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The parable of Adani Earthquake horror China’s rapid recovery Academic thought police FEBRUARY 11TH–17TH 2023

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Contents

TheEconomistFebruary11th2023

Theworldthisweek 5 A summaryofpolitical andbusinessnews

Onthecover

Whatdo ai chatbotsmeanfor thelucrativebusinessof searchingtheinternet?Leader, page7.After20yearsof stagnantmonopoly,online searchisinforashake­up, page53 TheparableofAdani The humblingofatycoonisatestfor Indiancapitalism:leader,page11. WhytheAdaniGroup’stroubles willreverberateacrossIndia: briefing,page15 Earthquakehorror Whythe devastatingtremorsmight upendTurkishpolitics,too: leader,page8.Disasterstrikes thousandsoflivesandshakes twocountries,page41.Turkey sitsatthecrossroadsoftectonic platesaswellascivilisations: Graphicdetail,page77

Leaders 7 The battle for search ChatbotsvGoogle 8 Turkey and Syria Seismicshock 8 The Gulf’s new social contract Hedonisminthedesert 9 Academic freedom Wanted:severecontests 10 China’s balloon Spyinthesky 11 India Inc TheparableofAdani

Letters 12 OnUkraineandRussia, Britain’scanals, protectionism,Gina Lollobrigida,Esperanto, cannabis,MickeyMouse, payingmps

Briefing 15 Tycoon-led development in India Adaniatbay

TheAmericas 25 PeaceinColombia? 28 LulaandJoeBiden

Asia Pakistanontheedge Women’scricketinIndia Japaneseemigration A crackdownin Uzbekistan 32 Banyan Asia’sdemocratic revival

29 30 31 31

33 34 35 36

China Falloutfromtheballoon HongKong’sbigtrial A hitpatrioticfilm Chaguan Driftingtowards a coldwar

MiddleEast&Africa 37 TheGulf’snewsocial contract 40 us­Africatrade

China’srapidrecovery Its economyisrevivingfrom zero­covidmuchquickerthan expected,page60 Academicthoughtpolice Universitiesthatpromote ideologicalconformitydo studentsadisservice:leader, page9.Mandatorydiversity statementsaretakingholdin academia,page19

UnitedStates 19 Freethinkingand academia 20 Drill,maybe,drill 21 Techprotectionism 22 Primariesreshuffled 23 Murdaughmostfoul 24 Lexington Manoutof time

Bartleby Thepitfallsof lovingyourjobalittletoo much,page56

→ Thedigitalelementofyour subscriptionmeansthatyou cansearchourarchive,read allofourdailyjournalismand listentoaudioversionsofour stories.Visiteconomist.com Contentscontinuesoverleaf

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Contents

TheEconomistFebruary11th2023

Finance&economics 60 China’srecovery 61 SouthKorea’scrunch 62 Buttonwood Surging stocks 63 Officesintohomes 64 The$2.5trnquestion 65 Free exchange Regulating bigtech

Europe 41 EarthquakesinTurkey andSyria 43 Russia’swareconomy 44 ptsd inUkraine 45 Frenchpensionprotests 46 Charlemagne Thesiren songofsubsidies

Britain 47 Asylumpolicy 48 Zelensky’svisit 50 Bagehot TheailingTories

Science&technology 66 Badweather 67 Aninternetinthesky

International 51 Howtechischanging giving

Culture 69 “TheChosen”and Christianstreaming 70 A historyoftheHolocaust 71 SalmanRushdie’snovel 72 ThejoyofThaipubfood 72 A sageofancientscience 74 Back Story Themagicof Vermeer

Business 53 Thefutureofinternet search 55 BrazilIncinatizzy 56 Bartleby Passion’spitfalls 57 Bigoil’snewmap 59 Schumpeter Rethinking Apple

Economic&financialindicators 76 Statisticson42economies

Graphicdetail 77 Turkeysitsatthecrossroadsoftectonicplates

Obituary 78 PervezMusharraf,formerpresidentofPakistan

Volume446 Number9333 PublishedsinceSeptember1843 totakepartin “aseverecontestbetween intelligence,whichpressesforward, andanunworthy,timidignorance obstructingourprogress.” EditorialofficesinLondonandalso: Amsterdam,Beijing,Berlin,Brussels,Chicago, Dakar,Dallas,Dubai,Johannesburg,Madrid, MexicoCity,Moscow,Mumbai,NewDelhi,New York,Paris,SanFrancisco,SãoPaulo,Seoul, Shanghai,Singapore,Tokyo,WashingtonDC

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©2023TheEconomistNewspaperLimited.Allrightsreserved.Neitherthispublicationnoranypartofitmaybereproduced,storedinaretrievalsystem,ortransmittedinanyformorbyanymeans,electronic,mechanical,photocopying, recordingorotherwise,withoutthepriorpermissionofTheEconomistNewspaperLimited.TheEconomist(ISSN0013­0613)ispublishedweeklyexceptcombinedissuesinJulyandDecember,byTheEconomistNewspaperLimited,7503rd Avenue,5thFloor,NewYork,NY10017.TheEconomist isaregisteredtrademarkofTheEconomistNewspaperLimited.PeriodicalspostagepaidatNewYork,NYandadditionalmailingoffices.Postmaster:Sendaddresschangesto The Economist, POBox920Getzville,NewYork14068,USA.CanadaPostpublicationsmail(Canadiandistribution)salesagreementno.40012331.PrintedbyQuad/Graphics,SaratogaSprings,NY12866

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The world this week Politics

Anearthquake ofmagnitude 7.8strucksouthernTurkeyand northernSyria,killingatleast 16,000people.Asecond powerfulearthquakefollowed shortlyafter.Thetollisexpect­ edtorisesignificantly.Itwas theworld’sdeadliestearth­ quakesince2010,when 220,000peoplediedinHaiti, or2011inJapan,where21,000 werekilled,butmostlybya resultingtsunami.Turkey imposedastateofemergency intheaffectedareas. PartsofnorthernSyria,devas­ tatedbymorethanadecadeof civilwar,werestruckbythe earthquakes.Babal­Hawa,a crucialbordercrossingwith Turkeythatallowsinterna­ tionalaidintothecountry,was leftunpassable.TheUN an­ nouncedthatcross­borderaid hadbeentemporarilyhalted. Lovely to see you Volodymyr Zelensky visited London,hissecondtripout­ sideUkrainesinceRussia’s invasion.TheUkrainianpresi­ dentgaveaspeechtoParlia­ ment,whereheappealedfor morecombataircraft,or “wingsforfreedom”ashe describedthem.Britainprom­ isedmoneytotrainfighter pilots.MrZelenskythenhead­ edtoParisandBrusselswhere hemadesimilarrequests.

Inabreakfromthecalendar usedbyRussianorthodoxythe Ukrainian Greek Catholic church,whichcountsaround 10%ofUkraine’spopulationas followers,announcedthatit wouldshiftthecelebrationof somefeastdaystomatchthose ofChristiansintheWest.Its ChristmasDaywillnowfallon December25thinsteadof January7th.

Sweden’sprimeminister,Ulf Kristersson,saidhehoped talkswithTurkeywould resumesoonoverhiscountry’s applicationtojoinNATO, whichallmemberstatesmust agreeto.Negotiationscameto ahaltwhenacopyoftheKoran wassetalightneartheTurkish embassyinStockholm.Tur­ key’spresidentsuggested recentlythathewilllook favourablyontheapplication fromFinland,whichalso wantstojoin,butnotSweden. RishiSunakappointedGreg Handsaschairmanofthe ConservativeParty,following thesackingofNadhimZahawi overataxscandal.TheBritish primeministeralsocreateda newDepartmentforEnergy SecurityandNetZero,and promotedKemiBadenochto businesssecretary. AyatollahAliKhamenei,the supremeleaderofIran,has reportedlypardonedtensof thousandsofprisoners, includingmanywhowere involvedinrecentanti­gov­ ernmentprotests.Theheadof thejudiciaryclaimedthat manyofthosearrestedafter thedemonstrationshadcom­ mittedtheircrimesasaresult offoreignpropaganda.Itis unclearwhentheprisoners willactuallybereleased.

The Economist February11th2023 5

centralAfricaandtheSahel throughweaponssalesand contractsformercenariesfrom WagnerGroup. AcourtinHong Kong began thetrialof47formerlegisla­ torsandactivists,thelargest trialundertheterritory’s national­securitylaw,imposed in2020.Thedefendantsare accusedofinvolvementin conductinganunofficialprim­ aryelectionaimedathelping governmentcriticsgaina majorityinthelegislature. Red balloons AnAmericanfighterjet downedaChinese balloon off thecoastofSouthCarolina. Americanofficialscalledita spyballoon.Chinasaiditwas merelyforweatherobserva­ tionandhadgoneastray.The discoveryofthemassive object,whichflewovernuc­ lear­missilesites,prompted theWhiteHousetocancela visittoBeijingbythesecretary ofstate,AntonyBlinken.

TwodaysafterAmericashot downtheballoontheChinese governmentacknowledged thatanotherballoon,spotted overColombia,wasalso fromChina.

TensofthousandsofIsraelis pouredontothestreetsof20 citiesforafifthweekof protestsagainstthejudicial reformsofBinyamin Netanyahu’sgovernment. Thenumberofpeoplekilledin violencelinkedtojihadist groupsinAfrica jumpedby 48%in2022,accordingtothe AfricaCentreforStrategic Studies,partofthePentagon. Atleast19,109peoplewere killed,mostoftheminthe SahelandSomalia,surpassing thepreviouspeakin2015. SergeiLavrov,Russia’sforeign minister,makinghisthirdtrip toAfricaineightmonths,met Mali’s militarygovernment andpromisedtoprovideit withweapons.Russiahasbeen extendingitsinfluencein

JoeBidengaveacombative state-of-the-union speechto Congress,hisfirstsincethe Republicanstookcontrolof theHouseofRepresentatives. Thepresidentwasconstantly heckledandattimesengaged hisdetractors,forexampleby accusingsomeRepublicansof tryingtoundermineSocial SecurityandMedicare. Earlier,theHousevoted,along partylines,toremove Ilhan Omar fromherseatonthe

ForeignAffairsCommittee becauseofpastcomments thatweredeemedtobeanti­ Semitic.Somesaytheremov­ alofMsOmar,whoisMuslim, wasrevengefortheDemo­ crats’dismissaloftwoRepub­ licansfromcommitteesin 2021forallegedlycondoning violenceagainstDemocrats. GuillermoLasso,thecentre­ rightpresidentofEcuador, lostareferendumthatwould haveallowedcrimesuspects tobeextradited.Mayoral electionswerealsoheld. PoliticianslinkedtoRafael Correa,aformerleft­wing president,wonseveralraces. AcourtinSeoulruledthatthe governmentwasliablefor atrocitiescommitted bySouth Korean troops duringtheVietnam war in the1970s—andthatitmust thereforecompensatethe survivorofavillagemassacre. SouthKoreawasAmerica’s biggestforeignallyinthewar. Therulingisexpectedtoopen thefloodgatestothousandsof compensationclaims. Thepremierofthemost populousprovinceofthe Solomon Islands was removedbyaconfidencevote afterhecriticisedthefederal governmentforcosyingupto China.Lastyearthecountry signedasecurityagreement withChina,intensifying concernsintheWestabout China’sgrowinginfluencein thePacificislands. Developmentofanewcoal minewashaltedonenviron­ mentalgroundsforthefirst timeinAustralia.Thecoun­ try’sLaborgovernmentsaid thesiteinquestionwastoo closetotheGreatBarrierReef. LeBron James becamethe all­timetopscorerinAmer­ ica’sNBA basketballleague. Hemade38pointsinagame, surpassingtherecordof 38,387pointsoverthecareer ofKareemAbdul­Jabbar, whichhadstoodsince1989. MrAbdul­Jabbar,75,was sittingcourtsidetowitness theachievement.

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The world this week Business Thebusinessofsearching the internet,dominatedforover 20yearsbyGoogle,wasonthe cuspofdisruption,with variousannouncementsthat chatbotsbasedonartificial intelligencearetobeincorpo­ ratedintosearchengines. Microsoftunveiledaversionof Bingwiththetechnologythat powersChatGPT, madeby OpenAI,astartup,inwhich Microsoftisabiginvestor. Findingitselfonthebackfoot, Google launchedBard,itsrival toChatGPT.However,the company’ssharepricefell sharplywhenBardgavethe wronganswertoaquestionon spacetelescopesinavideo promotingitsabilities. Game over? ItwasamixedweekforMicrosoft,whichreceivedanother blowtoitsplannedtakeoverof Activision Blizzard,amaker ofvideogames.Britain’scom­ petitionregulatorsaidthedeal wouldbebadforconsumers, andmaynotapproveit.Amer­ ica’sFederalTradeCommis­ sionisalreadysuingtoblock theacquisition.

Someofthecompaniesinthe embattledAdani Group reportedariseinprofits.That promptedarallyintheirshare pricesafteratwo­weekrout sparkedbyashort­seller’s claimthatthestockwasbeing artificiallyinflated(Adani deniestheallegation).Adani’s controllingshareholders attemptedtosoothemarkets byrepayinga$1.1bnloanahead ofschedule. Disney announcedarestruc­ turingofitsbusinessinwhich 7,000jobswillbecut,around 3%ofitsworkforce.Itisthe company’sfirstbigmovesince BobIgerreturnedaschief executiveinNovember.He saidthechangeswould reshapeDisney“around creativity”andmakeits streamingbusinessprofitable. Thegreatshake­outcontinued inthetechindustry,asZoom announcedthatitwouldcut 15%ofitsworkforce,or1,300 jobs.EricYuan,thechiefexec­

utive,saidhewouldtakeacut tohissalaryandbonus.The company’sheadcounthas tripledintwoyears,while post­pandemicdemandforits video­conferenceserviceshas sloweddramatically. Investorsseemtobeenthused bytheextensivecost­cuttingat America’stechgiants.Despite Apple reportinga5%year­on­ yeardropinrevenueforthe lastthreemonthsof2022, whichincludesthecrucial Christmasseason,andGoogle postingasharper­than­expect­ eddeclineinadvertisingrev­ enue,theNasdaq composite heldsteady.Theindexisupby 15%sincethestartoftheyear. FTSE 100 8,000 7,000 6,000 5,000

2018

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Source: Refinitiv Datastream

Britain’sFTSE100 hitnew recordhighs,surpassingits previouspeakofMay2018.The FootsieoutshoneitsAmerican andEuropeanpeerslastyear andhasrisenby6%sincethe beginningofthisyear.

The Economist February11th2023

The FTSE100’sgainshavecome onthebackofasurgeinthe sharepriceBP,whichan­ nouncedarecordannual profit,of$27.7bn.Thecompa­ nyincreaseditsdividendand sharebuy­backprogramme. Butitlowereditstargetfor cuttingfossil­fuelproduction, from40%by2030to25%.Like othersintheindustry,BP is squeezedbetweenkeeping shareholdershappywithhigh returnsfrompumpingoiland gasandthepushtowardsa net­zeroeconomy.“We’re respondingtowhatsociety wants,”museditsboss, BernardLooney. Russia’s revenuesfromoiland gasfellby46%inJanuary,year onyear,accordingtothe financeministry.Withits spendingonthewarinUk­ rainesoaring,Russia’smonth­ lybudgetdeficitballoonedto 1.76trnroubles($25bn). Credit Suisse reportedan annuallossofSFr7.3bn ($7.9bn),itsbiggestsincethe globalfinancialcrisisof2007­ 09.TheSwissbankwashitbya surgeinwithdrawalsfrom wealthyclientsinOctober. AjuryfoundthatElon Musk wasnotliableforlossesin­ curredbyagroupofshare­ holdersbecauseofthemarket

reactionin2018tohistweet abouttakingTeslaprivate, whichdidnothappen.Mr Musksaidhebelievedhehad securedthefundingtobuyout thecarmakeratthetimeofthe tweet.Theverdictvindicates hisdecisiontofightthecase ratherthansettle. Americanemployerscreated 517,000jobs lastmonth,the highestnumberforJanuary since1946andwellabovethe marketforecast.JeromePow­ ell,chairmanoftheFederal Reserve,saidthatgivenstrong dataonthelabourmarketand theeconomy,thecentralbank mayhavetoprolonginterest­ raterisesforlongerthan investorsmightexpect. Sans Son SoftBank’s VisionFunds reportedanotherbigquarterly loss,of$5.5bn.Itisatough timefortheJapanesecon­ glomerate’sinvestments, whichhaveplungedinvalueas techstocksandstartupvalua­ tionshaveslid.Itsinvestments innewventureshaveallbut driedup.SonMasayoshi,the company’sboss,missedhis usuallyexuberantearnings presentation.Wehopethathe willonceagainappear,saidthe chieffinancialofficer,butwe don’tknowwhen.

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Leaders 7

The battle for search What do ai chatbots mean for the lucrative business of searching the internet?

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or more than25years,searchengineshavebeentheinter­ net’sfrontdoor.AltaVista,thefirstsitetoallowsearchesof thefulltextoftheweb,wasswiftlydethronedbyGoogle,which hasdominatedthefieldinmostoftheworldeversince.Google’s searchengine,stilltheheartofitsbusiness,hasmadeitsparent, Alphabet,oneoftheworld’smostvaluablecompanies,withrev­ enuesof$283bnin2022andamarketcapitalisationof$1.3trn. Googleisnotmerelyahouseholdname;itisaverb. Butnothinglastsforever,particularlyintechnology.Justask ibm,whichonceruledbusinesscomputing,orNokia,oncethe leader in mobile phones. Both were dethroned because they fumbledbigtechnologicaltransitions.Nowtechfirmsaresali­ vatingoveraninnovationthatmightheraldasimilarshift—and a similar opportunity. Chatbots powered by artificial intelli­ gence(AI)letusersgatherinformationviatypedconversations. LeadingthefieldisChatGPT,madebyOpenAI,astartup.Bythe endofJanuary,twomonthsafteritslaunch,ChatGPT wasbeing usedbymorethan100mpeople,makingitthe“fastest­growing consumerapplicationinhistory”,accordingtoUBS,abank. AI isalreadyusedbehindthescenesinmanyproducts,but ChatGPT hasputitcentrestage,bylettingpeoplechatwithanAI directly. ChatGPT can write essays in various styles, explain complexconcepts,summarisetextandanswertriviaquestions. It can even (narrowly) pass legal and medical exams.Anditcansynthesiseknowledgefrom theweb:forexample,listingholidayspotsthat matchcertaincriteria,orsuggestingmenusor itineraries.Ifasked,itcanexplainitsreasoning andprovide detail.Manythingsthatpeopleuse searchenginesfortoday,inshort,canbedone betterwithchatbots(seeBusinesssection). Hencetheflurryofannouncements,asrival firmstrytoseizetheinitiative.OnFebruary7thMicrosoft,which hasinvestedmorethan$11bninOpenAI,revealedanewversion of Bing, its search engine, which incorporates ChatGPT. Satya Nadella,Microsoft’sboss,seesthisashischancetochallenge Google.Foritspart,GooglehasannouncedBard,itsownchat­ bot,asa“companion”toitssearchengine.Ithasalsotakena $300mstakeinAnthropic,astartupfoundedbyex­OpenAI em­ ployees,whichhasbuiltachatbotcalledClaude.Theshareprice ofBaidu,knownastheGoogleofChina,jumpedwhenitsaidit wouldreleaseitschatbot,calledErnie,inMarch. But can chatbots be trusted, and what do they mean for searchanditslucrativeadvertisingbusiness?Dotheyheralda Schumpeterianmoment inwhichAI topplesincumbentfirms and elevates upstarts? The answers depend on three things: moralchoices,monetisationandmonopolyeconomics. ChatGPT often gets things wrong. It has been likened to a mansplainer:supremelyconfidentinitsanswers,regardlessof theiraccuracy.Unlikesearchengines,whichmostlydirectpeo­ pletootherpagesandmakenoclaimsfortheirveracity,chatbots presenttheiranswersasgospeltruth.Chatbotsmustalsograp­ plewithbias,prejudiceandmisinformationastheyscanthein­ ternet.Therearesuretobecontroversiesastheyproduceincor­ rectoroffensivereplies.(Googleisthoughttohaveheldbackthe

releaseofitschatbotoversuchconcerns,butMicrosofthasnow forceditshand.)ChatGPT alreadygivesanswersthatRonDeSan­ tis,Florida’sgovernor,wouldconsiderunacceptablywoke. Chatbotsmustalsotreadcarefullyaroundsometrickytopics. AskChatGPT formedicaladvice,anditprefacesitsreplywitha disclaimer that it “cannot diagnose specific medical condi­ tions”;italsorefusestogiveadviceon,say,howtobuildabomb. Butitsguardrailshaveprovedeasytocircumvent(forexample, byaskingforastoryaboutabombmaker,withplentyoftechni­ caldetail).Astechfirmsdecidewhichtopicsaretoosensitive, theywillhavetochoosewheretodrawtheline.Allthiswillraise questionsaboutcensorship,objectivityandthenatureoftruth. Cantechfirmsmakemoneyfromthis?OpenAI islaunchinga premiumversionofChatGPT,whichcosts$20amonthforspee­ dyaccessevenatpeaktimes.GoogleandMicrosoft,whichalrea­ dyselladsontheirsearchengines,willshowadsalongsidechat­ botresponses—askfortraveladvice,say,andrelatedadswillpop up.Butthat businessmodelmaynotbesustainable.Runninga chatbotrequiresmoreprocessingpowerthanservingupsearch results,andthereforecostsmore,reducingmargins. Othermodelswillsurelyemerge:chargingadvertisersmore fortheabilitytoinfluencetheanswersthatchatbotsprovide, perhaps,ortohavelinkstotheirwebsitesembeddedinrespons­ es.AskChatGPT torecommendacar,anditwill replythattherearelotsofgoodbrands,andit dependsonyourneeds.Futurechatbotsmaybe morewillingtomakearecommendation.But will people use them if their objectivity has beencompromisedbyadvertisers?Willtheybe abletotell?Behold,anothercanofworms. Thenthereisaquestionofcompetition.Itis goodnewsthatGoogleisbeingkeptonitstoes byupstartslikeOpenAI.Butitisunclearwhetherchatbotsarea competitortosearchengines,oracomplement.Deployingchat­ botsinitiallyasadd­onstosearch,orasstand­aloneconversa­ tionpartners,makessensegiventheiroccasionalinaccuracies. But as their capabilities improve, chatbots could become an interfacetoallkindsofservices,suchasmakinghotelorrestau­ rantreservations,particularlyifofferedasvoiceassistants,like AlexaorSiri.Ifchatbots’mainvalueisasalayerontopofother digitalservices,though,thatwillfavourincumbentswhichpro­ videsuchservicesalready. Googling the future Yetthefactthattoday’supstarts,suchasAnthropicandOpenAI, areattractingsomuchattention(andinvestment)fromGoogle andMicrosoftsuggeststhatsmallerfirmshaveashotatcompet­ inginthisnewfield.Theywillcomeundergreatpressuretosell. Butwhatifanupstartchatbotfirmdevelopssuperiortechnology andanewbusinessmodel,andemergesasanewgiant?That, afterall,iswhatGoogleoncedid.Chatbotsraisehardquestions, buttheyalsoofferanopportunitytomakeonlineinformation moreusefulandeasiertoaccess.Asinthe1990s,whensearch enginesfirstappeared,ahugelyvaluableprize—tobecomethe frontdoortotheinternet—mayonceagainbeupforgrabs. n

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Leaders

The Economist February11th2023

Turkey

Seismic shock Why the devastating earthquakes might upend Turkish politics, too

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OBODY KNOWS howmanypeoplelietrappedundertherub­ ble.WhentwopowerfulearthquakeshitsouthernTurkey andnorthernSyriaonFebruary6th,thousandsofbuildingscol­ lapsed,buryingfamiliesastheyslept.Rescuersareracingtodig themoutbeforetheysuccumbtoinjury,thirstorthebitingcold. ByFebruary9thestimatesofthedeathtollstoodatmorethan 16,000;thetruefiguremaybefarhigher.TheWorldHealthOrga­ nisation says it could be 20,000, which would make it even worsethanthequakethatstruckIzmit,100km(60miles)eastof Istanbul,in1999,killingsome18,000.Buckledroads,complex terrainandthevastsizeoftheaffectedarea,spreadingoutalong theEastAnatolianfaultforsome450km,aremakingtherelief efforthellishlydifficulttomanage(seeEuropesection). Thequake­struckpartsofSyriawereprevi­ ouslybatteredbyadecadeofwar.Syria’sdes­ pot,Basharal­Assad,issowaryofoutsidersand heedlessofhumanlifethathemayimpedeac­ cessforforeignreliefagencies.Eveninpartsof Syriaoutsidehiscontrol,entryreliesonroads fromTurkeythatarenowbadlydamaged.Tur­ keyisnaturallyconcentratingonitsownpeo­ ple. Donors must try, against the odds, to en­ surethatSyriaisnotabandoned.Sofar,however,theresponse hasbeenmuchtooslow. Evenasthereliefeffortgoeson,attentionwillturntopoli­ tics.PresidentRecepTayyipErdogan,whohasruledTurkeyfor twodecades,facesanelectioninMaythatwasalreadygoingto betoughforhim,thankstoaflounderingeconomyandaninfla­ tionratedriventoover50%byhisfoolishmonetarypolicies. Voterswillnotehisresponsetotheearthquake,andaskwhyhis governmentdidnotdomoretoprepareforsuchadisasterafter thetremorof1999.Heknowsit:governmentprosecutorshave alreadylaunchedinvestigationsintotwojournalistsforcriticis­ ingthestate’sresponse. Thereisagrimironyatwork.MrErdogancametopowerafter

an election in 2002. His new party, Justice and Development (AK),upendedanestablishmentthathadineffectuallygoverned Turkeysincetherestorationofdemocracyin1983.Thethengov­ ernment’sweakresponsetotheearthquakeof1999,followedby its mishandling of a financial crash in 2001, contributed to a sensethataclear­outwasneeded,andAK endedupwithtwo­ thirdsoftheseatsinparliament.NowMrErdoganfacesasimilar set of circumstances; an economic crisis and a humanitarian one.Voterswilljudgehimonhisrecordinhandlingboth. ThecollapseofsomanybuildingsinTurkey—nearly6,000, accordingtothegovernment—willinvitescrutiny.Evidencewill emergethattheadviceofearthquakeexpertswasignored,and buildingcodeswerefloutedwhilecorruptorincompetentsu­ pervisorslookedtheotherway.Onehallmarkof theeconomicboomthatmadeMrErdoganpop­ ularforhisfirstdecadeinpowerwasasurgein construction,thoughmostofthebuildingsthat collapsed were built before he came to office. He has had two decades to prepare for a big earthquake;itishardlyasecretthatTurkeysits ononeoftheworld’smostactivefaultlines. Mr Erdogan’s poll ratings, and his party’s, havebeennearingrecordlows.Lastmonthhebroughtforward thepresidentialandparliamentaryelectionsfromJunetoMay, presumablytowrong­foottheopposition,whichhasstillfailed to unify around a single candidate for the top job. After the quake,thepresidentdeclaredastateofemergencyintensouth­ ernprovinces,tolastforthreemonths,untilalmosttheeveof thepoll.Nodoubttherearecommendablepracticalreasonsfor this.ButitmightalsomakeiteasierforMrErdogantoshutdown criticismoroppositionactivity;indeed,accesstoTwitterwas briefly restricted after people used it to lambast the govern­ ment’sresponsetothequakes.Hemightnowpostponetheelec­ tions.Turkeywasalreadyenteringadifficultperiod.Platetec­ tonicshasjustmadeitmoredangerous. n

The Gulf’s new social contract

Hedonism in the desert A post-oil future means a social revolution in the Gulf

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ancy going toaraveinSaudiArabia?Thecountriesofthe Gulffaceadauntingtransitionawayfromfossilfuelsinthe comingdecades.Butanothertransitionishappeninginparallel thatisjustasstriking:ashiftfromstate­ledeconomiesandcon­ servativesocialnormstowardssomewhatmoreliberalandopen societies (see Middle East & Africa section). That prospect is thrilling.Millionsofpeoplewillenjoynewfreedomsandoppor­ tunities.Butitisalsodisconcerting,becauseitbringstheriskof socialinstabilityifautocraticgovernmentsfailtoadapt.Wheth­ ertheGulfcountriessucceedinredrawingtheirsocialcontracts mattersnotonlytotheirpeople,butalsototheworld,becauseof

theircloutinoilandgasandtheirroleinexportingculturalval­ uesacrosstheMuslimworld. EversinceGulfgovernmentstookcontrolofoilandgaspro­ ductionfromWesternfirmsinthe1970s,thesocialcontracthas been clear. Rulers used petrodollars to pamper their subjects witheverythingfromcushypublic­sectorjobstowatersubsi­ diesandbonusesfornewlyweds.Foreignerswereencouragedto movetotheGulftodothejobscitizenseithercouldnotorwould notdo.Therewasnopathforthesemigrantstobecomecitizens, whethertheywerelabourerssweatingonconstructionsites or bankers in air­conditioned offices. And everyone—locals and

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Leaders

The Economist February11th2023

expats—hadtoacceptrestrictiveroyalrule. Thatcontractwilleventuallybecomeobsolete.Onereasonis climatechange.TheUnitedArabEmirates(uae) andSaudiAra­ bia,whichtogetherpump14mbarrelsofoilperday,knowthat demandforfossilfuelswillfade.Thatgivesthemawindowof 10­20yearstotransformtheireconomies.ThewarinUkraine hasledtoaspikeinenergypricesthatcouldmeantheGulfstates earn$3.5trnfromenergyexportsoverthenextfiveyears,creat­ ingakittywithwhichtoinvest.Andthegeopoliticalcontexthas changed, too. American support is less assured, while closer linksarebeingforgedwithotherstates,fromIndiatoIsrael. Someofthechangesareastounding.InSaudiArabia,women whowerebarredfromdrivingnowmotortowork.In201717%of Saudiwomeneitherhadajoborwerelookingforone;todaythe figure is 37%. Restaurants were once prohibited from playing music.Nowthereistalkoflooseningthealcoholban.AsSaudi Arabiahasliberalised,theuae hasrespondedwithreforms,anx­ ioustomaintainitsdominanceasabusinesshub.Neighbouring Omanandgas­richQatararemoreclosedbutarepayingclose attention—QatarjusthostedthefootballWorldCup. Theeuphoriamayhelpdullthepainofeconomicreforms. Benefitsarebeingcut.TheUAE hasditchedfuelsubsidies.Saudi Arabiamayfollow.Since2018fourofthesixcountriesoftheGulf CooperationCouncilhavebroughtinavalue­addedtax.Income tax,onceunimaginable,isnowapossibility.InJunetheuae will introduceacorporatetax.Asgovernmentsinecuresbecomeless commonthecitizensoftheGulfarehavingtocompeteforpriv­ ate­sectorjobs.Theirgovernmentsarekeentoattractmorefor­ eigners.TheUAE,whereexpatsmakeupnearly90%ofa10m­

strongpopulation,wantstolure3m­5mmore. Allthiscreatesasenseofinsecurityaswellasfreedom.Gulf citizenswillneedthetoolstosucceedinanewera.Educationis agoodplacetostart.SchoolchildreninQatar,SaudiArabiaand theUAE lagfarbehindtheirrich­countrycounterparts.Dropout rates are high because students—boys in particular—assume theycanrelyonagovernmentjob.Abettereducationwouldpre­ parethemtocompeteforoneintheprivatesector. Anotherchallengeistherelationshipbetweenthestateand individuals.Morerightshavealreadybeenrecognised,atleast onpaper.Intheuae newlaws decriminalisepremaritalsexand allowunmarriedcouplestolivetogether.Punishmentsforsexu­ alharassmentandrapehavebeentoughened.Theuae andSaudi Arabiaarestrengtheningpropertyrightsforforeigners.Thepath to permanent residency, and perhaps even citizenship, will probably become easier. Foreigners who put down roots may onedaydemandrights. Techno-cratic Sofar,greatersocialfreedomshavebeenaccompaniedbymore political repression and centralisation, particularly in Saudi Arabia,underitsdefactoruler,MuhammadbinSalman.Yeta taste of freedom in their daily lives may spur people to seek moresayinpolitics,too.Attheveryleastgovernmentswillhave toheedthegrumbleswheneconomicchangecreateslosers,asit will.NoGulfcountryislikelytobecomeademocracyanytime soon.Butiftheyaretoweantheireconomiesoffhydrocarbons withoutprovokingunrest,governmentsmustbecomemorere­ sponsivetoordinarycitizens.Otherwisethemusicmaystop. n

Academic freedom

Wanted: severe contests Universities that promote ideological conformity do students a disservice

W

HEN SEEKING ajobtoteachintheUniversityofCalifornia system, academic excellence is not enough. Applicants mustalsosubmitadiversity,equityandinclusion(DEI)state­ ment, explaining how they will advance those goals. That sounds fair enough, except that a promise to treat everyone equallywouldconstituteafail.MeanwhileinFlorida,Governor Ron DeSantis and the state legislature are trying to ban the teachingofcritical­racetheory,anapproachto studying racism with which they disagree. Whilethishasbeengoingon,arowhasbroken out (also in Florida) over a new pre­college course in African­American studies. These three developments have one thing in com­ mon: they are attempts to win arguments by controllingtheinstitutionswherethoseargu­ mentstakeplace(seeUnitedStatessection). Threats to academic freedom in America can come from manydirections.Studentssometimesobjecttobeingexposedto ideastheydeemtroubling.Someeventrytogetfacultymembers firedforallowingsuchideastobevoiced.Donorsoccasionally threaten to withdraw funding, which has a chilling effect on what can be taught. Speakers can be banned. Academics may self­censor,orsuccumbtogroupthink.OccasionallyAmerican society demands restrictions on academic freedom, as when

professorsinthe1950swereaskedtotakeloyaltyteststoprove theywerenotcommunistsympathisers. Allthesethreatsstillexist.Plentyofpeoplehaverightlywor­ riedaboutacademicfreedominAmericainthepast.Andyetone ofthethingsthatisdistinctiveaboutthismomentisthatthe warringpartieshavedeterminedthatthebestwaytowinthear­ gument,andthemostthoroughwaytostifledebate,istoremake institutionsaccordingtotheirpreferences. DEI statements may seem innocuous enough, and their intentions may seem laud­ able.Yetiftheyareusedasafilterforhiring, theywillfilteroutanyonewhofailstotoethe campus­progressiveline,andanyonewhoob­ jectsonprincipletoideologicallitmustests. InFlorida,MrDeSantisseemstobehoping thatleft­wingprofessorsinstatecollegeswill gotoworksomewhereelse,creatingopeningsformoreconser­ vativeprofessors.TheStopWOKE Act,nowlawinFlorida,bars teachingaboutsystemicracismunlessthisisdone“inanobjec­ tivemanner”—aqualifierwhichisrathersubjective.Academics whocrossthelinewillbethreatenedwithdismissal. AsforthatcourseonAfrican­Americanhistory,adraftver­ sionwasdenouncedfromtherightasdangerouswokenonsense and then, when it was revised, denounced from the left as a

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whitewashedversionofblackhistory.Thenotionthatstudents mightlookatcontradictoryideasandjudgetheirmeritswastoo terrifyingtocontemplate. Partisansonbothsidesseemindecentlyeagertocreatesepa­ rateinstitutionsforliberalsandconservatives,wheretheliber­ alswouldneverhavetohearwrongthink(acategorythatwould includesomeofMartinLutherKing’sideas,weretheyproposed byalessreveredspeaker),andtheconservativeswouldnever havetoencountertheworksofDerrickBell(whohasasgooda claimasanyonetohavedevelopedcritical­racetheory).

Nodoubtthiswouldmakebothideologicaltribeshappier. Butitwouldbeadisasterforthecountry.Democracydependson citizenswhocanfindcompromises.Liberalismdependsontak­ ing an opponent’s argument seriously and learning from it. Americaneedsinstitutionsthatcanhavethesedebates,rather thanmonoculturalincubatorsofmutuallyexclusiveideologies. DEI statements could even be repurposed to this end: rather thanaskingapplicantswhattheyhavedonetofurtherracialdi­ versity and equity, institutions of higher learning might start askinghowtheyplantofurtherrealdiversityofthought. n

China’sballoon

Spy in the sky To avoid perilous misunderstanding, China and America should talk more

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here was somethingalmostcomicabouttheimmenseChi­ neseballoon,carryingequipmentthesizeofasmallpassen­ gerplane,thatdriftedoverAmericafordaysuntilitwaspopped on February 4th by an American fighter jet. As cold­war­type momentsgo,itwaslightreliefcomparedwith,say,theCuban missilecrisisof1962orthecrash­landingin2001ofanAmerican spyplaneafteraChinesefightercollidedwithit.Butthiswasno joke.Americasaidtheballoonwasspying.ForordinaryAmeri­ cans,thethreatfromChinawassuddenlyvisible,overhead.In his state­of­the­union speech on February 7th, President Joe Biden warned: “make no mistake about it…if China threatens oursovereignty,wewillacttoprotectourcountry.Andwedid.” Americanspooksplaydownwhattheballoon—orweather­ observationcraft,asChina’sgovernmentinsists—discoveredas itfloatednearmilitarysites,includingabaseinMontanawith MinutemanIIIintercontinentalballisticmissiles.Buttheysay thatwasbecausetheytrackeditcloselyandensurednosensitive activitiesorcommunicationstookplacewithin itsrange.Examinationofitsdebrismayreveal moreabouttheoperation,whichAmericasays ispartofavastaerialsurveillanceprojectbased onHainanislandinsouthernChina,whichhas targetedcountriesonfivecontinents. TheepisodeillustrateswhySino­American rivalry is so hard to manage (see Chaguan). America’s hyperpartisan politics were on full displayasRepublicansandDemocratscompetedtosoundmore hawkish, in an escalatory pattern that will probably feature heavilyinthepresidentialcampaignin2024.Theballoonmay alsorevealtheblurredboundarybetweencivilianandmilitary activity,ifdebrisrecoveredoffthecoastofSouthCarolinashows thatAmericancomponentsarehelpingChinatospy(seeChina section).Theeconomiclinksbetweenthetwocountries,from semiconductorstoTikTok,aresobroadthatavastarrayofactiv­ itynowfallsundersuspicion. Theoddsofmoreincidentslikethisarehigh.Chinamayre­ taliate, for example by seizing an American ocean­survey drone—asitdidin2016intheSouthChinaSea,wherethetwo countries’warshipsandfightersoperateincloseproximity.Chi­ nesefurywithAmericafollowingavisittoTaiwaninAugustby NancyPelosi,thenthespeakerofAmerica’sHouseofRepresen­ tatives,hasresultedinevermoredangeroussabre­rattlingby China’s armed forces around the island, which China claims.

Thereisanalmostcontinualriskofsmallencountersthatcould sparkabiggerconflict. Itisthereforecrucialthatcoolheadsprevail.The20thcentu­ ry offers some lessons. In1972 America and the Soviet Union managed to reach agreement on avoiding dangerous military encounters.In1955PresidentDwightEisenhowerproposedthat SovietspyplanesbeallowedtoflyoverAmerica,andviceversa, sothatthetwocountriescouldbemoreassuredofeachother’s intentions.TheRussiansbaulkedattheidea.Itwasonlyafter theSovietUnioncollapsedthatitwastakenup:34countries, includingRussiaandAmerica,joinedtheOpenSkiestreatythat tookeffectin2002.Itallowedparticipantstosurveileachother fromtheairaftergivingnoticeandaflightpath(althoughRussia andAmericahaverecentlypulledoutofthedeal). Todayfartoofewmechanismsforavoidingescalationexist. China’s now­abandoned zero­covid policy meant it avoided face­to­face discussions for years. As president Mr Biden has metXiJinping,China’sleader,onlyonce,dur­ ingaG20meetinginNovemberinBali.Asan American official said then: “It is critical to build a floor for the relationship and ensure thattherearerulesoftheroadthatboundour competition.” But after the balloon was shot down, China refused to hold a phone call be­ tween its defence chief and America’s. For its part,AmericahascalledoffavisittoBeijingby the secretary of state, Antony Blinken. The trip had been planned for February 5th and 6th and was to have included a meetingwithMrXi.Itneedstoberescheduledassoonaspossi­ ble.MrBlinkenwouldbethefirstAmericancabinetsecretaryto visitBeijingsinceMrBidenbecamepresidentin2021. From cold war to hot air Newdiplomaticandmilitaryaccordstopreventaccidentscan bereachedonlyifAmericaandChinatalkmore.Americawould liketodiscussnuclearweapons,butChinarefuses.Itbelieves thatthelesstherestoftheworldknowsaboutitscapabilities, thesaferitwillbe.Butasitsglobalambitionsgrow,Chinaisbe­ cominghungrierforintelligenceandmoredaringinpursuitof it,continuallyraisingtheprobabilityofclashesandaccidents that could quickly spiral out of control. Some Americans and Chinesemayhavebeenintriguedoramusedbythegiant,drift­ ingballoon.Thebiggerpictureisalarming. n

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India Inc

The parable of Adani The humbling of a tycoon is a test for Indian capitalism

I

t took a littleoversevendaysforacorporatetitantobecut downtosize.OnlyweeksagoGautamAdaniwastheworld’s third­richestmanandtheself­proclaimedRockefellerofIndia. Thenashort­sellerquestionedhiscompany’sfinances,inves­ torstookfrightand$100bninmarketvalueevaporated.Tensof billionshavebeenwipedoffthetycoon’spersonalwealth.Today thecompanyisracingtoshowitcanmeetitsdebtpayments. ThehumblinginthemarketscallsintoquestionMrAdani’s pharaonic ambitions. It is also a political embarrassment for NarendraModi,theprimeministerofIndiaandacloseassociate ofMrAdani.AnditconfrontsIndiancapitalismwithitssternest testinyears(seeBriefing). MrAdani’ssprawlingempiretoucheshundredsofmillions of Indians’ daily lives. It runs some of India’s biggest ports, storesathirdofitsgrain,operatesafifthofitspower­transmis­ sionlinesandmakesafifthofitscement.ItwasamongIndia’s toptenbiggestnon­financialfirms,byassets,andhadbeenpro­ jectedtogrowrapidly. Theprospectsforthatgrowtharenowuncertain.Inareport publishedonJanuary24thHindenburgResearch,anAmerican short­seller, alleged that opaque entities based in Mauritius linkedtotheAdanifamilyweremanipulatingthegroup’sstock price.AlthoughAdanideniedtheclaims,itdidnotconvincein­ vestors. Share prices plunged and financing plansweredisrupted.Yieldsonbondsissuedby thecompanyhaverisen;thoseofthegroup’sre­ newablesarmtradeataneye­watering19%. ForMrModi,bigbusinessesareimportant planksinhisplantoboostcapitalinvestment in India’s infrastructure. But Mr Adani is un­ usual.HistieswithMrModiwereformedde­ cadesagoinGujarat,thestatewherethepoliti­ cianwaschiefministerfrom2001to2014,andwherethetycoon gothisstart.WhenMrModibecameprimeminister,heflewto DelhiinMrAdani’splane.Betweenthenandthereleaseofthe Hindenburgreport,MrAdani’spersonalfortunemushroomed fromaround$7bnto$120bn. ThegovernmentmaynowbetemptedtooffersupporttoMr Adani,implicitlyorexplicitly.Butthatwouldbeamistake.India has many of the conditions in place for a sustained growth spurt.Ifitistoachieveitspotential,however,close,impartial scrutinyofbigbusinesswillbevital. Anyone who has spent time in India knows its desperate needforroads,bridgesandpower.Intheyearsbeforetheglobal financial crisis of 2007­09, a credit boom fuelled vast invest­ mentsininfrastructure.Butcostsoverran,redtapeledtodelays and financing costs soared. Too few projects were finished. Bankswereleftsaddledwithbadloansandgrowthsputtered. HencetheallureforMrModiofamuscularindustrialpolicy. He wants to make India a global manufacturing powerhouse. Thatcannothappenwithoutgoodroadsandreliableelectricity. Sobigbusinesseshavebeencajoledtoinvestininfrastructure andtohelpdeveloplocalsupplychains.TogetherAdani,Reli­ anceIndustries,Tataandjsw,someofIndia’sbiggestfirms,plan toinvestmorethan$250bnoverthenextfivetoeightyearsin

infrastructureandemergingindustries.Subsidiesarealsobeing handedouttoforeignfirmsthatexpandproductioninIndia,in­ cludingSamsungandFoxconn. Thestrategyofpickingwinners wasalwaysfraughtwithrisk, however,andMrAdani’swoesofferawarningofwhatcango wrong.Apolicyofexpeditinglicencescanalsoslipintofavourit­ ism.Anotherdangeristhatthewinneryoupickmightnotfulfil hispromises.AdaniGroupsaysithasenoughcashtocomplete allofitsprojectsthatareunderconstruction.Butitsmodelof frenetic,debt­fuelledexpansionisnowsurelylesstenable. Thebiggerthetycoon, thebiggerthestakesbecome.MrAda­ ni alone is responsible for 7% of the capital investment by India’s500largestnon­financialfirms.Heisthedominantoper­ atorofthecountry’sstrategicallyimportantports.Hisfirmhas promisedtoinvestmorethan$50bninsuchthingsasanewair­ portinMumbaiandsteelmillsinGujarat.Shouldthoseinvest­ mentsstruggle,projectswillliehalf­finishedyetagain. SofarMrModihasbeensilentaboutAdani’stribulations.The prime minister is popular enough that, despite a handful of protestsorganisedbytheoppositionCongressparty,theimme­ diatepoliticalfalloutfromthedramawillbelimited.Ministers havesoughttoreassureinvestorsbysayingthatthecountry’s macroeconomicfundamentalsremainsound.Buttheywillhave togofurthertoshowthatIndiaremainsareli­ ableplacetodobusiness.Ifitistogrowrapidly, India will need vast amounts of capital from abroad, partly because it runs a current­ac­ countdeficit.Foreignmultinationalshavebe­ come warier of entering countries where the governanceisnotuptoscratch. Thegovernmentcouldstartbyreininginits favouritism and stepping up scrutiny of big businesses.Ifatinyfirmofshort­sellersinNewYorkcanask hardquestions,whydidn’ttheregulators?Hindenburgalleges thattheSecuritiesandExchangeBoardofIndia,thecountry’s markets watchdog, began an investigation into Adani in 2021 thathassincegonequiet.Theregulatorshoulddeclarethesta­ tus of any ongoing probes into Adani. And it should demand transparencyfrominvestmentfirmsbasedinMauritius,which areoftenattheheartofIndianstockmarketscandals.Adanihas issueda413­pagereportrebuttingHindenburg’sclaims. Licence Raj to Silence Raj TheModiyearshaveinmanywayserodedIndia’schecksand balances. His government has steadily undermined the inde­ pendenceofthecourtsandthepolice.Themediaaremostlytoo cowedtoinvestigatethemightyastheyoncedid.FewIndian newspaperswouldhavetouchedastoryaboutMrAdanihadan American firm not asked the tough questions first. Mr Adani himself recently bought ndtv, a news channel that was once criticalofthegovernmentbutisnowsupine. ForIndiatoprosper,itsinstitutionswillinthelongrunbe just as important as its infrastructure. Indians benefit from cleanpowerandlevelroads,tobesure;buttheyalsoneedclean governanceandalevelplayingfield. n

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Letters Only the strong can intervene JeffreySachsarguesthat neutralcountriesshould mediatebetweenRussiaand Ukraine(ByInvitation,January 21st).Afterhisdisastrous prescriptionsforeconomic “shocktherapy”ineastern Europe30yearsagoonewould thinkhemightwanttositthis oneout.Hisnewideaisthat countriessuchasBraziland SouthAfricashouldbeguaran­ torsofapeaceagreement,just asrichcountriesweresup­ posedtoguaranteetheconse­ quencesfromshocktherapy. Theydidn’tthenandneutral countrieswon’tnow. MrSachsdoesnotsayhow hisideacouldbeimplement­ ed.Byimposingpenaltiesat theUN SecurityCouncil,where America,Russiaandothers haveaveto?Bymilitaryforce? Itisdifficulttoimaginethe Braziliannavywantingto marshalblockadesintheBlack Sea,ortheSouthAfricanair forcesecuringCrimeanair space.Asaresulttheefficacy ofhisargumentis,once again,untestable. Mostofuswillbehard pressedtothinkofanyconflict whichwasresolvedbythe assumptionthataclubof decentkidscansomehow intermediateinaschoolyard brawlbetweenbigtoughones. Thenaivetyofthesuggestion recallsajokeaboutastranded economisttryingtogetoffa desertisland:justassumea liferaft. TimGollin Bergamo, Italy

The great canal journey Researchersinvestigatingthe industrialisationofBritain oftenoverlookthecanal system(Graphicdetail,Janu­ ary21st).Inthe1740sBritain’s roadwaysweremostlymuddy paths.Enterprisingmanufac­ turers,lookingtotransport rawmaterialsintotheir factoriesanddistributethe finishedgoods,formedjoint­ stockcompaniestodigcanals linkingnavigablerivers throughoutthecountryside.It wasagreatsuccess,andmay possiblyexplainthefirstbump

TheEconomistFebruary11th2023

inyourchartdescribingGDP perperson.Bythemiddleof the1800sManchester,Liver­ pool,Birmingham,Leeds, Sheffield,Londonandother citieswereconnectedbya rapid,smoothtransport system.Thecanalswereover­ takenbytherailwaysafter 1850,apossibleexplanationfor thesecondbumpinGDP. CHRISTINEHOWZE Broomall, Pennsylvania

Digital protectionism “Protectionistturns”(January 14th)highlightedAmerica’s startlingshifttowardsprotec­ tionism,notablythrough subsidies.Protectionismisnot limitedtotheUnitedStates. Eveninthedigitaleconomy, datafromtheGlobalTrade Alertshowthatbarriersto tradehavebeensharplyonthe rise,inparticularthrough localisationrequirements.The EuropeanUnionandG20 have initiatedover1,700legalacts since2020alone. Someviewthisasa responsetoAmericanprotec­ tionism.Forinstance,Amer­ ica’sCommerceDepartment complainedaboutadraft Europeanschemetoclassify cyber­securityinthecloud (theEU cloud­servicescertifi­ cation)becauseitallowsonly “EU headquarteredfirms”to gainthehighestlevelofclassi­ fication.Americanfirmscould thereforebeexcludedfrom thatlucrativeEU market.The schememightalsobein breachofthetradeandco­ operationagreementbetween BritainandtheEU,andtheEU’s commitmentsintheWTO’s generalagreementsontrade andgovernmentprocurement. Consumersandbusinesses onbothsidesoftheAtlantic shouldworryaboutthehigher pricesandlesschoicethatall thisbrings.Torectifythiswe needarenewedconsensuson non­discriminationandna­ tionaltreatmentamongtrad­ ingpartners,tosavethein­ ternationalrules­basedsystem thatAmericaoncesupported. PascalKerneis Managingdirector EuropeanServicesForum Brussels

An Italian star of screen Thankyoufortheobituaryof GinaLollobrigida,aphenome­ noninfilm(February4th).You couldhaveaddedthatherfame hadanimpactfarbeyondthe cinema.Thereisforinstance theGinagasket,abreak­ throughforassembling tunnelsunderwaterfromgreat hollowsectionsofpre­cast concrete.TheDutchinventor ofthethickrubbersealnamed itafterGinatohonourcertain “curvysimilarities”. Andinanupsurgeofcivil warinLebanonfrom1982­84, Italiantroopsinamulti­ nationalforcemostlyescaped thebloodyfatesoftheAmer­ icanandFrenchcontingents.It waswidelysupposedthatthe Italians’empatheticMediter­ raneanoutreachhadsimply wontheheartsoftheirShia MuslimneighboursinBeirut’s southernsuburbs. Orperhapsnot.Overa decadelater,theSyrianmin­ isterofdefencerevealedto Al-Bayan,anewspaperin Dubai,thatitwashewhohad orderedtheLebaneseresis­ tancetosparetheItalians. Why?Becauseofhislovesince hisyouthforGinaLollobrigi­ da,whomhewishedtosparea “singletear”ofdistress. HughPope Brussels

Lingvo vere tutmonda Banyanfounditcomicalthat Baha’imissionariestoJapan usedEsperantototranslate theircreed(January21st). UsingEsperantoinAsiaisno morecomicalthanusing English.Chinahaspublished morethanahundredbooksin Esperantoandhasregular radiobroadcastsinthe language.Esperantocanbe learnedinaboutquarterofthe timeneededtolearnEnglish. Englishconveysmainlythe cultureofitsnativespeakers. BycontrastEsperanto literatureiswrittenbynative speakersofdozensoflanguag­ es.Thelanguageisspreading everwideraroundtheworld. Louisv.Wunsch­Rolshoven GermanEsperantoAssociation Berlin

Worker toker Ipartiallydisagreewiththedry conclusiondrawnbyBartleby abouttherelationship betweencannabisuseand creativityintheworkplace (January14th).Confidencein one’screativeideasisnot alwaysagiven.Theadage “writedrunk,editsober”may notguaranteeabestseller,but itcansometimeshelpfilla page,oralettertoThe Economist,whichwouldhave remainedblankotherwise. Jean­MaximeRiviere Buenos Aires

No Mickey Mouse operation MickeyMouse’shandalways hasonlythreefingers,as depictedintheillustrationfor yourbriefing(“Thrillsand spills”,January21st).Soonafter creatingMickeyinthelate 1920sWaltDisneyrealisedthat ifhismousebecamepopularit wouldbedrawnmillionsof times.Thousandsofillustra­ tionsareneededforacartoon lastingjustafewminutes.By omittingonefingerDisney producedsignificantsavings ininkandlabour.Andbecause italsoenabledeasierandmore flowingmovementsithas beencopiedbyalmostall cartoonartistssince. KeithCarlson Belmont, Massachusetts

Will do the job for nothing IreadBagehot’spleaforBritish politicianstobemore adequatelyfunded(January 21st).Itbroughttomindaquip fromlongagobythelateJohn Arlottonthe“AnyQuestions” radioprogramme:“Somany peoplewanttobeMPsthatthe lawofsupplyanddemand suggeststheyneednotbepaid anythingatall.”Theaudience applaudedloudandlong. J.Fyles Thirsk, North Yorkshire

Lettersarewelcomeandshouldbe addressedtotheEditorat TheEconomist,TheAdelphiBuilding, 1­11JohnAdamStreet,Londonwc2n 6ht Email:[emailprotected] Morelettersareavailableat: Economist.com/letters

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Executive focus

Powering Africa’s Energy Revolution Director & Head, Power Investment The Africa Finance Corporation (AFC) is Africa’s leading infrastructure and industrial solutions provider. Established by a treaty between 39 member countries and with a balance sheet of over $11bn, AFC has ambitions to double in size over the next five years by providing innovative investment solutions that make Infrastructure an instrument of change and economic prosperity for the continent. In the Power sector, AFC has already developed and constructed 5.5GW of power generation, distribution and transmission projects on the African continent, investing over $1.5bn in 18+ countries. AFC’s Renewable Energy Platform, the largest in Africa of operational, construction & development wind, solar & hydro assets, is set to grow to 5GW in the next 3 years. The Director & Head, Power, will: • Lead a team to deliver AFC’s ambitious sector growth plans including the success of the platform • Drive power sector deal origination, structuring, development and closure using multiple instruments – debt, equity, quasi-equity & off-balance sheet • Bring creativity, innovation & urgency to achieve ground-breaking investments delivering significant economic and development impact for Africa Candidates will have: • A proven track record of closing, managing & divesting power investments, with a particular interest in renewables • Well-developed origination, project development and investment skills in the power sector • Outstanding leadership skills, an entrepreneurial mindset and innovative approach to closing deals • Pace, tenacity and ambition as well as a laser focus on getting investments done. Further information is available at www.millarcameron.com. To apply, send your CV and covering letter to [emailprotected] before 3rd March 2023.

