INSIDE: A 14-PAGE SPECIAL REPORT ON WOMEN AND WORK
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9 The world this week 50 15 16 18 18 20 On the cover The single currency's collapse may be Looming: leader, page 15. Spain's new government: leader, page 18. Rajoy needs outside support, page 63. WiLl Angela Merkel act? Page 64. Denial and delusion in Brussels: Charlemagne, page 68. The euro crumbles, pages 81-83 . Concern about European banks: Buttonwood, page88
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Leaders The euro zone Is t his rea lly t he end ? The supercommittee fails Adowngrade fo r Congress Spain's election Big ma ndate, tig ht spot Egypt's turmoil The generals must go Shale gas Frack on Policing internet piracy Accessories after t he fa ct
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Briefing 33 International Criminal Court Cosy club or sword of righteousness? United States 39 The supercommittee Why it failed 40 The economy Fina lly, some good news 42 Gun control Have firearm, can travel 42 The Chicago River Reflected glory 43 Political fact-checking Fun at the FactFest 43 Drinking rules Behind t he Zion curtain 44 California's politics Help on t he way 46 Lexin gton Cutti ng defence
Fi rst published in Septe mbert843
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an unworthy. timfd ignoranceobstrucOng
our progress. n
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52 53 54
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The Americas Politics in Brazil Cleaning th e pork facto ry Mexico's drug war Shifting sa nds Latin American integration Peaks and troughs Canada Asurfeit of MPs
Egypt The generals must go: leader, page 18. Gas masks and fury in Tahrir Square, page 57
Special report: Women and work Closing the gap After page 54 Middle East and Africa 57 Egypt's turmoil Chaos and its beneficiaries 58 Tunisia Isla mists and secu La ri sts 58 Libya's militias Hard to control 59 The Palestinians Coming together at last? 60 Human rights in Bahrain The king's bold move 60 Congo's election That sinking feeling 62 South Africa and secrecy Don't blow t he whistle
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64 64 65
Volume 401Number 8761
to take part in "a severe contest between ;nteWgence, w/1 ;cl• presses forward, and
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Letters 22 On the euro, shipping, toys, phrases, our obituary
The Economist online Daily analysis and opi nion from our 19 blogs, plus audio and video content, debates and a daily chart
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Asia Governing China Th e Guangdo ng model Movement in Myanmar Eye-rubbing Afghanistan's economy Investi ng or a-whoring? Pakistan's "memogate" As you were Indonesia's reforms Unholy mudd le Banyan Justice tried and fo und wantin g
66 66 68
Europe The Spanish election Manana belongs to Mariano Merkel and the euro The new iron chancellor France and automation Driverless, workless Turkey and human rights Home and abroad Hungary's economy Pla net Orba n Poland's government Tusk sharpe ns up Charlemagne The sinking euro
America's supercommittee By failing to agree on measures to limitthe deficit, the politicians have failed their country: leader, page 16. Fiscal policy's dangerous direction, page 39. Good, if transitory, economic news, page 40. The sword hanging over t he Defence Department: Lexington, pa ge 46
Piracy law Toug h pena lties for piracy are needed, but a proposal in America's Congress could hit law-abiding businesses: leader, page 21. The Stop Online Piracy Act, page 73
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Contents continues overleaf
69 70 71 71
GuangdongvChong~ng
Competing models in Chinese provinces, page 50
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International 73 Online piracy Rights and wronged 74 Islam and comedy Two mullahs go into a bar...
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76 Secrets of Jim Collins's success The rna nagem ent guru who has stayed atthetop by practising what he preaches: Schum peter, page 80
Britain The economy Autumn leaves falling Reviving manufacturing No land of giants The Leveson inquiry Celebs' revenge Thomas Cook Atour operator's travails Bagehot David Cameron, toxic Tory
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78 79 80
Business Shale gas in Europe and America Two attitudes to frac king Bullets and business in Mexico A"green zone" for firms in Jua rez Oubai's air show The travel boom boos ts Boei ng and Airbus E-commerce in China The great lea p online Indian business Tata's magical Mistry tour Schumpeter The secrets of Ji m Colli ns's success
Briefing 81 The euro Beware of falli ng masonry House prices The bursting of the global housing bubble is only halfway through: Economics focus, page 90
Finance and economics 85 India's currency Rupee and the bears 86 American tax law Fund manage rs beware 87 Japan's stock exchanges Merging, slowly
87 Baltic banks Red litas day 88 Buttonwood Gloo m descends 90 Economics focus House of horrors, part 2
91 92 92
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Sdence and technology Sdence in Japan Where rats and robots play Mars exploration How to Land a Mini on Mars Climate change Good news at last? AIDS Get your act together, guys Infantile anaemia Blood simple
Women and work Women have made huge progress in the workplace, but theystillget lower pay and farfewertop jobs than men. Our special report asks why, after page 54 Prind pal commercial offices: 25 St James's Street, London SWlA 1HG Tel: 020 7830 7000
Books and arts 95 New fiction from Japan Ablack cat, two moons 96 Cesar Chavez and the UFW Trampling out the vintage 96 Artists and photographers Point and paint 97 Chinese export porcelain Treasu re trove 98 Novels from Argentina The price of love Economic and finandal indicators Statistics on 42 economies, stockmarkets and commodities prices, plus a closer loo k at pharmaceutical spending Obituary 106 George Daniels The magic watchmaker
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9
Politics
Big protests erupted in Cairo and other cities, with calls for the generals who have run Egypt since Hosni Mubarak's fall in February to hand over to civilians. Some 40 people were killed by the security forces. The ruling military council said that parliamentary elections due to begin on November 28th would go ahead, and that presidential elections would be held by July. A report by the Bahrain Independent Commission of Inquiry said the authorities had used "excessive force" in a crackdown earlier this year against pro-democracy protesters, most of them from the Shia majority. King Hamad al-Khalifa, a Sunni, said that officials who had abused their power would be sacked. Saif al-Islam Qaddafi, the son and heir of Muammar Qaddafi, was caught in southern Libya. So, separately, was the late dictator's intelligence chief, Abdullah al-Senussi. Both are wanted by the International Criminal Court, which has apparently agreed that they might face trial in Libya.
Penalty to Brazil Brazil's environmental regulator fined Chevron, an American oil company, $28m and suspended its drilling rights over an oil spill from an offshore well earlier this month. Chevron said it had stopped the seepage within four days and had complied with the terms of its licence. Gunmen apparently hired by ranchers killed a chief from the Kaiowa-Guarani Indian tribe in the Brazilian state of Mato Grosso do Sul. Enrique Peiia Nieto, who leads opinion polls for Mexico's presidential election next July, was guaranteed the nomination of the formerly ruling Institutional Revolutionary Party, after his only rival, Senator Manlio Fabio Beltrones, dropped out. Haiti's president, Michel Martelly, announced that he would setup a civilian committee to study whether or not to revive his country's army, which was disbanded in 1995.
What a surprise The "supercommittee" on America's budget deficit admitted defeat in Congress. The panel was set up in August to thrash out a bipartisan agreement to reduce the deficit. Its failure to do so triggers automatic spending cuts of $L2 trillion, to start in 2013. But arguments have already begun about how "automatic" the cuts should be, with some Republicans pressing for the Pentagon to be spared.
Brought to justice A special UN-backed court in Cambodia began to try the three most senior living leaders of the Khmer Rouge on genocide charges. The three men, who include Nuon Chea, "Brother Number Two", are the only members of the regime deemed fit to stand as defendants. At the trial's opening they justified their reign of terror in the context of the historical threat posed by Vietnam, and denied the charges outright. South Korea's national assembly ratified a free-trade agreement with the United States, four years after the two countries first signed the deal and a month after it was approved by Congress. Despite a projected boost to the Korean economy and, the prospect of closer ties with America at a time of worsening relations with North Korea, the agreement was strongly resisted by the opposition. One assembly member disrupted the vote by letting off a tear-gas canister. Pakistan's ambassador to the United States was forced to resign, amid allegations that he was behind a memo pledging to eject senior soldiers close to the Tali ban in Pakistan, in exchange for American help in preventing any potential coup. Aung San Suu Kyi's National League for Democracy party said it would participate in Myanmar's forthcoming by-elections. Last year the party boycotted Myanmar's first general election in two decades.
Yemen's president, Ali Abdullah Saleh, at last signed an agreement brokered by the Gulf Co-operation Council, saying that he would stand down and hand power to his vice-president. South African MPS passed a controversial media secrecy bill, which the government says is needed to protect state secrets and safeguard national security. Critics say it will curb freedom of speech.
as the most recent "anyonebut-Romney" favourite in the party, surprised many by calling for a partial amnesty for illegal immigrants who have lived in America for a long time and paid taxes.
The latest Republican presidential candidates' debate focused on national security. Newt Gingrich, who has vaulted into the lead in some polls
Julia Gillard, the prime minister of Australia, scored a political victory when the lower house of parliament passed the controversial Minerals Resource Rent Tax, which will subject mining companies to a higher levy on annual
profits. Australia's upper house is expected to pass the law early next year and the tax should then come into force on July 1St.
Hard work ahead Spain's general election was won by the opposition centreright People's Party, led by Mariano Rajoy. The ruling Socialists suffered their worst rout at the polls since the return of democracy to Spain in 1975. Mr Rajoy has an absolute majority, but will not take office for a month. Although he promises austerity and reform, nervous markets sent Spanish bond yields higher. In its latest efforts to solve the euro crisis the European Commission set out options for Eurobonds and for more intrusive control of national governments' budgets. But Angela Merkel yet again rejected the idea of Eurobonds. Hungary turned to the IMF for a precautionary credit line. The government of Viktor Orban had previously ruled out any such course. Elio di Rupo, the politician charged with forming a Belgian government, submitted his resignation after failing to strike a deal on next year's budget. Belgium has been without a new government since an election in June 2010.
Vladimir Putin, who plans to return as Russia's president next year, got a surprise when a crowd booed as he entered a mixed martial arts ring to congratulate the winner of a fight. Officials, who tightly control Mr Putin's crafted public appearances, at first suggested that the boos were aimed at the fighters.
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10 T e wor
t 1s wee
Business The crisis in the euro zone intensified as banks struggled to obtain credit in the markets, forcing more of them to borrow from the European Central Bank. Bond yields maintained near-unsustainable levels on Italian and Spanish government debt and crept up for other countries, notably Belgium and France. In another worrying sign Germany managed to sell only 6o% of ten-year Bunds it issued at an auction, though the low yield of 1.98% may have been a factor in turning off investors. Exam time
The Federal Reserve issued its final rules for a second round of stress tests at America's biggest banks. The banks must assess whether they can maintain a Tier-1 capital ratio of 5% under a hypothetical economic scenario that includes America's unemployment rate reachingt3%. The six biggest banks will also have to demonstrate that they can withstand a severe global financial shock similar to the scale of that in 2008, but with the addition of a financial meltdown in Europe. The Federal Deposit Insurance Corporation reported that American banks turned a collective net profit of $35 billion in the third quarter, a rise of 48% from the same quarter in 2010. The banks increased their income by putting less money aside to cover bad loans, rather than expanding lending. The Tokyo Stock Exchange said it would merge with the Osaka Securities Exchange, which focuses on derivatives, in January 2013, creating the world's third-biggest bourse. Sceptics wonder if the new company will be an effective international player among the other big exchanges. The American economy didn't perform quite as well in the third quarter as had been thought. GDP grew by an annual rate of 2%, rather than
T e Econom1st Novem er 26t 2011
the 2.5% that was released in an official first estimate. Meanwhile, data showed unemployment falling in 36 states in October, and rising in just five. Nevada's unemployment rate, at13-4%, is still the highest.
I
Indian rupee against the dollar
Inverted scale 44
46 48
50 52 L---~----~--~54
Sep
Oct
Nov
2011 Soufte: Thomson Re-uters
The Indian rupee fell to a record low against the dollar. The currency has depreciated rapidly in the past three months, amid doubts about the strength of India's economy and a slump in foreign investment. There's gas in them there hills
A consortium led by Kohl berg Kravis Roberts agreed to buy most of Samson Investment, a privately held oil and gas exploration firm, for $7.2 billion. It is one of the biggest leveraged buy-outs since the start of the financial crisis. Samson owns drilling rights in several shale-gas formations, including in North Dakota.
Groupon's shares took a battering, falling well below the price of $2o a share the internet company set at its initial public offering earlier this month. It floated only a small portion of its stock, making it more vulnerable to price volatility, but questions linger about Group on's competitiveness in the crowded market for discounting online. Nokia Siemens Networks said it would cut 17,000 jobs. The network-equipment maker is restructuring its business to focus more on broadband infrastructure. Gilead Sciences, a drugs company best known for its treatments for HIV, said it would buy Pharmasset, which develops drugs to combat viral infections, in an $11 billion deal. Pharmasset has no medicines on the market, but is working on new products for people with hepatitis c that can be taken as a single shot, rather than the several daily medications that are currently required. Merck reached a settlement with the American government over Vioxx, its blockbuster painkiller that was pulled from the market in 2004 because it was found to in-
crease the risk of heart attacks and strokes. The drug company is to pay a $322m fine and a further $628m to conclude civil charges. It agreed to plead guilty to a misdemeanour related to the marketing of Vioxx to doctors. Merck has already paid out $4.9 billion to settle lawsuits from patients. It emerged that James Murdoch has stepped down from the boards of the subsidiaries that operate News Corporation's British newspapers. Mr Murdoch, who faces questions from a parliamentary committee about his previous testimony on phone hacking, remains chairman of News International, News Corp's British newspaper division. No fun in the sun
Thomas Cook, a travel company, saw its share price collapse after it sought to negotiate a second round of debt financing within a month and delayed the publication of its annual results. The company, which can trace its British roots to1841. when its eponymous founder transported people to temperance rallies, is struggling at the cheaper end of the European holiday market. Other economic data and news can be found on pages 104·105
MY,BR!JTHERS IN !HE AA.A'P Lf.AGUE .ACCUSE:!) ME Of' VIOLENT
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Is this really the end? Unless Germany and the ECB move quicldy, the single currency's collapse is looming VEN as the euro zone hurtles E towards a crash, most people are assuming that, in the end, European leaders will do whatever it takes to save the single currency. That is because the consequences of the euro's destruction are so catastrophic that no sensible policymaker could stand by and let it happen. A euro break-up would cause a global bust worse even than the one in 2008-09. The world's most financially integrated region would be ripped apart by defaults, bank failures and the imposition of capital controls (see pages 81-83). The euro zone could shatter into different pieces, or a large block in the north and a fragmented south. Amid the recriminations and broken treaties after the failure of the European Union's biggest economic project, wild currency swings between those in the core and those in the periphery would almost certainly bring the single market to a shuddering halt. The survival of the EU itself would be in doubt. Yet the threat of a disaster does not always stop it from happening. The chances of the euro zone being smashed apart have risen alarmingly, thanks to financial panic, a rapidly weakening economic outlook and pigheaded brinkmanship. The odds of a safe landing are dwindling fast.
Markets, manias and panics Investors' growing fears of a euro break-up have fed a run from the assets of weaker economies, a stampede that even strong actions by their governments cannot seem to stop. The latest example is Spain. Despite a sweeping election victory on November 2oth for the People's Party, committed to reform and austerity, the country's borrowing costs have surged again. The government has just had to pay a 5.1% yield on threemonth paper, more than twice as much as a month ago. Yields on ten-year bonds are above 6.5%. Italy's new technocratic government under Mario Monti has not seen any relief either: ten-year yields remain well above 6%. Belgian and French borrowing costs are rising. And this week, an auction of German government Bunds flopped. The panic engulfing Europe's banks is no less alarming. Their access to wholesale funding markets has dried up, and the interbank market is increasingly stressed, as banks refuse to lend to each other. Firms are pulling deposits from peripheral countries' banks. This backdoor run is forcing banks to sell assets and squeeze lending; the credit crunch could be deeper than the one Europe suffered after Lehman Brothers collapsed. Add the ever greater fiscal austerity being imposed across Europe and a collapse in business and consumer confidence, and there is little doubt that the euro zone will see a deep recession in 2012-with a fall in output of perhaps as much as 2%. That will lead to a vicious feedback loop in which recession widens budget deficits, swells government debts and feeds popular opposition to austerity and reform. Fear of the consequences will then drive investors even faster towards the exits. Past financial crises show that this downward spiral can be
arrested only by bold policies to regain market confidence. But Europe's policymakers seem unable or unwilling to be bold enough. The much-ballyhooed leveraging of the euro-zone rescue fund agreed on in October is going nowhere. Euro-zone leaders have become adept at talking up grand long-term plans to safeguard their currency-more intrusive fiscal supervision, new treaties to advance political integration. But they offer almost no ideas for containing to day's conflagration. Germany's cautious chancellor, Angela Merkel, can be ruthlessly efficient in politics: witness the way she helped to pull the rug from under Silvio Berlusconi. A credit crunch is harder to manipulate. Along with leaders of other creditor countries, she refuses to acknowledge the extent of the markets' panic (see page 64). The European Central Bank (ECB) rejects the idea of acting as a lender of last resort to embattled, but solvent, governments. The fear of creating moral hazard, under which the offer of help eases the pressure on debtor countries to embrace reform, is seemingly enough to stop all rescue plans in their tracks. Yet that only reinforces investors' nervousness about all euro-zone bonds, even Germany's, and makes an eventual collapse of the currency more likely. This cannot go on for much longer. Without a dramatic change of heart by the ECB and by European leaders, the single currency could break up within weeks. Any number of events, from the failure of a big bank to the collapse of a government to more dud bond auctions, could cause its demise. In the last week of January, Italy must refinance more than €30 billion ($40 billion) of bonds. If the markets balk, and the ECB refuses to blink, the world's third-biggest sovereign borrower could be pushed into default.
The perils of brinkmanship Can anything be done to avert disaster? The answer is still yes, but the scale of action needed is growing even as the time to act is running out. The only institution that can provide immediate relief is the ECB. As the lender of last resort, it must do more to save the banks by offering unlimited liquidity for longer duration against a broader range of collateral. Even if the ECB rejects this logic for governments-wrongly, in our viewlarge-scale bond-buying is surely now justified by the ECB's own narrow interpretation of prudent central banking. That is because much looser monetary policy is necessary to stave off recession and deflation in the euro zone. If the ECB is to fulfil its mandate of price stability, it must prevent prices falling. That means cutting short-term rates and embarking on "quantitative easing" (buying government bonds) on a large scale. And since conditions are tightest in the peripheral economies, the ECB will have to buy their bonds disproportionately. Vast monetary loosening should cushion the recession and buy time. Yet reviving confidence and luring investors back into sovereign bonds now needs more than ECB support, restructuring Greece's debt and reforming Italy and Spain-ambitious though all this is. It also means creating a debt instrument that investors can believe in. And that requires a political bargain: financial support that peripheral countries need in exchange for rule changes that Germany and others demand. ••
16 Leaders ~
The Economist November 26th 2011
This instrument must involve some joint liability for government debts. Unlimited Eurobonds have been ruled out by Mrs Merkel; they would probably fall foul of Germany's constitutional court. But compromises exist, as suggested this week by the European Commission (see Charlemagne). One promising idea, from Germany's Council of Economic Experts, is to mutualise all euro-zone debt above 6o% of each country's G DP, and to set aside a tranche of tax revenue to pay it off over the next 25 years. Yet Germany, still fretful about turning a currency union into a transfer union in which it for-
ever supports the weaker members, has dismissed the idea. This attitude has to change, or the euro will break up. Fears of moral hazard mean less now that all peripheral-country governments are committed to austerity and reform. Debt mutualisation can be devised to stop short of a permanent transfer union. Mrs Merkel and the ECB cannot continue to threaten feckless economies with exclusion from the euro in one breath and reassure markets by promising the euro's salvation with the next. Unless she chooses soon, Germany's chancellor will find that the choice has been made for her. •
The supercommittee fails
A downgrade for Congress By failing to agree on measures to limit the deficit, America's politicians have failed their country
I
US debt held by the publk %of GOP
WAS not a very ambitious InalTtarget. All that the congressio"supercommittee" was re-
quired to do was to figure out a list of measures that would reduce America's budget deficits 1111111111llll'ili11ii by $1.2 trillion over the next ten 2000 OS 10 15 20 years. That sounds a lot, until you realise it is only o.6% of GOP, not even a quarter of the $5 trillion or so that is really needed to right the books in Washington, and less than 3% of the $44 trillion that the federal government is expected to spend over that period. To reach a goal that a business cost-cutter would regard as desultory, the bipartisan committee of 12 senators and congressmen was accorded exceptional powers. Its work was to be subject to a simple up-or-down vote, with no possibility of amendment; and the Senate would not be able to use its power to filibuster. Yet on November 21st, after three months of deliberation, the team was forced to admit that it had failed. On paper this failure might not seem to matter very much. Supposedly, spending cuts equivalent to the same $1.2 trillion figure will now automatically be triggered, starting in 2013, with $6oo billion hacked out of the defence budget (see Lexington) and the other $6oo billion coming from other nonmandatory categories of spending, including education, housing and environmental protection. But in reality the failure is deeply alarming, for several reasons. First, it shows that Republicans and Democrats, even when offered the best possible conditions for dealmaking, can't do it. The Democrats refused to consider structural reforms to the big entitlement programmes (Medicare, Medicaid and Social Security). The Republicans refused to countenance anything that would see tax rates rise, even though no sensible analyst believes that the deficit (running at 8.5% this year) can be closed to a sustainable level by spending cuts alone, and even though ruling out any tax rises, even for people making more than $250,000 a year, is difficult to justify. Though a few interesting proposals were floated, suggesting that the Republicans were not totally immune to getting rid of loopholes (as long as any rate increases for the rich were off the table), they never came close to enjoying majority support. Until the political mood changes dramatically, it is impossible to see Congress tackling the deficit successfully-a process which will require reductions (through a combination of revenue increases and
J
spending cuts) to the tune of four times what the supercommittee has just failed to deliver. Second, the past few months have confirmed even more strongly the near-irrelevance of the president. A Ronald Reagan or a Bill Clinton would have been much more effectively engaged in twisting arms and, where necessary, dispensing favours. Barack Obama remained damagingly aloof throughout the supercommittee's fruitless deliberations. This should not have been surprising, given his lamentable failure a year ago to endorse the effective and brave conclusions of the BowlesSimpson deficit commission that he personally appointed. But it does not bode well for the future-assuming that he has one, and is not turfed out of office in a year's time. Third, this week's collapse sets up a nasty fiscal shock, to be administered in just five weeks' time. At the end of this year a temporary cut in the payroll tax is due to expire; so, too, are the extended unemployment benefits which are all that stand between millions of Americans and destitution. Folding an extension of these measures into the supercommittee n egotiation was the best hope of preventing what could amount to around at least 2% of fiscal tightening next year. The chances of avoiding that tightening now look grimmer. Finally, it is now clear that an almighty budget row will have to take place towards the end of next year, in the run-up to and immediately after the presidential election on November 6th. Congress will be trying to undo the supposedly automatic budget cuts it agreed to only in order to make it impossible for the supercommittee to fail: Mr Obama has said he will veto any such attempt. At the same time, the Bush-era tax cuts are set to expire, threatening a sharp tax rise for all income-tax payers, rich and middle-class alike, unless some sort of deal can be done. Expect more destabilising brinkmanship, just like the sort that attended the debt-ceiling crisis in the summer. The not-so-bright side There is, however, a last consideration. One reason why the supercommittee failed is that it felt no real sense of urgency. America is not Italy: this week, its ten-year government bonds were trading at a yield of well below 2%, the lowest levels for over half a century; as the euro moves towards disintegration, the attractions of Treasury bonds will only increase. But even that silver lining has a cloud: the corollary of this observation is that it will probably take a genuine, terrifying, American bond crisis to force the politicians to act. •
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The Economist November 26th 2011
18 Leaders Spain's election
Big mandate, tight spot The new government in Madrid needs to claw back some powers from the regions ··~~~~~
NO
WONDER that, even in his moment of triumph, Mariano Rajoy seemed impatient with the jubilant celebrations by supporters of his conservative People's Party. On November 2oth Mr Rajoy led the PP to an absolute majority in the Spanish parliament with the biggest margin of victory since 1982 (see page 63). He did so despite (or perhaps because of) his promise to be more rigorous than the outgoing Socialist government of Jose Luis Rodriguez Zapatero in imposing austerity to keep Spain in the euro zone. Yet Mr Rajoy knows that, with the markets in a eurofunk and bond yields at eye-watering highs, mere promises count for little. His victory was in part a tribute to the dogged persistence and quiet moderation of a man who has led his party for eight years. But it owed more to Spaniards' rejection of his predecessor. Mr Zapatero will be remembered for liberalising measures, such as on gay marriage and abortion, that helped to make Spain a more modem, tolerant place. But he was slow to see that a housing bubble masked a loss of competitiveness, and slower still to react to the crash. His political frivolity was summed up by his decision in July to call an early election on a drawn-out timetable that keeps him in office untiJ next month. Mr Rajoy looks to be made of sterner stuff. His first task will be to make bigger spending cuts to meet fiscal targets agreed on with the European Commission. But austerity alone will not cut Spain's horrendous unemployment rolls (close to smstrong, with more than 45% of youngsters out of work). The test facing the new government is how to get back to growth. One answer is to complete the clean-up of the banks to get credit flowing again. Another is to cut unhelpful regulation. Mr Zapatero merely
tinkered with a dysfunctional labour market, in which the difficuJty of firing incumbents deters hiring and binding national agreements decree unaffordable wage rises. Mr Rajoy has rightly promised comprehensive reform. Growth is also held back by red tape. Much of this stems from Spain's exaggerated decentralisation. The democratic constitution's creation of 17 autonomous regions tried to reverse Franco's heavy-handed centralisation, while keeping enough national control to satisfy the right, long nervous about self-government of Basques, Catalans and Galicians. In fact it has led to waste in public spending and to 17 sets of business regulations, fragmenting the national market and increasing costs. And it has failed to settle Spain's historic quarrels: Basque and Catalan nationalists have exploited their status as coalition partners of the two main parties to demand ever more powers. One country-or 17? Mr Rajoy's absolute majority in parliament plus his party's control over many of Spain's regions could allow him to start rolling back this trend. He should be cheered that a new centrist group which split from the Socialists in protest over Mr Zapatero's toadying to the regions took almost s% of the vote. Although Basque separatists, boosted by the end of ETA's terrorism, and Catalan n ationalists also did well, one lesson of the euro crisis applies also at home: too much splintering makes governing an economic union harder. For all Mr Zapatero's dilatoriness, Spain has taken more decisive action than Italy to tackle the budget deficit. Unlike Italy and Greece, it now has a new government with the freshenergy provided by a thumping democratic mandate. Mr Rajoy knows that the euro's survival depends on Germany summoning up the political will: it was no coincidence that he was soon on the phone to Angela Merkel. But the more decisive he is at home, the stronger will be his case for foreign backing. •
Egypt's turmoil
The generals must go The general election in Egypt must go ahead, and the generals must get out fast
OT since revolution erupted nearly a year ago has the Arab world been in such turmoil. Tunisia, where it all began, is going well enough (see page sS). But in Libya the triumphant militias that toppled Muammar Qaddafi and recently seized his son and heir urgently need a democratic bridle (see page 58). In Syria the fate of democracy hangs in the balance, though its tyrant, Bashar Assad, is on the defensive. Chaotic Yemen's embattled dictator has again promised to step down. And in Egypt, the army and young protesters are once more clashing
N
violently in Cairo's Tahrir Square (see page 57). Egypt, above all, must not fail. It is the biggest Arab prize by virtue of history, geography and population, now more than 8sm-strong. It is the seat of the rejuvenated 22-country Arab League. It should be the Arabs' breadbasket and economic motor. It was the first Arab country to make peace with Israel and has been America's most stalwart Arab ally. If Egypt's surge of people power is reversed, the whole of the Arab world might sink back into authoritarianism. If it is sustained, the desire for change might prove irresistible elsewhere. So Egypt's recent bad news is particularly worrying, just as the country prepares for a general election starting on November 28th that was to mark a crucial step towards democracy. ~~
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The Economist November 26th 2011
20 Leaders ~ After
Hosni Mubarak fell in February, Egyptians widely if reluctantly accepted that a bunch of generals, led by Mr Mubarak's long-serving 76-year-old defence minister, Field-Marshal Muhammad Hussein Tantawi, should take charge while steering the state towards democracy. Since then, however, the generals' Supreme Council of the Armed Forces (SCAF) has made a hash of just about everything. It has stymied every effort towards economic reform, deterring investors and letting the country slide more deeply into penury and debt. It has entirely failed to reflect the spirit of democratic change. It has been overhasty and undemocratic in amending the constitution, albeit that in March a large majority of Egyptians endorsed the changes it proposed. It has sought to reimpose discipline and end the protesters' sometimes chaotic exuberance on the streets, using military tribunals and long-hated emergency laws. It has tried to slip additional pre-emptive clauses into the constitution that would give the armed forces an entirely unwarranted position of political power, protecting their economic privileges and keeping the defence budget secret. It was this last mistake that prompted Egypt's democrats in the past week to take again to the streets across the country at a cost of 40-odd dead and more than 1,000 injured. SCAF v square, secular v Islamist Field-Marshal Tantawi has tried to end the upheaval by promising to appoint a new caretaker government, to ensure that the elections go ahead on November 28th, and to speed up the snail's-pace electoral and constitution-making timetable, so that a new president can be elected at the latest by July. But his
proposal falls short because it fails, yet again, to guarantee that the armed forces will retire from poHtics and forgo their special privileges. It also leaves emergency laws and military tribunals intact. Instead, the SCAF should give way to a government chosen from the new parliament. The field-marshal has become a symbol of the army's resistance to change rather than a source of stability. He should therefore step down immediately after the elections. This will be too drastic for some. Many in the West think it would be better if the generals hung on for a while, rather than give way to a populist government under Islamist influence that would-they say- subvert the cause of democracy in due course. They note bleakly that the Muslim Brothers seem determined that the elections should go ahead without delay, since they may well win them. The democratic enthusiasts thronging Tahrir Square do not necessarily speak for all the people, many of whom are conservative and authoritarian. But the choice is not between soldiers and mullahs. Egyptians need not be caught in a vice between bloody-minded anti-democratic generals on the one hand and bogus-democratic Israel-hating Islamists on the other. There is a good chance that, as in Tunisia, Islamists will play by democratic rules, and influence but not dominate the polity. Anyway, even if the revolution could be suppressed, the lesson from the stultifying rule of Mr Mubarak and his fellow autocrats is that blocking the Brothers is a surer recipe for trouble than letting them into government. Democracy was never going to arrive swiftly, and perfectly formed, in the Arab world. Pursuing it is a risk; but it is one that Egypt, and its neighbours, must take. •
Shale gas
Fracl< on People should worry less about £racking, and more about carbon
AT A recent shindig in London f i of the shale-gas industry, energy firms gave a rosy view of the fuel's prospects in Europe. Like America, Europe has vast beds of shale rock, in which innumerable bubbles of natural gas are trapped. By cannoning water, sand and chemicals at them, a process known as hydraulic fracturing, or "fracking", the bubbles can be released. This, the firms said, could bring Europe the same bonanza of cheap gas and new jobs in the industry that America is now enjoying (see page 75). It would also lessen Europe's irksome dependence on Russian gas. Outside the venue, meanwhile, protesters chanted, "Flaming water from our tap, we don't want this fracking crap." They referred to fears that fracking can cause contamination of aquifers by the methane and naturally occurring radioactive material it displaces, or by the chemicals it uses. Another worry is that fracking may cause earthquakes. A recent British study suggested that so tiny quakes in Lancashire were the result of fracking nearby. Such issues have been raised in America, too, but energy firms there have been able to ignore them because they are ex-
empt from many environmental rules. An intervention in 2005 by Dick Cheney, then vice-president, wrested an armful of exemptions specifically for fracking. That has helped the industry grow spectacularly. In 2000 shale beds provided 1% of America's natural-gas supply; they now produce around 25%. But it has also allowed reckless American frackers to do environmental damage. Some are alleged to have pumped toxic chemicals into the ground with impunity. In Europe, where environmentalists are stronger, energy companies have a tougher time. In response to anti-fracking protests, France has slapped a moratorium on the practice; in Britain, activists for Frack Off, a pressure group, have shut down drill sites. Reasons to worry, and not to Environmentalists are probably worrying too much about the immediate consequences of fracking. The technique has been in regular use in the conventional oil and gas industry since the1940s; and in all that time no aquifer is known to have been contaminated by fracking. Fluids used in fracking and methane regurgitated from gas-wells may occasionally have got into groundwater: an energy company in Pennsylvania has been forced to deliver clean water to householders because of this. But that risk could be greatly reduced by tighter regula- ~~
The Economist November 26th 2011 ~
tion, leading to better industry practice: it is not an argument for banning the procedure altogether. It does appear that fracking can cause earthquakes. But so can geothermal energy production and other parts of the oil and gas production process. Wherever fluids are injected into deep wells, that is a risk. It warrants strict regulation and further study. It is not, however, a reason to shut down a promising industry. But the industry's promise should not obscure its dangers, especially when it comes to the fuel it provides. Energy firms often call gas a clean fuel: burning it releases roughly half as much carbon dioxide into the atmosphere as burning coal does. So if gas-fired power stations are built instead of coalfired ones, the cheap gas bonanza will help control global warming. Unfortunately, though, they probably will not be.
Leaders 21
Few new coal-fired power stations are planned in America or Europe anyway. And China, which also has lots of unexploited shale gas, has few scruples about burning cheap coal. Either way, gas-fired power stations are more likely to substitute for solar panels, wind turbines and nuclear power stations. The only way of ensuring that does not happen is to price fossil fuels to cover the cost of the environmental damage they do. Power generated from coal would carry a high carbon· price-tag; power generated from gas a smaller one; power gen· era ted from renewables none at all. Thanks to recession and a lack of political will, governments have found this politically impossible to do adequately or at all, as the latest UN climate summit, which begins in Durban on November 28th, will make clear. But the effort should not be abandoned; and cheap gas does not give governments an excuse to stop trying. •
Policing internet piracy
Accessories after the fact Tougher laws against online pirates are needed, but a proposal in Congress could hit law-abiding businesses O MATTER what the "con· tent-should-be-free" crowd says, copyright theft robs artists and businesses of their livelihoods. Creative industries employ millions of people in the advanced world (and could be a rung on the ladder for poorer countries too, if, say, unscrupulous European content thieves did not habitually purloin the efforts of African musicians). The damage may be less than the annual $135 billion that the entertainment and publishing industries claim. These firms could change their business models to reduce the pirates' pro· fits, especially in countries where an album costs a day's wages. But mispricing does not justify crime. So far, attempts to stop online piracy have largely failed. Lawsuits did shut down file-sharing services such as Napster and Grokster, but others have taken their place-such as Pirate Bay and the new "cyberlockers" (see page 73) that operate in hard-to-reach jurisdictions. Many users of these sites think they are swapping, not steaHng, material. But the cyberlockers make money with extra charges for heavy users. Congress is now considering the Stop Online Piracy Act (SOP A) which would let copyright-holders take action against the intermediaries-such as payment services, search engines, and internet service providers (ISPS)- that supply money and traffic to pirate sites. If the intermediaries do not cut these sites off, they will face lawsuits. In principle, the move is a good one. Content companies need more effective legal remedies against piracy. And the thrust of the bill is sensible. Search engines direct users to pirated content and make money off the ads that appear next to the search results. The threat of lawsuits might encourage them to do much more to ensure that a search for, say, "Lady Gaga mp3 download" brings up legitimate online music services only. And putting the burden of enforcement on the private sector has advantages: the aggrieved party will have a better idea than the state whether a copyright infringement is worth pur· suing.
N
But the bill has problems too. The loose definition of in· fringement in SOP A could include sites that unwittingly carry comments linking to pirated material. That would make it too easy to launch spurious claims and too onerous for intermediaries to deal with them, and could discourage entrepreneurs from setting up new sites allowing users to post things (which, in the era of social media, is almost all websites). Large firms can cope with the extra hassle, but the fear of lawsuits could stifle smaller companies and start-ups. A second big drawback is that soP A obliges ISPs to put fil· ters in place to prevent their customers reaching pirate web· sites easily. That risks damaging the internet's vital internal ad· dressing system, which lets people use words instead of numbers to access websites. It also clashes with DNSSEC (don't ask), a protocol that America has long championed to increase internet security. Messing with DNSSEC could create loopholes for hackers by allowing rogue websites to pose as le· gitimate ones. Savvy users (who do the most downloading) will be able to bypass these filters anyway. And the bill's vague wording leaves open the possibility that American ISPS might have to institute more intrusive forms of filtering, with the costs, performance problems and privacy issues that would inevitably entail.
More selective, more effective Yet SOP A's flaws are not, as its opponents claim, fatal. The bill should be pruned and tightened-by defining more narrowly the kinds of websites that intermediaries can be asked to block, and by removing the requirement that ISPs put filters in place-to ensure that it makes life harder for malefactors with· out damaging the internet or imposing unreasonable costs on the law-abiding. The battle over SOPA is a fight between two hugely creative forces. The content companies want to protect a business that is the core of modern culture; the software companies are de· termined to defend the innovative power of an industry that has transformed the world in the past few decades. Tension between them is inevitable; but a redrafted law could surely deal fairly with both. •
22
At the heart of Europe
It is not Europe but Brita in that needs to wake up to the euro crisis (Special report on Europe and its currency, Novemberuth). Britain is sleepwalking into irrelevance. Britain's national interest in relation to Europe and the wider world would be better served if it fought to create a reformed euro-currency block, and then joined it. In fact, you cannot do the one without committing to the other. Protecting London's future as a financial centre; reforming the common agricultural policy; ensuring that Britain is at the table for future big European technology projects; braking a solution to the current crisis that might actually work; implementing the Lisbon agenda- the list of important issues for Britain goes on. Angela Merkel and Nicolas Sarkozy finally told the Greeks the hard truth: you can't have the benefits without contributing to the main. It is in Britain's national interest to lead the design of the new euro and SIR -
demand to be a part of it, before it's too late. MATIHEW WEN BAN-SMITH
London SIR - The effort by The Economist to blame Germany for the European financial crisis looks very suspicious. Charlemagne (Novemben9th) points the finger at Angela Merkel for nor favouring Eurobonds. Would Britain be willing to participate in such issues? And is there really a difference between "providing unlimited liquidity to solvent states" and buying "dodgy bonds"? I have a feeling that you are blaming Germany so that Britain canescape its responsibilities. But although Britain is not in the euro zone it should help out, in order to retain a solvent and prosperous trade union. KLAUS JAFFE
Caracas SIR- The Greek debt crisis is a similar situation to the securitisation of mortgages in America. Mixing valuable financial instruments with other toxic instruments was akin to add-
ing three quarts of milk to a quart of sewage: the result was four quarts of sewage. It would have been better to allow Greece to leave the euro zone and establish its own currency with exchange rates that would make its economy more competitive. The European Union can withstand the collapse of the euro and the re-establishment of national currencies. After all, it functioned quite effectively prior to the formation of the currency union. ROBERT VAM BERY
Professor of international business and marketing Pace University New York
Your excellent report on Europe and the euro left questions hanging. You urge "globalisation" on Europe. But "globalisation" equivocates. Does it mean becoming more like Germany? (Global banking and trade, high productivity, high taxes, high welfare.) Or more like, say, Texas? (Small budgets, low pay, poor weifare.) Given the shift in relative SIR -
' 2011 Explorer EPA·estomated 25 highway mpg V6 FWD Class Is Three-Row Large Utthtoes, Non-Hybl"id
wealth and cost advantage away from the West, trying to make Spain, Italy or even Britain like Germany is improbable. Making them like Texas is doable, but at heavy political cost. If globalisation means a race to the bottom to keep up with China, you invite in the populists, left or right. Austerity is with us for years, on any policy setting. Avoiding calamity will also take a liberal political narrative. Globalisation alone won't do it. Strapped as it is, Europe embodies liberal and democratic values- respect for persons, a voice for all, some sense of social equity- which it shares with the United States and which The Economist, I take it, holds dear. Does "embracing globalisation" mean dropping those tiresome constraints to unfettered economic growth? Or is it your view that, in face of the historical record, growth alone can now be counted on to spread and sustain liberal democracy? EOMUND FAWCETI
London
~~
The Economist November 26th 2011
~ Trade terms SIR - The term "shipper" was wrongly used in your article on shipping ("Economies of scale made steel", November uth). The shipper is the client, that is, the importer or exporter of goods. The provider of the service is the shipping line, or carrier. Furthermore, although it is true that the carriers benefit from economies of scale, which help to reduce their costs, these cost savings still need to be passed on to the client (the shipper). The same trend of market concentration that leads to cost savings may also lead to less competition. On routes where there are less than five carriers providing liner services there is evidence that the process of concentration leads in effect to higher freight rates. So not all cost savings will be passed on in the form of lower freight rates to the clients. JAN HOFFMANN
Trade faci lit ation section United Nations Conference on Trade and Development(UNCTAD) Geneva
letters 23
'Tis the season
Howzat?
sIR - The proposition that the British are more generous with their children because parents buy more "toys per week" than their European counterparts is surely fraught with oversimplification ("Buy early, buy often", Novemberuth). Why do the British behave this way? Is it really out of generosity? Or is it to distract children who are looking for interaction with their parents by thrusting yet another piece of plastic into their hands? Generosity is the act of giving to another, but the list of gifts one would consider more important than mere physical objects, regardless of their "play value", is long; time, attention and understanding certainly not least among them. It is absurd to think that anything so complex as the relationship between a child and parent can be measured by so coarse a statistic as the provision of playthings.
sIR - Readers of The Economist are usually able to comprehend the (attempts at) humour in your articles. However, in trying to understand the rise of Imran Khan's political stock in Pakistan ("Second coming", November 12th) this particular Yankee found himself perplexed by the cricket references ("fast bowler", "feared inswingers"), which have absolutely no meaning to those of us who do not follow cricket.
PATRICK STIRUNG
Cambridge, Cambridgeshire
ALEX LONG
New York
SIR - What on earth is the "fag-end of a government"? You used it to describe the Italian administration ("Destructive creation", November 12th). Were you being rude about Silvio Berlusconi?
man who got thejob.In the same issue you referred to Silvio Berlusconi's "follically enhanced head" ("That's all folks"). This is surely evidence that your newspaper could be criticised for pointing out irrelevancies, but not for the sexism Ms Schuler suspects. RICHARD WARDELL
Seattle
The final say SIR - Thank you for moving your obituary to the last page of your publication. To pay tribute to the deceased and then write about economic and financial numbers always seemed irreverent. With the change in your layout the dead can now have the last word. SUPRATIK BOSE
Howrah, India •
NATHANIEL HAWKE
Tampa, Florida
SIR - Nicola Schuler (Letters, November 12th) asked whether The Economist would have mentioned the hair colour of IBM's new boss if it had been a
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.comf letters
Drive one.
Debate: Carbon control Combating climate change by stripping most of the carbon out of power-station emissions and storing it underground in old oil and gasfields seems appealing. But can climate-control policies rely on carbon capture and storage, or is the economic case too weak? Join the debate Economi st.comfdebates
Evolution of a debacle In May 2010 The Economist's cover showed helicopters flying over the Parthenon and tru mpeted:" Acropolis now: Europe's debt crisis spins out of control". The continent's woes have continued to keep our cover designer busy. From waterfalls to sieves and plugholes, here they all are Economist.comfnode/21540103
Britain: Aproposed parliamentary reform Banning MPs from switching parties without consulting their constituents might make them more accountable Economist.comfnode/ 21540025
Business: The return oft he Eclipse The very lightjet that was supposed to revolutionise flying, but didn't, gets a second cha nee with a powerful backer Economist.com/ node/ 21540054
Middle East: Drawing the revolution Apolitical cartoonist is enjoying the freedom of post-Ben Ali Tunisia Economist.comfnode/21540100
Business: More than skin deep Evelyn Lauder, who died this month, was a businesswoman whose work spanned cosmetics and cancer Economist.comfnode/21540039
Americas: Good copper bad copper Code leo and Anglo American battle over a sta ke in a mine Economist.comfnode/21540027 Asia: Cautious dance ofthe giants As America wades back into South-EastAsia after a decade dawdling, China's nationa listie press sounds the alarm Economist.comfnode/21539985
Finance: Clicks and mortar An interactive overview of global house prices and rents Economist.comfnode/21009954 Technology: Reviving autopsy Anovel way to examine the dead usi ng medica l-imaging technology Economist.comfnode/21540059
The social future Sheryl Sandberg, the number two at Facebook, makes predictions for "The World in 2012", our sister publication. She explores the implications of"Zuckerberg's law" on the amountofinformation people will share and foresees a convergence between our virtual and tangible selves Economist.comfnode/21540110 Sport: Helping destroy apartheid The life of Basil D'Oliveira Economist.comfnode/21540068 Technology: Difference Engine Fabricating missing body parts for two superannuated motorcars Economist.comfnode/21540061 Business education: Why are you here? One student realises that his application consultant is not talking much sense Economi st.com/ node/ 2153 999 7 Culture: Still solving riddles Bjork, a musician, talks about nature, modal patterns and Icelandic sonic traditions Economist.comfnode/21540072 Links to all these stories can be found at Economist.comjnode/21540104
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CEO/ Chairperson of the Global Environment Facility (GEF) The Global Environment Facility (GEf) I!> a multilateral Institution ror financing global environmtntallssues. Headquartered in Washington O.C .• thl! GEF pro11ldes srants to developing countries and economies In transition for projl!cts relilled to biodiversity, climate change, international w.uers, land degradation, tht ozont layer. and persisttnt organic pollutants. Since its inception In 1991, the GEF has committed USO ~9.2 billion In grants to 011er 2,700 project!> In more thctn t6S de~eloping countrll!s and transition economies. Its annual administrative budget is about hoM and the Secretariat consists or a team or about 100 peopll!. The GEF seeks to appoint the CEO / Chairperson, effectivl! 1 August 2012. The cro Is appointl!d to serve ror four years on a run time basi$ by the Council. The CEO may be reappointed by the Council for one additional four year term. The CEO/ Chairperson tuds thl! GEF Council (comprising 32 member!>), shapes thl! suatl!gk direction. strugthtns collaboration with ml!mber countries and partners. and manages the Implementation or str.:llegies lind policies. Ttte CEO/ Chairperson is also responsible for over~eeing thl! performancl! of thl! Sl!c"tarlat. The CEO/ Chairperson Is the ambassador of thl! GEF, representing thl! orcanisatron In global fora for !>UStainable development and the environment. To be successful in this global leadership role, the GH seeks a highly visionary leader capable or shaping the agenda, translating global direction Into local action, and mobilizing partnerships and resources. The succl!uful candidate will have strong experience in clobal environmtnt issues, IS well as In international development assistance. She/ he should also be familiar with lnte~national environmental agreements. She/ he will have shown leadership at the intl!rnatlonallevel, a!> well as having dl!monstrated political judgment and an ability to think stratl!glcally in global govl!rnante structurl!s. She/ hi! will have excelltnt managerial and communication skltts. For furthl!r Information 1nd how to apply. co to: www.thesetorc/rtfi CEO surc.h Review or lpp4iations will bl!fin tS December 2ou. Appllants III! encounged to IPPIY by IS December 2011 to ensure fu ll considl!ration of their submission. To find out more •bout the GEF, visit www.thl!gl!f.orJ
Fus ion for Ene rgy (F4E) •s o new European Jornt Undertok1ng 1n the oreo of Fus1on Energy Rl"seorch, The pnnc1pol role of F4E is to prov1de the European contnbuhon to the construchon of ITER, on hme ond rn conformance with the ITER requirements The Dire cto r 11 the Ch1ef Executive Officer, responsible for the doy-to-doy monogement of F4E under the guidance and occ01.1nlobility of the F4E Governing Boord ond in close coordination w1lh the European Commt$Sion os representohve of Euratom in the ITER C01.1ncil. Complete opplicotrons 10 English must be sent to
[email protected] by 12/01/2012 composed of: • A motivot1on letter • A free format CV highl1ghling and giving o brief occ01.1nt of the experience ond ellpertose relevant to the job os well os detoils on the SIZe, number of stoff, budget, the notvre of the departments they hove prev1ously monoged, ond their hierarchical relationship to the senior management of the orgoni!>ohon A full descript1on of the post. requared quolificohons and instruct•ons on how to apply con be found an Offic1o i Journal of the European Union C 33.4 A: http 1/eur-lex.europa.eu / JOHtml doivri = OJ C 2011 334A SOM EN HTML
IDRC
CRDI
Tht lnternatlon.JI Development Rese~rch Centre UDR
molt IS tMOVt~IIVt, tasUn<J local !>Oiuttons that br1119 choKI! and c.han<Je tot~ who~ It most
HEAD OF THE THINK TANK INITIATIVE Ottawa Canada Tht Think Tank lnltluivtiS an innovatavl! prO<Jram dtdtuttd to strenqt~.ng ~~~~pendent poliCy r~arch inslltuttons or ' thmlltanks" an ~veloptng countr~s fn W1ll1o1m lind flofil Hl!wll!ll FoundtltiiKl, tilt> 8rll & Melinda Gate Foundation, lhl! UK ~nml!nt forlntl!m.lt!OO Nl!thl!rl.nRC o~nd totals CA SliS m~lron ror the first phiiSI! As the Head of tht Think Tank Initiative you Will contribute to Its mategtc direction and evolullon, ovtrsff1n9 •nd man.lgtng rts Implementation at the granttl! and progr.tmlf\'1!1 as wfll .s tngag1ng Wtth ~•Y ~t~fholdl!rs. Av1br1nt ll!ider, you wdl II'IQU\I.IIIf ;and guidf 01 multldt~c:iphnary tl!lm of profi!S~lOnals ~d tn Canida •nd developong rl!grons to deliver on·the·oround mula. You will also promotl!' dynamic learning culturl! w1th1n thelnttlauve As an tnrernauonal spolll!sperson. you Will tnhance global awarPOes. und1!rstand1ng and support for the IMtS to expand resources for a wcond plme To turn mo!f .tbout thrs un1qul! urHr opportunity, plt.UI' Yl\lt www. renaudfoster.com to v•ew the position and cand1datl! prof1lt. For rurthl!r tnformauon Oftolj)plf fOf this posc1011. pll!~ contact Tom FostfrorNIColt POirk'r at t i800.SI3 8117 or ~!rna~ your covtr ll'tttr and resumt totfosttl' !fnauc:lfosur com or npo1ner renaudfoster com no lattr than Otc.tmbtr 11, 2011 An equal opporrunl rf tmpl oytr, IDRC rncouragts oppllcotiOf!s from qualified WO/llf!l, Aborigmol peop/fS. pmonsw•rltdts4bilit dandmttnbfrsofVts bltmtfiOfiiii'S
Canada
The Economist November 26t h 2011
27
Executive Focus
You will oversee oil ospect1 of the implementation and performance of o new European Agency w1th responstbthty for the long-term opero1ionol management of the second generohon Schengen lnformohon System SIS II), the Visa lnformotion System (VIS) ond EURODAC. Leodmg and represenhng the Agency, you well be accountable to the Management Boord and well put in place the odmonistrohve, operohonol ond fmonciol measures necessary for Jls proper operation. With solid and proven administrative and management skills, '/OU will bring porhculor el(pertese in budgetary, financial ond human resources management ocqvored in o notional, European and/or enterno1ionol contex1. You will ol~o be able to demonwote o strong professional track record 1n the field of large-scale IT systems and knowledge in the feeld of dolo protection. Naturally, you will possess o thorough undemanding of the EU contex1 ond of the interaction between notional
administrations and EU inslltvhons the obolity to communicate With the public ond co-operate with stakeholders Finally, et is essenholthot you ore o notional of on EU Member Stole, wtth thorough knowledge of one official EU language ond o good command of o second one The full Job descript1on with the detoeled eligibility ond selection cnteno os well as the appl1cation deto1ls con be found en Official Journal C 344 A of 24 November 2011 or on the EUROPA webs1te· http'//ec.europo ev/dgs/human·rHources/workeng_senior_mgt_en htm Applications, preferably in English, French or German (and mcluding o cover note and free-format CV), should be sent by e-mo1l to~ [email protected] The closmg dote for applications
IS
22 December 2011
•
eu
careers
EUROPEAN COMMISSION
Do you hovo excellent management experience, including financial experience and management of multi-notional teams? Do you hove experience with vocational education and training~ Are you able to manage and represent on EU Agency ot the heghest level~ The European Ce ntre f or th e De ve l opment of Vocati onal Tra ining, Ced e fop, 1S o body of the European Un1on located en Thessolonek1, Greece. It oss1sts the European CommiSSIOn ond other stakeholders 1n encourogmg the promotron and development of vocohonol education ond trointng
As D ir ect o r you wtll be respon~eble for directing, managing ond represenhng Cedefop and you Will be accountable to the Govern eng Boord ond the European Porhoment You must hove o good understanding of the inslotuhonol framework of on EU orgonisotion ond enjoy working at o top level in on enternohonol environment. The con trod is for o period of five years and may be renewed The full requirements for quolificohons and experience ore described '" detoel in lhe vacancy nohce ond mclude·
eu
careers
www.cedefop.eur:oP.a
The Economist November 26t h 2011
• Notional of EU Member Stole • Be able to corry out the entire ftve-yeor mondote before reaching the mondotory retirement oge • UnJVers•ty degree. preferably in o feeld relevant to Cedefop
• 15 years of profess1onol expenence after groduohon, includmg ot leost 5 years in holds reloted to Cedefop's odtvrttes ond ot least 5 years en o htgh-level management funclton • Good knowledge of languages • Ability 1o lead and motJVote on enternohonol orgonisotoon • Abelity to interact ond negotiate internotionolly ot seneor level weth EU inshtutions, public authorities and social portnen The opplicohon form con be found 10 the Vacancy Notice, ovoiloble on Cedefop's webs1te www cedofop europa eu Applications must be subm1tted ond postmarked not later thon 9 January 2012 An HR company will assist in the evaluation of opphconts
28
Executive Focus MANAGER OF EVENTS AND VISITS Salary expectation £30k-£40k We are a high profile global consultancy headquartered in London, undertaking events and visits in numerous countries across the world. We work with blue chip corporates, high profile individuals and senior dignitaries to deliver exceptional service to our clients. We are currently seeking an outstanding individual to join our organisation as the Manager of Events and Visits. The successful candidate will demonstrate:
• Extensive experience working with high profile clients, speakers and dignit aries to coordinat e and deliver except ional events for clients. • A history of negoti ating terms and the timing of participation in events w ith clients and agents. • The ability to research and compile background information on the client and/or event. • Specific working knowledge of the demands of successfully co-ordinating events internationally, particularly in the Unit ed States of America. • Excellent understanding of national and international protocols for senior dignitaries and high profil e individuals. • Significant experience coord inating the travel, hotel accommodation, and logisti cs for speaker, staff and security as necessary w ith vendors and hospita lity organisations. • Continuous success in managing t he flow of actual events or visits to ensure t he highest standards of delivery and client satisfaction. • A track record of delivering results in fast-paced, complex and uncertain environments. • The ability to work independently, think strategically and translate strategies into delivery plans with particular emphasis on attention to detail. • Flexibility and resilience to work extended hours through multiple time zones. • Appreciation and understanding of cultural expectations and differences between various clients. • Impeccable integrity with a high level of tact and discretion. The role will likely involve extensive international travel.
