissions. Unconvinced, the EU decided to push ahead with its plan to make all flights into the EU subject to the emissions-trading scheme (ETS). This is now enshrined in European law. The only ways foreign gov ernments could extricate their airlines from it would be to stop them flying into the EU, or make them subject to an equiva lent mitigation regime of their own. Imperative or imperialism?
The main objection to the Eu's policy is that it applies to air-miles clocked up out side European airspace. The EU argues that its approach is consistent with ICAO's own guidelines and that it would be im possible to regulate otherwise. But the dis senters claim this infringes their sovereign ty and breaks the terms of the Chicago Convention, which has regulated aviation since 1944. A group of American airlines therefore launched a legal challenge to the policy; but it was dismissed by the Euro pean Court of Justice in December. There was a precedent supporting the Euro peans: American green laws insist that ships docking locally be double hulled, even though that forces ship owners to pay for unwanted double hulls on internation al waters en route to American ports. China also claims that the Eu's policy
11th 2012
transgresses UN climate-change agree ments which ordain that mitigation costs should be lower for developing countries than rich ones. Yet, even setting aside the difficult issue of how much of a free ride China can expect, the Eu's policy applies to individual companies, not countries, for which there is no such dispensation. It is a troubling spat. But there is at least time to negotiate a way out. The airlines are not due to be billed for their emissions until April 2013. Even then, they will have to pay for only 15% of them. Under the ETS, they are required to buy tradable permits for a gradually rising portion of their emis sions: this year the EU will give the airlines permits to cover 85% of them. The airlines, naturally, say the cost will be onerous nonetheless. The China Air Transport Association, which represents China's airlines, estimated the scheme would cost them Boom yuan ($127m) this year, and more than three times as much by 2020. It may well be less. EU officials say the costs of the scheme, if passed on to pas sengers, would add no more than around €2.50 ($3.30) to the price of a one-way tick et between Europe and China. By slapping ETS surcharges on tickets, as some non Chinese airlines have done, they may even profit from the scheme. The best solution would be through the ICAO. In November it resolved to acceler ate steps to introduce its own mitigation ef forts. It has drawn up a shortlist of options, including a carbon tax or cap-and-trade scheme that would apply to all airlines. China's rulers should meanwhile note that, besides cooking the climate, aviation also causes local pollution, which poor countries suffer more grievously than rich ones. Researchers at the Massachusetts In stitute of Technology and Cambridge Uni versity have estimated the impact on the ground of emissions from aircraft flying at cruise altitude (about 35,000 feet), a pro blem typically ignored by regulations. They have shown that emissions of ni trous oxides (Nox) and sulphur oxides (sox) combine with gases already in the atmosphere to create very fine particles that are especially dangerous to human health. Such pollution is a huge problem in China (see page 8o). The researchers found that though most aviation emissions currently occur over North America and Europe, about 3,500 of the 8,ooo resultant premature deaths per year happen in China and In dia. Many variables explain this, but the most important is that farming in these heavily populated countries (unlike that in America) emits huge amounts of ammo nia. This interacts with the NOX and sox to produce the dangerously small particu late pollution that leads to premature deaths. With air travel in China booming, the worry is that this underreported pub lic-health problem will also boom. •
The Economist February 11th
2012
Business 67
India's telecoms scandal
Megahurts
MUMBAI
What a scandal says about government and business in India
AS SCANDALS go, it is a corker. It in ..t"\.. valves secret recordings of lobbyists
From a business perspective, two con clusions can be drawn. The first is a cheer ing one: India's legal system seems to be working just fine at the very top. The sec ond is less sunny: the mobile-phone indus try faces turmoil. There is also a worrying question: is the smell from the telecoms business a sign of a deeper rot?
talking to tycoons about ministers, fraudu lent documents, unrelated firms that share the same e-mail address, clueless foreign ers piling into a vast market, bank drafts with dates that make no sense, PR flacks taped schmoozing hacks with honking traffic in the background, front companies named after Russian rivers, an apparently helpless prime minister, people under ar rest and something between $8 billion and $20 billion pinched from the public purse. India's telecoms scandal has been rum bling since 2008, when 122 mobile licences covering a third of India's 2G spectrum were awarded to eight companies. (India today has 14 mobile-phone firms in all.) A constant drip of disclosures since then has numbed the public's outrage. But on Feb ruary 2nd India's Supreme Court can celled all122 licences. Its 94-page ruling is required reading for anyone interested in doing business in India. Politically, the scandal's effects are not yet known. Andimuthu Raja, the telecoms minister at the time, is injail. His trial could reveal all manner of dirt. The coalition gov ernment, led by the Congress party, is shaken, though its supporters hope no oth er big scalps will be claimed. State elec tions, the results of which are due on March 6th, will measure voters' wrath.
I
From cell phones to prison cells
Along with outsourcing, mobile telecoms is India's biggest industrial success story. Every emerging economy has seen a mo bile boom, but India's was huge. It spawned a national champion: Bharti Air tel (which is untainted by the affair). Indian firms rewrote the rule book, cutting tariffs lower than others had dared and outsourc ing parts of their operations. The spread of phones to slums and villages created a so cial revolution. That boom, though, contained the seeds of the scandal. Mobile spectrum, which was in short supply, became very valuable. Between 1994 and 2007 four phases of licensing took place. The govern ment tried different ways of allocating air waves, from beauty parades and auctions to operators making upfront payments to the state. (Most rich countries stick with auctions, since they are simple, transpar ent and hard to cheat.) By 2007 the process had become a
A bomb goes off Impact of Supreme Court ruling on Indian mobile-phone industry
Market share by revenue, %
Market share of 2G spectrum, %
% of revenues cancelled
% of 2G footprint cancelled*
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Sources: CLSA; The Economist
!Based on number of regionalareas granted !Owned by Idea
shambles. Applications for licences lan guished in government files. On Septem ber 23rd 2007 the Department of Telecom munications was sitting on 167 of them. (India's regime splits the country into 23 re gions, so each firm typically seeks multiple licences.) The next day the department said any further applications would need to be received by October 1St. Another 408 applications were hurriedly made. What happened next, according to the Supreme Court, "leaves no room for doubt that everything was stage-managed". The deadline was retroactively changed. Those on the shortlist announced on January 1oth 2008 were givenjust hours to respond to the news. Of the 16 firms on that list, 13 mysteriously already had bank drafts ready to pay the nominal upfront fee, which were dated before the public an nouncement had been made, according to India's Comptroller and Auditor General (CAG). It reckoned they were given ad vance notice. It also noted that 13 of the 16 firms made "false and fictitious" state ments about their finances. Safeguards failed. Requests for advice from other arms of the state circulated, but behind this mirage of due process, the De partment of Telecommunications was out of control. To evade scrutiny from its critics inside the government, the department de layed a meeting and announced its deci sion before the rescheduled date. In 2007 Mr Raja, the safari-suited telecoms minis ter, received a cringingly meek letter from the prime minister, Manmohan Singh, ex pressing concern. Within hours he bashed out a dismissive reply and carried on re gardless. Of the 122 licences granted, 85 went to six new entrants, including several property firms, two of which promptly made fortunes by selling stakes in the li cences to foreigners. CA G found that a year later none of the six had met its obligation to roll out a network. For the telecoms industry the judgment creates chaos. The cancelled spectrum must be returned within four months, and then auctioned off. After a bout of mergers it is now in the hands of eight firms and af fects 67m customers (7% of India's total) and 30% of 2G spectrum capacity, accord ing to Deepti Chaturvedi of CLSA, a broker. Six of those firms could fail without the suspect licences (see table). One executive reckons the total capital invested by those half-dozen in acquiring customers and kit might amount to $10 billion. Their legal position appears weak: a buyer of illegitimately acquired goods has no one to blame but himself. Worryingly, though, the Indian government is making soothing noises to these firms, as if the way to improve India's investment climate is to rescue foolish investors. If principle wins out, the best these firms can expect is to be allowed to sell ��
The Economist February 11th 2012
68 Business
� their customers and kit to the remaining operators and be refunded the modest fees they paid to the government; or, if they are still keen and not incriminated by other cases, to be allowed to bid in fresh spec trum auctions. The court has demanded those auctions take place as soon as possi ble. To be credible they should be open to all operators, and the highest bidders should win, subject to antitrust limits. This may benefit the big fish. But even after the exit of smaller fry there would still be six or seven big firms competing-plenty by global standards. India has proved it can hold clean auctions: a 3G one in 2010 was widely praised. By insisting that an auction is the only fair way to allocate spectrum, the Supreme Court has cast into question other licences granted before 2009 by different means, in cluding those of Reliance Communica tions and the Tata group, two giant firms. And there are grave doubts about the tele coms bureaucracy. "There is no reason to believe much has changed," says one exec utive. "They have completely lost the plot," says another. Once a freewheeling industry, mobile is fast maturing, with sedate growth and high levels of debt, partly as a result of those 3G auctions in 2010. All operators bar one, Bharti Airtel, make weak returns on capital in India. Yet for bureaucrats, mobile is still something to be controlled. The De partment of Telecommunications and TRAI, the regulator, want to lean on opera tors to buy more of their kit from local manufacturers. They are also talking about officials setting tariffs. Reports of the death of the licence Raj were greatly exaggerated,
I I
it seems. On February 3rd the prime minister, who is widely held to be clean, said the country had moved "substantially for ward" in dealing with corruption, but that there was still "a long way" to go. He hopes to pass an anti-corruption bill-though this has so far been blocked by bickering in par liament. Some Indians think that all this is a healthy sign of a free and noisy democra cy at last getting to grips with a problem. Some protest that the scale of graft has been exaggerated. Yet after the 2G scandal that is surely a complacent view. It has taken the courts, not the political system, to act. Industry seems to be gripped by a culture of denial. Executives make pious statements in pub lic and sling mud in private. There is anec-
dotal evidence that corruption is rife in most industries that interact with the gov ernment: those that require licences, access to natural resources or changes in the law. One government mandarin talks of a vast backlog of vital projects, such as mines and industrial plants, some of them half-finished, that break current rules and are possibly bent. Officials don't know whether to turn a blind eye or blow their whistles and cause mayhem. The suspi cion of widespread graft is corrosive for business. Is it safe to take over another firm or is it a legal time bomb? Do investors dare give cash to an indebted company with a ripe reputation but a promising project? Can a foreign firm ever be sure that its Indi an partner is clean? These are uncomfort able questions. •
Corporate governance
Not King Coal JAKARTA AND LONDON
The Rothschild-Bakrie marriage hits the rocks
I
N AN early episode of "Sergeant Bilko", a 1950s TV comedy, the eponymous hero rents an empty store. His fellow soldiers, convinced that the army's "smartest operator" sees a business opportunity, beg to be made partners. Not all do well out of the deal. Nat Rothschild also has a name that inspires confidence among investors. The scion of a European banking dynasty (some of whose members own stakes in The Economist), Mr Rothschild raised £707m ($1.08 billion) to create his own empty store, a London-listed "cash shell" named Vallar. He then used the cash to buy stakes in two coal-mining ventures in Indonesia associated with the Bakrie group, a family-owned conglomerate. Bumi PLC, the British-based company that emerged with Mr Rothschild as co-chairman, appealed to cautious punt ers who might otherwise have shied away from risky commodity bets in faraway places. But the marriage of Brit ish finance and Indonesian business is on the rocks, and investors are sore. On February 3rd the Bakrie family and Samin Tan, an Indonesian busi nessman, called on Bumi's shareholders to unseat Mr Rothschild from the board. The move came after months of board room strife, which began when the Bak ries sold half of their stake to Mr Tan, to pay off debts. It worsened last November when Mr Rothschild called for "a radical 'cleaning up'" of the "balance-sheet and corporate culture" of Bumi's Indonesian affiliate. Bumi's share price is down by two-fifths from a year ago. Few in Indonesia were surprised by the clash. The Bakries have commercial
and political clout, and are used to getting their own way. (Aburizal Bakrie, the head of the family, will probably run for presi dent in 2014 as the nominee of the late president Suharto's old party.) In Britain the spat has added to investors' concerns that a "premium" London listing is too easily awarded to companies that have controlling shareholders, as well as risky operations, in unstable places. Mining and oil companies account for some 30% of the value of London's stock market, about twice the global weighting. Some of them are established firms, such as BHP Billiton, BP and Shell, but they also include a newer breed of mining stocks, such as ENRC and Bumi, which are ostensibly British companies but the balance of power among shareholders lies elsewhere. The clashes between Mr Rothschild and his Indonesian partners show that his model of bolting British governance standards onto a foreign firm is "defective", says a fund manager in London. Fund managers who don't like the way a company is managed can in princi ple steer clear of it. But a company that qualifies for a London listing is also a candidate for inclusion in stockmarket indices, such as the FTSE 100, an industry benchmark. Low-cost funds that track such indices are obliged to buy these stocks whatever their merits. And "ac tive" fund managers can ill afford to steer clear of too many mining stocks or their portfolios might trail the overall market. Set-ups like Bumi's seem designed to tap into this captive pool of capital. Ernest Bilka would admire the ingenuity. But investors deserve better.
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The Economist
70 Business
Schumpeter
February 1 1th 2012
Of companies and closets
Being gay-friendly is cheap and good for business
I
N "LITTLE BRITAIN", a television comedy, Daffyd Thomas, who insists he is "the only gay in the village", tries to expose the ho mophobia of his fellow Welsh villagers by wearing outrageous clothes (bright red rubber shorts are a favourite) and picketing the local library. But he is constantly frustrated: the inhabitants of Llanddewi Brefi are all either tolerant or gay themselves. The corporate world is not yet as gay-friendly as Llanddewi Brefi. But attitudes have changed dramatically. Some 86% of For tune soo firms now ban discrimination on the basis of sexual ori entation, up from 61% in 2002. Around so% also ban discrimina tion against transsexuals, compared with 3% in 2002. The Human Rights Campaign (HRC), an American pressure group, measures corporate policies towards sexual minorities in its annual "equal ity index". Of the 636 companies that responded to its survey this year, 64% offer the same medical benefits for same-sex partners as for heterosexual spouses. Some 30% scored a fabulous 100% on the group's index. Progress has taken place in a wide range of industries. The 100% club predictably contains plenty of talent-driven outfits such as banks and consultancies (including Mitt Romney's old employer, Bain & Company). But it also includes industrial giants such as Alcoa, Dow Chemical, Ford, Owens Corning and Ray theon. Lord Browne, the boss of BP who resigned after his sex life made headlines in 2007, said he always remained in the closet be cause "it was obvious to me that it was simply unacceptable to be gay in business, and most definitely the oil business." Today Chevron, one of BP's toughest competitors, has a10o% rating. Companies are competing with each other to produce the most imaginative gay-friendly policies. American Express has an internal "pride network" with more than 1,000 members. Cisco gives gay workers a bonus to make up for an anomaly in the American tax code. (If you are married, the cost of various insur ance premiums is deducted from your pre-tax income, but if you are merely a partner it is deducted from your post-tax income.) Some companies vocally support gay marriage. In the past fort night Lloyd Blankfein, the boss of Goldman Sachs, has accepted an invitation from HRC to become its first corporate spokesman for gay nuptials, and seven big companies, including Microsoft and Nike, have written to Congress to support the idea.
