Trump v the spooks

The stain of Guantnamo

Pop stars and patronage in Congo

Inflations welcome return

JANUARY 14TH 20TH 2017

Lifelong learning
How to survive in the age
of automation
A SPECIAL REPORT
 EconCow.com

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 The Economist January 14th 2017 3
Contents
6 The world this week 35 Shakers
Not too shaken
36 Jeff Sessions
Leaders Past and prologue
9 Technology and education 37 National parks
Lifelong learning An Ear-full
10 Trump and the 38 Lexington
intelligence agencies How to use superpowers
Speaking post-truth to
power
10 Trump and Mexico The Americas
Handling a bully 41 Mexico and Trump Countdown With his relentless
Bracing for impact criticism, Donald Trump is
11 Renewable energy
42 Transport in Toronto destroying trust in the
A greener grid
Laggard on the lake intelligence agencies: leader,
On the cover 12 Proliferating parties page 10. Theatrics from the
It is easy to say that people Splitters president-elect, page 33.
need to keep learning Special report: Lifelong Mr Trump may dispense with
throughout their careers. Letters education intelligence that other
The practicalities of lifelong Learning and earning presidents have relied on,
16 On liberalism, Brexit,
learning are daunting: After page 42 page 34. His new plan to put
Syria, data, economists
leader, page 9. The faint his firm at arms length doesnt
outlines of a system for go far enough, page 35
creating continuous Briefing Middle East and Africa
connections between 20 Manufacturing 43 Arab startups
education and employment They dont make em like Set them free
are now emerging. See our that any more 44 The death of Rafsanjani
special report after page 42. The ayatollahs long
Manufacturing in the rich shadow
world has changed Asia
45 Botswana
dramatically from the 23 Indian politics Rocks and hard places
metal-bashing days. So have Non-stick PM
the jobs that go with it, 45 Ivory Coast
24 Royal politics in Thailand Mutiny for a bounty
pages 20-22 The king intervenes
46 Congolese pop
24 South Korea and Japan The sound of politics
Bickering again Nervous Mexico
The Economist online
25 Anti-Chinese protests in How Americas southern
Daily analysis and opinion to Sri Lanka Europe
neighbour should deal with
supplement the print edition, plus Deep water 47 The French left the threat from the new
audio and video, and a daily chart Battling for survival
Economist.com 26 Banyan president: leader, page 10.
Asias drug policies 48 The European Parliament Coping with Donald Trump,
E-mail: newsletters and Liberals and populists page 41
mobile edition
48 Italys Five Star
Economist.com/email China
Movement
Print edition: available online by 27 High-speed rail What does it stand for?
7pm London time each Thursday Risks ahead
Economist.com/print
49 The Yugoslavia and
28 Infrastructure Kosovo tribunals
Audio edition: available online Hunting white elephants Better than nothing
to download each Friday 30 Police brutality
Economist.com/audioedition 50 Political fragmentation
An enduring scandal Parliaments get bitty
51 Charlemagne
United States The cruel Mediterranean
33 Trump and his critics
Where theres brass
Congolese music Congos pop
Volume 422 Number 9023 34 Intelligence agencies
stars and its politicians have a
Burn before reading
Published since September 1843 strangely symbiotic
to take part in "a severe contest between 35 Conflicts of interest relationship, page 46
intelligence, which presses forward, and
an unworthy, timid ignorance obstructing
Two out of four
our progress."

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1 Contents continues overleaf
4 Contents The Economist January 14th 2017

Britain 69 Chinas currency

Squeezed to life
52 Northern Ireland
Into the unknown 69 Chinese tax
High-cost manufacturing
53 Business and the EU
Labour pains 70 Free exchange
A sense of crisis among
54 Bagehot economists
Keeping the economy
airborne
Science and technology
International 71 Power transmission
Guantnamo A stain on Rise of the supergrid Supergrids Chinas embrace of
55 Guantnamo
Americas reputation is 72 Astronomy a new electricity-transmission
A legal quagmire
unlikely to be wiped clean De Nova Stella technology holds lessons for
soon, page 55. The endless 57 A military trial others: leader, page 11.
Al-Qaeda in the dock 73 Medical diagnostics
wait of an alleged al-Qaeda String-driven thing Electricity now flows across
killer, tortured by the CIA, continents, courtesy of direct
74 The menopause
page 57 Business current, page 71
A whale of a tale
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6 The Economist January 14th 2017
The world this week
A founder of Irans revolution lands military junta, asking Winning the pools
Politics Ayatollah Akbar Hashemi for changes that would make Switzerland won a lawsuit in
Rafsanjani, a former president him more powerful. Elections the European Court of Human
of Iran and hugely influential scheduled for this year may be Rights over requiring mixed-
since the 1979 revolution, died. delayed. sex swimming classes. A Mus-
He was 82. lim couple sued the state for
Tsai Ing-wen, the president of insisting that their daughters
A Palestinian attacker killed Taiwan, visited Texas and met swim with boys as part of the
four Israeli soldiers by driving Ted Cruz, a senator, and Greg school curriculum. The court
a lorry into them near the Old Abbott, the governor. China found that concerns about
City in Jerusalem. said the meetings would harm integration outweighed the
relations with America. parents demand for a religious
Yoweri Museveni, who has exemption.
ruled Uganda for 31 years, Hong Kongs most senior civil
named his eldest son as a servant, Carrie Lam, submitted The Greek-Cypriot and Turk-
special adviser in a move her resignation. She said she ish-Cypriot leaders opened
A dossier compiled about interpreted as preparing him to had done so in order to run for talks in Geneva to discuss
alleged links between Donald become president. His son, the post of chief executive, as conditions for the reunification
Trumps campaign and Russia, Muhoozi Kainerugaba, used to the territorys leader is known. of Cyprus, such as the division
and containing lurid tittle- lead a special-forces unit The choice will be made in of power and territory. Other
tattle about the president-elect, tasked with protecting him. March by a committee stacked European leaders are partici-
was published on BuzzFeed. with the Communist Partys pating on security issues.
The dossier was based on supporters in Hong Kong.
unverified material prepared Germany said that 280,000
by an investigative firm for Mr China said its president, Xi people seeking asylum arrived
Trumps opponents. Americas Jinping, would attend the in the country last year, a sharp
intelligence agencies included annual World Economic Fo- drop from the 890,000 in 2015.
a classified summary of its rum in Davos. Mr Xi will be the The government thinks mi-
findings in its assessment of first Chinese president to grant numbers have fallen
alleged Russian interference in attend and he is expected to because of the closure of a
the election. A spokesman for stress Chinas openness to route through the Balkans and
the Kremlin said it had no international trade. the EUs deal with Turkey.
compromising documents on
Mr Trump and called the alle- Murder most foul Arlene Foster, Northern Ire-
gations absolute fantasy. Mutinous soldiers in Ivory Members of a criminal gang at lands first minister, came
Coast seized the city of a prison in Brazil killed 31 under pressure to quit because
The Senate started the process Bouak and kidnapped the inmates, decapitating most of of a scandal involving sub-
to vet Mr Trumps nominees to defence minister in a dispute their victims. This came a sidies for renewable energy
key posts. Democrats, pointing over pay. They returned to week after gang fights at anoth- which could cost taxpayers
to a letter to them from the barracks after promises of er jail left 56 prisoners dead, 490m ($600m). Martin
head of the Office of Govern- more cash. But the country, most of whom had their limbs McGuinness, the deputy first
ment Ethics, said the confir- which fought a civil war in the chopped off. Another prison minister from the opposition
mation hearings were being early 2000s, remains riven by riot left four dead. Sinn Fein party, resigned,
rushed and the vetting was far ethnic tensions. which may force an election.
from complete. Rex Tillerson, The crisis could affect Brexit.
Mr Trumps pick for secretary No let-up The Supreme Court will soon
of state, responded to concerns Afghanistan suffered a series decide whether approval is
about his close business ties to of terrorist attacks. A bomb needed from the UKs de-
Russia by saying the countrys near the parliament in Kabul volved assemblies before
actions were a danger and claimed over 30 lives; another starting the process of leaving
NATO was right to be worried. in the southern city of Kanda- the EU. The deputy leader of
har killed 11 people, including the Scottish nationalists called
A jury sentenced Dylann Roof, five diplomats from the United for the postponement of Brexit
a white nationalist, to death Arab Emirates. Another attack, negotiations.
for murdering nine black in the nearby city of Lashkar
people at a church in Charles- Gah, killed several pro-govern- Clare Hollingworth, a jour-
ton, South Carolina, in 2015. ment militia leaders. nalist who reported the scoop
In Mexico, rioting sparked by of the century predicting the
Barack Obama gave his Chinese military aircraft flew the governments withdrawal outbreak of the second world
farewell speech as president. close to Japan and South of petrol subsidies as part of its war, died at the age of105. Ms
Just as Washington warned Korea, and its sole aircraft- liberalisation of the energy Hollingworth spotted German
about factional parties and carrier sailed close to Taiwan, industry left at least six people tanks massing on the border
Eisenhower fretted about the prompting all three countries dead. Petrol prices increased with Poland in late August
rise of the military-industrial to scramble forces in response. by up to 20% at the start of the 1939. A long career saw her
complex, Mr Obama year, leading to many knock- report from Jerusalem, Cairo,
cautioned his fellow Ameri- King Vajiralongkorn withheld on price rises in goods and Paris, Beirut and Hong Kong.
cans not to take democracy for his assent for the draft constitu- services. Roads have been She was the last person to
granted. tion championed by Thai- blocked and shops looted. interview the Shah of Iran. 1
 The Economist January 14th 2017 The world this week 7

Mark Carney told Parliament standards in America. He was 1781 selling traditional Japa-
Business that Brexit is no longer the arrested trying to catch a flight nese and Chinese remedies. It
biggest risk to Britains finan- to Germany. entered the American market
The pound fell sharply after cial stability. The governor of in the 1970s and has situated
Theresa May reiterated her the Bank of England said great- In South Korea, Lee Jae-yong, some of its research in Bostons
position that Britains exit from er risks were posed by high the vice-chairman of Samsung meditech hub.
the EU would be a clean break, consumer credit and the weak Electronics and heir apparent
frightening investors who pound, among other things, for the top job, was questioned Publishers can legally use
want the government to pur- which a messy Brexit could as a suspect in an influence- software to detect if an online
sue a more nuanced negotiat- magnify. peddling scandal that has led reader is using an adblocker
ing strategy that prioritises to the impeachment of the and can ask them to switch it
trade deals with Europe. The Slowly getting there countrys president. Investiga- off, according to a proposed
prime minister has said that The British government re- tors are looking at ties between rule in the European Union.
she will not provide a running duced its stake in Lloyds Bank- Koreas chaebol and politicians, Privacy groups have argued
commentary on Brexit; her ing Group to below 6%, mean- and at claims that the presi- that the detection software is
remarks helped push sterling ing that it is no longer the dent ordered the states pen- illegal and requires readers
to a three-month low against banks largest shareholder sion fund to vote for the merg- consent before being enabled.
the dollar at $1.21. (that is now BlackRock, a titan er of two Samsung businesses
in asset management, which in which it held shares. Alexa takes the biscuit
holds 6.3% of the shares). The The default setting on
Turkish lira per dollar Treasury bailed out Lloyds The annual battle for orders Amazons Echo, a voice-dri-
Inverted scale during the financial crisis in between the worlds biggest ven internet-connected device,
3.0 2008 along with Royal Bank of aircraft-makers was won by caused the company some
3.2 Scotland, in which it still holds Airbus last year. It chalked up embarrassment. An American
3.4 a majority stake. The publics 731 net orders, including 320 in news report that a girl had
3.6 remaining stake in Lloyds is December alone, compared asked Alexa, the devices
3.8 expected to be sold this year. with Boeings 668. The Ameri- voice-operated system, to
4.0 can company bested its Euro- order a dolls house and bis-
Oct Nov Dec Jan Volkswagen pleaded guilty to pean arch-rival in supplying cuits. That caused Alexa to go
2016 2017
criminal charges in America jets to airlines however, deliv- rogue in other households and
Source: Thomson Reuters
related to its cheating in emis- ering 748 aeroplanes to order the same goods, appar-
A limited intervention by sions tests on diesel cars and a Airbuss 688. ently prompted by the TV
Turkeys central bank to halt subsequent cover-up, and will presenter repeating the in-
the slide of the lira did little to pay penalties amounting to Takeda, a Japanese drugs struction. Amazon has added
stop the currency from plung- $4.3bn. Reinforcing the govern- company, said it was ready to voice-ordering from restau-
ing further. The lira has de- ments tough stance against make further global acquisi- rants to the Echos skills, so this
clined by almost 10% since the VW, six of its executives were tions, following its $5.2bn might not be the only Alexa
start of the year, partly because charged for their role in the agreement to buy Ariad, which incident to make a meal of.
the political crackdown that scandal, including the person is based in Massachusetts and
followed an attempted coup responsible for the carmakers specialises in treatments for Other economic data and news
last July shows little sign of compliance with emissions cancer. Takeda was founded in can be found on pages 80-81
abating amid a wave of vio-
lence. This week the central
bank increased the supply of
dollars to Turkeys financial
system and said it would take
the necessary measures to
curb unhealthy currency
speculation.

The Trump effect

The Mexican peso fell to a new
low against the dollar after Fiat
Chrysler warned it might have
to shut factories in Mexico if
the new American govern-
ment imposes tariffs on im-
ported cars. Meanwhile, the
share prices of drug compa-
nies plunged following Do-
nald Trumps comment that
they are getting away with
murder in what they charge
the government for medicine.
The industry has taken a politi-
cal battering for what some
claim are exorbitant price
increases for certain drugs.
 The Economist January 14th 2017 9
Leaders
Lifelong learning
It is easy to say that people need to keep learning throughout their careers. The practicalities are daunting

W HEN education fails to

keep pace with technol-
ogy, the result is inequality.
in, say, self-driving cars or the Android operating system. By of-
fering degrees online, universities are making it easier for pro-
fessionals to burnish their skills. A single masters programme
Without the skills to stay useful from Georgia Tech could expand the annual output of comput-
as innovations arrive, workers er-science masters degrees in America by close to 10%.
sufferand if enough of them Such efforts demonstrate how to interleave careers and
fall behind, society starts to fall learning. But left to its own devices, this nascent market will
apart. That fundamental insight mainly serve those who already have advantages. It is easier to
seized reformers in the Industrial Revolution, heralding state- learn later in life if you enjoyed the classroom first time
funded universal schooling. Later, automation in factories and around: about 80% of the learners on Coursera already have
offices called forth a surge in college graduates. The combina- degrees. Online learning requires some IT literacy, yet one in
tion ofeducation and innovation, spread over decades, led to a four adults in the OECD has no or limited experience of com-
remarkable flowering of prosperity. puters. Skills atrophy unless they are used, but many low-end
Today robotics and artificial intelligence call for another jobs give workers little chance to practise them.
education revolution. This time, however, working lives are so
lengthy and so fast-changing that simply cramming more Shampoo technician wanted
schooling in at the start is not enough. People must also be able Ifnew ways oflearning are to help those who need them most,
to acquire new skills throughout their careers. policymakers should be aiming for something far more rad-
Unfortunately, as our special report in this issue sets out, the ical. Because education is a public good whose benefits spill
lifelong learning that exists today mainly benefits high achiev- over to all of society, governments have a vital role to playnot
ersand is therefore more likely to exacerbate inequality than just by spending more, but also by spending wisely.
diminish it. If 21st-century economies are not to create a mas- Lifelong learning starts at school. As a rule, education
sive underclass, policymakers urgently need to work out how should not be narrowly vocational. The curriculum needs to
to help all their citizens learn while they earn. So far, their am- teach children how to study and think. A focus on metacogni-
bition has fallen pitifully short. tion will make them better at picking up skills later in life.
But the biggest change is to make adult learning routinely
Machines or learning accessible to all. One way is for citizens to receive vouchers
The classic model ofeducationa burst at the start and top-ups that they can use to pay for training. Singapore has such indi-
through company trainingis breaking down. One reason is vidual learning accounts; it has given money to everyone
the need for new, and constantly updated, skills. Manufactur- over 25 to spend on any of 500 approved courses. So far each
ing increasingly calls for brain work rather than metal-bashing citizen has only a few hundred dollars, but it is early days.
(see pages 20-22). The share of the American workforce em- Courses paid for by taxpayers risk being wasteful. But in-
ployed in routine office jobs declined from 25.5% to 21% be- dustry can help by steering people towards the skills it wants
tween 1996 and 2015. The single, stable career has gone the way and by working with MOOCs and colleges to design courses
of the Rolodex. that are relevant. Companies can also encourage their staff to
Pushing people into ever-higher levels of formal education learn. AT&T, a telecoms firm which wants to equip its work-
at the start oftheir lives is not the way to cope. Just 16% ofAmer- force with digital skills, spends $30m a year on reimbursing
icans think that a four-year college degree prepares students employees tuition costs. Trade unions can play a useful role as
very well for a good job. Although a vocational education organisers of lifelong learning, particularly for thoseworkers
promises that vital first hire, those with specialised training in small firms or the self-employedfor whom company-pro-
tend to withdraw from the labour force earlier than those with vided training is unlikely. A union-run training programme in
general educationperhaps because they are less adaptable. Britain has support from political parties on the right and left.
At the same time on-the-job training is shrinking. In Ameri- To make all this training worthwhile, governments need to
ca and Britain it has fallen by roughly half in the past two de- slash the licensing requirements and other barriers that make
cades. Self-employment is spreading, leaving more people to it hard for newcomers to enter occupations. Rather than asking
take responsibility for their own skills. Taking time out later in for 300 hours practice to qualify to wash hair, for instance, the
life to pursue a formal qualification is an option, but it costs state of Tennessee should let hairdressers decide for them-
money and most colleges are geared towards youngsters. selves who is the best person to hire.
The market is innovating to enable workers to learn and Not everyone will successfully navigate the shifting jobs
earn in new ways. Providers from General Assembly to Plural- market. Those most at risk of technological disruption are men
sight are building businesses on the promise of boosting and in blue-collar jobs, many of whom reject taking less mascu-
rebooting careers. Massive open online courses (MOOCs) line roles in fast-growing areas such as health care. But to keep
have veered away from lectures on Plato or black holes in fa- the numbers of those left behind to a minimum, all adults
vour of courses that make their students more employable. At must have access to flexible, affordable training. The 19th and
Udacity and Coursera self-improvers pay for cheap, short pro- 20th centuries saw stunning advances in education. That
grammes that bestow microcredentials and nanodegrees should be the scale of the ambition today. 7
10 Leaders The Economist January 14th 2017

Trump and the intelligence agencies

Speaking post-truth to power

With his relentless criticism, Donald Trump is destroying trust in the intelligence agencies

D ONALD TRUMP doesnt

give many press confer-
ences. But when he does, as on
repeatedly suggested that the agencies had done the leaking,
casting doubt on their conduct and loyalty.
Mr Trump would hardly be the first president to have
January 11thfor the first time scratchy relations with the intelligence services (see page 34).
since Julythey are utterly un- Career officers mutter about Barack Obamas reluctance to
like the press conferences of any stand up to China and Russia and what they saw as his soft line
other American president-to-be. on spy-catching. However, Mr Trumps disputes are in a differ-
Speaking without notes, Mr ent class, because they eat away at trust.
Trump threatened and cajoled Mexico and the pharma indus- The agencies job is to tell the president about threats and
try (its shares tumbled). He boasted about his genius for busi- opportunities facing the United States. Even though Americas
ness (and went some way to reduce his own conflicts of inter- intelligence machine is the worlds most formidable, it deals
estsee page 35). He poured scorn on a shocking report that mostly in judgments and informed speculation, not certain-
Russian intelligence had dirt on him and had worked with his ties. In speaking truth to power, intelligence officers will some-
people during the election (he shouted down a reporter from times have to bear bad news. They take that risk and the presi-
the news channel that revealed the reports existence). And dent listens to what they have to say because it makes the
that was just the highlights. It was such a spectacle (see page 33) United States better prepared for whatever is coming its way.
and pointed in so many directions at once that you could fail to By ridiculing the agencies for their findings, Mr Trump has
catch a drumbeat which, for the safety and security of the Un- signalled that he does not want to hear their bad news. By say-
ited States, Mr Trump needs to silence immediately: his con- ing he cannot be bothered with the presidents daily briefing,
tinuing hostility towards Americas intelligence agencies. he suggests their work is of little value. By claiming that the
agencies have a political agenda, his people are themselves
Intel outside politicising intelligence work. By impugning their motives, he
Relations were already rocky. Before the election the agencies is undermining public confidence, which was already dam-
let it be known that they had concluded Russia hacked, stole aged by Edward Snowden (see page 78), and which, as with
and leaked documents which damaged Hillary Clinton, Mr any institution, is essential if they are to go about their duties.
Trumps opponent. Most of the agencies (but not all) think that If he wants America to be safe, Mr Trump must make
Russias intention was to help Mr Trump win. He responded amends. He took a first step by criticising Russia for the Demo-
by mocking them for being wrong before the invasion of Iraq cratic hack (albeit reluctantly and mildly). Unlike his national
in 2003 about weapons of mass destruction. This week things security adviser, his nominees as directors of the CIA and of
got uglier, when it was leaked that the agencies had supplied national intelligence enjoy support among spooks. In 90 days,
Mr Trump with a summary ofthe report, whose claims remain he has said, they will produce a report on hacking: he should
unverified, despite plenty of effort by plenty of people. In a follow its advice. As president, he needs to stop criticising the
tweet, Mr Trump complained that enduring such leaks was agencies and demonstrate they have his backing. None of that
like living in Nazi Germany. And in his press conference he is hard. Except that it is a test of Mr Trumps self-control. 7

Trump and Mexico

Handling a bully

How Mexico should deal with the threat from Americas new president

A MERICAS allies and trading

partners await Donald
Trumps arrival in the White
States, he declared.
If Mr Trump matches his aggressive words with actions, the
consequences will be grave. Mexicos economy is closely en-
House on January 20th with twined with that of the United States and Canada under the
trepidation. None is more anx- North American Free-Trade Agreement (NAFTA). The value of
ious than Mexico. Mr Trump be- bilateral trade with its northern neighbour is equivalent to
gan his election campaign by nearly half of its GDP. America buys three-quarters of Mexi-
damning Mexicans as rapists cos exports. The 35m people of Mexican origin living in the
and killers of American jobs. He has repeatedly threatened United States send back $25bn a year in remittances. Mr Trump
carmakers that invest in Mexico with import tariffs. Ford can- puts all that in jeopardy.
celled plans to build a $1.6bn plant there. He renewed his vow Already, Mexico is feeling the effects (see page 41). The peso
to make Mexico pay for his border wall at a press conference on has dropped to a record low against the dollar, weakening
January 11th. Mexico has taken advantage of the United Mexicos wan economy. If Mr Trump, who has called NAFTA 1
 The Economist January 14th 2017 Leaders 11

2 theworst trade deal maybe ever signed anywhere, launches sneak across Mexico into the United States. And Mexico has
a trade war, Mexico will probably fall into a recession. That paid a price to keep relations warm: some 100,000 Mexicans
would worsen a political environment that is already poison- have died since Mexico joined Americas war on drugs.
ous. Mexicos president, Enrique Pea Nieto, has the lowest ap- Mexico should also seize on Mr Trumps occasional hints
proval ratings of any recent leader. He is reviled for failing to that he is open to renegotiating NAFTA rather than ripping it
control corruption and for allowing crime to surge. On Janu- up. The 23-year-old agreement could usefully be updated to
ary 1st the government raised petrol prices by up to 20%. En- cover new sectors, such as digital commerce and energy.
raged drivers blocked roads, looted shops and occupied petrol IfMr Trump is really determined to start a trade war, Mexico
stations; six people died in the unrest. has few good options. A broad strategy of ghting taris with
Mexico is due to hold its next presidential election in 2018. taris will hurt its own consumers most, while inicting only
The nationalism and misery provoked by Mr Trump could modest damage on Americas vast economy. There is scope for
bring to power Andrs Manuel Lpez Obrador, a left-wing artful use of targeted measures within the rules of NAFTA and
populist. Mr Peas weakness threatens to discredit vital re- the World Trade Organisation, an approach that Mexico has
forms he enacted early in his tenure, including liberalisation of wielded adroitly before. In 2009, after America blocked Mex-
energy and telecoms. A dismantling of NAFTA, which helped ican lorries from operating north of the borderto protect the
create the right conditions for reforms, would doom them. jobs of American driversMexico imposed taris on nearly
America would suer, too. Its trade with Mexico is worth 100 American products, from Christmas trees to felt-tipped
just 3% of its GDP, but some 5m American jobs depend on it. pens, choosing industries with clout in congressional districts
The design, manufacture and servicing of everything from ap- whose representatives had a say in the dispute. The American
pliances to medical equipment is spread across both borders. block was eventually lifted.
Cars made in Mexico are stued with parts manufactured in Mexicos best defence against a bullying neighbour, how-
America; some 40% of the value of Mexican exports consists ever, will be to seek freer trade elsewhere and to strengthen its
of inputs bought from the United States. If Mexico is not al- own economy. It needs to build more infrastructure: whereas
lowed to sell cars, aerospace equipment and fruit to America, it northern Mexico has good transport links to America and the
is likely to send more immigrants and drugs. coasts, the poor south is largely cut o. Most Mexican workers
have unproductive informal jobs. Shifting rms into the for-
Accentuate the positive mal economy will be hard so long as the government fails to
How should Mexico respond to Mr Trump? First of all, by re- curb corruption; many Mexicans are loth to pay taxes they as-
minding his administration that the relationship is mutually sume will be stolen. Mr Trumps anti-Mexican populism
benecial. Alongside trade, Mexico has been a partner in con- threatens to help usher in a leftist government that will aban-
trolling illegal immigration. It stops many of the 200,000- don reforms. But it makes those modernising policies more
300,000 Central Americans and others who try every year to necessary than ever. 7

Renewable energy

A greener grid

Chinas embrace of a new electricity-transmission technology holds lessons for others

UHVDC lines in China

Completed or under construction
Cumulative total
Y wind
OU cannot negotiate with
nature.
farms
From the oshore
of the North Sea to
moving energy around the planet. That is wildly premature.
But one country has grasped the potential of these high-capac-
ity links. State Grid, Chinas state-owned electricity utility, is
20
15 the solar panels glittering in the halfway through a plan to spend $88bn on UHVDC lines be-
10 Atacama desert, renewable en- tween 2009 and 2020. It wants 23 lines in operation by 2030.
5
nil ergy is often generated in places That China has gone furthest in this direction is no surprise.
0
200910 11 12 13 14 15 16 17* far from the cities and industrial From railways to cities, Chinas appetite for big infrastructure
*Forecast
centres that consume it. To boost projects is legendary (see page 27). Chinas deepest wells of re-
renewables and drive down carbon-dioxide emissions, a way newable energy are remotethink of the sun-baked Gobi des-
must be found to send energy over long distances eciently. ert, the windswept plains ofXinjiang and the mountain ranges
The technology already exists (see page 71). Most electricity of Tibet where rivers drop precipitously. Concerns over pollu-
is transmitted today as alternating current (AC), which works tion give the government an additional incentive to locate
well over short and medium distances. But transmission over coal-red plants away from population centres. But its em-
long distances requires very high voltages, which can be tricky brace of the technology holds two big lessons for others. The
for AC systems. Ultra-high-voltage direct-current (UHVDC) rst is a demonstration eect. China shows that UHVDC lines
connectors are better suited to such spans. These high-capaci- can be built on a massive scale. The largest, already under con-
ty links not only make the grid greener, but also make it more struction, will have the capacity to power Greater London al-
stable by balancing supply. The same UHVDC links that send most three times over, and will span more than 3,000km.
power from distant hydroelectric plants, say, can be run in re- The second lesson concerns the co-ordination problems
verse when their output is not needed, pumping water back that come with long-distance transmission. UHVDCs are as
above the turbines. much about balancing interests as grids. The costs of construc-
Boosters of UHVDC lines envisage a supergrid capable of tion are hefty. Utilities that already sell electricity at high prices 1
12 Leaders The Economist January 14th 2017

2 are unlikely to welcome competition from suppliers of renew- fragmented. There are 3,000 utilities, each focused on supply-
able energy; consumers in renewables-rich areas who buy ing power to its own customers. Consumers a few states away
electricity at low prices may balk at the idea of paying more be- are not a priority, no matter how much sense it might make to
cause power is being exported elsewhere. Reconciling such in- send them electricity. A scheme to connect the three regional
terests is easier the fewer the utilities involvedand in China, grids in America is stuck. The only way that America will
State Grid has a monopoly. create a green national grid will be if the federal government
That suggests it will be simpler for some countries than oth- throws its weight behind it.
ers to follow Chinas lead. Developing economies that lack an
established electricity infrastructure have an advantage. Solar Live wire
farms on Africas plains and hydroplants on its powerful rivers Building a UHVDC network does not solve every energy pro-
can use UHVDC lines to get energy to growing cities. India has blem. Security of supply remains an issue, even within nation-
two lines on the drawing-board, and should have more. al borders: any attacker who wants to disrupt the electricity
Things are more complicated in the rich world. Europes supply to Chinas east coast will soon have a 3,000km-long ca-
utilities work pretty well together but a cross-border UHVDC ble to strike. Other routes to a cleaner grid are possible, such as
grid will require a harmonised regulatory framework. Ameri- distributed solar power and battery storage. But to bring about
ca is the biggest anomaly. It is a continental-sized economy a zero-carbon grid, UHVDC lines will play a role. China has its
with the wherewithal to finance UHVDCs. It is also horribly foot on the gas. Others should follow. 7

Proliferating parties

Splitters

Too many parties can spoil politics

European elections T
Parliamentary, number of parties
winning more than 1% of the vote
O ENTER parliament, a
Dutch political party need
only win enough votes for one
apart easily. They also take longer to form, distracting politi-
cians from the business of governing. Spains recent shift from
two major parties to four produced a stand-off that left it with-
10
seat. With no minimum thresh- out a government for most of last year. Its citizens had more
8
6 old, there are lots of parties. choices when they voted, but then spent ten months under the
4 Eleven succeeded in 2012, in- rule of unelected caretakersnot a clear gain in democracy.
1950- 60- 70- 80- 90- 2000- 15- cluding two liberal parties, three Small parties may render government incoherent by seiz-
54 64 74 84 94 04 16
Christian ones and one that ing control of the policy areas they care about. In Israel tiny
cares about animal rights. In the next election, this March, right-wing parties in effect write the rules for West Bank settle-
polls suggest the total could rise to 13, with the addition of a ments. Splintering can also foster graft. In Brazil politicians
pro-immigrant party and an anti-immigrant one (the countrys form new parties to get public subsidies and then demand
second). As small parties multiply, the large ones are shrinking. more goodies to join coalitions. Far from increasing real choice,
In the 1980s governing parties often held 50 seats in the 150- multiplying parties can allow politicians to hide the fact that
seat parliament; today they are lucky to reach 40. what matters is patronage. Voters may be bewildered when
As with the Netherlands, so with Europe. The ideologies confronted with the Peoples Front of Judea and the Judean
that held together the big political groupings of the 20th cen- Peoples Frontor with National Liberals, Democratic Liberals
tury are fraying, and the internet has lowered the barriers to and Liberal Reformists, as they were in Romania in 2014.
forming new groups. So parties are multiplying (see page 50).
Some see this as cause for celebration. A longer menu means What have the Romanians ever done for us?
that citizens can vote for parties that more closely match their Sometimes, new policies need new parties to champion them.
beliefs. This is good in itselfand also increases political engage- For all their flaws, the left-wing Podemos party in Spain and
ment. Countries with proportional-representation systems, the populist, anti-immigrant Sweden Democrats represent
which tend to have more parties, have higher voter turnout voters whose voices were not being heard. But some politi-
than first-past-the-post countries like America and Britain. cians form new parties for selfish reasons. Candidates who re-
Yet excessive fragmentation has drawbacks. As parties sub- ceive a low spot on their partys list may decide to start their
divide, countries become harder to govern. A coalition of own. Others hunger for the subsidies and free broadcasting
small parties is not obviously more representative than one time that many countries grant to each party.
big-tent party. Big parties are also coalitions of interests and For all these reasons, thresholds are a good idea. Germanys
ideologies, but they are usually more disciplined than looser requirement that parties win 5% of the vote to enter parlia-
groups, and so more likely to get things done. ment keeps cranks and extremists out without disenfranchis-
Having too many parties is often unwieldy. Coalitions be- ing parties that poll strongly, like the new Alternative for Ger-
come harder to form and often include strange bedfellows. In many. The 5% rule also keeps German coalitions from growing
Greece the far-left Syriza party governs with the far-right Inde- unwieldy. Parties are middlemen between government and
pendent Greeks; in Denmark the centre-right government voters, organising a multiplicity of policies into a simpler
needs the support of the Liberal Alliance, which wants to cut menu of options. That menu can be too short (as in China). But
social spending, and the Danish Peoples Party, which wants to it can also be so long and confusing that voters cant tell what
raise it. Such oddball pairings rarely act decisively and fall they are orderingand probably wont get it. 7
16 The Economist January 14th 2017
Letters
The liberal disorder Jeffersons counsel that eter- Out with regime change sites. Such Big Data insights are
nal vigilance is the price of much richer than those which
liberty requires citizens, not You pointed out that after the can be gathered from simply
just the elite, to desire to seek genocide in Rwanda, many analysing sale data.
the truth to be free. countries agreed that they Adding concealed cameras
BERTRAND HORWITZ have a responsibility to and microphones in shops,
Asheville, North Carolina intervene if a government fails coupled with machine-learn-
to protect its own people (The ing algorithms, allows retailers
Whats on the Brexit table? fall of Aleppo, December to link foot traffic with details
17th). But you then said that of age, gender, ethnicity and
It was good to see The Econo- The desire to promote free- the dialect of both the shopper
mist discuss the options for dom and democracy was not and any shopping compan-
trade under WTO rules when far behind. Conflating the ions, including children. All of
Britain becomes once again a responsibility to protect with this will soon be more tightly
You stressed one aspect of sovereign customs authority regime change is, in effect, one controlled in the European
liberalisms attitude to power (Free exchange, January 7th). reason the tragic civil war in Union by the General Data
and neglected the other two But it was disappointing that Syria is continuing. Privacy Regulation, which
(The year of living dangerous- you chose to discuss mainly Although almost 200 coun- comes into effect in May 2018.
ly, December 24th). Liberals procedural matters and ig- tries have committed to the From that date, companies
believe in protection from nored the economic options UNs Responsibility to Protect, with EU customers will be
undue power, whether the this gives us. As we have re- which entails the right to use more restricted in their col-
coercive power of the state, the peatedly emphasised during force to intervene in the lection and use of personal
economic power of concen- the referendum campaign and internal affairs of others, many data, including data that can be
trated wealth or the unfiltered since, the best economic op- of them strongly oppose coer- linked to a smartphone.
power of popular majorities. tion is for us to open up our cive regime change. So when There will still be a rich
By focusing too long on undue markets in food and manufac- America made it a precondi- analysis of foot-traffic statistics,
state power, free-market liber- turing to the world by scrap- tion for negotiating a settle- ideally benefiting the customer
alism contributed to the politi- ping the EUs protectionist ment in Syria that Bashar as well as the retailer, but it will
cal difficulties liberal democra- tariffs and non-tariff barriers al-Assad must go, Russia cor- become increasingly impera-
cy now faces with the second on these goods, just as we have rectly viewed this condition as tive that such data are dealt
and third aspects of undue always had open markets in a threat to the survival of its with in ways that both respect
power: an over-concentration services. The gains from this last ally in the Middle East. the customers privacy and
of wealth and unanchored will be much lower prices for The same issue arose in that shield the retailer from
popular distrust. our consumers and the reallo- Libya, where the West first legal and reputational risks.
To take only Britain, the cation of our resources accord- intervened because it held DAVID STEPHENSON
liberal foundersMill, ing to comparative advantage. there was a genocide in the Chief data scientist
Gladstone, Hobhouse This prescribed course is en- making. However, when DSI Analytics
grasped that what was needed tirely consistent with WTO Muammar Qaddafi offered to Amsterdam
was not less government but rules, and far from being as negotiate a settlement, the
better government; not less complicated as you suggest, West forcefully insisted on A pack of economists
politics, but better politics. The reverting to a zero tariff would regime change. What followed
great liberal achievements of be straightforward and not is another civil war. Since then Further to the letter of Michael
state schools, public works, subject to anyone elses say-so. Russia, China and others have Ben-Gad (December17th) I
health and welfare and a We can follow this up with soured on the responsibility to think the appropriate col-
world trading order all came free-trade agreements around protect. A better policy would lective noun for economists
about thanks to ambitious the world on broader issues of be to decouple armed humani- should be a quandary.
thinkers, ambitious politicians investment and property tarian intervention from coer- COLIN MCALLISTER
and ambitious states. rights. We hope that the EU cive regime change, and pro- St Andrews, Fife
To liberalisms present will follow our lead in this mote democracy only by
travails, your suggested sol- policy of free trade, but if they non-lethal means. Given the conflicting opinions
utions of new gadgets, devolu- do not, that is a problem for AMITAI ETZIONI between economists, I
tion and deregulation sound their consumers and their Institute for Communitarian propose a befuddlement.
by contrast almost magical. economies, not ours. If they Policy Studies DARREN GALPIN
EDMUND FAWCETT are stupid enough to impose Washington, DC Bristol
London tariffs on our manufacturers,
which average only around Store detection The optimum choice must
The rise of universal free edu- 3.5% in any case, we should not surely be a surplus of
cation in the 19th century was, be distracted by this from Following the fashion economists.
as you note, essential for the opening up our own markets (December 24th) looked at J. BROOKS SPECTOR
growth of commerce and to free trade. Our manufactur- what retailers might gain from Johannesburg 7
democracy. The decline of the ers can easily take these tariffs collecting detailed data on
quality and increasingly un- in their stride, given our highly customers in-store move-
equal distribution of that competitive exchange rate and ments. In fact, the competitive Letters are welcome and should be
addressed to the Editor at
required education is at the pro-business policies. advantages (and privacy con- The Economist, 25 St Jamess Street,
source of the challenge faced PROFESSOR PATRICK MINFORD cerns) for such tracking within London sw1A 1hg
by democratic societies, from Co-chair physical stores are very similar E-mail: letters@economist.com
voters unequipped and unable Economists for Brexit to those from tracking online More letters are available at:
Economist.com/letters
to seek the truth. Thomas Cardiff browsing behaviour on web-
20 The Economist January 14th 2017
Briefing Manufacturing
create millions of manufacturing jobs.
Hence the vision articulated by George Os-
borne, Britains finance minister from 2010
to 2016, of a Britain carried aloft by the
march of the makers, and the central role
ofmaking things in the comprehensive in-
dustrial strategy promised by the current
prime minister, Theresa May. Hence calls
from the EU for a European industrial revo-
lution and the need for things to be Made
in France identified by Marine le Pen,
leader of the countrys National Front.
The problem with such rhetoric is that
manufacturing has not really gone away.
But nor has it held still. The vice has gone
unreplaced, but in almost everything else
there has been change aplenty. Some pro-
cesses that used to be tightly held together
are now strung out across the world; some
processes that used to be quite separate are
now as close as the workers and designers
who share the shop floor in Brixworth. As-
sembling parts into cars, washing ma-
chines or aircraft adds less value than once
it did; design, supply-chain management,
aftercare, servicing and the like add much
more.

Ride the carousel

Once you understand what manufactur-
ing now looks like, you come to see that the
way it is represented in official statistics un-
derstates its health, and that the sectors
apparent decline in the rich world is over-
stated. But that does not solve the politi-
cians problem. The innovations behind
the sectors resilience have changed the
number, nature and location of the jobs
that it offers. There are still a lot of them;
but many of the good jobs for the less
skilled are never to return.
Both in terms of employment and inno-
vation manufacturing is worthy of politi-
cal attention. Manufacturers are more like-
They dont make em like that ly to be exporters than businesses in other
parts of the economy and, as you would
any more expect given the demands of competing in
a broader market, exporting firms tend to
be more productive than non-exporting
Manufacturing in the rich world has changed dramatically from the metal-bashing firms. Such firms also tend to be more capi-
days. So have the jobs that go with it tal-intensive, because selling into those
broader markets allows firms to reduce

T HE vices are what strike you. The Mer-

cedes AMG factory in Brixworth, a
town in Englands midlands, is a different
ing better than the vice has come along.
Manufacturing exerts a powerful grip
on politicians and policymakers in the rich
capital costs per unit sold. And a sector that
has higher-than-average productivity and
high capital intensity will, other things be-
world from that of the production line of world. It is central to what they want for ing equal, be able to offer better wages.
yore. Engine making was once accompa- their countries, they say; it needs to be The structure of 20th-century manufac-
nied by loud noises and the smoke and brought home from abroad; it must be giv- turing helped ensure that those better
smells of men and machinery wrestling en renewed primacy at home. This is be- wages were indeed offered. Factories
lumps of metal. Here things are quiet and cause it used to provide good jobs of a par- brought lots of modestly skilled people to-
calm. Skilled mechanics wield high-tech ticular sortjobs that offered decent and gether with massive capital equipment
tools amid operating-theatre cleanliness as dependable wages for people, particularly that cost owners dearly when idled by
they work on some of the best racing-car men, with modest skills, and would do so strikes. Unionisation helped those work-
engines in the world. Banks of designers throughout their working lives. Such jobs ers win a large share of the value generated
and engineers sit in front of computers are much more scarce than once they were, by industry.
nearby. The only vestige of the old world and people suffer from the lack of them. In In the latter part of the century, though,
are the vices. There is one on every work their suffering, they turn to politicians this system came undone. Better shipping
bench. At some point, making things of and can also turn against them. and information technology allowed
metal requires holding parts still, and noth- Hence Donald Trumps promise to firms to unbundle the different tasksfrom 1
 The Economist January 14th 2017 Briefing Manufacturing 21

2 design to assembly to salesthat made up world added two-thirds of the final value. an important part of the manufacturing
the business of manufacturing. It became In terms of the perception that manu- process. Environmental legislation is forc-
possible to co-ordinate longer and more facturing moved to poor countries lock ing companies to take responsibility for
complicated supply chains, and thus for stock and barrel, it hasnt helped that the their products after they have served their
various activities to be moved to other low-value work which did go overseas of- purpose by recycling components or dis-
countries, or to other companies, or both. ten involved the final stages of assembly. posing of them. Carmakers have to make
At the same time computers and comput- Putting the components that make up a sure that the batteries that power electric
er-aided design made automation more product together looks like the essence of cars are not thrown away. In some coun-
capable. High wages gave owners the in- the manufacturing process. But it often tries white-goods firms are required to pay
centive they needed to take advantage of adds little to the finished products value. for recycling fridges, washing machines
those opportunities. And while politicians Even for as complex and pricey a mach- and other appliances.
now like the good jobs unionised factories ine as a passenger jet, assembly is a low- At the same time as the value chain has
provided, at the time when those unions value proposition compared with making been stretched, other changes have led offi-
were flexing their muscles many were hap- the parts that go into it. By some estimates, cial statistics to exaggerate the loss of jobs
py to see them reined in. putting together Airbus airliners in Tou- in the sector. In the past, some jobs that
As a result many manufacturing jobs louse accounts for just 5% of the added val- would not today be seen as manufacturing
vanished from the rich world (see chart 1). ue of their manufactureeven if ensuring were counted as such, inflating the total; to-
In Britain manufacturings share of em- the aircraft were put together in France has day some jobs that seem obviously part of
ployment had hovered at around a third been a non-negotiable point of national manufacturing are not counted as such, re-
from the 1840s to the 1960s. Today official pride for the French government. Similarly, ducing it.
data show that around one in ten workers assembly in China accounted for just 1.6% Manufacturing companies increasingly
is involved in manufacturing. In the late of the retail cost of early Apple iPads. bring in other firms to take care of things
1940s manufacturing accounted for one in like marketing or accounting. Because stat-
three non-farm jobs in America. Todays Changing corporation names isticians generally categorise firms accord-
figure is just one in eleven. Even in Ger- Most pre-production value added comes ing to what their largest block of employ-
many, the rich country where making from R&D and the design of both the pro- ees does this looks like the loss of
things has clung on tightest, only one in duct and the industrial processes required manufacturing jobs. The replacement of a
five workers is in manufacturing. to make it. More is provided by the expert tea lady with a canteen run by a contractor
The way official figures are put together management of the complex supply is statistically indistinguishable from the
means that these declines are exaggerated. chains that provide the components for fi- loss of a factory-floor metal basher (even if
But tens of millions of jobs did vanish, and nal assembly. After production, taking pro- the tea lady is still there in the canteen).
as manufacturing became more produc- ducts to market and after-sales repair and But some outsourcing cuts the other
tive, and prices dropped, its share of GDP service and, in some cases, disposal all add way. Jaguar Land Rover (JLR), a British car-
fell, too. At the same time the number of more valuewhile stretching the idea of maker owned by Indias Tata Group, hand-
people in manufacturing in developing what it is to manufacture something ever ed over much of the management of its
countries exploded, with many of them further from the factory floor. supply-chain logistics to DHL, a delivery
working, directly or indirectly, for the same Dismantling, for example, is becoming giant, in 2009. Not only does DHL deliver
firms that were employing fewer people in parts from suppliers to JLRs factories, it
rich countries. But the jobs that appeared gets them to the exact bit of the assembly
1
were not, for the most part, simply the old The change that came line where they are needed; its employees
jobs relocated. Manufacturing
whizz around the shop floor in forklift
Companies were using technology and As % of total employment trucks. It is hard not to see the service they
new practices in ways that made it easier to 30 are offering as an integral part of the manu-
separate straightforward, well-delineated facturing process.
25
work from the more complicated bits of Many aspects of R&D, product design
the enterprise. The routine work, which Developed countries and technical testing are now sometimes
20
was not particularly valuable, was easily All countries looked after by service companies, along
moved to poor countries where labour 15 with lots of accounting, logistics, cleaning,
was cheap. (If poor places had had the ca- Developing countries personnel management and IT services.
10
pacity to take the high-value bits, they Production itself can be outsourced, too.
would not have been poor.) 5 Apple and ARM, a British chip company re-
This is why promises to bring jobs back cently acquired by SoftBank of Japan, own
ring hollow. Valuable semi-skilled manu- 0 no factories of their own. They make all
facturing jobs are not, for the most part, go- 1981 85 90 95 2000 05 10 their money from design, distribution and
ing to return to America, or anywhere else, Manufacturing value added services associated with their products. An
because they were not simply shipped As % of GDP OECD committee is currently mulling
abroad. They were destroyed by new ways 30 whether these sorts of firms should still be
of boosting productivity and reducing Middle income classified as manufacturers.
25
costs which heightened the distinction be- A study published in 2015 by the Brook-
tween routine labour and the rest ofmanu- 20 ings Institute, an American think-tank,
High income World
facturing. There is no vice that can squeeze reckoned that the 11.5m American jobs
those genies back into their bottles. 15 counted as manufacturing work in 2010
Low income
The UN Industrial Development Orga- 10
were outnumbered almost two to one by
nisation (UNIDO) reckons that, in 1991, jobs in manufacturing-related services,
234m people in developing countries 5 bringing the total to 32.9m. A British study
worked in manufacturing. By 2014 the conducted by the Manufacturing Metrics
number was 304mand there were just 0 Experts Group in 2016 came to a similar
1981 85 90 95 2000 05 10
63m manufacturing jobs in the rich world. conclusion: that 2.6m production jobs sup-
Source: UNIDO
But the sixth of the workers in the rich ported another1m in pre-production activ- 1
22 Briefing Manufacturing The Economist January 14th 2017

2 ities and 1.3m in post-production jobs. ed innovation, says Ludovico Alcorta at

