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5 The world this week Leaders 7 GLobaL finance Save the City
27 Bosnian politics Finally, a gover n ment
28 Turkey and the Kurds Death upon death
29 Charlemagne A gloomy 2 0 1 2 for Europe
8 Hugo Chavez Cancer and the body politic
8 The world economy Self-i nduced sluggi s h n ess
9 Hungary's government To Vi ktor too many spoils
10 Citizenship On the cover Britain is home to the world's capital of capital but no Longer prizes it. That is a mistake: Leader, page 7. The City's continued success is far from certain, pages 16-18. The race to run London, page 19. Hatred of bankers is one of the world's oldest and most dangerous prejudices: Schum peter, page 58
In prai se of a seco nd (or third) passport
Letters 1 1 On religion in America, Canada, Britain and Europe, Martin Luther Briefing 16 Britain's financial industry Death by a thousand cuts
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Britain 19 The London mayoral race Back i nto t h e fray
20 British and American rowing Rowed scholars
20 Stephen Lawrence Cri m e and consequences
22 Stopping burglary On your mark
22 Burglars as consumers Not worth nicking
23 The Big Issue magazine H e lp the h o m eless!
23 Telef6nica London calli n g
Volume 402 Number 8766
2 4 Bagehot A murder that changed Britain
First published in September1843
to toke port in "a severe contest between intelligence, which pressesforward, and an unworthy, timid ignorance obstructing our progress. " Editorial offices in London and also: Atlanta, Beijing, Berlin, Brussels, Cairo, Chicago, Hong Kong, Johannesburg, Los Angeles, Mexico City, Moscow, New Delhi, New York, Pans, San Francisco, Sao Paulo, Singapore, To kyo, Washington DC
Europe 25 Hungary's government The Long march of Fidesz
26 Germany's president Lone Wulff
United States 30 The Republicans On to New Ham pshire
31 The economy and the states Less of a drag
34 Restricting abortion Unintended issues
34 Election Laws H o lder v states
35 Economic diversification Reimagi n i n g the future
The Republicans M itt Ro m n ey wins very narrowly in Iowa, page 3 0 . If Rick Santo rum wins, consenting adu lts s h ould Lock their bedroom doors: Lexi ngton, page 3 7 . Raising m o n ey online is harder than it sounds, page 5 2 . Arguments about w h o can vote, page 34
36 Diversifying Nevada Rolli n g the dice
37 Lexi ngton Rick Santorum a n d sex
The Americas 38 Venezuela's election campaign C h avez shuffles the pack
39 Bolivia's j udges Roug h justice
39 Canadian history The 1812 overture
40 Rebuilding Haiti Open for busi ness
The Strait of Hormuz Despite its sabre-rattli n g in the Gu lf, Iran's opti o n s are Limited, page4 2
40 Jamaica's election Go, sista
Middle East and Africa 4 1 Egypt's elections Steady n erves required
42 Iran v the United States Raisi n g the stakes
43 Syria and the Arab League No negotiations in sight
43 Syria's minorities Jangli n g sectarian n erves
44 Somalia and Ethiopia Might thi ngs get better?
44 South Africa and alcohol Don't touch a drop
Citzenship Multiple identities are natural. Citizenship Laws should catch up: Leader, page 10. Governments are i n creasingly tolerant of dual nationals. But some states continue to abhor them, page 50
26 Austerity in Spain Tur n i n g the screws
27 Austerity in Italy Terrorisi n g the taxman
�� Contents continues overleaf
4 Contents
I
The Economist January 7th
Asia 45 Reviving Kolkata
World GOP % change on previous year
The city that got left behind
46 Singapore politics Falling on their wallets
46 Damming the Mekong Repri eve for a river 2001
05
10 *Estimate
12 tForecast
World economy This year will probably be a pretty bad one. It doesn't have to be: leader, page 8. For central bankers i n the rich world, u n conventional i s the new conventional, page 6 2 . The i m provi n g fina nces of American local government, page 3 1. Being beari s h about India's econo my, page 6 3 . Tou gh ti mes i n Spain, page 26 and Italy, page 2 7 . Europe's e n d less sum mits: C harlemagne, page 2 9
47 Lifting martial law in Fiji A gift from the Com mander
48 Thailand's politics Waiti ng for the man
48 Chinese broadcasting Entertai n i n g the masses
49 Banyan The Fukushima black box
Finance and economics 62 Central banks Crazy aunt on the loose
63 India's slowdown The case for the defence
64 Spain's banks Hor n s of a di lemma
64 China's economy An odd contracti o n
65 B uttonwood H edge-fu n d mirage
66 Bank capital Half-cocked Basel
66 Swiss central banking Called to account
Dutc h m e n grounded
5 1 Collecting global garbage Effluence of affluence
52 Social media One th ousand poi nts of "like"
52 Scientology Thetans at war
Fast but i n efficient
Intel v ARM America's chip giant a n d its Briti s h rival have lo n g domi nated different bits of the global semi conductor market. N ow each is attac ki n g t h e other's stro n g h old, pages 59- 6 1
55 Ethanol A boost for Brazi l
55 B Corps Firms with benefits
56 Chinese condoms Reds in the bed
56 European transport policy Gree ni n g the skies
57 Selling cars online The TrueCar challenge
58 Schu mpeter
Fi ddli n g with the mi nd
69 Evolution The value of a good editor
69 Power from the sea Seco n d time arou nd . . .
70 A new island in the Red Sea
59 The semiconductor industry Space i n vaders
Condoms A Chi nese start-up with XL a m biti o n s, page 5 6
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International 50 Dual citizenship
2012
80 Economic and financial indicators
An Economist Group business
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5
Politics
The process of selecting a presidential candidate for the Republican Party got under way, with Mitt Romney eking out the narrowest of victories (by eight votes) in the Iowa caucuses over Rick Santorum, hitherto a no-hoper in the race. Ron Paul came a close third and Newt Gingrich was some way behind in fourth place. Mr Santorum won the support of many social conservatives and evangelicals. Those who said they were looking for the best candidate to beat Barack Obama opted for Mr Romney. Michele Bachmann, a tea
party favourite, ended her bid for the presidency after com ing sixth in Iowa. Asserting some new-found presidential backbone as he enters an election year, Barack Obama appointed several people to executive positions over the heads of the Senate, which is in recess and where Republicans have held up the nominations. Chief among Mr Obama's recess appointments is Richard Cordray as boss of the new and controversial Consumer Financial Protec tion Bureau.
Enter stage Left The opposition People's Na tional Party won a landslide victory in Jamaica's general election. Its leader, Portia Simpson-Miller, becomes prime minister again, four years after losing the j ob. Argentina's president, Cris
tina Fernandez, was said to be recovering well after an oper ation for thyroid cancer. She is expected to return to work on January 24th
An international arbitration tribunal awarded Exxon Mobil $908m in compensation for assets nationalised by Venezuela's government in 2007. Exxon had demanded more than $10 billion, but P DVSA, Venezuela's state oil company, said it will pay Ex xon just $255m. Exxon is pur suing a separate case against Venezuela at the World Bank's arbitration panel. An appeals court in Ecuador ratified an award of $9.5 billion in damages against Chevron for oil pollution. The American oil company said the judgment was fraudulent and politicised; it is taking action against the plaintiffs in international courts.
A Chinese man died of bird flu in the port city of Shen zhen, the first reported case of human infection for 18 months. Chinese health au thorities urged calm as nearby Hong Kong culled 17,000 birds.
Some kind of justice Two men were convicted of the 1993 murder in London of Stephen Lawrence, a black British teenager. His killing led to much soul-searching in Britain a bout racism and the criminal-justice system. The original investigation was marred by police ineptitude and one of the men had previ ously been acquitted.
A Long walk to freedom
Myanmar released hundreds
of prisoners, and shortened prison terms for others, to mark the 64th anniversary of its independence from Britain, and just ahead of the first visit by a British foreign secretary to the country since 1955. Democ racy activists claimed that only a handful of those freed were political prisoners. An Ameri can spokeswoman said the clemency wasn't enough to merit lifting sanctions. Pakistan experienced its first
terrorist attacks of the year, when two bombs killed five people in the north-west Khy ber Pakhtunkhwa province. Meanwhile, the Pak Institute for Peace Studies in Islamabad reported that there were 1,966 terrorist attacks in Pakistan last year, which killed 2,391 people and injured more than 4,300. Both the number of attacks and the casualty count were lower in 2011 than in the two previous years. The Commonwealth respond ed cautiously to an announce ment by the prime minister of Fiji, Commodore Frank Bainimarama, that the Pacific island state would lift a state of emergency and draft a new constitution. Fiji was suspend ed from the Commonwealth in 2009, three years after Mr Bainimarama seized power in a coup.
Concerns mounted over the state of democracy in Hunga ry as tens of thousands took to the streets of Budapest to protest against a new constitu tion. Critics say the document entrenches the power of the ruling Fidesz party at the ex pense of formerly indepen dent institutions. European officials said that they would not return to Hungary to re sume financial-aid talks until the government withdraws a law that increases state influ ence over the central bank.
watchers by forming a govern ment. Bosnia hopes the deal will help it on the road to wards EU membership.
Unpersuasive A team of observers under a mandate from the Arab League arrived in Syria in an effort to persuade Bashar Assad's regime to withdraw his troops from towns, to free all political prisoners and to talk to the opposition. But the death rate stayed as high as before, some but by no means all troops were withdrawn, a minority of prisoners were freed, and no talks took place. As Egypt's three-stage general election drew to a close, with final run-offs expected on January nth, assorted Islamists were exp ected to win three quarters of the seats in the lower house of a new parlia ment, but the relatively moder ate Muslim Brothers continued to say they would prefer to form a coalition with secular parties rather than with the extreme Salafists. Israeli and Palestinian negoti ators met in Jordan and had their first talks for more than a year. No breakthrough oc curred but the two sides said they would meet again soon.
Thousands of Nigerians protested against a doubling of fuel prices after the govern ment withdrew a costly subsi dy. As trade unions threatened to strike, President Goodluck Jonathan's cabinet held an emergency meeting.
Christian Wulff, the German president, faced calls for his resignation after it emerged that he had tried to stop a tabloid newspaper publishing a story about a personal loan he had accepted. If Mr Wulff is forced out it would be an embarrassment for Angela Merkel, who backed his candi dacy in 2010 against the wish es of some in her party. After more than a year of political deadlock leaders of Bosnia's quarrelsome Bos niak, Serb and Croatian com munities surprised Balkan-
Youssou N'Dour, a well known musician, said he would run for the Senegalese presidency against Abdoulaye Wade, the incumbent, in elec�� tions next month.
The Economist January 7th
6 The world this week
Business For the first time in its 13-year existence the European Cen tral Bank chose a non-Ger man to head its economics division. Peter Praet is Belgian (though he was born in Ger many). He takes over the role of preparing policies on in terest rates and other areas from]iirgen Stark, who stepped down as the ECB's chief economist in December. It is widely believed that Mr Stark, in line with other Ger man officials, did not support the central bank's contro versial policy of buying up bonds from distressed euro zone economies.
Shining a little lig ht
The Federal Reserve said it would soon start publishing detailed forecasts on interest rates. Until now the Federal Open Market Committee has given generally rough guid ance about which direction rates are likely to take, but from this month the specific projec tions from each of the FaMe's members will be made avail able. It is a big move towards greater transparency, though some argue it could cause confusion if the rate forecasts are interpreted as monetary policy interventions. The Swiss National Bank published its internal regu lations on staff transactions to try to dampen allegations swirling in the Swiss media that Philipp Hildebrand, the central bank's president, and his wife acted wrongly by buying dollars prior to the SNB setting a ceiling for the Swiss franc last year. The SNB also published the results of an investigation into the trades, which found that the transac tions did not breach SNB rules. India decided to allow "qual
ified" foreign investors to invest directly in equity mar kets; foreign capital has hither to been restricted to investing in India's listed companies through mutual funds and overseas derivative instru ments. The easing of the rules comes soon after the govern-
ment backtracked on its deci sion to open Indian retailing to foreign competition, following a political backlash, raising questions about whether India is open for business.
New year's resolution
Spain's new centre-right gov
ernment predicted that the country's budget deficit for 2011 would probably reach 8% of GDP, higher than many analysts were expecting and above the target of 6% agreed with the European Union. At 8%, Spain's deficit would be the third-biggest in the EU, behind those of Greece and Ireland. The new Spanish government has embarked on an emergency programme of spending cuts and tax rises. Inflation in the euro zone fell to 2.8% in December, the first fall in five months and another consideration for the ECB as it mulls further cuts to interest rates.
Foreign energy companies offered further evidence of their huge appetite for Ameri can shale gas. Total, based in France, announced that it would pay $2.3 billion for a 25% stake in a shale-gas ven ture in Ohio. China's Sinopec is to invest a similar amount in various shale projects.
� PhRPHllAL MOTION
MACHINE
Boeing's decision to close its 83-year-old factory in Wichita, Kansas, caused dismay among local politicians, who accused the company of reneging on a promise to keep the plant open after it won a contentious contract to build new air-force tankers. Boeing used to em ploy 40,000 people at the Wichita facility, which works on defence contracts, but last year it warned of "limited prospects for future work". Yahoo! appointed a new chief
executive, poaching Scott Thompson from PayPal to fill the position. Last September Yahoo! sacked Carol Bartz from the j ob after she failed to revive the internet firm's sag ging fortunes. Fiat increased its stake in Chrysler to 58.5%, after it
completed a task set by the American government to help Chrysler develop a car that gets 40 miles to the us gallon (the average fuel efficiency of passenger cars in America is currently around 34mpg). Fiat has now achieved that with the Dodge Dart, which it will assemble in America. New figures showed that
2012
already surpassed Las Vegas as the gambling capital of the world. A recent report from PWC forecast that Asia will soon overtake the United States as the biggest casino market, generating revenue of $79.3 billion in 2015.
Another turbulent year ahead?
I
Stockmarkets % change Jan 1st-Dec 30th 2011 30
20
10 - 0
+
10
Dow Jones S&P 500 FTSE 100 DJ STOXX so• Nikkei 225 Shanghai A index Bombay SE Source: Thomson Reuters
*Euroarea
Stockmarkets started the year on a positive note, buoyed by strong manufacturing data from America, Britain and China. Investors will be hop ing that 2012 proves kinder than last year, when most markets fell. It was no surprise that the euro area's benchmark index fared badly in 2011, though the once-hot stock markets of Brazil, Hong Kong, China and India did even worse. One of the world's best performers, oddly enough, was Venezuela's main index.
Macau's revenue from casino
gambling rose by 42% last year, to $33.5 billion. Macau has
Other economic data and news can be found on pages 80-81
7
Save the City Britain is the home of the world's capital of capital but no longer prizes it. That is a mistake
A TTACKS on bankers by profi testers from Occupy Wall
Street, Occupy London and Occupy any city where a financier might have the temerity to turn a quick buck have spiced up the dreary economic news of the past year. Yet hostility is not confined to the left. Even the bankers' supposed allies are putting the boot in-and nowhere more so than in Britain. The prime minister, David Cameron, has promised to "end excess" in the City of London. His ministers boast about their efforts to "rebalance" the economy away from dodgy finance to honest manufacturing. Sir Mervyn King, the governor of the Bank of England, has made a habit of lambasting the Square Mile's short-term "profits next week" culture. In continental Europe the City is viewed with a mixture of loathing (on the ground that it single-handedly caused the euro crisis) and covetousness (on the ground that all those clever French and Italian financiers should ply their trade in Paris and Rome instead). The European leaders' attacks, at least, should have an upside: their hypocrisy and self -interest should serve to remind Britons what is at risk. London is by many measures the world's biggest financial centre, and weakening it is in nobody's interest-least of all Britain's. Better regulation of banks is certainly needed, especially to protect British taxpayers. And so far the City-bashing has been mainly rhetorical. But running down one of the world's most successful (and mobile) commercial clusters is folly-and it is surely not the legacy Mr Cameron would wish to leave his successors. Strangely, California doesn't talk down Silicon Valley
Finance-the funnelling of savings to their best use-is a vital industry. Britain is very good at it, leading the world in various financial markets, including foreign exchange and over-the counter derivatives. The City's comparative advantage is clear from Britain's trade balance. The export surplus in financial services and insurance was 2.6% of GDP in the first three quar ters of 2011. Add in the exports of related ser vices, such as law, accountancy and consulting, and the trade surplus rises above 3% of GDP. An industrial cluster that can generate foreign earn ings on such a scale is enviable. No other country, not even America, comes close to matching Britain's trade balance in fi nance. And with its domestic economy floundering, Britain needs all the exporting power it can muster. Yet the City is in danger (see page 16) from two sorts of threats-ones that you can do nothing much about, and ones that you can. Even with wiser politicians, the City would be likely to shrink over the next few years. New mortgages are be ing approved at half their pre-crisis rate, which means less business for retail banks. The number of employees working in finance across Britain is 7% below its level three years ago. The rich world's economic funk and mostly lifeless asset mar kets mean the outlook for trading and the deals that bring in fat fees is the worst for years-perhaps decades. Tighter regulation also means thinner profits. And there is bound to be some drift
in dealmaking towards the emerging world, whose govern ments are trying to develop their own financial centres. Still, Asia also presents an opportunity. China and India have underdeveloped financial markets; Britain has the exper tise. If London could become a global centre for dollar trading, why not for yuan dealings, too? Continental Europe's under developed personal-finance market should be another target. But the City can compete successfully with other financial centres only if Britain has the right policies on regulation, tax and immigration. On regulation, there is an understandable fear that an outsized financial-services industry means an out sized risk for taxpayers. The proposals from Britain's Vickers Commission go a long way to deal with this, dividing a tightly regulated domestic banking system (the bit that puts taxpayers at risk) from a more freewheeling international market for glo bal capital. By contrast, the thrust of many of the proposals coming out of Brussels looks harmful. Some, such as the finan cial-transactions tax, can be blocked by a British veto. The rest are subject to majority vote, and Mr Cameron's stand-off with his European partners last month-supposedly to protect the City, but really to avoid having to sell a more integrated Europe to Tory Eurosceptics-has now given London's rivals the ex cuse to hamstring the City. The British government's own policies on tax and immigra tion are also doing a lot of damage. The so% tax rate, intro duced by the previous Labour government in 2010, brings in little money and has made London the most taxed out of ten financial centres for high net-worth individuals. The present generation of financial bosses, who live in and like London, may tolerate it for a while, but younger ones are feeling the pull of Switzerland, Hong Kong or Dubai. As for immigration policy, the best way to win Asian business is to lure the young Asian financiers to London. Tight limits on talented immi grants damage the City's prospects-and indeed the prospects of every bit of British business. Let stockbrokers make cars-and other mad dreams
The politicians and regulators have all sorts of excuses. Abol ishing the so% tax rate is now politically dangerous. Immi grants are unpopular. And, they maintain, the risks of attack ing the City are small, for it has formidable advantages that are hard to replicate quickly. London's long business day bridges the close of Asia's markets with the opening of New York's, making it a convenient location for global asset managers and traders. Trading attracts liquidity and skills in a virtuous circle. But even the strongest incumbent is vulnerable to competi tion. Each decision to locate a new trading desk somewhere else compounds over time to a loss of the critical mass that has sustained the City as a leading financial centre. Economies work best when they reflect a country's innate competitive advantages. Britain should, therefore, host a rela tively big financial sector, and policymakers should celebrate it, rather than deride it. If they continue their policy of malign neglect, Britain will one day wake up to discover that it has lost one of the world's most successful business clusters, and the best hope the next generation has of earning a decent living. •
8
The Economist January
Leaders
7th 2012
Venezuela's presidential election
Cancer and the body politic Before voting this year, Venezuelans have a right to know the state of Hugo Chavez's health
V E N by the standards of one
E of the world's great conspiracy theorists, it was wacky stuff. On hearing the news that Argentina's Cristina Fernandez had become the fifth left-of -centre Latin American leader to be diagnosed with cancer in the past three years, Venezuela's Hugo Chavez, himself unlucky enough to be one of them, mused that the United States might have developed technology to "induce cancer" in its political foes. "I don't want to make any reckless accusation," Mr Cha vez said disingenuously, "but it's very, very, very strange." This could be just another piece of self -evident nonsense from Mr Chavez. After all, several of the other stricken leaders have friendly relations with the United States and the health scares have thus far increased the popularity of both Mr Cha vez and Ms Fernandez: Latin American politics has featured a maudlin streak ever since the early death (yes, from cancer) of Eva Peron. But Mr Chavez may have been putting up a smoke screen. The recent cancer cases offer not just stories of perso nal suffering but also a striking contrast in the way that the leaders affected have handled the news about their health. Four have been exemplar y in releasing timely information about their condition, overcoming the human instinct for se crecy in such matters. Brazil's president, Dilma Rousseff, was diagnosed with lymphatic cancer in 2009 on the eve of the campaign in which she was elected. Paraguay's president, Fer nando Lugo, was equally open when treated for the same ill ness. In October, when Ms Rousseff 's predecessor, Luiz Inacio Lula da Silva, was diagnosed with throat cancer, he made a point of ordering his doctor to release full details of his condi tion to the press. Ms Fernandez, who this week underwent sur gery for thyroid cancer, has behaved similarly.
The odd one out is Mr Chavez. He has said that he had an operation in Cuba in June to remove a lump from his pelvic area; he insists that, after four sessions of chemotherapy, he has been cured. But he refuses to reveal what kind of cancer he had, nor have any of his doctors appeared in public to offer a prognosis. The obvious inference is that the problem may be more serious than he is letting on. Some foreign intelligence sources suggest that Mr Chavez has an untreatable sarcoma. Democratic accountability should trump medical secrets
If this is true, he would not be the first political leader to try to hide a medical problem. Franr;ois Mitterrand ruled France for 11 years while nursing prostate cancer. John Kennedy had daily injections of steroids for a rare endocrine disorder. But it is hard in today's more open societies for such secrecy to be maintained. For instance, Indian officials have been tight lipped about the illness afflicting Sonia Gandhi, uncrowned queen of the country's ruling party; and the cloud of unknow ing contributes to government paralysis in Delhi. As for Mr Chavez, having largely misgoverned his countr y for the past dozen years, he is running for yet another six years as president in an election due on October 7th. Venezuelans have a right to know whether his health is good enough for there to be a reasonable prospect of his serving out his term. Cheery official assurances count for nothing unless backed with medical detail. This is especially important since Mr Cha vez has systematically concentrated power in his own hands. His sidekicks are jockeying for position and he has started shuffling the pack of top jobs (see page 38). Is that mere coincidence? Venezuela's constitution, inspired by Mr Chavez, allows the president to change his vice-presi dent at any time. He should now make it clear who he sees as his political heir. Continued silence will provide Venezuelans with yet another reason to vote for the opposition. •
The world economy
Self-induced sluggishness This year will probably be a pretty bad one for the world economy; it doesn't have to be
OLITICIANS like to promise
World GOP % change on previous year
P better times ahead. But these
days many are peddling gloom. In her new year's address, Ange la Merkel, Germany's chancel lor, predicted that 2012 would be more difficult for the euro zone 1o 12 2001 05 'Estimate !Forecast than 2011. Nicolas Sarkozy, France's president, spoke of "the year of all risks". Half a world away, Manmohan Singh, India's prime minister, warned Indi ans not to take fast growth for granted. In one way this pessimism looks a little overdone. The worst outcomes-a collapse of Europe's single currency or a
hard landing in China-are avoidable. The latest crop of statis tics, particularly better-than-expected figures on global manu facturing prospects, argue against a sudden slump. America may do a bit better than forecast. The overall effect should be sluggish, not dire: global output may grow by 3%, the slowest since 2009 and well below the average of the past decade. But in another way, the sombre warnings are apt, and pro foundly depressing. One reason why the outlook is so lacklus tre is that politicians-especially in the West-will do little to help (and may harm) their economies. It could be better. Begin with Europe, the weakest cog in the global engine. The euro zone has almost certainly already slipped into reces sion, which most forecasters expect to be short and shallow: a ��
The Economist January 7th
Leaders 9
2012
�group of seers polled regularly by The Economist estimates that output will fall by 0.5% in 2012. The case for a mild down turn assumes that Europe's policymakers, however haltingly, are on course to solve their debt crisis; that the European Cen tral Bank (ECB) has reduced the risk of a debt calamity with its recent provision of three-year liquidity to banks; and that the impact of fiscal austerity on growth will be brief and modest. Those hopes may be misplaced. Uncertainty about the euro zone's future is still acute, not least because its politicians are more focused on preventing future profligacy than sup porting embattled economies today. Despite the ECB's liquid ity injection, banks seem reluctant to buy many government bonds. And since Italy and Spain alone need to roll over €150 billion ($195 billion) of debt in the first three months of this year, the odds are that worries about sovereign debt will inten sify. A pernicious circle of weak growth, bigger deficits and more austerity is setting in. Look at Spain, where the new gov ernment revealed that the 2011 budget deficit would be worse than expected (8% of GDP rather than 6%) and immediately announced new spending cuts and tax increases to compen sate (see page 26). If these contractionary forces feed on them selves, Europe's downturn could be ghastly. Some emerging concerns
The euro zone is thus the darkest shadow hanging over the world economy; but it is not the only one. Emerging markets may stumble. China's economy is clearly cooling. And even if, as seems likely, Beijing loosens macroeconomic policy deftly enough to prevent a sharp slowdown, growth this year is like ly to be no more than 8%. Slower growth in China is dampen ing commodity prices, hitting exporters in Latin America. Add in some home-grown problems (India, for example, faces a big budget deficit, declining confidence and high inflation-see page 63) and the ripple effects of the euro crisis (which will hit
growth in eastern Europe and Turkey hard) and it is plausible that emerging economies will grow by only about 5%. That would be their weakest performance in a decade, aside from the global slump of 2009. If there is a positive surprise, it is likely to come from the Un ited States. That is not because growth there will soar, but be cause expectations for the world's biggest economy are so low. The consensus among professional forecasters is that Ameri ca's GDP will grow by 2% in 2012, below its underlying speed limit, and far too slow to bring the jobless rate down. That could prove a bit too gloomy. Unlike Europe, America has moderated the pace of its fiscal tightening, thanks to the temporary extension of the payroll-tax cut. Household-debt burdens have fallen, the housing market shows signs of stabil ity and the labour market is showing flickers of life. But Ameri ca's outlook, like Europe's, is darkened by political uncertainty. The payroll-tax cut has only been extended for two months, ensuring that the rest of the year will be punctuated with fiscal skirmishes, even as nothing is done to deal with America's medium-term fiscal mess, or to smooth the huge tax hikes and spending cuts that loom at the end of 2012 under current law. It is a recipe for crushing confidence and scaring off investors. History teaches that financial crises are followed by years of weakness. But some of the current pain is unnecessary. There is no excuse for the lack of clarity around the euro zone's future, nor for America's fiscal paralysis. Europeans do not need to compound the peripheral economies' problems with even deeper austerity. A more calibrated approach with more financing and more structural reforms makes far more sense. Inept politicians have placed a big burden on central banks, which will have to take more unconventional measures, such as quantitative easing (see page 62). That will ease the agony, but it won't make up for politicians' mistakes. It looks like 2012 will be the year of self-induced sluggishness. •
Hungary's government
To Viktor too many spoils Europe could do more to stop Hungary's erosion of democratic norms
;.
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"l J IKTOR ORBAN, Hungary's V conservative prime minister,
seems an unlikely villain. A fire brand dissident in communist . �. times, he had already served one term as a respectable if ,? somewhat populist prime minister before he led his Fidesz party back into power in 2010. Yet with the implementation on January 1st of a new Hungarian constitution, accompanied by a barrage of new fundamental laws, Mr Orban stands accused by his critics at home and by Hungary's friends abroad of steering his country back in the direction of a new autocracy. Mr Orban's supporters claim that the need to sort out an economic mess, clean up corruption and eradicate remaining traces of communism justify his radical approach. They main tain that, because Fidesz won the 2010 election with a two thirds majority, the government has a mandate to push through big constitutional changes, even if some of these ap pear illiberal and nationalist. Yet democracy is not just about
...
I .r.
winning elections. Even a two-thirds majority should not enti tle Fidesz to grab power over supposedly independent outfits such as the media regulator, the judiciary, the central bank and the budget and audit watchdogs, still less to twist the electoral rules in its favour (see page 25). These developments should be embarrassing to the Euro pean Union (Eu), whose proudest claim is to have entrenched democracy as well as prosperity on the continent. However, there are limits to what it can do about Hungary's behaviour. It has more leverage over countries that want to join the club than over those that are already members. In the late 1990s Brussels got the politicians in Slovakia, then a candidate coun try, to dump the nationalist Vladimir Meciar as prime minister. But an attempt in 2000 to ostracise Austria, an EU member, for includingjorg Haider's far-right party in government, failed. Still, the EU could do more, especially where Mr Orban's machinations threaten Hungar y's economic stability. As cen tral Europe's biggest debtor, Hungary desperately needs sup port from foreign investors, yet they are spooked by the politi cal risks that the government has itself increased. The EU and ��
The Economist January
10 Leaders �the IMF have pulled out of talks over a precautionary line of credit for Budapest because they believe Fidesz is undermin ing the independence of the central bank and national fiscal council. Not surprisingly, Hungary's credit rating has just been downgraded to junk, short- and long-term interest rates have been rising and the forint has been falling. Don't make the Berlusconi mistake
As well as refusing the country a credit line, the European Commission should take Hungary to the European Court of Justice over the new law that seems to contradict its treaty commitment to an independent central bank. If the Hungar ians were to ignore an adverse judgment, the commission should also be ready to invoke provisions in the treaties to sus pend a country's voting rights in Brussels. The commission is often hesitant about confronting national governments head on, but in this case it should hold firm.
7th 2012
European leaders should condemn Mr Orban's anti-demo cratic behaviour loudly and clearly. Yet Hillar y Clinton, the American secretary of state, has taken the lead in censuring him. The problem is that EU leaders, who nowadays hold sum mits almost every month, are often too chummy to be ready to criticise each other. Too few ever complained about Silvio Ber lusconi's grip on Italy's broadcast media, for instance. More should follow the example of Alain Juppe, the French foreign minister, who this week criticised Mr Orban's power grab. Mr Orban's fellow centre-right leaders, who include Ger many's Angela Merkel and France's Nicolas Sarkozy, have more leverage over him than other European politicians, and therefore a particular responsibility to take him to task. Fidesz is proud to belong to their umbrella group, and the biggest po litical family within the EU, the European People's Party. Threatening to chuck Mr Orban out of the EPP could be the best way of steering him off the path towards autocracy. •
Citizenship
In praise of a second (or third) passport Multiple identities are natural. Citizenship laws should catch up
S
EEN from the state's point of view, multiple citizenship is at best untidy and at worst a menace. Officials would prefer you to be born, live, work, pay taxes, draw benefits and die in the same place, travel on one passport only, and bequeath only one nationality to your offspring. In wartime the state has a unique call on your loyalty-and perhaps your life. Citizen ship is the glue keeping individual and state together. Tamper with it, and the relationship comes unstuck. But life is more complicated than that. Loyalty to political entities need not be exclusive: indeed, it often overlaps. Many Jews hold Israeli passports in solidarity with the Jewish state (and as an insurance policy), alongside citizenship of their na tive country. Teutons may be proud to be simultaneously Ba varian, German and European. Irish citizens can vote in British elections. The old notion of one-man, one-state citizenship looks outdated: more than 200m people now live and work outside the countries in which they were born-but still wish to travel home, or marry or invest there. The wrong response to this is political protectionism, with states forcing citizens to choose one nationality only, or ham pering their right to multiple passports. This seems an odd ap proach, given that citizenship is so easily acquired. In some countries it is, in effect, on sale. In others, such as America, it may be an accident of birth, with no conscious choice in volved. Rather than making a fetish out of passports, a better approach would be to use residence (especially tax residence) as the main criterion for an individual's rights and responsibil ities. That encourages cohesion and commitment, because it stems from a conscious decision to live in a country and abide by its rules. The world is gradually moving in this direction. But many states (mostly poor and ill-run) resist the trend and some rich democracies like the Netherlands and Germany are trying to curb it (see page so), offering a variety of excuses.
One longstanding worry, the security of the state, seems out of date in modern countries. Citizenship mattered in the days when defence relied on conscription. But modern war fare does not require armies of ill-trained conscripts. Few countries now rely on mandatory military service and those that do are mostly winding down the draft. Citizenship is no guarantee of loyalty: history's worst traitors have been true born citizens. Many of those ready to fight most enthusiastical ly for a flag will have gone through hell to get to their countr y. That leaves a host of political and financial problems that governments associate with non-citizens: they dodge taxes, grab benefits or retain retrograde habits from their countries of origin. So they sometimes do. But countries that want to clamp down on tax evasion, protect their national language, or deter such foreign customs as forced marriage, should do so through specific laws tailored to these ends, rather than relying on the symbolic power of citizenship. America's policy of taxing its citizens wherever they live seems especially perverse; it is an accountants' charter. As for benefits, residency is surely the key. Live and pay your taxes in a country-and you should then be treated in the same way as any other resident, and better than a citizen who has lived overseas and not paid up. Vote often
The thorniest problem for a residency-based system is vot ing-a right that has long been linked to citizenship. But there is room for compromise here. In France and Italy, for instance, citizens who live permanently abroad (often with dual nation ality) have voting rights. That makes sense. Conversely, coun tries should give long-term resident non-citizens the right to vote, at least in local elections. European Union countries al ready allow that to each others' citizens. But looking at multiple citizenship purely on the basis of costs and problems is wrong. It also encourages links between diasporas (often wealthy and well connected) and their home countries (usually poorer), to the benefit of both. Multiple citi zenship is inevitable and, at heart, rather liberal. Celebrate it. •
11
America's founders
S I R - Although informative in many respects, your article on religion in America at the time of independence ("The faithand doubts-of our fathers", December 17th) seemed to suggest that "freedom of conscience was first established" in post-independence Virginia. But in 1682 William Penn, the founder of Pennsylvania, provided for the absolute right of religious freedom in his framework of government for the new colony. As an English Quaker who had often been imprisoned in England for his writings and preaching, Penn was a passionate advocate for toleration in matters of belief, and made Pennsylvania a refuge for many persecuted religious groups of the 17th century, including Amish, Mennonites, Jews, Catholics, Huguenots and various Eng!ish nonconformists. Penn's thinking and writing about religious freedom and government were highly influential among the founding fathers, and were probably an inspiration forJefferson and the other Virginians who eventually secured the passage of a bill for religious freedom in their state in 1786. G REGORY GUY
Professor of li n guistics New York U niversity
S I R - In the debate about what religion meant for America's founding fathers Thomas Jefferson's rejection of Christian orthodoxy is a secondary issue. What matters is that Jefferson and his peers believed that a republic could not exist without virtue, and that virtue in turn depended on a belief that human beings are possessed of rights not granted by the state. As your essay recalled, Jefferson once asked whether a republic could be secure without "a conviction in the minds of the people that these liberties are a gift from God." This was not a one-off throwaway line. You should have looked anew at the De claration of Independence, written by Jefferson, which makes the same point: "We hold these
truths to be self evident: that all men are created equal, and are endowed by their creator with certain inalienable rights." This is our founding document, and Jefferson's words are a statement of our founding principle. JAMES TRACY Mendota Heights, Minnesota
S I R - It is true that religious conservatives see history as a "sacred narrative", but the interest of these revisionists is not history. It is instead a much broader attempt to realign facts to comport with ideology. This attempt threads its way into all aspects of public education in Texas. In 2009 the battle at the board of education was school science. As one of six appointed experts chosen to evaluate proposed revisions drafted by teams of science teachers, I found myself in a constant fight to preserve scientific accuracy in a heated debate about the teaching of evolution. The objections to evolution, it turned out, had little to do with the science behind the theory, but were instead focused on the incompatibility of evolutionary and biblical narratives. Since law forbids the teaching of creationism (intelligent design) in schools, the opponents of evolution, like the opponents of standard American history, resorted to attempts to reinterpret the evidence and the arguments, respectively, in order to challenge the validity of the former and rationality of the latter. Fortunately for good science, the Democrats and moderate Republicans on the board largely forestalled that effort, and the resulting standards retained, for the most part, scientific integrity. But it is a constant battle in Texas, as elsewhere in a country with a rising evangelical fervour that favours ideology over reality whenever the two conflict. To paraphrase a favourite saying, all narratives are true; some of them actually happened. RONALD WETHE RI N GTON Director Centre for Teachi n g Excellence Southern M eth odist University
Dallas
S I R - It is not true that "Maryland had always been a comfortable place for Catholics" at the time of independence. The Catholic Calverts founded Maryland and brought in religious freedom, but by 1700 Maryland's legislature, influenced by Anglicans from Virginia, had passed laws forbidding all Catholics from holding office, voting, attending mass, or receiving higher education. Rock Hall and other fine Catholic estates in Maryland had priest holes that hid clerics from the sheriff. Many sons of prosperous Catholics had to be sent to France to be schooled, including Charles Carroll of Carrollton, a signatory of the Declaration of Independence, and Thomas Bennett Willson, my own ancestor. This continued until the revolution, when Catholics in Maryland fought for liberty. You completely missed the irony that, by granting rare religious freedom, Catholics in Maryland suffered oppression, and were very far from being "comfortable". RICHARD COALE WILLSON J R
Palm Harbour, Florida
reflects the ebbing competitiveness and relevance of Europe and the rising imp ortance of the rest of the world. Such Eurorealism is supported by an overwhelming maj ority in Britain. Fully 54% of Britons say they want withdrawal if they can't get renegotiation, with just 20% resigned to the status quo. So, the real question for our European partners is: would you prefer to renegotiate with Britain, or lose her from the EU altogether? DOMINIC RAAB
Mem ber of Parliam ent for Esher and Walton
Dogmatic principles
S I R - You proposed that there are similarities between the effect of social networks during the Arab spring and the use of the printed word by Martin Luther sao years ago ("How Luther went viral", December 17th). If that is true, perhaps we should be concerned that the Arab spring may turn out to be similar to Luther's reformation i n other ways. Will Durant, a historian, once wrote that: It is instructive to observe how
Canada's carbon emissions
S I R - You painted a bleak picture of Canada's response to climate change by reporting that its carbon emissions increased by 20-4% between 1990 and 2009, and concluding that it will "eventually have to find something more than a do-next-to-nothing policy" ("Kyoto and out", December 17th). Are Canadians really doing next to nothing? During those same years Canada's population increased from 27.5m to 34m, a rise of 24%. Thus, carbon emissions per head have actually decreased. I RVIN G SALM E E N Ann Arbor, Michigan
A place in Europe
S I R - You suggested that I support leaving the European Union ("In with the out crowd", December 17th). I have consistently advocated a renegotiated British relationship, not withdrawal. Far from a bid for "splendid isolation", this
Luther moved from tolerance to dogma as his power and certainty grew .. .it was difficult for a man of Luther's forceful and positive character to advocate tolerance after his position had been made relatively secure. A man who was sure that he had God's Word could not tolerate its contradiction.
The unhappy fact is that Lord Acton was correct. Power really does tend to corrupt. Those admirers of the Arab spring who don't want to believe that the apparently democratic movement can be corrupted are simply living in a wished-for world, which never was and never will be. PALM E R HANSON Largo, Flo rida •
Letters are welcome a n d s h o u ld be a d d ressed to the Editor at
The Eco n o mist, 25 St J a m es's Street, London SWlA lHG E-mail:
[email protected] Fax: 020 7839 4092 M o re letters are available at: Economist.comfletters
Talib HQ
Bouquets and brickbats
The Tali ba n's decision t o open a " p o litical
Surprises, s h ocks and sport as our central
A handbook for tyranny How does one beco m e a di ctator? It's easy,
office" in Qatar to faci litate negotiati o n s
and eastern European blog delivers its
says A lastair S mith, t h e author of a n ew
suggests a change o f tack b y Paki sta n ,
an nual rou n d-up of the regi o n 's wi n n ers,
book on the subject. First, reward a coteri e
whose support i s n eeded for any talks. A s
losers, stars and bogeymen . Who wi ns the
o f devoted su p p orters who know t h ey are
t h e Afg han state conti n ues t o gain
coveted G o lden Swot? Which i nitiative
easi ly replaced; then tax everyone else
strength, it makes sense for the i n surgents
Crashed and Burned? A n d w h o will take the
hig h ly, s o that basic n eeds must come from
to make a deal sooner rath er than later
dreaded M ordor Dark Star?
the state . S h edding b lood also helps
Economist.comjnode/21542349
Economist.comjnode/2154 2 3 3 2
Economist.comjnode/21542299
United States: A new year in ethanol
Business education: Joining t h e executives
Culture: More than Murakami
America's least favourite distilled spirit
The demands of a full-ti me M BA are n othi n g
Japan's oth er artists are starting to get some
finally gets its comeuppance
compared with those of an executive M BA
attenti o n
Economist.comfnode/21542287
Economist.comfnode/21542318
Economist.comf node/ 2 1542 280
Africa: Music kept me alive
Travel: The push for clearer air fares
Economics: A layaway to save
After arrivi n g i n South Africa in 19 50, Jurgen
America's trans port departm ent takes steps
Not all sensi b le purchases make sense fro m a
Schadeberg began p h otographing the
to make air fares easier to understand
stri ctly financial perspective
country's diverse and divided culture
Economist.comfnode/21542298
Economist.comfnode/2 1542304
Economist.comfnode/21542348
Business: Masters of Management
Technology: Difference engine
Business: Baltic green sh oots
The lo ng-term evoluti o n of wireless
Animal spirits have lo ng been feeble i n the
Our management editor discusses the i m pact
co m m u nicati o n s mea n s that the days of the
European Union, but t h ey are vibrant i n o n e
of t he intern et a n d the rise of the e m ergi n g
fixed li n e are fina lly n u m b ered
o f its sma llest countries. In Estonia more
world o n busi n ess culture
Economist.comjnode/215423 20
than 14,000 enterprises registered in 2011.
Technology: Scan and deliver
i n dustrialised world Economist.comfnode/21542322
That's 40% more than in 2008, a record i n the
Economist.comjnode/21542338
Finance: Charting the year
The i nternet's u n official archivist presses the
An i nteractive s lideshow reviews 2011 in just
American gover n m ent to digitise and release
n i n e charts
its docum ents
Economist.comfnode/21542191
Economist.comfnode/21542135
Lin ks to all these stories can be found at Economist.comjnode/2 1542346
Executive Focus
13
President and
Chief Executive Officer
Internet Corporation for Assigned Names and Numbers www. icann .org ICANN
is
looking
for a
public
Degree Progra m mes a n d Career Servi ces
ICA N N
interest-minded
leader
with
H i gh ly compet i t i ve pac kage London
a
combination of financial management, diplomatic and organizational skills. He/she will report to, serve as a Member of, and work closely with the Board of Directors. ICANN's global public interest mission is to promote the stability and security of the Internet through coordination of its naming and addressing systems.
It is a global organization with over 1 30 staff
working in offices in the United States, Belgium and Australia, or
living and working across 1 0 other countries. Most employees work at the principal offices of the organization in Los Angeles, California. ICANN's mission touches all countries on every continent and is fulfilled by engaging with a global community of thousands of actively participating stakeholders ( governments, businesses, academia, NGOs,
technical operators and individuals), all of whom have a role in keeping the Internet secure, stable and interoperable . The I CANN website
provides extensive information about the organization and the way it works (www.icann.org).
The Role
Th Degn.:e Programmes and Career ServiCes teams play a v1 I role 10 the succ s of London Busi School Degr Programmes are responsible for des1gnang, rnarketmg and dehvermg the School"s portfoliO of Ma rs degree programm career SeMCes wor�s hand 10 hand with our ud nl to help them secure 1ntemshtp and full lime positiOn 1n London, Duba1 and many her 1nternahonal loca 10ns. l&a1Sifll! clo!. ly w1th mploy rs The individual
A m m r of the Schoors leadershiP 1 m. the Associclt Dean wori<.s closely w1th th Dean, manages a larg t m of 1 40 poopl_ , a substantial budget and rks closely wrth Faculty members Reportmg to the Deputy Dean (Programmes), you will be responsabl• for dtrecling your departmen to dnve strategiC de topmen , change rnanagem n clnd a d miC o rstght of the Mast rs programmes.
the global community; allocation of human and financial resources and support; Work closely with the Board in defining ICANN's vision and strategies for its realisation; Ensure
effective,
long-term
financial
stewardship
of
the
organization, with appropriate reporting.