What caused this corporate revolution? Pressure groups such as HRC and Britain's Stonewall can take some of the credit. But mostly it happened because changing attitudes in society at large have reduced the cost of being gay-friendly, and raised the re wards. A generation ago in the West, creating a gay-friendly work place might have upset heterosexual staff. Now it probably won't. But failing to treat gays equally is very likely to drive them to seek employment elsewhere. Since they are perhaps 5-10% of the glo bal talent pool, bigotry makes a firm less competitive. Being fair to gays is arguably simpler than being fair to wom en. Women really do differ from men in the amount of time, on average, that they take off to raise children. And there is no obvi ous answer to questions such as: "how much paid maternity leave should a small firm offer?" From an employer's perspective, gays do not differ from straights in any way that matters. Sylvia Ann Hewlett and Karen Sumberg of the Center for Work-Life Policy, a think-tank, have tried to quantify the benefits of inclusiveness to companies. They discovered that 47% of gays who have come out of the closet say that they are "very trusting" of their employers, compared with 21% who are still in the closet. Some 52% of closeted gays said that they felt stalled in their ca reers, compared with 36% of non-closeted gays. This makes sense. It is hard to give your best if you have to con ceal an important part of who you are. Straight workers routinely plaster their offices with pictures of their families, which not only creates a pleasant working environment but also broadcasts the message: "I have kids. Please don't sack me." Closeted gays find it harder to socialise with colleagues and build informal networks. They waste energy inventing excuses. "You have to watch every thing you say and how you say it," says one closeted executive. "You have to be excellent at the pronoun game." Being gay-friendly can attract gay customers, too. Witeck Combs Communications, a consultancy, estimates that gay Americans spend $835 billion a year. In 2001 Merrill Lynch created a private-banking team that focused exclusively on the gay market, courting gay non-profits and providing seminars on financial planning for domestic partners. Within five years the group had brought in more than $1 billion of business. Out of the closet and into a cubicle
The revolution is far from over. Nearly half of the respondents to the Center for Work-Life Policy's survey are still in the closet. And even the most enlightened companies cannot make up for intol erance in the rest of the world. It is hard to reach the top of a big company without serving a stint abroad. But homosexuality is still illegal in 76 countries-including such vibrant business hubs as Dubai and Singapore-and is punishable by death in Saudi Arabia, Iran and parts of Nigeria. Still, the gay revolution in the workplace is remarkable. In most places, companies are more liberal than governments. In America, for example, until last year soldiers could be kicked out of the army for being gay, and 29 states still allow discrimination on the basis of sexual preference. In the coming years, the revolu tion is likely to gather pace. Younger workers are far more relaxed about homosexuality than their parents were. Indeed, many young heterosexuals would feel uncomfortable working for a firm that failed to treat gays decently. Companies vying to recruit them will bear this in mind. • Economist.comfblogsfschumpeter
71 Also in this section 73 Buttonwood: The lump of labour 74 Short-selling: the naked truth •
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Sovereign bonds
Oat cuisine
A stodgy asset class has become more complex and more dangerous
IFTEEN years ago Western government 1
Fbonds were regarded as being like por·
ridge: stodgy but easily digestible. Inves· tors knew returns would be modest but perceived the asset class as risk-free, an im· portant concept in both financial theory and portfolio construction. And bond mar· kets were seen as all-powerful, capable of imposing discipline on governments by pushing up borrowing costs in the face of irresponsible policies. James Carville, an adviser to President Bill Clinton, spoke with awe of their intimidatory power. Things are different now. The bond vigi· !antes seem less frightening. They were asleep at the wheel as debts mounted in the euro zone, waking up in time to pro· voke the latest crisis but not avoid it. Priv ate-sector bond investors in Greek sover eign debt face losses of around 70%, making the idea that government bonds are risk-free laughable. The most powerful investors in many government-bond markets are not profit· maximising fund managers but central and commercial banks, which are buying bonds for all sorts of reasons. Other inves tors need to be like Kremlinologists, guess ing what central banks will do next. The market is also much bigger than it was. According to Bank of America Merrill Lynch, there were some $n trillion-worth of government bonds in issue at the end of 2001; by the end of 2011, that figure had ris· en to more than $31 trillion (see chart 1).
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And although some euro-zone countries have been cut off from the markets, the story is very different in other places. The British and American governments are en· joying the lowest borrowing costs they have seen for decades, despite big deficits. The implications of all these changes are still being worked through. The risk· free rate has historically been the rock around which a financial system is built. Other borrowers, such as banks and cor porations, pay a premium over their do mestic government's cost of debt. This is still true for companies that are tied to a lo· cal economy, such as utilities. But multina· tiona! firms can, in theory, move to econo· mies where growth prospects are better and taxes lower. Some, such as johnson &
Johnson or Exxon Mobil, may thus now be seen as better bets than their governments. Thanks to the European Central Bank's lending activities, banks in several Euro pean countries can also now borrow more cheaply than their governments-a heavy irony given that it was the banking sector's problems that ushered in the current sovereign-debt crisis. Indeed, investors have learned that simply studying the ratio of government debt to GDP is not enough. Both Ireland and Iceland entered the crisis with very low ratios. But the collapse of their banking sectors meant that private sector debt was assumed by the govern ment, causing the ratio to balloon. Modern bond investors have to worry about other contingent liabilities, too-the pensions promised to public-sector work ers, say, or the rising costs of Medicare as America's baby-boomers retire. Govern· ments might easily decide that such prom· ises have a better claim on tax revenues than the rights of foreign creditors. The ne gotiations in Greece have shown that offi cial creditors deem themselves to have a greater claim on a government's revenues than private-sector creditors. The more of ficial aid a country receives, the bigger the eventual write-off private bondholders may suffer. The rise of official creditors is not new. It was first noticed in the 2ooos when Asian central banks began to plough their mas· sive foreign-exchange reserves into Trea sury bonds. Alan Greenspan, the then chairman of the Federal Reserve, talked of the "conundrum" that bond yields were falling even as the Fed was pushing up short rates, a shift from the usual pattern. The reason was that central banks were pretty indifferent to low yields, being con· tent to park their reserves in the relative safety and liquidity of neasury bonds as a way to manage their currencies' level ver- �•
72 Finance and economics
� sus the dollar. More recently, central banks have been buying up their own govern ment's debt through quantitative easing (QE). It is debatable whether yields are set by economic fundamentals or by the antic ipated buying patterns of central banks. Of course, central-bank policy has al ways had an effect on the bond markets. One way of viewing long-term bond yields is as a forecast of future short-term rates (sometimes there is an additional pre mium for tying up your money). On that basis, says Eric Lonergan, a fund manager at M&G, the current level ofneasury-bond yields is quite rational. The average of American short rates over the past ten years is around 2%, almost exactly the level of the ten-year neasury-bond yield now. Rates are likely to remain low for some time. The Fed recently indicated that it ex pected rates to stay near zero until late 2014. Add in the effect of QE and the Fed may be the dominant influence on yields all the way out to bonds with maturities of five years. There is talk of a third round of QE from the Fed, and the Bank of England was set to add to its £275 billion ($437 bil lion) pile of gilts at a February 9th meeting, held after The Economist went to press. Rates low, bond mountains high
Analysts argue about the precise impact of QE on yields but the presence of an ever willing buyer must have some effect. In particular, it must make private-sector in vestors cautious about betting on higher yields. "Bond crashes become very unlike ly, unless they are accepted by central banks," says Patrick Artus of Natixis, a French bank. "Long-term interest rates could remain very low for a long time." Less clear is how central banks will ever dispose of these bond mountains. In prac tice, it makes no difference whether central banks try to sell their holdings or simply let the bonds mature (since maturing bonds have to be refinanced). Either way the priv ate sector will have to absorb the extra sup ply on top of the new bonds being issued that year. If central banks are correct in ar guing that QE has driven bond yields down, then logically a reversal of QE might drive yields up, in effect tightening mone tary policy. It may be a long while before the economy is sufficiently robust to ab sorb the impact. Large central-bank hold ings of government bonds may be a semi permanent feature of the landscape. Central banks are not the only distort ing presence in the market. In Britain pen sion funds have been eager buyers of long dated securities as a way of matching their liabilities (a promise to make pension pay ments for 25-30 years is equivalent to a debt). Since many pension benefits are linked to inflation, this has sparked a par ticular enthusiasm for inflation-linked debt. Insurance companies are also heavy buyers of government debt, in large part
The Economist February
I
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because of solvency requirements that push them into owning "safe" assets. And then there are the banks. One fea ture of the early days of the euro was con vergence. Short-term interest rates are the same across the zone. Since government bond yields are related to expectations for future levels of short rates, bond yields equalised across the region. This was im mensely beneficial for countries like Italy and Greece, which saw their borrowing costs fall. It also meant that banks happily owned regional, rather than merely na tional, government-bond portfolios. Now that trend is reversing. Banks are suddenly conscious of the credit risk in volved in holding another country's bonds. When the crisis broke French banks were "encouraged" to hold on to their Greek bonds by their government and suf fered losses as a result. Now it seems they are willing to buy only their own govern ment's bonds, and those of Germany; they are far less keen on holding Italian or Span ish debt. "It is almost if the euro zone has already broken up," says Andrew Balls of PIMCO, a fund-management group. Domestic banks, however, may well figure that holding the debt of their own sovereign is a "double or quits" bet. If their government defaults the banking system
11th 2012
will collapse anyway, so they might as well own its bonds. That incentive has been re inforced by the ECB's provision of virtual ly unlimited three-year loans. As President Nicolas Sarkozy of France has hinted, banks can borrow cheaply from the ECB and invest the proceeds in government debt, earning a higher yield in the process. This is an approach to boosting bank profitability that has been tried before. In the early 1990s the Federal Reserve held rates very low (by prevailing standards) to help the banks recover from the savings and-loan crisis. Banks were able to earn a "carry" by borrowing at 3% and buying ten-year Treasuries yielding almost 7%. The carry trade is not the only reason why banks might buy government bonds. In the wake of the 2007-08 crisis, when banks were suddenly cut off from the wholesale markets, regulators have been urging banks to own a "liquidity cushion" of safe assets. Banks can use government bonds as collateral for loans with each oth er, and with central banks. The result has been a big expansion in banks' sovereign-bond purchases, very handy when governments have lots of bonds to sell. In Britain, data from the Debt Management Office show that banks and building societies owned just £26 billion worth of gilts in the last quarter of 2008; by the end of 2011 they owned £131 billion, or around 10% of the total. How would you like your loss?
The role that credit risk is now playing in the euro area highlights another great change in the government-bond markets: the influence of exchange-rate regimes. For decades countries struggled to cope with the constraints of fixed exchange-rate sys tems, whether the gold standard or Bretton Woods, in part because this approach would reassure foreign creditors. "Who would be prepared to lend with the fear of being paid in depreciated currencies al ways before his eyes?" asked Georges Bon net, a French finance minister of the 1920s. But the euro crisis has shown the perils for international investors of a fixed-rate regime. Denied the option of devaluation, Greece is being forced, in effect, to default on its debts. In contrast America and Brit ain, with their floating exchange rates, have the freedom to expand their money supplies and depreciate their currencies. Although this may still result in losses for foreign investors, they are likely to be far smaller than the Greek write-offs. As Mr Balls puts it, countries with floating rates are the "least dirty shirt" in the markets. Emerging markets have also changed their role. Historically, developing coun tries defaulted often and had high infla tion. They had to borrow in dollars and to pay high yields. But now the finances of many developing countries are better than those of the rich world (see chart 2). Brazil ��
The Economist February 11th
2012
� and Mexico pay yields of less than 2% on five-year dollar-denominated debt. It all adds up to a completely changed investment landscape. For the 25 years from 1982 to 2007, owning rich-world gov ernment bonds was almost a no-brainer. Yields fell steadily in line with inflation and there was no question of default. Now the market is much more complex. The players are more diverse and their motives more varied. The balance between risk and reward has also shifted against inves tors. In the past bondholders have not made money buying Treasury bonds on yields as low as 2%. At current levels of in-
Finance and economics 73
flation, bond investors are getting negative real yields. That may be the idea. Carmen Reinhart, jacob Kirkegaard and Belen Sbrancia, three academics, have suggested that govern ments may use "financial repression" forcing debts down the throats of captive buyers and keeping real rates negative so that inflation eliminates their debts. This trick worked after the second world war. The presence of "forced buyers" in the market such as central banks and commer cial banks may enable it to be repeated. But could governments really pull it off? Or are rich-world bond markets signalling
thatjapan is the more likely template? Ten year yields there have been around 1% for much of the past decade, thanks to persis tent deflation and slow growth. This is a vital issue since a sudden surge in bond yields might wreck government fi nances, economic prospects and the out look for other asset markets. "The un known question is how much inflation central banks are willing to tolerate. Until that is settled, one cannot be sure about the outlook for bonds or other asset markets like equities," says Manoj Pradhan at Mor gan Stanley. For a supposedly risk-free as set it all adds up to a lot of risks. •
Buttonwood Why the old should not make way for the young
ORK until you drop. That is how many people characterise the argu ment of those-this newspaper includ ed-who call for a later retirement age. Life expectancy may be steadily increas ing but few are eager to add to their years of toil. Indeed, the French Socialist Party wants to reverse a recent rise in the retire ment age from 6o to 62. In part, this resistance to working lon ger is because people tend to feel they are entitled to put their feet up after a career of 35-40 years. But it is also because many reckon old people should get out of the way so that the young can take their jobs, a sentiment expressed recently by Lucy Kellaway, a Financial Times columnist, who wrote that "the young can't advance because everywhere they find my com placent generation is in situ." Economists will recognise the flaw in this logic. This view is based on the "lump of labour" fallacy that states there is only so much work to go around. The same ar gument was used to discourage women from joining the workforce; and the threat to domesticjobs is still used by anti-immi grant politicians today. The problem with the lump-of-labour fallacy is that it is so hard to kill. It appears to be common sense. Most people know an older manager (or columnist) who re fuses to make way for a younger, more en ergetic rival. In the face of intuition and anecdotal evidence, it is always good to look at the data. The chart shows employment levels in the mostly rich OECD countries among the oldest section of the workforce (55-64) and the youngest (15-24). The countries are divided into four quartiles, and ranked in order of the employment rate of the grey-haired contingent. If the lump-of-labour argument were correct, you would expect to see that a
W
I
Young at heart OECD countries, average employment rate by age group*, 2010, % - 55-64
- 15-24 20
40
60
80
1st quartile
2nd quartile 3rd quartile 4th
quartile
Source: OECD
*Ranked in order of 55- to 64-year-olds' employment rate
high employment rate among the wrin ldies would be offset by a low employ ment rate among the youngsters, and vice versa. Not a bit of it. High elderly employ ment rates are associated with high youth employment. One possible counter-argument is that this correlation may simply show that dif ferent economies are at different stages of the cycle: when an economy is growing strongly, employment rates for both the old and the young are likely to be high. But that is a hard point to sustain, given that the past few years have seen a worldwide re cession and modest recovery. Most of the economies that have been growing bounc ily (such as China) are not in the OECD. So why don't the oldies keep the young sters out of jobs? For the same reason that women don't keep men out of jobs. When people work for a living, they earn money. They spend that money on goods and ser vices that are produced by other people, young and old, male and female. Job patterns change, too. Once nearly everybody worked on the farm. But the ad vent of tractors and combine harvesters did not lead to permanent unemploy ment. People found jobs, first in manufac-
turing and then in services. The elderly may not be doing the same jobs in their 6os as they were in their 30s. Perhaps none of the above arguments (or data) convinces you. So consider a thought experiment. If old people leave the workforce early, they become depen dent on young people for their living. This is obviously the case with those on state benefits. But it is also true for those with private pension funds: these consist of eq uities and bonds which depend on work ers to generate the income needed to pay dividends and interest. Indeed, one reason that corporate pension funds are in deficit is that they have been raided on so many occasions to fund early-retirement programmes. This was a classic case of a false economy. The wage bill went down in the short term but the pension costs went up in the long term. Companies assumed they could make good on these long-term promises because they hoped future in vestment returns on their pension funds would be as good as they were in the 1980s and1990s. What is true at the corporate level is also true in aggregate. People assume they can afford long retirements because eco nomic growth will continue. But growth depends on having either more workers or greater productivity. A society cannot really be more prosperous if it pays more and more of its citizens not to work. If early retirement really improves liv ing standards, why stop at 6o? Why not 55? If governments moved the retirement age down to 40 every young person would have ajob and everyone would be living in the lap of luxury. Alas, the land of the lotus-eaters remains a myth. Get back to the office. Economist.comjblogsjbuttonwood
Short-semng
Getting to the nal<ed truth
NEW YORK
A regulatory probe sheds light on manipulative shorting
HORT-SELLERS perform a valuable Sfunction in financial markets, exposing managerial incompetence, corporate fraud or plain overvaluation. Their reward, all too often, is calumny. Witness regulators' rush to ban shorting in 2008 in response to sustained political attacks on the practice. Like any form of trading, however, shorting is open to abuse. Some firms claim to have been victims of illegal "na ked" shorting, where the seller does not ar range to borrow the shares in time to deliv er them to the buyer within the standard settlement period. This, they say, has long been a favoured tool of unprincipled trad ers looking to launch bear raids-usually on small stocks but also, in times of tur moil, on bigger fish like Lehman Brothers. Hedge funds and the prime brokers that serve them have tended to counter that such accusations are smokescreens put up by bosses to mask their own failings. After years of sitting on their hands, reg ulators are starting to side with the compa nies. The Securities and Exchange Com mission (SEC) has brought several cases over the past year. The latest alleges that two brothers, Jeffrey and Robert Wolfson, and a firm they traded through made at least $17m naked-shorting numerous shares, including, cheekily, the New York Stock Exchange's parent firm. (A lawyerfor one of the Wolfsons says he intends to fight the charges.) The filing shows how the dark art may have been practised.
