INSIDE: A 14-PAGE SPECIAL REPORT ON WOMEN AND WORK
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9 The world this week 50 15 16 18 18 20 On the cover The single currency's collapse may be Looming: leader, page 15. Spain's new government: leader, page 18. Rajoy needs outside support, page 63. WiLl Angela Merkel act? Page 64. Denial and delusion in Brussels: Charlemagne, page 68. The euro crumbles, pages 81-83 . Concern about European banks: Buttonwood, page88
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Leaders The euro zone Is t his rea lly t he end ? The supercommittee fails Adowngrade fo r Congress Spain's election Big ma ndate, tig ht spot Egypt's turmoil The generals must go Shale gas Frack on Policing internet piracy Accessories after t he fa ct
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Briefing 33 International Criminal Court Cosy club or sword of righteousness? United States 39 The supercommittee Why it failed 40 The economy Fina lly, some good news 42 Gun control Have firearm, can travel 42 The Chicago River Reflected glory 43 Political fact-checking Fun at the FactFest 43 Drinking rules Behind t he Zion curtain 44 California's politics Help on t he way 46 Lexin gton Cutti ng defence
Fi rst published in Septe mbert843
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an unworthy. timfd ignoranceobstrucOng
our progress. n
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The Americas Politics in Brazil Cleaning th e pork facto ry Mexico's drug war Shifting sa nds Latin American integration Peaks and troughs Canada Asurfeit of MPs
Egypt The generals must go: leader, page 18. Gas masks and fury in Tahrir Square, page 57
Special report: Women and work Closing the gap After page 54 Middle East and Africa 57 Egypt's turmoil Chaos and its beneficiaries 58 Tunisia Isla mists and secu La ri sts 58 Libya's militias Hard to control 59 The Palestinians Coming together at last? 60 Human rights in Bahrain The king's bold move 60 Congo's election That sinking feeling 62 South Africa and secrecy Don't blow t he whistle
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64 64 65
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to take part in "a severe contest between ;nteWgence, w/1 ;cl• presses forward, and
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Letters 22 On the euro, shipping, toys, phrases, our obituary
The Economist online Daily analysis and opi nion from our 19 blogs, plus audio and video content, debates and a daily chart
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Asia Governing China Th e Guangdo ng model Movement in Myanmar Eye-rubbing Afghanistan's economy Investi ng or a-whoring? Pakistan's "memogate" As you were Indonesia's reforms Unholy mudd le Banyan Justice tried and fo und wantin g
66 66 68
Europe The Spanish election Manana belongs to Mariano Merkel and the euro The new iron chancellor France and automation Driverless, workless Turkey and human rights Home and abroad Hungary's economy Pla net Orba n Poland's government Tusk sharpe ns up Charlemagne The sinking euro
America's supercommittee By failing to agree on measures to limitthe deficit, the politicians have failed their country: leader, page 16. Fiscal policy's dangerous direction, page 39. Good, if transitory, economic news, page 40. The sword hanging over t he Defence Department: Lexington, pa ge 46
Piracy law Toug h pena lties for piracy are needed, but a proposal in America's Congress could hit law-abiding businesses: leader, page 21. The Stop Online Piracy Act, page 73
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Contents continues overleaf
69 70 71 71
GuangdongvChong~ng
Competing models in Chinese provinces, page 50
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International 73 Online piracy Rights and wronged 74 Islam and comedy Two mullahs go into a bar...
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76 Secrets of Jim Collins's success The rna nagem ent guru who has stayed atthetop by practising what he preaches: Schum peter, page 80
Britain The economy Autumn leaves falling Reviving manufacturing No land of giants The Leveson inquiry Celebs' revenge Thomas Cook Atour operator's travails Bagehot David Cameron, toxic Tory
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78 79 80
Business Shale gas in Europe and America Two attitudes to frac king Bullets and business in Mexico A"green zone" for firms in Jua rez Oubai's air show The travel boom boos ts Boei ng and Airbus E-commerce in China The great lea p online Indian business Tata's magical Mistry tour Schumpeter The secrets of Ji m Colli ns's success
Briefing 81 The euro Beware of falli ng masonry House prices The bursting of the global housing bubble is only halfway through: Economics focus, page 90
Finance and economics 85 India's currency Rupee and the bears 86 American tax law Fund manage rs beware 87 Japan's stock exchanges Merging, slowly
87 Baltic banks Red litas day 88 Buttonwood Gloo m descends 90 Economics focus House of horrors, part 2
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93 93
Sdence and technology Sdence in Japan Where rats and robots play Mars exploration How to Land a Mini on Mars Climate change Good news at last? AIDS Get your act together, guys Infantile anaemia Blood simple
Women and work Women have made huge progress in the workplace, but theystillget lower pay and farfewertop jobs than men. Our special report asks why, after page 54 Prind pal commercial offices: 25 St James's Street, London SWlA 1HG Tel: 020 7830 7000
Books and arts 95 New fiction from Japan Ablack cat, two moons 96 Cesar Chavez and the UFW Trampling out the vintage 96 Artists and photographers Point and paint 97 Chinese export porcelain Treasu re trove 98 Novels from Argentina The price of love Economic and finandal indicators Statistics on 42 economies, stockmarkets and commodities prices, plus a closer loo k at pharmaceutical spending Obituary 106 George Daniels The magic watchmaker
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9
Politics
Big protests erupted in Cairo and other cities, with calls for the generals who have run Egypt since Hosni Mubarak's fall in February to hand over to civilians. Some 40 people were killed by the security forces. The ruling military council said that parliamentary elections due to begin on November 28th would go ahead, and that presidential elections would be held by July. A report by the Bahrain Independent Commission of Inquiry said the authorities had used "excessive force" in a crackdown earlier this year against pro-democracy protesters, most of them from the Shia majority. King Hamad al-Khalifa, a Sunni, said that officials who had abused their power would be sacked. Saif al-Islam Qaddafi, the son and heir of Muammar Qaddafi, was caught in southern Libya. So, separately, was the late dictator's intelligence chief, Abdullah al-Senussi. Both are wanted by the International Criminal Court, which has apparently agreed that they might face trial in Libya.
Penalty to Brazil Brazil's environmental regulator fined Chevron, an American oil company, $28m and suspended its drilling rights over an oil spill from an offshore well earlier this month. Chevron said it had stopped the seepage within four days and had complied with the terms of its licence. Gunmen apparently hired by ranchers killed a chief from the Kaiowa-Guarani Indian tribe in the Brazilian state of Mato Grosso do Sul. Enrique Peiia Nieto, who leads opinion polls for Mexico's presidential election next July, was guaranteed the nomination of the formerly ruling Institutional Revolutionary Party, after his only rival, Senator Manlio Fabio Beltrones, dropped out. Haiti's president, Michel Martelly, announced that he would setup a civilian committee to study whether or not to revive his country's army, which was disbanded in 1995.
What a surprise The "supercommittee" on America's budget deficit admitted defeat in Congress. The panel was set up in August to thrash out a bipartisan agreement to reduce the deficit. Its failure to do so triggers automatic spending cuts of $L2 trillion, to start in 2013. But arguments have already begun about how "automatic" the cuts should be, with some Republicans pressing for the Pentagon to be spared.
Brought to justice A special UN-backed court in Cambodia began to try the three most senior living leaders of the Khmer Rouge on genocide charges. The three men, who include Nuon Chea, "Brother Number Two", are the only members of the regime deemed fit to stand as defendants. At the trial's opening they justified their reign of terror in the context of the historical threat posed by Vietnam, and denied the charges outright. South Korea's national assembly ratified a free-trade agreement with the United States, four years after the two countries first signed the deal and a month after it was approved by Congress. Despite a projected boost to the Korean economy and, the prospect of closer ties with America at a time of worsening relations with North Korea, the agreement was strongly resisted by the opposition. One assembly member disrupted the vote by letting off a tear-gas canister. Pakistan's ambassador to the United States was forced to resign, amid allegations that he was behind a memo pledging to eject senior soldiers close to the Tali ban in Pakistan, in exchange for American help in preventing any potential coup. Aung San Suu Kyi's National League for Democracy party said it would participate in Myanmar's forthcoming by-elections. Last year the party boycotted Myanmar's first general election in two decades.
Yemen's president, Ali Abdullah Saleh, at last signed an agreement brokered by the Gulf Co-operation Council, saying that he would stand down and hand power to his vice-president. South African MPS passed a controversial media secrecy bill, which the government says is needed to protect state secrets and safeguard national security. Critics say it will curb freedom of speech.
as the most recent "anyonebut-Romney" favourite in the party, surprised many by calling for a partial amnesty for illegal immigrants who have lived in America for a long time and paid taxes.
The latest Republican presidential candidates' debate focused on national security. Newt Gingrich, who has vaulted into the lead in some polls
Julia Gillard, the prime minister of Australia, scored a political victory when the lower house of parliament passed the controversial Minerals Resource Rent Tax, which will subject mining companies to a higher levy on annual
profits. Australia's upper house is expected to pass the law early next year and the tax should then come into force on July 1St.
Hard work ahead Spain's general election was won by the opposition centreright People's Party, led by Mariano Rajoy. The ruling Socialists suffered their worst rout at the polls since the return of democracy to Spain in 1975. Mr Rajoy has an absolute majority, but will not take office for a month. Although he promises austerity and reform, nervous markets sent Spanish bond yields higher. In its latest efforts to solve the euro crisis the European Commission set out options for Eurobonds and for more intrusive control of national governments' budgets. But Angela Merkel yet again rejected the idea of Eurobonds. Hungary turned to the IMF for a precautionary credit line. The government of Viktor Orban had previously ruled out any such course. Elio di Rupo, the politician charged with forming a Belgian government, submitted his resignation after failing to strike a deal on next year's budget. Belgium has been without a new government since an election in June 2010.
Vladimir Putin, who plans to return as Russia's president next year, got a surprise when a crowd booed as he entered a mixed martial arts ring to congratulate the winner of a fight. Officials, who tightly control Mr Putin's crafted public appearances, at first suggested that the boos were aimed at the fighters.
