[Britain]The Economist 2014.08.09


Obama to business: stop whining China’s Chechnya Making a mess of world trade Undersea gliders
AUGUST 9TH– 15TH 2014

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How Koreans got cool

The sex business
How technology is liberating the world’s oldest profession

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Contents
7 The world this week Leaders 9 Prostitution A personal choice 10 Trade and protectionism No more grand bargains 10 China’s far west A Chechnya in the making? 11 Reforming Leviathan Mandarin lessons 12 Mexico’s reforms Keep it up On the cover The internet is making the buying and selling of sex easier and safer. Governments should stop trying to ban it: leader, page 9. How new technology is shaking up the oldest business, pages 17-20. The secret world of sex in Iran, page 43 The Economist online
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The Economist August 9th 2014 5 30 Italy’s economy Shrinking again 30 Italy’s parliament Pampered workers United States 31 Barack Obama’s message to business Stop whining 32 Presidents and growth Timing is everything 33 Congressional elections Immovable incumbents 33 Colorado politics Ground war 34 Gun control Bullets to the head 34 Streetcars and urban renewal Rolling blunder 36 Regional accents Mind that drawl, y’all 37 Lexington The George H.W. Bush revival The Americas Cuba’s foreign relations Rekindling old friendships Brazil’s election campaign A scripted telenovela NAFTA’s junior partners Frenemies Bello Argentina after the default

Obama and business The president tells CEOs to stop calling him unfriendly to business, page 31

Letters 14 On assisted suicide, Gaza, business, Panama’s hats, the Big Mac Brie?ng 17 Prostitution and the internet More bang for your buck Britain 21 Building in London Bodies, bombs and bureaucracy 22 Reusing old o?ces New digs 22 Scotland’s TV debate Bravo, Darling 23 Boris Johnson The blond bombshell 23 Lady Warsi Unilateral action 24 Law and the armed forces Under siege 25 The Welsh language Dragonian measures 26 The British diaspora And don’t come back Europe Turkey’s election Erdogan’s next act Germany’s president A new German gospel Russia and the West How to lose friends War crimes in Kosovo A country awaits

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China’s Chechnya An iron ?st in Xinjiang is fuelling an insurrection. The leadership in Beijing must switch tactics: leader, page 10. New episodes of violence and repression have heightened tensions in the region, page 49

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Volume 412 Number 8899
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, Lima, Los Angeles, Mexico City, Moscow, New Delhi, New York, Paris, San Francisco, S?o Paulo, Singapore, Tokyo, Washington DC

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Middle East and Africa 41 The Gaza war Will the cease?re hold? 42 Gaza and the Arab world A collective shrug 42 Iraq’s civil war America is asked back 43 Sexual mores in Iran Throwing o? the covers 44 Science in Africa On the rise 44 Ethiopia and its press The noose tightens

Gaza After a month of horrendous bloodshed, both sides are looking for ways of stopping it. But it will be hard to turn a cease?re into a more durable settlement, page 41. The Gazans’ plight has aroused less sympathy in other Arabs than usual, page 42

1 Contents continues overleaf

6 Contents 60 European banking tests Exam nerves 61 Hong Kong’s ?nances Going with the ?ow 61 Ghana and the IMF Time for thrift 62 Free exchange Trade’s hidden subsidies Science and technology 64 Arctic science A glide-path to knowledge 65 Science in Japan Stress test 65 HIV and MS Antithesis, synthesis? 66 Cometary science Rosetta’s stone Books and arts 67 Revolution and war in Ukraine I witness 68 Arti?cial intelligence Clever cogs 68 America’s bureaucracy Sins of commissions 69 South Korea’s soft power Soap, sparkle and pop 70 New American theatre A 21st-century “Seagull” 70 Inside al-Qaeda There and back again 72 Economic and ?nancial indicators Statistics on 42 economies, plus our monthly poll of forecasters Obituary 74 Peter Hall Town planner

The Economist August 9th 2014

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47 World trade The WTO’s approach to negotiating free trade needs radical change: leader, page 10. India’s torpedoing of the latest trade talks leaves no one better o?, page 58. New techniques show the damage done by subsidies at the heart of global trade, page 62 48

Asia Thailand Peace, order, stagnation Malaysian politics What’s Malay for gerrymandering? India’s civil-service exams The unlevel ?eld Japan’s economy Feeling the pinch Banyan Truth and justice: Cambodia and beyond

Korean cool How a not-hitherto-hip country became the tastemaker of Asia, page 69

China 49 Unrest in Xinjiang Spreading the net 50 Alcohol consumption A growing problem International 51 Civil-service reform Modernising the mandarins 52 Women in politics Treating the fair sex fairly 52 Ebola Fear and loathing

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Failed bids When big merger deals fail, life rarely goes back to normal, page 53. In praise of Warren Bennis, the man who invented corporate leadership: Schumpeter, page 57

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Business Mergers and acquisitions Coming unstuck Bernie Ecclestone Free for $100m Travel websites David v two Goliaths Unilever In search of the good business Schumpeter Warren Bennis, leadership’s leading light

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Seagliders A determined e?ort to understand the Arctic is going on, in the sea and on the ice, page 64

Finance and economics 58 World trade Bailing out from Bali 59 Buttonwood Lucky asset managers 60 Banco Espírito Santo Bail-out or bail-in?
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The world this week
Politics
the spread of the disease, which has a?icted mainly Sierra Leone, Guinea and Liberia; at least one death has been recorded in Nigeria. and in two other executions about the drugs used to kill the prisoner. Missouri uses a di?erent combination of drugs from those other cases. Florida’s holidaying lawmakers were recalled to discuss a judge’s order to redraw the state’s congressional-district boundaries. The judge found that black voters in north Florida had been lumped into one district so that surrounding seats would favour the Republicans.

The Economist August 9th 2014 7
send troops to their aid and helped themselves to cars and food from residents and businesses in the area. The UN reported that on average 1,000 people are ?eeing the con?ict zone every day. NATO said that as many as 20,000 Russian troops were massing on the border with Ukraine. Vladimir Putin issued a decree to ban food imports to Russia from countries which have imposed sanctions. Italy slipped into recession for the third time since 2008 according to its statistics agency. The economy contracted by 0.2% between April and June after shrinking by 0.1% in the previous quarter.

A three-day cease?re in Gaza between the Islamists of Hamas and the Israeli army started on August 5th. Negotiations to extend it and to open the way to a more comprehensive settlement got under way in Cairo. Before the lull the death toll had exceeded 1,800 Palestinians, three-quarters of them civilian, according to the UN; Israel lost 64 soldiers, two civilians and a Thai worker. As ?ghting between assorted militias continued in Tripoli, Libya’s capital, and in Benghazi, the country’s second city, a newly elected parliament met in Tobruk, a comparatively stable city in the east. In the past two weeks, most foreign embassies and international missions, including the UN, have evacuated their sta?. Barack Obama hosted some 50 African heads of government or state at a three-day summit in Washington, where business and security topped the agenda ahead of human rights. Zimbabwe’s Robert Mugabe and Sudan’s Omar al-Bashir were not invited. A two-week-old cease?re in the Central African Republic collapsed, as con?ict resumed between ?ghters tied to Muslim and Christian militias. French troops trying to hold the ring were attacked. Governments in west Africa began deploying troops and taking other measures to contain an outbreak of Ebola that has claimed at least 900 lives in the past few months. The World Health Organisation held an emergency meeting to agree to additional steps to halt

Absolution Pope Francis reinstated an American-born priest in Nicaragua who had been suspended from the clergy by the Vatican in 1985 for joining the left-wing Sandinista government. Father Miguel d’Escoto Brockmann was president of the UN General Assembly in 2008-09.
A news magazine in Brazil claimed that executives at Petrobras, the state oil ?rm, had been given questions in advance of a hearing by senators investigating a scandal surrounding the purchase of a Texan re?ning company. Dilma Rousse?, Brazil’s president, who was the chairwoman of Petrobras at the time, has spent much of the year batting away questions about the deal.

The ?fth column An Afghan soldier shot dead an American general at a military complex in Afghanistan. Major-General Harold Greene was the most senior American o?cer to be killed by hostile ?re in either Afghanistan or Iraq. Separately, two Afghan o?cers thought to be working for the Taliban killed 11 policemen in southern Afghanistan.
After three years of hearings a UN-backed tribunal in Phnom Penh sentenced two senior leaders of the Khmers Rouge to life imprisonment for crimes against humanity committed during the regime’s rule in Cambodia between 1975-79. Nuon Chea, “Brother Number Two” to Pol Pot, and Khieu Samphan, the head of state at the time, are in their 80s and the only survivors of the Khmers Rouges’ leadership. An earthquake of 6.1 magnitude killed around 600 people in a remote region of the south-western province of Yunnan in China. A ferry capsized in a river in Bangladesh. More than 130 passengers were reported missing and are likely to have drowned. The authorities charged the owners with culpable homicide.

Dog days America’s Congress broke up for the summer, but not before Republicans in the House passed a border-security measure that would increase deportations of recent Central American migrants. The Senate is to discuss its own bill. Congress also provided Israel with $225m to replenish its Iron Dome missile-defence system. The House authorised the bill by 395-8. The vote in the Senate was unanimous.
US executions per year
Scheduled 50

On a day of remembrance of the 100th anniversary of the outbreak of the ?rst world war, British and Belgian royals as well as the heads of state and government from France, Belgium and Germany gathered in commemoration at Cointe in Belgium. They also attended a twilight ceremony at St Symphorien cemetery in nearby Mons, which holds the graves of both British and German soldiers. In the “war to end all wars” 17m soldiers and civilians were killed. In Britain Boris Johnson, the Conservative mayor of London, ended months of speculation by con?rming that he is looking to stand for Parliament at the next election, rekindling talk of challenges to David Cameron’s leadership. Mr Johnson once joked that his chances of becoming prime minister were about as good as “the chances of ?nding Elvis on Mars”. Bookies have shortened the odds considerably on the former event happening. 1

*

40 30 20 10 0

2009

10

11

12

13

14

Source: DPIC

*Some may be stayed

Missouri executed a murderer by lethal injection, the ?rst prisoner to be put to death in the United States since a botched execution in Arizona last month. The man’s lawyers had requested a stay citing concerns in the Arizona case

Closer and closer The Ukrainian government said its soldiers will not try to storm Donetsk, a big rebelheld city in the east of the country, which they have encircled. The separatist ?ghters called again on Russia to

8 The world this week
Hewlett-Packard raised the stakes in its dispute with the former management of Autonomy by directly accusing Mike Lynch, Autonomy’s former boss, and Sushovan Hussain, its former chief ?nancial o?cer, of fraud. HP bought Autonomy in 2011, but wrote down the value of the British software company by $8.8 billion a year later. Responding to the accusation of fraud, a spokesman for Messrs Lynch and Hussain described HP’s claims as “breathless ranting”. lows BofA to increase its dividend for the ?rst time since the ?nancial crisis. Regulators at America’s Federal Reserve and Federal Deposit Insurance Corporation sharply criticised the “living wills” submitted by 11 big banks in which they explain how they would unwind their businesses if they go bust. The FDIC described the plans as “not credible”. The banks will resubmit their ideas; if the regulators are still unhappy they could impose ?nes or force a sale of parts of a bank. The chairman of HSBC, Douglas Flint, took a swipe at regulators for making “unprecedented” demands on banks that, he said, had increased red tape and deterred managers from pursuing necessary risks. Around 10% of HSBC’s sta? now work in risk and compliance. The bank reported a $9.5 billion pro?t for the ?rst six months of the year. Banco Espírito Santo was rescued by the Portuguese government. The 4.9 billion ($6.6 billion) bail-out came with stringent conditions that left the bank’s shareholders and junior bondholders bearing the losses from its exposure to debt in its parent companies.

The Economist August 9th 2014
BMW’s net pro?t in the second quarter grew by 27% compared with the same period a year earlier, to 1.8 billion ($2.4 billion). The maker of premium cars was boosted in part by strong demand for its vehicles in China. Meanwhile, Mercedes-Benz, a division of Daimler, con?rmed that it was co-operating with competition authorities in China after its o?ces in Shanghai were reportedly raided. The investigation is thought to centre on the pricing of spare parts for its luxury cars. India’s central bank left its main interest rate unchanged at 8%, a disappointment to businesses that had hoped the recent easing of in?ation would lead to a cut.

Business

Rupert Murdoch gave up on an $80 billion bid for Time Warner, just three weeks after news broke that his 21st Century Fox group had proposed it. Time Warner rejected Mr Murdoch’s advances and shored up its defences to thwart any hostile attempt by the media tycoon to appeal directly to shareholders. One factor behind Mr Murdoch’s rare defeat was the relative performance of the share prices since the bid was made public: Time Warner’s had soared, while 21st Century Fox’s had fallen.

Reversion on inversion Walgreens decided to stay put in America. The pharmacy chain had been considering relocating to lower-taxed Switzerland after taking full control of Alliance Boots (which owns Boots chemists in Britain), but decided that it was not in the long-term interests of shareholders. Acquiring the 55% of Alliance Boots it did not already own will cost Walgreens around $15 billion.
In the week that Bank of America was preparing to pay ?nes in excess of $16 billion for mis-selling mortgage-backed securities, its shareholders received some good news when the Fed said that it had no objections to the bank’s revised capital plan. This al-

Sprint hurdles Mr Murdoch was not the only one to have a huge potential merger fail this week: Sprint abandoned its e?ort to buy T-Mobile US amid sti? resistance from regulators to combining America’s third- and fourth-largest mobile-telecoms operators. Sprint is owned by Softbank of Japan. Its billionaire boss, Masayoshi Son, had hoped a merger would provide a much-needed spurt of growth for Sprint.
Telefónica of Spain o?ered to buy GVT, a Brazilian telecoms ?rm, for 6.7 billion ($9 billion). GVT’s owner, Vivendi, a French conglomerate, scrapped a sale of its subsidiary last year as none of the bids matched the asking price of 7 billion. Telefónica already controls Vivo, GVT’s bigger rival in Brazil. Gannett became the latest media company to spin o? its publishing arm, which includes USA Today among its newspaper titles, from its TV and digital operations.

A chequered case Bernie Ecclestone, the boss of Formula One motor racing, ended his trial on bribery charges in Germany by agreeing to pay a $100m settlement. He had been accused of paying o? an o?cial at a bank that was selling its stake in F1, which he denies. Criminal cases can be resolved this way in Germany; this is the largest sum of its kind to be paid.
Other economic data and news can be found on pages 72-73

Leaders

The Economist August 9th 2014 9

A personal choice
The internet is making the buying and selling of sex easier and safer. Governments should stop trying to ban it

TREET-WALKERS; kerb-crawlers; phone booths plastered with pictures of breasts and buttocks: the sheer seediness of prostitution is just one reason governments have long sought to outlaw it, or corral it in licensed brothels or “tolerance zones”. NIMBYs make common cause with puritans, who think that women selling sex are sinners, and do-gooders, who think they are victims. The reality is more nuanced. Some prostitutes do indeed su?er from tra?cking, exploitation or violence; their abusers ought to end up in jail for their crimes. But for many, both male and female, sex work is just that: work. This newspaper has never found it plausible that all prostitutes are victims. That ?ction is becoming harder to sustain as much of the buying and selling of sex moves online. Personal websites mean prostitutes can market themselves and build their brands. Review sites bring trustworthy customer feedback to the commercial-sex trade for the ?rst time. The shift makes it look more and more like a normal service industry. It can also be analysed like one. We have dissected data on prices, services and personal characteristics from one big international site that hosts 190,000 pro?les of female prostitutes (see pages 17-20). The results show that gentlemen really do prefer blondes, who charge 11% more than brunettes. The scrawny look beloved of fashion magazines is more marketable than ?ab—but less so than a healthy weight.?Prostitutes themselves behave like freelancers in other labour markets. They arrange tours and take bookings online, like gigging musicians. They choose which services to o?er, and whether to specialise. They temp, go part-time and ?t their work around child care. There is even a graduate premium that is close to that in the wider economy.
The invisible hand-job Moralisers will lament the shift online because it will cause the sex trade to grow strongly. Buyers and sellers will ?nd it easier to meet and make deals. New suppliers will enter a trade that is becoming safer and less tawdry. New customers will ?nd their way to prostitutes, since they can more easily ?nd exactly the services they desire and con?rm their quality. Pimps and madams should shudder, too. The internet will undermine their market-making power. But everyone else should cheer. Sex arranged online and sold from an apartment or hotel room is less bothersome for third parties than are brothels or red-light districts. Above all, the web will do more to make prostitution safer than any law has ever done.?Pimps are less likely to be abusive if prostitutes have an alternative route to market. Specialist sites will enable buyers and sellers to assess risks more accurately. Apps and sites are springing up that will let them con?rm each other’s identities and swap veri?ed results from sexual-health tests. Schemes such as Britain’s Ugly Mugs allow prostitutes to circulate online details of clients to avoid. Governments should seize the moment to rethink their

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policies. Prohibition, whether partial or total, has been a predictable dud. It has singularly failed to stamp out the sex trade. Although prostitution is illegal everywhere in America except Nevada, old ?gures put its value at $14 billion annually nationwide; surely an underestimate. More recent calculations in Britain, where prostitution is legal but pimping and brothels are not, suggest that including it would boost GDP ?gures by at least ?5.3 billion ($8.9 billion). And prohibition has ugly results. Violence against prostitutes goes unpunished because victims who live on society’s margins are unlikely to seek justice, or to get it. The problem of sex tourism plagues countries, like the Netherlands and Germany, where the legal part of the industry is both tightly circumscribed and highly visible. The failure of prohibition is pushing governments across the rich world to try a new tack: criminalising the purchase of sex instead of its sale. Sweden was ?rst, in 1999, followed by Norway, Iceland and France; Canada is rewriting its laws along similar lines. The European Parliament wants the “Swedish model” to be adopted right across the EU. Campaigners in America are calling for the same approach. Sex sells, and always will This new consensus is misguided, as a matter of both principle and practice. Banning the purchase of sex is as illiberal as banning its sale. Criminalisation of clients perpetuates the idea of all prostitutes as victims forced into the trade. Some certainly are—by violent partners, people-tra?ckers or drug addiction. But there are already harsh laws against assault and tra?cking. Addicts need treatment, not a jail sentence for their clients. Sweden’s avowed aim is to wipe out prostitution by eliminating demand. But the sex trade will always exist—and the new approach has done nothing to cut the harms associated with it. Street prostitution declined after the law was introduced but soon increased again. Prostitutes’ understandable desire not to see clients arrested means they strike deals faster and do less risk assessment. Canada’s planned laws would make not only the purchase of sex illegal, but its advertisement, too. That will slow down the development of review sites and identity- and health-veri?cation apps. The prospect of being pressed to mend their ways makes prostitutes less willing to seek care from health or social services. Men who risk arrest will not tell the police about women they fear were coerced into prostitution. When Rhode Island unintentionally decriminalised indoor prostitution between 2003 and 2009 the state saw a steep decline in reported rapes and cases of gonorrhoea. Prostitution is moving online whether governments like it or not. If they try to get in the way of the shift they will do harm. Indeed, the unrealistic goal of ending the sex trade distracts the authorities from the genuine horrors of modern-day slavery (which many activists con?ate with illegal immigration for the aim of selling sex) and child prostitution (better described as money changing hands to facilitate the rape of a child). Governments should focus on deterring and punishing such crimes—and leave consenting adults who wish to buy and sell sex to do so safely and privately online. 7