2
Pinning down the number of manufac- Above its weight UNIDO. When production is moved else-
turing jobs is sure to get harder. Not only United States, advanced industries* where, opportunities to learn how to do it
will service providers penetrate ever deep- As % of total, 2015 better are often lost. The development of
er into manufacturers; some manufactur- 0 20 40 60 80 100 new products and processes can suffer, as
ers also see themselves increasingly as sell- Private sector R&D can interactions with research organisa-
ers of services. tions and universities.
In the 1980s Rolls-Royce, an engineering Patents As that suggests, though, the potential
giant that makes jet engines, started to Engineers for new jobs in manufacturing is not quite
push power by the hour, providing an the boon politicians would like. Advanced
Exports
engine, servicing and maintenance at a manufacturing provides very good jobs
fixed cost per hour of flying time. As Andy GDP (see chart 2) but they are the jobs of the fu-
Neely of the Institute for Manufacturing at ture, not the past; they need skill and
Workers
Cambridge University points out, this way adaptability. They will change a lot over
of turning manufacturing into a service of Source: Brookings *Involved in high-tech and complex the lifetimes of those who hold them, and
Institute design and manufacturing
sorts provides more stable revenues by they will never provide anything quite like
locking in customers rather than selling the mass employment of the past.
them one-off items. Moreover, margins is often better done amid the designers and Governments should start with mod-
tend to be higher for such services than for engineers who thought up the product. est expectations for manufacturing, says
the goods themselves. Linking the design of both the product and James Manyika of the McKinsey Global In-
Industrial machines and the goods they its manufacturing process more closely to stitute, a think-tank. The policies that might
turn out are increasingly packed with inter- production can help improve all three. At help are mostly fairly obvious. Improve
net-connected sensors. Manufacturers are the Mercedes AMG engine plant in Brix- education to ensure that engineers and te-
thus able to gather data on how their ma- worth designers are deliberately placed in chies are in good supply. Provide more vo-
chines perform out in the world. Their inti- the middle of production engineers so that cational training, along the lines that Ger-
macy with the product and the amount of they cannot avoid meeting and talking. many uses to support its Mittelstand. And
data they accumulate gives them a base develop retraining programmes to refur-
from which to sell services which no third The golden future bish the skills of current or former workers
party can match. A maker of cars, or wind Ifbeing in the same place really helps, tech- (see this weeks special report).
turbines, or earth movers can use data nology and redesigned production meth- If manufacturing cannot be counted on
from every product it has made to work ods might be used to bring assembly and to bring back good jobs for semi-skilled
out what is going on with any one of them, some other forms of production back to workers, its history nonetheless suggests a
and thus increase the value to the user rich countries. 3D printing, though more route to providing good work in other sec-
who is increasingly likely to pay for the ser- expensive than traditional mass manufac- tors. First, workers still tend to do better
vice that the manufactured object offers, turing, is being used to make more luxuri- when they are able to work within profit-
rather than the object itself. The car indus- ous and pricier wares, such as motorbikes, able companies, rather than as employees
try, for most of the 20th century the arche- in the heart of cities like London and New of service firms which contract with those
type of metal bashing, increasingly sees its York, close both to designers and consum- companies. Second, workers do better
future in the provision of mobility ser- ers. Using new technologies to keep design when they are able to improve their bar-
vices rather than as a seller of boxes with and manufacturing tightly coupled can gaining power by means of a union. But
wheels at the corners. Running their own shorten lead times in industries driven by neither is easy to implement, or popular
fleets of cars with which to offer autono- fad and fashion (see page 62). across the political board.
mous or shared rides looks to many like Some firms recognise that outsourcing A real commitment to helping people
the wave of the futureand possibly a very production to cheaper locations has erod- find work in and around manufacturing
profitable one. could undoubtedly do good. Simply
The enthusiasm for moving into ser- threatening companies that seek to move
vices extends well beyond the makers of jobs overseas and the countries keen to
high-end machinery with whom the trend host them, as Mr Trump has, will not. Dis-
started. Henrik Adam at Tata Steel in Eu- rupting the complex cross-border supply
rope says he has a team of experts able to chains on which manufacturers rely with
intervene in a customers production line tariffs would damage the very sector he
and improve their manufacturing perfor- purports to champion. Clamping down on
mance and yield by specifying the best migrants with skills that manufacturers
type ofsteel to match processing capability cannot find at home will do harm, not
and market ambitions. LafargeHolcim, a good. Policies that favour production-line
cement-maker, says its product can be de- workers over investment in automation
livered as a service. Increasingly compli- will end up making American industry
cated cement structures require experts to less competitive.
advise on design, use of specialist products Industrial manufacturing was never as
and the logistics of pouring a continual simple as those far from the shop floor
stream of the stuff. imagined it to be. Today it has become
This should be comforting to politi- more complex still. There are reasons to
cians on the lookout for manufacturing help manufacturing; it tends to be more
jobs. Well-paid tasks could increase in productive, and by some measures more
number as services related to manufactur- innovative, than the rest of the economy.
ing grow. There are other encouraging But doing so requires careful thought, a
trends, too. In some fields innovation and light touch and managed expectations. The
production are increasingly interwoven. application of brute force will not turn the
Capital-intensive high-tech manufacturing What next? clock back. It is more likely to break it. 7
 The Economist January 14th 2017 23
Asia
Also in this section
24 Thailands king sticks his oar in
24 South Korea and Japan bicker again
25 Anti-Chinese protests in Sri Lanka
26 Banyan: Asias misguided drugs
policies

For daily analysis and debate on Asia, visit

Economist.com/asia

Indian politics 87% the year before. The liking is personal:

Mr Modi regularly scores higher in such
Non-stick PM polls than either his party or his policies.
Some pundits speak of Modi magic to
explain his immunity from criticism, but
there are more straightforward reasons.
One is the prime ministers talent as a poli-
tician. Although often dour in counte-
DELHI
nance, Mr Modi is a pithy speaker in Hindi,
Narendra Modi has an uncanny ability to shrug off embarrassment
with an unerring nose for the class-driven

A DDRESSING a conference in his home

state of Gujarat on January 10th, Na-
rendra Modi, Indias prime minister, exud-
prints more money to replace the scrapped
notes. Yet just as would-be foreign inves-
tors seem happy to continue boosting Mr
grudges that often guide voter sentiment.
In debates over demonetisation, he suc-
cessfully projected himself as a champion
ed confidence. Indias economy is the fast- Modi, many Indians also still trust and ad- of the common man against currency
est-growing and one of the most open in mire the prime minister. Like Americas hoarders and tax evaders. He is also ex-
the world, he declared, reaffirming his gov- president-elect, Donald Trump, who once tremely protective of his own image as a
ernments commitment to reform. The claimed he could shoot somebody and man above the fray. Mr Modis dress, ges-
5,000-strong audience, sprinkled with for- not lose votes, Mr Modis support seems tures and public appearances are theatri-
eign heads of state and corporate bigwigs, oddly unaffected by his flaws. Anecdotal cally staid and uniform, punctuated by
applauded warmly. One multinationals evidence, online polling and informal sur- meaningful looks and silences. He does
boss drew cheers with a sycophantic call veys all suggest that the prime ministers not hold press conferences, preferring to re-
for India to export Mr Modi to run his misstep has scarcely dented his standing. tain control of his narrative via carefully re-
home country, America, too. Opinion polls in India have a poor re- hearsed interviews and his monthly
The optimism and praise, however, cord, and none published since the demo- From the Heart radio address.
contrasted with sobering economic news. netisation drive has specifically measured
Since November rating agencies have Mr Modis popularity. However, two sur- Pygmy-slayer
sharply lowered their growth forecasts. veys carried out in December in the state of Mr Modi is also lucky. His well-funded,
Small and medium-sized firms report big Uttar Pradesh, Indias most populous, sug- highly disciplined and pan-Indian party
lay-offs. Vehicle sales fell in December by gest that his Bharatiya Janata Party (BJP) re- faces an unusually divided and uninspir-
19% compared with the previous Decem- mains poised to perform well in imminent ing opposition. Congress, a party that ran
ber, their steepest drop in 16 years, says a state elections. When the results from sev- India for decades and still commands a na-
car-industry lobby group. Housing sales in eral rounds of voting are tallied in March, tionwide base, is burdened by squabbling
Indias eight biggest cities slid by 44% in the the BJP could be basking in its biggest tri- and corrupt local branches and a lack of
last quarter of 2016 compared with the umph since Mr Modi won national elec- clarity over ideology and the role of the
year before, reckons Knight Frank, a global tions in 2014. The party has not suffered in Gandhi dynasty. Indias many other par-
property firm, in a report. The Indian gov- municipal votes in several states since No- ties are all parochial, tied to the interests of
ernments demonetisation move on No- vember and is well positioned in several one state, caste or other group, and so with
vember 8th brought the market to a com- other looming state polls. little hope of playing a national role. Hand-
plete standstill, it says, alluding to Mr Prior to the demonetisation drive, Mr ed the golden opportunity of Mr Modis
Modis surprise order to withdraw 86% of Modi had handily weathered other demonetisation fumble, the opposition
the notes used in daily transactions. storms. Murderous communal riots tar- has failed to mount a united charge.
There is little doubt that Mr Modis as- nished his long term as chief minister of Other institutions that might check Mr
sault on cash has caused ordinary Indians Gujarat, for instance. Yet according to Pew, Modis ambitions, such as the press and
disruption, annoyance and, particularly a research firm, the prime ministers popu- the judiciary, are also not as vigilant as in
for the poorest, severe distressthough the larity in mid-2016, at an enviable 81%, had other democracies. Some parts of the me-
pain is easing now as the government declined only marginally from a stunning dia are owned by Mr Modis friends and 1
24 Asia The Economist January 14th 2017

2 supporters; others by business groups final arbiter at times of political crisisa South Korea and Japan
with interests that are vulnerable to retri- role which had traditionally fallen to the
bution. Journalists, whistle-blowers and
activists are keenly aware that critics of the
kingas well as an article which intro-
duced a requirement for some royal procla-
Future tense
government often pay a price, whether in mations to be countersigned by a minister.
the form of trolling on the internet, ha- Thais have been watching for signs of
rassment by officials or spurious lawsuits. friction between the armed forces and the
SEOUL AND TOKYO
Indias courts, meanwhile, do often clash monarchythe countrys two biggest
Two neighbours choose a bad time to
with the government but are cautious in sources of political powersince the death
resume bickering about the past
picking fights: on January 11th Indias su- in October of Bhumibol Adulyadej, King
preme court airily dismissed a public-inter-
est lawsuit demanding investigation of
documents that appear to implicate doz-
Vajiralongkorns long-reigning father. The
new king is viewed warily by Bangkoks
elites, who have sometimes worried that
T HE sudden deal struck in late 2015 by
the leaders of South Korea and Japan to
settle their dispute over comfort women
ens of officials in bribe-taking. he sympathises with populist politicians was supposed to be final and irrevoca-
Even Mr Modis foes believe his admin- whom the army has twice kicked from ble. But South Korean groups representing
istration is less corrupt than previous ones power. On the whole relations have the former sex slavestens of thousands of
have been. However, as the banknote de- looked cordial. King Vajiralongkorn has whom were pressed into prostitution by
bacle revealed, it is not necessarily much stacked his privy council with generals Japans imperial army during the second
more competent. The most iron-clad rule plucked straight from the juntas cabinet; world warhad fiercely opposed the deal
of Indian politics is anti-incumbency. Even the junta has looked to the palace to help as a sell-out. One year on, a bronze statue
the investors vying for Mr Modis attention adjudicate in a long-running and volatile of a teenage sex slave (pictured), set up by
may take note that, for all the talk of open- dispute over who should fill a vacant post one of the civic groups last month outside
ness, India still has some of the worlds at the head of Thai Buddhism, which the Japans consulate in Busan, South Koreas
most tangled rules, highest corporate tax military government had appeared ill- second-largest city, threatens to under-
rates and most capricious officials. 7 equipped to handle alone. mine the agreement. The row, in turn, has
But although the kings right to reject upset a short-lived detente between neigh-
the draft constitution is enshrined in an in- bours at a treacherous time.
Royal politics in Thailand terim charter which the generals them- Koreans have long felt that Japan has
selves wrote, his decision to interfere re- not properly atoned for its wartime atroc-
Return to sender mains a surprise. Under King Vajira-
longkorns father the palace preferred to
ities. Activists have erected 30-odd statues
to lament the suffering of the comfort
maintain the fiction that Thailands mon- women, including one near the Japanese
archy holds a symbolic role which is embassy in Seoul, South Koreas capital.
above politics, even while it meddled en- As part of the deal Shinzo Abe, Japans
ergetically behind the scenes. The blunt- prime minister, apologised for the wom-
BANGKOK
ness of King Vajiralongkorns interven- ens ordeal. Japan pledged to pay 1bn (just
The new king pulls rank
tionand the determination it reveals to over $8m) into a new South Korean fund to

F OR more than two years Thailands rul-

ing junta, which seized power in a coup
in 2014, has been cooking up a constitution
resist relatively small checks on royal pow-
eris both a snub to the junta and a worry
for democrats, some of whom had dared
care for the surviving comfort women
(there were 46 at the time, but seven have
since died). That was something of an
which it hopes will keep military men in hope that the new king might be happy to about-turn for Mr Abe, who had previous-
control even after elections take place. In take a back seat in public life. ly said he doubted the women had been
August the generals won approval for the The junta says it will make all the re- coerceda view that his many ultranation-
document in a referendum made farcical quested changes within a few months, and alist supporters espouse. Japan maintains 1
by a law which forbade campaigners from that the new text will not need to be put to
criticising the text. Yet on January 10th, a second referendum. But it has clearly
only weeks before the charter was due to been caught by surprise. It says it will first
come into force, the prime minister said his have to revise the interim charter which
government was tweaking the draft. Pray- has been in force since the coup. This docu-
uth Chan-ocha said changes were neces- ment allowed for the king to reject the draft
sary because King Vajiralongkorn, the constitution in its entirety but appeared
countrys constitutional monarch, had de- not to provide for the possibility that he
clined to give the document royal assent. might ask to strike out lines he did not like.
There is much to dislike about the pro- Some Thais worry that a lasting power
posed constitution, which will keep elect- struggle is brewing. Others see a minor
ed governments beholden to a senate spat over language, which will quickly be
nominated by the junta and to a suite of forgotten. Since the 1930s Thailand has
meddling committees. But Mr Prayuth says written and torn up 19 constitutions; hard-
the kings objections relate only to three ly anyone expects this effort to be the last.
or four articlesall of which appear to The one certainty is that the redrafting will
limit the sovereigns power slightly. The delay by several months the general elec-
generals say the palace has asked them to tion that was supposed to be held at the
amend a rule which requires the monarch end of this year. Mr Prayuth has implied
to nominate a regent when he leaves the that elections cannot now be held until
kingdom (probably because King Vajira- after King Vajiralongkorns coronation,
longkorn plans to spend much of the year which itself cannot take place until after
reigning from his residences in Germany). his fathers elaborate cremation, sched-
They also say they will revise an article uled for October. All this boots the long-
which makes the constitutional court the promised polls well into 2018. 7 Bronze of contention
 The Economist January 14th 2017 Asia 25

2 that the relocation of the statue outside its

Anti-Chinese protests
embassy was part of the deal, and that the
erection of the new statue in Busan vio-
lates its spirit. South Korea says that it Deep water
only agreed to ask civic groups to relocate
COLOMBO
the statue in Seoul.
Sri Lankans balk at ever-expanding Chinese investment
Japan has recalled its consul-general in
Busan, as well as its ambassador to Seoul,
and suspended negotiations over a
planned currency-swap agreement. Such
F OR generations, Priyantha Anandas
family sold kalu dodola sticky sweet
made of coconut milk and rice flouron
again. But some in the area have already
received notices of acquisition.
The size of the industrial zone is not
huffiness is not unusual: Japan also re- the old Tangalle road in Hambantota. The yet known. A government minister said
called its ambassador in 2012 after Lee government moved his wayside shop in the Chinese investors have requested
Myung-bak, the South Korean president of 2008 to build a sprawling commercial 15,000 acres. The prime minister says it
the day, visited an islet claimed by both port, financed by Chinese loans. He was will be 1,235. But even the smaller area
countries. Yet Japan, too, can be accused of one of around 40 street vendors forced to has not yet been demarcated: the govern-
violating the spirit of the deal. On Decem- relocate to another neighbourhood, far ments chief surveyor says public anger
ber 29th Tomomi Inada, its defence minis- from their homes, where business is forced his staff to stop work.
ter, visited the Yasukuni shrine in Tokyo, slow. Most distressing of all, the authori- The government accuses the opposi-
which commemorates the spirits of 2.5m ties have told them not to erect any per- tion, and in particular supporters of
Japanese war dead, including14 high-rank- manent buildings. That suggests they Mahinda Rajapaksa, a former president,
ing war criminals. The bronze statue in Bu- might be displaced again, this time for an of stoking discontent in Hambantota
san, which local authorities had removed industrial zone being developed by with talk of Chinese colonisation. That
two days before for obstructing a pave- Chinese investors. is especially ironic, since the develop-
ment, was allowed to be replaced the day Resentment at such schemes boiled ment of the port was begun under Mr
after Ms Inadas visit. over this week, when thousands demon- Rajapaksa, who was criticised at the time
Mr Abe doubtless worries that the deal strated at the inauguration of the indus- for signing uncompetitive contracts for its
will collapse: its other signatory, Park trial zone. As Ranil Wickremesinghe, the construction that lumbered Sri Lanka
Geun-hye, South Koreas deeply unpopu- prime minister, and Yi Xianliang, Chinas with heavy debts to the Chinese govern-
lar president, was impeached by parlia- ambassador, grinned for the cameras, ment. The new government plans to
ment last month. The constitutional court police beat back stone-throwing prot- grant a state-controlled Chinese firm
has yet to rule on her permanent removal. esters with tear gas and water cannons. called CMPort an 80% stake in a 99-year
But already presidential hopefuls are vy- The Chinese must not have any more lease of the port, for $1.2bna step it says
ing for votes before an expected early elec- land in Hambantota, insists Mr Ananda. is necessary to defray some of the debt. It
tionand the main opposition party, The sweet-seller says he will not move also maintains that the industrial park
whose likely candidate is in the lead, last will attract $5bn in investment and create
year threatened to ditch the sex-slave deal. 100,000 jobs.
South Koreas acting president, Hwang The signing of the lease on the port
Kyo-ahn, sensibly said this week that the has been postponed, however, after
settlement should be respected by all (34 of Arjuna Ranatunga, the ports and ship-
the 46 surviving comfort women had giv- ping minister, complained to Maithripala
en their approval). But he has scant politi- Sirisena, the current president, about
cal capital. A professor at Seoul National some of its clauses. One grants CMPort
University who advises the foreign minis- control over internal security; another
try says that no resolution will be found allows it to claim fees for navigation. Mr
until a new South Korean government is in Rajapaksa, who used to be the member
place. South Korean diplomats are hob- of parliament for Hambantota and still
bled by the lack of strong leadership; a wields considerable political influence, is
meeting between the leaders of South Ko- railing against giving the rights of the
rea, Japan and China was postponed last landlord over the industrial zone to a
month. Unlike Mr Abe, the besieged Ms foreign private company and raising
Parkwas unable to meet Donald Trump be- concerns about control and sovereign-
fore he takes office this month. ty. That is the height of hypocrisybut it
The strain on the ties between the two Sri Lankan water torture has clearly struck a nerve.
neighbours is all the more alarming at a
time when China is increasing pressure on
South Korea. It is miffed about the planned appears to be accelerating. Some now be- cost of keeping some 28,500 American
deployment this year on South Korean soil lieve it may manage to build a nuclear- troops stationed there (it currently pays
of an American anti-missile system called tipped missile that can reach America dur- about 40% of the total), or he would with-
THAAD (Terminal High-Altitude Area De- ing Mr Trumps presidency. draw them; he also suggested that South
fence). THAAD is intended to repel North Barack Obama, Americas outgoing Korea and Japan could develop their own
Korean attacks, but China says it could be president, put a lot of effort into getting nuclear weapons instead of relying on
used against it too. It appears to have South Korea and Japan to make up, in the Americas nuclear umbrella (he now de-
blocked imports of South Korean cosmet- hope of balancing Chinas rise and pre- nies having said that).
ics, barred Korean dramas and pop stars senting a united front to North Korea. Yet, An American retrenchment, if it materi-
from its screens and turned down a recent on the campaign trail at least, Mr Trump alises, would add to the unease the two
request by South Korean airlines for addi- has been a destabilising influence, says countries feel at Chinas rise and North Ko-
tional flights to China. Joint military events Scott Snyder of the Council on Foreign Re- reas belligerence. In such fraught times, re-
have also been cancelled. Even more wor- lations, a think-tank. Mr Trump said South kindling historic wrangles looks uncom-
ryingly, North Koreas nuclear programme Korea should contribute more towards the monly unwise. 7
26 Asia The Economist January 14th 2017

Banyan Still just saying no

As drug policies soften in the West, Asia remains wedded to prohibition

Singapores neighbours, Malaysia and Indonesia, also execute
drug offenders. Indonesias previous president, Susilo Bambang
Yudhoyono, reportedly disliked the death penalty, and imposed
an unofficial moratorium on executions from 2008 to 2013. Joko
Widodo, his successor, has no such qualms: since taking office in
2014 he has approved the execution of18 drug traffickers, and has
pledged to show no mercy to anyone in the business.
The Philippines ended capital punishment in 2006, but its
new president, Rodrigo Duterte, has found a workaround: killing
people without the bother of a trial. Since taking office six
months ago, more than 6,200 suspected drug dealers or users
have been killed in his anti-drug campaign. While his bloody
drug war has drawn criticism from human-rights activists in the
Philippines and abroad, it remains wildly popular among ordin-
ary Filipinos. The ten-member Association of South-East Asian
Nations is committed to eradicating drug use, processing and traf-
ficking by 2020an implausible goal, especially since the Golden
Triangle, the region where Laos, Myanmar and Thailand meet,
produces a hefty share of the worlds opium.
Harsh penalties for drug offences are common across Asia.
The sorts ofalternatives now favoured in the West, such as divert-

F OR the first few days, explains Aki, a young man who

helps run a drug rehabilitation centre on the outskirts of
Myitkyina, the capital of Kachin State, in northern Myanmar,
ing addicts to effective treatment programmes instead of trying
them and saddling them with criminal records, are virtually non-
existent. Several countries require drug offenders to enter reha-
some ofthem try to run away. So we have to keep them like this. bilitation programmes, but these are often like prison. Staff at re-
A young man, naked except for a tattered pair of shorts, lies prone hab centres in Vietnam have reportedly beaten inmates and
on a filthy mattress, one leg locked in a wooden device resem- forced them to toil in the fields; guards in Cambodia have report-
bling medieval stocks. He sweats and shakes, like many suffering edly raped female inmates.
heroin withdrawal. Dozens of other men mill around the clinic: a Asias harsh anti-drug policies are falling out of step with the
dimly lit, mattress-lined, hangar-like building reeking of sweat rest of the world. Marijuana for recreational use is now legal in
and foul breath. Beyond the back door is a much smaller, con- eight American states; 28 have legalised it for medical use. Dozens
crete-floored room with a wooden bath, a squat toilet and, next to of countries have decriminalised marijuana consumption. Her-
it, a tiny padlocked cell crammed with four painfully skinny men: oin is available on prescription in several European countries.
they, too, had tried to escape. The rich world increasingly treats addiction as an illness rather
The men receive no medication; treatment consists solely of than a crime.
herbal baths and Bible study (many Kachin are Baptist). For the These trends have Asias drug warriors worried. Last April the
first 15 days of their three-month stay, they receive no counselling UN General Assembly convened a special session on drugs. The
because, as Aki explains: They never tell the truth, because they previous time it did so, in 1998, it vowed to make the world drug-
are addicts. Akis boss, the Reverend Hsaw Lang Kaw Ye, takes an free by 2008. It later moved the target date back to 2019the year
equally dim view of his regions many opium farmers: he is part by which Canada now wants to set up a legal market for cannabis
of a citizens group that cuts down their crop. Asked if he provides for recreational use. At the UN meeting Mexicos president, En-
the farmers with any compensation, he scoffs: We dont give rique Pea Nieto, urged the world to move beyond prohibition.
them anything. We just destroy opium fields. Kasiviswanathan Shanmugam, Singapores fearsome law and
This attitude is typical of drug policy in much of Asia: need- home-affairs minister, was unmoved: Show us a model that
lessly severe and probably ineffective. According to Harm Reduc- works better, he told the general assembly, that delivers a better
tion International, a pressure group, at least 33 countries have outcome for citizens, and we will consider changing. If that can-
capital punishment on the books for drug offences, but only sev- not be done, then dont ask us to change.
en are known to have executed drug dealers since 2010. Five are in Mr Shanmugam has a point: in Singapore, drug consumption
Asia (the other two are Iran and Saudi Arabia). is admirably low. But Singapore is small, with secure borders, lit-
tle corruption, effective anti-drug education and laws that allow
Off with their heads warrantless searches and detention without trial. In poorer and
In Singapore, capital punishment is mandatory for people caught less well-run countries the consequences of prohibition have
with as little as 15 grams of pure heroin. The arrival cards foreign been depressingly predictable: prisons packed with low-level of-
visitors must fill in at Singaporean immigration posts warn, in red fenders, corruption and thriving black markets. Demand remains
block capitals: DEATH FOR DRUG TRAFFICKERS UNDER SIN- strong: between 2008 and 2013 the amount of methamphet-
GAPORE LAW. Singapore may kill fewer people than it used to amine seized in East Asia, South-East Asia and Oceania quadru-
between 1994 and 1999 no country executed more people relative pled. Eventually, Asia may reach the same conclusion as much of
to its populationbut its executioners are not idle: less than two America, Europe and Latin America: that the costs of prohibition
months ago a Nigerian and a Malaysian were hanged for traffick- outweigh the benefits. But for now, as Mr Dutertes popularity at-
ing cannabis and heroin respectively. tests, drug wars are good politics. 7
 The Economist January 14th 2017 27
China

Railways Also in this section

The lure of speed 28 Is all that infrastructure worth it?
30 Protesting against police brutality

SUZHOU, ANHUI PROVINCE

Bullet trains are reshaping Chinas economy. Will even more of them help?

T HESE are fields of hope, says Gu

Zhenan, gesturing at a barren scene.
A burly chain-smoker, he spent 25 years
tentative verdict is possible. In the densest
parts of China, high-speed rail has been a
boon: it is helping to create a deeply con-
commutes. Now, each of these three mega-
cities is developing commuter corridors.
Little wonder: house prices in satellite
overseeing road-building crews in central nected economy. But further inland, risks towns and cities tend to be much cheaper.
China. But three years ago, when he fin- are mounting of excessive investment. In Kunshan, for example, homes cost
ished paving a highway to a new high- In Chinas three big population cen- about 70% less than in nearby Shanghai.
speed railway station in this quiet corner tresthe areas around Beijing in the north, But the bullet train between the two cities
of Anhui province, he decided it was time Shanghai in the east and Guangzhou, the takes just 19 minutes and costs a mere 25
to switch industries. The land still looks capital of Guangdong province, in the yuan ($3.60). And Kunshan is just one of
empty, served by first-rate infrastructure southlife and work have started to follow many options for those seeking to escape
but home to few people and fewer busi- the sinews of the high-speed rail system. Shanghais high costs. There are now
nesses. Mr Gu, however, sees things differ- Trains were previously too infrequent, too about 75m people living within an hour of
ently: he expects a city to sprout up around slow and too crowded to allow for daily the city by high-speed rail. 1
the train station. In anticipation, he has
built an old-age home, with plans to ex- RUSSIA
pand it into a complex for 5,000 people. KAZAKHSTAN Hegang
Hulun Buir
To appreciate the extent of Chinas
high-speed rail ambitions, take Mr Gus
MONGOLIA
dreams and multiply them many times
over. Less than a decade ago China had yet Urumqi
to connect any of its cities by bullet train.
Beijing N. KOREA
Today, it has 20,000km (12,500 miles) of JAPAN
high-speed rail lines, more than the rest of
the world combined. It is planning to lay S. KOREA
another 15,000km by 2025 (see map). Just Suzhou
as astonishing is urban growth alongside (ANHUI)
C H I N A Nanjing
the tracks. At regular intervalsalmost Kunshan
wherever there are stations, even if seem- Shanghai
ingly in the middle of nowherethickets of High-speed Xiaogan Suzhou
railways in China (JIANGSU)
newly built offices and residential blocks Eight-by-eight East
rise from the ground. network BHUTAN
INDIA China
Chinas planners hope these will be Operational Sea
Planned
like the railway towns that sprouted (at a Other important
BANGLA- Kunming GUIZHOU TAIWAN PACIFIC
slower pace) in America and Britain in the city/regional
DESH
Operational OCEAN
19th century. In their rush to build, waste is Planned
inevitable. The question is whether gains Sources: National Hong Kong
MYANMAR VIETNAM
Development and Guangzhou
will outweigh losses. Five years after the Reform Commission;
LAOS South China
busiest bullet trains started running (the National Railway
THAI-
Administration Sea PHILIPPINES 750 km
Beijing-Shanghai line opened in 2011), a LAND
28 China The Economist January 14th 2017

2 Surveys show that more than half of Shanghai says the government should
passengers on the busiest lines are gener- turn isolated stations into transportation
ated trafficthat is, people making trips hubs by adding new rail connections to
that they would not have made before. other nearby places. That, though, would
This is unquestionably good for the econ- be another big expense.
omy. It means the trains are expanding the Dangers are all too visible in the city of
pool of labour and consumers around Chi- Suzhou in Anhui province (not to be con-
nas most productive cities, while pushing fused with the successful example of Su-
investment and technology to poorer zhou in Jiangsu). Its station is 45km from
ones. Xu Xiangshang, a dapper business- the city centre in the barren landscape
man, oversees sales of apartments built where Mr Gu lives in hope. The govern-
next to high-speed railway stations in less ment thought it would sparkdevelopment.
well-off parts of Anhui. These are less than It paved eight-lane roads to serve a vast in-
half an hour from Nanjing, a prosperous dustrial park on one side of the station. In-
city of8m that is the capital ofJiangsu prov- vestors built clothing, food and pharma-
ince. Bullet trains are becoming just like ceutical factories. But all are closed, except
buses, he says. for a paper mill. Undeterred, the govern-
The economic benefits are hard to mea- ment is building a commercial district on
sure precisely. Traditional analyses focus the other side of the station.
on the financial performance of high- Xi makes the trains run on time Nearby, Mr Gus old-age home is off to a
speed rail lines, plus indirect results such as good start, with help from a local hospital.
reduced road congestion (see next story). worlds most profitable bullet train, pulling Down the road there is a drab collection of
But bullet trains are more than just a mode in 6.6bn yuan last year. But in less populat- stores, restaurants and houses. This was
of transport. China wants to build a high- ed areas, they are making big losses. A meant to be the kernel of the new railway
speed rail economy. It is a twist on the the- state-run magazine said the line between town: people were resettled here to make
ory of urban agglomerationthe idea that Guangzhou and the province of Guizhou way for the tracks. Two older residents say
the bigger the city, the wealthier and more owes 3bn yuan per year in interest pay- they are sure that better days are just
productive its people tend to be. The idea is mentsthree times more than it makes around the corner. They have heard that
to cap the size of mega-cities, but achieve from ticket sales. the government will move in 100,000 peo-
the agglomeration effect with the help of Many had thought China would rein in ple from a part of western China plagued
bullet trains. China reckons that the result- its ambitions after the fall of Liu Zhijun, a by landslides. Suzhou will provide the
ing network of large, but not oversize, cities railway minister who was once revered as new arrivals with a place to live and they,
will be easier to manage. The World Bank, the father of the bullet-train system. In 2011 in turn, will provide the town with the
for one, is optimistic. In a report published he was removed for corruption. Shortly population it needs to thrive. But it is im-
in 2014 it said the benefits ofhigh-speed rail after, a high-speed rail crash caused by a possible to confirm the rumourone more
would be very substantial, potentially signalling failure killed 40 people. The article of hope in what China likes to call
boosting the productivity of businesses in mighty railway ministry was disbanded its high-speed rail dream. 7
Chinas coastal regions by 10%. and folded into the transport ministry. Chi-
na slowed its fastest trains down from a
Not all are aboard world-beating 350kph to a safer 300kph. Infrastructure
But might regular, reliable, fast-enough The bullet trains have run with few glitch-
trains around big cities have been almost
as good as high-speed rail, at a fraction of
es since the tragic crash.
But the network expansion now under
Hunting white
the price? The OECD, a rich-country think-
tank, reckons it costs 90% more to build
way is even bolder than Mr Liu had envis-
aged. China has a four-by-four grid at pre-
elephants
lines for trains that reach 350kph than it sent: four big north-south and east-west
HONG KONG
does to lay ones that allow speeds of lines. Its new plan is to construct an eight-
Chinas mega-projects are less wasteful
250kph. For longer lines with more than by-eight grid by 2035. The ultimate goal is
than you think
100m passengers a year and travel times of to have 45,000km of high-speed track.
five hours or lesssuch as the one between
Beijing and Shanghaithe more expensive
type may be justifiable.
Zhao Jian of Beijing Jiaotong University,
who has long criticised the high-speed
push, reckons that only 5,000km of this
C HINA is proud of its infrastructure: its
cavernous airports, snaking bridges,
wide roads, speedy railways and great
It is less so for journeys between com- will be in areas with enough people to jus- wall. This national backbone (minus the
muter towns, during which trains only tify the cost. With each new line, the wall) bears the weight of the worlds sec-
briefly accelerate to top speeds. For longer losses will get bigger, he says. ond-largest economy and its biggest hu-
journeys serving sparse populationsa de- Making matters worse, China has often man migration, as hundreds of millions of
scription that fits many of the lines in west- placed railway stations far from city cen- people move around the country during
ern and northern Chinahigh-speed rail is tres. Bigger cities should eventually grow the lunar new-year holidaysthe rush offi-
prohibitively expensive. around their stations, but suburban loca- cially begins on January 13th.
The overall bill is already high. China tions will not produce the same economic Western leaders often shake their
Railway Corporation, the state-owned op- dividends as central locations. In smaller heads in disbelief at the sums China
erator of the train system, has debts of cities, prospects are even bleaker. In Xiao- spends on its huge projects. And some an-
more than 4trn yuan, equal to about 6% of gan in Hubei province, the station was alysts question how much of it has been
GDP. Strains were evident last year when built 100km from the city. The decision to wisely spent. In a widely circulated study
China Railway Materials, an equipment- base stations so far away reflects the reali- published last autumn, Atif Ansar of Ox-
maker, was forced to restructure part of its ties of high-speed rail: for trains to run fast, ford Universitys Sad Business School and
debts. Six lines have started to make oper- tracks need to be straight. But that limits his co-authors say the worlds awe and
ating profits (ie, not counting construction potential gains from lines as they traverse envy is misplaced. More than half of Chi-
costs), with the Beijing-Shanghai link the China. Wang Lan of Tongji University in nas infrastructure projects have de- 1
30 China The Economist January 14th 2017

2 stroyed economic value, they reckon. If the ratio is assumed to be 3, the propor- to being bullied by the police. Most victims
Their verdict is based on 65 road and rail tion of duds falls to just 8%. are poor and cannot fight back. Mr Lei,
projects backed by the Asian Development The authors also assume that any traffic however, was well-educated and worked
Bank (ADB) or the World Bank since the shortfall persists throughout its life. That is at a state-linked think-tank.
mid-1980s. Thanks to the banks involve- not always the case. Traffic on Yuan-Mo, for Relatives challenged the official version
ment, these projects are well documented. example, has rebounded, according to the of events. They said that his bloodied,
One example is a 147-km, four-lane toll roads operator. By 2015 it was 31% higher bruised body suggested he had suffered
road in southern Yunnan province, which than the ADB projected back in 1999. something other than a heart attack. They
was built with the help of an ADB loan ap- Around last years lunar new-year holiday insisted Mr Lei was going to the airport, not
proved in 1999. The ADB expected the the road handled record numbers. Some a brothel. A high-profile lawyer sought le-
Yuanjiang-Mohei highway (Yuan-Mo for white elephants turn grey with age. 7 gal action against the five officers on behalf
short) to cut travel times, reduce traffic acci- of the family. We want our most basic
dents and lower the costs of fuelling and rights to personal safety, civil rights and ur-
repairing vehicles, adding up to a compel- Public opinion ban order, former classmates of Mr Lei at
ling economic return of 17.4% a year. By the prestigious Renmin University in Bei-
2004, however, traffic was 49% below pro-
jections and costs were more than 20%
Once upon a crime jing wrote in a petition. They said his death
was a tragedy arising from the system.
over budget, thanks to unforgiving terrain The government took its familiar steps
prone to landslides. to quell the outcry. President Xi Jinping
Were such setbacks enough to damn said the police should behave better, a
BEIJING
over half of the projects they examined? As comment that Peoples Daily, a Communist
Public anger over a death in police
a rule, the ADB and World Bank will ap- Party mouthpiece, directly linked to Mr
custody refuses to subside
prove an undertaking only if they expect Leis case. An autopsy in June corrected the
its broad benefits (the economic gains from
reduced travel times, fewer accidents, etc)
to exceed its costs by a large margin, leav-
T HE Chinese Communist Party has a
formula for responding to crises. In the
Mao era it buried unpalatable news. That is
cause of death to choking. The police in-
volved were put under investigation. And
censorship was stepped up: online search-
ing ample room for error. Mr Ansar and his harder to pull off when smartphones and es for Mr Leis name were blocked.
co-authors assume this margin is 40%: they social media provide a steady flow of reve- But anger grew again in December
posit a ratio of expected benefits to costs of lations about schools built on toxic soil, when prosecutors dropped charges against
1.4 for every project. They scoured the tainted foodstuffs, poorly stored vaccines the police. They said inappropriate pro-
banks review documents for examples of and other scandals. Instead the govern- fessional conduct by the officers had
cost overruns and traffic shortfalls. Given ment tries to manage public sentiment. It caused his death, but the wrongdoing was
these assumptions, a project becomes un- releases some information, raises ques- minor (Mr Lei, after all, had resisted ar-
viable if costs overrun by more than 40%, tions and very often launches an investiga- rest). The family acquiesced, citing exhaus-
traffic undershoots by 29%, or some combi- tion. Later, a senior official makes a pro- tion and great pressure. Mr Leis remains
nation of the two. Of the 65 projects, 55% nouncement on the issue and a few people were cremated on January 6th.
fell into this category. Yuan-Mo was one. are fired. But in most cases almost nothing But the public continues to fume, circu-
These projects may not be representa- is done to fix the underlying problem. So- lating petitions and online articles decry-
tive of Chinas infrastructure-building as a phisticated censorship prevents follow-up ing the verdict. The decision not to press
whole. But there is little reason to think reports; public anger fades. charges was extremely evil, one micro-
they are unusually bad. They are often One recent scandal, however, has re- blogger wrote. Another said that even if Mr
managed with greater rigour, thanks to the fused to die. Last May a 29-year-old envi- Lei had hired a prostitute, he would have
involvement of outside lenders. ronmental scientist, Lei Yang, died in po- been right to run away because the penalty
The authors conclusion, however, rests lice custody in Beijing. Officers said he had for such an offence was so highsteal a
on their assumption about the margin for a heart attack after being arrested for solic- dog and get your hand cut off, as the au-
error built into the projects they looked at. iting a prostitute. Chinese people are used thor put it. Mr Leis case was widely touted
Take Yuan-Mo, for example. Its projected as evidence that the rule of law, which Mr
benefits, over its first 20 years of operation, Xi says he wants, has yet to materialise.
were several times greater than its costs. State media, however, have dismissed
But as often with roads, the costs arrive ear- such complaints as sensationalism and ru-
ly; the benefits are spread thinly over many mour-mongering. The clamour spooks the
years. In the time it takes for an investment government, which is keen to keep the
to pay off, the resources used could have middle class onside. Particularly chilling
been earning a return elsewhere. So it is for the authorities is the involvement of
necessary to reduce the future payoffs by graduates of Renmin University, who have
some annual percentage, known as a dis- kept up their efforts to draw public atten-
count rate. The higher this is, the lower the tion to the case. Thousands of them belong
value placed today on tomorrows gains. to discussion groups on WeChat, a popular
So a lot turns on what rate is chosen. For social-media service. The party has been
historical reasons, the ADB adopts a high terrified of student-led movements since it
one of 12%. At that rate, Yuan-Mos ratio of crushed pro-democracy protests in Tian-
expected benefits to costs equals 1.5, anmen Square and elsewhere in 1989. It
roughly in line with the authors assump- has now shut down many of these online
tions. But at a gentler rate of 9%, the ratio conversations. In the days after the deci-
improves to about 2. At a rate of 5.3% (more sion not to charge the officers, censorship
in line with government borrowing costs) on Weibo, a microblogging site, rose to a
the ratio rises to 3. With these higher mar- three-month high, according to Weibo-
gins for error, many fewer elephants turn scope, which tracks such things. The
white. At a ratio of 2, the share falls to 28%. partys old habits die hard. 7
 The Economist January 14th 2017 33
United States
Also in this section
34 Spies and the presidency
35 Conflicts of interest
35 Last of the Shakers
36 Jeff Sessions, attorney-general
37 Obamas monumental legacy
38 Lexington: How to use superpowers

For daily analysis and debate on America, visit

Economist.com/unitedstates
Economist.com/blogs/democracyinamerica

Donald Trump and his critics lieved Russia was behind the hackingbut,
he added, it could have been others also.
Where theres brass Mr Trump has made his reputation by
stirring conflict. It was his damn-your-eyes
style, as much as any policy proposal, that
chimed with the anti-establishment senti-
ment of his keenest supporters. This was
not only posturing; he appears to view life,
WASHINGTON, DC
whether in business, politics or trade nego-
The president-elect against the muckrakers
tiations, as a series of fights from which

N INE days before Donald Trumps inau-

guration as the 45th president, it was
as if he was still fighting for election. In a
separately online, he claimed that he was
too canny to misbehave, as had been lurid-
ly alleged, in a foreign hotel room. In
only the winner emerges with credit. His
victory, naturally, has not changed that.
Asked to justify his claim that Americans
press conference on January 11th, his first those rooms, you have cameras in the are not bothered by his, highly irregular, re-
for six months, Mr Trump was as thin- strangest places, cameras that are so small fusal to release his tax returns, despite poll-
skinned, loose-lipped and scrappy as he with modern technology. Anyway, he ing to suggest that they are bothered, Mr
has ever been. He taunted his rivals and added, Im also very much a germa- Trump replied simply: I won. Beneath
critics, real and suspected; he compared phobe. Whether the allegations, which the bluster, however, he has offered hints
Americas intelligence agencies to Ger- had been circulating among journalists, of greater pragmatism.
manys Nazi regime. He bragged contin- should have been attached to the intelli- For example, he maintains that he will
ually (Nobody has ever had crowds like gence briefing is hard to say. The agencies honour his signature campaign promise, to
Trump has had), scrambling the fact- apparently considered the British source build a wall along Americas southern bor-
checkers of media outlets, some of whom credible; though one or two of its milder der, and make Mexico carry the cost. But he
he also decried. He called CNN a pedlar of claims were swiftly disproved. suggests that will not be in terms of pay-
fake news. Mr Trumps fans said they Mr Trumps fulminating against CNN ment. Perhaps he has in mind the pro-
wanted a different kind of leader. America was part of a pattern. Journalists can ex- ceeds of another campaign promise, to
is about to get one. pect to be lambasted by the next president levy a major border tax on these compa-
That Mr Trump seemed exercised was whenever their reports displease him. In nies that are leaving. In the absence of fur-
understandable. The previous day CNN re- the past few weeks, he has gone after ther details, Republican congressmen will
ported that the agencies had attached a Americas spies, rubbishing the agencies hope this turns out to be less protectionist
summary of some unsubstantiated allega- conclusion that Russian hackers worked to than it sounds. Some are lobbying Mr
tions about the president-elect to an intelli- hurt Hillary Clintons chances and boost Trumps team to consider a possible alter-
gence briefing on Russian hacking, which his, during the election. He also ques- native arrangement to tariffs, known as
they delivered to Barack Obama and him. tioned the spooks credibility: These are border adjustment, designed to incentivise
Among the allegations, which were report- the same people who said Saddam Hus- exports. It would involve firms losing the
edly furnished by a British intelligence sein had weapons of mass destruction. right to deduct the cost of imports from
company working for opponents of Mr It never looked wise for Mr Trump to their taxable profits; at the same time, they
Trump, were claims that the Russians held lambast proud institutions he will soon would no longer be taxed on foreign earn-
compromising financial and personal in- preside over. The same could be said of his ings. It is possible to imagine Mr Trump ear-
formation about him, and that members attacks on judges, generals and environ- marking Mexico-related revenues from
of his campaign team had been in contact mental regulators. It is tempting to see border adjustment to pay for whatever
with Russian officials. CNNs leaked story as an early sign of the wall, or fence, he ended up building.
Mr Trump denounced the claims. Un- backlash such attacks have invited. In his To the consternation of some Republi-
able to refrain from addressing some of press conference, he was more concilia- can hardliners, he has also weighed in on
their spicier details, which were published tory. He said for the first time that he be- their efforts to scrap Mr Obamas health- 1
34 United States The Economist January 14th 2017

2 care reform. As The Economist went to fact passed off fairly smoothly. A hardliner eign-policy advisers have received a six- to-
press, Republicans in the Senate were ex- on criminal justice and immigration, eight-page daily brief (known as the PDB or
pected to pass a budget plan that would al- dogged by historic allegations of racism, the daily book of secrets), now put to-
low them to evade the filibuster and start Mr Sessions was treated pretty gently by gether by the director of national intelli-
dismantling Obamacare. Mr Trump says his fellow senators. The putative next sec- gences office but drawing on all Americas
he wants it repealed pronto. But to min- retary ofstate, Rex Tillerson, former boss of vast intelligence resources. According to
imise the disruption this would cause, he Exxon Mobil, got tougher questions, espe- David Priess, a former senior CIA presiden-
also says the reform must be replaced by cially over his former closeness to the Rus- tial briefer who has written a history of the
an alternative arrangement essentially si- sian government. Mr Tillerson appeared to PDB, at its best it provides presidents with
multaneously. That is sensible, even if the struggle over Exxons past lobbying against unique insights into foreign leaders think-
time-frame is unrealistic; neither Mr possible sanctions on Russia and when ing and emerging threats.
Trump nor his party has settled on an alter- asked to condemn President Vladimir Pu- The only president who declined to re-
native to Obamacare. The issue may prove tin as a war criminal. ceive the PDB was Richard Nixon, who be-
to be the first test of the accommodation This was a reminder that concerns lieved (without any evidence) that the sup-
Republican congressmen have made with about Mr Trumps strange fondness for Mr posedly liberal-leaning CIA had sabotaged
a leader few supported in the primary. Putin go beyond salacious, unverified alle- his 1960 election campaign by providing
There was also potential for discord gations. It is not clear why the next presi- exaggerated estimates of a missile gap
over the Senate confirmation hearings that dent seems reluctant to condemn Mr Pu- with the Soviet Union that Kennedy was
took place this week for several of Mr tins excesses or fully accept the conclusion able to exploit. But unlike Mr Trump, after
Trumps cabinet picks. One of the most ea- on Russian hacking reached by Americas eight years as vice-president Nixon was a
gerly-awaited, for Senator Jeff Sessions, in own spy agencies. That is troubling. 7 genuine foreign-policy expert. As Mr Priess
points out, he also had the formidable
Henry Kissinger as his NSA. Mr Trump has
Intelligence agencies and the presidency already suggested that he will not want to
see the PDB every day.
Burn before reading General Michael Hayden, a former di-
rector of the National Security Agency and
George W. Bushs last director of the CIA,
says that intelligence briefers have the
same challenge with any new president:
Theres the fact [intel] guy and the vision
guy; ones a pessimist, the others an opti-
Donald Trump may dispense with intelligence that other presidents have relied on
mist. The intel guy has to find a way to get