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10 T e wor
t 1s wee
Business The crisis in the euro zone intensified as banks struggled to obtain credit in the markets, forcing more of them to borrow from the European Central Bank. Bond yields maintained near-unsustainable levels on Italian and Spanish government debt and crept up for other countries, notably Belgium and France. In another worrying sign Germany managed to sell only 6o% of ten-year Bunds it issued at an auction, though the low yield of 1.98% may have been a factor in turning off investors. Exam time
The Federal Reserve issued its final rules for a second round of stress tests at America's biggest banks. The banks must assess whether they can maintain a Tier-1 capital ratio of 5% under a hypothetical economic scenario that includes America's unemployment rate reachingt3%. The six biggest banks will also have to demonstrate that they can withstand a severe global financial shock similar to the scale of that in 2008, but with the addition of a financial meltdown in Europe. The Federal Deposit Insurance Corporation reported that American banks turned a collective net profit of $35 billion in the third quarter, a rise of 48% from the same quarter in 2010. The banks increased their income by putting less money aside to cover bad loans, rather than expanding lending. The Tokyo Stock Exchange said it would merge with the Osaka Securities Exchange, which focuses on derivatives, in January 2013, creating the world's third-biggest bourse. Sceptics wonder if the new company will be an effective international player among the other big exchanges. The American economy didn't perform quite as well in the third quarter as had been thought. GDP grew by an annual rate of 2%, rather than
T e Econom1st Novem er 26t 2011
the 2.5% that was released in an official first estimate. Meanwhile, data showed unemployment falling in 36 states in October, and rising in just five. Nevada's unemployment rate, at13-4%, is still the highest.
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Indian rupee against the dollar
Inverted scale 44
46 48
50 52 L---~----~--~54
Sep
Oct
Nov
2011 Soufte: Thomson Re-uters
The Indian rupee fell to a record low against the dollar. The currency has depreciated rapidly in the past three months, amid doubts about the strength of India's economy and a slump in foreign investment. There's gas in them there hills
A consortium led by Kohl berg Kravis Roberts agreed to buy most of Samson Investment, a privately held oil and gas exploration firm, for $7.2 billion. It is one of the biggest leveraged buy-outs since the start of the financial crisis. Samson owns drilling rights in several shale-gas formations, including in North Dakota.
Groupon's shares took a battering, falling well below the price of $2o a share the internet company set at its initial public offering earlier this month. It floated only a small portion of its stock, making it more vulnerable to price volatility, but questions linger about Group on's competitiveness in the crowded market for discounting online. Nokia Siemens Networks said it would cut 17,000 jobs. The network-equipment maker is restructuring its business to focus more on broadband infrastructure. Gilead Sciences, a drugs company best known for its treatments for HIV, said it would buy Pharmasset, which develops drugs to combat viral infections, in an $11 billion deal. Pharmasset has no medicines on the market, but is working on new products for people with hepatitis c that can be taken as a single shot, rather than the several daily medications that are currently required. Merck reached a settlement with the American government over Vioxx, its blockbuster painkiller that was pulled from the market in 2004 because it was found to in-
crease the risk of heart attacks and strokes. The drug company is to pay a $322m fine and a further $628m to conclude civil charges. It agreed to plead guilty to a misdemeanour related to the marketing of Vioxx to doctors. Merck has already paid out $4.9 billion to settle lawsuits from patients. It emerged that James Murdoch has stepped down from the boards of the subsidiaries that operate News Corporation's British newspapers. Mr Murdoch, who faces questions from a parliamentary committee about his previous testimony on phone hacking, remains chairman of News International, News Corp's British newspaper division. No fun in the sun
Thomas Cook, a travel company, saw its share price collapse after it sought to negotiate a second round of debt financing within a month and delayed the publication of its annual results. The company, which can trace its British roots to1841. when its eponymous founder transported people to temperance rallies, is struggling at the cheaper end of the European holiday market. Other economic data and news can be found on pages 104·105
MY,BR!JTHERS IN !HE AA.A'P Lf.AGUE .ACCUSE:!) ME Of' VIOLENT
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Is this really the end? Unless Germany and the ECB move quicldy, the single currency's collapse is looming VEN as the euro zone hurtles E towards a crash, most people are assuming that, in the end, European leaders will do whatever it takes to save the single currency. That is because the consequences of the euro's destruction are so catastrophic that no sensible policymaker could stand by and let it happen. A euro break-up would cause a global bust worse even than the one in 2008-09. The world's most financially integrated region would be ripped apart by defaults, bank failures and the imposition of capital controls (see pages 81-83). The euro zone could shatter into different pieces, or a large block in the north and a fragmented south. Amid the recriminations and broken treaties after the failure of the European Union's biggest economic project, wild currency swings between those in the core and those in the periphery would almost certainly bring the single market to a shuddering halt. The survival of the EU itself would be in doubt. Yet the threat of a disaster does not always stop it from happening. The chances of the euro zone being smashed apart have risen alarmingly, thanks to financial panic, a rapidly weakening economic outlook and pigheaded brinkmanship. The odds of a safe landing are dwindling fast.
Markets, manias and panics Investors' growing fears of a euro break-up have fed a run from the assets of weaker economies, a stampede that even strong actions by their governments cannot seem to stop. The latest example is Spain. Despite a sweeping election victory on November 2oth for the People's Party, committed to reform and austerity, the country's borrowing costs have surged again. The government has just had to pay a 5.1% yield on threemonth paper, more than twice as much as a month ago. Yields on ten-year bonds are above 6.5%. Italy's new technocratic government under Mario Monti has not seen any relief either: ten-year yields remain well above 6%. Belgian and French borrowing costs are rising. And this week, an auction of German government Bunds flopped. The panic engulfing Europe's banks is no less alarming. Their access to wholesale funding markets has dried up, and the interbank market is increasingly stressed, as banks refuse to lend to each other. Firms are pulling deposits from peripheral countries' banks. This backdoor run is forcing banks to sell assets and squeeze lending; the credit crunch could be deeper than the one Europe suffered after Lehman Brothers collapsed. Add the ever greater fiscal austerity being imposed across Europe and a collapse in business and consumer confidence, and there is little doubt that the euro zone will see a deep recession in 2012-with a fall in output of perhaps as much as 2%. That will lead to a vicious feedback loop in which recession widens budget deficits, swells government debts and feeds popular opposition to austerity and reform. Fear of the consequences will then drive investors even faster towards the exits. Past financial crises show that this downward spiral can be
arrested only by bold policies to regain market confidence. But Europe's policymakers seem unable or unwilling to be bold enough. The much-ballyhooed leveraging of the euro-zone rescue fund agreed on in October is going nowhere. Euro-zone leaders have become adept at talking up grand long-term plans to safeguard their currency-more intrusive fiscal supervision, new treaties to advance political integration. But they offer almost no ideas for containing to day's conflagration. Germany's cautious chancellor, Angela Merkel, can be ruthlessly efficient in politics: witness the way she helped to pull the rug from under Silvio Berlusconi. A credit crunch is harder to manipulate. Along with leaders of other creditor countries, she refuses to acknowledge the extent of the markets' panic (see page 64). The European Central Bank (ECB) rejects the idea of acting as a lender of last resort to embattled, but solvent, governments. The fear of creating moral hazard, under which the offer of help eases the pressure on debtor countries to embrace reform, is seemingly enough to stop all rescue plans in their tracks. Yet that only reinforces investors' nervousness about all euro-zone bonds, even Germany's, and makes an eventual collapse of the currency more likely. This cannot go on for much longer. Without a dramatic change of heart by the ECB and by European leaders, the single currency could break up within weeks. Any number of events, from the failure of a big bank to the collapse of a government to more dud bond auctions, could cause its demise. In the last week of January, Italy must refinance more than €30 billion ($40 billion) of bonds. If the markets balk, and the ECB refuses to blink, the world's third-biggest sovereign borrower could be pushed into default.