Candidate
Solid record of public, corporate, and/or academic service at
•
Excellent management and leadership skil ls, positive and steady personality; Strong interest in the Internet, and understanding of its technical and governance ecosystem; Commitment to ICANN's mission and to values of integrity, trust, humility, technical excellence and public service; Ability
to
You w1ll have: • Degree qualified, fJf rerably w1 h an MBA • Expenence 1n Busmess Educa 10n preferable. With a deep un rsrand1ng of Mast rs degr programmes per nee o trategc and change mana ment Demonstr bt leadershiP across cross -funchonal eams • Comm1tment to cept10nal serv1c d ivery F1rst class communaca110n, bus1ness developmenllsales and commen:: lcl l skills • Ab1lrty to ga1n cred• lily w1 h a Wide range ol stakehold rs
•
high international level;
•
The department
and be its primary public representative;
Drive operational efficiency and excellence through appropriate
The
bus1ness schools, and currently n the number I poslboo glaba ly for our MBA nd Masters m F1nance dcgr programmes We hdv built an exceptiOnal r pu t10n. rounckd on ngorous r�rch dnd c I 'Ill teach1ng We are passiOnate about conttnlllng to be one of he top bus1ness schools m lh world and hav1ng a profound 1mpact on the w y the world does bus1ness
Provide trusted and motivating leadership to the organization,
Oversee and manage ICANN's operations to fulfil its mission for
•
The School london Busi� School 1s consl$lenU)' ranked amoo the top 10 &Jobal
build consensus and
exercise
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Benerrts
london Busmess School offers a Wide range of
neflts anclud•ng� contnbutory d1rect benef11 penston scheme, generous holiday entatl menl and on tie w1mm1ng pool and gym For a full list of bPnef ts pi ase vis1t our bs1t
Practised at interacting with different business, political and national cultures. The remuneration package will be commensurate with the scope and importance of the position.
ICANN
is an Equal Employment Opportunity Employer and does not
discriminate based
on
race,
col01�
religion,
national origin,
ancestry,
London experience. World im pact .
citizenship, marital status, veteran status, physical or mental disability, sex, sexual orientation, age or other protected characteristics and complies with all applicable laws and regulations.
For further information and to apply, please contact:
Bernard Tobin, Partner, at
[email protected].
:=·
•
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The Economist January 7th
BEH. ' J ) J'SO 2012
www. london.edu
14
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Dep uty Executive D i recto r, Prog ra m mes ( O E D)
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Com monwealth Foundation Deputy Di recto r,
Commonwea lth Fou ndation T h e Com mo nwealth Foundation, a n i ntergove r n m e nta l body that seeks to strengthen civil society, is seeking a new Dep uty D i rector to lead a n d develop this i m portant Com monwealth i n stituti on d u ri n g a pivotal period i n its h i story. Based i n London and report i n g to the D i rector, the Dep uty D i rector w i l l manage a ro u n d 1 0 staff res ponsi ble for the Fou ndati o n 's g ra nt-m a k i ng a n d progra m mes. This is an exciting opport u n ity to help increase the reach a n d i m pact of the Fou ndati o n . The s u ccessf u l ca n d i date w i l l need t o have experience o f work i n g a t a sen i o r level i n a n i nternational con text w i t h exce l l ent project m a nagement ski l ls.
•
Basic salary will be £67,00 0 p . a . , with exce l l ent benefits and a l lowances.
RenaudFoster ...,.,. '-'*"·••
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U N IT E D NAT I O N S U N IVERS ITY
Applications close on
i n tervi ews will be 1 9/20 M a rch 2 0 1 2 .
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Member
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DIRECTOR, D-1 Level
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f lh finJ.n -a I reportan
Trust
The Director is the chief academic and administrative officer of UNU·FLORES and has overall responsibility for the direction, organization, administration and programmes of the Institute under the direction of the Rector of UNU. The founding Director will also be responsible for facilitating the establishment of the twin institute partner in Maputo, Mozambique, and for building up an active collaboration between the two locations of UNU-FLORES in research, teaching and knowledge
•
l'rovid t hmcal mput. dvicl- and guJC!lmre on unllin bo.ud to WI n pott-nu.11 t u
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sharing.
Qualifications: a Ph.D. or equivalent in the natural sciences or engineering related to water, soil and/or waste management and a previous academic appointment at the level of an associate or full professor or equivalent.
Experience: A strong research background and publications in areas related to the issues of water, soil and/or waste management with a proven record of effective leadership and management experience at a senior level in academic or research institutions.
mbm<'CI \\li l h a practk-al ;anrl tvmg the pubhc tnt' _ l.
CLOSING DATE: 31 JANUARY 201 2
Candidates should possess excellent communication skills with fluency in English and at least one other official language of the United Nations. Demonstrates the ability to interact with colleagues of diverse cultural backgrounds and with political representatives and communities in both industrialized and developing countries with proven commitment to issues of human development and welfare. Applications from suitably qualified women candidates are particularly encouraged.
Please vi sit http://www.unu.edu/employment for the full job description, requ irements and application procedures. Application by email is highly encouraged.
ED I FRS The Economist J a n uary 7th
2012
Executive Focus
15
The World Health Organ ization (WHO) i n G e n eva seeks an
Executive Director
CIGI -
...,.. .. ....... .. ... · _,__ -- -
Executive Di rector (02)
Roll Back Malaria Partnership
The Cfntn for International Go� Innovation ( CIGI) befleves lhal be r fTICWlal g:>verrm:e ard a strQRJer global ea>oomy can unproye hes c1 J8lllle everywhere. led 11t expeoonced practilm!rs ard � academics CIGI � resean:h � polcy makers aro scholars logelher, � polcy deba',e ard genetates kleas foe m latetal � llllJliO� thai � JX*:Y aro poky m rs arouro tt.l 1'100;1 Tt.l need toe movallve global govema�a SOUilllS has ne been more acute and CIGI has nevet been ll'Ore refevcn, oc hal 10018 polertal than • does rtNt fi IS WI this e 1ng XI tnal CIGI IS seatdllng for a new ExecWve () ectof
(vacancy notice no.
HQ/1 1 /HTM/FT41 1 )
The Executive Di rector i s the g lobal Spokesperson for the RBM Partners h i p, provi d i n g leaders h i p, vision, a n d strategic d i rection. 5/he engages o p i n i on leaders from government, business and p h i l a nthropy i n ach ievi ng the objectives and targets of the G l obal Ma laria Action Plan, a n d i n ensuring that ma laria control and e l i m i nati on rema i n h i g h on t h e glo bal agenda. The Executive Di rector ga lvan ises concerted action a mong existi ng partners and motivates new partners and donors to contribute to the fight agai nst m a l a r i a . 5/he leads i m plementation of t h e G l obal M a laria Action P l a n in a rapidly evolving context through relentless h i g h-level advocacy and resource m o b i l isation; i ncreasing efficie ncy in the Partnershi p's activities; a n d im proving synergies with other health and development i n itiatives.
You
bnng to CIGI a bokl and transformalJve V1SM ard help lo SlreiJjlhen CIGI's profile am !rand as a ngttj rmv • e g t am hub where the academe am pJicy v.or1ds come lOge r to generate meastrable lnpad ttvough wnpwved global g:>vemarw::e You wen co abora1Jvely CIGrs dedc:ated Board st
UIShed F em oomesbc am ema IOI1al policy rna ers am harness the great paertal of CtGrs academe am resean:h partners An nspmg le�. a manager ard a Gtlampon lor pt.tilc polcy research. yoo ostet a cutlle thai ermnges llllOVatJVe lh � and rewatds a resh look a1 row rnproved klbaJ governarx:e am a strQRJer global ecoromy can shape a better l.tlfe YOtJ pelSOilal am praessxm a ty 111 CaMia am ahload serve CIGI m as WI 'lOti domestc ard gk>bal netwoos
Salary:
attractive salary package; i ncluding i nternationa l a l l owances, social security and statutory entitlements.
To a p ply, please visit the following website and com p l ete the on- l i n e a ppl ication: http://www. who. i nt/employment/vacancies
'/Otl resune am cover u you are reSied 11 1his ex� opjXlll.lnty please er 11 co �In! to I NatJ ard Eric laltvop of Odgers Ber Search at enc lattrop @odgelsbel1Kllson ca For more ormaOOil I*! or Enc 6 3-742·3211
Closing date for a p p l ication:
31 January 2012
SHELTER-AFRI Q U E "'""'-· 1.-nll .... _..
VACANCY A N N O U N CEMENT
Post of Executive Director of the APEC Secretariat
Asia-Pacific Economic Cooperation (APEC), with 21 Member Economies, is a unique cooperative, multilateral economic forum that has been successful in promoting regional economic growth through trade and investment liberalisation and facilitation, and capacity building since its inception in 1989. It has achieved this through open dialogue, consensus-building and voluntary commitments. The APEC Secretariat, based in Singapore, fulfils an important role in coordinating and supporting the APEC process, including policy, technical and communications services to an extensive range of stakeholders.
lll9'ENDOO' DIIIECTOR (2 POSrTOIS) � Il l I'IQIIInlll lb.L'IiV fQnce hiUan � br AMall GcMmnenls .., .. AtiC1rl � 8Wik cldcalld ill me.n.. kl hllulnO .., ... � kl Nra1 ClOI.I*'- n. Clllft .,_ � � 43 Alriarl autill. Ah:lrl OMic!lmlri en .., "" Alriarl IIH1ura Corpcntilln. n ordw ill eriln:e Ia arpcnt�gowmara. h ����� NelroiJI WOLi! IN ill JWO _.. ., .. b'd or 01ran tom ,... or .. ...,. llllll*lll.
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Details of the application process, qualities and qualifications, key functions,
COM'9ISA110H:
APEC is l ooking to recruit a dynamic Executive Director for a 3-year term (with the option for a 1-3 year extension) to lead the Secretariat from 2013. The successful candidate should be from an APEC Member Economy and must government and I or semi-government organizations), senior management
possess: strong leadership qualities, extensive public sector experience (in
experience; proven public communications skills; high political acumen; and multilateral work experience, preferably in trade or economic related areas. He/ she should hold / have held the rank equivalent to that of a senior public servant - Deputy Permanent Secretary or Ambassador or higher.
more ir*lrrNIIDn '* ill the
job description, accountability and information on APEC are available at
wwwapec org. A competitive expatriate package will be offered to the
successful candidate.
Applications should reached us no later than
.a.pe.c...o.rg
31 January 2012 via J:e.CJ:Ui.t@
or address to Executive Director, APEC Secretariat, 35 Heng Mui
Keng Terrace, Singapore 119616, Fax: (65) 6891-9690. Your application must indicate how your experience and qualifications match those required.
Only short-listed candidates will be notified.
The Economist January 7th
2012
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its skills and history, its networks of firms and the liquidity of its markets enough to keep it the world's pre-eminent interna tional financial centre, even as the weight of global economic activity shifts to Asia? Dividing the house
Death by a thousand cuts
The City is one of Britain's great export industries. Yet its continued success is far from certain
F 90,000
ROM high up in their towers some bankers look down on the Thames as it meanders past what was, in living memory, the world's busiest port. Six decades ago these shores saw a daily tide of vessels from the world's biggest merchant fleet, built in the world's most productive shipyards and supported by the world's major shipping insurers, bank ers and lawyers. Today, little of this great port remains beyond the colourful names of the docks and piers where steamers and clippers once moored: Canary Wharf, Canada Square, or the West India Quay. That Britain's most successful indus try-its biggest exporter, taxpayer and pro vider of well-paid jobs-has risen from the ashes of another is an accident of history. Yet it is also a reminder that market domi nance can be ephemeral. And it explains much of the anxiety in the City, as Lon don's financial district is called, that finan-
cial services are under attack. The City faces a deep downturn in many of its main markets as credit be comes scarcer and as Europe's crisis drags on, slowing investment and trade. It also faces an onslaught of regulation, some of it home-grown, such as Britain's proposals to make banks split their retail banking arms from their freewheeling investment banking business; and it is threatened by higher taxes on the rich and tougher rules on immigration. Even more regulation comes from abroad, whether it is the new rules agreed in Basel that will force all banks everywhere to reduce the leverage that inflated their profits before the finan cial crisis, or the rules being drafted by the European Union that seem suspiciously designed to hobble the City and to shift some of its activities to rival financial cen tres in Paris and Frankfurt. The City also faces a fundamental set of challenges: are
Regulators are naturally obsessed with the financial crisis of 2008-09. In Britain, fol lowing the Vickers Commission report, they want to construct a "ring-fence" around the domestic, retail arms of British banks that will separate them from the banks' international, wholesale and capi tal-markets businesses. These ring-fenced banks will contain the bits of banking that are essential to the health of the rest of the British economy, such as payment systems and loans to people and small businesses. They will have to hold much more capital than they do now, and will be barred from many sorts of risky or international busi ness. In short, they are meant to be boring and heavily regulated utilities with little scope for racy profits but also much less chance of blowing up. The bits of banking outside this ring fence will be allowed to take all sorts of risk, but will also have to prepare detailed "living wills" that will help bank supervi sors wind them up if they fail. The propos als are intended to ensure that British tax payers never again have to bail out a banking sector that dwarfs the national economy (see chart 1). At the height of the financial crisis Britain feared not only the collapse of banks that were too big to fail, but the terrifying risk of having to bail out banks that might have been too big to save. The proposed ring-fence has been furi ously opposed by many of Britain's biggest banks, which are seeing their own borrow ing costs rise steeply alongside the steady withdrawal of the implicit government guarantee that had underpinned much of their borrowing. The cost to banks of im plementing Vickers is likely to be signifi cant: perhaps £3.5 billion to £8 billion ($5.4 billion to $12.5 billion) a year, or even high er. Costs this big will probably force banks to trim their wholesale banking business es. Royal Bank of Scotland, now majority state-owned after being bailed out during the crisis, has largely abandoned its ambi tions to be big in global investment bank ing. Barclays, which has a big British retail bank alongside an international invest ment bank, may also find itself forced to cut back some of its trading businesses. British bankers protest that rules restricting the global scope of British-owned banks would dent London's ability to attract in vestment and maintain its share of the trade in equities, bonds and currencies. "How can we expect anyone to come here if we aren't here?'' grumbles one. Such complaints, however, may soon wear thin. Clipping the wings of British- ��
The Economist January 7th
Briefing
2012
� owned banks would force them to con tract. It need not, however, cripple the City as a financial centre. Most of its growth over the past six decades has come from in ternational banks choosing to do business in London rather than from the growth of British-owned banks. TheCityuK, a lobby group, reckons that 251 foreign banks have branches or subsidiaries in London and that over half of all British banking assets are owned by foreign banks. This "Wim bledon effect", in which Britain provides the courts but not necessarily the players, is especially pronounced in trading and other wholesale-banking businesses. Some 40% of currency trading and 46% in OTC derivatives (those not traded on ex changes) takes place in Britain (see table). Yet Barclays is the only British bank among the world's five biggest investment banks (by revenue from trading bonds, curren cies and commodities). Another of the top five is Deutsche Bank, a German bank with its headquarters in Frankfurt that conducts most of its trading in London, where it em ploys more than 8,ooo people. A swarm of rules from Europe A more worrying threat to London's finan cial district is posed by a swarm of new regulations being devised in Brussels and farther afield. Many of these rules will hobble all of European finance, notjustthe City; but because the City is the centre, it will suffer most. Most pernicious of all is a proposed fi nancial transactions tax, which would levy a small charge on transactions involv ing financial institutions based in the Euro pean Union. The tax aims to raise money (the EU thinks it could fill its own and na tional coffers with as much as €55 billion a year, some 60-70% of which would be col lected in Britain) while also discouraging the trading and speculation that many
I
Bank account Domestic banking assets as % of GDP Consolidated b y nationality o f headquarters, 2009
0
100
Britain Netherlands Switzerland Sweden Ireland Spain France Germany Portugal Australia Japan Italy
-
U nited States Source: HM Treasury
200
300
400
500
I
Britai n's financial i n dustry
London's Lead
• Market leader
Financial markets share by country, %
us
Britain Cross-border ba n k t�n_di �9. (!'1_or�h _2_011) . ... . . Foreign-exchange turnover (April 2011}
Japan
France Germany Hong Kong Singapore Others
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9 . .. 1. . 6 . . . . . . ·2· . ·E�·�;;�� ���;;;�ct�ci. ct�ri��ti��;; {2010} · · . · . 7 · · .. · · · 2 · · · · .. · · · · . · ·co ntracts· traded · i�t����t ��1�-� a:rc d�-ri��ti��; · e · · ·24 · · · ·3· turnover��� (April 2010} 8 s 7 6 2 � �d : ; �����t �� ;�t; F _(En_�_20_10}_ . . .. . .. .....
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European politicians blame for the finan cial crisis. The European Commission's own impact assessment reckons that it could force 90% of some sorts of trading activity simply to move from the EU, with the loss of hundreds of thousands of j obs. Such a tax could not be imposed on Britain, however, without its consent. Another European threat to London comes from proposals that would force clearing houses that handle euro-denomi nated derivatives to be based within a country that uses the euro. Combined with rules forcing OTC derivatives onto ex changes and clearing houses, these rules would threaten a market that Britain dom inates, to the benefit of centres such as Par is or Frankfurt. They are, however, such a blatant violation of Europe's single market that they are unlikely to survive. The more insidious threat facing Lon don's financial-services industry comes from a thousand smaller regulatory hur dles that will make it incrementally more difficult or expensive for financial firms to conduct business or enter new markets. The number of new rules is staggering, as is their reach. Some, such as Europe's pro posals to bar national regulators from forc ing banks to hold more capital than the European standard, would in fact weaken regulation of British banks. Others may prevent European fund mangers from buy ing the assets they choose, or prevent the use of ratings produced by the foreign branches of rating agencies. Many are also at odds with one another. One set of rules is intended to press banks to issue more long-term bonds. But another set of rules aimed at insurers, traditionally the biggest buyers of these bonds, will penalise them if they hold them. These sorts of muddles in Europe are nothing new. In the past Britain played an important role in improving much of Eu rope's financial regulation, mainly be cause the size of its financial markets at home means it has some of the region's most experienced regulators. Yet many
bankers in Britain now fret that a row in December 2011, when David Cameron, the prime minister, threatened to veto changes to EU treaties, has reduced its influence in Brussels. "Anything we argue for now will be ignored on principle," says one banker. The cumulative impact of all these rules is difficult to assess. But when they are combined with a 50% tax rate on higher incomes introduced in 2010, curbs on the immigration of skilled employees and reg ular tongue-lashings delivered against fi nance by politicians and policymakers, they will probably weigh against financial firms moving to or expanding in London when other financial centres beckon. On a rough calculation for The Economist by KPMG, getting out of London would be ad vantageous for high earners (see chart 2). Tighter regulation is not the City's only headache. It is also battling with falling de mand for its services in its main markets. The economic funk in Europe and America has meant that the industrialised world's e quity markets have been fairly moribund. The immediate outlook for trading, capi tal-raising, merger deals and for the fees they yield to City firms is the worst it has ��
I
The biggest take Take-home pay of high-net-worth individuals* $m 0.4
0.5
0.6
0.7
0.8
0.9
Hong Kong Dallas Kusnacht, Switzerland San Francisco New York Zurich Tokyo Berlin Paris
London Source: KPMG
'Married persons with no children earning $1m in salaried income, a $1m share portfolio yielding 2% and a $1m mortgage
1 8 Briefing
The Economist January
Britai n 's financial ind ustry
� arguably been for decades. Finance grew fat during the rich world's long credit expansion, and it is inevitably shrinking now that boom has turned to bust. The share of Britain's GDP accounted for by insurance and finance, including re tail services like arranging mortgages, has already dropped to just under 8% from above 9% in 2007. The number of people employed by the industry in Britain fell by 7% in the three years to the third quarter of 2011. More jobs losses are likely as the City adjusts to a gloomier economic outlook and the pressure on revenues. There is a broader threat to the City's status as a financial hub: it may struggle to remain relevant when the biggest engines of economic growth are half a world away. The shift in global economic power to the big emerging countries in Asia means pros pects look much brighter for the newer breed of financial hubs, such as Hong Kong and Singapore, than for established centres like London or New York. London has hung on to its top ranking in the closely watched Global Financial Centres Index published twice a year by z/ Yen, a consultancy. But the gap between London and New York, in first and second place, and Hong Kong and Singapore in third and fourth has narrowed in recent surveys. This has sharpened the anxiety among some City folk that the Asian up starts will not only capture the lion's share of the fast-growing demand for finance on their doorstep, but will also take a big bite out of London's established businesses. The City is not helpless in meeting this challenge. Incumbency is a powerful bar rier in industries, such as finance, where there are strong network effects. Trading at tracts liquidity and thus more trading. A steady supply of skilled financiers adds to the virtuous circle. The use of English around the world gives London an edge over other European centres. London goes to work in the middle of the global trading day: the City day starts just as Asia's financial markets are closing and its financiers are still at their desks when the New York market opens. That makes it an ideal spot for global asset managers. One-third of the £4.8 trillion of funds managed in Britain is on behalf of foreigners, according to TheCitym<. Lon don is also an ideal place to strike deals be tween parties from different countries, be cause of its highly respected body of commercial law and experienced judges. London's lead in foreign exchange, as well as in interest-rate derivatives, grew out of its reinvention in the 1960s and 1970s as an offshore centre for dollar deposit-tak ing and lending, after sterling's decline as a reserve currency. When the Bretton Woods system of fixed exchange rates broke down, London was quick to establish itself as a venue for trading currencies and hedg ing the risk of floating exchange rates.
II
The City sells out Trade surplus, % of GD P
3.5 3.0 2.5 2.0 1.5 1.0 0.5 0 1986
90
95
2000
05
11
Source: Thomson Reuters
Twice as much foreign-exchange trading goes on in London as in New York and To kyo combined. Having staked out this ground early and occupied it for so long, London would be hard to dislodge. All this suggests that finance is not quite as mobile as some of its practitioners like to pretend. So far, only a few finance out fits, mostly hedge funds or commodity traders, have moved (usually to Switzer land) to escape higher taxes, onerous regu lation and public hostility. The best hedge fund traders are often contrarian thinkers, who might benefit from distance from the crowd. Not every business is quite as foot loose. For outfits that raise capital and sell securities, it is much harder to operate effi ciently at a distance from clients and com plementary businesses. Still, even long-established clusters are vulnerable to challenge. Some City big wigs worry that a series of marginal deci sions to locate business in other financial centres will add up over a decade to a loss of critical mass. The financiers who make up the City's senior ranks, many of them from outside Britain, began their careers in London in the 1980s, around the time of the Big Bang reforms. They are now middle-aged, are at tached to London, have children in schools and may be reluctant to up sticks for the sake of a keener tax deal. But high taxes and restrictions on immigration from out side the European Union may prove a bar to a new generation of financiers seeking their fortune in London (though the City has secured derogations from the govern ment's cap on non-Eu migrants). If today's MBA graduates from Mumbai or Seoul are put off coming to London by high taxes, they are scarcely likely to consider the City as a place to expand when they eventually become the bosses. Why the City matters
Should Britain's policy brass worry if Lon don loses out to other financial centres? After such a catastrophic financial crisis, it is tempting to let the City go quietly into decline. Senior politicians have stressed the need to "rebalance" the economy away
7th 2012
from financial services towards high-end manufacturing, where Britain has a toe hold. The notion that the economy needs more real engineering and less of the illu sory financial sort appeals to many. But neglect of the City is at odds with the need for another sort of rebalancing. Domestic demand is likely to be scarce for many years in Britain as consumers tackle their debts and the government battles to narrow its budget deficit. That will leave the economy ever more reliant on export earnings. And finance is one of the areas in which Britain is a global leader. The City's competitive edge is reflected in Britain's balance of payments: the com bined trade surplus in financial services and insurance was 2.6% of GDP in the first three quarters of 2011 (see chart 3). If the ex ports of related business services-such as law, accountancy and management con sulting-are included, the surplus rises above 3% of GDP. This export prowess is unmatched by any other financial centre. New York has always been able to fall back for custom on the vast American market. But London, as the capital of a declining economic power, has for decades been forced to look outward for business. This means Asia's rise should be as much an opportunity as a threat. China, In dia and some other big emerging econo mies have immature financial markets, whereas Britain has a long-established ex pertise in finance. Economic logic suggests there ought to be gains from trade between the City and the emerging giants. Having established itself as a global hub for dollar financing, it makes sense that the City is bidding to be an offshore centre for the yuan, as it becomes a more serious chal lenger to the dollar as a global currency. London may well become a hub for this new trade. Yet the flow and wash of fi nance can be fickle. And the slow trickle of threatening regulation from abroad, as well as at home, may still in the end leave the City high and dry. •
19 Also in this section 20 British and American rowing 20 Justice for Stephen Lawrence 22 Nipping burglary in the bud 22 Burglars as consumers 23 Reviving the Big Issue 23 Telef6nica comes to London 24 Bagehot: Lessons from a race killing
F o r dai ly a n a lysis a n d debate on Brita i n , visit Economist.comfbritain
London's mayoral race
Back into the fray
The battle to run Europe's biggest city offers the same candidates as last time, but a starker choice
A don is stuck in 2008. The property
T TIMES, it can seem as though Lon
market is still buoyant and, at the top end, still hotly contested by the global rich. Costly projects, such as the city-traversing Crossrail and the Olympic games, have not fallen victim to austerity. And, in May, vot ers will be asked to choose between the same two mayoral candidates who were on the ballot four years ago: Boris Johnson, the Conservative incumbent, and Ken Liv ingstone, his Labour predecessor. Mr Johnson (pictured above) is the cur rent favourite. An opinion poll last Novem ber gave him a lead of 48% to 40% (Brian Paddick, the Liberal Democrat candidate and another 2008 retread, registered just 7%). The incumbent, who is known for his chaotic charisma, has run the city compe tently enough. Crime has continued to fall and minor improvements have been made to public transport, including a cy cle-hire scheme and the end of the hated "bendy" bus. Mr Johnson has also frozen City Hall's take from local taxes and lob bied for more infrastructure spending and a looser immigration policy. Although he has many fewer powers than an American big-city mayor-the central government and the capital's 32 boroughs collectively have more sway-Mr Johnson has asserted some new ones. He has turned himself into a spokesman for the City, as the finan cial district is known. In 2008 he sacked London's police chief. What he cannot boast is a single domi nating achievement, such as the central
London congestion charge that Mr Living stone pioneered. Mr Johnson hopes that his legacy will be a commitment by the government to build a vast new airport to replace Heathrow, which is stretched and difficult to expand. Ministers are warming to the idea, but slowly. Closer than you think
There is a pervasive assumption, even in the Labour Party, that the mayoral race is a foregone conclusion. It is not. London leans left-as big, diverse cities tend to. Mr Livingstone, knowing that voters often punish governments between general elections, aims to paint his rival as just an other Tory. And although the polls suggest that Londoners prefer Mr Johnson on pol icing, the economy and the Olympics, he trails on the vital issue of transport. A spate of strikes on the Tube has encouraged the view that Mr Livingstone, a machine poli tician and a man of the left, is better at deal ing with London's ornery unions. The for mer mayor is also promising to cut fares, which rose on January 2nd. Having strug gled to win support in outer London last time, he is campaigning hard outside his urban comfort-zone. The ideological fault line is clearer than in 2008. As mayor, "Red Ken" defied his caricature by championing the City and encouraging private developers. In his zeal for growth, and in his ease with London's role as a capitalist hub, he evinced much the same municipal philosophy as Mr Johnson. The crash, however, revived
some of the old religion in Mr Livingstone, who has been scathing about bankers and sympathetic to protesters occupying parts of the City. The mayoral election has implications for national politics. Victory for Mr John son would be another blow to Ed Mili band, whose performance as Labour Party leader is attracting criticism. Defeat for the incumbent would only be a passing nui sance for David Cameron, the Tory prime minister, but the effect on the future of his party could be profound. Mr Cameron pre dicts privately that he will be succeeded by either the mayor or George Osborne, the chancellor of the exchequer. But Mr John son's prospects rest on being seen as a win ner. Defeat at the hands of an ageing prede cessor (at 66, Mr Livingstone is 19 years older than the mayor) would be hard for even such an ebullient man to shrug off. The challenges facing the next mayor are immense. There are new threats to the City from domestic and European regula tion, as well as severe housing shortages and social problems of the kind exposed by the riots of last summer. But the prize is even greater: the chance to run Europe's biggest city and preside over a high-profile sporting event in the summer. Winning the Olympics marked Lon don's rebirth in recent decades as perhaps the ultimate global city. But it was also the culmination of another, less remarked upon story: the gradual migration of wealth and energy to the east of the city. Since the 1980s the dilapidated east has seen the redevelopment of the Docklands, new transport infrastructure and an influx of creative types to neighbourhoods such as Shoreditch and Dalston. The mooted new airport is to the east of the capital. Stratford, formerly a barren patch, is the site of the Olympic stadium and village. Both Mr Johnson and Mr Livingstone have helped to deliver that project. Only one will be able to present it to the world. •
20 Britain British and American rowing
Rowed scholars
The Economist January
7th 2012
Stephen Lawrence
Crime and consequences How a racist murder reshaped English law
The transatlantic traffic in rowers is increasingly two-way
PECTATORS at the annual Oxford and Cambridge boat race on the Thames each spring are used to seeing a hefty dol lop of giant Americans in each crew, many of them postgraduate students. But the tide has ebbed. The Oxford and Cambridge squads of 16 rowers apiece, from which the top "blue" boats and the reserve crews (Isis for Oxford and Goldie for Cambridge) are drawn, have now been chosen from a pool of 24 rowers from each university. There are only four Americans apiece in the Ox ford and Cambridge squads. Compare that with the Head of the Charles, a time-trial event rowed in Cam bridge, Massachusetts. This is the biggest rowing event in the world, with more than 8,ooo competitors each year. Last autumn the winning Harvard heavyweight crew of eight included three Britons-two from England and one Scot. The senior and ju nior men's rowing squad at America's old est university had fully 13 rowers from Brit ain out of a total of 58. A small country is pulling well above its weight. One reason for the depleted American contingent on the Thames is the imminent Olympics. World-class rowers tend to stay at home to j oin their national teams aim ing for global glory (although America's Olympic rowing performance has so far been poor, partly because money is lack ing). As for the British contingent in Ameri ca, that is a matter of talented supply meet ing deep-pocketed demand. Rowing in English private schools is of ten excellent. But at university level, with the exception of Oxbridge, Oxford Brookes, London and Durham, British rowing is not up to much. Ivy league col leges such as Harvard, Yale and Cornell en joy far better facilities and coaching-and results to match. American university crews have won the college event at Hen ley in eight of the past 11 years, with only one British victory. Ivy League rowing coaches cruise the boating tents at Henley each summer, talent-spotting. They now have a good pitch. In Sep tember fees in many English universities will almost triple to £9,000 ($14,000). To gether with a cap on the numbers allowed into British universities, this is encouraging students to look abroad. Maastricht Uni versity in the Netherlands, which runs many courses in English, has reported a large increase in applications from Britain, with 400 applying compared with only 35 in 2010. British applications to Harvard
S
Tbeen the unsolved crime of a gener HE case of Stephen Lawrence has
ation. The black teenager's murder on the streets of London in 1993 was followed by gross investigative errors, an inquiry into police dealings with racially-motivated crimes, the overturning of legal tradi tion-and, finally, justice. On January 3rd two white men were convicted of mur dering Mr Lawrence. Gary Dobson and David Norris were sentenced to 15 and 14 years in prison, respectively. The sen tences were relatively short because the men were under 18 at the time of the killing and because tougher penalties for racially-aggravated crimes were not yet on the books. Mr Lawrence was set upon by a gang thought to have comprised at least five men. A baleful catalogue of police errors followed. Officers took inadequate notes and treated Duwayne Brooks, a vital witness, shabbily. Although names of key suspects were known to the police within 24 hours of the murder, no dedi cated operation was set up for four days. Evidence was contaminated by sloppy police work. Surveillance of gang mem bers failed to yield results.
Tough cookie, and man with hat rose by a third between the last academic year and the present one. Going overseas to study is not necessar ily cheap. Harvard costs about $59,000 (£38,ooo) a year ali-in, including tuition fees, bed, board and books. But with en dowment funds of more than $27 billion, it offers generous scholarships to students from families on low and middling in comes. Harvard entry is on a "need-blind"
In 1994 the Crown Prosecution Service concluded that there was insufficient evidence to bring charges. The victim's parents, Doreen (pictured) and Neville Lawrence, embarked on a private prose cution. The court saw a covert video shot by the police, showing some of the men faking racial violence. But the case failed for want of more conclusive evidence. Three years later the then Labour government ordered an inquiry under a retired High Court judge, which charged London's police force with "institutional racism" and found that it had devoted insufficient resources to investigating a young black man's death. Police practice, recruitment and training were over hauled and anti-discrimination laws strengthened. The doctrine of "double jeopardy", which prevented people from being tried twice for the same offence, was eroded. Trials can now be repeated if "new and compelling" evidence emerges. That-and fresh forensic tech niques identifying tiny amounts of fibres and blood-secured the two convictions. Police hope that the men will reveal more about the role of other gang members. The case has also highlighted the increasing use of the old legal doctrine of "j oint enterprise", which can be applied when several people participate in an attack. Because English law does not distinguish between different degrees of murder, the clause is being used to secure convictions in cases involving gang attacks. "You could say it is harsh where minors are involve d-or that these gangs know what they are out to do, and the law should acknowledge that," says Michael Turner Q C, a senior criminal lawyer. Since Mr Lawrence's death, officers have changed the way they handle cases involving a possible racial motive. Police in north-west England flew quickly to India this week to talk to the parents of Anuj Bidve, a student killed in Salford on December 26th. That is small consola tion-but a kind of progress.
basis largely on the result of aptitude tests, with no trace of the sports scholarships that American state colleges use to lure stu dents. Once accepted, about six out of ev ery ten Harvard students receive some sort of financial support, and this applies equally to Americans and foreigners. A tal ented British rower may have little to lose, and could even gain, from heading across the pond. •
A
summary of an Economist Conferences webinar, sponsored by Royal Mail dvertising is changing. New technologies
"It's so dangerous to forget what we already know,"
have made consumers both better
says Hamish Pringle, strategic advisor to 23red, a
informed and harder to engage. While
creative agency. "And what we already know is that
traditional "one-to-many" mass
average television viewing figures in this country
marketing tools like TV and newspapers remain
are at an all-time high . " The clear message is that
important, many of today's marketers feel that their
advertisers ignore TV at their peril. "The TV advert
reach and influence have declined significantly.
isn't dead," says Mr Pringle.
The switch has left them with a difficult problem. In a world saturated with media platforms
We know effective advertising requires a mix of the old and the new-but this doesn't answer
and marketing messages, where attention spans
the question of how marketers can engage
are short and consumers increasingly cynical,
with audiences more deeply. For that, experts
how can companies capture the imaginations
are increasingly looking to insights from the
of their audiences?
behavioural sciences and thinking about how they
According to the experts who participated in
can harness these to influence consumer decisions.
Economist Conferences' "How to mean something"
Connecting with a customer's emotions or values
webinar, the answer lies in combining the old
seems to be the key lesson here. "The research has
and the new. Companies need to embrace online
shown pretty conclusively that an emotional platform
and social media, but mix it with more traditional
is the most compelling one for a brand," says Mr
forms of advertising, like television and print. "It's
Pringle, arguing that businesses need to be more
the rule of 'and'," explains Steve Barton, global
switched on to the value of behavioural insights .
business partner at Ogilvy, an advertising agency. "One doesn't replace the other. " He thinks that
But this more scientific approach isn't attractive to everyone. Patrick Collister, founder of Creative
businesses "need to be very open-minded and apply
Matters, is particularly concerned. "We seem to
some direct marketing nous" by continually testing
be moving back to Vance Packard and The Hidden
and refining their strategies.
Persuaders. If we're able to map people's behaviour
That said, the experts are genuinely excited about
so accurately that we're able to start 'herding'
the power of emerging media channels, particularly Facebook. "Sites with a 'like' button get 300% more
them ... That makes me really uncomfortable."
referral traffic," says Mr Barton. If true, that kind
then, the marketing industry looks like it will need
of boost makes social media impossible to ignore.
to confront ethical challenges as well as creative
"It will evolve our business model," explains Martin
and technological ones. That might be tougher than
In its effort to go on engaging with audiences,
Troughton, marketing director at Anglian Home
some imagine. As Martin Troughton says, "there's a
Improvements. "We've got to embrace it."
plethora of opportunities, but [businesses] need to
But advertisers should take care not to abandon the tools they know best in the rush to adapt. Find out more at www.mmc.co.uk/gettheknowledge
be very, very careful. You can build a brand for years, but you can also destroy it incredibly quickly. "
Sponsored by:
22 Britain Nipping burglary in the bud
On your marl<
With theft seemingly on the increase, so are attempts to prevent it
RIMINOLOGISTS love to argue about
C whether acquisitive crime inexorably
rises in hard times. Statistics helpfully pro vide evidence both ways. According to the British Crime Survey, domestic burglary in England and Wales grew by 10% in the 12 months to June 2011. According to police re cords, it fell 3% (though other sorts of theft did rise). What all can agree on is that bur glary's long, strong decline over the past decade and a half has at least slowed. So attention is turning to various ways of deterring burglars, including ever-fanci-
The Economist January er alarms and a new interest in fierce sounding hounds. But alarms are only as good as the police who respond to them quickly, and a 20% cut in force budgets is likely to thin their ranks. Dogs have an em barrassing habit of fawning on intruders. Against this background "forensic marking" with chemical lacquers and gels and greases containing unique codes is coming into its own. Some kinds can be painted on j ewellery or iPods to identify their owner; others can be sprayed on the crooks who try to steal them. Among the firms selling these products, rivalry is fiercest between Selectamark Se curity Systems, many of whose formulae include DNA, and SmartWater Technol ogy, which uses metal-oxide combinations that are invisible to the naked eye but glow yellow under ultraviolet light. Both firms say business is booming. Selectamark's sales (including those abroad) have in creased by 40% in two years, according to
Burglars as consumers
Not worth nicl
Wminds turn to the contents of other HEN nights are long, criminal
people's homes: in London, burglary peaks in winter. But what to steal? Over the past few years, criminal markets have evolved, leading to dramatic changes in burglars' targets. "Years ago, you'd see a man in a pub selling CDS, " says Eric Phelps, a detective in London's Metropolitan Police. "Not any more." Indeed, thefts of entertain ment products like CDS and DVDS have collapsed in England and Wales, to the point that they are now taken in just 7% of all burglaries in which something is stolen (see chart). They are now targeted no more frequently than are toiletries and cigarettes. The reason is the falling value of physical media products. The average price of a CD album in Britain fell from £10.77 to £7.32 between 2001 and 2010, according to the BPI, a trade group almost a halving, in real terms. And the dishonest get their music and films free, via the internet. DVDS are under pressure not just from piracy but also from video on-demand services. Computers, on the other hand, are both valuable and increasingly portable: they are now taken more commonly than anything except purses and wallets. Mr Phelps says that gold jewellery has also become more popular as the value of that metal has soared. The high-carat gold favoured by people of Indian de scent is especially tempting. That helps to
explain why heavily Indian London boroughs like Barnet, Brent and Red bridge suffer an unusually large number of burglaries (another reason is that they are close to fast roads along which bur glars can make a swift getaway). "These sorts of crimes are regarded even by criminals as the preserve of the desperate," says James Treadwell, a Leicester University criminologist. Bur glars are generally drug-addled, unskilled and opportunistic. Yet they are capable of making economic calculations. And their behaviour reveals something about the state of the media business. Hol lywood and the record labels believe they can hold off the threat from tech nology, both legitimate and illegitimate, and maintain the value of their products. Britain's burglars disagree.
Technology's triumph Items stolen i n burglaries, % 40
30
20
10
0 2003
04
05
06
07
08
Financial years beginning April
Source: British Crime Survey
09
10
7th 2012
A paradise that's trouble-proof Andrew Knights, its managing director. SmartWater's Phil Cleary says turnover has doubled in the same spell. Both claim their methods work. Smart Water trumpets a 100% success rate in ob taining 1,000 convictions over its 16-year existence, whereas Selectamark prefers to dwell on crimes prevented. Alan Given, a policeman who headed the Nottingham Crime and Drugs Partnership until 2010, says that domestic burglaries fell dramati cally after the city deployed SmartWater in a big way. Other cities have similar tales. But chemicals are only part of the strat egy; publicising their use to frighten bur glars off is crucial. Buildings are covered with warning posters. Secondhand stores and scrapyards are handed gear to look for signs of theft. Police scan unsuspecting of fenders of all stripes for the telltale yellow. A barrage of ads and YouTube clips ram home the message, true or not, that crooks cannot hope to escape the long arm of fo rensic marking. Word gets around. Over rm households use Smart Water's services. Now other customers are loom ing larger, among them charities. Paul Ozanne, the national recycling co-ordina tor for the Salvation Army, says thefts of clothes from bins have soared. He reckons his outfit loses 2,000 tonnes a year, mainly to gangs reselling the stuff in eastern Eu rope. With SmartWater's help, his charity has resisted the rising national trend and secured convictions. Where forensic marking is really win ning converts these days is in fighting met al theft. Spurred by the rise in world prices, thieves are ripping copper and lead from railways and telephone networks, water and gas mains, churches and war memori als. Thames Water is just the latest big firm to turn to SmartWater. Network Rail is us ing its services in parts of the West Mid lands, and metal theft is said to be falling there. Ecclesiastical Insurance insists that the 16,ooo Anglican churches it covers use SmartWater and claims it has helped to se cure convictions. If acquisitive crime really does rise along with unemployment, the forensic squad will be there waiting. •
The Economist January 7th
Britain 23
2012
The Big Issue magazine
Telef6nica connects
Help the homeless!
London calling A Spanish digital venture in London
ELEFO NICA, Spain's dominant
An embattled social enterprise seeks to revive its fortunes
D
ANIEL CROITORU did not find Lon don's streets to be paved with gold when he arrived from Romania in 2007. Neither did he find well-paid work. Within weeks he was sleeping rough in a park. A stranger drove him to a day centre where staff gave him a hot meal and a change of clothes, and allowed him to wash. There he learned about the Big Issue, a weekly magazine that he could buy cheaply and sell for profit. Three and a half years later, Mr Croitoru lives on the income he gener ates from selling the magazine. Billed as "a hand up, not a handout", the Big Issue was founded in 1991 with the aim of helping the homeless to work. The people who sell it must show that they are sleeping rough or living in accommoda tion that they have no right to remain in, such as a friend's flat. They buy copies of the magazine for half the cover price and sell them, pocketing the difference. Alas for its vendors, the Big Issue is struggling along with many other maga zines and newspapers. A lacklustre econ omy has compounded the woes of an in dustry battling to compete with the internet for advertisers and readers. The launch of free newspapers has further hobbled the paid-for variety. Since 2007 the circulation of the Big Issue has fallen from 167,000 to less than 125,000. Meanwhile the rise of internet shop ping has lured potential magazine-buyers away from the high street. Slick "chuggers" bounce people who do venture out into donating to charity, and make them less sympathetic to dishevelled rough sleepers, reckons john Bird, who co-founded the Big Issue. There is also growing competition between vendors, partly because more people are homeless. Local authorities deemed 46,550 households to lack a roof of their own in the year to September 2011, up 14% on the previous year. Broadway, a charity, reports increasing numbers sleep ing on the streets in London: more than 2,000 at the last count. Sellers from eastern Europe-who ac count for 30% of rough sleepers in the capi tal, according to Broadway-hawk the Big Issue in fair weather and foul. In winter, when shoppers tend to be at their most generous towards the homeless, they are joined by British and Irish vendors who sell the magazine only for a few months of the year. That raises tensions: Mr Croitoru says he was threatened by another man who sells on the same street.
The Big Issue plans to raise its game. A relaunch scheduled for January 16th will see a return to a campaigning style of j our nalism, which the magazine shed-along with many of its journalists-a decade ago in an effort to trim costs. It has recruited new columnists and will add political analysis and comment to its existing staple of arts and culture. Celebrity stories will be less prominent. Vendors have complained that such fluff attracts only opportunistic buyers and, in some cases, have refused to buy editions that they thought they would struggle to sell. The magazine will also try to build an online community, with more space for reporting by its sellers. The cover price will rise, too. It is not clear whether this will be enough to revive the struggling title. Publi cations prosper when they occupy a niche in which they excel. For the Big Issue, that opening is to appeal to those who are inter ested in the plight of rough sleepers and the poorly-housed. And their number does not necessarily increase in step with the homeless population. •
Marketing will be improved, too
Ttelecoms firm, has two problems.
One is that the Spanish economy is in a mess; the other is that most of its busi ness is old-fashioned fixed-line telepho ny. It moved away from that generally shrinking business in 2005 when it bought the 02 network, formerly known as BT Cellnet, based in Slough. Now it is moving deeper into Britain. Telefonica is forming a new digital-services division, with a 300-strong headquarters in Lon don and offices around the world in places like Silicon Valley, Sao Paulo, Tel Aviv and Madrid. The firm recently found office premises in Regent Street in the heart of the West End, and expects that staff will move in by summer. Inward investment into Britain usual ly consists of the opening of new fac tories (think ]apanese carmakers, led by Nissan) or, more often these days, the takeover of famous British names like Cad bury by foreigners, accompanied by gnashing of teeth about pillars of native business falling. So for a country hungry for high -tech start-ups it is gratifying to see foreigners creating one in Britain. Telefonica's happy experience own ing 02 is one reason for the move. An other is that Madrid and Spain are not natural high-tech hubs, whereas London has a burgeoning cluster based around "Silicon Roundabout" in Shoreditch,just north of the City of London. Telefonica says this cluster contains many firms it would be interested in working with or even buying. It also houses a pool of talent on which the company can draw to boost growth of its digital businesses such as its Jajah internet phone activity, based in Silicon Valley and Israel, or its social-networking and internet-portal operations, based in Brazil. London has other advantages. Britain is a good place to test new digital pro ducts, having lots of technology early adopters and being neither too big nor too small. Spotify, a fast-growing music streaming service created by Swedes, was incubated in London. And Telefon ica points to London's huge, forward looking media-buying activity. The internet attracts 27% of all advertising spending in Britain-the highest share anywhere. Rebalancing Britain's bat tered economy away from its supposed over-reliance on banking and business services may be a long haul. But high tech investments like Telefonica's are an encouraging step along the road.
