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45 Stress
What makes us stronger 59 The 21st International
Big economic ideas What AIDS Conference AIDS Those working to defeat
46 Workplace stress Rallying the troops
economists can learn from the the disease face setbacks,
Fuss and bother
discipline’s seminal papers: 61 Data storage both epidemiological and
leader, page 10. George Atoms and the voids financial. But they are about
Akerlof’s 1970 paper, “The Business 61 Medical technology to be handed new weapons to
Market for Lemons”, is a 47 Natural gas and methane All sewn up carry on the fight, page 59
foundation stone of A dirty little secret
information economics. The
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The Economist July 23rd 2016 5
The world this week
Corbyn vote one challenger, The issue of policing featured six months, after a summit in
Politics Angela Eagle, withdrew in heavily at the convention Rwanda of African leaders
favour of another, Owen following the latest shooting failed to settle on her succes-
Smith. However, Mr Smith of police by a black gunman. sor. None of the three contend-
soon came under pressure Three officers were killed in ers was able to attain the two-
over his previous job working Baton Rouge, Louisiana, by a thirds majority required.
for drug companies. For a former marine who lured
party on a mission to gain them into an ambush close to Israel’s Knesset passed a law
credibility, the choice between police headquarters. that will allow it to impeach
a candidate who shilled for any member accused of racial
“Big Pharma”, or a leader with A death in the family incitement or supporting
rock-bottom parliamentary Pakistan arrested the brother violence against the Jewish
support, may be a bitter pill to of a social-media star, after he state. Critics said the contro-
swallow. confessed to killing her for the versial law was aimed at Arab
family’s “honour”, because lawmakers and would harm
In her first week as Britain’s “girls are born to stay at home.” democracy.
A faction of Turkey’s armed prime minister, Theresa May Qandeel Baloch rose to fame
forces attempted a coup, but cruised through a crucial by posting cheeky, politically Three members of the French
was defeated by other military parliamentary vote on the controversial videos on Face- special forces died in Libya
units, police and crowds of renewal of Trident, the coun- book. Hailed by some as a when their helicopter was shot
civilians. President Recep try’s nuclear deterrent. Trips to feminist, she was reviled by down by an Islamist militia.
Tayyip Erdogan launched a Berlin and Paris followed, as conservative clerics. Her broth- The militia claimed that French
crackdown, arresting or purg- Mrs May met Germany’s er strangled her at home. jets bombed its positions in
ing thousands of military Angela Merkel and France’s response, raising the prospect
officers, judges, academics, François Hollande. Convinc- America’s Justice Department of an escalation in fighting.
journalists and others. The ing European heads of state of began proceedings to seize
government accused Fethullah her desire to achieve a mutual- assets involved in “an interna- A quick dash to the shops
Gulen, a Muslim cleric based ly beneficial Brexit may prove tional conspiracy to launder
in America, of plotting the difficult. She ruled out holding funds” from 1MDB, Malaysia’s
coup (which he denied), and any talks this year. state investment fund. In-
sought his extradition. The EU vestigators in America, Swit-
and America warned Mr Erdo- Throwing his hat in the ring zerland and elsewhere have
gan not to crush democracy. been piecing together a money
trail in a suspected multi-
A Tunisian resident of France billion-dollar scam involving
drove a lorry through crowds senior politicians.
of pedestrians celebrating
Bastille Day in Nice, killing 84. A prominent liberal-leaning
Islamic State claimed responsi- journal in China, Yanhuang
bility, but police found no Chunqiu, stopped publication
evidence he had pledged after the dismissal of its senior More than 100,000 Venezue-
allegiance to the group, though editorial staff by the state- lans, suffering from shortages
he had watched violent jiha- affiliated academy that su- of food and other basic goods,
dist videos. The French govern- pervised it. With support from crossed the border into Colom-
ment said it would extend the many retired officials, the bia to buy them. This was the
country’s state of emergency. The Republicans held their journal had often published second time Venezuela had
convention, nominating articles at odds with the Com- opened its border recently to
In Germany, a 17-year-old Donald Trump for president. munist Party’s line, especially allow its citizens to go shop-
Afghan refugee was shot dead There was some mild excite- on historical issues. President ping. Venezuela’s government
by police after he attacked ment when Republicans still Xi Jinping has launched a shut the border last year be-
passengers on a train with an opposed to Mr Trump’s candi- campaign to tighten party cause, it said, paramilitaries
axe, injuring five people. dacy tried to register their control over the media. and criminals were crossing it
protest on the convention to enter the country.
Pavel Sheremet, a muckraking floor. They were drowned out Reinforcing peace
journalist, was killed by a car by rock music. Ted Cruz, a rival The African Union proposed Mexico enacted laws that
bomb in Kiev. Working for in the primaries, was booed deploying additional troops to establish a long-awaited na-
Ukrainska Pravda, he had off the stage when he refused South Sudan after recent tional “anti-corruption sys-
written exposés of govern- to endorse him. clashes left hundreds of people tem”, which creates indepen-
ment corruption in Belarus, dead. The proposed peace- dent authorities to monitor,
Ukraine and Russia over sever- Mr Trump, meanwhile, said keeping force will join the investigate and punish corrup-
al decades. Petro Poroshenko, that if he were president, UN’s 12,000-strong mission tion. Announcing the mea-
Ukraine’s president, called for America would come to the already on the ground to main- sures, Mexico’s president,
an EU inquiry into his death. aid of the Baltic states if they tain a tenuous peace deal Enrique Peña Nieto, apol-
were invaded by Russia, only if signed last year. ogised for his role in a scandal
The effort by MPs in Britain’s they “fulfil their obligations to in 2014, in which his wife
Labour Party to topple Jeremy us”. Mr Trump has signalled Meanwhile, the AU was forced acquired a $7m house from a
Corbyn as leader intensified. before a lack of commitment to to extend the term of chairman government contractor, but
To avoid splitting the anti- the NATO alliance. Nkosazana Dlamini-Zuma by said he did not break the law. 1
6 The world this week The Economist July 23rd 2016
founder, known in the in- fees, which has put off sub- worked at Audi, VW’s luxury
Business dustry as “the bond king”, left scribers; nearly all its new ones brand, at the time, and has
on acrimonious terms in 2014. were outside the United States. denied any involvement in the
The IMF warned that Britain’s Assets parked in its Total Its reliance on growth from its wrongdoing.
decision in a referendum to Return Fund have fallen from international base looks set to
leave the European Union had almost $300 billion in April continue; early next year Net- Paul Romer was appointed
thrown a “spanner in the 2013 to $86 billion today. flix will stream episodes of the chief economist at the World
works”, causing widespread new Star Trek series within a Bank, replacing Kaushik Basu,
economic and financial The FBI charged HSBC’s global day of their broadcast on CBS. who has held the job since
uncertainty that is still un- head of foreign-exchange cash 2012. Mr Romer, who currently
folding. It slightly reduced its trading with fraud in a curren- Lockheed Martin’s F-35 fight- teaches at New York Universi-
expectations for global growth cy-trading deal. The man was er jet, the West’s most-expen- ty, is known for his work in
this year and next, but slashed arrested at JFK airport in New sive weapons programme, endogenous growth theory
its forecast for Britain to 1.3% for York shortly before he was to helped boost its revenue in the and for developing the notion
2017, from the 2.2% it had pro- take a flight to London. Several second quarter to $13 billion of “charter cities”, encouraging
jected in April. The fund said big banks paid fines last year in and profit to $1 billion. The poor countries to create urban
the effects of Brexit would be an unrelated investigation into company is still haggling with centres that can experiment
felt mostly in Europe (it cut its the rigging of currency rates. the Pentagon over its next jet with economic and political
estimate of German GDP contract, but sales have taken reforms. Unusually for an
growth next year to 1.2%) and Disaster movie off in Britain, Israel and Turkey. academic, he is also an
that there would be a “relative- entrepreneur, having created
ly muted impact elsewhere”. Netflix Monsanto rejected a second (and sold) Aplia, a homework
Net new subscribers, m takeover bid, of $64 billion, website.
United States International
China’s economy grew by 8
from Bayer. It said it was open
6.7% in the second quarter, the to “continued and constructive Smooth operator
same as in the previous three 6 conversations”. Unilever offered a reported $1
months and a healthier pace 4 billion to buy Dollar Shave
than many had expected given A civil lawsuit lodged in New Club, a startup that has
2
the country’s stockmarket York by three states alleged undercut its rivals in the
crash and depreciation of the 0 that Volkswagen’s chief exec- market for razors by selling its
2013 14 15 16
yuan. Investment in infrastruc- utive, Matthias Müller, had products exclusively online,
Source: Company reports
ture has surged and personal been aware in 2006 that some appealing to hirsute hipsters
consumption has been strong. Netflix’s share price fell sharp- of its cars did not meet emis- with a humorous viral-market-
ly after it reported that sub- sions-testing standards. The ing campaign. Private-equity
Strong ARM tactics scriber growth had slowed suit does not say that Mr firms were also interested in
SoftBank, a multinational appreciably in the second Müller authorised or even buying Dollar Shave Club, but
telecoms company based in quarter. A net 1.7m customers knew about the software that Unilever’s bid beat them by a
Japan, agreed to buy ARM, a joined the video-streaming was installed in cars to evade whisker.
British designer of smartphone service, half the number in the the tests, but it is the first time
chips, for £24 billion ($32 bil- same quarter last year. In he has been named directly in Other economic data and news
lion). ARM’s technology is America Netflix has raised its relation to the scandal. He can be found on pages 68-69
licensed by Apple, Samsung
and others and used in virtual-
ly all phones sold around the
world. The firm is expanding
rapidly into the “internet of
things”. Masayoshi Son, Soft-
Bank’s boss, announced the
deal in London, where the
government trumpeted it as
proof that Britain was open for
business following Brexit. It is
the biggest-ever takeover of a
European tech company.
The takeover of a British microchip-maker belies a cooling climate for foreign investors
T
O THE tourists who still
flock to its beaches and gold-
en temples, Thailand seems
but not political instability. Alas, it is not. Two years ago the
army seized power in a bloodless coup. An “interim” constitu-
tion grants the prime minister and junta leader, Prayuth Chan-
calm. But this is an illusion. Thai ocha, almost unlimited power. Because the regime is illegiti-
politics are as ugly as the coun- mate, it hides behind Thailand’s most revered institution.
try is beautiful—and could soon Its propagandists do all they can to fizz up adulation of the
get uglier. The country’s beloved monarchy; for example, by building colossal statues of seven
king, Bhumibol Adulyadej, Thai kings. And the regime has applied Thailand’s strict lèse-
whose 70th year on the throne was celebrated on June 9th, is majesté laws with ferocity, arresting people for the slightest
88 years old and gravely ill. The country is scared of what perceived insult to the dignity of the king, his family or even
might happen when he dies (see page 37). his pet dog. Those deemed to have defamed his majesty face
Were Thailand a normal democracy with a constitutional up to 30 years in prison. This creates an atmosphere in which
monarchy, the death of a king would cause national sorrow critics of the government, too, can be bludgeoned into silence. 1
The Economist July 23rd 2016 Leaders 9
2 Whereas Mr Prayuth rambles self-righteously on his week- ways trekked to the palace to receive royal assent. But if King
ly television show, opposition parties are gagged and parlia- Bhumibol is succeeded by the crown prince, who is unpopu-
ment stuffed with the junta’s allies. The regime has hauled crit- lar, the claim ofroyal approval will count for less. Elites fret that
ics to army bases for “attitude adjustment”. It has charged the succession will disrupt long lines of patronage which for
Thailand’s former prime minister, Yingluck Shinawatra, with generations have shovelled wealth and influence their way.
neglect-in-office, and may hand her ten years in jail. The They fear that anti-government activists will seize the chance
army’s latest ploy is a new constitution, which would allow to push for big changes in how the country is run.
fresh elections but keep the next government subservient to a
nominated senate and a handful of junta-stacked committees. Little time, much to do
It hopes to win public approval for this plan in a referendum With luck, the succession will pass peacefully. But securing
on August 7th. Just to make sure, it has trained bureaucrats to long-term stability will require reforms that the army may not
“explain” the charter to voters, but it forbids civilians from like. Royals should speak out against the lèse-majesté law
campaigning against it, on pain of a ten-year prison sentence. (which King Bhumibol has already once condemned, in 2005).