The perils of brinkmanship Can anything be done to avert disaster? The answer is still yes, but the scale of action needed is growing even as the time to act is running out. The only institution that can provide immediate relief is the ECB. As the lender of last resort, it must do more to save the banks by offering unlimited liquidity for longer duration against a broader range of collateral. Even if the ECB rejects this logic for governments-wrongly, in our viewlarge-scale bond-buying is surely now justified by the ECB's own narrow interpretation of prudent central banking. That is because much looser monetary policy is necessary to stave off recession and deflation in the euro zone. If the ECB is to fulfil its mandate of price stability, it must prevent prices falling. That means cutting short-term rates and embarking on "quantitative easing" (buying government bonds) on a large scale. And since conditions are tightest in the peripheral economies, the ECB will have to buy their bonds disproportionately. Vast monetary loosening should cushion the recession and buy time. Yet reviving confidence and luring investors back into sovereign bonds now needs more than ECB support, restructuring Greece's debt and reforming Italy and Spain-ambitious though all this is. It also means creating a debt instrument that investors can believe in. And that requires a political bargain: financial support that peripheral countries need in exchange for rule changes that Germany and others demand. ••
16 Leaders ~
The Economist November 26th 2011
This instrument must involve some joint liability for government debts. Unlimited Eurobonds have been ruled out by Mrs Merkel; they would probably fall foul of Germany's constitutional court. But compromises exist, as suggested this week by the European Commission (see Charlemagne). One promising idea, from Germany's Council of Economic Experts, is to mutualise all euro-zone debt above 6o% of each country's G DP, and to set aside a tranche of tax revenue to pay it off over the next 25 years. Yet Germany, still fretful about turning a currency union into a transfer union in which it for-
ever supports the weaker members, has dismissed the idea. This attitude has to change, or the euro will break up. Fears of moral hazard mean less now that all peripheral-country governments are committed to austerity and reform. Debt mutualisation can be devised to stop short of a permanent transfer union. Mrs Merkel and the ECB cannot continue to threaten feckless economies with exclusion from the euro in one breath and reassure markets by promising the euro's salvation with the next. Unless she chooses soon, Germany's chancellor will find that the choice has been made for her. •
The supercommittee fails
A downgrade for Congress By failing to agree on measures to limit the deficit, America's politicians have failed their country
I
US debt held by the publk %of GOP
WAS not a very ambitious InalTtarget. All that the congressio"supercommittee" was re-
quired to do was to figure out a list of measures that would reduce America's budget deficits 1111111111llll'ili11ii by $1.2 trillion over the next ten 2000 OS 10 15 20 years. That sounds a lot, until you realise it is only o.6% of GOP, not even a quarter of the $5 trillion or so that is really needed to right the books in Washington, and less than 3% of the $44 trillion that the federal government is expected to spend over that period. To reach a goal that a business cost-cutter would regard as desultory, the bipartisan committee of 12 senators and congressmen was accorded exceptional powers. Its work was to be subject to a simple up-or-down vote, with no possibility of amendment; and the Senate would not be able to use its power to filibuster. Yet on November 21st, after three months of deliberation, the team was forced to admit that it had failed. On paper this failure might not seem to matter very much. Supposedly, spending cuts equivalent to the same $1.2 trillion figure will now automatically be triggered, starting in 2013, with $6oo billion hacked out of the defence budget (see Lexington) and the other $6oo billion coming from other nonmandatory categories of spending, including education, housing and environmental protection. But in reality the failure is deeply alarming, for several reasons. First, it shows that Republicans and Democrats, even when offered the best possible conditions for dealmaking, can't do it. The Democrats refused to consider structural reforms to the big entitlement programmes (Medicare, Medicaid and Social Security). The Republicans refused to countenance anything that would see tax rates rise, even though no sensible analyst believes that the deficit (running at 8.5% this year) can be closed to a sustainable level by spending cuts alone, and even though ruling out any tax rises, even for people making more than $250,000 a year, is difficult to justify. Though a few interesting proposals were floated, suggesting that the Republicans were not totally immune to getting rid of loopholes (as long as any rate increases for the rich were off the table), they never came close to enjoying majority support. Until the political mood changes dramatically, it is impossible to see Congress tackling the deficit successfully-a process which will require reductions (through a combination of revenue increases and
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spending cuts) to the tune of four times what the supercommittee has just failed to deliver. Second, the past few months have confirmed even more strongly the near-irrelevance of the president. A Ronald Reagan or a Bill Clinton would have been much more effectively engaged in twisting arms and, where necessary, dispensing favours. Barack Obama remained damagingly aloof throughout the supercommittee's fruitless deliberations. This should not have been surprising, given his lamentable failure a year ago to endorse the effective and brave conclusions of the BowlesSimpson deficit commission that he personally appointed. But it does not bode well for the future-assuming that he has one, and is not turfed out of office in a year's time. Third, this week's collapse sets up a nasty fiscal shock, to be administered in just five weeks' time. At the end of this year a temporary cut in the payroll tax is due to expire; so, too, are the extended unemployment benefits which are all that stand between millions of Americans and destitution. Folding an extension of these measures into the supercommittee n egotiation was the best hope of preventing what could amount to around at least 2% of fiscal tightening next year. The chances of avoiding that tightening now look grimmer. Finally, it is now clear that an almighty budget row will have to take place towards the end of next year, in the run-up to and immediately after the presidential election on November 6th. Congress will be trying to undo the supposedly automatic budget cuts it agreed to only in order to make it impossible for the supercommittee to fail: Mr Obama has said he will veto any such attempt. At the same time, the Bush-era tax cuts are set to expire, threatening a sharp tax rise for all income-tax payers, rich and middle-class alike, unless some sort of deal can be done. Expect more destabilising brinkmanship, just like the sort that attended the debt-ceiling crisis in the summer. The not-so-bright side There is, however, a last consideration. One reason why the supercommittee failed is that it felt no real sense of urgency. America is not Italy: this week, its ten-year government bonds were trading at a yield of well below 2%, the lowest levels for over half a century; as the euro moves towards disintegration, the attractions of Treasury bonds will only increase. But even that silver lining has a cloud: the corollary of this observation is that it will probably take a genuine, terrifying, American bond crisis to force the politicians to act. •
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The Economist November 26th 2011
18 Leaders Spain's election
Big mandate, tight spot The new government in Madrid needs to claw back some powers from the regions ··~~~~~
NO
WONDER that, even in his moment of triumph, Mariano Rajoy seemed impatient with the jubilant celebrations by supporters of his conservative People's Party. On November 2oth Mr Rajoy led the PP to an absolute majority in the Spanish parliament with the biggest margin of victory since 1982 (see page 63). He did so despite (or perhaps because of) his promise to be more rigorous than the outgoing Socialist government of Jose Luis Rodriguez Zapatero in imposing austerity to keep Spain in the euro zone. Yet Mr Rajoy knows that, with the markets in a eurofunk and bond yields at eye-watering highs, mere promises count for little. His victory was in part a tribute to the dogged persistence and quiet moderation of a man who has led his party for eight years. But it owed more to Spaniards' rejection of his predecessor. Mr Zapatero will be remembered for liberalising measures, such as on gay marriage and abortion, that helped to make Spain a more modem, tolerant place. But he was slow to see that a housing bubble masked a loss of competitiveness, and slower still to react to the crash. His political frivolity was summed up by his decision in July to call an early election on a drawn-out timetable that keeps him in office untiJ next month. Mr Rajoy looks to be made of sterner stuff. His first task will be to make bigger spending cuts to meet fiscal targets agreed on with the European Commission. But austerity alone will not cut Spain's horrendous unemployment rolls (close to smstrong, with more than 45% of youngsters out of work). The test facing the new government is how to get back to growth. One answer is to complete the clean-up of the banks to get credit flowing again. Another is to cut unhelpful regulation. Mr Zapatero merely
tinkered with a dysfunctional labour market, in which the difficuJty of firing incumbents deters hiring and binding national agreements decree unaffordable wage rises. Mr Rajoy has rightly promised comprehensive reform. Growth is also held back by red tape. Much of this stems from Spain's exaggerated decentralisation. The democratic constitution's creation of 17 autonomous regions tried to reverse Franco's heavy-handed centralisation, while keeping enough national control to satisfy the right, long nervous about self-government of Basques, Catalans and Galicians. In fact it has led to waste in public spending and to 17 sets of business regulations, fragmenting the national market and increasing costs. And it has failed to settle Spain's historic quarrels: Basque and Catalan nationalists have exploited their status as coalition partners of the two main parties to demand ever more powers. One country-or 17? Mr Rajoy's absolute majority in parliament plus his party's control over many of Spain's regions could allow him to start rolling back this trend. He should be cheered that a new centrist group which split from the Socialists in protest over Mr Zapatero's toadying to the regions took almost s% of the vote. Although Basque separatists, boosted by the end of ETA's terrorism, and Catalan n ationalists also did well, one lesson of the euro crisis applies also at home: too much splintering makes governing an economic union harder. For all Mr Zapatero's dilatoriness, Spain has taken more decisive action than Italy to tackle the budget deficit. Unlike Italy and Greece, it now has a new government with the freshenergy provided by a thumping democratic mandate. Mr Rajoy knows that the euro's survival depends on Germany summoning up the political will: it was no coincidence that he was soon on the phone to Angela Merkel. But the more decisive he is at home, the stronger will be his case for foreign backing. •
Egypt's turmoil
The generals must go The general election in Egypt must go ahead, and the generals must get out fast
OT since revolution erupted nearly a year ago has the Arab world been in such turmoil. Tunisia, where it all began, is going well enough (see page sS). But in Libya the triumphant militias that toppled Muammar Qaddafi and recently seized his son and heir urgently need a democratic bridle (see page 58). In Syria the fate of democracy hangs in the balance, though its tyrant, Bashar Assad, is on the defensive. Chaotic Yemen's embattled dictator has again promised to step down. And in Egypt, the army and young protesters are once more clashing
N
violently in Cairo's Tahrir Square (see page 57). Egypt, above all, must not fail. It is the biggest Arab prize by virtue of history, geography and population, now more than 8sm-strong. It is the seat of the rejuvenated 22-country Arab League. It should be the Arabs' breadbasket and economic motor. It was the first Arab country to make peace with Israel and has been America's most stalwart Arab ally. If Egypt's surge of people power is reversed, the whole of the Arab world might sink back into authoritarianism. If it is sustained, the desire for change might prove irresistible elsewhere. So Egypt's recent bad news is particularly worrying, just as the country prepares for a general election starting on November 28th that was to mark a crucial step towards democracy. ~~
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The Economist November 26th 2011
20 Leaders ~ After
Hosni Mubarak fell in February, Egyptians widely if reluctantly accepted that a bunch of generals, led by Mr Mubarak's long-serving 76-year-old defence minister, Field-Marshal Muhammad Hussein Tantawi, should take charge while steering the state towards democracy. Since then, however, the generals' Supreme Council of the Armed Forces (SCAF) has made a hash of just about everything. It has stymied every effort towards economic reform, deterring investors and letting the country slide more deeply into penury and debt. It has entirely failed to reflect the spirit of democratic change. It has been overhasty and undemocratic in amending the constitution, albeit that in March a large majority of Egyptians endorsed the changes it proposed. It has sought to reimpose discipline and end the protesters' sometimes chaotic exuberance on the streets, using military tribunals and long-hated emergency laws. It has tried to slip additional pre-emptive clauses into the constitution that would give the armed forces an entirely unwarranted position of political power, protecting their economic privileges and keeping the defence budget secret. It was this last mistake that prompted Egypt's democrats in the past week to take again to the streets across the country at a cost of 40-odd dead and more than 1,000 injured. SCAF v square, secular v Islamist Field-Marshal Tantawi has tried to end the upheaval by promising to appoint a new caretaker government, to ensure that the elections go ahead on November 28th, and to speed up the snail's-pace electoral and constitution-making timetable, so that a new president can be elected at the latest by July. But his
