APRIL 13TH–19TH 2019

King Bibi keeps his crown

How Amazon uses AI

Donald Trump, wrestler-in-chief

Special report: private education’s boom

Central banks in the age of populismInterference Day

The Economist April 13th 2019 5

Contents continues overleaf1

Contents

The world this week8 A round-up of political

and business news

Leaders11 Central banks

Interference Day

12 Israel’s electionBibi the conjuror

12 Elections in IndonesiaThe wrong way to win

13 Private educationA class apart

14 Cross-border paymentsThe migrants’ migraine

Letters18 On NATO, museums,

Rwanda, happiness

Briefing21 Indonesia’s election

A reformer reduced

Special report:Private educationA class apartAfter page 44

Britain25 The Brexit summit

26 Regulating the internet

28 China and the LSE

29 The far right on the march

29 Council housing’scomeback

30 Islam in Birmingham

Europe31 Matteo Salvini’s

nationalist alliance

32 Expropriation in Germany

34 Macron’s great debate ends

34 Montenegro’s monarch

35 Brexit and Europe’seconomy

36 Charlemagne The new“protective Europe”

The Americas37 The future of Lava Jato

38 Baseball diplomacy

40 Bello Lenín Moreno’snew economic policy

Middle East & Africa41 Sudan revolts

42 Vice cops squeezed

42 Fighting in Libya

43 Iran’s terror army

44 King Bibi keeps his crown

United States45 Prisons in Nebraska

46 Applecalypse now

47 Heartbeat bills

47 America’s new liberals

48 Chaos in the DHS

48 Opioids and transplants

49 What to learn from aboomlet in Hell

50 Lexington TrumpMania

Banyan The authoritiesforget to tell the people ofKazakhstan who theirnext president will be,page 54

On the cover

Independent central banks areunder threat. That is bad newsfor the world: leader, page 11. A changing of the guard at theEuropean Central Bank meansthat 2019 will be a momentousyear, page 67. What to avoid:Free exchange, page 72

• King Bibi keeps his crownBinyamin Netanyahu is aremarkable political performer.America must rein him in:leader, page 12. The way hefought off his toughest challengeyet, page 44

• How Amazon uses AI Theonline commercial empire restson a low-key approach toartificial intelligence, page 60

• Donald Trump, wrestler-in-chief The president is a profighter masquerading as apolitician. His opponents shouldtake note: Lexington, page 50.He does away with anothermember of his cabinet, page 48.Advancing corporate America’sinterests is no easier under theCEO president, page 64

• Special report: privateeducation’s boom In newmarkets and new forms it isthriving, after page 44.Governments should celebrateits success, not suppress it:leader, page 13

PEFC/16-33-582

Published since September 1843to take part in “a severe contest betweenintelligence, which presses forward,and an unworthy, timid ignoranceobstructing our progress.”

Editorial offices in London and also:Amsterdam, Beijing, Berlin, Brussels, Cairo,Chicago, Johannesburg, Madrid, Mexico City,Moscow, Mumbai, New Delhi, New York, Paris,San Francisco, São Paulo, Seoul, Shanghai,Singapore, Tokyo, Washington DC

Subscription serviceFor our full range of subscription offers, includingdigital only or print and digital combined, visit:Economist.com/offers

You can also subscribe by post, telephone or email:

Post: The Economist SubscriptionServices, PO Box 471, HaywardsHeath, RH16 3GY, UK

Telephone: 0333 230 9200 or0207 576 8448

Email: customerservices@subscriptions.economist.com

One-year print-only subscription (51 issues):

UK..........................................................................................£179

PEFC certifiedThis copy of The Economistis printed on paper sourcedfrom sustainably managedforests certified by PEFCwww.pefc.org

Please

Registered as a newspaper. © 2019 The Economist Newspaper Limited. All rights reserved. Neither this publication nor any part of it may be reproduced, stored in a retrieval system, or transmitted in any form or by any means, electronic,mechanical, photocopying, recording or otherwise, without the prior permission of The Economist Newspaper Limited. Published every week, except for a year-end double issue, by The Economist Newspaper Limited. The Economist is aregistered trademark of The Economist Newspaper Limited. Printed by Walstead Peterborough Limited.

6 Contents The Economist April 13th 2019

Volume 431 Number 9138

Asia51 Reforming Pakistan

52 Thailand’s meddlinggenerals

53 India’s mobile campaign

53 The Philippines and China

54 Banyan Kazakhstan’snew president

China55 Province and prejudice

56 Hotpot wars

57 Chaguan The rise of acurling powerhouse

International58 The best ways to organise

kidney transplants

Business60 How Amazon uses AI

61 Afghan e-commerce

62 Turkish Airlines v Gulfcarriers

62 Mittelstand and Brexit

63 Peak profit in America?

63 Gambling for millennials

64 Lobbying in Trumpland

66 Schumpeter RebootingAirbus

Finance & economics67 All change at the ECB

68 David Malpass at theWorld Bank

69 Buttonwood Managingdollar reserves

70 Sending money abroad

70 Credit checks for migrants

71 HDFC, India’s star bank

72 Free exchange Central-bank independence

Science & technology74 How to knit a sports car

75 Birds and climate change

76 More human species

77 Picturing a black hole

Books & arts78 Mental illness

79 Walter Gropius

80 Susan Choi’s new novel

80 Robert Caro’s life and craft

81 Johnson African-American English

Economic & financial indicators84 Statistics on 42 economies

Graphic detail85 How taxes and transfers affect inequality

Obituary86 Andrew Marshall, the Pentagon’s gadfly

8 The Economist April 13th 2019

1

The world this week Politics

Following months of massprotests in Sudan, it appearedthat Omar al-Bashir had beenousted as president by thearmy. Mr al-Bashir had mis-ruled since taking power in acoup in 1989. His civil waragainst non-Muslim blackAfricans ended with the seces-sion of South Sudan. Separate-ly, the International CriminalCourt charged him with over-seeing genocide in Darfur.

Binyamin Netanyahu won arecord fifth term as primeminister of Israel. His Likudparty tied with Blue and White,a centrist rival. But the right-wing and religious bloc, ofwhich Likud is a part, won amajority of seats in the Knes-set. In the final days of thecampaign Mr Netanyahuvowed to begin annexing partsof the West Bank, further dim-ming the prospect of any peacewith the Palestinians based ona two-state solution.

Khalifa Haftar, Libya’s mostpowerful warlord, attackedTripoli, which is controlled bythe un-backed government.Dozens of people were killed inthe fighting, as militias alliedto the government rallied todefend the capital. A un peaceconference, scheduled for thismonth, was postponed.

Protests continued in Algeria,where crowds called for theresignation of AbdelkaderBensalah, the interim presi-dent. Mr Bensalah succeededAbdelaziz Bouteflika, whoresigned amid widespreadanger at his regime after 20years in charge. For the firsttime police used tear-gas todisperse the demonstrators.Mr Bensalah said the countrywould hold a presidentialelection on July 4th.

Fright nightTheresa May, Britain’s primeminister, attended a summit inBrussels to discuss anotherdelay to Brexit. The EuropeanUnion offered Britain six moremonths, pushing the deadlineto October 31st, Halloween.That means Britain faces hav-ing to vote in elections to theEuropean Parliament nextmonth, though British mepswill have to step down if Brexitactually happens. The presi-dent of the European Commis-sion, Jean-Claude Juncker,joked that if there was anotherlate-night meeting on the lastday of the talks he might haveto leave at midnight; his termends on November 1st.

Julian Assange, a founder ofWikiLeaks, was arrested byBritish police in the Ecua-dorean embassy in London.Ecuador had granted Mr As-sange refuge in 2012 after hehad jumped bail while facingrape allegations. His relation-ship with his hosts soured aftera change of government inEcuador, where a leftist presi-dent was replaced by a moremoderate one. Mr Assange hassaid he fears extradition to theUnited States, where Wiki-Leaks is not popular, havingpublished reams of leakedAmerican military secrets.

Turkey’s ruling partydemanded a fresh vote inIstanbul, where it narrowlylost the mayoralty in electionson March 31st.

Italy’s deputy prime minister,Matteo Salvini, announced theformation of a new nationalistgroup within the EuropeanParliament, to be called theEuropean Alliance for Peopleand Nations. However, none ofthe party leaders he hopedwould attend from other coun-tries turned up.

Throwing a curveballThe Trump administrationcancelled a four-month-oldagreement under which Cubanbaseball players could joinMajor League teams in Americawithout defecting from their

country. The administrationsaid the agreement wouldencourage human traffickingand help enrich Cuba’scommunist government.

Jair Bolsonaro, Brazil’s presi-dent, sacked the educationminister, Ricardo Vélez, whoshared his socially conserva-tive views. Mr Vélez had court-ed controversy by instructingschools to film classes singingthe national anthem andrepeating Mr Bolsonaro’scampaign slogan. His replace-ment, Abraham Weintraub, aneconomist, has said that crackcocaine was introduced toBrazil deliberately by the left.

Future backwardThanathorn Juangroongruang-kit, the leader of the FutureForward party, was chargedwith sedition in relation to aprotest against Thailand’smilitary junta in 2015. It is oneof several repressive steps thathas marred the country’s sup-posed return to democracyafter an election last month.

Kassym Jomart Tokayev,Kazakhstan’s interim presi-dent following the suddenresignation of NursultanNazarbayev after three decadesin power, called a snap electionfor June 9th.

South Korea’s constitutionalcourt ruled that the govern-ment must end the country’sban on abortion, in place since1953, before the end of 2020.Doctors can currently be im-prisoned if they perform theprocedure. However, tens ofthousands of abortions arecarried out each year.

Voting began in India’s seven-stage election. The final phasewill take place on May 19th andthe results for all seven stageswill be announced on May23rd. Polls suggest the rulingBharatiya Janata Party willremain the biggest party.

A court in Hong Kong foundnine people guilty of “publicnuisance” charges relating totheir leading roles in theUmbrella Movement of 2014,

which involved weeks of sit-ins and demonstrations inbusy commercial districts insupport of democratic reform.Among the defendants werethree founders of a groupinvolved in the unrest.

Immigration crackdownKirstjen Nielsen resigned asthe secretary of America’sDepartment of HomelandSecurity. Donald Trump istrying to replace the depart-ment’s top officials with peo-ple who will try harder to keepMexicans out of the UnitedStates. Mr Trump has threat-ened to close the border entire-ly, despite advice that thiswould cause economic chaos.

Randolph Alles, the head ofAmerica’s Secret Service, isquitting. He had reportedlybeen asked to go before therecent security breach at MrTrump’s private club, involvinga Chinese woman with severalthumb drives.

Amnesty International’s annu-al report on the death penaltyrecorded a drop of nearly athird in known executionsworldwide last year. Therewere 690 in 2018, down from1,061 in 2015. The number ofdeath sentences passed bycourts also declined slightly,though in the Middle East andnorth Africa death sentencesnearly doubled to 1,170. Theregion is responsible for two-thirds of the world’s knownexecutions. (China is alsothought to execute thousandsof people every year, but keepsits figures secret.) Of the coun-tries that release figures, Iran isby far the most avid execution-er, putting 409 people to deatheach year on average for thepast decade.

Less deadly

Source: Amnesty International

Global known executions

0

400

800

1,200

1,600

2009 11 13 15 18

Iran Others

10 The Economist April 13th 2019The world this week Business

Saudi Aramco raised $12bnfrom its first bond sale oninternational markets. Fivedifferent bonds were reported-ly sold in an offer that washeavily oversubscribed, withinvestors submitting $100bn inorders. Saudi’s state oil firmwill put the proceeds towardsits $69bn acquisition of thekingdom’s majority stake insabic, a chemical company, adeal orchestrated by the gov-ernment. The bond sale wentsome way to restoring in-vestors’ confidence in SaudiArabia following the murder ofJamal Khashoggi, a journalist,and an opaque crackdown ontop officials and businessmen.

Opening up a new frontAmerica ratcheted up its tradedispute with the EuropeanUnion, warning that it waspreparing a list of tariffs on$11bn-worth of eu goods inretaliation for subsidies givento Airbus, which the WorldTrade Organisation has ruledare illegal. The wto is yet todecide on the amount of tariffsthat America can impose onthe eu in light of that ruling,but Brussels says $11bn is anexaggeration. It is drawing upits own catalogue of Americanproducts that it will levy penal-ties on if Washington goesahead with its threat.

Airbus recommended RenéObermann to shareholders asits next chairman. Mr Ober-mann is a non-executive direc-tor on the aerospace company’sboard and used to run Deut-sche Telekom. GuillaumeFaury started his job as chiefexecutive at Airbus this week,succeeding Tom Enders.

Boeing’s share price fell sharp-ly, after it temporarily reducedproduction of its 737 aircraft bya fifth following two fatalcrashes involving the 737 max

8. Boeing said it wanted tofocus resources on updatingthe software for the 737 “toprevent accidents like thesefrom ever happening again”.

The imf forecast global eco-nomic growth of 3.3% thisyear, down from the 3.7% it had

projected back in October. Thefund highlighted the risks of ano-deal Brexit, estimating thatthe resulting border disruptionwould slice 1.4% off British gdp

in the first year and 0.2% fromthe eu’s.

Brexit bonus, or bust?Britain’s economy grew by0.3% in the three monthsending February comparedwith the previous threemonths. That was a bit fasterthan markets had expected.Manufacturing output inFebruary grew to its highestlevel since April 2008, prob-ably because firms were gear-ing up ahead of the originalBrexit deadline of March 29th.

The threat of protectionismwas one factor cited by theEuropean Central Bank as itreiterated its pledge not toraise interest rates in the eurozone until “at least” the end of2019 and to continue its mone-tary-stimulus programme. Theimf has downgraded its fore-cast for growth in the eurozone this year to 1.3%.

Debenhams, a British depart-ment-store chain, entered abankruptcy plan under whichthe business was taken over bycreditors, wiping out share-holders’ holdings. That in-

cludes Sports Direct, whichhad held a 30% stake.

Pinterest, one of a number oftech firms launching note-worthy stockmarket flotationsthis year, provided an initialprice range of between $15 and$17 a share for its ipo. Thatcould value the social-mediasite at somewhere around$11.3bn, less than the $12bn itwas reckoned to be worth byinvestors in 2017.

Uber also prepared its prospec-tus, ahead of its long-awaitedipo. The ride-hailing firm willhave noted Lyft’s flotation.Two weeks after its marketdebut, Lyft’s share price fell byalmost 11% in a day, to end up16% below the ipo price of $72.

In a surprise turn of events, thejudge hearing the trial of JohnVarley, a former chief executiveof Barclays, and three otherformer senior executives at thebank, discharged the jury. Themen faced allegations of fraudrelating to a deal with Qatariinvestors to shore up the bankin 2008, which they all deny.

Standard Chartered agreed topay more than $1bn to settleallegations with American andBritish regulators that it violat-ed sanctions on Iran and othercountries. It is one of the big-

gest fines to date levied on abank for busting sanctions.

Senior Republicans airedmisgivings about DonaldTrump’s desire to give HermanCain a seat on the board of theFederal Reserve. Mr Trump didnot formally nominate MrCain, a former Republicanpresidential hopeful and pizzamagnate, nor has he officiallyproposed Stephen Moore, alow-tax crusader. But bothpotential choices raise ques-tions about whether Mr Trumpwants to politicise the Fed.

Spaced outMr Trump, meanwhile,increased the pressure on theFed to cut interest rates, say-ing its monetary-tighteningpolicies had “really slowed”American growth. Pursuing apath of easier monetary policywould result in “a rocket ship”economy, said Mr Trump.

Leaders 11

Critics of economics like to say that its abstract theories lackreal-world pay-offs. There is a glaring counter-example: the

global rise of central-bank independence in the past 25 years. Inthe 1970s it was normal for politicians to manipulate interestrates to boost their own popularity. That led to a plague of infla-tion. And so rich countries and many poorer ones shifted to asystem in which politicians set a broad goal—steady prices—andleft independent central bankers to realise it. In a single genera-tion billions of people around the world have grown used to lowand stable inflation and to the idea that the interest rates on theirbank deposits and mortgages are under control.

Today this success is threatened by a confluence of populism,nationalism and economic forces that are making monetarypolicy political again. President Donald Trump has demandedthat interest rates should be slashed, speculated about firing theboss of the Federal Reserve and said he will nominate StephenMoore and Herman Cain, two unqualified cronies, to its board.Brexiteers rubbish the competence and motives of the Bank ofEngland, while in Turkey President Recep Tayyip Erdogan hasbeen in a tug-of-war with the central bank. India’s governmenthas replaced a capable central-bank chief with a pliant insiderwho has cut rates ahead of an election. And as we report thisweek, many top jobs at the European Central Bank (ecb), includ-ing the presidency, are up for grabs, and somecould become part of a wider political struggleover who runs Europe’s institutions (see Fi-nance section). There is a genuine need for re-flection on central banks’ objectives and tools.But dangerous forces are afoot that could havealarming consequences for economic stability.

The problem of politicisation last becameacute in the 1970s. After the post-war BrettonWoods currency system collapsed, central banks failed to tameracing inflation because politicians, who pulled the strings,were reluctant to bear the short-term cost of higher unemploy-ment. Two decades of runaway prices and crises led to a new or-thodoxy that central banks should be given operational autono-my to pursue an inflation target. In the euro zone, Japan andBritain central banks became legally independent in the 1990s.In America the White House refrained from even publicly dis-cussing Fed policy (see Free exchange). This consensus survivedthe crash of 2007-08 and is one reason why global inflation hasbeen only 4% a year on average over the past two decades.

The fraying of central banks’ independence has severalcauses. One is populism. Leaders like Mr Trump combine thepolitician’s desire for low interest rates with a reckless urge toundermine institutions. Another is the scope of central banks’activities, which expanded after the financial crisis. Most nowhold huge portfolios of government bonds while, at the sametime policing the financial industry. And the record of centralbanks is far from perfect. Because they have probably been toohawkish (despite their unconventional policies) the recoveryfrom the crisis has been slow, undermining voters’ faith in thetechnocrats whose loyalty is supposedly to the public interest.All this makes it easier to view them as political. Meanwhile, the

memory of the crises that led to independence has faded.Pressure is manifesting itself in different ways in different

places. Mr Trump has launched an attack on the Fed. Althoughhis legal authority to sack Jerome Powell, its chairman and aTrump appointee, is not clear, if he wins re-election in 2020 hewill be able to nominate a new Fed chairman and two more go-vernors. In Europe a flurry of job changes threatens to lower thecalibre of decision-making at the ecb and feed underlying dis-agreements. By the end of the year, three members of the six-strong executive board and eight of the 19 national governors,who also vote on rates, will have left. The most notable of these isMario Draghi, its head. His departure in October will happen al-most concurrently with elections and a change in leadership atthe European Commission and Council, a once-in-40-yearsoverlap. Behind the political game of revolving chairs is a battlebetween countries to control policy. Northern Europeans havebeen suspicious of the ecb’s bond-buying, seeing it as cover forsubsidising southern Europe. Rather than win by force of argu-ment, they are seeking an edge by getting their own people intothe top jobs. That will store up problems.

Perhaps global inflation will rise again from its grave, inwhich case weaker central banks may struggle to kill it off. Morelikely is an economic downturn. The world economy has decel-

erated this year—on April 9th the imf down-graded its forecasts. Central banks may findthemselves needing to pep up their economies.

This is what makes today’s politicisation sodangerous. Technocrats face a difficult chal-lenge. The rich world has hardly any room to cutinterest rates before hitting zero, so centralbanks will once again have to turn to unconven-tional stimulus, such as bond-buying. The Fed

and other central banks may also need to co-operate globally, asin the wake of the crisis. The ecb will have to convince marketsthat it will do whatever it takes to contain another financial pan-ic on Europe’s periphery. The presence of political appointees,who are either ill-qualified or northern European hawks, wouldmake all these tasks harder. It is not just that their votes count,but also that they would poison the public debate about whatcentral banks should and should not do to deal with recessions.

The talking cureIt is right that the objectives and tools of monetary policy aresubject to democratic scrutiny and that central bankers are ac-countable to legislatures. The Fed is reviewing its target in orderto be prepared for a downturn. Other central banks should followsuit. In the long run, this secures their legitimacy and hencetheir independence. Yet in today’s political environment it is na-ive to think that politicians really want a considered debate. In-stead, the more central banks are in the limelight, the more theywill find their month-to-month decision-making subject to ex-ternal pressure, or find themselves at the whim of boards packedwith hacks. It is just that sort of politicisation that the theoristsbehind independent central banks wanted to avoid. Look back40 years and you will get a flavour of what could go wrong. 7

Interference Day

Independent central banks are under threat. That is bad news for the world

Leaders

12 Leaders The Economist April 13th 2019

1

Make it official: henceforth, the Hebrew word for magi-cian is Bibi. This is not just because Binyamin Netanyahu,

Israel’s prime minister, appears to have won a record fifth termin office on April 9th. It is also because he pulled off the trick withcorruption charges hanging over him, and in the face of a toughchallenge from a new party packed with generals. Bibi, as he isknown, made some parties vanish by taking their supporters,and conjured more seats for his own Likud party. He may soonsurpass David Ben-Gurion, the country’s founding father, as Isra-el’s longest-serving leader (see Middle East & Africa section).

His victory has come at a cost. His potion—mixing muscularnationalism with Jewish chauvinism and anti-elitism—hashelped poison Israel’s politics. He claims he is innocent, blam-ing the charges against him on shadowy plotsand sowing distrust of institutions: the police,the judiciary and the media. Mr Netanyahu maydo yet more lasting damage. In the final days ofthe campaign he vowed to annex parts of theWest Bank beyond Jerusalem, something noprevious leader has thought prudent. This riskskilling any chance of peace based on a two-statesolution—which involves the creation of a Pal-estinian state—and of thus turning Israel into a rogue nation.

Fear not, say the optimists: Mr Netanyahu was just throwingout sweets to win over right-wing voters; he knows full well thatannexation of the occupied territories would breach interna-tional law, cause an outcry in Europe and alienate Arab statesthat have been moving closer to Israel.

The problem with this view is that it ignores the changing po-litical and strategic landscape. Mr Netanyahu must still form agovernment, which means making concessions to his likely al-lies on the right, who feel more strongly about annexation thanhe does. The prime minister’s legal troubles—he faces indict-ment on three cases of alleged corruption—leave him vulner-able. What will be the price when the Knesset considers a bill that

would shield him from prosecution? If it is annexation, the pro-cess may begin with Maale Adumim, a large settlement on theoutskirts of Jerusalem which the prime minister specificallypromised to bring under Israeli sovereignty. But as Mr Netanya-hu himself has said, it is unlikely to end there.

America’s role has changed, too. For decades its presidentsacted as a counterweight to Israeli annexationists (and gave cov-er to prime ministers fearful of standing up to them). PresidentDonald Trump, though, has taken America’s finger off the scales.He has emboldened the right by recognising Israel’s annexationof the Golan Heights, which it captured from Syria in 1967, andmoving the embassy to Jerusalem, a contested city. Mr Netanya-hu made good use of these moves in his campaign. Even if he

does not feel the need to go further by formallyannexing territory, there is nothing to stop thecreeping sort: the expansion of Jewish settle-ments and their infrastructure. That is happen-ing with barely a peep from the world, let alonethe divided Palestinians.

The Trump administration says it is about torelease a plan for the “ultimate deal” between Is-raelis and Palestinians. If this is to have any

hope of success, or even of starting a process, the president mustrule out unilateral annexation—whether or not the Palestiniansparticipate. If Israelis can grab land at a whim, they will have lit-tle incentive to negotiate. If Palestinians see parts of their futurestate taken away willy-nilly, neither will they.

In the end, Israel faces a stark choice. Jews and Arabs countroughly equal numbers between the Mediterranean and the Jor-dan river. So Israel cannot permanently hold on to all the landwithout sacrificing either its Jewish majority or the ideal of aproper democracy that does not discriminate against Arabs. Themore Mr Netanyahu abandons land-for-peace, the more thechoice will be annexation-for-apartheid. That dilemma is some-thing even Bibi cannot conjure away. 7

Bibi the conjuror

Binyamin Netanyahu is a remarkable political performer. America must stop his next trick

Israel’s election

America has more people, but not as many of them turn outto vote. India’s voters are conscientious and far more nu-

merous, but it divides its national elections into seven phasesspread over as many weeks, to make the process more manage-able. So April 17th, when Indonesia’s 265m people pick a presi-dent, parliament and regional assemblies, is likely to be the big-gest single day of voting in human history.

In the presidential race Joko Widodo, the incumbent, facesPrabowo Subianto, a former general, just as he did at the previouselection in 2014. Jokowi, as the president is known, is a small-businessman and former mayor from a mid-sized city who has

worked hard to improve the lives of poor Indonesians. He hasrolled out a national health-insurance scheme, pumped moneyinto education and broken ground on lots of new infrastructureprojects. Although he has not raised the growth rate to 7%, as hepromised, his focus—development—is the right one.

Mr Prabowo casts himself as a strongman, an unnerving pitchgiven that, as a general, he defended his father-in-law, Suharto,Indonesia’s dictator from 1967 to 1998. He promises to be more ofan economic nationalist than Jokowi, and to make Indonesiagreat again. He has courted radical Islamists, doubtless hopingto capitalise on false rumours spread by social media that the

The wrong way to win

The right candidate is in the lead, but democracy is looking frail

Elections in Indonesia

The Economist April 13th 2019 Leaders 13

1

2 president is a closet Christian or communist, a dangerous ployin the world’s biggest Muslim country. His election would be astep backwards for Indonesia’s 20-year-old democracy.

It is heartening, therefore, that most polls show Jokowi firmlyin the lead. But that does not mean, unfortunately, that Indone-sia’s democracy is healthy. For one thing, Jokowi has made him-self the front-runner in part by imitating some of Mr Prabowo’stactics (see Briefing). He has nationalised a big gold and coppermine, and boosted spending on wasteful fuel subsidies he hadpreviously cut. He has surrounded himself with generals withchequered pasts, such as Wiranto, who was head of the armedforces when East Timor voted for independence in 1999, prompt-ing militias backed by the army to go on a rampage that claimed1,400 lives. Jokowi has also shown scant regard for civil libertieswhen it suits him, standing by last year as the authorities foundexcuses to block lots of rallies by an opposition movement called“GantiPresiden” or “ChangePresident”.

Indonesians might have been inclined to change their presi-dent if they had more of a choice. But Jokowi’s party, pdi-p, andthe other big forces in politics have colluded to narrow their op-tions. To run for president, a candidate must have the backing ofparties with a fifth of the seats in parliament—a rule the presi-dent used to ensure Mr Prabowo was his only challenger. Thethreshold for parties to enter parliament has been steadily ratch-eted upwards over the years, from 2% of the national vote in2004 to 4% now. That is likely to trim the number of parties rep-resented from ten to six or even four. Not that parties mean that

much. After an election they all seek to join the president’s co-alition, in order to win plum ministries and thus be able to handout jobs and contracts to their allies.

In fact, the only real ideological cleavage in Indonesia is be-tween secularists and those who feel Islam should play a biggerrole in public life. It is in this sense that Jokowi’s record is mostdisappointing. When a close political ally, Basuki Tjahaja Pur-nama (Ahok), the governor of Jakarta, was maliciously accusedof blasphemy, Jokowi did not defend him. Instead he affectedgreater piety himself, praying with the protesters demandingthat Ahok should be put on trial. As his running-mate in the cur-rent campaign, Jokowi has chosen a conservative cleric who tes-tified against Ahok in court, helping condemn him to prison.The choice sends an appalling signal to the 12% of Indonesianswho, like Ahok, are not Muslim.

Jokowi’s instincts are secular. He has used his authority aspresident to ban one extremist group and thwart others. He is aheavy-metal fan; his wife does not wear a headscarf; his party ispopular with religious minorities. But he clearly does not feelconfident enough, despite his lead in the polls, to stand up to thezealots. The lesson they are learning from his tenure is that theycan get their way through bullying and intimidation. Most Indo-nesians, by and large, understand the distinction between pietyand intolerance perfectly well—and reflect that in their votes formoderate parties like the pdi-p. But their moderation will be tono avail if politicians, starting with Jokowi, are not willing tostand up for Indonesia’s long tradition of tolerance. 7

If spending is a measure of what matters, then the people ofthe developing world place a high value on brains. While priv-

ate spending on education has not budged in real terms in therich world in the past ten years, in China and India it has morethan doubled. The Chinese now spend 5% of household incomeon education and the Indians 4%, compared with 2.5% for theAmericans and 1% for the Europeans. As a result, private school-ing, tuition, vocational and tertiary education are booming indeveloping countries (see our Special report).

Since brainpower is the primary generator ofprogress, this burst of enthusiasm for investingin human capital is excellent news for theworld. But not everybody is delighted. Becauseprivate education increases inequality, somegovernments are trying to stop its advance.That’s wrong: they should welcome it, butspread its benefits more widely.

Education used to be provided by religious institutions or en-trepreneurs. But when governments, starting in Prussia in the18th century, got into the business of nation-building, they real-ised they could use education to shape young minds. As statesystems grew, private schooling was left to the elite and the pi-ous. Now it is enjoying a resurgence, for several reasons. In-comes are rising, especially among the better off, at the sametime as birth rates are falling. In China the former one-child poli-cy means that six people—two parents and four grandparents—

can pour money into educating a single child. The growth of theknowledge economy means that the returns to education are ris-ing at the same time as the opportunities available to those with-out any schooling are shrinking.

All over the developing world, people want more or bettereducation than governments provide. Where cities are growingat unmanageable speed, the private sector is taking up the slack.In India the private sector now educates nearly half of all chil-

dren, in Pakistan more than a third, and in bothcountries the state sector is shrinking. Evenwhere the state does pretty well, as in East Asia,richer people still want better schooling fortheir children than the masses get. Thus Viet-nam, which has an outstanding state-schoolsystem for a poor country, measured by its per-formance in the oecd’s pisa test, also has thefastest-growing private sector.

In most ways, this is an excellent thing, because the world isgetting more, and better, schooling. In rich countries, once thebackground and ability of the children who attend privateschools are taken into account, their exam results are about thesame as those in the state sector. But in developing countriesprivate schools are better—and much more efficient. A study ofeight Indian states found that, in terms of learning outcomes perrupee, private schools were between 1.5 times more cost-effec-tive than state schools (in Bihar) and 29 times (in Uttar Pradesh).

A class apart

Governments should celebrate the boom in private education, not suppress it

Private education

EducationConsumer spending, real terms2000=100

100

0

200

300

400

2000 05 10 15 18

World

China

India

14 Leaders The Economist April 13th 2019

2 But private schools also increase inequality. They tend to sortchildren by income, herding richer ones towards better schoolsthat will enhance their already superior life chances and poorerones towards shoddy establishments that will further under-mine their prospects. That is one reason why many governmentsare troubled by their rise. Other reasons are less creditable:teachers’ unions, which often have a hold over governments,tend to oppose them, and their growth reduces politicians’ pow-er. So for good and bad reasons, governments are squeezing priv-ate schools, banning profits, cutting or capping fees, and usingregulations to close them or make their life difficult.

Governments are right to worry about private education’scontribution to inequality, but they are wrong to discourage itsgrowth. The freedom to spend your money on improving yourchild’s potential is a fundamental one. Whether governmentsformally allow it or not, people will find ways of buying privateeducation, by tutoring children out of school or bidding up theprice of property near good state schools.

Governments should instead focus on improving the publicsector by mimicking the private sector’s virtues. Freedom from

union power and independent management are at the root of itssuperior performance and greater efficiency. Governmentsshould therefore do their best to weaken unions and give schoolprincipals more autonomy to innovate and to fire underper-forming teachers.

To spread the benefits of private schools more widely, govern-ments should work with them, paying for education throughvouchers which children can spend in private schools, or payingprivately managed schools to educate publicly funded children.These schemes do not always succeed, but Chile, Pakistan andthe Netherlands have all demonstrated that big, properly de-signed and managed voucher systems can work well. Children inChile, whose entire system is voucher-based, do better than inany other Latin American country for which the oecd collectsdata. But vouchers should be limited to non-selective schoolsthat do not charge top-up fees; otherwise governments will findthemselves subsidising the better off and increasing inequality.

The world faces plenty of problems. Governments shouldstop behaving as though one of them was private education. Itwill, rather, increase the chances of finding solutions. 7

For most of human history, sending money across bordershas cost the earth. Thankfully for globetrotters and e-shop-

pers in the rich world, that has changed in the past decade. Ashift from cash and travellers’ cheques towards digital paymentshas cut the cost of moving funds around. And a new generationof fintech firms has broken the stranglehold that big banks usedto have on money transfers (see Finance section). As a result, feeshave fallen. The cost of a transfer between consumers or smallfirms who are both in g7 countries can now cost 2% or less. Thisyear some $10trn will pass across borders. As prices fall further,the sums will grow.

Yet one corner of this industry remains trapped in a dustytime warp: remittances, or the practice of for-eign workers sending money to relatives backhome. There the costs are still sky high, at about7%. That matters. The sums involved are vast—$550bn of remittances will go to developingcountries this year, more than all the capitalthey receive as investment from multinationalcompanies, says the World Bank. There are266m migrants, who often send money home.Many of them are poor, and so are almost all their relatives.

Remittances cost the earth for several reasons. Typically atleast one leg of the journey still involves physical cash—either inthe “first mile”, when a construction worker or waiter hands overhard-earned banknotes to a specialist transfer firm or to a bank,or the “last mile” on the other side of the world, when the cash ishanded over to their families, who lack bank accounts. Thesevast networks are expensive to maintain—Western Union, a 168-year-old transfer firm, is able to send cash to, or pick it up from,over half a million physical sites around the world.

High fees also reflect anti-competitive behaviour and a grow-ing thicket of Western money-laundering rules which are meant

to police al-Qaeda barons, but which have ended up being anightmare for expatriate Filipina maids. In combination, thesetwo forces are strangling new entrants. Between 2011 and 2015,when the industry saw a brief flurry of startups, average remit-tance fees fell by 17%. But in 2016 the number of startup launchesfell by half compared with the year before. Fees have since lev-elled off.

To prod remittances into the 21st century, two things need tohappen. In the short term governments in the developing worldneed to help unleash competition. Sometimes the big firms thatdominate cash transfers, such as MoneyGram and Western Un-ion, have exclusive partnerships with state-run bodies that have

a dominant role in the first or last mile. For ex-ample, post offices that receive payments are of-ten contractually committed to using a singletransfer firm. Deals that lock out rivals shouldbe banned. Governments in the rich world needto devise their money-laundering rules withcompetition in mind. Simple adjustmentscould lower the burden of compliance thatstartups face. For example, fintechs could be re-

quired to track every 20th transaction falling below a definedthreshold, instead of every last one of them.

In the long run the answer to the remittances puzzle is a shiftaway from expensive cash-based systems and a bypassing ofbanks and transfer firms altogether. This could yet happen.Across Africa, Asia and Latin America hundreds of millions ofpeople are using e-commerce and transport applications on mo-bile phones that typically have payment systems and digital wal-lets, too. Entrepreneurs and tech firms are working out how tostitch all these local networks together. In time, perhaps, send-ing $200 from the rich world to the emerging one will cost al-most nothing and the payments revolution will be complete. 7

The migrants’ migraine

Too much of the money they send home evaporates en route. How can costs be driven down?

Cross-border payments

Cost of sending money homeAverage cost for equivalent of $200, %2018 0 2 4 6 8

Banks

Traditional money-transfer firms

Financial technology firms

18 The Economist April 13th 2019

Letters are welcome and should beaddressed to the Editor atThe Economist, The Adelphi Building,1-11 John Adam Street, London WC2N 6HT

Email: letters@economist.comMore letters are available at:Economist.com/letters

Letters

NATO at 70Your special report on nato

(March 16th) did not explainthe cause of the tension be-tween Russia and the threeBaltic states—Estonia, Latviaand Lithuania. Ethnic Russiansmake up a large chunk of theBaltic population, but theyfound it difficult to attaincitizenship there after thecollapse of the Soviet Union. It was only after Russia an-nexed Crimea that the proce-dure for ethnic Russians toapply for citizenship in theBaltics became easier. More-over, Russia has an under-standing that no large nato

forces can be permanentlylocated in east Europe, and thatneither Ukraine nor Georgiacan be admitted to the organi-sation in the near future.rudolf budesky

Anchorage, Alaska

There is surely another view ofnato. After the fall of the Sovi-et Union the West should havedisbanded the alliance andsought co-existence and eco-nomic co-operation as the pathto a future good relationship,rather than perpetuate con-frontation. This would havebeen a healthier policy foreastern Europe, recognisingthat many ethnic Russians livein border countries. The Ger-mans have perhaps seen this.

We do have commonobjectives with Russia, such ascombating Islamic terrorismand establishing peace in theMiddle East. Our militaryspending could be more target-ed on contemporary problems,not past enemies. DonaldTrump has delivered somehome truths and should makeEuropeans realise that we donot have as much in commonwith America as was thought.Nor should we always rely onor follow its strategy.peter langworth

London

Missing from your specialreport is any discussion of thereal purpose of nato today.When the Soviet Unionimploded, the Warsaw Pact wasabolished, so that nato

became obsolete. The whole

nato “drive to the east” onlycaused a rational Russianresponse—their own bigexpansion of armed forces ontheir western border.hendrik weiler

Port Perry, Canada

Low-yield warheads are not aviable solution in any strategicnuclear-weapons system. ATrident launch looks like aTrident launch. How wouldany adversary be expected toknow the warheads were set ata low yield? Any launch wouldlook like an attack.

A conventional-warheadprogramme for Trident II wasexplored by America, butshelved. It proposed that strictprotocols and communica-tions with potential adversar-ies would be used to ensurethat this was a conventionalstrike. But the potential formisunderstanding was toogreat. Introducing a low-yieldwarhead increases the likeli-hood of a counter-strikestrategic system.paul tremlett

Ipswich, Suffolk

nato is doing an excellent jobat its core mission: dissuadingattacks against its members. Inan increasingly turbulentworld, it should extend thatsecurity umbrella by incre-mentally opening membershipto all democracies. The biggeopolitical realignment of the21st century should be analliance between nato andIndia, Brazil, South Africa andother non-Western democ-racies, requiring compromiseson both sides.didier jacobs

Vice-presidentCoalition for a World SecurityCommunityRockville, Maryland

Looted artefactsA teacher of mine once notedabout the Elgin Marbles thatthe story of their acquisitionand the controversy that fol-lowed is now part of theirhistory, making them morefamous than they might havebeen otherwise (“Culturevultures”, March 30th). Thecase for cultural repatriation

may have as varied and sub-jective an answer as the historyof each object considered.nicholas monahan

Washington, DC

Recovering RwandaYou purport to assess the pro-gress of healing in Rwandaafter the genocide, but end uprehashing the past vilificationof President Paul Kagame andthe government (“We’re justone happy family now, aren’twe?”, March 30th). To yourcredit, you acknowledge thatthe Genocide Against the Tutsi(its correct name) did happenand that, since it ended, therehave been efforts to heal andrebuild the country.

The fact is that Rwanda hasbeen restoring its nationalidentity, which was destroyedover many decades. The Geno-cide Against the Tutsi in 1994was the culmination of manyyears of a politics of exclusionand division, and did not startwith the downing of PresidentJuvénal Habyarimana’s plane.That was merely an excuse tointensify and complete a pro-cess that had begun in 1959.

The restoration of Rwan-danness is succeeding. Rwan-dans define themselves bytheir nationality, not by animposed ethnic tag. We stressunity, not division. Theprogress the country has made,both at home and abroad, isevidence of this.

You acknowledge the enor-mous contribution that Presi-dent Kagame has made to thecountry’s recovery. He did sonot as a Tutsi but as a patrioticRwandan. To suggest that heheads a predominantly Tutsiregime discounts the workRwandans have been doingthese past 25 years. Moreover,Rwanda will not unravel whenPresident Kagame is no longerin power. Rwanda is healingand on the road to prosperity.emmanuel ruhumuliza

Rwandan High CommissionLondon

Rwanda is succeeding impres-sively in overcoming itsgenocidal history, but neitherthe push for democracy norpromoting a sense of national

identity will consolidate thegains and consign the demonsof ethnic tension to history. Amental-health survey fromRwanda’s Ministry of Health in2018 showed that genocidesurvivors suffer a higher preva-lence of depressive disorders,post-traumatic stress, panicand drug abuse than thepopulation as a whole. Recentresearch also shows thattoday’s young experience agreater sense of trauma aboutthe genocide than those whoactually experienced it.

Significant progress isbeing made in mental health.Among those who survived theRwandan genocide, suiciderates have declined by 10%thanks to psychosocial traumahealing at the grassroots level.More support for mentalhealth and peacebuildingtailored to the needs of indi-vidual communities is neededif Rwanda is to become a coun-try at ease with itself. simon gimson

Vice-presidentInterpeaceGeneva

Happiness is a warm gunIf my 64-year-old memoryserves me correctly, I believethat it was love, not“happiness”, that money couldnot buy and about which theBeatles “philosophised”(Graphic detail, March 23rd).stephen kay

Sillans-la-Cascade, France

You note that “Philosophers…have argued that money doesnot buy happiness.” Six de-cades ago, in his seminar oneconomic thought, ProfessorJacob Viner of PrincetonUniversity wryly noted that“none of this literature waswritten by poor people.”paul wonnacott

Former member of the Councilof Economic AdvisersMiddlebury, Vermont

The Economist April 13th 2019 21

1

In what was once a roadside food stall inKampung Baru, a village in eastern Java, a

group of housewives is preparing food for awedding. One shaves the last morsels ofmeat from a chicken carcass. Anotherchops vegetables while keeping an eye on ahuge bubbling wok. Between chores, theyhappily answer questions about politics.Life in the village is slowly improving, theysay. The main road has been paved and wid-ened. One says a new health-insurancescheme has helped her pay for cold andcough medicine. Another cites a govern-ment programme which lets her get text-books for her children. When asked whothey credit with such changes they ex-claim—with gleeful screeches— “Jokowi!”

Jokowi is the cognomen of Joko Wi-dodo, Indonesia’s president since 2014. OnApril 17th, at the age of 57, he will be up forre-election in polls that will also see 187mvoters—the third largest electorate in theworld—choose between 245,000 candi-dates for over 20,000 national, provincialand local offices. The election commission

has had to design 2,593 ballot sheets for thevarious combinations of contest across thecountry. Once these have been filled in—and 99 tonnes of ink has been used to markvoters’ fingers—ballot boxes from 810,283polling stations will be taken off for count-ing by motorbikes weaving through thetraffic jams of Jakarta; by speedboats on thewinding rivers of Kalimantan; by woodenwater-taxis in the Riau Islands; by planesin the highlands of Papua; and by horses inthe poorer parts of East Nusa Tenggara.

Jokowi’s rival for the top job is PrabowoSubianto, a retired general and fiery popu-list ten years his senior. In this sense, theelection is a re-run of the presidential raceof 2014, when the two men competed tosucceed Susilo Bambang Yudhoyono, an-other former general and the first presidentto be elected by a direct vote after 40 yearsof authoritarian rule by strongmen werebrought to an end in 1998. Jokowi’s victoryin that contest made him the country’s firstleader from outside its political, religiousor military elite.

This time opinion polls give Jokowi a20-percentage-point lead. But if the resultlooks likely to be the same as last time, themood of many onlookers has changed. Jo-kowi came to power on a wave of opti-mism. He was seen as a breath of fresh air, aliberal-minded reformer, a pragmaticachiever and a paragon of secularism. InIndonesia, where about 88% of the popula-tion is Muslim, religion and politics havemade violent bedfellows; the separatiststruggle in the province of Aceh, whichcame to an end in 2005, was underpinnedby religious divisions. A Muslim who didnot campaign as one, like Jokowi, seemed awelcome harbinger of change.

As the housewives of Kampung Baru at-test, Jokowi has done quite a lot of what hepromised last time round. In the capablehands of Sri Mulyani Indrawati, the financeminister, the economy has remainedstrong. It has not grown at the 7% Jokowipromised five years ago, but steady 5%growth was enough to see Indonesia’s gdp

surpass $1 trillion in 2017. The economy isnow bigger, on a purchasing-power-paritybasis, than that of Brazil or Britain; gdp perhead is twice that of India.

But as Jokowi has tried to ensure re-election over the past two years the quali-ties that seemed impressive five years agolook tarnished. He is increasingly close tothe army, happy to make common causewith hardline clerics and willing to sup-press some of the opposition.

A reformer reduced

E A ST J AVA A N D J A K A RTA

President Joko Widodo is in a strong position ahead of the election. But in gettingthere he has had to make some worrying compromises

Briefing Indonesia’s election

22 Briefing Indonesia’s election The Economist April 13th 2019

2

1

Such tendencies are nothing new to In-donesia. Sukarno, the country’s first presi-dent, having overseen an unstable parlia-mentary democracy in the 1950s, relied onthe army to back a regime of “guided de-mocracy” from 1957 onwards. In 1965 thearmy used a failed coup, blamed on theCommunists, to tighten its grip on power.Hundreds of thousands died in the anti-Communist purge that followed, afterwhich Sukarno was replaced by General Su-harto, a kleptocrat. Suharto was at onepoint estimated to be the sixth-richest manin the world. The land owned by compa-nies linked to his family was said to cover atenth of Indonesia. His friends did prettywell, too.

New roads...Part of Jokowi’s initial appeal was that, in acountry where corruption is still endemic,he looked sleaze-free. His time as mayor ofSolo, a mid-sized city in Java, and then asgovernor of Jakarta gave him a reputationas a reforming fixer and an honest man ofthe people. That is still how he is seen.

In those days his signature move wasblusukan: dropping in impromptu on idlecivil servants or on ordinary Indonesianskeen to talk about their concerns. The toneof those powwows seems to have informedhis choices as president. The two biggestpolicies of his tenure have been aimed atimproving the lives of rural Indonesians,who make up half the population.

The first is building much-needed in-frastructure. Decades of under-investmenthave left roads potholed, ports clogged andtraffic unbearable. Jokowi came to powerwith a plan to spend $323bn (32% of gdp)over seven years on 3,258km of railways,3,650km of roads, new airports, seaportsand power plants. The government onlygives vague indications as to the status ofthese projects, but some big ones came tofruition just in time for the election. Jakar-ta’s mass-rapid-transit system, delayed fordecades, opened in April. In December Jo-kowi opened the Trans-Java toll road, onwhich construction started in the 1980s.

There are few things ordinary Indone-sians care more about than roads. Sari, anoctogenarian who runs a café close to Kam-pung Baru, says that new roads have helped“touch the most remote places” in the dis-trict. Farmers can get their crops to marketwithout worrying about the food perish-ing. Victoria, a teacher in a rural part of Ka-limantan, Indonesia’s chunk of Borneo,waxes lyrical about the highway that easesthe journey from her school to the nearesttown, saying it has encouraged more of herpupils to apply to university. She calls it“Jokowi’s road”.

Previous attempts to meet the demandfor infrastructure failed in part becauselandowners could and did tie up every pro-ject in lawsuits. In 2013 the government

went so far as to study the feasibility of put-ting large parts of a Trans-Java highway oncauseways off the coast to avoid such suits.Jokowi spent considerable political capitalon new laws that allow the government toforce landowners to sell their property forpublic infrastructure projects.

Jokowi has also tried to boost infra-structure spending by other branches ofgovernment. He has implemented andchampioned a law passed under Mr Yud-hoyono which sends government moneydirectly to village leaders, bypassing dis-trict heads who are often corrupt and likelyto steal it. In 2018 these payments reached$4bn (or 2% of total government spending)split across 75,000 villages. There is no reli-able third-party assessment of how wellthis has been spent. Village heads are notimmune to corruption; many lack admin-istrative skills, some basic competence.But there do seem to be a fair few roads andbridges being built.

As well as splurging on growth-boost-ing infrastructure, Jokowi’s administrationhas cut red tape. The World Bank’s ease ofdoing business rankings saw Indonesiarise from 120th in 2014—between Swazi-land and Jordan—to 73rd in 2019—betweenMongolia and Greece. But his biggest policypush has been a series of programmes de-signed to reduce poverty. These includebetter-targeted and more-generous bene-fits for the poor as well as enlarging school-scholarship programmes. The most popu-lar is an expansion of basic health insur-ance. The number of people this covers hasincreased from 131m in 2014 to 205m in2019, says Aji Budi, a public-health expertat the Jenderal Soedirman University incentral Java. Out-of-pocket payments as ashare of total health spending droppedfrom 65% to 50% over the same period.

There are substantial shortcomings tothe policies. In most remote places accessto health care is limited and the quality ofservices is shoddy. Progress on many infra-structure projects has stalled. But life

seems to be getting better for poor Indone-sians. The poverty rate, which declinedquickly between the end of the dictator-ship in 1998 and 2013 but then stalled, isfalling again. It dropped by four-fifths of apercentage point between 2017 and 2018,the biggest one-year fall since 2010. Thatpleases Jokowi: poverty reduction is thething he truly cares about. And it helps inthe polls. Jokowi’s support is strongestamong rural Indonesians and those on thelowest rungs of the income scale.