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Briefing Adani, Modi and India’s economy

A tycoon at bay

MUMBAI

Why Adani Group’s troubles will reverberate across India

“I

like challenges whereyoufeelyou are part of nation­building. I could have created many different businesses but I feel more satisfied when I create something that can be part of the India journey,”GautamAdanitoldIndia Today,a weeklynewsmagazine,in2011.Thejour­ ney of Mr Adani’s conglomerate, Adani Group,tookanunexpectedturninlateJan­ uary,whenaninvestmentfirm’scritiqueof itsfinancescausedthesharepricesofits variouslistedbusinessestoplunge.Given howcloselyAdaniGroupisassociatedwith thegovernmentofNarendraModi,andhis ambitionsfortheeconomy,manyobserv­ ersareaskingwhetherpolicymakers,too, couldbesteeringinthewrongdirection. Itisovertwoweekssincethepublica­ tion of Hindenburg Research’s report on theAdaniGroup,onJanuary24th,yetthe alarm it created has still not dissipated. TheAmericanfirm,whichmakesfinancial betsagainstcompaniesitconsidersover­ valued,arguedthatAdaniGrouphadma­ nipulated the prices of shares in its con­

stituentcompanies.Thegroupinsiststhe claimsarebaseless;ithaspublisheda413­ pagerebuttal. Adanihasalsotriedtoreassuretwitchy investorswithdisplaysoffinancialsobri­ ety.OnFebruary6ththeAdanifamilysaid itwouldrepay18monthsaheadofsched­ ulea$1.1bnloantakenoutusingsharesin the group’s companies as collateral. The followingdayAdaniPortssaiditwouldpay downitsdebtby$605mthisyearandhalve spendingonnewinvestments. Yet the shares continue to gyrate: on February6th,forexample,sharesinAdani Transmissionfellby10%,promptingtrad­ ingtobesuspended.Thatsameeveningit reportedstrongresults;thefollowingday itssharesroseby10%,promptinganother suspension.ThevalueoftheAdaniGroup as a whole remains roughly half what it wasbeforeHindenburgweighedin. Indian media report that the main stockmarket regulator, the Securities and ExchangeBoardofIndia,hasrequestedin­ formationabouttheownershipoftheoff­

The Economist February11th2023

shore firms that Hindenburg accused of acting on Adani’s behalf. But the reports also claim that SEBI has given Adani six months to respond. Hindenburg’s allega­ tions,inotherwords,willnotbecategori­ callyprovenordispelledanytimesoon. Meanwhile, fresh criticisms and set­ backs continue to surface. This week the IndianpressporedoverananalysisbyAs­ wathDamodaran,aprofessoroffinanceat New York University. It argued that, de­ spitetheirtumblingshareprices,compa­ nies in Adani Group are still overvalued, given that the bulk of their assets are in staid, low­growth industries and infra­ structure.OnFebruary8thTotalEnergies,a giantFrenchoilcompany,saiditwasde­ laying a $4bn investment in a scheme to makegreenhydrogenwithAdani. Spigots under scrutiny FewimaginethattheAdaniGroupisany­ wherenearcollapse.Itdoes,afterall,own lots of real, revenue­generating assets, however overvalued they may be. In the samebreathashepostponedthehydrogen scheme,PatrickPouyanné,Total’sboss,in­ sisted that his firm’s joint venture with Adanitosellnaturalgasremainedsound. ButAdaniclearlyfeelspressuretotrimits spendingandreduceitsdebt. Thegroupsaysthatithasthefundsto completeallprojectsthatarealreadyun­ der construction. But its straitened cir­ cumstancesarelikelytodelaysomeofits

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BriefingAdani,ModiandIndia’seconomy

TheEconomistFebruary11th2023

PAKI STAN

C H I N A

N

Delhi

E

Lucknow

P

A

L

Thimphu Kathmandu

BHUTAN

Jaipur BANGLADESH

Ahmedabad

Dhaka Kolkata MYA N M A R Bay of Bengal

GUJARAT Mumbai

I

N D I

A

Naypyidaw

Vishakhapatnam

Selected Adani investments*

Bangalore Chennai

500 km

SRI LANKA

moreextravagantinvestmentplansatthe veryleast,andperhapsderailafew.Moo­ dy’s,aratingagency,whileaffirmingAda­ ni’sinvestment­gradestatus,haspointed outthatmuchofitsplannedcapitalexpen­ ditureis“deferrable”. In some ways, that is a worrying thought.Adani’sinvestmentspepperIndia (seemap).Itaccountsfor7%ofthecapital spending of India’s 500 biggest listed firms. The group has promised to spend $70bnby2030ongreeninvestments—part of a cherished government plan to make Indiaagreensuperpower.TheCentrefor MonitoringIndianEconomy(CMIE),are­ searchfirm,keepsadatabaseofbigcurrent andplannedcapitalexpendituresinIndia, both public and private. Adani accounts for3%ofthefullpipelineofprojectsbyval­ ue,butalmost10%ofthenewerprojects, announcedinthefiscalyearthatendedin March 2022. A curbing of Adani’s invest­ ments, in short, could hardly be consi­ dered insignificant, even in the grand schemeoftheIndianeconomy. Whatismore,Adaniisanespeciallybig presence in certain industries. Its seven airports handle 23% of India’s passenger traffic;itsdozenportsreceiveordispatch around 30% of India’s international freight;itsrecentlyacquiredcementbusi­ nesschurnsout14­20%ofIndia’stotal;its warehouseshold30%ofIndiangrain;itis the country’s biggest private generator of electricity from fossil­fuel plants (and a bigonefromrenewables)andsoon.Any scalingbackofitsinvestmentswoulddefi­ nitelybefeltinthesebusinesses.

January 2023, by type Gas Thermal plants Gas (planned) Solar power Wind power Cement Mining Airports Ports Electricity transmission lines *Some projects under construction or under development Sources: Adani; Government of India; press reports

Adani also has a reputation for being abletogetthingsdone.TakeMumbai’snew airport, which an Adani subsidiary is building.Thecity’splannersfirstmooted theconstructionofanairporttotheeastof thecityin1997.Theplanswererevised,ar­ guedoverwithresidents,putouttotender, delayed, revised again and so on. In 2021 Adanitookovertheprojectafteritwasput outtotenderyetagain.Fromthatpointon, the$2.1bnprojectmaderapidprogress. Today workers can be seen at the site, behind a blue steel barrier, transforming reclaimedlandintoastonefoundationfor runways. Although planned completion dates for big infrastructure projects are typicallythesubjectofderision,construc­ tion is expected to be finished next year andtheairporttobeoperationalby2025. Thatisameteoricpace,byanystandard. It is this ability to charge through the morassofregulation,legalwranglingand bureaucratic inertia that really distin­ guishesfirmslikeAdani.Indiahasalways beenadifficultplacetodobusiness.And thatdifficultyhasalwaysgivensprawling family­ownedconglomeratesanedgeover leaner, smaller rivals. Companies with clout and collateral find it easier to raise moneyandbendthebureaucracytotheir will.Andsincecloutandcollateralareuse­ ful in any line of business, these groups naturally expand in scope, so as to make themostoftheirstrengths. Thecapacitytogetthingsdoneisespe­ ciallydeartoMrModi,whoprideshimself on his ability to foster economic growth. Hewantstodrumupmoreinvestment,in

manufacturinginparticular.“Ifyou’reIn­ diaandyouarestrugglingtofindawayto investatthelevelsyouneedthenit’ssortof these guys or bust,” says James Crabtree, whose book, “The Billionaire Raj” exam­ ines the rise of India’s tycoons. “Adani mighthave…atastefordebtbutwiththat comesgenuineinvestment.Portsgetbuilt, raillinesgetbuilt,andthat’ssortofwhat Indianeeds.” ThegrowthmodelthatMrModihoned firstaschiefministerofthestateofGujarat from2001to2014andthenasprimeminis­ ter“waspremisedonthestategivingaset of favoured corporations concessions on land,oncapital,ontax,onenvironmental andbuildingclearanceinexchangeforset­ tingupshop,”saysMilanVaishnavofthe Carnegie Endowment for International Peace, an American think­tank. “What we’re seeing today is a scaling up of that model.Soit’sbecomeprettyclearthatthis government believes in identifying and backingnationalchampions.” MrModiisespeciallyclosetoMrAdani, whomhehasknownsincethelate1980s. MrAdaniwasoneofthefewbusinessfig­ urestostandbyMrModiaftersectarianri­ otsinGujaratin2002killedatleast1,000 people,mostlyMuslims.In2003hehelped set up an event called “Vibrant Gujarat”, partofanefforttorecastMrModi,tainted byassociationwiththeriots,asapro­busi­ ness leader. Mr Modi was a guest at the weddingofMrAdani’ssonin2013. Duringthenationalelectioncampaign thefollowingyearMrModireliedonafleet ofAdaniaircrafttoferryhimaround;one even brought him to his swearing­in in Delhi.(MrAdanisaidatthetimethatthe flightshadbeenfullypaidfor.)InMrMo­ di’sfirstyearasprimeministeralone,Mr AdaniaccompaniedhimontripstoAmer­ ica, Brazil, Canada, France and Japan. “EverywherethatPrimeMinisterNarendra Modigoes,itseems,GautamAdaniissure togo,”theHindustan Times,anationaldai­ ly,remarkedin2015. Friendswithoutbenefits Mr Adani has long denied that his close friendshipwithMrModihashadanything todowithAdaniGroup’ssuccess.“Youcan never get any personal help from Modiji. Youcanspeaktohimaboutpoliciesinthe national interest, but when a policy is framed,itisforall,”hesaidinaninterview withanIndiantelevisionnewschannelin January. By the same token, the govern­ menthasbeencarefultoavoidleapingto Adani’s defence. It has limited its public commentsonthegroup’sdifficultiestoan­ odyneassertionsoffaithinIndia’sfinan­ cialregulators. All the same, the upheaval is embar­ rassingforMrModi.Astate­controlledin­ surerhasinvestmentsinthegroup;state­ ownedbankshavelenttoit.Allhavehadto

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Briefing Adani,ModiandIndia’seconomy

TheEconomistFebruary11th2023

deny publicly that their exposure consti­ tutes a serious risk. The government has repeatedly blocked the efforts of opposi­ tionpartiestoinitiateaparliamentaryde­ bateoraformalpublicinquiryonthesub­ ject.Theopposition,inprotest,hasresort­ edtotheatricaldisruptionsofparliamen­ taryproceedings. ButthepalaverisunlikelytocauseMr Modiseriouspoliticalharm.FewIndians believe that he has profited personally fromhislinkstoMrAdani.Congress,the mainoppositionparty,isonshakyground when it comes to accusations of corrup­ tion. Its most recent term in office, from 2009to2014,wasparalysedbyconstantal­ legations of bribery and embezzlement. SomeIndiansseemtoacceptAdani’scon­ tentionthattheaccusationsagainstitare partof“acalculatedattackonIndia”.“The whites can’t bear to see India’s progress,” tweetedVirenderSehwag,aretiredcricket­ er.“ThehitjobonIndia’smarketlookslike awell­plannedconspiracy.” MoreovertheexposureofIndianretail investorsandmutualfundstoAdaniisti­ ny. The technical nature of Hindenburg’s accusations render the report incompre­ hensibletomostpeople.Ithelpsthatthe media,muchofwhichisownedbyindus­ trial conglomerates, rarely challenge the government or its allies in business. The last television news channel to air fre­ quentcriticismsofthoseinpower,NDTV, wasboughtlastyearbyAdani. MrModiwillstillneedcapablefirmsto fulfil his ambitions for India’s economy. ButAdaniisnottheonlycompanyinIndia thatcanpulloffbig,complexinvestments. In 2016 Reliance debuted Jio, its low­cost 4G network that vaulted India’s telecoms forward by a generation. Tata last year bought the beleaguered and debt­laden flag carrier, Air India, which the govern­ menthadlongstruggledtoprivatise(and whichTatahadoriginallyownedbeforeit wasnationalisedin1953).SeveralofIndia’s otherconglomerates,althoughstillenthu­ siasticborrowers,arebigger,lessindebted andmoreprofitablethanAdani(seetable). ThecontinuedstrengthofIndia’scon­ glomeratesisadouble­edgedsword,how­ ever. They tend to sideline smaller firms

Not what it used to be India, investment as % of GDP 40 30 20 10 0 2000

05 10 15 20 22* Fiscal years beginning April 1st

Source: IMF

*Forecast

that could grow into tomorrow’s giants. Medium­sized businesses complain that they struggle to secure government con­ tracts. The mere participation of a well­ connectedfirminanindustryoratender can discourage others from entering the fray,reducingcompetitionandcurtailing investment.“Whatisclearisyouneedto broadenopportunitiestootherprivatein­ vestors,”saysTrinhNguyen,aneconomist atNatixis,aninvestmentbank. Capital crimes Indiadoesnothaveanespeciallyimpres­ sive record when it comes to deploying capital.Inthe2000sgroupslikeReliance, GVK andGMR tooktheleadinanepicin­ vestment boom. Total capital spending reached 39% of GDP in 2011, up from less than25%in2002.Yetmanyoftheprojects concerned were over­optimistic. Lots of themwiltedinthefaceoftheglobalfinan­ cialcrisis,highoilpricesandIndia’sstrug­ gle to get a grip on rising inflation and a fallingrupee.Bankswereleftsaddledwith copiousbaddebts.Investmentfellbackto about30%ofGDP (seechart).Thecountry hasbeenwaitingforarevivaleversince. InrecentyearsMrModihasdonemuch to improve India’s business climate. His governmenthascutthecorporatetaxrate, rationalisedsubsidiesandstreamlinedla­ bour laws (although the states have been slowtorevisetheirownlabourcodesinre­ sponsetothenationallegislation).Infra­

There are other whales in the sea India, selected conglomerates Financial year beginning April 1st 2021 Group

Assets, $bn

Reliance

213.2

56.1

0.70

8.9

Tata

117.3

34.1

0.58

8.7

Aditya Birla

66.3

34.3

0.27

-1.5

Adani

65.5

30.2

1.09

2.2

OP Jindal

51.9

15.0

0.72

4.4

Source: CMIE

Debt, $bn

Debt-to-equity ratio

Net profit, $bn

structure and logistics is improving, thanks to the construction of roads and railwaylinesdedicatedtofreight. Indiahasalsobenefitedfromnotbeing China,acountrytowhichmanyWestern multinationals want to limit their expo­ sure.ThesizeofIndia’sdomesticeconomy onlyaddstoitsappeal.IncontrasttoChi­ na,Indiahasayoungandgrowingpopula­ tion.MrModi’sadoptionofacountrywide goods­and­services tax (GST), in 2017, did awaywithanarrayofstateandlocallevies thathadactedasabarriertointernaltrade. TheGST,despiteitscomplexity,createda vastsinglemarketof1.4bn. MrModihastriedtospurinvestmentby offering “production­linked incentives”, which bestow public money on firms in certainindustries,suchaselectronicsand pharmaceuticals,thatmeetoutputtargets. Atthebackofpolicymakers’mindsisthe awarenessthattheircountryreliesonfor­ eigncapitaltofinanceitscurrent­account deficit,whichwas3.5%ofGDP lastyear,ac­ cordingtotheIMF. Butadecisiverevivalinprivateinvest­ mentremains“elusive”,pointsoutMahesh VyasofCMIE.India’srulesandregulations arestillmercurialandsubjecttoreversals, asforeignmultinationalshavediscovered totheircost.Onewaytoshieldabusiness istoforgeclosepoliticaltieswithpowerful insiders.Butthosetiesmakeitharderfor other companies to prosper. Thus, as Ar­ vind Subramanian of Brown University andJoshFelmanofJH Consultinghavear­ gued,firmsmustworryaboutbothchang­ ingrulesandtiltedplayingfields. Adani’s woes could further delay a re­ vivalofinvestment.Accusationsofshare­ pricemanipulationandunconvincingau­ ditingcastanunfavourablelightonIndia’s stockmarket, corporate governance and regulatory practices. And the affair could poseanongoingtesttoIndia’sbroaderin­ stitutions—its political checks and bal­ ances, its press and civil society—a test theyarenotguaranteedtopass. “Let me tell you what I have always heardfrompeople.ThatGujaratiscanlive anywhere, but cannot live without their ownfood,”MrAdani,whoishimselfGuja­ rati, declared in a speech during the “Vi­ brantGujarat”conferencein2011.“Butlet metellyou,inmyexperience,IthinkaGu­ jaraticanlivewithouthiskhakra,dhokla or thepla.Butonethinghecannotlivewith­ outissuccess.” MrModi’srecipeforeconomicgrowth has brought Mr Adani enormous success overtheyears.IthasalsohelpedMrModi cometodominateIndianpolitics.Butthe dishdoesnotseemappetisingenoughto attract the desired level of investment. If theGujaratiurgetosucceedisasstrongas MrAdanisuggests,thenMrModi,another Gujarati, should surely be cooking with greatercare. n

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TheEconomistFebruary11th2023

Universities

New testaments

WASHINGTO N, DC

Mandatory diversity statements are taking hold of academia

T

he university of california,Berke­ leyiscurrentlyadvertisingfora“direc­ torofcellculture,flyfood,mediaprepand on­call glass washing facilities”. Appli­ cants need an advanced degree and a de­ cadeofresearchexperience,andmustsub­ mitacv,acoverletterandaresearchstate­ ment.Theymustalsosendinastatement ontheircontributionstoadvancingdiver­ sity, equity and inclusion. Seemingly everyone (this director, the next head of preservation for the library, anyone who dreams of a tenured professorship) must file a statement outlining their under­ standingofdiversity,theirpastcontribu­ tionstoincreasingitandtheirplans“for advancingequityandinclusion”ifhired. Notlongago,suchstatementswereex­ oticandofmarginalimportance.Nowthey arederigueuracrossmostoftheUniversi­ tyofCaliforniasystemforhiringandten­ uredecisions.Studiesclaimthatasmany asoneinfivefacultyjobsacrossAmerica

require them. And government agencies thatfundscientificresearcharestartingto makegrantstolabsconditionalupontheir diversitymetricsandplans. Proponentsarguethatsuchthingsare neededtoadvanceconceptsnormallyin­ voked by abbreviation: diversity, equity andinclusion(dei),sometimeswith“be­ longing” appended (deib), or “justice” (deij), or else rearranged in a jollier ana­ gram (jedi). Critics—typically those with tenureratherthanthoseseekingit—think → Alsointhissection

20 Drill,maybe,drill

21 Techprotectionism

22 Primariesreshuffled

23 Murdaughmostfoul

24 Lexington:Manoutoftime

mandatorystatementsconstitutepolitical litmus tests, devalue merit, open a back door for affirmative action, violate aca­ demic freedom and infringe on First Amendmentprotectionsforpublicuniver­ sities. “There are a lot of similarities be­ tweenthesediversitystatementsasthey’re beingappliednowandhowloyaltyoaths [whichoncerequiredfacultytoattestthat theywerenotcommunists]worked,”says Keith Whittington, a political scientist at PrincetonUniversity.Whoisright? Advocatesseenoconflictbetweendei and academic excellence. “It’s hard to imaginebeingagoodteacherifyoudon’t knowhowtoactivelyengageallstudents,” saysSharonInkelas,anassociatevice­pro­ vostatBerkeley.Norisitamatterofpoliti­ cal belief. These statements “are descrip­ tionsofthingsthatpeoplehavedonethat haveenabledthemtobesuccessfulinthe classroom,”saysProfessorInkelas.Arefer­ endum has already outlawed affirmative action in California, so state institutions cannotgivepreferentialtreatmentonthe basis of race or sex. A separate law bans employersfrom“controllingordirecting” thepoliticalactivitiesoftheiremployees. “Thereisnolitmustestattachedtodi­ versity statements. All that it’s asking is, ‘Whatareyougoingtobeabletoaddtoour campus? How are you going to deal with the diverse student body and faculty?’”

19

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says Erwin Chemerinsky, dean of Berke­ ley’s law school and a well­known First Amendmentscholar.“Theabsenceoflaw­ suits so far, despite threats, is an indica­ tionthatthediversitystatementsarelegal. Theydon’tviolatetheFirstAmendment.” It is hard to know whether dei state­ mentsmerelymeettheirgoalsorstrayinto political filtering. Davidson College, in North Carolina, asked prospective com­ puter­sciencestafftowriteabouttheir“po­ tentialtocontributetoourcommitmentto equityandanti­racism”—acausefervently embraced by the left and despised by the right.Berkeleyhasdistributedguidanceon howsearchcommitteesoughttoevaluate diversity statements. They say that any candidatewhodoesnotdiscussgenderor racemustbeawardedlowmarks.Thesame goes for any earnest classical liberal who “explicitly states the intention to ignore thevaryingbackgroundsoftheirstudents and‘treateveryonethesame’.” In 2018 Berkeley launched a “cluster search”forfivefacultytoteachbiological sciences.From894applications,itcreated a longlist based on diversity statements alone,eliminating680candidateswithout examiningtheirresearchorothercreden­ tials.This“yieldedsignificantincreasesin urm [underrepresented minority] candi­ datesadvancedtoshortlistconsideration”, auniversitymemoreported. The dark side Whether such a process privileges candi­ dates of certain ethnic backgrounds over others is a sensitive question with legal implications. “It doesn’t appear that there’s any kind of correlation between particular identities and the quality of statements,”saysKarieFrasch,thedirector of Berkeley’s Office of Faculty Equity and Welfare. When asked to clarify whether thatmeantscoresdidnotdifferbyrace,Dr Fraschsays,“I’mnotsayingthat.Wedon’t have that information. I shouldn’t have saidtheword‘correlation’.Iapologise.” Berkeleyisanimportantcasestudy,not necessarilybecauseitisthemostextreme butbecauseitisthemosttransparent.The University of California, Los Angeles has embraced diversity statements in hiring andtenuredecisionsevenmorefervently, but does not feel the need to explain its policies. A spokesperson said that Anna SpainBradley,alawprofessorwhoserves asvice­chancellorforequity,diversityand inclusion,wasunavailableforcomment. Criticsworryabouttheproliferationof diversitycriteriainscience.Beginningthis fiscal year, the Department of Energy, whichfundsresearchonnuclearandplas­ ma physics among other things, will re­ quireallgrantapplicationstosubmitplans on“promotinginclusiveandequitablere­ search”.Since2021thebrain Initiativeat the National Institutes of Health has re­

TheEconomistFebruary11th2023

quiredprospectivegranteestofilea“plan for enhancing diverse perspectives”. Teams with investigators from diverse backgroundsreceiveprecedence. “Peopleareunwillingtopushbackbe­ causetheyareafraidtolosetheirfunding, andnoonewantstobecomeamartyrfor defending reason,” says Anna Krylov, a professorofchemistryattheUniversityof Southern California. Professor Krylov studied in the former Soviet Union and sees parallels that are “a little too close”. RatherthanMarxism­Leninism,“youreal­ lyhavetopledgeyourcommitmenttocrit­ icalsocialjustice.” Ifrace­basedaffirmativeactionforcol­ legeadmissionsisstruckdownbytheSu­ premeCourt,asmostexpectitwillbethis year,universitieswillsurelyresorttocre­ ativemeansofmaintainingdiversitythat can survive judicial scrutiny. Diversity statementsmayproveuseful.Thesubtlety canvary.TheHarvard Law Review strongly encouragesprospectiveeditorstosubmit, alongside their application, a 200­word statement “to identify and describe as­ pects of your identity…including, but not limitedto,racialorethnicidentity,socio­ economic background, disability (physi­ cal, intellectual, cognitive/neurological, psychiatric, sensory, developmental, or other),genderidentity…”(thelistgoeson). InmanyRepublican­ledstateslegisla­ tors are trying to forcibly eradicate this strain of thinking—sometimes in ways thatseektolimitfreedomofthoughtinthe name of protecting it. Last year Republi­ cansinFloridapassedtheStopwoke Act, whichprohibitsinstructionatuniversities onideaslikesystemicracismunlesspro­ videdin“anobjectivemannerwithouten­ dorsement”.In2021thoseinIdahopasseda law banning the teaching of critical race theoryinallschools,includingpublicuni­ versities.LastmonththeManhattanInsti­ tute,aconservativethink­tank,releaseda pieceofmodellegislationforstatestoem­ ulate that would do less violence to the FirstAmendment,bydismantlingdei of­ ficesinuniversitiesandbanningconsider­ ationofdiversitystatementsinhiring. Othersaremoresanguine.“Ithinkit’sa fad,”saysJanetHalley,aprofessoroflawat Harvard. Bureaucratising ideology saps sincerity.“Peoplewillutterthehocus­po­ cus.Theyknowthatthey’rebeingrequired toputonanact.Andthat’sgoingtocreate cynicism about the very values that the people who put these requirements into placecareabout,”shesays.Ifthosecontra­ dictionsdon’tsinktheproject,thecourts might.ProfessorHalleybelievesthesein­ novations are “forced speech and view­ pointdiscriminationintheFirstAmend­ mentcontext”andwillleaddei dissidents tofilelawsuits.“Withtheincreasingcon­ servatism of the federal bench, I think they’relikelytowin.” n

Oilandgas

Drill, maybe, drill

LOS ANGE LES

Joe Biden is not quitting fossil fuels

rebuilding america’s economy

A

LASKA’S NORTH SLOPE, the arctic edge ofAmerica’s49thstate,ishometobea­ vers,bearsandcaribou.Itscoastalwaters boastbeardedsealsandbowheadwhales. Indigenouspeoplehavelivedhereformil­ lennia. But the region also encompasses theNationalPetroleumReserve,orNPR-A. On February1st the Bureau of Land Man­ agement(BLM),whichhelpsgovernAmer­ ica’svastfederallands,advancedacolossal drillingprojectinthereserve.TheConoco­ Phillips project, known as Willow, could produce180,000barrelsofcrudeeachday. Environmentalistshowlthattheprojectis a“carbonbomb”anathematoPresidentJoe Biden’sgreengoals.Afinaldecisionisex­ pectedwithinthemonth. The Biden administration’s expected approvalofWillowmayindeedseemcon­ tradictory for a president who pledged to bannewoilandgasdevelopmentonpublic lands.ButsanctionsonRussiancrudeand petrol­priceshocksathomehavereviveda slogan usually associated with Republi­ cans:drill,baby,drill. TheBLM hasgrantedslightlymoreper­ mits to drill oil and gas wells in the first halfofMrBiden’spresidencythaninthe firsttwoyearsofDonaldTrump’sterm.The

Oilcountry

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The Economist February11th2023

differenceismarginal:MrBidenapproved roughly 6,500 permits to Mr Trump’s 6,300,accordingtoananalysisofBLM re­ cords.AndMrTrump’spermitapprovalsin the second half of his term numbered 9,800. But Mr Biden’s initial lead is still strikingconsideringhisgreenagenda,and MrTrump’spromotionoffossilfuels.Most permitsduringbothadministrationswere grantedinNewMexico,wheredrillinghas gone gangbusters as the shale boom has transformedthePermianBasin. Butthenumberofpermitsissuedisjust onemeasureofapresident’sdomesticen­ ergystrategy.Amorecomprehensivelook atMrBiden’sleasingpoliciessuggeststhat thepermittingbonanzaismoreofahang­ over fromtheTrumpadministration’sde­ votiontohydrocarbonsthananintention­ alpolicychange.Astandardleasetostart drilling on public land is ten years. It is commonforcompaniestowaittoapplyfor apermit,whichallowsthemtostartdrill­ ing,towardstheendofalease.Thatmeans thevastmajorityofpermitsissuedunder MrBidenisonlandleasedduringprevious administrations. Compare the number of acresleasedundereachpresident,andMr Biden seems to be the most lease­leery presidentinmodernhistory. The Inflation Reduction Act (IRA), Mr Biden’s signature climate law, also offers mixed messages on the future of fossil­ fuelproductioninAmerica.TheIRA raises royaltyrateschargedtothedrillers,butit prohibitstheBLM fromleasingpublicland forrenewablesunlessitalsooffersleases foroilandgasdevelopment.AaronWeiss, thedeputydirectoroftheCentreforWest­ ern Priorities, which tracks drilling on public lands, says the trade­off was “Joe Manchin’s cost of entry”. The senator for WestVirginiawastheIRA’sdecisivevote, andisinfavourofcontinueddrilling. Coal,oilandgasproductiononfederal lands and waters accounts for about a quarter of America’s total fossil fuel pro­ duction,andnearlyaquarterofthecoun­ try’s greenhouse gas emissions. Recent modellingfromBrianPrest,aneconomist atResourcesfortheFuture,athink­tank, suggeststhathigherroyaltyrateswillnot dentemissionsinameaningfulway.Much moreeffectivewouldbeacarbontaxora banonnewoilandgasleases,neitherof whichiscurrentlypoliticallyfeasible. Alaska’s politicians cheered Willow’s advancement. The project is expected to bring in at least $8bn in tax revenue and 2,500 construction jobs. The BLM recom­ mends that the Biden administration ap­ provealimitedversionoftheprojectthat avoidsdrillingnearsensitivewetlandsand caribouhabitats.Thisisthesortofunsatis­ fyingcompromisethatmaybecomemore commonasMrBidentriestotackledomes­ tic energy security, increased foreign de­ mandandconservationallatonce. n

Technology trade

Chains of control

WASHINGTO N, DC

The history and limits of America’s favourite new economic weapon

rebuilding america’s economy

A

T 11:15am ON October7th,anAmerican officialpublished139pagesofregula­ tionsonawebsitecalledtheFederalRegis­ ter.AcrossEastAsia,fromTaipeitoNanj­ ing, semiconductor executives panicked. The American government was claiming jurisdiction over every line of code or machinepartthathadeverpassedthrough theUnitedStates,andovertheactivitiesof everyAmericancitizen,everywhereonthe planet. Companies using American code, equipment or people to make advanced computer chips bound for China had to stop,onpainofbreakingthelaw. ItwasasalvofromAmerica’sfavourite new economicweapon,theForeignDirect ProductRule(FDPR).Whereassomesanc­ tionsweaponisetheubiquityofthedollar toinflictharmbypreventingtargetsfrom usingit,theFDPR attemptstoweaponise the ubiquity of American technology. It letsthegovernmentclaimjurisdictionov­ eralmosteverychipfactoryintheworld, because almost every one contains hard­ to­replaceAmericantools.TSMC,aTaiwan­ ese chipmaker, stopped selling advanced chipstoChinesecustomersimmediately. FDPR hasbecomeoneofthemostim­ portantweaponsinAmerica’sarsenalfor technological competition with China. One Republican lobbyist calls the Bureau of Industry and Security, the agency that administersit,“thetipofthespear”.Young

policywonksaretakingcoursestostudya subjectthatwouldhavedrawnyawnsthree yearsago:export­compliancelaw. This sweeping form of extraterritorial exportcontrolisnotnew.Theconceptwas writtendownin1959.Butonlyinthepast decade has FDPR been transformed from regulatorycuriointofront­lineeconomic weapon. In the early 2010s Kevin Wolf, then at the Department of Commerce, wrotethefirsttwoexport­controlrulesto usetheidea.Theyrestrictedtheexportof productsmadewithAmericantechnology from anywhere in the world to China if theyweretobeusedformilitarypurposes ortobuildsatellites. Meanwhile,Americawasalsobuilding acaseagainstHuawei,aboomingChinese telecoms­equipmentmanufacturerwhich ithadlongsuspectedofembargo­busting, andofbeingaconduitforChinesegovern­ ment spying. Discomfort with Chinese technologicalprowessdeepenedwiththe arrivaloftheTrumpadministration’sChi­ nahawksintheWhiteHouseinearly2017. OnlyinMay2019,aftertradetalkswith Chinabrokedown,didtheTrumpadmin­ istrationturntoexportcontrolstoattack Huawei.Itplacedthefirmonalistofcom­ paniestowhichitisillegaltoexporttech­ nologyfromAmerica,knownastheEntity List—untilthenmostlyusedforshellcom­ panies and terrorist fronts. Huawei was nowseenasanational­securitythreat. Huawei’spurchasesofAmerican­made technologywerelargeenoughthatcompa­ niesfounditworthwhiletoporeoverthe details.Theyfoundthatitremainedlegal

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tosupplyHuaweiwithAmericantechnol­ ogyifitwasshippedfromoutsideAmeri­ ca. Many tech companies simply carried onsupplyingHuaweithroughoffshorefa­ cilities,followingtheletterofthelaw. ThisnotonlyinfuriatedtheTrumpad­ ministration, it also annoyed companies that manufactured products in America. Huawei’sinclusionontheEntityListdis­ criminatedagainstthem.Americanchip­ makers started lobbying for changes. If firms could be prevented from using American technology to supply Huawei from anywhere in the world, operations basedinAmericawouldnolongerbeata disadvantage.ByAugust2020,withpresi­ dential elections looming, officials had workedoutthekinks.Americapublished anFDPR whichcutHuaweiofffromAmer­ icantechnology—and,ineffect,fromglo­ balsemiconductorsupplychains. Big chip companies all over the world stopped shipping to Huawei. The firm’s revenuesplungedby29%in2021.Itspopu­ lar smartphones disappeared from the market altogether. America had found a newwaytocrimpadversarieswhichitper­ ceivedasanational­securitythreat. Itwouldsoonhaveachancetotestthat toolfurther.Inlate2021,asRussiamassed forces near Ukraine’s border, the White House asked government agencies for ideasabouthowtorespondinthecaseof aninvasion.TheDepartmentofCommerce suggested an expansion of the FDPR: America could do to the Russian army what it had done to Huawei. In February 2022twonewFDPRscutoffRussia’smili­ tary­industrialcomplexfromallAmerican elements of global technology supply chains,aspartofahugepackageofsanc­ tionsputinplacebyAmericaanditsallies. America says Russian hypersonic bal­ listic­missileproductionhasbeendramat­ icallycurtailedforlackofsemiconductors, andthatRussiahashadtoturntoIranand NorthKoreaforsuppliesandequipment. “Sanctionsandexportcontrolsarehaving significantandlong­lastingconsequences on Russia’s defence industrial base,” the StateDepartmentsaidinOctober. Flushedwithsuccess,theWhiteHouse turneditsextraterritorialpowerstowards China’ssemiconductorindustry.InWash­ ington, strong bipartisan agreement had developedaboutthethreatposedbyChina. The national­security adviser, Jake Sulli­ van,outlinedthenewstrategyinaspeech inWashingtoninSeptember2022.Particu­ larly for foundational technologies like semiconductorsAmericahadto“maintain aslargeofaleadaspossible”. TheOctober7thFDPRswereanattempt todojustthat.Thenewrulesarehurting China’s domestic artificial­intelligence companies, and its chipmakers. The hurt will increase if allies impose export con­ trolsoftheirown,replacingextraterritori­

The Economist February11th2023

alityenforcedthroughsupplychainswith more robust, national­level restrictions that are easier to enforce. Japan and the Netherlands, which host two of the most importantchipmaking­equipmentmanu­ facturers,reachedadealwithAmericain lateJanuary.Ifbothcreatestrongcontrols of their own, China will be firmly barred fromadvancedsemiconductors. Washington is abuzz with talk of its next “target”: what to feed into the FDPR machine?OneideaistotakeaimatChina’s biomanufacturingindustry,whichmakes drugsandtheircomponents.Anotheristo goaftermanufacturingofadvancedbatter­ ies,particularlythoseforelectricvehicles. ByattemptingtocutChinaofffromad­ vancedsemiconductors,Americaisincen­

tivising China to focus on more mature forms of chip manufacturing, where the chokepointsareweakerandChinaalready hasalargeshareofthemarket.Thesesorts ofchipsarerequiredingreatnumbersin electriccarsandweapons.Ifartificialin­ telligence turns out to be less important thantheAmericangovernmentthinksitis, incentivisingChinesefirmstotakegreater controlovercommoditychipsmayendup looking like a mistake. Technological de­ velopment is hard to predict. The supply chainsandmanufacturingprocessingthat underpin semiconductor production are someofthemostcomplexthingshumans haveevercreated.Americamusthopethat itsapparentrecentsuccessinmanipulat­ ingthemdoesnotproveillusory. n

Presidential nominees

Picking winners

WASHINGTO N, DC

AnewprimarycalendargivesblackDemocratsanearliersayfor2024

O

NE OF THE manyways Americais ex­ ceptionalisinhowitpicksnominees forpresident.Inmostotherdemocracies, partiesselecttheirleadersquicklythrough a set of selection procedures with tight rulesandminimalinvolvementfromthe people. In America voters themselves get topickwhorunsforpresident.Theydoso viaamonths­longseriesofelectionsheld independentlybyeachstate’spartyorgani­ sations, with each state lobbying the na­ tionalpartyforthecovetedfirstgoatcast­ ingballotsforthenominees.Fordecades, Iowa has held that title. But on February

Here’s the deal

4th, the Democratic National Committee (DNC)handedpolepositiontoSouthCaro­ lina,previouslythefourthstatetovote. Activists have supported a reshuffling of the primary calendar for some time. They claim that letting Iowa and New Hampshire,whichvotessecond,gobefore more diverse states gives white voters morepower.Thisisaccurate;NewHamp­ shire and Iowa are the fourth and fifth whiteststatesinthecountry.SouthCaroli­ na,bycontrast,hasthefifth­highestcon­ centrationofblackAmericans;theymake up27%ofthestate’sadults,ahairhigher

012

UnitedStates

TheEconomistFebruary11th2023

thanAlabama’s26%.Giventheparty’sreli­ anceonblackvoters,areliablyDemocratic group,fortheirnationalwins,shouldn’tit prioritisetheirsay? The question misunderstands the nominatingprocess.Itisnotasimportant togofirstasitisforcandidatestoconsoli­ datesupportamongcertaindemographic groupsanddonors.BecauseSouthCaroli­ na previously voted fourth, a candidate whopolledwellwithblackvoterscouldbe confidenttheywoulddowelllater,evenif theylaggedinIowaandNewHampshire. SuchapathispreciselytheoneMrBi­ denfollowedlasttimearound.BillClinton alsostagedasimilarly“surprising”come­ back in the 1992 election. In fact, aside fromJohnKerry’sill­fatedpresidentialbid in2004,everyeventualDemocraticpresi­ dential nominee has won the Palmetto­ state primary. The Democrats moving South Carolina from fourth to first posi­ tionisthusunlikelytochangewhowins its next presidential nomination. But it mayspeeduptheprocess.Anearlysignal fromthestate’sblackvotersmayhelpwin­ now the field, much as fringe candidates previouslydroppedoutafterflopsinIowa andNewHampshire. ThebiggernewsintheDemocrats’rules changethusisthestatethathasmadethe biggestjumpinthequeue:Georgia.Peach­ stateDemocratsin2020wereslatedtovote 32nd,longaftertheymighthaveplayeda decisiveroleintheselectionprocess.Next year,Georgiawillgofourth.SinceGeorgia alsohasahighshareofblackAmericans— highereventhanSouthCarolina—adding it to the slate of early states will tilt the group’s racial composition heavily away fromwhitevoters.Andthoughproximate, replacingIowawithMichiganintheearly bunchwillsignificantlydecreasethesayof white non­college voters, disproportion­ atelyrepresentedinthefuture. Ahead of the vote on the DNC’s rules changethechairman,JaimeHarrison,rose toremarkthat“Folks,theDemocraticparty lookslikeAmericaandsodoesthispropos­ al.”Butnotablyabsentfromthenewbunch ofearly­votingstatesareanyfromtheWest Coast or mid­Atlantic, the party’s two strongest regions. Texas nor Florida, two fast­growing Hispanic­heavy red states, are also absent. And there are no states from the mountain region—Wyoming, Idaho,Utah,ColoradoandMontana. The reality of the primary system is that,evenwhenreshuffled,itisnotagreat waytopickanominee.Ithandsvetopower toagroupofvoterswhotendtobemore ideologically extreme than the electorate asawhole.TheDemocraticPartyhasbeen arguingoverwhichstateshouldgofirstin selecting its presidential candidates for decades.Itmaybeworthconsideringanal­ ternative mode of election. Look abroad anditwillseemanyalternatives. n

Southerngothic

Murdaugh most foul WALTE RBO RO, SOUTH CARO LINA

A murder trial in South Carolina reveals how smalltown power can work

A

lone hook dangleswhereaportraitof RandolphMurdaughJrusedtohangin theColletonCountycourtroom.Murdaugh was the longest­serving prosecutor in SouthCarolinahistory,histenurewedged inbetweenhisfather’sandhisson’s.This multi­generational legal dynasty was re­ veredinLowcountry,inthestate’smarshy south.Butnow,ratherthanarguingfrom the prosecutors’ bench, his grandson sits inthedefendant’sseat,accusedofslaying hiswifeandson.Thegilt­framedportrait wastakendownforthetrial. Prosecutorsallegethatasalawyerathis family’s personal­injury practice, Alex Murdaugh stole millions from clients. Some of the accusations he faces are far worse.In2018,afterhishousekeeperdied bytumblingdownaflightofstairsatMo­ selle,thefamily’shuntingestate,heisac­ cused of pocketing a $4m life­insurance settlementwithouttellingherchildren. Then things got messier. In 2019 Paul Murdaugh, Alex’s youngest son, took his father’s boat for a boozy night­time joy­ ride.Theboatcrashedintoabridge,killing one of Paul’s teenage friends. Her family sued,allegingthatthefatherhadenabled theson’srecklessness.Theirlawyerthreat­ enedtocallMrMurdaugh’swifeandsonto testifyagainsthim.Ahearingwassetfor June10th,2021.OnthemorningofJune7th Mr Murdaugh was confronted by his cfo about nearly $800,000 of missing funds.