proposal falls short because it fails, yet again, to guarantee that the armed forces will retire from poHtics and forgo their special privileges. It also leaves emergency laws and military tribunals intact. Instead, the SCAF should give way to a government chosen from the new parliament. The field-marshal has become a symbol of the army's resistance to change rather than a source of stability. He should therefore step down immediately after the elections. This will be too drastic for some. Many in the West think it would be better if the generals hung on for a while, rather than give way to a populist government under Islamist influence that would-they say- subvert the cause of democracy in due course. They note bleakly that the Muslim Brothers seem determined that the elections should go ahead without delay, since they may well win them. The democratic enthusiasts thronging Tahrir Square do not necessarily speak for all the people, many of whom are conservative and authoritarian. But the choice is not between soldiers and mullahs. Egyptians need not be caught in a vice between bloody-minded anti-democratic generals on the one hand and bogus-democratic Israel-hating Islamists on the other. There is a good chance that, as in Tunisia, Islamists will play by democratic rules, and influence but not dominate the polity. Anyway, even if the revolution could be suppressed, the lesson from the stultifying rule of Mr Mubarak and his fellow autocrats is that blocking the Brothers is a surer recipe for trouble than letting them into government. Democracy was never going to arrive swiftly, and perfectly formed, in the Arab world. Pursuing it is a risk; but it is one that Egypt, and its neighbours, must take. •
Shale gas
Fracl< on People should worry less about £racking, and more about carbon
AT A recent shindig in London f i of the shale-gas industry, energy firms gave a rosy view of the fuel's prospects in Europe. Like America, Europe has vast beds of shale rock, in which innumerable bubbles of natural gas are trapped. By cannoning water, sand and chemicals at them, a process known as hydraulic fracturing, or "fracking", the bubbles can be released. This, the firms said, could bring Europe the same bonanza of cheap gas and new jobs in the industry that America is now enjoying (see page 75). It would also lessen Europe's irksome dependence on Russian gas. Outside the venue, meanwhile, protesters chanted, "Flaming water from our tap, we don't want this fracking crap." They referred to fears that fracking can cause contamination of aquifers by the methane and naturally occurring radioactive material it displaces, or by the chemicals it uses. Another worry is that fracking may cause earthquakes. A recent British study suggested that so tiny quakes in Lancashire were the result of fracking nearby. Such issues have been raised in America, too, but energy firms there have been able to ignore them because they are ex-
empt from many environmental rules. An intervention in 2005 by Dick Cheney, then vice-president, wrested an armful of exemptions specifically for fracking. That has helped the industry grow spectacularly. In 2000 shale beds provided 1% of America's natural-gas supply; they now produce around 25%. But it has also allowed reckless American frackers to do environmental damage. Some are alleged to have pumped toxic chemicals into the ground with impunity. In Europe, where environmentalists are stronger, energy companies have a tougher time. In response to anti-fracking protests, France has slapped a moratorium on the practice; in Britain, activists for Frack Off, a pressure group, have shut down drill sites. Reasons to worry, and not to Environmentalists are probably worrying too much about the immediate consequences of fracking. The technique has been in regular use in the conventional oil and gas industry since the1940s; and in all that time no aquifer is known to have been contaminated by fracking. Fluids used in fracking and methane regurgitated from gas-wells may occasionally have got into groundwater: an energy company in Pennsylvania has been forced to deliver clean water to householders because of this. But that risk could be greatly reduced by tighter regula- ~~
The Economist November 26th 2011 ~
tion, leading to better industry practice: it is not an argument for banning the procedure altogether. It does appear that fracking can cause earthquakes. But so can geothermal energy production and other parts of the oil and gas production process. Wherever fluids are injected into deep wells, that is a risk. It warrants strict regulation and further study. It is not, however, a reason to shut down a promising industry. But the industry's promise should not obscure its dangers, especially when it comes to the fuel it provides. Energy firms often call gas a clean fuel: burning it releases roughly half as much carbon dioxide into the atmosphere as burning coal does. So if gas-fired power stations are built instead of coalfired ones, the cheap gas bonanza will help control global warming. Unfortunately, though, they probably will not be.
Leaders 21
Few new coal-fired power stations are planned in America or Europe anyway. And China, which also has lots of unexploited shale gas, has few scruples about burning cheap coal. Either way, gas-fired power stations are more likely to substitute for solar panels, wind turbines and nuclear power stations. The only way of ensuring that does not happen is to price fossil fuels to cover the cost of the environmental damage they do. Power generated from coal would carry a high carbon· price-tag; power generated from gas a smaller one; power gen· era ted from renewables none at all. Thanks to recession and a lack of political will, governments have found this politically impossible to do adequately or at all, as the latest UN climate summit, which begins in Durban on November 28th, will make clear. But the effort should not be abandoned; and cheap gas does not give governments an excuse to stop trying. •
Policing internet piracy
Accessories after the fact Tougher laws against online pirates are needed, but a proposal in Congress could hit law-abiding businesses O MATTER what the "con· tent-should-be-free" crowd says, copyright theft robs artists and businesses of their livelihoods. Creative industries employ millions of people in the advanced world (and could be a rung on the ladder for poorer countries too, if, say, unscrupulous European content thieves did not habitually purloin the efforts of African musicians). The damage may be less than the annual $135 billion that the entertainment and publishing industries claim. These firms could change their business models to reduce the pirates' pro· fits, especially in countries where an album costs a day's wages. But mispricing does not justify crime. So far, attempts to stop online piracy have largely failed. Lawsuits did shut down file-sharing services such as Napster and Grokster, but others have taken their place-such as Pirate Bay and the new "cyberlockers" (see page 73) that operate in hard-to-reach jurisdictions. Many users of these sites think they are swapping, not steaHng, material. But the cyberlockers make money with extra charges for heavy users. Congress is now considering the Stop Online Piracy Act (SOP A) which would let copyright-holders take action against the intermediaries-such as payment services, search engines, and internet service providers (ISPS)- that supply money and traffic to pirate sites. If the intermediaries do not cut these sites off, they will face lawsuits. In principle, the move is a good one. Content companies need more effective legal remedies against piracy. And the thrust of the bill is sensible. Search engines direct users to pirated content and make money off the ads that appear next to the search results. The threat of lawsuits might encourage them to do much more to ensure that a search for, say, "Lady Gaga mp3 download" brings up legitimate online music services only. And putting the burden of enforcement on the private sector has advantages: the aggrieved party will have a better idea than the state whether a copyright infringement is worth pur· suing.
N
But the bill has problems too. The loose definition of in· fringement in SOP A could include sites that unwittingly carry comments linking to pirated material. That would make it too easy to launch spurious claims and too onerous for intermediaries to deal with them, and could discourage entrepreneurs from setting up new sites allowing users to post things (which, in the era of social media, is almost all websites). Large firms can cope with the extra hassle, but the fear of lawsuits could stifle smaller companies and start-ups. A second big drawback is that soP A obliges ISPs to put fil· ters in place to prevent their customers reaching pirate web· sites easily. That risks damaging the internet's vital internal ad· dressing system, which lets people use words instead of numbers to access websites. It also clashes with DNSSEC (don't ask), a protocol that America has long championed to increase internet security. Messing with DNSSEC could create loopholes for hackers by allowing rogue websites to pose as le· gitimate ones. Savvy users (who do the most downloading) will be able to bypass these filters anyway. And the bill's vague wording leaves open the possibility that American ISPS might have to institute more intrusive forms of filtering, with the costs, performance problems and privacy issues that would inevitably entail.
More selective, more effective Yet SOP A's flaws are not, as its opponents claim, fatal. The bill should be pruned and tightened-by defining more narrowly the kinds of websites that intermediaries can be asked to block, and by removing the requirement that ISPs put filters in place-to ensure that it makes life harder for malefactors with· out damaging the internet or imposing unreasonable costs on the law-abiding. The battle over SOPA is a fight between two hugely creative forces. The content companies want to protect a business that is the core of modern culture; the software companies are de· termined to defend the innovative power of an industry that has transformed the world in the past few decades. Tension between them is inevitable; but a redrafted law could surely deal fairly with both. •
22
At the heart of Europe
It is not Europe but Brita in that needs to wake up to the euro crisis (Special report on Europe and its currency, Novemberuth). Britain is sleepwalking into irrelevance. Britain's national interest in relation to Europe and the wider world would be better served if it fought to create a reformed euro-currency block, and then joined it. In fact, you cannot do the one without committing to the other. Protecting London's future as a financial centre; reforming the common agricultural policy; ensuring that Britain is at the table for future big European technology projects; braking a solution to the current crisis that might actually work; implementing the Lisbon agenda- the list of important issues for Britain goes on. Angela Merkel and Nicolas Sarkozy finally told the Greeks the hard truth: you can't have the benefits without contributing to the main. It is in Britain's national interest to lead the design of the new euro and SIR -
demand to be a part of it, before it's too late. MATIHEW WEN BAN-SMITH
London SIR - The effort by The Economist to blame Germany for the European financial crisis looks very suspicious. Charlemagne (Novemben9th) points the finger at Angela Merkel for nor favouring Eurobonds. Would Britain be willing to participate in such issues? And is there really a difference between "providing unlimited liquidity to solvent states" and buying "dodgy bonds"? I have a feeling that you are blaming Germany so that Britain canescape its responsibilities. But although Britain is not in the euro zone it should help out, in order to retain a solvent and prosperous trade union. KLAUS JAFFE
Caracas SIR- The Greek debt crisis is a similar situation to the securitisation of mortgages in America. Mixing valuable financial instruments with other toxic instruments was akin to add-
ing three quarts of milk to a quart of sewage: the result was four quarts of sewage. It would have been better to allow Greece to leave the euro zone and establish its own currency with exchange rates that would make its economy more competitive. The European Union can withstand the collapse of the euro and the re-establishment of national currencies. After all, it functioned quite effectively prior to the formation of the currency union. ROBERT VAM BERY
Professor of international business and marketing Pace University New York
Your excellent report on Europe and the euro left questions hanging. You urge "globalisation" on Europe. But "globalisation" equivocates. Does it mean becoming more like Germany? (Global banking and trade, high productivity, high taxes, high welfare.) Or more like, say, Texas? (Small budgets, low pay, poor weifare.) Given the shift in relative SIR -
' 2011 Explorer EPA·estomated 25 highway mpg V6 FWD Class Is Three-Row Large Utthtoes, Non-Hybl"id
wealth and cost advantage away from the West, trying to make Spain, Italy or even Britain like Germany is improbable. Making them like Texas is doable, but at heavy political cost. If globalisation means a race to the bottom to keep up with China, you invite in the populists, left or right. Austerity is with us for years, on any policy setting. Avoiding calamity will also take a liberal political narrative. Globalisation alone won't do it. Strapped as it is, Europe embodies liberal and democratic values- respect for persons, a voice for all, some sense of social equity- which it shares with the United States and which The Economist, I take it, holds dear. Does "embracing globalisation" mean dropping those tiresome constraints to unfettered economic growth? Or is it your view that, in face of the historical record, growth alone can now be counted on to spread and sustain liberal democracy? EOMUND FAWCETI
London
~~
The Economist November 26th 2011
~ Trade terms SIR - The term "shipper" was wrongly used in your article on shipping ("Economies of scale made steel", November uth). The shipper is the client, that is, the importer or exporter of goods. The provider of the service is the shipping line, or carrier. Furthermore, although it is true that the carriers benefit from economies of scale, which help to reduce their costs, these cost savings still need to be passed on to the client (the shipper). The same trend of market concentration that leads to cost savings may also lead to less competition. On routes where there are less than five carriers providing liner services there is evidence that the process of concentration leads in effect to higher freight rates. So not all cost savings will be passed on in the form of lower freight rates to the clients. JAN HOFFMANN
Trade faci lit ation section United Nations Conference on Trade and Development(UNCTAD) Geneva
letters 23
'Tis the season
Howzat?