1
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Deputy Executive Director Programmes (OED) ~porting to tht Ex.Kut•vt Dlr tOt tht OED w1 bo. rtspons bl f01 ~adlng and coordwtJng the tKhniol ptognon"INt arm of tnt ASARECA S«t dtwlopmtnt po~tfolio. 1M OfO w.ll ibo ~t·ze tlw off1ct of the Ellocww Dlrtctor and r~t hornlhfr In regioN~ and •ntfm.I\JONI fol\lm~
A hlghfy~u~eglc thinker. you " ' ' ' demonsttittd wcces~ as • Ioder of opemiOtiS, ptllgfM'IIS ~ ttiiM. Your t Ill'*"! OfC]JniDlloNI slc~b fi'ISurt a flfll bit )'l!t rftlllu drrven approad1. Your SUP41fl0r lnttqleOOf\ll ~ communfc:auon ~kills quat ried ~" a htghly dop~tlC negot~or and coosemus budder amoi'IQJl dOVWOt groups of it•kt~~ You art rflpe
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Clndidatti wl• bt txpecttd to hold a PhO qualifotlon m Agricultural Scltneti Of .,Y otl'>tt ~gncultural rtlattd fltld and " INst lofttfl'l )'NI1 ttchnkal otgr/C\JIU.Ir.il rtil!l!th r shoold bt '" il ~101 m.l~t •nd coortlln111011 role
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Applicants should send their CV by 5 December 2011 to the foll owing email address (anonymous domain due to confidentiality}:
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771f' A\'-• >I lutmn '"' Stn·tll(tiH'tuf18 ,\K"(tt/tuml m ut\lt-m IJflcl C«'fllrul ,Vm 11 ~ u notlm• pm/11 lub-n.7lf<>n<J! Of!ltlnl.:.cJlJt•ll of t/11.• ,\iJJJI>fJcl/ Rl'.~rJrt h
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We strongly welcome early applications. Only short listed cand idates will be contacted .
EXECUTIVE DIRECTOR INTERNATIONAL DEVELOPMENT AGENCY
Pamers 1n ~W1 and Oe¥elopme1ll (?PO). ., ~~~~ ablce ot 25 dt>;e~opr~g CIJI.n\'les seeb ID ISS15l each Cl!ler and Oilier ~ IXliWih$ Ill ad
MmTun quallfcallon$ lor the pos.llon include I pos1 p1uale ~ I PliO deUabll) in 80Cial ~ ~I « heallll scence and 15 yen ol relevar.! l)r0lession.11 e.pener-ce In
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The posCior\ • open only 10 citllans a deveiDpillg CIJijl\t'!flS The ~ttStcr
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www partners.popcfav.org
Partners In Population and Development (PPO)
Kosovo Pension Savings Trust (KPST) KPST is an independent institution established in 2002 as a defined contribution pension fund, with the responsibility to manage and prudently invest pension contributions for Kosovo employees and employers. KPST
is governed by a Board of Governors. Terms of current Board members are about to expire, accordingly, the Selection Committee is advertising for:
PROFESSIONAL AND REPRESENTATIVE BOARD MEMBERS Persons aiming to become Governing Board members must be of recognised integrity and must have professional expertise and experience in pension, financial, investment and/or insurance matters.
4 Professional Board Members The candidates must have at least ten (10) years of professional pension expertise as an: Employee, owner, trustee or professional advisor of an asset management company, insurance company or a pension fund with at least fifty million euros (€50,000,000) under management; Economist or financial analyst with a major international financial institution; Employee of a state pension regulatory body that regulates funded pensions or of a state legislature working on pension legislation; Distinguished scholar in the economics or finance with a record of extensive internationally recognised academic research and writing relevant to private pension investment.
1 Employee Representative Board Member The candidates will be evaluated on the basis of their professional experience in representing or advising Employees or their representatives, in Kosovo. A detailed list of requirements, duties and responsibilities, and how to apply is available on our website www.trusti.org. The deadline for receiving applications is 9th of December 2011 at 15:00 Central European Time.
The Economist November 26th 2011
29
Executive Focus
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Do you want to improve live~?. ~orld's dry areas? ..
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Opportunity for an res··e manager to lead an program on dry lands agncult ural SY,Stems. ''fJ/J .
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Recruitment for: Director· c;GIAR . Re~earch Program on Dr:yland System s Please apply onlinJt~~~·!e~;~a.org/i~a/ by January g, :zou . .
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The challenge
Your role
ICAROA and thtr Oryland
Cull't11t rtdiiCf•on•~ po~tmtal, and s.ngle·d1meosoon rHtarch •pproa
As Program Director, you Wlll dtvelop the re~arch portioloo to .achoeve dearlydellnf'(j 1"\'sults, •n clOS<.' consultatiO<'I woth • wide re~roge of plrtnersand ~taktholdtr\ Thts requores ~nor S~tlls on lea~ p a'>d COO
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flit' lnt.matto11al C for Agrocvltutll ~;urchIn tht O...,Aiu\ (ICAROAI IS f
The Oryland Sy\1t111S Rtsearth Progr•m IS 1 maJOr new effort to s~ed up the odcntol\cat•OII, t<'Sttng, and del very ol solutions, wi'IKh w liloetU~t' food •nd nutntiO<'II·E"cvrity, •nd lmptove lrveh~'" t hl' WOI'Icts m
The Progr•m suns early 2ou It tlkts '" nttglllted f9<0-~o Sy$tems IPPfO'Ch to d~l\ltr research tNt provides solutions, which btnelit low •tiCOmt countn" tnd theor rural cornmut'llt•tS Tht Program's new thonkong and flndongs Will b~ hamt~sed to crute m~t\~urable, 5US!Itlllble, 1nd large ~cale omplct 01\ rural bvelohoods The Program hasa grGwJng annual budget Gf ovtr ' t,OmtiiiOI\
More onff>t'ln."tiO<'I about the Ory1and Systrrns Restarch Program http!//WWW.tear~.of9/crpu._proposa1_19)vly/llldu.htm
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management, w1th proveo ex~neme of ludtng mullH:ovntry, rnultl·dosc•pl•nary large rtstarch ·for·devtlopment prOJ<'(ts You wolt have a l'hO degret In a doscoplone relevant to the Program woth brooJd llnowledgt of 1gncultural productoen systems 111 the clryla11ds of de· ~opong countr>Ps
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For the fvK position descnptlon, ref' ,-t 9can ~ t<1 r It th• keadqw tt'> at ont of !CARDA's 11"9'0"'11 ~•s Thf' In t1al contract Is for 3 yurs,
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by • ..,de lln<Jt of j)l't"trs itlcluding ~ogh\ CGIAR Centm (ICAAOA, I(RLSAT, B~I'Jlly, CIP,ICRAF, l.RI, IVAI!, WotidFishl, tht Sub S.ha•~~t Afrte• ClwllfPl'ICJf Pf09tim, NloO<Wl a<J-ic.u•tural re~arth J~tt'fT'Is, ~ nd lefv~~fftN'th;.m t~tes
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JOB VACANCIES
The Afr1can Export 1mport Bank (Afre,ombank) IS a pan·Afncan Multilateral fmanc1al mstttut•on established '" 1993, for the purposes of fmancmg and promotmg tntra and extra Afncan trade. The shareholders compnse Afncan governments, Afncan and non·Afrtcan pubhc and pnvate mst1tut•ons The Bank IS headquartered m Ca1ro, Egypt, w1th regtonal 4
branches m Harare. Ztmbabwe and Abu)a. N1gena. Afre>umbank IS lookmg for mtelhgent. dynamiC and committed mdlvtduals to ftll the followmg vacancies·
SENIOR MANAGER., CORPORATE FINANCE & ADVISORY SERVICES: Reporting to t he Executive Vice President (Business Development and Corporate Banking), the nature and scope of the job is to assist Management in the creation and operation of an appropriate investment banking and advisory services unit to support African e ntrepreneurs and governments m various trade and t rade promotion facilitation activitieS. The scope of work indudes various aspects of corporate advisory and investment banking services. Job Requirements: In addition to at least 10 years of relevant corporate finance/investment banking e xperience in an International commercial environment, a good fi rst degree in Economics, Accounting, Finance, Business Administration o r other re lated fields a nd a post graduate degree in the same fields or a relevant investment management. banking or accounting qualification (e.g. CFA, ACA, CPA) from a reputable University are required. MANAGER, RESEARCH, PLANNING & INTERNATIONAL COOPERATION: Reporting to the Director. Research, Planning & International Cooperation, the j ob holder is expected to provide support fo r the Bank's
strategic planning, economic research anatyses and international cooperation activities as well as the monitoring of these activit ies on an ongoing basis, a long with the preparation of the Bank's various pub. lications for public use. The job a lso invotv.e s preparing various sector a nd country reports. Job Requirements: In addition to at least .8 years of relevant economic research and strategic planning experience on ~n intern~tion~l commerci ~f envi ronment,~ goo<:l first ~~~ree in Economic$, economevic$, ~pplied Economic$ or other rel~te
~~~aj~~~t~~sc~~d~h~snd0 ~~{j;~~~ ~~d~~dd~~~';,~~~~~n~n~ain~~~~~~e~1 ~~~~g~~Pa!~ac~~~~i~~~~~~0b~~k~ft~ifo~~hi~~1bba~~~u~:e~:~l~:01~a~t~~nt~6 ~~~nat~ni~~~~fo't'~~~i!,:a~~ fg! ~~~~i~i~;a~ronnd~~a ~~~~t~~~~~i!~~~ ~~~er~~~f~~ :~~~~~e;~:~~of~lsii~~a~~~'~tli;~~~~lifiZa~~O~ ~~~db!i~~n~fcf:~~ ii~ ~f~c~~l' aB~~e~~a~e~~n~~~r~~~ or re lated fields and a post graduate degree in the same fields from a
~~~~:~~I:.A~~~~:Y ~~!aRsA~J~~c~~~~rEfn~:r~l;~~~o~~~Ya~~;J~:~:ii~~Pa0g~~~ ~~~i~i~i:!:?o0~~ ~:C~~;~a~~~t~d~·i~~~r~~~~~~~d's!~~~ft.;~~~t~s~j~v;g~ a~r~~r~l~!ciosifJd)~f~J ~:n8s~~~JY~dii~a~h1c~0~h:
Bank is the Lead Arranger, in order to ensure efficie nt d istribution, communication, impart,iality and independence of the process. Job Requirements: In addit ion t o at least 8 years of relevant syndicated loans r~:h;;:~~~7!~~:~~~~a~~:;~~~6~s~i~i:~~:i~~er~~~~re~!~~=~~!~ti~~~~~~!i~~=: ~~~ki~~(~3~a1~i~~~io~e~~ya~~n!iid~~~i~~;~,~a~fk!n~o~u~~~~a~~d!~i~~tion or (elated fields and a post graduate deg(ee
~Nr~~~~e ~~~e~d <~~;~~;s~~~~~C:llh:~~~d}~~~h1~:s~~~~~i~k~r;~~i~~:J0!i~~~~;ei~t~;rb:S~e~~ fr~~~~~i~urfs~~~:~r ~~e r~~~i~:~~~~~~~:;ac~~~~~~e!:thh: ;r:~i~~~~~~fd~n~h~i~ieya~~~~~~~!~~.~fefd~i~~~~
This would be particularly for trade related proj e(! finance transactions, such as the Construction and Tourism Relay Facility ccoWTOURl. Job Requirements: In addition to experience of at ?east 8 years of assessing credit risk in complex project fina nce transactions in an internationa l commercial environment, a good Bachelor's degree in Banking, Business Administration or re lated fields and a post graduate degree in the same fields or a professional banking qualification.
~N~;~aR9:~:n~~fhe;~~~~~;=:tfo~~!n~:~~i~er~~ef~~i~d;~~f~~~~it~~~ !~~~~e~~~r;~:~!~ae9de~f~f~~dSh~~~~~~~~~~~:d~at"6i~~~~~~r!~J~Pcfv~~~~~~~~s~~~ii~~:l~~~~~~· i~~f~~ ~tC::~~~~:o~~r;;:~~~h:
Sank's Treaty and Charter and best international corporate governance practice. Job
Re~ui rements:
In addition to at least 8 years of appropriate company secret arial practice, a good Bachelor's
de~ee
in law
~~~r~~i~! ~~~~~er~~g~~is~d j~~i:dkt~~~~~~af~il~ri~e~rt~ t~~ ~i~i~~~~~t(s~~v1c~~i~~~i;~ fsr~s~S:.W;1~1 qualification in company secretanal practice (e.g. ICSA) are required. The candidate must a lso e certified
;:;A~;~~~ ~~n\~~:;,';,~,:-;;~~~~~~~~sR!~t~rt,!~Pe:~al~~:k:~~~~~s~~~t~~~n~j,~~ih~~e~~~~~~~~~~c~~~~~r~":~;t:;~ ~~~i~~T"~~Pk~:~~:~sddf"fo'Zu~'l~~att~?s" r~le"a~~~:'~~~st~~~ s~~~~·~M~~~Ia~~~~ information disseminator.
producin~ such items as press releases, corporate b rochures, website news and publications updat es, client communication, presentations, in addition to managing the Bank's ~rand
r~g~~~ae~;~!?!~;~~:~~d!i~ ~~~std~~~ !o9 ~~eu;~~en~\~~~~~:J~~~no~~~~~~i~~~~oenxf.1~i~~~:~i~~~: r~~~~!r;rd?;c1~~~:;i~~~ "adre~~~~i~~~aG~1v::B;;.ience of communications strate(jf development a nd ASSISTANT MANAGER, FINANCE (SYSTEMS ACCOUNTING):
Report i n~
to the Director of Finance, the j ob holder is expected to carry out various systems accounting maintenance and development functions in
~~~~!~! ~~~~r~:~~~0~id!~b~~i~se~c~ou~~is"u~:~~es~~~~~du~i~~~~:~o~e~f~~a~~ii~f~~~~r~a~fo~ c~s"r~~i~ i~;dw~eth~hb:Sii~~~.eJ~bi~~i~:~~~s~~e~~~~:;h~r;\ ~~~~~j:~d~~ft~ee~~n~~~~0~r~d~~t~hd!;;:~. ~~
::C~~~;?n~erl~(e~~ ;h~e~:~k~~~~~e~s~~~a~;ft~~r~t~~~t?~r~f!~Jifher!~~r~a~~~~:~n~ee~hctS~Pt~rhr:Y!t!dm~~~~rs~ ~!:ur~a~~~:perience within t he financial services industry and knowledge of IFRS and related GENERAL JOB REQUIREMENTS Candidates must be fl uent in e ither English or Fre nch, with a working knowledge of the other; while fl uency in the Bank's other official languages (Arabic & Portuguese) will be an added advantage. candidates must have demonstrable success working in a multicultural e nvironment, wfiile work e xperience w ith leading financial inst itutions in Africa will also be a distinct advantage. REMUNERATION: The positions a re international recruitments, with excellent tax free salary, att (active famity friendly benefits and diplomatic immunities and privileges. Interested candidates should send detailed CVs to our retained Consuttant Robert Baldwin of the Willis Partnership, at the e·mail address: R.Qbe rtBa ldwin~UiS:RailJlenhip..c.o..uk. Applications should indicate the position sought and be sent not lat er than 3 weeks from the date of this advertisement. Detailed job descriptions are available under the vacancies tab on www.afreximbank.com.
Afreximbank is an equal opportunity employer
The Economist November 26th 2011
30
Executive Focus
~
lOB
0 ~~~~~~ TIM lnttr·Amerfun Onelopmtnt B~nk (JOB), tht lll&tsl ~nd lt<~dina source of fm<~ndn& for realon<~l development In latin Amerka and tht C<~rlbbtan, Is sttklna a hl&h ltv~ profuslonalto work In our Budgtt ~nd Admlnlstrlltivt Si!fvicts Otpartment at our headquarters In Washinaton, D.C.
Budget Division Chief Budget and Administrative Services Department
IDB
Reporlln& directly to the General Manaaer of tile Budget 1nd Administrative Services Department, who In turn reports to the VIce-President for Finance and Admlnlsttatlon. the Bod&tt Division Chief oversees the lOB's AdmtnlstJatlve and C1Pitll budaet activities, ensurln& consistency with the Sink's \trateaic aoals and prlontlu and the auldellnes received from Man1aement and the Board of becutlve Directors. The Budget Division Chief must have the capacity to lntt~ratt programs, systems. fmanclal~ecountlng. evaluation, and m•n~aement knowledge Into top level dee lOB olftri i comptl111vt comptnUIIOfl and bt~tllts p.cka~ Jnd a dl•erse •ncf lntiUSIY!' 'ltOrk tnvtronment,
SOME MOMENTS DEFINE HISTORY. SOME CAREERS MAKE A DIFFERENCE. DEVELOP ECONOMIES IN EGYPT, MOROCCO AND TUNISIA Th1s 1s a pivotal moment in the history or the southern and eastern Med1terranean (SEM£0). Econom1es are changmg And the European Bank for ReconstructiOn and Development (EBRD) w1ll be at the heart of that change. Working closely w1th governments and llstenmg to the needs of the people, the Bank w1ll support private mvestment and the growth of stable econom1es m th1s new reg1on. It's a complex. challengmg area - and the opportunttles we re offenng are equally d1verse. Jom us for one of these career-defin1ng roles: · Sen1or Bankers (Financtallnst.itutJOns. Power. Energy & Ut1ht1es. Munscipal & Envtronmental Infrastructure and Transport) • Pnnc1pal Bankers (Fmanc1al lnst1tut•ons. Natural Resources and Power. Energy & Ut1llt1es) · Assoc1ate Bankers (Fmanc1al lnst1tut1ons. Agnbusmess. Manufacturing & Serv1ces and Natural Resources) Principal Manager, Power. Energy & Utilities Pnnc1pal Manager. Energy Effic1ency & Chmate Change • Energy/Natural Resources Econom1st www.SEMED.ebrd.com CAREERS MADE OF DEF1NING MOMENTS
Special Project Facilitator
Treasurer
lhP pos.t1on PfOV1d"s leildershlp 1n
The position tt'J)Oit$ to the VIce Prb1dent (Finance and Administration) and is respon!o!ble f01. prOVIding strateg1c and techntealleadershlp rn i!U areas or Treasury
maNglng and resoMng complav'lls from AD8 projt'Ct-afftoctl!d ptaple and pnMtl1ng generic support and ~e to ~atlc)IU depitrtments In their problem-solvmg aclMlteS; planntng t~taliOf\, and SUPE'fVI~ of the VISIOn CJOilfs, strateg ~.and work pl..n of the Office of the Special Project fadttatOI 1n support of AOB's 011eraU go.~ls. handh"9 the Office's day·to-day operationaltssues lind tts compliance w1th AD8 pollc.teS. We s.Mk candldatH who hlwe: at lea\l 15 y&rs ol rele-vint expenence1n worktng With dfveloping member cooot~ paJtiCUI.Jrly 11'1 SOCI.JI.OO pnvate sectors. fnfr.tst.ructUfl!, 01 ~r;
a Masten degrft>. or equrvalt'nt, In EcOI'IOITlb. Envtronment. law, Of Sodal Sctence-;. or related fields. 01 a Univen~ty degree in Economtes. ErMI'OI'IITli'Ot. L.tw, Of Social SclenC~ or related~ combined With speoallzed expenence In Slmdar Of9<1MtUtiOOs, fNY ~considered In heu of a Master sdegree To apply, VISit www.adb.orgJEmployrnentllntclrn.tiONI De..clhllP fof applrGlliOn~ 1s on 12 December 2011 .
Women- encountged to apply.
operatiOnS to s.lfeguard AD8 sAM crecht ratrngs and to ensure ItS continued fu~ncsal strength and steady growth 1n 1\nanclill resourc~: ~ng the formulation. update. and 1mplef"nE''tatoon of vanous financ1al and asset li.lblhty managet'nf'nt pol Kit'S that reflect best pracuces and AD8 s annual borr0W109 program and strategy. and.
pr0V1d1ng 1troogleidmt11p 1n promo11ng the development and 1ntegrat1on C)( Asian Uptt.ll maritets through AOEl's own local cunency bond lssuancM
and supen~~Sing the pl'\ldent management of ADB's hquidtty and deiJYery ol htgh quality and efficient treasury stMCM to mtemal and extemal d1enu. We Melt candidates who have: at least 1S years of relevant 1ntemauonal exper1ence 1n finance. preferably tn mululateral ftoanaat 1nsttrut10ns 011.lrge multtnlluonal baok•ng ln~ltutiOn$· With sound knowledge of debt c.aprtal m.lfket. fixed 1nc01\1f' tnvl'stment man<~germ-nt. U"'t habihty management. derrvatrVI'i. treawry accounting and risk managemt'nt; a Mastef's Degree, 01 equrvalenlm Business AdmrrustratlOO. Ftnanu, Of related fields; Of a UnrverSity ~ree 10 BuSinas Admmtstrauon, Finance. 01 r~ated fields. combmed Wtth spectahred experience '" simrlar ocganizal.lon~ fNY ~ COI\Sidered to heu of a Master's de<Jr~
To apply. visit www.adb.orgJEmploymentllnttmatlonal
Oeadltne fOI apphutiom Is on 12 0K~bef'2011 .
Women are encouraged to apply.
www.adb.org
www.adborg
The Economist November 26t h 2011
31
Executive Focus WFP
~~;\ World Food
--
~Programme
Universitat St.Gallen
Assistant Secretary General Resource Management and Accountability Department The World Food Programme (WFP) seeks applications for the position of Assistant Secretary General (AS G) of the Resource Management and Accountability Department, located in Rome, llaly. WFP is the United Nations frontline humanitarian agency addressing hunger and malnutrition worldwide. Reporting directly to the Executive Director, this appointment is a member of the most senior leadership team running the world's largest humanitarian organization. With a budget that varies between USD 3 and 5 billion, WFP tackles poverty and hunger through a variety of inte rventions; saving ljves and protecting livelihoods in emergencies; investing in the
prevention and mitigation of diS.l Sters; restoring and rebuilding lives and livelihoods in post-conflict or post-disaster situations; reducing chronic hunger and under-nutrition in developing countries; and strengthening countries' capacity to reduce hunger through handover strategies and local purchase. In this role, the ASG will intet,'l'ate financial management functions while overseeing systems for external and internal financial controls and accountability. The ASG will also oversee the organisation's resou~ allocation, including budgeting and contribution programming. The divc•ions of Budget and Programming, Finance and Treasury, Perfonnance and Accountability Management and Business lnmwation and Support aU report to the person in this position.
JM,,I candidate will have at least 15 years of senior leadership experience, including experience in large international organisations. TI1ey should have outstanding managemen~ finance, and budgeting skills and a commitment to tl1e valut'S and guiding principles of WFP. Experience as a Chief Financial Officer in a large organisation will be an added advantage. An advanced university degree in a related field is desirable, as is fluency in more than one official language of the United Nations. Competencit'S that the successful candidate will poosess include strong communication, negotiatiOI\ teambuilding and partnership skills. To find out more about WFP please visit: www.wfp.org. Please re••iew the complete terms of reference and submit an application through the following link: http://i-recruitment.wfp.org/vacancies/11-0011944. Closing dale for receipt of applications is 26 December 2011. WFP mokts evtry effort to ma;,JtDhJ ge11der parity. Tlrertfort, quaUfied female applkants are tllCOUJ'D.ftd to apply. WFP lias ztro tolerunce for discrimination ami does not discriminate 011 t/Je basis oflllV/AlDS status.
Fighting Hunger Worldwide
ee BRITISH ee couNCIL Career Opportunity
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Professor of International Management by februar) I, 2013 or b) mutual ..tgrcement You will Join thc Rc'l'arch ln<;titull' of lntt•rnJtson..tl \1anaAcmcnt, de\ clop cont,ltl'> with int~·rnaltonal rorpuraliun., .md partnt•r univcr-.itie'>, and m.lkl' .1 .,jgnificant contributson to rt~.~rch and to teaching within e\i.,llng dt~ rl.."t' programme.., acru ..... the Unher.... ity. Dl'pcnding tm !'>enmrity, qualificJtion-. and l'\pcricnc~,.•, the .:~ppointml'nt \\ ill be made at the ll'H?I of fu ll Prorl'""'r, A .....aciatt.• Proft."'or or A ......i..,tant Pruft...,.,or (tcnu ri.' 1rJck). 'rou ~'i ll bring to tht• po~t an inh:m,ltionall) r~..-cogni~>d rl'-.eJrch n:putatiun within the fidd l)f lntl'rnJtional M.m.1gt•mt•nt. il" dcmon'>tratvd b) a public.•tson tr.lCk record in leJding mtcrn,ltional .,cholarly journal .... In cldditiun you will brsng a pm... tm teachsng abilit) Jt the undergraduate, graduatl' doctoral and id..:-ally al'io at thl' 1!'\CCCUli\ c ~~~' cl: nu~·ncy in En~li ... h and at ll'.l'>l ont JdditiunJ I IJnguagc; and a tratk rt-rord ul n.•'>t•arch fund inK A rc~arch intcn.•.,t in the an:a of l'mcrging mJrl..d-. Will bt• partitul.uh \n•lconwd. Finally, )'ciplinJry boundar~es, and to collaborate in to.>rm ... of te.1ching or rt''tl'arch with rol kaguc~ in lhl' con.• .,UbJt'CI an!il't of the Uns\ l'r-.st} (l'c~.momic ..., law, intcm.1tional affas,... M\d '>Ot.~.l l .,dcnct....,).
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fhc.> l.mi\cr"•t\ ha<, set a priorit y of inl.rt.'.l'>ing thl' number of sntl:'rnational -.cholar., am,)ng 1t., fa<.:ulty. II actively pur.,uc... a poise) of din>r!>it\ .tnd gt•nder l'qUcllity in clll Ufl'a'> of ih activitiC'-
To di_..,,u_.,.. the po...r informall), pl£>a<.t.• contact Prtlfl"•'>or Wsnfrit-d Ru•grok, Dlrl"t"tor uf tht• Rt·~·.m:h ln..,htute ,,f lntcrn.lhOnill MJnilgcmcnt (winfrk-d.ruigrok unbg.ch). l ntcre'ikd cand•d<~tt''i <.hould ..,ubmit thctr apphtatlon J lung with the u!oua l ... upptlrting dolumcnh (cmcr lcttl'r, n .md li ... t of publkatiun..,) tn electronic form to bcrufungcn • um!>g.ch, .1ttcntion of thl' Prc~sdcnlllf thl' Uni\l:r.it) of <;t, GJIIl'n, Pnlft.•.,..,llr Thuma~ Bicg~o•r. C lo'iing dal<' t'i fl'bruary l!i, 2012.
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The Economist November 26th 2011
Your plans are our plans. Your achievements are our reason to celebrate. Therefore, our success is also yours. ltau Private Bank has been chosen as The Best Private Bank in Brazil and latin America by PWM and The Banker- magazines of the Financial Times Group and once again Outstanding Private Bank in latin America by Private Banker International magazine.
33
Cosy club or sword of righteousness? ELDORET,KENYA,ANDTH EHAGUE
An arrest in Libya, a change of guard at the top, and a big decision on Kenya will mark imminent moments of truth for the International Criminal Court
N NOVEMBER 22nd Luis MarenoOcampo, chief prosecutor of the O ternational Criminal Court flew into In-
(Icc),
Tripoli in perhaps the last high-wire act of his career. He and his deputy, Fatou Bensouda, a Gambian lawyer, began haggling over the fate of two men who are wanted in more than one place: Saif al-Islam, son of the late Libyan dictator Muammar Qaddafi, who has just been arrested while trying to flee to Niger (above), and Abdullah al-Senoussi, a former Libyan spymaster. On the Libyan street there is a palpable desire to see the two men hanged. The new Libyan authorities are insisting that they are capable of staging fair trials. Mr Mareno-Ocampo had at first argued that the prior claim belonged to the ICC, which issued arrest warrants for the two Qaddafis and Mr Senoussi at the behest of the United Nations Security Council in June. But on November 23rd- though doubting whether Mr Senoussi really had been arrested-he accepted that Libyan courts could give the younger Qaddafi a decent hearing. He added that the ICC, in its capacity as a court of last resort, would help if needed. From the suspects' viewpoint, a deliberate inquiry by the ICC in The Hague, with a chance to defend themselves and no death penalty on the statue book, would be preferable to a trial in the venge-
ful atmosphere at home. But an Icc trial would have limitations. The charges drawn up by Mr Mareno-Ocampo pertain only to misdeeds committed since February this year, when civil war escalated and the UN called in the court as one of many instruments designed to thwart the Qaddafi regime. The UN could in theory authorise a broader probe, but the court can never look into anything that happened before its doors opened in 2002. So a trial in The Hague could not investigate the downing in1988 of an American passenger plane over Scotland, or the killing of 1,200 inmates in a Libyan jail in1996. Some institutional interests are at stake. A Libyan case would have thrust the court at last into the limelight, confirming its role as the place where victims of the worst misdeeds- crimes which might otherwise go unpunished- can seek restitution. Set against the Utopian predictions made in 1998, when the Rome statute providing for the court was signed, the record so far has been rather disappointing. The court was destined, said one campaigner for its creation, to "save millions of humans from suffering unspeakably horrible and inhumane death." Of course, its very existence may have made some would-be dealers of death hold back; but such extravagant claims are hard to sustain.
The most ambitious thing the ICC has done is to indict Omar Hassan al-Bashir, the president of Sudan, on a charge-sheet that includes genocide in the Darfur region. But he remains firmly in office and seems free to travel to a good number of countries. The indictment has not triggered the bloodbath some feared, but it has not done much good either- leaving untouched, for example, the military and intelligence apparatus of the Sudanese state. The court faces a turning point next month, when member states confer in New York. A new prosecutor will be chosen from four candidates, including Ms Bensouda. Six of the 18 judges will also be replaced, in a ballot preceded by an unseemly round of bargaining and canvass· ing. Arcane rules govern the choice of judges: the sexes must be balanced, and each of the world's main regions must be equally represented. But candidates need not have been judges at home; one Japanese member of the court has been a law professor and diplomat. Of the 19 runners in next month's ballot, four seem unqualified, says one team of legal pundits; but they may still be voted in thanks to diplomatic back-scratching. The field at least looks better than it did in September, when the deadline had to be extended for want of suitable names. Whatever happens, the court may be less of a cosy club than it has been hitherto, insiders say. A handful of individuals were closely involved in the talks to set it up, and many of them took senior jobs. Next month's choices will help to determine whether the institution develops a robust life of its own, or simply becomes one more wagon in the UN gravy train. ~~
34 Briefing International justice ~
Many hope the court will broaden its geographical ambit, although any such move will face huge political obstacles. No member of the UN Security Council has ever been in the court's sights; indeed only two permanent council members, Britain and France, belong to it. All five countries where villains are expected to go to The Hague (see table) are in Africa. This year the court has also become involved in Cote d'Ivoire and Libya. In three cases, the countries themselves called in the court; but this narrow focus has made many African governments suspicious of a body which has many member states- 119 and risingbut big absentees, from America to India to most Middle Eastern countries. The list of places where the court says it is carrying out preliminary investigations is broad enough: Afghanistan, Colombia, Georgia, Gaza, Honduras and the Korean peninsula, as well as Guinea and Nigeria. But the total number of staff involved in those initial probes is a bare handful. The court's resources are overwhelmingly directed at a single continent. All 26 of the suspects publicly indicted by the court have been African; of those in the court's custody, four are Congolese and one a Rwandan wanted for crimes in Congo.
Disorder in the court Only one trial has been completed, that of a Congolese strongman, Thomas Lubanga, who was arrested in 2006 and has been in the dock, on and off, for two years. The proceedings have been chaotic. On two occasions the judge has ordered the suspect's release- only to reverse the decision soon afterwards. Both times, defence lawyers had argued forcefully that the prosecution was either failing to disclose evidence, or was offering improper inducements to witnesses, several of whom changed their story completely when cross-examined. What these near-farcical scenes highlight is a wider problem: when a court, based in a rich Western country conducts a trial relating to a desperately poor one, witness protection and witness inducement are hard to distinguish. The ICC prosecutors rely on intermediaries to act on their behalf in remote parts of Africa. If these go-betweens offer a person safety and comfort before and after testifying, in a place where daily life is hard and dangerous, that can be irresistible. If the court is making a difference anywhere, it should be in the broad zone of conflict that straddles Congo, Rwanda, Uganda and the Central African Republic, where most of its work has been done. That is an important place to investigate; up to sm people have died as a result of Congo's wars. But the prosecution's choices in that region have faced criticism from Human Rights Watch (HRW), probably the most influential among a cluster of NGOs that lobby for the court.
The Economist November 26th 2011
I
Out of Africa Current cases at the ICC Case
Country*
Warrant/ summons issued
Stage oftrialt
_Je_an_~P.i ~~re ~e~b_a _G_orn_b~ ............... ..... C_en_tr~~-Afri_ca ~ _R~P · ....~a_y_ ??0_8 . .. _S t~.r~~~ _N_ov_~O-~? .......... .... .
~.?rn.~~-~-~~?~~-~ .l¥~?........................... -~~~~~.................... -~~~- ~?.0~ ..... -~ ~~-~~~ .~ ?.~ .???.~ : -~~?!~~~.Y~~?!~ .. . _B?~~o. N.~~-~a-~~~- .•............................ .....C~n-~~ ..................... ~~~ .~?0.~
....._D~fe~d-~~~ _s~ll a_~~-ne_~~~ _i_~.t~~-~ ri~_Y
-~ ~~n;~i-~. ~~~~-~?:. ~.~ ~~i-~~ ~~~-~~?.l.? -~~~!... -~.?~.~~- ................... -~-~ ~ -~~?? ...... ~~?.~~~ -~-~~ ~~~ ....................... . -~-l~i~-~~.~~-~ ~~~~-i-~a-~~- ...........................~~~~~ .............. ....... ~~P. .~?.~? ..... -~~~~~~?.l. ~-~?.~i-~~~: .i.~.c~~~~~X ........ . William Ruto, Henry Kosgey, Joshua Kenya Mar 2011 Appeared for pre-trial hearings, Arap Sang, Francis Muthau ra, Uhuru notin custody -~~~X~~: . ~?.~a-~ rn~?. ~~~~-e~~-~~i............. ................................................................................ ............ .. Ahmad Muhammad Harun, Sudan (Oat/ur) Feb 2007 Defendants still at large Ali Muhammad Ali Abd-ai-Rahman
.~.f!l.a!. ~?.~~?.~.~~~-~~ -~ ~:~??.h! r_.................?.~~~~ _(O?_'f.u:J•.. .•.......~~-r -~~0~ ..... _D~~e~~-~~~.s?.ll_~~- P.?.~.~~- ............... Abdallah Banda Abakaer Nourain,
Sudan (Oatfur)
Aug 2009
Committed for trial,
-~~-l.e~. !:1.?~~-~~~-~ -~~~~-~ -~~ ~~~............................................................... -~~~ i.~ .~~-~~~~¥. ........................... . Joseph Kony, Vincent Otti, Okot Odhiambo, Dominic Ongwen
Uganda
Source: International Criminal Court
The court's decisions dismayed people in the war zone and have stoked tensions, says a HRW report. First, the arrest of Mr Lubanga upset fellow members of his Hema tribe: why were their enemies, the Lendu, being spared? The next year there was an attempt at balance when two leaders of the Lendu were packed off to The Hague. But the charge-sheet for them was longer than for Mr Lubanga, who is accused only of recruiting minors. Did that mean, locals asked, that Mr Lubanga was innocent of other misdeeds? Such grumbles can reignite violence. Another complaint from HRW is that the prosecutor's team has taken no account of the roles played in the conflict by the governments of Uganda, Rwanda or Congo. Its investigation of Uganda's internal wars was also flawed; it indicted five members of the Lord's Resistance Army, a bloodthirsty rebel force (one of whom has died), but failed to hold state forces responsible for their misdeeds. The Central African Republic is yet another country where the court has raised and then dashed expectations among victims, says Marlies Glasius, a professor at Amsterdam University. Under pressure from brave local NGOs, the court investigated bloody fighting triggered by a coup in 2003; but its only indictment relating to CAR events is of Jean-Pierre Bemba, a warlord from Congo. This ignored the crimes of others, external and internal, in CAR, as well as any misdeeds by Mr Bemba in Congo. All these critiques reflect an idealistic view: that if only the court had more resources, or better prosecutors, it could fulfil its mission of "delivering justice" to victims of atrocity. But the problem may be more basic. The ICC is strong and prestigious enough to raise hopes, but it will never be powerful enough to do what it halfpromises- to take broad responsibility for a nasty, complex situation by neutralising the bad guys and making life easier for de-
May 2005
Defendants still at large
'Place where crime allegedlycommitted I No trials closed
cent folk. In terms of value for money, other initiatives seem to be doing better: for example the "mobile gender courts" dealing with sex crimes, established in Congo with the help of the American Bar Association. As a permanent institution, the ICC was supposed to replace the sort of ad hoc but well-resourced tribunals which have meted out justice in Rwanda and the former Yugoslavia. A third alternative is mixed courts-combining local and international expertise, and conducted where possible near the scene of the crime. The record of mixed tribunals, such as those in Cambodia (see Banyan) is far from perfect, but they may sometimes be a better option than permanent institutions where lawyers and bureaucrats grow rich.
Watching from the Rift Valley The ICC has one notable chance to prove its worth-in Kenya. It may be a long way from the Rift Valley, a tribal tinderbox where jobs are scarce and land even scarcer, to the tidy streets of The Hague. But the distance has shortened in recent weeks as six important Kenyans, including Uhuru Kenyatta, the ultra-rich deputy prime minister and son of the country's first president, Jomo Kenyatta, have made appearances at the ICC to face possible charges of crimes against humanity. They are not in custody, but turned up when summoned. The Kenyan case- the biggest political and legal challenge the court has facedarises from an orgy of violence, in which entire families were burned alive or hacked to death. The fighting broke out in the Rift Valley and across Kenya after a disputed election in 2007. Three senior figures from each of Kenya's main parties have been indicted; it is alleged that each side fomented brutal attacks on its rivals. In Eldoret, in the Rift Valley, townsfolk follow the trial keenly- in part because tensions still simmer. On October 31St a ~~
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The Economist November 26th 2011
36 Briefing International justice ~ farmer
was killed and members of his Kalenjin group paraded the body, blaming the Kikuyu, the country's dominant tribe. Jomo Kenyatta was a Kikuyu; his successor, Daniel arap Moi, was a Kalenjin. These days, events thousands of miles away excite as much passion as local ones do. Thanks to broadcasts from Kenyan reporters and postings on YouTube, many people in the valley have watched as their country's bigwigs- who cut swaggering figures at home- meekly follow the judges' orders. The Kenyan public has also been watching closely as some of the world's brainiest and best-paid defence lawyers lay into the prosecution's case with fluency and flair. Having mulled these arguments, the court will decide next month whether to confirm the charges. The proceedings may be confusingwith silver-tongued barristers arguing for the admissibility of this or that document or video clip- but the emotions they touch are raw. During the violence of 2007·08, most of the killing around Eldoret was Kalenjin on Kikuyu; in other parts of Kenya it was the other way round. In all, at least 1,100 people were slain and more than 300,000 displaced; the country was not far from all-out civil war. Indeed, any conversation with local people gives a sense of how big the stakes are in The Hague. An outcome that is viewed as unfair could have an instant price in blood. William Ruto, the main Kalenjin defendant, preens himself as the Rift Valley's warrior-prince. Seeing him arraigned in a far-off land has felt humiliating for many people in Eldoret. If they have grievances against him, they often keep them quiet out of fear or local pride. Open disloyalty to Mr Ruto could, at a minimum, harm their job prospects. If The Hague treats him and the two other Kalenjin suspects worse than it treats the Kikuyu defendants, his henchmen may run amok. But not everybody feels so cowed, at least in private. Some fair-minded Kalenjin see the court as the best hope of reining in the power of bullying tribal leaders. "For the first time we are seeing political trousers shaking," says a farmer who admires the ICC. Some Kalenjin feel that Mr Moi and Mr Ruto gave their group a bad name. For such people, the private fear is that Mr Ruto and his two co-defendants will be acquitted- allowing them to storm home and settle scores. The stakes are very high. "If they return triumphant, we will be killed," says one human-rights activist. If they are convicted, Kenya can move on. The ICC has shown some sensitivity to local politics in its handling of the Kenyan case- by indicting an equal number from the two groups and by promising to make a single announcement on whether to proceed to full trials. (It could be explosive if one lot's fate were revealed ahead of the other's.) That marks a modest improve-
ment on the bumbling which has marred the court's forays into other parts of Africa. For the legal profession, meanwhile, the Kenya case means a lot of lucrative and glamorous work. A judge at the ICC earns a minimum of €18o,ooo a year tax-free, and the sort of barristers who defend warcrimes suspects can make many times that amount. The Kenyan suspects' defence team has managed to recruit a couple of lawyers who formerly worked for the prosecutor's office. It is a reasonable bet that this move did not involve a pay cut. The people's voice On the other hand, the court also tries to make sure that the voices of much humbler folk are heard, albeit indirectly. At arecent hearing in The Hague, a "legal representative of the victims" stood up in court to transmit the views of 233 people he had interviewed, mostly in the Rift Valley. One had got up at sam and walked so miles to make her statement: "She said she came because she felt their lot would be better now [thanks to) the ICC." Such human voices chime oddly with the thundering perorations of top-rank lawyers. Human Rights Watch says approvingly that by choosing from two ethnic groups and from different political parties the court has "reinforced perceptions of independence". But this praise is not entirely deserved. Many Kalenjins and the Kikuyus are angry that no one from the Luo tribealong the shores of Lake Victoria and with concentrations in some Nairobi slumshas been named by the Icc. Mr Ruto's supporters are especially bitter about the sparing of Raila Odinga, Kenya's Luo prime minister, who probably won the 2007 election and is again favourite to win the presidency next year. Mr Odinga has denied any foreknowledge of the ethnic cleansing of Kikuyus in Kisumu and other Lake Vic-
toria towns where the Luo predominate. He also claims to have no control over Luo gangs who burned Kikuyus out of the Kibera slum in his constituency in Nairobi. And Mr Odinga has distanced himself from his former ally, Mr Ruto. Despite these contortions, the Icc still has popular support in Kenya. In contrast to his patchy performance in Congo and elsewhere, Mr Mareno-Ocampo is trusted by many Kenyans. Polls a year ago said that 78% of Kenyans support the ICC. The figure has since dropped to 65%, but will probably rise if the trials go ahead. The percentages are smaller in the strongholds of Mr Ruto and Mr Kenyatta; at funerals and community events in such places, children can be heard singing songs against the Icc. Mr Ruto's lieutenants sometimes beat the anti-colonial drum, promising the expulsion of white farmers from the Rift Valley (where there are almost none) and identifying the ICC as an oppressor. Some worry that the ICC's emphasis on bringing down big men means impunity for those actually doing the killing and raping. Yet in Kenya there is no doubt that the Icc has lowered the political temperature. It has also performed the valuable, if indirect, service of chronicling recent events. If the Kenyan cases come to trial, they will be the most detailed cross-examination ever of the country's history. "If you bury the truth, it will grow," says a Kalenjin elder who expects good things of the trials. If the court makes shoddy work of the Kenyan cases it could easily exacerbate the country's problems, and paradoxically give new life to Africa's culture of impunity. If justice is seen to be done- whatever the verdicts- then the ICC will at last be living up to its high ideals. And it will be able more credibly to offer its services, not as a panacea, but as a court of last resort in the wider world. •
Ruto, warrior-prince (right) , obeys his summons
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39 Also in this section 40 Signs of economic hope 42 Concealed-carry gun Laws 42 Cleaning the Chicago River
43 Political fact-checking 43 Drinking laws 44 California's dysfunctional politics 46 Lexington: Cutting defence
For daily analysis and debate on America, visit Economist.com/ united states
Why the supercommittee failed
The last best hope WASHINGTON, DC
With the deficit-reduction committee's failure, American fiscal policy is drifting in a dangerous direction HE failure by Congress's joint select T committee to produce a deficit plan was greeted with widespread disappointment, but little shock. Voters had long expected failure. Wall Street had predicted at best a small deal. Deprived of even that, stocks fell November 21st, the day the committee announced its failure, but soon turned their attention back to Europe. Superficially the lack of alarm was understandable. The showdown between Republicans and President Barack Obama over the debt ceiling in August could have forced the federal government to renege immediately on its bills. In contrast, the law that established the "supercommittee" dictates that without a deficit plan, $1.2 trillion in spending cuts spread over domestic and defence programmes (a "sequester") be triggered, but not until2013. However, the implications of the committee's failure are more disturbing than the reaction of the markets has let on. It leaves a series of landmines in the path of the economy over the next 14 months while leaving America's longer-term fiscal challenges unaddressed. It also further entrenches Democrats and Republicans in their opposing positions and thus less able to deal with either problem, not to mention any of the various other catastrophes threatening the global economy. A sensible fiscal plan would couple modest near-term stimulus with longterm reforms to entitlement spending and taxes. Instead, America is getting the exact
opposite. A legacy of patchwork budgetmaking and temporary tax cuts means as much as $360 billion in fiscal tightening, or 2-4% of GDP, could unfold over coming months (see table). A couple of the smaller items are almost certain to be overridden, such as a cut in Medicare fees and the effects of the non-indexation of the alternative minimum tax, both of which routinely get "fixed" and "patched" respectively. Mr Obama is also pressing to extend the 2% cut in the payroll tax and enhanced jobless benefits for another year. The Republicans seem receptive, but the supercommittee's failure robs both sides of the tidiest vehicle for doing that. Analysts at ISI Group, a stockbroker, put the odds that those last two measures will be extended again at a bit above so%. But, ISI also notes, every dollar of stimulus extended now will add a dollar to the extent of the fiscal contraction felt a year later. Added to the expiry of George Bush's tax cuts at the end of 2012, the sequester, and a new Medicare tax, would produce a crushing 2.6% fiscal hit in 2013, easily enough to tip the economy back into recession. And even though the deficit would be reduced, debt would remain on an upward path over the long term because of the rising bills for Medicare and Medicaid (health care for the elderly and the poor respectively) and Social Security (pensions), and interest payments. Every attempt to solve these problems has so far failed, but the supercommittee
had a fighting chance, thanks to the threat of the sequester and the agreement that its proposals could not be subject to either amendment or filibuster. Its six Democratic and six Republican members, drawn equally from the Senate and House of Representatives, by most accounts got along swimmingly, at various times watching football, cycling, singing "Happy Birthday" and eating beef jerky together. Conflicting explanations for the failure of the committee, which met in private, have emerged, but the main stumbling block, as usual, was taxes. On October 25th, Democrats proposed a $3 trillion deficit reduction package, including $1.3 trillion in increased taxes, and some cuts to entitlements, such as increased contribu- ~~
I
In the pipeline Contractionary fiscal measures:
Annual value, $bn
Expiring or taking effect in
~~~mE~~~~~~~~~~~~~ --------
~?.~~~.ek. ~. n.ernP.l?Y.01~nt !n.s~.ra ~c~ ~~.n~fi.~ ....... ~o..