But despite a stable economy and manypopular policies, his re-election campaignhas demonstrated a trimming and cynicalside of Jokowi hitherto unseen.

...new tollsOne of the welcome policies in his firstyears was to cut energy subsidies; that pro-duced some of the room for the expandedinfrastructure budget. Last year some ener-gy subsidies rose back up again; the infra-structure budget was trimmed a bit. Civilservants got a pay rise, too. That might havemade sense if it had been coupled with thedrastic reform that the corrupt bureaucracyneeds. It wasn’t.

Jokowi has also become more of an eco-nomic interventionist. In December he fi-nalised the nationalisation of Grasberg, theworld’s largest gold mine and second-larg-est copper mine, previously owned byFreeport-McMoRan, an American firm,and Rio Tinto, an Anglo-Australian one.“Reclaiming national resources” in thisway was popular at home, but it may wellmake foreigners unwilling to invest in thecountry in years to come. A few months lat-er he told Garuda, the state-owned airline,to cut prices by a fifth, then ordered Perta-mina, a state-owned oil and gas firm, tolower the price of jet fuel.

The president has been using dodgy tac-tics to make life harder for his critics. Lastyear the police blocked over 20 marches or-ganised by 2019GantiPresiden, an opposi-tion movement, citing incorrect per-

Living with legaciesIndonesia, GDP, % change on a year earlier

Sources: Haver Analytics; The Economist *President since 1967

-15

-10

-5

0

5

10

Freeelectionsheld

Protests topplepresident

Asianeconomic

crisis Former generalwins first directpresidential election

East Timorbecomesindependent

Suharto dies

Reduction infuel subsidiessparks violentprotests

Earthquake and tsunami kill over 4,000Tsunami killsover 130,000

Bali bombings kill 202 people

Ahok, Jakarta’sgovernor, jailedon trumped-upblasphemycharges

Indonesian prosecutorsfile a civil suit againstSuharto

Parliamentdismissespresident inpower struggle

95 2000 05 10 15 18

PRESIDENTHabibieSuharto* Wahid Megawati Yudhoyono

Jokowi

24 Briefing Indonesia’s election The Economist April 13th 2019

2 mits—an objection rarely if ever raisedagainst rallies by pro-government activ-ists. Since January several prominent op-position figures have been arrested onflimsy charges. Thomas Power of the Aus-tralian National University notes whatseems to be a tactical use of prosecutionsby the attorney-general, an ally of Jokowi.In 2017 Hary Tanoesoedibjo, a media mogulwho had been supporting Jokowi’s oppo-nents, found himself faced with decade-old tax-fraud charges. Mr Tanoesoedibjo’smedia assets switched their allegiance toJokowi; the case went no further. Districtgovernors and city mayors are being simi-larly cajoled.

Faced with an adversary who has veryclose links to the army, Jokowi has beefedup his own position, bringing several Su-harto-era generals into his inner circle. Inspeeches he has encouraged soldiers tochampion government policy and crackdown on those who spread false informa-tion about him online. In February hetoyed with reinstating a policy reservingcivil-service jobs for veterans—a move thegenerals favour both because a lot of super-annuated senior officers need jobs and be-cause having brother officers thus installedincreases their power. As yet, though, hehas not gone through with it.

Perhaps the biggest reversal has beenJokowi’s seemingly effortless embrace ofconservative Islam. Indonesian electionsoften descend into piety contests. In 2014the opposition camp harped on about Jo-kowi’s secular approach as a weakness, ar-guing that he was not devout enough andspreading rumours that he was a closetChristian. This put him on the back footenough for him to fly off to Mecca in a showof devotion two days before the poll. But itdid not seem to change his politics.

This time around Jokowi is taking no

chances. In August last year he choseMa’ruf Amin as his running mate. MrMa’ruf is the head of Nahdlatul Ulama, aMuslim organisation that claims 50mmembers, and the chairman of the coun-try’s main clerical council. He aspires tosee sharia (Islamic law) enforced across In-donesia; he is in favour of banning homo-sexual acts and minority Muslim groupswhose beliefs offend him.

Winner takes a lotIt is unclear what powers would be be-stowed on Mr Ma’ruf if Jokowi wins; therole of vice-president is only vaguely setout in the constitution. But his appoint-ment has added further credence to theview that Jokowi has little interest in de-fending minorities. This indifference wasclearly displayed in 2016 when he failed toreprimand senior government officials forwhipping up homophobia, restrictinghimself to vague calls for tolerance sixmonths later.

In the same year Basuki Tjahajha Pur-nama, known as Ahok, a popular governorof Jakarta who had been Jokowi’s deputy,was falsely accused of insulting the Koran.After huge protests he lost an election andwas jailed for blasphemy. Jokowi said noth-ing. Again, he acted only later, when thegovernment arrested some religious lead-ers and banned Hizbut Tahrir Indonesia, ahardline but non-violent Muslim groupwhich had been involved in the protests.After that he sought a level of conciliation.Hence his pact with Mr Ma’ruf—who testi-fied against Ahok at his trial.

Those shocked by these events need toconsider that Jokowi was misunderstoodfrom the outset. Many, especially outsideIndonesia, assumed that a politician in fa-vour of reform and development wouldfight for liberal values, too. But Jokowi is a

conservative man in various ways, and veryrisk averse. During his rise his undoubtedpolitical nous and good fortune meant thathis power and popularity were rarely chal-lenged, allowing this side of him to remainuninspected. The strains of the presidencyhave laid it bare. As Kevin O’Rourke, a polit-ical analyst, puts it: “He hoards politicalcapital and doesn’t spend much of it.” Hewill invest it when he has to, but if he cangive a bit of ground to generals or clerics toget the same electoral effect that wouldseem to suit him just fine.

His popularity has rubbed off on hisparty, the Indonesian Democratic Party ofStruggle. It won 19% of the popular vote in2014 to become the biggest party in parlia-ment, and now looks set to do even better.This is not all Jokowi’s doing, though. Thecoincidence of the presidential and legisla-tive elections helps, too. Parties with presi-dential candidates get free media coverageand thus a boost in the polls. Mr Prabowo’sGreat Indonesia Movement Party, or Gerin-dra, is enjoying a similar bump.

This worries the country’s smaller par-ties—including those in Jokowi’s coalitiondispirited by his lack of reforming zeal andauthoritarian drift. The threshold for get-ting seats in parliament was just 2% of thepopular vote in 2004; it is now 4%. Withthe biggest parties increasing their share,some small ones could be edged out.

There is a risk of a cosy cartelisation ofpower in the big parties, a risk made worseby ever higher barriers to entry for new par-ties. Because of fears about separatism theelectoral rules written in 1998 were de-signed to disqualify purely regional out-fits; national parties had to have officers inhalf or more of the country’s provinces, andin half or more of the districts within thoseprovinces. The threat of separatism has re-ceded, but the barriers to new parties havegrown yet higher. They must now havechapters in all provinces, three-quarters ofdistricts and half of sub-districts.

The gap between what was hoped for in2014 and what Jokowi has achieved is badnews for Indonesia. If, as looks likely, hewins a second (and, owing to term limits,last) term, it will be defined by the compro-mises he made to do so. Back-scratching isessential to Indonesian politics, and thehardline Islamists and military generalsthrough whom he has broadened his sup-port will no doubt be feeling itchy.

Moreover, welcome though poverty re-duction is, it is not the only reform thecountry needs. During the latter five yearsof his time in power, Mr Yudhoyono soughtout stability and consensus at the cost ofgenuine change—which was one of the rea-sons Jokowi won in 2014. He may now beon course to do the same. When he came topower, many saw in Jokowi Indonesia’sbright future. Now he is looking overshad-owed by its past. 7The wrong direction

The Economist April 13th 2019 25

1

It has long been obvious that TheresaMay is not in charge of much. The prime

minister has limited control of Parliament,her Conservative Party or even her owncabinet. And she has even less sway overthe European Union, as became clear in an-other eu Brexit summit on April 10th.

Mrs May had asked European leaders toput back the Article 50 Brexit deadline—originally March 29th, later extended toApril 12th—until the end of June. As whenshe made a similar request three weeksago, her wishes were largely ignored. Overa long dinner without her, the leaders ofthe eu’s 27 other countries decided insteadto extend the deadline to October 31st, witha review of progress in June.

Another delay to Brexit was a foregoneconclusion. Nobody beyond the Tory partyfringes seriously backed the alternative ofBritain crashing out now with no-deal. Es-pecially important to the eu 27 were theviews of Leo Varadkar, the Irish taoiseach,whose country would suffer most from ano-deal Brexit and who wanted a long Arti-cle 50 extension. Even if eu leaders werefed up with Mrs May, nobody wanted to

override Mr Varadkar. Yet getting agreement was not easy. Sev-

eral leaders favoured a longer extension ofup to a year, if only to avoid being asked re-peatedly to agree to a series of short ones.But Emmanuel Macron, the French presi-dent, argued for a short deadline to in-crease the pressure on Britain to make upits mind. A longer delay might only givemps in Westminster more time to quarrel,rather than agree on a form of Brexit theycould support. The eventual compromisewas to offer another six months, meaningBritain is due to leave on Halloween.

What might be achieved during this

period? mps have already rejected the draftBrexit deal three times. eu leaders are cate-gorical that the withdrawal agreement,which includes the unpopular Irish back-stop to avert a hard border in Ireland, can-not be changed. Indeed, they have madeclear that, even after a no-deal Brexit, thiswould be a precondition for a future tradedeal. But they would happily change thepolitical declaration about future relationsin order to soften Brexit, perhaps adding apermanent customs union or even mem-bership of the single market.

Like many in Westminster, Europeanleaders are sceptical that the recently be-gun talks between Mrs May and the Labouropposition leader, Jeremy Corbyn, willyield an agreement. And, after watchingtwo rounds of indicative votes in Parlia-ment, they also doubt there is a clear ma-jority among mps for any alternative ver-sion of Brexit. Yet despite these doubts,they felt it was better to kick the can downthe road for another six months than have afull-blown crisis now.

A bigger concern was what to do with aBritain that will now be a member for lon-ger than planned. One difficulty is theEuropean Parliament elections that are dueat the end of May. Yet although Mrs Mayhad previously resisted the notion thatBritain might participate (“What kind ofmessage would that send?” she asked in atelevised address only three weeks ago),this time she quickly conceded that itwould. Jean-Claude Juncker, the EuropeanCommission’s president, called such an

The Brexit summit

Trick or treat?

B RU S S E LS

The European Union has allowed Theresa May to delay Brexit until October 31st.She may not even be prime minister by then

Britain

26 Internet policy

28 Chinese students and the LSE

29 Far-right extremism

29 Council housing’s comeback

30 Muslim Birmingham

Also in this section

— Bagehot is away

26 Britain The Economist April 13th 2019

2 election “curious”, which indeed it will be.But fears that British voters might electmaverick meps are partly assuaged by theknowledge that so will those of many othercountries.

More worrying is the notion that Britaincould disrupt the eu’s everyday businessby using its veto, as some Brexiteers haveproposed. The eu summit sought assur-ances from Mrs May that she would act re-sponsibly. But the real fear is over her owndurability. After all, last month she toldParliament that she could not as primeminister accept any delay in Brexit beyondJune 30th. In Brussels Mrs May defendedherself over this by repeatedly saying that,if Parliament would only agree, Britaincould still be out by then.

Yet her vulnerability and her lost au-thority are obvious to all—as is the plottingamong Conservative mps over the succes-sion. Her own ministers have begun to talkopenly about who might make the bestcandidate. The Tories are likely to do badlyin local elections on May 2nd and worsestill in the European ones on May 23rd,which will only increase the pressure onthe prime minister to quit.

Till May be outThe concern in the eu is that any plausiblesuccessor as Tory leader will be a hard Brex-iteer such as the former foreign secretary,Boris Johnson. Any new prime ministerwould doubtless be constrained by thesame forces that have boxed in Mrs May.But a more hardline prime minister mightbe readier to contemplate a no-deal Brexit,perhaps after holding and winning anothergeneral election. The eu may have foundMrs May tiresome, but it is aware that hersuccessor could be worse.

The deeper point is that Britain is stillsplit down the middle. There is little sign ofagreement between or even within themain political parties. Some revealing evi-dence emerged at two separate events inLondon on April 9th. A rally to promote asecond referendum on the deal, which in-cluded several Tory mps, loudly demonisedboth Mr Johnson and his fellow Tory Brexi-teer, Jacob Rees-Mogg. Meanwhile a meet-ing of the hardline Eurosceptic BrugesGroup was not only denouncing Mrs Mayas a traitor, but also expressing hostility toMr Johnson and Mr Rees-Mogg for belated-ly backing her deal. The atmosphere wasmore of a revolution consuming its ownthan of emerging consensus.

The biggest fear of all in Brussels thisweek may not have been about Mrs May’sweakness or even about her successor. It isthat even in October Britain will still be un-able to make its mind up. And as DonaldTusk, the European Council president,conceded after the meeting, that couldmean more late-night summits to discussfurther Article 50 extensions. 7

In the spring a government’s fancyturns to thoughts of internet regulation.

This month alone, Singapore announced abill to clamp down on fake news, Taiwansaid it would ban Chinese-owned video-streaming services and Australia rushedthrough its parliament a Sharing of Abhor-rent Violent Material bill, which amongother things seeks to hold tech-companyexecutives personally liable for failingswiftly to take down offensive content.

On April 8th the British governmentpublished a 102-page policy paper outlin-ing how it thinks internet regulationshould work to reduce what it awkwardlycalls “online harms”. It is enormous inscope and hugely ambitious, encompass-ing any company that allows people “toshare or discover user-generated contentor interact with each other online”. Thatwould include not just big social networksbut also community forums, review sites,dating apps and much else. The harms cov-ered are similarly extensive, from terroristmaterial and child abuse to more subjec-tive things such as trolling and disinforma-tion. Some fear it opens the door to censor-ship of the internet.

To be sure, there is a lot to iron out. Thegovernment appears keen to avoid stiflingspeech, imposing cumbersome regulationon small companies, snooping on privateconversations or setting up large-scalemonitoring of online traffic. But the paperis vague on how it will achieve its aims of

proportionate regulation and monitoringwithout infringing on liberties.

Moderating content on the internet hasso far been a losing game of whack-a-mole.This was brought home by the Christ-church massacre in New Zealand in March,when a video of the shooting and a mani-festo written by the alleged culprit spreadrapidly on some of the world’s best-re-sourced social-media platforms despite ef-forts to prevent their dissemination. In thecase of both copyright and terrorist- orabuse-related material, tech platforms arelegally responsible for quickly removingcontent they find or are made aware of. Yetmerely taking down objectionable contentignores the question of how it got there.

Britain’s approach—which it hopes willbe adopted elsewhere—is to require com-panies to design their services in ways thatmake it harder for bad content to spread inthe first place. The big idea is to impose astatutory “duty of care”. Companies must“take reasonable steps to keep their userssafe and tackle illegal and harmful activityon their services”. The government will setup a new regulator or hand new responsi-bilities to an existing one, such as Ofcom,which oversees broadcast media and tele-coms, or the Information Commissioner’sOffice, the data-protection watchdog. Theregulator’s mandate will be broad: publish-ing guidelines for companies, overseeingcomplaints, encouraging co-operation be-tween firms and issuing fines, as well asother, harsher penalties, including block-ing websites in Britain or holding seniormanagers personally responsible.

The eventual legislation will have towalk a tightrope between several conflict-ing imperatives. Maintaining national se-curity and protecting the vulnerable mustbe balanced against individual liberties.Imposing substantial requirements on bigtech companies must not stifle innovation

Ministers unveil an ambitious proposalto regulate online content

Internet policy

First, do no harms

1

28 Britain The Economist April 13th 2019

2 or prevent smaller firms from thriving.And the new law must not conflict with ex-isting British and European rules that pro-tect online platforms from liability for con-tent they simply host. On the last, thegovernment’s plans seem to suggest that,so long as companies live up to their dutyof care by designing products in a way thatdiscourages the dissemination of pro-scribed material, they will be protected.

Tech firms said they would work withministers to fine-tune the regulations.They are already resigned to being kept on atighter leash. Last month Mark Zuckerberg,Facebook’s boss, called for more internetregulation in an article in the WashingtonPost. Draft legislation will appear at the ear-liest in the autumn, and is unlikely to beco-me law for a couple of years. A change ofprime minister, a general election or con-tinued parliamentary gridlock aroundBrexit could see it slip down the agenda. Asthe policy paper puts it, the governmentwill “bring forward legislation when par-liamentary time allows”. In the meanwhile,the harms continue to multiply. 7

The sculpture, a large, upside-downglobe, brightly coloured like a child’s

toy, looks innocuous enough. The inten-tion behind it, according to the LondonSchool of Economics (lse), is to recognisethe university’s “international communi-ty”. That is not the spirit in which it hasbeen received. Chinese students protestedthat Taiwan, which China claims, wasshown as an independent country, and thatLhasa, in Tibet, was marked as a nationalcapital. Following a meeting with students,press reports suggested that the lse wouldchange the map. Cue fury from Taiwan,whose foreign ministry fired off a letter ex-pressing its disappointment and notingthat Tsai Ing-wen, the country’s president,is herself a graduate of the lse.

The university now says the sculpturedoes not reflect the geographical bound-aries that it expected, but that “no final de-cisions have been reached.” It has stum-bled into an important test of how willinguniversities are to stand up to China, saysKerry Brown, director of the Lau China In-stitute at King’s College London. The lse

depends on foreign students, who countfor 68% of those at the university (some 11%of the total number are Chinese). And theuniversity already has an awkward history

of foreign entanglements. In 2008 itawarded a phd to Saif Qaddafi, son ofMuammar, the late Libyan tyrant, after ac-cepting a £1.5m ($2.9m) donation from hisfoundation.

China is likely to be a source of angst formany more British universities in years tocome. Along with Australia, Canada andAmerica, Britain has benefited from thecountry’s growing appetite for foreign edu-cation. The depreciation of the poundsince the Brexit referendum in 2016 hasprovided an additional boost; British uni-versities are now “quite a good bargain forChinese students”, says Yinbo Yu, the in-ternational officer at Britain’s National Un-ion of Students. In the past decade thenumber of Chinese students has more thantripled, with 76,425 starting a degree lastyear (see chart).

Like their classmates, most Chinesestudents just want to study and have fun. Aminority, though, see themselves as “an ex-tension of the party state”, says SteveTsang, director of the China Institute atsoas. In 2017 students and the Chinese em-

bassy protested against a debate at DurhamUniversity entitled, “This house sees Chinaas a threat to the West”, as well as the partic-ipation of a supporter of Falun Gong, a sectoutlawed in China. Chinese students’ asso-ciations at some universities are believedto keep an eye on those who head overseas.“There is a fear on the part of Chinese stu-dents that anything they do or say could bereported and influence their future,” saysCharles Parton of the Royal United ServicesInstitute, a think-tank.

The presence of students also grants theChinese government leverage over univer-sities. When Louise Richardson, vice-chancellor of Oxford University, was askedby the Chinese embassy to prevent LordPatten, the university’s chancellor (a large-ly ceremonial role), from visiting HongKong, she refused. Not all administratorsare so steadfast. Mr Tsang says officials atanother leading university attempted toget a speaker disinvited from an event afterpressure from the embassy. Last summeran academic was removed from the man-agement board of Nottingham University’scampus in Ningbo, a city on China’s east-ern seaboard, after writing an essay criticalof the 19th Communist Party Congress, ameeting of government bigwigs.

British universities have worked hard tocourt the Chinese, and the rush of studentspaying hefty international fees demon-strates the benefits of this approach. But asthe lse is now finding out, it is not withoutdrawbacks. When threatened with receiv-ing fewer Chinese students by the Chineseembassy, Ms Richardson of Oxford repliedthat there were many Indians who wouldbe happy to take their place. The same issurely true at the lse, one of the world’sleading academic institutions. It mightjust want to think carefully about what col-our it shades Kashmir. 7

Relying on Chinese students presentsdiplomatic problems for universities

International education

Art attack

A world of trouble

Degrees in geography

Source: HESA

Britain, first-year university students By country of origin, ’000

* Excluding Britain

0

20

40

60

80

2007 10 15 18

China

India

Malaysia

EU*

Other Asia

North America

The Economist April 13th 2019 Britain 29

1

In the upstairs room of the Friar Pen-keth pub in Warrington on July 1st 2017,

Jack Renshaw outlined his plan to murderan mp with a 19-inch machete. The then 22-year-old told the gathered members of Na-tional Action, a banned far-right group,that he had slaughtered a pig in prepara-tion for killing Rosie Cooper, the mp forWest Lancashire. After that he would mur-der a policewoman, dc Victoria Hender-son, as part of a campaign of “white jihad”,he explained.

The far right is on the march. One way itmanifests itself is through violence. MrRenshaw’s foiled plot, which can be report-ed in full following the end of a trial earlierthis month, would have meant the secondmurder of an mp in barely a year. Jo Cox, an-other Labour mp, was killed in 2016 byThomas Mair, a far-right terrorist who gavehis name as “death to traitors, freedom forBritain” when he appeared in the dock.Darren Osborne, who drove a van into wor-shippers outside a mosque in 2017, killingone person, had hoped to kill Labour’sleader, Jeremy Corbyn, too. Death threatsare now common for mps.

Extremist positions have also come tothe fore in a more insidious manner, whichis proving harder to combat. The distinc-tion between far-right and mainstreamdiscourse has been blurred, according toNick Lowles, who runs Hope Not Hate, ananti-racism campaign group. Narrativesembraced by extremists have been normal-ised over the past decade. mps are casuallylabelled “traitors” over how they vote onBrexit. Taboos have shifted. “We used to bemore sensitive,” says William Baldét, a co-ordinator of Prevent, the government’scounter-radicalisation unit.

British attitudes towards the far righthave historically been complacent. Al-though National Action had been bannedby the government, it was Hope Not Hatethat saved Ms Cooper’s life, not the Britishstate. A whistleblower from National Ac-tion warned the group that the mp’s life wasin danger. Since then the authorities havewoken up. On April 9th Sajid Javid, thehome secretary, widened the remit of theJoint Terrorism Analysis Centre, which isled by the spies of mi5, to include “extremeright-wing terrorism”. Referrals to Preventregarding the far right rose by 36%, to 1,312,in 2018—a fifth of its case load.

The political class, meanwhile, seemsunperturbed. Unlike in many other Euro-

pean countries, no far-right party hasachieved mainstream success in Britain.The British National Party (bnp) has fizzledout. Support for the uk Independence Party(ukip) plummeted after the Brexit referen-dum in 2016. But far-right activists do notdisappear when their parties shatter. In-deed, their shards can be more dangerous.Mr Renshaw is a former member of thebnp’s youth wing. ukip has returned in anastier guise, with a baldly anti-Islam mes-sage. It still polls at 7% or so.

Under Britain’s first-past-the-post sys-tem this is not enough to gain representa-tion. But elections to the European Parlia-ment, due to be held on May 23rd, useproportional representation. Fringe par-ties scent an opportunity.

Even mainstream parties, meanwhile,have struggled to stay clean of extremism.Labour has failed to root out anti-Semitismamong its members, some of whom harassJewish mps as agents of Israel. The Conser-vatives are struggling to confront Islamo-phobia in their ranks. Half of Tory votersthink Islam is incompatible with the Brit-ish way of life—a view shared by a third ofthe population at large.

Other tenets of far-right thought havewide support. After months of chaos inWestminster, just over half of voters wouldlike a strong leader who is “willing to breakthe rules”, according to a survey this weekby the Hansard Society, a research organi-sation. A narrative of the people versus theelites has taken over. Although TheresaMay was sensitive enough to write to mpswho have faced death threats, she recentlygave an ill-judged speech blaming Parlia-ment for thwarting the people’s will onBrexit. Despite one murder of an mp and anear-miss involving another, the ideas thatfuelled those crimes march on. 7

Britain is providing dangerously fertileground for the extreme right

Far-right extremism

Fear and loathing

Very cross of St George

In the 1920s Stepney library, in working-class east London, was at the centre of a

police investigation. A reader had askedthe library to obtain a copy of James Joyce’s“Ulysses”, a modernist masterpiece thatgovernments across the world were tryingto ban. As Kevin Birmingham shows in hishistory of the novel, a covert inquiry waslaunched to determine the identity of theJoyce fanatic. The police concluded that hewas a “red-hot Socialist”.

Stepney library is again part of a social-ist experiment, which if not red-hot is atleast warming up. Tower Hamlets, the localauthority, recently revealed plans to re-place the library, which closed over a de-cade ago, with five council-built homes, aspart of a drive to put up 2,000 by 2022. It isquite a change for a council which until re-cently built almost none. What is happen-ing in Tower Hamlets is happening acrossBritain. Last year councils put up 4,000homes, the most since 1992.

Britain is still a long way from the gold-en era of council homes. In the 1950s coun-cils put up 150,000 dwellings a year. Abouta tenth of all public spending went towardsstate-provided housing. All that changedin the 1970s. Believing that they had elimi-nated housing shortages, councils turnedto other matters. Margaret Thatcher’s gov-ernments cut support for new construc-tion. There began a long decline in council-house building. In 2004-05 local authori-ties put up just 130 new homes.

A few factors explain the recent renais-sance. In the late 2000s the governmentboosted grant funding to councils for newbuilding, says John Perry of the CharteredInstitute of Housing, a professional body.An accounting change in 2012, whichlinked the amount that councils couldspend on housing to the rents theycharged, made financial planning easier.At the time the government put a cap on theamount councils could borrow to buildnew homes, but in October it was removed.

Council housing is popular, as the longwaiting lists to move into it attest. Forthose with little money, it is often a betterbet than renting on the open market. Coun-cil homes tend to have rents below marketrates. And they are half as likely as privatelylet dwellings to be classed as “non-decent”,meaning they fail to meet basic standardsfor things like heating. “I’m so happy,”beams Jane, who lives in a council blockwhich opened in January in Hemel Hemp-

H E M E L H E M P ST E A D

Council homes are making a cautiouscomeback

Social housing

Blooming

30 Britain The Economist April 13th 2019

2 stead, Hertfordshire. She got her tenancyafter escaping a violent partner (we havechanged her name). The block is hardlyposh: the stairwell walls are bare concrete,to limit the cost of upkeep. But it is wellmaintained, and Jane reports that some-one comes quickly if there are problems.

Some policymakers argue that buildingmore council houses is the best way to re-duce Britain’s sky-high housing costs.Economists reckon the country needs toput up 300,000 houses a year to keep pricesin check. It currently manages about halfthat. The last time private firms got any-where near building such a total was in themid-1930s. The Labour Party has promiseda big rise in council-house building.

That would incur a large upfront cost.Politicians might hope that extra buildingwould push down average housing costs,reducing in turn the bill for housing bene-fit, which in the past 40 years has risen six-fold in real terms. Yet because the planningsystem so limits the supply of land for de-velopment, extra council building riskscrowding out the private-sector sort, less-ening the impact on the overall number ofhomes. Official estimates suggest that forevery two new council houses, one privatehome is not built.

A more effective policy might be to relaxplanning laws, making life easier for priv-ate and public developers alike. That couldinvolve more development on the “greenbelt” land that encircles cities. Any politi-cian who proposed such a plan would riskthe wrath of nimbys, many of whom live inswing seats. But only a government with aradicalism worthy of Joyce has any hope offixing Britain’s housing mess. 7

Hours after the massacre of Muslimsin New Zealand last month, represen-

tatives of five other faiths stood in front ofBirmingham Central Mosque and pro-claimed their solidarity, as worshippersstreamed out of midday prayers. “O Lord,keep us and preserve us in life and in secu-rity,” intoned Yossi Jacobs, an Orthodoxrabbi. Soon after, the routine business ofthis bustling hub resumed. In the largest ofthe 200 or so mosques in and around Brit-ain’s second city, Muslims come not only topray but to buy books, receive instruction,marry, divorce and send off their dead.

As guardians of a faith followed by aquarter of Brummies, including a plurality

of the city’s children, the mosque’s leadersplay a growing role in civic life. They andother Muslim elders emphasise that theycan help to make the city stable and prospe-rous. But they are equally clear that othersmust accept them for who they are: pro-ducts of a conservative Muslim culture.

Birmingham is not a city “where non-Muslims just simply don’t go in”, as a FoxNews pundit wildly claimed in 2015. But ithas a reputation as an incubator of jihad,because several terrorists spent time there.As the leaders of the central mosque seethings, the city’s social peace is fragile—forreasons to do with austerity as much as in-ter-cultural tensions. “One of our big fearsis that because of cuts in the police budget,ordinary crimes will spin out of controland be blamed on us Muslims,” says NassarMahmood, a mosque trustee. Crime with asectarian edge is already a problem. OnMarch 21st five local mosques sufferedsledgehammer attacks.

Guardians of the city’s Muslim commu-nity say they themselves can help tacklethe problems of crime and extremism. AsMuhammad Afzal, the central mosque’schairman, is keen to recall, his establish-ment has led efforts to dissuade peoplefrom joining the war in Syria. It has alsosteered an inter-faith campaign againstknife crime in the city.

The mosque plays an intimate role inother aspects of city life. Every year hun-dreds of people approach its sharia coun-cil, which administers Islamic family law.Most are women who want a dissolution oftheir Islamic marriage. For critics, shariacouncils flourish because of the tendencyamong young Muslims to opt for an Islam-ic-only marriage, or nikah. Because the ni-kah has no standing in law, a break-up can

leave the less well-off partner destitute.More often than not, that is the woman.

Amra Bone, one of the central mosque’sleaders (and perhaps the only British wom-an to serve on a sharia council), retorts thata rich woman may fare better under Islam-ic rules than British law. She adds that, likeit or not, young Muslims use the nikah tolegitimise relationships that might not bepermanent, which they call “halal dating”.Aina Khan, a Muslim lawyer who leads acampaign to make all marriages state-reg-istered, is unconvinced. For her, halal dat-ing is a cynical practice: “God is not fooled.”

The latest cultural battleground is theclassroom. Muslim parents have beenprotesting against classes in a Birminghamprimary school which encourage toleranceof same-sex relationships. Despite the in-sistence this week of the education secre-tary, Damian Hinds, that there must be no“parental veto on curriculum content”, thelessons’ future seems uncertain.

The parents are warmly praised by TahirAlam, a Muslim educationalist who wasbarred from Birmingham’s teaching sys-tem in 2015 after an inquiry into attemptsto Islamise state schools. “Educationshould be done with the community, not tothe community,” he argues. “And in Islam,it’s not okay to be in a gay relationship.” MrAlam also defends the effort he led to intro-duce more Islam into city schools: it helpedimprove dismal standards, he says.

Birmingham’s culture wars have laidbare some weird fissures in local politics.The city’s Labour councillors, who domi-nate local politics, range from Muslimswith sympathy for the parents protestingagainst the gay-friendly classes, to secularleft-wingers who strongly support theschool. The Conservative opposition tendsto be on the progressive side; one worryamong local Tories is that a new commer-cial development may destroy a “gay vil-lage” near the city centre.

Birmingham, a disorganised sprawl,has always been a jumble of distinct vil-lages. In some places ethnic and culturaldifferences have reinforced that discon-nection. As people at the central mosqueacknowledge, there is a vicious circle inwhich Muslims stick to areas where theypredominate because they fear abuse or as-saults elsewhere; and as those districts be-come more overwhelmingly Muslim, oth-ers move out.

Andrew Smith, the Anglican point-manon inter-faith dialogue, insists that pro-mising work is under way to bring commu-nities together. The Birmingham CentralMosque is a crucial link in that, along withthe Anglican and Catholic cathedrals. Allthat builds resilience which helps when ashock occurs, be it in New Zealand or closerto home. But this does not diminish thesense that the city’s villages, cultural andgeographical, are moving farther apart. 7

B I R M I N G H A M

Islam is a growing social force inBritain’s second city

Muslim Birmingham

Waxing crescent

A church of England

The Economist April 13th 2019 31

1

An italian nationalist joining forceswith a German one to promise “a new

European dream”, as Matteo Salvini termedit, is bound to stir the odd qualm. But obli-vious, or indifferent, to historical echoes,Mr Salvini, the leader of Italy’s NorthernLeague, on April 8th sat cheerfully along-side Jörg Meuthen of the Alternative forGermany (afd) on a platform in Milan as heannounced the formation of a new, nativistbloc in the next European Parliament. MrMeuthen said it would be called the Euro-pean Alliance for People and Nations. And,said Mr Salvini, the aim was “to take ingroups with which we have never collabo-rated before”.

Gail McElroy, a political scientist atTrinity College, Dublin, who has made astudy of the European Parliament, said itwas likely that the radical right will makesome gains at the European elections onMay 23rd-26th. “But there is a long historyof populist parties forming groups thatthen fall apart.” Ominously for Mr Salvini,none of the party leaders he had hoped to attract to his new band bothered to

show up in Milan. Movements created to protect national

interests and exalt national identities tendto make awkward bedfellows, after all. Ja-roslaw Kaczynski’s government in Polandand Viktor Orban’s in Hungary have longturned a deaf ear to Italy’s pleas for a redis-tribution within the eu of asylum-seekersarriving from Africa. That problem hasnow been skirted: the new mantra of thepopulist right is that the answer is to sealEurope’s frontiers. But agreeing on eco-nomic policy will be more difficult. The afd

and other hard-right northern Europeangroups support precisely the kind of fiscal

austerity Mr Salvini claims is holding backthe Italian economy.

Encouraging industrial figures for Feb-ruary, published on April 10th, raised hopesthat, after two quarters of negative growthin the second half of 2018, Italy could nowemerge from technical recession. But theoutlook remains cloudy. The day before,the cabinet slashed its growth forecast for2019 from 1% to 0.2%. It also acknowledgedthat, as a result, Italy would fail to meet thetargets it agreed upon with the EuropeanCommission for its budget deficit and pub-lic debt. The government now expects a fis-cal shortfall this year of 2.4% of gdp ratherthan 2.0%, and a rise in Italy’s already heftydebt stock to 132.6% of gdp from 132.2%.

The slowdown could explain the first,faint signs that the surge in support for MrSalvini, driven largely by his hardlinestance on immigration, may have peaked.Since the general election in March 2018,when the League won less than 18% of thevote, polls have shown its popularityclimbing steadily. But a survey publishedon April 1st found it had dipped slightly forthe first time, by half a percentage point.

Until now, Mr Salvini, the interior min-ister and a deputy prime minister in the co-alition government of Giuseppe Conte, hasescaped most of the blame for the down-turn. Economic policy is primarily the re-sponsibility of the finance minister, Gio-vanni Tria, an independent, and MrSalvini’s fellow-deputy prime minister,Luigi Di Maio, leader of the anti-establish-

Italy

A posse of patriots

M I L A N

Matteo Salvini has an improbable dream of a pan-European nationalist alliance

Europe

32 Housing in Germany

34 France’s “great national debate”

34 Montenegro’s monarch

35 Brexit’s economic effects

36 Charlemagne: Protective Europe

Also in this section

32 Europe The Economist April 13th 2019

2 ment Five Star Movement (m5s). But in re-cent days the Captain, as his followers callhim, has taken an increasingly assertiverole, insisting that Mr Tria honour a pledgein the coalition pact to introduce a flat taxfor poorer households: he has suggested arate of 15% for those with incomes of lessthan €50,000. The aim, as with Italy’s ex-pansionary 2019 budget, is to stimulategrowth by boosting domestic demand.

Mr Salvini is taking a huge gamble, bothpolitically and economically. He has nowraised the hopes of millions of Italians,who will be horribly disappointed if hefails to deliver. There is little scope for taxcuts, not least because of a deal struck withthe European Commission in 2011 at theheight of the euro crisis which means thegovernment has to find at least €23bn in ex-tra revenue or spending cuts to avoid hav-ing to increase the rate of vat, already un-comfortably high at 22%. Nicola Nobile ofOxford Economics, a consultancy, calcu-lates that, after slower-than-expectedgrowth has been taken into account, theoverall squeeze will be around €35bn. If thegovernment wants to stay below the eurozone’s deficit target, he says, “and unless itcan find money elsewhere, it will not havethe scope for this flat tax.”

Mr Salvini is hoping that he will notneed to respect the euro zone’s fiscal stabil-ity rules for much longer. He has repeat-edly predicted a populist victory in nextmonth’s ballot that will transform the out-look of the commission and prompt a re-laxation of the fiscal strictures that weighon Italy. But there are a couple of snags.

The basis for his new bloc is an existingalliance that includes the League and Ma-rine Le Pen’s National Rally in France. Theeu’s poll of polls sees it winning 61 of the705 seats in the next parliament (excludingBritain’s). That is fewer than the prospec-tive haul of three other alliances. The afd

could perhaps contribute another 13 seats.If Mr Salvini can woo Mr Orban’s Fidesz inHungary, which has been suspended fromthe main conservative bloc in the EuropeanParliament, and Jaroslaw Kaczynski’s Lawand Justice party (pis) in Poland, he couldboost the tally to more than 100 seats.

But even in the unlikely event of bothpis and Fidesz joining Mr Salvini, the alli-ance would lag far behind the mainstreamconservative and socialist groups. “Andwhen push comes to shove, they will ally tokeep these people at the margins,” says MsMcElroy. “It’s what they’ve been doing for40 years.” The other snag? National govern-ments, not the parliament, put up candi-dates for the commission, though the par-liament has to approve them.

Since entering government, Mr Salvinihas shown himself to be a spectacularlyadroit operator. But he will need to takecare in the weeks ahead that he does not sethimself up for failure. 7

Sarah-lena knust, a mild-manneredyoung pr consultant, is an unlikely rad-

ical. But finding a place to live in Germany’sbooming capital tests the hardiest soul.Since moving to Berlin last year Ms Knusthas twice struggled to find affordable hous-ing. The last flat-viewing she attended at-tracted 30 rivals. The place she eventuallyfound will suck up nearly half her income.“I knew it would be hard,” she sighs. “But Ididn’t think it would be like this.”

Such tales are familiar in a city wherethe days of paying next to nothing for cav-ernous apartments are long gone. That iswhy tens of thousands of Berliners, includ-ing Ms Knust, have lent their names to aradical proposal: to expropriate privatehousing. The campaign, launched at a“rent insanity” protest in Berlin on April6th, is gathering signatures to force a city-wide vote on whether to oblige companiesthat own over 3,000 properties to sell themto the city. It relies on a novel interpreta-tion of a constitutional provision that al-lows private assets to be “transferred topublic ownership”. Views vary on whetherthat will pass muster in the courts, but overhalf of Berliners back the plan, in a citywhere 85% rent. Firms owning almost250,000 properties, around 15% of Berlin’shousing stock, would be affected. DeutscheWohnen (dw), the biggest, has become the

symbolic target of the measure. Germany’s big cities remain cheap by

European standards, but several have expe-rienced dramatic rent increases in the pastdecade (see map). Tight regulation, includ-ing a “rent brake” law in 2015, has failed tosatisfy tenants. Almost half of big-city vot-ers say they struggle to find affordablehousing. Harald Simons at Leipzig Univer-sity says the problem is rooted in city plan-ners’ failure in the 2000s to predict popula-tion growth. Fifteen years ago Berlin had150,000 empty flats and the city was de-molishing public housing. Municipalitiesplanned for demographic decline. But thencame waves of immigrants and young Ger-mans attracted by thriving job markets.Cities exploded—280,000 moved to Berlinin the past six years—and construction fellbehind. Last year the Hans Böckler Founda-tion found that 77 German cities lack 1.9maffordable apartments. “We must build,build and build,” says Mr Simons.

Construction has speeded up, but it canstill take between eight and ten years fromzoning decisions to completion. Nimby-ism is one problem; in 2014 Berliners votedagainst a proposed housing scheme on theTempelhof Feld, a former airport now usedfor sunbathing and skating. In some citiesland sits idle as investors wait for its valueto appreciate. Labour shortages in the con-struction sector add to the problem, andrent brakes also discourage new building.

Helge Peters, a spokesman for the ex-propriation campaign, says that supplyand demand mismatches do not capturethe story. In 2004, after a banking crash,Berlin sold off much of its public housingat fire-sale prices. These properties wereacquired by listed companies like dw,which channelled funds from institutionalinvestors fleeing lacklustre bond markets.Such firms squeeze poor tenants so theycan pay higher dividends, claims Mr Peters,resulting in “targeted social displacement”.Tenants say large landlords delay mainte-nance while circumventing rent caps bycharging for unwanted “modernisation”.

For all that, sceptics wonder if the costof expropriation—which the city’s Senate(government) puts at between €26bn and€36bn ($29bn-41bn), and campaigners saycould be as low as €7bn—is justified indebt-laden Berlin. The plan would not low-er rents or increase housing supply, saysPhilip Grosse, cfo of Deutsche Wohnen. Hewants politicians to show some backbone.But Berlin’s Senate, a coalition of SocialDemocrats (spd), Greens and the hard left,is split. Many hope to forestall the proposalby buying up private housing and tighten-ing regulation. Some in the spd urge a five-year rent freeze. Many national politiciansshare Mr Grosse’s assessment that expro-priation would turn Berlin into a “no-man’s-land” for private capital. For manyBerliners, that is precisely the point. 7

B E R LI N

A radical proposal to tackle rising rents

Housing in Germany

Hand over the keys

BerlinBerlin

Munich

Frankfurt

G E R M A N Y

Germany, average rent increase, 2008-18, %The squeeze

20-30 30-40 40-5010-200-10

Sources: German Economic Institute; F+B Marktmonitor

100 km

34 Europe The Economist April 13th 2019

1

At one town-hall meeting in southernFrance, discussion touched on the re-

introduction of bears in the Pyrenees. Atanother, in Burgundy, Emmanuel Macronwas questioned about poor provision forthose with autism. The “great national de-bate”, which began in January and endedthis week, has drawn attention to the mara-thon total of 92 hours that the French presi-dent has spent listening to such grievancesand answering queries in public debates.Yet the consultation has reached far widerthan these presidential shows. It consti-tutes an intriguing study in how to defusesocial protest—and the limits of using sucha tool to do so.

Mr Macron launched his great debate inresponse to the gilets jaunes (yellow jack-ets) movement. This began last Novemberas a protest against an increase in the tax onmotor fuel, but grew into a widespread andsometimes violent rebellion against hishaughty style and top-down method of go-verning. Despite much initial scepticismand mockery, the results, presented thisweek, involved fully 1.9m contributions toan official online forum, 10,134 town-hallmeetings, 16,337 “books of grievances” sub-mitted by mayors, 27,374 emails and let-ters, and 21 citizens’ assemblies.

All these comments have now beentranscribed, digitised and analysed, partly

by tech firms using ai, and the raw datahave been made public. The results revealsome areas of national consensus, notablythat curbing climate change is “urgent”, orthat the French pay too much tax. There is abroad desire for more local decision-mak-ing and public services. And even theFrench agree that dealing with their bu-reaucracy is “complicated, incomprehen-sible, rigid and compartmentalised”.

Yet, inevitably, opinion is split on manyother matters. The same share of respon-dents argue, for instance, that Franceshould be more welcoming to migrants asplead for tougher treatment of them. Par-ticipants propose plenty of green ideas, in-cluding better recycling procedures, or lessmeat-eating. Yet 58% say that they wouldnot be prepared to pay, for example, a car-bon tax in order to encourage greener be-haviour. Such are the paradoxes of directdemocracy.

Perhaps the most contentious pointconcerns taxes and public spending. Edou-ard Philippe, the prime minister, acknowl-edged that the debate had revealed a ras-le-bol (fed-upness) over taxes. France has thehighest overall tax take as a share of gdp inthe eu. But Mr Philippe also insisted thatthe results showed the “maturity” of re-spondents, who know that “we can’t re-duce taxes if we don’t reduce public spend-ing.” This may be wishful thinking. Theresults suggest that 75% favour cuts to pub-lic spending, but this was a response to aquestion asking how, not whether, thebudget deficit should be reduced.

The great debate, in other words, wasnot a statistical national poll. Indeed partof the point, says Stanislas Guerini, head ofMr Macron’s party, La République enMarche, was “to put the voice of the giletsjaunes in perspective”. Online, for instance,only 10% of respondents called for the re-turn of a wealth tax. Yet polls suggest thatthree-quarters of the French are in favour.Which is partly why opposition parties,and many gilets jaunes, have denouncedthe whole exercise. Christian Jacob, parlia-mentary leader of the centre-right Republi-cans, called it a “great masquerade”.

Given the conflicting demands, MrMacron now faces the perilous task of com-ing up with decisions that neither disap-point nor divide. He is expected to unveilhis choices in the coming weeks. In someways, though, the debate has alreadyserved part of its purpose. It has enabledthe Jupiterian Mr Macron to show that he iswilling to step out of his palace and listento people. It has provided an alternativeway to release national frustration. On thestreets, the numbers taking part in week-end gilets jaunes marches have droppedfrom 280,000 in November to 22,000. Thepresident’s ratings remain low, but have re-covered to where they were last October,before the protests broke out. 7

P A R I S

The people have spoken, but what didthey mean?

France

The great debate

In 1989 he was one of Europe’s youngestleaders. Thirty years later Milo Djuka-

novic, president of Montenegro and stillonly 57, has been in power, as either presi-dent, prime minister or just as ruling-partyboss, for longer than anyone else in Eu-rope. Montenegrins have to be in their 40sto remember politics before him. OtherEuropean leaders want to know the secretof his success. Unfortunately, he says,there is no simple explanation. On his wallhangs a portrait of King Nikola, who wasdeposed after 58 years in 1918. No, he has nointention of competing with him, he says.

He might not have the choice. For thepast nine weeks thousands of people havebeen taking to the streets of Podgorica,Montenegro’s capital, to demand that MrDjukanovic step down. Yet he seems un-fazed. In 2016, he says, a Russian-financedplot aimed to assassinate him and now theRussians are causing trouble again, even ifmany of the demonstrators do not realisewho is stirring the political pot. Nonsense,scoffs Dejan Mijovic, an opposition politi-cian. Democracy in Montenegro is a sham,he says; Mr Djukanovic holds all the leversof power, and now he needs to go.

Montenegro’s fractious opposition hasbeen given a burst of energy thanks to alle-gations by a former tycoon who now livesin London. Since January Dusko Knezevic,who was once close to Mr Djukanovic, has

P O D G O R I C A

Milo Djukanovic is Europe’s mostdurable ruler

Montenegro

The monarch

The Economist April 13th 2019 Europe 35

2 been releasing information that he hopeswill bring down the president. He depicts apattern of corruption around the state, andhas even released a video of himself givingan official of Mr Djukanovic’s party an ille-gal campaign contribution. That transgres-sion has been dealt with, says the presi-dent; but everything else that Mr Knezevicsays is a lie coming from a fugitive fromjustice (he is accused of money-launder-ing). Mr Knezevic admits that he broke thelaw on campaign contributions, but saysthat is the only way to do business in acountry where everything is a racket con-trolled by Mr Djukanovic.

However the Knezevic affair and the op-position demonstrations play out, Mr Dju-kanovic’s political survival is remarkable.In 1989 he was a protégé of Slobodan Milos-evic, the then Serbian leader. But as Mr Mil-osevic faced defeat in the war over Kosovo,Mr Djukanovic pivoted towards champion-ing the restoration of Montenegro’s inde-pendence, lost in 1918 when Yugoslavia wascreated. He achieved this in 2006, and yetmanaged to maintain Montenegro as a Bal-kan rarity—a multi-ethnic state. He says hekeeps trying to step back from power, butthat there is always another task to accom-plish. In 2017 Montenegro joined nato.

No government has ever changed handsat the ballot box in Montenegro. FearingRussian interference, Western leadersseem in no mood to try to persuade the can-ny Mr Djukanovic to go. Between 1696 and1918 Montenegro had seven leaders whoruled for an average of 32 years. One secretof their success was balancing the interestsof competing clans. Asked whether run-ning Montenegro today is similar, Mr Dju-kanovic says it is, swiftly adding that, un-like pre-modern rulers, he was elected. Arecent poll found that 71% of Montenegrinswant their leader “strong and resolute”.

A secret of his own success is cliente-lism. One official claimed back in 2012 in aleaked tape that every public-sector job giv-en out secures four votes for the rulingparty. Still, the recent demonstrationsshow that a lot of people are fed up with MrDjukanovic. In recent years, says DaliborkaUljarevic, an analyst, there has been achange of atmosphere. Anyone who daresto criticise the government risks being la-belled “an enemy of the state” by the pro-government media, as she has been.

The political atmosphere is toxic andthe ruling party and its allies control only42 of parliament’s 81 seats. Tycoons fromAzerbaijan, Russia, Malaysia and the uae

have bought up property and developedluxury seaside resorts; but many folk feelthat, as they struggle on low salaries andpoor public services, a tiny group aroundMr Djukanovic has got rich. SomersetMaugham once called the French Riviera “asunny place for shady people”. One mightsay much the same about Montenegro. 7

Nearly 3,400 lorries are ferried betweenRotterdam’s port and Britain every day.