Thesubjectofmanypodcasts

That night his wife and son were found deadoutsidethedogkennelsatMoselle. Thedoublemurdertrialisbeingheldin nearby Colleton County, where the Mur­ daughfamilytiesalsorundeep.Manypo­ tential jurors were dismissed for having personal connections to them; multiple judgesrecusedthemselvesfromthecase. MrMurdaughisbeingrepresentedbyDick Harpootlian,acurrentstatesenator.Even the investigator who checked Mr Mur­ daugh’s hands for gunshot residue at the sceneofthecrimeknewhim.Whenheap­ proached the dog kennels that night, Mr Murdaughgreetedhimbyname. In Hampton, the town closest to Mo­ selle,thingsareawfullyquiet.Basedonthe share of people who claim to be visiting one might think that the county, where oneinfiveliveinpoverty,hasabooming tourismindustry.Butthefewdilapidated businesses—among them an empty bar­ bershop,adressboutiqueandadinerdish­ ingupgumbo—suggestotherwise.Awom­ aninacoffeeshopsayssheisjustdriving through and hasn’t heard the Murdaugh name.Whenshegetsuptoserveacustom­ erafewminuteslatersheconfessesthatit isn’ttrue.“I’vegotabusinesstoprotect,” shesays.Othersrefusetodiscussthecase. “TherearethreethingsIdon’ttalkabout: politics, religion and the Murdaughs,” an insurancebrokersayswithawarychuckle. Hamptonisatownof3,000.Manylo­ calsworkinagricultureandliveintrailers off the county highway, coming together forchurchonSunday.Theblackcommu­ nitykeepsalistofcurrentKKK members. TheMurdaughs’lawoffice,wheretheac­ cused’s brother still works, towers above the other buildings. The firm is the local bank’sbiggestprivatecustomer.According toaretiredlocal,theylostjustonecasein thepast25years.Manyhavebeenhelped bythem;othersrelishedtheirsuccessfrom afar. “Half of Hampton County is Mur­ daughkin,”saysatownjournalist.“Before thistheotherhalfclaimedtobe.” Somestrangelawsgavethefamilypow­ er.Theyamassedwealththankstoaprovi­ sionallowingpersonal­injurycasestobe tried anywhere in the state. That opened upthechancetoarguemorecasesbefore favourable local judges. Legal might broughtpoliticalpower.“I’lldeliver2,500 votesforyou,”RayWilliams,atownie,re­ calls Mr Murdaugh promising a congres­ sionalcandidateatafundraiser.Shewon. “WhenAlextellsyoutovoteforsomeone, youdo,”saysMrWilliams. Back in court, prosecutors think they have debunked Mr Murdaugh’s alibi. But withoutforensicevidencethejurymaylet himoff.Ifheisacquitted,MrMurdaughis stillaccusedofover100financialcrimes. Buster,hislonelivingson,isinnoposition toresurrectthefamilyname.Hewasoust­ edfromlawschoolforcheating. n

23

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24

United States

The Economist February11th2023

Lexington Manoutoftime

The Republican House and Donald Trump are not Joe Biden’s toughest opponents

D

uring Donald Trump’s presidency,theWashington Post kept arunningtallyofhislies,ultimatelycounting30,573“falseor misleadingclaims”infouryears.Ithaskeptupthatworkunder PresidentJoeBiden,findinghelieswithlessabandonbutonocca­ sionwithcomparableshamelessness. FoxNewsisperformingitsownversionofthispublicservice bycountingwhatitcallsgaffes,trackingthemomentsMrBiden forgetsapolitician’sname,referstovice­presidentKamalaHarris asthepresidentorstumblesthroughathicketofnumbers. Itsapproachraisessomeepistemologicalquestions:whywere themisstatementsgaffes,ratherthanlies,whenMrBidensaidhis homestate,Delaware,hadnoturkeys,whichithas,andhasthe mostchickensinthenation,whichithasn’t?(InfairnesstoFox, evenapreparedtextisnotproofforthispresidentagainstgaffes: inhisstate­of­the­unionaddress,onFebruary7th,MrBidende­ motedChuckSchumer,theSenatemajorityleader,totheminori­ ty,amongotherslipsandpuzzlingdadjokes.) AgentlesoulmightthinkFox,incountingitschickens,wasbe­ ingforgivingbecauseofMrBiden’sadvancedage.Acynicwould infercruelty—anefforttoboostthegaffecount—forthesamerea­ son. And, indeed, in November Fox sounded disappointed at a “slump”tojust11gaffesduringthemonth,includingthetwomost fowl.“Biden’sNovembergaffeaverage:thepresidenthits.500”, Foxreported(hewascloserto.367,ifyoucountweekends). ThegaffeismoredangerousthanthelieforMrBidenbecauseit playstotheperceptionthat,at80,heistoooldforthejob.Only 23%ofAmericanssaytheyhave“agreatdeal”ofconfidencehecan managetheWhiteHouse,accordingtoapolltakenbytheAssoci­ atedPressandtheNORC CentreforPublicAffairsResearch,down from44%ashetookoffice.EvenmostDemocratsdonotwanthim torunagain,thoughheisclearlypreparingto.Theseharshviews probablyfeedinto,andarereinforcedby,awidespreadbeliefthat MrBidenhasnotgotmuchdone.ArecentpollfromtheWashington Post andABC foundthat62%thinkhehasaccomplished“not verymuch”or“littleornothing”. Thatperceptionisatoddswithreality,andMrBidenseizedon hisstate­of­the­unionspeechashisbestopportunitytomakethe caseforhisprogressagainstsomeofAmerica’sbiggestlong­term

troubles: on climate, infrastructure and national security. He pointedtoforgottensuccessessuchasrollingoutvaccinesagainst covid­19andunderappreciatedonessuchassustaininginterna­ tionalsupportforUkraine.“We’rebuildinganeconomywhereno oneisleftbehind,”MrBidensaid.“Jobsarecomingback,prideis comingbackbecauseofchoiceswemadeinthelastseveralyears.” Yettimeisworkingagainstthispresidentinmorewaysthan one:Americanswillnotfeelthebenefitsofhismostsubstantial legislativeachievementsforyearstocome.Thatmayexplainwhy, in the Washington Post/ABC poll, a majority did not credit him evenwithhavingmadeanyprogressoninfrastructure,despitethe $1.2trnhepersuadedbipartisancongressionalmajoritiestoinvest inroads,bridgesandelectric­carchargingstations.Andmostof thenewpricecontrolsonprescriptiondrugsthatCongressputin placelastyear—aDemocraticgrailformorethan20years—will notbefeltuntilatleast2026. The state­of­the­union performance gives this president his bestchancetoshine.Gaffesaside,MrBidenalsodeftlyad­libbed, pivotingwhenRepublicansbooedhimforsayingsomeofthem wantedtocutentitlementstoboxthemin.“Asweallapparently agree,SocialSecurityandMedicareisoffthebooksnow,”MrBiden said, smugly. “We’ve got unanimity.” He called on everyone to “standupforseniors”—whichtheydid. MrBidenisathomeintheCapitol,amongfellowlegislators. Thedayswhenhecouldbeanelectrifyingspeakeraregone,butat the lectern in the House chamber—hands clasped prayerfully, voicedescendingtoahusky,insistentwhisper—heisaconfident, reassuringone,afamiliarelderperformingatime­honouredna­ tionalritualinthetime­wornmanner. Trial balloon MrBiden’scallsforunityandbipartisanshipalsooncesounded likeechoesfromthepast.Buthehasprovedsuchappealsstillhave politicalforce,andhemanagedtodrawbipartisanovationsdur­ inghisspeech,includingforacallforpolicereform.Inahopeful development,HouseRepublicansshelvedaplantopassaresolu­ tionbeforeMrBiden’saddresscriticisinghimfornothavingacted fastertoshootdownaChineseballoonthatcrossedAmerica,ap­ parentlygatheringintelligence.Instead,theyarenowpursuinga bipartisan resolution aimed at China. “I think our greatest strengthiswhenwespeakwithonevoicetoChina,”thenewRe­ publicanHousespeaker,KevinMcCarthy,toldreporters. AsMrBidenspoke,MrMcCarthy’sheavy­liddedpresenceover hisleftshoulder,inplaceoftheDemocratNancyPelosi,wasare­ minderofhowmuchthepoliticalterrainhaschanged.Thatwill probablybetoMrBiden’sadvantageifherunsforre­election.Re­ publicansaredividedoverforeignanddomesticpolicy,and,given hisnarrowmajority,MrMcCarthywillstruggletoimposecoher­ enceontheiragenda,letalonetomoderatethedemandsofhisex­ tremists.Someignoredhiscautiontobehavewithdignityduring MrBiden’sspeech,andtheirhecklingmadethemseemsmall. But the period of Mr Biden’s presidency that played to his strengths as a legislator is largely over. He said recently he has createdan“ImplementationCabinet”,abodycomposedofmem­ bersofhiscabinet“whosejobistojustdonothingbutletpeople knowwhatwehavealreadydone”.Theirtimewouldbebestap­ pliedtomakingsurethatMrBiden’sgiantinvestmentsarewell spent.Iftheyare,whetherMrBidenisre­electedornot,history mayjudgethispresidencyastransformational.Inthatsense—the onethatmatters—timecouldultimatelybeonhisside. n

012

The Americas

The Economist February11th2023

Colombia

The revolutionary v the pragmatist

BOGOTÁ AND TIE RRALTA

Can Colombia’s mercurial president bring “total peace”?

A

t Hacienda Pontevedra, a remote ranchinthecoastaldepartmentofCór­ doba,afewcampesinos (small­scalefarm­ ers)arecampedoutinacopse.Theranch oncebelongedtoadrug­traffickerwhois locked up in an American prison. But he hasagreedwiththegovernmentofGusta­ vo Petro, Colombia’s first avowedly left­ wing president, to hand over 1,200 hect­ ares (3,000 acres) of land to100 landless campesinos whohadbeengrowingcocaina nationalparknearTierralta,theunofficial capitalofsouthernCórdoba. The campesinos have 32 cows, many hopes and a contract with a government agency which gives them around $7,700 per family to get going. This is a historic achievement,saysCervelionCogollo,their leader. “We are very happy.” But, he goes on,“wewon’tfeelfullysafeuntilthereis totalpeaceinthewholeofColombia.” ThatiswhatMrPetrohaspromised.Co­ lombia has had liberal governments be­ fore. But none has been so openly left­ wing.MrPetro,whowasnarrowlyelected lastyear,dividesopinion.Forhissuppor­ ters, his victory represents a historic op­

portunity to achieve social justice in a countrythathassufferedhalfacenturyof internal conflict, partly over land, and fromorganisedcrimelinkedtodrug­traf­ ficking.Hiscriticsfearaweakeningofthe ruleoflawandeconomicsetbacks. MrPetro’splansareambitious.Aswell aslandreform,ofwhichHaciendaPonte­ vedrarepresentsthestart,heproposes“to­ tal peace” with Colombia’s many illegal armed groups. He also champions an abruptshifttogreenenergyandradicalre­ formsofhealthcare,pensionsandlabour laws.ThepresidentgovernspartlybyTwit­ ter.Hiscabinetisanuneasymixofactiv­ istsandmorecentristfigures. AsayoungmanMrPetrowasamember of M­19, a nationalist guerrilla group. He wasapoliticalactivist,notacommander: heneverfiredashot.Buthewasarrested and, he says, tortured. M­19 moulded his politicalidentity.His16yearsasamember → Also in this section

28 Lula goes to the United States

occupy almost half of his autobiography publishedforthepresidentialcampaign.It linkedhimtoLatinAmerica’srevolution­ ary tradition of populist nationalism. He wentontoembraceHugoChávez,Venezu­ ela’sautocraticpresident,asafriend. Evennow,aged62,MrPetrocourtscon­ troversy.DuringthecampaignhesaidCo­ lombiasufferedfrom“threepoisons”:co­ caine,oilandcoal.InDecemberheclaimed thatspendingonmotorwayswasawasteof moneyandthatthey“areonlyusefultoim­ portproductsandkilloffnationalproduc­ tion” to the benefit of “the owners of big capital”.ButMrPetrohasalsolongbeena pragmatic politician. He was elected as a localcouncillorevenwhileintheM­19.He spent20yearsinCongressandwasmayor ofBogotá.Thosetwosidesofhimclash. Two sides of the same coin Takehishandlingoftheeconomy,whichis likelytodeterminethesuccessorfailureof hispresidency.IvánDuque,hisweakcon­ servativepredecessor,wasshakenbyviol­ ent protests in 2019 and 2021, the second wave over an attempt to make more Co­ lombianspayincometax.Facedwiththe pandemic,MrDuquerampedupspending, triggeringinflation.Thecentralbankwas slowerthanothersintheregiontoraisein­ terestrates.Theresultwasawildlyover­ heated economy and still­rising inflation (see chart 1 on next page). The economy willseelittleornogrowththisyear. MrPetro’sfinanceminister,JoséAnton­ io Ocampo, is an academic of the centre­

25

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26

The Americas

left. By negotiating with conservative groups, he steered a tax reform through Congresswhichwillraiseanextra1.3%or soofGDP peryear.That,MrOcamposays, willallowthegovernmenttopayforMrPe­ tro’s social programmes while also carry­ ingoutanecessaryfiscalsqueeze.Theex­ traburdenofthetaxreformfallsmainlyon oil,gasandcoal,andontherich. DuringhiscampaignMrPetroalarmed investorsbypromisingtohaltallnewex­ ploration of oil, gas and coal, which be­ tween them provide around 40% of Co­ lombia’sgoodsexportsandabigchunkof governmentrevenues.Theenergyanden­ vironment ministers are both activists whofavourthis.Criticssayitwouldmake the transition to cleaner energy harder. Theproblemisthatwithoutabigincrease intheoutputofnaturalgas,ofwhichCo­ lombiaprobablyhasalot,revenueswillbe lower and costs, and perhaps emissions, willbehigher.Itmakesmoresensetopro­ ducegaslocallythanimportitasliquefied natural gas, as the government suggests, which would require building ports and newtransportfacilities. TomeetitstargetundertheParisagree­ mentofcuttingcarbonemissionsbyhalf by2030andtobecomecarbon­neutralby 2050Colombianeedstodoubleitsnatural­ gasproductionandexpandelectricityout­ putfivefoldby2040,saysTomásGonzález, a former minister of energy. Rather than haltexplorationforgas,hearguesthatthe governmentshouldmovefastertocutsub­ sidiesonfossilfuels,whichMrDuqueal­ lowedtoballoon.LastmonthMrPetrosaid hewouldsidelinetheindependentregula­ toryagenciesthatsetenergytariffs. Mr Ocampo insists that private and publicinvestmentingasfieldswillcontin­ ue. He sees natural gas as an important driver of future growth, along with tou­ rism and non­oil exports, especially to Venezuela, with which Mr Petro has re­ storeddiplomaticties.“Myroleasminister istogiveconfidencetotheprivatesector,” he says. “There will be no nationalisa­ tions.” Not everyone is reassured. “Busi­ nesspeoplearenotplanningtoleave,but theyarenotplanningtoinvestmore,”says Jaime Alberto Cabal, who heads Fenalco, thechamberofcommerce.Hecomplains thattaxincreasesandanew40%import tariffonclothingandshoeswillhurtjobs. Another controversy concerns Mr Pe­ tro’sproposedhealth­carereform.Colom­ bia’sconstitutionof1991createdauniver­ salinsurance­basedsystemwithsubsidies forpoorerpeople,asinFranceortheNeth­ erlands.Thepresidentandhishealthmin­ isterwanttoreplaceitwithapublic,tax­ payer­financedscheme.Theexistingsys­ temhasproblems,suchasalackofcompe­ tition.Butitworks.“NoColombianhadto selltheirhomeorcartopaycovidbills,un­ likeintheUnitedStates,”saysRoyBarre­

The Economist February11th2023

1

Andean inflation Colombia, % change on a year earlier Consumer prices

GDP 15

12

12

8

9

4

6

3

-4

0 2018

20

-8

22

2018

20

Sources: Refinitiv Datastream; IMF

22* *Estimate

ras,thepresidentoftheSenate.Thepublic­ lysubsidisedprivatehealthprovidershan­ dle 1bn receipts a year. Abolishing them riskschaos.MrBarreras,anallyofMrPe­ tro,saysthathewillworktoreformtheex­ istingsystemratherthanscrapit. MrPetroalsowantstoabolishthepriv­ ate funds that manage workers’ pension contributions, rather than supplement them with a public scheme. Uncertainty abouthisplanshitthepeso,whichdepre­ ciated by18% against the dollar between MrPetro’sinaugurationinAugustandNo­ vember7th,alow,thoughithassincereco­ veredby8%.Theeconomyisvulnerableto marketsentiment.Colombiasuffersfrom twindeficits(seechart2). RecentlyMrPetrohastalkeduphisidea of“totalpeace”.Colombiahashadtwobig peacedealsthiscentury.Underanaccord with Álvaro Uribe, a conservative presi­ dent,about30,000right­wingparamilitar­ ieslaiddowntheirarmsbetween2003and 2006.MrUribeexpandedthesecurityforc­ esandinflictedblowsagainsttheRevolu­ tionaryArmedForcesofColombia(FARC), the largest left­wing guerrilla group. As a result,JuanManuelSantos,hissuccessor, reached a peace deal under which13,000 membersoftheFARC demobilisedin2016. The hope was that peace would allow the state to extend its writ to Colombia’s 2

Double trouble Colombia, % of GDP Budget deficit

Current-account deficit 0 -2 -4 -6 -8

2018 Source: IMF

19

20

21

22*

23†

*Estimate †Forecast

lawlessgeographicalperipheries,whereit is largely absent. Violence did diminish, butthentickedupagain.Therearetworea­ sonsforthat.Thefirstisthatthecocaine tradecontinuestobemorelucrativethan civilianlife,promptingturfwars.Thesec­ ondisthatthepeaceagreementswereei­ therincompleteornotfullyimplemented. Mr Duque opposed the accord from 2016, and only partly executed it. Security got worse under Mr Duque, whose policy fo­ cused on going after the commanders of armedgroupsandtryingtoeradicatecoca. Itwasdoggedbyhisgovernment’spolitici­ sation of the armed forces, setting com­ manders against each other, and by poor co­ordination.Therewasanetincreasein cocacultivationonhiswatch. And with the exception of 2020, the year of lockdowns, the murder rate crept up.Victimsofmassacres(definedaskill­ ings of three or more people) increased from38in2016to162in2020.Incidentsof forcibledisplacementofciviliansandkill­ ingsofcommunityleadersallrosesharply, too.Thepandemic,whichclosedschools for 17 months, lead to an increase in re­ cruitment by illegal armed groups, notes Elizabeth Dickinson of Crisis Group, a watchdog. They include the ELN, another guerrilla group; outfits formed by dissi­ dentcommandersfromtheFARC;theClan delGolfo,thelargestdruggang,andsmall­ ertraffickinggroups.Theirnumbersmore than doubled between 2016 and 2021 to 6,700,accordingtothedefenceministry. Healing old wounds MrPetrohasofferedtalksanda“bilateral ceasefire”toallillegalgroups,betheypo­ liticallyinspiredormerelycriminal.Sever­ al, including the Clan del Golfo, have ac­ cepted.InNovemberthegovernmentbe­ gan peace talks with the ELN in Caracas. Fivepreviousgovernmentstriedandfailed toreachanaccordwiththeELN,agroupin­ spiredbyCuba’scommunists,runbyper­ nicketyoldmen.AlthoughtheELN hasyet tosignuptotheceasefire,thistimetalks maysucceed.TheELN controlsterritoryon bothsidesoftheborderbetweenColombia and Venezuela. It has operated with the consent of Venezuela’s dictatorship. But NicolásMaduro,Venezuela’spresident,“is interestedinbeingseenasapeacemaker,” says a senior Colombian politician who hasdealtwithhim.“TheELN hasbecomea problemforhisownforces.” Far trickier are talks with the drug gangs.TakeCórdoba,wheretheparamili­ tariesbeganinthe1990sandwheretheir peace talks with Mr Uribe’s government were held. “The Clan del Golfo controls Tierralta,”saysAndrésChica,whoheadsa human­rights organisation in the town. Theyruneverything,fromthemeattrade totaxis,inadditiontothedrugbusiness. Many political leaders in the department

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28

The Americas

aretheirallies.Theykillcommunitylead­ erswhocrossthem.“Iamveryuncertain,” says Mr Chica, about the possibility of peacetalkswiththem.“Peoplearescared.” Sofar“totalpeace”isaworkofimprovi­ sation.MrBarrerassayshewillintroducea billthatwouldprovidealegalframework fortalkswithdrug­traffickerswhohaveno politicalstatus,offeringreducedsentenc­ esprovidedtheydismantletheirnetworks. Butitwouldnotofferimpunity. Moreradically,MrPetrohascomeclose tocallingforthelegalisationofcocaine.In theabsenceofaninternationalagreement onthis,however,hisgovernmentisrefo­ cusingitsdrugpolicy,puttingmoreeffort intointerdictionandlessintoeradication ofcoca.Theideaistoact“againstthebig proprietors of the drug business rather thanagainsttheweaklinksofthechain,” saysIvánVelásquez,thedefenceminister. Thismeanshitting“theownersandtheir assets”ratherthancocagrowers. Thatwilltaketime.Meanwhile,securi­ tyanalystsworrythatthereisadisconnect betweenthepolicyof“totalpeace”andthe government’s military strategy. “None of thearmedgroupswillgiveupanythingsig­ nificant unless they are under military pressure,”saysMsDickinson.Thefirstac­ tionbyMrVelásquez,whoisaformerpros­ ecutorwithnosecurityexperience,wasto purgealmost50generalsfromthearmed forcesandthepolice.Hesayshewasim­ plementingMrPetro’sinstructiontoclear outthoseaccusedofcorruptionorabuses. Criticsthinkthepurgehasdeprivedthese­ curityforcesofknowledgeandexperience. MrPetro’steamtalkoftheneedtobuild a broad coalition for peace. Perhaps sur­ prisingly,MrPetrohasforgedcordialrela­ tionswithMrUribe,withwhomhefought foryears,aswellasMrSantos.Hehasin­ cludedtheleaderofthecattleranchersin theteamtalkingwiththe ELN.Andhealso struckadealwiththeranchers,longseen asclosetotheparamilitaries,underwhich thegovernmentwillbuythe3mhectaresof landitproposestoredistribute. MrPetroremainsfairlypopularand,for now, has a legislative majority. But how will he behave if he loses these assets? Somedetectnarcissisticandmegalomani­ ac traits in his personality. He is intelli­ gent,ashesaysseveraltimesinhisauto­ biography.Buthecanalsobedogmatic.His personal behaviour is erratic: he some­ timesturnsuphourslate,ornotatall,to officialevents.Onebigfearishowhewill react if he is frustrated. In those circum­ stancesthereflexofthepopulististolash out against institutional restraints. Co­ lombia’s political institutions and tradi­ tionsarefairlystrong.“It’saconfusedgov­ ernment,butnotathreateningone,orat least its threats are not credible,” con­ cludesFernandoCepeda,aformerminis­ ter.Othersarenotsosureofthat. n

The Economist February11th2023

US-Brazil relations

Friendswith benefits S ÃO PAULO

Lula will try to keep both the United States and China happy

I

n the early 20th century the Baron of Rio Branco, Brazil’s foreign minister, vowedtomaketheUnitedStatesthecoun­ try’smainallyandtradingpartner.Today that second role is occupied by China, whichbuysmorethanaquarterofBrazil­ ian products. Last year Brazil’s goods ex­ ports to China were worth a whopping $89bn.ButBrazil’snorthernneighbourre­ mainsdeeplyimportant.OnFebruary10th, afterwewenttopress,Brazil’snewleftist president, Luiz Inácio Lula da Silva, was due to visit President Joe Biden in Wash­ ington.Itwillbethefirstinternationaltrip ofthistermoutsideLatinAmerica. Lula(asheisknown)hassaidhewants to discuss, and presumably cement, Bra­ zil’srole“inthenewgeopolitics”withMr Biden. But ensuring Brazil’s place in the global order will be a trickier diplomatic feat than it was during his previous two termsaspresident,from2003to2010. For a start Lula needs to smooth rela­ tions in the wake of Jair Bolsonaro, his right­wingpopulistpredecessor.MrBolso­ naro,whowasafanofDonaldTrump,did not destroy Brazil’s relationship with the United States, but it became somewhat strained under the Biden administration. Hewasoneofthelastworldleaderstoac­ knowledge Mr Biden’s victory in 2020, alongwithVladimirPutinandAndrésMa­ nuel López Obrador, Mexico’s president. MrBolsonarodidnotcaremuchwhatfor­ eignersthoughtofBrazil.Underhiswatch,

One ally today, another tomorrow

deforestation in the Amazon increased, earninghimglobalcondemnation. Lula also faces a tricky balancing act. Brazilian diplomacy is typically neutral. Governmentsofboththeleftandtheright havetriedtostayoutofbigdisputes.Dur­ inghisfirsttwotermsLulatriedtoexpand Brazil’s global influence while remaining inAmerica’sgoodbooks. In2009hehelpedgiveconcreteformto theBRICS,ablocofemergingeconomies. Heopened35newembassies,mostlyinAf­ ricaandLatinAmerica.Evenso,Lulahad closerelationshipswithpresidentssuchas George W. Bush and Barack Obama. Mr Obamaevenquipped:“Lovethisguy.He’s themostpopularpoliticianonEarth.”And theUnitedStatesisthelargestforeignin­ vestor in Brazil. Its flow of direct invest­ menthasheldfairlysteadyinrecentyears. In2021itwas$12bn,morethanaquarterof allforeigndirectinvestmentinBrazil. NowthatrelationsbetweenChinaand theUnitedStatesaremoretenseitmaybe harderforLulatopleasebothcountries.In NovemberMrBidenannouncedthattheUS International Development Finance Cor­ porationwouldinvest$30minTechMet,a mining company, to process cobalt and nickelinBrazil.Thisisanattempttoactas acounterweighttoChineseinvestors.His administration has also signalled that it will support Brazil’s attempt to join the OECD,aclubofmostlyrichcountries,once itsenvironmentalpolicyisbackontrack. American foreign policy could also pushLulatotakesides.IntheirmeetingMr BidenmaytrytoconvincetheBrazilianto openly support Ukraine. In May last year LulaclaimedthatVolodymyrZelensky,the presidentofUkraine,was“asresponsible” forthewarasMrPutin.Lastmonthaftera meeting with Olaf Scholz, the German chancellor,inBrasília,thecapital,Lulare­ luctantlyconcededthattheRussianpresi­ dent “made a mistake” by invading Uk­ raine.Butherefusedtosendammunition tothecountryandcriticisedtheEuropean Union for not doing more to bring about peacetalks.Bycontrast,whenMrBolsona­ rowasinoffice,BrazilcondemnedRussia’s invasionattheUN securitycouncil. MeanwhileLulaalsofacesproblemsat home. He won the election by a mere1.8 percentagepoints.AweekafterLulatook charge,fansofMrBolsonarostormedCon­ gress,theSupremeCourtandthepresiden­ tial palace. Unrest could return. His gov­ ernmentneedstopasstougheconomicre­ formstowardoffafiscalcrisis. InthepastLulahasusedforeignpolicy asatooltoburnishhispopularityathome, says Rubens Ricupero, who was Brazil’s ambassador in Washington in the 1990s. Lula is now planning to do one interna­ tionaltripamonth;indeed,heisofftoChi­ nainMarch.Thetrickmightnotworkas wellthistime. n

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TheEconomistFebruary11th2023

Pakistanincrisis

Broken and broke

DADU, ISLAMABAD, K ARACHI AND LAHORE

A balance of payments crisis is tipping a fragile economy over the edge

P

akistanis are accustomed to unreli­ able utilities. Even in affluent neigh­ bourhoods of Karachi and Lahore, resi­ dents install diesel generators for power cuts and spare water tanks for when the tapsrundry.YettheeventsofJanuary23rd werestillshocking.Asurgeinvoltageata powerstationinsouthernSindhprovince led to almost the entire country of 230m people losing power for most of the day. Factories, hospitals and mobile­phone networksshutdowninmanyareas.InLa­ hore,theevening’stradingandpromenad­ ing—a time when Pakistan’s second­larg­ est city feels most exhilaratingly alive— wasconductedindarknessandapaleglow of mobile phones. Only at midnight did somestreetlightscomeon. The blackout is indicative of an eco­ nomiccrisissevereevenbythestandards of a country well­known for them. Paki­ stan is still suffering the devastating ef­ fects of monsoon flooding last summer that displaced 8m people and cost the countryanestimated$30bnindamageand

lost output. Tens of thousands remain homeless. Rocketing inflation, fuelled by globalfactorsandeconomicmismanage­ ment,ismakingtheirsituationharder.An­ nual inflation reached 27.6% in January, the highest level since1975. The rupee is crashing.Ittradedatanall­timelowof275 tothedollarthisweek,downfrom230in mid­Januaryand175ayearago.Withfor­ eign exchange reserves dwindling, the country faces its worst balance of pay­ mentscrisisinpeacetime. Manyheavily­indebtedemergingmar­ ketshavefacedsimilarproblemsoverthe pastyear,relatedtopost­pandemicsupply glitchesandthewarinUkraine.Pakistan, → Alsointhissection

30 Women’scricketinIndia

31 Japaneseemigration

31 A crackdowninUzbekistan

32 Banyan:Asia’sdemocraticrevival

whichimportsmuchofitsfoodandfuel, looksalotlikeSriLankalastspring,before it defaulted on its debt and its president waschasedfromthecountrybyprotesters. YetPakistanisuniquelytroubling.Itisthe world’s fifth biggest country by popula­ tion, perennially unstable, beset by ex­ tremistsandnuclear­armed. TheTaliban’sreturntopowerinneigh­ bouringAfghanistanin2021haslaunched athirdterribleblight—ofterrorismandin­ surgency,mainlyinthenorth­westofthe country.Lastweekasuicide­bomberkilled 84people,mostlymembersofthesecurity forces,inamosqueinPeshawar,anorth­ westerncity.Politicaldysfunction,which isasubiquitousascorruptioninPakistan, is inevitably stymying the government’s responsetothesedisasters. Imran Khan, a charismatic narcissist who was ousted as prime minister last April,hasspentthepastyearagitatingto bring down the government of Shehbaz Sharif,whoreplacedhim.Evenifhefails (andthearmy,whichoftenstage­manages Pakistan’s political dramas, is not with him)MrKhanremainspopularandwell­ placedforanelectionduebyOctober.Mr Sharif’s administration is meanwhile squabbling, including over negotiations foran imf bail­out.Withforeigncurrency reserves down to just over $3bn in early February,enoughtocoverthreeweeksof imports,Pakistanneedsaccessto$1.1bnin abail­outprogrammeagreedwiththe imf

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Asia

TheEconomistFebruary11th2023

in2019andsuspendedduetoalackofpro­ gress on promised reforms. If the fund’s negotiators,whoreturnedtoIslamabadon January31st,leavethisweekwithoutadeal (which looked possible as The Economist went to press), Pakistan could default on itssovereigndebt. Theforexshortage,inpartcausedbyef­ fortstopropuptherupee,iscausingaddi­ tional damage. Import restrictions im­ posed to save dollars for essential items likefoodandfuelhavehitindustriesreli­ ant on imported inputs. Output in large­ scale manufacturing, including cars, chemicalsandtextiles,fellby5.5%inNo­ vember 2022 compared with the year be­ fore. The World Bank predicts gdp will growby2%thisyear,halfwhatitforecast lastJune.“Thereusedtobethisconviction thatwe’llalwayscomeoutofitsomehow,” says a businessman in Karachi. “Now there’sdeeppessimism,almosthysteria.” Thealmosttotallossofthecottoncrop tothefloodshasravagedthetextileindus­ try,amajorsourceofexports.Some7mtex­ tileworkersmayhavelosttheirjobssince lastsummer,accordingtoindustrysourc­ es.Theblackoutisestimatedtohavecost theindustryanadditional$70m. Thefloodsandjoblossesarethoughtto havepitchedbetween8.4mand9.1mmore peopleintopoverty,mostlyinthecountry­ side.InDadu,anespeciallyinundateddis­ trictofSindh,thousandsarestilllanguish­ ingintents.“Onlythosewhohadsavings oroutsidehelpcanaffordtofixtheirhous­ es”, says Rasheed Jamali, an aid worker. Foreign donors pledged $9bn in relief in January;lessthan$800mofapreviousset of pledges had at that time arrived. With only half of Pakistan’s soggy fields suffi­ ciently recovered to sow with winter wheat, much of the country is facing an­ otherlostharvest. Thesepolitical,economicandenviron­ mental crises are mutually reinforcing. Payments from the bail­out programme agreedin2019weresuspendedayearago afterMrKhan,facingagrowingprospectof parliamentary defeat and ejection from Dollar dolours Pakistan Foreign-exchange reserves, $bn

Rupees per $ Inverted scale 20

150 175

15

200

10

225 250

5

275

0 2021

22

23

300 2021

22 23

Sources: State Bank of Pakistan; Refinitiv Datastream

office,reintroducedfuelsubsidies.MrSha­ rif’sgovernmentvowedtofulfilthefund’s conditions but backtracked in September when, panicked by the floods, it sacked MiftahIsmail,itspragmaticfinanceminis­ ter. His successor reversed some of his policies,promptinganothersuspensionof payouts. “If the floods hadn’t happened I mighthavekeptthejobandwemighthave beenOK,”MrIsmailsays. Mr Sharif’s government seems to be bowingtotheinevitable.InlateJanuaryit stopped trying to prop up the rupee and raisedfuelprices,astheimf hadrequest­ ed. If the current negotiations in Islam­ abad unlock the bail­out funds, it might encourage other external creditors to ex­ tendcreditlinesordeferpaymentsonex­ istingloans.UnlikeSriLanka,whichowed a higher percentage of its debt to foreign creditors,Pakistanmaybeabletostabilise

its position without its creditors being forcedtoaccepta“haircut”. Yetanyreliefislikelytobetemporary. The current imf programme expires in June; Mr Sharif’s term will expire in Au­ gust.Acaretakeradministrationwillthen preside over what promises to be a two­ monthpoliticalvacuumbeforethesched­ uled elections. They will be messy. It is hardtothinkofPakistaninsuchcircum­ stances carrying out the additional re­ forms,includingraisingtaxesandelectric­ ity tariffs, required to secure more imf funding. They would inflict more short­ termpainonthecountry’ssufferingpeo­ plethanevenanastutePakistanigovern­ ment might dare to. And especially if Mr Khan,currentlynursinghiswoundsaftera failedassassinationattempt,hashisway, the next government may be even worse thanthecurrentone. n

Indiancricket

Women at the crease MUMBAI

Indianinvestorspileintowomen’scricket

O

n February 12th India’swomen’s cricketteamwillplaytheirPakistani archrivalintheWomen’sT20WorldCup inSouthAfrica.Itwillbeabigsporting occasion.Itwillalsobeapotentially lucrativeopportunityfortheplayersto showofftheirskillsaheadofanenthrall­ ingcricket­businesseventbackhomein Mumbaithenextday. India’scricketadministratorswill holdaplayerauctionfortheinaugural Women’sPremierLeague(wpl),ado­ mesticcontesttobeplayedinMumbai fromMarch4thto26th.Ifthemen’s versionofthetournament,theIndian PremierLeague(ipl),isaguide,the televisedauctionwillbealmostaspop­ ularascricketitselfisinIndia.Andthe bidding,toallocateplayersanddeter­ minetheirwages,willbefierce.Top Indianplayerscanexpecttoearnas muchfromathree­weekwpl stintas theydoinayearwiththenationalteam. Foreignplayerswillalsobeupforgrabs. Itwouldbe“naivetothinkthatit’snot goingtobeadistraction,”saidSophie Devine,NewZealand’scricketcaptain, aheadoftheWorldCup. The ipl,launchedIn2008,hashada seismiceffectoncricket.Amade­for­tv tournament,ithasbeenahugecommer­ cialhit.Five­yeartelevisionandstream­ ingrightstothe ipl soldlastyearfora combined$6.2bn,makingitthesecond­ mostvaluablesportsfranchisebymedia rights.Theleaguehas,amongmuchelse, greatlyincreasedthesumstopcricketers earn.Therearehopes—andsomecon­

cerns—thatthewpl willhaveasimilar effectonthewomen’sgame. Thenumbersinvolvedinthewpl are alreadyimpressive.Broadcastrightsfor itsfirstfiveannualseasonssoldlast monthfor9.5bnrupees($115m).Afew dayslater,investorspaidacombined 46.7bnrupees—overhalfabilliondol­ lars—toownfivefranchise­basedteams. Beforeaballhasbeenbowled,thissug­ geststhewpl maybethesecond­most valuablewomen’ssportsfranchisebe­ hindAmerica’sbiggestwomen’sbasket­ ballleague,thewnba. Theconcerns,againfuelledbythe ipl’sexample,relatetothepossible effectofthewpl onthewomen’sgameat large.Thelureoffatcontractsmight incentiviseplayerstoquittheirnational teamsinfavourofthewpl.Thisisan especiallysensitiveissueincricket, whichhasbeenlargelyorganisedaround internationalcontestseversincethefirst (betweenAmericaandCanada)washeld in1844.Theipl hassignificantlyeroded theirprimacyinmen’scricket;little internationalcricketisplayedduringit. Yetthismaybealesserworryin women’scricket,giventhatitscontests attractfarfewviewersthantheirmale equivalent.Andmerelytoseeawomen’s enterprisedrawingsuchattentionin Indiaispositive.Just19%ofIndianwom­ enaged15orolderareinwork,alower portionthaninPakistanorBangladesh. Ifthewpl encouragesIndianparentsto bemoreambitiousfortheirdaughters,it willinoneimportantwaybeasuccess.

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TheEconomistFebruary11th2023

Japaneseemigration

Arubaito abroad TO KYO

Young workers are seeking higher wages overseas

A

SHIHARA MARINA,a25­year­oldfrom Kanagawa, near Tokyo, wanted to see theworld.LastAprilsheseizedtheoppor­ tunity to migrate to Australia through its government’s “working holiday” pro­ gramme, which affords one­year visas to under­31­year­olds.Shespentfourmonths workingonafarmineasternAustraliaand now works as a barista in Sydney. What startedasanadventurehasfoundaneco­ nomiclogic.TheminimumwageMsAsh­ ihara earns is, at A$21.38 ($14.9) an hour, twice as high as Japan’s. Even working part­time, she makes more than she did toilingasalowlyofficeladyinTokyo. MsAshiharaisoneofgrowingnumber of Japanese drawn to work abroad. Japa­ nese applicants for Australia’s working holidayvisamorethandoubledin2022.A recruitment platform called Indeed re­ ports seeing record numbers of searches foroverseasjobs.Studyabroadagentshave startedadvertisingtheterm dekasegi ryugaku (“earningmoneywhilestudyingover­ seas”).“Youcouldbedoingtheexactsame jobasinJapanandearntwiceasmuchin anothercountry,”saysHirawatariJunichi, acareerconsultant.“Moreandmoreyoung peoplehavebecomeinterestedinearning moneyinastrongercurrency”. The historically weak yen is probably fuellingthetrend.So,moretroublingly,is thelonger­termproblemofJapanesewag­ es, which have hardly increased in three decades.TheaverageannualwageinJapan is$39,700,wellbelowtheoecd averageof $51,600. In Japan’s seniority­based em­ ploymentsystem,recentuniversitygradu­ ates can expect to earn around ¥220,000 ($1,670)amonth. Young Japanese are understandably pessimisticabouttheirprospects.Inaddi­ tion to low salaries, many are growing increasinglydissatisfiedwithJapan’srigid, time­serving corporate culture. A survey by the Nippon Foundation, a non­profit, showed that only14% of young Japanese believethattheircountry’sfuturewill“get better”.“Manyarestrugglingbecausewag­ esaresolow,”saysFurusawaYuta,21,who recentlymovedtoCanadatoworkandsave money.WhenTsuyukiSho,29,whoworks in it, noticed how much higher wages were in his industry in other rich coun­ tries,hefelta“senseofcrisis”.Hemovedto Americatoworkin2019. Japan’sdecliningpopulationandacute labourshortagemeanitcanillaffordany

lossoftalent. Andabiggerexoduscouldbe looming, as the growing frustrations of youngJapanesegetthebetterofthepoor foreign­language skills and risk aversion that are common to many. Some experts fearJapancouldatthesametimestartlos­ ingouttoneighbouringcountriessuchas SouthKoreaandTaiwaninthecontestto attractthemigrantSouth­EastAsianwork­ ersthatallneed.“Japanislosingitsattrac­ tivenessasaplacetowork,”fretsNoguchi Yukio,professoremeritusatHitotsubashi UniversityinTokyo. LifeinJapanisstillinmanywaysattrac­ tive. Its recent inflation has been much moremoderatethanelsewhereintherich worldanditshousingismoreaffordable.“I cametoAmericahopingtosavelotsofdol­ lars,butatonepointIwasspendingallmy income”, recalls Mr Tsuyuki. He reckons thereisnocountry“thatcouldbeatJapan in terms of liveability,” including safety andcleanliness.Healsomisseshisexcur­ sionstoJapanesefast­foodchains,which servetastymealsatpocket­changeprices. Yet affordability is a flipside of the country’s economic stagnation. Since the burstofthecountry’sbubbleeconomyin the1990s,Japanhadbeenstuckina“defla­ tionarymindset”,wherefirmshesitateto passonhighpricestoconsumers.Thanks tothefallingyenandmildinflationtrig­ geredbyhigherimportcosts,publicfrus­ trationwiththeresultantstagnantwages isatlastbecomingevident. OchiaiYuri,24,whomovedtoAustralia a year ago, also enthuses about the pleasantness of some things back home: “Everything in Japan is orderly and well­ maintained. The trains always come on timeandthecustomerserviceisgreat.”But she no longer considers returning to her oldjobinTokyo—waitingtablesonamis­ erableincome—aseriousoption. n

LifeisallrightinAmerica

Uzbekistan

Quashing dissent on the Silk Road BUKHARA

President Shavkat Mirziyoyev may be preparing to extend his rule

I

t was a performance straight from Uz­ bekistan’s dark Soviet past. In a court­ roominBukharainDecember,agroupof alleged agitators against the government of President Shavkat Mirziyoyev leapt to their feet and, with heads bowed and hands on hearts, issued a synchronised plea for mercy. “We ask for forgiveness,” theyintonedinunison. They were in the first of at least two batchesofdissidentsduetobetriedovera spasmofviolencelastJulyinKarakalpak­ stan, an autonomous province in the northwest of Uzbekistan. It started after wordspreadthatMrMirziyoyevplanned, as part of a package of constitutional changes, to scrap the province’s right to self­determination.Thatsparkedpeaceful protests which, for reasons that are con­ tested,spiralledintoclashesbetweenthe securityforcesanddemonstratorsthatleft 21dead,including17civilians,mostlyfrom gunshots and grenades. Mr Mirziyoyev, previously feted as a liberal reformer, promptly abandoned the attempt to curb theprovince’sautonomy.Nonetheless,the violenceinKarakalpakstan,forwhichthe governmenthasacceptednoresponsibil­ ity,hasleftastainonhispresidency. ThetrialinBukharalookedatfirstlike anefforttoexpungeit.Uzbekistan’scrimi­ naljusticesystemwasuntilrecentlysyn­ onymous with corruption, torture and otherabuses;in2002,twoprisonerswere allegedlyboiledtodeath.Yet,thoughpolit­ icallysensitive,thetrialwasopentojour­ nalists.Alivevideofeedofitsproceedings, whichwerecarriedoutinthedefendants’ Karakalpaklanguage,wasinitiallyshared ontheinternet.Agovernment­appointed commission, including human­rights campaigners, was charged with monitor­ ingtheaccused’streatment. Yet the trial looked increasingly for show.Themaindefendant,a44­year­old lawyer and blogger called Dauletmurat Tazhimuratov, was the only one to plead innocent; the others all testified against him.Cross­examiningoneofhisaccusers, Mr Tazhimuratov forced her to concede thatshewas,infact,lying.Hewasconvict­ ed on January 31st of trying to overthrow thestateinKarakalpakstan,amongother crimes,andsentencedto16yearsinprison. The21otheraccusedreceivedlesserpun­ ishments;15ofthemreceivedprisonsen­ tencesofthreetoeightyears.Somewere thenparaded,weeping,beforereportersto

31

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Asia

express their gratitude to Mr Mirziyoyev. Another39allegedringleadersofthevio­ lencewentontrialthisweek. The Karakalpakstan incident suggests thelimitstoMrMirziyoyev’sreformagen­ da.Sincebecomingpresidentin2016(after his long­ruling predecessor, Islam Kari­ mov,died)hehasinmanywaysimproved Uzbekistan.Itnolongerroutinelylocksup andtorturespoliticaldissidents.Itnolon­ gerruns,inthecountry’ssteppe­landcot­ ton­fields, what was perhaps the biggest forcedlabourregimeoutsideNorthKorea. Uzbekistan has become fairer, more

TheEconomistFebruary11th2023

open—andalsomoreprosperous.MrMir­ ziyoyev has lifted currency controls, launched a privatisation drive and dis­ mantled barriers to regional trade. The country’seconomygrewbyaround6%last year. Yet after the fashion of enlightened despots,hehasshownnointerestinpoliti­ cal reform; except, it increasingly seems, toextendhisrule. Mr Mirziyoyev’s second presidential termisduetoendin2026,andisallthat the constitution permits him. That ap­ pearstobewhyheistryingtochangeit.If the65­year­oldpresidentcanalsopulloffa

plantoextendpresidentialtermsfromfive to seven years, he could remain in office until2040.TheviolenceinKarakalpakstan appears to have been an unforeseen by­ productofhisefforttodoso.Andtheensu­ ingcrackdownshouldhelpenforceit.Mr Mirziyoyevisexpectedtoputallhismoot­ edconstitutionalchangesexcepttheKara­ kalpakstanonetoareferendumthisyear. Theywillalmostcertainlypass;criticising thepresidentisaredlinefewUzbeksdare cross.Thelongsentencesbeingmetedout tothedissidentKarakalpaksmightwellap­ pearasawarningtothosefew. n

Banyan A sparkleofdemocracy Corrupt autocrats are going out of fashion in Asia

T

HE CHAGRIN ofthedozen­oddyears ofthiscolumn’sexistenceisthatfair, freeandopensocietiesinAsiahavefor mostofthattimebeenontheretreat.The goldenadvancesinAsiandemocracy wereinthe1980sand1990s,whendicta­ torshipsinthePhilippines,SouthKorea andTaiwanfellspectacularly.Inrecent yearsfreedomhasbeenonthebackfoot. Thinkoftheassaultsonthejudiciary andthepressbyRodrigoDuterte,presi­ dentofthePhilippinesuntillastyear.Or attemptsinCambodiabyitsstrongman, HunSen,todestroytheopposition.Or NarendraModi,India’sprimeminister, stokingsectariantensionsandintimi­ datinghiscriticsinthemedia.OrIndo­ nesia’smovetocriminaliseinsultingthe president.Themainexceptiontothis recenttrend,tragically,hasendedup conformingtoit.In2015joyfulelections inMyanmarbroughthalfacenturyof militaryruletoanend.Butin2021,the generalstookbackpowerinaviolent coupandthrewAungSanSuuKyiand hergovernmentinjail.Theyhaveruled thecountrythroughterroreversince. But,tentativelyifhopefully,pointsof democraticlightarere­emerginginAsia. ManyexpectedtheruleofMrDuterte’s successortobejustasloucheandthreat­ ening.Ferdinand“Bongbong”Marcosis, afterall,thesonofthelatekleptocrat whomFilipinosthrewoutin1986.YetMr Marcos,whobecamepresidentlastJune, emphasisesgoodgovernance.Senior membersofhiscabinetarecapableand pragmatic.Heaskstobejudgedbyhis administrativeperformanceand,sofar, itisnotdiscouraging. UntilJulySriLankawasdescending intoadystopiapresidedoverbythe Rajapaksafamily,ledbyGotabaya,its drill­sergeantpresident,andhisgrasp­ ingbrothers.Then,toMrRajapaksa’s

astonishment,popularprotestslastyear forcedhimtofleethecountryandhisclan frompower.ItisearlydaysforSriLanka’s recovery;buttheRajapaksas’oustingwas itsessentialprecondition. PowerchangedhandslastDecemberin Fiji,bumpilybutwithoutanythinglikethe turmoilfeared.Itsformerprimeminister, FrankBainimarama,inpowerfor16years followingacoup,failedtowinre­election and,afterthinkingaboutitabit,agreedto stepaside.Malaysiahadseenalargely peacefultransferofpowertheprevious month—onethatmadeAnwarIbrahim, thatoft­foiledreformist,primeminister. InThailand,anothercoupleader, PrayuthChan­ocha,andhisunderwhelm­ ingcroniesfromarmydaysnowrunan ostensiblyciviliangovernmentandpro­ miseelectionsthisyear.Theirgripisless surethantheywouldlike;afocused, almostjoyfuloppositionisemerging againstthe“olduncles”,asitsmembers mockinglycallMrPrayuthandhisteam. Andthoughthereislittletosmileaboutin wartornMyanmar,theruthlessGeneral MinAungHlainghasinspiredapowerful

strugglefordemocracy.JustasinIran,a generationofyoungcitizens,lesstradi­ tionalandmoredemandingthantheir elders,areprovingwillingtodiefortheir freedoms.Democracywillsurelyreturn toMyanmar,eventually. Pointsoflightarenotnecessarilya pattern.And,itmustbesaid,vast swathesofAsiaareyettoknowdemoc­ racyatall.China,LaosandVietnamare threeoftheworld’sfoursurvivingLenin­ istdictatorships—andthenthereis NorthKorea.Yetthepoliticalmoodin Asiaappearstohavechanged. Authoritarianismisonthewane becauseithasnotbeendeliveringthe goods.AsianadmirationforChina’s modelofgovernancehasbeendimin­ ishedbyPresidentXiJinping’sblunders handlingtheeconomy,covid­19and relationswithAmerica.VladimirPutin’s disastrousprogressinUkrainehasmade theRussianpresident’sfansinAsia squirm.InSriLanka,theRajapaksas werechasedoutbecausetheyhadrun theeconomyintotheground. Whatismore,manyAsiancountries havelonghadthemeanstogetbackon track.Westminster­stylesystemsinFiji, MalaysiaandSriLanka,thoughmuch abusedattimes,underpinnedtheir returntomoreaccountablehabits.Forall thebackslidinginIndiaandIndonesia, theirtraditionsoffreeelectionsoffera routetodemocraticrevival.Elsewhere, corruptautocratswhoholdriggedelec­ tionstoenhancetheirlegitimacymay sometimeslosecontroloftheprocess. WithelectionsdueinCambodiainJuly, evenMrHunSenisdemonstratingthat politicalopposition,oncerashlypermit­ ted,isfrustratinglyhardtoquell.His rulingpartyisnotguaranteedtomakeall therunning.Theseedsofdemocratic renewalinAsialieallaround.