a can happen
Bear r ids
February 11th 2012 livered. The brokers could then lend this apparent inventory of stock to short-sell ing hedge funds for fees that were several times higher than those from lending free ly available shares. Whether prime brokers knowingly benefited from naked shorting could be come clearer as the SEC looks more closely at the links in the chain of the lucrative se curities-lending world. Private lawsuits could help to lift the lid further, if they make it to trial. Last year, a host of Wall Street firms, including Goldman Sachs, UBS and Morgan Stanley, settled a naked shorting case with shareholders of Taser International for an undisclosed sum. A case brought by Overstock against Goldman and Merrill Lynch, for conspir ing with clients to allow naked shorting of its shares, was dismissed in January onju risdictional grounds. The online retailer, determined to see four years' worth of dis covery and depositionsreceive an airing in court, is appealing. The banks have vigor ously denied that they actively took part in an illegal scheme. But it seems clear that abusive shortingis notjust the figment of a few executives' imaginations. The Economist
74 Finance and economics
The SEC rules require traders to locate shares they wish to borrow before selling them short; they must then deliver the bor rowed securities to the buyer by a specified date. If delivery has not occurred four days after the trade, it has to be settled, if neces sary using securities of like quality. The Wolfsons' alleged scheme involved a thicket of complex transactions, accord ing to the SEC. One type of trade, a "reverse conversion", involved taking out options that appeared to offset the short position, making naked shorting look like bona fide marketmaking. Another stock-and-option combination, the "reset", created the illu sion that trades had been settled by having an entity buy the same type and quantity of shares that had been sold short. But the shares were always sold back within days, often in trades between the brothers, which the SEC claims were "sham". There set trades meant they could roll over na ked-short positions indefinitely. The SEC says its investigations will con tinue. Naked shorting is precisely the kind of gaming of the rules by sophisticated in siders that, it fears, could sap the average punter's confidence in stockmarkets. The role of prime brokers in particular is under scrutiny. According to the SEC complaint, unnamed large prime brokers engaged with the brothers in conversion trades that allowed the brokers to build entitlements to hard-to-borrow shares, even if these shares had not actually been located or de-
•
The Korea discount
Minority report SEOUL
Corporate governance explains South Korea's low stockmarket ratings
T IS sometimes asserted that low South I Korean equity valuations stem from the threat of instability in North Korea. That explanation looked a lot less convincing after the death of Kim]ong II in December, when the KOSPI 200 index of leading shares and the won, the South Korean cur rency, both quickly shrugged off the news. So what is the source of the "Korea dis count", which means that the KOSPI has a forward price-to-earnings ratio of under ten, below most other Asian stockmarkets (see chart on next page)? There are a few possibilities. The national economic mod el is still built on exports, often inhighly cy clical industries such as shipbuilding. The capital structure of South Korean firms has historically been debt-heavy. But the prime cause of the discount is more likely to be poor corporate gover nance at the family-run chaebol conglom erates that dominate the economy. Nefar ious schemes to pass on control to sons, avoid taxes and exploit company assets for the benefit of family members are widely discussed in private. They are also lam basted abroad: a 2010 survey by CLSA, a broker, placed the country third-from-bot tom in Asia on governance, ahead of only ��
The Economist February 11th
I
Kospicuously low Price-to-earnings ratio,
Japan {Nikkei225)
0
2012
Finance and economics 75 Credit cards in China
2012 forecast 5
10
15
20
India (BSE)
Philippines (PSEi) Taiwan (TWI)
Singapore (STIJ Indonesia (JSX) Hong Kong (Hong Seng)
South Korea (KOSPI)
China (SUA) Source: Bloomberg
� Indonesia and the Philippines. The issue is now also getting more of an airing at home. A recent report by Tong yang Securities, a broker, drew an explicit link between Korea's low equity valua tions and the practices of "tunnelling" and "propping", which benefit insiders at the expense of smaller investors. Tunnelling is the awarding of contracts to firms owned by family members. Chae bol heads typically own only a small por tion of their firms, but are able to maintain control through complex cross-holdings; tunnelling offers a means of exploiting that control to get richer, quicker. In 2007, for instance, the Fair Trade Commission, an official watchdog, fined Hyundai Motor for, among other things, giving 1.3 trillion won ($1-4 billion) of business to Glovis, a firm owned by the son of Hyundai's chair man-without any tendering. Propping is similar to tunnelling, and means that unviable units get financial support from sister companies. But it is no less damaging to small investors. If com pany insiders are able to misuse share holders' funds at will, would-be investors will reduce their expectations of future cash flows and thus attach lower valua tions to stocks. Other allegations are even more seri ous. On February 3rd Hanwha Group an nounced in a regulatory filing that its chair man, Kim Seung-yeon, was among several officials being investigated for alleged em bezzlement. Chey Tae-won, the chairman of SK Group, was indicted in january over the disappearance of 99 billion won from company coffers, as part of a scheme alleg· edly planned by his brother to cover fu tures-trading losses. Mr Chey denies the charges. The Federation of Korean Indus tries, a chaebol pressure group, has urged prosecutors to go easy on Mr Chey. They say that punishing him would harm "en trepreneurial spirit". Mr Chey has had previous scrapes, hav ing been convicted of a billion-dollar ac counting fraud in 2003. He eventually re-
Citi building HONG KONG
Is China's financial liberalisation accelerating?
T AST year your correspondent visited
L one of Citibank's few branches in
mainland China, hoping, among other things, to get a local credit card. The reply was unexpected. "Sorry, sir, but we are not very good in China. I recommend you go to another bank." Assuming such honesty has not al· ready cost him hisjob, the teller has a better story now. This week Citibank became the first Western bank to receive regulatory approval to issue credit cards in its own name; previously, foreign banks (Hong Kong's Bank of East Asia was the exception) could offer cards only through local partners. Citi has been expanding its retail network in China, including in novel places like airports and tube stations. In January it also an nounced it would set up a joint venture with China's Orient Securities Company. Is good news for Citi also manna for others? Some note that China's official policy is to encourage consumption and wonder if the announcement suggests a desire to expand the domestic credit-card market in a big way. Others point out that China stands accused at the World nade Organisation (wTo) of illegally boosting UnionPay, a domestic payment system backed by big local banks, and ask if this signals opportunity for the likes of Mas· terCard and Visa. Do not hold your breath. It is true that the country's credit-card market is grow ing (local banks had issued nearly 270m cards by the end of the third quarter last year, up by 20% on a year earlier) but from a low base. Officials would much rather see future consumption growth come via lower household savings than through splurges on credit cards, argues Tom Quarmby of Barclays Capital. And even if the WTO case results in a formal change in regulation, says LiuJing of the Cheung Kong Graduate School of Busi ness in Beijing, such are the advantages of incumbency and local backing that UnionPay is likely to remain dominant.
ceived a full pardon from the president and was also chosen to represent the nation during the 2010 G20 summit, leading a meeting of international chief executives. Lee Kun-hee, the chairman of Samsung, re ceived a similar pardon in 2009, having been found guilty of tax evasion, and was picked to front South Korea's bid for the 2018 Winter Olympics. Yujeon mujwai, mu jeon yujwai-an old expression meaning "money = innocence, no money = guilt"-is
As for the notion that Citi's recent advances suggest a speedier opening of China's financial system to foreigners, that hope also seems misplaced. This is a year of leadership transition in China, when officials typically take few chances. Some reforms may move forward, but probably as pilot schemes. Foreign firms have invested heavily in order to capi talise on any Chinese bonanza, but the waiting game is far from over.
Colours to the mast
enjoying a resurgence in popularity. The irony is that the largest chaebol are models of efficient production and are en joying a golden period. Their success, say proponents, vindicates the family-run ap proach to business. Their ownership struc ture means they have no need to appease short-termist investors or to meet quarter ly earnings targets; instead, they can invest for the long run. Smaller shareholders have reason to feel less thrilled. •
The Economist
76 Finance and economics Building competitiveness
A fare fight
Taxi markets are a perfect test of Europe's willingness to change. The first in an occasional series on structural reform
M
ANY a journey starts in a taxi. So it is with the road to deregulation in the euro zone's economies. Mario Monti, Ita ly's prime minister, has prioritised liberal isation of taxi licences; Italy's cabbies are striking as a result. Greek taxi-drivers have blockaded streets several times in protest against deregulation. Why have taxis be come emblematic of the battle to free hide bound economies? The superficial answer is that taxis are iconic: think of the badges, the bold col ours and the recognisable models. The complex answer is that these features are themselves the result of regulation, and not just in the euro zone. From the turning circle of a London taxi to the medallions on the hood of a New York cab, this indus try picks up rules as easily as fares. Taxi markets should be simple. Costs of entry are low. There are rarely large incum bent firms. On paper, competition should flourish. But low barriers to entry create a risk of having too many taxis on the roads. The number of taxi drivers in New York and Washington, oc, shot up between 1930 and 1932, as the unemployed sought work during the Depression. Such surges lead to rules to reduce congestion. America started to set up new regulatory authori ties in the early 1930s; Britain established binding numerical limits on horse-drawn coaches way back in 1635. Cab fares can be problematic, too. Un regulated competition means that fares fall to little more than a driver's expenses. These expenses are influenced by distance (fuel costs), duration (the cost of time) and destination. The end-point for a trip is vi tal: some destinations (airports, say) will pretty much guarantee a return fare; others will not. This means journeys of a similar distance can have very different costs, so working out a fair price is tricky. In an un regulated market passengers would have to search out a competitive price, a time consuming process of hailing or calling a number of cabs. That allows taxi operators to run an opaque pricing structure. The response to this problem in many jurisdictions has been regulation to estab lish a uniform price, giving customers cer tainty over what they will pay. But as a re sult journeys that are the same distance end up varying hugely in value for drivers. Short trips around tourist destinations are lucrative; trips to more remote areas, or on congested commuter routes, are much Jess profitable. Since full-time cabbies cannot
raise prices, they may refuse to operate at less popular times or to carry passengers who live at the wrong end of town. The answer has been to layer on yet more regulation aimed at enforcing uni form pricing, geographic coverage and quality standards. Rome and Mumbai op erate hard geographic barriers to entry: those who live outside the cities cannot op erate inside them. A better idea is imposing an entry cost for a permit that a driver loses if found to be violating the rules. This creates a commitment to the industry and an incentive to play fair. The New York me dallion system works this way: a driver caught violating rules is banned and the medallion suspended, so both the driver and medallion-owner Jose out. But even well-thought-out regulations end up not working. Drivers of London's black cabs must learn the city's streets by heart but these tests can now take four years to complete (in 196o it took up to a year), which acts as a bottleneck to new supply. That a New York medallion sells for over $1m suggests well-intended com mitment devices can simply become a bar rier to entry. Incumbent drivers argue that more tax is might help travellers but would dent profits, putting low-value trips at threat and reducing cab quality. But the idea that markets are a zero-sum game is a bad one. Loosening quantity restrictions might ben efit both drivers and passengers. More cabs mean lower waiting times and can in crease the number of travellers who
Hackneyed protest
February
11th 2012
choose to use taxis. The market grows. This could boost utilisation rates and profits. There is supporting evidence. In 1998 Dublin suffered from a distorted licensing system. Demand had doubled in the previ ous 20 years but the number of licences had not kept up. Waiting times were over an hour. Deregulation in 2000 reduced en try costs (the cost of a car and a licence) by 74%. The result was more than three times as many cabs on the roads, lower waiting times, maintained cab quality and higher passenger satisfaction-all in two years. In Tehran taxi supply is flexible, rising and falling with demand. A shared-taxi system operates, allowing any private car to pick up passengers. Because travellers can hop on and hop off as they please, a driver can carry passengers travelling to different destinations at the same time. This boosts utilisation, just as a bus route does. The system also means the quantity of taxis is truly fluid, rising during rush hour as commuters pick up a few passen gers on their way home. It would be hard to design regulation that worked this well. The Swedish experience suggests one downside to deregulation. Following the country's banking crisis in 1990 lots of in dustries were deregulated. For taxis price controls, restricted operating times and regulated zones were all swept away. The year after deregulation the number of tax is per inhabitant had risen by 28%. But fares to rural areas (low-value one-way trips) rose, in line with theory. One solution would be to subsidise taxi fares to some ru ral areas where buses do not operate. The regulatory straitjacket that charac terises the taxi industry may have been fit ted for valid reasons. But barriers to entry make markets smaller. Dismantling layers of regulation to increase market size and efficiency is the rationale behind structur al-reform efforts in the euro zone. If these economies are to change, the taxi is as good a way as any to start the trip. •
The Econombt February 11th 2012
Free exchange
Finance and economics 77
Go for the churn
The number ofjob-to-job moves by American workers tells a bleak story
F
IGURES on employment tend to encourage a black-or-white view of an economy. Either conditions are worsening and firms are shedding workers, as they did by the hundreds of thou sands in 2008 and 2009, or times are improving and businesses are creating new jobs. Spirits leapt on February 3rd on news that America's private businesses boosted their payrolls by 257,000 jobs in January, capping the country's best 12-month employ ment performance in the private sector for over five years. But the headline figures representjust the tip of a large labour-market ice berg. Data provided by the relatively new Jobs Openings and La bour Turnover Survey(]OLTS) illuminate these depths. Even in the darkest of days, labour markets remain busy. Growing firms hire to expand and even shrinking businesses seek out workers to fill important vacant positions. In December 2008, for instance, overall American employment dropped by nearly 700,000 jobs. Yet in that month more workers-over 4.1m in total-were hired into new positions than in December of last year, when net payrolls grew by 203,000. During a relatively plac id economic period like the mid-2ooos, about 65% of all hiring is associated with what economists have dubbed "churn"-the job to-job movement of workers through the labour force, which nei ther adds to nor subtracts from total employment. Of the 12m or so hires that occurred in a typical pre-recession quarter, some 8m came from firms luring workers away from other firms. Churn is a mechanism by which labour markets reallocate workers towards more efficient ends. In the typical job-to-job move (that is, without any intervening stint of unemployment) an American worker can expect a rise in wages of over 8%. This gain represents, at least in part, an improvement in productivity. As workers obtain skills and find betterjob matches, their output and earnings rise. And as firms obtain ever more suitable labour, they can afford to pay higher wages. In this way, the churning of the labour market contributes to growth in the potential output of the economy. Although this ebb and flow is always happening, its strength is subject to the forces of the business cycle. When hard times hit, workers are less likely to make the leap from one firm to another. And when employees do move, firms are often reluctant to fill the freshly vacated positions. In a new analysis* Edward Lazear of Stanford University and James Spletzer from the Bureau of La bour Statistics examine how the recent recession affected these job-to-job moves.Just 9m workers were hired in the second quar ter of 2009-the last of the recession-down from 12.8m in the fourth quarter of 2007, a fall of about 30%. About 8o% of this de cline in hiring was attributable to a fall in churn rather than a de cline in job creation (see left-hand chart). The number of workers voluntarily leaving ajob fell by nearly 40%, for instance. The pace ofjob creation in the economy slowed sharply, it is true, but most of the hiring chill can be attributed to a decline in churn. A freeze of this sort matters. Based on the typical wage gain fromjob-to-job moves, Mr Lazear and Mr Spletzer estimate the ef ficiency cost of reduced labour-market churn during the crisis at about 0-4% of GDP a year between the onset of recession in De cember 2007 and the middle of 20u. That is the equivalent of $208 billion of lost output-a small hit compared with the impact of the recession itself but a meaningful and underappreciated economic cost of prolonged labour-market weakness. This cost falls disproportionately on the young. Individuals who graduate from college and enter the labour force during a typical recession can expect an initial earnings loss of about 9%