T HE meeting on January 6th between

Donald Trump and Americas four
most senior intelligence officials was never
into the head of the president while not
forgetting what got him into office. How-
ever, Mr Hayden admits that Mr Trump
going to be easy. For months, Mr Trump represents that challenge in a particularly
had poured scorn on the conclusion of extreme form.
Americas intelligence agencies that Russia Mr Hayden wonders whether some-
had launched a hacking operation aimed one who has so much confidence in his in-
at subverting the presidential election. Mr stincts and doesnt read much will take on
Trump was even more miffed by the recent board what the spies are telling him. His
allegation that the hacking had been in- advice for the new head of the CIA, Mike
tended to secure his victory. Although no Pompeo, is that his people cannot allow
view had been expressed by the intelli- this to affect their work. He believes that
gence agencies as to whether the Kremlins the way to break in will be through the
efforts had affected the outcome of the vice-president-elect, Mike Pence. The PDB
election, Mr Trump suspected a ploy to un- will also go to Generals Jim Mattis at the
dermine his legitimacy. Worse still, the Pentagon and John Kelly at Homeland Se-
agency heads had also decided to apprise curity, both of whom know how to absorb
Mr Trump of serious but unsubstantiated intelligence (he thinks the same should be
allegations that Russia had compromising true of Rex Tillerson, the former boss of Ex-
material on the president-elect and on Rus- xon Mobil, who has been nominated to be
sian contacts with his campaign team. secretary of state).
Unhelpfully, Mr Trumps choice of na- Circle of trust The intelligence agencies will do their
tional security adviser (NSA), Lieutenant- best to adapt to a Trump presidency. But
General Mike Flynn, was fired from his job gence agencies, particularly over Islamist the chances of finding a workable compro-
as head of the Pentagons Defence Intelli- extremism, which he felt they were under- mise with the new president are not
gence Agency (DIA) by one of the spy playing. He had a point, but in the two helped by the presence of Mr Flynn, who
chiefs in the room, Lieutenant-General years after leaving the DIA his views have sees himself as a provocateur rather than
James Clapper, the director of national in- become stridently Islamophobic. Another someone like Brent Scowcroft or Stephen
telligence, and had entered into a losing hobby horse, not shared by many other in- Hadley (two NSAs under Republican presi-
turf war with another, John Brennan, the telligence officers, is that Russia can be an dents) who viewed their job as making ev-
director of the CIA. Mr Flynn had been a re- ally in restraining Iran and fighting jiha- ery element of the foreign policy and na-
spected intelligence officer, helping special dists. Given this history, Mr Flynn is not the tional security machine hum on behalf of
forces in Iraq and Afghanistan. But once person to ease his masters suspicions of the president. As one person who knows
picked by Mr Clapper to gee up the 16,000- Americas spooks. and used to admire Mr Flynn puts it: You
strong DIA bureaucracy, he struggled as a Since the time of John F. Kennedy, presi- might not want him to be the one shooting
manager and clashed with other intelli- dents and their closest defence and for- pool with this president. 7
 The Economist January 14th 2017 United States 35

Conflicts of interest
Shakers
Two out of four Not too shaken
SABBATHDAY LAKE, MAINE
The death of one of the last Shakers may not mean the communitys demise
NEW YORK
Mr Trumps new plan to put his firm at
arms length doesnt go far enough
I M GLAD I am aShaker, sang some
300 people in the chapel of the
dwelling house of the last active Shaker

T HE president-elects press conference

on January 11th touched on fake news,
the F-35 combat jet, beautiful military
settlement in the world. They clapped
and stamped their feet on the wooden
oors during the hymns chorus. O
bands, the incredible smallness of hidden Brethren Aint Ye Happy? is an old Shak-
cameras in hotel rooms, Jack Ma, a Chinese er song and one of the few motion
tycoon, the Miss Universe contest, a very, songs still in theShakers repertoire.But
very, very amazing property developer in only two people in the packed chapel
Dubai, and Rhona, his personal assistant, were actual Shakers. The rest had come
among other things. Buried in there was to the Sabbathday Lake, a Shaker village
also Donald Trumps proposal to deal with about 25 miles from Portland, Maine, to
a problem that could ruin his presidency: say goodbye to Sister Frances Carr (pic-
the potential for conicts of interest be- tured), the last lifelong Shaker, who died
tween his business interests and his public on January 2nd. But since the two re-
oce. Unfortunately, Mr Trumps new maining Shakers, Brother Arnold Hadd
plan only gets half marks. and Sister June Carpenter, are aged 60
Under a quirk in American law the and 78 respectively, some wondered
president is exempt from the normal rules aloud whether this was a prelude to a
that police politicians conicts. Mr funeral for the entire sect.
Trumps sternest critics argue that the only At their height in the mid-19th century, Frances Carr, last in a long line
remedy is for him to sell the Trump Organi- Shakers numbered about 6,000, with 19
sation, a mediocre, medium-sized proper- settlements, mainly in New England, well-made simple furniture. Shakers
ty rm whose commercial clout is exagger- New York and Kentucky. An oshoot of dress plainly and might be mistaken for
ated by both Mr Trump and his enemies. Quakers, the Shakers began in England in Amish, but they do not shun society.
But that is both impractical and unfair. A the 1740s. Seeking religious freedom, they Since the sects earliest days, members
full disposal or initial public oering of a left for the colonies on the eve of the sold goods to outsiders and shared oxen
portfolio worth some $4bn could take a American Revolution. Their rise coincid- and other equipment. They also like
year or more. And it does not seem reason- ed with a religious fervour sweeping the technology: the Sabbathday Lake Shak-
able that entrepreneurs involved in public frontier. Decades before emancipation ers are on Facebook.
life should have to liquidate their business. and 150 years before women had the In Sabbathday Lake as in other former
Instead, Mr Trump needs to show that he vote, Shakers practised social, gender and Shaker villages, Friends of the Shakers
has put his rm at arms length. racial equality for all members. raise money to preserve archives and
To be convincing there are four tests Shakers believe in the three Cs, buildings. Many Friends attend Sunday
that any plan has to meet. First, Mr Trumps celibacy, communal living and confes- services, but few opt to join the faith.
business interests need to be gathered into sion. They do not marry, so must rely on Presumably they will want to continue
one holding company. At the moment the conversion to ll their ranks. Men and worshipping even after the last Shaker is
Trump Disorganisation would be an accu- women live as brothers and sisters. Re- gone. In the meantime, the Shakers con-
rate name for his activities, which sprawl cruits must give up their families, proper- tinue to look for recruits. Over the past 40
over about 500 legal entities, most of them ty and worldly ties. Stephen Stein, author years, a few dozen have joined, but only
zombies and most held by him directly. of The Shaker Experience in America a handful stayed. A decade ago there was
The proposal passes this rst test: by Janu- compares them to a monastic group. In a fourth Shaker at Sabbathday Lake, but
ary 20th, his lawyers promise, all his assets many ways theirs is an American creed. he left when he fell in love with a visiting
will be folded into a single trust. Shakers value hard work, seeing labour journalist. More recently, a young man
The second test is that the Trump Orga- as a form of prayer. They strive for perfec- joined, but left after a year. The Shakers
nisation should stop seeking out new in- tion, which earned them a reputation for pray for new movers.
vestments and instead run its existing op-
erations as cash cows and distribute any
prots. Here the plan only gets half-marks. knowledge of what is happening and thus cians can run companies without raising
Mr Trump has ruled out new foreign in- make conicts less likely. Its a silly argu- ethical problems. But Mr Trumps two sons
vestments. New deals at home will be sub- ment: Mr Trump is already intimately fa- were closely involved in his political cam-
ject to severe restrictions and vetted by miliar with his own rm. Much better to paign and have established no separate
ethics experts, but not banned. put everything out in the open. business identities or serious credentials
Third, the business must be transparent Lastly, to be at arms length from the of their own. They arent independent of
to the public. It should publish consolidat- presidency, the business would need to be him. So the plan fails the fourth test.
ed accounts that reveal its operations and run by an independent board and manage- Perhaps Mr Trump and his lawyers will
nances in detail. Again, the plan scores ment. Under the proposals Mr Trumps el- further improve the plan. If they dont Mr
only half marks, here. Mr Trumps lawyers dest sons, Donald junior and Eric, will run Trump may nd that his presidency is
say it will publish only simplied nancial the rm, along with Allen Weisselberg, a dogged by allegations of corruption. They
statements. Their logic is that this will pre- long-standing Trump executive. There are have until January 20th to come up with
vent Mr Trump from having detailed circumstances in which relatives of politi- something a bit better. 7
36 United States The Economist January 14th 2017

Jeff Sessions approach could create a perception among

police that there is no oversight, embold-
Past and prologue ening miscreants and in turn heightening
tensions between officers and minorities.
A long career can be hard to assess de-
finitively not only because norms evolve
and memories fade, but since it is liable to
be complex, even contradictory. On the ra-
ATLANTA
cially charged question of criminal justice,
The nominee for attorney-general has some troubling ideas about justice
for example, Mr Sessionss record has

S OME were on the right side from the be-

ginning. Other white southern gentle-
men of Jeff Sessionss vintagethe incom-
mission, as a young man at a segregated
school and then a Methodist college, he
was no civil-rights hero; rather, as Mr Flynt
wrinkles. He pushed to reduce the dispari-
ty in punishments for crack and powder
cocaine offences. On the other hand, he re-
ing attorney-general is 70changed their puts it, he moved with the culture, in sisted reforms embraced by most Republi-
views on race and society after moments which overt racism was declining. How to cans, cleaving to mandatory minimum
of epiphany. Still others made crab-like ac- judge this history, and the statute of limita- sentences. His views on drugs are omi-
commodations with reality, considering tions on old mistakes, might seem moot nously antiquated. Good people dont
themselves free from prejudice on the debatesexcept, say Mr Sessionss critics, smoke marijuana, he said last year.
grounds that they opposed its violent man- these episodes are connected to his latter-
ifestations. Where Mr Sessions belongs on day policy views, together casting doubt Throw away the key
this spectrum of conscience was an implic- on his ability to do his new job fairly. At the committee he tweaked his prior
it theme of his confirmation hearing this Take voting rights. He spoke this week stance on waterboarding, which he now
week before the Senate Judiciary Commit- of upholding the integrity of the electoral accepts is illegal. In the classic manner of
tee. Given the powers of his new office, it is process, again raising wildly overblown those who prefer a small state except when
more than an arcane question. fears of fraudulent voting and justifying they like it big, he had previously rebutted
His career in public service began in voter-ID laws, some of which federal criticism of interrogation techniques, as
Mobile, Alabamaas, in a sense, did Do- judges have found discriminatory. Under well as favouring broad powers of elec-
nald Trumps campaign, at an encourag- Barack Obama, the Department of Justice tronic surveillance. (Likewise he approves
ingly big rally that Mr Sessions attended. has helped to bring complaints against of civil asset forfeiture, whereby property
His long spell as a federal attorney there, such laws, in particular after the Supreme allegedly linked to crime can be seized.) At
before a short one as the states attorney- Court neutralised the bit of the Voting least on immigration, the issue that
general, also gave rise to allegations that Rights Act that required some states (in- brought him and Mr Trump together, he is
derailed his nomination to a federal judge- cluding Alabama) to clear new voting rules consistent. He has opposed reform, as well
ship in 1986. Then the judiciary commit- in advance. Mr Sessions applauded that as executive actions that forestalled some
teeon which, as senator, he later sat damaging judgment; how keenly he will deportations. Now, after his confirmation,
heard accounts of racially insensitive com- defend voting rights is unclear. So is the he is set to oversee the immigration courts.
ments, such as a disparaging reference to strength of his commitment to gay rights, Mr Sessionss mantra was that the law
the NAACP, a joke about the Ku Klux Klan given his opposition to extending various was sacrosanct even if he disagreed with it,
and an accusation that he addressed a legal protections on the basis of sexuality. as he does on issues such as abortion and
black underling as boy. A crux then, re- Next, policing. The outgoing adminis- same-sex marriage. In that vein he repudi-
visited this week, was a trial in 1985 in tration has investigated and enforced re- ated not only waterboarding but an out-
which Mr Sessions oversaw the prosecu- form in police departments such as Fergu- right ban on Muslim immigration, another
tion for vote-tampering of three civil-rights son, Missouris, which have forfeited the of the president-elects erstwhile notions.
activists, one a former associate of Martin trust of their communities. Mr Sessions He also said he would recuse himself from
Luther King, a case seen by some as a selec- has voiced scepticism about that process any decisions on investigating Hillary
tive bid to intimidate black voters. and might curtail it; he worried this week Clinton. This country does not punish its
Damnably false charges, Mr Sessions that police officers have been unfairly ma- political enemies, he averred. Those who
insisted. I abhor the Klan, he protested, ligned. Inimai Chettiar of the Brennan think him a threat to Americas rights and
invoking his role in the capital conviction Centre for Justice predicts that a hands-off freedoms may not be entirely reassured. 7
ofa Klansman for a murder in 1981. In a sub-
mission to the committee he also highlight-
ed cases he pursued involving voting rights
and school desegregation. (In a tetchy ex-
change, Senator Al Franken quoted law-
yers who say Mr Sessions exaggerated his
part in some of those.) Old friends in Mo-
bile, where he still lives, vouch for his fair-
mindedness. Charles Hale, his pastor, has
never seen one iota of racial prejudice,
adding that Mr Sessions and his wife have
humble hearts and modest tastes: they
live by their faith. I dont believe any-
thing they have accused him of, says Billy
Bedsole, in whose law practice Mr Ses-
sions worked for two stints.
Wayne Flynt, a historian, suggests Mr
Sessionss outlook on race should be
judged less on contested remarks than by
his actions, or lack of them. By his own ad- A change is going to come
 The Economist January 14th 2017 United States 37

The designations might not stick. A

president has not rescinded a previous
presidents monument designation since
the Antiquities Act was introduced. An at-
torney-generals opinion from 1938 sug-
gests doing so might be legally thorny. But
no law clearly prohibits such an action. Mr
Trump has vowed to reverse all of his pre-
decessors executive orders on his first day
in office; Jason Chaffetz and Rob Bishop,
two of Utahs congressmen, hope that in-
cludes Mr Obamas midnight monu-
ment proclamations.
The two collaborated on legislation last
year that aimed to balance conservation
and development in the Bears Ears area.
(The bill failed to pass before Congress ad-
journed for the winter holidays.) The
National parks president elected to do what the radical en-
vironmentalists wanted him to do without
An Ear-full taking into consideration economic devel-
opment, energy development and all the
things that should have been taken into
consideration, Mr Chaffetz complains. If
Mr Trump does not reverse it, he and Mr
BEARS EARS, UTAH, AND GOLD BUTTE, NEVADA
Bishop plan to push for a legislative rever-
Conservationists are delighted by President Obamas two new monument
sal. The transfer of federal lands to state
designations. Conservatives are irate
hands was included in the Republican

E TCHED into the sandstone of Newspa-

per Rock in Gold Butte, Nevadaan
area of vividly coloured desert punctuated
Monumental
US, Net area of national monuments created
Partys platform at last Julys convention.
Congressional rules passed on January
3rd, the first day of the Houses new ses-
by Joshua trees and sublime rock forma- By president, top five, acres m* Obama sion, included a provision drawn up by Mr
2009-17
tionsare more than 650 depictions of tor- G.W. Bush Bishop that will make such transfers easier
Carter Clinton 2001-09
toises, feet and cradleboards chiselled by F.D. by assuming they would have no impact
Roosevelt 1977-81 1993-
native Americans as long as 2,000 years 1933-45 2001 on the federal budget.
ago. On December 28th, Barack Obama 56.0 218.8 553.5 Those who think the federal govern-
2.9 5.6
designated Gold Butte as a national monu- ment should remain in charge fear state
ment, using the Antiquities Act of1906. The Source: National Parks ownership would result in reduced public
Conservation Association
same day he also granted the same status *Includes marine areas and resizing of existing monuments
access for activities such as hiking, hunting
to Bears Ears in south-eastern Utah. During and fishing, or that land would be flogged
his eight years as president, Mr Obama has to private buyers. It is expensive and com-
designated 553m acres as national monu- American tribes for whom the area is sa- plicated to manage; federal-land advocates
mentsmore than twice as much as any cred. The tribes have occupied the land for worry that states might acquire land only
other president. centuriesmany Navajos sought refuge to be forced to sell it to balance their bud-
Gold Butte, where he set aside 300,000 there to avoid the guns of Kit Carson, an gets. A report by the Wilderness Society, an
acres of Nevada desert, and Bears Ears, American soldier and frontiersman, and advocacy group, reveals that Idaho has
where he protected 1.35m acres surround- forced relocation by federal government in sold 40% of its land since statehood. A poll
ing twin buttes that jut upwards from the the 1860s. The area remains rich in stone by the Colorado College State of the Rock-
landscape like ears from a bears head, are carvings and ruins of Navajo dwellings. ies Project suggests most westerners op-
the final additions. The celebrations and The way that we live is finally being ac- pose transferring control of public lands to
uproar sparked by the new monument knowledged, says Jonah Yellowman, a the states.
designations are a proxy for a long-run- Navajo spiritual leader, at his home over- Mr Trumps past statements and cabi-
ning debate over federal land, which looking the buttes of Monument Valley. net selections suggest that even if he sides
makes up more than half the territory of Other Utahns are less excited. Tim with Mr Bishop when it comes to Bears
the 13 states west of Texas. During the 1970s Young, a pharmacist and the mayor of Ears, he might resist a push to give states
and 1980s, Sagebrush Rebels, named after Monticello, a town of 2,000 that abuts control of public lands. His pick for interior
the sagebrush steppe that covers much of Bears Ears, has adorned his pharmacys secretary, Ryan Zinke, stepped down from
the rural West, fought for increased local windows with stickers that read NO his position as a Republican convention
control of public lands, if not the outright MONUMENT inside the outline of a black delegate last year because he disagreed
transfer of them to states. The fracking bear. He is not against a monument in gen- with the position on federal-land transfers.
booms enjoyed by other states rich in eral but he says that the sizenearly twice In a conversation with Field & Stream mag-
wide-open spaces have given fresh impe- that of Utahs five national parks com- azine last January, Mr Trump said: I dont
tus to those who dream that the desert binedis a prime example of federal over- like the idea because I want to keep the
West might be a gold mine, if only the feds reach. He has explored the area at length lands great, and you dont know what the
would get out of the way. on his dirt bike and says that while there state is going to doAre they going to sell if
The recognition of Bears Ears as a na- are certainly bits worthy of protection, they get into a little bit of trouble? And I
tional monument is particularly controver- some of the new national monument land dont think its something that should be
sial. The most strident calls for its protec- is just sand and rock. He adds: Whoever sold. We have to be great stewards of this
tion came from a coalition of five native says otherwise hasnt visited. land. This is magnificent land. 7
38 United States The Economist January 14th 2017

Lexington How to use superpowers

The incoming foreign-policy team has in mind a revolution in great-power relations

American regional leadership and credibility, with China stand-
ing to gain strategically and economically.
Jacob Sullivan, a close adviser to Mrs Clinton, cited the deal to
curb Irans nuclear ambitions and the Paris agreement on climate
change as examples of imperilled co-operation. Stephen Hadley,
who held Ms Rices job under President George W. Bush, ex-
pressed concerns that the American-led international order itself
is under assault. He imagined a conversation in which Presi-
dent Vladimir Putin of Russia and President Xi Jinping of China
agree that America is a menace peddling hostile ideas of democ-
racy from Ukraine to Hong Kong.
Trump aides, by contrast, are impatient with talk of fragility
and complexity. Though they worry about terrorism and rogue
states with nukes, they also see a world in a thrillingly plastic
state. It is anyones guess where Mr Trumps foreign policies will
end uphe shunned details on the campaign trail and has ap-
pointed figures with clashing views to some top jobs. But suppor-
ters of Team Trump express confidence that curbing the menace
of Iran, for instance, requires more pressure and sanctions, not
concessions to strengthen pragmatists within the regime. They
scoff at the idea that the natural environment is fragile enough to

T HE world is a mess, observed Madeleine Albright this

week at a gathering of men and women who have, be-
tween them, witnessed every crisis to buffet American national
need a climate-change pactand indeed hail cheap American oil
and gas as a source of global leverage.
As for nationalism and populism, they are not a menace: they
security for 40 years. That crisp summary by the former secretary are how Mr Trump won. Stephen Bannon, Mr Trumps chief strat-
of state prompted bipartisan agreement at a Passing the Baton egist, has told visitors to Trump Tower, with relish, that he thinks
conference organised by the United States Institute of Peace an anti-establishment revolt will sweep the far right to power in
(USIP) in Washington, DC, on January 9th and 10th. France and topple Chancellor Angela Merkel in Germany. Mr
The meeting featured future leaders of Donald Trumps na- Bannon would like America to unwind sanctions against Russia,
tional security team, their predecessors from the Obama govern- imposed after the annexation of Crimea, in order to secure Rus-
ment andgamely emerging from post-election seclusionfolk sian help in constraining Iran, Islamic terrorism and even China.
who would have filled some of the same posts under Hillary
Clinton. However, once participants began to ponder the ways in Other peoples nationalists
which the world is messy, agreement gave way to revealing divi- A retired general, Mike Flynn, chosen as Mr Trumps national se-
sions. On one side stood Republican and Democratic ex-ambas- curity adviser, spoke freely in 2016 about his hopes that Russia
sadors, officials, generals and academics who do not cheer a and America could join forces against their common enemy, Is-
world in disarray. They see the rise of iron-fisted nationalists in lamist extremism. Now, amid a furore about Russian meddling in
China, Russia and Turkey, and fear that democracys post-cold- the American presidential election, as detailed in a report issued
war march is over. They contemplate the fragility of international by Mr Obamas spy chiefs, Mr Flynn contented himself with dis-
pacts, organisations and alliances and wonder if the rules-based creet hints that Mr Trump would examine and potentially re-
order founded by America after the second world war will sur- baseline our relationships around the globe.
vive. On the other stand leading members of Team Trump, who Mr Flynns deputy in the NSC will be K.T. McFarland, a veteran
call todays global turbulence an exciting chance to reshape inter- Republican hawk. She described a world where tectonic plates
national relations to suit America. are moving, offering once-in-a-generation opportunities to exert
The first group make the American-led, rules-based order leverage and realign policies. Where once Ronald Reagan pro-
sound precious but brittle. Susan Rice, the national security ad- moted human rights in the Soviet Union, Ms McFarland chides
viser to Barack Obama, called the global security landscape as America for constantly telling other countries how they
unsettled as any in recent memory. She listed some threats that should think. She sees Mr Trump gaining global strength, above
worry Mr Trump as much as her boss, from North Koreas nuclear all, from the breadth and intensity of his domestic support, after
ambitions to attacks by transnational terrorist groups. But then he drew in voters who had tuned out of politics. Such disaffected
she ran through more divisive problemsareas of vulnerability citizens feel back in the game, she says. That makes their coun-
which, in her telling, cry out for patient American attention. Ms try not just indispensablethe old claim made for America by Bill
Rice would have America lead global action on climate change, Clintonbut unstoppable.
and prop up a Europe that feels buffeted by refugee flows from the Team Trump is making a bet on assertive nationalism as a way
Middle East, by the Brexit vote and by Russian aggression, in- of imposing Americas will on a world that can stand a bit of arm-
cluding deliberate campaigns by Russia to meddle in elections twisting. Peace through strength, they call it, reviving a Reagan-
across the West. Ms Rice lamented her bosss fruitless efforts to era slogan. But other countries have assertive populations, too. In
ratify a trade pact with Asia-Pacific nations, the Trans-Pacific Part- the absence of clear global rules, Mr Trump may find himself pit-
nership (TPP). If we dont define these rules of the road, others ting his populist mandate to make America great again against
will, she declared. Failure to move forward on TPP is eroding Chinese nationalism, say. Could get messy. 7
 The Economist January 14th 2017 41
The Americas
Also in this section
42 Torontos transport snarl
Bello is away

Mexico and the United States dency poses two main dangers. The rst is
that the United States will renounce
Bracing for impact NAFTA, which it can do after six months
notice, or simply shred it by putting up
trade barriers. The second is that, as a way
of forcing Mexico to pay for the wall, Mr
Trump will carry out his threat to block re-
PUEBLA
mittances from immigrants in the United
Dealing with the consequences of Donald Trump States. These inject some $25bn a year into
Mexicos economy.

W HEN an asteroid hit Earth 66m years

ago, wiping out the dinosaurs and
75% of plant and animal species, it hurt
taking advantage of the United States.
Mexicans can only wait and wonder how
he intends to act on that misguided notion.
The president-elects other big anti-
Mexican idea, to dump millions of illegal
immigrants on Mexicos northern border,
Mexico first. Donald Trumps inauguration The Trump presidency streaking to- is seen as a lesser threat. Under Barack
is far less frightening, but Mexicans can talk ward Mexico is already causing problems. Obama, the United States deported some
of little else. Ination has started rising in response to 175,000 Mexicans a year; Mr Trump will
Outside a massive Volkswagen (VW) the devaluation of the peso caused by his nd it hard to increase that number. Repub-
factory in Puebla, two hours drive from election. The central bank raised interest lican plans to tax imports as part of a re-
Mexico City, workers fret about Mr rates ve times in 2016; it will probably form of corporate income tax would hit
Trumps threats to whack big tariffs on cars have to continue tightening. After a sharp Mexico hard. The government sees that as
made in Mexico. One American carmak- rise in public debt as a share of GDP over a problem to be addressed by the United
erFordcancelled plans to build a $1.6bn the past several years, the government States trading partners in concert, rather
plant in San Luis Potos, some five hours must curb spending. than by Mexico alone.
farther north. It may have had other rea- Over the past few months economists
sons for doing so, but workers in Puebla are have lowered their forecasts for GDP Its Donald. Duck!
not reassured. growth in 2017, from an average of 2.3% to Mr Peas instinct is to act as if Mr Trump is
Were frustrated, says Ricardo Mn- 1.4%. On January 1stthe government cut a more reasonable than he seems. He
dez, an equipment repairman who works popular subsidy by raising petrol prices by showed his conciliatory side when he in-
for one of VWs suppliers. He had expected up to 20%. Six people died in the ensuing vited Mr Trump to Mexico City in August
his employer to send him to work at the protests. during the election campaign. The ersatz
new Ford plant. Between bites of spicy If Mr Trump declares economic war, summit, at which Mr Pea failed to tell Mr
chicken taco, Santiago Nuez, who works things could get much worse. The econ- Trump publicly that Mexico would not pay
for another VW supplier, vows to boycott omy could stumble into recession, just as for his wall, so enraged Mexicans that Luis
the American carmaker. Mexico is preparing for a presidential elec- Videgaray, the nance minister who had
The anger and bewilderment in Puebla tion in 2018. Mr Trumps pugilism increases suggested the meeting, was forced to quit.
is felt across Mexico. Mr Trumps promises the chances that Andrs Manuel Lpez Now Mr Pea has brought him back, as for-
to make Mexico pay for a border wall, de- Obrador, a left-wing populist, will win. He eign minister. But his tone has become
port millions of illegal immigrants and rip would probably counter American protec- tougher. Mr Pea now rejects Mr Trumps
up the North American Free-Trade Agree- tionism with the sort of self-destructive attempts to inuence investment on the
ment (NAFTA) were among the few consis- economic nationalism to which Mexico basis of fear or threats.
tent policies in his largely substance-free has disastrously resorted in the past. Vital To some, the rehiring of Mr Videgaray
election campaign. He has not lost his taste reforms ofenergy, telecoms and education, looks like a smart move. He is thought to be
for Mexico-bashing.In a press conference enacted under Mexicos current president, friendly with Jared Kushner, Mr Trumps
on January 11th, his rst since July, Mr Enrique Pea Nieto, might be reversed. son-in-law, who is to become an adviser in
Trump repeated his claim that Mexico is Mexican ocials think the Trump presi- the White House (on trade, among other 1
42 The Americas The Economist January 14th 2017

2 things). Mr Trump himself praised Mr Vi- Transport in Toronto sure that could be construed as waging
degaray after his sacking as a brilliant fi- war on the car. The city council backed
nance minister and wonderful man.
But Mexicans regard him with disdain.
Laggard on the Mr Torys toll scheme on December 13th.
He now awaits approval from Ontario, To-
In turning to a member of his inner circle to
manage Mexicos relationship with the
lake rontos province.
But history suggests that SmartTrack
United States, Mr Pea missed a chance to and the toll could falter. Earlier schemes
TORONTO
hire someone with fresh ideas. Mr Videga- failed when provinces refused to pay for
A mayors plans may run into
raycan have lunch at the White House, them or newly elected city councils tossed
roadblocks
notes Shannon ONeil of the Council on them out. In 1995 a new provincial govern-
Foreign Relations in New York, but she
worries that his focus will just be on the
Oval Office. To press its case that the Un-
F EW cities these days have the cachet of
Toronto. It ranks high on lists of the
worlds most liveable cities (the Econo-
ment abruptly stopped construction of a
subway line and filled in the hole. Kath-
leen Wynne, Ontarios premier, may be re-
ited States has more to gain from working mist Intelligence Unit, a sister company of luctant to approve a charge on drivers. She
with Mexico than from walloping it, the The Economist, put it fourth last year). faces a tough re-election fight next year.
government must talk to congressmen, Drake, a popular rapper, is an enthusiast Transport infrastructure is plagued by
state politicians and business leaders. It for his home town. Lovers of diversity are three problems of governance. The first is
should also mobilise the 35m people of attracted to Canadas biggest metropolis. that the municipality of Toronto does not
Mexican origin living in the United States. Yet native Torontonians who have moved have a party system. In the 45-member city
Mexico thinks it has killer arguments away are strangely resistant to returning council the mayor is merely first among
for building on the partnership rather than home. John Tory, the citys mayor, who equals. His proposals must muster a ma-
destroying it. Some 5m American jobs de- tries to lure them back, says they give two jority from his council colleagues, each
pend on trade with Mexico; when Mexico main reasons for saying no. The first is that fighting for the interests of his or her ward.
ships goods north, 40% of their value the jobs are better in places like London Without party discipline, support for pro-
comes from inputs bought from the United and Hong Kong. The second is that To- jects can expire with each election.
States. Officials hope that the new admin- rontos public transport is much worse. The second problem is that responsibil-
istration will opt for the fluffiest versions of Torontos subway system has changed ity for transit is shared among the city, the
Trumpism. Instead of repealing NAFTA, little since 1966, the year an east-west line province and a provincial agency called
perhaps Mr Trump will renegotiate it, in- was added to a U-shaped north-south Metrolinx, which runs commuter trains.
corporating new standards for protecting track. In a ranking of subway systems in 46 They do not co-ordinate enough with one
intellectual property and the environ- cities by the OECD, a club of mostly rich another, says Matti Siemiatycki of the Uni-
ment. Another tactic under consideration countries, Toronto placed 43rd, with just versity of Toronto. Finally, there is the role
is to boost imports from Mexicos NAFTA 19km (12 miles) of track per square km of of the federal government, whose offers of
partners. The thinking is that reducing territory in 2003. The situation has not im- money tempt cities to embark on silly pro-
Mexicos trade surplus with the United proved since then, while the population jects. Critics point to federal backing for a
States, about $59bn last year, would give has grown. The last big extension of the proposed 6km subway extension that will
Mr Trump a victory he could sell to his pro- network of buses, streetcars and surface cost C$3.2bn and have just one station.
tectionist supporters. rail opened more than a decade ago. Mr Tory cannot solve these problems
If conciliation fails, Mexico has few at- The city has been no more successful at himself. His ambition is more modest: a
tractive options. In a trade war, it would building roads. Ambitious plans to build second term as mayor starting next year
suffer horribly. Raising its own tariffs expressways into the city centre were can- that would allow him to see through
would hurt its own consumers. Yet that celled or only partially realised, because SmartTrack and his proposed road toll.
does not mean that Mexico is defenceless. they either went over budget or faced pub- That will not solve Torontos transport pro-
In 2009 it imposed tariffs on nearly 100 lic opposition. Jane Jacobs, an urbanist, blems, but it might persuade ex-Toronto-
American products, including strawber- and Marshall McLuhan, a media theorist, nians to give their city a second chance. 7
ries and Christmas trees, after the United led a protest against the Spadina Express-
States barred Mexican lorries from its way, which was cancelled in 1971. The re-
roads to protect the jobs of American driv- sult is more traffic jams. According to the
ers. That got the attention of American pol- TomTom traffic index, Toronto was among
iticians: the pro-trade lobby prevailed. the ten most congested cities in North
Mexican analysts are thinking about America in 2015.
how the country might fight the next skir- Mr Tory is the latest in a long line of
mish. Maize, grown mainly in states that mayors who has promised to get the city
voted for Mr Trump, will be a tempting tar- moving again. His plan, dubbed Smart-
get. The United States sold about $2.5bn- Track, calls for building a new light-rail line
worth to Mexico in 2016. Faced with the (modelled on Londons Crossrail) and add-
loss of their biggest market, American ing six stations to existing commuter rail
maize farmers might press the White lines. He wants to help pay for that (and
House to relent. On January 6th16 Ameri- other transport projects) by charging tolls
can farming groups warned in a letter to on two highways that funnel traffic down-
Mr Trump and Mike Pence, the vice-presi- town. That would raise C$200m ($152m) a
dent-elect, that disrupting trade with Mexi- year. The federal and provincial govern-
co and other countries would have devas- ments would put up most of the money.
tating consequences for farmers, who are The toll proposal is bold. Earlier mayors
already suffering from low prices. have refused to put forward plans to fi-
For now, Mexicans are praying that Mr nance transport schemes. None has dared
Trump will prove more temperate in office take on suburban car owners so directly.
than during his meteoric rise. There is little Rob Ford, a crack-smoking mayor who
evidence that will happen. 7 died in 2016, was a fierce foe of any mea- Joining an underground movement
 SPECIAL REPORT
L I F E L O N G E D U C AT I O N
January 14th 2017

Learning and
earning
 SP EC IA L R EPO R T
LIFELONG EDUC ATION

Learning and earning

Technological change demands stronger and more continuous

connections between education and employment, says Andrew
Palmer. The faint outlines of such a system are now emerging
THE RECEPTION AREA contains a segment of a decommissioned Un- CO N T E N T S
derground train carriage, where visitors wait to be collected. The surfaces
are wood and glass. In each room the talk is of code, web development 5 The role of employers
and data science. At first sight the London office of General Assembly Cognition switch
looks like that of any other tech startup. But there is one big difference:
6 The ageing brain
whereas most firms use technology to sell their products online, General
Old dog, new tricks
Assembly uses the physical world to teach technology. Its office is also a
campus. The rooms are full of students learning and practising code, 8 Upstarts and incumbents
many of whom have quit their jobs to come here. Full-time participants The return of the MOOC
ACKNOW L E D G M E N T S have paid between 8,000 and 10,000 ($9,900-12,400) to learn the lin-
12 Career planning
Apart from those mentioned in gua franca of the digital economy in a programme lasting10-12 weeks.
Pathway dependency
the text, thanks for their help in General Assembly, with campuses in 20 cities from Seattle to Syd-
preparing this report are due to: ney, has an alumni body of around 35,000 graduates. Most of those who 13 Low-skilled workers
David Autor, Bill Blase, Anna
Breman, Brian Callaghan, Tom
enroll for full-time courses expect them to lead to new careers. The com- The elephant in the truck
Davenport, Shernaz Daver, Rasmus panys curriculum is based on conversations with employers about the
Enemark, Karen Evans, Charles skills they are critically short of. It holds meet and hire events where
Fadel, Jose Ferreira, Jonathan firms can see the coding work done by its students. Career advisers help
Finkelstein, Alison Fuller, Art
Graesser, Guy Halfteck, Kathleen
students with their presentation and interview techniques. General As-
Hogan, Peter Horrocks, Denis sembly measures its success by how many of its graduates get a paid, per-
Hurley, Jerry Kaplan, Ewart Keep, manent, full-time job in their desired field. Of its 2014-15 crop, three-quar-
Nathan Kuncel, Rose Luckin, ters used the firms career-advisory services, and 99% of those were hired
Christian Lyhne Ibsen, Robert
Lyngman, Michael Moe, Mona
within 180 days of beginning their job hunt.
Mourshed, Liz Rees, Laurent The companys founder, Jake Schwartz, was inspired to start the
Reich, Bart Rienties, Sanjay company by two personal experiences: a spell of drifting after he realised
Sarma, Stefano Scarpetta, David that his degree from Yale conferred no practical skills, and a two-year
Schejbal, Nicole Smith, Mitchell
Stevens, Andrew Tolmie, Anders
MBA that he felt had cost too much time and money: I wanted to change
Vind, David Willetts, Dan Willing- the return-on-investment equation in education by bringing down the A list of sources is at
ham and Jonathan Zimmerman. costs and providing the skills that employers were desperate for. 1 Economist.com/specialreports

The Economist January 14th 2017 3

 S P E C I A L R EPO R T
LIF E LONG E DU C AT IO N

This analysis buttresses the view that technology is already

Brain drain playing havoc with employment. Skilled and unskilled workers
US, average cognitive intensity of tasks done by employed college graduates alike are in trouble. Those with a better education are still more
1990=100 likely to find work, but there is now a fair chance that it will be
103 unenjoyable. Those who never made it to college face being
squeezed out of the workforce altogether. This is the argument of
102 the techno-pessimists, exemplified by the projections of Carl-Be-
nedikt Frey and Michael Osborne, of Oxford University, who in
101
2013 famously calculated that 47% of existing jobs in America are
100 susceptible to automation.
There is another, less apocalyptic possibility. James Bessen,
99 an economist at Boston University, has worked out the effects of
automation on specific professions and finds that since 1980 em-
98
1980 85 90 95 2000 05 1011
ployment has been growing faster in occupations that use com-
Source: The Great Reversal in the Demand for Skill and Cognitive Tasks,
puters than in those that do not. That is because automation
by P. Beaudry, D. Green & B. Sand, NBER Working Paper 18901 tends to affect tasks within an occupation rather than wiping out
jobs in their entirety. Partial automation can actually increase de-
mand by reducing costs: despite the introduction of the barcode
2 In rich countries the link between learning and earning has scanner in supermarkets and the ATM in banks, for example, the
tended to follow a simple rule: get as much formal education as number of cashiers and bank tellers has grown.
you can early in life, and reap corresponding rewards for the rest But even though technology may not destroy jobs in aggre-
ofyour career. The literature suggests that each additional year of gate, it does force change upon many people. Between 1996 and
schooling is associated with an 8-13% rise in hourly earnings. In 2015 the share of the American workforce employed in routine
the period since the financial crisis, the costs of leaving school office jobs declined from 25.5% to 21%, eliminating 7m jobs. Ac-
early have become even clearer. In America, the unemployment cording to research by Pascual Restrepo of the Massachusetts In-
rate steadily drops as you go up the educational ladder. stitute of Technology (MIT), the 2007-08 financial crisis made
Many believe that technological change only strengthens things worse: between 2007 and 2015 job openings for unskilled
the case for more formal education. Jobs made up of routine routine work suffered a 55% decline relative to other jobs.
tasks that are easy to automate or offshore have been in decline. In many occupations it has become essential to acquire
The usual flipside of that observation is that the number of jobs new skills as established ones become obsolete. Burning Glass
requiring greater cognitive skill has been growing. The labour Technologies, a Boston-based startup that analyses labour mar-
market is forking, and those with college degrees will naturally kets by scraping data from online job advertisements, finds that
shift into the lane that leads to higher-paying jobs. the biggest demand is for new combinations of skillswhat its
The reality seems to be more complex. The returns to edu- boss, Matt Sigelman, calls hybrid jobs. Coding skills, for exam-
cation, even for the high-skilled, have become less clear-cut. Be- ple, are now being required well beyond the technology sector.
tween 1982 and 2001 the average wages earned by American In America, 49% of postings in the quartile of occupations with
workers with a bachelors degree rose by 31%, whereas those of the highest pay are for jobs that frequently ask for coding skills
high-school graduates did not budge, according to the New York (see chart). The composition of new jobs is also changing rapidly.
Federal Reserve. But in the following12 years the wages ofcollege Over the past five years, demand for data analysts has grown by
graduates fell by more than those of their less educated peers. 372%; within that segment, demand for data-visualisation skills
Meanwhile, tuition costs at universities have been rising. has shot up by 2,574%.
A college degree at the start of a working career does not an-
A question of degree, and then some swer the need for the continuous acquisition of new skills, espe-
The decision to go to college still makes sense for most, but cially as career spans are lengthening. Vocational training is good
the idea of a mechanistic relationship between education and at giving people job-specific skills, but those, too, will need to be
wages has taken a knock. A recent survey conducted by the Pew updated over and over again during a career lasting decades.
Research Centre showed that a mere 16% of Americans think that Germany is often lauded for its apprenticeships, but the econ-
a four-year degree course prepares students very well for a high- omy has failed to adapt to the knowledge economy, says An-
paying job in the modern economy. Some of this may be a cycli- dreas Schleicher, head of the education directorate of the OECD,
cal effect of the financial crisis and its economic aftermath. Some a club of mostly rich countries. Vocational training has a role,
of it may be simply a matter of supply: as more people hold col- but training someone early to do one thing all their lives is not the
lege degrees, the associated premium goes down. But technol- answer to lifelong learning. 1
ogy also seems to be complicating the picture.
A paper published in 2013 by a trio of Canadian econo-
mists, Paul Beaudry, David Green and Benjamin Sand, questions
optimistic assumptions about demand for non-routine work. In Code to riches
the two decades prior to 2000, demand for cognitive skills US, % of online job postings requiring coding skills, by income quartile, 2015
soared as the basic infrastructure of the IT age (computers, serv- 0 20 40 60 80 100
ers, base stations and fibre-optic cables) was being built; now Top Frequent requirement No requirement
that the technology is largely in place, this demand has waned,
say the authors. They show that since 2000 the share of employ- Third
ment accounted for by high-skilled jobs in America has been fall- Second
ing. As a result, college-educated workers are taking on jobs that
are cognitively less demanding (see chart), displacing less edu- Bottom
cated workers. Source: Burning Glass Technologies

4 The Economist January 14th 2017

2 Such specic expertise is meant to be acquired on the job,
but employers seem to have become less willing to invest in
training their workforces. In its 2015 Economic Report ofthe Presi-
dent, Americas Council of Economic Advisers found that the
share of the countrys workers receiving either paid-for or on-
the-job training had fallen steadily between 1996 and 2008. In
Britain the average amount of training received by workers al-
most halved between 1997 and 2009, to just 0.69 hours a week.
Perhaps employers themselves are not sure what kind of
expertise they need. But it could also be that training budgets are
particularly vulnerable to cuts when the pressure is on. Changes
in labour-market patterns may play a part too: companies now
have a broader range of options for getting the job done, from
automation and oshoring to using self-employed workers and
crowdsourcing. Organisations have moved from creating talent
to consuming work, says Jonas Prising, the boss of Manpower,
an employment consultancy.
Add all of this up, and it becomes clear that times have got
tougher for workers of all kinds. A college degree is still a prere-
quisite for many jobs, but employers often do not trust it enough
to hire workers just on the strength of that, without experience.
In many occupations workers on company payrolls face the
prospect that their existing skills will become obsolete, yet it is of-
ten not obvious how they can gain new ones. It is now reason-
able to ask a marketing professional to be able to develop algo-
rithms, says Mr Sigelman, but a linear career in marketing
doesnt oer an opportunity to acquire those skills. And a grow-
ing number of people are self-employed. In America the share of The role of employers
temporary workers, contractors and freelancers in the workforce
rose from 10.1% in 2005 to 15.8% in 2015.
Cognition switch
Reboot camp
The answer seems obvious. To remain competitive, and to
give low- and high-skilled workers alike the best chance of suc-
cess, economies need to oer training and career-focused educa-
tion throughout peoples working lives. This special report will
Companies are embracing learning as a core skill
chart some of the eorts being made to connect education and
employment in new ways, both by smoothing entry into the la- A STRANGE-LOOKING SMALL room full of vintage furni-
bour force and by enabling people to learn new skills throughout turean armchair, a chest of drawers, a tablewas being
their careers. Many of these initiatives are still embryonic, but built in the middle of Infosyss Palo Alto offices when your corre-
they oer a glimpse into the future and a guide to the problems spondent visited in November. Tweed jackets hung from a
raised by lifelong reskilling. clothes rack; a piano was due to be delivered shortly. The struc-
Quite a lot is already happening on the ground. General As- ture was rough and unfinished. And that, according to Sanjay Ra-
sembly, for example, is just one of a number of coding-bootcamp jagopalan, was largely the point.
providers. Massive open online courses (MOOCs) oered by Mr Rajagopalan is head ofresearch and design at the Indian
companies such as Coursera and Udacity, feted at the start of this business-services firm. He is a disciple of design thinking, a
decade and then dismissed as hype within a couple of years, problem-solving methodology rooted in observation of success-
have embraced new employment-focused business models. ful innovators. His goal is an ambitious one: to turn a firm that
LinkedIn, a professional-networking site, bought an online train- built a global offshoring business by following client specifica-
ing business, Lynda, in 2015 and is now oering courses through a tions into one that can set the terms of its projects for itself.
service called LinkedIn Learning. Pluralsight has a library of on- Design thinking emphasises action over planning and en-
demand training videos and a valuation in unicorn territory. courages its followers to look at problems through the eyes of the
Amazons cloud-computing division also has an education arm. people affected. Around 100,000 Infosys employees have gone
Universities are embracing online and modular learning through a series of workshops on it. The first such workshop sets
more vigorously. Places like Singapore are investing heavily in the participants a task: for example, to improve the experience of
providing their citizens with learning credits that they can draw digital photography. That involves moving from the idea of mak-
on throughout their working lives. Individuals, too, increasingly ing a better camera to considering why people value photo-
seem to accept the need for continuous rebooting. According to graphs in the first place, as a way ofcapturing memories. As ideas
the Pew survey, 54% of all working Americans think it will be es- flow, people taking part in the workshops immediately start pro-
sential to develop new skills throughout their working lives; ducing prototypes with simple materials like cardboard and pa-
among adults under 30 the number goes up to 61%. Another sur- per. The tendency is to plan at length before building, says Mr
vey, conducted by Manpower in 2016, found that 93% ofmillenni- Rajagopalan. Our approach is to build, build, build, test and
als were willing to spend their own money on further training. then plan.
Meanwhile, employers are putting increasing emphasis on That baing structure in Palo Alto was another teaching
learning as a skill in its own right. 7 tool. Mr Rajagopalan had charged a small team with reimagining 1