10 Leaders Trade and protectionism

The Economist August 9th 2014

No more grand bargains
The World Trade Organisation’s whole approach to negotiating free trade needs radical change HERE is a ?ne line between laudable perseverance and a In force stubborn refusal to admit that 300 change is needed. Those run200 ning the World Trade Organisa100 tion (WTO) risk falling into the 0 latter category. On July 31st an 1970 80 90 2000 10 14 agreement to lubricate trade by streamlining customs rules worldwide collapsed. Narendra Modi, India’s new prime minister, refused to sign the deal, painstakingly thrashed out in Bali last year, because the WTO would not change its rules to let him expand food subsidies. The spat raises a new question-mark over Mr Modi: sound economics was the most respectable bit of his chequered CV. But it also shows that the WTO needs radical reform to survive. India is hardly the only protectionist when it comes to agriculture. Rich countries are the worst culprits. Japan’s tari?s—778% on rice and 328% on sugar—aim to block trade completely, insulating its small and ine?cient producers from competition. The European Union’s common agricultural policy soaks up 40% of its budget. But Mr Modi has run away from reform. India’s food subsidies are massive, costing around 1% of GDP. They lead to huge stockpiles of unwanted, rotting produce, and fan pervasive corruption (see page 58). Giving poor families cash or food stamps would be better at helping the neediest while minimising waste—as Brazil, for example, has demonstrated. That is permitted under WTO rules. Mr Modi should be working to change the subsidy regime instead of scuppering a deal that would have bene?ted India. So blame Mr Modi. But it was the job of Roberto Azevêdo, the WTO’s director-general, to iron out such di?erences between members. Indian dissatisfaction with the WTO rules was allowed to build until it broke the Bali agreement—just as has happened before with other developing countries, even
Regional trade agreements

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though the new emerging powers have most to gain from the stagnant “Doha round” of trade-liberalisation talks. The WTO’s troubles run deeper still. Its core belief in the value of global trade liberalisation is shared by this newspaper. But the way the WTO pursues this goal, by seeking grand bargains covering many industries, is not working. In theory it should promote dealmaking: Europe, say, will let in more South American farm produce in return for being able to sell more cars to South America. In practice, rioting French farmers don’t care whether Renault’s sales rise in Brazil. Attempts to strike comprehensive pacts have caused deadlock. The Doha talks have dragged on for almost 13 years. The last big trade round was concluded in 1994, before the WTO was created. Dead as a Doha As the WTO has stumbled on, year after year, a “spaghetti bowl” of regional and bilateral trade agreements has ?lled the gap. This tangle of treaties, often with mutually incompatible rules, makes global pacts ever harder to reach. It also makes the bit of the WTO that works best—mediating between countries in trade disputes—less relevant. So Mr Azevêdo should ditch the all-encompassing deals to pursue a number of modest ones covering speci?c industries: seek a deal on cotton, for instance, not one lumping together various bits of farming with customs facilitation (as in the Bali proposal). He should aim to get each done in a matter of months. In each case, if consensus is not reached, a “coalition of the willing” should be allowed to sign up and start reaping the bene?ts. The foot-draggers would be allowed to join later. This would cut gamesmanship of the sort Mr Modi has just displayed. It would be a drastic departure from the way the WTO has done business. But two decades of sustained failure is too long. Don’t let the best be the enemy ofthe good. Better to have some small trade deals than none at all. 7

China’s far west

A Chechnya in the making
An iron ?st in Xinjiang is fuelling an insurrection. China’s leadership must switch tactics HE Uighurs have never been particularly comfortable in China. Xinjiang, the region where these Turkic Muslims once formed the vast majority, came unwillingly into the Chinese empire. Rebels in parts of it even set up independent republics; a short-lived one was snu?ed out by the Communist Party in 1949. Since then the regime in Beijing, 1,000 miles (1,600km) to the east, has sought to keep Xinjiang quiet. The policy is not working. The presidency ofXi Jinping risks sinking into a quagmire of ethnic strife. This could be China’s Chechnya.

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Over the past few decades the party has used several tactics to assert control. First it encouraged massive migration of Han Chinese into Xinjiang from other parts of China. Later it poured money into infrastructure and bee?ng up industry; the jobs thus created have gone overwhelmingly to Hans, who now make up more than 40% of the province’s 22m people. In tandem the party has adopted a hard line towards the merest hint of dissatisfaction on the part of the Uighurs. Discontent is spilling into the open, nonetheless. The past few days have been the bloodiest in Xinjiang since clashes in the provincial capital, Urumqi, left around 200 dead in 2009. It appears that nearly 100 people died in the violence. The dead include 59 alleged terrorists gunned down by police near 1

The Economist August 9th 2014
2 Kashgar, the main city in southern Xinjiang, where the Ui-

Leaders 11

ghurs are concentrated (and where the economy is weakest). These Uighurs had apparently attacked police stations and Han Chinese. Two days later a pro-government imam was stabbed to death outside the city’s main mosque (see page 49). Whenever violence ?ares up, the government’s rhetoric is uncompromising and usually focused on the dangers of jihadism. In May, following a spate of attacks by Uighurs on government and civilian targets in Xinjiang and in other parts of China, Mr Xi demanded “walls made of copper and steel” and “nets spread from the earth to the sky” to catch the “terrorists”. The party blames such attacks on Islamist militancy seeping across the border from Central and South Asia—notably from Afghanistan and Pakistan. It likes to claim that Uighurs live in harmony with the Han Chinese (“tightly bound together like the seeds of a pomegranate”, as Mr Xi puts it). The tragedy is that the government could end up proving itself right—by making jihadism the core of the Uighurs’ militancy. For now the violence is fuelled principally by a welter of home-grown grievances and is strikingly amateurish: rarely are the perpetrators armed with anything more than knives. But in recent months the violence has been morphing, spreading beyond the region itself and taking on some of the hues of jihadism elsewhere—through suicide-attacks and indiscriminate killing of civilians. Such acts are unspeakable. But there is evidence that China’s heavy-handed approach in Xinjiang is radicalising a oncetolerant culture. Uighur activists abroad say the latest violence near Kashgar had nothing to do with terrorism, for instance; instead it was sparked by police e?orts to enforce government bans against fasting during Ramadan. From Sudan to the West Bank, the evidence is clear: once re-

ligion enters any con?ict, it becomes harder to settle. The parallel with Chechnya should scare Mr Xi. What started out as a nationalist uprising in Russia’s north Caucasus region in the 1990s was met by a brutal clampdown, which in turn spawned a violent Islamist movement. Since then Chechnya has been both a jihadist breeding-ground and a running sore for Russia. About turn There are hints that Mr Xi understands the problem. In May he convened a rare meeting of party bosses to discuss Xinjiang. That gathering recognised the need to boost employment among Uighurs, especially in southern Xinjiang. After the meeting state-owned enterprises in Xinjiang were told they had to hire at least a quarter of all sta? from Uighur and other minorities. Education for Uighurs is another priority: work has just begun on Kashgar’s ?rst full-scale university. Such steps are necessary, but still not enough. Uighurs’ religious traditions should be respected, so that all Muslims are allowed to visit Mecca, not just those approved by the government. Education in the Uighur language could also be encouraged, as well as its use in workplaces. Mr Xi should disband the Xinjiang Production and Construction Corps, which runs a vast network of Han-dominated settlements. And China should give up persecuting moderate Uighurs, who hardly embrace jihadism but are still angry about the government’s repressive measures. Amid the carnage of the past few days, the authorities announced they had formally charged a prominent Uighur economist, Ilham Tohti, with separatism. “Fewer and fewer people dare to speakout” about ethnic policies in Xinjiang, Mr Tohti has lamented. If Xinjiang’s Uighurs are not to fall prey to extremists, Mr Xi must allow people like Mr Tohti to speak out, not lock them away. 7

Reforming Leviathan

Mandarin lessons
Governments need to rethink how they reward and motivate civil servants HE French call them hauts fonctionnaires, the Germans Beamte im h?heren Dienst and the British, somewhat more economically, know them as “mandarins”. The senior echelons of civil services are a powerful arm of the state. They implement the reforms dreamed up by politicians, and design public services ranging from welfare systems to prisons. Compared with private-sector bosses, the bureaucrats who manage the public sector tend to be less well paid but have more cushioned lives, with more secure jobs and far less pressure to improve productivity. Now the mandarins face change (see page 51). There has long been taxpayer fury when big projects go awry. Berlin’s new airport is three years overdue and predicted to cost 6 billion ($8.1 billion), three times the original estimate. But voters, and thus politicians, are especially intolerant of civil-service ine?ciency nowadays. One prompt is austerity. Another is technology, which is changing not only how public services are delivered—think of “massively open online courses” in education—but also the way they can be measured.

T

Social networks enable users to grumble about hospital waiting-times and mathematics results. Perhaps the biggest pressure is the passing of time: private-sector workers are incredulous as to why civil servants should escape the creative destruction that has changed other o?ces around the world. The reform of the public sector is a huge project, but people are at the centre of it. Government is a service industry, and there is a basic talent problem. A few civil services—Singapore’s is the obvious example—compete with the private sector for the best graduates. But elsewhere even elite departments, such as the US Treasury and Britain’s Foreign O?ce, struggle (or lose high-?yers quickly). The mandarins and their political masters need to change tack. Too many civil servants, especially in continental Europe, swirl around a bureaucratic Gormenghast but rarely leave it. Nearly four-?fths of German senior public servants have been in public administration for more than two decades. The French state under Fran?ois Hollande is governed by a caste of unsackable functionaries, resistant to reform. One reason many o?cials become stuck is their generous pension deals: making pensions portable should be a priority. But career 1 structures also must adapt.

12 Leaders
2

The Economist August 9th 2014

Most civil services still tend to be gerontocracies, where age and seniority are synonymous. New Zealand has dismantled the system of rigid hierarchies and pay-grades that spawned the likes of the phlegmatic Sir Humphrey in the BBC comedy “Yes Minister”. Instead, it appoints departmental chief executives in its ministries, who sign contracts to meet speci?c targets and can be dismissed if they fail. Singapore’s civil servants are frequently sent out to private-sector jobs. Britain has appointed a senior ?gure from the oil business to run the agency that deals with large-scale state projects. The idea is that private-sector experience in areas such as contract management and negotiation can help avoid disasters like Berlin’s airport. All this appeals to right-wing politicians. But the corollary of better performance is higher pay. The British government’s chief operating o?cer announced this week that he is leaving for a lucrative commercial job. Singapore, which runs a far leaner government than America, pays its best people $2m a

year. No Republican congressman would tolerate that, which is foolish. The cost of higher salaries is o?set by saving money on costly consultants to mop up failing projects. There is one area where less change would be useful. To plan careers, you need a long-term strategy—and democracy throws up change every election. In Britain health-care o?cials talk about successive “re-disorganisations”. One reason for authoritarian Singapore’s success is that its voters have miraculously always chosen the party founded by Lee Kuan Yew since he took control in 1959. Voters elsewhere are less obliging. New Zealand has tried to counter this by boosting the powers of a state-services commissioner, whose duties include one of lasting “stewardship”. That could be a useful model for elsewhere—especially America, where too many senior positions are ?lled by political appointees (who then take months to get con?rmed by Congress). Mandarinates have their faults, but somebody needs to keep Leviathan working. 7

Mexico’s reforms

Keep it up
Enrique Pe?a Nieto has achieved a lot. Now his government needs to maintain the momentum EW governments can truly claim to be radical. The administration of Enrique Pe?a Nieto is on its way to joining this rare breed. The Mexican president came to o?ce in late 2012, promising big changes to the way the country was run. The legislative phase of this reform process is now complete. Next comes implementation. Much has been done in the past 20 months. Mexico has the lowest tax take in the OECD as a percentage of GDP: a ?scal reform has started to broaden its sources of revenues. Measures to shake up the telecoms and broadcasting industries last month prompted América Móvil, the monopolistic telecoms ?rm owned by Carlos Slim, the world’s richest man, to announce it will divest assets to avoid antitrust pricing regimes. Teachers will face more scrutiny, banks more competition. No reform matters more than the liberalisation of Mexico’s hidebound energy sector. The state has controlled the hydrocarbons industry since it was nationalised in 1938. Pemex, the state oil ?rm, is a cash cow for the government—it contributes a third of revenues—but it is poorly managed and its production levels have been steadily declining. Industrial electricity prices are almost 80% higher than those in the United States. Mexico’s Congress this week approved secondary laws that will throw the country’s deepwater and shale ?elds open to foreign investment. The electricity industry will also be liberalised. Lower energy prices ought eventually to result. Mr Pe?a is not the only one who deserves credit for these achievements. So does Mexico as a whole. Its political classes have largely co-operated in pushing through the reforms, many of them requiring constitutional changes. Its people have reacted with maturity to the dismantling of a taboo around foreign investment in Mexico’s natural resources. The country has handed its northern neighbours a lesson in nonpartisan governance.

F

Mr Pe?a’s job is nowhere near complete, however. First, he has to ?nd a way of pepping up a sluggish economy, which is expected to grow by 2.4% this year. The reforms’ costs have materialised faster than their bene?ts: regulatory uncertainty, higher taxes and denser accounting rules have all taken a toll on consumption and investment. The best way to revive growth quickly is to spend money on infrastructure. Billions have been promised, little has actually happened. Shovels hitting soil would help con?dence—provided the projects are not boondoggles. Obvious priorities include new natural-gas pipelines and a new airport for Mexico City. Many a slip Second, the government has to ensure that the fruits of change are shared by all Mexicans. The reforms of President Carlos Salinas in 1988-94 were discredited because their bene?ts seemed to accrue only to a privileged few. Membership of NAFTA helped Mexico to attract foreign direct investment but did not close the income gap with Canada and America (see page 39). Previous attempts to evaluate teachers failed to root out the worst ones. Mr Pe?a will need to do better. Independent regulators will be essential to fostering real competition across the economy. The energy reforms present a particular test. Mexico has scant experience of running tenders and awarding licences; and the most seasoned people are locked up inside Pemex, the institution whose interests are most threatened by the changes. Letting the foreigners in to sta? the energy regulators, as well as to explore the country’s natural resources, may be the answer. Even if these problems are solved, big ones will remain. Productivity among small businesses fell by 6.5% a year between 1999 and 2009, according to McKinsey, a consultancy. It will not be easy to encourage tiddlers into the formal economy, where they can concentrate on growing bigger rather than staying under the radar. But if the president can keep up the momentum during the last four years of his term, Mexico will have been changed greatly for the better. 7

14

Letters
No easy way to die SIR – Your call to legalise assisted suicide for the terminally ill was based on three false assumptions (“Easeful death”, July 19th). First, suicide is not victimless, as it always leaves scars among family and friends, often to their later surprise and regret; second, imminent death can rarely be predicted accurately; and third, psychiatric assessment is not infallible. Moreover, although expert palliative care and modern pain control can ease emotional and physical suffering, neither is consistently available or applied. In an era when health systems are looking for stringent cost controls and society is ageing, it is unlikely that patients and their doctors will resist pressures to “go gentle”. Religious and secular moral objections to suicide arise from thousands of years of grappling with the reality. HAMILTON MOSES Former chief physician The Johns Hopkins Hospital PAUL MCHUGH Professor of psychiatry Johns Hopkins School of Medicine Baltimore SIR – The main argument against a change in the law is that it would compromise patient safety. You mentioned a system of necessary safeguards to protect the vulnerable, but exactly what this might entail is not at all clear. Even most proponents of assisted suicide admit that such a system would not be foolproof. For example, someone who is in depression may ask for their life to end only to change their mind on a return to normal mood. And some may feel that they ought to seek death in order to relieve the burden they might impose on their family or society. Although the pleas of those who seek to have their lives terminated at a time of their own choosing are truly heartrending, the permissions they seek for themselves would jeopardise the lives of us all. In any democratic society, where a perceived bene?t to a few might imperil the safety of many, the law must side with the many. A change in the law would not be a slippery slope but a precipice over which we would jump into danger. PROFESSOR PETER DAVIES Liverpool Heart and Chest Hospital SIR – So you think that politicians “should re?ect society, not lead it” and listen to the opinion polls. If that was the case then the death penalty would have been restored in Britain decades ago. The government’s prime consideration should be to promote the common good. The old and vulnerable need to be protected from self-serving relatives and easy-going doctors. JOHN BIGNELL London SIR – It is important to distinguish what most people think of as “suicide” from the self-administration of lifeending medications. In the states of Oregon and Washington, if two doctors agree that an adult is within six months of dying, competent to make medical decisions, informed of all the options without coercion, and is able to selfadminister the medicine, then one of those doctors may prescribe life-ending drugs for the patient to ingest. This is “aid in dying” and legally it is not deemed to be “suicide”. The death certi?cates of those who die in this manner list the terminal illness as the cause of death. For someone to assist in another person’s true suicide remains illegal in Washington. “Assisted suicide” is a term that frames the issue di?erently and wields a stigma on the dying; true suicide rightly deserves that stigma. Politicians must respond to the palliative needs of the terminally ill. We should give people the option of ending their life in the presence of loved ones and in their own time, rather than having to endure an unknown period of misery. ROBERT WOOD Volunteer medical director Compassion and Choices of Washington Seattle A Shakespearean tragedy SIR – You do a noble job dispassionately sifting through the rubble to exhume the casus belli of the most recent crisis in Gaza (“Stop the rockets, but lift the siege”, July 26th). Yet given the futility of this decades-old vendetta between the Levantine Montagues and Capulets, I question the importance assigned to whose slingshot ?red ?rst—or the sequence of Hamas’s rockets and Israel’s blockades—if the net result continues to remain an endless and profuse bloodletting. Does it matter, in other words, that the chicken came before the egg if they both end up on the farmer’s breakfast table? So long as the status quo of one is predicated on the status woe of the other, ancient grudges will, as the Bard foretold, forever break to new mutiny. Sadly, their con?ict won’t end with rockets and blockades, intifadas or Iron Domes: ?rst hearts must open, and minds must change. JUSTIN WILLIAMS Toronto Obama and business SIR – Barack Obama is “the least business-friendly president for decades” you claim (“America’s lost oomph”, July 19th). Really? It is under this president’s administration that trillions of dollars in quantitative easing and other programmes have been used to prop up asset prices and provide cheap money to the markets. The Dow Jones Industrial Average closed at 7,949 on January 20th 2009, Mr Obama’s inauguration day. Last month it broke through the 17,000 barrier. Detroit’s carmakers were saved and made more e?cient through a government-supported plan. Foreign carmakers in America have increased their capacity to export elsewhere. Other manufacturers are returning from China. And, lest you forget, the president based his Obamacare reforms on the private-insurance market, rather than go all out for a government-controlled healthcare system.