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TheEconomistFebruary11th2023

ChinaandAmerica

An eye for an eye?

Tensions will linger over a Chinese balloon downed by America

T

HE PRECISE purposeoftheChinesebal­ loon that drifted across America, ki­ boshingabriefdetenteintheworld’smost consequential bilateral relationship, has yet to be proven. But troubling answers may soon emerge from the Atlantic. US Navy divershavealreadystartedretrieving debris from the airship, which was shot down by an American F­22 fighter jet off SouthCarolinaonFebruary4th.Thedive­ rsaimtocompletetheirworkwithindays. Theequipmenttheyfindcouldbolster Americanofficials’assertionsthatthebal­ loonwaspartofafleetofsimilarcraftgath­ ering intelligence worldwide. They say they have already got plenty of evidence fromtrackingitacrossAmerica.YetChina isdoublingdownonitsclaimthatthebal­ loon was monitoring weather and blown off course. And with Chinese authorities nowsuggestingthattheywantthedebris returned,thetwosidesseemtobeheading forastand­offthatcouldpushthemdeep­ erintoacold­war­styleconfrontation. Insomeways,thesagaechoesprevious

bilateralupsets,includingChina’stesting ofananti­satellitemissilein2007(firstre­ vealedbyAmericanofficials)anditsshow of muscle by trying out a prototype of a stealthfighter­jetduringavisittoBeijing byaPentagonchiefin2011.Whatmakesit more dangerous is that both countries’ leaders are now facing intense domestic politicalpressuretostanduptoeachother. Theirarmedforcesarealreadygearingup forapotentialconflictoverTaiwan. At first, a relatively quick resolution seemed within reach. Before the balloon wasshotdown,Chinaexpressedregretand said it respected the White House’s deci­ siontopostponeavisittoBeijingbyAnto­ ny Blinken, America’s secretary of state, → Alsointhissection

34 A bigtrialinHongKong

35 Firingupnationalistswithfilm

36 Chaguan:Lessonsfromtheballoon

thatwasduetostartonFebruary5th.That brieflyheldoutthepossibilitythatthetwo sidescouldmanagethecrisisandresched­ ulethevisit,whichwassupposedtocon­ solidate the detente since Presidents Joe BidenandXiJinpingmetinNovember. ButChina’srhetoriclaterhardened.Its foreignministryexpressed“strongdissat­ isfaction”,accusingAmericaofover­react­ ingandviolatinginternationalpractice.It pledgedtosafeguardtheinterestsof“rele­ vant Chinese companies” and said it re­ servedtherighttorespond.AskedifChina haddemandedthereturnofthedebris,a spokeswomansaid:“Theairshipdoesnot belongtotheUS.ItbelongstoChina.”The defenceministrythreatenedto“useneces­ sarymeanstodealwithsimilarsituations”. InAmerica,Chinahawksareinfullcry. Republican leaders, questioning why the balloon was not shot down earlier, origi­ nally planned a resolution criticising Mr Biden’sresponsebuthavesincepivotedto abipartisanonecondemningChina’sbal­ loon escapade. “I am committed to work withChinawhereitcanadvanceAmerican interestsandbenefittheworld,”MrBiden toldCongressonFebruary7th.“Butmake nomistake:aswemadeclearlastweek,if China threatens our sovereignty, we will acttoprotectourcountry.” Some observers shrug off the episode, notingthatChinaalreadyhasaformidable arrayofspysatellites.InChina,thereare experts with their government’s ear who

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suggesttheBidenadministrationishyping the issue to out­hawk Republicans ahead of a presidential election in 2024 and to mobilise public support for a long­term confrontation with China. “If the public doesnotsupportyou,howcanyouengage in a new cold war?” says Jin Canrong of RenminUniversityinBeijing. But American officials insist that the balloon represents a serious threat. They sayChinahasrecentlydevelopedafleetof themtospy,oftenforthePeople’sLibera­ tionArmy(PLA).Althoughlesssophisticat­ edthansatellites,theballoonscangather somecommunicationandotherdataonly accessibleatloweraltitudes,andcanoften lingerforlongperiodsusingasmallsolar­ poweredengine.Theyarealsofarcheaper. The balloons have been spotted over countriesacrossfivecontinents,including Europe,andhaveviolatedthesovereignty ofseveral,theofficialssay.OnFebruary6th Chinaacknowledgedthatanotherballoon, seen over Latin America in recent days, wasoneofitsownbutinsistedthatit,too, wasastrayweather­monitoringairship. Also that day, America’s deputy secre­ taryofstate,WendySherman,ledabrief­ ingonChina’sballoonespionageforabout 40embassies,accordingtotheWashington Post.ThenewspapersaidthatAmericanof­ ficialsbelievesomeoftheseoperationsare beingrunfromChina’ssouthernprovince ofHainanandcollectmilitaryinformation fromcountriesincludingIndia,Japan,the Philippines,TaiwanandVietnam. Someoftheprevioussightingswereal­ readypublic,includingoneoverJapanin June 2020, another over India in January 2022andaswarmoverTaiwanlastFebru­ arythatitsarmedforceslinkedtothePLA RocketForce.Thatmonth,Americascram­ bled fighters to intercept an unmanned balloonoffKauai,aHawaiianislandwitha missile­testingrange(theballoonwasnot identifiedasChineseatthetime). But American officials have only re­ vealedinrecentdaysthatChinesegovern­ ment surveillance balloons have briefly transitedcontinentalAmericaatleastfour timesbefore:threeduringtheTrumpad­ ministrationandonceearlierinMrBiden’s presidency. Some passed over Texas and Florida and went near sensitive military sites,theofficialssaid. MoreworryingstillforAmerica,those intrusions were not detected at the time. Theywereidentifiedonlylaterbyintelli­ genceofficialsusing“additionalmeansof collection”, according to General Glen VanHerck,commanderoftheNorthAmer­ icanAerospaceDefenceCommand.“That’s a domain­awareness gap that we have to figureout,”hesaidonFebruary6th. This time, however, American forces spotted the Chinese balloon as it ap­ proachedAlaska.Thatallowedthemtoen­ surethatnosensitiveactivitiesorcommu­

TheEconomistFebruary11th2023

nications were exposed nearby, and to monitoritcloselyandtrytoassessitsabil­ itytogatherandtransmitdata.Onefinding that American officials say undermines China’sclaimsisthattheballoonappears to have manoeuvred itself over military sites,includingabaseinMontanawithin­ tercontinentalballisticmissiles. TheAmericannavydiversnowhopeto gatherfurtherevidencefromthewreckage oftheballoon,whichwasabout200feet(61 metres)tallandcarriedkitroughlythesize ofaregionalpassengerjet.Counter­intelli­ gencespecialistshavejoinedthesearchfor the debris, which is spread across about three­quarters of a square mile (195 hect­ ares)inwaterslessthan50feetdeep. It is unlikely that they will find any­ thing labelled PLA. China’s balloons are thought to carry a wide range of sensors, includingsomethatgathermeteorological data.Butthatdatacanbeusedtohelptrack or guide weapons including ballistic and hypersonic missiles. And there could be incriminating kit such as electro­optical camerasorsensorsthat“sniff”fornuclear isotopes in the atmosphere. Some of it mightevenincludeWesterndual­usetech­ nology (despite American­led efforts to stopit,Chinastillacquiresplenty). Theremayevenbeevidenceofinvolve­ mentbyaChinesecivilianentity.Yetthat woulddolittletoallayAmericanconcerns. MrXihasinrecentyearsorderedthecivil­ iansectortoplayagreaterroleinnational defencethroughwhatChinacallsa“mili­ tary­civil fusion” programme. Much of China’sresearchonhigh­altitudeballoons appearstohavebeendonebythecivilian ChineseAcademyofSciences.Anyofthat organisation’sequipmentordatahastobe madeavailabletothePLA ifrequested. Whathappensnextwilldependpartly onwhatAmericanofficialslearnfromthe debris and what they choose to reveal. It will also be determined by China’s re­ sponse, especially if it makes good its threatofreciprocalaction.AsforMrBlin­ ken’strip,itisunlikelytoberescheduled beforetheannualsessionofChina’sparlia­ ment,whichstartsonMarch5th.“Thebig issueiswhatisXiJinpingtellinghiscol­ leagues,” says Drew Thompson, a former PentagonofficialnowattheNationalUni­ versity of Singapore. “Is he telling them, stopfussingaboutthisandmoveon?” Americaanditsallieshavemanyother questions.IfMrXiapprovedtheballoon’s mission, how does that tally with his re­ centdiplomaticcharmoffensive?Ifhedid not,thenhowcomeitwentahead?Ifitwas an accident, why didn’t China promptly tell America? And if a civilian company was responsible, why not identify it and provide some details? After the balloon was downed, China refused to take a call from America’s defence secretary, Lloyd Austin.Answerswillbeslowtocome. n

RepressioninHongKong

Gunning for the HK47 HO NG KO NG

The territory’s biggest national-security trial has begun

I

S IT A threattoacountry’ssecurityifop­ positionpoliticianstryhardtowinatthe ballot box? In Hong Kong it might be deemedso.OnFebruary6ththetrialbegan of 47 activists and former lawmakers. Theirallegedcrimewastostageanunoffi­ cial primary vote ahead of elections that wereduetotakeplaceinSeptember2020. Their aim: to pick candidates capable of winningamajorityinthelegislature,de­ spiteasystemriggedagainstthem. ThisisthelargesttrialinHongKongin­ volvingadraconiannational­securitylaw thatwasimposedontheterritoryinJune 2020bythegovernmentinBeijinginorder to crush dissent. The accused failed in their plot to win. The chosen candidates never made it onto the official ballot. In­ stead the primary’s organisers, including veterans of the territory’s protest move­ mentsuchasJoshuaWongandBennyTai, were arrested for subversion under the newlegislation. Theprosecution’scasesoundslikeade­ scription of how, anywhere else, opposi­ tionpoliticiansmightbeexpectedtooper­ ate.The47areaccusedofbeing“wellor­ ganised” and intending to “weaponise” theirintendedmajoritybyvotingdownthe government’sbudgetandforcingtheresig­ nation of Hong Kong’s then chief execu­ tive,CarrieLam.Theiractionshadseemed legal under the territory’s existing laws, butthenewlegislationtookeffectdaysbe­

A rareonewhodares

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TheEconomistFebruary11th2023

foretheprimary.Forthegovernment’scrit­ ics,itchangedeverything. Despite initial suggestions that it wouldbeusedsparingly,therehavebeen 227arrestsand135chargesunderthesecu­ rity law, according to a database main­ tainedbyEricLaiofKing’sCollegeLondon. Someoftheallegedcrimesarepiddly,like wearingaforbiddenT­shirt. The government’s biggest concern aboutthe47’splanmayhavebeenthatit couldhavesucceeded.HongKong’svoting systemis,bydesign,stackedinfavourof thegovernment’sbackers.Butin2020,de­ spite official warnings that the primaries could violate the security law, 600,000 Hong Kongers turned out to vote. That showedstrongsupportforthepro­democ­ racycamp,perhapsevenenoughtosecure amajorityinthefullelections. Threeweekslaterthegovernmentpost­ ponedtheofficialpolls,ostensiblybecause of covid­19. By the time the rescheduled ballottookplaceinDecember2021 theleg­ islature had been further restructured to givetraditionallypro­governmentvoices, suchasbusinesslobbies,evengreaterrep­ resentation.Alawhadalsobeenbrought intoexcludethosenotjudgedtobe“patri­ ots”.Legislatorsmustnowswearanoathof allegiancetothecentralgovernment. Thesecuritylawdoesnotprohibittrial byjury,butallowscourtstodispensewith that tradition. They invariably do so, in­ stead using a panel of national­security judges, who are picked by Hong Kong’s chiefexecutive,JohnLee,toreachverdicts. HongKong’sjudiciaryisstill“basically” independent, says a barrister involved in national­securitytrials:theauthoritiesdo notdirectlyinstructjudgeswhatverdictto reach. Then again, he adds, they do not needto.Underthenewregime,thegovern­ ment­appointednational­securityjudges’ tenureisreviewedannually.Itseemsun­ likelythatthosewhoshowanindependent streakwouldhavetheirtimeonthebench extended. Nor are liberal judges in lower courtslikelytobepromoted. Thecurrenttrialisscheduledtolastfor 90days.Theaccusedfacesentencesofbe­ tween three years and life in prison. Thirty­one havepledguilty.Mosthaveal­ readyspentthepasttwoyearsbehindbars awaiting trial. Where once defendants wereassumedtohavetherighttobail,un­ lesstheprosecutioncouldprovetheirre­ leaseposesadanger,innational­security trialstheburdenofproofisreversed. Optimists in the pro­democracy camp wonderwhetherthetrial,perhapsinvolv­ ingrousingspeechesfromthedock,might rekindle Hong Kongers’ passion for prot­ est.Morerealistically,saysone,itwillsim­ ply intensify the chill that has spread acrossthecitysincethenational­security lawwasintroduced,andthebeliefthatde­ mandingdemocracyisnowfoolhardy. n

Cinema

Seeing red on the silver screen A hitfilmnamedafterafamouspoemfuelsChinesenationalistfervour

“M

y hair bristleswithanger,”young mencryastheyleavetheirred­ cushionedcinemaseats.“Wewillfeast onthebarbarians’flesh...wewilldrink theirblood.”Theyarerecitinglinesfrom “FullRiverRed”,apoembelievedtobe writtenbyYueFei,a12th­centurygeneral oftheSongdynasty.Itisalsothetitleof China’stop­sellingfilmovertherecent LunarNewYearholiday.Themoviehas grossedmorethan4bnyuan($590m) sinceitsreleaseonJanuary22nd. Thefilmissetfouryearsafterthe deathofYue,whofamouslyledtheSong kingdom’sbattlesagainstinvadingJur­ chens,whosedescendantsbecame knownasManchus.Legendsayshewas killedin1142byQinHui,acorruptSong chancellorwhopushedtheemperorto negotiateandstopfightingtheJurchens. InChineseloreQinisrecalledasahanjian,ortraitortoone’sHanethnicity,and Yueastheopposite. Inrecentyears,theCommunistParty hasdrawnonYue’sstorytopromote patriotism.StatemediaevensaythatXi Jinping,China’sleader,wasraisedon talesofYue’sexploits.Themovie,byone ofChina’smostfamousdirectors,Zhang Yimou,hasarousedvitriolicfervour.Not onlyhavecinema­goersdeliveredspon­ taneousrecitationsofthechillingpoem atfilmscreenings.Themoviehasalso promptedanincreaseinattackson statuesofQinattouristsites—apractice thathasalongtradition. Thefilmisabouttheassassinationof aJurchenenvoyinQin’scourt.Thereare

twistsandturnsascharactersreveal theirhiddenloyalties,whethertofor­ eignersortotheSongdynasty.Qinand hislackeysareportrayedasconniving officialswholie,cheat,andkillforpow­ er—andbetraytheethnic­Hanpeople. Thefilm’sheroesareundercovervigilan­ teswhoresentQin’sbehaviourandin­ filtratehiscourttoavengeYue. Theytrytorecruitayoungcommand­ erinQin’sarmy,SunJun,whoistorn betweenobediencetohistraitorous superiorsandloyaltytohispeople.In onescene,Suncutsatattoothatsays “Servethenationwithutmostloyalty” offhisvigilanteuncle’sbackashisuncle shoutsthatSunisaflunkeyanda“run­ ningdog” offoreigners(anoft­used insultamongChinesenationaliststo­ day).Bytheend,SunturnsagainstQin. HeleadstheHansoldiersinarecitation ofYue’spoemandexpressionoftheir ferventdesiretorecoverlostland.That scenemadesomeviewerscry,according toreviewsonDouban,afilmwebsite. “FullRiverRed”drawsonancient history,butitsmodernmeaningisclear. Thepoemisalamentthatnational shamehasnotbeenavenged:ittalksof retakinglost“mountainsandrivers”.In casethatisnotexplicitenough,one Chinesefamilymadeavideoofthem­ selvesrecitingthepoemafterwatching thefilm,butreplaceditswordswith modernterms.Letus“feastonAmerican imperialists’flesh”and“drinkHantrai­ tors’blood,”theychant—and“unifyallof Chinaincomingyears”.

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TheEconomistFebruary11th2023

Chaguan WhyChina’sballoonisnotfunny

America and China need to learn how to manage a more hostile relationship

C

HINA AND Americaaredriftingtowardsacoldwar.Distrustis turningintosomethingfarmoredisruptive:acontestbetween two irreconcilable powers, each sure that the other is bent on thwarting its rival’s core ambitions and interests. The shooting downofaChineseballoonoffSouthCarolinaisatestofwhether thetwocountrieshavethewisdomandthewilltostopconfronta­ tionsfromspirallingoutofcontrol.Theresultssofararemixed. Viewedoptimistically,thedowningofChina’sblimpisastroke ofgoodfortune:aninstructivebutlow­stakesversionofacrisis thatcouldhavebeenmuchworse.Inrecentyears,Chinesefighter jetsandwarshipshavetakenscaryrisksastheyharassplanesand shipsbelongingtoAmericaanditsallies,usuallywhenWestern armedforcesshowtheflagorcollectintelligenceininternational skiesandseasclosetoChina’sshores.Raisingthechancesofacol­ lisionstillhigher,Chinesecommandershavebeensendinggrow­ ingswarmsofChineseaircrafttobuzztheislandofTaiwan. WhenanAmericanmissilebursttheballoon,themaininjury wastoChina’spride.Thatisinhappycontrastwiththelastknown collision between the two countries’ military assets, a mid­air crashin2001betweenanAmericanEP3spyplaneandaChinese fighterjetthatlefttheChinesepilotdeadand24Americancrew membersindetentionafteranemergencylandinginChina. HopefulobserversmaynotethatChinesepropagandahasnot reallystokedpublicfuryaboutthepuncturingoftheChineseair­ ship.Themainnewsoutletshavereportedthestorysparingly.Se­ mi­officialmediahaveplayeditforlaughs,mockingAmericafor overreactingtowhatChinacallsanerrantweatherballoon.Atthe timeofwriting,Chinahadnotdemandedcompensationandhad expressedregret,atleastinitially.OptimistsmayhopethatAmer­ icanpublicandpoliticalindignationwillteachtheChinesearmy that collisions have consequences. For years, Chinese officers haveshunnedtalkswithforeigncounterpartsaboutrulesforclose brushes,growlingthatsafetyliesinoutsidersstayingaway. Thereisagloomierwaytoviewthisincident,though.In2001 CongressmerelygrumbledwhentheadministrationofGeorgeW. BushexpressedregretovertheChinesepilot’sdeathtosecurethe EP3 crew’s release. In today’s Washington, the partisan furies wouldnotbesorestrained.China’sself­righteousofficialstate­

ments this week took no account of the political pressures on PresidentJoeBiden,asRepublicansdemandedhedestroythebal­ loonforthwith.Instead,Chinalodgedapublicprotestwhenitwas eventuallydowned.Forgoodmeasure,itaccusedAmericaof“hyp­ ingup”thestory,asifafreesocietycouldcoverupahouse­sized enemyballoonvisiblefromtheground. Thetin­earedobnoxiousnessofChina’smessaginghascosts. Whiletheballoonwasdriftingacrosshiscountry,AntonyBlin­ ken,thesecretaryofstate,postponedavisittoBeijingplannedfor February 5th and 6th. It is said that Mr Biden and his advisers judgedthepoliticalcontexttoodistractingforthecandiddiscus­ sionsthatMrBlinkenwantedwithPresidentXiJinpingandother officials.ThetalkswereintendedtotestChina’sapparentdesireto lowerbilateraltensions,andtoletMrXihearforhimselfhowMr Bidenviewsthesharpestthornsintherelationship.Theseinclude AmericanbackingforTaiwan,theBidenadministration’sefforts tolimitChina’saccesstoadvancedtechnologieswithmilitaryus­ es,andChina’ssupportforRussia’swarinUkraine. Thiswasnotintendedasa“boy­scout”visittosuggestpolicy areaswherethetwosidescould“playnicely”,saysDanielRussel,a formerassistantsecretaryofstateandAsiaadvisertoBarackOba­ ma’sadministrationwhoisnowattheAsiaSocietyPolicyInsti­ tute.InsteadtheaimwastospelloutChinesebehavioursliableto ratchetuptensions,andtosuggestactionsthatcouldlowerthem. MrRusselseesthetwocountriesin“uncharted”territoryasthey feeltheirwaytowardsanewequilibrium,balancingoften­incom­ patiblegoalsandworldviewswithdeepeconomicintegration.Mr Blinken’stripwassupposedtobea“no­kiddingefforttowalkXi throughUS policy,ratherthanleavehimwithwhateverskewedin­ terpretationhemaygetfromhisownservices”,saysMrRussel.He hopesthatthevisitcanberearrangedsoon. SomeChinesescholarsalsohopethetalkswillberescheduled. DaWei,directorofTsinghuaUniversity’sCentreforInternational Security and Strategy, insists that China wants to stabilise rela­ tionswithAmerica.Beyondavoidingconflicts,Chinaseeksnor­ mal trade ties and exchanges of people, says the professor. He challengesWesternanalystswhothinkChinaiswagingacharm offensivebecauseitregretsitsprevioushardlinepolicies.Instead, inhistelling,ChinawaswaitingfortheBidenadministrationtobe readytoengage,onceAmericafeltstrongerdomesticallyandsur­ erofitsallies.MrDaseesthisyearasawindowofopportunityfor talks,beforeAmericanelectionsin2024.Hepinscautioushopes on“reasonable”officials,businessbossesandacademicsoneach sidewhostillseekco­operation.Buthehasseenfewsignsofthe two countries managing the balloon crisis effectively. “Both in ChinaandtheUS,therearestillsomepeopleworkingforstablebi­ lateralrelations,buttheyareinaminority,”heworries. The need for crisis management Anewcoldwarwoulddifferfromthefirstone.Americaandthe SovietUniondidlittlebusinesswitheachother.Bycontrast,two­ waytradebetweenChinaandAmericarunsatabout$2bnaday. Againstthat,commerceisnotthepathtomutualunderstanding thatitwas.Foronething,Americanpoliticiansaregrowingwarier ofChineseinvestmentsinsectorsfromhightechnologytofarm­ land.In2020Chinese­ownedfirmsemployedjust120,000work­ ers in America, a sharp decline. Communist Party bosses call Americansuspicions“anti­Chinahysteria”.IfMrXiwantstoavoid dangerouscollisions,heshouldanswerMrBiden’scallsforarela­ tionshipwithguardrails. n

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Middle East & Africa

TheEconomistFebruary11th2023

ReinventingtheGulf

A new dawn, a new day

DO HA , DUBAI AND RIYAD H

After decades of empty talk, recent reforms in the Gulf are real but risky

L

atin is rare inRiyadh,butthephrase panem et circenses (“breadandcircuses”) wasthebestwayoneSaudiwriterknewto express his misgivings about the state of his country. Muhammad bin Salman, the writerexplained,hadputhisownspinon anancientidea.Thecrownprincewastak­ ingawaythebread,thestatehandoutsthat definedthesocialcontract.Meanwhilehe hadmadethecircusesthemselvesacivic duty:goforthandhavefuntohelpbuilda newSaudiArabia. Itseemedtobeworking.Theprincewas popular,particularlyamongyoungpeople. Yetthewritersensedacontradiction.The kingdomwasthrowingbillionsofdollars atdiversions,fromadubiousnewgolftour toacolossalcontractforCristianoRonal­ do, a Portuguese footballer, even as it in­ sisteditcouldnolongerlavishbenefitson citizens.ButhowlongcouldSaudisliveon circusesalone? FordecadesthesixmembersoftheGulf

Co­operation Council (GCC), a club of pe­ tro­monarchies,maintainedsimilarsocial contracts.Oilandgasrevenuestoppedup theirtreasuries.Citizensreapedbenefitsin theformofsubsidies,handoutsandcushy public­sector jobs. Foreigners came and worked only as long as they were useful. Thetwogroupslivedmostlyseparatelives. Nolonger.Thepastfewyearshavebeen a time of rapid change in the GCC. Saudi Arabiaisshakingoffmanyofitssocialre­ strictions and opening up to the world. ThereistalkacrosstheGulfofpushingciti­ zensoutofmake­worksinecuresandinto the private sector. Policies that were un­ thinkable,fromsubsidycutsandnewtax­ es to cohabitation and civil marriage, are beingimplementedwithlittlefuss. → Alsointhissection

40 America’sflaggingtradewithAfrica

TheGCC isnotamonolith.InKuwaitit feelsasifnothinghaschangedforagener­ ation (to the chagrin of many citizens). With an ocean of natural gas and a tiny population,Qatarisinnohurrytoshrink thepublic­wagebill.ButSaudiArabiaand the United Arab Emirates (UAE) have moved fastest. Together they account for morethan75%oftheGCC’spopulationand 70%ofits$2trnGDP.Theirexperiencewill haveanoutsizedimpactontheregion. Rulersinbothcountriesreckonthisis theirmomenttohaveitall.Theyhaveseri­ ous(if,sofar,inconclusive)planstodiver­ sify their economies and prepare for the post­oilera.Theywanttobeglobalplayers indiplomacyandbusiness.Andtheywant tokeeptheircitizenshappy. Thesegoalsarelaudable.Theyarealso inconflict.Diversificationmeanspushing citizens into a private sector for which someareill­prepared.Italsomeansbene­ fitcutsthatpunchholesinthepaternalis­ tic social contract. To compensate, rulers are pushing new forms of nationalism— evenastheypursueplansthatrequireim­ porting crowds of foreigners to a region where around half the population are al­ readymigrants(seechartonnextpage). Thesearehopefulbutconfusingtimes in the Gulf. Economies and societies are opening, but political life is closing. “It’s not healthy for the country not to have a

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debate,”grumblesoneroyal.Butprivately somekhaleejis (Gulfcitizens),youngones inparticular,fretthattherushtobediverse andcompetitivewillleavethembehind. The most visible changes are in Saudi Arabia,governedfordecadesunderanaus­ tere brand of Islam. Prince Muhammad, thecrownprinceanddefactorulersince 2017, has loosened its grip. Women were permitted to drive in 2018. Cinemas, bannedsincethe1980s,reopenedthesame year.Thekingdomnowhostsconcertsand raves. Alcohol is still illegal but that may soonchange,atleastinselectareasmeant todrawrichforeigntourists. Such changes serve a few purposes. TheyhavemademanySaudisenthusiastic supporters of Prince Muhammad. Few miss the mutawwa, the once­feared reli­ giouspolicewhoharassedpeopleformiss­ ingprayertimesorwearingmake­up.They arealsolucrative.FordecadesSaudishad totraveltomorelibertineGulfcitieslike Dubai, or further afield, to let their hair down.Keepingthem(andtheirmoney)at homeisgoodfortheSaudieconomy. This old world is a new world Thesocialrevolutionalsomakestheking­ dommoreappealingtoforeigners.Prince Muhammad has told multinationals to movetheirregionalofficestothekingdom by 2024 or risk losing government con­ tracts.Somebossesstillfretaboutevery­ thingfromthebusinessclimatetothelack of international schools. But the changes havemadethemoveaneasiersell. AllofthisposesachallengefortheUAE, long the preferred business hub in the Gulf. Consultants fly over to Riyadh for meetings during the week, then back to Dubaiforweekendfun.Worriedaboutlos­ ing its competitive edge, the UAE has rushedthroughitsownsocialchanges. Over the past three years it has over­ hauled family laws that were long gov­ ernedbysharia (Islamiclaw). AbuDhabi, the capital, started conducting civil mar­ riagesfornon­Muslimsin2021.Theother six emirates followed suit this February. Since 2020 unmarried couples have been allowedtolivetogether,previouslyacrime (if rarely punished). Looser alcohol laws makeiteasierforMuslimstoindulge. LastyeartheUAE evenchangedthecal­ endar, abandoning its Friday­and­Satur­ day weekend (which allowed observant Muslims to attend Friday prayers) in fa­ vourofaSaturday­and­Sundayone,better alignedwiththerestoftheworld. Since2018fourofthesixGCC members haveintroducedavalue­addedtax.TheUAE willstartcollectinga9%corporatetaxin June.Incometaxisstillataboosubject,but fewexpectitwillremainso.TheGulf’sso­ cialcontractmeantzerotaxesforcitizens andexpats.Thatisnolongerthecase. Lifeisgettingmoreexpensiveinother

TheEconomistFebruary11th2023

ways,too.TheUAE gotridoffuelsubsidies in2015.Petrolisstillcheapbyglobalstan­ dards,butitis30%moreexpensivethanin SaudiArabiaandalmost150%costlierthan in Kuwait. Most Gulf states have raised powerandwaterpricesthatwereoncewell belowmarketrates.Oman,whichhadnot changed its electricity tariff for 33 years, did away with a discounted rate for citi­ zens:theynowpaythesameasexpats. Such changes have had a real impact. The2012Saudibudgetprojectedthatnon­ oilsourceswouldcontributelessthan8% oftotalrevenue.Adecadelater,evenwith sky­high oil prices, that figure was up to 31%. For citizens, higher taxes and lower subsidieshavemadelifemoredifficult. Foreigners feel pinched, too—yet they arestillflockingtotheGulf.TheUAE isex­ periencingaboomaseveryonefromrich Russianstocryptocurrencyentrepreneurs rushestosetupshopinDubai.Ithaslow inflation, a stable currency and plentiful sunshine. A “golden visa” scheme intro­ ducedin2019grantslong­termresidency toskilledprofessionalsandrichinvestors without the need for a local sponsor. In 2021thecountryannouncedthatitwould offercitizenshiptoselectforeigners. AbdulkhaleqAbdulla,anEmiratipoliti­ calscientist,callsthisthe“Gulfmoment”. WhiletherestoftheArabworldseemsto beinterminaldecline,theGCC isprosper­ ous and well­governed. Citizens might grumbleaboutparochialissues,butthere islittledemandforpoliticalchange.“The reservoiroftrusthereisjustfull,”hesays. “And it doesn’t come out of nowhere, it comesoutofasolid,50­yearrecordofgood governance. It doesn’t have to be demo­ cratic.Theydeliver.” Thequestion,asGulfstatestrytotrans­ form their economies and societies, is whethertheycanpreservethattrust.One concern,usuallyvoicedbyWesterners,is thatopennesswillpromptaconservative backlash. Self­serving Gulf diplomats stokethesefears.ApologistsforPrinceMu­ hammadjustifyhiscrackdownsbyinvok­ ingthespectreofreligiousconservatism. 1

We get the job done International migrants, 2020 % of population

Migrant population, m 0

25

50

75

100

UAE

8.7

Qatar

2.2

Kuwait

3.1

Bahrain

0.9

Oman

2.4

Saudi Arabia

13.5

Source: United Nations

Suchconcernsareprobablyoverblown. Ayoungergenerationofkhaleejis ismore open­mindedthantheirparents.Oncean organisedforce,Islamistswieldlesspower in today’s Gulf. To see what they actually worryabout,looktofastfood. Last year Subway posted an advert for sandwich­makers. It promised a five­day work week, comprehensive health insur­ ance and opportunities for training and promotion.Anywhereelse,thecampaign wouldhavebeeninnocuous. IntheUAE,itcausedanuproar.Thead­ vertwasaimedatcitizens:itfeaturedpho­ tos of a young man and woman in tradi­ tionalEmiratidressandframedthehiring pushas“support[for]thestate’sefforts”to boost Emirati employment. Social­media userscalleditinsulting.Subwayretracted it.Theattorney­generalopenedaninvesti­ gationintothe“contentious”campaign. The UAE does not release reliable fig­ uresonunemployment.Butunofficiales­ timatessuggestthataround11%ofyoung peoplearejobless.InSaudiArabia,17%of citizens aged 15 to 24 cannot find work. Bahrain’s youth­unemployment rate has almost doubled over the past decade, reaching10%in2021.Someoftheincrease can be explained by the pandemic. But it also reflects a unique issue in the GCC: young people are stuck between a public sectorthatnolongerwishestohirethem, andaprivatesectorthatisnotreadyto. Ain’t got no money Like the other Gulf countries, the UAE is trying to strong­arm companies into hir­ ingmorecitizens.Eachfirmisrequiredto haveEmiratisin2%ofitslocalpositions (thatfigurewillriseeachyearuntilithits 10%attheendof2026).AsofJanuary1st thosethatfallshortwillbefined6,000dir­ hamsamonthforeachEmiratitheyfailto hire. Hiring citizens to make sandwiches wouldhavehelpedSubwaymeetitsquota. Emiratis do not all shun such work: Coop, a supermarket chain, has locals working the tills. But the Subway ad ran­ kled.“Itfeltlike,look,youguysarehungry, likeadogwhoischasingtheprivatesec­ tor,”saysDrAbdulla.“Isthatwhatwede­ serve?Inthislandofplenty?Thathas9m peoplefromalloverfindingjobs?” On social media Emiratis grumble aboutforeignerstakingallthegoodjobs. Expatsaccuselocalsofbeingspoiledand lazy.Suchargumentswouldhavebeenrare indecadespast:thetwogroupshadlittle reason to interact. Today they are being pushedintocompetition,andsomelocals arediscoveringtheyareunprepared. Intestsofscience,mathsandreading, 15­year­olds in the uae score well below theaveragefortheOECD,aclubofmostly richcountries.Inthelatestexamsrunby the Programme for International Student Assessment,in2018,theUAE ranked47th

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MiddleEast&Africa

TheEconomistFebruary11th2023

outof77countries.Itsneighboursarenot doing any better. Qatar and Saudi Arabia ranked59thand70th,respectively. TheUAE wouldhaverankedlowerstill without expat pupils, who outperformed their native­born peers. Boys do particu­ larlybadly:the57­pointgapintheirread­ ingscores,comparedwithgirls,isthesec­ ond­highest in the world. Researchers pointtomanyproblemswithGulfeduca­ tion. Teachers, often hired from abroad, are of mixed quality. Schools emphasise rote memorisation over critical thinking. Manychildrenareraisedbynannieswho speakneitherArabicnorEnglishfluently. Andthepromiseofapublic­sectorjob,re­ gardlessofability,offeredlittlemotivation toworkhardinschool. The UAE introduced mandatory mili­ tary service for men in 2014. Conscripts withasecondary­schooldiplomaservefor 11months;thosewithoutspendthreeyears inthearmy.Intheory,thelongertermof servicefordropoutsismeanttogivethem skills that prepare them for civilian jobs. But many who have left the army have foundthejobsearchdifficult. Compulsoryservicehasanotheraim:it fostersasenseofnationalism.Sodoesthe warinYemen,whichsince2015hasseena Saudi­ledcoalitionbattlingtheHouthis,a Shia rebel group. Emiratis have done the toughestfighting.In2016theUAE unveiled Wahat al­Karama (“Oasis of Dignity”), a monument to the country’s war dead. “Thereisthisimplicitkindofmessagethat says,youknow,bepreparedtomakethese sacrificesyourself,”saysoneEmirati. Similarchangesaretakingplaceacross the Gulf. For decades, Saudi identity was rootedinitsreligiousrole:thebirthplace ofIslamandthehomeofitsholiestsites. PrinceMuhammadwantstochangethat. Thekingdom’snationalday,inSeptember, isnowatimeforpatrioticcelebrations. Hisgovernmentisinvestingbillionsto developAl­Ula,anoasisthatboastsspec­ tacular Nabataean ruins. Conservative clericshatedit:itwasamonumenttojahiliyya (“ignorance”), a term for the pre­Is­ lamiceraontheArabianpeninsula.Now theSaudistateisbuildinghotels,organis­ ing festivals and urging both locals and foreignerstovisitthesite.Paganhistoryis suddenlytobecelebrated,notshunned. Nationalismbolsterssupportforrulers at a time of rapid change. But it can also haveadarkside.Citizensreportoneanoth­ erforcriticalcommentsonsocialmedia. Accusationsoftreasonarecommon.Even governmentofficialsarenervous. This kind of hyper­nationalism is not good for governance. It could also, para­ doxically,weakenthestate:themoreciti­ zenstalkaboutpoliticalissues,themore theymightwanttobeinvolvedinpolitics. A different concern looms in the UAE, where just 1m of its 10m people are citi­

He’sfeelin’good

zens. One young man, musing about his armyservice,wondershowlong10%ofa population can be asked to protect the other 90%. Another points out, more in disbeliefthananger,thatsomeofthegov­ ernment’srecentreformsbenefitonlyfor­ eigners.Civilmarriage isonlyopentoex­ pats.Newlymintedcitizenscankeepasec­ ond passport, while the native­born can­ not.Itisnotyetclearwhethernaturalised citizenswillberequiredtoperformarmy serviceorlearnArabic. Emirati officials have long wondered howtoreducethedemographicimbalance whilesustaininga$500bneconomywhich reliesonforeignlabour.Thegovernment set up committees to answer the conun­ drum. “You know what our conclusion was?Wecan’tdoit,”saysaparticipant. Again,officialdataisunreliable,butthe fertilityrateforcitizensisprobablyaround 3.5.Thatishighforarichcountryandsig­ nalsagrowingpopulation.Butitwillnot grow fast enough to keep pace with the country’splans.InJanuaryDubaisaidthat ithopestodoublethesizeofitseconomy over the next decade. Even if newborns couldbeputtowork,therewouldnotbe enoughEmiratistoachievethat. A new life for them Unlike in the UAE, Saudi nationals have piledintotheservicesectoroverthepast sevenyears:moreareworkingasbaristas, salesclerksandhotelreceptionists.Thatis partly because public­sector hiring has slowed. But a stint working in a hotel or mallisalsoagoodwaytomeetpeopleata timewhenpubliclifeisexpanding. Formany,though,astintisallitshould be, partly because these jobs do not pay well.Thekingdomhasnominimumwage, butitrequiresprivatefirmstopaycitizens atleast4,000rials($1,066)amonthinor­

dertocountthemtowardtheirSaudisation quota. Higher fees for work permits are narrowing the pay gap, but migrants are still cheaper (over 80% earn less than 4,000 rials). And the government cannot increase quotas for—or the salaries of— Saudiswithoutcrushingtheprivatesector. Two hours north of Riyadh, however, thereislittlesignofPrinceMuhammad’s reforms. Thousands of Saudis converge each year on an expanse of barren high desertforthekingdom’sannualcamelfes­ tival.Visitorscanbuyeverythingfrombri­ dlesandsaddlestohoneyanddates.Bank­ ersandlawyersplytheirtrade:evendro­ medary deals need loans and contracts. Thecentrepieceisanamphitheatrewitha dirttrackthathostscamelracesandacam­ elbeautypageant.OnablusteryDecember day, the crowd was all young Saudi men. There were neither tourists nor women (thelackofawomen’sbathroomsuggested nonewasexpected).Ticketswerefree. Mahmoud, a jobless 20­something, tossed his headdress in the air and screamedforjoywhenthehometownfa­ vourite won the afternoon’s beauty pag­ eant.Thenheheadedfortheexit.Hehad littleelsetodo.Hisfatherworkedforthe agriculture ministry, but those kinds of civil­service jobs are harder to come by thesedays,andtherearenotmanyother optionsforsecondary­schooldropoutsin rural areas. Asked about the cultural changessweepingthekingdom,heoffered a shrug: the concerts and amusement parksinRiyadhweretooexpensivetovisit. Thestereotype,outsidetheGCC,isthat itscitizensareallparvenus whodriveluxu­ ry cars and summer in Europe. In reality thereareplentyofMahmouds.EvenifGulf rulersgettheirambitiousplansright,anda risingtideliftsallboats,thecomingyears willbenerve­rackingformanykhaleejis. n

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TheEconomistFebruary11th2023

AmericaandAfrica

Trade mission NAIRO BI

Duty-free access to American markets has created jobs in Africa, but not transformed trade

P

ankaj bedi stridesthroughhisfactory on the edge of Nairobi, past clattering sewing machines, bustling workers and boxesofjeans.Noneofthiswouldbehere, hesays,wereitnotfortheAfricanGrowth andOpportunityAct(AGOA).Thelandmark tradepolicywasintroducedbyBillClinton in2000,grantingduty­freeaccessformore than6,000productsfromsub­SaharanAf­ rica.Twoyearslater,MrBediopenedUnit­ edAryan,hisclothingbusinessinKenya. Henowemploys14,000people. LatelyMrBedi’sfinanciershaveallbeen askingthesamequestion:whatwillhap­ penin2025,whenAGOA issettoexpire?It willbeextended,heassuresthem,asithas beenbefore.ThetroubleisthatCongress hasahabitofwaitinguntilthelastminute. Already,hehasputonholdplanstogrow cottonandmakehisownfabric.Ifanex­ tension is not enacted this year, then or­ dersfromAmericanbuyerscouldstartto dip,atthecostofAfricanjobs.

Headwinds to trade Furtherdawdlingwouldreinforceasense ofdrift,evenastheBidenadministration istryingtodeepeneconomictiesinAfrica tocountertheinfluenceofChinaandRus­ sia. America’s imports from sub­Saharan Africa have fallen since 2008, mainly be­ causeithasboughtlessAfricanoil.Non­ fuelimportsincludinggarments,nutsand SouthAfricancarsroserapidlyintheearly yearsofAGOA,buthavegrownonlymod­ estlysince.The35AGOA beneficiariescol­ lectivelyaccountforabout1%ofAmerican imports,lessthantheydidbeforetheact was passed. As a trade partner for Africa, AmericahasbeenovertakenbyChina. ThereasonsliemostlyoutsideAGOA it­ self. It is just one of several schemes wherebyrichcountriesgranttradeprefer­ encestopooreronestogivethemaleg­up onthedevelopmentladder.Butinaworld wheremosttariffshavefallen,preferences matter less. Of America’s top 30 imports from AGOA­eligible countries, 20 would enter tariff­free anyway, according to the UN. Those include precious metals, dia­ monds,cocoa,vanillaandcoffee. The important exception is clothing, whichordinarilyattractstariffsashighas 32%.HereAGOA givesAfricanexportersan edge.ManufacturersinthepoorestAfrican countries are exempt from tariffs even if they use fabric made elsewhere. In Leso­ tho,Madagascar,KenyaandEthiopia,hun­

dredsofthousandsofworkersstitchmate­ rials shipped from Asia into clothes for Americanconsumers. Optimists hope that making clothes couldkick­startanindustrialrevolutionin Africa,asithasinAsiaandelsewhere.But inmostAfricancountriesthecostofma­ chines,powerandlabourisstilltoohighto competeonanevenfootingwiththelikes ofBangladesh,whichbenefitsfromecono­ mies of scale and has huge clusters of clothing and textile firms swapping knowledge and skilled workers. “We are abletosurviveonlybecauseofAGOA,”says thebossofoneKenyanmanufacturer. Uncertaintydoesnothelp.Tradepref­ erencesarenottypicallysetdowninatrea­ ty. This means they can be withdrawn at short notice, as happened to Rwanda in 2018afteritirkedAmericanbusinessesby banningimportsofsecond­handclothes. AndlastyearAmericakickedEthiopiaout ofAGOA becauseofitshuman­rightsabus­ es.Afactorymanageratanindustrialpark intheEthiopiantownofHawassasaysthat businessthereis“totallydry”,withfirms leavingandworkersidle. Then there is the uncertainty over AGOA’srenewal.In2015itwasextendedfor 10yearstoprovideabitmorecomfort.But investmentwillslowwellbeforeitisdue toexpire.Jean­ClaudeMazingue,thechief operationsofficeratSOCOTA,whichmakes clothesandtextilesinMadagascar,saysin­ vestorsinthecountryhavethefundsand knowledge to build a spinning mill to make yarn. “Why do we procrastinate a bit?”heasks.“It’sbecausewedon’tknow what’sgoingtohappenwithAGOA.” Thatmessageisslowlyseepingthrough Light on manufacturing Sub-Saharan Africa, exports to the United States under AGOA*, $bn January-November 0

2021 1

2022 2

3

4

5

Oil and gas Transport equipment Clothing and accessories Primary metal manufacturing Food and kindred products Source: AGOA.info

*African Growth and Opportunity Act

toWashington,whereAGOA enjoysbiparti­ sanbackingandthesupportoftheexecu­ tive branch. Katherine Tai, the US Trade Representative,hasspokenoftheneedto “build on the accomplishments of AGOA”. TheUS InternationalTradeCommission,a federalagency,hasbeenconductinghear­ ingsontheprogrammeandwillsubmitits findings next month. Still, a swift exten­ sionisnotguaranteed.AdrianSmith,the Republicanchairofthetradesubcommit­ tee in the House of Representatives, says heis“concerned”thatwithoutgreaterur­ gencyAGOA couldgothewayofothertrade preferenceschemesthathavelapsed. New deals Thereisalsotalkabouthowtodeepenthe trading relationship by signing two­way agreements. “Preferences by themselves aren’treallywhatdrivesinvestmentonthe continent,”saysConstanceHamilton,the assistant trade representative for Africa. America is in talks with Kenya about a trade and investment partnership that wouldcoverissuessuchasstandards,reg­ ulations and workers’ rights, though not tariffs,fornow.Eventually,saysMsHamil­ ton,thekindofdealbeingdiscussedwith Kenya could provide the “off­ramp” for othercountriesthatwanttomovebeyond preferencestoawiderpartnership. ManyinAfricadreamofthecontinent negotiatingasasinglebloc.Some44coun­ trieshaveratifiedaplantocreateaconti­ nental free­trade area. But implementa­ tionisbehindscheduleanditwillbealong timebeforetheyarereadytospeakasone in trade negotiations, says Eckart Nau­ mannoftheTradeLawCentre,aSouthAf­ ricanthink­tank. Whatever comes next, the lesson of AGOA is that market access alone is not enough.“Thepatternisclear:wherethere has been investment, you have seen ex­ ports,” says David Luke of the London School of Economics. Only half of AGOA beneficiarieshavestrategiestotakeadvan­ tageofit.Americacouldhelpthroughini­ tiatives such as Prosper Africa, set up by the Trump administration to promote trade and investment. Florie Liser of the CorporateCouncilonAfrica,anAmerican businessassociation,suggeststhegovern­ mentshouldgivetaxbreakstofirmsthat investinmanufacturinginAfrica. In December President Joe Biden wel­ comedleaderstoWashingtonforthefirst US­Africasummitineightyears,inasign thatAmericaistryingtoreinvigorateitsre­ lationship with the continent. Twelve thousandkilometresaway,athisfactoryin Nairobi,MrBedithinksitisalsohightime thatAfricangovernmentsandbusinesses seized the moment. His own success showsAGOA’spotentialbenefits.ButforAf­ rica as a whole, “it has been the biggest missedopportunity,”hesighs. n

012

Europe

TheEconomistFebruary11th2023

EarthquakesinTurkeyandSyria

A crushing blow

ADANA AND ANTAKYA

Disaster strikes tens of thousands of lives and shakes two countries

T

HE silence was the most unbearable part.Everyquarterofanhourthebull­ dozersandcranesdiggingthroughthede­ bris stopped working so that rescuers couldhearthescreamsofpeopletrapped underneath. There were none—only the sobs and prayers of onlooking relatives and friends. The rubble was all that re­ mainedofa14­storeybuildinginAdana,a cityof1.8mpeopleinsouthernTurkey.A few hundred metres away the scene re­ peated itself. Another crowd, another apartment block reduced to a mound of concretepancakes. Thefullscaleofthedevastationcaused by the twin 7.8 and 7.5 magnitude earth­ quakes that struck southern Turkey and northern Syria on February 6th remains unknown. As of early February 9th, the death toll had already reached 13,000 in Turkeyalone.InSyriaithadpassed3,000. Those numbers were bound to rise far higher.Acrossthedisasterzone,hundreds ofbodieswerebeingpulledfromtherub­ ble every hour, with only a few survivors beingfound.Rescueteamshadexcavated

only a fraction of the 6,000 buildings in Turkeythathadcollapsed. InIskenderun,acityontheMediterra­ nean,afireconsumedtheport,swallowing one shipping container after another. Whitetentshousingthosedisplacedbythe quake sprouted across the outskirts of towns. Further south, Antakya, a city of 400,000peoplethatisthesuccessortoan­ cientAntioch,lookedasifithadbeencar­ pet­bombed.Inthecitycentre,practically everyotherbuildingwasdestroyed.Corps­ espulledfromtherubble,wrappedincar­ pets, lined the main thoroughfare along­ sidethewounded.Volunteersandmunici­ palworkersdistributedmeals.Abadlyin­ juredmanstretchedoutonthepavement → Alsointhissection

43 Russia’swareconomy

44 PTSDinUkraine

45 PensionsandprotestsinFrance

46 Charlemagne:Thesubsidiesrace

struggledtoremainconscious.“Staywith me,” yelled his brother. “We still have so muchtodotogether.” Rescueteamswereoverwhelmed.Out­ sideacollapsedhouse,anelderlywoman beggedsoldierstouseabulldozertofind her son, trapped inside. The troops used their hands, explaining that their heavy equipmentwasbeingusedtolookforsur­ vivors.“Auntie,wehavetomakesomehard choices,” said one. “Your son is probably dead.”Elsewhereamanfedhiselderlypar­ ents,trappedinsidetheirhome,througha holeintherubble. The government says it has deployed 60,000 officials, including 18,000 gen­ darmes and 10,000 police. Thousands morehavearrivedfromabroad.InIsken­ derunarescueworkerfromGreece,oneof Turkey’s historical enemies, burst into tears after saving a girl from a collapsed building. Soldiers have been redeployed fromTurkish­occupiedareasofSyria.Tur­ key’spresident,RecepTayyipErdogan,de­ clared a state of emergency in ten prov­ inces,hometo13mpeople. Thegovernmentsays thatrescueteams havereachedalloftheaffectedareas.Lo­ calsdisagree.InAntakyathehelphascome much too late. Frustration is mounting. “We have more than 2,000 destroyed buildings,andwe’veonlyreached2­3%of them,” Lutfu Savas, the city’s mayor, said onFebruary8th.Manywounded diedbe­ foreambulancescouldreachthem.“They don’thaveenoughequipment,”saidaman