The Economist January 14th 2017 5

 S P E C I A L R EPO R T
LIF E LONG E DU C AT IO N

2 the digital retail experience. Instead of

coming up with yet another e-commerce
site, they were experimenting with tech-
Old dogs, new tricks
nologies to liven up a physical space. (If a
weary shopper sat in the chair, say, a pot As people age, the brain changes in both good ways and bad
of tea on an adjacent table would auto-
matically brew up.) The construction of IF YOU ARE over 20, look away now. Your hypothesis, but a range of tentative explana-
the shop prototype in Infosyss offices cognitive performance is probably already on tions has been put forward. One points the
was being documented so that employ- the wane. The speed with which people can finger at myelin, a white, fatty substance that
ees could see design thinking in action. process information declines at a steady rate coats axons, the tendrils that carry signals
Infosys is grappling with a vital from as early as their 20s. from one neuron to another. Steady reduc-
question: what do people need to be A common test of processing speed is tions in myelin as people age may be slowing
good at to succeed in their work? Whatev- the digit symbol substitution test, in which down these connections. Another possibility,
er the job, the answer is always going to a range of symbols are paired with a set of says Timothy Salthouse, director of the
involve some technical and specific skills, numbers in a code. Participants are shown the Cognitive Ageing Laboratory at the University
based on knowledge and experience of a code, given a row of symbols and then asked of Virginia, is depletion of a chemical called
particular industry. But with design to write down the corresponding number in dopamine, receptor sites for which decline in
thinking, Infosys is focusing on founda- the box below within a set period. There is number with advancing age.
tional skills like creativity, problem-solv- nothing cognitively challenging about the Fortunately, there is some good news to
ing and empathy. When machines can task; levels of education make no difference go with the bad. Psychologists distinguish
put humans to shame in performing the to performance. But age does. Speed consis- between fluid intelligence, which is the
routine job-specific tasks that Infosys tently declines as people get older. ability to solve new problems, and crystal-
once took offshore, it makes sense to Why this should be is still a matter of lised intelligence, which roughly equates to
think about the skills that computers find an individuals stock of accumulated know-
harder to learn. ledge. These reserves of knowledge continue
David Deming of Harvard Universi- to increase with age: peoples performance
ty has shown that the labour market is al- on vocabulary and general-knowledge tests
ready rewarding people in occupations keeps improving into their 70s. And experi-
that require social skills. Since 1980 ence can often compensate for cognitive
growth in employment and pay has been decline. In an old but instructive study of
fastest in professions across the income typists ranging in age from 19 to 72, older
scale that put a high premium on social workers typed just as fast as younger ones,
skills (see chart, next page). even though their tapping speed was slower.
Social skills are important for a They achieved this by looking further ahead
wide range of jobs, not just for health- in the text, which allowed them to keep going
care workers, therapists and others who more smoothly.
are close to their customers. Mr Deming What does all this mean for a lifetime of
thinks their main value lies in the rela- continuous learning? It is encouraging so
tionship between colleagues: people long as people are learning new tricks in
who can divide up tasks quickly and ef- familiar fields. If learning can be assimilated
fectively between them form more pro- into an existing knowledge base, advantage
ductive teams. If work in future will in- tilts to the old, says Mr Salthouse. But
creasingly be done by contractors and moving older workers into an entirely new
freelancers, that capacity for co-operation area of knowledge is less likely to go well.
will become even more important. Even
geeks have to learn these skills. Ryan Ros-
lansky, who oversees LinkedIns push
into online education, notes that many software engineers are clude Pratt & Whitney, a maker of aircraft engines, and Otis, a lift
taking management and communications courses on the site in manufacturer. Since 1996 UTC has been running a programme
order to round themselves out. under which its employees can take part-time degrees and have
tuition fees of up to $12,000 a year paid for them, no strings at-
Building a better learner tached. Employers often balk at training staff because they might
Another skill that increasingly matters in finding and keep- leave for rivals, taking their expensively gained skills with them.
ing a job is the ability to keep learning. When technology is But Gail Jackson, the firms vice-president of human resources,
changing in unpredictable ways, and jobs are hybridising, hu- takes a different view. We want people who are intellectually
mans need to be able to pick up new skills. At Infosys, Mr Rajago- curious, she says. It is better to train and have them leave than
palan emphasises learning velocitythe process of going from not to train and have them stay.
a question to a good idea in a matter of days or weeks. Eric Such attitudes are becoming more common. When Satya
Schmidt, now executive chairman of Alphabet, a tech holding Nadella took over as boss of Microsoft in 2014, he drew on the
company in which Google is the biggest component, has talked workofCarol Dweck, a psychology professor at Stanford Univer-
of Googles recruitment focus on learning animals. Mark Zuck- sity, to push the firms culture in a new direction. Ms Dweck di-
erberg, one of Facebooks founders, sets himself new personal vides students into two camps: those who think that ability is in-
learning goals each year. nate and fixed (dampening motivation to learn) and those who
An emphasis on learning has long been a hallmark of Un- believe that abilities can be improved through learning. This
ited Technologies (UTC), a conglomerate whose businesses in- growth mindset is what the firm is trying to encourage. It has 1

6 The Economist January 14th 2017

 S P E C I A L R EPO R T
LIF E LONG E DU C AT IO N

customers in the order in which they arrive in the game, for ex-
Getting along and getting on ample, might serve as an indicator of integrity. Intellectual curi-
US, change in employment share by skills required, 1980=100 osity is one of the traits that Knack tests for.
The second question is whether it is possible to train people
108
to learn. Imaging techniques are helping unlock what goes on in
High maths, high social skills
the mind of someone who is curious. In a study published in
104 2014 in Neuron, a neuroscience journal, participants were first
asked to rate their curiosity to learn the answers to various ques-
Low maths, high social skills tions. Later they were shown answers to those questions, as well
100 as a picture of a strangers face; finally, they were tested on their
High maths, low social skills recall of the answers and given a face-recognition test. Greater
curiosity led to better retention on both tests; brain scans
96
showed increased activity in the mesolimbic dopamine system,
Low maths, low social skills a reward pathway, and in the hippocampus, a region that matters
94 for forming new memories.
1980 90 2000 06 12 It is too early to know whether traits such as curiosity can
Source: The Growing Importance of Social Skills in the Labor Market, by David Deming, Aug 2016 be taught. But it is becoming easier to turn individuals into more
effective learners by making them more aware of their own
thought processes. Hypotheses about what works in education
2 amended its performance-review criteria to include an appraisal and learning have become easier to test because of the rise of on-
of how employees have learned from others and then applied line learning. MIT has launched an initiative to conduct interdis-
that knowledge. It has also set up an internal portal that inte- ciplinary research into the mechanics of learning and to apply
grates Lynda, the training provider bought by LinkedIn (which the conclusions to its own teaching, both online and oine. It
Microsoft itself is now buying). uses its own online platforms, including a MOOC co-founded
AT&T, a telecoms and media firm with around 300,000 with Harvard University called edX, to test ideas. When MOOC
employees, faces two big workforce problems: rapidly changing participants were required to write down their plans for under-
skills requirements in an era of big data and cloud computing, taking a course, for example, they were 29% more likely to com-
and constant employee churn that leaves the company having to plete the course than a control group who did not have to do so.
fill 50,000 jobs a year. Recruiting from outside is difficult, expen- Information about eective learning strategies can be per-
sive and liable to cause ill-feeling among existing staff. The firms sonalised, too. The Open University, a British distance-learning
answer is an ambitious plan to reskill its own people. institution, already uses dashboards to monitor individual stu-
Employees each have a career profile that they maintain dents online behaviour and performance. Knewton, whose
themselves, which contains a record of their skills and training. platform captures data on 10m current American students, rec-
They also have access to a database called career intelligence, ommends personalised content to them. Helping people to be
which shows them the jobs on offer within the company, what more aware of their own thought processes when they learn
skills they require and how much demand there is for them. The makes it more likely they can acquire new skills later in life. 7
firm has developed short courses called nanodegrees with Udac-
ity, the MOOC provider, and is also working with universities on
developing course curriculums. Employees work in their own Upstarts and incumbents
time to build their skills. But AT&T applies both carrot and stick to
encourage them, by way of generous help with tuition fees (total-
ling $30m in 2015) for those who take courses and negative ap-
The return of the MOOC
praisal ratings for those who show no interest.
As continued learning becomes a corporate priority, two
questions arise. First, is it possible for firms to screen candidates
and employees on the basis of curiosity, or what psychologists
call need for cognition? Getting through university is one very
Alternative providers of education must solve the
rough proxy for this sort of foundational skill, which helps ex-
plain why so many employers stipulate degrees for jobs which problems of cost and credentials
on the face of it do not require them. THE HYPE OVER MOOCs peaked in 2012. Salman Khan, an
investment analyst who had begun teaching bite-sized les-
Curiouser and curiouser sons to his cousin in New Orleans over the internet and turned
More data-driven approaches are also being tried. Man- that activity into a wildly popular educational resource called
power, a human-resources consultancy, is currently running the Khan Academy, was splashed on the cover of Forbes. Sebas-
trials on an app that will score individuals on their learn- tian Thrun, the founder of another MOOC called Udacity, pre-
ability. Knack, a startup, offers a series of apps that are, in effect, dicted in an interview in Wired magazine that within 50 years
gamified psychological tests. In Dashi Dash, for example, partici- the number ofuniversities would collapse to just ten worldwide.
pants play the part of waiters and are asked to take the orders of The New York Times declared it the year of the MOOC.
customers on the basis of (often hard to read) expressions. As The sheer numbers of people ocking to some of the initial
more and more customers arrive, the job of managing the work- courses seemed to suggest that an entirely new model of open-
flow gets tougher. Every decision and every minute change in access, free university education was within reach. Now MOOC
strategy is captured as a data point and sent to the cloud, where sceptics are more numerous than believers. Although lots of
machine-learning algorithms analyse players aptitudes against people still sign up, drop-out rates are sky-high.
a reference population of 25,000 people. An ability to read ex- Nonetheless, the MOOCs are on to something. Education,
pressions wins points for empathy; a decision always to serve like health care, is a complex and fragmented industry, which 1

8 The Economist January 14th 2017

 SP EC IA L R EPO R T
LIFELONG EDUC ATION

requirement for teachers to draw a pension from the industrial-

Learning curve ists nascent pension scheme for college faculty. Students in their
Massive open online courses, main international providers early 20s can more easily aord a lengthy time commitment be-
Cumulative Courses by subject, 2011-17*, 000 cause they are less likely to have other responsibilities. Although
Registered number of millions of people do manage part-time or distance learning in
users, m courses*, 000 0 0.3 0.6 0.9 1.2 1.5 later lifeone-third of all working students currently enrolled in
70 7 Business & management America are 30-54 years old, according to the Georgetown Uni-
60 6 Computer science & programming versity Centre on Education and the Workforcebalancing
50 5 Science learning, working and family life can cause enormous pressures.
Social sciences Moreover, the world of work increasingly demands a quick
40 4
Humanities response from the education system to provide people with the
30 3 Education & teaching desired qualications. To take one example from Burning Glass,
20 2 Health & medicine in 2014 just under 50,000 American job-vacancy ads asked for a
10 1 Art & design CISSP cyber-security certicate. Since only 65,000 people in
0 0 Engineering America hold such a certicate and it takes ve years of experi-
2011 12 13 14 15 16 17 Mathematics ence to earn one, that requirement will be hard to meet. Less de-
Source: Class Central *By start date manding professions also put up huge barriers to entry. If you
want to become a licensed cosmetologist in New Hampshire,
you will need to have racked up 1,500 hours of training.
2 makes it hard to gain scale. Despite those drop-out rates, the In response, the MOOCs have tried to make their content as
MOOCs have shown it can be done quickly and comparatively digestible and exible as possible. Degrees are broken into mod-
cheaply. The Khan Academy has 14m-15m users who conduct at ules; modules into courses; courses into short segments. The
least one learning activity with it each month; Coursera has 22m MOOCs test for optimal length to ensure people complete the
registered learners. Those numbers are only going to grow. course; six minutes is thought to be the sweet spot for online vid-
FutureLearn, a MOOC owned by Britains Open University, has eo and four weeks for a course.
big plans. Oxford University announced in November that it Scott DeRue, the dean of the Ross School of Business at the
would be producing its first MOOC on the edX platform. University of Michigan, says the unbundling of educational con-
In their search for a business model, some platforms are tent into smaller components reminds him of another industry:
now focusing much more squarely on employment (though oth- music. Songs used to be bundled into albums before being disag-
ers, like the Khan Academy, are not for profit). Udacity has gregated by iTunes and streaming services such as Spotify. In Mr
launched a series of nanodegrees in tech-focused courses that DeRues analogy, the degree is the album, the course content that
range from the basic to the cutting-edge. It has done so, moreover, is freely available on MOOCs is the free streaming radio service,
in partnership with employers. A course on Android was devel- and a microcredential like the nanodegree or the specialisa-
oped with Google; a nanodegree in self-driving cars uses instruc- tion is paid-for iTunes.
tors from Mercedes-Benz, Nvidia and others. Students pay $199- How should universities respond to that kind of disrup-
299 a month for as long as it takes them to finish the course (typi- tion? For his answer, Mr DeRue again draws on the lessons of the
cally six to nine months) and get a 50% rebate if they complete it music industry. Faced with the disruption caused by the internet,
within a year. Udacity also oers a souped-up version of its na- it turned to live concerts, which provided a premium experience
nodegree for an extra $100 a month, along with a money-back that cannot be replicated online. The on-campus degree also
guarantee if graduates do not nd a job within six months. needs to mark itself out as a premium experience, he says.
Courseras content comes largely from universities, not spe- Another answer is for universities to make their own pro-
cialist instructors; its range is much broader; and it is oering full ducts more accessible by doing more teaching online. This is be-
degrees (one in computer science, the other an MBA) as well as ginning to happen. When Georgia Tech decided to oer an on-
shorter courses. But it, too, has shifted its emphasis to employ- line version of its masters in computer science at low cost, many
ability. Its boss, Rick Levin, a former president of Yale University, were shocked: it seemed to risk cannibalising its campus degree.
cites research showing that half of its learners took courses in or- But according to Joshua Goodman of Harvard University, who
der to advance their careers. Although its materials are available has studied the programme, the decision was proved right. The
without charge, learners pay for assessment and accreditation at campus degree continued to recruit students in their early 20s
the end of the course ($300-400 for a four-course sequence that whereas the online degree attracted people with a median age of
Coursera calls a specialisation). It has found that when money 34 who did not want to leave their jobs. Mr Goodman reckons
is changing hands, completion rates rise from 10% to 60% . It is in- this one programme could boost the numbers of computer-sci-
creasingly working with companies, too. Firms can now inte- ence masters produced in America each year by 7-8%. Chip Pau-
grate Coursera into their own learning portals, track employees cek, the boss of 2U, a rm that creates online degree programmes
participation and provide their desired menu of courses. for conventional universities, reports that additional marketing
These are still early days. Coursera does not give out gures eorts to lure online students also boost on-campus enrolments.
on its paying learners; Udacity says it has 13,000 people doing its
nanodegrees. Whatever the arithmetic, the reinvented MOOCs Educational Lego
matter because they are solving two problems they share with Universities can become more modular, too. EdX has a mi-
every provider of later-life education. cromasters in supply-chain management that can either be taken
The rst of these is the cost of learning, not just in money on its own or count towards a full masters at MIT. The University
but also in time. Formal education rests on the idea of qualica- of Wisconsin-Extension has set up a site called the University
tions that take a set period to complete. In America the en- Learning Store, which oers slivers of online content on practical
trenched notion of seat time, the amount of time that students subjects such as project management and business writing. En-
spend with school teachers or university professors, dates back thusiasts talk of a world of stackable credentials in which qual-
to Andrew Carnegie. It was originally intended as an eligibility ications can be tted together like bits of Lego. 1

The Economist January 14th 2017 9

 S P E C I A L R EPO R T
LIF E LONG E DU C AT IO N

2 Just how far and fast universities will go in this direction is something faintly regressive about the world of microcreden-
unclear, however. Degrees are still highly regarded, and in- tials. Like a university degree, it still involves a stamp of approval
creased emphasis on critical thinking and social skills raises their from a recognised provider after a proprietary process. Yet lots of
value in many ways. The model of campuses, tenured faculty learning happens in informal and experiential settings, and lots
and so on does not work that well for short courses, adds Jake of workplace skills cannot be acquired in a course.
Schwartz, General Assemblys boss. The economics of covering
fixed costs forces them to go longer. Gold stars for good behaviour
Academic institutions also struggle to deliver really fast- One way of dealing with that is to divide the currency of
moving content. Pluralsight uses a model similar to that of book knowledge into smaller denominations by issuing digital
publishing by employing a network of 1,000 experts to produce badges to recognise less formal achievements. RMIT University,
and refresh its library ofvideos on IT and creative skills. These ex-Australias largest tertiary-education institution, is working with
perts get royalties based on how often their content is viewed; its Credly, a credentialling platform, to issue badges for the skills
highest earner pulled in $2m last year, according to Aaron Skon- that are not tested in exams but that rms nevertheless value. Be-
nard, the firms boss. Such rewards provide an incentive for au- linda Tynan, RMITs vice-president, cites a project carried out by
thors to keep updating their content. University faculty have oth- engineering students to build an electric car, enter it into races
er priorities. and win sponsors as an example.
Beside costs, the second problem for The trouble with digital badges is
MOOCs to solve is credentials. Close col- that they tend to proliferate. Illinois State
leagues know each others abilities, but University alone created 110 badges when
modern labour markets do not work on it launched a programme with Credly in
the basis of such relationships. They need 2016. Add in MOOC certicates, LinkedIn
widely understood signals of experience Learning courses, competency-based edu-
and expertise, like a university degree or a cation, General Assembly and the like,
baccalaureate, however imperfect they and the idea of creating new currencies of
may be. In their own fields, vocational knowledge starts to look more like a reci-
qualifications do the same job. The pe for hyperination.
MOOCs answer is to oer microcreden- David Blake, the founder ofDegreed,
tials like nanodegrees and specialisations. a startup, aspires to resolve that problem
But employers still need to be con- by acting as the central bank of creden-
dent that the skills these credentials tials. He wants to issue a standardised
vouchsafe are for real. LinkedIns en- assessment of skill levels, irrespective of
dorsements feature, for example, was how people got there. The plan is to create
routinely used by members to hand out a network of subject-matter experts to as-
compliments to people they did not know sess employees skills (copy-editing, say,
for skills they did not possess, in the hope or credit analysis), and a standardised
of a reciprocal recommendation. In 2016 grading language that means the same
thing to everyone, everywhere.
Pluralsight is heading in a similar di-
People are more likely to invest in training if it confers a rection in its eld. A diagnostic tool uses a
technique called item response theory to
qualification that others will recognise. But they also work out users skill levels in areas such as
need to know which skills are useful in the first place coding, giving them a rating. The system
helps determine what individuals should
learn next, but also gives companies a
the rm tightened things up, but getting the balance right is hard. standardised way to evaluate peoples skills.
Credentials require just the right amount of friction: enough to A system of standardised skills measures has its own pro-
be trusted, not so much as to block career transitions. blems, however. Using experts to grade ability raises recursive
Universities have no trouble winning trust: many of them questions about the credentials of those experts. And it is hard
can call on centuries of experience and name recognition. Cours- for item response theory to assess subjective skills, such as an
era relies on universities and business schools for most of its con- ability to construct an argument. Specic, measurable skills in ar-
tent; their names sit proudly on the certicates that the rm is- eas such as IT are more amenable to this approach.
sues. Some employers, too, may have enough kudos to play a So amenable, indeed, that they can be tested directly. As an
role in authenticating credentials. The involvement of Google in adolescent in Armenia, Tigran Sloyan used to compete in mathe-
the Android nanodegree has helped persuade Flipkart, an Indi- matical Olympiads. That experience helped him win a place at
an e-commerce platform, to hire Udacity graduates sight unseen. MIT and also inspired him to found a startup called CodeFights
Wherever the content comes from, students work usually in San Francisco. The site oers free gamied challenges to
needs to be validated properly for a credential to be trusted. 500,000 users as a way of helping programmers learn. When
When student numbers are limited, the marking can be done by they know enough, they are funnelled towards employers,
the teacher. But in the world of MOOCs those numbers can spi- which pay the rm 15% of a successful candidates starting salary.
ral, making it impractical for the instructors to do all the assess- Sqore, a startup in Stockholm, also uses competitions to screen
ments. Automation can help, but does not work for complex as- job applicants on behalf of its clients.
signments and subjects. Udacity gets its students to submit their However it is done, the credentialling problem has to be
coding projects via GitHub, a hosting site, to a network of mach- solved. People are much more likely to invest in training if it con-
ine-learning graduates who give feedback within hours. fers a qualication that others will recognise. But they also need
Even if these problems can be overcome, however, there is to know which skills are useful in the rst place. 7

10 The Economist January 14th 2017

 S P E C I A L R EPO R T
LIF E LONG E DU C AT IO N

Career planning positions in industries like retailing and health care. The pro-
gramme starts by going into workplaces and identifying key
Pathway dependency events (how an IT helpdesk handles a call from an irate custom-
er, for example) that distinguish high performers from the rest.
Curriculum designers then use that analysis to create a full-
time training programme lasting between four and 12 weeks that
covers both technical knowledge and behavioural skills. The
programme has gone live in America, Spain, India, Kenya and
Mexico. By the end of 2016 it had 10,000 graduates, for whom it
How to turn a qualification into a salary
claims an employment rate of 90% and much higher retention
UNIVERSITY EDUCATION IS designed to act as a slipway, rates than usual. The trainees pay nothing; the hope is that em-
launching students into the wider world in the expectation ployers will fund the programme, or embed it in their own train-
that the currents will guide them into a job. In practice, many ing programmes, when they see how useful it is.
people get stuckin the doldrums because employers demand ev-
idence of specific experience even from entry-level candidates. A little help from your friends
Whether this counts as a skills gap is a matter of debate. If I can- Such experiments use training to take people into specific
not find a powerful, fuel-efficient, easy-to-park car for $15,000, jobs. In the past, an initial shove might have been all the help
that doesnt mean there is a car shortage, says Peter Cappelli of they needed. But as middle-skilled roles disappear, some rungs
the Wharton School of the University of Pennsylvania. But on the job ladder have gone missing. And in a world of continu-
whether the fault lies with the educators or the employers, there ous reskilling and greater self-employment, people may need
is a need for pathways that lead individuals into jobs. help with repeatedly moving from one type of job to another.
Sometimes those pathways are clearly defined, as in medi- Vocational education is good at getting school-leavers into work,
cine and the law. Vocational education combines classroom and but does nothing to help people adapt to changes in the world of
work-based learning to prepare young people for specific trades. work. Indeed, a cross-country study in 2015 by researchers at the
In many European countries, one-third to half of later-stage sec- Hoover Institution suggests that people with a vocational educa-
ondary schoolgoers are on a vocational path (see chart). Britain tion are more likely than those with a general education to with-
is due to introduce an apprenticeship levy in April. draw from the labour force as they age. The pattern is particularly
But pathways are needed to smooth transitions in other marked in countries that rely heavily on apprenticeships, such as
countries (America, for example, lacks a tradition of vocational Denmark, Germany and Switzerland.
education); in less structured occupations; and when formal Large companies may have the scale to offer their employ-
education has come to an end. The nanodegree is an example of ees internal pathways to improve their skills, as companies like
such a pathway, as is General Assemblys bootcamp model. Both AT&T do. But many workers will need outside help in deciding
rely heavily on input from employers to create content; both use which routes to take. That suggests a big opportunity for firms
jobs rather than credentials as a measure of success. that can act, in effect, as careers advisers. Some are better placed
That is particularly important in the early stages of peoples than others to see where the jobs market is going. Manpower,
careers, which is not just when they lack experience but also which supplies temporary workers to many industries, last year
when earnings grow fastest. An analysis of American wage launched a programme called MyPath that is based on the idea
growth by economists at the New York Federal Reserve showed of an iterative process of learning and working. It allows Man-
that the bulk of earnings growth took place between the ages of powers army of temporary workers in America to earn a degree
25 and 35; on average, after the age of 45 only the top 2% of life- from Western International University at no financial cost to
time earners see any earnings growth. So it is vital for people to them. The degree is structured as a series of three or four epi-
move quickly into work once qualified, and to hold on to jobs sodes of education followed by periods in work, in the expecta-
once they get them. tion that Manpower has a good overview of the skills leading to
That is the insight behind well-paid jobs.
LearnUp, a startup that works LinkedIn is another organisation with a decent under-
with applicants without col- standing of wider trends. The professional-networking site likes
lege degrees for entry-level po- Practical types to call the data it sits on the economic graph, a digital map of
sitions. Users applying for a job Students* enrolled in vocational the global economy. Its candidate data, and its recruitment plat-
online can click on a link and programmes, as % of total form, give it information on where demand from employers is
2014
take a one-hour online training greatest and what skills jobseekers need. And with LinkedIn
0 20 40 60 80
session on how to be a cashier, Learning it can now also deliver training itself.
sales clerk or whatever they are Czech Republic The firm can already tell candidates how well their qualifi-
after. Employers pay LearnUp a Switzerland cations for any advertised job stack up against those of other ap-
fixed fee to improve the pool of Italy plicants. In time, its data might be used to give investment ad-
candidates. Recruitment and Poland vice, counselling its members on the financial return to specific
retention rates have risen. Norway skills and on how long they are likely to be useful; or to show
Generation, a philan- OECD average members how other people have got into desirable positions.
thropically funded programme France
The difficulty with offering mass-market careers advice is
run by the McKinsey Social Ini- finding a business model that will pay for it. LinkedIn solves this
Germany
tiative, a not-for-profit arm of problem by aiming itself primarily at professionals who either
China
the consultancy, uses a boot- pay for services themselves or who are of interest to recruiters.
Britain
camp approach and some typi- But that raises a much bigger question. There is no shortage of
cally McKinsey-esque thinking Denmark options for folks of means, says Adam Newman of Tyton Part-
to train people from difficult Japan ners, an education consultancy. But what about LinkedIn for
backgrounds for middle-skilled Source: OECD *15- to 19-year-olds the linked-out? 7

12 The Economist January 14th 2017

 SP EC IA L R EPO R T
LIFELONG EDUC ATION

tion of sensors on motorways, that might prompt retraining.

This is a boiling-frog problem, he says. It is not thought about.
For lower-skilled workers of this sort the world of MOOCs,
General Assembly and LinkedIn is a million miles away. Around
80% of Courseras learners have university degrees. The costs of
reskilling, in terms of time and money, are easiest to bear for peo-
ple who have savings, can control their working hours or work
for companies that are committed to upgrading their workforce.
And motivation is an issue: the tremendous learning opportuni-
ties oered by the internet simply do not appeal to everyone.

Whosoever hath not

The rewards of retraining are highest for computing skills,
but there is no natural pathway from trucker to coder. And even
if there were, many of those already in the workforce lack both
the condence and the capability to make the switch. In its Pro-
gramme for the International Assessment of Adult Competen-
cies, the OECD presents a bleak picture of skills levels in 33 mem-
ber countries (see chart). One in ve adults, on average, has poor
reading and numeracy skills. One in four has little or no experi-
ence of computers. On a measure of problem-solving ability us-
ing technology, most adults are at or below the lowest level of
prociency.
Low-skilled workers Moreover, learning is most eective when people are able
to practise their new skills. Yet many jobs, including lorry-driv-
The elephant in the ing, aord little such opportunity, and some of them are being
deskilled further. Research by Tom Higgins of Cardi University

truck suggests that the numeracy requirements for retail assistants and
care-home workers in Britain went down between 1997 and 2012.
The head of one of the worlds biggest banks worries that a back-
office operation in India has disaggregated its work into separate
tasks so effectively that employees are no longer able to under-
The emerging system of lifelong learning will do little
stand the processes as a whole, let alone make useful suggestions
to reduce inequality for improving them.
IMAGINE YOU ARE a 45-year-old long-distance lorry So the truckers dilemma will be very hard to solve. Its dif-
driver. You never enjoyed school and left as soon as you ficult when you dont have a good answer even in an ideal
could, with a smattering of qualifications and no great love of world, says Jesper Roine, an economist who sat on a Swedish
learning. The job is tiring and solitary, but it does at least seem to commission to examine the future of work. But as a thought ex-
oer decent job security: driver shortages are a perennial com- periment it highlights some of the problems involved in upgrad-
plaint in the industry, and the average age of the workforce is ing the stock of low-skilled and mid-skilled workers. Any decent
high (48 in Britain), so the shortfalls are likely to get worse. Amer- answer will need a co-ordinated effort to bring together individ-
icas Bureau of Labour Statistics (BLS) says there were 1.8m truck- uals, employers and providers of education. That suggests a role
ers in 2014 and expects a 5% rise in their number by 2024. As the for two entities in particular.
economy grows, the demand for goods will increase and more One is trade unions. They have an industry-wide view of
truck drivers will be needed to keep supply chains moving, pre- trends that may not be available to smaller employers. They can
dicts the BLS website, chirpily. also accompany people throughout their working lives, which 1
But the future might unfold very dierently. For all the ex-
citement over self-driving passenger cars, the freight industry is
likely to adopt autonomous vehicles even faster. And according
to a report in 2014 by Morgan Stanley, a bank, full automation The new literacy
might reduce the pool of American truck drivers by two-thirds. Adults problem-solving skills using a computer None Low High
Those projections came hedged with caveats, and rightly so. The 2015 or latest available, % of total by skill level No data
pace of adoption may be slowed by regulation. Drivers may still 0 20 40 60 80 100
be needed to deal with unforeseen problems; ifsuch jobs require Sweden
more technical knowledge, they may even pay better. Employ- Finland
ment in other sectors may grow as freight costs come down. But Singapore
there is a chance that in the not too distant future a very large Canada
number oftruckers will nd themselves redundant. The implica- Germany
Britain*
tions are immense.
Japan
Knowing when to jump is one problem. For people with United States
decades of working life still ahead of them, it is too early to quit OECD average
but it is also risky to assume that nothing will change. Matthew Israel
Robb of Parthenon-EY, a consultancy, thinks that governments Poland
should be talking to industry bodies about the potential for mass Greece
redundancies and identifying trigger points, such as the installa- Source: OECD *England

The Economist January 14th 2017 13

 S P E C I A L R EPO R T
LIF E LONG E DU C AT IO N

2 may become increasingly important in a world of rising self-em- ones, to club together to signal
ployment. Denmarks tripartite system, for example, binds to- their skills needs to the work- Offer to readers
gether employers, government and unions. Firms and unions get force at large. Individual learn- Reprints of this special report are available.
A minimum order of five copies is required.
together to identify skills needs; collective-bargaining agree- ing accounts have a somewhat Please contact: Jill Kaletha at Foster
ments enshrine rights to paid leave for training. The countrys chequered historyfraudulent Printing Tel: +1 866 879 9144 Ext: 168
famed flexicurity system offers unemployed workers a list of training providers helped scup- e-mail: jillk@fosterprinting.com
258 vocational-training programmes. per a British experiment in the
Corporate offer
In Britain a well-regarded programme called UnionLearn early 2000sbut if well de-
Corporate orders of 100 copies or more are
uses union representatives both to inform workers about train- signed, they can oer workers available. We also offer a customisation
ing options and to liaise with employers on workers requests for educational opportunities with- service. Please contact us to discuss your
training. Employees seem more likely to discuss shortfalls in ba- out being overly prescriptive. requirements.
sic skills with union representatives than with managers. An Tel: +44 (0)20 7576 8148
Any fool can know e-mail: rights@economist.com
analysis by academics at Leeds University Business School
For more information on how to order special
shows that between 2001 and 2013 union members in Britain In June 2016, this newspa- reports, reprints or any copyright queries
were a third more likely to have received training than non- per surveyed the realm of arti- you may have, please contact:
unionised workers. cial intelligence and the adjust- The Rights and Syndication Department
The second entity is government. There is much talk about ments it would require workers 20 Cabot Square
lifelong learning, though few countries are doing much about it. to make as jobs changed. That London E14 4QW
The Nordics fall into this less populated camp. But it is Singapore will mean making education Tel: +44 (0)20 7576 8148
Fax: +44 (0)20 7576 8492
that can lay claim to the most joined-up approach with its Skills- and training exible enough to e-mail: rights@economist.com
Future initiative. Employers in the city-state are asked to spell out teach new skills quickly and effi- www.economist.com/rights
the changes, industry by industry, that they expect to happen ciently, we concluded. It will
Future special reports
over the next three to five years, and to identify the skills they require a greater emphasis on
will need. Their answers are used to create industry transforma- lifelong learning and on-the-job Mass entertainment February 11th
tion maps designed to guide individuals on where to head. training, and wider use of on- The future of Europe March 25th
The Pearl River delta April 8th
Since January 2016 every Singaporean above the age of 25 line learning and video-game-
has been given a S$500 ($345) credit that can be freely used to pay style simulation.
for any training courses provided by 500 approved providers, in- The uncertainties around Previous special reports and a list of
forthcoming ones can be found online:
cluding universities and MOOCs. Generous subsidies, of up to the pace and extent of techno- economist.com/specialreports
90% for Singaporeans aged 40 and over, are available on top of logical change are enormous.
this credit. The programme currently has a budget of S$600m a Some fear a future of mass un-
year, which is due to rise to S$1billion within three years. Accord- employment. Others are san-
ing to Ng Cher Pong, SkillsFutures chief executive, the returns on guine that people will have time to adapt. Companies have to
that spending matter less than changing the mindset around con- want to adopt new technologies, after all, and regulators may im-
tinuous reskilling. pede their take-up. What is not in doubt is the need for new and
Some programmes cater to the needs of those who lack ba- more efficient ways to develop and add workplace skills.
sic skills. Tripartite agreements between unions, employers and The faint outlines of a new ecosystem for connecting em-
government lay out career and skills ladders for those who are ployment and education are becoming discernible. Employers
trapped in low-wage occupations. Professional-conversion pro- are putting greater emphasis on adaptability, curiosity and learn-
grammes offer subsidised training to people switching to new ca- ing as desirable attributes for employees. They are working with
reers in areas such as health care. universities and alternative providers to create and improve
Given Singapores size and political system, this approach their own supply of talent. Shorter courses, lower costs and on-
is not easily replicated in many other countries, but lessons can line delivery are making it easier for people to combine work and
still be drawn. It makes sense for employers, particularly smaller training. New credentials are being created to signal skills.
At the same time, new technologies should make learning
more effective as well as more necessary. Virtual and augmented
The outlines reality could radically improve professional training. Big data of-
fer the chance for more personalised education. Platforms make
of a new it easier to connect people of differing levels of knowledge, al-
ecosystem lowing peer-to-peer teaching and mentoring. Education is be-
coming flexible, modular, accessible and affordable, says Simon
for Nelson, the boss of FutureLearn, the Open University MOOC.
connecting But for now this nascent ecosystem is disproportionately
likely to benefit those who least need help. It concentrates on ad-
employment vanced technological skills, which offer the clearest returns and
and are relatively easy to measure. And it assumes that people have
the money, time, motivation and basic skills to retrain.
education Thanks to examples like Singapores, it is possible to imag-
are ine ways in which continuous education can be made more ac-
cessible and affordable for the mass of citizens. But it is as easy
becoming indeed, easierto imagine a future in which the emerging infra-
discernible structure of lifelong learning reinforces existing advantages. Far
from alleviating the impact of technological upheaval, that
would risk exacerbating inequality and the social and economic
tensions it brings in its wake. 7

14 The Economist January 14th 2017

 The Economist January 14th 2017 43
Middle East and Africa
Also in this section
44 Iran after Rafsanjani
45 Botswanas struggling economy
45 A mutiny in Ivory Coast
46 Music and politics in Congo

For daily analysis and debate on the Middle East

and Africa, visit
Economist.com/world/middle-east-africa

Startups in the Arab world make it hard to hire and re workers, espe-
cially foreigners, even though schools fail
Set them free to equip many locals with desirable skills,
such as coding. Tax authorities are often
confounded by startups, says Con ODon-
nell, who started Sarmady, an Egyptian on-
line-media company, which he sold to Vo-
dafone in 2008. They dont understand
CAIRO
the Amazon model, says Mr ODonnell,
Its hard to build a startup culture when bankrupts face jail
referring to the e-commerce giant, which

C OULD Beirut become the Silicon

Valley ofthe Middle East? So asked
a Lebanese news website in 2015. With an
bankruptcy law, failure can mean a prison
term ifdebts are not paid on time. Closing a
company can take ve to ten years and
lost money but grew quickly during its rst
two decades.
Amazon is thought to be in talks to buy
educated population, relatively liberal cul- reams of paperwork. Those that stay in Souq, a large online retailer based in the
ture and large banking system, Beirut, the business must navigate outdated legal and United Arab Emirates (UAE). Founded in
capital of Lebanon, seemed well-placed to regulatory systems that make it difficult to 2005, Souq is often touted as a success
become a hub for internet startups in the do things that are routine for startups else- story by investors in the region. But Souq
region. But there was at least one glaring where, such as paying employees with apart, high barriers to trade have prevent-
problem. Lets face itthe internet in Leba- stock options. This is on top of the chal- ed e-commerce more generally from taking
non [is] abysmally bad! wrote Tony Fa- lenges that affect all Egyptian firms, such as o. Getting goods through customs can be
dell, the Lebanese-American co-creator of rising prices and predatory officials. a bureaucratic nightmare, made worse by
the iPod, in November. Due to government Elsewhere the story is much the same. high taris, varying regulations and uctu-
mismanagement, the country has some of In countries such as Jordan and Lebanon, ating currencies. People talk about the re-
the slowest download speeds in the world. which claim to be startup-friendly, it is ac- gion as if it is 200m people, but try to ship
Across the Middle East in recent years, tually quite difficult to start up (see chart). to these people, says Louis Lebbos, the
young men and women have created new Across the region, labour laws tend to founder of AstroLabs, a hub for tech start-
products, started new companies and in- ups in Dubai. Several well-funded ven-
spired hopeful talk of replicating the start- tures have triedand failed. Souq, which
up scenes in America and Europe. These Not so easy anyway ships mostly to the six countries in
entrepreneurs are a potential boon to the Ranking*, selected countries, 2016 the Gulf Co-operation Council, a customs
regions economies, which suer from By ease of: doing business starting a business
union, is the rare exception.
slow growth and high unemployment, es- E-commerce is one of several industries
pecially among the young. A pity, then, Easiest = 1 25 50 75 100 125 150 in which startups could do much more to
that so many obstacles stand in their way United Arab ll market needs. Others include nancial
Emirates
and that so many are put there by govern- technology, as most Arabs do not have
Morocco
ments. No place in the Arab world comes bank accounts or credit cards; and health
close to Silicon Valley in terms of dyna- Tunisia care, with rates of obesity and other dis-
mism. But, slowly, progress is being made, Saudi Arabia eases rising across the region. But rms in
say entrepreneurs. Jordan these industries often have to seek approv-
To understand what startups in the re- Egypt al from slow-moving government agen-
gion are up against, consider that most of Lebanon cies. This can add years to a business plan.
them will fail. That is true throughout the In more developed systems, startups are
Source: World Bank *Out of 190 countries
world, but in a country like Egypt, with no more willing to jump ahead of regulation 1
44 Middle East and Africa The Economist January 14th 2017

2 and the regulation catches up, says Mr The death of Akbar Hashemi Rafsanjani under house arrest.
Lebbos. But here the axe falls on those They have also silenced Muhammad
who jump ahead.
For decades, the regions socialist-
The ayatollahs Khatami, his reformist successor as presi-
dent, banned his name from the media,
minded governments showed little inter-
est in encouraging private enterprise.
long shadow and barred him from attending the funeral.
Hassan Rouhani, though the current presi-
Many leaders are wary of empowering dent and also a protg, is too cautious
young people, who may also seek more and, as a former intelligence officer, too
political freedom. But as the regions econ- much a plodding functionary, to defy the
A pragmatic ex-president passes away
omies struggle, there is pressure on govern- establishment alone. Under Mr Khame-
ments to improve their handling of start-
upsand to keep up with each other. In
November, when Mr Fadell tweeted about
T HEY came to praise him and to bury
him. The eminent former butts of his
criticism filled the front rows of his funeral
neis watchful eye, he will now be a safe
bet for re-election in May.
Still, Mr Rafsanjanis appearances al-
Lebanons slow internet, Saad Hariri, the and showered him with accolades. Ayatol- ways had an uncomfortable habit of veer-
prime minister, quickly responded: I am lah Akbar Hashemi Rafsanjani was the ar- ing off-message. From the covered court-
listening Tony, its on top of our future gov- chitect of Irans revolution, they said, who yard of Tehran University in 2009, he
ernment agenda. In Egypt the cabinet has protected it during the Iran-Iraq war, and challenged the authorities to heed the peo-
just approved the countrys first bankrupt- rescued it from economic siege afterwards. ples voice, when they massaged the vote
cy law, one of several economic reforms Ayatollah Ali Khamenei, Irans supreme to award Mr Ahmadinejad a second term
aimed at encouraging investment. leader, with whom he spent two decades and opened fire on protesters. We need an
Several governments have also injected sparring, tweeted that he was his old open society in which people can say what
money into the system and guaranteed friend and comrade, and read the last they want, he preached. We should not
some of the risk involved in backing start- rites. Fellow clerics organised the biggest imprison people.
ups. Most notably, Lebanon launched a funeral since Ayatollah Khomeinis, as- Eight years later, even though he now
$400m package four years ago to encour- signed him a golden tomb next to the revo- lay in a casket, his supporters took up the
age lending from banks. Such outlays, lutions founder, and promised to name a refrain. From the back of the same court-
paired with the relatively small number of street after him. They closed schools and yard came the cries of dissent. Some
worthy startups in the region, have led to broadcast the ceremony live. Over 2m Ira- donned green wristbands and T-shirts,
fears of a bubble. But more recent invest- nians attended, said the authorities. sporting the colour of the protest move-
ments have been smaller and more organ- The hardliners now hope that at last Mr ment, and chanted Hail, Khatami. Oth-
ic. Last year, for example, Morocco received Khamenei can be truly supreme. Already ers replaced the hardliners mantra of
some $50m from the World Bank to create rejoicing in friendly Russias growing pres- Death to America with Death to Rus-
two new venture-capital funds, part of a ence in the region, and the prospect of vic- sia, just as they had in 2009 when Russias
plan to cultivate its growing startup scene, tory in Syria, the hardliners will finally president had been the first foreign leader
while international investors poured also gain control of the powerful Expedi- to congratulate Mr Ahmadinejad on his re-
$275m into Souq and $350m into Careem, a ency Council that Mr Rafsanjani led for 28 election. Eventually the sound technicians
ride-hailing app based in the UAE. years, a recurrent thorn in their sides. Help- drowned out the dissenters with mourn-
In most countries there are now clusters fully, the security forces have ensured that ing music.
of startups, brought together by co-work- the late Mr Rafsanjani had no one to pass In a sense both requiems were right.
ing spaces like Astrolabs in Dubai or Cogite his mantle to. Mir Hossein Mousavi and Ayatollah Rafsanjani was both a pillar of
in Tunisia, which have connections to ac- Mehdi Karroubi, the two presidential can- Irans theocratic establishment and its
celerators, incubators and investors. Col- didates he backed against the anti-Wester- prime critic. He both fuelled criticism and
laboration is common. Last month the nising Mahmoud Ahmadinejad, are safely harnessed it within acceptable parame-
Greek Campus, a hub for startups in down- ters. But for his manoeuvring, many more
town Cairo, hosted the Rise-Up summit, disgruntled Iranians might have aban-
one of the largest gatherings of entrepre- doned the doctored electoral process and
neurs in the region. Many young geeks aim sought other means to voice dissent. The
to do good as well as make money. Abdel- merchant classes would have despaired of
hameed Sharara, who started the event in the possibility of normal trade with the
2013, says he was motivated by the failures West. And the clerics in the holy city of
of the Arab spring. I felt there was another Qom, who shy from mixing Islam and pol-
way to make it happen. Many in atten- itics, would more vociferously have ques-
dance share his sense of purpose. We are tioned the legitimacy of the Islamic Repub-
figuring out how to feed people better, how lic. We thought that he would be the one
to empower women, how to educate chil- who could secure the transition to a more
dren, says Waleed Abd El Rahman, the moderate pro-Western regime, says a
founder of Mumm, a home-cooking deliv- young mourner in shock at his passing.
ery service in Cairo. For a moment this week, Mr Rafsanjani
Unfortunately, the difficulty of doing brought Irans contradictory forces togeth-
business in the region, and the repressive er. All thronged to his funeral, andre-
nature of most governments, have caused markably in the Middle Eastkept it peace-
many of the brightest minds to move ful. But maintaining that common ground
abroad. But these challenges also force without the centrist may be harder. Rulers
those who remain to think creatively and ruled will have fewer restraints. Prot-
about how to work around the system. esters could increase their demands for the
And this makes for better companies, say release of opposition leaders; hardliners
many entrepreneurs. If you can succeed might sense a freer hand to suppress them.
in a country like Egypt, everywhere else is The wounds that Mr Rafsanjani helped
easy, says Mr Sharara. 7 After the tears, the protests? bind while alive risk being reopened. 7
 The Economist January 14th 2017 Middle East and Africa 45

Botswana 108th in the International Telecommunica-

tion Unions ICT Development Index, with
Between rocks only 27.5% of its people online.
A more realistic strategy to diversify
and hard places away from diamonds is to attract more
tourists. But instead much of the govern-
ments focus has been on deepening its de-
GABORONE
pendence on the shiny stones by trying to
A sparkling performer falls on rough
become a global centre for cutting and pol-
times
ishing them. Its flagship policy involved

I N PHAKALANE, an affluent suburb of

Botswanas sleepy capital Gaborone, a
modern assembly line spits out thousands
strong-arming De Beers, the worlds big-
gest diamond firm (of which it owns 15%),
to bring its sales and sorting operations
of batteries destined for southern African over from London.
cars. Whether in glitzy Bentleys beloved of For Mr Khama, the diversification plans
the South African elite or the beaten-up have gained renewed urgency. His Botswa-
Toyotas swerving to avoid Harares pot- na Democratic Party (BDP), which has held
holes, the devices made by employees of power since independence in 1966, is fac-
Chloride Exide keep the region moving. ing its first real challenge at the ballot box.
Yet trouble is brewing just beyond the The BDPs share of the vote dipped below Barrack o drama
factory gates. Less than 25 miles (40km) 50% for the first time in the 2014 general
away in South Africa, the companys larg- election, amid frustration with unemploy- attracting money into the country.
est export market, a slowdown has crip- ment and with water and power short- Yet while Mr Ouattaras economic re-
pled demand. In the past year some ages. Like South Africas African National cord is commendable, his political one is
30,000 fewer batteries than usual were Congress, the BDP is nervously looking less so. Most of the soldiers leaving their
shipped across the border. To make things ahead to an election in 2019. 7 barracks were former rebels, integrated
worse, sales to Zimbabwe, once a big buy- into the national army after the end of the
er, have been hit by import restrictions. short war which brought Mr Ouattara to
In September Botswana exported just Ivory Coast power. Their demands, apparently includ-
$54m to South Africa, according to govern- ing a call for $8,000 each (five times annual
ment figures, and imported $371m worth
of goods from its big neighbour. Local busi-
Mutiny for a GDP per head), date back to promises alleg-
edly made during that conflict, which start-
nessmen grumble that South African firms
with operations in Botswana do not spend
bounty ed when Laurent Gbagbo, the previous
president, refused to leave office after los-
enough locally. Business Botswana, a lob- ing an election in 2010. For most of the de-
by group, is calling on South African super- cade before then, Ivory Coast was em-
Trouble in one of Africas strongest
market chains to boost local procurement broiled in a longer civil war and divided
economies
above 10%. into two parts: a rebel-held, mostly Muslim
Ian Khama, Botswanas president, has
repeatedly criticised his neighbours. In
September he renewed a feud with Robert
W AR, said Carl von Clausewitz, is poli-
tics by other means. In Ivory Coast,
the country at the heart of Francophone
north, and the government-held more
Christian coast. Much of the countrys re-
cent rapid growth has involved catching
Mugabe, the ailing autocrat who has im- West Africa, so too is mutiny. On January up after that lost decade of strife.
poverished Zimbabwe, again urging him 6th soldiers seized Bouak, the second- Soldiers are not the only people to feel
to step down. He has also chided Jacob largest city in the country. Over the week- aggrieved: teachers and civil servants have
Zuma, South Africas beleaguered presi- end they briefly kidnapped the countrys also gone on strike recently, notes Mama-
dent. In June Mr Khama accused South Af- defence minister and shooting was heard dou Diallo, a consultant in Abidjan. Plenty
rica of stifling industrialisation in the re- in Abidjan, the commercial capital. of Ivorians feel left out of the economic
gion by branding itself as a regional Purportedly, the dispute was about sol- boom, he says. The army, which also muti-
gateway for investment, and argued that diers pay. On January 8th, having been nied in 2014, remains an unruly alternative
it was treating its neighbours as little more promised generous bonuses, the soldiers source of power in a country with weak in-
than a marketplace for exports. returned to their barracks. Alassane Ouat- stitutions. Many Ivorians suspect that the
Mr Khama is undiplomatic perhaps be- tara, the president, sacked the army and mutineers were actually incited into ac-
cause he is anxious. The diamonds that police chiefs. However, many Ivorians tion by politicians who want to make sure
propelled Botswanas exceptional growth found the timing of the mutiny suspicious. that they are included in the new govern-
and paid for impressive infrastructure It came a few days before Mr Ouattara dis- ment that Mr Ouattara was expected to an-
could be exhausted before 2050. In 2014 solved his government in anticipation of nounce as The Economist went to press.
Russia overtook Botswana as the worlds implementing a new constitution. This is part of a process of implementing a
biggest producer. Global rough-diamond In economic terms, Ivory Coast has in new constitution, which passed in a refer-
sales to cutters fell by some 30% between recent years been one of Africas star per- endum in October.
2014 and 2015, leaving Botswana with its formers. Between 2012 and 2015 its GDP Ivory Coasts recent relative stability
first budget deficit in four years. grew at an average rate of 8.5% per year. Ab- should not be taken for granted. So far, for-
The government is taking note. In Feb- idjans crumbling 1970s brutalist skyline eign investors have remained calm. An al-
ruary it launched a fiscal stimulus pro- has been transformed by a wave of foreign Qaeda attack that killed 19 people in March
gramme to tackle unemployment, estimat- projects. New offices, malls, a Heineken last year at Grand Bassam, a pretty resort
ed at around 19% in a population of 2m. brewery and various factories have sprout- town that was once the French colonial
Government investment promoters in ed. This is largely thanks to the policies of capital, did little to ruffle them. A return to
swanky premises in downtown Gaborone Mr Ouattara, an American-educated econ- full-blown war is extremely unlikely. But if
talk up Botswanas potential as a hub for omist who came to power in 2011. He has investors suspect it is even possible, they
tech firms or green energy. But it ranks prioritised infrastructure investment and may close their wallets. 7
46 Middle East and Africa The Economist January 14th 2017

