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The welcome spread of the right to die
NOVEMBER 13TH-19TH 2021
Putin’s new era of repression
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Contents
The Economist November 13th 2021
On the cover
Vladimir Putin’s new era of
repression will lead to
confrontation with the West:
leader, page 15. Russia has
shifted from autocracy to
dictatorship: briefing, page 28
China's other debt problem
Evergrande is not the only
looming danger in the
mainland's financial system:
leader, page 18. The government
sets its sights on sleazy ties
between businesses and banks,
page 73
Nuclear power: safe and
essential It makes fighting
climate change a lot easier,
leader, page 20. Rolls-Royce and
the British government are
betting that small reactors can
fix the industry’s tricky
economics, page 59. Will the
climate crisis force America to
reconsider nuclear power?
Page 36
Biden's inflation headache
A broad pickup in prices puts
pressure on the Fed to raise
rates, page 75
The right to die Assisted dying is
Spreading, but too many are still
denied this basic freedom:
leader, page 76. Inthe West the
right to die is rapidly becoming
legal and accepted, page 62
> The digital element of your
subscription means that you
can search our archive, read
all of our daily journalism and
listen to audio versions of our
stories. Visit economist.com
13
15
16
18
18
20
24
28
The world this week
A summary of political
and business news
Leaders
Russia
Putin’s repression
The end of life
Deciding on death
Financial contagion
China’s other problem
Afghanistan
War, drought, famine
Nuclear power
Discreet charm
Letters
On economics, Balkan
bridges, Shakespeare,
mission statements,
hydrogen, Facebook,
French, Polexit
Briefing
Russian repression
Manacled in Moscow
3
Bartleby The demands on
chief executives require
them to be weird, page 67
40
42
43
44
45
45
46
47
48
50
United States
The southern border
Infrastructure year
Durham’s indictments
Necessary nuclear power
Lexington Hispanic
Republicans
The Americas
Venezuela’s autocrat...
..and Nicaragua’s
Bello Brazil’s economy
Asia
South Korean industry
Education in Bangladesh...
..and in Pakistan
Myanmar’s collaborators
Banyan The great board
game
China
State-sponsored hacking
The prison lives of Hong
Kong’s dissidents
Chaguan Why aim for
ZeTO COvid?
Middle East & Africa
Vision 2030 at five
Sex and hotels in Morocco
Iran’s weapon of choice
Rebels in Congo
Liberia’s quest for justice
»» Contents continues overleaf
S B@eleie
Europe
55 Train troubles
56 The Belarus-Poland border
57 Covid-19
57 Turkey's banana spat
58 Charlemagne A fight over
minimum wages
Britain
59 Small nuclear reactors
60 Going green, at a price
61 Bagehot Brexiteers’
paranoid triumphalism
International
62 The rapid spread of
assisted dying
Business
65 Hollywood's talent wars
66 Hot commercial property
67 Bartleby Weird bosses
68 Zero covid in China
69 General Electric breaks up
69 Strife at Volkswagen
70 The corporate metaverse
72 Schumpeter The flywheel
delusion
[ the F
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73
75
75
76
77
78
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83
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88
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The Economist November 13th 2021
Finance & economics
China’s tycoon banks
Crypto’s funding craze
America’s inflation shock
Debt-for-nature swaps
Buttonwood The appeal
of cash
Free exchange Lessons
from Zillow
Science & technology
Diagnosing dementia
Those climate goals
Plastics and pathogens
Better blackcurrants
New covid-19 treatments
Books & arts
Dirty money
Witchcraft
The cold war on the couch
An art collection opens up
Economic & financial indicators
Statistics on 42 economies
Graphic detail
Twitter's algorithm favours conservatives
Obituary
Aaron Beck, the man who revolutionised psychiatry
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The world this week Politics
As delegates haggled over the
final drafts at the UN COP26
climate-change summit in
Glasgow, America and China
issued a joint declaration to
work together to reduce
emissions. The two countries
said they were committed to
keeping the increase in Earth’s
mean surface temperature to
“well below” 2°C compared
with pre-industrial levels.
China said it would come up
with a national plan to curb
methane emissions. Time will
tell whether their statement
was diplomatic showboating
or the start of something more
substantive.
Belarus kept dumping mi-
grants at the border with Po-
land and barring them at gun-
point from retreating. It has
been luring them onto flights
from the Middle East with false
promises of easy passage to the
European Union. The migrants
cannot enter Poland, and with
winter coming, may soon
freeze. The despotic regime of
Alexander Lukashenko appar-
ently hopes to cause another
political crisis in the EU about
refugees. Poland has sent
15,000 troops to the area.
The British government
announced that National
Health Service frontline staff
in England will need to be
vaccinated against covid-19 by
April ist. The latest govern-
ment data show that10% of all
NHS employees are not fully
jabbed. This week was the
deadline for care staff to meet
the requirement; arounda
quarter of those workers have
not received their full dose.
The White House urged large
companies to press ahead with
plans to ensure their staff are
vaccinated by early January,
after a federal appeals court
temporarily suspended Joe
Biden's vaccine mandate. The
court said it had “grave
statutory and constitutional”
concerns about the order. The
government asked it to reverse
its decision.
Mr Biden was able to claima
big victory when the House of
Representatives at last passed
his $1trn infrastructure bill.
The bill had seemed in peril
when left-wing Democrats
insisted that welfare legisla-
tion should come up fora vote
at the same time.
It'll still be there
NASA pushed back its planned
mission to land astronauts on
the Moon, its first since 1972,
by at least a year, to 2025. A
lawsuit brought by Jeff Bezos’s
Blue Origin over the contract
awarded to SpaceX to build the
Moon lander was one reason
for the delay (a judge recently
dismissed the suit).
Daniel Ortega, the authoritar-
ian president of Nicaragua,
won a fourth consecutive
term. Joe Biden called the
election a “pantomime”. Over
the past six months Mr Ortega
has imprisoned some of his
potential opponents and
forced others to flee. Many
hundreds of ordinary people
who have protested against his
regime in the past remain
behind bars.
Chile’s Chamber of Deputies
approved impeachment pro-
ceedings against Sebastian
Pinera, after leaked documents
raised more questions about a
mining deal that the presi-
dent’s family signed during his
first term in 2010 (he denies
wrongdoing). But the opposi-
tion will struggle to obtain the
two-thirds majority needed to
impeach Mr Pifiera formally in
the Senate.
The Central Committee of
China’s Communist Party held
an annual meeting at which
delegates discussed a resolu-
tion on the party’s history, the
first of its kind in 40 years. It
appeared to be aimed at justi-
fying an extension of X1
Jinping’s rule beyond a party
congress in 2022.
America urged China to re-
lease Zhang Zhan, a citizen
journalist who was sentenced
to four years in prison for her
reporting on the early days of
the covid-19 pandemic in
Wuhan. The government
continued to battle a new
outbreak of the disease that
began in mid-October and has
caused hundreds of infections.
Thailand’s constitutional
court ruled that three activists
who called for reforms to the
country’s monarchy during
protests last year were guilty of
attempting to overthrow the
king. The court focused on
whether the speeches were
constitutional, so no penalty
was imposed, but the ruling
will stifle debate about the
monarchy’s role.
The Duterte dynasty
Sara Duterte, the daughter of
Rodrigo Duterte, president of
the Philippines, withdrew her
candidacy for re-election as
mayor of Davao City, kindling
speculation that she intends to
run for a national post in the
presidential election next year.
Her father will have served the
full presidential term allowed.
Mustafa al-Kadhimi, the prime
minister of Iraq, was the target
of an assassination attempt.
The attack reportedly involved
drones, one of which reached
Mr Kadhimi’s home. He was
unharmed, though six of his
guards were wounded. Suspi-
cion has fallen on Iranian-
backed militias.
Iran’s top nuclear negotiator,
Ali Bagheri-Kani, visited Euro-
pean capitals ahead of talks
with America and European
powers aimed at resurrecting
the nuclear deal that Iran
signed in 2015. Mr Bagheri-
Kani seemed to rule out any
discussion of Iran’s nuclear
activity at the talks, and said
that instead they should focus
on lifting sanctions. America,
which walked away from the
deal in 2018, disagrees.
The Economist November 13th 2021 13
=
Coronavirus data
To 6am GMT November 11th 2021
Weekly confirmed cases by area, m
3
United States | Asia
Europe | iy ve
190° 2021
Estimated global excess deaths, m
With 95% confidence interval
17.1 ies
10.6
—— = 5.1m official covid-19 deaths
Vaccine doses given per 100 people
By country-income group
Low income 7
Lower-middle 62
Upper-middle 135
High income 142
Sources: Johns Hopkins University CSSE;
Our World in Data; UN; World Bank;
The Economist’s excess-deaths model
> For our latest coverage
please visit economist.com/
coronavirus
France formally handed back
to Benin 26 precious arte-
facts, including statues anda
royal throne, that it had taken
when it colonised the west
African country in the late
19th century. Other former
colonial powers are also
under pressure to return
looted items. These include
Britain, which holds more
than 900 “Benin bronzes” that
were taken from Nigeria.
A South African court said
that Manuel Chang, Mozam-
bique’s former finance
minister, could be extradited
to America. He faces charges
there related to kickbacks
from loans that funded,
among other things, a tuna-
fishing firm.
F.W. de Klerk, the last white
president of apartheid South
Africa, died at the age of 85.
He once said that he should
not be given the honour of
ending apartheid, though Mr
de Klerk was instrumental in
laying the ground for Nelson
Mandela's release and the
subsequent transfer of power.
14
The world this week Business
After years of complaints from
investors that its sprawling
empire of businesses was
hindering profits, General
Electric decided to split into
three, independently run
companies. Its health-care
assets will be spun off in 2023;
energy and power will be
rolled into one and spun off in
2024; and aviation is to remain
the sole focus of today’s GE.
The conglomerate has been
shedding businesses for over a
decade. The decision to split
heralds the end of arguably the
world’s best-known conglom-
erate, a titan of American
business throughout the 2oth
century.
On the road
Rivian, a maker of electric
vehicles backed by Amazon,
had a successful stockmarket
debut on the Nasdaaq. Its stock
rose by 30% above the offer
price, giving ita market capi-
talisation of over $100bn, more
than either Ford or General
Motors. The company raised
around $12bn, making it the
biggest IPO in America since
Alibaba’s listing in 2014.
At the opposite end of the
motoring business, Hertz’s
share price fell by 10% on its
first day on the stockmarket
since the company emerged
from bankruptcy.
The European Union’s General
Court, the lower tribunal of the
Court of Justice, dismissed
Google’s appeal against the
€2.4bn ($2.8bn) fine that the
European Commission im-
posed on the company in 2017
for anti-competitive practices
that favoured its own compari-
son-shopping service. In the
one ray of light for Google,
which is also appealing against
two other blockbuster anti-
trust fines in Europe, the court
said that general search is not
included in its ruling.
Rolls-Royce said it had re-
ceived enough investment
from private partners to start
building small modular re-
actors, or small nuclear power
stations, in Britain. The gov-
ernment is contributing to-
wards the project as part of its
“green industrial revolution”.
Britain’s economic growth
rate slowed in the third quar-
ter, to1.3%. As in other coun-
tries, supply-chain problems
are hindering the recovery.
GDP is still 2.1% smaller than in
the final three months of 2019.
iiss =]
US petrol prices
$ per gallon
30
3.0
flees
2.0
1.5
Ae
Pe ee i SCN) 0.
Source: EIA
Oil prices climbed higher,
with Brent crude once again
over $85 a barrel. In America
the price of petrol at the pump
hit an average seven-year high
of $3.41a gallon. California
remains the most expensive
State in which to fill your car,
with petrol averaging $4.64 a
gallon, according to the Amer-
ican Automobile Association.
The price of fuel is a big factor
behind America’s surging
inflation. The annual rise in
the government’s consumer-
price index leapt to 6.2% in
October, up from 5.4% in
DEAR MR POLITICIAN,
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September, the largest jump
Since late 1990. Stubborn
inflation is putting pressure
on the Federal Reserve to bring
forward an interest-rate rise.
Government relief
Meanwhile, the pace of hiring
picked up in America, with
employers creating 531,000
jobs in October. That is closer
to the monthly average for this
year and comes after two
months of lower-than-expect-
ed jobs growth.
The board of Sydney Airport
agreed to a A$23.6bn ($17.5bn)
buy-out from a consortium of
investors. The deal comes
amid a sense in the aviation
industry that business is really
taking off following 20 months
of pandemic gloom. America
reopened its borders to most
travellers this week. Emirates,
one of the world’s biggest
airlines, reported that pas-
senger numbers were up by
319% from April ist to Septem-
ber 30th, year on year, though
it still made a net loss in the
first six months of this year.
Aftera little overa yearasa
publicly listed company,
McAfee agreed to a buy-out
from a consortium of private-
equity firms, ina deal worth
$14bn. The computing-securi-
|
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The Economist November 13th 2021
ty company is to refocus en-
tirely on the consumer market,
having sold its enterprise
business in July.
Consumers’ voracious appetite
for ordering grub from home is
feeding a wave of consolida-
tion in the sector. This week
DoorDash, America’s largest
food-delivery platform, agreed
to buy Wolt, based in Helsinki
and with operations in 23
countries, for €7bn ($8bn).
Viasat, a satellite company
based in California, is to take
over Inmarsat, a British rival
that counts the American
armed forces among its cus-
tomers, in a $7.3bn transac-
tion. The combined company
will compete in the increas-
ingly crowded space for pro-
viding satellite broadband.
Markets were once again left
scratching their heads about
the motives behind Elon
Musk’s latest stunt, when he
asked his Twitter followers
whether he should sell 10% of
his stake in Tesla to pay tax, in
a dig ata Democratic proposal
to tax unrealised capital gains.
They said yes. Tesla’s share
price swooned. Mr Musk then
Started selling stock. He had
planned to sell at least some of
his shares before seeking
advice from the Twitterati.
ite
‘Economist
Putin’s new era of repression
It will lead to more confrontation with the West
NDREI SAKHAROV, a Soviet dissident and physicist, used to
Aareue that repression at home invariably becomes instabil-
ity abroad. His own life was evidence of it. His internal exile was
lifted in 1986 by Mikhail Gorbachev, the Soviet Union’s last lead-
er, who as the architect of glasnost released political prisoners
and tolerated free speech. It was no accident that Mr Gorbachev's
rejection of repression coincided with the end of the cold war.
Today Sakharov’s thesis is being demonstrated once again—
in reverse. According to Memorial, a human-rights group, Rus-
Sia has more than twice as many political prisoners than at the
end of the Soviet era. Memorial, which Sakharov helped set up to
document Soviet abuses, has itself been branded a “foreign
agent” and attacked by state-sponsored thugs (see Briefing).
At the same time, Russia's relations with the West have also
entered a dark period. In order to justify repression at home,
President Vladimir Putin is telling his people that Western pol-
icy is designed to obliterate the Russian way of life. Mr Putin
now builds in cold-war confrontation to his dealings with the
West. Its leaders need to prepare for what comes next.
The latest phase of repression began in 2020 with the poison-
ing of Alexei Navalny, Russia’s most famous political prisoner,
and winner last month of the European Parliament’s Sakharov
prize for freedom of thought. Mr Navalny survived the attack,
only to be incarcerated and abused in Penal Col-
ony No 2, one of the country’s harshest jails.
Since then, Mr Navalny’s organisation has
been outlawed and much of his team chased
out of the country. Those who stayed are being
pursued. On November goth Lilia Chanysheva
was arrested and now faces ten years in prison
for having worked for Mr Navalny while his or-
ganisation was Still legal. The net is spreading
beyond politics. The same day, Sergei Zuev, the 67-year-old head
of the top liberal university in Russia, who is recovering from
heart treatment, was taken from house arrest to a prison cell,
perhaps to force a false confession in a fabricated case.
A third of the Russian government’s budget is spent on secu-
rity and defence. Much of this is directed inwards, at the sort of
people The Economist features this week in a documentary film
(see economist.com/russia-film): people who have had enough
of Mr Putin’s rule and the corruption of his regime. As incomes
have fallen and discontent has grown, so Russia’s many police
and security services have swollen. With 10% more staff than in
2014, they now outnumber Russia's active-duty military forces.
For Mr Putin, repression does not have a reverse gear. He will
not be able to restore the prosperity that helped buoy his ratings
during his first decade in power. True, the fortress economy that
the Kremlin has developed since 2014 can withstand sanctions,
especially when energy prices are high, as now. But Russia,
which is more like Iran than China, does not have the dynamism
to generate sustained, robust growth.
Hence the logic of confrontation. Soviet rulers waged the
cold war from atop the ideology of communism. Russia’s secu-
rocrats assert that traditional values of family, culture and histo-
ry are being corrupted by the liberal and licentious West and that
only they can defend them. Fighting back against the West lets
the Kremlin portray all those who oppose it—journalists, hu-
man-rights lawyers and activists—as foreign agents. In this way,
Mr Putin’s regime depends on anti-Western ideology for its poli-
tics just as it depends on oil and gas for its prosperity.
Dictators insist that how they treat their subjects is a ques-
tion of sovereignty. In fact, repression is everyone's business.
One reason is that human rights are universal. The other is that
violence at home spreads beyond a country’s frontiers.
Both Russia and Belarus, where the dictator Alexander Lu-
kashenko is propped up by the Kremlin, have murdered dissi-
dents abroad. Russia shot down a passenger plane and Belarus
hijacked one to arrest a local dissident. Poland and Lithuania
have sheltered the Belarusian opposition in self-exile. Backed by
the Kremlin, Mr Lukashenko is taking revenge by flying in refu-
gees from the Middle East and shunting them to its borders to
engineer a humanitarian crisis (see Europe section).
On a greater scale, Mr Putin meddles in Western elections,
peddles anti-vaccine propaganda and fights proxy wars with
America in Africa and the Middle East. He is using the promise
of extra supplies of gas to weaken ties between the European Un-
ion and countries like Ukraine and Moldova. He has once again
massed troops on the Ukrainian border and is flying nuclear-
capable bombers to Belarus.
The good news is that just as most of the So-
viet people did not believe in the advantages of
communism over capitalism, so most Russians
do not believe in the advantages of confronta-
tion. For all Mr Putin’s propaganda, two-thirds
have a positive view of the West. Nearly 80% say
Russia should see it as a partner and a friend.
This is most pronounced among the young,
who reject state violence and favour human rights instead.
Western politicians should take note of this divergence be-
tween the Kremlin and the Russian people. One response is to
harmonise sanctions and focus them on the powerful Russians
who loot the state and abuse the people. That entails Western
countries standing up to the lobbying of their own service in-
dustries, which get rich from helping Mr Putin’s cronies launder
their reputations, pursue their legal vendettas and shelter their
illicit wealth (see Books & arts section).
Think ahead
They should also start laying the foundations for a post-Putin
Russia. Nobody knows whether that will come in years or de-
cades. But it is hard to see Mr Putin’s system surviving him.
The West should therefore invest in people who share its val-
ues. It should speak out against human-rights abuses inside
Russia. The flood of Russian students, journalists and intellec-
tuals seeking a better life will increase. Western governments
should accommodate them. Latvia and Lithuania are hosting in-
dependent media outlets and dissidents. Russian students
should be welcomed to Western universities. By doing so the
West would not just be helping the victims of Mr Putin’s repres-
sion, it would also be helping itself. m
Leaders 15
16 Leaders
The Economist November 13th 2021
The end of life
A final choice
Assisted dying is spreading, but too many are still denied this basic freedom
N 1995 AUSTRALIA'S Northern Territory enacted the world’s first
law explicitly allowing assisted dying. It said that terminally
ill, mentally competent adults who wanted to die could ask a
doctor for help, using lethal drugs. The law sparked outrage.
Within months the federal government had overturned it. Yet
today five of Australia’s six states have assisted-dying laws.
The Economist first made the case for assisted dying in 2015.
We argued that freedom should include the right to choose the
manner and timing of one’s own death, while also cautioning
that the practice should be carefully monitored and regulated to
avoid abuses. Since then, it has become more widely available.
Assisted dying is now legal in one form or another in a dozen
countries, and the trend seems likely to continue. Last week
New Zealand enacted a euthanasia law for the terminally ill after
65% of voters backed it in a referendum. The same week Portu-
gal’s parliament passed a broader law. Assisted dying is still ille-
galin Britain, but the House of Lords is debating a bill to allow it.
The number of people who die this way is increasing, though
still small. In the Netherlands it rose from roughly 1,800 in 2003
to nearly 7,000 in 2020, or 4% of all deaths. As more countries
liberalise, the global total will rise further.
Many people object to assisted dying on religious grounds:
some faiths deem suicide a sin. Others worry that safeguards
will prove insufficient, or that legalisation is a
slippery slope. Critics have long predicted that
families exhausted by the demands of caring
for sick, elderly relatives will place undue pres-
sure on them to end their lives, or that cash-
strapped states will encourage the most expen-
sive terminally ill patients to hurry up and die.
Yet such horrors do not seem to have come
to pass (see International section). In places
with the longest experience of assisted dying, charities that rep-
resent the elderly or disabled have not reported any abuse. It is
conceivable that some has taken place unobserved, but scrutiny
has been intense and in most countries permission to help
someone die is revoked if there is even a hint of coercion. Fears
that the poor and marginalised might be hastened to their ends
have also proved to be unfounded. In America, the Netherlands
and Switzerland the overwhelming majority of those who
choose an assisted death are educated and middle-class.
Far from being too lax, the rules have often been too restric-
tive. The Australian state of Victoria, for example, bars doctors
from mentioning assisting dying to their patients. The aim is to
avoid coercion, but the consequence is that many sufferers do
not know that it is an option. In some jurisdictions only those
with less than six months to live are allowed help to die. Thus,
patients can be terminally ill and in intense pain, but unless a
doctor estimates that the end is very near, they cannot end their
own suffering. In some cases the diagnosis comes too late. In
Victoria in the first six months of 2021 no cases were withdrawn
because the patient decided not to proceed, but in 90 cases the
patient died before receiving relief. Some countries, such as
Spain and Colombia, have liberal laws in theory, but in practice
health authorities are reluctant to let anyone make use of them.
Last week in Spain a desperate 83-year-old threw herself out of a
window after her repeated requests for euthanasia were refused.
Canada offers a better model, because it provides more lee-
way for individuals to make their own choices. Anyone whose
suffering is unbearable can choose an assisted death. They do
not have to be terminally ill. And, uniquely, the question of what
constitutes “unbearable” suffering is for the patients them-
selves to decide, so long as they are of sound mind. There is a
cooling-off period of ten days, in case they have second
thoughts. In many cases, simply having the option of an assisted
death gives people a sense of comfort and control. In Oregon a
third of those people who receive the prescribed lethal medica-
tion ultimately choose not to take it.
Even as more societies accept the principle of assisted dying,
hard questions remain. Some people worry that its availability
may prompt health services to skimp on palliative care. But that
is not ordained. Canada’s assisted-dying bill was explicitly
linked to increased funding for palliative and long-term care.
If assisted dying becomes common, will old people who re-
quire round-the-clock care feel more social pressure to choose
death? Many already worry that they are a burden on their chil-
dren or carers. Some may feel additional guilt if continuing to
live is seen as an individual choice, rather than the blind work-
ings of fate. This is a genuine concern. But the
possibility that some may agonise over whether
to die should not trump the certainty that oth-
ers will suffer unendurable pain if their free-
dom to choose is denied.
The trickiest questions arise when an indi-
vidual’s capacity to make an informed choice is
in doubt. Some people with mental disorders
have suicidal thoughts that come and go. For
them, the bar should be very high. Doctors must be sure they can
distinguish between a temporary mental-health crisis and a sus-
tained, considered wish to die. If in doubt, they should offer
treatment aimed at helping the patient to live.
Free to choose, to the end
Dementia poses the hardest problem of all (See Science & tech-
nology section). Someone diagnosed with the condition may
make a living will, asking for an assisted death when it becomes
severe. But they may change their mind. Such a document
should never be used to kill someone against their wishes, and if
those wishes are unknowable, they should be left to live. Assist-
ed dying should be only for those who can make an informed de-
cision at the time they take the drugs.
No rules in this area are perfect. All should be subject to revi-
sion in the light of new evidence about how they work in prac-
tice, or to take account of medical advances. But the overall prin-
ciple—that individuals are entitled to choose how they end their
lives—is, we believe, a sound one. The evidence from countries
that allow assisted dying is that abuses remain largely hypo-
thetical, whereas the benefits are real and substantial. It relieves
suffering, and restores a measure of dignity to people at the end
of their lives. m
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18 Leaders
The Economist November 13th 2021
Evergrande and financial contagion
China’s other debt problem
Evergrande is not the only looming danger in the mainland’s financial system
CARES ABOUT toxic debt are an ever-present feature of China’s
S economy. The latest involves Evergrande, a troubled develop-
er that threatens to cripple the property sector. The firm also has
tentacles that reach into the darkest corners of the Chinese fi-
nancial system, wrapping around banks and shadow lenders.
Yet even as Evergrande catches the eye, another risk is emerging:
crony capitalism at smaller banks.
A government crackdown on leverage in property has pushed
Evergrande to the brink of collapse. Other large developers are
weighed down by $5trn of debts. Speculation is swirling that one
of them, Kaisa, is also struggling to make payments (it has asked
investors for “time and patience”). The turmoil may intensify as
more debts come due. According to Nomura, a
Japanese bank, the property industry must re-
pay $20bn of offshore bonds in the first quarter
of 2022, twice the level of this quarter.
Foreign investors have been quick to grasp
the risks. The yield on Chinese junk dollar-
bonds has reached a crippling 24%, shutting
most issuers out of the market. Some home-
buyers are holding off purchases, worried about
handing over deposits to weak firms. Building has stalled at ma-
ny of Evergrande’s 1,000 or more projects.
Itis unclear who is exposed to losses, and to what extent. Ma-
ny developers use shell companies, masking their debts, while
stockmarket regulators have allowed them to Keep investors in
the dark. On November 8th the Federal Reserve warned that Chi-
na’s property troubles threaten the global economy.
Losses on property loans will hurt the banking system, al-
though by how much remains to be seen. But as we explain this
week (see Finance & economics section), lenders also face an-
other danger. Crony capitalism has flourished among the coun-
try’s small and mid-tier banks. Because the biggest state-owned
—
High-yield dollar-bond spread
China, percentage points
lenders prefer to make loans to other state firms, private com-
panies and entrepreneurs have bought stakes in banks in the
hope of getting preferential access to credit.
Although the banks involved are often small they add up toa
giant problem. The Economist calculates that up to 20% of the
commercial-banking system may have close links with tycoons
or private businesses. There have already been blow-ups. In 2019
the collapse of a small lender caused a spike in interbank bor-
rowing rates; several more failures have followed. Evergrande
was until recently the owner of a captive bank in north-east Chi-
na and is said to be under investigation for some 100bn yuan
($15.7bn) in related-party deals.
For Xi Jinping, China’s leader, state control is
the answer to both the property and banking
threats. To keep building sites ticking over, lo-
cal governments are taking control of some un-
finished projects. At smaller banks many cor-
porate shareholders are being forced out and re-
placed by local-government asset managers.
This reveals the limitations of Mr Xi’s eco-
nomic philosophy. The expanding reach of
state control may prevent a full-blown panic, because it shows
that almost all banks are underwritten by the government. But it
fails to acknowledge an important truth about the economy.
Many of the distortions that plague China’s markets were
created by rigid state control. In plenty of private firms, insider
dealing with lenders has been a way to cope with a state-domin-
ated banking system that discriminates against them. Mr Xi may
succeed in averting a sudden bad-debt crisis by reasserting state
authority. But his reluctance to be bound by rules, treat state and
private firms equally, and offer predictability to investors will
ensure that the financial system is doomed to suffer yet more
dangerous distortions in the future.
Afghanistan
War, drought, famine
The world must act now to stop Afghans starving
N NOVEMBER 8TH the World Food Programme (WFP), a UN
O) seency, said that its estimate of people “teetering on the
edge of famine” worldwide had risen from 42m earlier this year
to 45m. Remarkably, just one country accounts for almost all
those 3m additional people. Afghanistan is on the brink of a
humanitarian catastrophe.
Some 23m Afghans, ina country of 38m, face acute hunger. Of
those, 8.7m are in a state of emergency, the second-highest cat-
egory in the WFP’s hierarchy of calamity. The classification man-
ual explains that by the time the agency declares a famine, the
highest category, it will be too late to avert the worst con-
sequences “because many will have died”.
Many are dying already. More than 3m children are malnour-
ished. Locals report cases of entire families starving to death in
their homes. Hospital wards are taking in emaciated children,
including 11-year-olds who weigh just 13kg. Poor Afghans are
selling their remaining possessions for food. Some are selling
their daughters. The misery is as bad in the cities as it is in the
countryside. As the winter sets in, the agony will only deepen.
Afghanistan’s condition was fragile even before the fall of the
capital, Kabul, in August. Long periods of below-average rainfall
and above-average temperatures have led to poor harvests and
high prices. After decades of warfare, around 4m Afghans are
refugees in their own country, with little means of support.
The Taliban takeover has made everything worse. Foreign
aid, which funded three-quarters of government spending, has >»
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20 Leaders
» dried up. The country’s foreign reserves of some $9bn have been
frozen. Half a million soldiers and police have lost their jobs,
and civil servants have gone unpaid for months. Half the coun-
try was living on less than $1.90 a day before the Taliban came to
power. By next summer, reckons the UN, all but 3% of Afghans
will be in the same position.
In September the UN held a “flash appeal” seeking over
$600m from donors, and received pledges of $1bn. But just a
third of it has arrived. The European Union promised €ibn
($1.15bn) in October. Yet €300m of that had already been commit-
ted, and much of the remainder will go to Afghanistan’s neigh-
bours. The wFP reckons it may need as much as $220m a month
to avert a crisis over the lean winter months.
Even if the money arrives, it is at best a sticking plaster. “No
humanitarian organisation can...replace the economy of a
country,’ says Robert Mardini of the Red Cross. The economy is
atrophying. The flow of dollars into Afghanistan has been
stanched, the value of the domestic currency has plummeted
and the banking system has ground to a halt. The IMF reckons
formal businesses will shrink by 30% in the next few months.
The Economist November 13th 2021
Nonetheless, if aid were to resume and reserves were unfrozen,
the pain would ease.
The trouble is that this would hand billions of dollars to the
Taliban, yet to be recognised by any country as legitimate rulers
of Afghanistan. The cabinet includes figures such as Sirajuddin
Haqqani, whom the West considers a terrorist. America is ada-
mant that the group must form a government that represents all
Afghans and guarantee rights for women, girls and minorities.
Those are worthy aims. Yet withholding life-saving aid is rep-
rehensible in almost any circumstances. It makes even less
sense given that the Taliban show no signs of bowing to pres-
sure. The West’s demands for basic freedoms for Afghans are en-
tirely justified, but allowing many of the intended beneficiaries
to starve to death is not a good way to fulfil them.
There is no choice but to work with the Taliban, as distasteful
as that is. That need not mean becoming chummy or support-
ive—just realistic. The Taliban’s takeover is already terrible for
Afghans. For the West to punish them further by leaving them to
starve would be as cruel as anything the zealots with guns are
likely todo. m
Energy
The discreet charm of nuclear power
It makes fighting climate change a lot easier
N THE NEGOTIATIONS which led up to the Rio Earth Summit in
Lioo2, Saudi Arabia spent a great deal of time attempting to in-
sert the term “environmentally safe and sound” in front of refer-
ences to “energy sources” and “energy supplies”. Given that the
oil Saudi Arabia exports in greater quantities than any other
country is now understood to be anything but environmentally
safe, this seems bizarre. At the time, though, the aim was obvi-
ous to all concerned: the phrase was a way to keep nuclear power
off the Rio agenda.
The oil shocks of the 1970s had led to many countries increas-
ing their nuclear efforts. In the ten years to 1992 the amount of
nuclear energy consumed worldwide had increased by 130%.
What was more, some talked of using nuclear
plants to produce not just electricity, but also
hydrogen which could then form the basis of
synthetic fuels. The Saudis may or may not have
had real concerns about the environment. But
they knew a competitor when they saw one.
Their scheming proved unnecessary. In con-
trast to the oil shocks, the threat of global
warming has not served the nuclear cause well.
After peaking in 2006, the amount of nuclear energy consumed
in 2019 was just 18% higher than it had been 1n1992. Asa share of
global primary energy, it had fallen from 6.1% to 4.3%.
Because nuclear power is expensive in ways that show up in
profits, whereas damage to the climate is not priced into burn-
ing fossil fuels, this would be unsurprising even if it were popu-
lar with environmentalists—which, by and large, it is not. But it
is still too bad. The paradigm-shifting drop in the cost of renew-
able electricity in the past decade is central to the decarbonisa-
tion pathway the world is fitfully following. But a clean-energy
system requires redundancy and reliability in its electricity
grids that are hard to achieve with renewables alone. It will prob-
ably also require lots of hydrogen for, say, powering aircraft and
making steel and chemicals, which reactors could provide.
Nuclear power has its drawbacks, as do all energy sources.
But when well-regulated it is reliable and, despite its reputation,
extremely safe. That is why it is foolish to close down perfectly
good nuclear power stations such as Diablo Canyon, in Califor-
nia, because of little more than prejudice (see United States sec-
tion). Itis why some countries, most notably China, are building
out their nuclear fleets. It helps explain why others—including,
as it happens, Saudi Arabia—are getting into the game for the
first time. And it is why approaches to reducing nuclear energy’s
cost penalty are at last coming into their own.
France, which has found its newest genera-
tion of huge reactors impossible to build on
time and within budget, and consequently also
hard to export, has new plans for small, modu-
lar reactors (SMRs) that might do better on both
counts. Rolls-Royce, a British engineering com-
pany, is touting a similar approach (see Britain
section). On November 4th an American com-
pany, NuScale, signed a deal to sell six such
reactors to Romania at the CoP26 in Glasgow. Russia already has
a floating SMR power Station.
Such designs can in principle be produced in factories and
shipped where they are required, keeping their costs down.
These advantages have been extolled for decades without being
realised, so caution is in order. But today’s efforts are broader-
based and have real impetus. They need regulatory approaches
which, while not lax, permit their makers to learn as they build.
That will allow competing designs to prove themselves against
each other, making nuclear power, once again, a source of
innovation—and adding to the world’s capacity to ditch unsafe
and unsound fossil energy. @
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24
Letters
Data hoarding
You have a rosy view of the use
of timely, high frequency data
in economics, which you
describe as a “third wave” in
the discipline (“The real-time
revolution”, October 23rd).
However, there is a big down-
side. Not everyone has equal
access to these figures, espe-
cially to data collected by the
private sector. This unequal
access will widen the divide
between the “haves” and the
“have nots”. Democracies
cannot work properly if citi-
zens do not have an opportuni-
ty to access the economic
information that is necessary
to make good economic and
voting decisions. Basing policy
on summary Statistics from
inaccessible micro data with
many possible flaws will only
lead to more distrust.
RALPH BRADLEY
Former division chief
Price and Index Number
Research
Bureau of Labour Statistics
Washington, DC
The connection you made
between the value of real-time
information and Salvador
Allende’s Project Cybersyn isa
reminder of a lost opportunity.
One of Allende’s principal
advisers when he was presi-
dent of Chile was Stafford Beer,
a visionary cyberneticist, then
at Manchester Business
School, who came up with the
pioneering viable system
model. Some of us were not
entirely sure about Stafford’s
connection with reality, but
that was our mistake. Had
Allende lived on we might now
be much further ahead in this
burgeoning field of analysis
and administration. Still,
better late than never.
TONY ECCLES
London
Structural differences
Ursula von der Leyen may have
been a bit optimistic when she
hailed the opening of the Svilaj
bridge between Croatia and
Bosnia-Herzegovina (“Bigger is
still better’, October 9th).
Bridges in the Balkans have
unfortunate connotations. The |
Peljesac bridge is lauded by its
supporters for unifying Croa-
tia but denigrated by its detrac-
tors for bypassing Bosnia. The
Mitrovica bridge in northern
Kosovo exists either as a
tenuous link between Serbs
and Albanians or as an insu-
perable barrier, depending on
your perspective. The Mostar
bridge was blown up in fight-
ing between the Croats and the
Bosniaks, who had been allies
in the early stages of the
Yugoslav civil war.
Before the European Union
can even consider enlarge-
ment, it needs to deal with
these and other festering
sores, such as the disputed
waters between Slovenia, Italy
and Croatia. These may seem
minor issues, but they matter
hugely to those who live there.
RICHARD SCOTT
Exeter
——————_
Shakespearean phraseology
Echoing Hamlet, you said that
vaccine mandates in poor
countries are often “honoured
in the breach”, suggesting that
the edicts are not complied
with (“Strictly come jabbing”,
October 23rd). Shakespeare's
phrase has a more nuanced
meaning. In the passage where
Hamlet says that the Danish
custom of boozy revelry is
“More honour’d in the breach
than the observance’, he
means that it is more honour-
able to ignore the custom of
drunken carousing than to
follow it. So Shakespeare is
referring to a practice that is
best ignored than followed,
not merely one that is often
ignored.
JOHN DOHERTY
Stratford-upon-Avon
Dig deeper
After eight years in the Amer-
ican army followed by 20 years
in business, I could not agree
more with Bartleby's scepti-
cism about applying military
mission values to business
(October 30th). Shifting un-
certainties and testosterone-
infused competition are com-
mon to both worlds, but not
much else. Over time I have
found gardening and cooking
metaphors to be more useful
for business than fighting and
sporting ones.
RAY MORIN
Frankfurt
Thinking of corporate mission
statements reminded me of
Charles Mackay’s account of
the South Sea Bubble in
“Extraordinary Popular Delu-
sions and the Madness of
Crowds”, published in 1841. At
one point in the frenzy Mackay
mentions a bubble company
with the mission statement of
“Carrying on an undertaking of
great advantage, but nobody to
know what it is”.
AURELIO ORTIZ CAMACHO
La Paz, Mexico
Financing for hydrogen
Uncertainty about future
carbon prices can slow private
investment in hydrogen (“A
very big balancing act”, Octo-
ber 9th). The German govern-
ment has proposed carbon
contracts for difference
(CCFDs) to mitigate the pro-
blem. Under these contracts
the government and acompa-
ny seta price at which its zero
carbon hydrogen technology
would be competitive. Until
the agreed carbon price is
reached, the government pays
the price difference to the
company. Once the price is
exceeded, the payment direc-
tion is reversed.
CCFDs have three benefits.
Carbon prices become predict-
able for the length of the con-
tract. Subsidised technology
can compete with carbon-
emitting incumbents. And
should carbon prices rise
above the set price during the
contract period, the govern-
ment subsidies could be reco-
vered and the necessity for the
contract vanishes.
TIMOTHEE HORNEK
Tuttlingen, Germany
Facebook fury
Your observations about the
incoherence of Facebook's
many critics were helpful as
far as they went (“Facepalm’,
October 9th). But the most
vexing question is why, after
years of frustrated policymak-
The Economist November 13th 2021
ers calling for more regulation,
and as many years of Facebook
inviting them to dish it up,
have lawmakers and regulators
produced so little other than
noise? Maybe their inaction
betrays an implicit recognition
that the same human failings
that are distorted and ampli-
fied on Facebook are already
legislated for, and that the
social network's worst trans-
gression is that it is as
unflattering but depressingly
accurate as any hi-def selfie.
GREGORY FRANCIS
Managing director
Access Partnership
London
The true romance language
As an adult, I tried to learn the
French language (Johnson,
October 16th). Our teacher, a
native French speaker, told us
beginners to make over-exag-
gerated facial gestures in order
to produce sounds common in
the French language. Her
reasoning was that we were
trying to pronounce French
with an English mouth, and we
needed to retrain our mouth to
move correctly to produce the
right sound.
If we were ever in doubt on
how to pronounce something,
She had a standing rule: “When
speaking French, you must
always position your lips, so
that if required, they are
always in position to givea
kiss on a moments notice.”
JIM MILLER
Minneapolis
A Polish Brexit?
Discussing Poland's latest row
with the Eu, Charlemagne
used the term “Polexit” to
describe a potential outcome
of the stand-off (October 16th).
Polexit sounds clunky and
doesn't roll off the tongue.
Might I suggest “Pout” instead?
BENJAMIN TENNENBAUM
Chicago
Letters are welcome and should be
addressed to the Editor at
The Economist, The Adelphi Building,
1-11 John Adam Street, London wc2N 6HT
Email: letters@economist.com
More letters are available at:
Economist.com/letters
Executive focus
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Executive focus 27
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For detailed information, visit our website
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application through the IFAD online system
by 2 December 2021.
28
Manacled in Moscow
MOSCOW
Vladimir Putin has shifted from autocracy to dictatorship
N OCTOBER 14TH Twins Garden, in
Moscow, was among the first Russian
restaurants ever to be recognised with Mi-
chelin stars. In celebration it treated guests
from the beau monde to magnums of Boll-
inger alongside its signature “sea urchins
with citrus and shiso leaves” and innova-
tive “3D-printed bean ‘squid’ with aspara-
gus and black caviar”. From its rooftop ter-
race overlooking Pushkin Square guests
could marvel at Moscow's beautifully lit
Skyline. Below them pedestrians strolled
along recently repaved streets lined with
cafés and boutique shops, or rushed to
catch the new production of “Tosca” at the
Bolshoi. Delivery bikes sped back and forth
attending to the needs of those staying at
home—or stuck in their offices.
The diners might also have made out,
less than a kilometre away, the building
housing Memorial, Russia’s oldest human-
rights organisation, which was at the time
being stormed by masked thugs. Dozens of
them, accompanied by state Tv crews,
crashed into a screening of “Mr Jones”, a
film by Agnieszka Holland, a Polish direc-
tor, about the famine Stalin inflicted on
Ukraine in the early 1930s. The thugs
jumped onto the stage and pumped their
fists in the air, shouting “shame’, “fascists”
and something about Goebbels. When the
police arrived, they used a pair of hand-
cuffs to lock the building’s doors closed,
sealing the staff inside until the small
hours of the morning.
In 1987, when Memorial was set up to
document Stalinist repressions, the state
was holding about 200 prisoners of con-
Science. Today, according to Memorial’s
count, Russia has at least 410 political pris-
oners. On the day the Michelin stars were
awarded, Vyacheslav Egorov, an activist in-
volved in protests against a landfill siteina
historic town near Moscow, was sentenced
to 15 months in prison. A few days earlier,
Sergei Zuev, the rector of the Moscow
A 15-minute film, “How Putin is silencing his
opponents’, is available to readers at
economist.com/russia-film. A longer
version, Fearless: The Women Fighting
Putin’, a co-production of The Economist
and Hardcash Productions for ITv, is
available to readers in Britain at itv.com
School of Social and Economic Sciences
(known as Shaninka), one of the country’s
leading independent universities, was tak-
en to a prison cell from his hospital bed;
the university faces closure. After being re-
leased and undergoing cardiac treatment
he was jailed again on November oth.
