The Economist - February1-7 2014


Emerging markets: don’t panic Mobile health, miracle cure Behold Bello, our Latin American column Brands in the age of scepticism
FEBRUARY 1ST– 7TH 2014

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How Neanderthal are you?

The triumph of Vladimir Putin

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Contents
5 The world this week Leaders 7 Russia and the world The triumph of Vladimir Putin 8 Barack Obama’s stateof-the-union speech Deal or no deal? 8 Emerging markets Don’t panic 9 Thailand’s political crisis A way out 10 Tax rates in Britain Fran?ois Miliband Letters 12 On climate change, Turkey, housing, hospices, Asia, sex and public life, Spain, marijuana Brie ng 16 Putin’s Russia Sochi or bust Asia 19 Afghanistan’s future Playing with re 20 Thailand’s political crisis The show staggers on 21 Japanese politics The odd couple 21 Agreement in Mindanao A fragile peace 22 Asylum-seekers Go north, young man 22 Nauru Aussies out! 23 Western Australia The Devil in the deep blue sea 24 Banyan Snarling, not pouncing in Pakistan China 25 The cost of medicine Physician, heal thyself 26 Environment Browner, but greener 26 Tennis and patriotism Free spirit United States 27 The state of the union Obama vows action 28 The Republican response Saying no with a smile 29 Class in America Mobility, measured 30 Utah’s dirty air In the bleak midwinter 30 Pete Seeger Bolshie with a banjo 31 The cadaver market Death, where is thy bling? 31 A map of Mexicans The border jumped them 32 Lexington Heads and hearts The Americas 33 Argentina and Venezuela The party is over 34 Bello Relearning old lessons 36 Canada’s Liberal senators Kicked out 36 Chile, Peru and the ICJ A line in the sea Middle East and Africa 37 South Africa Jacob Zuma’s headaches 38 Saudi Arabia No satisfaction 39 Sudan... Downhill 39 ...and its borderlands Remote and restless 40 Yemen and al-Qaeda An island prison? 40 Israeli politics Poised on the right wing Europe Ukraine’s protests Praying for peace Hungary and the Holocaust Statue of limitations Turkey Madness on the Bosphorus The German mentality The Swabian housewife Paris’s mayor An all-female race Charlemagne The euro’s hellhound

The Economist February 1st 2014 3

On the cover The Winter Olympics and successes abroad make Russia look strong, but where it matters, it is weak: leader, page 7. The deeper problems in the Russian economy, pages 16-18. In Ukraine the government falls, but protests continue, page 41. Why Barack Obama and Vladimir Putin will never get along, page 72

State of the union American politics may be becoming a bit less dysfunctional: leader, page 8. The state-of-theunion address revealed an administration hoping for something to turn up, page 27. Cathy McMorris Rodgers, the Republicans’ new face on the national stage, page 28. America is no less socially mobile than it was a generation ago, page 29

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Our new Latin America column Andrés Bello exempli es Latin America’s enduring need for the rule of law, education and openness, page 34

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Volume 410 Number 8872
Published since September 1843 to take part in "a severe contest between intelligence, which presses forward, and an unworthy, timid ignorance obstructing our progress." Editorial o ces in London and also: Atlanta, Beijing, Berlin, Brussels, Cairo, Chicago, Hong Kong, Johannesburg, Los Angeles, Mexico City, Moscow, New Delhi, New York, Paris, San Francisco, S?o Paulo, Singapore, Tokyo, Washington DC

42 43 44 46

South Africa The ruling African National Congress faces its toughest election since the end of apartheid, page 37. Life, love, fear and sweat in apartheid Johannesburg, page 71

1 Contents continues overleaf

4 Contents

The Economist February 1st 2014

Britain 47 Scottish independence Ayes to the left 48 Labour’s strategy The Mili-plan 49 Bagehot In praise of parliamentary jousting International 50 Teaching mathematics Time for a cease re 51 Measuring health care Need to know 51 Braille Joining the dots Business Walmart Less amazing than Amazon Turkish conglomerates Too big to fail, but in a good way European chemicals Fixing a at M-health Health and appiness Machine learning Don’t be evil, genius Schumpeter Brands and scepticism

Emerging markets There is no reason for a global crisis: leader, page 8. Developing economies struggle to cope with a new world, page 59. Latin America’s weakest economies are reaching breaking-point, page 33. Other currencies’ losses may be the dollar’s gain: Buttonwood, page 60

Science and technology 66 Human evolution Kissing cousins 67 Melting ice shelves Filmy rn 67 Preventing anaphylaxis Not a nutty idea 68 Moths and sloths Slow food movement 68 Creativity and cheating Mwahahaha Books and arts 69 The search for neutrinos Dig deep 70 Jonathan Lethem’s ction From near and far 70 Surnames and social mobility Have and have more 71 Growing up in Johannesburg Call of the wild 72 Russia and America Testy relations 72 Lars von Trier’s Nymphomaniac Strange tastes 76 Economic and nancial indicators Statistics on 42 economies, plus a closer look at global smartphone sales Obituary 78 Claudio Abbado The art of listening

How Neanderthal are you? The genetic contribution Neanderthal man made to modern humanity is clearer, page 66
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55 56 57 58 Mobile health Can gadgets and apps work the miracle of making health care both better and cheaper? Page 56. Google buys a British arti cial-intelligence startup, page 57. To improve health care, governments need to use the right data, page 51. In China medicines are over prescribed and over priced, page 25

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Finance and economics 59 Emerging markets Locus of extremity 60 Buttonwood The dollar’s moment 61 ICBC and Standard Bank Limited partnership 62 Shadow banking in China Credit paroled 62 Bitcoin Bitten 63 European banks Volcker plus 63 Micro nance Poor service 64 The Consumer Financial Protection Bureau Caveat vendor 65 Free exchange The price of getting back to work

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Brands They are nding it hard to adapt to an age of scepticism: Schumpeter, page 58

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The world this week
Politics
accused of being part of a scam that siphoned o an alleged $100m of government money. A cease re between South Sudan’s government forces and rebels was declared in Addis Ababa, capital of neighbouring Ethiopia, after an internal con ict that has left at least 10,000 dead and 700,000 displaced. But there were doubts that it would be fully implemented. In Egypt, terrorism and a government crackdown on demonstrations marking the third anniversary of the start of the unrest that led to the overthrow of Hosni Mubarak left at least 49 people dead. The government announced that presidential elections would precede parliamentary ones within 90 days of the rati cation of a new constitution, recently endorsed in a referendum. The armed forces’ supreme council urged General Abdel Fattah al-Sisi, the de facto head of the government, to announce that he would be a candidate. Meanwhile Muhammad Morsi, the Islamist president toppled by the army last July, appeared in court again, this time on charges of escaping jail in 2011, when the Mubarak regime had him detained. Syrian delegations from the government and rebel groups met face-to-face for the rst time at a peace conference in Geneva. A proposal was aired to bring food and medicine to parts of the city of Homs besieged by government forces. But a plan previously mooted for a transitional government got nowhere. The Turkish army said it had attacked a convoy carrying men and arms belonging to the Islamic State of Iraq and al-Sham (ISIS) in northern Syria, an unprecedented action indicating a determination to limit the in uence of jihadists among Syria’s rebels. The rst two of 70 defendants, most of them civil servants, appeared in court in Malawi, sures. In an encouraging departure, Mr Obama mostly veered away from taking potshots at Republicans. The House of Representatives passed a farm bill extending fat subsidies to farmers for the next ve years. Attempts to trim the handouts, which had delayed the bill for two years, mostly failed. The bill also extended food stamps for hard-up Americans, a programme that has expanded greatly in recent years.

The Economist February 1st 2014 5 Calling for more sacri ce Ukraine’s president, Viktor Yanukovych, went on sick leave. For weeks protesters have been calling on him to step down. His prime minister, Mykola Azarov, had earlier announced his resignation, but this had not been enough to placate the protests, which spread outside the capital, Kiev. Ukraine is on the brink of civil war according to a former president.
A summit of the European Union and Russia was dominated by the crisis in Ukraine. Vladimir Putin, Russia’s president, warned the EU against interfering, just minutes after José Manuel Barroso, the president of the EU Commission, announced that Catherine Ashton, Europe’s foreignpolicy chief, would go to Kiev to hold talks. Mr Putin also suspended a Russian loan to Ukraine pending the formation of a new government. He had earlier assured Ukrainians that he would honour the loan regardless of who was in power. Ratko Mladic, the former Bosnian Serb army chief who is being tried for war crimes, was called to testify in the trial of Radovan Karadzic, the former Bosnian Serb leader, at a court in The Hague. Mr Karadzic, the Butcher of Bosnia , had asked his former ally to speak in his defence. But Mr Mladic denounced the court, calling it satanic .

All at sea The International Court of Justice in The Hague handed down a ruling on the disputed maritime border between Peru and Chile. The judgment handed Peru control of 50,000 square km of ocean, but let Chile retain inland waters. Neither side was completely satis ed.
Justin Trudeau announced that the 32 Liberal senators in Canada’s Senate would no longer be members of the party. The Liberal leader claimed the move would buttress the independence of Canada’s second chamber, whose image has been hurt by an expenses scandal. Nicaraguan lawmakers changed the constitution to scrap term limits. The amendment will allow Daniel Ortega, the country’s president, to run for a third term in 2016.

Fighting for peace The government of the Philippines struck a breakthrough peace deal with the Moro Islamic Liberation Front in the south of the country. The army launched a two-day o ensive against insurgents who belong to a group which opposes the accord, killing at least 37 rebels.
Six people were shot dead by police and six were killed in explosions amid clashes in China’s Xinjiang region, the home of many from the Muslim Uighur minority. Chinese media claimed the clashes were caused by terrorists , but Uighur activists say that tight Chinese control is usually the cause of tensions. Meanwhile, police detained Ilham Tohti, a prominent Uighur scholar, at his home in Beijing. A Chinese court sentenced Xu Zhiyong, a prominent humanrights activist, to four years in prison. Mr Xu, who campaigned against o cial corruption and argued for the Communist Party to follow the country’s constitution, was convicted of gathering crowds to disrupt public order . Several other activists face similar charges. Organisers of the launch of a book by Malala Yousafzai in the Pakistani city of Peshawar cancelled the event under pressure from local government. Police insisted it was stopped because of security concerns. Ms Yousafzai was 14 when she was shot in the head by the Taliban in Pakistan, because of her campaign to promote girls’ education.

I’m in charge

Barack Obama used his stateof-the-union speech to Congress to promise a year of action , especially on tackling rising inequality. He said he would bypass Congress and use executive orders to pursue his agenda if need be, though he proposed only small mea-

Fran?ois Hollande, the president of France, con rmed that his shared life with his partner, Valérie Trierweiler, had ended. All references to and photographs of Ms Trierweiler were erased from the 1 Elysée presidential website.

6 The world this week
mortgage securities in America. The unexpected provisions mean the bank, which is still not close to fully returning to the private sector ve years after a bail-out, may report an annual loss of up to ?8 billion. Britain’s economy grew by 1.9% in 2013 according to a preliminary estimate, the fastest pace since 2007. Fiat con rmed that it will list in New York with a secondary listing in Milan after it merges with Chrysler, another shift away from its Italian domicile. It also lowered its pro t forecast for the year, as poor sales in Latin America and Europe continue to drag down earnings, and scrapped its dividend. Ford made a pre-tax pro t of $8.6 billion last year, its best in a decade, handing its union workers a record $8,800 each in pro t share. The carmaker is producing more than 20 new models in 2014, including a version of the popular F-150 that increases fuel e ciency by using mostly aluminium instead of steel in its body. Apple reported revenue of $57.6 billion for the nal quarter of 2013, which was slightly higher than in the same period in 2012, and net pro t of $13.1 billion. It sold a record 26m iPads and 51m iPhones in the period. But its share price tumbled as iPhone sales were below what most analysts had forecast. By contrast, Facebook’s share price jumped in response to its robust quarterly earnings, which showed it bringing in more revenue from advertising on mobile devices than on computers for the rst time. The social network celebrates its 10th birthday in February.

The Economist February 1st 2014
chess prodigy and specialist in arti cial intelligence. DeepMind is developing research into logarithms that mimic the way the mind thinks. Google separately sold the handsetmaking business of Motorola to China’s Lenovo for $2.9 billion. Google paid $12.5 billion for Motorola in 2012 including its trove of patents, which it is keeping. Nintendo posted a sharp fall in pro t for the nine months to the end of December. Sales are agging. It now expects to sell only 2.8m Wii U games consoles in its scal year, far short of an earlier estimate of 9m.

Business
Argentine peso
Against the $, inverted scale 6.5 7.0 7.5 8.0 8.5 1 6 13 20 January 2014 27

Source: Thomson Reuters

Markets saw the biggest sello in emerging-market currencies for years. The rout was triggered by Argentina’s decision to devalue the heavily regulated peso by letting it slide against the dollar; it fell by 15% over a few days, rekindling memories of the dark days of 2002. The move spooked investors already jittery about the prospects for some emerging markets over issues such as big currentaccount de cits and high public spending. The Turkish lira plunged and the currencies of South Africa, Brazil and others also came under pressure. Stockmarkets swooned. In response Turkey’s central bank more than doubled its key interest rate to 10%, abandoning a policy of low rates to encourage growth. South Africa raised its main rate by half a percentage point, to 5.5%. India increased its own by a quarter of a percentage point, to 8%. Russia intervened in markets to support the rouble.

Liberty’s empire John Malone expanded his reach in Europe when his Liberty Global bought Ziggo, a Dutch cable operator, for 6.9 billion ($9.4 billion). Mr Malone has snapped up several European cable companies over the past two years, including Virgin Media, and is reportedly in a bidding war with Vodafone to buy Spain’s Ono. His Liberty Media is the biggest investor in Charter Communications, which is attempting to buy Time Warner Cable.
Google made its biggest acquisition in Europe to date, paying ?400m ($660m) for DeepMind, a startup in London founded by Demis Hassabis, a

Smitten, then bitten by Bitcoin Bitcoin’s reputation took another knock when two men were arrested in America on charges connected to the operation of Silk Road, a website used to deal drugs that was shut down last year. One of the men founded BitInstant, hitherto seen as the legitimate side of Bitcoin trading which has attracted a big investment from Cameron and Tyler Winklevoss. The twins this week called for a sheri to police the wild west of virtualcurrency cowboys .
Other economic data and news can be found on pages 76-77

Tapering is the catalyst All eyes soon turned to the Federal Reserve’s policy meeting, where it decided to reduce its bond-buying programme by a further $10 billion a month, to $65 billion, scaling back its purchases of long-term bonds and mortgage-backed securities. It was Ben Bernanke’s last meeting as chairman of the central bank.
In an indication of how it is still hobbled by its pre- nancial-crisis ventures, Royal Bank of Scotland set aside another ?3.1 billion ($5 billion) for legal costs, most of which relate to claims that it mis-sold

Leaders

The Economist February 1st 2014 7

The triumph of Vladimir Putin
Successes abroad and the Winter Olympics make Russia look strong; but where it matters, it is weak N 2008, soon after winning the competition to stage the 2014 Winter Olympics, Vladimir Putin, the country’s president, announced that at last Russia has returned to the world arena as a strong state a country that others heed and that can stand up for itself. Next weekend sees the opening of Russia’s rst Olympiad since the summer games in Moscow in 1980. At the president’s behest, the games are being held at Sochi, an unsuitable subtropical resort, and the government has spent $50 billion four times the cost of the jamboree in London in 2012 on staging the event. Big posters proclaim Russia Great, New, Open! State-owned Sberbank o ers the faintly menacing motto, Today Sochi, tomorrow the world. The Olympic celebrations come after a good year for Mr Putin. At home, he has seen o the huge protests that greeted his return to the Russian presidency in 2012. Lacking any serious challenger, he has felt con dent enough to free both Mikhail Khodorkovsky, a business oligarch whom he jailed in 2003, and the Pussy Riot protesters. Abroad, Mr Putin has used his UN Security Council veto to see o Western ideas of military intervention in Syria, instead brokering a deal on chemical weapons and sponsoring a Syrian peace conference. His brutal ally, Bashar Assad, remains in power. Mr Putin has taken some comfort that NATO’s campaign in Afghanistan has been as di cult and frustrating as the one the Soviet Union endured 30 years ago and a lot longer (see page 19). He has raised Russian defence spending. And he has left European diplomats looking at-footed by deploying a mix of money and threats to persuade Ukraine’s president, Viktor Yanukovych, to walk away from a trade deal he was preparing to sign with the European Union. Yet the revival of Mr Putin’s fortunes is not quite as impressive as it seems. It is not just that Russia’s political model has little appeal to others. Its resurgence is limited by a corrupt, statedirected economy that seems to be condemned to stagnation (see pages 16-18). A skater with feet of clay After Mr Putin became president in December 1999, economic growth was strong enough for Russia to be classed in the BRIC group of fast-growing countries. Russians’ incomes rose in tandem, and pensions and welfare bene ts improved and were paid on time. This was a large part of the explanation for Mr Putin’s popularity with ordinary Russians. They supported him not just because he promised to make Russia strong, but also because he was seen to have brought stability and rising living standards after the chaos and ruin of the 1990s. However, this achievement was founded almost entirely on oil and gas prices, which have climbed vefold since 1999. Dependence on energy exports is greater even than under the Soviet Union: they now account for 75% of the total, against 67% in 1980. In 2012 Russia’s total bilateral trade with America was worth only $28 billion, and its trade with China, despite a

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long, shared border and copious amounts of commodities to sell, amounted to just $87 billion. By contrast America’s trade with China was worth $555 billion. At home, high labour costs and low productivity make much of Russian industry uncompetitive, so most goods in the country’s shops are imported. Investment is too low; capital continues to leave the country, along with talented young Russians. A bloated and ine cient state, plus the rms it controls, account for half of GDP. And, as the Sochi costs indicate, corruption is endemic. Graft and ine ciency cost Gazprom $40 billion in 2011, according to the Peterson Institute, an American think-tank. An even larger sum is siphoned o by well-connected oligarchs and squirrelled away in countries like Switzerland and Britain that are prepared to tolerate the crooks whom America wisely rejects. Ten years ago the Russian budget balanced if oil was around $20 a barrel; today it needs to be around $103. The Urals blend price has fallen to $108. Meanwhile, new shale gas, which Mr Putin loves to ridicule but in fact typi es the American entrepreneurialism that could never thrive in his kleptocracy, promises to push oil and gas prices down. Now that energy prices have stopped rising, best estimates of GDP growth have been cut to below 1.5% in 2013 and to 2% in 2014. America and Britain are both doing better, and Russia’s BRIC competitors, Brazil, India and China, are growing far faster. Russia is in the same growth league as the agging euro zone the weak countries Mr Putin pours scorn on. Inspiration from Ukraine The problem, as always, is governance. The list of needed reforms is familiar: more competition, the privatisation of state rms, better protection for investors, a more reliable legal system and a transparent regulatory framework. Yet the regime cannot implement such changes, for it exercises political control by controlling the economy: the status quo in Russia is preserved through monopoly rents, state-owned companies, a malleable judiciary, an opaque regulatory system and rms that rely on Mr Putin’s favour. So long as the current political system prevails, Russia will remain economically enfeebled. Seen in this light, recent events in Ukraine look like a manifestation of Russia’s weakness, rather than of its strength. Mr Yanukovych’s repressive, corrupt government is drifting ever closer to Mr Putin’s, which it increasingly resembles (see page 41); but many Ukrainians do not want to go any farther down that road. That is one of the reasons why Ukraine matters so much to Mr Putin. It is not just that without it, his vaunted Eurasian Union a sort of Soviet Union-lite would lose its point: it is also that, if Ukrainians succeed in rejecting the Putin-Yanukovych model, and set their country back on a democratic European path, they might inspire Russians to do the same. International sporting jamborees are fun; outfoxing a timid American president is good for morale; but in the end it is the health of a country’s economy that determines its fate. The Soviet Union fell not just because its people rejected its ideology but because its economy crumbled. Unless Mr Putin can get Russia’s working, his regime will go the same way. 7