The generals insist that their actions have been for the good The generals must allow Thais the freedom to debate the new
of Thailand. Their coup in 2014 ended months of pro- and anti- constitution. A better one would be more like the 1997 charter,
government street protests, which had turned violent. Locking so far Thailand’s best. If and when the soldiers return to bar-
out Ms Yingluck, they hint, keeps a dodgy family out of power. racks, they will need pruning: their idle ranks include more
Ms Yingluck backed an amnesty bill that could have allowed generals and admirals than America’s armed forces, which
her brother, Thaksin, another former prime minister, to return serve a superpower nearly five times as populous.
from exile in Dubai. The army had deposed him in 2006, argu- Politicians must rethink, too. Thailand’s middle classes may
ing that his administration was corrupt. find Thaksinite populism abhorrent, but they have failed to
Indeed it was, but probably no more so than most Thai gov- provide poorer Thais with an alternative. The Democrat Party,
ernments. The army’s excuses for seizing power are wearing the establishment’s main political outfit, has been squealing
thin. Thailand has seen a dozen successful coups since the about the generals’ stifling rule. But for years it has put off the
1930s and a new constitution on average every four years. The groundwork needed to win an election, betting instead that
army typically installs conservative governments that favour friends in the army or judiciary will help it. Any lasting sol-
the urban elite. That has entrenched inequality and infuriated ution will require decentralising power to the provinces.
the rural poor. Mr Thaksin won two elections by wooing poor Untangling this mess will take years, but it is not impossi-
voters with free public health care and subsidies for farmers. ble. If the junta blocks reform, allies such as America should
He may have left the scene, but his supporters are still there. impose financial sanctions and travel bans on its leaders and
The army has long defended its coups by claiming to have their cronies. Thailand needs a civilian government that is ac-
the king’s support. After taking power, coup-leaders have al- countable to voters and the law, not to the men with guns. 7
Methane leaks
Tunnel vision
US methane emissions
By source, 2014
C ARBON DIOXIDE is the
main greenhouse gas emit-
ted by human activities. But it is
fuel’s main component.
Burning natural gas converts methane into carbon dioxide,
but in lower quantities than in alternative fuels. It emits almost
Natural gas Livestock
33 digestion not the only gas capable of caus- half as much carbon dioxide as coal, and almost a third less
22
ing great harm to people and the than petrol. The problem is that lots of methane escapes into
%
Landfill planet. That point was driven the atmosphere without being burnt. And methane has its
Other 20 home by the emissions scandal own effect on the climate. Although it stays in the atmosphere
25
that engulfed Volkswagen last for far less time than carbon dioxide, which hangs around for
year. Since the 1990s policymakers in Europe had backed die- centuries, it is about 25 times more potent as a cause of global
sel as a way to reduce carbon emissions, turning a blind eye to warming (see page 47).
other ways in which the fuel might damage human health. The Methane emissions come from several sources—not least
VW affair drew back the veil on this trade-off. The company’s the digestive systems of livestock such as cows. But the latest
diesel engines did indeed deliver lower carbon emissions and figures show that the biggest chunk of annual methane emis-
better fuel economy, but at the cost of belching out noxious sions in America, around a third, can be traced to the natural-
pollutants capable of shortening many lives. gas industry. An estimated 2.5% of the natural gas flowing
A similar case of tunnel vision also exists in the energy in- through America’s ageing energy infrastructure leaks out of
dustry. To its evangelists, natural gas helps satisfy demand for wells, pipelines and storage tanks. Often it seeps discreetly
fossil fuels but causes less harm to the planet than coal and oil. into the air. Sometimes it leaves a more noticeable footprint—a
Like diesel carmakers, natural-gas producers make reduction 2015 blowout at the Aliso Canyon storage facility in Los Ange-
of carbon-dioxide emissions a big selling-point, but downplay les produced the worst leak in American history.
the effects of other gases they emit. For the car industry, the Recognition of the problem is growing. This year America’s
problem is nitrogen oxides. For natural gas, it is methane, the Environmental Protection Agency (EPA) admitted that it had 1
10 Leaders The Economist July 23rd 2016
2 underestimated the extent of oil- and gas-related leakages, re- If even American oilmen are so dismissive of the problem,
vising them up by almost a third and ramping up regulation. it is hard to be hopeful for other places, like Russia, which have
Recent use of infra-red cameras and airborne monitoring de- even creakier natural-gas networks. Few countries monitor
vices has shown where the worst problems lie in the natural- methane emissions with the precision that they do carbon di-
gas supply chain. Last month Mexico joined America and Can- oxide. Many developing countries have not reported energy-
ada in their commitment to cut methane emissions from oil related methane emissions for at least a decade, so it is impos-
and gas operations by 40-45% by 2025, compared with 2012. sible to know whether conditions are getting better or worse.
The industry has been slower to acknowledge the problem. Without good data, it is hard to set targets for reduction.
American oil companies are reluctant to provide the public
with emission-reduction targets. They chafe against new EPA Methane bane
regulations, such as those requiring them to monitor leaks at Natural-gas advocates have decent reason to hope the fuel will
compressor stations twice as often as in the past. Controlling be a bridge to a post-carbon future. Thanks to the shale-gas rev-
methane leaks should not be that expensive; the less gas that olution, natural gas last year rivalled coal as the main source of
escapes, the more the industry has to sell, after all. But the head electricity in America. That brings immediate climate benefits.
of the Railroad Commission of Texas, which regulates oil in But the problem of methane leaks should not be downplayed.
the state, calls them part of Barack Obama’s “war against fossil They do not just sully the climate. They sully the good name of
fuels” and too costly for small producers to comply with. natural gas. 7
2 doubly attacked,” says Boubekeur Bekri, ber parliamentarians of all political col- The evidence leaves no doubt. Investiga-
rector of the Al-Forqane mosque, which ours spontaneously sang the national an- tors found signs of tampering on preserved
lies near the brutalist tower blocks of Ari- them after Mr Hollande’s speech samples from Russian athletes in Sochi. One
ane, a banlieue of Nice: “By Daesh [IS]—and announcing a “war on jihadist terrorism”. man accredited as a “sewer engineer” at the
by those who are playing Daesh’s game by Today, however, there is increasing French Sochi games turned out to be a Russian intel-
dividing Muslims.” anger at the failure of their government to ligence officer, Evgeny Blokhin, who helped
The Nice attacks are sorely testing keep people safe. After a minute’s silence Mr Rodchenkov swap out the samples. In e-
France’s ability to withstand a permanent this week, Mr Valls was booed by crowds mails, Russian sports officials referred to Mr
terrorist threat. Manuel Valls, the prime in Nice. Only 33% told a poll they have con- Rodchenkov’s cocktail by the nickname “the
minister, has told the French to “live with fidence in the government’s counter-terro- Duchess”. The report refutes Russian claims
terrorism”. Mr Hollande announced fresh rism strategy. that doping was the fault of a few bad ap-
air strikes on Syria. Parliament has voted to Opposition politicians on the centre- ples. Senior Russian sports officials, includ-
extend the state of emergency, conceived right have turned on the government too. ing a deputy minister and an anti-doping ad-
last November as a temporary response, “If all measures had been taken, this drama viser, played key roles in managing the
for a further six months. Yet such measures would not have happened,” claimed Alain cover-up, dictating which athletes should be
may be more about managing public anxi- Juppé, a former prime minister and presi- protected.
ety than fighting terrorism. Hours before dential hopeful for the 2017 election. Argu- The International Olympic Committee
the Nice attack, Mr Hollande had an- ably there could be more robust blockades (IOC) called the Russian programme a
nounced that he would not renew the state around crowded public events, Israeli- “shocking and unprecedented attack on the
of emergency. Of nearly 3,600 house raids style. But France is already on maximum integrity of sport”. Russia’s track and field
carried out under its provisions, only five alert, and has stretched its armed forces by federation has already been banned from
have led to a terrorism-linked judicial in- putting 10,000 soldiers on patrol on the the Olympic Games in Rio de Janeiro, due to
vestigation. streets. The cruel reality is that if terrorists start on August 5th. As The Economist went
Last year, the French reacted to terror can turn lorries into weapons, it is impossi- to press, the IOC was meeting to decide
mostly with defiance and unity. In Novem- ble to keep everyone safe. 7 whether to bar the rest of the Russian team
too. The committee said it would balance
the need to punish Russia against the right to
Russia’s Olympian drug habit compete of individual athletes who might
not have used drugs.
Tamper proof Hoping to salvage his country’s chances,
Vladimir Putin promised to suspend the offi-
cials named in the report. Yet rather than
apologising, he called the allegations part of
an American-led conspiracy to “make sport
an instrument for geopolitical pressure”.
MOSCOW
And he promised to stand by his embattled
An investigation gives Moscow a gold medal for cheating
minister of sport, Vitaly Mutko, a longtime
Giving more voice to national legislatures will not enhance the EU’s legitimacy
Does the raspberry the commission has blown at the latest
yellow card suggest that the whole enterprise is pointless? Per-
haps. But Ms Thyssen had no easy option. Several western Euro-
pean states, notably France, were hopping mad at the easterners
for posting lower-paid workers to their countries, even though
such employees represent just 0.7% of the EU labour force. These
days such thinking holds sway in a commission fretful about the
rise of anti-globalisation populists, like Marine Le Pen in France.
“We have to act according to the general interest of Europe,” says
Pierre Moscovici, the (French) economics commissioner. “If you
have total freedom for posted workers, you’re dead.”
In any case, the national parliaments have just won their big-
gest battle yet. Earlier this month the commission’s president,
Jean-Claude Juncker, bowed to trade-wary governments and
agreed to send a mooted EU-Canada deal to national parliaments
for approval, even though lawyers had said ratification could be
limited to the European Parliament. That could delay or even
scupper the agreement. And it sets a precedent which could be
bad news for TTIP, an EU-America deal that leftist MPs in coun-
tries like Germany and Austria have built careers opposing. A fu-
ture Britain-EU agreement might face the same fate.
The government’s “industrial strategy” A first test of this came quickly. On July
18th it was announced that the Cambridge-
A change of gear based tech company ARM Holdings was to
be sold to Japan’s SoftBank for £24 billion
($32 billion). If the deal goes through it will
be the largest-ever Asian investment in
Britain. Mrs May had vowed to defend
“important” sectors ofthe British economy
against foreign takeovers in her Birming-
The new prime minister signals a more hands-on approach to business
ham speech. Yet the government enthusi-
Israel and the Arab world and Palestinians. To that end Mr Sisi sent
his foreign minister to Israel on July 10th,
The enemy of my enemies the first such visit in nearly a decade. Mr
Netanyahu has hailed the effort, if only to
head off a French-led peace initiative that
he fears will attempt to force an agreement
on Israel. A senior Israeli diplomat says
there is little actual hope for a renewal of
CAIRO AND JERUSALEM
serious talks.
As Arab states warm to Israel, the Palestinians feel neglected
The Palestinian Authority (PA), which
2 top Arab priority, and 59% accused Arab depend on help from outside. But since preferential access for Jordan’s exports to
states of allying themselves with Israel June 21st the Jordanian government has the EU were announced, in exchange for
against Iran. The amount of aid flowing blocked anything other than water from expanding Syrians’ right to work in Jordan.
from Arab countries to the PA has fallen by passing through. That means that for a The situation at the berm reminds for-
well over half in recent years. Funds from month no food or medical services from eign governments and agencies that Jor-
the West have also declined. the Jordanian side have reached the peo- dan has already taken in 660,000 regis-
The public in some Arab countries may ple stuck there. At first even the water did tered refugees, putting huge pressure on its
have softened its animus towards the Jew- not get through to the berm, as people infrastructure and services. Even before
ish state. An Israeli polling organisation within refused it in the absence of food. the attack, Azraq camp, which had been re-
has reported that only 18% of Saudis see it Aid workers are racing to negotiate bet- ceiving people from the berm, was nearly
as their country’s main threat. But the Pal- ter access. By July 20th the UN’s World full. In Mafraq, where half the residents are
estinian issue can still excite passion. In Food Programme had a provisional agree- Syrian refugees, rubbish piles up too fast
Egypt, for example, a member of parlia- ment to send food in, but had been unable for collectors to keep up. And donors have
ment was hit with a shoe and expelled by to get final Jordanian approval. Even this fallen short of their promises. With half of
his colleagues after meeting the Israeli am- would buy it time only to explore other op- the year gone, only a third of the aid prom-
bassador in February. The Israeli flag is still tions, none of which looks good. Trucking ised to Jordan at February’s conference in
burned at protests in the region. in help through Syria would mean travel- London has come through. 7
What really stirs Arab emotions are ling through territory held by the hostage-
scenes of Israelis killing Palestinians. Vio- beheaders of Islamic State. Dropping it
lence over the past year has left dozens of from the sky would require permission Lebanese cronyism
Israelis and more than 200 Palestinians from the Syrian, Russian, American and
dead. Most Palestinians, according to polls,
back a return to an armed intifada (upris-
Jordanian governments, as well as being
hugely expensive.