The Economist August 9th 2014
You can accuse Mr Obama of many things, but withholding support for business is not one of them. JEREMY THOMAS Boston SIR – George W. Bush was one of the most “business friendly” presidents America has ever had. He even had an MBA. Yet by the time he ?nished his two terms big banks were ruined, the ?nancial system had collapsed and small businesses were going to the wall. SALLY FLORES Miami Hat tip SIR – Don’t despair, there is a true Panama hat (“Hold onto your headwear”, July 19th). Handmade sombrero pintados are made in the provinces of Coclé, Herrera, Los Santos and Veraguas. Compared with the Montecristi “Panama” hat (which is made in Ecuador) the Panamanian Painted Hat is sturdier with a wider brim that gives better protection against the tropical sun. The brims can be positioned upwards or downwards to indicate the wearer’s marital status, if he is in mourning, or even the timing of the harvest. There is a Painted Hat festival every October based in the picturesque town of La Pintada. ERNEST MAST Playa Blanca, Panama Taking heat on the meat SIR – I couldn’t help but notice that your latest Big Mac index introduced the piece as “Our ?ame-grilled guide to currencies” (“A basket of sliders”, July 26th). McDonald’s cooks its burgers on an electric griddle; it is Burger King that ?amegrills its patties. Perhaps you were enjoying a Whopper while writing the article. TANNER CHAIKEN Sydney 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 More letters are available at: Economist.com/letters

Executive Focus
UNITED NATIONS

15

The Norwegian Refugee Council (NRC) United Nations Department of Political Affairs
is seeking candidates for the in cooperation with the

Standby Team of Mediation Experts
with the following areas of specialization:

? ? ? ? ? ?

Security Arrangements (Ceasefres, DDR and SSR) Constitution Issues Power-sharing Gender and Inclusion Natural Resources/Wealth-sharing Mediation Process Design (Facilitation and Dialogue)

The UN Department of Political Affairs, under its Policy and Mediation Division, maintains a Mediation Support Unit (MSU) which serves as a repository for expertise on peacemaking and provides support to UN envoys and partners engaged in mediation. MSU, in collaboration with the Norwegian Refugee Council, operates a Standby Team consisting of eight full-time senior mediation experts. The team functions as a rapid response mechanism and provides expert thematic advice available to the UN and its partners across the world. The Standby Team of Mediation Experts is currently under the administrative responsibility of the Norwegian Refugee Council. The team’s expert positions are full-time one-year appointments. The experts are based in their respective countries of residence and deploy to the feld on short notice. The appointments include competitive remuneration commensurate with level of experience required. The United Nations reserves the right to change the thematic composition of the team depending on its requirements at the time of recruitment. Qualifed applicants with French and/or Arabic language skills are strongly encouraged to apply. For details on the above vacancies (only online applications are accepted): http://goo.gl/il4Yri By submitting an application, candidates agree that their details may be shared between UN DPA and NRC for recruitment purposes. Interviews will be held in Oslo in November 2014. Contract start date: 23 February 2015. Application closing date: 14 September 2014
The Norwegian Refugee Council (NRC) is an independent, humanitarian non-governmental organisation which provides assistance, protection and durable solutions to refugees and internally displaced persons worldwide. NRC specialises in fve programme areas: Shelter, Food Security, Water, Sanitation and Hygiene (WASH), Education, and Information Counselling and Legal Assistance. NRC has 4 000 employees and operates in 25 countries. In addition, NRC runs one of the world’s largest standby rosters – NORCAP - with 700 professionals, ready to be deployed on 72 hours notice when a crisis occurs.

The Economist August 9th 2014

Digital highlights
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Brie?ng Prostitution and the internet

The Economist August 9th 2014 17

More bang for your buck

WARNING: We rarely feel the need to alert readers to explicit content. But our discussion of the online sex trade requires frank language, and some may ?nd the topic distasteful.

How new technology is shaking up the oldest business

F

OR those seeking commercial sex in Berlin, Peppr, a new app, makes life easy. Type in a location and up pops a list of the nearest prostitutes, along with pictures, prices and physical particulars. Results can be ?ltered, and users can arrange a session for a 5-10 ($6.50-13) booking fee. It plans to expand to more cities. Peppr can operate openly since prostitution, and the advertising of prostitution, are both legal in Germany. But even where they are not, the internet is transforming the sex trade. Prostitutes and punters have always struggled to ?nd each other, and to ?nd out what they want to know before pairing o?. Phone-box “tart cards” for blonde bombshells and leggy se?oritas could only catch so many eyes. Customers knew little about the nature and quality of the services on o?er. Personal recommendations, though helpful, were awkward to come by. Sex workers did not know what risks they were taking on with clients. Now specialist websites and apps are allowing information to ?ow between buyer and seller, making it easier to strike mutually satisfactory deals. The sex trade is becoming easier to enter and safer to work in: prostitutes can warn each other about violent clients, and do background and health checks before taking a booking. Personal web pages allow them to advertise and arrange meetings online; their clients’ feedback on review sites helps others

to proceed with con?dence. Even in places such as America, where prostitution and its facilitation are illegal everywhere except Nevada, the marketing and arrangement of commercial sex is moving online. To get round the laws, web servers are placed abroad; site-owners and users hide behind pseudonyms; and prominently placed legalese frames the purpose of sites as “entertainment” and their content as “?ction”. The shift online is casting light on parts of the sex industry that have long lurked in the shadows. Streetwalkers have always attracted the lion’s share of attention from policymakers and researchers because they ply their trade in public places. They are more bothersome for everyone else— and, because they are the most vulnerable, more likely to come to the attention of the police and of social or health workers. But in many rich countries they are a minority of all sex workers; just 10-20% in America, estimates Ronald Weitzer, a sociologist at George Washington University. The wealth of data available online means it is now possible to analyse this larger and less examined part of the commercial-sex market: prostitution that happens indoors. It turns out to be surprisingly similar to other service industries. Prostitutes’ personal characteristics and the services they o?er in?uence the prices they charge; niche services attract a premium;

and the internet is making it easier to work ?exible hours and to forgo a middleman. Websites such as AdultWork allow prostitutes, both those working independently and those who work through agencies and brothels, to create pro?les through which customers can contact them. They can upload detailed information about themselves, the range of services they provide, and the rates they charge. Clients can browse by age, bust or dress size, ethnicity, sexual orientation or location. Other websites garner information from clients, who upload reviews of the prostitutes they have visited with details of the services o?ered, prices paid and descriptions of the encounters. On PunterNet, a British site, clients describe the premises, the encounter and the sex worker, and choose whether to recommend her. Such write-ups have enabled her to build a personal brand, says one English escort, Michelle (like many names in this article, a pseudonym), and to attract the clients most likely to appreciate what she o?ers. TrickAdvisor We have analysed 190,000 pro?les of sex workers on an international review site. (Since it is active in America, it was not willing to be identi?ed for this article. A disclaimer on the site says the contents are ?ctional; we make the assumption that they are informative all the same.) Each pro?le includes customers’ reviews of the worker’s physical characteristics, the services they o?er and the price they charge. The data go back as far as 1999. For each 1

18 Brie?ng Prostitution and the internet

The Economist August 9th 2014
1

Going down
Average price of an hour with a female prostitute Worldwide, 2014 $ 350 300 250 2006 07 08 09 10 11 12 13 14*

Selected cities, adjusted for cost of living compared with New York, 2012-14?, $ 160 180 200 220 240 260 280 300 320 340 360 380 Vancouver Los Angeles Chicago San ? Tokyo Tokyo Montreal London Paris Houston Detroit Atlanta Seattle Francisco
Prague Amsterdam Cleveland Washington New York Toronto Miami Sydney Shanghai Boston

Sources: International prostitution website; Economist Intelligence Unit

*Year to August ?Based on the last time prostitutes’ profiles were changed ?Small sample

2 individual we have used the most recent

information available, with prices corrected for in?ation. Some of those featured may appear under more than one name, or also workthrough agencies. The data cover 84 cities in 12 countries, with the biggest number of workers being in America and most of the rest in big cities in other rich countries. As this site features only women, our analysis excludes male prostitutes (perhaps a ?fth of the commercial-sex workforce). Almost all of those leaving reviews are men. The most striking trend our analysis reveals is a drop in the average hourly rate of a prostitute in recent years (see chart 1). One reason is surely the downturn that followed the 2007-08 ?nancial crisis. Even prostitutes working in places that escaped the worst e?ects have been hit. Vanessa, a part-time escort in southern England, ?nds that weeks can go by without her phone ringing. Men see buying sex as a luxury, she says, and with the price of necessities rising it is one they are cutting back on. Even when she o?ers discounts to whip up interest, clients are scarcer than they were. In places where the job market slumped, the e?ect is more marked (whether prostitution is legal may a?ect prices, too, but the wide variation between American cities shows that this is not the only factor). The cost of an hour with an escort in Cleveland, Ohio, where unemployment peaked at 12.5% in 2010, has tumbled. Large-scale migration is another reason prices are falling. Big, rich cities are magnets for immigrants of all professions, including sex workers. Nick Mai of London Metropolitan University has studied foreign sex workers in Britain. He has found that as they integrate and get used to the local cost-of-living, their rates tend to rise. But where the inward ?ow is unceasing, or where the market was previously very closed, immigrants can push prices down. Since the European Union enlarged to include poorer eastern European coun-

tries, workers of every sort have poured into their richer neighbours. By all accounts prices have been dropping in Germany as a result of the arrival of new, poor migrants, says Rebecca Pates of the University of Leipzig. Sally, a semi-retired British escort who runs a ?at in the west of England where a few “mature” women sell sex, says English girls are struggling to ?nd work: there are too many eastern European ones willing to accept less. Twenty years ago most prostitutes in Norway were locals who all aimed to charge about the same, says May-Len Skilbrei, a sociologist at Oslo University. Today, with growing numbers of sex workers from the Baltic states and central Europe, as well as Nigerians and Thais, such uno?cial price controls are harder to sustain. Inexperience is another reason newcomers to prostitution may underprice themselves, at least at ?rst. Maxine Doogan, an American prostitute and founder of the Erotic Service Providers Union, a lobby group, learnt her trade from a woman who worked for years in a brothel in Nevada, the only American state where prostitution is legal. The older woman taught her what to regard as standard or extra, and how much to charge. When Ms Doogan started out, in 1988, standard services (vagi-

nal sex and fellatio) cost $200 an hour, the equivalent of $395 today. But some of those starting out now still charge $200, she says, or o?er extra services, including risky ones such as oral sex without a condom, without charging an appropriate premium. The shift online has probably boosted supply by drawing more locals into the sex trade, too. More attractive and better-educated women, whose marital and job prospects are therefore better, are more likely to consider sex work if it is arranged online. Indoor sex work is safer than streetwalking, and the risk of arrest is lower. Rented ?ats or hotel rooms are more discreet than brothels, so family and friends are less likely to identify the new source of income. Anonymity becomes a possibility, which lessens the fear of stigma. Creating an online pro?le separates the decision to take up the work from parading for punters. Meanwhile, broader social change may be reducing demand—and thus, prices. Free, no-strings-attached sex is far easier to ?nd than in the past. Apps such as Tinder facilitate speedy hookups; websites such as Ashley Madison and Illicit Encounters, adulterous ones. Greater acceptance of premarital intercourse and easier divorce mean fewer frustrated single and married men turning to prostitutes. Dearer for johns Our analysis shows how a prostitute’s hourly rate varies according to the nature of the services she provides and her reported physical characteristics. As in other bits of the economy, clients who seek niche services must pay more. Sex workers who offer anal sex or spanking earn on average $25 or $50 more per hour, respectively (see chart 2). Those who will accept two male clients at once or do threesomes with another woman command a larger premium. Appearance matters a great deal. The customers who reported encounters to the website we analysed clearly value the stereotypical features of Western beauty: women they describe as slim but not scrawny, or as having long blonde hair or full breasts, can charge the highest hourly rates (see chart 3, next page). Hair that is 1
2

Service industry
Average hourly mark-up for an hour with a prostitute compared with hourly rate without specific services
2012-14*, $ Details reported by clients Total hourly average for most expensive service, $

0 Two women? Multiple men Ejaculate in mouth Oral sex Kiss S&M Anal sex

20

40

60

80

100

120
355 358 312

spits

swallows

with condom heavy spanking

without condom

280 294 299 281

Source: International prostitution website

*Based on the last time prostitutes’ profiles were changed

?Per woman

The Economist August 9th 2014
2 bleached too unconvincingly to be de-

Brie?ng Prostitution and the internet 19

scribed as blonde attracts a lower premium, but is still more marketable than any other colour. For those not naturally well endowed, breast implants may make economic sense: going from ?at-chested to a D-cup increases hourly rates by approximately $40, meaning that at a typical price of $3,700, surgery could pay for itself after around 90 hours. The 12% share of women featured on the site who are described both as athletic, slim or thin, and as being at least a D-cup, suggests that quite a few have already taken this route. A prostitute’s rates also vary according to her ethnicity and nationality. What attracts a premium in one place can attract a penalty in another. According to our analysis, in four big American cities and London, black women earn less than white ones (see chart 4). We had too few data from other cities for a reliable breakdown by ethnicity. But Christine Chin of the American University in Washington, DC, has studied high-end transnational prostitutes in several countries. In Kuala Lumpur, she found, black women command very high rates and in Singapore, Vietnamese ones do. In Dubai, European women earn the most. What counts as exotic and therefore desirable varies from place to place, and depends on many factors, such as population ?ows. Local markets have other quirks. According to the site we analysed, an hour with an escort in Tokyo is a bargain compared with one in London or New York. Yet a cost-of-living index compiled by the Economist Intelligence Unit, our sister organisation, suggests that Tokyo is the most expensive city overall of the three. The apparent anomaly may be because escorts who appear on an English-language review site mostly cater to foreigners, who are not o?ered the more unusual—and expensive—services Japanese prostitutes provide for locals. These include the bubble baths and highly technical massages of Sopurando (“Soapland”), a red-light district in Tokyo, which can cost ?60,000 ($600) for a session and involve intercourse (although that is not advertised). A degree appears to raise earnings in the sex industry just as it does in the wider labour market. A study by Scott Cunningham of Baylor University and Todd Kendall of Compass Lexecon, a consultancy, shows that among prostitutes who worked during a given week, graduates earned on average 31% more than non-graduates. More lucrative working patterns rather than higher hourly rates explained the difference. Although sex workers with degrees are less likely to work than others in any given week (suggesting that they are more likely to regard prostitution as a sideline), when they do work they see more clients and for longer. Their clients tend to be older men who seek longer sessions and

Looks matter
Average price of an hour with a female prostitute by appearance*, Build 300 Athletic 280 Thin
Other

3 worldwide, 2012-14?, $ Bust size 300 Blonde Very long Bleached Brown Red Other Black Below shoulders Shoulder length Chin length C B A Flat 220 260 D and above 280

Hair colour

Hair length

260

Skinny Average

240 Baby fat 220 Flabby Heavy Very fat

240

200

200

180
Source: International prostitution website *As described by clients

180
?Based on the last time prostitutes’ profiles were changed

intimacy, rather than a brief encounter. How much brothels and massage parlours use the internet depends on local laws. America’s legal restrictions mean that they keep a low pro?le, both o?ine and online. In Britain, where brothels are illegal though prostitution is not, massage parlours advertise the rotas and prices of their workers online but are coy about the services rendered. By contrast Paradise, a mega-brothel in Germany, boasts a frank and informative website. But it is independent sex workers for whom the internet makes the biggest difference. Mr Cunningham has tracked the number of sex workers in American cities on one review site. In the decade to 2008, during which online advertising for commercial sex took o?, the share describing themselves as independent grew. For prostitutes, the internet ful?ls many of the functions of a workplace. It is a “break-room and hiring hall”, says Melissa Gira Grant, the author of “Playing the Whore: The Work of Sex Work”. Online forums replace the o?ce water-cooler. Women exchange tips on dealing with the everyday challenges of sex work; a busy thread on one forum concerns which sheets stand up best to frequent washing. A mother in Scotland asks how other

prostitutes juggle child care and selling sex, given that bookings are often made at short notice so babysitters are hard to arrange. Another contributor who is thinking of having children asks how much other women saved before taking time o? to have a baby, and whether the new calls on their time meant they earned less after giving birth. One reply points out that prostitution is easier than many other jobs to combine with motherhood: it pays well enough to cover child-care costs, and can be ?tted around school holidays, plays and sports days, and children’s illnesses. Women who are considering entering the industry often seek advice online from those already in it before making up their minds. Melanie, who earns ?65,000 ($109,000) a year, says that she is considering selling sex on the side for a few months to pay o? debts. She asks which agency to use and how to get the highest rate. But she also worries that a stint selling sex would harm her future career. Experienced sex workers respond that anonymity will be easier to preserve if she works independently, rather than through an agency, and warn her that she is entering a crowded market. The stress of living a double life should not be underestimated, they cau1 tion, and it will not be easy money.
4

Pluses and minuses
Average price of an hour with a female prostitute in selected cities
2012-14*, by ethnicity, $