They roll on and off the boats, carryingmuch of the 54m tonnes of goods that aretraded between the Netherlands and Brit-ain each year. The precise form of Brexit isstill being wrangled over in Westminster.But unless Britain decides to stay in theeu’s single market and customs union(which seems unlikely), trade will becomeless seamless.

Truckers might need to ensure thattheir cargo has the right paperwork, or riskbeing turned away at the port. Some Britishproducts—such as livestock—might needto be inspected by vets upon entering theeu. Delays at the border could ruin producegoing the other way: around €825m($930m)-worth of flowers and plants areshipped to Britain from the Netherlandsevery year, says Matthijs Mesken of vgb,which represents Dutch wholesalers andexporters. Delivery takes place a matter ofhours after an order is placed.

Brexit contributes to the “pervasive un-certainty” which, in the words of MarioDraghi, the head of the European CentralBank (ecb), clouds the euro zone’s eco-nomic horizon. A study in 2018 by the imf

found that Britain’s economy, alreadydeeply integrated with the rest of the eu,became even more so after the 2007-08 fi-nancial crisis. The worst effects of loosen-ing those ties will be felt in Britain. But oth-ers in Europe will not go unscathed. Smallopen economies are the most vulnerable.

The countries with the closest tradingties with Britain include Belgium, Irelandand the Netherlands. According to the imf,

Ireland’s exports of goods and services toBritain amounted to 15% of gdp in 2014-16,

and those of Belgium and the Netherlandsnearly 10%. All three also rely relativelyheavily on imports from Britain.

Ireland and the Netherlands are inter-twined with Britain in other ways too.Thanks to history and geography, migrantflows between Ireland and Britain are large,equivalent to nearly a fifth of the popula-tion of Ireland. (Malta and Cyprus, whichalso have historical ties to Britain, see largemigrant flows, too, relative to their size.)The Netherlands is a big investor in Britishbusiness: its stock of foreign direct invest-ment in the country was equivalent to anaverage of almost 80% of Dutch gdp in2014-16, the highest share in the eu.

Irish and Dutch financial firms have rel-atively high exposures to British borrow-ers. Luxembourg also has close trade andinvestment links, according to analysis bys&p Global, a credit-ratings agency. But thatmay partly reflect the fact that some Britishfirms register there for tax purposes.

Larger countries are better insulated,but certain sectors are still exposed. Astudy by Hans-Ulrich Brautzsch and OliverHoltemöller for the Halle Institute of Eco-nomic Research finds that 15,000 jobs inGermany—around 1% of employment in itscar industry—depend either directly or in-directly on exports to Britain. s&p analystsnote that Spain is most exposed through itsownership of banks, telecoms and insur-ance firms in Britain.

The imf reckons that the long-term im-pact of Brexit on the eu27 as a whole wouldbe modest, provided a deal is struck. Butsome countries might still suffer. If Britainleft the single market and instead signed afree-trade deal with the eu, the fund reck-ons output in Ireland would eventually fallby 2.5%, and that in Belgium and the Neth-erlands by 0.5-0.7%. In the event of no deal,the losses would nearly double.

As small members of a monetary union,these countries cannot expect the ecb tocome to their rescue with euro-zone-widemonetary loosening. Instead, their govern-ments would probably need to stimulatetheir economies. Whereas Ireland and theNetherlands have the fiscal space to cush-ion the blow, Belgium, with a public-debtratio of around 100% of gdp, has less roomto act.

For now, though, the focus is on min-imising near-term disruption. Ireland haspromised its farmers help in the event of ano-deal Brexit. In Rotterdam the port au-thority plans to extend its digital-clearancesystem for non-eu imports to include Brit-ish exports. Hundreds of extra customs of-ficers have been hired. Lorries that arrivewithout the right documents will be direct-ed to contingency parking spaces whilethey seek clearance, says Leon Willems ofthe port authority. Clarity on Britain’s planswould help the preparations. But, he sighs,they are still a “black box”. 7

R OT T E R DA M

Small, open countries brace for Brexit

Brexit’s economic effects

Trading jitters

The burden of Brexit

Source: IMF

Trade flows with Britain, % of country’s GDP2014-16 average

15 10 5 0 0 5 10 15Ireland

Netherlands

Belgium

Euro area

Germany

Spain

Goods

Exports to Britain

Services

Imports from Britain

36 Europe The Economist April 13th 2019

Europe’s post-cold-war history can be conveniently dividedinto three decade-long phases. The first, from the fall of the

Berlin Wall in 1989 to the introduction of the euro in 1999, wasmarked by institutional expansion. The period from 1999 to 2009was one of geographical expansion as the union took in 12 newmembers. But since 2009 crisis has dominated: in the euro zone,in the eu’s near-abroad from Ukraine to Syria, in trans-Mediterra-nean migration flows, in Britain’s decision to leave and in thetransatlantic alliance under President Donald Trump. Once be-nign-seeming actors like China and Silicon Valley technologyfirms have turned threatening. Europe has seemed like a dry leaftossed around on the winds.

Yet something is changing. With the five-yearly European elec-tions looming next month, the eu is for the first time in ages clos-ing in on something like a common purpose: une Europe qui pro-tège, or “a Europe that protects”. What this means in practice,whether the eu can enact it and whether that is even desirable is allup for debate. But Europe has a new sense of direction.

That is the argument of Luuk van Middelaar in his new book“Alarums and Excursions”. The Dutch historian argues that impro-vising its way through a decade of emergencies has changed theeu. He describes these crises, and Brexit in particular, as a “Machi-avellian moment”. The term belongs to John Pocock, a historianwho coined it in 1975 to describe the point at which republics cometo terms with their own mortality amid the “stream of irrationalevents”. Such states, argued Mr Pocock—using the examples of Re-naissance Italian states, civil-war England and early republicanAmerica—suddenly recognise the need to fight for their own le-gitimacy and sovereignty.

Mr van Middelaar reckons that Europe’s “new awareness of theneed to protect itself and its citizens” is one such moment. Hetraces the shift’s roots to the phone calls that flew between Euro-pean capitals early on the morning after the Brexit vote in June2016. “Jean, this isn’t looking good,” Martin Schulz, then the presi-dent of the European Parliament, told Jean-Claude Juncker, thepresident of the European Commission, at 7am. Then Europe’slong-restrained instinct for self-preservation kicked in. “Whatdoesn’t kill you makes you stronger,” Donald Tusk, the president of

the European Council, told journalists a couple of hours later. Overthe following weeks Angela Merkel forged a common eu responseto the vote, while Mr Tusk and Mr Juncker defended the union withgusto in speeches.

Europe, its leaders suddenly seemed to realise, needed to de-fend itself. And in turbulent times that meant better protecting itscitizens from the seeming loss of control that had driven Britain’svoters to reject the union. Mr van Middelaar draws a line from theshock of the Brexit vote to much that followed: Mr Macron’s adop-tion of une Europe qui protège as a response to populism, Mrs Mer-kel’s comments in May 2017 that Europe could no longer rely onothers (meaning America) for its security, and “recent decisionson border protection, foreign investment screening and defenceco-operation”. Noting that support for the eu has risen since Brit-ain voted to leave, he writes: “An awareness is growing that Euro-pean security and ‘sovereignty’ are not a given.”

Mr van Middelaar overstates Brexit’s role. Major elements of theprotective European agenda, like stronger border security and theregulatory crackdown on American digital giants, predate June2016. Other elements, like the new suspicion of China and tenta-tive shifts towards eu-wide defence, are a response to geopoliticalshifts far beyond Europe. But his underlying observation is right:the union has rediscovered a sense of mission. Witness the newFranco-German manifesto for interventionist industrial policies;the eu’s incoming “upload filter” strengthening online copyrightlaws; new money and powers for Frontex, the eu’s external bordersagency; and the eu-China summit on April 9th, where the eu

pushed Beijing, to reduce distorting state subsidies and to stopobliging companies to transfer technology.

In the coming European election campaign politicians willcompete less on whether the eu is a good thing (Brexit has curbedothers’ appetite to flounce out) and more on how it can be used toshield the little guy from change. The far left will emphasise eco-nomic protection; the far right will stress repatriating immigrants;centrists like Mr Macron and Mrs Merkel will offer an array of mil-der economic and social protections. That election campaign willcolour the next European Parliament and European Commission.From the institutional expansion of the 1990s and the geographicexpansion of the 2000s, Europe is emerging from the crisis yearsof the 2010s with a new mission to retrench, consolidate and mostof all protect—both itself and its citizens.

Easier said than doneBy protecting voters from things they don’t like, the eu may makeitself more popular and therefore more stable. But there are twosnags. The first is that some protections harm the openness thatunderpins Europe’s prosperity. For example, ramming together ex-isting firms to create new “European champions”, as the Paris-Ber-lin industrial strategy proposes, is anti-competitive: a protection-ist Europe will be poorer in the long run. The second problem isthat the eu lacks the powers of co-ordination required to play thesort of muscular role that its leaders are promising. The Franco-German alliance at the union’s core is stagnant. European politicsis becoming more fractious and fragmented. And a more diverseand larger union is proving harder to run. Proposals for commonaction, on China for example, are increasingly at odds with una-nimity requirements in areas like foreign policy. Without con-fronting those structural barriers, Europe’s leaders will not be ableto give voters anything like the protection they promise. And thatrisks another decade of polycrisis. 7

A Machiavellian momentCharlemagne

The era of a “Europe that protects” is dawning

The Economist April 13th 2019 37

1

For five years Lava Jato (Car Wash), asprawling anti-corruption investiga-

tion, has dominated headlines in Brazil. Itended political careers, led to the locking-up of company bosses and helped makepossible last year the election of Jair Bolso-naro, a low-ranking right-wing congress-man, to Brazil’s presidency. He fulminatedagainst corruption during the campaign,but the investigation itself disappearedfrom the headlines. The arrest last monthof Michel Temer, a former president,brought it back. Prosecutors say he ran ascheme that embezzled up to 1.8bn reais($427m) over four decades, including dur-ing his presidency in 2016-18. Mr Temer de-nies the charges. A judge released himwhile the investigation continues.

Lava Jato began as a routine money-laundering case in the southern city of Cu-ritiba. It led to revelations that construc-tion companies had paid billions of dollarsin bribes to politicians in exchange for lu-crative contracts with Petrobras, the state-controlled oil company. Prosecutors in Cu-ritiba have won convictions of 155 people,and prison sentences totalling more than2,000 years. Luiz Inácio Lula da Silva, a for-

mer president from the left-wing Workers’Party, is serving jail sentences totalling 25years in the city. Investigations in Curitibaand in other cities have led to scores of con-victions and billions of dollars in fines (seetable overleaf). Brazilian prosecutors havehelped foreign ones pursue related cases,especially in Peru. Mr Bolsonaro appointedSérgio Moro, the judge who jailed Lula, tobe his justice minister.

Through Lava Jato Brazilians have cometo view systemic corruption as outrageousrather than inevitable. Citizens held mas-sive demonstrations against it and votedcorrupt politicians out of office. Business-es have created compliance departments.The supreme court banned corporate con-tributions to election campaigns and ruledthat convicted criminals could be jailedafter losing their first appeal (rather thanremaining free until all their appeals wereexhausted). Lava Jato has both encouragedand benefited from public anger. “Withoutsociety’s insistence, we wouldn’t have LavaJato,” says Deltan Dallagnol, a prosecutor.

It grinds on. Hundreds of suspects be-sides Mr Temer await rulings from courtsin Curitiba and other cities, where other

corruption schemes are being investigat-ed. But this sort of investigation “looks tothe past”, says Silvana Batini, a prosecutorfor Lava Jato’s task force in Rio.

Its future is uncertain. Mr Moro’s movefrom the courtroom to Mr Bolsonaro’s cabi-net is a chance to strengthen anti-corrup-tion laws and beef up enforcement. YetLava Jato faces new challenges, whichcould reverse the progress Brazil has madeagainst political graft. One comes fromcongress, which could thwart Mr Moro’s at-tempts at reform. Another is that the su-preme court, initially supportive of the in-vestigation, has turned sceptical. That ispartly in response to excesses by prosecu-tors and judges such as Mr Moro, and partlybecause of pressure from politicians.

A third threat is the demagogic re-sponse of Mr Bolsonaro’s supporters tosuch setbacks. They accuse the highestcourt of being in league with the velha polít-ica (old politics). One of Mr Bolsonaro’ssons, Eduardo, a federal deputy from SãoPaulo, said before the election that a “sol-dier and a corporal” could shut the courtdown. Taking a different tack, Mr Bolso-naro proposed doubling the number of jus-tices, so he could pack it with his appoin-tees. Such zealotry in defence of the rule oflaw could end up weakening it.

Lava Jato was born from two trends: thestrengthening of Brazil’s judiciary and theweakening of its political system. A har-binger was the mensalão, a scandal duringLula’s presidency in 2005 that involved thegovernment buying votes in congress. Anew generation of prosecutors and judges

Brazil

Coming up at the car wash

S Ã O P A U LO

The country’s biggest corruption investigation is at a turning point

The Americas

38 A “Cuban Missile” crisis

40 Bello: Lenín’s new economic policy

Also in this section

38 The Americas The Economist April 13th 2019

2

1

won its spurs through trials of the miscre-ants. When Lava Jato began in 2014 judicialofficials had new tools: agreements toshare information on money-launderingwith other countries; a law passed in 2010that bans politicians with corruption con-victions (such as Lula) from running for of-fice; and, most important, a law from 2013that expanded the use of plea bargaining.Without it, “we’d still be stuck going aftermoney-launderers for 10,000 reais,” saysPaulo Galvão, a Lava Jato prosecutor.

Politicians’ reputations sank. Brazil-ians’ anger about corruption and economicrecession led to the impeachment of Presi-dent Dilma Rousseff in 2016 (for budget-accounting violations, not corruption). MrTemer, her successor, spent political capi-tal fending off corruption allegations. Theprestige of the judiciary rose. It began to actas if it could “solve all of Brazil’s problems”,says Oscar Vilhena, the dean of the lawschool at Fundação Getulio Vargas (fgv).

Investigators, led by judges like MrMoro, became more aggressive and lesscareful. They made liberal use of pre-trialdetention and arrested suspects to forcethem to testify. Both practices are bannedby the constitution in most circumstances.Whereas American prosecutors spent de-cades refining the practice of plea bargain-ing before using it to clobber mafia dons,its swift deployment in Lava Jato was akinto “changing the tyre as you drive”, saysMatthew Taylor of American University inWashington, dc.

The “ends-justify-the-means” attitudeled to mistakes, says Heloísa Estellita, aformer clerk of the supreme court. In 2016,in an apparent attempt to stop Ms Rousseffappointing Lula as minister, which wouldhave shielded him from prosecution, MrMoro leaked to the media taped conversa-tions between them. That aroused suspi-cions among their supporters that thejudge was targeting the left. Suspicion in-creased when he agreed to join the cabinet.In 2017 Lava Jato prosecutors gave immuni-ty to two businessmen who claimed tohave bribed Mr Temer. The informationthey provided was incomplete. It lateremerged that one prosecutor was alsoworking for the law firm defending them.

That error became Lava Jato’s “Trojanhorse”, says Felipe Recondo, a founder ofJota, a news site that focuses on Brazil’s ju-diciary. It helped bring about a new con-frontation within the judiciary, betweenLava Jato operatives and the supreme court.Mr Bolsonaro and most Brazilians back theinvestigators. Politicians tend to root forthe higher court. Much will depend on theoutcome of that duel.

Many Brazilians regard the supremecourt as an ally of corrupt politicians. Inpart that is because sitting politicians en-joy a right called foro privilegiado. Thismeans that only the supreme court can trythem for acts of corruption they commitwhile in office. The overburdened court al-most never convicts. It heard 404 casesagainst politicians between 2011 and 2016but issued guilty verdicts in just three.After the death in 2017 of one gung-ho jus-tice and missteps by investigators, thecourt became more sceptical of Lava Jato.

The new bench has issued politician-friendly rulings. Some, like limits on pleabargaining and a ban on coercive question-ing, corrected excesses. Others seemed ar-bitrary, like the release of a former ministerwho had been convicted of corruption andlost his first appeal. One justice, GilmarMendes, freed 19 defendants in 30 days in2018. “The supreme court does not exist,”says Conrado Hübner Mendes, a law pro-fessor at the University of São Paulo. “Thereare 11 mouths and 11 pens.”

It will soon be at the centre of anothercontroversy. It plans to reconsider its earli-er ruling that people convicted of crimescan be jailed after they lose their first ap-peal. A reversal of that decision could re-sult in the release of thousands of convictsnot deemed a danger to society, includingordinary criminals. It could also under-mine Lava Jato, investigators fear, by weak-ening suspects’ incentive to co-operate.

Such a decision could provoke popularas well as prosecutorial fury. It flared lastmonth, when the supreme court ruled thatelectoral courts rather than criminal onesshould deal with campaign-related corrup-tion. Mr Bolsonaro’s supporters erupted.The hashtag ASoldierACorporal trendedagain. The episode shows that Brazilians

are apt to back pseudo-cures for impunityrather than the surer but slower remedy ofbuilding institutions. “We are living in apopulist Brazil, which is challenging forthe rule of law,” says Ms Estellita.

Institution-builders are looking to MrMoro. He says he accepted the job in MrBolsonaro’s cabinet to ensure that Lava Jatodoes not end up like Italy’s “clean hands”investigations of the 1990s, which impli-cated a lot of politicians without changingthe system. Mr Moro brought to his firstmeeting with Mr Bolsonaro a 624-pagedocument called “New Measures AgainstCorruption”, drawn up by fgv and Transpa-rency International, a watchdog.

But politics may limit Mr Moro’s ambi-tions. His first anti-crime bill has somevaluable ideas, including protection forwhistleblowers and a longer statute of lim-itations for corruption. But it leaves outmany useful anti-graft measures, such asending foro privilegiado. Congressional re-sistance forced him to delay a proposal tocriminalise illegal campaign donations.

Now the Bolsonaro family itself is fac-ing scrutiny from investigators, which maycool its enthusiasm for graft-busting. InJanuary another of the president’s sons,Flávio, a senator from Rio de Janeiro, triedto claim foro privilegiado to avoid an inqui-ry into suspicious transactions recorded inthe bank account of his driver. If such scan-dals multiply, Lava Jato’s most vociferousallies could become its worst enemies. 7

Lava Jato by numbers

Sources: Public Prosecutor’s Offices;Attorney-general of the Republic

April 2019 or latest available*

*A small amount of double counting is possible becauseindividuals have been accused in multiple jurisdictions

Rio de Federal Curitiba Janeiro São Paulo supreme court Year investigation began 2014 2016 2017 2015 Number of people accused 429 312 57 110 number convicted 155 40 4 3 of which, politicians 11 4 0 1 Years of prison time 2,242 665 355 19 Plea bargains 183 35 10 110 Fines, bn reais 13 0.7 0 0.8

Aroldis chapman, now a pitcher forthe New York Yankees, has hurled the

fastest fastball ever thrown in a major-league baseball game. It was a 105.1mph(169kph) scorcher in a game against the SanDiego Padres in 2010. Fans call him the “Cu-ban Missile”. He is one of a score of Cuban-born players in the United States’ topleague. Most, including Mr Chapman, de-fected from the communist island, often inharrowing circumstances. Yasiel Puig, aright-fielder for the Cincinnati Reds, washeld hostage by gangsters at a motel inMexico for months on one of his many at-tempts to escape Cuba.

Under an agreement between MajorLeague Baseball (mlb) and the Cuban Base-ball Federation reached in December, theexodus of Cuban talent to the United Stateswas to have become less perilous for theplayers and more profitable for Cuba. mlb

This time it’s about baseball

US-Cuba relations

The new “CubanMissile” crisis

40 The Americas The Economist April 13th 2019

2

Bello Lenín’s new economic policy

Two years ago Lenín Moreno wasnarrowly elected as Ecuador’s presi-

dent because he was the chosen success-or of Rafael Correa, a left-wing populistwho had governed the country for theprevious decade during an oil boom. Asocial democrat, Mr Moreno has little bylittle reversed his predecessor’s policies.Whereas Mr Correa was an ally of Vene-zuela’s leftist dictator, Nicolás Maduro,Mr Moreno has backed Juan Guaidó, theopposition leader. He has opened tradetalks with the United States. On April 11thBritish police arrested Julian Assange,the co-founder of WikiLeaks, at theEcuadorean embassy in London after MrMoreno withdrew asylum granted by MrCorrea in 2012.

Mr Correa once crowed that “becausewe are bad pupils of the imf, things aregoing well in Ecuador.” Last month MrMoreno seemed to complete the policyrupture when his government signed a$4.2bn loan agreement with the imf.

This path from populism to moder-ation is one that Mr Maduro should havefollowed in Venezuela, but didn’t. Yet in ademocracy it is politically hard, as Maur-icio Macri has found out in Argentinaand Mr Moreno is finding, too. It hasfallen to him to clean up the economicmess left by Mr Correa, and that meanstaking unpopular measures.

Mr Correa did at least invest some ofhis oil windfall in roads and hospitals.But he squandered much of it. Publicspending rose from 20% of gdp to 40%in his years in power. Public-sectorwages almost doubled, too. White ele-phants multiplied. In January auditorsrevealed that five big projects under MrCorrea involving Petroecuador, the stateoil and gas firm, featured a staggering$2.5bn of overbilling by contractors. Aspopulists do when the going gets tough,

Mr Correa borrowed. Public debt tripled infive years and the government took tospending the central bank’s reserves.

Even as he talked about overcoming hiscountry’s dependence on oil, Mr Correaintensified it. He abandoned a rainy-dayfund into which he should have put someof the windfall. After its currency col-lapsed in 1999, Ecuador adopted the dollar.This means that when conditions change,it cannot respond by devaluing. Mr Cor-rea’s expansionary policies pushed upwages and inflation, making Ecuador’snon-oil exporters uncompetitive. Whenthe oil price fell sharply in 2014, Ecuadorwas hit hard. The economy entered reces-sion and the fiscal deficit climbed to 8% ofgdp in 2016.

The aim of the programme agreed withthe imf is to put the public finances on asustainable basis and improve the econ-omy’s competitiveness. It involves anambitious fiscal adjustment, of five pointsof gdp over the next three years. This maybe easier than it looks because so much ofMr Correa’s spending was wasteful. Thegovernment has already cut the deficit

significantly. The programme’s assump-tions regarding growth and the oil priceare conservative, according to Augustode la Torre, a former head of Ecuador’scentral bank.

The trickiest part will be raising taxes,such as vat. This will require the assentof congress, where Mr Moreno mustdepend on conservative oppositionparties for support. He may get it. Oppo-sition leaders like Jaime Nebot, themayor of Guayaquil, who wants to runfor president in 2021, might prefer theeconomic pain to be out of the way be-fore then.

Austerity is never easy. Further pub-lic-sector lay-offs, rises in regulated fuelprices and a planned reform to makelabour contracts a bit more flexible maybring street protests. The government’shopes of attracting foreign mining firmsmay be stymied by local protesters. MrMoreno’s approval rating has fallen to30%, from 69% in 2018. It makes it harderstill that he is accused of having usedundeclared consultancy fees when work-ing for the un in Geneva in 2013-16 to buya flat in Spain. He denies wrongdoing. Heaccused Mr Correa of seeking to “desta-bilise” his government because of itsinvestigations of past corruption.

The economic programme containsthe germ of a different Ecuador. Insteadof being an opec member in Venezuela’sshadow, it could combine the virtues ofPeru and Panama. Like Peru it could be adiversified exporter of minerals and farmproducts (it already sells cut flowers andhigh-quality cocoa). And like Panama itcould use the stability offered by thedollar to become a service hub. Gettingthere requires political leadership. MrMoreno has moved his country halfwayaway from populism. Completing thejourney may be harder.

Ecuador shows the difficulties of post-populist politics

teams would have paid the Cuban federa-tion a fee worth 15-20% of the contract.Newly enriched players would board com-mercial jets to join their new clubs and payincome tax to the Cuban government.

On April 8th the Trump administrationcancelled the deal. Far from keeping aspir-ing major-leaguers out of the clutches ofpeople-smugglers, the agreement wouldencourage “human trafficking”, an Ameri-can official claimed. More plausibly, theadministration pointed out that moneysent to Cuba would end up in the coffers ofits repressive government.

The tag-out is the latest expression ofMr Trump’s determination to undo the rap-prochement with Cuba that his predecess-or, Barack Obama, had brought about. Thebaseball deal would not have been negoti-ated without it.

Mr Trump has maintained diplomaticrelations. There is currently no us ambas-sador to Cuba, but that is true of manyplaces under this president. However, hehas made it harder for Americans to travelto the island. Last month the administra-tion said it would allow Americans to sueCubans holding property that had been

confiscated by Cuba’s government after thecountry’s revolution in 1959. This reverseda longstanding policy of suspending thatright. Two American senators have intro-duced a bill to prevent courts from recog-nising trademarks owned by Cuban confis-cators. It is nicknamed the “rum bill”,because it would affect a Cuban-Frenchventure that sells Havana Club rum.

Like most other measures the UnitedStates has adopted to force out Cuba’s com-munist regime, the baseball ban is likely toprove futile. More than 350 ballplayershave defected from Cuba since 2014. 7

The Economist April 13th 2019 41

1

The cry rippled through the crowd inthe early hours of April 11th, accompa-

nied by the beating of drums and blasts onwhistles: “It has fallen. We have won.”

And, so it appears, they have. Almost ex-actly 30 years after Omar al-Bashir seizedpower in a bloodless coup, shunting asidehis democratically elected predecessor, theman who did so much to wreck Sudan hashimself been toppled. His fall marks theculmination of four months of almostceaseless protests against one of Africa’slongest-ruling tyrants. “In spite of all hur-dles and hardships, it is over,” said AhmedElyas, an engineer in Khartoum who was inthe crowd. “We won.”

As The Economist went to press tens ofthousands of demonstrators—encampedoutside the main army compound in cen-tral Khartoum since April 6th—waited onan announcement from the generals as thearmy moved troops onto the streets andstate radio and television played patrioticmusic. Yet even amid the jubilation it wasunclear whether this was a coup that wouldlead to another military strongman step-

ping in, or a revolution that would put ci-vilians in charge.

Initial reports were contradictory. Somesuggested that the army was trying to forman interim administration led by AhmedAwad Ibn Auf, the defence minister, whohas had sanctions placed on him by Ameri-ca for his role in war crimes. But protestleaders including the Sudanese Profes-sionals Association, a coalition of trade un-ions, said they would only accept a hand-over of power to a civilian transitionalgovernment. Unconfirmed reports saidthat Mr Bashir and two other people want-ed by the International Criminal Court(icc) for war crimes had been arrested.

What is clear is that the fall of Mr Bashir

is the latest in a wave of change that hasswept away many of Africa’s longest-serv-ing rulers, from Algeria to Zimbabwe. “It isthe extinction of the dinosaurs,” says AlexVines of Chatham House, a think-tank.Driving this are urbanisation and thespread of mobile phones, which make iteasier to organise protests, says Judd De-vermont of the Centre for Strategic and In-ternational Studies. Jon Temin of FreedomHouse, another American outfit, says threeof the five countries posting the biggestmoves towards democracy last year wereAfrican; Angola, Ethiopia and Gambia.“There is a growing people-power dy-namic,” he says.

The protests in Sudan erupted in De-cember in response to rising food prices.But people soon turned their ire on Mr Ba-shir, who has governed woefully since1989. His men have massacred and raped ci-vilians in wars against rebels in Darfur andthe south, acts that have led the icc to in-dict him and some of those closest to him.

His Islamist allies have flogged womenfor “immoral” behaviour, such as wearingtrousers. Corruption is rife. The economyshrank by 2.3% in 2018. Inflation reached70% at the start of the year (though the gov-ernment claims it has since fallen).

When protests broke out in Decemberthe government responded by arresting,beating and killing people. In February MrBashir declared a nationwide state of emer-gency, dissolved the government and re-placed all 18 state governors with soldiers

Sudan

A tyrant is toppled

A D D I S A B A B A

Mass protests oust Omar al-Bashir, a despot who presided over genocide

Middle East & Africa

42 Sharia in Nigeria

42 Fearing even worse in Libya

43 America and Iran

44 Israel’s election

Also in this section

42 Middle East & Africa The Economist April 13th 2019

2

1

or securocrats. Yet still the crowds callingfor him to go continued to swell.

On April 6th, the anniversary of the rev-olutionary overthrow in 1985 of Gaafar Ni-meiry, a previous military dictator of Su-dan, tens of thousands took to the streets inthe capital. Many hoped to repeat the earli-er feat in which months of mass protestshad prompted the army to step in and de-pose a hated tyrant. Democratic rule fol-lowed in 1986 before it was cut short by Mr

Bashir’s coup a few years later. Within days of the new protests erupt-

ing in the capital, thousands of people setup camp outside the headquarters of thearmed forces and Mr Bashir’s current resi-dence. Although this is not the first timethat Sudanese people have tried to rise upagainst Mr Bashir, the marked differencenow was that they had won the support ofsections of the armed forces.

When the government tried to clear the

protest in Khartoum using tear gas and bul-lets, soldiers and sailors joined the crowdand fired their guns to defend it. Naval offi-cers exchanged fire with members of thespy agency and paramilitary forces. OnApril 9th some junior officers told thecrowd they had joined the revolt.

The big question now is who will suc-ceed Mr Bashir. The formal opposition isless divided than it was in the past, but itstill has no obvious leader of its own. Sever-al are tainted in the eyes of protesters forhaving worked with the ruling NationalCongress Party (ncp) in the past. Yet a newgovernment may have to include currentand former members of the ncp for theirbureaucratic expertise.

Events in Sudan will be watched ner-vously by Mr Bashir’s fellow Arab and Afri-can leaders, who fear a second phase of theArab spring that swept away several ofthem in 2011. After the recent resignation ofAbdelaziz Bouteflika in Algeria, many arewondering: who’s next? 7

Although it is guarded by high wallsand a thick metal door, a nightclub in

Kano hardly bothers to conceal its exis-tence. Disco lights flash out on the sur-rounding streets. Pop music is pumpedcarelessly into the night air. Young menand women sip beer and sway to therhythm, seemingly unconcerned that,under Islamic law, such depravity ispunishable by whipping.

Between 1999 and 2002 a dozen statesin Nigeria’s mostly Muslim north, in-cluding Kano state (the capital of whichis also called Kano), adopted penal codesbased on sharia. At first these statesstrove zealously to enforce the new rules.Many recruited religious police forces,called the Hisbah, to confiscate alcoholand arrest adulterers (who are occasion-ally sentenced to death by stoning, butare never actually stoned) to ensure thatcitizens did not sin. Many northernpoliticians, while eager to appear pious,are not really committed to stamping outbooze and fornication, perhaps becauseso many voters want to be left to theirown vices. When budgets are tight, theyfind they don’t need so many moralitypolice. “The government is not seriousabout sharia,” grumbles a cleric.

Kano is still socially conservative, butresidents say it feels less stifling than itwas. In Sabon Gari, a neighbourhood fullof Christian migrants from Nigeria’ssouth, bars and betting shops abound. Toavoid upsetting southerners, northernstates said sharia would not apply toChristians. However, in the past theHisbah would scour the neighbourhood’sbars and brothels for Muslims, recalls ahotel-owner. “We don’t see them now,”she adds, except when they come for adrink. A dimly-lit bar in her hotel is filledwith men wearing the robes and captypical of northerners.

At the headquarters of Kano’s Hisbahthe morality police put on a brave face.Signs outside the building remind pass-

ers-by that God is great. MuhammadRabiu Jakata, its director of statistics,boasts that the force is destroying morebeer bottles and prosecuting more sin-ners than ever before. But in private acolleague confesses that all is not well.Kano’s last two governors have squeezedthe Hisbah because they thought it wasloyal to their respective predecessors, hesays. Its ranks have fallen from 9,000 in2010 to 7,000 today, and its budget hasbeen cut by a third. “We still try to doeverything,” says the officer, “but it is notlike before.” Many residents of Kano nowsee the Hisbah as little more than a coun-selling service, useful for settling familydisputes but not much else. “If I have aproblem with my wife, I go to the Hisbah.If I have a problem with customers I willgo to the federal police,” says Saminu, atextile merchant.

Between gulps of beer, Danladi, aformer civil servant, speculates thatpoliticians have lost interest in shariabecause they have exhausted its vote-winning potential. But being a Muslim,he admits, he wishes he could resist thetemptation to drink. “We are all humanbeings,” he adds. “You rarely find a per-son who is perfect.”

Nigeria’s vice cops feel squeezedSharia

K A N O

Voters rather enjoy sinning, and politicians have taken note

This was supposed to be a rare momentof cautious optimism in Libya. On April

4th António Guterres, the un’s secretary-general, arrived in Tripoli, the capital, toprepare for a peace conference which, hehoped, would lead to long-delayed elec-tions later this year. But hours after he ar-rived Khalifa Haftar, the warlord who con-trols much of the country, launched anoffensive to seize the city. At times his self-styled Libyan National Army (lna) hasreached within 10km or so of Tripoli’s cen-tre. Dozens have been killed. Flights weresuspended after General Haftar’s jetsbombed the city’s only functioning airport.The conference has been cancelled. “Theun is deeply engaged in negotiations forpeace,” Mr Guterres said later. “We’re notalways successful, I must confess.”

The general had long threatened to takeTripoli. Until now he was posturing. Noone is quite sure why he chose this mo-ment to move on the capital. Whatever hisreasons, his offensive is starting to looklike a big miscalculation. He would haveentered the conference in an enviable posi-tion, holding most of Libya’s land and oilwells. Instead the lna is now bogged downon several fronts. The general risks losingnot only the battle for Tripoli but many ofhis other gains as well.

He may have been encouraged by his re-

C A I RO

Libya’s strongest warlord faces stiffopposition as he moves on Tripoli

Fearing even worse in Libya

Haftar’s bad bet

The Economist April 13th 2019 Middle East & Africa 43

2 cent romp through southern Libya, seizedin a lightning campaign earlier this year.Many southerners welcomed the lna.Their region is rife with ethnic and tribalfighting, and with smuggling gangs. Mili-tants from neighbouring Chad and Sudanhave joined the fray. Locals hoped the gen-eral would bring stability. He seized townsand a big oilfield with little bloodshed.

Grabbing all the west will not be so easy.Militias from the port city of Misrata havevowed to block the lna’s advance. One con-tingent has deployed to reinforce Tripoli.Another is preparing a counter-offensiveto the south and east. The Misratans are thestrongest force in western Libya and won adecisive victory over Islamic State (is) in2016. They resent General Haftar’s ambi-tions and are linked to the government inTripoli through the interior minister, FathiBashagha, a Misratan. General Haftar hadworked for months to co-opt forces in thewest, some of whom are frustrated with theun-backed Government of National Ac-cord (gna) in Tripoli. Now they seem un-ited against him.

His offensive is embarrassing his nu-merous foreign allies. Egypt and the UnitedArab Emirates have provided air support.France has special forces deployed in theeast. Russia has sold him weapons. (Thegna counts Qatar, Turkey and Italy as part-ners.) The general’s friends nominally backthe un-led peace process but have toleratedand encouraged his machinations. Francehas not asked him to pull back. Instead itwants him to meet Fayez al-Serraj, thegna’s leader, for peace talks in Geneva.Egypt did not even bother to sign an Ameri-can-led statement calling for calm.

After eight years of chaos, it is under-standable why General Haftar looks ap-pealing. He brought a measure of control tothe east, while the gna has struggled tokeep Tripoli calm. Egypt and the uae sharehis anti-Islamist politics. But the captureof Benghazi caused the destruction of large

parts of the city. The general himself is 75and in patchy health. His lna is a hotch-potch of militias bound by mutual inter-ests and money. It does not represent theentire country, and some of its membersare not even Libyan. General Haftar’s em-pire may not outlast him.

Even his attitude toward Islamists isdriven by interests rather than ideology.Though he opposes the Muslim Brothersand their ilk, he has made common causewith the Madkhalis, an ultra-conservativesect backed by Saudi Arabia. They havesought to impose their puritanical views inthe east. He may have hoped Tripoli’sMadkhali faction, now aligned with thegna, would help him take the capital. Thegeneral met King Salman of Saudi Arabia inMarch, and may have won his support.

By rushing the bulk of his forces west,the general has left a vacuum in the territo-ry he already holds. Jihadists are trying to

exploit it: is attacked the central town ofFuqaha on April 9th. Unrest in the southand east would jeopardise the oil exportsthat provide 90% of government revenue.Output has recently increased, with Libyapumping some 1m barrels a day since thesummer. The fighting may reduce globalsupplies already squeezed by sanctions onIran and turmoil in Venezuela. On April 5ththe price of Brent crude topped $70 a barrel,its highest level since November.

Both sides claim to be winning. But thelna may have overreached. It is stretchedthin and will struggle to maintain supplylines across unfriendly territory. It cap-tured, then lost, the defunct internationalairport on the edge of Tripoli. The gna

bombed an airfield its rival has used tolaunch air raids. An lna retreat seems un-likely. It would be out of character, and hu-miliating, for General Haftar. But a longbattle could spell final ruin for Libya. 7

Oilfields/pipelines

EGYPT

SUD

ANCHAD

LI BYA

NIGER

TUNISIA

ALG

ERIA

Sirte

Misrata

Fuqaha

Tripoli Medi terranean Sea

BenghaziTobruk

250 km

Areas of control, April 10th 2019

Source: Liveuamap

Libyan NationalArmy (Haftar)

UN-backedgovernmentand alliedmilitiasTribesmen/

other militias

Afew years before he became presi-dent, Donald Trump’s family prob-

ably did business with associates ofIran’s ideological armed force, the Revo-lutionary Guard Corps (irgc). An articlepublished in the New Yorker in 2017 says atower bearing the Trump name in theAzerbaijani capital, Baku, was built by acompany with links to the Guards. But onApril 8th his administration blacklistedthe force. Officials hailed the move as thefirst time America had branded a nation-al army a terrorist outfit. “If you aredoing business with the irgc, you will bebankrolling terrorism,” Mr Trump said.

The irgc is Iran’s most powerfulinstitution. It can field 180,000 troops,has the country’s best weapons and hasbullied its way into vast swathes of theeconomy. It answers directly to the su-preme leader, Ayatollah Ali Khamenei,not the president, Hassan Rouhani.Within hours of America’s designationthe Guards duly declared that America’scentral command, which has 200,000personnel in the Middle East and CentralAsia, was a terrorist organisation.

America first branded Iran a sponsorof terror in 1984. It then designated theQuds Force (the irgc’s unconventional-warfare arm that operates across theMiddle East) a terrorist organisation in2007. But a few years later America’sarmed forces and the Quds Force becameunofficial allies fighting against thejihadists of Islamic State.

Despite the bluster, the latest label-

ling changes little. Mr Trump had alreadylisted the Guards as a terrorist group in2017. At the time he also imposed morestringent measures—including second-ary sanctions on anyone doing businesswith it—than those required under thisweek’s listing. The State Department saysthe new action would prevent any of itsmembers from entering America. ButIranians already faced a visa ban. “As apurely technical matter, it doesn’t meana lot,” says Danny Glaser, a former officialat the Treasury Department who oversawsanctions enforcement.

The bigger impact will be political,since the measures will deepen Iran’ssense of isolation. That hurts Mr Rou-hani more than the Guards. Iran’s oilrevenues and currency had alreadyplummeted after Mr Trump last yearreimposed sanctions and pulled out ofthe nuclear deal that Mr Rouhani hadnegotiated with world powers. Furtherpressure is expected when waiversAmerica granted to Iran’s largest buyersof oil expire in May, and as Americasqueezes Iranian banks out of the inter-national payments system.

By contrast, sanctions make theirgc’s smuggling networks lucrative.And politically it is making hay; its me-dia outlets are stoking popular angeragainst the government’s weakness andallowing the hardliners to promotethemselves as an alternative. In trying tohurt the Guards Mr Trump could behelping them, again.

Terrorcracy America and Iran

America’s decision to brand the Revolutionary Guards terrorists could help them

44 Middle East & Africa The Economist April 13th 2019

After months of heated campaigning,Israeli voters decided to change very

little. With most of the votes counted theprime minister, Binyamin Netanyahu, ap-pears to have won a fifth term in office in anelection on April 9th. His Likud party tiedwith Blue and White, a centre-left party ledby Benny Gantz, a former army chief. Bothhad about 27% of the vote. But the right-wing and religious bloc, of which Likud is apart, won a combined 53%.

That will give it a majority, probablywith 64 seats in the 120-member Knesset(parliament), the same number it holdsnow. With several parties perched close tothe 3.25% threshold to enter the Knesset,the results are still fluid. (Two have de-manded a recount.) But Mr Gantz does notappear to have a viable coalition, nor a wayto stop Mr Netanyahu from forming one.

As with the previous election, in 2015,early exit polls suggested that Mr Netanya-hu had been weakened. His rival rushed onstage to declare victory soon after votingstopped. “A historic day”, Mr Gantz de-clared, telling supporters he would formthe next government. While he madepromises, Mr Netanyahu made phonecalls. He received pledges of support fromthe ultra-Orthodox parties and a far-rightgrouping, enough to bring him withinstriking distance of a majority.

There were no signs of consternation ashundreds of Likud supporters streamedinto the basketball arena the party hadhired for election night. They had been insimilar situations before. When Mr Netan-yahu finally took the stage after 2am, mostIsraeli networks had revised their surveysto show him in the lead. On the screen be-hind him was the campaign slogan: “Net-anyahu is in a different league.” The crowdwas ecstatic. “This is a night of great vic-tory,” he said. “The right-wing bloc willcontinue to lead Israel for four more years.”

That may be a challenge—though notbecause of politics. Mr Netanyahu has beenindicted, pending a hearing, in three cor-ruption cases. Prosecutors accuse him oftaking gifts from wealthy businessmen inexchange for favours and offering legal andregulatory help to media giants in order tosecure better press coverage. He denieswrongdoing. Strikingly, the allegations didnot make him any less popular. On the con-trary: Likud’s share of the vote increased bythree percentage points from 2015. Its pro-jected 35 seats are the most it has won since

2003, when Ariel Sharon led the party.In an election that became a referen-

dum on Mr Netanyahu, many Israelis ap-pear to have voted strategically, favouringone of the two main parties in the hope itwould be asked to form a government. Itwas an impressive showing for Mr Gantz, apolitical newcomer who faced a viciouscampaign from his rival. But it came largelyat the expense of other centre-left parties.Labour, which built the country and ruledfor almost three decades, collapsed. It wonless than 5% of vote.

Other Israelis did not vote at all. Turn-out was 68%, about four points lower thanin 2015. Parties that cater to Arab citizensreceived just 328,000 votes, a 26% drop.

The outcome, and the campaign beforeit, have deepened Israel’s divisions—notonly between right and left but also be-tween Jews and Arab Israelis, who are 21%of the population. Mr Netanyahu repeat-edly accused his rivals of plotting to form acoalition with “Arab parties that oppose theJewish state”. He encouraged an ally to joinforces with a far-right Jewish supremacistparty. On election day, in what looked likean attempt at voter intimidation, Likuddistributed 1,200 cameras to its poll ob-servers in Arab towns.

In another sign of Likud’s roughnationalist tilt, one of the new Knessetmembers celebrating her election was MayGolan, an activist who led the campaign todeport African refugees from Israel. In thepast Ms Golan failed to enter the Knesset asa candidate of the racist Jewish Powerparty. Now she will sit with the ruling party.

If he forms a right-wing coalition, MrNetanyahu must pay heed to the demandsof at least four other parties. Those repre-senting the Ultra-Orthodox will want topreserve their exemption from the armydraft and secure other giveaways on issuesof religion and state. His hawkish partnerswill want him to fulfil a promise, made inthe campaign’s final days, to start annexingparts of the occupied West Bank. That stepwould raise profound diplomatic and exis-tential questions for Israel. The Americanpresident, Donald Trump, is expected topresent his own peace plan soon. The Pal-estinian leadership, enraged at many of MrTrump’s policies, will almost certainly re-ject it. Senior Likud members say that willclear the path for annexation.

Mr Netanyahu, for his part, will be wor-ried about his future. Wing 10 of Israel’sMaasiyahu jail is designed to hold formerprime ministers. His predecessor, Ehud Ol-mert, was imprisoned there for takingbribes. With the election over, Mr Netanya-hu’s lawyers will receive dossiers of evi-dence to prepare for pre-trial hearings, ex-pected in the coming months. His allieshave proposed a bill that would shield a sit-ting prime minister from prosecution.Some of his prospective coalition partnersoppose it. Mr Netanyahu may seek to wintheir support by making other conces-sions. If he fails, his fifth term may be ashort one. 7

J E RU S A LE M

Binyamin Netanyahu fought off his toughest challenge yet. What will he do next?

Israel’s election

King Bibi keeps his crown

He’s back!

Coalition-building blocs

Source: Haaretz.com

Seats in Israel’s Knesset by party and political stance, 2019, 120 seats available

Hadash-Taal (6)Raam-Balad (4) Yisrael Beiteinu (5)

Right-wing parties (65)Centre-left bloc (55)

Likud (35)

United Right (5)

Blue & White (35)

Kulanu (4)Meretz (5) Labour (6)

Shas(8)

UTJ(7)

61 seats requiredto form government

→ April 13th 2019

3 A class apart

5 Filling the gaps

6 Online language lessons

7 Variety

8 Religious education

SPECIALREPORT:

Private education

11 Costs and benefits

9 Public-private partnerships

A class apart

The Economist April 13th 2019 3

Housed in a jumble of ancient buildings in the shadow of West-minster Abbey, Westminster School has been educating boys

since it was founded in 1560 by Queen Elizabeth I to provide les-sons for 40 poor scholars. It has evolved since then—its 750 pupilsnow include some girls, and with fees of £39,252 a year for boardersand £27,174 for day pupils, poor scholars are thin on the ground—but for nearly half a millennium, these historical premises definedits geographical limits.

That is about to change. A ground-breaking ceremony on April9th marked the start of the construction of Westminster Chengdu,the first stage in a venture with a local partner, Hong Kong Melodi-ous Education Technology Group. The school is due to open in Sep-tember 2020 and will have 2,500 pupils from the ages of 3 to 18. Itwill be followed by a further five establishments of a similar size inother Chinese cities over the next ten years, by the end of whichWestminster will be educating 20 times as many children in Chinaas in the heart of London.

A slice of the Chinese operation’s income will flow back to themother ship, enabling Westminster to increase the share of pupilson bursaries in Britain from around 5% to 20%. “It will give us arevenue stream that will allow us to go back to our roots,” says Rod-ney Harris, deputy headmaster in London, who is moving toChengdu in September to take the top job there. By extending itsmodel to China, the school thus hopes to mitigate the inequality towhich it contributes in Britain.

Education used to be provided by entrepreneurs and religiousorganisations, but starting in Prussia in the 18th century, govern-ments began to take over. In more recent years the state hasdominated education in the rich world, with the private sector re-stricted to the elite and the pious. In the developing world, too,new states created from crumbling empires were keen to provide(and control) education, both to respond to their people’s ambi-tions and to shape the minds of the next generation.

But now the private sector is enjoying a resurgence. Enrolmentin private schools has risen globally over the past 15 years, from10-17% at primary level and from 19-27% at secondary level; the in-creases are happening not so much in the rich world as in low- andmiddle-income countries. People are pouring money into school-ing, tuition and higher education (see chart on next page).

Four factors are driving the increase. First, incomes are rising,especially among the better-off. Since birth rates are falling, theamount of money available for each child is rising even faster thanincomes. In China the one-child policy has meant that in manyfamilies six people (four grandparents and two parents) are pre-pared to invest in the education of a single child.

Second, thanks to the relative decline and increasing capital in-tensity of manufacturing, job opportunities for the less well-edu-cated are shrinking. Even good factory jobs require qualifications.The returns to education have risen despite the rise in the supplyof well-educated people. In developing countries, which have few-

A class apart

Special report

Private education is booming in new markets and new forms, says Emma Duncan

Private education

1

4 Special report Private education The Economist April 13th 2019

2 er of them, the returns are higher than inthe rich world, making it even more impor-tant for young people there to go to school.

Third, the output of education also pro-vides some of the input: the more childrenthat are educated, the more teachers will beavailable to bring on the next lot. This is es-pecially true in countries in which job op-portunities for women are limited: lots ofeducated women translate into a readysupply of cheap teachers.

Fourth, technology is creating a de-mand for new skills which the private sec-tor seems better at providing. It is alsoopening up new markets as the internetenables people to get educated in differentways and at different times in their lives.