On October 27th Gleb Maryasov, a liber-
tarian activist, was sent to a penal colony
for ten months for blocking roads during a
protest in January. On October 29th, the
day on which the victims of Stalin’s repres-
sion are commemorated, four Crimean Ta-
tars were sentenced to 12-17 years in jail.
Hardly a day goes by without someone be-
ing fined, sent to jail, officially deemed
“undesirable” or declared a “foreign agent”,
as Memorial has been—a_ distinction
which requires targeted organisations and
individuals to preface every public utter-
ance, in capital letters, with these exact
words in Russian:
THIS MESSAGE (MATERIAL) IS CREATED
AND/OR DISSEMINATED BY A FOREIGN
MASS MEDIA PERFORMING THE FUNC-
TIONS OF A FOREIGN AGENT AND (OR) RUS-
SIAN LEGAL ENTITY PERFORMING THE
FUNCTION OF FOREIGN AGENT.
The increasing number of political pris-
oners—there are eight times as many as
there were six years ago, according to Me-
morial—is not a return to Soviet form, as
the high life which surrounds the repres-
sion bears witness. But the people of
late-1930s Berlin would find the mixture of
the two quite familiar.
The Economist November 13th 2021
Echoes of that era are also to be found in
Russia's Official rhetoric of ressentiment
and imperial nationalism. They can be re-
cognised in media images of the male body
beautiful, encouraging healthy living, and
in laws against homosexual propaganda.
They were voiced in a recent speech by
Vladimir Putin, Russia’s president, extol-
ling the country’s “spiritual values and his-
torical traditions” and denouncing the de-
cadence of Western liberalism. Mr Putin
took the opportunity to praise Ivan Ilyin, a
philosopher who in the 1920s embraced
Italian fascism as a model for Russia.
Sitting pretty
For much of his rule, Mr Putin was more
readily associated with kleptocracy, fakery
and cynicism than with a coherent ideolo-
gy which inserted the state deep into
everyday life. During his first decade in
power, the 2000s, economic growth—
much of it to the benefit of his friends and
former KGB colleagues, but significant
amounts enjoyed more broadly—provided
more or less all the support his regime
needed. In his second decade, when
growth faded and protests broke out in
large cities, nationalist propaganda and
anti-Americanism became more preva-
lent. The annexation of Crimea in 2014 and
the war in Ukraine kept people enter-
tained, excited and on-side. There was re-
pression, but Russia’s ruling elite was
more interested in wealth than violence.
Literary-minded Russians could take com-
fort in lines from “Letters to a Roman
Friend” a poem by Joseph Brodsky: “You
are Saying procurators are all looters, But
I'd rather choose a looter than a slayer.”
Mr Putin’s regime is now rendering that
distinction moot. As Alexei Navalny, an op-
position leader poisoned in August 2020
and jailed this year, recently wrote from his
prison cell: “An official taking a bribe anda
policeman pulling a bag over the head ofa
prisoner tied to a chair are one and the
Same person. His law is the superiority of
the strong over the weak. The superiority
of the interests of a corporation over the
rights of an individual. The willingness to
commit crimes as an act of loyalty.”
Grigory Okhotin of ovp-Info, a media
and human-rights organisation that moni-
tors political repression and provides legal
help to its victims, notes a shift in the gov-
ernment’s tactics. Once it wanted to con-
tain, and by doing so deter, political
threats. Now it wants to eliminate them.
Political power has shifted from civilian
technocrats to militarised and often uni-
formed “securocrats” happier with vio-
lence. The regime has moved from being a
consensual autocracy supported by co-op-
tion and propaganda to a dictatorship rest-
ing on repression and fear.
This aspect of Mr Putin’s power has
deep roots. In 2015 it claimed the life of Bo-
ris Nemtsov, a liberal opposition politi-
cian. Having warned of the lethal danger of
Mr Putin’s corruption he was subjected toa
hate campaign before being shot dead ona
bridge next to the Kremlin. But since the
summer of 2020 it has been applied more
widely. According to a poll by the Levada
Centre, also a “foreign agent”, the fear of re-
pression, now shared by 52% of Russia’s
population, and of state violence (58%), are
at all-time historic peaks, trumping the
fear of losing a job, falling into poverty or
being struck by natural disaster.
Politics has been banned. Mr Navalny’s
organisation has been crushed and de-
clared “extremist”. His entire team has
been forced out of the country; their re-
maining relatives are harassed and perse-
cuted. The father of Ivan Zhdanov, one of
Mr Navalny's right-hand men, was put on
trial in October. On November gth Liliya
Chanysheva, a 39-year-old politician who
ran one of Mr Navalny’s regional offices,
was arrested on a retroactively applied
charge of “extremism”. She could face ten
years in jail.
Open Russia, a pro-democracy organi-
sation funded by Mikhail Khodorkovsky, a
former billionaire once jailed and since ex-
iled, has been declared “undesirable” and
forced to close. Its former boss, Andrei Pi-
vovarov, is facing six years in jail for Face-
book posts. Thousands are denied the right
to stand for election because of real or
imagined association with Mr Navalny—as
are 9m people (8% of the electorate) with
previous criminal records or dual citizen-
ship, according to Golos, an election-mon-
itoring outfit that is also a “foreign agent”.
One example is Violetta Grudina, who
once worked for Mr Navalny in Murmansk,
an Arctic port, and who is profiled ina film
produced by The Economist and Hardcash
Productions (see economist.com/russia-
film). After Mr Navalny’s organisation was
banned, she decided to stand as an inde-
pendent candidate in local elections. Her
office was vandalised, she was forced intoa
covid hospital, and then disqualified for
being part of an “extremist organisation”.
SS
The grapevines
Russia, news consumption by source
% responding
50
Newspapers, radio, = 30
pat : Social media & Telegram,
| 20
10
Friends, family, neighbours 0
2015 IA ise 16 I ie 19
Sources: Levada Centre; Rogov, “The Year
of Navalny”, Liberal Mission
JAS) 72)
Briefing Russian repression
=
Losing that loving feeling
Russia, trust in Vladimir Putin by age group, %
® 2015 average ® January 2020 to May 2021, average
0 20 40 60 80
All ages o_#
18-24 oe ___#4
25-39 o—"—"_*__—_"" 8
40-54 o—_“¢
Das os
Sources: Levada Centre; Rogov, “The Year
of Navalny”, Liberal Mission
The crackdown has not been as harsh as
some before it. The regime has not used le-
thal force—at least not in its own name.
Many have been allowed—indeed encour-
aged—to leave the country. This is nota liqg-
uidation, nor is ita tyranny built on a cult
of personality. Rather it is something cob-
bled together to retain power in the face of
falling popularity and eroded legitimacy. It
is Similar in kind, if not yet in resistance
and violence, to that of Alexander Lukash-
enko in neighbouring Belarus. It does not
thrive on mass mobilisation and hysteria.
Its aim is to suppress crowds not excite
them. It neither inspires nor requires en-
thusiasm in the masses.
Maybe this time
Just as well. Mr Putin’s access to the masses
is not the easy matter it once was. He was
brought to power by television, which then
helped him consolidate his control. The
public was dependent on the medium that
he monopolised. Anything that was not
televised did not exist, which was bad
news for opposition figures. And that
which did not exist could still, when nec-
essary, be televised—as in the case of Uk-
rainian “fascists” in Crimea.
The rise of the smartphone changed all
that. By 2018, 80% of the population was
using the internet and 82% of 18- to 44-
year-olds were watching YouTube. Accord-
ing to a recent report by Liberal Mission, a
think-tank, the share of Tv, radio and
newspapers in overall media consumption
has shrunk from 70% to 45% since the
mid-2010s, while online sources’ share has
grown from 18% to 45% (see chart1).
In the same period, trust in Mr Putin
has fallen from 60% to 30%. In the 2000s
members of the younger generation were
among Mr Putin’s most loyal supporters.
That has now been reversed (see chart 2),
and not just because of internet access. The
young feel more disgust at corruption,
which deprives them of prospects, and
have a more positive view of Europe and
America. They resent the state’s increasing
intrusions into their lives and they value
human rights. But the internet has un-
29
doubtedly helped cement those feelings b>
30. ~=6Briefing Russian repression
» and bring together those who feel that way.
One way of looking at the change is by
comparing the three waves of protest in
2011-12, 2017 and 2019. The protests of 2011-
12, the largest up to that time, were a re-
sponse to elections seen as rigged and to
the return of Mr Putin, who had previously
switched from president to prime minis-
ter, to his previous office. They were politi-
cal protests spurred by political events.
The next protests of comparable size, in
2017, were triggered by a YouTube video. An
account of the corruption of Dmitry Med-
vedev, Russia’s prime minister at the time,
put together by Mr Navalny, was seen by
4.5% of Russians within a couple of weeks,
his supporters say, and its claims were
heard by three times as many. Mr Medve-
dev’s approval rating fell by ten percentage
points. Encouraged, Mr Navalny called on
people to take to the streets, and they did.
In the Liberal Mission report, Kirill Ro-
gov, a political analyst, argues that “The
biggest threat to the regime is not the prot-
est itself, but the reaction of society.’ On
that basis the 2019 protests were the water-
Shed. Barred from standing himself, Mr
Navalny nominated allies to run in Mos-
cow’s local elections. When the Kremlin
blocked them, people took to the streets
and violence ensued. After the 2017 prot-
ests, 40% of the public had sided with the
police and only 27% with the protesters. In
2019, 41% sympathised with the protesters
and condemned the police violence. The
Kremlin lost nearly half of its seats on the
city council. The protesters had, for the
first time, garnered real support.
That did not mean they were winning.
Though Mr Navalny had support in Mos-
cow and some other places, only 20% of
Russians approved of him. But 80% now
knew who he was. One of the key assets of
any autocracy—the apparent absence of
any alternative—had been lost. The Rus-
Sian elite started to talk about succession.
So Mr Putin changed the constitution to let
himself stay in power indefinitely and re-
inforced that change with repression.
It has been largely a pre-emptive strat-
egy. Many Russians believe Mr Navalny’s
videos showing the extent of the regime’s
corruption and think him brave, but few
are committed to doing anything about the
situation. That is how Mr Putin wants to
keep it. The difference in the treatment of
those arrested during the protests of 2019
and those arrested in protests at the time of
Mr Navalny’s return in January is revealing.
In 2019, the vast majority were quickly re-
leased with a fine, whereas in 2020 roughly
half of the 1,000 arrested were held for up
to two weeks. More than 130 criminal cases
have been launched in the aftermath, ac-
cording to ovD-Info.
Facial-recognition technology also al-
lowed the police to make arrests weeks or
even months after the main protests—a de-
layed response that adds to the anxieties of
all who participated. Mr Okhotin of OvD-
Info argues that such anxiety has become
an important instrument of oppression in
itself. So has the cynicism of jailing protes-
ters during the pandemic for “violating
epidemiological restrictions”, in a country
where 80,000 people can be gathered into
Moscow's Luzhniki stadium to cheer Mr
Putin. If Mr Navalny tried to inspire a sense
of agency, the Kremlin wanted to plunge
them back into a state of helplessness.
In 2019 Mr Putin signed a “sovereign in-
ternet” law which forced internet provid-
ers to install special equipment that allows
the state to block, filter and slow down
websites. Gregory Asmolov, an expert on
the internet at King’s College London, says
the goal is not to build a Chinese-style fire-
wall but to influence people’s choices. If
people don’t know what they are missing,
they will not look for it.
The Kremlin has cracked down on “in-
fluencers” and independent media outlets
that feed interest in politics, while herding
web users towards local social-media net-
works—which happily share information
with the security services—and video-
hosting platforms that are easy to control.
International services are harried with
fines and hobbled with slow download and
upload speeds, making video sharing al-
most impossible. Most Russian opposition
figures believe that within two years You-
Tube will not be available in Russia.
Tomorrow belongs to me
For now the Kremlin seems to have suc-
ceeded in applying enough repression, and
thus generating enough fear of worse to
come, to accomplish its needs. But the
screw continues to be turned. For one
thing, the repression is not limited to
achieving the Kremlin’s political aims;
those close to Mr Putin are able to use this
machinery for their own ends. Mr Zuev’s
persecution, for example, appears to be to
some extent collateral damage in a fight
The Economist November 13th 2021
between a detained former vice-president
of Sberbank, Russia’s largest state bank,
and Arkady Rotenberg, one of Mr Putin’s
closest business associates.
And Russia’s securocrats are not going
to pack their bags and go home when they
control a significant and growing chunk of
public expenditure. More than 10% of the
national budget is spent on internal secu-
rity. There area third more police and secu-
rity staff than active-duty soldiers.
Mariya Omelicheva of the National War
College in Washington, Dc, points to an-
other self-perpetuating dynamic: she calls
ita “repression trap”. Expanding the role of
the security services amplifies the Krem-
lin’s perception of threat at home and
abroad, justifying more repression. As
long as the regime relies on the demonisa-
tion of foreigners—and “foreign agents’ —
this trap looks set to keep tightening.
So repression worsens even as resis-
tance is held at bay. Protesters know that
the people understand the regime's cor-
ruption. According to a Levada survey, 55%
found the picture of Mr Putin’s ostenta-
tious wealth and corruption that Mr Naval-
ny posted to YouTube on his return in Jan-
uary convincing. But they also understand
that this in itself will not change things, at
least not quickly. Only 17% said that the
video changed their opinion of Mr Putin
for the worse. And increased comforts pro-
vide a palliative for some.
On the eve of the last large protest in
April, in a candle-lit Moscow café, mem-
bers of the liberal intelligentsia sat hud-
dled around small tables, bracing them-
selves for arrest at a protest the following
day. Tatiana Gnedovskaya, an art expert,
sang for them. Her normal repertoire is
Russian and romantic. On that evening,
though, she ended her set instead with
night-club songs from 1930s Germany. No
one needed to ask why. “We, too, have a
sense of dark times coming” she said later,
“but we continue to live and enjoy our lives
while we can.” @
Of walls and wobbles
SASABE, ARIZONA
Why the tumult on America’s southern border is becoming harder to handle
TT" SITE has an air of abandonment, like
a half-finished apartment building
whose developer ran out of money. Thirty-
foot (nine-metre) steel rods rise from the
desert sand. The area has been electrified
and prepared for floodlights, but only half
a dozen have been installed, so most of the
structure is bathed in darkness at night.
Thanks to Donald Trump the border wall,
of which this is part, has become a charged
symbol of nativism and exclusion. But the
design of this stretch, with slats spaced
four inches apart to let people see through,
is Similar to the 128 miles of wall built dur-
ing Barack Obama's presidency, just taller.
It was built hastily during the final months
of Mr Trump’s term. Strewn nearby are
steel piles of the old, shorter wall, which
have yet to be hauled away.
President Joe Biden, who has not visited
the southern border since 2008, put a halt
to all wall-construction on his first day in
office. The wall here ends abruptly, in the
middle of a mountain peak. Close by are
several long gaps, where floodgates were
planned to allow water to flow through
during heavy rains. Time ran out, and they
were never added. Instead, a few low boul-
ders and a thin string of wire serve as hur-
dles. Atone break, a dozen water bottles are
littered on the sandy ground, a sign of mi-
grants’ passage. “See, this is concerning for
us,’ Says Jesus Vasavilbaso, who works for
Customs and Border Patrol (CBP). The near-
est city is 45 miles away, a four-day walk
through desert and mountains, he ex-
plains. Being out of water bodes ill for the
migrants’ prospects of survival.
Large construction trucks are still
parked nearby, as if awaiting direction.
Chris Magnus, the police chief in Tucson
34 Infrastructure year
| 36 John Durham's indictments
36 Necessary nuclear power
38 Lexington: Hispanic Republicans
nominated by Mr Biden to run CBP, has ex-
pressed tentative openness to completing
“barriers, walls, other things”. Mr Vasavil-
baso is hopeful that Mr Magnus could at
least persuade the president to finish the
gaps in the Tucson area.
Today the gap-riddled wall represents
not only Mr Biden’s predecessor but also
Mr Biden, who seems to know what he
does not want—any more wall—but has yet
to come up with a plan that is both “fair
and humane”, which is what he promised
on the campaign trail. The result is frustra-
tion from immigration advocates and peo-
ple living close to the southern border, as
well as a political headache. In the mid-
term elections next year Republicans will
accuse Democrats of presiding over chaos
at the border. Democrats do not yet have an
answer to this, in part because they do not
realise the criticism has some truth.
The number of illegal border-crossers is
the highest for 21 years. The number of “en-
counters” in the 2021 fiscal year (which
ended in September) was the highest on re-
cord. (“Encounters” and the number of
border-crossers are different, since one
person may attempt several crossings.)
The perception that Mr Biden is less hostile
to migrants than Mr Trump was one factor
in the rise, but not the only one. Covid-19
has hit economies to America’s south, add-
ing to the poverty, violence, natural disas-
ters and autocracy which many people are
eager to escape. AS more migrants arrive at |
32 United States The Economist November 13th 2021
» the border it becomes harder to manage =z try to cross the border. In January this year
them ina consistent way.
Until recently it was overwhelmingly
Mexicans and people from the Northern
Triangle—El Salvador, Guatemala and
Honduras—who showed up at America’s
southern border. But in March arrivals
from elsewhere began to spike (see chart).
Brazilians, Ecuadoreans, Cubans, Haitians,
Nicaraguans and Venezuelans are arriving
in large numbers. In the 2021 fiscal year
47,000 Haitians arrived at the southern
border, 23 times more than in 2019.
“The biggest story of 2021 is not the
numbers but the diversity of origins of
people,’ says Andrew Selee, president of
Migration Policy Institute, a think-tank.
Word has spread widely that people should
try their luck. Some 4,000 Russians were
encountered at the southern border by CBP
this fiscal year, compared with 21 in 2019.
The variety of nationalities makes the
border even harder to manage, says Mr Se-
lee. AMerica can return people to Mexico
swiftly, but it is more complicated to re-
turn Haitians, Cubans and Venezuelans. In
addition, around 28% of those encoun-
tered by cBP in fiscal 2021 were family un-
its. AS more families with children arrive,
operations on the border are getting harder
to manage, at a time when tolerance for
long holding periods and detention space
are in short supply. Unaccompanied chil-
dren are universally being allowed into
America, SO some parents are making the
difficult decision to send them ahead
alone, stretching the ability of American
facilities to process them.
Mr Biden’s administration is therefore
under renewed pressure to show it can
control immigration. Yet like the adminis-
tration he served in as vice-president, he
also faces pressure from immigration ad-
vocates, who question how different Mr Bi-
den’s policies are from Mr Trump's. The Bi-
den administration has continued to rely
on a public-health rule called “Title 42”,
which was first adopted by Mr Trump in
March 2020. This enables America to
quickly expel most migrants—even those
trying to seek asylum—to Mexico or their
home countries on public-health grounds.
They are not formally processed or charged
for illegal entry, which makes the process
much faster. It also explains why border-
crossers are making repeated attempts if
they are apprehended the first time.
Immigrant advocates recently staged a
walk-out during their virtual meeting with
White House officials on border policy,
due to their frustration with the continued
use of Title 42 and the reimposition of the
“Migrant Protection Protocols” (MPP) pro-
gramme, Says Gia Del Pino of the Kino Bor-
der Initiative, a non-profit. Mr Biden tried
to end MPP, which was designed by Mr
Trump as a deterrent and keeps asylum-
seekers in squalid refugee camps in Mexi-
The unusual suspects
United States, migrant apprehensions
at the south-western border, ‘(000
Excludes Mexico, El Salvador, Guatemala and Honduras
80
60
OF UIN SDE SM AM Aes
Fiscal years ending September
Source: US Customs and Border Protection
co while their asylum claims are pro-
cessed. However, a court order recently re-
quired it to be reinstated. “There is very lit-
tle practical difference between Trump and
Biden at the border,” says Lee Gelernt of the
American Civil Liberties Union, which is
suing the Biden administration to end Title
42 for asylum-seeking families.
Lifting Title 42 would make it harder to
deport people who cross the border illegal-
ly. But itis hard to justify keeping it on pub-
lic-health grounds. On November 8th
America reopened its borders to foreign,
vaccinated travellers. “Someone can come
to the border and say, ‘I’m here, I’m Mexi-
can, I’m vaccinated, and I’m here to go
shopping at Walmart’ and they'll be able to
come in,’ says Aaron Reichlin-Melnick of
the American Immigration Council, a
think-tank. “But someone can show up and
say ‘Hi, I’m Mexican, I’m vaccinated, and I
am here to claim asylum because I could be
assassinated in the next 24 hours, and
theyll be turned away.’ This different
treatment is “nonsensical”, he says.
Migrants are experiencing widely dif-
fering treatment depending on where they
come from, who they are and where they
Freed om’s bank
88% of border apprehensions resulted in
expulsions, 2% in a release into America
and 5% in detention. In August 49% result-
ed in expulsions, 22% in release and 20%
in detention. The main factor in the de-
cline in the share of expulsions is the Mex-
ican government’s decisions about who
they will take back, says Mr Reichlin-Mel-
nick of the Immigration Council.
For example, Mexico said it would not
accept Ecuadoreans who were expelled un-
der Title 42, but single Ecuadoreans who
pass into the El Paso sector are, in fact, be-
ing sent to Mexico, which seems to be the
result of decisions by local officials in the
Mexican state of Chihuahua, says Mr Rei-
chlin-Melnick. Tamaulipas, another Mexi-
can state, decided not to take back families
with children under the age of seven,
which has resulted in America releasing
them into the United States. As a result,
more migrants go to South Texas near Ta-
maulipas, anticipating easier entry.
In fiscal 2021 284,000 people were re-
leased from Border Patrol custody into
America according to Henry Cuellar, a
Democratic congressman who represents
south-west Texas. He thinks Mr Biden is
surrounding himself with the “wrong ad-
visers’. “The administration is paying too
much attention to the immigration activ-
ists, and I don't think they're paying
enough attention to the border communi-
ties and Border Patrol folks, who are on the
frontlines of all this,’ Mr Cuellar says.
People working on the American side of
the border, from non-profit employees to
Border Patrol agents, struggle to explain
why some people are being allowed in
while others are sent away. “I wish I could
say Isee 100% consistency, but we do not,”
Says Teresa Cavendish of Casa Alitas, a
non-profit organisation that runs migrant
Shelters. “It could be a factor of volume or
training, or just something that happened
that day that made allowances for some-
one to pass who would have otherwise not
had entry. The outcome for asylum-seek-
ers crossing the border can vary wildly and
depends more on their nationality and
family status than on any policies or laws
inside of the United States,” she adds.
Things are getting bad when Mr Biden,
the most devout Catholic president the
country has ever had, is being criticised by
nuns. “The lack of clarity about what the
United States is doing gives people the
wrong message,’ Says Sister Norma Pimen-
tel, who runs Catholic Charities of the Rio
Grande Valley. “The more the us puts effort
into clarifying what the immigration pro-
cess is, it will help avoid great masses of
people coming thinking they have a
chance to enter when they don't.” She adds
that if the Biden administration has fig-
ured out its border policy, “they haven't
voiced ityet”. &
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34 United States
Infrastructure year
Unlocked
WINFIELD, MISSOURI
Joe Biden’s infrastructure bill will boost competitiveness for decades to come
OCK AND DAM 25 on the upper Missis-
Lisipsi River is testament to how good
American infrastructure can be. Stretching
nearly 1,300 feet (400 metres) across the
water, the concrete-and-steel structure is a
crucial link in the system that connects
Midwestern fields to Southern ports and
thence to Asian markets. Roughly 60% of
America’s corn and soy exports pass
through it every year. But it is almost 100
years old, and engineers wage a constant
battle to keep it operational. It has the
Same capacity as when it was built, while
boats have grown bigger. “How many high-
ways built in the 1930s still have the same
number of lanes now?” asks Andy Schimpf,
a manager at the lock.
Salvation may be at hand. On November
5th the House of Representatives passed a
five-year, $1trn bill to repair and upgrade
America’s ageing infrastructure. About
$2.5bn has been allocated to inland water-
ways, and Mr Schimpf is optimistic that
some will go towards rebuilding Lock and
Dam 25, doubling the size of its chamber.
Today, workers sometimes need to break
apart barges to get them through, and then
reassemble them on the other side, which
can take up to three hours. A bigger lock
could reduce transit time to 30 minutes.
Hundreds of similarly delayed and ne-
glected public projects around America
will get a big boost from the infrastructure
bill, which President Joe Biden will soon
sign into law (it long ago passed the Sen-
ate). It includes $40bn of new funding for
fixing bridges, the largest investment since
the construction of the interstate highway
system. There will be nearly $7o0bn for pas-
senger rail, aimed both at clearing years-
old maintenance backlogs and bringing
service to new areas. Another $65bn
should ensure that every American has ac-
cess to high-speed internet. And the list
goes on and on, from highways to airports
and the electricity grid to water pipes.
For years American infrastructure has
suffered from under-investment. It would
take $2.6trn over the next decade to get it
up to scratch, according to the American
Society of Civil Engineers (ASCE), a profes-
sional body (albeit one with an interest in
spending more). The bill will not fix every-
thing. But it could be the beginning of a
process that will make a real difference.
How big a difference? Roughly half the
headline amount would have been expect-
ed as part of regularly budgeted mainte-
A concrete achievement
nance, meaning that about $550bn actually
constitutes new spending, to be disbursed
over five years. That might not sound like
much, but it is. From 2022 to 2026 federal
infrastructure spending will rise from
about 0.8% of annual GDP to 1.3%, well
above the trend of the past four decades.
Adie Tomer of the Brookings Institution, a
think-tank, says that is nearly the same av-
erage level as during the New Deal, which
helped lift America’s fortunes after the
Great Depression.
As arough rule of thumb, an additional
$100bn per year spent on infrastructure
could boost growth by about a tenth of a
percentage point when the digging actual-
ly begins, and potentially more if it cataly-
ses additional private-sector investment,
notes Ellen Zentner of Morgan Stanley, a
bank. In the longer term, she estimates, a
Sustained expansion of infrastructure
Spending could support productivity and
raise America’s potential growth by as
much as a fifth of a percentage point, a big
deal for a large, mature economy. “That's
why whenever you talk to economists, in-
frastructure is the stuff that we go to bed at
night dreaming of,” says Ms Zentner.
Getting a positive return will, of course,
require the money to be allocated well.
Considering the shortfalls in investment
over the years, it should not be hard to find
good projects. On average a water main
breaks every two minutes somewhere in
America, while nearly half of all roads are
in bad shape, according to the ASCE. In
some cases the investments will not gener-
The Economist November 13th 2021
ate new growth so much as defend Ameri-
ca’s existing strengths. Take the locks on
the upper Mississippi: they help American
soyabeans compete against Brazilian ones.
Labour is much cheaper in Brazil, but tran-
sportation is better in America. Keeping
the locks in good shape underpins that. “If
you were to close any of them down fora
few months, it would cost us billions of
dollars,’ says Steve Censky, CEO of the
American Soybean Association.
Just about doubling the federal govern-
ment’s expenditure on infrastructure over-
night could lead to waste, however. Cost
overruns often bedevil American infra-
structure projects. It is more expensive to
build rail in America than in almost any
other country, according to Transit Costs
Project, a research group. The price of
building highways has also soared. That
just about anyone can mount a legal chal-
lenge against public works in their vicinity
is part of the problem, leading to delays
and missed budgets. And the current back-
drop is hardly propitious, with supply-
chain congestion affecting even the most
basic home-building projects.
On the positive side of the ledger, the
bill creates space for private investors to
join the government’s efforts, which could
both enlarge total spending and impose
more financial discipline. Any city or state
seeking federal funding for transport pro-
jects costing more than $750m will be re-
quired to evaluate whether partnering
with private-sector investors would deliv-
er better results. Some projects, suchas the
development of the first-ever national net-
work of chargers for electric vehicles, nat-
urally lend themselves to co-operation
with the private sector, given that is where
the technology resides. The government
also wants companies to pitch in to make
infrastructure more resilient to climate
change. Grant programmes, useful in at-
tracting private investment in water sys-
tems, are likely to be expanded. “This bill
can potentially create a framework for on-
going and necessary public and private in-
vestment in infrastructure,’ says Aaron
Bielenberg of McKinsey, a consultancy.
But a dose of scepticism is also useful.
Ultimately, the amount that America
spends on infrastructure is a direct result
of the amount that Americans are willing
to be taxed. And that, by the standards of
other rich countries, is not very much.
“Ten years from now, I think we will look
back and say that this bill was a historic in-
vestment, a great expansion of invest-
ments that were neglected,’ says Austan
Goolsbee, an economist at the University
of Chicago and a former adviser to Presi-
dent Barack Obama. “But people are still
going to be saying, well, why don’t we have
high-speed rail all over the country?” Even
so, better to fix roads, expand ports and lay
broadband cables than not.
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36 United States
The Durham investigation
You're in trouble
CHICAGO
The special counsel arrests one of the
sources of the infamous Steele dossier
N OCTOBER 17TH Christopher Steele, a
former British intelligence officer who
now runs a private research consultancy,
appeared on ABC News. Mr Steele was be-
ing interviewed about a dossier that he had
provided to the Democratic Party and to the
FBI in the run-up to the 2016 presidential
election. It reported on Donald Trump’s
business interests in Russia and his team’s
relationships there. But most explosively,
it also alleged he had possibly been cap-
tured on video indulging curious sexual
tastes in the presidential suite of the Ritz-
Carlton hotel in Moscow in 2013. Mr Steele,
asked whether he believes that this video
exists, said, “I think it probably does.”
That seems less and less likely. On No-
vember 4th John Durham, the special
counsel for the Department of Justice, who
was appointed by William Barr in 2019 to
investigate the FBI investigation into Mr
Trump’s supposed links with Russia, in-
dicted Igor Danchenko, a Russian national
and professional Russia expert based in
America. Mr Danchenko is alleged to have
lied about how he collected information
for the Steele dossier (knowingly lying to
FBI agents is a crime). According to the in-
dictment, Mr Danchenko got some of the
rumours he sent to Mr Steele from a Russo-
phile American PR executive, named by the
New York Times as Charles Dolan, who pre-
viously worked on Clinton campaigns. Mr
Danchenko allegedly hid this from the FBI
when he was interviewed (he denies it).
Right-wing media in America have
turned this into a storm. Kimberley Stras-
sel, a columnist for the Wall Street Journal,
wrote that the indictments show that the
Steele dossier ought to be called the “Clin-
ton Dossier’, and argued in effect that Mr
Trump was a victim of a giant orchestrated
conspiracy to make out that he was in (a
rather damp) bed with Russia. Others, such
as Fox News, have made much of Mr Dan-
chenko’s work from 2005 to 2010 for the
Brookings Institution, a centrist think-
tank in Washington, Dc. Many also suggest
that the Mueller investigation, a federal
probe which looked into Mr Trump’s
team’s links with Russia, began with the
Steele dossier. Mr Trump himself said ina
TV interview that the findings are “only go-
ing to get deeper and deeper’—and would
implicate Democrats.
In reality, the conspiracy is not so deep.
An earlier investigation by Michael Horo-
witz, the Inspector-General of the Depart-
Less than meets the eye
ment of Justice, revealed many of the
shortcomings of the Steele dossier. But it
also showed that it was not what sparked
the FBI's investigation into the former
president’s Russian links. A tip-off from
the Australian government in July 2016 did
that. The Mueller investigation, which
emerged from the original FBI investiga-
tion, made almost no mention of the alle-
gations from the Steele dossier. Instead, it
focused on the activities of various of Mr
Trump’s associates, who certainly did meet
Russian officials, and also communicated
with WikiLeaks over the release of emails
hacked from the Democratic National
Committee by the Russian state. A biparti-
San Senate report released last year as-
sessed that Mr Trump was aware of this. In
New nukes
Energy deficient
DENVER
The Economist November 13th 2021
April, the Treasury department sanctioned
an associate of Paul Manafort, one of Mr
Trump’s campaign managers, for feeding
information to Russian intelligence.
So Mr Durham has very much not exon-
erated Mr Trump from having shady deal-
ings with Russia. But he has underlined
that the most lurid allegations were, at
best, unsubstantiated rumour. That is em-
barrassing to the FBI, which used the Steele
dossier in part to justify a wiretap on one
Trump adviser, Carter Page.
But it is also damning of many journal-
ists and Democrats. The Steele dossier was
presented by many in the more left-lean-
ing media as a highly credible investiga-
tion by a highly respected British former
spook, involving “deep cover sources in-
side Russia” (in the words of one MSNBC
anchor). In fact it was outsourced to people
outside Russia such as Mr Danchenko, who
seemingly gathered information by read-
ing newspapers and drinking with pals.
What happens next? Mr Durham’s in-
vestigation has been going on for over two
years and, so far, has produced only three
indictments: as well as Mr Danchenko,
there is Michael Sussmann, a cyber-securi-
ty lawyer also alleged to have made false
statements to the FBI, and ajunior FBI law-
yer who has admitted altering a document
to strengthen a wiretap request. There may
well be more. Yet the main outcome of the
investigation will be to help Mr Trump
move the conversation about his Russian
links on from his own actions to the ten-
dency of liberal journalists to believe the
absolute worst about him. For the former
president, that is a pretty good result.
Will the climate crisis force America to reconsider nuclear power?
HE DIABLO CANYON nuclear power
yore lies about 200 miles north of Los
Angeles on California's central coast. Its
twin reactors sit between the Pacific Ocean
on one side and emerald hills on the other.
The Golden State’s only remaining nuclear
plant provides nearly 9% of its electricity
generation, and accounts for 15% of its
clean-electricity production. Yet despite
California’s aggressive climate goals anda
national push to reach net-zero emissions
by 2050, Diablo Canyon is set to close down
by 2025. A new report from researchers at
Stanford University and the Massachusetts
Institute of Technology (MIT) reveals just
how detrimental that would be.
Diablo Canyon came online in 1985 and
has operated without incident. But the
plant is controversial. Diablo sits near sev-
eral major fault lines, and locals have long
feared that an earthquake could trigger a
nuclear disaster. America’s Nuclear Regu-
latory Commission (NRC) ordered utilities
to evaluate their plants for flooding and
seismic risk after the meltdown at the Fu-
kushima Dai-ichi nuclear plant in Japan in
2011. Diablo Canyon was found to be safe.
Even so, in 2018 the California Public
Utilities Commission approved a proposal
put forward by Pacific Gas & Electric, the
State’s largest utility and the operator of Di-
ablo Canyon, and environmental and la-
bour groups to close the plant. PG&E ar-
gued that there was reduced demand for >>
The Economist November 13th 2021
Nuclear nipples nixed
» nuclear power because of the promise of
renewables, such as wind and solar, and
the growth of “community choice aggrega-
tors’, which allow local municipalities to
decide where they get their power from.
Three things have changed since then.
First, California passed SB1ioo in 2018,
which requires the state to achieve 100%
clean-power generation by 2045. Second,
the south-west is suffering from what pa-
leoclimatologists think is its second-worst
megadrought in 1,200 years. Reservoirs
across the region are drying up, limiting
the supply of hydroelectric power. Just 1%
of California’s in-state power generation
came from hydro in 2020, a 44% drop from
2019 (see chart). Electricity from clean-en-
ergy sources (including nuclear) made up
51% of California’s power generation last
year, down from 57% in 2019.
Third, a heatwave in August of 2020 led
to rolling blackouts across the state as de-
mand for electricity (to power air-condi-
tioners) outpaced supply. California’s pub-
lic utilities commission is scrambling to
meet increased demand. The regulator re-
cently ordered utility companies to buy up
renewable energy and battery storage to try
to offset the impending loss of Diablo.
These three trends led researchers to
ponder how keeping the plant running
might change California’s energy outlook.
They found that to Keep it going to 2035,
ten years past its current operating licence
issued by the NRC, would cut emissions,
bolster the grid’s reliability and save the
state $2.6bn. The analysis shows that Dia-
blo’s continued operation would reduce
the carbon emissions from power genera-
tion by 1% each year from 2017 levels. And
unlike wind and solar power, nuclear ener-
gy provides a stable source of electricity
unaffected by changes in weather.
The researchers also suggest that Diablo
could potentially help California make its
power sector greener and tackle water
Shortages by producing hydrogen or po-
wering a Salt-water desalination plant in
addition to generating electricity. “You
cannot afford to take technology solutions
off the table’ when pursuing net-zero
goals, says Jacopo Buongiorno, one of the
authors and a nuclear scientist at MIT. “All
of the above is really the best strategy.”
It is one thing to prove Diablo’s value,
and quite another to reverse its retirement.
A law aimed at protecting marine ecosys-
tems would force the plant to replace its
water-intake system, which cools its reac-
tors, with anew system that reduces the in-
take flow rate by 93%. It would also require
PG&E to reopen its 2018 settlement and re-
license the plant, which can be an onerous
process; or sell Diablo to another utility.
Fission impossible?
The debate over Diablo Canyon reflects the
recent rebranding of nuclear. Steve Nesbit,
president of the American Nuclear Society,
says three things happened in the 2000s to
puta damper on nuclear power in America:
fracking took off, the financial crisis of
2007-08 lessened demand for electricity
and the Fukushima accident spooked poli-
ticians. The plants that were commis-
sioned were delayed and over-budget. Yet
SS
Power hungry
California, in-state electricity generation
By power source, % of total
~ Other
100
™M Nuclear MHydro ~~ Wind ® Solar
80
Natural gas |
i i 0
PAN 5S it SG,
Source: California Energy Commission
United States 37
evidence shows that when nuclear reactors
shut down, polluting fossil fuels make up
the difference.
Even while plants are being shut down,
nuclear power is gaining in appeal. Envi-
ronmental groups have long been sceptical
of nuclear because of the toxic waste it pro-
duces, or because they were against nuc-
lear weapons. Jessica Lovering, the foun-
der of Good Energy Collective, which aims
to build the “progressive case for nuclear
energy’, Says today’s climate activists are
more pragmatic, and focused on nuclear’s
lack of carbon emissions. She cites the
Sunrise Movement as a group that is not
necessarily pro-nuclear, but is against
closing down existing plants.
Nuclear is responsible for nearly 20% of
America’s power generation and about half
of its clean energy. A survey from ecoAmer-
ica found that 56% of Democrats supported
nuclear power in 2020, up from 37% in
2018. “Young people these days maybe
don't bring with them the baggage of their
parents and grandparents, who were raised
during the cold war, in their view of nuc-
lear power,’ says Mr Nesbit.
Policy is slowly catching up. Pro-nuc-
lear groups point to the use of “clean elec-
tricity” or “zero-carbon” language in state
and federal climate targets as a way to leave
the door open for nuclear, rather than re-
quiring renewables. Jennifer Granholm,
President Joe Biden’s energy secretary, told
a crowd at COP26, the global climate con-
ference in Glasgow, that nuclear energy is
an “essential tool” in decarbonising the
grid. Republicans and Democrats alike are
excited about the potential for converting
coal plants into nuclear power stations.
When TerraPower, a company founded by
Bill Gates, announced that it would builda
nuclear reactor at the site of a closing coal
plant in Wyoming, Ms Granholm, the
State’s Republican governor and its senior
senator were in attendance. The federal
government is also subsidising the project
to the tune of $80m.
But nuclear power still faces several ob-
Stacles. Experts say the biggest is the pro-
hibitive cost of building a new plant. New
designs, such as TerraPower’s, may help
with this. Many states, including Califor-
nia, also have de facto bans on building
new reactors until radioactive waste can be
permanently disposed of. The federal gov-
ernment tried for decades to build a nuc-
lear waste repository at Yucca Mountain in
southern Nevada, but met stiff resistance
from local politicians who didn’t want the
stuff buried in their backyard.
The first of Diablo’s reactors will lose its
licence in 2024. The report’s authors hope
the Golden State will come to its senses be-
fore then. “The circumstances have
changed,” says Ejeong Baik of Stanford.
“Diablo Canyon presents an opportunity,’
she adds. Will California take it? @
38 United States
Lexington | Latin hex
The Economist November 13th 2021
A large minority of Hispanic voters support Trump populism. This looks catastrophic for the left
HEN DONALD TRUMP descended his elevator six years ago
V / and inveighed against Mexican rapist immigrants, it was as-
sumed that Hispanic voters would take offence. But a short hop
across the Hudson river, in heavily Hispanic Passaic City, Angel
Castillo loved what he heard. “Trump kept it real,” recalled the 43-
year-old immigrant, over a cup of strong Dominican coffee in his
one-room family restaurant, El Primito. “He didn’t say all Latinos
are rapists. He said a lot of those coming over the border are rapists
and drug-dealers and he’s right.”
Though a registered Democrat, Mr Castillo resolved to vote Re-
publican thenceforth. Many of his relatives (a few of whom are 1l-
legal immigrants) were horrified: “People said you re crazy, you're
voting for a racist.” Yet his wife, mother, brother, sister and teen-
age daughter followed his lead. This puts them in the most in-
triguing, hotly studied and potentially decisive cohort in Ameri-
can politics: Hispanic Trump voters.
Their emergence as a major electoral force was the big surprise
of last year’s election. It saw a huge turnout by Hispanic voters,
helping Joe Biden to victory in Arizona and Nevada. Yet it also fea-
tured a pronounced Hispanic tilt to Mr Trump. Initially thought to
have been a localised phenomenon—which cost Mr Biden Florida
and any hope of victory in Texas—it turned out to be nationwide.
With around 38% of the Hispanic vote, Mr Trump won a higher
Share than any recent Republican presidential candidate apart
from George W. Bush, a pro-immigrant Texan, in 2004. And last
week's elections in New Jersey—including Governor Phil Mur-
phy’s brush with political death—suggests the shift may endure.
Passaic City, a decaying factory-town where seven in ten voters
are Latino, helps illustrate it. In 2016 Mr Trump won 22% of the
vote there, almost the same as Mitt Romney had. Four years of re-
lentless immigrant-bashing and race-baiting later, he bagged 36%.
Mr Murphy’s Republican challenger, Jack Ciattarelli, appears to
have held on to that gain; when vote-counting finishes, a third of
the commissioners of Passaic County could be Republican.
The overarching explanation for this development is suggested
by the many alternative cuisines, Mexican, Colombian, Peruvian,
Venezuelan, Puerto Rican, available within a few steps of El Primi-
to. Hispanics are incomparably more diverse than the earlier
waves of immigrants—Irish, Italian, Polish, Hungarian—who
turned Passaic from aigth-century fur trading-post into an indus-
trial hub. They also lack the labour unions that bound those
hordes into the Democratic fold. The assumption that Mr Trump’s
xenophobic rhetoric would make Hispanics recoil in unison took
too little note of their differences. While some have done so—es-
pecially young, college-educated Hispanics—the extreme polar-
isation of the Trump era has pushed others to the right.