Hire power
ing). With the Arab world focused else- The people there will need to move. Be-
where, America in the throes of a presiden- fore the attackJordan’s government had of-
tial race and progress towards a two-state fered to fly them to wherever will take
BEIRUT
solution halted, they may see no other way them, but so far no country has offered to. It
Political connections create jobs in
to capture the world’s attention. 7 closed other crossing points from Syria to
Lebanon, but only for some
reduce the influx of refugees, not expecting
Aleppo
ation into a humanitarian black hole. Ac- Idlib
A new working paper by Ishac Diwan
Latakia E u ph
cording to the UN, more than 70,000 peo- Khmeimim Raqqa ra at Paris Sciences et Lettres, a university, and
te
ple are now stranded in a harsh no-man’s (Russian airbase) Jamal Haidar of Harvard University, has a
s
land-between Jordan and Syria, known as Tartus Hama go. Using administrative data on every reg-
S Y R I A Deir
the berm (see map). No one knows the ex- al-Zor istered company in Lebanon between
act numbers in the settlements, nor indeed Homs 2005 and 2010, they painstakingly map
what life is like there, since the attack has links between the people registered as the
N
Palmyra
O
Beirut
AN
stopped aid flowing in and information owners or officers of companies and lists
B
Damascus
Before aid agencies were shut out re- IRAQ identify the firms that make political hires.
Rukbann
ports and video footage suggested a hostile Ber
m 100 km They identify 497 companies, covering
ISRAEL
Hadalatt
refuge. Mice and disease roam amid the about 16% of the formal labour force.
sprawl of dusty tents. In May an NGO re- Deraa They find politically connected firms in
Mafraq
ported that women were using nappies to JORDAN industries such as banking, media, energy,
Amman Azraq
avoid defecating in the open, and that health and water, which tend to have a
mothers were covering their newborn ba- Syrian areas of control, July 15th 2016 Refugee settlement cosy relationship with the state. Similar
bies’ faces to protect them from rat bites. Syrian government Islamic State Other rebel methods applied to Tunisia and Egypt find
In the blistering heat and without Jabhat al-Nusra Kurds Mixed the political tentacles reach much wider.
shade, water or greenery, the inhabitants Source: Institute for the Study of War SAUDI The authors suggest that the difference is 1
ARABIA
26 Middle East and Africa The Economist July 23rd 2016
Smoking The UN projects that Africa will account difficult,” says the former CEO of a bank.
for more than half of the world’s popula- So why did the central bank ignore its
Plains packaging tion growth over the next 35 years. These
predictions tantalise tobacco companies as
own policy on allowing a float? The most
plausible explanation is that Mr Emefiele
smoking rates decline in places such as has been kowtowing to President Muham-
China, Russia and America. madu Buhari, who fears a weak currency.
“Tobacco companies are very good at But these sorts of flip-flops hardly reassure
finding market opportunities where there foreign investors, whose dollars Nigeria
Young Africans are lighting up at an
are not only potential smokers, but also desperately needs to fill a gaping trade def-
alarming rate
weak regulations. Africa is in that sweet icit. Nor do they encourage Nigerian ex-
2 whipping and loud rock music. The 721 de- The programme was a mess; the con- charisma and his campaign’s reliance on it,
legates who voted against Mr Trump’s vention’s expected breakout star, Senator that may be especially true for Mr Trump.
nomination the next day, during the offi- Joni Ernst of Iowa, ended Day One speak- Even so, the most enduring moment of this
cial tallying of his support, nonetheless ing to a near-empty arena. Then a more convention may prove to be from Day
made up the Republicans’ biggest dissen- embarrassing scandal erupted. It emerged Two. It was supposed to be dedicated to
ting vote since 1976, when Gerald Ford that a moving tribute to Mr Trump by his the economy; “Make America work again”
sealed his defeat of Ronald Reagan on the Slovenian-born wife, Melania, contained was its theme. Yet, in the absence of almost
floor of the convention. Even many of Mr passages lifted from Michelle Obama’s ad- any talk onstage of jobs, business or Mr
Trump’s loyal delegates seemed a bit half- dress to the 2008 Democratic Convention. Trump’s economic plans, such as they are,
hearted in their support; asked whether Paul Manafort, Mr Trump’s campaign the crowd began chanting a more appro-
his champion was a Republican or a con- chief, denied this was plagiarism; Mr priate slogan: “Lock her up! Lock her up!”
servative, a delegate from North Carolina Christie said it was no big deal. By the time Hatred of Hillary Clinton, whom Mr
responded: “No, not yet.” the Trump campaign admitted that Mrs Trump says is undeserving of her liberty,
Even so, as the disapproving response Trump’s wife had plagiarised the wife of never mind the presidency, was the leitmo-
to Mr Cruz suggested, most delegates were the man he declares unfit to be president, tif in Cleveland. The word “Hillary” was
prepared to backMr Trump, whatever their the kerfuffle had dominated TV coverage spoken disdainfully onstage that day more
misgivings about his disapproval of free of the convention for a day. It made those often than “Trump” or “America”, and four
trade and thuggish style, in order to wrest around Mr Trump, a self-declared straight- times more often than “economy”. Almost
power from the Democrats; 90% of Repub- shooter and problem-solver, appear pho- all Mr Trump’s headline speakers joined
lican voters say the same. Yet anyone look- ney and incompetent. It made a mockery the attack on his Democratic rival. The
ing to this convention for evidence that Mr of his own ambition to show a softer side grieving mother of one of the four Ameri-
Trump has the wherewithal to perform to his unloved character. cans killed by militants in Benghazi in 2012
that feat must be disappointed. It was mud- As The Economist went to press, Mr blamed Mrs Clinton for their deaths—an al-
dle-headed and disorganised, reflecting a Trump had a chance to turn things around legation rubbished by nine official investi-
campaign effort that appears amateurish, in his closing speech. It is the most impor- gations so far. Scott Baio, a television actor
underfunded and insufficient. tant part of any convention and, given his in 1980s sitcoms, defended a tweet in
which he labelled Mrs Clinton a “cunt”.
Ben Carson, another former opponent of
On the trail
Mr Trump’s, suggested a possible link be-
Cleveland special tween the former First Lady and Satanism.
The Republicans, their convention has
confirmed, are irredeemably divided be-
hind an unloved candidate whose plat-
form and organisation appear unfit for the
The joker Tourist attraction coming campaign. Rallying in detestation
“I’ll let you know how I feel about it after “Home of10,000 lakes, home of Spam of his opponent is their only hope.
it happens.” and home of the late, great Prince.” They are fortunate she presents such a
Donald Trump fails to squash rumours that The Minnesota delegation casts its vote juicy target. Mrs Clinton is almost as dis-
even if he wins the election, he may yet liked as Mr Trump, which is why, despite
walk away from the presidency. New York Humblebrag his poor ratings, he remains within touch-
Times “I think I am, actually humble. I think I’m ing distance of her. An historically hateful
much more humble than you would campaign looks inevitable. The question,
Another brick... understand.” which the first post-convention polls may
“We build 95-storey buildings with bath- Mr Trump’s first joint interview with Mr begin to answer, is which of the two will
rooms, that’s tough construction…Walls Pence was focused mostly on himself. CBS that hurt most? 7
don’t have bathrooms.” News
Trump resumes his favourite project. “It was a Trump tour de force. Also, Mike
Sopan Deb, Twitter Pence was there.” Washington Post
Roger Ailes
Kingmaker no more
NEW YORK
A media master disappears
The need for deregulation may be one. Re- Navigating through a crowd in a state
The forgotten issue publicans lament the Affordable Care Act’s with open-carry gun laws is a nightmare.
US budget deficit CBO baseline new rules for the health-care industry, the Forty-five states now have them. In Dallas,
As % of GDP Trump’s tax plan* Environmental Protection Agency’s clean- during the protest at which the five officers
0 energy regulations, and the Department of were killed, as many as 30 people were car-
–
2 Labour’s penchant for rule-making. Per- rying rifles. Although the number of police
haps most vocally, they object to the end- murdered in the line of duty is much lower
4
less new financial regulations resulting than in the 1970s, when the average was127
6 from the Dodd-Frank Act of 2010. a year, this year has seen a jump. According
8 It is surprising, then, that the party’s offi- to the National Law Enforcement Officers
cial platform supports reinstating the Memorial Fund, 32 officers have been shot
10 Glass-Steagall Act of 1933, which forcibly dead so far this year. Over the same period
F O R E C A S T
12 separated commercial and investment last year, 18 were.
201516 17 18 19 20 21 22 23 24 25 26 banking. This would be a dramatic regula- In response to Black Lives Matter, some
Sources: Congressional *Assuming no change tory incursion by any measure. The plat- serving and retired officers have created
Budget Office; Tax Policy Centre in economic growth
form is also noteworthy for its astringent Blue Lives Matter, a pro-police movement.
language on gay marriage, transgender According to the New York Post, Blue-Lives-
2 It is not yet known how pricey Mr rights and pornography. Matter badges sold out at this week’s Re-
Trump’s new plan will be. For now, Mr In short, Republican policymaking is di- publican convention. In May Louisiana be-
Ryan has banished his fiscal hawkery to vided between a populist presidential can- came the first state to pass a Blue Lives Mat-
his health-care plan, in which he promises didate, a sober but unconvincing Speaker, ter bill, which treats attacks on the police as
to curb rising spending on Medicare (gov- and a base which cares most about stern hate crimes. Similar bills are afoot in other
ernment health insurance for the elderly). social conservatism and immigration. Mr states, including Wisconsin and Florida.
Yet Mr Trump has promised faithfully to Ryan’s ideas are the best on offer. They may Some departments are becoming better
protect Medicare. prevail if the party wins in November. But at dealing with explosive situations. Even
Is there anything the two men agree on? it is far from certain. 7 smaller outfits, like Florida’s Palm Beach
Gardens force, with just 100 officers, are
spending money to improve the way po-
Policing after Baton Rouge lice go about their jobs. A 10,000-square-
foot tactical training centre, opening in the
Ambushed and anguished autumn, will teach officers to use words,
not force, to defuse dangerous moments.
In a classic example of the method, in No-
vember a man brandishing a knife in Cam-
den, New Jersey was arrested without inci-
dent. Police followed him at a distance,
NEW YORK
encouraging him to drop the knife.
The thin blue line is on edge after a new spate of shootings
Camden was once one of America’s
Michael Elliott behind him. “In Covent Garden, Sir, in mu- communism, “America now is not self-
sic, in arts, in advertising. That’s our MIT.” confident, not sure of its greatness. It feels
The Fab One The sweeping view was something
Mike produced with gusto, not just at The
the pressure ofthe outside world on its vio-
late shores, and it fears a debilitating frag-
Economist, but at Newsweek and Time too, mentation within them.” The words still
for he had senior roles at all three. Here he ring true 25 years on.
was the founding author of both the Bage- Presciently, too, Mike grasped in 1992
hot column on British politics and the Lex- the political gifts of a young governor from
One of Liverpool’s finest exports to
ington one on America (named after the Arkansas. And he had an eye for the sort of
America died on July14th, aged 65
first skirmish in America’s war of indepen- detail that could elude others. Setting off to
2 constitution. The province has appealed; needs, and sells the surplus. That makes over as president from his brother, Fidel, in
the case may reach the Supreme Court. Cuba perhaps the only importer that pref- 2008, has since allowed entrepreneurs to
Before that happens the provinces may ers high oil prices. Venezuelan support is start small businesses, cut the state work-
take action. On July 8th their trade minis- thought to be worth 12-20% of Cuba’s GDP. force by 11% and opened a free-trade zone
ters decided to revise the internal-trade Recently, the arrangement has wob- for foreign firms at the port of Mariel. But
agreement. The “positive list” of deregu- bled. Low prices have slashed Cuba’s profit Cuba still operates a price-distorting dual-
lated sectors will be replaced by a “nega- from the resale of oil. Venezuela, whose currency system. Small businesses cannot
tive list”, a limited number of sectors ex- oil-dependent economy is shrinking, is buy from wholesalers or import products
empt from free trade. A new mechanism sending less of the stuff. Figures from directly. Many foreign investments in such
will be created to harmonise provincial PDVSA, Venezuela’s state oil company, sug- areas as sugar and tourism, which would
regulations. Provinces are to offer each oth- gest that it shipped 40% less crude oil to bring in billions of dollars, are stuck in the
er the same access Canada does to coun- Cuba in the first quarter of 2016 than it did planning stages. Venezuela’s lurgy should
tries with which it has trade deals. Brad Du- during the same period last year. Austerity, sharpen Cuba’s eagerness for the remedy
guid, Ontario’s minister responsible for though less savage than in the 1990s, is of reform. It seems to be dulling it. 7
trade, calls the agreement “unprecedent- back. Cuba’s cautious economic liberalisa-
ed”. As The Economist went to press, pro- tion may suffer.
vincial premiers were expected to ratify it. On July 8th Marino Murillo, the econ- El Salvador
Yet resistance to the Canadian single omy minister, warned the legislature that
market remains strong. Alberta lobbied to
reserve for local firms a big share of con-
Cuba would lower its energy consump-
tion by 28% in the second half of this year
Reconsidering the
tracts to rebuild Fort McMurray, the centre
of its oil industry, which was burnt down
and cut all imports by15%. The government
has ordered state institutions to reduce
price of peace
by wildfires this year. Deregulation of their energy consumption dramatically.