24 Britain
Bagehot
The Economist January
I
7th 2012
A murder that change d Britain
A country with a race problem has learned from a racist killing
Tstudent stabbed as he waited for a London bus, lasted less
HE assault that killed Stephen Lawrence, an 18-year-old black
than a minute. That was in 1993. On January 3rd, after a campaign for justice lasting longer than her son's life, Doreen Lawrence heard a jury find two men guilty of the racist murder of her son. Mrs Lawrence declined to celebrate as she emerged from the Old Bailey. Racism still exists in Britain, she told reporters. It has taken 18 years to convict her son's killers because the police failed "so miserably" to do their j ob. Yet high-profile supporters of the Lawrence family, drawn from across the political spectrum, take a much more upbeat view of the case, and its impact on Britain. January 3rd was a "glorious day", declares the Daily Mail, a conservative-leaning tabloid which-at one point in an admira bly dogged campaign to see the teenager's suspected killers in court-splashed five men's faces and names across its front page, daring them to sue if they were not murderers. It was a glorious day for Stephen Lawrence's parents, the Mail insists, and for Brit ish justice, the police and the press. Jack Straw and David Blunkett, who as ministers in the previ ous Labour government rewrote ancient laws and shook up po lice procedures in response to the Lawrence case, say that the family's campaign has made Britain "a better place". There has been praise, too, from the Metropolitan Police in London. The force was branded "institutionally racist" by a 1999 inquiry into the Lawrence case headed by Sir William Macpherson, a retired judge, who recommended scores of reforms. Those changes have "vastly improved" police work, claims the force's acting deputy head, Cressida Dick: a terrible killing's legacy has been a "force for good". For Trevor Phillips, boss of the Equality and Human Rights Commission, a watchdog, the dignity of Stephen Law rence's parents played a "vital part" in changing attitudes to race. It all makes for a painful puzzle. On the one hand the Law rence family, still wary and worried that racism has moved un derground. On the other, their admirers across the Establishment, thanking them for helping to transform Britain for the better. One key to the puzzle is the asymmetry between personal and public grief. Mrs Lawrence's son is dead, she reminded re porters. "How can I celebrate when my son lies buried?" Another is that each side is talking about a different thing. Mrs
Lawrence is offering an answer to the question: is race still a pro blem in Britain? She says, accurately, that it is. In contrast, those heaping praise on the Lawrences are addressing separate, if relat ed questions: have public attitudes to race changed, and did the Lawrence case play a part? The answer is yes, twice over. Caution is needed. Britons have not become swooning con verts to internationalism. Transatlantic Trends, a big annual opin ion poll, found the British unusually hostile to immigration in its latest survey, with 68% of Britons seeing it as more of a problem than an opportunity, far exceeding the gloom found in France, Spain, Germany, Italy or America. Moreover, measures recommended by the Macpherson in quiry to combat official racism remain controversial, especially on the right. That almost 40,000 hate crimes were reported in 2010 strikes many conservatives (and police officers) as proof of political correctness run amok rather than national wickedness. Yet something simpler and bigger has changed. Respectable, middle-class Britishness-a rather embattled identity that feels under threat from all manner of coarse and alien trends-now in volves at least an aspiration to be colour-blind. Overt, un ashamed racism, even when far less vicious than the sort dis played by Stephen Lawrence's killers, has become indecent. Supporters of the Lawrence family's campaign duly stressed that the murdered boy, while "not p erfe ct" (in the words of a fam ily lawyer) was studying for school-leavers' A-level exams and dreamed of being an architect. His parents-who emigrated from Jamaica in the 196os-were described as hard-working, married church-goers. Their children played tennis, it was reported. In contrast, the press talked of the thuggish backgrounds of the young white men suspected of killing Stephen Lawrence, and their family connections to local gangsters. Police surveillance tapes, later made public at the Macpherson inquiry, recorded the men expressing violently racist beliefs and fantasies. At that point, argues Mr Phillips, public opinion jumped past race. Britons saw the Lawrence family as exemplars of traditional values of faith, work and ambition, under assault from an ugly face of modern society that was "vulgar, violent and vicious". It hardly mattered that the ugly face was white. Being British: everyone's invited
Britishness (as opposed to the more tribal Englishness) has be come an inclusive identity, based more on values than ancestry. This could be seen during the riots in August 2011, when three young Muslims were killed in Birmingham. Tariq Jahan, the fa ther of one of the men, successfully urged an angry crowd, in the name of Islam, to avoid revenge attacks. Mr Jahan was hailed by politicians as "the true face of Britain". The press warmly agreed. None of this allows for complacency. Mrs Lawrence buried her son in Jamaica, convinced a British grave would be desecrat ed-as a memorial plaque in London has been, several times. Brit ain "didn't deserve to have his body", she told the BBC recently. Such pain is hard to gainsay. But public opinion was shifted, durably, by the contrast between the Lawrences' decency, the vi ciousness of their son's killers, and the casual incompetence with which police handled the death of a young black man in 1993 London. That public dismay left the criminal justice system on trial and scrambling to reform. As a result, the Lawrence family and Britain have an unbreakable bond. • Economist.comfblogsfbagehot
25 Also in this section 26 Germany's president 26 Austerity in Spain 27 Terrorism in Italy 27 Bosnian politics 28 Turkey and the Kurds 29 Charlemagne: A gloomy 2012
For daily analysis a n d debate on Europe, visit Economist.comfeurope
Hungary's government
The long march of Fidesz B U DA P EST
Both inside and outside Hungary, alarm is growing over the ruling party's steps to entrench its powers
I olution. Twice in a row the Hungarian T SEEMS a strange sort of new year's res
government has begun the year courting controversy with what critics see as dan gerous deviations from democratic norms. In 2011 it was forced to begin its six-month presidency of the European Union defend ing a media law that officials in Brussels thought was a threat to press freedom. This year has begun with another ticking-off from the EU, a string of condemnatory newspaper editorials and a large public de monstration in Budapest. Hungary and Brussels are locked in a stand-off over a new law that the Euro pean Commission believes opens the door to political control of the central bank, which is forbidden under the EU treaties. Another bone of contention is a set of fis cal laws that enshrine a flat personal in come-tax rate and cap public debt, thus re ducing the ability of future governments to raise revenue. These laws were passed at the end of last month, despite requests to reconsider from, among others, the EU, the IMF, the European Central Bank and the United States. Some adjustments were made, but the most dubious points remained: the ap pointment of a third central-bank vice-go vernor, to be recommended by the prime minister, and the expansion of the Mone tary Council, which sets interest rates. An other new law allows for the merger of the central bank with the state financial regu-
lator and the demotion of the central-bank governor. Andras Simor, who holds that job, said the laws amounted to a total state takeover of his institution. At the same time as it was attracting in ternational opprobrium the Hungarian government was pursuing talks with the EU and IMF over a precautionary credit line (after having turfed the IMF out in 2010). Faced with such a situation, sober governments would surely pause. Not Hungary's. Mr Orban maintains iron disci pline among the deputies of his conserva tive Fidesz party, which has a two-thirds maj ority. Parliament has become little more than a rubber-stamp. The consequences have been swift. The EU-IMF talks have been suspended as offi cials in Brussels pore over the new bank laws. Tamas Fellegi, a government minis ter, will meet IMF officials in Washington, nc, nextweek, but the best he can hope for is talks about talks. For proper negotiations to resume the central-bank and fiscal laws will probably have to be reopened. When Fidesz took office in May 2010 it inherited a mess from its Socialist prede cessors. Eight years of left-wing rule had seen corruption soar as the political elite used its contacts to enrich itself. The east ern half of the country was left to rot, opening the door to Jobbik, a far-right nationalist party that some opinion polls now place second behind Fidesz. But for all its talk of national renewal Fi-
desz has little to show for its 18 months in power. The forint has slid to record lows; two rating agencies have downgraded Hungary's public debt to junk; bond yields have topped 10%. Unemployment is nudg ing n% and the labour-force participation rate is among the lowest in Europe. Yet these are not realities the government re cognises. Gyorgy Matolcsy, the economy minister, has declared war on the IMF even as Hungary seeks help. The secret services have been ordered to investigate attacks on the currency. Officials condemn the central bank's calculation of Hungary's national debt as against the country's interest. Many critics think the new laws are just the latest examples of Mr Orban's attempt to capture the state on behalf of Fidesz. Hungarian democracy lacks checks and balances, say European and American dip lomats. Fidesz has changed the electoral boundaries in its own favour. Its allies have been appointed to almost every inde pendent institution, including the presi dency, the State Prosecutor's Office, the State Audit Office and the Media Authority. The government has reduced the jurisdic tion of the constitutional court and sacked scores of judges. Officials say that the new appointees will exercise their mandates in dependently. But they cannot explain why it is only friends of Fidesz who can be safe ly entrusted with such responsibilities. The opposition decries the govern ment's relentless centralisation as a step to wards what it calls the "Putinisation" of Hungary. That seems exaggerated. Fidesz won power in a fair election. Opposition politicians are not imprisoned or beaten up. The non-state media are scathing about the government. Borders remain open. And tens of thousands of protesters were able to gather freely on January 2nd in a peaceful demonstration outside Buda pest's Opera House against the country's ��
The Economist January
26 Europe � new constitution, which had come into force a day earlier. But some irritants have paid a price. Klubradio, a liberal radio station, has lost its broadcasting frequency to a new outfit promising more Hungarian music and will soon close. Index.hu, a popular online news portal, has been banned from report ing on parliament for "disrespecting" it. Dopeman, a rapper, is under criminal in vestigation after releasing a song that uses lyrics from the national anthem. What about opposition within Fidesz? The more enlightened members of the party's leadership, such as Tibor Navra csics, the deputy prime minister, have been co-opted and remain silent. Zoltan Pokorni, a forward-looking former educa tion minister, has been sidelined. "Viktor has been the boss for 20 years," sighs one party insider. "Nobody has ever told him what to do." Mr Orban's two closest asso ciates appear to be Arpad Habony, a mys terious communications adviser who has no party or government position and who is credited with manufacturing the prime minister's cocky man-of-the-people im age; and the hapless Mr Matolcsy, who is charged with implementing Mr Orban's (or perhaps Mr Habony's) ideas. •
German politics
Lone Wulff B E RLIN
The president tries to ride out a home-loan scandal
r-y1-I E German news media do not agree .l about much. But they have been al most at one in attacking Christian Wulff, the federal president, as the year ticked over. His sin, in their eyes, was not just to have borrowed €5oo,ooo ($65o,ooo) from the wife of a business friend on soft terms in 2008 when he was premier of the state of Lower Saxony. What irked them more was the news that he had made somewhat gauche attempts to suppress the story by threatening Kai Diekmann, editor of Bild, Germany's biggest tabloid daily, with "war" when he learnt that the newspaper planned to print the home-loan story. His threats cut no ice; Bild went ahead and published. Two days later, Mr Wulff called Mr Diekmann again to apologise. But the storm has only grown. Politi cians and pundits from left and right are questioning Mr Wulff's ability to survive in his largely ceremonial role, in which he is meant to embody the conscience of the nation. The public is more divided, with a recent poll showing a roughly even split between those who think he should resign and those who want him to stay.
Yet the people do not elect the German president. He is chosen by a federal assem bly of roughly 1,200 notables, half of them from the Bundestag, the fe deral parlia ment's lower house, and the rest appoin tees from the German states to the upper house Bundesrat. And it is extremely diffi cult to unseat the president if he refuses to quit: either members of the federal parlia ment would have to take a case against him to the constitutional court, or he would have to be convicted of a felony. Could he be? Prosecutors in Berlin are pondering if his threats infringed press freedom. But it is not clear that Mr Wulff has broken any laws. He borrowed money cheaply from a friend, and transferred the loan at low rates to a bank. But there are further questions. That in stitution happens to be the house bank of Porsche, part of the Volkswagen group, on whose supervisory board Mr Wulff sat during his Lower Saxony premiership. Newspapers have speculated that the bank was repaying a favour by taking on the loan: Mr Wulff enlisted help from Volkswagen to save Porsche from bank ruptcy in 2009. Nothing has emerged to substantiate these allegations, although the state of Baden-Wiirttemberg is investi gating whether the bank acted improperly. Mathew Rose, who writes on political cor ruption in Germany, says that Mr Wulff is hardly an outlier in a profession that throughout Europe has come to feed on "power and perks". Either way, Mr Wulff's lack of support is embarrassing. Angela Merkel, the chancel lor, used the new year holiday to avoid public comment and has remained silent. Hastily elected to the presidency in 2010 (with Mrs Merkel's backing), Mr Wulff has had little impact on German life. He has made just one memorable remark, in Octo ber 2010: that "Islam is part of Germany". In a country with a population of 4.3m Muslims, that should not have been con troversial, although some members of Mr
I've got that half a miLLion somewhere
7th 2012
Wulff's Christian Democratic Union found it hard to swallow. Mr Wulff appears to want to tough it out for now. In a television interview on January 4th he insisted that he was "not a president on probation" and had broken no law. The call to Bild had been a serious mistake, he acknowledged, but he was only trying to protect his family. Even presi dents have human rights, he said. The of fice had become more difficult lately, he ad mitted, but he felt that he had strengthened the presidency during his tenure. Politicians from the cnu insisted that Mr Wulff had done a good job of trying to regain public trust in the interview. But noises from opposition parties suggest that he still has questions to answer. He may yet fall. Indeed, many analysts think that he would already have gone if Mrs Merkel had a credible replacement for him. But this would have to be a politically savvy heavyweight sympathetic to the cnu. No body seems to fit that bill. •
Austerity in Spain
Happy new year M A D RI D
The new government is turning the fiscal screws
I last month Mariano Rajoy, Spain's new
N HIS first appearance before parliament
prime minister, said he had no intention of raising taxes. Only eleven days later, on December 30th, he brought in thumping tax rises on income, savings and property. It was the sort of ploy Mr Rajoy's Social ist predecessor, Jose Luis Rodriguez Zapa tero (who preferred indirect taxes), never dared to make, not least because Mr Ra joy's right-wing People's Party (PP) would have accused him of bleeding middle class wage-earners dry. But in the back-to front world of budget deficits, principle is often the first casualty. In 2010 Mr Zapatero himself executed a famous u-turn, freezing pensions, raising the retirement age, cut ting civil-service pay and imposing auster ity on regional governments. Mr Raj oy's switch will turn Spain into one of Europ e's highest-tax countries. The top income-tax rate will jump by seven points to 52%, although few Spaniards de clare an income above the €3oo,ooo ($390,000) threshold. Then there are re gional top-ups. Catalonia, for example, will now tax high earners at 56%. In Europe only Sweden has a higher rate. Even those at the bottom of the income scale will see tax rises. Taxes on savings will also go up. And property taxes, paid to town halls, will rise for richer owners. When the left cuts benefits and the right ��
The Economist January 7th
I
Europe 27
2012
The biggest belt-tighteners
Reduction in budget deficit 2011 compared with 2010 As % of budget deficit 2010
0
10
20
30
40
60
8IJ [JI] �
Portugal Italy Greece Spain ' Estimate
Terrorising the taxman ROME
70
l-10.3l
Ireland
Source: OECD
50
Austerity in Italy
!Government estimate
� raises taxes, something has gone wrong. In this case it is Spain's budget deficit, which missed its 2011 target of 6% of GDP by a mile. Nobody yet knows how bad the overshoot is, but the government says the outcome could be 8% or more (see chart). That would mean Mr Zapatero's govern ment managed barely one-third of the task of cutting it from the 2010 figure of 9.3%. Mr Rajoy's government wants to avoid being prodded by bond markets or nagged by Angela Merkel, the German chancellor. But its task is getting harder by the day. The deficit target for 2012, agreed with the Euro pean Union, is 4-4% of GDP. Given 2011's missed target that leaves a gap of close to €40 billion to be filled. The new taxes will cover only €6.3 billion of that. Another €8.9 billion will come from spending cuts. But all that accounts for only half the hole. Spain's sales tax-at 18%, low by European standards-may come in for scrutiny. Expect more announcements in the coming days, says Cristobal Montoro, the treasury minister. These will include struc tural reforms to encourage growth. "The government has an aggressive reform pro gramme," says Luis de Guindos, the new fi nance minister. But the gaping sore of un employment, at 23% by far the highest in the EU, is likely to worsen before it im proves. December saw yet another rise. The bad news continues to pour in. The social-security system is in the red for the first time since 1999. Something must be done about the banks (see page 64). An drew Benito of Goldman Sachs thinks the economy will shrink by 1.5% this year. Spain risks a downward spiral in which fis cal tightening harms growth, putting fur ther pressure on public finances. Reining in the deficit depends largely on regional governments. The central gov ernment says they accounted for most of 2011's overshoot. Catalonia will be less of a burden this year, but other big regions like Andalusia and Valencia may be tougher to tame. Both are immersed in corruption scandals, and concerns about probity will spook financial markets. Happily most re gions are now in PP hands (Socialist-run Andalusia holds an election in March). Mr Raj oy's new broom will have to be em ployed vigorously. •
Some Italians take violent exception t o paying taxes
I austerity packages have so far been
containing (harmless) white powder were delivered to the agency's offices in Rome and Milan, and to the office of the new prime minister, Mario Monti. Since then three rudimentary bombs have exploded outside Equitalia branches, and the agency's director in Turin has re ceived a letter containing bullets, an intimidatory device beloved of Mafiosi. But then Equitalia is hated by more than just rogue anarchists. The agency was formed in 2006 to take over tax collection operations that had previously been carried out reluctantly by banks and their subsidiaries. It has since brought about a silent revolution. With the help of streamlined judicial proce dures it has proved itself more efficient at winkling euros out of Italian pockets. But, like tax-collection bodies elsewhere, it has also been accused of unreasonable or even inhumane behaviour. This week Beppe Grillo, a famous comedian and blogger, said that Equita lia's demands for payment had become "the terror of every Italian". He called for a denunciation of the terrorist campaign but also for an understanding of the motives behind it. Politicians con demned his appeal. But in several cases their remarks were qualified with pro posals for a rethink of Equitalia's powers and methods. Until Italy starts reducing its debt, equivalent to 12o% of GDP, that is unlikely to be a priority for Mr Monti's government, or any other.
Bosnian politics
the entities. But the central government in Sarajevo also has important tasks. The new agreement has allowed Bosnia belat edly to pass a budget for 2011 and a tempo rary one for the next three months. The new government will probably not take office for another couple of months. One of its priorities will be to deal with a 2009 European Court of Human Rights ruling on the country's presidency. The court found that a provision of the 1995 peace agreement violated human rights because it restricts the presidency to ethnic Serbs, Croats and Bosniaks. The six-pack say they will deal with this. There may be progress in other areas too. The European Union, for example, has set the bar deliberately low for Bosnia to apply for candidate status, in recognition of its unique complexity. One of the EU's three conditions, forming a government, has now been met, and it is possible that an application will follow later this year. Pessimists take another view. They ar- ��
TALIANS' reactions to four stringent
fairly muted. Rome saw a violent protest last October, but it seemed to be directed at a range of targets, from the then gov ernment of Silvio Berlusconi to capi talism in general. In recent weeks, how ever, there have been at least eight acts of terrorist violence or intimidation aimed at the authorities' efforts to tighten Italy's public finances. The target is the tax collection service, Equitalia. On December 9th the agency's direc tor-general, Marco Cuccagna, suffered hand and face injuries when a parcel bomb exploded at his office in Rome. The following week another parcel bomb was intercepted at Equitalia's head quarters. Police have blamed a shadowy organisation called the Informal An archist Federation (FAI), which has claimed responsibility for several low intensity terrorist campaigns since 2003. The F AI has been variously described as a terrorist franchising operation and an umbrella structure for more than a dozen equally spectral anarchist organi sations. But none of its members has ever been caught, and some security officials doubt whether it exists as anything more than a set of initials for use by the angry and violently inclined. Moreover, subsequent operations against Equitalia have involved tactics not previously associated with the FAI. Between December 2oth and 22nd letters
Let's stick together
Out of the void, a new government
OME call them the "six-pack". Ever
S since Bosnia's election in October 2010
the country has been waiting for the lead ers of the six main parties-two Serbs, two Croats and two Bosniaks-to form a gov ernment. On December 28th, to every one's surprise, they finally managed it. Like Belgium, which also recently formed a government after over a year without one, Bosnia is a complex country. It has two main "entities" (one Serb and one Croat-Bosniak), an autonomous dis trict and a three-person presidency. Most of the day-to-day administration falls to
The Economist January
28 Europe � gue that the six-pack treat the central gov ernment with disdain because it is not a source of real power. Only one of them may actually join it: Zlatko Lagumdzija, head of the Social Democratic Party, which is nominally multi-ethnic but gets most of its support from Bosniaks. Another reason for gloom is that the six parties have no common vision for the future. The Serbs refuse to countenance any more power go ing to Sarajevo and many Croats want their own entity, whereas most Bosniaks would like to see a more centralised state. These issues are tricky but compro-
mises can probably be found. Many ordin ary Bosnians have not understood the pressing need for this. But soon they will. When Croatia joins the EU in 2013 (assum ing Croats approve accession in a referen dum on January 22nd), Bosnia will no lon ger be able to export much of its dairy, meat and egg production to its neighb our, because its leaders cannot agree on wheth er responsibility for food safety lies with the state or the entities. That could destroy the livelihoods of thousands of small farmers-which should help to concen trate politicians' minds. •
Turkey and the Kurds
Death upon death
A N KA RA A N D ISTA N B U L
The latest innocent casualties of Turkey's military escalation against the Kurds
A a delib erate attempt to undermine Tur TRAGIC blunder, a cynical massacre or
key's government? The question was raised on December 28th, when Turkish F-16 war planes dropped bombs on a group of Kurdish civilians just south of the Turk ish border in the mountains of Kurdish controlled northern Iraq, killing 34 of them. Security officials in Sirnak, a Turkish town near the site, blamed a lack of co-or dination between the civilian and military authorities. "The governor [of Sirnakl had no idea what had happened until hours after the bombing," said one. The victims, aged between 13 and 28, were smugglers from villages in Turkey's south-east who routinely bring in Iraqi fuel and cigarettes with the full knowledge of local authorities. Nearly So mules carrying the contraband also perished. In an ironic twist the smugglers belonged to the "vil lage guards", a pro-state militia that had taken up arms against rebels of the separat ist Kurdistan Workers' Party (PKK), the os tensible target of the raid. Thousands of Kurds across the country took to the streets in protest. Selahattin De mirtas, leader of the pro-Kurdish Peace and Democracy (BDP) party, accused the gov ernment of deliberately massacring inno cent civilians to intimidate his people. A huge banner calling Recep Tayyip Erdogan, Turkey's prime minister, a "murderer" was draped across a tent in one of the smug glers' villages. Until recently some would have sus pected a different sort of conspiracy: one carried out by coup-plotting army officers bent on discrediting the mildly Islarnist Justice and Development (AK) govern ment. Hundreds of such alleged miscre ants, including around 30 serving generals, are in prison awaiting trial in connection
with the so-called Ergenekon conspiracy to overthrow Mr Erdogan. This week a for mer chief of general staff, Ilker Basbug, was called in for interrogation over the affair. Rumours abound that he too will be jailed. Yet Mr Erdogan has rushed to the de fence of the current chief of general staff, Necdet Ozel, thanking him for his pledge to pay compensation to the families of the Sirnak victims. A flurry of investigative probes are under way, but no heads have yet rolled. Mr Erdogan has not visited the victims' families, nor has he apologised for the deaths. He has, moreover, suggested that the group may have been targeted on the assumption that there were rebels and guns concealed in their midst. Smugglers usually travel in groups of three or four, he
Conspiracy or cock-up? They don't care
7th 2012
said, not 40. In 2010 the army was pilloried when news emerged that it had failed to prevent two deadly attacks on Turkish troops in the same area, even though im ages from unmanned drones had clearly shown the presence of large numbers of PKK rebels along the border. "[T]he prime minister is saying, 'It's OK to kill innocent civilians if there are some bad guys in the mix,"' observes Sezgin Tanrikulu, a deputy from the opposition Republican People's Party (cHP). Such claims may be exaggerated, but Mr Erdogan has certainly become a lot tougher on the Kurds. Thousands of pro Kurdish activists, including serving BDP mayors, journalists and lawyers, have been jailed in recent months as part of a campaign to cripple the PKK. The army has intensified its operations inside Turkey and northern Iraq, killing hundreds of rebels, including senior commanders. Last sum mer secret talks between the government and the PKK, including its imprisoned leader, Abdullah Ocalan, broke down. Mr Ocalan has been denied access to his law yers, most of whom are now in jail, in vio lation of international conventions on the treatment of detainees. The Council of Eu rope is expected to issue an official com plaint in the coming weeks. Sources close to the PKK admit that the military campaign has left it weakened. The rebels' traditional backers, Iran and Syria, are bogged down in their own trou bles. Some think the PKK could even be forced back to the negotiating table. This in turn could pave the way for Mr Erdogan to launch his long-promised new democratic constitution, which would properly em brace the Kurds for the first time in modern Turkish history. For now, however, apolo gising for the Sirnak killings and punishing those responsible would be a good start. •
The Economist January 7th
Europe 29
2012
Charlemagne I Summit for one The self-delusion of European leaders as they wrangle over yet another treaty
"
D known in its country of origin, is Germans' favourite tele INNER for one", a 1963 British comedy sketch barely
vision viewing on New Year's Eve. Year after year they delight at the sight of Miss Sophie celebrating her 90th birthday with only her butler, James, for company. He is commanded to follow "the same procedure as last year", going around the table impersonat ing each of the now-dead dinner guests, raising toast after toast and becoming ever more drunk. As one awful year for the euro zone made way for another, the German television network ARD digitally retouched the original sketch to create a spoof of European Union summits. Angela Mer kel was the bossy dowager. Nicolas Sarkozy was the faithful but ler, taking on the roles of departed leaders: George Papandreou of Greece, Jose Luis Rodriguez Zapatero of Spain and, although he is still in office, David Cameron of Britain. (Italy's Silvio Berlusconi is a tiger-skin carpet on the floor.) The joke was clear: summits are empty charades, only Mrs Merkel matters and Mr Sarkozy is her comical servant. The new year will begin rather as the old one ended, with a Merkel-Sarkozy meeting, on January 9th, to prepare the way for yet another EU summit on January 30th. Both sides of the "Mer kozy" couple started the year trying to outdo the other in gloom. For the French president, this crisis is the worst since the second world war. For the German chancellor, the road to recovery "re mains long and won't be free from setbacks, but at the end of it, Europe will emerge stronger". For Germany itself 2012 will prove "more difficult" than 2011. Even Mr Cameron has seen fit to evoke "debt storms now battering the euro zone". There is a dose of politicking in all this doom-mongering. Mr Sarkozy wants to tell French voters ahead of this spring's presi dential election that only he is up to the task of protecting them in hard times. Mrs Merkel wants to make clear that more pain this year (including for Germany) is not a failure of her politics of aus terity but a necessary part of Europe's healing. Mr Cameron wants to blame the euro zone for at least some of Britain's woes. None of this is to suggest that the euro crisis is anything other than acute. It may well intensify; indeed, 2012 could see the cur rency's partial collapse. There are cracks everywhere: Italy has huge amounts of debt to refinance this year; Spain's budget def-
icit is soaring above its target; France and other AAA-rated coun tries may be downgraded; Greece is getting worse, not better; European banks remain fragile. The euro zone's much-promised (but inadequate) firewall has not even been created. An incipient recession is making everything much harder. Yet the actions of Europe's leaders fail to match their glo omy warnings. Governments and the EU are busily drafting the text of a minor new treaty agreed at December's summit, where Mr Cameron famously cast his veto. Here is a quick reminder. Under pressure from Germany, EU leaders agreed upon a new "fiscal compact" to toughen budget rules. They would amend the Eu's treaties with two goals: to remove some political discretion in the first step towards subj ecting national governments to tighter fis cal monitoring and sanctions; and to enshrine balanced-budget rules in national constitutions, with the European Court of Jus tice (ECJ) given powers to rule on whether they comply with European guidelines. Britain demanded a partial veto on future financial regulation. When this was rej ected, it vetoed the treaty itself. This did not block anything, but it complicates the legal pro cess by forcing the 17 euro-zone members (and most of the euro "outs") to draft a text outside the EU treaties. The new pact may help prevent a future crisis, but does little to halt the current one. Yet much energy will be wasted in drafting it. Mrs Merkel wants to harden the text with new sanctions for those who ignore ECJ rulings. And she wants ratification of the fiscal compact to be made a condition for countries receiving fu ture bail-outs. That, she hopes, would concentrate the minds of voters in Ireland, were a referendum to be called. The French, for their part, want to dress up the treaty as the be ginning of a core euro zone, and to extend its scope b eyond mere budgetary issues. The European Commission wants to prevent the creation of any rival bodies, and wants the treaty brought back into the EU treaties within five years. The British, despite their veto, have joined the compact as "observers" but are laying low for now. Populated as it is by lawyers and diplomats, Brussels loves this kind of wrangling. The idea is to have a draft treaty ready for discussion by leaders at their January 30th summit, with a view to their signing it in March. Will the markets be convinced by this? Many want the Euro pean Central Bank to buy as many sovereign bonds as it takes to calm markets. That kind of unlimited funding will not happen, although the ECB is providing more money indirectly, in the form of three-year liquidity for banks that may (or may not) use it to buy bonds. It says much about this debate that giving bucket loads of cheap money to banks is seen as preferable to shoring up governments. Just keep talking
In the absence of the E CB's wall of money, governments are put ting up a wall of words. Perhaps they hope that by keeping busy, even on a fairly marginal treaty, they will persuade markets that they are acting decisively. This would be more convincing if they were to include a path, even if only a conditional one, for the mu tualisation of at least some euro-zone debt. But joint bonds are unthinkable for Mrs Merkel, at least this side of the German elec tion in 2013. As the "Dinner for one" spoof concludes, Merkozy will carry on, "always without Eurobonds". Such self-delusion would be funny, if it were not so scary. • Economist.comfblogsfcharlemagne
Also in this section 3 1 The economy and the states 34 Restricting abortion 34 Election laws 35 Economic diversification in New York 36 ... and in Nevada
37 Lexington: Rick Santorum
For dai ly a n a lysis and debate on America, visit Economist.comfunitedstates
The Republican nomination
On to New Hampshire
DES M O I N E S , IOWA A N D M A N C H ESTE R , N EW H A M PS H I R E
Mitt Romney strengthens his place as front-runner. But now he has a new rival
AT LUNCHTIME on January 4th, the day 1"'\.after the Iowa caucuses, Mitt Romney pitched up in the thronged sports hall of the Manchester Central High School in New Hampshire to celebrate his famous victory. At his side was Senator John McCain, the 2008 Republican nominee, who urged the voters of the Granite State to catapult Mr Romney to the White House. But not even Mr McCain could resist joshing about Mr Romney's "landslide victory" the night before. The front-runner had beat Rick Santorum, a rank outsider, by a mere eight votes. No fewer than six different candidates had held the lead in Iowa over the past six months, but never Mr Santorum. His surge has been more of a rocket launch. As little as a week before the caucus the polls were still showing him in fourth or fifth place. Yet somehow in the closing moments of the race, he emerged as the preferred candidate of more conservative Republicans with little time for the wishy-washy Mr Romney. In particular, Mr Santo rum seems to have snaffled the votes of many of the evangelical Christians at the caucuses. In the process he seems to have sapped the support of Michele Bachmann, a fiery con gresswoman, and Rick Perry, the swagger ing governor of Texas, who came sixth and fifth respectively, with 5% and 10%. Mrs Bachmann admitted defeat and dropped out of the race on January 4th. That should provide something of a boost to Mr Santorum, her closest ideological match in the field. Mr Perry, after initially
saying he would cancel his next few engagements and head to Texas to ponder the results, now insists he will fight on. But his campaign, having squandered early en thusiasm and spent lavishly in Iowa to lit tie effect, is looking moribund. If he does eventually concede defeat, Mr Santorum could again be the biggest beneficiary. Nonetheless, Mr Romney remains the likeliest candidate to win the nomination. He has raised the most money, built the strongest campaign machinery and, as a relative moderate, is best placed to beat Mr Obama-a point his supporters in Iowa made incessantly. He is the strong favour ite to win the next vote, in New Hampshire on January 10th. On January 2nd Suffolk University's tracking poll of New Hamp shire voters showed that Mr Romney, with 43% support, was widening his lead in the state, and that his backers were the least The winnowing Iowa Republican caucus results January 3rd 2011, % of votes
0
Romney Santo rum Paul Gingrich Perry Bachmann Huntsman
-
Source: IowaGOP. org
10
15
INumberof v� 20
25
likely to change their minds. He was gover nor of a neighbouring state, has a lakeside home in New Hampshire and even an nounced his candidacy last year at a local farm. In contrast to evangelical Iowa, New Hampshire is one of the most secular states in the union, and most of its Repub licans are fiscal conservatives, not social conservatives. That will limit Mr Santo rum's ability to capitalise on his momen tum from Iowa. But Jon Huntsman, anoth er moderate, might hurt Mr Romney a bit. Although the evangelical bastion of South Carolina will be the third state to vote, on January 21st, a string of less con servative spots follows, including Florida, Nevada (where many voters share Mr Romney's Mormon faith) and Michigan (where Mr Romney was born and his fa ther was governor). Mr Santorum is likely to find his doctrinaire views on abortion, gay marriage and other social issues a handicap in these places. Meanwhile, Mr Romney seems to have succeeded in denting the prospects of Newt Gingrich, hitherto his chief rival for the nomination, who still leads the field in South Carolina. He placed a dismal fourth in Iowa, with 13% of the vote, despite hav ing topped several opinion polls in the state last month. His support seems to have collapsed after a fearsome bombard ment of negative ads from Mr Romney's camp over the past month, highlighting personal foibles and past lapses from con servative orthodoxy. A similar barrage is likely to hurt in South Carolina too. Al though Mr Gingrich has vowed to fight on, his claim to be the only candidate capable of stopping Mr Romney is looking thin. Also dividing the anti-Romney vote is Ron Paul, a libertarian congressman from Texas who placed a close third in Iowa, with 21% of the vote. Mr Paul is currently polling (a distant) second in New Hamp shire. His isolationist foreign-policy and radical view of civil liberties (he believes ��
The Economist January 7th �
United States 3 1
2012
civil-rights legislation is an unwarranted government intrusion, for example) make him unpalatable to most Republicans. But he has an ardent following, particularly among students. He pledged to draw out his campaign for months this week, and his army of volunteers and small donors should allow him to do so, no matter how dim his prospects look. Mr Santorum, in contrast, has no estab lished network of donors and very little in the way of campaign machinery. He only managed to raise enough money to air tele vision ads in Iowa from mid-December. In stead, he campaigned the old-fashioned way, spending15 weeks on the stump in the state before the caucuses. An aide with a pickup truck drove him from one tiny event to another, all across the state. But with the New Hampshire primary less than a week away, and South Carolina's just 11 days after that, he has no time to mount a similar effort in those states. Moreover, since Mr Santorum's rise was so sudden and unexpected, his rivals did not really get the chance to blacken his name with Iowans before the vote. He will not be so lucky in the coming primaries. He holds some pretty stern views on sex, even by Republican standards (see Lexing ton). Mr Perry is already picking over his congressional record, highlighting his sup port for the sort of pork-barrel schemes that are anathema to budget hawks these days. Mr Santorum's past endorsements of various centrist candidates, including Mr Romney during his previous presidential bid, are also being used to question his conservative credentials. Another charge concerns his stint after leaving Congress on the board of a firm that took a more ac commodating view of homosexuality than Mr Santorum typically does. Were it not for the disarray of his rivals, however, the result in Iowa would be wor risome to Mr Romney. He won the caucus es not only by the slenderest of margins, but with the lowest winning percentage in their history: 24.6%. That is actually a frac tionally lower share of the vote than he won in Iowa during his previous presiden tial run, in 2008, when he eked out 25.2%, coming second. It is also a sign that the Christian base of the party has not learned to love the Mormon Mr Romney. Mr Rom ney had tried to play down his chances in the state, and spent relatively little time campaigning there. But in December, ac cording to the Des Moines Register, a local newspaper, his campaign, along with a no tionally independent advocacy group that backs him, spent just under $4m on televi sion advertising in Iowa, far more than any other candidate bar Mr Perry. Mr Romney's support has remained subdued, argues Frank Luntz, a Republican consultant, because he does not reflect primary voters' agitation at the state of the country. His research in Iowa found a
yearning for a candidate who seems likely to shake things up. That would explain the series of outlandish candidates, such as Mrs Bachmann and Herman Cain, who enjoyed brief ascendancies. Unless Mr Romney can learn to enthuse such voters, Mr Luntz argues, he is likely merely to limp towards the nomination. This year's campaign is nothing if not fluid, however. Mr Romney could yet be wounded by Mr Gingrich, who is seething about Mr Romney's relentless attacks in Iowa and is starting to respond in kind. He has repeatedly called Mr Romney a liar and took out a newspaper ad in New Hampshire the day after the caucuses de nouncing him as a "timid Massachusetts moderate". There will be two televised de bates before the New Hampshire primary, which could provide Mr Santorum with a chance to cement his position as Mr Rom ney's main rival. The attenuated primary schedule this year makes it impossible for any candidate to clinch the nomination before April-which leaves plenty of time for more surprises. • The economy and the states
Less of a drag W A S H I N G TO N , OC
Some encouraging signs from state and local governments
A MERICA has been here before. A steady ./"'\.labour market recovery seemed possi ble early in 2010, when GDP growth ap proached 4%, until panic over a developing European debt crisis kept unemployment aloft for much of the year. Many expected 2011 to be different; instead high oil prices and disasters, natural and political, left the economy perilously close to recession. De spite a surprisingly strong end to 2011, Americans chastened by recent history are unwilling to conclude that a corner has at long last been turned. Not without reason. The euro will con tinue to fray nerves, as will a slowdown in emerging markets and political dysfunc tion at home. Yet there are more grounds for hope than previously. America's hous ing market is much closer to health. Prices remain wobbly, but sales and construction are rising from record lows. Residential in vestment will probably contribute posi tively to growth in 2012, rather than nega tively. The same may also be true of state and local governments, which have like wise proven a steady drag on growth since the end of the recession in 2009. Almost all state and local governments are prohibited from running deficits. When the recession led to a dramatic de cline in tax revenues, these governments
I
Localised pain Three-month change in government employment '000
- State and local
- Federal 50
J
F
M
A
M
J
J
A
S
0
N
2011 Source: Bureau o f Labour Statistics
had to make deep cuts to spending. In 2009 and 2010 this austerity offset much of the expansionary effect of federal-govern ment stimulus. Even in 2011, according to a Goldman Sachs estimate, government spending cuts reduced America's GDP growth by half a percentage point. State and local governments bore most of the blame: they have been responsible for nearly 6oo,ooo government jobs going since the recession's end. In just the year to November, over 70,000 jobs were lost at the state level, with local government shedding another 18o,ooo (see chart). This pain may now be mercifully near its end. Since late 2007, when the recession be gan, states have closed budget gaps of $sao billion through tax rises and spending cuts. Tax revenues are slowly recovering, how ever, leading to a slowdown in the pace of cuts and a reduction in the impact of state and local budget woes on the growth of the overall economy. The experience in America's largest state is telling. California must plug a $13 billion budget hole over the next 18 months, a daunting figure until one recalls the $42 billion gap the state faced in 2009. True, there is less fat to trim now. But a strengthening state economy will aid the state's leaders. In the year to November, California's private sector added over 2oo,ooo jobs; in 2009 it shed 857,000 workers. The tax revenue contributed by these new hires (and the reduced demand for unemployment services) has given the state the budget room to curtail heavy cuts to state payrolls. Government employ ment in California declined, year-over year, for 31 consecutive months from 2009 to 2011. But it rose by nearly 25,000 jobs in the year to November. Not every state has done as well. Where recovery remains elusive, revenues have not yet allowed governments to sheath their budget knives. State and local govern ments trimmed16,ooo jobs in November down from 45,000 in May but still a nega tive number. Yet the worst appears to be over. And just as local austerity amplified the previous economic decline, its end should reinforce the recovery. •
34 United States Restricting abortion
Unintended issues N EW Y O R K
Fiscal conservatism is trumped by the social variety
J
ANUARY is a busy month in capitals across America. New laws are imple mented; Congress and legislatures recon vene, hoping to pass more. If one's political party is in the minority, this is a terrifying prospect. For opponents of abor tion, the outlook could hardly be sunnier. As of January, for example, abortion pro viders in Arkansas must follow new rules for inspections. Beginning this month, Utah and Nebraska bar private health plans from covering abortion. These laws follow an avalanche of abortion mea sures, passed last year, that are already in effect. As politicians return to capitals, more restrictions may come. Last year saw a surge in social conserva tism. It has been said that social issues in spire Americans to vote against their eco nomic interests: a factory worker elects an anti-abortion Republican; in return he gets anti-union laws. Last year the adage was reversed. In 2010 Americans voted for eco nomic austerity; in 2011 they got abortion restrictions. For those who oppose abor tion, it was the most promising year in de cades. For Barack Obama, it was a head ache that looks set to grow worse. The Supreme Court long ago ruled, in Roe v Wade, that women have the right to an abortion. Politicians, however, are test ing more ways to limit access to one. Such efforts have little hope in Washington, D C, where Democrats control the Senate. Nev ertheless, last year Republicans in the House of Representatives tried to bar fund-
The battle continues
The Economist January
ing for abortions permanently (a yearly amendment already does as much). They tried to do the same for Planned Parent hood, a chain of health clinics that offer abortions. They even voted to bar funding for a family-planning programme created by Richard Nixon, hardly a raging feminist. As politicians bickered in Washington, state legislatures took action. The year was remarkable for the sheer number of new laws-91, reckons Elizabeth Nash of the Guttmacher Institute, a research group that supports abortion rights. Many states barred abortion coverage from the health plans that will be offered on Mr Obama's new health exchanges. Others banned abortions after 20 weeks of pregnancy, ar guing that they were shielding fetuses from pain. States made it harder for minors to receive abortions. Nebraska, for exam ple, now requires notarised parental con sent. Sam Brownback, the outspoken go vernor of Kansas, passed the year's broadest anti-abortion package. More sur prising, Indiana was not far behind. In 2010 Mitch Daniels, Indiana's governor, in sisted that fiscal reform was more urgent than a divisive social agenda. In April 2011 he signed a broad anti-abortion bill. Those who support abortion rights have faint solace. Lawsuits may yet topple the most restrictive new laws. The new laws in Kansas and Indiana, for example, are both being challenged in court. Some proposals have been so extreme that they are dividing conservatives. Mississippi failed to pass a measure that would have banned abortion from the moment of fer tilisation. Ohio's conservatives are bicker ing over a bill to ban abortions after a fetal heartbeat is detected (usually at only around nine weeks after conception). However more activity is inevitable. Most state legislatures disbanded by July. When they reconvene this month, they may pick up where they left off. House Re-
7th 2012
publicans are a persistent lot. Their steady assault seems to have already worn down Mr Obama. Ignoring the advice of the Food and Drug Administration, in Decem ber he decided that minors should not be allowed the "morning after" pill without a prescription. His allies fear that he may also bow to Catholic bishops. They say he is infringing their religious liberties and de mand broader exemptions to a rule that in surance plans cover contraception. So far Mr Obama has angered his supporters and failed to satisfy his opponents. It is hardly an enviable position in an election year. • Election laws
Holder v states ATLANTA
Expect plenty of scuffles in the run-up to the general election
ONALD REAGAN appointed him to a
R federal judgeship. He served as acting
attorney-general under George Bush ju nior. He has backed a law allowing investi gators to interrogate terrorism suspects without informing them of their rights. As a federal attorney he prosecuted two prominent Democratic congressman; in private practice he represented large cor porations. This is the cv not of a Republi can judicial candidate, but of Eric Holder, Barack Obama's attorney-general. Long unpopular with the right as well as the left, Mr Holder may well spend the coming year even more embattled than usual. In 2011 34 states proposed laws to strengthen voter-identification require ments. Backers portray these laws as a bul wark against voting fraud. Critics argue that such fraud is exceedingly rare, and these laws would provide little defence against it; instead, they contend, the laws are intended to make it harder for minor ities, young people and the poor-groups that lean Democratic-to cast their ballots. On December 13th, Mr Holder waded into the controversy. He heads the Justice Department, which enforces laws ensur ing ballot access, and in a speech quoted John Lewis-a lion of the civil-rights move ment-who called these new laws "a delib erate and systematic attempt" to prevent people from exercising their voting rights. He warned that "in jurisdictions across the country, both overt and subtle forms of discrimination remain all too common." And ten days later, the Justice Depart ment blocked a South Carolina law that would have required voters to show a gov ernment-issued photo m in order to vote (currently, South Carolinians can vote by showing a voter-registration card, which does not have a photograph). Under the ��
The Economist January 7th
United States 35
2012