The dividing line between private andpublic is often unclear—many countrieshave government schools that are partlyprivately financed, for instance, and priv-ate schools that are publicly financed—andthe size and growth of the private sector va-ries from country to country. Broadly, themore developed the country, the smaller the private sector’s roletends to be. In Haiti about 80% of primary-school pupils are beingeducated privately; in Germany, just 5%. In mainland Europe, thequality of state education is generally high, so the private sectortends to play a smallish role—though there are wrinkles. For ex-ample, a history of religious divisions in the Netherlands hasmeant that three-quarters of pupils go to private schools, the greatmajority of them publicly financed; in Sweden, 10% do. In Americaand Britain the quality of government schools is variable, whichexplains sizeable elite private sectors and a growing number ofprivately managed, publicly funded schools—“charters” in Ameri-ca, “academies” in Britain. In the tertiarysector, private institutions have a big rolein America, both at the top and the bottomof the market; in Britain, the tertiary sectoris now largely privately financed.

In Latin America the Catholic church’sbig role in schooling, the low quality ofstate provision and the rapid growth in de-mand for tertiary education have all con-tributed to a big role for the private sector.In much of South Asia and Africa, poverty,migration and population growth make ithard for governments to provide schoolingin many cities, so the private sector is big,and growing fast. The elites have alreadyleft the public systems, and many middle-class and poorer people are following.

Like Europe, East Asia has generous andmostly good state provision, but unlike Eu-rope it also has a fast-growing private sec-tor. Vietnam has both the best state-schoolsystem in a low-income country and prob-ably the world’s fastest-growing private-school sector. The market capitalisation ofChinese education companies, bigger thanthose of any other country, suggests thatinvestors see it as a golden opportunity.

The Chinese state is clamping down onthe private sector’s role between the ages of6 and 16, but there is still room for growth.

If the child goes to a private nursery and a private university, andreceives two hours of private tuition on each school day and eightat the weekends, with a summer maths camp thrown in—a fairlystandard routine for a child of Chinese professionals—he or shewill spend as much time in the private as in the state sector.

All of this makes education attractive to investors, says AshwinAssomull of L.E.K. Consulting. Demand is growing faster than in-comes and holds up well in economic downturns. Technology iscreating new markets. Schooling is fragmented, but there are largeand growing chains, such as gems Education, a Dubai-based com-pany with 47 schools mostly in the Middle East; Cognita, a British

company with 73 schools in eight coun-tries; and Beaconhouse School Systems, aPakistani company with 200 schools inseven countries.

The main downside is the sector’s polit-ical sensitivity. Private investment in edu-cation makes governments uncomfortablebecause it pits a private good against a so-cial one. Governments, like parents, wantchildren to learn, but they also want tomaximise social mobility and minimiseinequality, whereas parents simply want toensure that their children do better thananyone else’s.

These objectives inevitably conflict, sogovernments regulate and restrict the priv-ate sector, controlling what is taught, ban-ning profits, outlawing selection, cuttingfees and generally making the business un-attractive to investors. Yet they need it, too,so they work with it, channelling its skills,inventiveness and capital and pouring tax-payers’ money into it.

This special report will consider whatthe private sector is providing that the stateis not, and look at the costs and benefits ofits growth. It will examine how well it isperforming, and conclude by asking howthe private sector and the state can work to-gether to best effect. 7

The business of learning

Listed education companiesMarket capitalisationMarch 1st 2019, $bn

Consumer spending on educationReal terms, 2000=100

50

100

150

200

250

300

350

2000 05 10 15 18

VietnamWorld

Europe

United States

China

India

2018, $bn

68

9

273

134

290

Sources: HolonIQ; Oxford Economics

0

50

100

150

200

2019

China

United States

BritainBrazil

Other

Private preferences

Sources: Government data; L.E.K. Consulting*Estimate, based onlatest available data

Enrolment in private schools, % of totalSelected countries

2007 2017*

0 25 50 75

UAE

Chile

India

Spain

Australia

Thailand

Brazil

Saudi Arabia

Hong Kong

Malaysia

China

Germany

Vietnam

Britain

Singapore

The Economist April 13th 2019 Special report Private education 5

1

Dogs and emaciated cows pick their way through the rubbishdump that marks the visitor’s arrival in Sangam Vihar, an “un-

authorised colony” amidst the sprawl of south Delhi. It sprang upwithout planning permission and now houses 1.5m people. Thegovernment offers very little in the way of services. Water arrivesin trucks run by gangs whose members have a habit of murderingeach other. Education is provided by four government schools andaround 100 private ones, according to Sushil Dhankar, who runsHari Vidya Bhawan School.

At Mr Dhankar’s smart, modern establishment in an alley offthe grubby main street, pupils in spotless cream uniforms wel-come the visitor with floral garlands. The school was set up by MrDhankar’s father, who begged his son to return from a job in ac-countancy in Australia to help run it. Mr Dhankar’s sister runs theprimary school and his wife the secondary one. It is a flourishingenterprise with 2,000 students from 4 to 18 and an average result inthe Central Board of Secondary Education exam of 86%, slightlyabove the national average. Fees range from 850 rupees ($12) amonth for the little ones to 1,800 rupees for the oldest. By Indianstandards, this is not cheap. But local parents, mostly labourers ordrivers earning around 500 rupees a day, are prepared to make sac-rifices, says Mr Dhankar: “They don’t want their children to dowhat they are doing.”

In most of the world the state provides most of the populationwith primary and secondary education. But in some countries it

struggles to keep up with population growth and movement, andthe countries whose populations are growing and moving fastesttend to be poorer ones with less capable governments.

Most low-cost private schools are mom-and-pop outfits. A fewchains are emerging, some of which are for profit, such as BridgeInternational Academies, whose investors include Bill Gates ofMicrosoft and Mark Zuckerberg of Facebook. It has produced goodresults but has become controversial, partly because the idea offoreigners making profits out of providing education for poor peo-ple is politically sensitive. The non-profit model is an easier sell.Bangladesh and Pakistan, both weak states with a huge need foreducation, have produced two impressive non-profit operators,Brac (which educates 1m children) and The Citizen’s Foundation(tcf, with 220,000) respectively. A few Western-run non-profitchains, such as Peas, have produced excellent results in Africa.

Getting in earlyThe private sector is also filling gaps in provision for children’searly years. Enrolment in pre-school education varies widely, evenin rich countries. Most countries mandate formal education onlyfrom age five or six onwards, but attitudes are changing as the earlyyears are increasingly seen as the most crucial period in the devel-opment of the human brain. Across the oecd, preschool atten-dance among under-threes rose from 18% to 33% between 2005and 2016, and among three- to five-year-olds from 76% to 86%. Lastyear France announced it would make enrolment from age threecompulsory. But governments are not keen to take on extra finan-cial burdens, so in most places the extra demand is being metlargely by the private sector.

Wealthy people will spend heavily to buy their children an earlyadvantage, as demonstrated by Cognita’s new “early-learning vil-lage” in Singapore, which will eventually cater for 2,100 childrenaged 18 months to six years. Facilities include 114 outside spaces,one for each classroom, and nine playdecks equipped with pirateships, tricycle tracks and suchlike. The classrooms are arranged in

You demand, we supply

The private sector steps in where the state leaves off

Filling the gaps

Cognita’s privileged few

6 Special report Private education The Economist April 13th 2019

2

1

groups of four, each with a central space to create asense of community. “The building develops with thechildren,” says Adam Paterson, one of the centre’s twoheadteachers. “They move through it as they grow.”Fees range from S$14,832 ($8,393) to S$35,610 a year.

But despite strong demand, the early-years busi-ness is not all plain sailing for companies. Some, suchas Australia’s g8, have struggled in an oversupplied market. Barri-ers to entry are low, and firms need to be careful when looking afterpeople’s most valued assets; the stock price of ryb, a big Chineseoperator, crashed after staff at its nurseries were found to be pun-ishing children by pricking them with needles and feeding thempills to make them sleep.

Demand for education outstrips public-sector supply not justin the early years but at core school age as well. The state may pro-vide it five days a week, but many parents cannot get enough of it,so the private sector supplements it in the evenings, at the week-ends and in the holidays. A survey by Ipsos mori for the Sutton

Trust showed that the share of British children who hadhad private tuition rose from 18% in 2005 to 30% in2017. And British children get off relatively lightly, withan average of ten hours’ extra tuition a week, comparedwith 12 in China, 15 in South Korea and 16 in Bulgaria.

It is not just the elite that buys tuition. The Ipsosmori survey showed that although richer parents were

somewhat more likely to resort to it than poorer ones, parents fromethnic minorities, both black and Asian, were much more likely touse it than white ones. Shehda Asif, a maid with three children atthe Royal Public School, a small establishment on the outskirts ofLahore, spends 1,700 rupees ($12) a month on the fees and a further1,000 rupees on after-school tuition. Almost all of her income goeson education; for the rest of its outgoings the family relies on herhusband, a labourer.

In much of the world, private tuition is a small-scale business,often using casual labour which itself has become available be-cause many more people are being educated. At Heaven Kids

School in Township, a lower-middle-class areaof Lahore, most of the young men in a groupof tutors are themselves students. Tutoringone child in one subject for Pakistan’s ma-triculation exam for one hour six days aweek can cost up to 10,000 rupees a month;for the International Baccalaureate, twiceas much. Tutors tend to check out the par-ents’ house before setting a price. The sys-tem suits the tutors, but some disapprove.“There’s too much competition among par-ents,” says Mohammed Ashfaq, who isstudying for a master’s degree.

But some large companies are involved,too. Two of the world’s biggest listed educa-tion companies, New Oriental and tal Edu-cation, are Chinese providers of tuition andtest-preparation. Technology is driving theexpansion of the business, for instance byallowing the children of the well-off inemerging markets to be tutored by hard-upyoung people in the rich world (see box).India’s biggest ed-tech company, Byju’s,sells test-prep apps, charging a subscrip-tion of up to 37,000 rupees a month; it has2.2m paid subscribers, who spend an aver-age of 64 minutes each day on the app. It ischeaper than hiring an American over theinternet, but still only for the well-off.

The private sector has long played animportant part in the tertiary-educationmarket, perhaps because the benefits of adegree go more clearly to the individualthan to society as a whole. In rich countries,policy has also pushed in that direction.The top ranks of America’s higher-educa-tion system—financed by user fees and stu-dent loans—are dominated by non-profitprivate institutions, the middle by publicinstitutions and the bottom by the for-pro-fit private sector. (The last part is currentlythe only large chunk of the world’s private-education market that is shrinking; poorresults at for-profit colleges prompted theObama administration to restrict access togovernment loans for students.) Britainand Australia, too, have moved towards a

Distance no object

The employees of vipkid are doing their bit for America’s trade deficit with China

Amanda spikes, aged 27, sits in hertiny bedroom in Brooklyn, New York,

talking through her headset to eight-year-old Joey in Hebei province, northernChina. On the wall behind her are felthangings that read “Team Amanda” and“vipkid”, the company for which sheworks. On the screen are images of her,Joey and some teaching materials.

“Happy New Year, Joey!” says MsSpikes, enunciating very clearly. Then shesings him a little song: “I like food, I likefruit, fruit tastes good in the morning,”and claps when Joey repeats it. This les-son is going better than the last one,when Joey messed up the technology bylicking the iPad screen.

vipkid is the biggest of a number ofcompanies using technology to provideteachers in the West for Asian childrenwho want to learn English. Stephenie Lee,a senior product lead, describes the com-pany as “the Uber of education…We pro-vide the limos and the trained chauf-feurs.” Its 60,000 teachers are mostlypeople with classroom experience whoprefer the freelance life. Amanda has 10-12regular customers and teaches five or six25-minute lessons a day, for which shegets paid $10.50 a time.

Since it was founded in 2013, vipkidhas won half a million customers. Itprovides 180,000 lessons a day. At 140yuan ($21) each (less for bulk purchases),these add up to revenues of over $1bn,which cover, aside from the teachers’salaries, the costs of the platform andcustomer acquisition, although Ms Lee

says they get most of their clients throughword of mouth. vipkid provides a curri-culum and materials to help teachers“make the best of that little rectangle”,she explains. That includes digital cos-tumes in which teachers dress up toamuse their pupils.

Online tutoring works better thanolder people might expect. Nine-year-oldZhang Yutong in Tianjin wasn’t makingmuch progress in her 30-strong class atschool; now, says her mother, “I feel she istruly happy when she talks to vipkid’stutors. She is quite willing to expressherself.” Yutong’s teacher, Jessica, asksher to propose an alternative ending tothe gentle tale of Miss Snowball’s cat.“The cat could die,” says Yutong cheerful-ly, making them both laugh.

Ms Spikes says she has a better con-nection with her online pupils than shedid when teaching an actual classroom-full of them in South Korea: “I feel reallyinvested in these little kids.” Her youn-gest pupil, astonishingly, is three. “Get-ting her to make the right sounds is areally big thing,” she says. But she admitsthat the parents face a bigger challenge,just getting the child to sit still.

For her, the flexibility the job offers iscrucial. “I love to travel. I’ve done it fromKorea, Mexico, Spain, Canada. I couldn’tdo the travel without the job.” She says thecompany also attracts disabled or retiredpeople who would not be able or willingto go into a classroom—but who, thanksto technology, have joined a new class ofAmerican exporters to China.

It is not just theelite that buystuition

The Economist April 13th 2019 Special report Private education 7

2 system of user fees. In developing countries the trend towards pri-vatisation in higher education is even more pronounced. In LatinAmerica, especially, governments have left the tertiary sectorlargely to private companies: three-quarters of Brazilian students,for instance, attend private universities.

Technological change is driving the adult-education businessbecause it is generating demand for new skills. It has created thebootcamp business, in which recent graduates or adults already inthe workplace take short and brutally intense courses that boosttheir market value by training them in various aspects of tech. “I’venever seen people work so hard,” says Natasha Jahchan, a formerstructural engineer who took a ten-week course at General Assem-bly, the star of the sector, in ux (user experience), costing $15,000.She left a job that bored her and got a better-paid one she enjoyed:“I spent my savings but I made it back in three months.” Since ga

was founded in 2011 it has trained more than 50,000 people, andrevenues are growing at 30% a year. Last year it was bought byAdecco, a recruitment company, for $412m.

Tech has also increased the supply of adult education, sincestudents no longer have to sit in a classroom. Online educationstarted in the for-profit private sector, but has moved into the non-profit and public sectors. Ann Cleland, who had been working asan accountant on the post-hurricane disaster-recovery pro-gramme in Puerto Rico, signed up for the Harvard BusinessSchool’s business analytics programme, an online nine-monthcourse which teaches strategy in the age of big data, blockchain,machine learning and ai. At $50,000 it’s not cheap, but to Ms Cle-land it was worth every cent. “I cried at graduation and hugged myprofessors and told them it had changed my life.”

About a third of graduate education is now online, according toRichard Garrett of Eduventures, a consultancy. In this bit of themarket, private and public sectors are melding: public universitiessuch as Arizona State University and private non-profits such asthe University of Southern New Hampshire offer online coursesdesigned, supplied and marketed by firms such as Pearson and 2u

which commonly take around two-thirds of the revenue.But the private sector does not just supply education at times

and in places where the public sector is not active. It also offers dif-ferent kinds of education altogether. 7

Booting up people

Founded by a 76th-generation descendant of the sage, the Con-fucius International School at Anren, on the outskirts of

Chengdu, mixes Chinese with Western tradition. “We offer a rela-tively liberal education here,” says Jill Cowie, the Scottish princi-pal. In the art block, one class discusses a Dürer etching while an-other designs jewellery for superheroes. Boys dressed in tailcoatsand girls in kilts share the grounds with peacocks, pheasants andwhite rabbits. The Harry Potteresque atmosphere sits oddly withthe fact that the school is now owned by a firm backed by a state-owned-enterprise.

Around the world, government schools tend to be standar-dised, for a range of reasons. Uniformity is cheaper than variety;governments want to inculcate a shared understanding of historyand citizenship; and equality of opportunity mandates equal treat-ment for all. But many parents want something different for theirchildren. In some countries that means a more religious education(see box, next page). In China, though, three different varieties ofprivate education are flourishing for other reasons.

Most of the private schools that now educate 10% of Chinese 6-to 18-year-olds are gaokao mills, which drill their students for theall-important end-of-school exam. But 10% of those private estab-lishments are bilingual schools which prepare students for a uni-versity education abroad. According to data from ey-Parthenon, aconsultancy, this is the fastest-growing part of the market.

A foreign university education is increasingly standard for theChinese elite. More than 600,000 Chinese youngsters are cur-rently studying abroad. It is a large investment—parents wouldnot get much change from $250,000 for a degree from a decentAmerican university—but it offers both good economic prospectsand social prestige. “It’s all about anxious new money,” says JiangXueqin, an educational consultant. “Everybody here knows thatyou can only get rich by stealing money. You’re legitimising yourwealth by proving how clever your family is. The degrees from Ox-ford or Yale—they’re reputation-laundering.”

For the love of learningBut bilingual schools also offer an escape route from the rigourand boredom of the Chinese public system. Emily Yu, a parent atyk Pao, Shanghai’s most prestigious bilingual school, describesboth herself and her husband as “survivors of the Chinese system.It was quite a painful process.” Li Tong, principal of a governmentschool in Chengdu, moved her son from the public to the privatesector. “It was difficult for him in the Chinese system because hehas a strong personality, with strong likes and dislikes.”

A Western style of education may offer broader benefits, too.Shelley Chen, the principal of Vanke Bilingual School in Shanghai,where pictures of Abraham Lincoln, Amelia Earhart and MartinLuther King decorate the walls, explains that many of her par-ents—often executives in multinational firms—think “theyweren’t well prepared by their schools. They feel there’s a glassceiling. When they compare themselves with colleagues from oth-er parts of the world, even India, they think they’re not so good atcritical thinking.” Vanke, she says, focuses on the 5cs: “Caring,communicative, confident, cordial…let me check [which she doeson her computer]…creative.”

Just for you

Even in China, one-size education does not fit all

Variety

1

8 Special report Private education The Economist April 13th 2019

1

Like many of China’s private-school providers, Vanke is mainlyin the property business. Elite schools help attract the rich to up-market developments, which explains why some of the local part-ners of the British brands that are piling into China are propertycompanies. There may now be too many of them. Wang Shu, foun-der and president of Cogdel, a consultancy in Chengdu, reckonsthat investors must look to third-tier cities because first- and sec-ond-tier cities are oversupplied: Chengdu alone has 37 bilingualschools. And Westminster is about to arrive.

Meet the makersOn a table at Baiyun Technician College in Guangdong sit 3d-printed models of Mao Zedong, Sun Yat-sen and Vladimir Putin,rubbing shoulders with cartoon characters. Elsewhere on the cam-pus, students train to build and operate drones, to become baris-tas, to make clothes, and much more. The work being done here il-lustrates a second variety of education that is flourishing inChina’s private sector.

Chinese state-provided higher education is, in the Confuciantradition, academic rather than practical. It does not do much foryoung people with more vocational interests. That is where ChinaEducation, Baiyun Technician College’s owner, has found a niche.

China Education focuses its investments on markets where de-mand is strong. Guangdong province, home of Baiyun TechnicianCollege and its sister institution, Baiyun University (with 27,000students), fits the bill. Although Guangdong is rich, only 42% ofschool-leavers there go on to higher education, compared with48% nationwide. China’s fast-developing high-speed and metrorail networks are another focus for the company: it owns Xian Rail-way College and Zhengzhou City Rail Transit School.

Liu Jianfeng, the party general secretary at Baiyun University,who has an ideological as well as a management role, takes a ro-bustly un-ideological view of the institution’s job. “Public univer-sities are more focused on following the government plan and ide-ology,” he says. “We are training up human resources to meet thedemand from the marketplace.” To make the point, Baiyun Techni-cian College’s exterior walls are painted with the logos of many ofthe 3,000 corporate partnerships the college has cultivated for thebenefit of its 13,000 students, including with Bosch, Nestlé, Nis-san, Grand Hyatt and Hilton. In order to get a job at Nissan, stu-dents train for three years; for the last four or five months of thecourse they are taught by Nissan employees.

Students at Baiyun University, who take degrees in vocationallyoriented subjects such as engineering and accountancy, pay

Out of this world

Religious education is mostly provided privately

After his victory in the battle of Badrin 624, the Prophet released the pris-

oners he had taken, on condition thatthey teach others to read. That, says Mu-hammed Asghar Saqib, principal of theJamia Ghousia Rizvia madrassa attachedto the mosque in Lahore’s main market, isa measure of Islam’s respect for educa-tion. But, he goes on, “there is a mis-conception in our society about the pur-pose of education. Education is not forgetting rich. Education is for becoming abetter person.”

In some countries, such as America,religion is banned from schools. A grow-ing appetite for religious education is oneof the drivers of the growth of the privatesector: in America, enrolment in reli-gious schools among 4- to 14-year-oldsincreased from 4m in 2011-12 to 4.4m in2015-16. And even where governmentschools teach religion, as in Pakistan,parents sometimes want more of it thanis on offer in the state sector.

More than 2m Pakistani childrenattend madrassas, which troubles someof their compatriots for a couple of rea-sons. There are concerns that theseschools serve as breeding-grounds forterrorism. Some are said to be financed byfundamentalists in the Gulf, but Mr Saqibsays that his school, which is free topupils, is paid for by the rents of 40neighbouring shops which the mosque

owns. There are also reasons to doubt theeducational value of spending hoursmemorising the Koran. Mr Saqib is care-ful to emphasise that he believes in thevalue of both religious education—whichthe 300 boys at the school receive in themorning—and “contemporary” educa-tion, which they get in the afternoon.

Aside from some dusty computers inone room, there is little evidence of thecontemporary. The classrooms have nodesks or chairs, just tilted stands, a fewinches high, on which squatting boysplace their books. The dormitories have

no beds, only bedding rolls laid out closetogether. In the kitchen a stack of fire-wood sits ready for cooking dinner. “Gasproblem,” says Mr Saqib.

But there are spiritual if not physicalcomforts. Fifteen-year-old Ghulam Has-san from Layyah, a desert region of west-ern Punjab where jobs are hard to comeby, is learning to be a Koranic reciter.Offering to perform for the visitor, heintones verses from the Sura Yusuf,which tells the story of Joseph and hisbrothers. It is more a song than a recita-tion, and exquisitely beautiful.

Learning devotion

2

The Economist April 13th 2019 Special report Private education 9

2

1

One of the most effective soft-power programmes ever waslaunched in 1955 by the American government. Over the next 18

years, it sent over 100 Chilean students to Chicago University tostudy economics under Milton Friedman. The ideas those stu-dents absorbed were regarded as outlandish in their increasinglysocialist country until Augusto Pinochet, brought to power by acoup in 1973, put them into practice. Among other things, heturned the entire education system into a voucher scheme.

The Chilean experiment is unique in its scale but not its nature.In education, public-private partnerships of various kindsabound. At tertiary level, governments provide or guarantee loansfor students to spend at private colleges. At primary and secondarylevel, they include charters, academies and vouchers.

The Netherlands, perhaps surprisingly, runs much of its educa-tion system as a public-private partnership, because religious di-visions meant that in the past parents did not trust the state to runschools. Its schools are publicly financed, not for profit, non-se-lective and close to free, but they enjoy a lot of autonomy. It works:education in the Netherlands is among the best in the world.

The desire to liberate schools from the state—and the teachers’unions—also lies behind the growth of the charter movement inAmerica, and academies and “free schools” in Britain. America’scharters started in Minnesota in 1992 and spread state by state;Britain’s academies were conceived by a centrist Labour govern-ment in 2000. Both are publicly funded and privately run. Enrol-ment in charters rose from 400,000 in 2000 to 2.8m in 2015. Nearlythree-quarters of British secondary-school pupils and one-third ofprimary-school pupils attend academies or free schools.

In developing countries public-private partnerships are drivenlargely by the desire to maximise enrolment and minimise in-equality. India’s government decreed in 2009 that 25% of places in

The best of both worlds

How Chile combines competition and public funding

Public-private partnerships

19,000-28,000 yuan a year, compared with 4,500-8,000 yuan at apublic university. But an impressive 91% of students leave BaiyunUniversity with a job to go to, compared with 85% for all places ofhigher learning.

Of poems and peoniesA third variety of private education is audible in the corridors ofthe 300-year-old Qinhan Hutong, an educational centre in the oldtown of Shanghai built around a courtyard with a stream tumblingover rocks. In one room a group of preschoolers chants a tradition-al poem about a civil servant going on a long journey; in another astudent plays a 21-string guitar. A mynah bird squawks next to anart teacher, who is putting the finishing touches to a painting ofpeonies done in the classical style.

“People think that the Chinese lack manners and civility. That’sbecause we lost our culture for 60 years. But for the previous 1,000years, this culture dominated East Asia,” says Wang Shuangqiang,Qinhan Hutong’s chairman and founder, who is dressed, some-what incongruously, in a camouflage jacket. “We don’t believe inGod. We believe in our words, our calligraphy, our poetry, our an-cient relics.” Three years ago Mr Wang had 35 such centres; now hehas 70, with 70,000 students, who pay an average of 17,000 yuan ayear. The rebirth of interest, he says, “comes from people’s hearts,and it comes from Chairman Xi. He’s always quoting ancient Chi-nese sayings.”

The government’s different attitudes to those three varieties ofeducation reveal its concerns and priorities. It allowed the estab-lishment of bilingual education in China in order to discourageparents from sending children to boarding schools in America andBritain, which they have increasingly been doing in recent years.But it is jealously guarding its hold on basic education, so it keepsthose schools on a tight leash. They must use the textbooks man-dated for all schools, which inculcate “core socialist values”, andfollow strict rules on the amount of time to be devoted to each sub-ject. They must host party cells and branches of the Young Pio-neers, the junior wing of the Communist Party.

It is also nervous about the growing educational divide be-tween the rich, who buy tuition, bilingual schooling and foreigndegrees for their children, and everybody else, so it has clampeddown on investment in the sector. Making profits from “basic”schooling for 6- to 16-year-olds has been banned.

Firms are understandably nervous about the close watch thestate keeps on the sector. “Vanke wants to make children happy,parents happy and the government happy,” says Cynthia Xu, theparty secretary and deputy general manager of Vanke Shanghai.“It’s very difficult to navigate the shifting sands of the Chinese reg-ulatory environment: it’s going to be interesting to see what hap-pens to British schools that are happily handing over their nameand reputation to entities in this country if they don’t have educa-tional expertise and a management team on the ground to navigatethe regulatory environment,” says Fraser White, chief executive ofDulwich College International.

Vocational education, by contrast, faces few restrictions. Thegovernment recognises that there is unmet demand, so it helpssuch colleges by giving good ones a stamp of approval, which en-ables them to charge higher fees. “Because vocational traininghelps solve social problems, it has always received support fromgovernment, and we think it will go on receiving support,” says XieShaohua, executive director of China Education.

Mr Wang is furthering Mr Xi’s push for a cultural revival, so heencounters no interference. Indeed, he receives a subsidy of 1myuan a year from the Shanghai municipal government. In a verysmall way, this example shows that the Chinese state is prepared touse the private sector to meet its educational aims. Many othergovernments go much further. 7

10 Special report Private education The Economist April 13th 2019

2

riculum, teacher training and assessmentin the 1990s, and that more state interven-tion will improve it further. “We now have asystem that has a better chance of produc-ing the combination of quality and equitythat society needs,” says Cristian Cox Do-noso of the Diego Portales University.Chile’s system, as Gregory Elacqua of theInter-American Development Bank pointsout, is starting to look rather like the Neth-erlands’. But critics worry that the changesare undermining its virtues. Mr Beyerthinks banning fees and profits will dis-courage investment and innovation. VictorGerardo, principal of the Liceo San PedroPoveda, one of the best private voucherschools, says that without top-up fees hisschool will be “kaputt”. Mariana Aylwin, aformer education minister whose founda-

tion runs two schools, is concerned about the bureaucracy that in-evitably comes with increasing government oversight. “With somany obligations and controls, schools are losing their autonomyand wasting time.” Ms Vergara reckons that she spends as much ashalf her working hours dealing with government paperwork.

But the most contentious issue is selection. Its abolition, in-tended to increase social integration, has been exceedingly un-popular. “Families are in favour of segregation,” says Dante Con-treras, an economist at the University of Chile. “They want to besegregated from poorer people.” Liliana Ramírez, who is head ofthe parents’ association at the Lo Espejo school, says that becauseselection has stopped, “there are lots of people in the school whoshouldn’t be here. People who don’t do honest work, who takedrugs or deal in drugs.” But this is not a problem for the elite,which, on both left and right, sends its children to the 9% ofschools that are entirely private.

The selection issue seems to have tipped the polls against MsBachelet. Her coalition lost power at the end of 2017and she was replaced (for the second time) by Sebas-tián Piñera, who is trying to reintroduce a limited formof selection. But through all the arguments over itseducation system, not even the left suggested binningthe voucher system. By and large, Chileans accept thatit has worked.

Charged as they are by the memory of military dic-tatorship, Chile’s arguments over the politics of educa-

tion are especially intense, but there are similar tensions betweenindividual freedom and collective values all over the world. Inmany countries, as in China, government is reacting to the growthof the private sector by tightening regulations. Last June Dubai im-posed a freeze on school fees, and last December Pakistan’s Su-preme Court decreed that schools charging more than 5,000 ru-pees a month must cut their fees by 20%. “A lot of schools will shutdown if this isn’t rescinded,” says Kasim Kasuri, chief executive ofBeaconhouse School System. Several Indian states have also intro-duced controls on fees, and closed down some private schools onthe ground that they did not meet standards set by the Right toEducation Act—even though only 8% of government schools com-ply with them. Bureaucrats use those standards to extract bribes.“To get your school recognised,” says Mr Dhankar at Hari VidyaBhawan School in Delhi, “you have to pay for the proper infrastruc-ture, you have to pay five lakh ($7,250) bribes on top of that, andthen they’re expecting some other gifts at festivals.”

Behind the tightening regulations lies a suspicion widespreadamong governments: that the growth of the private sector is badfor society. That view is not generally shared by parents. 7

Read my results

Sources: OECD; Chile Ministry of Education *For 15-year-olds

Average PISA reading test scores* Chile, student school enrolment, % of total

350

400

450

500

2000 03 06 09 12 15

Brazil

Chile

Colombia

MexicoUruguay

OECD average

0

20

40

60

80

1981 90 2000 10 18

Public

Private voucher-funded

Wholly private

private schools should be reserved for “economically weaker sec-tions” who would be paid for by each state government. Colombia,Venezuela, Peru, Sierra Leone, Uganda, India, Pakistan and thePhilippines now have voucher, charter or other sorts of subsidyschemes, but Chile’s is the only national-scale experiment.

Chile has three sorts of schools: entirely private (which chargewhatever fees they like and get no money from the government);private voucher-financed; and public schools. The children of theelite attend the first lot; both middle- and working-class familiesare gravitating towards the second (see chart).

Those who run Chile’s private-voucher schools attribute theirsuccess to their autonomy. “We’ve introduced a Singaporean sys-tem for teaching maths in a more practical way that required us tobuy special materials,” says Marianela Cisternas of Belén Educa, aCatholic foundation that runs 12 schools. “A municipal schoolcould not have done that.” Principals also have more freedom tohire and fire staff. Jessica Vergara, principal of Colegio Rosa ElviraMatte de Prieto, a school in Lo Espejo, a rough area ofsouthern Santiago, has fired 18 teachers in five years. Ina municipal school, she says, she would not have beenable to.

Pupils at voucher schools do only a little better thanthose at municipal schools after allowing for their so-cioeconomic background. But that, says Harald Beyer,a former minister of education in Chile, is beside thepoint: competition has improved the municipalschools’ performance too. Academic studies cast doubt on wheth-er competition has really improved outcomes, yet even scepticssee virtues in the system. Emiliana Vegas of the Inter-AmericanDevelopment Bank reckons that the main driver of improvementhas been the rich data produced by the system, which allow thestate to keep tabs on how it is doing.

Chile’s educational performance, though far from stellar, isgood by local standards. The country does better in reading (seechart), maths and science than the other Latin American countriesfor which the oecd, a club of mostly rich countries, collects data. Italso spends less as a share of gdp.

But the left is uncomfortable with competition, which it feelscan increase inequality in an already unequal country. Schoolchil-dren protested against inequality in education in 2006, universitystudents in 2011. Michelle Bachelet, a former Chilean president,shifted the system leftwards, first making vouchers income-relat-ed and subsequently banning profits, fees and selection in vouch-er schools. These changes are being implemented gradually.

Supporters of the changes argue that credit for the improve-ment in standards should go mainly to the investments in the cur-

Abolition ofselection hasbeen unpopular

The Economist April 13th 2019 Special report Private education 11

1

“We wanted to pop champagne when they said they wereopening Spark Soweto,” said Ntebogeleng Malevu. Before

the new branch of a fast-growing chain of low-cost South Africanschools opened in the township on the outskirts of Johannesburgin January, Ms Malevu, a nurse, would wake her six-year-olddaughter Qhawe at 4am to travel to another Spark school in thecity’s northern suburbs. The transport cost nearly as much as thetuition (2,310 rand, or $158, a month for primary-school pupils).

Parents prefer private schools. A global survey in 2017 foundthat they were a lot more likely to give the teaching at their chil-dren’s school a positive rating if it was private than if it was public;parents in Chile have voted with their children’s feet in favour ofthe private sector.

Governments are often less keen on private education. Some ofthe reasons for their hostility are bad ones: a reluctance to cedepower, the opportunity for patronage, the influence of teachers’unions. But some are entirely in order: governments need to pro-mote quality, access to schooling and equity. The private sector isgood at some, but not all, of those.

Pay-cheque pay-off?The evidence on quality is ambiguous. Private institutions domi-nate the upper ranks of the global higher-education leagues. Sevenof the top ten places in the Times Higher Education ranking are tak-en by American private non-profit universities and three by Brit-ish institutions, which although regarded as public in Britain, areprivately run and funded largely by user fees. The most highly rat-ed clearly public institution, eth Zurich, which is, ultimately, runby the state, is in 11th place.

But these rankings depend almost entirely on the universities’research performance. The standard of education they deliver ishard to measure. The only useful proxy is earnings, but a study ofalumni of America’s most selective colleges by Stacy Dale and AlanKrueger found that their higher earnings were explained by back-ground and intellect. Top universities provided a boost only toblacks and Hispanics—presumably because they gained a usefulnetwork to which many white students already had access.

At the bottom of the market, America’s for-profit colleges—largely vocational outfits that take students who cannot get intothe state system—do poorly. A study of their alumni’s employmenthistory showed not just that they performed worse in the labourmarket than similar people who went to (much cheaper) publiccolleges, but also that they barely earned more than those who didnot go to college at all. On average, in other words, the time andmoney that they spent on their education had been largely wasted.

In some countries private schools do exceptionally well. Ac-cording to Varsity, Cambridge University’s student newspaper,Westminster got an average of 79 pupils a year into Oxford andCambridge in 2006-16, more than any other school in the world.But Westminster is one of Britain’s most selective schools, attractsbright pupils from all over the world and spends four and a halftimes as much per child as the public sector does. Educating theworld’s cleverest children with vast resources is not the biggestchallenge in teaching.

A better test of schools is whether they add value—in other

words, produce outcomes better than would be expected givenwhere children started. In the oecd’s latest pisa test private-schoolpupils did a lot better than public-school ones in reading and sci-ence, but after controlling for economic background they did littlebetter in reading and worse in science. An American study con-cluded that private schools added no value, a British one the oppo-site: the university and labour-market outcomes of two cohorts ofpeople, born in 1958 and 1970, who attended private schools wereconsiderably better than those of government-school alumni,even when ability and background were taken into account. Thegap was bigger in the younger cohort, presumably because privateschools have come to focus more on academic achievement.

In poor countries, the evidence tends to favour the private sec-tor. Out of 21 studies in Africa and South Asia surveyed for Britain’sDepartment for International Development (dfid), 14 found thatchildren learned more at private schools and seven found no dif-ference. In none of the studies did government schools come outon top, but the private-schools’ margin was not overwhelming. Inthe most rigorous study, carried out in the Indian state of AndhraPradesh, pupils’ scores in most subjects were the same in bothtypes of schools, though they did better in Hindi at private schools.The maths scores of the private schools that taught in the local lan-guage, Telugu, were higher than those taught in English, suggest-ing that while private schools confer an advantage, being taught inEnglish is a disadvantage.

Opponents of private schools often argue that they underminepublic schools, but the evidence does not support that claim. A re-view of studies from America, Canada and Sweden concludes thatvirtually all of them showed that public schools do better whenthey are up against voucher schools; the few studies of the issue inthe dfid review, from India, Pakistan and Kenya, found the same.

The qualitative differences between private and public schoolsare marginal, though. More strikingly, private schools cost less. Ofseven studies in the dfid review, none found government schoolsto be cheaper. A study comparing the cost-effectiveness of publicand private schools in eight Indian states found that the private

Howdy, partner

Private education can complement the public sort

Costs and benefits

Better than nothing

12 Special report Private education The Economist April 13th 2019

2

acknowledgments A list of acknowledgments and sources is included in the online versionof this special report

offer to readers Reprints of this special report are available, with a minimum orderof five copies. For academic institutions the minimum order is 50 and for companies 100.We also offer a customisation service. To order, contact Foster Printing Service:Tel: +1 866 879 9144; email: economist@fosterprinting.com

For information on reusing the articles featured in this special report, or for copyright queries,contact The Economist Rights and Syndication Department: Tel: +44 (0)20 7576 8000;email: rights@economist.com; Online: Economist.com/rights/reprints+and+permissions.html

more special reports Previous special reports, and a list of forthcoming ones,can be found at: Economist.com/specialreports

sector did better in all of them; the differential ranged from 1.5times in Bihar to 29 times in Uttar Pradesh.

The private sector’s efficiency is one reason why it does well atproviding access to education. Another is its speed: in fast-grow-ing cities, governments struggle to provide schools, but whereverthere are people, schools spring up. A worldwide review of voucherschemes has shown that governments that cannot provide enoughcapacity can increase access by enabling children to attend privateschools. “Kids are being born every day,” says Murad Raas, educa-tion minister in Pakistan’s Punjab province, where 2.6m childrenare in private schools on voucher schemes and 11m in governmentschools. “We don’t have the funds to accommodate them all. I’mvery open to anything that can benefit them.”

The main reason for the private sector’s superior efficiencyseems to be teachers, who are paid less and are more likely to turnup for work than at government schools. Politics has a lot to dowith that. Teachers’ unions have huge bargaining power—in India,for instance, they man polling stations and have reserved seats instate assemblies—and can therefore protect their members frombeing held to account for poor performance. An Indian studyfound that in 3,000 government schools, only one principal hadever dismissed a teacher; among 600 private schools,35 had.

The other explanation for better performance in theprivate sector could be competition, but it does notseem to be working all that well. One problem with themarket is that parents often lack information. Re-searchers in Pakistan tried providing parents withcards showing their child’s test scores and the averagescores of the schools in the village. Where this wasdone, children learned substantially more, fees werelower, enrolment went up and bad private schoolswere more likely to close down.

A second problem is parental priorities. Parents want their chil-dren to go to schools with the best outcomes, but those establish-ments may achieve good results not because they add more valuebut because their intake is richer and cleverer. A Chilean studyshowed that parents presented with data on both outcomes andvalue added were interested in the former, not the latter.

They are being perfectly rational. Parents want to ensure notjust that their children get a good education, but also that theirclassmates come from “good” families, because the company theykeep will shape their behaviour and provide their network. Em-ployers, too, are likely to favour the products of schools with goodexam results. But the incentive for parents to choose outcomesover value added limits the efficacy of parental choice as a mecha-nism for improving schools.

It also helps explain why the market tends to increase inequali-ty. Whereas governments promote social integration, parents ac-tively seek stratification. Furong Ren, a parent at Dehong, DulwichCollege International’s bilingual sister school in Shanghai, ex-

plains that “when parents get together, all they talk about is howChina is developing a class system, and they want their children tobe on top.” Fees and selective admissions, which favour rich kids,encourage schools and families to sort themselves by income. Forgovernments concerned about social mobility, that is a problem.

Making the best of itAs private education grows, its strengths and weaknesses are be-coming increasingly apparent. It is good at providing access wherethe state does not have capacity; in poor countries, the education itoffers is slightly better than the government variety. But it also en-courages inequality and discourages social mobility.

Many teachers’ unions and left-wing politicians favour gettingrid of private schools. That would solve the equity problem, butthere would be a cost in terms of both access and quality. Withoutthe private sector, many children in fast-growing cities in the de-veloping world would be in worse schools or on the streets.

Another approach is to regulate private education, by, for in-stance, setting stringent standards for facilities and teaching. Thatis a reasonable thing to do in countries where the state works well,but a state that cannot provide decent education is unlikely to be a

good regulator. dfid looked at 19 studies to see wheth-er developing-country governments were any good atregulating schools; 14 concluded that they were not,three that they were, and two were not sure. Bribery is acommon problem.

A third approach is for governments to partner withthe private sector, through vouchers or subsidies. Theidea is to allow society to benefit from the private sec-tor’s virtues while mitigating the inequality it fosters.

Such partnerships are spreading, but their perfor-mance so far has been mixed. They suffer from thesame problem as regulation does: governments that

cannot provide education are unlikely to be good at commission-ing it. India’s reservation of 25% of private-school places for poorerchildren has not been a great success. The government has beenslow to pay its bills, the initiative has got bogged down in legal ac-tion, ten years after launch only 16% of private schools are takingpart, and a study in Karnataka found that most of the families tak-ing up the vouchers had been sending their children to privateschool anyway. And where schools charge fees or set admissionstests, such partnerships can become vehicles for subsidies to thebetter-off and encourage stratification, as Chile’s original vouchersystem did.

Yet well-designed public-private partnerships can work. Twoof the world’s best education systems—those of the Netherlandsand Hong Kong—are based on them. In both places, schools getpublic funding, a lot of autonomy and hefty state regulation toraise standards and limit inequity. Chile’s voucher-based educa-tion system, despite its flaws, outperforms those of its neigh-bours. They are especially good for countries whose governmentsstruggle to provide access to education: in Pakistan’s Punjab prov-ince 2.6m children go to school thanks to vouchers; a ppp in Ugan-da enrolled 400,000. Design and monitoring are crucial, says Har-ry Patrinos of the World Bank: “performance has to be measured,rigorously and often, and schemes adjusted accordingly.”

Above all, governments should stop regarding private educa-tion as an enemy. Its growth is the result of people’s deepesturge—to look after their children. Whether through buying expen-sive houses near the best government schools or by forking out forprivate-school fees, they will find a way to do that. The private-education boom may be fostering inequality but it is also causingunprecedented amounts of money and energy to be spent on im-proving humanity’s brains. Governments should encourage that—but spread the benefits as widely as possible. 7

Governmentsshould stopregarding privateeducation as anenemy

The Economist April 13th 2019 45

1

In 2015 a prison in Nebraska was takenover by its inmates for several hours. Two

were killed before staff regained control.The riot was worsened by the fact that thestate’s prisons were horrifically over-crowded. “Nobody was surprised it hap-pened,” says Jason Witmer, who was serv-ing a 17-year sentence for robbery andhome invasion at the time. “Trying to con-tain things, they got more restrictive, thenthe restrictions became new norms.”

That year, the Nebraska legislatureunanimously passed a sentencing-reformbill that was designed, among other things,to ease that overcrowding. It was forecastto get the prison population down toaround 4,500 people, or 139% of capacity,by 2019. Four years later, however, thingsare worse. Nebraska’s prison system todayholds more people than it ever has. Sevenof its ten prisons are stuffed to more than150% of their designed capacity. Its mostcrowded holds more than three times asmany inmates as it should. If the situationdoes not improve by July 1st 2020 the gover-nor will have to declare an emergency. Thatwould impel officials to consider immedi-ate parole for all eligible inmates.

Between 2008 and 2016 America’s im-

prisonment rate fell by 11%. Some hope thatthe era of mass incarceration that began inthe 1980s may be nearing its end. But Ne-braska’s troubles show that reducing pri-son populations is not always as simple asmustering political will. The state’s legisla-ture, judiciary and multiple governorshave all agreed that they need to trim itsprison population—to no avail. Nebraskaillustrates the complex incentives at workin America’s harsh penal system.

The state’s sentencing-reform bill failedto work as intended for several reasons.One aim was to improve parole and post-release supervision to reduce the risk of re-offending. The bill ruled that people whoviolate the terms of their parole should bereturned to prison for brief periods ratherthan—as often happened—the duration oftheir sentences. But according to the Amer-ican Civil Liberties Union (aclu) of Nebras-ka, the number of people returning to pri-son for parole revocations rose by 29%between 2015 and 2017.

The bill also did nothing to change aprincipal driver of prison population: longsentences for felonies. Most Americansagree that non-violent drug offenders arebetter served by treatment than prison; inrecent years Nebraska has expanded its useof drug courts for just that reason. But viol-ent crimes pose a more difficult politicalproblem. Few hot-headed young men re-main so into middle age—keeping peoplelocked up for decades is not an effectiveway of reducing crime. But arguing thatmurderers should spend less time in pri-son carries immense political risks.

In Nebraska the average length of sen-tence rose by 16% from 2000 to 2015, almostentirely as a result of longer sentences forviolent crimes. The state’s “habitual crimi-nal” statute imposes a mandatory-mini-mum sentence of at least ten and up to 60years for a third conviction on any felony.Prosecutors like such laws because theyhelp to compel suspects to co-operate. Butthey keep people in prison far longer thanpublic safety dictates.

They also push back a prisoner’s parole

Prisons in Nebraska

Don’t pass go

LI N CO LN , N E B R A S K A

Nebraska shows that ending mass incarceration isn’t easy

Full to bursting

Source: Bureau of Justice Statistics

United States, prison populationAs % of designed capacity, Dec 31st 2016, selected states

0 50 100 150 200

Alabama

Nebraska

Illinois

California

Louisiana

New York

Maine

United States

46 Applecalypse now

47 Heartbeat bills

47 America’s new liberals

48 Chaos in the DHS

48 Opioids and transplants

49 Why Hell is hot

50 Lexington: TrumpMania

Also in this section

46 United States The Economist April 13th 2019

2 eligibility—as does persistent understaff-ing. In Nebraska prisoners become eligiblefor parole after completing half of theirsentences’ minimum term. However theyalso have to complete rehabilitation pro-grammes, such as anger-management orsubstance-abuse counselling, in order tobe released. High turnover and staff short-ages mean that the state has too few coun-sellors to teach those programmes, and of-ten too few guards to transport prisoners.

A booming economy does perversedamage. In rural areas, where prisons usu-ally are, workers are scarce. The state hasbeen busing people to its maximum-secu-rity prison in Tecumseh from Omaha, morethan 90 minutes away. Staff shortages canbecome self-sustaining—mandatory over-time lowers morale, which increases turn-over. Nebraska pays its prison employeesmore than neighbouring states do, butcounty jails often pay more, with betterconditions. In state prisons, working dou-ble eight-hour shifts many times a week iscommon. Union officials complain aboutinadequate pay increases for seniority.

Few believe Nebraska will be able toavoid having to declare an emergency nextyear. The aclu has sued Nebraska, arguingthat its prison conditions violate theEighth Amendment’s ban on cruel and un-usual punishment. In 2011 a similar argu-ment led the Supreme Court to order Cali-fornia to cut its prison population, and onApril 2nd the Justice Department foundthat staff shortages and overcrowding con-tributed to unconstitutional conditions inAlabama’s prisons.

Pete Ricketts, the state’s governor, talksof “changing the culture [to] help our in-mates get back to society”. His proposedbudget includes $6.6m for increasing pri-son staffing and rehabilitation pro-grammes. He also wants $49m to build twonew high-security units with an additional384 beds at a prison in Lincoln, the statecapital. But even if they were available andfilled tomorrow, Nebraska would still runat 143% of designed capacity.

Ultimately reducing prison overcrowd-ing requires more than just building morecells; states have to make a concerted effortto send fewer people to prison for less time.Mike Lawlor, who helped engineer Con-necticut’s sizeable decline in prison popu-lation and now teaches law at the Universi-ty of New Haven, says it took areassessment of risk. “We said, ‘Let’s figureout who the dangerous people are and re-serve our incarceration for them.’” Shortersentences were a large part of the reform.

Since 2008 Connecticut’s prison has de-clined by 32%. Its 18-to-21-year-old popula-tion has fallen by more than 60%. “The goalof [our] public policy”, explains Mr Lawlor,“was to reduce crime. Maybe your goal ismore punishment. If you do that, you’ll getmore crime.” 7

Chris baugher’s great-grandfather firstplanted apple trees in Adams County,

Pennsylvania in 1905. In 2013 Mr Baugherplanted 7,000 Fuji apple trees in the or-chard, which supplies apples to marketand for making apple sauce. Three yearslater, just when the trees should have beenbearing fruit, he noticed that a few of themhad yellow leaves. Within weeks they weredead. The next year, the problem hadspread to more than a few trees. By lastyear, 2,000 of Mr Baugher’s 7,000 new treeswere dead.