Ronald Reagan quipped that hard-working, religious, commu-
nism-hating Hispanics were Republican even if they didn’t know
it. In his different way, Mr Trump has hammered those same is-
sues. He endeared himself to Miami’s Cuban exiles by calling the
Democrats socialists. His claim to defend Christianity wooed His-
panic evangelicals everywhere. Hector Fernandez, a 69-year-old
evangelical minister in Passaic, was another first-time Republican
voter in 2016. “I don't love the Republicans but my Christian values
compel me to vote for them,” he said—and estimated that over half
his congregation voted for Mr Trump last year.
The former president’s strong ratings on the economy, based
on his wealth and claim to be a job-creating genius, also attracted
the community. “Imagine coming to America from a poor country
and seeing Trump’s name on a building!” says Passaic’s thoughtful
mayor, Hector C. Lora, a son of Dominican immigrants. Mr
Trump’s pivot to raging against economic lockdowns after co-
vid-19 hit probably increased that advantage. Hispanics typically
own small businesses, which were hard-hit by the lockdowns, the
mayor noted. They also have reason to dislike government diktat.
The excesses of Latin politics perhaps also made it easy for
some Hispanics to shrug off Mr Trump’s bigotry. “We are used to
vitriolic rhetoric,’ says Mr Lora. Yet others liked it—as Mr Castillo
illustrates. “Immigrants used to come here to work,” said the res-
taurateur. “Now they come here and jump straight into govern-
ment assistance, just like other races in this country.” You need
not be Anglophone or America-born to find Mr Trump’s white na-
tionalism and nativism seductive. And Hispanic Trump fans are
just as easily radicalised as whites. Mr Castillo is a covid anti-vaxx-
er who suggests that Mr Biden’s election was not on the level.
It is hard to exaggerate the importance of this development. Re-
publican strategists had considered Mr Trump’s chauvinism in-
compatible with the coalition-expanding embrace of diversity
many recommended after Mr Romney’s defeat. But it appears not
to be—and for Democrats that looks disastrous.
The party’s decades-long decline in the white, conservative
and electorally crucial Midwest appears irreversible. Even if it
could excise its leftist fringe—a kiss of death in such places—
mainstream liberal causes such as minority, immigrant and re-
productive rights are too toxic there for Democrats to progress. To
remain competitive, they must therefore build new strongholds
in diverse states such as Florida and Texas. But, as Mr Biden’s fail-
ures showed, this requires them to maintain Obama-esque levels
of Hispanic support.
The dwindling Democratic majority
Harping on immigration reform, the Democrats’ default response,
will not deliver that. Millions of Hispanics are hardly concerned
with the issue. Yet itis hard to identify a liberal approach to the di-
verse and fracturing Hispanic community that would be more
popular. Democrats had hoped Hispanics would compensate for
the illiberal drift of working-class whites. Yet a sizeable minority
of them appear to be following the same inexorable course.
The Americas
How to be a dictator (1)
By the book
CARACAS
The Economist November 13th 2021
Six ways Nicolas Maduro has subverted democracy in Venezuela
(47 DON’T SEE how Nicolas Maduro has the
hvaiarins to stay for an extended time
in government,’ said Henrique Capriles, a
former presidential candidate, in 2013. “It’s
near the end for Maduro,” concluded Ian
Bremmer, a political scientist, in 2017. “Ma-
duro’s days are numbered,’ promised Mike
Pompeo, then the United States’ secretary
of state, in 2019.
Venezuela's president has had the satis-
faction of proving them all wrong. Mr Ma-
duro’s demeanour during broadcasts on
State Tv these days is one of avuncular
calm. In October he took viewers on a tour
of the presidential palace to show off gar-
ish Christmas decorations. “How cute!” he
exclaimed, as he pointed at a plastic deer.
Such festive cheer is rare outside the
palace. Mr Maduro has overseen one of the
worst recessions in world history. Under
his incompetent management, Venezue-
la’s economy has shrunk by 75%. Some 6m
people have emigrated: more than a fifth of
the population. If fair elections for presi-
dent were held, it is almost inconceivable
that he would win. His support in opinion
polls hovers near 15%. But Mr Maduro
doesn't let the little people tell him what to
do. Over the past five years his regime has
turned from somewhat authoritarian to
blatantly so. When Venezuelans go to the
polls for municipal elections on November
21st, it is highly unlikely that the opposi-
tion—who, for a change, are taking part—
will get very far. Here are six steps Mr Ma-
duro has taken on the path to autocracy.
Step by step
Most importantly, he has continued and
extended the subversion of institutions
that began under his predecessor, Hugo
Chavez, who was president from 1999 to
2013. After Mr Maduro’s United Socialist
Party lost control of parliament in 2015 (in
> Also in this section
40 Daniel Ortega clings on in Nicaragua
42 Bello: Jair Bolsonaro’s fiscal mess
what most observers rate as the last re-
motely fair election), various measures
were put in place to stop the opposition
from achieving anything. The Supreme
Court was stuffed with loyalist judges. In
2017 the elected parliament was dissolved
and replaced with a rubber-stamp constit-
uent assembly. The parliament was later
re-established, with a socialist majority,
after an unfair election. The electoral au-
thority which oversaw all these changes is
flagrantly biased.
Meanwhile, the regime has tightened
its grip on broadcast media. Private chan-
nels are run by people who sympathise
with the regime or who have decided to toe
the line. The government has closed down
almost all newspapers. Opposition parties
are meant to be given equal access to the
media ahead of elections, such as those in
November, but in practice they are almost
completely excluded. An analysis of recent
coverage by the main state-owned televi-
sion channel found that the opposition
was not mentioned at all on three of the
nine days examined. The rest of the time it
is referred to only briefly and disparaging-
ly, as “radical” or “extreme”. Several web-
sites that are critical of Mr Maduro’s re-
gime are blocked.
Having inherited his job from a military
man who was both the perpetrator (1n 1992)
and target (in 2002) of attempted coups, Mr
Maduro is keen to avoid any similar un-
pleasantness. Chavez, while president, >>
40 The Americas
> created an army loyal to himself, not Vene-
Zuela. Mr Maduro gets help from Cuban
spies to find and purge potentially trouble-
some Officers. “Believe me, he can be total-
ly ruthless if he needs to be,” says a former
government official.
Dozens of officers have been locked up.
Some have allegedly been tortured. Last
month General Raul Baduel died in a de-
tention centre run by the security services.
A former defence minister, who helped re-
instate Chavez as president after the coup
plot in 2002, he began to disagree with his
former boss in 2007. For most of the rest of
his life he was imprisoned on unproven
corruption charges, despite pleas from his
family for mercy. His daughter says he was
murdered. (The government says he died
of covid-19.)
Officers who support the regime tend to
prosper. Under Mr Maduro, the armed
forces have informal control of gold- and
diamond-mining, for reasons no one can
quite explain. Venezuela's oil industry is
not as lucrative as it used to be, thanks to
Sanctions and mismanagement, but the re-
gime has other ways to reward loyalty. One
is to grant cronies permission to build
homes in national parks. Officers and offi-
cials are thought to be among the owners
of lavish mansions that have sprouted in
areas supposedly off-limits to construc-
tion, including the Caribbean archipelago
of Los Roques and the supposedly protect-
ed mountain above Caracas.
Some speculated that when Mr Maduro
wrecked the economy, it would provoke a
mass uprising against his regime. It did
not. Many of the angriest and most ener-
getic Venezuelans fled abroad, and now
send home cash that helps their relatives
Survive. Those who stayed have become
increasingly dependent upon the state. If
they were to rebel, they fear it would let
them starve. In 2016 Mr Maduro introduced
bi-monthly hand-outs of food. To qualify,
recipients need to have an identity card
which party loyalists often inspect on elec-
tion days. The message is clear: with loyal-
ty comes food.
Perhaps Mr Maduro’s most surprising
move has been his embrace of the us dol-
lar. Having previously denounced the cur-
rency as an imperialist tool, he now says
“thank God” it exists. The change hap-
pened in 2019, during a six-day power cut
which made electronic payments impossi-
ble. That forced people to accept the dollar,
technically in breach of the law. Since then,
the regime has abandoned price controls
and a fixed exchange rate and instead em-
braced the greenback. As of June around
70% of transactions were carried out in
dollars. The policy has reduced annual in-
flation from a peak of over 2,000,000% in
2019 to under 2,000%, which by Mr Madu-
ro’s standards is a Success.
The use of dollars has helped simplify
the sending of remittances. It has also
made life for middle-class folk slightly
more tolerable. Across the country, casinos
are being re-opened. In the relatively
wealthy bubble of eastern Caracas hard-
currency stores sell everything from de-
signer ski-wear to organic maple syrup.
Cynics call the process pax bodegonica, or
peace through delicatessens.
Unlike, say, Saudi Arabia or Afghani-
stan, Venezuela still pretends it is ademoc-
racy. At the start of the 24-day campaigning
period before the elections this month Mr
Maduro implored people to participate.
How to be a dictator (2)
A family affair
The Economist November 13th 2021
Voting was “the best demonstration of love
for Venezuelan democracy”. But his regime
has also shown that, when it is at risk of
losing an election, it will cheat, ignore the
results, or both.
The tactic has not only enabled the re-
gime to survive. It also appears to have con-
vinced a lot of Venezuelans that democracy
does not work. In a survey in October by
the Andrés Bello Catholic University in Ca-
racas, just half of respondents said democ-
racy was their preferred form of govern-
ment, a fall of 18 percentage points since
Mr Maduro took office. @
Daniel Ortega steals the election in Nicaragua
ONTHS BEFORE the polls in Nicaragua
M on November 7th the outcome was all
too clear. Daniel Ortega, a former guerrilla,
won his fourth consecutive term as presi-
dent after jailing most of his potential op-
ponents and forcing others into exile. With
his vice-president, Rosario Murillo, who is
also his wife, he will rule the country of
6.6m for an unbroken two-decade stretch.
“The election had no legitimacy,” says
Maria Lilly Delgado, a journalist. Hard men
from the ruling Sandinista party, who had
gone from house to house telling people to
vote, hung out at polling booths, menac-
ingly. President Joe Biden denounced the
poll as “a pantomime”. Several countries
have refused to recognise the result. One
organisation reckons that 80% of Nicara-
guans boycotted the vote.
In the run-up to the election the regime
acted with a brazenness not seen in Latin
America since the 1970s and 1980s, an era of
military dictatorships. Since May it has ar-
rested at least seven potential presidential
candidates and scores of other critics, in-
cluding former Sandinista comrades,
charging them with vague offences such as
“undermining sovereignty”. They include
Cristiana Chamorra, the daughter of Viole-
ta Chamorra (to whom Mr Ortega lost in
1990 after his first stint in power). At the
time of her arrest she was the most popular
opposition politician, and might have won
the election, had it been fair.
The regime spreads disinformation. On
November ist Facebook said that, in the
month before, it had shut down a “troll
farm” of more than1,o000 fake social media
accounts operated by state employees.
Most media are controlled by the children
of the Ortegas or their allies. Independent
journalists are mostly in exile.
All this is the culmination of years of
creeping authoritarianism. Mr Ortega
looks more and more like Anastasio Somo-
Za, the widely loathed dictator the Sandi-
nistas overthrew in 1979. In 2000 he
changed the law so that the presidency can
be won with as little as 35% of the vote. This
let him return to power in 2007. He subse-
quently increased his control over the po-
lice, armed forces and the courts.
Since 2018 the regime has relied more
on brute force, says a political scientist
(who, like many Nicaraguans, did not want
to be named in this article). That year thou-
sands of young people took to the streets to
protest against proposed changes to wel-
fare payments. Police and pro-regime
thugs opened fire on them. More than 300
people died. Many more were locked up.
Political prisoners are deprived of food and b>
The
Economist
Subscriber-only live digital event
Tht WORLD Ait
Thursday November 18th
6pm GMT / 1pm EST / 10am PST
N22
Sharpen your foresight with Tom Standage,
deputy editor of The Economist and editor of
The World Ahead, as he explores a provocative
vision of the future. Tom will take viewers
through his predictions and highlight the
big issues and trends to think about in the
coming year.
Please submit your questions in advance to:
subwebinar@economist.com
2] Reserve your space:
. rd ai =
wait? ~economist.com/worldahead
42 The Americas
» subjected to constant bright lights.
Since the regime has shown its willing-
ness to kill, most Nicaraguans are now too
scared to take to the streets to protest. But
it was an important sign that so many ab-
stained from the vote, thinks Ms Delgado.
The ruling couple will shrug off criti-
cism from abroad. The United States and
the European Union have already imposed
Sanctions on the regime’s inner circle, in-
cluding Ms Murillo and at least three of the
couple’s nine children, and may add more.
Mr Biden’s administration is considering
expelling Nicaragua from Central Ameri-
ca’s free-trade agreement, but rather than
harm Mr Ortega, that would mostly affect
the lives of ordinary folk.
The Biden administration faces a quan-
dary. It does not want to destabilise the
country and send more Nicaraguans flee-
ing. Since 2018 at least 80,000 have re-
quested asylum in Costa Rica, the nearest
place of refuge. Almost 50,000 were appre-
hended at the United States border this
yeal, up from just over 2,000 in 2020.
Several leaders in Latin America have
refused to condemn Mr Ortega; some be-
cause they like his methods. Nicolas Ma-
Following the money
Jair Bolsonaro ts bad for Brazil’s economy
N SEPTEMBER 2019 Paulo Guedes, Bra-
Lis economy minister, told Congress
that it could “make history” by keeping
the budget under control, adding that
“the political class shouldn't be chasing
ministers, begging for money.’ Now Mr
Guedes is backing an underhand govern-
ment attempt to bypass the constitution-
al cap on public spending set in 2016,
which was a crucial step towards righting
the country’s finances. He and Jair Bolso-
naro, the president, are presiding not
just over a return to fiscal incontinence
but also to other economic ills that have
dogged Brazil: rising inflation, high
interest rates and low growth. And the
budget shenanigans have in turn created
uncertainty about the future of the coun-
try’s flagship social programme.
In the election in 2018 Mr Bolsonaro’s
alliance with Mr Guedes, a free-market
economist, did much to persuade busi-
ness people to vote for a former army
officer of the hard right who had never
before shown any interest in liberal
economics. Mr Guedes promised radical
reform of Brazil's swollen and inefficient
State. But this pledge has resulted only in
some useful savings on pensions, legal
independence for the central bank and
minor regulatory simplifications. Now
the reform drive is over, replaced by Mr
Bolsonaro’s scramble for money to buy
political support and popularity.
To stave off impeachment over his
mismanagement of the pandemic and
his family’s misdeeds (which they deny),
Mr Bolsonaro allied with the centrdo, a
big coalition of conservative pork-barrel
legislators. When covid-19 struck the
government declared “a state of calami-
ty’, allowing it to offer big temporary
handouts despite the spending cap.
Poverty fell in Brazil in 2020, bucking the
regional trend, and Mr Bolsonaro’s pop-
ularity rose. In March the government
won an emergency constitutional amend-
ment, punching a hole in the spending
cap, to allow at least some payments to
continue. Now the president’s plunging
approval rating is reducing his chance ofa
second term in next year’s election.
A new constitutional amendment
would punch two further holes. It would
allow the government to delay making
payments ordered by courts (such as
refunding excess taxes collected). And it
would exploit a recent leap in prices by
indexing the budget to December's annual
inflation figure (likely to be over 10%)
rather than to June's (8.4%). These chang-
es would give the government an extra
100bn reais ($18.2bn) to play with next
year, reckons Marcos Mendes, a former
economic adviser to the Senate.
Some of this money would go to Auxi-
lio Brasil, arevamped anti-poverty pro-
gramme. This will incorporate Bolsa Fami-
lia, the successful anti-poverty scheme
launched in 2003 by the president at the
time, Luiz Inacio Lula da Silva. But it will
add complexity and uncertainty to it,
The Economist November 13th 2021
duro, Venezuela's despot, congratulated
Mr Ortega on his win. Mr Maduro’s regime
has provided cash to help the Ortegas con-
solidate their control of the media. Cuba’s
communist regime, too, has sent words of
support. Cuban police have helped train
their Nicaraguan peers in “self-defence”
and interrogation techniques. Farther
afield Sergey Lavrov, Russia's foreign min-
ister, harrumphed at Mr Biden’s criticism
of the election. (His country supplies 90%
of Nicaragua’s military imports.) With
friends like these, Mr Ortega and Ms Muril-
lo’s grip On power Seems Secure.
notes Marcelo Neri, a poverty specialist
at the Getulio Vargas Foundation, a
think-tank. The government has raised
the average permanent benefit by 18%, to
217 reais per month. However, Mr Neri
points out that inflation had eroded 32%
of its real value since 2014. Mr Bolsonaro
has also promised a temporary bonus, so
that all17m families in the scheme will
get at least 400 reais a month, but only
until December 2022. Not coincidentally,
that is just after the election.
Another large chunk of the extra
money would go on less worthy causes,
including around 18bn reais to finance
opaque budget amendments that grant
overpriced public-procurement con-
tracts to individual legislators in return
for their support for Mr Bolsonaro. These
were an innovation devised by the cen-
trdo. This week a majority of the Supreme
Court ruled these secret clauses illegal.
That did not stop the lower house of
Congress approving the constitutional
amendment on November oth. Whether
it will get through the Senate is unclear.
Either way there will be costs. Defeat
would cast doubt on the financing of
Auxilio Brasil in the future. But victory
would be pyrrhic. Four of Mr Guedes’s
Senior aides resigned last month because
they opposed the amendment (the offi-
cial gloss was for “personal reasons’).
Concern about fiscal policy is the “main
fuel for inflation”, says Zeina Latif, an
economist in Sao Paulo. The purpose of
the spending cap was to halt the re-
morseless rise in public spending to
satisfy insiders, which is neither re-
distributive nor efficient in overcoming
the bottlenecks that hold back growth.
Its weakening shows that Mr Bolsonaro
is not just bad for the environment, for
human rights and for democracy, but
also for Brazil’s economy.
ee ol oe
\ ull
Manufacturing a green revolution
GUNSAN AND ULSAN
South Korea’s industrial centres will have to transform or disappear
(4 F WE DO well, the country does well,
Land if the country does well, that is the
way for us to do well,” reads the inscription
on the walls of the former Hyundai Heavy
shipyard in Gunsan on South Korea's west
coast. The quote from Chung Ju-yung, the
late founder of Hyundai, one of the coun-
try’s biggest conglomerates, is an apt sum-
mary of South Korea’s development strat-
egy. Equating manufacturing prowess with
the national interest drove the massive
State-led investment in heavy industry
that made South Korea rich.
Today the fading letters are an ominous
sign of things to come. Four years ago the
Hyundai shipyard and the GM car factory in
Gunsan shut within ten months of each
other, resulting in the loss of tens of thou-
sands of jobs. There is a risk of more such
devastation in the future. The country’s in-
dustrial behemoths have no clear plan to
eliminate greenhouse-gas emissions by
2050, which the government has promised
to do. How they do so will determine the
future not just of South Korea’s industries
but of its industrial cities, too.
South Korea’s coastal cities are the most
visible markers of the country’s rapid in-
dustrialisation. Starting in the 1960s, slee-
py fishing ports and trading posts turned
into sprawling industrial centres, filled
with shipyards, car factories, steel mills,
oil refineries and container terminals. In-
dustry generates 37% of GDP, compared
with the rich-country average of 27%, and
more than 80% of exports. GDP per person
in Ulsan, the most important industrial ci-
ty, is 75% higher than the national average.
At a museum in the city you can wander
around model versions of industrial in-
Stallations to take in the story Ulsan wants
to tell about itself. “We went from a GpP of
$100 per person to this,’ beams Shin
Hyeong-seok, the museum’s director.
But as South Korea joins the rest of the
44 Anewcurriculum in Bangladesh...
45 ...andin Pakistan
45 Theciviliansin Myanmar’'s junta
46 Banyan: Playing Goin the Himalayas
world in the effort to curb climate change,
its centres of heavy industry are turning
from drivers of growth into liabilities.
Their reliance on fossil fuels is one reason
why South Korea is the world’s seventh-
biggest emitter of greenhouse gases. Presi-
dent Moon Jae-in has promised to reduce
emissions by 40% below 2018 levels by
2030, and that South Korea will be carbon-
neutral by 2050, a target that was written
into law in August.
Environmental groups point out that
Mr Moon’s targets are still insufficient to
meet South Korea’s commitments under
the Paris agreement. The government itself
freely admits that it is lagging behind other
rich countries in reducing emissions. But
the announcement has alarmed industry
representatives. They warn of production
cuts and large-scale job losses unless busi-
nesses are given more time and support to
reach the targets.
The transition to a low-carbon econ-
omy, if pursued seriously, will be the big-
gest challenge for manufacturers since the
transition from light to heavy industry in
the 1970s, says Park Sang-in, an economist
who focuses on South Korea’s conglomer-
ates at Seoul National University. The fact
that South Korea is so late to the game
makes the task harder, because bigger re-
ductions will now have to happen over a
shorter period of time.
If the government is to achieve its tar-
gets, carbon-intensive manufacturing in-
dustries will have to reduce their emis-
sions by as much as 80% over the next!
44 Asia
» three decades (what carbon is still emitted
will have to be captured and stored in facil-
ities yet to be developed). De-industrialis-
ing and shifting towards less energy-in-
tensive services would be one way to
achieve that. But given the importance of
manufacturing to the economy, the conse-
quences for workers and the industrial
centres where they live would be devastat-
ing. The only alternative is for industries to
change. “We do not want to lose the role
these industries play in the economic
growth process, so it is critical that they be
transformed,’ says Kang Sung-jin, who
studies industrial development at Korea
University in Seoul.
What will this transformation look
like? Factories that make petrol and diesel
cars will have to switch to making batteries
and electric vehicles. Shipbuilders will
have to produce carriers that run on green-
er fuels, and the petrochemical industry
will have to provide those fuels. Steel fur-
naces will have to run on something other
than coke made from coal. Electricity for
both industry and households, now pro-
duced mostly by coal-fired power stations,
will have to come from renewable sources.
Just as during the switch from light to
heavy industry, the change will be most
visible in industrial cities. In the future the
government envisions, places like Ulsan
and Gunsan will be connected to huge off-
shore wind farms and covered in solar pan-
els. Green hydrogen will power next-gen-
eration container ships and carbon-neu-
tral steel furnaces.
Just reinvent yourself
The government's most recent plans have
Spurred companies into action. Yet the
lack of preparation means that the road to
net zero is likely to be bumpy, with indus-
tries vulnerable to shocks. Moreover, there
is no guarantee that the pledges will sur-
vive the next election. Climate change is
not yet a big issue in the presidential-elec-
tion campaign, and the next government
may not feel the need to keep up pressure
on the conglomerates.
That means that many of South Korea's
industrial centres could end up looking
more like Gunsan, as investment in green
tech yields results in other countries and
higher emissions render some of South
Korea's industries obsolete. Government
efforts to get Gunsan’s laid-off workers
into new employment have progressed on-
ly sluggishly. Thousands have left the city.
At the site of the old colonial port,
where city officials have launched a series
of urban-regeneration projects, visitors to
a large ship-shaped museum can relive the
experience of trading rice in a 1930s ver-
sion of the city. Unless South Korea’s green
economy gets whirring, the museum in UI-
San on the opposite coast may soon ac-
quire a similar old-timey vibe. @
Education in South Asia (1)
Levelling up
Bangladesh is making a serious
attempt to move away from cramming
EW IN BANGLADESH would deny that
their country has had remarkable suc-
cess at getting kids into classrooms. Four
decades ago less than a third of children
finished primary school. Today, 80% do.
Before the pandemic, more Bangladeshi
girls than boys attended high school. In In-
dia and Pakistan, the reverse is true (see
story on next page).
Improving the quality of education has
proved trickier. More than half of Bangla-
deshi ten-year-olds in school are not profi-
cient in reading, according to the World
Bank, and more than a quarter of those
aged between 15 to 24 are not in education,
employment or training. A year and a half
of pandemic-related school closures have
made matters worse.
In some respects, unimpressive out-
comes have not held back Bangladesh. The
economy has been growing at an annual
rate of 6% for the past decade, reaching 8%
before the pandemic. The two main drivers
of growth, the garment industry and remit-
tances from overseas Bangladeshi workers,
have boomed. But that is because labour is
plentiful and cheap, not because it is
skilled. Bangladeshi labourers in the Gulf
often earn less than their Indian brethren.
Garment workers in Dhaka, the capital, toil
for lower wages than rivals in China.
Sustaining growth will rely on moving
from cheap to skilled labour, says Hossain
Zillur Rahman of the Power and Participa-
tion Research Centre, a think-tank in Dha-
ka. “Those skills need to be created now,’
he says. The government is shaking up the
The Economist November 13th 2021
curriculum as a way to achieve that. The
plans, which are due to be implemented by
2025, focus on shifting away from mind-
lessly memorising textbooks and regurgi-
tating them during exams and towards
building useful skills. All exams will be
scrapped until third grade. Year-end public
exams, which start in secondary school,
will wait until tenth grade. Before that, stu-
dents will be assessed on their knowledge
and ability throughout the year.
The new curriculum, which comes after
years of consultation, including with em-
ployers and workers, is designed to ad-
dress the mismatch between education
and the skills required in the economy,
says Mohibul Hasan Chowdhury, the depu-
ty minister for education. A choice of two
vocational subjects from such options as
woodwork, graphic design, car mechanics,
child care and plumbing will be mandatory
for high-schoolers. The government also
plans to open more technical universities.
Though many education experts are in
favour of the change, some worry parts of it
amount to trying to run before learning to
walk. How can coding be taught well when
“we cannot ensure numeracy and literacy”,
asks Niaz Asadullah, an economist who fo-
cuses on education inequality at the Uni-
versity of Malaya in Kuala Lumpur. More-
over, he says, tens of thousands of madra-
sas, which are unaffected by the changes,
have no government oversight and teach
little beyond the Koran.
Nor does changing the curriculum
solve many of the other problems under-
lying Bangladesh’s poor learning out-
comes, says Mr Asadullah. Teachers are
poorly paid, inadequately trained and too
few in number. Bangladesh has among the
largest class sizes in the region, with one
teacher to 45 pupils in secondary school.
Worse, the system is riddled with cor-
ruption. Many teachers bribe their way in-
to staying in cities, ensuring that remote
regions get fewer teachers. Appointments
at all levels are often based on political in-
fluence or bribery, according to Transpa-
rency International, an advocacy group.
Certificates are handed out ona similar ba-
sis. The bribe needed to secure a head-
teacher job can be1m taka ($11,660).
Public funds flow less easily. At 2.1% of
GDP, Bangladesh spends less on education
than any other South Asian country, and
falls well short of the 4-6% recommended
by UNESCO, the UN body responsible for
education among other things. Mr Chow-
dhury says that a chunk of education
spending comes from different ministries,
and so is unaccounted for in this figure.
As aresult of all this, many of the curri-
culum changes introduced over the past
decade are yet to be implemented. The re-
cently announced reforms are “on the pos-
itive trend”, says Mr Rahman. But only if
they actually happen. m
The Economist November 13th 2021
Education in South Asia (2)
Levelling down
ISLAMABAD
A new national curriculum sparks a
backlash in Pakistan
EW IN PAKISTAN would deny that some-
thing needs to be done to improve its
education system. The country is well be-
hind Bangladesh, India and Iran, and just
barely above Afghanistan, in UN education
rankings. Less than 60% of people over 15
can read and write, having attended school
on average for 5.2 years. In Bangladesh, by
contrast, the literacy rate is 74%, with 6.2
years of education (see previous story).
The headline figures hide as much as
they reveal. In the country’s elite schools,
the children of the wealthy study in Eng-
lish for international exams and set their
sights on the world’s best universities. At
the other end of the spectrum, 23m chil-
dren are not in school at all, with girls
much less likely than boys to be enrolled.
Government schools, where available,
have a reputation for rote learning. Private
schools of varying quality fill the gap. Ma-
ny poor families send their children to ma-
drasas, which tend to skip subjects like sci-
ence and maths. Some are vehicles for ex-
tremist ideologies. Imran Khan, the prime
minister, calls this divide “educational
apartheid” and has vowed to get rid of it.
Such an aim is admirable, but the tool of
choice has come in for criticism from aca-
demics, educators and parents. Earlier this
year the government began rolling out a
single national curriculum (SNC) for all
schools, including madrasas. This set of
minimum standards is meant to improve
the quality of teaching and boost the pros-
pects of pupils. But its ambitions are wider
still. Among the objectives listed by the
education ministry is to increase “social
cohesion and national integration”.
The new curriculum has so far been
rolled out only in primary schools, but al-
ready some of its dictates are causing a
backlash. The sNc has increased the num-
ber of subjects, such as general knowledge,
which must use textbooks in Urdu or other
local languages rather than English. Mr
Khan, himself an old boy of Aitchison Col-
lege, the country’s most prestigious
school, makes his case in punchy post-co-
lonial terms. “When you acquire English-
medium education, you adopt the entire
culture,” he argues, adding that “you be-
come [a] slave to that particular culture.”
Yet the resistance to the SNC’s imposi-
tion of local-language learning is not just
an elite phenomenon. There have been re-
ports of schools unwilling to implement it.
And there is huge demand for English from
parents who see it as a way for their chil-
dren to stand out in the job market, accord-
ing to teachers. Mariam Chughtai, the di-
rector of the national council drawing up
the curriculum, says the aim is not to drop
English but to elevate local languages.
“When we think ‘multilingual’, we think
French, German and English. But when
you say bilingual in Urdu and English, the
elites look down upon it,” she says. Still,
“no one is denying the importance of Eng-
lish. It’s here to stay.”
A bigger complaint is that conserva-
tives are using the curriculum to increase
religious teaching in schools. Rather than
turning madrasas into schools, it will turn
schools into madrasas, charge critics. In-
deed, the education ministry’s list of “key
considerations” in drawing up the curricu-
lum puts the teachings of the Koran at the
very top. Non-Muslims need not take
classes on Islam, but religious content is
seeping into other subjects, such as Urdu-
language lessons that include passages on
Muslim caliphs. The government argues
that there is nothing wrong with teaching
religion in a religious country.
The third criticism may be the most
pertinent. Pakistan’s abysmal learning
outcomes are not so much the result of
content as of access, says Jasir Shahbaz, an
educationalist in Lahore. A new curricu-
lum will do little to fix that. “The issue is
not so much what the kids are studying, so
much as how many kids are actually study-
ing, or are actually understanding what
they are studying,’ he says.
The battles are likely to intensify as old-
er pupils start the new curriculum next
year. Ms Chughtai says it will take time for
results to show. But the furore, she says, is
because the changes affect even the elite:
“Any time you try to bring a major policy
change, for the small minority of people
for whom even the broken system was
working, they are going to get scared.” @
The write stuff
Asia
Politics in Myanmar
How to geta
promotion
YANGON
Some civilian politicians are working
for the murderous generals
EFORE THE Burmese army took power
Bin a coup last February, Aung Naing Oo
was a well-spoken civil servant widely
praised for spearheading economic re-
forms under the governments of Aung San
Suu Kyi, the country’s de facto leader until
the coup, and her predecessor. When the
army took over, it detained senior mem-
bers of Ms Suu Kyi’s government. Yet Mr
Aung Naing Oo did not just remain free. He
was promoted by the junta to the role of in-
vestment minister.
Once a darling of the international
community, Mr Aung Naing Oo, an ex-mil-
itary officer, now speaks the junta’s lan-
guage. He recently told Reuters that for-
eign executives of Telenor, a Norwegian te-
lecoms firm, had been barred from leaving
the country because of the regime’s need to
meet them in person. Myanmar’s current
economic crisis, he argued, was caused in
part by “sabotage” backed by foreign states.
After previous coups, Myanmar’s gener-
als did notimmediately invite civilians on-
to their ruling councils. This time is differ-
ent. Several civilians sit on their council,
and in their caretaker government, too.
Nine of 28 cabinet ministers are civilians.
Six ministers were senior civil servants in
the ousted government, suggesting the
junta wants to project a sense of continu-
ity. Eight cabinet members served under
the presidency of Thein Sein, an ex-general
who, between 20n and 2016, created a
“pbusiness-friendly but military-controlled
state’, which the junta seems to want to re-
create, write researchers at ISEAS, a think-
tank in Singapore.
Why the top brass has included civil-
lans in its government seems clear. Why
civilians would want to work for the gener-
als is less obvious. Some may not have had
“much of a choice when asked by the mili-
tary’, says Ye Salween, the pseudonym ofa
Burmese analyst based in Yangon. They
may also not have expected the coup to
meet with the overwhelming public oppo-
sition that it did.
There are more petty reasons, too. Sev-
eral ministers hold grudges against the
junta’s arch-rival, Ms Suu Kyi. In 2019 she
reassigned Mr Aung Naing Oo from the
government’s investment agency, which
he ran, to the investment ministry, making
him permanent secretary. This was widely
regarded as a demotion—though appar-
ently not by Mr Aung Naing Oo, who says
45
that it was a promotion and that he bears >»
46 Asia
> no ill will towards Ms Suu Kyi.
Thet Thet Khine, the welfare minister,
is a former lawmaker from Ms Suu Kyi's
National League for Democracy (NLD). She
bears “hatred” for Ms Suu Kyi, a former
friend says, because she was made to feel
unwelcome by Ms Suu Kyi and the NLD ov-
er her past leadership of the country’s top
business lobby, which engaged with previ-
ous military regimes. The party dismissed
her in 2018, whereupon Ms Thet Thet
Khine became one of Ms Suu Kyi’s most vo-
cal critics, branding her a “control freak”.
(Ms Thet Thet Khine denies that she hates
Ms Suu Kyi but says she’s not a “huge fan”.)
The turncoats also claim to believe that
the junta can do some good. The army jus-
tified the coup by claiming that the NLD
stole the election in 2020, even though ob-
servers found no evidence of widespread
fraud. Ms Thet Thet Khine says that she
“witnessed personally that NLD cheated”.
Days after the coup she justified working
with the generals by arguing that the oust-
ed government “did undemocratic things”,
whereas the army “is doing democratic
acts” by taking charge until it can hold a
fair election. For his part, Mr Aung Naing
The great board game
How the game of Go explains China’s aggression towards India
N THE ANCIENT Chinese game of weiqi,
better known in the West as Go, the
objective is not to knock out your oppo-
nent. Taking turns to add one stone ata
time to the board’s 361 spaces, what play-
ers firstly seek is to build the largest,
strongest structures, and only secondly
to weaken and stifle enemy ones. Better
players shun contact, preferring to parry
threats with counter-threats. Such un-
resolved challenges multiply, the ad-
vantage shifting to whoever poses the
Sharpest ones. Only when more stones
than empty spaces fill the board can
resolution of these tactical matters no
longer be avoided.
The contest between China and India
has unfolded in similar fashion. The two
have lately engaged in sabre-rattling and
name-calling. But such tension has been
rare during their seven-decade rivalry as
modern nations. As ina game of weiqi, so
long as India and China were focused on
building their own core structures, each
largely ignored the other.
Far from their crowded coasts and
plains, the Asian giants’ 3,500km-long
border region remained an empty sec-
tion of the board. It contained not people
or resources but the world’s coldest,
driest deserts and its highest mountains.
India and China maintained overlapping
claims, and their forces sometimes
clashed, as in a brief war 1n 1962. But they
both also judged that there was not
enough at stake to fight a big war over. So
territorial limits continued to be defined
in many areas by a “Line of Actual Con-
trol” rather than an internationally re-
cognised boundary. By mutual agree-
ment their border patrols went lightly
armed. They mostly avoided contact.
As ademocracy bound by rules, India
has repeatedly sought to end the ambigu-
ity by negotiating a permanent border.
But perhaps because its strategists are
steeped in the culture of weigi, China has
repeatedly rebuffed such efforts. Fora
player building formidable structures
across the rest of the board, why foreclose
on potential pressure points? Better to
leave them open for use in the future,
when you have more leverage and your
opponent has more reason to fear you.
Under President Xi Jinping, China
appears to have decided that this future is
now. At several strategic spots along the
border in the spring of 2020, Chinese
troops marched into long-established
patches of no-man’s-land, setting up
permanent forward positions. When India
sent in soldiers to challenge the intru-
sions, fisticuffs ensued. One clash left
some 20 Indians and at least four Chinese
dead. China has since refused any return
to the status quo ante. This leaves it in
control of lands India regarded as its own
and, more seriously, in control of vantage
points from which to threaten crucial
roads and other Indian infrastructure.
From a weigi perspective China's bold-
ness is understandable. In the 1980s its
The Economist November 13th 2021
Oo may have calculated that he could bring
about more change from within govern-
ment than outside.
The flaw in that argument is that the re-
gime focuses not on good government, but
on violently quelling resistance to its rule.
It has killed more than 1,200 civilians so
far, according to a local watchdog. The
names of reformers like Mr Aung Naing Oo
are now “manure’, says Mr Ye Salween. If
they thought siding with the army would
ensure their safety, they may be thinking
again. Low-level officials are assassinated
almost every day. @
JM
economy was roughly equal to India’s. It
is now five times bigger, and churns out
ever-more sophisticated weaponry while
India relies on imports. China’s infra-
structure has expanded towards its peri-
pheries at a speed India has been unable
to match.
As seen from Beijing, China’s south-
ern neighbour looks weak in other ways.
Its democracy is messy and inefficient.
Narendra Modi, India’s prime minister,
looks like a puffed-up bluffer. And even
as China extends strength by tightening
its alliance with India’s arch-enemy
Pakistan, Mr Modi dithers. In his dream
of a Hindu golden age India needs no
allies, only weaker satellites or rich
friends. Despite fanfare over defence
agreements with America or Japan or
Australia, these remain largely notional.
India’s army has little functional inter-
operability with any other.
In short, as the board fills up and one
player emerges dominant, there should
be no surprise for it to push the advan-
tage. But China has not yet won. Even if
his opponent is erratic, the global game-
board may prove wider, and India may
turn out to have better-placed assets than
Mr Xi realises.
Despite Mr Modi's failings India
retains a big reserve of goodwill asa
democracy and a decent global citizen; it
would gain fast allies if it really tried to
win them. India’s core strength may run
deeper, too. Its relative smallness is
deceptive: the eastern third of China,
where 95% of Chinese actually live, is no
bigger than India. As China’s economy
matures, India’s remains packed with
upward potential. Besides, unlike a game
of weiqi this contest between two great
and ancient nations will never simply
stop. It will keep on going long after Mr
Xi and Mr Modi finish playing.
The spectral game
Despite pledging not to, China still uses hackers to steal business secrets
ARLIER THIS year Microsoft found thata
Press of hackers, which it called Haf-
nium, had broken into hundreds of thou-
Sands of computer servers around the
world that were running the firm’s mail
and calendar software. The cyber-thieves
were stealing emails, documents and other
data from small businesses, NGOs and local
governments in an enormous, seemingly
indiscriminate, cyber-attack. In July Amer-
ica, Britain, other members of NATO and
the European Union all blamed China.
America was more specific. It named Chi-
na’s civilian intelligence agency, the Min-
istry of State Security (MSS).
Such co-ordinated condemnation of
the Chinese government for allegedly
hacking into foreign computer systems
was unprecedented. But it was no surprise
in the West that China appeared to be re-
sponsible (as always in such cases, it de-
nied involvement).
In 2015, standing next to Xi Jinping at
the White House, Barack Obama said the
two presidents had agreed that neither
country would “conduct or knowingly sup-
port cyber-enabled theft of intellectual
property” for commercial gain. But cyber-
experts say China remains hard at it. In
September attacks allegedly mounted by
the Chinese government included ones
against Indian media firms, Microsoft’s
Windows operating system and Roshan, a
telecoms network in Afghanistan.
Spy agencies everywhere hack into oth-
er countries’ computer systems. What irks
Western governments is that China also
steals commercial secrets to pass on to its
companies, whereas there is no evidence
that the West’s spies collude with business
like this. Since Mr Xi took power in 2012,
China’s hacking capabilities have grown.
The Chinese army’s_ signals-intelli-
gence wing, the Third Department, used to
be in charge of such work. It attacked
everyone from American military contrac-
48 Hong Kong's jailed dissidents
50 Chaguan: Why aim for zero covid?
tors to Google. In 2014 America’s Depart-
ment of Justice formally accused five Chi-
nese citizens from the Third Department's
Unit 61398 of “computer hacking, econom-
ic espionage and other offences” against
American companies involved in nuclear
and solar power as well as metal produc-
tion. (Those charged were believed to be in
China and have not appeared in court.) By
then, however, control over hacking activ-
ities was being transferred to the Mss. The
army is still hacking, but its targets are
now mainly government ones.
The MSs was first publicly linked to the
hacking of foreign companies in 2017. Its
involvement was exposed by an anony-
mous blog called Intrusion Truth, which
monitors such attacks. Several cyber-secu-
rity firms endorsed its analysis. Later that
year the American government charged
three alleged Mss hackers in absentia for
attacks on foreign firms. Two of the ac-
cused had been identified by the blog.
Attributing cyber-attacks to China, let
alone to specific government agencies, is
tricky. Benjamin Read of Mandiant, an
American firm that tries to keep tabs on
who is hacking what, explains that he and
his colleagues gather and analyse telltale
tracks, such as the addresses of computers
used to launch attacks. A single hacking in-
cident usually does not leave enough in-
formation to identify the culprit: attackers
can give their computers a false address.
But that can be laborious, since, whenever
they use a new address, the hackers must}
48 China
» also reinstall all of the tools they use to car-
ry out attacks. This creates an incentive to
use addresses repeatedly, which facilitates
the work of cyber-detectives.
Under military oversight, China’s cyb-
er-attacks often seemed haphazard. Hack-
ers were given lists of targets at the begin-
ning of each month, but there appeared to
be little supervision or co-ordination of
their efforts. The Mss has integrated the
process more closely with other intelli-
gence-gathering operations, says Mr Read.
One team might grab a target’s mobile-
phone data from a telecoms firm, then
hand the information to a different group
that would use it to infiltrate the device.
Computer experts at Chinese universi-
ties have long co-operated with cyber-theft
operations conducted by the army and the
Mss. Such people have been obvious tar-
gets for recruitment by China’s intelli-
gence agencies as in-house talent. Now the
government is expanding the potential
supply of hackers by creating a vast new
teaching and research facility in the cen-
tral city of Wuhan, says Dakota Cary of the
Centre for Security and Emerging Technol-
ogies at Georgetown University in Wash-
ington. The 40-square-kilometre campus,
called the National Cybersecurity Centre,
is under the direction of the Communist
Party Cyberspace Affairs Commission,
led by Mr Xi. The centre will produce its
first graduates—1,300 of them—next year.