Black

White

150 New York London Washington Miami Atlanta

200

250

300

350

400

Source: International prostitution website

*Based on the last time prostitutes’ profiles were changed

20 Brie?ng Prostitution and the internet
2

The Economist August 9th 2014
are using sites that allow them to verify clients’ identities to help them avoid stings. But that adds unnecessary hassle and distracts from what should be most important: staying safe. “Screening for cops [is now] the priority over screening for rapists, thieves, kidnappers,” says Ms Doogan. In Britain, Ugly Mugs runs an online database that prostitutes can use to check punters’ names and telephone numbers. In America the National Blacklist, a “deadbeat registry”, allows them to report men who are abusive or fail to pay. Other women can check potential clients by names, telephone numbers, e-mail addresses and online aliases. Though not speci?cally aimed at sex workers, apps such as Healthvana make it easy for buyer and seller to share veri?ed results in sexual-health tests. Moving online means prostitutes need no longer rely on the usual intermediaries—brothels and agencies; pimps and madams—to drum up business or provide a venue. Some will decide to go it alone. That means more independence, says Ana, a Spanish-American erotic masseuse who works in America and Britain. It also means more time, e?ort and expertise put into marketing. “You need a good website, lots of great pictures, you need to learn search-engine optimisation…it’s exhausting at times,” she says. Others will still prefer to have a manager or assistant to take care of bookings and social media. “[Nowadays] you have people hitting you up on Twitter, Facebook, your website, and e-mail,” says Ms Doogan. Eros.com, an international listings site, allows prostitutes to tell clients whether they are currently available. But it means going online every hour or two, which is a chore. And online advertising is not cheap. Ms Doogan used to spend 10% of her income on print adverts; she spends far more on online ones because with so many people advertising, returns are lower. Checking customers’ bona ?des also takes time. Meanwhile some traditional forms of prostitution are struggling. In the decade to 2010 the number of licensed sex clubs in the Netherlands fell by more than half, according to a study for Platform31, a Dutch research network. Much of the decline will have been o?set by the growth of sex work advertised online, it reckons. Many prostitutes would rather work from private premises than in a club or for an agency, says Sietske Altink, one of the authors. Dutch municipalities often bar such work—but the option of ?nding clients online makes such rules harder to enforce. That shift will make the sex industry harder for all governments to control or regulate, whether they seek to do so for pragmatic or moralistic reasons, or out of concern that not all those in the industry are there by their own free will. Buyers and sellers of sex who strike deals online are better hidden and more mobile than those who work in brothels, or from clubs or bars, points out Professor Weitzer of George Washington University. Ireland has banned the advertising of sexual services since 1994. The prohibition has achieved almost nothing, says Graham Ellison, a sociologist at Queen’s University in Belfast. Websites simply moved to other jurisdictions. The closure of those such as MyRedBook may prompt American ones to do the same; as they grow more specialised, the excuse that they merely host classi?ed advertisements is wearing thin. In the long term there will always be people who, for whatever reason, want to hire a prostitute rather than do without sex or pick up a partner in a bar. As paid-for sex becomes more readily and discreetly available online, more people will buy it. A greater awareness may develop that not all sex workers are the victims of exploitation. The very discretion—and the hidden nature of such prostitution—may also mean that the stigma persists. But, overall, sex workers will pro?t. The internet has disrupted many industries. The oldest one is no exception. 7

Many of those contributing to such discussions hold other jobs, often part-time, and tout the merits ofa steady source ofadditional income and something innocuous to put on a CV. Sarah says her escort work means she can pay for her daughter’s dance and music lessons, which would be una?ordable on just her “civvy job”. Some husbands and boyfriends know about their wives’ and girlfriends’ work, or even act as managers, drivers and security. Other women keep what they do a secret from those closest to them. Advertising and booking clients online give prostitutes ?exibility about where to work. They can “tour”, using their own home pages or pro?les on specialist websites to advertise where they will be and when. In densely populated Britain, where prostitutes work in most places, tours allow those who normally serve small towns to visit cities crammed with potential customers. In Norway, says Ms Skilbrei, prostitutes are concentrated in the main cities, so a tour is a chance to satisfy pent-up demand in small towns. The freelancers, part-timers and temps the internet is bringing to the sex trade are likely to help it absorb demand shocks. In 2008 the Republican and Democratic national conventions were held in Minneapolis and Denver respectively. Around 50,000 visitors ?ocked to each city. Another study by Mr Cunningham and Mr Kendall found that the numbers of advertisements for sex on the now-defunct “erotic services” section of Craigslist, a classi?edadvertising site, were 41% higher in Minneapolis and 74% higher in Denver around the conventions than expected for those days of the week and times of year. Health and safety Sex work exposes those who do it to serious risks: of rape and other violence, and of sexually transmitted infections. But in this industry, like many others, the internet is making life easier. Online forums allow prostitutes to share tips about how to stay safe and avoid tangling with the law. Some sites let them vouch for clients they have seen, improving other women’s risk assessments. Others use services such as Roomservice 2000, another American site, where customers can pay for a background check to present to sex workers. Both sides bene?t since the client can demonstrate trustworthiness without giving credit-card details or phone numbers to the prostitute. Sites that are active in restrictive jurisdictions must be careful not to fall foul of the law. In June the FBI shut down MyRedBook, an advertising-and-review site with a chat section for sex workers. Its owners face charges of money laundering and facilitating prostitution. American police sometimes use such sites to entrap prostitutes. As they wise up to this, sex workers

Leaving the streets behind

Britain

The Economist August 9th 2014 21 Also in this section 22 Living in the o?ce 22 Darling 1, Salmond 0 23 Boris on manoeuvres 23 Why Lady Warsi walked 24 The army’s legal tangle 25 A new kind of Welsh 26 Britain’s unloved expats Bagehot is on holiday

For daily analysis and debate on Britain, visit
Economist.com/britain

London’s costly construction

Bodies, bombs and bureaucracy

Why building in the world’s most popular city is so di?cult and expensive

C

ROSSRAIL, a new underground railway line, is the main engineering marvel near Tottenham Court Road station in London. Few passers-by realise that another immensely complex construction project is under way nearby. At Rathbone Place, an old postal sorting o?ce is being demolished to make way for a new block of o?ces and apartments. The entire building must be removed through one narrow exit onto busy Oxford Street. Beneath the site lies a disused underground railway once run by Royal Mail, which must not be disturbed. Even as your correspondent visits, the developer, Great Portland Estates, discovers an ancient electricity cable buried under the foundations. Much of central London is being knocked down and rebuilt. Some 7m square feet of o?ce space is due to be added this year—the most since 2003. Relative to the existing stock, more o?ces are going up in the capital than in any western European or North American city. Yet building o?ces (and homes) near the middle of the capital is shockingly expensive. Even before the cost of land is considered, it costs roughly a ?fth more than erecting similar stu? in New York or Hong Kong, according to Turner and Townsend, a consultancy ?rm. The challenges at Rathbone Place help to explain why. London’s history throws up many problems. Unexploded bombs dropped by the Luftwa?e still turn up surprisingly often, as do interesting medieval bodies. The

opening ofBloomberg’s new headquarters in the City was held up by the discovery of thousands of Roman artefacts, including a rare phallic good-luck charm. London’s underground networks—including the Tube, but also sewers, various government tunnels and oddities such as the Royal Mail railway—must be negotiated. The city’s medieval street pattern means that buildings cannot always have straightforward 90-degree corners. Narrow streets make moving vehicles and machinery around construction sites far more expensive than in other cities. Typically, construction begins with a small crane, which lifts in vehicles and in turn erects a bigger tower crane. These cranes cannot operate from roads or overhang existing

Topping out
Office construction cost, 2013
$’000 per square metre

Above 20 storeys

20 storeys or below

0 London S?o Paulo New York Hong Kong Munich Singapore

1

2

3

4

5

Source: Turner and Townsend

buildings, which explains why so many of the ones in London are elaborate, multijointed things. Sometimes they must be custom-built. The planning system then adds all sorts of expensive complexities. In Westminster more than 75% of land is covered by 56 conservation areas protecting the historic appearances of streets, right down to the colour of paint on doors. At another Oxford Street site, Great Portland Estates must lift up an old fa?ade and scoop out the rest of the building from behind it. During this process, neighbouring buildings must be protected—not only structurally but also from noise and dust. Taller buildings are trickier still. They must not block designated views of various landmarks, which explains why some of the skyscrapers in the City of London are oddly shaped. The curious wedgeshaped Leadenhall Building, known as “the cheesegrater”, is intended to protect a view of St Paul’s Cathedral from a pub in Fleet Street. The design also means that the building cannot have a central concrete core, as in most skyscrapers. Instead, the ?oors are held up by an innovative steel exoskeleton. This makes for a thrilling journey up the building’s glass lifts. But it does add somewhat to the cost. Developers have adapted to these constraints as best they can. Construction is modelled by computers long before the ?rst crane is installed. Each day’s work is planned almost to the minute and materials delivered when they are needed, much like the “just-in-time” methods long used in car factories. Many parts are brought in ready made: fully 85% of the Leadenhall Building was manufactured in the Midlands and Northern Ireland. But the sheer complexity of building in the capital makes for a small, specialised industry with high barriers to entry. Outsiders who try to negotiate London’s plan- 1

22 Britain
2 ning system often get in trouble, notes Toby

The Economist August 9th 2014
cities, such as Birmingham and Manchester, and also in London suburbs such as Croydon. But developers persist with inner London anyway. O?ce rents and land values are high enough to support even some outrageously complicated projects. Leasing o?ce space in the West End is twice as expensive as in Madison Avenue in New York. For all that the city’s skyline is dominated by cranes, were developers given free rein much more of central London would be being rebuilt. For ?rms struggling with high rents, that is frustrating. For Londoners who live and work next to construction sites, it may come as some consolation. 7

Courtauld, Great Portland’s boss. Getting projects approved requires more than mugging up on planning regulations: plenty of rules are unwritten, while political objections can be unpredictable. Incumbent developers know the vagaries of the system. Newcomers do not. All this raises costs, which are passed on to business tenants. And the slowness of building in the capital means that o?ces are often ?nished at the wrong time, at the low point in an economic cycle: a slump in construction starts three years ago means supply will crash next year. Putting up buildings is far quicker and easier in other

Scotland’s TV debate

Bravo, Darling
A masterclass in upstaging rabble-rousers

A

Architecture

New digs
What to do with old o?ces

T

HE ?rst surprising thing about the Qbic hotel, a hip budget out?t for young visitors to London, is that although it is advertised as being in Shoreditch, it is in fact in Whitechapel. The second surprise is the rooms. Each has a prefabricated removable pod combining bed, bathroom and television. Some have no windows. This is because the hotel is located in what was an empty 1960s o?ce block. The conversion took just a few months and cost far less than putting up a new hotel, says Julie Fawcett, the ?rm’s managing director. As new o?ces go up in London and elsewhere, older ones often sit empty. Across the country, 10% of o?ce space is unoccupied. Even at the fringes of central London, it is possible to ?nd eyesores: take BT’s Keybridge House in Vauxhall, a 15-storey block of empty grey metal. These old o?ces cannot easily be renovated: they lack the air-conditioning systems, electronics and open spaces that businesses now want. But entrepreneurs, artists and—above all—residential developers are bringing them back into use. In Sevenoaks in Kent, an o?ce block once used by an insurance ?rm has been turned into a temporary home for the newly opened Trinity free school. The former headquarters of the Co-operative Group in Manchester has been taken over by the Castle?eld Gallery, an organisation that o?ers spaces to artists. In Hull, another block has become a temporary theatre. In Croydon, where a quarter of o?ce space was empty last year, an old building has been turned into an incubator for internet startups. Local planning rules can make it extremely expensive to demolish unwanted buildings and erect new ones in their place; reusing them is much cheap-

er. And the tax regime encourages it. Since 2007 the owners of empty buildings have had to pay full business rates after just three months. But charitable occupiers can get an 80% discount. So landlords have a strong incentive to ?nd do-gooders able to use empty space. “Everyone wins, except the local treasury”, says Kwong Lee, director of the Castle?eld Gallery. But the fastest-growing use for old o?ces is as homes. Since last year it has been possible to convert blocks into housing without getting full planning permission from the local authority. And developers seem to have seized the opportunity to do so more than most expected. According to Knight Frank, an estate agent, in May around 3m square feet of space was under conversion. An earlier survey estimated that 2,250 applications to convert o?ces had been made by January, including 784 in London. The government had estimated that just 140 properties per year would be a?ected. Such is the extent of Britain’s housing shortage that living at the o?ce is becoming a reality.

CROSS the West, mainstream politicians are fretting over the rise of rightwing populism. In America they face the Tea Party, in Italy the likes of Beppe Grillo and in Britain the UK Independence Party (UKIP). Such opponents are often lacking in rigorous, properly costed policies, but they do a nifty line in slogans and anti-elite bluster and have stormed ahead in recent elections. What to do about them? Alistair Darling, a bone-dry Scottish Labour MP and former chancellor, improbably seems to have hit on a formula. In a televised debate on August 5th he took on Alex Salmond—Scotland’s rabble-rousing pro-independence ?rst minister—ahead of the referendum on Scottish secession on September18th. He won convincingly. His ?rst weapon was wit. The ?rst minister is a jocular fellow and many expected Mr Darling to look dour by comparison. In the event he was rather funny. Mr Salmond’s complaint that Scotland did not vote for the Tory-led government in Westminster was answered by the revelation, eyebrow raised, that Mr Darling had not voted for the ?rst minister, either. “Oh, come on,” he sighed with pantomimed exasperation whenever Mr Salmond prevaricated. Mr Darling, a former lawyer, was also rigorous, not allowing his opponent’s vague assurances to go unchallenged. He hassled the ?rst minister to outline a “plan B” in case London refuses to allow Scotland to share the pound, as unionist politicians have vowed. He was not distracted by Mr Salmond’s fudges, ridiculing his claim that Scotland could use sterling informally. By contrast, the ?rst minister unfathomably used his allotted time to air petty grievances about the conduct of the pro-union campaign. Finally, the former chancellor exuded optimism and energy. Not dwelling on whether Scotland could make it alone, he concentrated on the current and future merits of the union. He answered questions ?uently and quickly, interjecting when Mr Salmond stalled. David Cameron should pay heed. In televised debates ahead of next year’s general election, the prime minister may clash with Nigel Farage, UKIP’s likeable leader. In what amounted to a dry run, Nick Clegg, the deputy prime minister and head of the Liberal Democrats, took on Mr Farage over Britain’s EU membership in April. Hesitant and reedy, he lost badly. Mr Darling has blazed a more promising trail. 7

The Economist August 9th 2014
and South Ruislip, where the incumbent MP, Sir John Randall, is due to retire. Mr Johnson’s decision to re-enter Parliament will cheer the Labour Party in London. Their local political machine in the capital is much stronger than the Conservatives’. Mr Johnson’s combination of charisma and e?ective electioneering, especially in the suburbs, helped him to wrest the mayoralty out of Labour’s hands. The Conservatives will ?nd it di?cult to ?nd a candidate strong enough to keep it. The national political implications of Mr Johnson’s return are more mixed, and mostly a?ect the Conservatives. His decision to stand as an MP will mean he can be somewhat more involved in the party’s 2015 general-election campaign. And he is, as David Cameron put it, a “star player”. The mayor has a unique ability to win over the liberal young as well as older voters tempted by the populist UK Independence Party. The Conservative Party’s chief election strategist, Lynton Crosby, knows well the breadth of Mr Johnson’s appeal: he ran both of his mayoral campaigns. Yet Mr Johnson could also create problems for the prime minister, particularly over Europe. In his speech, the mayor ostensibly backed David Cameron’s policy ofrenegotiating Britain’s place in the union before putting it to a referendum, arguing that the country would be best o? staying in a reformed, free-trading EU. But he also came up with a wholly implausible wishlist of reforms, such as scrapping the common agricultural policy, reforming the free movement of labour to limit immigration and scrapping the EU’s commitment to “ever closer union”. Were this sort of thing to prove impossible, he breezily added, Britain would be ?ne on its own, outside the union. The country is in a “win-win” situation, he claimed. In sharp contrast, Mr Cameron has steadfastly refused to set out any of his aims for a renegotiation or to say under what circumstances he would advocate Britain leaving the EU in the referendum he has promised. If the Conservatives win next year’s general election, Mr Johnson might ?re up expectations among MPs and party members that Mr Cameron cannot meet. Already the party is split between those who mostly want to leave the European Union and those, like the prime minister, who under most circumstances would like to stay in. Mr Johnson, who is popular among Tory MPs, could tip the debate one way or the other. Another possibility, of course, is that Mr Cameron loses the 2015 election and resigns as leader of the Tory Party. In that event, Mr Johnson will be able to stand for the leadership, using his considerable appeal to Eurosceptics to beat out the other candidates. Conservative politics still revolves around the issue of Europe. And Europe, and Europe, and Europe. 7

Britain 23 Lady Warsi

Unilateral action
Israel’s bombardment of Gaza cleaves Westminster

H

London’s mayor

The blond bombshell
Boris Johnson ?nally admits he wants to rejoin Parliament

I

N 2001 Boris Johnson, now the mayor of London, then a mere journalist, made his second attempt to get elected to Parliament. His chosen seat was Henley, a wealthy town in South Oxfordshire. In a memoir, Mr Johnson recalled the questions he was asked at his Conservative Party selection hearing: “There was schools, and hospitals, and there was Europe. And Europe, and Europe, and Europe.” At one point the local party chairman became so frustrated he begged for questions on another topic. On August 6th Mr Johnson announced that he is once again hoping to return to Parliament, in 2015. “I might as well be absolutely clear”, he said, before explaining, wholly implausibly given his rock-star status in the Conservative Party, that he might fail to ?nd a seat to contest. And, once again, he delivered his views on the European Union. Mr Johnson’s decision to run, though widely anticipated, has implications for London’s politics and for the May 2015 general election. Most of all, however, it hints at the colossal bust-up over Europe that awaits the Conservative Party. The immediate question to be answered is where Mr Johnson will stand. He has committed to serving his full term as mayor of London, which ends in 2016. That promise could probably be broken, but not immediately, which rules out any seat outside London. Rumours swirl that he will contest the safe suburban seat of Uxbridge

ELL hath no fury like an ambitious politician scorned. Such has been the Conservative response to Lady Warsi’s resignation on August 5th. To judge by comments from anonymous MPs—and the subtext of senior ministerial responses— the departing Foreign O?ce minister was incompetent. Upon realising that she could not expect further promotion, she stormed o? in a fashion calculated to damage David Cameron. This is mostly unfair. Stellar competence is not always a prerequisite for ministerial o?ce in Britain. And Lady Warsi was hardly a prominent troublemaker. She championed Mr Cameron’s bid to lead the Tory Party in 2005 and was rewarded ?rst with a shadow ministerial job and then, in 2010, with the party chairmanship. A northern Muslim woman, she embodied his bid to make the party look more like the country. But grumbling about her steadily grew, particularly after allegations of expenses abuses in 2012, and MPs lobbied unsuccessfully for her defenestration in last month’s ministerial reshu?e. The trigger for her resignation, however, appears to have been the one she cited: the government’s “morally indefensible” refusal to condemn Israel over its bombardment of the Gaza Strip. Even more than Syria, the con?ict has divided opinion in Westminster. A handful of Labour MPs and most Conservatives appear to have concerns 1

Happier times

24 Britain
2 about the con?ict to varying degrees, but

The Economist August 9th 2014
But growing numbers of Tories share these concerns, too, and are uncomfortable with the prime minister’s closeness to Mr Netanyahu. Lady Warsi claims that a colleague had contacted her in tears over the matter. Some have been bombarded with letters from constituents. On July 31st Margot James, a popular MP, called for the government to “rethink” its stance. Worryingly for Mr Cameron, those Conservatives most concerned by his stance on Israel tend to be those (like Ms James) keenest on multilateral foreign policies—in short, the pro-Europeans. If, as he has pledged to do in a second term, he puts Britain’s EU membership to a referendum, his party will be split. The prime minister will rely on these folk to help him make the case for Britain to remain in the union. He can ill a?ord to lose them. 7 launching a preliminary examination of 60 alleged cases ofunlawful killing and 170 of mistreatment of Iraqis by British troops. Many of the legal challenges come from former enemy combatants and their relatives. But another class of case, known as “duty of care” lawsuits, which are brought by the families of soldiers who have died on active service or during training, is also absorbing much time and money. Many relate to deaths that might have been avoided had better kit been provided, such as body armour, tougher vehicles or equipment to prevent “friendly-?re” accidents. In a landmark decision in June last year, the Supreme Court unanimously held that soldiers operating overseas enjoy the protection of the Human Rights Act. Being subject to British authority and control, they are within British jurisdiction, the court decided (this was in line with a 2011 ruling by the European Court of Human Rights in the case of Al-Skeini, an Iraqi detainee). By a majority vote, the court also narrowed the principle of “combat immunity”—the legal assumption that it would be unfair to hold someone negligent for decisions taken in the heat of battle—by saying it should not to apply to procurement decisions or pre-combat planning. Much will depend on the fate of the continuing civil cases that are going forward in consequence of the Supreme Court’s ruling. But commanders already worry that judges have inserted themselves into the chain of command, making the army less ?exible and speedy. “People are unsettled that actions they take in a time-sensitive environment without complete information will be second-guessed by people who have all the wisdom of hindsight,” says a general. One explanation for the legal barrage is the activism triggered in 1998 by the incorporation into English law of the European Convention on Human Rights (ECHR) through the Human Rights Act. Another is that, since the Falklands War, Britain has taken to bringing home the bodies of soldiers killed in action, which makes military deaths subject to civilian coroners’ inquests. In 2004 the use of narrative verdicts became widespread, allowing coroners to comment critically on the conduct of operations. The rules that have long regulated war, known as International Humanitarian Law and the Law of Armed Con?ict, are increasingly entangled with human-rights law. The tangle is even worse as a result of the kind of military operations Britain has engaged in since the 2001 terrorist attacks on America. In Iraq it was an occupying power; in Afghanistan it is part of an international coalition intervening on behalf of a foreign government under the terms of a UN Security Council resolution. In both con?icts, British troops often found themselves doing “hard policing”: the rules con- 1

have stopped short of condemning Israel— including Mr Cameron, George Osborne, the chancellor, and Philip Hammond, the foreign secretary. Speaking to Binyamin Netanyahu, Israel’s prime minister, by phone on July 21st, Mr Cameron stressed his backing for proportionate measures against Hamas. He and his senior colleagues have not explicitly accused Israel of overstepping the mark. In contrast, most of the Labour Party and almost all Liberal Democrats consider the o?ensive disproportionate. After Lady Warsi’s resignation Nick Clegg, the Lib Dem leader, said Britain should suspend arms-export licences to Israel. Ed Miliband, Labour’s leader, has accused Mr Cameron of “silence on the killing of hundreds of innocent Palestinian civilians.”