.~~~~ ~01P.~~Y.:~ P.~Y.~?.~t ~.x .~~.~ ........................~.~ ?.. Alternative minimum tax and
24
.~~~~.r. ~~~.P.~~~.~i.~~~........................................ . Override................. of Medicare fee................................... cut 12.. ......... ~ '
~·
Discretionary spending cuts from
40
~~~u~.~ ~~.~~.ct.:?.'.... ............................ ............. Ot~l!f expiri'!_9 ~~covery Act s~112u~u~
Subtotal
%of GOP
__
125 361 2.4
Expiring or taking effect in
~~~~~~~~~~~~~~~~~ --------
.~~s~..~~. ~u~. ~~r .~!~.~. ~.a~~e;~ ................... .... ~?.. All other Bush tax cuts 205 3.8% Medicare tax on investment income 21 . ........ ._ ........................................................ !1.:2_t~l~o~ ~e~-¥_e~r!~~e~t~r _
Subtotal
_%1G£P
Total
_ _____ _1~9385 2.6
746
Sources: Congressional Budget Office; 1$1 Group; J PM organ
The Economist November 26th 2011
40 United States ~
tions by affluent beneficiaries to Medicare. Republicans termed the revenue demands too steep. Then on November 7th Pat Toomey, a Republican senator from Pennsylvania, proposed a $1.5 trillion package including $250 billion in higher taxes from reducing tax deductions. Some Democrats saw Mr Toomey's proposal as a promising departure from Republicans' decades-old opposition to tax increases in any form. But the closer they looked, the less they liked it. Mr Toomey would not only lock in Mr Bush's tax cuts for ever, but lower rates further. The top rate would drop to 28% from 35%, and the15% lower rate on capital gains and dividends would become permanent. The result would be big tax cuts for a few rich households, who do not benefit much from tax deductions, and increases for middle and upper-middle income taxpayers, who depend upon them. That was anathema to Democrats, who want the wealthiest to pay more, not less. Republicans claim Mr Toomey's revenue plans were flexible. Not flexible enough, according to Democrats. "Whether it was meant that way, the reality is [Mr Toomey's proposal] became a take-it-orleave-it," says Chris Van Hollen, a Democratic congressman and supercommittee member. "The Republicans never moved off that position." Mr Van Hollen does not question the good faith of his Republican counterparts. The problem is that the two parties' sincerely-held views about politics are so far apart. "We could not bridge the gap between two dramatically competing visions of the role [of] government," saidjeb Hensarling, a Republican congressman and the committee's co-chairman, in a newspaper article. What now? Republicans are already drawing up proposals to protect defence from the sequester, but Mr Obama says that he would veto any such attempt. Both sides are preparing to fight next year's election over those differing visions, so the odds of a resolution to the Bush tax cuts, the sequester, and entitlements before then are close to nil. (What happens after November 6th 2012, though, is anyone's guess.) Last August, Standard & Poor's shocked markets and politicians by stripping America of its AAA credit rating because of the debt ceiling stand-off. Fitch and Moody's, the other main ratings agencies, have refrained from doing so, in part because of the promised deficit reductions under the sequester. As Steve Hess of Moody's notes, the rn't"V\'t"V\ ; ++oo'r f'~; l , , ya, tn t:\"""trt
't"V\I"'H•"C!o
r 'T1'etot:\n. _
ing reform cost America an opportunity to remove the shadow over its AAA rating. "At this point we're factoring into the outlook no significant deficit reduction measures until after the election. And that's because of the legislative environment." Election years have always carried above-average risks of financial crisis because governments are too scared to take the painful steps necessary to fix the underlying problems. That is true in spades for 2012. • The economy
Finally, some good
news WASHINGTON, OC
A shame it probably w on't last
RANES clutter the skyline along northC ern Virginia's busy thoroughfares. On a Friday evening, holiday shoppers throng Northpark Centre mall in Dallas, Texas, buying Lego and luxury soap as a pianist picks out pop songs. Tables in the better restaurants on the Westside of Los Angeles cannot be booked without Hollywood connections. In places, America shows clear signs of returning to a kind of economic normality. Not long ago, a double-dip into recession seemed possible. On November 22nd, the Bureau of Economic Analysis revised its estimate for GDP growth in the third quarter down, though still to a 2.0% annual rate, from the earlier reported 2.5%. According to another measure of output, gross domestic income, growth was only barely positive in the second and third quarters of the year. Yet an improved outlook for at least the near future is now showing up all over the economic data. America's trade deficit declined for the third month running in September, thanks to rising exports. Industrial production rose strongly in October. Mortgage delinquencies and foreclosures continue to tick downward. The market for owner-occupied homes remains weak, but construction of multi-family residential units, which are attractive to renters, may end the year up over so% from 2010. Residential building improvements are touching recordhighs. These improved economic conditions are all helping to boost confidence. The University of Michigan's index of consumer sentiment has risen sharply since August. In October, growth in personal incomes accelerated. Consumers are feeling f"'11 1 ~to "')
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their highest level since February and are projected to recover to pre-financial crisis levels in November. Retail sales were up more than 7% in October from a year before (see chart). The key question has long been whether growth will translate into new jobs. The signs are encouraging; payroll employment growth has accelerated from early summer, and initial claims for jobless benefits are dropping. All told, GDP is forecast to rise at more than a 3% annual rate in the fourth quarter. Meanwhile, inflation is dropping. That leaves the Federal Reserve with more room to focus on the employment side of its mandate. Yet the recent good news may be but a brief break in the clouds. The legislative battle over America's finances, which contributed to America's summer swoon, is raging again (see previous article). If Congress fails to extend key stimulative measures, it may saddle a vulnerable economy with a fiscal drag of more than two percentage points of growth. Europe's crisis looms larger still. A deep euro-zone recession, which seems increasingly likely, will hurt American firms; roughly a fifth of the country's exports go to Europe. The impact on the financial system could be the more damaging. A new paper by Hyun Song Shin, an economist at Princeton University, describes the large role European banks have come to play in America's "shadow banking system", through which many large banks and firms finance themselves. European bank difficulties may quickly translate into credit problems in America- and a corresponding hit to the real economy. The chill wind from Europe can already be felt in some corners of the economy. Stockmarkets have dropped about 7% in the past week and are now only 6% above October's lows. Orders for durable goods are also dropping, as firms predict difficult times ahead. The unexpectedly sunny last few months of 2011 may provide Americans with a glimpse of what its economy could be, in a stabler, better governed world. Sadly, it may be a while before the data are again this positive. •
I
Not so bad Unemployment insurance initial claims, '000
Retail sales $bn
700
400
600
375
500
350
400
325
300 -j.o
I
I ll ... Ill
2009
""'
'"""I"
10
"I
II"
11
Sources: Census Bureau; Department of Labour
300 1
42 United States
The Economist November 26th 2011
Gun control
The Chicago River
Have firearm, can travel
Reflected glory
WAS HI NGTON , DC
BU BBLY CR EEK, CHI CAGO
The House smiles on hidden guns, but gun-control advocates may have secret weapons in th e Senate
The Windy City w ill, at last, clean up its filthy river
NE question that worries many visiO tors to defensivecarry.com, a website devoted to the delights and pitfalls of life
HE old-timers down by Bubbly Creek T were hoping to land catfish for dinner. On a sunny afternoon they were fishing on
with a hidden gun, is whether their "concealed-carry" permits will be valid outside the state in which they are issued. Can they take their guns on holiday with them? Can they pack them in their checked bags for a flight? What if their plane is diverted to a spot like New York, which makes it exceedingly difficult to carry a gun? And if they cannot bring their guns with them, how will they defend themselves and their loved ones when threatened? Gun-rights activists have a simple solution: require all states to honour one another's concealed-carry permits. There is no reason to suppose, says Andrew Arulanandam of the National Rifle Association (NRA), that a person considered fit to carry a gun in one state would suddenly become a menace to society on entering another. Many states already have such reciprocal agreements, without any obvious ill effects, he adds. The House of Representatives agrees: earlier this month it approved a bill that would make one state's permit valid in any other, with the exception of Illinois and the District of Columbia, both of which do not allow concealed weapons at all. Opponents of the measure, including the mayors and police chiefs of many big cities, say it will allow people to get around
a southern fork of the Chicago River made famous by Upton Sinclair in his social-realist novel of 1906, "The Jungle". Sinclair described how offal and waste from the meatpacking industry had created a river so vile that putrid gas bubbled up from the bottom and made the river literally combustible. Today, the river hardly ever bubbles but the pollution remains so serious that the federal Environmental Protection Agency (EPA) has ordered the state of Illinois to clean it up. Earlier this month, the EPA and the state finally agreed over how clean the river should be. Until recently the Metropolitan Water Reclamation District of Greater Chicago (MWRD)- the agency responsible for dealing with the city's sewage and storm water- had always insisted that the river was little more than a series of canals for shipping and drainage of storm water and municipal effluent. The previous head of the MWRD fought long and hard against tough and expensive water-quality standards. Most memorably, he once argued that if the water were made cleaner, accidental drownings would increase. In the end sense prevailed and Chicago will finally lose the unwelcome distinction of being the only big American city that fails to disinfect its sewage. The MWRD,
local rules about who can obtain a con-
Ready to face New York
one of the world's largest wastewater treat-
cealed-weapon permit. Many states require permit-holders to undergo safety training, for example, or deny permits to alcoholics; others do not. Four states- Alaska, Arizona, Vermont and Wyoming- do not require a permit at all, although three of them do helpfully issue them for use outside the state. The question of which states have the cheapest and easiest-to-obtain permits is another popular topic on defensivecarry.com. Forcing states to accept the permits of the most permissive jurisdictions would be an assault on states' rights, says Mark Glaze of Mayors Against Illegal Guns, a pressure group. It will fall to the Senate to adjudicate. John Thune, a Republican from South Dakota, says he is working on getting concealed carry through the chamber. He was also the leader of the last attempt, in 2009, that fell just two votes short of approval. Conditions look more favourable now. Several of the Democrats who voted against reciprocity then have since been re-
placed by Republicans, who tend to be keener on gun rights. Others, such as Claire McCaskill of Missouri, are facing difficult re-election battles in gun-friendly states. Even Barack Obama, the bogeyman of gun-rights groups, has wavered on the subject of concealed carry. He claimed to oppose it as a candidate, but then signed a law permitting it in national parks in 2009. Mr Obama, facing a difficult re-election battle of his own, would probably prefer not to offend anyone by weighing in on either side this time. Harry Reid, the leader of the Democratic majority in the Senate, could well grant him his wish, by preventing the subject from coming to a vote. And even if there is a vote, gun-control advocates assume that when the chips are down enough Democrats would probably be available to foil Mr Thune again. But relying on allies who do not wish to come forward until the last minute is always a nerve-racking proposition. •
ment agencies, with a budget of around $1 billion, has agreed to clean up. Disinfection technology could cost it $250m to build and run over 20 years. For many this is a turning-point for a river that has been gradually clawing its way back to life. The timing is no accident. The river is increasingly seen as an environmental and economic resource. A decade of investment has set the scene for demands to improve water quality. Downtown, a new riverside walk brings tourists and allows office workers to stretch their legs. New waterfront restaurants, and developments such as Chicago's Trump Tower, have been popping up. David Spielfogel, head of policy for the mayor, says that the city already has a spectacular front yard for tourism and recreation in the form of Lake Michigan, and now wants the same thing along its river. The city plans to get more people to use the river by building boathouses. But in the longer term water quality must improve ~~
The Economist November 26th 2011
United St ates 43 Drinking rules
Political fact-checking
Behind the Zion curtain
Fun at the FactFest NEW YORK
Techies talk about how to make the news more reliable A S THIS week's deadline approached ./"\.for the congressional "supercommittee" to agree on how to trim the deficit, each party tried to put pressure on the other with claims of dubious veracity. Republicans aired exaggerated figures for the proportion of government spending that is borrowed, ranging from 40% to 43% (the true figure this year was 36.1%, projected to fall to 27% in 20l2).John Kerry, meanwhile, said that the bipartisan Simpson-Bowles deficit-reduction plan proposed a year ago would have raised an extra $2 trillion in revenue; it actually predicted just under $1 trillion. Have you yawned yet? The truth is not always gripping stuff. But somebody has to tell it, to keep political discourse from going entirely off the rails. That is the theory behind PolitiFact.com and FactCheck.org, the two best-known of various sites that trawl through politicians' public statements and dig out their lies, evasions and economies with the truth (FactCheck for the borrowing percentage, PolitiFact over Mr Kerry's revenue inflation). And as election season heats up and the fibs start flying thick and fast, they hope to be in the vanguard of keeping reality in check. So can more of it be done? That was the question at "FactFest", a gathering of journalists and digerati convened on November 15th at the City University of New York's journalism school by Jeff Jarvis, a media pundit ~ enough
for swimming. Debra Shore, a commissioner at the MWRD, says disinfection is one of a host of expected new water-quality measures. The flow of the river, westward towards the Mississippi, is not natural. It was reversed in 1900 to prevent its filth entering Lake Michigan- the source of the city's drinking water. Some groups, such as the Friends of the Chicago River and the Natural Resources Defence Council, wonder whether the river's flow should be halted or even reversed again-thus preventing the spread of alien species between the Great Lakes and the Mississippi river sys-
and professor best known for extreme openness about his own life. Fact-checking has become a cottage industry in the last few years-PolitiFact has 32 full-time staff, employed by its network of partner newspapers. And on the internet, on which readers can post instant corrections to articles or annotate documents, and terabytes of government data are available at the click of a mouse, truth is much more readily available. The trouble is, so is untruth. Can one defeat the other? The FactFest produced a lot of theoretical proposals. Better crowdsourcing tools, to help catch falsehoods. (A simple corrections box on every news website would help.) Technology to rebroadcast updates, so if a blog or news article quotes another, it gets updated if the original is changed. Standardisation- of data sources, measures of factual reliability, and platforms for sharing information. Links between news outlets and fact-checking sites, so that, for instance, whenever you read a story about Mr Kerry, you can click on his name to call up a history of his truthfulness- summed up perhaps by PolitiFact's helpful Truth0 -Meter0, which rates claims on a six-level scale ranging from "true" to "pants on fire". Snazzy stuff, if it works. But with the web increasingly divided into like-minded echo chambers, it's not clear whether such a flood of factuality would inform people better- or just reinforce their convictions about what a lying bunch the other lot are.
tern. But for a double-reversal, water quality would have to be much better. The challenge for city and state authorities is to find money to invest in the river; but one study found that improving water quality alone would eventually give a $1 billion boost to the economy. Chicagoans increasingly see their river as a source of great opportunity. The river, and its connection between the Great Lakes and the Midwest, is the reason that Chicago flourished. It now looks as if the city will return the favour. The river may turn out to be one of the keys to Chicago's future, as well as to its past. •
SALT LAKE CITY
The drinks flow more freely, except in Utah A LMOST 8o years after the repeal of Pro.1"\.hibition, the sale of wine and spirits remains partly or wholly in government hands in a third of America's states. But in these tough times economic considerations are starting to outweigh moral concerns. On November 8th Washington's voters approved plans to privatise the state's 3281iquor outlets and open the business to warehouse stores and supermarkets. Budget planners think the change could bring in an extra $8om a year from licence fees. The victory for the Yes campaign- secured with $22.5m from Costco, a warehouse-store chain, the record for a donation to a Washington ballot initiativereduces the number of controlled states to 17, following similar moves by West Virginia and Iowa years ago. Other states considering opening the spigots include North Carolina, Virginia and Pennsylvania. Opponents will not give up without a fight. They wield studies that point to increases in consumption and car accidents after laws are loosened. But nowhere is liberalisation resisted more staunchly than in Mormon-dominated Utah, where even strong beer has to be sold through publicly owned stores. Its restrictive distribution system is under the spotlight thanks to an ongoing bid-rigging scandal at the staterun alcohol monopoly. But the forces arrayed against reform are strong, including the speaker of the state Senate and antidrink-driving pressure groups. The odds of privatisation are "a small fraction of those of seeing a Mormon in the White House," sighs one lawmaker. Worse, Utah's famously tough and complicated rules on the way drinks are stored and served in bars and restaurants have been growing more restrictive, not less so. The shackles had loosened a bit during the governorship of Jon Huntsman, whose administration worried that jokes about being "slower than Salt Lake City on a Saturday night" were a turn-off to partyminded skiers (Utah has some of the best slopes in North America). Bars no longer had to set themselves up as private clubs that charged would-be drinkers membership fees, for instance. After Mr Huntsman left to become Barack Obama's ambassador to China, however, the reactionaries regained the initiative. Under one new law, restaurants opened after January 2010, even those that serve nothing more potent than beer, have to erect a barrier along the length of the bar ~~
44 United States ~ that
shields under-age punters from the sight of drinks being stored or poured. These walls, often made of frosted glass, are known locally as "Zion curtains". These establishments' beer sales cannot exceed 30% of their total revenue. The same law bans all-day discounts on drinks, introduced by many bars in recent years to get around the ban on happy hours. Doubles have long been illegal. Licensed restaurants must use ID scanners on customers who look younger than 35. Bars and restaurants are regularly tripped up by a strict quota system for new licences, which is based on Utah's popula-
The Economist November 26th 2011 tion growth. A number of places that had been awarded permits for all types of alcohol had them taken away in October because the increase in headcount was below projections. These can now serve only beer that is 3.2% or less alcohol. To cap it all, pubs and eateries have to pay the same 80-90% markup for their booze as consumers do in the state-run stores. With so many hoops to jump through and extra costs to absorb, it is no wonder that some chains are slowing their expansion in the state or choosing to focus elsewhere. As the souvenir shot glasses say: "Eat, drink and be merry- tomorrow you may be in Utah." •
California ' s dysfunctional politics
Help on the way LOS ANGELES
Out west, a different supercommittee might yet do rather well N CALIFORNIA it is the worst of times, it is the best of times; but the worst is the Imore salient. The state's non-partisan legislative analyst, Mac Taylor, has now given the lie to the gimmicky budget the governor, Jerry Brown, and the legislature agreed to in June. They had, rather desperately, chosen to assume that billions in new revenues would materialise. None of them did, said Mr Taylor, who expects receipts to be $3.7 billion behind forecast. He projects a new two-year gap of $13 billion for this and the coming fiscal years- about 15% of the current budget, which itself is about a fifth smaller than it was when the recession struck. Mr Taylor's analysis has a dire consequence. It necessitates automatic "trigger cuts" (if the state's finance director confirms his conclusion next month, which is likely). This means that schools, universities, welfare recipients and other vulnerable Californians will lose yet more funding. A school year that is, at 175 days, already one of the shortest in the industrialised world could drop another week. Some schools would lose bus services, leaving (mainly poor) pupils stranded. Mr Brown bears some of the blame. During his campaign in 2010 he made a rash promise not to raise taxes without approval by the people, but then proved unable to persuade the legislature to put the required measure on the ballot. Hence this "all-cuts" budget. Mr Brown is now planning to collect signatures to put a tax increase on next year's ballot. Most blame, however, belongs not to any one person but to California's system of governance, which has ossified for decades. The state's tax system, designed for an agricultural and manufacturing econ-
omy, is now outdated and needlessly volatile. The state's initiative process, the main feature of California's beloved "direct democracy", is dominated by special interests and leaves voters out of their depth. And the state legislature does not work, both because ballot initiatives have preempted it and because the extremists on right and left can block, but not agree on, any reform of consequence. This is where better times become imaginable. For the past year, California has had its own bipartisan supercommittee of sorts. The Think Long Committee for California, assembled by Nicolas Berggruen, a rich investor, and consisting of stalwarts from right, left and centre in Californian politics, differs from its ill-fated congressional equivalent. First, it actually achieved a consensus, unveiled this week. Second, it actually has a mechanism to turn its recommendations into law: the initiative process itself. The committee's plan is to place two
initiatives on next November's ballot. One would fix California's tax system. In 1950 California got 6o% of its revenues from sales taxes, which apply only to goods. Since then, untaxed services have become the mainstay of the economy, so sales taxes now contribute only about 22%. Income taxes, mainly on the richest Californians, have during that time grown from 10% of total revenues to more than half, making state revenues highly volatile. The Think Long Committee wants to fix this by extending sales taxes to services, and simplifying and cutting income-tax rates. This would be "only very slightly more regressive", says Nathan Gardels, an adviser to the group, because the poor would get a sales-tax rebate and rich people tend to spend more on services (on accountants, lawyers, fitness instructors, etc). The new system would eventually raise revenues by about $10 billion a year. The other measure is an initiative to fix initiatives. It would create a council of independent experts, appointed by the governor and both parties, who would screen proposed initiatives for sanity and cost. The council could also place its own initiatives on the ballot. That leaves the remaining tangle of dysfunction, the hyper-partisan legislature. Two reforms- apolitically drawn districts and a primary system that picks out the two top performers, regardless of party for a run-off- have already been adopted and will be tested for the first time next year. They might help moderate candidates. David Crane, a Democrat who advised Mr Brown's Republican predecessor, Arnold Schwarzenegger, hopes to amplify these reforms with another effort. By his reckoning, the uo-member legislature could become functional again if an "ethical bloc" of as few as five "principled and numerate" moderates could get elected, to break the stalemate. To support such politicians, Mr Crane and two partners have started Govern For California, a sort of political venture-capital fund. The idea is to finance good candidates to keep them out of the pockets oflobbyists. •
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46 United States
The Economist November 26th 2011
Lexington I Terrible swift sword It was never supposed to fall on the Defence Department itself
N THE summer of 2010 Admiral Mike Mullen, then still chairman of America's joint chiefs of staff, said that the biggest security threat facing the nation was the national debt. The proposition that military strength depends in the long run on economic health is hardly controversial. But the admiral cannot have foreseen the astonishing sequence of budget negotiations that have paralysed Congress this past year. In the latest twist this week, Democrats and Republicans on Congress's so-called "supercommittee" failed to agree on a plan to reduce the budget deficit, thereby exposing the defence budget to the prospect of a decade's worth of deep spending cuts. The Budget Control Act that Congress passed in August stipulated that if the supercommittee failed, government spending would be cut automatically by some $1.2 trillion, with the axe falling most heavily on the Pentagon. Add this "sequestration" to the $350 billion of cuts already agreed on this summer, and the Defence Department is looking at losing up to $1 trillion, almost a fifth of the total, from its spending plans in the ten years from 2013. Leon Panetta, Barack Obama's defence secretary, calls the consequences "devastating". At the end of the ten years, he says, the United States would have the smallest ground force since 1940, the fewest ships since 1915 and the smallest air force in its history. Senators John McCain and Lindsey Graham, both Republicans, claim that America would face a "swift decline as the world's leading military power". Plenty of defence wonks agree. "The future of America's national security hangs in the balance," say the American Enterprise Institute (AEI), the Heritage Foundation and the Foreign Policy Initiative, a group of right-leaning think-tanks that have banded together to "defend defence". At the Brookings Institution, Michael O'Hanlon, like Mr Panetta a Democrat, is also worried. Even without the extra burden of sequestration, he argues, the $350 billion reduction already agreed would cut into muscle, not just fat. America might no longer be able to meet its "irreducible" defence needs, such as winding down the Iraqi and Afghan wars responsibly, deterring Iran, hedging against a rising China, protecting the sea lanes and keeping terrorists at bay. All this sounds a mite alarmist. People close to the Defence Department have a habit of overreacting to cuts, and if these are
I
as damaging as advertised they are unlikely to happen. Great nations decline in different ways: by losing wars, overreaching, collapsing internally. But it would be extraordinary if America sacrificed its position as the world's leading military power as the result of a legislative accident. And this would be an accident. Nobody intended the provisions of the Budget Control Act to be enacted. The law was a pistol Congress pointed at its own head in order to frighten itself into cutting the deficit. Mandatory defence cuts were designed to scare the Republicans; mandatory cuts in other programmes were supposed to scare the Democrats. In the event Congress failed to scare itself enough, which means that it reached no agreement, so the pistol might go off after all. But will it? Congress has a year to take evasive action before sequestration bites. Senators McCain and Graham say that the cuts "cannot be allowed to occur". Howard McKeon, chairman of the House Armed Services Committee, is threatening legislation to block them. Congress does, after all, have the power to amend or repeal its own law, though Barack Obama has the veto, and has promised to use it should Congress try to dodge the bullet. He may relish the chance to cut defence spending and blame theRepublicans for it. The likeliest outcome is therefore neither a sudden, history-altering reduction in defence spending, nor a quick fix that lets Congress wriggle out of its trap, but a drawn-out and perhaps salutary election-year debate about how much defence to buy at a time of distress. The defenders of defence have strong arguments. America spends less than s% of GDP on defence, more than most countries but less than the highs of 9% it reached in the 196os. Health and pensions, not defence, are the real drivers of the deficit. But one of the most interesting things about this debate may well be the changing stance of the Republican Party.
A wobble in the Grand Old Party The day after the supercommittee said it had failed, eight Republican presidential candidates took part in a "national security debate" in Washington, DC. Mitt Romney spoke vehemently against the defence cuts, but Newt Gingrich declined to agree that all military savings were unacceptable, and Ron Paul questioned their true magnitude. Neither Grover Norquist, he of the notorious anti-tax pledge, nor the tea-party movement, sees a reason to exempt the Pentagon from the general fiscal austerity. FreedomWorks, an advocacy group, has just issued a "tea-party budget". This embraces a plan by Tom Coburn, a conservative senator from Oklahoma, for $1 trillion of defence cuts over the decade. All this adds up to what Senator Graham considers a profound change within his party. He was aghast when its leadership made defence into the supercommittee's hostage, claiming that Ronald Reagan would never have done such a thing. But the Reagan era is long gone, and Robert Gates, the (Republican) defence secretary who stayed on to serve Mr Obama for two years, summed up the new thinking when he asked: "Does the number of warships we have and are building really put America at risk when the United States' battle fleet is larger than the next 13 navies combined, n of which belong to allies and partners?". America is not about to throw away its military pre-eminence, either by accident or design. But the fat years are over, and the failure of the supercommittee may accidentally have given its politicians an incentive to answer such questions seriously. • Economist.comfblogsflexington
47 Also in this section 48 Mexico's changing drug war 49 Latin American integration 49 Electoral reform in Canada
For daily analysis and debate on the Americas, visit Economist.comfamericas
Politics in Brazil
Cleaning the Brasilia pork factory SAO PA ULO
In a never-ending telenovela of sleaze, Dilma Rousseff is tackling the excesses of
patronage politics but not yet the underlying system
y NOW Brazil's president, Dilma RousB seff, must be finding the script wearily familiar. First come the corruption allegations, then the indignant denials, more evidence, equivocation and retractions- and finally another of her ministers has to walk. Since June Ms Rousseff has lost her chief of staff and the ministers of transport, agriculture, tourism and sport, variously accused of influence-peddling, bribe-taking, signing fraudulent deals with shell companies and diverting public funds into party coffers or their own pockets. Now Carlos Lupi, the labour minister, has become the latest to look as if he is heading for the exit. He is accused of presiding over a department that charged kickbacks for government contracts, of personally accepting free flights from one of those contractors and of siphoning off public money to semi-phantom non-governmental organisations (NGOs). Mr Lupi's response was pugnacious. He did not know the man in question and had never flown with him, he said. The only way to get him out of his ministry, Mr Lupi added, would be to shoot him ("and it would have to be a big bullet, because I'm a big guy"). Then came photographs of him with both businessman and plane. His defenestration seems to be a matter of time. Barring new revelations, he may go in a wider cabinet shuffle expected early in the new year. The faxina ("housecleaning"), as Ms Rousseff's removal of allegedly light-fin-
gered ministers has come to be known, is popular. The latest opinion polls put her and her government's approval ratings at record highs. But it merely scratches the surface of a problem with roots in the way that politics has developed in Brazil. All presidents since democracy was restored in 1985 have had to form variegated coalitions to obtain legislative majorities. But, complained Fernando Henrique Cardoso, a former president, earlier this month, a "system" has now developed under which parties demand ministries in return for their votes, and then use the public funds they thus gain control of to expand their membership. The 513 seats in the lower house of Congress are now divided between 23 parties. Ms Rousseff's governing coalition comprises ten of them, commanding 360 seats (an nth, with 40 legislators, left after the transport minister was sacked). Several of its smaller members have no discernible aim other than to grow fat on public money. The biggest, the Party of the Brazilian Democratic Movement, an alliance of regional power brokers, switched to join her predecessor, Luiz Inacio Lula da Silva, after he won in 2002 and will stay only as long as it suits. "We have a strong president who is unable to do anything without support in Congress," says Sylvia Costa of Congresso em Foco, an anti-corruption watchdog. "And that support must be bought." When the solution found by Lula's party managers in his first term- paying
parliamentarians for their votes- came to light, the resulting outrage nearly brought him down. With cash ruled out, ministries and other grace-and-favour appointments were left as the main political currency. That led to ministerial inflation: Lula's cabinet grew from 26 in 2003 to 37 when he stepped down last year. Some parties seem to have run "their" ministries for profit. The Communist Party, for example, has held the sports ministry since Lula took office. Under Orlando Silva, forced out shortly before Mr Lupi's travails began, it is alleged to have demanded kickbacks on some contracts and funnelled money to affiliates through fake NGOs. Some 25,000 jobs, including board and managerial posts at state-controlled firms and pension funds and in ministries' regional offices, are also in the president's gift. A senior official points out that 20,000 of these go to career civil servants, not party hacks. But the two are not mutually exclusive, points out David Fleischer, a political scientist at the University of Brasilia. The test comes when a new party takes the presidency, as when Lula took office, he says. Then there was a wholesale clearout. By the end of Lula's second term a big share of senior managers in the federal administration and at state pension funds were trade unionists or members of his Workers' Party (PT). Ms Rousseff has shown little sign that she is interested in making radical changes to this political-patronage system. She has already added a 38th cabinet member (the boss of a new civil-aviation agency) and plans a 39th (a minister for small businesses). To streamline the government bureaucracy, officials place their faith in a new public-management council, chaired by Jorge Gerdau, a businessman. There is talk that some ministries may be consolidated. To go much further, the president would have to cut the number of minis- ~~
The Economist November 26th 2011
48 The Americas ~ tries
held by her own party (currently 18), and that looks unlikely. More plausible is that Ms Rousseff will simply continue to sack the most egregious sinners as they are brought to her notice. She has been more parsimonious than Lula in disbursing funds for budget amendments pushed by individual legislators. Already her crackdown on ministerial miscreants has cut off the main (illegal) source of cash for small political parties, points out Alberto Almeida of Instituto Analise, a consultancy in Sao Paulo. Over time that might prompt a much-needed consolidation of the political system. Officials insist that the government needs a large political base to be able to approve important legislation, such as a new oil-royalty law. They talk, too, of tax and pension reform. But much of Ms Rousseff's political agenda-improving education and health, eliminating extreme poverty, and investing in infrastructure- does not require congressional approval. She could afford to be more radical in her political clean-up. • Mexico's changing drug war
Shifting sands CJU DA D J UAREZ
The drug war's fifth year throws up new trends, for better and worse years ago next week, Felipe Calderon took office as Mexico's president FandIVE launched a crackdown against organised crime. Since then there has been a horrible predictability about the country's drug war: each year the number of deaths has risen, most of them concentrated in a handful of cities. But this year both those tendencies look as if they have started to change. The annual death toll seems to have plateaued at aroundu,ooo. Hotspots have cooled, only for violence to invade places previously considered safe. Ciudad Juarez, in Chihuahua state and on the border with Texas, is the most striking example of this. For several years it has been the most dangerous place in Mexico and, by most counts, the world. A city of 1.3m, it saw more than 3,000 murders last year. Yet this year the number of mafia-related killings in Chihuahua has fallen by about a third, according to a tally by Reforma, a newspaper, as have kidnappings and car thefts. (The government has notreleased murder statistics in almost a year.) So far this year, Chihuahua state accounts for only around 15% of such murders in Mexico, down from a peak of 32%. The turnaround is the fruit of better cooperation between the municipal, state and federal branches of government, ac-
cording to Hector Murguia, Juarez's mayor. Such co-operation is not easy in Mexico, where policing is still divided between more than 2,ooo separate forces, despite efforts by the federal government to pass a law to consolidate them. Mr Murguia is particularly proud of his new chief of police, Julian Leyzaola, hired from Tijuana, where he presided over a dramatic dip in the murder rate. Mr Leyzaola, a retired army officer, has detractors: on November 17th Baja California's human-rights commission accused him of torturing detainees in Tijuana, an accusation he rejects. Others are sceptical about the relevance of the government in reducing the violence in places such as Juarez and Tijuana. In both cities the powerful Sinaloa "cartel" has been pushing to displace incumbent gangs. The dip in violence suggests that it has at last beaten or reached an accommodation with its rivals, believes David Shirk, head of the nans-Border Institute at the University of San Diego. The Tijuana mob has been all but wiped out. The head of La Linea, a rival of Sinaloa in Juarez, was arrested in July. Some of these busts may be thanks to rival cartels' tipoffs. "The government is an instrument that contributes-but whose hand is on the instrument?" asks Mr Shirk. Whatever the cause, both cities now appear increasingly to be the Sinaloa mob's turf: the army said that $15.3m in cash it seized in Tijuana this week belonged to them. Though Sinaloa's expansion may have slowed the violence in Juarez and Tijuana, elsewhere it has stirred it up (see map). Nuevo Leon, Mexico's richest state after the capital, was once one of its safest. But Sinaloa's attempts to dislodge the Zetas, their strongest rivals, from the state capital, Monterrey, have caused almost as many murders as in Chihuahua. Similarly, Sina-
I
loa dispatched a group of "Zeta killers" to cause havoc in previously-quiet Veracruz over the summer. The Zetas have retaliated, sending gunmen to Sinaloa's Pacific strongholds. Acapulco has already suffered; next may be Guadalajara, Mexico's second-largest city. It was protected by large numbers of federal police before and during the Pan American games. But the games finished on November 20th. Predicting the traffickers' next moves has become harder because many cartels have split into smaller groups. Based on a survey of messages left online and at the scenes of executions, Eduardo Guerrero, a Mexican academic, estimates that in 2007 there were u organised-crime groups active in Mexico, whereas in 2010 there were 114. Mr Murguia says that there could be ten different mobs operating in Juarez alone. Separating the big gangs from opportunistic youths is not always easy. Some teenagers are turning to amateurish extortion rackets because there are few other opportunities (see p76). "The cry heard in Mexico is employment, employment, employment," Mr Murguia says. Juarez must now hold on to its gains with fewer police. Only 2,500 federal cops patrol, down from 5,000 in January. "We don't know which side the municipal police will play for," says Hugo Almada, of the University of Juarez. Some believe that the local force has links with the Juarez cartel. But the federal cops are not wholly clean either: several dozen have been arrested over the past year for crimes including kidnapping, extortion and murder. The year has shown that the world's most dangerous city need not stay that way. Yet violence in places such as Nuevo Leon "suggests that what has happened in Juarez can happen anywhere in Mexico," Mr Shirk says. Too soon to celebrate, then. •
STATES
Gulf of Mexico
PACIFIC OCEAN
Drug-related murders January 1st - November 4th 2011 *
0
<50
0
500·749 •
0
50-249
0
750-1,000 •
250-499
>1,000
m %change on year earlier Sources: Reforma; *Includes incomplete data Trans-Border institute fromApril 16th·l•1ay 13th
500 km
Interactive: See maps of "cartel" territories and trafficking routes in Mexico at Economist.comf2011mexd rugs
The Economist November 26th 2011
The Americas 49 Electoral reform in Canada
A surfeit of MPs OTTAWA
Super-sizing the House of Commons ACK in 1994, when he was a newly B elected member of Parliament for the Reform Party and keen to change the way
Latin American integration
Peal{s and troughs
CARACAS
Yet another new regional club T WILL, says Hugo Chavez (pictured), be Ihave "the most important political event to occurred in our America in 100 years or more." Well hardly. But the inaugural get-together of the Community of Latin American and Caribbean States, a 33-country outfit known as CELAC from its initials in Spanish, to be held in Caracas on December 2nd and 3rd, does reveal how Latin America is changing. For a start the influence of the United States is declining in a region it once called its "backyard". The new body includes all the countries of the Americas except the United States and Canada. Meanwhile, the Organisation of American States (OAS), which includes them, is in such disarray that it may not survive. Brazil, Venezuela and Republicans in the us Congress have all either withheld, or have threatened to cut, funding for the OAS, for differing reasons. The clout of Spain, once seen as a model by Latin America's restored democracies, is also receding: only half the heads of state bothered to turn up last month at an Ibero-American summit, a Spanish-inspired annual event. Yet, the proliferation of regional bodies does not necessarily mean that Latin America is any more united. The Englishspeaking Caribbean apart, it has three broad trade blocks. Brazil dominates Mercosur, a relatively protectionist trade group. Chile, Colombia, Mexico and Peru, all on the Pacific coast, are more open economies trying to forge closer ties. And then there is Mr Chavez's Bolivarian Alliance for the Peoples of Our America (ALBA), an
politics was done in Ottawa, Stephen Harper argued that Canadians were among the most over-represented people in the world and that the number of seats in the House of Commons should be reduced. As prime minister of a Conservative government with majorities in both houses of Parliament, he seems to have changed his mind. The Fair Representation bill, which the government introduced last month and is pushing to get through Parliament before Christmas, will add 30 MPS to the tally of 308. The western provinces of Alberta and British Columbia, where the population is rising fast, will each get six extra seats. But Ontario will get another15 and Quebec three. Tim Uppal, the junior minister piloting the measure, said that it will move Canada closer to the elusive goal of representation by population, last met a century ago. Just redistributing the existing number of seats to reflect the westward population shift, as the opposition Liberals propose, cannot be done because it would create winners and losers, MrUppal candidly conceded. Mr Harper's is hardly the first federal government that for the sake of peace with the provinces wants only winners to emerge from the redistricting, which idea he launched ten years ago. Conceived as a political block, rather than a trade group, its aim was to free the region from the grip of the United States and "the tyranny of the dollar". ALBA signed up Cuba, Bolivia, Nicaragua, Honduras, Ecuador and three tiny Caribbean nations (Dominica, St Vincent and Antigua). But Honduras withdrew in 2010 after its president was ousted in a coup. According to the Venezuelan government, its trade with fellow ALBA members rose fromjust$1.6 billion in 2004 to $5.8 billion in 2010. Some of it is denominated in the sucre, a putative common currency. Nearly all this trade involves subsidised shipments of Venezuelan oil. ALBA has also signed up Syria and Iran as observers. Other countries in the region either abhor ALBA, or tolerate it as an irrelevance. Even Cuba, which was uncomfortable about its dependence on Venezuelan aid even before Mr Chavez was diagnosed with cancer earlier this year, is now keen to diversify its economic ties. Brazil is financing a new port on the island.
takes place every ten years following a national census. Its room for manoeuvre is restricted by the constitution and a 1985 law, which together mean that no province can have fewer seats in the Commons than it had in 1986 or than it has in the Senate. So Prince Edward Island, with 140,ooo souls, has four MPS because it has four senators, whereas Brampton West, a district near Toronto, has to get by with just one for its 17o,ooo. The bill's tinkering means that six provinces will still have too many MPs, whereas Ontario, Alberta and British Columbia will still have too few. Only Quebec will have the right number. And Canada as a whole will have a surfeit of parliamentarians compared with many other democracies. Britain, which has proportionately about the same number of MPS as Canada, is moving in the opposite direction. A law approved in February cuts the seats in the British House of Commons from 650 to 6oo. The Liberals complain that Mr Harper is squandering money on Parliament at a time when public spending is being cut. The younger Mr Harper might well have agreed it would be better to share out the existing number of parliamentary seats. But the older Mr Harper will surely have noticed that many of the extra seats will be created in areas where the ruling Conservatives are strong. For its part, Brazil has promoted the South American Union (UNASUR), which aims to develop cross-border infrastructure and defence co-operation. Tacitly, it is a vehicle for containing Mr Chavez. Seven South American countries, including Brazil and Argentina but not Chile, Colombia or Peru, are holding desultory talks about setting up a Bank of the South, another wheeze of Mr Chavez's now supposed to open next year. All this would seem to leave little room for CELAC. Its birth stemmed from Mexico's desire to be included in regional talking-shops, and from a general symbolic yearning to create a club that includes Cuba as a full member. On paper CELAC will try to co-ordinate among trade blocks, such as Mercosur and the Andean Community (but UNASUR is also supposed to do that). It will also try to stimulate regional trade and speak with one voice in international forums. If only. The lesson of ALBA is that regional clubs based on political ideology rather than national interest do not get very far. •
50
Also in this section 51 Movement in Myanmar 52 Afghanistan's post-war economy 52 Pakistan's "memogate" 53 Indonesia's security reforms 54 Banyan: Tried and found wanting
For daily analysis and debate on Asia, visit Economist.comjasia Economist.comjblogsjbanyan
Governing China
The Guangdong model FOSHAN AND GUANGZHOU
One Chinese province adopts a beguilingly open approach-up to a point NLIKE attention-seeking politicians elsewhere, senior Communist cadres in China like to keep their ambitions hidden.If anything, they signal grey conservatism, stressing how little they wish to change things. But as the country awaits a change of its leadership late next year, some high officials are up for a bit of selfpromotion. In Guangdong province in the south the Communist Party chief, Wang Yang, is dropping hints that his more liberal style of governing might offer a better way for running the country. Guangdong has long been the most vibrant and economically liberal province in China. Now the idea that economic liberalism might be matched by greater political openness has come to be called the "Guangdong model". A prominent supporter is Xiao Bin of Sun Yat-sen University in Guangzhou, the provincial capital. On the blackboard, he draws a picture of an egg. He makes chalk marks on the white to show how changes can be made in the way the party rules, while leaving the yolk- for which read a Communist Party monopoly on power- unmarked. Mr Wang, who is 56, has been a member of the ruling Politburo since 2007. He knows well how to keep within the party's bounds. He rarely talks of the Guangdong model, which would sound like a slap at others. But among academics and online commentators, the term has blossomed.
U
Guangdong newspapers occasionally talk about it. Fans of the model fiercely defend it against advocates of its rival promoted by the party chief of Chongqing deep inland, Bo Xilai, who has a flair for publicity. Both Mr Wang and Mr Bo may join the Politburo's standing committee next year, when seven of nine members, including President Hu Jintao and the prime minister, Wen Jiabao, will step down. Mr Bo trumpets the importance of state-owned enterprises, traditional socialist values and the inspirational power of Mao-era songswhile getting tough on organised crime.
Maoist websites lionise Mr Bo; the Chongqing model is held up in shining contrast to that of Guangdong and its "capitalist roaders". Six decades of Communist rule have been punctuated by battles between the left (as Mr Bo's supporters are proud to call themselves) and the right (a label that carries a stigma to this day). This battle is exceptional, however. It is being fought out not in arcane commentaries in party newspapers but in open debate. Both camps hold symposiums about their respective models. A book is out about the Chongqing model. In literary terms, Mr Xiao admits that the Guangdong camp is lagging somewhat. Perhaps the debate generates more heat in public than it does in the Communist Party itself. A researcher at Guangdong's party school says Guangdong and Chongqing are not in opposition. Both regions, he says, are learning from each other. For example, Chongqing is building the development zones to attract investors that Guangdong pioneered in the 1980s. Guangdong, he says, could learn from Chongqing's efforts to absorb migrants from the countryside into city life. Guangdong academics have studied Chongqing's experiments in creating markets for rural land, where powerful restrictions apply even in "liberal" Guangdong. In the political realm, however, Mr Wang's supporters point to changes which, they say, are distinctive. One concerns the role of trade unions, a rather sensitive area for a party that is still unnerved by the role that Solidarity played in Poland in the 1980s to bring down Communist power. Mr Wang's rethink was triggered by a spate of 2oo-odd strikes last year in the Pearl River delta that began in May with ~~
The Economist November 26th ~
Asia 51
2011
workers downing tools at a Honda carparts factory in Foshan, near Guangzhou. Mr Wang, says an academic, chose not to see the strikes as a threat to political stability. Indeed he expressed sympathy with the workers' demands (which is perhaps easier to do at companies owned by foreigners). Elsewhere in China ringleaders are commonly rounded up once strikes have been settled, but those in Guangdong were not. All the incidents, the academic says, had "happy endings", with pay increases of 30-40%. Buying off strikers is common enough in China. But Mr Wang went further, encouraging state-affiliated trade unions (there are no independent ones) to be more active in representing workers' interests. Trade unions in China are normally little more than creatures of management, run by party cadres. Prodded by Mr Wang, Guangdong's unions began encouraging collective bargaining, a practice officially authorised but widely disliked by local officials who fear worker activism and upward wage pressures. Mr Wang's views did not strike an instant chord with his subordinates. Most participants at one meeting on how to handle the strikes "didn't get it" when he called for a hands-off approach, says someone with knowledge of the proceedings. By contrast, during a large-scale taxi strike in Chongqing in 2008, Mr Bo was more interventionist. He held an unusual televised meeting with drivers, but later launched a sweeping anti-mafia campaign that resulted in a wealthy businessman accused of organising the strike being sentenced to 20 years in prison for gangsterism and disrupting transport. Supporters of the Guangdong model also point to the greater leeway Mr Wang has given NGOS, which are heavily circumscribed in China. Their registration in Guangdong, and especially in Shenzhen, a trailblazing economic zone bordering Hong Kong, involves fewer hoops. Mr Wang has been credited with promoting more open access to information about government spending. In 2009 Guangzhou became the first Chinese city to publish all its budgets. It is never entirely clear how much of these initiatives have been taken by Mr Wang himself. Guangdong in general and Shenzhen in particular have long enjoyed unusual freedom to experiment. This year Mr Wang has been promoting the goal of a "happy Guangdong" (the pursuit of which is enshrined in the province's new fiveyear plan). Public happiness, assessed by opinion polls, is being introduced as a new criterion for judging local leaders' suitability for promotion. Yet unhappiness remains rife, and in this Guangdong is no exception. Dissatisfaction is widespread among the more than 36m migrants in Guangdong, one-
third of the provincial population, many of whom work in harsh conditions. Protests, sometimes violent, are common. In Dadun village, on the edge of one of Guangzhou's satellite towns, a notice outside the government headquarters promises rewards of up to 1o,ooo yuan ($1,600) for turning in "criminals" involved in large riots in June triggered by security guards roughing up a street hawker. The rioters were migrants who work in countless small jeans factories, one even in a temple courtyard, trimming threads and stamping on studs.
Nor does the Guangdong model extend to free and fair elections. In September Dadun held a ballot for seats in the local legislature. But only its fewer than 7,000 Cantonese inhabitants were allowed to vote, and not the 6o,ooo-odd sweatshop labourers from other provinces. In a village near Foshan, residents elected an independent candidate, ie one who did not have party backing. Plainclothes goons now keep watch on his home. A villager confides her support for the new legislator only in a hushed tone. Mr Wang's egg-yolk remains inviolate. •
Movement in Myanmar
Eye-rubbing SI NGAPORE
The Lady runs for a seat, and Hillary Clinton calls on the generals
E
VEN after a year of often startling change, the pace of events in Myanmar can still surprise. On Novemben8th, only a year after its leader, Aung San Suu Kyi, was released from a long stint of house arrest, the National League for Democracy (NLD) said that it would formally re-enter politics and compete in upcoming parliamentary by-elections. The opposition party had boycotted last year's national elections, on the grounds that they were rigged in favour of the army junta and its proxies. The NLD was then disqualified as a political party. The NLD now says it is satisfied by various changes to the electoral lawsand the government appears satisfied to see the party unbanned. Ms Suu Kyi says that she herself will contest one of the seats up for grabs. She is wildly popular, and her participation would invest the
Parliament first, president next?
parliament with much-needed legitimacy, though it will remain heavily dominated by parliamentarians chosen by the army. Thein Sein, president since March and the man chiefly responsible for initiating Myanmar's thaw, got his reward at the annual bash in Indonesia of the Association of South-East Asian Nations (ASEAN). There, Myanmar was promised the chairmanship of the regional block for 2014. This represents a diplomatic breakthrough. Earlier bids ran up against international objections to Myanmar's dismal record on human rights. But the really big endorsement came on Novemben9th, when President Barack Obama announced that his secretary of state, Hillary Clinton, would visit Myanmar on Decembenst. She will be the highest-ranking visitor from the United States since the Burmese armed forces seized power in 1962. The country is gently being released from the diplomatic deep-freeze. The Myanmar government has long coveted this sort of high-profile visit, which is coming as a reward for moving away from the military dictatorship of old. But both America and Myanmar are also motivated by another factor: China. Years of diplomatic and economic isolation have left Myanmar under the influence of a giant northern neighbour with no scruples about doing business in the resource-rich country. Some are now keen to lessen the country's dependence on China. They hope that after Ms Clinton's visit, Western sanctions will be eased and investment will start to flow. America, for its part, may hope to detach Myanmar from China's orbit as part of Mr 0 bama's new "pivot" towards Asia. Some Burmese may wish that their country will not become a new cockpit of superpower rivalry.
52 Asia
The Economist November 26th 2011 Pakistan's "memogate"
As you were ISLAMABAD
Pakistan is forced to find a new ambassador to Washington
FTEN during Pakistan's turbulent history has the army's mth Brigade 0 swept out of its headquarters in Rawal-
Afghanistan's post-war economy
Investing or a-whoring? KABUL
Even on optimistic assumptions, the economy will barely tread w ater
connoisseurs of South Asian Baroque, few places are more heavenly FthanOR Sher Pur, a Kabul neighbourhood where cavernous houses boast garish colours, outsize chandeliers, sparldy columns and giant concrete eagles on the rooftops. These startling dwellings were quickly let a decade ago to hordes of foreign contractors working on multimillion-dollar development projects. But now the district is emptying, as the splurge of aid recedes. Until recently USAID rented one 18-room giant for $24,000 a month. It is now on the market for $15,000 a month, and the agent will take much less. Since 2001 vast sums of Western money have been spent on Afghanistan- $440 billion by America alone. Foreign money has dominated the economy, powering breakneck consumption. Exports account for a paltry 2.5% of Afghanistan's GDP. Soon NATO will start cutting its 130,000 troops in the country, to perhaps as few as 2o,ooo by 2015. Many fear an economic depression when foreign spending dries up. But a new forecast by the World Bank suggests that, if it is lucky, Afghanistan can avoid disaster, even if that means only treading water for the next decade. For one thing, most foreign spending never came into the country in the first place, because it paid the salaries of foreign soldiers and their suppliers. Much aid spending has also gone on foreign salaries and Landcruisers. That spending will not be missed.
pindi, scooted to Islamabad 20 minutes away, and effortlessly taken over the government. These days, under General Ashfaq Kayani, the soldiers know it is wiser to rule from behind the scenes, with a weak civilian government taking the blame for the country's problems. On November 22nd the army heaped humiliation on the government, pressing it to jettison Pakistan's ambassador to the United States, Husain Haqqani, a smooth operator, over allegations that he crafted an offer to rein in the Pakistani army and its spy agency in return for American help in averting a feared coup. The offer to the American administration was made in an unsigned memo, which Mr Haqqani denies writing. It was sent to America's military high command in May, during a time when relations were febrile following the killing in Pakistan by American special forces of Osama bin Laden. The memo's existence was revealed only in October, by the controversial American businessman of Pakistani origin who delivered it. It was supposedly composed on the instructions of Mr Haqqani acting on behalf of President Asif Zardari. The incendiary documentproposedthatgovernment would dismantle the wing of the army's Inter-Services Intelligence responsible for dealing with th e Tali ban, in return for American support. Though the bin Laden raid was a huge embarrassment to the army, the "memogate" scandal showed again that real power in Pakistan still lies with the soldiers. No evidence pins the memo to Mr Zardari. Its recipient, Admiral Mike Mullen, then chairman of the Joint Chiefs of Staff, says he did not take it seriously. The army and the friendly television stations it whipped up forced Mr Haqqani's exit before an investigation into the matter The World Bank thinks current GDP growth of 9% a year will fall to s-6%. Rapid population growth, however, means that, measured by GDP per person, one of the world's poorest countries will hardly get any richer. Even this forecast depends on heroic assumptions: years of good harvests, no worsening of security as NATO leaves, an open-ended Western commitment of $7 billion a year to pay for Afghanistan's police and army, and the successful exploitation of the country's vast but un-
had even begun. Mr Haqqani had once written a book detailing the links between the army and jihadists. In America his connections ensured a direct line to top decisionmakers. The armed forces had never liked having the country's most important relationship entrusted to him. The government has saved a little face by appointing Sherry Rehman to succeed Mr Haqqani as ambassador in Washington. She is a rare politician of substance in the ruling Pakistan Peoples Party. She has a record as a campaigner for human rights. And she supports the government's welcome attempts to improve ties with India, the army's eternal enemy. Yet the soldiers do not seem to mind her. She argues for more American understanding of army views that, she says, are shaped more by fears about a dangerous region than by self-serving ambition. The m th can stand easy for now.