8 Leaders Barack Obama’s state-of-the-union speech

The Economist February 1st 2014

Deal or no deal?
American politics may be becoming a bit less dysfunctional N HIS big annual speech to Congress, Barack Obama made several promises. He pledged to raise the minimum wage for those contracted to the federal government, to create a new tax-free savings bond to encourage Americans to save, to work for the closure of the Guantánamo Bay prison, to push immigration reforms and to veto any sanctions that Congress might pass designed to derail his deal with Iran over its nuclear programme. But for anybody listening from abroad, his most startling promise to America’s legislature was to bypass it. Wherever and whenever I can take steps without legislation to expand opportunity for more American families, that’s what I’m going to do, he vowed. This year, he said, will be a year of action . That in America this pledge was not regarded as the most remarkable element of the speech shows how inured the country has become to dysfunctional government. After years of gridlock, Americans have got used to the idea that the gerrymandering of the electoral system and the polarisation of their two political parties have set the branches of government against each other, and that the checks and balances originally intended to keep the country’s polity healthy have condemned it to sclerosis. Government shutdowns, scal cli s and presidents who promise to do their best to ignore the legislature are no longer much of a surprise. Yet Americans may have become too gloomy: Mr Obama’s speech could be the latest in a series of small signs that things are getting better. Last year’s shutdown was such a public-relations disaster for politicians in general and the Republicans in particular that it is unlikely to happen again. The Tea Party’s kamikaze tactics have been discredited; that is why, without much fuss, Con-

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gress recently managed to pass a budget. Mr Obama knows that he can do nothing of interest without co-operation: when parsed, the promises of unilateral action in his speech amounted to not much more than a few low-level government workers getting paid a sliver more. No one expects 2014 to be a year of bipartisan chumminess, but several deals are possible. Take inequality, Mr Obama’s new theme. Higher minimum wages are a less e ective way to help poorer Americans than expanding the earned income tax credit (a negative income tax for workers on low pay). Several Republicans are open to this idea. Senator Marco Rubio, a rising star, recently said so; a fact Mr Obama alluded to in a speech that was uncharacteristically and encouragingly short of partisan sniping. On immigration, too, a deal is doable. House Republicans are about to release a list of principles for reforming a system everyone agrees is broken. Mr Obama said he wants to sign a bill this year; if he handles Congress delicately, he may get his wish. The same goes for his request for lawmakers to give him fast track authority to negotiate trade deals. This is an essential tool for promoting free trade: if Asians and Europeans think Congress will rewrite trade pacts after the haggling is over, they will not take Mr Obama seriously as a dealmaker. Trade, tax, immigration and no shutdown It is still sad that this is the best that can be said of the world’s most powerful democracy. It is hard to imagine the citizens of emerging economies looking at these compromises and nding them inspiring. But they are a start and the political winds may be changing. If Mr Obama is to be remembered for anything at home but the botched roll-out of his health reform, he needs to get some measures through Congress. The Republicans need to be seen as something other than obstructionist if they want to win the White House. For once, they both have something in common: they need government to work. 7

Emerging markets

Don’t panic
There is no reason for a broad emerging-market crisis. But nervous investors could yet cause one CENTRAL bank doubles interest rates after an emerJanuary 1st 2014=100 gency meeting at midnight. A 100 Turkish lira country is forced into a big de95 90 valuation as foreign-exchange Argentine peso 85 reserves dwindle. Recent events 80 1 6 13 20 27 29 in Turkey and Argentina have January 2014 eerie echoes of the early stages of the 1997-98 emerging-market crisis. That disaster started with isolated problems in Thailand. But it morphed into a general crash, as investors ed all emerging-market assets, currencies collapsed, economies slumped and foreign debts proved unpayable. Could 2014 bring a repeat?
Exchange rates against the $

A

Optimists, whose ranks include the International Monetary Fund, say no. They argue that most emerging markets are far less vulnerable than they were in 1997. They have exible exchange rates; their reserves are higher (a whopping $7.7 trillion in total); their current-account de cits are smaller (only two of the 25 emerging markets tracked by The Economist have a de cit above 5% of GDP); their debts are lower and more likely to be denominated in domestic currency. Pessimists, many of them on hedge-fund trading desks, put more weight on factors that make emerging-market assets less attractive, particularly the prospect of higher interest rates in America and slower growth in China. After years of chasing yield in risky places, many American investors are bringing 1

The Economist February 1st 2014
2 their money home (see page 59). And after years of booming

Leaders 9

credit growth, emerging economies have new vulnerabilities: complacent politicians, high corporate-debt loads and banks that are dodgier than they appear. On balance, this newspaper sides with the optimists. The days of easy money are ending, but slowly. Most emerging markets are less vulnerable than they were 15 years ago, and are building up their defences fast. The wild card is panic. Even if the economic fundamentals do not warrant large-scale ight by investors, currency crises can become self-ful lling, particularly in relatively illiquid markets. Most emerging-market currencies have slid in the past week, but the real pressure has been on a few countries with glaring weaknesses, such as Argentina (high in ation, erratic government) and Turkey (high in ation, gaping de cit, political upheaval). The di erentiation is encouraging. So, too, has been emerging economies’ response. By and large policymakers have used market turmoil to push through more reform. Central banks that took their eye o in ation are toughening up. On January 28th India’s central bank raised rates for the third time in ve months, and made clear it was moving towards an in ation target. Turkey’s central bank scrapped its daft monetary policy for a more orthodox one, and jacked up interest rates. There is more to do: in too many emerging markets real interest rates are still negative. But the direction is the right one, and most countries are moving fast. Yet these countries are not wholly in control of their currencies’ fates, for the ow of capital into and out of emerging mar-

kets has far more to do with what happens beyond their borders than with what they do at home. When the Federal Reserve raises rates in America, emerging economies often hit trouble, particularly if the rate increases are rapid. Fortunately, that is unlikely today. The Fed is slowly cutting back the monetary morphine at its meeting on January 29th it cut its monthly bond-buying by another $10 billion but the odds of precipitous tightening are small. The Fed’s new chairman, Janet Yellen, has made clear that it will keep its policy rate near zero until America’s labour market recovers. And that means more than just a lower jobless rate (see page 65). Bears in a China shop Equally, the chances that trouble in China will fell other emerging economies are low. Sharply slower Chinese growth would hit commodity exporters elsewhere, but there is no sign of such a sudden slump. It is true that China’s nancial system faces mounting di culties, but the government has the capacity to bail it out. The country’s huge stash of savings means that internal bank failures do not have a direct economic link to the rest of the emerging world. It is only nervy investors who see a connection between a failed Chinese shadow bank and tumbling currencies elsewhere. If enough investors get nervous, money will ood out, currencies will fall and a gradual tightening could become a sudden rout. But there is no reason for American interest rates to rise fast, and no reason why emerging economies cannot adapt to a world in which rates gradually climb. 7

Thailand’s political crisis

A way out
Both sides in the stand-o must back down, or risk their country’s disintegration OR more than three months Bangkok has been the scene of confrontation, as huge protests have shut down the government district and other parts of the capital. A snap general election is due on February 2nd, but the opposition (which would lose) refuses to contest it. The protests’ tub-thumping leader, Suthep Thaugsuban, calls for a temporary suspension of constitutional government so that an unelected people’s council can save democracy. Protesters have blocked Thais from taking part in early voting at polling stations. Several people, from both sides, have been killed, and the risk of grave violence is rising. The capital and surrounding districts are under a state of emergency. Sham government v undemocratic opposition The prime minister, Yingluck Shinawatra, says that the election must go ahead (see page 20). It will not bring peace, because Thailand’s political system has broken down. Foreign capital is jittery. The army is being sucked into the gulf. The divisions are social, ethnic and linguistic. On one side stand the well-heeled urbanites and Mr Suthep’s followers from the south; on the other, the poorer northern and north-eastern Thais whose spoken Thai is closer to Lao and who will vote for

F

Ms Yingluck. And as the grievances mount, the chances of defusing the situation peacefully shrink. The red shirts in the government camp are right on one big thing: their opponents are a minority who have repeatedly refused to accept the results of recent elections, all of which the red shirts have won. The anti-government protests are backed by a privileged Thai establishment in the court of the ailing king, Bhumibol Adulyadej, in the civil service, in the judiciary and in the inappropriately named Democrat Party. But the yellow shirt protesters also have legitimate complaints. The government, as they point out, is a sham. It is run not by Ms Yingluck, but by her elder brother, Thaksin Shinawatra, a tycoon and former prime minister who was ousted in a coup in 2006 and is now in self-imposed exile after being sentenced to prison for corruption. And Mr Thaksin’s orders, dictated from Dubai, are harming the country in two ways. First, the government, like its Thaksinite predecessors, has won support by populist giveaways, such as its ruinous ricesubsidy. Second and much worse, the interests of Ms Yingluck’s brother usually trump those of the country. A bill that would have given amnesty to Mr Thaksin, and which Ms Yingluck bungled late last year, set o this wave of protests. If mass violence is to be headed o , both sides must step back. Then they must acknowledge that, when it comes to xing the system, they share a surprising amount in common. But if the moment for co-operation passes, Ms Yingluck and 1

10 Leaders
2 Mr Suthep will both be to blame.

The Economist February 1st 2014

Any attempt to nd a solution will have to wait until after the forthcoming hollow elections. Then the ruling Pheu Thai party should stop being a Thaksin fan club. Instead, it should be led by someone other than a maladroit Shinawatra. Some in Pheu Thai now want to dump Ms Yingluck: they should hurry up and do so. The party will gain authority and legitimacy with a more independent leader. The Democrat Party under Abhisit Vejjajiva has a more fundamental change to confront. As long as it insists that losers in democratic elections are under no obligation to accept the results, Thailand will slide downhill. If the e ete to s who run the party commit themselves to democracy, they may also

help their party sharpen up its political act and move more into the age of Twitter rather than of court receptions. Despite the personal hatreds, there is a surprising amount of common ground. Crucially, both camps agree on the need for constitutional reform. Thailand is overcentralised and bureaucratic. It allows constant meddling by the king’s courtiers. Both Mr Suthep and many red shirts call for devolution, including the election of provincial governors. Many in the oldguard Thai establishment, and certainly the army, would be horri ed. But it is the only way for di erent regions to express themselves, while holding the country together. Right now the alternative is staring Thailand in the face: social failure, economic and political disintegration and civil strife. 7

Tax rates in Britain

Fran?ois Miliband
Labour’s growing contempt for capitalism is dangerous for the country N MOST parts of the British economy, ?100m ($166m) is a useful sum of money enough to build half a dozen schools or even buy a couple of decent strikers in the English Premier League. It would not, however, make much of a dent in the British government’s ?100 billion budget de cit. And ?100m is all that Labour’s latest bout of business-bashing a pledge to put the top rate of income tax from 45% back up to 50% will probably bring in. The hit to Britain’s prospects as a place to do business is likely to be many times that sum. This is not, however, primarily about economics. The 50% rate is a political sop, thrown to Labour’s electoral base by Ed Balls, the shadow chancellor, to make up for the austerity measures that he has also, rather more vaguely, promised, many of which will hit poorer Britons. But it goes deeper than that. Ed Miliband, Labour’s leader, is moving his party to the left (see page 48). Unlike Tony Blair, who courted business relentlessly, Mr Miliband has decided to wallop unpopular industries. In recent months he has promised to freeze household energy prices, con scate undeveloped land from house-builders, break up retail banks and launch state-funded competitors. This lurch may be a matter of personal conviction for the Red Ed of the tabloids. But it is also an electoral gamble that by bashing business he will energise the Labour base, and the infuriated working classes will carry him to victory over David Cameron’s unloved and elitist Conservatives. The electoral arithmetic gives Mr Miliband a good chance of succeeding, not least because the right-wing vote has been split by the insurgent UK Independence Party. But the gamble may not pay o . The Tories will ght the election on Labour’s weak point economic competence. No party has won an election while trailing on both the economy and leadership, as Labour now is. Picking a ght with business over top tax rates will not strengthen Mr Miliband’s hand, when his economic credibility is already in doubt. Even if taxing the rich generally goes down well, increasing taxes on the 1% of taxpayers who already provide 30% of income-tax revenue is not obviously as fair as Mr Balls claims it is.

I

Above all, there is a good chance that voters will realise the harm that all this could do. Although some of the problems that Mr Miliband wants to tackle such as Britain’s self-defeating culture of short-termism are real, his headline policies look neither prudent nor practical. Freezing energy prices and con scating builders’ land would reduce investment in those industries when Britain needs more power stations and houses, not fewer. Mr Miliband’s views on the nancial sector have already contributed to a fall in the share prices of statebacked banks, thus reducing the potential returns to taxpayers from selling them. And the proposed tax rise risks deterring investors at a time when con dence in Britain’s recovery remains more fragile than the Tories like to admit. Some Scandinavian countries have got away with tax rates of over 50%. But Britain would be at a disadvantage compared with bits of America (39.6% federal tax, with state taxes on top), Ireland (41%), Germany (45%) and even France (45% for most wealthy people; the infamous 75% rate kicks in only on salaries above 1m). And in nancial services where, whether Mr Miliband likes it or not, Britain’s competitive advantage lies the country’s main competitors are Singapore, Hong Kong and Dubai, with income-tax rates of 20%, 17% and zero respectively. Although another 5p in the pound may not drive many Britons to move their families from the Home Counties to the Gulf’s arid shores, it will encourage foreigners who might have brought their brains and money to Britain to go elsewhere instead, and the country will be poorer for it. Taking victory as red To be fair, Mr Miliband has some better business policies notably his proposals to boost apprenticeships and house-building. Having refused, so far, to match Tory promises of a referendum on Britain’s EU membership, Labour is also resisting the right’s harmful fantasies about Britain’s bright future outside the union. But the general direction is worrying. Fran?ois Hollande came to power in France as a businessbashing president. After nearly two years of entrepreneurial emigration and economic stagnation, he has just performed an abrupt U-turn: business is once more welcome at the Elysée and the 75% tax rate has been softened. Mr Miliband should change course before the election, rather than later. 7

12

Letters
Industry and climate change SIR I was dismayed by your leader on European climate policy ( Worse than useless , January 25th), which implied that harm to the steel industry would be an acceptable price to pay for policy reform. Europe’s carbon abatement targets are impossible for the steel industry to achieve as things stand. The best performing European steelmakers have greatly reduced their emissions in recent decades, easily beating Kyoto ambitions. But no further progress can be achieved without breakthrough technologies, the development of which, even if viable, is years away and crushingly expensive. We all share the goal of nding an e ective response to climate change. However, European climate policy is damaging the competitiveness of European steel and forcing the shift of industrial production from world-leading industries in Europe to much less e cient and polluting industries in other parts of the world. There is nothing e ective about setting targets for reducing emissions without taking into account the technological limitations that confront individual industries. Without steel, glass, cement and other sectors, Europe’s manufacturing and construction value chains will continue to atrophy, to Europe’s immense economic detriment. GORDON MOFFAT Director-general European Steel Association Brussels Turkey and Cyprus SIR Is Cyprus being obdurate in its relations with Turkey, as Charlemagne claims (January 18th), because it expects Turkey to honour the solemn commitments it undertook in 2005 to open accession negotiations with the European Union? Indeed, a more democratic and European Turkey is to the best interest of Cyprus as well as the entire union. The way to go about it is for the EU to continue applying strict conditionality, as with all other candidates for accession. Appeasement never worked. It is not the EU joining Turkey, but Turkey joining the EU. And it is not Cyprus that invaded Turkey. If Turkey were to honour its obligations, a substantial boost to its EU membership would naturally follow. The same would be the case if Turkey were to accept the con dence-building measures proposed by Cyprus, including the return of the ghost town of Famagusta. Regrettably, we get zero reciprocity whatever we do unless we lie prostrate, as people did in the bygone days of Ottoman rule. We live in the 21st century, not the 18th. The empire is gone and so should the mindset that went with it. EURIPIDES EVRIVIADES High commissioner of Cyprus London Looking for a place to live SIR You suggest that parts of London’s protected green belt would be prettier with housing on ( An Englishman’s home , January 11th). Perhaps you have the Garden Cities in mind, but they worked because they were laid out spaciously. Today’s equivalent are the ranks of cramped housing that creep towards the southeast’s motorways. Imagine this without a green lung of countryside to escape to. What is really needed in this housing crisis is to make other parts of Britain attractive and easier to move around. MARK ADAMS Berkhamsted, Hertfordshire SIR The yawning hole in housing provision has been caused by the shortsighted destruction of council homes by the Thatcher government and its successors. Housing associations will not be able to ll that hole as they do not have the powers and nance that are available to local authorities. The relentless drive to convert everyone into a homeowner will fail because high private rents inhibit saving for a deposit and families now have also to nd money to pay for their children’s university education, child minding and costlier pensions. One fears a panic-driven political rush to build to ll the housing hole. The last such panic resulted in some truly dreadful housing. T.F. HARDING Pewsey, Wiltshire Dying at home SIR You wrote about government plans for more people to die at home, but omitted to mention the role of hospices ( Home help , January 18th). Few people are aware that the majority of hospice care is provided in people’s own homes. Hospices will have an even bigger role to play to support the end-of-life needs of an ageing population. DAVID PRAILL Help the Hospices London Elections in Asia SIR Banyan puzzled over the notion that Asian countries seem to be confused about democracy (January 11th). In 2001 Richard Nisbett and others wrote a widely read paper titled Culture and systems of thought that demonstrated a strong di erence in thinking between the analytic West and the holistic East. Whereas Westerners tend to prefer clear cut, logical dichotomies and analyse things logically, Easterners think more holistically, where everything is combined and rules are not the nal word. Elections are rules-based systems, and perhaps psychologically less appealing to the Eastern holistic way of thinking. Maybe there are ways for democracy to be made compatible with the Eastern mind? JAZI ZILBER Chiang Mai, Thailand Politicians’ peccadillos SIR I question the idea that a more relaxed view of sex might improve American politicians ( La Maison Blanche , January 18th). The division between having a private and public life obscures the fact that the

The Economist February 1st 2014
antics of politicians that briefly amuse us are not so quickly forgotten by betrayed spouses and children. Private responsibilities do not disappear when one assumes public o ce. Is it too much to ask that those who would serve their country rst support their families? WESLEY ZUIDEMA Santa Barbara, California A contagious currency SIR Your article about the rebalancing of relations between Spain and Latin America ( Shoe on the other foot , January 25th) reminded me of the saying in the 1960s that when General Motors sneezed, America caught a cold. These days when a large Latin American country in which Spanish companies and banks have invested sneezes, Spain gets a runny nose. Argentina’s currency woes produced a fall of close to 6% in the IBEX 35, Spain’s benchmark stockmarket index, between January 20th and 24th, by far the largest decline among European markets. What comes around, goes around. WILLIAM CHISLETT Madrid Getting the munchies SIR You assert in Of bongs and bureaucrats (January 11th) that marijuana must be regulated because it is more dangerous than chocolate or chips. When one weighs the paucity of evidence on marijuana’s harms against the costs of obesity, diabetes and heart disease that assertion is questionable at best. In fact, the most dangerous e ect of marijuana may be its known association with the increased consumption of chocolate and chips. JUSTIN LEIBY Gainesville, Florida 7
Letters are welcome and should be addressed to the Editor at The Economist, 25 St James’s Street, London sw1A 1hg E-mail: letters@economist.com Fax: 020 7839 4092 More letters are available at: Economist.com/letters

Executive Focus

13

The Economist February 1st 2014

14

Executive Focus

The Economist February 1st 2014

Executive Focus

15

Career Federal Service Executive Service Position U.S. International Trade Commission, Washington, DC

Director of Economics
ES-0110 Salary range of $120,749 to $181,500 per year
We are seeking an individual with signi?cant standing in the economic community to serve as the Commission’s Chief Economist, lead the Commission’s economic analysis and research, and provide executive leadership to the Commission’s economic program. The Commission’s Chief Economist serves as a global leader in providing state of the art techniques and data collection methods in our economic program activities. In addition to advanced economic subject matter credentials, our ideal candidate will possess superior leadership, administrative and communication skills necessary to plan and manage staff, resources, and programs and to provide objective advice to the United States Trade Representative, Congress (particularly the Senate Committee on Finance and the House Committee on Ways and Means), the President and to represent the Commission’s program to foreign government of?cials and international organizations associated with the economic community. Travel, including some international, a secret clearance, and U.S. citizenship, are all requirements of this position. The USITC was awarded a “Best Places to Work” ranking in 2013. We have a collegial atmosphere, a fast-paced working environment, a team approach to problem solving, continuing technical and managerial education and an organization that is committed to providing balance in your work and private life. We are a small independent agency with a big mission. We are accepting applications through March 7, 2014. More speci?c announcement details and application procedures can be found at https://www.usajobs.gov/GetJob/ViewDetails/357527400.