Soldiers and human rights

Lawyers to right of them, lawyers to left of them
The army increasingly feels under legal siege

B

RITAIN’S armed forces are used to being under attack. Scarcely a year has passed since the second world war when they have not been engaged in operations overseas of one kind or another. They are also used to feuding with the Treasury over money. But over the past decade they have increasingly faced a foe of a di?erent kind. Arising from the con?icts in Iraq and Afghanistan, an unprecedented number of cases have been brought against the Ministry of Defence (MoD) in British courts under human-rights laws. Senior o?cers fear these could dent military e?ciency. So far there have been two public inqui-

ries, more than 200 judicial reviews and more than 1,000 damages claims made against the MoD on human-rights grounds. The cost of these legal challenges so far is around ?85m ($145m), over half of which has gone on inquiries into the killings of Baha Mousa and Al-Sweady by British troops in Iraq in 2003 and 2004. The bill could rise substantially. Other cases are still winding their way through the courts, and lawyers say that there is a stack of other claims yet to be considered. In May the International Criminal Court, responding to a complaint by Phil Shiner of Public Interest Lawyers, announced that it was

The Economist August 9th 2014
2 cerning the use of force and the treatment

Britain 25 The Welsh language

of detainees in those circumstances have been open to di?erent interpretations by distinct bodies of law. In many instances, the Law of Armed Con?ict and human-rights law are complementary. But in others, for example the case of Serdar Mohammed, a suspected Taliban commander who was detained by the British for 110 days in 2010 and is seeking damages under the ECHR, they are less so. In May the High Court ruled that his detention had been unlawful. Philip Hammond (then defence secretary, now foreign secretary) said that the MoD would appeal against a verdict that could open the door to hundreds of other claims. The chief of the Defence Sta?, General Sir Nicholas Houghton, pointed to the problem: legal and safety issues conceived for civilians in peacetime are increasingly being applied to military operations. The warrior spirit Nobody doubts that the treatment of Baha Mousa, a hotel receptionist, was the result of soldiers behaving inhumanely and illegally and that it was entirely appropriate to bring those responsible for his death to trial. The MoD has implemented 71 out of the 73 recommendations made by Sir William Gage, the inquiry’s chairman, to ensure that similar abuses will not happen again—a re?ection of its lack of preparedness for the situation British forces found themselves in. Army training manuals failed to explain that ?ve of the interrogation techniques used had been banned by the British since 1972 and were illegal under the Geneva Convention. The indefatigable Mr Shiner, who believes he is the subject of a campaign of vili?cation quietly orchestrated by the MoD, claims that there are 11 other Iraqi deaths in British custody that should be investigated. But the armed forces and many politicians are now losing patience with what Mr Hammond describes as “ambulancechasing lawyers…aggressively seeking out foreign claimants” and are trying hard to cut o? the legal assault. One measure already being taken is stopping the ?ow of legal aid to people who have little or no connection with Britain by imposing a residency test. The government might also argue that, as case law and precedent have extended the ECHR to combat operations with perverse results, Britain should derogate from the convention during operational deployments. As far as combat immunity is concerned, Mr Hammond has already suggested that the government will have to legislate to restore it in full if legal decisions go against it. The armed forces should urgently consider another reform, too: introducing much more rigorous legal training for all ranks. “Lawfare”, as it has been called, is not going to go away. 7

Dragonian measures
CARMARTHEN

Government meddling has created a new Welsh dialect

I

N THE Blue Boar, a pub so local that the landlord is surprised to hear its sign is missing, Roy Thomas picks up a text from his grandson. It contains the word “brechdanau”, meaning sandwiches. A Welsh speaker, Mr Thomas knows the word, but only because he has read it in old books. “I’ll probably text back in English,” he says. “Otherwise I’ll make a mistake.” Wales’s native language is in decline. Between 2001 and 2011 the proportion of people in the principality who speak it fell from 21% to 19%, with the steepest decline in its rural northern and western heartland (see map). Native Welsh-speakers continue to leave for work, to be replaced, in those beautiful districts, by English retirees. But a new kind of Welsh language is rising, giving hope to some and perplexing others. Welsh identity is linked to the Welsh language—far more than, say, Scottishness is linked to Gaelic—and the devolved government has done much to promote it. Almost a quarter of primary schoolchildren in Wales are now taught mostly in Welsh, and the proportion is steadily rising. Civilservice and media jobs often require it. As a result, the language is holding on, and sometimes even growing, in traditionally Anglophone south Wales, particularly in and around Cardi?, where politics and the media are clustered. But the Welsh that can be heard in schools and that is spoken by the sports commentators on the Blue Boar’s small television set is di?erent from the kind that many native speakers grew up with. A standardisation centre at Bangor University has added new words, such as “cyfri?adur” for computer. Old words that had fall-

Pay attention if you want a good job
en out of use in many parts, like “brechdanau”, have been revived. Grammar is more English and less complicated. The new Welsh also sounds di?erent. The second syllable of “tadau” (fathers) now has an a-sound in the north and an esound in the south. But in the 16th century it sounded something like the English “die”, and this is the way the new speakers have it. This is also the way the word is read out loud: written Welsh emerged when the Bible was translated in 1588, and preserves the ancient pronunciation. Not everybody is delighted with the new lingo. “So bloody fake”, mutters the Blue Boar’s landlord at the television, while local comedians like Daniel Glyn mock the clunky phrases on stage: “I can speak English and Welsh, but neither of them proper, bach.” Jonathan Snicker of St John’s College, Oxford, says the change breaks the linkbetween older villagers and the urbane young, who can struggle to understand each other. But Colin Nosworthy, a spokesman for the Welsh Language Board, points out that the birth of a new dialect is a good sign for a language. “Better a slack Welsh than a slick English,” he says—and many agree. Efforts are being made to spread the new dialect to a belt above Swansea, where Welsh is doing particularly badly. S4C, the Welshlanguage broadcaster, is moving from Cardi? to Carmarthen taking Welsh-speakers with it. This year’s Eisteddfod, a cultural festival, is in nearby Llanelli. There are worse ways of trying to preserve a language, some of which are also being tried in Wales. A planned nuclear power station in Anglesey has run into opposition from people who worry that many of the 6,000 construction jobs would go to non-Welsh speakers, diluting the language. Protests from the same quarters have held up the building of 8,000 homes in Gwynedd. A few awkward phrases from schoolchildren seems like a relatively small price to pay. 7

Spreading the word
Welsh speakers 2011
%
0 to 9.9 10 to 29.9 30 to 49.9 50 to 70

2001-2011
Percentage point change
0 to 2 0 to -1.9 -2 to -3.9 -4 to -5.9 -6 to -8

ANGLESEY

Carmarthen Llanelli Swansea Cardiff
Sources: Welsh Language Commissioner; Based on OS mapping M014/14

26 Britain The British diaspora

The Economist August 9th 2014
an friend has received much more attention from his consulate. Indeed, India is a trailblazer in this ?eld. It has an entire ministry for its emigrants. Mr Gamlen says it partly has this to thank for the success of its IT industry, built by Indians lured home from Silicon Valley and Europe. Other countries are similarly welcoming. Italy and France even reserve parliamentary seats for their diasporas. The British government would probably have to work harder than most to sustain ties with the country’s expats. Britons are relatively good at melting into other countries without trace. They are a individualistic bunch, have Commonwealth links and a native language that often makes it easy to integrate. Kiwi seeds New Zealand o?ers a good model for Britain’s hands-o? diplomats to emulate. Wellington has spent 30 years encouraging ?rms and philanthropists to root out Kiwis abroad. Its proudest achievement is the Kiwi Expat Association, a public-private partnership that supports and connects overseas New Zealanders through social media and networking events, and helps them return home if they so wish. Britain might also make it easier to bring spouses into the country. Expats who want to move back with their non-British partners often collide with their home country’s evertougher immigration regime. If Britain does not want its talented globetrotters, others do. Germany actively recruits Britons to take apprenticeships there. Middle Eastern governments tour British universities doling out visas. Mr Wilson was contacted out of the blue by the Chinese authorities, who invited him to relocate his ?rm and o?ered to pay for his ?ight. “America and China seem really keen to attract us,” he says. “Britain just doesn’t seem that interested.” 7

And don’t come back
Some 5m Britons live abroad. The country could do far more to exploit its high-?ying expats

W

HEN British politicians talk about winning the “global economic race” (as they often do) they have athletes like Gregor Wilson in mind. Mr Wilson taught himself to code as a child. He started and built his ?rst company while at university and sold it on graduating. His second venture, a software ?rm, is booming and will soon be ready to take on more sta?. He is also preparing to leave Britain for good. In the popular imagination, British expats are leathery retirees in the Mediterranean. But from 2006 onwards the weak pound, the bursting of Spain’s property bubble and rising taxes in France made the costas less attractive. The number of old Britons emigrating annually has more than halved since then. Dean Blackburn, head of HSBC Expat, part of the high-street bank, says that a di?erent breed of emigrant is now on the march: the ambitious graduate bound for North America or Asia. The sharpest rise has been among those moving to the glittering East (see chart). Mr Wilson will build his business in Hong Kong. The web, along with the reach of the English language and the cachet of a British degree, gives young people like him opportunities undreamed-of by their parents’ generation. They are also untethered for longer: on average, they buy a house and form a family later in life than did previous generations. Figures from the O?ce for National Statistics show that, since the eve of the economic crisis, emigration is down by 19% overall but up by 8% among 15- to 24-year-olds. High housing costs help to drive young folk abroad. For the monthly rent on a rabbit hutch anywhere near central London, graduates live grandly elsewhere. “We can a?ord to travel around Australia, rent an apartment with a sea view and save some money,” explains Emma, a publisher and recent Oxford graduate who moved to Melbourne last year. Those with advanced degrees are especially likely to leave for countries where pay and research facilities are better. This is regrettable. Britain’s productivity rate is puny; ?rms and factories badly need such skilled employees. But it is also an opportunity—which the country is squandering. According to the World Bank, the British diaspora (at nearly 5m people, roughly the size of Scotland) is the largest of any rich country and the eighth biggest overall. Britain’s many expats could strengthen its

Go East, young man
Destination of emigrants from Britain
2006=100

Indian subcontinent United States

Total, 2012, ’000

Africa and Asia* ex-Commonwealth EU15 200

26 45

150

100
79 20

50 2006 07
Source: ONS

08

09

10

11

12

*Not including Middle East

trading links, channel investment into its economy and generally burnish the national brand. But Britain’s government seems to have “no coherent strategy” for engaging with them, says Alan Gamlen of the Oxford Diasporas Programme, a research unit at Oxford University. Of 193 UN member states, 110 have formal programmes to build links with citizens abroad. Britain is not one of them. The Foreign and Commonwealth O?ce’s database of Britons abroad is patchy. Of all the high-?ying expats with British passports your correspondent asks, only one— Danny Sriskandarajah, a migration expert based in South Africa—has had any contact with local embassies or with UKTI, Britain’s trade-promotion body. And his Indi-

Europe

The Economist August 9th 2014 27 Also in this section 28 Germany’s preacher president 28 Russia and the West 29 War crimes in Kosovo 30 Italy’s economy shrinks... 30 ...as do public-sector wages Charlemagne is on holiday

For daily analysis and debate on Europe, visit
Economist.com/europe

Turkey’s election

Tyrant or steadying hand?
ANKARA AND ISTANBUL

The Erdogan era is about to enter its next stage

O

N A rainy Sunday evening Turkey’s prime minister, Recep Tayyip Erdogan, was delivering a ?ery speech full of references to the glories of Islam and Turkey’s Ottoman past when a woman on a stretcher was lifted to the podium. He knelt down, took her hand and o?ered comfort. “Allahu akbar [Allah is great],” she screamed. A sea of supporters, waving Palestinian and Turkish ?ags, went wild. These scenes at a recent rally in Istanbul have been repeated across Turkey as Mr Erdogan campaigns to become the country’s ?rst popularly elected president. Few doubt that Mr Erdogan will achieve his goal in a ?rst round of balloting on August 10th. Opinion polls suggest that if turnout is below 80%, he will win up to 55% of the vote and a run-o? scheduled on August 24th will be unnecessary. Ekmeleddin Ihsanoglu, a former secretary-general of the Jeddah-based Islamic Co-operation Organisation—who was ?elded jointly by the main opposition Republican People’s Party (CHP) and the Nationalists in the hope that he would draw pious voters from Mr Erdogan—is trailing at around 38%. Selahattin Demirtas, the Kurds’ candidate, whose youthful good looks, sharp wit and all-embracing message are appealing even to Kemalist stalwarts, is nonetheless unlikely to attract more than 10%.

Mr Erdogan’s enduring popularity since his conservative Justice and Development (AK) party was catapulted to power in 2002 may seem ba?ing. A probe, launched in December and targeting his family, cabinet members and business cronies, has thrown up allegations of graft, kickbacks and money-laundering. Mr Erdogan denies any wrongdoing. In March 301 workers perished in a mine explosion in the town of Soma, a disaster widely believed to have been caused by lax safety rules. When heckled by protesters at the scene, Mr Erdogan was ?lmed cu?ng a worker. One of his advisers was caught on camera kicking a protester while security guards pinned him to the ground. Adding to the government’s blunders, for more than two months Islamic State militants in Iraq have been holding 49 members of the Turkish consulate in Mosul, including the consul-general, as human shields against possible Western intervention. Had Turkey heeded warnings from the Iraqi Kurds to evacuate the consulate before the group overran Mosul, the hostages would probably have escaped. “There is no mystery to Erdogan’s success,” argues Seyfettin Gursel of Istanbul’s Bahcesehir University. “It’s because of the economy.” Over the past decade millions of Turks have been lifted out of poverty.