Sherry Rehman won't be writing memos tapped mineral wealth. (Mining experts are sceptical about that, though the minister responsible insists that a state-owned Chinese company which won the rights to a vast copper deposit in 2008 will end its foot-dragging and begin work soon.) The Bank says more money should be given directly to the government rather than to foreign contractors. Yet the weak administration already struggles to spend what it gets. Dismantling the war economy may ~~
The Economist November 26th 2011 ~ help
businesses flourish. Skilled workers who have spent the past ten years earning inflated salaries doing menial jobs for foreigners will become more affordable for Afghan companies- and more productive. Property has much further to fall. One optimist argues logistics companies that kept NATO in supplies could give Pakistan's truckers a run for their money. But, as the World Bank notes, the development of farming and even simple industries calls for Afghans to show more enterprise. One businessman who made millions from NATO contracts says his friends are holding back because they worry 2015 will bring more violence and government corruption. "What will businessmen who have made fortunes on military contracts do?" a Western adviser wonders. "Will they set up successful enterprises or will they retire to Dubai and spend their money in whorehouses?" The country wants to know. •
Indonesia's security reforms
Unholy muddle JAKARTA
At odds over dealing with intolerance and terrorism
HE world's most populous MuslimT majority nation, Indonesia, has long had a problem in some parts of the archipelago with religious extremism, intolerance and the sort of terrorism that can flow from both. The country has had a good deal of success in combating Islamist terrorism since the bombings on the island of Bali in 2002, which killed 202 people. But continuing suicide-bomb attacks and the discovery of terrorist training-camps suggest that Indonesia remains in danger. Judging by recent events, however, the country has yet to develop a clear strategy to deal with the threat. Too often, different bits of the state give out different, even contradictory, signals. The result is a dangerous muddle. Thus on Octoberuth lawmakers at last passed a new security bill, the Law on State Intelligence. This was the culmination of years of debate, in many ways a tribute to Indonesia's vibrant new democracy. Legislators wanted to produce a bill that sharpened the effectiveness of the country's multitude of intelligence and anti-terrorist agencies without encroaching too much on hard-won civil rights. In the end, the law redefined the roles of those agencies, strengthening their powers to intervene against "opponents" working against the "national interest". A tough new stance from the state, it might seem. Indeed, just the sort of law that might have made it eas-
Asia 53 ier to gather evidence against people such as Abu Bakar Basyir, a notorious radical cleric. At the conclusion of the latest case against him in June, Mr Basyir was sentenced to 15 years in prison by a district court for inciting terrorism and funding terrorist cells. Yet only two weeks after the new law was passed the high court in Jakarta, the capital, decided on appeal to reduce by six years the sentence handed out to Mr Basyir by the lower court, partly as "an act of humanity" for the "elderly" (73·year·old) man. This follows previous court cases in which Mr Basyir either avoided a guilty verdict altogether or had light sentences reduced. Furthermore, his lawyers will now petition the Supreme Court to strike down the remaining nine years. They must have every chance of success. Well-meaning parliamentarians can legislate all they like, it seems, but if the courts do not mete out sufficient punishment then the state will remain ineffective. Take another case. In February three members of a peaceful Islamic movement, the Ahmadiyah, considered heretical by orthodox Muslims, were beaten and hacked to death in broad daylight by a frenzied mob in west Java. Their end was caught on film. Despite the extraordinary violence, in August the perpetrators were handed down only token prison sentences, ranging from three to five months. There was an outcry, but the sentences stood. The guilty are now all free, including one 17·year·old treated as a hero on his return home. The government seems helpless; ministers merely talk of respecting the independence of the courts. Yet an unreformed judiciary seems to be dominated by religious conservatives, within a nominally secular state, or judges who fear Islamist radicals. The feebleness of the response to the murders of the three Ahmadis seems to have encouraged others. Since February several
Basyir: nine years and falling
more vicious attacks on Ahmadi houses have taken place. Provincial governments have even passed decrees, yet to be challenged in court, banning all Ahmadiyah activities. The teenage thuggery of the Ahmadiyah case and the relative sophistication of the terrorism that Mr Basyir is accused of orchestrating have a direct link. Once launched on his trajectory of violence, today's thug can readily be converted into tomorrow's terrorist. Andreas Harsono of the local office of Human Rights Watch argues that the anti-Ahmadiyah campaign is now being used for exactly this purpose, that is, to motivate and recruit young extremists. Sidney Jones of the International Crisis Group, a think-tank, says that rather than focusing on new legislation, the government needs to design a well-funded and comprehensive programme, involving better police training and community work, to prevent extremism spreading in the first place. To complicate matters further, the government's showpiece Law on State Intelligence will probably end up in court itself. A coalition of human-rights organisations has vowed to challenge it in the Constitutional Court. Despite its efforts to balance the demands of security against civil rights, they argue that too much power is being taken from the police and handed to military intelligence, with little judicial oversight. They also argue that the definition of national security is too broad. It could be used to target separatists with legitimate political arguments, such as in West Papuam, for instance. There, a cackhanded attempt to break up a political rally left several dead on October 19th. Clearly, a balance needs to be struck between effective legislation, the protection of hard-won rights and action against religious extremism. Regrettably, Indonesia still seems a fair way off from striking it. •
The Economist November 26th 2011
54 Asia
Banyan
I
Tried and found wanting
Asia's dism al record on tackling war crim es is an indicator of illiberalism
EHIND a huge bulletproof screen sit judges, lawyers and three wizened former leaders of the Khmer Rouge. In their 8os, the B defendants may be the last people to be prosecuted over the deaths of at least 1.7m people in 1975-79, when the Khmer Rouge exercised monstrous power in Cambodia. Gawped at daily by busloads of onlookers- monks, black-clad teenagers, turbaned villagers, earnest foreigners- the men can expect to pass much of the rest of their lives in the Extraordinary Chambers in the Courts of Cambodia, a hybrid local and United Nations creation that sits just outside the capital, Phnom Penh. The tribunal has an impossible job. The crimes in its ambit are too many and various for more than symbolic justice to be seen to be done. Set up in 2003 and now costing $40m a year, it has so far managed a single conviction, of Kaing Guek Eav, alias Duch, who ran the infamous Tuol Sleng prison, where 14,000 entered and only a dozen came out. Though a monster, he was a relatively low-ranking one, with a degree of remorse. On November 21st prosecutors opened the case against the three defendants in "case 002" (numbered as if hundreds more were expected). The three are Nuon Chea, "Brother Number Two" and Pol Pot's right-hand man; Ieng Sary, the Khmer foreign minister; and Khieu Samphan, who was once head of state. Despite mounds of evidence, convicting them will be agonisingly complicated. The charges, including war crimes, torture and genocide against minorities, are cumbersome. To make things easier, the court is breaking the trials into pieces, starting with a case over the forced removal of city dwellers to the countryside in 1975. But the case could take years, and the three may never get to answer the graver charges. Then there is political meddling and incompetence. No case 003 seems likely. That looks suspiciously convenient for Cambodia's current rulers and their cronies, anxious to avoid close scrutiny of their parts in the killing fields. Court officials have resigned amid fierce public feuding, some between locals and foreigners. Critics say that some judges look partial or corrupt, so the court's credibility is at stake. Relatives of some victims are boycotting the court, and donors look twitchy. Still, the proceedings' integrity is still just about intact. The same cannot be said for Asia's other current war-crimes trial, in
Bangladesh. In 1971 several hundred thousand or more (mostly civilians) perished at the hands of Pakistani soldiers and local accomplices losing the bloody fight against secession. On November 20th the first defendant at the country's International War Crimes Tribunal, Delawar Hossain Sayadee, was charged with genocide, murder, rape, arson, abduction and torture. Mr Sayadee is a leader of a prominent Islamic party,Jamaat-e-Islami. Six opposition figures w ill probably join him in the dock. The tribunal could have been laudable. This was a horrific spell of history, and justice might have helped reconciliation. Instead, it risks being a travesty. The prosecutions look biased. One defence lawyer talks of a "climate of vendetta" against opponents of the prime minister, Sheikh Hasina. None of the chief perpetrators, Pakistani soldiers, will be in court. Nor will pro-independence militants be charged over smaller but still gruesome massacres of Biharis, migrants who sympathised with Pakistan. The defendants seem to have been made targets because of their political role today as much as for earlier wrongs. Jamaat is an ally of the main opposition; some of the accused were ministers in Bangladesh's previous government. Should they be convicted and hanged in time for the next election, that would handily weaken the opposition. Yet a nakedly partisan trial would only deepen historical wounds, not salve them. Outsiders, including the American government who on ce advised the court, look increasingly wary. Human Rights Watch says that witnesses and lawyers are being harassed, and defence lawyers lack time to prepare. Lawyers are blocked from challenging the judges' impartiality. They say that the tribunal chairman should go, because he presided over an earlier investigation and mock trial in 1994, which condemned the accused as war criminals. They complain, too, that foreign lawyers, in theory allowed in the "international" court, are in effect barred. As a consequence of these problems, says a British lawyer, the trial "lacks even the appearance of independence or impartiality". Journalists attempting to report as m uch have been intimidated.
Rule by strongmen, not by law Asia seems unable to follow Europe, Africa or South America in setting up either strong tribunals or truth commissions, such as South Africa's, to address old horrors. Nor will it deal with recent ones. In Sri Lanka much evidence suggests war crimes against civilians took place in 2009, as the civil war against the brutal Tamil Tigers reached a final climax. On November 2oth commissioners who had led a public inquiry into "lessons learnt" from the war handed the government their report. Yet the government refuses an inquiry into those final days. Even raising the matter is risky. A UN report this year on the topic caused a bitter diplomatic row. On Novemben8th the ex-army chief, Sarath Fonseka, a jailed political rival of the ruling Rajapaksa family, got a new three-year prison term for suggesting that political leaders ordered rebel prisoners to be shot. Asia pays a price for failing to secure justice over war crimes. Gary Bass of Princeton University argues that well-run trials bring real benefits. They help address "living wounds" that linger for decades after genocides, encouraging reconciliation, for example, by naming individuals, not whole groups, as guilty of particular wicked acts. More generally, they encourage respect for the law and impartial institutions. Sadly, for large parts of Asia with weak democracy and illiberal strongmen in charge, the chances of a fair reckoning for vile crimes are slender indeed. •
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SPECIAL REPORT WOMEN AND WORK
Closing the gap
Women have made huge progress in the workplace, but still get lower pay and farfewertop jobs than men. Barbara Beck asks why
:
ACKNOWLEDGMENTS Many people helped in the preparation of this report, some of whom asked to remain anonymous. The author is grateful to them all. Apart from those mentioned in the text, partiwlar thanks are due to the many experts at the DECO and the World Bank who generously gave of their time and knowledge. and to Linda Bash, Anne Bouverot. Beth Brooke, Sandrine Devillard-Hoellinger, Vasantha Erraguntla, Kim Gandy. Nandita Gurjar, Heidi Ha rtmann, Karen Kornbluh, Emily Lawson, Sandra Lawson, Jea n Lee, Dana Lewis. Pirkko Maki nen, Charlotte Oades, Fiona O'Hara, Taru Paivike, Minna Salmi, Nicole Schwab, Kate Turner, Melanne Verveer. Susan Vinnicombe and Wang Bo.
WHEN HILDA SOLIS was at high school, a male career adviser told her mother that the girl was not college material; she should consider becoming a secretary. Hilda was furious. One of seven chi ldren born to working-class immigrant parents, she had high ambitions. She did go to college, became a lawmaker in California and is now secretary of labour, the first Latina to hold a cabinet post in America's federa l government. On Tarja Halonen's first day at work in the legal department of a trade union she answered the phone to a man who, hearing a female voice, asked to speak to one of the lawyers. She informed him that he was speaking to one. Things got better after that. Following her stint as a lawyer she served in Finland's parliament for over 20 years. Since 2000 she has been the country's president, the first CONTENTS female in the job. Both these incidents happened in the 1970s. They would 5 Female labour markets be much less likely today, partly The cashier and the carpenter because political correctness has made people more cautious (not 8 Education least thanks to a series of highAworld of blueprofile sex-discrimination court stockings cases) but mainly because attitudes really have changed. josef 9 Work and family Ackermann, the chief executive Baby blues of Deutsche Bank, caused a storm 11 Topjobs earlier this year when he said that Too many suits appointing women to the bank's executive board (which currently 14 Women in China has none) would make it "prettier The sky's the limit and more colourful". A German 16 Looking ahead government minister, lise Aigner, Here's to the next advised Mr Ackermann to look half-century for pretty and colourful things in a field of flowers or a museum. There is a new drive on to change mindsets further. Organisations ranging from the United Nations to the OECD and the World Bank are paying more attention to women. Some European countries have already introduced quotas to get more of them on company boards and others may follow. Every self-respecting firm, bank, consultancy and headhunter is launching initiatives, conducting studies and running conferences on how to make the most of female potential. Are these efforts still needed? In many emerging markets women remain second-class citizens, lacking basic rights and suffering violence and many kinds of disadvantage. In the rich world most of the battles about legal and political rights have been won, and on the economic front too women have come a long way. It is easy to forget that even in developed countries they arrived in strength in the labour force only a few decades ago. Since 1970 the proporAlist of sources is at tion of women of working age who have paid jobs across the rich world Economist.comfspeda lreports has risen from 48% to 64% (see chart, next page). There are large variations An audio interview with from country to country: in parts of southern and eastern Europe only the author is at about half of them go out to work, whereas in most of the Nordic counEconomist.comfaudiovideof spedalreports tries well over?o% have jobs, close to the figure for men. In America for a ••
SPECIAL REPORT WOMEN AND WORK
Labour-force participation rate 2010, %
OECD average,% 0
20
40
60
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it
Finland United States
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~tanagementl l
while early last year more women were working than men- until the recession caught up with them. But the broad trend in most countries is still slightly upwards. Claudia Goldin, an economics professor at Harvard who has studied American women's employment history over the past century or so, calls the mass arrival of women in the workplace in the 1970s a "quiet revolution". Of course there have always been women who worked outside the home, but the numbers were much smaller. Until the 1920s working women were mostly young and single and had jobs in factories or as domestic servants that required little education. From the 1930s onwards many more girls went to high school and college and got jobs in offices where conditions were much more agreeable. In the 1950s large numbers of married women took up work as secretaries, teachers, nurses, social workers and so on, often part-time. By the 1970s their daughters, having watched their mothers go off to work, took it for granted that they would do the same. Many of them had also seen their parents get divorced, which made having an income of their own seem like a wise precaution. And they had the Pill, which for the first time in history provided them with reliable birth control. That allowed them to embark on a career first and leave marriage and children until later. It also made it worthwhile to invest more in their education. By1980 American women were graduating from college in the same numbers as men and have since overtaken them by a significant margin. What happened in America was echoed, to a greater or lesser degree, in most other industrial countries. The dual-income couple was born. This has been a great boon to all concerned. National economies benefited from the boost in growth provided by many extra workers acquired over a relatively short period without the trouble and expense of rearing them or the upheaval of importing them. Employers enjoyed a wider choice of employees who, despite equal-pay legislation, were often cheaper and more flexible than men. And women themselves gained the freedom to
80
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pursue a wide range of careers, financial independence and much greater control over their lives. These additional workers are spending money, paying taxes and making the economy go round. No wonder policymakers everywhere are trying to encourage even more women to take up paid work to boost output. A further reason to welcome them is that in many developed countries, as well as in China, falling birth rates have started to cause working populations to shrink and the number of elderly people to rise steeply, with ominous consequences for economies in general and pensions in particular. More working women could help offset the decline in the labourforce. Womenomks Perhaps surprisingly, there is little work on the macroeconomic effect of all the extra women who have entered the labour force over the past four decades, but McKinsey reckons that America's GDP is now about 25% higher than it would have been without them. Kevin Daly at Goldman Sachs, an investment
Back in the 1990s women in rich countries seemed to be heading towards a golden era. Now there is a palpable sense offrustration bank, has calculated that eliminating the remaining gap between male and female employment rates could boost GDP in America by a total of 9%, in the euro zone by 13% and in Japan by as much as 16%. Since not even the equality-conscious Nordics have yet managed to get rid of the employment gap altogether, it seems unlikely that gains on this scale will be realised in the foreseeable future, if ever, but there is certainly scope for improvement in some rich countries and even more in emerging markets. In the BRIGS and other fast-growing developing countries the gap is already narrowing. Employers too have reason to be grateful for the boost to their labour force from the extra women, not least because talented people are in short supply the world over. Since women make up half the talent pool (though their interests and preferences are often different from men's, of which more later), get-
~~
SPECIAL REPORT WOMEN AND WORK
ting more of them into work should help alleviate the shortage, all the more so %of male earnings since there are now more university-educated women Japan United Sweden than men in most rich counStates France Finland Britain tries (and some emerging ones too). .. ' 50 A number of studies have shown that the pres.....~................................ ". 40 ence of a critical mass of women in senior jobs is positively correlated with a company's performance and possibly with higher profits. 20 None of them has demonstrated a causal link, but it is not implausible that compa10 nies will benefit from a more diverse workforce with a j_ 0 broader set of ideas. Many of 201QI 1980 their customers are probably 0• lates· availa:Jie female. In Europe and America women decide on 70-80% of all household purchases and strongly influence buying decisions even for items such as cars and computers that are generally seen as male preserves. For women themselves it has been liberating to be able to choose almost any kind of career. If they wish (and can find a husband who will support them), they are still free to devote themselves to full-time child care and domestic duties- unlike men, who rarely have that choice. But these days most of them, for reasons ranging from money to the desire for self-fulfilment, want to work outside the home. They have made great strides in all kinds of careers, but they still find it much harder than men to bag the most senior jobs. The picture is much the same everywhere: men and women fresh out of college or university are being recruited in roughly equal numbers; half-way up the ladder a lot of the women have already dropped out; and at the top there are hardly any left. The rate of attrition in the middle ranks has slowed a bit in recent years, but the most senior jobs remain almost exclusively male. Women make up just 3% of Fortune 500 cEos. And despite sheaves of equal-pay legislation, women get paid less than men for comparable work. That is partly because they often work in different fields, and many of them are parttimers with lower hourly rates. But even in identical jobs they earn slightly less than men from the beginning, and as time goes by the gap gets ever bigger. Across the OECD it now averages 18%. That is a lot less than what it was 40 years ago (see chart), but in recent years it has stopped narrowing. Back in the 1990s women in rich countries seemed to be heading towards a golden era. They were continuing to move into the workforce in ever-increasing numbers, more opportunities were opening up for them and the pay gap with men was getting smaller. Now there is a palpable sense of frustration. Catching up with men, particularly at the top, seems to be taking much longer than expected. At the same time women in some of the richer emerging markets seem to be pushing ahead. In China the numbers in senior positions are rising across the board, and in India women are getting top jobs in the crucial IT industry. This special report will explore the reasons why progress in the rich world seems to have stalled and what can be done about it. It will start by explaining what sort of work women do, and why that matters. • Wage gap
Female labour markets
Difference between average earnings of full-ti me male and female employees
The cashier and the carpenter
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Men and women do different jobs for different pay IN 1964 LADYBIRD BOOKS, a British publishing company, launched a series of small picture books to help young children learn to read. They featured Peter and Jane, their dog, their house, their toys and the rest of their little world. Their dad went out to work and their mum stayed at home and looked after Peter and Jane. By the late 1970s, after a couple of updates, their world had changed slightly: dad did more things around the house and Jane was wearing jeans rather than skirts. But she still spent a lot of her time at home playing with her doll or helping mum. Peter preferred to be out and about with dad. The books are still available, but their charm is now of the vintage variety. When they were first published, families in most industrial countries were just like Peter's and Jane's. In America in the early 1970s more than half of all families with children consisted of a breadwinner husband, a stay-at-home wife and two or more kids; now only a fifth do. Instead there are lots of single-parent households, and even if couples live together they no longer necessarily marry. If they do, the wives are likely to go out to work, whether or not they have dependent children, and take only a short break for maternity. Life is too expensive for most families to be able to manage on one pay cheque. In most rich countries the dominant model now is the two-earner family, with both parents working full-time. Men are still more likely than women to be in paid work. Across the OECD countries some 83% of men of working age are in the labour market, compared with 64% of women. But the share of women at work is still rising. In the Nordic countries the gap between men and women has almost gone and in most of the big rich countries it is only ten or 15 percentage points. In the emerging markets it is much wider, not least because women do a lot of unpaid work in family businesses and farms that do not show up in the figures. However, in China the gap, at about 12 percentage points, is smaller than in many Western countries. Even in rich countries the numbers are not all they seem because women generally put in far fewer hours than men. Measured by how many full-time jobs those hours would add up to, the average employment gap between men and women in the OECD widens to around a third. That is because women, particularly if they have children, are much more likely than men to work parttime (see chart 1, next page), and even in full-time jobs they work shorter hours. A woman's place The main reason why
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SPECIAL REPORT WOMEN AND WORK
~
women do not put in long hours at their jobs is that they work long hours at home. Housework and child care the world over, but particularly in poor countries, are still seen mainly as a woman's responsibility, whether or not she also has a formal job. Even in the rich world women spend at least twice as much time as men on unpaid work: an average of 33 hours a week, against16 for men. Where working women are the norm, as in the Nordic countries, the gap between the unpaid hours put in by men and women are smaller, though not negligible; where more of them stay at home, as in southern Europe, and particularly Japan and South Korea, it is much larger. It may be unfair, but by working shorter paid hours, women are managing to achieve a reasonable balance in their lives. In a regular survey produced by the European Foundation for the Improvement of Living and Working Conditions, only 16·18% of women (depending on whether they have young children) across Europe report dissatisfaction with their work-life balance, against 20-27% for men. The most vexing gap between the sexes is in pay. Almost all rich countries have laws, passed mostly in the 1970s, that are meant to ensure equal pay for equal work, and the gap did narrow noticeably for a while when women first started to flood into the labour market. In America, for instance, it has halved since 1970, from 40% to 20%. But most of those gains came in the early years and have tailed off. Across the OECD the difference in male and female median hourly earnings now averages around 18%, but with large and sometimes surprising variations (see chart, previous page). Cheap at the price One explanation for the persistent differences is that men and women, except the most highly educated ones, often work in separate labour markets. Women are concentrated in teaching, health care, clerical work, social care and sales; they are underrepresented in manual and production jobs, maths, physics, science and engineering and in managerial jobs, particularly at the senior end. They are also much more concentrated than men in just a few job categories. Half the employed women in rich countries work in just 12 of the no main occupations listed by the International Labour Office (ILO). The jobs in which men work are spread far more widely, from construction workers to top managers. In America women have in fact made considerable progress in getting into a range of jobs that used to be male preserves, according to a recent paper by the Institute for Women's
II
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Policy Research, a think-tank in Washington, DC. For example, the share of women dentists went up from under 2% in 1972 to over 30% in 2009; that of female lawyers from 4% to 32%; and that of women pharmacists and photographers from the low teens to half. In Finland, where medicine and law used to be maledominated, the majority of doctors and lawyers are now female, as are quite a number of housepainters, says Eeva·Liisa Inkeroinen, a director at the Confederation of Finnish Industries. But in America even now very few women want to become carpenters, electricians or machinists, and men show no interest in becoming dental assistants or hairdressers. During the 1970s and 1980s the labour markets for men and women became less segregated, but that trend came to a halt in the mid-1990s. Younger women are now actually more likely to work in segregated occupations than older ones. That is a worry because there is a strong link between the concentration of women in an occupation and the level of pay. Jobs dominated by women, such as teaching and nursing, pay less across the board. If women become more prevalent in fields such as medicine, will relative pay drop as a result? One place where women seem to be both welcome and happy is the public sector. New work in 12 countries commissioned by the OECD and the World Bank found that the share of women in public-sector employment in all of them except 'fur· key was much higher than their share in total employment. In Sweden, Finland and Denmark, where women make up roughly half the labour force, their share in public-sector employment is a remarkable 70%. The biggest attraction of the public sector is that, for women with the same qualifications and skills, it almost always pays better than does private industry. For men the differences are much less pronounced. The public sector is also more likely to promote women to senior jobs. Figures are hard to come by, but in rich countries women typically hold 30-40% of senior managerial posts in central government. Hours and conditions too are usually more congenial and maternity arrangements more generous. So with better pay, conditions and promotion prospects, it is no wonder that the public sector is the employer of choice for so many women. But the debt crisis has thrown a spanner in the works, because public-sector jobs in many countries have been drastically cut back. That is now beginning to hit female employment disproportionately hard. In America women at first seemed to be weathering the recession rather well. Employment declined for both men and women, but much more for men (see chart 2) because initially the biggest job losses were in male-dominated sectors such as manufacturing and construction. In services, where women are concentrated, the losses were slower to come
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SPECIAL REPORT WOMEN AND WORK
A world of bluestockings OFTH EWORLD's 774m illiterate adults two-thirds are women, a share that has remained unchanged for the past two decades. In rich countries pretty much everyone, male or female, can read and write (though employers sometimes wonder). In developing regions such as South Asia, sub-Saharan and north Africa and the Middle East, men are still much more likely to be literate than women. But girls everywhere are beginning to catch up. Across the emerging world, 78%ofthem are now at primary school, an only slightly smaller proportion than boys (82%). At secondary level enrolment remains lower and girls are further behind, but things are getting better there too. Education for girls in poor countries has all sorts of desirable consequences: not only the likelihood of a better job with higher pay, but also of better health, a later marriage, fewer children and being able to provide better care for the family. Aid donors are making a special effort to give girls' education a push. RobertZoellick, the presidentofthe World Bank, has taken to saying that investing in girls is notjusta good thing but a smart thing to do. The big surprise of the past few decades has been women's huge advance into tertiary education. Across rich countries the share of those aged over 25 who have had some form of higher education is now 33%, against 28% of men in the same age group (see chart 3 for individual countries). Even in many developing regions they make up a majority of students in higher education. It is too soon to feel sorry for men. Although women now earn morefirstdegrees, they mostly still get fewer Phos (though in America they seem to have caught up), and if they stay on in academia
~
they are promoted more slowly than men. Many of them are put off by the way the academic promotion system works, explains lotte Bailyn, a professor at MIT Sloan School of Management. Togetahead,young hopefuls have to put in a hugeamountoftime and effort just when many women startto think about having a family, so they do not apply for senior posts. Ms Bailyn approvingLy notes the recent decision by America's National Science Foundation, which funds a big chunk of the universities' basic research, to allow grant recipients to take a break. Crucially, women's Lead at first-degree level does not so far seem to have translated into betterjob opportunities. In a paper published earlier this year Ina Ganguli, Ricardo Hausmann and Martina Viarengo of Harvard's KennedySchoolofGovernment concluded that the achievement of educational parity is a "cheque in the mail" that may presage more women joining the labour
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More learned Population over 25 years old with tertiary education*, %
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Source: UNESCO
*•
through. Before the start of the downturn at the end of 2007, men outnumbered women on American payrolls by about 3m, but by the third quarter of 2009 they reached parity at just under 65m each. Since early 2010, though, men's payrolls have started to turn up again whereas women's have remained flat-and the public sector is still reducing its head count. Despite these setbacks, women have been riding to the rescue of their families during the recession, says the OECD. In almost all rich countries men's working hours have fallen since the onset of the crisis but women have increased theirs to help make up for the shortfall. The recession has also fuelled interest among both men and women in starting up a business. Becoming an entrepreneur holds particular attractions for women. They can set their own
•Latest ava•lable year
force, but lots of other factors-such as cultural attitudes and the availability of child care-also play a part. On its own, educational parity-even superiority-is not enough. Women may not be helping themselves by concentrating heavily on subjects that set them apart from men. In rich countries they account for over 70% of degrees in humanities and health, whereas the vast majority of degrees in mathematics and engineering go to men. Women with humanities degrees are less likely to be in demand for jobs in high-tech industries, which tend to pay well. At postgraduate level the gap between subjects gets even bigger. And on MBA courses, the classic avenue to senior corporate jobs, women make up only about a third of the students. Such differences between males and females show up quite early in Life. In the oeco's annual study of educational performance, the Programme for International Student Assessment (PISA), girls score better in reading in all countries even at primary level, and much better by the time they are 15. In maths and science boys and girls perform much the same at primary school, but at age 15 boys do rather better than girls in maths (though not science). However, these disparities are not nearly big enough to explain the huge differences in the choice of subject at university level. The oeco's PISA researchers conclude that the choices have little to do with ability and may well be influenced by ingrained stereotypes. That would help to explain why they vary so much from country to country. In Japan women are awarded only 11% ofalldegrees in engineering, manufacturing and construction; in Indonesia their share is exactly half.
hours to fit in with the rest of their lives, and they can be sure that the boss properly appreciates them. Big companies sometimes help them get there. Coca-Cola, for instance, has an entrepreneurship programme called "5 by 20" that aims to increase the number of women who distribute and sell the drink on their own account to sm by 2020. Women run about a third of small businesses in rich countries, but it is not an easy option. They find it even harder than men to line up finance, so their start-ups are often undercapitalised. The businesses are typically smaller than those headed by men, generate fewer jobs and have a lower turnover. Both as entrepreneurs and as employees, women still seem to be at a disadvantage. The most obvious explanation is that most of them have children. •
SPECIAL REPORT WOMEN AND WORK
"we accept it", says Ms Inkeroinen of the Confederation of Finnish Industries: children are seen as the responsibility of society as a whole. Not all employers are so philosophical. There is anecdotal evidence that small businesses in particular try to avoid hiring women who seem likely to start a family. And it is striking that in all the Nordic countries working women are heavily concentrated in the public sector, which finds it easier than many private firms to accommodate the comings and goings. America is in a class of its own as the only rich country where women get no paid maternity leave at all (though two states, California and New Jersey, offer six weeks at reduced rates of pay). In practice some 6o% of women in jobs that require a college education do get paid while on baby leave, but most women doing mundane work do not. Until the Pregnancy Discrimination act of 1978 women could be sacked for being pregnant or having a child, and until the Family and Medical Leave act of1993 they had no right to take time off to give birth. Now at least they get12 weeks, albeit unpaid, after which most return to work fairly promptly. Finding child care is entirely up to the parents. It may seem surprising that American women are not put off by all this. They actually produce more children than most Europeans: more than two per woman. The OECD average is only 1.7, well below the replacement rate of 2.1, and in most big European countries the figure is much lower (see chart 4, next page).
Work and family
Baby blues Ajuggler's guide to having it all "THE MOST STRESSFUL thing about having this baby was arranging cover at work for the time I was going to be away," says Sara Leclerc, an in-house lawyer with an international fire -protection firm. Her new baby girl is asleep and her fouryear-old son is watching television. Over a drink and a snack in her stylish house in the woods outside Helsinki she explains that she plans to be at home for about a year, but will keep in close touch with her company and then resume work full-time. Her husband, Pekka Erkinheimo, a lawyer with another company, will do his share. In this part of the world balancing work and children is for fathers as well as for mothers. Finland's gap between male and female employment rates is less than three percentage points, among the smallest in the world, and the vast majority of Finnish women have full-time jobs. Anne Brunila, executive vice-president of Fortum, an energy company, says that those who stay at home are often questioned about their choice. But working women's lives are made easier by employers' enlightened attitudes, excellent public child-care provision and generous family leave. Almost all rich countries provide paid maternity leave, averaging about 20 weeks. Many also offer paid parental leave, which may be available to either parent but is generally taken by the mother, so a number of countries, including Finland, now have separate "mommy and daddy quotas", allocating periods ofleave to each parent that cannot be transferred. Four out of five Finnish new fathers take a month off. All this leave may seem rather expensive for employers, but
What women want The only European countries whose birth rates come close to America's are France, the Nordics and Britain, and except for Britain they all have excellent child-care facilities. In France the ecoles maternelles play a big part in allowing women to go out to work, and the Nordic countries are famous for their affordable day-care centres with well-qualified staff. In Finland local authorities must guarantee a place for every child under three. Parents on low incomes get it free; the better-off pay up to €250 ($340) a month. The centres are open from 7-8am to s-6pm and provide breakfast and lunch. School hours for older kids are similarly work-friendly, about the same as an adult working day, with a free lunch. Moreover, those schools produce sparkling results: Finland regularly comes near the top the OECD's PISA rankings for educational achievement. A study by the ILO of child care in ten countries last year found huge national differences in provision. In some countries nurseries are seen as a public entitlement, rather like schools. In others the care of small children is considered a private matter. Most countries come somewhere in between. Denmark puts the most money into child care, followed by other Nordic countries. France is also high on the list, as, perhaps surprisingly, is Britain. America and Japan spend well below the average. The study found that most countries are seriously short of good-quality child care for children under three. The market does not provide enough of it because if done properly it is too expensive for most parents, so governments often subsidise it. Provision for older pre-school children is better but still patchy, and the hours are usually too short to allow parents to work fulltime. And even when the children start school, facilities for keeping them in after hours are often lacking. That is a particular beef of working parents in Germany where most schools finish at lunchtime, hours before parents get home from their jobs. How quickly women should return to work after having a child is a vexed question. Clearly they need time to recover physically, to get the baby into a routine and to find child care, so something longer than the basic maternity leave at first sight seems preferable, but it makes it harder to settle back into the job afterwards. If new mothers are off for only a few months their skills will still be fresh when they return and their employers
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SPECIAL REPORT WOMEN AND WORK
r sirth dearth Total ferti lity, children per woman 0
1950-1955 4
-
2005-2010
5
World United States
France Finland Britain China Spain Germany Japan SoLICe: UN
• find it easier to arrange temporary cover. Germany used to encourage women to stay home for up to three years after having a baby, but in 2007 the government changed the incentives because women were becoming disconnected from the labour market. Data on return rates are scarce, but in some European countries at least a quarter of the women go back to work when their maternity leave runs out, and in Anglophone countries about half the women are back on their child's first birthday. Home or away? What is best for the children? The answer is far from clearcut, and cultural attitudes play a part. In Germany a woman who contracts out the care of her young children is still called a Rabenmutter, a bad mother. In America nobody thinks anything of dropping off the kids at a childminder. The academic literature has turned up some evidence that if the mother is back in employment within less than a year of the birth the child's cognitive development may be slightly slowed, and the more so the more hours she works. But the person who looks after the child at home does not necessarily have to be the mother: the father or another person who is well disposed towards it may do an equally good job. In some countries grandparents play a big part in children's upbringing. And much depends on other factors: the quality of the parenting when the mother is at home, the child itself (boys are more likely than girls to suffer from a mother's absence) and the family's economic circumstances. Poverty is very bad for children, so if the mother's work helps to avert it they will benefit. If the child care is being outsourced, then its quality makes all the difference. Poor child care can set a child back. Yet in Denmark, where women tend to go back to work within a few months of giving birth and public child-care provision is first-class, studies have found no ill effects on children's behaviour in their first year of life. And once the child is older than one, being in formal child care may actually be good for it, particularly if it comes from an Time to let go?
underprivileged background. In France pre-school attendance at an ecole matemelle from age two seems to have positive effects on later academic performance. But even if the kids are all right, women still need to figure out whether work will actually pay. That depends not just on wages and child-care costs but also on a number of other factors such as tax policies and benefits. The OECD reckons that across its member countries the net average cost of child care after allowing for fees, cash benefits and tax concessions is 18% of the average wage, which makes children seem a bit of a luxury. Childcare arrangements are often a complicated patchwork quilt of paid help, family, friends and neighbours. In some countries, including Switzerland, Ireland and Britain, the combined effect of the cost of child care and the lack of tax concessions and benefits makes it unattractive for mothers of young children to work unless they are very well paid. If governments in such countries want to get more women into the labour force, they will need to ensure that good-quality child care is more widely available and more affordable, for example by making it tax-deductible. In Britain, where it is not, even highly paid professional women such as corporate lawyers and accountants complain that after paying their nanny's salary, tax and social-security contributions they see little or nothing of their own after-tax earnings. For low-paid parents the calculation becomes even more unattractive. Women in single-parent households- which in rich countries now make up one in five households with children- are often financially better off not working. But the calculation is not just about immediate payback. Across the earnings spectrum, women who have been out of the labour force for a while find it hard to get back in because their skills deteriorate, they become less confident and employers fret about the hole in their cv. Studies of the effect of career breaks show that even a few years away have a devastating impact on lifetime earnings and pension rights, not only because there is no pay coming in but because of the loss of seniority and promotion. That is why many women are prepared to work for only a small net return while their children are young. All this is assuming that every woman will have a family. ••
SPECIAL REPORT WOMEN AND WORK
~
Most do, though they leave it increasingly late: in rich countries the average age at which they have their first child is now 28, compared with 24 in 1970. But growing numbers of women are forsaking motherhood altogether. Of those born in 1965 (who will by and large have completed their families), 18% are childless, with large variations from country to country. In Portugal the figure is only 4%, in Italy around 20%. Some of these women may not have been able to have a family, but most will have chosen not to. The more highly educated and successful they are, the more likely they are to have made that choice. Sylvia Ann Hewlett, founder and president of the Centre for Work-Life Policy in New York, notes that among American college-educated women aged 41-45 in white-collar jobs, two-fifths have no kids. In future women will have to retire much later than they do now because they live ever longer and current pension ages are becoming ever less affordable. If they have no children, their careers will be just as long as men's. And even if they do, as most will, the time spent bringing them up will account for only aminor part of their total working life. Women's role in perpetuating the species is not nearly enough to explain the huge gap in opportunities at the top of organisations. •
Top jobs
Too many suits And not nearly enough skirts in the boardrooms "PERHAPS WE WOMEN should just keep out of this male circus," said one of the participants in a forum on "German Female Executives" run by Odgers Berndtson, a firm of headhunters. Gabriele Stahl, a partner in the firm's Frankfurt office, recalls this comment because it seems to sum up the way many female managers feel about getting to the top of the corporate tree. If they ever do. A study by Elke Holst and Julia Schimeta by the German Institute of Economic Research in Berlin found that in 2010 women held only 3.2% of all executive board seats in Germany's 200 biggest non-financial firms. In the largest companies their share was even smaller. Financial institutions and insurance companies, where at least half of all employees are female, did no better than the rest, and state-owned companies were only slightly ahead. On the supervisory boards, the other component of Germany's two-tier board structure, women are slightly better represented because some of the seats are reserved for employees, but last year they still made up only n% of the total- and one-third of these boards had none at all. That list includes household names like Porsche, E. ON and Robert Bosch. The glass ceiling, like everything else in Germany, is pretty solid. But Germany AG is no worse than many others. Across Europe the proportion of women on company boards averages around 10%, though with large variations: from less than 1% in Portugal to nudging 40% in Norway, thanks to that country's much-cited quota system. America, at 16%, does somewhat better than the European average, and most emerging markets do less well (see chart 5). Big publicly quoted companies tend to have slightly more women on their boards. But the numbers everywhere have barely moved over the past decade. The debate about women on boards and the use of quotas has generated a lot of heat, but the more important question is how many make it into the top executive suites, because that is
where most board members are drawn from, and the picture here is equally dismal. In America women last year made up less tham8% of senior managers and not even 8% of the highest earners (they get paid less than men at every level, including the top layer). Among the Fortune 500 companies only about 15% of the most senior managers and only 3% of the CEOs were women. Female bosses like Indra Nooyi at PepsiCo, Irene Rosenfeld at Kraft Foods, Giiler Sabanci at Sabanci Group and Chanda Kochhar at ICICI get more attention than their male colleagues precisely because women are still so rare at the top of large companies. It was big news last month when IBM appointed its first female CEO in its 100-year history, Virginia Rome tty. It is not that companies refuse to recruit or promote women.ln most rich countries roughly half the new intake of graduates for most professional and managerial posts is female, and some of the women do move up. Ms Stahl, the headhunter, says that half her clients, regardless of the industry they are in, now ask her to put forward female candidates for senior management posts. They say they would not only be happy to employ a woman but would actually prefer one. Companies have long been saying that when they look for potential leaders "there are no women" in the pipeline. That may have been true 20 or even ten years ago, but by now substantial numbers of women have arrived in middle management and even in the "marzipan layer" (just below the icing) from which future top executives are recruited. Why do so few get any further? One reason is that female managers tend to work in socalled functional specialities (such as HR) rather than line management, which is the main hunting ground for the very top but often involves extensive travel and unsocial hours. More importantly, boards have traditionally been made up of white middle-aged males of similar backgrounds who are comfortable with each other and recruit new colleagues in their own image. Women, even if they can be found, "are a bigger risk", says Joanna Barsh, a director in McKinsey's New York office; they have a different style and are more visible, so if something goes wrong everyone notices. Besides, women themselves are often reluctant to put themselves forward for promotion. They have few female role models to look up to, so it takes a leap of the imagination to picture themselves in charge. Promising young men are often guided or sponsored by older colleagues, but there are few senior women who can do the same for younger female colleagues, and if an older man roots for a younger woman it can send the IJ wrong signal. Men also benefit Disproportionate from informal networks that ofWomen on corporate boards ten involve socialising after % of total, September 2011 hours and talking about sport. 10 20 30 40 0 Women may not want to join i Norway these, or may find themselves excluded. Some women find the culFrance ture of organisations so offputBritain ting that they see little point in Germany rising to the top. A famous HarUnited vard Business School case States study by Rosabeth Moss Kanter Spain and}ane Roessner, published in China 2003, describes the efforts of Brazil the then boss of Deloitte, one of India the big four accountancy firms, Russia to stem the attrition among the Sources: ~kKinsey; Catalyst firm's senior women. They
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will double the money it spends with women-owned businesses, train women around the world and push suppliers to use more women. It is trying to rebuild its image after a class-action suit for sex discrimination brought by 1m of its employees that was thrown out by America's Supreme Court in June. Shell is running a global career-development programme for talented women within the organisation and has set itself a long-term target of 20% for women in the company's senior executive ranks. At Time Warner each division has to have a succcession plan for its top management which is reviewed every year for its diversity. Vodafone has a "1•1" programme that requires all managers to put an additional woman on their team each year. Deutsche Telekom last year promised to raise the number of women in the company's middle and upper management to 30% by the end of 201S and is making rapid progress. Commitment at the top of the organisation is crucial for such initiatives, but for many bosses women are barely on the agenda, so nothing much gets done.
Vive La difference
• made up half the new intake at graduate level but only1o% of the candidates for partnership. Losing so many well-qualified people was costing the firm a great deal of money, so it commissioned research from Catalyst, a New York-based think-tank that works to increase the number of women in business, to find out why they were leaving. It got a big surprise. The firm had assumed that most of the women had quit to start a family and spend time at home. It turned out that 90% of them were still working- for other firms. They had got disenchanted with a work environment which they found maledominated and alienating, and felt that the whole system of advancement within the firm that worked well for the men- mentaring, coaching, counselling, networking- worked against them. The heavy work schedule, which the firm had expected to be the main drawback, came only third on the list. If everything else had been fine, the women would have been prepared to put up with it. But this was a horrible place for women to work. Deloitte took the message to heart and set about reinventing itself as a more women-friendly employer. It was not alone in having to do so. A number of other organisations that rely heavily on their human capital, such as accountancy practices, consultancies and law firms, also found they were losing too many of their female employees and were forced to change their working practices. Some of them are now among the most considerate employers of women. Among other things, this usually involves offering a flexible work environment, with the emphasis on getting the job done rather than being present. Ernst & Young, another of the big accountancy firms, regularly features on lists of best places to work, helped by the example set at the top. The firm's boss, James Turley, is also chairman of the board of Catalyst, the thinktank for women in business, and is a strong believer in equal opportunities. Ernst & Young now has three women on its global executive board of 1S and is looking for more. McKinsey also takes great care to look after its women; one ex-staffer says it practises "the opposite of discrimination". Different companies are adopting different strategies. Walmart, the world's largest retailer, announced in September that it
The business case The companies that are taking action are hardly doing it out of the goodness of their hearts. The main argument now being put forward is that there is a business case for having more women in senior positions. At its most basic, this says that since women make up so% of the population and hence so% of the talent, it would be absurdly wasteful to ignore them when so many businesses struggle to fill high-powered jobs- all the more so as women are now generally better educated than men. There is much woolly talk about women's management style, which is supposedly more pragmatic, more empathetic, more risk-averse (which is seen as a good thing after the excesses in the run-up to the financial crisis) and stronger on communication than men's. In his book "The Red Queen", Matt Ridley, a popular science writer, points to differences between male and female behaviour that were established in the early days of Homo sapiens when men specialised in hunting and women in gathering. It may be true that certain attitudes and preferences are more prevalent in women than in men, but it seems unreasonable to assume that these traits will be present in individual bosses just because they are women. After all, male manage-
Anumber of studies have pointed to a strong correlation between significant numbers of women at the top of a company and its success in the marketplace ment styles also vary widely. A more persuasive argument for including women in teams of leaders is that they add diversity of experience and outlook, and that a more diverse team is likely to be better at producing new ideas than the same old people patrolling their comfort zones. A number of studies have pointed to a strong correlation between significant num hers of women at the top of a company and its success in the marketplace. In 2004 Catalyst looked at the performance of Fortune soo companies and found that the group with the highest representation of women in top management also had a much better return on equity than those with the lowest. Three years later it examined the boards of directors of the same group of companies and again found that those with the most women were, on average, more profitable and more efficient than those with the least. Companies with a "critical mass" of women directors- at least three- did better than those with smaller numbers. Ilene Lang, Catalyst's president and CEO, says a single woman on a board is often seen as a token and two as a pair, but when numbers get to three or more each woman is ••
SPECIAL REPORT WOMEN AND WORK
~
seen as an individual in her own right. McKinsey in 2007 studied over 230 public and private companies and non-profit organisations with a total of ns,ooo employees worldwide and found that those with significant numbers of women in senior management did better on a range of criteria, including leadership, accountability and innovation, that were strongly associated with higher operating margins and market capitalisation. It also looked at 89 large listed European companies with high proportions of women in top management posts and found that their financial performance was well above the average for their sector. Other studies have come up with similar findings. Nobody is claiming evidence of a causal link, merely of an association, but the results are so consistent that promoting women seems like a good idea, just in case.
No thanks Do women actually want the top jobs? Sheryl Sandberg, the coo of Facebook, spots a female "ambition gap". Women are less ambitious not only than men, she says, but also than women were 20 years ago. In America she sees lots of bright, well-educated young females aiming lower than their male peers and settling for careers below their potential because they are already thinking ahead to the time when they might want to have children. She is urging them to "put up their hands and sit at the table". But it could just be that these young women are taking a long, hard look at what it takes to get to the corner office and deciding that it is just not worth the effort. The most senior jobs in big companies are generally of the "extreme" variety, involving huge responsibility, working weeks of 70 hours or more and constant travel. There is much debate about trying to change the high-pressure culture at the top of business in favour of something calmer and saner, but global competition will ensure that there are always people who will put in the hours- and the chances are that a majority of them will be men. Catherine Hakim, a fellow at the Centre for Policy Studies, a British think-tank, argues that although men and women have the same cognitive ability, they have different tastes, values and aspirations, which means they behave differently in the workplace. She distinguishes between three main groups of people: the "home-centred" at one extreme, who are interested mainly in family life and children; the "work-centred" at the other, who are committed to a career; and the "adaptives" in between, who want to combine work and family. Among women, each of the two groups at the extremes typically account for about 20% of the total, depending on the country, but the great majority are somewhere in the middle, juggling as best they can, and will respond to any measures that make it easier for them. By contrast, says Ms Hakim, among men the share of the work-centred group is between half and three-quarters. The rest are adaptives, with a negligible number of home-centred ones. Given these differences between men's and women's priorities, she argues, women in rich countries have got as close to parity in the workforce as they ever will. They have achieved equal rights and opportunities and can choose to work wherever they like, but they are not under the same pressure as men to achieve, and most of them will go for a balanced life rather than aim for the top. In Ms Hakim's view, "family-friendly" policies have proved to be counterproductive in Sweden and women will never fill so% of senior jobs. The stubborn refusal of numbers at the top to shift seems to bear her out. But there is something deterministic about the argument. If the proportion of women with different attitudes to work varies among countries, might it not change over time as more women get into the marzipan layer and beyond? •
Women in China
The sky's the limit But it's not exactly heaven PULLY CHAU SPENT eight years working for the Chinese office of a big international advertising agency and never got a pay rise; there was always some excuse. "It was stupid of me not to ask," she says. "If I had been a Caucasian man, I would have done better." She stuck around because she liked the idea of working for an outfit that was well known in China and hoped to learn something. Eventually she got fed up and took a job with another Western agency, draftfcb, where she is now chairman and CEO for Greater China, based in Shanghai. Just turned so, glamorous, confident and boundlessly energetic, she could pick and choose from any number of jobs. There are lots of opportunities for women in China, she says- but in business life is still easier for men. Women make up 49% of China's population and 46% of its labour force, a higher proportion than in many Western countries. In large part that is because Mao Zedong, who famously
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SPECIAL REPORT WOMEN AND WORK
• said that "women hold up half the sky", saw them as a resource and launched a campaign to get them to work outside the home. China is generally reckoned to be more open to women than other East Asian countries, with Taiwan somewhat behind, South Korea further back and] apan the worst. And its women expect to be taken seriously; as one Chinese female investment banker in Beijing puts it, "we do not come across as deferential". Young Chinese women have been moving away from the countryside in droves and piling into the electronics factories in the booming coastal belt, leading dreary lives but earning more money than their parents ever dreamed of. Others have been pouring into universities, at home and abroad, and graduating in almost the same numbers as men. And once they have negotiated China's highly competitive education system, they want to get on a career ladder and start climbing. The opportunities are there. Avivah Wittenberg-Cox, who runs a consultancy, 20-first, that helps companies improve the balance between the sexes in senior jobs, points out that China already has a higher proportion of women in the top layers of management than many Western countries. The supply of female talent is abundant, says Jin Yu, a partner with McKinsey in Beijing and their most senior woman in China, but once you start funnelling it the numbers come down. She also concedes that there is room for improvement in
the way that Chinese companies nurture potential female leaders. The same goes for the Chinese body politic: only 13 of the 204 members elected at the most recent meeting of the Chinese Communist Party's central committee (its top decision-making body) were women. Jobs with state-owned companies are popular with Chinese women because at lower levels these are relatively comfortable places to work, with shorter and more predictable hours than in the private sector. But attitudes remain highly conservative and very few women are found in the upper echelons. Wendy (not her real name), a well-qualified woman in her 40s with an MBA, holds down a senior job at China National Petroleum Corporation, the country's largest integrated oil and gas company, but complains that women suffer from discrimination both in her company and her industry. She has had to do a lot of travelling to places like Libya, Sudan and Pakistan and blames her recent divorce on the demands of the job. "You have to give up a lot" to maintain your position at work in a company like hers, she says. After her divorce she applied for a lower-level post with less punishing hours so she could spend more time with her 12-year-old daughter. But she is already studying for her next qualification and plans to go back on the fast track once her daughter is older so she can send her to study in Britain. "Chinese women have a very difficult life," she says. Many female high-fliers in China find it easier to work for a multinational. Iris Kang, who heads the business unit for emerging markets at Pfizer, a pharmaceutical company, used to be a doctor in a state-owned hospital but switched to the private sector after a visit to Nepal, where she developed a taste for the capitalist system. She says there is less sex discrimination in multinationals than in Chinese companies, and the number of women in senior posts in her firm is rising rapidly. Hers is another tale of relentless self-improvement. Soon after she joined the private sector she took an executive MBA at the China Europe International Business School (CEIBS) in Shanghai, China's most highly rated business school, and last year she added a Masters degree in pharmaceutical medicine, all the while heading a team of 120 people in her job with Pfizer. As Ms Kang says, to succeed as a woman in China "you need to be better than a man." That goes for female entrepreneurs, too. China has plenty: over 29m of them at the latest count, or a quarter of the national total, according to Meng Xiaosi, vice-president of the All-China Women's Federation. And some strike it very rich: seven of the14 women on last year's Forbes worldwide list of self-made billionaires were from China, with property magnates particularly prominent. China is growing so fast that there are plenty of opportunities for start-ups and less red tape than in more mature economies, and finance is less of a problem than in the West.
There is room for improvement in the way that Chinese companies nurture potential female leaders. The same goes for the Chinese body politic It is hard to see how these formidable Chinese women can fit any children into their impossibly busy lives, but most of them do. They are entitled to (but don't always get) three months' paid maternity leave and mostly return to work afterwards. That is made a little easier by one big advantage they have over most working women in the West: hands-on grandparents. The older generation has traditionally played a large part in bringing up children in China, and still does. A baby is often farmed out to the grandparents for the first few years of its life, or the grandparents ••
Looking ahead
Here's to the next half-century It's taking a long time, but things are getting better
Precious in every way ~
come to live in the family home to look after it. If no grandparents are available, nannies are plentiful and affordable. Most of these women seem to stop at one offspring, not only because of the one-child policy (which can be quite leaky) but because any more would be just too difficult to manage. Even looking after the one-and-only takes up a huge amount of time and resources. The whole business of child-rearing has become exhaustingly competitive.