Growing numbers of people are needed
to sift through the huge volumes of data
that are stolen by the hackers. Mr Brazil of
BluePath Labs reckons there are probably
several hundred thousand analysts work-
ing on this already. “The economy and mil-
itary have greatly benefited from technolo-
ey theft,” he says. “Why stop just because
those foreigners are feeling aggrieved?”
America’s Federal Bureau of Investiga-
tion has been stepping up its efforts to curb
the espionage. On November 5th an Mss of-
ficer was convicted in Ohio of conspiring
to steal jet-engine technology from Gener-
al Electric, an American conglomerate. In
July two Mss spies living in China were for-
mally accused of hacking into high-tech
businesses around the world over the
course of many years, most recently to
steal pharmaceutical data related to co-
vid-19 vaccines and treatments.
Companies that worry about China’s
hacking often use a private cyber-security
firm to monitor their networks for subtle
patterns indicating an attack, and try to cut
it off before it goes too far. Encrypting as
much data as possible helps them to min-
imise their losses. But it is extremely hard
to fend off all cyber-spying. If China’s hack-
ers really want to break into a network, are
willing to work slowly and are able to oper-
ate stealthily, they will often succeed. The
entreaties of Western governments will
not deter them. mf
Dissent in Hong Kong
New kids on the
cell block
The city’s jails are filling up with
political prisoners
OME NEW inmates in Hong Kong’s pri-
S sons have reading wishlists that reflect
interests beyond such common behind-
bars topics as self-improvement and how
to exercise in small spaces. Their requests
include dystopian novels about totalitar-
lanism, such as George Orwell's “1984” and
“Brave New World” by Aldous Huxley, or
books about struggles against authoritar-
ian rule, including Vaclav Havel’s “The
Power of the Powerless” and “How To Feed
A Dictator” by Witold Szablowski.
Such bookworms belong to a new breed
of prisoner: the dissident. Before the pro-
democracy demonstrations that roiled
Hong Kong for much of 2019, few people
were incarcerated for taking part in politi-
cal protests. But the authorities have got
tougher. More than 10,000 people have
been arrested in connection with the un-
rest. Court proceedings have begun against
a quarter of them. The government is
building a megacourt to process a backlog
of cases, including some involving a na-
tional-security law that was imposed in
Hong Kong last year. Hundreds of people
are now Serving prison sentences or being
held on remand for alleged offences relat-
ed to the protests. Many Hong Kongers
know someone in jail who has been ac-
cused of such crimes.
Conditions are better than in the main-
land’s jails, where political prisoners are
allowed little, if any, contact with the out-
The Economist November 13th 2021
side world and are often treated brutally. In
Hong Kong, volunteers collect books and
organise letter-writing campaigns for de-
tainees. Online guides provide advice to
correspondents about what not to write:
avoid slogans from the protests and any
references to violence or sexually explicit
material. Instead, write about trivial news,
tell jokes, describe movie plots and draw
sketches, suggests one manual. A book-
seller recently ran an eight-part workshop.
Participants wrote letters to inmates and
read prison literature by Nelson Mandela,
Havel and activists from Hong Kong. Josh-
ua Wong (pictured, entering prison), one
of the best-known faces of the pro-democ-
racy movement, has written that he is
grateful for “every word and every sen-
tence” mailed to him.
Sympathy for political detainees is
widespread in Hong Kong. During a heat-
wave in May, a petition for the provision of
cold water and more showers to those in-
carcerated garnered over 140,000 signa-
tures. A cottage industry has emerged to
help them in other ways. Some Hong Kong-
ers transcribe popular YouTube videos for
inmates, who cannot access the internet.
Other pen-pals copy and paste posts from
LIHKG, an online forum that attracts de-
mocracy enthusiasts, in order to create a
physical newspaper for inmates. “As an
avid user of LIHKG, these forum-post print-
outs are my Bible,” says a detainee quoted
by a prisoner-rights group.
Well-known pro-democracy inmates
pass the time by exercising, writing letters,
helping fellow inmates with their appeals
and publishing articles in local newspa-
pers. Chow Hang Tung, a jailed barrister
and human-rights activist, accepted her
boyfriend’s proposal of marriage, which
was sent to her by letter. It was later pub-
lished in Ming Pao, one of Hong Kong’s
leading newspapers. These young Hong
Kongers are “learning to seek freedom in
an environment where they have lost their
freedom”, writes Chan Kin-man, an aca-
demic who served 16 months in jail for his
role in the Umbrella Movement of 2014.
Imprisoned activists are scattered
throughout the city’s jails to prevent them
from communicating with each other. But
officials still worry about their influence.
In September an elite squad was used to
quell a protest by 18 prisoners angered at
the treatment of other inmates, including
Tiffany Yuen, a district councillor who is
on remand under the national-security
law. They had been accused of acquiring a
prohibited number of chocolates and hair
clips. Bizarrely, officials feared they might
give them to other inmates to win support
for Ms Yuen. “This is how groups begin,
like terrorist groups recruiting followers,”
Said Woo Ying-ming, the head of Hong
Kong’s prisons. Even behind bars, officials
keep Ms Yuen’s type under close watch. @
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50 China
The Economist November 13th 2021
Chaguan | Why China has a zero-covid policy
Harsh rules enjoy support, as long as a majority feels safe
- — > at
EARLY TWO years into the covid-19 pandemic, China’s propa-
N ganda machine is locked in a futile argument with the outside
world. The row is about whether this giant country is paying too
high a price for its “zero-covid” policy. China’s attempts to elimi-
nate the virus, rather than merely manage it, are certainly costly.
They have largely closed China’s borders for19 months. Dozens of
city districts, towns and counties are enduring lockdowns as the
highly contagious Delta variant and an early cold snap cause a
flare-up of infections. There are several hundred cases of the dis-
ease nationwide. Many of them are local transmissions rather
than imports from abroad, underscoring Delta’s perils. Controls
include roadblocks manned by police in protective suits, closed
schools, cancelled trains and testing of millions of residents.
With officials facing punishment for cases on their watch,
grassroots harshness abounds. The northern city of Heihe has de-
clared a “people’s war’, with rewards of up to 100,000 yuan
($15,600) for residents who report such pandemic crimes as illegal
hunting. A county in Inner Mongolia locked nearly 10,000 tourists
in hotels for two weeks to smother an outbreak. Two pharmacies
in suburban Beijing lost their licences for selling fever-reducing
medicines to a couple without logging their names in a virus-
tracking database. The customers, who had earlier visited areas
with covid cases and later tested positive, are being prosecuted for
failing to report to a fever clinic. Citing possible transmission
risks, officials in cities including Chengdu, Harbin and Wuxi en-
tered the homes of quarantined locals and killed their pet cats.
Officials reject foreign reports that call such measures unsus-
tainable. “It’s simply not right to question China’s efforts to elim-
inate the virus,’ complained Xinhua, a state news agency, citing
the country’s “robust” economy and calling travel curbs a “minor
inconvenience’. Hu Xijin, the editor of a tabloid newspaper, says
foreigners are jealous of China's virus-fighting record, and char-
ges that America has eased pandemic controls because it values
“money over life”. In fact, the two sides are talking past one anoth-
er if they focus on how strict zero-covid policies are. It is more rel-
evant to ask who feels the pain from those controls. They are best
understood as a giant utilitarian experiment. To help the majority
enjoy an orderly, covid-free existence, a hapless minority—nota-
bly those who catch the virus or are suspected of contact with car-
riers—must sacrifice individual liberties, privacy and dignity.
A focus on the interests of the majority resonates with many
Chinese. They remember images of chaos in Wuhan last year, as
the virus overwhelmed hospitals in that city of 1om. They know
that the health system is weaker outside big urban centres. Many
doctors in rural clinics lack university degrees. Intensive-care
beds are rare. AMerican-style pandemic policies could have led to
millions of deaths. As for closed borders, which cause anguish to
expatriates and Chinese with family overseas, they do not greatly
pain the 87% of the population without passports.
Many citizens of democratic countries would not tolerate half
the rules imposed on China in this pandemic. But the collective
sacrifices of the Chinese have produced something remarkable. In
a country of1.4bn people, the official total death toll from the pan-
demic is under 6,000, compared with almost 808,000 excess
deaths in America, which has less than one-quarter of China’s
population. Some scepticism of China's statistics is reasonable,
given that officials in Wuhan, where the outbreak was first detect-
ed, concealed the virus for weeks in late 2019 and early 2020. Yet if
large outbreaks were still being concealed today, control systems
would start breaking down, for they rely on tracking and tracing
fresh cases. Instead, life in much of China is relatively normal.
Strictness for the greater good continues to enjoy unmistak-
able public support. But Chinese leaders do face a risk whenever
public opinion suspects that overly harsh lockdowns actually
serve the interests of a minority, ie, officials eager to cover their
backs. There are signs of disquiet. Chengdu, for instance, recently
broadened its pandemic controls, testing 82,000 people whose
mobile telephones had spent ten minutes within 800 metres of a
suspected case. Other cities have started copying this approach.
But on November 8th two leading epidemiologists and a doctor in
Chengdu wrote an open letter warning pandemic officials that
such mass testing must be guided by science, and risks causing
panic. That officials keep talking about punishing rule-breakers is
a sign of at least some public fatigue. It also risks driving the weary
to hide from the authorities.
The party calls pandemic control proof that it loves the people
To maintain support, strict controls must be seen to benefit every-
one, though a minority will feel the most hardship. Foreigners in
China, yearning for borders to open, often suggest that the sight of
normality in the rest of the world will soon make Chinese citizens
restless. For now, state media keep such envy at bay by presenting
the West as a death-stalked hellhole. An online video promoted
this week by state media is filled with images of Donald Trump
when he was America’s president, and the chaos abroad of those
days. It calls American travellers “walking vectors of contagion”.
To date, zero-covid’s worst effects have been felt by luckless
minorities, from locked-down residents to those whose liveli-
hoods depend on free movement within and outside China. Fear,
and the stigma endured by those who catch the virus, have en-
sured compliance with orders. Harsh policies have bought China’s
leaders time, as they wait for potent vaccines and antiviral drugs
that might let them open up Safely. Officials have arguably slowed
an exit by refusing to approve foreign vaccines that are more effec-
tive than China’s, in their eagerness to prove the superiority of
one-party rule over Western democracy. Further mutations of the
virus may one day challenge China’s strategy. If they make lock-
downs more frequent, the ranks of the unlucky will grow. @
witelel (om eae Viale
Saudi Arabia
No tourist Mecca
ABHA
The reinvention of the Saudi economy is going slower than planned
ERE IT NOT for the ubiquitous photos
WV of the royal family, visitors to Abha
might forget they were in Saudi Arabia.
Gnarled juniper trees dot green moun-
tains; mist clings to valleys where farmers
grow crops and raise honeybees on ter-
raced fields. Troops of baboons line the
roads, foraging for food and occasionally
Stealing bags from unsuspecting visitors.
Saudis have long flocked to this city,
870km (541 miles) south-west of Riyadh,
the capital, to escape the summer heat.
Foreigners will soon discover it, too. The
Public Investment Fund (PIF), the main
Saudi sovereign-wealth fund, has pledged
ubn rials ($2.9bn) to build 2,700 hotel
rooms and dozens of tourist attractions in
the region (pictured). By 2030 developers
hope to draw 2m visitors annually.
Tourism is a key element of Vision
2030, an economic-reform plan meant to
wean the kingdom off oil that was unveiled
five years ago by Muhammad bin Salman,
the crown prince. The government expects
tourism to be the largest source of new jobs
in the private sector, accounting for 10% of
both GpP and employment within a de-
cade. “The industry is at the top of our 2030
agenda,’ says Ahmed al-Khateeb, the tou-
rism minister, who hopes to see1oom local
and foreign tourists in ten years’ time.
Saudi Arabia has lots of untapped po-
tential. It did not even offer tourist visas
until 2019. But officials struggle to explain
why a hoped-for 50m foreign visitors will
choose the kingdom over other destina-
tions each year. That points to a bigger
question looming over the economic-re-
form effort. To achieve its goals, Saudi Ara-
bia must attract foreign firms and inves-
tors. Yet officials struggle to make a com-
pelling case for why they, too, should
choose the kingdom.
Prince Muhammad will be judged large-
ly on whether he can create decent jobs for
> Also in this section
52 Premarital sex in Morocco
53 Iran's weapon of choice
53 Reintegrating rebels in Congo
54 Liberia's quest for justice
The Economist November 13th 2021
Saudi Arabia’s 21m citizens, two-thirds of
whom are under 35. The pandemic pushed
the jobless rate up to 15.4% in the second
quarter of 2020. Since then it has fallen
(see chart on next page), dropping to 11.3%
in the second quarter of 2021, the lowest
level in a decade. That is in part because lo-
cals are taking low-skilled jobs that used to
be the preserve of migrants. Saudis now
work tills and brew coffee, sights unimag-
inable a decade ago. Women, too, are piling
into jobs: they are now 28% of working
Saudis, up from 16% five years ago.
Falling unemployment, however,
comes partly from a lower participation
rate, which dropped by 1.8 percentage
points during the first half of 2021. At the
high end of the labour market, there are
not enough jobs for educated Saudis. Half
of unemployed citizens hold at least a
bachelor’s degree. At the other end, grunt
work is mostly done by foreigners, who are
cheaper. Citizens are still just 24% of the
workforce in sales and 20% in hospitality.
Over 85% of the jobs in construction, the
industry that employs the most people, are
done by foreigners.
As the economy grows, the labour mar-
ket will grow with it. But the foreign direct
investment (FDI) needed for growth re-
mains sluggish. By 2020 the kingdom had
hoped to attract $1obn in annual inflows. It
fell far short, bringing in $5.5bn last year.
No matter: last month Prince Muhammad
announced a new investment strategy that
promised $100bn in annual FDI by 2030
(more than the total for the past decade). >>
Middle East & Africa
» This is a problem across the government.
Officials set ambitious targets, miss them,
then simply aim higher. “The crown prince
doesn't have enough feedback,’ says a con-
sultant to multinational firms. “There are
too many yes-men.”
In private, would-be investors fret
about the business climate in a country
dominated by one man. They were un-
nerved in 2017 when Prince Muhammad
detained dozens of businessmen and roy-
als for alleged corruption (many traded as-
sets for freedom). Tax was a big concern at
this year’s Future Investment Initiative, a
glitzy annual conference in Riyadh. The
government has served several firms, in-
cluding Uber (and Careem, its subsidiary
in the Middle East), with hefty bills for un-
paid taxes. Some executives wonder if this
portends a private-sector shakedown.
Multinationals have already been told
to move their regional headquarters to the
kingdom by 2024 or risk losing juicy state
contracts. Last month the Saudi govern-
ment said that 44 such firms, including
Siemens and Unilever, would open offices
in Riyadh. The pressure has prompted
grumbling from executives based in places
like Dubai, which are less conservative and
offer better amenities.
To Saudi Arabia’s credit, it continues to
ease once-draconian social restrictions.
The weekend before Halloween, young
Saudis crowded a party-supply store, its
shelves stocked with monster masks, devil
tridents and sexy-nurse outfits. Not long
ago such merchandise would have
prompted a visit from the religious police.
“They have no control over us now,’ beams
the store’s owner (whose only concern was
that his “very, very conservative’ relatives
might discover what he does fora living).
Partitions that separated single men
from families have come down in smart
restaurants. Young Saudis crowd cinemas,
banned for decades, to watch films like
“Dune”, about a prince tapped to rule a re-
source-rich desert. On October 2oth hun-
dreds of thousands of people in Riyadh at-
tended a concert by Pitbull, an American
singer who is not for the prudish.
The government hopes fun will be lu-
crative. With few diversions at home, Sau-
di holidaymakers do most of their spend-
ing abroad. The pandemic offered hints of
how much business escapes to London and
Dubai. In the second quarter of this year,
Saudi hotels logged 2.2bn rials ($590m) in
point-of-sale transactions, a 7% increase
over the same period in 2019—even though
the kingdom was largely shut to visitors.
“It was pure Saudi spend,’ says Princess
Haifa Al Saud, who oversees the national
tourism strategy. Yet there will be less
money for them to spend as Saudis take
lower-paid jobs and the government cuts
once-generous benefits. Petrol prices have
more than doubled since 2015. The govern-
zz
Jobs for some
Saudi citizens, %
Labour-force Unemployment
participation rate rate
80 40
Male Female
ee 20
Total
Female af 200 ne 10
| 0 Male 0
2017 19 21 2017 US 21
Source: General Authority for Statistics
ment introduced a 5% value-added tax in
2018 and raised it to 15% last year.
The tourism industry needs foreign vis-
itors. Apart from Abha, they may come to
enjoy long stretches of unspoilt Red Sea
coast and historic sites like the Nabataean
ruins at Al Ula. No one can accuse tourism
bosses of lacking creativity. In October the
PIF announced “The Rig”, a plan to repur-
pose an offshore oil platform into a resort
and theme park.
But officials seem blithe about how all
The Economist November 13th 2021
of this will compete with other destina-
tions. The first hotels to open on the Red
Sea will be luxury brands, pricing out many
prospective visitors. Officials are coy about
whether they will legalise alcohol. “We
know we have to be competitive in every
aspect,’ says one. Even if they do, some
tourists may be put off by a sun-and-sand
holiday in a country with such a conserva-
tive image. In the “halal tourism” market,
meanwhile, Saudi Arabia faces stiff compe-
tition from cheaper, more established
places like Turkey and Malaysia.
The same goes for the broader econ-
omy. Lower subsidies, higher taxes and
pricier labour have eroded some of Saudi
Arabia's traditional selling points for
firms. It is unclear what will replace them.
Until the government banned the prac-
tice, residents of Abha would chop down
juniper trees for firewood, to stave off the
winter chill. As part of the regional tourism
project, developers plan to plant 1m trees
to reforest the mountains. It will be a long
time before visitors can appreciate them:
they grow just 5cm a year in the region's dry
climate, says Turki al-Bishri, a local guide.
For all the talk of rapid change, the slow-
erowing juniper may offer a better glimpse
of Saudi Arabia’s economic future.
Get two rooms
RABAT
Hoteliers are backing Moroccans who want to legalise sex before marriage
T IS BAD enough that the pandemic cut
the number of foreign tourists by 80%;
to make matters even worse, Morocco’s
ban on extramarital sex is stifling the
domestic market in hotel beds. Un-
married couples caught in the same
room are liable to jail terms of uptoa
year under Article 490 of the penal code.
Each week the police check hotel records
to uphold the law. Receptionists-turned-
private detectives require verification of
marriage certificates before handing over
the Keys. “I get more calls from unmar-
ried couples wanting to stay than anyone
else,’ says Meryem Zniber, who runs a
resort in the Rif mountains. “I could fill
my hotel100% if only they’d lift the law.”
Hopes of change rose after the Islam-
ist party heading the government
crashed in elections in September, losing
90% of its seats. For a decade its leaders
had squelched any policy deemed haram,
or contrary to Islamic law. Aziz Akhan-
nouch, the new prime minister, sounds
more liberal. His government recently
Said it would review the entire penal
code. But he has left out of his coalition
the only party that publicly calls for
Article 490 to be repealed.
The interior ministry is a big obstacle.
“They fear turning hotels into brothels,”
says a former minister. Others say the
main concern is pecuniary: Officials do
not want to lose the bribes they extort
from hotels and unmarried couples who
canoodle in them.
Travel websites suggest workarounds.
One proposes donning a wedding ring.
“The offer of an additional payment may
carry some weight,’ it adds. Another
suggests “the two-room method: rent
single rooms, then scurry across the
corridor after dark”. But others have tired
of the expense and the hypocrisy. Hash-
tag campaigns—“Love is not a Crime”
and “Stop490”—proliferate online.
Conservatives urge young Moroccans
to respect tradition. Youngsters retort
that the precursor to Article 490 was
introduced by France in 1953, near the
end of the colonial era. And they point to
other Muslim countries that are shaking
off old mores. The United Arab Emirates
decriminalised extramarital sex a year
ago. Saudis say their hotels have stopped
asking couples to show marriage certif-
icates. Morocco’s latest hashtag cam-
paign implores “Vote4Love’”.
The Economist November 13th 2021
Iran's military tactics
The new predators
JERUSALEM AND WASHINGTON, DC
Why drones are becoming Iran’s
weapon of choice
SING DRONES to assassinate people has
long been the preserve of the most ad-
vanced armed forces, such as America’s
and Israel’s. But an attempt on November
7th to kill Iraq’s prime minister, Mustafa al-
Kadhimi, was a dramatic demonstration of
how such “precision-strike” capabilities
are spreading to less advanced countries
and even to shadowy militias.
Several of Mr Kadhimi'’s bodyguards
were hurt when at least one drone hit his
home in the protected “Green Zone” of
Baghdad. Other drones may have been shot
down. The prime minister survived, ap-
pearing soon afterwards on television to
denounce the “cowardly” attack.
The hit was so rudimentary, apparently
involving quadcopters (of the sort that can
be bought by hobbyists) rigged with small
bombs, that it could have been staged by
any one of Iraq’s many armed groups. “If
you can deliver pizza with a drone, you can
drop a grenade,’ says James Lewis of the
Centre for Strategic and International
Studies, an American think-tank.
Yet suspicion immediately fell on Iran
and its proxies, for two reasons. The first is
that Fatah, the political arm of Shia mili-
tias aligned with Iran, is furious at losing
most of its seats in Iraq’s election last
month. Loyalists have staged protests and
on November 5th attempted to burst into
the Green Zone. The following day, at the
funeral of a protester killed by security
forces, militia leaders vowed revenge
against Mr Kadhimi.
The second reason is that Iran has be-
come the most assiduous provider of
drone technology to its proxies and
friends, not only in Iraq but also in Leba-
non, Yemen, Syria and the Gaza Strip.
These are not the sophisticated machines
operated by America, such as the Predator
and the Reaper. Instead, they are often
“craptastic” knock-offs, made with com-
mercially available components, explains
Aaron Stein of the Foreign Policy Research
Institute, another American think-tank.
But Iran is also making improvements, not
least by reverse-engineering captured
drones, such as America’s stealthy RQ-170.
Like unmanned aerial vehicles (UAVs)
from advanced countries, Iranian ones are
used for both surveillance and strikes. Un-
like them, Iranian UAvs do not usually car-
ry precision-guided munitions. Instead
the drone itself is the guided bomb, flying
into the target and detonating like a robot-
ic kamikaze. Iran dispenses with the satel-
lite links that allow Western forces to con-
trol drones from the other side of the
world. Its UAvs are typically operated by
line-of-sight radio control, or can guide
themselves with Gps technology used in
smartphones and automotive satnavs.
Iran achieves great range by distribut-
ing UAVs (or the techniques to make them)
to its allies across the Middle East, thereby
threatening targets from the Mediterra-
nean to the Persian Gulf. The drones are of-
ten delivered in kits and assembled locally
with little help from Iran, notes Mr Stein.
“These drones allow Iran to orchestrate at-
tacks while maintaining deniability and
ambiguity,’ says an Israeli military official.
The simplicity belies the threat that the
drones pose. Last month an American out-
post in Tanf in Syria was hit by five Gps-
guided drones. Nobody was hurt, but
American Officials later blamed Iran and
the Biden administration imposed sanc-
tions on people and firms associated with
the drone programme. In 2019 several
drones struck Saudi Arabia’s oil facilities at
Abqaiq and Khurais, interrupting about
half of the country’s oil output for a while.
The Houthi militia in Yemen, which 1s al-
lied to Iran and has been fighting againsta
Saudi-led coalition since 2015, claimed re-
sponsibility. But Western military sources
believe the drones were dispatched from
Iraq, or perhaps even from Iran.
Israel pioneered the use of disposable,
self-destructing drones to destroy Arab air
defences in the 1970s and 1980s. Now,
though, it must ward off the drones of its
enemies. It has resorted to everything from
F-16 fighters to the Iron Dome anti-rocket
system, but is looking for a better defence.
So is America. “We no longer have air supe-
riority,’ laments an American military
source, referring to the Middle East. “Amer-
icans got used to owning the skies.” @
Middle East & Africa
Congo's militias
No farewell
to arms
MUBAMBIRO
The president does not know what to
do with rebels who surrender
T THE ENTRANCE tO a base for ex-rebels
Ain Mubambiro, a town in the east of the
Democratic Republic of Congo, a young
man paces to and fro, clasping a wooden
replica of an AK-47, the rifle of choice for
guerrillas everywhere. “I am the guard
here,” he explains, “And I am used to hav-
ing a gun, it makes me feel comfortable.”
Shukuru Bijadunia, aged 23, handed his
real rifle to the Congolese authorities in
2018 and has languished in a dismal camp
ever since. He sleeps without a mattress in
a Shabby tent with other former rebels. Last
year no food was provided at the camp for
nine months. “I sleep badly, I barely eat
and there is no medicine when we get
sick,’ says Mr Bijadunia. “Life in the bush
was better.” Hundreds of other former re-
bels agree. At its peak, the camp hosted
more than 1,700 fighters, from 30 different
militias, who had surrendered. Today, few-
er than 400 of them remain. Some have
gone back into the bush to rejoin their old
armed groups. Others have been recruited
into new ones.
Conflict has ravaged eastern Congo for
over 25 years. More than 120 armed groups
hide in the forests. Many are reportedly
backed by Uganda and Rwanda, though
both countries deny this. Militias that had
surrendered or disbanded are regrouping,
and new ones are forming. Some groups
say they want to overthrow the president,
Félix Tshisekedi, though he is usually more
than 1,000km (621 miles) away in the capi-
tal, Kinshasa. In the meantime, many prey
on local civilians or smuggle minerals.
On November 7th gunmen attacked two
villages near the Ugandan border, killing
Congolese soldiers. The attackers are be-
lieved to be members of the M23, a militia
backed by Rwanda that in 2012 captured
Goma, acity of 2m people, before being de-
feated and forced to surrender a year later
by UN forces and the Congolese army. Now
it seems to have reassembled. The Ameri-
can embassy recently warned its citizens
in Goma to stay at home, fearing another
attack on the city.
Also this month, members of a new
group calling for Mr Tshisekedi to step
down stormed the city of Bukavu. The at-
tacks highlight the president's failure to
make good on one of his main campaign
promises before he came to power in
2019—to pacify the eastern parts of Congo.
On his first presidential visit to the embat-
53
tled province of North Kivu, Mr Tshisekedi >>
54 Middle East & Africa
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Source: ACLED
>» encouraged rebels to come out of the bush
and start new, peaceable lives. “To all my
brothers in armed groups, this is the hour
for change,’ he said. “The government is
reaching out its hands to you.” But those
who disarmed were left to rotin camps like
the one in Mubambiro, which hardly en-
courages others to do the same.
Foreign donors have pumped millions
into dysfunctional disarmament schemes.
The World Bank alone has contributed
$171m to three programmes. Some have
been laughable. The UN once offered rebels
$100 for each of their guns. But, as Séveri-
ne Autesserre points out in her book, “The
Frontlines of Peace”, a Kalashnikov Sells for
$40 on the black market. So a militiaman
could hand in his rustiest gun, buy two
more, and still have money left over for
beer. Other programmes have been horrif-
ic. In 2014 over a hundred rebels and their
family members died from starvation and
disease at a government camp.
Mr Tshisekedi has recently launched
yet another disarmament programme
which, this time, is meant to reintegrate re-
bels back into the villages they came from.
Yet the scheme lacks funds. Chastened by
the failures of past projects, Western do-
nors are reluctant to pay for it. What is
more, the president has chosen a former
Rwandan-backed rebel, Tommy Tambwe,
to run it. Considering Rwanda’s continued
interference in Congo’s conflict, this has
been unpopular. Politicians and rebels
alike have called on Mr Tshisekedi to
change his mind.
When Mr Tshisekedi travelled to the
east in June, he did not pay a visit to Mu-
bambiro. However, emaciated former re-
bels from the camp tried to get his atten-
tion by blocking a main road nearby with
flaming logs and branches. “We regret
coming here, we don't understand why the
president called us here,” says Héritier Ba-
hati, a former fighter, standing in front of
the smoking barricade. “It’s as though he
called us here to die.” @
Liberia
Time and
punishment
MONROVIA
Would a war-crimes court allow Liberia
to move on?
(4FHERE WAS a lot of blood all over the
T piace’ remembers Patricia, her voice
cracking. She survived the night in 1990
When government soldiers shot and
chopped to death about 600 civilians who
had been sheltering from Liberia's civil war
in the Lutheran Church in Monrovia, the
capital. “We saw the pregnant women,
their stomachs open, the children on their
mother, sucking, crying.”
Today, not far from the bullet-scarred
church, gold letters on the Temple of Jus-
tice declare: “Let Justice Be Done To All”. Yet
not a single person has been convicted in
Liberia for the massacre—or for any war
crimes committed during the back-to-back
civil wars between 1989 and 2003, in which
about 250,000 people were killed.
Much has changed since the conflict
ended. Clinics and schools have sprung up,
tarred roads hum with traffic and, above
all, peace has endured. Yet Afrobarometer,
a pollster, found that in 2018 half the popu-
lation had paid a bribe in the previous year.
Rapes of women and children are all too
common. So are murders. Two sons of for-
mer presidents have been killed since Sep-
tember. Some human-rights activists
blame a culture of impunity that dates
back to the wars.
Impunity is not hard to spot. Prince
Johnson, an influential senator, is a former
watlord who, in a video available on You-
Tube, can be seen drinking a Budweiser
beer and barking instructions as his men
cut off the ear of a former president, Samu-
el Doe, in 1990. Mr Johnson, who has ad-
mitted that his men killed Doe, has de-
clined to comment beyond saying, “There
is no need to dwell in the past.”
George Boley, a congressman, is anoth-
er former rebel leader who was deported
from America because of allegations that
his men had burned captives alive and
raped villagers before slitting their throats.
Charles Taylor, a warlord and former presi-
dent, was convicted of war crimes at the In-
ternational Criminal Court in The Hague
for atrocities in neighbouring Sierra Le-
one’s civil war. He is now in prison in Brit-
ain. But he has never faced justice for his
alleged crimes in Liberia itself.
In 2009 the country’s Truth and Recon-
ciliation Commission (TRC) recommended
that some of the most violent warlords face
trial. But that recommendation was not
acted upon by the government of Ellen
Johnson Sirleaf, who was then president.
The Economist November 13th 2021
Activists and politicians, including Rus-
tonlyn Dennis, a congresswoman, are try-
ing to revive the idea, through protest and
by proposing draft legislation. “This coun-
try will never go forward if people don't
take responsibility,” says Ms Dennis. Oth-
ers say a court is needed to deter people
from taking up arms again. “In absence of
punishment there will not be peace,” says
Dempster Brown of Liberia’s Independent
National Human Rights Commission.
Yet not everyone favours trials. Sam
Walker of Liberia Peace and Reconciliation
Forum, a group opposing the tribunal, says
it would be a “witch hunt” and even claims
it could renew conflict. He prefers alterna-
tives, such as getting victims and perpetra-
tors to talk. Others worry about the price
tag, given that Sierra Leone's special court
cost about $300m. “What do we priori-
tise?” asks Meo Beyan, the assistant minis-
ter of justice, listing pressing needs suchas
jobs, education and health care.
Still, many suspect President George
Weah’s own wotries are the real barrier. His
run for president in 2017 was backed by Mr
Johnson, whose support Mr Weah is
thought to want in the next election, in
2023. In 2019 he tried to kick the question
of a tribunal to the Senate, which advised
against “reopening old wounds”.
Though the government drags its feet, a
tribunal has some odd supporters. Joshua
Blahyi (pictured), known as General Butt
Naked, led a group of drugged child sol-
diers who often fought wearing nothing
but sneakers and charms. He told the TRC
he was responsible for the deaths of
20,000 people. Today he claims to be a re-
pentant Christian and, despite his docu-
mented history of almost incomprehensi-
ble violence, is entirely at liberty. Is he in
favour of a war-crimes court, even if it
might jail him for the rest of his life? “Defi-
nitely,” he says. “It’s Liberia’s only hope.” @
General Butt Naked’s new mission
The Economist November 13th 2021
EU railways
Disoriented express
BERLIN
Trains could help Europe reach its climate targets. But daft rules block the tracks
HE CENTREPIECE of this year’s Euro-
Tpean Year of Rail was the “Connecting
Europe Express’. Between September and
October its cars whisked EU officials across
the continent on a whistle-stop tour pro-
moting the future of railways. But the train
itself was a nostalgia trip: most of its wag-
ons were built in the 1980s, since more re-
cent models were less likely to be certified
by the rail-safety boards of all 26 countries
it visited. Without arm-twisting by the
European Commission, said Alberto Maz-
zOola of the CER, a rail-industry group, the
trip would have been impossible.
It was a classic European story. The EU
has grand ambitions for trains as a way of
cutting carbon emissions, and its national
railway networks are strong. But rail is the
form of transport that requires the most
co-ordination, and ona continent split in-
to dozens of countries that is a problem.
Governments pour money into domestic
high-speed lines, but often leave just a
winding bit of track linking to the neigh-
bours. For the national carriers that domi-
nate the sector, such as Germany's Deut-
sche Bahn and France’s SNCF, cross-border
trips are a side business and competitors a
nuisance. “The single European railway
area exists in terms of a market opening,”
says Kristian Schmidt, the European Com-
mission’s director of land transport. "But
we have a long way to go.”
The EU's mobility strategy calls for mak-
ing all scheduled travel of 500km (310
mikes) or less carbon-neutral by 2030. The
most obvious way to do that is with electric
passenger trains. Even accounting for use
of fossil fuels in power generation, trains
average about one-fifth the greenhouse-
gas emissions per passenger-kilometre of
aeroplanes and less than half that of buses,
says the European Environment Agency.
Gimme a ticket for an aeroplane
Yet only 8% of the distance travelled by
land in the Eu is by rail. Even in the most
train-happy countries, Austria and the
Netherlands, the figures are13% and 11%. In
those countries, more than 75% of land tra-
vel is done by car. Statistics on cross-bor-
der rail are patchy, but EU figures show that
people made only 6.5m international trips
by train from Germany in 2019. They made
> Also in this section
56 Belarus's border theatrics
57 Covid surges in eastern Europe
57 Banana protests in Turkey
58 Charlemagne: The EU versus
Scandinavia on minimum wages
10m by air, just to other countries in the
EU. Shifting a significant share to rail will
require huge investments.
More fast trains would help. The Eu
wants to double high-speed rail traffic by
2030. Because they deliver passengers to
city centres rather than airports, trains can
out-compete flights on routes of up to
800km, provided they run at 200kph or
more. Flights between Milan and Rome fell
by more than half after a high-speed rail
line opened in 2007. The Eurostar carried
nearly 80% of traffic from London to Brus-
sels and Paris in 2019, and a big share of
those travelling between Paris and Frank-
furt go on French TGv or German ICE trains.
But such international high-speed
routes are few. Spain and France each have
extensive high-speed networks, but to get
from one to the other trains must creep
along old-fashioned tracks. France and Ita-
ly have scarcely begun tunnelling under
the Alps to link their networks. High-speed
routes between Berlin and central-Euro-
pean cities such as Prague and Vienna are
still in the planning stage.
These tracks are part of a web of high-
priority transport corridors known as
TEN-T first sketched by the Eu in the 1990s.
But national governments, which bear
most of the costs, have been slow to pony
up the money. The EU’s own Connecting
Europe Facility and other programmes
budget €86bn ($100bn) for rail from 2021-
27. But high-speed track can cost more
than €40m per kilometre. On most routes
countries would be better off improving b>
56 Europe
European core passenger
railway network, 2021
---- To be upgraded
~~ Planned
Source: European Commission
High-speed
— Completed
--=- To be upgraded
a ~ Planned
Conventional
—— Completed
SS ——~
J “4, Vilnius
Lint eos —
ot" a \
Rs i A
ATEAN TG § *\ eco .
= #
OCEAN ee a
i h i
hes a a ar
Brennertunnel, = ">, = 4
: : i : 1 i fr
~~ HSR route, ay a
~2035 a ee L yall
f i f T= Sn tin
i Tae 7 al Ta kk:
France/Spain a oN
a
HSR link, tls Lo Sager?
est. ~2040 ea es ae
oe ai
aay j
i
Sy ‘th
¥ “ti
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a? ens
Mediterranean Sea a en
» their conventional networks, according to
the European Court of Auditors.
A less costly approach is to bring back
the original long-distance rail technology:
the night train. Sleeper cars were disap-
pearing in Europe by the mid-2010s, but
were revived between Brussels and Vienna
in 2016 by OBB, Austria’s national carrier.
They have become a romantic fad, popping
up again in France, Germany and Sweden.
But their carrying capacity is small.
Berth of a nation
National divisions have always been a pro-
blem for rail. Sleeper trains were brought
to Europe by Georges Nagelmackers, a Bel-
gian banking heir who fell for the Pullman
car while travelling in America in the
1860s. It took him years of negotiations
with various governments to set up the
Compagnie Internationale des Wagons-
Lit, which ran sleeper coaches that
switched between national operators’ lo-
comotives when they crossed borders.
In some respects European cross-bor-
der rail has gone backwards. The trip from
Brussels to Luxembourg can take an hour
longer than it did in 1980. Along the Ger-
man-Czech border some timetables are not
much better than those in Hendschel’s Tele-
graph of 1914. When Germany's transport
minister last year announced “Trans Europ
Express 2.0’, it raised the question of why
the original Trans Europ Express trains im-
mortalised by Kraftwerk 1n 1977 were aban-
doned by the early 1990s.
One difficulty in reviving them is com-
patibility. Europe’s electric railways use
four different voltage levels. Signalling and
Safety systems are even worse: almost ev-
ery country initially had its own. The Euro-
pean Rail Agency is gradually enforcing
common specifications, but that effort has
been under way since 1996. At Europe's
edges, even the width of the track varies:
the Baltic countries use the Russian Em-
pire’s wider gauge, and Spain and Portugal
have one of their own.
Private rail entrepreneurs say that traf-
fic would rise if countries actually lived up
to their obligations to allow competition.
Under EU law all member states have un-
bundled their rail infrastructure from their
train operators, and must let outside play-
ers run on their tracks. But some countries
are in practice more open than others. Ger-
many’s track owner is an arm of Deutsche
Bahn and charges high service fees, which
tends to deter competitors. Sweden char-
ges only for the added maintenance that
new users require, fostering competition
from newcomers such as FlixTrain and
MTR that has cut prices.
Then there is ticketing. Because sys-
tems are incompatible, only a few agencies
sell rail tickets across the entire continent.
As for refunds, operators are responsible
only for the portion of the trip on their own
trains. High-speed rail tickets typically
cost far more than a budget airfare on the
Same route. That is unlikely to change
while jet fuel and most airline emissions
are tax-free.
If Europe wants passengers to shift to
rail, it will need to tax airlines’ carbon
emissions properly. Until then, many pas-
sengers will think of trains nostalgically. At
a Connecting Europe Express event in Ber-
lin, Christopher Irwin of the European rail
passengers’ union reflected that he first
travelled to the city by rail from Britain in
the 1960s. “It was easier back then.” @
The Economist November 13th 2021
The Belarus-Poland border
Caught at the wire
A scheme to use migrants to split the
EU Is likely to backfire
LEXANDER LUKASHENKO, master tacti-
A cian? The president of Belarus has
brought thousands of migrants from the
Middle East to the EU's doorstep on the eve
of winter, daring the bloc to abandon its
humanitarian instincts as the world looks
on. Mr Lukashenko seems to have intend-
ed to reignite the internal division and po-
litical upheaval that followed the influx of
migrants to Europe in 2015. He has instead
forged a consensus in favour of the swift
punishment of his regime.
The scenes that have unfolded at the
Polish-Belarusian border since November
8th were his concoction. Belarusian travel
agents in Iraq offer flights, a visa and the
sham promise of an easy path to a new life
in Europe in exchange for thousands of
dollars. Arrivals in Minsk are whisked
through the woods to a spot on the border
where, far from swiftly crossing into Po-
land and embarking on the supposed op-
portunity to move around the Schengen
free-travel zone, migrants end up squeezed
between the EU's razor-wire fences and
Belarusian men with guns, unable to go
forward or back. As The Economist went to
press on November 11th, some 2,000 were
trapped near the current main point of
concern, the Kuznica crossing (See map).
There have been a number of attempts to
breach the border there. An estimated
20,000 migrants are thought to be else-
where in Belarus, with more still continu-
ing to fly in via Istanbul and other Middle
Eastern cities on Belavia, the Belarusian
State carrier.
Mr Lukashenko’s foreign policy has
increasingly resembled that of a mafia
boss since his theft of elections last year.
He has sent goons after dissidents who fled b>
RUSSIA
LATVIA
LITHUANIA
Kaliningrad
(Russia) Vilnius ©
UKRAINE
The Economist November 13th 2021
» abroad. He is angry at the countries shel-
tering them, chiefly Poland and Lithuania,
and at the entire EU for the sanctions it has
imposed on his regime. The ambition of
those sanctions was scaled back thanks to
lobbying by affected industries, from Aus-
trian banks to Lithuanian railways. Now
the political will to deter Mr Lukashenko
has hardened. The Eu is hinting at fresh
Sanctions, including on Belavia, possibly
as soon as next week. The hitherto hesitant
Irish government, whose firms lease
planes to the airline, has come on board.
That does not mean that keeping mi-
grants off the route to Belarus will be easy.
The Eu wants to install officials at airports
across the Middle East to prod Iraqi pas-
sengers with awkward questions before
they embark. But that will take time. Ange-
la Merkel, Germany’s outgoing chancellor,
has asked Russia’s president, Vladimir Pu-
tin, to talk Mr Lukashenko out of his plot-
ting. Her chances of success seem slim.
Poland sees deterrence as the best way
to stem the influx, and so is determined
not to admit any of the migrants gathering
at its gates. Its populist government has
waved away offers of help from Frontex,
the EU's border agency. A camp has sprung
up on the Belarusian side, and a lengthy
battle of wills is likely. Meanwhile, the mi-
grants are in danger. A freezing winter ap-
proaches. And Mr Lukashenko is willing to
make people suffer, if the television foot-
age causes problems in Europe. &
Coronavirus in eastern Europe
The arc of
susceptibility
Countries with poor vaccination rates
are suffering dreadfully
N NOVEMBER 6TH teams of medics
dressed in full protective gear packed
equipment into a Romanian military
transport plane before pushing beds with
two severely ill covid-19 patients up the
ramp and inside. As the propellers began to
whirr, the back door slowly closed and the
plane lumbered up the runway heading for
Denmark. “There is no secret,’ says Raed
Arafat, who is co-ordinating Romania's
fight against covid: the country’s hospitals
are “overflowing”. About 90 patients have
been evacuated to Denmark, Germany,
Hungary and elsewhere. Teams of doctors
are also flying in from all over Europe to
help their beleaguered colleagues.