Congo the opposition listen to my songs at their

rallies, she says, nonchalantly.
The sound of politics And indeed, the expectation that musi-
cians will be mercenary is universal. On ra-
dio stations across Congo, it is common to
hear the names of politicians punctuating
songs. This is known as Libanga (literally,
small stone, of the sort that a child might
KINSHASA
throw to attract attention). It is not done
Congos pop stars and politicians have a strangely symbiotic relationship
out of ideological conviction. Werrason,

I N THE Democratic Republic of Congo

there are three ways to make it big, says
Lexxus Legal, a rapper (pictured). Standing
but with even more flamboyant clothes.
The politicians are happy with this ar-
rangement. In a country where almost no-
one of Congos most famous musicians,
once produced a song in which he named
110 dierent people, many of whom would
in his house in Kinshasa, the capital, un- body reads newspapers and everyone has have paid for the privilege. Only breweries
derneath a mural of Congos first prime a radio, music is the easiest way for them to and mobile-phone companies, with their
minister, Patrice Lumumba, he lists them. reach potential supporters. Music and poli- big marketing budgets, can match politi-
First, you can become a politician. Second, tics in Congo are thus entwined. And with cians largesse.
you can join the army (but you need to be an election looming in 2017, the relation- Does it matter that Congos music, its
at the top: a general, not a footsoldier). Fi- ship will only grow closer. biggest cultural export, is polluted by poli-
nally, you can set up a church. That is On a plump sofa, Tshala Muana, a sing- tics? David Van Reybrouck, the author of
what you call having power, he says. No- er, explains how she began as a dancer in an excellent history of Congo, says close
ticeably, he rules out his own profession. the 1970s. Under Congos then dictator, ties have always existed between music
The musicians in this country are beg- Mobutu Sese Seko, she wasnt allowed to and politics. The countrys rst hit was the
gars, he says. They are obliged to sing and sing. As part of his eort to create a single song Independence Cha-Cha, which
dance to please politicians and business- national identity (a policy he called au- was rst performed in January 1960, a few
men. If you sing as I do, controversially, thenticit), songs in Lingala were favoured months before Congo won independence
you really have no chance. and those in other local languagessuch as from Belgium.
Music is probably Congos most influ- Tshiluba, in which Ms Muana singswere
Independence cha-cha declared
ential export, though nowhere near as lu- discouraged. Her luck turned in 1997, when
Oh Freedom cha-cha weve conquered
crative as copper or gold. Whereas in the Mobutu fell and was replaced by Laurent At the Round Table they won
West the countrys name inspires pictures Kabila. He invited Ms Muana, who had Oh Liberty cha-cha weve conquered!
of child soldiers fighting bloody battles, in moved to West Africa, back to Kinshasa.
most of Africa it is associated with rumba Musicians should live in their own coun- Mobutuism was supported by Franco
Lingala (Lingala is the language of the Kin- try, she recounts him telling her. So he be- Luambo, one of the original rumba stars.
shasa street). This upbeat music has be- came my sponsor. Even the launch of the Congolese franc,
come genuinely pan-African in the 60 Now, Ms Muana sings for his son, Jo- which replaced the hyperinated zaire in
years since Congolese musicians were first seph Kabila, who became president in 1997, was supported by a musical propa-
inspired by Cubans. It can now be heard 2001 when his father was assassinated. ganda campaign.
from Abidjan to Dar es Salaam; in Congo, Her songs in Lingala and French include Yet Mr Legal, who raps in French about
its home, it is practically a religion. such hits as Votez Joseph Kabila and Ka- war and corruption, thinks it is a problem.
Alas, like the country itself, Congolese bila tres fort. When she met your corre- Everything that we Congolese do is dri-
music is blighted by corruption. Since Con- spondent, a few days before the end of Mr ven by music, he says. But in music it is
go has few producers or studios, only a tiny Kabilas second (and supposedly nal) difficult to explain 10,000 dead people. We
market for sales and a population who al- term in office, many wealthy residents had keep dancing instead of answering the real
most all live on a few dollars a day, Congo- fled, fearing riots. Ms Muana says she isnt questions. Congolese living abroad tend
lese musicians have to survive from pa- worried by her association with the presi- to agree. Before the elections of 2006 and
tronage, like Mozart in 18th-century Vienna dent. I may sing for the president, but even 2011, musicians associated with the gov-
ernment were boycotted by Congolese in
Europe. Werrason was assaulted twice in
restaurants in Brussels and Paris because
of his support for Mr Kabila.
This year, Congo is meant to hold elec-
tions to replace Mr Kabila, under a deal
struck with the opposition on New Years
Eve. Already, music naming politicians is
filling the airwaves on Kinshasas Lingala
radio stations. It is nothing but politics
now, says Ms Muana. If Mr Kabila does in-
deed step down, the ensuing rush for jobs
will spark a festival of patronage. Sadly,
few think Mr Kabila, who has already over-
stayed his mandate, plans to give up the
job. And after 16 years in which their lives
have not improved much, few people sup-
port him. Ifhe does intend to stay in power,
he will need more than a few songs. 7
...............................................................
Links to some of the artists mentioned are available at
Beggars with attitude www.economist.com
 The Economist January 14th 2017 47
Europe
Also in this section
48 Italys Five Star Movement
48 The liberal and the populist
49 War crimes and punishment
50 Europes fragmented politics
51 Charlemagne: The cruel
Mediterranean

For daily analysis and debate on Europe, visit

Economist.com/europe

The French left drop the name socialist, has pushed for
looser labour laws and takes a hard line on
Battling for survival security and integration. But many Social-
ist primary voters want a French version of
Bernie Sanders or Jeremy Corbyn. Mr Valls
is trying to recast himself as acceptable to
radicals. He spoke this month of creating
more government jobs, new welfare for
EVRY
the poor and young, and opposing rule by
Facing a grim year, the Socialists could pick a surprise presidential candidate
executive decrees (which he routinely

S TROLL through Evry, a suburb south of

Paris crammed with tower blocks and
fresh construction, and you will find Ma-
cumbency. Before resigning in December
to campaign for the presidency, he was the
prime minister of Franois Hollande, a
used in office). Few are convinced.
One serious rival is Arnaud Monte-
bourg, a statist who was forced to resign as
nuel Valls a popular man. Mr Valls was president whose popularity has sunk to industry minister in 2014 after opposing
mayor here for 11 years, before he became historic lows and who last month became Mr Hollandes increasingly liberal policies.
interior minister and then prime minister, the first French president not to seek re- In the Socialists first primary in 2011, he
and did much to improve a run-down election since the founding of the Fifth Re- won 17.2% support to Mr Vallss 5.6%. Per-
neighbourhood. On his way to the public in 1958. His leading role in an unpop- haps a bigger threat is the populist Benot
mosque, Abdoulaye Sambe, an immigrant ular government will force him to squirm Hamon, another ex-minister who resigned
from Senegal, calls Mr Valls a good in debates, deciding how much of his re- in 2014. Voters like his proposal for a uni-
leader; he credits him for the neighbour- cord to disavow. Rivals such as Vincent versal basic income. Whoever reaches the
hoods congenial inter-ethnic relations. Peillon, a former education minister, will second round has a good chance of top-
The proprietor of a juice stand in a shop- relish the chance to skewer him. pling Mr Valls, especially if turnout is high.
ping centre praises him for getting more A related problem is ideology. Mr Valls, No matter whom the Socialists nomi-
surveillance cameras installed. Students a Blairite who once called for his party to nate, their chances of winning the presi-
lounging in the foyer of a university laud dential election in May are slim. But the So-
him for sprucing up the area. cialist nominee will influence the chances
But as Mr Valls competes for the Social- Voter pour qui? of other candidates on the left. Two other
ist nomination in this years presidential France, support for candidates in the first round figures on the left have already declared
election, he faces a problem: none of these of the presidential elections, % polled that they are running as independents.
January 2017
denizens of Evry plans to vote for him. A 0 5 10 15 20 25 30 One is Jean-Luc Mlenchon, a hard-left
series of televised debates between the Marine Le Pen member of the European Parliament. An-
(National Front)
seven candidates in the Socialist primary other is Emmanuel Macron, an economic
Franois Fillon
began on January 12th, to be followed by (The Republicans) and social liberal and former economy
the primarys first round on January 22nd Emmanuel Macron minister. Many bigwigs and financiers are
(En Marche!)
and a run-o on the 29th. The polls show Jean-Luc Mlenchon quietly backing him. He will siphon away
Mr Valls in the lead, but in fact the race is (La France insoumise) many of the young, educated, internation-
wide open. As in the Republican primary Manuel Valls* ally minded voters on whom the Socialists
(Socialist Party)
in November, when the candidate in third Franois Bayrou would normally depend (see chart).
place, Franois Fillon, stormed to a win, (Democratic Movement) The left is a mess, says Laurent Bouvet
there is every likelihood of an upset. *Current party primary frontrunner
Currently undeclared
of Versailles University. He thinks only
Source: Ifop
One of Mr Vallss disadvantages is in- 40% of voters would consider backing any 1
48 Europe The Economist January 14th 2017

2 left-leaning candidate. If the leftist con- tion. On the centre-right Mr Fillon, who Italys populists
tenders split their share of the vote close to trumpets his Catholic identity, is winning
evenly, none has a chance of winning
20-25%, which is probably the minimum to
over small-town voters who might once
have voted Socialist but are uneasy about
Five Star mystery
make the run-o in May. But if the Social- liberal moves such as Frances legalisation
ists pick a hard-left candidate this month, it of gay marriage. Muslim voters, mean-
could leave the way open for a centrist like while, mistrust the lefts dedication to the
Mr Macron. Bookmakers give him the best strict French secularism known as lacit.
ROME
odds of any on the left. Yet he is still a long After the presidential election, the So-
What does Beppe Grillos party believe?
shot, says Philippe Marlire, a political sci- cialists risk a mauling in legislative elec-
entist at University College London.
The longer-term future of the Socialists
looks precarious. Marine Le Pen of the Na-
tions in June. They have been here before:
in 1993 they won just 57 of the 577 seats in
the National Assembly. But the months
I F AN election were held in Italy today, ac-
cording to the latest polls, the winner
would be Beppe Grillos Five Star Move-
tional Front is appealing to blue-collar vot- ahead are set to be the gloomiest they have ment (M5S). Termometro Politico, a web-
ers worried by globalisation and immigra- seen in many years. 7 site that averages poll results, currently
puts it fractionally ahead of the governing
Democratic Party (PD). But whatif any-
The European Parliament
thingdoes the M5S stand for? The move-
Opposites attract ment claims to be neither right nor left; its
positions on issues are often contradictory.
And after the most humiliating setback in
the M5Ss brief history, the answer is less
For about five minutes
clear than ever.

G UY VERHOFSTADT, leader of the

liberal ALDE grouping in the Euro-
pean Parliament, once dismissed Italys
M5Ss activists argue for a revolution-
ary, internet-based form of direct democra-
cy. They despise mainstream parties. They
upstart Five Star Movement (M5S) as inveigh against the Transatlantic Trade and
incompatible with his pro-European- Investment Partnership (TTIP). They dis-
ism. Beppe Grillo, its leader, called Mr like the European Unions sanctions
Verhofstadt unpresentable. Since then against Russia. And while many of Mr
Mr Verhofstadt, a former Belgian prime Grillos followers are less hostile than he is
minister whose answer to every problem to the EU itself, the Movements demands
is a rousing cry of More Europe!, has include a consultative referendum on leav-
positioned himself as a bulwark against ing the euro.
the anti-European populism ravaging the Yet on January 8th Mr Grillo proposed
EUprecisely the sort of thing Mr Grillo on his blog that M5Ss representatives in
has made his stock-in-trade. So when the European Parliament should leave Eu-
plans for a parliamentary alliance be- rope of Freedom and Direct Democracy
tween the two men emerged on January (EFDD), the Eurosceptic parliamentary
9th, pundits scratched their heads. ALDE A liberal interpretation group to which they have belonged since
and M5S vote against each other as often rst winning seats in 2014, and join the Al-
as not (see chart). Most of ALDEs 69 MEPs er to divine. One explanation might be liance of Liberals and Democrats for Eu-
were horried at the prospect of joining the fact that he is running for the presi- rope (ALDE), a centrist group that disagrees
forces with a party that stood for every- dency of the European Parliament (the with the M5S on all of the points above
thing they detested. Before the day was incumbent, Martin Schulz, is leaving to and many besides.
out they had squashed the plan. rejoin German politics). The chamber Some analysts speculated that Mr
Mr Grillos excuse was that Brexit was votes on January 17th, and M5Ss 17 MEPs Grillo was trying to woo moderate, pro-
going to make his existing partnership would have helped the ALDE leader in European voters. Others plumped for cyni-
with UKIP, an anti-EU British party, de- his bid. But his candidacy was always a cal opportunism. The EFDDs biggest mem-
funct. Mr Verhofstadts motives are hard- long shot. ALDE is dwarfed by the parlia- ber is the UK Independence Party (UKIP),
ments centre-left and centre-right group- which will depart when Britain leaves the
ings, one of which will almost certainly EU. That will leave the EFDD with fewer
All over the map provide the next president. members than it needs to form a parlia-
Share of votes in the European Parliament where An expanded group would also have mentary group and strip its remaining con-
the Five Star Movements vote matched those of been eligible for more funding. But what- stituent parties of funding and administra-
other political groups, 2014-16, %
ever the reason for Mr Verhofstadts tive support. The M5S stands to lose an
0 20 40 60 80 gambit, it backred spectacularly. His estimated 340,000 ($362,000) a year.
EUROPEAN PARLIAMENT GROUPINGS

GUE tactics compounded the sin. Many of his The morning after Mr Grillos unexpect-
Greens/EFA MEPs heard about the proposal in the ed announcement, an online poll of the
S&D press, fuelling their fury. Some gave him Movements registered members was
an earful at a closed-door party meeting. held. His plan for the most unlikely mar-
ALDE
One suggests his idiotic hubris means riage since Kermit the Frog and Miss Piggy
NI* his days as ALDE leader are now num- won a 79% endorsement. Soon afterwards,
EPP bered. So in short order Mr Verhofstadt Mr Grillo published a farewell letter to Ni-
ECR infuriated his allies, destroyed his bid for gel Farage, the EFDD president. But by then
UKIP
the presidency and exhibited precisely (see box) a revolt was brewing in the ALDE
the sort of political cynicism he claims to and the plans were cancelled.
Source: VoteWatch *Non-attached MEPs
stand against. Not a bad days work. Mr Grillos mishandling of the aair led
to scathing criticism from rank-and-le 1
 The Economist January 14th 2017 Europe 49

2 members on his blog. But the eect on the in the Balkans, is that it did anything at
broader electorate could prove more da- all. Judge Carmel Agius, the president of
maging. The M5S has always insisted that, the tribunal, admits it has been a troubled
by ignoring ideology, it can cherry-pick journey but is proud of its achievements.
policies that work. The European Parlia- The tribunals biggest failure was its in-
ment asco suggests that it simply lacks ability to convince people in the former
principles. It also sheds a disturbing light Yugoslavia that it was impartial. Many in
on the ability of Mr Grillo (pictured) to the region saw it as a foreign imposition. It
mesmerise his acolytes into backing con- was created by outsiders at a moment
tradictory positions. The percentage voting when the world had the will to demand
for an alliance with ALDE was almost iden- justice for war crimes wherever they were
tical to that three years earlier for cosying committed. But trials have dragged on for
up to the radicals of the EFDD. years, and judges and lawyers are paid
The M5S has nevertheless shown a re- handsomely. People in the former Yugosla-
markable capacity for survival. And be- via, Mr Agius says, suer from a habit of
cause of a Constitutional Court decision blaming foreigners or someone else for
on January 11th, it is unlikely to face the their disappointments. But, he says, not a
electorate soon. The judges stymied a refer- single mass grave would have been exca-
endum aimed at nullifying the centrepiece vated if the tribunal had not existed.
ofa 2014 employment lawthe main struc- Mirko Klarin, a journalist who urged
tural reform of the previous government, the courts creation in an article in 1991,
led by Matteo Renzi. Mr Renzi, who re- says one success was expanding the deni-
signed after losing an earlier referendum A man of many principles tion of war crimes. Yet this, he thinks, may
on constitutional reform, continues to have been the courts downfall. Starting in
head the PD. The government ofhis succes- are expected to deal with both of them be- 2012, several acquittals called into question
sor, Paolo Gentiloni (also of the PD), had in- fore then. Sergio Mattarella, Italys presi- the courts command responsibility
dicated that, rather than face a vote that dent, is reluctant to call an election before precedents, which held leaders culpable
might have nullied Mr Renzis proudest the country has a new election law. Since for war crimes committed in operations
achievement, the government would join such laws are notoriously hard to agree on, they had ordered but not directly led.
calls to dissolve parliament and hold elec- Mr Gentiloni could be prime minister for Many observers believed that powerful
tions, which would have postponed the longer than either he or Mr Renzi expected. Western countries worried that such stan-
referendum for a year. If, that is, his health holds. He underwent dards might be applied to their own armed
Two other labour issues will be put to a heart surgery after feeling unwell on his re- forces or politicians, and used their inu-
national vote in the spring, but ministers turn from Paris on January 10th. 7 ence to turn the tide.
The suspicion that war-crimes tribu-
nals are an alien imposition also afflicts the
The Yugoslavia and Kosovo tribunals new Kosovo court. In fact the court is not a
UN body. It is a tribunal set up under Kos-
Better than nothing ovo law, with foreign judges, funded most-
ly by the EU and in response to allegations
made in a Council of Europe report in 2011.
(One was that several prisoners held by
what was then the Kosovo Liberation
Army were murdered for their organs.) Flo-
THE HAGUE
rina Duli, who runs the Kosovar Stability
As one war-crimes court shuts down, another starts up
Initiative, a think-tank, says many of her

I T WAS a historic day for international jus-

tice, but it did not look like it. On Decem-
ber 15th Ratko Mladic sat in the dock at the
ing indictments for Kosovars accused of
crimes committed between 1998 and 2000.
Created in 1993 by the UN Security
compatriots are convinced that the new tri-
bunal is a tool of big countries and the
European Union. They think the threat of
UNs Yugoslavia war-crimes tribunal in Council, the Yugoslavia tribunal ultimate- indictments will be used to blackmail
The Hague, grumbling and reading a news- ly indicted 161 people and sentenced 83 of Kosovar leaders to do what the Europeans
paper. When the prosecutor accused him them. Its greatest success, says Eric want, such as keeping the EU-sponsored
of organising the massacre of more than Gordy, the author of a book on war crimes dialogue with Serbia going.
7,000 Bosniak Muslim men and boys after David Schwendiman, the prosecutor,
the town of Srebrenica fell to his Bosnian HUNGARY 120 km concedes that the aims of the new tribunal
Serb forces in 1995, he wagged his nger in SLOVENIA are more modest than in decades past. His
Zagreb
denial. It was the last day of his trial, Ljubljana work may not deter fighters from commit-
C ROAT I A ROMANIA
though the verdict could be a year in com- Belgrade
ting crimes in Syria. Still, he sees a duty to
ing. Verdicts about the court itself, mean- build a body of law with which to try such
while, are already being handed down. BOSNIA Srebrenica criminals when the political will to do so
The case against Mr Mladic brings to an SERBIA returns. In the meantime, the tribunals
A Sarajevo
end the trials of the important gures in- d [help] people learn what happened, but
r
dicted by the tribunal. (Appeals are being ia MONTE- Pristina not be consumed by it. As an effort to re-
t NEGRO
dealt with by another body.) In the Bal- ic
Podgorica KOSOVO cord history, the Yugoslavia tribunal with
kans, there is widespread disappointment I TA LY S
e Skopje
its archive of millions of pages is an undis-
a
at the role it has played. Meanwhile, as one Tirana
MACEDONIA
puted success. That, and the convictions it
tribunal shuts down, a new one for Kosovo has achieved, says Mr Gordy, are defi-
was launched in the Netherlands on Janu- ALBANIA nitely better than nothingand most con-
GREECE
ary 1st. Later this year it should begin issu- flicts get nothing. 7
50 Europe The Economist January 14th 2017

Political fragmentation come of Europes richest 10% grew almost

three times faster than that of the poorest
Going to bits 10%, according to the OECD, a club of most-
ly rich countries. As wages became more
dispersed, voters preferences grew more
polarised, with the rich supporting the sta-
tus quo and the poor opposing it. Polarisa-
tion among the public begets fragmenta-
tion in parliament. At the same time the
Europeans are splitting their votes among ever more parties
values of urbanites increasingly diverged

A FTER two months and three failed

rounds of negotiations, Iceland has a
government at last. On January 10th Bjarni
Splintering
Europe, parliamentary elections, average:
from those of rural folk. Such splintering
creates distinct pockets of voters to which
smaller parties can appeal.
Benediktsson, leader of the Independence share of the vote received number of parties with Another factor is plummeting party loy-
by the winning party, % more than 1% of the vote
Party, announced that he had struck a deal alty. In the 1960s roughly 10% of Britons
with two other centre-right groups. Yet his 40 10 were members of a political party. Today a
tenure as prime minister may be short. Op- 38 9 mere 1% are. A similar pattern holds across
position politicians are already calling for a Europe. Mainstream media organs once
vote of no confidence and fresh elections. 36 8 tended to support one of the two main po-
And even if the coalition survives for the 34 7 litical powers and cover only a handful of
moment, with a measly one-seat majority, curated topics. Today politics can be more
it is unlikely to last long. 32 6 personal. An ardent green voter might read
Iceland is not alone in its coalition- 30 5 only environmental news, sharing it with
building woes. Across Europe politics is be- like-minded souls on social media.
coming more fragmented and govern- 1950- 60- 70- 80- 90- 2000- 15- Some electoral systems are designed to
ments harder to form. Smaller parties, 54 64 74 84 94 04 16* keep smaller parties out of power, thus dis-
Five-year averages
among them populists and single-issue *2015-16 only
couraging fragmentation. But these mecha-
Sources: ParlGov database; The Economist
outfits, are popping up and stealing sup- nisms are less effective than they used to
port from the traditional powers. In the be. Greece awards a 50-seat bonus to the
early 1980s the average number of parties they sit on the political spectrum, the fewer winning party. Yet Syriza, the ruling left-
winning more than 1% of the vote at each laws they will pass. wing outfit, still failed to secure a parlia-
election was seven. Now it is nine. Mean- Because coalition governments have mentary majority after the latest election
while the share of the electorate that the more mouths to feed, they can be expen- in 2015. Even Britain, which has a first-past-
winner claims has fallen from 37% to 31%, sive. One paper by Kathleen Bawn and the-post system, was forced into coalition
on average (see chart). Frances Rosenbluth, both political scien- government after the 2010 election.
tists, looked at public-sector expenditure One strategy for coping with fragmen-
Party up across 17 European countries from 1970 to tation is to form so-called grand co-
In many ways, a greater diversity of parties 1998. It found that adding a party to a co- alitions of parties across the left-right di-
is a good thing. It allows more voices to be alition increased spending by 0.5% of GDP. vide. Such coalitions currently govern in
heard, and can increase citizens engage- For countries with strong economies and Germany, Austria and the Netherlands. Yet
ment with politics. But it also has draw- low debt, such as the Netherlands, this this often reinforces the dynamic: voters
backs. The most obvious is time-consum- may not be a problem; for countries like become frustrated by the colourless cen-
ing coalition wrangling. Irish lawmakers Greece and Italy it is. trism of such governments, and drift fur-
took 63 days to strike a deal after an elec- One reason for rising fragmentation is ther to the extremes. On the bright side,
tion last March. In October Spains Popular growing inequality, explains Simon Hix of this brings even more political diversity. As
Party cobbled together a minority govern- the London School of Economics. Between for the dark side of political fragmentation,
ment following ten months of political the mid-1980s and 2008 the disposable in- Europe may simply have to live with it. 7
deadlock and two elections. After a 2010
ballot Belgians went a record 589 days
without a government.
Such awkward coalition governments
tend to be shorter-lived than those with
fewer parties and clearer mandates. Since
1970 single-party majority governments in
rich European countries have lasted
around 1,100 days. Minority coalitions
made it less than half that time.
In addition, coalitions made up of
widely disparate parties struggle to pass
laws. Finlands current government, made
up of two centre-right parties and the True
Finns, a populist, nationalist outfit, came to
blows in 2015 over a proposed health-care
reform. After more than a year of negotia-
tions and the prime minister threatening to
dissolve the parliament, a deal was finally
struck in December 2016. Studies suggest
that this fits a pattern: the more parties
there are in a coalition or the farther apart
 The Economist January 14th 2017 Europe 51

Charlemagne The cruel sea

The Mediterranean will be at the heart of Maltas EU presidencyfor all the wrong reasons
EU partners went nowhere. Its relationship with Italy soured in
rows over responsibility for migrants picked up at sea.
How things have changed. Thanks, say some, to a mysterious
deal between Italy and Malta not acknowledged by either side,
few irregular migrants now disembark in Malta; the Central Med-
iterranean route runs almost exclusively between Libya and Italy.
More importantly, a separate crisis in the Eastern Mediterranean
jerked migration to the top of Europeans concerns. The refugee
crisis of 2015-16, when over 1m migrants hopped from Turkey to
Greece and thence towards Europes heart, so traumatised Eu-
ropes leaders that they have turned to the Central Mediterranean
route with renewed vigour. Here the numbers have edged rather
than rocketed up: 181,000 reached Italy in 2016. The difference is
that they now have Europes attention.
Perhaps the trickiest task of Maltas presidency will be an in-
ternal one: brokering agreement among the EUs governments on
how to share the burden of irregular migration. But Joseph Mus-
cat, the prime minister, has bigger ideas. He wants the EU to strike
deals with African countries similar to that agreed with Turkey in
March 2016, which drastically slowed the flow of migrants to
Greece. Details are unclear, but Mr Muscat mentions joint naval

A LL that concerns the Mediterranean is of the deepest inter-

est to civilised man, wrote Edward Forbes, a 19th-century
naturalist. Europes great sea will loom large as Malta, the Euro-
patrols of North African waters. Others have revived an old no-
tion of offshore asylum-processing centres in Egypt and Tunisia.
Im aware these are controversial ideas, says Mr Muscat. But
pean Unions smallest member, takes up the rotating presidency there is no other option. He will advance his arguments at an EU
of its Council of Ministers for the first half of 2017. That is fitting, summit in Malta next month.
for the Mediterranean has defined the destiny of this speck south The prime minister says most EU leaders agree with him. But
of Sicily. The Great Siege Road, which runs along the northern the Turkey deal offers few lessons for Africa. Almost half of the
edge of Valletta, Maltas handsome capital, recalls the islands re- migrants in Greece last year fled the civil war in Syria. But most of
pulsion of Ottoman invaders in 1565, an act of defiance that reso- the migrants in the Central Mediterranean are seeking better
nated across Christian Europe. A covetous Napoleon said con- wages, not fleeing war, which means their asylum bids are likely
quering the strategically located island was worth any price. to fail. Failed asylum-seekers are devilishly difficult to deport, as
Centuries later a bull-headed Maltese prime minister shoe- countries like Germany have been learning. And where Turkey is
horned a chapter on Mediterranean security into the Helsinki Ac- well governed (if increasingly despotic), Libya is in chaos. This
cords, a cold-war compact between the West and the Soviet bloc. weekItaly reopened its embassy in Tripoli and signed a migration
Yet Maltas fellow Europeans have not always been so inter- and security agreement with one of Libyas two governments.
ested in the Mediterranean. The accession ofMalta and Cyprus to But such is the volatility in Libya, says Mark Micallef, a Maltese
the EU in 2004 marked the end of the clubs expansion in the re- Libya-watcher, that there is no guarantee Italy will have any
gion. An ill-fated European Neighbourhood Policy failed to partner at all in a few months.
draw the littoral states to the east and the south closer to the EU. In
2008 Nicolas Sarkozy, then Frances president, launched a 43- The thick blue line
country Union for the Mediterranean to much fanfare but zero The Mediterranean is not without hope. Against the odds Tuni-
effect. Since then the menace of Russia and the plight of Ukraine sia, just 300 miles from Malta, is consolidating its post-revolution-
have drawn European attention eastwards. To the south, the EU ary democracy. The EU seems determined to buttress Libyas no-
has merely watched helplessly as the promises of the 2011 Arab tional government, if only to have a partner to help it stem the
uprisings were swallowed by counter-revolution and civil war. migrant flows. To Maltas east, hopes are high that 2017 may final-
Today the Mediterranean may be back, but not for happy rea- ly bring an end to the decades-long division of Cyprus (reunifica-
sons. If, in the words of David Abulafia, a historian, the sea was tion talks were being held as The Economist went to press). A Cyp-
once the most vigorous place of interaction between different riot deal could improve the EUs relations with Turkey, unlock oil
societies on the face of the planet, for Europe it now represents and gas supplies in the eastern Mediterranean and smooth the
only danger and instability. Maltas presidency plan draws atten- burgeoning relationship between the EU and NATO.
tion to the Mediterraneans ongoing conflict, socioeconomic But the EU has cleaved the sea in two. Club Med may have
challenges, terrorism, radicalisation and human-rights viola- struggled inside the euro, but EU membership has consolidated
tions. Analysts warn of a wall of poverty to Europes south. democracy in Portugal, Spain and Greece. Malta itself is economi-
Chief among the concerns, of course, is migration. This is cally thriving and a far more relaxed place than the hidebound
nothing new for Malta; between 2002 and 2012 thousands of ref- country that joined the EU in 2004. Outside the union, to the
ugees fleeing war-torn African states like Somalia and Eritrea south and east, the Mediterranean is a sea of troubles. Maltas
threatened to overwhelm the tiny island. Utterly unprepared for politicians have often warned that if the EU fails to export stabil-
the arrivals, the Maltese shoved them into grim detention cen- ity to its southern neighbourhood it will find itself importing in-
tres, which remain open today. Maltas bid for solidarity from its stability instead. So far, they have been proved right. 7
52 The Economist January 14th 2017
Britain
Also in this section
53 Firms prepare for fewer migrants
54 Bagehot: Keeping the post-Brexit
economy airborne

For daily analysis and debate on Britain, visit

Economist.com/britain

Northern Ireland the politics of the past year, which they say
exposed Mrs Fosters opposition to the
Into the unknown principle of parity of esteem in which
the parties are supposed to hold each oth-
er. In recent years there have been signs of
deepening disillusion with the Assembly
in the republican strongholds of Belfast
BELFAST
and south Armagh. Although Sinn Fein
Amid simmering frustration with the political settlement, a sudden resignation
leaders, among them Mr McGuinness,
pitches the region into crisis
have been willing to keep trying in the As-

H OARSE of voice and frail in demea-

nour, the Martin McGuinness who
announced his resignation from Northern
gion 490m ($600m). Mrs Foster initially
said she could not be expected to scruti-
nise every single jot and tittle in her de-
sembly, many at the grassroots have con-
cluded that Stormont is a waste of time.
A key moment came in December
Irelands government on January 9th was partment. But later she admitted there had when one of Mrs Fosters ministers cut
a different figure to the strapping Irish Re- been a catalogue of mistakes. She has ac- 50,000 in funding for teaching the Irish
publican Army (IRA) commander that the cepted that an investigation should go language, which republicans regard as a
public once knew. Mr McGuinnesss trans- ahead, but maintains she did no wrong touchstone issue. A curt e-mail to teachers
formation over the past few decades, from and thus need not stand aside. Facing a announced: Because of efficiency sav-
a member of a terrorist organisation to the barrage of criticism, she declared: Theres ings, the department will not be providing
regions second-most senior politician, ex- a lot of it personala lot of it, sadly, mi- the Liofa bursary scheme in 2017. Happy
emplifies the change that Northern Ireland sogynistic as well. Christmas and Happy New Year. On Janu-
has undergone. Now his resignation from Voters may soon get the chance to deliv- ary 12th the move was reversed, but by
officeand, perhaps, permanent with- er their own verdict. Mr McGuinnesss res- then the damage had been done.
drawal from politicshas created a crisis in ignation as deputy first minister has As the government in London works to
the region at a time when it already faces brought the operation of Belfasts de- steady Northern Irelands political settle-
grave threats to its stability. volved administration to a shuddering ment with one hand, it is rocking it with
The departure of Mr McGuinness, a halt, since its rules demand that it be joint- the other. The vote last year to leave the
member of Sinn Fein, was provoked by ly headed by a unionist and a republican. European Unionin which the Northern
what he called the most crude and crass The British government is holding talks to Irish voted to remainpresents several
bigotry of the Democratic Unionist Party patch things up between Sinn Fein and the problems. The Good Friday Agreement of
(DUP), with which Sinn Fein shares power. DUP. If those efforts failas most believe 1998, which established Northern Irelands
In one year as first minister the DUPs they willa new election is on the cards. devolved government, was signed on the
leader, Arlene Foster, has proved to be a Such a contest would be brutal, Mrs assumption of Britain and Irelands shared
flinty head of government who, national- Foster has said. Both the DUP and Sinn Fein EU membership. The Supreme Court is
ists complain, shows little flexibility in her would face challenges from smaller oppo- currently considering whether Northern
dealings with Mr McGuinness and others. sition parties. But in Northern Ireland, Irelands Assembly should therefore be
The final straw came when it emerged where old voting habits die hard, the DUP consulted before the government can trig-
that a green-energy initiative she organ- and Sinn Fein would be favourites to ger Article 50, the legal route to Brexit. If the
ised as enterprise minister in 2012 would emerge again as the main forces. The num- court rules in favour, elections in Northern
cost breathtaking sums of money. Busi- ber of seats in the Assembly at Stormont is Ireland could delay the process.
nesses received large subsidies to keep due to fall from 108 to 90 in a cost-saving ex- Nor does anyone in London yet have a
wood-fired boilers goingeven to heat ercise. Small parties are likely to lose out. good answer to the question of what will
empty shedsin what has been dubbed Whatever the outcome of any election happen to the open border with Ireland in
the cash for ash or burn to earn affair. or inquiry, republicans are already insist- the event that the United Kingdom opts out
The scheme could eventually cost the re- ing that they will not agree to a return to of the free movement of people to and1
 The Economist January 14th 2017 Britain 53

2 from the EU (see next story). A harder bor- valuable in assuring republicans that it is of the pound since the referendum, a good
der, including checks on people and goods, worth keeping Stormont going. And he has number of Polish drivers have not both-
could rattle both Northern Irelands econ- built bridges with unionists, too. Talking to ered to return to Britain after the Christmas
omy and its political settlement. the queen last year he asked about her break. In this sense, argues Mr Semple,
It would be a bad time to lose Mr health and she was overheard replying: Brexit has come early. So his organisation is
McGuinness from politics. He will not say Well, Im still alive anyway. His friendly trying to rebrand the industry to attract
what explains his sudden poor health, nor relationship with the queen, a second school-leavers. Driving a lorry was seen as
whether he will fight the next election. cousin of whom was murdered four de- dull, smelly and underpaid; now, appar-
During ten years as deputy first minister cades ago by the IRA, shows how far things ently, its an IT-driven essential service.
his authority and charisma have been have comeand how much is at stake. 7 Another option is to widen Britons par-
ticipation in the labour market. The Reso-
lution Foundation, a think-tank, estimates
European migrants and business that a further 2.6m people, including the el-
derly and disabled, could join the work-
Labour pains force by 2020. The question is how to
tempt them in. Higher pay could help: the
minimum wage is due to rise to 9 per hour
by 2020. Yet businesses may struggle to
foot these extra costs. From April any firm
with an annual wage bill of more than 3m
Businesses will have to adapt quickly to survive the expected loss of workers from
will face a new apprenticeship levy.
Europe. Some are already doing so
Businesses are also grappling with a new

B Y RIGHTS, the general manager of the

Royal Lancaster shouldnt have much
to worry about. With sweeping views over
All work and no stay
EU nationals working in Britain by industry
requirement automatically to enroll em-
ployees in pension schemes. An idea float-
ed by the immigration minister on January
Q2 2016, % of all workers
Hyde Park and a glitzy history of hosting 11th, to charge businesses 1,000 a year for
0 10 20 30
footballers and pop stars, the posh central every skilled EU worker that they employ
Domestic staff 18
London hotel has ticked along nicely since post-Brexit, got a cool reception and was
Accommodation
it opened in 1967. Now, however, Sally Beck and food services 243 hastily withdrawn.
has a headache: Brexit. And, specifically, Manufacturing 311 An alternative would be to invest in la-
how she will keep going if that means los- bour-saving technology. Some Brexiteers
Transport and storage 154
ing unfettered access to workers from the see this as a bonus of leaving the EU: de-
Administrative and
European Union. support services 144 prived of cheap labour, companies would
Like many hotels and restaurants, the Construction 210 be forced to become more efficient, and
Royal Lancaster depends on migrants. Wholesale, retail, Britains low rates of productivity would
277
About half its staff, including a third of its repair of vehicles improve. Ms Beck, for example, says that
Agriculture, forestry
managers, were born in continental Eu- and fishing
22 Brexit is speeding up her plans to phase in
rope. These proportions are common in Health and social work Total, 000 215 automated minibars at the Royal Lancas-
the capital, and even in the regions can be Source: Labour Force Survey
ter. The ordinary sort take many man-
as high as 40%, says Ufi Ibrahim, the head hours to check and restock, whereas auto-
of the British Hospitality Association, a mated ones have sensors that tell reception
lobby group. Overall, the hospitality indus- workers. Even if those Europeans already when a guest is raiding the brandy. The Ag-
trythe countrys fourth-largest by in- employed in Britain are granted the right to riculture and Horticulture Development
comeemploys 4.5m people, of whom at stay after Brexit, as seems likely, the flow of Board, a quango helping farmers to moder-
least 700,000 are from the EU. new migrants could reduce to a trickle in nise, is funding experiments in automated
Other industries are similarly reliant on just a couple of years. Bosses are therefore broccoli-harvesting. Brexit has given such
EU workers (see chart). Jack Semple of the being compelled to rethink their employ- tests an added urgency.
Road Haulage Association, an industry ment practices. The options before them Yet there are limits to how easily man-
group, estimates that Britain has 600,000 are not enticing, but they could change the power can be replaced by machines. Broc-
licensed lorry drivers, ofwhom at least 10% way that Britain does business. coli is pretty robust, but picking soft fruit
are from the EU, mostly the eastern part. In The employers main problem is a tight like raspberries will probably have to be
agriculture the proportion of EU workers labour market. Employment is at a record done by hand for the foreseeable future. So
rises in the summer, to pick fruit and vege- high. Most studies agree that, in general, EU farmers are hoping that, if free movement
tables. There are also large numbers work- migrants have not displaced many British does come to an end, the government will
ing in health and social care. Overall the to- workers, nor put much downward pres- reinstitute the Seasonal Agricultural Work-
tal of EU citizens in Britain more than sure on wages. Rather, Britains relatively ers Scheme, abolished in 2013. Ministers
trebled, from 0.9m in 1995 to 3.3m in 2015, fast-growing economy has created mil- have dropped hints that such visa schemes
following the accession of13 new countries lions of jobs. Equally, argues Jonathan could be established in farming and other
to the EU after 2004. Wadsworth of the London School of Eco- industries. At least, maybe.
For some industries it is thus the free nomics, immigrants need for housing, If they are not, and if recruiting Britons
movement oflabour that is the most prized food and transport has created more op- or robots to do the work turns out to be too
advantage of being in the EUmore even portunities. So it is idle to presume that difficult or expensive, firms have another
than membership of the single market. Yet there is an army of frustrated, unemployed option: to up sticks and move to another
Theresa May, the prime minister, has indi- British workers ready to pick up the span- country with a good supply of labour. The
cated that controlling immigration from ners of departing Polish plumbers. hotel business, by its nature, cant do this.
Europe will be central to her approach to Still, this does not mean that businesses But industries such as food manufacturing
Brexit. And on January 10th Jeremy Cor- cannot do more to recruit in Britain. Take could. If Britains firms cannot import
byn, Labours leader, said he was no longer road haulage. Hauliers already face a short- enough workers, the country may simply
wedded to the free movement of EU age of drivers. With the 13% fall in the value export their jobs. 7
54 Britain The Economist January 14th 2017

Bagehot Staying airborne

Britains globetrotting chancellor ponders the countrys post-Brexit economic model

markets is slow, hard work. You dont just wake up one morning
and say: I think Ill take the Chinese market today. You build. You
build your products presence, your business presence, your net-
works, your distribution capability, confidence in your brand. It
all takes time. Hence the urgent need for clarity about Brexit. He
compares British firms to patients in hospital: whether the news
is good or bad, they want to know it. Hence, too, his fiscal policy.
In November he ditched a plan to reach a surplus by 2020, giving
himself room to cushion any shocks (though not this year, he
says, if GDP growth hits the projected 1.4%).