Grooming the little emperors It starts at kindergarten, which may be of the Monday-toFriday boarding variety, and can get very expensive even at that level: the best ones are vastly oversubscribed, and although they are state-run, you hear stories about parents being asked for "sponsorship" of up to 20o,ooo yuan ($32,000) to get in. After that the child has to be manoeuvred into the best school, homework needs to be closely supervised and there is a lot of ferrying around for after-school activities. Steering a child through all this almost amounts to a full-time job. The effort culminates in the gaokao, the national college-entrance exam that determines which, if any, university the youngster can get into. What makes life even harder for Chinese women is that most Chinese men still expect them to look after home and fam ily more or less single-handed, whether or not they are holding down a job. That includes caring for elderly parents or relatives, so it does not stop when the children grow up. These are deeprooted, hard-to-shift attitudes that long pre-date the Mao era. Many Chinese men find it psychologically hard to cope with high-earning wives, and if something has to give it is usually the wife's job. Women who are too stridently successful may have trouble finding a husband in the first place. Even China's female high achievers are now beginning to wonder if they are doing the right thing. In their recent book "Winning the War for Talent in Emerging Markets", Sylvia Ann Hewlett and Ripa Rashid note that "the concept of work-life balance, once foreign ... is an increasingly popular topic of conversation." It has already become more acceptable for a woman not to be working, says Helene Zhuge, CEO of bon-tv, a private television network broadcasting from China to the world. If her husband has a good job, or she has money of her own, she can now be a stay-at-home wife without incurring social disapproval. According toMs Zhuge, this is part of a broader movement over the past few years towards greater social liberalism in China. In the big cities it is now fine for a couple to live together without being married; divorce is getting more common; and being gay is no big deal. But having children out of wedlock is still unusual because the bureaucratic complications are horrendous. •
"WOMEN ARE NOT at the top anywhere," says Herminia Ibarra, a professor at the INSEAD business school near Paris. "Many get on the high-potential list and then languish there for ever."Thatis broadly true not only in business but also in politics, academia, law, medicine, the arts and almost any other field you care to mention. In parliaments across the world women on average hold just 20% of the seats (see chart 6), though again the Nordics do much better. In Finland-one of the first countries to give them the vote, in 19o6- women have at various times held more than half the ministerial jobs. The prime minister one back was a woman and so is the current president, Tarja Halon en, the first female to hold the post. A lawyer, doughty fighter for women's rights and single mother, she is nearing the end of her second and final term of office but would like to see another woman president soon: "Once is not enough." Elsewhere too female political leaders are becoming less unusual-think of Germany's Angela Merkel, Brazil's Dilma Rousseff, Australia's Julia Gillard or Liberia's Ellen Johnson Sirleaf- but still far from common. The most egregious gap between men and women is still in the world of work. The World Economic Forum, a Geneva-based think-tank, earlier this month published its latest annual "Global Gender Gap Report", comparing progress in 135 countries towards sex equality in four broad areas. In health and education, says Saadia Zahidi, head of the WEF's Women Leaders and Gender Parity Programme, most countries have largely closed the gap in recent years. In the third, politics, the gap is still wide but progress has been relatively rapid. The fourth, economic opportunity, is proving dishearteningly slow to shift, not just in developing countries but in many rich ones too. Ms Zahidi argues that "smaller gaps in economic opportunity are directly correlated with greater competitiveness, so increased equality helps to promote economic growth." On the face of it women have done all they possibly to prepare themselves. Speak up Ill could Noting that their menfolk got Women in single or lower better jobs if they were more house of parliament highly educated, they piled into %. end August 2011 the colleges. They went out to 0 10 20 30 40 50 look for work in such numbers ! Sweden that in many countries now al· Finland most as many women as men hold down jobs. They poured Netherlands i into business and the profes· Spain II sions, and a lot more of them Germany these days make it to middleBritain ranking jobs. But there the vast China of them stop. majority Italy The reasons are complex, us but a few stick out. First, work in Russia most organisations is struc· India tured in ways that were estab· Brazil lished many decades ago, SoL ICe: Inter-Par hamentary Umon when married men were the
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SPECIAL REPORT WOMEN AND WORK
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breadwinners and most married women stayed at home. Yet even though the great majority of families no longer fit that pattern, most workplaces have failed to take the change on board. They think they are being egalitarian by treating women exactly the same as men, but women's circumstances are often different. "We shouldn't be fixing the women but the system," says Alison Maitland, a senior fellow with The Conference Board, a think-tank, and joint author with Avivah Wittenberg-Cox of "Why Women Mean Business", a book about women in leadership roles. A lot of men, as it happens, would also like to see work organised more flexibly to fit their lives better. Second, though biology need not be destiny, it would be silly to pretend that having babies has no effect on women's careers. Although women now have children later and in smaller numbers, they often start thinking about having a family just at the time when career-oriented people are scrambling madly to get to the top of their particular tree. Most workplaces set critical goals for aspiring leaders (such as making partner or joining the board) at specific ages. Some women join the scramble and forget about having children, but if they take time out to start a family they find it very hard to catch up afterwards. Third, women can be their own worst enemies. They tend to be less self-confident than men and do not put their hands up, so they do not get the plum assignments or promotions or pay rises. Iris Bohnet, a professor at Harvard's Kennedy School, says
that women are less likely than men to negotiate for themselves (although they do very well when negotiating for others), and less willing to volunteer an opinion when they are not sure. They can also be too honest. When a team led by Robin Ely, a professor at the Harvard Business School, was asked to advise a consultancy on the reasons for high turnover among its women, it found that the firm's projects were often badly managed, making for long hours. The men, it discovered, were not happy either, but they quietly rearranged things to make life easier for themselves. The women went part-time or quit.
Women can be their own worst enemies. They do not put their hands up, so they do not get the plum assignments or promotions or pay rises.
Bright sparks welcome
Fourth, discrimination continues in subtle ways. Business schools that follow their alumni's careers find that men are promoted on their potential but women are promoted on their performance, so they advance more slowly. The women adjust to this, which slows their progress even more, and so the discrimination goes on without either side necessarily being aware of it. Underusing women across the spectrum of human activity is obviously wasteful. Their cognitive endowment is the same as men's, but because they have different interests and styles, they make for more diverse and probably more innovative workplaces. And since most rich countries' working populations are ageing, women's talents will be needed even more in the future. So what is to be done? Legislation makes a difference. Over the past few decades
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SPECIAL REPORT WOMEN AND WORK
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most rich countries, and many poorer ones too, have passed laws to ensure equal opportunities and equal pay for women. They do not always work as intended, but they make overt and gross discrimination less likely. The pay gap between men and women, for instance, has significantly narrowed in most countries in the past 30-40 years, even though progress has recently become more sporadic. Governments can also help in a variety of other ways: by ensuring that tax rules do not discriminate against dual-earner families; by legislating for reasonable (but not excessively long) maternity and paternity leave; and, in the longer term, by pushing for school hours that allow both parents to have paid jobs. Given that education for older children is seen as a public good, there is an argument for also subsidising child care for the very young, or at least making it tax-deductible. Golden skirts Should governments legislate to close the gap between men and women at the top of companies? Norway has become famous for imposing a 40% quota for women on the boards of all state-owned and quoted companies. Over a period of about a decade this raised the proportion of women on boards from 6% to the required figure. Aagoth Storvik and Mari Teigen, two Oslobased academics who made a detailed study of the experiment last year, found that once the policy was implemented the heated debate over it died down completely and the system now seems to be working smoothly. But the researchers also point out that even now only 5% of the board chairmen (and only 2% of the bosses of companies quoted on the Oslo stock exchange) are women, so this is not a quick fix. Nevertheless other countries have picked up on the Norwegian example. Spain has set a mandatory 40% target for female directors of large companies by 2015 and France by 2017. Germany is debating whether to impose quotas. In Britain a government-commissioned report earlier this year recommended that companies set themselves voluntary targets, but six months later only a handful seemed to have got around to it and progress is being kept under review. The European Union's justice com-
Boss-in-waitinq
missioner, Viviane Reding, has told European business leaders to promote many more women to boards voluntarily, or they Reprints may find their hands forced. Reprints of this special report are available Nobody likes quotas: they at US$7.00 each, with a minimum of 5 copies, smack of tokenism and unfair plus tO% postage in the United States, 15% postage in Mexico and Canada. Add tax competition. But many people inCA, DC, IL, NY, VA; GSTin Canada. who started off opposing them For orders to NY, please add tax based on cost have changed their minds. Lynof reprints plus postage. da Gratton, a professor at the For classroomuse or quantities over so. please telephone for discount information. London Business School, is one Please send you r order with payment by of them. She accepts the usual cheque or money order to: objection that quotas will enJill Kaletha of Foster Printing Service courage some women who are Telephone 866 879 9144, extension 168 or [email protected] not very good but points out (American Express, Visa, MasterCard and that boards also contain lots of Discove r accepted) men who are not very good. For more information and to order special And there are those who reportsand reprints online, please visit think you just have to keep plugour website ging away. Dame Helen Alexwww.economist.comjrights ander, until recently president Future special re ports of the Confederation of British Video games December 10th 2011 Industry (and a former chief exState capitalism January 21st 2012 ecutive of The Economist Pakistan Februa ry 11th 2012 Financial innovation February 25th 2012 Group), is not in favour of quoPrevious special reports and a list of tas, preferring voluntary targets. forthcom ing ones can be found online: She has found progress in large economist.comjspecialreports British firms "really patchy" but thinks that companies are getting better. She also reckons that men are changing, noting that "we now hear about husbands of high-earning women staying at home to look after the family." That would have been unthinkable 20 years ago. Certainly young men now at the start of their career see the world differently from their fathers. They are less inclined to work extreme hours to advance their careers and more interested in achieving a reasonable balance between their work and the rest of their lives. That is what most women have been asking for all along. If both men and women pressed for such a balance, employers would find it harder to refuse and perhaps everyone would be happier. Facebook's Ms Sandberg points to studies showing that couples where both partners work full-time and share responsibilities in the home equally have lower divorce rates and better sex lives. In much of the developing world such a balance is still a Utopian vision, and even in rich countries many women still get a raw deal. But not nearly as raw as they did half a century ago, when even in Europe some women did not have the vote, discrimination was rife, women's jobs were second-class and the pay gap was huge. It may be taking far too long, but there is no denying that women's lives have got much better. Listen to the Chinese banker quoted earlier in this report: she works her socks off, looks after her family, supports her ageing parents and has no time for herself. But she still says she considers herself lucky: "In another life I would be a woman again." •
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57 Also in this section 58 Tunisia's new coalition government 58 Libya' s as-yet-unbridled militias 59 Can the Palestinians reunite? 60 Ba hrain' s huma n-rights re port 60 Congo's de pressing election 62 South Africa's secrecy law
For daily analysis and debate on the Middle East and Africa, visit Economist.comfworld/middle-east-africa
Egypt' s turmoil
Who will benefit from the chaos? CAIRO
The obtuse generals may have dished the electoral chances of Egypt's secular liberal democrats street vendors in CaiQ UICK-WITTED ro's Tahrir Square have enjoyed a - steady, if dwindling trade in revolutionary flags and stickers since mass protests toppled the regime of Hosni Mubarak in February. In recent days souvenir tat has given way to a hotter-selling item. With riot-police spewing choking clouds of teargas round the clock, and Tahrir's resilient crowds of protesters again swelling into hundreds of thousands, the market for cheap, Chinese-made gas masks has proved rewardingly brisk. Egypt's rulers, on the other hand, seem sorely lacking in such street wisdom. When the Supreme Council of the Armed Forces (SCAF), a body of 24 generals, assumed power in the wake of Mr Mubarak's fall, Egyptians by and large expressed joy and relief The council promised sweeping reforms, a swift return to stability and a prompt transition to elected civilian rule. Instead, the country has lurched from crisis to crisis. In the absence of either a clear political horizon or bold, pragmatic policies, the economy has stumbled into a morass, even as the generals stretched their timetable for democracy from months to years, and hinted that even then they expected to retain a dominant role. This was not the revolution that many Egyptians feel they fought and suffered for. Frustration at having been cheated, and fear of regression to the ways of Mr Muba-
rak's 30-year dictatorship, underlie the latest dramatic return to street protests. When riot-police, disgraced by the brutality that helped trigger last year's uprising, again reverted to murderous force to evict a small number of protesters in Tahrir Square on November 19th, on orders from the generals and with the help of military police, the patience of disappointed revolutionaries snapped. Over the next few days, culminating on November 22nd, tens of thousands of Egyptians descended on Tahrir in the largest such gatherings since the final days of Mr Mubarak's rule. Back then, the protesters' anger focused on the goal of ousting the president. In the interim, political fragmentation between secularists and Islamists, reactionaries and progressives, has prevented similar unity around a single objective. But as unrelenting clashes with security forces, not only in Tahrir Square but in a dozen other Egyptian cities, produced a mounting toll-40-odd protesters had been killed and 3,500 injured across Egypt in the week leading up to November 23rd, according the Ministry of Health- the fury has again found a focus. "Get out! Get out!" bellowed the vast throng in Tahrir. The demand was aimed at Field-Marshal Muhammad Hussein Tantawi, Egypt's 76-year-old minister of defence and effective head of state, in a rousing echo of the chants that sealed Mr Mubarak's doom. Yet this personalisation was
mostly rhetorical. The broader wish, shared now not only by the Tahrir protesters but across a wide spectrum of Egyptian opinion, is for the army, which many people now think has lost its legitimacy, to relinquish power as soon as possible. In another echo of last winter, the generals responded to the sudden challenge in ways that some regard as offering too little, too late. Bowing to long-standing demands as if suddenly inspired, Field-Marshal Tantawi promised to hold presidential elections by the end of June, to free political prisoners and to allow impartial investigation of the security forces' abuses. Reiterating the army's determination to leave power eventually, he said it might even go soon, should the people express this wish in a referendum. More immediately, he accepted the resignation of the appointed civilian cabinet, which has been seen as weakened by interference from the military council. Discussions are under way to appoint what many expect to be a new cabinet better representing political forces, perhaps under the premiership of one of the leading presidential candidates. These moves have gone some way to meet popular demands. Notably, the Muslim Brotherhood, by far Egypt's strongest political party, has voiced cautious support. Yet by refusing to join the Tahrir demonstrations, the Brotherhood also exposed itself to sharp criticism, as well as to another round of defections from youths inspired more by revolutionary action than by its ageing leadership. Several prominent politicians, including Mohamed ElBaradei, a Nobel peace-prize laureate, pointedly refused to accept an invitation to meet the generals in an attempt to restore calm. At this juncture, said Mr EIBaradei, solutions should come from Tahrir Square and not be imposed by a ruling council that should retire to the barracks ~~
58 Middle East and Africa
The Economist November 26th 2011
~ rather
than run the country. Yet it will be hard for Egypt's fissiparous people to express their opinion through the maelstrom of Tahrir. Big differences persist between political forces. Many people, particularly working-class Egyptians facing grim economic prospects, have increasingly seen the protests, and even the political class in general, as the cause of their troubles rather than a source of hope. In an ideal world, the answer to such quandaries would be elections to produce a new leadership with a clear mandate. Egypt's first post-revolutionary polls are due to open on Novemben8th. Yet politics in the most populous and influential Arab state is fragmented among dozens of parties and starkly polarised between secular and religious trends. Buffeted by pressures from all sides, the military council opted for an electoral system so complex that it seems designed to generate confusion and controversy rather than conclusive results. Elections for the People's Assembly are to take place in three stages, across different regions, over the next six weeks, followed by elections to an upper house known as the Shura Council in a similar time frame. The recent violence has placed in doubt the wisdom of holding them at all just now. And the voting looks likely to produce a skewed outcome. Politically experienced, well-financed and disciplined, the Muslim Brotherhood is guaranteed a strong showing. The fundamentalist Salafists have created networks with strong roots among the poor. Local strongmen of the former ruling party may also do well, while the biggest losers are likely to be the newer parties that stand for the spirit of Egypt's revolution. Small wonder that they have again taken to the streets in force. •
Tunisia's new government
Islamists and secularists at one TUN IS
A new assembly makes a steady start with an Islamist-led ruling coalition "{"' J HILE Egypt is rent anew with prot-
VV ests, Tunisia's democratic transition is moving smoothly ahead. The 217 men and women elected to a constituent assembly convened in a dignified inaugural session on November 22nd as tensions perceptibly eased now that the unelected transitional government, set up mainly by behind-the-scenes fixers, is bowing out. Most prominent among the guests was Rachid Ghannouchi, the 70-year-old leader of the Islamist party, Nahda, who spent 20-plus years in exile in London. Nahda emerged as the clear victor in last month's election, with 41% of the assem-
Ghannouchistridesahead bly's seats. It will now have most influence in setting the agenda. A general election is expected under a new constitution in late 2012 or early 2013. Tunisia's new prime minister will be Hamadi Jebali, a former political prisoner who did the rounds of Washington thinktanks in the summer, explaining Nahda's policies and reassuring Americans that it would not be frighteningly Islamist. Nahda has signalled it would not demand the lion's share of cabinet seats. For the time being it wants to steer clear of the trickiest ministries: interior, justice and defence. The party has negotiated a three-party coalition with Moncef Marzouki's liberal Congress for the Republic and Mustapha Ben Jaafer's centre-left Democratic Forum for Labour and Liberties, better known as Ettakatol. Both party leaders won respect for standing up for human rights in the era of Zine el-Abidine Ben Ali, when political opposition was virtually impossible. Mr Ben ]aafer has been endorsed as the new assembly speaker, whereas Mr Marzouki is set to become Tunisia's president. Both these secular parties are laying down firm conditions for teaming up in government with the Islamists, especially after an ill-advised choice of words by Mr Jebali. A leading Tunisian newspaper quoted him as saying in a speech to party activists on November 13th that the country was entering a "new phase of its civilisation" and that a "sixth caliphate" could now be instituted, "God willing". Though he added that Nahda had been elected "not to govern but to serve", his reference to the historical idea of a united Muslim state headed by a leader representing the community of believers stirred the worst fears of the country's largely secular-minded middle class. Mr jebali later said he had been alluding merely to the principles of
"justice, sincerity, freedom and loyalty" evoked by the word "caliphate". More such ideological skirmishes are to be expected, as the newly empowered politicians hone their consensus-building skills and as Nahda continues to try to allay the fears of those who voted against them. Nahda strategists, conscious that Tunisia is a small regional power, are also keen to reassure the country's neighbour to the west. On November 20th Mr Ghannouchi flew to Algiers to see President Abdelaziz Bouteflika and party leaders, including Bouguerra Soltani of the Movement for the Society of Peace, an Islamist party that is part of Algeria's government and is close to the Muslim Brotherhood. Tunisia's election surprise was sprung by the Popular Petition, sponsored by an exiled former Nahda activist, Hachmi Hamdi, who runs a low-budget television station from London. Tapping into rural worries about unemployment and health care, his list came from nowhere to emerge as the third-largest party, with 26 seats. But Nahda is holding it firmly at arm's length. After an anti-corruption commission on November uth published a letter Mr Hamdi wrote to Ben Ali in December 2009, in which he offered to produce a week of programmes to highlight "democratic developments" in Thnisia, Mr Hamdi cancelled his return home from exile. He admits that his channel got a lot of advertising income from Mr Ben Ali's regime, but then so, he rightly points out, did most of the rest of Tunisia's media at the time. • libya's militias
Hard to control the cocl
Untamed militias are vying for power "{"' T HEN Saif al-Islam, the favoured son
VV of Muammar Qaddafi, was captured by a militia from the mountain town of Zintan on November 19th, thousands danced in the streets of Libya's capital, Tripoli. Abdullah ai-Senussi, the hated intelligence chief and the last of the top Qaddafi aides still at large, was detained days later. A pro-Qaddafi insurgency, once feared, now looks a lot less likely. But the new authorities are still struggling to build a coherent government. Many of the militias that helped to fight Colonel Qaddafi feel entitled to a share of power. They continue to hold on to territory and weapons captured in the summer without bowing to a central authority. Earlier this month two militias fought each other in a territorial dispute near the town of Zawiya, west of Tripoli. National ~~
The Economist November 26th ~ leaders
tried to mediate. Qaddafi-era police, though back on the streets, were too weak to intervene. The fighting died down only after the arrival of special forces led by the man who once headed them under Colonel Qaddafi. Power remains fluid in post-revolutionary Libya. Zintan's fighters have so far declined to turn the captured Saif al-Islam over to the central authorities and may be using him as a bargaining chip. When an interim cabinet was announced on November 22nd, the appointment of Osama al-Juwali as defence minister was no coincidence. He is from Zintan. Yet it is uncertain how much power he will have. Colonel Qaddafi kept most of his forces weak to avoid coups. A new national army has yet to be built. That task may fall to General Khalifa Haftar, a longtime exile in the United States. Waiting in the wings are Abdel Hakim Belhaj, commander of the Tripoli Brigade, which led the uprising in the capital, and Fawzi Bukatif, who commanded troops in the east. They are lying fairly low after being labelled as Islamists and proteges of Qatar, the tiny but rich Gulf state that tool< the lead among Arabs in toppling the colonel. They may bide their time until the middle of next year when the interim cabinet is due to be replaced by one chosen by an elected parliament. Access to cash is another problem for ministers. Most of Libya's ample foreignheld assets remain frozen pending the certification of mechanisms to repatriate them. The finance minister has let it be known that, to avoid corruption, he does not want to flood the country with money. But without it plans to collect weapons and pay fighters to go home cannot begin to be acted on. So Libyans may see more violent spats between militias and unilateral moves over high-value prisoners. •
Who propels whom?
Middle East and Africa 59
2011
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The Palestinians
May rival factions come together? GAZA AND J ERU SALEM
Talk of Palestinian reconciliation is once more in the air. But is it real?
ALL goes to plan, Palestine should soon IingFreuniteat least in theory- its two feudenclaves: the Gaza Strip, run by the Palestinian Islamist movement, Hamas, and the West Bank, the power-base of the Palestinians' secular national movement, Fatah. On November 24th their two leaders, President Mahmoud Abbas and Khaled Meshal, were to meet in Cairo to discuss implementing an agreement they signed in principle in May to form an interim government, to set a date for elections, and to bring Hamas into the fold of the Palestine Liberation Organisation, a policy-making body that is supposed to be an umbrella for all the Palestinian groups. The plan is by no means sure to come to fruition. After a week of arm-twisting by Barack Obama's envoys and by King Abdullah of Jordan, who flew his helicopter to Mr Abbas's seat in the West Bank city of Ramallah for the first time in over a decade, the gaps are widening again. Mr Abbas insists on keeping the West's favourite Palestinian, Salam Fayyad, as prime minister, to ensure that Western aid continues to flow; Hamas wants him out. The Fatah faction shrinks from elections, unable to agree on a leader to replace Mr Abbas, who wants to retire. It is fearful of reigniting the infighting that helped Hamas win the previous such electoral contest, in 2006. For once Hamas had seemed genuinely interested in a deal. While Fatah faltered, Ham as's fortunes had been rising, perhaps to their highest level since its election victory in 2006, when it got 44% of the vote to Fatah's 41% but won a big majority of seats. On the commercial front, too, Hamas has gained ground. It has burrowed its way out of Israel's siege, with a web of tunnels from Gaza into Egypt. Every day 6,soo tonnes of smuggled building material comes in. The damage inflicted by Israel during its assault on Gaza in late 2008 and early 2009 has been largely repaired, says
Hamas's economy minister, Ala Refati, struggling to make himself heard above the din of building next door. Moreover, the Islarnists have achieved a prisoner exchange with Israel of a magnitude which defied the mild Mr Abbas. And after years of struggling against autocratic Arab foes, the movement from which Hamas hails, the Muslim Brotherhood, is gaining influence and power across the region. Hamas would benefit handsomely from reconciliation with Fatah. It would re· gain its foothold in the West Bank. It might, depending on diplomatic manoeuvring, open a channel of dialogue with the West, perhaps to European governments if not to the United States. To flaunt its sincerity, Ha· mas has let Fatah activists wave their flags in Gaza, and has attended the workshops and weddings of Fatah people there. But there will be few tears on either side if the latest reconciliation bid fails. Even when a deal has seemed in reach, Gaza's leaders eye richer opportunities to the south. A Hamas delegation recently in Egypt presented plans for replacing the un· derground traffic, currently estimated at $1 billion a year, with a free-trade zone straddling the common border; if trade were open and legal, that figure, say Hamas people, could double. They also suggest that Gaza be linked to Egypt's electricity grid, to end the strip's daily blackouts. Direct bus routes could connect with the rest of there· gion. "Within two years, you'll be able to drive all the way from Gaza to Morocco," predicts another Hamas minister. Some Hamas leaders in Gaza foresee diplomatic gains, irrespective of a deal with Fatah. Those who want a dialogue with the West say it will be far easier to do so under the umbrella of the region's Islamist regimes, with whom the Obama ad· ministration is now engaged, than via the Palestinian Authority over which Mr Ab· bas presides in the West Bank. As things stand, however, the Americans and Israelis say they will cold-shoulder any Palestinian government if Hamas is part of it. In any event, other top Hamas men in Gaza dream of restoring an Islamic order free of internal borders. Mahmoud Zahar, for instance, fondly recalls taking the train from Gaza to his mother's hometown of Ismailiya, on the far bank of the Suez Canal, before Israel's 1967 occupation. "We're all one," he says, as he spins a globe on his cof· fee table, counting the Muslim states that once comprised the Islamic caliphate. Egypt's stumbling military government is wary of encouraging such hopes. But Hamas is banking on Egypt's Muslim Brothers soon coming to power, perhaps in a coalition, by the ballot box. "Hamas does not feel alone," sighs a Fatah official, Hos· sam Zomlot, who this month went back to Gaza for the first time in seven years. "It is part of an Islamist movement of 150m peo· ple which is winning the Arab spring." •
60 Middle East and Africa
The Economist November 26th 2011
Bahrain's human-rights report
The king's risl
A surprisingly candid report offers a slim chance of reconciliation
T WAS both a humiliation and a triumph. Ilistened Bahrain's King Hamad bin Isa al-Khalifa quietly as a litany of human-rights abuses committed by his security forces was read out. It was a devastating and embarrassing indictment of his security forces' behaviour. But it was also a vindication of his claim that it would be an independent and genuine attempt to get at the truth, thereby undermining his opponents' insistence that it would be a worthless document. Five months after the king appointed a panel of human-rights experts to examine events in Bahrain earlier this year, when anti-government protests by the majority Shias across the Sunni-ruled kingdom prompted a brutal crackdown, the Bahrain Independent Commission of Inquiry has laid bare the scale of abuse. Cherif Bassiouni, a former war-crimes lawyer for the UN who chaired the five-person panel, left little to the imagination as he described the systematic torture of prisoners, nearly all of them Shias, along with a "culture of impunity" in Bahrain's security forces. It was not the whitewash the commission's critics had predicted. Mr Bassiouni's report described how prisoners were hooded, whipped, beaten and subjected to electric-shock treatment. At least five prisoners, it said, died under torture. Female prisoners were threatened with rape. As Mr Bassiouni's summary was broadcast to the nation, the boldness of King Hamad's move became clear. No other Arab ruler has voluntarily invited such public scrutiny of his government. He hopes that the report will provide a chance of reconciliation in this tiny but strategic Gulf state that is a Western ally and home to the American navy's Fifth Fleet. Bahrain has been torn apart since protests by the kingdom's Shias broke out in February, with demands that the ruling family should undertake political reform. Hundreds were arrested in the crackdown that followed. The niceties of law were abandoned, with dozens put on trial in military courts. Many convictions were secured with little more than a confession extracted under torture. Mr Bassiouni, an American of Egyptian descent, arrived with an impressive reputation for assessing war crimes in Afghanistan, Iraq, Libya and Yugoslavia. His colleagues had fine credentials too. But in Bahrain they found a nation divided so deeply along sectarian lines that it was vir-
Bassiouni dogs the king tually impossible for them to hear neutral accounts of events since February. Legions of activists on both sides traded insults online. Allies of Sunni Saudi Arabia and Shia Iran took sides against each other ferociously over the airwaves. Sir Nigel Radley, a panellist who is a former rapporteur to the UN on torture, likened the situation to
Northern Ireland. All the commission could do, he said, was to try to convince each side that its narrative had been heard. "It is kind of depressing, the dialogue of the deaf," he said. Responding to Mr Bassiouni's comments, King Hamad pledged to adopt the report's recommendations. Seizing the initiative from hardliners in his government, he fired back at critics within the Sunni community and even in his own family. "Any government that has a sincere desire for reform and progress should understand the benefit of objective and constructive criticism," he said. His reactionary uncle, Prince Khalifa bin Salman al-Khalifa, who has been prime minister for 40 years, is doubtless appalled by the report, not least because it said it found no evidence of Iranian involvement in the protests. The king's more liberal son, Crown Prince Salman, seemingly sidelined since the turmoil began, may differ. In any event, the report may be too late to halt Bahrain's downward spiral of sectarian enmity. Positions have become entrenched. In Shia villages on the outskirts of the capital, fighting erupts almost every day. Even if the government uses the report to initiate steps towards reconciliation and reform, it is not certain that opposition groups can rein in the protesters. Commissioning the report took a lot of nerve from the king. Acting on its recommendations will require even greater courage. •
Congo's election
That sinl
A general election in the Democratic Republic of Congo may end in tears
HE windows of the crumbling, colonial-era house that serves as head office T for the Union for Democracy and Social Progress (UDPS), Congo's main opposition party, are mostly broken from stones and petrol bombs thrown by supporters of President Joseph Kabila in a series of titfor-tat attacks in September. Inside, rooms are dark and empty except for a few broken chairs and makeshift desks. Political power seems a long way off. On November 28th Congo will hold its second democratic election since the end in 2002 of a bloody war that left several million dead. The UDPS will field the leading opposition candidate for the presidency, Etienne Tshisekedi. He is trying to convince voters that at 78 he has enough life in him to rule this most unruly of African countries. In the 198os and 1990s, he was tortured and imprisoned for years as head of the opposition against Mobutu Sese
Seko, the kleptocrat who ran Congo from 1965 to 1997. Life and politics have improved since then, but not nearly as much as it was hoped. Mr Tshisekedi spent the first two weeks of the official 30-day election campaign in South Africa trying to find the millions of dollars needed to promote his wares in a country that is almost the size of western Europe and has a population exceeding 70m. This month the UN named Congo as the least developed country in the world. Only 9% of its people have even intermittent access to electricity. GDP per person was so% higher at independence in 1960 than it is today. In the past five years, Congo has seen its mineral sector rebound, thanks to rising global prices, particularly for copper. The government has brokered a $6 billion deal with China to trade minerals for infrastructure. The IMF and World Bank forgave ~~
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62 Middle East and Africa ~ Congo
about $12 billion in debt last year after the government agreed to economic reforms. But investors are still reluctant. The sale of mining licences at below-market value to firms associated with friends of the president has raised eyebrows. Congo remains plagued by corruption and by militias from the civil-war era. Mr Kabila has improved security, especially since making peace in 2009 with his longtime enemy, Rwanda. But violence is still a way of life in parts of the country. The predatory army is far from reformed. Corruption is rife at all levels of the state, from the top of the security forces to local tax collectors. "There has been no growth in employment" in small and medium-sized businesses between 2006 and 2010 because of corruption, says the World Bank. Mr Tshisekedi claims he will change all that. He has called Mr Kabila's followers terrorists and told his own supporters to storm the country's prisons to free political detainees. Such talk has turned off Western diplomats and international observers. But they view the president, who seems to have access to unlimited campaign funds, with little more enthusiasm. Violence, intimidation, arbitrary arrests and deaths during campaigning have been blamed on thugs loyal to him. Some opposition radio stations have been shut down and opposition gatherings banned in parts of the country. Mr Kabila may struggle to repeat his victory of 2006. Eastern Congo, where he won more than 90% of the vote, still suffers from conflict. Mr Tshisekedi will easily win the capital, Kinshasa, and h is home region, the two Kasais. That should leave almost half the far-flung country up for grabs. Whatever the result, doubts about the election's fairness will persist, not least because of a perception that the electoral commission's head is a friend of the president. Logistical problems are also ubiquitous, despite an election budget of $soom or so. As well as u presidential candidates, 18,ooo hopefuls, including several pop stars and a rebel leader accused of ordering the rape of more than 300 women in eastern Congo last year, are contesting soo seats in parliament. Some of the ballots will exceed so pages, which will surely daunt even the minority of voters who can read. Many may fail even to get to see a ballot paper. A little rain before election day in Congo's vast, forested interior could make it impossible to distribute ballots; an almost complete lack of roads means that most voting material must be delivered by helicopters that cannot land if it is too muddy. There is talk of a delay. Few Western diplomats think a decent election can be held on time. Mr Tshisekedi says Mr Kabila intends to steal the vote, foreshadowing a situation where both men could declare victory. A
The Economist November 26th 2011
I
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[Y] disputed result would go to Congo's wobbly courts. A grim hope remains that the president might win by a large enough margin to avoid plausible challenges. But the vote could provoke a bloodbath. Jean Claude Katende, head of Congo's African Association for the Defence of Human Rights, says, "No matter who wins, there will be violence." What makes this poll different from the 2006 one, which was accompanied by vicious fighting, is the limited role of dogooding outsiders. Five years ago the UN ran the election and made it credible. But in 2009, when Mr Kabila made peace with his arch-foe Rwanda, the U N lost its preeminent role. Its 17,000 soldiers still support Congo's government with logistics and oversee its nascent army. It also funds one of Africa's most admirably independent radio services, Radio Okapi. But it no longer has the will or the power to save Congo from itself. •
South Africa and secrecy
Don't blow the whistle JOHANNE SBURG
A law may b e enacted that w ould make it harder to expose cor ruption
A MNESTY INTERNATIONAL has called .!"\.the approval of South Africa's socalled secrecy bill on November 22nd a "dark day for freedom of expression". Archbishop Desmond Thtu, an anti-apartheid hero, says the bill will "outlaw whistle-blowing and investigative journalism". The Confederation of South African Trade Un ions fears it will be used to cover up government corruption and other wrongdoing. Nadine Gordimer, a South African Nobel prize-winner for literature, says it will take the country back to the apartheid era. Business Day, the country's most respected daily, dubs it an "abomination". All this may be a bit over the top. When
the Orwellian-sounding Protection of Information Bill was first introduced in March 2010, it did indeed sound dire. Any "organ of state''-there are over 1,ooo of them- was to be allowed to classify documents, including commercial information, if it were deemed to be in an undefined "national interest". Anyone unlawfully disclosing classified information could face up to 25 years in jail even if disclosure were shown to be in the public interest. But since then the bill has been subjected to over 100 amendments. Even its critics admit that it has been vastly improved. In its new form, only the police, intelligence and security services would be allowed to classify information, and then only for reasons of national security. Obligatory minimum sentences have been abolished for all but the most serious offence of passing secrets to a foreign power. Passing them to a hostile non-state organisation, such as a terrorist group, carries a maximum sentence of 20 years, while any other unlawful disclosure or mere possession of classified information would be punishable by up to five years. It is this last offence that could hamper journalists and whistle-blowers. The bill still contains no public-interest defence. South African journalists have been doing a good job at exposing the increasing corruption, nepotism and maladministration in the ruling African National Congress (ANC). They fear the new law, which still has to pass muster in the second parliamentary chamber, would curb their ability to bring to light high-level shenanigans, such as those allegedly involving President Jacob Zuma's spokesman, Mac Maharaj. Two newspapers have published articles claiming that Mr Maharaj, one of South Africa's most respected public figures, took bribes at the end of the 1990s from Thales, a French arms manufacturer involved in a 1999 multi-billion dollar arms deal, in return for a juicy contract with the ministry of transport, then headed by Mr Maharaj. The Mail & Guardian, South Africa's leading weekly, claims also to have evidence that Mr Maharaj lied under oath during police questioning about the arms deal. The matter is particularly sensitive now, as Mr Zuma has just launched the first independent inquiry into the scandal. A visibly angry Mr Maharaj insists he has not broken any law. He is refusing to comment further, saying he will not subject himself to "trial by media". He is seeking charges against the Mail & Guardian and two of its senior reporters for publishing confidential evidence given to prosecutors in camera, an offence punishable by up to 15 years in jail. This, says the newspaper's editor, is precisely what will happen, only more so, if the secrecy bill becomes law. Critics vow to challenge the bill, if passed, in the Constitutional Court. •
63 Also in this section 64 Angela Merkel and the euro 64 France and automation 65 Turkey and human rfghts 66 Hunga ry's economy 66 Poland's government 68 Charlemagne: The sinking euro
For daily analysis and debate on Europe, visit Economist .com/ europe
The Spanish election
Manana belongs to Mariano MADRID
The new p rime minister has to act fast- and urgently needs outside su pport IS an historic opportunity. Not since FelGonzalez's Socialists swept to victory IinTipe1982 has a Spanish leader been handed as big a mandate for change. On November 2oth Mariano Rajoy's People's Party (PP) took 186 out of the 350 seats in the parliament, meaning that he has no need to barter with smaller parties. The PP's control of two-thirds of regions and 40% of town halls should allow him to push reform throughout the system. A March poll in Andalusia, in the south, where the PP may end decades of Socialist hegemony, is the only election looming. Mr Rajoy enjoys both freedom and huge power. On the other hand, Spain's problems are huge too: zero growth at best, bond yields near bail-out levels and unemployment at 23% (and 46% for youths). Reminders of the grim outlook have come daily since Mr Rajoy's victory. The small Bank of Valencia has had to be rescued. Funcas, a think-tank, predicts a o.s% drop in GDP next year. And bond yields keep breaking unwelcome records. Only urgent action can ease the pressure. But it cannot come before late December, when the handover of power is complete. Until then, Jose Luis Rodriguez Zapatero, whose Socialists lost a third of their seats, stays in charge. How will Mr Rajoy use his strength? The sphinx-like leader is staying mostly mum for now. But two post-election speeches and his deliberately detail-light manifesto offer some clues. He promised to regain respect in Brussels and Frankfurt.
A day later he professed a deep-seated love of the European Union. Spain, in other words, is determined to stay in the euro. Whatever the pain, it will try to hit deficit targets of 4-4% of GDP in 2012 and 3% in 2013. With this year's deficit over 6% andrecession looming, that will take big spending cuts and tax rises. The regions offer to help: Catalonia plans to cut pay, and Madrid has set aside a contingency fund in case income runs short in 2012. But if Spain is to be the good pupil of southern Europe, it also wants to be teacher's pet. More specifically, it wants gold stars from Germany's Angela Merkel. "Those who comply cannot be treated in the same way as those who don't," said Mr Rajoy's deputy, Maria Dolores de Cospedal. The implication is that the European Central Bank should stand behind Spanish government bonds in order to prevent a bail-out, and that Mrs Merkel should publicly back Spain. Reform takes time to spark growth; Mr Rajoy cannot hold the markets at bay alone. He starts with some advantages. In a nod to Mr Zapatero's efforts, Fitch, a ratings agency, has talked of "a strong recent record of taking additional measures to meet its fiscal targets". Unlike his predecessor, Mr Rajoy needs to make no political u turn. He is already preaching austerity and reform. Nor will he behave like Italy's backsliding Silvio Berlusconi. Indeed, he is rather more in tune with Mrs Merkel than with France's Nicolas Sarkozy.
So will the ECB and Germany answer the call? Mrs Merkel demands instant action. "You have received a clear mandate from your people to decide on and quickly apply the necessary reform measures," she told Mr Rajoy after the election. Reforms matter as much as deficit targets. Mr Rajoy wants to cut taxes to boost growth, but there is little room. He has also vowed to maintain the spending power of pensions, which Mr Zapatero froze. Who will mastermind reform? A former economic secretary, Luis de Guindos, leads the betting for finance minister. Soraya Saenz de Santamaria, a long-term party aide, and Alberto Ruiz-Gallard6n, Madrid's mayor, look set to be cabinet stars. PP governments also often favour party members from the upper echelons of the civil service: political technocrats. The key to reform is to make the state more efficient and boost growth, all at minimal cost. Labour-market reform is high on the list. Setting a long-term deficit cap, as permitted by a recent constitutional amendment, will be another big task. The centrist Union for Progress and Democracy, Spain's fourth party, which did well in the election, says 2.6% of GDP could be saved by spreading best practices across regions and cities. Anothen6% might come from town-hall mergers. Some of the s,ooo bodies owned by regions or town halls, from broadcasters to garbage collectors, could be closed or sold. Many PP regions would jump at privatising local broadcasters. And there is talk of recentralising some powers. Madrid's PP regional boss, Esperanza Aguirre, would happily hand back control of the courts. But independent-minded Catalans and Basques will resist. The savings may be elusive. In the end Spain must have support from Mrs Merkel and the ECB. They want to see reforms first. But if they hold back for too long, the markets will strike first. •
The Economist November 26th 2011
64 Europe Angela Merkel and the euro
The new iron chancellor
France and automation
Driverless, workless PARIS
Driverless trains reflect not just new technology but also rigid labour laws BER LI N
As the euro totters, the world waits for the German chancellor to act. Will she? A S A schoolgirl, Angela Merkel spent an 1'"\..entire swimming lesson perched on a diving board. Only when the final bell sounded did she find the nerve to take the plunge. "I am not spontaneously courageous," the German chancellor later said. "I am, I think, courageous at the right moment," but "led too much by my head" to leap recklessly in. For Margaret Heckel, author of a book about Mrs Merkel, the story shows that "she goes to her limits and then overcomes them." She has a "very fundamental confidence in her abilities." It is not widely shared. Mrs Merkel's critics say she has reacted too little and too late to the euro crisis, which now threatens to trigger a worldwide recession as well as the single currency's break-up. France's prime minister, Fran~ois Filion, wants the European Central Bank (ECB) to buy bonds of shaky euro-zone governments on a grand scale. "But there's a big problem, and that is to convince Germany." The quip that Mrs Merkel is the only politician who can stop Barack Obama being re-elected attests both to her power and to frustration over how she wields it. Much depends on the right reading of the diving-board story. The chancellor can point to a career built on breaking rules and confounding expectations. The daughter of a Protestant pastor who moved to communist East Germany during her infancy, she worked as a chemist at the Academy of Sciences and largely steered clear of politics until the Berlin Wall fell. She then joined the Christian Democratic Union led by Chancellor Helmut Kohl, but she was never going to be one of the boys. She rose to the very top in 2005 by outsmarting rivals with more impressive credentials, greater political skills and bigger power bases. When the world economy was wobbling after the collapse of Lehman Brothers in 2008, she was lambasted for doing too little to steady it. Mrs Merkel "does not get basic economics," declared Adam Posen, an American economist. Yet Germany emerged from the crisis stronger than any other big Western economy. On her desk sits a portrait of Russia's Catherine the Great, another underestimated east German woman. Many Germans who pay close attention to politics dislike her. Communication is not her thing: her supporters explain that she is a Sachfuhrer, one who leads through mastery of policy, as opposed to an inspiring Anjuhrer. She is given to abrupt
HE bold fuchsia-pink and tangerineorange stripes of the upholstery are T shocking enough, but the really unsettling feature of the new trains on the Paris metro is the lack of a driver. Sit in front and you get a picture-window forward view as the train tears through a dark tunnel. This month, the first automatic trains went into service on line one, the capital's busiest, running from La Defense to the Chateau de Vincennes. With trains guided remotely from a control room and protective platformedge barriers, the new trains seem to operate entirely on their own. At a launch ceremony all the talk was of engineering and operational prowess. Paris already has driverless trains on line 14, the world's first fully automatic underground line. But that was built from scratch. Never before has such an old line, this one dating to 1900, been reequipped with reconfigured platforms
changes of direction, suggesting a readiness to abandon principle for political gain. A longtime supporter of nuclear power, she shut down seven reactors after the Fukushima disaster this year. Commentators who cannot abide her frosty pragmatism eagerly predict her demise whenever she faces setbacks. These have been frequent, especially during her twoyear-old coalition with the Free Democrats. But Mrs Merkel governs for the majority, which is not usually paying atten-
and new electronics, for driverless trains. On a line that carries 725,000 passengers a day, and despite difficult talks with trade unions, all the work took place without a shutdown. The main aim is better service. By eliminating human error, driverless trains are "incomparably" safer, says Gerard Churchill, in charge of installing the automatic line. Since opening in 1998, line 14 has had no accidents. nains can run closer together. Extra services can be laid on at the last minute during unexpectedly busy times. But could there be another unspoken benefit? Driverless trains cannot go on strike. "It was not an objective," insists Mr Churchill. "But it is true that, during industrial unrest, automatic trains are much more reliable." Strict labour laws, costly payroll charges and erratic strikes seem to make French firms especially keen on technology. Supermarkets, for instance, have enthusiastically adopted self-checkout tills. "All French hypermarkets have adopted this strategy over the past few years," says Alexis Lecanuet at Accenture, a consultancy. The idea is to speed up queues at peak times for impatient nontechnophobes carrying light baskets. But it also cuts costs. "Self-checkout has worked better in countries where labour is expensive," says Serguei Netessine, a professor at INSEAD, a business school. France excels at high-tech services: credit-card operated petrol stations, touch-screen fast-food counters, automatic car-washing. Two years ago, MeDonalds pioneered the use of touchscreen, credit-card-based ordering in its French fast-food restaurants. Elephant Bleu, a self-service high-pressure carwashing chain, has 472 outlets in France, and is expanding. All this in a country where the labour code runs to over 3,300 pages, an employer pays an average of 39% in payroll taxes, and unemployment is atto%. Spot the connection. tion. Her aim is to get results, timed if possible to coincide with elections. Now she is the chief figure, along with Mario Draghi, president of the European Central Bank, in an economic version of the Cuban missile crisis. She is said to be courting Armageddon by adhering slavishly to Germany's sound-money dogmas and kowtowing to taxpayers who cannot see why the preservation of the euro should be worth paying something for. Hence her refusal to endorse unlimited
~~
The Economist November 26th ~ bond buying by the
ECB and her dismissal of jointly guaranteed eurobonds, an idea touted again this week by the European Commission. Surely, pray observers, she will blink before doomsday arrives. Mrs Merkel is aware of the talk of catastrophe, but evidently not listening- even after market nerves led this week to a failed German bund auction (see 11.1gf.~ Rl83). In any case, she sees the crisis as too good to waste. No fewer than five eurozone governments have been toppled but their successors are committed to sounder budgeting and structural reforms. Mrs Merkel wants the euro zone to be a "stability union", but this understates her ambition. That nearly half of young Spaniards are unemployed worries her almost as much as Italy's debt. Big Brussels initiatives to arrest Europe's long-term economic decline have proved ineffectual. What some call foot-dragging Mrs Merkel regards as creative obstruction. Mrs Merkel's closest advisers are as led by the head as she is. Nikolaus Meyer-Landrut, an historian by training, is her senior adviser on Europe, to which he has devoted his diplomatic career. Her economic adviser is Lars-Hendrik Roller, once the European Commission's chief economist for competition. Even closer to the chancellor are Beate Baumann, head of her office, and Eva Christiansen, her media adviser, who act as sounding boards. Like their boss, both are cerebral strategists. The chancellery often has the hush of a library, not the buzz of a centre of power. None of her close counsellors is expert in financial markets. But Mrs Merkel is hardly cut off. "She talks to many more people than your average politician," notes Ms Heckel. She is not embarrassed to
Is the lady for turning?
Europe 65
2011
pepper them with questions in meetings at the chancellery. Her relationship with the europhile finance minister, Wolfgang Schauble, rocky in the past, has improved during the crisis. Mrs Merkel also stays in touch with the Bundesbank's president, ]ens Weidmann, formerly her economic adviser, even though he has denounced some of the bail-outs she has backed. As they await her final word on the euro, seasoned Merkel watchers have grounds for both hope and fear. She has no
wish to be the chancellor who let the currency fall apart. But to unleash the ECB or to embrace eurobonds could precipitate a domestic crisis that would be almost as catastrophic. The measures already taken should be given a chance to work, she thinks. Meanwhile, she amasses the data needed for her next decision. She trusts her powers of calculation. If circumstances demand it, she is pragmatic enough to alter course. But she is not infallible. When the bell rings, it may be too late to dive. •
Turkey and human rights
Home thoughts from abroad ANKARA
Even as Turkey preaches human rights to neighbours, its record at home is patchy
W
ITH her intense gaze, washed-out jeans and talk of freedom, Dilsat Aktas is a typical left-wing activist. In May the 29·year·old climbed onto an armoured police-carrier in Ankara to protest against the death of another activist, who had suffered a stroke after being sprayed with pepper gas in the Black Sea province of Hopa. Ms Aktas now hobbles around on crutches: the police clubbed her so hard as she tried to escape that they broke her left hip. "The doctor says it will take three years to fix," she says, dragging on a cigarette. Her complaints to a local prosecutor were ignored. Omur Cagdas Ersoy, a fellow student, tried to shield her with his body, only to be flogged in his turn. Mr Ersoy is now in an Ankara jail, along with 15 fellow students, facing charges of belonging to an obscure left-wing armed faction that no longer exists. The evidence against the group includes seized left-wing tracts and anti-war posters, but not a single weapon. "They did find a broken umbrella, they took that too," says Mr Ersoy's father, Fatih, with a bitter laugh. Huseyin Aygun, a deputy from the opposition Republican People's Party (CHP), claims that over 500 students are now in prison for alleged membership of terrorist groups. Many students were demonstrating against the ruling Justice and Development (AK) party and for free education and health care, though some backed neuralgic causes like the right to conscientious objection and Kurdish-language education. Prosecutors routinely send universities indictments against students even before they are read in court. The students are expelled before they are actually convicted. "The courts are stacked with pro-AK judges and the entire system is mobilised against any form of dissent," says Mr Aygun. The plight of TUrkey's journalists has tended to overshadow that of its students.
Around 76 journalists are now behind bars, more than in China, many of them for supposed terrorist crimes; another big trial began this week. Some 47 lawyers have also just been arrested, including some working for Abdullah Ocalan, the jailed leader of the Kurdistan Workers' party (PKK). Once lauded for sweeping reforms, Recep Tayyip Erdogan, the Turkish prime minister, is growing ever harsher. He has escalated the army's war against the PKK while rounding up sympathisers in the thousands. Hulya Capar of the Kurdish Peace and Democracy Party (BDP) reckons that at least 3,500 Kurdish activists (including 15 BDP mayors) have been arrested since 2009 for alleged membership of the PKK's urban arm, known as the "KCK." Erected around Turkey's vaguely worded anti-terror laws these cases can be patchy and sometimes absurd. Cengiz Dogan, a Kurd who has been sitting in jail since 2009 for supposed membership of the KCK, was accused in a separate case of attending a PKK event in April. If this were true "the same person was in two different places at the same time," concludes Ezgi Basaran, the journalist who exposed the inconsistency. Busra Ersanli, a constitutional-law professor, was arrested on terror charges last month after lecturing BDP members on such subversive topics as Basque autonomy. Idris Nairn Sahin, the interior minister, seemed convinced of her guilt when he said that Ms Ersanli "had shady relatives." The West does not seem to notice the steady deterioration in human rights in Turkey, instead extolling it as a model for the Arab spring. "Europe is too mired in its own problems and America needs TUrkey for regional security," shrugs a European ambassador in Ankara. It will fall to TUrks themselves to battle for their rights- so long as they can keep out of jail. •
The Economist November 26th 2011
66 Europe Hungary's economy
Planet Orban A reality check for a government that trumpets its independence OR those wanting to find evidence of F the headstrong and self-defeating approach of Hungary's government and especially its prime minister, Viktor Orban, the decision to storm out of talks with the IMF in July 2010 was a prime example. So now is this month's u -turn: the reopening of talks with the Washington-based institution on securing a precautionary credit line (a kind of overdraft for solvent but cash-strapped countries). The move came after the Hungarian forint fell to a record low, successive bond auctions failed, and Standard & Poor's, a ratings agency, said it was considering downgrading the country's debt to junk status. The decision to go back to the IMF calmed the markets a little. But the effect was muffled by the clumsy way in which it was announced (neither the central bank nor even the IMF was consulted first). The government vigorously defends its record of the past 18 months. It decries the previous deal with the IMF (done in the depths of the 2008 crisis) as an example of "old-type forms of co-operation which were obstacles to our economic independence". It blames its latest switch chiefly on turmoil in the euro zone. Fidesz, Mr Orban's party, can justly claim to have inherited a mess from its Socialist predecessor. It has cut the deficit, not least by sequestering €10 billion ($13.5 billion) that Hungarians held in the private pillar of the state pension fund. It has imposed windfall taxes on the mainly foreign-owned banks and forced them to renegotiate the Swiss franc loans that many Hungarians unwisely took out over the past decade. That has brought a sharp rebuke from the European Central Bank.
