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The parable of Adani Earthquake horror China’s rapid recovery Academic thought police FEBRUARY 11TH–17TH 2023
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Contents
TheEconomistFebruary11th2023
Theworldthisweek 5 A summaryofpolitical andbusinessnews
Onthecover
Whatdo ai chatbotsmeanfor thelucrativebusinessof searchingtheinternet?Leader, page7.After20yearsof stagnantmonopoly,online searchisinforashakeup, page53 TheparableofAdani The humblingofatycoonisatestfor Indiancapitalism:leader,page11. WhytheAdaniGroup’stroubles willreverberateacrossIndia: briefing,page15 Earthquakehorror Whythe devastatingtremorsmight upendTurkishpolitics,too: leader,page8.Disasterstrikes thousandsoflivesandshakes twocountries,page41.Turkey sitsatthecrossroadsoftectonic platesaswellascivilisations: Graphicdetail,page77
Leaders 7 The battle for search ChatbotsvGoogle 8 Turkey and Syria Seismicshock 8 The Gulf’s new social contract Hedonisminthedesert 9 Academic freedom Wanted:severecontests 10 China’s balloon Spyinthesky 11 India Inc TheparableofAdani
Letters 12 OnUkraineandRussia, Britain’scanals, protectionism,Gina Lollobrigida,Esperanto, cannabis,MickeyMouse, payingmps
Briefing 15 Tycoon-led development in India Adaniatbay
TheAmericas 25 PeaceinColombia? 28 LulaandJoeBiden
Asia Pakistanontheedge Women’scricketinIndia Japaneseemigration A crackdownin Uzbekistan 32 Banyan Asia’sdemocratic revival
29 30 31 31
33 34 35 36
China Falloutfromtheballoon HongKong’sbigtrial A hitpatrioticfilm Chaguan Driftingtowards a coldwar
MiddleEast&Africa 37 TheGulf’snewsocial contract 40 usAfricatrade
China’srapidrecovery Its economyisrevivingfrom zerocovidmuchquickerthan expected,page60 Academicthoughtpolice Universitiesthatpromote ideologicalconformitydo studentsadisservice:leader, page9.Mandatorydiversity statementsaretakingholdin academia,page19
UnitedStates 19 Freethinkingand academia 20 Drill,maybe,drill 21 Techprotectionism 22 Primariesreshuffled 23 Murdaughmostfoul 24 Lexington Manoutof time
Bartleby Thepitfallsof lovingyourjobalittletoo much,page56
→ Thedigitalelementofyour subscriptionmeansthatyou cansearchourarchive,read allofourdailyjournalismand listentoaudioversionsofour stories.Visiteconomist.com Contentscontinuesoverleaf
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TheEconomistFebruary11th2023
Finance&economics 60 China’srecovery 61 SouthKorea’scrunch 62 Buttonwood Surging stocks 63 Officesintohomes 64 The$2.5trnquestion 65 Free exchange Regulating bigtech
Europe 41 EarthquakesinTurkey andSyria 43 Russia’swareconomy 44 ptsd inUkraine 45 Frenchpensionprotests 46 Charlemagne Thesiren songofsubsidies
Britain 47 Asylumpolicy 48 Zelensky’svisit 50 Bagehot TheailingTories
Science&technology 66 Badweather 67 Aninternetinthesky
International 51 Howtechischanging giving
Culture 69 “TheChosen”and Christianstreaming 70 A historyoftheHolocaust 71 SalmanRushdie’snovel 72 ThejoyofThaipubfood 72 A sageofancientscience 74 Back Story Themagicof Vermeer
Business 53 Thefutureofinternet search 55 BrazilIncinatizzy 56 Bartleby Passion’spitfalls 57 Bigoil’snewmap 59 Schumpeter Rethinking Apple
Economic&financialindicators 76 Statisticson42economies
Graphicdetail 77 Turkeysitsatthecrossroadsoftectonicplates
Obituary 78 PervezMusharraf,formerpresidentofPakistan
Volume446 Number9333 PublishedsinceSeptember1843 totakepartin “aseverecontestbetween intelligence,whichpressesforward, andanunworthy,timidignorance obstructingourprogress.” EditorialofficesinLondonandalso: Amsterdam,Beijing,Berlin,Brussels,Chicago, Dakar,Dallas,Dubai,Johannesburg,Madrid, MexicoCity,Moscow,Mumbai,NewDelhi,New York,Paris,SanFrancisco,SãoPaulo,Seoul, Shanghai,Singapore,Tokyo,WashingtonDC
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©2023TheEconomistNewspaperLimited.Allrightsreserved.Neitherthispublicationnoranypartofitmaybereproduced,storedinaretrievalsystem,ortransmittedinanyformorbyanymeans,electronic,mechanical,photocopying, recordingorotherwise,withoutthepriorpermissionofTheEconomistNewspaperLimited.TheEconomist(ISSN00130613)ispublishedweeklyexceptcombinedissuesinJulyandDecember,byTheEconomistNewspaperLimited,7503rd Avenue,5thFloor,NewYork,NY10017.TheEconomist isaregisteredtrademarkofTheEconomistNewspaperLimited.PeriodicalspostagepaidatNewYork,NYandadditionalmailingoffices.Postmaster:Sendaddresschangesto The Economist, POBox920Getzville,NewYork14068,USA.CanadaPostpublicationsmail(Canadiandistribution)salesagreementno.40012331.PrintedbyQuad/Graphics,SaratogaSprings,NY12866
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The world this week Politics
Anearthquake ofmagnitude 7.8strucksouthernTurkeyand northernSyria,killingatleast 16,000people.Asecond powerfulearthquakefollowed shortlyafter.Thetollisexpect edtorisesignificantly.Itwas theworld’sdeadliestearth quakesince2010,when 220,000peoplediedinHaiti, or2011inJapan,where21,000 werekilled,butmostlybya resultingtsunami.Turkey imposedastateofemergency intheaffectedareas. PartsofnorthernSyria,devas tatedbymorethanadecadeof civilwar,werestruckbythe earthquakes.BabalHawa,a crucialbordercrossingwith Turkeythatallowsinterna tionalaidintothecountry,was leftunpassable.TheUN an nouncedthatcrossborderaid hadbeentemporarilyhalted. Lovely to see you Volodymyr Zelensky visited London,hissecondtripout sideUkrainesinceRussia’s invasion.TheUkrainianpresi dentgaveaspeechtoParlia ment,whereheappealedfor morecombataircraft,or “wingsforfreedom”ashe describedthem.Britainprom isedmoneytotrainfighter pilots.MrZelenskythenhead edtoParisandBrusselswhere hemadesimilarrequests.
Inabreakfromthecalendar usedbyRussianorthodoxythe Ukrainian Greek Catholic church,whichcountsaround 10%ofUkraine’spopulationas followers,announcedthatit wouldshiftthecelebrationof somefeastdaystomatchthose ofChristiansintheWest.Its ChristmasDaywillnowfallon December25thinsteadof January7th.
Sweden’sprimeminister,Ulf Kristersson,saidhehoped talkswithTurkeywould resumesoonoverhiscountry’s applicationtojoinNATO, whichallmemberstatesmust agreeto.Negotiationscameto ahaltwhenacopyoftheKoran wassetalightneartheTurkish embassyinStockholm.Tur key’spresidentsuggested recentlythathewilllook favourablyontheapplication fromFinland,whichalso wantstojoin,butnotSweden. RishiSunakappointedGreg Handsaschairmanofthe ConservativeParty,following thesackingofNadhimZahawi overataxscandal.TheBritish primeministeralsocreateda newDepartmentforEnergy SecurityandNetZero,and promotedKemiBadenochto businesssecretary. AyatollahAliKhamenei,the supremeleaderofIran,has reportedlypardonedtensof thousandsofprisoners, includingmanywhowere involvedinrecentantigov ernmentprotests.Theheadof thejudiciaryclaimedthat manyofthosearrestedafter thedemonstrationshadcom mittedtheircrimesasaresult offoreignpropaganda.Itis unclearwhentheprisoners willactuallybereleased.
The Economist February11th2023 5
centralAfricaandtheSahel throughweaponssalesand contractsformercenariesfrom WagnerGroup. AcourtinHong Kong began thetrialof47formerlegisla torsandactivists,thelargest trialundertheterritory’s nationalsecuritylaw,imposed in2020.Thedefendantsare accusedofinvolvementin conductinganunofficialprim aryelectionaimedathelping governmentcriticsgaina majorityinthelegislature. Red balloons AnAmericanfighterjet downedaChinese balloon off thecoastofSouthCarolina. Americanofficialscalledita spyballoon.Chinasaiditwas merelyforweatherobserva tionandhadgoneastray.The discoveryofthemassive object,whichflewovernuc learmissilesites,prompted theWhiteHousetocancela visittoBeijingbythesecretary ofstate,AntonyBlinken.
TwodaysafterAmericashot downtheballoontheChinese governmentacknowledged thatanotherballoon,spotted overColombia,wasalso fromChina.
TensofthousandsofIsraelis pouredontothestreetsof20 citiesforafifthweekof protestsagainstthejudicial reformsofBinyamin Netanyahu’sgovernment. Thenumberofpeoplekilledin violencelinkedtojihadist groupsinAfrica jumpedby 48%in2022,accordingtothe AfricaCentreforStrategic Studies,partofthePentagon. Atleast19,109peoplewere killed,mostoftheminthe SahelandSomalia,surpassing thepreviouspeakin2015. SergeiLavrov,Russia’sforeign minister,makinghisthirdtrip toAfricaineightmonths,met Mali’s militarygovernment andpromisedtoprovideit withweapons.Russiahasbeen extendingitsinfluencein
JoeBidengaveacombative state-of-the-union speechto Congress,hisfirstsincethe Republicanstookcontrolof theHouseofRepresentatives. Thepresidentwasconstantly heckledandattimesengaged hisdetractors,forexampleby accusingsomeRepublicansof tryingtoundermineSocial SecurityandMedicare. Earlier,theHousevoted,along partylines,toremove Ilhan Omar fromherseatonthe
ForeignAffairsCommittee becauseofpastcomments thatweredeemedtobeanti Semitic.Somesaytheremov alofMsOmar,whoisMuslim, wasrevengefortheDemo crats’dismissaloftwoRepub licansfromcommitteesin 2021forallegedlycondoning violenceagainstDemocrats. GuillermoLasso,thecentre rightpresidentofEcuador, lostareferendumthatwould haveallowedcrimesuspects tobeextradited.Mayoral electionswerealsoheld. PoliticianslinkedtoRafael Correa,aformerleftwing president,wonseveralraces. AcourtinSeoulruledthatthe governmentwasliablefor atrocitiescommitted bySouth Korean troops duringtheVietnam war in the1970s—andthatitmust thereforecompensatethe survivorofavillagemassacre. SouthKoreawasAmerica’s biggestforeignallyinthewar. Therulingisexpectedtoopen thefloodgatestothousandsof compensationclaims. Thepremierofthemost populousprovinceofthe Solomon Islands was removedbyaconfidencevote afterhecriticisedthefederal governmentforcosyingupto China.Lastyearthecountry signedasecurityagreement withChina,intensifying concernsintheWestabout China’sgrowinginfluencein thePacificislands. Developmentofanewcoal minewashaltedonenviron mentalgroundsforthefirst timeinAustralia.Thecoun try’sLaborgovernmentsaid thesiteinquestionwastoo closetotheGreatBarrierReef. LeBron James becamethe alltimetopscorerinAmer ica’sNBA basketballleague. Hemade38pointsinagame, surpassingtherecordof 38,387pointsoverthecareer ofKareemAbdulJabbar, whichhadstoodsince1989. MrAbdulJabbar,75,was sittingcourtsidetowitness theachievement.
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The world this week Business Thebusinessofsearching the internet,dominatedforover 20yearsbyGoogle,wasonthe cuspofdisruption,with variousannouncementsthat chatbotsbasedonartificial intelligencearetobeincorpo ratedintosearchengines. Microsoftunveiledaversionof Bingwiththetechnologythat powersChatGPT, madeby OpenAI,astartup,inwhich Microsoftisabiginvestor. Findingitselfonthebackfoot, Google launchedBard,itsrival toChatGPT.However,the company’ssharepricefell sharplywhenBardgavethe wronganswertoaquestionon spacetelescopesinavideo promotingitsabilities. Game over? ItwasamixedweekforMicrosoft,whichreceivedanother blowtoitsplannedtakeoverof Activision Blizzard,amaker ofvideogames.Britain’scom petitionregulatorsaidthedeal wouldbebadforconsumers, andmaynotapproveit.Amer ica’sFederalTradeCommis sionisalreadysuingtoblock theacquisition.
Someofthecompaniesinthe embattledAdani Group reportedariseinprofits.That promptedarallyintheirshare pricesafteratwoweekrout sparkedbyashortseller’s claimthatthestockwasbeing artificiallyinflated(Adani deniestheallegation).Adani’s controllingshareholders attemptedtosoothemarkets byrepayinga$1.1bnloanahead ofschedule. Disney announcedarestruc turingofitsbusinessinwhich 7,000jobswillbecut,around 3%ofitsworkforce.Itisthe company’sfirstbigmovesince BobIgerreturnedaschief executiveinNovember.He saidthechangeswould reshapeDisney“around creativity”andmakeits streamingbusinessprofitable. Thegreatshakeoutcontinued inthetechindustry,asZoom announcedthatitwouldcut 15%ofitsworkforce,or1,300 jobs.EricYuan,thechiefexec
utive,saidhewouldtakeacut tohissalaryandbonus.The company’sheadcounthas tripledintwoyears,while postpandemicdemandforits videoconferenceserviceshas sloweddramatically. Investorsseemtobeenthused bytheextensivecostcuttingat America’stechgiants.Despite Apple reportinga5%yearon yeardropinrevenueforthe lastthreemonthsof2022, whichincludesthecrucial Christmasseason,andGoogle postingasharperthanexpect eddeclineinadvertisingrev enue,theNasdaq composite heldsteady.Theindexisupby 15%sincethestartoftheyear. FTSE 100 8,000 7,000 6,000 5,000
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Source: Refinitiv Datastream
Britain’sFTSE100 hitnew recordhighs,surpassingits previouspeakofMay2018.The FootsieoutshoneitsAmerican andEuropeanpeerslastyear andhasrisenby6%sincethe beginningofthisyear.
The Economist February11th2023
The FTSE100’sgainshavecome onthebackofasurgeinthe sharepriceBP,whichan nouncedarecordannual profit,of$27.7bn.Thecompa nyincreaseditsdividendand sharebuybackprogramme. Butitlowereditstargetfor cuttingfossilfuelproduction, from40%by2030to25%.Like othersintheindustry,BP is squeezedbetweenkeeping shareholdershappywithhigh returnsfrompumpingoiland gasandthepushtowardsa netzeroeconomy.“We’re respondingtowhatsociety wants,”museditsboss, BernardLooney. Russia’s revenuesfromoiland gasfellby46%inJanuary,year onyear,accordingtothe financeministry.Withits spendingonthewarinUk rainesoaring,Russia’smonth lybudgetdeficitballoonedto 1.76trnroubles($25bn). Credit Suisse reportedan annuallossofSFr7.3bn ($7.9bn),itsbiggestsincethe globalfinancialcrisisof2007 09.TheSwissbankwashitbya surgeinwithdrawalsfrom wealthyclientsinOctober. AjuryfoundthatElon Musk wasnotliableforlossesin curredbyagroupofshare holdersbecauseofthemarket
reactionin2018tohistweet abouttakingTeslaprivate, whichdidnothappen.Mr Musksaidhebelievedhehad securedthefundingtobuyout thecarmakeratthetimeofthe tweet.Theverdictvindicates hisdecisiontofightthecase ratherthansettle. Americanemployerscreated 517,000jobs lastmonth,the highestnumberforJanuary since1946andwellabovethe marketforecast.JeromePow ell,chairmanoftheFederal Reserve,saidthatgivenstrong dataonthelabourmarketand theeconomy,thecentralbank mayhavetoprolonginterest raterisesforlongerthan investorsmightexpect. Sans Son SoftBank’s VisionFunds reportedanotherbigquarterly loss,of$5.5bn.Itisatough timefortheJapanesecon glomerate’sinvestments, whichhaveplungedinvalueas techstocksandstartupvalua tionshaveslid.Itsinvestments innewventureshaveallbut driedup.SonMasayoshi,the company’sboss,missedhis usuallyexuberantearnings presentation.Wehopethathe willonceagainappear,saidthe chieffinancialofficer,butwe don’tknowwhen.
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The battle for search What do ai chatbots mean for the lucrative business of searching the internet?
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or more than25years,searchengineshavebeentheinter net’sfrontdoor.AltaVista,thefirstsitetoallowsearchesof thefulltextoftheweb,wasswiftlydethronedbyGoogle,which hasdominatedthefieldinmostoftheworldeversince.Google’s searchengine,stilltheheartofitsbusiness,hasmadeitsparent, Alphabet,oneoftheworld’smostvaluablecompanies,withrev enuesof$283bnin2022andamarketcapitalisationof$1.3trn. Googleisnotmerelyahouseholdname;itisaverb. Butnothinglastsforever,particularlyintechnology.Justask ibm,whichonceruledbusinesscomputing,orNokia,oncethe leader in mobile phones. Both were dethroned because they fumbledbigtechnologicaltransitions.Nowtechfirmsaresali vatingoveraninnovationthatmightheraldasimilarshift—and a similar opportunity. Chatbots powered by artificial intelli gence(AI)letusersgatherinformationviatypedconversations. LeadingthefieldisChatGPT,madebyOpenAI,astartup.Bythe endofJanuary,twomonthsafteritslaunch,ChatGPT wasbeing usedbymorethan100mpeople,makingitthe“fastestgrowing consumerapplicationinhistory”,accordingtoUBS,abank. AI isalreadyusedbehindthescenesinmanyproducts,but ChatGPT hasputitcentrestage,bylettingpeoplechatwithanAI directly. ChatGPT can write essays in various styles, explain complexconcepts,summarisetextandanswertriviaquestions. It can even (narrowly) pass legal and medical exams.Anditcansynthesiseknowledgefrom theweb:forexample,listingholidayspotsthat matchcertaincriteria,orsuggestingmenusor itineraries.Ifasked,itcanexplainitsreasoning andprovide detail.Manythingsthatpeopleuse searchenginesfortoday,inshort,canbedone betterwithchatbots(seeBusinesssection). Hencetheflurryofannouncements,asrival firmstrytoseizetheinitiative.OnFebruary7thMicrosoft,which hasinvestedmorethan$11bninOpenAI,revealedanewversion of Bing, its search engine, which incorporates ChatGPT. Satya Nadella,Microsoft’sboss,seesthisashischancetochallenge Google.Foritspart,GooglehasannouncedBard,itsownchat bot,asa“companion”toitssearchengine.Ithasalsotakena $300mstakeinAnthropic,astartupfoundedbyexOpenAI em ployees,whichhasbuiltachatbotcalledClaude.Theshareprice ofBaidu,knownastheGoogleofChina,jumpedwhenitsaidit wouldreleaseitschatbot,calledErnie,inMarch. But can chatbots be trusted, and what do they mean for searchanditslucrativeadvertisingbusiness?Dotheyheralda Schumpeterianmoment inwhichAI topplesincumbentfirms and elevates upstarts? The answers depend on three things: moralchoices,monetisationandmonopolyeconomics. ChatGPT often gets things wrong. It has been likened to a mansplainer:supremelyconfidentinitsanswers,regardlessof theiraccuracy.Unlikesearchengines,whichmostlydirectpeo pletootherpagesandmakenoclaimsfortheirveracity,chatbots presenttheiranswersasgospeltruth.Chatbotsmustalsograp plewithbias,prejudiceandmisinformationastheyscanthein ternet.Therearesuretobecontroversiesastheyproduceincor rectoroffensivereplies.(Googleisthoughttohaveheldbackthe
releaseofitschatbotoversuchconcerns,butMicrosofthasnow forceditshand.)ChatGPT alreadygivesanswersthatRonDeSan tis,Florida’sgovernor,wouldconsiderunacceptablywoke. Chatbotsmustalsotreadcarefullyaroundsometrickytopics. AskChatGPT formedicaladvice,anditprefacesitsreplywitha disclaimer that it “cannot diagnose specific medical condi tions”;italsorefusestogiveadviceon,say,howtobuildabomb. Butitsguardrailshaveprovedeasytocircumvent(forexample, byaskingforastoryaboutabombmaker,withplentyoftechni caldetail).Astechfirmsdecidewhichtopicsaretoosensitive, theywillhavetochoosewheretodrawtheline.Allthiswillraise questionsaboutcensorship,objectivityandthenatureoftruth. Cantechfirmsmakemoneyfromthis?OpenAI islaunchinga premiumversionofChatGPT,whichcosts$20amonthforspee dyaccessevenatpeaktimes.GoogleandMicrosoft,whichalrea dyselladsontheirsearchengines,willshowadsalongsidechat botresponses—askfortraveladvice,say,andrelatedadswillpop up.Butthat businessmodelmaynotbesustainable.Runninga chatbotrequiresmoreprocessingpowerthanservingupsearch results,andthereforecostsmore,reducingmargins. Othermodelswillsurelyemerge:chargingadvertisersmore fortheabilitytoinfluencetheanswersthatchatbotsprovide, perhaps,ortohavelinkstotheirwebsitesembeddedinrespons es.AskChatGPT torecommendacar,anditwill replythattherearelotsofgoodbrands,andit dependsonyourneeds.Futurechatbotsmaybe morewillingtomakearecommendation.But will people use them if their objectivity has beencompromisedbyadvertisers?Willtheybe abletotell?Behold,anothercanofworms. Thenthereisaquestionofcompetition.Itis goodnewsthatGoogleisbeingkeptonitstoes byupstartslikeOpenAI.Butitisunclearwhetherchatbotsarea competitortosearchengines,oracomplement.Deployingchat botsinitiallyasaddonstosearch,orasstandaloneconversa tionpartners,makessensegiventheiroccasionalinaccuracies. But as their capabilities improve, chatbots could become an interfacetoallkindsofservices,suchasmakinghotelorrestau rantreservations,particularlyifofferedasvoiceassistants,like AlexaorSiri.Ifchatbots’mainvalueisasalayerontopofother digitalservices,though,thatwillfavourincumbentswhichpro videsuchservicesalready. Googling the future Yetthefactthattoday’supstarts,suchasAnthropicandOpenAI, areattractingsomuchattention(andinvestment)fromGoogle andMicrosoftsuggeststhatsmallerfirmshaveashotatcompet inginthisnewfield.Theywillcomeundergreatpressuretosell. Butwhatifanupstartchatbotfirmdevelopssuperiortechnology andanewbusinessmodel,andemergesasanewgiant?That, afterall,iswhatGoogleoncedid.Chatbotsraisehardquestions, buttheyalsoofferanopportunitytomakeonlineinformation moreusefulandeasiertoaccess.Asinthe1990s,whensearch enginesfirstappeared,ahugelyvaluableprize—tobecomethe frontdoortotheinternet—mayonceagainbeupforgrabs. n
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Turkey
Seismic shock Why the devastating earthquakes might upend Turkish politics, too
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OBODY KNOWS howmanypeoplelietrappedundertherub ble.WhentwopowerfulearthquakeshitsouthernTurkey andnorthernSyriaonFebruary6th,thousandsofbuildingscol lapsed,buryingfamiliesastheyslept.Rescuersareracingtodig themoutbeforetheysuccumbtoinjury,thirstorthebitingcold. ByFebruary9thestimatesofthedeathtollstoodatmorethan 16,000;thetruefiguremaybefarhigher.TheWorldHealthOrga nisation says it could be 20,000, which would make it even worsethanthequakethatstruckIzmit,100km(60miles)eastof Istanbul,in1999,killingsome18,000.Buckledroads,complex terrainandthevastsizeoftheaffectedarea,spreadingoutalong theEastAnatolianfaultforsome450km,aremakingtherelief efforthellishlydifficulttomanage(seeEuropesection). ThequakestruckpartsofSyriawereprevi ouslybatteredbyadecadeofwar.Syria’sdes pot,BasharalAssad,issowaryofoutsidersand heedlessofhumanlifethathemayimpedeac cessforforeignreliefagencies.Eveninpartsof Syriaoutsidehiscontrol,entryreliesonroads fromTurkeythatarenowbadlydamaged.Tur keyisnaturallyconcentratingonitsownpeo ple. Donors must try, against the odds, to en surethatSyriaisnotabandoned.Sofar,however,theresponse hasbeenmuchtooslow. Evenasthereliefeffortgoeson,attentionwillturntopoli tics.PresidentRecepTayyipErdogan,whohasruledTurkeyfor twodecades,facesanelectioninMaythatwasalreadygoingto betoughforhim,thankstoaflounderingeconomyandaninfla tionratedriventoover50%byhisfoolishmonetarypolicies. Voterswillnotehisresponsetotheearthquake,andaskwhyhis governmentdidnotdomoretoprepareforsuchadisasterafter thetremorof1999.Heknowsit:governmentprosecutorshave alreadylaunchedinvestigationsintotwojournalistsforcriticis ingthestate’sresponse. Thereisagrimironyatwork.MrErdogancametopowerafter
an election in 2002. His new party, Justice and Development (AK),upendedanestablishmentthathadineffectuallygoverned Turkeysincetherestorationofdemocracyin1983.Thethengov ernment’sweakresponsetotheearthquakeof1999,followedby its mishandling of a financial crash in 2001, contributed to a sensethataclearoutwasneeded,andAK endedupwithtwo thirdsoftheseatsinparliament.NowMrErdoganfacesasimilar set of circumstances; an economic crisis and a humanitarian one.Voterswilljudgehimonhisrecordinhandlingboth. ThecollapseofsomanybuildingsinTurkey—nearly6,000, accordingtothegovernment—willinvitescrutiny.Evidencewill emergethattheadviceofearthquakeexpertswasignored,and buildingcodeswerefloutedwhilecorruptorincompetentsu pervisorslookedtheotherway.Onehallmarkof theeconomicboomthatmadeMrErdoganpop ularforhisfirstdecadeinpowerwasasurgein construction,thoughmostofthebuildingsthat collapsed were built before he came to office. He has had two decades to prepare for a big earthquake;itishardlyasecretthatTurkeysits ononeoftheworld’smostactivefaultlines. Mr Erdogan’s poll ratings, and his party’s, havebeennearingrecordlows.Lastmonthhebroughtforward thepresidentialandparliamentaryelectionsfromJunetoMay, presumablytowrongfoottheopposition,whichhasstillfailed to unify around a single candidate for the top job. After the quake,thepresidentdeclaredastateofemergencyintensouth ernprovinces,tolastforthreemonths,untilalmosttheeveof thepoll.Nodoubttherearecommendablepracticalreasonsfor this.ButitmightalsomakeiteasierforMrErdogantoshutdown criticismoroppositionactivity;indeed,accesstoTwitterwas briefly restricted after people used it to lambast the govern ment’sresponsetothequakes.Hemightnowpostponetheelec tions.Turkeywasalreadyenteringadifficultperiod.Platetec tonicshasjustmadeitmoredangerous. n
The Gulf’s new social contract
Hedonism in the desert A post-oil future means a social revolution in the Gulf
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ancy going toaraveinSaudiArabia?Thecountriesofthe Gulffaceadauntingtransitionawayfromfossilfuelsinthe comingdecades.Butanothertransitionishappeninginparallel thatisjustasstriking:ashiftfromstateledeconomiesandcon servativesocialnormstowardssomewhatmoreliberalandopen societies (see Middle East & Africa section). That prospect is thrilling.Millionsofpeoplewillenjoynewfreedomsandoppor tunities.Butitisalsodisconcerting,becauseitbringstheriskof socialinstabilityifautocraticgovernmentsfailtoadapt.Wheth ertheGulfcountriessucceedinredrawingtheirsocialcontracts mattersnotonlytotheirpeople,butalsototheworld,becauseof
theircloutinoilandgasandtheirroleinexportingculturalval uesacrosstheMuslimworld. EversinceGulfgovernmentstookcontrolofoilandgaspro ductionfromWesternfirmsinthe1970s,thesocialcontracthas been clear. Rulers used petrodollars to pamper their subjects witheverythingfromcushypublicsectorjobstowatersubsi diesandbonusesfornewlyweds.Foreignerswereencouragedto movetotheGulftodothejobscitizenseithercouldnotorwould notdo.Therewasnopathforthesemigrantstobecomecitizens, whethertheywerelabourerssweatingonconstructionsites or bankers in airconditioned offices. And everyone—locals and
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expats—hadtoacceptrestrictiveroyalrule. Thatcontractwilleventuallybecomeobsolete.Onereasonis climatechange.TheUnitedArabEmirates(uae) andSaudiAra bia,whichtogetherpump14mbarrelsofoilperday,knowthat demandforfossilfuelswillfade.Thatgivesthemawindowof 1020yearstotransformtheireconomies.ThewarinUkraine hasledtoaspikeinenergypricesthatcouldmeantheGulfstates earn$3.5trnfromenergyexportsoverthenextfiveyears,creat ingakittywithwhichtoinvest.Andthegeopoliticalcontexthas changed, too. American support is less assured, while closer linksarebeingforgedwithotherstates,fromIndiatoIsrael. Someofthechangesareastounding.InSaudiArabia,women whowerebarredfromdrivingnowmotortowork.In201717%of Saudiwomeneitherhadajoborwerelookingforone;todaythe figure is 37%. Restaurants were once prohibited from playing music.Nowthereistalkoflooseningthealcoholban.AsSaudi Arabiahasliberalised,theuae hasrespondedwithreforms,anx ioustomaintainitsdominanceasabusinesshub.Neighbouring OmanandgasrichQatararemoreclosedbutarepayingclose attention—QatarjusthostedthefootballWorldCup. Theeuphoriamayhelpdullthepainofeconomicreforms. Benefitsarebeingcut.TheUAE hasditchedfuelsubsidies.Saudi Arabiamayfollow.Since2018fourofthesixcountriesoftheGulf CooperationCouncilhavebroughtinavalueaddedtax.Income tax,onceunimaginable,isnowapossibility.InJunetheuae will introduceacorporatetax.Asgovernmentsinecuresbecomeless commonthecitizensoftheGulfarehavingtocompeteforpriv atesectorjobs.Theirgovernmentsarekeentoattractmorefor eigners.TheUAE,whereexpatsmakeupnearly90%ofa10m
strongpopulation,wantstolure3m5mmore. Allthiscreatesasenseofinsecurityaswellasfreedom.Gulf citizenswillneedthetoolstosucceedinanewera.Educationis agoodplacetostart.SchoolchildreninQatar,SaudiArabiaand theUAE lagfarbehindtheirrichcountrycounterparts.Dropout rates are high because students—boys in particular—assume theycanrelyonagovernmentjob.Abettereducationwouldpre parethemtocompeteforoneintheprivatesector. Anotherchallengeistherelationshipbetweenthestateand individuals.Morerightshavealreadybeenrecognised,atleast onpaper.Intheuae newlaws decriminalisepremaritalsexand allowunmarriedcouplestolivetogether.Punishmentsforsexu alharassmentandrapehavebeentoughened.Theuae andSaudi Arabiaarestrengtheningpropertyrightsforforeigners.Thepath to permanent residency, and perhaps even citizenship, will probably become easier. Foreigners who put down roots may onedaydemandrights. Techno-cratic Sofar,greatersocialfreedomshavebeenaccompaniedbymore political repression and centralisation, particularly in Saudi Arabia,underitsdefactoruler,MuhammadbinSalman.Yeta taste of freedom in their daily lives may spur people to seek moresayinpolitics,too.Attheveryleastgovernmentswillhave toheedthegrumbleswheneconomicchangecreateslosers,asit will.NoGulfcountryislikelytobecomeademocracyanytime soon.Butiftheyaretoweantheireconomiesoffhydrocarbons withoutprovokingunrest,governmentsmustbecomemorere sponsivetoordinarycitizens.Otherwisethemusicmaystop. n
Academic freedom
Wanted: severe contests Universities that promote ideological conformity do students a disservice
W
HEN SEEKING ajobtoteachintheUniversityofCalifornia system, academic excellence is not enough. Applicants mustalsosubmitadiversity,equityandinclusion(DEI)state ment, explaining how they will advance those goals. That sounds fair enough, except that a promise to treat everyone equallywouldconstituteafail.MeanwhileinFlorida,Governor Ron DeSantis and the state legislature are trying to ban the teachingofcriticalracetheory,anapproachto studying racism with which they disagree. Whilethishasbeengoingon,arowhasbroken out (also in Florida) over a new precollege course in AfricanAmerican studies. These three developments have one thing in com mon: they are attempts to win arguments by controllingtheinstitutionswherethoseargu mentstakeplace(seeUnitedStatessection). Threats to academic freedom in America can come from manydirections.Studentssometimesobjecttobeingexposedto ideastheydeemtroubling.Someeventrytogetfacultymembers firedforallowingsuchideastobevoiced.Donorsoccasionally threaten to withdraw funding, which has a chilling effect on what can be taught. Speakers can be banned. Academics may selfcensor,orsuccumbtogroupthink.OccasionallyAmerican society demands restrictions on academic freedom, as when
professorsinthe1950swereaskedtotakeloyaltyteststoprove theywerenotcommunistsympathisers. Allthesethreatsstillexist.Plentyofpeoplehaverightlywor riedaboutacademicfreedominAmericainthepast.Andyetone ofthethingsthatisdistinctiveaboutthismomentisthatthe warringpartieshavedeterminedthatthebestwaytowinthear gument,andthemostthoroughwaytostifledebate,istoremake institutionsaccordingtotheirpreferences. DEI statements may seem innocuous enough, and their intentions may seem laud able.Yetiftheyareusedasafilterforhiring, theywillfilteroutanyonewhofailstotoethe campusprogressiveline,andanyonewhoob jectsonprincipletoideologicallitmustests. InFlorida,MrDeSantisseemstobehoping thatleftwingprofessorsinstatecollegeswill gotoworksomewhereelse,creatingopeningsformoreconser vativeprofessors.TheStopWOKE Act,nowlawinFlorida,bars teachingaboutsystemicracismunlessthisisdone“inanobjec tivemanner”—aqualifierwhichisrathersubjective.Academics whocrossthelinewillbethreatenedwithdismissal. AsforthatcourseonAfricanAmericanhistory,adraftver sionwasdenouncedfromtherightasdangerouswokenonsense and then, when it was revised, denounced from the left as a
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whitewashedversionofblackhistory.Thenotionthatstudents mightlookatcontradictoryideasandjudgetheirmeritswastoo terrifyingtocontemplate. Partisansonbothsidesseemindecentlyeagertocreatesepa rateinstitutionsforliberalsandconservatives,wheretheliber alswouldneverhavetohearwrongthink(acategorythatwould includesomeofMartinLutherKing’sideas,weretheyproposed byalessreveredspeaker),andtheconservativeswouldnever havetoencountertheworksofDerrickBell(whohasasgooda claimasanyonetohavedevelopedcriticalracetheory).
Nodoubtthiswouldmakebothideologicaltribeshappier. Butitwouldbeadisasterforthecountry.Democracydependson citizenswhocanfindcompromises.Liberalismdependsontak ing an opponent’s argument seriously and learning from it. Americaneedsinstitutionsthatcanhavethesedebates,rather thanmonoculturalincubatorsofmutuallyexclusiveideologies. DEI statements could even be repurposed to this end: rather thanaskingapplicantswhattheyhavedonetofurtherracialdi versity and equity, institutions of higher learning might start askinghowtheyplantofurtherrealdiversityofthought. n
China’sballoon
Spy in the sky To avoid perilous misunderstanding, China and America should talk more
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here was somethingalmostcomicabouttheimmenseChi neseballoon,carryingequipmentthesizeofasmallpassen gerplane,thatdriftedoverAmericafordaysuntilitwaspopped on February 4th by an American fighter jet. As coldwartype momentsgo,itwaslightreliefcomparedwith,say,theCuban missilecrisisof1962orthecrashlandingin2001ofanAmerican spyplaneafteraChinesefightercollidedwithit.Butthiswasno joke.Americasaidtheballoonwasspying.ForordinaryAmeri cans,thethreatfromChinawassuddenlyvisible,overhead.In his stateoftheunion speech on February 7th, President Joe Biden warned: “make no mistake about it…if China threatens oursovereignty,wewillacttoprotectourcountry.Andwedid.” Americanspooksplaydownwhattheballoon—orweather observationcraft,asChina’sgovernmentinsists—discoveredas itfloatednearmilitarysites,includingabaseinMontanawith MinutemanIIIintercontinentalballisticmissiles.Buttheysay thatwasbecausetheytrackeditcloselyandensurednosensitive activitiesorcommunicationstookplacewithin itsrange.Examinationofitsdebrismayreveal moreabouttheoperation,whichAmericasays ispartofavastaerialsurveillanceprojectbased onHainanislandinsouthernChina,whichhas targetedcountriesonfivecontinents. TheepisodeillustrateswhySinoAmerican rivalry is so hard to manage (see Chaguan). America’s hyperpartisan politics were on full displayasRepublicansandDemocratscompetedtosoundmore hawkish, in an escalatory pattern that will probably feature heavilyinthepresidentialcampaignin2024.Theballoonmay alsorevealtheblurredboundarybetweencivilianandmilitary activity,ifdebrisrecoveredoffthecoastofSouthCarolinashows thatAmericancomponentsarehelpingChinatospy(seeChina section).Theeconomiclinksbetweenthetwocountries,from semiconductorstoTikTok,aresobroadthatavastarrayofactiv itynowfallsundersuspicion. Theoddsofmoreincidentslikethisarehigh.Chinamayre taliate, for example by seizing an American oceansurvey drone—asitdidin2016intheSouthChinaSea,wherethetwo countries’warshipsandfightersoperateincloseproximity.Chi nesefurywithAmericafollowingavisittoTaiwaninAugustby NancyPelosi,thenthespeakerofAmerica’sHouseofRepresen tatives,hasresultedinevermoredangeroussabrerattlingby China’s armed forces around the island, which China claims.
Thereisanalmostcontinualriskofsmallencountersthatcould sparkabiggerconflict. Itisthereforecrucialthatcoolheadsprevail.The20thcentu ry offers some lessons. In1972 America and the Soviet Union managed to reach agreement on avoiding dangerous military encounters.In1955PresidentDwightEisenhowerproposedthat SovietspyplanesbeallowedtoflyoverAmerica,andviceversa, sothatthetwocountriescouldbemoreassuredofeachother’s intentions.TheRussiansbaulkedattheidea.Itwasonlyafter theSovietUnioncollapsedthatitwastakenup:34countries, includingRussiaandAmerica,joinedtheOpenSkiestreatythat tookeffectin2002.Itallowedparticipantstosurveileachother fromtheairaftergivingnoticeandaflightpath(althoughRussia andAmericahaverecentlypulledoutofthedeal). Todayfartoofewmechanismsforavoidingescalationexist. China’s nowabandoned zerocovid policy meant it avoided facetoface discussions for years. As president Mr Biden has metXiJinping,China’sleader,onlyonce,dur ingaG20meetinginNovemberinBali.Asan American official said then: “It is critical to build a floor for the relationship and ensure thattherearerulesoftheroadthatboundour competition.” But after the balloon was shot down, China refused to hold a phone call be tween its defence chief and America’s. For its part,AmericahascalledoffavisittoBeijingby the secretary of state, Antony Blinken. The trip had been planned for February 5th and 6th and was to have included a meetingwithMrXi.Itneedstoberescheduledassoonaspossi ble.MrBlinkenwouldbethefirstAmericancabinetsecretaryto visitBeijingsinceMrBidenbecamepresidentin2021. From cold war to hot air Newdiplomaticandmilitaryaccordstopreventaccidentscan bereachedonlyifAmericaandChinatalkmore.Americawould liketodiscussnuclearweapons,butChinarefuses.Itbelieves thatthelesstherestoftheworldknowsaboutitscapabilities, thesaferitwillbe.Butasitsglobalambitionsgrow,Chinaisbe cominghungrierforintelligenceandmoredaringinpursuitof it,continuallyraisingtheprobabilityofclashesandaccidents that could quickly spiral out of control. Some Americans and Chinesemayhavebeenintriguedoramusedbythegiant,drift ingballoon.Thebiggerpictureisalarming. n
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India Inc
The parable of Adani The humbling of a tycoon is a test for Indian capitalism
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t took a littleoversevendaysforacorporatetitantobecut downtosize.OnlyweeksagoGautamAdaniwastheworld’s thirdrichestmanandtheselfproclaimedRockefellerofIndia. Thenashortsellerquestionedhiscompany’sfinances,inves torstookfrightand$100bninmarketvalueevaporated.Tensof billionshavebeenwipedoffthetycoon’spersonalwealth.Today thecompanyisracingtoshowitcanmeetitsdebtpayments. ThehumblinginthemarketscallsintoquestionMrAdani’s pharaonic ambitions. It is also a political embarrassment for NarendraModi,theprimeministerofIndiaandacloseassociate ofMrAdani.AnditconfrontsIndiancapitalismwithitssternest testinyears(seeBriefing). MrAdani’ssprawlingempiretoucheshundredsofmillions of Indians’ daily lives. It runs some of India’s biggest ports, storesathirdofitsgrain,operatesafifthofitspowertransmis sionlinesandmakesafifthofitscement.ItwasamongIndia’s toptenbiggestnonfinancialfirms,byassets,andhadbeenpro jectedtogrowrapidly. Theprospectsforthatgrowtharenowuncertain.Inareport publishedonJanuary24thHindenburgResearch,anAmerican shortseller, alleged that opaque entities based in Mauritius linkedtotheAdanifamilyweremanipulatingthegroup’sstock price.AlthoughAdanideniedtheclaims,itdidnotconvincein vestors. Share prices plunged and financing plansweredisrupted.Yieldsonbondsissuedby thecompanyhaverisen;thoseofthegroup’sre newablesarmtradeataneyewatering19%. ForMrModi,bigbusinessesareimportant planksinhisplantoboostcapitalinvestment in India’s infrastructure. But Mr Adani is un usual.HistieswithMrModiwereformedde cadesagoinGujarat,thestatewherethepoliti cianwaschiefministerfrom2001to2014,andwherethetycoon gothisstart.WhenMrModibecameprimeminister,heflewto DelhiinMrAdani’splane.Betweenthenandthereleaseofthe Hindenburgreport,MrAdani’spersonalfortunemushroomed fromaround$7bnto$120bn. ThegovernmentmaynowbetemptedtooffersupporttoMr Adani,implicitlyorexplicitly.Butthatwouldbeamistake.India has many of the conditions in place for a sustained growth spurt.Ifitistoachieveitspotential,however,close,impartial scrutinyofbigbusinesswillbevital. Anyone who has spent time in India knows its desperate needforroads,bridgesandpower.Intheyearsbeforetheglobal financial crisis of 200709, a credit boom fuelled vast invest mentsininfrastructure.Butcostsoverran,redtapeledtodelays and financing costs soared. Too few projects were finished. Bankswereleftsaddledwithbadloansandgrowthsputtered. HencetheallureforMrModiofamuscularindustrialpolicy. He wants to make India a global manufacturing powerhouse. Thatcannothappenwithoutgoodroadsandreliableelectricity. Sobigbusinesseshavebeencajoledtoinvestininfrastructure andtohelpdeveloplocalsupplychains.TogetherAdani,Reli anceIndustries,Tataandjsw,someofIndia’sbiggestfirms,plan toinvestmorethan$250bnoverthenextfivetoeightyearsin
infrastructureandemergingindustries.Subsidiesarealsobeing handedouttoforeignfirmsthatexpandproductioninIndia,in cludingSamsungandFoxconn. Thestrategyofpickingwinners wasalwaysfraughtwithrisk, however,andMrAdani’swoesofferawarningofwhatcango wrong.Apolicyofexpeditinglicencescanalsoslipintofavourit ism.Anotherdangeristhatthewinneryoupickmightnotfulfil hispromises.AdaniGroupsaysithasenoughcashtocomplete allofitsprojectsthatareunderconstruction.Butitsmodelof frenetic,debtfuelledexpansionisnowsurelylesstenable. Thebiggerthetycoon, thebiggerthestakesbecome.MrAda ni alone is responsible for 7% of the capital investment by India’s500largestnonfinancialfirms.Heisthedominantoper atorofthecountry’sstrategicallyimportantports.Hisfirmhas promisedtoinvestmorethan$50bninsuchthingsasanewair portinMumbaiandsteelmillsinGujarat.Shouldthoseinvest mentsstruggle,projectswillliehalffinishedyetagain. SofarMrModihasbeensilentaboutAdani’stribulations.The prime minister is popular enough that, despite a handful of protestsorganisedbytheoppositionCongressparty,theimme diatepoliticalfalloutfromthedramawillbelimited.Ministers havesoughttoreassureinvestorsbysayingthatthecountry’s macroeconomicfundamentalsremainsound.Buttheywillhave togofurthertoshowthatIndiaremainsareli ableplacetodobusiness.Ifitistogrowrapidly, India will need vast amounts of capital from abroad, partly because it runs a currentac countdeficit.Foreignmultinationalshavebe come warier of entering countries where the governanceisnotuptoscratch. Thegovernmentcouldstartbyreininginits favouritism and stepping up scrutiny of big businesses.IfatinyfirmofshortsellersinNewYorkcanask hardquestions,whydidn’ttheregulators?Hindenburgalleges thattheSecuritiesandExchangeBoardofIndia,thecountry’s markets watchdog, began an investigation into Adani in 2021 thathassincegonequiet.Theregulatorshoulddeclarethesta tus of any ongoing probes into Adani. And it should demand transparencyfrominvestmentfirmsbasedinMauritius,which areoftenattheheartofIndianstockmarketscandals.Adanihas issueda413pagereportrebuttingHindenburg’sclaims. Licence Raj to Silence Raj TheModiyearshaveinmanywayserodedIndia’schecksand balances. His government has steadily undermined the inde pendenceofthecourtsandthepolice.Themediaaremostlytoo cowedtoinvestigatethemightyastheyoncedid.FewIndian newspaperswouldhavetouchedastoryaboutMrAdanihadan American firm not asked the tough questions first. Mr Adani himself recently bought ndtv, a news channel that was once criticalofthegovernmentbutisnowsupine. ForIndiatoprosper,itsinstitutionswillinthelongrunbe just as important as its infrastructure. Indians benefit from cleanpowerandlevelroads,tobesure;buttheyalsoneedclean governanceandalevelplayingfield. n
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Letters Only the strong can intervene JeffreySachsarguesthat neutralcountriesshould mediatebetweenRussiaand Ukraine(ByInvitation,January 21st).Afterhisdisastrous prescriptionsforeconomic “shocktherapy”ineastern Europe30yearsagoonewould thinkhemightwanttositthis oneout.Hisnewideaisthat countriessuchasBraziland SouthAfricashouldbeguaran torsofapeaceagreement,just asrichcountriesweresup posedtoguaranteetheconse quencesfromshocktherapy. Theydidn’tthenandneutral countrieswon’tnow. MrSachsdoesnotsayhow hisideacouldbeimplement ed.Byimposingpenaltiesat theUN SecurityCouncil,where America,Russiaandothers haveaveto?Bymilitaryforce? Itisdifficulttoimaginethe Braziliannavywantingto marshalblockadesintheBlack Sea,ortheSouthAfricanair forcesecuringCrimeanair space.Asaresulttheefficacy ofhisargumentis,once again,untestable. Mostofuswillbehard pressedtothinkofanyconflict whichwasresolvedbythe assumptionthataclubof decentkidscansomehow intermediateinaschoolyard brawlbetweenbigtoughones. Thenaivetyofthesuggestion recallsajokeaboutastranded economisttryingtogetoffa desertisland:justassumea liferaft. TimGollin Bergamo, Italy
The great canal journey Researchersinvestigatingthe industrialisationofBritain oftenoverlookthecanal system(Graphicdetail,Janu ary21st).Inthe1740sBritain’s roadwaysweremostlymuddy paths.Enterprisingmanufac turers,lookingtotransport rawmaterialsintotheir factoriesanddistributethe finishedgoods,formedjoint stockcompaniestodigcanals linkingnavigablerivers throughoutthecountryside.It wasagreatsuccess,andmay possiblyexplainthefirstbump
TheEconomistFebruary11th2023
inyourchartdescribingGDP perperson.Bythemiddleof the1800sManchester,Liver pool,Birmingham,Leeds, Sheffield,Londonandother citieswereconnectedbya rapid,smoothtransport system.Thecanalswereover takenbytherailwaysafter 1850,apossibleexplanationfor thesecondbumpinGDP. CHRISTINEHOWZE Broomall, Pennsylvania
Digital protectionism “Protectionistturns”(January 14th)highlightedAmerica’s startlingshifttowardsprotec tionism,notablythrough subsidies.Protectionismisnot limitedtotheUnitedStates. Eveninthedigitaleconomy, datafromtheGlobalTrade Alertshowthatbarriersto tradehavebeensharplyonthe rise,inparticularthrough localisationrequirements.The EuropeanUnionandG20 have initiatedover1,700legalacts since2020alone. Someviewthisasa responsetoAmericanprotec tionism.Forinstance,Amer ica’sCommerceDepartment complainedaboutadraft Europeanschemetoclassify cybersecurityinthecloud (theEU cloudservicescertifi cation)becauseitallowsonly “EU headquarteredfirms”to gainthehighestlevelofclassi fication.Americanfirmscould thereforebeexcludedfrom thatlucrativeEU market.The schememightalsobein breachofthetradeandco operationagreementbetween BritainandtheEU,andtheEU’s commitmentsintheWTO’s generalagreementsontrade andgovernmentprocurement. Consumersandbusinesses onbothsidesoftheAtlantic shouldworryaboutthehigher pricesandlesschoicethatall thisbrings.Torectifythiswe needarenewedconsensuson nondiscriminationandna tionaltreatmentamongtrad ingpartners,tosavethein ternationalrulesbasedsystem thatAmericaoncesupported. PascalKerneis Managingdirector EuropeanServicesForum Brussels
An Italian star of screen Thankyoufortheobituaryof GinaLollobrigida,aphenome noninfilm(February4th).You couldhaveaddedthatherfame hadanimpactfarbeyondthe cinema.Thereisforinstance theGinagasket,abreak throughforassembling tunnelsunderwaterfromgreat hollowsectionsofprecast concrete.TheDutchinventor ofthethickrubbersealnamed itafterGinatohonourcertain “curvysimilarities”. Andinanupsurgeofcivil warinLebanonfrom198284, Italiantroopsinamulti nationalforcemostlyescaped thebloodyfatesoftheAmer icanandFrenchcontingents.It waswidelysupposedthatthe Italians’empatheticMediter raneanoutreachhadsimply wontheheartsoftheirShia MuslimneighboursinBeirut’s southernsuburbs. Orperhapsnot.Overa decadelater,theSyrianmin isterofdefencerevealedto Al-Bayan,anewspaperin Dubai,thatitwashewhohad orderedtheLebaneseresis tancetosparetheItalians. Why?Becauseofhislovesince hisyouthforGinaLollobrigi da,whomhewishedtosparea “singletear”ofdistress. HughPope Brussels
Lingvo vere tutmonda Banyanfounditcomicalthat Baha’imissionariestoJapan usedEsperantototranslate theircreed(January21st). UsingEsperantoinAsiaisno morecomicalthanusing English.Chinahaspublished morethanahundredbooksin Esperantoandhasregular radiobroadcastsinthe language.Esperantocanbe learnedinaboutquarterofthe timeneededtolearnEnglish. Englishconveysmainlythe cultureofitsnativespeakers. BycontrastEsperanto literatureiswrittenbynative speakersofdozensoflanguag es.Thelanguageisspreading everwideraroundtheworld. Louisv.WunschRolshoven GermanEsperantoAssociation Berlin
Worker toker Ipartiallydisagreewiththedry conclusiondrawnbyBartleby abouttherelationship betweencannabisuseand creativityintheworkplace (January14th).Confidencein one’screativeideasisnot alwaysagiven.Theadage “writedrunk,editsober”may notguaranteeabestseller,but itcansometimeshelpfilla page,oralettertoThe Economist,whichwouldhave remainedblankotherwise. JeanMaximeRiviere Buenos Aires
No Mickey Mouse operation MickeyMouse’shandalways hasonlythreefingers,as depictedintheillustrationfor yourbriefing(“Thrillsand spills”,January21st).Soonafter creatingMickeyinthelate 1920sWaltDisneyrealisedthat ifhismousebecamepopularit wouldbedrawnmillionsof times.Thousandsofillustra tionsareneededforacartoon lastingjustafewminutes.By omittingonefingerDisney producedsignificantsavings ininkandlabour.Andbecause italsoenabledeasierandmore flowingmovementsithas beencopiedbyalmostall cartoonartistssince. KeithCarlson Belmont, Massachusetts
Will do the job for nothing IreadBagehot’spleaforBritish politicianstobemore adequatelyfunded(January 21st).Itbroughttomindaquip fromlongagobythelateJohn Arlottonthe“AnyQuestions” radioprogramme:“Somany peoplewanttobeMPsthatthe lawofsupplyanddemand suggeststheyneednotbepaid anythingatall.”Theaudience applaudedloudandlong. J.Fyles Thirsk, North Yorkshire
Lettersarewelcomeandshouldbe addressedtotheEditorat TheEconomist,TheAdelphiBuilding, 111JohnAdamStreet,Londonwc2n 6ht Email:[emailprotected] Morelettersareavailableat: Economist.com/letters
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Executive focus
Powering Africa’s Energy Revolution Director & Head, Power Investment The Africa Finance Corporation (AFC) is Africa’s leading infrastructure and industrial solutions provider. Established by a treaty between 39 member countries and with a balance sheet of over $11bn, AFC has ambitions to double in size over the next five years by providing innovative investment solutions that make Infrastructure an instrument of change and economic prosperity for the continent. In the Power sector, AFC has already developed and constructed 5.5GW of power generation, distribution and transmission projects on the African continent, investing over $1.5bn in 18+ countries. AFC’s Renewable Energy Platform, the largest in Africa of operational, construction & development wind, solar & hydro assets, is set to grow to 5GW in the next 3 years. The Director & Head, Power, will: • Lead a team to deliver AFC’s ambitious sector growth plans including the success of the platform • Drive power sector deal origination, structuring, development and closure using multiple instruments – debt, equity, quasi-equity & off-balance sheet • Bring creativity, innovation & urgency to achieve ground-breaking investments delivering significant economic and development impact for Africa Candidates will have: • A proven track record of closing, managing & divesting power investments, with a particular interest in renewables • Well-developed origination, project development and investment skills in the power sector • Outstanding leadership skills, an entrepreneurial mindset and innovative approach to closing deals • Pace, tenacity and ambition as well as a laser focus on getting investments done. Further information is available at www.millarcameron.com. To apply, send your CV and covering letter to [emailprotected] before 3rd March 2023.