Fasten your seat belts

So far, so Spreadsheet Phil (the chancellor has a reputation for
dour competence). But he becomes exuberant on turning to the
governments second Brexit-related job: building new sources of
growth. He says Britain is better than Germany at moving fast to
grab new opportunitiesWe accept that things can change
quicklyciting Londons success since 2002 at luring interna-
tional firms put off New York by the Sarbanes-Oxley Act, which
tightened Americas corporate governance rules. What would a
similar British coup look like now? Here he waxes optimistic

T O FLY in one of the Royal Air Force planes that ferry ministers
about the world is to experience a corner of old, imperial Brit-
ain. Under a framed black-and-white picture of Balmoral Castle,
about biotechnology, synthetic technology (creating new indus-
trial materials) and fintech (where Britains deep capital mar-
kets give it an edge even over Silicon Valley, he argues). He is scep-
uniformed pursers serve afternoon tea. A neat pile of tweed blan- tical about the claim by Andy Haldane, the Bank of Englands
kets sits in a basket, the seats and carpet are a faded royal blue and chief economist, that 15m British jobs could be lost to robots. The
the wooden trim bears the queens cipher (EIIR) in swirly let- costs of capital may rise, making human labour more competi-
ters. A photo of the plane somewhere in the Middle East illus- tive; firms and individuals adapt and find new work (Didnt we
trates the safety leaflets. Like the inside of Downing Street, it has have this discussion20 years ago about shorthand typists?). In
the grand-shabby air of a posh hotel that has seen better days. any case, If anywhere in Europe is going to get [a Google-type
The jet shudders and creaks through the air: Downton Abbey technology giant], culturally the UK is in the best position.
with jet engines attached. Your columnist was struck by the contrast with Theresa May.
Such were Bagehots impressions on January 9th when he ac- Ask the prime minister to name the countrys economic strengths
companied Philip Hammond, the chancellor of the exchequer, and she will probably mention the same things as her chancellor.
back from a visit to Dublin. Another was the planes symbolism But the two differ drastically on the costs they attach to them. For
of Britains reinvention over the past four decades; its shaping of Mrs May, the dislocation caused by a freewheeling labour mar-
the remnants of empire into a new economic role. Remnants like ket, the excesses associated with deregulation, the rift between
its merchant banks and insurance houses, universities, language, services-rich boomtowns and forgotten, post-industrial regions
vast soft power and trusted legal system, which it successfully put their very legitimacy and sustainability in question. In a
parlayed into specialisations in services and high-end manufac- speech on January 8th she argued that the Brexit vote was about
turing. From Margaret Thatcher onwards, governments of left much more than EU membership: it was a rejection of laissez-
and right strived for the right conditions: an open and flexible la- faire liberalism. Mr Hammond recognises no such crux:
bour market, low inflation, a liberal regulatory regime, modest Wheres the evidence for the assertion that the Brexit vote was
taxes and tariffs. Britains prosperity was built on imperial traces, saying something about this or that or the other? It was saying
memories and networks that live on, and span the globe. something about Britains membership of the European Union.
Of that Mr Hammond has more experience than most. Before For him, those costs can be fixed with the right policies, like better
entering politics he exported medical equipment and consulting skills provision and the economic integration of two London-
services to Asia, Latin America and Africa. He has been foreign sized agglomerations: the English north and the Midlands.
secretary. As chancellor he is travelling the world proclaiming This gap is about more than the differences between the job of
that Britains liberal business model can survive Brexit. Visiting chancellor and that of prime minister. It is part of a grand debate
Kuwait, Qatar and the United Arab Emirates recently, he says he that Britain is having, without noticing, on the basic transaction
found investors still enticed by its legal, financial, business and at the heart of its post-imperial business model: more disruption
professional services, as well as plain familiarity: They know (industrial, cultural, social) in return for more prosperity. Current
the UK, theyve got homes here, they feel comfortable. arguments over immigration, integration, student visas, industri-
Brexit, he says, demands two main things from policymakers. al policy, high pay (the Labour Party is flirting with the idea of a
First: limit the damage. In a rebuke to his more gung-ho cabinet maximum wage) and, of course, Brexit are all ways of probing
colleagues he warns: If our businesses are cut off from those this. Perhaps it would help to acknowledge this fact more openly.
[European] supply chains, it isnt necessarily the case that tomor- Because one day, in spring 2019, Britain is due formally to leave
row theyll stop producing axle parts and start making, I dont the EU. It will have Brexited. The question, about which Mr Ham-
know, high-end suitcases for the Korean market. Building new mond has clearly thought more than most, will be: what now? 7
 The Economist January 14th 2017 55
International

The Guantnamo conundrum Also in this section

A legal quagmire that still stinks 57 A military trial

GUANTNAMO
A stain on Americas reputation is unlikely to be wiped clean soon

I T IS always twilight in the circular pas-

sage where the guards keep watch
around the clock through wide windows,
Mecca. Air-conditioning keeps the place
cool, even cold, inside; some of the detain-
ees prefer to loaf outside, where noon-day
of orchestrating the attack on the World
Trade Centre on September 11th 2001) are
held in Camp Seven, the most hidden and
eyeing the forever detainees in Camp Six temperatures nudge 38C. Occasionally a highly guarded block. The remaining 18
at Americas naval base at Guantnamo. prisoner gesticulates towards the window. have been cleared for transfer to third
These are the men who are deemed too A guard puts on a plastic visor against what countries. According to the New York
dangerous ever to be set free but whose ji- the authorities call splashing, meaning Times on December 19th, the governments
hadist activities were apparently too shad- spitting at a jailer or, in past years when of Italy, Oman, Saudi Arabia and the Un-
owy to provide enough evidence to secure prisoners were sometimes non-compli- ited Arab Emirates were willing immedi-
convictions in court. The passage is murki- ant, throwing excrement or vomit. The ately to accept17 or18 of those cleared to go;
ly lit so that the guardsand the rare visit- guard opens a door, exposing a narrow four had gone by January 11th. So 41 or 42
ing journalistcan peer through one-way chain-linked limbo between the guards may be left in Guantnamo by the time Mr
glass unobserved by the detainees. and prisoners sections, and asks in sign Trump moves into the White House.
The official mantra is that the detainees language what is wanted. Usually it is a re-
treatment must be safe, humane, legal, quest, readily met, for toilet paper or soap. Lock up some more
transparent. But to anyone who believes When your correspondent visited, one Whereas Barack Obama had promised to
in innocence until proof of guilt, visiting is prisoner, somehow sensing the journalists empty the place and close it down, during
a discomfiting experience. These men, peering through the one-way window, had the election campaign Mr Trump said the
however heinous their alleged crimes, propped up a painting of a white question- opposite. Were gonna load it up with
have been detained without trial, most of mark on a grey background, with a pad- some bad dudes, believe me, were gonna
them for more than a decade. They have lock at the bottom instead of a dot. The load it up, he said in February. If he keeps
had little prospect of freedom, or even of most plausible interpretation was that it his word, the remaining prisoners are like-
facing trial in America. Though the Carib- expressed uncertainty about the inmates ly to stay there, perhaps for life. Conceiv-
bean laps against the shore nearby, none of future after January 20th, when Donald ably they could be joined by Islamic State
them ever sees it. Trump assumes the American presidency. fighters captured in Iraq and Syria. The
In each walled-off section, ten prison- By January 11th 55 prisoners remained camp commanders say they can close the
ers or so mill around in a communal area in Guantnamo, all but one said to be prison forthwith if so instructed, or con-
with steel tables bolted down. Some highly compliant. Yemen had the most versely make room for another 70-100 de-
lounge in chairs or on a sofa. A few read. citizens still detained (23), followed by tainees. A cell block being renovated could
Five times a day they line up and prostrate Pakistan and Saudi Arabia (six each) and soon cater for 200 more. At its zenith Guan-
themselves in prayer, with arrows painted Afghanistan (five). Apart from 22 in Camp tnamo held around 684; up to 780 have
on the floor helpfully pointing towards Six, another 15 (including the five accused passed through it. At least seven are known 1
56 International The Economist January 14th 2017

2 to have committed suicide. monitor, to have been an absolute disas- former Rhodes Scholar with a stellar aca-
When the first al-Qaeda suspects were ter. Defence lawyers describe them as a demic record at Oxford and Harvard, says
flown to the naval base in 2002, members legal black hole. A senior man in the In- you cannot compare the commissions
of George Bushs administration advanced ternational Committee of the Red Cross with a federal court. The commission over-
several reasons for holding them there. If describes Guantnamo as a Kafkaesque sees a sharply adversarial process
they were jihadists determined to wage legal conundrum. where, since the reforming act of 2009,
war on Americans and other Westerners, The accused have much weaker rights much greater weight is given to the de-
they should be held for the duration of than in a federal court. Instead of a ran- fence. The accused, he insists, are given a
hostilities to prevent them from returning domly selected jury of civilians, the con- fair trial. Court-martials, he avers, have a
to the battlefield, like prisoners-of-war in vening authority in the person of the pre- higher acquittal rate than civilian courts.
any conflict. While incarcerated, they siding military judge chooses fellow The accused in Guantnamo, he claims,
might provide useful intelligence, helping officers. Many of the protections in nor- have sturdier legal defences than those at
to prevent further terrorist atrocities. mal courts are stripped away, says David Nuremberg after the second world war.
However, as unlawful enemy combat- Nevin, defence lawyer for Khalid Shaikh
ants who followed none of the laws of Mohammad, the alleged chief planner of Looking for the key
war, Mr Bushs lawyers reasoned, they the September 11th attacks, known widely Perhaps the biggest puzzle is why Mr
were not entitled to all the protections of as KSM. There is no requirement for the ac- Obama has failed to fulfil his promise to
the Geneva Conventions, such as the rights cused to be brought speedily to trial [as un- close the place down. Plainly he found it
not to be interrogated, and to correspond der the constitutions sixth amendment]. much harder than he had expected. At first,
with families. And since they were being He was taken into custody in 2003 and according to some in his inner circle, he
held outside America, they fell outside the held incommunicado for three-and-a-half was persuaded to keep it open temporarily
jurisdiction of American courts. Moreover, years. He had no lawyer until 2008. The as a bargaining chip with Congress in his
so the argument ran, since al-Qaeda views prosecution did not start until 2012. There quest to enact contentious domestic re-
its war against the West as eternal, it may is no right to exclude coerced statements; forms, for instance in health care. Soon
never formally end, so its captured adher- no exclusion of evidence derived from tor- after he came to office, he did manage to
ents could be held indefinitely. ture; no ban on hearsay evidence. The list improve the commissions, getting Con-
Starting with Camp X-Ray, where the of shortcomings could go on. gress to pass an act that gave detainees a
spectacle of shackled and blindfolded de- The trial proper has yet to begin. The wider scope for defence and brought in re-
tainees in cages appalled people world- irony, as another lawyer puts it, is that if view boards that allowed prisoners every
wide, including many who had sympa- KSM had been tried before a grand jury in six months to argue for release. He also ap-
thised with America after September 11th, New York the trial would have been over pointed special envoys for Guantnamo
the camps rapidly filled up. Nearly all the years agoand would probably have led closure. These speeded up transfers of de-
prisoners had been handed to the Ameri- to a conviction. He was recorded on Al Ja- tainees to third countries, more than 40 of
cans by allies in Pakistan, Afghanistan and zeera, a Qatar-owned television channel, which (including such strange bedfellows
elsewhere, often with the lure of bounties. boasting of masterminding the September as Albania, Cape Verde, Estonia, Kazakh-
Many turned out to be marginal figures 11th attack. His lawyers best approach is stan, Palau and Uruguay) have agreed to re-
who had tenuous, if any, links to al-Qaeda. probably to stress the CIAs admission that ceive some of those set free. Recently
For the first few years the camps were it had tortured him for several years. Oman, Saudi Arabia and the United Arab
ill-run and the inmates mistreated. Accord- A further indictment of the commis- Emirates have been the most willing.
ing to Clive Stafford Smith, a British lawyer sions is that, ten years after they were set But as relations with Congress wors-
who has defended a clutch of prisoners up, they have achieved only eight convic- ened and he lost control to the Republicans
from the beginning, for four years all were tions, of which four have been wholly or after 2010, Mr Obama found himself
held incommunicado; no one even knew partly overturned. Only ten detainees in blocked on virtually every front. Even
their names. After 2006 a new batch of Guantnamo are currently facing trial or though a number of leading Republicans,
supposedly high-value prisoners, includ- awaiting sentencing. The rest are simply such as Senator John McCain, had called
ing the alleged planners of September 11th, detained without trial. for Guantnamo to be closed, it became an
arrived, having been tortured by CIA But the prosecutor in the two biggest article of faith for most of Mr Obamas op-
agents, among others, in secret black cases, Brigadier-General Mark Martins, a ponents and many Democrats that it 1
sites, in contempt of international law
and Americas own values of justice.
As unease mounted at home and espe- Offloading them
cially abroad, Mr Bush sought to create the Guantnamo, number of people detained/transferred Jan 2017: End of
Obama presidency,
semblance of a judicial system by getting SEPTEMBER 11TH ATTACKS May 2006: Bush says he would like to close Guantnamo camps 41 or 42 prisoners*
Congress to pass a law creating military 750
commissions where some of the prison- Oct 2006: Congress enacts Military Commissions Act
allowing detainees to be tried in new hybrid courts
ers could be tried. The Supreme Court be- DETAINED
500
Feb 2016: Donald Trump
gan to nudge the camps towards at least Jan 2009: End of Bush
presidency, 242 prisoners
says he will load it up
with some bad dudes
partially deferring to American law, declar- 250
ing that detainees had the right to petition Jan 2002: First detainees arrive
Jan 2009: Obama
issues executive order to close detention facilities
for habeas corpus to challenge the reasons 0
for their confinement. Later Mr Bush him- Sep 2009: Congress amends Military Commissions
Act to set up Periodic Review Board
self began to call for the camps closure. By 250
Dec 2014: Senate report on CIAs
the time Mr Obama took office, saying that Jun 2004: Supreme Court rules detention programme reveals
that prisoners may petition widespread use of torture
he would close them within a year, the for habeas corpus in black sites 500
tally of detainees had fallen to around 242.
TRANSFERRED
Since March 2008 no more have arrived. 750
Virtually all human-rights lawyers con- 2001 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17
PRESIDENT: GEORGE W. BUSH BARACK OBAMA
sider the commissions, in the recent words
Sources: New York Times; The Economist *Predicted
of Human Rights Watch, a New York-based
 The Economist January 14th 2017 International 57

2 should stay open. Hillary Clinton, among Was he truly the mastermind or just a
others, began to wobble, though she had foot soldier within al-Qaeda? Above all,
previously declared that Guantnamo re- may the fact that he was tortured, admitted
cruited more terrorists than it kept off the by the CIA, be used in his defence? What
battlefield and had suggested holding about the videos of his interrogation,
trials, perhaps including military commis- which may have been destroyed? You
sions, in mainland America. need to hear from the torturers them-
Mr Obama, too, had at first hoped to selves, says Richard Kammen, Mr Nash-
bring the alleged planners of September iris chief lawyer, who for decades has de-
11th to trial before a federal court in New fended, with notable success, Americans
York. But when a wave of emotion was facing the death penalty.
stirred up by the presidents foes against The court feels not at all martial, more
the idea that the mass-murderers could like a conference room in a dreary hotel.
ever set foot on American soil, he quailed. The six rows of desks allocated to the ac-
And when he campaigned for re-election cused are furnished with computer
in 2012, some of his most influential advis- screens; the five defendants in the Septem-
ers were adamant that if detainees were ber 11th case are being charged together in
brought to the mainland and tried in feder- the same room. The only clue that this is no
al courts or even before the new military ordinary forum are the shackles, unused in
commissions, he would lose his job. Mr Nashiris case, screwed into the grey
The Department of Justice and the Pen- carpet beside each of the defendants seats.
tagon encouraged Congress to be obstruc- Behind a window is a soundproofed gal-
tive, citing, among other things, an analysis A military trial lery for 50-odd visitors, including family
of the freed detainees. A report from the di- members of the victims of the accused.
rector of National Intelligence concluded
that of 647 former detainees under scruti-
Through a glass, There are curtains they may draw, should
they wish to weep. The audio transmission
ny, 18% have definitely reverted to jihad and
11% are suspected of doing so. But of those
silently has a 40-second lag so that the judge can
switch off any mention of classified infor-
released since Mr Obama came to office, mation. Mr Nashiris lawyers repeatedly
GUANTNAMO MILITARY COMMISSION
the recidivism rate has dropped sharply; ask for information to be aired that the
The endless wait of an alleged al-Qaeda
only nine, according to the National Secu- prosecution claims would jeopardise na-
killer, tortured by the CIA
rity Council, have definitely re-engaged tional security.
with jihad. Yet, says Brigadier-General
Martins, By letting them go you could be
sentencing someone else to death.
T HE accused, Abd al-Rahim al-Nashiri, a
diminutive, clean-shaven Saudi aged
52, looks innocuous as he shuffles into
It is more than a decade since Mr Nash-
iri, having been nabbed in Dubai in 2002,
was waterboarded in one of the CIAs
Among Mr Trumps picks, General James court between two burly guards, a blue- black sites (secret interrogation cells in
Mattis as secretary for defence and General gloved hand on each of his shoulders. A places such as Poland or Thailand). He was
John Kelly at homeland security are said young paralegal in his defence team em- probably first held in Afghanistan. A recent
strongly to support keeping Guantnamo braces him. If found guilty by a jury of memoir by a CIA interrogator (Enhanced
open. Mr Trump, by the by, has said torture handpicked uniformed officers, he faces Interrogation by James E. Mitchell) de-
is sometimes necessary. the death penalty. scribes how Mr Nashiri kept slipping off
Mr Nashiri is one of Guantnamos 15 the contraption he was tied to, because he
Missing the early boat most high-value prisoners, kept in a spe- was too slight for the straps holding him
Yet Mr Obama repeatedly declared his in- cial jail known as Camp Seven whose lo- down when he was immersed in water.
tention to close the placeand admitted cation has never been made public. He is It is public knowledge that, over the
last year that he should have done so on charged with masterminding an attack by course ofseveral years, he was subjected to
his first day. He had absolute executive au- two suicide-bombers who steered an ex- a string of other mistreatments by the CIA,
thority to do so, says Mr Nevin. So why plosives-laden skiff into the side of an including force-feeding through the rec-
didnt he? He couldve done it before the American naval destroyer, the USS Cole, in tum, sleep deprivation, extremes of tem-
politics metastasised, says Richard Kam- Aden harbour in 2000, killing 17 American perature, screeching noises and being
men, who is defending another of the pris- sailors and wounding many more. jammed for long periods in stress posi-
oners facing the death penalty (see next ar- Nowadays he is what officials at Guan- tions. All this is admitted in a report of the
ticle). He made great speeches but not tnamo call highly compliant. He polite- American Senates Select Committee on
much else, he adds, lamenting Mr Oba- ly declines an offer made by the judge, an Intelligence controversially released in
mas inability to persuade the agencies air-force colonel, of prayer-breaks. He sits 2014, widely known as the torture re-
that have been supposedly under his con- patiently, often looking bored, sometimes port. Mr Kammen says that Sondra Cros-
trol to do his bidding. If Bush had been quizzical, occasionally adjusting the head- by, an American psychiatric expert on the
president and had wanted to close Guant- phones through which he listens to simul- after-effects of torture, reckons he is one of
namo, it would have been closed, because taneous translation into Arabic, as argu- the most damaged victims of torture she
he knew how to deal with the agencies, ments are batted laboriously back and has ever examined.
surmises Mr Kammen. forth between prosecution and defence. It was at least four years after his cap-
Whatever the reason, not closing Guan- What evidence may be admissible when ture that Mr Nashiri first saw a lawyer and
tnamo is one of Mr Obamas most painful the trial proper begins? How much secret nine before pre-trial hearings began. It may
failures, putting an enduring stain on intelligence may be divulged? What medi- be another two before his trial proper be-
Americas human-rights record. Mr cal details may be aired? Who may be gins. In a federal court in the United States,
Obama sounds ashamed as well as frus- called as witnesses, seeing that most of the his long wait behind bars and his acknowl-
trated. Asked in 2015 what he wished he key ones were interviewed about 15 years edged torture would probably mean the
had done differently as president, he cited ago in Yemen by the FBI, under a brutal case being thrown out. But not in the legal
Guantnamo. Its not who we are. 7 government long since overthrown? penumbra of Guantnamo. 7
58 The Economist January 14th 2017
Business
Also in this section
60 Who owns the blockchain?
60 Ride-hailing for children
61 The Simandou saga
62 Adidass new factory
63 Schumpeter: Theyve lost that loving
feeling

For daily coverage of business, visit

Economist.com/business-finance

Formula One when the European Commission closed a

two-year antitrust probe into F1. In return
Nifty manoeuvres for the file being closed, the FIA, whose
grand headquarters are on Pariss Place de
la Concorde, undertook to modify its
rules to bring them into line with EU law.
These changes included limiting its role to
that of a regulator, with no commercial
conflicts of interest. To prevent such con-
A controversial transaction sits at the heart of Liberty Medias takeover
flicts, the FIA sold all its rights in the Formu-

O N JANUARY 17th shareholders of Lib-

erty Media Corporation, an Ameri-
can firm controlled by John Malone, a bil-
the Super Bowl and helping F1 overcome
its two big challenges: its weak presence in
America and its lack of almost any online
la One world championship.
Max Mosley, who ran the FIA from 1993
to 2009, said last year he had queried its
lionaire, are expected to approve a presence. Liberty will use digital platforms purchase of the 1% stake, which he de-
transaction that many hail as the sports to deepen viewers engagement with the scribed as problematic and arguably
deal of the decade. In September 2016 Lib- sport. The virtual-reality possibilities look contrary to the 2001 undertaking. He said
erty agreed to buy the Formula One (F1) particularly enticing. the FIA argued the stake was in keeping
motor-racing franchise from CVC, a priv- But F1 may bring Liberty grief as well as with the agreement because it was too
ate-equity group, for $8bn. F1, which gener- glamour. The day after its own share- small to be considered material. He said he
ates annual revenue of $1.8bn, is now cen- holders vote, the Fdration Internation- was surprised by that argument, because
tral to Libertys global plans: in a sign of the ale de lAutomobile (FIA), the racing sports the stakes value was equivalent to a years
importance he attaches to the deal, Mr Ma- governing body, is expected to give its ap- turnover when he ran the FIA, and I didnt
lone has installed Chase Carey, a former proval to the deal. That is perhaps unsur- see that as de minimis.
president of Rupert Murdochs 21st Cen- prising: Liberty is a reputable buyer. But The transaction is already attracting of-
tury Fox, as F1 chairman. The main Liberty even if it were not, the FIA has an incentive ficial attention. Anneliese Dodds, a mem-
subsidiary is to be renamed Formula One to give the transaction the green light be- ber of the European Parliament for south-
Group. cause of a cut-price share transfer signed in east England (home to several F1-related
The deal has lots of attractions. For F1 it 2013, which gave it a 1% stake in F1 that can businesses) has written to the commission
offers a potential solution to the problem only be monetised if F1 is sold. several times to air concerns about the
of who will take over from Bernie Eccles- The transfer all but guaranteed the go- sports structure and arrangements. Her
tone, its 86-year-old impresario. There was verning body a big payout in the event of a latest letter, sent last September, called for
no credible succession plan for the man sale of F1. It puts the FIA at risk of a conflict closer scrutiny of the sale to Liberty in light
whose wheeling and dealing has long held of interest. And its timing raises questions of the FIAs stake.
together the sport and its fractious collec- about whether it was used by F1s owners
tion of racing teams. With Mr Carey lead- as an inducement for the governing body In the rear-view mirror
ing the search, there could be. to approve a change of ownership, regard- Some insiders reckon that Liberty has paid
As for Liberty, F1 offers the sort of live, less of who emerged as a buyer. Formula a lot for F1 without really understanding it.
exclusive content it needs to lock in audi- One Management (FOM), F1s commercial- Greg Maffei, Libertys CEO, has admitted
ences that are peeling off to on-demand rights holder, denies any impropriety. The he didnt know F1s business at all until
streaming services such as Amazon and FIA denies any conflict of interest. Liberty they started negotiating. The acquisition
Netflix. The American firm has big plans refused to comment. could cause legal headaches down the
for F1, including selling race-naming rights, The stake appears to breach an agree- road. They definitely dont understand
turning each event into the equivalent of ment with Brussels that was struck in 2001 the legal and reputational risks, says one 1
 The Economist January 14th 2017 Business 59

2 seasoned observer. ing colours. But it wasnt in the picture in ties, but was not notified to the European
CVCwhich had itself taken over F1 in July 2013; it didnt contact the sellers until Commission, apparently because it fell be-
2006had originally wanted to exit via a later that year. At the time, it wasnt clear low EU merger-review thresholds.
stockmarket flotation of Delta Topco, F1s who would emerge as a possible buyer. The commission says it is assessing a
Jersey-based parent company. But that What if it was a borderline case when it complaint about alleged breaches of com-
plan came unstuck thanks to market tur- came to vettingsay, an oligarch with a petition law brought by two F1 teams,
moil following the global financial crisis. chequered past? Might F1s owners have though this is not specifically related to the
The final nail in the coffin was the disclo- seen giving away a 1% option grant for just takeover. It wont comment on the under-
sure in July 2013 that Mr Ecclestone had $458,197 as a price worth paying to increase takings made in 2001 by F1 and the FIA, but
been indicted by a German court on char- the odds of approval? it is believed to consider them unilateral
ges ofpaying part ofa bribe to steer the sale They deny this. In response to ques- and the agreement not legally binding
of a 47% stake in F1 to CVC. (Mr Ecclestone tions sent to CVC, FOM confirmed that the even though it had earlier identified prac-
settled the case in 2014 for $100m, with no share transfer was completed on the terms tices it believed to be out of line with EU
ruling on guilt or innocence.) stated in the document we have seen. law. It has noted that a number ofsports go-
It is hard to imagine a successful flota- However, it says the transfer was not a verning bodies hold stakes in competi-
tion of a company whose boss faces possi- deal to sell a stake to the FIA at market val- tions or manage them and that this is not
ble imprisonment. The indictment there- ue, but rather part of a wider deal to obtain necessarily problematic from a competi-
fore left CVC with the prospect of having to the FIAs commitment to deliver and im- tion point of view.
divest F1 through a sale. This, unlike a flota- plement its Concorde obligations through
tion, would have required the FIAs con- to 2030 in return for a package of financial Tussles with Brussels
sent. The approval process involves, measures to help the FIA with its over- But there are differences between the typi-
among other things, performing fit-and- heads, which had increased significantly. cal sport and governing body set-up and
proper tests on the suitor. The shares awarded to it were from a pool the FIAs relationship with F1. For one
A document seen by The Economist of unissued shares that had been reserved thing, the combination of the FIAs re-
shows that on July 22nd 2013just a few for this kind of transaction, and they were quired consent and its potential payoff
days after the IPO-killing indictment of Mr issued to the FIA at the same price as had leave it particularly at risk of bias. Further-
Ecclestone was announcedF1 signed a been paid by other parties awarded shares more, it oversees not only F1 but other mo-
deal to grant the FIA options on a 1% stake from this pool, including the executives torsport competitions tooand it is sup-
in Delta Topco. These were duly exercised that are members of Delta Topcos man- posed to treat them neutrally. A
towards the end of that year. A striking fea- agement equity plan. (Concorde refers commercial interest in F1 gives it an incen-
ture ofthis transactionapart from the tim- to a tripartite agreementbetween the FIA, tive to favour the sport over rival race se-
ingwas its price. The FIA was being of- F1 and the teamssetting out the basis for ries, including proposed new competitions
fered a stake with a value of $72m for a participation in the championship.) that could take business away from F1. This
mere $458,197. As for the suggestion that the transfer was one of the issues the agreement with
Crucially, this attractive offer came with was an inducement to the FIA to approve a Brussels was supposed to deal with.
a catch: the FIA could only monetise its sale to a corporate buyer, FOM says there The commissions shrugging of shoul-
stake in the event of CVC selling its control- can be no inference that this was the case; ders over the FIAs apparent flouting of its
ling stake. For the governing body to get its no such transaction was contemplated rules stands in contrast to its generally
money, a buyer would have to be found, at the time because Delta Topco was still tough stance on such agreements. One
and the FIA would have to approve it. (Lib- contemplating and preparing for an IPO. possible explanation is that its earlier tan-
erty plans to buy out all existing share- It says that the timing of the July 2013 op- gles with F1 in the late 1990s were scarring,
holders.) This gave the FIA a clear financial tions grant was unconnected to the indict- evolving into the sort of bruising encoun-
incentive to wave through any takeover it ment of Mr Ecclestone. Rather, the deal ter it may be loth to repeat. At one point the
was tasked with vettingand in the pro- was the result of a 12-month negotiation commission was forced to apologise pub-
cess also unlock $3bn for CVC through the over renewing the Concorde Agreement. licly after the FIAs indefatigable lawyers
sale of its controlling stake. The FIAs own The FIA said in a statement that there is exposed it as having leaked warning letters
code of ethics requires all of its Parties no conflict of interest on its part with re- to the press. The commission now argues
(including the FIA itself) to endeavour to gard to the potential change of control at F1, that governance issues involving the FIA
avoid any conflict of interest. that it would naturally be happy to dem- are best delegated to arbitration bodies
The combination of the timing of the 1% onstrate this to any competent authority and national courtswhich have no rea-
sale and the stipulation that the FIA can that may so request, and that its sole con- son to care about breaches of EU law.
only cash out in the event of a takeover re- cern is the best interests of the sport. It remains to be seen how much any of
quiring its approval also raises questions Nonetheless, the risk of a conflict of in- this will trouble Liberty, which is zooming
for CVC and Delta Topco. To some it could terest at the FIA is something that might ahead with its takeover of a sports fran-
look like inducement. Liberty, as a reputa- concern competition authorities and other chise it calls iconic and unique. The
ble international media firm, was always regulators. The Liberty takeover was re- media firm has repeatedly disclosed that
likely to pass a fit-and-proper test with fly- viewed by a number of national authori- its takeover needs FIA approval, but has
not highlighted the fact that the FIA has a
stake in the sport it regulates. An investor
The old formula presentation listing F1s shareholders
Formula One Group ownership, % lumps all those holding less than manage-
Bambino Holdings* F1 management
ment, with 6.1%, in the Other category. It
0 20 40 60 80 100 is unclear whether the Nasdaq-listed firm
had an obligation to disclose this. (Liberty
Before Waddell & declined to comment.) Its shareholders
takeover CVC LBI Other
Reed Financial will have no reason to kick up a fuss if the
takeover goes well. But they will surely
Lehman Brothers Inc. Includes FIA 1%
start asking more questions if it spins off
Source: Liberty Media *Ecclestone family trust
the track. 7
60 Business The Economist January 14th 2017

Intellectual property
Uber for kids
Blockchain of Baby, you can drive in my car
command SAN FRANCISCO
Will ride-hailing for children grow up into something big?

The technology underlying bitcoin may

be in for a patent war
H ELICOPTER parent may sound
like an insult, but given the
chance, most parents would probably opt
Annette Yolas, who works in sales at
AT&T, a wireless and pay-TV giant, reck-
ons she spends around $200 a month on

F OR fans of bitcoin, a digital currency, the

year got off to a volatile start. On Janu-
ary 5th one bitcoin changed hands for
for the help of a chopper to zoom little
ones between school, football practice
and piano lessons. Getting children
HopSkipDrive, a service that operates in
several markets in California, for her
three kids to get to the school bus on time
nearly $1,150almost as much as the record where they need to go is a huge hassle and to ballet practice, and says it has been
set three years ago. It has since dropped by and expense, especially in homes where a life-saver by allowing her to work
33%. Elsewhere in the land of monetary both parents work. Hailing rides through longer hours. Meanwhile, kids avoid the
bits, things move more slowly but trouble firms like Uber and Lyft has made life embarrassment of a relative pulling up at
is brewing: a potential patent war looms more convenient for adults. But drivers school blaring mom rock.
over the blockchain, a distributed ledger are not supposed to pick up unaccompa- But ride-hailing firms for kids may end
that authenticates and records every bit- nied minors (although some are known up like the children in Neverland, and
coin transaction. to bend the rules). never mature. They face several chal-
Heated fights over intellectual property Youngsters represent a fresh-faced lenges. One is finding enough drivers. All
are nothing new in promising technology opportunity. Ride-hailing for kids could users need rides during the same limited
markets. But given that the blockchain is be a market worth at least $50bn in set of hours: before and after school,
expected to shake up everything from the America, hopes Ritu Narayan, the foun- which makes it hard to offer drivers
way precious diamonds are safeguarded der of Zum, one of the startups pursuing enough work. It can also be challenging
to the way shares are traded, the legal fights the prize. These services are similar to to lure parents, who have drilled it into
could be especially fierce. Ubers, except they allow parents to children never to get in a strangers car.
On the face of it, the blockchain does schedule rides for their children in ad- And while ride-sharing companies
not lend itself easily to staking out intellec- vance. Children are given a code word to can irk adult passengers by cancelling or
tual-property claims. Bitcoins creator, ensure they find the right driver, and being late, when children are involved
known only by his pseudonym, Satoshi parents receive alerts about the pick-up such behaviour can be disastrous. Shud-
Nakamoto, published a paper about his in- and ride, including the cars speed. These dle, an early entrant in the taxis-for-kids
vention, coded the first implementation services promise more rigorous back- business, which shut down in 2016, had
and then disappearedmeaning that the ground checks, fingerprinting and train- only two out of five stars on Yelp for that
core of the technology is now part of the ing than typical ride-hailing companies. reason, and reams of negative reviews
public domain and only important addi- from parents. It had made money on
tions and variations could be patented. rides mainly by raising prices ever higher.
And the blockchains components are Its demise has not deterred Uber itself,
widely known. In America court decisions which is expected soon to launch a pilot
as well as a new law on the granting of pat- programme for teenagers under18. Par-
ents make it difficult to claim ownership ents may be happier to use services they
for such financial innovations. are familiar with. But Ubers entrance is
This hasnt stopped firms from trying to likely further to dim the prospects of
get patent protection on meaningful im- child-focused ride-hailing businesses as
provements to the blockchain, including they compete for customers and new
security and encryption techniques, says funds. Already, the mood in Silicon Val-
Colette Reiner Mayer of Morrison & Foer- ley has soured against tiny startups that
ster, a law firm. Applications are now be- provide services on demand, such as
coming public, because Americas patent taxis, massage therapy and meals. Ac-
office must release them 18 months after cording to Sean Behr, an entrepreneur
they are filed. A search of Espacenet, a glo- who runs an on-demand parking startup
bal database, yields 36 hits; hundreds more named Stratim, saying youre the Uber
are said to be in the pipeline. of X category is not a pitch that will get
Financial firms are among the most as- you funded by venture capitalists today.
siduous filers: MasterCard, for instance, is Grown-ups can be so boring.
seeking four payment-related patents;
Goldman Sachs has put in for one outlin-
ing a distributed ledger that can process that they intend to use patents only defen- opening up their IP. Chain, Digital Asset
foreign-exchange transactions. Startups, sively, meaning to protect themselves Holdings and Hyperledger have made
including Coinbase, Chain and 21 Inc, have against lawsuits. Still, legal battles look their software open-source, so that the un-
been busy, too. And then there is Craig likely: incumbent banks may go after new- derlying recipe is freely available, which
Wright, an Australian who claims to be Mr comers, and non-practising entities (also also makes it more attractive to users and
Nakamoto but has failed to provide con- known as patent trolls) may attempt to developers. Some programs even come
clusive proof. He has filed, via an Antigua- shake down other firms. It could slow the with a licence that makes it impossible to
registered entity called EITC Holdings, for pace of innovation, warns Brian Behlen- enforce patents against those who use the
73 patents in Britain. dorf of Hyperledger, an umbrella group for organisations code. Blockstream, another
Only a very few patents have been is- several blockchain-related projects. startup, has signed a patent pledge, vow-
sued so far. And known applicants all say To limit such fights, several startups are ing not to sue othersas long as they dont 1
 The Economist January 14th 2017 Business 61

2 use their own patents offensively. mament is sufficient to avoid another pat- America on racketeering charges.
There are also discussions over forming ent war will be clear only when and if The backdrop for this battle was the
a patent pool, much like the Open Inven- blockchains have become a multi-billion high price of iron ore as China hungered
tion Network, created in 2005 to protect dollar business. This week DTCC, a pro- for steel. The irrational exuberance of the
member firms against suits for using Linux, vider of clearing and settlement services, times helps explain why Rio incorporated
the popular open-source operating system. announced that it will base the next gener- into the $20bn development plan for its
The OIN acquires patents and then li- ation of its trade-information system on a blocks the construction of a trans-Guinean
censes them freely to members, which blockchain, and SWIFT, a payments net- railway to ship the ore, as well as Guineas
agree not to assert their own patents. work, said it was exploring the technology. first deepwater port. These ideas came a
Whether this strategy of mutual disar- That might prompt more applications. 7 cropper once the price of iron ore crashed.
As a result, the allure of the project for
Mr Jacques has waned. He had sought to
Iron ore in Guinea wash his hands of it by agreeing to transfer
Rios Simandou stake to Chinalco last Oc-
A pig of a project tober for a song. But it was the following
month that the board sacked its two offi-
cials, including Alan Davies, its minerals
chief, after leaked e-mails revealed a
$10.5m payment to a French consultant
who was close to President Cond and
helped guarantee Rios mineral rights at Si-
Africas largest iron-ore deposit has tainted all who have touched it
mandou. Rio also handed over a trove of

O N THE flanks of the Simandou moun-

tains in south-eastern Guinea live re-
mote colonies of West African chimpan-
a hurry to draw a line under the whole af-
fair, which is proving difficult.
It was two decades ago that Rio Tinto
related e-mails and other data to authori-
ties in America, Britain and Australia.
Rio pointed out that the sackings did
zees. They alone should be grinning over won a concession to explore the worlds not prejudge the results of any investiga-
the fate of those who have sought to turn largest untapped iron-ore deposit in Si- tion, but they jolted many employees,
their tropical habitat into Africas biggest mandou. At the time, Guinea was ruled by some of whom thought them overhasty.
iron-ore mine. No one else is laughing. a dictatorship that, in 2008, suddenly Mr Davies said his dismissal lacked due
Rarely has such a group of billionaires, stripped Rio of half its blocks and trans- process and vowed to fight it. Some sus-
hedge-fund barons, mining firms, govern- ferred them to the Guinean arm of BSGR, a pected the draconian measures reflected
ment officials and go-betweens been foundation whose main beneficiary is Mr Mr Jacquess impatience to put Simandou
snagged in such a woeful saga. Steinmetz. BSGR then sold a 51% stake in quickly behind him and move on.
In theory, the prospect of digging up the blocks to Vale, Rios Brazilian rival, But that has proved tough. Mr Stein-
2bn tonnes of ore from a country that is which incensed Rio. metz has seized on the dismissals to make
among the poorest on Earth should be en- Then Rio recovered its footing some- two accusations: that Rio paid a facilita-
couraging, if corruption is kept in check. what. In 2011, after Guineas first democrat- tion fee/bribe which contributed to the
The government of Alpha Cond prom- ic elections, the new Cond government withdrawal of BSGRs mining rights in
ised to do so upon taking office in 2010. But granted it the right to develop its remaining Guinea; and that it launched a public-rela-
in reality the line between paying go-be- blocks in partnership with Chinalco, Chi- tions campaign that criticised the firm. Last
tweens to help win concessions and lining nas state-owned aluminium firm, in re- month BSGR threatened legal action un-
officials pockets is so blurry that it can turn for a (disclosed) $700m payment. less Rio settles a damages claim first. Both
cause mining firms endless trouble. Even sweeter for Rio, in 2014 the Cond sides expect Rio to respond in the coming
In recent months the plotline has shift- government stripped BSGR/Vale of their weeks. For all except the Chinese (and the
ed. During the past half-decade the busi- Simandou assets, alleging they had been chimps), the fallout from Simandou per-
nessman painted as the sagas pantomime obtained through bribery. Rio then sought sists. And it has yet to produce an ounce of
villain has been Beny Steinmetz, a globe- (unsuccessfully) to sue BSGR and Vale in commercial iron ore for any of them. 7
trotting Israeli diamond merchant, worth
billions, whose lurid battles over Siman-
dou with Rio Tinto, one of the worlds big-
gest mining companies, have involved vol-
leys of accusations about bribery.
Mr Steinmetz was briefly put under
house arrest in Israel on December19th last
year in connection with the Guinea case.
He denies wrongdoing. His backers allege
that a conspiracy robbed him of his
rights to Simandou. His office in London, as
well as having a picture of Simandous red-
streaked mountain top in the lobby, has a
sign saying All bullshit stories that is lit
up when a journalist visits.
But now Rio Tinto is also on the back
foot. In November it sacked two of its top
executives upon discovering a payment to
a go-between in Guinea from 2011 that it
says failed to meet its code-of-conduct
standards. Jean-Sbastien Jacques, the
firms new chief executive, appears to be in Now everyone sees red
62 Business The Economist January 14th 2017

Advanced manufacturing ordering components that will be assem-

bled into a new pair of trainers, the Speed-
The new manufacturing footprint factory will instead make most of the parts
itself from raw materials, such as plastics,
fibres and other basic substances.
The machines carrying out this work
will be highly automated and use process-
es such as computerised knitting, robotic
cutting and additive manufacturing,
Adidas prepares a high-tech plant to bring production of trainers back to Germany
which involves building up shapes layer

B EHIND closed doors in the Bavarian

town of Ansbach a new factory is tak-
ing shape. That it will use robots and novel
by layer. Industrial 3D printing machines
are appearing in many different forms and
are capable of handling an increasing vari-
production techniques such as additive ety ofmaterials. Driven by software, the ro-
manufacturing (known as 3D printing) is bots, knitting machines and 3D printers
not surprising for Germany, which has take their instructions directly from the
maintained its manufacturing base computer-design program, so they can
through innovative engineering. What is switch from making one thing to another
unique about this factory is that it will not quickly, without having to stop production
be making cars, aircraft or electronics but for what can amount to several days in or-
trainers and other sports shoesan $80bn- der to retool conventional machines and
a-year industry that has been offshored instruct manual workers.
largely to China, Indonesia and Vietnam. Not every job in the Speedfactory will
By bringing production home, this factory be automated. Robots can be slower and
is out to reinvent an industry. less precise at some tasks, such as the final
The Speedfactory, as the Ansbach plant shaping of a shoe. So each Speedfactory
is called, belongs to Adidas, a giant Ger- will create 160 production jobs, compared
man sports-goods firm, and is being built with a thousand or more in a typical fac-
with Oechsler Motion, a local firm that tory in Asia. The new functions will also be
makes manufacturing equipment. Produc- more highly skilled. Adidas wants the new
tion is due to begin in mid-2017, slowly at plants to complement the Asian opera-
first and then ramping up to 500,000 pairs tions, not to compete with them. But as ad-
of trainers a year. Adidas is constructing a vanced manufacturing expands, the need
second Speedfactory near Atlanta for the for armies of manual workers in Asian fac-
American market. If all goes well, they will tories will surely diminish.
spring up elsewhere, too. Impossible is nothing Sneakerheads are likely to approve.
The numbers are tiny for a company This will lead to products that will look
that makes some 300m pairs of sports working up production and eventually and perform differently, says Mr Manz.
shoes each year. Yet Adidas is convinced shipping the finished goods to the shops Leaving behind manual production meth-
the Speedfactory will help it to transform can take the industry as long as 18 months. ods will allow Adidas to come up with
the way trainers are created. The tech- Yet some three-quarters of new trainers are novel shapes and finishes. One new mate-
niques it picks up from the project can then now on sale for less than a year. An order rial the firm has already experimented
be rolled out to other new factories as well to replenish an existing, in-demand de- with is Biosteel, a synthetic silk made by
as to existing ones, including in Asia signthe latest edition of the NMD R1, say, a AMSilk, a German biotech company. Pro-
where demand for sports and casual wear popular trainer in 2015-16can take two or duction will also become more custo-
is rising along with consumer wealth. three months to reach the shelves, unless mised, perhaps even with bespoke train-
Currently, trainers are made mostly by the shoes travel not in a shipping container ers fashioned from a computer scan of
hand in giant factories, often in Asian but at huge cost in the hold of an aircraft. how a person walks or runs.
countries, with people assembling compo- In such a competitive and trend-driven
nents or shaping, bonding and sewing ma- On your marks... market, one thing is certain: Adidass arch-
terials. Rising prosperity in the region The Speedfactorys main strength is to rival Nike will not just sit on the touchline.
means the cost of manual work out- shorten the supply chain, and so the time The American company faces similar cost
sourced to the region is rising. Labour to shops, to less than a week, perhaps even increases in Asia and is equally keen to
shortages loom. Certain jobs require craft to a day, once the trainer design is com- shorten the time it takes to get new pro-
skills which are becoming rarer; many peo- plete. The design process itself is increas- ducts to market.
ple now have the wherewithal to avoid ingly done digitally. The trainers are not One of its initiatives is a form of com-
tasks that can be dirty or monotonous. just styled on a computer screen but can puterised knitting to make the upper parts
Adidass motivation for its Speedfac- also be tested by the computer for things of a range of trainers it calls Flyknit, much
tories, however, goes well beyond labour like fit and performance. To enhance the like the way a sock is knitted. Nike has also
cost. People want fashionable shoes imme- process, the Speedfactory will also have a set up what it calls an Advanced Product
diately, but the supply chain struggles to digital twin: a virtual computer model in Creation Centre at its headquarters in Bea-
keep up. The way our business operates is which production of the new trainers can verton, Oregon, to explore other automat-
probably the opposite of what consumers be simulated. Once all is well, the digital ed production methods, including 3D
desire, says Gerd Manz, the companys product will then move to the physical pro- printing. The company has already em-
head of technology innovation. duction system. ployed these techniques to produce custo-
From the first sketch of a completely Adidas claims its new production sys- mised shoes for some top athletes. The race
new pair of trainers to making and testing tem is extremely fast and highly flexible. between the worlds biggest sports-shoe
prototypes, ordering materials, sending The details are being kept secret for now. makers is about to become much more
samples back and forth, retooling a factory, What is known, however, is that instead of fleet of foot. 7
 The Economist January 14th 2017 Business 63

Schumpeter Theyve lost that loving feeling

Foreign firms were lukewarm on America long before Donald Trump

Second, waves of mergers and acquisitions have made the
economy more concentrated. That has raised the barriers to entry
for outsiders. If you split the worlds companies into 68 indus-
tries, American firms are the largest in two-thirds of them. For-
eign companies in America are often subscale and too small to
buy the leading firms in their sector. So they try to grow organical-
ly or buy weaklings instead. In 2013 SoftBank, a Japanese technol-
ogy group, paid $22bn to buy a struggling mobile-phone operator,
Sprint, which is now losing a billion dollars a year. The most prof-
itable investment in living memory by a foreign firm in America
was not a gutsy triumph but a passive stake in a domestic oligop-
oly: Vodafones 45% share of Verizon Wireless, which it sold for
$130bn in 2014.
The third reason for foreign firms discontent is the growth in
lobbying, litigation and regulatory action in America. Foreign
companies feel they are at a competitive disadvantage. In the
most regulated sector of allbankstheir market share has fallen
to 14% from 18% in the past 24 months, partly, they argue, owing to
onerous new rules. Most fines involve lots ofofficial discretion. In
carmaking and energy, Volkswagen and BP have admitted their
respective responsibilities for fake emissions tests and the Deep-

W HICH is it? The home of free speech, the rule of law and the
rich worlds most dynamic economy? Or a land of social
decay, septic politics and the rich worlds worst roads and
water Horizon oil spill. But many European bosses believe that
the cumulative $70bn of legal costs and penalties they have paid
or currently face far exceed those that General Motors and Exxon-
schools? America divides foreign observers. It divides foreign Mobil paid for similarly grave mistakes. In December Barclays
firms, too. Some bosses fall head over heels for its insatiable con- vowed to fight a $5bn-odd fine for mortgage mis-selling, which it
sumers and dazzling technology. Other executives are put off by argues is harsher than those faced by American banks.
its insufferable lawyers and hypocritical protectionism. Donald The Trump administration could well awaken a protectionist
Trump promises to give foreign firms a rude awakening when he impulse at big domestic firms that lies not far beneath the surface,
reaches the White House: this month he beat up Toyota for mak- reckon the most pessimistic of all. Jamie Dimons latest letter to
ing cars in Mexico and selling them north of the border. But in the shareholders of JPMorgan Chase warns that American banks
truth many foreign firms fell out of love with America years ago. dominance could be threatened by Chinese rivals. A report on
The conventional view is that foreign companies are irresist- semiconductors for the White House this month, written by a
ibly attracted to the place. If one affair ends in tears, there is al- body that includes the bosses of Google, Qualcomm and Nor-
ways a new paramour in the wings. In the 1970s British bucca- throp Grumman, recommends protecting the chip industry from
neers, led by Sir James Goldsmith, picked up neglected firms. In Chinese competition. Americas airlines constantly complain
the 1980s Japanese firms lost their financial virginity by paying about unfair competition from Emirates and other rivals.
too much for Hollywood studios and Californian skyscrapers. A
decade later continental European firms rushed across the pond, Takeovers or makeovers
culminating in Daimlers doomed tryst with Chrysler, a rival car- A more populist America may require fresh tactics from foreign-
maker. By this account, Chinese firms are the latest to get the love ers. Some are working on their connections. Masayoshi Son, boss
bug, with Chinas richest man, Wang Jianlin, in the role of the be- of SoftBank, pledged to invest $50bn in America after meeting Mr
sotted tycoon, having paid a blockbuster $4bn to assemble a Trump in December. The head of Anbang Insurance, a Chinese
chain of mature American cinemas since 2012. firm that is no stranger to relationship-based capitalism at home,
But this narrative is hopelessly out of date. The most accurate dined with Mr Trumps son-in-law, Jared Kushner, in November.
metaphor for foreign firms in America today is of disappointed Anbang owns the Waldorf Astoria, among other American as-
hopes. Their share of private output has been flat at about 6% sets. Another approach is to buy a well-placed oligopoly. InBevs
since 2000. The share of sales that European firms make in Amer- purchase in 2008 of Anheuser-Busch, maker of Budweiser Beer,
ica has declined from 20% in 2003 to 17% now, according to Mor- has become a model for winning in America. Other deals in 2016
gan Stanley, a bank. Foreign firms profits in America fell from echoed it. Bayer agreed to buy Monsanto, which dominates the
$134bn in 2006 to $123bn in 2014, the latest year for which figures agricultural-seed business, and BAT is bidding for Reynolds
are available. Their return on equity fell to 6%, compared with 11% American, which has a big share of the tobacco market.
in 2006. American multinationals make 12% on their home turf. A last option is for foreign firms to assume a more American
This souring romance reflects three deep shifts in Americas identity. In sensitive sectors, they already try to take on a local
economy. First, technology has a greater importance than it used character. BAE Systems, a defence concern, has a separate Ameri-
to. At the same time the gap between Silicon Valleys giants and can board stacked with former brass hats. After the trade spats of
their peers abroad has grown wider. A generation ago Europe and the 1980s, Asian car firms localised their production and manage-
Japan had real contenders in the technology industry, such as No- ment. Rupert Murdoch shifted his media empires domicile from
kia and Sony. Now they have no answer to the likes of Apple, Australia to America in 2004. As any dating-website veteran will
Google and Uber. tell you, if you cant find love, change your appearance. 7
64 The Economist January 14th 2017
Finance and economics
Also in this section
65 Buttonwood: Franc discussions
66 Argentinas bonds return to the fold
66 Supply-chain finance
67 The Big Mac index
68 Singapores fintech ambitions
68 Economy of scales: Japanese tuna
69 Chinas currency management
69 Chinese corporate taxation
70 Free exchange: A sense of crisis
among economists

For daily analysis and debate on economics, visit

Economist.com/economics

Inflation where underlying inflation is lower (see

chart), the yen and euro have weakened.
A welcome revival The second big influence on inflation is
the amount of slack (or spare capacity) in
the domestic economy. The unemploy-
ment rate, measuring labour-market slack,
is often a convenient gauge. On that basis,
Americas economy, with unemployment
at 4.7%, is close to full capacity. Average
After two years of unduly low inflation in the rich world, things are picking up
wages rose by 2.9% in the year to Decem-

I T WAS telling that Germany, a country

with a phobia of rising prices, in the first
week of 2017 reported a jump in inflation.
falling for 54 months, producer prices in
China are climbing at last. Prices at the fac-
tory gate rose by 5.5% in the year to Decem-
ber, the highest rate since 2009. Assuming
that trend productivity growth is around
1%, then wage growth of around 3% is con-
Its headline rate rose from 0.8% to 1.7% in ber. Chinas supply glut, though still vast, is sistent with a 2% rise in unit-wage costs, in
December. After two years of unusually shrinking. An improving demand climate line with the Feds inflation target.
low price pressures, inflation across the is reflected in upbeat surveys of manufac- The picture is cloudier in other parts of
rich world is set to revive this year. Much of turing purchasing managers across Asia the rich world. Euro-area jobs markets are
this is because of the oil price, which fell and in the rich world. It is also visible in a more rigid and run into bottlenecks more
below $30 a barrel in the early months of revival in commodity prices. readily than Americas. Even so, the euro-
2016 but has recently risen above $50 (see So rich countries are importing a bit area economy has far greater slack. The un-
chart). Underlying inflation, too, seems more globally made inflation. How big an employment rate is 9.8%. The big southern
poised to drift up. That is good news. The impact that has depends on the exchange euro-zone economies, such as Italy and
story for 2017 is not of inflation running too rate. And in much ofthe rich world, curren- Spain, have ample spare capacity. So if in-
hot but rather of a welcome easing of fears cy markets are proving helpful. In Ameri- flation is to get back to the European Cen-
of deflation. ca, where underlying inflation is close to tral Banks target of close to 2%, it will re-
To understand why, consider the three 2%, the Federal Reserves goal, the dollar quire other economies, notably Germany,
big drivers of inflation in the rich world: has risen. In Japan and the euro area, to generate inflation rates well above 2%. 1
the price of imports, capacity pressures in
the domestic economy and the publics ex-
pectations. Start with imported inflation. A Many happy returns!
year ago, global goods prices were falling Oil price, West Texas Intermediate Forward five-year inflation Core* consumer prices
because of a slide in aggregate demand $ per barrel expectation rate, % % change on a year earlier
70 4 3
and a seemingly endless glut of basic com-
modities and manufactures. Chinas econ- 60 United States United States
2
omy wobbled. Emerging markets in gen- 50 3
eral were in a funk; two of the largest, Brazil 1
40
and Russia, were deep in recession. 2 Euro area +
Things lookperkier now. Emerging mar- 30 0
kets still have plenty of trouble spots, but 20
1 Japan
the bigger economies are stabilising. After 1
10 Euro area

Awards: Tom Easton, our American finance editor, was 0 0 2

named journalist of the year by the CFA Society of the 2015 16 17 2009 11 13 15 17 2009 11 13 15 16
*Excluding food and energy Personal-consumption
UK in a ceremony on January 11th. The Economist was
Sources: Thomson Reuters; The Economist expenditure prices Excluding effects of consumption tax
named publication of the year.
 The Economist January 14th 2017 Finance and economics 65

2 That is not as implausible as the form tion, notes Ralf Preusser of Bank of Ameri- late aggregate demand, and thus the level
book suggests. Germany has a tight labour ca Merrill Lynch. Average core inflation has of slack, expectations should converge on
market. The unemployment rate is just been around 1.1% since 2010. German firms the central banks inflation target, usually
4.1% and the workforce has shrunk as the have absorbed rising wage costs without 2% in rich countries. But expectations are
population ages. And after a decade or increasing prices. In Japan, where the jobs also influenced by what inflation has been
more of restraint, wages have picked up a market is even tighter, wage growth has recently. In rich countries, it has fallen
bit. Compensation per employee has risen struggled to reach even 1%. short. Inflation expectations in financial
at an average annual rate of2.5% since 2010, That wages have not risen faster owes markets have recently perked up, but in the
according to the OECD, a rich-country much to the third big determinant of infla- euro area are still well shy of the target (see
think-tank. That is faster than in any other tionexpectations. Firms will feel freer to chart on previous page). In Japan, two de-
G7 country, but still not enough to drive push up prices, and employees to bargain cades of deflation have taught firms and
German inflation up to the sorts of levels for bigger wage rises, if they expect higher wage-earners to expect a lot less than 2%.
needed to push euro-zone inflation close inflation. In theory expectations are in the Put the pieces of the jigsaw together
to 2%. Faster wage growth has not fed gift of central banks. If they can convince and the following picture emerges. Head-
through to higher consumer-price infla- the public that they have the tools to regu- line inflation in the rich world is likely to 1

Buttonwood Franc discussions

What will markets do if Marine Le Pen becomes the French president?