41

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42

Europe

The Economist February11th2023

Istanbul Ankara

Canakkale

TU RKEY Epicentre Magnitude 7.5 10.24 GMT

Malatya IRAN

Cu

From 10.24 GMT earthquake

ku

Mediterranean Sea CYPRUS

TURKEY

a o v Adana

r Iskenderun Antakya

Latakia

200 km

sittingoutsidetherubbleofhismother’s house.Hehadgivenuphopethatshewas alive.Inpartsoftown,governmentrescue workerswerenowheretobeseen. InSyriatheearthquakehitaregional­ readydevastatedbymorethanadecadeof civilwar.Deathsareroughlysplitbetween Idlib, a rebel­held province in the north­ west,andareascontrolledbyBasharal­As­ sad’sregime.MostpeopleinIdlibaredis­ placedfromotherareasinSyria,andlivein tentsormakeshifthomes.TheWhiteHel­ mets, a civil­defence group in the prov­ ince,weresadlywell­prepared:theyhave spentyearsdiggingpeopleoutafterSyrian andRussianairstrikes.Buttheyhaveper­ haps3,000volunteersinaregionofmore than 4m people. A spokesman for the groupsaystheystruggletoprovidetreat­ ment.RussiaandSyriahavemadeaprac­ tice of bombing hospitals, leaving the provincewithlittlemedicalinfrastructure. TheTurkisharmy,whichhassmallbas­ esacrossIdlib,hassentrescueteams.Tur­ keyisIdlib’slifeline:some2.7mpeoplere­ lyoninternationalaidtruckedacrossthe border withouttheconsentoftheAssadre­

Pulled from the wreckage

Shaking intensity

Epicentre Aleppo Magnitude 7.8 1.17 GMT Idlib

Hama LEBANON

SYRIA

Gaziantep

SYRIA Damascus

I R AQ

From 1.17 GMT earthquake Moderate Strong Very strong Severe Violent Source: USGS

gime,underaUN SecurityCouncilresolu­ tion that restricts activity to one border crossing. The earthquake has rendered it unusable. The closest airport, near Anta­ kya, is shut because of runway damage. Roads to the border are impassable. On February7ththeUN announcedthatcross­ border aid had been halted, though offi­ cialshopeitwillresumewithindays. The situation is no better in regime­ heldterritory.ThetollseemsworstinAlep­ po, Syria’s second city, but there is wide­ spreaddamageinHamatothesouthand Latakia on the coast. The regime has not donewellwithpreviouscrises:itstruggled to handle wildfires in western Syria in 2020,andcouldbarelycopewiththepan­ demic. It will have trouble moving sup­ plies,asfuelisscarceowingtoashortage ofhardcurrency. Mr Assad has few friends. His regime has urged the West to lift sanctions im­ posedduringthecivilwar,whichhaveex­ emptionsforhumanitarianaidbutinprac­ ticecouldstilldelayrelief.Thebiggerob­ stacle, though, is the regime’s habit of spurningoffersofhelporstealingforeign

aid.Afewcountrieshaveofferedsupport. Russia, which has a military presence in Syria, said its soldiers would help clear rubble.TheUnitedArabEmiratessenthu­ manitarian aid via cargo plane. Algeria, EgyptandIranhavealsopromisedtohelp. Butfewofthesecountriesarewillingand abletosendsubstantialamounts. For Turkey, the destruction revives memoriesof1999,whenamassivequake in the outskirts of Istanbul killed some 18,000 people. That disaster revealed a deeplyflawedurbandevelopmentmodel, corrupt building practices and a lack of preparedness.Botchedsearch­and­rescue operationsexposedthemythofanomni­ potent Turkish state, which Turks had beentaughttobelieveinforgenerations. UnderMrErdoganandhisJusticeand Development Party, in power since 2002, things have improved somewhat. A gov­ ernment scheme has strengthened more than3mhousingunits.Disasterresponse hasbeenfaster.Yetapartmentblocksbuilt indefianceofregulationsstillcrowdcities, notablyinIstanbul,whichsitsatoponeof theworld’smostactiveearthquakezones. Anamnestyonunregisteredconstruction work,passedbyMrErdogan’sgovernment in2018towinovervotersaheadofgeneral elections,madethingsworse. Falling down on the job Most of the buildings destroyed seem to predatethe2000s,butmanyarenewer.In Antakyaan apartmentcomplexfrom2010 keeledoverwithasmanyas800peoplein­ side.AtowerblockthatcollapsedinMala­ tya, a city near the second quake’s epi­ centre,hadjustbeencompletedlastyear. Had building codes been respected, says MustafaErdik,aprofessoratBogaziciUni­ versity in Istanbul, “you would have had damage,butnotsuchpancakecollapses.” Ifthestateisfallingshort,civilsociety isnot.Volunteersanddonationsarepour­ ing in from every corner of Turkey. Gold minersfromCanakkale,firefightersfrom Istanbul and farmers from Cukurova are clearing rubble.Shopandrestaurantown­ ersarehandingoutfood.Scoresofhotels areopeningtheirdoorstothehomeless. Hisgovernment’sspottyemergencyre­ sponse and cosy relationship with con­ struction tycoons may come to haunt Mr Erdogan. He faces elections expected on May14th.ThedisasterwillcompoundTur­ key’seconomicwoes:thecountryisalrea­ dycopingwithslowinggrowthand58%in­ flation. The regions struck by the earth­ quakeaccountfornearly10%ofGDP.Selva Demiralp,aneconomistatKocUniversity, says Turkey could lose two percentage points of GDP in tourism revenue alone. Turkey’s main stock index fell15% in the three days after the quake. Some stocks surged, however. They were those of ce­ mentcompanies. n

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Europe

TheEconomistFebruary11th2023

Russia

Ploughshares into swords MOSCOW

ThetechnocratskeepfundsflowingforVladimirPutin’swar,astheeconomyis slowlyrepurposed

V

ADIM, A CAR-PARTS dealerfromapro­ vincialRussiantown,neversupported the war. Indeed, he broadly backed the West’ssanctionsonRussia:howelsecould youstopthe“monsters”intentondestroy­ inghiscountry,aswellasUkraine,ifnotby hittingtheirpockets?ButwhentheWest’s measureshitthesupplyofpartsheneeded from his distributors, he followed busi­ nesslogicandsourcedthemfromwherev­ erhecould.ThesearchtookhimtoTurkey. A web of intermediaries offered various schemestodeliverhisgoodsforahandling costofbetween$2and$4perkilogram.To­ day,theyarrive,ofteninbagslabelled“per­ sonaleffects”,threetofourweeksafteror­ dering.Vadimasksnoquestions,provided thepriceisright.Heunderstandsthatthe sameappliestocustomsofficials. Vadim’s workaround reflects a larger story,asRussiarevertstoprimitivemeans to muddle through. Tough European and American sanctions, introduced in the wakeoftheinvasionofUkrainelastFebru­ ary,weresupposedtoisolatetheRussian economy.Butwithonlyhalftheworldob­ serving the measures, reality was always goingtobemorecomplicated.Tradersin friendly countries like Turkey, Kazakh­ stan, India and China now facilitate the import of the restricted goods Russia needs,foraprice.BySeptember2022Rus­ sianimportsindollartermsexceededtheir averagemonthlyvaluefor2019.Andthese countriesalsotakealargeshareoftheraw­ material exports Russia once sent to

Europe—atasteepdiscount. ThishasallowedtheKremlintoavoid economic catastrophe. Gross domestic product(GDP) contractedbyjust2.2%last year,smashingmanyeconomists’expecta­ tions, made in the spring, of a decline of 10%ormore;nowherenearenoughtocrip­ pleVladimirPutin’swareffort.Unemploy­ ment remains low. House prices have stopped rising, but there is no sign of a crash.Consumerspendingisdraggingon theeconomy,butnotbymuch.In2023the IMF evenexpectsRussiatogrowby0.3%— morethanBritainandGermany. Russia’s isolation also offers the most ruthless a once­in­a­generation opportu­ nitytogetrichquick.BeforethewarEuro­ pean and American firms held direct in­ About turn GDP, % change on a year earlier 2021

2022* -2

2023† 0

2

4

6

8

Britain Canada France Germany Italy Japan United States Russia Source: IMF

*Estimate †Forecast

vestmentsinRussiaworthabout$350bn.A decreeissuedinthewakeoftheinvasion obligesWesterncompaniesclosingdown inRussiatofirstobtainapermit;theycan thenselltheirassetsonlyatgovernment­ determinedprices,setatadiscountof50% or more to their market value. A corrupt systemhasthereforeemerged.OneWest­ ern industrialist who is helping several EuropeancompaniesquitRussiasaysthat opportunisticRussiansandevenWestern­ ersareworkingtheirgovernmentconnec­ tionstosnapupbargains.“We’vereturned tothe1990s,”hesays,awildtimeofgang­ stercapitalism.“Youcansafelyassumethe newownerswillignorenicetieslikesanc­ tionsoncetheytakeover.” Therestrictionswerepartofapackage of extreme measures introduced by Rus­ sia’stechnocratstostabilisetheeconomy in the months following the invasion. Theyhavesucceededfarbetterthantheir authorsmighthavehoped.Beforetheinva­ sion,manyofthemwereclearlyunhappy with the idea of an unprovoked war that riskedwreckingthemodernisingeconomy theyhadspenttheircareerscreating.Sev­ eral—includingElviraNabiullina,thehead ofRussia’scentralbank;GermanGref,the boss of Sberbank, Russia’s biggest; and AlexeiKudrin,areformistformerfinance minister—arebelievedtohavemaderepre­ sentationstoMrPutinwhentheysawthat aninvasionwasonthecards. Buttheyquicklysteppedintolineonce the war was under way, stopping a bank runfromturningintoafull­blownfinan­ cialcrisisandgettinginflationundercon­ trol.Onlyahandfuloflower­levelbureau­ crats resigned from the central bank and thefinanceministry.Oneformercentral­ bank official says he was both impressed and appalled by his colleagues’ efforts to keepthewarmachineafloat.“Theyunder­ stood what they were doing, even while theycomfortedthemselvesbypretending thepeoplewhowouldreplacethemwould be worse.” One high­level source close to theKremlinsays,“Theeliteareprisoners. Theyareclingingon.Whenyouarethere forthatlong,theseatisallyouhave.” Emboldened hardliners are agitating for more radical change. Some dream about removing important figures that they perceive to be pro­Western. But as long as those people keep his war effort funded,MrPutinisunlikelytooblige.Itis difficulttoknowhowwelltheyaredoing, asmanykeystatisticsarenowsecret.But back­of­the­envelopecalculationsarepos­ sible.Russia’s2022budgetwasplannedat 23.7trnroubles($335bn).Governmentfig­ uresindicatethatactualspendingin2022 reachedatleast31trnroubles. According to Natalia Zubarevich, an economist at Moscow State University, only about 2.5trn roubles of the extra spend are accounted for by benefits and

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othertransfers:pensions,cheaploans,ad­ ditional child allowances. That leaves roughly 5trn roubles unaccounted for; much of it, presumably, going on arma­ ments. There are obvious signs of the economybeingmobilisedforwar.Defence firmsareworking24hoursaday,inthree shifts.Uralvagonzavod,Russia’smaintank manufacturer, has enlisted at least 300 prisonerstofulfilitsneworders.Andsteel productionfellbyjust7%in2022,farless thanthe15%someexpectedgiventhedeci­ mationofthecarindustry,heavilyaffected bysanctionsthathaveinterruptedthesup­ plyofsemiconductors. TheKremlinwouldclearlyliketomili­ tarisetheeconomyfurther.InOctoberthe governmentestablishedanewcouncilde­ signedtoco­ordinategovernmentandin­ dustry.Butfindingfreshsourcesofcashis abouttobecomemuchtrickier.MrPutin’s invasioncoincidedwithhighpricesforhy­ drocarbons. In the first five months of 2022,suchrevenuesweretwo­and­a­half times higher than in the year before. But lowerglobaloilprices,aswellasthehalt­ ingofgasexportstotheWestandanoil­ pricecap,havehitthatincomestream,if lessdramaticallythantheWesthadhoped. TheEuropeanturnawayfromRussian hydrocarbonshasleftagapthattheKrem­ lin is trying to offset through discounted sales to other markets, like Turkey, India and China (though there is evidence that theactualdiscountsaresmallerthanoffi­ ciallyreported).Afurtherpricecap,onpe­ troleum products, which came into force onFebruary5th,willbehardertofix,since thosebigmarketsalreadyhavetheirown establishedrefineries.Russiawillhopeto sellmorecrudetocompensate,andtheim­ pactwillbecomeclearonlyintime.Atany rate,Russianhopesthatitmaystillbeable toget$70perbarrelofitsoil,thepricethe governmentneedstobalancethebudget, mayproveoptimistic. Howevermuchtheeconomyiscanni­ balisedintoamoreprimitivewartimeout­ fit,itsgoverningclassunderstandsthereis noturningback,atleastwhileMrPutinis around. It heard the president declare in Decemberthattherewouldbe“nolimits” to the resources available for the armed forces.Thatmeanscutselsewhere.Health and education spending will be reduced, suggestsMsZubarevich.“Theworsethings get,themorenecessarywarwillbecome,” saysaformermandarin. ThemessagethatRussiaisfightingfor its survival against an encroaching West hasbecomeapowerfultoolforrepression. Butitwillmeanever­growingdemandsby the Kremlin on Russia’s long­suffering people.“Theyarealreadymilitarisingpeo­ ple’s consciousness, but it’s a long­term process,” says the former civil servant. “Hitlertookfiveyears.Theyareonlyjust gettingstarted.” n

The Economist February11th2023

Ukraine

The enemy within

KHARKIV PROVINCE

Treating PTSD in Ukraine’s soldiers is a huge task

I

N THE GLOOM ofagreyandfreezinglate­ Januarymorningitisaforbiddingplace. Itslocationisalsosecret,beyondthefact thatitissomewhereinKharkivprovincein Ukraine’s north­east. Soldiers arriving or departingfromwhatisthecountry’sonly militaryrehabilitationcentrededicatedto post­traumaticstressdisorder(PTSD)doso incivvies,soasnottodrawattention.Eve­ ry week around 100 soldiers arrive for treatment, suffering the gamut of battle­ field trauma symptoms: from sleepless­ ness and nightmares to flashbacks and crushing feelings of guilt at having sur­ vivedwhensomanyoftheircomradesfell. SergeiiBatowslay,asoldiersince2015, saysthathalfofhisunit,morethanahun­ dredmen,havebeenkilledsincetheRus­ sianinvasionbeganalmostayearago.On the front you are constantly pumped up and full of aggression, he says, and that takesnotjustamentaltollbutaphysical one too, leaving you run down and ex­ hausted. He has suffered from panic at­ tacks,andincivilianlifesmallirritations cantriggersurgingaggression.Ingeneral, he says, “guys keep their problems to themselves,” but here, being able to talk, one­to­one with a psychologist or in a groupwithothersoldierswhohaveexperi­ encedsimilarsymptoms,hasbeenabreath offreshair. Typically, says Colonel Oleksandr Va­ sylkivskiy,thedirectorofthecentre,PTSD is brought on by explosions, triggering

The wages of war

panic or withdrawal. Men report being hauntedbythecriesoftheirwoundedand dying comrades. Officers and psycholo­ gistsattachedtounitstrytospotthesymp­ tomsofPTSD intheirsoldiersearly,inor­ dertosendthemfortreatmentbeforethe problem escalates and they become ag­ gressiveorviolentincivilianlife.Families canjointherapysessionsatthecentreto learnwhattheirhusbandsorfathershave beenthrough,andhowtohelp. ThecentreopeneditsdoorsinJulyand so far some 2,000 soldiers have passed throughit.AllthisisnewforUkraine.Be­ fore the first phase of the war in 2014­15, whenRussiaseizedCrimeaandsupported separatistsinDonbas,fewwhoneededto seeapsychologistwantedto,saysColonel Vasylkivskiy,becauseitwasakintoadmit­ tingto“beingcrazy”.Untilthen,psycholo­ gistswerealso,inUkraine’sinheritedSovi­ et military tradition, part of its political section.Theirjobwasnottotreatsoldiers withproblemsbutrather,saysMajorMak­ symBaida,topunishthemfornotbeingup to their job. Now the job of military psy­ chologists like him is help soldiers and persuadethemthattheyarenottoblame. Muchhaschangedsince2014­15.Some soldiersreturningfromthefrontwithpsy­ chologicalproblems,exactlylikeWestern soldiers coming home from Iraq or Af­ ghanistan,haveturnedtodrinkanddrugs andcanbecomeaggressiveandviolent.As a result, says Colonel Vasylkivskiy, the number of psychologists in the army has beenincreasedbyabout40%,andsoldiers in training are told not to be shy about turningtothem. Treatment is not expensive. It costs €140($150)aweektocareforasoldier.But underUkraine’scurrentrules,thoughthe military budget covers rehabilitation for physicalinjuries,itdoesnotpayfortreat­ mentforPTSD.Sothecostsforthecentre are being borne by volunteer organisa­ tions.Thetherapyseemstowork;Colonel Vasylkivskiy says that after a week in his centrealmosteveryonehehastreatedhas beenreadytoreturntothefront. With a million men under arms, for months at a time and enduring gruelling conditions, the colonel says that his one centre is not nearly enough. “We need a hundred,”hesays,butaddsthattheyneed tobemadeavailableforcivilianstoo.That, though, is a whole different, and surely evenbigger,problem. n

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The Economist February11th2023

France

Arguing about laziness

PARIS

Emmanuel Macron’s pension reform is about much more than pensions

“M

ACRON, TAKE your retirement, not ours!”readoneplacardatarecent protest march. “Metro, work, grave”, read another, on a more existential note. On February7thyetmoredemonstratorstook tothestreetstoprotestagainstPresident Emmanuel Macron’s plan to raise the minimumpensionagefrom62yearsto64. Theturnoutwasnotashighasattwoprevi­ ousstrikedaysinJanuary.Butalltradeun­ ionsbackfurtherstrikes.Mostopposition parties, and a majority of the French, are alsoresolutelyagainstthepensionreform. The legislation, which went to parlia­ mentonFebruary6th,hasnotonlydivided thecountrybutpromptedadialogueofthe deaf. The government says the reform is “indispensable”ifthepensionregimeisto balanceitsbooks,andFranceistopreserve itsgenerouspensions,atatimewhenpeo­ plearelivingnearlyadecadelongerthan they did in 1980. Opponents accuse the government of brutally dismantling the hard­wonrightsofamodernwelfarestate. SofarMrMacron’scentristgovernment hasfailedtoconvincetheFrenchthatrais­ ingtheretirementageiseitheranecessary orafairwaytopluganannualpensiondef­ icitthatwillreach€14bn($15bn)by2030. Criticsfromtheoppositionleft­wingalli­ ance,NUPES,saythatitwouldbefairerto tax“super­profits”,ortherich.A2%taxon theassetsofFrenchbillionaires,suggested a report from Oxfam France, would wipe out the pension deficit overnight. The right­of­centreRepublicans,whoinapre­

viouslifeincreasedthepensionagefrom 60toitspresent62,nowhavethenerveto insistthatMrMacron’sversionisunjust. Byfocusingnarrowlyontheretirement age,though,thegovernmentisalsofailing toexplainthatthisisnotjustanaccount­ ingmatter.Itfitsintoabroaderattemptby MrMacrontoputworkattheheartofhis second­term project. “Pension reform”, saysMarcFerracci,alaboureconomistand a member of parliament for Mr Macron’s centristparty,“iscentraltothecampaign objective of bringing about full employ­ ment,andraisingtheemploymentrateof older workers.” Full employment would mean curbing joblessness from 7% today toaround5%,alevelnotseensince1979.At 56%, the share of 55­ to 64­year­olds in workinFrancehasincreasedbyfivepoints on Mr Macron’s watch, but remains well belowthatof72%inGermany. Saving the silver Tothisend,thegovernmentwantstoin­ troduce a “senior index”, to monitor the shareofolderworkersonthepayroll,and discouragefirmsfromeasingoutthegrey­ haired,whichtheyoftendo.Fortheyoung, itisexpandingthenumberofapprentice­ ships,whichreached980,000in2022,the highestleveleverrecorded.Inparallel,the governmenthastightenedtherulesonun­ employmentbenefitsthatapplyduringpe­ riods of economic growth and labour shortages.ManyfirmsinFrancecurrently reporthavingtroublefillingvacancies.

SuchaprojectmakessenseforFrance. Yet, since the pandemic, many countries have been rethinking the nature of em­ ployment. And, in the French mind, pro­ gresstowardsabettersocietyismeasured bytheeasingoftheburdenofwork.In1880 Paul Lafargue, a socialist thinker, pub­ lished“LeDroitàlaParesse”(“TheRightto beLazy”),arguingforathree­hourworking dayanddenouncingthe“madnessofthe love of work”. Two decades ago “Bonjour Paresse”(“HelloLaziness”),aguidetodo­ ingnothingatwork,becameabestseller. Therollingbackofworkingtime,origi­ nally designed to protect workers from abuse, has become part of the country’s post­warstory.In1982FrançoisMitterrand cuttheretirementagefrom65yearsto60. Two decades later France introduced the 35­hour working week. The share of the French who consider work “very impor­ tant”droppedfrom60%in1990tojust24% in2021.Thepandemichasacceleratedthis shift,saysRomainBendavid,inapaperfor theFondationJean­Jaurès,athink­tank.By 2022 only 40% of the French said they would prefer to earn more and have less freetime,downfrom63%in2008. InsofarasFrenchpoliticiansaretalking aboutallthis,itislargelytotradeinsults and slogans. Sandrine Rousseau, a Green leader from the NUPES coalition, argues bluntly for the “right to laziness”, and wantstobringina32­hourworkingweek. Gérald Darmanin, Mr Macron’s interior minister, dismisses NUPES as a group of “people who don’t like work” and think theycanliveina“societywithouteffort”. Not so lazy Inreality,Frenchsocietyismorecomplex thanthiswarofwordssuggests.Thanksto looser rules, French workers actually on averagethesedaysputinalongerweek(37 hours) than Germans (35 hours), and are nearly as productive per hour worked. EvenwithinNUPES,somepoliticians,in­ cluding Fabien Roussel, the leader of the Communist Party, embrace the value of work.TheFrenchmaysaythatworkisno longer central to their lives; but a new study by the Institut Montaigne, a think­ tank, shows that three­quarters also say they are broadly happy at work, a figure thathasbeenstableforseveralyears. Franceisnothavingthatdebate,how­ ever,and64%arestillagainstthepension reform.MrMacron,saysasourcecloseto him,isdeterminedtoholdfirm.Ifhecan’t findthevotesinparliament,whereheno longer commands a majority, the reform could be pushed through using a special constitutional provision, though at the risk of provoking fresh legislative elec­ tions. Either way, unless Mr Macron can persuadetheFrenchofitsmerits,hecould end up with a successful reform to his name,butabitterlyresentfulcountry. n

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The Economist February11th2023

Charlemagne Thecopycattrap

Europe should not respond to America’s subsidies binge with its own economic blunders

A

mericaN success has a way of flustering Europe into bad policies. Search engines are one dispiriting example. As Google and Yahoo dominated the internet in the early 2000s, JacquesChirac,thenpresidentofFrance,beseechedEuropeto“go ontheoffensive”sothatAmericawouldnotdominate“thepower oftomorrow”.WiththeEU’sassent,Francepouredaround€100m (roughly$147mbackthen)intoQuaero,awould­berivaltoAmer­ ica’s giants. Predictably the venture was dubbed “Eurogoogle”. Equallypredictably,thebigfirmsandpublicoutfitsthatpocketed themoneyfrittereditallaway.WhoeverGoogle’srivalsaretoday (seeBusinesssection),theyarenotfromEurope.Thosecuriousto findoutwhathappenedtoQuaerocanaskGoogle,orachatbot. Thesedaysitisgreentechnologythatis“thepoweroftomor­ row”,andEuropeonceagainfearsAmericaisleavingitinthedust. TheBidenadministration’sInflationReductionAct(IRA),passed inAugust,offersatleast$400bnofpublicmoneyovertenyearsto acceleratetheroll­outofrenewableenergyandelectricvehicles. America’scarbon­cuttingambitionswereatfirstlaudedbytheEU. Butthepennyswiftlydropped.Thenewsubsidiescomewitha protectionisttinge;theyaretargetedatstuffthatismostlymade inAmerica,inabidtoshiftsupplychainsthere.RobertHabeck, Germany’seconomyminister,frettedthatvaluablegreeninvest­ mentwillbe“suckedaway”fromEuropeacrosstheAtlantic. Quaeroendedupmerelyincineratingapileofpubliccash.A botchedresponsethistimearoundcouldbefarcostlier.Wasteful EU copycatsubsidiesareonthecards.Worse,aplethoraoftried­ and­known­to­fail economic policies have been dusted off to counter the manageable threat posed by the IRA. These would steerEuropeawayfromthefree­tradingopeneconomicapproach favoured by northern Europeans—including Britain, when it playedakeyroleinsteeringtheEU—andwhichcurrentlyprevails. ThenewpathwouldhaveadistinctivelyFrenchfeel.Atitscoreisa dirigiste industrialpolicy,whereministersdoleoutsubsidiesto favoured“nationalchampions”protectedfrompeskyimports. Fordecadesthismisguidedapproachhasbeenbannedbythe EU,whichfearedbeggar­thy­neighboursubsidyraceswithinthe union.The“stateaid”rulesthatunderpinthesinglemarketare designedtoensurethatbusinessesinanyoftheunion’s27coun­

triescompeteonalevelplayingfield.Consumershavebenefited massivelyfromwhatisamongtheeu’sbestpolicies.Butthesup­ posedneedtorespondtotheIRA inkindhasgivenanopeningto thosewhopreferlessmarketandmorepoliticalmeddling.Thisis all the more worrisome as anti­subsidy rules were softened in 2020tohelpnavigatetheresponsetocovid­19,andthenagainlast yeartodealwiththeenergycrisis. Theallianceinfavourofdrivingahorseandcarriagethrough thestate­aidrulesincludesGermanyandFrance—aduothatoften getsitswayinEU matters.TheywantEuropetocounterAmerican subsidies with its own. But because the bloc itself lacks the re­ sourcestofundsuchindustriallargessecentrally(withoutanin­ creaseinitsbudget,whichisnotonthecards),itwillcomedown tonationalgovernmentstosplurgeoncorporatebungs.State­aid rules would thus have to go. This line of thinking has alarmed manyintherestoftheEU,aswillbeevidentatasummitofnation­ alleadersinBrusselsonFebruary9th.Smallcountriesworrythey willbeunabletomatchthelargesseofParisorBerlin,andsowill see their companies fall behind. Italy, a big industrial country withbadpublicfinances,isamongthosethatknowtheywillalso beunabletokeepup.TheymakeforsizeableoppositiontoFrench andGermanplans,whichmightnotcarrythedayasaresult. YetthereisnoneedforEuropetoscrapthepolicythathasun­ derpinneditseconomicsuccess.TheBidenadministration’sme­ first approach is no friendly act to Europe. But the supposed threatsposedbytheIRA areoverstated.Adollarspentindevelop­ ingabatteryplantinKentuckydoesnotprecludeaeurobeingin­ vestedinAustria,nomatterwhatEuropeanchiefexecutivesgoad­ ing politicians into fattening their bottom lines might claim. Technology pioneered in America at great expense will also be availableinEurope—justasGoogleis,forexample.Theneedfor greenindustrialproductsissogreatthatfactorieswillhavetobe builtonbothsidesoftheAtlantic.MrBideniswillingtopaydearly tojuiceAmerica’sindustrialbaseasmuchforgeopoliticalreasons aseconomicones:hewantsto“decouple”certainsupplychains fromChinasoasnottodependonitforfuturegoods.Europehas littleneedtoduplicatethateffortsolongasithasalternativesup­ pliers to China available—something the IRA, by subsidising Americanproduction,makesmorelikely. Americaisspendinglavishlyoncuttingcarboninpartbecause itlackspoliciesthatallowittocutemissionsmorecheaply.Itis stuffingbusinessesandconsumerswithsubsidiesbecausethey currentlyhavenoincentivetogogreen:trysellinganelectricve­ hicletosomeonepaying$4pergallonofpetrol.Europehasalrea­ dynudgeditseconomyontoamoreecologicalpath—motorists therepaytheequivalentof$7pergallon,foronething.Europe, unlikeAmerica,alreadyoftenchargesfirmsforthecarbonthey spewaspartoftheiroperations.Theincentivesforownersand managerstogreentheirbusinessesalreadyexist. Relax, don’t do it EU policymakers should stick to their existing, unFrench ap­ proach.ThereislotsEuropecouldbedoingtoimproveitseco­ nomicprospects.Thesinglemarketshouldbedeepened—forex­ amplewhenitcomestocapitalmarkets—nothobbled.Productiv­ itycouldberaisedwithbettertrainingandeducation.Anaemic spendingonresearch&developmentshouldbeboosted.Thatis less exciting than showering shiny new industries with public money.Ithasthedistinctiveadvantageofbeingknowntowork. TryQuaeroingit. n

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Britain

TheEconomistFebruary11th2023

Immigrationpolicy

And still they come

The British government is planning yet another crackdown on asylum-seekers

A

li’sfirst experienceofBritainwasof kindness.AfewmilesfromDoverthe fishing boat he had taken from Dunkirk sprangaleak;alongwithseveraldozenfel­ lowmigrantshewasrescuedbythecoast­ guard.Ontheshore,peoplewerewaiting withblankets.Ninemonthson,thingsare now looking pretty bleak for the 21­year­ oldIranian.Livinginanovercrowdedhotel inCarlisle,heisunabletoworkorcontin­ ue his education (beyond a brief weekly Englishclass).Hehasnoideahowhisasy­ lum application—made on the grounds that as a Christian in Iran he was threat­ enedwithpersecution—isprogressing. That is nothing compared with the anxietyhefeelsabouthisfather,whoar­ rivedonanothersmallboattwoweekslat­ er.WithindaystheHomeOfficehadcho­ senhimforthefirstplaneofasylum­seek­ ersboundforRwanda,aspartofagovern­ mentplannotjusttoprocessclaimsinthe Africancountrybuttokeepsuccessfulap­ plicantsthere.Thatflightwascancelledon

June14thaftertheEuropeanCourtofHu­ man Rights intervened; Ali’s father has sincebeenwaitinginahotelnearGatwick to learn his fate. Ali fears that, if asylum flightstoKigalievergoahead,hewillnever seehisfatheragain. The plan to fly people to Rwanda was cooked up last year in order to deter mi­ grants taking small fishing vessels and flimsyinflatableboatsacrosstheEnglish Channel.Tightersecurityonferryandtun­ nel routes helps explain why such cross­ → Alsointhissection

48 VolodymyrZelensky’svisit

50 Bagehot:TheailingTories

→ Readmoreat:Economist.com/Britain — Thestrugglesofthesteelindustry — TrackingpatientsinA&E — Shamanismontherise

ingshaveriseneveryyearsince2018(see chart on next page). In 2022 some 45,755 people came to Britain in this way. They made up the largest proportion of over 70,000 asylum claims—itself the highest numberin20years. That is still lower than the number of claimslodgedineitherFranceorGermany. Itrepresentsonlyafractionoftheoverall numberofimmigrantsthatenteredBritain in2022.Butsmallboatsareabiggerpro­ blem than the numbers suggest. This is partlybecauseofhumanitarianconcerns: in recent years dozens of migrants have diedinthechannel.Butitisalsobecause suchavisiblemanifestationofthegovern­ ment’sinabilitytocontrolitsbordershas becomeabigpoliticalheadache. Nothingthegovernmenthassofartried hasworked.InthepastfouryearsBritain hasmadefourdealswithFrancetobeefup security in Calais, where migrants (and traffickers) congregate. The latest, struck in November, had the same limits as the others: it does not let British authorities patrol in France nor return those whose asylumclaimsfail. Britain has also tried to make itself a less alluring destination. But there is no shortage of young migrants from poor countrieswhoarewillingtoendureafros­ tyreceptionandlongwaitsinovercrowded hotelsfortheprospectofabetterlife.That iswhythesolutionpromotedbymanyof

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thecharitiesthatworkwithasylum­seek­ ers—providing temporary “safe passage” visas, whichwouldallowmigrantstotra­ velbyferryandlodgeclaimsonarrival—is no such thing. Britain would be over­ whelmedbyapplicants,manyofthemen­ tirelydeservingofprotection. The government has promised a fresh pushtosolvetheproblem.RishiSunakhas made“stoppingthesmallboats”oneofhis fivepledgesfor2023.OnFebruary2ndhe saida“stoptheboatsbill”wouldbepub­ lished“inthecomingweeks”.Hesuggest­ editwouldconsistoflawsmakingiteasier todetainandremoveillegalmigrants. Beingabletodeportthosewhoseclaim is rejected is a crucial part of an asylum system. There is little point in assessing people’s claims for asylum and granting some, if those who are turned down are also allowed to stick around. Britain is thoughttohaveatleast800,000unautho­ risedimmigrants.Thefactthatnoonehas tohaveanidentitycardmakesiteasierfor thosewhohavefailedintheirapplications, ornevermadeone,tomeltintothecrowd. But Mr Sunak’s legislation is likely to endindisappointment.Thenewlawswill probablybedesignedtomakeiteasierto sendasylum­seekers,perhapsbeforetheir claimshavebeenprocessed,backtotheir homecountriesortoathirdcountrylike Rwanda. The first option would in many cases be illegal; a recent agreement with Albaniatoreturnmigrantstherecouldnot bereplicatedwithcountriesthatareconsi­ dered unsafe without breaching interna­ tionallaw.(ThereistalkoftakingBritain outoftheEuropeanConventionofHuman Rightsifthecourtsdidintervene.)Asfor theRwandapolicy,itmaybeimpracticalas wellasmorallydubious.Thegovernment inKigalihassuggesteditonlyhascapacity toacceptafewhundredpeople.Attempts tofindotherthirdcountrieshavefailed. Farbetterwouldbeamorecomprehen­ sivedealwithFrance.Settingupaprocess­ ing centre for asylum claims in northern Francewouldstopsomepeoplefrommak­ ing the crossing by boat. (Britain should also consider allowing asylum­seekers to applyfromBritishconsulateselsewhere.) Thiswouldleadtomoreclaimsandmore approvals, but since they would be a lot less visible and chaotic than dinghies at sea,itmightwellbemorepopular. A comprehensive returns agreement with France would also help. Post­Brexit Britainhasnoformalagreementallowing ittoreturnasylum­seekerstoanyEU coun­ try. The European Stability Initiative, a think­tank,believesthatifalmostallirreg­ ular migrants were returned swiftly to France—which would be legal, because France is a safe country—boat crossings wouldquicklycease.SinceFrancehasre­ peatedly insisted that return agreements areamatterforthe EU,thiswouldneedto

TheEconomistFebruary11th2023

Growing waves Britain, cumulative irregular migrants*, ’000 50 2022 40 2021

30 20

2020 2023 J

F

2018 M A M

Sources: Home Office; Border Force

J

J

A

S

2019

10 0

O N D

*Crossing English Channel in small boats

be part of a wider deal with the bloc in whichBritainwouldhavetoplayitspart, byitselfacceptingagivennumberofasy­ lum­seekersfromtheEU (andbeyond). Such a deal, with either France or the EU,ishardtoimaginerightnow.Improv­ ing the existing system for processing claimsisamorefeasiblegoal.BySeptem­ ber202268%ofapplicantshadbeenwait­ ingmorethansixmonthsforadecisionon theirclaim,comparedwith49%in2017.In thattimethenumberofpeoplewaitingfor a decision has increased threefold, to around98,000.Ifmigrantsknowthereis likely to be a long wait in Britain before there is any prospect of being deported, theyaremorelikelytotrytogetthere. Thegovernment’spreviouscrackdowns seem to have slowed things down even more.SinceJanuary2021ithasissued“no­

tices of intent” to some asylum­seekers whileitdecideswhethertheirclaimcanbe treatedasinadmissible.Thesehavemade noappreciabledifferencetothewayasy­ lumclaimsareprocessed,saysColinYeo, an immigration barrister, except to add a furthersix­monthdelaytoproceedings. Thisbacklogimposesheavycosts.The governmentspends£7m($8.4m)adayto feed and house asylum­seekers. They are notallowedtoworkuntiltheyhavewaited atleast12months,atwhichpointtheycan applyforjobsontheshortageoccupation list; they should be able to do so earlier. ClaireMoseley,thefounderofCareforCa­ lais,whichworkswithasylum­seekerson both sides of the channel, says the long waitisespeciallydamagingforthosewho haveexperiencedtraumaandillhealth. Immigration lawyers say part of the problemappearstobeashortageofexperi­ encedHomeOfficestaffabletomakediffi­ cult decisions. Britain grants asylum at a muchhigherratethanFranceorGermany. That may be because a big proportion of thosewhotraveltoBritainbyboatarefrom countries,likeSyria,thatgenuinelycom­ mandahighapprovalrate.Yetitmayalso bebecauseofsloppydecision­making. Ultimately, however, only a compre­ hensivearrangementwithFranceandthe EU offerstherealisticprospectofquickly resolvingthesmall­boatsproblem.Instead thegovernment’sfocusseemslikelytobe elsewhere—on draconian laws that risk performative rows, damage to Britain’s reputation and more uncertainty for Ali, hisfatherandotherslikethem. n

Planespeaking VolodymyrZelensky,theUkrainianpresident,pressedparliamentariansfor“powerful Englishplanes”onavisittoLondononFebruary8th.InanaddressinWestminster Hall,thepresidentgavetheSpeakeroftheCommonsapilot’shelmetwiththein­ scription:“Wehavefreedom,giveusthewingstoprotectit.”OfhismeetingwithKing Charles,MrZelenskysaid:“InBritainthekingisanair­forcepilot.InUkrainetoday everyair­forcepilotisaking.”RishiSunak,theprimeminister,hasofferedtrainingfor Ukrainianpilots;thegovernmentsaidonlythatitwouldinvestigategivingplanes,too.

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Britain

TheEconomistFebruary11th2023

Bagehot Bucket­listTories

AlanClark’sfinalsetofdiariesprovidesaguidetotheConservatives’ailingstate

A

lan Clark knewhewasdying.TheTorypoliticiananddiarist was“completelydesexualated”—adisturbingconditionfora philanderer—andwhiledawaytheafternoons“listlesslyplucking atHello oranAudicatalogue”.Eye­blurringheadacheshadbugged him for years, but he ignored the optician’s injunction to have themcheckedoutuntilasuddenhospitalisationinMay1999un­ coveredavasttumourlodgedinthewhirringbrainoftheMP for KensingtonandChelsea.Fourmonthslater,hewouldbedead. Massaginghistemplesatthekitchentable,hecouldstillsee somethingsclearly.AsthegeneralelectionofMay1997thatwould grantTonyBlairalandslidedrewnear,hiscolleaguespredicteda hungparliamentorasmallLabourmajorityatworst.JohnMajor, the prime minister, was on chipper form; the cabinet trundled along.“Wewillwin,Alan.We­are­going­to­win!”bellowedNicho­ lasSoames,anotherMP,oneeveninginApril1997.Clarkknewbet­ ter.“Thegapisintractable,wideningindeed,”hewrote.“Notsofar distantT34swereagainatthefortificationsontheOder.” Clark harboured darkness beneath the wit. He kept a signed portrait of Hitler, whom he called “Wolf”, in his safe. The BBC calledhim“theUK’s favouritecad”;modernaccountsofhiscon­ ductwouldbemuchharsher.Butheisworthreadingstill.Thefi­ nalvolumeofthediariesthathekeptfornearlyfivedecadesholds amirroruptothefrailtyofthecurrentConservativeParty. Thatispartlybecauseoftheparallelsbetweenthe1990sand now.ConservativeMPsendlesslychewoverthoseyears.Optimists insist the next election can be a repeat of the result in1992, in whichaninnatelyconservativeelectoratebackedadiligentTory leaderoverasemi­reformedLabourParty.Butintheirbones,they knowafatelike1997ismorelikely.Psephologists,likedoctors,are fallible,buttheprognosisisinanditisnotpromising:pollsindi­ cateaconsistentLabourleadofaround20points.RishiSunak’s personalratingsareweakandweakening.“Thepeoplethinkthey nolongerhavetheanswertotheirneeds,andthegeneralcryofthe voterwillbe‘Kindlyfuckoff’,”saysanoldfriendofClark’s. Itispartlybecausesleazeisagaincripplingtheparty.Today’s versionislesssalaciousthanthatofthe1990s—Clarkwouldbeex­ posed by the News of the World, a newspaper, for having affairs withajudge’swifeandalsohertwodaughters.Butitisjustasda­

maging.OnFebruary7thMrSunakreshuffledhiscabinettore­ placeNadhimZahawi,thepartychairmanhehadfiredoverhistax affairs.ThatsamedayMPsquestionedRichardSharp,thechair­ manoftheBBC,overreportsthathewasinvolvedinbrokeringan undisclosed loan for Boris Johnson, shortly before Mr Johnson recommendedhisappointmenttorunthebroadcaster.(MrSharp hasdeniedarranginganyfinancing.) ButClarkisalsoanunmatchedguidetotheToriestodaybe­ causethediaristandthepartysharesomanymorbidsymptoms.A dyingmanwishestoputhisaffairsinorder.Clarkworriedabout clearinghisdebts.MrSunak’sagendaforgovernment—fixingthe public finances, massaging down health­service backlogs—can soundlikeatidying­upexerciseafteryearsofhardliving.Itisim­ moraltoleavedebtstothechildren,heoftenintones.Clarkwant­ edtofixtheplumbingatSaltwood,hiscastleinKent,beforehe died.AspartofhisreshuffleMrSunakembarkedonyetanother rewiringofWhitehallbycreatingnewdepartmentsforenergy,sci­ enceandbusiness.Itmayprovesuccessful,butMrSunakisun­ likelytobearoundtoenjoythefruitsofhislabours. WhathaveIdonewithmylife,thedyingmanasks?Clarkraced tofinishthe“BigBook”,hishistoryoftheTories,andhopedtobe rememberedforthediaries.ThesamequestiondogstheConser­ vativesafter13yearsinofficeandfiveprimeministers,eachof whom has undone their predecessor’s work. They can say they spared Britain from Jeremy Corbyn, Labour’s far­left ex­leader, andgotitthroughthepandemic.Butingloomiermomentsthey seeacountryinwhichthetaxburdenhasrarelybeensohigh,the publicservicessocreakyortheculturesounconservative.Asfor Brexit,thebestitsbackerscanclaimisthatitisaworkinprogress. Thetwilightofalifeisatimetofulfillong­helddreams.Clark himself pined mainly for Eriboll, his Scottish estate. For some Conservativebackbenchers,thereisamuchlongerlistofambi­ tions:leavingtheEuropeanConventiononHumanRights,say,or scrubbingthestatutebookofEU law.Individualsstilldreamof carryingaminister’sredboxwhilethereisstilltime.Themost generousinterpretationofMrSunak’selevationoftheboorishLee AndersontothedeputychairmanshipoftheConservativePartyis toindulgeabucket­listwish. WestminsterechoeswiththechisellingofToryepitaphs.Liz Trusshopesthathistorywilleventuallysmileonthe49­daypre­ miershipthatwreckedtheparty’sreputationforeconomicman­ agement. In a rambling and conspiracy­theorising essay pub­ lishedinthe SundayTelegraph onFebruary5th,theformerprime ministerblamedshadowyforcesforderailingherdashforgrowth. Mr Johnson wishes to be remembered for helping Ukraine. On February3rdhegrantedatelevisioninterviewtoNadineDorries, themostadoringofhiserstwhilecabinetministers(imaginethe WatergateburglarsinterrogatingRichardNixon).Buthistorydoes notletyouchoose.Clarkwantedhisgravestonetoread:“Happily marriedtoJanefor41years.”Janeleftitblank. The afterlife Parties,unlikepeople,canbereborn.Anelectoraldoomsdayhas certainattractions:theclear­outoftheelders,aleadershipelec­ tionandafreshdebateaboutthefutureofconservatism.“WhatI hopequitefirmlynow,”Clarkwrotein1995,“isthattheToryparty issmashedtopiecesandahugenumberofpeoplelosetheirseats. Thenatlastperhapsmyparticularbrandofradicalismcangrow.” Clarkwasnotkeenondying.Buthecouldseethebrightsideinhis colleagues’demise. n

012

International

The Economist February11th2023

Techno-philanthropy

Giving3.0 Anewgenerationoftechphilanthropistshasdeeppockets, grandioseambitionsandanimpatiencewithbureaucracy

W

hen Andrew White first sold a chunk of his business in 2021, he knewhewantedtogivesomeofthepro­ ceedsaway.Indeed,ifallgoesaccordingto plan, he hopes eventually to give over $20mtocharity.ButMrWhitewasstillbu­ syrunningFundApps,acompliance­mon­ itoringserviceforinvestors.Thatleftlittle timetoreadupondevelopmenteconom­ icsorscourcharityrankings. The model that big­name philanthro­ pists have followed for generations—set­ tingupaprivatefoundationandhiringa team to run it—was out of the question. “Creatinganotherorganisationtomanage your money is just wasting it,” says Mr White.Afterall,hesays,“thesepeopleare verygoodatwhattheydo,sowhydon’tyou trustthemtodoit?”Intheend,MrWhite gavethemoneytoFoundersPledge,aBrit­ ishcharitywithmorethan1,700members in39countries.HetoldFoundersPledgehe wouldlikethecashtogotoeducationand povertyreliefinpoorcountries,thenleft itsresearcherstosortoutthedetails. MrWhiteispartofanewclassofphi­ lanthropistsverydifferentfromthosethat

wentbefore.Theyareoftenyoung,impa­ tientwithprocessanddetail,andkeento make a difference in a hurry. Most made theirmoneyinthesoftwareandcomput­ ingindustrythathas,sincetheturnofthe century, been the world’s great engine of wealth creation. Along with their money comes their industry’s worldview. “I was readingWired,nottheChronicle of Philanthropy,”saysScottHarrison,thefounderof charity: water, which aims to give clean watertoeveryoneontheplanet. No one has more money to give away thanthetechtycoons.Forbes,amagazine whichtrackssuchthings,reckonsthat26 of the100 richest people in the world in 2022madetheirmoneyleadingtechnolo­ gyfirmsofvarioussorts,includingseven ofthetopten.(Therecentdropintechval­ uations has dented the sector’s domi­ nance,butnotendedit.) Theyareevenmoredominantwhenit comes to giving that money away. The Chronicle of Philanthropy (whichMrHarri­ sonsaidhedidnotread)estimatesthat,of the $33.4bn given away by America’s 50 biggestdonorsin2021,aroundthree­quar­

ters came from people who made their money in tech (see chart on next page). Bain & Company, a consultancy, reckons techmagnatesholdabout8%ofthetotal wealth of India’s super­rich, but account forabout35%ofthecharitablegiving. That tide of money carries with it the cultureandworldviewoftheindustrythat createdit.Techhasspentthepasttwode­ cades disrupting everything from shop­ ping to television. Charitable giving, it seems,isnext. Toseejusthowdifferentthenewcom­ ers are, compare them with their best­ known forebears. The grandfathers of modernphilanthropyareAmericanindus­ trialistslikeAndrewCarnegie,HenryFord andJohnD.Rockefeller.Suchmengavethe bulkoftheirmoneylateintheirlives.They created foundations that would outlive them,employedhighlyqualifiedadvisers, andwerepreparedtodishoutfundsforde­ cadestoachievetheirgoals. Movefastandfixthings Thatmodelwastweakedattheturnofthe millennium. Businessmen and venture capitalistsbeganthinkingaboutcharitable donations like hard­nosed investments. Recipients were ranked by which offered the most charitable bang for each buck. Theimpactofeverydollarwasmeasured, and,ifaprojectfailedtodeliveritsexpect­ ed “social return”, funding was cut. The standard­bearerforthatapproachwasthe BillandMelindaGatesFoundation,started by the founder of Microsoft and his then