I
Pricing in the Orban factor Debt and borrowing costs Gross government debt, %of GOP
Borrowing costs •, percentage points
i BBB-1
80
8
60
6
40
4
20
2
0
0
Czech Republic
Poland
Sources: European Com mission; Thomson Reuters; Standard and Poor's
Hungary • 1o-year bond spreads over German bunds
At best this record counts as stabilisation. But growth is measly, below even the 1.5% the government forecast. Poland is faring far better (see box). Business spirits are low and the black economy untamed (a decision this week to raise value-added tax to a stonking 27% will not help). Yet on a recent visit to London Mr Orban was in robust mood. He blames many of the country's economic woes on the mistrust created by past misgovernment. He wants a radical break with the cartels, sleaze and weak institutions of the postcommunist era. A flat tax that started last January underlined the change, he says. He has high hopes for the economic benefits of a calmer relationship with Russia, and of investment from China. "The wind blows from the east," he says. At least in the short term, time and events are not on Mr Orban's side. When Hungary hit the rocks in 2008, the outside world was quick to help with a $20 billion package, fearing contagion to other wob-
bly ex-communist countries. Now the picture is different. With most ex-communist members of the European Union in better shape than old members in the south, the east European label is looking meaningless. Two of Hungary's neighbours- Slovenia and Slovakia- are in the euro. Poland is the unquestioned diplomatic and economic heavyweight. Mr Orban looks like an oddball, and his country is now a lower priority, at a time when lenders have more urgent calls on their time and money. Perhaps his biggest problem is on the domestic front. After arriving in office with a thumping mandate, Mr Orban has frittered away time and energy on peripheral issues, such as a new media law detested by believers in free speech. His government's bunker-like mentality has damaged communication with voters. Having loudly proclaimed independence from the outside world, concessions to pressure now look like failure. His opponents are gloating, his supporters seething. •
Poland's government
Tusl{ sharpens up WARSAW
The new team gets going could doubt the political ability of FwhoEW Poland's prime minister, Donald Thsk, kept his job thanks to a thumping and unprecedented election win last month. But many would question his appetite for real reform. Poland's economic strength in recent years belies a bloated bureaucracy, laxity in public finances and a clogged labour market. In his first stint in office, Mr Tusk merely nibbled at these problems. Instead he concentrated on securing successive victories for his centrist Civic Platform party over the opposition Law and Justice Party. Boosted by trade with Germany and a big budget deficit, the economy boomed on regardless. Now, with the economic prospects clouded by the euro crisis and his political capital at a high, Mr Tusk is at last talking tough. His programme, presented to parliament on November 18th, was studded with daring reforms. Raising the retirement age to 67 will mean two more years at work for men, seven for women. MrThsk wants to rejig the wasteful childbenefit system. And he plans to trim the huge tax perks enjoyed by such pampered groups as peasant farmers, priests, policemen and journalists. The plan, which bears the fingerprints of Jan Bielecki, a former prime minister, aims to cut the budget deficit from 5.6% of GDP today to justl% of GDP by 2015, and to reduce public debt from 55% of G D P to 47%. That would make Poland a strong
Tusk closes the gap
candidate to join the euro (if the single currency is still going). It will also please ratings agencies and cut borrowing costs. Yet bold promises are only a start. Detailed, determined government is a novelty in Poland. Although go-ahead middle-class Poles are impatient for change, others are fearful. Many support Civic Platform's coalition partner, the agrarian Polish People's Party (PSL), which controls the labour and agriculture ministries. Difficulties with the PSL could give Mr Tusk another excuse for inaction. But its leaders may have to swallow their discontent if they want to keep their place. Mr Thsk could easily dump them and sign up the radical anticlerical Palikot Movement instead.
The Economist November 26th 2011
68 Europe
Charlemagne I The sinking euro Denial and delusion in Brussels, as the single currency founders
HE designers of the good ship euro wanted to create the greatest liner of the age. But as everybody now knows, was fit T only for fair-weather sailing, with an anarchic crew and no lifeit
boat. Its rules of economic seamanship were rudimentary, and were broken anyway. When it struck a reef two years ago, the water flooded one compartment after another. "The situation is extremely serious, more so perhaps than at any point in the last 18 months," Jose Manuel Barroso, the European Commission president, said this week. He announced two last-ditch initiatives to avert doom. One is a "green paper" on options for joint Eurobonds. To balance this mutualisation of debt, he also proposed stronger monitoring of national budgets by Brussels, including the right to recommend changes before they are submitted to parliaments, and fiercer oversight of countries "in severe difficulties". Renaming Eurobonds as stability bonds, the green paper is almost an act of insubordination against Angela Merkel, Germany's chancellor. She is strongly against the idea and has also declared that only a treaty change can impose enough rules to ward off another disaster. Eurobonds and treaty change together just might make for a better vessel, but they would take years to put into effect. Why design a safer imaginary ship when the present real one is about to sink? Mrs Merkel speaks often of the need to save the euro, but she acts as if there were no imminent danger. Germany has stayed dry. If other crew members are neck-deep in icy water, she thinks it serves them right; only the fear of God (and the bond markets) will teach them to be responsible. Yet there are clear dangers in this policy. One is that it provokes a mutiny against Germany. The second is that the Germans miscalculate. At some point a listing ship topples over, and Germany would plunge into the sea with everybody else. A German bond sale this week was alarmingly undersubscribed. A paper by Ulrike Guerot, of the European Council on Foreign Relations, a think-tank, expresses the fear that, rather like the Soviet Union, the European Union could go down quickly if the euro starts breaking up. For now, there is a surreal atmosphere in Brussels. Like the band on the Titanic that played on to the end, the EU's bureaucracy keeps producing studies, policies and regulations. At one
briefing this week, officials said "this is a very good day, not just for European sharks, but for sharks worldwide."This was no allusion to hated financial speculators. Instead, it was about a new ban on shark-finning, ie, the removal of fins from sharks caught in European waters or by European ships elsewhere. European officials now recognise the folly of creating the euro without preparing for trouble. It would be wise to be planning now for what to do if it sinks. But officials have spent so long giving warnings of the horror of a Greek default, not to speak of its departure from the euro, that they cannot. "I prefer not to think about it," says one. Below decks the chatter is of European fonctionnaires scrabbling around for ways to protect their savings. But as an institution, the EU fears that even a hint of defeatism may spread panic. "If anybody wrote a paper on contingency planning for the break-up of the euro, it would leak out immediately," says one official. Even now, after decades of "European construction", many Eurocrats cannot conceive of the euro as a wreck. Those who have worked hardest to keep it afloat are exhausted and know it is not in their power to save it anyway. Even national governments are not masters of their fate. Both Lucas Papademos and Mario Monti, the technocrats running Greece and Italy after their predecessors were cast overboard, came to Brussels this week to meet Mr Barroso and Herman Van Rompuy, president of the European Council (representing European leaders). Theirs looked like a council of the powerless. If not the market, what of Merkel and Mario? Nothing that Brussels, Rome or Athens can do is likely to impress the markets. The issue is whether they can impress those with the money: Mrs Merkel and Mario Draghi, president of the European Central Bank? Many proposals to save the euro- issuing Eurobonds, getting the ECB to act as a lender of last resort to governments (and not just banks) or using the IMF-issued reserves known as Special Drawing Rights-have been rejected by Germany, for both legal and political reasons. The ECB has offered valuable but strictly limited help. It is keeping its distance for fear of dirtying itself by lending to governments and, perhaps, stoking inflation. Salvation must come from political leaders, says Mr Draghi; why have they not acted on their October decision to boost the European Financial Stability Facility? "We should not be waiting any longer," he says. In Brussels the belief (or perhaps just the hope) is that a show of reforming zeal by weaker members of the euro zone plus a determination by EU institutions to impose discipline could be enough to persuade Germany and the ECB to ease up. At some point, many argue, Germany must come to its senses. The situation is desperate. France may lose its AAA credit rating. Even the rigorous Finns and Dutch have seen bond spreads widen. But no single action can save the euro. This is not just because Germany wants others to feel the pain for a long time, but also because the damage from poor leadership and procrastination is so extensive. The euro will require a full redesign through new treaties, with Eurobonds and possibly much else besides. If this is to happen, though, it must first survive. It is time for Mrs Merkel to grasp that her country risks being caught up in the euro's catastrophic failure-and for Mr Draghi to admit that he risks finding himself without a job. • Economist.comfblogsfcharlemagne
69 Also in this section 70 Reviving manufacturing 71 Celebrities strike back 71 Thomas Cook's troubles 72 Bagehot: David Cameron, toxic Tory
For daily analysis and debate on Britain, visit Economist.comfbritain
The economy
Autumn leaves falling
The growing troubles in the euro zone mean Britain is set for another recession REPARE for some bad news. The prime Penceminister, David Cameron, told an audiof business leaders on November 21st that shrinking the budget deficit was "proving harder than anyone envisaged." His comments laid the ground for the chancellor, George Osborne, who makes his autumn statement on the economy and public finances on November 29th. The chancellor's message is likely to be grim: a downgrade to official growth forecasts for next year and beyond seems certain. The coalition government's hopes of eliminating the "structural" part of the deficit (the bit that cannot be blamed on temporary slack in the economy) and of capping public debt by the end of the current parliament are in serious doubt. Bond markets are likely to be forgiving, given the scale of troubles elsewhere. But a failure to hit its fiscal targets would harm the coalition government's credibility. And there is a more pressing worry. Britain's strong links with the wretched euro zone mean that its economy is being dragged into continent-wide recession (see pages 81-83). Some Conservative politicians seem to believe that Britain stands apart from the euro disaster because it has its own currency. In fact, the economy is increasingly dependent on exports, twofifths of which are shipped to the euro zone. There is little spending power at home: consumers are still carrying a lot of
debt while struggling with weak wage growth and high inflation; public spending is shrinking; and business investment has been sluggish. Worse still, Britain's banks have lent heavily to the euro area's biggest trouble spots. Loans extended by British banks to Ireland, Spain, Italy, Portugal and Greece stood at $350 billion (£220 billion) at the endofJune, equivalentto15%of GDP. Most of this was direct lending to businesses and banks but about 10% was to governments. They are indirectly exposed, too: a further $210 billion of banks' assets in June were loans to French and German banks, who are in turn lenders to Italy and Spain. Growing anxiety about public finances
I
They're back Un employment claimant count Cha nge on a month earlier, '000
40
JF MAM J JASON OJF MAMJ J AS
2010 Source: ONS
2011
in Europe has sapped confidence in banks which are big holders of government bonds. And the rush by European banks to sell bonds of the least creditworthy sovereigns has made things worse. European banks are finding it harder to refinance their own debts at reasonable interest rates, and funding costs are rising for British banks too. That will eventually feed through to higher interest rates on loans to companies and consumers. Banks nervous about euro-zone assets turning sour and keen to preserve scarce capital will be cautious about making new loans, which wilJ only add to the recessionary forces. Businesses will soon be caught up in this spiral of ever-diminishing confidence. Firms know that credit lines cannot be relied upon when banks and financial markets shun all but the safest investments. There are already reports that firms are postponing purchases and trimming their stocks of supplies to conserve cash. Cuts to discretionary spending, such as capital projects or advertising, will become more common as the euro crisis intensifies and uncertainty and anxiety increase. How far might the economy fall? The central case of the Bank of England's monetary-policy committee is that output will be broadly flat in the current quarter and in the first half of 2012, though it thinks a worse outcome is more likely than a better one. Its forecast excludes the possibility of a big euro-zone blow-up, not because this is improbable but because there is "no meaningful way" to calculate its impact. Fear that the euro zone will disintegrate will itself weigh on the economy. Absent a complete meltdown, the second dip of a "double-dip" recession ought to be smaller than the first, because there are fewer excesses to correct. Britain's current-account deficit is closer to balance. ~~
70 Britain ~ The
household savings rate is a healthy 7.2%, which means consumers have a bigger cushion between their income and spending than they did when recession first struck in 2008. There is less capital spending to cut back on: companies arealready sitting on piles of cash. And the flow of capital seeking a haven from the euro crisis will sustain demand for British government bonds, for fancy houses, and for other assets deemed to be safer than eurozone banks or bonds. Real household income is likely to rise modestly in 2012 after falling sharply this year because of high inflation and tax increases, notes Kevin Daly of Goldman Sachs. Yet the likely recession will strain public finances. Figures for the first seven months of the financial year suggest that the government is roughly on track to meet its borrowing target of fl.22 billion (around 8% of GDP) for 2011-12. Yet the number of people claiming unemployment benefit
The Economist November 26th 2011 has risen each month since March (see chart). Many economists believe the Office for Budget Responsibility, the independent fiscal watchdog, will take a dimmer view of the economy's medium-term prospects. That would imply less of the budget deficit will be eroded as the economy expands to its full potential, and that more of it is therefore structural. This leaves Mr Osborne in an uncomfortable position as he prepares his autumn statement. He has made it clear that he does not regard it as a "fiscal event" where spending and tax changes are announced; that will be saved for the budget in March. But it is a political set-piece all the same. So the chancellor will try to knit together a variety of small, fairly cheap policy strands, such as measures to help small businesses with credit, into a coherent growth strategy. Given the unfolding catastrophe on Britain's doorstep, it is likely to look threadbare. •
Reviving manufacturing
No land of giants
A lack of big companies hampers efforts to boost manufacturing
HREE decades ago a Conservative government led by Margaret Thatcher removed many of the props that had supported manufacturing, revealing its wealmess and causing factories to collapse. Now manufacturing is modish. The business secretary, Vince Cable, talks of polishing the image of an industry associated with dirt and decline, and of rebalancing the economy away from financial services toward more tangible stuff. On November 17th David Cameron attended the launch of a new engineering prize and opened a factory in Surrey that will make 4,000 expensive supercars a year. In the early 1980s about 6m people worked in manufacturing; today the figure is barely 2.5m. Once-famous firms such as British Leyland, GEC and ICI have fallen apart or been taken over and dismembered. Stronger growth in other sectors means manufacturing has slumped from 25% of the economy ton% today. Yet manufacturing output was rising before recession hit in 2008. Foreign firms like Nissan, Honda and Toyota opened car factories that became efficiency leaders in Europe, taking British car production back up to 1.5m vehicles a year. Some four-fifths of the output of such factories is exported. Manufacturing is having a relatively good economic crisis, too. Terry Scuoler of EEF, which represents engineering firms, points to a resurgence since the depths of
T
early 2009, with growth of 3.5% last year and 2.6% likely this year, despite the economy slowing again. A weaker pound helps. So does stronger management: companies have got better at exporting and at working closely with the technical talent in Britain's leading universities. Yet the drive to rebalance the economy and restore Britain's status as an industrial titan is being held back by a shortage of giants. Apart from Rolls-Royce pic and BAE Systems, Britain has no really large, homegrown manufacturing firms. Such big "prime contracting" companies often play
Its effect on the economy is even mightier
a vital role in nurturing smaller firms in an economy. Germany's much-lauded Mittelstand companies have succeeded through foresight and by specialising in the unglamorous business of making parts for complex final products. But a crucial factor in their success is the presence of big German manufacturers, each of which carries a long supply chain of smaller companies. The successful Mittelstand firms of Munich, Baden-Wiirttemberg and Lower Saxony have been pulled along by leaders such as BMW, Siemens, Daimler and Volkswagen. Germany has twice as many firms with over 250 employees as Britain does. In America, too, big firms account for a much greater share of manufacturing employment than they do in Britain. The only way Britain can garner the same benefits is by luring big foreign investors to buy weak domestic companies or open their own operations in the country- as the Japanese carmakers did in the Thatcher years. Britain's openness to foreigners is proving a lifeline: the country ranks third, behind America and France, for its stock of foreign direct investment. While Mr Cameron was climbing on the manufacturing bandwagon in the southeast last week, Jaguar Land Rover- now thriving as part of India's Tata conglomerate- was announcing rising sales and profits, and the opening of a new engine factory in Wolverhampton. Jaguar Land Rover has a supply chain worth around £4 billion a year, spread around 2,ooo firms (more than Rolls-Royce). Which is another reason the crisis in the euro zone is so dangerous for Britain. Foreign manufacturing firms are drawn to the country partly because it offers convenient access to European markets. Yet with the euro under unbearable strain, the European Union in danger of succumbing to protectionism and Britain increasingly sidelined, the country looks less like a springboard to a vibrant market and more like an island. •
The Economist November 26th 2011
Britain 71
The press at bay
Celebs' revenge The Leveson inquiry is a spectacle with serious intent T IS an impassioned, messy first draft of a Inewspapers. reform bill for Britain's raucous tabloid The opening days of Lord Justice Leveson's inquiry into the "culture, practice and ethics of the press" brought famous names together with grieving families. The thrill of glamorous witnesses ceded to awkward silences as the parents of Milly Dowler, a girl murdered in 2002, spoke of their horror at discovering that messages left on her mobile phone were among the many hacked by journalists at Rupert Murdoch's News of the World. Revelations about the Dowlers' mistreatment caused outrage and sparked the inquiry. The News of the World is gone, together with many executives involved with it. James Murdoch, the senior Murdoch in News Corporation's London operations, has stepped down from the boards which publish the Sun, the Times and the Sunday Times and appears unlikely to run the media conglomerate soon. An investigation dealing with matters as varied as phone-hacking, illegal payments to police and relationships between the press and politicians has a bewilderingly wide focus. Some of the victims broadened it further. Hugh Grant, an actor, bashed newspapers which, he believes, obtained his medical records. He also claimed that the Mail on Sunday, a midmarket tabloid, intercepted voicemails. Associated Newspapers, which owns the publication, forcefully denies this. Steve Coogan, a comedian whose private life has often been newspaper fodder, complained about "tawdry muckraking" and the "sociopathic" treatment meted out by editors. But the relationship between stars and tabloids emerges as complex and at times even collusive, with privacy often bargained for more favourable coverage. Mr Coogan revealed that he had bartered with a reporter from one newspaper about which embarrassing details should be included in a tale about him. His real objection was that the paper later reneged, and printed the worst details anyway. Kate and Gerry McCann, whose daughter disappeared in 2007, both used the press to help their cause and were sorely abused by it (though no laws were apparently broken). Few doubt that Lord Justice Leveson will call for stronger press regulation when he reports next year. The Press Complaints Commission, the industry's self-regulating body, will probably be reconstituted to give more say to voices from outside the in-
... Thomas Cook
A tour operator's travails The high-street fixture is too big to fail HOMAS COOK is having the worst T year in its 170-year history. The firm, which started by selling British railway excursions and is now Europe's secondbiggest tour operator, has issued several profit warnings. In August it forced out Manny Fontenla-Novoa, its long-standing chief executive. Last month it had to renegotiate the terms of its gross debt burden with a syndicate of 17 banks that includes Britain's four large high-street lenders. Then, on November 22nd, the company admitted that it needs to ask the banks for another £1oom. Its shares slumped by three-quarters. At a time when holiday-booking is going online, Thomas Cook has spent the past few years (and lots of money) merging with high-street travel outfits in Britain and Europe. In August it merged with the travel arm of Britain's Co-operative Group, adding another 460 shops. "The group focused too much on the commodity end of the business and didn't develop its internet business sufficiently," says Wyn Ellis at Numis Securities. Thomas Cook is now working on a new strategy for the ailing British market. It is also replacing its bosses again. The
company is looking for a successor to Sam Weihagen, the interim chief executive. Michael Beckett, the group's chairman, will step down on Decembenst. He will be replaced by Frank Meysman, a former boss at Sara Lee, maker of instant coffee and corn dogs. What next? Thomas Cook could sell some of its seven hotels or its 6% stake in National Air naffic Services, a navigation provider. Private-equity companies might snap up the group, although it is not easy to get such a deal financed these days. The banks could seek a debt-forequity swap. Or the group might be broken up. Its German and Scandinavian businesses are fairly healthy. For now, Thomas Cook is too big to fail. The banks have lent it too much money. If it were to go bust, the Civil Aviation Authority, which acts as travel operators' insurer of last resort, would probably go under, too. Thomas Cook was planning to report its full-year results on November 24th, but it postponed the announcement until discussions with its creditors are complete. The bankers are likely to give Thomas Cook another, though maybe the last, lease of life.
dustry. Some victims want more radical reform. Mr Grant described France as "civilised and humane" in its treatment of the famous and argued that a "little bit of statute" should back up a new regulatory code. Editors are loth to import continental European restrictions, which forbid celebrities being photographed in public without their consent and can shield public figures from scrutiny of private vices. Like many others who want tougher
regulation, the actor says that it is "not hard .. . to distinguish between what is a baby and what is bathwater" when it comes to encouraging responsible journalism and squashing the other sort. A few days listening to the rival claims at the inquiry makes that seem doubtful. What Lord Justice Leveson concludes will shape the future of Britain's shabby, troublesome but stubbornly vibrant press. Some baby, some bathwater. •
72 Britain
The Economist November 26th 2011
Bagehot I David Cameron, toxic Tory The Conservative leader is under pressure to reverse his whole leadership strategy
F DAVID CAMERON is loathed by voters but grudgingly creditIelection? ed with economic competence, can he win the next general A few months ago the question would have sounded bizarre. Mr Cameron secured the Conservative leadership in pledge to decontaminate the party's brand. Rescuing the "nasty party" was Mr Cameron's mission, and he pursued it with well-bred cheer, whether being pulled by huskies across an Arctic glacier to show concern over climate change, talking of his devotion to the National Health Service or making the conservative case for gay marriage. With Britain seemingly headed back into recession, the prime minister finds himself at a turning point. Close allies, Conservative MPS and sympathetic think-tanks advise him that the quest for economic growth must trump all other considerations. Wish lists are pouring in from all sides, with a bias towards supply-side reforms aimed at making Britain a lightly-taxed, flexibly-regulated and competitive place to do business. All point to the same conclusion: that Mr Cameron might have to retoxify the Tory brand to save the economy. Suggestions include abolishing the so% top rate of income tax and speeding up cuts to corporation tax. Keeping wealth-creators in Britain matters more than accusations of being the party of the rich, many on the right tell Mr Cameron and his chancellor of the exchequer, George Osborne. Ditch those huskies, others argue, and with them British pledges to reduce greenhouse-gas emissions faster than European neighbours. There are calls to postpone dreams of "rebalancing" the economy away from the finance-oriented City of London and the south-east of England: this is a moment for helping the strongest first. Defend City institutions from hostile European Union regulations, it is argued. Slash back employment laws and other red tape, say many MPS: if that involves a dust-up with Brussels, good. Tories close to the leadership insistthat Mr Cameron is willing to stake everything on the economy. The mood inside 10 Downing Street is now "all about growth", says one. "We can be thought of as nice or not, but if the economy isn't growing, we've had it." Alas, many Tory MPS do not believe their party leadership, suspecting that Mr Cameron and Mr Osborne are too focused on 2005 with a
the party's image to risk really unpopular reforms. As men of inherited wealth, the prime minister and chancellor cannot imagine the scrappy rage of the self-made entrepreneur drowning in red tape, suggests a Tory MP. Worse, their privileged backgrounds make them feel guilty about curbing workers' rights. Some senior Tories seem determined to force the pace of reform. Steve Hilton, the prime minister's chief policy guru, commissioned a venture capitalist, Adrian Beecroft, to write a report on areas in which employment laws could be loosened. The Lib Dems rejected Mr Beecroft's boldest idea- giving employers the right to sack unproductive workers with compensation but without giving a reason. Workers who fear the sack do not spend, argued the Lib Dem leader and deputy prime minister, Nick Clegg. Amid the worsening economic gloom, Lib Dem ministers are showing signs of flexibility. On November 23rd the business secretary, Vince Cable, announced a new, two-year probation period before workers could claim unfair dismissal, and said he was seeking evidence on whether Beecroft-style "no fault" sackings might be allowed in the smallest firms. Disgruntled, unnamed Lib Dems told reporters this was a return to "Victorian employment practices"- a painful rebuke for Mr Cable, who earlier this year swore he would not help the ideological heirs of those who sent "children up chimneys". Yet for now, on the big political choice facing the coalition- to worry about public opinion or gamble everything on economic growth- Mr Clegg's party is hedging its bets. Well-placed Lib Dems talk about the need to fix the deficit while advancing goals such as social mobility, and continue to argue that their presence in the coalition is softening the harshest Tory policies. On November 26th Mr Clegg was due to unveil an avowedly interventionist scheme to subsidise the wages of teenagers hired by private firms. Too many Lib Dems complacently point to opinion polls showing that voters may be wary of the coalition's economic management, but distrust Labour still more. just now, only the economy matters Coalition tensions are rising. Tories blame the Lib Dems for holding the coalition back, accusing them of terror at being seen as "mean and nasty". Lib Dems deny that they are blocking progrowth reforms, saying that the real divide is between realists and "supply-side fantasists" in the Conservative high command who think that tweaking labour laws can offset billions of pounds of vanished demand. Enough. The economic stakes for Britain are too high for such squabbling. The Lib Dems still dream of being the kindlier half of the coalition. Yet without economic growth, this will earn them no voter gratitude in 2015. The Conservatives are being hypocritical: for all their bold talk of deregulation, the party is still defending right-wing shibboleths, notably plans to limit skilled immigration, even though government-commissioned studies predict that this will hurt growth. A grand bargain beckons. The Lib Dems should accept new, pro-growth reforms to employment laws, welfare and education that anger the left. In return, they should demand concessions on things such as immigration rules that will enrage the right. Coalition government is rare in Britain: both parties should use it to overcome each other's flaws and remove obstacles to growth. It is a risky strategy. But the alternatives are worse. • Economist.comfblogsfbagehot
73
Online piracy Also in this section
Rights and wronged
74 Islam and comedy
NEW YORK
An American anti-piracy bill tries to stem the global th eft of intellectual property LLEGAL copying and sharing of copyrighted material is hard enough to stop Iwithin a country. But when the internet takes traffic across borders it is almost unmanageable. American-owned intellectual property, say, may be uploaded in one country and downloaded in a second, via a website whose computers are in a third, operated by anonymous enthusiasts (or criminals) from goodness-knows-where. So whom do you sue, and in which courts? The Stop Online Piracy Act (soPA), now before America's Congress, is the latest of many recent attempts to defend property rights on the internet. The bill aims to cut off Americans' access to foreign pirate websites by squeezing intermediaries. Rights-holders, such as Hollywood film studios, will be able torequest that a credit-card firm or advertising network stop doing business with a foreign site; or ask a search engine to take down links to the site; or ask an internetservice provider to block the site's domain name, making it harder to reach. The intermediary then has just five days to comply or rebut the complaint; after that the rightsholder can go to court. This would rope intermediaries into law enforcement to an unprecedented degree, and give rights-holders exceptional power. Critics of the bill say that take down requests and court orders will swamp
smaller firms and start-ups. They say that blocking entire websites via their domain name smacks of censorship, and that determined downloaders will anyway find the block easy to bypass. Two mighty coalitions have formed around SOP A. Supporting the bill are not only film studios and music labels, but also drug firms and other manufacturers. Though SOPA itself does not affect them, they have a big interest in fighting any kind of intellectual-property infringement. On the other side are internet companies, technology investors and digital activists, who share an interest in disrupting business models and a dislike for anything that smacks of old-fashioned regulation. Online narcotics Constantly changing technology makes data on piracy unreliable. Monitors struggle to distinguish the effect of deterrence from the rise of easy, cheap alternatives to piratical downloading, such as legal online music services. Nor do they know how much piracy has cut legal sales of music and films, and how much blame should go to shifting consumer tastes. But the fight against intellectual-property theft is waged hard. It resembles a bit the fight against illegal drugs: clamp down in one place, and the trade sprouts elsewhere. The Social Science Research Council,
an American non-profit body, found in a study this year "little evidence- and indeed few claims- that enforcement efforts to date have had any impact whatsoever on the overall supply [of pirated medial." With great effort, courts have closed or hampered some big "peer-to-peer" filesharing sites (these allow users to swap files without going via a central computer). But others spring up in their place. The International Federation of the Phonographic Industry (IFPI) estimated that musicsharing doubled between 2006 and 2008. Growing even faster, though, are cyberlockers such as RapidShare. These let people share links to files they have uploaded to the "cloud", the huge arrays of easily accessible servers that host all manner of data. A few such cyber-lockers (largely out of the direct reach of American justice) now have more visitors than the top peerto-peer sites. Illegal streaming services and piracy via mobile devices, the IFPI says, are the next big threat. In the eyes of rights-holders, the law seems shamefully lax. In 1998 America adopted the Digital Millennium Copyright Act, which criminalised many of the methods used to copy digital content, but also established "safe harbours", explicitly protecting intermediaries such as search engines and social networks from prosecution for their users' actions. Several other ~~
74 International ~ rich
countries have similar laws. The pirates just moved their illegal activity to looser jurisdictions, such as Swedenwhile still benefiting from Americanbased search engines and payment systems. Now the rights-holders see intermediaries as the only point where they can choke the illegal trade. "This is the last stand- the guys who have the pipes," says Peter Mensch of Q Prime, which represents bands such as Metallica and the Red Hot Chili Peppers. Intermediaries are under fire on other fronts too, notes Viktor Mayer-Schonberger of the Oxford Internet Institute. Google, for instance, faces a number of lawsuits in Europe for providing links to material that breaches privacy laws. A handful of European and Asian countries have adopted or proposed "graduatedresponse" laws. These oblige internet-service providers to shut off service from users suspected of downloading illegal files (they get two warnings first) . This approach is working, argues Frances Moore of the IFPI. In South Korea, one of the first places to adopt such a law, most people stop downloading files after the first warning and most of the rest stop after the second, she says. In Spain, which passed an anti-piracy law only in March, music sales have dropped faster than the global average. In 2010 Nielsen, a marketresearch firm, estimated that 45% of Spanish internet users visited illegal music-distribution services, against 23% in the top five European markets. This deterrent may fade over time, though. Nailing offenders can be tricky, since people often share an internet connection and it is hard to prove which of them used it to download files illegally. The Recording Industry Association of America sued thousands of people in 2003·08 for file sharing. After an initial fall, piracy soon started rising again. Compared with other countries' antipiracy laws, soP A is indeed draconian. But the real row is about how content should be distributed and paid for. The bill's supporters want this to change as slowly as possible, so they have time to adapt. Opponents want to see more rapid changes in business models to speed up overdue innovation: cheaper pricing in poor countries, more use of on-demand digital services, less exclusivity in distribution, and ultimately, less reliance on selling albums and DVDs. Yet self-interest is at work on both sides: many of the bill's critics are trying to create just these kinds of business. Neither piracy laws nor newfangled ideas offer creative types a reliable path to prosperity. Services that provide legal music over the internet pay out little in royalties. Only the biggest bands really do well out of touring- and to become big they need to sell albums, says Mr Mensch. No law can do much about that. •
The Economist November 26th 2011 Islam and comedy
Two mullahs went into a bar ...
Islam has more laughs than outsiders might think
T IS Friday night at the arena in LonIsion don and the crowd is hearing a confesfrom Preacher Moss, a black Ameri02
can convert to Islam: "I'm not going to lie about the things I did before I became a Muslim," he tells the audience. "Like have fun." Amid appreciative guffaws he continues in the same vein. When he gave up boozing and womanising, he confides, his mother thought he was gay. Comedians like Mr Moss have a difficult job. Islam and humour seem an unlikely combination. Unflattering cartoons of the Prophet Muhammad have led to death threats, riots, and most recently the firebombing this month of a satirical French weeldy after it published an issue featuring Islam's founder as "guest editor" with the promise: "100 lashes if you don't die of laughter!" To many, that chimes all too well with Ayatollah Khomeini's apocryphal statement that "there are no jokes in Islam". Even the most daring Islamic comedians rarely if ever joke about the faith itself. Some countries ban jokes about religious leaders. Yet Muslim comedians are thriving. Mr Moss, with two other devout American Muslims, has a stand-up comedy act called "Allah Made Me Funny". Britain's Omid Djalili and Shazia Mirza have strong followings too. And though stand-up comedy may be a Western genre, Islam has a rich tradition of humour. The Hadith, Muslims' second-most-sacred text, details every joke Muhammad ever made, such as: "Why are
Asevere challenge to Islamic comedians
there no old women in heaven? Because they become young girls when they get there." (Nothing comparable exists in Christian holy texts.) Arabic, Persian and TUrkish literature feature a Sufi sage, known as]uha or Mullah Nasreddin, notable for buffoonery, wit and wisdom. Western Islamic comics such as Mr Moss have been well received in the Muslim world, and a local stand-up comedy scene is emerging there too. At the Amman Stand-Up Comedy Festival, held each year in Jordan since 2008, many routines are in Arabic. (One skit is about a Muslim vampire who fears pork instead of crucifixes.) Clips on YouTube featuring a Saudi come· dian, Fahad Albutairi, gain over 1m hits. With two other Saudis, he took part in Yemen's first-ever stand-up comedy show in March last year. Two Indonesian television channels have launched stand-up comedy programmes and a Comedy Cafe in Jakarta gives aspiring comics a live audience. Muslim comedians do not just ridicule their fellow citizens' foibles. Satire bubbles up in even the most repressive regimes. Syrian television dramas have long lampooned the security forces, joking about corruption and restrictions on free speech. The residents of Horns, the country's third city, are traditionally the butt of jokes (How do you keep a Homsi busy all day? Put him in a round room and tell him to sit in the corner). Now Homsis are playing on their reputation for buffoonery to make spoof videos ridiculing the crackdown. One shows men shooting aubergines ineffectively out of metal pipes, lampooning the regime's claim that the city's peaceful protesters were using weapons against Syria's security forces. Since September nth 2001, terrorism and the West's reaction to it have provided rich pickings for Muslim comics. Gags about Osama bin Laden and jihad abound. But comedians also feel a sense of urgency. Mohammed Amer, part of Mr Moss's trio, says Muslims have made a "terrible job" of communicating with the outside world. Humour, rather than earnest diatribes on the peaceful nature of Islam, is the best way of defusing suspicion, he says. But at Allah Made Me Funny's show in London only a few atheists and a lone Jew identified themselves in response to a good-humoured request from the stage. The vast majority of the audience were Muslims. Outsiders will not get the joke if they are not there to hear it. •
75
Also in this section 76 Bullets and business in Mexico 78 Selling planes in Dubai 78 The future of e-commerce is Chinese 79 rata's new boss 80 Schum peter: The secret of Jim Collins's success
For daily analysis and debate on business and our weekly "Money talks" podcast, visit Economist.comfbusiness-finance
Shale gas in Europe and America
Fracl
Europe will have trouble replicating America's shale-gas bonanza
S
HALE gas has turned the American energy market on its head. Production has soared twelvefold since 2000, to 4-9 trillion cubic feet, or a quarter of the country's total gas output. By 2035 the proportion could rise to half. As the shale gas flows, prices have come crashing down. Not long ago, America depended on imports of liquefied natural gas. Now it is likely to become a gas exporter. These benefits have not gone unnoticed in Europe. The old continent has nearly as much technically recoverable shale gas (natural gas trapped in shale formations) as America. Europe's reserves are 639 trillion cubic feet, compared with America's 862, according to America's Energy Information Administration, a government agency. But technically recoverable does not mean economically recoverable, notes Peter Hughes of Ricardo Strategic Consulting. Costs are higher in Europe, for several reasons. First, European geology is less favourable: its shale deposits tend to be deeper underground and harder to extract. Second, America has a long history of drilling for oil and gas, which has spawned a huge and competitive oil-services industry bristling with equipment and knowhow. Europe has nothing to compare with that. In 2008, at the height of the gas boom in America,1,6oo rigs were in operation. In Europe now there are only 100. America's more cut-throat market drives costs down.
A single gas well in Europe might cost as much as $14m to sink, three-and-a-half times more than an American one, estimates Deutsche Bank. Third, America's gas industry faces fewer and friendlier regulations than Europe's. Call it the Dick Cheney effect. And fourth, in America wildcat drillers, if they strike it rich, enjoy access to a spider's web of existing pipelines, so they can get their gas to market. Europe has no such network nor open-access rules. Some European countries are keen to replicate America's shale-gas boom. Poland, which may have Europe's largest deposits, has issued exploration licences to more than 20 firms. Test wells have been sunk. But Poland's prime minister, Donald Tusk, reckons that commercial production will not get under way until2014. Other European countries are less gung-ho about shale gas, often for environmental reasons. France has potentially abundant reserves, but has imposed a moratorium on hydraulic fracturing (or "fracking"), the technique for winkling gas from rocks deep underground, while the dangers are assessed. These include the possible pollution of groundwater by the chemicals in fracking fluids, and the leakage of methane, a gas that aggravates global warming. Another fear is that fracking may cause earth tremors. Recent seismic activity near a test well
in Britain has been linked to it. Such concerns are real and widespread-in August South Africa followed France's lead and slapped a moratorium on fracking. More studies will be needed before the public is reassured. Americans worry about the environmental impact of fracking, too. But Europeans worry more, not least because western Europe is far more densely populated than America. Extracting shale gas is more disruptive than hoicking other hydrocarbons out of the ground-far more wells must be sunk than are needed to produce the same quantity of conventional gas. Fracking requires oceans of water, brought in by fleets of noisy tankers. More people will live close to a typical European drilling site, so opposition to drilling permits is likely to be louder. The legal framework is different, too. In America, mineral rights belong to the landowner. In Europe, they usually belong to the state. So when American propertyowners see drills, they see dollar signs. European landowners just see big, ugly drills. (The situation is different in America if the gas lies under federal land. If so, getting leases can be trickier.)
Keep on fracking American leases typically oblige gas firms to keep flushing out gas regardless of market conditions. So the gas carries on flowing whether prices are high or low (as they are now). And landowners keep wallowing in royalties whether the driller makes a profit or not. No such legal provisions are likely in European contracts. In America, almost everything points in the right direction for the shale-gas industry, observes Paul Stevens of Chatham House, a think-tank. In Europe most things point the other way. But not all. ~~
The Economist November 26th 2011
76 Business ~
Europeans may care passionately about the environment, but they also care about the security of their energy supply, and its price. Many European countries buy gas from Russia, a country that uses hydrocarbons as a weapon to bully its neighbours. This is perhaps why Poland has been quickest to embrace shale gas; it trusts Russia as it would trust a bear to guard a picnic hamper. Ukraine, another nervous neighbour, recently awarded exploration licences to Exxon Mobil and Shell, two Western energy firms. European gas prices are around twice what they are in America, a big incentive to frackers. In Europe, the price of conventional gas is largely indexed to oil prices, and the gas is provided on long-term contracts that stipulate minimum volumes irrespective of market conditions. This makes locally produced shale gas, supplied on flexible terms, look attractive. Gazprom, Russia's state-controlled gas giant, often disparages efforts to extract shale gas- a sure sign that its bosses are rattled. Yet they may not be affected for a while. America's shale revolution began 20 years ago, but its impact has been felt only in the past five years. Europe's may take just as long, reckons Mr Stevens. But when the fracking begins in earnest, it could turn Europe's energy market on its head, too. • A "green zone" for firms in Ciudad Juarez
Business on the bloody border CIU DAD J UAR EZ
Desperate measures to keep businesses alive in the w orld's most dangerous city
A STEEL fence is all that separates El Paso, ./"\.in west Texas, from Ciudad Juarez, in northern Mexico, and it has never stopped business flowing across the border. Drinks, dentistry and divorces have been served up to bargain-seeking gringos for decades. But since fighting erupted among local drug-traffickers in 2007, Juarez has seen more violence than anywhere on Earth, battlefields aside. The murder rate last year was over 200 per 100,000 people, more than ten times the national average and 200 times the rate in El Paso. In a once-busy tourist area close to the border, well over half the shops are boarded up. Visitors "think Mexico is a country at war," says one dentist with a practice close to the frontier. Since the violence ratcheted up, three-quarters of his mainly American patients have decided that crossing the border for half-price drilling is not worth the risk. It does not help that since September nth 2001 crossing the border can take up to two hours, rather than a few minutes.
For some reason, shoppers shun Juarez
Most gringo-oriented businesses have struggled: a few blocks away Club 21, a betting shop, has closed, as has the Montana restaurant, which once served toothsome steaks. A hotel lies half-built; the rumour is that its backer was a drug lord who was killed earlier this year. Alongside lower demand, businesses face new costs from extortion, which has flourished as small-time crooks have taken advantage of the mayhem. The maquila factories in the suburbs, which make car parts and various gadgets for the American market, are safe because they handle little cash and have off-site bosses. Smaller shops, where the owner sits behind a till full of pesos, are more vulnerable. Jose Luis, the manager of a souvenir shop selling masks, statues and other handicrafts, says his family shut two similar stores in 2009 rather than pay protection money. The gangsters' piso, or floorrent, apparently varies from 500 pesos ($35) to $1,000 a week. Businessmen who can't afford to pay the piso or to employ bodyguards have in some cases shut up shop to work anonymously from home. To protect entrepreneurs and reassure visitors, the city government created a heavily policed "green zone" for businesses in December 2010, which completed a trial period last month. Under the plan,120 federal police kept a 24· hour guard on a small commercial area close to the border. Checkpoints were positioned every 500m to inspect cars and keep an eye on racketeers. The crackdown cut extortion by more than 90%, says Juan Benavente, the state's undersecretary of economy, who delightedly reports that two new restaurants opened in the green zone last week. Shopkeepers say extortion has by no means disappeared, and that much goes unreported. But things have got better, according to Guillermo Soria, of Juarez's chamber of commerce. Before, "you
would stop at traffic lights at npm and be the only car there. Now there is more traffic, more movement." People are selling cigarettes at road junctions again; some restaurants even have queues at the weekend. Businesses can report extortion via the chamber of commerce, which passes the information to contacts in the not-always-trustworthy police. Despite its apparent success the green zone was scrapped last month, ostensibly because its mission had been accomplished. Officials admit that the police were in fact called away partly to help at October's Pan American games in Guadalajara. Since then officers have been moved to Monterrey, which has a growing security problem of its own (see pagt! 48). As night falls, a single federal police lorry creeps along the southern edge of the former green zone. The loss of protection is palpable: on November 12th a body was found outside a defunct nightclub called Vertigo in the formerly secure area. Yet some wonder if the green zone, with its hints of Baghdad, did as much to dissuade visitors as tempt them in. One shopkeeper, who had a checkpoint positioned outside his store, says it was hardly a "red carpet" to welcome visitors. With Juarez's murder rate down by a third this year, the problem will be increasingly one of perception, Mr Benavente hopes, though things remain fairly dire. There are plans to launch a tourist-police force next year, with English-speaking officers to give a friendlier impression than armed checkpoints. Mr Soria laments that many executives are still forbidden from visiting Juarez by their fearful bosses (or spouses). A pitch this month to host an annual jamboree for 1,ooo lawyers will be a test of whether the new, slightly safer Juarez can attract business. Until it does, criminal enterprises will make life difficult for legitimate ones. •
In the future, there will be no markets left waiting to emerge. Even as soon as 2050, 19 of the top 30 economies by GOP are forecast to be countries that we currently describe as 'emerg ing:* HSBC was established to finance and facilitate the growing trade between China and Europe. That's why we have Trade and Supply Cha in teams on the ground in t he major and emerging trading economies all around the globe, helping you make new business connections and navigate local regulations. So when you are thinking of emerging markets we can provide all the support you need. For more informat ion visit us.hsbc.com/trade 'Source: Delta Economics 2011
HSBC ~ Commercial Banking
United States persons (including entities) are subject to U.S. taxation on their worldwide income and rnay be subject to tax and other filing obligations w ith respect to their U.S. and non U.S. accounts. US persons and entities should consult a tax advisor for moro information. Trado and Supply chain transactions may be subject to credit approval. Other restrictions, including specific country regulations may apply. Foreign curroncy exchange rates may apply to certain trade transactions. HSBC Bank USA, N.A. Member FDIC, Equal Credit Opportunity lender, @2011 HSBC Bank USA, N.A
78 Business Making aircraft
Full throttle
The Economist November 26th 2011
I
E-commerce in China Flying higher Order books, number of aircraft* At year-end, '000
• •
8
Boeing Airbus
6
Boeing and Airbus enjoy huge demand for their planes. Can they keep up?
XECUTIVES at aircraft-makers sometimes grumble that there are too many air shows nowadays. But it was well worth their turning up to Dubai's, held on November 13th-17th, given the bumper orders they won. The star of the show was Qatar Airways' wonderfully outspoken boss, Ak· bar AI Baker, who gave Airbus the runaround for almost three days-at one point publicly accusing it of still learning how to make planes-before agreeing to buy 55 of them, worth $6-4 billion at list prices. Even this whopping order was put into the desert shade by Emirates' $18 billion order for Boeings, with options to buy a further $8 billion-worth. As the Dubai show ended, President Barack Obama, on a visit to Indonesia, witnessed Boeing sign a record $21.7 billion deal with Lion Air, with options to buy a further $14 billion-worth. Of course, orders this big enjoy substantial, undisclosed discounts from the sticker price. But the two main makers of full-sized commercial jets can look forward to years of guaranteed business, with firm orders at a record (see chart). The order book for Airbus's short-to-medium-haul A320, for example, stretches into the 2020s. Ten years ago North American carriers accounted for almost 6o% of all aircraft orders; now they have been overtaken by Asian ones, which so far this year
4
China will become the world's most valuable market fore-commerce
l 'l ] HEN it comes toe-commerce, AmeriVV ca is still top dog, with some 170m
E
Not all air travel is miserable
The great leap online
2001 02 03 04 05 06 07 08 09 10 111 Source: Ascend
' Excludes military and business jets ITo Nov 21st
have placed 32% of the orders of planes from Boeing and Airbus combined, compared with North America's 26%. If the world economy takes a turn for the worse, some airlines will no doubt seek to cancel or postpone orders. But Paul Sheridan of Ascend, an aviation consultancy, says that worldwide demand for air travel is growing so strongly that today's order books represent only 25-30% of the planes that airlines are likely to need in the coming 20 years. The new generation of planes are significantly cheaper to run than those currently flying, so a harsh economic climate may in fact encourage airlines to press on with renewing their fleets. American Airlines, for example, is seeking to overcome its chronic losses with a huge programme to swap old planes for new. At a time when cuts in defence spending are making life tough for suppliers of military aircraft, those who make commercial planes are working flat out to expand their factories. Boeing's commercial side has hired n,ooo new workers this year, whereas Sikorsky, a supplier of military helicopters, this week announced job cuts. It is an auspicious time for three emerging rivals to the Boeing-Airbus duopoly to seek to establish themselves. Canada's Bombardier, a maker of smaller "regional" jets, has launched the cSeries, a rival to Boeing's 737 and Airbus's A320. At Dubai, Atlasjet of Turkey became the tenth airline to sign up for the cSeries. Co mac of China and Irkut of Russia are also developing similar aircraft in the 100- to 200-seat class. Can the planemakers and their suppliers keep up? Now that Boeing has delivered the first of its long-haul 787 Dream liners, following problems with suppliers, it is promising to throttle up the programme and turn out ten a month by the end of 2013. Airbus has just announced further delays to its equivalent, the A3SO, which is threatening to become as much of a "nightmareliner" as its rival's plane. However, Mr Sheridan says the main worry is right back at the start of the supply chain. Many aircraft parts are made from highly specialised metals and other materials: will there be enough of these to go around? •
punters scouring for bargains on the internet. However, China is not far behind, with 145m online shoppers, and it could become the world's most valuable e-commerce market within four years. In a new report, the Boston Consulting Group (BCG) calculates that every year for the foreseeable future another 30m Chinese will go online to shop for the first time. By 2015 they will each be spending $1,000 a year-about what Americans spend online now. BCG calculates that ecommerce could rise from 3.3% of China's retail sales today to 7-4% by 2015- a jump that took a decade in America. The Chinese government has heavily subsidised the rollout of high-speed access, so internet penetration now approaches rich-country levels. That boosts e-commerce, of course. But so, too, do the shortcomings of China's costly, inefficient bricks-and-mortar retailers. For example, a quarter of Chinese shoppers seek products online because they are not available at physical stores. Also, until recently, China lacked a reliable and cheap method of shipping packages, so the e-commerce industry has invested in developing one. Purchases on Taobao, an online Goliath that is a division of China's Alibaba, are thought to account for a staggering so% of all packages shipped in
China. The cost of shipping parcels is now a mere one-sixth of what firms in America have to pay. The biggest snag holding back e-commerce for years was a lack of trust. Consumers worried (quite rationally) that online firms were fraudsters, or that their credit cards would be abused, or that purchases would get swapped for counterfeits during shipment. Alibaba overcame this by creating Alipay, a clever online arrangement that- unlike eBay's system- releases payments to vendors only after clients confirm that they are satisfied. Chinese e-shoppers are also big users of social media. Precisely because they do not trust sellers or advertising much, they devour online customer reviews of the sort made popular by eBay and Amazon. According to BCG, over 40% of Chinese online shoppers read and post product reviews online, making them twice as likely as American online shoppers to do so and four times as likely as Indians. The future of e-commerce is Chinese. •
The Economist November 26th 2011
Business 79
Indian business
The magical Mistry tour MUMBAI
Cyrus Mistry, the new b oss of India's biggest firm, has hu ge shoes to fill In retrospect its choice seems obvious, even though Mr Mistry, a non-executive director of Tata Sons, the group's holding company, was originally a member of the selection panel, and joined the shortlist of candidates only a few months ago. He is young, at 43. He studied engineering and management in Britain, at Imperial College and London Business School- an important connection given Tata's vast acquisitions in Britain, which include Corus, a steelmaker, and Jaguar Land Rover, a carmaker. And he has had hands-on experience as managing director of his family's big, India-based construction business since 1994. One person involved in theselection process describes him as having "a stable head and good vision. He doesn't just jump up and down and [he] has a long-term view of investment."
OMPANY bosses come and go, and C their importance is often exaggerated by credulous business hacks. But in Ratan Tata's case, the attention is merited. Since he took overTataSons in1991, he has built a decaying family firm into India's biggest and most international business, with sales of $83 billion. He is the undisputed colossus of corporate India. Small wonder the announcement of his successor on November 23rd made a splash. Cyrus Mistry will be the new chairman; the last person without the Tata surname to hold that post died in 1938. He will take over in December 2012, after shadowing Mr Tata for a year. Tata stands for a very Indian way of organising a firm. It is a giant, complex 143year-old conglomerate under its fifth generation of family leadership. One Tata bigwig recently joked that were "Neutron" Jack Welch, a former boss of General Electric, to take charge of Tata, the firm would be ripped apart in the name of shareholder value. So Indians are curious to know whether Tata under Mr Mistry will move beyond family management without breaking up. What happens at Tata could influence the other great family businesses that dominate India's private sector and aspire to be global champions. Of the candidates for the top job, there was one family member: Noel Tata, Ratan Tata's half-brother (Ratan has no children). Over a 15-month selection process a committee also considered people from America and Europe, outsiders from the Indian business scene and internal candidates.
Learning the Tata way An outsider, then, but one with deep connections with Tata, whose unique culture sits somewhere between that of a charity, a national champion and a profit-hungry corporation. With am8% stake, Mr Mistry's family is the second-largest shareholder in Tata Sons after the Tata family's charitable trusts, a position built up by his grandfather in 1930. He joined the board in 2006, taking over from his father, and has had plenty of time to feel the vibrations. Other signs also point to continuity. Mr Tata will linger as the chairman of the family trusts that own 66% of Tata Sons-these are supposed to be independent of the firm itself, but played a part in the selection
process. Key lieutenants and true believers in the Tata way, such as Ishaat Hussain and R. Gopalakrishnan, are expected to remain on its board. And Mr Mistry's previous firm (from which he will stand down) diversified under his watch. So a sudden change of tack looks unlikely. But Mr Mistry will inherit problems. Tata is often accused of being flabby and undisciplined. This isn't entirely true. After a string of risky foreign acquisitions in recent years, its return on equity bounced back handsomely last financial year (see chart). Still, profits are likely to take a battering again as the slowdown in the rich world hurts demand for steel and cars. And within the Tata empire there are underperforming assets: not least its large mobile-phone business in India, which has been losing money for some time. The group's structure needs attention, too. Its cash generation and debts are mismatched among its subsidiaries. The steel business, for example, is highly indebted and investing heavily, while the technology business, TCS, generates lakes of cash and has a balance-sheet with a net cash position. To make Tata's rickety structure more durable and capable of further global expansion, Mr Mistry may have to increase its stakes in some listed subsidiaries using funds raised from selling down others, while also working to put its liabilities closer to where the money is made. Running a firm that is so devolved may be the hardest challenge of all. Ratan Tata took a close interest in some parts- cars, for example- but remained hands-off with others, such as Tcs. Mr Mistry will have different interests and priorities, and may feel the need to assert clearer control. This is exactly what Mr Tata felt two decades ago, but with luck Mr Mistry will find the going easier than Mr Tata, who, when he first took over, had to fight to impose his authority over the old guard. Two decades later, those battles are hard to imagine. But with so much at stake, you never know. •
A rich legacy Estimated return on equity of big business groups Mahi ndra & Mahindra - Tata Sons Aditya Birla • - Reliance Industries (M. Ambani)
-
OPJindal Reliance Group (A. Ambani)
30
20
10
2008
09
10
11
0
Fiscalyears ending March
Sources: Bloomberg; The Economist estimates
*Excludes derivatives gains and losses at Novelis
The Economist November 26th 2011
80 Business
Schumpeter I Built to last Jim Collins has stayed at the top by practising what he preaches
HY do some companies flourish for decades while others W wither and die? Jim Collins got his start as a management guru puzzling about corporate longevity. Given that Collins Mr
has remained at the top of his profession for almost two decades, it is worth applying the same question to him. How has he produced one bestseller after another? His latest book, "Great by Choice", is piled high in every bookstore. A previous one, "Good to Great", sold more than 4m copies. And how has he achieved such oracular influence over bosses? In 2009, for example, Akio Toyoda, the president of Toyota, stunned the car industry by announcing that he had been reading Mr Collins's "How the Mighty Fall" and had concluded that his company was in the fourth of Mr Collins's five stages of decline. Part of the answer lies in timing. "Built to Last" (1994) was a counterblast to the craze for ripping firms apart and "re-engineering" them. "Good to Great" (2001) was an antidote to the despair that gripped America in the wake of September nth 2001 and the dotcom bust. "How the Mighty Fall" (2009) appeared as Lehman Brothers disintegrated and General Motors faced bankruptcy. Another part of the answer lies in Mr Collins's mastery of the dark arts of the management guru. He bases his arguments on mountains of data. His recent books come with several appendices in which he discusses his methodology and challenges possible objections. But he also produces an entire lexicon of-often cringe-making-buzzwords. Mr Collins's favourites include "big hairy audacious goals", "the hedgehog concept", "the flywheel effect" and "level-five leaders". (Don't ask.) His central message, which has remained the same through global booms and recessions, is admirably humdrum. He seeks to describe, in detail, how great bosses run their companies. After decades of minute observation, he concludes that hard work and perseverance matter more than genius. His heroes are self-effacing company men who spend years patiently building their organisations, rather than self-promoting egomaniacs who leap from fad to fad and firm to fum. In essence, Mr Collins is repackaging the universal message of self-help literature. Everybody can be successful, he argues, so long as they stick to a set of demanding but not impossible rules. For most company men and women, few of whom are geniuses, this is heartening news.