H OW do you solve a problem like Ma-

rine? Ms Le Pen, leader of Frances far-
right National Front, has indicated that
Pay pressure
Unit labour costs, 1999=100
Were currency risk to return, then
spreads would widen again. That hap-
pened during the euro crisis of 2011 and
she hopes to reintroduce a national cur- 2012 and it took determined action by the
rency if she is elected president in May. In 140 European Central Bank (ECB) to bring
a recent speech, she suggested that gov- them back down. There are already some
130
ernment bonds would be redenominated France signs of French yields edging up, relative
in francs instead of euros. 120 to those in Germany, with the spread at a
The proposal was dressed up in tech- three-year high because of political risk.
nicalities. The franc would be revived as a 110 If currencies were to float again after
parallel currency for official transac- Germany such a long period, a big adjustment
tions and used alongside the euro in a ver- 100 would be needed. Since 1999, unit labour
sion of the systems (the snake and the ex- costs have risen by 32% in France but by
change-rate mechanism) that existed in 90 just 15% in Germany (see chart). Making
1999 2002 04 06 08 10 12 14 16*
the 1970s and 1980s. Such schemes tied French workers competitive again could
Source: OECD *Q3 2016
European currencies together but were require a 12% devaluation.
subject to regular crises, with France per- Even if that figure is too large, imagine
iodically devaluing the franc. Even if she wins, she might not be able what would happen if the Le Pen plan
Investors would pretty quickly see to implement the policy she favours. Rein- were implemented. Investors would
through the faade. There is not much troducing a national currency could in- flock to the safety of German government
point in bringing backa national currency volve leaving the EU. That would be a huge bonds. They would be happy to accept
unless you want the right to devalue it. step; only a fifth of French people think it negative yields of1-2%, given the scope for
And there is not much point in redenom- will happen in the next ten years. much larger losses from holding French
inating government bonds in francs un- Still, in the wake of the Brexit and assets. The revived franc would come un-
less you want to pay creditors back less Trump votes last year, some investors will der immediate selling pressure as inves-
than they expected. (This might techni- be nervous about another surprise. Im tors hedged their risk.
cally count as a default, according to not certain that we should be quite as com- Countering that selling pressure
Moodys, a rating agency; it depends on fortable as the polls suggest given the his- would involve one of three things. First,
the exact circumstances.) If that hap- tory of the past four to five years, says Si- the French government could sell euro as-
pened, it could trigger an enormous finan- mon Derrick, a strategist at BNY Mellon, a sets and buy its own bonds. But it doesnt
cial crisis in Europe. After all, if France bank. If Ms Le Pen is pitted against Franois have enough reserves to sustain that poli-
were to devalue, what would stop the Ital- Fillon, a Thatcherite conservative, in the cy. Second, the French could raise interest
ians or the Greeks from following suit? second round, left-wing voters might stay rates to attract capital. But that would
It all makes for a tricky calculation for at home. damage the economy, hardly the out-
investors, multiplying the probability of a To understand the scale of the potential come Ms Le Pen is seeking. Or, third, the
Le Pen victory against the potential de- decline, think back to the late 1990s and the ECB could step in to buy French bonds.
cline in the value of French bonds if it oc- era ofthe convergence trade. As the intro- But it wouldnt do so if France seemed to
curs. The consensus is that, even if Ms Le duction of the euro approached, investors be heading out of the euro.
Pen makes it through to the second round realised that the currency risk of owning It would all be an enormous mess. So
of the presidential election, she will be European bonds would disappear. So it be- long as the probability of a Le Pen victory
defeated easily. That is what happened to came much cheaper for many European is still low, markets wont shift much. But
her father in 2002, when voters united countries to borrow. In the early 1990s Italy if her victory chances rise to 40% or so,
around the conservative Jacques Chirac. often had to pay four percentage points prepare for a turbulent spring.
Gamblers put the odds of a Le Pen victory more than Germany to borrow, and France
at around 30%. more than one percentage point. Economist.com/blogs/buttonwood
66 Finance and economics The Economist January 14th 2017

2 rise quickly in early 2017, thanks largely to its way backfrom the financial periphery. It Supply-chain finance
rising oil prices and a generally firmer glo- has floated its currency and lifted capital
bal backdrop. Underlying inflation will
grind up more slowly as above-trend
controls, recently abolishing a remaining
requirement that foreign investors keep
Every little helps
growth eats away at available slack. A their money in the country for at least 120
burst of stronger headline inflation this days. In April the government sold $16.5bn
year might drive up inflation expectations of dollar bonds to international investors
and set the stage for bolder wage claims in in a single day (a record for an emerging
northern Europe and Japan in 2018. market). Later this year, MSCI will decide
How fintech helps the small fry get paid
Analysts at JPMorgan Chase expect whether to welcome Argentinas shares
higher inflation to add one percentage
point to global nominal GDP in 2017, spur-
ring a revival in profits and setting the
back into its emerging-market index, start-
ing with companies with an overseas list-
ing, such as Adecoagro, which farms sugar
G ROWING up on a sugar-cane farm in
Australia, Lex Greensill had a front-
seat view of the strains suppliers suffer as
scene for a recovery in capital spending and soyabeans, among other things. And they wait to be paid. After harvesting his
(even without tax cuts in America). Fore- on January 5th, JPMorgan Chase said it crops, Mr Greensills father had to wait a
casters often now look for extreme out- would admit Argentinas peso bonds into year or more to receive payment. Across in-
comes, but rich-world inflation this year its widely tracked benchmark indices, dustries, buyers are eager to conserve their
may turn out to be a tale of moderation: probably from February. cash. Delaying payment is one way to do it:
enough to grease the wheels, but not The emerging-market asset class has among the most important for some, such
enough to upset the cart. 7 not lacked drama in Argentinas absence. as big retailers, says Mr Greensill. Many
The introduction of quantitative easing buyers expect their suppliers to accept pay-
(QE) after the financial crisis inspired a ment months after delivery. Even so, many
Emerging markets rush into higher-yielding emerging-market still pay late47% of suppliers surveyed by
bonds. Talk of tapering QE in 2013 Taulia, a fintech firm, said they had this
Back from the prompted a partial reversal. As a borrow-
ing currency, the dollar has waned in signif-
problem. In 2011 Mr Greensill founded
Greensill Capital, one of a cluster of new
frontier icance relative to local currencies such as
the rupiah or real. Dollar-denominated
fintech firms overhauling how supply
chains are financed.
bonds have been a better buy for investors The details vary but their basic ap-
in recent years, but less popular among proach is to take advantage of buyers low
One of the original emerging markets
government issuers. The share of hard-cur- credit risk to pay suppliers invoices
returns to the fold
rency debt declined from roughly half on promptly. The buyera large supermarket

E MERGING markets have not been the

same without Argentina, a country that
embodies the promise and peril, the ro-
average in 2000 to about a quarter in 2014,
according to Moodys, a rating agency.
Much of this evolution has passed Ar-
chain, sayapproves a suppliers invoice
and transmits it to the fintech lender. (The
lender can raise money in different ways:
mance and the rockiness of the asset class. gentina by. Until 2016 its government had Greensill raises funds in the capital mar-
In 1988 it was one of the ten original mem- to sell most of its bonds to fellow Argen- kets.) The lender pays the supplier on the
bers of the most popular emerging-market tines, including the countrys banks and its agreed date or, if requested, earlier, less a
equity index, introduced by MSCI. In the public-pension reserve fund. But although small discount. With interest rates at pre-
late 1990s it was also the biggest member it was mostly sold to locals, the debt was sent low, the period of finance short and
of the benchmark-bond indices compiled chiefly denominated in dollars. Over 70% the credit risk that of the supermarket
by JPMorgan Chase. But once it defaulted of the governments debt is still denomi- chain rather than the supplier itself, the 1
at the end of 2001, Argentina was exiled nated in foreign currencies, according to
from global debt markets. And after it sub- the ministry of finance. The high inflation
sequently imposed capital controls on and capricious currency policies of the
hot money, its shares suffered a similar post-default years meant Argentines did
banishment, ejected from MSCIs index in not trust the peso to hold its value. So for all
2009. It became a remote frontier mar- of the nationalist fire of Ms Kirchner and
ket, like countries such as Bangladesh. her husband, her predecessor as president,
Since Mauricio Macri succeeded Cris- their policies left them heavily reliant on
tina Fernndez de Kirchner as president at the greenback to attract creditors.
the end of 2015, Argentina has been finding Argentinas expulsion from global debt
markets came within days of Chinas entry
into the World Trade Organisation. Asia
Putting on weight now accounts for about 70% of emerging-
Emerging-market regional weights*, % of total market GDP and a similar share of MSCIs
Asia Europe, Middle East & Africa emerging-market equity benchmark (see
Latin America chart). The bond indices, in contrast, re-
0 20 40 60 80 main far more evenly balanced between
the regions. JPMorgan Chases most popu-
GDP lar local-currency version still excludes
Chinas vast market altogether.
Equities That may not last. In the past year Chi-
(MSCI Emerging
Markets Index)
na, too, has eased the capital controls that
fenced off its debt markets. China may thus
Bonds
(JPMorgan EM follow Argentina into the benchmark indi-
Global Diversified ces in due course. Emerging markets have
Index)
not been the same without Argentina. But
Sources: IMF; MSCI; JPMorgan; The Economist *Latest
nor have they stayed the same. 7 Still waiting for the invoice approval
 The Economist January 14th 2017 Finance and economics 67

2 discount may be so low as to be almost un- working-capital efficiency. A survey by ket, says Prabhat Vira of Tungsten, a sup-
noticeable. The lender later collects the full KPMG, a consultancy, suggested that more ply-chain financier. Of the suppliers Tung-
value of the invoice from the buyer. This than 70% of businesses worldwide still sten serves, 80% are small or
improves the cashflow for suppliers with- lack a supply-chain financing programme. medium-sized enterprises. Fintech firms
out shortening payment terms for buyers, A report by McKinsey, a consultancy, may be more nimble, but banks have great-
freeing up working capital for both parties shows market penetration has remained er resources. Both sides talk up the benefits
and creating a healthier, more secure sup- very low: only about one-tenth of the po- of working in partnership. As they gather
ply chain. tential global market for supply-chain fi- more data, it may become possible to start
In America and Britain, government nance has been captured, it reckons. paying suppliers even before invoices are
initiatives have encouraged supply-chain Fintech firms are not taking business approved. That, says Ganaka Herath, a
financing as a means for corporations to from banks so much as expanding the mar- partner at McKinsey, is the holy grail. 7
support small businesses and meet social-
responsibility goals. The more integrated
approach also means buyer and supplier The Big Mac index
are not pitted against each other, squab-
bling over when the cash will be forthcom-
ing. According to Mr Greensill, his clients
The all-meaty dollar
have enjoyed improved relationships with
their suppliers.
Though banks have offered this form of
financing since the 1990s, it remained a bit
of a backwater until the financial crisis. As
Burgernomics gets to grips with a strong greenback
revenues fell stagnant, companies tried to
squeeze the most from their internal re-
sources by improving the management of
their working capital and extending pay-
I T IS perhaps not surprising that the
worst-performing major currency in the
world this year is the Turkish lira. Many
raise interest rates to defend the currency. It
has plunged to record lows. According to
the Big Mac index, our patty-powered cur-
ment terms, says Richard Hite, director of emerging-market currencies have taken a rency guide, it is now undervalued by
supply-chain finance at Barclays, a big Brit- battering since the election in November 45.7% against the dollar.
ish bank. This further compounded the of Donald Trump raised expectations of The Big Mac index is built on the idea of
plight of suppliers, many of them small faster monetary tightening in America and purchasing-power parity, the theory that
and medium-sized enterprises already sent the dollar soaring. But the lira has in the long run currencies will converge
struggling to stay afloat. The crisis created many other troubles to contend with, too: until the same amount of money buys the
an acute need for a better system to terrorist bombings, an economic slow- same amount of goods and services in ev-
strengthen supply chains. It helped galva- down, alarm over plans by the president, ery country. A Big Mac currently costs $5.06
nise an inchoate industry. Recep Tayyip Erdogan, to strengthen his in America but just 10.75 lira ($2.75) in Tur-
Mr Hite sees the market for supply- powers, and a central bank reluctant to key, implying that the lira is undervalued.
chain finance expanding as more compa- However, other currencies are even
nies start to understand its benefits. It has cheaper. In Big Mac terms, the Mexican
tended to cater to manufacturing and retail The Big Mac index peso is undervalued by a whacking 55.9%
businesses; now it is taking off in other in- Local currency under()/over(+) valuation against the greenback. This week it also
dustries such as oil and gas, where lower against the dollar, % plumbed a record low as Mr Trump reiter-
oil prices prompted companies to cut costs. January 2016 January 2017 Big Mac price*, $ ated some of his campaign threats against
In 2004 no one knew what supply-chain fi- 80 60 40 20 0 + 20 40 Mexico. The peso has lost a tenth of its val-
nance was, says John Monaghan, who ue against the dollar since November. Of
runs Citigroups programme. Now compa- Switzerland 6.35 big countries, only Russia offers a cheaper
nies come to the bank asking for it. Norway 5.67 Big Mac, in dollar terms, even though the
rouble has strengthened over the past year.
Best factor award Sweden 5.26 The euro zone is also prey to political
But much of the growth is being driven not uncertainty. Elections are scheduled this
Brazil 5.12
by banks but by fintech firms. Old-fash- year in the Netherlands, France and Ger-
ioned factoring to turn invoices into cash United States 5.06 many, and possible in Italy. The euro re-
was time-consuming, laden with pa- cently fell to its lowest level since 2003. Brit-
Euro area 4.06
per work and an expensive form of credit ains Brexit vote has had an even bigger
the resort to which was sometimes seen as Britain 3.73 effect on the pound, which has fallen to
a sign of financial stress. Fintech firms offer $1.21, a 31-year low. According to the Big Mac
new technologies that make early pay- Japan 3.26 index, the euro and the pound are under-
ments possible at the click of a button. China 2.83
valued against the dollar by 19.7% and
They can quickly set suppliers up on their 26.3%, respectively.
platform. Banks early-payment pro- Turkey 2.75 One of the drawbacks of the Big Mac in-
grammes have also typically been re- dex is that it takes no account of labour
Vietnam 2.66
served for the largest suppliers. But fin- costs. It should surprise no one that a Big
techs have made supply-chain finance India** 2.49 Mac costs less in Shanghai than it does in
available to the tiddlers, too. San Francisco, since Chinese workers earn
The market was also ripe for innovation Mexico 2.23
far less than their American counterparts.
in other ways. Globalisation has made Russia 2.15 So in a slightly more sophisticated version
supply chains longer and more complex. of the Big Mac index, we take account of a
*At market exchange rates (Jan 11th 2017) Average of
For every buyer there are an increasing four cities Weighted average of member countries countrys average income.
Average of five cities **Maharaja Mac
number ofsuppliers, many ofthem now in Historically, this adjustment has tended
Sources: McDonalds; The Economist
Asia, which lags behind other regions in to raise currencies valuations against the 1
68 Finance and economics The Economist January 14th 2017

2 dollar, so emerging-market currencies tend

Japanese tuna
to look more reasonably priced. The Chi-
nese yuan, for example, is 44% underva-
lued against the dollar according to our Bluefinger
baseline Big Mac index, but only 7% accord-
ing to the adjusted one. The deluxe Big Mac
Tokyos showy fish auctions do not augur economic growth
index has typically made rich-world cur-
rencies look more expensive. Because
western Europeans have higher costs of
living and lower incomes than Americans,
K IYOSHI KIMURA does not like to lose.
For the past six years he has outbid all
comers for the first bluefin tuna of the
Japans economic fortunes and Tokyos
season-opening tuna prices seem to float
rather erratically (see chart). A deep dive
the euro has traded at around a 25% pre- year sold by Tokyos famed Tsukiji fish by The Economist suggests that tuna
mium against the dollar in income-adjust- market. Last week Mr Kimura, who owns prices explain only 6% of the fluctuation
ed burger terms since the euros inception. a chain of sushi shops, paid 74.2m in GDP. The correlation is a red herring.
But what once seemed to be an immu- ($642,000) to win the first fish. That nets Environmentalists, meanwhile, are
table axiom of burgernomics is true no out to some $3,000 per kilogram. gutted. Bluefin tuna are endangered;
longer. So strong is the dollar that even the Folk wisdom has it that high tuna- stocks have plunged by 97% from their
adjusted Big Mac index finds the euro un- auction prices signal future economic peak, according to one estimate. The
dervalued. The dollar is now trading at a 14- buoyancy. Mr Kimura has said that he annual Tsukiji auction always spawns
year high in trade-weighted terms. Emerg- pays the exorbitant prices to encourage protest, even if sushi lovers remain
ing-world economies may struggle to pay Japan. But that rationale seems fishy. hooked. Roughly 80% of all bluefin fished
off dollar-denominated debts. American After a rival Hong Kong bidder baited is eaten in Japan. A single piece of o-toro,
firms may find themselves at a disadvan- him, Mr Kimura paid three times as much the fattiest of bluefin slices, can be sold to
tage against foreign competition. And for the Tsukiji tuna in 2013 as in the previ- finicky buyers for as much as $24. To
American tourists will get more burgers for ous yeara record-high 155.4m. GDP break even, Mr Kimura would need to
their buck in Europe. 7 growth did not replicate that rise, how- bring in $85 a piece; they go for $3.40 in
ever, sinking from 1.7% to 1.4%. In fact, his shops. A raw deal.

Fintech in Singapore
Economy of scales
Out of the box Tsukiji market, first tuna prices v Japan GDP growth, 2008-17

6
2010
Annual GDP growth, % change on a year earlier

SINGAPORE
A financial hub confronts the 3
job-shredding potential of fintech 2012
+ END TREND 2013
2017

I N AN era when architectural master-

pieces curve and bloom (Zaha Hadid), or
shimmy and fold (Frank Gehry), designers
0
2015 2016*

2014 2011
START
of central-bank buildings remain reassur- 2008
ingly fond of right angles. The Monetary
Authority of Singapore (MAS), the city- 3
states central bank and financial regulator,
is housed in a boxy tower just south of the
central business district. But tucked into 2009
one corner is a room called Looking- 6
0 25 50 75 100 125 150 175
Glass@MAS that desperately wants to be
Tuna (whole fish) price, m
Silicon Valley: witness the scruffily dressed GDP forecast
Sources: IMF; press reports *GDP estimate
young men, whiteboards on wheels cov-
ered in buzzwords and the kitchen along
one wall. big banks. The MAS has vowed to invest cure, rich, low-risk Singapore before ex-
This is the MASs fintech lab, where Sin- S$225m ($158m) in fintech by the end of porting them to bigger markets. Singapore
gapore is trying to put its own twist on the 2020. Sopnendu Mohanty, its fintech guru, also makes much of its efforts in reg-
technologies disrupting the financial sec- says he wants to attract fewer disrupters techsoftware helping banks comply
tor. A report from Citigroup published in than enablers. He hopes fintech can help with increasingly complex regulations.
2016 warned that as fintech lets customers banks by cutting expenses and opening up But Mr Mohanty stresses that, although
do more online and cuts into banks lend- new sources of revenue, through products the MAS has eased regulation for small fin-
ing and payments activities, European and that can slot into banks front- or back-of- tech experiments, there is no compromise
American banks could lose almost 2m jobs fice systems. The idea is to combine the on principles : ie, cyber-security must be
in the next ten years. Similar fears stalk Sin- cost-effective nimbleness of fintech with flawless. Having been caught up in Malay-
gapore, home to more than 200 banks, and the trust, solidity and customer base of sias sprawling 1MDB scandal, Singapore
dependent on finance for12.6% of GDP. mainstream banks. Translation: even if has also been ranked by Oxfam, a charity,
In London, Berlin and San Francisco, you can beat them, join them. as the worlds fifth-biggest corporate-tax
many fintech innovators are betting One attraction of Singapore for fintech haven (inaccurate, said the government).
against the big banks. Singapore, typically, entrepreneurs is what Mr Mohanty calls So the employment-destroying peril of fin-
is trying to play both sides of that bet. It the sandbox: a relaxation of some regu- tech is not the only threat to the health ofits
wants a thriving fintech industry that sup- latory requirements to allow small-scale financial sector: Singapore may also be
ports, rather than undermines, incumbent experiments. This lets firms test ideas in se- worried about its reputation. 7
 The Economist January 14th 2017 Finance and economics 69

Chinas currency In normal circumstances, central banks is sounder than it was two years ago, when
would be expected to inject money to ease the yuans gradual descent began. A prop-
Squeezed to life such shortages. But the Chinese authori-
ties did little to stem the cash crunch,
erty boom has breathed life into heavy in-
dustry. Producer-price inflation is running
pleased to see it hurt those betting against at its fastest in more than half a decade. The
the yuan. To make money by shorting a central bank is tightening monetary condi-
currency, investors borrow it, sell it and tions, however gingerly. As Chinas eco-
Shanghai
then hope to buy it back after its value has nomic and policy cycles more closely track
The yuan defies predictions of gloom
fallen. With borrowing rates so high, this those in America, there is less scope for
with a strong start to the year
becomes all but untenable. As the liquidity runaway strength in the dollar, which in

T HE omens for the Chinese yuan

seemed bad heading into 2017. The cap-
ital account looked as porous as ever, mak-
squeeze has abated in recent days, the off-
shore yuan has pared its earlier gains.
Chinas success in defending the yuan
turn takes pressure off the yuan.
Even so, many ofthe factors remain that
led the yuan to drop by 7% last year, its
ing a mockery of the governments at- suggests that, as the government tightens steepest fall on record. The broad money
tempts to fix the leaks. The new year, when capital controls, they are having more ef- supply is still growing at a double-digit
residents received fresh allowances for fect. In the past two months it has started rate. Chinese companies and households
buying foreign currency, was due to bring reviewing all transfers abroad by compa- still have a ravenous appetite for foreign as-
even more pressure. Analysts braced for a nies worth $5m or more. Transfers by indi- sets. Most analysts expect the yuan soon to
stampede for the exits from China. The viduals will also soon face more scrutiny. start falling again, though that consensus is
yuan had fallen sharply at the beginning The controls should slow the erosion of no longer rock-solid. Chinas central bank
of 2016, catching them by surprise. This Chinas foreign-exchange reserves, which has long said that it wants to make the
time, they were ready. are down to $3trn from $4trn in 2014. yuan more volatile and less predictable.
Instead, the yuan began the year as one Most important, the Chinese economy On that score, it has surely succeeded. 7
of the worlds star performers. This was
particularly so in the offshore market,
Chinese tax
where foreigners trade it most freely. It
gained 2.5% against the dollar over two
days in the first week of 2017, its biggest Making China great again
two-day increase since 2010, when trading
began in Hong Kong, its main offshore hub.
A tycoon shatters the countrys reputation for low-cost manufacturing
Within China itself, price increases were
more subdued, but the yuan still climbed
to a one-month high.
Currency markets are notoriously fick-
W HEN China was gripped by politi-
cal turmoil in the 1960s and 1970s,
Cao Dewang cut his teeth as an entrepre-
Caos complaints do have some merit. In
its annual Doing Business rankings, the
World Bank estimates that Chinas total
le, so it is dangerous to read too much into a neur. Maos chaotic rule forced him out tax rate as a percentage of profits is 68%,
few days of price swings. But in China the of school and he took to the street, a roughly two-thirds more than in high-
government has always had a tight grip on scrappy teenager selling fruit and ciga- income countries.
the yuan. So the currencys strength raised rettes. Looking back, Mr Cao has said that This points to bigger flaws in Chinas
the question of whether it was simply be- it was actually a good time to do busi- taxation system: an overreliance on
ing propped upor whether the yuans ness: the government was too busy wag- indirect taxes and poor design of direct
prospects were in fact improving. ing ideological campaigns to enforce its taxes. According to a 2015 analysis by W.
The Hong Kong rally has the Chinese regulations. Mr Cao went on to become a Raphael Lam and Philippe Wingender of
central banks fingerprints all over it. The billionaire, as Chinas biggest manufac- the IMF, taxes on corporate and personal
proximate cause was a shortage of yuan in turer of automotive glass. Last month he incomes account for just a small fraction
Hong Kong. As its residents have turned sparked controversy by complaining that of Chinas tax revenues. Instead, more
away from the Chinese currency, deposits life was tough for businesses in China. than half of revenues come from indirect
there have fallen to just over 600bn yuan There are, he said, far too many regu- taxes on goods and services. As for direct
($86.7bn), their lowest level since early lationsespecially taxes and fees. These taxes, they are deeply regressive: social-
2013. That has led to periodic liquidity days the government is much more security contributions account for 90% of
squeezes, making the cost of borrowing effective in enforcing them. tax liabilities for most households.
yuan in Hong Kong prohibitive: the over- Mr Cao hit a nerve with his claim that China is slowly tackling some of these
night rate soared to 61% at the start of 2017. it was more costly to run a business in issues. Reform of the value-added tax
China than in America. He should know. system (which has replaced a cruder tax
His company, Fuyao Glass, bought an old on revenues) will lower the govern-
Pop-up currency General Motors factory in Ohio in 2014 ments take of indirect taxes. It has eased
Chinese yuan per $, inverted scale and announced plans to invest $200m the burden of social-security payments
there. Mr Cao claimed that the overall tax for its poorest citizens. Richard Bao, a
6.0
on manufacturers is 35% higher in China partner with Grant Thornton, an ac-
6.2 than in America. Once Chinas higher counting firm, says that China is making
Onshore land and energy costs are factored in, the the tax-filing process simpler for compa-
6.4
advantages of its lower labour costs nies, at the same time as it is tightening
6.6 disappear, he said. the net around those who dodge it. And
Offshore The State Administration of Taxation Mr Caos criticism suggests that China
6.8 tried to refute the claims. It noted that might also be making progress in another
7.0 overall tax revenues as a percentage of respect. Like all rich countries, it, too, now
GDP are just 30% in China, lower than the has tycoons who threaten to invest
7.2 average of 42.8% in developed countries abroad if the government does not cut
2015 16 17
and 33.4% in developing ones. But Mr their tax bills.
Source: Thomson Reuters
70 Finance and economics The Economist January 14th 2017

Free exchange Get off of my cloud

Trying to stay above politics, economists risk being not just wrong, but irrelevant
fect human behaviour. Narratives matter, he argued. Powerful
ideas, captured in memorable stories, can spread like epidemics,
wreaking economic havoc as they go.
Views such as these, however, are notable for their rarity.
Economists in Chicago debated the likely effect of the fiscal ex-
pansion expected under the Trump presidency, just as they had in
past years debated the need for more of a fiscal boost during the
outgoing Obama administration. Hardly discussed at all, how-
ever, was why deficit spending that seemed politically impossi-
ble then is on the political agenda now. A few years ago it might
have boosted an American economy struggling to overcome
weak growth and near-zero inflation; now the unemployment
rate is just 4.7% and both growth and inflation are accelerating.
Economists seem to feel that such political questions are out-
side their area of concern. Yet politics helps determine the value
of economic-policy recommendations. Many aspects of the stim-
ulus plan passed early in Barack Obamas tenure, such as the
money provided to states to plug budget holes and protect public
services from large spending cuts, were chosen because they
were judged to have a high multiplier effectie, each dollar in
new government debt generated a more-than-equivalent rise in

E VERY January more than 10,000 economists meet for the an-
nual conference of the American Economic Association
(AEA). This year, the shindig was in balmy Chicago, a stones
output. But the spending remained largely invisible to voters,
who had little idea as a result whether (or how) they had benefit-
ed from it. That, in turn, made stimulus easy to demonise, hinder-
throw from its second-tallest building, the name TRUMP stamped ing subsequent attempts to boost fiscal spending and harming la-
in extra-large letters across its base. Most papers had been written bour markets. Policies that look effective in the absence of
months in advance; few sessions tackled the electoral earthquake political constraints can prove anything but in the real world.
in November. Yet there was no mistaking the renewed sense, fol- Similarly, economists are rightly beginning to wrestle with the
lowing its failure to foresee the 2007-08 financial crisis, of an aca- threat artificial intelligence could pose to jobs. But they are doing
demic field in a crisis of its own. The election was seen as a defeat so in almost purely economic terms, when it is the political im-
for liberalisation and globalisation, and hence for an economics pact that may prove most interesting and important. Besides
profession that had championed them. If economists wish to re- modelling an economy where machines do 100% of the work, it
main relevant and useful, the modest hand-wringing at this might be worth thinking through the potential political effects of
years meetings will need to yield to much deeper self-reflection. a world in which, say, 20% ofworking-class adults are deprived of
Their theories had always shown that globalisation would good, meaningful work. Long before the last human worker
produce losers as well as winners. But too many economists wor- clears his desk, protectionist or Luddite reactions might anyway
ried that emphasising these costs might undermine support for have destroyed the path to this brave new world.
liberal policies. A circle the wagons approach to criticism of glo-
balisation weakened the case for mitigating policies that might Its the politics, stupid
have protected it from a Trumpian backlash. Perhaps the greatest Many economists shy away from such questions, happy to treat
omissions were the questions not asked at all. Most dismal scien- politics, like physics, as something that is economically impor-
tists exclude politics from their models altogether. As Joseph Sti- tant but fundamentally the business of other fields. But when ig-
glitz, a Nobel laureate, put it on one star-studded AEA panel, econ- noring those fields makes economic-policy recommendations ir-
omists need to pay attention not just to what is theoretically relevant, broadening the scope of inquiry within the profession
feasible but also to what is likely to happen given how the politi- becomes essential. Some justifiably worry that taking more ac-
cal system works. count of politics could destroy what credibility economists have
Researchers on topics of political relevancefrom the global left as impartial, apolitical experts. Yet politics-free models are no
effects of dollar appreciation to the economics of the production insulation from political pressuresjust ask a climate scientist
of fake newspromised in Chicago to produce more timely re- and nothing would boost economists reputations more than re-
search. One recent example: just after the election, David Autor, sults which match, and even predict, critical outcomes.
of the Massachusetts Institute for Technology, and others pub- Political and social institutions are much harder to model and
lished a short paper comparing congressional-district election re- quantify than commodity or labour markets. But a qualitative ap-
sults against data they had previously gathered assessing local- proach might actually be far more scientific than equations offer-
area exposure to Chinese imports. Similarly, Anne Case and An- ing little guide to how the future will unfold. Donald Trump cam-
gus Deaton of Princeton University were able to compare their paigned (and may well govern) by castigating the uselessness of
results on recent increases in mortality rates in parts of America experts. To prepare for a time when expertise comes back into
with voting patterns. fashion, economists should renew their commitment to generat-
In a keynote address, Robert Shillera Nobel prizewinner, ha- ing knowledge that matters. 7
bitual freethinker and outgoing AEA presidentsuggested that
economists should think more broadly about the factors that af- Economist.com/blogs/freeexchange
 The Economist January 14th 2017 71
Science and technology
Also in this section
72 Predicting a stellar explosion
73 A cheap medical centrifuge
74 The evolution of the menopause
A
750 km LI 74 A submersible drone for anglers
G O
M ON
XINJIANG ER
INN
Beijing

JIANGSU
TIBET ANHUI
Shanghai
SICHUAN

Xiangjiaba dam
Ultra-high-voltage direct-current
projects in China
Operating line YUNNAN
Planned line
Population density, 2015 (est) For daily analysis and debate on science and
No data technology, visit
Sources: State Grid; Centre for International
Earth Science Information Network Economist.com/science

Power transmission favour in the 19th century was the transfor-

mer. This allows AC voltages to be in-
Rise of the supergrid creased after generation, for more efficient
transmission over longish distances, and
then decreased again at the other end of
the line, to supply customers homes and
businesses. At the time, direct current had
had no such breakthrough.
When one eventually came, in the
Electricity now flows across continents, courtesy of direct current
1920s, in the form of the mercury arc valve,

T HE winds of the Oklahoma panhandle

have a bad reputation. In the 1930s they
whipped its over-tilled topsoil up into the
This long-distance ultra-high-voltage di-
rect-current (UHVDC) connector will be
the first of its kind in America. But the pro-
AC was entrenched. Even the solid-state
thyristor, a cousin of the transistor invent-
ed in the 1950s, offered no great advantages
billowing black blizzards of the Dust Bowl. blem it helps with is pressing everywhere. over the tens or hundreds of kilometres
The winds drove people, Steinbecks dis- Fossil fuels can be carried to power sta- that power grids tended to span. Some
possessed, away from their livelihoods tions far from mines and wells, if neces- high-voltage DC lines were built, such as
and west, to California. sary, but where wind, solar and hydro- that under the English Channel, linking
Today, the panhandles steady winds electric power are generated is not Britain and France. But these were justified
are a force for creation, not destruction. negotiable. And even though fossil fuels by special circumstances. In the case of the
Wind turbines can generate electricity can be moved, doing so is not desirable. Channel link, for example, running an AC
from them at rock-bottom prices. Unfortu- Coal, in particular, is costly to transport. It is line through water creates electromagnetic
nately, the local electrical grid does not better to burn it at the pithead and tran- interactions that dissipate a lot of power.
serve enough people to match this poten- sport the electricity thus generated instead. Over transcontinental distances the
tial supply. The towns and cities which Transmitting power over thousands of balance of advantage shifts. As voltages go
could use it are far away. kilometres, though, requires a different up, to push the current farther, AC employs
So Oklahomas wind electricity is to be sort of technology from the AC now used (and thus wastes) an ever-increasing
exported. Later this year, lawsuits permit- to transmit it tens or hundreds of kilo- amount of energy in the task of squeezing
ting, work will begin on a special cable, metres through local grids. And in China, its alternations through the line. Direct cur-
1,100km (700 miles) long, between the Europe and Brazil, as well as in Oklahoma, rent does not have this problem. Long-dis-
panhandle and the western tip of Tennes- a new kind ofelectrical infrastructure is be- tance DC electrical lines are also cheaper to
see. There, it will connect with the Tennes- ing built to do this. Some refer to the results build. In particular, the footprint of their
see Valley Authority and its 9m electricity as DC supergrids. pylons is smaller, because each DC cable
customers. The Plains and Eastern Line, as can carry far more power than an equiva-
it is to be known, will carry 4,000MW. Higher voltage lent AC cable. Admittedly, thyristors are ex-
That is almost enough electricity to power ACs ubiquity dates from the so-called pensivethe thyristor-packed converter
Greater London. It will do so using direct war of the currents that accompanied stations that raise and lower the voltage of
current (DC), rather than the alternating electrification in the 1880s and 1890s. the Plains and Eastern line will cost about
current (AC) that electricity grids usually When electricity flows down a line as AC, $1bn, which is two-fifths of the projects to-
employ. And it will run at a higher voltage energy travels as a wave. When it flows as tal bill. But the ultra-high voltages required
than such grids use600,000 volts, rather direct current, there is no oscillation. Both for transcontinental transmission are still
than 400,000. work well, but the deciding factor in ACs best achieved with direct current. 1
72 Science and technology The Economist January 14th 2017

2 For all the excitement surrounding the UHVDC connectors being referred to as su- real needs of grid operators.
Plains and Eastern Line, however, America pergrids, they are rarely actual networks. Such projectswhich are transnational
is a Johnny-come-lately to the world of Rather, they tend to be point-to-point links, as well as transcontinentalcarry risks be-
UHVDC. Asian countries are way ahead from which fanning out is impossible. yond the merely technological. To out-
China in particular. As the map on the pre- Some utilities are therefore looking at source a significant proportion of your
vious page shows, the construction of them to move power over relatively short electricity generation to a neighbour is to
UHVDC lines is booming there. That boom distances, as well as longer ones. invest huge trust in that neighbours politi-
is driven by geography. Three-quarters of One such is 50Hertz, which operates cal stability and good faith. The lack of
Chinas coal is in the far north and north- the grid in north-east Germany. Almost such trust was, indeed, one reason Deser-
west of the country. Four-fifths of its hydro- half the power it ships comes from renew- tec failed. But if trust can be established,
electric power is in the south-west. Most of able sources, particularly wind. The firm the benefits would be great. Earths wind-
the countrys people, though, are in the would like to send much of this to Ger- blasted and sun-scorched deserts can, if
east, 2,000km or more from these sources manys populous south, and on into Aus- suitably wired up, provide humanity with
of energy. tria, but any extra power it puts into its own a lot of clean, cheap power. The technol-
Chinas use of UHVDC began in 2010, grid ends up spreading into the neighbour- ogy to do so is there. Whether the political
with the completion of an 800,000-volt ing Polish and Czech gridsto the annoy- will exists is the question. 7
line from Xiangjiaba dam, in Yunnan prov- ance of everyone.
ince, to Shanghai. This has a capacity of 50Hertz is getting around this with a
6,400MW (equivalent to the average pow- new UHVDC line, commissioned in part- Astronomy
er consumption of Romania). The Jinping- nership with Germanys other grid opera-
Sunan line, completed in 2013, carries
7,200MW from hydroelectric plants on the
tors. This line, SuedOstLink, will plug into De Nova Stella
the Meitingen substation in Bavaria, re-
Yalong river in Sichuan province to Jiangsu placing the power from decommissioned
province on the coast. The largest connec- south-German nuclear plants. And Boris
tor under construction, the Changji-Gu- Schucht, 50Hertzs boss, has bigger plans
quan link, will carry 12,000MW (half the than that. He says that within ten years Astronomers predict a stellar explosion
average power use of Spain) over 3,400km, UHVDC will stretch from the north of Swe- will happen in five years time
from the coal- and wind-rich region of Xin- den down to Bavaria. After this, he foresees
jiang, in the far north-west, to Anhui prov-
ince in the east. This journey is so long that
it requires 1.1m volts to push the current to
the development of a true UHVDC grid in
Europeone in which the lines actually in-
terconnect with each other.
A MATEUR astronomers have a new date
for their diaries. In 2022, in the constel-
lation of Cygnus, they will be treated to the
its destination. That will require new technologyspe- sight of a nova, or new star. By them-
Chinas UHVDC boom has been so suc- cial circuit-breakers to isolate faulty cables, selves, novas are not particularly notewor-
cessful that State Grid, the countrys mo- and new switch gearto manage flows of thy. Several dozen a year happen in Earths
nopolistic electricity utility, which is be- current that are not simply running from A home galaxy, the Milky Way, alone. But
hind it, has started building elsewhere. In to B. But, if it can be achieved, it would this one will be special for two reasons.
2015 State Grid won a contract to build a make the use of renewable-energy sources One is its intensity: provided you are
2,500km line in Brazil, from the Belo Monte much easier. When the wind blows strong- somewhere reasonably dark (in the coun-
hydropower plant on the Xingu River, a ly in Germany, but there is little demand tryside, in other words, rather than a big
tributary of the Amazon, to Rio de Janeiro. for the electricity thus produced (at night, city) it will be bright enough to be seen by
Chinas neighbour India is following for instance), UHVDC lines could send it to the naked eye. The second is that it will be
suitthough its lines are being built by Scandinavian hydroelectric plants, to the first nova whose existence was predict- 1
European and American companies, pump water uphill above the turbines.
namely ABB, Siemens and General Elec- That will store the electricity as potential
tric. The 1,700km North-East Agra link car- energy, ready to be released when needed.
ries hydroelectric power from Assam to Ut- Just as sources of renewable energy are of-
tar Pradesh, one of the countrys most ten inconveniently located, so, too are the
densely populated areas. When finished, best energy-storage facilities. UHVDC per-
and operating at peak capacity, it will trans- mits generators and stores to be wired to-
mit 6,000MW. At existing levels of de- gether, creating a network of renewable re-
mand, that is enough for 90m Indians. The sources and hydroelectric batteries.
countrys other line, also 6,000MW, car- In Asia, something similar may emerge
ries electricity 1,400km from coal-fired on a grander scale. State Grid plans to have
power stations near Champa, in Chhattis- 23 point-to-point UHVDC links operating
garh, to Kurukshetra, in Haryana, passing by 2030. But it wants to go bigger. In March
Delhi on the way. 2016 it signed a memorandum of under-
standing with a Russian firm, Rosseti, a Jap-
Overdose anese one, SoftBank, and a Korean one,
Valuable though they are, transcontinental KEPCO, agreeing to the long-term develop-
links like those in China, Brazil and India ment of an Asian supergrid designed to
are not the only use for UHVDC. Electricity move electricity from windswept Siberia
is not described as a current for nothing. to the megalopolis of Seoul.
It does behave quite a lot like a fluidin- This project is reminiscent of a failed
cluding fanning out through multiple European one, Desertec, that had similar
channels if given the chance. This tenden- goals. But Desertec started from the top
cy to fan out is another reason it is hard to down, with the grand vision of exporting
corral power over long distances through the Saharas near-limitless solar-power
AC gridsfor, being grids, they are made of supply to Europe. Todays ideas for Asian
multiple, interconnected lines. Despite and European supergrids are driven by the X marks the spot
 The Economist January 14th 2017 Science and technology 73

2 ed before the fact. Assuming everything

goes according to schedule, the credit for
that will belong to Lawrence Molnar, an as-
tronomer at Calvin College, in Michigan,
and his team, who have set out their pre-
dictions in a paper to be published soon in
the Astrophysical Journal.
It is a tale of scientific serendipity.
Nova, which is Latin for new, comes
from the title of a book (also the title of this
article) published in 1573 by Tycho Brahe, a
Danish astronomer. This recorded what
would now be called a supernova that had
happened the year before. By proving that
the new star in question was a very great
distance awayat the least, further than
the MoonBrahe dealt a mortal blow to
the Aristotelian belief, widespread in Eu-
rope at the time, that the heavens were per-
fect and unchanging. Medical diagnostics
But the name is a misnomer. Novas are
not new stars. Rather, they are explosions
that take place on existing ones, drastically
String-driven thing
but temporarily increasing their bright-
ness. There are several kinds, but Dr Mol-
nars nova will be caused when one mem-
ber of a two-star system collides with the
other, causing an enormous and violent
A cheap centrifuge that separates blood cells from plasma in minutes
outpouring of energy.
Dr Molnars interest was piqued at a
conference in 2013, when Karen Kinemu-
chi, another astronomer, presented some
T AKE a cardboard disc and punch two
holes in it, on either side of its centre.
Thread a piece of string through each hole.
with glue, act as receptacles for small tubes
that contain the blood to be centrifuged.
Once the straws have been loaded, the
puzzling findings on a particular star seen Now, pull on each end of the strings and two discs are attached face to face with Vel-
by Kepler, a space telescope designed chief- the disc will spin frenetically in one direc- cro, sandwiching the tubes between them.
ly to hunt for exoplanets. When Dr Molnar tion as the strings wind around each other, For string, Dr Prakash uses lengths of fish-
and his team observed the starnamed and then in the other, as they unwind. ing line, tied at each end around wooden
KIC9832227they discovered that it was a Versions of this childrens whirligig or plastic handles that the spinner holds.
contact binary, a pair of stars so close to- have been found in archaeological digs The result, which spins at over 300 rev-
gether that the smaller orbits within the at- across the world, from the Indus Valley to olutions per second (rps) and generates a
mosphere of the larger. the Americas, with the oldest dating back centrifugal force 10,000 times that of gravi-
They also found that the smaller star to 3,300BC. Now Manu Prakash and his ty, is able to separate blood into corpuscles
was orbiting more quicklyand thus closer colleagues at Stanford University have, and plasma in less than two minutes. This
to its bigger companionthan it had been with a few nifty modifications, turned the is a rate comparable to that of electrical
when Dr Kinemuchi made her measure- toy into a cheap, lightweight medical cen- centrifuges. Spinning samples for longer
ments. Further observations confirmed trifuge. They report their work this week in (about 15 minutes is ideal, though that is a
that the smaller star was indeed spiralling Nature Biomedical Engineering. lot of effort for a single spinner) can even
towards its companion. Based on observa- separate red corpuscles, which may be in-
tions ofanother contact binary, V1309 Scor- What goes around... fected by malarial parasites, from white
pii, which became a nova in 2008, the re- Centrifuges many uses include the separa- ones, which cannot be so infected. The
searchers were able to offer a prediction of tion of medical samples (of blood, urine, team is now trying the system out for real,
the time of impact that, they hope, should sputum and stool) for analysis. Tests to to find out what works best, by conducting
be accurate to within about seven months. spot HIV, malaria and tuberculosis, in par- blood tests for malaria in Madagascar.
(The most likely date is a fifth of the way ticular, require samples to be spun to clear Once samples have been separated,
through 2022ie, mid-March.) them of cellular debris. Commercial cen- they still need to be analysed. Fortunately,
Successfully predicting a nova will be trifuges, however, are heavy and require the paperfuge is not the first cheap labora-
of interest to more than just amateur sky- power to run. That makes them impracti- tory instrument Dr Prakash has invented.
watchers. Astronomers have built mathe- cal for general use by health-care workers In 2014 he unveiled the foldscope, a mi-
matical models to describe what happens in poor countries, who may need to carry croscope made from a sheet of paper and a
during such events, but testing them out diagnostic tests in the field without ac- small spherical lens. The foldscope goes on
against reality is hard. All previous novas cess to electricity. They also cost hun- sale this year, but his laboratory has al-
have been detected after the fact. Anyone dredsoften thousandsof dollars. ready distributed more than 50,000 of
wanting to study what happens before the Dr Prakashs device, which he calls a them to people in 135 countries, courtesy of
explosion must therefore sift back through paperfuge, costs 20 cents and weighs just a charitable donation that paid for them.
old observations, hoping that some infor- two grams. The standard version (pictured He plans to ship a million more by the end
mation about the pre-nova star will have above) consists of two cardboard discs, of 2017. Putting this together with a paper-
been recorded by chance. Armed with Dr each 10cm across. One of the discs has two fuge means it is now possible to separate
Molnars prediction, though, astronomers 4cm-long pieces of drinking straw glued to biological samples and analyse them un-
will be able to watch the build-up as well it, along opposing radii. These straws, der a microscope using equipment that
as the denouement. 7 which have had their outer ends sealed costs less than a couple of dollars. 7
74 Science and technology The Economist January 14th 2017