SAN SALVADOR
trade in liquor, dairy products, poultry and Television producers have been told to film
The striking down of an amnesty law
eggs has been left until later. Provincial outdoors to save the expense of studio
rattles the establishment
protectionism is not dead yet. 7 lighting. Foreign businesses, some of
Cuba’s economy
which have not been paid by their govern-
ment customers since last November, are
being asked to wait still longer, though the
W ARPLANES flew over the capital. Ex-
guerrillas waving red protest ban-
ners thronged the streets. On July 13th El
government is negotiating to restructure Salvador’s supreme court struck down an
Caribbean sovereign debt on which it had defaulted.
It has cut off the supply of diesel to driv-
amnesty law that had helped secure peace
after 12 years of civil war. The law enacted
contagion ers of state-owned taxis and told them to
look for other work for the next few
in 1993 is unconstitutional, the court said,
because it prevents victims of atrocities
months. “It’s entirely illogical,” says Hec- from seeking justice. But many Salvador-
HAVANA
tor, a driver. Tourism has surged since the eans fear that justice will come at the ex-
Venezuela’s pneumonia infects the
United States loosened travel restrictions pense of political stability.
communist island
in 2014, which will partially offset the loss Amnesty for crimes committed by both
2 mission issued a report accusing leaders try’s human-rights ombudsman. He independence of both political parties. If
from both sides of participating in massa- hopes that justice will heal the “open Mr Meléndez takes up its invitation to pros-
cres, assassinations, torture and other wounds” of victims’ families and help end ecute civil-war-era crimes, that separation
atrocities. That law violates both the con- a culture of impunity, one reason for the of powers will become more pronounced.
stitution and human-rights treaties by de- country’s horrific murder rate. El Salvador’s decision will be watched by
claring an “unrestricted, absolute and un- That thesis will be tested only if El Sal- other countries trying to settle longstand-
conditional” amnesty, the court said. The vador’s prosecutors now pursue suspected ing conflicts, including Colombia, which is
government must investigate and punish war criminals. The decision falls to Dou- poised to end a 52-year war with the FARC,
“the material and intellectual authors of glas Meléndez, the attorney-general, who a left-wing guerrilla group. A belated pur-
human-rights crimes”, which may include has shown an independent streak, for ex- suit of justice would force Salvadoreans to
El Salvador’s most prominent politicians. It ample by charging corrupt mayors in both relive the horrors of the 1980s and remind
must also make reparations to victims. parties. So far, he has not made it clear that them of the bloody origins of the main po-
Though politicians are alarmed, the ruling he intends to prosecute war criminals. litical parties. Some will ask whether am-
“puts El Salvador on the path to reconcilia- The supreme court’s ruling is a sign that nesty and impunity were too high a price
tion”, contends David Morales, the coun- El Salvador’s judiciary is eager to assert its to pay for peace. 7
2 sin took advantage of a liberal constitution help (and American financial backing), the And though the economy has liberal-
adopted in 1997 in the wake of the Asian fi- palace clawed back esteem and wealth. ised considerably since the Asian financial
nancial crisis. He transformed a system of Elevating the king’s prestige has made it crisis, government concessions, public
retail, local vote-buying into a machine easier for Thailand’s armed forces to paint works and special policy deals still pro-
that spread patronage more broadly. Help- the politicians they have routinely ousted duce vast fortunes for palace-linked busi-
ing him were billions of dollars earned as petty and ignoble. And it has allowed nesses. Serhat Ünaldi, the German author
from his telecoms and media businesses, the palace to become a political actor in its of a recent book about the monarchy, notes
built on government concessions. His par- own right. Its power has fluctuated. It re- that some royally connected businesses
ties draw support especially from Thai- mains opaque and the subject of debate. outperform peers simply because con-
land’s neglected north and north-east. One analysis describes Thailand’s monar- sumers consider them more prestigious.
There was much to object to about Mr chy not as a person, nor even really an in-
Thaksin’s time as prime minister between stitution, but as a network centred on royal Follow the money
2001and his ouster by the generals in 2006. advisers in the privy council (appointed by When the king was healthier, cameras
Berlusconi-like, he blurred the line be- the king) and encompassing royalists would film him trekking around poor parts
tween politics, media and business. And whom they can promote through the of the country, inspecting royally spon-
the bloody vigilante justice he dealt to al- army, bureaucracy and judiciary. Though sored development projects and meeting
leged drug-runners and to government op- interests differ and sometimes conflict, subjects. For decades he presided over ev-
ponents in the Muslim and often strife- many benefit from the whiff of authority ery public university’s graduation cere-
torn south of the country was appalling. which proximity to the palace endows. mony. But over this foundation grew a
But the generals’ squabble with him is part thick layer of myth. Courtiers reinstated ar-
of a broader tension, which has pitted a chaic traditions, such as a requirement that
Bangkok-centred establishment against commoners prostrate themselves before
poorer Thais, many in the countryside. LAOS VIET- royals. Royal pageants with spiritual over-
Chiang Mai NAM
For all Mr Thaksin’s flaws, he recog- tones became more frequent. A royal phi-
nised the plight of the less well-off and 18 losophy was devised, of the “sufficiency
7 9 34
shaped a politics that appealed to them. economy”. Its vision of development
MY
NORTH
His first government introduced free based on harmonious rural life and a defe-
AN
11
health care and increased subsidies to rice 5 rential hierarchy is fantasy. No matter: the
MA
NORTH-EAST
farmers. That, in 2005, helped him become generals who ousted Mr Thaksin in 2006
R
the first elected Thai prime minister to T H A I L A N D accused him of flouting the notion of the
complete a term in office. Yet the business 44 sufficiency economy—ie, the king’s will.
and political establishment around the Bangkok In the zero-sum calculations of the
royal court pushed back. Bangkok bigwigs, 17
75 court, Mr Thaksin’s own network threat-
hardly clean themselves, complained 6 CAMBODIA ened to supplant that of the monarchy.
about corruption and cronyism. They ac- CENTRAL And the stakes were huge. The palace con-
cused Mr Thaksin of pouring cash into trols billions through its stewardship of the
crowd-pleasing schemes to tighten his grip 26 Crown Property Bureau (CPB), a firm that
on power. They warned that rural give- 17 manages the royal family’s properties and
aways would bust the budget. But, above 14 BANGKOK
investments. Its holdings include chunks
7 10
Thailand’s regional
all, they worried that he appeared to be set- share of: of Siam Commercial Bank, one of Thai-
ting up a network of patronage and eco- SOUTHERN 2012, % of total land’s largest banks; Siam Cement, its big-
nomic power to rival their own. Their roy- Songkhla
General public gest industrial conglomerate; and the Kem-
expediture
al-sanctioned network was—and pinski hotel group. It owns swathes of
GDP
remains—huge, and ill-understood. Yet it is land, including several square miles of
Population
the chief obstacle to the modernisation 200 km Source: World Bank
Bangkok. Its finances are outside the gov-
that Thailand needs for long-term stability. MALAYSIA ernment budget, and opaque. A study in
The importance of royal patronage to 2015 guessed that it was worth about $44
Bangkok’s elites helps explain why rever- In times of crisis, the palace has occa- billion. That may be an underestimate.
ence for the king is so obsessively enforced. sionally acted as a final arbiter—as in May The CPB’s board is appointed by the
Yet neither that reverence, nor its enforce- 1992, when the king was seen to call an end palace (though by tradition the finance
ment, were self-evident necessities to the to bloody battles between pro-democracy minister holds a seat). It is not required to
reformers who, in 1932, replaced a long line demonstrators and an army-led govern- pay tax, and in principle its income is the
of absolutist kings with a constitutional ment, whose prime minister then stepped king’s to spend. The CPB’s cash pays a big
monarchy. Nor were they deemed so in down. More often the palace is seen to en- chunk of the monarchy’s household ex-
1946, when the current king ascended the dorse military takeovers. No coup is con- penses; it is also used for provincial devel-
throne as a young, American-born son of a sidered successful until its leaders are opments that have done much to burnish
commoner. Soon, however, struggles be- granted some sort of royal audience. the palace’s prestige. Some of its business
tween civilian and military factions had Less obvious but equally important, a in Bangkok looks charitable, too. All but a
halted progress towards democracy. Palace near-divine figurehead is convenient for sliver of its property there is leased cheap-
advisers and military-led governments blessing the sometimes dodgy business ac- ly—and sometimes to palace cronies.
sought to shape the Bhumibol reign, and tivities of palace elites and the army. It is The risk that the succession will disrupt
the behaviour of the man himself. desirable, too, for the elites to have a mon- or divert patronage is one reason for jitters
arch who is a source of patronage and in Bangkok. The CPB’s holdings amount to
The royal role power in his own right. The monarchy be- an “insane” amount of money, says a local
Seeking legitimacy—and, as wars raged in stows honours, for instance, in return for businessman. “People kill for much less.”
Indo-China, a bulwark against commu- donations to royal charities and good The 63-year-old crown prince, Vajira-
nists—generals who had come out on top causes. Such things are valuable: indeed, longkorn (pictured on next page), is spoilt
by the late 1950s sought to turn the monar- the courts imprison people deemed to and demanding, and—to put it mildly—
chy into a nationalist symbol. With army have feigned royal links for personal gain. widely loathed. Three times divorced, he 1
The Economist July 23rd 2016 Asia 39
2 spends a lot of time abroad, often in Ger- though incomes there are five to seven dissatisfaction caused by the instability
many. In 2007 leaked video footage times higher than in Thailand’s poorer and low growth that followed Mr Thak-
showed him and his then-consort, who parts. A three-year study reported by the sin’s defenestration. “The junta’s attention
was wearing nothing but a G-string and World Bank in 2012 found that three-quar- is nowhere near where a normal govern-
heels, holding a lavish royal party. The ters of all public expenditure was lavished ment’s ought to be,” says an analyst famil-
only guest appeared to be Foo Foo, his poo- on Bangkok and adjacent provinces, even iar with the north-east.
dle, which before dying in 2015 enjoyed the though the capital region had only 17% of Continuity bordering on stasis looks
rank of air chief marshal. One of the the population of 67m (see map on previ- likely to be the watchword. Portraits of
prince’s more generous critics calls him “a ous page). Spending per head on education King Bhumibol will not disappear any
loose cannon”. was four to five times higher in Bangkok time soon. Indeed, one Thai observer
What once especially troubled the than elsewhere, and on health, 12 times thinks his veneration will extend long be-
elites was a rumoured friendship between higher. But instead of devising policies to yond his death and mourning period. Yet
the crown prince and Mr Thaksin, who deal with such inequalities, the junta has the eventual dissipation of Bhumibol’s
upon his election in 2001is said to have giv- been cracking down particularly hard on charisma, and his moral and sacred au-
en Vajiralongkorn a luxury car. The estab- opposition in the rural north and north- thority, mean that the palace’s authority
lishment worried that, when crowned, the east, the largest and poorest regions. One seems bound to dwindle. A new genera-
prince, unpopular at court and among the opponent recalls being taken away blind- tion of royal advisers could come to realise
middle classes, might align himself with folded and detained for seven days. that the monarchy’s survival would be
Mr Thaksin’s populist movement. That An obstacle to sounder policy is Thai- best secured through a more defined kind
could grant Thaksinites access to the land’s extreme centralisation. Neighbour- of constitutionalism. The palace might at-
crown’s wealth, and end up locking the old ing Indonesia, after the fall of Suharto, its tempt to speak out more plainly against the
elites out of power. This may have been a last dictator, undertook radical decentrali- most egregious abuses of the lèse-majesté
key factor behind the army coups against sation, which has helped entrench democ- law (rumours have swirled that a large
Mr Thaksin and his sister. racy. Yet even during periods of democratic number of pardons may be granted soon).