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Briefing Adani, Modi and India’s economy
A tycoon at bay
MUMBAI
Why Adani Group’s troubles will reverberate across India
“I
like challenges whereyoufeelyou are part of nationbuilding. I could have created many different businesses but I feel more satisfied when I create something that can be part of the India journey,”GautamAdanitoldIndia Today,a weeklynewsmagazine,in2011.Thejour ney of Mr Adani’s conglomerate, Adani Group,tookanunexpectedturninlateJan uary,whenaninvestmentfirm’scritiqueof itsfinancescausedthesharepricesofits variouslistedbusinessestoplunge.Given howcloselyAdaniGroupisassociatedwith thegovernmentofNarendraModi,andhis ambitionsfortheeconomy,manyobserv ersareaskingwhetherpolicymakers,too, couldbesteeringinthewrongdirection. Itisovertwoweekssincethepublica tion of Hindenburg Research’s report on theAdaniGroup,onJanuary24th,yetthe alarm it created has still not dissipated. TheAmericanfirm,whichmakesfinancial betsagainstcompaniesitconsidersover valued,arguedthatAdaniGrouphadma nipulated the prices of shares in its con
stituentcompanies.Thegroupinsiststhe claimsarebaseless;ithaspublisheda413 pagerebuttal. Adanihasalsotriedtoreassuretwitchy investorswithdisplaysoffinancialsobri ety.OnFebruary6ththeAdanifamilysaid itwouldrepay18monthsaheadofsched ulea$1.1bnloantakenoutusingsharesin the group’s companies as collateral. The followingdayAdaniPortssaiditwouldpay downitsdebtby$605mthisyearandhalve spendingonnewinvestments. Yet the shares continue to gyrate: on February6th,forexample,sharesinAdani Transmissionfellby10%,promptingtrad ingtobesuspended.Thatsameeveningit reportedstrongresults;thefollowingday itssharesroseby10%,promptinganother suspension.ThevalueoftheAdaniGroup as a whole remains roughly half what it wasbeforeHindenburgweighedin. Indian media report that the main stockmarket regulator, the Securities and ExchangeBoardofIndia,hasrequestedin formationabouttheownershipoftheoff
The Economist February11th2023
shore firms that Hindenburg accused of acting on Adani’s behalf. But the reports also claim that SEBI has given Adani six months to respond. Hindenburg’s allega tions,inotherwords,willnotbecategori callyprovenordispelledanytimesoon. Meanwhile, fresh criticisms and set backs continue to surface. This week the IndianpressporedoverananalysisbyAs wathDamodaran,aprofessoroffinanceat New York University. It argued that, de spitetheirtumblingshareprices,compa nies in Adani Group are still overvalued, given that the bulk of their assets are in staid, lowgrowth industries and infra structure.OnFebruary8thTotalEnergies,a giantFrenchoilcompany,saiditwasde laying a $4bn investment in a scheme to makegreenhydrogenwithAdani. Spigots under scrutiny FewimaginethattheAdaniGroupisany wherenearcollapse.Itdoes,afterall,own lots of real, revenuegenerating assets, however overvalued they may be. In the samebreathashepostponedthehydrogen scheme,PatrickPouyanné,Total’sboss,in sisted that his firm’s joint venture with Adanitosellnaturalgasremainedsound. ButAdaniclearlyfeelspressuretotrimits spendingandreduceitsdebt. Thegroupsaysthatithasthefundsto completeallprojectsthatarealreadyun der construction. But its straitened cir cumstancesarelikelytodelaysomeofits
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BriefingAdani,ModiandIndia’seconomy
TheEconomistFebruary11th2023
PAKI STAN
C H I N A
N
Delhi
E
Lucknow
P
A
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Thimphu Kathmandu
BHUTAN
Jaipur BANGLADESH
Ahmedabad
Dhaka Kolkata MYA N M A R Bay of Bengal
GUJARAT Mumbai
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N D I
A
Naypyidaw
Vishakhapatnam
Selected Adani investments*
Bangalore Chennai
500 km
SRI LANKA
moreextravagantinvestmentplansatthe veryleast,andperhapsderailafew.Moo dy’s,aratingagency,whileaffirmingAda ni’sinvestmentgradestatus,haspointed outthatmuchofitsplannedcapitalexpen ditureis“deferrable”. In some ways, that is a worrying thought.Adani’sinvestmentspepperIndia (seemap).Itaccountsfor7%ofthecapital spending of India’s 500 biggest listed firms. The group has promised to spend $70bnby2030ongreeninvestments—part of a cherished government plan to make Indiaagreensuperpower.TheCentrefor MonitoringIndianEconomy(CMIE),are searchfirm,keepsadatabaseofbigcurrent andplannedcapitalexpendituresinIndia, both public and private. Adani accounts for3%ofthefullpipelineofprojectsbyval ue,butalmost10%ofthenewerprojects, announcedinthefiscalyearthatendedin March 2022. A curbing of Adani’s invest ments, in short, could hardly be consi dered insignificant, even in the grand schemeoftheIndianeconomy. Whatismore,Adaniisanespeciallybig presence in certain industries. Its seven airports handle 23% of India’s passenger traffic;itsdozenportsreceiveordispatch around 30% of India’s international freight;itsrecentlyacquiredcementbusi nesschurnsout1420%ofIndia’stotal;its warehouseshold30%ofIndiangrain;itis the country’s biggest private generator of electricity from fossilfuel plants (and a bigonefromrenewables)andsoon.Any scalingbackofitsinvestmentswoulddefi nitelybefeltinthesebusinesses.
January 2023, by type Gas Thermal plants Gas (planned) Solar power Wind power Cement Mining Airports Ports Electricity transmission lines *Some projects under construction or under development Sources: Adani; Government of India; press reports
Adani also has a reputation for being abletogetthingsdone.TakeMumbai’snew airport, which an Adani subsidiary is building.Thecity’splannersfirstmooted theconstructionofanairporttotheeastof thecityin1997.Theplanswererevised,ar guedoverwithresidents,putouttotender, delayed, revised again and so on. In 2021 Adanitookovertheprojectafteritwasput outtotenderyetagain.Fromthatpointon, the$2.1bnprojectmaderapidprogress. Today workers can be seen at the site, behind a blue steel barrier, transforming reclaimedlandintoastonefoundationfor runways. Although planned completion dates for big infrastructure projects are typicallythesubjectofderision,construc tion is expected to be finished next year andtheairporttobeoperationalby2025. Thatisameteoricpace,byanystandard. It is this ability to charge through the morassofregulation,legalwranglingand bureaucratic inertia that really distin guishesfirmslikeAdani.Indiahasalways beenadifficultplacetodobusiness.And thatdifficultyhasalwaysgivensprawling familyownedconglomeratesanedgeover leaner, smaller rivals. Companies with clout and collateral find it easier to raise moneyandbendthebureaucracytotheir will.Andsincecloutandcollateralareuse ful in any line of business, these groups naturally expand in scope, so as to make themostoftheirstrengths. Thecapacitytogetthingsdoneisespe ciallydeartoMrModi,whoprideshimself on his ability to foster economic growth. Hewantstodrumupmoreinvestment,in
manufacturinginparticular.“Ifyou’reIn diaandyouarestrugglingtofindawayto investatthelevelsyouneedthenit’ssortof these guys or bust,” says James Crabtree, whose book, “The Billionaire Raj” exam ines the rise of India’s tycoons. “Adani mighthave…atastefordebtbutwiththat comesgenuineinvestment.Portsgetbuilt, raillinesgetbuilt,andthat’ssortofwhat Indianeeds.” ThegrowthmodelthatMrModihoned firstaschiefministerofthestateofGujarat from2001to2014andthenasprimeminis ter“waspremisedonthestategivingaset of favoured corporations concessions on land,oncapital,ontax,onenvironmental andbuildingclearanceinexchangeforset tingupshop,”saysMilanVaishnavofthe Carnegie Endowment for International Peace, an American thinktank. “What we’re seeing today is a scaling up of that model.Soit’sbecomeprettyclearthatthis government believes in identifying and backingnationalchampions.” MrModiisespeciallyclosetoMrAdani, whomhehasknownsincethelate1980s. MrAdaniwasoneofthefewbusinessfig urestostandbyMrModiaftersectarianri otsinGujaratin2002killedatleast1,000 people,mostlyMuslims.In2003hehelped set up an event called “Vibrant Gujarat”, partofanefforttorecastMrModi,tainted byassociationwiththeriots,asaprobusi ness leader. Mr Modi was a guest at the weddingofMrAdani’ssonin2013. Duringthenationalelectioncampaign thefollowingyearMrModireliedonafleet ofAdaniaircrafttoferryhimaround;one even brought him to his swearingin in Delhi.(MrAdanisaidatthetimethatthe flightshadbeenfullypaidfor.)InMrMo di’sfirstyearasprimeministeralone,Mr AdaniaccompaniedhimontripstoAmer ica, Brazil, Canada, France and Japan. “EverywherethatPrimeMinisterNarendra Modigoes,itseems,GautamAdaniissure togo,”theHindustan Times,anationaldai ly,remarkedin2015. Friendswithoutbenefits Mr Adani has long denied that his close friendshipwithMrModihashadanything todowithAdaniGroup’ssuccess.“Youcan never get any personal help from Modiji. Youcanspeaktohimaboutpoliciesinthe national interest, but when a policy is framed,itisforall,”hesaidinaninterview withanIndiantelevisionnewschannelin January. By the same token, the govern menthasbeencarefultoavoidleapingto Adani’s defence. It has limited its public commentsonthegroup’sdifficultiestoan odyneassertionsoffaithinIndia’sfinan cialregulators. All the same, the upheaval is embar rassingforMrModi.Astatecontrolledin surerhasinvestmentsinthegroup;state ownedbankshavelenttoit.Allhavehadto
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TheEconomistFebruary11th2023
deny publicly that their exposure consti tutes a serious risk. The government has repeatedly blocked the efforts of opposi tionpartiestoinitiateaparliamentaryde bateoraformalpublicinquiryonthesub ject.Theopposition,inprotest,hasresort edtotheatricaldisruptionsofparliamen taryproceedings. ButthepalaverisunlikelytocauseMr Modiseriouspoliticalharm.FewIndians believe that he has profited personally fromhislinkstoMrAdani.Congress,the mainoppositionparty,isonshakyground when it comes to accusations of corrup tion. Its most recent term in office, from 2009to2014,wasparalysedbyconstantal legations of bribery and embezzlement. SomeIndiansseemtoacceptAdani’scon tentionthattheaccusationsagainstitare partof“acalculatedattackonIndia”.“The whites can’t bear to see India’s progress,” tweetedVirenderSehwag,aretiredcricket er.“ThehitjobonIndia’smarketlookslike awellplannedconspiracy.” MoreovertheexposureofIndianretail investorsandmutualfundstoAdaniisti ny. The technical nature of Hindenburg’s accusations render the report incompre hensibletomostpeople.Ithelpsthatthe media,muchofwhichisownedbyindus trial conglomerates, rarely challenge the government or its allies in business. The last television news channel to air fre quentcriticismsofthoseinpower,NDTV, wasboughtlastyearbyAdani. MrModiwillstillneedcapablefirmsto fulfil his ambitions for India’s economy. ButAdaniisnottheonlycompanyinIndia thatcanpulloffbig,complexinvestments. In 2016 Reliance debuted Jio, its lowcost 4G network that vaulted India’s telecoms forward by a generation. Tata last year bought the beleaguered and debtladen flag carrier, Air India, which the govern menthadlongstruggledtoprivatise(and whichTatahadoriginallyownedbeforeit wasnationalisedin1953).SeveralofIndia’s otherconglomerates,althoughstillenthu siasticborrowers,arebigger,lessindebted andmoreprofitablethanAdani(seetable). ThecontinuedstrengthofIndia’scon glomeratesisadoubleedgedsword,how ever. They tend to sideline smaller firms
Not what it used to be India, investment as % of GDP 40 30 20 10 0 2000
05 10 15 20 22* Fiscal years beginning April 1st
Source: IMF
*Forecast
that could grow into tomorrow’s giants. Mediumsized businesses complain that they struggle to secure government con tracts. The mere participation of a well connectedfirminanindustryoratender can discourage others from entering the fray,reducingcompetitionandcurtailing investment.“Whatisclearisyouneedto broadenopportunitiestootherprivatein vestors,”saysTrinhNguyen,aneconomist atNatixis,aninvestmentbank. Capital crimes Indiadoesnothaveanespeciallyimpres sive record when it comes to deploying capital.Inthe2000sgroupslikeReliance, GVK andGMR tooktheleadinanepicin vestment boom. Total capital spending reached 39% of GDP in 2011, up from less than25%in2002.Yetmanyoftheprojects concerned were overoptimistic. Lots of themwiltedinthefaceoftheglobalfinan cialcrisis,highoilpricesandIndia’sstrug gle to get a grip on rising inflation and a fallingrupee.Bankswereleftsaddledwith copiousbaddebts.Investmentfellbackto about30%ofGDP (seechart).Thecountry hasbeenwaitingforarevivaleversince. InrecentyearsMrModihasdonemuch to improve India’s business climate. His governmenthascutthecorporatetaxrate, rationalisedsubsidiesandstreamlinedla bour laws (although the states have been slowtorevisetheirownlabourcodesinre sponsetothenationallegislation).Infra
There are other whales in the sea India, selected conglomerates Financial year beginning April 1st 2021 Group
Assets, $bn
Reliance
213.2
56.1
0.70
8.9
Tata
117.3
34.1
0.58
8.7
Aditya Birla
66.3
34.3
0.27
-1.5
Adani
65.5
30.2
1.09
2.2
OP Jindal
51.9
15.0
0.72
4.4
Source: CMIE
Debt, $bn
Debt-to-equity ratio
Net profit, $bn
structure and logistics is improving, thanks to the construction of roads and railwaylinesdedicatedtofreight. Indiahasalsobenefitedfromnotbeing China,acountrytowhichmanyWestern multinationals want to limit their expo sure.ThesizeofIndia’sdomesticeconomy onlyaddstoitsappeal.IncontrasttoChi na,Indiahasayoungandgrowingpopula tion.MrModi’sadoptionofacountrywide goodsandservices tax (GST), in 2017, did awaywithanarrayofstateandlocallevies thathadactedasabarriertointernaltrade. TheGST,despiteitscomplexity,createda vastsinglemarketof1.4bn. MrModihastriedtospurinvestmentby offering “productionlinked incentives”, which bestow public money on firms in certainindustries,suchaselectronicsand pharmaceuticals,thatmeetoutputtargets. Atthebackofpolicymakers’mindsisthe awarenessthattheircountryreliesonfor eigncapitaltofinanceitscurrentaccount deficit,whichwas3.5%ofGDP lastyear,ac cordingtotheIMF. Butadecisiverevivalinprivateinvest mentremains“elusive”,pointsoutMahesh VyasofCMIE.India’srulesandregulations arestillmercurialandsubjecttoreversals, asforeignmultinationalshavediscovered totheircost.Onewaytoshieldabusiness istoforgeclosepoliticaltieswithpowerful insiders.Butthosetiesmakeitharderfor other companies to prosper. Thus, as Ar vind Subramanian of Brown University andJoshFelmanofJH Consultinghavear gued,firmsmustworryaboutbothchang ingrulesandtiltedplayingfields. Adani’s woes could further delay a re vivalofinvestment.Accusationsofshare pricemanipulationandunconvincingau ditingcastanunfavourablelightonIndia’s stockmarket, corporate governance and regulatory practices. And the affair could poseanongoingtesttoIndia’sbroaderin stitutions—its political checks and bal ances, its press and civil society—a test theyarenotguaranteedtopass. “Let me tell you what I have always heardfrompeople.ThatGujaratiscanlive anywhere, but cannot live without their ownfood,”MrAdani,whoishimselfGuja rati, declared in a speech during the “Vi brantGujarat”conferencein2011.“Butlet metellyou,inmyexperience,IthinkaGu jaraticanlivewithouthiskhakra,dhokla or thepla.Butonethinghecannotlivewith outissuccess.” MrModi’srecipeforeconomicgrowth has brought Mr Adani enormous success overtheyears.IthasalsohelpedMrModi cometodominateIndianpolitics.Butthe dishdoesnotseemappetisingenoughto attract the desired level of investment. If theGujaratiurgetosucceedisasstrongas MrAdanisuggests,thenMrModi,another Gujarati, should surely be cooking with greatercare. n
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Universities
New testaments
WASHINGTO N, DC
Mandatory diversity statements are taking hold of academia
T
he university of california,Berke leyiscurrentlyadvertisingfora“direc torofcellculture,flyfood,mediaprepand oncall glass washing facilities”. Appli cants need an advanced degree and a de cadeofresearchexperience,andmustsub mitacv,acoverletterandaresearchstate ment.Theymustalsosendinastatement ontheircontributionstoadvancingdiver sity, equity and inclusion. Seemingly everyone (this director, the next head of preservation for the library, anyone who dreams of a tenured professorship) must file a statement outlining their under standingofdiversity,theirpastcontribu tionstoincreasingitandtheirplans“for advancingequityandinclusion”ifhired. Notlongago,suchstatementswereex oticandofmarginalimportance.Nowthey arederigueuracrossmostoftheUniversi tyofCaliforniasystemforhiringandten uredecisions.Studiesclaimthatasmany asoneinfivefacultyjobsacrossAmerica
require them. And government agencies thatfundscientificresearcharestartingto makegrantstolabsconditionalupontheir diversitymetricsandplans. Proponentsarguethatsuchthingsare neededtoadvanceconceptsnormallyin voked by abbreviation: diversity, equity andinclusion(dei),sometimeswith“be longing” appended (deib), or “justice” (deij), or else rearranged in a jollier ana gram (jedi). Critics—typically those with tenureratherthanthoseseekingit—think → Alsointhissection
20 Drill,maybe,drill
21 Techprotectionism
22 Primariesreshuffled
23 Murdaughmostfoul
24 Lexington:Manoutoftime
mandatorystatementsconstitutepolitical litmus tests, devalue merit, open a back door for affirmative action, violate aca demic freedom and infringe on First Amendmentprotectionsforpublicuniver sities. “There are a lot of similarities be tweenthesediversitystatementsasthey’re beingappliednowandhowloyaltyoaths [whichoncerequiredfacultytoattestthat theywerenotcommunists]worked,”says Keith Whittington, a political scientist at PrincetonUniversity.Whoisright? Advocatesseenoconflictbetweendei and academic excellence. “It’s hard to imaginebeingagoodteacherifyoudon’t knowhowtoactivelyengageallstudents,” saysSharonInkelas,anassociatevicepro vostatBerkeley.Norisitamatterofpoliti cal belief. These statements “are descrip tionsofthingsthatpeoplehavedonethat haveenabledthemtobesuccessfulinthe classroom,”saysProfessorInkelas.Arefer endum has already outlawed affirmative action in California, so state institutions cannotgivepreferentialtreatmentonthe basis of race or sex. A separate law bans employersfrom“controllingordirecting” thepoliticalactivitiesoftheiremployees. “Thereisnolitmustestattachedtodi versity statements. All that it’s asking is, ‘Whatareyougoingtobeabletoaddtoour campus? How are you going to deal with the diverse student body and faculty?’”
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says Erwin Chemerinsky, dean of Berke ley’s law school and a wellknown First Amendmentscholar.“Theabsenceoflaw suits so far, despite threats, is an indica tionthatthediversitystatementsarelegal. Theydon’tviolatetheFirstAmendment.” It is hard to know whether dei state mentsmerelymeettheirgoalsorstrayinto political filtering. Davidson College, in North Carolina, asked prospective com putersciencestafftowriteabouttheir“po tentialtocontributetoourcommitmentto equityandantiracism”—acausefervently embraced by the left and despised by the right.Berkeleyhasdistributedguidanceon howsearchcommitteesoughttoevaluate diversity statements. They say that any candidatewhodoesnotdiscussgenderor racemustbeawardedlowmarks.Thesame goes for any earnest classical liberal who “explicitly states the intention to ignore thevaryingbackgroundsoftheirstudents and‘treateveryonethesame’.” In 2018 Berkeley launched a “cluster search”forfivefacultytoteachbiological sciences.From894applications,itcreated a longlist based on diversity statements alone,eliminating680candidateswithout examiningtheirresearchorothercreden tials.This“yieldedsignificantincreasesin urm [underrepresented minority] candi datesadvancedtoshortlistconsideration”, auniversitymemoreported. The dark side Whether such a process privileges candi dates of certain ethnic backgrounds over others is a sensitive question with legal implications. “It doesn’t appear that there’s any kind of correlation between particular identities and the quality of statements,”saysKarieFrasch,thedirector of Berkeley’s Office of Faculty Equity and Welfare. When asked to clarify whether thatmeantscoresdidnotdifferbyrace,Dr Fraschsays,“I’mnotsayingthat.Wedon’t have that information. I shouldn’t have saidtheword‘correlation’.Iapologise.” Berkeleyisanimportantcasestudy,not necessarilybecauseitisthemostextreme butbecauseitisthemosttransparent.The University of California, Los Angeles has embraced diversity statements in hiring andtenuredecisionsevenmorefervently, but does not feel the need to explain its policies. A spokesperson said that Anna SpainBradley,alawprofessorwhoserves asvicechancellorforequity,diversityand inclusion,wasunavailableforcomment. Criticsworryabouttheproliferationof diversitycriteriainscience.Beginningthis fiscal year, the Department of Energy, whichfundsresearchonnuclearandplas ma physics among other things, will re quireallgrantapplicationstosubmitplans on“promotinginclusiveandequitablere search”.Since2021thebrain Initiativeat the National Institutes of Health has re
TheEconomistFebruary11th2023
quiredprospectivegranteestofilea“plan for enhancing diverse perspectives”. Teams with investigators from diverse backgroundsreceiveprecedence. “Peopleareunwillingtopushbackbe causetheyareafraidtolosetheirfunding, andnoonewantstobecomeamartyrfor defending reason,” says Anna Krylov, a professorofchemistryattheUniversityof Southern California. Professor Krylov studied in the former Soviet Union and sees parallels that are “a little too close”. RatherthanMarxismLeninism,“youreal lyhavetopledgeyourcommitmenttocrit icalsocialjustice.” Ifracebasedaffirmativeactionforcol legeadmissionsisstruckdownbytheSu premeCourt,asmostexpectitwillbethis year,universitieswillsurelyresorttocre ativemeansofmaintainingdiversitythat can survive judicial scrutiny. Diversity statementsmayproveuseful.Thesubtlety canvary.TheHarvard Law Review strongly encouragesprospectiveeditorstosubmit, alongside their application, a 200word statement “to identify and describe as pects of your identity…including, but not limitedto,racialorethnicidentity,socio economic background, disability (physi cal, intellectual, cognitive/neurological, psychiatric, sensory, developmental, or other),genderidentity…”(thelistgoeson). InmanyRepublicanledstateslegisla tors are trying to forcibly eradicate this strain of thinking—sometimes in ways thatseektolimitfreedomofthoughtinthe name of protecting it. Last year Republi cansinFloridapassedtheStopwoke Act, whichprohibitsinstructionatuniversities onideaslikesystemicracismunlesspro videdin“anobjectivemannerwithouten dorsement”.In2021thoseinIdahopasseda law banning the teaching of critical race theoryinallschools,includingpublicuni versities.LastmonththeManhattanInsti tute,aconservativethinktank,releaseda pieceofmodellegislationforstatestoem ulate that would do less violence to the FirstAmendment,bydismantlingdei of ficesinuniversitiesandbanningconsider ationofdiversitystatementsinhiring. Othersaremoresanguine.“Ithinkit’sa fad,”saysJanetHalley,aprofessoroflawat Harvard. Bureaucratising ideology saps sincerity.“Peoplewillutterthehocuspo cus.Theyknowthatthey’rebeingrequired toputonanact.Andthat’sgoingtocreate cynicism about the very values that the people who put these requirements into placecareabout,”shesays.Ifthosecontra dictionsdon’tsinktheproject,thecourts might.ProfessorHalleybelievesthesein novations are “forced speech and view pointdiscriminationintheFirstAmend mentcontext”andwillleaddei dissidents tofilelawsuits.“Withtheincreasingcon servatism of the federal bench, I think they’relikelytowin.” n
Oilandgas
Drill, maybe, drill
LOS ANGE LES
Joe Biden is not quitting fossil fuels
rebuilding america’s economy
A
LASKA’S NORTH SLOPE, the arctic edge ofAmerica’s49thstate,ishometobea vers,bearsandcaribou.Itscoastalwaters boastbeardedsealsandbowheadwhales. Indigenouspeoplehavelivedhereformil lennia. But the region also encompasses theNationalPetroleumReserve,orNPR-A. On February1st the Bureau of Land Man agement(BLM),whichhelpsgovernAmer ica’svastfederallands,advancedacolossal drillingprojectinthereserve.TheConoco Phillips project, known as Willow, could produce180,000barrelsofcrudeeachday. Environmentalistshowlthattheprojectis a“carbonbomb”anathematoPresidentJoe Biden’sgreengoals.Afinaldecisionisex pectedwithinthemonth. The Biden administration’s expected approvalofWillowmayindeedseemcon tradictory for a president who pledged to bannewoilandgasdevelopmentonpublic lands.ButsanctionsonRussiancrudeand petrolpriceshocksathomehavereviveda slogan usually associated with Republi cans:drill,baby,drill. TheBLM hasgrantedslightlymoreper mits to drill oil and gas wells in the first halfofMrBiden’spresidencythaninthe firsttwoyearsofDonaldTrump’sterm.The
Oilcountry
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The Economist February11th2023
differenceismarginal:MrBidenapproved roughly 6,500 permits to Mr Trump’s 6,300,accordingtoananalysisofBLM re cords.AndMrTrump’spermitapprovalsin the second half of his term numbered 9,800. But Mr Biden’s initial lead is still strikingconsideringhisgreenagenda,and MrTrump’spromotionoffossilfuels.Most permitsduringbothadministrationswere grantedinNewMexico,wheredrillinghas gone gangbusters as the shale boom has transformedthePermianBasin. Butthenumberofpermitsissuedisjust onemeasureofapresident’sdomesticen ergystrategy.Amorecomprehensivelook atMrBiden’sleasingpoliciessuggeststhat thepermittingbonanzaismoreofahang over fromtheTrumpadministration’sde votiontohydrocarbonsthananintention alpolicychange.Astandardleasetostart drilling on public land is ten years. It is commonforcompaniestowaittoapplyfor apermit,whichallowsthemtostartdrill ing,towardstheendofalease.Thatmeans thevastmajorityofpermitsissuedunder MrBidenisonlandleasedduringprevious administrations. Compare the number of acresleasedundereachpresident,andMr Biden seems to be the most leaseleery presidentinmodernhistory. The Inflation Reduction Act (IRA), Mr Biden’s signature climate law, also offers mixed messages on the future of fossil fuelproductioninAmerica.TheIRA raises royaltyrateschargedtothedrillers,butit prohibitstheBLM fromleasingpublicland forrenewablesunlessitalsooffersleases foroilandgasdevelopment.AaronWeiss, thedeputydirectoroftheCentreforWest ern Priorities, which tracks drilling on public lands, says the tradeoff was “Joe Manchin’s cost of entry”. The senator for WestVirginiawastheIRA’sdecisivevote, andisinfavourofcontinueddrilling. Coal,oilandgasproductiononfederal lands and waters accounts for about a quarter of America’s total fossil fuel pro duction,andnearlyaquarterofthecoun try’s greenhouse gas emissions. Recent modellingfromBrianPrest,aneconomist atResourcesfortheFuture,athinktank, suggeststhathigherroyaltyrateswillnot dentemissionsinameaningfulway.Much moreeffectivewouldbeacarbontaxora banonnewoilandgasleases,neitherof whichiscurrentlypoliticallyfeasible. Alaska’s politicians cheered Willow’s advancement. The project is expected to bring in at least $8bn in tax revenue and 2,500 construction jobs. The BLM recom mends that the Biden administration ap provealimitedversionoftheprojectthat avoidsdrillingnearsensitivewetlandsand caribouhabitats.Thisisthesortofunsatis fyingcompromisethatmaybecomemore commonasMrBidentriestotackledomes tic energy security, increased foreign de mandandconservationallatonce. n
Technology trade
Chains of control
WASHINGTO N, DC
The history and limits of America’s favourite new economic weapon
rebuilding america’s economy
A
T 11:15am ON October7th,anAmerican officialpublished139pagesofregula tionsonawebsitecalledtheFederalRegis ter.AcrossEastAsia,fromTaipeitoNanj ing, semiconductor executives panicked. The American government was claiming jurisdiction over every line of code or machinepartthathadeverpassedthrough theUnitedStates,andovertheactivitiesof everyAmericancitizen,everywhereonthe planet. Companies using American code, equipment or people to make advanced computer chips bound for China had to stop,onpainofbreakingthelaw. ItwasasalvofromAmerica’sfavourite new economicweapon,theForeignDirect ProductRule(FDPR).Whereassomesanc tionsweaponisetheubiquityofthedollar toinflictharmbypreventingtargetsfrom usingit,theFDPR attemptstoweaponise the ubiquity of American technology. It letsthegovernmentclaimjurisdictionov eralmosteverychipfactoryintheworld, because almost every one contains hard toreplaceAmericantools.TSMC,aTaiwan ese chipmaker, stopped selling advanced chipstoChinesecustomersimmediately. FDPR hasbecomeoneofthemostim portantweaponsinAmerica’sarsenalfor technological competition with China. One Republican lobbyist calls the Bureau of Industry and Security, the agency that administersit,“thetipofthespear”.Young
policywonksaretakingcoursestostudya subjectthatwouldhavedrawnyawnsthree yearsago:exportcompliancelaw. This sweeping form of extraterritorial exportcontrolisnotnew.Theconceptwas writtendownin1959.Butonlyinthepast decade has FDPR been transformed from regulatorycuriointofrontlineeconomic weapon. In the early 2010s Kevin Wolf, then at the Department of Commerce, wrotethefirsttwoexportcontrolrulesto usetheidea.Theyrestrictedtheexportof productsmadewithAmericantechnology from anywhere in the world to China if theyweretobeusedformilitarypurposes ortobuildsatellites. Meanwhile,Americawasalsobuilding acaseagainstHuawei,aboomingChinese telecomsequipmentmanufacturerwhich ithadlongsuspectedofembargobusting, andofbeingaconduitforChinesegovern ment spying. Discomfort with Chinese technologicalprowessdeepenedwiththe arrivaloftheTrumpadministration’sChi nahawksintheWhiteHouseinearly2017. OnlyinMay2019,aftertradetalkswith Chinabrokedown,didtheTrumpadmin istrationturntoexportcontrolstoattack Huawei.Itplacedthefirmonalistofcom paniestowhichitisillegaltoexporttech nologyfromAmerica,knownastheEntity List—untilthenmostlyusedforshellcom panies and terrorist fronts. Huawei was nowseenasanationalsecuritythreat. Huawei’spurchasesofAmericanmade technologywerelargeenoughthatcompa niesfounditworthwhiletoporeoverthe details.Theyfoundthatitremainedlegal
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tosupplyHuaweiwithAmericantechnol ogyifitwasshippedfromoutsideAmeri ca. Many tech companies simply carried onsupplyingHuaweithroughoffshorefa cilities,followingtheletterofthelaw. ThisnotonlyinfuriatedtheTrumpad ministration, it also annoyed companies that manufactured products in America. Huawei’sinclusionontheEntityListdis criminatedagainstthem.Americanchip makers started lobbying for changes. If firms could be prevented from using American technology to supply Huawei from anywhere in the world, operations basedinAmericawouldnolongerbeata disadvantage.ByAugust2020,withpresi dential elections looming, officials had workedoutthekinks.Americapublished anFDPR whichcutHuaweiofffromAmer icantechnology—and,ineffect,fromglo balsemiconductorsupplychains. Big chip companies all over the world stopped shipping to Huawei. The firm’s revenuesplungedby29%in2021.Itspopu lar smartphones disappeared from the market altogether. America had found a newwaytocrimpadversarieswhichitper ceivedasanationalsecuritythreat. Itwouldsoonhaveachancetotestthat toolfurther.Inlate2021,asRussiamassed forces near Ukraine’s border, the White House asked government agencies for ideasabouthowtorespondinthecaseof aninvasion.TheDepartmentofCommerce suggested an expansion of the FDPR: America could do to the Russian army what it had done to Huawei. In February 2022twonewFDPRscutoffRussia’smili taryindustrialcomplexfromallAmerican elements of global technology supply chains,aspartofahugepackageofsanc tionsputinplacebyAmericaanditsallies. America says Russian hypersonic bal listicmissileproductionhasbeendramat icallycurtailedforlackofsemiconductors, andthatRussiahashadtoturntoIranand NorthKoreaforsuppliesandequipment. “Sanctionsandexportcontrolsarehaving significantandlonglastingconsequences on Russia’s defence industrial base,” the StateDepartmentsaidinOctober. Flushedwithsuccess,theWhiteHouse turneditsextraterritorialpowerstowards China’ssemiconductorindustry.InWash ington, strong bipartisan agreement had developedaboutthethreatposedbyChina. The nationalsecurity adviser, Jake Sulli van,outlinedthenewstrategyinaspeech inWashingtoninSeptember2022.Particu larly for foundational technologies like semiconductorsAmericahadto“maintain aslargeofaleadaspossible”. TheOctober7thFDPRswereanattempt todojustthat.Thenewrulesarehurting China’s domestic artificialintelligence companies, and its chipmakers. The hurt will increase if allies impose export con trolsoftheirown,replacingextraterritori
The Economist February11th2023
alityenforcedthroughsupplychainswith more robust, nationallevel restrictions that are easier to enforce. Japan and the Netherlands, which host two of the most importantchipmakingequipmentmanu facturers,reachedadealwithAmericain lateJanuary.Ifbothcreatestrongcontrols of their own, China will be firmly barred fromadvancedsemiconductors. Washington is abuzz with talk of its next “target”: what to feed into the FDPR machine?OneideaistotakeaimatChina’s biomanufacturingindustry,whichmakes drugsandtheircomponents.Anotheristo goaftermanufacturingofadvancedbatter ies,particularlythoseforelectricvehicles. ByattemptingtocutChinaofffromad vancedsemiconductors,Americaisincen
tivising China to focus on more mature forms of chip manufacturing, where the chokepointsareweakerandChinaalready hasalargeshareofthemarket.Thesesorts ofchipsarerequiredingreatnumbersin electriccarsandweapons.Ifartificialin telligence turns out to be less important thantheAmericangovernmentthinksitis, incentivisingChinesefirmstotakegreater controlovercommoditychipsmayendup looking like a mistake. Technological de velopment is hard to predict. The supply chainsandmanufacturingprocessingthat underpin semiconductor production are someofthemostcomplexthingshumans haveevercreated.Americamusthopethat itsapparentrecentsuccessinmanipulat ingthemdoesnotproveillusory. n
Presidential nominees
Picking winners
WASHINGTO N, DC
AnewprimarycalendargivesblackDemocratsanearliersayfor2024
O
NE OF THE manyways Americais ex ceptionalisinhowitpicksnominees forpresident.Inmostotherdemocracies, partiesselecttheirleadersquicklythrough a set of selection procedures with tight rulesandminimalinvolvementfromthe people. In America voters themselves get topickwhorunsforpresident.Theydoso viaamonthslongseriesofelectionsheld independentlybyeachstate’spartyorgani sations, with each state lobbying the na tionalpartyforthecovetedfirstgoatcast ingballotsforthenominees.Fordecades, Iowa has held that title. But on February
Here’s the deal
4th, the Democratic National Committee (DNC)handedpolepositiontoSouthCaro lina,previouslythefourthstatetovote. Activists have supported a reshuffling of the primary calendar for some time. They claim that letting Iowa and New Hampshire,whichvotessecond,gobefore more diverse states gives white voters morepower.Thisisaccurate;NewHamp shire and Iowa are the fourth and fifth whiteststatesinthecountry.SouthCaroli na,bycontrast,hasthefifthhighestcon centrationofblackAmericans;theymake up27%ofthestate’sadults,ahairhigher
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TheEconomistFebruary11th2023
thanAlabama’s26%.Giventheparty’sreli anceonblackvoters,areliablyDemocratic group,fortheirnationalwins,shouldn’tit prioritisetheirsay? The question misunderstands the nominatingprocess.Itisnotasimportant togofirstasitisforcandidatestoconsoli datesupportamongcertaindemographic groupsanddonors.BecauseSouthCaroli na previously voted fourth, a candidate whopolledwellwithblackvoterscouldbe confidenttheywoulddowelllater,evenif theylaggedinIowaandNewHampshire. SuchapathispreciselytheoneMrBi denfollowedlasttimearound.BillClinton alsostagedasimilarly“surprising”come back in the 1992 election. In fact, aside fromJohnKerry’sillfatedpresidentialbid in2004,everyeventualDemocraticpresi dential nominee has won the Palmetto state primary. The Democrats moving South Carolina from fourth to first posi tionisthusunlikelytochangewhowins its next presidential nomination. But it mayspeeduptheprocess.Anearlysignal fromthestate’sblackvotersmayhelpwin now the field, much as fringe candidates previouslydroppedoutafterflopsinIowa andNewHampshire. ThebiggernewsintheDemocrats’rules changethusisthestatethathasmadethe biggestjumpinthequeue:Georgia.Peach stateDemocratsin2020wereslatedtovote 32nd,longaftertheymighthaveplayeda decisiveroleintheselectionprocess.Next year,Georgiawillgofourth.SinceGeorgia alsohasahighshareofblackAmericans— highereventhanSouthCarolina—adding it to the slate of early states will tilt the group’s racial composition heavily away fromwhitevoters.Andthoughproximate, replacingIowawithMichiganintheearly bunchwillsignificantlydecreasethesayof white noncollege voters, disproportion atelyrepresentedinthefuture. Ahead of the vote on the DNC’s rules changethechairman,JaimeHarrison,rose toremarkthat“Folks,theDemocraticparty lookslikeAmericaandsodoesthispropos al.”Butnotablyabsentfromthenewbunch ofearlyvotingstatesareanyfromtheWest Coast or midAtlantic, the party’s two strongest regions. Texas nor Florida, two fastgrowing Hispanicheavy red states, are also absent. And there are no states from the mountain region—Wyoming, Idaho,Utah,ColoradoandMontana. The reality of the primary system is that,evenwhenreshuffled,itisnotagreat waytopickanominee.Ithandsvetopower toagroupofvoterswhotendtobemore ideologically extreme than the electorate asawhole.TheDemocraticPartyhasbeen arguingoverwhichstateshouldgofirstin selecting its presidential candidates for decades.Itmaybeworthconsideringanal ternative mode of election. Look abroad anditwillseemanyalternatives. n
Southerngothic
Murdaugh most foul WALTE RBO RO, SOUTH CARO LINA
A murder trial in South Carolina reveals how smalltown power can work
A
lone hook dangleswhereaportraitof RandolphMurdaughJrusedtohangin theColletonCountycourtroom.Murdaugh was the longestserving prosecutor in SouthCarolinahistory,histenurewedged inbetweenhisfather’sandhisson’s.This multigenerational legal dynasty was re veredinLowcountry,inthestate’smarshy south.Butnow,ratherthanarguingfrom the prosecutors’ bench, his grandson sits inthedefendant’sseat,accusedofslaying hiswifeandson.Thegiltframedportrait wastakendownforthetrial. Prosecutorsallegethatasalawyerathis family’s personalinjury practice, Alex Murdaugh stole millions from clients. Some of the accusations he faces are far worse.In2018,afterhishousekeeperdied bytumblingdownaflightofstairsatMo selle,thefamily’shuntingestate,heisac cused of pocketing a $4m lifeinsurance settlementwithouttellingherchildren. Then things got messier. In 2019 Paul Murdaugh, Alex’s youngest son, took his father’s boat for a boozy nighttime joy ride.Theboatcrashedintoabridge,killing one of Paul’s teenage friends. Her family sued,allegingthatthefatherhadenabled theson’srecklessness.Theirlawyerthreat enedtocallMrMurdaugh’swifeandsonto testifyagainsthim.Ahearingwassetfor June10th,2021.OnthemorningofJune7th Mr Murdaugh was confronted by his cfo about nearly $800,000 of missing funds.