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wife in 2000. It has spent its money, among other things, on malaria preven­ tion,improvingaccesstocleanwater,and pushingtocompletetheworldwideeradi­ cationofpolio. Tothenewergenerationofphilanthro­ pists,raisedinabusinessculturethatpriz­ esgettingtomarketandscalingquicklyov­ ercautiousplanning,allthisappearsun­ bearablystodgy.NickhilJakatdarisaserial entrepreneurfromIndiawhonowlivesin California, and who gives away between $300,000and$500,000eachyear.In2021 heapproachedtheGatesFoundationseek­ ing funding for a not­for­profit medical firm.Thefoundation’sgenerositywasim­ pressive, Mr Jakatdar says. But he found the paper­pushing so off­putting that he did not apply. “The Gates Foundation taughtmewhatIdon’twanttobe,”hesays. MackenzieScott,theex­wifeofJeffBe­ zos,thefounderofAmazon,becamearole model for the new approach when she dishedoutover$14bninalittleoverthree years,startingin2019.MsScottdidnotdis­ pensewithanalyticsentirely.Instead,she front­loadedthem.Sheappointedconsult­ ingfirmstocrunchthenumbersandpick worthyrecipients,whichincludedHabitat forHumanityInternational,whosevolun­ teershavebuilthomesinHaitiandBangla­ desh,andtheDesmondTutuHealthFoun­ dation,whichisbasedinCapeTown.The gifts were mostly given without condi­ tions, with the charities trusted to make the best use of the money. Ms Scott has calledherapproach“seedingbyceding”. Jack Dorsey, a co­founder of Twitter, runshischaritableeffortsonsimilarlines. In 2020 Mr Dorsey pledged to give away $1bnofsharestohisphilanthropicventure #StartSmall. He takes grant applications fromanyoneviaashortonlineform.Every donationismadepublic.(#StartSmall’slist of donations includes climate­resilience projectsintheCaribbeanandhumanitar­ ianaidinUkraine.)“I’mseeingmuchmore oftheattitudeof:justgivepeoplethemon­ eyalready,”saysStephanieEllis­Smith,the bossofPhilaEngagedGiving,anadvisory firm. “What are we playing around with, tickingthisboxandthatbox?” This sense of urgency is bolstered by peer pressure and competition. Silicon Valley is brimming with “giving circles” and educational programmes that get would­bedonorstogether.Publicdeclara­ tionsarepopular,andevangelistsarenot shy about recruitment. David Goldberg, the chief executive of Founders Pledge, says he physically walks entrepreneurs intothecorneroftheroomatparties,reg­ istrationpapersinhand. Thevehiclesthroughwhichyoungtech titansdisposeoftheirwealtharechanging, too.America’scharitablefoundationshave over$1trninassets.Butthereisagrowing fashionfordonor­advisedfunds(DAFs),a

The Economist February11th2023

sortofsavingsaccountforcharitablegiv­ ingthatoffersaquickandsimplewayof gettingwealthoutofthedoor.TheNation­ alPhilanthropicTrustreckonsthevalueof assets in DAFs rose by nearly170% in the fiveyearsto2021,to$234bn.Oneofthebig­ gest providers is the Silicon Valley Com­ munity Foundation, which has about $14bnatitsdisposal.DonorsincludeBrian Acton,afounderofWhatsApp,andSergey Brin,whoco­foundedGoogle. Technically, donors to a DAF give up control over their money (though their wishesareusuallyrespected).Buttheycan getadviceongivingandhelpwithpaper­ work from the group that runs it. Unlike bigfoundations,thereisnoneedforDAF donors to hire a large staff or submit de­ tailed reports to the taxman. American foundationsmustdisposeofatleast5%of theirassetseveryyear.Nosuchrulesapply to DAFs. Donors can get deductions on theirtaxbills,too.Untradedsharesgiven toafoundationarevaluedbasedonwhat they cost—which, for a founder, is often very little. When given to a DAF, they are valuedatthetimeofthedonation. Another option is the limited liability corporation (LLC). Corporations do not providethetaxbenefitsoffoundationsor DAFs. But they give donors freedom. Spending on charitable projects can be combined with for­profit ones, and even politicaladvocacy.PierreOmidyar,eBay’s founder,andLaurenePowellJobs,thewid­ owofSteveJobs,aformerAppleboss,both useLLCsfortheirdo­goodery.Therangeof projectsthatcanbefundedisonfulldis­ playatMsJobs’sgroup,theEmersonCol­ lective.Thephilanthropicarmfundspro­ jectssuchasartinstallationsalongAmeri­ ca’s border with Mexico. Meanwhile, the venture­capitalarmhasmadeinvestments in the Atlantic, a magazine, and Stripe, a payments­processor. BenjaminSoskisattheUrbanInstitute, anAmericanthink­tank,saysthatthepop­ ularityofLLCsreflectsanotherwidespread Silicon Valley belief, that it is not only charitythatcandogoodintheworld.In­ Burn rate United States, charitable giving of biggest 50 donors, by source of wealth, 2021, $bn 0

5

Technology Finance Media Manufacturing Real estate Insurance Other Source: Chronicle of Philanthropy

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25

dustrialists like Carnegie and Rockefeller worried that the public viewed the firms thatbuilttheirfortunesnegatively.Buten­ trepreneurs today frame the making of moneyasbeingjustasworthyasgivingit away. Social­media platforms are said to connectpeople,forexample,whileonline marketplacesdemocratiseshopping. Some corporate do­goodery can seem strikingly grandiose. Elon Musk, Tesla’s boss,seespartofthefirm’sjobasforcing the rest of the car industry to switch to electricvehiclessoonerthanitotherwise would have (a mission it has, by now, mostlyaccomplished).AlthoughMrBezos remainsonAmazon’sboard,healsoowns BlueOrigin,arocketryfirmthathopesone daytohelphumansliveinspacetorelieve environmentalpressureonEarth.MrBrin hasinvestedinCalico,ananti­ageingfirm thathopestoextendlifespans.“Thereisa blurring between entrepreneurship and philanthropy,”saysMrSoskis. Thinkdifferent As the preferences of donors change, so mustthefundraisingtacticsofrecipients. Ithelpsifcharitieshavegrandambitions too. Brent Hoberman runs Founders’ Fo­ rum Group in London, which offers legal advice,networkingandmoreforentrepre­ neurs.HerecallsadvisingtheTessaJowell Foundation, a British charity focused on braincancer,onhowbesttomarketitself. To draw donations from tech moguls, he said,itwouldbebetterforthefoundation to market itself as a “moonshot” project thataimedtocurecancerofallkinds.And there is no harm in asking for big dona­ tions,either.“Sometimesitiseasiertoget theseguystogiveaway$100mthan$1m.” Ithelpstobeaufaitwithtechculture, too.With$700mindonationscharity:wa­ ter,MrHarrison’sventure,isaSiliconVal­ leydarling.MrHarrisonthinksitwasthe firstnon­profitgrouptoreach1mfollowers onTwitter.Addingwhizzy,high­techele­ ments works as well. Mr Harrison offers donors satellite images of the wells they havepaidfor.Andonceonetechdonation arrives,othersoftenfollow.MichaelBirch, thefounderofBebo,asocialnetwork,was anearlydonor.HeintroducedMrHarrison toDanielEk,thebossofSpotify,andReid Hoffman,afounderofLinkedIn. More modest charitable ventures, and those without connections, can find it harder to attract donations. Elise Cutini runsPivotal,anorganisationthatsupports childreninfostercareinCalifornia.Pivot­ alhelpsabout500youngpeopleeveryyear, but,asMsCutiniputsit,thatisnotseenas “sexy”bytheSiliconValleycrowd.Oneway togetontheradar,shesays,istoappoint techtypestotheboard,whichhelpsspread theword.“Onceyougetintothatcirclea bit, people talk,” she adds. “They talk at theircocktailparties.” n

012

Business

TheEconomistFebruary11th2023

Internetsearch

Seeking change

MOUNTAIN VIEW AND RE D MOND

After20yearsofstagnantmonopoly,onlinesearchisinforashake­up

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earthe bayinMountainView,Cali­ fornia,sitsoneofbiggestprofitpools inbusinesshistory.Thesiteisthehomeof Google, whose search engine has for two decades been humanity’s preferred front doortotheinternet—andadvertisers’pre­ ferred front door to humanity. Every sec­ ondofeveryday,Googleprocessesperhaps 100,000websearches—and,thankstoits cleveralgorithm,servesupuncannilyrele­ vant answers. That power has turned Googleintoaverb.Italsoopensupbillions ofdailyopportunitiestoselladsalongside theanswerstosearchers’queries.There­ sults’ accuracy keeps users coming back, andrivalsatbay:allothersearchengines combined account for barely a tenth of dailysearchers(seechart1onnextpage). Advertiserspayhandsomelyforaccess toGoogle’susers,andaretypicallycharged only when someone visits their website. TherevenueofGoogle’sparentcompany, nowcalledAlphabet,hasgrownatanaver­ ageannualrateofover20%since2011.In that period it has generated more than

$300bn in cash after operating expenses (seechart2),thebulkofitfromsearch.Its market value has more than trebled, to $1.3trn.Itistheworld’sfourth­most­valu­ ablefirm.UnlikeAppleandMicrosoft,its bigger middle­aged tech rivals, it has felt norealneedtoreinventitself.Untilnow. The reason for the soul­searching in MountainViewisChatGPT,anartificially intelligent chatbot designed by a startup calledOpenAI.Besidesbeingabletohavea human­like conversation, ChatGPt and others like it can draft equally human­ seemingpoems,historyessays,computer codeandjustaboutanythingelsethatpeo­ plewritedown.UBS,abank,reckonsthat → Alsointhissection

55 BrazilIncinatizzy

56 Bartleby:Thepitfallsofenthusiasm

57 Bigoil’snewmap

59 Schumpeter:RethinkingApple

sinceitslaunchinNovemberChatGPT has gainedaround100mmonthlyactiveusers, a feat that had taken TikTok, the world’s fastest­growing social­media sensation, nine months. Other “generative” AIs can paint,composeorsing.BillGates,co­foun­ derofMicrosoft,hascalledthetechnology “asimportantasthePC,astheinternet”. To Eric Schmidt, who used to run Google,ChatGPT isthe“firstbroadlyvisible example” of what a human being’s AI friendmightlooklike.Tohisformerem­ ployer,itisthefirstbroadlyvisiblethreat toGoogle’ssearchdominance.ForChatGPT canalsoanswerthesortsofquestionsthat people might have asked Google. And ChatGPT’screator,OpenAI,hasteamedup withMicrosoft,whichiscovetouslyeyeing Google’sgleamingpoolofprofits. On February 7th Microsoft, which re­ centlyannouncedaninvestmentof$10bn inOpenAI,showedoffhowitplanstogo after those profits. Results from the soft­ waregiant’ssearchengine,Bing,willnow be accompanied by an AI­generated side box summarising pertinent information. Bingwillalsogetitsownchatbotbasedon OpenAI’s models. Microsoft showed off neattricks,suchasmakingashoppinglist basedonaweekofplannedmeals.“Itisa new day in search,” declared Microsoft’s CEO, Satya Nadella. Baidu, the top search engineinChina,whereGoogleisbanned, will launch its own AI­boosted service in March. In a pre­emptive counterattack,

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andtostealsomeofMrNadella’sthunder, Alphabetthisweekunveileditsownchat­ bot, Bard, and has reportedly invested $300minAnthropic,agenerative­AI start­ up. On February 8th, while presenting somenon­chattyAI searchfeatures,itcon­ firmed that Bard will be integrated into searchwithinweeks.Investorswereunim­ pressed;Alphabet’ssharepricetumbledby 8%aftertheannouncement. Thebattleofthebotsis,then,brewing. It will transform the way people find thingsontheinternet.Indoingso,itmay upendthelucrativebusinessofsearch. Onlinesearchwaslastdisruptedinits earlydays,atthedawnoftheconsumerin­ ternetinthelate1990s.Asthenumberof webpages exploded, useful information becamehardertofind.Anumberofsearch engines, such as AltaVista and Yahoo!, madethingsabiteasier.ButitwasGoogle, founded in 1998, that revolutionised the industry. Its algorithm ranked webpages based on the number of other websites linkingtothem,whichturnedouttobea good proxy for relevance. Then Google workedoutitcoulddisplayadsrelatedtoa search’skeywordsalongsidetheresults. Inthepastfewyearschallengershave emerged. Some are startups offering ad­ free subscription search, such as Neeva. Others include Alphabet’s big­tech rivals. Amazon,whosee­emporiumhasbecome theplacewheremanyshoppersstartlook­ ingforproducts,hasseenitsshareofthe Americansearch­admarketjumpfrom3% in 2016 to 23% today. Apple’s search­ads business, consisting of searches for apps oniPhones,nowhas7%ofthatmarket,up fromnothingafewyears.Google’sownre­ search shows that two­fifths of 18­to­24­ year­oldsfavourInstagram,Meta’sphoto­ sharing app, or TikTok over Google Maps whensearchingforanearbyrestaurant. As a result of this ferment, Google’s share of revenue from search advertising inAmericawillfallto54%thisyear,down from67%in2016,accordingtoeMarketer, a research firm. But these challengers never presented an existential threat to Google.Thesamecannotbesaidofchat­ bot­assisted conversational search. After ChatGPT’s launch Alphabet’s CEO, Sundar Pichai,reportedlydeclareda“codered”. To understand why Google fears chat­ bots,firstconsiderthetechnologybehind them. ChatGPT works by predicting the nextwordinasentencethatisaresponse tosomequery.Thesepredictionsarebased ona“largelanguagemodel”,theresultof prioranalysisofmillionsoftextsharvest­ ed from the internet. Once trained on all this natural language, the chatbot can, when prompted by users’ instructions, produce a fluently written answer rather thanmerelyservingupalistoflinks. Applied to search queries, this means thatresponsescouldinprinciplecontain

The Economist February11th2023

manymorevariables.Wanttogoonaday tripsomewhereoffthebeatentrackthatis cheap,child­friendlyandeducational?Un­ lessyouchanceuponatravelblogpost,to­ dayfindingapreciseansweronGoogle(or BingorBaidu)requirescomparingdozens of websites and skim­reading tonnes of text.Bycontrast,ChatGPT spitsoutalistof decent options in moments. Users can then add extra considerations or ask for moreinformationwithfollow­upqueries. Changing how people search will, in turn,changewhattheysearchfor.Aswell asseekingexistinginformation,userscan useconversationalsearchtogenerateorig­ inalcontent.ChatGPT writespoetryandes­ says—inthestyleofyourfavouriteauthor, ifyouwish.OnJanuary26thGooglepub­ lishedapaperdescribingMusicLM,anew largelanguagemodelthatcanmakemusic fromtext. GitHub,aMicrosoft­ownedplat­ formwhichhostsopen­sourceprograms, hasachatbotcalledCopilotthatcanchurn out lines of code. That opens up all­new search­adjacentmarkets,saysMarkShmu­ likofBernstein,abroker,mostimmediate­ lyinproductivitytoolsforbusinesses(like helpingdeskjockeyswritepresentations). A little more conversation Asanewarea,conversationalsearchisat­ tracting hopeful newcomers, buoyed by the prospect of an expanding market for search and generative content. “When I started two years ago, people said I was crazy. Now the sentiment has massively shifted,” says Richard Socher, founder of You.com,astartupwhichoffersanAI­po­ wered search chatbot. Neeva has also addedachatbottoitssubscriptionsearch. SridharRamaswamy,itsco­founder,hopes thiswillhelpitreach5m­10msubscribers, upfromalmost2mtoday(notallofthem payingcustomers),andbecomefinancial­ ly self­sustaining. C3.ai, a business­soft­ ware firm, has brought out a chatbot to helpcompaniessearchtheirin­houseda­ ta. Travel firms, including Booking.com, aretoyingwithchatbots,too. The most serious threat to Google 1

Let me Google that Search engines, monthly share of global queries % Other

100

Bing

80 60 40

Google

20 0

2009

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13

Source: StatCounter

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2

Magic Mountain View Alphabet, operating profit, $bn

80

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0 2004

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22

Source: Bloomberg

comes from Microsoft. Mr Nadella’s firm already has the infrastructure, including oodles of computing power, storage sys­ tems and armies of web­crawling pro­ gramsthatconstantlyscrapeinformation fromtheinternet.Settingallthisupfrom scratchtocompetewithGooglewould,ac­ cording to one estimate by the Competi­ tionMarketsAuthority,aBritishtrustbust­ ingagency,costbetween$10bnand$30bn. At present Bing’s share of America’s search­advertisingmarketisameasly5% (seechart3onnextpage).Microsofthopes thatitsnewbagoftrickswillchangethat. Thecompanyseemstohavefixedsomeof ChatGPT’sshortcomings.Onewaskeeping thebotuptodate.ChatGPT’sunderlyingAI, called GPT-3.5, has been trained on data from2021andhasnoinklingofanything on the internet after that point. Ask it aboutrecentnewsortoday’sweatherfore­ castandyougetanapology.Bing’sAI,by contrast, decides how to gather the most relevantinformationandthenusessearch toolstofindit.Thedataarethenfedback intothemodel,whichusesthemtocom­ poseafluentanswer.Otherfirms,includ­ ingNeeva,areusingthismethod,too. ThisinturnhashelpedMicrosofttackle a bigger problem: large language models’ tendencytomakestuffup.Chatbotshave nosenseofwhatistrueorfalse;theyre­ flectwhatisontheinternet,wartsandall. These authorititive­sounding “hallucina­ tions”,incomputer­sciencespeak,arein­ nocuouswhenthechatbotisusedforfun andgames.Whenitismeanttogivereal answers to serious questions, they are a fatalflaw.LastyearMetahadtotakedown itssciencechatbot,Galactica,afteritwas foundtobespoutingscientificnonsense. Giving the model access to up­to­date datahasreduced,thoughnoteliminated, thehallucinationsrateforBing’schatfea­ ture.“Alotofthehallucinationswere[the model]tryingtofillintheblanksonthings that had happened since the end of its trainingdata,”explainsKevinScott,Micro­ soft’schieftechnologyofficer. Hisfirmis using other techniques to lower the rate

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The Economist February11th2023

further.Theseincludehavinghumanstell themodelswhichanswersarebetterand whatinformationisreliable;addingmem­ orytothesystems,sothatthealgorithms learnfromtheconversations,whichthey currently do not; and posting links to sourcesintheAI­generatedresponses.Mr Schmidtsimilarlyexpectschatbotstohave fullysoberedupwithinayearortwo. Solving the technological problems is only the first step to dislodging Google fromthesearchpedestal.Nolessknottyis working out how conversational search will make money. Start with the costs, whichforchatbotsremainhighcompared withconventionalsearch.BrianNowakof Morgan Stanley, a bank, estimates that serving up an answer to a ChatGPT query costsroughlytwocents,aboutseventimes morethanaGooglesearch,becauseofthe extracomputingpowerrequired.Hereck­ onsevery10%ofGooglesearchesthatshift toAI by2025will,dependingonthenum­ ber of words in an average response, add between$700mand$11.6bntoGoogle’sop­ erating costs, equivalent to between 1% and14%ofsuchspendingin2022. To complicate matters further, many costly conversational­search queries will generatelittleadrevenue.Googlehassaid that80%ofitssearchresultsdonotcon­ tainlucrativeadsatthetopofthesearch results.Manyofthesead­lightsearchesare almostcertainly“informational”(“whatis thecapitalofSpain?”),preciselythesortof query where chatbots are most useful— andpreciselythesortthatadvertisersare leastinterestedin(itishardtoknowwhat adtoplacenexttotheword“Madrid”).For generativeAI tomakerealmoney,itmust findusesin“navigational”searches(look­ ingforasite’sinternetaddressbyitsname) and especially “commercial” ones (“Best newskibootsthisseason”). Somecompanies,likeNeeva,earnrev­ enuefromsubscriptions.OnFebruary1st OpenAI began signing up subscribers to thecurrentversionofChatGPT.For$20a month users get faster responses and ac­ cessatpeaktimes.OpenAI alsoplanstoli­ cense the technology to other firms. But thebigbucksarelikelytolieinadvertising. Embeddingadsinwhatismeanttofeel toauserlikeanormalconversationwillre­ quiredeftness.Onepossibilityistodisplay feweradvertsbutchargeadvertisersmore foreach,saysMrNowak.Achatbotislikely to offer up only a few suggestions in re­ sponsetoasearchqueryabout,say,bliss­ fulHawaiianhotels.Hoteliersmaybehap­ py to pay more to ensure that theirs are among those suggestions, or displayed nexttothem.Microsoftsaysthatitplansto testsuchamodelinthenew­lookBing. Microsoftmaybebettingthatitschat­ bot­assistedinformationalsearchwilllure newusers,whowillthenuseBingforthe morelucrativequeriesaswell.Thiscould

mean sacrificing margins, at least until costscanbebroughtdown.Itwouldonly beworthitiftheycanwrestsizeablemar­ ket share from Google. Microsoft expects thatforeverypercentagepointofmarket sharetheygaininsearch,itsannualadver­ tisingrevenuewillgrowby$2bn. That is possible—but not guaranteed. Alphabet retains formidable strengths. Oneistechnology.AlthoughGooglehasyet to integrate generative AI into its search engine, it has deployed other AIs in its search business for years. When it high­ lightsaweb­pagesnippetatthetopofthe search results, that is courtesy of models suchasBertandMum.Allthisis“onlypos­ siblebecauseofthefoundationalresearch we’vedoneinAI formorethanadecade”, saysLizReid,Google’sheadofsearch.De­ spitealaunch­daygaffe,whenitmisiden­ tified the first telescope to photograph a planet outside the solar system, Bard is likely to be no less impressive than ChatGPT. The stumble vindicated, in an ironicway,thecompany’sstatedreasonfor itsfoot­dragging:afearaboutunleashinga chatbotthatspewedinaccuratecontent. Google’sotheradvantageisincumben­ cy. It is the default search engine in Chrome,Alphabet’sbrowser,whichisused bytwointhreepeopleontheinternet,ac­ cordingtoStatCounter,aresearchfirm.It isalsothego­tosearchonmorethan95% ofsmartphonesinAmerica.Andthefirm paysApple$15bnorsoayeartomakeits searchthedefaultonApple’sdevices and Safari,whichaccountsfor19%ofbrowsers installedondesktopsanddevices. Yetthispositionofstrengthalsobrings weaknesses.ItishardforAlphabettomove fast with regulators breathing down its neckoverallegedmonopoliesandmisin­ formationonitsvariousplatforms.Itmay beevenharderforthecompanytoletgoof atechnologyandbusinessmodelthathas pumped out profits consistently for 20 years.MrPichaimayyetworkouthowbest toresolvethis“innovator’sdilemma”.Mr Nadella must be hoping that before he does,Bing,too,willhavebecomeaverb. n 3

Can Bing bring it? United States, search-advertising revenues, $bn FORECAST

Other Microsoft Google

120 100 80 60 40 20 0

2020

21

Source: eMarketer

22

23

24

Business in Brazil

Three is a cloud S ÃO PAULO

Alleged fraud at a Brazilian retailer sparks a corporate reckoning

B

razilian businesspeople arenoteasi­ lyshocked.Inthepastdecadetheyhave seentwobusinessempirescollapseinig­ nominy. Eike Batista, for a time Brazil’s richestman,losthisports­to­minesgroup amid charges of bribery and market ma­ nipulation (for which he was briefly jailed).MarceloOdebrecht,thescionofa constructiondynasty,wenttoprisonover the“BigOily”graftschemecentredonPe­ trobras,thestateoilgiant. The latest scandal erupted on January 11th, when the new boss of Americanas, SergioRial,reported“accountinginconsis­ tencies”thathadallowedthe94­yearold retail giant to hide 20bn reais ($4bn) of debt over a decade. Correcting the error swelled the firm’s debt to 43bn reais. Its shareslost94%oftheirvalue.OnJanuary 19thitfiledforbankruptcy.MrRialquit;his predecessor,whohadrunthefirmfor20 years,isapparentlynowheretobefound. Severalcreditorscriedfraud. Though modest next to the Odebrecht andBatistaimbroglios,theepisodestruck anerve.Thatisbecause31%ofAmericanas isownedbythreeheroesofBrazilInc.Jorge PauloLemann,CarlosAlbertoSicupiraand MarcelTellesgainedfameafter3G Capital, the private­equity firm they founded in 2004,sealeddealstowincontrolofglobal behemothsincludingAB InBev,theworld’s biggestbrewer;KraftHeinz,oneofitsbig­ gest food producers; and Restaurant Brands International, owner of, among otherchains,BurgerKing.Their“3G way”, which combined Walmart­like ruthless cost­cutting, GE’s “rank and yank” ap­ proachtopersonnelandGoldmanSachs­ styleperformance­basedpay,wasadmired andapedtheworldover.Theirpreference for quiet philanthropy over Batista­like flamboyanceaddedtothemythos. NowaggrievedAmericanaslenders,in­ cludingBTG Pactual,aninvestmentbank, areaskinghowmuchthetrio,whoinvest­ edinthefirminapersonalcapacity,knew. (3G ownsnostakeinAmericanasandhas not commented.) Brazil’s president, Luiz Inácio Lula da Silva, has likened Mr Le­ mann to the disgraced Mr Batista. Many others quietly wonder how the scheme couldhavegoneunnoticedforsolong. OnJanuary22ndthetrioissuedastate­ mentcategoricallydenyinganyknowledge of “accounting tricks or dissimulation” andpointingoutthattheshare­pricedrop meantthey,too,werevictims.Americanas

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isasmallpartoftheirportfoliosandthey hadnotbeeninvolvedinitsday­to­dayop­ erationsinyears.Intheirroleasinvestors, theyhaveputinthreetimesasmuchequ­ ityintothebusinessastheyhavetakenout individendsoverthepasttenyears. That may be so. Still, the case casts a shadowonthe3G way,whichsomeseeas incentivising corner­cutting or worse. A few3G companieshavefacedallegationsof accounting irregularities, some of which resulted in settlements. After 3G sold AméricaLatinaLogística,alogisticsfirm, the buyer republished the previous two

The Economist February11th2023

years’balance­sheetstocorrecttheexclu­ sionofsomedebtstosuppliersandother costs. Such revisions are not unheard of givenBrazil’sByzantineaccountingrules, butnotagoodlook.In2021Kraft­Heinz,in which 3G then owned a17.6% stake, paid $62m to settle a case in which America’s Securities and Exchange Commission ac­ cuseditofinflatingprofits.MiguelPatrí­ cio,CEO ofKraft­Heinz,saysthiswasa“mi­ nor mistake” and not part of any pattern with 3G businesses; Kraft Heinz, he says, hasincreasedcontrols.3G didnotrespond toThe Economist’srequestsforcomment.

The fate of the trio’s reputation may now hinge on what exactly happened at Americanas.Thecompany’sinterimman­ agement and its shareholders are on the case.SoisBrazil’smarketsregulator.PwC, whichhadsignedoffonthecompany’slast full set of accounts in 2021, declined to commentonanyaspectofthecase.Until theairiscleared,MessrsLemann,Sicupira andTellesmay,fairlyornot,facefrustra­ tion and anger from those who fear the scandaltarnishesBrazilianbusiness’sglo­ balreputation—anddisappointmentfrom theirremainingfans. n

Bartleby Thefashionforpassion The pitfalls of loving your job a little too much

B

ack in the dimanddistantpast,job candidateshadinterestsorhobbies. Thoseinterestscouldbeintrospective: readingabookwasaperfectlyacceptable wayofspendingyoursparetime.No longer.Todayyouwillprobablybeasked ifyouhavea“personalpassionproject”, andthemoreexhaustingyouranswer sounds,thebetter.Gowhite­waterraft­ ing,preferablywithorphans.Helpbuild motorwaycrossingsforendangered animals.Ifyoumustread,atleastdoso intheoriginal. Passionisbecomingastaplefor workplacesuccess.Anewpieceofre­ searchfromJonJachimowiczandHan­ nahWeismanofHarvardBusiness Schoolincludesananalysisof200mjob postingsinAmerica.Itfindsthatthe numberwhichexplicitlymention“pas­ sion”roseovertime,from2%in2007to 16%in2019. Careerwebsitesofferhelpfuladvice onhowtocomeacrossaspassionate aboutdeeplyordinarypursuits.Hereisa suggestionfromonesiteonhowtotalk toprospectiveemployersaboutputting thingsintoanoven.“Ilovetheprocessof researchingnewrecipesandtesting themout.I’vebeenwritingupmyexperi­ enceswithbakingforthepastthree years…I’mverydetail­oriented,andlove thescientificaspectsofbaking.However, I’malsoaverysocialperson,andusemy bakingasachancetogettogetherwith friendsandfamily.”Donotsay:“Ijust reallylikecake.” Onceinsideanorganisation,passion forthejobalsoseemstobeagoodwayto getahead.AnotherpaperbyMrJachi­ mowicz,alongwithKeWangofHarvard KennedySchoolandEricaBaileyof ColumbiaBusinessSchool,foundthat employeeswhowereregardedasmore passionatethantheirpeersgotmore

positivefeedbackaswellasmorepromo­ tionandtrainingopportunities.Other researchhasfoundthatworkerswhocry atworkaremorehighlyregardedifthey attributethesedisplaysofemotionsto caringtoomuch. Onthesurfacethefashionforpassion makessense.Better,surely,foranemploy­ eetobeenthusedthannot.Mostworkers wanttodoajobtheylove;mostcompa­ nieswantaworkforcethatiscommitted andmotivated.Thecaseforunbridled energyisparticularlystrongforcertain typesofcompanies.Thereisareasonwhy startupsdonotembracethecultofthe occasionallyinterestedfounder. Butpassioncanalsowarpjudgment. Forfirms,theobviouspitfallisrewarding commitmentovercompetence.Justas thatnote­taking,detail­orientatedbaker couldbechurningouttheworld’smost disgustingprofiteroles,thesuper­keen employeewhovolunteersforeverything maynotbethatgreatattheirjob.The paperbyMrJachimowicz,MrWangand MsBaileyfindsthatpassionmayindeed beblindingmanagerstoreality:itfinds

thatevenwhentheperformanceofpas­ sionateemployeesisonthedownward slope,theyarestillmorelikelytobe givenpromotionsthantaciturnpeers. Dangersalsolurkforemployees.Even ifcommitmentisheartfelt,passion comesindifferentvarieties,somebetter thanothers.Psychologistsdistinguish betweenharmoniouspassion,inwhich peopleengageinanactivitybecausethey genuinelyenjoyit,andobsessivepas­ sion,amorecompulsivebehaviourin whichpeoplefeelliketheyarenotreally incontrolofthemselves. Oneobviouspitfallstandsout.There areonlysomanywaystocommunicate passion.Wideningyoureyesandnod­ dingwildly:tooweird.Jumping,whoop­ ingandsweating:evenweirder.Working everlongerhours,ontheotherhand,isa fairlysimplewaytoshowthatyour commitmentisbeyondquestion. Someevidencesuggeststhatemploy­ ersfeeljustifiedinexploitingthatfact.A surveybyacademicsatDukeUniversity, theUniversityofOregonandOklahoma StateUniversityfoundthatpeople thoughtitwasmorelegitimatetoask passionateworkersthandisengaged onestoworkfornomoneyandtomiss timetheyweremeanttobespending withtheirfamilies.Theyarealsomore comfortablewiththeideaofasking passionateemployeestodototallyun­ relatedtasks.Peopleapparentlybelieve thatifyouloveyourjob,youwillenjoy cleaningtheofficetoiletsmorethan peoplewhoarelessenthusedbyit. Itisgreattofeelpassionforyourjob. Butifyouareupat4amforameeting withAsia,constantlyworkingonyour holidayorhavejustbeenhandedabottle ofbleachandamopbyyourboss,youare inthegripofsomethingthatisnoten­ tirelyhealthy.

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The Economist February11th2023

Energy

Big oil’s new map

NEW YO RK

WhereonEartharetheWest’soilgiantsspendingtheir$150bnprofitbonanza?

T

OWARDS THE end of the second world war Franklin D. Roosevelt attended a fateful gathering of world leaders that helpeddeterminethecourseofgeopolitics fordecades.No,nottheYaltasummit.Im­ mediately after FDR, Churchill and Stalin hadcarveduptheworldintospheresofin­ fluence, the American president slipped awayontoanUS Navyvesseltomeetquiet­ lywithAbdelAzizibnSaud,kingofSaudi Arabia. In return for protection of the Sauds’ sovereignty in the Holy Land, the monarch agreed to grant American oil firmsaccesstohiscountry’spetroleum. Buildingonthelong­standingexploita­ tionofPersianreservesbytheAnglo­Per­ sian Oil Company (now BP), the Saudi­ American alliance formed the axis of oil thatledWesternmajorstolooklongingly firsttothePersianGulf,thentootherdis­ tant longitudes. For decades the world’s fivebiggestprivate­sectoroilcompanies— America’sExxonMobilandChevron,Brit­ ain’sBP andShell,andFrance’sTotalEner­ gies—havedrilledfromSouthAmericato Siberia. Now a swirl of geopolitical, eco­ nomicandenvironmentalfactorsislead­ ing these “supermajors” to increasingly looknoteastandwestbutnorthandsouth. This realignment comes as big oil’s coffers are overflowing after two years of sky­highenergyprices(seechartonnext page). On February 2nd Shell unveiled annualnetprofitsfor2022of$42bn,more thandoublethefigureayearearlierandits highestinoveracenturyasapubliccom­

pany. That came on the heels of Exxon­ Mobil’sannouncementofarecordannual net profit of $56bn. Its main domestic rival, Chevron, reported that its own net profitmorethandoubled,to$37bn.BP and TotalEnergiesaddedtothehaulonFebru­ ary7thand8th,respectively. Alltold,thosefivesupermajorsrakedin around $150bn in profits last year and couldmakeasmuchagainin2023.Aslug ofthisbountywillflowtoshareholders;in JanuaryExxonMobilsaiditwouldforkov­ eracool$35bnintotaltoitsownersthis yearandnext.Someoftheproceedswillgo topayingdowndebt.Muchoftherestwill, though,bereinvested. Afterseveralyearsofrepressedinvest­ mentinoilandgas,theresultofpandem­ ic­induced demand destruction and cli­ mate­relatedpolicyhostility,bigoilisonce againspendingtofindoilanddigitoutof theground.S&P Global,aresearchfirm,es­ timates that worldwide upstream capital expenditurefortheindustryasawhole,in­ cludingprivate­sectormajorsandnational oil companies, was around $450bn last year,upfroma15­yearlowof$350bnorso in2020.Thisyearitmaybehigherstill. Latitudeshift All this new money is not flowing to the same old places. The West’s oil titans are experiencing “a fundamental shift in thinking”,saysEdwardMorseofCitigroup, abank.Americancompaniesarebeatinga retreat from faraway “frontier” areas that

are rich in political risk, lack the infra­ structuretogethydrocarbonstomarketas cleanlyaspossible,orboth.Theirlessrisk­ averseEuropeanrivalsareshunningsome oftheirownAmericanprojectsinfavourof Africa,withpotentialforclimate­friendli­ er new developments. In both cases, the upshotisarealignmentoftheoilbusiness alonglinesoflongitude. For the American supermajors, this meanslessinterestoutside theAmericas. ExxonMobilhas,likemostWesternfirms, leftRussiaafteritsinvasionofUkraine.It has also offloaded—or wants to offload— assets in countries such as Cameroon, Chad, Equatorial Guinea and Nigeria. Chevron has sold projects in Britain and Denmark(aswellasBrazil)andhasnotre­ newedexpiringconcessionsinIndonesia andThailand. JamesWestofEvercore,aninvestment bank,seesChevronandExxonMobilshift­ ingahugeamountofcapitalspendingto SouthAmericaandtheUnitedStatesitself. ExxonMobil is investing heavily in new­ foundfieldsinGuyana.Chevronintendsto funnelmorethanathirdofitscapitalex­ penditurethisyeartoAmericanshale,and another 20% to the Gulf of Mexico. Last month it also, with President Joe Biden’s blessing, restarted trading some crude from Venezuela, a dictatorship that had longbeenonAmerica’snaughtylist. TheEuropeanoilgiantsarealsoreduc­ ingtheireasternandwesternexposure.BP and Shell are, like ExxonMobil, quitting Russia,leadingtowrite­downsofasmuch as$25bnand$5bn,respectively.Shellhas alsogotridofitsshaleassetsinTexasand reportedlyputafewintheGulfofMexico upforsale.BP isdivestingitsMexicanoil assets,andisexpectedtogetoutofAngola, Azerbaijan, Iraq, Oman and the United ArabEmirates.TotalEnergiesispullingout ofCanada’soilsands. Instead,theEuropeans’gazeis,aswith their American rivals, turning south. In January Claudio Descalzi, boss of Eni, an Italiannon­supermajor,calledforEurope tolooktoAfricaasitseekstoreplaceRus­ sianenergy.Sucha“south­northaxis”,he argued,wouldboostEurope’saccesstotra­ ditionalfossilfuels,aswellastocleaneral­ ternatives like renewable energy and hy­ drogen(whichcouldbeshippedorpiped north).OnJanuary28thEniannouncedit hadsignedan$8bnnatural­gasdealwith Libya’sstate­ownedNationalOilCorpora­ tion(whichincludesabitofmoneyforcar­ boncaptureandstorage).ShellandEqui­ nor, Norway’s state oil firm, signed an agreementwithTanzaniatobuilda$30bn liquefiednaturalgas(LNG)terminalinthe east African country. TotalEnergies is in­ vestingingasprojectsinMozambiqueand SouthAfrica. Therearetwomainreasonsforthisre­ alignment.Thefirst,achiefpreoccupation

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The Economist February11th2023

Super-manna Oil and gas Supermajors*, net profit $bn 200 100 0 -100 2000

05

10

15

20

23†

Brent crude price, $ per barrel Annual average 150 100 50 0 2000

05

10

15

20

23†

Exploration and production capital spending‡ Worldwide, $bn 800 600 400 200 0 2000

05

10

15

20

23†

*BP, Chevron, ExxonMobil, Shell and TotalEnergies †Forecast ‡Including national oil companies Sources: Bloomberg; S&P Global Commodity Insights

oftheAmericans,hastodowithrisksand returns.Inpreviouserasofhighoilprices oilbossesspent,inthewordsofone,“like drunken sailors”. Too much investment andnotenoughcostcontrolinthego­go years led to huge waste and overproduc­ tion.Intheyearsbeforethecovid­19pan­ demic,oilprojectsfromtheCaspianSeato thePermianbasinlostbillionsofdollars. Tensofbillionsmoreinshareholdervalue wentupinsmoke. These days investors are demanding much greater capital discipline from oil bosses. And the bosses are listening. The industry’s combined capital spending, though up from its recent trough, is still down from a peak of nearly $800bn in 2014.Asforthemoneythatthesuperma­ jors are spending, it is being deployed more judiciously. Most of it is going into “short­cycle”investments,whichgenerate areturnwithinfiveyearsratherthantenor more.“I’vebeeninthisindustrysincethe 1990sandI’veneverseenthismuchfocus on efficiency,” marvels Julie Wilson of Wood Mackenzie, a consultancy. This questforefficiencymeansfewerriskybets ininhospitableplacesliketheArcticorthe deepoceanfloorandmoreprojectsinfa­ miliar jurisdictions with less daunting politicsandgeology.

FortheAmericanfirms,ofcourse,no­ where is more familiar than the United States.TheyalsounderstandSouthAmeri­ ca.Andpartsoftheirbackyardtheyknow less well, like Guyana, whose long­ru­ mouredoilricheswereonlyconfirmedin 2015,mayalsobe,counter­intuitively,less politicallyriskyinimportantways.Unlike theirpeersinmanyresource­cursedautoc­ racies,whocannotimagineafuturewith­ out oil, politicians in places with newly discovered resources are more cautious abouttheirprospects.Asaresult,theytend tooffermorefavourabletermstooilcom­ panies in order to get hydrocarbons to market faster; in Guyana, ExxonMobil movedfromfirstdeepwateroildiscovery toproductioninjustacoupleofyears. For the Europeans, African countries, whichoftenmaintainreasonablerelations withtheirformercolonialpowers,lookap­ pealingforasimilarreason.Asfortheirre­ treatfromAmerica,Europeanfirmsarebe­ coming uneasy about their association with America’s oil industry, with its un­ apologetically brown reputation. In 2021 TotalEnergies withdrew from the Ameri­ canPetroleumInstitutebecauseofthelob­ by group’s opposition to electric­vehicle subsidies, carbon pricing and tougher rules on emissions of methane, a potent greenhousegas. Indoingso,theEuropeanfirmsarere­ sponding to growing pressure from con­ sumers, policymakers and investors to start decarbonising their portfolios—the Europeans’bigreasonforthegeographical sorting.Theyarelookingfornewplacesto invest because such investments, which usethelatesttechnology,tendtobemore efficient and less carbon­intensive than legacyassetsthatrelyonleakier,ageingin­ frastructure.Moreover,oilcompanies,es­ peciallyinEurope,arelookingbeyondfos­ sil fuels. James Thompson of JPMorgan Chase,abank,hasfoundthatthehistorical

correlation between high oil prices and high capital spending on oil and gas has brokendownfor11bigprivate­sectorener­ gygiants—aphenomenonheputsdownin part to the majors pouring more money intolow­carbonprojects. Such projects are indeed mushroom­ ing, particularly among the European firms—andinmanyofthesameplacesas theirnewhydrocarbonventures.LastMay EnistruckadealwithSonatrach,Algeria’s state oil firm, to develop green hydrogen from renewable sources. BP is doing the sameinMauritaniaandTotalEnergieshas backed renewable­energy production in SouthAfrica.Lookingnorth,lastyearShell paidnearly$2bnforNatureEnergy,aDan­ ish producer of “renewable” natural gas (RNG) made from things like agricultural waste.OswaldClintofBernstein,abroker, predicts“aneraofgiga­mergers”ingreen energy led by the European giants. Last yearalonetheoilmajorssigned22renew­ ablesdeals,thefivebiggestofwhichadded upto$12bn.MrClintreckonsthatin2030 the European majors could, all told, be spendingroughlyhalftheircapitalexpen­ ditureonlow­carboninitiatives. Vertical integration The supermajors’ north­south realign­ mentisfarfromcomplete.bp isstillmak­ ingsomeinvestmentsintheGulfofMexi­ coandinDecembercompletedits$4.1bn purchaseofArchaea,anAmericanmaker ofRNG.ShellandTotalEnergiesarebetting on Qatari LNG. ExxonMobil is doubling down on a gas project in Mozambique. ChevronisexpandinganoilprojectinKaz­ akhstan and, reportedly, reviving talks withAlgeria’sgovernmentaboutthecoun­ try’svastshalereserves.Buttheseventures increasingly look like exceptions rather thantherule.Thefutureofenergyexplora­ tionlooksmuchleaner,abitgreener—and alotmorelongitudinal. n

Rotating the ex-axis New oil projects* since 2021, cumulative peak project capacity by: Number of projects by 2030:

2022

2030

Norway 8

Barrels per day, m 2.0 0.1

Canada 11

Britain 11

US 26

India 1

China 1

Guyana 4 Ghana 4

Brazil 17

Source: S&P Global Commodity Insights

Uganda 2

Australia 2

*Non-OPEC conventional oil projects, excluding Russia. At January 2023

012

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The Economist February11th2023

Schumpeter OnSchumpeteronApple

What would the father of creative destruction make of the iPhone-maker?

T

here is an inconvenient truth about Joseph Schumpeter, patronsaintofthiscolumn.Asaneconomist,hisbiggestcon­ tributionwastosingleoutentrepreneursascoretothebusiness cycle.Earlyinhiscareerhemadechampionsofthem,describing themasswashbucklingiconoclastswhooverthrowtheexisting order motivated by sheer chutzpah. Yet later in life, when he coinedhisfamousterm“creativedestruction”,heapplieditnotto suchindividualsbuttoindustrialbehemoths,evenmonopolies. Theywerecompelledtoinnovateinorderto“keepontheirfeet,on groundthatisslippingawayfromunderthem”,hewrote.Afarcry fromtheentrepreneurialheroesofhisyouth. Inhisnewbook,“TheEntrepreneurs”,DerekLidowputsthis intohistoricalcontext.WhentheyoungSchumpeterwrote“The TheoryofEconomicDevelopment”in1911,itwasattheendofa longperiodofunfetteredenterpriseduringthefirstcenturyofthe IndustrialRevolution.Butintherun­uptothesecondworldwar, whenSchumpeterwrotehismostfamouswork,“Capitalism,So­ cialismandDemocracy”,thebuccaneersofyorehadmorphedinto largeconglomerateswithvastresearch­and­development(R&D) labsinwhichtheyinvestedfortunestoremaincompetitive. ThatisausefulwaytounderstandApple,makeroftheiPhone. Whatwasonceascrappystartupwithvisionaryco­founderskeen tochangetheworldhasbecometheworld’slargestcorporation, worth$2.4trn,with2bndevicesinactiveuseandalineofhigh­ margin services to support them. Some worry that its size has sappeditsinventivemojo,madeittoobigforitsboots,andleftit overexposedtoChina.OnFebruary2nditreporteditsfirstdecline inyear­on­yearearningsinthreeandahalfyears.Yetitisstilla profit­makingjuggernautandcontinuestopourmoneyintoin­ novation: R&D inthequarterjumpedto6.5%ofsales,upfrom5% ayearearlier.WhatwouldSchumpeterhavemadeofthecompany thatsoneatlyencapsulatesbothsidesofhisthinking? NodoubttheyoungSchumpeterwouldhavebeenfascinated bythelateSteveJobs,Apple’sco­founder.Jobswasuniquelygift­ ed,orasSchumpeterwouldhaveputit,a“Caruso”(afteragreat Italiantenorofhistime).Schumpeterdrewupachecklistofways tocreatenew“combinations”,ashecalledentrepreneurialfirms; Jobsusedmanyofthem.Hecreatednewgoods(Macs,iPods,etc),a

newmethodofproduction(theCupertino­to­Chinasupplychain) andnewmarkets(theappeconomy).Tostartwith,healsomet hugeresistance,asSchumpeter’stheorypredictedhewould. Fast forward to today and Schumpeter would probably ac­ knowledgeTimCook,Jobs’ssuccessor,asatop­notchmanager,if notquiteaCarusoesqueentrepreneur.Somecriticscomplainthat underMrCook,Applehasnotcreatedaproductasoriginalasthe iPhone.But,asHoraceDediu,anexpertonApple,pointsout,it relentlesslyimproves,refinesandshrinksitscomponents,which hasgivenrisetonewgadgetsliketheAppleWatchandAirPods. Thisyear,suchmicro­innovations,combinedwithlasers,bet­ tercamerasandincreasedenergyefficiency,areexpectedtocome togetherinthelaunchofanewAppledevice,amixed­realityhead­ set.Suchdevelopments,saysMrDediu,arenotabout“eurekamo­ ments”.Theyareaboutturningnewtechnologiesintoproducts thateventuallywillbeaccessibletomillions.Inpursuingthem, Applehasbecomejustthesortofbig­businessinnovationengine thatlate­in­lifeSchumpeteradmiredandperceivedasbest­placed toproducerevolutionarychange. To be sure, Apple might flinch at the comparison. After all, whenSchumpetertalkedaboutthelargecompanieshelookedup to,heexplicitlyreferredtomonopolies—aloadedterm,especially inbig­techcircles.AntitrustisafetishofJoeBiden’sadministra­ tion.IthasrecentlybroughtabigcaseagainstGoogle,lostoneto Facebook’sowner,Meta,andisreportedlypreparingoneagainst Amazon. Mr Cook’s rivals, including Meta’s Mark Zuckerberg, complainofApple’sdominance,includingrestrictionsontheuse ofitsAppStore,aswellasontrackingtechnologiesusedbydigi­ tal­adcompanies.Appleremainsinanappeals­courtbattlewith Epic, a games developer, in a competition case over App Store charges.ThoughFacebookandGooglegetmostoftheantitrustat­ tention,somuchoftheircontentdependsonApple’splatforms thatsomedescribeitasthe800­poundgorillainthebackground. ToApple,thisisallnonsense.ItsAppStorepoliciesprotectits users from fraudsters, hackers and the like, it has said. Its ad­ tracking restrictions protect privacy. Yet Schumpeter, were he alivetoday,mightofferamorehigh­leveldefence.Forone,herid­ iculedthenotionofperfectcompetitionaltogether.Moresignifi­ cantly, he believed that creative destruction blew through the economy like a perennial gale, destroying old structures and buildingnewones.Thatleftnoonesafefromdisruption.Ashe putit,evenamonopolywas“nocushiontosleepon”. Applemaylookinvincible.Butdoesit,too,feeltheriskthatthe rugcouldbepulledfromunderitsfeet?Itdoesn’tneedtolookfar toseehowthechatbotbattlebetweenMicrosoftandGooglehas swiftlyraisedquestionsaboutthefutureofGoogle’ssearchbusi­ ness.EvenChatGPT,Microsoft’sweaponinthefight,couldnotde­ scribecreativedestructionwithmoreSchumpeterianeloquence. Capitalism, Socialism and Chinese Communism AdvancedartificialintelligenceposesachallengetoSiri,Apple’s voiceassistant,butnotadirectthreattoAppleitself.Moreserious issomethingthatgoesbeyondcreativedestruction.ItisApple’s vast,andvitallyimportant,supplychainsinChina,fromwhichit willstruggletoextricateitselfasSino­Americanrelationsdeterio­ rate.Appleisplayingitcarefully;MrCookbalanceshisfirm’sex­ posuretoChinawithgrandinvestmentpromisesinAmerica.But Apple’sbigChinesepresenceisadangernonetheless.Schumpe­ ter,whospentthelastyearsofhislifemusing,erratically,about thedarkfutureofcapitalism,wouldhavesympathised. n

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Thereopening

A beating heart

China’s economy is recovering from zero-covid much quicker than expected

D

uring China’s recentlunar­new­year holiday,touristsflockedtothesprawl­ ingTaihaomausoleuminHenanprovince. ManyenjoyedslappingastatueofQinHui, a scheming official in the Song dynasty whoisnotoriousforhavingframedamili­ tary hero. One visitor got a little carried away,strikingthestatuewiththelidofan incenseburner.Feelingsarerunninghigh afterQin’svillainyfeaturedinanewfilm, “FullRiverRed”,whichtoppedthebox­of­ ficechartsduringtheholiday. This enthusiastic moviegoing, sight­ seeingandstatue­slappingisevidenceofa surprisinglyrapidconsumerrevivalinthe world’s second­biggest economy. The mausoleumsaysitreceived300,000peo­ pleinthefestiveperiod,themosttohave visitedinthreeyears.Box­officerevenues were not only better than last year, they werealsohigherthanintheyearbeforeco­ vid­19 struck. China’s population, subject until recently to mass screening, is now massingatthescreens.