sIR - The proposition that the British are more generous with their children because parents buy more "toys per week" than their European counterparts is surely fraught with oversimplification ("Buy early, buy often", Novemberuth). Why do the British behave this way? Is it really out of generosity? Or is it to distract children who are looking for interaction with their parents by thrusting yet another piece of plastic into their hands? Generosity is the act of giving to another, but the list of gifts one would consider more important than mere physical objects, regardless of their "play value", is long; time, attention and understanding certainly not least among them. It is absurd to think that anything so complex as the relationship between a child and parent can be measured by so coarse a statistic as the provision of playthings.
sIR - Readers of The Economist are usually able to comprehend the (attempts at) humour in your articles. However, in trying to understand the rise of Imran Khan's political stock in Pakistan ("Second coming", November 12th) this particular Yankee found himself perplexed by the cricket references ("fast bowler", "feared inswingers"), which have absolutely no meaning to those of us who do not follow cricket.
PATRICK STIRUNG
Cambridge, Cambridgeshire
ALEX LONG
New York
SIR - What on earth is the "fag-end of a government"? You used it to describe the Italian administration ("Destructive creation", November 12th). Were you being rude about Silvio Berlusconi?
man who got thejob.In the same issue you referred to Silvio Berlusconi's "follically enhanced head" ("That's all folks"). This is surely evidence that your newspaper could be criticised for pointing out irrelevancies, but not for the sexism Ms Schuler suspects. RICHARD WARDELL
Seattle
The final say SIR - Thank you for moving your obituary to the last page of your publication. To pay tribute to the deceased and then write about economic and financial numbers always seemed irreverent. With the change in your layout the dead can now have the last word. SUPRATIK BOSE
Howrah, India •
NATHANIEL HAWKE
Tampa, Florida
SIR - Nicola Schuler (Letters, November 12th) asked whether The Economist would have mentioned the hair colour of IBM's new boss if it had been a
Letters are welcome and should be addressed to the Editor at The Economist, 25 StJames's Street, London SWlA lHG E-mail:
[email protected] Fax: 020 7839 4092
More letters are available at: Economist.comf letters
Drive one.
Debate: Carbon control Combating climate change by stripping most of the carbon out of power-station emissions and storing it underground in old oil and gasfields seems appealing. But can climate-control policies rely on carbon capture and storage, or is the economic case too weak? Join the debate Economi st.comfdebates
Evolution of a debacle In May 2010 The Economist's cover showed helicopters flying over the Parthenon and tru mpeted:" Acropolis now: Europe's debt crisis spins out of control". The continent's woes have continued to keep our cover designer busy. From waterfalls to sieves and plugholes, here they all are Economist.comfnode/21540103
Britain: Aproposed parliamentary reform Banning MPs from switching parties without consulting their constituents might make them more accountable Economist.comfnode/ 21540025
Business: The return oft he Eclipse The very lightjet that was supposed to revolutionise flying, but didn't, gets a second cha nee with a powerful backer Economist.com/ node/ 21540054
Middle East: Drawing the revolution Apolitical cartoonist is enjoying the freedom of post-Ben Ali Tunisia Economist.comfnode/21540100
Business: More than skin deep Evelyn Lauder, who died this month, was a businesswoman whose work spanned cosmetics and cancer Economist.comfnode/21540039
Americas: Good copper bad copper Code leo and Anglo American battle over a sta ke in a mine Economist.comfnode/21540027 Asia: Cautious dance ofthe giants As America wades back into South-EastAsia after a decade dawdling, China's nationa listie press sounds the alarm Economist.comfnode/21539985
Finance: Clicks and mortar An interactive overview of global house prices and rents Economist.comfnode/21009954 Technology: Reviving autopsy Anovel way to examine the dead usi ng medica l-imaging technology Economist.comfnode/21540059
The social future Sheryl Sandberg, the number two at Facebook, makes predictions for "The World in 2012", our sister publication. She explores the implications of"Zuckerberg's law" on the amountofinformation people will share and foresees a convergence between our virtual and tangible selves Economist.comfnode/21540110 Sport: Helping destroy apartheid The life of Basil D'Oliveira Economist.comfnode/21540068 Technology: Difference Engine Fabricating missing body parts for two superannuated motorcars Economist.comfnode/21540061 Business education: Why are you here? One student realises that his application consultant is not talking much sense Economi st.com/ node/ 2153 999 7 Culture: Still solving riddles Bjork, a musician, talks about nature, modal patterns and Icelandic sonic traditions Economist.comfnode/21540072 Links to all these stories can be found at Economist.comjnode/21540104
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Public Sector Management Lead Specialist who will contribute with his/her expertise in assisting client countries, in the lahn America and Caribbean region to strengthen its core and cross-cutting government capabilities to deliver results; modernizing public sector management and improving public governance at the national and sub-national levels. We offer: Competitive Salary, Excellent Benefits. Relocation Package (if applicable). To read the complete job description and apply, please visit our career site www.l:tdb.org/careers Deadline for applications: December 16th, 2011.
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CEO/ Chairperson of the Global Environment Facility (GEF) The Global Environment Facility (GEf) I!> a multilateral Institution ror financing global environmtntallssues. Headquartered in Washington O.C .• thl! GEF pro11ldes srants to developing countries and economies In transition for projl!cts relilled to biodiversity, climate change, international w.uers, land degradation, tht ozont layer. and persisttnt organic pollutants. Since its inception In 1991, the GEF has committed USO ~9.2 billion In grants to 011er 2,700 project!> In more thctn t6S de~eloping countrll!s and transition economies. Its annual administrative budget is about hoM and the Secretariat consists or a team or about 100 peopll!. The GEF seeks to appoint the CEO / Chairperson, effectivl! 1 August 2012. The cro Is appointl!d to serve ror four years on a run time basi$ by the Council. The CEO may be reappointed by the Council for one additional four year term. The CEO/ Chairperson tuds thl! GEF Council (comprising 32 member!>), shapes thl! suatl!gk direction. strugthtns collaboration with ml!mber countries and partners. and manages the Implementation or str.:llegies lind policies. Ttte CEO/ Chairperson is also responsible for over~eeing thl! performancl! of thl! Sl!c"tarlat. The CEO/ Chairperson Is the ambassador of thl! GEF, representing thl! orcanisatron In global fora for !>UStainable development and the environment. To be successful in this global leadership role, the GH seeks a highly visionary leader capable or shaping the agenda, translating global direction Into local action, and mobilizing partnerships and resources. The succl!uful candidate will have strong experience in clobal environmtnt issues, IS well as In international development assistance. She/ he should also be familiar with lnte~national environmental agreements. She/ he will have shown leadership at the intl!rnatlonallevel, a!> well as having dl!monstrated political judgment and an ability to think stratl!glcally in global govl!rnante structurl!s. She/ hi! will have excelltnt managerial and communication skltts. For furthl!r Information 1nd how to apply. co to: www.thesetorc/rtfi CEO surc.h Review or lpp4iations will bl!fin tS December 2ou. Appllants III! encounged to IPPIY by IS December 2011 to ensure fu ll considl!ration of their submission. To find out more •bout the GEF, visit www.thl!gl!f.orJ
Fus ion for Ene rgy (F4E) •s o new European Jornt Undertok1ng 1n the oreo of Fus1on Energy Rl"seorch, The pnnc1pol role of F4E is to prov1de the European contnbuhon to the construchon of ITER, on hme ond rn conformance with the ITER requirements The Dire cto r 11 the Ch1ef Executive Officer, responsible for the doy-to-doy monogement of F4E under the guidance and occ01.1nlobility of the F4E Governing Boord ond in close coordination w1lh the European Commt$Sion os representohve of Euratom in the ITER C01.1ncil. Complete opplicotrons 10 English must be sent to
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4 Professional Board Members The candidates must have at least ten (10) years of professional pension expertise as an: Employee, owner, trustee or professional advisor of an asset management company, insurance company or a pension fund with at least fifty million euros (€50,000,000) under management; Economist or financial analyst with a major international financial institution; Employee of a state pension regulatory body that regulates funded pensions or of a state legislature working on pension legislation; Distinguished scholar in the economics or finance with a record of extensive internationally recognised academic research and writing relevant to private pension investment.
1 Employee Representative Board Member The candidates will be evaluated on the basis of their professional experience in representing or advising Employees or their representatives, in Kosovo. A detailed list of requirements, duties and responsibilities, and how to apply is available on our website www.trusti.org. The deadline for receiving applications is 9th of December 2011 at 15:00 Central European Time.