Thesubjectofmanypodcasts
That night his wife and son were found deadoutsidethedogkennelsatMoselle. Thedoublemurdertrialisbeingheldin nearby Colleton County, where the Mur daughfamilytiesalsorundeep.Manypo tential jurors were dismissed for having personal connections to them; multiple judgesrecusedthemselvesfromthecase. MrMurdaughisbeingrepresentedbyDick Harpootlian,acurrentstatesenator.Even the investigator who checked Mr Mur daugh’s hands for gunshot residue at the sceneofthecrimeknewhim.Whenheap proached the dog kennels that night, Mr Murdaughgreetedhimbyname. In Hampton, the town closest to Mo selle,thingsareawfullyquiet.Basedonthe share of people who claim to be visiting one might think that the county, where oneinfiveliveinpoverty,hasabooming tourismindustry.Butthefewdilapidated businesses—among them an empty bar bershop,adressboutiqueandadinerdish ingupgumbo—suggestotherwise.Awom aninacoffeeshopsayssheisjustdriving through and hasn’t heard the Murdaugh name.Whenshegetsuptoserveacustom erafewminuteslatersheconfessesthatit isn’ttrue.“I’vegotabusinesstoprotect,” shesays.Othersrefusetodiscussthecase. “TherearethreethingsIdon’ttalkabout: politics, religion and the Murdaughs,” an insurancebrokersayswithawarychuckle. Hamptonisatownof3,000.Manylo calsworkinagricultureandliveintrailers off the county highway, coming together forchurchonSunday.Theblackcommu nitykeepsalistofcurrentKKK members. TheMurdaughs’lawoffice,wheretheac cused’s brother still works, towers above the other buildings. The firm is the local bank’sbiggestprivatecustomer.According toaretiredlocal,theylostjustonecasein thepast25years.Manyhavebeenhelped bythem;othersrelishedtheirsuccessfrom afar. “Half of Hampton County is Mur daughkin,”saysatownjournalist.“Before thistheotherhalfclaimedtobe.” Somestrangelawsgavethefamilypow er.Theyamassedwealththankstoaprovi sionallowingpersonalinjurycasestobe tried anywhere in the state. That opened upthechancetoarguemorecasesbefore favourable local judges. Legal might broughtpoliticalpower.“I’lldeliver2,500 votesforyou,”RayWilliams,atownie,re calls Mr Murdaugh promising a congres sionalcandidateatafundraiser.Shewon. “WhenAlextellsyoutovoteforsomeone, youdo,”saysMrWilliams. Back in court, prosecutors think they have debunked Mr Murdaugh’s alibi. But withoutforensicevidencethejurymaylet himoff.Ifheisacquitted,MrMurdaughis stillaccusedofover100financialcrimes. Buster,hislonelivingson,isinnoposition toresurrectthefamilyname.Hewasoust edfromlawschoolforcheating. n
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The Economist February11th2023
Lexington Manoutoftime
The Republican House and Donald Trump are not Joe Biden’s toughest opponents
D
uring Donald Trump’s presidency,theWashington Post kept arunningtallyofhislies,ultimatelycounting30,573“falseor misleadingclaims”infouryears.Ithaskeptupthatworkunder PresidentJoeBiden,findinghelieswithlessabandonbutonocca sionwithcomparableshamelessness. FoxNewsisperformingitsownversionofthispublicservice bycountingwhatitcallsgaffes,trackingthemomentsMrBiden forgetsapolitician’sname,referstovicepresidentKamalaHarris asthepresidentorstumblesthroughathicketofnumbers. Itsapproachraisessomeepistemologicalquestions:whywere themisstatementsgaffes,ratherthanlies,whenMrBidensaidhis homestate,Delaware,hadnoturkeys,whichithas,andhasthe mostchickensinthenation,whichithasn’t?(InfairnesstoFox, evenapreparedtextisnotproofforthispresidentagainstgaffes: inhisstateoftheunionaddress,onFebruary7th,MrBidende motedChuckSchumer,theSenatemajorityleader,totheminori ty,amongotherslipsandpuzzlingdadjokes.) AgentlesoulmightthinkFox,incountingitschickens,wasbe ingforgivingbecauseofMrBiden’sadvancedage.Acynicwould infercruelty—anefforttoboostthegaffecount—forthesamerea son. And, indeed, in November Fox sounded disappointed at a “slump”tojust11gaffesduringthemonth,includingthetwomost fowl.“Biden’sNovembergaffeaverage:thepresidenthits.500”, Foxreported(hewascloserto.367,ifyoucountweekends). ThegaffeismoredangerousthanthelieforMrBidenbecauseit playstotheperceptionthat,at80,heistoooldforthejob.Only 23%ofAmericanssaytheyhave“agreatdeal”ofconfidencehecan managetheWhiteHouse,accordingtoapolltakenbytheAssoci atedPressandtheNORC CentreforPublicAffairsResearch,down from44%ashetookoffice.EvenmostDemocratsdonotwanthim torunagain,thoughheisclearlypreparingto.Theseharshviews probablyfeedinto,andarereinforcedby,awidespreadbeliefthat MrBidenhasnotgotmuchdone.ArecentpollfromtheWashington Post andABC foundthat62%thinkhehasaccomplished“not verymuch”or“littleornothing”. Thatperceptionisatoddswithreality,andMrBidenseizedon hisstateoftheunionspeechashisbestopportunitytomakethe caseforhisprogressagainstsomeofAmerica’sbiggestlongterm
troubles: on climate, infrastructure and national security. He pointedtoforgottensuccessessuchasrollingoutvaccinesagainst covid19andunderappreciatedonessuchassustaininginterna tionalsupportforUkraine.“We’rebuildinganeconomywhereno oneisleftbehind,”MrBidensaid.“Jobsarecomingback,prideis comingbackbecauseofchoiceswemadeinthelastseveralyears.” Yettimeisworkingagainstthispresidentinmorewaysthan one:Americanswillnotfeelthebenefitsofhismostsubstantial legislativeachievementsforyearstocome.Thatmayexplainwhy, in the Washington Post/ABC poll, a majority did not credit him evenwithhavingmadeanyprogressoninfrastructure,despitethe $1.2trnhepersuadedbipartisancongressionalmajoritiestoinvest inroads,bridgesandelectriccarchargingstations.Andmostof thenewpricecontrolsonprescriptiondrugsthatCongressputin placelastyear—aDemocraticgrailformorethan20years—will notbefeltuntilatleast2026. The stateoftheunion performance gives this president his bestchancetoshine.Gaffesaside,MrBidenalsodeftlyadlibbed, pivotingwhenRepublicansbooedhimforsayingsomeofthem wantedtocutentitlementstoboxthemin.“Asweallapparently agree,SocialSecurityandMedicareisoffthebooksnow,”MrBiden said, smugly. “We’ve got unanimity.” He called on everyone to “standupforseniors”—whichtheydid. MrBidenisathomeintheCapitol,amongfellowlegislators. Thedayswhenhecouldbeanelectrifyingspeakeraregone,butat the lectern in the House chamber—hands clasped prayerfully, voicedescendingtoahusky,insistentwhisper—heisaconfident, reassuringone,afamiliarelderperformingatimehonouredna tionalritualinthetimewornmanner. Trial balloon MrBiden’scallsforunityandbipartisanshipalsooncesounded likeechoesfromthepast.Buthehasprovedsuchappealsstillhave politicalforce,andhemanagedtodrawbipartisanovationsdur inghisspeech,includingforacallforpolicereform.Inahopeful development,HouseRepublicansshelvedaplantopassaresolu tionbeforeMrBiden’saddresscriticisinghimfornothavingacted fastertoshootdownaChineseballoonthatcrossedAmerica,ap parentlygatheringintelligence.Instead,theyarenowpursuinga bipartisan resolution aimed at China. “I think our greatest strengthiswhenwespeakwithonevoicetoChina,”thenewRe publicanHousespeaker,KevinMcCarthy,toldreporters. AsMrBidenspoke,MrMcCarthy’sheavyliddedpresenceover hisleftshoulder,inplaceoftheDemocratNancyPelosi,wasare minderofhowmuchthepoliticalterrainhaschanged.Thatwill probablybetoMrBiden’sadvantageifherunsforreelection.Re publicansaredividedoverforeignanddomesticpolicy,and,given hisnarrowmajority,MrMcCarthywillstruggletoimposecoher enceontheiragenda,letalonetomoderatethedemandsofhisex tremists.Someignoredhiscautiontobehavewithdignityduring MrBiden’sspeech,andtheirhecklingmadethemseemsmall. But the period of Mr Biden’s presidency that played to his strengths as a legislator is largely over. He said recently he has createdan“ImplementationCabinet”,abodycomposedofmem bersofhiscabinet“whosejobistojustdonothingbutletpeople knowwhatwehavealreadydone”.Theirtimewouldbebestap pliedtomakingsurethatMrBiden’sgiantinvestmentsarewell spent.Iftheyare,whetherMrBidenisreelectedornot,history mayjudgethispresidencyastransformational.Inthatsense—the onethatmatters—timecouldultimatelybeonhisside. n
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The Economist February11th2023
Colombia
The revolutionary v the pragmatist
BOGOTÁ AND TIE RRALTA
Can Colombia’s mercurial president bring “total peace”?
A
t Hacienda Pontevedra, a remote ranchinthecoastaldepartmentofCór doba,afewcampesinos (smallscalefarm ers)arecampedoutinacopse.Theranch oncebelongedtoadrugtraffickerwhois locked up in an American prison. But he hasagreedwiththegovernmentofGusta vo Petro, Colombia’s first avowedly left wing president, to hand over 1,200 hect ares (3,000 acres) of land to100 landless campesinos whohadbeengrowingcocaina nationalparknearTierralta,theunofficial capitalofsouthernCórdoba. The campesinos have 32 cows, many hopes and a contract with a government agency which gives them around $7,700 per family to get going. This is a historic achievement,saysCervelionCogollo,their leader. “We are very happy.” But, he goes on,“wewon’tfeelfullysafeuntilthereis totalpeaceinthewholeofColombia.” ThatiswhatMrPetrohaspromised.Co lombia has had liberal governments be fore. But none has been so openly left wing.MrPetro,whowasnarrowlyelected lastyear,dividesopinion.Forhissuppor ters, his victory represents a historic op
portunity to achieve social justice in a countrythathassufferedhalfacenturyof internal conflict, partly over land, and fromorganisedcrimelinkedtodrugtraf ficking.Hiscriticsfearaweakeningofthe ruleoflawandeconomicsetbacks. MrPetro’splansareambitious.Aswell aslandreform,ofwhichHaciendaPonte vedrarepresentsthestart,heproposes“to tal peace” with Colombia’s many illegal armed groups. He also champions an abruptshifttogreenenergyandradicalre formsofhealthcare,pensionsandlabour laws.ThepresidentgovernspartlybyTwit ter.Hiscabinetisanuneasymixofactiv istsandmorecentristfigures. AsayoungmanMrPetrowasamember of M19, a nationalist guerrilla group. He wasapoliticalactivist,notacommander: heneverfiredashot.Buthewasarrested and, he says, tortured. M19 moulded his politicalidentity.His16yearsasamember → Also in this section
28 Lula goes to the United States
occupy almost half of his autobiography publishedforthepresidentialcampaign.It linkedhimtoLatinAmerica’srevolution ary tradition of populist nationalism. He wentontoembraceHugoChávez,Venezu ela’sautocraticpresident,asafriend. Evennow,aged62,MrPetrocourtscon troversy.DuringthecampaignhesaidCo lombiasufferedfrom“threepoisons”:co caine,oilandcoal.InDecemberheclaimed thatspendingonmotorwayswasawasteof moneyandthatthey“areonlyusefultoim portproductsandkilloffnationalproduc tion” to the benefit of “the owners of big capital”.ButMrPetrohasalsolongbeena pragmatic politician. He was elected as a localcouncillorevenwhileintheM19.He spent20yearsinCongressandwasmayor ofBogotá.Thosetwosidesofhimclash. Two sides of the same coin Takehishandlingoftheeconomy,whichis likelytodeterminethesuccessorfailureof hispresidency.IvánDuque,hisweakcon servativepredecessor,wasshakenbyviol ent protests in 2019 and 2021, the second wave over an attempt to make more Co lombianspayincometax.Facedwiththe pandemic,MrDuquerampedupspending, triggeringinflation.Thecentralbankwas slowerthanothersintheregiontoraisein terestrates.Theresultwasawildlyover heated economy and stillrising inflation (see chart 1 on next page). The economy willseelittleornogrowththisyear. MrPetro’sfinanceminister,JoséAnton io Ocampo, is an academic of the centre
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left. By negotiating with conservative groups, he steered a tax reform through Congresswhichwillraiseanextra1.3%or soofGDP peryear.That,MrOcamposays, willallowthegovernmenttopayforMrPe tro’s social programmes while also carry ingoutanecessaryfiscalsqueeze.Theex traburdenofthetaxreformfallsmainlyon oil,gasandcoal,andontherich. DuringhiscampaignMrPetroalarmed investorsbypromisingtohaltallnewex ploration of oil, gas and coal, which be tween them provide around 40% of Co lombia’sgoodsexportsandabigchunkof governmentrevenues.Theenergyanden vironment ministers are both activists whofavourthis.Criticssayitwouldmake the transition to cleaner energy harder. Theproblemisthatwithoutabigincrease intheoutputofnaturalgas,ofwhichCo lombiaprobablyhasalot,revenueswillbe lower and costs, and perhaps emissions, willbehigher.Itmakesmoresensetopro ducegaslocallythanimportitasliquefied natural gas, as the government suggests, which would require building ports and newtransportfacilities. TomeetitstargetundertheParisagree mentofcuttingcarbonemissionsbyhalf by2030andtobecomecarbonneutralby 2050Colombianeedstodoubleitsnatural gasproductionandexpandelectricityout putfivefoldby2040,saysTomásGonzález, a former minister of energy. Rather than haltexplorationforgas,hearguesthatthe governmentshouldmovefastertocutsub sidiesonfossilfuels,whichMrDuqueal lowedtoballoon.LastmonthMrPetrosaid hewouldsidelinetheindependentregula toryagenciesthatsetenergytariffs. Mr Ocampo insists that private and publicinvestmentingasfieldswillcontin ue. He sees natural gas as an important driver of future growth, along with tou rism and nonoil exports, especially to Venezuela, with which Mr Petro has re storeddiplomaticties.“Myroleasminister istogiveconfidencetotheprivatesector,” he says. “There will be no nationalisa tions.” Not everyone is reassured. “Busi nesspeoplearenotplanningtoleave,but theyarenotplanningtoinvestmore,”says Jaime Alberto Cabal, who heads Fenalco, thechamberofcommerce.Hecomplains thattaxincreasesandanew40%import tariffonclothingandshoeswillhurtjobs. Another controversy concerns Mr Pe tro’sproposedhealthcarereform.Colom bia’sconstitutionof1991createdauniver salinsurancebasedsystemwithsubsidies forpoorerpeople,asinFranceortheNeth erlands.Thepresidentandhishealthmin isterwanttoreplaceitwithapublic,tax payerfinancedscheme.Theexistingsys temhasproblems,suchasalackofcompe tition.Butitworks.“NoColombianhadto selltheirhomeorcartopaycovidbills,un likeintheUnitedStates,”saysRoyBarre
The Economist February11th2023
1
Andean inflation Colombia, % change on a year earlier Consumer prices
GDP 15
12
12
8
9
4
6
3
-4
0 2018
20
-8
22
2018
20
Sources: Refinitiv Datastream; IMF
22* *Estimate
ras,thepresidentoftheSenate.Thepublic lysubsidisedprivatehealthprovidershan dle 1bn receipts a year. Abolishing them riskschaos.MrBarreras,anallyofMrPe tro,saysthathewillworktoreformtheex istingsystemratherthanscrapit. MrPetroalsowantstoabolishthepriv ate funds that manage workers’ pension contributions, rather than supplement them with a public scheme. Uncertainty abouthisplanshitthepeso,whichdepre ciated by18% against the dollar between MrPetro’sinaugurationinAugustandNo vember7th,alow,thoughithassincereco veredby8%.Theeconomyisvulnerableto marketsentiment.Colombiasuffersfrom twindeficits(seechart2). RecentlyMrPetrohastalkeduphisidea of“totalpeace”.Colombiahashadtwobig peacedealsthiscentury.Underanaccord with Álvaro Uribe, a conservative presi dent,about30,000rightwingparamilitar ieslaiddowntheirarmsbetween2003and 2006.MrUribeexpandedthesecurityforc esandinflictedblowsagainsttheRevolu tionaryArmedForcesofColombia(FARC), the largest leftwing guerrilla group. As a result,JuanManuelSantos,hissuccessor, reached a peace deal under which13,000 membersoftheFARC demobilisedin2016. The hope was that peace would allow the state to extend its writ to Colombia’s 2
Double trouble Colombia, % of GDP Budget deficit
Current-account deficit 0 -2 -4 -6 -8
2018 Source: IMF
19
20
21
22*
23†
*Estimate †Forecast
lawlessgeographicalperipheries,whereit is largely absent. Violence did diminish, butthentickedupagain.Therearetworea sonsforthat.Thefirstisthatthecocaine tradecontinuestobemorelucrativethan civilianlife,promptingturfwars.Thesec ondisthatthepeaceagreementswereei therincompleteornotfullyimplemented. Mr Duque opposed the accord from 2016, and only partly executed it. Security got worse under Mr Duque, whose policy fo cused on going after the commanders of armedgroupsandtryingtoeradicatecoca. Itwasdoggedbyhisgovernment’spolitici sation of the armed forces, setting com manders against each other, and by poor coordination.Therewasanetincreasein cocacultivationonhiswatch. And with the exception of 2020, the year of lockdowns, the murder rate crept up.Victimsofmassacres(definedaskill ings of three or more people) increased from38in2016to162in2020.Incidentsof forcibledisplacementofciviliansandkill ingsofcommunityleadersallrosesharply, too.Thepandemic,whichclosedschools for 17 months, lead to an increase in re cruitment by illegal armed groups, notes Elizabeth Dickinson of Crisis Group, a watchdog. They include the ELN, another guerrilla group; outfits formed by dissi dentcommandersfromtheFARC;theClan delGolfo,thelargestdruggang,andsmall ertraffickinggroups.Theirnumbersmore than doubled between 2016 and 2021 to 6,700,accordingtothedefenceministry. Healing old wounds MrPetrohasofferedtalksanda“bilateral ceasefire”toallillegalgroups,betheypo liticallyinspiredormerelycriminal.Sever al, including the Clan del Golfo, have ac cepted.InNovemberthegovernmentbe gan peace talks with the ELN in Caracas. Fivepreviousgovernmentstriedandfailed toreachanaccordwiththeELN,agroupin spiredbyCuba’scommunists,runbyper nicketyoldmen.AlthoughtheELN hasyet tosignuptotheceasefire,thistimetalks maysucceed.TheELN controlsterritoryon bothsidesoftheborderbetweenColombia and Venezuela. It has operated with the consent of Venezuela’s dictatorship. But NicolásMaduro,Venezuela’spresident,“is interestedinbeingseenasapeacemaker,” says a senior Colombian politician who hasdealtwithhim.“TheELN hasbecomea problemforhisownforces.” Far trickier are talks with the drug gangs.TakeCórdoba,wheretheparamili tariesbeganinthe1990sandwheretheir peace talks with Mr Uribe’s government were held. “The Clan del Golfo controls Tierralta,”saysAndrésChica,whoheadsa humanrights organisation in the town. Theyruneverything,fromthemeattrade totaxis,inadditiontothedrugbusiness. Many political leaders in the department
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aretheirallies.Theykillcommunitylead erswhocrossthem.“Iamveryuncertain,” says Mr Chica, about the possibility of peacetalkswiththem.“Peoplearescared.” Sofar“totalpeace”isaworkofimprovi sation.MrBarrerassayshewillintroducea billthatwouldprovidealegalframework fortalkswithdrugtraffickerswhohaveno politicalstatus,offeringreducedsentenc esprovidedtheydismantletheirnetworks. Butitwouldnotofferimpunity. Moreradically,MrPetrohascomeclose tocallingforthelegalisationofcocaine.In theabsenceofaninternationalagreement onthis,however,hisgovernmentisrefo cusingitsdrugpolicy,puttingmoreeffort intointerdictionandlessintoeradication ofcoca.Theideaistoact“againstthebig proprietors of the drug business rather thanagainsttheweaklinksofthechain,” saysIvánVelásquez,thedefenceminister. Thismeanshitting“theownersandtheir assets”ratherthancocagrowers. Thatwilltaketime.Meanwhile,securi tyanalystsworrythatthereisadisconnect betweenthepolicyof“totalpeace”andthe government’s military strategy. “None of thearmedgroupswillgiveupanythingsig nificant unless they are under military pressure,”saysMsDickinson.Thefirstac tionbyMrVelásquez,whoisaformerpros ecutorwithnosecurityexperience,wasto purgealmost50generalsfromthearmed forcesandthepolice.Hesayshewasim plementingMrPetro’sinstructiontoclear outthoseaccusedofcorruptionorabuses. Criticsthinkthepurgehasdeprivedthese curityforcesofknowledgeandexperience. MrPetro’steamtalkoftheneedtobuild a broad coalition for peace. Perhaps sur prisingly,MrPetrohasforgedcordialrela tionswithMrUribe,withwhomhefought foryears,aswellasMrSantos.Hehasin cludedtheleaderofthecattleranchersin theteamtalkingwiththe ELN.Andhealso struckadealwiththeranchers,longseen asclosetotheparamilitaries,underwhich thegovernmentwillbuythe3mhectaresof landitproposestoredistribute. MrPetroremainsfairlypopularand,for now, has a legislative majority. But how will he behave if he loses these assets? Somedetectnarcissisticandmegalomani ac traits in his personality. He is intelli gent,ashesaysseveraltimesinhisauto biography.Buthecanalsobedogmatic.His personal behaviour is erratic: he some timesturnsuphourslate,ornotatall,to officialevents.Onebigfearishowhewill react if he is frustrated. In those circum stancesthereflexofthepopulististolash out against institutional restraints. Co lombia’s political institutions and tradi tionsarefairlystrong.“It’saconfusedgov ernment,butnotathreateningone,orat least its threats are not credible,” con cludesFernandoCepeda,aformerminis ter.Othersarenotsosureofthat. n
The Economist February11th2023
US-Brazil relations
Friendswith benefits S ÃO PAULO
Lula will try to keep both the United States and China happy
I
n the early 20th century the Baron of Rio Branco, Brazil’s foreign minister, vowedtomaketheUnitedStatesthecoun try’smainallyandtradingpartner.Today that second role is occupied by China, whichbuysmorethanaquarterofBrazil ian products. Last year Brazil’s goods ex ports to China were worth a whopping $89bn.ButBrazil’snorthernneighbourre mainsdeeplyimportant.OnFebruary10th, afterwewenttopress,Brazil’snewleftist president, Luiz Inácio Lula da Silva, was due to visit President Joe Biden in Wash ington.Itwillbethefirstinternationaltrip ofthistermoutsideLatinAmerica. Lula(asheisknown)hassaidhewants to discuss, and presumably cement, Bra zil’srole“inthenewgeopolitics”withMr Biden. But ensuring Brazil’s place in the global order will be a trickier diplomatic feat than it was during his previous two termsaspresident,from2003to2010. For a start Lula needs to smooth rela tions in the wake of Jair Bolsonaro, his rightwingpopulistpredecessor.MrBolso naro,whowasafanofDonaldTrump,did not destroy Brazil’s relationship with the United States, but it became somewhat strained under the Biden administration. Hewasoneofthelastworldleaderstoac knowledge Mr Biden’s victory in 2020, alongwithVladimirPutinandAndrésMa nuel López Obrador, Mexico’s president. MrBolsonarodidnotcaremuchwhatfor eignersthoughtofBrazil.Underhiswatch,
One ally today, another tomorrow
deforestation in the Amazon increased, earninghimglobalcondemnation. Lula also faces a tricky balancing act. Brazilian diplomacy is typically neutral. Governmentsofboththeleftandtheright havetriedtostayoutofbigdisputes.Dur inghisfirsttwotermsLulatriedtoexpand Brazil’s global influence while remaining inAmerica’sgoodbooks. In2009hehelpedgiveconcreteformto theBRICS,ablocofemergingeconomies. Heopened35newembassies,mostlyinAf ricaandLatinAmerica.Evenso,Lulahad closerelationshipswithpresidentssuchas George W. Bush and Barack Obama. Mr Obamaevenquipped:“Lovethisguy.He’s themostpopularpoliticianonEarth.”And theUnitedStatesisthelargestforeignin vestor in Brazil. Its flow of direct invest menthasheldfairlysteadyinrecentyears. In2021itwas$12bn,morethanaquarterof allforeigndirectinvestmentinBrazil. NowthatrelationsbetweenChinaand theUnitedStatesaremoretenseitmaybe harderforLulatopleasebothcountries.In NovemberMrBidenannouncedthattheUS International Development Finance Cor porationwouldinvest$30minTechMet,a mining company, to process cobalt and nickelinBrazil.Thisisanattempttoactas acounterweighttoChineseinvestors.His administration has also signalled that it will support Brazil’s attempt to join the OECD,aclubofmostlyrichcountries,once itsenvironmentalpolicyisbackontrack. American foreign policy could also pushLulatotakesides.IntheirmeetingMr BidenmaytrytoconvincetheBrazilianto openly support Ukraine. In May last year LulaclaimedthatVolodymyrZelensky,the presidentofUkraine,was“asresponsible” forthewarasMrPutin.Lastmonthaftera meeting with Olaf Scholz, the German chancellor,inBrasília,thecapital,Lulare luctantlyconcededthattheRussianpresi dent “made a mistake” by invading Uk raine.Butherefusedtosendammunition tothecountryandcriticisedtheEuropean Union for not doing more to bring about peacetalks.Bycontrast,whenMrBolsona rowasinoffice,BrazilcondemnedRussia’s invasionattheUN securitycouncil. MeanwhileLulaalsofacesproblemsat home. He won the election by a mere1.8 percentagepoints.AweekafterLulatook charge,fansofMrBolsonarostormedCon gress,theSupremeCourtandthepresiden tial palace. Unrest could return. His gov ernmentneedstopasstougheconomicre formstowardoffafiscalcrisis. InthepastLulahasusedforeignpolicy asatooltoburnishhispopularityathome, says Rubens Ricupero, who was Brazil’s ambassador in Washington in the 1990s. Lula is now planning to do one interna tionaltripamonth;indeed,heisofftoChi nainMarch.Thetrickmightnotworkas wellthistime. n
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TheEconomistFebruary11th2023
Pakistanincrisis
Broken and broke
DADU, ISLAMABAD, K ARACHI AND LAHORE
A balance of payments crisis is tipping a fragile economy over the edge
P
akistanis are accustomed to unreli able utilities. Even in affluent neigh bourhoods of Karachi and Lahore, resi dents install diesel generators for power cuts and spare water tanks for when the tapsrundry.YettheeventsofJanuary23rd werestillshocking.Asurgeinvoltageata powerstationinsouthernSindhprovince led to almost the entire country of 230m people losing power for most of the day. Factories, hospitals and mobilephone networksshutdowninmanyareas.InLa hore,theevening’stradingandpromenad ing—a time when Pakistan’s secondlarg est city feels most exhilaratingly alive— wasconductedindarknessandapaleglow of mobile phones. Only at midnight did somestreetlightscomeon. The blackout is indicative of an eco nomiccrisissevereevenbythestandards of a country wellknown for them. Paki stan is still suffering the devastating ef fects of monsoon flooding last summer that displaced 8m people and cost the countryanestimated$30bnindamageand
lost output. Tens of thousands remain homeless. Rocketing inflation, fuelled by globalfactorsandeconomicmismanage ment,ismakingtheirsituationharder.An nual inflation reached 27.6% in January, the highest level since1975. The rupee is crashing.Ittradedatanalltimelowof275 tothedollarthisweek,downfrom230in midJanuaryand175ayearago.Withfor eign exchange reserves dwindling, the country faces its worst balance of pay mentscrisisinpeacetime. Manyheavilyindebtedemergingmar ketshavefacedsimilarproblemsoverthe pastyear,relatedtopostpandemicsupply glitchesandthewarinUkraine.Pakistan, → Alsointhissection
30 Women’scricketinIndia
31 Japaneseemigration
31 A crackdowninUzbekistan
32 Banyan:Asia’sdemocraticrevival
whichimportsmuchofitsfoodandfuel, looksalotlikeSriLankalastspring,before it defaulted on its debt and its president waschasedfromthecountrybyprotesters. YetPakistanisuniquelytroubling.Itisthe world’s fifth biggest country by popula tion, perennially unstable, beset by ex tremistsandnucleararmed. TheTaliban’sreturntopowerinneigh bouringAfghanistanin2021haslaunched athirdterribleblight—ofterrorismandin surgency,mainlyinthenorthwestofthe country.Lastweekasuicidebomberkilled 84people,mostlymembersofthesecurity forces,inamosqueinPeshawar,anorth westerncity.Politicaldysfunction,which isasubiquitousascorruptioninPakistan, is inevitably stymying the government’s responsetothesedisasters. Imran Khan, a charismatic narcissist who was ousted as prime minister last April,hasspentthepastyearagitatingto bring down the government of Shehbaz Sharif,whoreplacedhim.Evenifhefails (andthearmy,whichoftenstagemanages Pakistan’s political dramas, is not with him)MrKhanremainspopularandwell placedforanelectionduebyOctober.Mr Sharif’s administration is meanwhile squabbling, including over negotiations foran imf bailout.Withforeigncurrency reserves down to just over $3bn in early February,enoughtocoverthreeweeksof imports,Pakistanneedsaccessto$1.1bnin abailoutprogrammeagreedwiththe imf
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Asia
TheEconomistFebruary11th2023
in2019andsuspendedduetoalackofpro gress on promised reforms. If the fund’s negotiators,whoreturnedtoIslamabadon January31st,leavethisweekwithoutadeal (which looked possible as The Economist went to press), Pakistan could default on itssovereigndebt. Theforexshortage,inpartcausedbyef fortstopropuptherupee,iscausingaddi tional damage. Import restrictions im posed to save dollars for essential items likefoodandfuelhavehitindustriesreli ant on imported inputs. Output in large scale manufacturing, including cars, chemicalsandtextiles,fellby5.5%inNo vember 2022 compared with the year be fore. The World Bank predicts gdp will growby2%thisyear,halfwhatitforecast lastJune.“Thereusedtobethisconviction thatwe’llalwayscomeoutofitsomehow,” says a businessman in Karachi. “Now there’sdeeppessimism,almosthysteria.” Thealmosttotallossofthecottoncrop tothefloodshasravagedthetextileindus try,amajorsourceofexports.Some7mtex tileworkersmayhavelosttheirjobssince lastsummer,accordingtoindustrysourc es.Theblackoutisestimatedtohavecost theindustryanadditional$70m. Thefloodsandjoblossesarethoughtto havepitchedbetween8.4mand9.1mmore peopleintopoverty,mostlyinthecountry side.InDadu,anespeciallyinundateddis trictofSindh,thousandsarestilllanguish ingintents.“Onlythosewhohadsavings oroutsidehelpcanaffordtofixtheirhous es”, says Rasheed Jamali, an aid worker. Foreign donors pledged $9bn in relief in January;lessthan$800mofapreviousset of pledges had at that time arrived. With only half of Pakistan’s soggy fields suffi ciently recovered to sow with winter wheat, much of the country is facing an otherlostharvest. Thesepolitical,economicandenviron mental crises are mutually reinforcing. Payments from the bailout programme agreedin2019weresuspendedayearago afterMrKhan,facingagrowingprospectof parliamentary defeat and ejection from Dollar dolours Pakistan Foreign-exchange reserves, $bn
Rupees per $ Inverted scale 20
150 175
15
200
10
225 250
5
275
0 2021
22
23
300 2021
22 23
Sources: State Bank of Pakistan; Refinitiv Datastream
office,reintroducedfuelsubsidies.MrSha rif’sgovernmentvowedtofulfilthefund’s conditions but backtracked in September when, panicked by the floods, it sacked MiftahIsmail,itspragmaticfinanceminis ter. His successor reversed some of his policies,promptinganothersuspensionof payouts. “If the floods hadn’t happened I mighthavekeptthejobandwemighthave beenOK,”MrIsmailsays. Mr Sharif’s government seems to be bowingtotheinevitable.InlateJanuaryit stopped trying to prop up the rupee and raisedfuelprices,astheimf hadrequest ed. If the current negotiations in Islam abad unlock the bailout funds, it might encourage other external creditors to ex tendcreditlinesordeferpaymentsonex istingloans.UnlikeSriLanka,whichowed a higher percentage of its debt to foreign creditors,Pakistanmaybeabletostabilise
its position without its creditors being forcedtoaccepta“haircut”. Yetanyreliefislikelytobetemporary. The current imf programme expires in June; Mr Sharif’s term will expire in Au gust.Acaretakeradministrationwillthen preside over what promises to be a two monthpoliticalvacuumbeforethesched uled elections. They will be messy. It is hardtothinkofPakistaninsuchcircum stances carrying out the additional re forms,includingraisingtaxesandelectric ity tariffs, required to secure more imf funding. They would inflict more short termpainonthecountry’ssufferingpeo plethanevenanastutePakistanigovern ment might dare to. And especially if Mr Khan,currentlynursinghiswoundsaftera failedassassinationattempt,hashisway, the next government may be even worse thanthecurrentone. n
Indiancricket
Women at the crease MUMBAI
Indianinvestorspileintowomen’scricket
O
n February 12th India’swomen’s cricketteamwillplaytheirPakistani archrivalintheWomen’sT20WorldCup inSouthAfrica.Itwillbeabigsporting occasion.Itwillalsobeapotentially lucrativeopportunityfortheplayersto showofftheirskillsaheadofanenthrall ingcricketbusinesseventbackhomein Mumbaithenextday. India’scricketadministratorswill holdaplayerauctionfortheinaugural Women’sPremierLeague(wpl),ado mesticcontesttobeplayedinMumbai fromMarch4thto26th.Ifthemen’s versionofthetournament,theIndian PremierLeague(ipl),isaguide,the televisedauctionwillbealmostaspop ularascricketitselfisinIndia.Andthe bidding,toallocateplayersanddeter minetheirwages,willbefierce.Top Indianplayerscanexpecttoearnas muchfromathreeweekwpl stintas theydoinayearwiththenationalteam. Foreignplayerswillalsobeupforgrabs. Itwouldbe“naivetothinkthatit’snot goingtobeadistraction,”saidSophie Devine,NewZealand’scricketcaptain, aheadoftheWorldCup. The ipl,launchedIn2008,hashada seismiceffectoncricket.Amadefortv tournament,ithasbeenahugecommer cialhit.Fiveyeartelevisionandstream ingrightstothe ipl soldlastyearfora combined$6.2bn,makingitthesecond mostvaluablesportsfranchisebymedia rights.Theleaguehas,amongmuchelse, greatlyincreasedthesumstopcricketers earn.Therearehopes—andsomecon
cerns—thatthewpl willhaveasimilar effectonthewomen’sgame. Thenumbersinvolvedinthewpl are alreadyimpressive.Broadcastrightsfor itsfirstfiveannualseasonssoldlast monthfor9.5bnrupees($115m).Afew dayslater,investorspaidacombined 46.7bnrupees—overhalfabilliondol lars—toownfivefranchisebasedteams. Beforeaballhasbeenbowled,thissug geststhewpl maybethesecondmost valuablewomen’ssportsfranchisebe hindAmerica’sbiggestwomen’sbasket ballleague,thewnba. Theconcerns,againfuelledbythe ipl’sexample,relatetothepossible effectofthewpl onthewomen’sgameat large.Thelureoffatcontractsmight incentiviseplayerstoquittheirnational teamsinfavourofthewpl.Thisisan especiallysensitiveissueincricket, whichhasbeenlargelyorganisedaround internationalcontestseversincethefirst (betweenAmericaandCanada)washeld in1844.Theipl hassignificantlyeroded theirprimacyinmen’scricket;little internationalcricketisplayedduringit. Yetthismaybealesserworryin women’scricket,giventhatitscontests attractfarfewviewersthantheirmale equivalent.Andmerelytoseeawomen’s enterprisedrawingsuchattentionin Indiaispositive.Just19%ofIndianwom enaged15orolderareinwork,alower portionthaninPakistanorBangladesh. Ifthewpl encouragesIndianparentsto bemoreambitiousfortheirdaughters,it willinoneimportantwaybeasuccess.
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TheEconomistFebruary11th2023
Japaneseemigration
Arubaito abroad TO KYO
Young workers are seeking higher wages overseas
A
SHIHARA MARINA,a25yearoldfrom Kanagawa, near Tokyo, wanted to see theworld.LastAprilsheseizedtheoppor tunity to migrate to Australia through its government’s “working holiday” pro gramme, which affords oneyear visas to under31yearolds.Shespentfourmonths workingonafarmineasternAustraliaand now works as a barista in Sydney. What startedasanadventurehasfoundaneco nomiclogic.TheminimumwageMsAsh ihara earns is, at A$21.38 ($14.9) an hour, twice as high as Japan’s. Even working parttime, she makes more than she did toilingasalowlyofficeladyinTokyo. MsAshiharaisoneofgrowingnumber of Japanese drawn to work abroad. Japa nese applicants for Australia’s working holidayvisamorethandoubledin2022.A recruitment platform called Indeed re ports seeing record numbers of searches foroverseasjobs.Studyabroadagentshave startedadvertisingtheterm dekasegi ryugaku (“earningmoneywhilestudyingover seas”).“Youcouldbedoingtheexactsame jobasinJapanandearntwiceasmuchin anothercountry,”saysHirawatariJunichi, acareerconsultant.“Moreandmoreyoung peoplehavebecomeinterestedinearning moneyinastrongercurrency”. The historically weak yen is probably fuellingthetrend.So,moretroublingly,is thelongertermproblemofJapanesewag es, which have hardly increased in three decades.TheaverageannualwageinJapan is$39,700,wellbelowtheoecd averageof $51,600. In Japan’s senioritybased em ploymentsystem,recentuniversitygradu ates can expect to earn around ¥220,000 ($1,670)amonth. Young Japanese are understandably pessimisticabouttheirprospects.Inaddi tion to low salaries, many are growing increasinglydissatisfiedwithJapan’srigid, timeserving corporate culture. A survey by the Nippon Foundation, a nonprofit, showed that only14% of young Japanese believethattheircountry’sfuturewill“get better”.“Manyarestrugglingbecausewag esaresolow,”saysFurusawaYuta,21,who recentlymovedtoCanadatoworkandsave money.WhenTsuyukiSho,29,whoworks in it, noticed how much higher wages were in his industry in other rich coun tries,hefelta“senseofcrisis”.Hemovedto Americatoworkin2019. Japan’sdecliningpopulationandacute labourshortagemeanitcanillaffordany
lossoftalent. Andabiggerexoduscouldbe looming, as the growing frustrations of youngJapanesegetthebetterofthepoor foreignlanguage skills and risk aversion that are common to many. Some experts fearJapancouldatthesametimestartlos ingouttoneighbouringcountriessuchas SouthKoreaandTaiwaninthecontestto attractthemigrantSouthEastAsianwork ersthatallneed.“Japanislosingitsattrac tivenessasaplacetowork,”fretsNoguchi Yukio,professoremeritusatHitotsubashi UniversityinTokyo. LifeinJapanisstillinmanywaysattrac tive. Its recent inflation has been much moremoderatethanelsewhereintherich worldanditshousingismoreaffordable.“I cametoAmericahopingtosavelotsofdol lars,butatonepointIwasspendingallmy income”, recalls Mr Tsuyuki. He reckons thereisnocountry“thatcouldbeatJapan in terms of liveability,” including safety andcleanliness.Healsomisseshisexcur sionstoJapanesefastfoodchains,which servetastymealsatpocketchangeprices. Yet affordability is a flipside of the country’s economic stagnation. Since the burstofthecountry’sbubbleeconomyin the1990s,Japanhadbeenstuckina“defla tionarymindset”,wherefirmshesitateto passonhighpricestoconsumers.Thanks tothefallingyenandmildinflationtrig geredbyhigherimportcosts,publicfrus trationwiththeresultantstagnantwages isatlastbecomingevident. OchiaiYuri,24,whomovedtoAustralia a year ago, also enthuses about the pleasantness of some things back home: “Everything in Japan is orderly and well maintained. The trains always come on timeandthecustomerserviceisgreat.”But she no longer considers returning to her oldjobinTokyo—waitingtablesonamis erableincome—aseriousoption. n
LifeisallrightinAmerica
Uzbekistan
Quashing dissent on the Silk Road BUKHARA
President Shavkat Mirziyoyev may be preparing to extend his rule
I
t was a performance straight from Uz bekistan’s dark Soviet past. In a court roominBukharainDecember,agroupof alleged agitators against the government of President Shavkat Mirziyoyev leapt to their feet and, with heads bowed and hands on hearts, issued a synchronised plea for mercy. “We ask for forgiveness,” theyintonedinunison. They were in the first of at least two batchesofdissidentsduetobetriedovera spasmofviolencelastJulyinKarakalpak stan, an autonomous province in the northwest of Uzbekistan. It started after wordspreadthatMrMirziyoyevplanned, as part of a package of constitutional changes, to scrap the province’s right to selfdetermination.Thatsparkedpeaceful protests which, for reasons that are con tested,spiralledintoclashesbetweenthe securityforcesanddemonstratorsthatleft 21dead,including17civilians,mostlyfrom gunshots and grenades. Mr Mirziyoyev, previously feted as a liberal reformer, promptly abandoned the attempt to curb theprovince’sautonomy.Nonetheless,the violenceinKarakalpakstan,forwhichthe governmenthasacceptednoresponsibil ity,hasleftastainonhispresidency. ThetrialinBukharalookedatfirstlike anefforttoexpungeit.Uzbekistan’scrimi naljusticesystemwasuntilrecentlysyn onymous with corruption, torture and otherabuses;in2002,twoprisonerswere allegedlyboiledtodeath.Yet,thoughpolit icallysensitive,thetrialwasopentojour nalists.Alivevideofeedofitsproceedings, whichwerecarriedoutinthedefendants’ Karakalpaklanguage,wasinitiallyshared ontheinternet.Agovernmentappointed commission, including humanrights campaigners, was charged with monitor ingtheaccused’streatment. Yet the trial looked increasingly for show.Themaindefendant,a44yearold lawyer and blogger called Dauletmurat Tazhimuratov, was the only one to plead innocent; the others all testified against him.Crossexaminingoneofhisaccusers, Mr Tazhimuratov forced her to concede thatshewas,infact,lying.Hewasconvict ed on January 31st of trying to overthrow thestateinKarakalpakstan,amongother crimes,andsentencedto16yearsinprison. The21otheraccusedreceivedlesserpun ishments;15ofthemreceivedprisonsen tencesofthreetoeightyears.Somewere thenparaded,weeping,beforereportersto
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express their gratitude to Mr Mirziyoyev. Another39allegedringleadersofthevio lencewentontrialthisweek. The Karakalpakstan incident suggests thelimitstoMrMirziyoyev’sreformagen da.Sincebecomingpresidentin2016(after his longruling predecessor, Islam Kari mov,died)hehasinmanywaysimproved Uzbekistan.Itnolongerroutinelylocksup andtorturespoliticaldissidents.Itnolon gerruns,inthecountry’ssteppelandcot tonfields, what was perhaps the biggest forcedlabourregimeoutsideNorthKorea. Uzbekistan has become fairer, more
TheEconomistFebruary11th2023
open—andalsomoreprosperous.MrMir ziyoyev has lifted currency controls, launched a privatisation drive and dis mantled barriers to regional trade. The country’seconomygrewbyaround6%last year. Yet after the fashion of enlightened despots,hehasshownnointerestinpoliti cal reform; except, it increasingly seems, toextendhisrule. Mr Mirziyoyev’s second presidential termisduetoendin2026,andisallthat the constitution permits him. That ap pearstobewhyheistryingtochangeit.If the65yearoldpresidentcanalsopulloffa
plantoextendpresidentialtermsfromfive to seven years, he could remain in office until2040.TheviolenceinKarakalpakstan appears to have been an unforeseen by productofhisefforttodoso.Andtheensu ingcrackdownshouldhelpenforceit.Mr Mirziyoyevisexpectedtoputallhismoot edconstitutionalchangesexcepttheKara kalpakstanonetoareferendumthisyear. Theywillalmostcertainlypass;criticising thepresidentisaredlinefewUzbeksdare cross.Thelongsentencesbeingmetedout tothedissidentKarakalpaksmightwellap pearasawarningtothosefew. n
Banyan A sparkleofdemocracy Corrupt autocrats are going out of fashion in Asia
T
HE CHAGRIN ofthedozenoddyears ofthiscolumn’sexistenceisthatfair, freeandopensocietiesinAsiahavefor mostofthattimebeenontheretreat.The goldenadvancesinAsiandemocracy wereinthe1980sand1990s,whendicta torshipsinthePhilippines,SouthKorea andTaiwanfellspectacularly.Inrecent yearsfreedomhasbeenonthebackfoot. Thinkoftheassaultsonthejudiciary andthepressbyRodrigoDuterte,presi dentofthePhilippinesuntillastyear.Or attemptsinCambodiabyitsstrongman, HunSen,todestroytheopposition.Or NarendraModi,India’sprimeminister, stokingsectariantensionsandintimi datinghiscriticsinthemedia.OrIndo nesia’smovetocriminaliseinsultingthe president.Themainexceptiontothis recenttrend,tragically,hasendedup conformingtoit.In2015joyfulelections inMyanmarbroughthalfacenturyof militaryruletoanend.Butin2021,the generalstookbackpowerinaviolent coupandthrewAungSanSuuKyiand hergovernmentinjail.Theyhaveruled thecountrythroughterroreversince. But,tentativelyifhopefully,pointsof democraticlightarereemerginginAsia. ManyexpectedtheruleofMrDuterte’s successortobejustasloucheandthreat ening.Ferdinand“Bongbong”Marcosis, afterall,thesonofthelatekleptocrat whomFilipinosthrewoutin1986.YetMr Marcos,whobecamepresidentlastJune, emphasisesgoodgovernance.Senior membersofhiscabinetarecapableand pragmatic.Heaskstobejudgedbyhis administrativeperformanceand,sofar, itisnotdiscouraging. UntilJulySriLankawasdescending intoadystopiapresidedoverbythe Rajapaksafamily,ledbyGotabaya,its drillsergeantpresident,andhisgrasp ingbrothers.Then,toMrRajapaksa’s
astonishment,popularprotestslastyear forcedhimtofleethecountryandhisclan frompower.ItisearlydaysforSriLanka’s recovery;buttheRajapaksas’oustingwas itsessentialprecondition. PowerchangedhandslastDecemberin Fiji,bumpilybutwithoutanythinglikethe turmoilfeared.Itsformerprimeminister, FrankBainimarama,inpowerfor16years followingacoup,failedtowinreelection and,afterthinkingaboutitabit,agreedto stepaside.Malaysiahadseenalargely peacefultransferofpowertheprevious month—onethatmadeAnwarIbrahim, thatoftfoiledreformist,primeminister. InThailand,anothercoupleader, PrayuthChanocha,andhisunderwhelm ingcroniesfromarmydaysnowrunan ostensiblyciviliangovernmentandpro miseelectionsthisyear.Theirgripisless surethantheywouldlike;afocused, almostjoyfuloppositionisemerging againstthe“olduncles”,asitsmembers mockinglycallMrPrayuthandhisteam. Andthoughthereislittletosmileaboutin wartornMyanmar,theruthlessGeneral MinAungHlainghasinspiredapowerful
strugglefordemocracy.JustasinIran,a generationofyoungcitizens,lesstradi tionalandmoredemandingthantheir elders,areprovingwillingtodiefortheir freedoms.Democracywillsurelyreturn toMyanmar,eventually. Pointsoflightarenotnecessarilya pattern.And,itmustbesaid,vast swathesofAsiaareyettoknowdemoc racyatall.China,LaosandVietnamare threeoftheworld’sfoursurvivingLenin istdictatorships—andthenthereis NorthKorea.Yetthepoliticalmoodin Asiaappearstohavechanged. Authoritarianismisonthewane becauseithasnotbeendeliveringthe goods.AsianadmirationforChina’s modelofgovernancehasbeendimin ishedbyPresidentXiJinping’sblunders handlingtheeconomy,covid19and relationswithAmerica.VladimirPutin’s disastrousprogressinUkrainehasmade theRussianpresident’sfansinAsia squirm.InSriLanka,theRajapaksas werechasedoutbecausetheyhadrun theeconomyintotheground. Whatismore,manyAsiancountries havelonghadthemeanstogetbackon track.WestminsterstylesystemsinFiji, MalaysiaandSriLanka,thoughmuch abusedattimes,underpinnedtheir returntomoreaccountablehabits.Forall thebackslidinginIndiaandIndonesia, theirtraditionsoffreeelectionsoffera routetodemocraticrevival.Elsewhere, corruptautocratswhoholdriggedelec tionstoenhancetheirlegitimacymay sometimeslosecontroloftheprocess. WithelectionsdueinCambodiainJuly, evenMrHunSenisdemonstratingthat politicalopposition,oncerashlypermit ted,isfrustratinglyhardtoquell.His rulingpartyisnotguaranteedtomakeall therunning.Theseedsofdemocratic renewalinAsialieallaround.