Therecoveryisarrivingearlierthanex­ pected because the virus spread faster. SinceChinahastilyabandoneditszero­co­ vid regime, infections appear to have passedremarkablyquickly.Stateepidemi­ ologists estimate that at least 80% of the populationhasalreadycaughtthedisease. Accordingtoofficialfigures,hospitalinpa­ tient numbers peaked on January 5th. A second wave of infections was expected afterholidaytravelspreadthediseasefrom citiestovillages.Butthevirusbeatthefes­ tive rush. The much­feared second wave → Alsointhissection

61 SouthKorea’shousingcrunch

62 Buttonwood:FightingtheFed

63 Convertingofficesintofamilyhomes

64 Centralbanking’s$2.5trnquestion

65 Freeexchange:Regulatingbigtech

appearstohavemergedwiththefirst,reck­ onsAirfinity,alife­sciencesdatafirm. Although the death toll from all these infections is unknown, the economic af­ termath is becoming clearer. As people havecaughtandrecoveredfromthevirus, China’s service economy is returning to life.Anindexofactivityoutsidethemanu­ facturingsector,basedonmonthlysurveys ofpurchasingmanagers,jumpedfrom41.6 in December to 54.4 in January, the sec­ ond­biggest leap on record. Xiaoqing Pi and Helen Qiao of Bank of America note thatactivityintheservicesectors“battered by the pandemic”, such as retail, accom­ modationanddining,hasrisensharply. OnMeituan,ane­commerceplatform, some restaurants have amassed waiting lists1,000tableslong.Peopleusedtoqueu­ ingforpcr testsnowwaittoprayatpopu­ lar temples. In Hangzhou, the capital of Zhejiang province, people gathered out­ sidetheLinshuntempleat4amtolightin­ cense for the God of Wealth. Others who reached the top of the spectacular Tian­ menmountaininHunanprovince,famous for its vertiginous glass walkways, were forcedtotowaituntil9pmtocatchacable car back down, according to the National Business Daily,astatenewspaper. Canthisfreneticpacebesustained?Op­ timistspointoutChinesehouseholdsare unusuallyliquid.Theirbankdepositsnow exceed120trnyuan($18trn),over100%of

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The Economist February11th2023

lastyear’sgdp,and13trnyuanmorethan mighthavebeenexpectedgivenpre­pan­ demic trends, according to Citigroup, a bank. These deposits could provide am­ munitionforaboutof“revengespending”. Yet the ammunition may be set aside forotherpurposes.Muchiscomposedof money that nervous households kept in thebankratherthanusingtobuyproperty orploughingintoamutualfund.Theyare unlikelynowtolavishitongoodsandser­ vices. More likely, reckons Citigroup, is a bout of “revenge risk­taking”, as house­ holds gain confidence to buy assets that arelesssafebutpotentiallymorereward­ ingthanabankdeposit.Thiswouldliftfi­ nancialmarketsandgiveamuch­needed boosttoproperty. Perhapsamoreaccuratewaytoassess theforthcomingspendingboomisthere­ foretolookatthegapbetweenhousehold income and consumer spending. In the three years before the pandemic, house­ holds saved 30% of their disposable in­ come. During the pandemic they saved 33%. The cumulative result of this extra savingisabout4.9trnyuan.Ifconsumers added that to their spending this year it wouldincreasetheirconsumptionby14% (beforeadjustingforinflation). The exact size of the spree will ulti­ matelydependonbroadereconomiccon­ ditions.Propertypriceshavefallenandthe jobmarketisweak.Youthunemployment isstillabove16%.ButChina’slabourmar­ kethasbouncedbackquicklyafterprevi­ ouscovidsetbacks,andjoblessyoungsters countforonlyabout1%oftheurbanlabour force. With luck, a bit of extra spending willresultinhighersalesandstrongerhir­ ing,inturnmotivatingadditionalspend­ ing.Allthismeansconsumptioncouldac­ countforthelion’sshareofChina’sgrowth this year: almost 80%, according to Citi­ group,ifgovernmentspendingonservices is included. This would be the highest shareformorethantwodecades. China’s splurge will make a welcome contribution to global growth. According totheimf’sforecasts,releasedonJanuary The rainy day arrives China, average annual savings per person ’000 yuan 13 12 11 10 9 8 7 6

Actual savings

“Normal” savings*

2016

17

18

19

*Pre-pandemic average rate Source: National Bureau of Statistics

20

21

22

Property (1)

Back with a vengeance

Home truths

China, consumption’s contribution to GDP growth, % 80 60 40 20 0 -20 2000

05

10

15

20

Sources: Citigroup; National Bureau of Statistics

23* *Forecast

30th,thecountry’seconomywillgrowby 5.2%thisyear,accountingfortwo­fifthsof theexpansionintheworldeconomy.To­ gether,Americaandtheeuroareawillcon­ tributelessthanafifth. ArecentstudybyeconomistsatAmeri­ ca’s Federal Reserve makes a basic point with its title: “What Happens in China Does Not Stay in China”. Their estimates suggest a policy­induced expansion in China’sgdp of1%addsabout0.25%tothe restoftheworld’sgdp afterayearortwo. The authors do not examine spillovers from China’s reopening. But their results givesomeindicationofthepossibleconse­ quences.IfChina’sreopeningliftsthedo­ mestic growth rate from 3% to 5­6% this year,thespillovereffectsmaybe0.5­0.75% of the rest of the world’s gdp, or about $400bn­600bnatanannualisedrate. Anuptickinglobalgrowthwouldnotbe anunalloyedgood,however.Centralbanks are still attempting to quash inflation. If higherChinesedemandaddstopricepres­ sures, policymakers may feel obliged to slow their economies by raising interest ratesordelayingcuts.LaelBrainard,vice­ chairwomanoftheFed,hasnotedthatChi­ na’s abandonment of zero­covid has un­ certain implications for global demand andinflation,especiallyincommodities. Christine Lagarde, head of the European CentralBank,haswarnedthereversalwill increase “inflationary pressure”, because Chinawillconsumemoreenergy.Accord­ ing to Goldman Sachs, another bank, re­ opening could add $15­21 to a barrel of Brentcrudeoil,nowtradingataround$85. AftertheAsianfinancialcrisisin1997, the Chinese economy helped to stabilise theregion.Aftertheglobalfinancialcrisis a decade later, China’s growth helped to stabilise the world. This year it will once againmakethesinglebiggestcontribution toglobalgrowth.Butwhereasinthepast China’s contribution came from invest­ ment spending, now consumption will takethelead.Chineseconsumers,whotra­ ditionally punch below their weight, are abouttohitalotharder. n

SEOUL

SouthKorea’shousingcrunchoffers awarningforothercountries

“B

uying the house in 2021 might be oneofthebiggestregretsofmylife,” saysKimMyung­soo,a33­year­oldwhose homeinJamsil,easternSeoul,hasfallenin value by about $400,000. His wife is 33 weekspregnantandMrKimdoesnotknow how he will repay the mortgage. He had planned to wait for prices to rise before sellingthepropertytopayofftheloan. Mr Kim is not alone in his worries. Across the rich world, property markets lookprecarious.Fewareinasbadshapeas South Korea’s. House prices fell by 2% in Decemberalone,thebiggestmonthlydrop since official figures began in 2003. The slump has been particularly brutal for apartments in Seoul: prices are down by 24%sincetheirpeakinOctober2021. SouthKorea’smarketoffersaglimpseof whatmaylieaheadelsewhere.TheBankof Korea(bok)beganraisinginterestratesin August2021,sevenmonthsbeforetheFed­ eralReserveandalmostayearaheadofthe European Central Bank. The benchmark ratenowsitsat3.5%,a14­yearhigh,after officialsraiseditonceagaininJanuary. The broader economy is feeling the pinch.Privateconsumptionfellby0.4%in the fourth quarter of 2022. And exports, whichdroppedby17%year­on­yearinJan­ uary,havehardlycushionedtheblow.They werehitbyacollapseinsemiconductoror­ dersattheendofapandemic­eraboomin electronics sales. This sluggishness will onlyaddtothedragonhouseprices. There are other sources of stress, too. Householddebtreached206%ofdisposa­ ble income in 2021, well above even the 148% in mortgage­loving Britain. Some 60% of South Korean housing loans are In debt, in danger Household debt as % of net disposable income 2021 0 Australia South Korea Canada Britain France Germany United States Spain Source: OECD

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Finance & economics

floating­rate, in contrast with America, wheremostlendingisonfixedterms.Asa result, household finances are squeezed morequicklywhenratesrise.Thedangeris that buyers like Mr Kim turn into forced sellers—something he says he will try to avoid at all costs—meaning a slide in housepricesbecomesacollapse. Thisriskisenhancedbythecountry’s bizarre rental system, known as jeonse. Manytenantspayhugelumpsumstoland­ lords,often60­80%ofthevalueofaprop­ erty,whicharereturnedaftertwoyears.In the interim the landlord can invest the

The Economist February11th2023

cashastheywish.Thesystemisarelicof South Korea’s rapid industrialisation, whenmortgageswerehardertoattain. In a downturn, some landlords are forcedtomakefiresalestoreimbursede­ parting tenants, having invested in risky assets, including more housing, and lost themoney.Storiesaboutsuddendefaults andvanishing“villakings”,ownersofdoz­ ensofrentalproperties,proliferate. South Korea also demonstrates how highhouseholddebtandassetpricescan constrainmonetarypolicy.Opinionissplit aboutwhetherhousing­marketfrailty,and

thehittohouseholdincomes,willstopthe bok raisingratesfurther.OxfordEconom­ ics, a research firm, thinks the bok will keepgoing.Nomura,abank,expectsitto reversecourseinMay,andcutthebench­ markrateto2%bytheendoftheyear. Most countries are not as exposed as SouthKorea.Butsome,includingAustra­ lia,Canada,theNetherlands,Norwayand Sweden,sharethesamemixofhighhouse­ hold debt and frothy property prices. All beganraisingratesafterSouthKorea,and havefurthertogobeforethepressurefeeds through.Theyareinforarockyride. n

Buttonwood WhentofighttheFed There is sometimes reason to ignore a canonical piece of Wall Street advice

I

f you are oneofthemanybuyersof AmericanstocksorTreasurybondsin thepastfourmonths,orindeedabuyer ofmostfinancialassetsovertheperiod, thenthiscolumnhasamessageforyou: congratulations.Notonlyhaveyou achievedprettyhealthyreturns—thes&p 500indexofbigAmericanfirmsisupby 15%—butyouhavedonesowhilevio­ latingoneofWallStreet’scardinalrules. Thephrase“don’tfighttheFed”is associatedwithMartinZweig,anAmer­ icaninvestorrenownedforpredictinga crashin1987.Zweig’slogicwassimple. Fallinginterestratesaregoodforstock­ markets;risingonesarenot.Butthe phrase’sscopehasexpandedovertime. Zweig’sdictumisnowusedtosuggest thatbettingagainsttheinstitutions whichprintmoneyandemploythou­ sandsofeconomistsisalwaysunwise. Mostofthetime,itis.Overthepast fourmonths,however,theFederalRe­ servehasraisedratesthreetimesand marketshavesurged.OnFebruary7th,a fewdaysafterthepublicationofblowout labour­marketdata,JeromePowell,the Fed’schairman,warnedthatthefight againstinflationwouldlastlongerthan investorswereanticipating.Hiswarning hadlittleeffect.Investorselsewhereare alsoshruggingoffcentralbankers’ words.TheBankofJapan(boj)hadlong promisedtostandbyits“yield­curve­ control”policies,buttradersbettingthat itwouldrelaxthemtriumphedinDe­ cember,whenofficialsunexpectedly raisedtheircapontheyieldoften­year governmentbondsfrom0.25%to0.5%. Thereisgoodreasontopickascrap withacentralbanknowandagain.As­ sessingtherecordsince1954,analystsat TruistAdvisoryServices,awealth­man­ agementfirm,findthes&p 500hasin factperformedfine,evenwell,onnu­

merousoccasionswhentheFedhasraised rates.Indeed,onaveragetheindexrisesby 9%onanannualisedbasisbetweenthe bank’sfirstandlastinterest­raterise. TradersdefertotheFed’sanalysisin largepartbecausetheypresumeitisbased onsuperiorinformation.Aninfluential pieceofresearch,publishedin2000by ChristinaandDavidRomer,twoecono­ mists,seemedtoconfirmthatthecentral bank’sforecastsaremoreaccuratethan thoseofitscommercialrivals.Butsub­ sequentstudieshaveproduceddifferent results.One,publishedin2021byre­ searchersattheBarcelonaGraduate SchoolofEconomicsandtheFederal ReserveBankofSanFrancisco,suggests thatthesuperiorityoftheFed’sfore­ castinghaswanedsincethemid­2000s. Meanwhile,forecastsfromothercentral bankshavebeenbadenoughtoinspire gentlemockery.Everyyearsince2011the SwedishRiksbankhasforecastaclimbin rates,onlytocutthem.Theresulting pattern,whichshowsforecastsrising upwardsoverandover,likespikes,has beencomparedtoahedgehog.

Moreover,alittlecentral­bankfight­ ingcanbegoodforthebroaderfinancial system.Unlessacentralbankwantsto controlmarketinterestratesdirectly,by buyingenormousamountsofassets, policymakersmustsometimesconduct whatareknownasopen­mouthoper­ ations.Whatcentralbankersthinkabout economicconditionsandhowthey mightaffectratesareexpressedin speechesandwrittenguidance,which suggestoptimismorpessimismon subjectsfromtheeconomy’slong­term­ growthpotentialtofinancialstability. Donewell,thissortofcommunication canremovetheneedforratechanges. Torefinetheirguidance,though, centralbankersneedpeopletotake positionsinfinancialmarkets,which theycanreactagainst.Afterall,asanoth­ erWallStreetcredonotes:disagreement iswhatmakesamarket.Buyersneed sellers,andtheinformationaboutwhat investorsexpectinaggregateisrevealed throughmarketprices.Theprocessof back­and­forthbetweenofficialsand marketsispreferabletothecornerinto whichtheboj hasbeenpushed,where vastpurchasesmustbeusedtodefend thebank’scredibility. Tradersarestillregularlyturnedinto mincemeatwhentheytakeoncentral banks.BettingagainsttheFedisone thingwhenpolicymakerssaytheywillbe ledbythedata,astheydonow,andquite anotherwhentheycomeoutallguns blazing.Bettingonasuddenrisein Japanesebondyieldsworkedwellfor severaladventurousfundsinDecember, butthetradeisknownas“thewidow­ maker”forareason.Inmoderation, however,sometensionbetweenmarkets andcentralbanksisvaluable,forin­ vestorsandofficialsalike.Evenfinancial rulesaremadetobebroken.

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TheEconomistFebruary11th2023

Property(2)

The future of family living

NEW YO RK

Sooncitycentreswillincludemorehomesandfeweroffices

L

ower Manhattan’s skyline has long symbolised the fortunes of corporate America.Askyscraperboomintheroaring 1920sheraldedthe riseofthemodernof­ fice, crammed with swivel chairs and desks. As corporate giants emerged and Wall Street firms flourished, office­space requirementsexplodedinthe1970s,fuel­ lingawaveofnewtowerblockssuchasthe WorldTradeCentre.Now,ashybridwork slashesdemandforphysicalworkplaces,a differenttypeofboom—drivenbyluxury flats,notoffices—isgatheringsteam. At25WaterStreet,inNewYork’sfinan­ cialdistrict,America’sbiggesteveroffice­ to­residential conversion is under way. The building, located near the New York Stock Exchange, will transform an office skyscraper, covering 1.1m square feet (102,193 square metres), into 1,300 apart­ ments ranging from studios to four­bed­ roomhomes.Therevampedbuildingwill include a basketball court, a spa, and in­ doorandoutdoorpools.Itwillalsofeature a rooftop terrace, an entertaining lounge andco­workingspaces. Thebuildingispartofabroadertrend— onepromptedbyaglutofnewlyemptyof­ fice buildings. The amount of space re­ quiredforwhite­collarworkerswasalrea­ dyindeclinebeforethecovid­19pandem­ ic,butthevastincreaseinworking­from­ homehasleftevenmorebuildingsvacant. Inthethirdquarterof2022,officevacan­ ciesinAmericasoaredpast17%,thehigh­ est in nearly three decades, according to cbre,apropertyfirm.Some8.4%ofoffices

inLondonsitunoccupied,wellabovethe long­termaverageofaround5%. cbre estimatesthatnearly20msquare feetofofficeconversionswillhitAmerica’s propertymarketthisyear;asmallfraction of total supply, but nearly five times as muchasin2016,whenthefirmstartedto collectfigures.Intheinterveningyears,a third of all office conversions have been into homes (other favourites include ho­ tels and, increasingly, life­science labs). Althoughmuchoftherecentdevelopment hastakenplaceinAmerica’sbigeast­coast cities,officesarebecominghomesacross therichworld. Spannersintheworks Yetthepaceofconversionswouldbehigh­ er were it not for a range of challenges. Some are practical. Flats require natural lightandwindowsineachroom—thelarge floor plans of modern office blocks often leavethemstuckwithpoorlylitandbadly ventilated spaces. Bathrooms in office buildingstendtobeclusteredinjustone area,makingplumbinganightmare.Other challengesarerelatedtoredtape.Zoning laws restrict housing in many office dis­ tricts. In some cases, height and density rulesoraffordable­housingrequirements raise costs. Moody’s Analytics, a consul­ tancy,reckonsthatlessthan3%ofthe1,100 officebuildingsittracksinNewYorkmeet thevariouscriteria. Meanwhile, developers planning to convertofficesmustbuyoutorrelocateex­ istingtenants.Assuch,thefinancialcase

for conversions is often unsatisfactory. Onlyofficebuildingsthattradeatasteep discount are likely to make profitable transformations. In some cases, convert­ inganoldofficetowercancostmorethan buildingabrandnewblockofflats. Somepolicymakersaretryingtomake the process smoother. With office vacan­ cies threatening landlords’ bottom­lines, commercial­property­tax revenues, and thebusinessesofnearbyshopsandrestau­ rants,citiesarerelaxingzoningrulesand experimenting with tax breaks. Eric Ad­ ams,NewYork’smayor,haspredictedsuch incentiveswillleadto20,000newapart­ mentsinhiscityby2033.Londonplansto usespaceinitsSquareMiletocreate1,500 newhomesby2030.Calgary,whereonein threeofficessitsvacant,ishometooneof the more ambitious plans. In 2021 the Canadiancitylaunchedafundingscheme fordeveloperswillingtotrytheirhandat conversions. Officials have since pledged morethanC$153m($115m)ingrants. Fornow,conversionsareagrowingbut relatively niche pursuit. Yet plummeting propertyvalues,increasinglyemptyoffice cubicles and growing political support suggestthingswillaccelerate.Moody’sAn­ alytics expects office­vacancy rates in Americatopeakatabout19%in2023andto stayhighforatleastfiveyears.Evenwitha healthyeconomy,demandforofficespace looks unlikely to return to pre­pandemic levels. Gallup, a research firm, estimates thatAmericanswithjobsthatcanbedone remotelywillspend37%fewerdaysinthe officethantheydidbeforecovidstruck. Thefuturemay,infact,looksomething ratherlikelowerManhattan.Although25 WaterStreetisnew,officeconversionsin this part of town are an older phenome­ non. After the stockmarket crash of1987, which left nearly one in three offices in NewYorkvacant,taxincentiveswereused toenticedeveloperstoconvertageingof­ ficebuildingsintohomes.TheSeptember 11th attacks sped up the process, as busi­ nessesmovedtootherpartsoftown.Today around83,000peopleliveinLowerMan­ hattan,upfromfewerthan700in1970. Theresultisafamily­friendlyenclave, andaneighbourhoodwhichoffersablue­ printforstrugglingofficehubselsewhere. Children on swings in playgrounds and residentswalkingtheirdogshavealtered thefabricoftheformernine­to­fivefinan­ cial centre. A nearby boathouse provides freekayaktripsontheHudsonriverduring the summer. In the colder months, ice skaters whizz around an outdoor rink in BrookfieldPlace,ashoppingmallnearthe waterfront.Evenasfinancialfirmshavere­ located,amorecreativecollectionoften­ ants, including Condé Nast and GroupM, two media giants, have moved in. The death of office blocks does not have to meanthedeathofcitycentres. n

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The Economist February11th2023

Danger ahead

The$2.5trnquestion...

WASHINGTO N, DC

...uponwhichthefutureofmonetarypolicyrests

C

an a central bank make $2.5trn of cashvanishwithoutanyonemuchno­ ticing?Thatistheimprobable,evenauda­ cious,missiontheFederalReservehasbe­ gun,tryingtoshrinkitsvastbalance­sheet while minimising disturbances to the economy.Theprocess—knownas“quanti­ tative tightening” (qt)—got under way in mid­2022.TheFedhasalreadyshednearly $500bninassets,agoodfirststep.Butre­ centripplesinthebankingsystemhintat turbulence ahead. Some analysts and in­ vestorsthinkthesestrainswillultimately force the Fed to call off qt well ahead of schedule. Others suspect that the central bankstillhastime,andtools,onitsside. Itmaysoundlikeatechnicalandarcane debate.Itismostcertainlycomplex.Butit alsogetstotheheartofmodernmonetary policy. The Fed, like other central banks, has come to rely on quantitative easing (qe)—purchasing assets, especially gov­ ernmentbonds,onagiantscale—tocalm financialmarketsandboosttheeconomy duringseveredownturns.Forqe toworkin thefuture,qt mustworknow:expanding balance­sheets in bad times is only sus­ tainable if they shrink in good times, otherwisetheywillratcheteverhigher. Since the global financial crisis of 2007­9theFedhasresortedtoqe onfour occasions, yielding a body of research abouthowitworks.Incontrast,theFedhas employed qt just once, from late 2017 to 2019,stoppingearlyafterthemoneymar­ ketstartedtobuckle.Thereisthusalotof uncertaintyaboutitsconsequences. One superficially appealing way to thinkaboutqt isasqe inreverse.Justasqe involvescreatingcentral­bankreservesto buy bonds, so qt involves removing re­ serves as the central bank pares back its holdings. And just as qe helps to hold down long­term rates, so qt raises them. Researchers estimate that shrinking the Fed’sbalance­sheetbyabout$2.5trnovera fewyearshasroughlythesameimpactas raisingratesbyhalfapercentagepoint. Manythinkthishasalreadyhappened, with the market lifting long­term rates whentheFedlaidoutitsqt planslastyear. ChristopherWaller,aFedgovernor,hasar­ guedthatsinceinvestorshavepricedinthe announcedreductions,theFedisnowsim­ ply fulfilling expectations: “The balance­ sheetisjustkindofrunningintheback­ ground.”Fedofficialshavesaidqt should beaboutasexcitingaswatchingpaintdry.

Quantitative frightening United States, Federal Reserve assets, $trn 10 Other Mortgage-backed securities Treasuries

8 6 4 2 0

2003

10

15

20

23

Source: Federal Reserve

The trouble with the analogy is that whereaspaintgetsdrieranddrier,qt gets moreandmoretreacherous.Thisisalsoa crucial way in which it differs from qe. Whentheeconomyisingoodshape,cen­ tralbankscangraduallystepawayfromqe. Inthecaseofqt,thedangeristhatittakes marketturmoilfortheFedtorealiseithas gonetoofar,asin2019.Initiallyqt drains money from a commercial­banking sys­ temthatisawashinliquidity;asitcontin­ ues,however,liquiditygetssteadilytight­ er, and funding costs for banks may soar withoutmuchwarning. A preview of the possible stresses has played out in the past few weeks. Some banks,havingrecentlylostdeposits,have turnedtothefederal­fundsmarkettobor­ rowreservesfromotherlendersinorderto

meet regulatory requirements. Daily bor­ rowinginthefed­fundsmarketinJanuary averaged $106bn, the most in data going backto2016.Sofarthesqueezehasbeen confinedtosmallerbanks,ahopefulsign thatthefinancialsystemisreturningtoits pre­pandemic state, in which big banks lendtotheirpunierpeers.Nevertheless,it raises the question of whether and when otherbankswillhitfundingshortages. Theideathatacrunchisfarawayissup­ ported by a look at the Fed’s liabilities. About $3trn are banks’ reserves (in effect deposits at the central bank). Another $2trn is money from firms which enter into exchanges with the Fed for Treasury securities (such overnight reverse­repur­ chaseagreements,orreverse­repos,allow themtogetasmallreturnontheirexcess cash).MrWallerhassaidthatqt oughtto runsmoothlyuntilbankreserveshitabout 10%ofgdp,whentheFedwillslowitsbal­ ance­sheet reductions to try to find the right size for the financial system. If re­ servesandreversereposareinterchange­ able,asMrWallersuggests,thenreserves nowamountto19%ofgdp,leavingplenty ofroom.Thusqt couldrollonforanother coupleofyears,takingabigbiteoutofthe Fed’sbalance­sheetintheprocess. But problems may arise well before then.First,banksprobablyneedmorere­ serves than they did before covid­19 be­ cause their assets have expanded faster thantherestoftheeconomy.Second,and crucially, reverse repos and reserves may infactnotbeinterchangeable.Muchofthe demand for reverse repos comes from money­market funds, which function as an alternative to bank deposits for firms seekingslightlyhigherreturns.Ifthatde­ mand persists, the weight of qt will in­ steadfallmoreheavilyonbankreserves.In this scenario, reserves may run short be­ foretheendofthisyear,thinkstrategistsat T. Rowe Price, an investment firm. The Fed’s balance­sheet would be stuck at around $8trn, almost double its pre­pan­ demic level. This would fuel concerns aboutitsabilitytoembarkonqe infuture. Oddly,thedebt­ceilingmessmaycon­ cealanyructionsforthenextfewmonths. WiththeTreasuryunabletoborrowuntil Congressraisesthedebtlimit,itisrunning downitscashholdingsattheFed.Asmon­ ey leaves the Treasury’s account, much endsupinthebankingsystem,whichin turnhelpsbankstoreplenishreserves. ButwhenCongressdoesgetaroundto raisingAmerica’sdebtceiling,theTreasury will need to ramp up its borrowing. For banks this may mean a rapid loss of re­ serves.TheFedhascreatedalendingfacil­ ity to relieve such squeezes. There is, though,notellinghowitwillperformin the wild, adding yet more uncertainty to thecourseofqt.Themarketmaybeplacid fornow.Itisunlikelytostaythatway. n

012

Finance & economics

The Economist February11th2023

Free exchange Activisionactivism

It is not just big tech that should be worried about overmighty trustbusters

T

here are mergerstoworryaboutandmergerstowelcome.In thefirstcategoryaretie­upsbetweenbiggishfirmsinthesame line of business. In these “horizontal” mergers, a competitor is takenoutofthemarket,removingaconstraintonprices.Insuch cases, competition authorities will investigate the merger and mayblockit.Othermergershavehistoricallybeenconsideredless troublesome.Ifafirmbuysanotherinanadjacentlineofbusiness (aconglomeratemerger)orifasupplierbuysacustomer(avertical merger),theeffectsoncompetitionhavebeenseenasbenign. Butthathaschangedinrecentyears.Moreandmorenon­hori­ zontalmergersarebeingchallengedbyantitrustauthorities.In September America’s Federal Trade Commission (ftc) lost its challengeincourttoatie­upbetweenIllumina,whichprovides “next­generation”dna­sequencingtools,andGrail,adeveloperof earlycancer­detectiontests,whichrelyonIllumina’stechnology. Theftc isappealingthejudgment.InOctoberBritain’sCompeti­ tionandMarketsAuthority(cma)forcedFacebooktoundoitspur­ chaseofGiphy,asupplierofgifstosocial­mediaplatforms.On February8th,thecma issuedaninitialfindingthattheacquisition byMicrosoft,makeroftheXboxgamesconsole,ofActivisionBliz­ zard,agamestudio,wouldreducecompetitionintheindustry. Vigorousantitrustpolicyisoftenmotivatedbyanxietyabout bigtech.Facebook,GoogleandMicrosoftbecameswiftlydomi­ nantintheirmarketsbecauseofthepowerofnetworks:themore peopleusedtheirproducts,thebettertheybecameandthemore attractivetheyweretoothercustomers.Althoughitisdifficultto find fault with such organic growth on competition grounds, thereisaconvictionintrustbustercirclesthatbigtechshouldnot havebeenallowedtobuyotherbusinessesalongtheway.There­ centregulatoryactivismisthereforefuelledbyregretaboutthe past.Yetitcarriesitsownrisks.Inmanycircumstancesmergers are,infact,aboontoconsumers.Thedangernowisthatthepen­ dulumwillswingtowardsover­enforcement. Tounderstandhowregulatorsgottothispoint,itisworthre­ turning to the1970s. A group of antitrust thinkers orbiting the UniversityofChicagocastdoubtontheideathatverticalmergers couldbeharmfulbyemployingthetheoryof“onemonopolypro­ fit”.Thistheorysaysthatamonopolistcannotextenditsmarket

powerupordowntheverticalchainofproduction.Tograspit, imagineanairportoperatorthatleasesspacetotwocoffeeshops. Theoperatorownsamonopolyresource:thepropertyarounda captivemarketofpassengerswhorequiretheirmorningcaffeine. Tomaximiseprofits,itwillsettherentshighenoughtoallowthe shopsnomorethanacompetitivereturn.Yetweretheoperatorto buyoneofthecoffeeretailers,theprofit­maximisingrentwould notchange(henceonemonopolyprofit). Lookedatthisway,verticalmergerscannotharmconsumers. Theymayevenhelpthem.Arelatedtheorypositsthatavertical mergerinanindustrywherethereissomemarketpowerateach stageofproductionwillleadtolowerprices,becauseoneofthe non­competitive markups will be eliminated. In such circum­ stances,onemonopolyprofitmeansyoudon’tgetgougedtwice. Trustbustersthesedaysarelessfocusedonpricing.Theyare moreconcernedthataverticallyintegratedfirmwilluseitsmus­ cleinonepartofthechaintofreezeoutrivalsinanotherpart.In theIlluminacase,theconcernisthatrivalsofGrailwillbedenied thedna­sequencingtoolstheyneedtodevelopcompetingcancer tests.IntheMicrosoftcase,thefearisthatSony,makerofPlaySta­ tion,therivalconsoletoXbox,willbedeniedgamesmadebyActi­ vision,tothedetrimentofcompetition.Tomakethechargestick, trustbusters must demonstrate that such restrictions would be profitable,whichtheyareunlikelytobeintheshortterm,since theymeanatleastinitiallysellingfewerproducts.Regulatorsthus havetomakepredictionsabouthowamarketmightevolve.Thisis theeconomicequivalentoflong­rangeweatherforecasting. Whichbringsthestorybacktobigtech.Thewinner­takes­all aspectofnetworkstendstoeliminatecompetitorstothebigtech giants.Thereisnotmuchcompetitionpolicycandoaboutsuch dominance.Intheory,countlessstartupsarevyingtoknockbig techfirmsfromtheirperch,whichoughttoactascheckontheir business conduct. But so­called “shoot­out” acquisitions—pur­ chasesofstartupsthatmightbecomearivaltobigtechfirms— tendtoneuteranythreatfromthiscorner.Formanytrustbusters, Facebook’sacquisitionin2012ofafledglingInstagramwasinthis category.TherearealsoregretsthatGoogle’sacquisitionin2008of DoubleClick,anadserver,helpedtostrengthenitsholdondigital advertising,amarketnowthesubjectofabigantitrustprobe. In praise of big business Doubtlessthereweretimeswhenmorevigilancewaswarranted. ButitiseasytoforgetthattheChicagorevolutionwasaresponse toovermightytrustbusters,whobelievedbigwasalwaysbadand smallbusinesses,howeverawful,shouldbeshieldedfromcom­ petition.InAmericathecourtsareacheckonover­enforcement. Therearedecadesofjurisprudence,shapedbytheChicagoSchool, whichsaysnon­horizontalmergersarebenign.Nevertheless,the prospectofacourtbattleisenoughtoputoffsomefirms.Lastyear Nvidia,achipmaker,abandoneditsproposedmergerwitharm,a chipdesigner,inthefaceofantitrustscrutiny. Itistellingthatthecma hastakentheleadinblockingmergers involvingtechgiants,suchasFacebookandMicrosoft.Britain’s trustbustersmaynowbeamongthemostfeared.Freedfromthe eu’scompetitionpolicy,thecma revampeditsguidelinesin2020 togivemoreweighttohowpost­mergermarketsmightevolve.In BritainandEuropecompetitioncasesarepursuedinanadminis­ trativesystem,notinacourt,asinAmerica.Allofwhichgivesthe cma considerable powers. A rare example of a Brexit dividend? Trustbustersmightsayso.Noteveryonewouldagree. n

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012

66

Science & technology

Meteorology

The heat is on

As bad weather becomes more common and more extreme, modellers seek to understand the limits of the possible

T

he heatwave that struck parts of North America’s Pacific coast in 2021 propelledtemperaturesinLytton,avillage inBritishColumbia,to49.6°C—4.6°higher thanthepreviousrecord.Onthefourthday ofthistormenttheplaceeruptedinflames andwasalmostcompletelydestroyed(see pictureabove).Theseeventsweresooutof the ordinary that, in a press conference held some weeks later by climate model­ lers,theystruggledtoexplainhowcircum­ stanceshadconjuredthem. ClimatologistsreckontheNorthAmer­ icanheatwaveof2021wasoneofthemost extreme deviations from meteorological normseverrecorded,anywhere.Butothers havecomeclose.Astheworldgetshotter, phenomena once considered rare are be­ comingcommonandothers,believedim­ possible,arehappening. This shift in weather patterns has in­ spiredmodellerstopaymoreattentionto thetailsofthefrequencydistributionsof meteorological possibility which their modelsgenerate(seechartonnextpage), insearchofsuchunprecedentedextremes. Onerecentexercise,ledbyErichFischerat

ETH Zurich, a technology university in Switzerland, and presented at last year’s annualjamboreeoftheEuropeanGeosci­ encesUnion,showshowtheheatwavethat destroyedLyttoncouldhavebeenforeseen withdataavailableatthetime. Cite UNSEEN TheapproachDrFischerused,ensemble­ boosting, is one of several developed re­ cently.Another,fromBritain’sMetOffice, isUNSEEN (UnprecedentedSimulationof ExtremeswithEnsembles).Thiswasfirst put to work by Vikki Thompson and her colleaguesattheMetOfficeinaretrospec­ tive analysis of floods that had drowned parts of the country in 2014, resulting in £451m($743m)ofinsuranceclaims. Morethan130yearsofEnglishrecords had offered no indication such a biblical deluge was possible. Yet, here it was. As Thierry Corti, a climate­risk analyst at → Also in this section

67 An internet in the sky

The Economist February11th2023

Swiss Re, a reinsurance company, obser­ ves, “the risk landscape is evolving. So if yousimulateprobabilitiesofarareevent youneedtotakethatagainstthebackdrop ofsomethingthat’schanging.Thatmakes it much more complex.” To try to under­ standwhathadhappened,DrThompson’s team simulated British winters between 1981 and 2015 many thousands of times, and looked at the spread of possible out­ comes,includingrareevents. Into this methodical repetition they addedasprinkleofchaos—thefamousflap ofabutterfly’swing,or,morerealistically, therevvingupofafactory’senginestoadd asmallandlocalamountofheattotheat­ mosphere. By repeatedly simulating the present climate, perturbed each time in minute ways, the Met Office modellers generatedarangeofvirtualwinterswhich included extremes that are possible but havenotyetmanifestedthemselves. Inthecaseoffloods,thegroupfounda 34% chance each winter that rainfall re­ cords would be broken in at least one of four broad regions of Britain. They con­ cluded that decision­makers would do welltopreparefornewrecord­breakingin­ undations “in the next few years”. They werevindicatedwhentheirwarningscame topassintheearlymonthsof2020. The UNSEEN approach is inspiring others. For example, various groups are now looking at “near­miss” events, in whichanextremedroughtorfloodbefalls aregionwithlowpopulationdensity,thus affecting few people. With UNSEEN and

012

Science & technology

The Economist February11th2023

UNSEEN­likemethods,itispossibletoas­ sess the risk of a similar event striking a neighbouring but more populous area— andwithwhatconsequences. Othershavetakenaninterestinbitsof thefuturewhenanextremeweatherevent wouldbeparticularlydamaging.TheParis Olympics, to be held next year, will take place during that city’s hottest weeks. A group of meteorologists from various Frenchresearchinstitutesthereforewon­ deredjusthowbadaheatwavemanifesting itselfthenmightbe.Usingyetanotherap­ proach, they found a chance of tempera­ turesbeingmorethan4°Chigherthanthey were during a catastrophic heatwave in 2003,inwhichtensofthousandsdied. Sincethathappened,Francehasbuilta “heatplan”whichincludesanearly­warn­ ing system and provisions for opening coolspacesifneeded.Whetherthiswillbe enough to ameliorate the effects of a re­ cord­breakercoincidingwiththearrivalof thousands of athletes and hundreds of thousandsofvisitorsremainstobeseen. Thatsomethingcouldhappendoesnot meanitwill,butinsomecases,suchasthe ParisOlympics,eithertheriskorthecon­ sequencesareclearlyhighenoughtowar­ rantcloseattention.Anotherexampleisa studypublishedin2019,byDrThompson and her colleagues, which found that, in south­east China, each summer holds a 10%chanceoftherebeingarecord­break­ inghotmonth.Thetemperatureswarned ofwerewithintherangeoftherecordsset duringlastyear’sdeadlyheatwave. Otherresearchhasaskedifaregionis “overdue”foranextremeeventbecauseof thechangingclimate,orwhetheritsinfra­ structure or economy is particularly ill­ prepared for what could happen. In the case of Kansas, America’s breadbasket, bothlooktrue.Thestateproduces17%of the country’s wheat, and is said to foster idealconditionsforgrowingthiscrop.But what pertained before 1900, when wheat farmers were moving in, may not hold now. In today’s climate, heatwaves that wereonceonce­a­centuryeventsarelikely to occur once a decade, according to a studytobepublishedsoonbyErinCough­ landePerezofTuftsUniversity. Model behaviour Dr de Perez also found that hot weather sufficienttodamagewheat’sgrowthbyin­ hibiting its enzymes is likely to occur in thesameyearsasperiodsoflowrainfall. But the irregular pace of weather change maylullfarmersintoafalsesenseofsecu­ rity,forsheandhercolleaguesdiscovered, too,thatrecentyearshavebeencoolerthan expected.“Severalregionsmighthave‘got­ tenlucky’intermsoftheirrecentexperi­ ence of extreme events,” they write. The same study predicts similar, if less pro­ nounced,patternsinHenan,awheat­pro­

Spread betting Effect of changes in global temperature on weather events Increase in mean

Increase in variance

Increase in mean and variance

→ Fewer cold extremes

More hot extremes

More cold extremes

More hot extremes ↙

Cold

Average

Hot

Cold

Average

Hot

Less impact on cold extremes

Cold

Average

More hot extremes

Hot

Source: IPCC AR5

ducingprovinceofcentralChina. Information about low­likelihood but high­impacteventsisalsoofinteresttoin­ surers(whocarryouttheirownmodelling aswell)andcanhelp,too,inthedesignof climate­resilient infrastructure. In the Netherlands,forexample,ClimateAdapta­ tionServices(CAS),acharity,gathersdata on possible consequences of climate changebetweennowand2050,including detailed maps that the authorities can drawontotesttheirplans. Timo Kelder, an UNSEEN modeller at

CAS,saystheyarethinkingabouthowthey might add new stress tests which assess howsuccessfulplanswouldbeintheface of the brutal and unprecedented events thesestudiessuggestareplausible.Mean­ while, in Britain’s Met Office, researchers arenowlookingatanothersortofextreme event—theriskof“winddroughts”which wouldwipeoutalotofthecountry’swind­ turbine­baseelectricitysupply.Itwouldbe ironic indeed if Britain’s huge effort to combatclimatechangeinthiswaywere,it­ self,tofallvictimtoachangingclimate. n

An internet in orbit

Dynamite and a laser beam

How to secure military communications in space

S

atellites are crucial military infra­ structure for spying and communica­ tions. They are also vulnerable to attack and disruption. In November 2021, three monthsbeforeitinvadedUkraine,Russia fired a missile into a defunct satellite. Then,inOctober,aRussiandiplomatde­ claredevencommercialsatellitescouldbe legitimate targets. Satellite systems used byUkrainehavebeenhackedandjammed. Groundantennaehavebeenattacked. Inlightofthissortofthing,America’s militaryestablishmentisworriedthatits satellitenetworkisnotuptosnuff.Butit hasaplan.TheSpace­BasedAdaptiveCom­ municationsNode(Space­BACN,or“Space Bacon”, to its friends) will, if successful, createalaser­enabledmilitaryinternetin orbit around Earth by piggybacking on a numberofsatellitesthatwouldhavebeen launchedanyway. Space Bacon is a brainchild of DARPA, the special­projects research arm of the DepartmentofDefence,andisanintrigu­ ingorbitingechooftheoriginal,terrestrial ARPANET,whichevolvedintotheinternet. (ItwassonamedatapointinDARPA’shis­

torywhentheorganisationlackedtheini­ tial“D”for“defence”.)Theplanistofitas many newly launched satellites as possi­ blywithlasertransceiversthatwillbeable to communicate with counterparts as far awayas5,000km.Satelliteownerswillpay forthesetransceivers,butwillthenreceive paymentsfromtheAmericangovernment fortheiruse. Zipping the light fantastic SpaceBaconpromisesmanybenefits.Un­ likeradio,thenormalmodeofcommuni­ cationwithandbetweensatellites,trans­ missionsbylaserbeamarehardtointer­ ceptandalmostimpossibletojam.Indeed, adversariesmightnotevenknowwhena transmission is taking place, a bonus for operationalsecrecy. Lasers also offer far higher data rates thanradiowaves.Somesatelliteconstella­ tionsdoalreadyuselasersforcommunica­ tionbetweenmembers,andtheseachieve abouttwogigabitspersecond(about200 times what radio can manage). DARPA, however,hasaskedSpaceBacon’scontrac­ torstodevelopequipmentthatcantrans­

67

012

68

Science & technology

mit,inasinglebeam,100gigabitspersec­ ond.Thatisenoughforseveralhigh­defi­ nitionmoviestobesentinthattime. The ability to hand military informa­ tionfrombirdtobirdlikethis—andwith­ outtheconstraintsimposedbydifferences inthecommunicationprotocolsofthesat­ ellitesprovidingthepiggyback—willgreat­ ly simplify matters. Individual satellites candownloaddataonlywheninrangeofa terrestrialantennabelongingtotheirpar­ ticularnetwork,orviaanothermemberof thatnetwork,whichislikelytobeinasim­ ilarorbit.AsatelliteintheSpaceBaconsys­ tem,bycontrast,canhandoffdatatoan­ other,possiblybelongingtoanotheroper­ ator,inadifferentorbit.Andthatsatellite may,inturn,handittoyetanother,untila suitablegroundantennaiswithinreach. Atthemoment,reportingdelayscaused bylackofnetworkinteroperabilitymean, say,thatatankspottedbyasatellitemay havedrivenoffbythetimeitslocationhas beenreceivedbyanyonewhocouldmake use of the information. Space Bacon will moreorlesseliminatethislatency. It will also offer one of the vaunted pluses of the original ARPANET design, whichtheinternetinherited.Thisisauto­ maticreroutingofamessageifanode(ie,a particular satellite or ground station) is disabled.Also,bybringingpretty­welleve­ ry relevant ground station into play, data that are especially sensitive can, as Greg Kuperman, Space Bacon’s programme manager,observes,beroutedthroughan­ tennaeinplaceswhereattemptstoeaves­ droponthefinal,radio­transmitted,legof thejourneyareconsideredlesslikely. Theheartofallthisistheprecisionof aimthatwillbebuiltintoSpaceBacon’sla­ sers. Phil Root, head of DARPA’s Strategic Technology Office, says pondering this “blows my mind”. Satellites in low Earth orbits (LEOs, those below an altitude of

The Economist February11th2023

2,000km,andthesortwhichSpaceBacon willusetostartwith)travelatabout7.8km asecond,oftentumblingastheygo.Con­ nectingtheopticalheadsontwoofthese willbeanepictask.Advanceshave,how­ ever, been impressive. Mynaric, a firm basednearMunichthatisdesigningheads forSpaceBacon,canadjustalaser’strajec­ torybyjust57.2millionthsofadegree.Ata distanceof1,000km,thistranslatesintoa beamdisplacementoflessthanametre. To sweep its lasers smoothly Mynaric usesasystemofmotor­drivenlensesand tilting mirrors. Another contractor, mBryonics of Galway, Ireland, employs electronic signals to alter the light’s phase—minutelyadjustingthebeam’sdi­ rectioninamanneranalogoustotheredi­ rectionofphotonsthroughaglasslens. Even with these levels of precision however, initial direct hits on a distant head will probably be rare, says David Mackey,mBryonics’toptechnologist.Op­ tical heads attempting to link up will thereforeconductwhathecallsblindspi­ ralsearchpatterns.Whenabeamfindsits mark,thesignalwillinformthereceiverof thesender’sexactposition.Usingadiffer­ ent wavelength, to prevent interference, thereceiverwillthenfirealaserbackalong thesamepathtoconfirmtheconnection. Mr Mackey thinks his kit will complete theseorbital“handshakes”intenseconds. Existing laser­based satellite commu­ nications rely on sensors called photo­ diodes. Space Bacon’s higher data rates need a different approach. The message­ carryingphotonswillenterasinglefibre­ optic strand with an opening a mere ten microns across—far smaller than the100 microns of a photodiode, of which more thanonemay,inanycase,beneeded.My­ bryonicshopestopulloffthistrickusinga mirror with a complex curved surface to redirectphotonsintoadevicethesizeofan

iPhonethatfocusesthelightandshootsit intothefibre­opticstrand. TheSpaceBaconsystem’sspecification requires that it draw no more than100W from its host satellite. This limit poses a problemfortheprocessorneededtotrans­ late between the different data protocols usedonsatellites,foronly40W ofthat100 isavailabletodoso. One firm working on this is Intel, an Americanchipmaker.Itisdesigningwhat Sergey Shumarayev, the project’s leader, describes as a “Rosetta Stone­type mo­ dem”. Mr Shumarayev says commercially availablecomponentshavebeenruledout fordoingthisbecausetheyaretoobigand power­hungry. He reckons that if they wereused,theresultwouldbeaslargeasa pizza and consume 400W. His team are “trying to shrink the pizza size into a matchbox”usingwhattheycall“chiplets”, inlieuofbiggersemiconductors. Bringing home the BACN DARPA wantsSpaceBacontocostamaxi­ mumof$100,000asatellite,thebetterto encourageparticipation.Itbodeswellthat Amazon, SpaceX and Viasat, a lesser­ knownbutwell­establishedsatellite­com­ munications company, are all designing command­and­control architectures for SpaceBacon. Amazon plans to launch a broadband LEO satellite constellation called Project Kuiper.ThismayincorporateSpaceBacon transceivers.SpaceXmayaddthemasitex­ pandsStarlink,itsbroadbandLEO constel­ lation, from its current complement of 3,500orsosatellitestotensofthousands. Viasat’sexistingnetworkisdifferent.Itis basedonfivebigsatellitesingeosynchro­ nousorbits36,000kmaboveEarth,which will be joined by another three over the next14months.Thefirmalsohasanexten­ sivenetworkofgroundstationstobringto theparty. Onecommand­and­controlproblemis workingoutoptimalroutesforthehand­ ingonofdata.CraigMiller,headofgovern­ mentsystemsatViasat,saysthisistrickier thansolvingthetravelling­salesmanpro­ blem, a maths classic. As the network grows, computing the most efficient routes gets harder and harder—and not justbecausethenodeswillbemoving.Mr Miller’s team must also assign and take into computational account “variable trust” scores for potential data hops, for some are more vulnerable than others to enemyaction. DARPA planstoselectthebestsubsys­ tems this summer, and hopes to have a prototype ready for testing in LEO before 2025. If all goes well, the network could then be extended to geosynchronous or­ bits.Allies,DrRootreckons,mightbein­ vitedtojoin.America’sadversarieswillno doubtbewatchingclosely. n

012

Culture

TheEconomistFebruary11th2023

Christianstreaming

Man of the people

A television show about the life of Jesus has become an unlikely hit

O

NE SUNNY afternoon last summer, Jesus walked onto a field near Dallas, Texas,andwithjustafewloavesofbread andacoupleoffish,fedacrowdof5,000. In truth, the miraculous meal had been rustledupbytelevisionproducers:thepita breadcamefromlocalgrocerystoresand thecroaker,asilveryfishabundantinthe Atlantic Ocean, was supplied by Asian­ Americansupermarkets.Butnoneofthese earthlydetailsmatteredoncethecameras started rolling and Jesus, played by Jona­ thanRoumie,liftedhiseyestoheavenand blessedthemeal. The miracle of the loaves and fishes, firstrecordedintheGospels,isdramatised in “The Chosen”, a tv show about Jesus Christandhisfollowers.Itisproducedbya fledglingstudio.Thedirectorhadnotpre­ viouslybeenblessedwithsuccess.Theac­ tors were unknown. Yet it has become a hit,andrecentlyreleaseditsthirdseason. The show’s success is revealing. It at­ teststothepopularityandprofitabilityof Christianentertainment.Italsohighlights howfilm­makersoffaithcancircumvent Hollywood’sgodlessgatekeepers.