� Voting Rights Act of 1965 (VRA), South Car olina-like part or all of 15 other mostly southern states that had low voter turnout and also used some sort of "test or device" before 1965 to bar minorities from voting must "preclear" any changes to their vot ing laws with the department before they can be legally enforced. The burden is on the states to prove that such changes do not negatively affect minority voters. Intent is irrelevant; it is the law's effect that matters. The Justice Department held that South Carolina failed to prove that the law would not have a discriminatory effect. Minority voters in South Carolina, according to data the state provided, are 20% more likely than white voters to lack the required pho to m; 81,938 registered minority voters have none. The law exempts voters who suffer from "a reasonable impediment", but the Justice Department found this wording imprecise, and hence subject to capricious enforcement. South Carolina has the right to appeal to a federal district court, and Nikki Haley, the state's Republican governor, seems minded to do so. But there is more at stake than just South Carolina's ballot boxes. This autumn's presidential election may well depend on how well each side turns out its base, which for Democrats includes precisely the groups least likely to have government-issued photo-m. The Justice Department is reviewing changes to Flori da's election laws and fighting Texas's pro posed redistricting in court. It can sue to block laws it believes deliberately restrict minority voting-rights-as Mr Holder's speech suggests he does-even in states not subject to preclearance under the VRA. That could imperil new voter-m laws in Kansas, Rhode Island, Tennessee and Wis consin, and send a chilling message to the 14 other states considering such laws. In 2000 the presidential election ended up in court. This year it may well begin there. •
Economic diversification
Reimagining the future
N EW YORK
Two articles on attempts to move into high-tech; first, New York City
"
HAT city will, in the course of time,
Tbecome the granary of the world,
the emporium of commerce, the seat of manufactures, the focus of great monied operations," predicted DeWitt Clinton, governor of New York in 1824. He was speaking about the effects of the Erie Canal, which connected the Great Lakes to the Hudson River. Originally derided as "Clinton's folly", the canal helped to open up the west, allowing New York to benefit enormously from an explosion of trade. Within 15 years of the opening, New York was the busiest port in America, moving more than Boston, Baltimore and New Orleans combined. The plan to open an applied sciences university campus in New York City, reckons Seth Pinsky, who heads New York's Economic Development Corporation, is an "Erie Canal moment". The city's embrace of high-tech has already begun. Tech clusters have emerged in Manhattan's Flatiron District and Brooklyn's Dumbo, home to firms like STELLAService and Etsy. Venture-capital firms and angel investors have been looking at New York more seriously than they once did. Henry Blodget, of Business Insider, notes "the financing ecosystem has also gotten very well developed, from late-stage private equity right down to angel investing." Some $L2 billion was invested by venturecapital firms in New York in 2010. The Big Apple even overtook Massachusetts in venture-capital funding for internet and tech start-ups, making it second only to Silicon Valley. And in the third quarter of last year, it surpassed it in venture capital in all categories. Between 2005 and 2010 employment in New York's high-tech sector grew by nearly 30%. Google alone has
about1,200 engineers in the city. Much of this growth has been organic, but there has been some help from City Hall. Since 2002 the city has set up more than 40 projects to help the biotech sector and helped create a network of incubators supporting start-ups in that area. It also es tablished a $22m municipal entrepreneur ial fund, the first of its kind outside Silicon Valley. A year ago Michael Bloomberg, a tech entrepreneur before he became New York's mayor, called on universities to pitch plans to develop and operate a new tech campus in New York in exchange for access to city-owned land and up to $10om in public money. New York received seven proposals from 17 top institutions, including Stanford University which did so much to create Sil icon Valley. Almost 6,ooo companies, ineluding Google, Hewlett-Packard and Lin kedin, trace their beginnings to Stanford. But Stanford withdrew from the competi tion last month, days before the mayor an nounced the winning proposal, which came from Cornell, an Ivy League universi ty, and its partner Technion, an Israeli tech nology institute. The latter is considered to be one of the driving forces in Israel's tech industry. It helped turn Israel from a coun try of orchards to one of semiconductors. Some 4,000 start-up companies are locat ed around its campus. The two bodies have plans to build a $2 billion 2m square feet (61o,ooo square me tres) campus on Roosevelt Island, one sub way stop from mid-town. Cornell and Technion hope to have a temporary facili ty up and running as soon as this autumn and complete their permanent home by 2017. The bid had huge support from Cor- ��
The Economist January 7th
36 United States
� nell alumni, including a $350m gift from Charles Feeney, who made his fortune through the Duty Free Shopping Group. That is one of the largest donations in the history of American higher education. According to the city's analysis, over the next 30 years the campus will generate more than $7.5 billion in economic activity, with 6oo companies spinning out of the new school directly; these are projected to create 30,000 jobs. Some 20,000 construc tion jobs will also be created, not to men tion about $1.4 billion in extra tax revenue. And it should help quench the never-end ing demand for qualified engineers. The mayor has not ruled out naming addition al winners. And some of the losing plans will go forward regardless. So New York could soon have several applied sciences campuses. Look out, Silicon Valley. • Diversifying Nevada
Rolling the dice LAS VEGAS
One of the most depressed states is going all out to attract new industries
N THE desert near the Las Vegas airport 11 football fields. Security guards dressed in ninja style, all in black and with tasers strapped to their thighs, confiscate the identity cards of visitors, then lead them through a series of gates into the so-called SWITCH Super NAP. Every part of the data centre was cus tom-designed for optimal temperature control, with blue vents for cool air, red ones for warm, and everything looking fu turistic. Computers, stacked neatly in cages, stretch out in long rows. They be long to the government, to eBay and Goo gle, and to a growing number of other companies who could put their servers anywhere, but choose this spot in Nevada. Brian Sandoval, Nevada's governor, is enormously proud of the SuperNAP, which is built by a young private firm called SWITCH. The SWITCH SuperNAP, says Mr Sandoval, is proof that Nevada can attract and nurture businesses that have nothing to do with the handful of indus tries that Nevada is famous and infamous for-chief among them, gambling. Other examples he cites include Zappos, a big on line retailer that moved to Nevada from California in 2004, and a big potato grower. But the list is not long. Nevada's reliance on gambling and its contiguous industries is in fact what has made it so vulnerable to economic shocks. Gaming and tourism caused the phenom enal boom during the decade leading up to the crash of 2007. It pulled in people, and those people needed housing, thus caus-
I stands a structure the size of
ing a construction boom and a subsequent retailing boom. This cluster of industries accounts for about half the jobs in the state. Throw in mining in the north and that's about it. Nevada has the least diversi fied economy in America, after the District of Columbia (which relies on govern ment), and Alaska (oil and gas). That may explain why Nevada now has the highest unemployment rate in America, at 13%. When the recession struck, gaming and tourism declined (and may not recover to 2007 levels until 2015, according to forecasts), and construction all but stopped. Nevada lost more than 10% of its jobs between 2007 and 2011, and home prices have fallen by more than half. Where neighbouring California, also hit hard, at least had technology and other "knowledge industries" to fall back on, Ne vada has almost nothing. This is why Mr Sandoval, upon becom ing governor last year, made diversifica tion his priority. As a Republican in today's party, he put himself in a precarious posi tion. Nevada already has low taxes (and no income tax at all) and lean regulations, so current Republican orthodoxy would sug gest that the rest should follow by itself, since government must not meddle. But I "can't sit back and do nothing," says Mr Sandoval. "I don't want this state brought to its knees." So he commissioned a big report by the Brookings Institution and SRI Internation al, two think-tanks. Then he signed a law that elevated economic development to a cabinet position and set up a few funds to attract new companies. Admittedly, those funds are small in comparison to those of neighbours such as Utah. And next? Mark Muro, the main analyst behind the think-tank report, has identi fied seven industries and some 30 smaller niches that Nevada should coddle. These include datacentres such as the Sup erN AP; call centres, warehouses and logistics hubs; and medical services for retirees
There has to be a better way
2012
(who currently tend to go to California for surgery). Northern Nevada might redouble its efforts in geothermal energy produc tion. There also happens to be a lot of test bombing and flying of unmanned aero planes in Nevada because the armed forces uses its vast empty spaces. This local expertise could, perhaps, be turned into a centre for aerospace know-how. At times, the advice sounds almost French, and certainly un-Republican. Thus Mr Muro urges Mr Sandoval to anoint "sec tor champions to spearhead cluster devel opment", seeming to veer off into industri al policy. That sort of thing might land Mr Sandoval, an up-and-coming sort (and one of only two Hispanic Republican gover nors), in trouble in the future. Just think of the flak Mitt Romney has got for his health care reforms in Massachusetts. But as Mr Sandoval sees it, diversifica tion is intertwined with education and is thus a legitimate conservative cause. Neva da's schools and universities are between mediocre and bad. It produces too few knowledge workers to attract the gee whizz industries. It also does too little re search on its campuses to seed start-up companies as, say, California's Silicon Val ley does. According to Mr Muro, Nevada produces only 40% as many doctorates per head as the country as a whole, and pub lishes half as many scientific papers. Since money is tight and Mr Sandoval insists on balancing the state budget with only cuts and no tax hikes, this means everything rides on reforms. In the public schools (which all three of his children at tend), he has signed bills to eliminate teacher tenure and pay by results. In the universities, he wants to attract some star professors and get deans to design more relevant curricula, in stem-cell research for example. Nevada's reputation for sin may not be an asset in this endeavour. But as the engineers bustling around in the spaceship chic of the SWITCH SuperNAP demon strate, that can be overcome. •
The Economist January 7th
United States 37
2012
Lexington I Rick Santorum's ride Now is the time for consenting adults to lock their bedroom doors
contraception is a "licence to do things in a sexual realm that are counter to how things are supposed to be". If Mr Santorum has doubts about contraception, he has none about abortion. It is wrong, even in cases of rape or incest, be cause life is sacred and begins at conception (he does, however, support the death penalty, as it is not the inno cent who die). Any doctor who performs an abortion should face criminal charges. Because he is a virtuous man, Mr Santorum does not lay down a code that he is not prepared to abide by himself. In 1996 he and his wife were told that their unborn child had a fatal de fect. They decided against an abortion and the newborn died within two hours. The next day they took the dead baby home to be cuddled by their other children. They named the baby Gabri el, and Mr Santorum's wife later wrote a series of letters to Gabri el, which she turned into an affecting book. Why it matters
ICK SANTORUM, a former senator from Pennsylvania, is a
R virtuous man: intelligent, industrious and God-fearing, the
proud father of six children, whom he and his wife have schooled at home. His misfortune as he strives to become presi dent of the United States is that virtue is in the eye of the behold er. As anyone who Googles his surname will discover (don't let your children try), many gay Americans abhor him and will re sort to any revolting prank to besmirch his name. They have reason. Last September the former senator from Pennsylvania was one of nine Republican hopefuls participating in a televised debate in Orlando, Florida. A question was posed over video by a soldier in Iraq who said he had hidden the fact that he was gay because he did not want to lose his job. Did any of the candidates intend to repeal the measure Barack Obama signed into law last year that had at last given gay soldiers the right to serve their country openly? Mr Santorum's unblinking answer was Yes. Allowing gays to serve in the military was giving one group of people "a special privilege"; it was "social policy" that ought to have no place in the armed forces. This became a notorious exchange, not least because some members of the ultra-conservative audience in Orlando booed the soldier. But the episode hardly does justice to the depth of the former senator's feelings about the things gays get up to. The pro pinquity of the wicked plainly has an unsettling impact on the peace of mind of the virtuous Mr Santorum. Gays should not only be disqualified from serving their coun try, says Mr Santorum. They should also be prohibited from mar rying one another. Even if unmarried, they would be ill-advised to have sex. To Mr Santorum the Supreme Court's ruling in 2003 that anti-so domy laws were unconstitutional was a bad mistake: this was a slippery slope that would establish a right to bigamy, polygamy, incest, adultery-" anything". It is not quite clear what Mr Santorum thinks about heterosex uals who have sex for fun-or at least who have it only for fun. The special status of marriage, he told the New York Times, does not exist "because people like to hang out together and have fun"; it is there to provide "a stable environment for the raising of chil dren". As president, he said more recently, he would at last ad dress "the dangers of contraception in this country", because
If you write the most controversial opinions of a sincere and thoughtful man down in a list, you are in danger of ending up with a caricature. Google the words "Santorum" and "bigot" and you will get about sm results. But is it fair to dwell, as the media caravan now will, on Mr Santorum's divisive attitudes to sex, abortion, family values and gay marriage instead of his many in teresting ideas about economics and foreign policy (for example, that "all of the people who live in the West Bank are Israelis")? The case for doing so is threefold. First, these are undoubtedly the opinions that appealed most to the caucus-goers of Iowa when they placed him in second place behind Mr Romney, the front-runner in the nomination race. Mr Santorum was the clear favourite of those who described themselves as evangelical or born-again Christians (Mr Romney was the favourite of the rest). They are also the views that will repel a lot of voters, not least in secular New Hampshire, who might otherwise be intrigued by Mr Santorum's qualities. Last, Mr Santorum argues in his own 2005 book, ("It Takes a Family"), that family values are not just one page in a portfolio of policies. They are the foundation on which all else must stand. A former aide once told the New York Times that he thought of his boss less as a politician and more as "a Catholic missionary who happens to be in the Senate". Besides, Mr Santorum's thinking on public morality high lights a division in his party. He says in his book that the family, not the individual, is "the fundamental unit of society". This idea, plus his religiosity, undergird his wider politics. Before he went down to defeat (by a margin of 17%) in Pennsylvania's senatorial election of 2006, he was a champion of George Bush junior's no tion of "compassionate conservatism", ie, giving taxpayers' mon ey to faith-based organisations, on the theory that do-gooders who had God on their side perform better than social workers. Such ideas do not grate only on liberals. They also collide with the strand of conservatism represented in this cycle by Ron Paul, whose army of avid followers insist that the best thing govern ment can do is to get out of people's way-and certainly out of their bedrooms. Mr Santorum prefers government to serve as an instrument in the urgent task of remoralising a society that has lost its spiritual moorings. These philosophies are opposites, hard to accommodate in the breast of a single political move ment. The eventual Republican nominee, even if it is the elasti cated Mr Romney, will not find it easy to regroup his party. • Economist.comfblogsflexington
38 Also in this section 39 Bolivia's flawed judicial reform 39 Canada celebrates 1 8 1 2 4 0 Opening Haiti for business 40 A landslide for Jamaica's opposition
For daily analysis a n d debate on the Am ericas, visit Economist.comfamericas
Venezuela's election campaign
Chavez shuffles the pack CARACAS
The convalescent president moves to shore up his ties to the army and oligarchs at the expense of civilian radicals
OTHING seems to irk Hugo Chavez, president since 1999, more than the rise of a possible rival with in the ranks of his Bolivarian revolution. His recent brush with mortality, in the shape of a cancerous tumour excised by Cuban doctors last June, has turned the question of succession into one of more than academic interest. In October, more over, he will seek a new term in an election that some polls suggest he might lose. Talk in Caracas had begun to focus on Nicolas Madura, the foreign minister, as the most likely dauphin. But he has suddenly been cut down to size. In announcements over Christmas, Mr Chavez shuffled the pack of his leading aides. The "bourgeoisie", he said, saw Mr Madura, a former bus driver and union leader, as a potential successor. But to the president he looks more like a state gover nor. "It's a premonition I have," Mr Chavez declared. "I see him as governor of Cara bobo," a populous and politically impor tant state close to the capital, currently run by the opposition. Similarly sidelined were the vice-president, Elias Jaua (pic tured above, to the left of Mr Chavez), and the interior minister, Tared< el Aissami. Both men, along with the defence minister, General Carlos Mata Figueroa, will seek to wrest key states from the opposition in gu bernatorial elections in December. The big winner in all this is Diosdado Cabello, a former vice-president who had
N Venezuela's
fallen from grace after failing in 2008 to win a second term as governor of Miranda state, which covers much of greater Cara cas. Mr Cabello, who as an army lieuten ant took part in a failed military coup led by Mr Chavez in 1992, has been named first vice-president of the ruling United Social ist Party (Psuv) and, this week, president of the National Assembly. Mr Jaua, Mr Ma dura and Mr Aissami are all regional vice presidents of the party, and become his subordinates. An ally of Mr Cabello's, Francisco Ameliach, another former army officer, has been put in charge of party or ganisation and electoral strategy. The Psuv, which was created in 2007 in a bid to unify the left behind the leadership of Mr Chavez, is primarily a machine for winning elections. Its factions are held to gether by little more than loyalty to the leader. The president, who is also party chairman, takes all important decisions. Dissent is not tolerated. But it is possible to discern behind a smokescreen of adula tion for Mr Chavez the outlines of factions. These stem largely from individual ri valries. But there is an ideological dimen sion too. Whereas Mr Cabello represents a pragmatic alliance between elements of the army and business interests ("the Boli garchs", as they are called), Mr Jaua and other leading civilians are radical social ists. Mr Madura's appeal as a potential suc cessor was at least partly based on the hope that he could bridge the two groups
in the same way as Mr Chavez has. By putting the party machine in the hands of Mr Cabello, Mr Chavez has sig nalled his reliance on the military wing of his movement. Mr Cabello's army contem poraries have risen to be generals or senior colonels, holding key troop commands. Nobody, not even the president, under stands politics, the armed forces and the business world, and the way they interact, better than Mr Cabello. That makes him both a crucial ally and also a potential threat to Mr Chavez. For that reason, he may not be allowed to take over from Mr Jaua as vice-president, nor to fulfil a longstanding ambition to re place Rafael Ramirez, who is both energy minister and boss of the state oil monopo ly, Petr6leos de Venezuela, with a nominee of his own. Mr Ramirez lost his post as a Psuv regional vice-president a year ago amid scandals involving the oil company. But he still controls the government's main source of money. Mr Chavez needs to find some way to regain control of the political agenda. The opposition, united now as never before, is due to choose its presidential candidate in a primary on February 12th. Half a dozen contenders are campaigning energetically, while Mr Chavez is still partially convales cent. The opposition's exercise in democra cy sheds an unflattering light on the Psuv, whose candidates are chosen by the leader's fiat. Rather than replacing the ousted minis ters immediately, the president has told them they will lose their jobs at some point in the next few weeks. This suggests that he is awaiting developments on both sides of the political fence. For a man anx ious to project an image of strength, the im pression is of uncharacteristic hesitation. Mr Chavez has bounced back many times before. But he is no longer invulnerable. •
The Economist January 7th
The Americas 39
2012
The justice system in Bolivia
Rough justice
LA P A Z
The wrong way to reform the courts
N THE streets of El Alto, Bolivia's poorest
I and fastest-growing city, scarecrow dum
mies hang grotesquely from lampposts with ropes around their necks as a maca bre warning to potential thieves and crimi nals. The threat is not idle. Residents have little faith in the police or the courts. In stead, they often take justice into their own hands: the lynching and killing of alleged offenders is not infrequent in El Alto, nor elsewhere in Bolivia. The socialist government of President Evo Morales reckons that the way to re store public faith in the judicial system is to replace the judges with elected ones. On January 3rd, with much fanfare, he swore in 56 judges elected in a national ballot last October. They will now compose the country's four highest courts. For Mr Morales's supporters, this repre sents popular justice. The judiciary was "packed by middle-class opportunistic lackeys of the government of the day", complained Idon Chivi, an official respon sible for the reform. The new judges, he says, are more representative: so% are women and some, for the first time, are Amerindian. The opposition complains that the new judges are in practice handpicked govern ment appointees. It sees the judicial elec tion as intensification of the politicisedjus tice already dispensed under Mr Morales. Many Bolivians heeded an opposition call to register a protest vote in October. Only 40.5% of the votes cast in the judicial vote were valid; 41% were spoiled and 18.5% blank. The opposition campaign was spearheaded by Juan del Granado, a for mer mayor of La Paz who until 2009 was a close ally of Mr Morales. The government already controlled the nominally independent public prosecu tors. In 2010 it used its legislative majority to approve a law that requires elected offi cials to be suspended from office if charges of any kind are filed against them, even be fore any evidence has been presented in court. Two opposition governors and two mayors have been ousted in this way. Next may be the governor of Santa Cruz, Ruben Costas, one of the government's fiercest critics, and the current mayor of La Paz, Luis Revilla, from Mr del Granado's party. Juan Antonio Morales, president of the Central Bank from 1995 to 2006 and an in ternationally respected economist, has been under house arrest since September. He is accused of receiving salary bonuses
during his term at the bank, a normal prac tice for most senior civil servants at the time. The first court hearing of Mr Mo rales's case was postponed six times last year. All of Bolivia's living former presi dents since 1996 have been charged with offences, and in some cases have yet to be given a hearing. Their work and travel rights have been periodically restricted. Certainly there is much in the judicial system that needs reform. At least two thirds of the prison population is on re mand, awaiting trial. As well as slow, the courts are underfunded, inefficient and of ten corrupt. The judicial system's budget was just $75m last year, and it is due to shrink in real terms this year. Salaries of top judges are capped at $2,174 per month,
an invitation to graft. Even the new judges have asked for the cap to be doubled. Many rural Bolivians have no access to the courts. The new constitution drawn up by Mr Morales's party and approved in 2009 has legalised traditional justice dis pensed by village elders. Community jus tice can sometimes resemble legalised lynching, featuring stoning, strangulation or burning with petrol. The police do not keep separate records of these acts. Carlos Valverde, an investigative j ournalist, chronicled 16 such killings in 2009 and 13 in the first half of 2010, including the kidnap, torture and murder of four policemen. Far from improving the quality of jus tice in Bolivia, Mr Morales's reforms risk making it worse. •
Canadian history
The 1812 overture OTTAWA
Making the most of a forgotten war
ANADA and the United States started
C the new year by firing cannons at
each other across the Niagara river, which separates the province of Ontario from the state of New York, leaving a whiff of gunpowder and politicking in the air. The guns at Fort George on the Canadian side and Old Fort Niagara on the American shore were replicas of those from the 1812 war between the two countries, and were loaded with blanks. They fired the first salvo in what Canada's government plans as a noisy 2ooth anniversary celebration of a large ly forgotten war in which British red coats, colonial militia and Indian allies stopped an American invasion (which Thomas Jefferson mistakenly predicted was "a mere matter of marching") of what was then a sparsely populated string of colonies. "The heroic efforts of those who fought for our country in the War of 1812 tell the story of the Canada
we know today: an independent and free country with a constitutional monarchy and its own distinct parliamentary sys tem," says James Moore, the minister of Canadian Heritage. That wraps the maple syrup of truth in the waffle of propaganda. Although Canada did not become a self-governing country until1867, the 1812 war did help to forge a common identity among dis parate colonists, many of whom were Americans who had come north out of loyalty to the Crown or in search of cheap land. But the Indians did more to foil the American invasion than the Canadian militia, and the British reneged on a promise to reward them with land, according to Alan Taylor, a historian of the war. The Canadian side won mainly because the Americans were poorly led, supplied and organised. Both sides plun dered and murdered civilians. Stephen Harper, Canada's Conserva tive prime minister, is keen to play up his country's image and past as a warrior nation. (His Liberal predecessors pre ferred to stress its commitment to peace keeping.) If Americans paid much atten tion to Canada, they might be offended. Instead they seem bemused. "I've never heard of two countries trying to figure out how to have a party over a war," said Rick Snyder, Michigan's governor, during a recent visit. The Americans humoured their northern friend and neighbour by firing their cannon. But Old Fort Niagara was closed to the American public for New Year's Day, whereas at Fort George the lieutenant governor of Ontario, Queen Elizabeth's representative in the prov ince, held his annual reception.
The Economist January 7th
40 The Americas Rebuilding Haiti
Open for business
P O RT-A U - P RI N C E
The new president wants to change his country's image
A S IF anyone needed reminding that Hai .1""\. ti is often synonymous with poverty
and tragedy, on Christmas Eve more than three dozen emigrants from the country drowned after their overcrowded boat sank off the eastern tip of Cuba. Even be fore a massive earthquake in January 2010 devastated the capital, Port-au-Prince, Hai ti was a stain on the conscience of the Americas. Now Michel Martelly, the new president, wants to change his country's image from basket case to business oppor tunity. His officials talk up the tourist po tential of 1,700km (1,060 miles) of coast line, and the attraction for investors of a productive workforce and tropical crops like mangoes and coffee. "The Haitian peo ple are not looking for handouts, but for a hand up-for jobs and work that will re store their dignity," Mr. Martelly told a re cent investment conference sponsored by the Inter- American Development Bank. Aid officials say that Mr Martelly is the most pro-business president since Haiti moved towards democracy in the 1980s. He has pledged to create soo,ooo jobs in three years, which would make a signifi cant dent in an unemployment rate of about 40%. A start has already been made. In November officials cut the ribbon on a $257m industrial park near Cap Hai:tien, the second city. Anchored by a South Kore an clothing manufacturer, the park will create 8o,ooo jobs directly and indirectly, they say. Another South Korean firm, LS Cable and System, is mulling setting up a factory. Work is due to start this year on the first new international hotel in Haiti in de cades, to be operated by Marriott. The government hopes to cut the steps needed to set up a business from 12 to two and to loosen curbs on foreign ownership of property. Laurent Lamothe, the foreign minister, who is also a telecoms entrepre neur, wants to use Haiti's embassies and consulates as investment advice centres. But the investment drive faces obstacles. The biggest is poor infrastructure. Electric ity costs 23 cents a kilowatt-hour, against 14 cents next door in the Dominican Repub lic. Although Haiti has had some success exporting mangoes, producers still lose up to half their crop on miserable roads. Even basic lodging is expensive. Mr Martelly is a politically inexperi enced populist. He will find it hard to get business-friendly reforms through a legis lature in which his party has few seats and which rejected his first two choices for
prime minister. The government is dither ing over whether to renew the mandate of the Interim Haiti Reconstruction Commis sion, a body set up after the earthquake to co-ordinate foreign aid. Mr Martelly may be right that to attract private investment Haiti needs to change its image of eternal aid supplicant into one of a hard-working place. But it also needs to change realities on the ground, and that may be harder. • Jamaica's election
Go, sista
Sodom and Mrs Simpson Miller
O HOLD an election on December
T29th, sandwiched between Christmas
and New Year's Eve, always seemed odd. But Andrew Holness, Jamaica's new, young, prime minister, wanted his own mandate after succeeding Bruce Golding as head of the ruling Jamaica Labour Party (JLP). For his whimsy, the voters duly de prived him of his job, after a mere ten weeks. They gave a landslide victory to Portia Simpson Miller, whose People's Na tional Party (PNP) took 42 of the 63 seats. In office since 2007, the conservative JLP had grappled with Jamaica's twin
2012
scourges of economic stagnation and viol ent crime. Mr Golding's government en tered a standby agreement with the IMF, but proceeded to miss most of the targets, especially that for trimming the public-sec tor wage bill. A three-year recession has technically ended, but growth has been mainly in bauxite mining and has been imperceptible to the public. In May 2010, under intense American pressure, Mr Gol ding sent police and troops into Tivoli Gar dens, the stronghold of a leading gangster and JLP supporter, Christopher "Dudus" Coke. The operation left 73 civilians dead, many of them apparently shot in cold blood. The murder rate has come down, but it remains frightening by any non-Ja maican standard. The pollsters had predicted that Mr Holness would cling to office. The JLP's campaign pilloried Mrs Simpson Miller as a half-educated incompetent. But "Sista P", as she is known, got the best of the cam paign debate. In what the Gleaner, Jamai ca's main newspaper, calls a "largely ho mophobic" country, she courageously said she would not continue Mr Golding's ban on gays in the cabinet, and would allow a parliamentary vote on a colonial law against the "abominable crime of bug gery". Clive Mullings, the JLP energy min ister, warned that "God brought down fire and brimstone on Sodom and Gomorrah". He lost his seat. Some in the PNP reckoned this election might have been a good one to lose. Mrs Simpson Miller promised to preserve pub lic-sector jobs and remove the tax on elec tricity bills. Negotiations with the IMF-the agreement runs out in May-will be bruis ing. In August Jamaica will mark so years of independence from Britain. In 1962, it was as prosperous as Singapore. In a poll last year, 6o% said they would be better off if the island were still a colony. Sista P's honeymoon will be brief. •
Portia mercifully defied the forecast of fire and brimstone
41 Also in this section 42 Iran flexes its muscle 43 Syria lets in the Arab League ... 43 .. and warns its religious minorities .
44 Somalia's interfering neighbours 44 South Africa turns against alcohol
For daily analysis and debate on the Middle East and Africa, visit Economist.comfworldfmiddle-east-africa
Egypt's elections
Patience and steady nerves required CAIRO
With Islamists set to dominate the new parliament, secular Egyptians hope that the moderates will keep the extremists in check. So far they seem willing to do so
T UMBERING warily towards the first an L niversary of their January 25th revolu tion, Egyptians seem uncharacteristically uncertain what to think of it all. Some claim success, pointing to such gains as a freely elected parliament, soon to be in stalled, a vibrant press, improving security and firm promises by the country's mili tary rulers to step aside by July, once a fresh constitution is in force and a new president voted in. Anyone fearing for the spirit of the revolution may take heart from the sight, outside the courtroom where Egypt's ousted president, Hosni Mubarak, is being tried, of hawkers selling flip-flops impu dently imprinted with the image of the fallen pharaoh's face. Yet after the most turbulent year in Egypt's recent history, many see a gloomi er picture. The economy is frozen and sink ing. The intentions of the Islamists who look set to secure a legislative lockhold re main disturbingly unclear. And the op pressive "deep state" built up by the securi ty services and politicians over 6o years of veiled dictatorship shows signs of resur facing with a vengeance. Not only is it lash ing out viciously with killings, beatings and midnight arrests of dissidents. Its agents in the armed forces, the secret po lice, the judiciary and the state-influenced media are up to their old tricks, infiltrating provocateurs into protests and spreading a smokescreen of xenophobic innuendo de signed to persuade struggling citizens to
blame their woes on the very troublemak ers who made the revolution possible. Competing narratives play out nightly over Egypt's increasingly crowded air waves. Pro-government channels pump out praise of the army as defenders of or der. Rival private channels express a stark ly different view, chronicling police brutal ity, electoral shenanigans and government dim-wittedness. One set of video footage appears to show protesters setting fire to a library of rare books in central Cairo dur ing clashes in mid-December that left 17 ci vilians dead. Contrasting imagery shows protesters nobly struggling to douse the flames as soldiers look on. Some newspapers gleefully report that an official probe into foreign funding of human-rights groups has uncovered mali cious meddling by enemy states. Others note instead that the ousted Mubarak re gime deliberately suspended such groups in legal limbo, that raids on their offices were conducted illegally, and that the Egyptian army itself relies on $1.3 billion a year of American military aid. Foreign governments are not amused. The German foreign minister called in Egypt's ambassador and sent a top envoy to protest against the closure of a German foundation that sponsors human-rights activity. America's State Department drily noted that persecution of American-fund ed pro-democracy groups appeared to be driven by "Mubarak holdovers who don't
understand how these organisations oper ate in a democratic society." Reverting from revolutionary fervour to habits inculcated during the long years of Mr Mubarak's rule, weary Egyptians seem inclined to tune out of such disputes. For the time being, members of what is jokingly referred to as Hizb al-Kanaba ("the Couch Party") have a powerful ally. The Muslim Brotherhood has lately kept judi ciously aloof from the political squab bling. The 83-year-old group can afford to let noisy secular rivals scrap with mulish ruling generals because its own front, the Freedom and Justice Party, along with some smaller partners, looks poised to sweep nearly half the seats in parliament's lower house. The Brothers may tussle bit terly with the generals in due course, espe cially if they refuse to step down pretty smartly, but for the moment the two sides are seeking not to antagonise each other. While Cairo has been roiled by two months of street protests, the rest of the country has calmly gone on voting, with the last of three regional rounds due to wrap up on January nth. Egypt's first pretty open election in decades has not been free of mischief, but nobody disputes its broad outcome. A bevy of secular par ties and independent candidates, includ ing a handful of revolutionary activists, will together hold around a quarter of the seats in parliament. Bolstered by the 25% support for the Salafists' more radical Nour Party, Islamists will control the rest. This does not mean that the Brothers and the Salafists will now act in concert. Each Islamist faction embraces a spectrum of views that overlap on many counts, yet there were bitter exchanges during the election campaign. Whereas the Brother hood has mellowed over years of long ex perience, the Salafists have scrambled to catch up with Egypt's fast-changing poli- ��
The Economist January 7th
42 Middle East and Africa
� tics. In contrast to the Brothers, Nour Party leaders belatedly joined the revolution, blessed the practice of democracy (previ ously dismissed as a contravention of god ly laws) only in September, and accepted Egypt's peace treaty with Israel only in De cember, to the angry consternation of the party's more radical elements. Until now, however, Nour has rejected any form of co-operation with "godless" liberals. Such dogmatism may be hard to square with practical politics. It may also unfairly represent the wishes of the Sala fists' largely rural and poor constituents, who in many cases backed them simply because their candidates appeared less corrupt or because secular parties failed to build a local base. "I voted for Nour because we know them in our village," says a building con tractor in Fayoum, south-west of Cairo. "They may look extreme, but now they carry a huge responsibility to deliver re sults on the ground. If they don't, we'll vote them out." With the flow of more nor mal politics slowly replacing the turmoil of recent months, anxious Egyptians sore ly need such patient country wisdom. • Iran v the United States
Iran's warning
Despite its sabre-rattling in the Gulf, Iran's options are limited
A S IRAN'S ten days of muscle-flexing na1'"\. val exercises in the Gulf drew to a close
on January 2nd, the price of Brent crude rose by 4% to $112.13, the highest since mid November. The increase reflected nerves over the bellicose tone of Iran's pro nouncements that accompanied its show of strength, amid fears that tension with America was becoming dangerous. On December 28th Admiral Habibol lah Sayyari, the commander of Iran's navy, boasted that closing the Strait of Hormuz, through which tankers carry a fifth of all oil traded worldwide (nearly 17m barrels a day), would "be easier than drinking a glass of water". This was swiftly followed by a warning from Washington that any at tempt to close the 35-mile-wide strait would "not be tolerated". A few days later, Iran's army chief, Gen eral Ataollah Salehi, raised the tempera ture another notch. After an American air craft-carrier, the uss john C Stennis from the Bahrain-based Fifth Fleet, passed through the strait, General Salehi said: "Iran will not repeat its warning. . . the ene my's carrier has been moved to the Sea of Oman because of our drill. I recommend and emphasise to the American carrier not
to return to the Persian Gulf . . . we are not in the habit of warning more than once." There is little doubt that the naval exer cises, known as Velayat 90, were intended as a response to the tightening of Western sanctions triggered by the November re port of the International Atomic Energy Agency, the UN watchdog, which pointed to "strong indicators of possible weapon development" by Iran. A new round of sanctions may be hav ing an effect even before they come into force. On December 31st Barack Obama signed into law measures passed with large majorities in Congress that included barring foreign firms dealing with the Cen tral Bank of Iran, the agency for half the country's oil-related transactions, from ac cess to America's financial system. The val ue of the Iranian rial against the dollar promptly fell by 12%, though it has since re covered after the heavy intervention of Iran's central bank. The intended effect of this new sanc tion, which allows the president some dis cretion over its implementation, is to force countries such as Japan and China that are big purchasers of Iranian oil to choose be tween continuing to buy it and keeping ac cess to the American market for their ex ports. In practice, Mr Obama is likely to allow big trading partners at least a tempo rary waiver to give them and the world oil market time to adjust. But Iran, which gets So% of its revenues from oil exports, will be hard hit. If the European Union goes ahead with its own sanctions against Irani an oil exports, which is likely, the sense of being under siege will grow. Judging how Iran will react in such cir cumstances is difficult. For all its sabre-rat tling, it lacks the military clout to close the Strait of Hormuz for more than a few days. Nor would it be in its interests to do so un less oil exports had been cut to a trickle by
Sayyari has the strait in his eye
2012
sanctions. However, although the regional dominance of the Fifth Fleet is not in ques tion, not to mention the other military as sets America can deploy from local bases, Iran has invested shrewdly in a formidable capability for asymmetric warfare specifi cally designed to counter American tech nological superiority. To that end, it has emphasised the pro curement of numerous types of guided missile, many of them placed on light, highly mobile and relatively cheap plat forms on land, in the air and at sea. These range from the mass-produced Seraj-1 mis sile and the Zolfaqar speedboat, which can travel at 8omph (130kph) and carries the Nasr anti-ship cruise missile, to a growing fleet of Ghadir midget submarines, the Karrar armed drone and mobile shore based missile batteries. The Iranians be lieve that with "swarming" tactics in con fined waters they may be able to over whelm even the sophisticated defences of an American carrier group. Iran could also strike at American eco nomic interests in the Gulf, such as oil facil ities and tankers, and block ships by laying mines, as it did during its war with Iraq in the 1980s. And it might deploy its paramili tary allies elsewhere in the region, such as Hizbullah in Lebanon, Hamas in Gaza and insurgent groups in Afghanistan, to create as much mayhem as possible. Even so, Iran's options are limited. The plight of the embattled Assad government in Syria has weakened its links to Hizbul lah and Hamas. And although the govern ment in Tehran knows it cannot risk an all out confrontation with America, nor can it be easily confident of stoppingjust short of such a cataclysm if it continues to raise the stakes. Despite Iran's recent bluster, cau tion will probably prevail. But the chances of miscalculation are already quite high and getting higher. •
The Economist January 7th
Middle East and Africa 43
2012
Syria's religious minorities
Jangling sectarian nerves DAMASCUS
The country's religious minorities are getting understandably nervous
Syria and the Arab league
No end in sight
As prospects for negotiations fade, calls for military intervention get louder
'l "1 ]HEN the uprising started in Syria ten VV months ago, protesters were ada
mantly opposed to taking up arms against the regime or calling for foreign interven tion. Now, with some 6,ooo civilians dead, many are changing their mind. The Syrian National Council, the main umbrella op position group in exile, has called for the creation of "safe zones". It has also en dorsed the Free Syrian Army, a group of army defectors who are mounting an in creasingly aggressive guerrilla campaign against the regime, though the council's chairman, Burhan Ghalioun, says they should fight only to protect protesters. "After ten months, people want to end the killing in any way possible," says Razan Zeitouneh, a lawyer and activist in Damas cus who still argues for a peaceful revolu tion. In America and Britain, some think tanks close to the neoconservatives who influenced George Bush are eagerly float ing the idea of intervention. This is gaining momentum, not least because of the probable failure of the Arab League to effect a negotiated settlement that would require multi-party elections and the early exit of Mr Assad. A team of observers representing the league was al lowed into Syria on December 27th, raising hopes that the daily death toll might fall. Far from it. At least 220 people have been killed since the observers arrived. The deal with the Syrian government was agreed only after the Arab League ac cepted modifications, including paring down the number of observers from sao to 150; so far around 70 have arrived. The team has visited hot spots, talked to protes ters and condemned the regime's use of snipers to pick them off. But it has failed to
'l "1 ] HEN protests against Bashar As VV sad's regime began, official propa
ganda portrayed the opposition as Islam ist fanatics bent on punishing secular Syrians and religious minorities. This was aimed especially at Alawites and Christians, groups that each make up around 10% of Syria's 22m people. In fact, the protesters have come from all classes and creeds, and activists have worked hard to stress the need for sectarian unity. Other even smaller minorities have taken part. Ismailis, concentrated in Salamiya, north-east of Horns, have joined the anti-Assad fray. The Druze have become more hostile. So have young Kurds, though their political lead ers have been wary of speaking out. But the regime's propaganda may be getting closer to reality in Horns, Syria's third city and the revolution's current centre, which has a very mixed pop ulation. There and elsewhere, sectarian hatred seems to be on the rise, with protesters expressing increasingly fierce hostility to the Alawites, in particular. This is because Alawites, a heterodox offshoot of Shia Islam, are disproportion ately represented in the civil service, the armed forces (especially the senior ranks) and thuggish militias sponsored by the regime. They have overseen the bloody crackdown on the protesters. Many Alawites have not done well out of the regime. Mr Assad's people have now instilled fear in them by pre dicting dire consequences were the regime to fall. They have handed out
sandbags and weapons in Alawite vil lages and Alawite districts in cities, in cluding Damascus and Horns. Tit-for-tat killings in Horns by Sunnis and Alawites have been reported. Rumours of grue some killings of Alawites by dissidents have spread like wildfire. An Alawite graduate in Damascus whispers of her fear of being "sent back to the moun tains", referring to the sect's coastal homeland in the north-west. Mahmoun Homsi, a former member of parliament, now a dissident in exile, has said-to the dismay of fellow opposition figures-that Syria would be "the graveyard of the Alawites", unless they change sides. Many Christians ardently support the regime. They have generally stayed on the sidelines, though most of their lead ers have backed Mr Assad implicitly, and some more openly. The regime has been cautious about co-opting Christians wholeheartedly to fight for it, though many fear that, after four decades of secular autocracy, a Sunni Muslim take over would prompt a wave of persecu tion, perhaps even driving them out of the country. They watched with dismay as their co-religionists fled from neigh bouring Iraq, most of them to Syria, after 2003. Attacks against Egypt's Copts after the fall of Hosni Mubarak have but tressed such fears. In Damascus's Chris tian quarter, Bah Touma, people talk of fleeing to cosmopolitan Beirut should the regime collapse. "If the regime falls," says a Christian woman, "I'll have to wear the veil or leave the country."
give the protesters political or physical pro tection. It has patently failed to end or even soften the regime's crackdown. Under the league's plan, Mr Assad agreed to remove tanks from the towns, to free all political detainees and to talk to the opposition. The league's chief, Nabil el-Ar aby, says that tanks have been withdrawn from residential areas and that 3,500 pris oners have been freed, but activists say he is being hoodwinked. Human Rights Watch, a New York-based lobby, accuses the regime of hiding prisoners in military facilities. Activists say that armoured cars are back in Horns, Syria's third city and the hub of revolt, and that tanks are poised on the edge of many cities to come back in. Gunfire and sniper shots still ring out. Moreover, the opposition doubts the delegation's impartiality. Its head, Mustafa al-Dabi, a former chief of Sudan's military intelligence, has been accused by Amnesty
International of condoning atrocities in Darfur in the 1990s. Even the Arab Parlia ment, usually a weak and waffly outfit that is supposed to advise the league, says that the delegation should now withdraw. If the league's report chastises Mr As sad, it is possible (though not yet probable) that Russia would let the UN Security Council pass a resolution condemning him and even imposing sanctions. Russia has doggedly blocked previous resolutions but apparently leant on Mr Assad to let the league's observers in. In a sign of impa tience, the Russians circulated their own draft resolution in mid-December. But it was rejected by the main Western govern ments in the Security Council because it equated the regime's violence with the protests, which are still mostly peaceful. They are likely to become less so. And if Russia does turn against Mr Assad, his days would surely be numbered. •
44 Middle East and Africa Somalia and Ethiopia
Might things get better for once?
The Economist January Troop movements:
� Ethiopian � Kenyan � Somali government/ African Union
A D DIS A BABA AND N A I R O B I
Ethiopian troops are hurting extremists in Somalia but stability is still far away
ow many countries does it take to H chase away a ragtag band of al-Qaeda
fighters? In Somalia, the answer is a hatful. The country has a "transitional" govern ment that has for years failed to put up a se rious challenge to the al-Qae da-linked Shabab militia. Backing the government are soldiers from Burundi, Djibouti and Uganda who are fighting the Shabab un der an African Union mandate. In October Kenya invaded Somalia from the south with the aim of pushing the Shabab into the sea. France and the United States have intelligence agents and special forces on the ground; the Americans have drones in the sky. And neighbouring Ethiopia has re entered Somalia to clear the Shabab out of the town of Beledweyne. Many independent Somalia-watchers think this could once again end in tears. So malis and Ethiopians have been fighting each other on and off for centuries, with Somali zealots, inspired by Islam, periodi cally launching raids on predominantly Christian Ethiopia-or so the Ethiopians have long complained. Many Somalis re sent Ethiopia's sovereignty over the eth nic-Somali region of Ogaden. An attack on it in 1977 by Somalia ended disastrously; an Ethiopian counter-offensive backed by Cu ban troops wrecked Somalia's army and led to the collapse in 1991 of the last Somali regime to control the whole country. It was 15 years later that Ethiopia invaded Soma lia with American support to unseat an Is lamist government in Mogadishu, the sea side capital that has long been a wreck. Meles Zenawi, Ethiopia's prime minis ter, withdrew his troops in 2009, saying the jihadist threat had receded. But the Shabab consolidated its hold on southern and much of central Somalia, forming a Tali ban-style administration. It thrived until last year's famine exposed its incompe tence and cruelty. Suicide-bombings that have killed young Somali students have cost the movement much support, as was shown by the unusually warm welcome the Ethiopians got in Beledweyne, similar to the one the Kenyans got in some towns in the south. For the first time in years the Shabab is on the defensive outside Mogadishu, most of which it has lost in the past six months. Kenyan and Ethiopian forces, with some fumbling, are slowly but methodically go ing after them. Thousands of Shabab fight ers, many of them boys, are marching long distances through the bush to get away.