Mr Baugher has the worst case of “rapidapple decline” (rad) in the county, but he isnot alone. The mysterious disease has beenplaguing growers across America’s north-east, in North Carolina and in Canada for atleast six years. Science, a magazine, reportsthat up to 80% of North Carolina’s orchardsmay have been affected. Kari Peter, a fruit-tree pathologist at Penn State University,first observed massive die-offs in her re-search orchard in 2013. She came up withthe term “rad”. But her attempts to explainit have not produced much fruit. The usualreasons for the death of a tree—mould, in-festation, a known virus, blight, fungi, anearly frost—didn’t fit the symptoms. Herinvestigation only ruled things out.

The dead trees tend to be younger: two-to eight-years-old. They are nearing theprime of production. Dwarf trees, which

are commonly used by commercial grow-ers, seem to be the most susceptible. His-torically, orchards held 600-700 appletrees an acre, but most are now under high-producing dwarf trees, which are morecompact. Growers now plant 1,200-1,500trees per acre. Commercial apple trees typi-cally have two parts, the scion (the applevariety, such as Gala or Honeycrisp) and therootstock (the trunk base and roots of thetree). The scion is grafted onto the root-stock. Where the two join is the tree’s mostvulnerable spot, and where the decline ap-pears to originate.

Although the rootstock is healthy, MsPeter says one sort of rootstock, known asMalling 9, is the most affected. Workingwith the research arm of the Department ofAgriculture, she found a new latent applevirus in the infected trees. But they cannotbe sure if this new virus has any connec-tion with the decline.

Researchers at Cornell University, ledby Awais Khan, published a paper lastmonth examining the role of soil, weather,fungi and bacteria. They found that severecold followed by drought could have weak-ened the trees, leaving them susceptible topathogens or boring-insect infestation. MrKhan says more research is needed. Otherscientists speculate that herbicides may beto blame. Dan Donahue, a fruit-tree spe-cialist at Cornell University’s Hudson Val-ley lab, says it could be any or all of thosetheories. He speculates that quality controlcould be a basic cause. In a recent sam-pling, he found that 64% of young trees hadlatent viruses. These do not show symp-toms, but they could affect vitality. Older,larger apple trees were better at shruggingoff the viruses.

rad is a big worry for the $4bn apple in-dustry. Mark Seetin of usApple Associa-tion, a trade group, says his growers areconcerned. Trade wars have already upsetthe apple cart. Mexico, America’s largestexport market, has imposed a 20% tariff onAmerican apples. And customer taste ischanging. Traditional varieties like RedDelicious are no longer a customer favour-ite, so growers are having to invest in newvarieties. Most orchard growers operate onvery tight margins. Few are able to absorbthe losses stemming from more typicalcauses, such as bad weather, an infestationor a known pathogen, never mind unex-plained ones like rad.

Mr Baugher found some relief in theTree Assistance Programme, throughwhich the federal government provides fi-nancial assistance to orchard-owners andnursery owners whose trees are damagedby natural disasters. The sudden death ofapple trees may not seem as dramatic as ahurricane, but in its insidiousness, it isperhaps even more dangerous. Americanshave given considerably more before in thedefence of apple pie. 7

H U D S O N VA LLE Y, N E W YO R K

Young apple trees are dying, and noone understands why

Applecalypse now

How do you likethem apples?

Argh, the apple trees

The Economist April 13th 2019 United States 47

As the 2020 Democratic primaryheats up, a brace of left-wingers are

fighting over who can be more radical.They will take heart from the fact that forthe first time, more Americans whoaffiliate with the Democratic Party callthemselves liberals rather than moder-ates or conservatives. According to thenewest figures from the General SocialSurvey (gss), a long-running poll fromthe University of Chicago, 54% of Demo-crats describe themselves with the Lword. In 1974, when the gss first askedthe question, only 32% did.

What exactly the word “liberal”means in America is contested. But itdoes seem that Democrats are indeed

moving to the left. The Co-operativeCongressional Election Study (cces), apoll led by researchers at Harvard Uni-versity, also released new survey datathis year. The numbers show that evenDemocrats who describe themselves asconservative tend to support left-wingpolicies. Over nine-tenths support Medi-care for All (a form of universal healthcare). About the same proportion wantthe federal minimum wage to increase to$12 per hour (it is currently $7.25), andthe Environmental Protection Agency toregulate CO2 emissions. Four-fifths saythat women’s access to abortion shouldbe unrestricted.

There are limits to the leftward swing.According to the cces, less than a quarterof Democrats believe that they are “veryliberal,” the left-most position on thescale. Some popular positions amonghigh-profile Democrats are not yet main-stream among the rank and file. Forexample, the idea of paying reparationsfor the costs of slavery, endorsed byAlexandria Ocasio-Cortez, a firebrandmember of the House, is not universallyaccepted. Only 51% think that blackAmericans should get special treatmentto help them catch up.

In the end, it is not enough to winover registered voters. Though Demo-crats outnumber Republicans, Repub-licans tend to turn out. Democrats haveto win over more independents too.

Feeling out leftThe Democrats

WA S H I N GTO N , D C

For the first time, a majority of Democrats call themselves liberals

The emerging majority

Source: General Social Surveys

United States, share of Democrats byself-described political ideology, %

0

20

40

60

1974 80 90 2000 10 18

LiberalModerate

Conservative

Though conservatives are by and largetaking a kicking in the culture wars,

they continue to hold ground on one front:abortion. Americans increasingly acceptthe right of gays to adopt children and mar-ry. But they have not moved in a similar di-rection on women’s right to terminate un-wanted pregnancies. Abortion is ascontroversial as it was 46 years ago whenthe Supreme Court ruled it a constitutionalright in Roe v Wade. Hence the success of“Unplanned”, a low-grade, blood-spatteredfilm about an abortion nurse-turned pro-lifer that has become a box-office hit.

More significant fresh evidence ofAmericans’ antipathy to abortion comes inthe form of legislation. In the first threemonths of 2019, 12 states introduced billsthat ban abortion from the moment a fetalheartbeat is detectable. That happensaround the sixth week of pregnancy, twoweeks after a missed menstrual period,when many women do not yet know theyare pregnant. In other words, the billscome close to being total abortion bans.

Around half have made it through atleast one legislative chamber. In somestates they have been signed into law. InMarch a “heartbeat” bill was signed by Mis-sissippi’s Republican governor. Georgia’sgovernor, also a Republican, is expected toapprove a similar bill there—sparkingthreats of a Hollywood boycott of a statethat is a hub for film and tv production.

The rush of state-level heartbeat billsrepresents a shift in strategy by some anti-abortionists. Since 1973, pro-lifers have forthe most part focused on chipping awayat Roe by introducing burdensome regula-tions that make it harder to obtain an abor-tion. These range from imposing waitingperiods between a consultation at a clinicand an abortion (which can be difficult forwomen in states with few clinics) to dictat-ing the width of clinic corridors. This ap-proach has been successful. The Gutt-macher Institute, a pro-choice researchgroup, says 401 abortion restrictions wereintroduced between 2011 and 2017. Eightstates have only one abortion clinic.

Heartbeat bills, by contrast, arestraightforward violations of Roe—and soliable to be struck down by the courts al-most as soon as they become law. In Mar-ch a federal judge in Kentucky blocked aheartbeat bill the day the governor signedit. A similar law was blocked in Iowa in Jan-uary. Mississippi’s will almost certainly be

halted before it comes into effect in July.Pro-lifers are nonetheless persisting

with this campaign in the hope of gettingthe Supreme Court to weigh in on the is-sue. Excited by the court’s new conserva-tive majority, champions of heartbeat billshope the justices may use one to over-turn Roe—as Donald Trump promisedthem during his presidential campaign. Asthat suggests, Republican politicians areaware that merely dangling that prospect isa big vote-winner. 

In reality, heartbeat bills are unlikely toachieve their promised goal. Mr Trump’snew justices, Neil Gorsuch and Brett Kava-naugh, are conservative Christians whohate abortion. But neither appears ready tooverturn the 46-year precedent that Roe re-presents. And Chief Justice John Roberts, aconservative who has himself expressedscepticism about Roe’s legal basis, is anx-ious for the court to appear non-partisan.

It is more likely that the SupremeCourt’s conservative majority will under-

mine Roe by upholding stringent anti-abortion regulations. Mary Ziegler, a pro-fessor at the Florida State University Col-lege of Law, says it may inflict the worstdamage by agreeing that regulations do notcreate an “undue burden” on women’s ac-cess to abortion, the standard used bycourts to determine whether restrictionsare constitutional.

The court is expected to rule soon onone such law passed in Louisiana. It re-quires abortion doctors to have “admittingprivileges”, or the right to admit patients toa nearby hospital which many hospitals donot allow and which, elsewhere, has led tothe widespread closure of clinics. In 2016the Supreme Court struck down an almostidentical law in Texas, saying it imposed anundue burden. Chief Justice Roberts dis-sented from that ruling, though in Febru-ary he voted to temporarily halt the law inLouisiana while the court decided whetherto take it up. The other four conservativesvoted to uphold it. 7

WA S H I N GTO N , D C

A new push to overturn Roe v Wade

Abortion controls

In a heartbeat

48 United States The Economist April 13th 2019

1

“Secretary of homeland security

Kirstjen Nielsen will be leaving herposition, and I would like to thank her forher service,” tweeted Donald Trump on theafternoon of April 7th. Ms Nielsen steppeddown on April 10th, but she had been twist-ing in the wind for months. Though shehad publicly defended Mr Trump’s immi-gration policies, the president thought herweak. Her departure seems to presage aharsher turn on immigration from a presi-dent who considers the issue central to hisre-election strategy.

Few on the left will sympathise with MsNielsen. She was one of the faces of theTrump administration’s “zero tolerance”policy, under which anyone who crossedAmerica’s border illegally was referred tothe Justice Department for prosecution.That resulted in the separation of thou-sands of children from their parents. Iden-tifying all the families thus sundered, saidthe government in a court document filedlast week, could take up to two years. Shealso defended two policies halted, to MrTrump’s fury, by federal courts: one thatwould have prevented anyone who crossedthe border illegally from claiming asylum,and another that would force asylum seek-ers to wait in Mexico rather than Americawhile their claims were evaluated.

She reportedly almost resigned lastyear, after Mr Trump publicly berated herfor failing to stop illegal immigration.

Then she improved her standing with thepresident last autumn after the Border Pa-trol fired tear-gas into Mexico at unarmedprotesters. But the president had grown in-creasingly agitated in recent months as thenumber of border apprehensions rose(though they remain far below their levelsof a decade ago).

The administration’s decision last weekto withdraw the nomination of Ronald Vi-tiello to lead the Border Patrol, which MsNielsen had backed, suggested the writingwas on the wall. Mr Trump said he wantedto “go in a tougher direction”. After return-ing from a visit to the southern border lastweekend, he demanded and received MsNielsen’s resignation. Her departing lettersounded a Trumpian tone, blaming “Con-gress and the courts” for not “fixing thelaws which have impeded our ability tofully secure America’s borders and whichhave contributed to discord in our nation’sdiscourse.”

Her departure—and that on April 9th ofClaire Grady, the acting deputy secretary—leaves Mr Trump’s chosen successor, KevinMcAleenan, as acting homeland-securitysecretary. He thus becomes the sixth cur-rent interim holder of a cabinet-level posi-tion. How long he will last is unclear, as isthe full scope of his power. On April 10th MrTrump announced that “there’s only oneperson running [immigration policy]. Youknow who that is? It’s me.”

The problem is that Mr Trump seems towant to do things that American law doesnot allow—and among the things that re-portedly soured him on Ms Nielsen wereher reminders that legal constraints exist-ed. The New York Times reported that he de-manded that Ms Nielsen should stop mi-grants from claiming asylum, which isboth illegal and impossible.

Shortly before his most recent visit tothe border, the president said Americaneeds to “get rid of the whole asylum sys-tem” and “get rid of judges”. He reportedlytold border policemen to break the law anddeny asylum-seekers entry to America.“Our country is full,” Mr Trump declared onApril 5th at the Mexican border. “We can’ttake you any more…so turn around, that’sthe way it is.”

More departures from Homeland Secu-rity may soon follow, including the depart-ment’s general counsel and the head ofCitizenship and Immigration Services. OnApril 8th Mr Trump also announced thatRandolph Alles would step down as head ofthe Secret Service, though that may be con-nected to an embarrassing security breachat Mar-a-Lago, his Florida country club.

Stopping the tide of migrants complete-ly is beyond the power of any homeland-security secretary. But it is not beyond theirpower to try—or at least to appear on televi-sion to be trying, and then blame Demo-crats and feckless judges for any failures.

The president seems to like that sort of per-formance more than any realistic policy.Throughout his time in office, Mr Trumphas preferred fighting public battles on im-migration and much else to the unglamor-ous work of compromise and governance.

As next year’s election approaches, thatattitude may become even more apparent.Immigration policy offers the sharpestpossible contrast between Mr Trump andmost Democrats. That helped put him inoffice two years ago. Ms Nielsen’s depar-ture, and the “tougher direction” he claimsto want, suggest that he is gearing up tofight the same battle again. 7

WA S H I N GTO N , D C

Donald Trump does away with anothermember of his cabinet

Chaos in the DHS

Another one bitesthe dust The opioid addiction sweeping America

is devastating. It kills around 60,000people annually, far more than the numberwho die in traffic accidents or from gun vi-olence. It has contributed to three years offalling American life expectancy—the firstsuch sustained fall since the first worldwar. But there is one small but significantsilver lining: organ donations. In 2017 onein eight deceased organ donors in Americadied from an overdose, compared to one in100 in 2000.

Fatal drug overdoses usually kill bystarving the brain of oxygen. As far as organdonation is concerned, brain death is themore useful kind. That is because it takessome time for the heart to register the lossof brain function and stop beating—atwhich point organs begin to deterioraterapidly. Moreover, the opioid epidemic hasbeen concentrated among younger mid-dle-class people, who are in otherwise

A tragedy has a silver lining

Opioids and transplants

Life after death

Shooting up

Source: Organ Procurement & Transplantation Network

United States, deceased organ donorsBy cause of death, ’000

0

2

4

6

8

10

12

2000 05 10 15 18

Brain haemorrhage/stroke

Blunt injuryCardiovascular

Drug intoxication

Gunshot wound Other

The Economist April 13th 2019 United States 49

2

The road to Hell is paved with good tar-mac. Water runs clear in its creek. The

township in Michigan has only 72 resi-dents, Hellians, but offers attractionsaplenty. Post-office staff singe cards andstamp them, in blood-red ink, from Hell.Two bars—the Hell Hole and Hell Saloon—bustle with customers. Both of them, and amini-golf course, are decorated withghouls and monsters. Chuckling touristsbrowse a shopful of perdition-themed sou-venirs. Most popular are T-shirts with slo-gans such as “Hell is my happy place”.

John Colone owns Screams, an ice-cream stall, and much of the commercialcentre. His red-roofed wedding chapel lastyear hosted 81 marriage ceremonies (in-cluding ten same-sex ones). He also threwthree “living wakes” for sick customerswho wanted to party in Hell before theydied. Some 150 people a year pay $100 to bedeclared Hell’s mayor for a day. Tourist-money generates 18 local jobs.

The township, founded in 1838, suppos-edly got its name from a visiting Germanwho declared the local weather “hell”, orwonderfully bright. It thrived by hosting asawmill and tavern, but like much of ruralAmerica its economic prospects slumpedas farm jobs vanished. Hell’s only churchburned down in 1963 and was never rebuilt,says Mr Colone. A lifelong resident, he fretsthat youngsters leave and “the only peoplemoving in are senior citizens”.

Hell, nonetheless, is a success. The Mid-

west’s landscape “is littered with has-beentowns”, says Richard Longworth, whowrote a book about the decline of similarplaces. He notes other settlements dwin-dling much faster, such as Gravity, a farm-ing town in southern Iowa. It once hadmore than 1,000 people but has steadilylost its pull, especially after the school andlocal businesses closed. It now has an esti-mated 150 residents, many of them elderly.

Rural towns survive by adapting. Hel-lians are creative in luring tourists, prefer-ring families who shop and eat with gusto,rather than the biker gangs that used toflock in. The township won national atten-tion on June 6th 2006 by hosting a 12,000-strong party to mark 6/6/6. In especiallycold weather, when Hell’s creek freezesover, television journalists are invited toreport from its banks. Each autumn it hosts“Hearsefest”, a spooky parade. The result,says Mr Colone, is 70,000 visitors yearly.

What could others learn from theboomlet in Hell? James and Deborah Fal-lows, who visited 42 towns and small citiesacross America, last year published a popu-lar book celebrating the most successful.They say towns need “local patriots”, oftenin business, who are energetic, set outgrand plans and excite others. They alsoneed a clear civic story, “myth or a lie”, thatresidents can organise around. Beingopen—both to migrants and visitors—isimportant. It pays, too, not to be truly re-mote: being in the orbit of a city with athriving university is best of all. Much ofthis applies to Hell, half an hour from AnnArbor, home to the University of Michigan.

Some things, however, are unique to atown with an odd name. Mr Colone doubtsthat earlier generations would have been askeen on shopping in Hell, but says publicattitudes have grown more relaxed. “Hellsells,” he says. Pay attention, residents ofSatans Kingdom, Massachusetts. 7

H E LL , M I CH I G A N

Small-town America can learn fromone thriving, oddly named settlement

A damn lovely town

Lessons from Hell

To Hell with them

good overall health. “These are extremelyhigh-quality organs,” says Dorry Segev, atransplant surgeon at the Johns HopkinsSchool of Medicine in Baltimore.

Yet until recently they were often dis-carded for fear of blood-borne diseases.Many of the people who die from a heroinoverdose have, at some point, shared nee-dles with other users. That spreads viruses.The most common is hepatitis C (whichleads to liver disease) but there is also a riskof hiv. At some transplants centres now asmany as half of transplanted organs arefrom such “infectious-risk donors”, as theyare called in medical circles.

That, luckily, is becoming less of a pro-blem. Thanks to new technology, it is easi-er to know whether a donor was infectedwith a disease. In the past, tests were notsensitive enough to pick up hiv or hepati-tis C if the infection had been acquired inthe previous six months or so. The testingmethods used today may miss only infec-tions picked up in the previous week. Andif they were infected, it matters less too. Inrecent years medicines for hepatitis C haveimproved to the point where almost every-one is cured completely.

As a result, more patients agree to trans-plants from donors who they know are in-fected. Last year, they included RobertMontgomery a transplant surgeon at theNew York University Langone medical cen-tre, who got a heart transplant from a donorwho he knew had hepatitis C. Dr Montgo-mery became infected and then cured ofthe virus. A study of more than 100,000people on the kidney waiting list in 2010-2014 found that five years afterwards, thosewho accepted such organs were, on aver-age, more likely to have survived thanthose who declined. The low chance that abetter offer would come along meant thattaking the risk was worth it.

A study published on April 3rd in theNew England Journal of Medicine adds togrowing evidence that such transplants areindeed safe. In that study, 44 people gothearts or lungs from donors with hepatitisC and a four-week course of antiviral drugsfor it. Six months later, all these patientswere clear of the virus. And they were doingas well as the patients in a comparisongroup who had transplants from donorswithout hepatitis C. Other studies haveshown similar results for kidney and livertransplants, although they have also beensmall and with short follow-up periods.

All this is good news for the 6,500 Amer-icans who die on the waiting list for trans-plants each year—as well as for the 114,000who are currently on the list, most ofwhom will not get lucky this year (see In-ternational section). And for some of thefamilies bereaved by the opioids tragedy,the possibility that their loved ones maygive a new lease of life to others may be aflicker of light in the darkness. 7

50 United States The Economist April 13th 2019

The first time Lexington thought of Donald Trump at Wrestle-Mania this week was when, to the fading strains of “America

the Beautiful”, a helicopter flyover churned the night sky over theMetLife Stadium in New Jersey. Was the president about to make asurprise reappearance at the annual wwe sports-entertainmentextravaganza to which he owes so much of his political method?The second time, well into the seven-hour grapplefest, was as theveteran star-wrestler “Triple H” was ripping out his grudge-rival’snose-rings with a pair of pliers.

That was not only a reflection on how Mr Trump treats his cabi-net. Paul Levesque, as Triple H was originally known, these daysspends most of his time as a senior executive in the billion-dollarwwe business, having married into the McMahon clan that ownsit. In reality-bending wwe style, he first married and divorcedStephanie McMahon, daughter of wwe founder Vince, fictitiously.This was part of a story-line in which she and her brother Shane,both wwe executives who appear in wwe productions as villain-ous executives and wrestlers, tried to steal their parents’ business.Triple H then actually married and had three children with her.

Those developments are now part of his wrestling character. AsTriple H was mock-torturing his rival Batista this week, a wwe

commentator—broadcasting live to 180 countries and one ofAmerica’s biggest television audiences—said mock-fearfully:“That’s my boss…” This disorienting mix of business, dynasty andentertainment—scrambling performance and reality, ham inter-ests and financial ones—is the defining characteristic of profes-sional wrestling and of its chief emulator, the president.

Mr Trump is another sometime wwe performer with close tiesto the McMahons. A longtime fixture at WrestleMania, helaunched a semi-scripted assault on Vince McMahon at the 2007version. Having been inducted into the wwe Hall of Fame, he re-turned the favour by appointing Vince’s wife Linda to his cabinet,as head of the Small Business Administration. She will soon leaveit to run a pro-Trump Super pac. Yet such personal links do not be-gin to do justice to Mr Trump’s stylistic debt to spoof wrestling.

To appreciate that, consider why it has proved so alluring. It isnot because fans think the fights are real, exactly. Testifying beforethe New Jersey Senate in 1989—when the McMahons were trying to

evade regulations on competitive sport—Mrs McMahon admittedthey were fake. After this unprecedented flouting of “kayfabe”, aswrestlers call their scripted reality, some said the industry was fin-ished. That it has instead grown hugely is chiefly owing to thepower of escapism. The 80,000 wwe fans at the MetLife, typicallyyoung men with defiant slogans such as “I’m not dead yet mutha-fucker!” on their t-shirts, are the heroes of their own imagina-tions. Many carried chunky replicas of wwe (fake) championshipbelts. “It’s like Santa Claus, not real, but that’s not the point,” saidJason, a banker from Manhattan with a $300 belt over his shoulder.

wwe has also found new ways, in its scripting and use of digitalmedia, to buttress the fantasy. Most important, it constantly shiftsbetween different registers of make-believe, from real to credibleto absurd. Thus, for example, its use of executives as characters.Similarly, its stars appear in and out of character on social media.In a pre-WrestleMania rant Ronda Rousey, a former mixed martialarts champion, slammed wwe as “not real” and vowed henceforthto do “whatever the hell I want”. Such tricks create sufficient doubtabout what is real for wwe fans to keep living their dream.

A blurring of the age-old distinction between “faces and heels”also supports this shift towards realism: Triple H, once a heel, isnow considered a good guy. So does the frenetic way wwe script-writers distract their audience with new talking-points: while itwas legal for Triple H to take a sledge hammer to Batista, did itmake sense, given his (actual) torn pectoral muscle, tactically?

Mr Trump’s success lies in applying wwe principles where theline between performance and reality is even finer. In “The Ap-prentice” he played a successful businessman. In politics he sawthat the contest of ideas its participants claimed to be engaged inwas really a partisan slugfest almost as contrived and absurd as thewwe. He therefore offered a more ghoulishly watchable version ofwhat voters were already getting. Why choose Jeb Bush trying to bea pantomime bad-ass when you could have the real thing?

The president also employs the wwe’s new stagecraft. Mixingfamily, business and politics infuriates sticklers for the law, butmakes his fans think he is somehow more real—or “authentic”—than his rivals. He is also a master of shifting between degrees ofmake-believe. “I’m not supposed to say this,” he interjects into hisspeeches, “but what the hell?” And then there are his constantlydistracting micro-dramas, breathlessly echoed by a commentariatevery bit as emotionally invested in the drama as the press galleryat WrestleMania, which often erupted into spontaneous gasps orapplause. How much of Mr Trump’s behaviour is concocted is de-batable; private Trump is also pretty pantomime. But that uncer-tainly merely adds, wwe style, to the reality-tumbling effect.

Electoral royaleMr Trump’s ham performance has been endangered by its ownsuccess—represented by two years of unified Republican govern-ment. A wwe performer without an adversary would be a pitifulspectacle. It is therefore testament to the president’s genius that hewas able to fill the void, not with policies, obviously, but rather aparade of new enemies: immigrant children, black football play-ers, the late John McCain. Yet with the Democrats soon to choose anew champion, his performance may be about to get easier.

His opponents should be advised by this. The wwe’s popularitysuggests their main hope, that voters will tire of Mr Trump’s grimclowning, may be wishful. More specifically, they should recog-nise that no professional politician can beat him in a grudgematch. They would do better, where possible, to ignore him. 7

TrumpManiaLexington

The president is a pro-wrestler masquerading as commander-in-chief. His opponents should take note

The Economist April 13th 2019 51

1

Dozens of boys sit in rows on the carpet,hunched over open books, reciting a

passage over and over. As skullcaps bobrhythmically, childish voices evoke the ca-cophony of an aviary. Reading and recitingthe Koran are all this school teaches, andmay be all the education these boys get.

During last year’s election campaign,Imran Khan, a former cricket star who isnow prime minister, promised a naya or“new” Pakistan. The scene at this madrasa,perched on a pine-forested ridge 100kmnorth of Islamabad, the capital, provides ahint of how tenacious the old Pakistan re-mains. There are more than 30,000 madra-sas like this one, with perhaps 2.5m pupilsenrolled. Many of the students are board-ers whose poor, illiterate parents give themup for long periods to the religious chari-ties that run such schools. They graduatewith strong opinions, but few skills.

That will all change, says Mr Khan’steam. Soon, insists his minister of educa-tion, the religious schools will have to

teach a broader range of subjects to gaingovernment accreditation. Eventually, asingle national curriculum will be im-posed. The army, which is widely seen asthe power behind the throne and has oftenappeared indulgent to religious extrem-ism, supports education reform. Its owngrowing network of fee-paying schools isheavy on sciences and English.

As for madrasa graduates who turn to ji-hadist militancy, a senior commander isadamant. The time when Pakistan’s “deepstate” winked at favoured jihadist groups isover. “We will not allow these goons to runaround and dictate our foreign policy,” he

insists. Mr Khan is equally emphatic. Whatuse does Pakistani intelligence have forsuch groups anymore, he asks. They werecreated to fight the Soviets in Afghanistan,and then lingered in the 1990s when theywere encouraged to make life difficult forIndia in its part of Kashmir, which Pakistanclaims. But from now on there will be noKashmir exception, says Mr Khan, hintingthat it may become harder for Pakistan-based militants to infiltrate Indian territo-ry. “What we found is that Kashmiris arethe ones who suffer,” he says, alluding toharsh measures India has often taken tomaintain security on its side of the border.

Pakistani politicians and soldiers havemade such pledges before. India tends todismiss them as insincere attempts to es-cape international condemnation after ter-rorist groups based in Pakistan mount at-tacks in India—as in February, when anoutfit called Jaish-e-Muhammad killed 40policemen in India’s bit of Kashmir. Indiaresponded by sending jets to drop bombsdeep inside Pakistani territory. Their targetwas the madrasa, which Indian officialssaid was a training centre for terrorists.

Pakistan retaliated largely symbolically,bombing only open spaces, and also de-fused tensions by quickly releasing a cap-tured Indian pilot. Whether this emollientapproach will last is unclear. But Pakistan’sarmy seems desperate to put its best footforward, claiming that a new era of civil-

Reforming Pakistan

Charm offensive

B A L A KOT

The army and the civilian authorities claim to be turning over a new leaf

Asia

52 After Thailand’s election

53 Social media in India’s election

53 The Philippines and China

54 Banyan: Kazakhstan’s new president

Also in this section

52 Asia The Economist April 13th 2019

2 military relations has dawned. Mr Khan de-clares that he enjoys total support, even astop generals straight-facedly refer to theprime minister as “boss” and profess theirlove of democracy and the rule of law.

Mr Khan, although undoubtedly not incharge of the generals, has won plaudits fortrying to honour his loudest election pro-mise, which was to crack down on corrup-tion. Since he came into office last Augustthe National Accountability Bureau, aptlyknown as nab, has mounted a fierce offen-sive against allegedly crooked officials. Nofewer than five former prime ministers areunder investigation. The current heads ofthe two main political parties that chal-lenge Mr Khan’s Pakistan Tehreek-e-Insaf(pti), as well as close relatives, are also be-ing questioned.

Yet the offensive has been so vigorousthat some fear it has put a chill on invest-ment, at a time Pakistan desperately needsit. It is also clear that, fairly or not, the big-gest targets of the campaign happen to beMr Khan’s political opponents. Similarly,the government has justified sudden, dras-tic cuts in spending on advertising as aneeded economy. But given that suchspending represented a big slice of revenuefor many media firms, the move, which hascost as many as 3,000 jobs, appears to havedisproportionately hurt outlets that havebeen unkind to Mr Khan. The army, despiteits professed commitment to democracy,quells criticism in even more radical ways,ordering irksome channels off the air andabducting nettlesome bloggers.

Whether the media can air it or not,there will be more resentment when thegovernment takes painful steps needed tomend the economy. The imf, which looksset to impose tough conditions for a bail-out—Pakistan’s 13th in 31 years—recentlypredicted that, without reforms, the econ-omy will grow by just 2.5% a year over thenext five years, barely outpacing thegrowth of the population. The rupee haslost more than 30% of its value since MrKhan took office, inflation has soared andboth the current-account and budget defi-cits are unsustainable. The prime ministerputs on a brave face, noting that thingswere worse a few months ago, when for-eign-exchange reserves were only enoughto pay for two weeks of imports.

The improvement, alas, is solely owingto charity from China and the Gulf. The un-kind may conclude that the kinder, gentlerimage Pakistan is trying to project isprompted by a sobering look at its finances.Pakistani officials clearly relished invitingdiplomats and journalists to the hilltopmadrasa that India claimed to have blitzed,to show that it remains intact. But Indiaroutinely humiliates Pakistan in a muchmore profound way: its economy is grow-ing so fast that it expands by the size ofPakistan’s every two years. 7

He turned to the crowd outside the po-lice station, lifted his eyes to the heav-

ens and raised three fingers. This salute, asign of resistance to tyranny in “The Hun-ger Games”, a dystopian series of novelsand films, is the kind of gesture that hasmade Thanathorn Juangroongruangkit,the leader of Future Forward, a politicalparty he founded last year, wildly popularwith young Thai voters. Inside the station,Mr Thanathorn was charged with sedition,assisting criminals and taking part in an il-legal assembly.

The rap sheet relates to a protest in 2015against the military junta which, in theory,is now on the verge of returning Thailandto civilian rule. The authorities say Mr Tha-nathorn helped to arrange the protest,which was illegal only under the extremelyrestrictive rules the junta placed on all po-litical activity. If convicted he could faceseven years in prison and a ban from poli-tics. It is his second criminal case. Last yearhe was charged with computer crimes forcritical comments about the junta he madein videos streamed on Facebook. He denieswrongdoing. Future Forward came third inlast month’s election; the junta says thecharges are “entirely unrelated to currentpolitical events”.

Thus continues the generals’ blunder-ing campaign to keep control of the coun-try. Since seizing power in a coup almost

five years ago, they have schemed to keepallies of Thaksin Shinawatra, a formerprime minister ousted in a prior coup, outof power. They pushed through a new con-stitution which skewed the electoral sys-tem and gave them the power to appoint athird of the members of parliament. In-timidating and imprisoning critics like MrThanathorn was supposed to help smooththeir allies’ path to power.

Since the vote on March 24th, however,things have not been going smoothly forthe junta. Although the party set up to backit got more votes than any other, a coalitionof seven parties opposed to the generals,including Future Forward, claimed to havewon a majority in the lower house of parlia-ment. That is not enough to prevent Pray-uth Chan-ocha, the junta leader and primeminister, from keeping his job, since hecan rely on the votes of the appointed up-per house. But it is an embarrassment, andwill make it hard for him to govern.

Hence a series of measures intended toundermine the democratic coalition. Evenbefore polling day the Election Commis-sion had helped the junta by excluding aparty linked to Mr Thaksin. On the day it-self inconsistent vote tallies and unexpect-ed delays did little to inspire confidence.The commission’s latest act of meddlingconcerns the 150 seats in the lower housethat are awarded under an obscure systemof proportional representation. It seems,in effect, to be setting a lower threshold fortiny parties to win seats than bigger ones,fracturing parliament and imperilling thedemocratic front’s majority.

Little is clear, since the commission hasnot yet announced how it is distributingthe seats. It has until May 9th to issue the fi-nal results. Those will change further if itdisqualifies any winners of the 350 seatsawarded to the candidate with the mostvotes in each constituency. Its rules oncampaigning appeared designed to trip uppoliticians by, among other things, forbid-ding candidates from mentioning the royalfamily, severely limiting the use of socialmedia and specifying how big certain plac-ards could be. The commission has an-nounced that it will investigate 66 victo-rious candidates, without specifyingwhich ones. The junta, meanwhile, is try-ing to quell criticism of the commission,charging activists who have documentedits bias with libel.

The continuing manipulation of theelection could drag Thailand into turmoil.Political deadlock might even give thearmy an excuse to call off the restoration ofdemocracy. Apirat Kongsompong, thearmy chief (Mr Prayuth surrendered thepost a few months after the coup) is non-committal. Earlier this month he told jour-nalists, “Staging a coup isn’t easy. It de-pends on the situation. Right now, it lookslike things are going well.” 7

If at first you don’t succeed, rig, rigsome more

After Thailand’s election

Still at it

May the odds be ever in your favour

The Economist April 13th 2019 Asia 53

1

The expressive president of the Philip-pines, Rodrigo Duterte, once gushed

about his Chinese counterpart, “I just sim-ply love Xi Jinping”. But the infatuation hasfaded. Upset that Chinese vessels havebeen mobbing the main Philippine-occu-pied island in the South China Sea, Mr Du-terte rasped at China to “lay off”, and threat-ened an aggressive response. The same day,April 4th, American and Philippine forcespractised storming a beach facing theSouth China Sea, in their biggest joint exer-cises since 2016, the year Mr Duterte an-nounced a “separation” from America, hiscountry’s only formal military ally. ThePhilippine pivot from America to China,dreamt up by his government to ease con-frontation with China over overlappingclaims in the South China Sea, has becomea pirouette.

For more than three months a flotilla offishing vessels from China’s maritime mi-litia has been swarming around Philip-pine-occupied Thitu, an island in theSpratly archipelago which is home both toa small military base and 200-odd civilians(see map). The manoeuvres appear to be aresponse to Philippine construction workon the island, to repair the airstrip andbuild a beaching ramp for small craft.

Mr Duterte has responded with charac-teristic bluster. “I have soldiers there,” hewarned the Chinese. “If you make a movethere, that’s another story. I will tell my sol-diers: ‘Prepare for suicide missions.’” TheChinese foreign ministry responded,slightly more stodgily, by noting that thePhilippines and China had only recently“reiterated our commitments to further co-

M A N I L A

The Philippines changes tack on itsterritorial claims—again

The South China Sea

When love breaksdown

Fiery Cross Reef

Woody I.Duncan I.

Itu Aba I.(Taiwan)

Gaven Reefs

Subi ReefSouthwestCay

Mischief Reef

JohnsonSouth Reef

Hughes Reef

SwallowReef

Cuarteron Reef

Spratly I.

PH I LI PPI N E S

Manila

CH I N A

Paracel Is.

VIETN

AM

Spratly Is.

Thitu I.

Scarborough Shoal

S o u t h Ch i n aS ea

M A L AYS I A250 km

Selected installationsSource: MappingAwareness Project

“Are you there? It’s me, your sweet-heart,” a push notification coos at

7am. It comes from one of India’s mostpopular smartphone apps, Helo, which al-lows users to chat and share content. Butthe flirtatious burble soon gives way to po-litical anecdotes and jokes aimed at na-tional leaders. Many question whether Ra-hul Gandhi, the leader of the oppositionCongress party, is really Hindu, or makehim look weak. The torrent of political con-tent is only natural, given that voting beganin the country’s seven-phase election onApril 11th. But who is behind it all, and whateffect will it have on voters?

The campaign still features billboardsand little lorries with loudspeakers plyingthrough towns and villages. But this year’selection is being waged most vigorously onvoters’ phones. At the previous generalelection, in 2014, India’s 1.3bn citizens hadbarely 100m smartphones between them.Now they have more than 400m. Mobiledata are cheap, with a gigabyte costing just$0.26. India has become the biggest marketfor Facebook (more than 300m accounts),WhatsApp (more than 200m active users)and a host of other social-media apps.Many, such as Helo and shareit, a similarservice, are owned by Chinese firms. To-gether, they were downloaded 950m timeslast year.

Many social circles and extended fam-ilies form WhatsApp groups, to share gos-

sip, humour and everything else. The mes-saging app’s encryption makes the sourceand content of the material circulated allbut invisible to everyone but its intendedtargets. That can have grim consequences.After a rash of rumours about child-snatch-ing led to several lynchings last year,WhatsApp made it harder to forward mes-sages to big groups, to slow the spread ofmisinformation.

The app remains political parties’ fa-voured means of disseminating propagan-da, factual and otherwise. The Bharatiya Ja-nata Party (bjp) recruited a “troll army” ofvolunteers in time for the last election,which it won in a landslide. In the five yearssince, its social-media soldiers have madelife online miserable for its ideological en-emies, mainly liberals, leftists, Muslimsand feminists. Other parties have estab-lished their own it cells, but with the bjp

raking in 93% of all declared campaign do-nations, its technological superiority isonly to be expected.

The bjp aims to have 150,000 cyber-sol-diers in the state of Uttar Pradesh alone.And then there are the bots. Twitter is notespecially influential in India, but is rela-tively easy to study since its content is vis-ible to all. The Atlantic Council, an Ameri-can think-tank, examined Twitter’s trafficduring a two-day spell in February, whenNarendra Modi, the prime minister, touredthe state of Tamil Nadu. Bots pushed bothpro- and anti-Modi hashtags by the thou-sands per second, with the pro-Modi botsworking three times harder.

At 8.40am, Helo bleeps again, unbid-den. It wants to share the good news that“America has dealt a tight slap to India’spimp-journalists!” The pimps in questionare news outlets that had reported that In-dia had not downed a Pakistani f-16 lastmonth, as the government had claimed.The accompanying post states—wrongly—that the American government has deniedthe reports. It comes from an outfit calledSpecial Coverage News, which seems tospecialise in machine-generated copy witha pro-Modi tilt.

There is no obvious way to prevent suchclaims from circulating. Indeed, the chiefexecutive of a rival app to Helo acknowl-edges there is no law to prevent his com-pany going further, and taking fees for sur-reptitious advertising or selling data aboutusers’ locations. (He would never do that,he hastens to add.) The Election Commis-sion has been meeting social-media firmsto try to find ways to ensure that they deletecontent that violates its code of conduct.But many of the apps concerned, such asWhatsApp, are impossible to police. Andeven those that can be invigilated can beoverwhelmed by the volume of propagan-da. When it comes to filtering out false-hoods, it seems, India’s voters will be left totheir own devices. 7

D E LH I

The campaign in voters’ pockets

Social media in India’s election

Phoney war

54 Asia The Economist April 13th 2019

2

Banyan Silent spring

In a country which had all but abol-ished politics, how much excitement

can the people of Kazakhstan take? Amonth ago the only ruler most of themhad ever known, Nursultan Nazarbayev,who had run Kazakhstan since it was stillpart of something called the Soviet Un-ion, suddenly announced he was step-ping down. Declaring it was time to handpower to a younger generation, the 78-year-old abruptly resigned, putting incharge the 65-year-old head of the Sen-ate, Kassym-Zhomart Tokayev, for theremainder of his term, which was due tolast until next year. For a while, thatseemed to be that. Yet on April 9th MrTokayev declared he was calling a snappresidential election, because “it isnecessary to remove uncertainty.”

What uncertainty? Not only is MrNazarbayev clearly in charge of his ownsuccession, he is also not going away.The loyal Mr Tokayev’s message, startingwith his inaugural speech, has been allabout buffing Mr Nazarbayev’s image asKazakhstan’s founding father. There islittle question of launching new politicaland economic initiatives. Stability, asunder Mr Nazarbayev, is all.

Meanwhile, control has not entirelyor even largely shifted to Mr Tokayev. The“First President” and “Leader of theNation” has in effect created a parallelpower structure. Above all he remains, ashead of the Security Council, in chargethe army and the secret services. AsBanyan discovered in the capital thisweek, ministers must still upend theirschedules when the summons comes.With this retained power, Mr Nazarbayevcontrols the future. As for the past, theformer steelworker has safeguardedhimself and his immensely wealthyfamily through a constitution thatshields them—and only them—from

asset seizures.And whether in office or not, Mr Nazar-

bayev is not the sort to give voters a choice.All organised opposition has long beencrushed, and repression of dissent hasrecently been redoubled. Mr Nazarbayevused to win presidential polls with over95% of all votes (even a notional opponentonce meekly voted for him). Everythingseems set for a predictable result at thevote in June—bar one important detail.

In calling the election, Mr Tokayevneglected to say whether he was running.That has set off a parlour game of specu-lation. Some predict that the strongman’sdaughter, Dariga Nazarbayeva, who fol-lowed Mr Tokayev as chairman of theSenate, is the real political heir.

With power in Kazakhstan so perso-nalised, it is only natural to wonderwhether a relative would succeed MrNazarbayev. Yet the speculation is prob-ably overwrought. If Ms Nazarbayeva wasbeing groomed for power, why has hercareful father given her so little executiveexperience to date? Moreover, her mar-riage to Rakhat Aliyev, a murderous, grasp-

ing former tax chief who died in an Aus-trian prison cell, surely counts againsther in her father’s eyes. It certainly doesamong ordinary citizens.

So Mr Tokayev it probably is. Pasty-faced and with tinted glasses, he is theapparatchik’s apparatchik. It is a plus tothose around Mr Nazarbayev that thesoft-edged Mr Tokayev is tied to none ofthe oligarchs, among whom Mr Nazar-bayev has carefully spread fortunes inreturn for support. And, as a skillfuldiplomat, Mr Tokayev will seek to nur-ture good relations with Russia andChina, the crucial neighbours.

Yet his affirmation would resolveeverything—and nothing. Among theelites, his authority flows entirely fromMr Nazarbayev’s backing. All bets are offonce the Leader of the Nation is gone.Knowing that, what is to stop Mr Tokayevcharting his own course, so imperillingthe delicate, perhaps unstable, balanceamong the powerful?

Bear in mind, too, a changing, lessdeferential, mood from below. Earlyevery evening in Almaty, the commercialcapital, the internet suddenly crawls at asnail’s pace as an exiled (and deeplyflawed) opponent of the regime, MukhtarAblyazov, takes to Facebook. In Almaty,too, police complain to dissidents thatthey are ordered to do the dirty work,such as arresting protesters, while theirbosses are busy pocketing bribes. And ina society that knows how to hold itstongue, Mr Tokayev’s order to renameAstana has been widely lambasted. Thecapital, a queasy brew of bombast andbling built by Mr Nazarbayev as a monu-ment to himself, is now to be calledNur-Sultan. Not even North Korea’s Kimdynasty, the carpers point out, ever wentthat far. Once deference has gone, fearwill not last long.

The authorities forget to tell the people of Kazakhstan who the next president will be

operation and talked about measures to en-hance mutual trust”.

Since the 1990s China has been occupy-ing reefs and rocks in the South China Seaclaimed by the Philippines and other litto-ral countries, and building on them. In2012, after the Philippine navy tried to ar-rest some Chinese fishermen near Scarbor-ough Shoal, which both China and the Phil-ippines claim, Chinese vessels havepatrolled the surrounding waters and attimes turned away Philippine fishermen.The Philippines asked an international tri-bunal to adjudicate. In 2016, just after Mr

Duterte became president, the tribunalruled in the Philippines’ favour, sayingChina’s claim to the shoal was baseless.

Jingoism sells well in the Philippines(as it does in China), and in the run-up tohis election Mr Duterte threatened to jumpon a jet ski and defend the Philippines’claim to Scarborough Shoal single-hand-edly. But once in office, he opted instead tocosy up to China. He has kept quiet aboutthe tribunal’s ruling, which Chinese lead-ers had rejected. China, in turn, haspledged big investments in roads, portsand railways around the Philippines. And

although it still turns away some Philip-pine vessels, it has not built any militaryinstallations on Scarborough Shoal.

But mid-term elections are nearing. Theopposition has been cudgelling Mr Dutertefor selling out to China. Not much of thepromised investment has materialised.And now the Chinese are testing bound-aries around Thitu. Small wonder, then,that Mr Duterte, who is as mercurial as he isexpressive, appears to have had a change ofheart. But as even he acknowledges, thePhilippines would lose a war with China,so it would be foolish to start one. 7

The Economist April 13th 2019 55

1

The schoolchildren started to vomit.Some fell unconscious and were

whisked into hospital. Angry parents de-manded an explanation. The food-poison-ing scandal quickly lit up Chinese socialmedia. A kindergarten teacher in the cen-tral province of Henan was detained—ac-cused of adding sodium nitrite, which canbe toxic in large doses, to the meal boxes ofat least 23 pupils late last month.

Most comments online have focused onthe evil of the act and have expressed sym-pathy for the parents. But a surprisingnumber have noted the alleged perpetra-tor’s home province. “I’m not surprised.Henan people would stoop to anything,”says one commentator on Baidu Tieba, asocial-networking site. “Apart from wick-ed, I can’t think of another word to describeHenan people,” chimes in someone withmore than 50,000 followers on Weibo, Chi-na’s version of Twitter, who identifies him-self as a financial journalist.

Han Chinese are more than 90% of thepopulation and their prejudice against eth-nic minorities is well documented. In Tibetand Xinjiang it has reinforced the Commu-

nist Party’s repressive tendencies. Discrim-ination by Han people against members oftheir own ethnic group is less well-known,but also common. Its consequences are notas appalling, but it makes life tough fortens of millions of people. Over the pastthree decades it has been fuelled by the mi-gration of more than 200m rural dwellersinto cities, which has turned urban areasinto mosaics of people from hugely variedbackgrounds.

Not all men are brothersUrban Chinese are often contemptuous ofthese internal migrants, wherever they arefrom. But people from certain regions suf-fer higher than usual levels of negative ste-reotyping. Regional discrimination “ishard to see and touch” yet its impact is aspainful as getting “a bloodied face”, said anacademic quoted by a north-eastern news-paper. Yang Yong, a migrant worker fromHenan who lives in Beijing, has felt this. Hesays he was once refused a construction jobin the capital because of his home prov-ince. “When I answered I’m from Henanthe boss said goodbye,” he recalls. Online

job advertisements for domestic maids inBeijing often specify that “applicants fromHenan and the north-east need not apply.”A recent trawl through a popular websitefor household work, 2x9d.com, found thata fifth of such jobs explicitly excluded ap-plicants from these two regions.

People from Henan and the north-east-ern provinces of Heilongjiang, Jilin andLiaoning are among those most commonlytargeted, partly because those areas aresuch big sources of migrants. Henan is afarming province of about 100m people.The latest census, in 2010, showed that7.5% of Henanese were living outside theirhome province, the second-highest pro-portion of any province. The highest wasAnhui, on Henan’s eastern border.

Even among better-educated urban res-idents, north-easterners are often stereo-typed as quarrelsome and pugnacious, andHenanese are commonly regarded asthieves and cheats. In Chinese televisioncomedy, actors playing criminals oftenspeak with a Henan accent. The “SpringFestival Gala” of 2017, the most-watchedshow of the year, included such a sketch.Some regional stereotypes are harbouredonly by people from a particular area. In abook published in 2015, Agnieszka Joniak-Luthi of the University of Zurich says thatShanghai residents sometimes describepeople from northern Jiangsu, a provincethat borders on the city, as “boorish” and“unkind”. However, people from that re-gion are not so despised in Beijing. Thosefrom Anhui are also often scorned in

Regional discrimination

Province and prejudice

B E I J I N G

Life is often hard for internal migrants in China, especially those from Henanand the north-east

China

56 Top of the hotpots

57 Chaguan: What sport means in China

Also in this section

56 China The Economist April 13th 2019

2 Shanghai, but not so much elsewhere. Egregious examples of regional stereo-

typing occasionally cause outcry. Such wasthe case with the “Spring Festival Gala”. On-line complaints from Henanese promptedthe director of the show to issue a half-hearted apology. Last year a hiring managerat iQiyi, an online-video firm, instructed asubordinate (in a leaked email) to “filterout” applicants from Henan. In 2017 Mei-tuan, an internet conglomerate bestknown for its food-delivery app, admittedto excluding applicants from Henan andthe north-east for an open position. Bothcompanies later apologised. After each in-cident, many Henanese and some sympa-thisers elsewhere vowed to show their dis-pleasure by deleting the mobile app of thefirm in question.