Across Europe the numbers of people
infected with the highly contagious Delta
variant are rising, and many governments
are contemplating or imposing new re-
Strictions. But this wave is affecting some
countries far more than others. From the
Balkans to the Baltics an arc of susceptibil-
ity has emerged, encompassing a swathe of
countries with low vaccination rates.
In the past few weeks the death rate
from covid-19 has hit record highs in Bul-
garia, Latvia and Romania. In the week to
November 8th there were 22.8 confirmed
deaths in Bulgaria for every million people.
In Romania the figure was 21.8 and in Lat-
via18.8. Yet for the EU as a whole it was only
3.0. The number of cases is at last dropping
in those three badly-hit countries, but it is
now Soaring in Croatia, Estonia, Lithuania,
Slovenia and Ukraine.
All of the countries being clobbered are
at the low end of the scale when it comes to
vaccination. Only 23% of Bulgarians and
34% of Romanians have been double-
jabbed. In Latvia the proportion is 57%, but
it was much lower a month ago, when the
current wave took hold. In the EU as a
whole, 66% are double-vaccinated.
Low vaccination rates are not the result
of a lack of vaccines. The countries of the
arc have ample supply, but also loud anti-
vaxxers. Distrust of government and medi-
cal staff is high. A Eurobarometer survey
conducted earlier this year found that only
22% of Bulgarians and Croats, 26% of Latvi-
ans and 31% of Romanians tend to trust
their governments. When asked if they
trusted medical staff, 34% of Bulgarians
Said they did not, along with 32% of Croats,
31% of Latvians and 40% of Romanians.
It is ironic that relatively low levels of
infection in the summer seem to have con-
tributed to the scale of current outbreaks.
Those with doubts about the vaccine saw
little urgency in getting it, which left them
vulnerable when the Delta variant hit. Of
those now in hospital, says Dr Arafat, 92%
are unvaccinated. The true share could be
higher, as unknown numbers have bought
fake vaccination certificates. He angrily
denounces anti-vax disinformation,
which is often propagated by rogue doc-
tors, Orthodox priests and far-right nation-
alists, with the help of “Dr Facebook’.
Inga Springe, a journalist with Re:Balti-
ca, a news website, says that in Latvia
prominent doctors have given ambiguous
signals about vaccinations and some poli-
ticlans are promoting themselves via anti-
vax Sites. Bulgaria goes to the polls on No-
vember 14th for the third time this year,
and politicians there may fear alienating
anti-vax voters.
According to Oana Popescu, director of
GlobalFocus, a Romanian think-tank, Ro-
manians’ lack of enthusiasm for getting
vaccinated is a direct result of what they
perceive to be decades of neglect by the au-
thorities. “When the government suddenly
seems to care for you for the first time in 30
years, of course you become suspicious!”
she explains. Alas, itis not just Romanians
who feel that way. @
Europe
Going bananas
ISTANBUL
A fruity joke offends officials
URKEY HAS deported Syrian refugees
before. Some were sent back to their
war-scorched homeland for failing to
register with the authorities or for
minor crimes. Some say they were
tricked or forced into signing voluntary
return forms. But none thought they
would be thrown out for eating ba-
nanas. Until now.
In October the government said it
would deport seven Syrians for sharing
“provocative” videos on social media,
which showed the young refugees
Staring into their phones and munch-
ing yellow fruit. This was in response to
an interview with a Turkish man who
had blamed Syrians for driving up rents
and complained that they could afford
bananas, which he could not.
The banana-eaters seemed to be
mocking prejudice against refugees.
But officials accused them of mocking
the needy. And that was not the end of
it. Turkish police arrested a Syrian
journalist who had made light of the
uproar in a video that showed him
nervously buying bananas from a groc-
er, then hiding them under his sweater.
(He was released on November 8th.)
Some 3.7m Syrians have made Tur-
key their home over the past decade.
The Turkish welcome, once generous,
has become grudging. As the lira plum-
mets and inflation tests 20%, the refu-
gees are becoming a target of frustra-
tion. With its poll numbers shrinking
President Recep Tayyip Erdogan’s gov-
ernment appears keen to prove that it
can act tough. Even over soft fruit.
Don't tell the president
57
58 Europe
The Economist November 13th 2021
Charlemagne | Minimum wage, maximum rage
A fight about worker pay pits a Scandinavian duo against the rest of the European Union
VERYONE WANTS to be a little bit Danish. Hygge, a sense of Nor-
dic contentment attained via baking, candles and good compa-
ny, became the philosophy du jour during lockdown. Danish dra-
mas win garlands, while its comedies contain jokes so enjoyably
dark that viewers may worry about finding themselves on a Euro-
pol watch list. Even Danish semen has become a booming export,
thanks to the country’s combination of liberal rules for donors
and reputation as asmall nation of tall hunks.
But it is the Danish labour system that attracts the most plau-
dits. Leftists drool over a model that sees burger flippers in Mc-
Donald’s paid the equivalent of $22 per hour. Those on the right
marvel that the country has no statutory minimum wage. Instead,
employers and stakeholders sit down together and hammer out
collective agreements that cover most workers. It is the same in
neighbouring Sweden. Employees benefit from wages and bene-
fits that are among the most generous on the continent; employ-
ers can hire or fire with ease during boom or bust. Denmark and its
Scandi neighbours manage to be both a worker's paradise and a
capitalist’s dream.
Telling Scandinavians how to run a labour market is akin to
teaching the French how to bake baguettes. Yet this is the position
in which the Nordic countries have found themselves. Ursula von
der Leyen, the president of the European Commission, wants all
workers to be covered by a minimum wage, whether through na-
tional law (as in most of the club) or through collective agree-
ments (as in Scandinavia). Proposals that will see the topic of
minimum wages dragged into EU law are being negotiated among
MEPS and national governments.
At first glance, Denmark and Sweden have little to worry about.
Acommon minimum wage is not on the table. Indeed, that would
be impossible for a club that includes Luxembourg, whose mini-
mum wage is €2,202 per month ($2,550) and Bulgaria, where it is
€332. According to the Eu’s own treaties, only national govern-
ments can set a minimum wage. Indeed, the commission came to
praise the Scandinavian system, not to bury it. It would rather
everyone looked a bit more like Sweden or Denmark, with collec-
tive agreements galore.
Instead, the commission wants to shape how national govern-
ments guarantee decent wages, rather than to set their level. Un-
der its proposals, countries would still be in charge of the details.
Those with statutory minimum wages would be forced to ensure
these are adequate when measured against average incomes. For
those without a minimum wage, a group which includes Italy,
Austria, Cyprus and Finland as well as the Scandinavian duo, the
commission wants at least 70% of workers to be covered by collec-
tive agreements—a hurdle that the Scandinavians already meet.
Yet the Scandinavian duo are still fretting, and with some
cause. All legislation comes with unintended consequences, par-
ticularly at the European level, where the European Court of Jus-
tice is a player as much as a referee. In Sweden about 60% of col-
lective agreements do not include a minimum wage, points out
German Bender, an analyst from Arena Idé, a Swedish think-tank.
With EU law now encompassing minimum-wage rules, legal chal-
lenges would become possible. And peculiar things can happen. A
case in the 1960s involving an unpaid electricity bill worth a few li-
ra ended up establishing the primacy of EU law, which means EU
rules trump national ones if the two clash. The so-called “no bai-
lout” clause in the EU’s treaties did little to stop a series of bail-
outs. A single judgment might upend the Nordic labour model.
When proposals start rolling, they are tricky to stop. Employ-
ment legislation gets agreed by a qualified majority of govern-
ments, so vetoes do not apply. Usually, though, the EU avoids top-
ics that are sacred to national governments. Pleas that legislat-
ing—rather than issuing suggestions—on minimum wages vio-
lates the Scandinavian principle of no government interference in
wage-setting fell on deaf ears. Denmark and Sweden “yellow-card-
ed” the proposal fora directive on minimum wages, a formal prot-
est, but to no avail. In the EU’s ministerial council, where national
governments haggle over a position, the lawyers say it is perfectly
legal. The French government, which will shepherd negotiations
on the topic from January, is keen to get it done sharpish.
Beyond the bare minimum
New rules on minimum wages are only the beginning of a wider
push on workers’ rights at the EU level. Laws to make pay transpar-
ent have been put forward by the commission. Proposals on how
countries must treat “platform workers’—such as Deliveroo riders
and Uber drivers—are in the works. For some it is a welcome shift
in EU policy. During the austerity years governments were to be
lean and mean. Angela Merkel was fond of noting that the EU was
7% of the world’s population, a quarter of its economy, but about
half of all its welfare spending. Today, the tune has changed. Gene-
rous welfare states and high worker protections were once held to
be the cause of the EU’s woes; now they are the solution.
For the Scandinavians, this shift is cause for concern. Their
system is not broken, yet the EU insists on fixing it. There is little
scope for dodging the legislation. Denmark has an opt-out on the
euro, aS well as on European laws on justice and home affairs.
Sweden is in theory obliged to join the euro eventually, but uses a
loophole to cling on to its krona. Such derogations are a thing of
the past, however, and of no help in the present case. Europe is no
longer ala carte. Systems that work well, such as those of Denmark
and Sweden, may have to change in order to help systems that
work less well, such as those of Cyprus or Italy. “United in diversi-
ty” is the EU's slogan. But unity increasingly trumps diversity as
the EU delves ever further into the lives of its citizens. Everyone
wants to be a bit like Denmark. But Denmark may soon start to re-
semble everywhere else. @
f
q
es
h
~
Tt
This time, it’s different
Rolls-Royce and the government are betting that small reactors can fix
nuclear power’s tricky economics
RITAIN IS keen on nuclear power—in
theory, at least. In 2010 the government
gave permission for eight new reactors to
be built in England and Wales, as part of its
efforts to decarbonise electricity genera-
tion. Things have proved harder in prac-
tice. A decade later only one—at Hinkley
Point on the Somerset coast (pictured)—is
being built. It is late and over budget. Con-
struction only began at all because in 2013
ministers committed consumers to paying
EDF, the French firm building the plant, a
fixed price far above the going rate for its
electricity for the first 35 years.
Rolls-Royce, a big engineering firm,
thinks it can do better. On November 8th it
said it had raised £195m ($263m) from priv-
ate investors including Exelon Energy, an
American firm, and BNF Resources UK, a
company backed by the Perrodo family, a
French oil dynasty. The money will be used
to develop and design a new generation of
up to16 smaller nuclear reactors that Rolls-
Royce says will be both cheaper and quick-
er to build than existing ones, and which it
hopes may evolve into a new business line.
That will be particularly welcome because
its aerospace business suffered badly dur-
ing the covid-19 pandemic, leading it to cut
up to 9,000 jobs.
The private investment was enough to
persuade the government to chip in anoth-
er £210m. Ministers hope that a new round
of nuclear power plants will help Britain
meet its carbon-cutting goals by providing
a Steady source of low-carbon power to go
Small change
Britain, emissions from electricity generation
Gigatonnes of CO, equivalent per kWh
500
400
300
200
100
2030 target
202 iS Dae 30
Source: MyGridGB *12 months to November 10th
59
60 Going green, ata price
61 Bagehot: Brexiteers paranoid
triumphalism
— Read moreat: Economist.com /Britain
with the intermittent electricity generated
by wind-farms and solar panels. Rolls-
Royce reckons that the first ones could
come online by the early 2030s.
Such “small modular reactors” (SMRs)
are not a new idea. Countries from China
and Russia to America, Canada and France
are pursuing the concept. As the name sug-
gests, they are designed to be smaller than
most modern nuclear stations. The two re-
actors at Hinkley Point C, when they are
finished, will supply 3.2 gigawatts (GW) of
electricity. In summer that would be
enough to cover around a tenth of Britain’s
electricity demand. Rolls-Royce’s reactors,
which are large by SMR Standards, will sup-
ply 0.47GW each.
Smaller means cheaper. The latest esti-
mate for Hinkley Point C is £23bn. Sucha
hefty price tag ensures that only the big-
gest, best-capitalised firms can build nuc-
lear plants. Even then governments must
often sweeten the deal. In 2017 the Nation-
al Audit Office, a spending watchdog, said
that EDF’s fixed-price contract might
amount to a subsidy of £30bn over the 35
years of the contract. By contrast Rolls-
Royce reckons its first few sMRs might cost
around £2.2bn apiece. That would put
them within reach of smaller firms.
The “modular” part, in turn, refers to
how the reactors are constructed. Rather
than building a reactor on-site, says An-
drew Storer, who runs the Nuclear Ad-
vanced Manufacturing Research Centre at
the universities of Sheffield and Manches-
ter, the idea is to make as much of the reac- |
60. _—sC#Brritain
» tor as possible off-site, in factories, before
shipping the parts for final assembly.
Rolls-Royce thinks that should make
construction faster. It reckons the build
time for an SMR could be shaved to three or
four years, shortening the time between
forking out capital and beginning toearna
return. It also hopes that a combination of
factory manufacture and a large produc-
tion run will allow its engineers to take ad-
vantage of economies of scale and learn
how to streamline production, just as mak-
ers of standardised goods from aircraft to
fridges do. It reckons that the cost of later
SMRS could fall to around £1.8bn.
It all looks good on paper. Rolls-Royce
says there is interest from Poland, the
Czech Republic and Turkey. Privately,
though, even some of those associated
with the project concede that history coun-
sels caution. The nuclear industry has
promised cheap reactors many times be-
fore; so far it has failed to provide them.
Environmental attitudes
Mustn’'t grumble
The price of wind and solar energy, mean-
while, continues to fall.
Ministers, however, may feel they have
little choice but to hope that this time real-
ly will be different. Britain’s nuclear plants
produced 16.5% of its electricity last year.
Yet they are mostly old and decrepit: all but
one is due to shut by 2030. The country has
installed fleets of wind turbines, but
unusually calm weather this year has cut
output and forced it to rely more heavily on
polluting coal and gas-fired power sta-
tions, even as the price of natural gas has
soared. Electricity bills are rising; carbon
emissions from electricity generation,
which had been falling for years, have
crept back up (see chart on previous page).
Nuclear energy, despite its drawbacks,
is low-carbon and more dependable than
the wind. Its price is little affected by fluc-
tuations in the cost of uranium. Ministers,
Rolls-Royce and consumers will hope that
a new twist on the idea takes off. @
Britons are keen on greenery—especially the wasteful kind
NE SIDE-EFFECT Of hosting an interna-
tional climate conference is an out-
break of navel-gazing. As the UN extrava-
ganza in Glasgow nears its end, many opin-
ion polls and studies have appeared, which
provide a superbly detailed view of how
Britons think about climate change. They
reveal acountry committed to tackling glo-
bal warming, but unfortunately drawn to
the priciest ways of doing it.
Perhaps sensing that they ought to seta
good example for their international
guests, Britons have swung firmly behind
the view that anthropogenic climate
change is both real and alarming. One poll-
ster, Ipsos MORI, finds that 81% believe that
an environmental disaster looms unless
habits change quickly. Old people’s opin-
ions have changed most dramatically. A se-
ries of polls for the Department for Busi-
ness, Energy and Industrial Strategy reveal
that 80% of over-64S are now concerned
about climate change, up from 56% in 2012.
Britons have a lot on their minds these
days, what with Brexit, covid-19 and infla-
tion. That does not seem to matter. Where-
as the financial crisis of 2007-08 was fol-
lowed by a years-long recession in concern
about climate change, the coronavirus
pandemic suppressed interest only briefly
(see chart). Lorraine Whitmarsh of the Uni-
versity of Bath suggested a decade ago that
people have a “finite pool of worry” and
that economic concerns had displaced en-
vironmental ones. She now thinks that cli-
mate change has become a core concern
that cannot be pushed out of the pool.
What to do about it, though? Unsurpris-
ingly, Britons are keen on climate mitiga-
tion policies in the abstract and less keen
when they are presented with the probable
costs of such policies. But if they must pay,
they would rather do so, bya slight margin,
through general taxation. Onward, a think-
tank, reported on November 8th that 50%
of people were prepared to pay higher taxes
in order to reduce carbon emissions,
whereas 46% would pay higher prices for
SS
Financial slump, pandemic pause
Britain, % citing pollution, the environment or
climate change as a top issue facing the country
First daily covid-19 briefing 30
from Boris Johnson
_-+ Beginning of Northern -
Rock's bank run :
Ags tye Veer Se ee “as Sy
Source: Ipsos MORI
The Economist November 13th 2021
goods. Low-earners were especially op-
posed to higher prices.
Politicians amplify this view. Robert
Halfon, the Conservative MP for Harlow,
has for a decade campaigned successfully
against any rise in fuel duty. That probably
contributed to the fact that greenhouse-
gas emissions from transport fell by just
2% between 2010 and 2019, even as emis-
sions from all sources dropped by 26%. Mr
Halfon is not a climate-change denier (“I
believe in all of it,” he says). And he sup-
ports subsidies for electric vehicles. He
merely opposes attempts to reduce de-
mand by raising prices.
Britons are keener still on banning
things. Another poll, in August, found that
people would prefer policies that restrict
the number of flights they can take and the
quantity of meat they can eat to policies
that increase the price of flying and the
price of meat. Sir John Curtice, a psepholo-
gist at the University of Strathclyde, and
others found that 44% support a ban on
powerful vacuum cleaners. The proportion
rose to 64% following an online discus-
sion of the issue.
Economists usually favour market-
based interventions such as carbon taxes,
and disdain measures such as electric-car
subsidies because of their inefficiency
(some of the money goes to people who
would have bought electric cars anyway).
But ordinary Britons plainly disagree. Will
Tanner of Onward suggests that is because
they believe the cost of tackling global
warming should be borne by society as a
whole, and general taxation strikes them
as a good way of achieving that. Blanket
bans probably strike a nation inordinately
fond of queuing as equitable, too.
This enthusiasm for inefficient ways of
reducing greenhouse-gas emissions im-
plies that Britain will end up spending far
more than it needs to. That is frustrating.
But the polls also suggest that Britons are
in one sense ahead of their leaders. Adap-
tation to climate change has for years been
the poor relation of mitigation. It is dis-
cussed less and often thought of as some-
thing that poorer countries need to do.
Speaking at a session on adaptation in
Glasgow on November 8th, Anne-Marie
Trevelyan, Britain’s trade secretary, touted
a fund to assist Asian countries but said
nothing about her own.
People seem to have noticed this, and
are not happy. In late 2020 Ipsos MORI
polled 30 rich and middle-income coun-
tries for the energy firm EDF. It found that
just 30% of Britons believe that their gov-
ernment has taken measures to reduce the
effects of climate change at home, such as
building dams—the second-lowest pro-
portion of any country after Italy. Politi-
cians might call that judgment unfair. It
would be better if they tried to change peo-
ple’s minds through their actions. @
The Economist November 13th 2021
Britain
Bagehot | Learning from Paterson
Boris Johnson needs to shake off the Brexit elite’s tri'umphalist, paranoid mindset
OME POLITICAL dramas flare up briefly; others redraw the politi-
Sal landscape. The debacle in the House of Commons on No-
vember 3rd and ath, when Boris Johnson tried to tear up the sys-
tem of parliamentary oversight to prevent the suspension of Owen
Paterson, a friend and MP, only to reverse course, looks like the
second type. As furious Conservative MPs complained about being
treated as cannon fodder, it strained their faith in the prime min-
ister’s judgment and undermined the whips’ authority. It also gave
fresh juice to other inquiries into Tory conduct, including Mr
Johnson’s recent holiday at a Spanish villa, payment for seats in
the House of Lords and the extra-parliamentary legal career of Sir
Geoffrey Cox, a former attorney-general who earned £900,000
($1.2m) in the past year. A YouGov poll after the fateful vote on No-
vember 3rd found that a Tory lead of 6% had narrowed to1%.
Marxist theoreticians argue that, as Hegel put it, beyond a cer-
tain point “merely quantitative differences...pass into qualitative
changes”. Mr Paterson has stepped down, but for the prime minis-
ter the affair may mark the moment when his accumulating errors
and u-turns, from getting friends to pay for expensive wallpaper
in his residence to changing tack repeatedly on lockdowns, be-
comes a qualitative shift in public opinion.
Explanations for such a catastrophic misstep range from gen-
erous (the prime minister merely wanted to protect a friend and
ally) to cynical (he sought to neuter the standards commission be-
fore it pronounced on his own actions). But one is particularly
compelling: that he was unduly influenced by a clique of ageing
Brexiteers. Behind the Paterson debacle stands a group of broth-
ers-in-arms who served shoulder to shoulder in the anti-Euro-
pean trenches for decades. The hard core, Sir Iain Duncan Smith,
Sir Bill Cash, David Davis and Sir Bernard Jenkin, were critics ofthe
Maastricht Treaty in the 1990s, “Vote No” warriors under David
Cameron, stalwarts of the pro-Brexit European Research Group,
self-styled “Spartans” under Theresa May—and champions of Mr
Johnson as prime minister.
Dame Andrea Leadsom, who put forward the Paterson amend-
ment, and Jacob Rees-Mogg, who did most to push it through,
were too young for the Maastricht wars. But they were there in
Spirit (the infant Rees-Mogg was educated in Euroscepticism by
Sir Bill). Lord (Charles) Moore, a former editor of the Daily Tele-
graph, also played a pivotal role. He wrote columns in support of
Mr Paterson, his friend for 45 years, and organised a dinner at the
Garrick Club on November 2nd, at which Mr Johnson was fed
pheasant and claret, and brought round to their point of view.
The clique’s victory in the Brexit vote of 2016 has injected a tox-
ic mix of triumphalism and paranoia into the heart of Conserva-
tism. Its members see themselves as possessing a unique connec-
tion with the British people, anda rare strategic genius. They think
they can achieve anything, as long as they exert sufficient pressure
and plot sufficiently thickly. But they also regard themselves as
beset by a hostile establishment that seeks to frustrate their will.
Lord Moore's articles are textbook examples of the style. He has ar-
gued that the two-year investigation into Mr Paterson “smacks of
political revenge’, and that the parliamentary standards commit-
tee selectively targeted pro-Brexit MPs while going easy on Re-
mainers. He urged MPs to reject the committee’s sentence as a way
of “reasserting the right of voters, not bureaucrats, to decide who
should make [the] law and ensure that it works”.
Successful political parties rely on their elders’ accumulated
wisdom to stop them making unforced errors. Even Margaret
Thatcher, a radical to her fingertips, paid close attention to Wil-
liam Whitelaw, a moderate grandee—thus her immortal dictum
that “every prime minister needs a Willie”. But the Brexit wars
have removed a generation of “Willies” from the parliamentary
party, notably Sir Nicholas Soames, Sir Alan Duncan, Kenneth
Clarke, Patrick McLoughlin and Dominic Grieve. Politics has been
left in the hands of ageing zealots in the Commons and light-
weight technocrats in Downing Street, such as Dan Rosenfield, Mr
Johnson’s chief of staff. The zealots appeal to Mr Johnson’s worst
trait, a tendency to believe that he is above accountability; the
technocrats lack the strength to rein their master in.
Younger MPs were particularly furious about the Paterson
mess, not because they are anti-Brexit saboteurs (most were fer-
vently in favour of leaving the EU) but because they resent being
treated so cavalierly by people who wouldn't recognise them in
the corridors of Westminster, let alone say hello. The brewing row
over extra-parliamentary income sharpens their resentment. To
the ageing baby-boomers within the Brexit clique, £100,000 a year
may sound like a reasonable second income; to the 2019 intake
representing working-class “red wall” constituencies in the Mid-
lands and north of England, it is serious money.
Mr Johnson now needs to break with the Brexit clique. He
should stop listening to the likes of Sir lain and Mr Davis, who are
neither wise nor even particularly intelligent. Gargoyles like Mr
Rees-Mogg should be cleared out of front-line politics. In their
place, the prime minister should assemble a government of all the
Tory talents. The brightest and best of the rising generation should
be put on the fast track to high office.
They’re not out to get you
Above all, he needs to break decisively with the triumphalist-para-
noid mindset. Neither he nor anyone else has the right to force
through controversial legislation in the name of some mystical
connection with “the people”. Not everyone who resists his ac-
tions is plotting to bring Britain back into the Eu. The British es-
tablishment, by and large, recognises that Brexit is a fait accompli
and the great task of the coming decades is to make the best of it.
Mr Johnson can still repair the damage of the past week, but only if
he takes itas a spur to party renewal. @
62
Death on demand
AMSTERDAM AND OTTAWA
In the West, assisted dying is rapidly becoming legal and accepted
HORTLY BEFORE Angel Hernandez hand-
ed his wife the glass of barbiturates that
would kill her, he asked her once again if
she wanted to die. “The sooner the better,”
she replied. Ravaged as Maria José Carras-
co’s body was by multiple sclerosis, she
struggled to swallow the poison. In the end
she forced it down through a straw.
Ms Carrasco’s death in 2019 provoked a
media storm in Spain. In Madrid the inves-
tigating judge initially referred the case to
a court that specialises in violence against
women. The prosecutor pushed for Mr
Hernandez, then 70, to serve six months in
prison. But on June 25th Spain enacted a
law allowing those with a “serious or in-
curable illness” or a “chronic or incapaci-
tating” condition to seek help to end their
own lives. Twelve days later, Mr Hernan-
dez was acquitted.
In much of the West public opinion has
long favoured assisted dying. In 2002 60%
of Spaniards supported voluntary eutha-
nasia, a Share which had risen to 71% by
2019. Writ large, secularisation and
increasingly liberal values have solidified
support. But so has personal experience,
particularly that of baby-boomers who,
having witnessed their parents’ suffering,
are fighting for the right to deaths of their
own choosing.
Change has been rapid. Assisted dying
is now legal or decriminalised in at leasta
dozen countries, with legislation or court
challenges pending in many others (see
map on next page). On November 5th Por-
tugal’s parliament approved a revised bill
which would allow those with “grave, in-
curable and irreversible” conditions to re-
ceive help to end their lives (the constitu-
tional court had in March blocked an earli-
er version as being too imprecise). Other
largely Catholic countries such as Chile,
Ireland, Italy and Uruguay are also moving
towards enshrining a right to die. In Belgi-
um, Colombia and the Netherlands gov-
ernments have broadened assisted-dying
laws to include terminally ill children.
After years of struggle, activists and
politicians have found ways through or
around reluctant legislators. The right to
die has been ticked through American bal-
lot boxes, squeezed through Australian leg-
islatures, and gavelled through Canadian
and European courts. Proponents are us-
ing public consultations and petitions to
demonstrate public support. And growing
evidence from countries with assisted-dy-
ing laws has assuaged fears it will become
easy to “kill granny”. The changes are
snowballing as advocates in one country
learn from their counterparts elsewhere.
Assisted dying is still rare. Most cases
are cancer-related, and the number of
deaths is tiny. But they are nonetheless
changing how people think about dying. In
some countries assisted dying has been ex-
tended to those with mental disorders and
dementia, and even to old people who feel
tired of life. A clandestine network of baby-
boomers who share methods to kill them-
selves has sprung up on the internet. Even
some proponents are beginning to worry
about a slippery slope.
Thirty years ago assisted dying was ille-
gal everywhere bar Switzerland. But in 1997
the American state of Oregon approved the
Death with Dignity Act, initiating a spate of
liberalisation. In Oregon two doctors must
agree that a patient is of sound mind and
has less than six months to live before he
or she can receive the lethal drugs. These
must be administered by the patient
(known as physician-assisted dying) rath-
er than injected by a doctor (voluntary eu-
thanasia). Around 2,000 people have died
under the law (roughly 250 of them last
year, see chart 1), with no wrongful deaths |
The Economist November 13th 2021
» reported. Versions of the law are now on
the books of ten states, home to a fifth of
Americans, as well as in Washington, Dc.
Oregon’s rules are being copied interna-
tionally, with some modifications. New
Zealand’s Oregon-style law came into ef-
fect on November 7th. In Australia, the
State of Victoria passed a similar law in
2017, and since then all but one of Austra-
lia’s six states have followed suit. In Brit-
ain, an Oregon-style bill passed its second
reading in the House of Lords in October.
But to become law it would also need the
support of the House of Commons and the
government, which looks unlikely. Three-
quarters of Britons support a right to die,
but only 35% of MPs do.
Some campaigners are circumventing
cautious representatives by going through
the courts. In February Peru's constitution-
al court ruled that the Ministry of Health’s
refusal to help a woman with degenerative
polio end her life violated her rights to
“dignity” and “autonomy”. Several coun-
tries, such as Austria, are beginning to
flesh out a ruling by the European Court of
Human Rights in 2011 that people have the
right to decide the time and manner of
their deaths. After Germany’s highest court
declared in 2020 that a ban on repeatedly
helping others die was unconstitutional,
Dignitas Germany, a non-profit organisa-
tion, began to help people kill themselves.
Even after a legislature or court opens
the door to assisted dying, those pursuing
the option can face high hurdles. With 68
safeguards, Victoria’s law excludes some of
the people it was intended to help. Doctors
are forbidden to bring up assisted dying
with their patients, so many do not knowit
is an option. Colombia decriminalised vo-
luntary euthanasia in 1997, but is only now
regulating the practice. As a result, many
Colombian doctors refuse to get involved
for fear of prosecution. Approval is rare
and can be withdrawn.
Despite such strictures, the expansion
==
Live and help die
Assisted dying
Bel., Neth. & Lux.
Canada. .
Britain
Oregon = ne re France #
Colorado . Maine “i
vee US Bee eieey Portugal ¥
California C
New Mexico Spa n
€ Hawaii
]
Colombia i
Peru —
Chile
|
| Uruguay
Source: The Economist
=z
Final choices
Oregon, United States, patients who have died
from ingesting a lethal dose of medication
By illness
™ Cancer Mi Neurological disease \ Respiratory disease
® Heart/circulatory disease Other
0 50 100 150 200 a\0)
By insurance type
™ Private MH Government* &! None Unknown
0 50 100 150 200 250
2020
Zoi
Source: Oregon Health Authority *Medicare, Medicaid or other
of the right to die is not without controver-
sy. In Canada, the Supreme Court ruled in
2015 that a ban on medical assistance in dy-
ing (MAID) violated the national Charter of
Rights. Now MAID is available to all Cana-
dians who suffer from chronic physical ill-
ness or disability. Uniquely, the law allows
patients to determine what constitutes
“unbearable” suffering. In 2020 only 6% of
written requests for MAID were refused.
Some advocates for the disabled argue
that the amended law devalues the lives of
those with disabilities. It’s “literally un-
thinkable” that MAID would be doled out
instead on the basis of race, sex or any oth-
er protected characteristic, says David
Shannon, a quadriplegic lawyer who cam-
paigns against assisted dying. But others
argue that the foundations of the disability
movement lie in creating the freedom to
make one’s own choices.
Opponents also fear that Canada may
end up helping people die before it has
helped them live. Disabled people who do
@ Legal during or before 2015
® Legalised after 2015
~ Bills in progress/significant
public debate in 2021
_ Switzerland
Australia » v7 ib
Wa __ Queensland
ee
“Nictoria |
Tasmania © J
New Zealand
International 63
not get enough support may choose to die
because society has failed them, critics ar-
gue. They worry this may prove particular-
ly true for people whose lives have been
filled with abuse, racism and poverty,
though data from America show that those
who choose assisted death are overwhelm-
ingly middle-class, white and educated.
From 2023, Canada will extend MAID to
those who suffer solely from mental ill-
ness, on the ground that to do otherwise
would discriminate. Many Canadians find
this troubling (see chart 2). They worry that
doctors may indulge the suicidal urges that
are a symptom of many psychiatric disor-
ders: one in ten schizophrenics kill them-
selves, some studies reckon. Others ques-
tion whether a patient could have tried ev-
ery possible treatment when the medical
and social understanding of mental illness
is sO rudimentary and mental-health ser-
vices are so often inadequate. Most people
underestimate how serious an intractable
psychiatric condition can be, says Mona
Gupta, a Queéebécoise psychiatrist and
bioethicist. They see depictions of mental
illness in popular culture but have never
met anyone severely affected.
The only way out
John Scully, who has lived with severe de-
pression and PTSD for decades, agrees. At
home at night in Toronto, Mr Scully, who is
80, is haunted by the horrors he witnessed
aS a Wal correspondent: the dead torn apart
by vultures, the AK47 scoped to shoot him.
He also experiences physical pain. “There
is no cure,’ he says. Nineteen shock thera-
pies, countless medications and six stints
as a psychiatric patient have failed to bring
him relief. The “only help available’, he be-
lieves, is assisted dying. He sees it as a far
more dignified choice than suicide, which
he has attempted twice, and he thinks it
would be less painful for his family.
Like other bioethicists, Dr Gupta thinks
mental disorders should be seen in the
same light as other conditions that create
chronic pain. For doctors, she says, the as-
sessment process would be much the
same: distinguishing between an impul-
Sive death-wish and a considered one, and
determining if a patient is mentally com-
petent. Such cases are rare. In 2020 in the
Netherlands, only 88 people with mental
illnesses—12% of all those who made re-
quests—had their requests for help ap-
proved by a euthanasia clinic. Many are
heartened by simply having the option.
Canada is making the same mistakes as
the Netherlands, reckons Theo Boer, a
Dutch ethicist who once supported his
country’s euthanasia laws. Since Dutch
doctors pushed to legalise assisted dying
20 years ago, he believes that voluntary eu-
thanasia has gone from being a “last resort
to prevent a terrible death to a last resort to
prevent a terrible life”. Voluntary euthana- >>
International
» Siais a Shortcut to death, like a c-section 1s
a Shortcut to birth, he argues. In the Neth-
erlands as a whole, one death in 25 is as-
sisted, he notes, but in some cities that fig-
ure can be as high as one in seven.
The choice to die is often murkiest for
those with dementia. In 2016 a Dutch wom-
an with severe Alzheimer’s awoke during
her euthanasia and, as she struggled, her
family had to hold her down. Before de-
mentia overcame her, she had made a writ-
ten request for euthanasia, and the doctor
prioritised that choice. In 2020, after the
doctor was cleared of wrongdoing, the Su-
preme Court clarified that doctors cannot
be prosecuted for carrying out euthanasia
on patients with advanced dementia, even
if they no longer express an explicit wish to
die. The Netherlands averages around two
Such cases a year.
Bert Keizer, a geriatrician who has car-
ried out some of the Netherlands’ most
controversial euthanasia cases, is deeply
uneasy about the new guidelines. Eutha-
nasia usually happens with the agreement
of the patient, doctors and the family. But
in cases of dementia, he muses, “the one
who it’s all about” is “removed from the
event”. Implicit in the court’s ruling is a
judgment that the person one was has
more value than the person one has be-
come. A patient who wanted to live could
be denied that choice.
What lies ahead
Swiss law, by contrast, mandates that those
seeking to kill themselves be mentally
competent. This can create a different fear.
Alex Pandolfo has early-onset dementia.
He has decided to die in Switzerland, yet he
has postponed the day of his death once. If
he waits too long, he will doom himself to
the future he does not want.
Some proponents of assisted dying are
pressing to expand eligibility, to include
those who feel they have lived a “complet-
ed life”. In 2020 the liberal D66 party in the
Netherlands proposed a law to make sui-
cide pills available to people over 75 who
felt they were done living. Critics point to
research from the University of Humanis-
tic Studies in Utrecht, which shows that
death wishes in older people are subject to
change, and in some cases are caused by
loneliness and isolation. Few truly want to
die, and those who do often meet other cri-
teria for euthanasia, a commission found
in 2016. Supporters say it is important to
offer the choice, even though few will take
it in the end. Just 3% of the members of
Dignitas, which campaigns for assisted dy-
ing, end up getting help to end their lives.
Some who are tired of life, or unwilling
to endure its decay, do choose to press
ahead. At 76, Dawn Voice-Cooper, who suf-
fered from debilitating but not life-threat-
ening ailments, saw her future and did not
want to live it: the pain of having her ears
i
Mindful of the difficulties
Canada, access to MAID* for those with a mental
illness, % responding by age group, February 2021
®@ Strongly support
Somewhat oppose
Somewhat support
® Strongly oppose
0 25 50 15
Total
Gen Z (18-23)
Millennial (24-39)
Gen X (40-55)
Boomer (56+) :
Source: Ipsos *Medical assistance in dying
syringed; the indignity of swimming with
a colostomy bag; the diminishing freedom
to move as her arthritic joints stiffened.
Life was exhausting and would only be-
come more so. “I don’t want to die but I
can’t live like this,’ she said. In October she
travelled from her home in Britain to an in-
dustrial estate on the edge of a Swiss forest.
After listening to Nick Drake’s “Day is
Done’, she died, with her friend Mr Pandol-
fo (and a tabloid reporter) by her side.
“Many people are not waiting for laws
to pass,’ warns Katie Engelhart, author of
“The Inevitable”, a book about the right-to-
die movement. It reveals a secret world
where people, fed up with restraints im-
posed by laws or doctors, order lethal sub-
stances over the internet. Their reasons are
often existential rather than physical: a
loss of purpose, fear of being a burden or of
losing their dignity. People who seek death
through legal channels have similar rea-
sons. In Oregon the most common con-
cerns among people who qualify to die ow-
ing to terminal illness include loss of en-
joyment (94%), loss of autonomy (93%)
and loss of dignity (72%).
Some shrug this off, arguing that “as-
sisted dying is not suicide.” But Ms Engel-
The Economist November 13th 2021
hart believes that such deaths are inevita-
bly linked to the strictures around assisted
dying. In New South Wales, Australia, for
example, one in five people over the age of
4o who kill themselves have a terminal or
debilitating illness. Yet many lonely sui-
cides are not planned and considered, soa
black market in suicide can bring terrible
risks. Earlier this year a 28-year-old Dutch
woman died after taking a substance from
an affiliate of Last Will Cooperative, a right-
to-die organisation, it seems impulsively.
Several members of the group, including
its leader, have since been arrested. Prose-
cutors suspect the group is involved in
dozens of deaths.
In the West, assisted dying is helping to
change the culture of death. People are
talking about it more, and even Scripting it,
says Naomi Richards, a British anthropolo-
gist. Death is becoming an event to be
scheduled, controlled, reached via a byway
past ageing or suffering. In an Instagram
age, itis possible to imagine a “good death”
being idealised and curated. Ellen Wiebe, a
Canadian doctor, says she has helped peo-
ple die “on a beach, in a forest and in the
middle of a party”. Such deaths may seem
particularly appealing when, for genera-
tions, dying has been medicalised and hid-
den, and during a pandemic in which so
many have died alone in hospital.
For those left behind, an assisted death
can feel like a blessing or a curse. Some,
such as Tom Mortier, who has taken his
mother’s case to the European Court of Hu-
man Rights, feel angry and resentful thata
relative was taken too soon. But most find
solace. Heather Cooke’s son, Aaron Ball,
chose to die last year, at 42, while suffering
from metastatic colon cancer. Ms Cooke
suffers the agony of a mother who has lost
her only child, but she is also comforted
that he died in peace, at home, surrounded
by his family. Medically assisted dying was
a “gift” for us, she says. “But I understand
why people fear it.” @
Fading stars
Money is streaming into the movie business—but the biggest stars are losing out
OLLYWOOD LABOUR disputes have a
H certain theatrical flair. When Scarlett
Johansson sued Disney in July, claiming
She had been underpaid for her role in
“Black Widow”, the studio launched an
Oscar-worthy broadside against the ac-
tress’s “callous disregard for the horrific
and prolonged global effects of the covid-19
pandemic”. In September film crews
marched to demand better conditions,
brandishing placards designed by Ameri-
ca’s finest propmakers. And when Warner-
Media decided to release “Dune” on its
streaming service on the same day it hit
cinemas on October 21st, the movie's direc-
tor, Denis Villeneuve, huffed magnificent-
ly that “to watch ‘Dune’ on a television...is
to drive a speedboat in your bathtub.”
The streaming revolution has sent
money gushing into Hollywood as studios
vie to attract subscribers. Netflix boasts
that its content slate in the fourth quarter
will be its strongest yet, with new titles
such as “Don't Look Up”, starring Leonardo
DiCaprio, and the final season of “Money
Heist”, a Spanish bank-robbing saga. On
November 12th Disney will announce its
latest commissioning blitz, with new
shows expected to include “Star Wars” and
Marvel spin-offs. In total, streaming firms’
content spending could reach $50bn this
year, according to Bloomberg.
Yet despite the largesse it is a turbulent
time in Tinseltown, as everyone from A-
list stars to the crews who style their hair
goes to war with the film studios. Some of
the disputes have arisen from the pandem-
ic, which has upended production and re-
66 Hidden property gems
; 67 Bartleby: why bosses are weird
68 China's hermit economy
69 General Electric does the splits
69 Volkswagen's labour woes
70 The metaverse of things
72 Schumpeter: The flywheel delusion
lease schedules. But the tension has a
deeper cause. As streaming disrupts the Tv
and movie business, the way talent is com-
pensated is changing. Most workers are
better off, but megastars’ power is fading.
Start with the pandemic. As cinemas
closed, studios scrambled to find screens
for their movies. Some, like MGM’s latest
James Bond flick, were delayed by more
than a year. Others were sent to streaming
platforms—sometimes without the agree-
ment of actors or directors. Those whose
pay was linked to box-office revenues were
compensated, either behind the scenes (as
WarnerMedia did in the case of “Dune’”) or
after very public spats (as with Disney and
Ms Johansson).
Even before covid, streaming was
changing the balance of power between
Studios and creatives. First, there is more
work to be done. “There's an overwhelming
demand and need for talent, driven by the
streaming platforms and the amount of
money that they're spending,’ says Patrick
Whitesell, boss of Endeavour, whose WME
talent agency counted Charlie Chaplin
among its clients. Three years ago there
were Six main bidders for new movie pro-
jects, as Netflix vied with five major Holly-
wood studios. Now, with the arrival of Am-
azon, Apple and others, there are nearer a
dozen. Streamers pay 10-50% more than
the rest, estimates another agent.
Below-the-line workers, such as cam-
eramen and sound engineers, are also
busier. Competition among studios has|
66 Business
>» created a “sellers’ market’, says Spencer
MacDonald of Bectu, a union in Britain,
where Netflix makes more shows than
anywhere outside North America. In the
United States the number of jobs in acting,
filming and editing will grow by a third in
the ten years to 2030, four times America’s
total job-growth rate, estimates the Bureau
of Labour Statistics.
The streamers’ hunger for variety
means their seasons have half as many epi-
sodes as broadcast shows, and are less fre-
quently renewed. That means “people are
having to hustle for work more often,” says
one script supervisor. A fatal accident on
the set of “Rust”, a movie starring Alec
Baldwin, has stirred a debate about the
frantic pace of production. But the stream-
ers’ short, well-paid seasons allow more
time for cv-burnishing side-projects, and
the work is more creatively rewarding.