Their artillery pieces are useless and they feel insecure even in their old strongholds. The Somali people, less afraid of reprisals, are turning hostile. In Beledweyne locals mingle with Ethiopians in cafes, suggesting they believe the Shabab will not be back. Somalia may now have its best chance of peace and security since 1991. If the gov ernment can consolidate its hold on Moga dishu, it will be a big step forward. The cap-
7th 2 0 1 2
ital's port is busy, its markets bustling. More suicide-bombings and assassinations will occur; a respected local journalist was killed last month. But this year most resi dents will, with luck, seek to remake their livelihoods rather than worry about fend ing off jihad. Yet as anarchy recedes, old territorial questions will re-emerge. Somaliland, in the north, wants independence. Puntland, in the north-east, wants a lot of autonomy. Ethiopia is all for such goals. Mr Meles has good relations with these autonomous parts, hoping to divide and rule. He would like a corridor through Somaliland to ex port gas and likes using the port of Berbera. But Ethiopia itself is a brittle political construct. A local court last month sen tenced two Swedish journalists to 11 years in jail for crossing without permission from Somalia into the Ogaden. Mr Meles has had to subdue separatists from the Ogaden National Liberation Front. The Oromo people in southern Ethiopia occa sionally display separatist tendencies. The Shabab is far from the only threat to stabil ity in the Horn of Africa. •
South Africa and alco hol
Don't touch
a
drop
J O H A N N ES B U RG
The government wants to make the country less drunk
T OWERING the permissible alcohol
L level for drivers is common enough.
Banning booze on the roads altogether is plainly far more drastic. But road deaths in Brazil, for instance, have dropped by almost a third in the three years since the government told drivers to eschew even a drop. The South African government, in a bid to cut the country's tippling, pro poses to follow suit. It wants to ban all alcohol advertising. Some ministries have stopped serving booze at functions. What about banning roadside pedestri ans from drinking too? Even that may be under consideration, though it is unclear how walkers weaving home from a legal drinking bout would be taken to task. In alcohol-consumption league tables, South Africa is middle-of-the-road; be tween half and two-thirds of its citizens never drink. But if teetotallers are exclud ed, South Africans may be the fifth-heavi est tipplers in the world, with each adult drinker downing on average 35 litres of pure alcohol a year, twice as much as in France or the United States, says the World Health Organisation. Many South Africans are binge drink ers. The country's Central Drug Authority estimates that over a third drink from early Friday afternoon, when most get paid, right through to Monday morning, when one in ten drivers are estimated to
be over the drink-driving limit. Cheap home-brewed beer is their favourite. Alcohol certainly boosts South Afri ca's murder rate, one of the highest in the world. Three-quarters of knife murders, half of "blunt-instrument murders" and 40% of gun murders are reckoned to be committed under the influence. And alcohol is blamed for around half of the 14,000 road deaths a year. More than a third of those killed are pedestrians, most of them also drunk. And alcohol helps raise the country's towering rape, and still devastating Hiv-infection, rates; drunks tend to forget about condoms.
I
The world in its cups Total alcohol consumpti on per perso n * 2005, litres o f pure alcohol
0 South Africa Nigeri a Senegal Kenya Brazil
5
1 0 15
20 25
30 35
�5�f
Britain France Ethiopia Ghana
••••·
Source: WHO
*Above 15 years old, excluding teetotallers
U nited States
45 Also in this section 46 A pay cut for Singapore's politicians 46 Damming the Mekong 47 Lifting martial law in Fiji 48 Thailand's politics 48 Chinese broadcasti ng 49 Banyan: The Fukushima black box
For dai ly analysis a n d debate on Asia, visit Economist.comfasia Economist.comfblogsfbanyan
Reviving Kolkata
The cit y that got left behind
K O L KATA
Can India's original economic powerhouse get its act together again?
NATIVE-BORN writer, Amit Chaud
Ahuri, says that Calcutta should be com
pared to world cities like New York and Paris for its rich past and mix of influences. Yet ever since the Suez Canal was built in 1869, boosting trade in Bombay (now Mumbai), people have said the city (now Kolkata) has been going to the dogs. They have been right. Calcutta lost its title as In dia's capital a century ago, and its status as the country's industrial engine in the 1950s. By the early 1970s visitors were mak ing apocalyptic predictions of plagues and starving, rampaging mobs, and by the end of that decade Marxists were in charge. To day Kolkata evokes Havana, beautiful but shabby, the last city to remain largely un touched by India's 20-year boom. "I love the city, but am ashamed of its condition," says Sandipan Chakravortty, boss of one of the few units of the giant Tata Group to be based there. Now West Bengal, the state which Kol kata dominates, has a new government, led by the redoubtable Mamata Banerjee. Her victory in an election last year ended over three decades of Marxist misrule. She insists that she will turn things around in the state. But she is also a figure of national importance, because her Trinamool Con gress is a key ally of the Congress Party, which heads the ruling national coalition. Her rise will be a test of two things: wheth er the bits of India left behind can catch up, and whether a populist who depends largely on a rural base for support can still
prove to be a reformer. The incoming West Bengal government has inherited a mess. The finance minister, Amit Mitra, an economist and former boss of India's main business lobby, stands in an office in Writers' Building, once used by the East India Company. His desk is laden with the thick, string-bound paper dos siers beloved of Indian civil servants and cordially loathed by everyone else. "No one knows where all the files are," he says, accusing the last lot of administrative cha os and unpaid bills. The state's finances are rotten. Mr Mitra is trying to raise tax rev enues, while seeking debt forgiveness from the central government. Reforming the bureaucracy is vital, too, amid claims that it is politicised. "They created a fascist structure while wearing the mask of de mocracy," he says of the Communist Party of India (Marxist) that used to rule. How much economic damage the com munists really did is contested. State-level GDP figures suggest a performance in line with India's average in recent decades. Supporters of the communists point to progress in agriculture and services. But foes mutter that the state-level GDP statis tics are assembled locally and of doubtful accuracy. And no one disputes that West Bengal has suffered deindustrialisation on a par with the likes of Detroit. According to the central bank, the state accounted for a quarter of India's industrial capital stock in 1950. By 1960 it contributed 13% of manu facturing output and by 2000 just 7%.
Other measures are just as dire. Bank lending is below the national average. Cal cutta's population fell slightly over the past decade, no mean achievement in a rapidly urbanising country. Only one big non-state firm is based there, after an exodus that be gan in the 1960s. Most pitifully of all, West Bengal has received less than 2% of the for eign direct investment that poured into In dia over the past decade. One explanation for all this is that Ben galis, whose large diaspora in India and elsewhere is conspicuously successful, make lousy entrepreneurs at home. "A Bengali thinks like a communist; he has it in his blood," says one boss, while buzzing for a minion to come and light his cigarette. Like many of the region's remaining busi nessmen, his family roots are in Rajasthan. But the prime culprits for industrial decline are the politicisation of land tenure, which makes it hard for firms to get space, and dreadful industrial relations. West Bengal has a lexicon of strife, with goons who flex political muscles on the streets and wide spread gheraos (taking bosses hostage) and bandhs (general strikes). Keeping a lid on strikes has been one of the new government's first achievements. Now it is trying to love-bomb Indian busi nesses into investing again, in the hope of creating a virtuous circle of more jobs and tax revenues. Mr Mitra, the finance minis ter, says the signs are encouraging. Both TCS and Cognizant, two big technology firms, say they plan to expand operations in Kolkata, attracted by still-good universi ties. Tourism in Kolkata has potential, giv en the glorious colonial-era architecture, plenty of culture and an alluring nightlife. But first the city needs an airport that is not in the stone age. Complicating things, however, is the ambiguous attitude towards business of Ms Banerjee herself. In 2008 she led the op position to Tata building a big car factory in ��
46 Asia
� rural West Bengal, arguing that farmers were being exploited. Tata moved the fac tory to Gujarat, a booming western state, leaving, as an entrepreneur puts it, "a very heavy hangover". In late 2on Ms Banerjee failed to support both the central govern ment's plans to let foreign supermarkets into India and its latest attempt to pass an anti-corruption bill. Some worry that her relations with Congress have become so dire that her own Trinamool party may leave the coalition. Local business folk also fret about too charismatic a style of leadership. In a typi cal recent week Ms Banerjee kept to a hy peractive schedule that included perso nally dealing with a hospital fire and an alcohol-poisoning scandal. They say a framework for long-term decision-making has not been put in place. The head of a business group says "a lot of people are paying lip service" to the idea that things
The Economist January
are changing, but they continue to invest outside the state. An entrepreneur who runs a chain of schools is even more pessi mistic. The new government is dangerous ly populist, with "no ideology, no vision." That is unfair, but if the government cannot convince local businesspeople, it has little hope of wooing capital from else where, especially when other states, led by Gujarat, have well-oiled machines for at tracting money and talent. The hope is that the new government will soon find its feet and turn its attention to reintegrating Kol kata into a global economy that it was once, long ago, at the heart of. Ms Banerjee may be in power for some time, so she has the potential to develop the kind of long term strategy that is needed for success. The fear is that inaction combined with her popularity in the countryside will con demn the city to yet another decade as In dia's capital of stagnation. •
Singa pore politics
Falling on their wallets SINGAPORE
Politicians take a pay cut-poor things
T IS a proud boast of Singapore that this
I very small but immensely wealthy
city-state is the least corrupt and best place to do business in the world. And a chief reason for that, at least according to the politicians, is that they themselves are by some way the highest-paid elected officials in the world. Why would a min ister bother with corruption, so the argu ment goes, when he can take home S$1.6m ($1.3m) a year for just keeping on the straight and narrow? Maybe. But most Singaporeans feel that their representatives have stretched that argument too far. Anger boiled over during last year's general election, with many opposition candidates questioning whether it was really necessary for Lee Hsien Loong, the prime minister, to trouser up to S$3-4m a year (compared with Barack Obama's $4oo,ooo), espe cially at a time when many Singaporeans were struggling with rising prices. Surely Mr Lee did not need that much to keep him honest? The salary issue helped to push the ruling party's share of the vote down to its lowest-ever level. After this unprecedented public re versal, bordering on humiliation, the government vowed to respond. Now it has. Mr Lee has promised to accept in full the recommendations of an independent review committee on salaries that he himself set up. The committee, which reported on January 4th, recommends that the prime minister take a pay cut of 36%, bringing his salary down to a paltry S$2.2m, and that ministers take slightly
bigger cuts. The salary for the largely honorific president is to be more than halved. And from now on all ministers will lose their special pension schemes. It is a victory for democracy, Singa pore-style. The knack of responding to voters' complaints while sticking to its basic operating principles is what has kept the People's Action Party in power ever since independence in 1962. After all, despite appeasing the voters, Singapore's politicians remain the best-paid in the world: a minister will still get S$1.1m a year. No one feels too sorry for these sea-green incorruptibles-just as no one suggests that they will be any less vir tuous for their pay cuts.
Clean hand
7th 2012
Damming the Mekong
In suspension C H I A N G MAl
Further delays to a planned giant dam in Laos
HE fast-flowing currents and rich biodi of the Mekong river have gained a temporary reprieve. A meeting in December of the Mekong River Commis sion (MRC) has once again withheld ap proval for a controversial dam at Xayaburi in northern Laos. In a joint statement the four members of the MRC-Cambodia, Laos, Thailand and Vietnam-called for further studies on the dam's impact on the lower Mekong. (Until now the river has not been dammed outside China-see map on next page.) The MRC said it would ask Japan to help conduct the research. The decision to postpone construction has been applauded by many environ mental groups. They argue that, if the dam goes ahead, it will devastate ecosystems and pose a threat to fisheries, food security and the livelihoods of 6sm people. What is more, a positive decision could also have given the go-ahead to eight other dam pro jects in Laos, and two in Cambodia. All are subject to the MRC consultation process, which is designed to improve dialogue among the riparian countries as well as the management of the river. But Philip Hirsch, a Mekong specialist at the Universi ty of Sydney in Australia, says that the de cision to postpone Xayaburi has broader implications. "If they [pro-dam interests] get Xayaburi, they will probably get the lot," he suggests. The environmentalists' elation may turn out to be premature. A former Lao offi cial working with the hydropower sector confirms what many have suspected. "The decision by the Lao government to build the Xayaburi Dam has been taken. What ever the other Mekong countries say, it is determined to go ahead in 2012." Laos is not the first poor country to be caught between the need for development on the one hand, and environmental or diplomatic concerns on the other. The gov ernment's economic strategy relies heavily on hard-currency earnings from selling electricity to its neighbours. At the Decem ber meeting of the MRC, Cambodia's min ister for water resources, Lim Kean Hor, spoke of the need for "the regional spirit" of the Mekong Agreement (which created the MRC in 1995) to balance "economic de velopment without compromising liveli hoods of their peoples and the ecology." But it is not clear that such a balance can be achieved under the current international governance of the river. The MRC depends on consensus, and its members have no ��
Tversity
The Economist January 7th
Asia 47
2012
Mekong dams " Existing / Under construction " Planned
� veto powers. If Laos decides to go ahead, there is nothing anyone else can do. What may be causing Laos to hesitate is fear of offending its eastern neighbour and close friend, Vietnam. The two ruling Communist Parties have been allies for more than so years. The Vietnamese fear losses of fish and agricultural production in the fertile Mekong delta, and have de manded a moratorium on dams on the main stream of the Mekong for ten years. On the other side of the argument is
Thailand, which has a huge private-sector stake in the dam. CH. Karnchang, a Thai company based in Bangkok, would lead construction, with financing from four Thai banks, and 95% of the electricity will be sold to Thailand. A power-purchasing agreement has already quietly been signed between Thailand and Laos, and the Thai side has pushed ahead with building a road to the site of the dam. "By moving un der the radar of the Mekong River Com mission, Thailand and Laos have threat ened the spirit of regional co-operation and the integrity of the 1995 Mekong Agreement," claims Piaporn Deetes of In ternational Rivers, a pressure group. Big-power rivalries are involved too. A spokesman for Hillary Clinton, America's secretary of state, has praised the decision to delay the dam. The Chinese have al ready constructed several dams across the upper reaches of the Mekong within Chi na. Observers in the region, and in Wash ington, think that if the Xayaburi project were to go ahead, the next dams in Laos will be built by Chinese companies, taking China deeper into South-East Asia. Ameri can concerns are not just environmental, after all. •
Lifting martial Law in Fiji
A gift from the Commander
CA N B E RRA
A coup leader attempts to show his softer side
IJI'S military commander and prime
F minister, Commodore Frank Bainima
rama, promises that martial law will be lift ed on January 7th, and that consultations on a new constitution will begin in Febru ary. The announcement from the troubled islands was welcomed by the Common wealth, of which Fiji is a wayward mem ber, and by Australia, its biggest neighbour. The Commonwealth secretary-general, Kamalesh Sharma, said that lifting public emergency regulations was "long over due", and called for a fresh election. Aus tralia's prime minister, Julia Gillard, said it was a "first step", but that democracy had to be restored. Both are right to be cautious. Martial law was first introduced after Mr Bainimarama seized power in Decem ber 2006. It was lifted the following May, but then reimposed in September 2007 to head off protests by public-sector unions, traditional chiefs and leaders of the Meth odist church. Since April 2009, when the country's constitution was abrogated, martial law has been a permanent fixture. Mr Bainimarama has ruled by decree, put ting in place draconian media and other laws that will permit continued censor-
ship and harassment of the government's opponents even after martial law is lifted. So far, there is little indication that the government intends to go easier on its op ponents. Over the new-year weekend, sev eral prominent politicians were arrested
Stand down, Frank
for "urging political violence"-rumoured to be for helping to foment protest against a new mining development in the interior of Fiji's largest island, Viti Levu. Ending martial law is consistent with Mr Bainimarama's promise in July 2009 to hold a new election by September 2014. He also promised that consultations towards a new constitution would begin next year. For those to take place, he acknowledges, controls on press freedoms and public meetings need to be removed. Yet this would not be the first such exer cise. In 2008 a National Council for Build ing a Better Fiji involved mainly cherry picked regime supporters. In 2009 a Politi cal Dialogue Forum was at first intended to include the political parties, but it ended up excluding even those that had once sympathised with the Commander's coup. So the Commonwealth's Mr Sharma has good reason for insisting that Febru ary's consultations need to be "fully inclu sive", aimed at "a genuine national con sensus on the constitution, clearing the way for credible elections". Mr Bainimarama's latest announce ment comes after a relatively quiet year in Fiji. The main dark cloud has been the ha rassment of trade unions, in the form of ar bitrary arrests and restrictions on workers' rights in "essential industries". Gone, how ever, are the rifts between 2007 and 2010, when a succession of high-profile politi cians and army officers broke away to join the opposition. Acquiescence, submission and simple coup-weariness seem to have set in among Mr Bainimarama's oppo nents. What is more, after a severe slump be tween 2007 and 2009 the economy has fared better, helped by an inflow of Austra lian tourists to Fiji's sun-soaked resorts. Soft loans from Beijing have financed key infrastructure projects, helping to position Chinese companies for expansion into other sectors, including bauxite mining. ��
48 Asia �
Concerned about a loss of regional influ ence, Australia has just relaxed its tough stance towards the island-state, announc ing that it would double bilateral aid, to A$36m ($37m) in 2013-14. Most of the mon ey will go towards health, education and helping to alleviate poverty. So Mr Bainimarama has good reason to feel more secure, and to grab the opportu nity to obtain greater acceptance for his coup-spawned government both at home and abroad. Yet there are grounds for thinking that, with luck, things may not all go his way. In Fiji, constitutional-reform processes following its all-too-frequent coups have a habit of developing a mo mentum of their own as they seek to ob tain a broad degree of legitimacy. That is what happened in Fiji a decade after a coup in 1987. Contrary to expecta tions, a new constitution that emerged from the long consultation process dealt with many of the grievances of the minor ity Indian population in Fiji. So even if the early stages look heavily compromised this time round, as they did the last time, the final result might prove broadly accept able. But for that to happen, some way still has to be found to ease Mr Bainimarama out of power and to rein in Fiji's too-pow erful army. • Thailand's politics
Waiting for the man SINGAPORE
Thaksin Shinawatra's return becomes the government's top priority
l '1 JITH the flood waters mercifully re VV ceding in much of the country, nor
mal service has resumed in Thai politics and that means talking obsessively about Thaksin Shinawatra. The former prime minister, ousted in a coup in 2006, has been living in exile since 2008 to avoid go ing to prison for corruption on charges that he has always claimed were politically motivated. But now, with a new govern ment in power led, very handily, by his younger sister Yingluck, it seems that it has become a matter of when not whether he returns to his native land. The new government has begun "ex ploring every avenue to bring Thaksin back", according to Pavin Chachavalpong pun, an analyst of Thai politics at the Insti tute of South-East Asian Studies in Singa pore. In mid-December it was revealed that Mr Thaksin had been given a new Thai passport. Until then he had been trav elling on Nicaraguan and Montenegrin documents. Now the government is work ing on an amnesty bill aimed at pardoning those jailed for political offences over the
The Economist January
7th 2012
Televi sion in China
Let me (not) entertain you B E IJ I N G
That's enough fun-official
T IKE broadcasters anywhere, Chinese L television executives fret constantly
over such things as an evolving media landscape, competition from online providers, and the viability of their busi ness models. Now they have a new worry: how to make their prime-time offerings less entertaining. According to an order that took effect on]anuary1st, China's 34 satellite televi sion stations must limit "excessive enter tainment" and "vulgar" content. This means cutting back severely on their most popular, low-cost and lucrative programming. "Super Girl", a much watched singing contest, is no more, after officials accused it of being overlong and of poisoning youth. The order from the State Administra tion of Radio, Film and Television limits what broadcasters may air during the prime-time hours from 7.3opm to 10pm. That period, known in China as "Gold Time," must now include two 30-minute news briefings, and no more than 90 minutes of the lighter shows that China's hundreds of millions of viewers have come to love. These include game shows, soap operas, dating competitions and singing contests where-uniquely for China-ordinary people get a chance to vote for favourites. Under government pressure, the number of such shows has been slashed, from over 120 to fewer than
past few years. This will cover not just many of their own "red shirt" supporters but also leaders of the monarchist, anti Thaksinites known as the "yellow shirts". Crucially, it will also find ways to take in Mr Thaksin himself. The legislation might be passed by Parliament before the middle of the year. Mr Thaksin remains a highly controver sial and divisive figure in Thailand. So even his own sister's government will have to proceed cautiously. The govern ment shied away from pressing for a royal pardon on the occasion of King Bhumi bol's birthday on December sth, wary of the backlash from the yellow-shirt move ment that this would surely have pro voked. Indeed, many fear that, however crafty the government is in eventually get ting Mr Thaksin back, the issue risks over shadowing much else that Ms Yingluck wants to do. Her stress on national recon ciliation, one of her main campaign themes last year, will begin to look hollow if she exhausts all her political capital merely to secure a safe passage back to
Democracy, Chinese-style
40 a week. Compared with offerings in many other countries, China's television fare is already quite tame. Viewers looking for sex, nudity, gore or crude language will search in vain. Still, broadcasting is thriv ing. The industry, including radio, grew by a quarter in 2010, with revenues of 210 billion yuan ($33.3 billion). The effort to dull things down fits into a broader campaign of cultural tight ening in a year that will see a once-in-a decade leadership succession. The out going president, Hu]intao, recently warned against the danger of foreign forces using culture and ideology to "westernise and divide" China. The new leaders promise to be equally vigilant. Thailand for one man, simply out of family loyalty. Besides, some wonder whether Mr Thaksin really needs to come back at all, given that he shows every sign of running the Thai government perfectly well from abroad. He has a grip over appointments to the cabinet and he sends an incessant stream of advice to ministers and mem bers of Parliament. Mr Thaksin also seems to have become as good as a foreign emis sary for his sister too. He visited Myanmar last month. In his own words, this was to "smooth the way" for Ms Yingluck's meeting with the appar ently reformist president, Thein Sein. Be fore that, he was in Cambodia to ease ten sions over a border dispute with Thailand that blew up under the previous govern ment of Abhisit Vejjajiva. He has also been spotted on missions to Singapore and Hong Kong. So much for claims from the man who said last year that he was in "no hurry" to return home-and who before that had vowed that he would in future keep out of Thai politics altogether. •
The Economist January 7th
Banyan
I
Asia 49
2012
The Ful<ushima black box
A dangerous lack of urgency in drawing lessons fromjapan's nuclear disaster
HERE is a breathtaking serenity to the valley that winds from
Tthe town of Namie, on the coast of Fukushima prefecture, into
the hills above. A narrow road runs by a river that passes through steep ravines, studded with maples. Lovely it may be, but it is the last place where you would want to see an exodus of 8,ooo peo ple fleeing meltdowns at a nearby nuclear-power plant. Along that switchback road the day after the earthquake and tsunami on March nth 2011, it took Namie's residents more than three hours to drive 30km (19 miles) to what they thought was the relative safety of Tsushima, a secluded hamlet. What they did not know was that they were heading into an invisible fog of radioac tive matter that has made this one of the worst radiation hotspots in Japan-far worse than the town they abandoned, just ten min utes' drive from the gates of the Fukushima Dai-ichi plant. It was not until a New York Times report in August that many of the evacuees realised they had been exposed to such a danger, thanks to government neglect. Negligence forms the backdrop for the first government-com missioned report into the Fukushima nuclear disaster, released in late December. Although only an interim assessment (the com plete report is due in the summer), it is already soo pages long and the product of hundreds of interviews. A casual reader might be put off by the technical detail and the dearth of personal nar rative. Yet by Japanese standards it is gripping. It spares neither the government nor Tokyo Electric Power (TEPC O), the operator of the nuclear plant. It reveals at times an almost cartoon-like lev el of incompetence. Whether it is enough to reassure an insecure public that lessons will be learnt is another matter. Since the Three Mile Island disaster in 1979, it has become axi omatic to assume that complex systems fail in complex ways. That was broadly true of Fukushima, though often the failures appear absurdly elementary. In the most quake-prone archipela go on earth, TEPC O and its regulators had no accident-manage ment plan in the event of earthquakes and tsunamis-assuming, apparently, that the plant was proofed against them and that any hypothetical accidents would be generated only from within. TEP C O had, in the event of nuclear disaster, an off-site emergen cy headquarters just skm from the plant that was not radiation proof, and so was effectively useless. On site, the workers in its
number one reactor appear not to have been familiar with an emergency-cooling system called an isolation condenser, which they wrongly thought was still working after the tsunami. Their supervisors made the same mistake, so a vital six hours were lost before other methods for cooling the overheating atomic fuel rods were deployed. Partly as a result, this was the first reactor to explode on March 12th. The government was almost as clueless. Naoto Kan, then prime minister, had a crisis headquarters on the fifth floor of the Kantei, his office building. But emergency staff from various min istries were relegated to the basement, and there was often mis communication, not least because mobile phones did not work underground. Crucial data estimating the dispersion of radioac tive matter were not given to the prime minister's office, so that evacuees like those from Namie were not given any advice on where to go. That is why they drove straight into the radioactive cloud. The report faults the government for providing informa tion that was often bogus, ambiguous or slow. Perhaps the big gest failure was that nobody in a position of responsibility-nei ther TEPC O nor its regulators-had sought to look beyond the end of their noses in disaster planning. No one seems ever to have tried to "think the unthinkable". In America official reports such as those on the Septembernth attacks or the Deepwater Horizon oil spill have become ac claimed books. This one is hardly a page-turner. A privately fund ed foundation, headed by Yoichi Funabashi, a former editor of the Asahi Shimbun newspaper, is doing a separate investigation, based partly on the testimony of TEP C O whistle-blowers. (One, according to Mr Funabashi, says the earthquake damaged the re actors before the tsunami, a claim that officials have always re jected.) It at least promises to have literary merit. Mr Funabashi, a prominent author, draws parallels between the roots of the disas ter andJapan's failures in the second world war. They include the use of heroic front-line troops with out-of-touch superiors; rotat ing decision-makers too often; narrow "stovepipe" thinking; and the failure to imagine that everything could go wrong at once. Complex systems, jerry-rigged
For now, the risk is that the interim report does not get the atten tion it deserves. So far it seems to have aroused more interest on a techie website called Physics Forums, beloved of nuclear engi neers, than in the Japanese press. The government, led by Yoshi hiko Noda, has not yet used it as a rallying call for reform. One of its recommendations, an independent new regulatory body, will soon be set up. Others, such as new safety standards and broader evacuation plans, would take months to implement. Such reports are, after all, confidence-building exercises. They are meant to reassure the public that, by exposing failures, they will help to prevent them from being repeated. In the case of Fu kushima Dai-ichi there is still plenty to be nervous about. Al though the government declared on Decemben6th that the plant had reached a state of "cold shutdown", much of the cooling sys tem is jerry-rigged and probably still not earthquake-proof. On January 1st a quake temporarily caused water levels to plunge in a pool containing highly radioactive spent-fuel rods. Meanwhile, across Japan, 48 out of 54 nuclear reactors remain out of service, almost all because of safety fears. Until somebody in power seizes on the report as a call to action, its findings, espe cially those that reveal sheer ineptitude, suggest that the public has every reason to remain as scared as hell. •
Dual citizenship
Dutchmen grounde d
Also in this section 51 Global garbage 52 Social media and fund-raising 52 A row in Scientology
Multiple citizenship is on the rise. But some states continue to deter it
AT THE height of the Dutch golden age, ./"'\.merchants exported their goods and their families to colonies on four conti nents. Four centuries later their descen dants are less impressed by such adventur ing. A new law proposed by the Dutch government aims not only to limit dual na tionality among immigrants (in 2011 around 20,000 people gained Dutch na tionality through naturalisation) but also to make it easier for the authorities to strip members of the 8so,ooo-plus Dutch dias pora of their nationality, should they se cure a second citizenship abroad. Guus Bosman, a Dutchman living in Washington, nc, calls the proposal "mean spirited". Eelco Keij, a Dutch citizen in New York and one of the loudest critics of his government's proposals, thinks that these days dual nationality is no more than "a harmless side-effect of globalisation". By seeking to toughen its nationality laws, the Netherlands is bucking a global trend. Other governments have increas ingly abandoned such policies. In 2008 the Migration Policy Institute, a think-tank, found that almost half the world's coun tries tolerate dual nationality in some form. Armenia, Ghana, the Philippines, Kenya, Uganda and South Korea are all re cent reformers. Haiti and Tanzania have
new laws in preparation. Even Denmark, which places strict restrictions on citizen ship, is mulling a change. The idea that it is possible, let alone de sirable, to allow multiple citizenship is rel atively recent. In 1849 George Bancroft, an American historian and diplomat, said that for a man to have two countries was as intolerable as for him to have two wives. In 1930 the League of Nations proclaimed that "every person should have a nationality and should have one nationality only". A treaty in Europe required countries to limit dual citizenship, until it lapsed in the1990s. Immigrants have commonly had to re nounce their old citizenship when taking on a new one; the countries that they left have often disowned emigrants natural ised abroad. These practices were intend ed in part to preserve the sanctity of citi zenship, but they have also been aimed at closing loopholes that might allow mi grants to escape taxes or conscription. One reason for more liberalisation is practicality: dual nationality has become harder to control. Increased migration and rising numbers of cross-border marriages mean that ever more children are born to multinational families. The number of Dutch citizens holding a second national ity, for instance, almost tripled to 1.2m be-
tween 1995 and 2010, with newborns ac counting for a significant share of the growth. Governments could once force women to take only their husband's na tionality, says Mr Vink. In an era of sexual equality such policies are untenable. Governments that take in many immi grants also see benefits from allowing them to keep their old passports. Research suggests that immigrants who do not fear losing their existing nationality are more likely to pursue naturalisation in their adopted countries-and subsequently more likely to integrate than those who maintain long-term residence as aliens. (Whether they go on to make better or worse citizens is harder to prove.) Tides and dykes
Conversely, countries that send migrants abroad want to make sure that expatriates do not become ex-patriots. For poor coun tries, diasporas are a source of remittances, of political clout and of reflected glory. The first Costa Rican in space was a naturalised American citizen, Franklin Chang-Diaz. Some want to atone for past mistakes. Spain's Law of Historic Memory tried to heal the wounds of the civil war by offer ing dual citizenship to the descendants of those who had fled Franco's regime. Long ��
The Economist January 7th
� queues formed outside Spanish consu
lates in Havana and Buenos Aires on De cember 27th, the final day of this three year scheme. Few tolerant states now want to reverse their dual-citizenship reforms, although some seem keen to stop further liberalisa tion. In November politicians in Germany, which generally offers dual nationality only to applicants from Europe, turned down a proposal that would have allowed Germans born to foreigners to retain their parents' nationalities in adulthood. From January 1st new citizens in France are re quired to sign a charter accepting that they "will no longer be able to claim allegiance to another country while on French soil", even though dual nationality remains tol erated. Marine le Pen, leader of France's far-right National Front, wants to end dual citizenship altogether. New world, new passport
International 5 1
2012
Other countries have embraced reform re luctantly. America's citizenship ceremony continues to demand that candidates "re nounce and abjure all allegiance and fideli ty to any foreign prince" despite its govern ment's largely liberal approach to the issue. In 1967 it took a Supreme Court rul ing to confirm that dual citizens voting overseas should not lose their American nationality. America's unusual require ment that its passport-holders pay it tax no matter where they live gives many qualify ing residents good reason not to apply. In large parts of the world, especially in poorer and more dictatorial countries, dual nationals remain anathema. Less than half the countries in Africa condone dual citizenship. Asian holdouts include Japan and Singapore. China insists that its sizeable diaspora may hold only one pass port, but makes it easy for ethnic kin natu ralised abroad to return home when they wish. India now issues "overseas citizen ship" to emigrants forced to renounce their birth nationality by the country's exclusive laws. This gives them many of the privi leges enjoyed by their fellow Indians, but not the right to vote. Christian Kalin of Henley & Partners, a Swiss-based law firm specialising in what it terms "citizenship planning", says a more formal tolerance of dual nationality there is likely. For many ordinary citizens, dual pass ports still seem dodgy: a convenience for the cosmopolitan few or a sop to the men acing many, rather than a natural feature of a migratory world. A poll in May showed that over 6o% of Dutch adults, much con cerned by tides of immigrants from Moroc co and Turkey, find dual citizenship unde sirable. The tighter rules are part of the coalition agreement behind the minority government that is backed from outside by Geert Wilders's nationalist Freedom Party. The golden age of multiple nationality may be dawning. But it is not here yet. •
Collecting global garbage
Effluence of affluence Local efforts against litter are mushrooming
"
ARBOLOGY" is a word popularised
G (and possibly coined) by A.J. We
berman, a writer and activist whose credo was "you are what you throw away". He made his name by rifling through Bob Dy lan's rubbish in search of insights into the singer's soul, only to conclude-after traw ling through used nappies, ripped-up fan mail and veterinary bills-that the fabled crooner was a pampered, middle-class family man, even in his heyday. Mr Weberman might have taken his theory a step further. Habits in picking up litter say a lot about places and their peo ple. On January 13th volunteers from 83 countries will converge on the Estonian capital, Tallinn, to launch World Cleanup 2012, the biggest attempt so far at voluntary rubbish collection. This year's target is to mobilise 300m people to pick up 10om tonnes of illegally dumped waste in six months, starting on March 24th. The moving spirit behind the campaign is Rainer Nolvak, a high-tech entrepreneur who has devoted himself to a worldwide blitz on trash (a co-founder is one of the Es tonians behind Skype, an internet telepho ny system). Instead of bonding together in the face of war or of sporting rivalry, Mr Nolvak wants people to unite against the "common enemy" of garbage. Estonia has a tradition of volunteer ef forts aimed at cleaning up the blight of ille gal rubbish dumping in public spaces (part of a legacy of environmental abuse during
The stench of success in Cote d'Ivoire
the Soviet occupation era). In 2008, so,ooo Estonians turned out and collected 10,000 tonnes of trash in less than a day. By 2009 similar events in neighbouring Lithuania and Latvia were mustering 120,000 litter pickers. In 2010 a cleanup effort in Slovenia brought out an estimated 270,000 people, or more than one-eighth of the country's population. An organiser of that effort, Nara Petrovic, says the depressing political and economic climate had a galvanising ef fect. The cleanup fostered "a spirit of unity that swept over the entire country". Revolutions too are good for public spiritedness. In Egypt the spontaneous spruceups of Tahrir Square during the protests last year were a good start, says Mohamed El Mongy, of a Cairo-based in vestment firm that is helping World Clean up to gain a toehold in the country. "Clean ing up the square every day gave people a sense of ownership over public space, and over their country," he says. It has now spread far afield, from squeaky-dean rich countries to notorious ly rubbish-strewn ones such as India. In a World Cleanup action in Lucknow last year, 40 well-dressed young people picked up rubbish from a park: merely a small pla toon in the estimated total of 2.7m partici pants to date. A Guatemalan affiliate is pio neering efforts to turn garbage into building materials for low-cost housing. An allied Russian group, Musora Bolshe Nyet (no more garbage) has got going in some 90 cities. The movement complements other ef forts such as a United Nations-backed campaign, now in its 19th year, called Clean Up the World. But it is part of a trend that some call "glocalisation": dealing with big global problems through myriad small or individual actions. The central team at World Cleanup does not issue top down edicts; it relies on local groups to di- ��
The Economist January
52 International � rect their litter-blitzes in a way that suits
conditions (literally) on the ground, tap ping into whatever mix of civic pride, pa triotism or other sentiment works best. In keeping with Estonia's reputation for cyber-wizardry, the founders have devel oped software that lets citizens use smart phones to record the location, type and im age of any rubbish they stumble across. That helps both to guide volunteer efforts and to shame officialdom into doing its job properly. Even supporters acknowledge that the project has its limits. The places where civ ic sentiments run highest, and where cleanups might potentially be most popu lar, are not those most troubled by trash. The Dutch World Cleanup team complains that litter just isn't "sexy enough" in their clean and well run country. • Sodal media and fund-raising
One thousand points of "like" Raising money online is harder than it sounds
HE symmetry is elegant: almost a bil
Tlion people in the world lack access to
clean water, while the social media sites Facebook and Twitter have roughly the same number of users. Marrying the two is Water Forward, a site launched last year that aims to raise money for clean drinking water in poor countries. Designed as an online photo album, users buy space for friends at $10 per portrait. The funds go to an organisation called charity: water, which has since 2006 collected over $40m, much of it online. Other charities are eager to exploit the fund-raising potential of so cial media. Nine out of ten non-profits in America have a presence on Face book, ac cording to the latest Nonprofit Social Net work Benchmark (NSNB) report, a survey of nearly 11,200 non-profit professionals. The internet abounds with social-net working tools raising money for good works, such as Face book's Causes, Crowd rise and Network for Good. These sites and platforms let users connect with charities and each other, plan events, donate di rectly or create projects to fund-raise among friends. On Causes, for example, participants can use a birthday to rally friends to give to a particular charity. But social media are no gold mine for do-gooders. Fewer than half the non-pro fits surveyed in the NSNB report got more than $1o,ooo a year from Facebook, and only 0-4% reported raising $10o,ooo or more. A survey by Blackbaud, a software and service provider for charities, predicts a rise in donations in 2012, but no signifi-
cant gains from social media. Traditional fund-raising, using direct mail and events, is far more effective than newer methods, such as e-mail and social networking. The charities that raise a lot from social media vary widely in size and budgets. But each has an average Facebook following of nearly 10o,ooo, more than 15 times the norm, according to the NSNB report. They also now dedicate lots of staff time to so cial media and have carefully followed the success of their fund-raising. Allison Fine, co-author of a book called "The Networked Nonprofit", argues that social media offer a handy, low-cost way to build a network of supporters who share ideas and information. But donations come only when the bonds are strong and the network is big. The most successful charities tend to show donors what their funding will achieve. Charity: water counts the number of wells dug and rain water catchments built. DonorsChoose, another online charity, has raised more than $1orm by letting people fund projects at American public schools. "A lot of charities may feel like it's slow going," says Katie Bisbee of Donors Choose. She adds that fan pages are good for relationships, but for fund-raising the most lucrative tool is to get donors to share news of their donation on their own Face book page. Through the social network, DonorsChoose raised $2m in the 2010-11 school year. This belies the charge that networked do-gooders are "slacktivists". So too does a study from Georgetown University and Ogilvy PR, a public-relations firm, which finds that Americans who back causes through social media are often active in other ways too. So a campaign that does not raise money at first may still lure sup porters-and potential future donors. •
Your Facebook dollars at work
7th 2012
Scientology
Thetans at war A split in a secretive world
EBRA COOK was once a doughty
D defender of Scientology, helping it
to contest critics' claims that it is a ruth lessly run moneymaking cult based on bogus science. But on New Year's Eve Ms Cook, who spent more than 17 years in the organisation's leadership, wrote an explosive e-mail to 12,000 members, complaining that its chairman, David Miscavige, is mismanaging its finances and breaking its internal rules. A Scientology spokesman dismissed Ms Cook as a "squirrel" (the organisa tion's term for a heretic), insisting that she has had no position in the church since 2007, "having left for medical reasons". An ex-Scientologist, Mark Rathbun, says Ms Cook once underwent a gruelling interrogation at an internal disciplinary facility, where she was accused of lesbianism (which Scientol ogy sees as a grave disorder). Among other mistreatment, he says, she "was made to stand in a large garbage can and face one hundred people screaming at her demanding a confession". Even if true, that appears not to have dented her loyalty. Ms Cook says she is "completely dedicated" to Scientology, and praises its "stunning and mirac ulous" results. That may make her attack, which is studded with quotes from the group's founder, L. Ron Hubbard, all the more telling. Her first criticism is of an excessive focus on fund-raising, a distraction from the proselytising efforts that he regarded as the priority. Moreover, she claims, a billion dollars raised in membership fees are sitting idle, instead of being used for advertisements and other promotional activities. Too much money goes on lavish buildings-again, something that Mr Hubbard would have disliked. She also accuses the headquarters of over selling courses to members. But her fiercest criticism is of Mr Miscavige, for turning the "complete and brilliant" structure he inherited into, in effect, one-man rule. Those who fall foul of him, she claimed, face "long and harsh" discipline. She urges Scientol ogists reading her letter to circulate it, to refuse to carry out "off-policy" actions, and to demand explicit justification from Hubbard's writings for all instructions. Scientology's leaders have withstood numerous legal, official and other on slaughts in past years. But disgruntled true believers may prove to be the most potent enemy of all.
53 Also in this section 54 Slowing China's railways 55 Brazil's biofuels boost 55 A new sort of caring company 56 Can you trust Chinese condoms? 56 Europe's emissions rules take off 57 Selling cars online 58 Schum peter: Demonising bankers
For daily a n a lysis a n d debate on business and our weekly "Money talks" pod cast, visit Economist.comfbusiness-finance
The drugs ind ustry
Battling borderless bugs
M U M BAI
Western and emerging-market drug firms are invading each other's turf
Tpharmaceutical industry is heading, a O GET an idea of where the world's
leafy complex tucked off a hectic road in Mumbai provides a clue. In one part of the building, Abbott, an American firm, is developing generic drugs-a privilege it won when it bought the copycat business of Piramal, an Indian firm, for $3.7 billion in 2010. In the other part of the building Piramal is developing new drugs. The American firm wants to sell cheap generics in India; the Indian firm plans to sell original drugs in America. One might think that they were having an identity crisis, if each were not so excited by the switch. The world's drug industry is in flux. In the past, Western drugmakers thrived on innovation while firms in emerging markets made cheap copies of their products. Now they are invading each other's turf. Blockbuster drugs are losing their patents and, despite some bright spots, research has become more costly and less fruitful. Big Western firms are now looking to emerging markets for growth, hoping to sell not just their patented drugs but generic ones, too. Firms in emerging markets are expanding their footprint, ramping up sales in the West and investing in research. It is an energetic exchange, but a risky one. It is no surprise that Western drugmakers are looking further afield. America's spending on prescription drugs increased by just 2.3% in 2010. As incomes rise elsewhere, the demand for health care grows.