The Economist November 26th 2011
29
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The Economist November 26th 2011
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33
Cosy club or sword of righteousness? ELDORET,KENYA,ANDTH EHAGUE
An arrest in Libya, a change of guard at the top, and a big decision on Kenya will mark imminent moments of truth for the International Criminal Court
N NOVEMBER 22nd Luis MarenoOcampo, chief prosecutor of the O ternational Criminal Court flew into In-
(Icc),
Tripoli in perhaps the last high-wire act of his career. He and his deputy, Fatou Bensouda, a Gambian lawyer, began haggling over the fate of two men who are wanted in more than one place: Saif al-Islam, son of the late Libyan dictator Muammar Qaddafi, who has just been arrested while trying to flee to Niger (above), and Abdullah al-Senoussi, a former Libyan spymaster. On the Libyan street there is a palpable desire to see the two men hanged. The new Libyan authorities are insisting that they are capable of staging fair trials. Mr Mareno-Ocampo had at first argued that the prior claim belonged to the ICC, which issued arrest warrants for the two Qaddafis and Mr Senoussi at the behest of the United Nations Security Council in June. But on November 23rd- though doubting whether Mr Senoussi really had been arrested-he accepted that Libyan courts could give the younger Qaddafi a decent hearing. He added that the ICC, in its capacity as a court of last resort, would help if needed. From the suspects' viewpoint, a deliberate inquiry by the ICC in The Hague, with a chance to defend themselves and no death penalty on the statue book, would be preferable to a trial in the venge-
ful atmosphere at home. But an Icc trial would have limitations. The charges drawn up by Mr Mareno-Ocampo pertain only to misdeeds committed since February this year, when civil war escalated and the UN called in the court as one of many instruments designed to thwart the Qaddafi regime. The UN could in theory authorise a broader probe, but the court can never look into anything that happened before its doors opened in 2002. So a trial in The Hague could not investigate the downing in1988 of an American passenger plane over Scotland, or the killing of 1,200 inmates in a Libyan jail in1996. Some institutional interests are at stake. A Libyan case would have thrust the court at last into the limelight, confirming its role as the place where victims of the worst misdeeds- crimes which might otherwise go unpunished- can seek restitution. Set against the Utopian predictions made in 1998, when the Rome statute providing for the court was signed, the record so far has been rather disappointing. The court was destined, said one campaigner for its creation, to "save millions of humans from suffering unspeakably horrible and inhumane death." Of course, its very existence may have made some would-be dealers of death hold back; but such extravagant claims are hard to sustain.
The most ambitious thing the ICC has done is to indict Omar Hassan al-Bashir, the president of Sudan, on a charge-sheet that includes genocide in the Darfur region. But he remains firmly in office and seems free to travel to a good number of countries. The indictment has not triggered the bloodbath some feared, but it has not done much good either- leaving untouched, for example, the military and intelligence apparatus of the Sudanese state. The court faces a turning point next month, when member states confer in New York. A new prosecutor will be chosen from four candidates, including Ms Bensouda. Six of the 18 judges will also be replaced, in a ballot preceded by an unseemly round of bargaining and canvass· ing. Arcane rules govern the choice of judges: the sexes must be balanced, and each of the world's main regions must be equally represented. But candidates need not have been judges at home; one Japanese member of the court has been a law professor and diplomat. Of the 19 runners in next month's ballot, four seem unqualified, says one team of legal pundits; but they may still be voted in thanks to diplomatic back-scratching. The field at least looks better than it did in September, when the deadline had to be extended for want of suitable names. Whatever happens, the court may be less of a cosy club than it has been hitherto, insiders say. A handful of individuals were closely involved in the talks to set it up, and many of them took senior jobs. Next month's choices will help to determine whether the institution develops a robust life of its own, or simply becomes one more wagon in the UN gravy train. ~~
34 Briefing International justice ~
Many hope the court will broaden its geographical ambit, although any such move will face huge political obstacles. No member of the UN Security Council has ever been in the court's sights; indeed only two permanent council members, Britain and France, belong to it. All five countries where villains are expected to go to The Hague (see table) are in Africa. This year the court has also become involved in Cote d'Ivoire and Libya. In three cases, the countries themselves called in the court; but this narrow focus has made many African governments suspicious of a body which has many member states- 119 and risingbut big absentees, from America to India to most Middle Eastern countries. The list of places where the court says it is carrying out preliminary investigations is broad enough: Afghanistan, Colombia, Georgia, Gaza, Honduras and the Korean peninsula, as well as Guinea and Nigeria. But the total number of staff involved in those initial probes is a bare handful. The court's resources are overwhelmingly directed at a single continent. All 26 of the suspects publicly indicted by the court have been African; of those in the court's custody, four are Congolese and one a Rwandan wanted for crimes in Congo.
Disorder in the court Only one trial has been completed, that of a Congolese strongman, Thomas Lubanga, who was arrested in 2006 and has been in the dock, on and off, for two years. The proceedings have been chaotic. On two occasions the judge has ordered the suspect's release- only to reverse the decision soon afterwards. Both times, defence lawyers had argued forcefully that the prosecution was either failing to disclose evidence, or was offering improper inducements to witnesses, several of whom changed their story completely when cross-examined. What these near-farcical scenes highlight is a wider problem: when a court, based in a rich Western country conducts a trial relating to a desperately poor one, witness protection and witness inducement are hard to distinguish. The ICC prosecutors rely on intermediaries to act on their behalf in remote parts of Africa. If these go-betweens offer a person safety and comfort before and after testifying, in a place where daily life is hard and dangerous, that can be irresistible. If the court is making a difference anywhere, it should be in the broad zone of conflict that straddles Congo, Rwanda, Uganda and the Central African Republic, where most of its work has been done. That is an important place to investigate; up to sm people have died as a result of Congo's wars. But the prosecution's choices in that region have faced criticism from Human Rights Watch (HRW), probably the most influential among a cluster of NGOs that lobby for the court.
The Economist November 26th 2011
I
Out of Africa Current cases at the ICC Case
Country*
Warrant/ summons issued
Stage oftrialt
_Je_an_~P.i ~~re ~e~b_a _G_orn_b~ ............... ..... C_en_tr~~-Afri_ca ~ _R~P · ....~a_y_ ??0_8 . .. _S t~.r~~~ _N_ov_~O-~? .......... .... .
~.?rn.~~-~-~~?~~-~ .l¥~?........................... -~~~~~.................... -~~~- ~?.0~ ..... -~ ~~-~~~ .~ ?.~ .???.~ : -~~?!~~~.Y~~?!~ .. . _B?~~o. N.~~-~a-~~~- .•............................ .....C~n-~~ ..................... ~~~ .~?0.~
....._D~fe~d-~~~ _s~ll a_~~-ne_~~~ _i_~.t~~-~ ri~_Y
-~ ~~n;~i-~. ~~~~-~?:. ~.~ ~~i-~~ ~~~-~~?.l.? -~~~!... -~.?~.~~- ................... -~-~ ~ -~~?? ...... ~~?.~~~ -~-~~ ~~~ ....................... . -~-l~i~-~~.~~-~ ~~~~-i-~a-~~- ...........................~~~~~ .............. ....... ~~P. .~?.~? ..... -~~~~~~?.l. ~-~?.~i-~~~: .i.~.c~~~~~X ........ . William Ruto, Henry Kosgey, Joshua Kenya Mar 2011 Appeared for pre-trial hearings, Arap Sang, Francis Muthau ra, Uhuru notin custody -~~~X~~: . ~?.~a-~ rn~?. ~~~~-e~~-~~i............. ................................................................................ ............ .. Ahmad Muhammad Harun, Sudan (Oat/ur) Feb 2007 Defendants still at large Ali Muhammad Ali Abd-ai-Rahman
.~.f!l.a!. ~?.~~?.~.~~~-~~ -~ ~:~??.h! r_.................?.~~~~ _(O?_'f.u:J•.. .•.......~~-r -~~0~ ..... _D~~e~~-~~~.s?.ll_~~- P.?.~.~~- ............... Abdallah Banda Abakaer Nourain,
Sudan (Oatfur)
Aug 2009
Committed for trial,
-~~-l.e~. !:1.?~~-~~~-~ -~~~~-~ -~~ ~~~............................................................... -~~~ i.~ .~~-~~~~¥. ........................... . Joseph Kony, Vincent Otti, Okot Odhiambo, Dominic Ongwen
Uganda
Source: International Criminal Court
The court's decisions dismayed people in the war zone and have stoked tensions, says a HRW report. First, the arrest of Mr Lubanga upset fellow members of his Hema tribe: why were their enemies, the Lendu, being spared? The next year there was an attempt at balance when two leaders of the Lendu were packed off to The Hague. But the charge-sheet for them was longer than for Mr Lubanga, who is accused only of recruiting minors. Did that mean, locals asked, that Mr Lubanga was innocent of other misdeeds? Such grumbles can reignite violence. Another complaint from HRW is that the prosecutor's team has taken no account of the roles played in the conflict by the governments of Uganda, Rwanda or Congo. Its investigation of Uganda's internal wars was also flawed; it indicted five members of the Lord's Resistance Army, a bloodthirsty rebel force (one of whom has died), but failed to hold state forces responsible for their misdeeds. The Central African Republic is yet another country where the court has raised and then dashed expectations among victims, says Marlies Glasius, a professor at Amsterdam University. Under pressure from brave local NGOs, the court investigated bloody fighting triggered by a coup in 2003; but its only indictment relating to CAR events is of Jean-Pierre Bemba, a warlord from Congo. This ignored the crimes of others, external and internal, in CAR, as well as any misdeeds by Mr Bemba in Congo. All these critiques reflect an idealistic view: that if only the court had more resources, or better prosecutors, it could fulfil its mission of "delivering justice" to victims of atrocity. But the problem may be more basic. The ICC is strong and prestigious enough to raise hopes, but it will never be powerful enough to do what it halfpromises- to take broad responsibility for a nasty, complex situation by neutralising the bad guys and making life easier for de-
May 2005
Defendants still at large
'Place where crime allegedlycommitted I No trials closed
cent folk. In terms of value for money, other initiatives seem to be doing better: for example the "mobile gender courts" dealing with sex crimes, established in Congo with the help of the American Bar Association. As a permanent institution, the ICC was supposed to replace the sort of ad hoc but well-resourced tribunals which have meted out justice in Rwanda and the former Yugoslavia. A third alternative is mixed courts-combining local and international expertise, and conducted where possible near the scene of the crime. The record of mixed tribunals, such as those in Cambodia (see Banyan) is far from perfect, but they may sometimes be a better option than permanent institutions where lawyers and bureaucrats grow rich.