Neal Harmon, head of Angel Studios, theproduceranddistributoroftheshow, saysalmost110mpeoplehavewatchediton theirfreeapps;manymorehaveseeniton streaming platforms including Amazon Prime,NetflixandYouTube,wherecertain seasonsof“TheChosen”areavailable.An­ gelStudiosreleasedthefirsttwoepisodes ofthenewseasoninAmericancinemasin November. The double­bill made nearly $9m in its opening weekend and ranked third in the box­office charts, ahead of “Black Adam”, a superhero movie, and “Ticket to Paradise”, a rom­com starring GeorgeClooneyandJuliaRoberts. Most depictions of the life of Jesus → Alsointhissection

70 A historyoftheHolocaust

71 SalmanRushdie’snewnovel

72 ThejoyofThaipubfood

72 A sageofancientscience

74 BackStory:ThemagicofVermeer

dwellonhisdivinity,but“TheChosen”fo­ cusesonhisordinariness.“WehaveputJe­ susonstained­glasswindows,”saysDallas Jenkins, the show’s creator and director, yet“whatmakesthestoryoftheGospelsso powerfulis,infact,hishumanity.”Viewers watchJesuscooking,playingwithchildren orbrushinghisteeth.Hecracksjokes,too. Askedataweddingifhecanhelponeofhis acolytes improve his dance moves, he quips:“SomethingsevenIcannotdo.” Thedisciples,meanwhile,leadunhap­ pylives.WhentheymeetJesusforthefirst time, they are seeking deliverance from worldlywoes,notsalvationafterdeath.Si­ monisadebt­riddengamblerwithadodgy marriage.MaryMagdalene’sstrugglewith otherworldlydemonshasdrivenhertoal­ coholism and thoughts of suicide. Mat­ thew, a taxman, is caught between the Romanauthoritiesandhiscountrymen. MrJenkinsusescreativelicencewhen weavingcharacters’storiestogether.Mat­ thew,forexample,isresponsibleformak­ ingSimonpayhisdebts.Thomas,another disciple,runsawinebusinesswhichJesus saves from ruin thanks to his ability to transmogrify water. Nicodemus, a Phari­ see,meetsJesusthroughMaryMagdalene, onwhomhehadtriedtoperformanexor­ cism.Noneofthismaterialcanbefoundin theGospels,butMrJenkinsandtheshow’s writers have consulted with three Bible teachers—aCatholicpriest,anevangelical professor and a Messianic Jew—to deter­ minewhethertheirplotsareplausible. Faithisnotaprerequisiteforenjoying

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“The Chosen”, Mr Jenkins argues: non­ Christian viewers “can appreciate these storiesinthesamewaythat,ifyoudon’t believeintheForce,youcanstillappreci­ ate ‘Star Wars’.” Some may find his approach too playful, or insufficiently faithful to scripture. Indeed, some evan­ gelicals have taken to YouTube to decry scenes in which Jesus rehearses his ser­ mons or makes light of his divinity. Mr Jenkins, himself a devout evangelical Christian,maintainsthattheshowisrev­ erentofthemanfromNazareth.Jesus’shu­ manity“doesn’tdetractfromhisdivinity. Inmanyways,itmakesitevenmoreawe­ inspiring,”hesays.“Thecreatoroftheuni­ verseactuallylivedamongus.” The film­maker believes in miracles, andsomemightseeaminoroneintheway hemadetheshow.AfterMrJenkins’sfirst majortheatricalproject,“TheResurrection ofGavinStone”(2017),floppedatthebox office,hewasnotsureifhe“hadafuturein thebusinessanymore”.“TheChosen”re­ vived his career and Mr Roumie’s. The actorwasonthevergeofquittingthein­ dustry.Now,whenmillionsofChristians thinkofJesus,theymaypicturehisface. “TheChosen”alsosavedAngelStudios’ predecessor, VidAngel. Before the show took off, the company was facing bank­ ruptcy when several Hollywood studios sueditforcopyrightviolations.(VidAngel allowed users to filter out disagreeable scenes of nudity or violence from films andTV shows;itreachedasettlementwith thestudiosin2020.) Filmandtelevisionexecutives,asecu­ lar bunch, have long shunned religious projects.Buttherearewaystobringpious plots to the screen without their say­so. Studios did not see much commercial potentialin“ThePassionoftheChrist”,a blood­spattered biblical drama of 2004, and Mel Gibson, the director, ended up footingthebillhimself.(Thefilmwenton togrossmorethan$600mworldwide.)In contrast, the producers of “The Chosen” havepersuadedfansofdevotionaldrama tochipin.Tomakethefirstseason,they collected$10mviacrowd­funding—atthe timesettingarecordforamediaproject.In themaintheshowisstillfinancedinthis way;itswebsiteindicateshowmanyepi­ sodeshavebeenbankrolled. The fundraising model creates a bond withfansandtheygetrewardsfordigging intotheirpockets,suchastheopportunity to appear on the show. More than 9,000 flockedtoTexastobeextrasinthescene where Jesus feeds the crowd. Mr Jenkins regularly posts updates and behind­the­ sceneslooksforfans. Nearlyfouryearsaftertheshowhadits premiere,thesuccessof“TheChosen”baf­ fles Mr Jenkins. It doesn’t “make much sense,”hesays.Thenagain,“neitherdoes thestoryofthefeedingofthe5,000.” n

TheEconomistFebruary11th2023

TheHolocaust

It took a continent

A new history focuses on European collaborators in the Nazi horrors TheHolocaust:AnUnfinishedHistory. By DanStone.Pelican Books; 464 pages; £22

O

ne day inJune1941,intheLithuanian cityofKaunas,alocalman—soontobe knownasthe“death­dealer”—pickedupa crowbarandwaitedforhisfirstvictim.The city had just been captured by the Nazis andaGermansoldierrecordedwhathap­ pened next. Several dozen Jewish men werebroughtoutonebyoneandbeatento death in turn. After each murder, the crowd, including women and children, clapped.TheyalsosangtheLithuanianna­ tionalanthem. Inhisilluminatingstudyofaspectsof theHolocaustanditsaftermath,DanStone recountstheslaughterinKaunastodem­ onstratetheimportantroleplayedbyen­ thusiasticlocals.ThedirectoroftheHolo­ caustResearchInstituteatRoyalHolloway, University of London, Professor Stone is theauthorofnumerousworksontheNazi genocide.Thefourkeythemesofhisnew bookare“trauma,collaboration,genocidal fantasy and post­war consequences”. He writes with authority and an eye for the humanstorynotalwaysevidentinHolo­ causthistoriography.Thefirst­handtesti­ monies he cites underscore the suffering ofvictimsandsurvivorsandthesavagery oftheperpetrators. Like every historian of this period, he

faces the question of whether to write a broadaccountcoveringasmuchaspossi­ ble,ortofocusonasinglecountryorepi­ sodethatembodiesaparticulartheme.He chooses the panoramic approach and his narrative traverses wartime Europe: from the now­familiar names of death camps suchasAuschwitztolesser­knownaspects oftheHolocaust.Theseincludetheround­ upof532JewsinOslobyNorwegianpolice­ men in November 1942, most of whom weregassedinAuschwitz,andthehorrific fateoftheJewsofTransnistria.Incarcerat­ edinpigsties,manyofthemfrozetodeath or went mad with hunger, eating twigs, leavesandhumanexcrement. Thebook’smainstrengthisitscompar­ isonofdifferentcountries,theirauthori­ ties and their willingness to collaborate with the Nazis or slaughter local Jews themselves. The chapter on the death marches, when inmates were moved between concentration camps, and the eventualliberationofthosecampsandits aftermath,isespeciallystrong,perhapsbe­ causeProfessorStonehasalreadywrittena bookonthisspecificarea. But the rapid switches between loca­ tions, events and individuals can some­ times make for choppy reading. Mean­ while,thepublisher’sgrandioseclaimthat thisbook“upendsmuchofwhatwethink weknowabouttheHolocaust”isinadvis­ ableandoverblown.

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TheEconomistFebruary11th2023

“The ubiquity of collaboration across Europe”, writes Professor Stone, “means weneedtostopthinkingoftheHolocaust assolelyaGermanproject.”Noserioushis­ torian does think that. Randolph Braham documentedtheresponsibilityoftheHun­ garianstateanditsofficialsfortheexter­ minationofruralHungarianJewryin“The Politics of Genocide”, first published in 1981. The German soldier’s account of the death­dealerofKaunaswasfirstpublished in1958.“HowtheHolocaustBegan”,anex­ cellent recent documentary made by the bbc,includesfootageofLatviancivilians chatting as they watch local Jews being shotintoatrench. Professor Stone usefully notes the “seemingly inverse relationship between ‘Holocaustconsciousness’andtheriseof xenophobicnationalismthatcharacterises ourage”.Inaninitiallypromisingchapter onHolocaustmemoryandhowthegeno­

cidehasbeenperceivedandexploited,he mentionstheYugoslavwarsofthe1990s, duringwhichbothCroatiaandSerbiatried to use the Holocaust for political advan­ tage.Butthentheauthorwandersoffintoa modish discussion of a Cameroonian scholarwhowasdisinvitedfromaGerman festival because of his pro­Palestinian views, as well as the “shocking slide of America’sRepublicanPartyintofascism”. This is not the language of serious scholarship. Professor Stone considers anti­Israel boycotts, but makes no men­ tion of Srebrenica, where, in 1995, 8,000 menandboyswerekilledbyBosnianSerb forcesinaclearexampleofamodern­day genocide. The world did nothing. That massacreillustratesthecynicaladagethat, for all the books, memorials, museums andremembrancedays,“Neveragain”may simply mean that never again will Ger­ manskillEuropeanJews. n

Historicalfantasyfiction

The magic word

Salman Rushdie’s new novel is an ode to storytelling and freedom VictoryCity. BySalmanRushdie.Random House;352pages;$30.JonathanCape;£22

I

n Salman Rushdie’s 15thnovel,amagi­ calstorytellersurvivesasadisticassault. Initsaftermathshereflectsthat,although “terrible things happened”, nonetheless “lifeonearthwasstillbountiful,stillplen­ teous,stillgood.” SirSalmanhadcompleted“VictoryCi­ ty”beforehewasstabbedbyajihadistona stageinNewYork,losinganeyeandfull useofahand.Hisbook’sjoyinfictionsthat “couldbeaspowerfulashistories”testifies toalifetimeoffree­spiritedinvention.But its defiance and exuberance is poignant now that the author of “Midnight’s Chil­ dren” and “The Satanic Verses” has nar­ rowlyavoidedthefatedecreedforhimby anIranianfatwa of1989. InSirSalman’sstories,unfetteredcre­ ativityrewritesthedestinieslaiddownby dogma and law. “Victory City” is a fable aboutthepowerofnarrativeart,hitchedto a historical chronicle. Pampa Kampana, the Indian storyteller­queen at its heart, believes that “the miraculous and the everydayaretwohalvesofasinglewhole.” Overfourdecades,thatkinshiphasgiven SirSalmanhisauthorialsignature. Pampahasbeengivena“cursedgiftof longevity” and it grants her 247 years of life. She has other powers, too, and con­

jures the city and empire of Bisnaga into beingbywordsalone.Shedirectsitscourse over two centuries as queen consort, re­ gent,ministerandsorceress.Inherrealm of wonders, fairy­tale devices often drive theaction,suchasspellsthatturnhumans intobirdsortalkingforestanimals. YetSirSalmanmakesBisnaga“aplace withahistory”,notjust“theinventionofa witch”. Its ascent, prosperity and decline

trackthereal­worldprogressoftheplural­ isticHinduempireofVijayanagar(indeed Vijayanagar means “victory city”). That kingdomflourishedfromthe1330suntilIs­ lamicinvadersleftitruinedaftertheBattle ofTalikotain1565. Pampasteershistory,thenrecordsitin anepicpoem.Therewasaprincess­poet, Gangadevi,inthe14thcentury;someofSir Salman’scharacters,suchasKrishnadeva­ raya,acapriciousking,bearthenamesof actual rulers. The green­eyed, red­haired PortugueseadventurerswithwhomPampa hasaffairs,andwhocarrynewsoftheem­ pireoverseas,haverealcounterparts. With its female progenitrix, Bisnaga becomesatitszenithasortoffeministuto­ pia.Itswomenare“neitherveilednorhid­ den” but honoured as warriors, “lawyers, traders, architects, poets, gurus, every­ thing”. Pampa and her more enlightened alliesalsobattlesectariansandfundamen­ talists,welcoming“unbelieversandother­ believers” to share their “reign of love”. This may seem like wish­fulfilment, but Vijayanagarwasnotedforitstoleranceand itsinfluentialwomen. Withhistoryononeflankandfantasy ontheother,SirSalmangallopsdownthe generations.Scenesofintrigue,exile,love and murder propel fast­flowing, wittily writtenchapters.Pampalearns,aswriters must, that “once you had created your characters, you had to be bound by their choices.”Thosechoicesareoftenunwise. “Golden ages never last long”: religious bigotry, palace plots and envious neigh­ bourshastenBisnaga’sdownfallinto“rub­ ble,bloodandash”. In the closing verses Pampa declares: “Words are the only victors.” Sir Salman may distrust all evangelists, but in this novelheshowshisfaithintheliberating powerofart. n

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TheEconomistFebruary11th2023

Ancientscience

Great minds do not think alike Anaximander.ByCarloRovelli.Translated byMarionLignanaRosenberg.Riverhead Books;272pages;$18.AllenLane;£16.99

O Worldinadish

A perfect pairing

Thai food and British pubs make a delicious combination

F

ROM THE outside,theLemonTreeisan unassumingpub.Sittingonaquietroad incentralLondon,itlookslikemanyofthe city’s Georgian boozers. On the ground floor there are dark wooden furnishings, framed etchings and a bar offering local ales,importedlagersandporkscratchings. Thetraditionalsettingsuggestsamenuof pubgrubsuchasburgers.AvisitortoBrit­ ain’scapitalmaybesurprisedbytheculi­ narydelightsservedupstairs. Squeezepastthegagglesofofficework­ ersandlistenoutforthesoundofclanging woksandsizzlingoil.Followtheenticing scent of frying aromatics and fish sauce, andyou’llfindasmallThairestaurantpro­ vidingwarmingbowlsofmassamancurry andtallmoundsoffriednoodles.Thisisa cultural collaboration not unique to the Lemon Tree. Anglo­Thai grub was first dished out at the Churchill Arms in Ken­ singtonin1991andisnowservedinatleast 30tavernsacrossLondon. Often Thai cooks will rent a kitchen fromapublandlordinreturnforastream of hungry customers. Ask a patron to ex­ plainwhythisarrangementseemstowork, andyoumightnoticehiseyebrowflickup­ ward,citingahunchthatthereasonliesin some landlords’ penchant for marrying Thaiwomen.ItistruethatastudyofThai eateries in Britain found that more than 68%arerunbywomenandthat,according totheHomeOffice,wivesreceivedalmost two­thirdsofallsettlementvisasgranted to Thais in the early 2000s. But the phe­ nomenon of Thai kitchens in pubs is probablytheresultofcommercialoppor­

tunitiesratherthanromance. Atthebeginningofthe21stcenturythe Thaigovernmentlaunchedagastro­diplo­ macy campaign which aimed to increase thenumberofThairestaurantsaroundthe world.(Aswellascelebratingthecountry’s delicacies,officialswantedtotempttour­ iststovisit.)Forbuddingrestaurateursin Britain,settingupshopinapubwasseen as less risky than starting from scratch. Landlords usually had dining space that was not being used effectively, which madeiteasyforentrepreneurialcooksto makeacompellingbusinesscase. Pubsmayhavepokykitchens,butthat doesnotmatterwiththisstyleofcooking. ManyThaidishesarebasedonstreetfood andrelyonafewversatileingredients,in­ cludingchillies,coconutmilk,herbs,lime andtamarind.Aflexiblemenudoesnotre­ quireavaststockroomorcounterspace.It helps, too, that the flavoursome cuisine pairs superbly with beer and is quick to prepare.DishessuchaspadThai,aparticu­ larBritishfavourite,orseafoodsteepedin aglossysavourysaucecanbewhippedup inasinglewokinminutes. Regardless of how it came to be, the popularity of Thai pub food reflects Lon­ doners’open­mindednessaswellastheir desireforcontinuity.Ifyoumessaround with the formula of a quintessential pub toomuch,youriskunsettlingregularswho takecomfortintradition.Butthat’snotto say you cannot please them with the mouth­wateringstreetfoodofBangkok— solongasitisservedwithapintofroom­ temperaturebitter. n

f the three men usually credited with founding the disciplines of phi­ losophyandnaturalscience,Anaximander comes second, sandwiched between his teacher, Thales, and his student, Anaxi­ menes.Beingsecond,itturnsout,wascru­ cial.Thoughthepolymath(whowasborn around 610BC) admired his teacher, he wasn’t afraid to challenge him. Thales sought the origin of all things in water; Anaximanderpreferredashisfirstprinci­ ple the less tangible apeiron, the “indefi­ nite”or“infinite”. Awillingnesstotakethemasterdowna peg or two, according to Carlo Rovelli, a theoreticalphysicist,iskeytothepractice ofscience.Lackingthedeferenceadisciple owes to a prophet, but without the bitter contempt of an apostate, “Anaximander discovered a third way,” he writes, and “modernscienceinitsentiretyistheresult ofthediscoveryofthisthirdway.” Mr Rovelli’s book, first published in Frenchin2009andnewlytranslatedinto English,isnotastraightbiography,aslittle isknownofAnaximander’slifeandhardly any of his original writing survives. In­ stead,itfocusesonhisrevolutionaryidea that the best way to uncover nature’s se­ cretsistoquestioneverything.Anaximan­ derbuilthisowncosmologyontheworkof pastsages,interrogatingtheirtheoriesand makingcorrectionswhereneeded.Hein­ vented a process that allowed knowledge togrowfromgenerationtogeneration,and enabledhumanitytoreapthebenefits. TheconsequenceofAnaximander’sir­ reverence was uncertainty. Mr Rovelli ar­ gues that is a price worth paying: “The reliability of science is based not on cer­ tainty but on a radical lack of certainty.” Anaximander and his followers rejected mythologicalexplanations.Theyreplaced revelationwithobservationandfaithand scripturewithreason.Asaresult,MrRo­ velli avers, they set civilisation on a new course,oneinwhichprogressismadeless by accumulating facts than by knowing whatitisyoudonotknow. For Thales, Anaximander and Anaxi­ menes,allcitizensofMiletus,aGreekcity on the western coast of Anatolia, doubt was a birthright. Positioned between the more ancient civilisations of Egypt and Mesopotamia,andpossessingallthenatu­

012

Commercialising Quantum US March 23rd-24th 2023 | San Francisco and virtual

More than: 1,500 virtual attendees 400 attendees in San Francisco 80 speakers 60 sessions

From qubits to profits: achieving near-term quantum advantage Alongside editors from The Economist, expert speakers will debate how organisations should prepare for a quantum future. Jane Lauder Executive vice-president, enterprise marketing and chief data officer The Estée Lauder Companies

Edwige A. Robinson Senior vice-president of network engineering and operations T-Mobile USA

David van Weel Assistant secretary general, emerging security challenges NATO

Grace Lee Senior vice-president, chief data and analytics officer, Scotiabank

Michael J. Hayduk Deputy director, information directorate, Air Force Research Laboratory, US Air Force

Lutz Beck Chief information officer Daimler Truck North America

Register free: commercialisingquantum-us.economist.com

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Culture

ralcuriosityofayoung,mercantilesociety, theresidentsofMiletuswereexposedtoa variety of beliefs. They could test one doctrineagainstanother,whilebeingbe­ holdentononeandscepticalofall.“Civili­ sations flourish when they mingle,” Mr Rovellisays.“Theydeclineinisolation.” Mr Rovelli is a champion of diversity, both cultural and ideological. Just as the citizensofMiletusprofitedfromthewis­ domoftheirforeignneighbours,modern societiesbenefitwhentheyencouragethe freeexchangeofideas,heinsists.Among theancientGreeks,thiscapacitytoassimi­

The Economist February11th2023

lateavarietyoftraditionslednotonlyto the birth of science, but of democracy—a translation of Anaximander’s irreverence for established ways of thinking into the realmofpolitics. The territory Mr Rovelli covers is not unfamiliar, though he notes that these daysitislessfashionabletoveneratelong­ deadwhitemalethinkers.Still,theauthor believes it is worth championing the in­ quisitive exploration of the universe that began with Anaximander and his col­ leagues.Heiseagertodefendthisanti­tra­ ditionalisttraditionagainstbothextreme

relativists, who believe there is no truth outsideaparticulartimeandculture,and absolutists who believe there is only one incontrovertibletruth. “Ourknowledge,liketheEarth,floatsin nothingness,” Mr Rovelli says. “Its provi­ sionalnatureandtheunderlyingvoiddo not make life meaningless; they make it moreprecious.”Thisbookoffersatimely rebuttaltothosewhowouldsacrificethe vital legacy of Western science—and the progressthatcomeswithit—onthealtarof culturalsensitivityorbyretreatingtothe safetyofmetaphysicalrevelation. n

Back Story Thecurtainandthelight In Amsterdam the genius of Johannes Vermeer is on display as never before

A

young woman inabluenightjacket readsaletterthatsheholdsuptoher chest.Themorninglightglintsonthe metaltacksinherchairs.Herlipsare slightlyparted,asifsheismurmuring themessagealoud. TheintimacyofJohannesVermeer’s domesticscenescanseemalmostvoy­ euristic.Someofhisfigureslookatyou asifturningtowardsanintruder.Yet theyarealsotantalisinglyinscrutable, glimpsedfromadistanceorsealedin privatereveries.In“WomaninBlue ReadingaLetter”,youseethelightbut notthewindowitispouringthrough. Youseetheletterbutnotthewords. Thepaintingisamongthetreasures oftheRijksmuseuminAmsterdamand isamongthe28byVermeer,gathered fromsevencountries,inanexhibition thatopensthereonFebruary10th.Thatis aroundthree­quartersofhissurviving works—morethanhaveeverbeenshown togetherbefore,andmorethanthepaint­ erhimselfwouldhaveseeninonego, notesTacoDibbits,themuseum’sdirec­ tor.Itisaone­offtributetohisgenius, andhisparticularformofit:thefierce, patientgeniusofperfectedtechnique. Intheabsenceoflettersordiaries, Vermeer’spersonalityisfamouslyhazy. Still,documentsandrecordsplotthe outlineofhislife.Hewasbornin1632in Delft,wherehisparentsrananinncalled theFlyingFox.Hiswell­heeledCatholic mother­in­lawmayhavedisapprovedof him,alowlyProtestant­bornartist.He hadmorethanadozenchildren.Early on,youngandambitious,hepaintedbig: amyth,aBiblescene,asaint. Inaround1657hiscanvasesand themesshrank,andhemadehisleapto immortality.Introubledtimes,nouveau­ richeDutchcollectorswantedpicturesof refinedinteriorsandeverydaylife.Ver­

meer’scontemporariesdevelopedgenres andtechniquesthatheemulated,then soaredbeyondtheminhisuseofcolour andperspectiveand,aboveall,hisun­ matchedmasteryoflight. Take“TheLoveLetter”,inwhichamaid hashandedalettertoherseatedmistress. Thewomanseemsperturbed,themaid puckish;perhapsshealreadyknowsthe news.Theviewerispositionedinthe shadowsbeyondadrawncurtain,arecur­ ringmotifinthesepictures.Eavesdrop­ pingontheconversationin“Officerand LaughingGirl”,youseethegirl’sbright grinbutthefeaturesofthehulkingofficer areobscure.WhenmenintrudeintoVer­ meer’sdomesticity,tensioncoursesbe­ neaththedecorum.In“TheGlassof Wine”,lightsparklesontheemptying glassthatmasksthewoman’sface.The man’shatshadeshiseyes. Vermeer’ssolofiguresreadandwrite, pourmilk,makemusicorlace.Aquiet dramahumsbelowtheirrepose,too. Nothinghappensyetsomethingseemsto, intheirheadsandyours.Thelongingand vulnerabilityinthefaceof“Girlwitha

PearlEarring”areaninvitationtostory­ tellingandmemes;hereshekeepscom­ panywiththeotherclose­upcharacter studieshepaintedinthemid­1660s. Throughsuchjuxtapositionsthe showtracesthedevelopmentofVer­ meer’scraftandthemodulationsinits themesandmoods.Hewasprobably familiarwiththecamera obscura,adevice thatprojectedanimagethroughapin­ holeandontoascreeninadarkened chamber(newresearchsuggestshemay havebeenintroducedtoitbytheJesuits ofDelft).AsMrDibbitsexplains,the contraption’sinfluenceisevidentinthe dotsofcolourtheartistusedtosimulate theeffectsoflight,theresultingmixof sharpnessandblurmakinghisvision seemstartlinglyreal. Inthiswayheturnedacoupleof roomsandafewobjects—alute,aglass, somepearls—intominiaturebreathing worlds.Youneednotknowallthealle­ goricalmeaningsofhisprops,northe socioeconomicconnotationsofthe clothes,tosensethedepthunderthe surface.Letterswrittenandreceived,the mapsmountedonVermeer’swalls—and, aboveall,thosewindowsandthatlight— implyandwithholdthepromiseand periloftheworldoutside. Hediedin1675,pennilessat43after theoutbreakofwarruinedtheDutchart marketandhim.Little­knownforthe nexttwocenturies,todayheisanartistic deity.AttheheartoftheRijksmuseum’s mesmerisinghomageisthatexquisite combinationofintimacyanddistance. Paintedmorethan350yearsago,his subjectsstillseemhauntinglyalive,but theirthoughtsandsecretswillforeverbe theirsalone.Aswellasanypainter,in otherwords,Vermeerdidsomethingthat paintingmaydobest:hecapturedthe eternalmysteryofotherpeople.

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Courses

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Tenders NEW YORK CITY WATER BOARD

CONSULTING SERVICES IN CONNECTION WITH OBTAINING AND MANAGING FEDERAL AND STATE GOVERNMENT GRANT FUNDS DUE: MARCH 15, 2023 AT 4:00 P.M. EASTERN TIME

The New York City Water Board (the “Board”) is soliciting proposals from firms to provide grant application and funding advisory services to the Board and the New York City Department of Environmental Protection (“DEP”). The selected consultant(s) will support the Board and DEP in identifying, evaluating, applying for, administering, and monitoring sources of external funding made available by U.S. Federal and state governmental funding sources. The contemplated Scope of Work is described in the Request for Proposal documents, available using the link below. The Scope of Work will include extensive grant opportunity research, development of a grant evaluation framework, writing and compiling grant application materials, and overseeing the post-award monitoring and reporting process. To obtain the Request for Proposals, please visit nyc.gov/nycwaterboard or email [emailprotected] with the message subject line “Grant Consulting RFP 2023”. The dates and times of the procurement process, and the procedures for submitting a proposal, are explained in more detail in the Request for Proposals document. Prospective bidders are required to adhere to the procedures for communicating with the Board and DEP that are described in the RFP document.

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Economic&financialindicators

TheEconomistFebruary11th2023

Economic data

United States China Japan Britain Canada Euro area Austria Belgium France Germany Greece Italy Netherlands Spain Czech Republic Denmark Norway Poland Russia Sweden Switzerland Turkey Australia Hong Kong India Indonesia Malaysia Pakistan Philippines Singapore South Korea Taiwan Thailand Argentina Brazil Chile Colombia Mexico Peru Egypt Israel Saudi Arabia South Africa

Gross domestic product

Consumer prices

% change on year ago latest quarter* 2022†

% change on year ago latest 2022†

1.0 2.9 1.5 1.9 3.9 1.9 1.7 1.9 0.5 1.1 2.1 1.7 3.1 2.7 1.6 3.2 2.5 4.5 -3.7 0.6 0.5 3.9 5.9 -4.5 6.3 5.0 14.2 6.2 7.2 2.2 1.3 -0.9 4.5 5.9 3.6 0.3 7.1 3.5 1.7 4.4 7.5 8.7 4.1

2.9 nil Q3 -0.8 Q3 -1.2 Q3 2.9 Q4 0.5 Q3 -2.8‡ Q3 0.8 Q4 0.5 Q4 -1.0 Q3 -2.1 Q4 -0.5 Q3 -0.9 Q4 0.9 Q3 -1.2 Q3 1.1 Q3 6.3 Q3 4.1 Q3 na Q4 -2.4 Q3 1.0 Q3 -0.5 Q3 2.6 Q3 -10.0 Q3 19.3 Q4 na Q3 na 2022** na Q4 10.0 Q4 0.8 Q4 -1.5 Q4 -4.3 Q3 5.0 Q3 7.0 Q3 1.6 Q3 -4.6 Q3 6.4 Q4 1.6 Q3 1.8 Q3 na Q3 1.9 2022 na Q3 6.6 Q4

Q4

2.1 3.1 1.4 4.0 3.4 3.3 4.9 2.9 2.6 1.7 5.0 3.9 4.3 5.2 2.5 2.8 3.5 4.5 -2.3 2.9 2.0 5.1 3.5 -3.5 6.9 5.1 7.3 6.2 7.7 3.5 2.6 2.4 3.2 5.7 2.8 2.8 7.6 3.1 2.6 6.6 6.1 8.9 2.3

6.5 1.8 4.0 10.5 6.3 8.5 11.1 8.0 6.0 8.6 7.2 10.1 7.6 5.8 15.8 8.7 5.9 16.6 11.9 12.3 2.8 57.7 7.8 2.0 5.7 5.3 3.8 27.6 8.7 6.5 5.2 2.7 5.0 94.8 5.8 12.3 13.3 7.8 8.7 21.3 5.3 3.3 7.5

Dec Dec Dec Dec Dec Jan Jan Jan Jan Dec Dec Jan Jan Jan Dec Dec Dec Dec Dec Dec Dec Jan Q4 Dec Dec Jan Dec Jan Jan Dec Jan Dec Jan Dec Dec Jan Jan Dec Jan Dec Dec Dec Dec

8.0 1.9 2.5 7.9 6.8 8.4 8.6 10.3 5.9 8.7 9.4 8.7 11.6 8.3 15.1 7.9 6.4 14.4 13.2 7.7 2.8 73.5 6.4 1.9 6.5 4.2 3.4 19.9 5.6 6.1 5.1 2.9 6.1 72.5 9.3 11.6 10.2 7.9 7.9 13.9 4.4 2.5 7.0

Unemployment rate

Current-account balance

Budget balance

%

% of GDP, 2022†

% of GDP, 2022†

3.4 5.5 2.5 3.7 5.0 6.6 5.0 5.5 7.1 2.9 11.6 7.8 3.5 13.1 2.2 2.7 3.2 5.2 3.7 6.9 1.9 9.9 3.5 3.5 7.1 5.9 3.6 6.3 4.5 2.0 3.0 3.6 1.2 7.1 8.1 7.9 10.3 3.0 6.2 7.4 4.2 5.8 32.9

Jan Dec‡§ Dec Oct†† Dec Dec Dec Dec Dec Dec Dec Dec Dec Dec Dec‡ Dec Nov‡‡ Dec§ Dec§ Dec§ Jan Nov§ Dec Dec‡‡ Jan Q3§ Nov§ 2021 Q4§ Q4 Dec§ Dec Nov§ Q3§ Nov§‡‡ Dec§‡‡ Dec§ Dec Dec§ Q3§ Dec Q3 Q3§

-3.7 2.4 1.4 -5.9 -0.6 0.9 -0.5 -2.8 -1.9 4.2 -5.8 -0.9 6.5 0.5 -2.4 9.0 18.8 -3.7 12.3 3.8 7.0 -8.1 2.1 5.5 -2.7 1.0 2.4 -3.2 -4.0 18.7 1.2 12.7 -3.3 -1.0 -2.9 -8.0 -5.7 -1.4 -4.8 -4.6 3.5 12.6 -1.5

-5.5 -5.6 -6.1 -6.8 -2.3 -3.9 -3.6 -4.9 -5.1 -3.5 -4.5 -5.6 -1.5 -4.3 -5.1 0.9 12.2 -3.7 -1.1 -0.5 -1.0 -3.4 -1.9 -3.5 -6.4 -2.4 -5.3 -7.8 -7.7 -1.0 -3.1 -1.4 -2.7 -4.2 -4.7 1.1 -5.0 -2.5 -1.5 -7.4 0.5 3.3 -5.5

Interest rates

Currency units

10-yr gov't bonds change on latest,% year ago, bp

per $ Feb 8th

% change on year ago

6.78 131 0.83 1.34 0.93 0.93 0.93 0.93 0.93 0.93 0.93 0.93 0.93 22.2 6.94 10.3 4.42 72.7 10.6 0.92 18.8 1.44 7.85 82.5 15,100 4.30 272 54.8 1.33 1,260 30.1 33.5 190 5.23 798 4,786 18.9 3.85 30.4 3.49 3.75 17.8

-6.0 -12.1 -10.8 -5.2 -5.4 -5.4 -5.4 -5.4 -5.4 -5.4 -5.4 -5.4 -5.4 -4.1 -6.0 -14.3 -10.2 3.3 -13.7 nil -27.7 -2.8 -0.8 -9.4 -4.7 -2.8 -36.0 -6.0 1.5 -5.0 -7.3 -1.6 -44.3 0.8 3.7 -17.5 9.1 -0.3 -48.2 -7.7 nil -13.6

3.6 2.7 §§ nil 3.4 3.0 2.3 3.0 3.0 2.8 2.3 4.3 4.2 2.7 3.2 4.5 2.5 1.4 6.0 10.7 2.0 1.4 11.1 3.6 3.4 7.3 6.6 3.8 14.7 ††† 6.4 3.1 3.3 1.2 2.6 na 13.3 5.6 11.9 8.7 7.8 na 3.3 na 9.8

167 31.0 -8.0 191 116 207 239 231 210 207 179 234 225 218 145 194 76.0 211 134 133 110 -1033 150 158 53.0 14.0 6.0 381 137 118 59.0 46.0 55.0 na 205 -5.0 309 102 172 na 159 na 44.0

Source: Haver Analytics. *% change on previous quarter, annual rate. †The Economist Intelligence Unit estimate/forecast. §Not seasonally adjusted. ‡New series. **Year ending June. ††Latest 3 months. ‡‡3-month moving average. §§5-year yield. †††Dollar-denominated bonds.

Commodities

Markets % change on: In local currency

United States S&P 500 United States NAScomp China Shanghai Comp China Shenzhen Comp Japan Nikkei 225 Japan Topix Britain FTSE 100 Canada S&P TSX Euro area EURO STOXX 50 France CAC 40 Germany DAX* Italy FTSE/MIB Netherlands AEX Spain IBEX 35 Poland WIG Russia RTS, $ terms Switzerland SMI Turkey BIST Australia All Ord. Hong Kong Hang Seng India BSE Indonesia IDX Malaysia KLSE

Index Feb 8th

4,117.9 11,910.5 3,232.1 2,141.3 27,606.5 1,984.0 7,885.2 20,679.5 4,209.2 7,119.8 15,412.1 27,160.7 748.4 9,227.3 60,952.3 981.8 11,276.3 4,505.3 7,740.5 21,283.5 60,663.8 6,940.1 1,470.8

one week

nil 0.8 -1.6 -1.5 0.9 0.6 1.6 -0.3 0.9 0.6 1.5 1.7 0.1 1.4 0.8 -2.1 0.7 -4.4 0.4 -3.6 1.6 1.1 -1.0

% change on:

Dec 31st 2021

-13.6 -23.9 -11.2 -15.4 -4.1 -0.4 6.8 -2.6 -2.1 -0.5 -3.0 -0.7 -6.2 5.9 -12.0 -38.5 -12.4 142.5 -0.5 -9.0 4.1 5.4 -6.2

index Feb 8th

Pakistan KSE Singapore STI South Korea KOSPI Taiwan TWI Thailand SET Argentina MERV Brazil BVSP* Mexico IPC Egypt EGX 30 Israel TA-125 Saudi Arabia Tadawul South Africa JSE AS World, dev'd MSCI Emerging markets MSCI

41,723.3 3,388.5 2,483.6 15,618.2 1,670.3 250,125.4 109,951.5 53,125.0 16,948.1 1,836.4 10,507.7 79,975.6 2,802.0 1,020.6

one week

2.7 0.3 1.4 1.3 -0.9 -0.4 -1.9 -3.4 3.3 0.1 -2.6 0.2 -0.3 -2.1

Dec 31st 2021

-6.4 8.5 -16.6 -14.3 0.8 199.6 4.9 -0.3 42.3 -11.4 -7.3 8.5 -13.3 -17.2

Investment grade High-yield

2015=100

latest

141 439

Dec 31st 2021

120 332

Sources: Refinitiv Datastream; Standard & Poor's Global Fixed Income Research. *Total return index.

Jan 31st

Dollar Index All Items Food Industrials All Non-food agriculturals Metals

% change on Feb 7th* month year

162.4 142.3

158.8 142.2

2.2 1.7

-11.7 -4.9

181.1 134.2 195.0

174.4 130.4 187.5

2.6 2.0 2.7

-16.2 -24.7 -14.2

Sterling Index All items

201.3

201.9

3.4

-0.3

Euro Index All items

165.8

164.8

2.5

-5.7

1,928.2

1,875.2

nil

2.7

85.1

83.9

4.6

-7.8

Gold $ per oz Brent $ per barrel

US corporate bonds, spread over Treasuries Basis points

The Economist commodity-price index

Sources: Bloomberg; CME Group; Cotlook; Refinitiv Datastream; Fastmarkets; FT; ICCO; ICO; ISO; Live Rice Index; LME; NZ Wool Services; Thompson Lloyd & Ewart; Urner Barry; WSJ. *Provisional.

Formorecountriesandadditionaldata,visit economist.com/economic­and­financial­indicators

The Economist February11th2023 77

→ As the Mediterranean Sea closed up, larger plates squeezed the Anatolian microplate from all directions 100m years ago

Teth ys

50m years ago

25m years ago

sea Anatolian microplate

200km B l a ck S ea

North Anatolian fault

Istanbul

Eurasian plate

Ankara GREECE

Anatolian microplate

Earthquake activity Feb 6th 2023 7.5

TURKEY

East Anatolian fault

Initial quake 7.8 magnitude Aegean microplate

Arabian plate

IRAQ

CYPRUS

↓ 012

Graphic detail Seismology

SYRIA

African plate M e d i t e rra n ea n S ea

LEBANON Sources: USGS; Christopher Scotese, Paleomap Project, 2016; “An updated digital model of plate boundaries”, Peter Bird, 2003; The Economist

Stuck in the middle Turkey sits at the crossroads of tectonic plates as well as civilisations

T

he earthquakes that ripped across southernTurkeyandnorthernSyriain the small hours of February 6th were amongthemostdevastatingofthiscentu­ ry.Withinthreedaysofthedisaster,there­ ported death toll surpassed 10,000. This horrifying impact stems largely from shoddy construction practices and from the timing of the quake, which occurred whilepeopleweresleeping.Butanyseis­ mic event this powerful—the biggest quakes were of magnitude 7.8 and 7.5— would inflict grave damage. Worldwide, onlyaround15earthquakesofmagnitude sevenorgreaterhappeneachyear. AlthoughTurkeyisfarfromthePacific “ring of fire” that generates most of the world’s strongest earthquakes, its neigh­ bourhoodisunusuallyseismicallyactive. Quakestendtooccuralongtheboundaries between tectonic plates, the segments of

Earth’scrustthatgetmovedaroundbycon­ vectioncurrentsinthehotmantlebelow. Alongthefaultlinesthatseparateplates, crustalrocksmoveslowlypasteachother, often sticking and jamming. This causes strain to accumulate until the fault slips, causinganearthquake. TheeasternMediterraneanhasapartic­ ularly complex tectonic structure involv­ ing several “microplates”, including the Anatolianplate,onwhichmostofTurkey sits.Amere100myearsago,thisplatecom­ prisedpartofthesouthernshoreofasea calledTethys,whichseparatedAfricafrom Eurasia. As this body of water closed up, Earthquakes since 1900, near selected fault lines Largest in a moving seven-day period 80 East Anatolian fault 60 40

Feb 6th 2023 North Anatolian fault 5

6 7 Magnitude (only five and over)

20 0

8

leavingtheAral,Black,CaspianandMedi­ terranean seas as its only remnants, the Anatolian plate drifted north. It then got squeezed between four others, including theArabianplatetothesouth­east(which ismigratingnorth)andtheEurasianplate tothenorth(whichismovingsouth).Both oftheseplatesarestillpushingintotheir smallAnatolianneighbourtoday. In the wake of a catastrophic earth­ quakenearIstanbulin1999,Turkishlead­ ers vowed to improve seismic prepared­ ness.ThattremororiginatedintheNorth Anatolian fault, the Anatolian plate’s boundary with the Eurasian plate, which has been the source of most of Turkey’s largequakes.Incontrast,theEastAnato­ lianfault,whereitrubsupagainsttheAra­ bianplate,hadnotseenaquakeofatleast magnitude seven since modern monitor­ ingsystemsbeganinthelate19thcentury. Many other active fault systems, such as the Cascadia subduction zone in the north­western United States and south­ westernCanada,havegonecenturieswith­ outanearthquake.Suchrelativequietdoes notnecessarilyindicatelowseismicrisk. Strain along the East Anatolian fault had been building up year after year, making thefaultripeforacataclysm. n

012

78

Obituary PervezMusharraf

Whisky and moderation

Pervez Musharraf, who seized power in Pakistan in 1999, died on February 5th, aged 79

W

hen Pervez Musharraf wasnamedarmychiefofPakistan in1998,hewasasurprisingchoice.Ahot­headedformerar­ tilleryman,knownforbraveryunderfireandoccasionalindisci­ pline,hewasthirdonthelistofgeneralsthatNawazSharif,the thenprimeminister,wasgiventopickfrom.Hewasalsoanout­ lierinatopbrassdominatedbyethnicPunjabisandPushtuns.Mr MusharrafhailedfromKarachi;hisUrdu­speakingfamilyhadmi­ gratedtherein1947fromDelhi,wherehewasborn.MrSharif,it wasclear,sawhimasaweakarmychiefhecouldcontrol. ThiswasafamiliarployofPakistan’sput­upcivilianleaders. ZulfikarAliBhuttoappliedthesamelogicwhenappointingMu­ hammad Zia ul­Haq army chief in1976. Zia promptly removed Bhutto in a coup, hanged him and ruled Pakistan until he was killedinaplanecrashin1988.MrSharifhadsimilarlyunderesti­ matedMrMusharraf.Theartillerymantoppledhiminacoupin 1999,hadMrSharifsentencedtolifeinprisonandruledPakistan, as“chiefexecutive”thenpresident,untilhisresignationin2008. Heseemedatfirstlikejustanotherbullyingfauji.MrMushar­ rafreveredthearmy,theinstitutionthatgenerallypresumesto runPakistan,withapassionfoundedoncomradeshipandblood. HefoughtintwowarsagainstIndia,in1965and1971,earningagal­ lantrymedalandreputationforimpetuousness.Hebarelyhidhis scorn for civilians, especially politicians, among whom he re­ servedspecialcontemptforMrSharif.Hecouldneverforgivethe formerprimeministerforhavingdaredtotrytosackhimonthe eveofhiscoup.YetevenasPakistan’sswaggeringgeneralissimo, MrMusharrafstillseemedaslightlyoddballchoice. Zia,anIslamicfundamentalistwithadisdainfornon­Muslims andWesternculture,hadpushedthecountryfartothereligious right.MrMusharraf,thoughpassablyGod­fearing,seemednotto havegotthemessage.EducatedbyCatholicpriests,atKarachi’s prestigiousStPatrick’sHighSchool,helovedrockmusic,dogsand

The Economist February11th2023

whisky.HelikedWesternfashionssomuchhisarmycomrades calledhim“Cowboy”.AchildhoodspellinTurkey,wherehisfa­ therwasstationedasadiplomat,helpedformthesetastes.Here­ tainedalifelongregardforitsgreatreformer,KemalAtaturk.But mostlyherepresentedthemoresecular,liberalPakistanitsfoun­ der,MuhammadAliJinnah,hadonceimaginedthecountrytobe. HismoderationmadeMrMusharrafwell­placedforthegreat eventofhisrule.Zia,withAmerica’sblithesupport,hadorches­ trated a jihadist campaign against the Soviet occupation of Af­ ghanistan.ButonSeptember11th,2001veteransofthatstruggleat­ tackedAmerica,arousingitsfury.“Eitheryou’rewithus,oryou arewiththeterrorists,”thunderedGeorgeW.Bush.ForMrMush­ arraf,unlikemanyofhiscomrades,itwasnotarealchoice. He provided the Americans access to Pakistani airspace and roads, allowing them to wage war in Afghanistan. He also gave themsome,atleast,oftheal­Qaedafighterswhofledthatcountry intoPakistan.MrBushsalutedthecoupsterpresidentasa“strong defenderoffreedom”.HavingcutoffaidtoPakistaninthe1990s, Congressshowereditwithmoney.ItwasAmerica’sindispensable allyinthewaronterror,andMrMusharrafitsadmiredleader. Hiscourageandmoderationwerebothapparentinthisshift. Athome,hewasdenouncedasanAmericanpoodleandwasthe targetofmultipleassassinationattempts.Uncowed,hedoubled downonhisreformprogramme.Heliberalisedthemedia,encour­ agedpopcultureandpassedmeasurestoprotectwomenfromthe chauvinistIslamistlegalregimethatZiahadbuilt. With two Indian prime ministers, Atal Bihari Vajpayee then Manmohan Singh, he also launched a bold peace process. Mr Musharrafgotitmovingwithavisittohisbirthplace,Delhi,in 2001. And when negotiations got stuck, it was often he who seemedmostwillingtounstickthem.Hisadviserslookedonin alarmasthegeneralriffed,seeminglyoff­the­cuff,onhowtofix thisorthatterritorialdispute. Yethispresidency,andwithitthepeaceprocess,wasonbor­ rowedtime.Thecontradictionsinhisposition,asanenlightened despotandmoderateleaderofanIslamicisedarmy,madehim,in theend,anuncertainreformerandunreliableally.Theliberalpro­ gresshebroughtcameatthecostofthedemocraticinstitutionshe suborned.HiscrackdownonmilitancywasundercutbytheIslam­ istpoliticalpartiesheusedtoquashhisdemocraticopponents. Andalsobythearmy.Heeventuallycameclosetoadmittingwhat wasallalongsuspected—that,whilefightingmilitantsathome, Pakistan’sgeneralscontinuedsupportingtheiroldallies,theAf­ ghanTaliban,topreventIndiagaininginfluenceinAfghanistan. By2007thecontradictionshadbecomeunsustainable.Paki­ stanwasbeingravagedbyterrorism.Thelimiteddemocracythat Mr Musharraf permitted had led to mass protests against him. Callinghimself“indispensable”,hebrieflysuspendedtheconsti­ tution.Butthearmy,andAmerica,hadtiredofthedisorder.When hisopponentswonanelectionin2008heresignedthepresidency andfledtoLondonratherthanfaceimpeachmentproceedings. In his labyrinth ItispartlyanindictmentofMrMusharraf’ssuccessorsthathis dictatorshipisrememberedfondlybymanyPakistanistoday.No leader since has come close to repeating the seriousness of his peacemakingwithIndia.HealsoleftsomepositivemarksonPaki­ stan.Hisliberalisationofitsmediaisanenduringsuccess.Per­ hapsmostofall,however,hewassynonymouswithatimewhen the country was important geopolitically, something few Paki­ stanisappreciateduntiltheopportunityitpresentedhadpassed. Forallhisseriousfailings,thebluffgeneraldidtrytoturnPaki­ stan’sstrategicmomenttoitsadvantage.Buthisreactionaryoppo­ nents,militaryandcivilian,sponsorsofmilitancyanddisorder, squanderedthechance.Anditmaynevercomeagain.Whatever themeritsofPakistan’snextdictator,heisunlikelytobefetedin Washington,asMrMusharrafoftenwas. n

012

CSC:Miami Content Supply Chains must be forensic in their detail. Television broadcasters have long relied on instinct, market knowledge and spreadsheets to forecast TV viewership - but instinct needs to partner with information; market knowledge is never enough; and spreadsheets are no way to excel. As witness to these challenges, Fractal undertook its own detective work. By combining AI, data engineering and user-centric design, Fractal created an industry-first TV forecasting system for Europe’s leading media and entertainment company. The result? Up to 30% improvement in forecast accuracy. Fractal: perfectly targeted and timed TV, no drama.

012

HIGH WATCHMAKING

Tambour Carpe Diem Automata Hand-wound mechanical movement manufactured by La Fabrique du Temps Louis Vuitton in Geneva. Time display and dial animations on demand.

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