The Economist February 1st 2014

16

Brie ng Putin’s Russia

The Economist February 1st 2014

Sochi or bust
MOSCOW

The conspicuous dazzle of the games masks a country, and a president, in deepening trouble

F

EBRUARY 7th sees the opening of the winter Olympics in Sochi on the Black Sea. The message of the games is simple: Russia is back . Sochi was planned as a celebration of Russia’s resurgence, a symbol of international recognition and a crowning moment for Vladimir Putin, its president, who for the present seems to have seen o all his challengers. Appropriately, the opening ceremony will include the image of the Russian troika-bird from Nikolai Gogol’s Dead Souls . Rus, wrote Gogol, aren’t you soaring like a spry troika that can’t be overtaken? The road is smoking under you, the bridges thunder, everything steps aside and is left behind! Is this lightning thrown down from heaven? Other nations and states gaze askance, step o the road and give [you] right of way. The quote has long been used to justify Russian exceptionalism and moral superiority. Gogol describes Russia as a deeply awed and corrupt country, but it is precisely its misery and sinfulness that entitles it to mystical regeneration. His troika carries a swindler, Chichikov, and his drunken coachman, but it is transformed into the symbol of a God-inspired country that gloriously surpasses all others. So, too, with the Sochi Olympics. This grand enterprise, the largest construction

project in Russia’s post-Soviet history, is also a microcosm of Russian corruption, ine ciencies, excesses of wealth and disregard for ordinary citizens. The Olympics are widely seen as an extravagant caprice of Russia’s rulers, especially its amboyantly macho president, rather than a common national e ort. The cost of the games has more than quadrupled since 2007, making them, at $50 billion, the most expensive in history. One member of the International Olympic Committee thinks about a third of that money has been stolen. Russia’s opposition leaders say the gure is much higher. Sochi also illustrates Russia’s continuing troubles in the north Caucasus. After the twin suicide-bombings in Volgograd, 430 miles (690km) north, at the end of December, Sochi, a resort town of 400,000 people, has been turned into a fortress guarded by around 100,000 security and military personnel. Missiles bristle in the mountains, high-speed boats and submarines patrol the coast, and drones watch from the sky. Russia’s 58th army, last employed in a war against Georgia in 2008, will secure the southern border. Instead of opening up the country to tourists, these games are likely to be remembered as the most closed in history. Russia’s security agencies are issuing special passports to all

spectators to lter out not only potential terrorists, but also political troublemakers. The tight security is reminiscent of the 1980 Moscow Olympics, when non-Muscovites were barred from the capital and undesirables shipped out. These are not the only parallels. Both games are marked by hostility between Russia and the West. In 1980 several countries, including America and West Germany, boycotted the games in protest against the Soviet invasion of Afghanistan. This time the teams will attend, but their leaders, including President Barack Obama, will stay away. The picture has already been overshadowed by violent clashes in Ukraine, the result of a bitter geopolitical contest between Russia and the EU. Ukraine is essential to Mr Putin’s ambitions of creating Russia’s own Eurasian Union, a diminished version of the Soviet Union that was. The Kremlin may not be projecting its power with military force, but it is trying to draw Ukraine into Russia’s orbit with money, gas and counter-intelligence, while warning the West not to meddle. It is hardly the behaviour of an amiable Olympic host. Soviet ghosts Perhaps the most striking parallel with the earlier Olympics is the state of the economy. At one level, to be sure, Russia looks completely di erent. The government no longer regulates prices; there is a large private sector. Russia no longer wastes time and money producing things nobody wants. The military-industrial complex, which once guzzled national resources, has shrunk. Middle-class Russians dress, shop, eat and travel much as their peers do in the West. Consumption is conspicuous. 1

The Economist February 1st 2014
2 Yet a closer look reveals that the country is

Brie ng Putin’s Russia 17
forms of the previous decade, which freed private enterprise. As Yegor Gaidar, the architect of those reforms, pointed out, the growth that began in 1999 the year Mr Putin came to power was largely the result of recovery, and was observed across the former Soviet Union. It required little new investment, and used up spare capacity left over from Soviet times. Then in 2004, as Mr Putin entered his second presidential term, oil prices began to climb sharply, cheap money ooded the country and consumption exploded. But instead of creating institutions and laying a foundation for future growth, the Kremlin used the oil revenue to consolidate power, suppress competition and reassert Russia’s in uence in the world. Although some of that money was stashed away in a reserve fund, a lot of it seeped into the real economy through budget spending, which fuelled consumption. In 2005 the Russian government balanced its budget at an oil price of $20 a barrel. In 2013 it needed a price of $103 to balance it. As Andrei Kostin, head of VTB, one of the largest state banks, half-joked recently, A healthy budget for me is one that injects large amounts of money particularly in December into the banking system, which then permeates warmly and pleasantly like beer after a hangover through the entire banking system. Disposable income grew twice as fast as the economy in the 2000s, and so did consumption. The increase in living standards was partly achieved at the cost of investment. Although investment in new factories and equipment increased from 15% of GDP in 2000 to the current 23%, it was well below the level of even Soviet investment in capital stock, not to mention China’s. And as Natalia Orlova of Alfa Bank notes, half of all new construction in the pre-recession years was of shopping centres, rather than the factories that could ll those shops with goods. The oil price is still high, and there is no shortage of money in the economy. In fact, it is the excess of money and the lack of institutions that are the problem. Money has long been the main instrument of the Kremlin’s power and governance, buying the loyalty of both the elites and the general population. After the crisis in 2009, the government increased public spending by 40%. This pushed up prices and fuelled imports, but did little for the economy. The salaries of public-sector workers have improved, but not the quality of their services. Poor education and health care still top the list of complaints among Russians, particularly outside the big cities. Kirill Rogov of the Gaidar Institute, an economics think-tank, says that by increasing spending in order to fuel consumptionled growth, the government has pushed the cost of labour from 40% to 50% of the country’s GDP the same share as in devel-

almost as vulnerable as it was in 1980. That year was the peak of Soviet economic stability. Oil prices were high, and the Soviet Union was increasing its exports of energy through a new pipeline to the West. The proceeds from those sales paid for the vast state and nanced the import of grain and clothes. While the West was going through a crisis, the Soviet Union was enjoying modest economic growth. A few years later, however, oil prices fell and the regime began to crumble. In today’s Russia, oil and gas account for 75% of all exports, compared with 67% in 1980. Although Russia no longer buys grain from America, as it did in the 1980s, 45% of what Russians buy today is imported. Walk around a department store in central Moscow, and it is hard to nd anything that is produced locally. The state remains the single largest employer, while its corporations controlling natural resources, infrastructure, banking and media dominate the economy. As Cli ord Gaddy and Barry Ickes, two American economists, have argued, the highly ine cient industrial structure of the old Soviet economy, based on misallocation of both resources and people, remains intact. The oil rent reinforced and perpetuated it: it has bought political stability and the loyalty of the population, but has slowed down modernisation. Inevitably, the result is stagnation. Money as alcohol Last year, just as the developed world began to recover from recession, Russian economic growth slowed to under 1.5%. Russia’s Ministry of Economic Development says the economy is not about to return to high growth, and even Mr Putin was forced to admit in December that the main reasons for the slowdown are internal. The era of high growth, which coincided with Mr Putin’s rst period of rule, is over. Two main factors drove growth then, neither of which had much to do with him. The rst was the collapse of the Soviet economy; the second was the market re-

Stable or stagnant?
Russia, % change on previous year 25 Consumer prices 20 15 10 GDP 5
+ –

2

0 * 2000 02
Source: IMF
?

5 10

04

06

08

10

12

14
?Forecast

*Estimate

oped countries. Yet productivity remains at less than half its level in the EU. In the past, Russia made up for its dismal investment climate and poor institutions with cheap labour, which allowed rms to make pro ts and invest. Now its economy is trapped between bad institutions and expensive labour, which makes private rms uncompetitive. Russia has hit the same problem as the Soviet Union did: it cannot grow by expanding the labour force. Demography compounds the di culty. The labour force grew until 2008, but a dip in the birth rate in the 1990s means that it is now shrinking. To grow further Russia needs investment, the reallocation of resources and better institutions, especially property rights. Yet all this would inevitably threaten the central motivation of Mr Putin and his circle: to preserve a paternalistic model where the state and those who identify themselves with it are the only source of money and power. Friends and placemen The state is one of the chief obstacles to Russia’s modernisation. During the 2000s the number of bureaucrats almost doubled. A quarter of the workforce is employed in the public sector. The total number of people who depend on the state is between 35% and 40%, says Boris Grozovsky, a Russian economic observer. This, he says, points to the share of the electorate that bene ts from the status quo. At election time municipal workers are bused in to show support for Mr Putin. Meanwhile, the main purpose of Russia’s civil service is to shu e papers around and extract administrative revenue from rms and private citizens. The bureaucrats have little interest in fostering competition that might cost them their jobs. This is particularly true of the security services and prosecutors who have been among the main bene ciaries of Mr Putin’s rule. Alexander Bastrykin, a faithful chief investigator, recently told a Russian state newspaper that privatisation is a threat that could nish o the Russian economy. Suspicious of private business, 1

Richer, but crosser
Approval of Vladimir Putin, % 100 80 60 40 20 0 2000 02 04 06 08 10
Sources: Levada Centre; Economist Intelligence Unit
?

1 GDP per person, PPP*, $’000 25 20 15 10 5 0

13

*Purchasing-power parity ?Estimate

18 Brie ng Putin’s Russia
2 the Kremlin has entrusted the economy to

The Economist February 1st 2014
from the country. Spooked by the unrest in Ukraine, Russian prosecutors are demanding ve- and six-year jail sentences for Russia’s own protesters. The independent TV Rain channel, popular with those protesters, is under re. As a faithful son of the KGB, Mr Putin would prefer to deal with the worsening economic situation as his one-time boss and political model, Yuri Andropov, did in the 1980s. Andropov suppressed dissidents while trying to modernise the economy from the top, thus keeping the regime secure. Mr Putin believes that if Andropov had not died in 1984, his plan would have worked. Yet he has also inherited a deep fear of unleashing the mass repressions and purges which Andropov’s generation of leaders agreed to abandon after Stalin’s death, in order to preserve themselves. Skilful tactician though he is, Mr Putin does not seem to have a strategy. He may be hoping that the oil price will recover. At present it has stabilised at about $100 a barrel, but it is unlikely to stay there. With the rise of fracking in America and elsewhere, analysts estimate that the price could drop by 15% in the next six years. Given the relatively low level of state debt, Russia could also start borrowing more to keep the budget a oat. This is what the Soviet Union did when the oil price fell. The Russian economy is far better equipped to deal with an oil-price drop than the Soviet economy was. It has built up substantial foreign-exchange reserves and has a oating exchange rate, which allows it to adjust to a fall. However, given the level of imports, a currency devaluation would hurt living standards and could lead to in ation higher than the present 6.7%. The unequal distribution of incomes in Russia means that, even if the economy continues to tread water, the bottom 40% of the population will see their economic situation worsen, says Mr Rogov. Experts agree that, however the oil price moves, all scenarios carry the risk of administrative crisis, elite squabbles and confrontation between the people and the regime . Even with the oil price at its current level, attitudes to Mr Putin are changing fast, according to Mikhail Dmitriev of the Centre for Strategic Research who has recently been removed from his post as the think-tank’s president. Over the past year discontent in the country at large has deepened and broadened, spreading across all social groups and ages. In contrast, Moscow and St Petersburg, where GDP per head is higher and infrastructure has improved, have become more stable and even loyal. Mr Dmitriev says the latest focus groups show that Mr Putin is less associated with stability and more with uncertainty. His past achievements are becoming a distant memory, and his recent stunts, such as ying with cranes or diving for ancient amphorae, merely cause irritation. According to the Levada Centre, a pollster, almost 50% of the country does not want him to remain president after 2018 when his term expires. The change in mood has been caused not so much by worsening personal circumstances, as by a growing concern that the country is fast approaching a dead end. The danger for the world is that a weaker Mr Putin may be a more aggressive one, in Ukraine and elsewhere. The risk for the Kremlin is not mass protests, but the exploitation of this discontent by the elites for their own political and economic ends, just as their predecessors did at the end of the Soviet era. Mr Putin’s idea of centralised vertical power is popular with regional governors when money ows down from the top; less so when Moscow tries to extract money from them and leaves them with discontented populations and welfare burdens they cannot support. At this point, the idea of centralisation starts to lose its appeal and it is every local baron for himself. Recent opinion polls and Mr Dmitriev’s focus groups, held outside Moscow and other big cities, con rm a growing demand for decentralisation, government accountability, an independent judiciary, a free media and the right to protest. All this chimes with the feelings of the middle class in the cities. In the mid-1980s it was precisely that combination of widespread popular dissatisfaction and discontent among the elites that shook the Soviet system. In the end, the Soviet Union fell apart not because of mass street protests, but because the nomenklatura no longer saw any economic bene t in defending the regime. How long will it take before that is true again? To return to Gogol, Rus, where are you speeding to? Answer! It gives no answer. The little carriage bell peals with a magical ring The air, torn into pieces, roars and becomes wind. 7

state corporations, often run by former security servicemen and its few friends. Whereas oligarchs in Boris Yeltsin’s time were private businessmen who in uenced the running of the state, the Putin-era oligarchs are former KGB men who have used state power to grab private businesses. Some analysts estimate that these state companies control about half of Russia’s economy. They are sheltered from competition, soak up resources and stoke in ation. State companies award contracts to nominally private companies owned by friends and relatives of their managers. The Sochi Olympics are a prime example: the biggest contracts were given to rms run by Mr Putin’s chums, including Arkady Rotenberg, his boyhood judo partner. This sort of thing creates a system of perverse incentives, fosters cynicism and cronyism and discourages those who want to use their initiative and skills. One man has worked for two companies owned by Mr Putin’s friends. His latest employer is a rm owned by a close relative of a powerful government o cial. My salary is higher than I would get in an independent rm, but my responsibility is much less. I add almost no value. Connections decide everything, he says. Although Russia still boasts some of the most entrepreneurial and hardy businessmen, who are determined to succeed and continue to invest, many burn out and leave. Economic activity in the country is waning, mergers and acquisitions are drying up and capital and brains are owing out of the country. Evgeny Gavrilenkov, the chief economist at Sberbank, Russia’s largest state bank, says the problem is exacerbated by the central bank which, in order to stimulate growth, is injecting liquidity into the market while also trying to support the rouble. This allows banks and their clients to speculate in foreign exchange rather than invest. Yet the main reasons for the slowdown in investment are uncertainty about the future and the lack of proper legal title to property. Third time, not so lucky Buying the loyalty of di erent interest groups is easy when the pie is growing, but much harder when it is shrinking. Once incomes began to fall, Gaidar predicted, the regime would face a choice between repression, which would eventually lead to revolution, and democratisation, which might also mean the loss of power. Mr Putin has tried to dodge that choice over the past year. He has made decisions ad hoc: staging show trials for political activists and locking up opposition leaders such as Alexei Navalny one day, then letting Mr Navalny run for mayor of Moscow the next. At the end of last year he released Mikhail Khodorkovsky, a tycoon he had kept in jail for ten years, but expelled him

Asia

The Economist February 1st 2014 19 Also in this section 20 Thailand’s political crisis 21 Japan’s coalition partner 21 A peace agreement in Mindanao 22 Australia and asylum-seekers 22 Nauru spats 23 Sharks in Western Australia 24 Banyan: Taking on the Pakistani Taliban

For daily analysis and debate on Asia, visit
Economist.com/asia Economist.com/blogs/banyan

Afghanistan’s uncertain future

Playing with re
KABUL

Hamid Karzai’s vili cation of America is risking his country’s security

T

HANKS to its bewildering president, Afghanistan has seen relations with the United States plunge to new lows just two months before a presidential election. If Hamid Karzai cannot reach an agreement with America for some troops to stay, then NATO is scheduled to pull out completely by the end of the year. Thus, though Mr Karzai will step down at the end of a possibly drawn-out process of choosing his successor, his unpredictability, and his desire to settle scores before going, threaten his country’s interests far into the future. Con rmation of serious trouble came rst in November, on the occasion of a loya jirga, a grand assembly of 2,500 community leaders and tribal elders. The meeting was convened to approve a bilateral security agreement (BSA) with America that will allow a small number of foreign troops to continue training and assisting Afghan security forces. Without their presence, many Afghans fear that ows of foreign aid will dry up and that, unable to resist the Taliban, the state might collapse. The BSA had taken nearly a year to negotiate, and the loya jirga overwhelmingly endorsed it. Yet Mr Karzai used the occasion to attack his American allies for myriad perceived failings and to announce new conditions for his signing the pact. He also suggested that the responsibility for doing so should probably fall to his successor. (Mr Karzai is constitutionally barred from contesting another term.)