In China’s state-controlled media, diyuhei, or “regional blackening”, is occasional-ly condemned. In an article about the iQiyiepisode a newspaper controlled by theprosecutor-general’s office quoted a lawyeras saying that such discrimination hadprobably occurred in tens of thousands ofcompanies but had never come to publicattention. Beijing News last year quoted BaiYansong, a Chinese television anchor, assaying that regional discrimination wasgetting worse. If allowed to continue, hesaid, the problem could turn into “a hugecause of social instability and division”.

Some lawyers say a legal loophole ispartly to blame. China’s employment lawprohibits discrimination on grounds ofethnicity, sex, religion, disability, socialbackground and health. Regional origin,however, is not mentioned. Some legalscholars and legislators have called for awider law that would prohibit all kinds ofunfair discrimination, including the re-gion-based sort. The government, how-ever, does not appear enthusiastic. Someconservative officials may fear such a lawwould also have to specify gay rights (ho-mosexuality was only removed from an of-ficial list of mental illnesses in 2001). Theymay also worry about a clash with thecountry’s hukou system, which allows offi-cials to discriminate openly against mi-grants from other parts of China in govern-ment employment and the provision ofpublic services.

It may be that the problem of job dis-crimination will be alleviated by a growingshortage of migrant workers. Employerswill find it harder to act on their prejudices.“In order to discriminate by region, youmust first be presented with an abundanceof choice,” says Huang Leping, the head of alegal-aid centre in Beijing. But region-based prejudices will long remain. In anopen-air dating market in Beijing, whereparents gather to try to arrange matches fortheir adult children, some participants ad-mit they would not welcome a Henanese inthe family. 7

Chengdu, the capital of Sichuan prov-ince, has an ancient rivalry with

Chongqing, a city to its south-east. Resi-dents of Chongqing accuse their Chengducousins of being pompous. The people ofChongqing are hotheads, Chengdu dwell-ers shoot back. Both cities share a love ofspice-laden Sichuan cuisine, which in re-cent decades has conquered Chinese pal-ates. But they are at war over which has thebest Sichuan hotpot—a type of diy-cook-ing that involves boiling vegetables andslices of meat in a communal broth withchillies and numbing peppercorns.

A private museum in Chongqing,opened several years ago, makes the casefor Chongqing-style hotpot. It describeshow it developed from a method used tomake cheap offcuts of meat taste delicious.But Chengdu is playing catch-up. In Janu-ary the city sold a plot of land on conditionthat the developer build a hotpot museumon part of it. Such presumptuous behav-iour will test the famous fiery tempers ofChongqing-ites. Chengdu may be the capi-tal of Sichuan cuisine’s eponymous prov-ince, but Chongqing was part of Sichuanfor long periods of history until 1997. It isnow the capital of its own province-sizedregion, which is also called Chongqing.

The two cities are among many in Chinawith their own styles of hotpot. The storiesbehind these dishes reveal how differentregions like to see themselves. Chong-

qing’s is said to highlight the ingenuity ofthe proletariat. Other places describe theirhotpots as the sophisticated food of emper-ors. Some say theirs have military origins:warriors on the march boiling scraps intheir helmets. Hotpot contents are equallydiverse. To keep warm in winter, Beijingersboil fatty lamb in a berry broth. Mint-suf-fused Yunnanese hotpot reflects the prov-ince’s links with South-East Asia.

But Sichuan-style broths are the mostcommonly savoured in China. In recentyears their popularity has been booming.China has around 350,000 hotpot restau-rants. About 40,000 of them are said to bein the Chongqing region alone. Hotpot res-taurants in China are more profitable thanother kinds, according to iiMedia, a con-sultancy. Haidilao, a well-known Sichuan-based hotpot chain, raised nearly $1bnwhen it was listed on the Hong Kong ex-change in September. The company is tak-ing its hotpot global. It expanded into Can-ada in December. Branches are set to openin London later this year.

The more adventurous tastes of youn-ger Chinese are fuelling demand. One-third of customers at hotpot restaurants inChina are aged between 25 and 30, iiMediasays. They often have little time to cook athome and are unburdened by child-careduties. They like the social aspects of shar-ing hotpots. Round-the-clock restaurantsare sprouting up to allow leisurely feasting.

While younger Chinese are increasinglyhealth-conscious, they seem to brush offregular hotpot-hygiene scandals. A viralvideo of a pregnant woman fishing a ratfrom her broth caused a cooling in theshares of Xiabuxiabu, a chain restaurantnamed after a Japanese style of hotpot, butthey heated up again a few days later. Hai-dilao even won plaudits when it admittedthat rats had been found in some kitchensand vowed to clean up its act. News of otherbusinesses reusing weeks-old oil in thebroth is greeted with a shrug. The grubbiesthotpot joints are usually the best, youngpeople often say with a grin.

Not all Chinese warm to hotpot. Someolder Sichuanese disown it altogether.They complain that it is causing an escala-tion of chilli-use in other dishes thatdrowns out subtle flavours. Chua Lam, a ce-lebrity food critic based in Hong Kong,caused a stir in December when he wishedhotpot would disappear from the face ofthe Earth. He dismissed it as “the most un-cultured form of cooking”, requiring noreal culinary knowledge.

But Chengdu’s plans for a museum sug-gest that Sichuan hotpot is not only grow-ing in popularity, but is also becomingiconic. If it can set the West on fire, officialsmay hope it will become a delicious newsource of Chinese soft power. There will beplenty of glory for both Chengdu andChongqing to bask in if that happens. 7

B E I J I N G

Two cities tussle over who makes thetastiest Sichuan hotpot

Regional cuisine

The gripes of broth

Spice up your life

The Economist April 13th 2019 China 57

In the past athletes in China had a particular image problem, re-ports Lei Yi, a sports official. Almost universally, she regrets to

say, people thought that sports were for strong, fit people who“don’t have a brain”. Happily, views have changed. Specifically,says Ms Lei, sports are seen as a way to teach young Chinese usefullessons about working hard, believing in themselves and in theirteam, and not giving up easily.

If Ms Lei’s case for sports sounds a little light on fun and heavyon improving virtues, she has an excuse. She is a team leader fromChina’s General Administration of Sport, and has less than fouryears to prepare a dozen perfectly trained athletes for the BeijingWinter Olympics in 2022. Her domain is curling, a team gameplayed on ice that was almost unknown in China 20 years ago. Al-most five centuries after matches were first recorded on the frozenponds of Scotland and the Low Countries, curling has been de-clared a sport that plays to China’s strengths.

Curling is a bit like lawn bowls, except played on ice with alump of polished granite that can, as it glides, have its trajectory al-tered by team-mates madly scrubbing the ice in its path. Thestone’s squat shape gives the sport its Chinese name of binghu, or“ice kettle”. The central authorities and local governments arebuilding curling rinks from Tianjin on the coast to Xining on theTibetan plateau. They eventually hope to build them in every prov-ince, says Ms Lei. During the Winter Olympics in 2022 a swimmingarena from the Beijing games of 2008, the Water Cube, will hostcurling matches as the Ice Cube.

Kate Caithness, president of the World Curling Federation, thegoverning body based in Scotland, has become a frequent visitor toChina. She found officials drawn to curling’s reputation as “chesson ice”—a brainy sport best mastered by years of dogged practice.Ms Caithness watched as Beijing Sports University opened a col-lege of curling last year, and as it promptly began scouring the stu-dent population for youngsters with the right mix of stamina andmental toughness to play the sport.

The aim is to meet two distinct goals set by Xi Jinping, the coun-try’s leader. At the elite level, China has a reasonable chance of win-ning Olympic medals in curling, says Ms Caithness. That wouldfulfil Mr Xi’s quest for grand sporting achievements, of a sort that

would bring closer his “Chinese dream” of prosperity and nationalpride. At the amateur level, the game is accessible enough to helpmeet another of Mr Xi’s stated targets, namely to turn at least 300mChinese into winter-sports enthusiasts.

Just in case the squad that Ms Lei oversees was not feelingenough pressure, in February Mr Xi dropped in on their camp atthe National Winter Sports Training Centre. “Strong sports makethe country strong and a strong country makes sports strong,” hedeclared. The squad could be a metaphor for a rising China. It ispart of a national programme for high performance in sports. Theteam comprises 60 curlers, ranging in age from 18 to 35. They live ina boarding house and practise, work out and take lessons in patrio-tism for six days a week. Their base is a sleek new complex of glass,concrete and painted metal beams in the heart of the former Shou-gang steelworks, an old state-owned factory that closed in 2011.Ice-skating and ice-hockey teams have their own camps nearby. Toeither side loom the rusting hulks of disused blast furnaces,wrapped in bulbous, elephantine pipework.

Asked about curling’s appeal in China, Ms Lei notes that it isone of very few team sports in the Winter Olympics. That matters,because in Chinese culture “we always advocate that you need toput your country’s interest over your personal interest, and yourteam’s interest over your personal interest,” she says. She de-scribes how, in curling, a skilful player may have to bow to theteam’s interest and take a boringly safe shot, rather than “have ashowtime” and try for personal glory. She describes an almost mil-itary chain of command, with the “skip” or captain at the top.

If some sports reward individual creativity, even a touch ofwildness, others favour discipline. Ms Lei says there is creativity incurling, but concedes that “discipline is more important”. Pa-tience, too, is needed to endure three-hour games, and tourna-ments that could involve 33 hours on the ice, or “torture”, as Ms Leicheerfully calls it.

The junior game is a bit more joyful, as a visit to the Xuhui Dis-trict Youth Sports School in Shanghai shows. In China wintersports are associated with the country’s bluff, hard-living north-east. But affluent Shanghai, as if eager to shed its business-ob-sessed, slightly effete image, has invested in three curling rinkssince 2012. In all 1,500 students have signed up. It helps that curlingis less dangerous than ice hockey and speed skating, says ZhouWenjia, general secretary of the Shanghai Curling Association.“Shanghai parents are quite protective of their kids,” she explains.Her association assures anxious parents that sports will developtheir children’s willpower, as well as their physical fitness. “I don’tknow if it’s authoritative, but I have heard that Chinese and Jewishpeople have the highest iqs,” adds Ms Zhou, venturing that thisgives Chinese players “quite the advantage”.

Taking part is good, winning even betterOn this spring evening dozens of teenagers wait to go on the ice.With national youth games coming up, they are practising sixnights a week with their professional coach, Kim Ji-sun, who wasskip of the South Korean women’s team at the Sochi Olympics in2014. Tang Qinsheng, waiting for his grandson in the rink’s view-ing gallery, credits team sports with making the 13-year-old moreoutgoing, as well as more organised about doing his homework be-tween practices. He approves of curling, calling it “a refined sport”.

To date Canada is the world’s curling superpower, with over amillion regular players. China has a long way to go but—as in otherareas—its ambitions already reveal a lot. 7

Curling powerChaguan

China is new to the ice sport. Its plans to excel at it say much about the country’s rise

58 The Economist April 13th 2019

1

Melissa bensouda, of Kansas City,Missouri, was 25 when she was diag-

nosed with late-stage kidney disease. Shehad to start dialysis, hooking up threetimes a week to a machine that filtered herblood. “It wipes you out,” she says. Queasyand fatigued, Ms Bensouda struggled tocare for her children and to keep workingfull time. To secure a place on the waitinglist for a kidney transplant, she had totackle other health problems first. It took ayear and cost $10,000 to treat dental pro-blems, to which people with kidney dis-ease are prone. In 2012, after nearly tenyears on dialysis, Ms Bensouda was given atransplant. The new kidney lasted only fiveyears. So she is back on the waiting list—along with 95,000 other Americans.

In a typical year just one in five of themwould get a transplant. One in ten woulddie or become too sick and drop off the list.Europe struggles, too. In the European Un-ion in 2013 more than 4,000 patients diedwhile on a kidney waiting list.

And waiting lists are often just the tip ofan iceberg. Many patients in Europe, for ex-

ample, suspect that doctors prefer to keepthem on dialysis—which is a big, lucrativebusiness—rather than to get them fit for atransplant. In America many people whoneed a transplant never join the list be-cause they cannot pay for the drugs theyneed to take afterwards.

Some people’s kidneys fail because of agenetic disease or an injury. But the mainreason is diabetes. This is caused predomi-nantly by obesity, which is rampant inmore and more countries. So kidney wait-ing lists will become even longer.

Shortening them will save more thanpersonal misery. In Britain a kidney trans-plant, which lasts for 10 to 13 years on aver-age, starts saving the National Health Ser-vice (nhs) money compared with the costof dialysis in the third year. In America atransplant saves $60,000 per year com-pared with remaining on dialysis. (In poorcountries few people can afford dialysis,and so cannot wait for a deceased donor,meaning no waiting lists.)

Roughly two-thirds of kidney trans-plants in rich countries are from deceased

donors (see chart on next page). The restare from living donors who part with a kid-ney to help someone. One kidney can per-fectly well manage the job of the two thatmost people are born with.

Historically, northern European coun-tries have promoted kidney donationsfrom living donors. Southern Europeanshave had reservations about the unneces-sary surgery involved. Instead they havesought ways to increase donations fromthe dead. In Spain just 15% of families re-fuse to donate the organs of relatives whodie; in Britain a third say no. Some are un-sure what the deceased person wanted;others think that doctors might not do allthey can to save their loved one if they cantake the organs. Cultural differences play arole, too. Most Japanese, for example, feeluneasy about the idea of taking organs outof a dead body.

By and large more people say they wantto donate than actually volunteer to addtheir names to a donor registry. This hasencouraged more countries to followSpain, which has the world’s highest or-gan-donor rate and in 1979 became the first

Kidney transplants

The gift of life

Kidney donors are wanted, dead or alive. There are not enough of either kind

International

Foreign internship: We are seeking an intern towrite about foreign affairs for The Economist. Theinternship will be London-based and will pay £2,000per month. Anyone is welcome to apply. Applicantsshould send an original unpublished article of up to600 words suitable for publication in our foreignpages and a cv along with a covering letter toforeignintern@economist.com. The deadline forapplications is April 15th. For more details, pleasevisit www.economist.com/foreignintern

The Economist April 13th 2019 International 59

2 country to introduce a law making organdonation upon death the presumed choiceof anyone who has not registered to optout. England, France and the Netherlandsrecently changed their laws to that effect;Australia and several other countries aredebating the idea.

But in practice these new laws may notmake much difference. In Spain, for a de-cade after 1979, donations did not increase.They did so only after other measures wereintroduced: a new transplant co-ordina-tion hub; intensive-care doctors and nur-ses were trained in organ donation; andlooking out for potential donors becamethe norm. Croatia copied the Spanish mod-el (rebranding it “the Croatian model”) andsaw organ transplants more than doublebetween 2007 and 2011.

All but a few presumed-consent coun-tries still give next-of-kin a final say, as anextra safeguard (and to avoid an outcryfrom critics of organ donation). Mark Mur-phy, the outgoing head of the EuropeanKidney Patients Federation, sees the fussaround presumed consent as a distraction.Politicians, he says, prefer to blame the or-gan shortage on bereaved people than toinvest in the logistics and incentives pro-ven to increase transplants.

Preservation ordersBeatriz Domínguez-Gil of the Spanish Na-tional Transplant Organisation says thatSpain adapted earlier than other countriesto the ageing of the pool of deceased do-nors. Its doctors learned to transplant or-gans from donors in their 70s and 80s (typi-cally for older recipients). A quarter ofdeceased donors are people with devastat-ing brain injuries put on organ-preserva-tion treatment as part of their end-of-lifecare. In many countries they are sent in-stead for palliative care and lost as donors.

At what stage doctors are allowed to re-trieve organs matters hugely. In less thanhalf of European countries can the processstart after the heart stops (and organ dam-age begins), rather than when the brainshuts down too. Across Europe, the “no-touch” time before organ retrieval can thenbegin varies from 5 to 20 minutes.

Nowhere, however, are enough kidneysavailable from the dead. Just 1-2% of peopledie in ways that make their organs suitablefor donation—eg, from a brain injury sus-tained in an accident. So the living areneeded. Some countries, such as Irelandand Germany, require a living donor tohave close ties to the patient. But many al-low people to donate a kidney to whomeverthey choose. Paula King, a 49-year-oldAmerican woman, decided to donate a kid-ney to a stranger after seeing the trouble arelative had in finding a bone-marrow do-nor, when nobody in the family was amatch. “I wanted to alleviate the stress onanother family out there at the mercy of a

stranger,” says Ms King. In Britain such so-called “non-directed” donors account fornearly 10% of living-donor transplants.

In the past, older people were rarelyconsidered as potential donors. But it isclear that this is misguided, says Dorry Se-gev of the Johns Hopkins University in Bal-timore. In fact, he says, predicting the life-time risk of kidney failure for a 25-year-oldis hard, whereas someone who has donewell for 70 years will probably be fine withonly one kidney. Between 2014 and 2018 inAmerica the number of living kidney-do-nors aged 65 or older doubled; those aged50-64 grew by more than a quarter.

A kidney donor typically needs two daysin hospital and about a month to recover.About 20% suffer some, mostly minor,complications. In many countries somewould-be donors are deterred by the cost oftravel and other expenses. In the Nether-lands, which has the highest rate of livingorgan-donors in the rich world, kidney do-nors get three months of paid leave to re-cover, as well as payment for relatedcosts—even such needs as dog-sitting. InAmerica, by contrast, donors get only someexpenses paid for, and only if they are poor.

Almost half of would-be kidney donorsare not biological matches for the personthey want to help. So kidney-exchangeschemes have evolved. In these a patientgets a kidney from a suitable living donoronly if someone donates one on his behalffor another patient. Pioneered by South Ko-rea in 1991, national kidney-for-kidneyschemes have been adopted by Australia,Canada and many European countries. InAmerica some transplant centres and sev-eral non-profit groups run their own.

Britain’s exchange scheme conducts analgorithmic search for matches quarterly.Non-directed donors are precious, becausethey can be used where they are most need-ed, depending on the mix of blood groupsand other criteria, and so initiate a chain of

other matches—greatly boosting the num-ber of transplants. Donors in a kidney-for-kidney swap have surgeries scheduled asclose as possible in time—not becausesome may renege (that is rare) but because“life happens to people”, says Lisa Burnappof the nhs. In a long gap, a recipient mightbecome too ill for the operation, for exam-ple, or something unexpected might hap-pen to prevent a donor from going ahead.

Such schemes are particularly benefi-cial for people who have had a blood trans-fusion or are waiting for a second trans-plant, because donors who suit their mix ofantibodies may be extremely rare. If all liv-ing donors in America were allocatedthrough a nationwide exchange, kidneytransplants from such volunteers coulddouble, says Jayme Locke of the Universityof Alabama at Birmingham.

Buddy, can you spare a kidney?But many people, understandably, cannotbring themselves to ask others for a kidney.The task is not just embarrassing, saysPrice Johnson, who speaks from experi-ence; the aim is to find several volunteersin the hope that at least one would stick toit through the many tests and get medicalclearance for the operation.

To help with all that, patient groupshave developed a train-a-friend model,finding people willing to search on the pa-tient’s behalf and teaching them what todo. A dedicated Facebook app helps tocreate a social-media appeal with links tovetted information about kidney donation.A small trial in America found that after tenmonths users of the app were six timesmore likely than non-users to find a donor.But this “lost-dog” approach to finding do-nors means losing privacy, says Mr John-son. He wishes that donors could be paid.

The only country where that is legal isIran. Buyers and sellers are mediated by pa-tient foundations. The price of a kidney isset at roughly the average annual income ofa family on the poverty line. The vast ma-jority of sellers are poor; some sell a kidneyto repay debts in order to avoid prison. Poorbuyers rely on help from charities.

Academics in America have proposedversions of this system as a solution to thecountry’s shortage of kidneys. Patientgroups have not thrown their weight be-hind the idea. They are lobbying for Euro-pean-style benefits for living donors.

In five to ten years advances in medicaltechnology could make this debate irrele-vant. Both xenotransplants (pig kidneysadapted for humans) and bio-engineeredartificial kidneys might become viable op-tions within a decade. But for thousands ofpeople whose kidneys have alreadystopped working, these medical miracleswill come too late. They need a better sys-tem for organising the proven wonder ofhuman-to-human transplants. 7

Matters of life and death

Source: Global Observatory on Donation and Transplantation

Kidney transplants by type of organ donorPer million people, 2017

0 10 20 30 40 50 60 70SpainUnited StatesFranceNetherlandsBritainCanadaSwedenAustraliaCroatiaItalyIranGermanyJapan

Deceased Living

60 The Economist April 13th 2019

1

Amazon’s six-page memos are famous.Executives must write one every year,

laying out their business plan. Less wellknown is that these missives must alwaysanswer one question in particular: how areyou planning to use machine learning? Re-sponses like “not much” are, according toAmazon managers, discouraged.

Machine learning is a form of artificialintelligence (ai) which mines data for pat-terns that can be used to make predictions.It took root at Amazon in 1999 when JeffWilke joined the firm. Mr Wilke, who todayis second-in-command to Jeff Bezos, set upa team of scientists to study Amazon’s in-ternal processes in order to improve theirefficiency. He wove his boffins into busi-ness units, turning a cycle of self-assess-ment and improvement into the defaultpattern. Soon the cycle involved machine-learning algorithms; the first one recom-mended books that customers might like.As Mr Bezos’s ambitions grew, so did theimportance of automated insights.

Yet whereas its fellow tech titans flaunt

their ai prowess at every opportunity—Fa-cebook’s facial-recognition software, Ap-ple’s Siri digital assistant or Alphabet’s self-driving cars and master go player—Ama-zon has adopted a lower-key approach tomachine learning. Yes, its Alexa competeswith Siri and the company offers predictiveservices in its cloud. But the algorithmsmost critical to the company’s success arethose it uses to constantly streamline itsown operations. The feedback loop looksthe same as in its consumer-facing ai:build a service, attract customers, gatherdata, and let computers learn from thesedata, all at a scale that human labour couldnot emulate.

Mr Porter’s algorithmsConsider Amazon’s fulfilment centres.These vast warehouses, more than 100 inNorth America and 60-odd around theworld, are the beating heart of its $207bnonline-shopping business. They store anddispatch the goods Amazon sells. Insideone on the outskirts of Seattle, packages

hurtle along conveyor belts at the speed ofa moped. The noise is deafening—and thefacility seemingly bereft of humans. In-stead, inside a fenced-off area the size of afootball field sit thousands of yellow, cu-boid shelving units, each six feet (1.8 me-tres) tall. Amazon calls them pods. Hun-dreds of robots shuffle these in and out ofneat rows, sliding beneath them and drag-ging them around. Toothpaste, books andsocks are stacked in a manner that appearsrandom to a human observer. Through thelens of the algorithms guiding the process,though, it all makes supreme sense.

Human workers, or “associates” incompany vernacular, man stations at gapsin the fence that surrounds this “robotfield”. Some pick items out of pods broughtto them by a robot; others pack items intoempty pods, to be whirred away and stored.Whenever they pick or place an item, theyscan the product and the relevant shelfwith a bar-code reader, so that the softwarecan keep track.

The man in charge of developing thesealgorithms is Brad Porter, Amazon’s chiefroboticist. His team is Mr Wilke’s optimisa-tion squad for fulfilment centres. Mr Porterpays attention to “pod gaps”, or the amountof time that the human workers have towait before a robot drags a pod to their sta-tion. Fewer and shorter gaps mean lessdown time for the human worker, fasterflow of goods through the warehouse, andultimately speedier Amazon delivery to

AI at Amazon

The learning machine

S E AT T LE

The online commercial empire rests on a low-key approach to artificial intelligence

Business

61 Afghan e-commerce

62 Turkish Airlines

62 Mittelstand and Brexit

63 Peak profits in America?

63 Gambling for millennials

64 The influence business

66 Schumpeter: Rebooting Airbus

Also in this section

— Bartleby is away

The Economist April 13th 2019 Business 61

2 tasks. Mr Jassy says that Inferentia will saveAmazon money on all the machine-learn-ing tasks it needs to run in order to keep thelights on, as well as attracting customers toits cloud services. “We believe it can be atleast an order-of-magnitude improvementin cost and efficiency,” he says. The algo-rithms which recognise voices and under-stand human language in Alexa will be onebig beneficiary.

The firm’s latest algorithmic venture isAmazon Go, a cashierless grocery. A bank ofhundreds of cameras watches shoppersfrom above, converting visual data into a3d profile which is used to track hands andarms as they handle a product. The systemsees which items shoppers pick up andbills them to their Amazon account whenthey leave the store. Dilip Kumar, AmazonGo’s boss, stresses that the system is track-ing the movements of shoppers’ bodies. Itis not using facial recognition to identifythem and to link them with their Amazonaccount, he says. Instead, this is done byswiping a bar code at the door. The systemascribes the subsequent actions of that 3d

profile to the swiped Amazon account. It isan ode to machine learning, crunchingdata from hundreds of cameras to deter-mine what a shopper takes. Try as he might,your correspondent could not fool the sys-tem and pilfer an item.

Fit for purposeai body-tracking is also popping up insidefulfilment centres. The firm has a pilot pro-ject, internally called the “Nike Intent De-tection” system, which does for fulfilment-centre associates what Amazon Go does forshoppers: it tracks what they pick and placeon shelves. The idea is to get rid of thehand-held bar-code reader. Such manualscanning takes time and is a bother forworkers. Ideally they could place items onany shelf they like, while the system watch-es and keeps track. As ever, the goal is effi-ciency, maximising the rate at which pro-ducts flow. “It feels very natural to theassociates,” says Mr Porter.

Amazon’s careful approach to data col-lection has insulated it from some of thescrutiny that Facebook and Google have re-cently faced from governments. Amazoncollects and processes customer data forthe sole purpose of improving the experi-ence of its customers. It does not operate inthe grey area between satisfying users andcustomers. The two are often distinct: peo-ple get social media or search free of chargebecause advertisers pay Facebook and Goo-gle for access to users. For Amazon, theyare mostly one and the same (though it istoying with ad sales). Where regulators doraise concerns is over Amazon’s domi-nance in its core business of online shop-ping and cloud computing. This power hasbeen built on machine learning. It showsno signs of waning. 7

your doorstep. Mr Porter’s team is con-stantly experimenting with new optimisa-tions, but rolls them out with caution. Traf-fic jams in the robot field can be hellish.

Amazon Web Services (aws) is the otherpiece of core infrastructure. It underpinsAmazon’s $26bn cloud-computing busi-ness, which allows companies to host web-sites and apps without servers of their own.

aws’s chief use of machine learning is toforecast demand for computation. Insuffi-cient computing power as internet usersflock to a customer’s service can engendererrors—and lost sales as users encountererror pages. “We can’t say we’re out of

stock,” says Andy Jassy, aws’s boss. To en-sure they never have to, Mr Jassy’s teamcrunches customer data. Amazon cannotsee what is hosted on its servers, but it canmonitor how much traffic each of its cus-tomers gets, how long the connections lastand how solid they are. As in its fulfilmentcentres, these metadata feed machine-learning models which predict when andwhere aws is going to see demand.

One of aws’s biggest customers is Ama-zon itself. And one of the main things otherAmazon businesses want is predictions.Demand is so high that aws has designed anew chip, called Inferentia, to handle these

Said salim, a 26-year-old entrepreneurin Kabul, Afghanistan’s mountain-

fringed capital, recently opened his firstshop. On the top floor of Dawoodzai mall,one of Kabul’s fanciest shopping destina-tions, he stands behind a counter stackedwith his best-selling products: bottles ofhair-loss lotion from Russia; posture-correcting devices from China; children’stoys from the United Arab Emirates.Missing, however, are customers. Thereal storefront for Mr Salim’s enterpriseis Facebook. His “Global Online Shop”takes virtually all its orders over theinternet. Its deliveries go out to custom-ers by motorbike.

Few Afghans surf the internet. Al-though mobile phones have spreadrapidly—and enterprising firms have putup masts even in places beset by fightingbetween government forces and theTaliban—only one in ten Afghans usesthem to access the web. At least in bigcities, though, that is changing fast.Younger, more affluent Kabulis are ad-dicted to their phones. In the absence ofe-commerce giants such as Amazon orAlibaba, small online retailers, whoimport products in bulk and sell themon, have stepped in. Facebook, access towhich mobile-phone operators throw inat no extra charge, has become the coun-try’s premier internet bazaar.

Online business in Afghanistan facesthe same grievous problems as the off-line sort. Security is the most obvious.Nemat Ullah, a business graduate whoset up his shop “Smart Sales Online” in2017, says that last year one of his deliv-ery drivers was murdered and his pack-ages stolen. Smaller obstacles add up,too. Drivers can spend hours searchingfor a customer in streets unencumberedby a system of addresses. Without trade-

marks, competition is vicious—a suc-cessful shop can expect a flurry of im-itators, often selling cheaper,poorer-quality versions of its wares.

The biggest problem of late has beenFacebook itself. It is impossible to run anonline store any other way, says MrUllah; other, unsubsidised mobile data istoo pricey. But relying on Facebookmeans that to reach his potential cus-tomers he has to buy advertisementsfrom it. Recently, as the social networkhas tried to reduce the clutter on itsusers’ feeds, the price of advertising hasgone up. Mr Ullah complains that itcurrently costs him $10 to reach 1,000customers. Previously, he could get tofour times as many for that amount. Hisweekly advertising bill has soared. “I need a real shop,” he says.

Social costs and benefitsOnline retail

K A B U L

How Facebook came to dominate Afghan e-commerce

Window shopping

62 Business The Economist April 13th 2019

1

Airport megaprojects are ten a pennythese days. China is building Beijing

Daxing International Airport, a new hubairport near its capital, with a total capacityup to 100m passengers a year. Constructionhas begun on a vast new airport for Dubai,which its government hopes will eventual-ly draw 130m flyers annually. Abu Dhabiand Qatar plan to erect cavernous new ter-minals. Yet perhaps none is as ambitious asIstanbul’s New Airport, on Europe’s easternfringe in Turkey. It became fully operation-al on April 6th, and aims not just to impressvisitors but also to help the country’s flagcarrier, Turkish Airlines, wrest the skiesfrom its successful Gulf rivals.

It is easy to dismiss the endeavour as awhite elephant erected by Turkey’s sultan-like president, Recep Tayyip Erdogan.Everything about it is huge. Turkish, whichis by far the new airport’s biggest user, hadto move 10,000 pieces of equipmentweighing over 47,000 tonnes 40km (25miles) from its old home at Ataturk airport.In less than five years a forested valley thesize of Manhattan has been transformedinto a facility with enough room for 3,000flights a day carrying 90m flyers a year.That could make it one of the world’s larg-est airports by international passengernumbers. If all goes to plan, by 2028 the air-port will have six runways and capacity for200m passengers a year.

Its $11bn price tag, too, is gargantuan,especially when Turkey’s economy isshrinking and inflation is more than 20%.Delays and cost overruns forced the grandopening to be postponed by six months. Inthe rush to get the airport finished at least52 builders have died, sparking protests.

Foreign airline executives see morethan a prestige project, however. Com-pared with many of those in the Gulf, thisone presents a sounder business case,thinks Mark Martin, an aviation consultantbased in Dubai. Turkish is growing at anannual rate of 30%, unlike its Gulf rivals,whose expansion has stalled or gone intoreverse (see chart). While it was fast run-ning out of room at Ataturk airport, thethreat it posed was limited. No longer.

Over the past decade the Gulf’s threebiggest carriers—Emirates of Dubai, Etihadof Abu Dhabi and Qatar Airways—rede-fined air travel. Most international carrierstransport passengers to and from the air-lines’ home countries. Emirates, Etihadand Qatar used their “super-connector”home bases as places where flyers changedplanes en route to elsewhere. The focus onhigher-margin long-haul routes allowedthem to charge less for superior service,luring passengers away from hub airportsin America and Europe, and from the West-ern airlines that use them.

Now they risk being disrupted in turnby Turkish. The new airport is designed toturn Turkish into a fully fledged super-connecting airline. Fees that airlines, in-cluding Turkish, are charged for every pas-senger favour those in transit over thosewho start or end their journey there. KadriSamsunlu, chairman of iga, the new air-port’s operator, also says that its shoppingareas were designed to be more attractiveeven than Dubai’s and Qatar’s.

The falling value of Turkey’s currencyhas also proved beneficial. Analysts atcapa, an aviation consultancy, calculatethat Turkish earns 14% of its revenue inTurkish lira, but incurs 26% of its expensesin the currency. A weaker lira therefore letsit undercut rivals in the Gulf, which do notenjoy a similar advantage.

Finally, Istanbul is helped by its prox-imity to Europe. Turkish can use smallernarrow-body aeroplanes, which are cheap-er to operate, on its routes to Europe. TheGulf carriers have to use bigger, more ex-pensive wide-body jets that are great forlong-haul flights but less efficient for mid-dling distances. Smaller aircraft, includinglong-haul ones, allow Turkish to offermore flights to most destinations each day.Business travellers are willing to pay a pre-mium for such flexibility.

The Gulf carriers are not giving up with-out a fight. In February Emirates cancelledmost of its remaining orders for the Airbusa380 super-jumbo, the world’s biggest pas-senger plane, in favour of smaller models.Sir Tim Clark, the president of Emirates,hopes that a partnership with flydubai, an-other Emirati airline that flies only narrow-body jets, will help it to preserve marketshare. If imitation is the sincerest form offlattery, Gulf carriers are reciprocatingTurkish’s earlier compliments. 7

I STA N B U L

A new home helps Turkey’s flag carrierchallenge Gulf rivals

Turkish Airlines

Soaring ambition

Delightful

Source: Company reports *Financial years beginning April

Passengers carried, m

0

20

40

60

80

2003 05 07 09 11 13 15 18

Turkish Airlines

Emirates*

Qatar Airways*

Etihad Airways

Germany’s mid-sized manufacturers,collectively known as the Mittelstand,

form the backbone of the world’s fourth-largest economy. The fifth-biggest exportmarket for their precision-engineered ma-chinery and components is Britain, espe-cially its car industry. Brexit, then, shouldbe a worry. Yet according to bvwm, theirtrade association, only 17.6% of Mittelstän-dler surveyed at the end of 2018 said theywere “well prepared” for Brexit. Fully 77%thought Brexit would not affect them.

Plenty of German business folk long be-lieved that Brexit would not happen, ex-plains Mats Persson, head of the Brexitteam at ey, a consultancy. They perceivedthe British as sensible people who wouldfind a solution, even as evidence to thecontrary piled up in Westminster. Manyview Brexit as a local problem for Britain.And preparing for a range of Brexit scenari-os would be too costly to trouble them-selves with.

Or is it? Over the past three months theMittelstand’s nonchalance has turned intomild alarm. Seminars and panels for entre-preneurs and managers all over Germanydissect Brexit almost daily. Several federalstates, including Hamburg and Lower Sax-ony, have set up hotlines for entrepreneurswith questions about Brexit. Many Mittel-stand companies found excuses not to pre-pare for Brexit, says Christoph Torwegge ofOsborne Clarke, a British law firm in Ham-

B E R LI N

Britain’s departure from the eu is aheadache for German businesses

Mittelstand and Brexit

Wait and see

The Economist April 13th 2019 Business 63

2

1

Spring in their step

Source: Yardeni Research *To March 28th

S&P 500, predictions for earnings per share, $

80

100

120

140

160

180

200

11102009 12 13 14 15 16 17 18 19*

Reported year-end

2012

2011

2013 2014 20152016 2017 2018

2019

2020

Spring is all about growth. Not, it appears, for American bottom lines. As s&p 500 firmsstart reporting first-quarter results, FactSet, a data firm, estimates that their totalearnings per share fell for the first time since 2016, by 4.2% year on year. Last year profitswere fertilised by President Donald Trump’s tax giveaway. Now margins are shrinkingand the world economy has slowed. After upward revisions a year ago, profit forecastershave been pruning rosy predictions for 2019 and 2020. Still, they are not expecting aprolonged earnings winter. Corporate America looks ever the hardy perennial.

Peak profit?

burg with Mittelstand clients. Only two ofMr Torwegge’s 20 clients took Brexit seri-ously from the start, he says. Now the other18 are getting nervous.

Multinationals such as bmw, whichowns the Mini brand and has plants in Brit-ain, can afford a dedicated Brexit team.Smaller companies lack the resources toplay around with hypotheticals. As a result,says Mr Persson, most of German businessis unprepared, especially if there is a no-deal Brexit.

Consider a supplier of Jaguar LandRover (jlr), a carmaker in Britain. A fewweeks ago he rang his lawyer in a panic toask how he could honour his “deliveredduty paid” agreement, which dictates thathe assumes all the responsibility, risk andcosts of getting his wares to jlr within aday or two, if Britain crashes out of the eu

leaving lorries stranded at customs in Ca-lais or Dover. He tried to secure space tostockpile his products in warehouses nearjlr plants in the West Midlands, but foundthey were all choc-a-bloc. The lawyer toldhim his options would be to renegotiate hiscontract—or break it.

Lucia Puttrich, Europe minister of Hes-se, one of Germany’s 16 Länder (states), citesthree main Brexit concerns for Mittelstandfirms: delays at customs, workers’ mobilityand the weakness of the pound, whichmakes German products less competitive.Less pressing but potentially big problemsinclude different rules on data privacy, ta-riffs (if Britain leaves the customs union)and export and import licences. Britain isHesse’s fifth-biggest trading partner. Thestate exports €4.2bn ($4.7bn) of goods andservices a year across the Channel and im-

ports €5bn-worth. At least Frankfurt, Hes-se’s biggest city and Germany’s financialcentre, stands to benefit from Brexit morethan most. Up to 10,000 banking jobs couldmigrate there from London.

There is a silver lining for the Mittel-stand, too. In the three years since theBrexit referendum, with its loud anti-im-migrant undertones, German firms havefound it easier to hire welders and otherskilled labourers from central and easternEurope who began to feel unwelcome inBritain. According to a survey in Februaryof 262 big German companies by Deloitte,an accounting firm, many German entre-preneurs hope that Brexit will divert for-eign direct investment from Britain to Ger-many and prompt more startups to pickBerlin over London. Berlin’s Silicon Allee re-ceived €2bn in venture-capital funding lastyear, less than half the sum showered onLondon’s tech scene.

Hans-Peter Raible of Rödl & Partner, aconsultancy that works with mid-sizedand family-owned German firms, thinksthat Mittelständler will ultimately adapt towhatever Brexit brings. bmw scheduled amaintenance shutdown at its operations inBritain after March 29th, the day when Brit-ain was due to leave the eu. Honda and jlr

also scheduled down time in their fac-tories. When it became clear that Britainwould not leave by that date, these costlybreaks were too late to postpone. Mr Raibleadvises his anxious clients to avoid expen-sive contingency planning and insteadpre-emptively draft new contracts withtrading partners and apply for a customsnumber. Other than that, he counsels, bestto wait and see. 7

One-arm bandits make a killing forgambling dens. In America and Europe

slot machines usually account for two-thirds of the house’s takings. Their relativeunpopularity among younger punters istherefore a worry for casino operators keento preserve gaming revenues, which ex-ceeded $40bn in 2017 in America alone.Surveys in Las Vegas find that the typicalplayer of slots is around 58, compared with36 for all casino-goers. To make the ma-chines more attractive to a new generationof gamblers—who are also cooler towardstable games, where they fear lookinggauche in front of a supercilious croupi-er—casinos are looking at machines thatresemble video games millennials favour.

Many gambling authorities requireeach slot machine to offer all bettors anequal probability of winning. They fearthat skill-based contraptions feed the “illu-sion of control”, which in turn fuels gam-bling addiction (Japan’s ubiquitous pin-ball-like Pachinko machines, which areplayed for prizes rather than cash, are along-standing exception). But several arereconsidering their skill-aversion—possi-bly fearful of losing sin-tax revenues,which generate $9bn annually for Ameri-can states. In 2016 Nevada permitted slotsthat award greater winnings to players whodemonstrate aptitude. New Jersey, home toAtlantic City, followed suit later that year.

Combining slots, which rely on dumbluck, and video games, which require skill,presents a number of challenges for theirmakers, and for casinos. Algorithms em-bedded in such hybrids must generate amix of wins and losses which ensures thatthe house always wins in the end, butwhich lets punters succeed often enoughthat they do not take their dimes else-where. This is straightforward for purelyprobabilistic slots. It is considerably hard-er for those where skill improves the likeli-hood of winning. Mike Tomasello, opera-tions chief at American Gaming andElectronics, a firm based in New Jersey thatinstalls and repairs slots, says that casinossend skill-based slots back to the lab fortinkering more often than traditional ones.

On top of that, authorities in manyplaces dictate that the odds of winning can-not be worse than a certain level. This “re-turn to player” tends to be set at around75% of whatever has been wagered overmany bets. The complicated mathematicsinvolved in squaring all these factors has

Casinos want to make slot machinesmore attractive to millennials

Gambling

Jackpots andjoysticks

64 Business The Economist April 13th 2019

2

1

Since donald trump was elected presi-dent, received wisdom has it, big busi-

ness has run rampant in Washington, dc.The chief-executive-in-chief has filled hiscabinet with fellow plutocrats, executivesand, horrors, lobbyists. One who used torepresent the coal industry runs the Envi-ronmental Protection Agency (epa). Theacting interior secretary, David Bernhardt,risks so many potential conflicts of interestfrom his previous life lobbying for energyand natural-resources firms that he carriesaround a card listing all 22 of them. Lastyear businesses spent more than $3.4bnadvancing their interests in the halls ofgovernment, 8.5% more than before theself-styled “ceo president” took office (seechart 1). The health-care, finance and in-dustrial sectors each splurged over $500m.

Yet these sums may reflect not how easylife is for corporate America in Mr Trump’sWashington, but how difficult. The Cham-ber of Commerce, which has had the ear ofevery president, has successfully champi-oned massive corporate-tax cuts but failedto dissuade the president from imposingtariffs and curbing immigration. BigPharma, which had managed to raise drugprices regardless of which party controlledthe White House, is being pressed by MrTrump to lower them. Big Tech has threefirms among the ten biggest spenders onlobbying—Alphabet, Facebook and Ama-zon—but few friends in Washington, notleast because Silicon Valley has been criti-cal of the president, often vocally so.

An interrogation of data and, mostly onthe condition of anonymity, of lobbyistsfrom across the political spectrum con-firms that advancing corporate interests in

Mr Trump’s Washington is no easier thanunder previous presidents. In some ways,it has got harder. And its results, gauged byfirms’ stockmarket performance, are am-biguous. Tax cuts have helped fuel a bullmarket in equities. But health care, whichspends more than any other industry, haslagged behind (see chart 2 on next page).

One reason is that there is more to lob-bying than buttering up the administra-tion. As one veteran lobbyist notes, “80% ofwhat business cares about is in the ambit ofCongress.” Lawmakers, meanwhile, havegrown charier of business folk. And notjust left-leaning Democratic representa-tives swept onto Capitol Hill in November’smid-term elections; high drug prices haveso angered ordinary Americans that evenpreviously reliable Republican allies inCongress can no longer protect pharma-ceutical firms. Tech firms are out of favouron both sides of the aisle. Gone are the dayswhen a well-connected fixer could have adiscreet word with a committee chairmanand make a client’s problem go away. Socialmedia mean no more “quiet issues”, saysTony Fratto, a former senior official inGeorge W. Bush’s administration and nowan adviser at Hamilton Place Strategies.

More counterintuitively, currying fa-vour with Mr Trump’s supposedly busi-ness-friendly administration is no picnic,either. Lobbyists cite four main reasons.

First, the president is an outsider.“Trump owes nothing to us,” explains oneof Big Pharma’s top lobbyists. Nor do manyof his appointees. Mr Trump rejected expe-rienced Republicans who had not sup-ported his candidacy, confides a senior fi-nancial lobbyist whose paymaster is anardent Trump supporter. As a result, his ad-ministration is full of unknown entities.

Many, it is true, are business-friendly,especially compared with Barack Obama’sbig-government-loving lieutenants. But,and this is lobbyists’ second headache, thismust be weighed against the Trump bu-reaucracy’s inefficiency. People are pro-moted for fealty to Mr Trump, not compe-tence, which puts off many Republicantechnocrats; two years into the president’sterm, a record number of jobs across the ex-ecutive branch remain unfilled. “You don’ttake every issue to the White House,” notesThomas Donahue, the long-serving head ofthe Chamber of Commerce. On most, lob-byists must try to win over other officials.The top lobbyist for a big technology firm

WA S H I N GTO N , D C

Advancing corporate America’s interests is no easier under the ceo president

The influence business

Lobbying in Trumpland

1Feeding the swamp

Source: OpenSecrets.org

United States, spending on lobbying, $bn

0

1

2

3

4

2008 10 12 14 16 18Health

Finance

IndustryCommunications

Energy

Other

turned the area into a minefield of overlap-ping patents, says Georg Washington, bossof Synergy Blue, one of half a dozen firmswhich develop hybrid machines.

Get it right, though, and it pays off.Cocktail waitresses struggle to get the at-tention of players on hybrid machinesbuilt by Gamblit Gaming, crows the com-pany’s boss, Eric Meyerhofer. Gamblitleases them to casinos for about $60 a day.He says the average player is 15-20 yearsyounger than for traditional slots. PascalCamia, in charge of gaming at Société desBains de Mer, which runs four casinos inMonaco, reports that its handful of skill-based slots rake in as much as traditionalones. Fruttis, a matching game akin to Can-dy Crush, has done reasonably well on theroughly 18,500 multi-game cabinets towhich Veikkaus, Finland’s state-ownedgambling monopoly, has uploaded the titlesince September 2017. Last year SynergyBlue’s puzzle-slot hybrid called SafariMatch generated 10% more revenue thanone-arm bandits at Augustine Casino inCoachella, California (takings have subse-quently reverted to the average for tradi-tional machines, possibly because the nov-elty is wearing off).

Because skill-based games require con-centration, players take longer than the sixor seven seconds typical of traditional one-arm bandits to place successive bets. Stablerevenues from newfangled slots suggestthat either punters are wagering highersums, or occupying the machines for lon-ger. Either way, it is good news for casinos.

Sina Hentunen, Veikkaus’s head ofslots, reckons that punters may ultimatelyprefer the mindless distraction of tradi-tional slots to brain-racking video games.Messrs Meyerhofer and Washington willtake the other side of that bet. 7

Skilling it

The Economist April 13th 2019 Business 65

2 struggles to find out who is working on giv-en issues and how to reach them to buildconnections. Sometimes, he says, it is diffi-cult to tell if anyone is working on them atall. James Connaughton, a senior environ-mental official in George W. Bush’s admin-istration, calls Mr Trump’s unceremoniousrollback of environmental rules “not de-regulation but non-regulation”. Anarchy isbad for business.

Third, respectable businesses promot-ing their legitimate interests worry aboutbeing sullied by association with MrTrump’s entourage, or his views. His cam-paign manager and personal lawyer havebeen sentenced to prison terms. The presi-dent himself is under investigation for al-leged campaign-finance violations. A vet-eran lobbyist turned unregisteredinfluencer is convinced that “everythingwill be investigated at some point”. Shemakes sure all her contacts with govern-ment are above board.

Mr Trump’s opinions, meanwhile, donot necessarily reflect the interests of cor-porations. His anti-environmentalism hashelped some polluters, particularly in hisbeloved coal industry, but provoked un-ease among big firms. Carmakers and largeutilities both oppose laxer rules, whichcould backfire. A conservative lobbyisttakes pains to distinguish his blue-chip cli-ents from small-time coal firms seekingcronyistic carve-outs from the epa. Severalcorporate-advisory councils to Mr Trump’sadministration disbanded in the wake ofhis refusal to condemn white suprema-cists. Get close to the president, sums upMr Fratto, and “you take on all of the bag-gage of Trump”.

Finally, the intrigue of the Trump WhiteHouse would baffle a Kremlinologist. Alobbyist for a leading private-equity firmwarns that power there “shifts around veryquickly”. Boutique lobbying shops have

mushroomed, as under every new presi-dent. These claim to offer access, observesa former Republican heavyweight turnedlobbyist, “but lack substance”. In any case,only a handful of Mr Trump’s closest advis-ers carry any clout with their boss. Chiefamong them is Jared Kushner, his son-in-law, whom one lobbyist describes as “thelast guy to put the president to bed”. Evenso, Mr Trump can catch out top aides withtweets born of gut feelings. “How do youlobby Trump’s gut?” grumbles an environ-mental lobbyist with experience in theClinton administration.

Evolution of the swamp creaturesLobbyists are not short of ideas. Some usehyper-targeted advertising to reach thepresident as he watches Fox News or re-treats to his Mar-a-Lago resort in Florida,according to a recent exposé by the Wash-ingtonian, a magazine. t-Mobile, a tele-coms firm, recently admitted to spending$195,000 at Mr Trump’s hotel near theWhite House, with executives reportedlysporting bright pink shirts emblazonedwith the firm’s logo. Others advise clients

to find a way to create jobs and to let thepresident take credit. A lobbyist for the lob-bying industry warns that firms can no lon-ger be too critical of the president, lest heunleash a withering tweet. But, he says,you can appeal to Mr Trump via Snapchator Twitter. To reach the president, “you’vegot to make him the hero of your story,”counsels a seasoned Democratic lobbyist.