For years it was rumoured that palace rule, Thailand’s provincial governors have
insiders might interfere with the succes- been appointed by the central government Unsteady as you go
sion in order to elevate Vajiralongkorn’s rather than elected locally. That means re- A palace less tolerant of authoritarianism
more admired sister, Princess Sirindhorn, gions lack champions—and the stakes in would be an improvement. But it is only
to the throne (Thailand has never had a national politics are raised. Under the the most optimistic scenario. A grimmer
reigning queen). But this gossip has recent- army, which sees itself as the guardian of a one sees the army using the royal transi-
ly died down. The junta has shown clear unitary state, regional autonomy seems tion as an excuse to impose even greater
support for Vajiralongkorn, whose reputa- unimaginable. Historically, civilian and limits on political activity and free
tion it is buffing with a lavish publicity military governments alike have played speech—becoming ever more at odds with
campaign. It has also involved the prince down, not celebrated, Thailand’s provin- civilians whose taste for bowing and
in jolly public events such as two huge cial dialects and patchwork of ethnicities. scraping before the monarchy can only
charity bike rides. It may have come to It is all storing up trouble for later. Some fade. Observers who once thought that the
some kind of accommodation with him, Thais seem persuaded that eradicating the generals’ only priority was to act as an es-
or simply decided that interfering with the last lingering influence of Mr Thaksin and cort to the succession now detect nostalgia
succession will only cause more trouble. his family will help heal social and eco- for the days when military government
nomic divisions. The establishment inti- was the norm; it looks keen to pull Thai-
Born unequal still mates that the so-called “good people”— land’s strings for years to come. That
Some observers now suggest that the suc- soldiers and selfless bureaucrats—are the would probably mean many more policies
cession will prove less disruptive than only ones who can be trusted to lead the designed to smother, rather than solve,
many had feared. There is even talk that country. Yet such thinking is holding back Thailand’s problems—such as the suspen-
King Bhumibol might abdicate before he the development of democratic institu- sion oflocal elections, which are seen to fo-
dies, in order to help smooth the transition. tions that might have kept Mr Thaksin in ment discord. All this would doubtless
Certainly, vague worries in Bangkok that check. The generals have not banished the drag out the country’s economic slump.
“red-shirts” could use the occasion for anti- Things would get only more volatile
establishment protests are likely to prove should the next king choose to pull enthu-
overblown. Might Bangkok’s elites, less siastically on all the levers that have
worried that a royal transition would passed to the palace under Bhumibol—ele-
threaten their privileges, countenance the vating henchmen and pursuing vendettas,
shifts needed to heal the country’s rifts, for instance. It is not clear how far emi-
starting with a huge economic divide? nences who have thrived under Bhumi-
They certainly ought to. More and more bol’s reign would tolerate a sovereign they
Thais are aware of their country’s stark in- consider actively damaging to their inter-
equalities. Yes, rapid growth has lifted tens ests: were he, for example, to appear overly
of millions from poverty and the curse of chummy with factions linked to Mr Thak-
subsistence farming. Many from outlying sin (or, worse, appear to favour his return).
regions have found work in the booming Yet efforts to restrain him would risk an-
capital or have moved abroad. Yet inequal- gering “red-shirt” activists who in recent
ity remains high compared with similarly years have rallied to defend Mr Thaksin
developed countries. One analysis finds and his sister, and more broadly their own
that a tenth of Thailand’s landowners own democratic rights. They might perceive an-
nearly two-thirds of its titled land. A fifth of other effort by the establishment to stifle
rural Thais remain unbanked. change they feel is overdue. All is quiet
National governments have long over- now. But the elements of post-Bhumibol
looked such disparities, committing the turmoil in Thailand are all there, should
bulk of resources to the capital region, even Vajiralongkorn: uncrowned and unloved events conspire to arrange them so. 7
40 Asia The Economist July 23rd 2016
Crimes against women in a growing middle class who increasing- ing clerical party, the Jamiat Ulema-e-Is-
ly wish to choose their own husbands. Of- lami (JUI), has only 13 seats, Mr Sharif val-
Can the licence to ten such killings will be agreed beforehand
at a gathering of local men.
ues its support at a shaky time and may be
wary of pushing through a new law.
kill be revoked? Pakistan’s mullahs are united in declar-
ing that Islam condemns such murders.
The bill’s sponsors think the JUI may be
persuaded that honour killings are an
But this clerical consensus frays when it abuse of sharia concepts that were intend-
ISLAMABAD
comes to the sharia-inspired laws of qisas ed to resolve tribal wars, not to provide
“Honour killings” can be stopped only
(retribution) and diyat (blood money) that cover to murderers. But the mullahs may
by scrapping religiously inspired laws
enable men to get away with it. Introduced still balk if they believe reform is part of a
and scandalise her fellow citizens. The 26- having paid diyat. Since most honour kill-
year-old (pictured with her iPhone), whose ings are premeditated conspiracies involv- Dissent in Laos
real name was Fauzia Azeem, twerked on ing entire families, charges are often
camera, posted suggestive selfies and
mocked the mullahs who police the social
dropped even before the case goes to court.
Mr Azeem, however, may not dodge
Radio silence
boundaries of a Muslim-majority nation punishment. His distraught father vowed
that has become more religiously conser- not to forgive the killer of a daughter who
vative over the years. It was too much for was financially supporting the family. And
VIENTIANE
many, including her brother, who stran- the local police have taken the unusual
As Barack Obama prepares for his first
gled Ms Baloch after drugging her to sleep. step of bringing the case themselves. But
visit to Laos, its civil society struggles
Waseem Azeem proudly admitted his rights activists say that is no guarantee
crime: “She was bringing disrepute to our
family’s honour.” He has been arrested on
suspicion of murder. Ms Baloch’s funeral
against a court later agreeing to a forgive-
ness deal. Families come under immense
pressure to pardon honour-killers.
A HIGHLIGHT of Ounkeo Souksavanh’s
years as a radio host in Vientiane, the
capital of Laos, came in late 2011 when he
(pictured) was held on July 17th. Pakistan’s clerical establishment is loth hosted an episode of Wao Kao (“News
So-called “honour killings” are rarely so to endorse change. A bill in 2004 to reform Talk”) on land disputes in the south of the
sensational. But nor are they rare. The Hu- the law was “severely mutilated”, says the country. Near the end of the programme,
man Rights Commission of Pakistan tal- Aurat Foundation, a human-rights group. Mr Ounkeo says, a listener called in and
lied 1,096 female victims of them last year. Reforms proposed in 2015 that would make criticised the son of a Politburo member
Many go unreported to the police. Cases in honour-killers serve at least seven years in for allegedly grabbing land from farmers
the past three months include a 19-year-old jail, even if pardoned, have gone nowhere. for a property-development project. In
girl burned to cinders for refusing a mar- But there is now an encouraging sign: a mid-2012 the Lao government appeared to
riage proposal; a 16-year-old girl who met a private member’s bill to make such crimes show sympathy with such complaints: it
similar fate for helping a friend elope; and “non-compoundable”, meaning that fam- said it would suspend the granting of per-
an 18-year-old killed by her mother for mar- ilies would no longer be able to forgive mits to take over farmland for rubber plan-
rying a man from a different ethnic group each other, is expected to be presented to tations, a big cause of farmers’ gripes.
against her family’s will. parliament for debate within weeks. It had But there was no on-air celebration. The
Such atrocities are widely accepted. At a long languished in limbo, even after Na- government had shut down the radio pro-
recent screening of “A Girl in the River”, an waz Sharif, the prime minister, vowed in gramme, one of the country’s only public
acclaimed documentary about honour January to crack down on honour killings outlets for grievance. In December 2012
killing, male students at a leading universi- after “A Girl in the River” was nominated Sombath Somphone, a campaigner for
ty applauded an interview with a man for an Oscar, which it then won. Now the farmers’ rights who had publicly chal-
who was unrepentant about trying to kill government appears to be backing it. lenged the granting of rural land-use con-
his daughter for entering a “love marriage”. But Mr Sharif has been beset by corrup- cessions to businesses, was stopped at a
The problem is rooted in tribal and cul- tion allegations, by disputes with the army police post and put into the back of a pick-
tural traditions at odds with young women and by open-heart surgery. While the lead- up truck. He has not been heard from since.
His supporters put up notices about his dis-
appearance, like the one pictured on the
next page. Officials told them to stop. Mr
Ounkeo felt that he was in danger, too. He
eventually left for America. He now works
there for Radio Free Asia, a station funded
by America’s Congress.
Foreign ministers from the ten-country
Association of Southeast Asian Nations
(ASEAN) are due to meet in Vientiane on
July 24th for talks on regional issues. One
delegate is Aung San Suu Kyi from Myan-
mar, which has recently taken a big step
away from the authoritarianism that once
gripped it. Mr Ounkeo describes Miss Suu
Kyi as an “icon of democracy”. He says she
is an inspiration to young people and intel-
lectuals in Laos.
But Mr Ounkeo and observers in Vien-
She mocked the mullahs. She died tiane say there is little chance that Myan- 1
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42 Asia The Economist July 23rd 2016
Bangsta style
SEOUL
Television shows on interior design are bringing down the house
Hong Kong police from seeing protesters. The tactic was re-
peated this year when Zhang Dejiang, a
The force is with who? member of the Politburo’s Standing Com-
mittee and head of China’s rubber-stamp
parliament, went to the territory.
Public satisfaction with the force slowly
fell after 2007, according to a poll by the
University of Hong Kong. After the protests
HONG KONG
in 2014 it plummeted to less than 21%,
Falling public trust in the territory’s police bodes ill
down from nearly 75% when Chinese rule
2 lacious works about Chinese politicians. Suspicions abound in Hong Kong that that controls the armed forces, talked
One was apparently snatched from Hong the party’s tentacles are spreading. One of about beefing up combat preparedness
Kong itself and another from Thailand; the the booksellers, Lam Wing-kee, says he has during an inspection tour in the southern
others were visiting the mainland. (All but been followed by strangers since his return province of Guangdong. And so on.
the one who disappeared from Thailand to Hong Kong. Some pro-Umbrella publi- More worrying than words were the ac-
have since returned; he is thought to re- cations have reported cyber-attacks or ha- tions. The maritime authority of Hainan,
main in the custody of mainland police.) rassment. On July 14th Hong Kong’s gov- an island province off Guangdong, said it
The investigation of the disappearances ernment ruled that candidates for was closing an area in the South China Sea
was handed to the missing persons unit, September’s elections to the territory’s leg- for three days while naval exercises took
and was not taken up by the far stronger islature must sign a declaration acknowl- place. Xinhua, an official news agency, said
anti-Triad one, which deals with most edging that Hong Kong is an “inalienable China had recently dispatched a combat
cross-border crime and liaises often with part” of China, a response to a small but air patrol, consisting of H-6K bombers and
mainland agents. growing call for independence for Hong fighters, over the South China Sea. China
The neutrality of the ICAC has also Kong. Several groups say they will not sign. has been talking about setting up an Air
been questioned this month following the The malaise is helping to nurture a gen- Defence Identification Zone in the area, re-
reassignment of its chief investigator after eration of protesters who are more pre- quiring incoming aircraft to identify them-
only a year in office (she subsequently re- pared to confront the police—and cops, in selves to its authorities. The air patrols
signed). Though officially she was replaced turn, who expect to be targets of crowd vio- could help China implement one. John
for not being up to the job, some commen- lence. In February police used batons and Kerry, America’s secretary of state, has
tators suggest that her real shortcoming pepper spray and fired two warning shots called the idea of such a zone “provocative
was refusing to mute an ongoing investiga- into the air in Mongkok district during a and destabilising”.
tion into a HK$50m ($6.5m) payment to crackdown on unlicensed street hawkers Two things are clear. One is that stub-
Hong Kong’s chief executive, Leung Chun- that snowballed into a riot—China blamed born nationalism is a strong feature of Chi-
ying. His office has denied Mr Leung was it on “separatists”. The erosion of public na’s foreign policy. The other is that Xi Jin-
involved in any wrongdoing. trust increases the risk of such turmoil. 7 ping—China’s president, Communist Party
leader and commander-in-chief—is deter-
mined to control it, just he is to dominate
The South China Sea all aspects of China’s politics. State media
have dismissed the tribunal as an Ameri-
My nationalism, and don’t you forget it can puppet, but Mr Xi does not want
anti-US fervour to disrupt his diplomacy.