IMS Health, a research group, expects emerging markets' share of drug spending to jump from 12% in 2005 to 28% in 2015. Western companies are keen to tap this growth. Sanofi-Aventis, a French giant, has become the biggest producer of generic drugs in Latin America after its purchase in 2010 of Medley, a Brazilian firm. Not to be left out, America's Pfizer, the world's big gest drugmaker, bought 40% of Teuto, a Brazilian generics company. Some firms also hope that developing countries many chock full of talented scientists-will help to fill their bare pipelines with new drugs. Merck, for example, recently announced that it would create a new re search and development centre in Beijing, investing $1.5 billion over five years. Blockbuster bets
Many generics firms are keen to become more innovative. The model is Israel's Teva. It is the world's biggest generic drug maker, but nearly a fifth of its sales in 2010 came from a patented blockbuster, Capax one, a drug used to treat multiple sclerosis. To boost its research muscle, Teva last year paid nearly $7 billion for Cephalon, an American firm that sells cancer and pain medicines. And onJanuary1st it poached a new boss, Jeremy Levin, from Bristol-My ers Squibb, another American firm. No company from the developing world has yet come up with a portfolio as diverse as Teva's, but that may change. Bra-
zil hopes that public investment will nudge its biotech industry forward. In In dia, PricewaterhouseCoopers (Pwc), a consultancy, estimates that drug sales will grow 15-20% a year, creating oodles of op portunities. The Indian market is domin ated by local firms selling "branded gener ics"-copies made by trusted generic firms. Recently, however, firms from rich coun tries have plunged in. Daiichi Sankyo, a Japanese drugmaker, bought India's Ran baxy in 2008 for $4.6 billion. Smaller deals followed, such as Reckitt Benckiser's pur chase of Paras Pharma. Abbott bought Pi ramal's generic business for a whopping nine times its annual sales. India's drugmakers have many home turf advantages, including long relation ships with Indian doctors and hospitals. But they are also keen to reach consumers elsewhere. They are using several tactics. One is to produce as many generic drugs as cheaply as possible. For many In dian firms America is their biggest market. They are eager to lower prices to grab a greater share. At a Dr Reddy's plant in Hy derabad, huge blenders mix chemicals; powder is compressed into tiny tablets; green and white capsules jumble out of machines like popcorn; workers pack box es methodically. An unskilled worker at the factory is paid a few thousand dollars a year. Dr Reddy's may automate more pro cesses to hedge against rising labour costs. Another tactic is to buy foreign drug makers, though this does not always work. In 2006 Dr Reddy's bought Betapharm, a German generics firm, but supply pro blems and new price rules in Germany turned that into a disaster. Sun Pharmaceu ticals, India's biggest drugmaker, is trying to buy full ownership of Taro, an Israeli drug firm, but some of Taro's shareholders are stubbornly against the idea. The riskiest tactic for generics makers is ��
The Economist January
54 Business � to try to invent their own drugs. Changes in Indian patent law help-it now protects intellectual property better than before. But research is still hard in India: academ ics are reluctant to collaborate with filthy capitalists, and local investors are wary of the slow slog of drug discovery. "These are generic companies trying to be innovative companies, and it is not clear that those skills match," says Sujay Shetty of PWC. However, he points to some exceptions. Research requires cash. Piramal, thanks to the sale of its generics business, has plenty. Ajay Piramal, the firm's boss, wants to create a new blockbuster. "It is the pat ented drugs that will be the real game changer," he says confidently. Glenmark, a smaller firm, has had success by conduct ing early research, then licensing its tech nologies to Western firms with the money to conduct clinical trials. Even as firms mimic each other, some judge that it is wise to collaborate as well as compete. India's Lupin has a deal to market Eli Lilly's anti-diabetic drugs in India and Nepal. Other collaborators have a broader
reach. Sun Pharmaceuticals has a joint venture with Merck to develop and market generics throughout the developing world. Pfizer will license insulin products from In dia's Biocon. The deal will bolster revenue as Kiran Mazumdar-Shaw, Biocon's ambi tious boss, continues to invest in new bio tech drugs. A lot could still go wrong with these new approaches to drugmaking. Research is risky: miracle molecules often turn out to be useless or dangerous. Acquisitions of ten go wrong, too: Daiichi Sankyo must surely regret paying so much for Ranbaxy. The rules governing medicine are strict and unpredictable. American regulators are trying to enforce stringent standards for foreign factories. India might broaden price controls. Yet the battle to invent new cures and conquer new markets will grow fiercer, and the distinction between innovative rich-world drug firms and emerging-mar ket copycats will continue to blur. Disease pays no heed to borders. Increasingly, drug firms won't, either. •
China's rai lways
Less express
HONG KONG
What the country needs is a more efficient network, not faster trains
C gathering steam again. Undaunted by HINA'S love affair with fast trains is
horrendous accidents and massive cost overruns, officials are planning further expansion of the country's high-speed rail network. A new service has begun between the southern cities of Guangzhou and Shenzhen, nearly halving the travel time to 35 minutes. With trains capable of travelling up to 38okph (236m ph), the service will eventually be extended to nearby Hong Kong. For those craving even faster speeds, CSR Corp, China's biggest train maker, has unveiled a supertrain (pictured opposite) said to be inspired by the shape of an ancient Chinese sword. It should slice through the air at sookph. Supertrains are sexy. Politicians love to show them off. But to allow more Chinese people to get where they want to go at a reasonable price, then three less glamor ous types of investment would yield bet ter returns. China Rail, the state near-mo nopoly, is deficient in all three. The first is safety. Standards are patchy. In July a high-speed train crashed near Wenzhou, leaving 40 dead. Officials at tempted a cover-up, prompting a wave of popular outrage on the Chinese internet; even the state-controlled media wailed that development had become "stained
with blood". The mood has lifted a little following the recent publication of a sur prisingly harsh official report that finds fault with both the design of the railway and its management. It calls for more than so officials to be punished. Deeper reforms are required, however. The second neglected area is informa tion technology. Chaos broke out this week when a new system for online ticket sales at China Rail became overwhelmed. The demand for tickets was completely
But don't try to buy a ticket online
7th 2012
predictable, as 2.8 billion rail journeys are expected during the Chinese New Year holidays later this month. But instead of enj oying a convenient alternative to queu ing all night for paper tickets, as they have done in the past, customers were frustrat ed by hours wasted online trying to find out if they could actually get the tickets they thought they had paid for. The third area is pricing. Fares have his torically been tightly regulated and heavi ly subsidised. This began at a time when China Rail had a de facto monopoly not merely of rail but of inland transport in China. In those days, tight regulation was justified. But no longer, says a new paper by the World Bank. China's roads are much better, and railways must compete with booming airlines, too. Average incomes in China have risen tenfold since the current pricing and subsi dy regime was put in place in 1982. Liberal ising fares would allow services to be tai lored to meet customers' needs. In Europe, for example, rail operators offer a wide range of fares and discounts for those who book in advance, travel at odd times or bundle the fare with a packaged holiday much as airlines have long done. Poverty too could be better addressed by targeted subsidies, off-peak discounts and other measures. The evidence from rail liberalisation in North America and Europe suggests that such reforms could actually reduce fares. With a free hand, rail ways tend to squeeze more trips out of their trains, provide better service and make more money. In short, China needs to rethink how it spends money on rail. That may happen. Although it did not receive the same atten tion as the supertrain, Sheng Guangzu, the railway minister, was recently quoted by China Daily, an official organ, as saying that there are now plans to slash the invest ment budget for railways to 400 billion yuan ($64 billion) in 2012-some 44% be low the level in 2010. If that makes for a better rail network, then many Chinese will agree that speed is not everything. •
The Economist January 7th
Business 55
2012
Biofuels
B Corps
Brazilian brew
Firms with benefits NEW Y O R K
A new sort of caring, sharing company gathers momentum
SAO P A U LO
America opens up to Brazilian ethanol
' ' l 'l J E'VE been waiting for this news VV for more than 30 years," crows
Marcos Jank, the president of UNICA, the Brazilian sugarcane-growers' trade associ ation. The cause of his excitement is the de mise on December 31st of import tariffs and tax credits that have long sheltered ethanol distilled from corn in the United States from the same stuff made from sugarcane in Brazil. Now, for the first time, the two countries that produce more than 8o% of the world's ethanol can sell in each other's backyard at market prices. Distilling ethanol from tropical sugar cane takes less land and uses less fossil fuel than starting with corn grown in temper ate climes. That makes Brazilian ethanol, unlike the pampered and grotesquely wasteful American version, competitive with hydrocarbons and genuinely good for the environment. Most of Brazil's cars run on a mix of the two fuels. The standard blend contains18-25% ethanol. Poor weath er, and cash-strapped growers delaying their replanting after the 2008 credit crunch, have recently squeezed produc tion-and led to Brazil importing some American ethanol. But in more normal times Brazilian distillers reckon they can supply their home market and export to America at sweet prices. America's subsidies and trade barriers were long defended by senators from over represented, underpopulated rural states (and protected by the fact that corn-loving Iowa holds the first presidential caucuses). But the corn lobby's influence is waning. Ethanol tax-credits cost $6 billion in 2011: a hard sell in hard times. Corn prices are high, making this a good moment for American corn-growers to start paying for their enormous pickups unaided. If ethanol is ever to become a globally traded commodity-the long-term dream of boosters in both countries-the two sides need to make common cause. On other biofuels, for example in the aviation industry, they already are, with America's Boeing partnering with Brazil's Embraer. At present America's corn-ethanol pro ducers distil14 billion us gallons (53 billion litres) a year-enough to provide 10% of America's motoring needs and meet fe der al rules for renewable-fuel use. But those rules will grow stricter over the next de cade, and most of the new demand must be met from other sources. Under the 2007 Energy Independence Act biofuel use is supposed to rise to 36 billion us gallons by
H Chouinard
From Brazilian canes to American cars 2022, of which 21 billion us gallons must come from a source other than cornstarch. A few experimental options, such as biodiesel made from algae, look close to commercial viability, says Andy Steinhubl of Bain & Company, a consultancy. But their coming has been heralded before and proved premature, he adds. So the only contender right now is sugarcane ethanol. Before Brazil's sugarcane growers can take advantage of this new market they need to make up lost ground. Last year the country crushed 555m tonnes of sugar cane, with 150m tonnes of mill capacity left unused. Planting is picking up again, says Mr Jank, and the spare capacity will not remain idle for long. In the longer term, new plantations, sugar-mills and distill eries will be required. The conditions are right for investment, says Andre Nassar of I C ONE, a Brazilian research institute. He predicts efficiency gains as well, with increasing use of smarter techniques such as crop rotation and the greater use of bagasse (the part of the cane left after the sugar is extracted) for generating electricity and feeding cattle. A long-mooted pipeline carrying ethanol from Brazil's central and southern sugar-growing regions to Santos, its largest port, might finally get built. In recent years Brazil's government has made investment in the sector less attrac tive by fiddling with the price of fuel, Mr Nassar says. To help control inflation it pressured Petrobras, the country's state controlled oil giant, to keep petrol prices low, thereby capping the price of ethanol. And in 2011 it cut taxes on petrol, but not ethanol, and reduced the mandatory blend of ethanol mixed with standard mo toring fuel, thereby reducing demand. Ac cess to a big foreign market should be the pick-me-up Brazil's ethanol producers need to start spending again. •
E likes to do things differently. Yvon changed his favourite sport, mountaineering, by introducing re usable pitons (the metal spikes you bang into the rock face and attach a rope to). Climbers often used to leave pitons in the cliff, which is environmentally messy, an other of Mr Chouinard's peeves. In business, Mr Chouinard, the founder of Patagonia, an outdoor-clothing firm, says he believes that well-treated employ ees perform better. (He wrote a book called: "Let My People Go Surfing".) Before it was fashionable, Mr Chouinard preached a philosophy of sustainability and long-term profitability that he calls "the slow company". OnJanuary 3rd Patagonia was anything but slow in be coming the first firm to take advantage of a new California law de signed to give businesses greater freedom to pursue strategies which they believe benefit society as a whole rather than hav ing to concentrate on maximising profits for the next financial quarter. According to Mr Chouinard, the new "benefit corporation"-usually referred to as a B Corp-creates the legal framework for firms like his to remain true to their so cial goals. To qualify as a B Corp, a firm must have an explicit social or environ mental mission, and a legally binding fidu ciary responsibility to take into account the interests of workers, the community and the environment as well as its share holders. It must also publish independent ly verified reports on its social and envi ronmental impact alongside its financial results. Other than that, it can go about business as usual. The B Corp is a deliberate effort to change the nature of business by changing corporate law, led by B Lab, a non-profit outfit based in Pennsylvania. California is the sixth state to allow B Corps; the first was Maryland, in April 2010. Patagonia was followed immediately by another 11 Californian firms, including Give Some thing Back Office Supplies, Green Retire ment Plans and DopeHut, a clothing retail er. Across America, there are now several hundred B Corps. Before Patagonia, the best-known was probably Seventh Gener ation, a maker of green detergents, paper towels and other household products. California's B Corp legislation took ef fect alongside a new law creating the "flex ible purpose company" (Flexc), which al lows a firm to adopt a specific social or ��
The Economist January
56 Business
� environmental goal, rather than the broad er obligations of a B Corp. Another option in America is the low-profit limited-liabil ity (LC3) company, which can raise money for socially beneficial purposes while making little or no profit. The idea of a legal framework for firms that put profits second is not confined to America. Britain, for example, has since 2005 allowed people to form "community interest companies". Similar laws are brewing in several European countries. The impetus for all this comes from people like Mr Chouinard, who believe that existing laws governing corporations and charities are too restrictive. For-profit firms, they argue, often face pressure to
abandon social goals in favour of increas ing profits. Non-profit firms and charities are needlessly restricted in their ability to raise capital when they need to grow. This prevents socially minded organi sations from pursuing their goals as effi ciently as possible. Existing laws for co-op eratives and mutual companies are inadequate. Hence the need for B Corps and other novel structures, goes the argu ment. There is no tax advantage to being a B Corp, but there is to some of the new le gal structures. Whether these new legal forms will change business that much remains to be seen. Supporters of existing corporate law say it does not prevent firms, if they so
7th 2012
wish, from setting social and environmen tal goals or rigorously reporting on their performance in delivering them-and that pursuing profit is often the best way to ben efit society. Nor is it clear how much differ ence in practice will be made by the obliga tion of a B Corp to weigh interests other than profits. How does one measure such things? What counts for more: a clean lake or a happy neighbour? Mr Chouinard argues that making a firm's social mission explicit in its legal structure makes it harder for a new boss or owner to abandon it. Perhaps so. B Corps will be tested in the market. Anyone who feels inspired by a B Corp's mission is free to invest in its shares, or work for it. •
Chinese condoms
European transport policy
Reds in the bed
Greening the skies
PARIS
A Chinese start-up with XL ambitions
HEN choosing a product once
Wcalled "an armour against pleasure,
and a cobweb against infection", people tend to go for trusted brands. That is why well-known condoms such as Durex and America's Trojan have such huge market shares. And it is why Safedom, a start-up condom-maker from Beijing, met such scepticism when it visited Europe to look for a partner. How could the Chinese firm overcome doubts that its products were reliably up to the job? Its answer is a demonstration, wit nessed by your correspondent. Dangled in a solution containing a virus, Safe dam's condoms kept the dangerous liquid out. Condoms from prominent Western brands appeared to let in a small quantity. After performing the test in meetings, says a Safedom executive, "the atmosphere changed completely". Even with its claim to produce the first entirely virus-proof condom-yet to be verified by international bodies-Safe dom reckons it needs a European brand for success outside China. Joining a list of Chinese companies recently striking deals in Europe, it will shortly announce a partnership with a European firm. Safedom then aims to take on Durex and other giants in Europe and else where. Founded in 2006, it has grown rapidly at home. It expects to sell1 billion condoms in China this year, giving it about 8% of the domestic market. Most Chinese used to take free condoms from the government. Now, those who can afford to buy their own. When in a party mood, who trusts the Party? Brian Fu, Safedom's boss, praises European brand expertise and business management, but has his own clever strategy to raise sales: targeting women.
The E U annoys airlines, energy companies and Canada
The no-child policy
Four-fifths of customers for Safedom's condoms in China are women, whereas in most big markets, including China, only an estimated 40-50% of condom buyers are female. Durex, Trojan and Australia's Ansell offer chiefly condom brands that appeal to men, with names such as "Performa", "Magnum", and "]iss bon", whose name in Chinese means "James Bond". Safe dam, by contrast, sells "Elegant Winter" condoms under brands such as "Beauti ful Girl" and "Green Lemon" in oval shaped, paisley-patterned tins. Its mar keting emphasises female health bene fits. Whether or not Safedom goes all the way in Europe and other markets will, as usual, depend on the women.
AS OF January 1st, American, Chinese 1"\.. and all the world's airlines are being billed for the carbon emissions of their flights into and out of the European Union. About time, too: airlines contribute 2-3% of global emissions, yet they were hitherto free to pollute. The European initiative, which brings airlines into the Eu's existing cap-and-trade regime, the Emissions Trad ing Scheme (ETS), is a modest corrective. The hope is that it will speed the creation of a long-promised, more ambitious suc cessor, governing all the world's airspace. Foreign airlines, needless to say, are un happy. So are their governments. Because flights into the EU have been included in their entirety, not just the portion within European airspace, they detect an infringe ment of their sovereignty. Last month, in response to a suit from an American indus try body, Airlines for America (A4A), the European Court of Justice dismissed that concern. A4A, which claims, improbably, that the scheme will cost its members more than $3 billion by 2020, may file a fresh suit in the High Court in London. Offended governments might also complain to the UN's International Civil Aviation Organisation. Having threatened "appropriate action" if the EU went ahead with its plan, America may even be consid ering a retaliatory measure, such as a tariff on European carriers. But that is unlikely. And with all carriers now quietly submit ting to the ETS's rules, fears of a new-year trade war over the issue are starting to look a trifle Y2K-ish. In fact, given that they will initially be given most of their tradable ETS permits, and that the European carbon price is at a record low, the airlines may even make money from the scheme. ��
The Economist January 7th
Business 57
2012
For those who accuse the Europeans of being too messianic in their greenery, there is more evidence. A second controversy concerns an EU plan to reduce the carbon intensity of transport fuel. Under pro posed new rules for this scheme, different sources of crude oil would be given weightings to reflect how much they pol lute. To meet the Eu's target-a 6% reduc tion in carbon intensity by 202o-filthier than-average sorts of fuel, such as diesel derived from coal or petrol from shale oil or Canadian tar sands, would need mixing with cleaner sorts, like biofuels. This upset Canada, and firms such as Shell and BP which have invested heavily in Alberta's sludgy natural bitumen. They do not deny that getting oil from tar sands is a dirty business. The EU says it creates 23% more emissions than the average source; Shell says s-15%. Yet they argue that the proposals would punish Canada for being upfront about this, with less trans parent polluters, such as Nigeria, which
flares lots of natural gas from its oil produc tion, liable to evade the Eu's censure. Fans of the weightings admit they are not per fect, but argue that, as in the case of airlines and the ETS, it is better to make the best possible start than to delay action indefi nitely. The issue is to be discussed at the European Commission on]anuary 19th. Adding to energy firms' worries, pres sure is mounting within the Commission for an embarrassing policy shift, on bio fuels. Another EU directive ordains that biofuels, hydrogen and electricity consti tute 10% of transport fuels by 2020. Yet many recent studies have shown biofuels to be less green than advertised, with bio diesel production especially sullied by its linkage to tropical deforestation. Given that biodiesel is expected to fulfil most of the Eu's mandate, there is growing mo mentum for it to be revised or scrapped. That would be a blow to firms that have in vested in biofuels in order to comply with the EU's muddle-headed commitment. •
Selling cars online
The True Car challenge
A price-comparison website causes ructions in the motor trade
AMERICANS looking for a new car now rt adays often use online price-compari
son sites such as AutoTrader, Edmunds and eBay to find the best deal. Most such sites charge dealers a small fee for passing on sales leads from shoppers who have sub mitted their details. TrueCar, a relative newcomer, does things differently. It char ges dealers $300, but only when its intro duction of a customer results in a sale, and it makes its dealers guarantee to honour their quotes, no excuses. TrueCar taps into data from state vehi cle-registration offices, car-loan providers and other sources to compile what it says are the most accurate figures available for what motorists pay for the same car local ly. This can be several hundred dollars less than the sticker price, and is often below "invoice"-the price that, according to the pap erwork sent by the carmaker, repre sents the wholesale price the dealer paid. In fact dealers receive various rebates from carmakers, and make money from such things as loans and service contracts, so a modest profit is still possible. But such heavy discounting alarms car makers. Honda's American arm recently told dealers it would cut off their market ing allowances-which can be worth hun dreds of dollars for each car sold-if they did not stop offering sub-invoice prices on TrueCar and other sites. Honda insists
dealers can sell at whatever price they wish, but it will not pay them to market its products as "cheap" or "low-end" cars. It also suggests that some dealers use such sites to "bait-and-switch", offering tantalis ingly cheap cars they do not have, to reel in suckers, a practice many states ban. TrueCar insists that the contracts it makes dealers sign commit them to deliver the cars they promise at the price quoted. David Wilson, who recently told the 16 dealerships he owns in California to stop using TrueCar, says he has reason to share Honda's scepticism: he plays back to The Economist a voicemail from a rival dealer who had quoted him an attractive price via True Car on a new Lexus, calling to say
If I don't have it, they don't make it
that they did not have it in stock but could try to find one for him. TrueCar says there had been no hiding of the fact that the model concerned might no longer be avail able, and thus no question of "bait-and switch"; that this was a one-off case and that TrueCar has had few complaints so far. But it is awkward that a critic had so lit tle trouble catching a dealer quoting for a car it did not have. Another big chain of dealers, Group 1, has also told its members not to use True Car, saying it had privacy worries over the website's requirement that it have access to showrooms' computer systems so as to verify sales. Scott Painter, TrueCar's foun der, says that so far such publicity has only drawn dealers' attention to the attractions of using the website. All the site is doing, Mr Painter argues, is making more open what is already going on. He says his data show that 23% of all the Hondas sold via TrueCar are below invoice price, only a lit tle above the 22% sold below invoice for all Hondas in America. Mr Painter says his website is proving so successful at shifting metal that Honda, and the doubting deal ers, will eventually relent: "The power of the market will change their mind." However, several states' regulators are looking into whether the website breaches their laws. Some states specifically ban "bird-dogging"-taking commission for in troducing a sale. Some also ban using the word "invoice" in car ads, regarding it as potentially misleading. Colorado's regula tor has warned dealers there that they will be held responsible for any rule-breaking in their TrueCar quotes. TrueCar says it will shortly make changes to its website to satisfy the regulators' concerns. In September True Car raised $245m for expansion. On January 1st it began an ex clusive tie-up with Yahoo! to provide car buying services. It also provides such ser vices for consumer groups such as the American Automobile Association and the United Services Automobile Associa tion. It could look forward to a large slice of the $6 billion a year American car dealers spend on advertising-if it can convince both regulators and dealers that it is oper ating within the law. •
The Economist January
58 Business
7th 2012
Schumpeter I The dangers of demonolog y Hatred of bankers is one of the world's oldest and most dangerous prejudices
H cupy Wall Street" movement and its various offshoots com
URLING brickbats at bankers is a popular pastime. The "Oc
plain that a malign 1%, many of them bankers, are ripping off the virtuous 99%. Hollywood has vilified financiers in "Wall Street", "Wall Street 2", "Too Big to Fail" and "Margin Call". Mountains of books make the same point without using Michael Douglas. Anger is understandable. The financial crisis of 2007-08 has produced the deepest recession since the 193 0s. Most of the finan ciers at the heart of it have got off scot-fre e. The biggest banks are bigger than ever. Bonuses are flowing once again. The old saw about bankers-that they believe in capitalism when it comes to pocketing the profits and socialism when it comes to paying for the losses-is too true for comfort. But is the backlash in danger of going too far? Could fair criti cism warp into ugly prejudice? And could ugly prejudice produce prosperity-destroying policies? A glance at history suggests that we should be nervous. Scorn for moneymen has a long pedigree. Jesus exp elled the moneychangers from the Temple. Timothy tells us that "the love of money is the root of all evil." Muhammad banned usury. The Jews referred to interest as neshek-a bite. The Catholic church banned it in 1311. Dante consigned moneylenders to the seventh circle of hell-the one also populated by the inhabitants of So dam and "other practisers of unnatural vice". For centuries the hatred of moneylending-of money beget ting more money-went hand in hand with a hatred of rootless ness. Cosmop olitan moneylenders were harder to tax than im mobile landowners, governments grumbled. In a diatribe against the Rothschilds, Heinrich Heine, a German poet, fumed that money "is more fluid than water and less steady than air." This prejudice has proven dangerous. Without money to grease them, the wheels of commerce turn slowly or not at all. Civilisations that have eased the ban on moneylending have grown rich. Those that have retained it have stagnated. Northern Italy boomed in the 15th century when the Medicis and other banking families found ways to bend the rules. Economic leader ship passed to Protestant Europe when Luther and Calvin made moneylending acceptable. As Europe pulled ahead, the usury banning Islamic world remained mired in poverty. In 1000 west-
ern Europe's share of global GDP was 11.1% compared with the Middle East's 8.6%. By 1700 western Europe had a 13.5% share compared with the Middle East's 3-4%. The rise of banking has often been accompanied by a flower ing of civilisation. Artists and academics railing against the "agents of the Apocalypse" might also learn from history. Great fi nancial centres have often been great artistic centres-from Flor ence in the Renaissance to Amsterdam in the 17th century to Lon don and New York today. Countries that have chased away the moneylenders have been artistic deserts. Where would New York's SoHo be without Wall Street? Or the great American uni versities without the flow of gold into their coffers? Prejudice against financiers can cause non-economic damage, too. Throughout history, moneylenders have been persecuted. Ethnic minorities-most obviously the Jews in Europe and Amer ica but also the Chinese in Asia-have clustered in the financial sector first because they were barred from more "respectable" pursuits and later because success begets success. At times, anti banking prejudice has acquired a strong tinge of ethnic hatred. In medieval Europe Jews were persecuted not only because they were not Christians but also because killing them was a quick way to expunge debts. Karl Marx, who came from a Jewish family, regarded Jews as the embodiments of capitalism who could only be rescued from their ancestral curse through revolu tion. The forgers of the "Protocols of the Learned Elders of Zion" wanted people to believe that Jewish financiers were engaged in a fiendish global conspiracy. Louis McFadden, the chairman of the United States House Committee on Banking and Currency in the 1930s, claimed that "the Gentiles have the slips of paper while the Jews have the lawful money." The same canards have been used against Chinese minorities across Asia. This is not to say that the Occupy protesters are guilty of eth nic prejudice: they belong to a class and a generation that is large ly free from such vices. But demonisation can easily mutate into new forms. In the August issue of the Journal of Business Ethics one Clive Boddy argues that the financial sector has been taken over by psychopaths: "people who, perhaps due to physical fac tors to do with abnormal brain connectivity and chemistry", lack a "conscience, have few emotions and display an inability to have any feelings of sympathy or empathy for other people". Caged emotions
Railing against the 1%-particularly when so many of them work for companies with names like Goldman Sachs and N.M. Roths child-can unleash emotions that are difficult to cage. A survey in the Boston Review in 2009 found that 25% of non-Jewish Ameri cans blamed Jews for the financial crisis, with a higher percent age among Democrats than Republicans. Ethnic hatreds are even rawer in parts of Asia. The Asian financial crisis of 1997-98 sparked murderous riots against rich Chinese in places such as In donesia. Today, the combination of hard times and harsh rhetoric could also produce something nasty. The crisis of 2008 showed that global finance requires tough medicine. Banks must be forced to hold bigger reserves. "Weap ons of mass destruction" must be defused. The culture of short term incentives needs to be revised. But demonising bankers will not solve these problems-and may well, if unchecked, bring a lot of ancient ugliness back to life. • Economist.comfblogsjschumpeter
59
Space invaders SANTA C L A R A , CALI F O R N I A , A N D CA M B RI D G E
America's Intel and Britain's ARM have long dominated different bits of the global chip market. Now each is attacking the other's stronghold
Lfood and fast marriages. It could also be
AS VEGAS is a city of fast bucks, fast
the place where a long war was declared. On January 10th Paul Otellini, the boss of Intel, will address the International Con sumer Electronics Show (CES), a vast gath ering of gadget-makers, sellers and aficio nados in Sin City. He will introduce a phalanx of products showcasing the chips the world's largest semiconductor com pany most wants to hype. Up on the stage with Mr Otellini will be not just P e s of the sort that the company has powered for decades, but also new slimline PCs known as "ultrabooks", which are being made by the likes of Tosh iba and Hewlett-Packard (HP), and even a couple of smartphones. They represent the front-line of an army of Intel-powered kit going into battle against smartphones and tablets which use processors based on designs from ARM, a British firm. Intel and ARM, pretty much as different in size and approach as competitors can be, have carved up most of the world of microprocessors-the most lucrative bit of the $313 billion global semiconductor mar ket-between them. Each has a well de fined patch in which it is pre-eminent. Intel bestrides the market for the microproces sors at the heart of P e s and servers like a colossus; ARM's legions hold sway in the wide open spaces of the mobile market,
having expanded without hindrance from their home turf in mobile phones to the booming world of tablets. Neither side has shown the stomach for more than the oc casional raid into the other's domain. The wares on show at CES provide the clearest indication yet that Intel is escalat ing hostilities. It is trying to break into the rapidly growing smartphone market (it al ready makes chips for some tablets). ARM, meanwhile, has set its sights on the server business, where its low-energy chips should appeal to customers worried about high electricity bills. And more of its pro cessors are likely to find their way into P es in the coming years too. The battle is not just about dividing up territories already occupied; it is also about finding new lands to conquer. Both firms are keen to stake claims on the largely un colonised and still somewhat notional ter rain known as the "internet of things": the myriad processors in industrial machin ery, consumer goods and infrastructure, ever more of which will communicate with each other and with distant comput ers. Cisco, a giant American maker of net working gear, estimates that by 2015 there may be almost 15 billion internet-connect ed devices, up from 7.5 billion in 2010. Whereas the market for more phones and other personal computing devices is limit ed by the number of persons the planet
has to offer, things, being more numerous than people, provide a lot more long-term room for growth. Intel, founded in Silicon Valley in 1968, is responsible for many of the advances that have made today's semiconductors possible. It employs almost 10o,ooo peo ple and mints money. In the first nine months of last year, the company generat ed $40.1 billion in revenue and $13.2 billion in pre-tax profit. Admittedly, in December it cut its revenue forecast for the fourth quarter of 2011 by 7%, to $13-4 billion-14 bil lion, because floods in Thailand had dis rupted the production of hard-disk drives and hence demand for its chips. But that was a hiccup; Intel has no real rival in the market for chips that power P e s and serv ers. Advanced Micro Devices (AMD), the distant second in both, has been strug gling. It replaced its chief executive in Au gust after a seven-month search and laid off 1.400 workers in November. Empire and foundry-nation Intel's business has been inextricably en twined with the steady fall in the cost of processing-power known as Moore's Law, which is named after one of the com pany's founders. Ever better chips mean ever increasing sales, which mean ever more money with which to build ever bet ter factories for ever better chips. The firm's top brass attributes much of the company's success in harnessing this virtuous circle to the fact that it both de signs and makes its chips, with ten chip fac tories ("fabs" in industry argot) operating and two more under construction. Brian Krzanich, Intel's manufacturing head, says this means it can bring chips to market fast er and with fewer faults than rivals who ��
The Economist January
60 Briefing The semiconductor i n d ustry � use external firms, known as "foundries", to make their chips. This helps explain why it dominates the market for high-per formance processors in Pes and servers. ARM's chips are, by contrast, designed to economise on energy rather than to maximise processing power. And it makes none itself, instead selling licences for its semiconductor designs or its "architec ture" (a recipe from which licensees make their own designs). Licensees pay a fee and a royalty of 1-2% per chip. In essence, ARM provides a develop ment base on which others build. The costs are shared, as are the resulting rev enues and profits. ARM expects to recoup a chip's development costs from the sale of the first ten licences. Royalties, which flow later, make up just over half its revenues. Next to Intel's leviathan, ARM is a shrimp. It employs just 2,ooo people. It re ported revenues in the first nine months of last year of £354m, or $568m, on which it made a pre-tax profit of £107.3m (see table). But it lies at the heart of a huge "ecosys tem" of companies: a federation, perhaps, as opposed to Intel's integrated empire. It has 270-odd licensees with 830 licences. Between them they shifted perhaps 8 bil lion ARM-based semiconductors in 2011, half of them in mobile phones and mobile computers, the other half embedded in consumer items and elsewhere. According to me, a research firm, the market for PC powering chips that use Intel's x86 proces sor architecture, which Intel dominates, was about 400m last year. The ARM federation comprises not only chipmakers but also designers of chipmaking tools, devicemakers and soft ware companies. ARM uses collective in sights to design chips it thinks its partners will need; and they in turn shape their pro ducts with ARM's processors in mind. The dead past
There are intense rivalries within the feder ation, for example between NVIDIA and Qualcomm, leading makers of graphics chips. And the dividing line between fed eration and empire is not always clear. De sign-tool firms such as Cadence Design Systems and Synopsys work with both ARM and Intel. So do Microsoft, HP, Apple and others. Intel itself is an ARM licensee. But that is for the most part because those businesses straddle the divide, not be cause the divide is not there. ARM's impressive position in the mo bile-device market was born out of what seemed at the time like a string of failures. In the 1980s, when the trend in chip design was to make the hardware on processors capable of ever more varied and subtle types of calculation, Acorn, a then-margin al and now-defunct British computer-mak er, had a niche in designing chips good at carrying out only a few types of calcula tion, but which did so very quickly. This re-
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duced-instruction-set computing (RISe) approach requires software that can make up for the limitations of the chips, but uses less power than other approaches. In 1990 Apple, struggling itself, needed a chip for its Newton, a personal digital as sistant that was to restore the company's fortunes. It liked Acorn's chip designs: the two formed Advanced RISe Machines as a j oint venture with a chipmaker. The New ton was a flop, and Acorn was wound up in 1999-the year that ARM floated. Apple, which today has a cash pile of $81 billion, sold its 43% stake because it needed the money. When the mobile-phone market took off, ARM's parsimonious processors were ideal for products in which battery life is at a premium and high-power chips and the fans that cool them are therefore not an op tion. Today more than 95% of the world's mobile phones contain an ARM-based chip. Tudor Brown, ARM's president and one of its founders, adds that the shift to "systems on a chip"-single bits of silicon that package together not just one or more central-processing cores but also graphics processors and other accoutrements-also helped ARM. Its stripped-down processing cores play well with others. As mobile phones have become clev erer as well as commoner, ARM has gained again. Cleverer phones use more and prici er processors. The average number of ARM-based chips in a phone went up from
The field of battle Global mobile chip shipments, bn - Other phones Cellular modems
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1.5 in 2006 to 2.5 in 2010. NVIDIA's new Te gra 3 system on a chip for smartphones and tablets contains five ARM cores as well as NVIDIA's own graphics-processing unit And more, dearer cores mean more royalties. A smartphone can in the best case bring the company eight times as much in royalties as a basic phone, a tablet computer 11 times as much. This shift is far from over (see chart). There is no such growth in the market for new P es, which increasingly depends on the replacement of old computers by new ones with better, but not more numer ous, processors, and makes up ever less of the total market for microprocessors. No wonder Intel is desperate for new territory, and willing to fight for it It is bringing two p owerful siege en gines to the field. One is its low-power Atom line of chips. The latest of these, code-named Medfield, is already in pro duction and will almost certainly feature in the phones Mr Otellini shows off at CES. A study by Jefferies, an investment bank, says that Medfield is on a par with several popular ARM chips when it comes to pro cessing bang for the energy buck. And Intel is working with Google to ensure that the search firm's Android mobile operating system runs smoothly on Atom chips. The company does not intend to stop there. The width of the circuitry on a Med field chip is a mere 32 nanometres (nm), or millionths of a millimetre. Using a three dimensional chip design Intel plans to shrink that even further over the next cou ple of years, to 22nm and then 14nm, and sell chips that beat the competition on both energy-efficiency and performance. The wedge
The other thing Intel is counting on to help it succeed is new leadership. In December it put Mike Bell and Hermann Eul in charge of a streamlined internal unit fo cused on cracking the mobile-device market Mr Bell, who joined Intel in July 2010 after working at Palm and Apple, says the firm has hired more people with a telecoms background and assembled a team to de velop software to help phonemakers get the most out of its chips. Intel has also ac quired businesses such as the wireless op eration of Germany's Infineon Technol ogies to help with systems-on-chips. Mr Bell is confident that combining all this with the company's manufacturing might will make it a force to be reckoned with. "We can move this army en masse over to our mobile effort," he says. But even if the chips prove effective, In tel will be hard put to build a phone busi ness out from its beachhead. Getting pro cessors on a technical par with ARM's, says Michael Rayfield of NVIDIA, is "the easier of the two hurdles. The software hurdle is staggering." Firms that have invested in ARM's silicon-and-software combination ��
The Economist January 7th
Briefing
2012
� will be reluctant to give Intel's chips a chance until they are sure they can handle all kinds of software applications as smoothly as ARM's. Intel will also struggle to match the extensive and deep relation ships its rivals have in the phone arena. The complex reciprocal relationships that make up ARM's ecosystem, says Mr Brown, the company's president, are "probably our biggest barrier to entry". The fragmented mobile-device market also requires lots of different system-on chip configurations, which Intel will find a challenge to match. And makers of tablets and smartphones may be reluctant to com mit themselves to an architecture domin ated by a single company that makes its own processors. "With ARM, when you are tired of Qualcomm you can go to NVI DIA or another company," says Linley Gwennap, the boss of the Linley Group, a research firm. "But in Intel's case, there's nobody else on its team." Birth of a notion
While Intel is mustering its forces to attack the mobile-device business, it also faces an assault on its own redoubts. For years the firm has had an iron grip on the PC arena thanks to Microsoft's decision to design successive versions of its Windows operat ing system specifically to run on the x86 ar chitecture. But last year Microsoft said that the next version of Windows, which it wants to look and feel the same on mobile devices as on desktops, will work with ARM chips too-one of a number of cracks in the "Wintel alliance". This could encour age more firms in the ARM federation to try their luck in the PC market, though Intel's extensive product lines and deep relation ships with PC makers make it very difficult to beat. ARM itself spies a bigger opportunity in another of Intel's dominions: servers. The server market is hitching a ride on the spread of smartphones, tablets and other devices. The more data is sent to and from the cloud by them, the more social sites they need endlessly to update, the more servers are required. And the data farms in which these servers sit have a prodigious thirst for electricity, a problem that ARM's chips were created to solve. In November HP announced a proj ect ambitiously named Moonshot to develop servers using ARM-architecture chips made by Calxeda, a Texan company of which ARM owns 25%. The chips are less powerful than their Intel equivalents. But they are less thirsty and need less cooling, so whereas a standard rack (a man-high cabinet with about a cubic metre of vol ume) in a data centre can only house a few hundred Intel server chips, Calxeda thinks it can cram in almost 3,000. With 100 racks in a hall, "you're talking megawatts" with normal servers, says David Chalmers of HP. Moonshot is designed to use a tenth of
the power of current server systems and cost 6o% less. Moonshot and other low-energy serv ers could appeal to, say, social media com panies and other web-based firms which do not need to carry out very complicated processing-which benefits from the archi tectures of more complex chips-or to do it very fast. But Reuben Miller of mc thinks this segment is likely to be no more than 10-12% of the overall server market by 2015. And ARM's share of even that smallish slice may be modest to begin with. Just as phonemakers are used to things working in an ARM -ish way, most server software is written for Intel's chips, and reaps the benefits of its 64-bit architecture, which makes accessing lots of memory, among other things, much easier. ARM's architec ture uses a 32-bit standard, and though the company recently unveiled a 64-bit ver sion, no chips making use of it are yet avail able. Until they are, says Warren East, the firm's chief executive, "we can't even ad dress probably 75% of the server market." Meanwhile Intel isn't standing still: its investment in more energy-efficient pro cessors, such as those of the Atom line, can reap benefits in servers as it does else where. HP's Mr Chalmers, happy to work with both sides if it gets his clients the serv ers they need, expects to announce servers based on Atom chips and something simi lar from AMD this year. Each side, then, seems to have defences
The semiconductor i n dustry
against the incursions of the other. But that does not mean the war will end in stale mate. Intel is more vulnerable than it looks, for several reasons. One is that de spite demand from emerging markets such as China, the PC market is unlikely to grow anywhere near as fast as it has done in the past. Intel's aggressive promotion of ultra books seems like a somewhat desperate at tempt to inject excitement into a category that has lost momentum. What is more, the well-fortified world of Wintel provided the PC market with rel atively juicy margins. In smartphones and tablets Intel will find itself in a much more brutal competitive environment in which the advantages of its integrated approach to design and manufacturing may well be outweighed by those of agile competitors used to servicing a wide range of compa nies with lots of different products. The chips, like dust
Another big test for Intel will be the small but fast-growing market for embedded chips-the sensors and microcontrollers which will, as they become able to talk to each other, make up the "internet of things". Renesas Electronics, a Japanese company, holds the largest fief in this frag mented terrain. ARM also has a worth while chunk of it. But it is a lawless and fragmented territory, largely served by in house designs and software that both Intel and ARM see as ripe for replacement. In 2009 Intel splashed out $884m on Wind River, a firm that sp ecialises in soft ware for things that you might not expect to need any, in order to give its efforts in the embedded-chip market a fillip. It has since been able to ink deals with car companies, makers of digital signage and other firms that put chips into their various wares. The company says that annual revenues from embedded-chip sales are now running at $1.5 billion, and it expects these to grow by 25% in each of the next three years. Yet ARM's flexible business model, al lowing for lots of different chips for differ ent applications, and its happiness in low er-margin businesses, may well give its federation an edge in this business too. Its long experience of producing low-energy chips should be another advantage. Tiny embedded processors "will not use huge amounts of processing power, but power consumption will become more and more critical," says Ganesh Ramamoorthy of Gartner, a research and consulting firm. ARM already makes a quarter of its rev enue from embedded chips. And for the newer embedded processors in what the company calls the Cortex-M family, nine tenths of the licences so far sold have yet to lead to products, and thus royalties. Hav ing your own fabs can be handy. But when it comes to invading virgin territory quick ly, having lots of allies to help you is abso lutely fabulous. •
61
Also in this section 63 India's slowdown 64 Spain's troubled banks 64 China's version of contraction 65 Buttonwood: Hedge-fund mirage 66 Basel 2.5: a new world of pain 66 The Hildebrands under scrutiny 67 Economics focus: Recessions, ma nagers and entrepreneurs
For dai ly a n a lysis and debate on econo mics, visit Economist.comfeconomics
Central banks
Craz y aunt on the loose
WAS H I N GTO N , D C
For central bankers in the rich world, unconventional is the new conventional
Tserve
HERE was a time when the Federal Re wouldn't say whether it had changed interest rates. Soon it will say where it thinks rates will be years from now. Beginning with its policy meeting on January 24th-25th, Fed officials will dis close when they expect to start raising their short-term interest-rate target, which is at near-zero now, and what they expect its path to be over the coming years. Behind such radical transparency is a grim fact: at the start of a fourth successive year of ex traordinarily low short-term rates and a still-moribund economy, the Fed is desper ate for new ways to stimulate demand. It is not alone. Of the rich world's four maj or central banks, Britain's and Japan's already have their policy rates stuck near zero and the fourth, the European Central Bank (ECB), is likely to get there this year. Meanwhile, the balance-sheets of all four institutions have ballooned as they ex pand the volume and range of assets and loans they hold (see charts). Central banks have never been com fortable with unconventional monetary policies such as verbal interest-rate com mitments and quantitative easing (QE), the purchase of assets by printing money. Alan Blinder, a Princeton economist and former Fed official, has likened them to a family that lets its crazy aunt out of the closet only on special occasions. QE is "best kept in the
locker marked 'For Emergency Use Only"', is how Charlie Bean, the Bank of England's deputy governor, put it in 2010. The unconventional, however, is now conventional. In a presentation to this year's annual meeting of the American Economic Association, Mr Blinder will ar gue that the circumstances-low inflation and low nominal interest rates, persistent excess capacity, and fiscal policy paralysed by large debts-that have forced central banks to operate through unconventional policy will be a recurring feature of the economic landscape. "We can't stuff the crazy aunt back in the closet," he says.