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TheEconomistFebruary11th2023
ChinaandAmerica
An eye for an eye?
Tensions will linger over a Chinese balloon downed by America
T
HE PRECISE purposeoftheChinesebal loon that drifted across America, ki boshingabriefdetenteintheworld’smost consequential bilateral relationship, has yet to be proven. But troubling answers may soon emerge from the Atlantic. US Navy divershavealreadystartedretrieving debris from the airship, which was shot down by an American F22 fighter jet off SouthCarolinaonFebruary4th.Thedive rsaimtocompletetheirworkwithindays. Theequipmenttheyfindcouldbolster Americanofficials’assertionsthatthebal loonwaspartofafleetofsimilarcraftgath ering intelligence worldwide. They say they have already got plenty of evidence fromtrackingitacrossAmerica.YetChina isdoublingdownonitsclaimthatthebal loon was monitoring weather and blown off course. And with Chinese authorities nowsuggestingthattheywantthedebris returned,thetwosidesseemtobeheading forastandoffthatcouldpushthemdeep erintoacoldwarstyleconfrontation. Insomeways,thesagaechoesprevious
bilateralupsets,includingChina’stesting ofanantisatellitemissilein2007(firstre vealedbyAmericanofficials)anditsshow of muscle by trying out a prototype of a stealthfighterjetduringavisittoBeijing byaPentagonchiefin2011.Whatmakesit more dangerous is that both countries’ leaders are now facing intense domestic politicalpressuretostanduptoeachother. Theirarmedforcesarealreadygearingup forapotentialconflictoverTaiwan. At first, a relatively quick resolution seemed within reach. Before the balloon wasshotdown,Chinaexpressedregretand said it respected the White House’s deci siontopostponeavisittoBeijingbyAnto ny Blinken, America’s secretary of state, → Alsointhissection
34 A bigtrialinHongKong
35 Firingupnationalistswithfilm
36 Chaguan:Lessonsfromtheballoon
thatwasduetostartonFebruary5th.That brieflyheldoutthepossibilitythatthetwo sidescouldmanagethecrisisandresched ulethevisit,whichwassupposedtocon solidate the detente since Presidents Joe BidenandXiJinpingmetinNovember. ButChina’srhetoriclaterhardened.Its foreignministryexpressed“strongdissat isfaction”,accusingAmericaofoverreact ingandviolatinginternationalpractice.It pledgedtosafeguardtheinterestsof“rele vant Chinese companies” and said it re servedtherighttorespond.AskedifChina haddemandedthereturnofthedebris,a spokeswomansaid:“Theairshipdoesnot belongtotheUS.ItbelongstoChina.”The defenceministrythreatenedto“useneces sarymeanstodealwithsimilarsituations”. InAmerica,Chinahawksareinfullcry. Republican leaders, questioning why the balloon was not shot down earlier, origi nally planned a resolution criticising Mr Biden’sresponsebuthavesincepivotedto abipartisanonecondemningChina’sbal loon escapade. “I am committed to work withChinawhereitcanadvanceAmerican interestsandbenefittheworld,”MrBiden toldCongressonFebruary7th.“Butmake nomistake:aswemadeclearlastweek,if China threatens our sovereignty, we will acttoprotectourcountry.” Some observers shrug off the episode, notingthatChinaalreadyhasaformidable arrayofspysatellites.InChina,thereare experts with their government’s ear who
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suggesttheBidenadministrationishyping the issue to outhawk Republicans ahead of a presidential election in 2024 and to mobilise public support for a longterm confrontation with China. “If the public doesnotsupportyou,howcanyouengage in a new cold war?” says Jin Canrong of RenminUniversityinBeijing. But American officials insist that the balloon represents a serious threat. They sayChinahasrecentlydevelopedafleetof themtospy,oftenforthePeople’sLibera tionArmy(PLA).Althoughlesssophisticat edthansatellites,theballoonscangather somecommunicationandotherdataonly accessibleatloweraltitudes,andcanoften lingerforlongperiodsusingasmallsolar poweredengine.Theyarealsofarcheaper. The balloons have been spotted over countriesacrossfivecontinents,including Europe,andhaveviolatedthesovereignty ofseveral,theofficialssay.OnFebruary6th Chinaacknowledgedthatanotherballoon, seen over Latin America in recent days, wasoneofitsownbutinsistedthatit,too, wasastrayweathermonitoringairship. Also that day, America’s deputy secre taryofstate,WendySherman,ledabrief ingonChina’sballoonespionageforabout 40embassies,accordingtotheWashington Post.ThenewspapersaidthatAmericanof ficialsbelievesomeoftheseoperationsare beingrunfromChina’ssouthernprovince ofHainanandcollectmilitaryinformation fromcountriesincludingIndia,Japan,the Philippines,TaiwanandVietnam. Someoftheprevioussightingswereal readypublic,includingoneoverJapanin June 2020, another over India in January 2022andaswarmoverTaiwanlastFebru arythatitsarmedforceslinkedtothePLA RocketForce.Thatmonth,Americascram bled fighters to intercept an unmanned balloonoffKauai,aHawaiianislandwitha missiletestingrange(theballoonwasnot identifiedasChineseatthetime). But American officials have only re vealedinrecentdaysthatChinesegovern ment surveillance balloons have briefly transitedcontinentalAmericaatleastfour timesbefore:threeduringtheTrumpad ministrationandonceearlierinMrBiden’s presidency. Some passed over Texas and Florida and went near sensitive military sites,theofficialssaid. MoreworryingstillforAmerica,those intrusions were not detected at the time. Theywereidentifiedonlylaterbyintelli genceofficialsusing“additionalmeansof collection”, according to General Glen VanHerck,commanderoftheNorthAmer icanAerospaceDefenceCommand.“That’s a domainawareness gap that we have to figureout,”hesaidonFebruary6th. This time, however, American forces spotted the Chinese balloon as it ap proachedAlaska.Thatallowedthemtoen surethatnosensitiveactivitiesorcommu
TheEconomistFebruary11th2023
nications were exposed nearby, and to monitoritcloselyandtrytoassessitsabil itytogatherandtransmitdata.Onefinding that American officials say undermines China’sclaimsisthattheballoonappears to have manoeuvred itself over military sites,includingabaseinMontanawithin tercontinentalballisticmissiles. TheAmericannavydiversnowhopeto gatherfurtherevidencefromthewreckage oftheballoon,whichwasabout200feet(61 metres)tallandcarriedkitroughlythesize ofaregionalpassengerjet.Counterintelli gencespecialistshavejoinedthesearchfor the debris, which is spread across about threequarters of a square mile (195 hect ares)inwaterslessthan50feetdeep. It is unlikely that they will find any thing labelled PLA. China’s balloons are thought to carry a wide range of sensors, includingsomethatgathermeteorological data.Butthatdatacanbeusedtohelptrack or guide weapons including ballistic and hypersonic missiles. And there could be incriminating kit such as electrooptical camerasorsensorsthat“sniff”fornuclear isotopes in the atmosphere. Some of it mightevenincludeWesterndualusetech nology (despite Americanled efforts to stopit,Chinastillacquiresplenty). Theremayevenbeevidenceofinvolve mentbyaChinesecivilianentity.Yetthat woulddolittletoallayAmericanconcerns. MrXihasinrecentyearsorderedthecivil iansectortoplayagreaterroleinnational defencethroughwhatChinacallsa“mili tarycivil fusion” programme. Much of China’sresearchonhighaltitudeballoons appearstohavebeendonebythecivilian ChineseAcademyofSciences.Anyofthat organisation’sequipmentordatahastobe madeavailabletothePLA ifrequested. Whathappensnextwilldependpartly onwhatAmericanofficialslearnfromthe debris and what they choose to reveal. It will also be determined by China’s re sponse, especially if it makes good its threatofreciprocalaction.AsforMrBlin ken’strip,itisunlikelytoberescheduled beforetheannualsessionofChina’sparlia ment,whichstartsonMarch5th.“Thebig issueiswhatisXiJinpingtellinghiscol leagues,” says Drew Thompson, a former PentagonofficialnowattheNationalUni versity of Singapore. “Is he telling them, stopfussingaboutthisandmoveon?” Americaanditsallieshavemanyother questions.IfMrXiapprovedtheballoon’s mission, how does that tally with his re centdiplomaticcharmoffensive?Ifhedid not,thenhowcomeitwentahead?Ifitwas an accident, why didn’t China promptly tell America? And if a civilian company was responsible, why not identify it and provide some details? After the balloon was downed, China refused to take a call from America’s defence secretary, Lloyd Austin.Answerswillbeslowtocome. n
RepressioninHongKong
Gunning for the HK47 HO NG KO NG
The territory’s biggest national-security trial has begun
I
S IT A threattoacountry’ssecurityifop positionpoliticianstryhardtowinatthe ballot box? In Hong Kong it might be deemedso.OnFebruary6ththetrialbegan of 47 activists and former lawmakers. Theirallegedcrimewastostageanunoffi cial primary vote ahead of elections that wereduetotakeplaceinSeptember2020. Their aim: to pick candidates capable of winningamajorityinthelegislature,de spiteasystemriggedagainstthem. ThisisthelargesttrialinHongKongin volvingadraconiannationalsecuritylaw thatwasimposedontheterritoryinJune 2020bythegovernmentinBeijinginorder to crush dissent. The accused failed in their plot to win. The chosen candidates never made it onto the official ballot. In stead the primary’s organisers, including veterans of the territory’s protest move mentsuchasJoshuaWongandBennyTai, were arrested for subversion under the newlegislation. Theprosecution’scasesoundslikeade scription of how, anywhere else, opposi tionpoliticiansmightbeexpectedtooper ate.The47areaccusedofbeing“wellor ganised” and intending to “weaponise” theirintendedmajoritybyvotingdownthe government’sbudgetandforcingtheresig nation of Hong Kong’s then chief execu tive,CarrieLam.Theiractionshadseemed legal under the territory’s existing laws, butthenewlegislationtookeffectdaysbe
A rareonewhodares
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TheEconomistFebruary11th2023
foretheprimary.Forthegovernment’scrit ics,itchangedeverything. Despite initial suggestions that it wouldbeusedsparingly,therehavebeen 227arrestsand135chargesunderthesecu rity law, according to a database main tainedbyEricLaiofKing’sCollegeLondon. Someoftheallegedcrimesarepiddly,like wearingaforbiddenTshirt. The government’s biggest concern aboutthe47’splanmayhavebeenthatit couldhavesucceeded.HongKong’svoting systemis,bydesign,stackedinfavourof thegovernment’sbackers.Butin2020,de spite official warnings that the primaries could violate the security law, 600,000 Hong Kongers turned out to vote. That showedstrongsupportfortheprodemoc racycamp,perhapsevenenoughtosecure amajorityinthefullelections. Threeweekslaterthegovernmentpost ponedtheofficialpolls,ostensiblybecause of covid19. By the time the rescheduled ballottookplaceinDecember2021 theleg islature had been further restructured to givetraditionallyprogovernmentvoices, suchasbusinesslobbies,evengreaterrep resentation.Alawhadalsobeenbrought intoexcludethosenotjudgedtobe“patri ots”.Legislatorsmustnowswearanoathof allegiancetothecentralgovernment. Thesecuritylawdoesnotprohibittrial byjury,butallowscourtstodispensewith that tradition. They invariably do so, in stead using a panel of nationalsecurity judges, who are picked by Hong Kong’s chiefexecutive,JohnLee,toreachverdicts. HongKong’sjudiciaryisstill“basically” independent, says a barrister involved in nationalsecuritytrials:theauthoritiesdo notdirectlyinstructjudgeswhatverdictto reach. Then again, he adds, they do not needto.Underthenewregime,thegovern mentappointednationalsecurityjudges’ tenureisreviewedannually.Itseemsun likelythatthosewhoshowanindependent streakwouldhavetheirtimeonthebench extended. Nor are liberal judges in lower courtslikelytobepromoted. Thecurrenttrialisscheduledtolastfor 90days.Theaccusedfacesentencesofbe tween three years and life in prison. Thirtyone havepledguilty.Mosthaveal readyspentthepasttwoyearsbehindbars awaiting trial. Where once defendants wereassumedtohavetherighttobail,un lesstheprosecutioncouldprovetheirre leaseposesadanger,innationalsecurity trialstheburdenofproofisreversed. Optimists in the prodemocracy camp wonderwhetherthetrial,perhapsinvolv ingrousingspeechesfromthedock,might rekindle Hong Kongers’ passion for prot est.Morerealistically,saysone,itwillsim ply intensify the chill that has spread acrossthecitysincethenationalsecurity lawwasintroduced,andthebeliefthatde mandingdemocracyisnowfoolhardy. n
Cinema
Seeing red on the silver screen A hitfilmnamedafterafamouspoemfuelsChinesenationalistfervour
“M
y hair bristleswithanger,”young mencryastheyleavetheirred cushionedcinemaseats.“Wewillfeast onthebarbarians’flesh...wewilldrink theirblood.”Theyarerecitinglinesfrom “FullRiverRed”,apoembelievedtobe writtenbyYueFei,a12thcenturygeneral oftheSongdynasty.Itisalsothetitleof China’stopsellingfilmovertherecent LunarNewYearholiday.Themoviehas grossedmorethan4bnyuan($590m) sinceitsreleaseonJanuary22nd. Thefilmissetfouryearsafterthe deathofYue,whofamouslyledtheSong kingdom’sbattlesagainstinvadingJur chens,whosedescendantsbecame knownasManchus.Legendsayshewas killedin1142byQinHui,acorruptSong chancellorwhopushedtheemperorto negotiateandstopfightingtheJurchens. InChineseloreQinisrecalledasahanjian,ortraitortoone’sHanethnicity,and Yueastheopposite. Inrecentyears,theCommunistParty hasdrawnonYue’sstorytopromote patriotism.StatemediaevensaythatXi Jinping,China’sleader,wasraisedon talesofYue’sexploits.Themovie,byone ofChina’smostfamousdirectors,Zhang Yimou,hasarousedvitriolicfervour.Not onlyhavecinemagoersdeliveredspon taneousrecitationsofthechillingpoem atfilmscreenings.Themoviehasalso promptedanincreaseinattackson statuesofQinattouristsites—apractice thathasalongtradition. Thefilmisabouttheassassinationof aJurchenenvoyinQin’scourt.Thereare
twistsandturnsascharactersreveal theirhiddenloyalties,whethertofor eignersortotheSongdynasty.Qinand hislackeysareportrayedasconniving officialswholie,cheat,andkillforpow er—andbetraytheethnicHanpeople. Thefilm’sheroesareundercovervigilan teswhoresentQin’sbehaviourandin filtratehiscourttoavengeYue. Theytrytorecruitayoungcommand erinQin’sarmy,SunJun,whoistorn betweenobediencetohistraitorous superiorsandloyaltytohispeople.In onescene,Suncutsatattoothatsays “Servethenationwithutmostloyalty” offhisvigilanteuncle’sbackashisuncle shoutsthatSunisaflunkeyanda“run ningdog” offoreigners(anoftused insultamongChinesenationaliststo day).Bytheend,SunturnsagainstQin. HeleadstheHansoldiersinarecitation ofYue’spoemandexpressionoftheir ferventdesiretorecoverlostland.That scenemadesomeviewerscry,according toreviewsonDouban,afilmwebsite. “FullRiverRed”drawsonancient history,butitsmodernmeaningisclear. Thepoemisalamentthatnational shamehasnotbeenavenged:ittalksof retakinglost“mountainsandrivers”.In casethatisnotexplicitenough,one Chinesefamilymadeavideoofthem selvesrecitingthepoemafterwatching thefilm,butreplaceditswordswith modernterms.Letus“feastonAmerican imperialists’flesh”and“drinkHantrai tors’blood,”theychant—and“unifyallof Chinaincomingyears”.
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TheEconomistFebruary11th2023
Chaguan WhyChina’sballoonisnotfunny
America and China need to learn how to manage a more hostile relationship
C
HINA AND Americaaredriftingtowardsacoldwar.Distrustis turningintosomethingfarmoredisruptive:acontestbetween two irreconcilable powers, each sure that the other is bent on thwarting its rival’s core ambitions and interests. The shooting downofaChineseballoonoffSouthCarolinaisatestofwhether thetwocountrieshavethewisdomandthewilltostopconfronta tionsfromspirallingoutofcontrol.Theresultssofararemixed. Viewedoptimistically,thedowningofChina’sblimpisastroke ofgoodfortune:aninstructivebutlowstakesversionofacrisis thatcouldhavebeenmuchworse.Inrecentyears,Chinesefighter jetsandwarshipshavetakenscaryrisksastheyharassplanesand shipsbelongingtoAmericaanditsallies,usuallywhenWestern armedforcesshowtheflagorcollectintelligenceininternational skiesandseasclosetoChina’sshores.Raisingthechancesofacol lisionstillhigher,Chinesecommandershavebeensendinggrow ingswarmsofChineseaircrafttobuzztheislandofTaiwan. WhenanAmericanmissilebursttheballoon,themaininjury wastoChina’spride.Thatisinhappycontrastwiththelastknown collision between the two countries’ military assets, a midair crashin2001betweenanAmericanEP3spyplaneandaChinese fighterjetthatlefttheChinesepilotdeadand24Americancrew membersindetentionafteranemergencylandinginChina. HopefulobserversmaynotethatChinesepropagandahasnot reallystokedpublicfuryaboutthepuncturingoftheChineseair ship.Themainnewsoutletshavereportedthestorysparingly.Se miofficialmediahaveplayeditforlaughs,mockingAmericafor overreactingtowhatChinacallsanerrantweatherballoon.Atthe timeofwriting,Chinahadnotdemandedcompensationandhad expressedregret,atleastinitially.OptimistsmayhopethatAmer icanpublicandpoliticalindignationwillteachtheChinesearmy that collisions have consequences. For years, Chinese officers haveshunnedtalkswithforeigncounterpartsaboutrulesforclose brushes,growlingthatsafetyliesinoutsidersstayingaway. Thereisagloomierwaytoviewthisincident,though.In2001 CongressmerelygrumbledwhentheadministrationofGeorgeW. BushexpressedregretovertheChinesepilot’sdeathtosecurethe EP3 crew’s release. In today’s Washington, the partisan furies wouldnotbesorestrained.China’sselfrighteousofficialstate
ments this week took no account of the political pressures on PresidentJoeBiden,asRepublicansdemandedhedestroythebal loonforthwith.Instead,Chinalodgedapublicprotestwhenitwas eventuallydowned.Forgoodmeasure,itaccusedAmericaof“hyp ingup”thestory,asifafreesocietycouldcoverupahousesized enemyballoonvisiblefromtheground. ThetinearedobnoxiousnessofChina’smessaginghascosts. Whiletheballoonwasdriftingacrosshiscountry,AntonyBlin ken,thesecretaryofstate,postponedavisittoBeijingplannedfor February 5th and 6th. It is said that Mr Biden and his advisers judgedthepoliticalcontexttoodistractingforthecandiddiscus sionsthatMrBlinkenwantedwithPresidentXiJinpingandother officials.ThetalkswereintendedtotestChina’sapparentdesireto lowerbilateraltensions,andtoletMrXihearforhimselfhowMr Bidenviewsthesharpestthornsintherelationship.Theseinclude AmericanbackingforTaiwan,theBidenadministration’sefforts tolimitChina’saccesstoadvancedtechnologieswithmilitaryus es,andChina’ssupportforRussia’swarinUkraine. Thiswasnotintendedasa“boyscout”visittosuggestpolicy areaswherethetwosidescould“playnicely”,saysDanielRussel,a formerassistantsecretaryofstateandAsiaadvisertoBarackOba ma’sadministrationwhoisnowattheAsiaSocietyPolicyInsti tute.InsteadtheaimwastospelloutChinesebehavioursliableto ratchetuptensions,andtosuggestactionsthatcouldlowerthem. MrRusselseesthetwocountriesin“uncharted”territoryasthey feeltheirwaytowardsanewequilibrium,balancingoftenincom patiblegoalsandworldviewswithdeepeconomicintegration.Mr Blinken’stripwassupposedtobea“nokiddingefforttowalkXi throughUS policy,ratherthanleavehimwithwhateverskewedin terpretationhemaygetfromhisownservices”,saysMrRussel.He hopesthatthevisitcanberearrangedsoon. SomeChinesescholarsalsohopethetalkswillberescheduled. DaWei,directorofTsinghuaUniversity’sCentreforInternational Security and Strategy, insists that China wants to stabilise rela tionswithAmerica.Beyondavoidingconflicts,Chinaseeksnor mal trade ties and exchanges of people, says the professor. He challengesWesternanalystswhothinkChinaiswagingacharm offensivebecauseitregretsitsprevioushardlinepolicies.Instead, inhistelling,ChinawaswaitingfortheBidenadministrationtobe readytoengage,onceAmericafeltstrongerdomesticallyandsur erofitsallies.MrDaseesthisyearasawindowofopportunityfor talks,beforeAmericanelectionsin2024.Hepinscautioushopes on“reasonable”officials,businessbossesandacademicsoneach sidewhostillseekcooperation.Buthehasseenfewsignsofthe two countries managing the balloon crisis effectively. “Both in ChinaandtheUS,therearestillsomepeopleworkingforstablebi lateralrelations,buttheyareinaminority,”heworries. The need for crisis management Anewcoldwarwoulddifferfromthefirstone.Americaandthe SovietUniondidlittlebusinesswitheachother.Bycontrast,two waytradebetweenChinaandAmericarunsatabout$2bnaday. Againstthat,commerceisnotthepathtomutualunderstanding thatitwas.Foronething,Americanpoliticiansaregrowingwarier ofChineseinvestmentsinsectorsfromhightechnologytofarm land.In2020Chineseownedfirmsemployedjust120,000work ers in America, a sharp decline. Communist Party bosses call Americansuspicions“antiChinahysteria”.IfMrXiwantstoavoid dangerouscollisions,heshouldanswerMrBiden’scallsforarela tionshipwithguardrails. n
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TheEconomistFebruary11th2023
ReinventingtheGulf
A new dawn, a new day
DO HA , DUBAI AND RIYAD H
After decades of empty talk, recent reforms in the Gulf are real but risky
L
atin is rare inRiyadh,butthephrase panem et circenses (“breadandcircuses”) wasthebestwayoneSaudiwriterknewto express his misgivings about the state of his country. Muhammad bin Salman, the writerexplained,hadputhisownspinon anancientidea.Thecrownprincewastak ingawaythebread,thestatehandoutsthat definedthesocialcontract.Meanwhilehe hadmadethecircusesthemselvesacivic duty:goforthandhavefuntohelpbuilda newSaudiArabia. Itseemedtobeworking.Theprincewas popular,particularlyamongyoungpeople. Yetthewritersensedacontradiction.The kingdomwasthrowingbillionsofdollars atdiversions,fromadubiousnewgolftour toacolossalcontractforCristianoRonal do, a Portuguese footballer, even as it in sisteditcouldnolongerlavishbenefitson citizens.ButhowlongcouldSaudisliveon circusesalone? FordecadesthesixmembersoftheGulf
Cooperation Council (GCC), a club of pe tromonarchies,maintainedsimilarsocial contracts.Oilandgasrevenuestoppedup theirtreasuries.Citizensreapedbenefitsin theformofsubsidies,handoutsandcushy publicsector jobs. Foreigners came and worked only as long as they were useful. Thetwogroupslivedmostlyseparatelives. Nolonger.Thepastfewyearshavebeen a time of rapid change in the GCC. Saudi Arabiaisshakingoffmanyofitssocialre strictions and opening up to the world. ThereistalkacrosstheGulfofpushingciti zensoutofmakeworksinecuresandinto the private sector. Policies that were un thinkable,fromsubsidycutsandnewtax es to cohabitation and civil marriage, are beingimplementedwithlittlefuss. → Alsointhissection
40 America’sflaggingtradewithAfrica
TheGCC isnotamonolith.InKuwaitit feelsasifnothinghaschangedforagener ation (to the chagrin of many citizens). With an ocean of natural gas and a tiny population,Qatarisinnohurrytoshrink thepublicwagebill.ButSaudiArabiaand the United Arab Emirates (UAE) have moved fastest. Together they account for morethan75%oftheGCC’spopulationand 70%ofits$2trnGDP.Theirexperiencewill haveanoutsizedimpactontheregion. Rulersinbothcountriesreckonthisis theirmomenttohaveitall.Theyhaveseri ous(if,sofar,inconclusive)planstodiver sify their economies and prepare for the postoilera.Theywanttobeglobalplayers indiplomacyandbusiness.Andtheywant tokeeptheircitizenshappy. Thesegoalsarelaudable.Theyarealso inconflict.Diversificationmeanspushing citizens into a private sector for which someareillprepared.Italsomeansbene fitcutsthatpunchholesinthepaternalis tic social contract. To compensate, rulers are pushing new forms of nationalism— evenastheypursueplansthatrequireim porting crowds of foreigners to a region where around half the population are al readymigrants(seechartonnextpage). Thesearehopefulbutconfusingtimes in the Gulf. Economies and societies are opening, but political life is closing. “It’s not healthy for the country not to have a
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debate,”grumblesoneroyal.Butprivately somekhaleejis (Gulfcitizens),youngones inparticular,fretthattherushtobediverse andcompetitivewillleavethembehind. The most visible changes are in Saudi Arabia,governedfordecadesunderanaus tere brand of Islam. Prince Muhammad, thecrownprinceanddefactorulersince 2017, has loosened its grip. Women were permitted to drive in 2018. Cinemas, bannedsincethe1980s,reopenedthesame year.Thekingdomnowhostsconcertsand raves. Alcohol is still illegal but that may soonchange,atleastinselectareasmeant todrawrichforeigntourists. Such changes serve a few purposes. TheyhavemademanySaudisenthusiastic supporters of Prince Muhammad. Few miss the mutawwa, the oncefeared reli giouspolicewhoharassedpeopleformiss ingprayertimesorwearingmakeup.They arealsolucrative.FordecadesSaudishad totraveltomorelibertineGulfcitieslike Dubai, or further afield, to let their hair down.Keepingthem(andtheirmoney)at homeisgoodfortheSaudieconomy. This old world is a new world Thesocialrevolutionalsomakestheking dommoreappealingtoforeigners.Prince Muhammad has told multinationals to movetheirregionalofficestothekingdom by 2024 or risk losing government con tracts.Somebossesstillfretaboutevery thingfromthebusinessclimatetothelack of international schools. But the changes havemadethemoveaneasiersell. AllofthisposesachallengefortheUAE, long the preferred business hub in the Gulf. Consultants fly over to Riyadh for meetings during the week, then back to Dubaiforweekendfun.Worriedaboutlos ing its competitive edge, the UAE has rushedthroughitsownsocialchanges. Over the past three years it has over hauled family laws that were long gov ernedbysharia (Islamiclaw). AbuDhabi, the capital, started conducting civil mar riagesfornonMuslimsin2021.Theother six emirates followed suit this February. Since 2020 unmarried couples have been allowedtolivetogether,previouslyacrime (if rarely punished). Looser alcohol laws makeiteasierforMuslimstoindulge. LastyeartheUAE evenchangedthecal endar, abandoning its FridayandSatur day weekend (which allowed observant Muslims to attend Friday prayers) in fa vourofaSaturdayandSundayone,better alignedwiththerestoftheworld. Since2018fourofthesixGCC members haveintroducedavalueaddedtax.TheUAE willstartcollectinga9%corporatetaxin June.Incometaxisstillataboosubject,but fewexpectitwillremainso.TheGulf’sso cialcontractmeantzerotaxesforcitizens andexpats.Thatisnolongerthecase. Lifeisgettingmoreexpensiveinother
TheEconomistFebruary11th2023
ways,too.TheUAE gotridoffuelsubsidies in2015.Petrolisstillcheapbyglobalstan dards,butitis30%moreexpensivethanin SaudiArabiaandalmost150%costlierthan in Kuwait. Most Gulf states have raised powerandwaterpricesthatwereoncewell belowmarketrates.Oman,whichhadnot changed its electricity tariff for 33 years, did away with a discounted rate for citi zens:theynowpaythesameasexpats. Such changes have had a real impact. The2012Saudibudgetprojectedthatnon oilsourceswouldcontributelessthan8% oftotalrevenue.Adecadelater,evenwith skyhigh oil prices, that figure was up to 31%. For citizens, higher taxes and lower subsidieshavemadelifemoredifficult. Foreigners feel pinched, too—yet they arestillflockingtotheGulf.TheUAE isex periencingaboomaseveryonefromrich Russianstocryptocurrencyentrepreneurs rushestosetupshopinDubai.Ithaslow inflation, a stable currency and plentiful sunshine. A “golden visa” scheme intro ducedin2019grantslongtermresidency toskilledprofessionalsandrichinvestors without the need for a local sponsor. In 2021thecountryannouncedthatitwould offercitizenshiptoselectforeigners. AbdulkhaleqAbdulla,anEmiratipoliti calscientist,callsthisthe“Gulfmoment”. WhiletherestoftheArabworldseemsto beinterminaldecline,theGCC isprosper ous and wellgoverned. Citizens might grumbleaboutparochialissues,butthere islittledemandforpoliticalchange.“The reservoiroftrusthereisjustfull,”hesays. “And it doesn’t come out of nowhere, it comesoutofasolid,50yearrecordofgood governance. It doesn’t have to be demo cratic.Theydeliver.” Thequestion,asGulfstatestrytotrans form their economies and societies, is whethertheycanpreservethattrust.One concern,usuallyvoicedbyWesterners,is thatopennesswillpromptaconservative backlash. Selfserving Gulf diplomats stokethesefears.ApologistsforPrinceMu hammadjustifyhiscrackdownsbyinvok ingthespectreofreligiousconservatism. 1
We get the job done International migrants, 2020 % of population
Migrant population, m 0
25
50
75
100
UAE
8.7
Qatar
2.2
Kuwait
3.1
Bahrain
0.9
Oman
2.4
Saudi Arabia
13.5
Source: United Nations
Suchconcernsareprobablyoverblown. Ayoungergenerationofkhaleejis ismore openmindedthantheirparents.Oncean organisedforce,Islamistswieldlesspower in today’s Gulf. To see what they actually worryabout,looktofastfood. Last year Subway posted an advert for sandwichmakers. It promised a fiveday work week, comprehensive health insur ance and opportunities for training and promotion.Anywhereelse,thecampaign wouldhavebeeninnocuous. IntheUAE,itcausedanuproar.Thead vertwasaimedatcitizens:itfeaturedpho tos of a young man and woman in tradi tionalEmiratidressandframedthehiring pushas“support[for]thestate’sefforts”to boost Emirati employment. Socialmedia userscalleditinsulting.Subwayretracted it.Theattorneygeneralopenedaninvesti gationintothe“contentious”campaign. The UAE does not release reliable fig uresonunemployment.Butunofficiales timatessuggestthataround11%ofyoung peoplearejobless.InSaudiArabia,17%of citizens aged 15 to 24 cannot find work. Bahrain’s youthunemployment rate has almost doubled over the past decade, reaching10%in2021.Someoftheincrease can be explained by the pandemic. But it also reflects a unique issue in the GCC: young people are stuck between a public sectorthatnolongerwishestohirethem, andaprivatesectorthatisnotreadyto. Ain’t got no money Like the other Gulf countries, the UAE is trying to strongarm companies into hir ingmorecitizens.Eachfirmisrequiredto haveEmiratisin2%ofitslocalpositions (thatfigurewillriseeachyearuntilithits 10%attheendof2026).AsofJanuary1st thosethatfallshortwillbefined6,000dir hamsamonthforeachEmiratitheyfailto hire. Hiring citizens to make sandwiches wouldhavehelpedSubwaymeetitsquota. Emiratis do not all shun such work: Coop, a supermarket chain, has locals working the tills. But the Subway ad ran kled.“Itfeltlike,look,youguysarehungry, likeadogwhoischasingtheprivatesec tor,”saysDrAbdulla.“Isthatwhatwede serve?Inthislandofplenty?Thathas9m peoplefromalloverfindingjobs?” On social media Emiratis grumble aboutforeignerstakingallthegoodjobs. Expatsaccuselocalsofbeingspoiledand lazy.Suchargumentswouldhavebeenrare indecadespast:thetwogroupshadlittle reason to interact. Today they are being pushedintocompetition,andsomelocals arediscoveringtheyareunprepared. Intestsofscience,mathsandreading, 15yearolds in the uae score well below theaveragefortheOECD,aclubofmostly richcountries.Inthelatestexamsrunby the Programme for International Student Assessment,in2018,theUAE ranked47th
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TheEconomistFebruary11th2023
outof77countries.Itsneighboursarenot doing any better. Qatar and Saudi Arabia ranked59thand70th,respectively. TheUAE wouldhaverankedlowerstill without expat pupils, who outperformed their nativeborn peers. Boys do particu larlybadly:the57pointgapintheirread ingscores,comparedwithgirls,isthesec ondhighest in the world. Researchers pointtomanyproblemswithGulfeduca tion. Teachers, often hired from abroad, are of mixed quality. Schools emphasise rote memorisation over critical thinking. Manychildrenareraisedbynannieswho speakneitherArabicnorEnglishfluently. Andthepromiseofapublicsectorjob,re gardlessofability,offeredlittlemotivation toworkhardinschool. The UAE introduced mandatory mili tary service for men in 2014. Conscripts withasecondaryschooldiplomaservefor 11months;thosewithoutspendthreeyears inthearmy.Intheory,thelongertermof servicefordropoutsismeanttogivethem skills that prepare them for civilian jobs. But many who have left the army have foundthejobsearchdifficult. Compulsoryservicehasanotheraim:it fostersasenseofnationalism.Sodoesthe warinYemen,whichsince2015hasseena SaudiledcoalitionbattlingtheHouthis,a Shia rebel group. Emiratis have done the toughestfighting.In2016theUAE unveiled Wahat alKarama (“Oasis of Dignity”), a monument to the country’s war dead. “Thereisthisimplicitkindofmessagethat says,youknow,bepreparedtomakethese sacrificesyourself,”saysoneEmirati. Similarchangesaretakingplaceacross the Gulf. For decades, Saudi identity was rootedinitsreligiousrole:thebirthplace ofIslamandthehomeofitsholiestsites. PrinceMuhammadwantstochangethat. Thekingdom’snationalday,inSeptember, isnowatimeforpatrioticcelebrations. Hisgovernmentisinvestingbillionsto developAlUla,anoasisthatboastsspec tacular Nabataean ruins. Conservative clericshatedit:itwasamonumenttojahiliyya (“ignorance”), a term for the preIs lamiceraontheArabianpeninsula.Now theSaudistateisbuildinghotels,organis ing festivals and urging both locals and foreignerstovisitthesite.Paganhistoryis suddenlytobecelebrated,notshunned. Nationalismbolsterssupportforrulers at a time of rapid change. But it can also haveadarkside.Citizensreportoneanoth erforcriticalcommentsonsocialmedia. Accusationsoftreasonarecommon.Even governmentofficialsarenervous. This kind of hypernationalism is not good for governance. It could also, para doxically,weakenthestate:themoreciti zenstalkaboutpoliticalissues,themore theymightwanttobeinvolvedinpolitics. A different concern looms in the UAE, where just 1m of its 10m people are citi
He’sfeelin’good
zens. One young man, musing about his armyservice,wondershowlong10%ofa population can be asked to protect the other 90%. Another points out, more in disbeliefthananger,thatsomeofthegov ernment’srecentreformsbenefitonlyfor eigners.Civilmarriage isonlyopentoex pats.Newlymintedcitizenscankeepasec ond passport, while the nativeborn can not.Itisnotyetclearwhethernaturalised citizenswillberequiredtoperformarmy serviceorlearnArabic. Emirati officials have long wondered howtoreducethedemographicimbalance whilesustaininga$500bneconomywhich reliesonforeignlabour.Thegovernment set up committees to answer the conun drum. “You know what our conclusion was?Wecan’tdoit,”saysaparticipant. Again,officialdataisunreliable,butthe fertilityrateforcitizensisprobablyaround 3.5.Thatishighforarichcountryandsig nalsagrowingpopulation.Butitwillnot grow fast enough to keep pace with the country’splans.InJanuaryDubaisaidthat ithopestodoublethesizeofitseconomy over the next decade. Even if newborns couldbeputtowork,therewouldnotbe enoughEmiratistoachievethat. A new life for them Unlike in the UAE, Saudi nationals have piledintotheservicesectoroverthepast sevenyears:moreareworkingasbaristas, salesclerksandhotelreceptionists.Thatis partly because publicsector hiring has slowed. But a stint working in a hotel or mallisalsoagoodwaytomeetpeopleata timewhenpubliclifeisexpanding. Formany,though,astintisallitshould be, partly because these jobs do not pay well.Thekingdomhasnominimumwage, butitrequiresprivatefirmstopaycitizens atleast4,000rials($1,066)amonthinor
dertocountthemtowardtheirSaudisation quota. Higher fees for work permits are narrowing the pay gap, but migrants are still cheaper (over 80% earn less than 4,000 rials). And the government cannot increase quotas for—or the salaries of— Saudiswithoutcrushingtheprivatesector. Two hours north of Riyadh, however, thereislittlesignofPrinceMuhammad’s reforms. Thousands of Saudis converge each year on an expanse of barren high desertforthekingdom’sannualcamelfes tival.Visitorscanbuyeverythingfrombri dlesandsaddlestohoneyanddates.Bank ersandlawyersplytheirtrade:evendro medary deals need loans and contracts. Thecentrepieceisanamphitheatrewitha dirttrackthathostscamelracesandacam elbeautypageant.OnablusteryDecember day, the crowd was all young Saudi men. There were neither tourists nor women (thelackofawomen’sbathroomsuggested nonewasexpected).Ticketswerefree. Mahmoud, a jobless 20something, tossed his headdress in the air and screamedforjoywhenthehometownfa vourite won the afternoon’s beauty pag eant.Thenheheadedfortheexit.Hehad littleelsetodo.Hisfatherworkedforthe agriculture ministry, but those kinds of civilservice jobs are harder to come by thesedays,andtherearenotmanyother optionsforsecondaryschooldropoutsin rural areas. Asked about the cultural changessweepingthekingdom,heoffered a shrug: the concerts and amusement parksinRiyadhweretooexpensivetovisit. Thestereotype,outsidetheGCC,isthat itscitizensareallparvenus whodriveluxu ry cars and summer in Europe. In reality thereareplentyofMahmouds.EvenifGulf rulersgettheirambitiousplansright,anda risingtideliftsallboats,thecomingyears willbenerverackingformanykhaleejis. n
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TheEconomistFebruary11th2023
AmericaandAfrica
Trade mission NAIRO BI
Duty-free access to American markets has created jobs in Africa, but not transformed trade
P
ankaj bedi stridesthroughhisfactory on the edge of Nairobi, past clattering sewing machines, bustling workers and boxesofjeans.Noneofthiswouldbehere, hesays,wereitnotfortheAfricanGrowth andOpportunityAct(AGOA).Thelandmark tradepolicywasintroducedbyBillClinton in2000,grantingdutyfreeaccessformore than6,000productsfromsubSaharanAf rica.Twoyearslater,MrBediopenedUnit edAryan,hisclothingbusinessinKenya. Henowemploys14,000people. LatelyMrBedi’sfinanciershaveallbeen askingthesamequestion:whatwillhap penin2025,whenAGOA issettoexpire?It willbeextended,heassuresthem,asithas beenbefore.ThetroubleisthatCongress hasahabitofwaitinguntilthelastminute. Already,hehasputonholdplanstogrow cottonandmakehisownfabric.Ifanex tension is not enacted this year, then or dersfromAmericanbuyerscouldstartto dip,atthecostofAfricanjobs.