I
A slow convalescence US labour market
Millions, quarterly figures
nations ,
15
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05
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perjob opening 7
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1
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0
9
Job creation
d e partures
Unemployed workers
70
12
2001
R%eso�
0
2002
laze3r and Spletzer; Bureau of Labour Stati�lic�
04
06
08
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Job·t()-job employee mBVes
•
(compared with what they might expect in normal circum stances). This decline can be mitigated and eventually eliminated by leaps from firm to firm, through which young workers obtain new skills and find ever better ways to use their talents. That pro cess is frustrated by a general slowing of labour-market churn. A pickup in hiring alone is not enough to grant the labour mar ket a clean bill of health, according to this analysis.Just as impor tant is whether workers feel comfortable leaving the security of an oldjob for the prospect of higher returns in a new one. If a fall ing unemployment rate does not translate into more risk-taking among workers in jobs, then the labour market may be further from normality than is appreciated. Quit to get ahead
America is doing better than it was. The number of unemployed workers perjob opening-a measure oflabour-market tightness has fallen from a peak of around seven workers to below four. That is contributing to greater job-to-job movement. The share of resignations in total job departures, which sank from nearly 60% to under 40% during the recession, is back at so% (see right-hand chart). Yet there is still a long way to go. As of the second quarter oflast year, churn wasjust 8% higher than it was at its trough. Firms' hiring behaviour remains subdued. When there are plenty of jobless workers to go around it becomes much easier for firms to find qualified individuals for open positions, and less important for them to lure employees from other businesses. But as markets tighten companies raise what economists call "recruit ing intensity". Work by Steven Davis of the University of Chica go, Jason Faberman of the Federal Reserve Bank of Chicago and John Haltiwanger of the University of Maryland suggests that firms' recruiting efforts-as represented by advertising spending, hiring standards and compensation packages-explain about a third of the variation in the pace at which vacancies are filled. Re cruiting intensity dropped by nearly 22% during the recession, they reckon, and has since rebounded by less than 6%. New employment growth is most welcome, of course. But un til employment churn returns to pre-crisis levels, the costs of America's recession will continue to mount. • •••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••
*
Cited papers are accessible at economist.comjchurn12
Economist.comfblogsjfreeexchange
78
Property
The Economist February 11th 2012
Sdence and technology
The Economist Februa ry 11th 2012 79 Also in this section 80 Social networking for scientists 80 Pollution in China 81 Why zebra are striped
For daily analysis and debate on science and technology, visit Economist.comfscience
Sex and love
The modern matchmal{ers
Internet dating sites claim to have brought science to the age-old question of how to pair off successfully. But have they?
F
OR as long as humans have romanced each other, others have wanted to med dle. Whether those others were parents, priests, friends orbureaucrats, their motive was largely the same: they thought they knew what it took to pair people off better than those people knew themselves. Today, though, there is a new match maker in the village: the internet. It differs from the old ones in two ways. First, its mo tive is purely profit. Second, single wan nabe lovers are queuing up to use it, rather than resenting its nagging. For internet dat ing sites promise two things that neither traditional matchmakers nor chance en counters at bars, bus-stops and bar mitz vahs offer. One is a vastly greater choice of potential partners. The other is a scientifi cally proven way of matching suitable people together, enhancing the chance of "happily ever after". The greater choice is unarguable. But does it lead to better outcomes? And do the "scientifically tested algorithms" actually work, and deliver the goods in ways that traditional courtship (or, at least, flirtation) cannot manage? These are the questions asked by a team of psychologists led by Eli Finkel of Northwestern University, in Illi nois, in a paper released-probably not co incidentally-a few days before St Valen tine's day. This paper, published in Psycho logical Science in the Public Interest, reviews
studies carried out by many groups of psy chologists since the earliest internet dating site, Match.com, opened for business in 1995. In it, Dr Finkel and his colleagues cast a sceptical eye over the whole multi-bil lion-dollar online dating industry, and they are deeply unconvinced. Blueprint for a perfect partner?
The researchers' first observation is not so much what the studies they examined have shown, but what they have been un able to show, namely how any of the much-vaunted partner-matching algo rithms actually work. Commercially, that is fair enough. Many firms preserve their intellectual property as trade secrets, rather than mak ing it public by patenting it, and there is no reason why internet dating sites should not be among them. But this makes claims of efficacy impossible to test objectively. There is thus no independent scientific evi dence that any internet dating site's algo rithm for matching people together actual ly does enhance the chance of their hitting it off when they meet. What papers have been published on the matter have been written by company insiders who do not reveal how the crucial computer programs do their stuff. It is, though, possible to test the value of a claim often made for these algorithms:
that they match people with compatible personality traits. No doubt they do, given the number of questions on such matters on the average application form. What is assumed, but not tested, however, is that this is a good thing-that those with com patible personalities make more success ful couples than those without. To exam ine this proposition, Dr Finkel draws on a study published in 2010 by Portia Dyren forth of Hobart and William Smith Col leges, in Geneva, New York. Dr Dyrenforth asked more than 2o,ooo people about their relationships, and also assessed their personalities. Members of couples with similar personalities were in deed happier than those whose partners were dissimilar. But the difference was not exactly huge. It was o.s%. As Dr Finkel puts it, "I wouldn't have a problem with compa nies claiming that their matching algo rithm could increase the chances of devel oping a lasting relationship by a tiny amount; I get concerned, though, when companies claim they can find your soul mate for you." Surely, however, the chances of finding that magic other are increased by the sec ond thing internet dating brings: oodles of choice? But here, too, things are not as sim ple as they might seem. Some dating-site algorithms do not take the high-handed "we know best" ap proach but, rather, let the punter decide what he or she is looking for and then offer as many matches to those criteria as are on the website's books. The crucial assumption here, of course, is that what people think they want is what they actually need. That, it is true, is an assumption behind all consumer deci sions. But changing your mind about a book or a washing machine chosen over ��
The Economist February
80 Sdence and technology
� the internet is not as emotionally fraught as changing your mind about a potential sexual partner. And here, too, the data sug gest people are not good at knowing what they want. One of Dr Finkel's own studies, for example, showed that when they are engaged in internet dating's cousin, speed dating, people's stated preferences at the beginning of the process do not well match the characters of the individuals they actually like. Indeed, even the very volume of alter natives may be a problem. Studies on con sumer choice, from boxes of chocolates to restaurant wine lists, have shown that less
is more. Half a dozen bonbons, or a dozen bottles, are easier to pick between than 30 or 40. And an internet dating site may come up with not just a few dozen, but thousands of allegedly suitable matches. The supermarket of love
Not surprisingly, the difficulty of choosing from abundance seems to apply to choice of people, too. Dr Finkel could find no study which addressed the question di rectly, in the context of internet dating. But speed-dating once again provided an an swer. Here, he found studies which showed that when faced with abundant
11th 2012
choice, people pay less attention to charac teristics that require thinking and conver sation to evaluate (occupational status and level of education, for example) and more to matters physical. Choice, in other words, dulls the critical faculties. The upshot of Dr Finkel's review is thus that love is as hard to find on the internet as elsewhere. That is not a reason not to use it. But you may be just as likely to luck out in the local cafe, or by acting on the impulse to stop and talk to that stranger on the street whose glance you caught, as you are by clicking away with a mouse and hoping that, one day, Cupid's arrow will strike. •
Sodal networking for sdentists
Pollution in China
Professor Facebool{
Clearing the air
More connective tissue may make academia more efficient
G
VENjournalists' penchant for sticking the suffix "gate" onto anything they think smells of conspiracy, a publicrelations consultant might have suggested a different name. But ResearchGate, a small firm based in Berlin, is immune to such trivia. It is ambitious, too-aiming to do for the academic world what Mark Zuckerberg did for the world in general, by creating a social network for scientists. And it is successful. About 1.4m researchers have signed up already, and that number is growing by so,ooo a month. Non-scientists might be surprised that such a network is needed. After all, the internet was originally created mainly by academics for academics and Mr Zuckerberg's invention, Facebook, got its start on college campuses. But though the internet has speeded things up, it has not fundamentally changed how researchers are connected. Academic communities are still pretty fragmented, frequently making it hard for scientists to find others doing similar research. And results often are not shared across disciplines. To make things more efficient and interdisciplinary, ResearchGate wants to help the academic world to grow more connective tissue, as lj ad Madisch, one of the firm's founders, puts it. As on Facebook, users create a profile page with biographical information, list their interests and research skills, andjoin groups. They can see what others with similar interests are up to and post comments. They can also upload their papers and create invitation-only workgroups. The big question is whether ResearchGate will make enough money to keep its investors happy. So far, it is running on cash from Accel Partners and Benchmark Capital, two venture capitalists based in Silicon Valley. A third firm is expected to join them soon. But these people will
want a return on their investment. Some of that may already have come from the Max Planck Society, which runs many of Germany's best research earnpuses and had ResearchGate build it a private network. Over the longer haul, the firm hopes to charge companies and universities for using it to advertise jobs, and to operate a marketplace for lab oratory materials. It has no plans to post other advertising, though, nor to charge its users directly. At the moment, most of those users are in their 20s. Their favourite activity is to ask each other questions about practical research problems, from DNA-sequencing techniques to statistical tricks. They are also busy reading each other's papers: more than 10m have been uploaded. (Most scientific journals now allow authors to post their work on "personal web pages", which includes profile pages on social networks, according to Dr Madisch.) The service certainly saves these young researchers trial and error, and therefore time and money. They will probably also like a new feature Research Gate is planning to introduce in April: a feedback system which lets users rate each other's contributions. This would allow them to build a reputation other than by publishing papers. Scientists whose reputations are established may be more hesitant, though, and notjust because they are set in their ways. Science is not only about collaboration but also about competition. This limits what people are willing to share. But Dr Madisch is optimistic. Those who have grown up with Facebook, he says, know that sharing will improve their research. And their older colleagues will eventually come around-or retire.
Satellite data reveal the true scope of China's pollution problem
P
M2.5" seems an odd and wonkish term for the blogosphere to take up, but that is precisely what has happened in China in recent weeks. It refers to the small est solid particles in the atmosphere those less than 212 microns across. Such dust can get deep into people's lungs; far deeper than that rated as PMlO. Yet until re cently China's authorities have revealed measurements only for PMlO. When peo ple realised this, an online revolt broke out. Such was the public pressure that the gov ernment caved in and PM2.5 data are now being published for Beijing and a handful of other cities. But what of the rest of China? At the moment, only PMlO data are available. However, officialdom's hand may soon be forced here, too. Though pollution data are best collected near the ground, a plausible estimate may be made from the vantage point of a satellite by measuring how ��
"
I
Sweat the small stuff Popt.tlation-weighted fine particulate matter concentrations, micrograms per ml, 2007
P�IZ.S • 50.00 01' more 0 20.01 -30.00 • 40.01· 50.00 • 10.01. 20.00 o 30.01 . 4o.oo no - 10.00
Sourcts: Battelle Memorial fnstitvte; Columbia University;Yale University
The Economist February 11th
2012
� much light is blocked by particles, and esti mating from those particles' chemical composition the likely distribution of their sizes. And a report prepared for The Econo mist by researchers at Yale and Columbia universities, and Battelle Memorial Insti tute, under the auspices of Angel Hsu of Yale, does just that. It draws on data from American satellites to map out PM2.5 pol lution across the entire country. World Health Organisation guidelines suggest that PM2.5 levels above ten micro grams per cubic metre are unsafe. Ms Hsu has found (as the map shows) that almost every Chinese province has levels above that. Indeed, much of the country's popu lation endures air so foul that it registers above 30 micrograms per cubic metre. Beij ing averages 35. Shandong and Henan top so. And because these readings reflect the average pollution that a typical resident in a province is likely to endure during a giv en year, they underplay the sharp spikes in
Sdence and technology 81
pollution seen on particularly dirty days, when spot readings go much higher. Ms Hsu's approach is not perfect. Satel lites are not great at taking readings over bright surfaces like snow and deserts, and cannot easily distinguish particles high up in the atmosphere from those closer to the ground. And the data also have to be ad justed to take account of the fact that pollu tion and people tend to coincide, other wise the uninhabited areas in a province would drag the overall figure down below the real experience of someone living in the region. Such caveats aside, however, this study shows how far China still needs to go in cleaning up its act. Pollution and develop ment have always marched hand in hand, and the former may even be regarded as tolerable as long as it is only a temporary blip on the road to prosperity. What is in tolerable is that it is left to outsiders to lift the lid on what is happening. •
Why zebra are striped
Horse sense
Are zebra stripesjust an elaborate insect repellent?