Some bosses, for their part, are gettingmore personally involved with the presi-dent, risk to reputation notwithstanding.“Trump wants to hear directly from busi-ness leaders,” says a former adviser to thepresident, whose administration he calls“the most ceo-friendly” ever. A Democraticoperative agrees, noting the difference be-tween Mr Trump and Mr Obama’s postureof “we know what’s best for the Americanpeople”. A Republican member of one of MrTrump’s disbanded ceo councils recallshow past administrations’ meetings withbosses “felt perfunctory”, whereas now“they seem to pay attention and seek com-pany input”. When in late March Mr Trumpaddressed the Business Roundtable ofAmerica’s biggest firms, Jeff Bezos, boss ofAmazon, joined for the first time, eventhough Mr Trump had mocked him onTwitter as Jeff Bozo.

The “swamp” of Washington has notbeen drained, as Mr Trump implausiblypledged to do in his campaign. In someways, concedes Anthony Scaramucci, aTrump loyalist who briefly served in hisWhite House, it “has gotten extra swampi-er”—a state of affairs he blames on bothDemocrats and Republicans. Unregistered“strategic advisers” began replacing regis-tered lobbyists, whose number has fallenfrom 14,000 to 11,500 in a decade, before MrTrump came along. Sheila Krumholz, headof the Centre for Responsive Politics, an in-dependent watchdog that monitors lobby-ing trends, worries about influence-ped-dlers “trading on only whom they knowand not what they know”. Disclosure re-quirements remain weak and poorly en-forced. Hyper-partisanship in Congressmakes the House Democrats’ sweepinganti-corruption bill, which was passed inMarch and, among other things, wouldtighten rules on lobbying, unlikely to clearthe Republican-controlled Senate.

Swampier does not necessarily meanbetter for corporate America. It does,though, benefit the lobbying ecosystem’sendemic species, which thrive on chaos.Haley Barbour, a former governor of Mis-sissippi, ex-chairman of the RepublicanNational Committee and one of Washing-ton’s most influential lobbyists, praises MrTrump’s tax cuts and deregulation efforts.Even so, he warns, “the next reform mightnot be good for your firm, so you needsomebody advocating your position to theWhite House.” A friendly swamp creaturewill be there to help. 7

2Health checked

Source: Datastream from Refinitiv

S&P 500, share prices, January 1st 2016=100

2016 17 18 1950

100

150

200

Industrials

Information technology

Health care Energy

66 Business The Economist April 13th 2019

No aircraft better sums up the quaint absurdity of Airbus’sorigins than the Beluga. The cargo jet, which resembles a

winged whale, carries aerofoils, tails and bits of fuselage from pro-duction sites across Europe to be turned into aeroplanes in Tou-louse and Hamburg. In a normal company, it would be redundant.Like the Beluga, Airbus is far from normal. Started in 1967 as a jum-ble of aerospace firms from Germany, France, Britain and, later,Spain, it needs the ungainly plane to make it function smoothly.

As one of Europe’s biggest industrial firms, though, Airbus isneither quaint nor absurd. It has stood out for its innovation, com-petitiveness and, sometimes, inspired leadership. Under Tom En-ders, an outspoken former German paratrooper, it has achieved itsmission of becoming (Beluga notwithstanding) a more “normal”company. Mr Enders managed to reduce the influence and owner-ship of the French and German states. Airbus’s share price quadru-pled in his seven-year tenure. Its American former head of sales,John Leahy, who retired last year, was a salesman extraordinaire,racking up, he claims, $1.6trn of aircraft sales at Airbus, makinghim the nemesis of its arch-rival, Boeing. With such men, it washarder to argue that the aerospace industry was a lazy duopoly.

But in the past year Airbus has acquired a controlling stake inthe c Series jet, designed by Bombardier of Canada, while Boeinghas joined forces with Embraer, Bombardier’s Brazilian rival, mak-ing the fortress in single-aisle commercial-aircraft manufacturingeven more impregnable. Meanwhile, Boeing is in disarray follow-ing two air disasters since last October that have grounded its best-selling jet. On the face of it, both developments are good for Airbus.In fact they could be the biggest potential traps for GuillaumeFaury, the 51-year-old Frenchman who replaced Mr Enders on April10th, because they risk dulling Airbus’s competitive edge.

From an operational point of view, Mr Faury takes over at anideal time. Like everyone at Airbus, he will lament the crashes ofBoeing’s 737 max aircraft in Ethiopia and Indonesia, which killed346 people. Undeniably, though, the longer that plane is grounded,the stronger the outlook for Airbus’s own highly successful nar-row-body, the a320neo. Airbus may already be reaping the bene-fits: a bumper deal for 290 a320s from China last month was a fur-ther kick in the teeth for Boeing. In February Airbus took the tough

decision to scrap its loss-making a380 super-jumbo. That will bol-ster margins on commercial aircraft, which hit 9% last year, ac-cording to Bloomberg—short of Boeing’s 13% but an improvement.

One of the curiosities of the Airbus-Boeing duopoly is how re-strained those margins were—especially at Airbus. In his recentbook about the global jetliner business, “AeroDynamic”, Kevin Mi-chaels, an aerospace analyst, notes that between 2011and 2017 bothfirms delivered more than 6,600 a320s and 737s between them.Normally, a duopoly and sky-high barriers to entry would have al-lowed them to jack up prices. Instead, they offered big discounts.The competition for orders was cut-throat, partly owing to the“John Leahy factor”, Mr Michaels writes.

As operating margins at both firms have crept up recently, how-ever, both have reduced the share of sales they spend on researchand development of commercial aircraft. This is partly because theexperience of building complex and costly new planes, such asBoeing’s 787 Dreamliner and Airbus’s a380, has been chastening.Such “moonshots” have gone out of fashion. Excessive re-engi-neering also played a part. Boeing’s 737 series dates back to 1967,the same year Airbus was conceived, and has been tinkered withextensively. As Boeing grapples with the two disasters, the pros-pect of deciding swiftly to build a new mid-sized aircraft, known asnma, is receding. That takes more pressure off Airbus to innovate.

Meanwhile, Airbus’s shareholders are clamouring for it to fol-low Boeing in handing back more cash through dividends andbuy-backs. That is common across the capital markets. But itwould make both companies keener than ever to milk their duo-poly status. Richard Aboulafia of the Teal Group, a consultancy, de-scribes Boeing dismissively as a “legacy jet manufacturer and dis-tributor of shareholder returns”. Its rising payouts may be onereason Boeing’s shares have not fallen more steeply, despite thefirm’s admission this month that its software contributed to thecrashes. Airbus will be tempted to move in the same direction.

The European firm would be wise to resist this urge and insteadconsider ploughing money back into the business. For a start, MrFaury’s must contend with Brexit, which risks disrupting Airbussupply chains in Europe but may provide an opportunity to ex-pand its operations beyond the continent. Then there is the long-running stand-off with Boeing over subsidies and tax breaks. OnApril 8th the Trump administration threatened tariffs on $11bn-worth of European goods, including aircraft and helicopters,which would hurt Airbus. The European Union immediatelythreatened retaliation. Nothing will be decided until the WorldTrade Organisation sets the level of damages this summer. But onething is clear: it will be harder for either firm to rely on state sup-port in the future.

A change in the climateMeanwhile, Mr Faury has a chance to take advantage of a comingwave of technological change. Acknowledging this, he talks of in-novation over the next decade and beyond that could match any-thing in the history of aviation. That includes engine electrifica-tion, artificial intelligence and advanced connectivity that wouldchange how aircraft are developed, manufactured, flown, poweredand serviced. It means increased use of new materials (see Sciencesection) and 3d printing, and greater efforts to reduce greenhouse-gas emissions. Airbus may be slow to embrace these long-term op-portunities, given its cosy position. Gingerliness may even bringshort-term gains. But technology could lower barriers to entry. Inthe end, ambition will pay off—even if it endangers the Beluga. 7

Rebooting AirbusSchumpeter

With Boeing in trouble, the other half of the aerospace duopoly risks losing its competitive thrust

The Economist April 13th 2019 67

1

The headquarters of the EuropeanCentral Bank (ecb) tower over the river

Main. The institution has been equally im-posing in the life of Europe’s monetary un-ion. As its only policymaker, it rescued theeuro from financial and sovereign-debtcrises, and powered a recovery in 2015-17.

But it cannot rest on its laurels. Thisyear promises to be one of high drama.Three of its six-strong executive board willdepart, notably its president, Mario Draghi,and its chief economist, Peter Praet (seegraphic). By the end of the year eight of the19 national central-bank governors on itsrate-setting body will have stepped down.The end of Mr Draghi’s eight-year tenurecoincides with European elections and thetop jobs in Brussels coming up for grabs.That makes the choice to replace himunusually political. Should their quest forthe commission or council presidenciesfail, the French or Germans could seek toput a compatriot—or in the Germans’ caseanother hawkish northerner—into the ecb

job as a consolation prize. All this could alter the course of mone-

tary policy. Poor choices could mean blun-ders in dealing with a slowing economy or

too-low inflation. The bank’s hard-woncredibility as the guardian of the eurocould come under threat.

The ecb was set up in 1998, a centralbank without a fiscal counterpart. Tosoothe German fears that it would go tooeasy on inflation, it was based in Frankfurtand modelled on the Bundesbank. Its intel-

lectual direction came from its chief econ-omist, Otmar Issing, a former Bundesbankrate-setter. Like other central banks, it tar-geted inflation. But to appease the Ger-mans, it also concerned itself with the rateof money-supply growth.

Two decades on, the Bundesbank’s in-fluence has waned. The ecb focuses less onthe money supply, after its link with infla-tion proved wildly unstable. Philip Lane, adoveish Irishman, takes over as chief econ-omist in June. Neither the economic normonetary-policy areas is overseen by a Ger-man staff member.

To see why the choice of successor forMr Draghi is so important, consider whathe has done—and left undone. Observersare gushing: one compares him to Cincin-natus, a loyal citizen who saved the Romanrepublic from invasion. His open-mindedpursuit of price stability led to the use ofunconventional tools such as quantitativeeasing (qe) to stave off deflation, despitenorthern members’ horror of monetisinggovernment debt. Like other central banks,the ecb has gained bank-supervision andmacroprudential powers since the crisis.

Fittingly for a governor who sees com-munication as central to his role, his big-gest policy intervention was uttered butnot implemented. In 2012 he said he woulddo “whatever it takes” to save the euro, pro-mising to buy unlimited amounts of gov-ernment bonds if sovereigns hit trouble.The ecb’s communications compare wellwith those of other big central banks, saysMarcel Fratzscher, a former staffer now atdiw, a think-tank. Recent policy shifts

The European Central Bank

Succession questions

F R A N K F U RT

A changing of the guard at the bank means that 2019 will be a momentous year

Changing of the guard

Sources: ECB; The Economist *Started in 2018

MarioDraghi

PeterPraet

BenoîtCœuré

Luis deGuindos* Yves

Mersch

Six members of the executive board

11 council members leaving in 2019

ECB governing council19 central-bank governorsof the euro-area countries

SabineLauten-schläger

Finance & economics

68 David Malpass at the World Bank

69 Buttonwood: Reserve managers

70 International money transfers

70 Importing credit records

71 HDFC, India’s star bank

72 Free exchange: Central-bankindependence

Also in this section

68 Finance & economics The Economist April 13th 2019

2

1

have caused remarkably little market vola-tility, unlike some by the Federal Reserve.

The next boss, though, will need tooverhaul the bank’s monetary-policy strat-egy. Mr Draghi seems almost certain to de-part having never raised interest rates;price pressures and inflation expectations,currently subdued, are likely still to be wellbelow target. An economic slowdown ki-boshed rate rises this year: on April 10th thebank promised to keep them on hold in2019. They are already at rock-bottom lev-els, and the bank has bought €2.6trn ($3trn)of government bonds. Should the slow-down worsen, the new boss will have tofind the firepower to reassure markets.

The ecb’s independence is a matter ofinternational law. eu members must allagree to any changes to its mandate. Butanother risk defies any attempt to legislate:that of politicised appointments to its go-verning council. National central-bank go-vernors are often picked for reasons of do-mestic politics. The march of populismacross the continent complicates matters.Austria’s incoming central-bank boss hasno monetary-policy experience and is re-portedly linked to the fpö, a hard-rightparty. Italy’s populists want to “reboot”their central bank’s management.

Such appointments could exacerbatedivisions among the governing council,which tend to be along national lines. Itmust set policy for the euro zone as awhole. But some members still play to do-mestic audiences. Take the decisions to an-nounce outright monetary transactions(omts) that backed up Mr Draghi’s “what-ever it takes” commitment, and to beginqe. Both were attacked by some northerncentral-bank governors and faced legalchallenge in Germany. Jens Weidmann, thehead of the Bundesbank and a possible suc-cessor to Mr Draghi, testified against omts.

One interpretation of a ruling on qe bythe European Court of Justice in 2018 is thatthe ecb has room to raise self-imposed lim-its on the share of government bonds it canbuy in each member country. But height-ened national divisions would make itharder to build support in the governingcouncil. It might not help that, according tothe Eurobarometer poll, public trust in thebank is far below pre-crisis levels both incountries like Spain and Greece, where theecb is regarded by some as partly to blamefor austerity, and in Germany, no fan of lowinterest rates and bond-buying.

As the ecb gains powers, clashes withpoliticians become more likely. It nowoversees large lenders, in which govern-ments also take a keen interest. Last year,under pressure from the European Parlia-ment, its supervisory arm toned down aplan to ask banks to make more provisionsfor non-performing loans. It also withdrewa request for new powers to centralise theregulation of clearing houses. Govern-

ments had sought to narrow their scope;the bank says that threatened its ability toconduct independent monetary policy.

The ecb keeps banking supervision andmonetary policy quite separate. But thepresident will set the tone of its response topolitical pressure, argues Sir Paul Tucker, aformer deputy governor of the Bank of Eng-land who has written a book on the powerof central banks in democracies. And MrDraghi’s successor will need great skill tonudge governments to speed up fiscal andbanking reforms, he says, to avoid mone-tary policy being the only game in town.That person will have to direct the bank’sefforts to return inflation to target, and per-haps deal with a recession, while balancingcompeting political interests. If its onlyfunctioning economic institution stum-bles, so too will the euro zone. 7

When he was nominated to lead theWorld Bank by President Donald

Trump, David Malpass, a former Treasuryofficial, faced no rival for the position. Hewas approved unanimously by the bank’sboard, which represents its 189 membergovernments, and began work promptlythis week. The process could not have beeneasier. But stiffer resistance lies ahead.Chances are that nothing in the job will be-come him like the entering it.

The institution he now leads is dedicat-ed to eradicating poverty and fighting in-equality. By its estimates, 10% of theworld’s population (736m people) lived be-low the global poverty line in 2015 and per-

haps 8.6% did in 2018. It aims to lower thatshare to 3% by 2030.

Because poverty is falling quickly in In-dia and Bangladesh, most of the people liv-ing so uncomfortably now reside in sub-Saharan Africa, especially Nigeria and theDemocratic Republic of Congo. They areharder to reach, concentrated in “fragile”regions, afflicted by violence. They wouldbenefit greatly from sound economic poli-cies and rapid gdp growth. But in these set-tings, the bank cannot always count ongovernments using its money and advicewell. It therefore tends to back tightly mon-itored projects that benefit the poor di-rectly. A big initiative in Congo, for exam-ple, helps women giving birth andvaccinates children against tuberculosis,hepatitis B and other diseases.

Mr Malpass no doubt applauds such ef-forts. But his animating passions lie else-where. He wants the bank to focus on pro-moting economic growth: “breakthroughsthat materially raise median incomes”, ashe wrote in the Financial Times shortly afterhis nomination. Bank insiders say he hasshown a close interest in the world’s tenbiggest emerging markets. Understandingtheir paths to growth may yield lessons forothers. And improving their growth pros-pects would benefit both their own largepopulations and the world economy, inwhich they now weigh heavily.

The bank’s influence on such countriesis small. But the potential gains are so greatthat even a small nudge can yield a magnif-icent return. Lant Pritchett of Harvard Uni-versity cites the example of the IndianCouncil for Research on International Eco-nomic Relations. This think-tank, based inDelhi, got started in the early 1980s withthe help of $857,000 from the Ford Founda-tion (almost $3m measured using 2005purchasing-power-parity rates). Mr Pritch-ett reckons that its research helped shapeIndia’s successful response to its balance-of-payments crisis in 1991. Those reforms,in turn, set the stage for faster growth in acountry hosting a sixth of humanity. MrPritchett has calculated that the 1991 re-sponse and later reforms added $3.6trn toIndia’s output from 1991 to 2010. Even ifFord’s money increased the chances of re-form by only 1%, that represents a 12,000-fold return on its investment (ignoring thelag between outlay and the reforms).

But this kind of thinking is out of fash-ion at the bank. The ten largest emergingmarkets are not necessarily its biggest cli-ents. Nor, India aside, are they where manyof the world’s poorest people live. Improv-ing median incomes in these ten would notnecessarily reduce poverty in Nigeria orCongo. Nor would it ensure that the in-comes of the bottom 40% rise faster thanthe rest (which is one way the bank moni-tors its fight against inequality). Mr Mal-pass’s instincts may therefore fail to mesh

The new boss will find that the job isharder to do than it was to get

The World Bank

Malpass v Malpass

The Economist April 13th 2019 Finance & economics 69

2

Buttonwood The diversification illusion

Greenback mountain

Sources: IMF; Standard Chartered *Q4 2018

World, US$ share of allocated reserves, %

1999 2005 10 15 18

55

60

65

70

75

At market prices

At constantexchange rates*

James m. cain’s novel “The PostmanAlways Rings Twice” portrays a violent

love affair between Frank Chambers, adrifter, and Cora Papadakis, a formerbeauty queen now married to a man shedespises. Their romance is doomed fromthe beginning. Every attempt to findhappiness fails. Any attempt at beingapart is equally hopeless. “Why did youhave to come back?” she hisses after onebreak-up. “I had to, that’s all,” he replies.

The story comes to mind when con-templating the fate of the managers ofthe world’s $11trn-worth of foreign-exchange reserves. This is not to say theyare obsessives wracked with guilt andparanoia (though a few might be). Butrather that, like Frank and Cora, it hasprobably occurred to them that theirdominant relationship, which is with thedollar, may not be entirely good for them.

The latest figures from the imf showthat the share of dollars in global re-serves fell to 62% at the end of last year.Reserve managers seem to be for a cooler,less intense affair with the dollar. Buteventually, they will find that it is hard tobreak free. That is not so much becausethe alternatives to the dollar have flaws(though they do); rather, it is because thepain of a weaker dollar will become toomuch to bear.

The dollar is the closest thing to aworld currency. Commodities that aretraded globally are quoted in dollars. Soare other currencies. A lot of cross-bor-der trade is invoiced and settled in dol-lars, too. Dollars are the unit by whichthe world of finance keeps score. So thereis logic to countries keeping stores ofthem in reserve. It is generally dollarsthat you need in an emergency.

But money is also a store of value.There is no guarantee that the dollar willhold its value better than other cur-

rencies. So like other portfolio managers,reserve-holders seek to diversify. Thatmeans fewer dollars.

There are other reasons for breakingfree of the greenback. Its global role givesAmerica the means to impose financialsanctions to great effect. Its use of suchpowers has steadily grown. In response,Russia has slashed the share of dollars inits currency reserves. It is not hard toimagine that some other countries haveweighed the odds of at some stage beingcaught in a dispute with America.

Changes in the market value of cur-rencies can mask underlying shifts in themix of assets within reserves. For instance,if the euro falls sharply against the dollar,its share in reserves would also fall with-out any change in the stock of assets held.Steven Englander of Standard Chartered, abank, applies a constant exchange rate tothe imf data to adjust for this valuationeffect. What emerges is a clearer long-termtrend downwards in dollar holdings and asharp sell-off last year (see chart). Whatkept the dollar strong was the strength ofprivate-sector purchases.

Reserve managers appear to becountercyclical investors, selling whenothers are buying. This is rather cheer-ing. The dollar looks overvalued on manybenchmarks. And if anyone can take along-term view, it ought to be reservemanagers. Even so, Mr Englander sus-pects that some of them are waiting forsigns of dollar weakness before selling.

By then it may be too late. Once priv-ate-sector demand for dollars wanes, thecombination of this downward pressureand selling by reserve managers mightmean that the dollar has to fall a long wayto balance supply and demand. Thatwould be a big headache for reservemanagers. In one regard they are not likeother portfolio managers. They are alsocharged with keeping their own currencyat a competitive level to support exports.

Reserve managers who start off want-ing to sell dollars often end up buyingthem back when they see competitive-ness is at risk, says Mr Englander. Theirattempts to diversify by, say, sellingthose dollars for euros is doomed to fail.It is hard to induce private-sector in-vestors to buy dollars for euros whenthey, too, are trying to diversify awayfrom them. The outcome, says Mr Eng-lander, is that both dollar and non-dollarreserves increase, with the dollar sharenot much changed.

In Cain’s novel, the star-crossedlovers are joined by a dark passion and bycomplicity in a murder. What tethersreserve managers to the dollar is notquite as sinister. For a while they canachieve a little distance: if they want toget out of dollars, they can do so whileeveryone else is trying to get into them.But if the dollar falls hard enough, theywill be buyers. Ask a reserve manager,then, why he ever went back, and he maytell you: “I had to, that’s all.”

Reserve managers are locked in an unhealthy relationship with the dollar

with the bank’s institutional priorities.His interest in engaging with the

world’s big emerging markets also sits un-easily with his other preoccupation: disen-gaging from the biggest emerging marketof all. In his previous role at America’s Trea-sury he expressed worries about China’s“inroads” into the multilateral lenders.America agreed to an increase in the WorldBank’s capital only on condition that in fu-ture it devoted a smaller share of its lend-ing to countries as prosperous as China,charged them higher interest rates and en-couraged them to “graduate” out of World

Bank borrowing altogether.China’s income per person already ex-

ceeds the threshold for graduation ($6,795in 2017). But it is not alone: 31 other eligibleclients exceed that level, including somelarge countries with considerable clout(Brazil, Mexico, Turkey). Efforts to usherthem off the bank’s books would meet in-surmountable opposition. China and itspeers will instead insist they do not meetthe bank’s vaguer criteria for graduation,which include progress in institution-building. Thus China’s backers will high-light its shortcomings even as its critics,

like Mr Malpass, tout its accomplishments.The duties Mr Malpass inherits from his

predecessor, Jim Yong Kim, are lighter thanthose bequeathed to previous presidents.Mr Kim’s managerial failings prompted thebank to appoint a capable chief executive,Kristalina Georgieva, to handle day-to-dayoperations. By some estimates, she does75-80% of the job that fell to previous presi-dents. Mr Malpass may therefore struggleto impose himself on the bank. Some pow-erful constituencies stand in opposition tohis ideas—and some of his ideas stand intension with each other. 7

70 Finance & economics The Economist April 13th 2019

1

For migrant workers, sending moneyhome is an expensive chore. They send

plenty: remittances to developing coun-tries are set to reach $550bn this year, beat-ing foreign direct investment, the WorldBank said on April 8th. Total cross-bordertransfers to and from individuals and smallbusinesses come to $10trn a year. But a hef-ty chunk is taken in fees along the way.

American high-street banks can chargeover 5% for smallish transfers between ma-jor currencies. MoneyGram, an establishedmoney-transfer giant, levies 5% for the hopfrom Britain (sterling) to Ireland (euros).Fees for minor currencies are swingeing.Wiring $200 from South Africa to Nigeriacan take days, and costs over 25%. Cashtransfers are even worse value.

Now some fintechs are trying to disruptthe cosy status quo. In a world made small-er by Skype and instant messaging, “whydoes money still go on a donkey?” asks Taa-vet Hinrikus of TransferWise, a London-based fintech that typically charges a tenthas much as British banks. As yet the new-comers have merely nibbled around theedges. But as incumbents abandon trickymarkets, technology improves and finan-cial regulators take aim at unclear pricing,they look set to take a bigger bite.

To send money across borders, banksuse “correspondent” accounts they openwith each other. When Anna at Bank a

wants to wire $10 to Boris at Bank b, Bank atakes $10 from Anna’s account. It thensends a message through swift—a systemused by 11,000 banks to communicate—telling Bank b to wire $10 from its corre-spondent account into Boris’s. The matteris then settled. Money transfers becomeabout moving data, not money.

There is a wrinkle that will be familiar toair travellers. When two banks have no di-rect connection, the chain of requests hasto involve stopovers. Each “airport” levies afee and makes the transfer go through se-curity, creating delays. That is happeningmore often. Afraid of falling foul of tight-ening anti-money-laundering rules, banksare increasing their oversight by shrinkingtheir sprawling networks. The number ofactive correspondent relationships fell by16% in the six years to 2018.

That leaves space for fintechs willing todo the due diligence needed to forge theirown correspondent relationships. Their

costs are lower, too. They generally seek toreduce the “float”—the currency they musthold offshore to match users’ requests.Many of them save by aggregating transfersto net them out against payments going theother way. And, unencumbered by high-street banks’ outdated computer systems,they can be more technologically nimble.

Some use machine learning to predictdemand. Small World, a firm based in Lon-don, found that migrants send more mon-ey home when it is raining where they areliving, says Nick Day, its boss. According tofxc Intelligence, a data provider, the bestfintechs keep fees below 2%, and much lesson popular routes. They are generally fast-er, too. London-based Azimo does near-in-stant transfers to over 80 countries.

Remitly, based in Seattle, processestransfers of $6bn a year. But so far, ratherthan gobbling up market share, remit-tance-focused start-ups are taking slices ofan expanding pie. Most stick to specific

Sending money across borders isgetting less painful—at long last

International money transfers

Special FX

The window to submit applicationsfor an h1b visa, a golden ticket for

foreigners wishing to work in America,closed on April 5th. Soon the 85,000winners will take up new jobs in the landof fresh starts. But those lucky few, mostof them highly qualified, and manyhandsomely paid, will leave their credithistories at home, rendering them invisi-ble to financial institutions. They willfind it almost impossible to get a creditcard, mortgage or any other type of loan.

It is a difficulty that affects millionsworldwide. In 2017 immigrants made up17% of America’s civilian workforce.Despite having free movement of labouras one of its core principles, the Euro-pean Union has no system for trans-ferring credit records across its internalborders. Banks suffer, too, missing outon potentially lucrative customers.

Building a new credit profile fromscratch takes time. But what if you coulduse a credit report from your home coun-try when applying for a loan abroad? Thatis the idea behind Nova Credit, a finan-cial-technology startup in San Francisco.It requests data from international creditbureaus such as Experian and Equifax(with the individual’s consent), paying afee for the service. It then packages theinformation to be usable by Americanbanks and landlords. Mpower, a student-loan company, is already using NovaCredit’s data to help it make lendingdecisions for international students.

The company works with bureaus incountries that send lots of migrants toAmerica, including India and Mexico, aswell as some that send fewer, such asBrazil, Britain and Canada. China andNigeria will be added this year. It alsoimports data to Canada, where immi-grants are a fifth of the population.

The hard part, says Misha Esipov,Nova Credit’s boss and co-founder, isdealing with the many origins and desti-nations for migrants and data, and there-fore a massive, non-standardised jumbleof databases. Not only do most countrieshave several credit bureaus as well astheir own rules on credit-reporting, butrules on consumer privacy and dataprotection also vary. Coping with themess is too much trouble for most lend-ers, especially domestic-focused ones.That is where Nova Credit comes in. Itcleans up the data and transfers them tothe American lender, which is how itmakes its money.

Individuals request their own creditreports and consent to pass them to NovaCredit. Often they do so while still on alender’s website, with Nova Credit asimplifying intermediate step. “We’rejust a tech platform that allows a custom-er to gain access to their own infor-mation,” says Mr Esipov. His firm hasfound a way to make money from a no-tion that is still subversive in SiliconValley—that people should be able tocontrol the use of their data.

You can take it with youImporting credit records

S A N F R A N CI S CO

A Californian startup is helping migrants bring their financial histories to America

The Economist April 13th 2019 Finance & economics 71

2 corridors and digital channels. That leavesmany destinations, and customers holdingcash, to decades-old giants like Money-Gram and Western Union, which runs aglobal network of 550,000 agents.

Western Union is everywhere except inIran and North Korea, says Hikmet Ersek,its chief executive. The firm, which hand-les $88bn of consumer-to-consumer trans-fers a year, is on average 15% dearer thancompetitors, he admits. But he does not seepressure on pricing, “because no one is inthe last mile”.

Challengers have taken a bigger share oftransfers between developed countries.TransferWise, which processes $46bn ayear, says it accounts for 15% of British con-sumers’ outbound transfers, beatingbanks. The banks seem unconcerned: theirpricing has not budged since 2015. “Thebrand equity of big banks still allows themto charge more,” says Daniel Webber of fxc

Intelligence. Opaque pricing makes that easier. Un-

like loans, the cost of which is neatly cap-tured in the interest rate, cross-bordertransfers attract two sorts of charges, afixed commission and a margin on themid-market exchange rate. And, like planefares, fees can rise or fall depending on thetiming and amount of the transfer.

Regulators are turning their sights onwhat they see as a malfunctioning market.Last December the European Commissionpassed a law that will force banks and firmsto disclose markups from 2020. Australia’sregulator is considering a similar move.

Startups should benefit. A study in 2018found that when fees were clear, the shareof consumers who chose the cheapest pro-vider of transfers rose by a quarter. But inthe longer term the result may be to changethe way incumbents work. In Europe mo-bile-only banks such as n26 and Monzo al-ready use TransferWise to handle trans-fers. Their bricks-and-mortar peers shouldseek similar deals, says Martin Griffiths,head of fintech at Barclays, a British bank, ifthey do not want to see the market disrupt-ed around them. 7

Flat fee

Sources: FXC Intelligence; World Bank

Average cost for sending the equivalent of $200 of remittances, %

0

2

4

6

8

10

12

2011 12 13 14 15 16 17 18

Banks Traditional money-transfer firmsFinancial technology firms

India’s banks have a poor reputation—and for good reason. The state-controlled

ones offer cheap credit to the well-con-nected, have piles of bad loans and arebarely accountable. Nor are the privateones flawless. In the past year the bosses oftwo of the biggest left after concerns wereexpressed by the Reserve Bank of India: atAxis Bank because of credit problems andat Yes Bank because of governance worries.The head of the second-largest, icici,stepped down because of a scandal involv-ing loans to a firm whose shareholder haddealings with her husband.

In this dismal scene one bank, hdfc,consistently shines. In the coming days itis expected to announce the latest in a se-ries of stellar performances. Profits are ex-pected to be around 20% higher than lastyear. Return on assets is 1.8% and return onequity is around 17%—excellent for a bank.The share price is 286 times what it was in1995, when the firm went public—and 132times its 1995 level in dollars. The bank’smarket value is over $90bn, and GoldmanSachs thinks that it could exceed $200bnby 2024. That would gain hdfc admittanceto a global elite now made up of Americanand Chinese behemoths.

hdfc Bank is an offshoot of a mortgagecompany of the same name (the initialsstand for “housing development financecorporation”), which was set up in 1977 byHasmukh Parekh, the chairman of icici’sboard. Mr Parekh persuaded his nephew,Deepak Parekh, then at Chase ManhattanBank, to return to India to run the newcompany. In 1994 Deepak obtained a li-cence for a new bank and recruited peoplewith experience similar to his own to runit—that is, Indians who had worked in bigglobal banks. The chief executive, AdityaPuri, came from Citi; staff from Bank ofAmerica, anz Grindlays, Deutsche, Bar-clays, Standard Chartered and many otherswere also hired.

He was initially hesitant about themove from Citi, says Mr Puri. At the timeCiti seemed well-placed to become a domi-nant force in Asian finance. It and the otherglobal banks in India had advanced pro-ducts, good service and talented employ-ees. But with hindsight it is clear that hemade the right call. Though Citi retains alocal business in many Asian countries, itlargely serves a high-income niche. Most ofthe other foreign banks have retrenchedand focused on cross-border transactions.

The global banks were not wrong aboutthe size of the opportunity. In the Indianmarket, says Mr Puri, “demand is not an is-sue”. A vast segment of the population wasunbanked or underbanked—not just indi-viduals, but also small businesses.

At first hdfc Bank focused on large cor-porate customers, where its newly hiredstaff’s contacts were useful. The recruitsfrom global banks brought valuable know-how with them. Notably, it did well inniches where Citi was strong, such as creditcards. It beefed up its technology andgained the scale needed to press into themass market. Mr Puri says hdfc can nowprocess a personal loan and put money inan account in 11 seconds. And it expandedits business offering to sophisticated areas,such as the payment mechanisms of In-dia’s stock exchange.

It also sought to serve small companiespreviously excluded from the financial sys-tem. In February it opened its 5,000thbranch, giving it by far India’s largest priv-ate-bank network. Equally important arethe 30,000 employees who promotephone-based banking to shops and indi-viduals in smaller cities and villages.Among the most prominent of these mar-keters is Mr Puri. Though he owns neither amobile phone nor a computer, he has be-gun showing up in far-flung regions to sellthe bank’s services to small shops. Thesemake more profitable customers than isgenerally understood, he says, since theirentire financial lives are within the bank’ssystem and they are easy to cross-sell to.

Of great interest to India’s businesscommunity is what comes next for hdfc.Indian law requires bankers to retire at 70;that gives Mr Puri a little over a year more inthe job. Corporate bosses can stay until 75,so there may be a way to find him anotherfive years. Plans are in place for both even-tualities, he says. Romesh Sobti, whoturned round another private bank, Indus-Ind, is also nearing retirement. The depar-ture of a successful leader is always a tick-lish moment—even more so in India’sharsh banking scene. 7

M U M B A I

How one private-sector institutionbreaks a dismal pattern

Banking in India

Bucking the trend

Indian champion

Sources: The Banker; Bloomberg

HDFC Bank, rank among global banks

1st

800th

600th

400th

200th

1,000th

2000 02 04 06 08 10 12 14 16 18

By assets

By marketcapitalisation

72 Finance & economics The Economist April 13th 2019

There are more than a few echoes of the Nixon era in the presi-dency of Donald Trump. Monetary reverberations are among

them. Facing re-election in 1972, Richard Nixon felt he needed astrong economy at his back, and made a habit of haranguing Ar-thur Burns, the chairman of the Federal Reserve at the time. Burnsrecounted the meetings in his diaries: “The president looked wild;talked like a desperate man; fulminated with hatred against thepress; took some of us to task…” Historians reckon Burns was tooaccommodating of Nixon’s demands, and so helped launch the in-flation of the 1970s. Mr Trump is now waging his own assault onthe Fed’s independence. He has repeatedly complained about thecentral bank’s decisions and urged it to take a more doveish stance.

More strikingly Mr Trump, who has already chosen three of thefive sitting members of the Fed’s board of governors, has namedStephen Moore and Herman Cain to fill the remaining two vacan-cies. In contrast to candidates who have come before, both are po-litical activists. But the parallel with the 1970s is less apt than itseems. There are different ways to politicise monetary policy, andMr Trump’s is particularly poisonous.

Nixon’s inflation helped inform modern ideas of central-bankindependence. In 1977 Finn Kydland and Edward Prescott, whowon the Nobel prize together in 2004, published a seminal paperon the problem of “time inconsistency”. Governments can pro-mise to keep inflation low, they argued, but that promise becomesharder to keep as time goes on. Once the public expects low infla-tion, there are political advantages to generating a burst of higher-than-anticipated price growth, which reduces the real (inflation-adjusted) value of debt and generates a short-run increase in realincomes and output. As governments succumb to the temptationto inflate, expectations adjust and the inflation rate needed to sur-prise the public rises ever higher. In the absence of a mechanism tokeep inflation low, prices accelerate. Along with policy rules andinflation targets, central-bank independence became one of theways governments’ promise not to inflate were made credible.

Yet even as independence became more common, it remainedincomplete. Governments are often responsible for setting centralbanks’ mandates, appointing their heads and determining whattools they can use to do their jobs. Many elected leaders have suc-

cumbed to the temptation to jawbone monetary policymakers. Inthe months before the election of 1992, George H.W. Bush urgedAlan Greenspan to cut interest rates; he later blamed the Fed for hisloss at the polls. In his memoirs Paul Volcker recalls an awkwardmeeting with Ronald Reagan and his chief of staff, James Baker, inwhich he was ordered not to raise rates in the run-up to the elec-tion of 1984. During the financial crisis, central banks around theworld came under fire from politicians for having allowed finan-cial excess to build up, bailing out banks during the crisis and us-ing unconventional measures to support damaged economies.

These political intrusions did not prevent central banks fromkeeping inflation low. On the contrary, economists are increasing-ly asking whether stubbornly low rates of inflation, interest andgrowth show that the need for independence was overstated. Infla-tion was high around the world in the 1970s. Perhaps rather than aweak-willed Fed chairman being to blame, the problem lay in fac-tors specific to that period, or a flawed understanding of the rela-tionship between monetary policy and inflation.

Faced with today’s chronically low interest rates, central banksmay need to revise their policy frameworks to stop economies fall-ing into slumps. But without a shove from politicians, they may betoo institutionally conservative to do so. Shinzo Abe, Japan’s primeminister, won election in 2012 on a promise to rejuvenate theeconomy, and immediately pressed the Bank of Japan to be morezealous. The result has been an impressive run of growth ratherthan a macroeconomic disaster. Structurally low interest ratesalso mean that central banks need more help from fiscal policy-makers when demand slackens. That co-operation will inevitablyweaken central banks’ institutional independence.

The fool’s mandateMight one argue, then, that by pressing the Fed to aid his re-elec-tion campaign Mr Trump is undercutting a norm that has outlivedits usefulness—even, that he could be helping America claw itsway out of the low-rate trap that has ensnared most of the richworld? In fact, the selection of Mr Moore and Mr Cain suggests avery different sort of politicisation is at work. Neither is a profes-sional economist; both have worked extensively in Republicanpolitics. Mr Moore advised Mr Cain during his campaign for theRepublican presidential nomination in the election of 2012, whichwas derailed after a promising start by allegations of sexual harass-ment. Both have expressed monetary-policy positions that mightmark them out as hawks. In 2008, when the American economywas on the brink of a deep recession, Mr Moore said that the Fedshould be raising rates rather than cutting them, and predictedhigh inflation to come. Mr Cain has said he favours a return to thegold standard. But politics, rather than data or principles, appearsto guide their views. Mr Moore now joins the president in com-plaining that the Fed is holding back growth unnecessarily. MrCain has repeatedly claimed, falsely, that statistical agencies fakedeconomic data in an effort to boost the fortunes of Barack Obama.

Perhaps, if appointed, the pair would surprise Mr Trump andvote as his prior picks have, in an orthodox fashion. If they behaveinstead as party loyalists, the greatest risk is not that an ineffectualFed will allow inflation like that of the 1970s to take hold. The op-posite might well result if the pair revert to hawkishness whenpower changes hands. The danger is rather that the Fed will be-come a political weapon, and that America will move closer to be-coming a nation where the welfare of the ruling party trumps thatof the country as a whole. 7

Monetary targetsFree exchange

How not to weaken central banks’ independence

74 The Economist April 13th 2019

1

Bertha resides on a quiet industrial es-tate in Bristol, in the west of Britain. The

affectionate name has been given to whatat first appears to be a giant loom from theIndustrial Revolution. And in some ways itis. Bertha (pictured above) is an automatedbraiding machine. Like a horizontal may-pole, ribbons of carbon fibre are drawnfrom 288 bobbins contained on a pair ofhuge rings, and passed over and under oneanother as they are wound tightly around arevolving mould. The final product couldbe a propeller for an aeroplane, a ship’s hy-drofoil or a set of wheels for a sports car. Infact, Bertha can knit just about any hollowcomponent up to 800mm by ten metres,and do so quickly and accurately by depos-iting some 300kg of carbon fibre an hour.

Just as textile production began to bemechanised at the end of the 18th century,creating the modern factory, manufactur-ing is going through another revolution.This time it is driven by digital processesand new materials, such as carbon-fibrecomposites. Automated braiders are one of

several new systems turning carbon-fibreproduction from a slow, labour-intensivecraft into a mass-manufacturing processthat will change many industries.

Carbon fibre is attractive because it islightweight and exceptionally strong. Thetoughest fibres are up to ten times strongerthan steel and eight times more so thanaluminium, reckons Zoltek, an Americancarbon-fibre producer. Carbon fibre is alsofive times lighter than steel and half theweight, or less, of aluminium. Nor does itcorrode. In transport industries, where“lightweighting” is most valuable, carbonfibre allows aircraft and cars to be madelighter and so travel farther on the sameamount of fuel or a single charge of their

batteries. This will help them meet tougheremissions targets.

And there are other advantages, too.One is that carbon fibre allows manufac-turers to make much larger, more complexparts in one go, says Richard Oldfield, chiefexecutive of the National Composites Cen-tre (ncc), a research laboratory set up bythe University of Bristol, and home to Ber-tha. Instead of making an aircraft’s wing orcar body by welding, riveting and boltingtogether hundreds of individual compo-nents, these bits can be consolidated into asingle carbon-fibre structure. This savestime and materials and allows designers tocome up with novel products.

Hot stuffEngineers got interested in carbon fibre inthe 1960s. The fibres consist of carbonisedpolymers, made up of long strings of mole-cules bound together by the powerfulbonds between carbon atoms. The fibresare made by heating a precursor material toaround 3,000°C in a protective atmosphereof inert gases. The most commonly usedprecursor is polyacrylonitrile (pan), whichis produced by the petrochemicals indus-try. Pitch, obtained from coal tar, is some-times used instead. Once carbonised, thefibres are wound onto bobbins, spun intoyarns or formed into tapes. Depending onthe final application, they can also be wov-en into fabric sheets.

On their own, carbon fibres are brittle

The new black arts of manufacturing

How to knit a sports car

B R I STO L

Faster ways to knit together carbon fibre will transform many products

Science & technology

75 Birds and climate change

76 More human species

77 Picturing a black hole

Also in this section

The Economist April 13th 2019 Science & technology 75

2

1

One of the great concerns that orni-thologists have is that climate

change will throw the nesting activitiesof birds out of sync with the availabilityof food for the raising of chicks. For onespecies, the pied flycatcher, a new studyshows that some of its clan are proving tobe remarkably adaptable.

Upon returning to Europe from theirAfrican wintering grounds, the flycatch-ers time their egg-laying to the shortperiod when juicy caterpillars are mostabundant. During the past three decadesthis caterpillar peak has advanced bythree weeks. Pied flycatchers initiallyhad difficulty adjusting, but over timehave started laying their eggs earlier tograb the caterpillars. Some, though, aredoing a lot more to improve their repro-ductive chances of success, according toa study in the Journal of Avian Biology ledby Christiaan Both of the University ofGroningen, in the Netherlands.

Like most bird species, pied flycatch-ers have long been thought to lay a singleclutch of eggs during the breeding sea-son. This was widely considered to be atrait that does not change. Then, in 2007,a Swiss team led by Pierre-Alain Ravussinbegan to suspect that clutch numberswere flexible. They discovered a femalepied flycatcher that immediately pro-duced a second brood with a new maleafter raising an early set of chicks. Awareof Dr Ravussin’s findings, Dr Both won-dered whether this was just a single, oddinstance or if second broods might behappening on a larger scale driven by thearrival of earlier springs. So, they collab-orated to delve into the data to find out.

The team studied pied-flycatcherpopulations in the Netherlands andSwitzerland that were known to be

among the earliest nesting members ofthe species. In total, they tracked theegg-laying times and hatchling-rearingsuccess of 8,848 breeding pairs in theNetherlands and 1,372 in Switzerlandbetween 1980 and 2018. They found thatsince 2006, 11 cases of second broodswere observed, all of them among theearliest breeders in both populations.

Further studies ruled out that thebirds were making up for a failed firstattempt at raising chicks or that thesecond group of nestlings suffered.

With no obvious downside to laying adouble clutch, Drs Both and Ravussinconclude that the birds are attempting todouble their annual reproductive output.While this behaviour is still rare, theyargue that if the tendency is driven byheritable genes (which it may well be)then a succession of early springs couldmake the strategy much more common.

Doubling their luckAvian biology

How some birds adapt to climate change

Do this all over again?

and can break easily. But their strengthcomes in tension (they resist being pulledapart). So, the fibres need to be aligned insuch a way to impart their strength by dis-tributing loads throughout a structure.This is done by placing the fibres, tapes ormats onto a mould in the required orienta-tion, creating what is known as a preform.It is a slow process often done by hand.This is now being automated, aided by thefact that the optimal alignment of the fi-bres is often calculated using sophisticatedcomputer-aided design systems, and thesame data can program robots to lay-up thefibres or wind them on braiding machinessuch as Bertha.

The preforms then need to be made sol-id. This is done by impregnating the fibreswith a chemically activated resin, whichhardens when it is cured. The curing pro-cess is usually carried out inside a largeoven called an autoclave, which appliesheat and pressure to consolidate the struc-ture and force out any air bubbles. It cantake hours, sometimes with autoclaves leftto run overnight. For a relatively lowthroughput this might not be a problem.But for higher volumes, especially in car-making, faster cycle times are needed.

Various out-of-autoclave curing tech-niques are starting to be used. One is resintransfer moulding (rtm). This involvesplacing preforms inside a mould which isthen closed. Resin is injected into themould and heat and pressure applied. De-pending on what is being produced, rtm

can cut processing times by half or more.

Fast carsMcLaren has been making sports cars outof carbon fibre since the British companyused the material for the world’s first For-mula 1 racing car in 1981. All f1 cars are nowmade from carbon fibre, and the protectionit affords drivers has allowed many to walkaway from spectacular crashes. To build itssports cars the company starts with a car-bon-fibre “MonoCell”, a giant tub whichforms the main structure of the vehicle.

The company uses a specialist contrac-tor to make MonoCells, although those forfuture car models will be produced at a new£50m ($65m) McLaren Composites Tech-nology Centre in Sheffield, Britain. Thefirst of the new cells has just been deliv-ered. Impressively, the large and compli-cated structures are produced with rtm inone go—although McLaren is keeping thedetails secret. “I often look at the MonoCelland wonder myself how it is possible tomake it,” says Claudio Santoni, the centre’stechnical director.

McLaren says carbon fibre will be essen-tial in keeping weight down in future hy-brid and electric models. By 2025 it expectsthe centre to be making MonoCells forsome 6,000 cars a year. As a high-endbrand, it is not seeking large volumes. But

other carmakers are. One is bmw, whichuses a variant of rtm in Leipzig, Germany,to make bodies for more than 130 of its i3electric cars every day. bmw plans to in-crease that number substantially.

Another speedy production process is“overmoulding”. This combines sheets ofcarbon fibre with injection-moulded plas-tic. Injection moulding has long been usedto produce plastic parts by extruding a mol-ten polymer into a mould. It is quick andaccurate. By combining the two processes,overmoulding allows plastic parts to be se-lectively reinforced with carbon fibre. Thusstrengthened, such parts could be used ascar doors, aircraft interiors and in many

other products. The ncc reckons an over-moulding system it is working with in Bris-tol can churn out finished components injust 60 seconds.

Progress is also being made in reducingthe cost of carbon fibre itself. Prices varyaccording to quality, but industrial-gradecarbon fibre is roughly $20 a kilogram, al-though aerospace versions are more ex-pensive. By comparison, steel used in car-making is about $1 a kilogram. As carbonfibre is so much lighter and stronger thansteel, less material is needed. And the addi-tional cost is also compensated for by pro-duct-lifetime savings on fuel and emis-sions. Nevertheless, cheaper carbon fibre

76 Science & technology The Economist April 13th 2019

2

1

The human species is a lonely one. To-day there are two species of gorilla, two

of chimpanzees and a whopping three spe-cies of orang-utan, but just one sort of hu-man. It wasn’t always so. People are famil-iar with the idea that Homo sapiens onceshared Eurasia with another human, H. ne-anderthalensis. In 2004 researchers an-nounced to great fanfare that they hadfound the bones of a third contemporane-ous relative, a rather short human specieswho lived on the Indonesian island of Flo-res. This became H. floresiensis, and wasquickly dubbed the “Hobbit”. Then, in 2010,geneticists declared that a single fingerbone found in a cave in the Altai Mountainsof western Siberia carried a distinct ge-nome which suggested it belonged to afourth group, the Denisovans.

Two new studies reveal that the land-scape the ancestors of H. sapiens roamedacross was even more crowded, until quiterecently. One report draws on the power ofgenetic sequencing to show that the Deni-sovans comprised at least three differentpopulations, which evolved separately forhundreds of thousands of years. The otherstudy announces an entirely new speciesof hominin, H. luzonensis. Both findingscentre on the islands that lay at the fringesof the ancient world; in South-East Asia, aregion that has until quite recently beenlargely ignored by palaeoanthropologists.