When the ?nancial crisis hit Europe, Turkey’s economy, fuelled mainly by domestic consumption, kept expanding; growth was over 9% in 2010. Shiny new hospitals, in which the needy receive free treatment, have bolstered a sense of stability and well-being. Where Mr Erdogan’s critics see a tyrant (he has muzzled the press, stacked the judiciary and the security services with loyalists and rewritten laws to suppress the corruption probe), his supporters see a steadying hand. The former footballer has declawed the army and eased bans on the Islamic-style headscarf. He was the ?rst to negotiate with the Kurds. Before winning a third term in 2011, Mr Erdogan did more than any of his perpetually squabbling, secular-minded predecessors to make Turkey a richer, freer and happier place. But Mr Erdogan has become increasingly autocratic. He is also a master manipulator. When mass protests erupted last year over government plans to build a shopping mall in Istanbul’s main Taksim Square, Mr Erdogan convinced his base that these were orchestrated by a cabal of Jews and their allies in the media (including The Economist). When the graft scandals erupted in December, he blamed them on Fethullah Gulen, a Pennsylvaniabased Sunni Muslim cleric who, he claims, is part of a global conspiracy to overthrow AK. Dozens of alleged Gulenists in the police force have been arrested. The AK leader’s next goal is to boost the powers of the presidency so that he can continue to rule Turkey from the Cankaya palace. In a draft bill AK deputies proposed, among other things, that the president be allowed to dissolve parliament and to appoint cabinet ministers. “These 1

28 Europe
2 are powers a Latin American dictator

The Economist August 9th 2014
with neo-Nazi tendencies, “crazies”. When the NPD sued in Germany’s constitutional court, the judges sided with Mr Gauck. Mr Gauck caused his biggest controversy in a speech in January at a security conference in Munich. Addressing a country that is resolutely paci?st as a reaction to its own legacy of aggression, Mr Gauck demanded a rethink. Its neighbours today trust Germany, he thinks, so Germans should trust themselves, too. Mr Gauck called for more vigorous diplomacy—of the sort that Mrs Merkel has, in fact, displayed of late in the Ukraine crisis. Such diplomacy requires armed force as a last resort, he contends. Outside Germany it is easy to underestimate how in?ammatory that line of thought is. A politician in Brandenburg called Mr Gauck a “repulsive warmonger”. Addressing parliament in June, Gregor Gysi, a leader of The Left, a party descended from East Germany’s Communists, distorted Mr Gauck’s views as meaning that “we should take part in more military operations”. A group of 67 eastern German Lutheran pastors wrote an open letter attacking Mr Gauck’s line. But the president will keep preaching. Mr Gysi was reprimanded in parliament for misquoting him. Mr Gauck wrote a reasoned reply to his fellow pastors, adding nuance to his argument. Most Germans seem to listen, and increasingly to agree. 7

couldn’t dream of,” says Riza Turmen, a CHP deputy. Nuray Mert, one of dozens of newspaper columnists sacked under government pressure, insists that Mr Erdogan wants to impose a “Saddam Hussein-style Baathist regime”. Gigantic portraits of Mr Erdogan have become ubiquitous. Mr Ihsanoglu and Mr Demirtas were given only a fraction of the airtime granted to Mr Erdogan on state-run television. Oy ve Otesi, an independent election-monitoring group, is already warning of possible fraud. For now AK lacks the two-thirds majority in parliament needed for the constitutional tweaks to increase the president’s powers. Critically, the economy is beginning to wobble. In?ation is up; growth is down, to around 4%. Exports are slipping because of the violence that has engulfed Syria and Iraq, Turkey’s second-biggest market. Mr Erdogan may well be tempted to call early elections (via the AK puppet prime minister he is hoping to install) before the e?ects set in. But AK may well not bag enough seats to allow him to ful?l his dreams. He would then turn to the Kurds for their backing in exchange for further political concessions. If that were not forthcoming, Mr Erdogan’s grip may ?nally weaken, paving the way for a new leader. Many think that would be the best outcome for Turkey. 7

The pastor and a pastor’s daughter
but only after the main political parties agree on the candidates.) But in 2012 the then president, Christian Wul?, was forced to resign amid a corruption scandal (he has since been cleared). Mr Gauck’s name came up again, and Mrs Merkel dropped her resistance. Both spent their formative years in communist East Germany, Mr Gauck as a Lutheran pastor, Mrs Merkel as the daughter of one. But life in the dictatorship shaped them di?erently. Mrs Merkel learned to keep her views to herself until an opportune moment arises. He learned the opposite lesson: to speak from the heart, even against the grain. His loathing for the regime began when he was a boy and his father was nabbed and imprisoned in a Siberian gulag for several years over a vague allegation of espionage. The de?ning moment of his adult life was the fall of Berlin Wall. For a decade after reuni?cation in 1990, Mr Gauck led the agency charged with investigating and documenting the Stasi, East Germany’s equivalent of the KGB. These experiences left him with a visceral yearning for freedom. Liberty is a big theme of his speeches. In Freiburg this year he praised liberal and “neoliberal” values in society and the economy, though these are unfashionable terms in Germany and often used derisively. Generally pro-American, he has however expressed outrage against the spying by America’s National Security Agency on Germans. But Mr Gauck must tread carefully. Germany’s constitution de?nes the presidency as a mainly ceremonial o?ce. He must be impartial and above “operational” politics, as an aide puts it. More than any of his predecessors, Mr Gauck tests these limits. He called followers of the NPD, a party

Germany’s president

Russia and the West

Preaching a new German gospel
BERLIN

How to lose friends
MOSCOW

Joachim Gauck is pushing the limits of his o?ce

Vladimir Putin pretends that he can make Russia self-su?cient and strong

F

ROM the Vosges mountains to the Flemish plain, Joachim Gauck, Germany’s president, visited the killing ?elds of the ?rst world war this week for the centenary commemorations. As is his wont, he teared up easily and embraced heartily. This emotional style of accepting German responsibility for the past and turning it into reconciliation has become his trademark since he became Germany’s head of state in 2012. Whether in Israel, Poland or Greece he ?nds the right tone. Along with Germany’s head of government, Angela Merkel, he is one reason why Germany today appears, on balance, unthreatening and even likeable to its neighbours. Mrs Merkel and Mr Gauck began as an unlikely pairing. When he was ?rst mentioned as a candidate for president in 2010, she opposed him, viewing him as a potential rabble-rouser. (Presidents are chosen by a federal convention consisting of parliament and delegates from the 16 states,

“I

SOLATION”, “consolidation” and “self-reliance” are di?erent terms used among Moscow’s political and business elite to mean the same thing. In the face of international sanctions occasioned by its support of the rebels in eastern Ukraine and its earlier annexation of Crimea, Russia is preparing to pull inward. It is hunkering down for a long period of diplomatic antagonism and economic hardship. That process appears to be accelerating. On August 6th the Kremlin responded to Western pressure by announcing that it will ban or reduce agricultural imports from countries imposing sanctions on Russia. The tensions in eastern Ukraine are rising. Ukrainian forces have, in e?ect, closed o? the rebel stronghold of Donetsk through a campaign of often-indiscriminate shelling. If it falls to Kiev, then the proMoscow insurgency will lose its potency. Mr Putin may be tempted to salvage his credibility by sending in Russian troops on 1

The Economist August 9th 2014
2 the pretence of a “humanitarian” opera-

Europe 29
“mercantile”, says a Duma deputy from the pro-Kremlin United Russia party. Rather, he is an “historical ?gure” set on establishing Russia as a self-su?cient centre of power. Mr Putin told his security council last month that “Russia is fortunately not a member of any alliance”, which he presented as a “guarantee of our sovereignty”. The new antagonism between Russia and the West will not be a battle between superpowers; for one thing, today’s Russia lacks an ideology with appeal beyond its borders. In an interview with The Economist last month, America’s president, Barack Obama, said that the challenges Russia presents are “e?ectively regional”. The Kremlin proudly claims it will aim to replace Western goods and services with domestic ones, for instance in hightech parts for the arms industry. Import substitution could work if manufacturers weren’t running at near-full capacity and in dire need of new investment, which will be in shorter supply as foreign ?nancing shrinks. The country’s $173 billion in sovereign-wealth funds, built up over years of windfall pro?ts from oil sales, will be drawn down to stabilise the rouble and pay o? the debts of state banks and ?rms. “It won’t kill us, but it will create problems,” says the United Russia deputy. Mr Putin will have to push the country’s ?nancial resources to their limit if he wants to ful?l the promises on social spending he made when he returned to the presidency in May 2012. (At the time Russia forecast its GDP growth at 5% a year; the IMF now predicts GDP growth for this year at just 0.2%.) Mr Putin has already proposed the introduction of a 3% sales tax as a way of ?lling holes in regional budgets. The government has also announced it will siphon o? private pension-fund contributions to the federal budget, prompting a deputy economic-development minister to declare he was “ashamed” of the move. He was ?red the next day. Such problems have not yet hurt Mr Putin. Indeed, he is more popular than ever and his propaganda apparatus is proving to be highly e?ective. A poll released this week by the Levada Centre, a think-tank in Moscow, shows that 74% of Russians have a negative view of America, the highest number in Russia’s post-Soviet history. The showdown with the West over Ukraine has allowed for a “powerful discharge of frustration” built up over years since the Soviet collapse, says Lev Gudkov, director of the Levada Centre. And now that Mr Putin knows relations with the West are spoiled no matter what, he may be prepared to up the ante again. 7

tion. According to NATO, 20,000 Russian soldiers have amassed at the border. They are engaged in live-?re drills involving ?ghter aircraft and bombers—the sort of manoeuvres that have presaged invasion before. Even if troops do not cross the border, the confrontation between Russia and the West looks set to continue through the rule of President Vladimir Putin and, perhaps, beyond. By increasing his support of the rebels after the crash of?ight MH17 last month, Mr Putin has shown that he values his own understanding of Russia’s historic destiny more than the economic well-being of his country and its global reputation. He is making a risky bet that challenging the architecture of the post-cold-war order will reap its own rewards and make up for a drop in living standards. It is a mistake to think of Mr Putin as

War crimes in Kosovo

A country awaits
PRISTINA

Who will be indicted for war crimes?

T

HIS is Kosovo’s holiday-and-wedding season, but some in the small Balkan state don’t feel much like celebrating this year. On July 29th Clint Williamson, an American prosecutor leading a special European Union task-force investigating war crimes, came out with a damning report. His team was created to look into claims in a report for the Council of Europe, published in 2010, which accused senior members of the wartime Kosovo Liberation Army (KLA) of heinous crimes. He came to very similar conclusions. According to Mr Williamson, senior o?cials of the KLA led a campaign of murder and ethnic cleansing against Serbs and Roma in the wake of the war in 1999. Instead of dismissing claims that some of the disappeared were murdered for their organs, as had been widely expected in Kosovo, Mr Williamson says there are “compelling indications” that this did happen in a “handful” of cases, though he does not yet have enough evidence for indictments for that. Witness intimidation, he says, is the greatest single threat to the rule of law in Kosovo. Mr Williamson knows whom he wants to indict for other crimes, but no court yet exists to try them. Plans are well advanced for the establishment of an extraterritorial tribunal in The Hague, along the lines of the Scottish court that prosecuted the Libyans accused of blowing up an airliner over Lockerbie. First, Kosovo’s parliament must pass a law allowing this to happen. “Horrible things

happened and they need to be addressed,” says Petrit Selimi, the deputy foreign minister. The trouble is that the party of Hashim Thaci, the outgoing prime minister, has been unable to cobble together a government since it came ?rst in elections on June 8th. As parties squabble about who has the right to form a government, the country is paralysed. Meanwhile rumours are circulating about who will be indicted. Names mentioned include senior members of Mr Thaci’s party, and opposition politicians. All of Kosovo is waiting, including minority Serbs in the north, who are supposed to join Kosovo’s administrative system under the terms of a recent agreement. In fact, says Branislav Nesovic, a civil-society activist, no one “has a clue what is going on”. In June Serbs removed an old barricade on the bridge that divides the town of Mitrovica between Serbs and Albanians, but they quickly became frightened and replaced it with a post-modern barricade made of turf and ?owerpots. Father Sava, the abbot of Decani, a Serbian Orthodox monastery, worries that the international community may be forgetting Kosovo. He is horri?ed by videos of Albanian jihadis in the Middle East. Kosovo, he says, is full of social tensions and unless the economy improves and the region moves closer to the EU, he fears “an explosion” in which politicians could easily “redirect their frustration at minorities”.

Proudly alone

30 Europe Italy’s economy Italy’s parliament

The Economist August 9th 2014

Shrinking again
Rome

High-class errand boys
ROME

Parliamentary workers are facing a cut in their generous pay Italy slips back into recession

T

I

T’S the economy, stupid. Had Matteo Renzi, a keen student of American politics, paid more attention to the slogan invented for Bill Clinton’s successful presidential campaign in 1992, he might be in a better position today. On August 6th his government’s statisticians disclosed that Italy was back in recession. Preliminary estimates suggested that GDP fell by 0.2% in the second quarter of 2014 after a drop of 0.1% in the ?rst quarter. This was the worst blow to the prime minister since coming into o?ce in February. No one expected such a dismal performance. Forecasts ranged from 0.1% to-0.1%. If the estimate is con?rmed, it will mean second-quarter growth is weaker than at any time since 2000. The ?nance minister, Pier Carlo Padoan, put a brave face on the numbers by pointing to an encouraging increase in industrial production in June. But the reversal of Italy’s economic fortunes will have a profoundly demoralising e?ect on a nation that had thought the worst was over. It could adversely in?uence decisions on investment, employment and consumption. News that the economy is shrinking also leaves a huge dent in the credibility of the government’s overall strategy. On entering o?ce, Mr Renzi took a gamble—that the economy would recover without the need for much structural reform, enabling him to get on with what he judged to be the more important business of institutional change. When the GDP ?gures came out, the prime minister was closeted with Silvio Berlusconi, the leader of Italy’s secondbiggest opposition party, trying to agree on a new electoral law, the second phase in their ambitious plan for a more e?ective and stable form of government. Members of the Senate have approved the guts of a bill to implement the plan’s ?rst phase, to suppress the upper house’s power to block or distort legislation. Mr Renzi’s main ploy for boosting growth has been a 80 ($107) monthly tax break for lower-paid workers. That too had a political ?avour because it helped the prime minister silence the left wing of his party and win an impressive victory in European elections in May. But this week the head of the shopkeepers’ association said the tax break’s impact on domestic consumption had been “almost invisible”. Other growth initiatives are on the runway, notably legislation to restart building projects. But, unlike liberalisation, privati-

O EARN 136,000 ($181,590), a browse of the internet suggests, you need to be an IT operations director at a British ?rm, governor of New York state—or an usciere (usher) in the Italian parliament. An usciere’s duties include carrying messages, accompanying visitors and looking digni?ed in uniforms laden with gold braid. The sole occupational hazard is of a punch in the eye while intervening in the occasional brawl between lawmakers. Now, however, the uscieri face a second danger: a cut in their salaries. In May, Matteo Renzi’s government put a 240,000 cap on annual public-sector

Gold braid and a golden job
sation and labour-market reform, infrastructure projects need money for take-o?. Even before this week’s GDP shock, the government was struggling to ?nd the resources it needed. On August 4th it withdrew plans to bring forward the retirement of school and university teachers after the treasury objected that there was not enough cash to pay them. The government’s spending plans for the rest of 2014 are based on an assumption of 0.8% growth by year’s end, and that now looks as likely as a summer snowfall in Sicily. If Italy is to respect its euro-zone budgetreduction commitments without yet more tax increases, deep spending cuts will be

earnings. That will directly a?ect “only” about 130 of Italy’s 2,300 parliamentary employees. But other salaries are to be reduced to keep pay di?erentials the same. Earnings of an usher nearing retirement are expected to drop over a threeyear period from 136,000 to a miserly 100,000-105,000. Last month several hundred parliamentary workers besieged a meeting of deputies who had gathered to agree on a draft plan. As the deputies left, they encountered a barrage of ironic applause and shouts of “Didn’t touch your own salaries, did you?” This unprecedented scene was a foretaste of the di?culties Mr Renzi faces as he attempts to take on entrenched interests in Italian society. The speaker of the lower house reminded the protesters that beyond Montecitorio, the palace housing the chamber, there was a real country—one where more than a decade of economic stagnation has reduced real GDP per person to the level of1998. Inside parliament, years of long service have kept salaries rising inexorably. Figures leaked to a television reporter last year showed that most parliamentary workers could expect their salaries to quadruple in real terms over a 40-year career. “The justi?cation for all this is a word, ‘autodichia’, the doctrine that says parliament should have total freedom to manage itself so it does not come under pressure from the government,” says Sergio Rizzo, co-author of “La Casta”, a bestselling book on the privileges of Italy’s political class. Talks between the government and the trade unions representing the uscieri will take place in the next few weeks. They’ll need a big table: there are 11 unions who have members working in the lower house and 14 in the Senate. needed (of 15-20 billion by most reckonings). There is plenty of waste and extravagance to be tackled (see box). But unless the government acts quickly to free up markets and encourage rationalisation and e?ciency, there is a risk that the cuts will simply subdue demand further, accelerating the downward spiral in which the economy is trapped. Mr Renzi, a digital-technology enthusiast, last month likened his programme of constitutional reform to the PIN of a mobile telephone. It is only when you have keyed in the number, he explained, that the telephone will work. But what if the battery has run down in the meantime? 7

United States

The Economist August 9th 2014 31 Also in this section 32 Presidents and growth 33 Congressional primaries 33 Colorado’s lively politics 34 James Brady and gun control 34 Streetcars and urban renewal 36 Southern accents 37 Lexington: The George H.W. Bush revival

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

Barack Obama’s message to business

Stop whining, I’m your friend

The president wants CEOs to play ball. He might have to change his own language

W

ITH two and a halfyears left in o?ce, Barack Obama wants to shed his image as a president who is hostile to business. In an interview with The Economist last week aboard Air Force One, which was supposed to focus on foreign policy, Mr Obama introduced the subject of business and launched a strident defence of his record. Bosses, he argued, have not given him due credit for running the economy well. And rather than grumbling about the burden of regulation and casting him as a class warrior, chiefexecutives should think harder about society as a whole. The full interview is on our website. But Mr Obama’s impatience with Main Street is interesting, because the feeling is mutual. His administration provokes quiet fury from many corporate leaders: even Democrat-voting bosses moan about a White House that “doesn’t get it”. Some cite a president bent on redistribution and red tape as a reason not to invest in America. But who is correct? The president’s strongest card is macroeconomic policy (see chart). Mr Obama points to such measures as high stockmarket values, record corporate pro?ts and job growth. How much of this he can claim credit for is a question debated by economists (see next story). But, given the mess that he inherited, it is hard to claim that he has done badly. Indeed, CEOs tend to give fairly high

marks to his economic team: they may not have enjoyed being lectured about Keynesian stimulus by Larry Summers and Tim Geithner, both now departed, but they sensed the economists knew their subject. The main complaints from business are threefold. First, Mr Obama rarely misses a chance to cast them as the bad guys. In a speech in Kansas City just before the interview, he raised whoops by lambasting “unpatriotic” companies which (perfectly legally) register their headquarters overseas for tax purposes—or, as he puts it, “stash their money o?shore”. A fairer stance would be that America’s corporate-tax system is a mess, which the president deserves part of the blame for failing to ?x.

The second element is more personal. In face-to-face meetings, the White House’s starting point is contempt. Bosses exchange horror stories about being herded in for photo-opportunities or being invited to the White House to suggest policy ideas—only to ?nd themselves accused of special pleading. Sooner or later the CEOs mention Valerie Jarrett, who many depict as the commissar of the West Wing. In his interview, Mr Obama half fell into this stereotype, talking about CEOs only being motivated by shareholder value—a caricature that infuriates business leaders who spend much of their time dealing with “stakeholders” of one sort or another. Mr Obama duly retreated, but only a little. Yes, he accepted that CEOs spend a lot of time on corporate social responsibility, but he still sees a gap between their professed values and how their ?rms lobby in Washington: “My challenge to them consistently is, is your lobbyist working as hard on those issues as he or she is on preserving that tax break that you’ve got? And if the answer is no, then you don’t care 1 about it as much as you say.”

Bragging rights
S&P 500 2,000 1,500 1,000 500 0
Corporate profits
% change on a year earlier

Monthly change in employment

’000

60 30
+

600 300
+

0


0


30 60 90 2009 10 11 12 13 14

300 600 900

2009

10

11

12

13

14

Sources: Thomson Reuters; Bureau of Economic Analysis; Bureau of Labour Statistics

32 United States
2

The Economist August 9th 2014
to take a cheerful view, vain perhaps but very unsure of themselves, pathetically responsive to a kind word. You could do anything you liked with them, if you would treat them (even the big ones), not as wolves or tigers, but as domestic animals by nature, even though they have been badly brought up and not trained as you would wish. It is a mistake to thinkthat they are more immoral than politicians. If you work them into the surly, obstinate, terri?ed mood, of which domestic animals, wrongly handled, are so capable, the nation’s burdens will not get carried to market; and in the end public opinion will veer their way.