"How
the zebra got his stripes" sounds like the title of one of Rud yard Kipling's "Just So" stories. Sadly, it isn't, so the question has, instead, been left to zoologists. But they, too, have let their imaginations rip. Some have suggested camouflage. (Charles Darwin pooh poohed that idea, pointing out that zebra graze in the open, not amid thick vegeta tion where a striped pattern might break up their outlines.) Others suggest they are a way to display an individual's fitness. Ir regular stripes would let potential mates know that someone was not up to snuff. One researcher proposed that stripes are to zebra what faces are to people, allowing them to recognise each other, since every animal has a unique stripe-print. Another even speculated that predators might get dizzy watching a herd of stripes gallop by. There is, however, one other idea: that stripes are a sophisticated form of fly repel lent. It was originally dreamed up in the 1980s, but never proved. Now, a team of in vestigators led by Gabor Horvath of Eot vos University in Budapest report in the Journal of Experimental Biology that they think they have done so. The original suggestion was that stripes repel tsetse flies. These insects carry sleep ing sickness, which is as much a bane of ungulates as it is of people. But tsetses are not the only dipteran foes of zebra and, since they are rarely found in the meadows
of Hungary, Dr Horvath plumped for studying an almost equally obnoxious al ternative: the horsefly. Horseflies, too, transmit disease. They also bite incessantly, thus keeping grazing beasts from their dinner. Indeed, previous research has shown that fly attacks on horses and cattle reduce their body fat and milk production. Such research has also
Imagine what it looks like to a fly
shown something odd: horseflies attack black horses in preference to white ones. That fact got Dr Horvath wondering how they would react to a striped horse-in oth er words, a zebra. Actual zebra are hard to experiment on. They insist on moving around and swish ing their tails. The team therefore conduct ed their study using inanimate objects. Some were painted uniformly dark or uni formly light, and some had stripes of va rious widths. Some were plastic trays filled with salad oil (to trap any insect that land ed). Some were glue-covered boards. And some were actual models of zebra. They put these objects in a field infested with horseflies and counted the number of in sects they trapped. Their first discovery was that stripes at tracted fewer flies than solid, uniform col ours. As intriguingly, though, they also found that the least attractive pattern of stripes was precisely those of the sort of width found on zebra hides. Zebra stripes do, therefore, seem to repel horseflies. Exactly why is unclear. But Dr Horvath thinks it might be related to a horsefly's ability to see polarised light, which im poses a sense of horizontal and vertical on an image. Horseflies are known to prefer horizontal polarised light. Possibly, the mostly vertical stripes on a zebra confuse the fly's tiny brain and thus stop it seeing the animal. Another obvious question, though, is why other species have not evolved this el egant form of fly repellent, and what the consequences would have been if they had. If humans, for example, were black and-white striped then the history of inter communal violence the species has suf fered when different races have met might not have been quite as bad. One for Kipling to have pondered, perhaps? •
82 Also i n this section 83 The future of Pakistan 83 The mystery of Mitt Romney 84 Documentaries on Russia
•
85 Lucian Freud in London
85 Contemporary Jewish fiction
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Prospero, our on li ne blog on books, arts and
culture appears every day. For analysis and debate, visit ,
Economist.comfculture
The first sexual revolution
Pleasure principles
How morality became personal in 18th-century England
F
OR much of the last millennium Euro peans lived under sex laws that would have won the approval of the most austere mullah. In England between the 13th and 16th centuries, extramarital sex was po liced with such energy that up to 90% of the litigation handled by church courts was about combating fornication, adul tery, sodomy and prostitution. The punish ments were often savage. When the Refor mation got going in the mid-16th century, the zeal for rooting out illicit sex went up another notch. Harsh new national laws were passed, such as a statute in 1534 that made buggery a capital offence. In1552 a re vision of canon law meant that adulterers could face life imprisonment or exile. Sex ual transgressors were often whipped, publicly humiliated and even branded. A hundred years later things quite sud denly began to change. By the mid-18th century sexual mores in England (and in much of Europe, too) had undergone a rev olution, writes Faramerz Dabhoiwala, an Oxford historian who has spent much of the last 20 years researching the subject. This rupture was far more dramatic than anything that happened in 1963 when, ac cording to the poet Philip Larkin, "sexual intercourse began". Less than 100 years after the execution for adultery of Mary Latham, a young woman in Puritan New England, many people were thinking about sex in ways that would make some contemporary readers blush. The wealthy and powerful proudly and openly dis-
The Origins of Sex: A History of the First Sexual Revolution. By Faramerz
Dabhoiwala. Allen Lane; 484 pages; £25.
To be published in America in May by Oxford University Press USA; $34.95
played their mistresses. A public agog for salacious gossip followed the lives of cour tesans and high-society prostitutes (such as the oft-painted Kitty Fisher), and por nography was widely available. The assumption in early modern Eng land that sexual persecution was essential to good social order was not unlike that of the more conservative Islamic republics to day. It was partly rooted in religion and the looming threat of hellfire. It was also a pro duct of patriarchal attitudes that saw women as the property of fathers or hus bands. Should a woman have sex with a stranger, her family would feel that a crime had been committed against them. There were practical considerations, too. For affluent families the sudden arrival of a bastard child could wreak havoc with rules of inheritance. The illegitimate chil dren of the poor were resented as burdens on the community, and there was a con stant fear of venereal diseases spread by whores. It was everyone's business to bear down on illicit sex because of its awful consequences. Policing was effective be cause most people lived in villages or small towns where privacy was unknown. When and why did things start to
change? The latter half of the 17th century saw the start of a backlash against extreme Puritanism, particularly among the upper classes who observed the louche goings on at court, led by the libidinous Charles II. But as Mr Dabhoiwala persuasively ar gues, the reasons for the first sexual revolu tion were complex and varied. The migra tion of people to big cities had made the bonds of traditional morality much harder to enforce, while the explosion of mass printed media both spread ideas and ex ploited prurient interest in sexual shenani gans. Exploration also had an influence, as travellers returned with tales of very differ ent sexual cultures. But the key driver, Mr Dabhoiwala be lieves, was the spread of religious toler ance and nonconformity, which eroded the church's authority and let people de fine morality more personally. Samuel Johnson, a high Tory Anglican, spoke for many in 1750 when he opined that "every man should regulate his actions by his own conscience". His close friend and amanuensis, James Boswell, chronicled his own frequent encounters with whores and musings on polygamy with little show of guilt. For Boswell and many of his con temporaries, morals were "an uncertain thing". The upper-middle-class members of the Beggar's Benison club in Scotland, founded in 1732, apparently thought noth ing of arranging meetings where they could drink, sing and fondle naked wom en. Such evenings were brought to a fitting climax, as it were, when they would com munally ejaculate into a ceremonial pew ter platter. The book is rich in anecdotes, funny, touching and seedy. Yet it would be wrong to view late-18th century attitudes towards sex as a proto type of our own. Sexual liberation was largely confined to the ranks of well-to-do chaps. It was generally assumed that while it was "natural" for men to pursue sexual ��
The Economist February 11th
2012
� opportunity, women were instinctively more virtuous (in complete contrast with the prior belief that women were the more uncontrollably lustful sex). Thus women were seen as vulnerable to male seduc tion, particularly by unscrupulous rakes who plotted with bawds to ensnare the in nocent. William Hogarth's 1732 engravings of "The Harlot's Progress" were wildly popular, as were Samuel Richardson's moralising novels, "Pamela" and "Cla rissa". The number of prostitutes in Lon don grew exponentially, but they came to be regarded less as wicked sirens and more as victims of men's carnal appetites who deserved not punishment but pity-and, when possible, salvation and reform by charitable institutions. "The Origins of Sex" is a splendidly in formative and entertaining book, but Mr Dabhoiwala leaves us with quite a few frustratingly loose ends. He has little to say, for example, about contraception, which was central to the sexual revolution of the 1960s. Sheaths of various kinds became popular in the 18th century, but libertines such as Casanova saw them more as pro tection against disease than as a form of birth control. What women thought about contraception is left blank. And by restrict ing himself to the period running roughly between 1600 and 18oo, the author is able to bypass the late-Victorian return to sexu al discipline, which lingered well into the last century. The difference, he would say, is that even the most prudish Victorians saw sexuality largely as a private matter, which the state should neither judge nor attempt to regulate. If only young Iranians were so lucky. • Pakistan's future
Resilient mess
The Future of Pakistan.
By Stephen Cohen
and others. Brookings Institution Press; 311 pages; $29.95 and £20.99
I
T SEEMS optimistic to write a book called "The Future of Pakistan"; it assumes the country has one. Tot up the assorted threats and its survival may look dubious: Islamists, separatists, potentially stray nuc lear weapons, the war in Afghanistan, eco nomic and natural disasters, a booming and restless young population, unfathom ably venal leaders, rotting institutions and violent megacities. Any of these could yet spell the country's demise (see our special report this week). Individually, none of the 17 expert con tributors to this frank and detailed volume is quite so apocalyptic. But their collective mood is grim. In pondering scenarios for
Books and arts 83
the coming years, these various specialists have produced a flood of gloomy details and prognoses. Stephen Cohen, a well-respected ob server of Pakistani politics at the Brookings Institution, sets the tone by observing how Pakistanis lack even a shared idea of their nation. They are increasingly divided be tween the urban and rural, the educated and illiterate, and by competing religious strands. "The new normal is abnormal," he observes. The country is threatened by various long-term trends. Of Pakistan's 185m peo ple, two-thirds are younger than 30 years old. Only the population of Yemen-hard ly a model of stability-is more youthful. One poll taken among such youngsters and cited in the book suggests that three quarters might emigrate if given the chance. Also many of the young hold ex treme religious views, unleashed by the zealous regime of Zia ul Haq in the 198os. Rapid urbanisation brings more pro blems. Over a third of Pakistanis now live in towns and cities, where tribal and rural rivalries are morphing into violent, urban warlordism. Town-dwelling Pakistanis are "historically more religious and conserva tive than rural populations," writes Shuja Nawaz of the Atlantic Council. They also have smaller families, and the youngsters are often left to fend for themselves. Thus it is in towns that both extremists and the armed forces increasingly find recruits, which bodes ill for preserving moderate views inside the army. Oddly, little space is given to the bloody turmoil in Karachi, per haps the world's most violent metropolis. The army's destructive habit of med dling in Paldstani politics continues un abated. Roughly every decade this switch es from explicit power grabs to unsubtle efforts to manipulate civilian leaders. For now Pakistan is in the latter phase. Though this book went to press before the most re cent civilian-military clash, known as Me mogate, the authors may well prove large ly right in predicting lots of scheming but no new coup for some years yet. Within the gloom there are glimmers of hope. Most of the authors expect Pakistan to hobble forward more or less in its cur rent state. The lives of some will improve. Literacy rates are rising fast (79% of men under 24 can now read, says the World Bank), families are shrinking (even in rural areas the norm is now to have four chil dren, down from as many as ten two gener ations ago) and the press, generally, is more open than before. One sharp contributor, Aqil Shah, reckons that Pakistan will be come "neither Sweden nor Somalia", as the army's strong grip will prevent disinte gration but also block growth of strong ci vilian institutions. Even an optimist would not describe Pakistan's glass as half full keeping it unbroken may be the best one could hope for. •
The mystery of Mitt Romney
The puzzler
The Real Romney.
By Michael Kranish and
Scott Helman. Harper; 401 pages; $27.99 and £17.99
M
ITT ROMNEY is still the clear favour ite to secure the Republican presiden tial nomination, and has a chance of un seating Barack Obama in November. He has been in the public eye for more than a decade, first as a rather successful governor of Massachusetts and then as a chronic presidential candidate. Yet even political junkies have a hazy idea of what the man who may be the next president is actually like and what he really stands for. Unfortu nately, this book will not help much. This is not the authors' fault: Mr Rom ney is simply too protean. The writers, two seniorjournalists at the Boston Globe, have thoroughly trawled through the would-be president's history, and indeed that of his zealous Mormon ancestors. The book charts the various stages of Mr Romney's polymorphic life in impressive detail: his father's work in Detroit before he became a successful governor and then a failed Re publican presidential candidate; Mitt's time as a missionary, followed by his years of exceptional success at Bain Capital; his rescue of the floundering Salt Lake City Olympics of 2002 and his time as gover nor. Above all the authors chronicle his launch of universal health care in Massa chusetts-the model for Mr Obama's na tional version-which is his finest achieve ment and his biggest political headache. All this is well done. The analysis of Mr Romney's time at Bain is balanced and fair. ��
Why do they need to touch me?
84 Books and arts � It gives him credit for saving some floun
dering companies in unsexy businesses, but also describes how other firms were left overloaded with debt while the Bain partners made out like bandits. That Mr Romney was never a hands-on manager at any of these firms, and never an entrepre neur, is duly underlined. But the conclu sion that he was a superb and meticulous businessman whose actions yielded a big net gain for the economy is surely right. Equally to Mr Romney's credit is what we learn of his gubernatorial stint; the dis ciplined way in which he turned around Massachusetts's finances and got his health-care plan passed against terrific
The Economist February
odds. His documented ability to work with Democrats, such as Ted Kennedy, is perhaps his most promising strength. Other things are much less creditable. Mr Romney's infamous flip-flops on gay marriage, abortion and embryonic stem cell research are documented in depress ing detail. His extreme discomfort with anyone outside his tight inner circle of family and business associates is cruelly exposed. (His genuinely dreadful sense of humour gets off too lightly, though.) The real Romney, it seems, is both patrician and a pragmatist. His most burning desire is simply to succeed. What he would do with America's greatest prize is still unclear. •
Documentaries on Russia
Off balance
The challenge of capturing a murky country on film
W
HY Mikhail Khodorkovsky? Ever since his arrest on a Siberian runway in 2003, many have wondered exactly how Russia's richest man came to incur the wrath of Vladimir Putin, his country's once-and-future president. But there is an other version of the question: why has Mr Khodorkovsky become the main symbol of Mr Putin's authoritarianism? The tragic arc of his career-from no body to billionaire to prisoner, which he remains after two bogus trials-neatly re flects the sweep of Russia's recent past, from Soviet doldrums, through the chaotic 1990s to Mr Putin's revanchism. But per haps Mr Khodorkovsky's story enthralls because it represents the organising princi ples of Putinism: the supremacy of power over the law, and the use of that power for the benefit of a ruling clique. Mr Khodorkovsky's bust-up with the Kremlin features at the beginning and end of "Putin, Russia and the West", a series from Norma Percy, a renowned documen tarian. But the main focus is on Russia's di plomacy, particularly with America, in the 12 years since Mr Putin took over from Bo ris Yeltsin. Now on BBC2 and scheduled to be broadcast in America as a two-hour special on March 1st, the episodes combine archive footage with a superb roster of in terviews, including Sergei Ivanov, Mr Pu tin's former defence secretary; Condo leezza Rice (who evidently got along with Mr Ivanov); Mikheil Saakashvili, Georgia's president, heard speaking four languages; and many others. Russian and Western voices balance one another. This scrupulous technique yields some valuable results, for example in capturing the two sides' contrasting views of the
orange revolution in Ukraine and Russia's war with Georgia. "Hard" is a word that menacingly recurs in descriptions of Mr Putin. Yet there are some startling gaps, such as the sinking of the Kursk submarine and the terrorist atrocity in Beslan-itself a turning point in Mr Putin's approach to the West, which he implicitly blamed for Che chen terrorism. Indeed, there is mystify ingly little on Chechnya and the broader woes of the north Caucasus. The politics of energy are also largely ignored. Ms Percy's preference for depth over breadth may help to explain these holes; but so, too, might her noble pursuit of bal ance. One problem with reporting on an opaque country such as Russia is that jour nalistic scruples can backfire. Balance, in the sense of countervailing voices, can be impossible, because powerful Russians
Signs of the times
11th 2012
won't talk openly about some important issues, such as corruption. The quest for balance can skew the picture by omission. What emerges from this series is a view of history that sticks to parameters agree able to the Kremlin. In outline if not in de tail, this is Mr Putin's preferred story: a tale of Russian resurgence and clashing nation al interests. The alternative narrative-of nationalism used as a cynical distraction from lawlessness and graft-is buried. Only glancingly do the programmes touch on the grubbier motives that have been at least as important as Russia's post-imperi al resentments. In style and approach, the contrast could hardly be greater between Ms Per cy's series and "Khodorkovsky", a feature length documentary by Cyril Tuschi, a much less distinguished German film maker. The premise is his (never fully ex plained) fascination with Mr Khodorkov sky and the latter's serial identities as Sovi et student, shady oligarch, philanthropist and political prisoner. Mr Tuschi's tech nique is eccentric, involving some odd ani mation and creepy music; the tone is errat ic, veering from gloom to flippancy. No senior Russian officials will talk to him, so he relies mostly on Mr Khodorkovsky's family, friends and business associates. One magnificently weird interview is con ducted as the subject feeds a hippo. If Ms Percy's perspective is awkwardly close to the Kremlin's, Mr Tuschi's reflects Mr Khodorkovsky's; after they corre spond, they ultimately manage to meet in a Moscow courtroom. Mr Tuschi is im pressed by Mr Khodorkovsky's decision to stay in Russia when he might have fled, and by his defiance in prison; but he seems too willing to see persecution as sufficient proof of virtue. Yet for all its quirks, Mr Tuschi's film conveys the venal brutality that underpins Mr Putin's rule. As a cellmate of Mr Kho dorkovsky's observes, in Russia "living is expensive, but life is cheap." •
The Economist February
11th 2012
Books and arts 85 New fiction
Bool<s of laughter and forgetting
r
Hope: A T agedy
By Shalom Auslander.