Headwinds to trade Furtherdawdlingwouldreinforceasense ofdrift,evenastheBidenadministration istryingtodeepeneconomictiesinAfrica tocountertheinfluenceofChinaandRus sia. America’s imports from subSaharan Africa have fallen since 2008, mainly be causeithasboughtlessAfricanoil.Non fuelimportsincludinggarments,nutsand SouthAfricancarsroserapidlyintheearly yearsofAGOA,buthavegrownonlymod estlysince.The35AGOA beneficiariescol lectivelyaccountforabout1%ofAmerican imports,lessthantheydidbeforetheact was passed. As a trade partner for Africa, AmericahasbeenovertakenbyChina. ThereasonsliemostlyoutsideAGOA it self. It is just one of several schemes wherebyrichcountriesgranttradeprefer encestopooreronestogivethemalegup onthedevelopmentladder.Butinaworld wheremosttariffshavefallen,preferences matter less. Of America’s top 30 imports from AGOAeligible countries, 20 would enter tarifffree anyway, according to the UN. Those include precious metals, dia monds,cocoa,vanillaandcoffee. The important exception is clothing, whichordinarilyattractstariffsashighas 32%.HereAGOA givesAfricanexportersan edge.ManufacturersinthepoorestAfrican countries are exempt from tariffs even if they use fabric made elsewhere. In Leso tho,Madagascar,KenyaandEthiopia,hun
dredsofthousandsofworkersstitchmate rials shipped from Asia into clothes for Americanconsumers. Optimists hope that making clothes couldkickstartanindustrialrevolutionin Africa,asithasinAsiaandelsewhere.But inmostAfricancountriesthecostofma chines,powerandlabourisstilltoohighto competeonanevenfootingwiththelikes ofBangladesh,whichbenefitsfromecono mies of scale and has huge clusters of clothing and textile firms swapping knowledge and skilled workers. “We are abletosurviveonlybecauseofAGOA,”says thebossofoneKenyanmanufacturer. Uncertaintydoesnothelp.Tradepref erencesarenottypicallysetdowninatrea ty. This means they can be withdrawn at short notice, as happened to Rwanda in 2018afteritirkedAmericanbusinessesby banningimportsofsecondhandclothes. AndlastyearAmericakickedEthiopiaout ofAGOA becauseofitshumanrightsabus es.Afactorymanageratanindustrialpark intheEthiopiantownofHawassasaysthat businessthereis“totallydry”,withfirms leavingandworkersidle. Then there is the uncertainty over AGOA’srenewal.In2015itwasextendedfor 10yearstoprovideabitmorecomfort.But investmentwillslowwellbeforeitisdue toexpire.JeanClaudeMazingue,thechief operationsofficeratSOCOTA,whichmakes clothesandtextilesinMadagascar,saysin vestorsinthecountryhavethefundsand knowledge to build a spinning mill to make yarn. “Why do we procrastinate a bit?”heasks.“It’sbecausewedon’tknow what’sgoingtohappenwithAGOA.” Thatmessageisslowlyseepingthrough Light on manufacturing Sub-Saharan Africa, exports to the United States under AGOA*, $bn January-November 0
2021 1
2022 2
3
4
5
Oil and gas Transport equipment Clothing and accessories Primary metal manufacturing Food and kindred products Source: AGOA.info
*African Growth and Opportunity Act
toWashington,whereAGOA enjoysbiparti sanbackingandthesupportoftheexecu tive branch. Katherine Tai, the US Trade Representative,hasspokenoftheneedto “build on the accomplishments of AGOA”. TheUS InternationalTradeCommission,a federalagency,hasbeenconductinghear ingsontheprogrammeandwillsubmitits findings next month. Still, a swift exten sionisnotguaranteed.AdrianSmith,the Republicanchairofthetradesubcommit tee in the House of Representatives, says heis“concerned”thatwithoutgreaterur gencyAGOA couldgothewayofothertrade preferenceschemesthathavelapsed. New deals Thereisalsotalkabouthowtodeepenthe trading relationship by signing twoway agreements. “Preferences by themselves aren’treallywhatdrivesinvestmentonthe continent,”saysConstanceHamilton,the assistant trade representative for Africa. America is in talks with Kenya about a trade and investment partnership that wouldcoverissuessuchasstandards,reg ulations and workers’ rights, though not tariffs,fornow.Eventually,saysMsHamil ton,thekindofdealbeingdiscussedwith Kenya could provide the “offramp” for othercountriesthatwanttomovebeyond preferencestoawiderpartnership. ManyinAfricadreamofthecontinent negotiatingasasinglebloc.Some44coun trieshaveratifiedaplantocreateaconti nental freetrade area. But implementa tionisbehindscheduleanditwillbealong timebeforetheyarereadytospeakasone in trade negotiations, says Eckart Nau mannoftheTradeLawCentre,aSouthAf ricanthinktank. Whatever comes next, the lesson of AGOA is that market access alone is not enough.“Thepatternisclear:wherethere has been investment, you have seen ex ports,” says David Luke of the London School of Economics. Only half of AGOA beneficiarieshavestrategiestotakeadvan tageofit.Americacouldhelpthroughini tiatives such as Prosper Africa, set up by the Trump administration to promote trade and investment. Florie Liser of the CorporateCouncilonAfrica,anAmerican businessassociation,suggeststhegovern mentshouldgivetaxbreakstofirmsthat investinmanufacturinginAfrica. In December President Joe Biden wel comedleaderstoWashingtonforthefirst USAfricasummitineightyears,inasign thatAmericaistryingtoreinvigorateitsre lationship with the continent. Twelve thousandkilometresaway,athisfactoryin Nairobi,MrBedithinksitisalsohightime thatAfricangovernmentsandbusinesses seized the moment. His own success showsAGOA’spotentialbenefits.ButforAf rica as a whole, “it has been the biggest missedopportunity,”hesighs. n
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Europe
TheEconomistFebruary11th2023
EarthquakesinTurkeyandSyria
A crushing blow
ADANA AND ANTAKYA
Disaster strikes tens of thousands of lives and shakes two countries
T
HE silence was the most unbearable part.Everyquarterofanhourthebull dozersandcranesdiggingthroughthede bris stopped working so that rescuers couldhearthescreamsofpeopletrapped underneath. There were none—only the sobs and prayers of onlooking relatives and friends. The rubble was all that re mainedofa14storeybuildinginAdana,a cityof1.8mpeopleinsouthernTurkey.A few hundred metres away the scene re peated itself. Another crowd, another apartment block reduced to a mound of concretepancakes. Thefullscaleofthedevastationcaused by the twin 7.8 and 7.5 magnitude earth quakes that struck southern Turkey and northern Syria on February 6th remains unknown. As of early February 9th, the death toll had already reached 13,000 in Turkeyalone.InSyriaithadpassed3,000. Those numbers were bound to rise far higher.Acrossthedisasterzone,hundreds ofbodieswerebeingpulledfromtherub ble every hour, with only a few survivors beingfound.Rescueteamshadexcavated
only a fraction of the 6,000 buildings in Turkeythathadcollapsed. InIskenderun,acityontheMediterra nean,afireconsumedtheport,swallowing one shipping container after another. Whitetentshousingthosedisplacedbythe quake sprouted across the outskirts of towns. Further south, Antakya, a city of 400,000peoplethatisthesuccessortoan cientAntioch,lookedasifithadbeencar petbombed.Inthecitycentre,practically everyotherbuildingwasdestroyed.Corps espulledfromtherubble,wrappedincar pets, lined the main thoroughfare along sidethewounded.Volunteersandmunici palworkersdistributedmeals.Abadlyin juredmanstretchedoutonthepavement → Alsointhissection
43 Russia’swareconomy
44 PTSDinUkraine
45 PensionsandprotestsinFrance
46 Charlemagne:Thesubsidiesrace
struggledtoremainconscious.“Staywith me,” yelled his brother. “We still have so muchtodotogether.” Rescueteamswereoverwhelmed.Out sideacollapsedhouse,anelderlywoman beggedsoldierstouseabulldozertofind her son, trapped inside. The troops used their hands, explaining that their heavy equipmentwasbeingusedtolookforsur vivors.“Auntie,wehavetomakesomehard choices,” said one. “Your son is probably dead.”Elsewhereamanfedhiselderlypar ents,trappedinsidetheirhome,througha holeintherubble. The government says it has deployed 60,000 officials, including 18,000 gen darmes and 10,000 police. Thousands morehavearrivedfromabroad.InIsken derunarescueworkerfromGreece,oneof Turkey’s historical enemies, burst into tears after saving a girl from a collapsed building. Soldiers have been redeployed fromTurkishoccupiedareasofSyria.Tur key’spresident,RecepTayyipErdogan,de clared a state of emergency in ten prov inces,hometo13mpeople. Thegovernmentsays thatrescueteams havereachedalloftheaffectedareas.Lo calsdisagree.InAntakyathehelphascome much too late. Frustration is mounting. “We have more than 2,000 destroyed buildings,andwe’veonlyreached23%of them,” Lutfu Savas, the city’s mayor, said onFebruary8th.Manywounded diedbe foreambulancescouldreachthem.“They don’thaveenoughequipment,”saidaman
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The Economist February11th2023
Istanbul Ankara
Canakkale
TU RKEY Epicentre Magnitude 7.5 10.24 GMT
Malatya IRAN
Cu
From 10.24 GMT earthquake
ku
Mediterranean Sea CYPRUS
TURKEY
a o v Adana
r Iskenderun Antakya
Latakia
200 km
sittingoutsidetherubbleofhismother’s house.Hehadgivenuphopethatshewas alive.Inpartsoftown,governmentrescue workerswerenowheretobeseen. InSyriatheearthquakehitaregional readydevastatedbymorethanadecadeof civilwar.Deathsareroughlysplitbetween Idlib, a rebelheld province in the north west,andareascontrolledbyBasharalAs sad’sregime.MostpeopleinIdlibaredis placedfromotherareasinSyria,andlivein tentsormakeshifthomes.TheWhiteHel mets, a civildefence group in the prov ince,weresadlywellprepared:theyhave spentyearsdiggingpeopleoutafterSyrian andRussianairstrikes.Buttheyhaveper haps3,000volunteersinaregionofmore than 4m people. A spokesman for the groupsaystheystruggletoprovidetreat ment.RussiaandSyriahavemadeaprac tice of bombing hospitals, leaving the provincewithlittlemedicalinfrastructure. TheTurkisharmy,whichhassmallbas esacrossIdlib,hassentrescueteams.Tur keyisIdlib’slifeline:some2.7mpeoplere lyoninternationalaidtruckedacrossthe border withouttheconsentoftheAssadre
Pulled from the wreckage
Shaking intensity
Epicentre Aleppo Magnitude 7.8 1.17 GMT Idlib
Hama LEBANON
SYRIA
Gaziantep
SYRIA Damascus
I R AQ
From 1.17 GMT earthquake Moderate Strong Very strong Severe Violent Source: USGS
gime,underaUN SecurityCouncilresolu tion that restricts activity to one border crossing. The earthquake has rendered it unusable. The closest airport, near Anta kya, is shut because of runway damage. Roads to the border are impassable. On February7ththeUN announcedthatcross border aid had been halted, though offi cialshopeitwillresumewithindays. The situation is no better in regime heldterritory.ThetollseemsworstinAlep po, Syria’s second city, but there is wide spreaddamageinHamatothesouthand Latakia on the coast. The regime has not donewellwithpreviouscrises:itstruggled to handle wildfires in western Syria in 2020,andcouldbarelycopewiththepan demic. It will have trouble moving sup plies,asfuelisscarceowingtoashortage ofhardcurrency. Mr Assad has few friends. His regime has urged the West to lift sanctions im posedduringthecivilwar,whichhaveex emptionsforhumanitarianaidbutinprac ticecouldstilldelayrelief.Thebiggerob stacle, though, is the regime’s habit of spurningoffersofhelporstealingforeign
aid.Afewcountrieshaveofferedsupport. Russia, which has a military presence in Syria, said its soldiers would help clear rubble.TheUnitedArabEmiratessenthu manitarian aid via cargo plane. Algeria, EgyptandIranhavealsopromisedtohelp. Butfewofthesecountriesarewillingand abletosendsubstantialamounts. For Turkey, the destruction revives memoriesof1999,whenamassivequake in the outskirts of Istanbul killed some 18,000 people. That disaster revealed a deeplyflawedurbandevelopmentmodel, corrupt building practices and a lack of preparedness.Botchedsearchandrescue operationsexposedthemythofanomni potent Turkish state, which Turks had beentaughttobelieveinforgenerations. UnderMrErdoganandhisJusticeand Development Party, in power since 2002, things have improved somewhat. A gov ernment scheme has strengthened more than3mhousingunits.Disasterresponse hasbeenfaster.Yetapartmentblocksbuilt indefianceofregulationsstillcrowdcities, notablyinIstanbul,whichsitsatoponeof theworld’smostactiveearthquakezones. Anamnestyonunregisteredconstruction work,passedbyMrErdogan’sgovernment in2018towinovervotersaheadofgeneral elections,madethingsworse. Falling down on the job Most of the buildings destroyed seem to predatethe2000s,butmanyarenewer.In Antakyaan apartmentcomplexfrom2010 keeledoverwithasmanyas800peoplein side.AtowerblockthatcollapsedinMala tya, a city near the second quake’s epi centre,hadjustbeencompletedlastyear. Had building codes been respected, says MustafaErdik,aprofessoratBogaziciUni versity in Istanbul, “you would have had damage,butnotsuchpancakecollapses.” Ifthestateisfallingshort,civilsociety isnot.Volunteersanddonationsarepour ing in from every corner of Turkey. Gold minersfromCanakkale,firefightersfrom Istanbul and farmers from Cukurova are clearing rubble.Shopandrestaurantown ersarehandingoutfood.Scoresofhotels areopeningtheirdoorstothehomeless. Hisgovernment’sspottyemergencyre sponse and cosy relationship with con struction tycoons may come to haunt Mr Erdogan. He faces elections expected on May14th.ThedisasterwillcompoundTur key’seconomicwoes:thecountryisalrea dycopingwithslowinggrowthand58%in flation. The regions struck by the earth quakeaccountfornearly10%ofGDP.Selva Demiralp,aneconomistatKocUniversity, says Turkey could lose two percentage points of GDP in tourism revenue alone. Turkey’s main stock index fell15% in the three days after the quake. Some stocks surged, however. They were those of ce mentcompanies. n
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TheEconomistFebruary11th2023
Russia
Ploughshares into swords MOSCOW
ThetechnocratskeepfundsflowingforVladimirPutin’swar,astheeconomyis slowlyrepurposed
V
ADIM, A CAR-PARTS dealerfromapro vincialRussiantown,neversupported the war. Indeed, he broadly backed the West’ssanctionsonRussia:howelsecould youstopthe“monsters”intentondestroy inghiscountry,aswellasUkraine,ifnotby hittingtheirpockets?ButwhentheWest’s measureshitthesupplyofpartsheneeded from his distributors, he followed busi nesslogicandsourcedthemfromwherev erhecould.ThesearchtookhimtoTurkey. A web of intermediaries offered various schemestodeliverhisgoodsforahandling costofbetween$2and$4perkilogram.To day,theyarrive,ofteninbagslabelled“per sonaleffects”,threetofourweeksafteror dering.Vadimasksnoquestions,provided thepriceisright.Heunderstandsthatthe sameappliestocustomsofficials. Vadim’s workaround reflects a larger story,asRussiarevertstoprimitivemeans to muddle through. Tough European and American sanctions, introduced in the wakeoftheinvasionofUkrainelastFebru ary,weresupposedtoisolatetheRussian economy.Butwithonlyhalftheworldob serving the measures, reality was always goingtobemorecomplicated.Tradersin friendly countries like Turkey, Kazakh stan, India and China now facilitate the import of the restricted goods Russia needs,foraprice.BySeptember2022Rus sianimportsindollartermsexceededtheir averagemonthlyvaluefor2019.Andthese countriesalsotakealargeshareoftheraw material exports Russia once sent to
Europe—atasteepdiscount. ThishasallowedtheKremlintoavoid economic catastrophe. Gross domestic product(GDP) contractedbyjust2.2%last year,smashingmanyeconomists’expecta tions, made in the spring, of a decline of 10%ormore;nowherenearenoughtocrip pleVladimirPutin’swareffort.Unemploy ment remains low. House prices have stopped rising, but there is no sign of a crash.Consumerspendingisdraggingon theeconomy,butnotbymuch.In2023the IMF evenexpectsRussiatogrowby0.3%— morethanBritainandGermany. Russia’s isolation also offers the most ruthless a onceinageneration opportu nitytogetrichquick.BeforethewarEuro pean and American firms held direct in About turn GDP, % change on a year earlier 2021
2022* -2
2023† 0
2
4
6
8
Britain Canada France Germany Italy Japan United States Russia Source: IMF
*Estimate †Forecast
vestmentsinRussiaworthabout$350bn.A decreeissuedinthewakeoftheinvasion obligesWesterncompaniesclosingdown inRussiatofirstobtainapermit;theycan thenselltheirassetsonlyatgovernment determinedprices,setatadiscountof50% or more to their market value. A corrupt systemhasthereforeemerged.OneWest ern industrialist who is helping several EuropeancompaniesquitRussiasaysthat opportunisticRussiansandevenWestern ersareworkingtheirgovernmentconnec tionstosnapupbargains.“We’vereturned tothe1990s,”hesays,awildtimeofgang stercapitalism.“Youcansafelyassumethe newownerswillignorenicetieslikesanc tionsoncetheytakeover.” Therestrictionswerepartofapackage of extreme measures introduced by Rus sia’stechnocratstostabilisetheeconomy in the months following the invasion. Theyhavesucceededfarbetterthantheir authorsmighthavehoped.Beforetheinva sion,manyofthemwereclearlyunhappy with the idea of an unprovoked war that riskedwreckingthemodernisingeconomy theyhadspenttheircareerscreating.Sev eral—includingElviraNabiullina,thehead ofRussia’scentralbank;GermanGref,the boss of Sberbank, Russia’s biggest; and AlexeiKudrin,areformistformerfinance minister—arebelievedtohavemaderepre sentationstoMrPutinwhentheysawthat aninvasionwasonthecards. Buttheyquicklysteppedintolineonce the war was under way, stopping a bank runfromturningintoafullblownfinan cialcrisisandgettinginflationundercon trol.Onlyahandfuloflowerlevelbureau crats resigned from the central bank and thefinanceministry.Oneformercentral bank official says he was both impressed and appalled by his colleagues’ efforts to keepthewarmachineafloat.“Theyunder stood what they were doing, even while theycomfortedthemselvesbypretending thepeoplewhowouldreplacethemwould be worse.” One highlevel source close to theKremlinsays,“Theeliteareprisoners. Theyareclingingon.Whenyouarethere forthatlong,theseatisallyouhave.” Emboldened hardliners are agitating for more radical change. Some dream about removing important figures that they perceive to be proWestern. But as long as those people keep his war effort funded,MrPutinisunlikelytooblige.Itis difficulttoknowhowwelltheyaredoing, asmanykeystatisticsarenowsecret.But backoftheenvelopecalculationsarepos sible.Russia’s2022budgetwasplannedat 23.7trnroubles($335bn).Governmentfig uresindicatethatactualspendingin2022 reachedatleast31trnroubles. According to Natalia Zubarevich, an economist at Moscow State University, only about 2.5trn roubles of the extra spend are accounted for by benefits and
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othertransfers:pensions,cheaploans,ad ditional child allowances. That leaves roughly 5trn roubles unaccounted for; much of it, presumably, going on arma ments. There are obvious signs of the economybeingmobilisedforwar.Defence firmsareworking24hoursaday,inthree shifts.Uralvagonzavod,Russia’smaintank manufacturer, has enlisted at least 300 prisonerstofulfilitsneworders.Andsteel productionfellbyjust7%in2022,farless thanthe15%someexpectedgiventhedeci mationofthecarindustry,heavilyaffected bysanctionsthathaveinterruptedthesup plyofsemiconductors. TheKremlinwouldclearlyliketomili tarisetheeconomyfurther.InOctoberthe governmentestablishedanewcouncilde signedtocoordinategovernmentandin dustry.Butfindingfreshsourcesofcashis abouttobecomemuchtrickier.MrPutin’s invasioncoincidedwithhighpricesforhy drocarbons. In the first five months of 2022,suchrevenuesweretwoandahalf times higher than in the year before. But lowerglobaloilprices,aswellasthehalt ingofgasexportstotheWestandanoil pricecap,havehitthatincomestream,if lessdramaticallythantheWesthadhoped. TheEuropeanturnawayfromRussian hydrocarbonshasleftagapthattheKrem lin is trying to offset through discounted sales to other markets, like Turkey, India and China (though there is evidence that theactualdiscountsaresmallerthanoffi ciallyreported).Afurtherpricecap,onpe troleum products, which came into force onFebruary5th,willbehardertofix,since thosebigmarketsalreadyhavetheirown establishedrefineries.Russiawillhopeto sellmorecrudetocompensate,andtheim pactwillbecomeclearonlyintime.Atany rate,Russianhopesthatitmaystillbeable toget$70perbarrelofitsoil,thepricethe governmentneedstobalancethebudget, mayproveoptimistic. Howevermuchtheeconomyiscanni balisedintoamoreprimitivewartimeout fit,itsgoverningclassunderstandsthereis noturningback,atleastwhileMrPutinis around. It heard the president declare in Decemberthattherewouldbe“nolimits” to the resources available for the armed forces.Thatmeanscutselsewhere.Health and education spending will be reduced, suggestsMsZubarevich.“Theworsethings get,themorenecessarywarwillbecome,” saysaformermandarin. ThemessagethatRussiaisfightingfor its survival against an encroaching West hasbecomeapowerfultoolforrepression. Butitwillmeanevergrowingdemandsby the Kremlin on Russia’s longsuffering people.“Theyarealreadymilitarisingpeo ple’s consciousness, but it’s a longterm process,” says the former civil servant. “Hitlertookfiveyears.Theyareonlyjust gettingstarted.” n
The Economist February11th2023
Ukraine
The enemy within
KHARKIV PROVINCE
Treating PTSD in Ukraine’s soldiers is a huge task
I
N THE GLOOM ofagreyandfreezinglate Januarymorningitisaforbiddingplace. Itslocationisalsosecret,beyondthefact thatitissomewhereinKharkivprovincein Ukraine’s northeast. Soldiers arriving or departingfromwhatisthecountry’sonly militaryrehabilitationcentrededicatedto posttraumaticstressdisorder(PTSD)doso incivvies,soasnottodrawattention.Eve ry week around 100 soldiers arrive for treatment, suffering the gamut of battle field trauma symptoms: from sleepless ness and nightmares to flashbacks and crushing feelings of guilt at having sur vivedwhensomanyoftheircomradesfell. SergeiiBatowslay,asoldiersince2015, saysthathalfofhisunit,morethanahun dredmen,havebeenkilledsincetheRus sianinvasionbeganalmostayearago.On the front you are constantly pumped up and full of aggression, he says, and that takesnotjustamentaltollbutaphysical one too, leaving you run down and ex hausted. He has suffered from panic at tacks,andincivilianlifesmallirritations cantriggersurgingaggression.Ingeneral, he says, “guys keep their problems to themselves,” but here, being able to talk, onetoone with a psychologist or in a groupwithothersoldierswhohaveexperi encedsimilarsymptoms,hasbeenabreath offreshair. Typically, says Colonel Oleksandr Va sylkivskiy,thedirectorofthecentre,PTSD is brought on by explosions, triggering
The wages of war
panic or withdrawal. Men report being hauntedbythecriesoftheirwoundedand dying comrades. Officers and psycholo gistsattachedtounitstrytospotthesymp tomsofPTSD intheirsoldiersearly,inor dertosendthemfortreatmentbeforethe problem escalates and they become ag gressiveorviolentincivilianlife.Families canjointherapysessionsatthecentreto learnwhattheirhusbandsorfathershave beenthrough,andhowtohelp. ThecentreopeneditsdoorsinJulyand so far some 2,000 soldiers have passed throughit.AllthisisnewforUkraine.Be fore the first phase of the war in 201415, whenRussiaseizedCrimeaandsupported separatistsinDonbas,fewwhoneededto seeapsychologistwantedto,saysColonel Vasylkivskiy,becauseitwasakintoadmit tingto“beingcrazy”.Untilthen,psycholo gistswerealso,inUkraine’sinheritedSovi et military tradition, part of its political section.Theirjobwasnottotreatsoldiers withproblemsbutrather,saysMajorMak symBaida,topunishthemfornotbeingup to their job. Now the job of military psy chologists like him is help soldiers and persuadethemthattheyarenottoblame. Muchhaschangedsince201415.Some soldiersreturningfromthefrontwithpsy chologicalproblems,exactlylikeWestern soldiers coming home from Iraq or Af ghanistan,haveturnedtodrinkanddrugs andcanbecomeaggressiveandviolent.As a result, says Colonel Vasylkivskiy, the number of psychologists in the army has beenincreasedbyabout40%,andsoldiers in training are told not to be shy about turningtothem. Treatment is not expensive. It costs €140($150)aweektocareforasoldier.But underUkraine’scurrentrules,thoughthe military budget covers rehabilitation for physicalinjuries,itdoesnotpayfortreat mentforPTSD.Sothecostsforthecentre are being borne by volunteer organisa tions.Thetherapyseemstowork;Colonel Vasylkivskiy says that after a week in his centrealmosteveryonehehastreatedhas beenreadytoreturntothefront. With a million men under arms, for months at a time and enduring gruelling conditions, the colonel says that his one centre is not nearly enough. “We need a hundred,”hesays,butaddsthattheyneed tobemadeavailableforcivilianstoo.That, though, is a whole different, and surely evenbigger,problem. n
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Europe
The Economist February11th2023
France
Arguing about laziness
PARIS
Emmanuel Macron’s pension reform is about much more than pensions
“M
ACRON, TAKE your retirement, not ours!”readoneplacardatarecent protest march. “Metro, work, grave”, read another, on a more existential note. On February7thyetmoredemonstratorstook tothestreetstoprotestagainstPresident Emmanuel Macron’s plan to raise the minimumpensionagefrom62yearsto64. Theturnoutwasnotashighasattwoprevi ousstrikedaysinJanuary.Butalltradeun ionsbackfurtherstrikes.Mostopposition parties, and a majority of the French, are alsoresolutelyagainstthepensionreform. The legislation, which went to parlia mentonFebruary6th,hasnotonlydivided thecountrybutpromptedadialogueofthe deaf. The government says the reform is “indispensable”ifthepensionregimeisto balanceitsbooks,andFranceistopreserve itsgenerouspensions,atatimewhenpeo plearelivingnearlyadecadelongerthan they did in 1980. Opponents accuse the government of brutally dismantling the hardwonrightsofamodernwelfarestate. SofarMrMacron’scentristgovernment hasfailedtoconvincetheFrenchthatrais ingtheretirementageiseitheranecessary orafairwaytopluganannualpensiondef icitthatwillreach€14bn($15bn)by2030. Criticsfromtheoppositionleftwingalli ance,NUPES,saythatitwouldbefairerto tax“superprofits”,ortherich.A2%taxon theassetsofFrenchbillionaires,suggested a report from Oxfam France, would wipe out the pension deficit overnight. The rightofcentreRepublicans,whoinapre
viouslifeincreasedthepensionagefrom 60toitspresent62,nowhavethenerveto insistthatMrMacron’sversionisunjust. Byfocusingnarrowlyontheretirement age,though,thegovernmentisalsofailing toexplainthatthisisnotjustanaccount ingmatter.Itfitsintoabroaderattemptby MrMacrontoputworkattheheartofhis secondterm project. “Pension reform”, saysMarcFerracci,alaboureconomistand a member of parliament for Mr Macron’s centristparty,“iscentraltothecampaign objective of bringing about full employ ment,andraisingtheemploymentrateof older workers.” Full employment would mean curbing joblessness from 7% today toaround5%,alevelnotseensince1979.At 56%, the share of 55 to 64yearolds in workinFrancehasincreasedbyfivepoints on Mr Macron’s watch, but remains well belowthatof72%inGermany. Saving the silver Tothisend,thegovernmentwantstoin troduce a “senior index”, to monitor the shareofolderworkersonthepayroll,and discouragefirmsfromeasingoutthegrey haired,whichtheyoftendo.Fortheyoung, itisexpandingthenumberofapprentice ships,whichreached980,000in2022,the highestleveleverrecorded.Inparallel,the governmenthastightenedtherulesonun employmentbenefitsthatapplyduringpe riods of economic growth and labour shortages.ManyfirmsinFrancecurrently reporthavingtroublefillingvacancies.
SuchaprojectmakessenseforFrance. Yet, since the pandemic, many countries have been rethinking the nature of em ployment. And, in the French mind, pro gresstowardsabettersocietyismeasured bytheeasingoftheburdenofwork.In1880 Paul Lafargue, a socialist thinker, pub lished“LeDroitàlaParesse”(“TheRightto beLazy”),arguingforathreehourworking dayanddenouncingthe“madnessofthe love of work”. Two decades ago “Bonjour Paresse”(“HelloLaziness”),aguidetodo ingnothingatwork,becameabestseller. Therollingbackofworkingtime,origi nally designed to protect workers from abuse, has become part of the country’s postwarstory.In1982FrançoisMitterrand cuttheretirementagefrom65yearsto60. Two decades later France introduced the 35hour working week. The share of the French who consider work “very impor tant”droppedfrom60%in1990tojust24% in2021.Thepandemichasacceleratedthis shift,saysRomainBendavid,inapaperfor theFondationJeanJaurès,athinktank.By 2022 only 40% of the French said they would prefer to earn more and have less freetime,downfrom63%in2008. InsofarasFrenchpoliticiansaretalking aboutallthis,itislargelytotradeinsults and slogans. Sandrine Rousseau, a Green leader from the NUPES coalition, argues bluntly for the “right to laziness”, and wantstobringina32hourworkingweek. Gérald Darmanin, Mr Macron’s interior minister, dismisses NUPES as a group of “people who don’t like work” and think theycanliveina“societywithouteffort”. Not so lazy Inreality,Frenchsocietyismorecomplex thanthiswarofwordssuggests.Thanksto looser rules, French workers actually on averagethesedaysputinalongerweek(37 hours) than Germans (35 hours), and are nearly as productive per hour worked. EvenwithinNUPES,somepoliticians,in cluding Fabien Roussel, the leader of the Communist Party, embrace the value of work.TheFrenchmaysaythatworkisno longer central to their lives; but a new study by the Institut Montaigne, a think tank, shows that threequarters also say they are broadly happy at work, a figure thathasbeenstableforseveralyears. Franceisnothavingthatdebate,how ever,and64%arestillagainstthepension reform.MrMacron,saysasourcecloseto him,isdeterminedtoholdfirm.Ifhecan’t findthevotesinparliament,whereheno longer commands a majority, the reform could be pushed through using a special constitutional provision, though at the risk of provoking fresh legislative elec tions. Either way, unless Mr Macron can persuadetheFrenchofitsmerits,hecould end up with a successful reform to his name,butabitterlyresentfulcountry. n
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Europe
The Economist February11th2023
Charlemagne Thecopycattrap
Europe should not respond to America’s subsidies binge with its own economic blunders
A
mericaN success has a way of flustering Europe into bad policies. Search engines are one dispiriting example. As Google and Yahoo dominated the internet in the early 2000s, JacquesChirac,thenpresidentofFrance,beseechedEuropeto“go ontheoffensive”sothatAmericawouldnotdominate“thepower oftomorrow”.WiththeEU’sassent,Francepouredaround€100m (roughly$147mbackthen)intoQuaero,awouldberivaltoAmer ica’s giants. Predictably the venture was dubbed “Eurogoogle”. Equallypredictably,thebigfirmsandpublicoutfitsthatpocketed themoneyfrittereditallaway.WhoeverGoogle’srivalsaretoday (seeBusinesssection),theyarenotfromEurope.Thosecuriousto findoutwhathappenedtoQuaerocanaskGoogle,orachatbot. Thesedaysitisgreentechnologythatis“thepoweroftomor row”,andEuropeonceagainfearsAmericaisleavingitinthedust. TheBidenadministration’sInflationReductionAct(IRA),passed inAugust,offersatleast$400bnofpublicmoneyovertenyearsto acceleratetherolloutofrenewableenergyandelectricvehicles. America’scarboncuttingambitionswereatfirstlaudedbytheEU. Butthepennyswiftlydropped.Thenewsubsidiescomewitha protectionisttinge;theyaretargetedatstuffthatismostlymade inAmerica,inabidtoshiftsupplychainsthere.RobertHabeck, Germany’seconomyminister,frettedthatvaluablegreeninvest mentwillbe“suckedaway”fromEuropeacrosstheAtlantic. Quaeroendedupmerelyincineratingapileofpubliccash.A botchedresponsethistimearoundcouldbefarcostlier.Wasteful EU copycatsubsidiesareonthecards.Worse,aplethoraoftried andknowntofail economic policies have been dusted off to counter the manageable threat posed by the IRA. These would steerEuropeawayfromthefreetradingopeneconomicapproach favoured by northern Europeans—including Britain, when it playedakeyroleinsteeringtheEU—andwhichcurrentlyprevails. ThenewpathwouldhaveadistinctivelyFrenchfeel.Atitscoreisa dirigiste industrialpolicy,whereministersdoleoutsubsidiesto favoured“nationalchampions”protectedfrompeskyimports. Fordecadesthismisguidedapproachhasbeenbannedbythe EU,whichfearedbeggarthyneighboursubsidyraceswithinthe union.The“stateaid”rulesthatunderpinthesinglemarketare designedtoensurethatbusinessesinanyoftheunion’s27coun
triescompeteonalevelplayingfield.Consumershavebenefited massivelyfromwhatisamongtheeu’sbestpolicies.Butthesup posedneedtorespondtotheIRA inkindhasgivenanopeningto thosewhopreferlessmarketandmorepoliticalmeddling.Thisis all the more worrisome as antisubsidy rules were softened in 2020tohelpnavigatetheresponsetocovid19,andthenagainlast yeartodealwiththeenergycrisis. Theallianceinfavourofdrivingahorseandcarriagethrough thestateaidrulesincludesGermanyandFrance—aduothatoften getsitswayinEU matters.TheywantEuropetocounterAmerican subsidies with its own. But because the bloc itself lacks the re sourcestofundsuchindustriallargessecentrally(withoutanin creaseinitsbudget,whichisnotonthecards),itwillcomedown tonationalgovernmentstosplurgeoncorporatebungs.Stateaid rules would thus have to go. This line of thinking has alarmed manyintherestoftheEU,aswillbeevidentatasummitofnation alleadersinBrusselsonFebruary9th.Smallcountriesworrythey willbeunabletomatchthelargesseofParisorBerlin,andsowill see their companies fall behind. Italy, a big industrial country withbadpublicfinances,isamongthosethatknowtheywillalso beunabletokeepup.TheymakeforsizeableoppositiontoFrench andGermanplans,whichmightnotcarrythedayasaresult. YetthereisnoneedforEuropetoscrapthepolicythathasun derpinneditseconomicsuccess.TheBidenadministration’sme first approach is no friendly act to Europe. But the supposed threatsposedbytheIRA areoverstated.Adollarspentindevelop ingabatteryplantinKentuckydoesnotprecludeaeurobeingin vestedinAustria,nomatterwhatEuropeanchiefexecutivesgoad ing politicians into fattening their bottom lines might claim. Technology pioneered in America at great expense will also be availableinEurope—justasGoogleis,forexample.Theneedfor greenindustrialproductsissogreatthatfactorieswillhavetobe builtonbothsidesoftheAtlantic.MrBideniswillingtopaydearly tojuiceAmerica’sindustrialbaseasmuchforgeopoliticalreasons aseconomicones:hewantsto“decouple”certainsupplychains fromChinasoasnottodependonitforfuturegoods.Europehas littleneedtoduplicatethateffortsolongasithasalternativesup pliers to China available—something the IRA, by subsidising Americanproduction,makesmorelikely. Americaisspendinglavishlyoncuttingcarboninpartbecause itlackspoliciesthatallowittocutemissionsmorecheaply.Itis stuffingbusinessesandconsumerswithsubsidiesbecausethey currentlyhavenoincentivetogogreen:trysellinganelectricve hicletosomeonepaying$4pergallonofpetrol.Europehasalrea dynudgeditseconomyontoamoreecologicalpath—motorists therepaytheequivalentof$7pergallon,foronething.Europe, unlikeAmerica,alreadyoftenchargesfirmsforthecarbonthey spewaspartoftheiroperations.Theincentivesforownersand managerstogreentheirbusinessesalreadyexist. Relax, don’t do it EU policymakers should stick to their existing, unFrench ap proach.ThereislotsEuropecouldbedoingtoimproveitseco nomicprospects.Thesinglemarketshouldbedeepened—forex amplewhenitcomestocapitalmarkets—nothobbled.Productiv itycouldberaisedwithbettertrainingandeducation.Anaemic spendingonresearch&developmentshouldbeboosted.Thatis less exciting than showering shiny new industries with public money.Ithasthedistinctiveadvantageofbeingknowntowork. TryQuaeroingit. n
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Britain
TheEconomistFebruary11th2023
Immigrationpolicy
And still they come
The British government is planning yet another crackdown on asylum-seekers
A
li’sfirst experienceofBritainwasof kindness.AfewmilesfromDoverthe fishing boat he had taken from Dunkirk sprangaleak;alongwithseveraldozenfel lowmigrantshewasrescuedbythecoast guard.Ontheshore,peoplewerewaiting withblankets.Ninemonthson,thingsare now looking pretty bleak for the 21year oldIranian.Livinginanovercrowdedhotel inCarlisle,heisunabletoworkorcontin ue his education (beyond a brief weekly Englishclass).Hehasnoideahowhisasy lum application—made on the grounds that as a Christian in Iran he was threat enedwithpersecution—isprogressing. That is nothing compared with the anxietyhefeelsabouthisfather,whoar rivedonanothersmallboattwoweekslat er.WithindaystheHomeOfficehadcho senhimforthefirstplaneofasylumseek ersboundforRwanda,aspartofagovern mentplannotjusttoprocessclaimsinthe Africancountrybuttokeepsuccessfulap plicantsthere.Thatflightwascancelledon
June14thaftertheEuropeanCourtofHu man Rights intervened; Ali’s father has sincebeenwaitinginahotelnearGatwick to learn his fate. Ali fears that, if asylum flightstoKigalievergoahead,hewillnever seehisfatheragain. The plan to fly people to Rwanda was cooked up last year in order to deter mi grants taking small fishing vessels and flimsyinflatableboatsacrosstheEnglish Channel.Tightersecurityonferryandtun nel routes helps explain why such cross → Alsointhissection
48 VolodymyrZelensky’svisit
50 Bagehot:TheailingTories
→ Readmoreat:Economist.com/Britain — Thestrugglesofthesteelindustry — TrackingpatientsinA&E — Shamanismontherise
ingshaveriseneveryyearsince2018(see chart on next page). In 2022 some 45,755 people came to Britain in this way. They made up the largest proportion of over 70,000 asylum claims—itself the highest numberin20years. That is still lower than the number of claimslodgedineitherFranceorGermany. Itrepresentsonlyafractionoftheoverall numberofimmigrantsthatenteredBritain in2022.Butsmallboatsareabiggerpro blem than the numbers suggest. This is partlybecauseofhumanitarianconcerns: in recent years dozens of migrants have diedinthechannel.Butitisalsobecause suchavisiblemanifestationofthegovern ment’sinabilitytocontrolitsbordershas becomeabigpoliticalheadache. Nothingthegovernmenthassofartried hasworked.InthepastfouryearsBritain hasmadefourdealswithFrancetobeefup security in Calais, where migrants (and traffickers) congregate. The latest, struck in November, had the same limits as the others: it does not let British authorities patrol in France nor return those whose asylumclaimsfail. Britain has also tried to make itself a less alluring destination. But there is no shortage of young migrants from poor countrieswhoarewillingtoendureafros tyreceptionandlongwaitsinovercrowded hotelsfortheprospectofabetterlife.That iswhythesolutionpromotedbymanyof
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Britain
thecharitiesthatworkwithasylumseek ers—providing temporary “safe passage” visas, whichwouldallowmigrantstotra velbyferryandlodgeclaimsonarrival—is no such thing. Britain would be over whelmedbyapplicants,manyofthemen tirelydeservingofprotection. The government has promised a fresh pushtosolvetheproblem.RishiSunakhas made“stoppingthesmallboats”oneofhis fivepledgesfor2023.OnFebruary2ndhe saida“stoptheboatsbill”wouldbepub lished“inthecomingweeks”.Hesuggest editwouldconsistoflawsmakingiteasier todetainandremoveillegalmigrants. Beingabletodeportthosewhoseclaim is rejected is a crucial part of an asylum system. There is little point in assessing people’s claims for asylum and granting some, if those who are turned down are also allowed to stick around. Britain is thoughttohaveatleast800,000unautho risedimmigrants.Thefactthatnoonehas tohaveanidentitycardmakesiteasierfor thosewhohavefailedintheirapplications, ornevermadeone,tomeltintothecrowd. But Mr Sunak’s legislation is likely to endindisappointment.Thenewlawswill probablybedesignedtomakeiteasierto sendasylumseekers,perhapsbeforetheir claimshavebeenprocessed,backtotheir homecountriesortoathirdcountrylike Rwanda. The first option would in many cases be illegal; a recent agreement with Albaniatoreturnmigrantstherecouldnot bereplicatedwithcountriesthatareconsi dered unsafe without breaching interna tionallaw.(ThereistalkoftakingBritain outoftheEuropeanConventionofHuman Rightsifthecourtsdidintervene.)Asfor theRwandapolicy,itmaybeimpracticalas wellasmorallydubious.Thegovernment inKigalihassuggesteditonlyhascapacity toacceptafewhundredpeople.Attempts tofindotherthirdcountrieshavefailed. Farbetterwouldbeamorecomprehen sivedealwithFrance.Settingupaprocess ing centre for asylum claims in northern Francewouldstopsomepeoplefrommak ing the crossing by boat. (Britain should also consider allowing asylumseekers to applyfromBritishconsulateselsewhere.) Thiswouldleadtomoreclaimsandmore approvals, but since they would be a lot less visible and chaotic than dinghies at sea,itmightwellbemorepopular. A comprehensive returns agreement with France would also help. PostBrexit Britainhasnoformalagreementallowing ittoreturnasylumseekerstoanyEU coun try. The European Stability Initiative, a thinktank,believesthatifalmostallirreg ular migrants were returned swiftly to France—which would be legal, because France is a safe country—boat crossings wouldquicklycease.SinceFrancehasre peatedly insisted that return agreements areamatterforthe EU,thiswouldneedto
TheEconomistFebruary11th2023
Growing waves Britain, cumulative irregular migrants*, ’000 50 2022 40 2021
30 20
2020 2023 J
F
2018 M A M
Sources: Home Office; Border Force
J
J
A
S
2019
10 0
O N D
*Crossing English Channel in small boats
be part of a wider deal with the bloc in whichBritainwouldhavetoplayitspart, byitselfacceptingagivennumberofasy lumseekersfromtheEU (andbeyond). Such a deal, with either France or the EU,ishardtoimaginerightnow.Improv ing the existing system for processing claimsisamorefeasiblegoal.BySeptem ber202268%ofapplicantshadbeenwait ingmorethansixmonthsforadecisionon theirclaim,comparedwith49%in2017.In thattimethenumberofpeoplewaitingfor a decision has increased threefold, to around98,000.Ifmigrantsknowthereis likely to be a long wait in Britain before there is any prospect of being deported, theyaremorelikelytotrytogetthere. Thegovernment’spreviouscrackdowns seem to have slowed things down even more.SinceJanuary2021ithasissued“no
tices of intent” to some asylumseekers whileitdecideswhethertheirclaimcanbe treatedasinadmissible.Thesehavemade noappreciabledifferencetothewayasy lumclaimsareprocessed,saysColinYeo, an immigration barrister, except to add a furthersixmonthdelaytoproceedings. Thisbacklogimposesheavycosts.The governmentspends£7m($8.4m)adayto feed and house asylumseekers. They are notallowedtoworkuntiltheyhavewaited atleast12months,atwhichpointtheycan applyforjobsontheshortageoccupation list; they should be able to do so earlier. ClaireMoseley,thefounderofCareforCa lais,whichworkswithasylumseekerson both sides of the channel, says the long waitisespeciallydamagingforthosewho haveexperiencedtraumaandillhealth. Immigration lawyers say part of the problemappearstobeashortageofexperi encedHomeOfficestaffabletomakediffi cult decisions. Britain grants asylum at a muchhigherratethanFranceorGermany. That may be because a big proportion of thosewhotraveltoBritainbyboatarefrom countries,likeSyria,thatgenuinelycom mandahighapprovalrate.Yetitmayalso bebecauseofsloppydecisionmaking. Ultimately, however, only a compre hensivearrangementwithFranceandthe EU offerstherealisticprospectofquickly resolvingthesmallboatsproblem.Instead thegovernment’sfocusseemslikelytobe elsewhere—on draconian laws that risk performative rows, damage to Britain’s reputation and more uncertainty for Ali, hisfatherandotherslikethem. n
Planespeaking VolodymyrZelensky,theUkrainianpresident,pressedparliamentariansfor“powerful Englishplanes”onavisittoLondononFebruary8th.InanaddressinWestminster Hall,thepresidentgavetheSpeakeroftheCommonsapilot’shelmetwiththein scription:“Wehavefreedom,giveusthewingstoprotectit.”OfhismeetingwithKing Charles,MrZelenskysaid:“InBritainthekingisanairforcepilot.InUkrainetoday everyairforcepilotisaking.”RishiSunak,theprimeminister,hasofferedtrainingfor Ukrainianpilots;thegovernmentsaidonlythatitwouldinvestigategivingplanes,too.