The third complaint is over-regulation. Businesses moan that the White House has become a red-tape machine. Mr Obama responds that businesses will always ?nd some regulations inconvenient, which is fair. Asked about the crushing complexity of ?agship laws passed on his watch, such as the Dodd-Frank?nancial reforms or the A?ordable Care Act (“Obamacare”), he is defensive. Given a blank canvas and a calmer political environment, they could have been “far more elegant”. But democracy is “messy”, he explains. Even allowing for that, many commercial sorts would say that the White House underestimates the cost of complexity. Carly Fiorina, a former CEO of HewlettPackard (and a Republican) says large companies might be able to hire professionals to navigate America’s over-complex, uncompetitive tax and regulatory systems, but small ?rms and entrepreneurs cannot. Other CEOs argue that Mr Obama’s failure to rein in spending and simplify laws—typi?ed by his decision to ignore the bipartisan reforms to entitlements and the tax system suggested by the Simpson-Bowles commission—will haunt America for a long time. Behind most ofthe antipathy sits one big issue and a lot of counter-productive language. The big issue is inequality. The president dismisses the idea that he is a class warrior. “Feel free to keep your house in the Hamptons and your corporate jet,” he assures the wealthy. That may be hard to take from a politician who has cited tax breaks on private planes in many a campaign speech. But there is no doubt where his sympathies lie. In Kansas City Mr Obama declared that the “challenge of our time” is creating an economy that works for all America, which he de?nes as one in which workers earn enough to send their kids to college and—after 20 or 30 years—retire with dignity. To the president, after two decades of middle-class wage stagnation, the bestpaid need to avoid sounding ungrateful. “The folks who don’t have a right to complain are the folks at the top,” he said. That will always put Mr Obama to the left of many corporate leaders. But the man on Air Force One was also plainly a long way from the socialist ogre that boardrooms fear. On a lot of issues, from immigration to infrastructure and even climate change, this generally pragmatic president is closer to Main Street than the Republicans are. But his language—about tax-dodging companies and Hamptons swimming pools—does not help him. Here is one piece of advice:
Businessmen have a di?erent set of delusions from politicians, and need, therefore, di?erent handling. They are, however, much milder than politicians, at the same time allured and terri?ed by the glare of publicity, easily persuaded to be “patriots”, perplexed, bemused, indeed terri?ed, yet only too anxious

This is from a private letter that John Maynard Keynes sent to Franklin Roosevelt. Business bosses often clash with politicians, but today’s gulf of mutual distrust is unusually wide. Mr Obama could probably do more to bridge it. 7

Presidents and growth

Timing is everything
Why the economy has grown faster under Democratic presidents

“S

INCE 1961…the Republicans have held the White House 28 years, the Democrats 24,” said Bill Clinton in 2012. “In those 52 years, our private economy has produced 66m private-sector jobs. So what’s the jobs score? Republicans 24m, Democrats 42[m].” In the two years since, Barack Obama has increased the Democrats’ lead by close to 5m. Since the second world war the economy has done better under Democratic presidents, who have overseen more job creation and higher stockmarket returns than Republican leaders. During this time the economy has grown about 1.8 percentage points faster when a Democrat occupies the White House (see chart). Messrs Clinton and Obama credit their economic policies. But new research suggests it has more to do with luck. Alan Blinder and Mark Watson, economists at Princeton University, studied the last 16 presidential terms—from Harry Truman’s second to Mr Obama’s ?rst—to ?nd out why the economy has grown faster under Democrats. They were quickly able to rule out some possible explanations, like a president’s age and experience, or which party controlled Congress. Though one might surmise that Democratic presidents inherited hardier economies than Republican ones, they actually tended to take over when times were more di?cult. Messrs Blinder and Watson then looked at the impact of ?scal and monetary policy. But neither seemed to explain why the economy favoured Democratic

presidents. The average di?erence in the federal budget de?cit between Democratic and Republican administrations is too small to be signi?cant, concluded the authors. And though the parties have di?erent tax philosophies, changes to policy have had little in?uence on growth. Ronald Reagan slashed taxes for the rich, whereas Mr Clinton raised them. Still, both presidents presided over impressive economic expansions. Interest rates have generally risen under Democrats and fallen under Republicans, so any advantage from monetary policy “would seem to have favoured Republican presidents”, say the authors. If anything, both ?scal and monetary policy “seem to be a bit more stabilising” under Republican presidents. Much of the growth under Democratic presidents has been the result of privatesector investment and increased consumption. They have been blessed with lower oil prices, larger increases in productivity and better global economic conditions. The timing of Democratic presidents appears impeccable compared with Republicans—Mr Clinton took o?ce just as the technology sector began to boom, whereas George W. Bush could not get out before the ?nancial crisis. But it is not all down to luck. Oil prices were a?ected by the Gulf and Iraq wars. Mr Clinton’s budget cuts probably helped facilitate the long growth spell of the 1990s. And Mr Bush’s housing policy (along with that of his predecessors, including Democrats) did little to discourage the risky loans that fuelled the meltdown in 2008. In the end, the authors are probably right to conclude that the growth gap between Democratic and Republican presidents is explained by good luck, with perhaps a touch of good policy. 7

The lucky left
Average annualised GDP growth by presidential term
%

0

1

2

3

4

5

6

7

Democratic average Republican average

Truman (2nd) Eisenhower (1st) Eisenhower (2nd) Kennedy-Johnson Johnson Nixon Nixon-Ford Carter Reagan (1st) Reagan (2nd) Bush Clinton (1st) Clinton (2nd) G.W. Bush (1st) G.W. Bush (2nd) Obama (1st)
Source: “Presidents and the US Economy”, by A.S. Blinder and M.W. Watson

The Economist August 9th 2014 Colorado politics

United States 33

Ground war
LOVELAND, COLORADO

What a row about fracking says about politics in America’s liveliest state

E

Congressional elections

Immovable incumbents
GRAND RAPIDS, MICHIGAN

The Republican primaries have produced fewer upsets than expected

J

USTIN AMASH, a congressman, represents one of the most conservative parts of Michigan. Pat Roberts (pictured), a member of the Senate, represents one of America’s most conservative states. After hard-fought campaigns both men won their Republican Party primaries on August 5th and now look likely to retain their seats. The similarities end there. Mr Amash, who is 34, was ?rst elected to the House of Representatives in 2010, riding the Tea Party wave that wiped out both Democrats and old-school Republicans. A staunch libertarian, he has alienated some in Congress with his stubbornness, which has earned him the nickname “Dr No”. He tried to oust John Boehner as Speaker and was duly punished, losing his seat on the budget committee. Sensing an opportunity, business-minded Republicans backed Mr Amash’s challenger in the primary, Brian Ellis. But Mr Amash whipped him, winning by 15 points. Pro-business Republicans have little beef with Mr Roberts, who is 78, but conservative insurgents were out for his blood. Having served 33 years in Congress (17 in the Senate), Mr Roberts is the epitome ofan establishment Republican. The main charge against him was that he had become too comfortable in Washington. He admitted frankly that he owned no home in Kansas and visited the state “every time I get an opponent”. His opponent this time, Milton Wolf, a doctor, was supported by national and local Tea Party groups, but it was not enough in the end. Mr Roberts

won by seven points. Drawing conclusions about the Republican Party from these results is di?cult. For starters, both incumbents faced underwhelming challengers. Mr Ellis’s campaign was so vicious that Mr Amash refused to take his congratulatory phone call. Dr Wolf, a second cousin of Barack Obama, ran a cleaner campaign and did better than expected. But he was tripped up when it was discovered that he had posted X-rays of his patients on Facebook along with crude jokes about them. The Republican primaries in Kansas and Michigan, and others elsewhere this year, seem to say more about the power of incumbency than anything else. With just a few notable exceptions—such as Eric Cantor, the former House majority leader, who lost in June—those already in o?ce have faced down challenges from candidates of all stripes. Indeed, Mr Roberts’s victory makes it probable that for the ?rst time since 2008 no incumbent Republican senator will lose a primary. But the campaigns have raised the question of what makes a politician truly conservative, a mantle grasped by nearly all of the Republican candidates. For Mr Amash it is a devotion to liberty that does not always suit Republican priorities. For Mr Roberts it seems less about ideology and more about partisan loyalty. Republican leaders in Congress have had a di?cult time accommodating these competing visions. Judging by the primaries, their job will not get any easier. 7

VERY February thousands of American romantics send their Valentine’s Day cards via Loveland, a small city north of Denver, where they are stamped with a cheesy poem and sent on. But in recent months, as Loveland has found itself on the front line of Colorado’s fracking wars, the mood has been darker. Locals, complaining that energy ?rms were threatening their children’s health and poisoning water supplies, placed a moratorium on the ballot. B. J. Nikkel, a former state legislator who campaigned against the ban, found herself compared to Joseph Goebbels. Television ads depicted anti-fracking campaigners as semi-crazed ?at-earthers. Ms Nikkel prevailed in Loveland, but the row dragged on. State and industry lawsuits ?ew against other cities that passed bans, and campaigners, egged on by Jared Polis, a maverick Democratic congressman, circulated petitions for other anti-fracking ballot measures. Republicans countered with industry-friendly proposals. The issue threatened to overshadow two close elections: for governor, and one of the state’s two Senate seats. That fear faded on August 4th, the deadline for petitioners to submit their signatures. Alongside an ill-at-ease Mr Polis, John Hickenlooper, Colorado’s Democratic governor, announced a deal between the warring parties: the fracking initiatives and a state lawsuit would be withdrawn and a group formed to frame new rules. Most Democrats (and energy ?rms) sighed with relief. Continued hostilities would have drawn out-of-state money and imperilled their candidates, even if they opposed the measures. The row sheds light on Colorado’s lively brand of politics. Much of its energy re- 1
WYOMING
150 km

Y C K R O

NEBRASKA Fort Collins Longmont Lafayette Broomfield

t o n F r

Loveland Boulder

S N T A I N M O U
Obama Romney

UTAH

Denver
KANSAS

C O L O R A D O

g e R a n

Presidential election voting, 2012

Cities that voted on fracking moratoria Vote passed Vote did not pass
Shale basin
Sources: EIA; The Economist

Tight-gas basin

34 United States
2 serves lie in or near densely populated

The Economist August 9th 2014
high-pro?le shootings. After the murder of 20 children and six adults at a school in Newtown, Connecticut in 2012, the National Ri?e Association (NRA), the biggest group representing gun owners, claims that its membership increased. This is not as strange as it seems. Shootings that make headlines lead to calls for gun control. Though these mostly fail, they provoke a pushback from pro-gun groups, which warn their members of federal plots to take their guns away. Though some states passed gun-control measures in the year after the Newtown massacre, many others ended up with more permissive laws than before. Gun enthusiasts have had particular success with laws that allow people to carry concealed weapons, leading to a boom in sales of specially-made shirts that allow their wearers to draw quickly. Polling by Pew suggests that three-quarters of NRA members support the expansion of background checks to cover purchases made at gun shows or online, a loophole in the Brady law. The organisation’s bosses, however, take any measure that restricts access to guns to be a small step towards a ?nal destination of an America disarmed. Its scorecards are the most popular way for voters to assess a candidate’s soundness on guns, so congressmen often vote with them in mind, even if that means voting against laws that most NRA members support. Such was the case with a modest bipartisan attempt at federal gun control in the wake of Newtown. Like so many before, it failed. 7

parts of the Front Range (see map). Leftleaning souls from places like California have ?ocked there, as well as to Denver itself. They have greened the state’s politics; along with a fast-growing Latino population they are nudging Colorado, once a Republican stronghold, leftward. Barack Obama’s coalition of the young, nonwhites, gays and women has won him Colorado twice, and the Democrats control both houses of the state legislature. But that is only halfthe story. Democratic success in Colorado is also due to a wellfunded, well-organised state party and a Republican tendency to pick crackpot candidates. Registered Republicans still outnumber Democrats. “Anyone who says Colorado is a left-leaning state is high,” says Ted Trimpa, a Democratic consultant who counts marijuana interests among his clients. A delicate partisan balance, a polarised legislature (second only to California’s, according to recent research) and a widely used initiative system have made Colorado a testing ground for virtually every contentious issue in American politics, from gay marriage to gun control to the death penalty, and now fracking. Frustrated by years of defeat but convinced Colorado was still fertile ground, this year Republicans recruited Cory Gardner, an a?able congressman who represents the state’s east, to challenge Mark Udall, a Democrat, for the Senate seat he won in 2008. Mr Gardner is no moderate: last year National Journal, a magazine, declared him one of the most conservative members of the House of Representatives. But he is a more presentable candidate than the last Republican to run for a Colorado Senate seat, who compared homosexuality to alcoholism and said primary voters should back him over a female rival because he didn’t wear high heels. Each candidate paints himself a paragon of reason and his opponent an extremist. And each has had awkward moments. Mr Gardner wriggled over a “personhood” measure on the November ballot that would grant fetuses legal rights. Coloradans have twice rejected similar measures; Mr Gardner backed them but says he has changed his mind. Mr Udall, whose Senate voting record is staunchly loyal, has gone to great lengths to avoid being seen with Barack Obama, including staying away from one of his own fund-raisers. Colorado could prove crucial to the Republicans’ hope of capturing the Senate. Polls show Mr Udall slightly ahead, but that could change if national opinion turns against the Democrats. Campaign money has poured in; the Koch brothers, conservative industrialists, are spending for Mr Gardner and Mr Udall is backed by Tom Steyer, a green Californian billionaire. In Loveland, fractivists are plotting their next move. “This war isn’t over,” growls one. 7

Gun control

Bullets to the head
WASHINGTON, DC

Why James Brady’s shooting led to gun control, but Gabby Gi?ords’s did not

W

HEN James Brady (pictured, left), who at the time was Ronald Reagan’s press secretary, was shot in the head during a failed assassination attempt on the president in 1981, newscasts reported that he was dead. This proved premature: Mr Brady died on August 4th. After the shooting, he went on to become the country’s most successful advocate for gun control. Under a law that bears his name, over 2m applications for ?rearm purchases have been turned down after background checks revealed that their owners were not the sorts of people to be trusted with a Glock. Since Gabby Gi?ords, a congresswoman from Arizona, was shot in the head in 2011, no federal gun-control laws have passed. The di?erent responses reveal much about what has changed in the triangular relationship between Americans, guns and politicians between the two shootings. Congress has passed laws that make it impossible to know for sure how many Americans own guns, but polling data suggest that the number who do has decreased since Mr Brady was shot. Rather than make it easier to pass laws, this has made it harder: small, energetic groups have more sway over Congress than ones that are larger and more di?use. It took 12 years from the shooting of Mr Brady to the passing of background checks, so it is too early to conclude that Mrs Gi?ords’s wounds will not eventually result in something similar, such as a ban on the kind of oversized magazines that her shooter used. But the chances of that look remote. One reason is the pattern that follows

Streetcars and urban renewal

Rolling blunder
WASHINGTON, DC

Federal subsidies have inspired some silly transit projects

L

ATE and over budget, streetcars are ?nally rumbling to life in Washington, DC. The long-awaited service, which has cost at least $135m to build, spans 2.4 miles along H Street in the city’s north-east. But it is not taking passengers yet. Operators are still learning how to drive the electric trains, which may come into service by the end ofthe year. In the meantime, locals can hop on the bus: plenty of them already ply this route, and often at a faster clip. Most American cities paved over their streetcar tracks decades ago, deeming the services slow, rickety and inconvenient. Commuters have long preferred cars and buses. But streetcars—sometimes known as trolleys or trams—are making a comeback. Services are rolling out in at least 16 American cities, with dozens more in the works. Even bankrupt Detroit has begun 1

36 United States
2 work on a three-mile line that is expected

The Economist August 9th 2014 Regional accents

to cost $137m. Fans say streetcars create jobs and spark urban investment. Developers like them because they run on ?xed tracks, which means o?cial commitment to a route is locked in. Boosters point to Portland, Oregon, which unveiled America’s ?rst streetcar line with modern vehicles in 2001. One study found that the city’s westside line attracted new business and housing valued at more than 24 times its construction cost. Plans in Atlanta and Tucson have similarly generated hundreds of millions of dollars in private investment and raised property values. The District’s H Street neighbourhood has been moving upmarket for years, but some credit the promise of a streetcar with accelerating development. Others are more sceptical. The relationship between streetcars and development is not clear, say researchers funded by the Federal Transit Administration (FTA). In cities where streetcars have led to urban renewal, they are part of larger, heavily subsidised development plans, with changes in zoning, improvements to streets and other upgrades. And while streetcars are cheaper than other rail projects, they are still costly to build and maintain. Operating expenses are more than twice those for buses, according to data from the FTA, and capital costs are hefty. Tucson’s project, for example, cost nearly $200m and opened years late, in part because the city had to clear utilities from under the tracks, install overhead electrical connections and repave much of the four-mile route. All this investment might make some sense if streetcars o?ered an e?cient way to move people around. But here, too, the evidence is ?imsy. Unlike European trams, which often cover long stretches in independent lanes, American streetcars tend to span walkable distances and share the road with other vehicles. This means they

Mind that drawl, y’all
GREENVILLE, SOUTH CAROLINA

Southern speech still draws unwanted attention

“I

N AMERICA we do not care what a man talks; for we know that the sentiment back of the words will be American,” wrote Mark Twain to a friend in 1892. Those with regional accents may wish as much were true today. But New Yorkers wanting “cawfee”, Californians up for a “hella” good time, and Georgians ordering hot “dawgs” are often mocked. Southern accents elicit particularly harsh reactions from many Americans. With this in mind, the Oak Ridge National Laboratory in Tennessee planned to host a weekly “Southern Accent Reduction” class, inviting prospective participants to “be remembered for what you say, not how you say it”. But the six-week course was cancelled last month after workers complained. The laboratory’s spokesman admitted that “it probably wasn’t presented the right way.” Technically speaking, no single southern accent exists: varieties include a fading classical strain, whose speakers diminish the letter “r”, and the common lowland lilt. But they have certain aspects in common. For example, a process called glide deletion—which makes two vowels

sound like one—lengthens the “i” in “pie” across the region. Loose grammar and indulgent vowels mean the southern accent is often associated with stupidity, says Jennifer Cramer of the University of Kentucky. Two in ?ve Americans think it makes the speaker sound “uneducated”. The bias is learned early and is not limited to northerners. In one study, nine- and ten-year-old children in Illinois and Tennessee said people with northern accents sounded “smarter” and more “in charge” than those with southern drawls. On the other hand, southerners are thought to be more honest and nice on account of their speech. A survey by Cupid.com, a dating website, found the southern accent to be the sexiest in America (think Scarlett O’Hara and Rhett Butler). Still, many southerners want to tone it down. Natalie Baker Shirer, an instructor at Carnegie Mellon’s school of drama, has helped bankers, lawyers and even a priest change the way they talk. “Everyone has their own true voice, their own music, but people need to make themselves understood,” says Ms Shirer. If streetcars are so slow and costly, why are there suddenly so many? Because federal subsidies have encouraged them. Under Barack Obama the Department of Transportation has made grants of up to $75m available to “small” projects that promise to revitalise urban areas and cut greenhouse-gas emissions. They need not be cost-e?ective in the conventional sense if they make a place more liveable or o?er other vague bene?ts America’s streetcar revival is gobbling up funds that might otherwise go towards cheaper, nimbler forms ofpublic transport, such as buses. This is not only wasteful, but tends to favour better-o? riders, such as tourists and shoppers. Poorer residents are mainly served by buses, if at all, says Daniel Chatman of the University of California, Berkeley, who studies regional planning. “The economics of many light-rail and streetcar projects is abysmal,” he adds. Well-designed bus routes can spur development, too, and at far lower cost, says Adie Tomer of the Brookings Institution, a think-tank. According to the Institute for Transportation and Development Policy, another think-tank, Cleveland’s rapid-bus service has attracted $5.8 billion in private investment along its 6.8-mile route. It was built in 2008 for around $50m—just a third of the cost of the District’s streetcar. 7

inch along with tra?c, often at less than 12 miles per hour, on tracks that make it impossible to navigate busy streets or ride around obstacles. Indeed, their slow speeds and frequent stops mean they often cause more congestion. A bus route could move up to ?ve times more people an hour, says Randal O’Toole of the Cato Institute, a think-tank.