Since then, Mr Karzai has continued to give free rein to his resentments. On January 25th he held a press conference in which he excoriated the Americans further. He accused them of engaging in a psychological war in their e orts to seal the BSA and acting as a rival rather than as a friend. For good measure, Mr Karzai insisted that America must start serious peace talks with the Taliban an impossibility, given the Taliban’s hostility to the BSA. If the Americans would not accept his conditions, he added, they can leave anytime and we will continue our lives . Mr Karzai has also gone out of his way to raise the temperature over two other issues. The rst is over civilian deaths from a NATO bombing strike on January 15th on the village of Wazghar in Parwan province north of the capital, Kabul. The second is a dispute over the release order of 88 detainees at Bagram prison, which America handed over to Afghanistan last year. Angry American o cials say that 17 prisoners to be freed were involved in making bombs that killed 11 Afghan soldiers and they claim that most of the other detainees also have blood on their hands. But Mr Karzai describes Bagram as a place where innocent people are tortured and insulted and made dangerous criminals . The row over what exactly happened at Wazghar has become both toxic and farcical. NATO says it was the Afghan army that called in the strike when its soldiers were

under heavy re from Taliban positions in two village compounds. NATO acknowledges that civilians, including two children, died in the action. But it says the lives of dozens of Afghan soldiers and a handful of American advisers were at risk. As it is, an Afghan and an American soldier were killed. But a report commissioned by Mr Karzai asserted that 13 villagers had died after relentless bombing, with not a Taliban ghter to be seen. America, in other words, was guilty of a war crime. When local news outlets and the New York Times questioned the veracity of the report, carried out by a virulently antiAmerican MP, the government brought several villagers to Kabul to back up its claims. The move back red. A photograph was produced purporting to show a funeral for dead villagers. But some in the media thought the photograph looked familiar. In reality, it had been taken a couple of hundred miles from Wazghar in 2009. To the consternation of American o cials, Mr Karzai now appears to be compiling a list of insurgent-style attacks which he claims the Americans were behind as part of a plot to undermine his government and destabilise the country. The list apparently includes an attack on January 17th on a Kabul restaurant that killed 13 foreign civilians and at least seven Afghans and had been immediately claimed by the Taliban. Mr Karzai may even believe some of his outlandish assertions. Cocooned in the presidential palace, he receives delegations of elders from around the country only too happy to peddle eccentric theories. On January 27th James Cunningham, America’s ambassador in Kabul, portrayed Mr Karzai’s views as deeply conspiratorial and divorced from reality . Mr Karzai’s behaviour is, unsurprisingly, having a corrosive e ect in Washington, 1

20 Asia
2 DC. Last week Congress halved proposed

The Economist February 1st 2014
president’s still-useful endorsement: Ashraf Ghani, a former World Bank o cial; Zalmay Rassoul, another former foreign minister; and Qayum Karzai, an elder brother of the president. All are considered more pro-Western than Mr Karzai and understand the importance of keeping some foreign troops in the country to help the fast-improving but still fragile Afghan army in its dogged ght against the Taliban. The worry, however, is that the election will go to a second round and that no winner will emerge until June. The new president will then have to concentrate on putting together a government seen as reasonably legitimate and competent. That could push the likely date for signing the security agreement to early August, dragging out the uncertainty (there are already signs of capital ight) and frustrating military planning. American and other NATO commanders still think it will be doable so long as Mr Obama’s patience holds up in the face of Mr Karzai’s relentless provocations. 7 against people on both sides of the stando is mounting, with ten deaths to date. At one point outside the army club, a self-appointed guard of the protesters was shot in the leg and packed o to hospital. The gunman was quickly apprehended. Deferring the poll no doubt carried risks that the government must have deemed to be intolerable. Ms Yingluck’s supporters would have hated to see a postponement. Two other factors may have coloured the government’s decision to risk a showdown. First, an opinion poll suggested that four out of ve Thais intended to vote were an election held on February 2nd. Second, American and Japanese diplomats have been telling politicians on all sides that Thailand’s frail democracy and its economic prospects should not be held hostage by an angry minority. Now that Ms Yingluck insists the poll must go ahead, the police and army, likely to be deployed in huge numbers, may try to disperse Bangkok’s protesting crowds. A state of emergency exists in and around the capital, though it has not yet been enforced. Over the weekend, roving mobs shut down all 50 of the polling stations open for early voting in Bangkok. It is hard to see how voting can take place there on February 2nd without army protection. All the same, a landslide in elections that will be boycotted by the opposition is unlikely to help Ms Yingluck. She may not even be able to form a government. The constitution stipulates that 475 members of the 500-seat parliament are needed to convene parliament and the protesters have already prevented candidates from registering in 28 out of the 375 constituencies open to direct elections. Thailand’s political crisis, in other words, will only grow. The Democrats close to the royalist establishment have thrown in their lot with the street protesters and are prepared, even willing, to see electoral democracy sidelined. Ms Ying 1

development aid to Afghanistan for the coming year, ruled out big new infrastructure projects carried out by the armed forces, and cut by three- fths the Pentagon’s $2.6 billion bid to add critical capabilities to the Afghan security forces. The White House appears to have accepted the cuts without a murmur. How much President Barack Obama’s exasperation with Mr Karzai now threatens America’s commitment to a security agreement is unclear. In his state of the union speech on January 28th, Mr Obama said that, with an agreement, America would stand by Afghanistan and keep on a small force of Americans who, with NATO allies, would train and help Afghan forces in other ways and go after what remains of al-Qaeda. He appears to have heeded advice he received from the senior American commander in Afghanistan, General Joseph Dunford. General Dunford took the unusual step of going to the White House a day before the speech to plead for the president to agree to keep 10,000 American troops in Afghanistan after 2014 (backed by a further 2,000, mainly from Germany and Italy). General Dunford’s plan is supported by the defence secretary, Chuck Hagel; the secretary of state, John Kerry; the CIA director, John Brennan; and the chairman of the joint chiefs of sta , General Martin Dempsey. They argue that this force is the minimum that can accomplish anything and still be capable of protecting itself. In a bid to make the plan more palatable to Mr Obama, General Dunford suggested that the enduring force need only stay for two years rather than the possible decade envisaged by the BSA. That would allow the president, on leaving o ce in 2017, to claim that he had brought all of America’s troops home from two wars. But other voices in the White House, not least Joe Biden, the vice-president, would prefer a much smaller force, devoted only to counter-terrorism. The longer the signing of the BSA is delayed, the more likely the enduring force is to be whittled down. Military advice would then quickly swing to the zero option of no troops at all. What the Americans, and indeed many Afghans, appear to be hoping is that even if Mr Karzai must now be written o as hostile, his successor will want to sign the security pact. It looks a reasonable bet. According to Lotfullah Naja zada of Tolo News, the BSA is supported by most Afghan government ministers, the heads of the security forces and all the main presidential-election candidates. A two-month election campaign opens on February 2nd, and most pundits see it as a four-horse race between a former foreign minister, Abdullah Abdullah, a candidate in 2009 and no ally of Mr Karzai, and three others who hope to gain the outgoing

Thailand’s political crisis

The show staggers on
BANGKOK

The prime minister insists on elections, and the opposition on boycotting them

I

N FRONT of the Royal Thai Army Club the rump of a people’s revolution gathered to collect their reward. Inside, the prime minister, Yingluck Shinawatra, was locked in talks with the election commission over whether to suspend a snap poll which she had called for February 2nd. Before the meeting, the commission had cited disruption and the risks of violence as reasons for delaying the poll by four months. The revolutionaries were clear about what they wanted: the announcement of a temporary interruption of Thai democracy so that an appointed council of good men , as dreamed up by their leader, Suthep Thaugsuban, could save the country. Mr Suthep, a former deputy prime minister with the opposition Democrat Party, and his followers were disappointed. Ms Yingluck emerged to say that the election would go ahead. It was unexpected, and takes Thailand into uncharted territory. The young men outside the army club were veterans of a three-month protest that at times has brought Bangkok, the capital, to a standstill. The men have vowed to rid Thailand of the in uence of the Thaksin regime , meaning Ms Yingluck and her elder brother, a former prime minister, Thaksin Shinawatra, whom they see as pulling the strings from his refuge in Dubai. Violence

On the way to the revolution

The Economist February 1st 2014
2 luck’s chief fear must be that the opposi-

Asia 21
the constitutional interpretation that bans collective self-defence, a pillar of Japan’s post-war paci st stance. Opinion polls suggest more than half of the public oppose Mr Abe’s pet project. More problematically, his Buddhist-backed and avowedly paci st partner also rejects revision. It is the two parties’ toughest issue this year, says an LDP insider. Still, he says, in 1994 the LDP managed to persuade a still more left-leaning governing partner, the Social Democratic Party of Japan, to accept that the country’s Self-Defence Forces were compatible with the constitution. The di erences lie across the policy spectrum. While the LDP aims to switch back on Japan’s mothballed nuclear reactors, its junior partner campaigned against nuclear power in the past two elections. Mr Abe favours an increasingly robust approach towards China and its ratcheting up of tensions over island claims. New Komeito, with long-standing informal ties to the Chinese leadership, wants more talk and less sabre-rattling. The two parties also disagree over the economy. New Komeito questioned Mr Abe’s moves last year to assert in uence over the central bank’s conduct of monetary policy. With his poll ratings high, Mr Abe appears to be looking at alliances with two likelier LDP bedfellows, the economically liberal Your Party and the right-wing Japan Restoration Party. Yet the bond that binds this political odd couple is clear: votes. Backed by Japan’s most powerful lay Buddhist sect, Soka Gakkai, with 8m members, New Komeito has consistently delivered a huge chunk of Japan’s conservative countryside since the coalitions began in the late 1990s. Soka Gakkai is in e ect a huge volunteer army of canvassers. By contrast, neither Your Party nor the Japan Restoration Party has a local election machine. Another factor in the coalition is murkier. In the 1990s perhaps half in the LDP wanted to strip Soka Gakkai of its status as a religious corporation, according to Koichi Kato, a veteran former LDP lawmaker, potentially forcing it to pay taxes on its enormous assets. The threat evaporated after the LDP’s electoral machine faltered later in the decade, but the party was not above using that legal stick to control its junior partner, says Mr Kato. Mr Yamaguchi denies this. It’s impossible for us to be in the coalition just to bring preferential treatment to our supporters, he says. We must serve everyone. He insists that only with public support will the party change its position on the constitution. The coming months will show just how far Mr Yamaguchi is prepared to bend in service of the LDP. Any big shift by Komeito on collective self-defence risks losing its identity as a party de ned by its paci sm and with it the support of its religious followers. After much bickering, a divorce is not out of the question. 7
Manila S o uth Chi na S ea

tion steps up its e orts to overthrow her by resorting to legal action. The Democrats have led a case with the anti-corruption commission to impeach her over a controversial rice-subsidy scheme. Another fear is that at some point the army may decide it must step in to reimpose order in a coup. After all, it unseated Mr Thaksin in just such a coup in 2006. For now, the advantage is with Ms Yingluck. The army o ers to mediate in the stand-o , but is reluctant to be seen this time round to take sides. The government has vowed to arrest Mr Suthep and other protest leaders. But Ms Yingluck might hold that card in reserve, giving the protesters opportunity to discredit themselves by denying their fellow citizens the right to vote. But nothing suggests a resolution to the crisis. A measure of the mess is that Myanmar, only just emerging from a half-century of authoritarian rule, is expressing alarm about the instability next door. 7

MINDORO
Masbate

SAMAR

PANAY
Cebu Palawan Bohol

PACIFIC OCEAN

LEYTE

NEGROS S ulu S ea

P HIL IP PIN E S
MINDANAO

MALAYSIA

Zamboanga Moro Gulf

250 km

Proposed Bangsamoro region

A peace agreement in Mindanao

A fragile peace
MANILA

Japanese politics

The odd couple
TOKYO

A long-running insurgency may at last be coming to an end

T

Rows are breaking out inside the governing coalition

N

ATSUO YAMAGUCHI is the leader of Japan’s junior coalition party, New Komeito. He likes to boast that Komeito acts like an opposition party within the ruling party , reining in the Liberal Democratic Party (LDP) of the prime minister, Shinzo Abe, when it really counts. It has meant friction over virtually every signi cant policy since the coalition took o ce in late 2012. After not a little spousal abuse, the LDP may now be looking at ways to dump its unlikely partner. The wonder, indeed, is that this mismatched political pairing has endured so long. Relations hit a low point over Mr Abe’s visit in December to the Yasukuni shrine in Tokyo, a memorial to Japan’s war dead controversial for its honouring of 14 highranking war criminals. Mr Yamaguchi quickly added his party’s voice to the outcry at home and abroad. Soon afterwards, LDP o cials lashed out at New Komeito’s refusal to force party members in Nago, a city in Okinawa prefecture, to vote for an LDP-backed candidate in a critical local election on January 19th. He lost. Had he won, the relocation of Futenma, a key American marine base at the centre of years of political wrangling, would have been made much easier, boosting Mr Abe. A bust-up between the two partners now looms. The LDP will soon challenge

HE Moro Islamic Liberation Front (MILF) is preparing to sign an agreement with the government that is meant to end decades of con ict in the south of the Philippines. Government leaders hope that the rebel group will begin disarming in May. The southern region of Mindanao is home to most of the predominantly Catholic country’s Muslim minority. The MILF is the most important in a range of armed groups that have been ghting for independence for the majority-Muslim areas. After 18 years of negotiations, often interrupted by heavy ghting, the government and the MILF concluded the last and most crucial part of a four-part peace agreement on January 25th. The rst three parts gave autonomy not independence to the mainly Muslim areas, in return for peace. The fourth sets out how the government and the MILF will jointly restore order in the autonomous entity, to be called Bangsamoro. It also lays out how the 12,000 or so MILF ghters will put down their weapons, once all the other groups have been disarmed. This is the nub of the agreement. That the negotiators have got this far demonstrates the determination of both sides, weary from 46 years of a con ict that has killed tens of thousands. A few obstacles remain. Hostilities have not yet ceased. Two days after the agreement, the army assaulted a stronghold of a faction of the MILF, known as the Bangsamoro Islamic Freedom Fighters (BIFF), that rejects the agreement. The army said it bo ed 37 1 rebels, a claim they rejected.

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2

The Economist February 1st 2014 Australia and asylum-seekers
Australia’s relations with Indonesia, its northern neighbour and the main embarkation point for boat people, have su ered. Marty Natalegawa, Indonesia’s foreign minister, calls the Australian approach a slippery slope which could get out of hand . In promising to turn back the boats, Mr Abbott has taken the populist path on boat people that John Howard, his mentor and a former coalition prime minister, promoted over a dozen years ago. Tapping voters’ fears about boats swarming from Asia, Mr Howard banished their passengers to camps in Papua New Guinea and Nauru. Ensuing Labor governments were critical of the hardline policy. But in July the then Labor government, under Kevin Rudd, turned more draconian itself. It decreed that those in the camps who won refugee claims would be resettled in Papua New Guinea but never in Australia. After 16,000 asylum-seekers on 220 boats arrived in the 1

Then there is the question of a constitution for Bangsamoro that must be drafted and enacted by the national Congress. Anyone who does not like the peace agreement may challenge it in the (predominantly Catholic) courts. But the main Philippine parties are spurred on by the hope that peace will allow Mindanao to unlock its considerable mineral and agricultural wealth. America stands ready to help nancially in the hope that economic growth will prevent parts of Mindanao from harbouring Islamists. Perhaps the biggest obstacle will be the rebels’ resistance to disarmament. Some of the reasons are cultural. In parts of Mindanao the concept of manhood is tied up with owning a gun. Some resistance to disarmament is political. Communist guerrillas still infest the island, and their leaders are reluctant to talk peace. Other factions of the MILF that are unhappy with the peace agreement may follow the BIFF’s lead. The MILF itself began as a faction that splintered from the Moro National Liberation Front (MNLF), which accepted autonomy for some largely Muslim areas in a peace agreement with the government in 1996. Now the MNLF is upset that the autonomous entity created by the 1996 agreement is to be supplanted by this new Bangsamoro. In September one of the MNLF’s factions protested with a show of force in the southern city of Zamboanga, in which 24o people were killed over three weeks. Abu Sayyaf is another armed Muslim group, which America linked to al-Qaeda after 2001. Some resistance to disarmament will also come from common criminals. Mindanao is awash with armed gangs of kidnappers and extortionists. It is little wonder, then, that the MILF has agreed to lay down its weapons only once everybody else has. Peace between the MILF and the government is one thing; peace in Mindanao is another. 7

Go north, young man
SYDNEY

Tony Abbott’s draconian approach has its costs

T

HE Australian prime minister, Tony Abbott, likens his government’s campaign to stop asylum-seekers landing in the country by boat to a military campaign. Four months after he led the conservative Liberal-National coalition to power promising to stop the boats , Mr Abbott is claiming victory in Operation Sovereign Borders . On January 24th his immigration minister, Scott Morrison, claimed that no boat people had arrived in Australian waters for more than a month, the longest boat-free period for nearly ve years. Yet

Nauru

Aussies out!
WELLINGTON

Problems with Australia’s Paci c solution

T

HE South Paci c microstate of Nauru (with a population of 9,400 spread over 21 square kilometres or eight square miles) has deported its Australian resident magistrate and barred its Australian chief justice from re-entering the country. In protest, the solicitor-general also Australian has resigned. Before these events came the dismissal of the Australian parliamentary counsel, wife of an opposition MP, though now banned from Nauru. It leaves the country bereft of a functioning judiciary, and also has wider rami cations. Nauru is the site of a detention centre that forms a key component in Australia’s Paci c solution aimed at stopping boats landing asylumseekers on Australian shores. It houses over 900 refugees, mainly Afghans, Sri Lankans, Iranians and Iraqis. Riots at the centre last July triggered the sacking of the island’s Australian police chief. The latest troubles began when the resident magistrate, Peter Law, stopped the government from deporting several foreigners, one of whom, Rod Henshaw, had been a media adviser to the former government. After Baron Divavesi Waqa’s government assumed o ce last June, Mr Henshaw’s contract was terminated. Instead of leaving, he acquired a business visa and opened a hotel bar. The home minister, Charmaine Scotty, claims this was symptomatic of a system of cronyism operated by Australian expatriates in league with the opposition. At issue is whether the government had

the right to deport Mr Henshaw and two other foreigners. The government says it passed legislation in December enabling it to do so. The judges disagreed. The government responded on January 19th by bundling Mr Law onto an aeroplane, defying a stay order issued by the chief justice, Geo rey Eames, from his home in Melbourne. Mr Eames then had his entry visa cancelled. He cannot be formally dismissed except by a twothirds majority in parliament and only with good cause. The opposition says the Waqa administration may declare a state of emergency, a common tool, to rid itself of the judge. Or it may simply fall, as 11 governments have done over the past dozen years. A recon gured government might dispense with the justice minister, David Adeang, a power-broker who earnestly wants to settle scores with the opposition and its friends. On January 28th the government amended the immigration act so as to allow Mr Henshaw to be deported the next day. Australia’s immigration minister, Scott Morrison, denies a conspiracy hatched in Canberra, the Australian capital, to remove legal oversight from its detention centre. The episode, he says, is very much about internal Nauruan politics . In tiny states like Nauru, parliamentary politics can become deeply personalised. But it all makes the Nauru end of Australia’s Paci c solution less palatable under international law, and leaves refugee rights poorly protected.