Riverhead; 292 pages; $26.95. Picador; .
£16.99
What We Talk About When We Talk About Anne Frank. By Nathan Englander. Knopf;
207 pages;
£12.99
Lucian Freud in London
Local hero
Decades of portraits in the flesh
UCIAN FREUD is suddenly everywhere Lin London. When he died last summer, aged 89, he was completing plans for two surveys of his work: more than 100 of his painted portraits havejust gone on view at the National Portrait Gallery (NPG); an equal number of works on paper will soon be shown at the Blaine/Southern gallery. (Both shows will then travel to America.) Photographs of the artist in his studio by David Dawson, his longtime assistant and model, cover the walls at the Hazlitt Hoi land-Hibbert gallery. And Sotheby's and Christie's prominently feature Freud's paintings, drawings and etchings in their February sales. A torrent of mythmaking washes over it all. "Freud is widely acknowledged as one of the greatest realist painters," writes Sarah Howgate in the NPG catalogue, plac ing him in the company of Ingres, Courbet and Rembrandt. Tales about Freud's wit, intelligence, charm and-in later life-pro digious hard work stand on firmer ground. The artist had said of his paintings that "everything is autobiographical", so gos sip, too, has its place. The fact that he fa thered at least children enhances the Olympian image being fashioned. So too does his negligence about their upbring ing, which must make furious at least a few of their mothers. A friend of Freud's once said he had a cloven hoof. This was evidently part of his seducer's arsenal, along with his good looks. It also informed his vision. His self portrait "Reflection" from 1981·82 (pictured) reveals quite a bit of sympathy for the dev il. Painting portraits was his life's work, so T
14
$24.95. Weidenfeld & Nicolson;
VER since Abraham's idol-smashing Eoutburstin the Hebrew Bible, a strain of iconoclasm has run throughJewish literature. There is no shortage of stories that mock righteousness and skewer ritual, that kill the father and masturbate with the sister's underwear. So perhaps it was inevitable that Anne Frank, patron saint ofJewish suffering, would succumb to this heretical tradition. Thankfully her rather tasteless return to fictional life-as a foul-mouthed, matza-munching, hor ribly disfigured and terribly old woman takes place in a very funny book. In "Hope: A Tragedy", Shalom Aus lander's debut novel, Anne Frank is discovered in an attic in rural New York, wretchedly struggling to write a book that will rival her first; "Thirty-two mil lion copies...that's nothing to sneeze at!" Solomon Kugel finds her stinking up the home he bought to give his family a new start. The premise is so outlandish-and this Anne is so profane-that itis easy to picture Mr Auslander cackling devilishly at his keyboard ("Six million he kills the NPG show is the main event. "Astonish, disturb, seduce, convince". This was the artist's credo, which appar ently informed his work by the time he was 20. (Now it can be bought on T-shirts, mugs and tote bags at the gift shop.) Among the early works is a 1946 self-por trait, "Man with a Thistle", powerful and confident. Two arresting 1947 portraits of his wide-eyed first wife Kitty Garman in troduce us to a startled young woman. By 1950, the year they split, she looks terrified and trapped. A 1952 portrait of Freud's soon-to-be second wife Caroline Black wood, an even more wide-eyed aristocrat and writer, features a radiant beauty. 1Wo years later, she looks wan and imprisoned. (That marriage, his last, ended in 1959.) Like many sitters, Freud's often look forlorn. Yet these early works are thrilling-thinly painted, intensely observed, sometimes surrealist and often awkward. There is a kind of magic about them, poetic, haunt ing and distinctive. One glance and they stay fixed in memory. What a debut for an artist who was largely self-taught.
... and this one gets away"). But while he balances zingers with more thoughtful meditations on martyrdom and history, the jokes wear thin two-thirds in. By then it is clear that Mr Auslander has written a clever set-piece, not a story. Storytelling comes more naturally to Nathan Englander, whose new book of short stories features his finest work yet. He has a rare range; his clean writing feels fresh, but it vibrates with a charming old-world sensibility, much like his first acclaimed collection. For example, there is something about this line that de mands a pause: "A little girl, fat and hap py. Fat in the ankle, fat in the wrist". A palpable softness, so simply conveyed. There is a melancholic heft to these stories, as if Mr Englander's tales about West Bank pioneers or vengeful geriatric Holocaust survivors are as fragile as memory, as lasting as life. Like Mr Aus lander, but more subtle, he captures the mess of feelings provoked by accounts of the Holocaust: the way these stories are often too big and unwieldy to manage; too tragic or melodramatic to compre hend. Humour can be a way to express the absurdity of the horror. The strongest stories are the first and last; with both, Mr Englander reveals his grasp of the small moment, the modest gesture, which can reveal unexpected beauty or something unspeakably dark. In the 1960s, influenced by his great friend and fellow painter Francis Bacon, Freud began using heftier brushes and thick paint. Nakedness takes over, can vasses get big. Grandees pose. In the 1980s Freud became obsessed by skin, with sometimes creepy results. Sitters who were ravishing in life look ravaged in paint, like burn victims. The work duly aston ishes and disturbs, but rarely seduces or convinces. Then there is big, fat, naked Leigh Bowery, a transvestite performance artist who modelled for a series of por traits in the early 1990s. Unlike the passive, vacant look of so many of Freud's subjects, Bowery's mounds of flesh have presence; his expression is commanding. It is as if Freud was wowed and so he wows us, too. The show ends with portraits of naked Mr Dawson with his dog. The very last, from 2011, is unfinished. The exhibition starts on a high note and ends on a poignant one. •
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"Lucian Freud: Portraits" is at the National Portrait Gallery until May 27th. and then at the Modern Art Museum of Fort Worth from July 1st to October 28th
86
Courses
"THE DISCUSSION
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The Economist February 11th 2012
89
Appointments NATIONAL INSTITUTE OF FOOD TECHNOLOGY ENTREPRENEURSHIP AND MANAGEMENT (An Alltoaomous Orpbatlotl uJKitr Mhtlstty of Food Plowul��tlndmria. Gem. of India)
3" � MDA IIUciiDg, 7/6 Slri iiiStltliloaai ANa, Allpst KtaJdl MarJ, Nn Delhi. l..tla-PIN Coclr. 110049
VACANCY FOR FACULTY & NON-FACULTY POSITIONS
NIFTEMMAHDATE·
worit as Seder Promotion Ofgansabon or Boslne$8 Promollen Organlsauon of the food proa!SSf1g NIFTEM wWd
•
seaor MajorobjectivesolNIFTEM are� as: i. WOI1ung IS a One Stop SolutiOn PIOYider 10 all lie ptoblemao(the sector il Worl
�r41orthasecl0r ill Faalltalrlg business h:ubabon •
&eMces w.1h � urn
modem pilot plant lor processJng of fruits and vegelables,
rv y
dal'f, meatand grain prooessJng
Conducllng FrontierAiel Resean::h lordelletopnent ofll1e
Sectlr.
DIMIIoping world class � talent wUh advanced
knowhow in bod sciei'ICIIIandIBchnology
Yl Providing ltltalecUI bacUig for � which wi govern food safely and quaflly and at lhe same tme fos:er
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vi FI.IICbonlng as a knowledge reposllory on various aspects
8lld processing lllc:hnology. marbt ltands, safaty llld quahly 51andards, managementpradJASamongOlhars vii. W011tAng forupgradabonofS�foodp!'OCI8SSIIIgdustels IX Promollng cooperation and networlung among eldstitg offood processing such asprodUdinformation.producbon
'nstJtutJons Wlltlln lncta and bocies.
as
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NATIONAl INSTITUTE Of FOOD TECHNOLOGY ENTREPRENEURSHIP AHD MANAGEMENT (NIFTEM) IS set up as an apex w011d dass ln&lltute of global standards in Food Science & Te y under the aegis of MoFPI. The ln$lrtute wf commence iS l acti'vibel frcm 2012·13 AwlicatJons are InVIted frcm qval1fied lnclan Qlllens, Petsons of Indian Ong!n (PIOs) and Overseas Citizens of lndJa (OC1s) n wei n Non-lncians who are excapllonally � 8lld moavaled 'Mill en established rec:orc1 of lndependerrt high qualllyresearcha1dOOCMllt!ed 10teacnng8lld research. Professor
1
Associate ProtestOr
s
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0e1XJtY Controller (F.�nance & Account$)
1
Assistant Professor
12
Contro'�er of Examtlabon
1
Comtn!led, ted orien1ed profe$slonala who w\1 share llle vfslon of 1t1e lnst:tute � pa$Sion 10 ma1Ch global standards
era enc:ooraged tD apply tD Ill& above ment1onec1 pciSibonS on Oncl recrudmenll Conll8ctl Deputabon/ s.bbdcaJ BaSIL ReseMIIiona to SCI ST/ OOCI PH, etc., will be appiiCIIble as per Governmentof India norms Salary and pelqUMes offered areas pera-PayComrnls$lon$PayScales
NIFTEU extends eom�lvt support to the fiQIIty towllds their proMalonal Orltlopment: AcademiC Freedom 111 pedagogy Research and 11s
•
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•
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•
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Details regard•ng eligibility, Requtred Areas of Speclazatlon, job descnpl1011, pay scale, downloa6lng of applic:a'.Jon loon and prooedule$etc, pleasevisitourwebsite www.niftem.ac.ln Vldeoeonferenclng option may be extended tor
For
•
lnltMewlng c:andldat8sfrom outside India.
Last Date fof rece1pt of daly f'ltd in apptlcabon Is 25.02.2012
Sdl· Sudhlr
Kumar
Seaetaty, NIFTEM Soaetyf D.-, MFPI
Tel +91·11·2&497132, Fax +91-U-26497134
who have already applied earlier against our advertisement Need Not Apply again.
The European Organlsatron fOf the Safety of Air NaviptiOil (EUROCONTROL) seeks fOf the Agency In 8fussels {Sel&lum) f01 a cletermu�d periOd a (m/()
Di rector General
(ref.: HQ-201 2-AD/006 · Grade: AD I 6 - Closing date: 29.02.20 1 2)
EUROCONTROL EUROCONTROL is the European Orgat"'l5atron
for the Safety of Air
Nav1gatton and has 39 Member States It helps It$ Member States acrut!'<e
safe, effietent and emiro�ntally
friendly ait traffic �ittons il!;rOSS
the whole of the EtKOpean reg1on.
The EUROCONTROL Agency as the executive arm of the Organisilt•on.
with It$ headquarters located in Brussels. ind has servtces located tn Bretigny (Pans)
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Mu.strtcht and
The current Duecmr General of EUROCONTROL Davtd McM•IIan IS leavng at the end of a successful mandate at rhe end of the year. EUROCONTROLI$ therefore looking f01 a replacement of the same calibre to continue the v.ork of modem1s1ng the Agency,
� Oirect01 Genera mana&es the Agency and eojoys wide mal\lgetl'lfflt independence wtth regard to the Implementation, uullsat100 and eflicrent of the t«hnical. linanclal and personnel re�11ces placed at h!Vher d·�l He/she as ass1sted by a team or D�rectors. The man task Is to ensure the ad11evemem of the Orgarusat10n.s tasks and objectives
l
operation
They include •nter alia c,ltry out th,. EUROCONTROl m•sstOn, I e to harmoruse and •ntegrate atr naVlgauon �tvrces 1n Europe. with the ain't of cruttng a un•form a1r traffic mana�nt system f01 c1v1l and mll•tary user� to achleve the safe 01derly. e"pedtiOUS and econornt<: now of traffic throughout Europe while m•nlml$•ng advel'$e envtronmental .mpact · collaborate d�ly wtth the Member States the European Uruon, the A11 Nav1gation Servrce Providers and all other At,ency Stakeholders. and other lnterrurttonal the Awspace U�rs. Airports the Mtlttary and other customers usmg the Agency as a platf01m for stakeholder Involvement • ensu� that ProviSIOnal Counc•l &eals and objectives are delivered effictently and wtth respect of the rule of law • contnbute to the formahsat1on of the improved worktng relatronsh•p between the EU and EUROCONTROl ensure and safeguard the posttron of the Agency as •mpartlal pan-European and techniCal/operatiOnal entity • drive the Single European Sky ATM Research (SESAR) together with the European Comm�Sion and ot� Sralcet-olders tn the SE.SAR )otnt Undertaktng establl$h alld tmplement the Agency 8uslness Plan • manage efflcently he core proces�s of Cooperatn.e R&D pan·Eutopean functiOns r eg10nal !.etv1ces alld suppo11 to regulation reu·esent EUROCONTROL v.11 hn the global aviation c o mmu n ty • manage ef lic.ently the Agency and 1ts �taff • reP'esent the 01ganlsatron tn legal proceed�t�gs and f01 clvd purposes. •
organ1sauon s. f ull
•
•
•
For further d�tatls on the po.••on, the profile and the appl�
www.eurocontrol.int/jobs
www.eurocontrolint The Eur pe n o a Or . t . o r o a:: g�•n a••�s: fo:�� • :n�� t� he�: S� a � f f� o� A ir�� N a: v·� ,g��t: a e�t�y�� •�� n ==��====:::::::::===----- --- --- --- --- --- .. --
The Economist February 11th 2012
go
Appointments
Tenders
Request for Expression of Interest
Georgian Railway Transcontainer llC (1 00% subsidiary of Georgian Railway LLC) hereinafter referred to as GRTC. invites strategic and financial investors for long-term lease and development of Veli Container Terminal (VCT) near Tbilisi, Georgia.