China’s navy is still taking part in biennial
naval drills called RIMPAC, hosted by
America and joined by more than 20 other
countries, that are under way off Hawaii. It
BEIJING
appears to relish the prestige.
Xi Jinping tries to contain public fury over the South China Sea
After the verdict, China’s social media
2 ple who have a more positive view of chology professor at the University of
Workplace stress
stress are more likely to behave in a con- Rochester, gathered college students pre-
structive way: a study by Alia Crum of
Stanford University’s Mind and Body Lab
paring for the Graduate Record Examina-
tion (GRE), an entrance test for postgradu- Fuss and bother
and others found that students who be- ate courses. He collected saliva from each
lieved stress enhances performance were of the students to measure their baseline
How firms are easing the strain
more likely to ask for detailed feedback stress response and divided them into two
after an uncomfortable public-speaking
exercise. And seeing stressors as chal-
lenges rather than threats invites physio-
groups. One group was told that stress dur-
ing practice exams was natural and can
boost performance; the other got no such
T HE cost of stress is staggering. In
Britain, 43% of all working days lost
due to ill-health are because of stress-
logical responses that improve thinking pep talk. The students who received the related conditions. Across Europe the
and cause less physical wear and tear. mindset intervention went on to score share is even higher. One recent paper in
Humans can respond to stress in sever- higher on a GRE practice test than those America estimated that work-related
al different ways. The best-known is the who did not. When Mr Jamieson collected stress—which excludes that experienced
“fight or flight” response, which evolved as their saliva after the exam, it suggested his by the unemployed, students and those
a response to sudden danger. The heart intervention had not soothed their nerves: working in the home—accounted for
rate increases; the veins constrict to limit they were at least as stressed as those in the between $125 billion and $190 billion in
the bleeding that might follow a brawl and control group. A few months later the stu- health-care costs annually.
send more blood to the muscles; and the dents reported their scores on the real GRE Governments and firms are starting
brain focuses on the big picture, with de- exam: those who had been taught to see to pay attention. Last year Japan—which
tails blurred. stress as positive still scored better. has a word (karoshi) to describe death
In less extreme situations, the body and “Google images of stress and you’ll see from overwork—flirted with the idea of
brain should react somewhat differently. a guy with his head on fire. We’ve internal- forcing employees to take more of the
When people perceive they are being chal- ised that idea,” says Mr Achor. He instead vacation to which they are entitled.
lenged rather than threatened, the heart compares stress to going to the gym. You France recently passed a law giving
still beats faster and adrenalin still surges, only get stronger if you push yourself be- workers the “right to disconnect”, which
but the brain is sharper and the body re- yond what feels easy, but afterwards you obliges firms with more than 50 staff to
leases a different mix of stress hormones, need to recover. The analogy suggests that draw up rules for handling out-of-hours
which aid in recovery and learning. The stress at work may be performance-en- work e-mails. Google has nap pods in its
blood vessels remain more open and the hancing, but should be followed by rest, headquarters; employees can also at-
immune system reacts differently, too. whether that means not checking e-mails tend meditation and mindfulness class-
Sometimes, though, the wrong response is on weekends, taking more holiday or go- es. The New York offices of Knewton, an
triggered, and people sitting exams, giving ing for a stroll in the middle of the day. education-technology company, boast
a speech or pitching a business plan react ping-pong tables and a large terrace for
as if to a sudden threat, with negative con- The well-tempered mind “knerds” in need of a break.
sequences for both their performance and Kelly McGonigal, a psychologist at Stan- Travellers at Los Angeles Internation-
their long-term health. ford University and the author of “The Up- al Airport are greeted by dogs from the
Ms Crum believes that attitudes and be- side of Stress”, helps people rethink stress airport’s Pets Unstressing Passengers
liefs shape the physical response to stress. by telling them that it is what we feel when (PUP) programme. On Fridays at Yale
In 2013 she subjected student volunteers to something we care about is at stake. She Medical School, angsty students can visit
fake job interviews. Beforehand, they were asks them to make two lists: of things that Finn the Therapy Dog, whose ancestry
shown one of two videos. The first ex- stress them; and of things that matter to includes terrier and poodle. The Univer-
tolled the way stress can improve perfor- them. “People realise that if they eliminat- sity of Minnesota has a similar scheme
mance and forge social connections; the ed all stress their lives would not have with a range of animals, including
second emphasised its dangers. In the fake much meaning,” she says. “We need to Woodstock, a lushly feathered chicken
interviews, the participants were subject- give up the fantasy that you can have (pictured). Petting animals is known to
ed to biting criticism. When Ms Crum took everything you want without stress.” lower blood pressure and cholesterol.
saliva samples at the end of the study, she By changing how their bodies process
found that those who watched the upbeat stress and how they behave, such refram-
video had released more DHEA, a hor- ing may help people live healthier lives. In
mone associated with brain growth. 2012 a group of scientists in America
In an earlier study Ms Crum and Shawn looked back at the 1998 National Health In-
Achor, the author of “The Happiness Ad- terview Survey, which included questions
vantage”, visited UBS, an investment bank, about how much stress the 30,000 partici-
at the height of the financial crisis in 2008. pants had experienced in the previous
They split around 400 bankers into three year, and whether they believed stress
groups. The first watched a video that rein- harmed their health. Next, they pored over
forced notions of stress as toxic, the second mortality records to find out which respon-
watched one highlighting that stress could dents had died. They found that those who
enhance performance and the third both reported high stress and believed it
watched no clip at all. A week later the sec- was harming their health had a 43% higher
ond group reported greater focus, higher risk of premature death. Those who report-
engagement and fewer health problems ed high stress but did not believe it was
than before; the other two groups reported hurting them were less likely to die early
no changes. than those who reported little stress.
Other scientists have shown that recog- The study shows correlation, not causa-
nising the benefits of stress can cause mea- tion. But since much stress is unavoidable,
surable improvements in performance. In working out how to harness it may be wis- No feathers flying
one experiment Jeremy Jamieson, a psy- er than fruitless attempts to banish it. 7
The Economist July 23rd 2016 47
Business
Also in this section
48 China’s industrial internet of things
49 SoftBank and ARM
49 The Ultimate Fighting Championship
50 American company earnings
50 The rise of gendered products
51 Schumpeter: Silicon Valley 1.0
2 means that trees now grow in places he works in “Chinese conditions”. By that he
would never have thought possible. Machine language means places where workers are low-
Oil and gas producers acknowledge it is Device-to-device connections, m skilled, conditions are dirty and operators
in their interest to curb leaks; it gives them 2014 2020 forecast often push equipment to its limits.
more natural gas to sell. They say they are 0 100 200 300 400 That points to another sort of local ad-
stepping up monitoring efforts, and have China
vantage. Foreign firms might have fancier
increased the use of “green completions” kit, but locals know how to make things
at shale wells to capture methane emitted United cheap and cheerful. Huawei’s push into
at the end of the fracking process, rather States the IoT got a boost in June when a new pro-
than flaring it at the well head. Big Euro- Japan tocol it helped to develop, known as “nar-
pean companies appear to take the reputa- row band IoT”, was approved as a global
tional risk seriously. “The industry realises Brazil standard. The new protocol works with de-
it needs to get its act together,” says one ex- vices that require inexpensive sensors that
ecutive. BP, for instance, has designed a gas India use little energy.
project in Oman that should be leak-free. Still, there are three potential snags to
Source: GSMA
Italy’s ENI has set publicly available targets China’s IoT ambitions. Firms, squeezed by
for cutting methane emissions. both a weak local and global economy,
Some state-owned oil giants, such as including many of the sensors and other may not be able to afford to connect their
Saudi Aramco and Mexico’s Pemex, have electronic devices that would form the machines to the cloud. Sany’s Mr He, how-
joined global efforts to reduce methane backbone of such a network. Moreover, ever, reckons the downturn will be good
emissions. But many reckon firms in Rus- the government is keen to upgrade the for stronger firms as their low-end compet-
sia, Angola and Nigeria would show up as country’s manufacturing base. itors will be forced out.
big emitters if reliable data were collected. There are already more things connect- Secondly, Chinese factories are less
A report last year by the Rhodium Group, a ed to each other in China than in any coun- technologically advanced than those in
research firm, said large producers such as try, with the numbers set to skyrocket fur- America or Europe, so moving to advanced
Iraq, Angola and Libya had never reported ther (see chart). IDC, a research firm, computer-controlled production and auto-
methane-emissions numbers to the UN. forecasts that the overall market for IoT kit mation could be daunting for some.
Without good global data, it will be impos- of various forms in China will rise from Finally there are standards. Despite the
sible to get the problem in hand. 7 $193 billion last year to $361 billion in 2020. new narrow band IoT protocol, there is a
Accenture, a consultancy, reckons embrac- lack of overall global standardisation, such
ing IoT in manufacturing could add up to as the common GSM protocol that allowed
The industrial internet of things $736 billion to China’s GDP by 2030. Europe to leapfrog others in mobile tele-
GE’s new centre (it will soon open a phony. Jagdish Rebello of IHS, a consultan-
The great similar one in Paris to tap into the Euro-
pean market) is part ofits efforts to get firms
cy, argues that a push from Chinese regula-
tors, combined with the country’s massive
convergence to use Predix, its proprietary software for
the industrial IoT. The American company
home market, could lead to domestic stan-
dards dominating the global market. Firms
had already signed up China Eastern Air- elsewhere, and in a variety of different in-
SHANGHAI
lines and China Telecom, two big state- dustries from cars to robotics and cloud
China aims to lead the world in
owned enterprises, and this week Huawei, computing, will have other ideas. Con-
connecting the factory
a Chinese telecoms-equipment giant, also sumers, meanwhile, will continue to wait
clothes, medical devices and much more held an event in Beijing earlier this month
besides would be connected to the inter- to trumpet its own technology. HP, Honey-
net via smart chips and capable of sensing well and Cisco, all big American technol-
and sharing information has been just ogy firms, are also rushing in.
around the corner. Progress remains slow
in the consumer market, despite a few hit Sany side up
products, such as the Fitbit, an activity Chinese firms, however, have their own
tracker that connects to smartphones. An plans. China Mobile, the largest mobile-
industrial form of the IoT, however, may phone firm, has established its version of a
come to fruition much faster. digital foundry: a “cellular IoT open lab”. Li
As the world’s biggest manufacturing Yue, the company’s chief executive,
power, China is well placed to lead this dreams that he could earn 100 billion yuan
transition. Which is why this week GE, the ($15 billion) from the IoT with as many as
world’s biggest industrial company, five billion devices connected by 2020.
opened what it calls a “digital foundry” in Chinese firms also have local knowl-
Shanghai. The centre will help Chinese edge. Sany, which makes construction
companies develop and commercialise equipment, started connecting machines
products for the industrial internet of on its factory floor in 2008. It then put sen-
things, which involves factory machines sors on its diggers and cranes to monitor
and industrial goods communicating with them in real-time to improve operating effi-
each other and their surroundings. It will ciency. The company has invested in data
probably be a much bigger market than the analytics and artificial intelligence. He
one for consumers. China has millions of Dongdong, who leads those efforts, brags
factories with billions of machines and it that unlike foreign multinationals his firm
also makes most of the world’s electronics, knows how to make affordable kit that
The Economist July 23rd 2016 Business 49
Corporate earnings
Consumer products
Of populism and His and hers
profits
Companies hungry for profits are playing the gender card
NEW YORK
Investors may be too sanguine
“G ENTLEMEN, it’s time for us to be
done with women’s cleaning
products,” suggests the website for Hero
women more for the same products. A
2015 study in New York city found that
women’s products cost more two-fifths
Cleveland can teach valuable lessons about the rise and fall of economic clusters
their pre-eminence by producing distinctive cultures (Marshall
said that there was something “in the air” in Sheffield that was
conducive to steelmaking) and by attracting talent and money.