No doubting his manhood

The Economist February 1st 2014
2 rst seven months of last year, boat num-

Asia 23 Western Australia

bers dropped sharply. The slowdown, for which Mr Abbott claims credit, began before he won power in September. In ordering the navy to stop vessels carrying asylum-seekers from entering Australian waters by pushing them back towards Indonesia instead Mr Abbott has acted in the face of Indonesian objections. In contrast to previous governments, he has also shrouded the operation in secrecy. War against people-smugglers, Mr Abbott says, should not involve giving out information of use to the enemy . Press reports in Australia and Indonesia suggest the navy has pushed up to six boats back. Asylum-seekers on one boat in early January told the Australian Broadcasting Corporation (ABC) that they were badly burned when Australian sailors forced them to touch parts of their boat’s engine. Mr Abbott endorsed the navy’s denials of having done anything wrong and accused ABC of lacking patriotism. It has since emerged that in at least one operation, navy vessels entered Indonesian waters without authority. Indonesia is livid. It has deployed its own warships and military radar to monitor Australia’s movements. Mr Natalegawa says Indonesia is keen to ensure our sovereign border is properly protected . Australia has since apologised to Indonesia. But Mr Abbott’s explanation of how a modern navy could inadvertently have entered Indonesian waters raises more questions. On January 28th he suggested the ships’ commanders could have been distracted by winds, tides and all sorts of things at sea. His tone echoed the evasive response to revelations in November about Australia’s phone-tapping of Indonesian leaders. Mr Abbott had promised that Indonesia would be at the heart of his foreign policy. Yet the boats controversy is as damaging as the phone-tapping scandal. Legal experts also say that Australia might have breached its obligations under the United Nations refugee convention by pushing asylum-seekers to another country. (Australia holds more than 4,000 boat people in camps on Christmas Island, an Australian territory, and in Papua New Guinea and Nauru.) Criticisms are mounting at home. John Ingram, a retired navy captain, calls the boats policy morally corrupt and indefensible . He worries that sailors are being used for political purposes . John Menadue, a former immigration head, calls the operation provocative, insensitive, crass , a blot on a hitherto good Australian record on refugees. With cruelty over boats behind us, Mr Menadue says, the government should make amends by sharply lifting Australia’s refugee intake through conventional UN channels, from 20,000 last year. The prospect that the Abbott government will take his advice is slight. 7

The Devil in the deep blue sea
SYDNEY

Declaring war on sharks

N

EXT to snakes and crocs, Australians imagine sharks to be the country’s most dangerous creature. Tim Winton, an author, calls sharks our secular substitute for the Devil . Seven swimmers in three years have died from shark attacks in Mr Winton’s home state of Western Australia. The state’s government, led by Colin Barnett, is now taking revenge. In late November a skilled surfer died from a shark attack. A week later a shark killed a 19-year-old in New South Wales. The tragedies fed public anxieties of a Jaws-like rampage. Mr Barnett ordered no-go zones for sharks to be set up o shore, marked by lines of baited hooks. Any shark caught on them more three metres long was to be shot. The rst shark snared in this strategy was shot on January 26th. Mr Barnett says he has to protect the people of Western Australia . But previously hostile popular attitudes towards sharks are shifting. Plenty of Western Australians, along with environmentalists and shark experts, deplore the new policy. In early January, at the height of the summer holiday season, more than 4,000 protesters swamped Cottesloe Beach in Perth, with signs reading Save Our Sharks , Science Not Slaughter and Cullin Barnett . Of Australia’s 180 or so shark species, only a few are dangerous to humans: chie y, bull sharks, tiger sharks and great whites, which are protected under federal law. Their numbers have su ered from

the trade in shark ns for soup in Asia, which Australia and others have banned. Nonetheless, the federal government has given its conservative counterpart in Western Australia an exemption from protecting great whites under its catchand-kill policy. Despite the recent attacks, deaths from sharks are rare an average of just one person a year for the past half-century around Australia’s vast coastline, says the Australian Shark Attack File, a research out t at Taronga Zoo in Sydney. By contrast, an average of 120 people drown each year o beaches and in harbours and rivers. There has been no fatal shark attack at Bondi beach in Sydney, Australia’s most popular strand, since 1929. But, like other busy New South Wales beaches, Bondi has underwater nets xed o shore. Queensland, too, uses nets as well as submerged hooks to keep sharks and humans apart. Perhaps this saves lives though not the sharks’. Neither state has a policy of shooting trapped sharks. Yet the nets and hooks are usually fatal. Of the 686 sharks snared last year in Queensland, only 32 were released alive; the rest drowned or were humanely killed by patrols. Christopher Ne of the University of Sydney says Western Australia’s policy is a political response that will do little for public safety: shooting sharks will not stop others coming in.

Drawing the line against sharks

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The Economist February 1st 2014

Banyan

Snarling, not pouncing

Militants are eating at Pakistan’s heart. Will Nawaz Sharif take them on? few months the prime minister has been busy replacing the country’s president, army chief and chief justice. He has tried to keep on good terms with the army a delicate act with Pervez Musharraf, a former dictator claiming a dodgy heart, on trial for treason. Mr Sharif and the new army chiefs appear to be rubbing along, helped by the fact that his government is a bit less incompetent and crooked than the previous crew. Meanwhile, he has tried to improve the economy and forge ties with India. A lot going on, in other words. Besides, political support for a military push is much harder if talks have not been tried rst. Evidence of a greater appetite for a full-blown assault on Taliban bases in North Waziristan is growing. Last week, o cially for the rst time since 2007, Pakistani forces bombed North Waziristan, reportedly killing over 20 Taliban ghters. On January 27th lawmakers from Mr Sharif’s party appeared to back a broader military push. Two days later, for the rst time in months, Mr Sharif showed up in parliament to talk about such an assault though he also said a high-level team would continue to seek talks. He has huddled with the new army chief to discuss strategy. The rhetoric is getting tougher. Shahbaz Sharif says, We have to win this battle hands down ; the time has come, he says, to act. Others in Mr Sharif’s camp say, It is time to ght, to end this problem of the past 15 years . Earlier criticism of America has been put aside. Indeed, America may quietly be helping create useful conditions. There have been few drone strikes in Pakistan, always controversial, since the death in November of Hakimullah Mehsud, the Pakistani Taliban’s deputy commander. And on January 27th John Kerry, resuming stalled strategic dialogue talks in Washington, pledged that America will keep aid owing to Pakistan. None of this, however, means that a push into North Waziristan will come soon. Deep winter is no time to start a campaign. And the Taliban has already promised to retaliate, making places like Punjab and the capital, Islamabad, vulnerable to large-scale violence again. To forestall this, the government has in mind a sweeping ordinance to give the army and police impunity in grabbing terrorism suspects. Increased abuse and torture would almost certainly follow. Those close to Mr Sharif say the risk of some abuse is worth taking. Yet it is unclear what di erence the proposed ordinance would make: it was not a scrupulous regard for legal rights that let previous bombers through. Mr Sharif probably also worries about politics. He has no wish to let Imran Khan an ex-cricketer and diehard opponent of any attacks on the Taliban, and an ethnic Pushtun like them assume the galvanising role in opposition that Mr Sharif previously enjoyed. As if to sti en his resolve, Bilawal Bhutto, the new young leader of the opposition Pakistan Peoples Party, this week urged Mr Sharif to push on with military action. Militants, after all, killed his mother, Benazir. The time is now Talk of Pakistani military action against the Taliban should be welcomed, even if it is actually designed to press them to talk. Making a better public case against violent groups who set o bombs in the name of Islam is a basic but long-neglected task of Pakistan’s leaders. Terri ed of becoming targets themselves, few in public life dare to say the obvious: that extremists are destroying Pakistan from within. Like another lion, the timorous one in The Wizard of Oz , Mr Sharif may not be ready to act, but at least he could start to roar a little louder. 7

T

HE prime minister’s sprawling house in Lahore is crammed with cat sculptures, cat paintings and enough stu ed ex-cats to make a taxidermist purr. Nawaz Sharif’s party, the Pakistan Muslim League (Nawaz), has a badly drawn tiger as its symbol. Now that he is prime minister, the Lion of Punjab , as he is widely known, has to decide whether to show his claws and order a military campaign against the Pakistani Taliban, an assortment of three dozen home-grown terrorist groups based mainly in the wild north-west of the country. For now, at least, he is likelier to hiss than act. Mr Sharif, in o ce since June (his third go at being prime minister), should be doing much more about the Islamist violence that has claimed thousands of lives over the past decade. Sectarian murders and extremists’ bombs give Pakistan the feel of being on the brink of war. Karachi was once a liberal, industrial city, but the Taliban make their presence ever more strongly felt. In January they killed the city’s leading anti-terrorist cop, a charismatic and e ective o cer. They have also murdered journalists in the city whose coverage they did not like. Farther north, in Khyber Pakhtunkhwa province, militants blew up a bus, killing over 20 army recruits. Even dispensers of polio vaccines are targeted. Mr Sharif has long set store on talks with the terrorists. Perhaps the Taliban would agree to murder less in return for concessions. Some in the Taliban say talks are possible. Mr Sharif and his brother, Shahbaz Sharif, who runs Punjab province, have a history of dealmaking with extremists. The brothers, who are religious conservatives, used to say little against the Taliban, condemning instead America’s wars in the region. This policy bought protection: for the past ve years the Taliban and their Punjabi allies, Lashkar-e-Jhangvi (LeJ), have carried out no big suicide-attacks in Lahore or elsewhere in Punjab. Nor, during last year’s election campaign, did candidates or rallies of Mr Sharif’s party su er the threats and bombs endured by luckless secular types, such as the Pakistan Peoples Party. Hasan Askari Rizvi, an analyst in Lahore, calls such dealmaking a naive view of dealing with terrorism . But since some of Mr Sharif’s associates claimed ties to the LeJ, perhaps he saw a useful channel to the Taliban. Yet a growing view is that Mr Sharif really is set on eventual military action, and that talks are about winning time. In the past

China

The Economist February 1st 2014 25 Also in this section 26 Some optimism for the environment 26 Li Na doesn’t thank the motherland

For daily analysis and debate on China, visit
Economist.com/china Economist.com/blogs/analects

The cost of medicine

Physician, heal thyself
BEIJING

Medicines are over-prescribed and overpriced

T

HE Chinese media frequently portray doctors not as life-saving heroes but as pro t-seeking villains. Popular anger against medical sta sometimes spills over. One gruesome period in October last year saw at least six violent attacks by disgruntled patients on medical workers, including one that led to the death of a doctor. In 2012 there had been 11 such attacks and 7 deaths. One of the main reasons for such hostility is the high price of medicines and the corruption that contributes to it. Visitors to Chinese hospitals are often greeted with a sign that reads no pharmaceutical representatives allowed , a ban that has existed for more than a decade. Yet a recent spate of scandals involving public hospitals suggests that few heed the prohibition. China is expected to become the world’s second-largest pharmaceutical market by 2016, with total sales reaching $165 billion, according to IMS Health, a research rm. The soaring spending on drugs has been fuelled by an ageing population, the expanded coverage of public health insurance and the increasing demands of a wealthier society. But it is also the result of a system that in ates the cost of medicine. Even the cheapest generic drugs sold in Chinese hospitals are much more expensive than their international benchmark. Public hospitals in China are not so public in their funding: government subsidies only made up 9% of their revenues in

2011. By contrast, the sale of medicines accounts for 40%. Doctors are underpaid, so much of their income depends on how many drugs they prescribe. Hospitals are allowed to charge a 15% markup on the drugs they sell, so the more expensive the better. Consequently, China’s spending on medicines is 40% of total health expenditure, far higher than the average for OECD countries, of 16%. With few other sources of income, hospitals have to maximise their pro ts from drugs in order to subsidise medical services, says Zhu Hengpeng of the Chinese Academy of Social Sciences. So the high price of drugs is institutionally justi able . The government has taken a series of measures to attack this problem, including price cuts on a wide range of medicines, but doctors were quick to adopt countermeasures, such as switching to more expensive alternatives or prescribing more unnecessary drugs. According to the health ministry, the average Chinese person consumes ten times more antibiotics than the average American. The government wants to keep markups under control, says Mr Zhu, but you can’t expect the horse to run if you don’t let it feed . As a result, the regulations have exacerbated the problems of corruption, he argues: since you don’t let me take kickbacks openly, I’ll do it under the table. In July local authorities in the city of Zhangzhou in Fujian province recovered

over 20m yuan ($3.3m) that more than 1,000 medical professionals had taken in bribes from pharmaceutical representatives. Drug rms have a strong incentive to get their products into the hands of doctors at hospitals, where 80% of China’s drugs are sold, and as a consequence many have stretched the de nition of marketing and distribution. Chen Wenling, an economist in the research o ce of the State Council, China’s cabinet, estimates that kickbacks usually account for more than 20% of the nal retail price of a drug sold. Some distributors issue or buy in ated invoices to extract large sums of cash, creating slush funds to bribe o cials and doctors. In August Chinese authorities found two pharmaceutical distributors in Hebei province had issued fake invoices worth 776m yuan ($127m). The government announced a graft investigation in July into the Chinese operations of GlaxoSmithKline (GSK), a British conglomerate, in what appears to be part of a broader e ort to crack down on bribery in health care. Four senior executives of the company have been detained over allegations of funnelling up to three billion yuan ($490m) to travel agencies to fund bribes to doctors and government o cials. In an interview with state media, Liang Hong, a detained GSK executive, estimated that without this sort of spending their prices could be reduced by 20-30%. GSK has reiterated its opposition to the alleged misconduct and suggested it will lower its prices in China. The introduction of generic brands has driven down drug costs elsewhere in the world, but promoting their use is di cult in China. The incentive system works against the use of cheap drugs. Scandals involving unsafe local food and drugs add another obstacle: many doctors and patients favour foreign brand-name drugs, 1

26 China
2 even if they are more expensive.

The Economist February 1st 2014 Not thanking the motherland

Since 2009, in an e ort to reduce the cost of medicines, authorities have required hospitals to buy them through bidding managed by health o cials in each province. But the tenders do not always require brands to compete against generic drugs, so there is little pressure on prices. Where competition does develop between generic brands, the pro t margins of drug companies are squeezed as they strive to o er bigger kickbacks to hospitals. When that happens, Chinese patients still do not bene t from cheaper prices. Lancet Global Health, a British journal, published a study in October showing that in 2012 the lowest-priced generic drugs were signi cantly harder to nd in Shaanxi province than they had been two years earlier. It attributes the decrease in availability to the provincial bidding system, which squeezed the margins of some drug companies so much that they would rather not make or supply the drugs. According to state-owned media, that has created a shortage of some life-saving drugs across the country. 7

Free spirit
A tennis star gives o cials the cold shoulder

U

PON winning the women’s singles title at the Australian Open on January 25th, Li Na stood up (above) and gave a touching, witty speech in English. She teased her husband, thanked her fans and praised her agent for making her rich. Since winning the French Open in 2011, she has secured endorsements worth $40m, making her the third-bestpaid female athlete in the world. There were no thanks, however, for the motherland , a fact that did not go unnoticed back home. Xinhua, the o cial news agency, suggested her success would not have been possible without her time on the national team . The opposite may be true. Ms Li, who turns 32 next month, spent her early years in spartan sports schools, but ed the system in 2002, sick of the pressure. She went to university and forgot about

tennis, before being coaxed back under a deal known as danfei, or ying solo . She was permitted to choose her coach and retain 90% of her earnings, rather than give more than half to the state. Ms Li’s memories of the system appear not to have left her. After her win, she ew to her hometown of Wuhan to be greeted by local o cials, who presented her with a cheque for 800,000 yuan ($132,000). A screenshot of Ms Li holding the cheque, stony-faced, has circulated on the internet to much amusement. Her stick-it-to-the-system attitude has made her popular at home, with a following on Sina Weibo, China’s Twitter, of 22m. The spindoctors of Chinese soft power might do well to note that success and popularity sometimes come not in stateowned packaging, but in the form of a mercurial, tattooed free bird, ying solo.