IATSE, a union which represents 60,000
below-the-line workers in America, has
reached an agreement with studios for bet-
ter pay and conditions; its members will
begin voting on the deal on November 12th.
More controversial is the streamers’
payment model, which is creating new
winners and losers. Creative stars used to
get an upfront fee and a “back-end” deal
that promised a share of the project’s fu-
ture earnings. For streamers, a show’s val-
ue is harder to calculate, lying in its ability
to recruit and retain subscribers rather
than draw punters to the box office. Stu-
dios also want the freedom to send their
content straight to streaming without
wrangling with a star like Ms Johansson,
whose pay is linked to box-office takings.
The upshot is that studios are following
Netflix’s lead in “buying out” talent with
big upfront fees, followed by minimal if
any bonuses if a project does well.
That suits most creatives just fine.
“Buy-outs have been very good for talent,”
says Mr Whitesell. “You're negotiating
what success would be...for that piece of
content, and then you're getting it guaran-
teed to you.” Plus, instead of waiting up to
ten years for your money, “you're getting it
the day the show drops”. America’s 50,000
actors made an average of just $22 per hour
last year, when they weren't parking cars
and pumping gas, so most are happy to
take the money up front and let the studio
bear the risk. Another agent confides that
some famous clients prefer the streamers’
secrecy around ratings to the public dis-
section of box-office flops.
For the top actors and writers, however,
the new system is proving costly. “People
are being underpaid for success and over-
paid for failure,’ says John Berlinski, alaw-
yer at Kasowitz Benson Torres who repre-
sents A-listers. The old contracts were like
a “lottery ticket”, he says. Create a hit show
that ran for six or seven seasons and you
might earn $100m on the back end; makea
phenomenon like “Seinfeld” and you could
clear $1bn.
A few star showrunners such as Shonda
Rhimes, a producer of repeat Tv hits cur-
rently at Netflix, can still swing nine-figure
deals. But creators of successful shows are
more likely to end up with bonuses of a
couple of million dollars a year. And
though actors are receiving what sound
like huge payments for streamers’ mov-
ies—Dwayne Johnson is reportedly getting
$50m from Amazon for “Red One”, for ex-
ample—in the past they could make dou-
ble that from a back-end deal.
Some creative types grouse that the
newcomers simply don’t understand
showbusiness. With its “phone-company
mentality”, AT&T, a cable giant that ac-
quired WarnerMedia in 2018, turned Holly-
wood’s most storied studio into “one of the
last stops youd make’, complains one
agent. Disney’s new boss, Bob Chapek,
came up through the company’s theme-
park division. The Silicon Valley streamers
are more comfortable with spreadsheets
than stardust.
But their unwillingness to venerate A-
listers also has an economic rationale. The
star system, in which actors like Archibald
Leach were transformed into idols like Ca-
ry Grant, was created by studios to de-risk
the financially perilous business of movie-
making. A blockbuster, which today might
cost $200m to shoot plus the same in mar-
keting, has one fleeting chance to break
even at the box office. The gamble is less
risky if a star guarantees an audience.
Today, studios are de-risking their mov-
ies not with stars but with intellectual
property. Disney, which dominates the box
office, relies on franchises such as Marvel,
whose success does not turn on which ac-
tors are squeezed into the spandex leo-
tards. Amazon’s priciest project so far is a
$465m “Lord of the Rings” spin-off with no
megastar attached. Netflix’s biggest acqui-
sition is the back-catalogue of Roald Dahl,
a children’s author, which it bought in Sep-
tember for around $700m.
What’s more, streaming’s approach to
generating hits is different. Whereas win-
ning at the box office required betting big
on a few mammoth projects, Netflix’s
method is “more like a random walk where
‘hits’ are first discovered by their users,
then amplified by...algorithms,” notes Mof-
fettNathanson, a firm of analysts. Netflix
served up 824 new episodes in the third
quarter of this year, more than four times
aS many as Amazon Prime or Disney+. Its
biggest success, “Squid Game’, has a cast
that is largely unknown outside South Ko-
rea. “Competition is not limited to who has
the best content; it is also framed around
who has the best tech” for discovering it,
says MoffettNathanson. In the new Holly-
wood, stars are neither made nor born:
they are algorithmically generated. @
The Economist November 13th 2021
Commercial property
Lab rats
Science and technology lifts the gloom
for property investors
XFORD NANOPORE'S MinION is a tiny
but powerful device. When a hotel
worker in Sydney tested positive for co-
vid-19 in March last year, the portable DNA
sequencer traced the infection to a flight
attendant for an American airline, avoid-
ing a general lockdown. The success of bio-
tech firms—another celebrity is BioNTech,
of Covid-19 vaccine fame—is sucking cap1-
tal into life sciences. When such compa-
nies expand, they do so not with offices or
shops but by means of white-walled, shi-
ny-surfaced scientific laboratories.
Commercial-property investors have
long banked on offices, retail and industri-
al buildings. Less conventional assets like
mobile-phone towers were the preserve of
Specialists. Now the big guns of real estate
are competing over them too. Thus labora-
tory space has become commercial real-es-
tate’s hottest property, along with other fa-
cilities that power the digital economy. Da-
ta centres and infrastructure that connect
smartphones are booming.
The investors’ motivation is clear. The
pandemic convulsed commercial-proper-
ty prices globally. American retailers
closed nearly 15,000 shops in 2020. By
mid-October, with people attached to re-
mote work, offices were only a third full.
The risk profile of some conventional
property assets has deteriorated sharply.
In contrast, demand for assets like labs
and data centres has never been stron- >>
=
Laboratory conditions
US, investor-owned laboratories, total inventory
Q3 2021, million square feet
Vacancy rate, %
0 5 10 lps JAY) 25 30
Boston 4./
San Francisco Bay Area 7.4
Raleigh-Durham : 7.7
| a
Greater Washington, DC 3.4
Greater New York pow
Denver-Boulder* 198
Philadelphia 7.1
Seattle 8.0
Los Angeles* 11.9
Pittsburgh* 20.1
Houston* 1.8
Source: JLL 7077707
The Economist November 13th 2021
» ger—a trend visible before the coronavirus
began to spread. As rent collections for
shops and restaurants plummeted last
year, data traffic from virtual meetings and
online shopping exploded. Companies
that use the underlying data centres and
mobile towers are demanding more of
them. These digital-economy winners
look as safe as houses.
The shift is reflected in the changing
make-up of America’s ten largest real-es-
tate investment trusts (REITS). A decade
ago the most valuable such vehicle was Si-
mon Property Group, the country’s biggest
mall owner. Today it is American Tower, a
fast-expanding owner of tens of thousands
of phone masts around the world. Five of
the top ten REITS currently manage either
data centres or mobile towers.
The loudest buzz currently surrounds
life-sciences and lab space. Investors are
flooding the health-care sector with capi-
tal. Drug makers, medical-equipment
manufacturers and other life-sciences
firms have raised a record $103bn in ven-
ture capital so far this year, up from $63bn
in 2019, according to JLL, a property consul-
tancy. A generous slice of capital is going
The impossible job
The demands on chief executives require them to be weird
ELEBRITY BOSSES used to have nick-
C names that made a virtue of short
fuses and brutality. “Chainsaw Al” and
“Neutron Jack” sounded more like wres-
tlers than men in suits. That kind of
moniker would jar today. Inclusivity and
empathy are what matter: think “Listen-
ing Tim” and “Simpatico Satya”. But just
because chief executives seem more
normal does not mean that they actually
are. The demands of the job require an
ever-stranger Set of characteristics.
In some ways the path to the top of
the corporate pyramid is unchanged. It
requires people to compete with each
other over an extended period. It de-
mands evidence of financial and oper-
ational success. It uses the prospect of
money—lots of it—as a lever to incentiv-
ise ambitious people. And it selects for
familiar traits: hard work, impatience,
self-confidence and extroversion. If you
would rather stay in and watch “The
Great British Bake Off” than wine and
dine clients, the role is not for you.
A recent study by Steve Kaplan of the
University of Chicago and Morten Soren-
sen of the Tuck School of Business looks
at assessments conducted by ghSMART, a
consulting firm, of more than 2,600
candidates for different leadership posi-
tions. Candidates for CEO jobs emerge as
a recognisable type. Across a range of
characteristics they have more extreme
ratings on average: they shine in what
the academics term “general ability”.
They also differ from other executives
in the particulars. Where aspiring chief
financial officers are more analytical and
focus on the detail, would-be CEOs score
higher on charisma, on getting things
done and on strategic thinking. These
traits also seem to be predictive. By track-
ing the subsequent careers of candidates,
the academics find that people who were
applying for a different position but had
“CEO-like” characteristics were more likely
eventually to wind up in the top job.
Yet firms today are after more thana
type-A personality. Mr Kaplan and Mr
Sorensen note that CEO candidates with
better interpersonal skills are more likely
to be hired. Another new piece of research,
from academics at Imperial College Lon-
don, Cornell University and Harvard Uni-
versity, analyses the lengthy job descrip-
tions that companies draw up when they
work with headhunters to recruit a new
leader. Cognitive skills, operational nous
and financial knowledge are prerequisites
for success. But over the past two decades
these descriptions have placed more and
more emphasis on social skills—the abil-
ity of bosses to co-ordinate and communi-
cate with multiple people.
Why are these softer skills prized? The
answer, according to Stephen Hansen of
Imperial College, lies partly in the rise of
knowledge workers. Firms increasingly
depend on developers, data scientists and
IT managers who are used to operating
independently. Chief executives are not
Business
into property. JLL estimates that up to
$87bn is now being directed towards life-
Sciences real estate worldwide. That is
equivalent to a third of all global spending
on commercial property in the second
quarter of this year.
Landmark deals are cropping up fre-
quently. In October GIc, Singapore's sover-
eign-wealth fund, purchased a 40% stake
in Oxford Science Park from Magdalen Col-
lege, part of Oxford University; the deal val-
ued the park at ten times its worth just five
years ago. Blackstone, a private-equity
67
firm, recently doubled its ownership of >>
going to tell these kinds of workers what
to do; their job is to make sure that peo-
ple understand the firm’s goals and toil
together effectively. Sure enough, the
paper shows that demand for these skills
goes up in larger and more information-
intensive firms. Social skills matter more
when bosses need to persuade as much
as instruct.
The wider environment also rewards
softer skills. Polling by Edelman, a pub-
lic-relations firm, suggests that major-
ities of customers and employees make
choices on what to buy and where to
work based on their beliefs. Chief exec-
utives must mollify politicians, respond
to activists and dampen social-media
firestorms. It helps if the boss comes
across aS arelatable member of society,
not a volcano-dwelling villain.
It is not yet time to call time on old-
fashioned narcissism. Another study, by
a quartet of researchers at Stanford Grad-
uate School of Business, surveyed 182
directors about the personalities of their
chief executives. The answers suggest as
many as 18% of bosses are considered
narcissists by their own board members,
a prevalence rate perhaps three times
that of the general American population.
The researchers also find that firms with
narcissistic CEOs tend to have higher
scores for their environmental, social
and governance policies. What better
way for an egomaniac to come across as
empathetic than to save the planet?
The demands on chief executives
make for an increasingly strange mix-
ture. Be more talented than others in the
firm, but don't tell them what to do.
Crush the competition while exuding
empathy. Listen charismatically. Be
likeably aggressive. CEOs have always
been abnormal. The trick now is not to
show it.
68 Business
» life-sciences floorspace in Britain, invest-
ing over $1bn in two new sites. Shares of
life-science REITS are booming.
By now, lab space is growing hard to
come by. In Boston, where much of it in
America is held, less than 5% of labs were
available in the third quarter. In the Golden
Triangle, as the area between London, Ox-
ford and Cambridge is known, premises
have run out. The Harwell life-sciences
campus near Oxford will add 1.5m square
feet over the next seven years to meet de-
mand—equivalent to three-quarters of all
the office space London’s financial district
will add this year. Chris Walters, director at
JLL, estimates unmet demand for lab space
in and around Cambridge at 1m square
feet—equivalent to nearly a quarter of re-
tail space on London’s Oxford Street.
Where markets are tight, participants
will seek to expand supply. In the case of
sci-tech property that is harder than it
sounds. Constructing new phone towers
means navigating strict planning laws and
NIMBYS. New data centres need land with
access to cheap electricity and high-speed
internet. Life-sciences firms like to cluster
around top universities and academic
medical centres that provide the chemists,
microbiologists and other experts that
populate their labs. One fix is finding sec-
ondary locations. Cities like Los Angeles,
which is fairly near the San Francisco Bay
Area, and Pittsburgh, home to Carnegie
Mellon, a university known for prowess in
artificial intelligence, are attracting start-
ups awash with capital. In Britain, life-sci-
ences hubs are springing up in the north,
where pharmaceutical giants like AstraZe-
neca and GSK have manufacturing sites.
Another remedy is converting existing
offices and industrial space. Boston Prop-
erties, one of America’s largest office
REITS, Says it can convert 5m square feet of
conventional sites and buildings into lab-
oratories. It is no easy process, for labs are
complex spaces governed by biosafety
rules. They need four times the amount of
air that offices do. Waiting lists in London
for “wet” labs, facilities in which danger-
ous chemicals and other hazardous sub-
stances can be handled, are lengthening-
. But property investors are game to try. In
New York conversions could almost dou-
ble the city’s lab space for rent, according
to Newmark, a real-estate advisory firm.
Even empty shops are being repur-
posed. Savills, a British property firm, reck-
ons London has at least 1.8m square feet of
retail property that could be refashioned
into laboratories. Shops’ high ceilings
mean plenty of room for high-perfor-
mance ventilation, and service lifts for
moving dangerous materials. It will doubt-
less take years for supply to catch up with
demand. But as the locus of work and com-
merce moves, real-estate investors are
shifting with it. m
China and the pandemic
Seal of the realm
HONG KONG
The non-zero costs of China’s
zero-covid policy
HE TRADE war between America and
China paradoxically brought some of
the countries’ citizens closer together. Ben
Kostrzewa, a trade lawyer for Hogan Lov-
ells, moved from Washington, Dc, to Hong
Kong to help his corporate clients navigate
duties, sanctions and export controls. He
used to travel two or three times a month to
the mainland. If he timed it right, he could
pass through the border checks in 20 min-
utes. “I got to know those border agents ve-
ry well”, he says.
The pandemic has changed all that. In
the first half of 2019, China’s busy agents
recorded over 344m border crossings be-
tween the mainland and the rest of the
world (including Hong Kong). In the first
half of this year, that number was down by
over 80%, according to official statistics.
Mr Kostrzewa has not visited in almost 22
months. “It’s funny to be talking about this
in the past tense,” he says.
Talks, in a future conditional tense, be-
tween Hong Kong and the mainland have
so far failed to ease travel between the city
and the rest of China. But officials now say
a pilot scheme might soon allow small
numbers of vaccinated people to travel to
the mainland without quarantine. If the
scheme works, some of Mr Kostrzewa’s fa-
vourite checkpoints in Shenzhen could
reopen by June, according to the South Chi-
na Morning Post, although travel would be
subject to quotas.
For the rest of the world, visiting China
will remain an ordeal. It is like arranging a
“state visit’, says one banker who used to
Sz
Diffusion class
China, impact on GDP if business travel
were to cease’, by place of origin, %
Germany
South Korea
Japan
Taiwan
United States
Britain
Denmark
France
Singapore
Italy
Hong Kong
Rest of world
Source:
Harvard's Growth Lab
*Based on 2011-16 aggregated and
anonymised Mastercard data
The Economist November 13th 2021
make the trip 30 times a year. The docu-
mentary requirements can be onerous and
inconsistent. One delegation of senior
businesspeople, hoping to visit Shanghai,
were aSked for their primary-school tran-
scripts. After the bureaucratic bother, the
boredom of quarantine awaits: a mini-
mum of 14 days, typically in a hotel not of
one’s choosing. One well-connected mar-
ried couple were at least given the option
of separate rooms. They took them without
any hesitation.
The benefits of China’s zero-covid strat-
egy can be measured in lives saved and in-
fections averted. The economic cost of the
country’s self-isolation is harder to quanti-
fy. The travel restrictions are making life
harder for the international “facilitators”
that make cross-border business tick, ar-
gues one investor in Shanghai. Remote
communication can maintain existing re-
lationships, but some things are better
done face-to-face. The investor used to get
to know his managers over dinners, drinks
and cigars. “If you spend three hours a
night together, by the end of that week, you
know the guy.” No one has the stamina to
replicate that on Zoom.
Some know-how is also tacit, embodied
in people or teams. To transmit this know-
how it is necessary to move the minds that
carry it. Increasing spending on business
travel by 10% raises productivity by 0.2-
0.5% in the visited sector, according toa
study of American travellers by Mariacris-
tina Piva of the Universita Cattolica del Sa-
cro Cuore and her co-authors. Another stu-
dy by Michele Coscia of the IT university of
Copenhagen, as well as Frank Neffke and
Ricardo Hausmann of Harvard’s Growth
Lab, made use of aggregated, anonymised
Mastercard data to map this movement of
minds. They estimate that China’s econ-
omy would be13% smaller if it had not ben-
efited from the know-how diffused by in-
ternational business travel. The biggest
contributions were made by visitors from
Germany and South Korea (See chart).
Foreign direct investment in China has
so far remained strong, thanks to the econ-
omy’s early recovery from the pandemic.
And few multinationals are leaving. Some
foreign firms may even localise activities
done outside China to keep doing business
there. Companies are “battening down the
hatches”, according to the European Union
Chamber of Commerce in Shanghai, bring-
ing more of their supply chain onshore, be-
cause of geopolitical tensions, covid re-
Strictions and new laws that limit data-
sharing across borders. “Companies might
be forced to have two different systems
running: one for China, and one for the
rest of the world,” says Bettina Schon, the
chamber’s vice-president. “This will be
horribly expensive.” It is not that the world
is leaving China; more that China is be-
coming a world unto itself. m
The Economist November 13th 2021
mi
&
. aes
i p
¥
General Electric
Not so general
NEW YORK
An iconic conglomerate breaks up
ERHAPS THE most remarkable charac-
teristic of General Electric (GE) over its
129-year history has been how thoroughly
it reflected the dominant characteristics of
big American business. Most of its history
was a chronicle of boisterous expansion,
then globalisation—followed by painful
restructuring away from the now-unloved
conglomerate model. On November 9th
Lawrence Culp, its chief executive, an-
nounced that GE would split its remaining
operations into three public companies.
Each of these entities will be large, es-
sential and very modern. One will make jet
engines, which GE reckons already power
two-thirds of all commercial flights. Its
power business will provide the systems
and turbines generating one-third of the
world’s electricity. The health-care divi-
sion will continue to be the backbone of
modern hospitals. Yet it speaks to GE's re-
markable role that this is a modest reach
given its past sprawl. From the late-19th to
the late-20th century its products lit dark
streets; provided the toasters, fans, refrig-
erators, and televisions (along with the sta-
tions beamed to them), which transformed
homes; delivered the locomotives that
hauled trains; and then built a huge busi-
ness financing all that and more.
The ambition to be everything was en-
abled by the perception that it could man-
age anything. The 21st century punctured
that perception. Jack Welch, an acquisitive
chief executive reputed to be a managerial
genius, retired in 2001 after receiving a
mind-boggling $417m severance package.
Ever-better results during his tenure be-
guiled investors and sent the share price
soaring. But problems soon arose. The
structure Welch left behind was in effect
bailed out during the financial crisis. Loss-
es at GE Capital, the sprawling financial
unit he fostered, were blamed, though the
company’s industrial core turned out to
have plenty of problems, too.
Recent years have been spent spitting
out one notable business after another.
The timing of the break-up announcement
was determined by the sale of a large air-
craft-financing unit. The transaction re-
duced debt by enough to provide the three
soon-to-be independent companies with
an investment-grade credit rating. Mr
Culp, the firm’s boss since 2018, speaks of
the “illusory benefits of synergy” to be
traded for the certain benefits of focus. “A
Sharper purpose attracts and motivates
people,’ he says.
Having boasted of its management
nous, it now seems that poor management
is what did it for a unified GE. The contest
to replace Welch was widely seen as pitting
the best global executives against one an-
other, with the losers hired to run other big
firms. But his successors struggled. Jeffrey
Immelt, Welch’s hand-picked replace-
ment, retired under a cloud in 2017. John
Flannery, once seen as a wizard behind the
rise of the health-care division, took over
but was fired after little more than a year.
Mr Culp was brought in from outside, a
step last taken in the 19th century.
During much of Welch’s tenure and its
immediate aftermath GE was the most
valuable company in the world, reaching a
peak market value nearly five times its cur-
rent $121bn. It is tempting to conclude that
GE's failure illustrates the demise of the
conglomerate. That is refuted by the diver-
sification of today’s most valuable compa-
nies: tech firms that have branched out in-
to driverless cars, cloud computing and so
on. Rather, GE's story reflects how even the
most valuable American companies may
be flawed—and if flaws emerge, may be
thoroughly transformed.
SS
And then there were three
Share prices, January 1973=100
4,000
Jack Welch
CEO of GE
3,000
General
Electric
1973 80 90
Source: Refinitiv Datastream
2000 +10 ~»#©21
Business
Golf's course
BERLIN
Unions and the boss are at it again
HEN BERND OSTERLOH, the
mighty boss of Volkwagen’s coun-
cil that represents workers, announced
his resignation in April many investors
breathed a sigh of relief. Frequent,
acrimonious clashes between him and
Herbert Diess, the group’s no-less-
mighty chief executive, had become a
distraction from the big changes re-
quired to push vw into the electric age.
The culmination was Mr Osterloh’s
attempt to topple Mr Diess.
Yet only six months after the depar-
ture of his near nemesis Mr Diess is
again locking horns with labour repre-
sentatives. This time observers say the
brash Bavarian may have gone too far.
After all, Volkswagen’s workers have
enormous clout. Their representatives
occupy half the seats on the group's
20-member supervisory board. They
can count on the loyalty of the two
board representatives of Lower Saxony,
the western German state that owns a
fifth of vw. The Volkswagen law from
1960 that limits voting rights of any
shareholder to 20% gives Lower Saxony
a de facto veto on any big decision.
How did the relationship hit bottom
so quickly? The biggest bone of conten-
tion is the extent of changes required to
enable vw to rival Tesla as a leading
maker of electric cars. In an email that
was leaked to the works council, Mr
Diess suggested cutting 30,000 jobs,
which would mostly affect the bloated
bureaucracy at vw’s headquarters in
Wolfsburg. Yet job losses are likely to be
an unavoidable part of the electric-
vehicle age, because EVS take less time
to assemble than cars with internal
combustion engines. Amid the ensuing
outcry, Mr Diess toned down his plans
for job cuts.
But the damage is done. A four-
member mediation committee is dis-
cussing Mr Diess’s future even though
his contract was extended to 2025 only
in July. Most agree he is the right man to
steer change at vw, but say he lacks
diplomacy. Various names of possible
successors are circulating. Tesla, of
course, faces no such headwinds. Its
boss, Elon Musk, has used social media
to warn workers against unionisation.
The American firm, which is buildinga
gigafactory not far from vw's head-
quarters, presumably views Germany’s
system of powerful worker representa-
tion on boards as acautionary tale.
69
70 Business
The corporate metaverse
Virtual world, Inc
SAN FRANCISCO
Companies want to build a virtual realm to copy the real world—and reshape it
ALL IT THE multiplication of the meta-
C verses. Ever since Mark Zuckerberg, the
boss of Facebook—sorry, Meta—laid out
his vision in late October for immersive
virtual worlds he thinks people will want
to spend lots of time in, new ones are pop-
ping up all over. An entertainment meta-
verse will delight music fans, influencers
will flock to a fashion metaverse to flaunt
digital clothes, and there is even a shark
metaverse (it has something to do with
cryptocurrencies). Mostly these are the
brainchildren of marketeers slapping a
new label on tech’s latest craze.
One new virtual world deserves real at-
tention: the “enterprise metaverse”. Forget
rock stars and fancy frocks, this is essen-
tially a digital carbon copy of the physical
economy. Building living, interactive blue-
prints that replicate the physical world
might, in time, come to shape it. The vision
of what this might mean has become clear-
er in recent days. Microsoft, the world’s
largest software firm, earlier this month
put it at the centre of its annual customer
Shindig, as did Nvidia, a big maker of
graphics processors, on November 9th.
Corporate virtual worlds are already
more of areality than Meta’s consumer ver-
sion, where people will get to hang out
with their friends at imaginary coastal
mansions. Unlike that metaverse, which is
populated mostly by human avatars, the
corporate version is largely a collection of
objects. These are “digital twins”, virtual 3D
replicas of all sorts of physical assets, from
single screws to entire factories.
Crucially, they are connected to their
real selves—a change on the shop floor, for
instance, will trigger the equivalent
change in its digital twin—and collect data
about them. This set-up enables produc-
tivity-enhancing operations that are hard
today, for example optimising how groups
of machines work together. Simulating
changes virtually can then be replicated in
the real world. And, its boosters hope, a
path would be laid to automate even more
of a firm’s inner workings.
Whether the enterprise metaverse be-
comes a reality is not simply of interest to
aficionados of corporate information tech-
nology (IT). Innovations unlocked through
insights gleaned from digital mirror-
worlds can help firms become more adapt-
able and efficient—helping them reduce
carbon emissions, for example. Promoters
of the concept even argue that it will put to
rest the old adage, coined by Robert Solow,
a Nobel-prizewinning economist, that you
can “see the computer age everywhere but
in the productivity statistics”.
The concept of this “twinworld”, as the
enterprise metaverse might be called (a
spiffy moniker will surely be found), is not
new. Some of the necessary technologies
have been around for years, including de-
vices with sensors to capture data, known
as the “internet of things” (loT)—another
field still waiting for a moniker upgrade.
Software to design detailed virtual replicas
originated in computer games, the current
benchmark for immersive worlds.
But other bits have only recently be-
come good enough, including superfast
wireless links to connect sensors, cloud
computing, and artificial intelligence,
which can predict how a system is likely to
behave. “Digital twins aggregate all of these
things,’ explains Sam George, who runs the
enterprise-metaverse effort at Microsoft.
As is its wont as a maker of corporate
software, Microsoft has developed an en-
tire platform on top of which other firms
can develop applications. This includes
tools to build digital twins and analyse the
data they collect. But this “stack”, as such
collections of code are known, also pro-
vides technology which allows people to
collaborate, including Mesh, a service that
hosts shared virtual spaces, and HoloLens,
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The Economist November 13th 2021
a mixed-reality headset, with which users
can jointly inspect a digital twin.
Nvidia’s roots in computer graphics
mean it focuses more on collaboration and
creating demand for its chips. Its Omni-
verse is also a platform for shared virtual
Spaces, but one that allows groups of users
to bring along elements they have built
elsewhere and combine these into a digital
twin they can then work on as a team. The
common technical format needed for such
collaboration will come to underpin digi-
tal twins in the same way HTML, a Standard
formatting language, already underpins
web pages, predicts Richard Kerris, who is
in charge of Omniverse.
Both platforms have already attracted a
Slew of startups and other firms that base
some of their business on this technology.
Cosmo Tech, for instance, takes Micro-
soft’s tools to do complex simulations of
digital twins to predict how they might
evolve. And Bentley Systems, which sells
engineering software, uses Omniverse to
optimise energy infrastructure. Both Mi-
crosoft and Nvidia have also teamed up
with big firms to show off their wares. AB
InBev, a beer giant, collaborates with Mi-
crosoft to create digital twins of some of its
more than 200 breweries to better control
the fermentation process. In the case of
Nvidia, the top partner is BMW, which uses
Omniverse to make it easier to reconfigure
its 30 factories for new cars.
Despite all this activity, it is not a given
that the enterprise metaverse will take off
as fast as its champions expect, if ever.
Similar efforts have failed or disappointed,
including many IoT projects. “Smart cit-
ies’, essentially attempts to build urban
metaverses, turned out to use technology
that was just not up to snuff and relied too
much on proprietary standards.
If the enterprise metaverse does indeed
take shape, though, it will be an intriguing
process. Will it be based on proprietary
technology or on open standards (there is
already a Digital Twin Consortium)? And,
asks George Gilbert, a veteran observer of
the IT industry, how will software-makers
such as Microsoft be paid for their wares?
Since their code will be more embedded
than ever in firms’ products and services,
some may ask fora slice of revenue instead
of licensing or subscription fees.
And then there is the question of how
the overall metaverse economy will func-
tion. Since most business activity will be
digitally replicated, economists may have
unprecedented insight into what is going
on. Digital twins could exchange services
between themselves and perhaps replace
firms as the main unit of analysis. If digital
twins live on a blockchain, the sort of plat-
form that underpins most cryptocurren-
cies, they could even become independent
and own themselves. Expect at least as ma-
ny possibilities as metaverses to unfold. @
boli meCoemmetaaemne
be a bioengineer to
help change the
Jet} oemeymolesestbeliae
mi=)] om ele))\.-1an'Lelel mm elelaarellomi ulin
the innovators of the Nasdaq-100.
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72
Business
The Economist November 13th 2021
Schumpeter | The flywheel delusion
Uber, DoorDash and similar firms can't defy the laws of capitalism after all
N THE REAL world a flywheel is a mechanical contraption that
| eee rotational energy. In Silicon Valley it has come to mean
something else: a perpetual-motion business that not only runs
forever but is self-reinforcing. Thanks to powerful network ef-
fects, the theory goes, a digital platform becomes more attractive
as it draws in more users, which makes it even more attractive and
so on. The end state is a venture that has gathered enough energy
to self-levitate and throw off tons of cash.
The payout on one of the most richly funded bets of the past de-
cade or so revolves around whether ride-sharing and delivery
firms—which once were part of something known as the “sharing
economy’ but are better described as the “flywheel economy’—
can actually ever live up to their heady promise. The outcome will
matter to more than just venture capitalists who backed their
growth. Whether these flywheels do gather unstoppable momen-
tum is also of interest to regulators worried about technology’s
propensity for winner-takes-all business models, not to mention
paid-by-the-gig workers caught in its cogs.
Consider the results of Uber and DoorDash, the largest Western
ride-sharing and delivery apps respectively. Optimists will have
seen plenty to cheer them. On November ath Uber proclaimed it
was at last profitable, albeit only on the flattering metric of “ad-
justed EBITDA”. Strong third-quarter figures from DoorDash,
which were released on November oth, fuelled an already heady
rally in its shares (the firm also announced the acquisition of
Wolt, a Finnish food-delivery company, for $8bn).
But look deeper and evidence is mounting that business fly-
wheels are not defying the laws of capitalism. The money that
went into building them recalls the railway mania among other
past speculative investment crazes. The nine firms that have gone
public so far—Uber and its American rival Lyft; Didi, a Chinese
ride-sharing app; and six delivery firms, from DoorDash and De-
livery Hero, which is based in Berlin, to China’s Meituan and In-
dia’s Zomato—collectively raised more than $100bn. In most cas-
es, the capital was intended to jumpstart those network effects
and make market dominance a self-fulfilling prophecy. Seemingly
bottomless pits of investors’ cash went to subsidising rides and
deliveries to juice demand. This reached absurd points: a pizzeria
could make money by ordering its own food for a discounted price
on DoorDash (which then paid back the regular amount). To justi-
fy such profligacy, interested parties pointed to the huge “total ad-
dressable market”, another popular term in Silicon Valley. Bill Gur-
ley of Benchmark, an early investor in Uber, argued in in 2014 that
the firm could vie for as much as $1.3trn in consumer spending if
one saw it as an alternative to car ownership.
Measured against such visions, the flywheel economy has pro-
ven a dud. To be sure, the nine listed flywheel firms are still grow-
ing nicely—at 103% on average in their latest reporting period
compared to the same period the previous year. This explains why
they are collectively worth nearly $50o0bn. But self-levitating they
are not. Nor are they profitable. Sales for the group amounted to
$75bn over the past year and the operating loss to nearly $11.5bn.
As the firms have discovered, their businesses are less perpetu-
al motion machines than real-world flywheels that inevitably lose
energy to friction, says Jonathan Knee of Columbia Business
School and the author of a book entitled “The Platform Delusion”.
The network effects in fact have proved much weaker than expect-
ed. Many users switch between Uber and Lyft. Drivers also flit be-
tween them, or to delivery apps, depending on which model offers
the best pay. This bargaining power from both sides means the
system does not become self-reinforcing after all.
Technology, too, has turned out to be less beneficial than ex-
pected. Data collected by the firms help optimise their operations,
but are not the decisive factor some had hoped for. Regulators
keep pushing back. In London they have forced Uber to pay drivers
minimum wages and pensions. In San Francisco they capped the
fees DoorDash can charge restaurants for delivering their meals.
Uber’s tortuous path to stemming losses should temper inves-
tor optimism. It eked out a profit of $8m on revenues of $4.85bn.
That excludes expenses that are unlikely to disappear, such as
stock-based compensation. The company has crawled out of its
sea of red ink mostly by slashing costs, shedding technology as-
sets such as its autonomous-car unit, charging higher prices and
increasing its “take rate”, the share of the fares it keeps. As a result,
an Uber is now no cheaper—and often more expensive—than con-
ventional cabs, plenty of which can be hailed via apps these days.
What is more, the company, which has a market capitalisation
of $85bn, is now more of a delivery service than a ride-hailing app:
Uber Eats generates more than half of sales. DoorDash’s own pun-
chy valuation, of $65bn, rests on revenue that has grown more
than fourfold since the last quarter of 2019, albeit during a time
when people dined at home more often. But it also bakes in suc-
cess in new markets that it has recently entered, including grocer-
ies and pet food.
Circular economy
Real business flywheels do exist. Software makers have managed
to lock users in and thus generate gross margins typically above
70%. Venture capitalists are hoping against all hope to find new
ones. They are already pouring money into the next generation of
flywheel contenders: instant-delivery startups, which offer grati-
fication in 30 minutes or less. Coupon-collecting consumers in
cities such as New York now get at least a week’s worth of groceries
for nothing from such services as Buyk, Fridge No More and Go-
puff. Eventually, these firms’ champions promise, their econom-
ics will be far better than those of an Uber or a DoorDasnh. In the fly-
wheel economy hope and hype spring eternal, at least as long as
interest rates remain low and capital is essentially free. m
Finance & economics
Chinese banks
Attack on the tycoons
HONG KONG
The government sets its sights on sleazy ties between businesses and banks
T’S BEEN A bad year to be a big cheese in
China. Billionaire entrepreneurs have
been hounded. Over-extravagant enter-
tainers have disappeared from the inter-
net. Nowa new type of tycoon is feeling the
heat. The latest regulatory crackdown on
what the government considers private-
sector misbehaviour extends to business-
men with excessively cosy ties to banks.
The fear is that insider dealing, preferen-
tial access to credit and lax corporate go-
vernance pose threats to stability, particu-
larly in the regional and local underbelly of
China's financial system.
The most prominent red flag is Ever-
grande, a debt-ridden property firm close
to collapse that until recently had a 36%
Stake in Shengjing Bank, a local lender
based in the north-eastern province of
Liaoning. The authorities are said to be in-
vestigating whether Evergrande, which is
run by a billionaire, Hui Ka Yan, took con-
trol of Shengjing, with about itrn yuan
($156bn) in assets, using illicit means, as
well as conducting some 10obn yuan in re-
lated-party transactions.
Another notorious case involves HNA
Group, an acquisitive conglomerate which
took over Yingkou Coastal Bank in Liao-
ning in 2014 (see chart1on next page). HNA
put new leaders into the bank and trans-
formed it into a mill for shadow-banking
products that provided it and related
groups with copious amounts of credit. Its
assets tripled in 2016, making it the fastest-
growing bank in China that year—before it
almost collapsed. Since February HNA has
been in bankruptcy administration. Chen
Feng, its co-founder and chairman, was ar-
rested in September, as was its CEO.
The malaise goes far deeper, posing a
potential threat to economic stability in
some Chinese provinces, particularly rust-
belt ones like Liaoning. The 134 metropoli-
tan and1,400-odd rural commercial banks
in China make up about 32% of its com-
mercial-banking sector, with some 9otrn
> Also in this section
75 Venture capital's crypto craze
75 America’s inflation shock
76 Debt-for-nature swaps
77 Buttonwood: The appeal of cash
78 Free exchange: Lessons from Zillow
The Economist November 13th 2021
yuan, or $14trn, in total assets. That is al-
most the size of Britain’s entire banking
system. They exist in the shadow of Chi-
na’s six big national-level banks and 12
joint-stock banks, which are predomi-
nantly state-owned and have the most vis-
ibility. Unlike the bigger banks, during
most of the past decade many of those in
the lower tiers have sold ownership stakes
to large private investors, to the point of
being under the influence of them. In re-
cent years some have become cesspools of
bad debts, insider dealing and failures of
risk management, which are often attrib-
uted to misaligned ownership incentives.
This has aroused the concern of regula-
tors. The central government is expediting
a reform to push out what it calls “problem
shareholders” from banks. On October 15th
the China Banking and Insurance Regula-
tory Commission introduced rules that ex-
tended supervision of those that it consi-
dered to be banks’ controlling share-
holders. According to China Daily, a gov-
ernment mouthpiece, that extended to
anyone holding a10% stake or more ina Ci-
ty or local bank, or those holding the larg-
est equity stake in a bank or insurance
company, with ownership of no less than
5%. The aim is to weed out over-cosy cor-
porate interests.
If corporate shareholders are indeed
the problem, the authorities will have their
hands full. The Economist calculates that of
107 city commercial banks that disclosed
financial information for 2020, 72 with
about 20.2trn yuan in total assets had large
corporate shareholders, many of which
were property developers and manufactur- >>
Finance & economics
> ers. Twenty-two of this group were con-
trolled outright by corporations and ty-
coons, or had been until they were recently
forced to restructure. But even those with
more than one large shareholder have at-
tracted the attention of regulators. The au-
thorities are likely to be scrutinising the
way investors compete with each other for
preferential treatment.
The level of corporate ownership at ru-
ral commercial banks extends even fur-
ther—to the point that it has shocked some
researchers. Wang Chunyang of Peking
University surveyed 1,295 rural banks and
found that 1,122, or about 87% of them, had
private companies as their largest share-
holders. By our calculations, that level of
private ownership implies that up to
39.4trn yuan in rural-banking assets could
be controlled or influenced by private in-
terests. For these banks, identifying pro-
blems early is a challenge. Smaller lenders
are more likely to hide their bad debts, says
Ruan Tianyue of National University of
Singapore, creating a regulatory blind spot.
Private ownership of banks, by itself, is
not the cause of the problem. Some pri-
vately held banks, such as the newly creat-
ed Zhongbang Bank, have performed well.
For their part, many small, government-
controlled lenders have demonstrated
abysmal risk controls. But in banks lacking
in corporate governance, the risk is that the
owners use their clout to extract loans on
preferential terms, undermining prudent
risk management and increasing the level
of bad debts.
That could have economic consequenc-
es. Some experts liken the state of China’s
Small banks to that of the more than 1,000
Savings-and-loan institutions that col-
lapsed in America in the mid-1980s due to
deregulation and lax lending controls.
They say bad-debt problems among city
and rural banks could hurt regional eco-
nomic growth.
Another problem is more political in
nature. As evidence grows of tycoons’ mur-
ai
Rot in the rust belt
Chinese banks*
Non-performing and special-mention loans,
as % of total loans, end-2020
@ Non-performing ™@ Special-mentiont
0 2 4 6 8
North-eastern
North-western
South-central
Northern
Joint-stock banks
Megabanks
South-western
Eastern
a!
Piggy banks
China, ownership structure of tycoon banks
October 2021, % of total
®@ Private conglomerates
® Local government
~ Property developers
Other private groups
O 20 40 60 80 100
Evergrande
Shengjing Bank*
Yingkou Coastal Bank
Chengdu Rural
Commercial Bankt (QSUeIcCaaa
Langfang Bank China Fortune Land
Fuxin Bank
Source: QCC *Listed in Hong Kong 12019
ky relationships with banks, the more it
plays into the narrative of President Xi
Jinping that socialist command-and-con-
trol policies do a better job than private
capital in allocating economic resources.
Signs of misbehaviour appear to be
mushrooming. Besides Evergrande, which
has been forced to sell some of its shares in
Shengjing, Hong Kong-listed Bank of Gan-
Su required a bail-out last year after it lent
to and invested heavily in the debt securi-
ties of one of its shareholders, which even-
tually defaulted. Bank of Jinzhou, a north-
eastern lender, required an emergency re-
structuring after its largest shareholder, to
which it had extended many loans, could
no longer pay back creditors. Anbang In-
Surance, the unwieldy conglomerate best
known outside China for buying the Wal-
dorf Hotel in 2014, controlled Chengdu Ru-
tal Commercial Bank until 2020. Xiao Jian-
hua, a tycoon who was kidnapped by Chi-
nese agents from a Hong Kong hotel in
2017, controlled two lenders, Baoshang
Bank and Bank of Harbin, both of which re-
quired expensive state bail-outs.
These problems are unlikely to abate as
China’s economy decelerates and more
companies default. In September shares in
Loan-loss reserves, as % of total
non-performing and special-mention loans
@2019 2020
0 50 100 150
Eastern
South-western
Megabanks
Joint-stock banks
Northern
South-central
North-western
North-eastern
*Includes top 30 unlisted and 28 listed rural and city banks across all regions
Source: S&P Global Ratings
tLoans flagged for potential repayment problems
The Economist November 13th 2021
Fuxin Bank were put up for sale in an on-
line auction meant to help raise capital for
the struggling lender after a property de-
veloper with shares in the company could
no longer repay its debts. Bank of Langfang
faces a potential increase in bad debts after
its second-largest shareholder, China For-
tune Land, a developer, defaulted on a
5.3bn yuan bond earlier this year.
Regulators take several approaches to-
wards weeding out miscreant owners—of
varying severity. One is to push out proble-
matic shareholders. In mid-2020 the bank-
ing regulator published a list of 38 “illegal
shareholders” that it had forced to divest.
Another is detention. Mr Xiao, for in-
Stance, is thought to be currently held in
Shanghai, where he is assisting in the un-
winding of his business operations. A third
is the death sentence. Cai Guohua, former
chairman of Hengfeng Bank, which re-
quired a bail-out in 2020, was handed a
suspended death sentence for, among oth-
er things, taking illegal loans.
Authorities have no intention of forc-
ing all private shareholders out of the
banks, but they are moving to ensure that
the largest shareholders come from the
State, says Lian Ping of Bank of Communi-
cations, a large Chinese bank. This will
mean an upheaval across the industry, giv-
en how prevalent large, private share-
holders have become in recent years. Such
regulatory actions will take time and will
need to avoid undermining depositor con-
fidence at banks.