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Britain
TheEconomistFebruary11th2023
Bagehot BucketlistTories
AlanClark’sfinalsetofdiariesprovidesaguidetotheConservatives’ailingstate
A
lan Clark knewhewasdying.TheTorypoliticiananddiarist was“completelydesexualated”—adisturbingconditionfora philanderer—andwhiledawaytheafternoons“listlesslyplucking atHello oranAudicatalogue”.Eyeblurringheadacheshadbugged him for years, but he ignored the optician’s injunction to have themcheckedoutuntilasuddenhospitalisationinMay1999un coveredavasttumourlodgedinthewhirringbrainoftheMP for KensingtonandChelsea.Fourmonthslater,hewouldbedead. Massaginghistemplesatthekitchentable,hecouldstillsee somethingsclearly.AsthegeneralelectionofMay1997thatwould grantTonyBlairalandslidedrewnear,hiscolleaguespredicteda hungparliamentorasmallLabourmajorityatworst.JohnMajor, the prime minister, was on chipper form; the cabinet trundled along.“Wewillwin,Alan.Wearegoingtowin!”bellowedNicho lasSoames,anotherMP,oneeveninginApril1997.Clarkknewbet ter.“Thegapisintractable,wideningindeed,”hewrote.“Notsofar distantT34swereagainatthefortificationsontheOder.” Clark harboured darkness beneath the wit. He kept a signed portrait of Hitler, whom he called “Wolf”, in his safe. The BBC calledhim“theUK’s favouritecad”;modernaccountsofhiscon ductwouldbemuchharsher.Butheisworthreadingstill.Thefi nalvolumeofthediariesthathekeptfornearlyfivedecadesholds amirroruptothefrailtyofthecurrentConservativeParty. Thatispartlybecauseoftheparallelsbetweenthe1990sand now.ConservativeMPsendlesslychewoverthoseyears.Optimists insist the next election can be a repeat of the result in1992, in whichaninnatelyconservativeelectoratebackedadiligentTory leaderoverasemireformedLabourParty.Butintheirbones,they knowafatelike1997ismorelikely.Psephologists,likedoctors,are fallible,buttheprognosisisinanditisnotpromising:pollsindi cateaconsistentLabourleadofaround20points.RishiSunak’s personalratingsareweakandweakening.“Thepeoplethinkthey nolongerhavetheanswertotheirneeds,andthegeneralcryofthe voterwillbe‘Kindlyfuckoff’,”saysanoldfriendofClark’s. Itispartlybecausesleazeisagaincripplingtheparty.Today’s versionislesssalaciousthanthatofthe1990s—Clarkwouldbeex posed by the News of the World, a newspaper, for having affairs withajudge’swifeandalsohertwodaughters.Butitisjustasda
maging.OnFebruary7thMrSunakreshuffledhiscabinettore placeNadhimZahawi,thepartychairmanhehadfiredoverhistax affairs.ThatsamedayMPsquestionedRichardSharp,thechair manoftheBBC,overreportsthathewasinvolvedinbrokeringan undisclosed loan for Boris Johnson, shortly before Mr Johnson recommendedhisappointmenttorunthebroadcaster.(MrSharp hasdeniedarranginganyfinancing.) ButClarkisalsoanunmatchedguidetotheToriestodaybe causethediaristandthepartysharesomanymorbidsymptoms.A dyingmanwishestoputhisaffairsinorder.Clarkworriedabout clearinghisdebts.MrSunak’sagendaforgovernment—fixingthe public finances, massaging down healthservice backlogs—can soundlikeatidyingupexerciseafteryearsofhardliving.Itisim moraltoleavedebtstothechildren,heoftenintones.Clarkwant edtofixtheplumbingatSaltwood,hiscastleinKent,beforehe died.AspartofhisreshuffleMrSunakembarkedonyetanother rewiringofWhitehallbycreatingnewdepartmentsforenergy,sci enceandbusiness.Itmayprovesuccessful,butMrSunakisun likelytobearoundtoenjoythefruitsofhislabours. WhathaveIdonewithmylife,thedyingmanasks?Clarkraced tofinishthe“BigBook”,hishistoryoftheTories,andhopedtobe rememberedforthediaries.ThesamequestiondogstheConser vativesafter13yearsinofficeandfiveprimeministers,eachof whom has undone their predecessor’s work. They can say they spared Britain from Jeremy Corbyn, Labour’s farleft exleader, andgotitthroughthepandemic.Butingloomiermomentsthey seeacountryinwhichthetaxburdenhasrarelybeensohigh,the publicservicessocreakyortheculturesounconservative.Asfor Brexit,thebestitsbackerscanclaimisthatitisaworkinprogress. Thetwilightofalifeisatimetofulfillonghelddreams.Clark himself pined mainly for Eriboll, his Scottish estate. For some Conservativebackbenchers,thereisamuchlongerlistofambi tions:leavingtheEuropeanConventiononHumanRights,say,or scrubbingthestatutebookofEU law.Individualsstilldreamof carryingaminister’sredboxwhilethereisstilltime.Themost generousinterpretationofMrSunak’selevationoftheboorishLee AndersontothedeputychairmanshipoftheConservativePartyis toindulgeabucketlistwish. WestminsterechoeswiththechisellingofToryepitaphs.Liz Trusshopesthathistorywilleventuallysmileonthe49daypre miershipthatwreckedtheparty’sreputationforeconomicman agement. In a rambling and conspiracytheorising essay pub lishedinthe SundayTelegraph onFebruary5th,theformerprime ministerblamedshadowyforcesforderailingherdashforgrowth. Mr Johnson wishes to be remembered for helping Ukraine. On February3rdhegrantedatelevisioninterviewtoNadineDorries, themostadoringofhiserstwhilecabinetministers(imaginethe WatergateburglarsinterrogatingRichardNixon).Buthistorydoes notletyouchoose.Clarkwantedhisgravestonetoread:“Happily marriedtoJanefor41years.”Janeleftitblank. The afterlife Parties,unlikepeople,canbereborn.Anelectoraldoomsdayhas certainattractions:theclearoutoftheelders,aleadershipelec tionandafreshdebateaboutthefutureofconservatism.“WhatI hopequitefirmlynow,”Clarkwrotein1995,“isthattheToryparty issmashedtopiecesandahugenumberofpeoplelosetheirseats. Thenatlastperhapsmyparticularbrandofradicalismcangrow.” Clarkwasnotkeenondying.Buthecouldseethebrightsideinhis colleagues’demise. n
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International
The Economist February11th2023
Techno-philanthropy
Giving3.0 Anewgenerationoftechphilanthropistshasdeeppockets, grandioseambitionsandanimpatiencewithbureaucracy
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hen Andrew White first sold a chunk of his business in 2021, he knewhewantedtogivesomeofthepro ceedsaway.Indeed,ifallgoesaccordingto plan, he hopes eventually to give over $20mtocharity.ButMrWhitewasstillbu syrunningFundApps,acompliancemon itoringserviceforinvestors.Thatleftlittle timetoreadupondevelopmenteconom icsorscourcharityrankings. The model that bigname philanthro pists have followed for generations—set tingupaprivatefoundationandhiringa team to run it—was out of the question. “Creatinganotherorganisationtomanage your money is just wasting it,” says Mr White.Afterall,hesays,“thesepeopleare verygoodatwhattheydo,sowhydon’tyou trustthemtodoit?”Intheend,MrWhite gavethemoneytoFoundersPledge,aBrit ishcharitywithmorethan1,700members in39countries.HetoldFoundersPledgehe wouldlikethecashtogotoeducationand povertyreliefinpoorcountries,thenleft itsresearcherstosortoutthedetails. MrWhiteispartofanewclassofphi lanthropistsverydifferentfromthosethat
wentbefore.Theyareoftenyoung,impa tientwithprocessanddetail,andkeento make a difference in a hurry. Most made theirmoneyinthesoftwareandcomput ingindustrythathas,sincetheturnofthe century, been the world’s great engine of wealth creation. Along with their money comes their industry’s worldview. “I was readingWired,nottheChronicle of Philanthropy,”saysScottHarrison,thefounderof charity: water, which aims to give clean watertoeveryoneontheplanet. No one has more money to give away thanthetechtycoons.Forbes,amagazine whichtrackssuchthings,reckonsthat26 of the100 richest people in the world in 2022madetheirmoneyleadingtechnolo gyfirmsofvarioussorts,includingseven ofthetopten.(Therecentdropintechval uations has dented the sector’s domi nance,butnotendedit.) Theyareevenmoredominantwhenit comes to giving that money away. The Chronicle of Philanthropy (whichMrHarri sonsaidhedidnotread)estimatesthat,of the $33.4bn given away by America’s 50 biggestdonorsin2021,aroundthreequar
ters came from people who made their money in tech (see chart on next page). Bain & Company, a consultancy, reckons techmagnatesholdabout8%ofthetotal wealth of India’s superrich, but account forabout35%ofthecharitablegiving. That tide of money carries with it the cultureandworldviewoftheindustrythat createdit.Techhasspentthepasttwode cades disrupting everything from shop ping to television. Charitable giving, it seems,isnext. Toseejusthowdifferentthenewcom ers are, compare them with their best known forebears. The grandfathers of modernphilanthropyareAmericanindus trialistslikeAndrewCarnegie,HenryFord andJohnD.Rockefeller.Suchmengavethe bulkoftheirmoneylateintheirlives.They created foundations that would outlive them,employedhighlyqualifiedadvisers, andwerepreparedtodishoutfundsforde cadestoachievetheirgoals. Movefastandfixthings Thatmodelwastweakedattheturnofthe millennium. Businessmen and venture capitalistsbeganthinkingaboutcharitable donations like hardnosed investments. Recipients were ranked by which offered the most charitable bang for each buck. Theimpactofeverydollarwasmeasured, and,ifaprojectfailedtodeliveritsexpect ed “social return”, funding was cut. The standardbearerforthatapproachwasthe BillandMelindaGatesFoundation,started by the founder of Microsoft and his then
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wife in 2000. It has spent its money, among other things, on malaria preven tion,improvingaccesstocleanwater,and pushingtocompletetheworldwideeradi cationofpolio. Tothenewergenerationofphilanthro pists,raisedinabusinessculturethatpriz esgettingtomarketandscalingquicklyov ercautiousplanning,allthisappearsun bearablystodgy.NickhilJakatdarisaserial entrepreneurfromIndiawhonowlivesin California, and who gives away between $300,000and$500,000eachyear.In2021 heapproachedtheGatesFoundationseek ing funding for a notforprofit medical firm.Thefoundation’sgenerositywasim pressive, Mr Jakatdar says. But he found the paperpushing so offputting that he did not apply. “The Gates Foundation taughtmewhatIdon’twanttobe,”hesays. MackenzieScott,theexwifeofJeffBe zos,thefounderofAmazon,becamearole model for the new approach when she dishedoutover$14bninalittleoverthree years,startingin2019.MsScottdidnotdis pensewithanalyticsentirely.Instead,she frontloadedthem.Sheappointedconsult ingfirmstocrunchthenumbersandpick worthyrecipients,whichincludedHabitat forHumanityInternational,whosevolun teershavebuilthomesinHaitiandBangla desh,andtheDesmondTutuHealthFoun dation,whichisbasedinCapeTown.The gifts were mostly given without condi tions, with the charities trusted to make the best use of the money. Ms Scott has calledherapproach“seedingbyceding”. Jack Dorsey, a cofounder of Twitter, runshischaritableeffortsonsimilarlines. In 2020 Mr Dorsey pledged to give away $1bnofsharestohisphilanthropicventure #StartSmall. He takes grant applications fromanyoneviaashortonlineform.Every donationismadepublic.(#StartSmall’slist of donations includes climateresilience projectsintheCaribbeanandhumanitar ianaidinUkraine.)“I’mseeingmuchmore oftheattitudeof:justgivepeoplethemon eyalready,”saysStephanieEllisSmith,the bossofPhilaEngagedGiving,anadvisory firm. “What are we playing around with, tickingthisboxandthatbox?” This sense of urgency is bolstered by peer pressure and competition. Silicon Valley is brimming with “giving circles” and educational programmes that get wouldbedonorstogether.Publicdeclara tionsarepopular,andevangelistsarenot shy about recruitment. David Goldberg, the chief executive of Founders Pledge, says he physically walks entrepreneurs intothecorneroftheroomatparties,reg istrationpapersinhand. Thevehiclesthroughwhichyoungtech titansdisposeoftheirwealtharechanging, too.America’scharitablefoundationshave over$1trninassets.Butthereisagrowing fashionfordonoradvisedfunds(DAFs),a
The Economist February11th2023
sortofsavingsaccountforcharitablegiv ingthatoffersaquickandsimplewayof gettingwealthoutofthedoor.TheNation alPhilanthropicTrustreckonsthevalueof assets in DAFs rose by nearly170% in the fiveyearsto2021,to$234bn.Oneofthebig gest providers is the Silicon Valley Com munity Foundation, which has about $14bnatitsdisposal.DonorsincludeBrian Acton,afounderofWhatsApp,andSergey Brin,whocofoundedGoogle. Technically, donors to a DAF give up control over their money (though their wishesareusuallyrespected).Buttheycan getadviceongivingandhelpwithpaper work from the group that runs it. Unlike bigfoundations,thereisnoneedforDAF donors to hire a large staff or submit de tailed reports to the taxman. American foundationsmustdisposeofatleast5%of theirassetseveryyear.Nosuchrulesapply to DAFs. Donors can get deductions on theirtaxbills,too.Untradedsharesgiven toafoundationarevaluedbasedonwhat they cost—which, for a founder, is often very little. When given to a DAF, they are valuedatthetimeofthedonation. Another option is the limited liability corporation (LLC). Corporations do not providethetaxbenefitsoffoundationsor DAFs. But they give donors freedom. Spending on charitable projects can be combined with forprofit ones, and even politicaladvocacy.PierreOmidyar,eBay’s founder,andLaurenePowellJobs,thewid owofSteveJobs,aformerAppleboss,both useLLCsfortheirdogoodery.Therangeof projectsthatcanbefundedisonfulldis playatMsJobs’sgroup,theEmersonCol lective.Thephilanthropicarmfundspro jectssuchasartinstallationsalongAmeri ca’s border with Mexico. Meanwhile, the venturecapitalarmhasmadeinvestments in the Atlantic, a magazine, and Stripe, a paymentsprocessor. BenjaminSoskisattheUrbanInstitute, anAmericanthinktank,saysthatthepop ularityofLLCsreflectsanotherwidespread Silicon Valley belief, that it is not only charitythatcandogoodintheworld.In Burn rate United States, charitable giving of biggest 50 donors, by source of wealth, 2021, $bn 0
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Technology Finance Media Manufacturing Real estate Insurance Other Source: Chronicle of Philanthropy
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dustrialists like Carnegie and Rockefeller worried that the public viewed the firms thatbuilttheirfortunesnegatively.Buten trepreneurs today frame the making of moneyasbeingjustasworthyasgivingit away. Socialmedia platforms are said to connectpeople,forexample,whileonline marketplacesdemocratiseshopping. Some corporate dogoodery can seem strikingly grandiose. Elon Musk, Tesla’s boss,seespartofthefirm’sjobasforcing the rest of the car industry to switch to electricvehiclessoonerthanitotherwise would have (a mission it has, by now, mostlyaccomplished).AlthoughMrBezos remainsonAmazon’sboard,healsoowns BlueOrigin,arocketryfirmthathopesone daytohelphumansliveinspacetorelieve environmentalpressureonEarth.MrBrin hasinvestedinCalico,anantiageingfirm thathopestoextendlifespans.“Thereisa blurring between entrepreneurship and philanthropy,”saysMrSoskis. Thinkdifferent As the preferences of donors change, so mustthefundraisingtacticsofrecipients. Ithelpsifcharitieshavegrandambitions too. Brent Hoberman runs Founders’ Fo rum Group in London, which offers legal advice,networkingandmoreforentrepre neurs.HerecallsadvisingtheTessaJowell Foundation, a British charity focused on braincancer,onhowbesttomarketitself. To draw donations from tech moguls, he said,itwouldbebetterforthefoundation to market itself as a “moonshot” project thataimedtocurecancerofallkinds.And there is no harm in asking for big dona tions,either.“Sometimesitiseasiertoget theseguystogiveaway$100mthan$1m.” Ithelpstobeaufaitwithtechculture, too.With$700mindonationscharity:wa ter,MrHarrison’sventure,isaSiliconVal leydarling.MrHarrisonthinksitwasthe firstnonprofitgrouptoreach1mfollowers onTwitter.Addingwhizzy,hightechele ments works as well. Mr Harrison offers donors satellite images of the wells they havepaidfor.Andonceonetechdonation arrives,othersoftenfollow.MichaelBirch, thefounderofBebo,asocialnetwork,was anearlydonor.HeintroducedMrHarrison toDanielEk,thebossofSpotify,andReid Hoffman,afounderofLinkedIn. More modest charitable ventures, and those without connections, can find it harder to attract donations. Elise Cutini runsPivotal,anorganisationthatsupports childreninfostercareinCalifornia.Pivot alhelpsabout500youngpeopleeveryyear, but,asMsCutiniputsit,thatisnotseenas “sexy”bytheSiliconValleycrowd.Oneway togetontheradar,shesays,istoappoint techtypestotheboard,whichhelpsspread theword.“Onceyougetintothatcirclea bit, people talk,” she adds. “They talk at theircocktailparties.” n
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TheEconomistFebruary11th2023
Internetsearch
Seeking change
MOUNTAIN VIEW AND RE D MOND
After20yearsofstagnantmonopoly,onlinesearchisinforashakeup
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earthe bayinMountainView,Cali fornia,sitsoneofbiggestprofitpools inbusinesshistory.Thesiteisthehomeof Google, whose search engine has for two decades been humanity’s preferred front doortotheinternet—andadvertisers’pre ferred front door to humanity. Every sec ondofeveryday,Googleprocessesperhaps 100,000websearches—and,thankstoits cleveralgorithm,servesupuncannilyrele vant answers. That power has turned Googleintoaverb.Italsoopensupbillions ofdailyopportunitiestoselladsalongside theanswerstosearchers’queries.There sults’ accuracy keeps users coming back, andrivalsatbay:allothersearchengines combined account for barely a tenth of dailysearchers(seechart1onnextpage). Advertiserspayhandsomelyforaccess toGoogle’susers,andaretypicallycharged only when someone visits their website. TherevenueofGoogle’sparentcompany, nowcalledAlphabet,hasgrownatanaver ageannualrateofover20%since2011.In that period it has generated more than
$300bn in cash after operating expenses (seechart2),thebulkofitfromsearch.Its market value has more than trebled, to $1.3trn.Itistheworld’sfourthmostvalu ablefirm.UnlikeAppleandMicrosoft,its bigger middleaged tech rivals, it has felt norealneedtoreinventitself.Untilnow. The reason for the soulsearching in MountainViewisChatGPT,anartificially intelligent chatbot designed by a startup calledOpenAI.Besidesbeingabletohavea humanlike conversation, ChatGPt and others like it can draft equally human seemingpoems,historyessays,computer codeandjustaboutanythingelsethatpeo plewritedown.UBS,abank,reckonsthat → Alsointhissection
55 BrazilIncinatizzy
56 Bartleby:Thepitfallsofenthusiasm
57 Bigoil’snewmap
59 Schumpeter:RethinkingApple
sinceitslaunchinNovemberChatGPT has gainedaround100mmonthlyactiveusers, a feat that had taken TikTok, the world’s fastestgrowing socialmedia sensation, nine months. Other “generative” AIs can paint,composeorsing.BillGates,cofoun derofMicrosoft,hascalledthetechnology “asimportantasthePC,astheinternet”. To Eric Schmidt, who used to run Google,ChatGPT isthe“firstbroadlyvisible example” of what a human being’s AI friendmightlooklike.Tohisformerem ployer,itisthefirstbroadlyvisiblethreat toGoogle’ssearchdominance.ForChatGPT canalsoanswerthesortsofquestionsthat people might have asked Google. And ChatGPT’screator,OpenAI,hasteamedup withMicrosoft,whichiscovetouslyeyeing Google’sgleamingpoolofprofits. On February 7th Microsoft, which re centlyannouncedaninvestmentof$10bn inOpenAI,showedoffhowitplanstogo after those profits. Results from the soft waregiant’ssearchengine,Bing,willnow be accompanied by an AIgenerated side box summarising pertinent information. Bingwillalsogetitsownchatbotbasedon OpenAI’s models. Microsoft showed off neattricks,suchasmakingashoppinglist basedonaweekofplannedmeals.“Itisa new day in search,” declared Microsoft’s CEO, Satya Nadella. Baidu, the top search engineinChina,whereGoogleisbanned, will launch its own AIboosted service in March. In a preemptive counterattack,
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andtostealsomeofMrNadella’sthunder, Alphabetthisweekunveileditsownchat bot, Bard, and has reportedly invested $300minAnthropic,agenerativeAI start up. On February 8th, while presenting somenonchattyAI searchfeatures,itcon firmed that Bard will be integrated into searchwithinweeks.Investorswereunim pressed;Alphabet’ssharepricetumbledby 8%aftertheannouncement. Thebattleofthebotsis,then,brewing. It will transform the way people find thingsontheinternet.Indoingso,itmay upendthelucrativebusinessofsearch. Onlinesearchwaslastdisruptedinits earlydays,atthedawnoftheconsumerin ternetinthelate1990s.Asthenumberof webpages exploded, useful information becamehardertofind.Anumberofsearch engines, such as AltaVista and Yahoo!, madethingsabiteasier.ButitwasGoogle, founded in 1998, that revolutionised the industry. Its algorithm ranked webpages based on the number of other websites linkingtothem,whichturnedouttobea good proxy for relevance. Then Google workedoutitcoulddisplayadsrelatedtoa search’skeywordsalongsidetheresults. Inthepastfewyearschallengershave emerged. Some are startups offering ad free subscription search, such as Neeva. Others include Alphabet’s bigtech rivals. Amazon,whoseeemporiumhasbecome theplacewheremanyshoppersstartlook ingforproducts,hasseenitsshareofthe Americansearchadmarketjumpfrom3% in 2016 to 23% today. Apple’s searchads business, consisting of searches for apps oniPhones,nowhas7%ofthatmarket,up fromnothingafewyears.Google’sownre search shows that twofifths of 18to24 yearoldsfavourInstagram,Meta’sphoto sharing app, or TikTok over Google Maps whensearchingforanearbyrestaurant. As a result of this ferment, Google’s share of revenue from search advertising inAmericawillfallto54%thisyear,down from67%in2016,accordingtoeMarketer, a research firm. But these challengers never presented an existential threat to Google.Thesamecannotbesaidofchat botassisted conversational search. After ChatGPT’s launch Alphabet’s CEO, Sundar Pichai,reportedlydeclareda“codered”. To understand why Google fears chat bots,firstconsiderthetechnologybehind them. ChatGPT works by predicting the nextwordinasentencethatisaresponse tosomequery.Thesepredictionsarebased ona“largelanguagemodel”,theresultof prioranalysisofmillionsoftextsharvest ed from the internet. Once trained on all this natural language, the chatbot can, when prompted by users’ instructions, produce a fluently written answer rather thanmerelyservingupalistoflinks. Applied to search queries, this means thatresponsescouldinprinciplecontain
The Economist February11th2023
manymorevariables.Wanttogoonaday tripsomewhereoffthebeatentrackthatis cheap,childfriendlyandeducational?Un lessyouchanceuponatravelblogpost,to dayfindingapreciseansweronGoogle(or BingorBaidu)requirescomparingdozens of websites and skimreading tonnes of text.Bycontrast,ChatGPT spitsoutalistof decent options in moments. Users can then add extra considerations or ask for moreinformationwithfollowupqueries. Changing how people search will, in turn,changewhattheysearchfor.Aswell asseekingexistinginformation,userscan useconversationalsearchtogenerateorig inalcontent.ChatGPT writespoetryandes says—inthestyleofyourfavouriteauthor, ifyouwish.OnJanuary26thGooglepub lishedapaperdescribingMusicLM,anew largelanguagemodelthatcanmakemusic fromtext. GitHub,aMicrosoftownedplat formwhichhostsopensourceprograms, hasachatbotcalledCopilotthatcanchurn out lines of code. That opens up allnew searchadjacentmarkets,saysMarkShmu likofBernstein,abroker,mostimmediate lyinproductivitytoolsforbusinesses(like helpingdeskjockeyswritepresentations). A little more conversation Asanewarea,conversationalsearchisat tracting hopeful newcomers, buoyed by the prospect of an expanding market for search and generative content. “When I started two years ago, people said I was crazy. Now the sentiment has massively shifted,” says Richard Socher, founder of You.com,astartupwhichoffersanAIpo wered search chatbot. Neeva has also addedachatbottoitssubscriptionsearch. SridharRamaswamy,itscofounder,hopes thiswillhelpitreach5m10msubscribers, upfromalmost2mtoday(notallofthem payingcustomers),andbecomefinancial ly selfsustaining. C3.ai, a businesssoft ware firm, has brought out a chatbot to helpcompaniessearchtheirinhouseda ta. Travel firms, including Booking.com, aretoyingwithchatbots,too. The most serious threat to Google 1
Let me Google that Search engines, monthly share of global queries % Other
100
Bing
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20 0
2009
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Source: StatCounter
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Magic Mountain View Alphabet, operating profit, $bn
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0 2004
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comes from Microsoft. Mr Nadella’s firm already has the infrastructure, including oodles of computing power, storage sys tems and armies of webcrawling pro gramsthatconstantlyscrapeinformation fromtheinternet.Settingallthisupfrom scratchtocompetewithGooglewould,ac cording to one estimate by the Competi tionMarketsAuthority,aBritishtrustbust ingagency,costbetween$10bnand$30bn. At present Bing’s share of America’s searchadvertisingmarketisameasly5% (seechart3onnextpage).Microsofthopes thatitsnewbagoftrickswillchangethat. Thecompanyseemstohavefixedsomeof ChatGPT’sshortcomings.Onewaskeeping thebotuptodate.ChatGPT’sunderlyingAI, called GPT-3.5, has been trained on data from2021andhasnoinklingofanything on the internet after that point. Ask it aboutrecentnewsortoday’sweatherfore castandyougetanapology.Bing’sAI,by contrast, decides how to gather the most relevantinformationandthenusessearch toolstofindit.Thedataarethenfedback intothemodel,whichusesthemtocom poseafluentanswer.Otherfirms,includ ingNeeva,areusingthismethod,too. ThisinturnhashelpedMicrosofttackle a bigger problem: large language models’ tendencytomakestuffup.Chatbotshave nosenseofwhatistrueorfalse;theyre flectwhatisontheinternet,wartsandall. These authorititivesounding “hallucina tions”,incomputersciencespeak,arein nocuouswhenthechatbotisusedforfun andgames.Whenitismeanttogivereal answers to serious questions, they are a fatalflaw.LastyearMetahadtotakedown itssciencechatbot,Galactica,afteritwas foundtobespoutingscientificnonsense. Giving the model access to uptodate datahasreduced,thoughnoteliminated, thehallucinationsrateforBing’schatfea ture.“Alotofthehallucinationswere[the model]tryingtofillintheblanksonthings that had happened since the end of its trainingdata,”explainsKevinScott,Micro soft’schieftechnologyofficer. Hisfirmis using other techniques to lower the rate
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The Economist February11th2023
further.Theseincludehavinghumanstell themodelswhichanswersarebetterand whatinformationisreliable;addingmem orytothesystems,sothatthealgorithms learnfromtheconversations,whichthey currently do not; and posting links to sourcesintheAIgeneratedresponses.Mr Schmidtsimilarlyexpectschatbotstohave fullysoberedupwithinayearortwo. Solving the technological problems is only the first step to dislodging Google fromthesearchpedestal.Nolessknottyis working out how conversational search will make money. Start with the costs, whichforchatbotsremainhighcompared withconventionalsearch.BrianNowakof Morgan Stanley, a bank, estimates that serving up an answer to a ChatGPT query costsroughlytwocents,aboutseventimes morethanaGooglesearch,becauseofthe extracomputingpowerrequired.Hereck onsevery10%ofGooglesearchesthatshift toAI by2025will,dependingonthenum ber of words in an average response, add between$700mand$11.6bntoGoogle’sop erating costs, equivalent to between 1% and14%ofsuchspendingin2022. To complicate matters further, many costly conversationalsearch queries will generatelittleadrevenue.Googlehassaid that80%ofitssearchresultsdonotcon tainlucrativeadsatthetopofthesearch results.Manyoftheseadlightsearchesare almostcertainly“informational”(“whatis thecapitalofSpain?”),preciselythesortof query where chatbots are most useful— andpreciselythesortthatadvertisersare leastinterestedin(itishardtoknowwhat adtoplacenexttotheword“Madrid”).For generativeAI tomakerealmoney,itmust findusesin“navigational”searches(look ingforasite’sinternetaddressbyitsname) and especially “commercial” ones (“Best newskibootsthisseason”). Somecompanies,likeNeeva,earnrev enuefromsubscriptions.OnFebruary1st OpenAI began signing up subscribers to thecurrentversionofChatGPT.For$20a month users get faster responses and ac cessatpeaktimes.OpenAI alsoplanstoli cense the technology to other firms. But thebigbucksarelikelytolieinadvertising. Embeddingadsinwhatismeanttofeel toauserlikeanormalconversationwillre quiredeftness.Onepossibilityistodisplay feweradvertsbutchargeadvertisersmore foreach,saysMrNowak.Achatbotislikely to offer up only a few suggestions in re sponsetoasearchqueryabout,say,bliss fulHawaiianhotels.Hoteliersmaybehap py to pay more to ensure that theirs are among those suggestions, or displayed nexttothem.Microsoftsaysthatitplansto testsuchamodelinthenewlookBing. Microsoftmaybebettingthatitschat botassistedinformationalsearchwilllure newusers,whowillthenuseBingforthe morelucrativequeriesaswell.Thiscould
mean sacrificing margins, at least until costscanbebroughtdown.Itwouldonly beworthitiftheycanwrestsizeablemar ket share from Google. Microsoft expects thatforeverypercentagepointofmarket sharetheygaininsearch,itsannualadver tisingrevenuewillgrowby$2bn. That is possible—but not guaranteed. Alphabet retains formidable strengths. Oneistechnology.AlthoughGooglehasyet to integrate generative AI into its search engine, it has deployed other AIs in its search business for years. When it high lightsawebpagesnippetatthetopofthe search results, that is courtesy of models suchasBertandMum.Allthisis“onlypos siblebecauseofthefoundationalresearch we’vedoneinAI formorethanadecade”, saysLizReid,Google’sheadofsearch.De spitealaunchdaygaffe,whenitmisiden tified the first telescope to photograph a planet outside the solar system, Bard is likely to be no less impressive than ChatGPT. The stumble vindicated, in an ironicway,thecompany’sstatedreasonfor itsfootdragging:afearaboutunleashinga chatbotthatspewedinaccuratecontent. Google’sotheradvantageisincumben cy. It is the default search engine in Chrome,Alphabet’sbrowser,whichisused bytwointhreepeopleontheinternet,ac cordingtoStatCounter,aresearchfirm.It isalsothegotosearchonmorethan95% ofsmartphonesinAmerica.Andthefirm paysApple$15bnorsoayeartomakeits searchthedefaultonApple’sdevices and Safari,whichaccountsfor19%ofbrowsers installedondesktopsanddevices. Yetthispositionofstrengthalsobrings weaknesses.ItishardforAlphabettomove fast with regulators breathing down its neckoverallegedmonopoliesandmisin formationonitsvariousplatforms.Itmay beevenharderforthecompanytoletgoof atechnologyandbusinessmodelthathas pumped out profits consistently for 20 years.MrPichaimayyetworkouthowbest toresolvethis“innovator’sdilemma”.Mr Nadella must be hoping that before he does,Bing,too,willhavebecomeaverb. n 3
Can Bing bring it? United States, search-advertising revenues, $bn FORECAST
Other Microsoft Google
120 100 80 60 40 20 0
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21
Source: eMarketer
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Business in Brazil
Three is a cloud S ÃO PAULO
Alleged fraud at a Brazilian retailer sparks a corporate reckoning
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razilian businesspeople arenoteasi lyshocked.Inthepastdecadetheyhave seentwobusinessempirescollapseinig nominy. Eike Batista, for a time Brazil’s richestman,losthisportstominesgroup amid charges of bribery and market ma nipulation (for which he was briefly jailed).MarceloOdebrecht,thescionofa constructiondynasty,wenttoprisonover the“BigOily”graftschemecentredonPe trobras,thestateoilgiant. The latest scandal erupted on January 11th, when the new boss of Americanas, SergioRial,reported“accountinginconsis tencies”thathadallowedthe94yearold retail giant to hide 20bn reais ($4bn) of debt over a decade. Correcting the error swelled the firm’s debt to 43bn reais. Its shareslost94%oftheirvalue.OnJanuary 19thitfiledforbankruptcy.MrRialquit;his predecessor,whohadrunthefirmfor20 years,isapparentlynowheretobefound. Severalcreditorscriedfraud. Though modest next to the Odebrecht andBatistaimbroglios,theepisodestruck anerve.Thatisbecause31%ofAmericanas isownedbythreeheroesofBrazilInc.Jorge PauloLemann,CarlosAlbertoSicupiraand MarcelTellesgainedfameafter3G Capital, the privateequity firm they founded in 2004,sealeddealstowincontrolofglobal behemothsincludingAB InBev,theworld’s biggestbrewer;KraftHeinz,oneofitsbig gest food producers; and Restaurant Brands International, owner of, among otherchains,BurgerKing.Their“3G way”, which combined Walmartlike ruthless costcutting, GE’s “rank and yank” ap proachtopersonnelandGoldmanSachs styleperformancebasedpay,wasadmired andapedtheworldover.Theirpreference for quiet philanthropy over Batistalike flamboyanceaddedtothemythos. NowaggrievedAmericanaslenders,in cludingBTG Pactual,aninvestmentbank, areaskinghowmuchthetrio,whoinvest edinthefirminapersonalcapacity,knew. (3G ownsnostakeinAmericanasandhas not commented.) Brazil’s president, Luiz Inácio Lula da Silva, has likened Mr Le mann to the disgraced Mr Batista. Many others quietly wonder how the scheme couldhavegoneunnoticedforsolong. OnJanuary22ndthetrioissuedastate mentcategoricallydenyinganyknowledge of “accounting tricks or dissimulation” andpointingoutthatthesharepricedrop meantthey,too,werevictims.Americanas
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isasmallpartoftheirportfoliosandthey hadnotbeeninvolvedinitsdaytodayop erationsinyears.Intheirroleasinvestors, theyhaveputinthreetimesasmuchequ ityintothebusinessastheyhavetakenout individendsoverthepasttenyears. That may be so. Still, the case casts a shadowonthe3G way,whichsomeseeas incentivising cornercutting or worse. A few3G companieshavefacedallegationsof accounting irregularities, some of which resulted in settlements. After 3G sold AméricaLatinaLogística,alogisticsfirm, the buyer republished the previous two
The Economist February11th2023
years’balancesheetstocorrecttheexclu sionofsomedebtstosuppliersandother costs. Such revisions are not unheard of givenBrazil’sByzantineaccountingrules, butnotagoodlook.In2021KraftHeinz,in which 3G then owned a17.6% stake, paid $62m to settle a case in which America’s Securities and Exchange Commission ac cuseditofinflatingprofits.MiguelPatrí cio,CEO ofKraftHeinz,saysthiswasa“mi nor mistake” and not part of any pattern with 3G businesses; Kraft Heinz, he says, hasincreasedcontrols.3G didnotrespond toThe Economist’srequestsforcomment.
The fate of the trio’s reputation may now hinge on what exactly happened at Americanas.Thecompany’sinterimman agement and its shareholders are on the case.SoisBrazil’smarketsregulator.PwC, whichhadsignedoffonthecompany’slast full set of accounts in 2021, declined to commentonanyaspectofthecase.Until theairiscleared,MessrsLemann,Sicupira andTellesmay,fairlyornot,facefrustra tion and anger from those who fear the scandaltarnishesBrazilianbusiness’sglo balreputation—anddisappointmentfrom theirremainingfans. n
Bartleby Thefashionforpassion The pitfalls of loving your job a little too much
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ack in the dimanddistantpast,job candidateshadinterestsorhobbies. Thoseinterestscouldbeintrospective: readingabookwasaperfectlyacceptable wayofspendingyoursparetime.No longer.Todayyouwillprobablybeasked ifyouhavea“personalpassionproject”, andthemoreexhaustingyouranswer sounds,thebetter.Gowhitewaterraft ing,preferablywithorphans.Helpbuild motorwaycrossingsforendangered animals.Ifyoumustread,atleastdoso intheoriginal. Passionisbecomingastaplefor workplacesuccess.Anewpieceofre searchfromJonJachimowiczandHan nahWeismanofHarvardBusiness Schoolincludesananalysisof200mjob postingsinAmerica.Itfindsthatthe numberwhichexplicitlymention“pas sion”roseovertime,from2%in2007to 16%in2019. Careerwebsitesofferhelpfuladvice onhowtocomeacrossaspassionate aboutdeeplyordinarypursuits.Hereisa suggestionfromonesiteonhowtotalk toprospectiveemployersaboutputting thingsintoanoven.“Ilovetheprocessof researchingnewrecipesandtesting themout.I’vebeenwritingupmyexperi enceswithbakingforthepastthree years…I’mverydetailoriented,andlove thescientificaspectsofbaking.However, I’malsoaverysocialperson,andusemy bakingasachancetogettogetherwith friendsandfamily.”Donotsay:“Ijust reallylikecake.” Onceinsideanorganisation,passion forthejobalsoseemstobeagoodwayto getahead.AnotherpaperbyMrJachi mowicz,alongwithKeWangofHarvard KennedySchoolandEricaBaileyof ColumbiaBusinessSchool,foundthat employeeswhowereregardedasmore passionatethantheirpeersgotmore
positivefeedbackaswellasmorepromo tionandtrainingopportunities.Other researchhasfoundthatworkerswhocry atworkaremorehighlyregardedifthey attributethesedisplaysofemotionsto caringtoomuch. Onthesurfacethefashionforpassion makessense.Better,surely,foranemploy eetobeenthusedthannot.Mostworkers wanttodoajobtheylove;mostcompa nieswantaworkforcethatiscommitted andmotivated.Thecaseforunbridled energyisparticularlystrongforcertain typesofcompanies.Thereisareasonwhy startupsdonotembracethecultofthe occasionallyinterestedfounder. Butpassioncanalsowarpjudgment. Forfirms,theobviouspitfallisrewarding commitmentovercompetence.Justas thatnotetaking,detailorientatedbaker couldbechurningouttheworld’smost disgustingprofiteroles,thesuperkeen employeewhovolunteersforeverything maynotbethatgreatattheirjob.The paperbyMrJachimowicz,MrWangand MsBaileyfindsthatpassionmayindeed beblindingmanagerstoreality:itfinds
thatevenwhentheperformanceofpas sionateemployeesisonthedownward slope,theyarestillmorelikelytobe givenpromotionsthantaciturnpeers. Dangersalsolurkforemployees.Even ifcommitmentisheartfelt,passion comesindifferentvarieties,somebetter thanothers.Psychologistsdistinguish betweenharmoniouspassion,inwhich peopleengageinanactivitybecausethey genuinelyenjoyit,andobsessivepas sion,amorecompulsivebehaviourin whichpeoplefeelliketheyarenotreally incontrolofthemselves. Oneobviouspitfallstandsout.There areonlysomanywaystocommunicate passion.Wideningyoureyesandnod dingwildly:tooweird.Jumping,whoop ingandsweating:evenweirder.Working everlongerhours,ontheotherhand,isa fairlysimplewaytoshowthatyour commitmentisbeyondquestion. Someevidencesuggeststhatemploy ersfeeljustifiedinexploitingthatfact.A surveybyacademicsatDukeUniversity, theUniversityofOregonandOklahoma StateUniversityfoundthatpeople thoughtitwasmorelegitimatetoask passionateworkersthandisengaged onestoworkfornomoneyandtomiss timetheyweremeanttobespending withtheirfamilies.Theyarealsomore comfortablewiththeideaofasking passionateemployeestodototallyun relatedtasks.Peopleapparentlybelieve thatifyouloveyourjob,youwillenjoy cleaningtheofficetoiletsmorethan peoplewhoarelessenthusedbyit. Itisgreattofeelpassionforyourjob. Butifyouareupat4amforameeting withAsia,constantlyworkingonyour holidayorhavejustbeenhandedabottle ofbleachandamopbyyourboss,youare inthegripofsomethingthatisnoten tirelyhealthy.
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Energy
Big oil’s new map
NEW YO RK
WhereonEartharetheWest’soilgiantsspendingtheir$150bnprofitbonanza?
T
OWARDS THE end of the second world war Franklin D. Roosevelt attended a fateful gathering of world leaders that helpeddeterminethecourseofgeopolitics fordecades.No,nottheYaltasummit.Im mediately after FDR, Churchill and Stalin hadcarveduptheworldintospheresofin fluence, the American president slipped awayontoanUS Navyvesseltomeetquiet lywithAbdelAzizibnSaud,kingofSaudi Arabia. In return for protection of the Sauds’ sovereignty in the Holy Land, the monarch agreed to grant American oil firmsaccesstohiscountry’spetroleum. Buildingonthelongstandingexploita tionofPersianreservesbytheAngloPer sian Oil Company (now BP), the Saudi American alliance formed the axis of oil thatledWesternmajorstolooklongingly firsttothePersianGulf,thentootherdis tant longitudes. For decades the world’s fivebiggestprivatesectoroilcompanies— America’sExxonMobilandChevron,Brit ain’sBP andShell,andFrance’sTotalEner gies—havedrilledfromSouthAmericato Siberia. Now a swirl of geopolitical, eco nomicandenvironmentalfactorsislead ing these “supermajors” to increasingly looknoteastandwestbutnorthandsouth. This realignment comes as big oil’s coffers are overflowing after two years of skyhighenergyprices(seechartonnext page). On February 2nd Shell unveiled annualnetprofitsfor2022of$42bn,more thandoublethefigureayearearlierandits highestinoveracenturyasapubliccom
pany. That came on the heels of Exxon Mobil’sannouncementofarecordannual net profit of $56bn. Its main domestic rival, Chevron, reported that its own net profitmorethandoubled,to$37bn.BP and TotalEnergiesaddedtothehaulonFebru ary7thand8th,respectively. Alltold,thosefivesupermajorsrakedin around $150bn in profits last year and couldmakeasmuchagainin2023.Aslug ofthisbountywillflowtoshareholders;in JanuaryExxonMobilsaiditwouldforkov eracool$35bnintotaltoitsownersthis yearandnext.Someoftheproceedswillgo topayingdowndebt.Muchoftherestwill, though,bereinvested. Afterseveralyearsofrepressedinvest mentinoilandgas,theresultofpandem icinduced demand destruction and cli materelatedpolicyhostility,bigoilisonce againspendingtofindoilanddigitoutof theground.S&P Global,aresearchfirm,es timates that worldwide upstream capital expenditurefortheindustryasawhole,in cludingprivatesectormajorsandnational oil companies, was around $450bn last year,upfroma15yearlowof$350bnorso in2020.Thisyearitmaybehigherstill. Latitudeshift All this new money is not flowing to the same old places. The West’s oil titans are experiencing “a fundamental shift in thinking”,saysEdwardMorseofCitigroup, abank.Americancompaniesarebeatinga retreat from faraway “frontier” areas that
are rich in political risk, lack the infra structuretogethydrocarbonstomarketas cleanlyaspossible,orboth.Theirlessrisk averseEuropeanrivalsareshunningsome oftheirownAmericanprojectsinfavourof Africa,withpotentialforclimatefriendli er new developments. In both cases, the upshotisarealignmentoftheoilbusiness alonglinesoflongitude. For the American supermajors, this meanslessinterestoutside theAmericas. ExxonMobilhas,likemostWesternfirms, leftRussiaafteritsinvasionofUkraine.It has also offloaded—or wants to offload— assets in countries such as Cameroon, Chad, Equatorial Guinea and Nigeria. Chevron has sold projects in Britain and Denmark(aswellasBrazil)andhasnotre newedexpiringconcessionsinIndonesia andThailand. JamesWestofEvercore,aninvestment bank,seesChevronandExxonMobilshift ingahugeamountofcapitalspendingto SouthAmericaandtheUnitedStatesitself. ExxonMobil is investing heavily in new foundfieldsinGuyana.Chevronintendsto funnelmorethanathirdofitscapitalex penditurethisyeartoAmericanshale,and another 20% to the Gulf of Mexico. Last month it also, with President Joe Biden’s blessing, restarted trading some crude from Venezuela, a dictatorship that had longbeenonAmerica’snaughtylist. TheEuropeanoilgiantsarealsoreduc ingtheireasternandwesternexposure.BP and Shell are, like ExxonMobil, quitting Russia,leadingtowritedownsofasmuch as$25bnand$5bn,respectively.Shellhas alsogotridofitsshaleassetsinTexasand reportedlyputafewintheGulfofMexico upforsale.BP isdivestingitsMexicanoil assets,andisexpectedtogetoutofAngola, Azerbaijan, Iraq, Oman and the United ArabEmirates.TotalEnergiesispullingout ofCanada’soilsands. Instead,theEuropeans’gazeis,aswith their American rivals, turning south. In January Claudio Descalzi, boss of Eni, an Italiannonsupermajor,calledforEurope tolooktoAfricaasitseekstoreplaceRus sianenergy.Sucha“southnorthaxis”,he argued,wouldboostEurope’saccesstotra ditionalfossilfuels,aswellastocleaneral ternatives like renewable energy and hy drogen(whichcouldbeshippedorpiped north).OnJanuary28thEniannouncedit hadsignedan$8bnnaturalgasdealwith Libya’sstateownedNationalOilCorpora tion(whichincludesabitofmoneyforcar boncaptureandstorage).ShellandEqui nor, Norway’s state oil firm, signed an agreementwithTanzaniatobuilda$30bn liquefiednaturalgas(LNG)terminalinthe east African country. TotalEnergies is in vestingingasprojectsinMozambiqueand SouthAfrica. Therearetwomainreasonsforthisre alignment.Thefirst,achiefpreoccupation
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Super-manna Oil and gas Supermajors*, net profit $bn 200 100 0 -100 2000
05
10
15
20
23†
Brent crude price, $ per barrel Annual average 150 100 50 0 2000
05
10
15
20
23†
Exploration and production capital spending‡ Worldwide, $bn 800 600 400 200 0 2000
05
10
15
20
23†
*BP, Chevron, ExxonMobil, Shell and TotalEnergies †Forecast ‡Including national oil companies Sources: Bloomberg; S&P Global Commodity Insights
oftheAmericans,hastodowithrisksand returns.Inpreviouserasofhighoilprices oilbossesspent,inthewordsofone,“like drunken sailors”. Too much investment andnotenoughcostcontrolinthegogo years led to huge waste and overproduc tion.Intheyearsbeforethecovid19pan demic,oilprojectsfromtheCaspianSeato thePermianbasinlostbillionsofdollars. Tensofbillionsmoreinshareholdervalue wentupinsmoke. These days investors are demanding much greater capital discipline from oil bosses. And the bosses are listening. The industry’s combined capital spending, though up from its recent trough, is still down from a peak of nearly $800bn in 2014.Asforthemoneythatthesuperma jors are spending, it is being deployed more judiciously. Most of it is going into “shortcycle”investments,whichgenerate areturnwithinfiveyearsratherthantenor more.“I’vebeeninthisindustrysincethe 1990sandI’veneverseenthismuchfocus on efficiency,” marvels Julie Wilson of Wood Mackenzie, a consultancy. This questforefficiencymeansfewerriskybets ininhospitableplacesliketheArcticorthe deepoceanfloorandmoreprojectsinfa miliar jurisdictions with less daunting politicsandgeology.
FortheAmericanfirms,ofcourse,no where is more familiar than the United States.TheyalsounderstandSouthAmeri ca.Andpartsoftheirbackyardtheyknow less well, like Guyana, whose longru mouredoilricheswereonlyconfirmedin 2015,mayalsobe,counterintuitively,less politicallyriskyinimportantways.Unlike theirpeersinmanyresourcecursedautoc racies,whocannotimagineafuturewith out oil, politicians in places with newly discovered resources are more cautious abouttheirprospects.Asaresult,theytend tooffermorefavourabletermstooilcom panies in order to get hydrocarbons to market faster; in Guyana, ExxonMobil movedfromfirstdeepwateroildiscovery toproductioninjustacoupleofyears. For the Europeans, African countries, whichoftenmaintainreasonablerelations withtheirformercolonialpowers,lookap pealingforasimilarreason.Asfortheirre treatfromAmerica,Europeanfirmsarebe coming uneasy about their association with America’s oil industry, with its un apologetically brown reputation. In 2021 TotalEnergies withdrew from the Ameri canPetroleumInstitutebecauseofthelob by group’s opposition to electricvehicle subsidies, carbon pricing and tougher rules on emissions of methane, a potent greenhousegas. Indoingso,theEuropeanfirmsarere sponding to growing pressure from con sumers, policymakers and investors to start decarbonising their portfolios—the Europeans’bigreasonforthegeographical sorting.Theyarelookingfornewplacesto invest because such investments, which usethelatesttechnology,tendtobemore efficient and less carbonintensive than legacyassetsthatrelyonleakier,ageingin frastructure.Moreover,oilcompanies,es peciallyinEurope,arelookingbeyondfos sil fuels. James Thompson of JPMorgan Chase,abank,hasfoundthatthehistorical
correlation between high oil prices and high capital spending on oil and gas has brokendownfor11bigprivatesectorener gygiants—aphenomenonheputsdownin part to the majors pouring more money intolowcarbonprojects. Such projects are indeed mushroom ing, particularly among the European firms—andinmanyofthesameplacesas theirnewhydrocarbonventures.LastMay EnistruckadealwithSonatrach,Algeria’s state oil firm, to develop green hydrogen from renewable sources. BP is doing the sameinMauritaniaandTotalEnergieshas backed renewableenergy production in SouthAfrica.Lookingnorth,lastyearShell paidnearly$2bnforNatureEnergy,aDan ish producer of “renewable” natural gas (RNG) made from things like agricultural waste.OswaldClintofBernstein,abroker, predicts“aneraofgigamergers”ingreen energy led by the European giants. Last yearalonetheoilmajorssigned22renew ablesdeals,thefivebiggestofwhichadded upto$12bn.MrClintreckonsthatin2030 the European majors could, all told, be spendingroughlyhalftheircapitalexpen ditureonlowcarboninitiatives. Vertical integration The supermajors’ northsouth realign mentisfarfromcomplete.bp isstillmak ingsomeinvestmentsintheGulfofMexi coandinDecembercompletedits$4.1bn purchaseofArchaea,anAmericanmaker ofRNG.ShellandTotalEnergiesarebetting on Qatari LNG. ExxonMobil is doubling down on a gas project in Mozambique. ChevronisexpandinganoilprojectinKaz akhstan and, reportedly, reviving talks withAlgeria’sgovernmentaboutthecoun try’svastshalereserves.Buttheseventures increasingly look like exceptions rather thantherule.Thefutureofenergyexplora tionlooksmuchleaner,abitgreener—and alotmorelongitudinal. n
Rotating the ex-axis New oil projects* since 2021, cumulative peak project capacity by: Number of projects by 2030:
2022
2030
Norway 8
Barrels per day, m 2.0 0.1
Canada 11
Britain 11
US 26
India 1
China 1
Guyana 4 Ghana 4
Brazil 17
Source: S&P Global Commodity Insights
Uganda 2
Australia 2
*Non-OPEC conventional oil projects, excluding Russia. At January 2023
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The Economist February11th2023
Schumpeter OnSchumpeteronApple
What would the father of creative destruction make of the iPhone-maker?
T
here is an inconvenient truth about Joseph Schumpeter, patronsaintofthiscolumn.Asaneconomist,hisbiggestcon tributionwastosingleoutentrepreneursascoretothebusiness cycle.Earlyinhiscareerhemadechampionsofthem,describing themasswashbucklingiconoclastswhooverthrowtheexisting order motivated by sheer chutzpah. Yet later in life, when he coinedhisfamousterm“creativedestruction”,heapplieditnotto suchindividualsbuttoindustrialbehemoths,evenmonopolies. Theywerecompelledtoinnovateinorderto“keepontheirfeet,on groundthatisslippingawayfromunderthem”,hewrote.Afarcry fromtheentrepreneurialheroesofhisyouth. Inhisnewbook,“TheEntrepreneurs”,DerekLidowputsthis intohistoricalcontext.WhentheyoungSchumpeterwrote“The TheoryofEconomicDevelopment”in1911,itwasattheendofa longperiodofunfetteredenterpriseduringthefirstcenturyofthe IndustrialRevolution.Butintherunuptothesecondworldwar, whenSchumpeterwrotehismostfamouswork,“Capitalism,So cialismandDemocracy”,thebuccaneersofyorehadmorphedinto largeconglomerateswithvastresearchanddevelopment(R&D) labsinwhichtheyinvestedfortunestoremaincompetitive. ThatisausefulwaytounderstandApple,makeroftheiPhone. Whatwasonceascrappystartupwithvisionarycofounderskeen tochangetheworldhasbecometheworld’slargestcorporation, worth$2.4trn,with2bndevicesinactiveuseandalineofhigh margin services to support them. Some worry that its size has sappeditsinventivemojo,madeittoobigforitsboots,andleftit overexposedtoChina.OnFebruary2nditreporteditsfirstdecline inyearonyearearningsinthreeandahalfyears.Yetitisstilla profitmakingjuggernautandcontinuestopourmoneyintoin novation: R&D inthequarterjumpedto6.5%ofsales,upfrom5% ayearearlier.WhatwouldSchumpeterhavemadeofthecompany thatsoneatlyencapsulatesbothsidesofhisthinking? NodoubttheyoungSchumpeterwouldhavebeenfascinated bythelateSteveJobs,Apple’scofounder.Jobswasuniquelygift ed,orasSchumpeterwouldhaveputit,a“Caruso”(afteragreat Italiantenorofhistime).Schumpeterdrewupachecklistofways tocreatenew“combinations”,ashecalledentrepreneurialfirms; Jobsusedmanyofthem.Hecreatednewgoods(Macs,iPods,etc),a
newmethodofproduction(theCupertinotoChinasupplychain) andnewmarkets(theappeconomy).Tostartwith,healsomet hugeresistance,asSchumpeter’stheorypredictedhewould. Fast forward to today and Schumpeter would probably ac knowledgeTimCook,Jobs’ssuccessor,asatopnotchmanager,if notquiteaCarusoesqueentrepreneur.Somecriticscomplainthat underMrCook,Applehasnotcreatedaproductasoriginalasthe iPhone.But,asHoraceDediu,anexpertonApple,pointsout,it relentlesslyimproves,refinesandshrinksitscomponents,which hasgivenrisetonewgadgetsliketheAppleWatchandAirPods. Thisyear,suchmicroinnovations,combinedwithlasers,bet tercamerasandincreasedenergyefficiency,areexpectedtocome togetherinthelaunchofanewAppledevice,amixedrealityhead set.Suchdevelopments,saysMrDediu,arenotabout“eurekamo ments”.Theyareaboutturningnewtechnologiesintoproducts thateventuallywillbeaccessibletomillions.Inpursuingthem, Applehasbecomejustthesortofbigbusinessinnovationengine thatlateinlifeSchumpeteradmiredandperceivedasbestplaced toproducerevolutionarychange. To be sure, Apple might flinch at the comparison. After all, whenSchumpetertalkedaboutthelargecompanieshelookedup to,heexplicitlyreferredtomonopolies—aloadedterm,especially inbigtechcircles.AntitrustisafetishofJoeBiden’sadministra tion.IthasrecentlybroughtabigcaseagainstGoogle,lostoneto Facebook’sowner,Meta,andisreportedlypreparingoneagainst Amazon. Mr Cook’s rivals, including Meta’s Mark Zuckerberg, complainofApple’sdominance,includingrestrictionsontheuse ofitsAppStore,aswellasontrackingtechnologiesusedbydigi taladcompanies.Appleremainsinanappealscourtbattlewith Epic, a games developer, in a competition case over App Store charges.ThoughFacebookandGooglegetmostoftheantitrustat tention,somuchoftheircontentdependsonApple’splatforms thatsomedescribeitasthe800poundgorillainthebackground. ToApple,thisisallnonsense.ItsAppStorepoliciesprotectits users from fraudsters, hackers and the like, it has said. Its ad tracking restrictions protect privacy. Yet Schumpeter, were he alivetoday,mightofferamorehighleveldefence.Forone,herid iculedthenotionofperfectcompetitionaltogether.Moresignifi cantly, he believed that creative destruction blew through the economy like a perennial gale, destroying old structures and buildingnewones.Thatleftnoonesafefromdisruption.Ashe putit,evenamonopolywas“nocushiontosleepon”. Applemaylookinvincible.Butdoesit,too,feeltheriskthatthe rugcouldbepulledfromunderitsfeet?Itdoesn’tneedtolookfar toseehowthechatbotbattlebetweenMicrosoftandGooglehas swiftlyraisedquestionsaboutthefutureofGoogle’ssearchbusi ness.EvenChatGPT,Microsoft’sweaponinthefight,couldnotde scribecreativedestructionwithmoreSchumpeterianeloquence. Capitalism, Socialism and Chinese Communism AdvancedartificialintelligenceposesachallengetoSiri,Apple’s voiceassistant,butnotadirectthreattoAppleitself.Moreserious issomethingthatgoesbeyondcreativedestruction.ItisApple’s vast,andvitallyimportant,supplychainsinChina,fromwhichit willstruggletoextricateitselfasSinoAmericanrelationsdeterio rate.Appleisplayingitcarefully;MrCookbalanceshisfirm’sex posuretoChinawithgrandinvestmentpromisesinAmerica.But Apple’sbigChinesepresenceisadangernonetheless.Schumpe ter,whospentthelastyearsofhislifemusing,erratically,about thedarkfutureofcapitalism,wouldhavesympathised. n
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TheEconomistFebruary11th2023
Thereopening
A beating heart
China’s economy is recovering from zero-covid much quicker than expected
D
uring China’s recentlunarnewyear holiday,touristsflockedtothesprawl ingTaihaomausoleuminHenanprovince. ManyenjoyedslappingastatueofQinHui, a scheming official in the Song dynasty whoisnotoriousforhavingframedamili tary hero. One visitor got a little carried away,strikingthestatuewiththelidofan incenseburner.Feelingsarerunninghigh afterQin’svillainyfeaturedinanewfilm, “FullRiverRed”,whichtoppedtheboxof ficechartsduringtheholiday. This enthusiastic moviegoing, sight seeingandstatueslappingisevidenceofa surprisinglyrapidconsumerrevivalinthe world’s secondbiggest economy. The mausoleumsaysitreceived300,000peo pleinthefestiveperiod,themosttohave visitedinthreeyears.Boxofficerevenues were not only better than last year, they werealsohigherthanintheyearbeforeco vid19 struck. China’s population, subject until recently to mass screening, is now massingatthescreens.