A streetcar named desire

The Economist August 9th 2014

United States 37

Lexington The George H.W. Bush revival
Americans miss George Bush senior, but that doesn’t mean he could get elected today servatives and Democrats in Congress grumbled about his handling of the Soviet block’s collapse, faulting him for showing little “elation” as the Berlin Wall fell. “I’m not a very emotional kind of guy,” retorted Mr Bush, who was in fact quietly seeking Russian consent for a uni?ed Germany inside NATO. Today, few ask why he did not take Baghdad and foreign-policy grandees long for a muscular realist like Mr Bush. That is a reaction to George W. Bush’s rashness. But it also re?ects anxiety that Barack Obama’s sober doctrine for American power—?rst, do no harm—has veered into not doing much at all. The elder Bush steered between other extremes. He increased quotas for family immigration and skilled workers but vowed to deport more foreigners under his “war on drugs”. A former oil man, he passed clean-air laws. He fretted about government spending while defending public service as a calling. Mr Bush visibly disliked the hucksterish business of campaigning (Timothy Naftali, a biographer, once described him looking as unhappy at a debate as a child “dropped o? at the wrong birthday party”), yet he let aides run brutal attack ads. He clashed with tribunes of the new Right in Congress, notably Newt Gingrich, the future House speaker, but also railed at “carping little liberal Democrats”. Nearly 22 years ago the middle way led to defeat, squeezed between Mr Clinton and conservative and populist critics, including the independent presidential candidate Ross Perot. Does surging Bush-nostalgia signal that America would now elect his modern equivalent by a landslide? Oddly enough, no—mainly because he would not be chosen by today’s Republicans. It is not hard to design a thought experiment, pondering what would happen if the 41st president were 30 years younger and running for o?ce today. For his politics runs through the veins of Jeb Bush, his second son, former governor of Florida and an icon of the Republican Party’s “governing” wing. Establishment types long for Jeb to contest the 2016 presidential election (others might agree with Jeb’s mother, Barbara, that it is time to let other families have a turn, beyond the Kennedys, Clintons and Bushes). But doctrinaire conservatives loathe Jeb for his moderate line on immigration and for supporting the Common Core, national education standards that hardliners call a liberal plot to brainwash kids. Their hostility would make a Jeb Bush candidacy a costly slog. Similar forces obliged another technocratic friend of business, Mitt Romney, to tackrightwards to win the 2012 Republican nomination, hurting him in the general election. Not his grandfather’s Republican Party Ask conservatives about those paying tribute to George H.W. Bush—the RNC, the CIA, big TV channels and the Kennedys—and they might struggle to say which they distrust more. Bowing to the times, George P. Bush, Jeb’s son, calls Mr Gingrich a political role model as he campaigns to become Texas land commissioner, his ?rst run for o?ce. It is conceivable that the presidential candidate closest to the elder Bush could be a Democrat, Hillary Clinton, a wonkish pragmatist and foreign-policy realist—though her best friends could not call authenticity her strong point. Even then, her party’s Left will demand concessions if she runs. The problem is structural. Centrists still ?ll big jobs in business and the public sector, but control the beating heart of neither party. Bush-nostalgia is surging in a country stalked by populism. Missing the 41st president is one thing. Reviving the America that could elect someone like him, quite another. 7

T

WO decades since losing the presidency after a single term, George Bush senior is in fashion. No living ex-president enjoys higher net approval ratings (though his successor, Bill Clinton, comes close). George W. Bush has written a loving book about his father, out in November. Two other books are in the works (one wistfully titled “The Last Gentleman”). They follow admiring television biographies on HBO and PBS. The establishment cheered Mr Bush’s 90th birthday in June, which the former navy pilot marked with a parachute jump. “Happy 90th to our former boss,” beamed the CIA, tweeting a picture from Mr Bush’s security badge as agency director. Sailors on the USS George H.W. Bush, an aircraft-carrier, formed the message “41=90” on their ?ight deck. The Republican National Committee (RNC) hailed Mr Bush’s WASP-ish sense of style, selling socks in the vivid colours loved by the ex-president, a “sock man”. In May the John F. Kennedy Presidential Library gave Mr Bush its “Pro?le in Courage Award”, casting his1990 pact with a Democratic-controlled Congress to raise taxes as an act of patriotic selfsacri?ce. In the Kennedy library’s telling, Mr Bush put country above his 1988 campaign pledge, “Read my lips: no new taxes”, though that promise-breaking threatened his career. Political nostalgia is complicated: the collective memory is often fuzzy. Mr Bush’s original tax vow was a desperate bit of pandering that aides knew would haunt him; as the 1992 election neared he called the tax rises a mistake. When voters sigh for a leader they once jeered, they are mostly expressing unhappiness about the present, rather than changing their minds about the past. Clues about modern politics lurk within this Bush boom. There are many reasons why a man mocked as a buttoned-up to?—for citing his mother’s advice, “Nobody likes a braggadocio, George”, or woodenly assuring a New Hampshire crowd, “Message: I care”—is now praised for his modest reticence and bipartisan dignity. At 90, less of a premium is placed on being in touch. But Mr Bush’s awkward authenticity is also a rare quality in today’s slick, poll-tested, teleprompter politics. In a partisan age, Mr Bush earns credit for policies that steered between extremes. Start with foreign policy. A generation ago his swift, limited Gulf war left the Right asking why coalition forces had not rolled on to Baghdad and toppled Saddam Hussein. Con-

38

The Americas

The Economist August 9th 2014 Also in this section 39 Brazil’s presidential election 39 NAFTA’s bickering junior partners 40 Bello: Argentina after the default

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

Cuba and the outside world

Rekindling old friendships
MARIEL

Cuba is once again resorting to geopolitics to support a failing economy

C

ARLITO, a wiry man with greying hair, sits under a palm tree in Mariel, a town on a bay 40km (25 miles) west of Havana, sipping rum and watching a container ship edge out towards the Caribbean. He recalls seeing a ?otilla of smaller boats leaving from this same spot in 1980, carrying thousands of opponents of the Castro regime to Florida in the “Mariel boatlift”. Those were politically charged times. Government trucks would come to his school to deliver eggs for him and his friends to throw at the people ?eeing. About a decade and a half later, after the collapse of the Soviet Union in 1989 plunged Cuba’s economy into crisis, sources of protein were so scarce that Carlito recalled those wasted eggs with bitter regret. Some “Marielitos”, as those who ?ed are known, returned recently and Carlito was stunned at how prosperous they had become. “We used to call them traidores (traitors),” he chuckles. “Now we call them traedolares (bring dollars).” Across the bay from where Carlito sits is a $900m container port, which was built with Brazilian money and inaugurated in January. There are plans to develop a special economic zone alongside it, modelled on the thriving export hubs, such as Shenzhen, that China developed from 1980 onwards. The port is part of a vision for Cuba that relies less on Cuban-American gusanos (worms) sending remittances to prop

up the local economy, and more on an in?ow of foreign investors. But Carlito is keeping his excitement in check. Construction workers building the container terminal were paid a mere 250 pesos ($10) a month, he says, so the ramshackle town has yet to bene?t from the development. None of the 23 ?rms who have sought licences to operate in the special economic zone has yet been granted one. Even Joaquín Infante, the 88-year-old vice-president of the slow-moving National Association of Cuban Economists and Accountants, urges speedier authorisation of investment. “We need to be more ?exible and take more risks,” he says. Despite reforms that have brought some big changes to Cuba in the form of private restaurants, bed-and-breakfasts and new co-operatives, the economy has virtually ground to a halt. In the ?rst half of the year GDP grew by just 0.6%, leading the government to reduce its estimate for fullyear growth to 1.4%. That is lower than the 2.7% annual average ?gure since Raúl Castro (pictured on the right, with Vladimir Putin) became president in 2008. Investment is the root of the problem. In a report in July, two Cuban economists, Omar Everleny and Ricardo Torres, estimated that the growth in Cuba’s capital stock, such as machinery and buildings, fell to 7.8% of GDP last year, close to its level of 5.4% in 1993 when the economy was in

serious trouble. (In Latin America as a whole the ?gure is above 20%.) From the 20th ?oor of the Habana Libre, a run-down hotel, not one crane can be seen on the skyline. “The economy is screwed,” says a Havana-based diplomat. Supporters of the regime argue that the reforms simply need more time. A pro?toriented reorganisation of state-owned behemoths, such as the sugar monopoly, could be promising; it is just that the bureaucrats who run them are slow to change. Critics, however, see a fundamental ?aw in the reform model. Although it has sought to give some people more freedom in what they make and sell, the state keeps a stranglehold on the inputs they need for those businesses, such as seeds for growing crops, or sauces and spices for restaurants, or spare parts for taxis. It has cracked down on “mules” bringing in such goods on passenger planes from abroad. Bad pennies Diplomats say such counter-measures will make it harder for Cuba to attract the $2.5 billion in annual foreign investment that the regime aims for. Some also reckon the ?nancial squeeze on the island has tightened this year in the wake of the case against BNP Paribas, a French bank, for evading American sanctions on doing business with Cuba, among other places. That is why Cuba-watchers have paid close attention to the visits of Russia’s president, Vladimir Putin, and China’s leader, Xi Jinping, in recent weeks. Though both men o?ered few concrete investments in Cuba, they provide an opportunity for the Castro regime to start reducing its dependence on its closest ally, Venezuela, whose pro-Cuba government has been rocked by instability this year. Says Mr Infante: “We have to diversify and not depend on just 1

The Economist August 9th 2014
2 one partner.” He hopes that means more

The Americas 39
ly striking: a day after Malaysian Airlines ?ight MH17 was shot down, Fidel Castro publicly blamed Ukraine’s government. Such an overtly pro-Russian stance on Ukraine may hinder political negotiations that started this year between Cuba and the EU, diplomats say. It also makes it harder for Barack Obama to improve America’s relations with Cuba, let alone consider an end to the counter-productive 54-year-old embargo. Back in Mariel, Carlito wants good relations with everyone, especially America. “Luckily we Cubans have a lot of patience and patience is good,” he says. “Without it there’s just frustration.” 7

NAFTA’s junior partners

Chinese and Russian investment in Mariel. One envoy says the regime also prefers such investments to Western capital because it sees neither China nor Russia as a “Trojan horse” working towards regime change. A Cuban economist sees uncanny parallels with the special terms o?ered to the Soviet Union in the cold war. “The mentality of the decision-makers is to talk to Russia, talk to China, and make them offers based on politics,” he says. “But this is the same mentality we had in the past… and it didn’t do much for productivity.” Cuba’s courtship of Russia is particular-

She loves me, she loves me not
MEXICO CITY AND OTTAWA

Why America’s two neighbours don’t get along

C

Brazil’s presidential-election campaign

A tightly scripted telenovela
S?O PAULO

Political airtime on TV follows a strict schedule. Will it matter?

B

RAZILIANS love television. Nearly all households own a set, more than do a refrigerator. Over two-thirds of the population watch it every day. In the eyes of the state, that makes television too potent a tool to let politicians—or broadcasters— wield it as they please. On August 4th the evening news on Brazil’s dominant TV Globo network began showing daily reports from the presidential campaign trail—but only according to an elaborate schedule. In the name of fairness and compliance with rigid rules dating to 1997, it a?ords President Dilma Rousse? and her two main rivals one minute each of daily campaign coverage. To ensure a level playing ?eld, the law also bars candidates from buying TV ads with their own cash. Instead, the exche-

Do they count the words?

quer pays all free-to-air channels 80% of market rates to run commercials produced by parties and their hopefuls. Most will be broadcast from August 19th until polling day on October 5th, three times a week in two 25-minute blocks. These ads, together with similar ones for local and congressional races, will cost taxpayers an estimated 840m reais ($368m). This “free” television time will be split between presidential candidates using a complicated formula which is largely based on the size of electoral alliances. The going rate for one minute in each block of airtime is a cabinet portfolio. In June Ms Rousse? replaced her transport minister after a junior partner threatened to pull out of her coalition and to hand its 60 seconds to Aécio Neves, her principal challenger. She now has nearly 12 minutes, more than twice Mr Neves’s tally. One voter in four relies on commercials for information about candidates. Studies have shown a correlation between the amount of television time they receive and success in local and congressional polls. Little wonder that TV production costs eat up the biggest chunk of Mr Neves’s war chest, according to Otávio Cabral, his media co-ordinator. Yet the last time commercials swayed a presidential race was in 1989, when the telegenic Fernando Collor beguiled voters with slick tricks such as newfangled computer graphics, notes David Fleischer of the University of Brasília. Since then, he says, commercials have at best sustained candidates’ trajectories rather than changed them. That may be enough for Mr Neves. He currently trails Ms Rousse? by 16 percentage points in the ?rst round. But that is down from 23 points in April. And recent polls for the ?rst time showed him neckand-neck with the president in a run-o?.

ANADA and Mexico share the fortune, or misfortune, of a border with the world’s most powerful country, which looks down on both of them. For 20 years, as privileged trading partners ofthe United States, they have had the opportunity to in?uence it by creating a shared vision for North America. Instead the two have bickered like rivals in a tawdry ménage a trois. Canada plays the part of the wronged partner. It has jealously sought to protect the relationship with its neighbour, fearing that Mexico may steal its thunder. “Canada is quick to give o?ence and Mexico is quick to take it,” says Laura Dawson, author of a report on the bilateral relations for the Canadian Council of Chief Executives, a business group. That could be shrugged o? as irrelevant in a region where the only bond that matters is with the United States. But there are economic costs for North America as a whole, including the United States, because more could be done to link supply chains and energy markets trilaterally rather than just bilaterally. Canada was a reluctant participant in the negotiations for the North American Free Trade Agreement (NAFTA), which was launched in 1994. It agreed to join largely to safeguard the advantages it had won from a prior free-trade deal with the United States. After the terrorist attacks on September 11th 2001, e?orts to strengthen NAFTA through trilateral negotiations lost momentum. Instead, the United States, Canada and Mexico have sought to tackle border and security issues bilaterally. Relations between Canada and Mexico have become more brittle this year; the leaders of both countries have pointedly snubbed each other. Visas are the cause of much of the ill will. President Enrique Pe?a Nieto cancelled a visit to Canada in June, after the government of Stephen Harper refused to lift a “temporary” visa requirement imposed in 2009 following a sharp rise in Mexican asylum requests. Mexico feels demeaned: it used to enjoy visa-free status in Canada, which is rare for a Latin American country. “President Pe?a would not subject himself to the horrors of having to present a visa,” says his ambassador in Ottawa, Francisco Suárez Dávila. Mr Pe?a had hoped that a meeting with Mr Harper earlier this year, on the sidelines of the “three amigos” summit with President Barack Obama, would lead to a breakthrough on the issue. But Mr Harper publicly refused to budge, saying visas were a 1

40 The Americas
2 sovereign matter and not for negotiation.

The Economist August 9th 2014
linked to the United States, and two-way investment is modest. There is potential to develop supply-chain linkages of the sort that now criss-cross the border between Mexico, the United States and Canada, but only a few Canadian companies—such as Bombardier, an aerospace and rail ?rm— have taken the plunge. The most promising area for further integration of the three economies is energy, which could further strengthen North America’s competitiveness as a manufacturing hub. Mr Pe?a’s scrapped visit to Canada’s oil heartland, Calgary, was supposed to give him a chance to promote landmark reforms allowing private investment in the oil and gas industries for the ?rst time in over 75 years. On August 7th and 8th senior o?cials from both countries were due to meet in Mexico city to revive negotiations on the visa issue. A recent decision to expedite permits for seasoned travellers from Mexico to Canada was seen as a mildly positive step. Yet Mexican o?cials have little optimism that Mr Harper will scrap the requirement altogether. Many will quietly hope that the more Mexico-friendly Liberals will oust him from power in elections scheduled for October 2015. 7

Mexican experts say the visa issue represents more than just wounded pride. They acknowledge that Mr Harper’s government originally responded to a rise in spurious asylum claims at a time of soaring crime in Mexico. But the situation has improved since and they are irked by the unwillingness to discuss the issue even though business and tourism between Mexico and Canada have been a?ected. Business groups in both countries are keen to see warmer ties. Although trade between the two countries under NAFTA has grown almost sevenfold, most of it is

Bello The palindrome of Kirchnerismo
Default gives Argentina’s president a political advantage, but not for long

I

T IS a rainy Saturday morning, three days after Argentina defaulted on part of its foreign debt. In a damp and ?imsy shack in Salas, a settlement of muddy lanes and foul streams on the outskirts of Buenos Aires, Ramon Gallardo and his neighbours listen attentively to sta? from TECHO, a housing charity. They are briefing residents about the 15 one-room huts they will build in return for a nominal contribution of money and labour. TECHO has erected many of its sturdy, weather-proof huts in struggling Haiti. But there are takers in rich Argentina, too. Many of them are among the 20-30% ofArgentines who, according to uno?cial estimates, live in poverty despite a decade of economic growth. Now Mr Gallardo is worried that his work as a casual building labourer will dry up. “They told me the job I’m on will stop because of the default,” he says. Urban myth or not, this perception highlights the risk that President Cristina Fernández de Kirchner has run by choosing to scotch last-minute talks and defy an order by Thomas Griesa, a New York judge, to settle with hedge funds that are demanding full repayment oftheir Argentine bonds. As a result, Judge Griesa blocked a payment to some of Argentina’s foreign bondholders who took part in debt restructurings in 2005 and 2010 and hold 93% of the debt. That, in turn, precipitated the default on July 30th. Ms Fernández and Axel Kicilo?, her inexperienced economy minister, rail that Argentina is once again being mistreated by speculative “vulture funds”, and by a judge who appears out ofhis depth. Some of these points have merit. But unlike the last time Argentina defaulted in 2001, it is not insolvent. Ms Fernández and her late husband and predecessor, Néstor Kirchner, could have dealt with the “hold-out”

creditors years ago by quietly buying up their bonds. Even now, her o?cials have offered the judge no alternative so

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