In some regions, such as the north-east,
the government has sought to restructure
handfuls of banks at a time, possibly wor-
ried about a regional concentration of debt
woes. S&P Global, a ratings agency, says
that nearly 8% of the loan books of the
most prominent city and rural lenders in
the north-east were non-performing or of
questionable status in 2020. The figure
was just 3% for the loan books of similar
banks in eastern China (see chart 2).
The north-east has one of the highest
rates of private ownership in the country.
In Liaoning province, for example, eight of
its 15 city commercial banks are privately
controlled. That produced a drive for con-
solidation. After the HNA debacle, Yingkou
Coastal Bank became the central pillar of
an effort to merge banks in Liaoning. At
first regulators went so far as to attempt to
bring together 12 of Liaoning’s banks. But
later this ambition was downsized to two,
including Yingkou.
For all the regulatory overdrive, the
neatest solution continues to evade Chi-
nese regulators: allowing banks to fail and
exit the market. Not since the collapse of
Hainan Development Bank in 1998 has a
lender been allowed to fail. And that was a
convoluted bankruptcy that still drags on
to this day. Rural banks would be fertile
ground for such tests. @
The Economist November 13th 2021
Funding crypto ventures
The bitcom boom
A venture-capital craze feels like the
glory days of the dotcom era
HE HONG KONG Office of FTX, a crypto-
j poe exchange, is a place where ba-
sic needs come second to business. Food
and booze lie around desks fitted with six
screens each. Sam Bankman-Fried, its
boss, says he sleeps four hours anightona
bean bag next to his desk—if he’s lucky. He
sees little difference between breakfast
and dinner, apart from “which restaurants
are open for delivery”.
His restlessness mirrors that of crypto
markets, which never sleep. But it also re-
flects the speed at which the two-year-old
firm is growing. Last month FTx an-
nounced a $420m funding round that val-
ued it at $25bn, just three months after in-
vestors gave it a price tag of $18bn. The deal
featured the creme de la creme of the invest-
ment universe, including BlackRock, the
world’s largest money manager, OTPP, a
$170bn Canadian pension fund, and Tema-
sek, asovereign fund from Singapore.
FTX’s funding feast is symptomatic of
investors’ growing appetite for crypto
Startups, especially those that are creating
the tools to build a blockchain-based fu-
ture. In the first nine months of 2021 they
raised $15bn in venture capital (vc), five
times their tally for the whole of 2020. In
the third quarter 12 crypto unicorns—start-
ups valued at $1ibn or more—were born, a
record. The heady times remind some ven-
ture capitalists of the dotcom era. But
they’re not sure whether they are partying
like it’s 1994— oF 1999.
One trigger for the capital flows is the
rising demand for digital monies from re-
tail speculators. That is influencing vcs to
back crypto wallets and exchanges. Inves-
tors are also betting that, as regulation be-
comes clearer, institutions will take it
more seriously, stirring demand for crypto
tax advisers, analytics firms and asset cus-
todians, says Matt Burton of QED, a Vc firm.
Red-hot indicators such as the bitcoin
price, which flirted with a record $69,000
this week, are turbocharging excitement.
The industry’s boundaries are expand-
ing, too. Blockchain startups are promot-
ing new forms of financial services (decen-
tralised finance), digital ownership (non-
fungible tokens, or NFTS) or incentive
models (as in gaming, where users can
earn crypto as they play). NFT ventures
have raised $2bn so far this year, up from
$31m in 2020. Four-fifths of vc deals have
been early-stage rounds.
Most intriguing is the entry of new in-
[|
Blockchain reaction
Venture-capital investments in crypto startups
Number of deals Funding, $bn
300 6
250 5
200 ie f 4
150 3
100 2
50 1
0 0
2015 16 17 18 19 20 21
Source: CB Insights
vestors. Successful crypto firms are rein-
vesting cash into younger ones. The most
prolific is Coinbase Ventures, the invest-
ment arm of America’s largest crypto ex-
change, which sealed 24 deals in the past
quarter. On November 5th FTx and other
firms launched a $100m gaming fund.
Deep-pocketed investors from main-
stream finance are also pitching in. They
include well-known venture funds, such
as Andreessen Horowitz, an early backer of
Facebook and Skype. SoftBank, a trigger-
happy Japanese group, made six crypto
deals in the past quarter. They also feature
some hedge funds and asset managers.
Such investors helped complete 15 rounds
of more than $100m in the last three
months. Together these accounted for two-
thirds of total vc money spent.
Shan Aggarwal, who runs Coinbase
Ventures, says the craze recalls the dotcom
boom of the 1990s, when investors rushed
to back the firms that would form the foun-
dations of the web economy. In one respect
the current era is even more impressive:
while the internet bubble was mostly nur-
tured in Silicon Valley, the “bitcom” boom
spans Asia ($1.4bn raised this quarter) and
Europe ($1.1bn) in addition to America
($3bn). Crypto unicorns are cantering
ahead in Africa and Latin America, too.
Whether it will produce successes like
today’s tech giants is still an open ques-
tion, though. It’s early days. The bounty
garnered by crypto firms in 2021 amounts
to 16% of the sum raised by fintech firms
and 3% of that raised by startups at large.
Big deals have buoyed the average size of
investment rounds to $21m, triple the level
of 2020, but the median, at $4m, is small.
Some valuations look silly: in Septem-
ber Sorare, a fantasy-football game played
on the blockchain, closed a $680m round
that valued it at $4.2bn, or 22 times sales—
more than Facebook’s multiple when it did
its initial public offering. All of which sug-
gests that some investors will make out
like bandits, while others will get their fin-
gers burned. For good or ill, more sleepless
nights beckon. @
Finance & economics
Inflation in America
The wrong kind
of hot
A broad pickup in prices puts pressure
on the Fed to raise rates
F AN AVERAGE American decided that last
month was high time to buy a new sofa
and then spent his evenings drinking beer
on it, he would have been lucky. Both the
furniture and the brew cost a little less
than a few weeks earlier. Unfortunately,
that same American may have been pain-
fully aware that just about everything
else—his rent, the petrol for his car, his
food and even that new leafy plant next to
the sofa—costa fair bit more. The best level
for inflation, economists joke, is when
people do not notice it. In America it is be-
coming very noticeable. In October the
consumer-price index rose by 6.2% com-
pared with a year earlier, the highest rate in
more than three decades (see chart1).
As inflation has accelerated economists
and officials have debated whether it is a
transitory phenomenon—reflecting over-
stretched supply chains—or a more persis-
tent problem. It is far more than an aca-
demic debate. If inflation is short-lived,
the right move for the Federal Reserve
would be to look through it, aware that
jacking up interest rates may do more
harm than good. If, however, inflation is
stubbornly high, the central bank is duty-
bound to tame it. The big jump in prices in
October tilts the debate in favour of “Team
Persistent’, as some have taken to calling
it, and puts pressure on the Fed.
To be sure, a big chunk of America’s
headline inflation is still attributable to
the lumpy post-pandemic recovery (see
chart 2 on next page). Gasoline costs, for
instance, are 50% higher than a year ago,
tracking the surge in oil prices. Used cars
are 26% dearer than a year ago, with a
75
semiconductor shortage leading to slower b>
es
Mercury rising
United States, consumer prices
% change on a year earlier
15
10
Headline 5
| 0
Core*
5
70 80 90 2000 10 21
Source: Bureau of Labour Statistics *Excl. food and energy
76
Finance & economics
ist]
Fuelling the fire
United States, consumer-price components
October 2021, % change on previous month
-] 0 1 Z 3 4 5 6
Energy
Used cars and trucks
WH Rent
Transportation
© Sofas*
Beer at home
*Living room, kitchen, and dining room furniture
Source: Bureau of Labour Statistics
> production of new cars and more demand
for second-hand vehicles. And prices are
rising globally, from Australia to Britain.
Nevertheless, optimism that supply
kinks would be ironed out by now has van-
ished. Inflation is even hotter in America
than in other countries because of the
strength of the rebound there, with stimu-
lus payments fuelling demand. Price pres-
Sures are getting broader. A gauge of core
inflation, stripping out volatile food and
energy prices, rose by 4.6% year-on-year in
October, more than twice its trend rate of
the previous quarter-century. Increasing
rents suggest that elevated inflation will
continue well into 2022. With wages also
rising at their fastest in years, concerns are
mounting about a feedback loop, in which
higher salaries beget higher inflation.
In truth there ought to be little chance
of a wage-price spiral in America. A sharp
narrowing in the fiscal deficit will con-
Strain growth in the coming quarters. And,
crucially, investors still expect the Fed to
take decisive tightening action if neces-
sary, which is why longer-term bond yields
have not moved much. Last week the Fed
announced that it would start reducing its
monthly asset purchases, the first step to
unwinding its ultra-loose policies imple-
mented at the height of the pandemic. Sev-
eral prominent banks have moved forward
their forecasts for rate increases. Goldman
Sachs, for example, had previously expect-
ed the Fed to wait until 2023; now it expects
two increases next year, starting in July.
But the uncertainty around all these expec-
tations is much greater than in normal
times. The Fed itself has consistently un-
derestimated inflationary trends over the
past year, so its shift to tightening may end
up being uncomfortably abrupt.
Politically, this is treacherous territory
for President Joe Biden. His week had got
off to a great start with the passage of
America’s biggest infrastructure-invest-
ment bill in decades, giving him some-
thing to crow about. On November 1oth,
Shortly after the inflation data were pub-
lished, he instead chose to adopt a defen-
sive posture. “Inflation hurts Americans’
pocketbooks, and reversing this trend isa
top priority for me,’ he said. His adminis-
tration is trying to clear some of the back-
logs at ports, which would help retailers
stock their shelves more quickly, perhaps
easing some of the pressures. Mr Biden al-
so noted that the price of natural gas, a big
contributor to inflation in October, has
dipped in recent days.
Yet inflation is, ultimately, out of Mr Bi-
den’s hands. The government can only do
so much to paper over global shortages.
Knowledge that the Fed may feel com-
pelled to raise rates before too long will of-
fer Mr Biden little consolation. Historical-
ly, growth cycles tend to come to an end
when the central bank tightens policy, so
today’s price pressures may augur eco-
nomic disappointment a little farther
down the road. Mr Biden, a teetotaller, can-
not even soothe his sorrows with a mod-
estly cheaper bottle of lager. @
Debt-for-nature swaps
Reef relief
Belize trades one sort of riches
for another
F ECONOMIES WERE measured by their
[ natural capital, as well as the physical
and human sort, Belize would be a richer
country than it is. What the tiny Caribbean
state lacks in cold, hard cash, it makes up
for in warm, tropical biodiversity. The Be-
lize Barrier Reef, the second largest ex-
panse of coral in the world, is packed with
turtles, manatees and other threatened
species. Holidaymakers flock to its coast to
dive, snorkel or simply gaze at its waters
from the comfort of ahammock. Or at least
-
«At
oe
Lawsuits off, wetsuits on
The Economist November 13th 2021
they did before the pandemic. Last year
tourism dried up, growth contracted
Sharply and public debt jumped from just
under 100% of GDP in 2019 to Over 125%.
That forced Belize, not for the first time,
into a debt restructuring—one in which it
is seeking to exchange one sort of riches
for another. As part of the deal, concluded
on November 5th, Belize bought back its
only international bond, a $553m liability
misnamed the “superbond”, at 55 cents on
the dollar. It funded that with $364m of
fresh money, arranged by The Nature Con-
servancy (TNC), an NGO, which is insured
by the International Development Finance
Corp, an American agency. The transaction
is backed by the proceeds of a “blue bond”
arranged by Credit Suisse, a bank. The pay-
back is due over1g9 years with a coupon that
begins below that of the superbond but ris-
es above it over time.
It is called a blue bond because Belize
has pledged to invest a large chunk of the
Savings into looking after the ocean. That
includes funding a $23m endowment to
support future marine-conservation pro-
jects and promising to protect 30% of its
waters by 2026.
It might be argued that Belize should do
this anyway to support tourism, which ac-
counts for 40% of economic activity. But at
a time when governments and investors
are looking at novel ways of funding envi-
ronmental clean-ups, Belize was able to
use its natural patrimony to gain leverage
over bondholders. Whether it will be
enough to stop it defaulting again in the
future is another matter.
Debt-for-nature swaps are nothing
new. Lenders have been offering highly in-
debted countries concessions in return for
environmental commitments for decades.
But these transactions have historically in-
volved debt owed to rich countries, not
commercial bondholders. As Lee Buchheit,
a lawyer who specialises in sovereign-debt
restructurings, points out, they were “neg- b>
The Economist November 13th 2021
» ligible in size”. In total, the value of debt-
for-climate and nature-swap agreements
between 1985 and 2015 came to just $2.6bn,
according to the United Nations Develop-
ment Programme. Of the 39 debtor nations
that benefited from the swaps, only 12 ne-
gotiated debts of over $30m. “It was really
an exercise in public relations,’ Mr Buch-
heit says.
A lot has changed since then. Govern-
ments are now under immense pressure to
make ambitious commitments on climate
change and biodiversity. And investors are
eager to show they can make money as well
as being committed to environmental, so-
cial and governance goals.
Other poor countries are trying to move
in the same direction. At the cop26 climate
Summit in Glasgow Ecuador’s president
Guillermo Lasso proposed enlarging the
country’s Galapagos nature reserve
through a debt-for-nature swap. And TNC
is in talks with other poor countries inter-
ested in doing something similar. Once a
blueprint is in place, agreement gets sim-
pler. The last restructuring of the same sort
that it took part in, which involved $21.6m
of debt owed by the Seychelles to the Paris
For the duration
Why cash is now more appealing as a portfolio asset
VER HAD the feeling that thereisa
E party somewhere that you re not
invited to? It is the same feeling investors
have when they have capital sitting in
three-month bills or on deposit ata
bank. Cash is a safe asset, but a wasting
one. The real returns on risky assets have
been much greater. True, cash affords
options—to buy cheaply when others are
Selling. But episodes of distressed selling
have been fleeting, largely thanks to
central banks, which have been liberal in
Supplying cash in emergencies. Why
then should investors incur the opportu-
nity cost of holding it?
In its favour, cash is at least now
offering asmall return, or the prospect of
one. Overnight interest rates have risen,
notably in Latin America and Eastern
Europe. The Bank of England may raise
its benchmark interest rate before the
year is out. The Federal Reserve may
follow at some time next year. But the
rate of return in short-term money mar-
kets is still below the rate of inflation and
is forecast to stay that way. For those
seeking returns, holding cash remainsa
loss-making prospect in real terms.
The true appeal of cash as a portfolio
asset lies somewhere else. More and
more capital is tied up in investments
where much of the payoff lies in the
distant future. You see this in the huge
market capitalisations of a handful of
tech companies in America and in the
money flooding into private-equity and
venture-capital funds. Investors have to
wait ever longer to get their money back.
In the meantime their portfolios are
vulnerable to a sharp rise in interest
rates. A simple way to mitigate this risk
is to hold more cash.
The concept of “duration” is a useful
one in this regard. Duration is a measure
of a bond’s lifespan. It is related to, but
subtly different from, the maturity ofa
bond. Duration takes into account that
some of what is due to bondholders—the
annual interest, or “coupon’”—is paid out
sooner than the principal, which is hand-
ed over when the bond matures. The lon-
ger you have to wait for coupon and prin-
cipal payments, the longer the duration. It
is also a gauge of how much the price ofa
bond changes as interest rates shift. The
greater a bond’s duration, the more sensi-
tive itis to a rise in interest rates.
You can also think of equity invest-
ment in duration terms. Take the familiar
price-earnings ratio, or PE, the price paid
by investors for a given level of stockmark-
et earnings. The idea is that ifastockhasa
PE of ten, based on recent earnings, it
would take ten years to earn back the
outlay of an investor who buys the stock
today, assuming earnings stay constant. If
the PE is 20, it would take 20 years. The PE
is thus a crude measure of the stock’s
duration. On this basis, American stocks
in aggregate have rarely had a longer dura-
tion. The cyclically adjusted price-earn-
ings ratio, a valuation measure popular-
Finance & economics
Club of creditors, took four years to thrash
out. Negotiations in Belize lasted a year
and a half.
Yet no amount of creative dealmaking
can distract from the grim truth: many
emerging markets still suffer from crush-
ing debts. The pandemic has pushed half
of the world’s poorest countries into debt
distress or heightened the vulnerability to
it. And debt-for-nature swaps only help at
the margin. Last week's restructuring re-
duced Belize’s external debt by $250m, or
12% of GDP. The success is for coral reefs
more than debt relief. m
ised by Robert Shiller of Yale University,
is now close to 40. It was higher only at
the giddy height of the dotcom boom in
1999-2000.
The rationale for longer-duration
assets is a familiar one. Real long-term
interest rates are about as low as they
have ever been. As a consequence in-
vestment returns even in the distant
future, once discounted, havea high
value today. It is not just stocks. Property
is valued at a steep price relative to the
stream of future rents. Investors are
piling into private-equity and venture-
capital funds that won't pay out fora
decade or more. Everyone, it seems, is
long duration. But with longer duration
comes a greater risk that unexpectedly
aggressive interest-rate rises will lead to
a collapse in asset values.
A typical investment portfolio of
stocks, bonds and property is vulnerable
to this risk. There are not too many good
ways to hedge it. Buying insurance in the
options market against a stockmarket
crash is expensive and fiddly.
This is where cash comes in. Cash is
by definition a short-duration asset.
Were interest rates to go up sharply, cash
holders would get the benefit quickly
even as other assets suffer. So as the
duration of your portfolio rises, it makes
sense to raise your cash holdings too. By
precisely how much will depend, as ever,
on your risk appetite. Just as you are
advised to sell down your stocks to the
level where a night’s rest is assured, you
might also build up your cash holdings
to the sleeping point.
Of course, sucha strategy comes with
an opportunity cost. As long as asset
markets continue to boom, cash will bea
drag on your portfolio. So be it. Missing
out on some returns is the price you pay
for mitigating duration risk.
77
78 Finance & economics
Free exchange | Home-icide
A Zillow whodunnit
HE TIMING was apt. On November 2nd, just two days after
Americans celebrated their scariest annual holiday, news ofa
Suspicious death shocked the stockmarket. Zillow, a giant proper-
ty and technology firm, said it would shut down its huge instant-
buying, or i-buying, business, which uses big data and algorithms
to make offers on homes in dozens of cities in America and then
swiftly sells them on. The firm expects to lose in excess of $500m
in the second half of 2021 after it overpaid for thousands of homes.
It will lay off a quarter of its 8,o00 employees. It seemed like a
business that should be in rude health. By and large it has been a
fantastic time to buy a home almost anywhere in America—if you
can only snag one: house prices have climbed between 16% and
25% during the past 18 months. So why is Zillow’s i-buying busi-
ness in the morgue? And whodunnit?
Finding the right suspect matters for reasons bigger than the
fate of Zillow itself. The i-buying business is one of many exam-
ples of firms using a platform to collect big data, analyse it using
advanced techniques and empower their algorithms to enable a
market to work more smoothly. This trend has pushed down tran-
saction costs in many asset markets, from stocks and bonds to
camera equipment and clothing. The fate of Zillow’s i-buying
business might indicate that using technology to buy and sell
something as idiosyncratic as a house is a flip too far.
Consider the most serious suspect first: the housing market. It
has been in an unusual state of flux. At first the covid-19 pandemic
caused a freeze in all property transactions. Then prices went ber-
serk, rising at record levels year on year in April. Undoubtedly, vo-
latile prices do no favours to algorithms trained on historical data.
Still, in theory rising prices should help i-buyers by making it
harder to sell a house for less than was paid for it. The reverse, fall-
ing prices, could be a more likely culprit but as yet the data are
mixed. A house-price index compiled by the National Association
of Realtors (NAR) finds that values peaked in June 2021, at 19%
above pre-pandemic levels, and have since dropped by 2.8 per-
centage points. Another by S&P CoreLogic Case-Shiller suggests
prices are still galloping ahead. Both are published with a lag (the
NAR runs to the end of September, Case-Shiller to the end of Au-
gust), which means the evidence is inconclusive.
The Economist November 13th 2021
The next suspect is the mathematical models. A handful of
firms offer i-buying services, the first and biggest of which is
Opendoor, founded in 2014. They charge a fee for the services they
provide: buying and selling homes immediately, with zero fuss.
The quick in-and-out makes them more like marketmakers than
property investors, who buy to hold. To succeed, i-buying firms
need two critical pieces of information: the current value of a
home and a forecast of the price at sale time, typically two to three
months in the future. To figure these out they need troves of data,
ranging from the precise location of a home, to how many rooms it
has, to whether it has a pool or not. They compare these with the
closest comparable homes that have sold recently and look at re-
cent trends to make a forecast. That enables them to make an “in-
stant” offer to a homeowner. In the past the algorithms appear to
have worked pretty well. Mike DelPrete, of the University of Colo-
rado, found they offered homeowners about 1.4% below market
value—not a bad outcome for a quick, hassle-free sale.
Zillow’s boss, Rich Barton, said the big problem was with the
firm’s forecasts. He claimed it had found itself unable to predict
prices three-to-six months into the future. In particular Zillow
seems to have projected much rosier conditions than material-
ised. In Phoenix, where house-price appreciation has been partic-
ularly rapid but seems to be slowing, Zillow is listing homes for an
average of 6.2% less than it paid for them.
This problem is exacerbated by the fickle economics of adverse
selection. Even if the algorithms of i-buying firms are excellent at
pricing homes at a fair value on average, they only need to be a lit-
tle off for the risk to skew to the downside. Homeowners will prob-
ably not sell their home for much less than they think it is worth,
but they will happily settle for a higher-than-expected price. Mr
Barton revealed in a shareholder letter on November 3rd that
“higher-than anticipated conversion rates” were part of the pro-
blem. One former Zillow employee has claimed that the company
wanted around 50% of homeowners who sought an offer to take it,
but as many as 74% of offers made in recent months were taken
up. Zillow bought almost10,o00 homes in the third quarter, more
than double the amount from the prior three-month period,
which itself was more than double the amount in the first quarter.
The suspicion is that Zillow's algorithm was making overly gener-
ous offers, and homeowners were rushing to take advantage.
This may have been a Zillow problem, not an 1-buyer one, how-
ever. Some of Zillow’s competitors seemed to realise before Zillow
that the market was losing steam. OpenDoor and Offerpad, an 1-
buyer founded in 2015, both began making more conservative of-
fers relative to their models’ valuation around July as price appre-
ciation began to cool. When they reported their earnings on No-
vember ioth neither Opendoor nor Offerpad exhibited anything
like the problems suffered by Zillow.
Inside job
Perhaps the fatal blow was, in fact, self-inflicted. Zillow expanded
its i-buying business aggressively. Opendoor expanded gradually.
It offered i-buying services in only six markets after three years,
taking its time to refine its algorithms. It is now operational in 44
markets. Zillow added almost as many markets in half as much
time. A former Zillow employee told Business Insider that manage-
ment had been hellbent on catching up with Opendoor, the front-
runner. In order to compete, the employee alleged, the company
pushed to offer generous deals to potential clients. It called this
“Project Ketchup”. Now it has its own fake blood on its hands. @
Knowing the worst
It is becoming easier, cheaper and quicker to diagnose dementia
F THE ESTIMATED 55m people living
with dementia around the world, only
one-quarter have been formally diagnosed
with the condition. There are many rea-
sons for this. Two are enduring: many pa-
tients and clinicians alike wrongly believe
that dementia is an inevitable part of the
ageing-human condition and, being incur-
able, is hardly worth diagnosing; and some
people experiencing cognitive impairment
fear hearing what sounds like a sentence of
brain-death, and so do not seek help.
Some of the reasons for non-diagnosis,
however, may be about to change. During
the covid-i9 pandemic many people have
delayed consulting their doctors about
non-urgent conditions, and as lockdowns
ease, they may begin to ask for profession-
al guidance (moreover, evidence suggests
that covid itself heightens the risk of de-
mentia). In addition, diagnostic tech-
niques, hitherto unreliable, time-consum-
ing and costly, are becoming available, and
for some forms of dementia hopes are
emerging of more effective treatments.
Dementia is normally diagnosed by
testing cognitive functions such as memo-
ry. If mild cognitive impairment (MCI), of-
ten a precursor to dementia, is detected, a
patient may then be referred for tests to
identify which of the dozens of causes of
dementia are to blame. By far the most
common is Alzheimer’s disease, account-
ing for 60-80% of cases.
Fear of the needle
Identifying Alzheimer’s normally requires
a brain scan, and perhaps a lumbar punc-
ture (the insertion of a needle into the low-
er spine), to extract cerebrospinal fluid, so
as to measure its levels of two proteins that
build up in the brains of people with Alz-
heimer’s, known as beta-amyloid and tau.
Some patients are reluctant to undergo the
intrusive procedure. The scans are usually
by magnetic-resonance imaging (MRI), to
look at the size of the brain, along witha
positron-emission tomography (PET) scan
79
80 What the climate goals mean
82 Plastics and antibiotic resistance
82 Growing better blackcurrants
83 New covid-19 treatments
to measure the build-up of beta-amyloid.
PET and MRI scanners are expensive pieces
of kit, running into the hundreds of thou-
sands of dollars. For most people in the
world, they are unobtainable.
That explains the excitement at the de-
velopment of simple blood tests to distin-
guish Alzheimer’s from other neurodegen-
erative conditions. One, announced last
year and likely to be validated for routine
use within 12 months, according to Serge
Gauthier, professor of neurology and neu-
rosurgery at McGill University in Montreal,
measures a form of tau called p-tau217. It
has been found to predict Alzheimer’s with
96% accuracy.
It is already possible using mass spec-
trometry, which detects how atoms and
molecules are deflected by magnetic fields,
to measure the level of beta-amyloid in the
blood. But it is not certain how this relates
to levels in the brain. The accuracy of the
procedure rises to 94% if two other risk
factors are considered: age and the pres-
ence of a form of the APOE gene, Known as
APOE4A, which heightens the risk of devel-
oping Alzheimer’s (and also appears to in-
crease vulnerability to heart disease and
covid). This can also be detected by a blood
test, so Dr Gauthier envisages symptomat-
ic patients giving blood samples for simul-
taneous tests for both tau and APOE4.
Other approaches aim to detect asymp-
tomatic people years or even decades be- |
80 Science & technology
» fore they begin to show obvious symp-
toms. George Stothart at the University of
Bath in Britain leads a team that has devel-
oped very quick passive tests that hold
great promise for detecting cognitive im-
pairment early. These tests use electroen-
cephalographic caps which are worn on
the head to compare brainwave responses
to aseries of images. The caps are relatively
cheap and the test can be conducted using
a tablet computer.
Taking the exam
Meanwhile, machine-learning and AI are
enabling big improvements in cognitive
testing, which, like other sorts of pencil-
and-paper exams, has been prone to cul-
tural and educational bias, and to a “learn-
ing bias” (lessened accuracy as practice im-
proves the participants’ results). Cognetiv-
ity Neurosciences, for example, a firm
launched by two academics at the Univer-
sity of Cambridge, produces an “integrated
cognitive assessment” that has already
been deployed by some regions of Britain’s
National Health Service. It has also been
approved by America’s Food and Drug Ad-
ministration (FDA) and by regulators in the
European Union.
The Cognetivity test relies on a series of
flashing images, among which some ani-
mals have been embedded for the person
being tested to identify—rather like the
CAPTCHA tests used by some websites to
weed out robots trying to log on, only these
are conducted at rapid speeds. So rapid, in-
deed, that the tests cannot be conducted
remotely, but are done on tablets in memo-
ry clinics or at doctors’ surgeries. Already,
however, a variety of do-it-yourself cogni-
tive tests of various standards are available
online, and some of these could become
important diagnostic tools.
Even before the explosion in the use of
AI, scientists could detect evidence of de-
mentia from how people use words. A stu-
dy in 20u1, for example, found clear retro-
Spective evidence in the writings in her
Aos and 50s of Iris Murdoch, a novelist, of
the Alzheimer’s she was to die with in 1999,
aged 79. The research arm of IBM, a com-
puting giant, has used data from the Fra-
mingham heart study, which has tracked
three generations of people in a town in
Massachusetts since 1948 to improve
knowledge of cardiovascular health. Ajay
Royyuru, who heads IBM's health-care and
life-sciences research, says that studying
the use of language by participants in the
study suggests that changes over time can
be used to predict which of them will ac-
quire dementia, seven and a half years be-
fore they are diagnosed even with MCI.
Such data—and the massive amounts
people compile every day on their smart-
phones, using various services such as
messaging or navigation—could help en-
able much earlier detection of dementia.
This might be possible with apps, although
the ethics of any non-consensual diagno-
sis and the willingness of people to use
such services are another matter. One way
or another, though, Paola Barbarino, chief
executive of Alzheimer’s Disease Interna-
tional, an advocacy group, expects a “tsu-
nami’ of demand for treatment.
For health-care systems around the
world all this may pose more problems
than it solves. The main one is the lack of
proven treatments. In June the FDA ap-
proved Aduhelm, the first drug to treat Alz-
heimer’s. Amonoclonal antibody shown to
reduce accumulations of beta-amyloid,
it has so far been little used, because it is
expensive and insurers are reluctant to ap-
prove reimbursement when there are
COP26
The Economist November 13th 2021
doubts as to whether it actually slows cog-
nitive degeneration. But it is the firstina
queue of drugs, for which Alzheimer’s spe-
cialists hold out great hopes.
The second difficulty is in assessing
when MCI requires medical intervention.
As Dr Gauthier points out, some mental de-
cline is indeed part of ageing. People find
ways of coping. Telling the difference is
hard to do through blood tests or the use of
AI. It still requires time and human inter-
vention. This is part of the third and big-
gest difficulty: that, as the world ages, the
number of people with dementia is going
to rise rapidly, to more than 80m by 2030
and more than 140m by 2050. Even today
health services are buckling. Who knows
how they will cope in the decades ahead. @
Are the climate goals dead or alive?
GLASGOW
The lofty goals made in Paris seem like being left behind
(€ (4 TTHEEND of the CoP we need to be in
A; position to say ‘We are still on track
to be well below 2 degrees, we still have a
shot at the 1.5 degrees.’ All our efforts this
week should be directed at that.” Thus
spoke Frans Timmermans, an EU commis-
sioner, as the cop26 climate summit in
Glasgow rolled into its final week. Unfor-
tunately for Mr Timmermans, political re-
solve and climate plans do not currently
add up to the demanding goals set out by
the Paris agreement of limiting global
warming to “well below 2°C” above prein-
dustrial averages, let alone to keeping it as
low as 1.5°C. Instead, the latest number-
crunching suggests that the plans of the 193
parties to the agreement collectively carve
a path to approximately 2.4°C of warming
by the end of the century.
=
Uncertain heat
Global emissions, gigatonnes of CO, equivalent
60
Current policies
25-2 9 C*
DNDN ka vxnte
LU5 U tal Sets 20
oO
> OTe Ki
Historical
Optimistic scenario,
‘ including net-zero
targets 1.8°C*7
To stay below 1.5°C
-20
0
PORECAa |
2000 20 40 60 80 2100
*Projected warming by 2100
Source: Climate Action Tracker tMedian value
That is only a modest improvement on
where things stood when the Paris agree-
ment was being negotiated in 2015. Under
the deal that was struck at the time, gov-
ernments offered up pledges to reduce
their national emissions. Toiling away in
the background, climate modellers esti-
mated that the cumulative consequence of
these pledges would be to bring about
roughly 2.7°C of warming by 2100. Aware of
the disconnect between this figure and the
agreement's overall goals, negotiators said
they would present new, hopefully im-
proved decarbonisation plans every five
years, in the hopes that this “ratchet mech-
anism” would bring the overall 1.5-2°C Par-
is goals closer.
Hence the flurry of climate pledges that
were made over the past year. They focus
on what will be done by the end of the de-
cade, by which time global greenhouse gas
emissions must be roughly half what they
were in 2010 in order to have a good chance
of limiting warming to 1.5°C. So far, no
country is on track to do this, says Niklas
Hohne of NewClimate Institute, a think-
tank. Dr Hohne is part of a consortium of
researchers called Climate Action Tracker,
which plugs national climate policies and
pledges into models in order to give an idea
of how they translate into temperatures.
The group's latest results (see chart), pub-
lished on November oth, say that if all 2030
decarbonisation plans were to be carried
out as advertised but no further efforts
were made, there would be a 68% chance
that global average temperatures in 2100
would be between 1.9°C and 3.0°C warmer >
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82 Science & technology
» than pre-industrial times, with a median
estimate of 2.4°C.
At first glance this seems considerably
more pessimistic than what the Interna-
tional Energy Agency (IEA), a think-tank
that works for governments, said earlier:
“Cop26 climate pledges could help limit
global warming to 1.8°C”. “BIG NEWS,”
tweeted the agency’s director, Fatih Birol,
“#COP26 climate pledges mean Glasgow is
getting closer to Paris!”. In fact, the two
numbers are entirely consistent with each
other. It is just that the IEA’s modellers as-
sumed not only that countries would de-
liver on their 2030 promises but also that
those who said they would reach net-zero
emissions by mid-century or soon after
would actually do so.
Yet for now, talk of net-zero is mostly
just that: talk. China, for instance, has said
it would ensure its emissions hit a peak be-
fore 2030 and reach net-zero by 2060 in
spite of the fact that it still generates more
than 60% of its electricity from coal. Many
other countries have made similar net-ze-
ro promises with very little if any detail of
how they plan to get there.
COP26 has also seen plenty of multilat-
eral deals and agreements announced on
the sidelines of the UN talks. These dealt
with some headline issues, like curbing
methane emissions, deforestation and
phasing out coal use, but none were
reached unanimously. More than 100
countries have so far signed up to cut their
collective methane emissions by 30% by
2030. Another group agreed to quit using
coal in two decades. Last week, a team of
independent climate researchers found
that pledges to cut methane could shave
0.12°C off temperature projections for the
second half of the century compared with
cuts embedded in nationally determined
contributions—but only if every country
signed up. China, India and Russia, the
three largest emitters of methane, have yet
to do so. Phasing out coal by 2040 would
further reduce temperature projections by
0.28°C, but again only if it were a global ef-
fort. Yet China and India, the two most
coal-hungry nations, have not joined the
“powering past coal alliance”.
COP26 was never meant to deliver the
whole package—pledges sufficient to keep
global warming to well below 2°C and na-
tional strategies to back up those prom-
ises—in one fell swoop. It was always go-
ing to be one in a Series of stepping stones.
Nevertheless, the slow pace of global cli-
mate ambition has left a huge gap between
where the world needs to be in order to
keep the hope of a 1.5°C world alive and
where it is. If the gap is not rapidly re-
duced, which would require all large emit-
ters around the globe to drastically acceler-
ate decarbonisation, then all hopes will
rest on wholly infeasible options to draw
carbon dioxide out of the atmosphere. @
Microbiology
Perilous plastic
Microplastics in household dust could
promote antibiotic resistance
LASTICS ARE man-made materials that
Pie unnatural to this world, but that
does not stop the natural world from inter-
acting with them. Indeed, dozens of stud-
ies show that when plastics get into the sea
many ocean-dwelling microorganisms ag-
gressively colonise them. This might help
break plastics down, but these oceanic col-
onies are also hotbeds of antibiotic-resis-
tant genes. Now, it seems, something simi-
lar might be going on in the dark recesses
of your home.
Lei Wang suspected as much, and along
with his colleagues at Nankai University in
Tianjin, China, set out to gather the neces-
Sary evidence. Their search began at an
apartment building in Tianjin. The plastics
Dr Wang was concerned about are the tiny
bits that break away from synthetic fibres,
like polyester and nylon, commonly found
in clothing and other textiles. The micro-
plastics then accumulate around the home
as dust. He reasoned that if these particles
were being colonised by bacteria then they
too might be harbouring antibiotic-resis-
tant genes.
The researchers chose ten homes in the
apartment block, each with just one male
tenant. Each apartment had hard flooring,
rather than any carpets, and a similar gen-
eral layout. A team used sterilised brooms
to sweep the bedrooms and to collect dust
Samples as they went. These samples were
then brought back to the lab and analysed
for microplastics, bacteria and antibiotic-
resistant genes.
As they report in Environmental Science
and Technology, 21 types of microplastics
The Economist November 13th 2021
were found, the most common from poly-
ester and nylon. Using DNA extracted from
microbes, they identified 1,385 genera of
bacteria along with 18 genes associated
with antibiotic resistance.
The analysis also revealed that the
apartments with dust that were rich in mi-
croplastics had bacterial communities that
were different from those apartments with
dust that did not contain as many micro-
plastics. Crucially, the work also showed
that the relative abundance of antibiotic-
resistant genes was higher in the presence
of microplastics than it was when these
were less common.
Precisely why microbes dwelling with
plastics are more likely to carry antibiotic-
resistant genes is not clear. It is possible
that plastics themselves are driving bacte-
tia to develop this trait. The researchers
suggest, however, that itis more likely that
specific groups of bacteria are capable of
eking out a living on plastics, and these
bacteria also happen to be of a type that
more readily develop antibiotic resistance.
To support this argument, Dr Wang
points out that Proteobacteria is both high-
ly antibiotic-resistant and also commonly
found encrusting oceanic plastics. Mem-
bers of this same phylum were the most
common type found among the polyester
and nylon fibres swept up in the apart-
ments, too. This suggests that, just as plas-
tics are changing the nature of bacterial
communities out at sea, they are also
changing them within homes. How much
of a threat this will ultimately be to human
health is not known, but it cannot be doing
people much good. @
Agriculture
Probiotic berries
Growing better blackcurrants with the
help of bacteria
EW FRUITS carry more health-promot-
Fine antioxidants than blackcurrants.
Widely grown in cooler parts of Europe,
they are in high demand from consumers
seeking pesticide-free juices made from
the berries. Farmers, though, can struggle
to boost yields without relying on chemi-
cals. That could change, not just for black-
currants but other fruit too, with the judi-
cious use of probiotics.
Probiotics is mostly known for its use of
microorganisms, including certain bacte-
ria, to restore or improve the gut flora in
people and animals. But plants can benefit
from a collaborative arrangement with
bacteria too. Among other things, bacteria
help plants produce antibiotics that keep >>
The Economist November 13th 2021
» disease-causing microbes off their leaves,
Support them in collecting nitrogen from
the environment and help them dissolve
minerals found in the soil.
Knowing all this, Virgilija Gaveliene
and Sigita Jurkoniene, of the Institute of
Botany Nature Research Centre in Lithua-
nia, set out to find a way to use probiotics
to boost the yield of blackcurrant bushes,
which are grown in that country. The re-
searchers also knew from other work that
the production of strawberries and rasp-
berries could be increased by exposing
plants to a carefully selected mix of bacte-
tia from families like Bacillus, Acinetobac-
ter and Pseduomona. And they were aware
of preliminary evidence that probiotics
had the potential to enhance production of
certain antioxidants, like anthocyanins
and flavonoids.
Working with colleagues, they set up an
experiment. Four blackcurrant fields, each
one hectare in size, were exposed to differ-
ent probiotic treatments. These were ap-
plied first when shoots were just starting
to grow and then again as buds were begin-
ning to flower. One field was sprayed witha
mix of bacteria that the team suspected
would improve growth and yield. Another
field was sprayed with a mix of organic fer-
tilisers and bacteria that the researchers
expected would enhance the chemical
composition of the berries and improve
their nutrient content. The third field was
sprayed with both mixtures while the
fourth was left as a control and sprayed on-
ly with water. After the harvest, the team
measured the biomass of the freshly
picked berries and studied their chemistry.
As they report in Agricultural Science
and Technology, the results were impres-
sive. While a thousand blackcurrants col-
lected at random from the control plot
weighed just over 538 grams, the same
number from the field exposed to both
treatments weighed nearly 783 grams. A
similar increase was also true for the field
sprayed with the yield-enhancing bacteria.
The team were, however, concerned
that enhanced berry growth might be com-
ing atacost of less antioxidant. To this end,
their analysis showed that exposure to ei-
ther of the probiotic mixtures on their own
did significantly lower blackcurrant anti-
oxidant activity from the control level of
73% to 65% and 60%. Only exposure to
both probiotic mixtures allowed blackcur-
rant growth to be enhanced while main-
taining a statistically identical level of
antioxidant activity of 72.7%
All told, Drs Jurkoniene and Gaveliene
are convinced that the right mix of bacteria
can help blackcurrant farmers meet de-
mand without using chemicals. And it
could help other growers. What works for
berries should, in theory, work for other
fruit, like apples, pears and oranges. More
experiments are needed to be sure. @
Covid-19
Pills with promise
New antiviral drugs appear highly
effective at fighting the disease
HE LATEST news in the fight against co-
Thies is encouraging. Two new antivi-
ral drugs have been deemed so effective
that clinical trials ended early. Data from
these trials have not yet been published.
However, regulators are moving swiftly to
consider general use of the drugs. They will
fill a large gap in the toolkit doctors are us-
ing to fight the virus, and could well help
end the global pandemic.
The new drugs are molnupiravir (Lagev-
110), developed by Merck, a pharmaceutical
company, working with Ridgeback Biothe-
rapeutics, a biotech firm, and Paxlovid,
which was developed by Pfizer. All three
are American companies. Those most at
risk from the serious effects of covid are far
less likely to be hospitalised, or die, if they
take a course of either of these pills in the
five days after symptoms first appear.
Merck said in October that molnupira-
vir reduced the risk of hospitalisation or
death by about half, when given to patients
with one risk factor for covid, such as obe-
sity or heart disease. Regulators in Ameri-
ca, Europe and at the World Health Organi-
Sation are assessing the drug. Britain has
approved it and will start using the treat-
ment next month. On November 5th Pfizer
Said its pill reduced the risk of hospitalisa-
tion or death by 89% if taken within three
days. (In fact, during its trial no patient
died at all when taking Paxlovid within five
days of symptoms.)
Molnupiravir is what is known as a pro-
drug, which means that it is converted into
A pill is coming to help
Science & technology 83
its active form when it arrives inside cells.
Once there, it is incorporated into the ge-
netic material of the virus whereby it dis-
rupts its ability to replicate. Errors accu-
mulate in the virus’s genetic material, a
process known as “error catastrophe”.
Trials in animals have raised concerns that
the drug might pose risks to unborn chil-
dren, hence the British government has ad-
vised against its use during pregnancy, or
while breastfeeding. Other regulators may
issue Similar warnings.
Paxlovid is in fact a combination of two
drugs: an existing one called ritonavir,
which is given alongside a novel protease
inhibitor known as PF-07321332. The prote-
ase inhibitor was designed to bind and
block the protease enzymes that sars-cov-2
uses to replicate. Ritonavir prevents the
protease inhibitor from being broken
down too quickly in the body.