Therecoveryisarrivingearlierthanex pected because the virus spread faster. SinceChinahastilyabandoneditszeroco vid regime, infections appear to have passedremarkablyquickly.Stateepidemi ologists estimate that at least 80% of the populationhasalreadycaughtthedisease. Accordingtoofficialfigures,hospitalinpa tient numbers peaked on January 5th. A second wave of infections was expected afterholidaytravelspreadthediseasefrom citiestovillages.Butthevirusbeatthefes tive rush. The muchfeared second wave → Alsointhissection
61 SouthKorea’shousingcrunch
62 Buttonwood:FightingtheFed
63 Convertingofficesintofamilyhomes
64 Centralbanking’s$2.5trnquestion
65 Freeexchange:Regulatingbigtech
appearstohavemergedwiththefirst,reck onsAirfinity,alifesciencesdatafirm. Although the death toll from all these infections is unknown, the economic af termath is becoming clearer. As people havecaughtandrecoveredfromthevirus, China’s service economy is returning to life.Anindexofactivityoutsidethemanu facturingsector,basedonmonthlysurveys ofpurchasingmanagers,jumpedfrom41.6 in December to 54.4 in January, the sec ondbiggest leap on record. Xiaoqing Pi and Helen Qiao of Bank of America note thatactivityintheservicesectors“battered by the pandemic”, such as retail, accom modationanddining,hasrisensharply. OnMeituan,anecommerceplatform, some restaurants have amassed waiting lists1,000tableslong.Peopleusedtoqueu ingforpcr testsnowwaittoprayatpopu lar temples. In Hangzhou, the capital of Zhejiang province, people gathered out sidetheLinshuntempleat4amtolightin cense for the God of Wealth. Others who reached the top of the spectacular Tian menmountaininHunanprovince,famous for its vertiginous glass walkways, were forcedtotowaituntil9pmtocatchacable car back down, according to the National Business Daily,astatenewspaper. Canthisfreneticpacebesustained?Op timistspointoutChinesehouseholdsare unusuallyliquid.Theirbankdepositsnow exceed120trnyuan($18trn),over100%of
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The Economist February11th2023
lastyear’sgdp,and13trnyuanmorethan mighthavebeenexpectedgivenprepan demic trends, according to Citigroup, a bank. These deposits could provide am munitionforaboutof“revengespending”. Yet the ammunition may be set aside forotherpurposes.Muchiscomposedof money that nervous households kept in thebankratherthanusingtobuyproperty orploughingintoamutualfund.Theyare unlikelynowtolavishitongoodsandser vices. More likely, reckons Citigroup, is a bout of “revenge risktaking”, as house holds gain confidence to buy assets that arelesssafebutpotentiallymorereward ingthanabankdeposit.Thiswouldliftfi nancialmarketsandgiveamuchneeded boosttoproperty. Perhapsamoreaccuratewaytoassess theforthcomingspendingboomisthere foretolookatthegapbetweenhousehold income and consumer spending. In the three years before the pandemic, house holds saved 30% of their disposable in come. During the pandemic they saved 33%. The cumulative result of this extra savingisabout4.9trnyuan.Ifconsumers added that to their spending this year it wouldincreasetheirconsumptionby14% (beforeadjustingforinflation). The exact size of the spree will ulti matelydependonbroadereconomiccon ditions.Propertypriceshavefallenandthe jobmarketisweak.Youthunemployment isstillabove16%.ButChina’slabourmar kethasbouncedbackquicklyafterprevi ouscovidsetbacks,andjoblessyoungsters countforonlyabout1%oftheurbanlabour force. With luck, a bit of extra spending willresultinhighersalesandstrongerhir ing,inturnmotivatingadditionalspend ing.Allthismeansconsumptioncouldac countforthelion’sshareofChina’sgrowth this year: almost 80%, according to Citi group,ifgovernmentspendingonservices is included. This would be the highest shareformorethantwodecades. China’s splurge will make a welcome contribution to global growth. According totheimf’sforecasts,releasedonJanuary The rainy day arrives China, average annual savings per person ’000 yuan 13 12 11 10 9 8 7 6
Actual savings
“Normal” savings*
2016
17
18
19
*Pre-pandemic average rate Source: National Bureau of Statistics
20
21
22
Property (1)
Back with a vengeance
Home truths
China, consumption’s contribution to GDP growth, % 80 60 40 20 0 -20 2000
05
10
15
20
Sources: Citigroup; National Bureau of Statistics
23* *Forecast
30th,thecountry’seconomywillgrowby 5.2%thisyear,accountingfortwofifthsof theexpansionintheworldeconomy.To gether,Americaandtheeuroareawillcon tributelessthanafifth. ArecentstudybyeconomistsatAmeri ca’s Federal Reserve makes a basic point with its title: “What Happens in China Does Not Stay in China”. Their estimates suggest a policyinduced expansion in China’sgdp of1%addsabout0.25%tothe restoftheworld’sgdp afterayearortwo. The authors do not examine spillovers from China’s reopening. But their results givesomeindicationofthepossibleconse quences.IfChina’sreopeningliftsthedo mestic growth rate from 3% to 56% this year,thespillovereffectsmaybe0.50.75% of the rest of the world’s gdp, or about $400bn600bnatanannualisedrate. Anuptickinglobalgrowthwouldnotbe anunalloyedgood,however.Centralbanks are still attempting to quash inflation. If higherChinesedemandaddstopricepres sures, policymakers may feel obliged to slow their economies by raising interest ratesordelayingcuts.LaelBrainard,vice chairwomanoftheFed,hasnotedthatChi na’s abandonment of zerocovid has un certain implications for global demand andinflation,especiallyincommodities. Christine Lagarde, head of the European CentralBank,haswarnedthereversalwill increase “inflationary pressure”, because Chinawillconsumemoreenergy.Accord ing to Goldman Sachs, another bank, re opening could add $1521 to a barrel of Brentcrudeoil,nowtradingataround$85. AftertheAsianfinancialcrisisin1997, the Chinese economy helped to stabilise theregion.Aftertheglobalfinancialcrisis a decade later, China’s growth helped to stabilise the world. This year it will once againmakethesinglebiggestcontribution toglobalgrowth.Butwhereasinthepast China’s contribution came from invest ment spending, now consumption will takethelead.Chineseconsumers,whotra ditionally punch below their weight, are abouttohitalotharder. n
SEOUL
SouthKorea’shousingcrunchoffers awarningforothercountries
“B
uying the house in 2021 might be oneofthebiggestregretsofmylife,” saysKimMyungsoo,a33yearoldwhose homeinJamsil,easternSeoul,hasfallenin value by about $400,000. His wife is 33 weekspregnantandMrKimdoesnotknow how he will repay the mortgage. He had planned to wait for prices to rise before sellingthepropertytopayofftheloan. Mr Kim is not alone in his worries. Across the rich world, property markets lookprecarious.Fewareinasbadshapeas South Korea’s. House prices fell by 2% in Decemberalone,thebiggestmonthlydrop since official figures began in 2003. The slump has been particularly brutal for apartments in Seoul: prices are down by 24%sincetheirpeakinOctober2021. SouthKorea’smarketoffersaglimpseof whatmaylieaheadelsewhere.TheBankof Korea(bok)beganraisinginterestratesin August2021,sevenmonthsbeforetheFed eralReserveandalmostayearaheadofthe European Central Bank. The benchmark ratenowsitsat3.5%,a14yearhigh,after officialsraiseditonceagaininJanuary. The broader economy is feeling the pinch.Privateconsumptionfellby0.4%in the fourth quarter of 2022. And exports, whichdroppedby17%yearonyearinJan uary,havehardlycushionedtheblow.They werehitbyacollapseinsemiconductoror dersattheendofapandemiceraboomin electronics sales. This sluggishness will onlyaddtothedragonhouseprices. There are other sources of stress, too. Householddebtreached206%ofdisposa ble income in 2021, well above even the 148% in mortgageloving Britain. Some 60% of South Korean housing loans are In debt, in danger Household debt as % of net disposable income 2021 0 Australia South Korea Canada Britain France Germany United States Spain Source: OECD
50
100
150
200
250
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floatingrate, in contrast with America, wheremostlendingisonfixedterms.Asa result, household finances are squeezed morequicklywhenratesrise.Thedangeris that buyers like Mr Kim turn into forced sellers—something he says he will try to avoid at all costs—meaning a slide in housepricesbecomesacollapse. Thisriskisenhancedbythecountry’s bizarre rental system, known as jeonse. Manytenantspayhugelumpsumstoland lords,often6080%ofthevalueofaprop erty,whicharereturnedaftertwoyears.In the interim the landlord can invest the
The Economist February11th2023
cashastheywish.Thesystemisarelicof South Korea’s rapid industrialisation, whenmortgageswerehardertoattain. In a downturn, some landlords are forcedtomakefiresalestoreimbursede parting tenants, having invested in risky assets, including more housing, and lost themoney.Storiesaboutsuddendefaults andvanishing“villakings”,ownersofdoz ensofrentalproperties,proliferate. South Korea also demonstrates how highhouseholddebtandassetpricescan constrainmonetarypolicy.Opinionissplit aboutwhetherhousingmarketfrailty,and
thehittohouseholdincomes,willstopthe bok raisingratesfurther.OxfordEconom ics, a research firm, thinks the bok will keepgoing.Nomura,abank,expectsitto reversecourseinMay,andcutthebench markrateto2%bytheendoftheyear. Most countries are not as exposed as SouthKorea.Butsome,includingAustra lia,Canada,theNetherlands,Norwayand Sweden,sharethesamemixofhighhouse hold debt and frothy property prices. All beganraisingratesafterSouthKorea,and havefurthertogobeforethepressurefeeds through.Theyareinforarockyride. n
Buttonwood WhentofighttheFed There is sometimes reason to ignore a canonical piece of Wall Street advice
I
f you are oneofthemanybuyersof AmericanstocksorTreasurybondsin thepastfourmonths,orindeedabuyer ofmostfinancialassetsovertheperiod, thenthiscolumnhasamessageforyou: congratulations.Notonlyhaveyou achievedprettyhealthyreturns—thes&p 500indexofbigAmericanfirmsisupby 15%—butyouhavedonesowhilevio latingoneofWallStreet’scardinalrules. Thephrase“don’tfighttheFed”is associatedwithMartinZweig,anAmer icaninvestorrenownedforpredictinga crashin1987.Zweig’slogicwassimple. Fallinginterestratesaregoodforstock markets;risingonesarenot.Butthe phrase’sscopehasexpandedovertime. Zweig’sdictumisnowusedtosuggest thatbettingagainsttheinstitutions whichprintmoneyandemploythou sandsofeconomistsisalwaysunwise. Mostofthetime,itis.Overthepast fourmonths,however,theFederalRe servehasraisedratesthreetimesand marketshavesurged.OnFebruary7th,a fewdaysafterthepublicationofblowout labourmarketdata,JeromePowell,the Fed’schairman,warnedthatthefight againstinflationwouldlastlongerthan investorswereanticipating.Hiswarning hadlittleeffect.Investorselsewhereare alsoshruggingoffcentralbankers’ words.TheBankofJapan(boj)hadlong promisedtostandbyits“yieldcurve control”policies,buttradersbettingthat itwouldrelaxthemtriumphedinDe cember,whenofficialsunexpectedly raisedtheircapontheyieldoftenyear governmentbondsfrom0.25%to0.5%. Thereisgoodreasontopickascrap withacentralbanknowandagain.As sessingtherecordsince1954,analystsat TruistAdvisoryServices,awealthman agementfirm,findthes&p 500hasin factperformedfine,evenwell,onnu
merousoccasionswhentheFedhasraised rates.Indeed,onaveragetheindexrisesby 9%onanannualisedbasisbetweenthe bank’sfirstandlastinterestraterise. TradersdefertotheFed’sanalysisin largepartbecausetheypresumeitisbased onsuperiorinformation.Aninfluential pieceofresearch,publishedin2000by ChristinaandDavidRomer,twoecono mists,seemedtoconfirmthatthecentral bank’sforecastsaremoreaccuratethan thoseofitscommercialrivals.Butsub sequentstudieshaveproduceddifferent results.One,publishedin2021byre searchersattheBarcelonaGraduate SchoolofEconomicsandtheFederal ReserveBankofSanFrancisco,suggests thatthesuperiorityoftheFed’sfore castinghaswanedsincethemid2000s. Meanwhile,forecastsfromothercentral bankshavebeenbadenoughtoinspire gentlemockery.Everyyearsince2011the SwedishRiksbankhasforecastaclimbin rates,onlytocutthem.Theresulting pattern,whichshowsforecastsrising upwardsoverandover,likespikes,has beencomparedtoahedgehog.
Moreover,alittlecentralbankfight ingcanbegoodforthebroaderfinancial system.Unlessacentralbankwantsto controlmarketinterestratesdirectly,by buyingenormousamountsofassets, policymakersmustsometimesconduct whatareknownasopenmouthoper ations.Whatcentralbankersthinkabout economicconditionsandhowthey mightaffectratesareexpressedin speechesandwrittenguidance,which suggestoptimismorpessimismon subjectsfromtheeconomy’slongterm growthpotentialtofinancialstability. Donewell,thissortofcommunication canremovetheneedforratechanges. Torefinetheirguidance,though, centralbankersneedpeopletotake positionsinfinancialmarkets,which theycanreactagainst.Afterall,asanoth erWallStreetcredonotes:disagreement iswhatmakesamarket.Buyersneed sellers,andtheinformationaboutwhat investorsexpectinaggregateisrevealed throughmarketprices.Theprocessof backandforthbetweenofficialsand marketsispreferabletothecornerinto whichtheboj hasbeenpushed,where vastpurchasesmustbeusedtodefend thebank’scredibility. Tradersarestillregularlyturnedinto mincemeatwhentheytakeoncentral banks.BettingagainsttheFedisone thingwhenpolicymakerssaytheywillbe ledbythedata,astheydonow,andquite anotherwhentheycomeoutallguns blazing.Bettingonasuddenrisein Japanesebondyieldsworkedwellfor severaladventurousfundsinDecember, butthetradeisknownas“thewidow maker”forareason.Inmoderation, however,sometensionbetweenmarkets andcentralbanksisvaluable,forin vestorsandofficialsalike.Evenfinancial rulesaremadetobebroken.
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TheEconomistFebruary11th2023
Property(2)
The future of family living
NEW YO RK
Sooncitycentreswillincludemorehomesandfeweroffices
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ower Manhattan’s skyline has long symbolised the fortunes of corporate America.Askyscraperboomintheroaring 1920sheraldedthe riseofthemodernof fice, crammed with swivel chairs and desks. As corporate giants emerged and Wall Street firms flourished, officespace requirementsexplodedinthe1970s,fuel lingawaveofnewtowerblockssuchasthe WorldTradeCentre.Now,ashybridwork slashesdemandforphysicalworkplaces,a differenttypeofboom—drivenbyluxury flats,notoffices—isgatheringsteam. At25WaterStreet,inNewYork’sfinan cialdistrict,America’sbiggesteveroffice toresidential conversion is under way. The building, located near the New York Stock Exchange, will transform an office skyscraper, covering 1.1m square feet (102,193 square metres), into 1,300 apart ments ranging from studios to fourbed roomhomes.Therevampedbuildingwill include a basketball court, a spa, and in doorandoutdoorpools.Itwillalsofeature a rooftop terrace, an entertaining lounge andcoworkingspaces. Thebuildingispartofabroadertrend— onepromptedbyaglutofnewlyemptyof fice buildings. The amount of space re quiredforwhitecollarworkerswasalrea dyindeclinebeforethecovid19pandem ic,butthevastincreaseinworkingfrom homehasleftevenmorebuildingsvacant. Inthethirdquarterof2022,officevacan ciesinAmericasoaredpast17%,thehigh est in nearly three decades, according to cbre,apropertyfirm.Some8.4%ofoffices
inLondonsitunoccupied,wellabovethe longtermaverageofaround5%. cbre estimatesthatnearly20msquare feetofofficeconversionswillhitAmerica’s propertymarketthisyear;asmallfraction of total supply, but nearly five times as muchasin2016,whenthefirmstartedto collectfigures.Intheinterveningyears,a third of all office conversions have been into homes (other favourites include ho tels and, increasingly, lifescience labs). Althoughmuchoftherecentdevelopment hastakenplaceinAmerica’sbigeastcoast cities,officesarebecominghomesacross therichworld. Spannersintheworks Yetthepaceofconversionswouldbehigh er were it not for a range of challenges. Some are practical. Flats require natural lightandwindowsineachroom—thelarge floor plans of modern office blocks often leavethemstuckwithpoorlylitandbadly ventilated spaces. Bathrooms in office buildingstendtobeclusteredinjustone area,makingplumbinganightmare.Other challengesarerelatedtoredtape.Zoning laws restrict housing in many office dis tricts. In some cases, height and density rulesoraffordablehousingrequirements raise costs. Moody’s Analytics, a consul tancy,reckonsthatlessthan3%ofthe1,100 officebuildingsittracksinNewYorkmeet thevariouscriteria. Meanwhile, developers planning to convertofficesmustbuyoutorrelocateex istingtenants.Assuch,thefinancialcase
for conversions is often unsatisfactory. Onlyofficebuildingsthattradeatasteep discount are likely to make profitable transformations. In some cases, convert inganoldofficetowercancostmorethan buildingabrandnewblockofflats. Somepolicymakersaretryingtomake the process smoother. With office vacan cies threatening landlords’ bottomlines, commercialpropertytax revenues, and thebusinessesofnearbyshopsandrestau rants,citiesarerelaxingzoningrulesand experimenting with tax breaks. Eric Ad ams,NewYork’smayor,haspredictedsuch incentiveswillleadto20,000newapart mentsinhiscityby2033.Londonplansto usespaceinitsSquareMiletocreate1,500 newhomesby2030.Calgary,whereonein threeofficessitsvacant,ishometooneof the more ambitious plans. In 2021 the Canadiancitylaunchedafundingscheme fordeveloperswillingtotrytheirhandat conversions. Officials have since pledged morethanC$153m($115m)ingrants. Fornow,conversionsareagrowingbut relatively niche pursuit. Yet plummeting propertyvalues,increasinglyemptyoffice cubicles and growing political support suggestthingswillaccelerate.Moody’sAn alytics expects officevacancy rates in Americatopeakatabout19%in2023andto stayhighforatleastfiveyears.Evenwitha healthyeconomy,demandforofficespace looks unlikely to return to prepandemic levels. Gallup, a research firm, estimates thatAmericanswithjobsthatcanbedone remotelywillspend37%fewerdaysinthe officethantheydidbeforecovidstruck. Thefuturemay,infact,looksomething ratherlikelowerManhattan.Although25 WaterStreetisnew,officeconversionsin this part of town are an older phenome non. After the stockmarket crash of1987, which left nearly one in three offices in NewYorkvacant,taxincentiveswereused toenticedeveloperstoconvertageingof ficebuildingsintohomes.TheSeptember 11th attacks sped up the process, as busi nessesmovedtootherpartsoftown.Today around83,000peopleliveinLowerMan hattan,upfromfewerthan700in1970. Theresultisafamilyfriendlyenclave, andaneighbourhoodwhichoffersablue printforstrugglingofficehubselsewhere. Children on swings in playgrounds and residentswalkingtheirdogshavealtered thefabricoftheformerninetofivefinan cial centre. A nearby boathouse provides freekayaktripsontheHudsonriverduring the summer. In the colder months, ice skaters whizz around an outdoor rink in BrookfieldPlace,ashoppingmallnearthe waterfront.Evenasfinancialfirmshavere located,amorecreativecollectionoften ants, including Condé Nast and GroupM, two media giants, have moved in. The death of office blocks does not have to meanthedeathofcitycentres. n
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The Economist February11th2023
Danger ahead
The$2.5trnquestion...
WASHINGTO N, DC
...uponwhichthefutureofmonetarypolicyrests
C
an a central bank make $2.5trn of cashvanishwithoutanyonemuchno ticing?Thatistheimprobable,evenauda cious,missiontheFederalReservehasbe gun,tryingtoshrinkitsvastbalancesheet while minimising disturbances to the economy.Theprocess—knownas“quanti tative tightening” (qt)—got under way in mid2022.TheFedhasalreadyshednearly $500bninassets,agoodfirststep.Butre centripplesinthebankingsystemhintat turbulence ahead. Some analysts and in vestorsthinkthesestrainswillultimately force the Fed to call off qt well ahead of schedule. Others suspect that the central bankstillhastime,andtools,onitsside. Itmaysoundlikeatechnicalandarcane debate.Itismostcertainlycomplex.Butit alsogetstotheheartofmodernmonetary policy. The Fed, like other central banks, has come to rely on quantitative easing (qe)—purchasing assets, especially gov ernmentbonds,onagiantscale—tocalm financialmarketsandboosttheeconomy duringseveredownturns.Forqe toworkin thefuture,qt mustworknow:expanding balancesheets in bad times is only sus tainable if they shrink in good times, otherwisetheywillratcheteverhigher. Since the global financial crisis of 20079theFedhasresortedtoqe onfour occasions, yielding a body of research abouthowitworks.Incontrast,theFedhas employed qt just once, from late 2017 to 2019,stoppingearlyafterthemoneymar ketstartedtobuckle.Thereisthusalotof uncertaintyaboutitsconsequences. One superficially appealing way to thinkaboutqt isasqe inreverse.Justasqe involvescreatingcentralbankreservesto buy bonds, so qt involves removing re serves as the central bank pares back its holdings. And just as qe helps to hold down longterm rates, so qt raises them. Researchers estimate that shrinking the Fed’sbalancesheetbyabout$2.5trnovera fewyearshasroughlythesameimpactas raisingratesbyhalfapercentagepoint. Manythinkthishasalreadyhappened, with the market lifting longterm rates whentheFedlaidoutitsqt planslastyear. ChristopherWaller,aFedgovernor,hasar guedthatsinceinvestorshavepricedinthe announcedreductions,theFedisnowsim ply fulfilling expectations: “The balance sheetisjustkindofrunningintheback ground.”Fedofficialshavesaidqt should beaboutasexcitingaswatchingpaintdry.
Quantitative frightening United States, Federal Reserve assets, $trn 10 Other Mortgage-backed securities Treasuries
8 6 4 2 0
2003
10
15
20
23
Source: Federal Reserve
The trouble with the analogy is that whereaspaintgetsdrieranddrier,qt gets moreandmoretreacherous.Thisisalsoa crucial way in which it differs from qe. Whentheeconomyisingoodshape,cen tralbankscangraduallystepawayfromqe. Inthecaseofqt,thedangeristhatittakes marketturmoilfortheFedtorealiseithas gonetoofar,asin2019.Initiallyqt drains money from a commercialbanking sys temthatisawashinliquidity;asitcontin ues,however,liquiditygetssteadilytight er, and funding costs for banks may soar withoutmuchwarning. A preview of the possible stresses has played out in the past few weeks. Some banks,havingrecentlylostdeposits,have turnedtothefederalfundsmarkettobor rowreservesfromotherlendersinorderto
meet regulatory requirements. Daily bor rowinginthefedfundsmarketinJanuary averaged $106bn, the most in data going backto2016.Sofarthesqueezehasbeen confinedtosmallerbanks,ahopefulsign thatthefinancialsystemisreturningtoits prepandemic state, in which big banks lendtotheirpunierpeers.Nevertheless,it raises the question of whether and when otherbankswillhitfundingshortages. Theideathatacrunchisfarawayissup ported by a look at the Fed’s liabilities. About $3trn are banks’ reserves (in effect deposits at the central bank). Another $2trn is money from firms which enter into exchanges with the Fed for Treasury securities (such overnight reverserepur chaseagreements,orreverserepos,allow themtogetasmallreturnontheirexcess cash).MrWallerhassaidthatqt oughtto runsmoothlyuntilbankreserveshitabout 10%ofgdp,whentheFedwillslowitsbal ancesheet reductions to try to find the right size for the financial system. If re servesandreversereposareinterchange able,asMrWallersuggests,thenreserves nowamountto19%ofgdp,leavingplenty ofroom.Thusqt couldrollonforanother coupleofyears,takingabigbiteoutofthe Fed’sbalancesheetintheprocess. But problems may arise well before then.First,banksprobablyneedmorere serves than they did before covid19 be cause their assets have expanded faster thantherestoftheeconomy.Second,and crucially, reverse repos and reserves may infactnotbeinterchangeable.Muchofthe demand for reverse repos comes from moneymarket funds, which function as an alternative to bank deposits for firms seekingslightlyhigherreturns.Ifthatde mand persists, the weight of qt will in steadfallmoreheavilyonbankreserves.In this scenario, reserves may run short be foretheendofthisyear,thinkstrategistsat T. Rowe Price, an investment firm. The Fed’s balancesheet would be stuck at around $8trn, almost double its prepan demic level. This would fuel concerns aboutitsabilitytoembarkonqe infuture. Oddly,thedebtceilingmessmaycon cealanyructionsforthenextfewmonths. WiththeTreasuryunabletoborrowuntil Congressraisesthedebtlimit,itisrunning downitscashholdingsattheFed.Asmon ey leaves the Treasury’s account, much endsupinthebankingsystem,whichin turnhelpsbankstoreplenishreserves. ButwhenCongressdoesgetaroundto raisingAmerica’sdebtceiling,theTreasury will need to ramp up its borrowing. For banks this may mean a rapid loss of re serves.TheFedhascreatedalendingfacil ity to relieve such squeezes. There is, though,notellinghowitwillperformin the wild, adding yet more uncertainty to thecourseofqt.Themarketmaybeplacid fornow.Itisunlikelytostaythatway. n
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The Economist February11th2023
Free exchange Activisionactivism
It is not just big tech that should be worried about overmighty trustbusters
T
here are mergerstoworryaboutandmergerstowelcome.In thefirstcategoryaretieupsbetweenbiggishfirmsinthesame line of business. In these “horizontal” mergers, a competitor is takenoutofthemarket,removingaconstraintonprices.Insuch cases, competition authorities will investigate the merger and mayblockit.Othermergershavehistoricallybeenconsideredless troublesome.Ifafirmbuysanotherinanadjacentlineofbusiness (aconglomeratemerger)orifasupplierbuysacustomer(avertical merger),theeffectsoncompetitionhavebeenseenasbenign. Butthathaschangedinrecentyears.Moreandmorenonhori zontalmergersarebeingchallengedbyantitrustauthorities.In September America’s Federal Trade Commission (ftc) lost its challengeincourttoatieupbetweenIllumina,whichprovides “nextgeneration”dnasequencingtools,andGrail,adeveloperof earlycancerdetectiontests,whichrelyonIllumina’stechnology. Theftc isappealingthejudgment.InOctoberBritain’sCompeti tionandMarketsAuthority(cma)forcedFacebooktoundoitspur chaseofGiphy,asupplierofgifstosocialmediaplatforms.On February8th,thecma issuedaninitialfindingthattheacquisition byMicrosoft,makeroftheXboxgamesconsole,ofActivisionBliz zard,agamestudio,wouldreducecompetitionintheindustry. Vigorousantitrustpolicyisoftenmotivatedbyanxietyabout bigtech.Facebook,GoogleandMicrosoftbecameswiftlydomi nantintheirmarketsbecauseofthepowerofnetworks:themore peopleusedtheirproducts,thebettertheybecameandthemore attractivetheyweretoothercustomers.Althoughitisdifficultto find fault with such organic growth on competition grounds, thereisaconvictionintrustbustercirclesthatbigtechshouldnot havebeenallowedtobuyotherbusinessesalongtheway.There centregulatoryactivismisthereforefuelledbyregretaboutthe past.Yetitcarriesitsownrisks.Inmanycircumstancesmergers are,infact,aboontoconsumers.Thedangernowisthatthepen dulumwillswingtowardsoverenforcement. Tounderstandhowregulatorsgottothispoint,itisworthre turning to the1970s. A group of antitrust thinkers orbiting the UniversityofChicagocastdoubtontheideathatverticalmergers couldbeharmfulbyemployingthetheoryof“onemonopolypro fit”.Thistheorysaysthatamonopolistcannotextenditsmarket
powerupordowntheverticalchainofproduction.Tograspit, imagineanairportoperatorthatleasesspacetotwocoffeeshops. Theoperatorownsamonopolyresource:thepropertyarounda captivemarketofpassengerswhorequiretheirmorningcaffeine. Tomaximiseprofits,itwillsettherentshighenoughtoallowthe shopsnomorethanacompetitivereturn.Yetweretheoperatorto buyoneofthecoffeeretailers,theprofitmaximisingrentwould notchange(henceonemonopolyprofit). Lookedatthisway,verticalmergerscannotharmconsumers. Theymayevenhelpthem.Arelatedtheorypositsthatavertical mergerinanindustrywherethereissomemarketpowerateach stageofproductionwillleadtolowerprices,becauseoneofthe noncompetitive markups will be eliminated. In such circum stances,onemonopolyprofitmeansyoudon’tgetgougedtwice. Trustbustersthesedaysarelessfocusedonpricing.Theyare moreconcernedthataverticallyintegratedfirmwilluseitsmus cleinonepartofthechaintofreezeoutrivalsinanotherpart.In theIlluminacase,theconcernisthatrivalsofGrailwillbedenied thednasequencingtoolstheyneedtodevelopcompetingcancer tests.IntheMicrosoftcase,thefearisthatSony,makerofPlaySta tion,therivalconsoletoXbox,willbedeniedgamesmadebyActi vision,tothedetrimentofcompetition.Tomakethechargestick, trustbusters must demonstrate that such restrictions would be profitable,whichtheyareunlikelytobeintheshortterm,since theymeanatleastinitiallysellingfewerproducts.Regulatorsthus havetomakepredictionsabouthowamarketmightevolve.Thisis theeconomicequivalentoflongrangeweatherforecasting. Whichbringsthestorybacktobigtech.Thewinnertakesall aspectofnetworkstendstoeliminatecompetitorstothebigtech giants.Thereisnotmuchcompetitionpolicycandoaboutsuch dominance.Intheory,countlessstartupsarevyingtoknockbig techfirmsfromtheirperch,whichoughttoactascheckontheir business conduct. But socalled “shootout” acquisitions—pur chasesofstartupsthatmightbecomearivaltobigtechfirms— tendtoneuteranythreatfromthiscorner.Formanytrustbusters, Facebook’sacquisitionin2012ofafledglingInstagramwasinthis category.TherearealsoregretsthatGoogle’sacquisitionin2008of DoubleClick,anadserver,helpedtostrengthenitsholdondigital advertising,amarketnowthesubjectofabigantitrustprobe. In praise of big business Doubtlessthereweretimeswhenmorevigilancewaswarranted. ButitiseasytoforgetthattheChicagorevolutionwasaresponse toovermightytrustbusters,whobelievedbigwasalwaysbadand smallbusinesses,howeverawful,shouldbeshieldedfromcom petition.InAmericathecourtsareacheckonoverenforcement. Therearedecadesofjurisprudence,shapedbytheChicagoSchool, whichsaysnonhorizontalmergersarebenign.Nevertheless,the prospectofacourtbattleisenoughtoputoffsomefirms.Lastyear Nvidia,achipmaker,abandoneditsproposedmergerwitharm,a chipdesigner,inthefaceofantitrustscrutiny. Itistellingthatthecma hastakentheleadinblockingmergers involvingtechgiants,suchasFacebookandMicrosoft.Britain’s trustbustersmaynowbeamongthemostfeared.Freedfromthe eu’scompetitionpolicy,thecma revampeditsguidelinesin2020 togivemoreweighttohowpostmergermarketsmightevolve.In BritainandEuropecompetitioncasesarepursuedinanadminis trativesystem,notinacourt,asinAmerica.Allofwhichgivesthe cma considerable powers. A rare example of a Brexit dividend? Trustbustersmightsayso.Noteveryonewouldagree. n
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Meteorology
The heat is on
As bad weather becomes more common and more extreme, modellers seek to understand the limits of the possible
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he heatwave that struck parts of North America’s Pacific coast in 2021 propelledtemperaturesinLytton,avillage inBritishColumbia,to49.6°C—4.6°higher thanthepreviousrecord.Onthefourthday ofthistormenttheplaceeruptedinflames andwasalmostcompletelydestroyed(see pictureabove).Theseeventsweresooutof the ordinary that, in a press conference held some weeks later by climate model lers,theystruggledtoexplainhowcircum stanceshadconjuredthem. ClimatologistsreckontheNorthAmer icanheatwaveof2021wasoneofthemost extreme deviations from meteorological normseverrecorded,anywhere.Butothers havecomeclose.Astheworldgetshotter, phenomena once considered rare are be comingcommonandothers,believedim possible,arehappening. This shift in weather patterns has in spiredmodellerstopaymoreattentionto thetailsofthefrequencydistributionsof meteorological possibility which their modelsgenerate(seechartonnextpage), insearchofsuchunprecedentedextremes. Onerecentexercise,ledbyErichFischerat
ETH Zurich, a technology university in Switzerland, and presented at last year’s annualjamboreeoftheEuropeanGeosci encesUnion,showshowtheheatwavethat destroyedLyttoncouldhavebeenforeseen withdataavailableatthetime. Cite UNSEEN TheapproachDrFischerused,ensemble boosting, is one of several developed re cently.Another,fromBritain’sMetOffice, isUNSEEN (UnprecedentedSimulationof ExtremeswithEnsembles).Thiswasfirst put to work by Vikki Thompson and her colleaguesattheMetOfficeinaretrospec tive analysis of floods that had drowned parts of the country in 2014, resulting in £451m($743m)ofinsuranceclaims. Morethan130yearsofEnglishrecords had offered no indication such a biblical deluge was possible. Yet, here it was. As Thierry Corti, a climaterisk analyst at → Also in this section
67 An internet in the sky
The Economist February11th2023
Swiss Re, a reinsurance company, obser ves, “the risk landscape is evolving. So if yousimulateprobabilitiesofarareevent youneedtotakethatagainstthebackdrop ofsomethingthat’schanging.Thatmakes it much more complex.” To try to under standwhathadhappened,DrThompson’s team simulated British winters between 1981 and 2015 many thousands of times, and looked at the spread of possible out comes,includingrareevents. Into this methodical repetition they addedasprinkleofchaos—thefamousflap ofabutterfly’swing,or,morerealistically, therevvingupofafactory’senginestoadd asmallandlocalamountofheattotheat mosphere. By repeatedly simulating the present climate, perturbed each time in minute ways, the Met Office modellers generatedarangeofvirtualwinterswhich included extremes that are possible but havenotyetmanifestedthemselves. Inthecaseoffloods,thegroupfounda 34% chance each winter that rainfall re cords would be broken in at least one of four broad regions of Britain. They con cluded that decisionmakers would do welltopreparefornewrecordbreakingin undations “in the next few years”. They werevindicatedwhentheirwarningscame topassintheearlymonthsof2020. The UNSEEN approach is inspiring others. For example, various groups are now looking at “nearmiss” events, in whichanextremedroughtorfloodbefalls aregionwithlowpopulationdensity,thus affecting few people. With UNSEEN and
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The Economist February11th2023
UNSEENlikemethods,itispossibletoas sess the risk of a similar event striking a neighbouring but more populous area— andwithwhatconsequences. Othershavetakenaninterestinbitsof thefuturewhenanextremeweatherevent wouldbeparticularlydamaging.TheParis Olympics, to be held next year, will take place during that city’s hottest weeks. A group of meteorologists from various Frenchresearchinstitutesthereforewon deredjusthowbadaheatwavemanifesting itselfthenmightbe.Usingyetanotherap proach, they found a chance of tempera turesbeingmorethan4°Chigherthanthey were during a catastrophic heatwave in 2003,inwhichtensofthousandsdied. Sincethathappened,Francehasbuilta “heatplan”whichincludesanearlywarn ing system and provisions for opening coolspacesifneeded.Whetherthiswillbe enough to ameliorate the effects of a re cordbreakercoincidingwiththearrivalof thousands of athletes and hundreds of thousandsofvisitorsremainstobeseen. Thatsomethingcouldhappendoesnot meanitwill,butinsomecases,suchasthe ParisOlympics,eithertheriskorthecon sequencesareclearlyhighenoughtowar rantcloseattention.Anotherexampleisa studypublishedin2019,byDrThompson and her colleagues, which found that, in southeast China, each summer holds a 10%chanceoftherebeingarecordbreak inghotmonth.Thetemperatureswarned ofwerewithintherangeoftherecordsset duringlastyear’sdeadlyheatwave. Otherresearchhasaskedifaregionis “overdue”foranextremeeventbecauseof thechangingclimate,orwhetheritsinfra structure or economy is particularly ill prepared for what could happen. In the case of Kansas, America’s breadbasket, bothlooktrue.Thestateproduces17%of the country’s wheat, and is said to foster idealconditionsforgrowingthiscrop.But what pertained before 1900, when wheat farmers were moving in, may not hold now. In today’s climate, heatwaves that wereonceonceacenturyeventsarelikely to occur once a decade, according to a studytobepublishedsoonbyErinCough landePerezofTuftsUniversity. Model behaviour Dr de Perez also found that hot weather sufficienttodamagewheat’sgrowthbyin hibiting its enzymes is likely to occur in thesameyearsasperiodsoflowrainfall. But the irregular pace of weather change maylullfarmersintoafalsesenseofsecu rity,forsheandhercolleaguesdiscovered, too,thatrecentyearshavebeencoolerthan expected.“Severalregionsmighthave‘got tenlucky’intermsoftheirrecentexperi ence of extreme events,” they write. The same study predicts similar, if less pro nounced,patternsinHenan,awheatpro
Spread betting Effect of changes in global temperature on weather events Increase in mean
Increase in variance
Increase in mean and variance
→ Fewer cold extremes
More hot extremes
More cold extremes
More hot extremes ↙
Cold
Average
Hot
Cold
↘
Average
Hot
→
Less impact on cold extremes
↙
Cold
Average
More hot extremes
↘
Hot
Source: IPCC AR5
ducingprovinceofcentralChina. Information about lowlikelihood but highimpacteventsisalsoofinteresttoin surers(whocarryouttheirownmodelling aswell)andcanhelp,too,inthedesignof climateresilient infrastructure. In the Netherlands,forexample,ClimateAdapta tionServices(CAS),acharity,gathersdata on possible consequences of climate changebetweennowand2050,including detailed maps that the authorities can drawontotesttheirplans. Timo Kelder, an UNSEEN modeller at
CAS,saystheyarethinkingabouthowthey might add new stress tests which assess howsuccessfulplanswouldbeintheface of the brutal and unprecedented events thesestudiessuggestareplausible.Mean while, in Britain’s Met Office, researchers arenowlookingatanothersortofextreme event—theriskof“winddroughts”which wouldwipeoutalotofthecountry’swind turbinebaseelectricitysupply.Itwouldbe ironic indeed if Britain’s huge effort to combatclimatechangeinthiswaywere,it self,tofallvictimtoachangingclimate. n
An internet in orbit
Dynamite and a laser beam
How to secure military communications in space
S
atellites are crucial military infra structure for spying and communica tions. They are also vulnerable to attack and disruption. In November 2021, three monthsbeforeitinvadedUkraine,Russia fired a missile into a defunct satellite. Then,inOctober,aRussiandiplomatde claredevencommercialsatellitescouldbe legitimate targets. Satellite systems used byUkrainehavebeenhackedandjammed. Groundantennaehavebeenattacked. Inlightofthissortofthing,America’s militaryestablishmentisworriedthatits satellitenetworkisnotuptosnuff.Butit hasaplan.TheSpaceBasedAdaptiveCom municationsNode(SpaceBACN,or“Space Bacon”, to its friends) will, if successful, createalaserenabledmilitaryinternetin orbit around Earth by piggybacking on a numberofsatellitesthatwouldhavebeen launchedanyway. Space Bacon is a brainchild of DARPA, the specialprojects research arm of the DepartmentofDefence,andisanintrigu ingorbitingechooftheoriginal,terrestrial ARPANET,whichevolvedintotheinternet. (ItwassonamedatapointinDARPA’shis
torywhentheorganisationlackedtheini tial“D”for“defence”.)Theplanistofitas many newly launched satellites as possi blywithlasertransceiversthatwillbeable to communicate with counterparts as far awayas5,000km.Satelliteownerswillpay forthesetransceivers,butwillthenreceive paymentsfromtheAmericangovernment fortheiruse. Zipping the light fantastic SpaceBaconpromisesmanybenefits.Un likeradio,thenormalmodeofcommuni cationwithandbetweensatellites,trans missionsbylaserbeamarehardtointer ceptandalmostimpossibletojam.Indeed, adversariesmightnotevenknowwhena transmission is taking place, a bonus for operationalsecrecy. Lasers also offer far higher data rates thanradiowaves.Somesatelliteconstella tionsdoalreadyuselasersforcommunica tionbetweenmembers,andtheseachieve abouttwogigabitspersecond(about200 times what radio can manage). DARPA, however,hasaskedSpaceBacon’scontrac torstodevelopequipmentthatcantrans
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mit,inasinglebeam,100gigabitspersec ond.Thatisenoughforseveralhighdefi nitionmoviestobesentinthattime. The ability to hand military informa tionfrombirdtobirdlikethis—andwith outtheconstraintsimposedbydifferences inthecommunicationprotocolsofthesat ellitesprovidingthepiggyback—willgreat ly simplify matters. Individual satellites candownloaddataonlywheninrangeofa terrestrialantennabelongingtotheirpar ticularnetwork,orviaanothermemberof thatnetwork,whichislikelytobeinasim ilarorbit.AsatelliteintheSpaceBaconsys tem,bycontrast,canhandoffdatatoan other,possiblybelongingtoanotheroper ator,inadifferentorbit.Andthatsatellite may,inturn,handittoyetanother,untila suitablegroundantennaiswithinreach. Atthemoment,reportingdelayscaused bylackofnetworkinteroperabilitymean, say,thatatankspottedbyasatellitemay havedrivenoffbythetimeitslocationhas beenreceivedbyanyonewhocouldmake use of the information. Space Bacon will moreorlesseliminatethislatency. It will also offer one of the vaunted pluses of the original ARPANET design, whichtheinternetinherited.Thisisauto maticreroutingofamessageifanode(ie,a particular satellite or ground station) is disabled.Also,bybringingprettywelleve ry relevant ground station into play, data that are especially sensitive can, as Greg Kuperman, Space Bacon’s programme manager,observes,beroutedthroughan tennaeinplaceswhereattemptstoeaves droponthefinal,radiotransmitted,legof thejourneyareconsideredlesslikely. Theheartofallthisistheprecisionof aimthatwillbebuiltintoSpaceBacon’sla sers. Phil Root, head of DARPA’s Strategic Technology Office, says pondering this “blows my mind”. Satellites in low Earth orbits (LEOs, those below an altitude of
The Economist February11th2023
2,000km,andthesortwhichSpaceBacon willusetostartwith)travelatabout7.8km asecond,oftentumblingastheygo.Con nectingtheopticalheadsontwoofthese willbeanepictask.Advanceshave,how ever, been impressive. Mynaric, a firm basednearMunichthatisdesigningheads forSpaceBacon,canadjustalaser’strajec torybyjust57.2millionthsofadegree.Ata distanceof1,000km,thistranslatesintoa beamdisplacementoflessthanametre. To sweep its lasers smoothly Mynaric usesasystemofmotordrivenlensesand tilting mirrors. Another contractor, mBryonics of Galway, Ireland, employs electronic signals to alter the light’s phase—minutelyadjustingthebeam’sdi rectioninamanneranalogoustotheredi rectionofphotonsthroughaglasslens. Even with these levels of precision however, initial direct hits on a distant head will probably be rare, says David Mackey,mBryonics’toptechnologist.Op tical heads attempting to link up will thereforeconductwhathecallsblindspi ralsearchpatterns.Whenabeamfindsits mark,thesignalwillinformthereceiverof thesender’sexactposition.Usingadiffer ent wavelength, to prevent interference, thereceiverwillthenfirealaserbackalong thesamepathtoconfirmtheconnection. Mr Mackey thinks his kit will complete theseorbital“handshakes”intenseconds. Existing laserbased satellite commu nications rely on sensors called photo diodes. Space Bacon’s higher data rates need a different approach. The message carryingphotonswillenterasinglefibre optic strand with an opening a mere ten microns across—far smaller than the100 microns of a photodiode, of which more thanonemay,inanycase,beneeded.My bryonicshopestopulloffthistrickusinga mirror with a complex curved surface to redirectphotonsintoadevicethesizeofan
iPhonethatfocusesthelightandshootsit intothefibreopticstrand. TheSpaceBaconsystem’sspecification requires that it draw no more than100W from its host satellite. This limit poses a problemfortheprocessorneededtotrans late between the different data protocols usedonsatellites,foronly40W ofthat100 isavailabletodoso. One firm working on this is Intel, an Americanchipmaker.Itisdesigningwhat Sergey Shumarayev, the project’s leader, describes as a “Rosetta Stonetype mo dem”. Mr Shumarayev says commercially availablecomponentshavebeenruledout fordoingthisbecausetheyaretoobigand powerhungry. He reckons that if they wereused,theresultwouldbeaslargeasa pizza and consume 400W. His team are “trying to shrink the pizza size into a matchbox”usingwhattheycall“chiplets”, inlieuofbiggersemiconductors. Bringing home the BACN DARPA wantsSpaceBacontocostamaxi mumof$100,000asatellite,thebetterto encourageparticipation.Itbodeswellthat Amazon, SpaceX and Viasat, a lesser knownbutwellestablishedsatellitecom munications company, are all designing commandandcontrol architectures for SpaceBacon. Amazon plans to launch a broadband LEO satellite constellation called Project Kuiper.ThismayincorporateSpaceBacon transceivers.SpaceXmayaddthemasitex pandsStarlink,itsbroadbandLEO constel lation, from its current complement of 3,500orsosatellitestotensofthousands. Viasat’sexistingnetworkisdifferent.Itis basedonfivebigsatellitesingeosynchro nousorbits36,000kmaboveEarth,which will be joined by another three over the next14months.Thefirmalsohasanexten sivenetworkofgroundstationstobringto theparty. Onecommandandcontrolproblemis workingoutoptimalroutesforthehand ingonofdata.CraigMiller,headofgovern mentsystemsatViasat,saysthisistrickier thansolvingthetravellingsalesmanpro blem, a maths classic. As the network grows, computing the most efficient routes gets harder and harder—and not justbecausethenodeswillbemoving.Mr Miller’s team must also assign and take into computational account “variable trust” scores for potential data hops, for some are more vulnerable than others to enemyaction. DARPA planstoselectthebestsubsys tems this summer, and hopes to have a prototype ready for testing in LEO before 2025. If all goes well, the network could then be extended to geosynchronous or bits.Allies,DrRootreckons,mightbein vitedtojoin.America’sadversarieswillno doubtbewatchingclosely. n
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TheEconomistFebruary11th2023
Christianstreaming
Man of the people
A television show about the life of Jesus has become an unlikely hit
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NE SUNNY afternoon last summer, Jesus walked onto a field near Dallas, Texas,andwithjustafewloavesofbread andacoupleoffish,fedacrowdof5,000. In truth, the miraculous meal had been rustledupbytelevisionproducers:thepita breadcamefromlocalgrocerystoresand thecroaker,asilveryfishabundantinthe Atlantic Ocean, was supplied by Asian Americansupermarkets.Butnoneofthese earthlydetailsmatteredoncethecameras started rolling and Jesus, played by Jona thanRoumie,liftedhiseyestoheavenand blessedthemeal. The miracle of the loaves and fishes, firstrecordedintheGospels,isdramatised in “The Chosen”, a tv show about Jesus Christandhisfollowers.Itisproducedbya fledglingstudio.Thedirectorhadnotpre viouslybeenblessedwithsuccess.Theac tors were unknown. Yet it has become a hit,andrecentlyreleaseditsthirdseason. The show’s success is revealing. It at teststothepopularityandprofitabilityof Christianentertainment.Italsohighlights howfilmmakersoffaithcancircumvent Hollywood’sgodlessgatekeepers.