Watching from the Rift Valley The ICC has one notable chance to prove its worth-in Kenya. It may be a long way from the Rift Valley, a tribal tinderbox where jobs are scarce and land even scarcer, to the tidy streets of The Hague. But the distance has shortened in recent weeks as six important Kenyans, including Uhuru Kenyatta, the ultra-rich deputy prime minister and son of the country's first president, Jomo Kenyatta, have made appearances at the ICC to face possible charges of crimes against humanity. They are not in custody, but turned up when summoned. The Kenyan case- the biggest political and legal challenge the court has facedarises from an orgy of violence, in which entire families were burned alive or hacked to death. The fighting broke out in the Rift Valley and across Kenya after a disputed election in 2007. Three senior figures from each of Kenya's main parties have been indicted; it is alleged that each side fomented brutal attacks on its rivals. In Eldoret, in the Rift Valley, townsfolk follow the trial keenly- in part because tensions still simmer. On October 31St a ~~
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The Economist November 26th 2011
36 Briefing International justice ~ farmer
was killed and members of his Kalenjin group paraded the body, blaming the Kikuyu, the country's dominant tribe. Jomo Kenyatta was a Kikuyu; his successor, Daniel arap Moi, was a Kalenjin. These days, events thousands of miles away excite as much passion as local ones do. Thanks to broadcasts from Kenyan reporters and postings on YouTube, many people in the valley have watched as their country's bigwigs- who cut swaggering figures at home- meekly follow the judges' orders. The Kenyan public has also been watching closely as some of the world's brainiest and best-paid defence lawyers lay into the prosecution's case with fluency and flair. Having mulled these arguments, the court will decide next month whether to confirm the charges. The proceedings may be confusingwith silver-tongued barristers arguing for the admissibility of this or that document or video clip- but the emotions they touch are raw. During the violence of 2007·08, most of the killing around Eldoret was Kalenjin on Kikuyu; in other parts of Kenya it was the other way round. In all, at least 1,100 people were slain and more than 300,000 displaced; the country was not far from all-out civil war. Indeed, any conversation with local people gives a sense of how big the stakes are in The Hague. An outcome that is viewed as unfair could have an instant price in blood. William Ruto, the main Kalenjin defendant, preens himself as the Rift Valley's warrior-prince. Seeing him arraigned in a far-off land has felt humiliating for many people in Eldoret. If they have grievances against him, they often keep them quiet out of fear or local pride. Open disloyalty to Mr Ruto could, at a minimum, harm their job prospects. If The Hague treats him and the two other Kalenjin suspects worse than it treats the Kikuyu defendants, his henchmen may run amok. But not everybody feels so cowed, at least in private. Some fair-minded Kalenjin see the court as the best hope of reining in the power of bullying tribal leaders. "For the first time we are seeing political trousers shaking," says a farmer who admires the ICC. Some Kalenjin feel that Mr Moi and Mr Ruto gave their group a bad name. For such people, the private fear is that Mr Ruto and his two co-defendants will be acquitted- allowing them to storm home and settle scores. The stakes are very high. "If they return triumphant, we will be killed," says one human-rights activist. If they are convicted, Kenya can move on. The ICC has shown some sensitivity to local politics in its handling of the Kenyan case- by indicting an equal number from the two groups and by promising to make a single announcement on whether to proceed to full trials. (It could be explosive if one lot's fate were revealed ahead of the other's.) That marks a modest improve-
ment on the bumbling which has marred the court's forays into other parts of Africa. For the legal profession, meanwhile, the Kenya case means a lot of lucrative and glamorous work. A judge at the ICC earns a minimum of €18o,ooo a year tax-free, and the sort of barristers who defend warcrimes suspects can make many times that amount. The Kenyan suspects' defence team has managed to recruit a couple of lawyers who formerly worked for the prosecutor's office. It is a reasonable bet that this move did not involve a pay cut. The people's voice On the other hand, the court also tries to make sure that the voices of much humbler folk are heard, albeit indirectly. At arecent hearing in The Hague, a "legal representative of the victims" stood up in court to transmit the views of 233 people he had interviewed, mostly in the Rift Valley. One had got up at sam and walked so miles to make her statement: "She said she came because she felt their lot would be better now [thanks to) the ICC." Such human voices chime oddly with the thundering perorations of top-rank lawyers. Human Rights Watch says approvingly that by choosing from two ethnic groups and from different political parties the court has "reinforced perceptions of independence". But this praise is not entirely deserved. Many Kalenjins and the Kikuyus are angry that no one from the Luo tribealong the shores of Lake Victoria and with concentrations in some Nairobi slumshas been named by the Icc. Mr Ruto's supporters are especially bitter about the sparing of Raila Odinga, Kenya's Luo prime minister, who probably won the 2007 election and is again favourite to win the presidency next year. Mr Odinga has denied any foreknowledge of the ethnic cleansing of Kikuyus in Kisumu and other Lake Vic-
toria towns where the Luo predominate. He also claims to have no control over Luo gangs who burned Kikuyus out of the Kibera slum in his constituency in Nairobi. And Mr Odinga has distanced himself from his former ally, Mr Ruto. Despite these contortions, the Icc still has popular support in Kenya. In contrast to his patchy performance in Congo and elsewhere, Mr Mareno-Ocampo is trusted by many Kenyans. Polls a year ago said that 78% of Kenyans support the ICC. The figure has since dropped to 65%, but will probably rise if the trials go ahead. The percentages are smaller in the strongholds of Mr Ruto and Mr Kenyatta; at funerals and community events in such places, children can be heard singing songs against the Icc. Mr Ruto's lieutenants sometimes beat the anti-colonial drum, promising the expulsion of white farmers from the Rift Valley (where there are almost none) and identifying the ICC as an oppressor. Some worry that the ICC's emphasis on bringing down big men means impunity for those actually doing the killing and raping. Yet in Kenya there is no doubt that the Icc has lowered the political temperature. It has also performed the valuable, if indirect, service of chronicling recent events. If the Kenyan cases come to trial, they will be the most detailed cross-examination ever of the country's history. "If you bury the truth, it will grow," says a Kalenjin elder who expects good things of the trials. If the court makes shoddy work of the Kenyan cases it could easily exacerbate the country's problems, and paradoxically give new life to Africa's culture of impunity. If justice is seen to be done- whatever the verdicts- then the ICC will at last be living up to its high ideals. And it will be able more credibly to offer its services, not as a panacea, but as a court of last resort in the wider world. •
Ruto, warrior-prince (right) , obeys his summons
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39 Also in this section 40 Signs of economic hope 42 Concealed-carry gun Laws 42 Cleaning the Chicago River
43 Political fact-checking 43 Drinking laws 44 California's dysfunctional politics 46 Lexington: Cutting defence
For daily analysis and debate on America, visit Economist.com/ united states
Why the supercommittee failed
The last best hope WASHINGTON, DC
With the deficit-reduction committee's failure, American fiscal policy is drifting in a dangerous direction HE failure by Congress's joint select T committee to produce a deficit plan was greeted with widespread disappointment, but little shock. Voters had long expected failure. Wall Street had predicted at best a small deal. Deprived of even that, stocks fell November 21st, the day the committee announced its failure, but soon turned their attention back to Europe. Superficially the lack of alarm was understandable. The showdown between Republicans and President Barack Obama over the debt ceiling in August could have forced the federal government to renege immediately on its bills. In contrast, the law that established the "supercommittee" dictates that without a deficit plan, $1.2 trillion in spending cuts spread over domestic and defence programmes (a "sequester") be triggered, but not until2013. However, the implications of the committee's failure are more disturbing than the reaction of the markets has let on. It leaves a series of landmines in the path of the economy over the next 14 months while leaving America's longer-term fiscal challenges unaddressed. It also further entrenches Democrats and Republicans in their opposing positions and thus less able to deal with either problem, not to mention any of the various other catastrophes threatening the global economy. A sensible fiscal plan would couple modest near-term stimulus with longterm reforms to entitlement spending and taxes. Instead, America is getting the exact
opposite. A legacy of patchwork budgetmaking and temporary tax cuts means as much as $360 billion in fiscal tightening, or 2-4% of GDP, could unfold over coming months (see table). A couple of the smaller items are almost certain to be overridden, such as a cut in Medicare fees and the effects of the non-indexation of the alternative minimum tax, both of which routinely get "fixed" and "patched" respectively. Mr Obama is also pressing to extend the 2% cut in the payroll tax and enhanced jobless benefits for another year. The Republicans seem receptive, but the supercommittee's failure robs both sides of the tidiest vehicle for doing that. Analysts at ISI Group, a stockbroker, put the odds that those last two measures will be extended again at a bit above so%. But, ISI also notes, every dollar of stimulus extended now will add a dollar to the extent of the fiscal contraction felt a year later. Added to the expiry of George Bush's tax cuts at the end of 2012, the sequester, and a new Medicare tax, would produce a crushing 2.6% fiscal hit in 2013, easily enough to tip the economy back into recession. And even though the deficit would be reduced, debt would remain on an upward path over the long term because of the rising bills for Medicare and Medicaid (health care for the elderly and the poor respectively) and Social Security (pensions), and interest payments. Every attempt to solve these problems has so far failed, but the supercommittee
had a fighting chance, thanks to the threat of the sequester and the agreement that its proposals could not be subject to either amendment or filibuster. Its six Democratic and six Republican members, drawn equally from the Senate and House of Representatives, by most accounts got along swimmingly, at various times watching football, cycling, singing "Happy Birthday" and eating beef jerky together. Conflicting explanations for the failure of the committee, which met in private, have emerged, but the main stumbling block, as usual, was taxes. On October 25th, Democrats proposed a $3 trillion deficit reduction package, including $1.3 trillion in increased taxes, and some cuts to entitlements, such as increased contribu- ~~
I
In the pipeline Contractionary fiscal measures:
Annual value, $bn
Expiring or taking effect in
~~~mE~~~~~~~~~~~~~ --------
~?.~~~.ek. ~. n.ernP.l?Y.01~nt !n.s~.ra ~c~ ~~.n~fi.~ ....... ~o..