Non-standard bearers
Central-bank policy rates, %
How long could she stay out? In Japan, interest rates have been near zero almost continuously since 1999. Since then the Bank of] a pan has bought government and corporate bonds, commercial paper, ex change-traded funds and real-estate in vestment trusts. Last year it offered target ed loans to spur long-term investment and rebuild areas damaged by the earthquake and tsunami. Such measures have prevent ed a deeper recession but not deflation or stagnant employment. That outcome is not yet likely in West ern countries. But 2012 will nonetheless re quire more unconventional policy. The Fed's decision to include interest rates in its quarterly projections of key economic in dicators, announced this week, emulates central banks in New Zealand, Norway and Sweden. But whereas this trio sought transparency for its own sake, the Fed's main motivation is practical. It has been saying since August that it would hold rates near zero at least until mid-2013. Its new projections should persuade inves- ��
Central-bank assets as % of GOP
us
10
.------,,--,---,---.- 0 2005 06 07 08 09 10 11 * Sources: European Central Bank; Haver Analytics
*Oct-Oec as % of 03 G D P
The Economist January 7th
Finance and economics 63
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� tors to expect no tightening before 2014, thereby nudging down long-term rates. Whether the stimulative impact will be sufficient is another matter. In November Fed officials thought the economy would grow between 2.5% and 2.9% in 2012. The private sector projects growth of just 2%. The Fed may yet be proven right, given the upbeat tone of recent data. But if it is not, it will probably launch another round of QE, on top of its two previous rounds and "Op eration Twist," under which it swapped short-term for long-term bonds. A similar sort of dynamic is at work in Britain, where the Bank of England's most recent forecast was for growth of 1.2% in 2012. As in America, private-sector fore casts are gloomier as recession in Europe and austerity at home bite. The bank is likely soon to resume QE. Most eyes are on the ECB. It has bought government bonds reluctantly and lent to banks enthusiastically, and portrayed both actions as ways of restoring liquidity to the financial system so that monetary policy can work, not as monetary policy itself. Yet now that it is lending huge sums to euro zone banks for up to three years, this dis tinction is becoming meaningless. The idea is for banks to use this money to buy peripheral government debt; to lend more to households and business; or to reduce the amount of debt that they must refi nance. In all instances that would raise the price and lower the yields on government or private debt, which is how QE is sup posed to work. Asked recently if the ECB was conducting QE, Mario Draghi, the bank's president, sidestepped the ques tion: "Each jurisdiction has not only its own rules, but also its own vocabulary." The ECB could yet explicitly embrace QE if it saw inflation falling short of its goal of just below 2%. Elga Bartsch of Morgan Stanley thinks that could happen this year. The ECB already expects inflation of only 1.5% in 2013 and that number could drop as the bank brings its growth projections into line with the gloomier private consensus. Ms Bartsch thinks the ECB will cut its poli cy rate to 0.5% from 1% now in the first half of the year, about as low as it can go for technical reasons. Asset purchases would be the next logical step. The question is: which assets? Mr Blind er notes QE can work by narrowing the spread between long-term and short-term rates or between private and government rates. The first is best conducted by pur chasing government debt, the second by purchasing private debt. The Bank of Eng land has stuck firmly to the first route, leav ing it to the Treasury to extend credit to the private sector. The Fed has done a bit of both by purchasing fe derally-backed mort gage bonds as well as Treasuries, but avoid ed purchases of private assets because of legal and political constraints. The ECB is in the opposite position to
the Fed: circumscribed in its ability to fund governments but at liberty to buy private debt. Although expanded purchases of pe ripheral government bonds would be more effective, Ms Bartsch therefore reck ons the bank is likely first to conduct QE through expanded purchases of private debt such as bank and corporate bonds (as suming its three-year loans to banks prove ineffective at expanding credit). It could also purchase bonds of all euro-zone gov ernments, in the process relieving pressure on struggling peripheral sovereigns. Whatever central bankers do, they can not repair problems best fixed by politi cians, such as America's incoherent fiscal policy or Europ e's fractured institutions. Asked about the ECB's aggressive new lending to banks, Masaaki Shirakawa, the governor of the Bank ofJapan, said it could "buy time". But he warned it could backfire if politicians fritter away whatever time the central bank has bought. Unfortunate ly, that risk is never low. •
India's slowdown
The case for the defence DELHI
Why officials think investors are too bearish about India's economy
Tthat it seeps indoors. In one govern
HE SMOG is so bad in Delhi right now
ment building the far end of the corridor seems hazy. But the view of the mandarin working there is clear: India's economic miracle is not over, regardless of the chatter among investors and howls about govern ment paralysis from industrialists. He pokes fun at the latter. A year ago they were swanning around Davos proclaim ing India could grow in its sleep, he says. Now, with growth dipping to 6.9% last quarter, from a peak of 10% (see chart), they are pleading for government action. Bears in Mumbai, India's financial capi tal, worry that GDP growth might slip be-
I
Some miracle India's: % change from previous year
2000
02
Source: CEIC
04
06
08
10 1 1
low 6% as confidence and investment slip. That partly reflects global woes, and partly too the gumming up of the bureaucracy due to a wave of graft allegations. But it is also because no big reforms have taken place for years; and such is the dire state of India's politics that it is hard to imagine any being imminent. Things reached a na dir at the end of last year when the ruling coalition announced it would allow for eign supermarkets into the country, only to do a u-turn in the face of protests from the opposition and its own coalition partners. Shortly afterwards it failed to carry a key anti-corruption bill through parliament. The government is not blind to these concerns-in his new-year address the prime minister, Manmohan Singh, conced ed that "it would be wrong to conclude that India is now unshakeably set on a pro cess of rapid growth." But officials in Delhi are more optimistic than the financial mar kets, for three reasons. First, they argue that growth is bottoming out. Inflation is show ing signs of falling, which should allow the central bank to reverse its long series of in terest-rate hikes. The recent drop in the ru pee is a healthy adjustment, not cause for panic, they say. Meanwhile the euro zone is vaguely getting its act together and there are hints of a recovery in America. Growth, it is thought, will be about 7% for the fiscal year ending in March, respectable enough, and will pick up from there. Second, the long-term drivers of lndia's boom are intact. There is "not much reason to change your mind," says the mandarin. The rise in the savings rate, which allows more investment, will continue, partly thanks to a demographic bulge of people reaching working age. Even if there is a drop in capital expenditure, it should re main above 30% of GDP-a "handsome level", says another official, that will boost the country's potential. The government's 12th five-year plan, which is due out soon, was originally expected to forecast growth of 9% between 2012 and 2017. That might fall to 8.5%, officials say, but no further. The final strut of the argument is that the politics are not as bad as they seem. Pessimists, the mandarin says, reckon "we're just going to fiddle around and miss our opportunities." But after important elections in February in Uttar Pradesh, the most populous state, the politicians may stop posturing and even co-operate to pass less contentious reforms such as a new na tional value-added tax. That would cut red tape and the fiscal deficit. And even if par liament stays gridlocked, there are lots of nuts-and-bolts reforms that do not require legislation. The government will try hard er to tackle the bottlenecks that choke the power industry, for instance, and the pa perwork that is snarling up big projects. The nub of the official argument is "calm down-and trust us to do just enough." The trouble is the government ��
64 Finance and economics � has been saying this for a year, and busi ness folk and investors seem to have lost heart. Firms have cut investment and the stockmarket was one of the world's worst performers in dollar terms last year. Per haps they are being too jumpy, but India does not have the luxury of dismissing what firms and investors think. The fiscal deficit, including the states and off-bal ance-sheet items, is running at 9-10% of GDP for the fourth year in a row. The cur rent-account deficit is drifting towards 4% of GDP, officials admit, well above the country's traditional comfort zone. India needs to command the confidence of do mestic and foreign investors. Unless the re form process starts moving there is a risk that the financing of these deficits will be come an acute problem-and that India's economic miracle recedes further into the Delhi haze. •
Spain's banks
Horns of a dilemma MADRID
The Economist January
7th 2012
China's economy
China's version of contraction H O N G KONG
A closely-watched indicator does not mean what people think it means
Tyear were surprisingly cheerful. Early I HE first economic figures of the new
o n January 1st South Korea reported that its exports grew by 12.5% in the year to December. An hour later China revealed that its official purchasing-managers' index (PMI), an indicator of manufactur ing activity, rose to 50.3 in December from 49 the previous month. Not cork-pop pingly good, but better than expected. PMIS are popular in China, where hard figures are sometimes hard to trust. China's official PMI asks managers in 820 manufacturers if production, orders, inventories and so on improved or dete riorated over the past month. A reading below so is supposed to show that manufacturing is shrinking. The N ovember figure was therefore especially traumatic. The first sub-so reading since February 2009, it prompted the central bank to ease monetary policy on the eve of publication. By the same token, the uptick in December garnered lots of attention because it carried Chi nese manufacturing across the dividing line between contraction and expansion. Or did it? A number of sober analysts have pointed out that China's official PMI shows some predictable seasonal varia tions. Without them, the index would probably have reached 49.9 in December, still a little below the magic so mark. That mark may not be as magical as many believe. According to Yu Song of Goldman Sachs, a reading of so on the P MI does not correspond to anything like zero growth in output, as measured by harder data published later in the month. Those data cover industry as a whole, rather than manufacturing in particular. They also show the growth in China's industrial production compared not with
When down means up
China's:
purchasing-managers' index*
industrial production !
Annualised manthon-month change, %
65
40
60
30
55
20 10 0
45
10
40
��--��--�-�- 20 2005 06 07 08 09 10 11 Sources: CFLP; Goldman Sachs
* Seasonally adjusted !Smoothed
the previous month, but with the same month of the previous year. That compli cates any attempt to line the numbers up. But Mr Song has inferred month-on month changes in industrial production from the official year-on-year figures. The resulting series is highly volatile, but does resemble the official PMI. However, like a bathroom scale that starts at -10kg, the PMI is miscalibrated. A reading of so corresponds to monthly growth in indus trial production of aboutlo% at an annu alised pace (see chart). The PMI would have to fall to about 44-45 before industri al output could be exp ected to shrink. How so? The P MI will drop below so whenever the managers reporting a deterioration in business outnumber those reporting an improvement. But Chinese industry grows by about 15% a year on average. That kind of momen tum may be so firmly ingrained in man agers' minds that a 10% pace feels like a deterioration. Given the ills of the world economy, they may have to get used to it.
New government, old problem
I Guindos, Spain's new finance minister, is
T IS perhaps no coincidence that Luis de
a former banker. He has been charged by Mariano Rajoy, the new prime minister, with the task of whipping Spain's bloated financial system into shape. Mr de Guin dos reckons the country's banks need to set aside another €50 billion ($65 billion) in provisions for bad property loans. This would help tidy up their balance-sheets, but it's not yet clear how it will happen or who will foot the bill. The Bank of Spain says there are €176 billion of non-p erforming real-estate loans and foreclosed assets (52% of the banking system's total property book). Banks have already set aside provisions covering a
third of these bad assets. Add in an extra €50 billion, which is about 5% of Spain's GDP, and provisions would cover eventu al losses of 6o%, in line with the average haircuts that were applied to Irish property loans when they were transferred to that country's bad bank. The difference with Ireland is that Spain is not now planning on setting up a large bad bank of its own to warehouse im paired property assets. Spain's largest banks-Santander, BBV A and CaixaBank were all dead against it. And in an Irish style scenario, where the government swallows discounted loans on land and buildings as well as foreclosed assets, the state would need over €1oo billion to pur-
chase the assets and recapitalise the banks, according to Morgan Stanley's estimates, or more than 1o% of GDP. This would have compromised Spain's relatively low debt to-GnP ratio. In any case, the state already owns quite a few bad assets. It nationalised four weak lenders last year and auctioned off a fifth, Banco CAM, with a generous asset protection scheme. Banks are part-financ ing these rescues: the industry-backed de posit-guarantee fund (FGD) provided CAM's guarantees. But the FGD has limited resources. Ultimately, the state is still on the hook. Barclays Capital estimates that the government is already exposed to €40 �� billion of potential losses.
The Economist January 7th �
Finance and economics 65
2012
Mr de Guindos says that the majority of banks can pay for the new provisions out of their profits and it could be done over several years. This sounds too optimistic. The European Central Bank's move in De cember to give Europe's banks cheap three-year loans has given Spanish banks some breathing room. But Spanish lenders will make just less than €20 billion in pre provision profits this year, according to es timates by Cheuvreux, a broker, with large variations among individual institutions. Dragging the provisioning process out over several years would just be kicking the can
down the road, and risks exacerbating a credit crunch. And although the new cush ion looks about right for now, the total amount of dud loans could well rise as Spain dips back into recession. The government doubtless hopes that the new provisioning requirements act as a wake-up call for weak banks to start look ing for partners. Mergers could theoretical ly help to sort out banks that face large losses. And Spain is overbanked. "The big banks could play a useful role in a rapid re structuring and Spain should take advan tage of that," says Francisco Uria of KPMG,
an accounting firm. The caveat is that the big banks-the natural buyers of the large, weak savings banks, or cajas-are already short of capital. They have been ordered to raise a whopping €26.1 billion by the Euro pean Banking Authority (EBA) by June; only Greek banks had a bigger shortfall in the EBA's latest stress tests. There is another source of capital: bondholders of dud banks could be forced to take losses. But the snag is that most of these bonds are held by retail investors. Mr de Guindos may yet have to dip into gov ernment coffers to find the cash. •
Buttonwoo d A devastating analysis of hedge-fund returns
H est investors around. With keen eyes EDGE-fund managers are the smart
and sharp brains, they spot and exploit in efficiencies in the markets. Or at least that is what the industry tells its clients. There is no doubt that hedge-fund managers have been good at making money for themselves. Many of Ameri ca's recently-minted billionaires grew rich from hedge clippings. But as a new book* by Simon Lack, who spent many years studying hedge funds at JPMorgan, points out, it is hard to think of any clients that have become rich by investing in hedge funds (whereas Warren Buffett has made millionaires of many of his original investors). Indeed, since 1998, the effective return to hedge-fund clients has only been 2.1% a year, half the return they could have achieved by investing in bor ing old Treasury bills. How can that be, when traditional performance measures for the industry show average returns of 7% or so? The problem is a familiar one in fund manage ment and is the equivalent of the "win ner's curse" that occurs with auctions (the successful bidder is doomed to overpay). Take a whole bunch of fund managers and give them an equal amount of mon ey to invest. The managers that perform best initially will tend to attract more in vestors, and so will gradually become big ger than the moderate or poor performers (who will eventually go out of business). But the manager will not perform well indefinitely. By the time a bad year occurs, the manager will be running a much larg er fund. In cash terms, the loss on the ex panded fund may easily outweigh the gains made when the fund was smaller. The return of the average investor will be lower than the average return of the fund. What is true for individual funds also turns out to be true for the industry as a whole. Between 1998 and 2003 the aver-
age hedge fund earned positive returns ev ery year, ranging from 5% in 2002 to 27% in 1999. Back then, however, the industry was quite small: overall assets only passed $200 billion in 2000. That strong p erformance attracted the attention of pension funds, charities and university endowments at a time when their portfolios had been clobbered by the bursting of the dotcom bubble. They duly piled into "alternative assets" like hedge funds and private equity. By early 2008 the hedge-fund industry had around $2 tril lion under management. But that year turned out to be the annus horribilis for the hedge-fund sector. The av erage performance was a loss of 23%. In cash terms the loss for that single year was more than double the industry's total as sets under management in 2000, when it was still doing well. Mr Lack reckons that the industry may have lost enough money in 2008 to cancel out all the profits it made in the previous ten years. At this point, hedge-fund managers might cry foul. The losses suffered in 2008
make a huge impact on the way Mr Lack calculates his figures. If you use the same methodology on stockmarkets, hedge funds outperformed the s&P sao be tween 2001 and the end of 2010. But private-equity managers are judged on a similar basis (the internal rate of return) to Mr Lack's calculations. And his numbers probably flatter the hedge fund industry. Indices of hedge-fund re turns overstate the numbers because of factors such as "survivor bias" (poor per formers stop reporting their numbers) and "backfill bias" (only successful new comers start to report). These effects could add 3-5 percentage p oints a year to aver age returns. Many investors invest in the se ctor through funds of funds, which charge an additional layer of fees. Even if you allow for the rebound in markets (and hedge-fund returns) in 2009 and 2010, investors have still got the short end of the stick. They have yet to recover the losses suffered in 2008. But hedge fund managers took home almost $100 billion in fees between 2008 and 2010 (and an aggregate haul of $379 billion be tween 1998 and 2010). Mr Lack's book suggests the blind faith displayed by many institutional investors in hedge funds needs to be reconsidered. Individual managers may be brilliant but it is hard to spot them in advance. John Paulson was not particularly well-regard ed before he made a fortune betting against subprime bonds-and his perfor mance has slumped since. Investing in hedge funds will enable some lucky man agers to enjoy an early retirement on their yachts. It will not enable pension funds to eliminate their deficits. * "The Hedge Fund Mirage: The Illusion of Big Money and Why It's Too Good to Be True", published by John Wi ley & Sons, January 2012
Economist.comfblogsfbuttonwood
The Economist January
66 Finance and economics Bank capital
Half-cocked Basel
7th 2012
A Swiss central-banking scandal
Called to account B E R LI N
The home of bank secrecy ain't what it used to be B E RLIN
Stop-gap rules on banks' trading books may add perilous complexity
T
HE NEW-YEAR hangover throbbed agonisingly for investment bankers this year. Blame Basel 2.5, a new set of interna tional rules which charges banks higher capital for the risks they run in their trading books (as opposed to their banking books, where they keep assets that they intend to hold to maturity). Those charges were too low before. And heaping higher costs on banks should please politicians and Joe Public. But they add another layer of com plexity to banks' risk management. Basel 2.5 came into force on December 31St in most European and major world fi nancial jurisdictions. Switzerland applied the rules a year early, and the costs are sub stantial. Third-quarter figures for Credit Suisse show a 28% increase in risk-weight ed assets, and hence capital charges, for its investment-banking activities purely be cause of Basel 2.5. The most notable laggard is America. us financial regulators do not oppose Ba sel 2.5, but it clashes with the Dodd-Frank act, America's big wet blanket of a finan cial reform. Basel 2.5 uses credit ratings from recognised agencies such as Moody's and Standard & Poor's to calibrate capital charges. Dodd-Frank expressly forbids the use of such ratings agencies, whose poor judgments are held partly responsible for the crisis. Instead American regulators are working on their own cocktail of credit risk calibrations for Basel 2.5, using market data and country-risk ratings from the O E C D . Their solution is still months away from application (though not as distant as implementation by the Russians or Argen tinians). Basel 2.5 for the first time charges banks extra capital for the credit risk of what they hold in their trading portfolio (because the crisis showed that markets are not always liquid enough to be able to offload assets). That includes a charge for the risk that a counterparty goes bust. It also imposes heavy charges on securitised bundles of assets unless the credit risk of each piece of the bundle has an identifiable market price. Banks that have portfolios of trading positions which they reckon offset each other have to convince regulators that their risk models work or face being charged at a cruder, standardised rate. The problem with Basel 2.5, recognised by regulators and bankers alike, is its com plexity. The risk of a trading portfolio must now be broken down into five "buckets" value at risk (v AR), a measure of how
I attack. OnJanuary 4th an article in Die T IS starting to look like a sustained
Weltwoche, a Swiss weekly magazine, accused Philipp Hildebrand, president of the Swiss National Bank (SNB), of personal currency speculation while the SNB was intervening to stabilise the Swiss franc/us dollar rate. That reignited a controversy that seemed to have died down after the SNB's own pre-Christmas investigations-conducted by P W C , an accountancy firm-exonerated Mr Hildebrand of any infringement of the bank's rules on personal-account dealing. That report was hurriedly published by the SNB on January 4th, along with the central bank's code of ethics. The controversy began in December when the Swiss Federal Council reportedly confronted Mr Hildebrand with allegations of suspicious trading, which had been brought to them by Christoph Blocher, a right-wing politician. Mr Hildebrand immediately told the SNB board, and an investigation started.
Looking Like a million doLLars much could be lost in an average trading day; stressed v AR (how much could be lost in extreme conditions); plus three types of credit risk ranging from the risk of single credits to those of securitised loans. Trad ers are understandably confused. For some banks, developing risk models and getting them approved is just too expen sive: more complex businesses will be shut down. That will please those who want banks to be more boring. But unintended consequences will doubtless follow. Useful products may be come less tradable. Trading of riskier pro ducts could migrate to unregulated enti-
The allegations centre on a currency trade made in August that switched SwFf400,ooo ($512,000) into dollars just two days before the SNB started intervening to weaken the franc and three weeks before the bank imposed a ceiling on the currency's value. The trade was reversed in October at a 16% better rate against the franc. The PWC report says this trade was "awkward" but did not infringe the central bank's own guidelines. The report says the August trade was made by Mr Hildebrand's wife, Kashya. When Mr Hildebrand learned of it a day later he reported it to the SNB's head of compliance and instructed Bank Sarasin, his private bank, that in future only he would handle foreign-exchange trades. That seemed to let him off the hook. But Die Weltwoche, which is identified with Mr Blocher, says it has evidence that the August trade was done by Mr Hildebrand himself. That, and a TV interview by Mrs Hildebrand, refanned the flames. More light was expected to come from a press conference with Mr Hildebrand on January 5th, due to take place after The Economist had gone to press. There are grounds to be sceptical about the attack on Mr Hildebrand. He is a controversial figure, respected by some, annoying to others, for spearheading an attack two years ago against the big Swiss banks and their adventures into invest ment banking. According to Bank Sara sin, one of its employees, since sacked, leaked the trade information to a lawyer with links to the right-wing Schweize rische Volkspartei (svP), breaching hal lowed Swiss banking secrecy. The lawyer then relayed the information to Mr Blocher. But even if the Hildebrands are victims of a campaign to undermine him, they remain open to the charge of re markable naivety.
ties. Banks may be tempted into new forms of regulatory arbitrage, by juggling assets between their trading book and their banking book. Worst of all, perhaps, is the increased risk of back-office bungling because of the extra complexity. Regulators recognise this risk. The Basel Committee on Banking Supervision, which drew up the rules and is also re sponsible for the full Basel 3 regime that will come into force in 2019, is still conduct ing what it calls a "fundamental review" of capital rules for banks' trading books. Pub lication is not expected before March. Those sore heads will not soon clear. •
The Economist January 7th
Finance and economics 67
2012
Economics focus I Downturn, start up The effects of recessions on entrepreneurs and managers run deep
Tdownturns is long and varied. It includes General Motors,
HE list of famous companies founded during economic
AT&T, Disney and MTV, all founded during recessions. A 2009 study found that over half of Fortune 500 companies got their start during a downturn or a bear market. A recession, it seems, may not be an entirely bad time to start a company. Indeed, busts (and booms) cast a longer shadow on the business landscape than is commonly realised, because they influence both the rate of business formation and how existing firms are run. Some argue that recessions speed up the process of produc tive economic churn-what Joseph Schumpeter called "creative destruction". The destruction part is easy to see: downturns kill businesses, leaving boarded·up windows on the high street as their gravestones. But recessions may also spur the creation of new businesses. When people suddenly have less money to spend, clever en trepreneurs may see an opportunity to set up businesses that give them what they want more cheaply or efficiently. Down turns may also swell the ranks of potential firm creators, be cause many who might otherwise have sought a stable salary will rein vent themselves as entrepreneurs. A recent study by Robert Fair lie of the University of California, Santa Cruz found that the pro portion of Americans who start a new business each month is on average about half as high again in metropolitan areas where un employment is in double digits as in those where it is under 2%. A recession is a difficult time to start a company, of course. Credit is scarce. Would-be entrepreneurs are further handi capped by falling asset prices, since they might want to use their homes as collateral for a start-up loan. Whether downturns on balance help or hurt entrepreneurs depends therefore on the rel ative strength of these opposing sets of forces. Mr Fairlie finds evidence that the spur to enterprise during the most recent recession in America from a drying-up of other em ployment opportunities outweighed the drag on business forma tion from a collapsing housing market. That said, a shrinking economy also makes it hard for young firms to take root and grow. A study commissioned by the Kaufmann Foundation, an organisation devoted to entrepreneurs, suggests that young com panies, typically responsible for the bulk of us job creation, add-
ed only 2.3m jobs in 2009, down from about 3m a year earlier. Tough times do not suddenly prompt everyone to start a busi ness. The vast majority of people who reach working age during a downturn still look for a job. But research also suggests that re cessions have lasting effects on how executives manage busi nesses. John Graham of Duke University and Krishnamoorthy Narasimhan of PIMCO, a bond manager, have found that chief executives who lived through the Depression tended to run com panies with lower debt levels (leverage then went up when these D epression-era bosses retired). In a new study, Antoinette Schaar and Luo Zuo of the Massachusetts Institute of Technology show that companies run many years later by people who cut their teeth during bleak times, when money was tight and customers harder to find, are systematically different from those run by managers whose formative experiences date back to expansion ary times, when credit and optimism were in ample supply. By carefully dissecting the careers of over 5,700 bosses of companies that have been on the s&P 1500 list, Ms Schaar and Mr Zuo found that those who began their management careers dur ing a bust were substantially more risk-averse, took on less debt and generally were more conservative managers than the rest of the sample, even many decades later. That will strike critics of the over-leveraged company as thoroughly good news, but it is hard to say whether this effect is entirely benign. Bosses whose careers began in a recession also tend to be so concerned about cost-effectiveness that the companies they go on to run spend less on research and development. They may thus be too conservative: firms with bosses whose professional baptism came in a weak economy have lower returns on assets than those run by other managers. Why should this be? One plausible explanation is that reces sions affect the way people take decisions. Management styles are surely in part the result of the kinds of problems a person has had to grapple with. Even a risk-lover may end up taking more conservative financial decisions in a weak economy. If these de cisions serve him well in lean times, then he may conclude that fiscal prudence is a stance worth sticking with in years of plenty. Recessionary genes
Downturns also funnel people into different jobs from those they might otherwise have entered. A 2008 study by Paul Oyer of Stanford University found that Stanford MBAS disproportion ately shunned Wall Street during a bear market. This may seem unsurprising-who wants a job in finance when the market is tanking? But there are reasons to believe that these choices make a difference well into the future. Those who begin their careers in a bust are less footloose than their boom-time equivalents. Ms Schaar and Mr Zuo find that the average recession-scarred chief executive is more likely to have risen through the ranks of a firm than the norm, and is less likely to have switched employers or jumped from one industry to another. The pool of candidates for top jobs in a particular industry re flects the choices that people make early on in their working lives. Yet these choices are the result not only of managers' preferences and abilities, as you might expect, but also of the economic cir cumstances that prevailed at the time they began working. Whether they were set up during a boom or a bust, today's firms are deeply affected by the economic fluctuations of the past. • Papers cited in this article can be viewed at economist.comjdownturn0112
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Old, expensive violins are not always better than new, cheap ones
Tmarket for art suggests that those who
HOUGH individual tastes do differ, the
have money generally agree on what is best. The recent authentication of a painttOr exampJ e, ing by Leonardo d a Vinci, c magically added several zeroes to the val ue of a work that had not, physically, changed in any way. Nor is this mere affec tation. In the world of wine (regarded as an art form by at least some connoisseurs), be ing told the price of a bottle affects a drinker's appreciation of the liquid in the glass in ways that can be detected by a brain scanner. It seems, now, that the same phenome non applies to music. For serious players of stringed instruments the products of three great violin-makers of Cremona, Ni colo Amati, Giuseppe Guarneri and Antonio Stradivari, have ruled the roost since the 17th century. Their sound in the hands of a master is revered. They sell for mil lions. And no modern imitation, the story goes, comes close. Unfortunately, how ever, for those experts who think their judgment unclouded by the Cremonese instruments' reputations, Claudia Fritz of the University of Paris VI and joseph Cur tin, an American violin-maker, have just applied the rigorous standards of science to the matter. Their conclusion, published in the Proceedings of the National Academy of Sciences, is that the creations of Cre-
Highly strung Averaged scores for playing qualities of three old and three new violins l=best, -l=worst
New
1 - 2
-3
Old
1 -2 -3 0.6 0.4 0.2
0.2
Playability Projection
Tone colours
Response
Source: PNAS
mona are no better than modern instru ments, and are sometimes worse. Unlike previous "blind" trials of vio lins, in which an instrument's identity was concealed from the audience but not from the player himself (and which have indeed suggested that modern instruments are of ten as good as old ones), the one organised by Dr Fritz and Mr Curtin sought to discov er the unbiased opinion of the men and women who actually wield the bow. They and their colleagues therefore attended the Eighth International Violin Competition of Indianapolis, held in September 2010,
which gathering provided both a sample of testable instruments and a pool of suit able volunteers to play them. Exactly which instruments were tested remains a secret. That was a condition of the loans, in order that an adverse opinion should not affect a fiddle's market value. There were, however, six of them: two Stradivarii and a Guarnerius (all from the 18th century), and three modern violins made to Cremonese patterns. A total of 21 volunteers-participants in the competition, judges and members of the local symphony orchestra-were asked to put the instruments through their paces. The catch was that they had to do so in a darkened room while wearing welders' goggles, so that they could not see them clearly, and that the chin-rest of each violin had been dabbed with perfume, lest the smell of the wood or the varnish give the game away. There were two tests: a series of pair wise comparisons between old and new instruments that allowed a player one mi nute to try out each instrument, and a com parison between all six, in which the play er was allowed to play whatever he wanted for however long he wanted, sub ject to a total time-limit of 20 minutes. In the pairwise test (in which players were not told that each pair contained both an old and a new instrument, and in ��
The Economist January 7th
Science and technology 69
2012
� which the order of presentation was ran domised), five of the violins did more-or less equally well, but the sixth was consis tently rejected. That sixth, unfortunately for the reputation of Cremona, was a Strad. In the freeplay test, a more subtle ap proach was possible. Players rated the six instruments using four subjective qualities that are common terms of the violinist's art: playability, proj ection, tone colours and response. The best in each category scored one point, the worst minus one, and the rest zero. Players were also asked which violin they would like to take home,
given the chance. In this case, two of the new violins comprehensively beat the old ones, while the third more or less matched them (see chart on previous page). The most popular take-home instrument was also a new one: eight of the 21 volunteers chose it, and three others rated it a close second. Not sur prisingly, the least popular instrument in the second test was the Stradivarius that did badly in the first. The upshot was that, from the players' point of view, the modern violins in the study were as good as, and often better
than, their 18th-century forebears. Since Dr Fritz estimates the combined value of the three forebears in her experiment as $10m, and the combined value of the three mod ern instruments as around $10o,ooo, that is quite a significant observation. Human nature being what it is, this re sult will probably have little effect in the saleroom: the glamour of Cremona will take more than one such result to dispel it. But it does suggest that young players who cannot afford a Strad should not despair. If they end up with a cheaper, modern copy instead, they might actually be better off. •
Evolution
Power from the sea
The value of a good editor
Second time around . . .
A hitherto-unknown way to evolve
N 1958 Francis Crick, one of the co I discoverers of the double-helical struc
ture of DNA, spelled out what came to be called the "central dogma" of molecular biology. In a nutshell, this says that DNA makes RNA, which makes proteins. In other words DNA-which carries an organism's genetic code-"writes" that code into bits of RNA, a similar, but not identical molecule. These then act as messengers which tell a cell's protein making machinery what to make. It is a pithy and memorable summary. Sadly, reality is not quite so clear-cut. In a paper in Science, Sandra Garrett and Joshua Rosenthal of the University of Puerto Rico illustrate how the instruc tions in the DNA are not always followed faithfully. The RNA message can be re written before it is read. And that pro vides an extra opportunity for evolution to occur. Dr Garrett and Ms Rosenthal were studying octopuses, looking for differ ences between those that live in warm, tropical water and those that inhabit the poles. They concentrated on the make-up of the ion channels in the animals' cell membranes. These channels are cylindri cal assemblages of protein molecules which help to control such things as the electrical activity of nerve cells and the release of hormones. The two research ers suspected that the channels found in warm-water species would not work well in the freezing temp eratures that their polar cousins endure. That turned out to be correct. What was odd was that the genes for the pro teins involved were almost identical in warm- and cold-water animals. This surprised Dr Garrett and Ms Rosenthal, who had expected that natural selection would have changed the DNA, and thus the composition of the resulting protein. Instead, differences in composition
SAN FRANCISCO
Ocean heat may be used to generate electricity
E reaucracy, an organisation that operat
VEN by the standards of American bu
Staying on message between warm-water and cold-water ion channels were the result of a phenome non called RNA editing, in which special enzymes alter the structure of the RNA messenger, and thus of the final protein. Though RNA editing has been ob served before, in animals ranging from humans to nematode worms, this is the first time an edit has been tied to a clear evolutionary difference caused by a feature of the environment-in this case ambient temperature. Of course, it is not strictly a departure from Crick's dogma. Enzymes, too, are proteins, and so are the transcription factors that regulate their production. Eventually, when the chain of causation is traced in full, the chances are that the underlying difference be tween polar and tropical octopuses will be in the DNA itself. RNA editing of this sort does, however, provide another way to drive evolution, and may help explain why animals (as opposed to, say, bacte ria) are so complex.
ed for 13 years without achieving anything is impressive. Yet that was the fate of the Ocean Thermal Energy Conversion (OTEC) permit office, which opened its doors in 1981 and closed them in 1994, hav ing issued not a single OTEC p ermit. The office was part of NOAA, America's National Oceanic and Atmospheric Ad ministration-a marine counterpart of the country's space agency, NASA. And the idea of OTEC was to exploit the difference in temperature between the top of the ocean and the bottom, in order to drive tur bines and generate electricity. The incen tive was the oil-price spike of the 1970s. But once that incentive went away, so did inter est in alternative sources of power and, eventually, so too did the office. Alternative power sources are back in fashion, though, and OTEC is one of them. A range of companies, from giants such as Lockheed Martin to minnows like the Ocean Thermal Energy Corporation of Lancaster, Pennsylvania, are working on the technology, and this time it might actu ally come to pass. Most of the bits and pieces required can be borrowed from oth er areas of engineering, such as deepwater oil drilling. And the idea of a power station whose fuel is free is attractive, as long as the capital cost is not too high. The most common OTEC design uses a fluid with a low boiling point-typically ammonia-which circulates through a net work of pipes. First, it is vaporised in a heat exchanger that is warmed by surface water with a temperature of around 25°C. That puts the gas under sufficient pressure to spin a turbine and thus generate electricity. When it has done so, the gas is sent to a sec ond heat exchanger, where it is cooled by ��
The Economist January 7th
70 Science and technology � seawater that has been pumped from a depth of a kilometre or so, where the tem perature is about soc. That condenses it back into a liquid, and the whole process can be repeated. Theoretically, then, an OTEC plant can be built anywhere that the ocean has a surface temperature above 25°C and is more than 1.km deep. Fortunately for the technology's sup porters, that state of affairs p ertains in sev eral places of interest to America's Defence Department. These include Guam, in the Pacific Ocean, and Diego Garcia, in the In dian Ocean. Both islands host American bases, and even in these straitened times the Pentagon's budget can stretch to an ex perimental technology that might reduce a base's fuel consumption. The actual experiment, though, is on Hawaii, where Lockheed is collaborating with a smaller firm, Makai Ocean Engi neering, to build a ten megawatt (Mw) pi lot plant that should be operational by 2015. If that goes well, the idea is to follow it with a lOOMW power station by 2020. For this, however, a new piece of kit will be needed. The heat exchangers and pipework required to make a 10MW plant already exist, but the 100MW facility will need a pipe that is not only 1km long (in or der to reach the cold water at depth) but ten metres in diameter (in order to bring enough of that cold water to the surface). This is quite some pipe, and it will also have to be rugged enough to survive for de cades in the open ocean. Nor will it be cheap. Kerry Kehoe, the current head of OTEC activities at NOAA, estimates such a facility could cost $1 billion. A more modest project is planned by the O cean Thermal Energy Corporation. It has signed a memorandum of understand ing with the Bahamian government to
build a fully commercial OTEC plant. Ini tially, cold water will be pumped from the ocean depths to provide cooling for a holi day resort-a proj ect that will cost $10om. Eventually, the plan is to turn this into a full-fledged 10MW power station. Bolting cooling facilities onto an OTEC generator, and also using some of the resulting power for desalination on islands like the Baha mas that are short of fresh water, helps tip
2012
the economic balance in favour of OTEC. The Caribbean, indeed, seems a popu lar place to try the technology out. The first OTEC plant, built in 1930, was at Matanzas Bay, just across the Florida straits from the Bahamas, in Cuba. That successfully pro duced 22kw, though it was eventually de stroyed by wind and waves. A mere eight decades later, the technology may at last come to fruition. •
China's space programme
Rocl<ets galore
BEIJING
The next decade will see China become a space power, as well as an earthly one
y ONE well-known (if fictitious) criteriB on, the purpose of a space programme
is to boldly go where no man has gone before. China, however, has a different plan: to boldly go back where men have already been. Specifically, with the release on December 29th of an official space-policy paper, it has said it wants to send people to the moon. The last earthling to leave a footprint on the lunar surface, Eugene Cernan, did so in 1972. He was (and is) American. According to the new paper-the first of its kind since 2006-the next print in the regolith is likely to be Chinese. The country's experts have long discussed the possibility of such a mission, but this is the first official acknowledgment of a decision to proceed. The document is, however, more than a mere claim to vainglory. It outlines a programme that will, if fully implemented,
A new island in the Red Sea "Buy land," the old saying has it. "They aren't making it any more." That is almost true, but not quite. For, in the Zubair archipelago, in the Red Sea off the coast of Yemen, a new island has recently emerged. The island in question, which is about 500 metres across and is as-yet unnamed, is a once-submarine volcano that broke surface last month. This satellite photograph shows the volcanic plu me as it was on December 23 rd. Nor is Yemen the only country that may find its territory suddenly extended in this way. Spain, too, may soon be a little bigger. An eruption to the south of El Hierro, at present the southernmost of the Canary Islands, came within 70 metres of emerging from the sea in November. This volcano's activity has quietened down since then, but one more heave might be enough to add an alternative holiday destination for those bored with the charms of Tenerife and Lanzarote.
make China a space power equal to Ameri ca and Russia. One goal for the next five years is to im prove China's Long March rockets, the workhorses that launch its satellites. The Long March-s, in particular, is intended to be able to lift 25 tonnes into low Earth orbit. (Perhaps significantly, this is 6ookg more than America's space shuttles could manage.) Another part of the plan is to upgrade the country's satellite networks. A series of high-resolution Earth-observation satel lites is to be launched over the next five years, and by 2020 the Beidou global-posi tioning and navigation system, a set of 35 satellites equivalent to America's Global Positioning System, should be in place. That will provide a boost to the command and control capabilities of China's armed forces. Progress was also promised on Tiangong-1, China's newly launched space station. And there will be unmanned flights to the moon, including sample-re turn missions, and manned orbital flights to test life-support systems. The one place China does seem unlike ly to be going, ironically, is the so-called In ternational Space Station. This is an Ameri can-led venture and the United States seems reluctant to extend the term "Inter national" to include China. That is partly because of paranoia about sharing tech nology with China, according to John Pike, the head of GlobalSecurity.org, an Ameri can think-tank. But it is also possible to de tect a sense of pique that China is willing to do things (like going to the moon, and even just having a space programme that can put humans into orbit) which Ameri ca, at the moment, can't. Ultimately, manned space flight is fu tile. All the scientifically and practically important stuff can be done by robots. Nevertheless, symbols count. If the next man (or woman) on the moon is Chinese, many people will see it as a sign that Amer ica has been surpassed again. •
71 Also in this section 72 Europe and Islam 73 Post-apartheid South Africa 73 A memoir of Nigeria 74 A history of dieting 7 4 New film: "The Iron Lady"
Prospera, our o n li n e blog on books, arts a n d culture, appears every day. F o r a n a lysis a n d debate, visit Economist.comfculture
Women and Islam
God -daughters
A biography o f two women whose lives have been transformed b y militant Islam
N_AAN HIRSI ALI and Aafia Siddiqui are o t e e i bor� ;����d �� ��=� ;;�% �h;t� a� �� the conservative Islamic world, into families of some prominence. Later, they moved to America. Like tens of millions of others who made similar journeys, they had to negotiate the interface between an immigrant sub-culture that harked back to the homeland and a liberal society where very different options existed. Presented with two sharply contrasting value sys tems, two diametrically opposed ideas about the meaning of virtue, success and fulfilment, they had to make their choices. There, it would seem, the resemblance ends. Somali-born Ms Hirsi Ali is an ad mired public intellectual who denounced Islam as an oppressor of her sex and the source of many other woes. Ms Siddiqui is serving an 86-year prison sentence in Fort Worth, Texas, after being convicted of shooting at the American officers detain ing her in Afghanistan. A Pakistani-born neuroscientist who excelled in her studies at leading American universities, she has been described as the only senior female member of al-Qaeda and "the most want ed woman in the world". Her alleged com plicity in terrorist plots has not been tested in court (her trial had a narrower remit) but there is no doubting her jihadist zeal.
Wanted Women: Faith, Lies, and the War on Terror: The Lives of Ayaan Hirsi Ali and Aafia Siddiqui. By Deborah Scroggi n s . Harper; 539 pages; $27.99. To be published in Britain in February by HarperCollins; £1 6. 99
As Deborah Scroggins, an American journalist, recalls in this gripping and fine ly textured double biography, the two women's marital histories are also differ ent. Ms Hirsi Ali is now wedded to Niall Ferguson, a British-born historian, forming one of the world's most lionised couples. Their son was born last month. Formally speaking, her first marriage was an ar ranged union with a fellow Somali who wanted to take her to Canada. Ms Hirsi Ali instead sought asylum in the Netherlands. Eventually she became its best-known politician after her artistic collaborator (on a film denouncing Islam's cruelty to wom en) was murdered by a Muslim extremist and her own life needed protecting. Ms Siddiqui, who seemed to personify the very demons that Ms Hirsi Ali was fighting, married the nephew of Khalid Sheikh Mohammed, the alleged master mind of the September nth 2001 terror attacks. An earlier, failed marriage was to a Pakistani-born doctor, another high-flyer
in American academia, who shared her piety but not her extremism. Ms Scroggins has spent much of the past decade tracking both women and is struck by what she calls the weird symme try between them. Ms Hirsi Ali could have been an Islamist; as an adolescent in east Africa she was exposed to persuasive activists in the Muslim Brotherhood. Ms Siddiqui could have settled for life as a "Volvo-driving mother of two" as she was described (accurately, in a way) by those who insisted that her detention and trial were unfair. By flipping between the two lives, the book cleverly shows how both women were influenced by successive episodes in history, from the Bosnian war to the New York attacks and the overthrow of the Tali ban, gradually becoming protag onists in subsequent events. Although the book avoids psychobab ble, it is tempting to conclude that very per sonal factors influenced the women's choices. In Ms Hirsi Ali's childhood the dominant figure was her father, a rebel leader who was frustratingly absent most of the time. In her own battles, she at once defied and emulated him. In the Siddiqui household, the strongest role model was her mother, a passionate advocate of ultra conservative Islam and close associate of Pakistan's most hard-line clerics. Both lives were also affected by the final phase of the cold war. The Siddiquis were part of a wave of Islamist zeal unleashed by Zia ul Haq, a Pakistani general who enj oyed American support as an ally in the anti Soviet fight in Afghanistan. As opponents of Somalia's pro-Soviet regime, Ms Hirsi Ali's family were initially welcomed by pro-Western Saudi Arabia; but when Somalia switched sides, the family had to ��
The Economist January
72 Books and arts � move to Kenya, where life as an exile remained difficult. The worst features of traditional life, especially domestic violence, were easier to reproduce than any other aspect of Somali culture. In the introduction, Ms Scroggins says she hopes her meticulous investigation into the two women's lives (which did not enjoy the collaboration of either) will help her to understand the "deep structure" of the defining conflict of the early 21st century, pitting militant Islam against the West. (Something her subjects share, of course, is that both regard that battle as primordial and non-negotiable.) Some may find the book's stated intention slight ly over-ambitious. But it does add greatly to the understanding of several interlock ing conflicts, some grand and geopolitical and others intimate and personal. •
Europe and Islam
Managing the future Europe's Angry Muslims: The Revolt of the Second Generation. By Robert Lei ken. Oxford University Press USA; 368 pages; $27.95
The Emancipation of Europe's Muslims: The State's Role in Minority Integration. By Jonathan Lau rence. Princeton University
Press;
392 pages; $80 and £55
I American
N THE summer of 2005 Robert Leiken, an political scientist, wrote a bluntly worded essay entitled "Europe's Angry Muslims". His piece appeared in Foreign Affairs on the eve of the London tube bombings-and convinced many of his fellow Americans that Europe had failed to integrate its burgeoning Muslim communities, and that this represented a new, and barely acknowledged, challenge to the West's ongoing "war on terror". In turning the essay into a book, Mr Lei ken has had time to travel and reflect, and to soften some of the hard edges of his original critique. But the result remains a trenchant indictment of European poli cies, the unintended consequences of which have been disastrous, he believes. His focus is on the three countries-Britain, France and Germany-which have the biggest Muslim populations in western Europe. For British readers in particular, his book makes for uncomfortable reading. At its core are the London bombings and the iconic and ultimately enigmatic figure of Mohammad Sidique Khan, who led the British-born suicide-bombers. Mr Leiken views the young schoolteacher from Leeds as the product of three peculiarly British factors that came together to create a perfect storm.