Molnupiravir and Paxlovid are also
known as “small molecule” drugs. These
are molecules that are easy to make. Both
firms say the price of the drugs will vary ac-
cording to the wealth of the nation buying
them. That will likely mean that rich coun-
tries will pay $700 for a five-day course of
pills, while poorer ones might pay around
$20, and maybe less as the cost of manu-
facturing comes down.
Although both firms have said they in-
tend to make these drugs widely accessible
around the world, Merck already has an
edge. It has signed a number of licences
which allow other manufacturers to pro-
duce the drug, and it has reserved 3m doses
for low- and middle-income countries.
This is to ensure that rich countries do not
monopolise the supply of the new medi-
cines as they have done for vaccines. Merck
expects to make 10m doses this year, and
20m next year. Generic manufacturers will
make many more. Pfizer, which has not yet
received any regulatory authorisations, ex-
pects 180,000 packs of pills to be produced
by the end of this year, and 21m in the first
half of 2022.
These drugs herald a second big turning
point in the pandemic (the first being vac-
cines). Rising case numbers across Europe
suggest there will be a strong demand for
such medicines to keep people out of hos-
pital. While patients wait for them to ar-
rive, it is also possible that doctors might
consider the use of fluvoxamine, an anti-
depressant medicine which also appears to
lower the risks from covid.
As the new treatments roll out for use,
there will be concern among some scien-
tists and doctors about the virus develop-
ing resistance, particularly if patients do
not complete their course. Keeping one
step ahead of sars-cov-2 will require plan-
ning for such an eventuality. That means
deducing which antiviral drugs can be giv-
en in combinations to create a therapy that
the virus will struggle to defeat. @
23 Books & arts
Dealing with dirty money
Hear no lies
Kleptocracy will flourish as long as Western countries welcome the loot—and
Western professionals help to move and hide it
EXT MONTH Joe Biden will host a virtu-
N al “Summit for Democracy”. The aim of
the pow-wow is to galvanise like-minded
leaders to counter the global growth of au-
thoritarianism. One of its themes will be
combating kleptocracy: the plunder and
laundering of national wealth, typically
using international banks as conduits for
the ill-gotten gains and Western property
markets as a destination. Campaigners
hope the meeting will renew momentum
in the fight against such looting—a fight
Donald Trump did not exactly lead from
the front. Leaked documents that highlight
the use of offshore financial networks to
move money in secret, from the Panama
Papers in 2016 to the Pandora Papers this
October, underline the urgency of the task.
Measuring the private wealth parked in
“secrecy jurisdictions” is, by definition,
impossible. Estimates range from a few
trillion dollars to $32trn. The proportion
that is dodgy is also hard to estimate. At
one extreme is perfectly legitimate mon-
ey—personal funds seeking privacy, or
cross-border joint-ventures using offshore
structures for the purposes of neutrality. At
American Kleptocracy. By Casey Michel.
St Martin's Press; 368 pages; $29.99.
Scribe; £18.99
The Enablers. By Frank Vogl. Rowman &
Littlefield; 216 pages; $32 and £25
the other is black cash, stashed in shell
companies or trusts to mask corruption or
launder drug money. In between is a large
grey area that includes legal but ethically
dubious tax avoidance.
And where exactly is “offshore”? The
stereotypical haven is a palm-fringed is-
land with biddable politicians. Yet bigger
States that harrumph at such places have
questions to answer, too. The most com-
prehensive study of shell companies
found that providers in members of the
OECD, a club of mostly well-off countries,
were more likely to offer true anonymity
than those in classic offshore financial
centres. British shell companies and part-
nerships feature prominently in giant
“laundromat” schemes emanating from
Russia and Azerbaijan. Several EU coun-
tries are conduits for tax trickery. And
The Economist November 13th 2021
> Also in this section
85 Witchcraft in the 17th century
86 Thecold war onthe couch
86 Anart collection opens up
87 Johnson: Double trouble
much of the world’s dirty money ends up
invested in luxury pads in places like Lon-
don, Paris and Miam1.
Casey Michel’s title leaves no doubt
where the journalist and fellow of the Hud-
son Institute, an American think-tank, be-
lieves much of the blame lies. For all its
claims to moral leadership in finance, he
argues, America has become “the world’s
greatest offshore haven” and the largest
provider of the “financial-secrecy services”
that facilitate money-laundering. This has
let it pull in unrivalled amounts of tainted
cash from “the world’s worst”, from cor-
rupt regimes to extremist networks.
America was one of the first countries
to criminalise money-laundering and
since the 1980s has been the most aggres-
Sive in trying to curb it. It drove efforts to
create the Financial Action Task Force
(FATF), a global anti-money-laundering
standards-setter that was founded in 1989.
Since the 9/n attacks of 2001 it has taken
the lead in disrupting terrorist-finance
networks. It was an American law that in-
Sstigated the global exchange of tax data to
curb cross-border tax evasion.
Yet at home America tolerated many of
the bad practices for which it hammered
other countries. As American states com-
peted against each other for corporate reg-
istrations, shell companies proliferated in
Delaware, Wyoming and Nevada—the last
being a crucial bridgehead for Mossack
Fonseca, the law firm at the centre of the
Panama Papers (and forced to close by
those revelations). South Dakota devel- >>
The Economist November 13th 2021
» oped a line in super-secretive trusts.
Mr Michel builds his book around two
characters, both prolific users of America’s
financial-secrecy infrastructure, deftly
weaving together their stories and his
analysis. The first is Teodoro “Teodorin”
Nguema Obiang Mangue, the free-spend-
ing son of the president of Equatorial
Guinea, a small, klepto-blighted state in
central Africa. The other is Ihor Kolomois-
ky, a Ukrainian oligarch accused by Ameri-
ca of stealing billions of dollars from a
bank he owned and rinsing them in Amer-
ican property (accusations he denies).
The gloves are on
Mr Obiang’s story is the more lurid, and its
outline is more widely known. He made
headlines in 2011 when prosecutors moved
to seize various assets he had acquired in
America with allegedly corrupt money, in-
cluding a mega-mansion, a fleet of super-
cars so extensive that he would try to
match his ride with his shoes, and a trove
of Michael Jackson memorabilia (includ-
ing the star’s famous white glove). He
spent much of his money in and around
Malibu, aswanky beach city in California.
Mr Kolomoisky did his alleged launder-
ing in less salubrious places. His represen-
tatives swept into Cleveland, Ohio, wow-
ing local officials with talk of regeneration.
But much of the city-centre property, once
purchased, was left to fall into disrepair.
Why let your assets rot? “Think of Ameri-
can real estate as a kleptocratic rainy-day
fund,” explains Mr Michel. If money is sto-
len or illicitly earned, return on invest-
ment is secondary. The land beneath a
crumbling building retains its value. As
Cleveland discovered, this sort of calculus
can devastate communities.
The co-founder of Transparency Inter-
national, an anti-corruption NGO, Frank
Vogl distributes blame more broadly in his
book. The “enablers” of his title are the
banks that move launderers’ money; the
lawyers who set up their brass-plate com-
panies or, alongside public-relations
firms, fend off prosecutors and the media
on the kleptocrats’ behalf; and the estate
agents and yacht-dealers who help them
procure trophy assets. Much of all this is
legal, but, says Mr Vogl, it does not “serve
the public interests of citizens in demo-
cratic nations, and indeed well beyond”.
Few would argue with that. But Mr
Vogl’s book is a mess. Turgid lists of exam-
ples seem put together by an overexcited
intern, not one of the anti-kleptocracy
movement's wisest coves. It repeatedly
veers off-topic, such as in an account of a
banking scandal in Italy caused by a deriv-
atives blow-up, not dirty money. It gets
some things badly wrong: it is a mystery
why Mr Vogl singles out the UAE as one of
the countries prioritising the fight against
illicit finance, when in reality it remains a
foot-dragger. He drops the names of alot of
people in finance, but doesn’t reveal any-
thing very interesting about them. Did you
know that the daughter of John Bond,
HSBC's former boss, set mountain-climb-
ing records?
Mr Michel’s book is more fluid, coher-
ent and entertaining. It also has more to
Say on what is supposed to be Mr Vogl’s big
theme. American regulators have long
worried about the enablers, but thanks to
effective lobbying they have managed to
crawl through loophole after loophole. Es-
tate agents, luxury-goods vendors and oth-
ers, for instance, won “temporary” exemp-
tions from the Patriot Act (a post-9/1 law
with strong anti-money-laundering provi-
sions), which then became permanent.
American lawyers are pretty much free to
work with whomever they want—in many
ways ‘the perfect friend to have if you're a
kleptocrat”, says Mr Michel.
His book has flaws, too. He sometimes
gets carried away: the racy details of the
Obiang story border on titillation. He de-
votes only half a dozen pages to Delaware,
for so long America’s leading shell-compa-
ny jurisdiction. He barely scratches the
surface of the many ways in which Ameri-
can double standards shape the geopolitics
of dirty money, at the FATF and beyond.
Neither book gets to the heart of what is
needed to clean up global finance. The nub
of the problem is that though money-laun-
dering networks are increasingly sophisti-
cated and transnational, regulation and
law enforcement remain balkanised. Mr
Biden's priority at that summit should be
to push for more co-operation. @
Witchcraft
Toil and trouble
The Ruin of All Witches. By Malcolm
Gaskill. Allen Lane; 336 pages; £20
Y THE SPRING Of 1651 the residents of
Springfield, Massachusetts, were con-
vinced Hugh Parsons was a witch. He and
his wife, Mary, were a troublesome pair.
Hugh, a brickmaker, was given to sleeping
in the fields and quarrelling with neigh-
bours. Mary was a highly strung gossip.
Two years earlier she had been convicted
of slandering Mercy Marshfield, a widow,
by accusing her of cavorting with the devil.
More opaque happenings clung to the
couple, too. A young man was thrown from
his horse after arguing with Hugh; flicker-
ing lights were seen at night in the marsh-
land south of the town where he was
Books & arts
The mum ofall fears
known to lurk. Worse, when Hugh was in-
formed of the death of his infant son, he
kept calmly puffing his pipe. Oppressed by
the pair’s own vicious arguments, Mary
whispered that her husband had murdered
their child with magic so that she would be
free to work and relieve his debts.
Malcolm Gaskill, a historian of witch-
craft, traces the fortunes of this unhappy
couple. Drawing on an extraordinary col-
lection of testimonies against them, he re-
constructs everyday life in their “precari-
ous frontier town” with novelistic texture.
The result is a portrait of acommunity dur-
ing one of the first Puritan witch panics in
the New World—and a timeless study of
how paranoia, superstition and social un-
rest fuel fantasies.
The arduousness of Puritan life is ar-
restingly drawn. The winter of 1649 was so
harsh that beer froze solid in barrels and
catriages could be driven across Boston
harbour. Torrid summers brought disease
and Indian raids; sodden harvests pres-
aged starvation. One in six pilgrims braved
a second Atlantic crossing to return home.
God demanded spiritual as well as
physical stamina from his new Israelites.
The Puritan self was its own battleground,
caught between salvation and sin, flesh
and spirit, and forever under siege. Like
their rude civilisation hacked from the
wilderness, the elect had to be eternally
vigilant against outside threats—and in-
ternal division. Fear of witchcraft, writes
Mr Gaskill, “settled along boundaries, in-
cluding the line separating body and soul”.
This fear did not arrive from nowhere.
Instead, Mr Gaskill sees it as “a serious ex-
pression of disorder embedded in politics,
religion and law”. The previous decade had
involved civil war in England and the exe-
cution of its king; conflict, disease and
famine rattled the transatlantic world.
85
Other forms of heresy and blasphemy were >>
86 Books & arts
» flourishing in the cracks of the shattered
civil realm. “The pillars of the land seem to
tremble,” a writer of the time lamented.
Mr Gaskill’s immersive approach brings
the fate of his subjects movingly to life.
Neither was convicted of witchcraft. Not
that it did them much good: in different
ways their lives were destroyed by the ac-
cusations of “fearful men and women”. By
comparison, his final chapter feels breath-
less, dashing from the trial to the post-
Enlightenment sense of witchcraft as a fig-
ment of mental illness and superstition.
More successful is an uncanny epilogue
in which the author revisits Springfield,
dowsing the ghosts of its past in its run-
down present. He finds that fear of witch-
craft never truly fades. “Iam counted but as
a dreamer,’ said another of Springfield’s
supposed witches. “But when this dream is
hanged, then remember what I said to you:
this town will not be free yet.” @
The cold war
Method in the
MADness
The War of Nerves. By Martin Sixsmith.
Wellcome Collection; 592 pages; £25.
To be published in America in July by
Pegasus Books; $35
N APRIL25TH 1945 American and Soviet
troops, who had swept through Nazi
Germany from west and east, met at the
Elbe river. A photograph that shows an em-
brace between two lieutenants was staged,
but the sense of comradeship was sincere.
“A new atmosphere of friendship and co-
operation”, says Martin Sixsmith, “seemed
the inevitable outcome of years of toil and
shared effort.” It did not last.
Josef Stalin’s cynicism and paranoia,
and the tougher line taken by Franklin
Roosevelt's successor, Harry Truman, en-
sured that the (relatively) good relations at
the Yalta conference of February 1945 had
soured five months later at Potsdam.
There, mutual suspicion and facts on the
ground paved the way for the carving up of
Europe. The immediate flashpoint was
Berlin, which both sides saw as a proving
ground for their ideologies and a cockpit
for testing the other’s resolve with psycho-
logical warfare and dirty tricks. The Soviets
could deploy superior conventional forces,
but it would be four years before they
would have an atom bomb to match Amer-
ica’s. The “war of nerves” became the mo-
dus operandi of the cold war.
The term “cold war” was already in
use—to describe a new kind of conflict,
involving every instrument short of direct
military confrontation—when, in April
1950, Truman received a document that be-
came known as NSC-68. Eight months after
the Soviet nuclear detonation, it called for
a big boost in military spending and the de-
velopment of the hydrogen bomb. It also
framed the contest with the Soviets in
Manichean terms: a global trial of strength
between slavery and freedom that could be
won only by appealing to hearts and
minds. It became the template for Ameri-
ca’s Strategy for the next 40 years.
There have been many histories of the
cold war, but the virtue and originality of
Mr Sixsmith’s is to see almost every aspect
of the stand-off in psychological terms. De-
ranged Stalin, volatile, bombastic Nikita
Khrushchev, plodding, insecure Leonid
Brezhnev, Mikhail Gorbachev's desperate
optimism—he sketches the leaders’ states
of mind, and the means used to stimulate
fear of “the other”. He chronicles the brink-
manship over Berlin and Cuba; the repres-
sion of the Hungarian and Czech upris-
ings; the propaganda and spying; the ab-
surdities of the nuclear arms race and the
effect on populations of living with the
permanent threat of mutual extinction.
At every point the two sides were intent
on demonstrating the superiority of their
systems. The Soviet launch of the Sputnik
Satellite sent shockwaves through Wash-
ington; an agreement in 1959 to put on ex-
hibitions in each other’s countries, show-
casing economic and social achievements,
backfired on Khrushchev when Musco-
vites were stunned by a gadget-laden
American kitchen. Art, film and music
were enlisted and exploited. The author, a
Russian scholar and journalist who, as the
BBC’S Moscow correspondent, covered Mr
Gorbachev's presidency and Boris Yelt-
sin’s, uses the tools of psychoanalysis to
illuminate events and motivations.
He laments the swift dashing of hopes
that liberal democracy would take root in
post-Soviet Russia. In large part he blames
the West (and the elder George Bush in par-
ticular) for triumphalism. Trampling over
Russian sensibilities and pride, he thinks,
helped ensure that the chaotic Yeltsin era
gave way to the revanchism of Vladimir Pu-
tin and his gang of kleptocratic siloviki. In
Mr Sixsmith’s view, such psychological
factors have once again contributed to a
tragic outcome.
Could the aftermath of the “war of
nerves” have been happier? Mr Sixsmith
also says that contrasting histories and na-
tional psyches would anyway have
inclined America and Russia to divergent
paths—one animated by the ideas of sturdy
individualism and the rule of law, the oth-
er defined by autocracy and the collective
efforts it demands. For all the differences
in the two rivalries, something similar may
now be true of Americaand China. @
The Economist November 13th 2021
Access to art
The mixing pot
ROTTERDAM
A museum opens up its collection
HE NEW home for the collection of the
Museum Boijmans van Beuningen, a
gorgeous 40-metre-tall mirrored flower-
pot that is set to become Rotterdam’s sig-
nature building, had its origins in an ex-
tremely Dutch emergency. The basement
that held the museum’s_ undisplayed
art—151,000 objects, among the Nether-
lands’ most important collections—was
six metres below sea level, and kept flood-
ing. The city had constructed a garage un-
der an adjacent park which interfered with
drainage. Sjarel Ex, the museum’s director,
could have built a storage facility in a sub-
urb, but wanted a way to keep the trove on
site, and to open it to the public.
Mr Ex asked for ideas from Winy Maas
of MvDRV, a leading Dutch architecture
firm. The first concept was a gigantic table
perched above the park, from which art-
works could be lowered for spectators.
This proved impractical, but during a
brainstorming session Mr Maas plopped a
tea cup onto a model of the park, then no-
ticed a mirrored kettle nearby. The cup’s
curve gave it a narrow base, which would
leave more room for pedestrians; the re-
flective surface of the kettle melded with
the surroundings.
More than a decade after that epiphany,
the building known simply as “Depot”
opened to visitors on November 6th. In
Dutch “de pot” means “the pot” (as in the
flowery kind), a lexical pun reinforced by
the rooftop garden covered in birch trees. >>
The cup runs over
The Economist November 13th 2021
» The mirrored exterior creates a fish-eye ef-
fect that reflects the city’s skyline, curving
down to show the park and viewers them-
selves. Mr Maas compares it to the draw-
ings of Giovanni Piranesi. Rotterdam was
bombed flat during the second world war,
and has since prided itself on its geometric
modernity. Depot fits right in, but also pro-
vides the city with a focal point.
Yet it is the inside that is most impor-
tant. The six-floor-deep atrium is criss-
crossed by suspended staircases reminis-
cent of M.C. Escher prints. Glass etalages
showcase eye-catching pieces: fluorescent
dresses, inlaid furniture, abstract paint-
ings by R.B. Kitaj. Along the sides are the
Storage halls. Canvases hang on rolling
metal lattices in rows that can be pulled
out for inspection. Sculptures and furni-
ture are stacked on rolling motorised
Shelves. Organisation is alphabetical,
chronological or by size and material.
There are no labels; even with QR codes and
the museum’s smartphone app, identifica-
tion is rarely forthcoming.
It is all a bit dazzling. A lattice-wall
Slides out: there is Breugel’s “Tower of Ba-
bel”. Another emerges with what looks like
Double trouble
Green-lit or greenlighted? Gaslighted or gaslit? Here’s how to tell
RECENT ARTICLE in The Economist on
Germany's coalition talks was given
the headline “Green-lit”. Elsewhere,
though, we have reported that ventures
were “greenlighted”. Another new verb is
subject to the same confusion: to “gas-
light’”—to try to make someone think
they are losing their mind and should
not believe their own eyes—has two
past-tense forms. A search of the web
turns up hundreds of thousands of re-
sults for both “gaslighted” and “gaslit”.
One reason verbs have two past-tense
forms (or two past participles) is dia-
lectal variation: in Britain words are
“spelt”, in America they are “spelled”.
Another is ordinary language change.
Words have a tendency to become reg-
ular over time. “Help” once had the past
tense “holp” and the past participle
“holpen’”, as in the prologue of “The
Canterbury Tales”: “that hem hath hol-
pen, whan that they were seeke’ (“that
helped them when they were sick’). Now
“help” is regular, though the Oxford
English Dictionary says that “holpen” is
“still employed by poets and archaists”.
In rarer cases, verbs become irregular
over time. The most famous may be
“snuck”, which was unknown before the
20th century. The past tense was
“sneaked”. But some clearly felt that
“sneaked” sounded wrong and adopted
“snuck”. That was long disparaged until it
suddenly began gaining respectability—
data from Google Books show it rocket-
ing in frequency in the 1980s and over-
taking “sneaked” in about 2009.
Sticklers may stick with “sneaked”,
but they are probably stuck with hearing
“snuck”. “Pled”, too, has crept into the
language as an alternative to “pleaded”.
(“Pled” is probably modelled on “led”, the
past tense of “lead”.) Here traditionalists
have managed to keep “pleaded” as the
,,
¢
MM
RS +
I441
most common form in writing, but “pled”
is in circulation as well.
Rarely, a verb will have two past forms
with different meanings. To “hang” has
the past tense “hung” when it refers toa
painting, and “hanged” when it involves
an execution. This rule is subtle enough
that many people do not know it, meaning
both pictures and the condemned (though
hopefully only in historical writing) may
both one day be “hung”.
For one particularly common verb,
American English has two past participles
with distinct meanings. “I’ve gotacar”
means I own one; “I've gotten a car’ means
I have acquired one. (“Gotten” is the older
form.) In yet another variation on the
theme, two versions of a past participle
can survive with different grammatical
uses. “Thou hast cleft my heart in twain,”
Gertrude tells Hamlet. Today she would
say “You have cleaved my heart in two.” In
its past-participle form, “cleft” is now
primarily an adjective, as in “cleft palate”.
None of these, however, is a precedent
for “gaslighting” versus “gaslit”. This is an
unusual case in which speakers (usually
Books & arts
a Jan Toorop, but who knows? On other
floors photographers and restorers workin
open labs. Visitors are led through by
guides, not left alone to sample at random.
But Depot still has an immediacy different
from acurated museum.
Other institutions are also planning to
open their collections: the Victoria and Al-
bert Museum’s new facility is scheduled to
open in London in 2024. Meanwhile, fora
few years Depot will be the only place to
see the Boijmans van Beuningen’s trea-
sures, as the main museum is closed. They
have to fixthe basement. @
unwittingly) have in mind two different
ideas of the origin of a word. The “gaslit”
crowd work on the premise that “to
gaslight” comes from the verb “to light”.
When you make a compound verb out of
an irregular base verb, the compound
inherits the irregularity: “override”
becomes “overrode” just as “ride” be-
comes “rode”. Hence the instinct for
“gaslight” to become “gaslit” in the way
that “light” becomes “lit”. True com-
pounds of the verb “to light” work this
way: you can talk about a “floodlit” stage,
because it is lit with floodlights.
But “gaslight” does not come from the
verb “to light”, meaning “to illuminate’.
It comes from the name ofa play, “Gas
Light”, which had its premiere in 1938,
and its two film adaptations (both called
“Gaslight”). According to an unwritten
rule, when a new verb is coined froma
noun, it is always regular. The name
Google becomes the verb “to google’,
which conjugates as “googled”, not “gog-
gled” or something else exotic. The “gas-
lighted” lot have the (correct) intuition
that “gaslight” is a verb of this type, nota
compound of “to light”.
The same applies in the case of “to
greenlight”. It does not mean to bathe in
green light. Itis a verb formed from the
noun phrase “the green light”, a meta-
phorical approval given to something.
Under the logic described above, “green-
lit” should never have been greenlighted.
In language, norma loquendi—what is
actually said or written—is the highest
authority. Here, though, the greenlit-
gaslit people are trying to follow the
logic. In fact they are committing a kind
of snuck-pled error, inventing an irreg-
ular form. Like “snuck” and “pled” these
alternatives may live on, but they violate
the rules rather than obeying them. And
that is not Johnson gaslighting you.
87
8 Economic & financial indicators
Economic data
Gross domestic product
% change on year ago
latest quarter* 20217
UnitedStates 49 Q3 20 oye
China 49 Q3 0.8 79
Japan momo2 19 IES:
Britain memQ2 23.9 6.4
Canada ie? =-1.1 5.4
Euro area fee Q3 9.1 49
Austria 128 Q2 246 41
Belgium 47 3 7A 5.0
France omQ3) «12.6 6.1
Germany m3 = = /3 3.1
Greece 164 Q2 145 6.5
Italy omo3 «108 6.0
Netherlands 10.4 Q2 159 oe.
Spain m3 = 83 ae
Czech Republic 88 Q2 5,7 3.4
Denmark 10.0 Q2 11.7 3.2
Norway 6.1 Qz2 44 3.0
Poland 10.8 Q2 6.6 sd
Russia 10.5 Q2 na 42
Sweden oe Q3 74 40
Switzerland ee Q2 74 3.5
Turkey ee Q2 na 8.0
Australia 96 Q2 oe, 42
Hong Kong 54.3 £4204 6.2
India 20.1 Q2 -41.2 8.2
Indonesia oe Q3 na 3.0
Malaysia ion Q2 na 3.8
Pakistan 47 2021** na 3.8
Philippines m3 «16.1 42
Singapore mos «203.4 6.1
South Korea 40 Q3 |Z 4
Taiwan oom Q3 25 5
Thailand _ Moe i514
Argentina feemoQ2 = -9.5 8./
Brazil 124 Q2. -02 50
Chile 18.1 Q2 42 11.0
Colombia 170 Q2 -92 9.8
Mexico 46 @ #-08 6.4
Peru | 419 Q2. 35 eon
Egypt ee 02 na Ss.
Israel emQ2 166 6.1
Saudi Arabia -4.1 2020 na pip)
SouthAfrica 193 Q2 47 49
Source: Haver Analytics. *% change on previous quarter, annual rate. The Economist Intelligence Unit estimate/forecast. SNot seasonally adjusted
average. §§5-year yield. TDollar-denominated bonds.
Markets
In local currency
United States S&P 500
United States NAScomp
China Shanghai Comp
China Shenzhen Comp
Japan Nikkei 225
Japan Topix
Britain FTSE 100
Canada S&P TSX
Euro area EURO STOXX 50
France CAC 40
Germany DAX*
Italy FTSE/MIB
Netherlands AEX
Spain IBEX 35
Poland WIG
Russia RTS, $ terms
Switzerland SMI
Turkey BIST 1,624.1 So) 10.0
Australia All Ord.
Hong Kong Hang Seng
India BSE
Indonesia |DX
Malaysia KLSE
Consumer prices
Unemployment
% change on yearago |rate
latest 2021T | %
6.2 Oct 44" 46 oct
ome Oct 0.8 49 Sept
0.2 Sep -0.2 2.8 Sep
3.1 Sep 2.8 45 jultt
4A Sep 3.1 6./ Oct
eaiee Oct 2.2 7A = Sep
Brom Oct Negi 5.2 Sep
42 Oct 2.3 6.3 Sep
mom Oct 1.9 J Sep
A5 Oct 2.9 3.4 Sep
3.4 Oct 0.1 IS 3a Sep
ee Oct 1.6 9.2 Sep
3.4 Oct 5 3.1 Sep
Boome Oct 25 14.6 Sep
fem Oct 3.6 2./ Sept
Seems Oct ]./ 3.3 Sep
Seo Oct 3.0 40 Augt#
rene Oct 47] 5.5 Oct8
alee Oct 6.6 4.3 Sep
2.5 Sep 22 8.2 Sep
ee Oct 0.5 ZOE
19:95 Oct 17.1 11.1 Sep
Br Q3 2.4 SO
1.4 Sep 1.6 4.5 Sep*#
43 Sep 5.0 Tis a:
ae Oct hes 6.5 Q38
me Sep 2.4 4.5 Sep8
Bees Oct U2 6.9 2019
46 Oct 45 Oh) ORS
2.5 Sep 1.9 2.6 Q3
Bee Oct De. Is Olas
eee Oct 2.0 3.9 Sep
24 Oct Om 1.5 Dec8
eee Sep 48.3 9.6 Qs
Poe Oct 8.0 13.2 Augs#
6.0 Oct 43 8.4 Seps#
46 Oct 3.4 12.1 Sep
eee Oct 5.3 3.9 Sep
emo 4.2 10.1 Sep
foes Oct 5.4 7.3. Qa
7am Sep 1.7 5.2 Sep
0.6 Sep 3.1 6.6 Q2
5.1 Sep 44 34.4 Qa
% change on:
Index one Dec31st
Nov 10th week 2020
4646.7 -0.3 231.
15,622.7 -1.2 JAD
eS -0.2 0.6
2,430.1 1.5 43
29,106.8 -1.4 6.1
2,008.0 -1.2 iis:
7,340.2 1.3 13.6
21,461.9 ROIS S78 e
4348.8 0.9 22.4
7,045.2 1.4 26.9
16,067.8 0.7 17.1
27,561.0 0.7 24.0
814.6 -0.2 30.4
9,141.8 il v2 ise
72,1949 -0.2 ALTE
1,853.6 ie) 33.6
12,401.4 0.1 15.9
7,137A4 Os 12.9
24,996.1 -0.1 -8.2
60,352.8 1.0 26.4
6,683.1 2.0 11.8
1,520.7 -0.7 -6.5
index one Dec 31st
Nov 10th week 2020
Pakistan KSE 46,629.9 -0.9 6.6
Singapore ST| 323103 0.4 lier
South Korea KOSPI De) -1.5 230
Taiwan TWI 179091 2.6 (eZ
Thailand SET pes a 2 (eS. J)
Argentina MERV 95,130.6 oye) 85.7
Brazil BVSP 105;,967.5 0.3 -11.0
Mexico IPC 51,/04.4 7 [em
Egypt EGX 30 11,480.5 -1.8 58
Israel TA-125 1,966.2 nil 25.4
Saudi Arabia Tadawul (peeves ES 360
South Africa JSE AS 68,279.4 -0.4 14.9
World, dev'd MSC 3, 10) E -0.3 19.0
Emerging markets MSCI 12744 09 eeieon
US corporate bonds, spread over Treasuries
Dec 31st
Basis points latest 2020
Investment grade 111 eal
High-yield 330 429
The Economist November 13th 2021
Current-account | Budget Interest rates
balance balance 10-yr gov't bonds change on
% of GDP, 2021T % of GDP, 2021T | latest,% year ago, bp
-3.4 “124 1.6 58.0
2.8 -4.9 27. 38 -36.0
3.0 -8.8 nil -8.0
-3.9 -10.9 0.8 50.0
-2.3 -9.5 lee 93.0
Sol -7.2 -0.2 25.0
a -7.4 nil 33.0
1.1 -7.1 nil a0
-1.5 -8.5 0.1 440
6.9 -5.7 -0.2 25.0
-4.4 -9.6 (el 20.0
sie) -9.6 0.9 21.0
8.5 -5.2 -0.1 49.0
0.9 -8.9 0.4 320)
a -8.3 2.8 161
75 -0.3 nil 40.0
6.9 -3.0 1.4 76.0
24 -6.7 29 165
Sy)! -0.7 8.0 186
Se -1.9 0.2 20.0
oe -3.8 -0.2 24.0
-3.0 -3.2 18.5 556
(le3 -5.9 ei! 81.0
a0 -4.5 1.4 83.0
-0.9 -7.0 6.3 42.0
-0.2 -6.0 6.1 -4.0
2.6 -6.0 5 86.0
-4.4 -6.9 10.6 tT 79.0
-1.4 -7.5 5.0 200
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46 -4.4 23 69.0
[52 -1.2 0.6 25.0
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05 -5.4 LS 429
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1.8 -3.3 13 152
_ eee) AA Sei 180
-4.4 -8.0 na na
43 -6.1 ED 36.0
46 -2.0 na na
Ei _ 85 94 56.0
% change on:
Sources: Refinitiv Datastream; Standard & Poor's Global Fixed Income
Research. *Total return index.
Currency units
per $
% change
Nov 10th on year ago
6.39
114
0.74
1.24
0.87
0.87
0.87
0.87
0.87
0.87
0.87
0.87
0.87
ZAG
6.46
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. ¥New series. **Year ending June. TLatest 3 months. ##3-month moving
Commodities
The Economist commodity-price index % change on
2015=100 Nov 2nd Nov9th* month year
Dollar Index
All Items 149.4 145.9 -7.] 109
Food lee Lene 2.6 20.4
Industrials
All 1646 1598 -14.2 4.6
Non-food agriculturals 146.8 144.0 -3.8 34.1
Metals 169.9 1646 -16.6 -1.1
Sterling Index
All items 167.5 164.4 -7.3 8.4
Euro Index
All items 143.1 139.7 -7.9 13.1
Gold
$ per oz 1,789.1 1,824.0 3.4 -3.2
Brent
$ per barrel 84.6 84.9 1.6 94.2
Sources: Bloomberg; CME Group; Cotlook; Refinitiv Datastream;
Fastmarkets; FT; |CCO; ICO; ISO; Live Rice Index; LME; NZ Wool
Services; Thompson Lloyd & Ewart; Urner Barry; WSJ. *Provisional.
For more countries and additional data, visit
Economist.com/indicators
Graphic detail Social media
The Economist November 13th 2021 89
+> Twitter gives its biggest boosts to right-wing legislators, and to less-reliable news sources regardless of ideology
Audience reached on algorithmic timeline compared with chronological timeline, Apr to Aug 2020
Tweets linking to news sites
1.4x
Political slant
Ad Fontes score @ Daily Mail
Zz 8=6heéu
1.3x
< Left Right > ®
a S
@® Daily Wire The Hill wmanopes
ihe
me Vanity Fair
— The Verge &
@" Gateway Pundit New York Post O ee 12x
& mS oe Newsweek
@ One America News o—.
eee vx@ OTime
Breitbart Fox Nene “@ Forbes
RT The Federalist e | iy 11x
Oo 6
6 MSNBC Washington Post
National
. * © Review |
Algorithm gives tweets
, . @ ®Daily Kos © The Guardian o
4 bigger audience The Economist @ 1x
i i n"
smaller audience 0 % % ©
@
eUaetee Mother @
Jones
AlJazeera Talking Points ProPublica
Oo @ Memo © 0.9x
Average American users per More accurate
day whose feeds linked to site Mashable
0.8x
| | | | | |
0 20 40 60 80 100
Accuracy index*
Coming clean
According to Twitter, Twitter’s
algorithm favours conservatives
MONG THE most hotly debated ques-
tions on social media is how algorith-
mic bias affects social media. In America
conservatives claim that Facebook and
Twitter bury or outright censor their views.
The left retorts that right-wing conspiracy
theories like QAnon flourish on these sites.
An unlikely arbiter recently emerged in
this debate: Twitter itself. In October it re-
leased a paper showing that its algorithm,
which picks which tweets users see in
which order, favoured right-leaning Amer-
ican news sites. In six of the seven coun-
tries studied, the algorithm also gave a dis-
proportionate boost to lawmakers from
conservative political parties. Twitter
Shared its data with The Economist this
month, letting us test the authors’ claims.
The study relied on a large experiment.
Until 2016 users saw tweets only from ac-
counts they followed, shown in reverse
chronological order. After launching its al-
gorithm, Twitter kept 1% of users in the old
system. This let it measure how often its al-
gorithm served up certain tweets, com-
pared with the “reverse-chron” method.
In April-August 2020 the authors used
this approach on 3,634 accounts belonging
to legislators from 32 political parties. Al-
though they did not detect political bias in
the treatment of individual lawmakers,
they did find a slant when grouping ac-
counts by party. In all countries but Germa-
ny, the algorithm’s “amplification ratio”
was lower for members of leftist parties
than for members of right-wing ones.
This discrepancy could arise for rea-
sons besides ideology. To test alternatives,
we fed Twitter’s data into a model that ac-
counted for the amount of amplification in
each country, political parties’ vote shares
in the most recent elections and whether
they were in government. Yet even after
making these adjustments, the algorithm
still favoured conservative parties.
In contrast, the evidence for bias aiding
right-wing American media seemed less
Tweets from legislators @ In government
Grouped by party and ordered from left- to right-wing
United States 1.1x 1.5x 2x
Democratic im
Republican Confidence interval — =@
log scale
Britain 1.1x 1.5x 2x 3x 4x
Labour ie
SNP &
Lib Dem &
Conservative oe
Canada 1.1x 1.5x 2x 3x 4x
NDP a
Liberal
Bloc Québécois i
Conservative we
Germany 1.1x 15x 2x 3x 4x
The Left @
Greens na
Sa. oe
FDP
CDU/CSU ma 0
AfD a
Japan 1.1x 1.5x 2x 3x 4x
Communist ®
CDP aly
DPFP ay
Komeito
LDP a}
*Combination of Ad Fontes Media, Media Bias/Fact Check
and NewsGuard scores (first principal component)
Sources: “Algorithmic Amplification of Politics on Twitter”, by Ferenc
Huszar et al.; Ad Fontes Media; Media Bias/Fact Check; NewsGuard
robust. The algorithm did give extra am-
plification to news sources that indepen-
dent groups like Ad Fontes Media classify
as conservative. However, ideology and ac-
curacy (which Ad Fontes, among others, al-
SO scores) are correlated to each other. And
among the sites studied, those with the
strictest sourcing and fact-checking also
tended to have left-of-centre politics.
In 2019 we studied how Google ranks
news stories, and found that accuracy, not
ideology, explained its rankings. This is al-
so true of Twitter. However, whereas Goo-
gle gave higher rankings to more reliable
sites, we found that Twitter boosted the
least reliable sources, regardless of their
politics. Left-wing sites with poor accuracy
scores, like TMZ, were amplified more than
credible, conservative ones like the Wall
Street Journal. ProPublica, a non-profit fo-
cused on public-interest investigations,
had one of the lowest amplification ratios.
Because Twitter did not share the
tweets it studied, we could not identify the
type of content that its algorithm rewards.
But if the company wants to reduce misin-
formation on its site, making tweaks to fa-
vour rigorous reporting might help. m
° Obituary Aaron Beck
Up off the couch
Aaron Beck, the psychiatrist who developed Cognitive
Behavioural Therapy, died on November 1st, aged 100
Y FAR THE youngest of Aaron Beck's subjects, in the very partial
list of patients he had treated for anxiety and phobias in his
book, “Cognitive Therapy and the Emotional Disorders” (1976),
was an eight-year-old boy. This boy, after weeks in hospital with
near-fatal septicaemia, became horribly squeamish about blood,
and the smell of ether would make him faint. How was he treated?
By learning, whenever he felt faint, to focus on other things, even
just naming all America’s presidents in the right order. The feel-
ings still followed him into adulthood, but he then confronted
them head-on: by going to Yale Medical School, where the smell of
ether was more or less infused in the walls.
The eight-year-old boy was himself, and that childhood experi-
ence was his first brush with the idea that human thinking moved
on two parallel tracks. Not conscious and deep subconscious, as
Freud had taught, which was the accepted wisdom in the 1950s
when he entered the field, but rational thoughts and “automatic”
ones, both on the surface. Automatic thoughts were sometimes
useful, as when he was driving the car and simultaneously com-
posing the next lecture for his students at Penn University, where
he was a professor for half a century. They told him to swerve ata
bump, or slow down, without interrupting his flow of ideas. But
such thoughts were often distorted, blocking out more rational
explanations for the problems that inevitably cropped up in life.
Aman might fret, for example, that his wife had not said good-
bye to him as he left for work. Did it mean she no longer loved him?
Was he actually unlovable? The rational explanation might be that
She had left milk boiling on the stove. But the negative thoughts
crowded in first, and could lead to full-blown depression. Just one
misinterpretation could convince a beautiful woman that she was
ugly and a teenager that she was fat, and the damage was done.
Anxiety attacks and phobias were usually triggered not by the
thing itself, such as a high balcony, but by a lively negative (and
The Economist November 13th 2021
Statistically very unlikely) thought of tumbling over the rail.
He concluded that distorted surface thoughts, rather than
Freud’s long-buried childhood traumas and Oedipal desires, ex-
plained almost all emotional disorders. To each condition he ap-
plied scientific rigour and plain New England common sense, be-
sides writing clear, simple manuals for therapists. As the years
passed, his Cognitive Behavioural Therapy (CBT) was found to be
widely effective—needing far fewer sessions than Freudian analy-
sis, and lasting longer. It became, and remains, the most popular
treatment for depression and anxiety in the Western world.
His method was gentle and collaborative. He dressed nattily,
with colourful bow ties, and his bright blue eyes were kind. Rather
than making his patients lie on a couch and free-associate, as
Freudian analysts did, he invited them to sit at a small table just
across from him, an intimate space that just had room for a large
box of tissues. He was less a clinician than a friend who would
help them sort things out together. Then, rather than staying si-
lent, he asked constant questions, gently unpicking their
thoughts to expose the distorted ones, and plumbing his patients
for evidence. The basis of CBT was empirical, and it was Socratic:
“you say you've lost everything, but what have you really lost?”
“How likely is it that you would die if you went outside?” “When
you told me that story, what was really going through your mind?”
That was his keystone question, finding the parallel tracks.
Once the fallacies were exposed, patients could begin to help
themselves. They were told to note their feelings day by day, and to
gather countervailing evidence to their negative thoughts. Severe
depressives were trained in “mastery” by being given tasks which,
though easy for most people, had become impossible for them:
getting out of bed, making a phone call. In1952 he even successful-
ly treated a young schizophrenic who was convinced he was being
followed by government agents. “How would I know what they
look like, to help you?” he asked the patient. The patient could not
exactly say. But as he was asked each week to describe the agents
they became fewer and fewer, until they disappeared.
Hard though it was to credit, this revolutioniser of psychiatry
had once been a fervent Freudian. But he became increasingly
bothered by the lack of hard science in it, its mantras and ritual-
ism and its cult of celebrity practitioners. Depressives, for exam-
ple, were said to have turned their hostility towards a parent in-
ward on themselves, but his study of their dreams showed no
more hostility there than in anyone else. Depressives and non-de-
pressives alike might dream that they found only an empty Coke
machine as they wandered in the desert.
He wandered in the desert for a while himself, retreating into
private practice, mocked by Freudians and attacked by pharma-
ceutical firms whose profits from pills he threatened. In a trial in
1977 CBT showed better results than imipramine, the best anti-de-
pressant of the time. So he Kept going, busily recording patient da-
tain his own journal, Cognitive Therapy and Research, when no one
else would publish him. He was quite certain he was right.
But he was not immediately happy. For 40 years he too checked
his mood twice a day in the Beck Depression Inventory, and
stowed the results in his cellar. The fact was that, though he hada
great job, a loving wife and four beautiful children (one of whom,
Judith, became a CBT clinician and co-founded his Beck Institute),
he still suffered from acute self-criticism. He cared too much for
approval, and felt bound not to get it. The cure? Even more deter-
mined rationality.
By the end of his life, nothing daunted his positive outlook. As
a boy, his distorted thoughts about blood and ether had been cor-
rected by the actual fact that he had not died, and could busy him-
self with the future. As an old man, with his horizons narrowing,
he had learned to see every mishap not asa loss or as confirmation
of some defect, but as an opportunity. If it started to rain just when
he was going out, great! All the more time to get that next paper
written, and to spread the word still wider. @
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