Mr Collins practises what he preaches. He rejected careers in both academia and consulting in order to focus exclusively on the question of what makes great companies tick. He moved back to his home town of Boulder, Colorado, collected a group of helpers who shared his fascination and set about producing a new book every four or five years. On a spreadsheet Mr Collins religiously logs how much time he spends on creative work, and how much on mundane tasks. He applies the same relentless determination to his hobby, mountain climbing, as he does to writing. He once climbed El Capitan, in Yosemite, in 24 hours- a feat that takes most experienced climbers three days. His most recent book, "Great by Choice", co-written with Morten Hansen, looks at how America's most successful companies (ie, companies that have outperformed the stockmarket average for their industry by a factor of ten) have dealt with turbulence and chaos. Mr Collins studies an era, 1972-2002, that might seem calm compared with today (he likes to study decades' worth of solid data). But he has chosen his companies from businesses such as information technology, drugs and airlines, which all suffered from extreme disruption. Mr Collins challenges some common beliefs. Do turbulent times call for bold and risk-loving leaders, as so many people think? Probably not. Most of Mr Collins's leaders are risk-averse to the point of paranoia. Bill Gates hung a picture of Henry Ford in his office to remind people that even geniuses can mess up, as Ford did in later life. Andy Grove, a co-founder of Intel, was constantly looking for "the black cloud in the silver lining". A second myth that Mr Collins punctures is that innovation is the only virtue that counts. Mr Collins's companies were usually "one fad behind" the market. Southwest Airlines was almost a carbon copy of a pioneer that later stumbled, Pacific Southwest Airlines. Intel dominates the chip market because it delivers products efficiently, not because it generates original ideas. (Mr Grove kept a McDonald's hamburger box on his desk, with the logo Mclntel, to remind himself of this.)
Good to great to ... Fannie Mae? Mr Collins's love of vanilla virtues is as refreshing as a bowl of ice
cream. Other gurus who encourage companies to tear themselves apart in the name of "transformation" have caused terrible harm. Few companies have suffered much from trying to be more methodical. Yet it is hard to read Mr Collins's latest work without feeling doubts. Are his conclusions as reliable as he implies? Some of the companies that he has celebrated over the years- Hewlett Packard and Motorola in "Built to Last" and Circuit City and Fannie Mae in "Good to Great"-have fallen from grace. Circuit City, an electronics retailer, went bust. Fannie Mae, a mortgage giant backed by the American government, is worse than bust, having burned up tens of billions of dollars of taxpayers' cash. Mr Collins is allergic to egomaniacs, but how else can you describe the late Steve Jobs, perhaps the most successful businessman of his era? This is not to say that Mr Collins's insights are worthless; merely that they are less robust than he suggests. Most business books would profit from a bit more rigour. Mr Collins's might profit from a bit more willingness to admit that, like all management gurus, he is dealing in clever hunches rather than built-to-last scientific discoveries. • Economist.comfblogsfschumpeter
81
Beware of falling masonry The crisis in the euro area is turning into a panic and dragging the zone into recession. The risk that the currency disintegrates within weeks is alarmingly high Greece; then Ireland and Portugal; FtheIRST then Italy and Spain. Month by month, crisis in the euro area has crept from the vulnerable periphery of the currency zone towards its core, helped by denial, misdiag-
nosis and procrastination by the eurozone's policymakers. Recently Belgian and French government bonds have been in the financial markets' bad books. Investors are even sniffy about German bonds: an auction of ten-year Bunds on November 23rd shifted only €3.6 billion-worth ($4.8 billion) of the €6 billion-worth on offer. Worse, there are signs that the euro zone's economy is heading for recession, if it is not there already. Industrial orders in the euro zone fell by 6-4% in September, the steepest decline since the dark days of December 2008. A closely watched index of euro-zone sentiment, based on surveys of purchasing managers in manufacturing and services, is also signalling contraction, with a reading of 47.2: anything below so suggests activity is shrinking. The European Commission's index of consumer confidence fell in November for the fifth month in a row. Now an even bigger calamity is looldng likelier. The intensifying financial pressure raises the chances of a disorderly default
by a government, a run of retail deposits on banks short of cash, or a revolt against austerity that would mark the start of the break-up of the euro zone. The German government can probably shrug off a failed auction: it likes to price its bonds as richly as it can, and occasionally cannot sell all it would like, even in untroubled times. Still, the timing is awful, and other governments are not so lucky: the contrast between Germany's borrowing costs and those of other euro-zone sovereigns is stark (see chart 1). European banks
I
II
Spreadeagled Sovereign-bond yields, %
10
8 6 Germ~
.J
J..
...t.
I
l
I.
2
+ 0
~'~~==--------.i..
4
I
2
3m 6m 1 2 3 4 5 6 7 8 9 10 15 30 Years to maturity Sources: Bloomberg; Eurostat; The Economist
*Rest of pre-2007 euro area, weighted by 2010 GOP
are dumping the bonds of the least creditworthy, and other assets, in an attempt to conserve capital and improve cashflow as a full-blown funding crisis looms. Governments are promising ever more severe budget cuts in the hope of pacifying bond markets. The direct result of these scrambles is a credit crunch and a squeeze on aggregate demand that is forcing Europe into recession. Add the indirect effects on the confidence of consumers and businesses, and the downturn will be deep.
A recipe for recession
Consider the three ingredients for recession: a credit crunch, tighter fiscal policy and a dearth of confidence. In aggregate, European banks'loans exceed their deposits, so they rely on wholesale funds- shortterm bills, longer-term bonds or loans from other banks-to bridge the gap. But investors are becoming warier of lending to banks that have euro-zone bonds on their books and that can no longer rely on the backing of governments with borrowing troubles of their own. Long-term bond issues have become scarce and American money-market funds, hitherto buyers of short-term bank bills, are running scared (see Buttonwood). Banks are frantically shedding assets both to raise cash and to ration their capital in order to meet European Union minimum capital-adequacy targets by next June. The early victims of this deleveraging are borrowers in emerging markets. The euro zone's eastern neighbours may be hit particularly hard: the Turkish lira, for instance, has come under pressure in the past ~~
82 Briefing The euro
The Economist November 26th 2011
~ week, a hint that money is flowing out. The
repatriation of funds by euro-zone banks might explain why the euro has been remarkably stable against the dollar in recent weeks, despite the zone's internal convulsions. But businesses and householders at home will also soon be hurt by scarcer credit and rising interest rates, as the banks' higher funding costs are passed on. Governments are cutting back too. The precise impact of next year's belt-tightening is tricky to gauge. France's budget plans are close to being agreed on; further cuts are likely but will be delayed until after the elections in spring. Italy has yet to vote through a much-revised package of cuts. Spain's incoming government has promised further spending cuts, especially in regional outlays, in order to meet deficit targets agreed with Brussels. Even so, it seems plain that fiscal tightening will weaken growth. Take the plans that countries presented to the European Commission and add what has been advertised since, and the squeeze across the euro area comes to around 1.25% of GDP next year, reckons Laurence Boone, chief European economist at Bank of America. That alone is enough, says Ms Boone, to chop around a percentage point off GDP growth in 2012. Germany will be the least affected of the zone's four biggest economies, followed by France. Spain and Italy will be hurt most. The euro zone's businesses and consumers will be drawn into the downward spiral of confidence. In the autumn of 2008 companies learned that credit lines could not be relied on when banks were fighting for survival. When banks are short of liquidity, firms have to watch their own cashflow closely. That implies leaner stocks and reductions in discretionary spending, such as capital projects or adver-
tising campaigns.
I
IJ
Off balance Net international-investment position %of GOP, 02 2011 or latest
.---------. Ten-year bond yield*, %
100 50 - 0 + 50 100 150
Portugal Greece Spain Ireland
::s
: to.ssl . 25.95 1
~ :::I!§]
Italy
:llil
France
. 3.6t
I
Austria
3.ill
Finland
'2BJ
Netherlands
~
Germany Belgium
'ToU :Iill
luxembourg
~
Sources: Bloomberg; Eurostat; Irish CSO; The Economist
' November 23rd
September's sharp decline in industrial orders is an early sign that companies are cutting back. Andreas Willi, head of capital-goods research at JPMorgan, notes that SKF, a Swedish firm that is the world's largest maker of ball bearings and a bellwether of industrial demand, gave analysts a cautious assessment of its future revenues in mid-October. That guidance suggests a further softening of investment demand. Consumers are also likely to defer big purchases as long as the crisis is unresolved and credit is scarce. A drop in demand for capital equipment, durable consumer goods and cars will strike at the euro zone's industrial heartland, including Germany. Ms Boone reckons GDP will fall by around o.s% in Germany next year and by the same amount in the whole zone. In September the IMF forecast that the zone's GDP would grow by 1.1% in 2012 but estimated that if European banks were deleveraging quickly (as they are now), the economy could shrink by around 2%.
I
II
Payback time Sovereign-debt redemptions, €bn •
Italy
•
Spain
France
50 40
30 20
10 28 5 12 19 26 2 9 16 23 30 6 13 20 27
Nov
Dec
2011
Jan
Feb
2012 Week beginning
Sources: Bloomberg; The Economist
Breaking point A downturn of such severity will hugely increase the pressures within the zone. Investors will be even less willing to finance banks, as more garden-variety loans to businesses and householders turn bad. As unemployment rises, tax receipts will go down and welfare payments up, making it harder for governments to rein in their deficits and hit the targets they have set, and causing bond markets to question their solvency more pointedly still. In such circumstances, the chances of a policy error or broader panic increase sharply. The calculations of bond investors, bank depositors and politicians are prone to sudden change. Hopes that the fracture of the euro zone might be averted
tors in creditor countries, such as Germany. Ireland is unusual in that a large chunk of what it owes is in the form of equity (all those American-owned factories and offices) and so does not need to be refinanced. With a few exceptions, the benchmark cost of credit in each euro-zone country is related to the balance of its international debts. Germany, which is owed more than it owes, still has low bond yields; Greece, which is heavily in debt to foreigners, has a high cost of borrowing (see chart 2). Portugal, Greece and (to a lesser extent) Spain still have big current-account deficits, and so are still adding to their already high foreign liabilities. Refinancing these is becoming harder and putting strain on local banks and credit availability. The higher the cost of funding becomes, the more money flows out to foreigners to service these debts. This is why the issue of national solvency goes beyond what governments owe. The euro zone is showing the symptoms of an internal balance-of-payments crisis, with self-fulfill-
by far-sighted policymakers could give
ing runs on countries, because at bottom
way to a belief that it is inevitable. Such beliefs, once they take hold, are likely to be self-fulfilling. How? The drying-up of funding for sovereigns and for banks is a threat to the integrity of the euro, because of the stark divide between debtor and creditor countries within the zone. As late as March 2010,]ean-Claude Trichet, then head of the ECB, boasted that simply belonging to the euro area automatically ensured balanceof-payments financing. It doesn't look that way now. During the credit boom, cheap capital flowed into Greece, Ireland, Portugal and Spain to finance trade deficits and housing booms. As a result, the net foreign liabilities- what businesses, householders and government owe to foreigners, less the foreign assets they own- of all four are close to 100% of GDP. (By comparison, America's net foreign liabilities are 17% of GDP.) Much of their debt is being financed by local bank borrowing or bonds sold to inves-
that is the nature of its troubles. And such crises put extraordinary pressure on exchange-rate pegs, no matter how permanent policymakers claim them to be. One of the initial attractions of euro membership for peripheral countries- access to cheap funds- no longer applies. If a messy default is forced upon a euro-zone country, it might be tempted to reinvent its own currency. Indeed, it may have little option. That way, at least, it could write down the value of its private and public debts, as well as cutting its wages and prices relative to those abroad, improving its competitiveness. The switch would be hugely costly for debtors and creditors alike. But the alternative is scarcely more appealing. Austerity, high unemployment, social unrest, high borrowing costs and banking chaos seem likely either way. The prospect that one country might break its ties to the euro, voluntarily or not, would cause widespread bank runs in other weak economies. Depositors would ~~
The Economist November 26th 2011
Briefing The euro 8 3
~ rush to get their savings out of the country
to pre-empt a forced conversion to a new, weaker currency. Governments would have to impose limits on bank withdrawals or close banks temporarily. Capital controls and even travel restrictions would be needed to stanch the bleeding of money from the economy. Such restrictions would slow the circulation of money around the economy, deepening the recession. External sources of credit would dry up because foreign investors, banks and companies would fear that their money would be trapped. A government cut off from capital-market funding would need to find other ways of bridging the gap between tax receipts and public spending. It might meet part of its obligations, including public-sector wages, by issuing small-denomination IOUs that could in turn be used to buy goods and pay bills. When cash is scarce, such scrip is readily accepted by tradesmen. In August 2001 the Argentine province of Buenos Aires issued $9om of small bills, known as patacones, to employees as part of their pay. The bills were soon circulating freely: MeDonalds even offered a "Patacombo" menu in exchange for a $5 patac6n. Argentina broke its supposedly irrevocable currency peg to the dollar a few months later. Scrip of this kind becomes, in effect, a proto-currency. In a stricken euro-zone country, it would change hands at a discount to the remaining euros in circulation, foreshadowing the devaluation to come. To pre-empt further capital outflows, a government would have to pass a law swiftly to say all financial dealings would henceforth be carried out in a new currency, at a one-for-one exchange rate with the euro. The new currency would then "float" (ie, sink) to a lower level against the abandoned euro. The size of that devaluation would be the extent of the country's effective default against its creditors. Market gurus and other students of misaligned stock, bond or home prices often say that although it is easy to spot an asset-price bubble, it is impossible to know the event that finally pricks it. In much the same way, the likeliest trigger for a disintegration of the euro is unknowable. But there are plenty of candidates. One is a failed bond auction that forces a country into default and sends a shock wave through the European banking system. Italy has €33 billion of debt coming due in the final week of January and a further €48 billion in the last week of February (see chart 3 on the previous page). Since bond investors are turning their noses up even at offerings from thrifty Germany, the odds against Italy's being able to raise the money it needs early next year are uncomfortably short Another danger is a disagreement between Greece and its trio of rescuers (the EU, the IMF and the ECB) over the condi-
tions of its bail-out. The risk of a mishap will be greater after the Greek elections in February if the country's political mood sours yet further. Perhaps the spark will come from another source: the bankruptcy of a bank; fresh trouble in Portugal; or a chain of events that starts with France losing its AAA rating and ends with runs on banks across Europe. The exposure of French banks to Italy and to other countries that have been in bond traders' sights for longer implies that contagion would quickly spread to the euro's core (see chart 4). Widespread defaults in the periphery would wipe out a big chunk of Germany's wealth and begin a chain of bank failures that could turn recession into depression. The few left in the euro (Germany and perhaps a few other creditor countries) would be at a competitive disadvantage to the new cheaper currencies on their doorstep. As well as imposing capital controls, countries might retreat towards autarky, by raising retaliatory tariffs. The survival of the European single market and of the EU itself would then be under threat. Such a disaster can still be averted. The ECB might launch a programme of bond-
I
II
Aperipheral problem no more French banks' exposure to selected euro-area count ries, 02 2011, $bn •
Private sector
•
Public sector
150
300
(non·bank)
0
Italy
•
Banks 450
lzt.ol
Spain
~
Greece
IE]
Ireland Portugal
UlJ [%of France's GOP ~li1J
Sources: Bank for International Settlements; Eurostat
buying on the pretext that a deep recession in the euro area threatens deflation. If done on the scale that the Bank of England has undertaken, it could restore stability to Europe's panicky bond markets. If bond purchases were made in proportion to the size of each euro member's economy, that might go some way to overcoming German misgivings that the central bank was being used to provide favourable financing to profligate countries. Such action by the ECB is an essential short-term palliative. But any lasting stability for the euro must lie with governments, particularly in the degree to which they are willing to give up fiscal sovereignty in return for pooling liabilities. Germany stands firmly at one extreme of this debate. Its chancellor, Angela Merkel, wants big changes to force probity (and wants the EU summit on December 9th to focus on such rule changes), but has opposed the idea of jointly guaranteed "Eurobonds". German officials have argued that any open-ended commitment to joint liabilities would encourage errant governments to profligacy, violate Germany's constitution and raise its borrowing costs. Even now, the head of the Bundesbank, Jens Weidmann, appears to believe that the imposition of fiscal rigour will be enough to restore calm to Europe's bond markets. Hanging togeth er Others think that circumstances demand speedier concentration on ways to pool liabilities. On November 23rd the European Commission laid out three approaches for issuing Eurobonds, two of which imply mutual guarantees. Another new proposal is intriguingthanks, in part, to its provenance. Germany's Council of Economic Experts recently proposed a "European Redemption Pact". This scheme would place the debt, in excess of 6o% of GDP, of all euro-zone governments not already in IMF rescue plans into a jointly guaranteed fund that would be paid off over 25 years. Modelled in part on the federal government's assumption of the debt of America's states begun by Alexander Hamilton in 1790, the fund would provide joint liability for these debts under strict conditions. These would require euro-zone countries to introduce debt brakes into their constitutions, like the one Germany and Spain already have; give priority to paying off the mutualised bonds; set aside a specific tax revenue to do so; and pledge foreign-exchange reserves as collateral. At its peak, the redemption pact would be huge: the joint liability would amount to €2.3 trillion. But it would technically be temporary. For all these safeguards, Germany's government has so far poured cold water on the idea. But time is running out. And the scale of the impending catastrophe demands radical answers. •
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85 Also in this section 86 American tax law 87 Japan' s stock exchanges 87 Bust Baltic banks 88 Buttonwood: Gloom descends 90 Economics focus: The next housing bust
0
•
For daily analysis an d debate on economics, visit Economist.com/ economics
• India's currency
Rupee and the bears MUMBAI
What the mini-run on the rupee says about India HE result of headless-chicken financial Tmarkets or a canary in the coal mine? India is grappling with this question. On November 22nd the rupee fell to an alltime low against the dollar. The speed of the rout (see chart) has been scary for a place that was supposed to be largely insulated from the rich world's troubles. It is 20 years since India had a balance-of-payments crisis and for a long time the talk has been about it becoming an economic superpower. But there lingers a memory of when it felt it was a financial hostage to the world, and this helps explain the whiff of panic now in the air. Mumbai's financial types say that firms are scrambling to find dollars and that desperate euro-zone banks, which supply about half of India's foreign loans, are cutting off credit lines. That sense of fear strikes some as overdone. Jonathan Anderson, of UBS, a bank, has tagged the rupee a "drama queen". India's high inflation and chunky current-account deficit, financed by capital flows, mark it out from most of Asia. But neither attribute is new. Chetan Ahya, an economist at Morgan Stanley, thinks India has its problems, but that the weak rupee mainly reflects the trauma in global markets, which has caused capital flows to dry up. Hardest hit by global risk aversion are countries with external deficits. The currencies of other places with current-account gaps, such as South Africa and Tur-
key, have been walloped too. To be sure, the rupee deserves a beating, given how India's prospects have dimmed. "The currency markets have been late in reacting," reckons Samiran Chakraborty, of Standard Chartered, another bank. "The Indian business community has been more negative than foreigners for some time," adds Roopa Kudva, the boss of CRISIL, a ratings and research firm . India's growth model has been to run a small current-account deficit, financed with high-quality capital inflows, such as foreign direct investment and equity purchases. As a poor country this makes sense: India should invest more than it saves. But bits of its approach look rickety.
I
Waiting for the bounce Indian rupee against the do llar, inverted scale -----~- o
10 20 30
40 50 t
II
1980
1
1 I! 1
85
t
1 I
90
1 1 t i
95
Source: Tho mson Reuters
1
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t
I I I I I I I I t I I I
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05
1
11
60
For a start the current-account deficit is likely to overshoot projections of about 3% of GDP for 2on, if October's trade figures are anything to go by. Exports slowed faster than imports, a chunk of which are nondiscretionary commodities and oil. The investment climate has soured d ue to stubborn inflation, high interest rates and G D P growth that may dip below 7% in the coming quarter. Pessimism about the government's appetite for reform has surely hurt India's ability to attract capital. Neelkanth Mishra, a strategist at Credit Suisse and a longstanding bear on the economy, reckons the quality of capital coming in is falling too, with flightier and riskier debt rather than stickier equity investments. The falling rupee, then, partly reflects India's economic failings. But will a cheaper currency add to these problems or help solve them? It should eventually narrow the external deficit, by boosting exports and limiting imports. Still, a sharp fall in the currency can be deadly if a country has borrowed in other people's money. India's indebted government sells its rupee bonds to locals, mainly banks, not jittery foreigners. The trouble is that since India's banks are forced to stuff themselves full of loans to the state, Indian firms have had to borrow abroad. Sanjeev Prasad at Kotak, a broker, says that the recent results season saw a host of firms booking losses as the value in rupees of their foreign debts rose. He worries about them being able to refinance these borrowings. And a lower rupee will fan inflation, which is already at 9-10%. The Reserve Bank of India (RBI), India's central bank, and the government have been praying that it will slow. But a rough rule of thumb is that a10% depreciation adds 6o-10o basis points to inflation, says Mr Chakraborty at Standard Chartered. That's unhelpful. ~~
86 Finance and economics
I
The Economist November 26th 2011 American tax taw
Stacking brics Net reserve• coverage as % of GOP, latest 10 - 0
+
10 20 30 40 50 60
Chi na
Scratched by the FATCA
Thailand Russia South Korea
Indonesia Brazil
India Mexico Argentina Egypt
Vietnam South Africa
Tu rkey Source: US$
~
'Foreign-exchange reserves plus currentaccount surplus minus short-term external debt
For the authorities there are three possible responses. They have already done the first: easing the rules on foreign lending to India, to try to attract short-term funds. The second option would be to intervene in the currency markets by selling dollars and buying rupees. That might, though, complicate domestic policy, by tightening monetary conditions further. If the RBI bought banks' rupees then those lenders would have fewer available to buy government bonds, further increasing the already high borrowing costs of the state. The RB I could try to offset this by buying government bonds directly, but that might in turn hamper its efforts to support the rupee. And has India enough firepower? The country has $314 billion of reserves, largely thanks to the central bank intervening in the past to stop the rupee appreciating too much. But that cushion is not as big as it seems. Mr Mishra reckons foreign debts that must be repaid within a year now equal48% of India's reserves. Using a similar approach of deducting short-term debts from reserves, Mr Anderson reckons India's net position has deteriorated. Compared with other countries it is only middlingly good (see chart) and the RBI may be nervous of using too much ammunition. That leaves a third option: for the politicians to make tough choices. If it cut its fiscal deficit the state would probably lower the current-account deficit. And if reforms were sped up, growth might recover, inflation could fall and foreign investment would pick up. The priorities include freeing the supply chains that have caused high food prices and cutting the red tape that is choking industrial projects. So far the omens are not promising. On November 22nd, the first day of the winter sitting of India's parliament was adjourned due to raucous behaviour. Sadly, the rupee is not the only drama queen around. •
Congress creates a bureaucratic nightmare for fund managers
ATCHING tax cheats is well and good C in theory. Achieving that feat in practice is another matter. As fund managers are finding, the latest effort from the American authorities to root out those of their citizens who have been hiding their assets overseas is creating a bureaucratic nightmare around the world. The operation of the Foreign Account Tax Compliance Act (FATCA) has already been postponed for a year because of the immense problems that it is going to cause global investors. The law requires that foreign financial institutions (a category that seems to include everybody from financial advisers to pension funds) register with the Internal Revenue Service by June 30th 2013. If they do not register, they will then be regarded as "non-participating". In that case a 30% withholding tax will be applied to all their income on American assets from 2014 as well as to the proceeds from the sales of these assets from 2015. Since the American equity and bond markets are the biggest in the world, the vast majority of foreign fund managers will feel obliged to register. But that is where their problems will start. Managers will then have to tell the IRS whether their clients are American citizens. To do that they will have to find out a lot more than whether the client has an American address. They will need to check, for example, whether the client was born in the United States or whether interest or dividends
Paperboarding
are transferred to a bank account there. This creates a whole bunch of problems. For a start, managers would have to report information about their clients to the IRS; a requirement that would cause some of them to fall foul of their own country's data-protection laws. Second, there may be several layers of intermediation between the fund manager and the client. For example, the investors in a mutual fund will often include private banks and financial advisers, who are acting on behalf of other clients; sometimes these clients might be private companies. The fund manager will need to look through all these layers to find the end client. Even when fund managers are able to contact their clients directly, there is no guarantee that they will reply. Much paperwork already goes unread and unanswered. "Many people will just put the form in the bin," says Julie Patterson of the Investment Management Association, the lobby group for British fund managers. But if the client doesn't fill in the right forms, they will be dubbed a "recalcitrant account holder" by the IRS, on the ground that they might be an American trying to evade tax (rather than, say, a forgetful old lady in Stuttgart). If the fund manager has recalcitrant account holders, or cannot provide enough information to satisfy the IRS, it will have to apply the withholding tax on their share of its American assets. Fund rules will prohibit it from applying this charge to the affected clients, so the effect will be to penalise all investors, American or not. Clients from Aberdeen to Zagreb will be funding America's fiscal deficit. The rule will also apply to company pension funds, even though it seems unlikely that many Americans would go to the lengths of joining corporate pension schemes to evade taxes. Pension funds will ~~
The Economist November 26th 2011 ~ have
to assert not only that their members are not Americans but that their potential beneficiaries (spouses, children) are not so either, a Herculean task. Fund managers still hold some hope that the costliest provisions of the legislation can be negated. "The us authorities have been listening to the concerns of the market," says Fiona Bantock of the European Fund and Asset Management Association. The IRS is expected to issue a clarification of the rules by the end of the year. If the process is not made simpler or less costly, fund managers may be forced to take drastic measures. One approach would be to bar Americans from investing in their funds, or to require them to own separate classes of shares. Another approach would involve some global funds avoiding American assets entirely. That can hardly be what Congress hadinmind. •
Japan's stock exchanges
Listing, not keeling TOKYO
The Tokyo and Osaka markets are merging N 1990, one year after Japan's bubble burst, the Tokyo Stock Exchange (TSE) acIcounted for one-third of the world's stockmarket capitalisation. Today it is a paltry 7%. Other Asian countries have become a beehive for investors and new listings. China's bourses are now more valuable than Japan's, where the Nikkei 225 index is at about a quarter of its 1989 peak. The long slide into semi-relevance explains the merger announced on November 22nd between the TSE, which dominates cash stock-trading, and the Osaka Securities Exchange (osE), which focuses on derivatives. Put together, the firms overtake the London Stock Exchange to become the world's third-largest market, after America's NYSE and NASDAQ. But whereas the total value of shares traded on most exchanges had been increasing at a clipping pace-until global stockmarkets fell sharply in recent months- Tokyo's market has been steadily losing ground (see chart). The bourses say their marriage is for "the revitalisation of the Japanese economy." Atsushi Saito, the boss of the TSE and also of the new entity (tentatively called the Japan Exchange Group), hopes it will encourage people to "invest in Asia through the Japanese market." The exchanges say that cutting overlapping technology will save ¥7 billion ($90m) a year. Yet the consolidation is not so much for synergy as for survival. Just as the Japanese economy is being left behind, its ex-
Finance and economics 87
changes are struggling. Other Asian markets, notably Shanghai and Hong Kong, are far more popular for fund-raising than Tokyo. This year companies raised $39 billion in initial public offerings on Chinese markets, whereas those in Japan raised a measly $ssom, according to Bloomberg. They also face competition from alternative trading platforms. Some 70% of shares listed on the NYSE trade off the exchange, compared withjust10% in Japan. The merger does not address some of the fundamental problems holding back Japan's markets. First is regulation. "Pedantic and inflexible" is how a large foreign investor describes it. Japan is preposterously strict over trifling matters but turns a blind eye to serious ones. "Non-material" uncertainties that on other bourses only have to be disclosed to shareholders can lead to listings being denied inJapan."It raises the cost of capital- you'd have to be nuts to list in Japan," the foreign investor says. The boss of a large Asian fund ruefully admits that its Japan unit is incorporated in the Cayman Islands to escape the country's punishing 40% tax rate. And the TSE lacks sophistication. For example, decimalisation does not exist. One cannot quote a price finer than ¥1, despite the fact that a filled order may have four decimal points on the price, says Pelham Smithers, a Japan stock analyst. With a stock such as Mizuho, a bank whose price is around ¥100, it means the bid/offer spread is 1%, which translates to an exorbitant $1m on a $10om order. "Big investors can't take such a risk, so trade the stock away from the market," sighs Mr Smithers. Merging the two exchanges does nothing to change this, nor to boost liquidity, eliminate red tape, increase the use of English or improve corporate governance, which is a particular concern in the wake of the scandal over dodgy deals at Olympus, a camera-maker. Tokyo will acquire a majority of the Osaka bourse, form a holding company, maintain the osE's public listing and create four business units: cash equity market, futures trading, regulatory and clearing. This makes the transaction a backdoor listing for the TSE, giving it a currency with which to get into the great glo-
I
In the slow la ne Top stock exchanges by market capitalisation June 2011, Strn
-----·m:J 0
NYSE Euronext (US) NASDAQOMX l ondon
2
Tokyo NYSE Euronext
{Europe)
4
6
8 10 12 14
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Hong Kong
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*In local-currency terms
bal stockmarket-acquisition game. The deal was pushed by the Financial Services Agency, which is keen to make Japan nothing less than Asia's financial hub. It frets Japan is being left behind. But consolidation is no panacea. The two exchanges have been competitors as much as their cities have rivalled each other for centuries: integration of systems and cultures will be a nightmare. And with characteristic lethargy, the bourses do not expect their new structure to be in place until2013. •
Baltic banks
Red litas day A bust bank in Lithuania sparks w orries in l atvia HOSE who watch the murkier overlaps between power and money in T eastern Europe have long worried quietly about Lithuania's Snoras Bankas, part of a business empire that includes the country's leading daily paper. A government decision on November 16th to nationalise the bank, and the issuing on November 23rd of arrest warrants for two of its former shareholders, Vladimir Antonov and Raimondas Baranauskas, on charges including embezzlement and forgery, add weight to those worries. (They deny wrongdoing and are threatening legal action.) The rumpus has rippled. Mr Antonov, through another company, owns a British football club, Portsmouth. It says it is unaffected. But the effect was dramatic in Latvia, where regulators closed a Snoras subsidiary, Krajbanka, the country's sixth-biggest deposit-taker, saying 10om Latvian lati ($190.7m) appears to be miss- ~~
The Economist November 26th 2011
88 Finance and economics ~
ing. An insurance scheme covers deposits up to €1oo,ooo, but customers queued nervously outside the bank's branches; for the time being they may withdraw only so lati a day. At Snoras the limit is a more generous soo Lithuanian litai ($195). Latvian officials are miffed. With more warning, they could have closed Krajbanka before so much money drained out. Others ask why Lithuania gave Snoras such an easy ride in the past. But when the authorities there did swoop it was smooth and speedy; parliament, government and financial supervisors worked closely together. Snoras still seems to have enough
money to repay personal customers without recourse to the deposit-insurance fund. The nationalisation followed a centralbank investigation that revealed large sums flowing offshore. At least €3oom is thought to be missing; some assets appear not to exist. The bank's bad property loans are a particular headache. The Lithuanian authorities must now decide whether to split Snoras into good and bad parts or to bankrupt it; whether to allow withdrawals by all creditors or some; and how (with Latvia) to sort out Krajbanka. Nobody welcomes a bank failure, especially when nerves are jangling elsewhere
in Europe. Both the litas and the lats are pegged to the euro, which limits the central banks' ability to provide liquidity to the banking system in a crisis. But this story looks likely to stay self-contained. In both countries the main banks are owned by Nordic parent companies. Unlike Austrian and German banks, these outsiders are not retreating to their home markets. State finances are sound too: Latvia in particular is in much more robust health than three years ago, when a banking and currency crisis prompted a big international bailout. Most importantly, there are no signs of bank runs spreading. Long may that last. •
Buttonwood I European banks are becoming the focus of concern
NVESTORS began 20n with high hopes. Bob Doll of BlackRock, a fund-manage- I Iment group, expected double-digit gains from the American stockmarket; the strategists at Barclays Capital expected a 22% return from European shares. Instead Wall Street is flat and European investors have suffered double-digit losses. The year is ending in a mood of unrelenting pessimism. Although a spike in oil prices and Japan's nuclear disaster have played their part, the real problem has been Europe. The debt crisis is deeper and more widespread than almost anyone feared at the start of the year. In a joke coined by Jim Grant, a newsletter writer, government bonds have turned from offering a risk-free return into becoming a return-free risk. Matt King, a credit strategist at Citigroup, thinks this change in attitude has been decisive. "The discovery that a credit you thought was safe, and accumulated a large exposure to, is actually rather risky, tends to lead to a wave of forced selling so strong that it can overwhelm the fundamentals." The proposed so% write-off for private-sector holders of Greek government debt must have played a part in this process. Fund managers now seem to be reluctant to hold any euro-zone government debt. Even in Germany, a bond auction failed on November 23rd, with only €3.6 billion ($4.8 billion) sold of a potential €6 billion issue. This sell-off sent ripples through the financial system because of the strange symbiosis between governments and banks. The former rescued the latter in 2008 but the banks are also big buyers of government bonds. The result is that doubts about the health of a sovereign issuer become worries about the solvency of its banking system. Banks are finding it more difficult and
Your deposits are where? Euro area corporate-bond yields,% 10
8 6 4
2 ~ 0
2006
07
08
09
10
11
Source: Thomson Reuters
expensive to borrow money. Since May, American money-market funds have cut their exposure to European banks by 42%, according to Fitch, a ratings agency. The spread between the rate at which banks pay for money and official short-term rates has widened sharply since September. Although the spread is well below the levels reached in 2008, many banks are getting by only with the help of liquidity provision from the European Central Bank. The ECB said on November 22nd that demand for funding had reached a two-year high. Some banks are having to indulge in expensive "liquidity swaps" in order to get the right kind of collateral to offer the ECB. Other indicators of risk are also sounding the alarm. European bank shares trade at well below asset value, suggesting that investors expect their balance-sheets to suffer significant write-downs in future. The cost of insuring against European bank default is at its highest ever, according to Markit, an information provider. The yields on bank debt have also been rising and diverging sharply from the yields on non-financial debt (see chart). There are two potential adverse conse-
quences of this squeeze. The first is that the banks, which are being required to increase their capital ratios by the European Banking Authority, are unlikely to be able to raise new equity in such circumstances. So they may cut their lending to companies. Barclays Capital points out that, if the region's banks improved their capital ratios purely by shrinking their balance-sheets, lending would fall by around €3 trillion, or almost a third of the region's GOP. The second is that concern about the banks may affect consumer confidence, as it did in 2008. Indeed, things may be worse this time round since governments may feel less able, for political or financial reasons, to bail banks out. Historians note that it was the 1931 failure of an Austrian bank, Credit Anstalt, that ushered in the worst phase of the Great Depression. Many commentators feel that the scale of this crisis is not yet appreciated, particularly in Germany, which is why decisive action (a fiscal bail-out or the mass purchase of bonds by the ECB) has not taken place. "Germans haven't felt the pain yet," says David Bowers of Absolute Strategy Research, a consultancy. German industrial production was booming earlier this year; but the boom is fading fast. Any action may come too late to stop a significant recession in Europe; already the purchasing managers' indices are pointing to a downturn. And the rest of the global economy may not be strong enough to compensate. American GoP did grow in the third quarter, but only by an annualised 2%. In China, the vice premier for the economy, Wang Qishan, said on November 21st that "global economic conditions remain grim." It does not look like being a very merry Christmas. Economist.comfblogsfbuttonwood
90 Finance and economics
The Economist November 26th 2011
Economics focus I House of horrors, part 2 The bursting of the global housing bubble is only halfway through ANY of the world's financial and economic woes since after they bottomed. Some 4m foreclosed homes could come 2008 began with the bursting of the biggest bubble in his- onto America's market, which may hold down prices. tory. Never before had house prices risen so fast, for so long, in so The second question is whether home prices in markets that many countries. Yet the bust has been much less widespread are still overvalued are likely to fall. Some economists reject our than the boom. Home prices tumbled by 34% in America from measures of overvaluation, arguing that lower interest rates justi2006 to their low point earlier this year; in Ireland they plunged fy higher prices because buyers can take out bigger mortgages. by an even more painful 45% from their peak in 2007; and prices There is some truth in this, but interest rates will not always be so have fallen by around15% in Spain and Denmark. But in most oth- low. The recent jump in bond yields in some euro-area countries er countries they have dipped by less than 10%, as in Britain and has raised mortgage rates for new borrowers. Italy. In some countries, such as Australia, Canada and Sweden, And low rates need to be balanced against the fact that tighter prices wobbled but then surged to new highs. As a result, many credit conditions make it harder for homebuyers to get mortgages. The average deposit needed by a British first-time buyer is property markets are still looking uncomfortably overvalued. The latest update of The Economist's global house-price indi- now equivalent to 90% of average annual earnings, according to cators shows that prices are now falling in eight of the 16 coun- Capital Economics, a consultancy. It was less than 20% in the late tries in the table, compared with five in late 2010. (For house 1990s. Another popular argument used to justify sky-high prices prices from more countries see our website). To assess the risks of in countries such as Australia and Canada is that a rising populaa further slump, we track two measures of valuation. The first is tion pushes up demand. But this should raise both prices and the price-to-income ratio, a gauge of afforrents, leaving their ratios unchanged. Prices do not necessarily need to drop dability. The second is the price-to-rent ratio, which is a bit like the price-to-earnings The Economist house-price indicators sharply to return to fair value. Adjustment could come through higher rents ratio used to value companies. Just as the Ratio of house prices to income, 1975-2011=100 and wages. With low inflation, however, value of a share should reflect future pro160 it could take a decade or more before price fits that a company is expected to earn, house prices should reflect the expected ratios return to their long-run average in 140 some countries. benefits from home ownership: namely the rents earned by property investors (or 120 those saved by owner-occupiers). If both Jingle mail of these measures are well above their American prices fell sharply, even though 100 long-term average, which we have calcuhomes were less overvalued than they were in many other countries, because lated since 1975 for most countries, this 80 high-risk mortgages and a surge in unemcould signal that property is overvalued. ployment caused distressed sales. In Based on the average of the two measures, home prices are overvalued by most other countries, lenders avoided the 1975 80 85 90 95 2000 05 11)1 worst excesses of subprime lending, and about 25% or more in Australia, Belgium, to come Under(-)fover( +) unemployment rose by less, so there Canada, France, New Zealand, Britain, the Latest, % change valued, Netherlands, Spain and Sweden (see tawere fewer forced sales dragging prices on a year since against•: down. America is also unusual in having ble). Indeed, in the first four of those earlier 2007 Rents Income! countries housing looks more overvalued non-recourse mortgages that let borrow.~.~~~!~~............~:?........1 ~...~ ...... 6.~ ..........~~ .... . ers walk away with no liability. than it was in America at the peak of its Canada 6.2 21.9 71 29 ................................................................... bubble. Despite their collapse, Irish home An optimist could therefore argue that France 7. 7 5.8 58 39 .............................................................. prices are still slightly above "fair" valueour gauges overstate the extent to which Australia -2.2 18.1 53 .........38 partly because they were incredibly overhouse prices are overvalued, and that if ................................. ................. ........ New Zealand 0.1 -4.0 66 4 .... valued at their peak, and partly because markets are only a bit too expensive they ............... .......... .............. ........................ Sweden ... ' ....... 1.1 ' .... ' ... 15.2 40 23 incomes and rents have fallen sharply. In can adjust gradually without a sharp fall. ............. ' ... ' ......... ' ... ' ........... . It is important to remember, however, contrast, homes in America, Japan and .~P.~i~ ............. ~.5:?...... ~.1?:.2 .......3.2..........3~ ... .. Germany are all significantly undervathat lower interest rates and rising popuNetherlands -2.8 -5.7 23 37 ................................................................... lued. In the late 1990s the average house lations were used to justify higher prices Britain 0.8 -8.7 28 20 price in Germany was twice that in in America and Ireland before their bubDen mark -1.3 -14.3 23 16 France; now it is 20% cheaper. bles burst so spectacularly. .ItatY............... ~.1:?....... .~3:.7 .......J. .........1~ .... . This raises two questions. First, since Another concern is that Australia, BritIreland -15.1 -45. 2 10 nil American homes now look cheap, are ain, Canada, the Netherlands, New ZeaSwitzerland 3.7 17.7 -3 -9 prices set to rebound? Average house land, Spain and Sweden all have even United States -5.9 -27.6 -8 -22 prices are 8% undervalued relative to higher household-debt burdens in relarents, and 22% undervalued relative to intion to income than America did at the .~.~~~~nx..........~: ?......... ?:.~......:~.s........ ~.~~ .... . come (see chart). Prices may have reached Japan -3.3 -10.7 -36 -36 peak of its bubble. Overvalued prices and a floor, but this is no guarantee of an imlarge debts leave households vulnerable Sources: B!S; Haver Analytics; *Relative to Long-run Nationwide; OECD; Teranet; average !Disposable to a rise in unemployment or higher minent bounce. In Britain and Sweden in Thomson Reuters; The Economist income per person mortgage rates. A credit crunch or recesthe mid-1990s, prices undershot fair value Interactive: Compare countries' housing data sion could cause house prices to tumble by around 35%. Prices in Britain did not over time at: Economist.comfhouseprices in many more countries. • really start to rise for almost four years
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91
Science in Japan
Also in this section
Where rats and robots play
92 The latest Mars rover 92 Good news on climate change 93 World AIDS Day 93 Preventing infantile anaemia
NAHA
Japanese science needs a shake-up. A new institute in Okinawa may provide it
has the personnel: 212 researchers, and five Nobel laureates on its board of governors. Soon it will have the students, too. The first intake, next autumn, will only be 20. But that will rise to 100 in five years' time. According to its president, Jonathan Dorfan (a physicist lured from Stanford University), the OIST seeks to address three shortcomings in Japanese science. First, it wants to nurture independence of thought in young researchers, encouraging them to work for themselves rather than as foot soldiers for professors. Second, it wants Japanese science to become more open to the outside world. Third, it wants to stimulate the emergence of technology
good science depends. If young Japanese scientists cannot be persuaded to study abroad, though, perhaps abroad can be brought to Japan. At the moment, 85 of the OIST's researchers are gaijin. Ultimately, the organisation aims to recruit half of both its faculty and its students from outside the country. And, as if that were not enough to stir the pot, these scientists have to mix with each other, too. The OIST's laboratories (designed by Kenneth Kornberg, the son of a Nobel prize-winning scientist and brother of another) abut one another and share microscopes, refrigerators and other equipment. Dr Dorfan says everything is
ematicians and computer geeks intermin-
clusters in a country where there is disturb-
designed to eliminate the barriers- physi-
gle, sharing laboratory equipment, teachers and money. After two centuries of science becoming more and more specialised, the idea is to bring back the generalist. Surprisingly, this experiment is taking place in Japan-a country with one of the most rigid academic hierarchies in the world. Locating it in Okinawa, though, is a masterstroke. The island, which is closer to Shanghai and Taipei than to Tokyo, is as cut off as is possible to imagine from the mainstream of Japanese academia. The result is a skunk works: a place where novel and possibly controversial ideas can be tested without constant interference from institutional vested interests. If an idea from a skunk works fails, it can be buried quietly, and nobody gets hurt. If it succeeds, it can be launched fully formed, and bureaucratic resistance thus overcome. The OIST certainly has the money to do this. The government has spent ¥77 billion (almost $1 billion, at current exchange rates) over the past six years to create it. It
ingly little interaction between universities and industry- and few Silicon Valleystyle start-ups as a consequence. That graduate students and post-docs are fodder for the ambitions of departmental heads is not unique to Japan. But the phenomenon is generally thought to be exaggerated there: a toxic consequence of Confucian respect for authority and an academic system borrowed lock, stock and barrel from 19th-century Germany. Young Japanese researchers, though, are fed up with it. One result is that the number of graduate students in natural sciences has been falling in Japan since 2003. Those youngsters are, nevertheless, oddly reluctant to deal with their disgruntlement by going abroad. Between 1996 and 2007, 28% of the science and engineering doctorates awarded in America went to Chinese; n% to Indians; 9% to South Koreans; and 7% to Taiwanese. Japanese, by contrast, picked up just 2% of them. That stymies the exchange of ideas on which
cal and otherwise- between traditional fields of research. That breakdown of barriers is even apparent in individual researchers. Kenji Doya, for example, is an engineer turned neuroscientist. He runs two laboratories at the OIST. One explores learning by robots. The other looks at how a brain chemical called serotonin regulates the patience of rats. An algorithm for regulating patience in the brain, he believes, could be used to improve robotics. Which is just the sort of thing that, if brought to fruition in Dr Dorfan's alma mater, would have the researchers who had come up with it bolting out of the door and into the offices of the nearest venture capitalist, prior to hiring a suitable garage to build their prototype in. Whether that will happen in Okinawa, remains to be seen. Its physical climate is certainly as pleasant as California's. Changing the intellectual climate to match may prove a challenge. •
HINK of a university and what comes to mind may be the cloistered calm of Oxford, the architectural chaos of MIT or even, perhaps, the 1950s brutalism of Moscow. A Daliesque building on a subtropical island, with a view of the ocean and signs on campus warning of venomous snakes, is more unusual. But that is appropriate, for the Okinawa Institute of Science and Technology (OIST), inaugurated as a graduate university on November 19th, is intended to be unusual. It was built from scratch on a forested hilltop overlooking the East China Sea, and its approach to science starts from scratch too. It has no departments. Instead, its biologists, chemists, physicists, math-
T
92 Sdence and technology
The Economist November 26th 2011
Mars exploration
How to Ianda Minion Mars The biggest and fanciest Mars rover so far will soon b last off from Florida ARTH excepted, the most probed and prodded planet in the solar system is Mars. Besides the assortment of craft that have flown by it or gone into orbit around it, three robotic buggies equipped with cameras and scientific instruments have roamed the Martian surface on behalf of NASA, America's space agency, since 1997. If all goes according to plan, they will soon be joined by a fourth. On November 26th a new rover, Curiosity, will ascend from Cape Canaveral. If it gets there in one piece, it will examine the climate and geology of Mars and look for any signs of life that might have arisen. The first of NASA's rovers, Sojourner, which reached Mars ill1997, was 65cm long and weighed (on Earth, where the gravitational pull is 212 times Mars's) 1okg. Spirit and Opportunity, its twin successors, were larger, at 1.6 metres and 170kg. Curiosity, by comparison, is a monster. At 3 metres and 90okg it is the size of a small car. It also uses different technology. The other three rovers were powered by solar panels. Curiosity is powered by plutonium. (Not a fullscale reactor, but a generator that turns the heat of radioactive decay into electrical energy.) This brings three advantages. First, it allows Curiosity to carry more power-hungry scientific instruments than previous rovers. Second, it permits the rover to work through the Martian winter. Third, it avoids the problem of dust accumulating on the solar panels, which gradually sapped the strength of its predecessors. Curiosity's size makes getting it safely onto the Martian surface tricky. Previous rovers have deployed parachutes to slow their descents, and have then crashed into the ground using airbags to cushion their impacts. Curiosity is too massive for that approach to work. Instead, NASA hopes to deposit it on Mars using a contraption it has dubbed a skycrane. As with the other rovers, Curiosity's mother ship will rely on heat shields and air-resistance, and then on a parachute, to slow its arrival. But at an altitude of1.6km a specially designed descent stage bearing the rover will drop away from this vehicle. The descent stage has eight rocket motors on its corners. These will slow its fall to a relatively sedate 0.75 metres a second. When it is about 20 metres above the surface, the rover will be lowered from it on wires and deposited gently onto the Martian landscape. The cables will then be cut with explosives, the descent stage will fly
E
off and crash land elsewhere, and Curiosity will begin its mission. That, at least, is the theory. But the skycrane has never been used before, and there is plenty else that could go wrong. Indeed, Mars has something of a reputation for destroying spacecraft. Around half the missions sent there since the first Soviet attempts in 1960 have failed to arrive. A conversation on the subject in 1964, between a journalist and John Casani, a NASA scientist, spawned the idea of a Great Galactic Ghoul, a malevolent creature that prowls the space-lanes between Earth and Mars, dining on unfortunate spacecraft.
The ghoul's latest victim appears to have been Phobos-Grunt, an ambitious Russian mission that was intended to return to Earth with a rock sample from Phobos, the larger of Mars's moons. The Russian space agency's engineers lost contact with it soon after its launch on November 8th. Limited contact had been re-established as The Economist went to press, but it is not clear whether the mission can be salvaged. NASA's engineers, rationalists though they be, will be keeping their fingers crossed on Saturday, and hoping that the ghoul's appetite has thus been sated, and that it will leave Curiosity alone. •
Climate change
Good news at last?