British Red Cross
Summary •
•
l
Background
British Red Cross
The Georgoan economy has rebounded after the GFC, growing by 6.4% in 201 0. The World Bank projects a medium-term growth rate of 5%pa and has ranked Georgia as the world's 1 1th easiest place to do business. logistics facilities in and around the capital city Tbilisi do not offer a comprehensive range of services and scope for modern logistics-related industrial development.
Research Fellow -
Georgian Railway LLC is the monopoly operator of Railways in Georgia. Its ma•n business is Freight traffic, from which it receives 90% of the revenues. GR is one of the most profitable railways in the industry and has been rated by S&P and Fitch as B+/BB-.
International
Humanitarian Law
Salary: C25,000
r:27,000 pa I Full-time I Contract untij December 2013 1 Location: Cambridge The British Red Cross helps vulnerable people
in crisis, whoever and wherever they are.
The 8rrt1sh Red Cross Is seeking to h1re a legal researcher for a pro1ect, whiCh commenced 1n 2007.
to up-date the practice sectoo of the study on customary international human1tarran law publiShed by the InternatiOnal Comm1ttee of the Red Cross (ICRC) and Cambridge University Press n i 2005. W1th the guidance of the ICRC. the researcher (who will be part of a three-person team) Will be respons1ble for the collectiOn, analysiS and, where applicable, translation of documents concern1ng world-wide practtce in the area of internat1ona1 humanrtanan law. Halshe w111 be requll'ed to InCorporate relevant parts of these documents 1nto an EngliSh-language database.
The candidates should have an LLM or the equivalent professional expenence, and demonstrated knowledge of 1nternat10nal humanrtanan law. He/she should have ngorous analybca.l s1<1lls and a keen eye for data�. Excelent wntten EngliSh, as well as good knowledge of French, IS essential. A good knowledge
of SpaniSh IS desirable.
The post 1s unttl December 2013, With the poss1b1hty of extenston.
For further 1nfoonaoo t and to apply on-Ire please visit our website: www.redcl'oss.()(g.uk/About-us/Jobs Alternatively please send an A4 60p stamped self-addressed envelope. quot1ng reference UK046734 to Alia Masood. British Red Cross, UK Office, 44 Moorlields London, EC2Y 9AL. Closing date: Monday, 27 February 2012. Interviews are likely to be held In mid to late March 2012, in london.
Georgian Black Sea pons handled more than 13Mt of transit cargo in 2010. Of this, 33,000TEU of containerized cargo were carried by rail to/from Armenia, Azerbaijan. Afghan istan and the countries of Central Asia. The growth of containerization in this part of the world will b e accelerated by the provision of strategically-located, high-quality handling facilities and reliable logistic services. Project description
GRTC is willing to lease long-term the VCT situated on the main railway line linking the Black Sea ports with Caucasus states. Central Asia. Afghanistan. The concept of development of this ideally located site has been elaborated in the feasibility study and business plan on intermodal logistics center by a consortium of consultants within the TRACECA Program of the European Union. A private investor and site operator is envisaged to meet the following criteria: • •
Substantial international experience in the operation of logistics lacilities. A sound financial position to support the required investment and willingness to enter into a long·term lease with a commitment to develop and manage the site on a commercial basis.
Invitation The aim of announcing request for expression of interest is to determone potential most prospective investors. Interested parties are invited to send a letter of intention with a view to a) discussing the project in greater depth; b) gaining access to the broader project details and business plan; and c) enlisting official support for negoti ations with land-owners and prospective sources of finance. Contact Information:
Mirza Dolidze, CEO Georgian Railway Transcontainer 15 Tamar Mepe str. Tbilisi, 0112. Georgia Tel/Fax: +995 32 2199119 Email: [email protected] www.railway.ge
llC
Travel a famlly ilffalr
2011-2012 winter season: December 16 to April l5 2012 summer season: June 14 t o October 21 Sits-Maria 6 miles from bustling St. Moritz: An unspoiled and peaceful alpine village amidst gleaming lakes + Impressive mountains. And above it all this remarkable + historic hotel. family owned and managed ever since it opened In 1908. •
Grand. but friendly and relaxed; children very welcome! Great hiking, skiing and much else. Free pickup at St. Moritz train station. SWISS
hrstoric hotels
We are comm1tted to we1com1ng people from the widest poSSible divers1ty of background. culture and experience
The Btalsh Red Cross. •ncorpotU'ed by Royal Charter 1908, IS a charory regostoroo 1n England and Wales 2209-19: end Soollancl (SC037738).
The container terminal will be part of an integrated intermodal logistics center (ILC) project to be developed I Skm from Tbilisi city center. A 12ha site to be leased long·term from GRTC (adjacent sites owned by public and private entities also available for lease total 62ha). An investor is sou g ht to lease. develop and manage the site; and as an option to act as landlord for mul tip e tenants offering a range of logistics services. GRTC participates in the project by providing location site with upgraded rail access infrastructure.
Ill
! fCJION .,_Oif t.l
Aft
•
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2009
The Eco n o mist February 11th 2012
Tenders
91
MINISTRY OF TRANSPORTS AND INFRASTRUCTURE
Invitation for
Expresis on of Interest �on
ANNOUNCEMENT concerning the inquiry for consulting services in the privatisation process of "CFR MARFA" S.A. National Railway Merchandise Transportation Company
\vith Application tor
Ministry of Transports and Infrastructure (M.T.I.) with headquarters in B-dul Dinicu Golescu nr. 38, Sector 1 , Bucharest, Romania, postal code 01 0873 is planning to select based on bidding a consultant with international reputation - investment bank or consulting company with experience in procurement/privatisation - in view of giving consulting to prepare and carry on the privatisation process of "CFR MARFA" S.A. National Railway Merchandise Transportation Company considering the criteria of quality and cost of services. The full form of the Announcement may be accessed on www.mt.ro or
www.cfrmarfa.cfr.ro.
Appointments
I� f'lvef>¥5
loo�ng for A-list Facultv Members
College of Administrative and Financial Services
College of Engineering
Must hold a
Doctorite degree in Bwfness or Information Technology
or Computet Science or Eng•neering
•
•
The Goftmment of Plklstan lntencls to IIKtlon the following:
One Mobile Cellulir li<true/ Three Mobile Cellular Licenses/
Spectrum (1900/2100 MHz/lG/4GILT£)
SPf(trum (SOO Mllz)
AllbfsUngMoblftCtf�ICflf!JlMi$WfllUntwplay@r$arttf,gdllt optqiOI'S iS Wfll i$ ntW playM lO p¥1kipJte In lhr.uctJan.AppliantrorMobilfCdlularSptoruum ill �It tlogible to � In tilt' 800MHl�ilsoapplytG�Inl.hisauctiDft.
All nlsling Mobile Ctllullr
·College of Computer Science •
Remuneration ptronnum:40,000 USD to 95,000 USD, tax free 'W>th ""�-""'*""'..ttt>lroc�modlol anc!R "'Nift
(3G/4G/LTE etc)
Mobllt<elular l growtttInPaklstJnt&.sbftRspe
BAHRAI Lerturer/Professor: •
of Mobile Cellular Liccns�Spectrum
Should have extensive teaching experience and possess exemplary scholarly quallflations Must have act� rMUrch and other scholarlyactivities
iiiCIIOII.
l.krnstdbflt
UC!IISfwllbfttdlnologyllfUtnl. Ouratlonoflcensels1S)'fn
Oumion of llcenst Is Wind 8 yun.
BasfprkrisUSS210Mdllort 81df.ame:s1MorwyIsUSS 31.5Million.
S.prkriSUSS 15SM I lion .
AIKtioawilbfaw!l� l(t!d Mulllpttrolopen lld ouray.
Bid Earnest Money rs LIS$
�ollioll.
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AooJoa willbt�fd llvcugh
For more information you may contact; AMAIU·HR I Attn: ShaiH.mar Balign•.ny at +973-1 n87960 email: hmten�ltmenflt•m•lu.edu.bh
Mw��plttacirlllopenOll10'J.
sky�: recruitme.nt.lm• webSite: -.1m1lu.edu.bh
Exi5tngoperatonwlloiff-�II'9fl1lilg�2l00MitlSpK1nJn w'illbfplfdspt(IM!lU!"Ck'flll«tJflbngmobclt�Narliaflst
Abidder�wonmaram����tof02�
The newtllllilllltswill btlW
P'TA lmttts (J'pmslo• ef lmmt!Applbtion from Interested p111Msfoftht a��o,...menlloMd MeMitCtllul¥ l.knst{s.Vspt
[The Eols shOidd lnducle tM following:I
Business & Personal 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.
f � NANCE for Property Projects Joint Ventures Infrastructure Energy Projects
The
Elonomi>l To advertise within the classified section. contact: Martin Cheng - Te� (44·20) 75768408 [email protected] United Kingdom
United States Beth Huber- Tel: {212) 541·0500 [email protected] Asia
David L Smith
[email protected]
WW'IIV.t'UfOa\lllO.CObl •
Middle East & Africa �lirasol Gali ndo Tel: (971) 4433 4202 [email protected] ·
infO(plation@'curoasian.com
established 1960
Europe
E U ROAS t A N The Economist February nth
- Tel: (852) 2585 3232
2012
Sandra Singharaj - Tel: (33) 153 9366 14
[email protected]
1) (Dmp;I"Y �. outlont! aflhr ttdullcJ� mm� IIIII llnllnd.ll Slmlgt11 lfld/or �IICf of� lnllltSU'dPlr\JIIIMolilleCtlhMbiiSiltsnndii!Yotberlflmnll'llll!dllln!llpportaflhrEol. b) In QSf a(joint wntlft!aiiiSOttllln. oudlneoflhr UjltlltlctIIIII le
(f!_TA
Dlnctot&ttltral (llmlslllg)
Pakistan Telt
Emd:ll�·90'4'l(for ,_.lk C.ttlulif l..lc:HWSp«tna l614G/Ut ttd a liNII: -.,&�.p.,t (for Mobh Ctllutar �- (dtfvact))
Nott: PTA II!SI!MS 1/1� IIC)hl to modify tilt pnxess or rtstruct\lre t/w lti!IY(IJOO. Thr!.ctmtllt!ntnt rs nol ont!'fldtd to bt ollld liloukl not bt construtd iS •ny �prl'\ffltihon Ol wilfinty tXI)R'SI Of unpiled, Wllh lf\PPCI IO di!J 1Uif!l1tnllll4dt IIIPI�.