Environment

Browner, but greener
SHANGHAI

China stands out for its greenness in a new environmental ranking

C

HINA is the world’s biggest polluter, so it is no surprise that it fares poorly on some measures of pollution in a new global index of environmental performance. The shock is that it also stands out for its world-beating greenness in other areas on the same index. The Environmental Performance Index (EPI), a joint product of America’s Yale and Columbia universities, is the latest volume in a long-running biennial ranking of 178 countries on a variety of measures of environmental performance. New this year are assessments of performance in wastewater treatment and combating climate change, as well as the clever use of satellite data (to track trends in forestry and air pollution) in order to top up traditional computer modelling and o cial data. The report’s conclusions are more cheerful than most green report cards. The experts believe countries are doing well in improving access to safe drinking water and sanitation, and in bringing down child mortality. However, the global trends are worrying in other areas like sheries, wastewater treatment and air quality. Overall, Switzerland came out top. Somalia came last. China was 118th, a middling ranking that beats India (155th) but falls

Li Na to Communist Party: drop dead
well below South Africa (72nd), Russia (73rd) and Brazil (77th). However, that average masks a huge divergence in China’s performance in two areas. Using satellite data, the bo ns worked out, for the rst time, what global exposures were to ne particulate matter (known as PM2.5) from 2000 to 2012. China ranked at the bottom on air pollution, with nearly all of its population exposed to levels of PM2.5 pollution deemed unhealthy by the World Health Organisation (WHO). Though less frequently criticised than Beijing, Delhi’s air is also terrible but China as a whole fares worse. In 2012 the average human exposure to PM2.5 for all of China was 48 micrograms per cubic metre, but the national gure for India was only 32 units (the WHO says anything above 10 units is unhealthy). The surprise is that China has done very well on carbon. The experts calculate that, unusually among big emerging economies, it slowed the rate at which its greenhouse-gas emissions have grown in the past decade. That is partly a natural result of its development, which has led to investment in better technology and cleaner industries, but it is also thanks to policies to improve e ciency and boost renewable energy. Environmentalists the world over can breathe a little easier knowing that the biggest global polluter has started to slow the rise in its greenhouse-gas emissions and may one day even reduce them. If only China’s urban residents could breathe a little easier, too. 7

United States

The Economist February 1st 2014 27 Also in this section 28 The Republican rebuttal 29 Social mobility is not falling 30 Utah’s dirty air 30 Pete Seeger, Bolshie with a banjo 31 The market for corpses 31 A map of Mexicans 32 Lexington: What gay activists taught pro-lifers

For daily analysis and debate on America, visit
Economist.com/unitedstates Economist.com/blogs/democracyinamerica

Barack Obama

The state of the president
WASHINGTON, DC

The state-of-the-union address revealed a leader hoping for something to turn up

I

N AN hour of speech two things stood out and neither had anything to do with politics. Barack Obama’s state-of-the-union speech on January 28th was largely a cut-and-paste job from his previous reports to Congress, a series of bullet-points that never joined together to form a picture. The president seemed rather bouncy, but his audience only became animated when he got to the subject of hoped-for triumphs at the winter Olympics, at which point chants of USA! lled the chamber. The second moment came right at the end of the speech, when Mr Obama praised Cory Remsburg, an army ranger wounded in Afghanistan by a roadside bomb, which threw him face down into a ditch and planted shrapnel in his brain. Mr Remsburg, who was watching the speech from his seat next to the First Lady, stood to acknowledge the applause and waved, a gesture that made much of what had gone before seem trivial. Given that he often seems at his most comfortable in front of a large crowd, the president’s reticence requires some explaining. The state of the union has sometimes contained memorable phrases Franklin D. Roosevelt’s four freedoms , George W. Bush’s axis of evil but more often it resembles a shopping list to which each policy adviser in the White House tries to add one item. Mr Obama’s speech stuck to this template. To be fair, a pitch for a grand programme of reform would have

sounded naive at this point in the electoral cycle. Republicans control the House and may control the Senate too after the midterm elections in November. They need a net gain of six seats to do that, and Democrats are defending six seats in states that Mitt Romney won easily in 2012. Yet even on the one subject where the president might yet get his way with Congress, immigration reform, he seemed jaded. Mr Obama argued that reforming immigration was important because it would help plug the de cit. There was no mention of the 11m people in America with no documents, many of whom arrived as children, now have children themselves, and face deportation. Some political strat-

Better
America’s: unemployment rate, % 5
+ OBAMA RE-ELECTED

1

10

0 GDP
% change on previous quarter* –

5 10

2009

10

11

12

13
*At annual rate

Sources: Bureau of Economic Analysis; Bureau of Labour Statistics

Interactive: Explore our guide to the states and stats of America at Economist.com/usguide14

egists see this as cunning: by not talking about immigration too much the president might create space for House Republicans, who are in the midst of an internal argument about whether to put forward their own proposal, to embrace reform without looking like they are doing the president’s work. Yet if Mr Obama cannot propose things that will not get past Congress or give his full backing to those that might, there is not much left for him to talk about. Presidents who have found themselves in this position before have sometimes resorted to executive action. Mr Obama promised more of this in the years ahead, though he has in fact been more reluctant to use power unilaterally than his predecessors. In his rst term Mr Obama signed fewer executive orders than any president since the second world war, according to data from the University of California, Santa Barbara. Mr Obama pledged to move forward on gun control with or without Congress . But this seems like posturing. It is hard to imagine Mr Obama, who has a well-developed sense of the limits of presidential power, trampling over Congress. When a heckler in November pleaded that he had the power to halt deportations of undocumented migrants, he replied: Actually, I don’t. He added that: the easy way out is to ... pretend like I can do something by violating our laws. To get a sense of the sorts of thing the president can do by executive order, consider the one which was announced. From now on, Mr Obama said, the minimum wage for people who work as federal contractors will be raised to $10.10 an hour. This means a small pay hike for a few hundred thousand workers who do such things as wash laundry on military bases. Set against Mr Obama’s stated aim to reverse the rise of inequality in America this was like prescribing an aspirin for ap- 1

28 United States

The Economist February 1st 2014
2

Worse
Barack Obama’s presidential job approval
% saying they:
OBAMA RE-ELECTED

The Republican response

More than a mom
WASHINGTON, DC

approve

70 60 50 40 30 20 10 0

A new face on the national stage

disapprove

F

2009

10

11

12

13 14

Source: Gallup

2 pendicitis. He urged Congress to raise the

federal minimum wage for everyone else, which it will not. The president added that he supported a proposal by Marco Rubio, a Republican senator, to extend the earnedincome tax credit (a wage subsidy for the low-paid) to unmarried workers with no children. This would ease deprivation without discouraging work, but will not be easy to get through Congress.

Second term blues On foreign policy, where the president has more autonomy, Mr Obama pledged to veto any sanctions Congress might impose on Iran, which if written into law would end negotiations with the Iranian government over its nuclear programme. If John F. Kennedy and Ronald Reagan could negotiate with the Soviet Union, said Mr Obama, invoking higher authorities in a way that would be familiar in Tehran, then surely a strong and con dent America can negotiate with less powerful adversaries today. He also repeated a promise to get most American troops out of Afghanistan by the end of this year. On trade, Mr Obama repeated a commitment to do deals with Europe and Asia but may be blocked by Harry Reid, the top Democrat in the Senate, who reiterated his opposition shortly after Mr Obama’s speech. Coming at the end of a decade of warfare, with the economy growing and unemployment falling, the president could have been more expansive. Taking the speech in isolation, it is hard to see what Mr Obama wants to do with his remaining time in the White House. (Other than try to x Obamacare, his main legislative accomplishment, which he barely mentioned.) At the equivalent point in his presidency, Bill Clinton was musing on how to spend a huge surplus. A few years later that question was irrelevant. In his fth state-of-the-union George W. Bush praised the strength of the economy; within three years he was dealing with the collapse of Lehman Brothers. Presidents tend to respond to the world more than they shape it. Mr Obama may be out of ideas but that is not the same as being out of power. 7

OR an opposition politician, giving the televised response to a president’s stateof-the-union address is a perilous honour, with the emphasis on peril. At best, these brief rebuttals are a box-ticking exercise, allowing the party that does not control the White House to inject dissenting sound-bites into news coverage of the main event, while stressing ways in which their vision di ers from that of the scoundrel in the Oval O ce. At worst, rising stars may ub their lines or commit a ga e (Bobby Jindal, the Republican governor of Louisiana, did his career real harm with a stilted and patronising rebuttal in 2009). Republicans this year handed the baton to Representative Cathy McMorris Rodgers of Washington state, a relatively unknown member of the party’s congressional leadership team and a close ally of John Boehner, the Speaker of the House of Representatives. To her credit, and to warm praise from fellow Republicans, Ms McMorris Rodgers ticked many of the right boxes. Striking a bipartisan note, she told viewers that President Obama and her party both wanted to secure a better future for Americans, adding that Republicans parted ways with Democrats in how to make that happen. Her wish-list of familiar conservative solutions (lower taxes, empower people not government) was both softly delivered and content-free. Yet to her own party’s discredit, her performance received most praise for ticking boxes involving her sex and her life story as a working mother of three who grew up

picking apples in her parents’ orchards, and who worked at a McDonald’s DriveThru to help pay for college. When Mr Boehner announced the selection of Ms McMorris Rodgers to give the rebuttal, he hailed her as a congressional leader and most importantly, a mom . In the 2012 presidential election women voted for Mr Obama over Mitt Romney by 11 points. In poll after poll unmarried women shun Republicans by huge margins. Conservatives openly talk of an urgent need to nd better ways to talk to women voters (without changing their underlying policies, most hasten to add). TV pundits rushed to parse the 44-year-old’s personal appeal as she explained her religious faith (closing her address with an extended prayer), and related the story of her oldest child’s diagnosis with Down’s Syndrome. The Republican Party picked someone who is attractive, she is articulate, enthused Newt Gingrich, a former House Speaker, on CNN. Amid the beauty-pageant style condescension, many seemed to miss an important line being drawn between the parties, ahead of November’s mid-term elections. The president talks a lot about income inequality. But the real gap we face today is one of opportunity inequality, Ms McMorris Rodgers said. Expect to hear more of this focus on social mobility, rather than income inequality. Voters on left and right agree, when asked, that the gap between rich and poor has grown in recent years. But, as a recent poll by the Pew Research Centre found, nearly half of all Republican voters think the government should do not much (15%) or nothing at all (33%) about such wealth divides possibly because most Republicans also believe that poverty mostly stems from a lack of e ort . Ms McMorris Rodgers avoided partisan jabs during her moment in the spotlight. But she was still addressing a sharply divided country. 7

And now for something completely di erent

The Economist February 1st 2014

United States 29
ment of time and money in their children. Cross-country analyses also suggest there is an inverse relationship between income inequality and social mobility a phenomenon that has become known as the Great Gatsby curve. What is going on? One possibility is that social strati cation takes time to become entrenched. In a new book, Gregory Clark, an economic historian at the University of California, Davis, who tracks mobility over hundreds of years by following surnames, reaches far more pessimistic conclusions (see page 70). Another, sunnier, explanation is that even as income gaps have widened over the past 30 years, other barriers to mobility, such as discrimination against women and blacks, have fallen. Most likely, the answer lies in the nature of America’s inequality, whose main characteristic is the soaring share of overall income going to the top 1% (from 10% in 1980 to 22% in 2012). The correlation between vast wealth accruing to a tiny elite and the ability of people to move between the rest of the rungs of the income ladder may be small at least for now. Whatever the explanation, it would be unwise to take much comfort from this study. For a start, since the gap between top and bottom has widened, the consequences of an accident of birth have become bigger. Second, if the gains of growth are going mostly to those at the top, that bodes ill for those whose skills are less in demand. Many economists worry that living standards for the non-elite will stagnate for a long time. Is your town a launchpad or a swamp? Third, although social mobility has not changed much over time, it varies widely from place to place. In a second paper, the economists crunch their tax statistics by region. They nd that the probability of a child born into the poorest fth of the population in San Jose, California making it to the top is 12.9%, not much lower than in Denmark. In Charlotte, North Carolina it is 4.4%, far lower than anywhere else in the rich world. This geographic prism also o ers some pointers on what in uences mobility. The economists found ve factors that were correlated with di erences in social mobility in di erent parts of America: residential segregation (whether by income or race); the quality of schooling; family structure (eg, how many children live with only one parent); social capital (such as taking part in community groups); and inequality (particularly income gaps among those outside the top 1%). Social mobility is higher in integrated places with good schools, strong families, lots of community spirit and smaller income gaps within the broad middle class. Not a bad agenda for politicians to push, if only they knew how. 7

Class in America

Mobility, measured
WASHINGTON, DC

America is no less socially mobile than it was a generation ago

A

MERICANS are deeply divided as to whether widening inequality is a problem, let alone what the government should do about it. Some are appalled that Bill Gates has so much money; others say good luck to him. But nearly everyone agrees that declining social mobility is a bad thing. Barack Obama’s state-of-theunion speech on January 28th dwelt on how America’s ladders of opportunity were failing (see previous stories). Paul Ryan and Marco Rubio, two leading Republicans, recently gave speeches decrying social immobility and demanding more e ort to ensure poor people who work hard can better their lot. Just as the two sides have found something to agree on, however, a new study suggests the conventional wisdom may be wrong. Despite huge increases in inequality, America may be no less mobile a society than it was 40 years ago. The study, by a clutch of economists at Harvard University and the University of California, Berkeley, is far bigger than any previous e ort to measure social mobility. The economists crunch numbers from over 40m tax returns of people born between 1971 and 1993 (with all identifying information removed). They focus on mobility between generations and use several ways to measure it, including the correlation of parents’ and children’s income, and the odds that a child born into the bottom fth of the income distribution will climb all the way up to the top fth. They nd that none of these measures has changed much (see chart). In 1971 a child from the poorest fth had an 8.4%

chance of making it to the top quintile. For a child born in 1986 the odds were 9%. The study con rms previous ndings that America’s social mobility is low compared with many European countries. (In Denmark, a poor child has twice as much chance of making it to the top quintile as in America.) But it challenges several smaller recent studies that concluded that America had become less socially mobile. This result has caused a huge stir, not least because it runs counter to public perceptions. A recent Gallup poll found that only 52% of Americans think there is plenty of opportunity for the average Joe to get ahead, down from 81% in 1998. It also jars with other circumstantial evidence. Several studies point to widening gaps between rich and poor in the kinds of factors you would expect to in uence mobility, such as the quality of schools or parents’ invest-

As mobile as before
Probability* of reaching top income quintile at age 26 by year of birth and parental income, % Parental income quintile Bottom 2nd 3rd
Population-based sample

4th 4th

1st

2nd

3rd

Top 35 30 5th 25 20 15 10 5 0 86

1971 73

75

77

79

81

83

Child’s year of birth Source: Equality of Opportunity Project *Earlier figures were compiled using a different statistical method

30 United States Utah’s dirty air Pete Seeger

The Economist February 1st 2014

In the bleak midwinter
SALT LAKE CITY

Bolshie with a banjo
America’s troubadour of dangerous songs died on January 27th ULERS should be careful about what songs are allowed to be sung. Pete Seeger, who died this week at the age of 94, liked that quote from Plato. His tunes constantly poked the eyes of America’s rulers. The civil-rights movement marched to his version of We Shall Overcome . Peaceniks never tired of Where Have All the Flowers Gone? . Vietnam war protesters loved his adaptation of Beans In My Ears , with its coy attack on Lyndon Johnson. Mr Seeger encouraged audiences to join in. Folk songs were for the people, he maintained; the emphasis on the solo frontman was a commercial invention. In Allan Winkler’s book about Mr Seeger’s music, To Everything There is a Season , Tom Paxton recalls: Pete never tried to convince us that he was ‘Appalachian’, or black, Irish, African or Scottish, but made the song the star and the singer merely the presenter. The revolutionary

A fast-growing state contends with a toxic mix of geography and industry

R

T

HE Wasatch and Oquirrh mountains glowed majestically under the winter sun, while the wide avenues of Salt Lake City spread pleasingly below; the view from Utah’s state capitol on January 25th was frustratingly good. Frustrating because 4,000 locals had given up their Saturday afternoon to protest against the lthy air they are forced to breathe each winter. Against a sea of signs bearing slogans like Utah’s air is worse than my brother’s farts , speaker after speaker urged politicians to clamp down on industrial polluters and boost public transport. Some said it was the state’s biggest protest in recent history. For much of the year Utah’s air is crisp and clean. But in winter the mountainous geography of the Wasatch Front, an 80mile north-south corridor in northern Utah, creates inversions , when warm high-pressure systems trap a layer of cold air and keep particulates in place. The problem is not new: the re-burning tribes that once lived there are said to have called the front Smoke Valley . But today 2.2m Utahns, three-quarters of the state’s population, live along the front, driving cars, heating homes and consuming energy. And the Wasatch Front is one of America’s fastest-growing areas. So far this winter in Salt Lake and Davis counties there have been 29 mandatory action air days, on which burning coal and wood is banned and cars are discouraged. On some days, and by some measures, Salt Lake City is smoggier than Beijing. Particulate pollution raises the risk of heart attacks and lung disease. (Some claim a link with autism, though that is less well documented.) So parents keep children indoors, and businesses struggle to recruit from other states. Local newspapers are full of pollution horror stories. Countless clean-air advocacy groups have sprung up. Ralph Becker, Salt Lake City’s mayor, devoted his entire 2014 state-of-thecity address to the problem. Legislators in business-friendly Utah are wary of regulation, but this year they have taken heed: over a dozen bills dealing with air quality have been proposed. On January 29th Gary Herbert, the governor, pledged to speed adoption of cleaner petrol and to clamp down on wood-burning stoves. Still, one legislator recently said Utahns should be better at owning the problem , and that is a message many do not want to hear.

Gone to owers
Two-thirds of Utahns want to see tighter curbs on industrial polluters, such as a Rio Tinto copper mine and ve oil reneries. To advocates’ disgust, a state pollution-reduction plan allows for a 12% increase in point (industrial) emissions by 2019, while calling for big cuts from vehicles, small businesses and homes. Yet industrial sources account for only about 15% of particulate emissions; vehicles are responsible for over half. Cars have become cleaner and, thanks to federal regulations, will continue to do so. Moreover,

who wrote If I Had a Hammer was also a traditionalist, telling roadies, If I had an axe I’d chop the microphone cable at Bob Dylan’s electric performance at the Newport Folk Festival in 1965. He palled around with Woody Guthrie, riding freight trains and hanging with hobos. But he wasn’t like Woody, who was the real thing, raised in hard times before joining the Okie migration out West. Mr Seeger came from Manhattan, the establishment, paci st parents who traced their roots back 200 years and were classical musicians; his father trained at Harvard, his mother in Paris. Both taught at Juilliard. He hated the boarding schools he went to. His progressive fans admired him for standing up to the red-baiters of the House Un-American Activities Committee in 1955. He refused to take the Fifth, but dodged the congressmen’s questions, insisting that although my opinions may be di erent from yours I love my country very deeply. He o ered to play his banjo for his inquisitors. Fifty-four years later, he sang Guthrie’s This Land is Your Land at a concert for Barack Obama’s inauguration. Conservatives were less charmed. It was wrong to blacklist singers in the 1950s, but that did not excuse Mr Seeger’s lifelong embrace of communism and blindness to its horrors, they said. My gosh, it sure is a book-reading country, Mr Seeger gushed to a Russian interviewer during a visit to the Soviet Union in 1965. It took decades for him to acknowledge that Stalin was a supremely cruel misleader . In 2007 he wrote a letter responding to an article titled Time for Pete Seeger to Repent in the New York Sun, and admitted, I think you’re right I should have asked to see the gulags. He remained a communist, though with a small ‘c’. He never did quite Turn, Turn, Turn . the mine and re neries emit less than they once did. The state’s winter air remains terrible, but it has been slowly improving over the past 20 years. So why are people only getting upset now? Partly because the past two winters have been so severe. Partly because nonindustrial rms, such as those in the state’s growing technology sector, are worried. And perhaps partly because thanks to demographic changes Utah, especially Salt Lake City, is not quite the conservative bastion it once was. 7

The Economist February 1st 2014 The cadaver market

United States 31

Death, where is thy bling?
A growing industry tries to meet the demand for corpses

S

UCH was the shortage of cadavers in the 17th century that William Harvey, the Englishman who discovered the circulatory system, dissected his own father and sister. In the early 19th century medical schools paid bodysnatchers good money to rob graves. William Burke and William Hare, two British villains, went one step further and murdered 16 people to sell their corpses. Burke was hanged in 1829 and his body was dissected. The demand for fresh cadavers has only increased since then. Drug rms use them to test drugs. Safety engineers use them as crash-test dummies. There are never enough because few people nowadays die young, and it is illegal in most countries to buy or sell (or dig up) bodies. Researchers must rely on donations. You might think that the ban on buying and selling means there is no market for cadavers. You would be wrong. Cadaverservice rms (or body-brokers) act as middle men between donors and end-users. They do not deal in bodies per se, but charge for things like transport, storage and preservation. The result, according to Michel Anteby, a professor at Harvard Business School, is a market for human cadavers in all but name . There may be as many as 30 body-brokers in America. Some are charities; others seek pro ts. They attract thousands of do-