Th e climate may not be as sensitive to carbon dioxide as previously believed LIMATE science is famously complicated, but one useful number to keep C in mind is "climate sensitivity". This measures the amount of warming that can eventually be expected to follow a doubling in the atmospheric concentration of carbon dioxide. The Intergovernmental Panel on Climate Change, in its most recent summary of the science behind its predictions, published in 2007, estimated that, in present conditions, a doubling of C02 would cause warming of about 3°C, with uncertainty of about a degree and a half in either direction. But it also says there is a small probability that the true number is much higher. Some recent studies have suggested that it could be as high asl0°C. If that were true, disaster beckons. But a paper published in this week's Science, by Andreas Schmittner of Oregon State University, suggests it is not. In Dr Schmittner's
analysis, the climate is less sensitive to carbon dioxide than was feared. Existing studies of climate sensitivity mostly rely on data gathered from weather stations, which go back to roughly1850. Dr Schmittner takes a different approach. His data come from the peak of the most recent ice age, between 19,000 and 23,000 years ago. His group is not the first to use such data (ice cores, fossils, marine sediments and the like) to probe the climate's sensitivity to carbon dioxide. But their paper is the most thorough. Previous attempts had considered only small regions of the globe. He has compiled enough information to make a credible stab at recreating the elimate of the entire planet. The result offers that rarest of things in climate science- a bit of good news. The group's most likely figure for climate sensitivity is 2.3°C, which is more than half a de- ~~
The Economist November 26th ~
gree lower than the consensus figure, with a 66% probability that it lies between 1.7" and 2.6°C. More importantly, these results suggest an upper limit for climate sensitivity of around 3.2"C. Before you take the suv out for a celebratory spin, though, it is worth bearing in mind that this is only one study, and, like all such, it has its flaws. The computer model used is of only middling sophistication, Dr Schmittner admits. That may be one reason for the narrow range of his team's results. And although the study's geographical coverage is the most comprehensive so far for work of this type, there are still blank areas- notably in Australia, Central Asia, South America and the northern Pacific Ocean. Moreover, some sceptics complain about the way ancient data of this type were used to construct a different but related piece of climate science: the so-called hockey-stick model, which suggests that temperatures have risen suddenly since the beginning of the industrial revolution. It will be interesting to see if such sceptics are willing to be equally sceptical about ancient data when they support their point of view. •
AIDS
Get your act together, guys Two UN reports on AIDS are coming out this month. That is one too many
S
Sdence and technology 93
2011
OMETHING odd is going on in the international AIDS establishment. December 1St has been designated (as it is every year) to be "World AIDS Day". That is a signal for the United Nations to put out areport on the state of the epidemic. This year, though, there are to be two reports. On November 21St UN AIDS, an agency created in 1996 to deal specifically with the then-newish disease, published its assessment of the situation. This reaffirmed what has become clear recently: that the epidemic is being beaten back by the widespread deployment of drugs, in combination with changes in the behaviour of those most at risk. The annual number of deaths has fallen to L8m, from its peak of 2.2m in 2005. New infections have also fallen, from a peak of 3.2m in 1997 to 2.7m last year. The report went on to outline what it calls an investment framework, designed to deal with the epidemic in the most costeffective way. This builds on an analysis published in the Lancet in June by Bernhard Schwartlander, UN AIDS's director of evidence, strategy and results. It attempts to prescribe, for each part of the world, the mixture of drug treatment, condom-promotion, prophylactic circumcision and so
Infantile anaemia
Blood simple A small change in how babies are delivered might abolish infantile anaemia
HILDHOOD anaemia is a problem. Around the world, almost a quarter of under-fives suffer from it. And anaemia is not a trivial thing. A child's development, both physical and mental, is stifled by a lack of iron. The reason is that, besides its well-known role in haemoglobin, the oxygen-transporting molecule in the blood, iron is also involved in many aspects of brain development. A study just published in the British Medical]oumal by Ola Andersson, an obstetrician at the Hospital ofHalland in Halmstad, Sweden, suggests that a simple change of medical procedure when a child is born may bring a big reduction in anaemia. That change is not to cut the umbilical cord linking the child with the placenta straight after birth- as is standard practice- but, rather, to give it time to transfer more of the placenta's contents (particularly its blood) to the child it has been nurturing. The argument in favour of rapid clamping is that too much blood may flow from the detached placenta to the newly born child, and that this can cause problems of its own. But that is unproven, and would be a strike against evolution because, in nature, the umbilicus of a mammal usually does remain attached to the infant for some time after birth. Only the modern technology of clamps and sharp scissors permits the slithery tube to be dealt with at speed. To test her idea that extended post partum connection to the placenta is good for a child's health, Dr Andersson and her colleagues recruited 334 pregnant, non-smoking women whose fetuses appeared to be healthy. When these women came to term, their midwives followed one of two sets of instructions, chosen at random and given to them just before each birth. In 166 cases the newborns had their umbilical cords clamped
C
on that will bring most benefit to the fight. On Novembenoth, however, a joint report by the World Health Organisation (wHo), the United Nations' Children's Fund (UNICEF) and- you've guessed itUNAIDS comes out. What it will say is still under wraps. But WHO and UNICEF are also sponsors of UN AIDS, so the duplication of effort looks odd. Both sides seem miffed by the other's actions. Michel Sidibe, the head of UNAIDS, described the production of separate reports as "costly and inefficient". Gottfried Hirnschall, the WHO's director
within ten seconds of delivery. The other 168 had them clamped after at least three minutes had passed. When the children were four months old, Dr Andersson re-examined them and took a blood sample. Those babies whose umbilical clamps had been applied after three minutes had, on average, iron levels 45% higher than those whose cords had been clamped immediately. Put another way, only o.6% of them were anaemic, compared with 5.7% of the rapidly clamped. Rapid clamping of the umbilicus, then, seems to cause one child in 20 to become anaemic, at least in the early months of its life. Any experiment of this sort needs to be repeated, of course, to check it is correct. But if it is, then the burden of proof in the matter of when to cut the cord will have shifted from those who would cut late to those who would cut early. The cost of doing so would seem negligible; the benefit, great.
An unkind cut? of HIV I AIDS, says it had been agreed that in 2011 the three organisations would work together and jointly release a single report. Though the AIDS epidemic has been knocked back by the huge sums of money now being thrown at it (about $15 billion a year at the moment, in poor and middleincome countries), continued success requires an uninterrupted supply of drugsand therefore of the cash to pay for them. The state of the world's economy means politicians are looking for any excuse to save money. Not a good moment to be squabbling. •
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95 Also in this section 96 Cesar Chavez and the UFW 96 Artists and photographers 97 Chinese export porcelain 98 Fiction from Arge ntina
Prospero, our online blog on books, arts and culture, appears every day. For analysis and debate, visit Economist.com/culture
New fiction from Japan
Hey babe, tal{e a walk on the wild side A black cat, two moons and a host of nocturnal little people populate Haruki Murakami's new novel. But has he become more conventional? ARUKI MURAKAMI filches from George Orwell's "Nineteen EightyFour" for the title of his new novel, ''1Q84", making a play on kyu, the Japanese word for nine, by transposing the Jetter "Q" for the number "9". Significantly, the action also takes place over the last nine months of 1984. But it would be a mistake to conclude from this that Japan's magical postmodernist has spent nearly 1,000 pages writing about a dystopian world where couples make love in an ash glade, hardly daring to speak because of the all-listening microphones in the trees. Mr Murakami's main influence here is not so much Orwell as Philip Pullman; his "1Q84" Jess a stairway to another world than a heave-he into a whole new universe. Sitting in a taxi on the gridlocked elevated Metropolitan Expressway in Tokyo, Aomame, the skinny heroine with asymmetric breasts (her name means "green peas"), is catapulted into action when she hears Janacek's "Sinfonietta" on the radio. Her cabbie tells her she can beat the traffic by hopping out of the car and down an emergency staircase at the next exit. He warns her that things will not be the same. But it is only when Aomame notices that the policemen have swapped their holstered revolvers for bulky semi-automatic weapons that she realises she has entered a parallel universe. This gripping beginning ensures the
H
1Q84. By Haruki Murakami. Books 1 and 2 translated by Jay Rubin and Book 3 by Philip Gabriel. Knopf 944 pages; $30.50. Harvill; £34.99
reader falls for Aomame, forcing Mr Murakami to work extra hard on her counterpart, Tengo, who appears in alternate chapters in the book. Tengo is an unpublished novelist who keeps to himself, working as a private maths tutor in a prep school. His father was a debt-collector who rounded up licence fees for the NKK television network, dragging his son along with him on Sundays as he called on households doorto-door. Tengo's beloved mother died when he was very young, and the boy's earliest memory is of hearing his mother having her breasts sucked by a man who was not his father. Tengo's flat-pack character fills out as the book evolves, in particular in a long passage when he visits his aged father in his nursing home and tries to talk to him about the past. Tengo's life changes when a friend, a grumpy editor named Komatsu, persuades him to clean up a raw manuscript by a teenage girl, Eriko Fukada, called Fuka-Eri throughout. Komatsu believes that the girl's autobiographical story, about being raised on a rural commune that changes into a sinister cult involved in mind games and child abuse, has all the
makings of a bestseller if its style can be improved enough so that it wins a literary prize. Aomame, as might be expected from a woman who shimmies down from an overhead expressway without much concern for her stockings or her chestnutcoloured Charles Jourdan heels, turns out to be a minx on the make, a charming, ballbreaking, feminist do-gooder who likes nothing better than rounding off a day's killing with an all-night bout of bisexual sex. Aomame is really a hired gun, who specialises in quietly offing wife-beaters and child rapists, a manga version of Stieg Larsson's Lisbeth Salander. Aomame's and Tengo's parallel stories began to rub against one another long before the characters do. They both see a black cat and two moons (one shiny and normal, the other misshapen and mosscoloured); and both know about the little people who emerge periodically from the mouth of a sleeping child and disappear under the child's bed. The two heroes were once at school together and even, briefly, held hands at the age of ten. An unresolved longing to recapture that moment permeates both their lives, and the willthey-won't-they question overshadows the whole book. Herein lies the conundrum of "1Q84". Mr Murakami's reputation as Japan's greatest literary surrealist is based on a series of short stories and novels, such as "Hardboiled Wonderland and the End of the World", which came out in 1985, and "Norwegian Wood" two years later. His early works were intensely personal fantasies involving unhappy, virtually disembodied men and suffused with references to Western music and literature. ''1Q84" is much longer, but also far more conventional. Like two American writers, Jonathan Franzen and Jeffrey Eugenides, both ~~
96 Books and arts ~ known
for their fizzy inventiveness but whose recent work is more plot-driven, Mr Murakami seems to have made a conscious move towards romantic narrative. Mr Franzen's latest book asks whether the married protagonists will stay together; Mr Eugenides's which of the two main heroes will his heroine end up with (if any). It is Mr Murakami's turn, now, to cut in on the boy-girl gavotte. This has certainly proved a popular move. When the first two volumes of ''1Q84" were published in Japanese in 2009, more than 1m copies were sold in just a few weeks; the third volume followed to similar acclaim a few months later. Keeping up originality can be hard work. But Mr Murakami's new direction, like that of Mr Franzen and Mr Eugenides, is bringing him thousands of fresh readers. And that is a good thing. •
American agribusiness
The power in the • Union Trampling Out the Vintage: Cesar Chavez and the Two Souls of the United Farm Workers. By Frank Bardacke. Verso; 836 pages; $54.95 and £35
"HE IS trampling out the vintage" is part of a line from "The Battle Hymn of the Republic". It continues "where the grapes of wrath are stored". Thus the title of Frank Bardacke's history deliberately echoes John Steinbeck's novel, a proletarian classic which tells the story of tenant farmers driven off their fields in Oklahoma and forced to cross the country to seek work in California. But, as Mr Bardacke stresses, a huge demographic difference divides then from now. In the Depression of the 1930s Steinbeck could present his impoverished "Okies" as deserving of government help "because they were true American whites". It was harder for their MexicanAmerican successors to win public sympathy. They were brown, Spanish-speaking and "considered aliens and sojourners". It took the genius of Cesar Chavez, whose family was dispossessed of its land during his boyhood, to bring them into the American mainstream. As a vegan inspired by Catholic social teaching and the non-violent methods of Mohandas Gandhi, Chavez was more comfortable with religious people than political ones. He set out to create a movement rather than a union, leading a "pilgrimage" across the Central Valley of California to the state capital, Sacramento, in 1966. When his followers were blocked by the police they knelt in prayer behind a picture of the Virgin of Guadalupe.
The Economist November 26th 2011 The idealism of Chavez's movement and the fasts he endured to win support for striking farmworkers caught the public imagination. Other labour leaders looked on aghast as he built an odd but strong coalition of farmworkers, religious enthusiasts, student radicals, politicians, artists and union officials. Working together they persuaded consumers in their millions to boycott the grapes, lettuces and other products of agribusinesses which refused to negotiate sincerely with the United Farm Workers (UFW). The tactic they perfected was described by critics as "victimhood". A photograph of a starving urchin was, for instance, captioned: "Every grape you buy helps keep this child hungry". Mr Bardacke is only half-impressed with all this. As he sees it Chavez had two main responsibilities: to sustain support for boycotts, "which he did magnificently", and to administer the union, "which he did badly". The author notes that the union's membership continued to decline in the late 1980s even after Chavez fasted for 36 days to support its grape boycott and anti-pesticide campaign. His verdict seems unduly harsh but then Mr Bardacke is an old-fashioned leftist. For him, strikebreakers are almost always "scabs" and growers not even worth listening to. This is a pity, for such prejudices mar an otherwise intelligent, thorough history. The UFW is indeed, as he contends, a shadow of its former self, but the odds against it ever succeeding as a conventional labour union were always impossibly large. Illegal migrants from Mexico, poor and desperate for work, poured across the border to take the jobs of UFW members and doom their strikes. The rival Teamsters union was no help. Its opera-
Living off the land
tives sabotaged UFW recruitment drives by telling farmworkers they would be much better off in a tough professional union like theirs. Nonetheless Chavez left a significant legacy which is insufficiently acknowledged by Mr Bardacke. In leading by example and through the sheer force of his will he raised the stature of MexicanAmericans not just in California and the south-west but throughout the United States. In consequence, he is now held in the same high esteem as his black equivalent, Martin Luther King. Cesar Chavez's portrait hangs in the National Gallery in Washington, nc. His statue stands on university campuses. Streets, parks and buildings are named after him. In California his birthday, March 31st, is a state holiday. His truth is marching on. •
Artists and photographers
Point and paint AM STERDAM
A long overdue study of the influence
early photography had on painting
"J Bannard, HAVE all my subjects to hand", Pierre a French post-impressionist painter, once wrote. "I go to see them. I take notes. Then I go home. And before I start painting I reflect, I dream." At the turn of the 19th century, the "notes" Bannard made included snapshots that he took with his flexible hand-held Kodak camera, which had first been introduced in 1888. Unhampered by hefty equipment (the Kodak was held at waist level and had an arrow marked on top to help point the lens) or long exposures, Bonnard and his fellow painters from the Nabi group, Edouard Vuillard and Felix Vallotton, were among the first artists to use the camera to observe fine details, perspectives and light effects too fleeting to see with the naked eye. A painstakingly curated new show juxtaposes 220 mostly unpublished vintage snapshots by seven fin-de-siecle artists along with their paintings, prints and drawings in an effort to demonstrate how this new way of seeing inspired and expanded the painters' creative vision. Henri Riviere, a French printmaker and designer, climbed the soaring Eiffel Tower before it was completed in 1889 to photograph the exhilarating lines and angles of its iron girders set against the Paris sky for a series of 36 lithographs. Vuillard and a gifted, yet little-known, Belgian painter named Henri Evenepoel used the camera as a sketch book and aide-memoire to capture everyday moments with family and friends. Bonnard in turn photographed his slender, round-faced mistress and muse, ~~
The Economist November 26th 2011
Books and arts 97 Chinese export porcelain
Treasure trove TheRA Collection of Chinese Ceramics: A Collector's Vision (Three Volumes). By Maria Antonia Pinto de Matos. Jorge Welsh Books; 1,204 pages; £900
HEN the Portuguese began trading with China in the early 1500s, porcelain was one of the luxury goods they carried home in their ships. Only the Chinese knew how to make this delicate, often translucent, material that rings when you tap it. Demand for porcelain made expressly for foreigners spread as far afield as the Netherlands, Germany, Persia, the Ottoman empire,Japan and the young United States. The Chinese manufacturers drew on traditional shapes, but quickly began to branch out, making Western tureens in the form of pigs, cockerels, blue-eyed horned oxheads and bug-eyed crouching crabs, as well as sauce boats shaped as whole multicoloured fish. It was a world apart from the traditional Chinese blue-and-white. The earliest commissions, often with coats of arms, are called the "first orders". For Portuguese speakers these works have long been an evocation of a seafaring heritage in which many take pride. Now Chinese collectors are beginning to acquire them as homage to the sophistication and commercial acumen of their forebears. For the moment, though, the best collection is still in Brazil. It is the focus of a new three-volume study of 6oo outstanding pieces. Among the rarities acquired by this anonymous collector are 22 "first orders", many more than can be found in any museum. Maria Antonia Pinto de Matos, director of the National Tile Museum in Lisbon and an expert on Chinese export wares, spent 11 years on this project. She tells the story of early exploration and the fascination with the exotic, detailing the crafty manoeuvring of foreign trade with China and the many influences that flowed back and forth across the water. Her books document the transition from tradition to Western motifs and shapes, among them coffee pots and sugar casters, and also delves into the sources for the armorial pieces for which this Brazilian collector has a special fondness. These books are expensive, but they are well worth the investment. This is the best work yet written on Chinese export porcelain and will be a resource for collectors, dealers and curators for years to come.
W
Double vision ~ Marthe
de Meligny, naked in a glade, as inspiration for his illustrations of "Daphnis and Chloe" by a second-century Greek novelist and romancer, Longus. Neither Vuillard nor Bannard, with whom he shared a studio, actually copied photographs in their resonant, small-scale paintings of domestic interiors. Instead, both tried to replicate the immediacy of snapshots (or instantanes as they were called in France) often catching their subjects mid-gesture. Using his photographs only as an occasional reference point, or to reflect a mood, Vuillard recomposed his subjects at will. "At Table, Lunch" and "In Front of the Tapestry: Misia and Thadee Natanson" both show abbreviated figures, whether absorbed in eating a meal, or with their backs to the viewer. Vuillard's figures, who are almost swallowed up by the vibrant decor, have an apparitional quality that appealed to the 20th-century French photographer, Henri Cartier-Bresson, who described Vuillard and Bannard as among the artists he most admired. A Dutch painter, George Hendrik Breitner, also seizes a moment in time in a bustling Amsterdam street scene that is dominated by a veiled figure holding a fur muff up to her face, looking blurred and fugitive, as in real life. Now acknowledged as a gifted photographer in his own right, Breitner used his camera for "Girl in Red Kimono" (pictured right above with its photographic model, left). This precise yet atmospheric re-creation of his snapshot of a girl curled up on a divan, shows her intricately patterned kimono in sharp contrast with the design of the Persian carpet at her feet. "Snapshot : Painters and Photography 1888-1915" is at the Van Gogh Museum, Amsterdam, until Ja nuary 8th 2012. 1t will be displayed at the Phillips Collection in Washington, DC, from February 4th until May 6th and at the In dianapolis Museum of Art from Ju ne 3rd until September 2nd.
Unlike their official work, none of this exhibition's seven artists ever intended their photographs to go on public display. Photography, for them, was a mechanical process rather than an art form. Some of the images come from the attics and albums of the artists' families; Riviere's photographs, now at the Musee d'Orsay, were catalogued only in 1988. Vallotton, who left just 20 images, compared with 2,000 left by Vuillard, may even have destroyed the evidence following accusations that he copied a central figure from a photograph published in a French magazine in 1908. Snapshot studies for two of his paintings, "Beach at Etretat" and a portrait of his wife entitled "Red Room, Etretat", show how he worked from photographs, eliminating extraneous details and grey shadows. He used this pared-down style to create powerful groups of figures or psychological portraits. Vallotton and Vuillard liked to exchange photographs. Evenepoel, a pupil of Gustave Moreau who took almost 900 photographs, including a series of searching self-portraits, in the two years before he died of typhoid aged 27, described his camera as a "real gem". A photograph of his hesitant family about to cross the Place de la Concorde recalls Edgar Degas's famous portrait of Vicomte Lepic and his daughters, while images of his cousin Louise de Mey and their son Charles embody the emotion he invested in his portraits. "I savour them all [my snapshots] with the slightly sad joy of reflecting that all this good time is past", Evenepoel wrote to his father in 1897. These images, like most in the exhibition, are startlingly small. But close inspection reveals a finely detailed portrait of how this group of artists lived and worked, and it conveys the real sense of the excitement they felt as they experimented with their seemingly miraculous new gadget. •
The Economist November 26th 2011
98 Books and arts Fiction from Argentina
The price of love
The junta's policy of eliminating its enemies still fascinates Argentina's novelists
T SEEMS appropriate now that Argentina's investigation into the fate of its desaIparecidosthe 8, 60 people officially 9 known to have "disappeared" under the military dictatorship of 1976·83- was headed by a writer. Ernesto Sabato, who died in April at the age of 99, described his task as a "slow descent into hell". Ever since "Never Again", his 1984 report on the "dirty war", generations of Argentine novelists have followed Sabato into the inferno. For Argentine society, the chapter never closes. Continuing revelations about hundreds of adopted children who were abducted with their parents, or born in custody, have resulted in DNA tests and legal challenges by a campaigning group, "Grandmothers of the Plaza de Mayo". Two of these fine recent novels revisit events during the junta. The others- both exceptional debuts- focus on a disturbing present, yet are haunted by unexplained disappearances. Tomas Eloy Martinez (pictured below), a prominent journalist, novelist and academic who spent years in exile and died in 2010, is known for his explorations of the psychology of Peronism, among them "Santa Evita" (1995). In "Purgatory" (2oo8), his last novel, an Argentine cartographer in suburban New Jersey senses that her husband has returned to her, no older than when he disappeared 30 years earlier. After years of searching, she remains impervious to evidence of his death as it would confirm that her father, a cheerleading propagandist for the junta, connived in his killing. The novel alludes to the mixture of hypocrisy and collusion that characterised that period, and the banal sentimentality of its distractions- flying saucers, soap operas, fatherland and futbol (the infamous 1978 World Cup hosted and won by Argentina). The heroine's state of denial and her ghostly and erotic delusions mirror a country still struggling with reality. Craven complicity is at the heart of Carlos Gamerro's "An Open Secret", a literary thriller first published in 2002 that has the makings of a classic. The perfect crime is "one committed in the sight of everyonebecause then there are no witnesses, only accomplices." A veteran of the war in the Falklands (or Malvinas as they are known in Argentina) returns in the 1990s to his hometown in the pampas to probe the disappearance in custody of a troublesome young journalist during the weekend of Diego Maradona's football debut 20 years
Purgatory. By Tomas Eloy Martinez. Translated by Frank Wynne. Bloomsbury; 273 pages; $17 and £16.99
An Open Secret. By Carlos Gamerro. Translated by Ian Barnett. Pushkin Press; 286 pages; $15 and £10
Open Door. By Iosi Havilio. Translated by Beth Fowler. And Other Stories; 213 pages; £10 7 Ways to Kill a Cat . By Matias Nespolo. Translated by Frank Wynne. Harvill Seeker; 246 pages; £10.99
earlier. He finds a "conspiracy of chattiness" rather than of silence, over a murder the whole town was in on. Mr Gamerro, who was born in 1962, departs from a previous generation's reverence for eyewitness testimony and memorialising the dead. The tone is hard-boiled, its cynicism alleviated by rare lyrical flights, and the desaparecido emerges as a spoilt mama's boy and unsavoury womaniser. The "involuntary martyr" is no hero. The perspective is that of a generation seeking the unadulterated truth about their parents and grandparents during the "dirty war"- and hence their own identity. Amid the torrential self-
The Argentine dream
justification of the townsfolk, from barbers to bankers, the subject becomes language itself, which is used to excuse and obfuscate. The stark epigraph is from William Burroughs: "To speak is to lie/To live is to collaborate." The bereaved mother in "An Open Secret" appears mad, though the madness is all around her. In "Open Door" by Iosi Havilio, who was born only in 1974, Argentina resembles an asylum. A young veterinary assistant relates how her female lover went missing. She fears that she may have seen her commit suicide off a bridge in Buenos Aires's old port. Between trips to the morgue to identify corpses, she visits a pampas village named Open Door, after the psychiatric hospital that was founded there in 1898 as an "agricultural work colony". In the countryside she moves between two partners: an ageing gauchowhose name is the same as his ailing horse, Jaime- and an amoral, druggie country girl with plaits. As sexual encounters unfold in the woman's alienated voice, the characters merge with the village "loonies". Events, like interchangeable lovers, have equal weight, from a stable fire to the brewing of mate tea, in an ambiguous tale that verges on dark comedy. A suspected UFO turns out to be the spotlit film set for a commercial. In an asylum without walls, there is "nothing to limit the illusion of absolute liberty"; ultimate control is when people no longer feel they are being coerced. With skill and subtlety, the novel hints that a whole society might labour under an illusion of liberty, manipulated by forces outside the frame. What those malign forces might be is more explicit in "7 Ways to Kill a Cat" by Matias Nespolo, another debut novelist of Mr Havilio's generation. His shantytown tale from southern Buenos Aires, which recalls the "City of God" slum in the Rio favelas, is set during Argentina's 2001 financial crash, with protesters defying tear gas, from teachers to lorry drivers. It opens in a barrio at the "wolf's mouth", where the asphalt and streetlights give out, with two peso-less youths butchering a cat for meat. As they become embroiled in a lethal turf war between drug lords, the narrator, Gringo, probes the mystery of his mother's disappearance, and that of his cousin- areformed gangster turned pavement hawker. Gringo, torn between moral scruples and the need to "look after number one", learns that there are only two ways to kill a cat: civilised or savage. A police crackdown on the marchers prompts him to retaliate in what he sees as a "seriously civilised fashion". One of the characters in "An Open Secret" claims bitterly that in Argentina, "the winners make history and the losers write it." To judge from these novels that scour the past and mourn the future, it seems nobody won. •
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Please note that there were two errors in last week's Tender Adverti sement. Correct web page addresses are:
www.FedBizOpps.gov and http://pristina.usembassy.gov
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Ministry of Finance, Planniltg and E~onomic Denlopment, Uganda
VACANCY ANNOUNCEMENT The Mi nisuy of Finant'e, Planni ng and Economic Development (MFPED) has received funding from DRD (UK). under the E.vident'e·Bascd Decision Making Project - Phase ll - 10 support activities of the Economic Development Policy and Research Department (EDP&RD). The MFPED plans co milize some of tl1e funding to recn•it a Technical Advisor with tl1e following competencies:
Technical Advisor (Quantitative Policy and Poverty Monitoring) • The. Tethnical Advisor (Policy Analysis and Poverty Monitoring) will advise the strategic agenda of EDP&RD's poUcy resea1·ch p1·ogranune. Advising on Uganda'soverall developmem stmtegy vis-a-vis global and regional trends, policies and international partnerships.
18th N ov., 2011 Expressi on of Interest I s Invited for t he "Con s ultanc y Servi ces for R oa d Informati on System ( RIS Ver 2) fo r 15,000 km (approx.)" a web ~d s y stem h aving c apabllltle• o f ; g eo referen c ing a nd geogrep hlca l Info rmation s ystem from reputed natio nal and I nternational firms either Individually or JV through e-tendertng mode o n ly. Soopo of Wort< Inter-alia oonSists o f revtew & up-gradatlonlupdalion of existing or osset management syatem-RIS and Project Mon1tonng System (both sylJtem can be ac:cos$8d from NHAI website). Complete EOI document can be downloaded free of CO!It from NHAI's website and e-tendenng portal Amendments Corrigendum, If any, would only be hosted on these two web sites. EOI Schedule of events are.1 P~Bid meeting- 30th November, 2011 at 1200 noon at NHAI HQs 2 Lastdateofsubmisslon-19th Oeccmber. 2011 up to 11 OOa m Address f or communicat ion: Deputy General Manager (P&IS), N HAI, Room No Fll-203. RIS Centre, Software Technology Park, NSIC Bhawan. Okhla, Phase-Ill. New Delhi- 110020 Ph: 011-41046295125074 Hl0/25074200 (Ext.1700/1703) E-mail r1a2012@ nhal.o rg. WebSite-www.nhal.org I www.tende rwlzard .com
In his/her role. the Technical Advisor \\ill be required to: • Undertake analysis of global and regional t1~nds and policies including economic integration. with particular rocus on their impact on socio,. economic development in Uganda; • lluild 1he capacity of Minislly staff members with particular emphasis on quantitative melhodologies; • Designing and implememing appropriate tools fo1·dala collection. analysis and utilization in 1he policyformulation process.
The minimum requil'ements fo1·this position include: • A PhD degree in Economics or relaled discipline; • Knowledge and experience in Global and regional economic processes-; • Analy1ical skills in socio-economic dimensions of poverty reduc1ion such as Poverty and Social Impact Analyses (PS!As); • Ability 10 use dynamic Computable General Equilibrium (CGE) models and linkages to micro economic protc.s.ses that is c:tp:lcily in macro~ micro modeling; • AI least 5 years relevant work expe1·ience in economic and policy rese:u·ch with a strong l'eCOrd of publications in refereed joumals.
Detailed Tcrn~s ol' Rcfcrc.ncc can be obtained on t·cquest from the Commissioner, Economic Development Policy and Research (EDPR). Email: [email protected] Applications must be submitted by 18th Dcccmhcr 2011 to the following addrc.~s: The Commissioner, Economic Development Policy and Research Department, Ministry of Finance, Planning and Economic Development. Floor 4, Room4.12, Finance Ruilding, Plot 2-12, Apollo Kaggwa Road, P. 0. Box 8147, KAMPALA, UGANDA. Email: [email protected] Copied to: [email protected] Tel: 256 414 707227 or 256 773 325438
The Economist November 26th 2011
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UNITED NATIONS INDUSTRIAL DEVELOPMENT ORGANIZATION Reducing Poveny Thr0U9h Sus tainable Industrial Growth UN!OO as seeking h•ghly quahfoed cancfldates wrth comrMment to the core values of the OrganiZation
~ Save the Children International Change Manager £47,000 p.a. • London based with 60%- 75% world travel
• Professionalism • Integrity • Respect for Diversity • to Ill vacam posts at UNIOO Headquarters in Veenoa Austria
Save th e Children is the world 's leading independent organisation for chi ldren. Our vision is a world in which every ch ild attains the right to survival, prot ection, development and participation.
Industrial Development Officer, P-3 (VA 2011/ 013-recirculation) Development Policy, Statistics and Research Branch Strategic Research, Quality Assurance and Advocacy Division The lllCOmbent w1U be responslble lor researct11ng industnal sii\JCtural change wrth a part ocular emphasis on ISsues of poverty reduCtiOn, employment and in<:Cime gr,ner.rt10n; and develOp methOdologieS and tOOls to translate rese~ find111gs rno SU$t<mabll> strategies and industrial poliCy recomrnundations.
Industrial Development Officer, P-3 (VA 2011/014-recirculation) Development Policy, Statistics and Research Branch Strategic Research, Quality Assurance and Advocacy Division The Incumbent Will be responsible for researching major economic. teciYIOiogcal. and ~iaJ regiOnal trends 111 Asia lrtd/01 Alnca keep UN tOO 111fotmed ot pcxenliaJ impact on reg.onal and global industrial development. as well as conduct research on reg1ona1 tndvstnal development and rts determ•nanls based on UNIOO's own themattc pr•onttes, methOdolog•cal approaches a.n d stabstical data
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Further lnformahon on these pos•tiO!IS. raqulttld qualrfocatiO!IS, deadlines and Information on the apphca\lon process can be oblaoned on UNIOO websote
Ou r f ive-year plan for 201 0·2015 is ambitious and involves doubling o ur income growth and creating a si ngle international program deli very organisation for the 29 countries in which we operate. Int ernational Programs Transition is an ambitious change programme w hich will create a strong cohesive organisation in w hich we will deliver our international programs. As International Change Manager, using structured change methodology you will facilitate th e creation of scalable and empowered Country Offices, coordinate the development of implementation plans and f acilit ate the embedding our new culture. We need a champion of change with extensive post-merger integration or new organisation start-up experience in a change management and implementation role. Results driven, you will be a creative problem solver, strategic thinker and incisive analyst. You will have the credibility and powers of persuasion to influence issues and people at all levels with tact and diplomacy. Hi ghly motivated. you will set you rself ambitious goals and "own" the responsibility for achieving them. Collaborative by nature, you must be prepared to travel extensively worldwide. probably spending 60% to 75% of your time abroad. The closing date for applications is Monday 9th December. Please look at our website for full details on the role www.savethechildren.net and apply by sending 01 and cover letter to [email protected]
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The Jersey Competition Regulatory Authority (JCRA) is the competition authority and regulator of the telecommunications and postal sectors in Jersey. Our rol e is to support the development of Jersey's economy, which relies on high quality, leading-edge utilities and businesses that are capable of innovation and adaptation. The JCRA works very closely with Guernsey's Office of Utility Regulation and with regulators in the UK. To help us deliver our strategic goals, we need an exceptional team, and are looking to recruit 2 new members: a Competition & Markets Manager, ideally with a strong background in competition economics, and a Regulation & Markets Mana ger, particularly focused on the telecommunications sector. The successful candidat es can look forward to ch allenging and rewarding roles, working as part of a professional, close-knit group in an evolving multi-sector environment. As a small authority, the roles are very 'hands on', and the quality and variety of work will provide a challengin g and rewarding career. For further details and to obtain candidate briefs for these positions, please visit www.cicra.je or contact Louise Read at [email protected], or by phone on +44 1534 514994. Closing date for applications is Friday 23 December 2011 .
Economic data %change on year ago Gross domestic product latest gtr* 2011 t United States +1.5 03 China +9.1 03 Japan nil 03 Britain +0.5 o3
+2.0 +9.5 +6.0 +2.0
+1.7 +9.1 -0.5 +0.9
Industrial production latest +3.9 Oct +13.2 Oct -4.0 Sep -0.7 Sep
Current-account balance Consumer prices Unemployment latest 12 %of GOP latest 2011 t ratet,% months, $bn 2011 t +3.5 Oct +5.5 Oct nil Sep +5.0 Oct!
+3.1 +5.7 nil +4.3
+9.0 Oct +6.1 2010 +4.1 Sep +8.3 Septt
-469.9 02 +259.3 03t t1 +150.0 Sep -40.9 02
-3.2 +3.9 +2.3 -1.9
Interest Budget balance rates,% %of GOP 10-year gov't 2011 t bonds, latest -9.0 -1.8 -8.3 -8.8
Currency units, per$ Nov 23rd year ago
1.86 3.71 6.36 6.65 0.97 77.5 83.4 2.14 0.64 0.63 ~~~ --- :!:?d.Q! _ _:Q.,_4_.:!:.2.:£ ___ !}:.1~- .:!:.2~.QEt- ..!~9---+LLO~ ----.i3~~ -- ~:2. ---:iQ_ __ _£.1_? ____ .1.·Q? ___ .h0 ..! _ Euro area +1.4 03 +0.8 +1.6 +2.2 Sep +3.0 Oct +2.6 +10.2 Sep -82.6 Sep -0.6 -4.0 2.02 0.75 0.75 +3.0 +3.9 Sep +11.2 02 +2.9 -3.6 3.68 0.75 0.75 Austria +2.8 03 +1.3 +3.0 +5.6 Aug +3.4 Oct Belgium +1.9 03 nil +2.3 +10.0 Aug +3.6 Oct +3.3 +6.7 Septt +7.0 Jun +1.4 -3.8 5.44 0.75 0.75 +2.2 +9.9 Sep -64.5 Sep -2.5 -5.8 3.67 0.75 0.75 France +1.6 03 +1.6 +1.6 +2.3 Sep +2.3 Oct Germany +2.5 03 +2.0 +2.9 +5.7 Sep +2.5 Oct +2.4 +7.0 Oct +193.7 Sep +5.0 -1.0 2.05 0.75 0.75 Greece - 5.2 03 na -7.5 -2.1 Sep +3.0 Oct +2.9 +18.4 Aug -29.9 Sep -9.6 -9.1 29.39 0.75 0.75 Italy +0.8 02 +1.2 +0.6 -2.7 Sep +3.4 Oct +2.7 +8.3 Sep -79.0 Sep -3.7 -4.0 7.29 0.75 0.75 Netherlands +1.1 03 -1.1 +1.7 -8.8 Sep +2.6 Oct +2.3 +5.8 octtt +66.0 02 +7.3 -4.2 2.63 0.75 0.75 iP~n_ ___ .:!:Q&_~ __ _!!!l_ .:!:_O~ ___ .:f:Z.~_ .:!:_3_,Q.QEt__+1_0__ ..!.2.b~~ ---·.£.0_& ~g__ 3&_ ___ ~~ -- .i·~ ____ .Q.Z? ___ ~~ Czech Republic +1.5 03 na +2.1 +2.5 Sep +2.3 Oct +1.9 +7.9 Oct -7.1 02 -3.1 -4 .6 4.46 19.2 18.4 Denmark +1.8 02 +4.1 +1.4 -2.0 Sep +2.8 Oct +2.6 +4.2 Sep +22.1 Sep +5.4 -3.9 2.01 5.57 5.57 Hungary +1.4 03 +2.0 +1.2 +3.0 Sep +3.9 Oct +3.9 +10.7 Septt +3.2 02 +0.7 +1. 2 8.60 233 205 Norway -0.4 02 +1.5 +0.8 +4.2 Sep +1.4 Oct +1.4 +3.2 Aug!! +54.1 02 +13.6 +13.1 2.45 5.85 6.07 Poland +4.3 02 na +4.0 +7.8 Sep +4.3 Oct +4.0 +11.8 Octll -26.2 Sep -5.6 -6.0 5.98 3.36 2.95 na +4.0 +3.6 oct +7.2 oct +8.5 +6.4 octll +86.3 03 +5.0 -0.8 4.73 31.5 31.3 Russia +4.8 o3 Sweden +4.9 02 +3.6 +4.2 +4.8 Sep +2.9 oct +2.8 +6.9 octll +35.0 02 +6.4 +0. 2 1.62 6.91 6.93 Switzerland +2.3 02 +1.4 +1.9 +2.3 02 -0.1 Nov +0.5 +3.0 oct +86.1 02 +12.2 +0.8 0.88 0.92 0.99 :D,J~ey_ -- ~·8 Q£ na_ +7.5 +12,.Q. ~ ~?.Joct_ +5.9_ +.2., ~Al!!J.*~ _- 77.5 ~p -10,.Q. ___ -1.7 9.]] ___ 1.§1 _ _ 1,48 Australia +1.4 02 +4.8 +2.0 -3.3 02 +3.5 03 +3.4 +5.2 oct -33.5 02 -2.2 -2.6 3.90 1.03 1.02 Hong Kong +4.3 03 +0.4 +5.4 +2.0 02 +5.8 Sep +5.1 +3.3 octtt +14.3 02 +4.2 +1.8 1.06 7.80 7.76 India +7.7 02 na +7.9 +1.9 Sep +10.1 Sep +8.3 +10.8 2010 -46.2 02 -3.7 -4.9 9.03 52.4 45.7 +6.5 03 na +6.5 +10.1 Sep +4.4 Oct +5.4 +6.8 Feb +3.6 03 +0.6 -1.0 4.22111 9,045 8,963 Indonesia Malaysia +5.8 03 na +4.5 +2.5 Sep +3.4 Oct +3.3 +3.3 Sep +30.3 02 +10.4 -5.6 2.90111 3.18 3.14 Pakistan +2.4 2011•• na +2.4 +6.8 Aug +11.0 Oct +12.2 +5.6 2010 -0.2 03 -1.3 -5.9 13.37111 87.5 85.5 Singapore +5.9 03 +1.3 +5.2 +12.8 Sep +5.4 Oct +4.8 +2.0 03 +49.2 03 +17.3 +0.3 1.53 1.31 1.31 South Korea +3.4 03 +3.0 +3.9 +6.8 Sep +3.9 Oct +4.4 +3.1 Oct +24.4 Sep +2.4 +1. 5 3.70 1,152 1.142 Taiwan +3.4 03 +5.0 +4.4 +1.6 Sep +1.2 Oct +1.5 +4.3 Oct +38.6 03 +8.0 -2.7 1.32 30.4 30.4 Thailand +2.6 02 -0.8 +2.5 -0.5 Sep +4.2 Oct +4.2 +0.4 Jun +15.8 Sep +4.1 -2.9 3.43 31.3 30.0 +4.3 Sep +9.7 Oct.. * +9.6 Argentina +9.1 02 +10.2 +8.5 +7.2 o311 +1.1 02 -0.4 -1. 4 na 4.26 3.97 Brazil +3.1 02 +3.1 +3.0 -1.6 Sep +7.0 Oct +6.7 +6.0 Septl -48.0 Sep -2.2 -2.7 11.23 1.86 1.72 +5.2 Sep +3.7 Oct +3.2 +7.4 Septtll -1.2 03 -0.5 +0. 2 2.41111 525 482 Chile +6.8 02 +5.7 +6.3 Colombia +5.1 02 +8.5 +5.1 +5.2 Sep +4.0 Oct +3.5 +9.7 Sepll -10.6 02 -2.7 -2.5 3.79111 1,932 1,889 Mexico +3.3 02 +4.5 +3.4 +3.6 Sep +3.2 oct +3.4 +5.7 Sepll -8.9 02 -2.1 -2.5 6.43 14.1 12.4 ~f!!!~e~ __ :!:.2,2. Q£ __ .!!_a_ .:t_2~ - _ _ ~ 1. ~_+1].1Q£t_ .±_2§.:.4 _ __+J!,~o~ __ _ +1_6.-Q l!l __ ~,Q - __ ·.2,L __ _i._2? ~ _ _ _ 2_.;!9 ___ -~ _ 7.27111 Egypt +0.3 02 na +1.8 -1.8 02 +7.1 Oct +10.2 +11.8 0211 -2.8 02 -1.7 6.00 5.77 -10.0 Israel +5.1 03 +3.3 +5.5 02 -0.1 3.64 +3.4 +4.4 +2.6 Aug +2.7 Oct +2.5 02 3.77 3.65 -2.8 +75.3 201o1tt +25.9 na Saudi Arabia +6.7 2011 na +6.7 +5.3 Sep +4.9 na na 3.75 3.75 +14.3 +25.0 0311 South Africa +1.3 +3.1 +7.7 See_ +6.0 Oct 8.17 8.54 7.05 -10.702 +3.0 02 +5.0 -4.1 -5.2 *%cha nge on previous quarter, annual rate. IThe Economist poll or Economist In telligence Unit estimate/forecast. 'National definitions IRPI inflation rate 5.4 in October. **Year ending June. II Latest 3 months . II Not seasonally adjusted. !!Centred 3·month average. • ••unofficial esti mates are higher. Itt Dollar-denominated bonds. IIIEstimate.
The Econom1st November 26th 2011 Markets
conom1c an
%change on Dec 31st 2010 Index one in loca l in $ Nov 23rd week currency terms
United St~ts China (SSEA) Japan (Nikkei 225) Britain (ITSE 100)
11.257.6 2,508.6 8,314.7 5,139.8
~'!!d~~~TSE ___ 11-lZ!J _
Euroarea (FTSEEuro 100) Euro area (OJ STOXX 50) Austria (AlX) Belgium (Bel20) France (CAC40) Germany (DAX)* Greece (Athex Comp) Italy (FTSE/MIB) Netherlands (AEX) Spain (Madrid SE) Czech Republic (PX) Denmark (OMXCB) Hungary (BUX) Norway(OSEAX) Poland (WIG) Russia (RTS, $terms) Sweden (OMXS30) Switzerland (SMI) Turkey (ISE) Australia (AllOrd.) Hong Kong (Hang Seng) India (BSE) Indonesia (JSX)
-5.4 · 2.9 ·1.8 · 6.7
-2.8 ·11.6 ·14.9 -13.7
2,Q. _ :13.:2. _ -.1§,1
679.3 -7.6 2,096.8 -7.5 1,652.8 -11.3 1,923.3 -6. 7 2,822.4 -7.9 5,457.8 -7.7 675.9 -5.9 13,915.8 -9.8 272.8 -7.4 777.0 -6.7 845.2 -4.6 333.0 · 4.0 16,979.4 +1 .5 402.7 -8.9 37,467.0 -7.2 1,422.0 -6.5 888.8 -7.5 5,386.1 -5.3 51,091 .5 ·8.6 4, 125.8 -4.4 17,864.4 -5.8 15,700.0 -6.4 3,687.0 -3.3
~IDlli_(!<~EL ____M.n
-2.8 -14. 7 -18.7 · 12.9 -24.1 -24.9 -43.1 · 25.4 -25.8 · 21.1 -52.2 -31.0 -23.1 -22.6 -31.0 · 22.0 -20.4 · 17.2 -21.1 -17.0 -23.1 -16.3 -22.6 · 14.9 -22.4 -23.4 -0.4
-24.4 -25.3 -43 .4 · 25.8 -26.2 -21.4 -52.4 -31.3 -23.4 -23.0 -32.9 ·22.2 · 29.0 · 17.8 -30.7 -19.7 -25.2 -15.1 -36.4 -19.4 ·22.7 -34.6 -0.8
.L .:J-.9... _ ...:.5.:§. _ ..:§~
Pakistan (KSE) 11,634.0 -3.0 2,676.6 -4. 7 Singapore (STI) South Korea (KOSPI) 1,783.1 · 3.9 Taiwan (TWI) 6,806.4 -7.9 976.9 · 2.0 Thailand (SET) Argentina (MERV) 2,410.8 -8.2 Brazil (BVSP) 54,972.1 -6.1 Chile (IGPA) 19,506.2 -6.6 Colombia (IGBC) 12,151.1 -4.5 Mexico (!PC) 35,375.6 -3.6 Venez!!_!!la (IBC) 115,1_65.6 +0.9 Egypt (Case 30) 3,717.5 -10.9 Israel (TA-100) 936.8 -7.1 6,086.1 -2.2 Saudi Arabia (Tadawul) South Africa (JSEAS} 30,956.2 -5. 3
-3.2 -16.1 · 13.1 -24.1 -5.4 -31.6 -20.7 -15.1 -21.6 -8.2 +76.7 -47.5 -23.6 -8.1 -3.6
-5.3 -17.9 -14.4 -27.2 -8.8 -36.2 -29.1 -24.4 -22.1 -19.9 _ n_i -49 .2 -28.3 -8.1 -25.3
I
Pharmaceutical spending It is no secret that rich cou ntries spend lots of money on health-9.6% ofGDPin 2009. Drugs' role in driving this spending is more complex. Consumption of drugs has risen, as there are more types of pills and more old patients to po p t hem. In 2009 oeco countries splashed out more than $700 billion on drugs, nearly onefifth of all health spending. But without drugs health costs might have been even higher: pharmaceuticals can prevent costly hospitalisations. From 2000 to 2009 spending on drugs grewat a slightly slower pace than total outlays on health. This picture masks substantial variation. The average American sh elled out $947 for drugs in 2009. Just across the border, the average Mexican spent j ust $249.
105
As% of GOP, 2009 or latest •
Public
0 Hungary Fra nce States United
5~~~
Cffi]
Canada
[ill]
Mexico
[ill] [ill] [621]
Italy Germany J apan
ts:sm
South Korea
riD]
Australia
001
Sweden
[iliJ [ill]
Switzerland
t:ml mil
Israel Britai n Source: OECD
*At purchasing-power parity
The Economist commodity-price index
Other markets % change on
Other markets
Dec 31st 2010 Index one in local in$ Nov 23rd week currency terms
UnitedStates(S&PSOO) United States (NAScomp) China (SSEB, $terms) J apan (Topix)
nanoa
1,161.8 2,460 .1 244.2 717.8
·6.1 -6.8 -3.8 -0.9
-7.6 -7.3 -22.6 -20.1
-7.6 -7.3 -19.8 -16.4
Eu~p~m:s!_ll r~~JPQl _ 29?.:? _
.:].Q... _ :.!9.:§. _-12 ~
World, dev'd (MSCI) 1.102.9 Emerging markets (MSO) 885.3 World, all (MSO) 280.6
-6.5 -7.8 -6.6
-13.8 · 23.1 · 15.1
-13.8 -23.1 -15.1
_!o!!_d!_o!!_~!uCJ!i9!.o~)_ _ ~~ _ .:Q&. _ ...:.5.:1 _ !?·i EMBI+ (JPMorgan) 588.6 -1.7 Hedge funds (HFRX) 1,111.9t -0.9 Volatility, US (VIX) 34.0 +33.5 CDSs, Eur (iTRAXX) t 207.7 +12.9 CDSs, N Am (CDX) t 145.9 +8.9 Carbon trading (EU ETS} € 8.4 · 14.5
+6.7 +6.7 -8.7 -8.7 +17.8 (levels) +98.5 +97.6 +71.4 +71.4 · 40.4 ·40.7
'Total return index. l(redit-default-swap spreads, basis points. !Nov 22nd Sources: National statistics offices, central banks and stock exchanges; Bloomberg; CBOE; CBOT; CMIE; Cotlook; Oarmenn & Curl; EEX; FT;HKHA; !CCO; !CO; ISO; Jackson Rice; JPMorgan Chase; NZ WoolServices; Thompson lloyd & Ewart; Thomson Reuters; Urner Barry;WSJ; WM/Reuters
2005=100
%tha~~eon ~ne year
The Economist commodity-prit&llP Dollar index All items
Nov 15th
Nov 22nd*
month
186.1
180.4
-4.5
-6.2
Fo~ ---- 208~ -- w~-- ~~---~
--------------------Industrials All . ~fat.
182.1 155.4
1_77.9 151.7
.:~·.6
-4.1
-19.8 -9.4
214.0
209.7
-2.5
-4.8
166.2
- 1.6
-6.6
1,697.5
+0.8
+23.6
$ per barrel 99. 5 97.6 *Provisional I Non-food agriculturals.
+7 .1
+20.6
Metals Sterling index All items Euroindex
All items 171.2 Gold $ peroz 1,779.6 West Texas Intermediate
Indicators for more countries and additional series, go to: Economist.comfindicators
George Daniels George Daniels, master watchmaker, died on October 21St, aged 85
A SCHOOLBOY once asked George Dan1"\.iels what he had at the end of the chain that led to his pocket. A silly question, really. But it was worth asking, because what Mr Daniels pulled out, carefully, was what he called his Space Traveller's Watch. It gave mean solar time, mean sidereal time, equation of time, and could chart the phases of the moon. Mr Daniels liked to say it would be useful for trips to Mars. He had surmised almost the same when, at five or six, he had first prised open with a fairly blunt breadknife the back of an old watch he had found at home, and seen "the centre of the universe" inside. He had never imagined then that he would make the universe by hand. But he did. Every component of his Space Traveller's Watch- as of the 36 other watches he made, each unique, over his 42 working years- was produced from scratch. He made the screws, the springs and the levers, the pallets and gears, the hands and the plain, often numberless dials. He also made the tools that made them, except for the lathes and turning engines. No one else had ever learned the dozens of necessary skills. But after years of teaching himself horology from clocks bought for a bob or two at jumble sales, or comrades' broken watches in the army, or the wonderful Breguet and old English timepieces he went
on to restore for collectors, he had begun to think, why not? Hour after hour, for it wasn't the sort of work you could just do a little of and leave again, he would cut and shape, file and polish, temper and hammer. The work flowed from the tools almost unconsciously. He learned from a craftsman in Clerkenwell how to make cases, usually of gold with a silver back and bezels. His first watch was sold to a collector friend, Sam Clutton, in 1970 for £1,900; when sold in 2002, it fetched more than £2oo,ooo.
Tick,tock A hard, poor childhood in north London had given him a nose for a deal and a sharp sense of the value of everything. But his pieces were private experiments, not commissions. He wanted to build watches that kept better time than any in the 500 years before. The general public was happy, from the late 1960s, with quartz models that lost, on average, two or three seconds a month. But Mr Daniels was determined to show that a mechanical watch could beat them. In the mid-1970s he made a double-escapement watch for Mr Clutton which, over 32 days, lost less than a second. His happiness at beating quartz came close to his boyhood joy when a wall-clock he had mended magnificently exploded, springs and
glass everywhere, as the family ate their bread and jam at the supper table. Now he had to improve on the lever escapement, which had been invented in 1754 by the English horologist Thomas Mudge and used in most watches since. It worked by friction, as the teeth of the gears slid over the pallet; but this arrangement needed lubrication, and as the oil degraded the watch lost time. Mr Daniels became obsessed with the tick, tock of clocks (a sound that filled his various homes, together with silvery chimes), and how to get an impulse on both the tick and the tock that would not be affected by humidity, temperature, oil sludge or agitation. His solution, invented in 1976, was the co-axial escapement, an arrangement in which two wheels, placed one above the other, transmitted to the pallet a radial impulse that needed no lubrication and so (if wound) would never stop. That achievement earned him many honours for services to horology, but it was only the beginning of a long slog to get his idea accepted. The world of clocks and watches was a closed one. He knew it himself, because his boyhood watch studies from library books were a private realm only he could understand, and the 18thcentury English masters- Mudge, Arnold, Eamshaw- the only real friends he had. Watchmakers kept the secrets they learned in their lonely working hours. Even later, when he had put himself in the millionaires' bracket and had to move to the Isle of Man for tax reasons, his friends were in the motoring clubs where he shared his other passion, for vintage Bentleys and racing cars. He had no watchmaker friends at all. So it was no surprise to him, though keenly disappointing, that the Swiss watchmaking industry was neither eager to look at the co-axial escapement, nor able to understand it. He did the rounds of the factories for more than 20 years. After four years with Patek Philippe, he could not persuade them to make it. Omega began to produce it in limited editions in 2006, after seven years of "development" that Mr Daniels dismissed as unnecessary. Large-scale production would have been too expensive. But Mr Daniels also suspected sheer dislike of outsiders. While restoring the timepieces made by his idol Breguet in the 19th century, he had made two clocks in the same style, just to prove he could beat the master. They were so fine that the company insisted on putting the Breguet secret signatures on them. Mr Daniels went along with it. He had a secret cipher of his own, though, a dove with an olive branch. It meant peace to his rivals, French or Swiss; but if the most ingenious invention in watchmaking for 250 years was too tricky for them, why, he would just pick it up, snap it shut and put it back in his pocket. •
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