And they can entrench themselves by investing in robust institu-
tions like universities. The most prominent example of a success-
ful cluster today is Silicon Valley. But there are plenty of others:
the City of London in England or the car industry in Stuttgart.
Cleveland is a reminder that decline can be as self-sustaining
as success. There are three reasons why clusters fail. One is that
they over-specialise in products that are later improved else-
where. Sheffield stuck to steelmaking even as others learned to
make it better and cheaper. A second is that they complacently
fail to upgrade their productivity. Detroit succumbed to Japanese
carmakers in the 1970s and 1980s because it thought more about
providing its cars with ornate fins (and its workers with gold-plat-
ed benefits) than it did about their performance. The third is that
they suffer from an external shock from which they fail to recover,
as could be the case with the City of London in the wake of Brexit.
Naomi Lamoreaux, an economic historian at Yale University,
says Cleveland falls into the third category. It led in a wide variety
of industries into the 1920s, including cars, chemicals, paints and
2 clever types. against customers who are already unwell: neth Arrow wrote about it in 1963.
This idea turns conventional wisdom if the resulting high premiums were to de- Moral hazard occurs when incentives
on its head. Education is usually thought to ter healthy, young customers from signing go haywire. The old economics, noted Mr
benefit society by making workers more up, firms might have to raise premiums fur- Stiglitz in his Nobel-prize lecture, paid con-
productive. If it is merely a signal of talent, ther, driving more healthy customers away siderable lip-service to incentives, but had
the returns to investment in education in a so-called “death spiral”.) remarkably little to say about them. In a
flow to the students, who earn a higher The car insurer must offer two deals, completely transparent world, you need
wage at the expense of the less able, and making sure that each attracts only the cus- not worry about incentivising someone,
perhaps to universities, but not to society tomers it is designed for. The trick is to offer because you can use a contract to specify
at large. One disciple of the idea, Bryan Ca- one pricey full-insurance deal, and an al- their behaviour precisely. It is when infor-
plan of George Mason University, is cur- ternative cheap option with a sizeable de- mation is asymmetric and you cannot ob-
rently penning a book entitled “The Case ductible. Risky drivers will balk at the de- serve what they are doing (is your trades-
Against Education”. (Mr Spence himself re- ductible, knowing that there is a good man using cheap parts? Is your employee
grets that others took his theory as a literal chance they will end up paying it when slacking?) that you must worry about en-
description of the world.) they claim. They will forkout for expensive suring that interests are aligned.
Signalling helps explain what hap- coverage instead. Safe drivers will tolerate Such scenarios pose what are known as
pened when Washington and those other the high deductible and pay a lower price “principal-agent” problems. How can a
states stopped firms from obtaining job-ap- for what coverage they do get. principal (like a manager) get an agent (like
plicants’ credit scores. Credit history is a This is not a particularly happy resolu- an employee) to behave how he wants,
credible signal: it is hard to fake, and, pre- tion of the problem. Good drivers are stuck when he cannot monitor them all the
sumably, those with good credit scores are with high deductibles—just as in Spence’s time? The simplest way to make sure that
more likely to make good employees than model of education, highly productive an employee works hard is to give him
those who default on their debts. Messrs some or all of the profit. Hairdressers, for
Clifford and Shoag found that when firms instance, will often rent a spot in a salon
could no longer access credit scores, they and keep their takings for themselves.
put more weight on other signals, like edu- But hard work does not always guaran-
cation and experience. Because these are tee success: a star analyst at a consulting
rarer among disadvantaged groups, it be- firm, for example, might do stellar work
came harder, not easier, for them to con- pitching for a project that nonetheless goes
vince employers of their worth. to a rival. So, another option is to pay “effi-
Signalling explains all kinds of behav- ciency wages”. Mr Stiglitz and Carl Sha-
iour. Firms pay dividends to their share- piro, another economist, showed that
holders, who must pay income tax on the firms might pay premium wages to make
payouts. Surely it would be better if they employees value their jobs more highly.
retained their earnings, boosting their This, in turn, would make them less likely
share prices, and thus delivering their to shirk their responsibilities, because they
shareholders lightly taxed capital gains? would lose more if they were caught and
Signalling solves the mystery: paying a div- got fired. That insight helps to explain a
idend is a sign of strength, showing that a fundamental puzzle in economics: when
firm feels no need to hoard cash. By the workers are unemployed but want jobs,
same token, why might a restaurant delib- why don’t wages fall until someone is will-
erately locate in an area with high rents? It ing to hire them? An answer is that above-
signals to potential customers that it be- workers must fork out for an education in market wages act as a carrot, the resulting
lieves its good food will bring it success. order to prove their worth. Yet screening is unemployment, a stick.
Signalling is not the only way to over- in play almost every time a firm offers its And this reveals an even deeper point.
come the lemons problem. In a 1976 paper customers a menu of options. Before Mr Akerlof and the other pioneers
Mr Stiglitz and Michael Rothschild, anoth- Airlines, for instance, want to milk rich of information economics came along, the
er economist, showed how insurers might customers with higher prices, without discipline assumed that in competitive
“screen” their customers. The essence of driving away poorer ones. If they knew the markets, prices reflect marginal costs:
screening is to offer deals which would depth of each customer’s pockets in ad- charge above cost, and a competitor will
only ever attract one type of punter. vance, they could offer only first-class tick- undercut you. But in a world of informa-
Suppose a car insurer faces two differ- ets to the wealthy, and better-value tickets tion asymmetry, “good behaviour is dri-
ent types of customer, high-risk and low- to everyone else. But because they must of- ven by earning a surplus over what one
risk. They cannot tell these groups apart; fer everyone the same options, they must could get elsewhere,” according to Mr Sti-
only the customer knows whether he is a nudge those who can afford it towards the glitz. The wage must be higher than what a
safe driver. Messrs Rothschild and Stiglitz pricier ticket. That means deliberately worker can get in another job, for them to
showed that, in a competitive market, in- making the standard cabin uncomfortable, want to avoid the sack; and firms must find
surers cannot profitably offer the same to ensure that the only people who slum it it painful to lose customers when their pro-
deal to both groups. If they did, the premi- are those with slimmer wallets. duct is shoddy, if they are to invest in quali-
ums of safe drivers would subsidise ty. In markets with imperfect information,
payouts to reckless ones. A rival could offer Hazard undercuts Eden price cannot equal marginal cost.
a deal with slightly lower premiums, and Adverse selection has a cousin. Insurers The concept of information asymme-
slightly less coverage, which would peel have long known that people who buy in- try, then, truly changed the discipline.
away only safe drivers because risky ones surance are more likely to take risks. Some- Nearly 50 years after the lemons paper was
prefer to stay fully insured. The firm, left one with home insurance will check their rejected three times, its insights remain of
only with bad risks, would make a loss. smoke alarms less often; health insurance crucial relevance to economists, and to
(Some worried a related problem would encourages unhealthy eating and drinking. economic policy. Just ask any young, black
afflict Obamacare, which forbids Ameri- Economists first cottoned on to this phe- Washingtonian with a good credit score
can health insurers from discriminating nomenon of “moral hazard” when Ken- who wants to find a job. 7
54 The Economist July 23rd 2016
Finance and economics
Also in this section
55 Buttonwood: Ageing and debt
56 The Big Mac index
56 Postal Savings Bank of China
57 Another twist in the 1MDB affair
58 Free exchange: The economics of
coups
2 where in the region, often for similar rea- taking a toll. Three banks have been placed up Kenya’s banking system. But elsewhere
sons. In Ghana non-performing loans into receivership in less than a year by Pat- in Africa regulators still seem willing to
have jumped to more than 16% of the total rick Njoroge, the respected governor of the turn a blind eye to problems. Forcing banks
after slumping commodity prices and a Central Bank of Kenya, as a series of ruin- to admit to rising bad debts could lead to
plunging currency forced the central bank ous insider-lending scams have come to painful collapses and to strained public fi-
to ramp up interest rates. It raised them by light. Mr Njoroge alleges that the managing nances if governments have to step in with
five percentage points, to 26%, a level at director of one bank siphoned off 38 bil- bail-outs. But ignoring them might be even
which almost all borrowers will struggle. lion Kenya shillings ($335m) via 20 shell worse in the long run. As it is, businesses in
Zimbabwean banks hold lots of govern- companies over 13 years . The full scale of Africa struggle to obtain enough capital to
ment bonds that will probably never be re- the heist was discovered a few days after grow: despite rapid loan growth, most Afri-
paid. They have only staved off runs by his funeral. At Chase Bank, the victim of can countries still have low banking pene-
limiting withdrawals. the social-media run, directors had signed tration. Allowing zombie banks to limp on,
In Kenya, however, banks face a differ- off on some 8 billion shillings in loans to too weakened by bad loans to make any
ent set of stresses. Weak regulation, exacer- themselves. new ones, would only worsen Africa’s
bated by the proliferation ofsmall banks, is Mr Njoroge seems determined to clean desperate shortage of credit. 7
The Big Mac index mains something of a constant. It varies mentals into account. The adjusted index
rather little from country to country or year looks at whether a currency is cheap or ex-
Patty-purchasing to year. Its consistency is part of its appeal
to customers. It is also why it appeals to
pensive compared with what you would
expect given the country’s level of devel-
parity us—as a handy benchmark for judging the
strength of currencies and even the size of
opment. By this measure, the dollar is still
overvalued, but by a much smaller margin:
economies. roughly 11% on a trade-weighted basis.
HONG KONG
To calculate our Big Mac index, we col- The Big Mac index also provides a fun
The size of the world
lect the price of the burger (with bun, of gauge of the size of national economies, a
economy—measured in burgers
course) in 59 countries accounting for 94% matter of great debate and controversy. If a
F
60 40 20 – 0 + 20 40 (61%). In fact, only three currencies look EW companies are able to go public
Switzerland 99 overvalued by this measure: Sweden with a valuation of more than $50 bil-
Norway 68 (overvalued by 4%), Norway (9%) and Swit- lion less than a decade after their founding.
Sweden 97 zerland (31%). This rarefied group, which mainly consists
United States† nil 3,682 If most currencies are “too” cheap of tech darlings, is about to admit a surpris-
Brazil 409 against the dollar, it follows that the dollar ing new member: a large, lumbering Chi-
France 541 itself must be too expensive. The Big Mac nese bank. Postal Savings Bank of China,
Germany 824
index suggests it has climbed a whopping established in 2007, is on course for an ini-
56% above fair value on a trade-weighted tial public offering (IPO) this year that is ex-
Britain 644
basis. Does this mean we should expect a pected to be the world’s biggest for nearly
Turkey 214
dollar crash? No. There are fundamental two years. Its pitch to prospective investors
Japan 1,369
economic reasons why exchange rates is also unusual. Far from boasting about
China‡ 3,931 how well it is run, it instead emphasises
tend to look cheap in developing coun-
Hong Kong 131 tries—in particular, poor productivity in the advantages of scale—which it has so far
India§ 941 both tradable sectors (eg, manufacturing) squandered—to imply that it has vast un-
Indonesia 407 and non-tradable ones (eg, services). As tapped potential.
South Africa 142 productivity in manufacturing improves Describing Postal Savings Bank as a
Malaysia 158 in emerging markets, factory wages will startup is something of a misnomer. When
World** na 19,235 rise, putting upward pressure on wages it launched nine years ago, it was a spin-off
*GDP divided by Big Mac price, in local currency †Average
and prices elsewhere in the economy, even from the Chinese postal service, which
of four cities ‡Average of five cities §Maharaja Mac in fast-food chains. That will make their had doubled as a quasi-bank for 20 years.