The "revolt of the second generation" has been more acute in Britain than else where, he suggests, because of the deeply conservative and introverted character of its mainly Pakistani Muslim communities; because the British approach to multicul turalism has unwittingly fostered separa tion and isolation; and because, in the 1980s and 1990s, Britain opened the door to radical leaders from the Middle East-the "lords of Londonistan", Mr Leiken dubs them-who seduced young British-born Muslims with their witch's brew of jihadist ideology. Mr Leiken believes that France, by cracking down hard on militant Islam, has largely kept the phenomenon at bay. It has, to be sure, failed to integrate a large Muslim community of North African origin. But this, he says, has little to do with Islam and Islamism, and everything to do with dis crimination, harsh policing and a lack of worthwhile jobs. Mr Leil<en regards Ger many as lying somewhere in between; nei ther fully in the danger zone, like Britain, nor largely outside it, like France. Of its large population of Turkish origin, less than a third have managed to acquire German citizenship. And it is only through luck, he says, that the radical plots uncov ered in 2006-07 failed to produce a Ger man equivalent of the London bombings. Mr Leiken is a largely reliable guide to the varieties of Islamic belief and politics that are now reproduced in Europe, even if he can be a little clumsy with Arab and Asian names. He writes with eloquence, bringing to life the grim realities of the French banlieues and of the back-to-back houses of immigrant families in Leeds, where his requests for information met an impenetrable wall of silence. He is no neo conservative, but appears to endorse the "clash of civilisations" thesis of the late Samuel Huntington, which lends a dark undertone to his view of relations be tween Islam and the West. But, as parts of
Best foot forward
7th 2012
his book attest, that relationship is both more complex and more nuanced than either the jihadists or the Huntingtonians fully acknowledge. This is where Jonathan Laurence, of Boston College, comes in. "The Emancipa tion of Europe's Muslims"-a title that may provoke initial scepticism-looks at the largely unnoticed ways in which European governments have begun to integrate Muslims and Muslim organisations into public life. Mr Laurence describes a two stage process. In the first ("outsourcing"), governments relied on the embassies of the sending countries (Turkey, Algeria, Morocco) to organise the building of mosques, training of imams and other requirements of Muslim religious life. But the embassies had no interest in encourag ing the evolution of a British or French or German Islam, since their purpose was to maintain links with the country of origin. As the failures of integration became all too apparent in the 1990s, and above all after the terrorist attacks of 2001-05, the host countries switched to a different approach ("incorporation"). The embas sies lost their monopoly status, as host governments widened the circle of Muslim interlocutors-even including, cautiously, Islamist groups that had long been at odds with both the host govern ments and the embassies. Relying on extensive research and a wide range of interviews, Mr Laurence has written an original and thought-provoking study. He focuses on a crucial new mecha nism of state-mosque relations: the Islam councils which governments have created, under different names, in France, Britain, Germany, Italy, the Netherlands and else where. These councils remain, he stresses, a work in progress, but many have helped nurture a more pragmatic Muslim leader ship that seems increasingly committed to a shared future in Europe rather than a clash of civilisations. •
The Economist January 7th
Books and arts 73
2012
Post-apartheid South Africa
The rej ected son
Sometimes There i s a Void: Memoirs of an Outsider. By Zakes Mda. Farrar, Straus and Giroux; 576 pages; $35
Tenough to get on themselves," said Des HEY "stopped the gravy train just long
mond Tutu in disgust over the post-apart heid greed of South Africa's liberation elite. If Zakes Mda's account is anything to go by, the Nobel laureate was guilty of understatement. The African National Congress (ANC), he claims, is "overtaking Nigeria" in patronage and cronyism. J.M. Coetzee, Christopher Hope, Damon Galgut and other South African writers have also been critical of the coun try's governing party. But Mr Mda's attack is far more bruising than theirs. Not only is he the country's leading black playwright and novelist; as a member of a prominent family forced to flee apartheid South
Africa, and as an angry campaigner during those harsh years, his political credentials are impressive. His father, A.P. Mda, was the "founding spirit" of the Pan Africanist Congress of Azania (PAC), which broke with the ANC in 1959 in protest against, among other things, that party's links with the Soviet Union. In political exile Mda senior prac tised law in Lesotho where, as an austere Christian, he embodied the P A c 's motto: "Service, Sacrifice and Suffering". He charged deserving clients little or nothing for his services and moved his impover ished family into what his son describes as a slummy township. Their house had no electricity, a rusty corrugated iron roof and no ceiling; "the toilet was a pit latrine outside and we had to draw water from a communal tap a few streets away." The underlying and sometimes over riding theme in Mda junior's anguished autobiography is his admiration for his fa ther's life and his failure to live up to it. He is, he bravely admits, a physical coward. His only stab at violent political action ended in farce. He was commissioned to murder an alleged Communist spy but
A memoir of Nigeria
Madmen on the ground Looking for Transwonderland: Travels in Nigeria. By Noo Saro-Wiwa. Granta; 309 pages; £14. 99
Tearly teens, Noo Saro-Wiwa spent
HROUGHOUT her childhood and
every summer in Nigeria. The flight back always came as a shock, as was the arriv al itself. The noise, decay and corruption of Lagos airport were unending, along with the insects, power cuts and the higgledy-piggledy way of living that was far too intimate for one brought up in Britain's home counties. Ms Saro-Wiwa would far rather have stayed in the family house in leafy Surrey, with its golf clubs and Leylandii trees, or holed up with her smart boarding-school friends from Roedean. But her mother thought of their Surrey home as the "house", whereas their Nigerian home was "home", a character-building "trop ical gulag" with kerosene lamps, rice and-okra soup, "body-temperature Coca Cola" and a live-in tribe of cackling un cles and aunts. Home, that is, until Noo's father, Ken Saro-Wiwa, a businessman and activist from the oil-rich region of Ogoni, was arrested, imprisoned and then hanged in 1995 for his outspoken political views. The trips back to Nigeria came to an abrupt stop.
For a decade afterwards, Ms Saro Wiwa traded Surrey and Roedean for new destinations which she wrote up for "Lonely Planet" and "Rough Guides". As the rest of the world became increasingly familiar, Nigeria appeared to her to have more and more mystique. Eventually, she just had to return to the country no sane tourist would set foot in. "Looking for Transwonderland" is a search for enlightenment. Why are Nige rians such "a nation of ruffians"? Why is Lagos, their largest city, such a "disaster of urban non-planning" characterised by "impatience, armed robberies and over flowing sewage"? How do Nigerians survive in their own country, let alone thrive? It would be easy to focus on the colourful insanity that is Africa's most populous nation. But Ms Saro-Wiwa is careful to avoid caricature. Curious, she travels out of Lagos to corners of the country many Nigerians never see: to the Transwonderland Amusement Park, to the beauty of the eastern mountains and to the northern city of Kano with its modestly covered women and its forest of ancient minarets. Along the way, she allows herself to be surprised by kind ness and humour, making new friends who open her eyes to the passion, wit and ingenuity of her homeland.
Still singing for the fatherland was so frightened that he emerged from behind a boulder to hand over his Derrin ger pocket pistol to the man he was supposed to assassinate. The turmoil in Mr Mda's private life saddened his mother as well as his father. He constantly mistook lust for undying love and engaged in brief affairs with nu merous women. The second of his three marriages ended in a protracted fight for the custody of children and the final pages of his book are spoiled by a spiteful assault on this former wife. In contrast, Mr Mda achieved ever greater success in his public life. His plays were performed everywhere and he be came a star turn at literary festivals in Eu rope and the United States. "We Shall Sing for the Fatherland", a play he wrote 30 years ago, was once rated among his least political. It is now seen among his most prophetic as, in its author's words, it "looks at the life of the veterans of the liberation struggle who are now marginalised in the new society they helped to bring about." This was the fate of A.P. Mda, whose contribution to the struggle, his widow lamented, was entirely forgotten by the tri umphant ANC. Like his father, Mr Mda also feels marginalised. He applied for several important cultural and media posts, the interviews went well but each time he was blackballed by the president's office. He helped set up a film and televi sion production company and then found no new contracts were forthcoming from the South African Broadcasting Corpora tion after he refused "to pay the bribes that the commissioning staff of the national broadcaster demanded from producers". As he was not wanted in his own coun try, Mr Mda left it to take up a professorship at Ohio University and strove to persuade himself that, as a liberal secular humanist, "South Africanness" was just one of his several identities. An autobiography suffused with love for his homeland says otherwise. So do his novels. •
The Economist January 7th
74 Books and arts A history of dieti ng
Binge and purge
2012
New film: "The Iron Lady"
Cheel
Calories and Corsets: A History of Dieting Over 2000 Years. By Louise Foxcroft. Profile; 232 pages; £14 . 99
AFTER the binge of the holidays, many .t"\.stumble into January with a hangover, some fragile resolutions and a desire to shed a few pounds. Alas, few will benefit from rigid calorie-counting or cabbage soup slurping. In a recent study of 31 long term diet plans, the American Psycholog ical Association found that up to two thirds of participants ended up heavier than before they started. Some diets are more sensible than others, but any regi men that promises swift and dramatic re sults will doom most followers to failure. Weight-loss pills and surgery are similarly ineffective-and sometimes dangerous over time. Yet girth-management is big business, full of charismatic hucksters and fake science (fat-burning lip balm?), earn ing $40 billion a year in America alone. "The diet industry is all about exploita tion and profit," writes Louise Foxcroft in "Calories and Corsets", her slim new book about the history of dieting. Less a banquet than a tasting menu (the tone is breezy, opinionated and occasionally rushed), she chronicles more than 2,000 years of mov ers, shakers and tummy-tuckers, highlight ing both the wise and the wacky. The word diet comes from the Greek diaita, an approach to health that linked the mental with the physical. Classical physicians saw being too fat or thin as a sign of an imbalance. Man "cannot live healthily on food without a certain amount of exercise", observed Hippocra tes, who believed in breakfast, long walks and prudent vomiting. Philosophers such as Socrates saw a relationship between food and ethics, as a taste for luxury often leads to greed and unjust behaviour. Unlike the other deadly sins, gluttony is visible and so is often judged harshly, as if heft were always evidence of wanton in dulgence or laziness. (The link between ge netics and metabolism was not discovered until the 2oth century.) In particularly hard times such as the two world wars, fat peo ple were seen as traitors. Greater access to food and a rising stigma against podge helped inspire the fashion for corsets in the 17th century, which caused overlapping ribs, bad breath and the occasional death. When it comes to diets, women occupy a perversely central place, argues Ms Fox croft. They are condemned for their glut tony, criticised for their vanity, manipulat ed for their insecurity and also blamed for the flab on their husbands and children.
N AN early scene in "The Iron Lady",
I Britain's former prime minister, aged
and shuffling, steps out to buy a pint of mill<. Ahead of Margaret Thatcher in the queue at the corner shop is a porky chap with a mobile, one of those who pros pered under Thatcherism. Behind her stands a thin teenager, a nameless hoodie who would have loved a mobile and prosperity. Lady Thatcher (Meryl Streep) carefully counts out the coins, the rings that mark the conventional stages of married life, small engagement ring and narrow wedding band, now tight around her gnarled and wrinkled fingers. Back home she prepares breakfast for her husband, Denis (Jim Broadbent). She boils him an egg and chides him for spreading too much butter on his toast.
Fi nger at the ready
Until the 18th century, ideas on diet were mostly about healthy eating, moral ity and control. Laxatives and emetics were common, but many philosophers and physicians had sensible ideas about restraint and nutrition. By the early 19th century complaints about fat became rife, as even the working class had moved from the fields to the calorie-rich cities. This created a larger market for dieting sol utions, particularly fads such as cold-rain douches, chest beatings, electrode zap pings and massages that promised to crush subcutaneous fat globules. The 19th century saw a chap named William Banting bring the first low-carbo hydrate diet to a mass audience. A study in the Lancet later confirmed the value of fa-
"Milk's gone up: 49P a pint." She purses her lips. It is only later, when her assistant arrives, that the viewer realises that Denis, at Lady Thatcher's side for more than half a century, now exists only in her imagination. The day has come to pack away his things. She opens his cupboard and flicks through his sombre grey suits. Her daughter Carol (Olivia Colman) arrives to help her prepare for a dinner party, which in turn brings back the memory of another dinner party long ago. Re-examining the lady's life through flashbacks is a clever move by the film's director, Phyllida Lloyd. The audience sees the young Margaret scrambling back up from the cellar during a wartime air raid to cover up the butter dish in the kitchen; watching her father, Alfred Roberts (lain Glen), in full flow at a town hall meeting; hearing the news that she has won a place at Oxford University. Eventually her political career takes off. Ms Streep is, of course, the real star here: the voice silvery, the hair and skin perfect, the hand on the cabinet tiller as steady as the finger she gave the Argen tines in the run-up to the Falklands war. To the core, she is devoted, loyal, stead fast. Never have cheekbones been so sharp a metaphor for granite tenacity. Thatcher loyalists are outraged that their heroine should be portrayed as decrepit, on the brink of dementia. They miss the point. As a politician, Margaret Thatcher was a study in reinvention. This film is just the latest buffing. Like "The King's Speech" and "The Queen" before it, "The Iron Lady" is a shining example of a popular British genre: the biopic as conservative propaganda. vouring protein and fat over carbs well be fore a once overweight cardiologist named Robert Atkins figured this out for himself. Horace Fletcher, otherwise known as "The Great Masticator", was emphatic about chewing each mouthful of food until it was liquid, and counted John D. Rockefel ler and Franz Kafka among his disciples. There have been other gurus, plans, drugs and devices, but most offer short lived results and long-term angst. Lasting changes need slow but steady modifica tions to lifestyle. Inspired by those early Greeks, who wished to achieve personal balance, not an ideal body type, Ms Fox croft offers a suggestion that sounds enough like a resolution: "make sensible choices and stick to them." •
Co urses
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riteria
H1ghly qualified, preferably Postgraduate from an mtematJonally recogniZed inshtulion, competent profe s10nal of nown integnty. With a mimmum of 20 years' experience related to Law Business. Engmeenng. Finance, Accounllng, Economics, Petroleum Technology, Public Adm1mstrallon or Management Knowled o f corporate restructunng, privatiZation a nd tnv stment plannmg. Track record of sen1or leve pohcy and strategy formulation. ProfessiOnal exp nence of pubhc uW1ty sector regulation.
2. 3 4.
Em
An attractive compensation package correspondmg to MP-1 scale for top-management poSition 1 n public sector would be offered (In case of election, the candidate ork1ng 1n Government Department or Autonomous or Semr Autonomous Bodies will have to restgn or seek retirement before JOinmg the new assignment).
The elected candidate hall be appointed for an inlhal term of four years and hall be eligible for reappolntm nt, upon statisfactory performance for sim1lar term upto a max1mum of 65 years age Interested applicants should subm1t applications along w1th CV, coptes of tesbmonial duly venfied by lnsltlute attended and recent photographs to the und rstgned w1th1n 1 5 days ofthe publication of this not1ce Th1 advert1sement is also available at OGRA's w bstte I.e. www. o g ra.or g .pk
Raj a Ij az
Medhi , Deputy Secretary (RA) Cabinet Division, Cabinet Block, Islamabad. Phone #: +92-5 1 -920 1 247- Fax: +92-5 1 -9207930 The Economist J a n uary 7th
2012
Ap pointments
77
The Sko ovo lnnltute of Sc1ence and Technology (SkTI!Ch) s
ks
cand1dati!S for tenured and tenure-track pos1dons to beg1n
......
July I.
20 1 2 or
thereafter SkTech 11 a new privati! un1v rs1ty
locued just ouwd
of Moscow and established n collaborauon
w1th the Massachusetts Institute ofTechnology (MIT)
Th
E u ropean I nvestment Ban k is se
in
o
S kTech a1ms to advance educaoon. scholarship and econom c de
recruit fo1 Its Economics Department (ECON ), at ' s
lopm nt in the Russtan Fed raoon and beyond by
headqu rters in Luxembourg, an
address key challenges In soence. technology and nnovauon.
Eco n o m i st
msp1red leadersh1p n research, graduate educaoon and
The first group of f.aculty members lnnovauon for
others to
will
provid
a model of
follow and wtll have an opportunity
to spend the first year 10 res1d nee at MIT
Set
ApphCilnts are lnv1ced to apply tn SkTech's
For mor
e a1ls and o a ply, pi
lnfonnatlon
se go
Technology. and Nuclear Scoence and Technology
Pt
Jobs ID 40 1 0.
by january
Europe
to
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3 1 . 20 1 2.
submit pphaoon mater Is
II
five areas of focus
nee and lichnology, Biom drc:al Sc nee and
Technology. Energy Sc1ence and Technology. Space Sc1ence and
o https://erecruitment.ei b.org selec ing
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Compensation at SkTech ts internationally compeauve.
Jll i r
In coli boration with Musachusetts tnsutute of TI!Chnology
Economist January 7th
2012
We offer a permanent position as full professor of Econom1cs who w1ll be head of the chair group Agricultural Economics and Rural Policy. You will be responsible for the management of the group and for the performance of research and teaching. AcqUiring external fund1ng for projects and participation tn international networks will also be part of your responsibilities. Vacancy number: WU-20 1 l ·HL007.
At the chair group Agncultural Economics and Rural Policy of Wagenmgen Umversity.
App ly now or v1ew our other vacancies at AcautsitJon regarding
and
rch.mlt.edu/
Contribluting to the �aualitv of life
The
ducaunc
leadmg graduate students and conducting resean:h programs that
www .jobsat.wur.nl.
this vacancy is not apprectated.
78 Tenders
KARACHI METROPOLITAN CORPORATION
300 MW Porta ble Powe r Assets for Sale
EXPRESSION OF I NTEREST
DEVELOPMENT OF ALIR EXPRESSWAY & ADJOINING RE-ALIGNED LINK ROADS ON PUBLIC PRIVATE PARTNERSHIP BASIS • Karachi Metropolitan Corporation through its Engi neering Department, Is soliciting Expression of Interest from well reputed national and International firms/developers to undertake the ''OEVaOP ENT OF MALJR EXPRESSWAY (HAVING A LENGTH OF 47.62 Kilometers and Two Separate Carrlageways) and adjoining S ngle Carriageway 23.6 Kilometers Unk Road (the "Project") on Public Private Partn rshlp (PPP) ba i ." This I one of the mo t strategic
roads In the city being the major corridor towards the Superhighway and Is a gat way of prosp rity In this part of the city.
•
Asto ria
G e n e rating
a pp roximately
Company,
L.P.
("AGC")
is se l l ing
300 MW of porta b l e com bustion turbine
•
u n its mou nted on two f l oating power barges that ca n be s h i p ped a n yw h e re worldw i d e . The eq u i pment is c u r re ntly l ocated i n Brooklyn, N ew York a n d i n c l u des
16 sepa rate
d iesel oi l-fi red g e ne rati n g u n its with a tota l ge nerating capacity of
309 MW p l us u p to th ree fuel barges with 930,000 g a l lons (3, 520,000 l iters).
i nd ivid u a l ca pacities of
AGC has reta i ned Tie r One Capita l M a na g e m e nt LLC ("Ti e r O n e " ) as strate g i c advisor to i d e ntify a n d eva l u ate potential buyers in the g l obal ma rket p l a ce .
•
5 Model Ns comm iss i o n ed i n 1 97 1 with averag e ca pacities 1 9.3 MW. Each co m bustion t u r b i n e i s m atched with a 23 MVA g e nerator u n it. The u n its a re m o u nted on two power ba rges that a re a pp roximatel y 80 by 200 feet (24 x 6 1 meters) . Each power barge conta i n s two contro l rooms, a 1 3.8 kV ste p-u p transfo rmer, two
•
•
•
•
sixteen u n its a re i nd e pend ently d ispatc h a b l e, ca n start in fifteen m i n utes a n d are a lso b l a c k-start cap a b l e . The eq u i p ment has been we l l m a i nta i n ed (the u n its cu rrently
1 6,000 l ifetime fi red 3, 600 l ifet i me starts) and ca n p rovide an ideal
have o n ave rage approximately h o u rs and
l oad fol l owing resou rce with maxi m u m flexi b i l ity that i s ready f o r operat i o n . I n a recent i n d e pendent tec h n ica l assessment comm issioned by AGC, a th i rd pa rty found the eq u i p me nt to be i n good condition with su bsta nti a l l ife t o cont i n u e operati ng for a s i g n ificant n u m ber o f years. Wh i l e th ese u n its a re cu rrently com m i ssioned to operate on fuel o i l o n l y, they can a l so be converted to d u a l f u e l u n its (fu e l o i l/natural g as) .
AGC ca n a r ra nge for
convers i o n of the u n its to d u a l fuel if req u i red. AGC wi l l a lso wo rk with the f i n a l buyer t o a rrange convers i o n to
50 H z if req u i red, org a n ize s h i p m e nt of the eq u i p ment
a n ywhere
wo r l dwide
and
provide
assistance
with
i nsta l l ation, operati on and m a i ntena nce. I nterested
parties
may
contact
Tier
One
Capital
Management LLC for further i nformation : Steve Walsh Managi ng Di rector, Tier One Capital Management LLC steve@tieronecapita lmgt. com, 1 -571 -224-7582
In erested developers are ted to subm&t an EOI o the Engooenng Oepartmen KMC whiCh should tnclude e folloWing .
b. Structure of the consortJum 11 appliCable. c.
of a p proxi mately
fuel forwa rd ing skids a n d a f i re s u p p ression syste m . The
The rms/dev Ioper will be respon lble for the De lgn ng, Building Finane ng Operation and Transfer of the Project, and can be a single company or a consortium of entities that have or can bring together the different kills and resources needed to successfully underta e the Project
a. Company pro le wh1dl shows current act! es background of ey shareholders and management structure, along w1th eVIdence of ·ncorpora 1on.
d
The com bustion t u r b i n e u n its are G e n e r a l E l ectric Frame
Add1tJonal informa on about the ProJect can be downloaded from KMC Webs! e at htlp:llwww. arach ty.gov.p
•
Expenence Wllhln the las 5 years related o
e desJgnmg bu ld1ng,
opera and trans er of smtar 11frastructure prqects 111 Pa stan oro Contact person th addres I contact deta·ls
financmg
er countnes.
Eng ng Departmen ll 1ssue a Request lor Proposal (RFP) to all respoi'ISIVe only The RFP shan contain a necessary deta�s such as erms of concess10n, Indica · e cost of proJect. pay ba analys.s and RoW etc. Co of RFP shaH be Rs 3,000/· (Rupees Thr e Thou and only) tn shape or Ban Draft I Pay Order 1n favour of KMC.
abonal companes may btd on lhe1r own or form Jomt Ventures I Consortia lore�gn g oups to see 1nvestmen .
lh
The Karachi Metropol tan Corporation (Procunng Agency) may reject all or any EOI subject to the relevan provisiOns of SPPRA Rules 2010.
EOI Document and furthe tnlormauon I clanfiC8 on may be obtained from he offiCe of the DG (TS) KMC by subm1 ng the quenes 1n wn ng EOI can also be downloaded from KMC ebs1te (www karachlcltygov.p ) & SPPRA website (www pomslndh.oov.!)k) on any worlong day du ng wM1ng hours up o February 6, 2012. A Pre-btd Meebng IS sched uled on January 24 201 2.
EOI must be subm1 ed on February 17 2012 upto 1 500 hours in the office of DG (TS) 1n the address gNen below. In case the date of opening or las date of sale IS Non Wor 1ng Day I declared as a publiC holiday by e Government. e next o c•al wor1ung day shall be deemed o be the date for last date of sale and subm•s on and openmg of enders at the same t1rne as mentioned above
Karachi Metropolitan Corpora on endeavonng to work towards rap1d economiC 1n he oty. Towards his goal, one of the pnonty areas of the Karach Metropolitan Corporation IS o create an enabl1ng en ronmen for Public Private Partnership n the City for enhanong the scale of overa mvestment wh1ch m tum can tngger tncome and employmen and secondly to usher greater e oency 1n creallon or Infrastructure , goods and seMces and the11 management PARTNE RS H I P FOR DEVELOPMENT
growth and developmen
1n lh Vibrant economtc eogr.e or 18 1Tl111on people � IS amoog the tcrgest metropolis
ll the
world Th proposed project also leads to e newly planned developments where more than USS 5 B lhon worth of Pnva'e Sector Investments & Developmen IS currentiy takmg place for wh•ch the fund1ng s proV1ded by Pa istan Pa IS!an's and Local & Fore·gn lnsbtut.ons
at1onats, Overseas
I IS a great opportunity for the Pnvate Sec or to pa c1pate 10 lh1s 1nvestment 111 partJopatJon 1 h Karachi MetropOI tan Corpora on.
opportuntty of
Towards lh obtectlve the Karachi Metropolitan Corporation workJng under the PPP framework whiCh tncludes pol1cy. 1nstitu onal, fmanctal and ns shanng mechan1 ms for fa 1!a ng a cohes1ve enabl1ng enVIronmenL
10n Act SPPRA Rules 2010 and PEC Act shall be stnctly Jch could be downloaded at www.pprasindh.gov.p & www . pec .org.pk
Publ1c Pnvate PartJopa
observed
Altaf Hussain G. Memon Director General, (Technical Services), Karachi Me tropol i tan Corporation, Karachi, Pakistan.
4th Floor. City Comphtll, Civic Center. Gulshan-e-lqbal, Karachi. Pakistan +9221·99231145, 99230653, Fax +9221·99230670. Mobile •92·300·8247622 email edws@k�rachicity.gov.pk. [email protected]
Tel (Off)
The Economist J a n uary 7th
2012
Ap pointments
Te n ders
DIRECTOR, AGRICU LTURE AN D E U ROPE POLICY
ONE
is a cam p a i g n a n d advocacy organisation backed by over two a n d a
half m i l l ion people from around the world who are committed to the fight agai nst extreme poverty a n d preventa b l e disease, particularly i n Africa. We are seeking a
Director, Agriculture and Europe Policy
based in one of
our European offices to work as a key part of our G lobal Policy team. This is a management position with responsibi l ity for provid i n g policy a n alysis a n d writing on issues k e y to O N E 's mission, specifically i n the areas of agricultural development a n d broader E u rope-based development policy issues.
8g
�C _
cc
79
NATIONAL AGENCY OF INVESTMENT AND PRIVATIZATION • t � V I U C:
011'
e t \. A A .- .
FINA CIAl ADVISORS SELEOIO
REQUEST FOR EXPRESSIO S OF INTEREST
The newly crtated National Agto
sdect
highly qua tied advisory firms or 1nYeStllletlt ban
10 yws or pnM!n
With
ematlonal �t n privatlza on In tni\SI n counmes.
lust
The Finanaal Advisofs hired by the NAIP WI be respons� for: Prrparing the com n for pnvatlla on; lmplemfntation of tht privatization.
•
•
To advertise within the classified section, contact: United Kingdom
United States
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Eight enttrprises from oonstructlon, food Industry and othtr sectms havt bttn sel«ted for tht pilot p� of tht prlvatiutlon Pf09t m.
Dtt*d lnfonNtiarnlbcNrt �
�
P!osp«t�W Anandal AdviSorS a!f inVIted to submit ExprtsSions of Interest accord•ng to tht spedfiutlons outlined to tht Olrtctor of tht NAJP Or. Dmltry Kim It by .
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% of GOP 2011 t
10-year gov't bonds, latest
+3.7 Nov +3.4 Nov +3.0 8.6 Nov -466.8 0 3 -3.1 -8.7 1.99 +12.4 Nov +4.2 Nov +5.6 6.1 2010 +259.3 03 111 +2.9 -1.8 3.52 6.29 6.62 Japan -4.0 Nov -0.5 Nov -0.3 4.5 Nov +139.1 Oct +2.4 -8.3 0.99 76.7 83.3 Britain -1.7 Oct +4.8 Nov§ +4.4 8.3 octtt -40.9 0 2 -2.5 -8.8 2.04 0.64 0.65 .:!j� � - .±.2.. 1 !:!!>v _:t-b.9_ ��c!! .±.?,i � __:i:L'i .±.2.l. l:�� - - --±<J.2 sg .:.?:2_ -�Q_ _.?..lQ _l.Q.! _LQQ. +1.4 03 +0.6 +1.4 +1.3 Oct +2.8 Dec +2.5 -4.1 10.3 Oct Euro area -0.5 1.90 0.76 -83.2 Oct 0.77 +11.2 02 +3.0 Oct +3.6 Nov +3.2 +2.9 03 +1.4 +2.9 Austria 3.37 0.77 4.1 Oct +2.6 0.76 -3.6 -0.5 +2.0 0.76 +0.3 Sep 4.36 0.77 +1.9 03 +4.8 Sep +3.5 Dec +3.3 +1.6 Belgium -3.8 6.6 Octtl +2.1 Oct +2.5 Nov +1.5 03 0.76 9.8 Oct -67 .8 Oct 3.33 0.77 -5.8 +1.2 +1.6 -2.5 France +2. 2 0.77 0.76 Germany +2.5 03 +2.0 +3.0 +4.0 Oct +2.1 Dec +2.4 6.8 Dec +189.6 Oct +5.2 -1.0 1.92 Greece -5.2 03 na -5.3 -12.2 Oct +2.9 Nov +2.9 17.5 Sep -28.9 Oct -8.4 -9.5 36.62 0.77 0.76 Italy +0.2 03 -0.6 +0.5 -4.2 Oct +3.3 Dec +2.8 8.5 Oct -78.9 Oct -3.7 -4.0 6.90 0.77 0.76 Netherlands +1.1 03 -1.0 +1.5 -12.2 Oct +2.4 Dec +2.4 5.8 Novtt +66.6 03 +6.7 -4.2 2.29 0.77 0.76 2_b� e!_ ��n .!Q� � - - .!!i l_ .:t.0.:§. �1_ � .±.2� .Q!Oc _:t-l:_1_ -:2_6� �t- - 3� - - --,£;'2._ _2.�- - - - �·?J. Q}.&_ Czech Republic +1.2 03 -0.3 +2.1 +1.7 Oct +1.8 Nov +1.9 8.0 Nov -5.6 03 -3.1 -4.6 3.61 20.1 18.9 Denmark +0. 1 03 -2.2 +1.0 -0.5 Oct +2.6 Nov +2.7 4.2 Oct +22.2 Oct +5.8 -3.9 1.71 5.76 5.67 Hungary +1.4 03 +2.2 +1.5 +3.0 Oct +4.3 Nov +3.9 10.8 octtt +1.8 03 +1.5 +1.2 10.21 248 210 5.95 5.93 Norway +3.8 03 +5.8 +0.8 -5.6 Oct +1.2 Nov +1.4 3 . 3 Oct§§ +70.2 03 +13.6 +13.1 2.42 Poland +4.2 03 na +3.8 +8.7 Nov +4.8 Nov +3.9 12.1 Novll -26.1 Oct -4.8 -6.0 5.95 3.49 2.95 Russia +4.8 03 na +4.0 +3.9 Nov +6.0 Dec +8.5 6.3 Novll +86.3 03 +5.0 -0.8 4.73 31.9 30.7 Sweden +4.6 03 +6.6 +4.3 +4.7 Oct +2.8 Nov +2.8 6.7 Novll +39.7 03 +6.4 nil 1.68 6.88 6.78 0.94 0.97 Switzerland +1.3 03 +0.9 +1.8 -1.4 03 -0.5 Nov +0.3 3.0 Nov +95.7 03 +13.2 +0.8 0.66 !\Jrkey +8.2 03 na !].5 +7.3 Oct +9.5 Nov +6.3 8.8 Sei!** -]_8.6 Oct ..::J . 8 -1.8 9.72 1.89 1.5_2. Australia +2.5 03 +3.9 +1.8 +0.8 0 3 +3.5 0 3 +3.5 5.3 Nov -32.6 03 -2.2 -2.6 3.93 0.97 1.00 7.77 7.77 Hong Kong +4.3 03 +0.4 +5.4 +0.3 03 +5.7 Nov +5.1 3.4 Novtt +13.6 03 +4.2 +1.8 1.38 India +6.9 03 na +7 . 6 -5.1 Oct +9.3 Nov +9.0 10.8 2010 -46.4 02 -3.5 -5.4 8.60 53.0 45.3 Indonesia +6.5 03 na +6.5 +8.0 Oct +3.8 Dec +5.3 6.6 Aug +3.6 03 +0.4 -1.0 3.98ttt 9,145 8,984 Ma laysia +5.8 03 na +4.5 +2.7 Oct +3.3 Nov +3.3 3.0 Oct +32.7 03 +10.4 -5.6 3.05ttt 3 . 14 3.07 Pakistan +2.4 2011.. na +2.4 -1.5 oct +10.2 Nov +12.2 5.6 2010 -0.2 03 -1.3 85.8 -5.9 90.3 14.23ttt 1 . 29 1.29 Singapore +6.1 03 +1.9 +5.1 -9.6 Nov +5.7 Nov +5.1 2.0 0 3 +49 .2 03 +17.7 +0.6 1.54 South Korea +3.5 0 3 +3.3 +3.8 +5.6 Nov +4.2 D e c +4.2 3 . 1 Nov +25.1 Nov +2.0 +2.4 3.76 1,149 1,126 Taiwan +3.4 03 -0.6 +4.4 -3.6 Nov +2.0 Dec +1.5 4.3 Nov +38.6 03 +8.0 -2.7 1.31 30.3 29.2 30.2 31.5 Thailand ;!].5 0 3 +2.1 +2.5 -48.6 Nov +3.5 Dec__+�20.1L_Sep _ _ _+12.1 Nov_ _ +4.1 _ _ -2.9 _ .]32 4.30 3.97 Argentina +9.3 03 +4.5 +8.5 +0.8 Nov +9.5 Nov* .. +9.9 7.2 Q311 nil 03 -0.3 -1.4 na 1.82 1.67 Brazil +2.1 0 3 -0.2 +3.0 -2.2 Oct +6.6 Nov +6.7 5 . 2 Novll -49.3 Nov -2.2 -2.7 11.26 Chile +4.8 0 3 +2.6 +6.3 -0.8 Oct +3.9 Nov +3.2 7.1 Novttll -1.2 0 3 -0.5 +0.2 2.24ttt 512 495 Colombia +7.7 03 +7 .1 +5.1 +5.0 Oct +4.0 Nov +3.4 9.2 Novll -9 .6 03 -2.7 -2.5 3.48ttt 1,902 1,898 Mexico +4.5 03 +5.5 +3.9 +3.3 Oct +3.5 Nov +3.3 5.0 Novll -10.0 02 -1.9 -2.9 6.29 13.7 12.2 ���e� _ _ .:!j,1_ � __ .!:!_a_ .±.2� _ _ _ .±.?:2_ � _+1_8� !:!!>v_ .:f:?£:_3_ _ _ � �� - - -+1_6 ,Q � - - .:':§� - - --2, � __ _§_.2?!.!!_ _ _ _ .2·�- - - -� Egypt +0.3 02 na +1.8 -1.8 02 +9.1 Nov +10.2 11.9 Q311 -4.1 02 -1.7 -10.0 8.29ltt 6.03 5.80 Israel +5.1 03 +3.4 +4.4 +5.5 Oct +2.6 Nov +3.3 5.6 03 +1.8 03 -0.1 -2.8 3.44 3.86 3.54 Saudi Arabia +6.7 2011 na +6.7 na +5.2 oct +4.9 na +75.3 2010111 +25.9 +14.3 na 3.75 3.75 8.17 6.73 South Africa +3.1 03 +1.4 +3.1 +1.7 Oct +6.1 Nov +5.0 25.0 0311 -11.6 03 -4.1 -5.5 7.91 +1.5 03 +9.1 03 -0.7 03 +0.5 0 3
China
___
+2.0 +9.5 +5.6 +2.3
_
+1.7 +9.2 -0.6 +0.9
_
_ _ _
_ _ _ _
_ _ _
*% change on previous quarter, annual rate.
_
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tThe Economist poll or Economist Intelligence Unit estimate/forecast. tNational definitions §RPI inflation rate 5 . 2 in November. * *Year ending June. ttLatest 3 months.
II Not seasona lly adjusted. §§Centred 3·month average. ***U nofficial estimates are higher . tttoollar-denomi nated bonds. Ill Estimate.
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The Economist January Markets
Economic and financial indicators 8 1
7th 2012
% change on Dec 31st 2010 Index one in local in $ Jan 4th week currency terms United States (DJIA) 12.418.4 +2.2 +7.3 +7.3 China (SSEA) 2,272.7 nil -22.7 -19.1 Japan (Nikkei 225) 8,560.1 +1.6 -16.3 -11.6 5,668.5 +2.9 -3.9 -4.2 Britain (FTSE 100) �'!!d�(�J?_rs1J_ _ _ gn� _ �·1.. _ _:9.1. _-1!! :2. Euro area (FTSE Euro 100) 760.4 +4.1 -15.0 -18.2 Euro area (OJ STOXX 50) 2,349.9 +4.2 -15.9 -19.0 Austria (ATX) 1,938.4 +3.1 -33.3 -35.8 2,121.1 +3.8 -17.7 -20.8 Belgium (Bel20) 3,193.7 +4.0 -16.1 -19.2 France (CAC40) Germany (DAX) * 6,111.6 +5.9 -11.6 -14.9 662.3 -1.1 -53.2 -54.9 Greece (Athex Comp) Italy (FTSE/MIB) 15,327.0 +3.6 -24.0 -26.9 Netherlands (AEX) 314.5 +2.5 -11.3 -14.6 858.3 +2.6 -14.5 -17.7 Spain (Madrid SE) Czech Republic (PX) 927.4 +2.5 -24.3 -29.4 360.9 +2.5 -15.5 -18.5 Denmark (OMXCB) 16,574.6 -3.5 -22.3 -35.1 Hungary (BUX) 448.9 +2.7 -7.7 -9.9 Norway (OSEAX) �land ��) _ _ _ _ 1§, l§U._ .:!.:.LL _ :J.9_& _-]1.9 Russia (RTS, $ terms) 1.434.2 +3.8 -15.4 -19.0 Sweden (OMXS30) 1,006.3 +3.8 -12.9 -14.8 6,058.1 +2.8 -5.9 -7.0 Switzerland (SMI) Turkey (ISE) 51,532.6 nil -21.9 -36.3 4,239.5 +2.4 -12.5 -11.4 Australia (AllOrd.) Hong Kong (Hang Seng) 18.727.3 + 1.1 -18.7 -18.6 India (BSE) 15,882.6 +1.0 -22.6 -34.6 Indonesia (JSX) 3,907.4 +3.7 +5.5 +3.9 �a§'�a _(_K�Q _ _ _ _1,.2QU _ _n.iL _ _:1.:2_ _ �..§. 11,362.0 +0.1 -5.5 -10.3 Pakistan (KSE) 2.711.0 +1.7 -15.0 -15.5 Singapore (STI) South Korea (KOSPI) 1.866.2 +2.3 -9.0 -10.1 Taiwan (TWI) 7,083.0 +0.4 -21.1 -24.0 1,036.2 +0.8 +0.3 -3.9 Thailand (SET) 2,715.5 +11.9 -22.9 -28.9 Argentina (MERV) 59,365.0 +5.0 -14.3 -22.1 Brazil (BVSP) Chile (IGPA) 20,234.4 +1.1 -11.9 -19.5 Colombia (IGBC) 12,934.5 +1.5 -16.5 -15.7 Mexico (!PC) 37,387.6 +2.0 -3.0 -12.9 �nezuela (IBC) _ _11§,141.8 _;Q.]_ +77:l. n_9. 3,654.8 +1.9 -48.4 -50.4 Egypt (Case 30) 1,005.7 +0.7 -18.0 -24.7 Israel (TA-100) Saudi Arabia (Tadawul) 6,407.9 -0.2 -3.2 -3.2 South Africa (JSE AS) �899.7 +2.5 +2.4 -17.0
I
The Economist poll of forecasters, January averages (p revious month ' s, if changed) Real G OP, % change lowfhigh range average 2011 201 2 2011 201 2
Consumer pri ces % change 2011 2012
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Sources: BNP Paribas, Citigroup, Commerzbank, Decision Economics, Deutsche Bank, Economist Intelligence Unit, Goldman Sachs, HSBC Securities, lNG, JPMorgan Chase, KBC Bank, Morgan Stanley, RBC. RBS, Sch roders, Scotiabank, Societe Generale, UBS
Other markets
% change on Dec 31st 2010 one i n local i n $ week currency terms +2.2 +1.6 +1.6 +2.3 -0.2 -0.2 -0.2 -33.4 -30.3 +3.0 -17.3 -12.6
Index Jan 4th United States (S&P 500) 1,277.3 United States (NAScomp) 2,648.4 China (SSEB, $ terms) 212.1 Japan (Topix) 743.0 !!!��(�S ���t l_OQ} _1.�!,? _ :!1·2.. _ _:8_:2, --�i World, dev'd (MSCI) 1.203.6 +3.1 -6.0 -6.0 Emerging markets (MSCI) 937.5 +2.7 -18.6 -18.6 World, all (MSCI) 305.0 +3.0 -7.7 -7.7 �o.!!_d.!!_o!!!! U.C_i!!9!_0.!!.J.l)_ 25� 2:Q.i_ -�5.:2, _:!:? .2_ 601.0 -0.1 +9.0 +9.0 EMBI+ (JPMorgan) Hedgefunds (HFRX) 1,109.4 +0.1 -8.9 -8.9 22.2 +23.5 +17.8 (levels) Volatility, US (VIX) 172.9 nil +65.3 +59.0 CDSs, Eur (iTRAXX)t CDSs, N Am (CDX)t 120.0 -1.6 +40.9 +40.9 Carbon trading (EU ETS) € 6.6 -15.9 -53.8 -55.5 _
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•
*Total return index. tcredit-default-swap spreads, basis points. Sources: National statistics offices, central banks and stock
The Economist commodity-price index
2005=100
Dec 27th
Jan 3 rd *
% change on on e one month year
Dollar index �l_i!e�s- _ _ _}15!:9_ _ _ _!?�- _ __2-1:_6 _-� ..Q_ fQQ£ - _ _ _ _}2_?:2._ _ - �!.:_0 __2-�6- - .:Z·2 Industrials All. . . . 15 � . _3. . .. 159_.8 . . �2 ..2 . �2 ? . 3 1 7 3 .? ..N fa t. 1._1 . �_3 1 ._2 . 1.77.:0 . Metals 151.7 -2.7 -22.0 152.5 Sterling index +1.4 All items 208.2 2 1 3. 9 -16.2 Euro index 170.7 175.1 +4.2 -15.0 All items Gold 1� 1,606.8 1,604.0 +15.9 -6.2 West Texas Intermediate +1.9 +15.5 $ per barrel 103.1 99.8 _
_ _
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• Provisional
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!Non-food agriculturals.
exchanges; Bloomberg; CBOE; CBOT; CMIE; Cotlook; Darmenn & Curl; EEX; FT; HKMA; ICCO; !CO; ISO; Jackson Rice; JPMorgan Chase; NZ WoolServices; Thompson Lloyd & Ewart; Thomson Reuters; Urner Barry; WSJ; WM/Reuters
Indicators for m o re countries a n d additional series, go to: Economist.comfindicators
Hall, gently sashaying around the stage as if on some Atlantic shore. Her first serious love, a sailor called Eduardo, taught her the mornas he knew. But then he left on a boat for Europe, and never returned. Her life thenceforth could only be full of sodade, longing, the theme of her most famous song: Soda de, so dade So dade dess nha terra . . .
There were plenty of other "husbands", more than she could count, she said; three gave her children, but all of them just came and went, like the sea. She knew some bad years, living in fetid rooms under bare bulbs in a stink of stagnant water, and it was said that a feiti�o, or bad spell, pos sessed her then. But she came out of it. Life was like that: first poison, then honey. After the struggle and storm, the soothing calm: Pa sobreviver nas tormenta Na brandura y calmaria
Cesaria Evora
Cesaria Evora, a Capeverdean singer, died on Decemben7th, aged 70
AS A child, Cesaria Evora never stepped ./"'\.into the waves. She was frightened of the Atlantic breakers that tumbled up the beaches of Sao Vicente or crashed in high spray on the rocks, and never learned how to swim. Yet there was no avoiding the sea. In her home on the Cape Verde Islands, lying al most 6oo kilometres off the west coast of Africa, there was almost no slope or road or window from which it could not be seen. The sea took Capeverdeans away, flinging to France and Brazil and New Eng land as many as stayed clinging to their dry land. Their exile broke hearts, but gave them money to send home. The sea was full of fish, where the brown scrubby land, neglected by its Portuguese colonisers, would grow hardly a tamarisk or a cane stalk. When Cesaria felt homesick abroad-an improbable international star in stout middle age, pining for cachupa stew and crisp batatinhas in some chilly hotel room in Germany or Japan-she nev er thought of green, though the name of her islands implied it. She thought of blue. 0 mar, mar azul . . .
When musicologists wondered where the islands' songs came from-those sad, syn copated mornas that blended Portuguese fado, Brazilian modinhas, the laments of
Angola and even, some thought, the shan ties of British seafarers-she had only one explanation. They were about love, emi gration, homesickness, looking for work, waiting for rain, missing people. And with their continual wave-like interlinking of one line into the next, their evenness and endlessness, so that it seemed she could go on singing them for ever in her limpid, lovely voice, they could only have come from the sea. Poison and honey
Certainly she began to sing beside it, in the harbour bars of the red-light district of Mindelo, the main town of Sao Vicente. It was in the mid-1950s and she was a teen ager, living in the orphanage because her mother could not afford to keep her. She sang barefoot, for she would never wear shoes, to sailors and adventurers, to tour ists on the cruise ships that anchored like walls of lights out in the bay, and to mem bers of the Congelo fishing company at their dinners. A handful of escudos was her pay, or just a cigarette and a sip of co gnac, leaning over the bar. So started her habits of smoking between her songs, even onstage in New York, settling back and lighting up as her eight-man band per formed, and appearing with bare, horny, wriggling feet even in the Queen Elizabeth
When she was 47, tape recordings of her music reached Lisbon; three years later, a grandmother now, she found herself the toast of Paris, la diva aux pieds nus; a year after, in 1992, she produced the album, "Miss Perfumado", that earned her five gold records. A Grammy came in 2003 for her album "Voz d'Amor", and the Legion d'Honneur in 2009. People compared her to Edith Piaf and Billie Holiday; she was flattered, but didn't agree. In her case, a rough life and a vast nicotine intake left no shadow on her voice, light and pure and simple to the end . She took on her role as ambassador for her unknown islands with a mixture of solemn indifference and wide-eyed de light. Through her sos and 6os she per formed her cabarets-for her shows kept the tang of those run-down waterside Mindelo bars, wherever she was-with all the strength she had. Only homesickness was hard. In Paris she sought out Portu guese restaurants, and in Vancouver she tried not to look too hard at the blue of the Pacific beyond the hotel. . . . urn sonho to do azul Azul da cor do mar
Fame never changed her. She went on liv ing with her mother in the house in Min delo where she had first heard her tipsy fa ther play cavaquinho, the four-string mandolin that rippled behind her songs. And there, though she had added ten bed rooms and mounted her gold discs on the wall, she still cooked cachupa and fried up fish for anyone who came to call. This was her own "Cafe Atlantica", as she had called her eighth album, the haven at the end of the world, where though the waves crashed and the wind blew there was al ways something good, and surprising, and comforting, to come out of the sea. •
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