92
The Economist February 11th 2012
Economic and financial indicators
Economic data
% change on year ago Gross domesticproduct latest qtr* 2011t
Industrial production latest
Consumerprices Unemployment latest 2011t ratet,%
Current-account balance latest 12 % of GDP months, $bn 2011t
Budget balance %of GDP
2011'
Interest rates, % 10-year gov't bonds, latest
Currencyunits,per $
Feb 8th
year ago
+3.0 Dec +3.1 8.3 Jan -466.8 03 -3.1 -8.7 1.97 +1.6 04 +2.8 +1.7 +2.9 Dec China +8.9 04 +8.2 +9.2 +12.8 Dec +4.5 Jan +5.6 6.1 2010 +259.3 03111 +2.9 -1.8 3.60 6.29 6.83 Japan -0.7 03 +5.6 -0.7 -4.1 Dec -0.2 Dec -0.4 4.6 Dec +130.8 Nov +2.2 -8.6 0.99 76.9 89.4 Britain +0.8 04 -0.8 +0.9 -3.1 Nov +4.2 Dec! +4.5 8.4 Novll -70.6 03 -1.9 -8.6 2.25 0.63 0.64 Canada _ _ _ +2:i 03 _ _:t3.5_ ..:t_2_d _ _ _ +2& Nov_ ..:t_2.3 .Q!c_ _!-b_9_ __ 2,?.}� ___·.i9.:Z � __ .;1:2_ ___-4-L __ _£.15_ _ _ _ _1.00___ l,O.L _ Euro area +1.4 03 +0.5 +1.5 -0.3 Nov +2.7 Jan +2.7 10.4 Dec -63.7 Nov -0.5 -4.3 1.91 0.75 0.73 0.75 0.73 Austria +2.9 03 +1.4 +3.0 +2.5 Nov +3.3 Dec +3.3 4.1 Dec +10.5 03 +2.5 -3.6 2.96 Belgium +1.9 03 -0.5 +1.8 +2.9 Oct +3.6 Jan +3.4 7.2 Decll +0.3 Sep +1.1 -4.3 3.55 0.75 0.73 0.75 0.73 +2.2 9.9 Dec -65.3 Nov -2.5 -5.6 2.89 France +1.5 03 +1.2 +1.5 +0.9 Nov +2.5 Dec 0.7 5 0.73 Germany +2.5 03 +2.0 +3.0 +1.3 Dec +2.0 Jan +2.4 6.7 Jan +189.6 Nov +5.2 -1.0 1.97 0.75 0.73 Greece -5.0 03 na -5.2 -7.8 Nov +2.4 Dec +2.9 18.2 Oct -28.7 Nov -8.6 -10.0 37.06 Italy +0.2 03 -0.6 +0.5 -4.1 Nov +3.2 Jan +2.8 8.9 Oec -76.6 Nov -3.6 -4.0 5.56 0.75 0.73 0.75 0.73 -4.8 2.29 Netherlands +1.1 03 -1.0 +1.5 +1.3 Dec +2.5 Jan +2.4 5.8 Oecll +66.6 03 +7 .0 �ain_ _ _ _ +0& 03 _ _ nil_ +0.6 ___ .:§:2.. Dec_ .!:_2.0 Jan__+l,_1___2_£,�ec ___-53.,£ Nov__ .:]:2. ___-8.£... __ _2.17____ _Q.75 ___ 0.73 _ Cze.ch Republic +1.2 03 -0.3 +1.8 +2.0 Dec +2.4 Dec +2.0 9.1 Jan -5.6 03 -3 .2 -4.4 3.27 18.7 19.0 Denmark +0.1 03 -2.2 +1.0 -0.1 Nov +2.5 Dec +2.7 4.0 Dec +22.2 Dec +6.0 -3.7 1.90 5.61 5.42 Hungary +1.4 03 +2.2 +1.5 +3.5 Nov +4.1 Dec +3.9 10.7 Dectt +1.8 03 +1. 3 +1.3 8.66 218 198 Norway 5.75 5.93 +3.8 03 +5.8 +1.7 -1.2 Nov +0.2 Dec +1.3 3.4 NovH +70.2 03 +14.6 +14.0 2.29 Poland +4.2 03 na +4.0 +7.7 Dec +4.6 Dec +4.3 12.5 Dec" -21.9 Nov -5.2 -5.6 5.52 3.15 2.97 Russia +4.8 03 na +4.3 +2.4 Dec +4.2 Jan +8.4 6.1 Dectt +101.1 04 +5.2 nil 4.73 29.7 30.4 Sweden +4.6 03 +6.6 +4.5 +0.2 Nov +2.3 Dec +2.8 7.1 Dectt +39.7 03 +7.3 +0.5 1.93 6.64 7.37 0.91 1.07 Switzerland +1.3 03 +0.9 +1.8 -1.4 03 -0.7 Dec +0.3 3.1 Jan +95.7 03 +13.6 +0.8 0.67 Turke:£.. _ _ _ +81_03 _ .,!!?_ +7.8 _ _ +3,l Dec_+10.4 Dec__+6.5_ _ 1,l_Octll___-77.8 Nov_ ·10,1 _ _ _-1.?_ __ �.42_ __ _1.75___ .15.1. 0.93 1.15 Australia +2.5 03 +3.9 +1.8 +0.8 03 +3.1 04 +3.4 5.2 Dec -32.6 03 -2.2 -2.6 4.10 3.3 Decll +0.4 +4.9 +0.3 03 +5. 7 Dec +5.4 +1.5 1.18 7.75 7. 77 Hong Kong +4.3 03 +13.6 03 +5.3 49.2 46.7 India +6.9 03 na +7.1 +5.9 Nov +6.5 Dec +8.9 10.8 2010 -65.1 03 -2.7 -5.4 8.41 Indonesia +6.5 04 nil +6.5 +5.0 Nov +3.7 Jan +5.3 6.6 Aug +3.6 03 +0.4 -1.0 3.83ttt 8,870 9,380 Malaysia +5.8 03 na +4.8 +3.0 Dec +3.0 Dec +3.2 3.1 Nov +32.7 03 +12.5 -5.5 2.86111 3.00 3.44 Pakistan +2.4 2011** na +2.4 -0.5 Nov +9.7 Dec +11.9 5.6 2010 -0.5 03 -0.8 -5.9 14.06111 90.7 84.9 1.25 1.42 Singapore +3.6 04 -4.9 +5.2 +12.6 Dec +5.5 Dec +5.1 2.0 04 +49.2 03 +18.2 +0.6 1.38 South Korea +3.4 04 +1.4 +3.3 +2.8 Dec +3.4 Jan +4.0 3.1 Dec +27 .7 Dec +2.4 +2.1 3.76 1,116 1.164 Taiwan -8.1 Dec +2.4 Jan +1.4 4.2 Dec +38.6 03 +8.4 -3.9 1.30 29.5 32.1 +1.9 04 na +4.4 Thailand +3.5 03 +2.1 +1.2 -25.8 Dec +3.4 Jan +3.8 0.6 Oct +11.9 Dec +3.1 -2.9 3.28 30.7 33.2 nil 03 -0.3 -1.4 na 4.34 3.84 Argentina +9.3 03 +4.5 +8.5 +0.8 Nov +9.5 Dec"• +9.9 7.2 0311 Brazil +2.1 03 -0.2 +2.9 -1.2 Dec +6.5 Dec +6.6 4.7 Decll -49.3 Nov -2.2 -2.6 11.22 1.72 1.85 +4.8 03 +2.6 +6.1 +0.5 Dec +4.4 Dec +3.3 6.6 Declllt -1.2 03 -0.8 +1.0 2.82111 477 542 Chile Colombia +7.7 03 +7.1 +5.1 +6.5 Nov +3.5 Jan +3.4 9.8 Decll -9.6 03 -2.6 -2.5 3.62111 1,779 1,983 12.7 13.1 Mexico +4.5 03 +5.5 +3.9 +3.2 Nov +3.8 Dec +3.3 4.5 Decll -10.0 03 -1.9 -2.9 6.08 Venezuela __ +41_ 03 __ .,!!?_ +3.5 _ _ _ +2.9 �-+26.3 Jan_ +26.2___ .l.,Q_0411 ___+26.0 03 __ +7,I_ _ _-5.g_ __ _2.55� ___ _2..30 ____ _ Egypt +0.3 03 na +1.8 -1.9 03 +9.5 Dec +10.2 11.9 03" -4.103 -2.1 -10.0 7.43111 6.03 5.49 3.71 3.73 Israel +5.1 03 +3.4 +4.6 +2.3 Nov +2.2 Dec +3.2 5.6 03 +1.8 03 +0.2 -3.0 3.45 +75.3 201o111 +24.4 +14.3 na 3.75 3.75 Saudi Arabia +6.7 2011 na +7.0 na +5.3 Dec +4.7 na +3.1 03 +1.4 +3.1 +2.4 Nov +6.1 Dec +5.1 23.9 0411 -11.6 03 -4.1 -5.5 7.71 7.55 7 .7 1 South Africa United States
na
*% change on previous quarter, annual rate. IThe Economist poll or Economist Intelligence Unit estimate/forecast. 'National definitions IRPI inflation rate 4.8 in December. *•vear ending June. IILatest 3 months. IINot seasonally adjusted. !!Centred 3·month average. *•*Unofficial estimates are higher. IllDollar-denominated bonds. IllEstimate.
Economic and financial indicators 93
The Economist February 11th 2012 Markets
% change on Dec 31st 2010
Index Feb 8th
one in local i n $ week currencyterms
United States (DJIA) 12.884.0 +1.3 +11.3 +1 1.3 China (SSEA) 2.459.4 +3.5 -16.4 -12.4 9,015.6 +2.3 -11.9 -7.0 Japan (Nikkei 225) Britain (FTSE 100) 5,875.9 +1.5 -0.4 +0.6 Canad.!_(S&P TSE___ 12,521.0__njJ_ _ �6:1. ..:Z,Q Euroarea (FTSEEurolOO) 813.9 +1.5 -9.0 -10.1 Euroarea (DJSTOXXSO) 2,512.9 +1.7 -10.0 -11.1 Austria (ATX) 2,238.6 +4.7 -22.9 -23.9 -11.6 -12.6 2,280.2 +0.7 Belgium (Bel20) 3,410.0 +1.3 -10.4 -11.5 France (CAC40) 6,748.8 +2.0 -2.4 -3.6 Germany (DAX)* 809.1 +1.6 -42.8 -43.5 Greece (Athex Comp) Italy (FTSE/MIB) 16,669.2 +2.5 -17.4 -18.4 Netherlands (AEX) 325.3 +0.1 -8.2 -9.4 Spain (Madrid SE) 890.9 +1.9 -11.2 -12.3 Czech Republic (PX) 1,024.2 +4.2 -16.4 -16.3 Denmark (OMXCB) 401.7 +5.0 -5.9 -6.8 19,724.3 +3.0 -7.5 -12.1 Hungary (BUX) Norway (OSEAX) 466.1 +1.5 -4.2 -3.2 -11. 5 -1§.2, Po@lld (WIG) 42,044.5 .:!:!·5 Russia (RTS, $terms) 1,643.5 +2.7 -9.5 -7.2 Sweden (OMXS30) 1,074.6 +0.9 -7.0 -5.9 Switzerland (SMI) 6,155.9 +1.4 -4.4 -2.3 Turkey (ISE) 61,178.3 +3.3 -7.3 -18.4 4,363. 7 +1.7 -10.0 -5.0 Australia (AU Ord.) -8.8 -8.5 Hong Kong (Hang Seng) 21,018.5 +3.4 17,707.3 +2.4 -13.7 -2 1.5 India (BSE) Indonesia (JSX) 3,988.7 +0.6 +7.7 +9.4 Ma�sia_(!
I
_
.
Football wealth Real Madrid may have finished second in the Spanish league last season but they continued to dominate the Football Money League, a ranking offootball clubs' revenues compiled by Deloitte, an accounting firm. Madrid topped the revenue table for the seventh consecutive season, earning €479.5m ($635m), a 9% increase from a year earlier. Barcelona, the runners-up, had the highest propor tion oftheirsquad playin g regularinter national matches. The next five places remained unchanged from the 2009-10 season. After reaching the semi-finals of the Champions League, Schalke 04 climbed six places with a 45%jump i n earnings. Totten ham Hotspur, whose revenue rose by 36%, moved up one spot.
Other markets Index Feb 8th
% change on Dec 31st 2010 one in local i n $ week currencyterms
+7.3 +7.3 United States (S&P 500) 1,350.0 +2.0 United States (NAScomp) 2,915.9 +2.4 +9.9 +9.9 227.4 +3.4 -28.6 -25.3 China (SSEB, $terms) Japan (Topix) 782.3 +3.2 -13.0 -8.2 Europ�(FTSEurofirst]_O.Ql _!.070.8_ +1.]_ �4� 21 World,dev'd (MSCI) 1,281.2 +1.9 +0.1 +0.1 -7 .9 -7.9 Emerging markets (MSO) 1,060.7 +3.0 World, all (MSO) 327.3 +2.0 -1.0 -1.0 WorldJ!.onduCitigro!!J.l}_ _ 941.4_ -o.�- �.8 _ +7.� EMBI+ (JPMorgan) 616.1 +0.4 +11.7 +11.7 Hedge funds (HFRX) 1 135.0� +0.3 -6.8 -6.8 Volatility, US (VIX) 18.2 +18.6 +17.8 (levels) CDSs, Eur (iTRAXX)' 137.3 +4.5 +31.3 +29.7 CDSs, NAm (CDX)I 99.0 +4.7 +16.2 +16.2 -41.1 -41.9 Carbon trading (EU ETS)€ 8.3 -1.4 _
_
,
'Total return index. ICredit-default-swap spreads, basis points. !feb 6th. Sources: National statistics offices, central banks and stock exchanges; Bloomberg; CBOE; CBOT; C�I!E; Cotlook; Oarmenn & Curl; EEX; FT; HKMA; ICCO; ICO; ISO; Jackson Rice; JPMorgan
Chase; Markit; NZ Wool Services; Thompson lloyd & Ewart; Thomson
Reuters; Urner Barry; WSJ; W�1jReuters
Revenue, 2010-11 season, €m Broadcasting • Commercial • Matchday 100 200 300 400
0
l7o.8l 81.01 j58.61 , 66.71 '58.11 t61.51 (48.11 159.31 I53.81 (44.41 �--� Active l57.71 internationals in squad,% £:D:JJ
Real Madrid Barcelona Manchester U nited
Bayern Munich Arsenal Chelsea AC Milan Intemazionale Liverpool Schalke04 Totten ham Hotspur
500
P-
Manchester City
Sources: Deloitte; CIES Football Observatory
The Economist commodity-price index
2005=100
Jan 31st
Feb 7th*
% change on one one month year
Dollar index 190.8 203.2
All items Food
+ 3. 6 +0.3
191.3
205.5
Industrials All . .
.
.
.
.
Nfat
.'
-18.5 -13.8
191.5
195.6
172.0
168.3
+8.0 . . . . . . .-23.6 -34.6 +9.1 +7.4 -16.6
219.9
2 1 9. 1
+1 . 1
-17 .4
181.2
179.6
nil
-15.9
1,738.6
+6.1
+27.3
98.7 !Non-food agriculturals.
-3.5
+13.4
.
Metals
•
177.9
••
•••
,
,
..
176.5 +
.
.
.
Sterling index All items
Euroindex All items Gold
l.per oz 1,731.0 West Texas Intermediate 98.5 $per ba rrel •Provisional
Indicators for more countries and additional series, go to: Economist.comfindicators •
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94
Scepticism was her watchword. She es chewed political causes; her fight was "against the bad poet who is prone to using too many words". Her favourite phrase was "I don't know". She told the Nobel au dience: "It's small, but it flies on mighty wings. It expands our lives to include the spaces within us as well as those outer ex panses in which our tiny Earth hangs sus pended." Without it, she said, Isaac New ton would have gobbled apples rather than pondering the force that makes them drop. Her compatriot Marie Sklodowska Curie would have "wound up teaching chemistry at some private high school for young ladies from good families." An accretion of answers
It was the same for poets. Each poem was a kind of answer, but as soon as the last full stop hit the page the result seemed inade quate. "So the poets keep on trying, and sooner or later the consecutive results of their self-dissatisfaction are clipped to gether with a giant paper clip by literary historians and called their 'oeuvre'." Her own output was slender in quanti ty and lean in style. For all her erudition, she did not come across as intimidatingly brainy (unlike some other Polish post-war poets). Schoolchildren learn her poems by heart, like this one about a bereaved pet.
Wislawa Szymborska
Wislawa Szymborska, poet, died on February 1St, aged 88
W
HEN Wislawa Szymborska won the world's top literary prize in 1996, her friends called it the "Nobel disaster". This was not just because she had spent an un comfortable night before the award cere mony in the bath: the bathroom was the only part of her quarters in a grand Stock holm hotel in which she could manage to tum on the light. Nor was it the "torture" she felt in having to make a speech-one of only three she had given in her life. The real disaster was the trauma of fame and for tune. It was years before she could publish another poem. Her fans' delight in her No bel prize was mixed with disappointment that it had rendered her mute. Like many Poles who survived the war, Ms Szymborska readily accepted commu nism in early life, seeing it as a salvation for a ruined world. Early poems praised Lenin and young communists building a steel works. Later she blamed her own "foolish ness, naivety and perhaps intellectual lazi ness", but some found it hard to forgive her for signing a petition in 1953 backing a show trial of four priests. Her ironic and individualistic spirit was ill fitted to the grey conformity of "people's Poland": the Nobel citation said she wrote with the ease of Mozart and the fury of Beethoven. Playful, subtle and haunting, her poetry could never be in harmony
with the socialist realist style dictated by the country's cultural commissars. She mocked their intolerance of dissent in a poem on pornography: There's nothing more debauched than thinking. This sort of wantonness runs wild like a wind-borne weed on a plot laid out for daisies.
Communism she likened to the abomina ble snowman-horrid and unreal-though she stayed in the party unti1 1966, hoping "to try to fix it all from the inside". That, she said later, had been another delusion. Ms Szymborska was16 when Hitler and Stalin carved up Poland between them. "Old age was the privilege of rocks and trees," she wrote. Although not a main stream dissident, her poems distilled the essence of individual stubbornness in the face of what the party bosses said was his torical inevitability. I believe in the refusal to take part. I believe in the ruined career. I believe in the wasted years of work. I believe in the secret taken to the grave.
These words soar for me beyond all rules without seeking support from actual examples. My faith is strong, blind, and without foundation.
Die-you can't do that to a cat. Since what can a cat do in an empty apartment? Climb the walls? Rub up against the furniture? Nothing seems different here but nothing is the same. Nothing's been moved but there's more space. And at night-time no lamps are lit.
Invented words and syntactic tricks made some of her poems for Polish-speakers only. But her translators, chiefly Clare Cav anagh and Stanislaw Baranczak, did a fine job, particularly in the New Yorker, which has published 16 of the best. Her humour was mischievous: the lav atory seat in her Cracow flat was made of barbed wire encased in clear plastic. Asked why she had published so little-her entire canon was only some 400 poems-she re plied gently that she had a waste-paper basket. Success left no dent in her reclusive modesty, and she would never claim that her external life was interesting. Imagine trying to make a film of a poet's "hopeless ly unphotogenic" life, she said: "Someone sits at a table or lies on a sofa while staring motionless at a wall or ceiling. Once in a while this person writes down seven lines, only to cross out one of them 15 minutes later, and then another hour passes, during which nothing happens Who ... could stand to watch this kind of thing?" Who, indeed? But plenty read and love the results of her self-imposed solitude. •
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