The evolution of the menopause

Underwater drones
A whale of a tale One that didnt get away
A submersible drone to help anglers

Intergenerational conflict may explain

loss of female fertility with age
M OST pastimes nowadays involve
lots of high-tech gadgets. For fish-
ermen these range from electronic bite
But most failed to spot something. Flying
drones communicate using radio waves,
but, whereas sound travels well in water,

T HE menopause is a puzzle. Why do

women, unlike most female mammals,
stop reproducing decades before they die?
alarms to carbon-fibre rods, specialised
clothing and tackle boxes stuffed with
various odd and ends. There is so much
radio waves do notespecially through
seawater, which is highly conductive and
thus readily absorbs radio signals. This is
Analysing birth and death records shows clobber that some anglers use trolleys to why submarines usually need to surface
that the assistance they give in bringing up lug around their gear. Now the ultimate to use their radios. The clue to how Pow-
grandchildren does have a measurable ef- piece of kit has arrived: a fishing drone. erRay gets around this problem can be
fect on those grandchildrens survival. But The device, called PowerRay, comes found in a suspicious-looking plug socket
that does not prove such assistance is more from PowerVision, a dronemaker in amidships.
valuable in evolutionary terms than con- Beijing. It is a submersible that carries a The drone has, in fact, to be tethered to
tinued fertility would be. video camera to send images of Nep- its operator by plugging in a 30-metre-
Two other mammals undergo a meno- tunes kingdom back to the angler on the long umbilical cord. PowerVision ex-
pause, however. These are killer whales bank or boat above. These pictures, either plains that this cord serves two purposes.
and short-finned pilot whales. And a long- still or video, can be viewed on the One is to cope with the challenging
term analysis of killer-whale populations, screen of the hand-held unit that controls transmission environment, by relaying
by Darren Croft of the University of Exeter, the drone, or on a smartphone. Those commands and video data through the
in England, and his colleagues, just pub- who really want to get into the swim can cable. The other is rescue, for if a big fish
lished in Current Biology, suggests the don a pair of virtual-reality goggles to came along and snatched the bait the
missing part of the explanation may be watch them. drone was carrying, the device might be
that the menopause not only frees a female PowerRay is equipped with a fish dragged down to Davy Joness locker.
to help raise the grandoffspring, but also re- detector. This uses sonar, sending out The cord lets the angler haul the drone in
duces competition between her and her sound waves and picking up the reflec- manually, with or without the offending
gravid and nursing daughters. tions that bounce off nearby objects. whopper still holding on.
Dr Crofts killer whales swim off the PowerVision claims that the system can The company hopes to offer future
coasts of British Columbia, in Canada, and distinguish between species, permitting versions of the PowerRay without a cord,
its southern neighbour, the American state the angler to identify the target he wants. probably using low-frequency systems
of Washington. They have been monitored The drone can then be used to carry a which could provide limited range in
by marine biologists every year since 1973. baited hook to the spot, and let it go. Just fresh water. These would be intended for
They live in pods of 20-40 animals and are for good measure, it can also emit an underwater photography. For the fish-
now so well known that individual ani- alluring hue of blue light which is sup- ermen, it is also looking at how to deliver
mals can be identified by the shapes of posed to attract fish. a baited hook directly to a specific desti-
their fins, the patterns of their saddle The PowerRay caused something of a nation on the river bed or sea floor, and
patches and from scratches that they have buzz among excitable geeks at CES, a then settle down to keep a watch over it.
picked up in the rough and tumble of oce- consumer-electronics show held in Las Anglers will thus have direct video evi-
anic life. Their sexes are known, too. Vegas, where it was unveiled this week. dence of the one that got away.
Though killer whales genitalia are not vis-
ible from the outside, distinctive pigmenta-
tion patterns around their genital slits dis- lyse the lives of 525 calves born into three caused directly by the mothers age. In the
tinguish males from females. And which of the pods. He found that if an elderly fe- absence of such coincidence of birth, the
calves belong to which mothers can be de- male gave birth at around the same time as calves of elderly mothers were just as like-
duced by seeing who spends most time a youngster, her calf was, on average, 1.7 ly to live to 15 as those of young mothers.
with whom. times more likely to die before the age of15 But when it came to head-to-head arroga-
The data thus collected let Dr Croft ana- than the youngsters was. This was not tion of resources for offspring, the young-
sters outcompeted their elders, and their
offspring reaped the benefits.
Plugging these numbers into his model,
Dr Croft showed that the diminution of fe-
cundity in elderly females that this inter-
generational competition creates, com-
bined with the fact that the youngsters an
elderly female is competing with are often
her own daughters (so it is her grandoffspr-
ing that are benefiting), means it is better
for her posterity if she gives up breeding al-
together, and concentrates her efforts on
helping those daughters. Whether women
once gained the same sorts of benefits
from the menopause as killer whales do re-
mains to be determined. But it is surely a
Hurry up, Grandma reasonable hypothesis. 7
 The Economist January 14th 2017 75
Books and arts
Also in this section
78 Spying in America

For daily analysis and debate on books, arts and

culture, visit
Economist.com/culture

A walk across Washington peaceful it isall wood-clad and brick colo-

nial homes with their porches, set back
District line amid trees and lawns: the suburban Amer-
ican dream. A short detour leads to the
Francis A. Gregory Library, built in 2012 by
David Adjaye, the Ghanaian-British archi-
tect who has just been knighted by the
WASHINGTON, DC
queen and who made his name in Ameri-
A days stroll from one end of Americas federal capital reveals how the culture and
ca designing the newly opened National
topography of the city are evolving
Museum of African-American History &

W ELCOME to Washington, DC,

says the solid, red, white and blue
sign on the corner of Branch and Southern
long-neglected one east ofit. A recent study
of the census tracts within a miles radius
of one of the bridges across the river gives
Culture, the latest addition to the Smithso-
nian. If anything, the local library, an ele-
gant mix of glass and diamond-shaped
Avenues, in this leafy entry to the nations an idea of the gulf: unemployment of 6.6% plywood, is the more pleasing of the two.
capital. A stream of traffic is carrying in and child poverty of 20% on the western On the morning stretch your correspon-
mostly African-American commuters side; 20.7% jobless and 53% child poverty to dent is accompanied by a friend from his
from Marylands Prince Georges County. the east. The median value of an owner-oc- time as The Economists Washington
It is eight oclock on a clear blue morning: a cupied home in the west was two-and-a- bureau chief in the 1990s, and by Mark
perfect day for a walk across Washington. half times that in the east. Puryear, an ethnomusicologist and native
The distance from one end of the Dis- A quarter of a century ago Washington Washingtonian. An hour into the walk the
trict of Columbia to the other is only about was known as the murder capital of friend, Alissa Stern from Bethesda, Mary-
11 miles (18km). Todays zigzag route (see America, a result of a crack-cocaine epi- land, confesses to being shocked by how
map, next page) is perhaps 17 miles. The demic (and the illicit market it gave rise to) nice this area is.
eyes of the world will be on Washington from the mid-1980s. The number of mur- True, Mr Puryear has planned our route
on January 20th, the day of Donald ders peaked at 482 in 1991, falling to below into Anacostia with care. It meanders past
Trumps inauguration as Americas 45th 100 in 2012. Despite the dip, crime remains civil-war defences with commanding
president. The idea of walking across it is to uncomfortably common: Washington views over the city and across the Potomac
do a double dissection of the city: a geo- ranks only just outside the ten worst large river into Virginia. It includes the Anacos-
graphical one (a leisurely look at its con- cities in the country for violent crime, and tia Community Museum, a branch of the
trasts, from the poorer south-east to the in 2015 it experienced a nasty uptickin mur- Smithsonian where a recent exhibition,
prosperous north-west, where your corre- ders. In 2016 it had 135 homicides. Twelve Years that Shook and Shaped
spondent lived in the mid-1990s); and a his- A disproportionate share of the killing Washington: 1963-1975, covered an earlier
torical and cultural one (a sense of how the happens east of the river. The typical vic- period of dramatic change for the city, in-
place has changed). On both dimensions, tim is a 24-year-old black man in the cluding the riots that erupted after the as-
big surprises lay ahead. south-east, who most likely knew their sassination of Martin Luther King in 1968
killer, says Jennifer Swift, the editor of D.C. and the redevelopment that pushed many
A tale of two cities Witness, which monitors every murder. African-American families into public
Washington is known to be deeply divid- People who live on the other side of town housing in Anacostia. Farther down, we
ednot just between warring Democrats tend to venture east of the Anacostia with reach the Anacostia home of Frederick
and Republicans but also between the rela- a degree of wariness, if at all. Douglass, a 19th-century abolitionist and
tively affluent and diverse city west of the So the first surprise along gently undu- orator. The site is now run by the National
Anacostia river and the largely black and lating Branch Avenue is how pleasant and Park Service; the visitors there are among 1
76 Books and arts The Economist January 14th 2017

nationmore a place than a path, says

FINISH
Scott Kratz, the projects director, over a
LU ICT D
CO STR LAN

IA F
freshly made sandwich at the Anacostia
MB O
DI ARY

UNITED Arts Centres caf. The river has divided

M

Van Ness Washington

S TA TE S Washington for generations, he says; now
Street
it can bring together people who
wouldnt normally cross paths. Pre-con-
struction work has started, and he hopes
Rock the park will open in late 2019.
Creek Washington Mr Kratz is busy not just raising the
Park $45m needed for the bridge, but working
Georgetown Shaw
on ways to avoid its most feared side-effect:
Trump International
Hotel H Street gentrification. His Equitable Develop-
NoMa corridor
The White ment Plan includes leveraging the project
House Capitol to encourage small businesses, and a
building Lincoln
homebuyers club so locals can capture
Po

Capitol Park
tom

National Museum Hill Eastern some of the rising equity that is coming
ac

of African American Market their way.

VIRGINIA History and Culture
tia
Yards cos Francis
Park Ana Anacostia Gregory Boomtown, USA
The Pentagon Arts Centre Library To see what gentrification looks like, you
11th St Bridge
Park (proposed) Anacostia have only to cross the river. Already from
Frederick Douglass the bridge, massive building development

MD C
D
House starts to come into view. The third surprise
Potomac Smithsonian Anacostia
3 km of the walk is the scale of the boom that is
Community Museum START
under way in many parts of the city.
Yards Park, next to the Navy Yards, is a
2 the few white faces we see this morning. arts, recreation and education, opened in good example. Washington was founded
Mr Puryear notes an abundance of one 2005 and is now planning to add a third on the confluence of the Anacostia and Po-
thing and a scarcity of another. The abun- building. The Department for Homeland tomac rivers, but it had largely turned its
dance is of churches. In front of the modest Security is consolidating its headquarters back on the Anacostia, heavily polluted
Kingdom Hall of Jehovahs Witnesses, a in the Anacostia area. The District has and lined with industrial buildings and
smartly dressed Mary Ushbry is picking thrown its support behind a $65m project parking lots. Now it is clearing these away;
bits of litter off the street in preparation for for a practice facility for the Washington a boardwalk, jetties, park facilities and
a service this morning which, she says, is Wizards basketball team and an arena for apartment blocks with river views are
going to bring some good news. The the womens team, the Mystics. coming. A sign by a building site even an-
grander Our Lady of Perpetual Help enjoys In a former Woolworths building on nounces an imminent District Winery.
a stunning view over the city. Good Hope Road, the Anacostia Arts Cen- People forget, were a water city, says
The scarcity is of shops. Only three tre houses exhibitions, a restaurant, a small Charles Allen, the council member for
supermarkets serve all of Wards 7 and 8, theatre and a few boutiques. Downstairs, it Ward 6, which straddles all four quadrants
the administrative districts east of the river provides a home for (mainly African- of the city. The river is not only becoming
that, together, are home to about 140,000 American) start-ups and charities. Its head, more accessible again, it is gradually being
people. Its a classic food desert, says Mr Duane Gautier, says the area lacks the dis- cleaned up. Mr Allen points across to a
Puryear. Nams Market, a small blue- posable income to attract the amenities pontoon where ospreys have been nesting.
fronted store near the Frederick Douglass that regeneration needs; his idea is to bring Bald-eagle chicks have been spotted, too. It
house, keeps most of its waresincluding visitors from outside, using the arts to revi- still would not be wise to eat fish caught in
cup noodles, tinned stew, Frooties talise Anacostias historic district. the Anacostia, but a group is out on a boat
securely behind a glass partition and a The centre, which opened in 2013, fishing this afternoon.
bolted door. There is nothing fresh in sight. seems to be having some modest success. Two decades ago the District was a pot-
Yet vegetables are sprouting a couple of It is drawing in people: some 26,000 visi- holed basket-case that was losing people to
blocks away on spare land between build- tors in 2015. A juice bar has opened around the suburbs. Now its finances are healthy
ings in the centre of Anacostia, in 80 raised the corner on Martin Luther King Jr Ave- and it is gaining about 1,100 newcomers a
beds, thanks to volunteers from Union nue, as have a couple of sit-down restau- month. Being home to the federal govern-
Temple Baptist Church. And Marthas Ta- rants and a radio station. A trendy Busboys ment helped Washington weather the fi-
ble, a 37-year-old charity supporting access and Poets restaurantin Washington, a nancial crisis with relative ease. More re-
to healthy food, is moving its headquarters leading indicator of a community on the markably, what was once just a staid
from the west of town to the east, where upis coming soon. federal city is attracting young entrepre-
the need is greatest. Its Joyful Food Mar- But the idea that could have the most neurs and becoming hipa place of cycle
kets distribute fruit and vegetables to dramatic impact on Anacostia is the 11th lanes, fancy coffee shops, communal li-
schools; by 2018 it aims to have such Street Bridge Park. This aims to use the pil- brary boxes and yoga mats.
monthly markets in every elementary lars from a disused road bridge across the The population has grown by some
school in Wards 7 and 8. river to create a recreation space that 100,000 over the past 15 years, to 670,000.
would help to unite the two sides of the The ethnic mix is changing, too. In 1980,
A river runs through it city. About the length of three American- 70% of the population was black; this has
Such projects are part of this mornings sec- football fields, the bridge would have dipped below 50%.
ond surprise: the energy and imagination lawns, waterfalls, an amphitheatre and a Theres no question, the city is going
of the efforts under way to improve lives picnic garden. through a complete reshaping, says Mr
east of the river. Existing initiatives are be- The concept has something of New Allen. We are in the middle of that. Two
ing expanded: THEARC, a large centre for Yorks High Line about it. It will be a desti- groups in particular are moving in, he 1
 The Economist January 14th 2017 Books and arts 77

2 explains. One are 25- to 35-year-olds, start- across the crowds and flags to the Lincoln ernous and lacks atmosphere, a missed op-
ing out on their careers. The other are 55- to memorial two miles away that will greet portunity to do something more imagina-
65-year-olds, empty-nesters from the baby- President Trump on his inauguration. No tive with a grand space. Already the hotel,
boom generation, who want arts, culture one could invent a better backdrop for with its Presidential Ballroom, has
and restaurants within walkable reach. making America great again. proved to be a magnet for receptions and
The worry in many parts of town has Yet, until recently, Americas front (thanks to its name and ownership) for
switched from coping with crime to coping yard was in danger of becoming a symbol controversy.
with the soaring house prices that come of national decline. Its lawns, a much- From here it is a short walk to the White
with gentrification. trodden carpet for 24m visitors a year, were House. The ability to drive past it along
Shaw, once down-at-heel, is very looking the worse for wear, and the Mall Pennsylvania Avenue ended, for security
trendy. NoMa, as the area North of Massa- and its monuments were badly in need of reasons, in 1995. Walking by it is still a thrill.
chusetts Avenue is now branded, has sim- maintenance after decades of neglect. The But Washingtonians now shudder at the
ilar aspirations. The H Street corridor Washington Monument, an emblem of thought of its next occupant: 90% of their
boasts cool restaurants and a lively theatre: American aspiration, reopened in 2014 votes in November were for Hillary Clin-
Its not up and coming, its come, marvels after $15m of repairs for damage it suffered ton, just 4% for Mr Trump.
a visitor from another part of town. It is the in an earthquake in 2011, but its lift broke A block away, on 17th Street, are the of-
same story around Union Market (This down last August and it will remain closed fices of Holland and Knight, a law firm
was a war zone, says another visitor). to visitors until 2019. Still, fresh investment with another superb view across town.
Streets near Eastern Market are lined with has been coming in, along with new Whayne Quin, a lawyer with long experi-
restaurants; a nearby resident has counted attractions. ence of development in the District,
45 of them within a short walk from his Two recent additions in the heart of the spreads out a giant, multicoloured map of
home. Eateries and bars have moved into capital are drawing attention. The first is Washingtons Comprehensive Plan,
parts of town, like 14th Street, where you the National Museum of African-Ameri- which shows the citys ambitions for the
used to trip over needles and condoms. can History & Culture, approved in 2003 by use of its 61 square miles of land and seven
In 1994 your correspondent reported on President George W. Bush and opened, fit- square miles of water. The green areas of
a twice-weekly evening orange hat pa- tingly, by President Barack Obama on Sep- the extensive park system at its core stand
trol around the Lincoln Parkarea east ofthe tember 24th. It is intended to be the last of out amid ample amounts of yellow (low-
Capitol that sought to keep the neighbour- the buildings on the Mall. When tickets density residential) and pockets of red
hood safe. One of those orange-hatters, were released for the three months to the (high-density commercial). Mr Quin
who moved out when his wife had their end ofthe year, they were snapped up in 42 points out that the development across the
first child as this seemed no place to raise a minutes. The place is packed. The visitors, city has happened despite significant con-
family, is stunned by the change he sees mostly African-Americans, seem totally straints, notably on building height (sky-
when he returns. As we revisit the area the absorbed: quietly contemplative or softly scrapers are conspicuous by their absence
day before the walk across the city, we sharing their responses (They wouldnt here). The planners have been flexible,
come across a young couple with their serve me at the counter). Starting in sub- though, allowing taller buildings provided
three-year-old daughter from northern Vir- terranean exhibits on the slave trade, the certain obligations are met, for example on
ginia. They are here to view a house. They civil war, segregation and civil rights, the mixed use and social housing.
are drawn by the free pre-schooland its crowd moves up into the light towards A pragmatic approach to planning is
two blocks from Lincoln Park, and you floors devoted to communities and cul- one of several factors that have combined
cant get much better than that. ture. This would justify a full days walk of to change Washingtons fortunes, in Mr
its own. Quins view. Sensible financial manage-
Centre of attention The second is the five-star Trump Inter- ment is another: the city has balanced its
The next part of the walkskirting by the national Hotel, which opened on Septem- budget since Congress imposed a Finan-
Capitol Building, down the National Mall ber 12th in the Old Post Office building. To- cial Control Board from 1995 to 2001 to stop
towards the Washington Monumentis a day there is even a glimpse of the Donald the rot. A third is diversification beyond
reminder of Pierre LEnfants vision in de- himselfthough only on the four large the core industry of government. The
signing Americas capital on such a grand television screens behind the bar. The staff Washington area has become a hub for
scale in the 1790s. Hence the majestic vista are friendly, but the central court feels cav- technology, and for the services that 1

So much on offer
78 Books and arts The Economist January 14th 2017

2 techies demand. Young newcomers are that he now lives in Moscow as a guest of
putting down roots, reinforcing a cultural Russias security service, the FSB, are mere
change, especially on race. Its now a very side-issues, easily explicable by exigency
diversified, progressive and forward-think- and urgency. For his foes, nothing Mr
ing city, says Mr Quin, but that wasnt so Snowden says is trustworthy, whereas
when I came here in 1964. statements made by officials are true.
Half an hours walk beyond, across Mr Epstein is a formidable investigative
Rock Creek, the loveliest of all the many journalist and his quarry is worthy of his
green spaces in Washington, lies George- talents. He has unearthed many new de-
town, which has long been upscale, but if tails and assembles them, with the public-
anything now seems more so. Theres time ly known information, into a coherent and
for a quick peek at an addition to the capi- largely damning account.
tals embassy scenethe worlds youngest The first part of the book examines Mr
country, South Sudan, flies its flag in an Snowdens rather patchy professional ca-
alleyway down from the Chesapeake and reer. He was neither (as many believe, and
Ohio Canalthen its a long uphill march he has claimed) a successful and senior in-
along Wisconsin Avenue towards the final telligence officer, nor was he a computer
destination. wizard. Mysteriously, possibly through his
familys extensive connections with the
The home stretch spy world, he joined the CIA, but proved
Across the city, posters calling for state- untrustworthy and incompetent. On leav-
hood for the District have been a reminder ing, he kept his security clearance, making
that its lack of full representation in Con- him eligible for a good job in the private
gress remains an issue. In a telephone con- sector, where computer-literate ex-spooks
versation at the start of the day, Anthony are at a premium. But secrecy rules meant
Williams, the former mayor who oversaw that nobody could check on his past.
the recovery from Washingtons nadir in Spying in America The author agrees that Mr Snowden
the 1990s, says that one strategy for the fu- performed a salutary service in alerting
ture is to keep drawing attention to Wash- The Snowden both the public and the government to the
ington the city rather than Washington the potential danger of a surveillance levia-
federal capital. The District has leveraged operation than. The bureaucratic mission creep,
the presence of the national government he argues, badly needed to be brought un-
well, he says, but since federal spending is der closer oversight by Congress. He also
likely to remain flat further diversification notes that Mr Snowden inadvertently
How America Lost Its Secrets: Edward
will be essential. He describes the state of highlighted the security consequences of
Snowden, the Man and the Theft. By
the city succinctly: Its improved, but contractorisationoutsourcing spook
Edward Jay Epstein. Knopf; 350 pages; $27.95
theres still a very great divide. work to the private sector.
Indeed, in some respects, the contrast
between the morning walk and the last
stretch couldnt be greater. Most of the
T HE effects of Edward Snowdens heist
of secrets from Americas National Se-
curity Agency (NSA) in 2013 can be divided
But he also shows that the vast majority
of stolen documents had nothing to do
with Mr Snowdens purported concerns
faces are now white. Instead of a food des- into the good, the bad and the ugly, writes about privacy and government surveil-
ert, there is a cornucopia of Safeways, Edward Jay Epstein in a meticulous and lance. He switched jobs in order to have ac-
Giants and Whole Foods Markets. Recre- devastating account of the worst intelli- cess to much bigger secrets. He gave away
ational spaces abound: boys are playing gence disaster in the countrys history, American technical capabilitiessuch as
after-school softball and a group of girls How America Lost Its Secrets. the ability to snoop on computers that are
are starting rugby practice. Even that categorisation is contentious. not connected to the internetwhich are
Moreover, unlike Anacostia, where Mr Snowdens fans do not believe he did of real value in tracking criminals, terro-
change is in the air, this part of north-west anything wrong at all: he simply lifted the rists and enemies. To believe that was justi-
Washington seems almost exactly as your lid on a rogue agency, risking his liberty on fied, you have to regard America as being
correspondent left it 20 years ago. The behalf of privacy everywhere. For their no better than Russia, China or al-Qaeda.
flower store is still there. Our old house on part, his foes believe his actions lack any He also stoked an ugly, misplaced cynicism
Van Ness Street, a picture-book redbrick co- justification: he is a traitor masquerading about the trustworthiness of government.
lonial, is just the same as everexcept, of as a whistle-blower, who exposed no Mr Epstein is cautious on the biggest
course, for its value, which according to Zil- wrongdoing but did colossal damage. question: whether Mr Snowden was act-
low, an online property database, has risen These stances rest more on faith than ing alone, or under the control of Russian
more than threefold since we left it. facts. Their adherents regard as secondary intelligence. The crucial evidence, he says,
And yet in another respect these two the details of Mr Snowdens career, and the is Mr Snowdens contact with digital-pri-
ends of town are remarkably similarand means by which he took millions of pieces vacy activists such as Glenn Greenwald.
that is the final surprise of this walk across of top-secret information from the NSAs No Russian handler would allow a well-
Washington. The houses in the two neigh- computers. More important for such peo- placed and valuable spy to make such a
bourhoods look interchangeable. The ple is whether you trust American and oth- risky move, Mr Epstein argues. Better to
landscaping is the same. The evening tran- er Western institutions, or regard them as keep him in place, to steal yet more secrets.
quillity in the north-west, amid the green- inherently corrupt and oppressive. That may be too categorical. The intelli-
ery and the birdsong, feels much like the Mr Snowdens fans believe that the au- gence world is full of bluffs and double-
morning peace in the south-east. Its seven thorities, especially intelligence agencies, bluffsand errors. Agents misbehave.
oclock and getting dark at the yellow-bor- lie about everything. Nothing they say Aims change over time. But certainly no-
dered sign on Massachusetts Avenue say- about the case can be believed. Any pecu- body reading this book will easily retain
ing Maryland welcomes you, and it feels liaritiessuch as inconsistencies in Mr faith in the Hollywood fable of Mr Snow-
almost as if the walk has come full circle. 7 Snowdens public statements, or the fact dens bravery and brilliance. 7
80 The Economist January 14th 2017
Economic and financial indicators
Economic data
% change on year ago Budget Interest
Industrial Current-account balance balance rates, %
Economic data product
Gross domestic production Consumer prices Unemployment latest 12 % of GDP % of GDP 10-year gov't Currency units, per $
latest qtr* 2016 latest latest 2016 rate, % months, $bn 2016 2016 bonds, latest Jan 11th year ago
Statistics
United States +1.7 Q3 on +3.5
42 +1.6
economies, plus +1.7
-0.6 Nov ourNov +1.4 4.7 Dec -476.5 Q3 -2.6 -3.2 2.38 - -
China monthly poll of
+6.7 Q3 +7.4forecasters
+6.7 +6.2 Nov +2.1 Dec +2.0 4.0 Q3 +264.6 Q3 +2.3 -3.8 2.96 6.93 6.58
Japan +1.1 Q3 +1.3 +0.9 +4.6 Nov +0.5 Nov -0.2 3.1 Nov +189.1 Nov +3.7 -5.6 0.06 117 117
Britain +2.2 Q3 +2.3 +2.0 +1.9 Nov +1.2 Nov +0.7 4.8 Sep -138.1 Q3 -5.6 -3.7 1.40 0.83 0.69
Canada +1.3 Q3 +3.5 +1.2 +1.6 Oct +1.2 Nov +1.5 6.9 Dec -53.6 Q3 -3.5 -2.5 1.68 1.33 1.42
Euro area +1.7 Q3 +1.4 +1.6 +0.6 Oct +1.1 Dec +0.3 9.8 Nov +380.4 Oct +3.3 -1.8 0.25 0.96 0.92
Austria +1.2 Q3 +2.4 +1.5 +0.2 Oct +1.3 Nov +1.0 5.8 Nov +8.0 Q3 +2.2 -0.9 0.54 0.96 0.92
Belgium +1.3 Q3 +0.7 +1.2 +2.8 Oct +2.0 Dec +1.9 7.6 Nov +3.4 Sep +0.9 -2.8 0.74 0.96 0.92
France +1.0 Q3 +1.0 +1.2 +1.8 Nov +0.6 Dec +0.3 9.5 Nov -28.6 Nov -1.2 -3.3 0.81 0.96 0.92
Germany +1.7 Q3 +0.8 +1.8 +2.1 Nov +1.7 Dec +0.4 6.0 Dec +296.9 Nov +8.8 +1.0 0.25 0.96 0.92
Greece +1.6 Q3 +3.1 +0.4 +2.3 Nov nil Dec nil 23.1 Sep -1.0 Oct -0.3 -7.7 6.89 0.96 0.92
Italy +1.0 Q3 +1.0 +0.9 +1.3 Oct +0.5 Dec -0.1 11.9 Nov +49.5 Oct +2.4 -2.6 1.86 0.96 0.92
Netherlands +2.4 Q3 +3.1 +2.1 +2.9 Nov +1.0 Dec +0.2 6.6 Nov +57.1 Q3 +8.6 -1.1 0.44 0.96 0.92
Spain +3.2 Q3 +2.9 +3.2 +4.6 Nov +1.6 Dec -0.3 19.2 Nov +23.0 Oct +1.7 -4.6 1.47 0.96 0.92
Czech Republic +1.6 Q3 +0.9 +2.4 +7.1 Nov +2.0 Dec +0.6 5.2 Dec +3.7 Q3 +1.5 nil 0.37 25.8 24.9
Denmark +1.1 Q3 +1.5 +1.0 +13.3 Nov +0.5 Dec +0.6 4.2 Nov +23.9 Nov +7.5 -1.0 0.36 7.10 6.87
Norway -0.9 Q3 -1.9 +0.6 +2.6 Nov +3.5 Dec +3.5 4.8 Oct +18.0 Q3 +4.4 +3.5 1.62 8.65 8.95
Poland +2.0 Q3 +0.8 +2.6 +3.3 Nov +0.8 Dec -0.7 8.3 Dec -2.4 Oct -0.5 -2.7 3.56 4.17 4.02
Russia -0.4 Q3 na -0.5 +2.6 Nov +5.4 Dec +7.0 5.4 Nov +29.0 Q3 +2.3 -3.7 8.31 60.4 76.0
Sweden +2.8 Q3 +2.0 +3.1 +0.1 Nov +1.4 Nov +1.0 6.2 Nov +22.2 Q3 +4.9 -0.3 0.59 9.12 8.54
Switzerland +1.3 Q3 +0.2 +1.4 +0.4 Q3 nil Dec -0.5 3.3 Dec +68.2 Q3 +9.4 +0.2 -0.17 1.02 1.00
Turkey -1.8 Q3 na +2.7 +4.6 Nov +8.5 Dec +7.8 11.3 Sep -33.7 Nov -4.7 -1.8 11.81 3.91 3.03
Australia +1.8 Q3 -1.9 +2.4 -0.2 Q3 +1.3 Q3 +1.3 5.7 Nov -47.9 Q3 -3.2 -2.1 2.73 1.36 1.43
Hong Kong +1.9 Q3 +2.5 +1.6 -0.1 Q3 +1.3 Nov +2.4 3.3 Nov +13.3 Q3 +2.9 +1.6 1.73 7.76 7.76
India +7.3 Q3 +8.3 +7.0 -1.9 Oct +3.6 Nov +4.9 5.0 2015 -11.1 Q3 -0.6 -3.8 6.39 68.3 66.8
Indonesia +5.0 Q3 na +5.0 -2.3 Nov +3.0 Dec +3.5 5.6 Q3 -19.2 Q3 -2.1 -2.3 7.56 13,329 13,875
Malaysia +4.3 Q3 na +4.3 +6.2 Nov +1.8 Nov +1.9 3.5 Oct +5.6 Q3 +1.8 -3.4 4.27 4.47 4.38
Pakistan +5.7 2016** na +5.7 +2.3 Oct +3.7 Dec +3.8 5.9 2015 -4.1 Q3 -1.4 -4.6 8.20 105 105
Philippines +7.1 Q3 +4.9 +6.9 +14.6 Nov +2.6 Dec +1.8 4.7 Q4 +3.1 Sep +0.9 -1.0 4.98 49.6 47.3
Singapore +1.1 Q3 +9.1 +1.3 +11.9 Nov nil Nov -0.6 2.1 Q3 +63.0 Q3 +21.5 +0.7 2.39 1.44 1.43
South Korea +2.6 Q3 +2.5 +2.7 +4.8 Nov +1.3 Dec +1.0 3.2 Dec +99.0 Nov +7.2 -1.3 2.13 1,196 1,210
Taiwan +2.0 Q3 +3.9 +1.0 +8.8 Nov +1.7 Dec +1.3 3.8 Nov +74.7 Q3 +14.4 -0.5 1.18 31.9 33.4
Thailand +3.2 Q3 +2.2 +3.2 +3.8 Nov +1.1 Dec +0.2 1.0 Nov +47.9 Q3 +11.8 -2.3 2.64 35.6 36.3
Argentina -3.8 Q3 -0.9 -2.1 -2.5 Oct *** 8.5 Q3 -15.7 Q3 -2.6 -5.3 na 15.9 13.9
Brazil -2.9 Q3 -3.3 -3.4 -1.1 Nov +6.3 Dec +8.4 11.9 Nov -20.3 Nov -1.2 -6.3 11.09 3.22 4.05
Chile +1.6 Q3 +2.5 +1.8 -1.4 Nov +2.7 Dec +3.8 6.2 Nov -4.8 Q3 -1.9 -2.7 4.13 673 732
Colombia +1.2 Q3 +1.3 +1.6 +0.4 Oct +5.7 Dec +7.5 7.5 Nov -13.7 Q3 -4.8 -3.7 6.83 2,995 3,267
Mexico +2.0 Q3 +4.0 +2.1 +1.3 Nov +3.4 Dec +2.9 3.6 Nov -30.6 Q3 -2.8 -3.0 7.69 21.9 17.9
Venezuela -8.8 Q4~ -6.2 -13.7 na na +424 7.3 Apr -17.8 Q3~ -2.9 -24.3 10.43 9.99 6.31
Egypt +4.5 Q2 na +4.3 -4.9 Oct +23.3 Dec +13.2 12.6 Q3 -20.8 Q3 -6.8 -12.2 na 18.7 7.83
Israel +5.1 Q3 +3.4 +3.3 -0.8 Oct -0.3 Nov -0.5 4.5 Nov +13.3 Q3 +2.8 -2.4 2.28 3.86 3.94
Saudi Arabia +1.4 2016 na +1.4 na +2.3 Nov +3.6 5.6 2015 -46.8 Q3 -5.5 -11.2 na 3.75 3.76
South Africa +0.7 Q3 +0.2 +0.5 -1.3 Oct +6.6 Nov +6.3 27.1 Q3 -12.3 Q3 -3.9 -3.4 8.82 13.9 16.7
Source: Haver Analytics. *% change on previous quarter, annual rate. The Economist poll or Economist Intelligence Unit estimate/forecast. Not seasonally adjusted. New series. ~2014 **Year ending June. Latest
3 months. 3-month moving average. 5-year yield. ***Official number not yet proved to be reliable; The State Street PriceStats Inflation Index, Nov 35.38%; year ago 25.30% Dollar-denominated bonds.
 The Economist January 14th 2017 Economic and financial indicators 81

Markets
% change on The Economist poll of forecasters, January averages (previous months, if changed)
Dec 31st 2015 Real GDP, % change Consumer prices Current account
Index one in local in $ Low/high range average % change % of GDP
Markets Jan 11th week currency terms 2016 2017 2016 2017 2016 2017 2016 2017
United States (DJIA) 19,954.3 +0.1 +14.5 +14.5
Australia 2.1 / 2.9 2.1 / 3.0 2.4 (2.9) 2.6 (2.8) 1.3 2.1 -3.2 (-3.5) -2.3 (-3.0)
China (SSEA) 3,284.4 -0.7 -11.3 -16.9
Brazil -3.6 / -3.2 0.5 / 1.5 -3.4 0.9 8.4 (8.3) 5.2 (5.3) -1.2 (-1.1) -1.4 (-1.3)
Japan (Nikkei 225) 19,364.7 -1.2 +1.7 +4.9
Britain 1.9 / 2.1 0.6 / 1.5 2.0 1.2 (1.1) 0.7 (0.6) 2.5 -5.6 (-5.7) -4.7 (-4.4)
Britain (FTSE 100) 7,290.5 +1.4 +16.8 -4.4
Canada 1.0 / 1.4 1.2 / 2.3 1.2 1.8 (1.9) 1.5 1.9 (2.0) -3.5 -2.9
Canada (S&P TSX) 15,491.5 -0.2 +19.1 +24.7
China 6.6 / 6.8 6.2 / 6.8 6.7 6.4 2.0 2.2 (2.1) 2.3 (2.5) 2.1 (2.2)
Euro area (FTSE Euro 100) 1,119.1 -0.2 +2.3 -1.5
France 1.1 / 1.3 1.0 / 1.6 1.2 1.2 0.3 1.2 (1.1) -1.2 (-1.1) -1.2 (-1.1)
Euro area (EURO STOXX 50) 3,307.9 -0.3 +1.2 -2.4
Germany 1.7 / 1.9 1.2 / 2.3 1.8 1.5 (1.4) 0.4 1.6 (1.5) 8.8 8.2 (8.1)
Austria (ATX) 2,669.5 -0.5 +11.4 +7.3
India 6.0 / 7.6 6.9 / 8.4 7.0 (7.2) 7.4 (7.5) 4.9 4.8 (4.9) -0.6 (-0.9) -0.9 (-1.0)
Belgium (Bel 20) 3,619.5 -1.3 -2.2 -5.7
Italy 0.7 / 1.0 0.4 / 1.3 0.9 (0.8) 0.8 -0.1 1.0 (0.9) 2.4 2.2
France (CAC 40) 4,888.7 -0.2 +5.4 +1.6
Japan 0.5 / 1.0 0.7 / 1.5 0.9 (0.7) 1.1 (1.0) -0.2 0.7 (0.6) 3.7 3.5
Germany (DAX)* 11,646.2 +0.5 +8.4 +4.5
Greece (Athex Comp) 663.4 +0.9 +5.1 +1.3 Russia -0.7 / -0.2 0.6 / 2.6 -0.5 1.3 (1.2) 7.0 5.0 (5.2) 2.3 (2.4) 2.8
Italy (FTSE/MIB) 19,486.9 -0.7 -9.0 -12.3 Spain 2.9 / 3.3 2.0 / 2.6 3.2 2.3 -0.3 (-0.4) 1.5 (1.4) 1.7 (1.6) 1.5 (1.4)
Netherlands (AEX) 486.6 -0.2 +10.1 +6.1 United States 1.5 / 1.9 1.9 / 2.8 1.6 2.3 (2.2) 1.4 (1.3) 2.4 (2.3) -2.6 -2.5 (-2.8)
Spain (Madrid SE) 949.4 -0.7 -1.6 -5.2 Euro area 1.6 / 1.7 1.2 / 2.5 1.6 1.4 (1.3) 0.3 (0.2) 1.4 (1.3) 3.3 (3.2) 3.0
Czech Republic (PX) 927.9 -0.7 -3.0 -6.5 Sources: Bank of America, Barclays, BNP Paribas, Citigroup, Commerzbank, Credit Suisse, Decision Economics, Deutsche Bank,
Denmark (OMXCB) 810.6 +0.6 -10.6 -13.5 EIU, Goldman Sachs, HSBC Securities, ING, Ita BBA, JPMorgan, Morgan Stanley, Nomura, RBS, Royal Bank of Canada, Schroders,
Scotiabank, Socit Gnrale, Standard Chartered, UBS. For more countries, go to: Economist.com/markets
Hungary (BUX) 32,972.2 +1.0 +37.8 +36.1
Norway (OSEAX) 774.6 +0.3 +19.4 +22.2
Poland (WIG) 53,709.3 +1.8 +15.6 +9.4 Other markets The Economist commodity-price index
Russia (RTS, $ terms) 1,155.5 -1.8 +26.3 +52.6 % change on 2005=100
Other markets % change on
Sweden (OMXS30) 1,511.9 -1.2 +4.5 -3.5 Dec 31st 2015 The Economist commodity-price indexone
one
Switzerland (SMI) 8,427.2 +0.9 -4.4 -6.5 Index Jan 3rd Jan 10th* month year
one in local in $
Turkey (BIST) 77,666.6 +2.0 +8.3 -19.2 Jan 11th week currency terms Dollar Index
Australia (All Ord.) 5,823.7 +0.6 +9.0 +11.4 United States (S&P 500) 2,275.3 +0.2 +11.3 +11.3 All Items 141.9 144.7 +0.3 +18.3
Hong Kong (Hang Seng) 22,935.4 +3.6 +4.7 +4.6 United States (NAScomp) 5,563.7 +1.6 +11.1 +11.1
India (BSE) 27,140.4 +1.9 +3.9 +0.6 Food 154.8 157.0 +1.3 +8.7
China (SSEB, $ terms) 342.4 -0.7 -14.3 -19.7
Indonesia (JSX) 5,301.2 nil +15.4 +19.4 Japan (Topix) 1,550.4 -0.3 +0.2 +3.3 Industrials
Malaysia (KLSE) 1,675.2 +1.7 -1.0 -5.0 Europe (FTSEurofirst 300) 1,443.2 nil +0.4 -3.3 All 128.5 131.9 -0.9 +32.9
Pakistan (KSE) 49,371.6 +1.4 +50.4 +50.4 World, dev'd (MSCI) 1,778.2 +0.2 +6.9 +6.9 Nfa 138.1 142.1 +1.2 +33.7
Singapore (STI) 3,000.9 +2.7 +4.1 +2.6 Emerging markets (MSCI) 886.7 +1.8 +11.7 +11.7 Metals 124.4 127.6 -1.9 +32.6
South Korea (KOSPI) 2,075.2 +1.4 +5.8 +3.7 World, all (MSCI) 428.9 +0.4 +7.4 +7.4 Sterling Index
Taiwan (TWI) 9,345.7 +0.6 +12.1 +15.4 World bonds (Citigroup) 879.2 +0.2 +1.1 +1.1
Thailand (SET) 1,572.9 +0.6 +22.1 +23.5 All items 210.8 216.1 +4.4 +39.6
EMBI+ (JPMorgan) 778.1 +0.3 +10.5 +10.5
Argentina (MERV) 18,467.8 +1.8 +58.2 +29.1 Hedge funds (HFRX) 1,208.1 nil +2.9 +2.9 Euro Index
Brazil (BVSP) 62,446.3 +1.4 +44.1 +76.8 Volatility, US (VIX) 11.3 +11.9 +18.2 (levels) All items 169.9 169.9 +0.7 +21.0
Chile (IGPA) 20,995.5 +0.9 +15.7 +21.8 CDSs, Eur (iTRAXX) 69.1 +1.7 -10.5 -13.7 Gold
Colombia (IGBC) 10,286.1 nil +20.3 +27.6 CDSs, N Am (CDX) 66.2 +4.3 -25.1 -25.1 $ per oz 1,156.1 1,188.1 +2.4 +9.0
Mexico (IPC) 45,933.7 -1.4 +6.9 -15.9 Carbon trading (EU ETS) 5.6 +4.7 -33.8 -36.2 West Texas Intermediate
Venezuela (IBC) 32,736.7 +2.8 +124 na Sources: Markit; Thomson Reuters. *Total return index.
Egypt (EGX 30) 13,089.1 +3.8 +86.8 -22.1 Credit-default-swap spreads, basis points. Jan10th. $ per barrel 52.3 50.8 -4.1 +66.1
Sources: Bloomberg; CME Group; Cotlook; Darmenn & Curl; FT; ICCO;
Israel (TA-100) 1,276.4 -0.9 -2.9 -2.0
Indicators for more countries and additional ICO; ISO; Live Rice Index; LME; NZ Wool Services; Thompson Lloyd &
Saudi Arabia (Tadawul) 6,894.7 -4.2 -0.2 -0.2 Ewart; Thomson Reuters; Urner Barry; WSJ. *Provisional
South Africa (JSE AS) 52,437.9 +3.3 +3.4 +14.9 series, go to: Economist.com/indicators Non-food agriculturals.
82 The Economist January 14th 2017
Obituary Akbar Hashemi Rafsanjani
next 30 years tussling for power.
He ended the war with Iraq, first gain-
ing the military advantage, and then arm-
twisting his colleagues to accept a UN-bro-
kered ceasefire. He restored diplomatic ties
with most Sunni Muslim countries: nota-
bly, he was the only senior Iranian figure
on cordial terms with the Saudi leadership.
He decisively backed Irans nuclear
agreement with the Westoutfacing those
who thought that any dealing with the en-
emy was weakness or treason. The world
of tomorrow is one of negotiations, not the
world of missiles, he tweeted in March.

Interests of state
Earlier. he was embroiled in the Iran-Con-
tra affair, in which Ronald Reagans admin-
istration illegally sold Iran American
weapons, in exchange for help in freeing
hostages and financing (also illegally) Nica-
raguan anti-communist insurgents. When
his role was revealed, he had the source,
Mehdi Hashemi, jailed, while, characteris-
tically, escaping opprobrium himself.
At home he eschewed sloganeering (he
pressed for Death to America chants to
be dropped from Friday prayers) and de-
Shark of Persia cried fanaticism, calling it Islamic fas-
cism. Instead, he promoted economic
change: liberalisation, privatisation, cut-
ting subsidies and building infrastructure.
His political hero was Amir Kabir, a
19th-century reformist chief, of whom he
Ayatollah Akbar Hashemi Rafsanjani, an Iranian politician, died on January 8th,
wrote an appreciative biography. He was
aged 82
also a leading critic of the austere sexual

I N DEATH as in life, Akbar Hashemi Raf-

sanjani defied categorisation. He was a
stalwart of a regime dubbed an exporter of
power base was as much the bazaar as the
mosque. He was dubbed kooseh, the shark,
partly for hidden menace, but also mock-
and social mores of the Islamic Republic. It
was wrong, he said, to criminalise young-
sters for following their God-given and nat-
terror and heresy. Yet regional arch-foes ingly: his smooth skin sprouted only a ural instincts.
such as Bahrain and Saudi Arabia wispy beard, rather than the monumental His own instincts were finely tuned. As
mourned his passing, as did the Great Sa- growths of the heavyweight theocrats. the occasion required, he could be steely,
tan itself, via a State Department press Arrested ten times under the shahs charming, witty or lachrymose (especially
briefing. At home, embattled reformists felt American-backed regime, jailed for a total in response to his own rhetoric). He held
they had lost their prime protector. of more than four years (and on one win- court in lavish public buildings, while liv-
Ruthless guile was his hallmark. During ters day, he said, tortured from dusk to ing in the same house as before the revolu-
his early years in power, the death penalty dawn) he was not anti-Western on princi- tion. His family thrived: a business empire
was applied freely to dissidents, commu- ple. Indeed, he sniped at those who were: reputedly included the second-biggest air-
nists, Kurds and Bahais. Foreign countries if people believe we can live behind a line, a near-monopoly on the pistachio
blamed Mr Rafsanjani for ordering mur- closed door, they are mistaken. We are in trade and the largest private university. In
ders of migrs in Paris, Berlin and Geneva, need of friends and allies around the 2003 Forbes magazine put his personal
and terrorist attacks on a Jewish cultural world. Unlike his colleagues, he had trav- wealth at over $1 billion. Lies, said his fans.
centre in Buenos Aires in 1994 and on elled widely in America and elsewhere An underestimate, said his foes.
American forces in Saudi Arabia in 1996. and spoke, in private, excellent English. His biggest political setback was in
Though a pragmatist to the point of Those colleagues were often fuelled by 2005, when he failed to win a third presi-
cynicism, his career was rooted in zealotry. rage. He was driven by frustration: with dential term: hard-up Iranians voted cross-
His greatest political asset was his friend- Irans backwardness, isolation and outsid- ly for the puritanical, doctrinaire Mah-
ship with Ayatollah Khomeini, the instiga- ers bullying. His aim was to fortify the re- moud Ahmadinajad. Yet Mr Rasfanjani
tor of the Islamic revolution of 1979. As gime, not consume its strength in pointless held on to power as head of the Expedi-
memories of that upheaval faded, his abili- fights at home and abroad. ency Council, a previously obscure power-
ty to assert confidently what the great man As the first speaker of the Majlis (parlia- broking body which links Irans theocratic
would have thought became ever-handier. ment), he shaped the Islamic Republics and civil institutions. Lately, he tacked to-
Other credentials were shakier. He had constitution, reconciling limited electoral wards reformism, backing political and
studied at the great seminary in Qom, but mandates with divine inspiration: a bal- media freedoms in a speech in 2009, and
he was no theologian; nor was he able to ancing act which few Muslim countries supporting President Hassan Rouhanis
wear the black turban reserved for the Pro- manage. He helped make his old ally, Aya- campaign for re-election. Was it sincere?
phets direct descendants. His family were tollah Ali Khamenei, Supreme Leader. It Anyone who knew him, or Iranian poli-
prosperous pistachio farmers, and his was a rare mistake: the two men spent the tics, knew better than to ask. 7