Doing their bit for medical research
nations a year, typically by easing the nancial burden of death. Funerals can cost thousands of dollars; body-brokers typically pay for cremation and often pick up the corpse itself at the place of death. Medical schools also cover some funeral expenses, but cadaver-service rms boast that they will return the remains to grieving relatives more quickly, and with less fuss. Some rms promise that the body will be used to advance medical science. But whether body-brokers really do what they say they will is not always clear. Brandi Schmitt, the director of anatomical services at the University of California, says she receives regular reports of shoddy practices. Some rms have been implicated in black-market dealings. Although the tissue trade is illegal, few states enforce the law vigorously. Body donations are not tracked and the body-brokers face little regulation. According to Mr Anteby, rms often ship body parts using FedEx or UPS. Some favour a regulatory body to oversee the body business. We are rm supporters of mandatory independent thirdparty accreditation, says Melinda Ellsworth of Science Care, one of the largest cadaver-service rms. It is already accredited with the American Association of Tissue Banks, which has set standards for the industry. But few others are. By most accounts body-brokers increase the number of donations by making it easier to donate. That means they help medical research. But the shady side of the industry attracts more attention. Two rms are currently under investigation in Arizona and Michigan, though police are as silent as the grave as to what they are supposed to have done. Burke and Hare’s exploits have inspired at least ve lms, though the latest (see picture) reaped only grim rewards at the box o ce. 7

Old Mexico lives on
On February 2nd 1848, following a short and one-sided war, Mexico agreed to cede more than half its territory to the United States. An area covering most of present-day Arizona, California, Nevada, New Mexico and Utah, plus parts of several other states, was handed over to gringolandia. The rebellious state of Tejas, which had declared its independence from Mexico in 1836, was recognised as American soil too. But a century and a half later, communities have proved more durable than borders. The counties with the highest concentration of Mexicans (as de ned by ethnicity, rather than citizenship) overlap closely with the area that belonged to Mexico before the great gringo land-grab of 1848. Some are recent arrivals; others trace their roots to long before the map was redrawn. They didn’t jump the border it jumped them.
Mexican-origin population, by county, %
0 US Average 10.3% 40+

CALIF. NEVADA UTAH NEW ARIZONA MEXICO TEXAS

M E X I C O

Pre-1848 border
(as claimed by Mexico)

Source: US Census Bureau

32 United States

The Economist February 1st 2014

Lexington Heads and hearts
What victorious gay-marriage campaigners can teach others their commitment. National out ts such as Freedom to Marry issued strategy papers urging state campaigns to avoid inartful comparisons with civil rights, and to emphasise fairness over equality (precisely to woo swing voters not ready to think of gay couples as equals). The closest such campaigns come to overt moralising is the odd reference to the Golden Rule , a homely dictum Do unto others as you would have them do unto you taught in American schools for more than a century. There is no nagging straight Americans to agree that gay couples are just the same as them. The strategy, says Thalia Zepatos of Freedom to Marry, involves persuading voters that their existing values allow them to accept gay marriage because they are fair-minded enough to give others a shot at happiness, and because same-sex couples are asking to join the institution, rather than to change it. Buoyed by their victories, gay-marriage strategists have been comparing notes with campaigners in another eld of politics long deadlocked by absolutism: immigration. Instead of stressing the ne print of policy, campaigners are being urged to emphasise the pain caused when harsh immigration rules divide loving families. The immigration movement has enjoyed early success by stressing the stories of Dreamers young migrants brought illegally to America as children, through no fault of their own, who now want a shot at the American dream. Many Republicans and Democrats in Congress support a path to citizenship for Dreamers, and with House Republican leaders pondering a 2014 push on immigration, the odds look good. Adult migrants are more divisive; a path to citizenship for them all is a stretch. Some conservatives want to shelve the subject till after November’s mid-term elections, or at least the end of the primary season, for fear of splitting the Republican core vote. Immigration is harder than gay marriage because it involves race and class, says the head of a pro-reform group. But it is encouraging that conservative opponents spend so much time arguing about numbers and legal status, he says: They’re the ones trying to win a brain argument, we’re trying to win hearts. Heads you lose; hearts you win In the eld of abortion, it is the conservative camp that dreams of capturing the centre ground. For decades pro-life activists have braved the January cold to march in Washington, DC, on the anniversary of Roe v Wade, the Supreme Court decision that legalised abortion everywhere. Compared with the past, graphic images of dismembered foetuses were rare this year. Organisers had urged marchers to leave them at home and heed the day’s themes of adoption and empathy for mothers, after years of stressing a right to life starting at conception. Putting to one side its ultimate dream of outlawing abortion completely (a minority position in America) the movement is pushing bans on terminations after 20 weeks of pregnancy. Ultrasound has transformed the public’s views of 20-week-old foetuses, says an anti-abortion leader: expectant parents proudly display their scans on their computer screens at work. Pro-choice campaigners would retort that abortions after 20 weeks are vanishingly rare, and that the real intent is to chip away at a woman’s reproductive freedom. Retort away, says the pro-life leader: the argument will make pro-abortion groups sound extreme. In an era of scepticism and division, standing on rigid principle can be a blunder, it turns out: a tool for ring up partisans, useless for swaying voters in the middle. Though injustice still exists, today’s voters want to be wooed, not hectored. 7

R

IGHTS are losing their power in American politics. Arguments rooted in abstract principle are increasingly trumped by fuzzier appeals to empathy and fairness. Campaigners for and against gay marriage, immigration reform and legal abortion are among the rst to detect the shift. If it proves durable, politics will feel very di erent for partisans of Left and Right. Start with gay marriage. For years conservatives cried that the traditional family was under attack. Fierce warnings that radicals were seeking to upend a biblical institution helped lure Christian conservatives to the polls to back Republican candidates, and secured gay-marriage bans in dozens of states. Then in 2012 gay-marriage supporters suddenly began winning. Three states, Maine, Maryland and Washington, voted to legalise gay marriage, while a fourth, Minnesota, voted down a marriage ban. Other victories followed in state legislatures and courts, including the Supreme Court. Nationwide, solid majorities now back such unions. Partly this is because more gays live openly: it is hard to be afraid of the same-sex couple next door, or of Ellen DeGeneres. But gay-marriage campaigners have also been doing some hard thinking. For years groups seeking equality for gays drew inspiration from the civil-rights era. They talked of same-sex couples unable to enjoy the same tax breaks as married couples and other such legal disparities. During a 2008 referendum in California, a gay-rights group ran TV ads comparing same-sex couples to Japanese-Americans interned during the second world war. Californians voted to ban gay marriage anyway. Many African-Americans, urged on by conservative pastors, bridled at gay couples comparing their struggles to the re hoses and night sticks that blacks once endured. Gay campaigners concluded that their approach had been wrong. With their talk of discrimination, they had been appealing to voters’ heads. Their opponents (who ran TV ads about children coming home from school, ba ed by talk of princesses wedding princesses) were speaking to hearts. Focus groups showed voters unmoved by the dry reasons o ered to explain why gay couples wanted to marry. Even much-divorced Americans thought of marriage as an aspirational act of love, it turned out. So gay-marriage campaigns began stressing human stories about salt-of-the-earth couples who yearn to show the world

The Americas

The Economist February 1st 2014 33 Also in this section 34 Bello: Our new column 36 Canada’s Liberal senators 36 Chile, Peru and the ICJ

For daily analysis and debate on the Americas, visit
Economist.com/americas

Venezuela and Argentina

The party is over
BUENOS AIRES AND CARACAS

Latin America’s weakest economies are reaching breaking-point

W

HEN the euro crisis was at its height it became commonplace for struggling European economies to insist that they were not outliers like Greece. Whatever their woes, they declared, Greece’s were in a class of their own. In Latin America, by contrast, the unwanted title of outlier has two contenders: Argentina and Venezuela. Both have been living high on the hog for years, blithely dishing out the proceeds of an unrepeatable commodities boom (oil in Venezuela; soya in Argentina). Both have been using a mix of central-bank interventions and administrative controls to keep overvalued exchange rates from falling and in ation from rising. Both now face a come-uppance. High in ation is a shared problem. Argentina’s rate, propelled higher by loose monetary and scal policies, is uno cially put at 28%. Argentina’s o cial exchange rate is overvalued as a result, fetching 70% more dollars per peso than the informal blue rate in mid-January. Venezuela’s prices are rising faster still. Last year, during an awkward political transition after the death of Hugo Chávez to the presidency of Nicolás Maduro (pictured with Cristina Fernández de Kirchner, the Argentine president), the Central Bank stepped up money-printing to nance public spending, pushing in ation to 56.2%. A dollar fetches 75-80 bolívares on the black market, up to seven times the o cial rate. Both countries have dwindling arse-

nals with which to defend their overvalued currencies. Venezuela’s reserves of gold and foreign currency, which stood at nearly $30 billion at the end of 2012, were down to just over $21 billion by last week. Only about $2 billion of that is in liquid assets. Ecoanalítica, a research rm, estimates that the government can also dip into around $13 billion of opaque, o -budget funds. Argentina’s reserves have also been tumbling (see chart). Something had to give, and late last month it did. Argentina rst allowed the peso to plunge, by more than 15% in the week starting January 20th, and then announced a relaxation of the government’s ban on buying foreign currency for saving

The dismal duo
Foreign-exchange reserves
$bn

Consumer prices
Increase on a year earlier %

Argentina

60 50 40 30 Venezuela

60 50 40 30 20 Argentina* 10 0 2008 10 12 13
*Unofficial rate

Venezuela

20 10 0

2008 10

12 13

Sources: Haver Analytics; State Street PriceStats

purposes. Argentines making over 7,200 pesos ($900) monthly are now able to change 20% of their salary into dollars at the o cial exchange rate so long as they get approval from AFIP, Argentina’s tax agency. The dollars are transferred to their bank accounts, not released in cash, and hit by a 20% fee if withdrawn before a year. If that sounds complicated, it is still cheaper than buying dollars in the illegal market. The government’s objective seems to be to close the gap between the o cial and blue exchange rates, alleviating the need to spend more of those precious reserves to prop up the o cial rate. Although the gap has closed a little, fear that devaluation will lead only to yet higher in ation explains continued high demand for dollars, even at the less favourable exchange rate. So too does the fact that only a third of Argentine workers meet the declared-income threshold for buying dollars, according to analysis by IARAF, a think-tank. Guido Sandleris of the University Torcuato di Tella says the plan is doomed to failure unless the government becomes more open about its intentions and adopts a genuinely restrictive set of policies to battle in ation. Although the Central Bank this week raised one of its interest rates by a full six percentage points, rates remain below in ation, giving Argentines little reason to hold pesos. On the scal front the government needs to reduce subsidies and remain unyielding in the face of workers’ demands for pay rises. Miguel Kiguel of EconViews, a consultancy, says wage increases to be negotiated in March and April must remain under 30% if they are to serve as an anti-in ationary anchor. That will be hard given lavish pay awards handed out to striking policemen last year. Whether the government is willing to put prudence before politics is not clear. 1

34 The Americas
2 On the day that her government let the

The Economist February 1st 2014
government unveiled new rules under which a higher rate for non-essential transactions is set weekly (it stood at 11.36 bolívares to the dollar this week). The old rate of 6.3 still applies for government imports and basic items such as food and medicine, so reserves will keep falling as the government defends the currency. Venezuela is running out of dollars to pay its bills. Although payments to its nancial creditors of around $5 billion this year do not appear to be at risk, the country’s arrears on non- nancial debt are put at over ten times that sum. These include more than $3 billion owed to foreign airlines for tickets sold in bolívares, and around $9 billion in private-sector imports that have not been paid for because of the dollar shortage. Under the current economic model, and with this economic policy, says Asdrúbal Oliveros of Ecoanalítica, this [debt] looks unpayable. The e ects are already apparent. Foreign airlines have placed tight restrictions on ticket sales; some have suspended them altogether. Many drugs and spare parts for medical equipment are unavailable. Car parts, including batteries, are increasingly hard to nd; newspapers are closing for lack of paper. The country’s largest private 1

peso’s slide turn into a slump, Ms Fernández announced a plan to fund education for unemployed 18- to 24-year-olds that could cost 11 billion pesos. Her only reference to the currency’s fall was a tweet accusing banks of helping favoured investors to speculate on the peso. There are some people, she wrote, who want to make us eat soup again, but this time with a fork. At least Argentina’s partial liberalisation of currency controls is a halting step towards normality. Venezuela, where the situation is even more perilous, is heading in the other direction. On January 22nd the

Bello Relearning old lessons
Latin America’s enduring need for the rule of law, education and openness

W

E HAVE long taken notice of Latin America. The leading article in The Economist’s very rst issue, in 1843, called on Britain to slash tari s on the import of Brazilian sugar and cotton. Our coverage of the Mexican Revolution of 1910-17 is cited by historians. More recently, in 1997, we recognised the progress of Latin America in establishing (or re-establishing) democracies and in overcoming hyperin ation and debt crises by creating a separate Americas section (in which we included Canada). This week sees the start of a new column, which will give further depth to our coverage of Latin America. It is tribute to the region’s expanding weight in the world. Brazil and Mexico now count among the ten biggest economies by purchasing power. Latin America is of critical importance in energy (it has a fth of the world’s oil reserves), food production and the environment (with half the surviving rainforest). Cuba excepted, democracy holds sway throughout the region, though it is under threat in some places. Thanks to faster growth, 60m Latin Americans have left poverty since 2002; income inequality, a perennial problem, has fallen. Latin America’s leaders constantly proclaim their unity. They did so again this week in Havana at a meeting of the Community of Latin American and Caribbean States (CELAC), a regional organisation formed in 2011 solely to distinguish our America (in the phrase of José Martí, a Cuban patriot) from the United States and Canada. The reality is rather di erent. Brazil seeks global in uence in its own right; Mexico’s close economic ties to the United States will be reinforced by its recent energy reform; and the free-trading countries of the Paci c seaboard look to Asia,

in tacit despair at the archaic statism of places like Venezuela and Argentina. Politics and trade are not the only faultlines. Latin America is fragmented by huge distances, by peculiarities of history, and even by language not just Spanish, but also Portuguese in Brazil, French in Haiti, and English in several Caribbean islands. Such diversity made this column very hard to name. Brazil and Mexico, the region’s two giants, share no heroes and few points of cultural or historical reference with each other, or with Spanish-speaking South America. After much head-scratching, we opted to name the column after Andrés Bello (1781-1865), a Venezuelan-born polymath, educator, writer and diplomat. If Simón Bolívar and the other 19th-century liberators provided the ramshackle hardware of Latin American independence, it was Bello (pronounced BAY-yo ) who did more than anyone to create the software of nation-building. His biography is an early testament to globalisation. Having spent 19 years in London as an often-unpaid envoy for independence, he moved to Chile, where he ran the

foreign ministry and was the founding rector of the University of Chile. He drew up the country’s civil code, which proclaimed the equality of citizens before the law. It was quickly copied in half a dozen countries in the region, and had a signi cant impact in others including Brazil and Mexico. He also wrote an in uential treatise on international law, which argued for the equal status of nations, as well as a bestselling Spanish grammar for Latin Americans. Bello was a liberal, but a realistic one, who believed that strong political institutions were essential to thwart anarchy and for liberty to ourish. Whereas Bolívar argued that the new republics needed the discipline of top-down authority, Bello thought that to succeed they needed to create citizens, through universal public education and, above all, the rule of law ( our true patria , he once wrote). In addition, he was an advocate for trade and an internationalist, insisting that the new republics should remain open to the ideas and products of the world. The causes espoused by Bello the rule of law, education and openness are enduring ones. They loom especially large in Latin America today, as the great commodity boom wanes. Populists peddling an inward-looking nationalism, who have ruled by state diktat and political favour rather than by law, are being found out at last, as this month’s devaluations in Argentina and Venezuela show. The region once again has to pay attention to education, productivity and competitiveness if it is to sustain growth, and to the rule of law it is to turn back the tide of criminal violence that threatens its citizens’ quality of life. In 21st-century Latin America the teachings of the region’s greatest 19th-century public intellectual are more relevant than ever.

PHOTO: TILLMANN FRANZEN

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36 The Americas
2 rm, Empresas Polar, which makes many

The Economist February 1st 2014 Chile, Peru and the ICJ
(formerly Peruvian territory) 200 km

basic foodstu s, is struggling to make some products. In a statement Polar said the government owed it $463m and that production was at risk because foreign suppliers of raw materials and packaging were threatening to halt shipments. The government blames the crisis on private businesses and irresponsible use of hard currency by ordinary Venezuelans. It has ordered drastic cuts in dollar allowances for travellers, especially to popular destinations like Miami. Remittances to relatives abroad have also been slashed. In a bid to curb runaway in ation, it has introduced a new law restricting companies’ pro ts to 30% of costs. Long jail sentences await transgressors. Without a big injection of dollars from the state oil company, Petróleos de Venezuela, which brings in 96% of foreign earnings, the crunch will continue. Better terms for foreign investors in the oil industry would bring in much-needed cash and boost stagnant production. But unless the government abandons its antipathy to private capital, the prospect of new investment is dim. Shortages of goods are only likely to worsen. If Argentina is an outlier, Venezuela risks straying into a di erent category entirely. 7

Antafogasta

A line in the sea
LIMA AND SANTIAGO

Lima

(formerly Bolivian territory)

P E R U
AGREED MARITIME BOUNDARY,
(ICJ RULING)

Here’s a grown-up way to settle a long-standing border dispute

La Paz

F

Canada’s Liberal senators On January 29th Justin Trudeau (pictured), leader of the opposition Liberals, announced that the 32 Liberal members in Canada’s 105-seat Senate would leave the party. The senators will now sit as independents. Mr Trudeau said his goal is to end partisanship and patronage in Canada’s scandal-plagued second chamber, which is modelled on Britain’s House of Lords, and called on the ruling Conservatives to follow suit. (There are no senators from the New Democratic Party, the main opposition party.) Cynics noted the move will distance the Liberals from the fallout from an investigation of Senate expenses by the auditor-general.