**Based on 59 countries accounting for 94% of world GDP burgers dearer, narrowing the gap with As a way of bringing finance to rural areas,
Sources: McDonald’s; IMF; The Economist
America. the government set up windows at post of-
Interactive: Compare global currencies over time In a more sophisticated version of the fices for locals to deposit their savings, a
with our Big Mac index at Economist.com/bigmac
Big Mac index, we have taken these funda- model that lots of other countries had pre- 1
The Economist July 23rd 2016 Finance and economics 57
Plots to topple leaders are becoming less common. That’s a good thing for many reasons
The 21st International AIDS Conference parting with his foreskin reduces a man’s
risk of getting infected by up to 60%, be-
Rallying the troops cause the foreskin is rich in the sorts of cells
in which HIV reproduces. Prophylactic cir-
cumcision has become an established
medical procedure in many African coun-
tries. But levelling the playing field be-
Durban
tween the sexes requires techniques that
AIDS workers face setbacks, both epidemiological and financial. But they are about
women can use, too. Linda-Gail Bekker,
to be handed new weapons to carry on the fight
the incoming president of the Internation-
2 employed two of those convicted through lot of people. Her initial pictures were sim-
a foundation established in her memory. ple, passing encounters. Often her subject
Yet much of this narrative is challenged would be confused about why she wanted
in a deeply researched and thought-pro- to photograph them. Their querulous, hos-
voking book, “We Are Not Such Things”, tile or annoyed faces recur in her work
by Justine van der Leun, an American writ- from the late 1950s. Arbus had a taste for
er who spent years tracking down most of whimsy—a night view of a drive-in screen
those involved. Her somewhat wordy showing a projected image of a bright sun
writing—part whodunnit and part travel- shining through the clouds, or quirky film
ogue—weaves together the accounts of props, such as rocks on wheels, stored in a
policemen, prosecutors and those convict- back lot at Disneyland.
ed with some penetrating insights. Arbus was 38 before she saw herself as
Guided by, among others, a former lib- a professional. She moved from depicting
eration fighter who found Buddhism in random incidents with strangers to seek-
prison, the author tugs at the threads of the ing out visually interesting human tribes—
official account. She finds that one of twins and triplets, midgets, circus perform-
South Africa’s most celebrated examples ers, nudists, the blind, transvestites, freaks
of reconciliation has not put to rest the and the mentally ill—by entering their
country’s painful past for either victims or worlds. Jack Dracula, a legendary tattoo
perpetrators of violence. Among those she man (pictured below), was a favourite sub-
meets are the other two men who were ject. She used her considerable intelli-
convicted, discovering that they were gence, charm and an intense interest in
afterwards embittered that they too were others to get the poses she wanted. Her pic-
not hired by the Amy Biehl Foundation, an tures, taken in bedrooms and backstage
institution that they feel they helped create Shuttered up... dressing rooms, are evidence of her ability
through killing the American student. to gain trust and acceptance from those
Her most puzzling discovery relates to Burned out after a decade of styling whom society might find repellent, and
Easy Nofemela, who was found guilty of ideas for Christmas presents and reversible who in turn distrusted society themselves.
the murder and subsequently granted am- bunny-fur jackets, Arbus left to do her own While risqué at the time, her choice of
nesty and hired by the foundation. Yet the thing, quipping later that she preferred to subjects was not without precedent. Near-
author finds evidence suggesting he was photograph people in their own clothes. ly a century before, Edgar Degas had paint-
not even at the scene of the crime. This is She grew up in a family ofrich fashion mer- ed inhabitants of his own demimonde:
an engaging take on a murder that might chants, but had no use for fashion herself. prostitutes, ballet dancers, jockeys, chan-
have derailed democracy. 7 One biographer insists that she preferred teuses. As with the early Impressionists
not to use make-up or deodorant. What Arbus’s work was met initially with disap-
she always wore was a camera: her shield, proval; at her first show spit had to be
American photography licence and admission ticket into strangers’ wiped every day off the pictures. In this
homes and lives. age of ever-present selfies, the novelty of
Exposed A new show at the Metropolitan Muse-
um ofArt’s Breuer gallery has been hung to
street photography has faded, as has the
shock value of tattoos, piercings, cross-
allow the visitor to focus carefully on each dressing and gender reassignment. View-
photograph. Jeff Rosenheim, the free- ers today are more open to Arbus’s
wheeling curator, presents the works with- images—and far less likely to spit. 7
NEW YORK
out any thematic or chronological consis-
A new show at the Met traces the short,
tency, which means one has to focus on
hard life of a visual master
each print and develop one’s own narra-
Publications
Nasty, Brutish and Short
A funny and moving
new memoir on life
overseas
Invitation for Expressions of Interest
Available now on Amazon!
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Markets
% change on GDP forecasts for 2016
GDP, % change on a year earlier
Dec 31st 2015 The IMF has cut its forecast for world
Month forecast made: April 2016 July 2016
Index one in local in $ economic growth in 2016 for the fourth
Markets Jul 20th week currency terms time in a row; it now expects GDP to in- 4 2 – 0 + 2 4 6 8
United States (DJIA) 18,595.0 +1.2 +6.7 +6.7
China (SSEA) 3,169.6 -1.1 -14.4 -16.8
crease by a mere 3.1%. The Brexit vote in India
Japan (Nikkei 225) 16,681.9 +2.8 -12.4 -1.2 Britain explains some of the drop, al- China
Britain (FTSE 100) 6,729.0 +0.9 +7.8 -3.6 though it may have only a muted impact World
Canada (S&P TSX) 14,533.6 +0.3 +11.7 +19.1 on non-European economies. Growth in
United States
Euro area (FTSE Euro 100) 1,006.9 +1.4 -8.0 -6.8 the euro area has been revised upwards,
Euro area (EURO STOXX 50) 2,966.9 +1.4 -9.2 -8.0 thanks to unexpectedly strong first- Britain
Austria (ATX) 2,222.3 +4.0 -7.3 -6.0 quarter GDP growth, but it would have Germany
Belgium (Bel 20) 3,431.3 +1.2 -7.3 -6.0 been even higher were it not for Brexit. Euro area
France (CAC 40) 4,379.8 +1.0 -5.5 -4.3 China’s GDP may also expand at a faster
Germany (DAX)* 10,142.0 +2.1 -5.6 -4.3 Italy
pace, albeit still within its target of
Greece (Athex Comp) 569.7 +1.8 -9.8 -8.5 Japan
Italy (FTSE/MIB) 16,763.8 +1.4 -21.7 -20.7
6.5-7%. A forecast of slower growth in
Netherlands (AEX) 452.2 +1.7 +2.3 +3.7 Japan is partly due to the yen’s recent Russia
Spain (Madrid SE) 862.2 +1.3 -10.7 -9.5 appreciation. Nigeria’s economy is now Nigeria
Czech Republic (PX) 882.1 +6.8 -7.8 -6.5 expected to contract as a result of lower Brazil
Denmark (OMXCB) 877.5 +0.8 -3.2 -1.6 oil receipts and power-supply problems.
Source: IMF
Hungary (BUX) 27,573.5 +1.4 +15.3 +17.4
Norway (OSEAX) 689.4 +0.6 +6.2 +10.7
Poland (WIG) 46,504.8 +3.3 +0.1 -0.3 Other markets The Economist commodity-price index
Russia (RTS, $ terms) 946.7 -0.6 +8.6 +25.1 % change on 2005=100
Other markets % change on
Sweden (OMXS30) 1,386.6 +2.2 -4.2 -6.0 Dec 31st 2015 The Economist commodity-price indexone
one
Switzerland (SMI) 8,197.4 +0.7 -7.0 -5.6 Index one in local in $ Jul 12th Jul 19th* month year
Turkey (BIST) 74,902.8 -7.9 +4.4 +0.2 Jul 20th week currency terms Dollar Index
Australia (All Ord.) 5,565.9 +1.7 +4.1 +7.0 United States (S&P 500) 2,173.0 +1.0 +6.3 +6.3 All Items 139.6 138.8 -1.0 -2.2
Hong Kong (Hang Seng) 21,882.5 +2.6 -0.1 -0.2 United States (NAScomp) 5,089.9 +1.7 +1.6 +1.6
India (BSE) 27,915.9 +0.4 +6.9 +5.2 Food 162.8 159.4 -5.3 -3.5
China (SSEB, $ terms) 351.4 -0.6 -15.2 -17.6
Indonesia (JSX) 5,242.8 +2.1 +14.1 +20.0 Japan (Topix) 1,330.8 +2.3 -14.0 -3.1 Industrials
Malaysia (KLSE) 1,669.6 +0.6 -1.4 +5.2 Europe (FTSEurofirst 300) 1,345.1 +1.4 -6.4 -5.2 All 115.5 117.5 +5.8 -0.4
Pakistan (KSE) 39,098.8 +0.1 +19.1 +19.0 World, dev'd (MSCI) 1,707.3 +0.8 +2.7 +2.7 Nfa† 122.9 125.9 +5.0 +5.7
Singapore (STI) 2,945.7 +1.2 +2.2 +6.8 Emerging markets (MSCI) 870.8 +1.7 +9.6 +9.6 Metals 112.3 113.9 +6.2 -3.1
South Korea (KOSPI) 2,015.5 +0.5 +2.8 +5.6 World, all (MSCI) 412.8 +0.9 +3.4 +3.4 Sterling Index
Taiwan (TWI) 9,007.7 +1.7 +8.0 +10.8 World bonds (Citigroup) 948.7 -1.5 +9.1 +9.1
Thailand (SET) 1,510.0 +2.2 +17.2 +20.7 All items 192.6 192.2 +10.6 +15.8
EMBI+ (JPMorgan) 798.6 -0.7 +13.4 +13.4
Argentina (MERV) 15,931.8 +5.2 +36.5 +18.3 Hedge funds (HFRX) 1,177.3§ +0.2 +0.3 +0.3 Euro Index
Brazil (BVSP) 56,578.1 +3.6 +30.5 +59.3 Volatility, US (VIX) 11.8 +13.0 +18.2 (levels) All items 148.8 156.8 +1.3 -2.9
Chile (IGPA) 20,273.3 +1.3 +11.7 +21.5 CDSs, Eur (iTRAXX)† 69.5 -3.8 -9.9 -8.7 Gold
Colombia (IGBC) 9,930.3 +1.0 +16.2 +25.9 CDSs, N Am (CDX)† 70.0 -1.6 -20.8 -20.8 $ per oz 1,342.4 1,330.7 +4.7 +20.1
Mexico (IPC) 47,505.3 +2.7 +10.5 +3.0 Carbon trading (EU ETS) € 4.7 -2.1 -43.4 -42.7 West Texas Intermediate
Venezuela (IBC) 12,497.8 +3.4 -14.3 na Sources: Markit; Thomson Reuters. *Total return index.
Egypt (Case 30) 7,503.4 -0.7 +7.1 -5.6 †Credit-default-swap spreads, basis points. §July 19th. $ per barrel 46.8 44.7 -8.9 -11.5
Sources: Bloomberg; CME Group; Cotlook; Darmenn & Curl; FT; ICCO;
Israel (TA-100) 1,279.2 +1.3 -2.7 -1.9
Indicators for more countries and additional ICO; ISO; Live Rice Index; LME; NZ Wool Services; Thompson Lloyd &
Saudi Arabia (Tadawul) 6,630.6 -0.9 -4.1 -4.0 Ewart; Thomson Reuters; Urner Barry; WSJ. *Provisional
South Africa (JSE AS) 52,837.9 nil +4.2 +13.2 series, go to: Economist.com/indicators †Non-food agriculturals.
70 The Economist July 23rd 2016
Obituary Johnny Barnes and Datta Phuge
wore it not just to functions or events, but
also when going casually around the
town, causing a small sensation. For Mr
Barnes, his extravagant love of Hamilton’s
commuters came partly from Bermudans’
habit of saying “Good morning” anyway,
partly from his genuine joy in the life God
had blessed him with, and partly from the
switching his mother had given him when
he failed, as a child, to greet an old lady. Ev-
ery day ever since, he had tried to spread
happiness to as many people as possible.
Fame came rapidly. Mr Barnes was
hailed as an icon of Bermuda, and in 1998 a
statue of him was put up near the round-
about. Tourists from Africa and America
came to be photographed with him and to
buy his dollar postcards; he once waved to
the Queen of England. Mr Phuge was on all
the Marathi TV channels modelling his
shirt, but also had BBC reporters and Cana-
dians lining up at his front door; they were,
his wife said, “even more sought-after than
royals”. Both men were credited with pow-
ers to make gold, or happiness, increase.
Mr Barnes, a Seventh-Day Adventist, often
prayed with his visitors beside the road,
and his rare absences were taken as bad
Clothed with happiness omens. Mr Phuge (who always wore with
his shirt a giant “Om” in crystals on a thick
chain of gold) was believed to have the Mi-
das touch, and was asked to bless houses.
Both men hugely enjoyed the attention.
There were naysayers, of course. Those
Johnny Barnes, Bermuda’s “greeter”, and Datta Phuge, “the Gold Man of Pune”,
who were not so lucky, or in a bad mood,
died on July 9th and 14th respectively, aged 93 and 48
resented these continuous demonstra-
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