Neal Harmon, head of Angel Studios, theproduceranddistributoroftheshow, saysalmost110mpeoplehavewatchediton theirfreeapps;manymorehaveseeniton streaming platforms including Amazon Prime,NetflixandYouTube,wherecertain seasonsof“TheChosen”areavailable.An gelStudiosreleasedthefirsttwoepisodes ofthenewseasoninAmericancinemasin November. The doublebill made nearly $9m in its opening weekend and ranked third in the boxoffice charts, ahead of “Black Adam”, a superhero movie, and “Ticket to Paradise”, a romcom starring GeorgeClooneyandJuliaRoberts. Most depictions of the life of Jesus → Alsointhissection
70 A historyoftheHolocaust
71 SalmanRushdie’snewnovel
72 ThejoyofThaipubfood
72 A sageofancientscience
74 BackStory:ThemagicofVermeer
dwellonhisdivinity,but“TheChosen”fo cusesonhisordinariness.“WehaveputJe susonstainedglasswindows,”saysDallas Jenkins, the show’s creator and director, yet“whatmakesthestoryoftheGospelsso powerfulis,infact,hishumanity.”Viewers watchJesuscooking,playingwithchildren orbrushinghisteeth.Hecracksjokes,too. Askedataweddingifhecanhelponeofhis acolytes improve his dance moves, he quips:“SomethingsevenIcannotdo.” Thedisciples,meanwhile,leadunhap pylives.WhentheymeetJesusforthefirst time, they are seeking deliverance from worldlywoes,notsalvationafterdeath.Si monisadebtriddengamblerwithadodgy marriage.MaryMagdalene’sstrugglewith otherworldlydemonshasdrivenhertoal coholism and thoughts of suicide. Mat thew, a taxman, is caught between the Romanauthoritiesandhiscountrymen. MrJenkinsusescreativelicencewhen weavingcharacters’storiestogether.Mat thew,forexample,isresponsibleformak ingSimonpayhisdebts.Thomas,another disciple,runsawinebusinesswhichJesus saves from ruin thanks to his ability to transmogrify water. Nicodemus, a Phari see,meetsJesusthroughMaryMagdalene, onwhomhehadtriedtoperformanexor cism.Noneofthismaterialcanbefoundin theGospels,butMrJenkinsandtheshow’s writers have consulted with three Bible teachers—aCatholicpriest,anevangelical professor and a Messianic Jew—to deter minewhethertheirplotsareplausible. Faithisnotaprerequisiteforenjoying
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“The Chosen”, Mr Jenkins argues: non Christian viewers “can appreciate these storiesinthesamewaythat,ifyoudon’t believeintheForce,youcanstillappreci ate ‘Star Wars’.” Some may find his approach too playful, or insufficiently faithful to scripture. Indeed, some evan gelicals have taken to YouTube to decry scenes in which Jesus rehearses his ser mons or makes light of his divinity. Mr Jenkins, himself a devout evangelical Christian,maintainsthattheshowisrev erentofthemanfromNazareth.Jesus’shu manity“doesn’tdetractfromhisdivinity. Inmanyways,itmakesitevenmoreawe inspiring,”hesays.“Thecreatoroftheuni verseactuallylivedamongus.” The filmmaker believes in miracles, andsomemightseeaminoroneintheway hemadetheshow.AfterMrJenkins’sfirst majortheatricalproject,“TheResurrection ofGavinStone”(2017),floppedatthebox office,hewasnotsureifhe“hadafuturein thebusinessanymore”.“TheChosen”re vived his career and Mr Roumie’s. The actorwasonthevergeofquittingthein dustry.Now,whenmillionsofChristians thinkofJesus,theymaypicturehisface. “TheChosen”alsosavedAngelStudios’ predecessor, VidAngel. Before the show took off, the company was facing bank ruptcy when several Hollywood studios sueditforcopyrightviolations.(VidAngel allowed users to filter out disagreeable scenes of nudity or violence from films andTV shows;itreachedasettlementwith thestudiosin2020.) Filmandtelevisionexecutives,asecu lar bunch, have long shunned religious projects.Buttherearewaystobringpious plots to the screen without their sayso. Studios did not see much commercial potentialin“ThePassionoftheChrist”,a bloodspattered biblical drama of 2004, and Mel Gibson, the director, ended up footingthebillhimself.(Thefilmwenton togrossmorethan$600mworldwide.)In contrast, the producers of “The Chosen” havepersuadedfansofdevotionaldrama tochipin.Tomakethefirstseason,they collected$10mviacrowdfunding—atthe timesettingarecordforamediaproject.In themaintheshowisstillfinancedinthis way;itswebsiteindicateshowmanyepi sodeshavebeenbankrolled. The fundraising model creates a bond withfansandtheygetrewardsfordigging intotheirpockets,suchastheopportunity to appear on the show. More than 9,000 flockedtoTexastobeextrasinthescene where Jesus feeds the crowd. Mr Jenkins regularly posts updates and behindthe sceneslooksforfans. Nearlyfouryearsaftertheshowhadits premiere,thesuccessof“TheChosen”baf fles Mr Jenkins. It doesn’t “make much sense,”hesays.Thenagain,“neitherdoes thestoryofthefeedingofthe5,000.” n
TheEconomistFebruary11th2023
TheHolocaust
It took a continent
A new history focuses on European collaborators in the Nazi horrors TheHolocaust:AnUnfinishedHistory. By DanStone.Pelican Books; 464 pages; £22
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ne day inJune1941,intheLithuanian cityofKaunas,alocalman—soontobe knownasthe“deathdealer”—pickedupa crowbarandwaitedforhisfirstvictim.The city had just been captured by the Nazis andaGermansoldierrecordedwhathap pened next. Several dozen Jewish men werebroughtoutonebyoneandbeatento death in turn. After each murder, the crowd, including women and children, clapped.TheyalsosangtheLithuanianna tionalanthem. Inhisilluminatingstudyofaspectsof theHolocaustanditsaftermath,DanStone recountstheslaughterinKaunastodem onstratetheimportantroleplayedbyen thusiasticlocals.ThedirectoroftheHolo caustResearchInstituteatRoyalHolloway, University of London, Professor Stone is theauthorofnumerousworksontheNazi genocide.Thefourkeythemesofhisnew bookare“trauma,collaboration,genocidal fantasy and postwar consequences”. He writes with authority and an eye for the humanstorynotalwaysevidentinHolo causthistoriography.Thefirsthandtesti monies he cites underscore the suffering ofvictimsandsurvivorsandthesavagery oftheperpetrators. Like every historian of this period, he
faces the question of whether to write a broadaccountcoveringasmuchaspossi ble,ortofocusonasinglecountryorepi sodethatembodiesaparticulartheme.He chooses the panoramic approach and his narrative traverses wartime Europe: from the nowfamiliar names of death camps suchasAuschwitztolesserknownaspects oftheHolocaust.Theseincludetheround upof532JewsinOslobyNorwegianpolice men in November 1942, most of whom weregassedinAuschwitz,andthehorrific fateoftheJewsofTransnistria.Incarcerat edinpigsties,manyofthemfrozetodeath or went mad with hunger, eating twigs, leavesandhumanexcrement. Thebook’smainstrengthisitscompar isonofdifferentcountries,theirauthori ties and their willingness to collaborate with the Nazis or slaughter local Jews themselves. The chapter on the death marches, when inmates were moved between concentration camps, and the eventualliberationofthosecampsandits aftermath,isespeciallystrong,perhapsbe causeProfessorStonehasalreadywrittena bookonthisspecificarea. But the rapid switches between loca tions, events and individuals can some times make for choppy reading. Mean while,thepublisher’sgrandioseclaimthat thisbook“upendsmuchofwhatwethink weknowabouttheHolocaust”isinadvis ableandoverblown.
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“The ubiquity of collaboration across Europe”, writes Professor Stone, “means weneedtostopthinkingoftheHolocaust assolelyaGermanproject.”Noserioushis torian does think that. Randolph Braham documentedtheresponsibilityoftheHun garianstateanditsofficialsfortheexter minationofruralHungarianJewryin“The Politics of Genocide”, first published in 1981. The German soldier’s account of the deathdealerofKaunaswasfirstpublished in1958.“HowtheHolocaustBegan”,anex cellent recent documentary made by the bbc,includesfootageofLatviancivilians chatting as they watch local Jews being shotintoatrench. Professor Stone usefully notes the “seemingly inverse relationship between ‘Holocaustconsciousness’andtheriseof xenophobicnationalismthatcharacterises ourage”.Inaninitiallypromisingchapter onHolocaustmemoryandhowthegeno
cidehasbeenperceivedandexploited,he mentionstheYugoslavwarsofthe1990s, duringwhichbothCroatiaandSerbiatried to use the Holocaust for political advan tage.Butthentheauthorwandersoffintoa modish discussion of a Cameroonian scholarwhowasdisinvitedfromaGerman festival because of his proPalestinian views, as well as the “shocking slide of America’sRepublicanPartyintofascism”. This is not the language of serious scholarship. Professor Stone considers antiIsrael boycotts, but makes no men tion of Srebrenica, where, in 1995, 8,000 menandboyswerekilledbyBosnianSerb forcesinaclearexampleofamodernday genocide. The world did nothing. That massacreillustratesthecynicaladagethat, for all the books, memorials, museums andremembrancedays,“Neveragain”may simply mean that never again will Ger manskillEuropeanJews. n
Historicalfantasyfiction
The magic word
Salman Rushdie’s new novel is an ode to storytelling and freedom VictoryCity. BySalmanRushdie.Random House;352pages;$30.JonathanCape;£22
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n Salman Rushdie’s 15thnovel,amagi calstorytellersurvivesasadisticassault. Initsaftermathshereflectsthat,although “terrible things happened”, nonetheless “lifeonearthwasstillbountiful,stillplen teous,stillgood.” SirSalmanhadcompleted“VictoryCi ty”beforehewasstabbedbyajihadistona stageinNewYork,losinganeyeandfull useofahand.Hisbook’sjoyinfictionsthat “couldbeaspowerfulashistories”testifies toalifetimeoffreespiritedinvention.But its defiance and exuberance is poignant now that the author of “Midnight’s Chil dren” and “The Satanic Verses” has nar rowlyavoidedthefatedecreedforhimby anIranianfatwa of1989. InSirSalman’sstories,unfetteredcre ativityrewritesthedestinieslaiddownby dogma and law. “Victory City” is a fable aboutthepowerofnarrativeart,hitchedto a historical chronicle. Pampa Kampana, the Indian storytellerqueen at its heart, believes that “the miraculous and the everydayaretwohalvesofasinglewhole.” Overfourdecades,thatkinshiphasgiven SirSalmanhisauthorialsignature. Pampahasbeengivena“cursedgiftof longevity” and it grants her 247 years of life. She has other powers, too, and con
jures the city and empire of Bisnaga into beingbywordsalone.Shedirectsitscourse over two centuries as queen consort, re gent,ministerandsorceress.Inherrealm of wonders, fairytale devices often drive theaction,suchasspellsthatturnhumans intobirdsortalkingforestanimals. YetSirSalmanmakesBisnaga“aplace withahistory”,notjust“theinventionofa witch”. Its ascent, prosperity and decline
tracktherealworldprogressoftheplural isticHinduempireofVijayanagar(indeed Vijayanagar means “victory city”). That kingdomflourishedfromthe1330suntilIs lamicinvadersleftitruinedaftertheBattle ofTalikotain1565. Pampasteershistory,thenrecordsitin anepicpoem.Therewasaprincesspoet, Gangadevi,inthe14thcentury;someofSir Salman’scharacters,suchasKrishnadeva raya,acapriciousking,bearthenamesof actual rulers. The greeneyed, redhaired PortugueseadventurerswithwhomPampa hasaffairs,andwhocarrynewsoftheem pireoverseas,haverealcounterparts. With its female progenitrix, Bisnaga becomesatitszenithasortoffeministuto pia.Itswomenare“neitherveilednorhid den” but honoured as warriors, “lawyers, traders, architects, poets, gurus, every thing”. Pampa and her more enlightened alliesalsobattlesectariansandfundamen talists,welcoming“unbelieversandother believers” to share their “reign of love”. This may seem like wishfulfilment, but Vijayanagarwasnotedforitstoleranceand itsinfluentialwomen. Withhistoryononeflankandfantasy ontheother,SirSalmangallopsdownthe generations.Scenesofintrigue,exile,love and murder propel fastflowing, wittily writtenchapters.Pampalearns,aswriters must, that “once you had created your characters, you had to be bound by their choices.”Thosechoicesareoftenunwise. “Golden ages never last long”: religious bigotry, palace plots and envious neigh bourshastenBisnaga’sdownfallinto“rub ble,bloodandash”. In the closing verses Pampa declares: “Words are the only victors.” Sir Salman may distrust all evangelists, but in this novelheshowshisfaithintheliberating powerofart. n
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TheEconomistFebruary11th2023
Ancientscience
Great minds do not think alike Anaximander.ByCarloRovelli.Translated byMarionLignanaRosenberg.Riverhead Books;272pages;$18.AllenLane;£16.99
O Worldinadish
A perfect pairing
Thai food and British pubs make a delicious combination
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ROM THE outside,theLemonTreeisan unassumingpub.Sittingonaquietroad incentralLondon,itlookslikemanyofthe city’s Georgian boozers. On the ground floor there are dark wooden furnishings, framed etchings and a bar offering local ales,importedlagersandporkscratchings. Thetraditionalsettingsuggestsamenuof pubgrubsuchasburgers.AvisitortoBrit ain’scapitalmaybesurprisedbytheculi narydelightsservedupstairs. Squeezepastthegagglesofofficework ersandlistenoutforthesoundofclanging woksandsizzlingoil.Followtheenticing scent of frying aromatics and fish sauce, andyou’llfindasmallThairestaurantpro vidingwarmingbowlsofmassamancurry andtallmoundsoffriednoodles.Thisisa cultural collaboration not unique to the Lemon Tree. AngloThai grub was first dished out at the Churchill Arms in Ken singtonin1991andisnowservedinatleast 30tavernsacrossLondon. Often Thai cooks will rent a kitchen fromapublandlordinreturnforastream of hungry customers. Ask a patron to ex plainwhythisarrangementseemstowork, andyoumightnoticehiseyebrowflickup ward,citingahunchthatthereasonliesin some landlords’ penchant for marrying Thaiwomen.ItistruethatastudyofThai eateries in Britain found that more than 68%arerunbywomenandthat,according totheHomeOffice,wivesreceivedalmost twothirdsofallsettlementvisasgranted to Thais in the early 2000s. But the phe nomenon of Thai kitchens in pubs is probablytheresultofcommercialoppor
tunitiesratherthanromance. Atthebeginningofthe21stcenturythe Thaigovernmentlaunchedagastrodiplo macy campaign which aimed to increase thenumberofThairestaurantsaroundthe world.(Aswellascelebratingthecountry’s delicacies,officialswantedtotempttour iststovisit.)Forbuddingrestaurateursin Britain,settingupshopinapubwasseen as less risky than starting from scratch. Landlords usually had dining space that was not being used effectively, which madeiteasyforentrepreneurialcooksto makeacompellingbusinesscase. Pubsmayhavepokykitchens,butthat doesnotmatterwiththisstyleofcooking. ManyThaidishesarebasedonstreetfood andrelyonafewversatileingredients,in cludingchillies,coconutmilk,herbs,lime andtamarind.Aflexiblemenudoesnotre quireavaststockroomorcounterspace.It helps, too, that the flavoursome cuisine pairs superbly with beer and is quick to prepare.DishessuchaspadThai,aparticu larBritishfavourite,orseafoodsteepedin aglossysavourysaucecanbewhippedup inasinglewokinminutes. Regardless of how it came to be, the popularity of Thai pub food reflects Lon doners’openmindednessaswellastheir desireforcontinuity.Ifyoumessaround with the formula of a quintessential pub toomuch,youriskunsettlingregularswho takecomfortintradition.Butthat’snotto say you cannot please them with the mouthwateringstreetfoodofBangkok— solongasitisservedwithapintofroom temperaturebitter. n
f the three men usually credited with founding the disciplines of phi losophyandnaturalscience,Anaximander comes second, sandwiched between his teacher, Thales, and his student, Anaxi menes.Beingsecond,itturnsout,wascru cial.Thoughthepolymath(whowasborn around 610BC) admired his teacher, he wasn’t afraid to challenge him. Thales sought the origin of all things in water; Anaximanderpreferredashisfirstprinci ple the less tangible apeiron, the “indefi nite”or“infinite”. Awillingnesstotakethemasterdowna peg or two, according to Carlo Rovelli, a theoreticalphysicist,iskeytothepractice ofscience.Lackingthedeferenceadisciple owes to a prophet, but without the bitter contempt of an apostate, “Anaximander discovered a third way,” he writes, and “modernscienceinitsentiretyistheresult ofthediscoveryofthisthirdway.” Mr Rovelli’s book, first published in Frenchin2009andnewlytranslatedinto English,isnotastraightbiography,aslittle isknownofAnaximander’slifeandhardly any of his original writing survives. In stead,itfocusesonhisrevolutionaryidea that the best way to uncover nature’s se cretsistoquestioneverything.Anaximan derbuilthisowncosmologyontheworkof pastsages,interrogatingtheirtheoriesand makingcorrectionswhereneeded.Hein vented a process that allowed knowledge togrowfromgenerationtogeneration,and enabledhumanitytoreapthebenefits. TheconsequenceofAnaximander’sir reverence was uncertainty. Mr Rovelli ar gues that is a price worth paying: “The reliability of science is based not on cer tainty but on a radical lack of certainty.” Anaximander and his followers rejected mythologicalexplanations.Theyreplaced revelationwithobservationandfaithand scripturewithreason.Asaresult,MrRo velli avers, they set civilisation on a new course,oneinwhichprogressismadeless by accumulating facts than by knowing whatitisyoudonotknow. For Thales, Anaximander and Anaxi menes,allcitizensofMiletus,aGreekcity on the western coast of Anatolia, doubt was a birthright. Positioned between the more ancient civilisations of Egypt and Mesopotamia,andpossessingallthenatu
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Commercialising Quantum US March 23rd-24th 2023 | San Francisco and virtual
More than: 1,500 virtual attendees 400 attendees in San Francisco 80 speakers 60 sessions
From qubits to profits: achieving near-term quantum advantage Alongside editors from The Economist, expert speakers will debate how organisations should prepare for a quantum future. Jane Lauder Executive vice-president, enterprise marketing and chief data officer The Estée Lauder Companies
Edwige A. Robinson Senior vice-president of network engineering and operations T-Mobile USA
David van Weel Assistant secretary general, emerging security challenges NATO
Grace Lee Senior vice-president, chief data and analytics officer, Scotiabank
Michael J. Hayduk Deputy director, information directorate, Air Force Research Laboratory, US Air Force
Lutz Beck Chief information officer Daimler Truck North America
Register free: commercialisingquantum-us.economist.com
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ralcuriosityofayoung,mercantilesociety, theresidentsofMiletuswereexposedtoa variety of beliefs. They could test one doctrineagainstanother,whilebeingbe holdentononeandscepticalofall.“Civili sations flourish when they mingle,” Mr Rovellisays.“Theydeclineinisolation.” Mr Rovelli is a champion of diversity, both cultural and ideological. Just as the citizensofMiletusprofitedfromthewis domoftheirforeignneighbours,modern societiesbenefitwhentheyencouragethe freeexchangeofideas,heinsists.Among theancientGreeks,thiscapacitytoassimi
The Economist February11th2023
lateavarietyoftraditionslednotonlyto the birth of science, but of democracy—a translation of Anaximander’s irreverence for established ways of thinking into the realmofpolitics. The territory Mr Rovelli covers is not unfamiliar, though he notes that these daysitislessfashionabletoveneratelong deadwhitemalethinkers.Still,theauthor believes it is worth championing the in quisitive exploration of the universe that began with Anaximander and his col leagues.Heiseagertodefendthisantitra ditionalisttraditionagainstbothextreme
relativists, who believe there is no truth outsideaparticulartimeandculture,and absolutists who believe there is only one incontrovertibletruth. “Ourknowledge,liketheEarth,floatsin nothingness,” Mr Rovelli says. “Its provi sionalnatureandtheunderlyingvoiddo not make life meaningless; they make it moreprecious.”Thisbookoffersatimely rebuttaltothosewhowouldsacrificethe vital legacy of Western science—and the progressthatcomeswithit—onthealtarof culturalsensitivityorbyretreatingtothe safetyofmetaphysicalrevelation. n
Back Story Thecurtainandthelight In Amsterdam the genius of Johannes Vermeer is on display as never before
A
young woman inabluenightjacket readsaletterthatsheholdsuptoher chest.Themorninglightglintsonthe metaltacksinherchairs.Herlipsare slightlyparted,asifsheismurmuring themessagealoud. TheintimacyofJohannesVermeer’s domesticscenescanseemalmostvoy euristic.Someofhisfigureslookatyou asifturningtowardsanintruder.Yet theyarealsotantalisinglyinscrutable, glimpsedfromadistanceorsealedin privatereveries.In“WomaninBlue ReadingaLetter”,youseethelightbut notthewindowitispouringthrough. Youseetheletterbutnotthewords. Thepaintingisamongthetreasures oftheRijksmuseuminAmsterdamand isamongthe28byVermeer,gathered fromsevencountries,inanexhibition thatopensthereonFebruary10th.Thatis aroundthreequartersofhissurviving works—morethanhaveeverbeenshown togetherbefore,andmorethanthepaint erhimselfwouldhaveseeninonego, notesTacoDibbits,themuseum’sdirec tor.Itisaoneofftributetohisgenius, andhisparticularformofit:thefierce, patientgeniusofperfectedtechnique. Intheabsenceoflettersordiaries, Vermeer’spersonalityisfamouslyhazy. Still,documentsandrecordsplotthe outlineofhislife.Hewasbornin1632in Delft,wherehisparentsrananinncalled theFlyingFox.HiswellheeledCatholic motherinlawmayhavedisapprovedof him,alowlyProtestantbornartist.He hadmorethanadozenchildren.Early on,youngandambitious,hepaintedbig: amyth,aBiblescene,asaint. Inaround1657hiscanvasesand themesshrank,andhemadehisleapto immortality.Introubledtimes,nouveau richeDutchcollectorswantedpicturesof refinedinteriorsandeverydaylife.Ver
meer’scontemporariesdevelopedgenres andtechniquesthatheemulated,then soaredbeyondtheminhisuseofcolour andperspectiveand,aboveall,hisun matchedmasteryoflight. Take“TheLoveLetter”,inwhichamaid hashandedalettertoherseatedmistress. Thewomanseemsperturbed,themaid puckish;perhapsshealreadyknowsthe news.Theviewerispositionedinthe shadowsbeyondadrawncurtain,arecur ringmotifinthesepictures.Eavesdrop pingontheconversationin“Officerand LaughingGirl”,youseethegirl’sbright grinbutthefeaturesofthehulkingofficer areobscure.WhenmenintrudeintoVer meer’sdomesticity,tensioncoursesbe neaththedecorum.In“TheGlassof Wine”,lightsparklesontheemptying glassthatmasksthewoman’sface.The man’shatshadeshiseyes. Vermeer’ssolofiguresreadandwrite, pourmilk,makemusicorlace.Aquiet dramahumsbelowtheirrepose,too. Nothinghappensyetsomethingseemsto, intheirheadsandyours.Thelongingand vulnerabilityinthefaceof“Girlwitha
PearlEarring”areaninvitationtostory tellingandmemes;hereshekeepscom panywiththeothercloseupcharacter studieshepaintedinthemid1660s. Throughsuchjuxtapositionsthe showtracesthedevelopmentofVer meer’scraftandthemodulationsinits themesandmoods.Hewasprobably familiarwiththecamera obscura,adevice thatprojectedanimagethroughapin holeandontoascreeninadarkened chamber(newresearchsuggestshemay havebeenintroducedtoitbytheJesuits ofDelft).AsMrDibbitsexplains,the contraption’sinfluenceisevidentinthe dotsofcolourtheartistusedtosimulate theeffectsoflight,theresultingmixof sharpnessandblurmakinghisvision seemstartlinglyreal. Inthiswayheturnedacoupleof roomsandafewobjects—alute,aglass, somepearls—intominiaturebreathing worlds.Youneednotknowallthealle goricalmeaningsofhisprops,northe socioeconomicconnotationsofthe clothes,tosensethedepthunderthe surface.Letterswrittenandreceived,the mapsmountedonVermeer’swalls—and, aboveall,thosewindowsandthatlight— implyandwithholdthepromiseand periloftheworldoutside. Hediedin1675,pennilessat43after theoutbreakofwarruinedtheDutchart marketandhim.Littleknownforthe nexttwocenturies,todayheisanartistic deity.AttheheartoftheRijksmuseum’s mesmerisinghomageisthatexquisite combinationofintimacyanddistance. Paintedmorethan350yearsago,his subjectsstillseemhauntinglyalive,but theirthoughtsandsecretswillforeverbe theirsalone.Aswellasanypainter,in otherwords,Vermeerdidsomethingthat paintingmaydobest:hecapturedthe eternalmysteryofotherpeople.
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Courses
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Tenders NEW YORK CITY WATER BOARD
CONSULTING SERVICES IN CONNECTION WITH OBTAINING AND MANAGING FEDERAL AND STATE GOVERNMENT GRANT FUNDS DUE: MARCH 15, 2023 AT 4:00 P.M. EASTERN TIME
The New York City Water Board (the “Board”) is soliciting proposals from firms to provide grant application and funding advisory services to the Board and the New York City Department of Environmental Protection (“DEP”). The selected consultant(s) will support the Board and DEP in identifying, evaluating, applying for, administering, and monitoring sources of external funding made available by U.S. Federal and state governmental funding sources. The contemplated Scope of Work is described in the Request for Proposal documents, available using the link below. The Scope of Work will include extensive grant opportunity research, development of a grant evaluation framework, writing and compiling grant application materials, and overseeing the post-award monitoring and reporting process. To obtain the Request for Proposals, please visit nyc.gov/nycwaterboard or email [emailprotected] with the message subject line “Grant Consulting RFP 2023”. The dates and times of the procurement process, and the procedures for submitting a proposal, are explained in more detail in the Request for Proposals document. Prospective bidders are required to adhere to the procedures for communicating with the Board and DEP that are described in the RFP document.
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Economic&financialindicators
TheEconomistFebruary11th2023
Economic data
United States China Japan Britain Canada Euro area Austria Belgium France Germany Greece Italy Netherlands Spain Czech Republic Denmark Norway Poland Russia Sweden Switzerland Turkey Australia Hong Kong India Indonesia Malaysia Pakistan Philippines Singapore South Korea Taiwan Thailand Argentina Brazil Chile Colombia Mexico Peru Egypt Israel Saudi Arabia South Africa
Gross domestic product
Consumer prices
% change on year ago latest quarter* 2022†
% change on year ago latest 2022†
1.0 2.9 1.5 1.9 3.9 1.9 1.7 1.9 0.5 1.1 2.1 1.7 3.1 2.7 1.6 3.2 2.5 4.5 -3.7 0.6 0.5 3.9 5.9 -4.5 6.3 5.0 14.2 6.2 7.2 2.2 1.3 -0.9 4.5 5.9 3.6 0.3 7.1 3.5 1.7 4.4 7.5 8.7 4.1
2.9 nil Q3 -0.8 Q3 -1.2 Q3 2.9 Q4 0.5 Q3 -2.8‡ Q3 0.8 Q4 0.5 Q4 -1.0 Q3 -2.1 Q4 -0.5 Q3 -0.9 Q4 0.9 Q3 -1.2 Q3 1.1 Q3 6.3 Q3 4.1 Q3 na Q4 -2.4 Q3 1.0 Q3 -0.5 Q3 2.6 Q3 -10.0 Q3 19.3 Q4 na Q3 na 2022** na Q4 10.0 Q4 0.8 Q4 -1.5 Q4 -4.3 Q3 5.0 Q3 7.0 Q3 1.6 Q3 -4.6 Q3 6.4 Q4 1.6 Q3 1.8 Q3 na Q3 1.9 2022 na Q3 6.6 Q4
Q4
2.1 3.1 1.4 4.0 3.4 3.3 4.9 2.9 2.6 1.7 5.0 3.9 4.3 5.2 2.5 2.8 3.5 4.5 -2.3 2.9 2.0 5.1 3.5 -3.5 6.9 5.1 7.3 6.2 7.7 3.5 2.6 2.4 3.2 5.7 2.8 2.8 7.6 3.1 2.6 6.6 6.1 8.9 2.3
6.5 1.8 4.0 10.5 6.3 8.5 11.1 8.0 6.0 8.6 7.2 10.1 7.6 5.8 15.8 8.7 5.9 16.6 11.9 12.3 2.8 57.7 7.8 2.0 5.7 5.3 3.8 27.6 8.7 6.5 5.2 2.7 5.0 94.8 5.8 12.3 13.3 7.8 8.7 21.3 5.3 3.3 7.5
Dec Dec Dec Dec Dec Jan Jan Jan Jan Dec Dec Jan Jan Jan Dec Dec Dec Dec Dec Dec Dec Jan Q4 Dec Dec Jan Dec Jan Jan Dec Jan Dec Jan Dec Dec Jan Jan Dec Jan Dec Dec Dec Dec
8.0 1.9 2.5 7.9 6.8 8.4 8.6 10.3 5.9 8.7 9.4 8.7 11.6 8.3 15.1 7.9 6.4 14.4 13.2 7.7 2.8 73.5 6.4 1.9 6.5 4.2 3.4 19.9 5.6 6.1 5.1 2.9 6.1 72.5 9.3 11.6 10.2 7.9 7.9 13.9 4.4 2.5 7.0
Unemployment rate
Current-account balance
Budget balance
%
% of GDP, 2022†
% of GDP, 2022†
3.4 5.5 2.5 3.7 5.0 6.6 5.0 5.5 7.1 2.9 11.6 7.8 3.5 13.1 2.2 2.7 3.2 5.2 3.7 6.9 1.9 9.9 3.5 3.5 7.1 5.9 3.6 6.3 4.5 2.0 3.0 3.6 1.2 7.1 8.1 7.9 10.3 3.0 6.2 7.4 4.2 5.8 32.9
Jan Dec‡§ Dec Oct†† Dec Dec Dec Dec Dec Dec Dec Dec Dec Dec Dec‡ Dec Nov‡‡ Dec§ Dec§ Dec§ Jan Nov§ Dec Dec‡‡ Jan Q3§ Nov§ 2021 Q4§ Q4 Dec§ Dec Nov§ Q3§ Nov§‡‡ Dec§‡‡ Dec§ Dec Dec§ Q3§ Dec Q3 Q3§
-3.7 2.4 1.4 -5.9 -0.6 0.9 -0.5 -2.8 -1.9 4.2 -5.8 -0.9 6.5 0.5 -2.4 9.0 18.8 -3.7 12.3 3.8 7.0 -8.1 2.1 5.5 -2.7 1.0 2.4 -3.2 -4.0 18.7 1.2 12.7 -3.3 -1.0 -2.9 -8.0 -5.7 -1.4 -4.8 -4.6 3.5 12.6 -1.5
-5.5 -5.6 -6.1 -6.8 -2.3 -3.9 -3.6 -4.9 -5.1 -3.5 -4.5 -5.6 -1.5 -4.3 -5.1 0.9 12.2 -3.7 -1.1 -0.5 -1.0 -3.4 -1.9 -3.5 -6.4 -2.4 -5.3 -7.8 -7.7 -1.0 -3.1 -1.4 -2.7 -4.2 -4.7 1.1 -5.0 -2.5 -1.5 -7.4 0.5 3.3 -5.5
Interest rates
Currency units
10-yr gov't bonds change on latest,% year ago, bp
per $ Feb 8th
% change on year ago
6.78 131 0.83 1.34 0.93 0.93 0.93 0.93 0.93 0.93 0.93 0.93 0.93 22.2 6.94 10.3 4.42 72.7 10.6 0.92 18.8 1.44 7.85 82.5 15,100 4.30 272 54.8 1.33 1,260 30.1 33.5 190 5.23 798 4,786 18.9 3.85 30.4 3.49 3.75 17.8
-6.0 -12.1 -10.8 -5.2 -5.4 -5.4 -5.4 -5.4 -5.4 -5.4 -5.4 -5.4 -5.4 -4.1 -6.0 -14.3 -10.2 3.3 -13.7 nil -27.7 -2.8 -0.8 -9.4 -4.7 -2.8 -36.0 -6.0 1.5 -5.0 -7.3 -1.6 -44.3 0.8 3.7 -17.5 9.1 -0.3 -48.2 -7.7 nil -13.6
3.6 2.7 §§ nil 3.4 3.0 2.3 3.0 3.0 2.8 2.3 4.3 4.2 2.7 3.2 4.5 2.5 1.4 6.0 10.7 2.0 1.4 11.1 3.6 3.4 7.3 6.6 3.8 14.7 ††† 6.4 3.1 3.3 1.2 2.6 na 13.3 5.6 11.9 8.7 7.8 na 3.3 na 9.8
167 31.0 -8.0 191 116 207 239 231 210 207 179 234 225 218 145 194 76.0 211 134 133 110 -1033 150 158 53.0 14.0 6.0 381 137 118 59.0 46.0 55.0 na 205 -5.0 309 102 172 na 159 na 44.0
Source: Haver Analytics. *% change on previous quarter, annual rate. †The Economist Intelligence Unit estimate/forecast. §Not seasonally adjusted. ‡New series. **Year ending June. ††Latest 3 months. ‡‡3-month moving average. §§5-year yield. †††Dollar-denominated bonds.
Commodities
Markets % change on: In local currency
United States S&P 500 United States NAScomp China Shanghai Comp China Shenzhen Comp Japan Nikkei 225 Japan Topix Britain FTSE 100 Canada S&P TSX Euro area EURO STOXX 50 France CAC 40 Germany DAX* Italy FTSE/MIB Netherlands AEX Spain IBEX 35 Poland WIG Russia RTS, $ terms Switzerland SMI Turkey BIST Australia All Ord. Hong Kong Hang Seng India BSE Indonesia IDX Malaysia KLSE
Index Feb 8th
4,117.9 11,910.5 3,232.1 2,141.3 27,606.5 1,984.0 7,885.2 20,679.5 4,209.2 7,119.8 15,412.1 27,160.7 748.4 9,227.3 60,952.3 981.8 11,276.3 4,505.3 7,740.5 21,283.5 60,663.8 6,940.1 1,470.8
one week
nil 0.8 -1.6 -1.5 0.9 0.6 1.6 -0.3 0.9 0.6 1.5 1.7 0.1 1.4 0.8 -2.1 0.7 -4.4 0.4 -3.6 1.6 1.1 -1.0
% change on:
Dec 31st 2021
-13.6 -23.9 -11.2 -15.4 -4.1 -0.4 6.8 -2.6 -2.1 -0.5 -3.0 -0.7 -6.2 5.9 -12.0 -38.5 -12.4 142.5 -0.5 -9.0 4.1 5.4 -6.2
index Feb 8th
Pakistan KSE Singapore STI South Korea KOSPI Taiwan TWI Thailand SET Argentina MERV Brazil BVSP* Mexico IPC Egypt EGX 30 Israel TA-125 Saudi Arabia Tadawul South Africa JSE AS World, dev'd MSCI Emerging markets MSCI
41,723.3 3,388.5 2,483.6 15,618.2 1,670.3 250,125.4 109,951.5 53,125.0 16,948.1 1,836.4 10,507.7 79,975.6 2,802.0 1,020.6
one week
2.7 0.3 1.4 1.3 -0.9 -0.4 -1.9 -3.4 3.3 0.1 -2.6 0.2 -0.3 -2.1
Dec 31st 2021
-6.4 8.5 -16.6 -14.3 0.8 199.6 4.9 -0.3 42.3 -11.4 -7.3 8.5 -13.3 -17.2
Investment grade High-yield
2015=100
latest
141 439
Dec 31st 2021
120 332
Sources: Refinitiv Datastream; Standard & Poor's Global Fixed Income Research. *Total return index.
Jan 31st
Dollar Index All Items Food Industrials All Non-food agriculturals Metals
% change on Feb 7th* month year
162.4 142.3
158.8 142.2
2.2 1.7
-11.7 -4.9
181.1 134.2 195.0
174.4 130.4 187.5
2.6 2.0 2.7
-16.2 -24.7 -14.2
Sterling Index All items
201.3
201.9
3.4
-0.3
Euro Index All items
165.8
164.8
2.5
-5.7
1,928.2
1,875.2
nil
2.7
85.1
83.9
4.6
-7.8
Gold $ per oz Brent $ per barrel
US corporate bonds, spread over Treasuries Basis points
The Economist commodity-price index
Sources: Bloomberg; CME Group; Cotlook; Refinitiv Datastream; Fastmarkets; FT; ICCO; ICO; ISO; Live Rice Index; LME; NZ Wool Services; Thompson Lloyd & Ewart; Urner Barry; WSJ. *Provisional.
Formorecountriesandadditionaldata,visit economist.com/economicandfinancialindicators
The Economist February11th2023 77
→ As the Mediterranean Sea closed up, larger plates squeezed the Anatolian microplate from all directions 100m years ago
Teth ys
50m years ago
25m years ago
sea Anatolian microplate
200km B l a ck S ea
North Anatolian fault
Istanbul
Eurasian plate
↓
Ankara GREECE
↓
Anatolian microplate
Earthquake activity Feb 6th 2023 7.5
TURKEY
East Anatolian fault
Initial quake 7.8 magnitude Aegean microplate
↓
↙
Arabian plate
IRAQ
CYPRUS
↓ 012
Graphic detail Seismology
SYRIA
African plate M e d i t e rra n ea n S ea
LEBANON Sources: USGS; Christopher Scotese, Paleomap Project, 2016; “An updated digital model of plate boundaries”, Peter Bird, 2003; The Economist
Stuck in the middle Turkey sits at the crossroads of tectonic plates as well as civilisations
T
he earthquakes that ripped across southernTurkeyandnorthernSyriain the small hours of February 6th were amongthemostdevastatingofthiscentu ry.Withinthreedaysofthedisaster,there ported death toll surpassed 10,000. This horrifying impact stems largely from shoddy construction practices and from the timing of the quake, which occurred whilepeopleweresleeping.Butanyseis mic event this powerful—the biggest quakes were of magnitude 7.8 and 7.5— would inflict grave damage. Worldwide, onlyaround15earthquakesofmagnitude sevenorgreaterhappeneachyear. AlthoughTurkeyisfarfromthePacific “ring of fire” that generates most of the world’s strongest earthquakes, its neigh bourhoodisunusuallyseismicallyactive. Quakestendtooccuralongtheboundaries between tectonic plates, the segments of
Earth’scrustthatgetmovedaroundbycon vectioncurrentsinthehotmantlebelow. Alongthefaultlinesthatseparateplates, crustalrocksmoveslowlypasteachother, often sticking and jamming. This causes strain to accumulate until the fault slips, causinganearthquake. TheeasternMediterraneanhasapartic ularly complex tectonic structure involv ing several “microplates”, including the Anatolianplate,onwhichmostofTurkey sits.Amere100myearsago,thisplatecom prisedpartofthesouthernshoreofasea calledTethys,whichseparatedAfricafrom Eurasia. As this body of water closed up, Earthquakes since 1900, near selected fault lines Largest in a moving seven-day period 80 East Anatolian fault 60 40
Feb 6th 2023 North Anatolian fault 5
6 7 Magnitude (only five and over)
20 0
8
leavingtheAral,Black,CaspianandMedi terranean seas as its only remnants, the Anatolian plate drifted north. It then got squeezed between four others, including theArabianplatetothesoutheast(which ismigratingnorth)andtheEurasianplate tothenorth(whichismovingsouth).Both oftheseplatesarestillpushingintotheir smallAnatolianneighbourtoday. In the wake of a catastrophic earth quakenearIstanbulin1999,Turkishlead ers vowed to improve seismic prepared ness.ThattremororiginatedintheNorth Anatolian fault, the Anatolian plate’s boundary with the Eurasian plate, which has been the source of most of Turkey’s largequakes.Incontrast,theEastAnato lianfault,whereitrubsupagainsttheAra bianplate,hadnotseenaquakeofatleast magnitude seven since modern monitor ingsystemsbeganinthelate19thcentury. Many other active fault systems, such as the Cascadia subduction zone in the northwestern United States and south westernCanada,havegonecenturieswith outanearthquake.Suchrelativequietdoes notnecessarilyindicatelowseismicrisk. Strain along the East Anatolian fault had been building up year after year, making thefaultripeforacataclysm. n
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78
Obituary PervezMusharraf
Whisky and moderation
Pervez Musharraf, who seized power in Pakistan in 1999, died on February 5th, aged 79
W
hen Pervez Musharraf wasnamedarmychiefofPakistan in1998,hewasasurprisingchoice.Ahotheadedformerar tilleryman,knownforbraveryunderfireandoccasionalindisci pline,hewasthirdonthelistofgeneralsthatNawazSharif,the thenprimeminister,wasgiventopickfrom.Hewasalsoanout lierinatopbrassdominatedbyethnicPunjabisandPushtuns.Mr MusharrafhailedfromKarachi;hisUrduspeakingfamilyhadmi gratedtherein1947fromDelhi,wherehewasborn.MrSharif,it wasclear,sawhimasaweakarmychiefhecouldcontrol. ThiswasafamiliarployofPakistan’sputupcivilianleaders. ZulfikarAliBhuttoappliedthesamelogicwhenappointingMu hammad Zia ulHaq army chief in1976. Zia promptly removed Bhutto in a coup, hanged him and ruled Pakistan until he was killedinaplanecrashin1988.MrSharifhadsimilarlyunderesti matedMrMusharraf.Theartillerymantoppledhiminacoupin 1999,hadMrSharifsentencedtolifeinprisonandruledPakistan, as“chiefexecutive”thenpresident,untilhisresignationin2008. Heseemedatfirstlikejustanotherbullyingfauji.MrMushar rafreveredthearmy,theinstitutionthatgenerallypresumesto runPakistan,withapassionfoundedoncomradeshipandblood. HefoughtintwowarsagainstIndia,in1965and1971,earningagal lantrymedalandreputationforimpetuousness.Hebarelyhidhis scorn for civilians, especially politicians, among whom he re servedspecialcontemptforMrSharif.Hecouldneverforgivethe formerprimeministerforhavingdaredtotrytosackhimonthe eveofhiscoup.YetevenasPakistan’sswaggeringgeneralissimo, MrMusharrafstillseemedaslightlyoddballchoice. Zia,anIslamicfundamentalistwithadisdainfornonMuslims andWesternculture,hadpushedthecountryfartothereligious right.MrMusharraf,thoughpassablyGodfearing,seemednotto havegotthemessage.EducatedbyCatholicpriests,atKarachi’s prestigiousStPatrick’sHighSchool,helovedrockmusic,dogsand
The Economist February11th2023
whisky.HelikedWesternfashionssomuchhisarmycomrades calledhim“Cowboy”.AchildhoodspellinTurkey,wherehisfa therwasstationedasadiplomat,helpedformthesetastes.Here tainedalifelongregardforitsgreatreformer,KemalAtaturk.But mostlyherepresentedthemoresecular,liberalPakistanitsfoun der,MuhammadAliJinnah,hadonceimaginedthecountrytobe. HismoderationmadeMrMusharrafwellplacedforthegreat eventofhisrule.Zia,withAmerica’sblithesupport,hadorches trated a jihadist campaign against the Soviet occupation of Af ghanistan.ButonSeptember11th,2001veteransofthatstruggleat tackedAmerica,arousingitsfury.“Eitheryou’rewithus,oryou arewiththeterrorists,”thunderedGeorgeW.Bush.ForMrMush arraf,unlikemanyofhiscomrades,itwasnotarealchoice. He provided the Americans access to Pakistani airspace and roads, allowing them to wage war in Afghanistan. He also gave themsome,atleast,ofthealQaedafighterswhofledthatcountry intoPakistan.MrBushsalutedthecoupsterpresidentasa“strong defenderoffreedom”.HavingcutoffaidtoPakistaninthe1990s, Congressshowereditwithmoney.ItwasAmerica’sindispensable allyinthewaronterror,andMrMusharrafitsadmiredleader. Hiscourageandmoderationwerebothapparentinthisshift. Athome,hewasdenouncedasanAmericanpoodleandwasthe targetofmultipleassassinationattempts.Uncowed,hedoubled downonhisreformprogramme.Heliberalisedthemedia,encour agedpopcultureandpassedmeasurestoprotectwomenfromthe chauvinistIslamistlegalregimethatZiahadbuilt. With two Indian prime ministers, Atal Bihari Vajpayee then Manmohan Singh, he also launched a bold peace process. Mr Musharrafgotitmovingwithavisittohisbirthplace,Delhi,in 2001. And when negotiations got stuck, it was often he who seemedmostwillingtounstickthem.Hisadviserslookedonin alarmasthegeneralriffed,seeminglyoffthecuff,onhowtofix thisorthatterritorialdispute. Yethispresidency,andwithitthepeaceprocess,wasonbor rowedtime.Thecontradictionsinhisposition,asanenlightened despotandmoderateleaderofanIslamicisedarmy,madehim,in theend,anuncertainreformerandunreliableally.Theliberalpro gresshebroughtcameatthecostofthedemocraticinstitutionshe suborned.HiscrackdownonmilitancywasundercutbytheIslam istpoliticalpartiesheusedtoquashhisdemocraticopponents. Andalsobythearmy.Heeventuallycameclosetoadmittingwhat wasallalongsuspected—that,whilefightingmilitantsathome, Pakistan’sgeneralscontinuedsupportingtheiroldallies,theAf ghanTaliban,topreventIndiagaininginfluenceinAfghanistan. By2007thecontradictionshadbecomeunsustainable.Paki stanwasbeingravagedbyterrorism.Thelimiteddemocracythat Mr Musharraf permitted had led to mass protests against him. Callinghimself“indispensable”,hebrieflysuspendedtheconsti tution.Butthearmy,andAmerica,hadtiredofthedisorder.When hisopponentswonanelectionin2008heresignedthepresidency andfledtoLondonratherthanfaceimpeachmentproceedings. In his labyrinth ItispartlyanindictmentofMrMusharraf’ssuccessorsthathis dictatorshipisrememberedfondlybymanyPakistanistoday.No leader since has come close to repeating the seriousness of his peacemakingwithIndia.HealsoleftsomepositivemarksonPaki stan.Hisliberalisationofitsmediaisanenduringsuccess.Per hapsmostofall,however,hewassynonymouswithatimewhen the country was important geopolitically, something few Paki stanisappreciateduntiltheopportunityitpresentedhadpassed. Forallhisseriousfailings,thebluffgeneraldidtrytoturnPaki stan’sstrategicmomenttoitsadvantage.Buthisreactionaryoppo nents,militaryandcivilian,sponsorsofmilitancyanddisorder, squanderedthechance.Anditmaynevercomeagain.Whatever themeritsofPakistan’snextdictator,heisunlikelytobefetedin Washington,asMrMusharrafoftenwas. n
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HIGH WATCHMAKING
Tambour Carpe Diem Automata Hand-wound mechanical movement manufactured by La Fabrique du Temps Louis Vuitton in Geneva. Time display and dial animations on demand.