OR more than a century, Peru’s collective psyche has been scarred by its defeat in the War of the Paci c of 1879-83 and Chile’s subsequent stalling in implementing the terms of a peace treaty. So when Peru’s government asked the International Court of Justice (ICJ) in The Hague to redraw the maritime boundary between the two countries, many Peruvians saw a chance to heal wounded national pride. In its long-awaited ruling on January 27th the court duly awarded Peru control of some 50,000 sq km of ocean but conrmed Chile’s hold over inshore waters rich in sh. The decision was arbitrary but broadly fair less than Peru had hoped for, but less bad than Chile had feared. It o ers both countries a chance to move on from the past, but only after what is likely to be months of wrangling over how to implement the ruling. The status quo in the Paci c clearly favoured Chile. Although the coast swings northwestward at the border with Peru, forming an elbow, the previous maritime boundary ran due west (see map). Peru claimed that the 1952 treaty from which this boundary derived was merely a shing agreement. In 2008 it asked the ICJ to rule on a threefold claim: that the boundary should run southwestward, equidistantly between each country’s coast; that it should start at Punta Concordia, where the land border meets the sea, rather than at the rst boundary marker (known as Hito 1) located 200 metres inland and slightly farther north; and that Peru should be awarded an external triangle of international waters south of the parallel and over 200 miles from the Chilean coast. The ICJ decided by ten votes to six that in practice Peru had accepted that the parallel (running due west from Hito 1, not Punta Concordia) formed the maritime boundary for the rst 80 nautical miles from the coast. Beyond that point, it stipulated a new, equidistant boundary running south-west, as Peru wanted. The two countries must agree exact co-ordinates. The upshot is to extend Peruvian waters, but only in the high seas. Most of the sh in the disputed waters mainly Paci c pilchard and mackerel, worth more than $100m a year will stay in Chilean waters. That was greeted with relief in Chile, whose government feared having to compensate the shermen of Arica and Iquique for lost catches. Further out to sea, Peru will gain access to some extra sword sh,

“External triangle”

Prior boundary*

BOLIVIA
Arica Iquique

Peru’s 200 nauticalmile limit Chile’s 200 nauticalmile limit
Source: ICJ

im* cla ian v u Per
P A C I F I C O C E A N
*Pre-ICJ ruling

CHILE

tuna and giant squid. Peruvians had come to believe they would win much more. Some were disappointed by what is a largely symbolic victory. But Ollanta Humala, Peru’s president, spoke for many when he said the ruling gave Peru grounds for satisfaction . Chile’s reaction was more negative. Michelle Bachelet, who takes over as president in March, described the ruling as a painful loss , although an aide stressed that Chile had lost none of its territorial waters (which extend for 12 nautical miles from the coast). Chilean politicians suggested that as a condition for implementing the agreement Peru should sign the International Convention on the Law of the Sea and accept the line through Hito 1 as its land border as well (losing 350 metres of beach). Peru wants swift implementation. Many political and business leaders on both sides see the ruling as a chance to set aside the past and to intensify rapidly growing ties. Bilateral trade has grown to over $3 billion a year. Chilean companies, mainly retailers and LAN, the national airline, have invested over $13 billion in Peru. The stock of Peruvian investment in Chile is around $1 billion; more than 200 Peruvian restaurants have opened there, some of them owned by the 158,000 Peruvians who live in Chile. There is scope for more ows of capital: Peru has natural gas that Chile needs, and both countries are members of the Paci c Alliance, a free-trade block formed in 2012. Others are watching closely. Inspired by Peru’s claim, Bolivia led a demand at the ICJ in 2013 that Chile negotiate on its claim for sovereign access to the sea, also lost in the War of the Paci c. That claim is unlikely to prosper. But if Peru and Chile co-operate in implementing the judgment, Colombia may come under pressure to soften its refusal to apply an ICJ ruling last year that granted a swathe of Caribbean waters to Nicaragua. How one boundary is redrawn could end up a ecting other maps, too. 7

Middle East and Africa

The Economist February 1st 2014 37 Also in this section 38 Saudi Arabia, rich but uneasy 39 Gloomy Sudan 39 and its restless borderlands 40 Yemen’s prison for al-Qaeda 40 A right-wing Israeli eyes the prize

For daily analysis and debate on the Middle East and Africa, visit
Economist.com/world/middle-east-africa

South Africa

Jacob Zuma and his ailing alliance
JOHANNESBURG

The ruling African National Congress faces its toughest election yet

P

ARLIAMENTARY elections in South Africa, likely in April or May, promise to be the most competitive since 1994, when the rst fully democratic poll brought the African National Congress (ANC) to power. The ruling party has never since pulled in less than 60% of the national vote. But some of its once sturdy supporters are drifting away. The Democratic Alliance (DA), the main opposition, has been deemed too white to have a broad appeal for the black majority. That may now change. On January 28th the party announced that Mamphela Ramphele, a heroine of the ght against apartheid, will be its candidate for president. Helen Zille, the party’s leader, hailed the embrace of Dr Ramphele as a gamechanger . The ANC’s role in ending apartheid will be much trumpeted in the run-up to the 20th anniversary of that 1994 election on April 27th. But the DA’s new recruit has struggle credentials of her own. As well as being a well-known academic and a former director of the World Bank, she was also the companion of Steve Biko, leader of the Black Consciousness Movement, who was murdered in police detention in 1977. Even against a revamped opposition, the ANC still looks sure to win. But if the party’s share of the vote were to fall below 60%, its decline could accelerate. Corruption scandals have hurt the popularity of

Jacob Zuma, the ANC’s leader and South Africa’s president. In December he was booed by sections of the congregation at a memorial service for Nelson Mandela in Soweto, the vast urban sprawl on the edge of Johannesburg. That was but one sign of a deeper disenchantment. IPSOS, a local pollster, recently found that support for the ANC had shrunk to just 53% of eligible voters. The corresponding poll six months before the 2009 elections, when the ANC carried almost two-thirds of the national tally, found that 63% would vote for it. Half of ANC voters, according to a poll in December, thought that Mr Zuma should step down because of the $20m of public money spent on his private home. A third said they were less likely to vote ANC because of the scandal. The party’s troubles are multiplying. The economy is in bad shape. Barely four in ten people of working age have jobs. Most of the jobless masses are young. An alarming slide in the rand forced the central bank to raise interest rates from 5% to 5.5% on January 29th, despite the economy’s weakness (see page 59). South Africa relies heavily on foreign borrowing to pay for an excess of imports over exports. As monetary policy in America slowly gets back to normal, foreign investors are choosier about which countries they lend to. South Africa’s appeal is waning.

The ANC is losing friends at home, too. Its alliance with the Congress of South African Trade Unions (COSATU) is splintering. The National Union of Metalworkers, the country’s largest union, has said it will not back the ANC at this year’s elections. The break is seen as a rst step towards the founding of a Labour Party to rival the ANC. Zwelinzima Vavi, who was suspended in August as general secretary of COSATU, is a popular gure on the left who could lead such a party. A voluble critic of corruption, Mr Vavi was o ered an ANC position in the next parliament to lure him back into the fold. He turned it down. The ANC manifesto looks as if it was crafted in part to get the unions (if not foreign investors) back onside. It promises to ensure that tax breaks for employers that hire youngsters will not lead to older workers losing their jobs. There is a pledge to extend union pay deals across all industries. A national minimum wage is mooted. The manifesto is dedicated to Mandela, whose image is certain to feature prominently in the campaign. Yet the power of appeals to the party’s heritage can only fade. The metalworkers are just the latest group to break with the ANC. In 2008 a faction close to a former president, Thabo Mbeki, left to form the Congress of the People, known as COPE, a rival party that won 1m votes in the 2009 election. Last year a former leader of the ANC Youth League, Julius Malema, launched his own political party, the Economic Freedom Fighters, which will take votes from the ANC. The booing of Mr Zuma in December shows there are also limits to party loyalty. You now have a critical mass of people who say the ANC is not the ANC of Mandela and you’re not betraying anyone if you leave it, says Wil1 liam Gumede, a prominent analyst.

38 Middle East and Africa
2

The Economist February 1st 2014
the ANC of yesteryear. Plainly the ANC faces its toughest election campaign since 1994. Yet grumbles about Mr Zuma and his leadership may not translate into a surge of votes for other parties. For all her accomplishments, Dr Ramphele has failed to make much of an impact with potential voters since she launched her own party, Agang, a year ago. Disgruntled ANC supporters may simply stay at home on election day. No one can ever be con dent about what happens once voters enter the polling booth. 7 90, is seen as beholden to a small circle of advisers and sons, with rival courts surrounding the 83-year-old crown prince, Salman, and other contenders for the succession. Amid the intrigue and jockeying, what stands out is a lack of imagination or vision. At their age, they can’t face a curve ball, or a googly, if you prefer the cricket terminology, says a Jeddah businessman. Saudi Arabia’s neighbours and allies, too, are increasingly wary. Their concern is not just about internal strains. In recent years Saudi foreign policy has grown both more assertive and more erratic. It has achieved some modest successes. Long fearful of the Muslim Brotherhood, whose many quiet supporters in the kingdom represent one of the few potential threats to their own control, the Al Sauds strongly backed their removal from government in Egypt. Forceful Saudi intervention in neighbouring Bahrain also bolstered a friendly Sunni ruling family against what the Saudis perceived as a dangerous, Iranian-in uenced Shia uprising. Saudi o cials see themselves as having bested such rivals for regional in uence as Iran and Qatar in those rounds. Yet Bahrain and Egypt remain both unstable and dependent on continuing Saudi largesse. Meanwhile, Saudi e orts to in uence other regional contests, for instance in Iraq, Syria and Lebanon, have gone much less smoothly. The kingdom has been unable to match the determination, diplomatic skill or even nancial investment that Iran has wielded to bolster its proxies in those ghts. Worse yet, many of the clients it has favoured have turned out to be unreliable at best, or murderously fanatical at worst. They have too narrow a bandwidth, judges a foreign diplomat. It’s barely enough to run their own country, let alone an ambitious regional agenda. It is not 1

Should the ANC’s share of the vote fall into the 50s, it will be easier for voters to imagine the party eventually losing its majority. That in turn might spur loyal but disgruntled voters to switch sides at local elections in 2016. Mandela’s death and the 20th anniversary of the end of apartheid could as easily free voters from their ties of loyalty to the ANC as bind them tighter. There is no denying that South Africa has made some progress since 1994, says Jonathan Moakes, chief executive of the DA. Our job is to contrast Zuma’s ANC with

Saudi Arabia

No satisfaction
RIYADH

Despite their immense wealth, the Saudis are not happy

M

ONEY can buy many things: luxury, in uence, security and even time. How frustrating, then, to be vastly rich but never quite to get what you want. Such is the dilemma faced by the world’s richest family, the Al Sauds of Saudi Arabia. Their kingdom has sold the rest of the world around $1 trillion-worth of oil in the past three years alone, accumulating a hoard of sovereign assets nearly as big as its GDP of $745 billion. Immense new investments in infrastructure, industry, health care and education are spreading that wealth by the shovelful. A new underground-railway system for the capital, Riyadh, is to be dug, not one line at a time but all at once, with six full lines due to open by 2018. And this is just one rail project among many. The kingdom is to spend around $30 billion on mass transit for the cities of Jeddah and Mecca, as well as $12 billion on a high-speed link running 450km (280 miles) from Mecca to Medina, in addition to billions more on a national freight network. Yet rather than the ebullience you might expect, the mood among Saudi Arabia’s 30m residents (a third of whom are foreign workers and their dependants) is one of nagging unease. Even as shiny new buildings, universities, nancial centres and entire cities sprout, the machinery of government has remained as creakily topdown and tangled in red tape as ever. And even as Saudis grow ever more sophisticated and worldly about 160,000 of them are studying abroad on government scholarships, and those left behind are among the world’s heaviest internet addicts social, political and religious strictures remain sti ing. The government keeps people quiet with money, and in the rare cases where that doesn’t work, with threats, says a dip-

lomat in Riyadh. But this is not a happy place. For one thing, ordinary Saudis have no say in where the money is spent. All too often what they see, following the muchtrumpeted princely opening of each new project, is vast empty buildings and unused facilities. What they hear is tales of which privileged courtier or business mogul has pocketed how much. Despite sharp polarisation between arch-religious conservative Saudis and more progressive types, there is general agreement on two points. One is that this is no time to rock the boat: the violence and unrest provoked elsewhere by the Arab spring have largely spooked Saudis into sullen silence. The other is that the kingdom’s leadership is adrift. King Abdullah, now at least

What happens when Abdullah goes?

The Economist February 1st 2014
2 merely against their foes that the Saudis

Middle East and Africa 39
Economic hardship prompted many middle-class Sudanese to join September’s street protests against the government’s sudden removal of various subsidies. The government’s overreaction, which left at least 200 people dead, according to the opposition (87, if you prefer the government’s gure), made Mr Bashir look all the more vulnerable. The year before, he had handled similar protests a lot less harshly. Dissent has since been stirring in ruling circles, too. Ghazi Salahuddin Atabani, a bigwig of the ruling National Congress Party, was kicked out in November after questioning Mr Bashir’s handling of the protests.In December Mr Bashir shu ed his government, sacking a number of senior ministers in the biggest shake-up for many years. On January 27th he announced plans for reform, including a national dialogue and a new constitution. Several gures close to the army were promoted in the reshu e. LieutenantGeneral Bakri Hassan Saleh was made rst vice-president, and is now widely tipped as a successor to Mr Bashir. The army, which Mr Bashir once headed, still underpins the regime. Over 60% of government expenditure goes on defence and security without including the cost of new hardware, which is o the books. The president says he will not run again in the election expected next year, though he is certain whether he stands or not to want a close ally to succeed him. Most of all, he will try to ensure that his successor will refuse to hand him over to the International Criminal Court in The Hague, which has accused him of committing atrocities a decade ago in Darfur. The ubiquitous security services are tightening their grip. Local and foreign charities and human-rights organisations are in e ect not permitted to hold functions outside their premises. While people talk freely in cafés, public dissent is discouraged. We leave writing real news until 20 minutes before deadline, says one newspaper editor. Any earlier, and somehow they nd out about it.
EGYPT
Re

have stumbled of late. An initiative by the kingdom to push the Gulf Co-operation Council, a six-country club of rich Arab monarchies, towards political union was quickly torpedoed by Oman in December, much to the quiet relief of other members. More bruisingly, the Saudis also felt rejected by their oldest and strongest ally, America, when Barack Obama’s administration failed to seize what they viewed as a golden opportunity to clobber Bashar Assad, Syria’s ruler, after he used chemical weapons against rebel suburbs of Damascus in August. In apparent anger, the kingdom took the unprecedented step of declining a seat in the UN Security Council. We used to be known for riyalpolitik, quips the businessman from Jeddah. But now what we do is piquepolitik. 7

Sudan

Downhill
KHARTOUM

Under Omar al-Bashir, Sudan is in steepening decline

T

HE isolation and underdevelopment of Sudan were manageable when the oil business was booming in the early years of this century. But since South Sudan seceded in 2011, taking most of the oil and cash with it, things have got a lot worse. And since civil war south of the border erupted in December, they have deteriorated still more. The government of the northern rump state in Khartoum, under President Omar al-Bashir, charges its southern neighbour transit fees, but now the ow of oil and cash is in danger of drying up. The outlook for Sudan and for Mr Bashir is increasingly bleak. The government did no contingency planning, said Abda Yehia al-Mahdi, a former nance minister. Government debt is high. Foreign exchange is so hard to come by that businessmen say they spend their day hunting for it rather than running their companies. In ation is rising so fast (at 43% a year, at last count) that putting the numbers into a calculator makes it smoke, says Awad Muhammad Awad-Youssif, editor of al-Jareeda, an independent newspaper. When money from the oil boom poured in, the Sudanese government erected impressive buildings and laid new roads, but invested little in productive, jobgenerating sectors such as farming and food-processing. The British-built Gezira cotton scheme has all but ground to a halt. Subsidies for wheat and petrol gobble up the state’s cash. Many of the young Sudanese who came back in the hopeful early 2000s are leaving again.

The opposition has yet to o er a credible alternative. Look at the Umma party, says Amin Mekki Madani, a lawyer who heads an umbrella of local NGOs, referring to the main opposition party, which has been run for half a century by Sadiq alMahdi, a former prime minister. His son is his heir in the party, notes Mr Madani disparagingly. Mariam al-Mahdi, its leader’s daughter, is one of its leading lights. Young Sudanese, such as those who have founded a movement called Girifna ( We are fed up ), are loth to join the established parties. Divisions in the opposition persist between those who want to oppose the regime peacefully and those inclined towards armed rebellion. Violence is again spreading across the border regions to the west, south and east (see next article). Seeking friends wherever he can, Mr Bashir has been courting the cash-rich, food-poor Gulf countries. Sudan has much to o er them. Swathes of fertile land lie empty, since the development of Sudan has been largely limited to Khartoum. Only a handful of states, some of them pariahs themselves, are keen to hug him. China is one of few big recent investors. Mr Bashir seeks to blunt the e ect of American economic sanctions, in force since the repression in Darfur, by looking east. Iran is his main supplier of weapons. At home and abroad he is running out of friends. 7

and its borderlands

Restless
KHARTOUM

The government still cannot control its remoter regions

T

Port Sudan
Nile
400 km

DARFUR

SOUTH KORDOFAN

Khartoum BLUE NILE

Addis Ababa

C.A.R
Proposed Oil pipeline oil pipeline Oilfields

SOUTH SUDAN
Juba

ETHIOPIA

CONGO

UGANDA A

KENYA

ERIT RE

CHAD

S

U

D

A

N

A

HE war in Darfur, Sudan’s ravaged western region, once stood for con icts everywhere. George Clooney, Mia Farrow and Desmond Tutu took up the cause. Now, a decade later, it is rarely mentioned abroad. This is not because the su ering is over almost half a million people ed their homes in 2013 but because the conict has become muddled. When it erupted in 2003, rebels in the Justice and Equality Movement and the Sudan Liberation Army, both composed mainly of black Africans, took up arms against the government in Khartoum, run mainly by Arabs. The Darfuris felt marginalised and discriminated against. The government bombed them from the skies and sent Arab tribal militias known as the Janjaweed, often on horseback, as proxies to hammer them. In recent years the violence, including a current spate of it, has resulted mainly from con icts between local Arab tribes, often over resources (a mine, for instance), 1

ea d S

40 Middle East and Africa

The Economist February 1st 2014 Israeli politics

Waiting on the right wing
TEL AVIV

Naftali Bennett thinks he can become prime minister, when the time is ripe

B

Yemen and al-Qaeda

An island prison?
HADIBU, SOCOTRA

Could Guantánamo’s biggest bunch of prisoners be sent to Socotra?

A

SMALL island in the Indian Ocean some 400km (250 miles) south-east of Yemen’s mainland, Socotra is a picture of tranquillity. Unspoilt beaches of snow-white sand are lapped by turquoise water, home to leaping dolphins and coral reefs. Hundreds of unique species of ora and fauna edge its mountain trails. The island’s 55,000 people retain ancestral traditions, and speak their own unwritten language. But Socotra’s remoteness may be its curse, if rumours in Yemen prove correct. If the American administration does close its prison for terrorist suspects in Guantánamo, as Barack Obama again promised this week, it must nd a place to move the inmates. Of the 155 prisoners still there, 90 are Yemeni, including 56 of the 77 already approved for transfer . America has close security relations with Yemen, where American drones frequently hit al-Qaeda groups in the country’s south and east. It could make sense

to move those prisoners to Socotra. Yemen’s foreign minister, Abu Bakr al-Qirbi, acknowledged in October that his government was thinking of building a rehabilitation facility for Yemeni detainees released from Guantánamo, though the White House later refused to comment on reports of discussions on the matter. Americans would have to monitor the place if it did provide a prison. In November a Yemeni newspaper, el-Ule, ran a story about a new Guantánamo to be set up on Socotra; a cartoon mixed the island’s dragon-blood tree (pictured above) with the Guantánamo inmates’ orange uniform. It would be rejected by the people of Socotra, Faham Saleem Kafayan, a local politician, told a Yemeni outlet, alMasdarOnline. Tourism would be nished, the environment too, says Abduljameel Muhammad, who runs Socotra Eco Tours, a local travel agency. We would all have to be evacuated. three areas have joined up to form the Sudan Revolutionary Front. Fighting is ercest in South Kordofan, an area 650km (400 miles) south-west of Khartoum that has been dubbed the new South Sudan . The rebels, including the northern branch of the Sudan People’s Liberation Movement, the main group that won

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