Glimpses of the new species came in2010, when a collaboration of Philippine,French and Australian researchers an-nounced that they had found a human-likefoot bone (pictured opposite) on Luzon,the largest island in the Philippines. The

bone was 67,000 years old, meaning itsowner was alive shortly before H. sapiensventured out of Africa. It was discoveredalongside butchered animal bones on anisland separated from mainland Asia by asea. All this pointed to a fairly sophisticat-ed human, capable of creating sharp cut-ting tools, and quite possibly also able tobuild and steer a boat or raft (though someargue it may have floated, or swam acrossto the islands).

The same team, led by Florent Détroit ofthe Musée de l’Homme in Paris, report inNature this week that alongside the footbone they have also found two fingerbones, two toe bones and a number of

teeth. From these, they have identified atleast three individuals with features thatindicate that they belonged to a new spe-cies of human.

The fossil remains of H. luzonensis arebizarre. The toe bones, for instance, sug-gest it was adapted to climbing trees as wellas walking on two legs—something moretypical of distant australopithecine rela-tives who lived millions of years ago in Af-rica. The Luzon premolar teeth also lookprimitive, but the molars are modern andH. sapiens-like. As with the Hobbit, it islikely that these features evolved in H. luzo-nensis as a result of its island living. Previ-ous studies have shown that when speciesbecome isolated, as on an island, unusualfeatures emerge.

The islands of South-East Asia were alsoonce home to the mysterious Denisovans.What little is known about them has moreto do with laboratory work than digging inthe ground for remains. That is becausevery few Denisovan fossils have beenfound. A finger bone, a skull fragment (an-nounced in March) and a handful of teethare the only physical testimonies to theirexistence. They are not enough to say whatthe Denisovans looked like, or to assignthem a species name.

However, by comparing dna extractedfrom the finger bone to the genomes ofpeople alive today, researchers have shownthat Denisovans and Neanderthals shareda common ancestor sometime between500,000 and 700,000 years ago, and thatthey interbred with each other and with thedirect ancestors of H. sapiens on more thanone occasion. These matings conveyednew traits to their descendants. Even todayTibetans carry a Denisovan gene that helpsthem reproduce at high altitudes. And theDenisovans seem to be widely travelled,with genetic evidence that at one time theycould be found all the way from Western Si-beria to Indonesia.

Murray Cox, a computational biologistat Massey University in New Zealand, andhis colleagues pushed the analysis furtherby probing a new genetic database, con-taining modern genomes from the islandsof South-East Asia, a region that is bothdensely populated and largely unrepre-sented in genetic surveys. The database in-cludes genomes from New Guinea, whereprevious studies have indicated moderngenomes contain more Denisovan dna

than is found in other regions.

Three’s a crowdAs they report in Cell, Dr Cox and his col-leagues found evidence of not one butthree distinct groups of Denisovans thatinterbred with the ancestors of modernPapuans. One group, dubbed d2, evolvedseparately from the individual whose fin-ger bone was found in the Siberian cave for12,500 generations, or roughly 360,000

More new human species are discovered

Human origins

The Hobbit’s cousin

A little bit of luzonensis

would find greater use in manufacturing. Oak Ridge National Laboratory in Ten-

nessee thinks it could cut the cost of indus-trial-grade carbon fibre by about half withmore efficient production processes. Ac-cording to some estimates, roughly 90% ofthe energy needed to make things with car-bon composites is consumed in producingthe fibre itself. Oak Ridge is looking at theuse of cheaper alternatives to pan and low-temperature carbonisation processes.

The lab also uses chopped-up carbon fi-bre in large-scale 3d printers to producestructures. It recently employed the systemto print moulds for the precast concrete fa-çade of the Domino tower, a new 42-storeybuilding in Brooklyn, New York.

Chopped carbon fibres can be madefrom manufacturing offcuts or recycledmaterial. Recycling will become even moreimportant once a greater number of car-bon-fibre cars, aircraft, ships, wind tur-bines and other products reach the end oftheir working lives. There will be moun-tains of the black stuff to deal with. Compa-nies are coming up with ways to recoverthe fibres, usually with heat or chemicals.Sometimes the fibres can be re-spun, but ifthey are too short they can still be suitablefor parts subject to less stress. A combina-tion of lower-cost mass-production tech-niques and effective carbon-fibre recy-cling, will lead to a lot more Berthasknitting away furiously. 7

The Economist April 13th 2019 Science & technology 77

2 years. That makes it “about as differentfrom the individual found in the Denisovacave [in Siberia] as it is from Neanderthals,”says Dr Cox. Indeed, d2 evolved separatelyfor longer than the 300,000 years that H.sapiens has been around.

There could be profound conse-quences, says Dr Cox’s collaborator Guy Ja-cobs of Nanyang Technological Universityin Singapore. For starters, d2 could havelooked very different from the Siberian in-dividual. “If we’re going to call Neander-thals and Denisovans by special names,”says Dr Cox, “this new group probablyneeds a new name, too.”

The genetic analysis estimates that thed2 Denisovans interbred with H. sapiens inPapua roughly 30,000 years ago, whichsuggests they outlasted the Neanderthalsby some 10,000 years. Another Denisovanpopulation may have interbred with H. sa-piens as recently as 15,000 years ago, say theresearchers. That would mean the Deniso-vans, not Neanderthals, were the last cous-in of humanity to vanish, leaving H. sapiensas the only hominin game in town.

That they mated on the islands providessome of the first behavioural and social in-formation about this group of early homi-nins. Like H. luzonensis or its ancestors, theDenisovans may have been capable of navi-gating, in order to cross the strong currentsof the Wallace Line (see map). Present-dayattempts to reproduce such journeys showthis to be no small feat. Successful cross-ings require craft, and careful planning.

Through their promiscuity with H. sapi-ens, Neanderthals and Denisovans passedon fragments of genetic code that survivein humans today. Some of the fragmentsidentified by Dr Cox and his collaboratorsappear to have played a role in helping H.sapiens adapt its diet and immune systemas it spread into new regions, and are stillpresent to varying degrees in modern pop-ulations. As Michael Petraglia, a palaeoan-thropologist at the Max Planck Institute forthe Science of Human History in Germany,puts it: “This is a story not only about his-tory but about us ourselves today.” 7

CHI NA

TH AI LA ND

M A L AY S I A

AUSTR ALI A

PH I LI PPI N E S

PA P U AN EW

G U I N E AFlores

WallaceLine

Papua

Luzon

P A C I F I CO C E A N

I N D O N E S I A

1,000 km

What black holes do to the thingsaround them is hard to miss. Matter

hurtling into them at almost the speed oflight gives off all sorts of radiation, some-times so much of it that it can be seen half acosmos away. The black holes themselves,though, are another matter. They are, bycosmic standards, extremely small. Andthey are defined by having gravitationalfields so strong that nothing, not evenlight, can escape them. That is why it is re-markable that an international team ofmore than 200 radio astronomers have,through years of painstaking work, actual-ly contrived a glimpse of one.

The black hole in question (pictured be-low) is located at the centre of a galaxy 55mlight-years from Earth called Messier 87,one of the largest and most luminous gal-axies in the nearby universe. Astronomershave for some time suspected that ithouses a phenomenally massive blackhole—one 6.5bn times more massive thanthe Sun, and more than a thousand timesmore massive than the black hole at thecentre of the Milky Way galaxy in which theEarth and Sun sit.

But massive does not mean large. Theedge of a black hole is called an event hori-zon, because nothing that happens beyondit can ever be seen under any circum-stances. The black hole in Messier 87 has anevent about half a light-day across (aboutthe size of the bit of the Solar System thathas planets in it). This means that, seenfrom the Earth, it looks no larger than acoin on the surface of the Moon.

The smaller the thing you are observingappears in the sky, the larger the aperture ofthe telescope you need to look for it. TheEvent Horizon Telescope (eht) team puttogether one with an aperture the size ofEarth by bringing together data from radiotelescopes all around the world. Adding to-gether the signals received by these varioustelescopes allowed them to synthesise animage as good as the one they would havegot from single telescopes as large as thedistance between any two of the dishes,though a great deal dimmer. This sort of“extremely long baseline interferometry”has been used for decades—but never be-fore with this amount of data.

In total, eight observatories on fourcontinents were used to hunt for the blackhole in Messier 87, including two, in Ant-arctica and Chile, that enjoy particularlydry skies. Because the observations needed

to be precisely synchronised, each instru-ment was tethered to its own atomic clock.

Once all the dishes were properly con-figured, the astronomers calculated theyrequired ten days of clear weather in all thelocations to collect the data that were need-ed. When they began their search in April2017 the weather behaved, and they got fivepetabytes of data in seven days. These datawere transported to the Haystack Observa-tory at the Massachusetts Institute of Tech-nology in America and the Max Planck In-stitute for Radio Astronomy in Bonn,Germany, on half a tonne of hard drives.

These many numbers underwent muchcrunching. On April 10th the result was re-vealed. The first real picture of a black hole,which looks satisfyingly black and blobby,consists of radiation emitted by hot gaseson the far side of the black hole and thenbent by its gravity into a tube of light withdarkness in its central cavity. The brighteryellow at the base of the circle indicatesgases moving particularly quickly, hintingat a something of a slingshot effect takingplace as the vortex of gases travel in a clock-wise direction, much like water pouringdown a plug hole.

In time, the same approach should beable to track changes in the environmentaround this black hole and others, helpingto show, among other things, how the vastjets of energy it emits get their oomph andstructure. In the meantime, there are twoimportant take away messages. One is thatblack holes are round, as Einstein’s theoryof relativity predicted they would be. Theworld is used to Einstein being provedright; but each test that might contradicthim and doesn’t is an event.

The other is that if they see a possibilityfascinating and spectacular enough, as-tronomers will be remarkably dogged in itspursuit, even using the whole movingEarth to plumb the heavens. 7

Astronomers take the first snap of ablack hole

Black holes

Staring into theabyss

Seeing the unseeable

78 The Economist April 13th 2019

1

“Your whole field is confused. Youknow that, right?” The patient who

delivered this parting shot had a perpetualknot in the pit of her stomach. She had lostinterest in everything, was anxious, irrita-ble and nauseous, and struggled to sleep.Her family doctor had told her it was“nerves”. A psychotherapist asked aboutsexual feelings in childhood for her father.A psychiatrist offered drugs to fix what hesaid was a chemical imbalance in her brain.

Confused and desperate, she had foundher way to yet another doctor, an assistantprofessor of psychiatry. Anxiety can be use-ful, he told her, but most people experiencemore than they need—because whereastoo much merely makes you miserable, toolittle can make you dead. She was stuck in acycle of worry, heightened vigilance andmore worry. Cognitive behavioural thera-py, which teaches people to break corrosivethinking patterns, would help. She bright-ened up—and offered a few home truthsabout the psychiatrist’s profession.

Randolphe Nesse, now of Arizona StateUniversity, cites that encounter in his fas-cinating book to illustrate why he has spenthis career studying the evolutionary roots

of mental illness. Though doctors whotreat physical ailments do not routinely re-fer to evolution, their theories about bo-dies are based on the fact that humans, andthe pathogens that afflict them, are the pro-duct of aeons of natural selection. Disor-ders are defined by comparison with nor-mal functioning. Symptoms such asrashes, fevers and pain are understood tobe consequences of, or defences against,illness, not the illness itself. Treating anailment like diabetes, in which a complexsystem malfunctions, means knowinghow that system is supposed to work—andwhat it evolved to do.

Mental-health specialists lack such sol-id foundations. In general, they neitherstudy the feelings of the well, nor considerwhat feelings are for. Of the 4,500 pages inAmerica’s most popular psychiatry text-

book, normal emotions get half a page.Moreover, when it comes to diagnosis, theyfail to consider underlying causes. The cur-rent version of the American “Diagnosticand Statistical Manual for Mental Disor-ders” (dsm-5) defines hundreds of disor-ders solely by their symptoms. Depression,for example, means at least two weeks ex-periencing five or more of eight symptoms,such as loss of pleasure in life, loss of appe-tite and feelings of worthlessness. The di-agnosis is the same if you have just beenbereaved or divorced or lost your job.

In Dr Nesse’s definition, “specialisedstates that…increase the ability to meetadaptive challenges” constitute normalemotions. They are experienced as positiveor negative because only situations con-taining opportunities or threats affect evo-lutionary fitness. A negative emotion maybe just as evolutionarily useful as physicalpain. A depressed patient’s low mood, forexample, may result from his realisationthat a major life project is sure to fail. Itfeels terrible, but makes sense in evolu-tionary terms. People who do not sufferwhen pursuing unachievable goals maywaste their energies on pointless effort,thereby harming their chances of repro-duction. That insight taught Dr Nesse toask the depressed: is there something veryimportant that you are trying and failing todo, but can’t bring yourself to give up?

Evolution has equipped people for aworld very different from the one they nowinhabit. They are obese because their appe-tites are adapted to scarcity, not super-abundance. Similarly, some mental ill-

Evolution and psychiatry

The wisdom of sorrow

After centuries of discredited quackery, evolution may suggest a wayto understand mental illness

Good Reasons for Bad Feelings. ByRandolphe Nesse. Dutton; 384 pages; $28.Allen Lane; £20Mind Fixers: Psychiatry’s Troubled Searchfor the Biology of Mental Illness. By AnneHarrington. Norton; 384 pages; $27.95

Books & arts

79 Walter Gropius and the Bauhaus

80 Susan Choi’s new novel

80 Robert Caro’s life and craft

81 Johnson: African-American English

Also in this section

The Economist April 13th 2019 Books & arts 79

2 nesses may be the result of having tonegotiate situations they are not fit for.Others may be side-effects of selection fordesirable traits. Dr Nesse draws an analogywith racehorses, bred for speed with theunfortunate result that their cannon bonesare brittle. For every 1,000 that start a race,he says, one breaks a leg and has to be putdown. It may have slightly weaker bonesthan the rest. Or it may simply be unluckyand stumble. Humans may have “mindslike the legs of racehorses, fast but vulner-able to catastrophic failures”.

When it comes to doctoring the body,you have to go back to the 19th century tofind a time when the theories were baseless(infections were caused by miasmas, forinstance) and the treatments often harm-ful (bloodletting, purging and the like). Fordoctoring the mind, as Anne Harrington’sfine history of psychiatry shows, that pointis much more recent. In 1949 a Nobel prizewent to the Portuguese inventor of the lo-botomy, an operation intended to sever the“worry nerves” of the brain. In 1952 thetechnique was sufficiently honed for anAmerican acolyte to launch “Operation Ice-pick”—a 12-day road trip during which 228patients were strapped down and anaes-thetised, before he or an assistant slippedan ice-pick-shaped knife under each eyelidand into their brains, and gave a twist.

What ended that practice was not anoutbreak of compassion, but the arrival ofthorazine, a drug that caused such mentaldeadening that it was nicknamed the“chemical lobotomy”. It was the start of theage of blockbuster drugs for mental illness.By the end of the 1950s one in three pre-scriptions in America was for meprobam-ate, which dampened anxiety. By 1990, 1mAmericans received Prozac prescriptionseach month. Pharmaceutical companiespopularised the notion that anxiety, de-pression and so on were caused by chemi-cal imbalances. Right them and you couldbecome not just well, but better than well.

Under the influence of Freud, psychia-trists had sifted their patients’ life historiesfor repressed emotions and memories. Butin the 1980s psychiatrists declared a post-Freudian world, with mental illnesses as-cribed to brain biochemistry and neuro-anatomy. They expected to discover thegenes that caused mental illnesses, and be-spoke drugs that could heal them.

That revolution never happened. In-stead pharmaceutical firms are pullingback, as stricter testing rules reveal how lit-tle good many of their products do. The evi-dence linking mental illnesses to defects ofbrain architecture or chemistry, or to spe-cific genes, is scanty. With its checklist ap-proach to diagnosis, dsm-5 is under attack.Ms Harrington’s history ends with today’scrisis in the psychiatric profession. If DrNesse is right, evolutionary thinking couldprovide a fruitful new direction. 7

“If i have a talent it is for seeing the rela-tionship of things,” reflected Walter

Gropius in 1967, not long before he died.The world remembers him as an innova-tive architect of pared-down modernistbuildings and the founder of the Bauhaus,a revolutionary school of art and design.His aim was to bring architects, designersand artists together in a working commu-nity to create what he called the Gesamt-kunstwerk, or total work of art.

Charismatic, gifted, idealistic and well-connected, he wanted to do somethingnew and life-affirming after fighting in thefirst world war. His invitation to join theBauhaus was taken up by the most vibrantartists and designers of his day, includingVasily Kandinsky, Paul Klee and Laszlo Mo-holy-Nagy. The teachers and students ledquasi-communal lives; their parties werelegendary. In its various incarnations—starting in Weimar in 1919, then moving toDessau and finally to Berlin—the fabledschool lasted a mere 14 years, after whichthe Bauhäusler dispersed across the globe,

many, including Gropius, to America. Gropius was born in 1883 in Berlin into a

cultured upper-middle-class family. Hisfirst job was in the office of Peter Behrens, asuccessful architect and designer who hadalready taken on a young Mies van der Roheand a little later recruited Le Corbusier. In1910 Gropius left to set up his own practiceand was soon working on the Faguswerk inAlfeld, a futuristic factory built from glass,steel and yellow brick that became his firstimportant building.

As Fiona MacCarthy’s new book re-counts, his private life was chaotic. In 1910he had an affair with Alma Mahler, an ac-complished society beauty who at the timewas married to the composer Gustav Mah-ler. After Gustav died she took various lov-ers, including the painter Oskar Kokosch-ka, but she and Gropius were married in1915. Their daughter, Manon, was born thefollowing year. Then Alma started an affairwith the writer Franz Werfel; after she andGropius divorced, she made it hard for himto see his child. In 1923 Gropius found hislife’s companion in Ilse Frank, an indepen-dent-minded woman who was 14 years hisjunior. (He persuaded her to change hername to Ise, perhaps because it soundedless bourgeois.)

By then the Bauhaus was in full swing,but in 1928 Gropius left the school to devotemore time to his neglected architecturalpractice. He and Ise settled in Berlin, wheretheir home became a hub for the avant-garde. After the Nazis came to power, hiscommissions dried up (Ise, meanwhile, be-gan a relationship with a former Bauhäus-ler, the graphic designer Herbert Bayer).The school suffered, too. Gropius had triedhard to keep politics out of art, but the Na-zis were increasingly hostile to the Bau-haus, branding its output degenerate.Starved of funds, it closed in 1933.

Germany’s loss proved the world’s gain.In 1934 Gropius moved to London, but hefound the artistic climate uncongenial.Soon he was offered the chairmanship of anew graduate architecture programme atHarvard, where he made a deep impressionon a generation of students. After the sec-ond world war, with a group of colleagueshalf his age, he started an architecturalpractice which was to become America’slargest and gave him the chance to designmany striking buildings. He spent the lastfew years of his life burnishing the story ofthe Bauhaus and managing its legacy.

Ms MacCarthy, who has previously pub-lished books on William Morris and Ed-ward Burne-Jones, among others, met Gro-pius (and Ise) decades ago and determinedthat one day she would write his biography.She eventually got round to it in time forthe Bauhaus’s 100th birthday this year. Theresult is a riveting book about a man whonurtured a vastly ambitious projectthrough extraordinary times. 7

Architecture

Haus style

Gropius: The Man Who Built the Bauhaus.By Fiona MacCarthy. Belknap Press; 560pages; $35. Published in Britain as “WalterGropius: Visionary Founder of the Bauhaus”;Faber & Faber; £30

Gropius in excelsis

80 Books & arts The Economist April 13th 2019

1

Sarah and David are theatre students ata performing-arts high school, prepar-

ing for “exceptional lives”. From the firstpage of Susan Choi’s twisting novel, theyare connected by a hot wire of desire. Thestage seems set for a classic tale of younglove. But nothing is as it seems in this artis-tic hothouse. Immediately, the story shifts:their teacher, Mr Kingsley, emerges as aPied Piper, seductive and dangerous.

“Of the Trust Exercises there were seem-ingly infinite variations,” Ms Choi writes.Mr Kingsley sets students groping in thedark, or falling into waiting arms, to learnan attitude of openness. Again and again,the youngsters are raked raw, their emo-tions deconstructed in the name of Art. Inthe course of this obsessive, repetitive ex-amination, their lives begin to unravel.

Ms Choi’s novels have won praise fortheir blend of exceptional prose and pro-pulsive storytelling. Her previous book,“My Education”, was a story of sexual ob-session; the limit of self-knowledge is a re-curring theme in her fiction. “Trust Exer-cise”, her fifth novel, focuses on trust andits abuse—particularly between predatorymen and teenage girls. But her vision ismuch broader than the politics and recrim-inations of #MeToo.

As the narrative unfolds, it becomesclear that it, too, is a “trust exercise”. Read-ers place themselves in this gifted author’shands, only to be yanked, sometimes viol-ently, in unexpected directions. Each of thethree sections initially jars, as perspectivesshift and splinter. Yet for all the dramaticreversals, this is not a straightforwardthriller. The real pleasure of the novel liesin recognising the echoes that reverberatetowards its unsettling conclusion, and thequestions it raises about the truth of thestories people tell.

The author uses language brilliantly. Sa-rah and her friend do everything possibleto their hair, from bleach to perms, “as girlsdo when vandalising themselves seems thebest way of proving their bodies are theirs.”Descriptions of sex are powerfully real.“Then Sarah is naked”, Ms Choi writes, “andthe hot, slippery fit is accomplished.” She isan astute, forensic cartographer of humannature; her characters are both sympathet-ic and appalling. In the end, hers is a tale ofmissed connection and manipulation—and of willing surrender to the lure andperil of the unknown. 7

New American fiction

Dangerous games

Trust Exercise. By Susan Choi. Henry Holt;272 pages; $27. Serpent’s Tail; £14.99

On new york’s Upper West Side, astone’s throw from Central Park, Robert

Caro is in his office, writing. America’s bi-ographer-in-chief, now 83, is working onthe fifth and final volume of “The Years ofLyndon Johnson”, his seminal portrait ofthe 36th president. Cork boards displayingthe outline of this last instalment hang onan otherwise bare wall. In the next room,filing cabinets house hundreds of foldersof notes and interviews. The shelves in-clude several copies of “The Power Broker”,Mr Caro’s Pulitzer-winning biography ofRobert Moses, the “master builder” ofmid-20th-century New York.

His books trace the lives of towering fig-ures in American history. Both Moses andJohnson bent people and institutions totheir will through cunning, determinationand ruthlessness; both nurtured ambitionsthat inspired awe. They were supreme ma-nipulators with complicated motives. Mo-ses built New York’s parks, bridges and ex-pressways; but his schemes betrayedcontempt for minorities and the poor, de-stroying their neighbourhoods and ob-structing public transport. Johnson passedlandmark legislation on civil rights, educa-tion and health care. He also pushed Amer-ica deeper into war in Vietnam.

Yet Mr Caro’s method triumphantlytranscends such headlines. Few authorslavish attention on places and people as hedoes. His books are also about New York,Tammany Hall, the Senate, the Texas HillCountry, American individualism and,above all, political power, how it is wieldedand what it can achieve.

His latest book, “Working”, is a collec-tion of personal reminiscences. The jour-nalist-cum-historian is conscious of time,and of all the books he has yet to publish.How to make sure that the knowledge hehas acquired outlives him? “If it’s not pre-served between the covers of a book,” MrCaro reckons, “it’s gone.” In the course ofexplaining his reporting and writing pro-cess—which involves many longhanddrafts and a typewriter—he also charts hisown extraordinary life.

Mr Caro was a reporter for Newsday onLong Island when he began paying atten-tion to Moses. “The Power Broker”, a700,000-word epic, tells the story of a manwho shaped America’s biggest city overfour decades without ever being elected tooffice. Even now, 45 years after it was firstpublished, Mr Caro is counting the wordsthat were cut out. He mourns the would-have-been chapters on the city planningcommission; his own copy is marked upwith changes he still wishes he couldmake. “Cutting that book was really sort ofthe hardest thing I ever did,” he says, think-ing of the 350,000 words that never made itinto print. He speaks quietly when recall-ing these lost sections. Evidently their ab-sence pains him still.

After the success of “The Power Broker”,Mr Caro decided to think bigger. Whereashis book on Moses was a study in urbanpolitics, Johnson’s ascent to the White

Lives of the biographers

A master builder

Working. By Robert Caro. Knopf; 240 pages;$25. Bodley Head; £20

N E W YO R K

Robert Caro, America’s biographer-in-chief, reflects on his life and craft

The Economist April 13th 2019 Books & arts 81

2

Johnson Many and one

How to think about African-American English

America has always been full oflanguages, a fact that has been both a

source of pride and a cause for con-sternation. But there has long been afundamental misconception about oneof its distinctive tongues: the speech ofsome of the country’s black population,especially in highly segregated areas. Notonly is the nature of this dialect widelymisapprehended; often its speakers areliterally misunderstood by some of theirfellow citizens.

African-American English (aae), isnot a broken version of standard English,the mistake-filled attempts of someonetrying and failing to talk correctly. In-stead, it is like a cousin. It developedfrom the same roots, but in a differentdirection, born of unique circumstances.Enslaved people from various Africanbackgrounds took what they learned ofEnglish and made it their own. 

Centuries later, aae is a rule-bound,internally consistent dialect. In someways it is simpler than standard English.For example, it omits the -s on third-person singular verbs: I speak, you speak,she speak. But in some ways it is morecomplicated. She comin’ by my housemeans something different from She becomin’ by my house: the first is a one-offevent, the second is habitual. I been donethat means that I did something a longtime ago. Standard English can achievethese effects with adverbs, but aae in-tegrates them into the verb system itself.

Misplaced snobbery about the natureof aae is not the only problem. The dia-lect’s differences from the standard alsolead to dangerous confusion. TaylorJones, a graduate student in linguistics atthe University of Pennsylvania, carriedout a worrying study that found a groupof professional court reporters were ableto transcribe only 60% of aae sentences

Carolina tested aae speakers in secondgrade (roughly 7 years old) on theirmaths. He found that questions in-cluding the third-person-singular end-ing –s (he talks, which in aae is he talk)made the students 10% less likely toanswer correctly. Language is not justlanguage; it is the interface with otherkinds of knowledge. Such pupils arebeing judged as less capable than theyreally are.

A close linguistic analogy to aae isScots, which differs from standard Eng-lish to a similar extent. In its full form, itis at least as hard for outsiders to un-derstand. But in policymaking terms, itis not a useful comparator. Scots have ahomeland and a nationalist movement;they are not generally the subject ofdisparaging prejudice. 

It may be better to think of aae asposing the same challenges as a foreignlanguage, albeit in diluted form. Seeingthe problems some of its speakers face asessentially ones of translation might letpolicymakers appreciate and solve them.This does not mean providing courtroominterpreters for black speakers, or classestaught in aae. It means training courtstaff or teachers in the issues involved.

America is a diverse place, and stan-dard English is part of the glue that holdsit together. All the more reason to take alinguistically informed approach toteaching it. For example, classroomexercises similar to “translation” fromaae to standard English can help chil-dren master the standard, in a way thatshaming them for “mistakes” (in fact,correct aae) does not. The standard is notthe only kind of English there is. Para-doxical as it may seem, recognising thislinguistic diversity will help a dividedcountry approach the ideal of its motto: epluribus unum.

accurately, and 83% of the words. Asked toparaphrase what they had heard, they dideven worse: about 33% of utterances wereconveyed accurately. They are supposed toachieve a 95% accuracy.

Experienced court reporters did nobetter than newer ones, and black report-ers little better than the white ones. Blackparticipants explained their trouble withaae by saying that they (like many otherAfrican-Americans) didn’t “speak likethat”. Worse, both black and white courtreporters tended to assume the recordingswere from criminal court (they weren’t).That people associate aae with ignoranceand criminality is bad enough. Misun-derstanding aggravates the risk. No onecan get justice from a court that doesn’tknow what they are saying.

The miscommunication runs bothways. Adult black Americans who use aae

can easily understand standard English,from exposure in school, work and themedia. But youngsters from homes andneighbourhoods where aae predominatesare a different matter. In another study,Mike Terry of the University of North

House was a way to document power on thenational stage. The most delicious parts of“Working” are behind-the-scenes snippetsfrom interviews he conducted with asso-ciates of the president.

For example, when Mr Caro was search-ing for LBJ’s college classmates to decipherhow he acquired the nickname “Bull”(short for “Bullshit”) Johnson, he called upa Texan named Ella So Relle. Peeved at theintrusion, Ms So Relle asked why she wasbeing asked so many questions when theanswers were all printed in the college’syearbook for 1930. Mr Caro looked for the

pages she mentioned and found them to betorn out neatly from the binding.

A frantic drive to a second-hand book-store turned up more copies—with thesame pages missing. When he finallyfound an intact copy it was, as Ms So Rellehad said, “all there in black and white”:snide cartoons and drawings of Johnsondepicting how he had stolen campus elec-tions. It was that moment “of true revela-tion”, Mr Caro says, that led him to rethinkthe golden image of LBJ that others hadconveyed. He is animated as he recalls thediscovery, gesturing as if to slap his desk as

if he has just found the missing pages allover again. Fellow journalists will delightin such intrepid shoe-leather escapades.

In assessing Mr Caro’s long career, onething becomes obvious: he didn’t do italone. Each of his books is dedicated to hiswife Ina, and for good reason. When MrCaro spent all day, every day at the LBJ Pres-idential Library in Austin, Texas, Ina—anacclaimed author in her own right—siftedthrough documents two or three desksaway. The Caros sat at those tables, togeth-er but walled apart by towers of boxes andpapers, intent on turning every page. 7

Economic data

Gross domestic product Consumer prices Unemployment Current-account Budget Interest rates Currency units % change on year ago % change on year ago rate balance balance 10-yr gov't bonds change on per $ % change latest quarter* 2019† latest 2019† % % of GDP, 2019† % of GDP, 2019† latest,% year ago, bp Apr 10th on year ago

United States 3.0 Q4 2.2 2.3 1.9 Mar 2.2 3.8 Mar -2.5 -4.9 2.5 -28.0 -China 6.4 Q4 6.1 6.3 2.3 Mar 2.5 3.8 Q4§ 0.2 -4.5 3.2 §§ -42.0 6.72 -6.3Japan 0.3 Q4 1.9 1.0 0.2 Feb 1.4 2.3 Feb 3.9 -3.4 -0.1 -8.0 111 -3.4Britain 1.4 Q4 0.9 1.0 1.9 Feb 2.0 3.9 Dec†† -4.2 -1.6 1.1 -36.0 0.76 -6.6Canada 1.6 Q4 0.4 1.6 1.5 Feb 1.7 5.8 Mar -2.8 -1.4 1.7 -50.0 1.33 -5.3Euro area 1.1 Q4 0.9 1.3 1.4 Mar 1.4 7.8 Feb 3.0 -1.1 nil -55.0 0.89 -9.0Austria 2.4 Q4 5.1 1.3 1.5 Feb 1.8 5.0 Feb 2.0 -0.1 0.3 -46.0 0.89 -9.0Belgium 1.2 Q4 1.4 1.3 2.3 Mar 2.2 5.7 Feb 0.4 -0.9 0.4 -37.0 0.89 -9.0France 1.0 Q4 1.3 1.3 1.1 Mar 1.3 8.8 Feb -1.2 -3.4 0.4 -38.0 0.89 -9.0Germany 0.6 Q4 0.1 1.0 1.3 Mar 1.4 3.1 Feb‡ 6.6 0.8 nil -55.0 0.89 -9.0Greece 1.6 Q4 -0.4 1.8 0.9 Mar 0.9 18.0 Dec -2.5 -0.4 3.4 -58.0 0.89 -9.0Italy nil Q4 -0.4 0.1 1.0 Mar 0.9 10.7 Feb 2.1 -2.9 2.6 76.0 0.89 -9.0Netherlands 2.2 Q4 2.2 1.4 2.8 Mar 2.3 4.3 Feb 9.8 0.7 0.2 -47.0 0.89 -9.0Spain 2.4 Q4 2.2 2.2 1.4 Mar 1.2 13.9 Feb 0.8 -2.4 1.0 -18.0 0.89 -9.0Czech Republic 3.0 Q4 3.4 2.8 3.0 Mar 2.2 2.0 Feb‡ 0.4 0.7 1.8 4.0 22.8 -9.9Denmark 2.5 Q4 3.4 1.9 1.2 Mar 1.1 3.7 Feb 6.3 0.2 0.1 -48.0 6.64 -9.2Norway 1.7 Q4 1.9 1.9 2.9 Mar 2.3 3.9 Jan‡‡ 7.1 6.4 1.7 -22.0 8.51 -8.2Poland 4.5 Q4 2.0 3.8 1.7 Mar 1.7 6.1 Feb§ -0.6 -2.4 2.9 -13.0 3.80 -10.8Russia 2.7 Q4 na 1.5 5.3 Mar 4.9 4.9 Feb§ 6.5 2.4 8.3 59.0 64.4 -2.4Sweden 2.4 Q4 4.7 1.6 1.9 Feb 1.8 6.6 Feb§ 3.5 0.4 0.2 -45.0 9.28 -10.6Switzerland 1.4 Q4 0.7 1.8 0.7 Mar 0.7 2.4 Mar 9.8 0.5 -0.3 -28.0 1.00 -4.0Turkey -3.0 Q4 na 1.1 19.7 Mar 15.5 13.5 Dec§ -3.8 -2.3 17.4 403 5.70 -27.9Australia 2.3 Q4 0.7 2.6 1.8 Q4 2.0 4.9 Feb -2.2 -0.2 1.9 -77.0 1.40 -7.9Hong Kong 1.3 Q4 -1.4 2.2 2.1 Feb 2.3 2.8 Feb‡‡ 4.5 0.5 1.6 -29.0 7.84 0.1India 6.6 Q4 5.1 7.4 2.6 Feb 3.3 6.7 Mar -1.8 -3.4 7.4 -1.0 69.1 -5.9Indonesia 5.2 Q4 na 5.2 2.5 Mar 3.1 5.3 Q3§ -2.8 -2.2 7.7 104 14,150 -2.8Malaysia 4.7 Q4 na 4.5 -0.4 Feb 0.8 3.3 Jan§ 2.4 -3.4 3.8 -18.0 4.11 -5.8Pakistan 5.4 2018** na 3.4 9.4 Mar 7.8 5.8 2018 -4.2 -6.0 13.4 ††† 436 141 -18.2Philippines 6.3 Q4 6.6 5.9 3.3 Mar 4.4 5.2 Q1§ -2.2 -2.5 6.0 9.0 51.9 0.1Singapore 1.9 Q4 1.4 2.4 0.5 Feb 0.5 2.2 Q4 16.5 -0.6 2.1 -31.0 1.35 -3.0South Korea 3.2 Q4 3.9 2.4 0.4 Mar 1.6 4.3 Mar§ 4.6 0.5 1.9 -75.0 1,139 -6.3Taiwan 1.8 Q4 1.5 1.8 0.6 Mar 0.1 3.7 Feb 13.1 -1.2 0.8 -24.0 30.8 -5.3Thailand 3.7 Q4 3.3 3.5 1.2 Mar 0.9 0.8 Feb§ 8.8 -2.5 2.1 -31.0 31.8 -1.7Argentina -6.2 Q4 -4.7 -0.9 50.7 Feb 46.1 9.1 Q4§ -2.2 -3.4 11.3 562 43.1 -53.2Brazil 1.1 Q4 0.5 1.8 4.6 Mar 3.7 12.4 Feb§ -1.4 -5.8 7.1 -97.0 3.83 -10.7Chile 3.6 Q4 5.3 3.2 2.0 Mar 2.2 6.7 Feb§‡‡ -2.8 -1.4 3.9 -57.0 663 -9.2Colombia 2.9 Q4 2.4 3.1 3.2 Mar 2.9 11.8 Feb§ -3.5 -2.0 6.3 -11.0 3,096 -10.7Mexico 1.7 Q4 1.0 1.6 4.0 Mar 4.1 3.4 Feb -1.7 -2.3 8.0 70.0 18.8 -3.0Peru 4.8 Q4 11.4 3.7 2.2 Mar 2.2 9.0 Feb§ -1.6 -2.0 5.6 64.0 3.29 -1.5Egypt 5.5 Q4 na 5.1 14.2 Mar 12.1 8.9 Q4§ -0.1 -7.3 na nil 17.4 1.9Israel 2.8 Q4 3.0 3.1 1.2 Feb 1.2 4.1 Feb 2.7 -3.7 1.9 13.0 3.58 -2.2Saudi Arabia 2.2 2018 na 1.8 -2.2 Feb -1.1 6.0 Q4 2.7 -7.7 na nil 3.75 nilSouth Africa 1.1 Q4 1.4 2.2 4.1 Feb 5.0 27.1 Q4§ -3.0 -4.1 8.5 35.0 13.9 -13.4

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

84 The Economist April 13th 2019

Commodities

The Economist commodity-price index % change on2005=100 Apr 2nd Apr 9th* month year

Dollar IndexAll Items 139.8 140.2 1.5 -9.5Food 143.5 144.3 2.3 -9.5Industrials All 136.0 135.9 0.6 -9.5Non-food agriculturals 125.7 126.7 1.5 -10.2Metals 140.4 139.8 0.2 -9.2

Sterling IndexAll items 195.2 195.4 1.9 -1.7

Euro IndexAll items 155.4 154.6 1.5 -0.8

Gold$ per oz 1,290.6 1,304.9 0.6 -2.6

West Texas Intermediate$ per barrel 62.6 64.0 12.5 -2.3

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

Markets % change on: % change on:

Index one Dec 31st index one Dec 31stIn local currency Apr 10th week 2018 Apr 10th week 2018

United States S&P 500 2,888.2 0.5 15.2United States NAScomp 7,964.2 0.9 20.0China Shanghai Comp 3,241.9 0.8 30.0China Shenzhen Comp 1,779.3 0.4 40.3Japan Nikkei 225 21,687.6 -0.1 8.4Japan Topix 1,607.7 -0.9 7.6Britain FTSE 100 7,421.9 nil 10.3Canada S&P TSX 16,396.3 0.7 14.5Euro area EURO STOXX 50 3,424.7 -0.3 14.1France CAC 40 5,449.9 -0.3 15.2Germany DAX* 11,905.9 -0.4 12.8Italy FTSE/MIB 21,671.8 -0.4 18.3Netherlands AEX 561.9 0.1 15.2Spain IBEX 35 9,406.5 -0.9 10.1Poland WIG 61,556.5 -0.6 6.7Russia RTS, $ terms 1,262.5 3.1 18.4Switzerland SMI 9,556.3 -0.1 13.4Turkey BIST 97,015.0 2.7 6.3Australia All Ord. 6,316.5 -0.8 10.6Hong Kong Hang Seng 30,119.6 0.4 16.5India BSE 38,585.4 -0.8 7.0Indonesia IDX 6,478.3 nil 4.6Malaysia KLSE 1,639.5 -0.2 -3.0

Pakistan KSE 36,579.3 -3.8 -1.3Singapore STI 3,327.7 0.5 8.4South Korea KOSPI 2,224.4 1.0 9.0Taiwan TWI 10,868.1 1.5 11.7Thailand SET 1,662.1 0.8 6.3Argentina MERV 32,154.5 1.2 6.1Brazil BVSP 95,953.4 1.5 9.2Mexico IPC 44,909.1 3.6 7.9Egypt EGX 30 15,106.5 -0.6 15.9Israel TA-125 1,455.2 1.4 9.2Saudi Arabia Tadawul 9,077.2 1.0 16.0South Africa JSE AS 58,411.7 0.8 10.8World, dev'd MSCI 2,148.0 0.2 14.0Emerging markets MSCI 1,096.0 1.5 13.5

US corporate bonds, spread over Treasuries Dec 31stBasis points latest 2018

Investment grade 162 190High-yield 454 571

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

For more countries and additional data, visitEconomist.com/indicators

Economic & financial indicators

Which countries’ tax systems do the most to offset income inequality?

*Tax revenue as % of modified GNI Sources: IMF; OECD; Central Statistics Office Ireland

Effect of taxes and transfers on income Gini coefficientOECD countries, 2016 or latest

30 35 40 45 50

Greaterreductionin inequality

Smallerreductionin inequality

Gini coefficient (100=maximum inequality) higher inequality →← lower inequality

25

-20

-15

-10

-5

↓

↑

After taxesand transfers

Before taxesand transfers

Change in Ginicoefficient

EstoniaIsrael

Latvia

NewZealand

Lithuania

Switzerland

TurkeyMexico

Chile

Luxembourg

Portugal

Greece

Spain

Italy

Australia

Britain

Canada

Japan

UnitedStates

Czech Republic

Hungary

GermanyPoland

Netherlands

Finland

SloveniaBelgium

Denmark

France

Austria

Slovakia

Norway

Sweden

Iceland

South Korea

Ireland20 30 40 50 60

Government spendingv change in inequality2016 or latest

Change in Gini coefficientdue to taxes and transfers

-20

-15

-10

-5

0

Government spending as % of GDP

Ireland*

United States

SouthKorea

SwedenCanada

France

The Economist April 13th 2019 85

When people think about which richcountries have the least equal in-

come distributions, America often jumpsto mind. The country has a much smallerwelfare state than many of its Europeancounterparts, which suggests it does notredistribute much. But does it?

One common measure of income in-equality is the Gini coefficient. The indexranges from zero to 100. A score of zero im-plies that income is shared equally; 100 im-plies that one person scoops the lot. Bycomparing a country’s Gini coefficient be-fore and after taxes and transfers, a roughgauge can be created of how progressive (orregressive) its tax and benefit system is.

By this measure at least, America’s taxsystem is in fact fairly progressive. It doesroughly as much to reduce inequality asdoes Canada’s or Sweden’s (even thoughmost European systems do more). Whatdistinguishes America from those twocountries is that its pre-tax Gini coefficientis high, so that the government has to putin more work to level the playing field. Incontrast, countries with low pre-tax in-equality, such as South Korea, manage toachieve low post-tax inequality withoutdoing much by way of redistribution.

The difference in countries’ Gini coeffi-cients after taxes and transfers correlatesstrongly with the economic weight of gov-ernment. In France government spendingaccounts for 57% of gdp. America’s federal,state and local authorities spend just 35%.Although pre-tax inequality is almost ashigh in France as in America, the two coun-tries look very different after taxes.

Nordic countries are generally thoughtto be champion redistributors. But withinthe oecd, a club of mostly rich countries,

Ireland does most to slash inequality. Aftertaxes and transfers, Ireland’s income dis-tribution goes from the most skewed in ourchart to the middle of the pack. The rich paya higher share of income tax than in mostother countries, while low-earning house-holds receive generous tax credits.

Most countries would struggle to copythe Irish system in full. Part of the reasonIreland is able to do so much redistributionis that it relies more than most on taxespaid by multinational companies. Foreign-owned firms accounted for 80% of cor-porate tax in 2017. Cross-country data sug-gest that if America wanted to bring its lev-el of inequality down to the oecd average, itwould have to boost government spendingto 50% of gdp. That would require in-creases in taxes across the board—a highlyunlikely prospect. 7

America’s high inequality reflects grossincomes as much as its tax system

Net benefits

Tax and inequalityGraphic detail

Correction: In a story on British universities(“Money and meaning”, January 26th), wemislabelled the entry tariff for Hull University’smedical school as 123 points. It is in fact 184. Sorry.

86 The Economist April 13th 2019

At the heart of many a large and ambitious empire sits oneman who is not the ruler, though the ruler often listens to him;

and who runs no department, though his faithful followers arefound all through government. He is rarely seen in public, pub-lishes very little, avoids journalists, sits silently through meetings,and yet steers the country. For more than four decades, America’sversion of this inscrutable figure was Andrew Marshall.

He looked the part, small and benign, with a bald dome of ahead, wire-rimmed glasses and a bureaucrat’s bland suit. He alsoinhabited the part, hidden behind thick buzzer-locked doors in theinnermost A ring of the Pentagon in an office buttressed with pa-pers and books on every branch of knowledge. There from 1973 heran the Office of Net Assessment (ona), a tiny independent think-tank whose remit was to compare the capabilities of the UnitedStates and its enemies in weaponry, troop training, efficiency,spending, deployment, planning, decision-making, readinessand any other point of variance. These painstaking assessments,highly classified, sparingly distributed and compiled at a rate ofonly six a decade, gave America as much detail about its adversar-ies as could be had. Then it could plan how to counter them.

ona, as he set it up and ran it (originally at Henry Kissinger’s re-quest and in the nsc, but the Department of Defence was a muchneater fit) was not a problem-solving place for times of crisis. Likehim, it took the long view. Ten years ahead was his preferred span,with many longer backward reflections, influenced by his lifelonglove of Toynbee’s “A Study of History”, to see how states amassedpower and how, often foolishly, they lost it. He was no futurist, aword he disliked, since the non-rationality of humans, especiallyin war, made prediction impossible; if people wanted their fortunetold, they should visit a gypsy. And his office was not there to giveanswers, offer bland-bunkum analysis or follow Pentagon fads,but to ask the right questions and provide true information. After

that, there was only so much stupidity one man could prevent. For years all defence strategy centred on the Soviet Union, and

there his chief questions were: could it afford its military mach-ine? And was the government as ruthlessly monolithic as Ameri-can officials supposed? His assessments, contrary to the cia’s, an-swered no to both. (His estimate for the percentage of Soviet gdp

going to military spending was almost triple the spooks’, for whomhe had little time.) Once these facts were known, it made sense todeploy “competitive strategies”, borrowed from the business strat-egy he had studied at rand in the mid-1960s, and make the weakercompetitor overspend until it was driven out of the market. Hencethe b2 Stealth bomber programme, to force the ussr to moderniseits air defences, and Ronald Reagan’s strategic defence initiative(“Star Wars”), to strain to the utmost Soviet investment in its mis-sile shield. These had the desired effect even when merely talkedabout; they hardly needed deploying.

All this gave him a hawkish reputation, and certainly he hadconsorted with hawks at rand, where from 1949 he spent two de-cades considering the nuclear threat. Never having fought in a warhimself, since a heart murmur had kept him out of military service,he was shaken when, witnessing a nuclear test in the Nevada des-ert, he saw his bones through the palms of his hands. An arms racewas not just about weapons, but about psychology: let us show youwhat we could do to you. The Pentagon did not fully appreciate that.He did, because he spent hours each day reading anthropology,economics and behavioural studies as well as war books, and in-structed his recruits, whom he commissioned to write ona’s stud-ies, to do the same. To his trainees he was Yoda (the bald, benignJedi Master of “Star Wars”, whom he had never heard of) and theywere his Jedi Knights or alumni of “St Andy’s Prep”, sitting at hisfeet and, more usefully, lobbying fiercely for him when cutpurse orunpersuaded presidents tried to close ona down. Thanks to theseacolytes, as they moved on to think-tanks or government jobs, hekept his methods running through eight administrations.

Prominent among them was his seven-page memo, “SomeThoughts on Military Revolutions” of 1993. These were ideas hehad chewed on since the 1980s, on how advances in technology,coupled with operational changes, might radically alter warfareand sharpen America’s edge. As a free element in the Pentagon, dis-liking the grandiose talk of big platforms and one-or-two-theatrewars and the numbing inter-service rivalry, he relished a type ofcombat that would be nimbler and quicker, with sensor-fitted pre-cision weapons, robotic devices and it co-ordination betweenforces. This new thinking, the Revolution in Military Affairs, wasadopted in 2001 by the Bush administration, only to be sideswipedby 9/11; but his points remained, and permeated.

The terrorist attacks did not surprise him; America had beenwide open. What did surprise him—apart from the speed withwhich the ussr fell apart—was the Pentagon’s new fixation onfighting terror, jumping from crisis to crisis. His mind was still seton the long view and the next great-power rival, and from themid-1990s, too early for everyone else, he turned his gaze on China.Its sheer size implied that it must begin to compete for hegemony.As he had done with the Soviet Union, he watched its mindset andbureaucracy as well as its weapons, and ran war games encourag-ing officials to contemplate a sudden Chinese attack in the Pacific.Others thought that unlikely, but his question was: what if it did?

Appropriately for one so hidden, he revealed almost nothingabout his private life: his love of French food and sports, a firstmarriage that had lasted longer than his time in the Pentagon, anda flat in Alexandria even more piled with good reading than his of-fice in the A ring. Among all those books and papers, however,there was no laptop or iPad; e-mails were read to him, and he neverwent on the internet. For him the world of strategic threats was tac-tile and physical, a matter of geography and the clash of forces. Cy-berwarfare, of which he knew nothing, he left to the equally un-known master who, he hoped, would follow him. 7

Andrew Marshall, the Pentagon’s longest-serving militarystrategist, died on March 26th, aged 97

Ask the right question

Andrew MarshallObituary