.~~~~ ~01P.~~Y.:~ P.~Y.~?.~t ~.x .~~.~ ........................~.~ ?.. Alternative minimum tax and
24
.~~~~.r. ~~~.P.~~~.~i.~~~........................................ . Override................. of Medicare fee................................... cut 12.. ......... ~ '
~·
Discretionary spending cuts from
40
~~~u~.~ ~~.~~.ct.:?.'.... ............................ ............. Ot~l!f expiri'!_9 ~~covery Act s~112u~u~
Subtotal
%of GOP
__
125 361 2.4
Expiring or taking effect in
~~~~~~~~~~~~~~~~~ --------
.~~s~..~~. ~u~. ~~r .~!~.~. ~.a~~e;~ ................... .... ~?.. All other Bush tax cuts 205 3.8% Medicare tax on investment income 21 . ........ ._ ........................................................ !1.:2_t~l~o~ ~e~-¥_e~r!~~e~t~r _
Subtotal
_%1G£P
Total
_ _____ _1~9385 2.6
746
Sources: Congressional Budget Office; 1$1 Group; J PM organ
The Economist November 26th 2011
40 United States ~
tions by affluent beneficiaries to Medicare. Republicans termed the revenue demands too steep. Then on November 7th Pat Toomey, a Republican senator from Pennsylvania, proposed a $1.5 trillion package including $250 billion in higher taxes from reducing tax deductions. Some Democrats saw Mr Toomey's proposal as a promising departure from Republicans' decades-old opposition to tax increases in any form. But the closer they looked, the less they liked it. Mr Toomey would not only lock in Mr Bush's tax cuts for ever, but lower rates further. The top rate would drop to 28% from 35%, and the15% lower rate on capital gains and dividends would become permanent. The result would be big tax cuts for a few rich households, who do not benefit much from tax deductions, and increases for middle and upper-middle income taxpayers, who depend upon them. That was anathema to Democrats, who want the wealthiest to pay more, not less. Republicans claim Mr Toomey's revenue plans were flexible. Not flexible enough, according to Democrats. "Whether it was meant that way, the reality is [Mr Toomey's proposal] became a take-it-orleave-it," says Chris Van Hollen, a Democratic congressman and supercommittee member. "The Republicans never moved off that position." Mr Van Hollen does not question the good faith of his Republican counterparts. The problem is that the two parties' sincerely-held views about politics are so far apart. "We could not bridge the gap between two dramatically competing visions of the role [of] government," saidjeb Hensarling, a Republican congressman and the committee's co-chairman, in a newspaper article. What now? Republicans are already drawing up proposals to protect defence from the sequester, but Mr Obama says that he would veto any such attempt. Both sides are preparing to fight next year's election over those differing visions, so the odds of a resolution to the Bush tax cuts, the sequester, and entitlements before then are close to nil. (What happens after November 6th 2012, though, is anyone's guess.) Last August, Standard & Poor's shocked markets and politicians by stripping America of its AAA credit rating because of the debt ceiling stand-off. Fitch and Moody's, the other main ratings agencies, have refrained from doing so, in part because of the promised deficit reductions under the sequester. As Steve Hess of Moody's notes, the rn't"V\'t"V\ ; ++oo'r f'~; l , , ya, tn t:\"""trt
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ing reform cost America an opportunity to remove the shadow over its AAA rating. "At this point we're factoring into the outlook no significant deficit reduction measures until after the election. And that's because of the legislative environment." Election years have always carried above-average risks of financial crisis because governments are too scared to take the painful steps necessary to fix the underlying problems. That is true in spades for 2012. • The economy
Finally, some good
news WASHINGTON, OC
A shame it probably w on't last
RANES clutter the skyline along northC ern Virginia's busy thoroughfares. On a Friday evening, holiday shoppers throng Northpark Centre mall in Dallas, Texas, buying Lego and luxury soap as a pianist picks out pop songs. Tables in the better restaurants on the Westside of Los Angeles cannot be booked without Hollywood connections. In places, America shows clear signs of returning to a kind of economic normality. Not long ago, a double-dip into recession seemed possible. On November 22nd, the Bureau of Economic Analysis revised its estimate for GDP growth in the third quarter down, though still to a 2.0% annual rate, from the earlier reported 2.5%. According to another measure of output, gross domestic income, growth was only barely positive in the second and third quarters of the year. Yet an improved outlook for at least the near future is now showing up all over the economic data. America's trade deficit declined for the third month running in September, thanks to rising exports. Industrial production rose strongly in October. Mortgage delinquencies and foreclosures continue to tick downward. The market for owner-occupied homes remains weak, but construction of multi-family residential units, which are attractive to renters, may end the year up over so% from 2010. Residential building improvements are touching recordhighs. These improved economic conditions are all helping to boost confidence. The University of Michigan's index of consumer sentiment has risen sharply since August. In October, growth in personal incomes accelerated. Consumers are feeling f"'11 1 ~to "')
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their highest level since February and are projected to recover to pre-financial crisis levels in November. Retail sales were up more than 7% in October from a year before (see chart). The key question has long been whether growth will translate into new jobs. The signs are encouraging; payroll employment growth has accelerated from early summer, and initial claims for jobless benefits are dropping. All told, GDP is forecast to rise at more than a 3% annual rate in the fourth quarter. Meanwhile, inflation is dropping. That leaves the Federal Reserve with more room to focus on the employment side of its mandate. Yet the recent good news may be but a brief break in the clouds. The legislative battle over America's finances, which contributed to America's summer swoon, is raging again (see previous article). If Congress fails to extend key stimulative measures, it may saddle a vulnerable economy with a fiscal drag of more than two percentage points of growth. Europe's crisis looms larger still. A deep euro-zone recession, which seems increasingly likely, will hurt American firms; roughly a fifth of the country's exports go to Europe. The impact on the financial system could be the more damaging. A new paper by Hyun Song Shin, an economist at Princeton University, describes the large role European banks have come to play in America's "shadow banking system", through which many large banks and firms finance themselves. European bank difficulties may quickly translate into credit problems in America- and a corresponding hit to the real economy. The chill wind from Europe can already be felt in some corners of the economy. Stockmarkets have dropped about 7% in the past week and are now only 6% above October's lows. Orders for durable goods are also dropping, as firms predict difficult times ahead. The unexpectedly sunny last few months of 2011 may provide Americans with a glimpse of what its economy could be, in a stabler, better governed world. Sadly, it may be a while before the data are again this positive. •
I
Not so bad Unemployment insurance initial claims, '000
Retail sales $bn
700
400
600
375
500
350
400
325
300 -j.o
I
I ll ... Ill
2009
""'
'"""I"
10
"I
II"
11
Sources: Census Bureau; Department of Labour
300 1
42 United States
The Economist November 26th 2011
Gun control
The Chicago River
Have firearm, can travel
Reflected glory
WAS HI NGTON , DC
BU BBLY CR EEK, CHI CAGO
The House smiles on hidden guns, but gun-control advocates may have secret weapons in th e Senate
The Windy City w ill, at last, clean up its filthy river
NE question that worries many visiO tors to defensivecarry.com, a website devoted to the delights and pitfalls of life
HE old-timers down by Bubbly Creek T were hoping to land catfish for dinner. On a sunny afternoon they were fishing on
with a hidden gun, is whether their "concealed-carry" permits will be valid outside the state in which they are issued. Can they take their guns on holiday with them? Can they pack them in their checked bags for a flight? What if their plane is diverted to a spot like New York, which makes it exceedingly difficult to carry a gun? And if they cannot bring their guns with them, how will they defend themselves and their loved ones when threatened? Gun-rights activists have a simple solution: require all states to honour one another's concealed-carry permits. There is no reason to suppose, says Andrew Arulanandam of the National Rifle Association (NRA), that a person considered fit to carry a gun in one state would suddenly become a menace to society on entering another. Many states already have such reciprocal agreements, without any obvious ill effects, he adds. The House of Representatives agrees: earlier this month it approved a bill that would make one state's permit valid in any other, with the exception of Illinois and the District of Columbia, both of which do not allow concealed weapons at all. Opponents of the measure, including the mayors and police chiefs of many big cities, say it will allow people to get around
a southern fork of the Chicago River made famous by Upton Sinclair in his social-realist novel of 1906, "The Jungle". Sinclair described how offal and waste from the meatpacking industry had created a river so vile that putrid gas bubbled up from the bottom and made the river literally combustible. Today, the river hardly ever bubbles but the pollution remains so serious that the federal Environmental Protection Agency (EPA) has ordered the state of Illinois to clean it up. Earlier this month, the EPA and the state finally agreed over how clean the river should be. Until recently the Metropolitan Water Reclamation District of Greater Chicago (MWRD)- the agency responsible for dealing with the city's sewage and storm water- had always insisted that the river was little more than a series of canals for shipping and drainage of storm water and municipal effluent. The previous head of the MWRD fought long and hard against tough and expensive water-quality standards. Most memorably, he once argued that if the water were made cleaner, accidental drownings would increase. In the end sense prevailed and Chicago will finally lose the unwelcome distinction of being the only big American city that fails to disinfect its sewage. The MWRD,
local rules about who can obtain a con-
Ready to face New York
one of the world's largest wastewater treat-
cealed-weapon permit. Many states require permit-holders to undergo safety training, for example, or deny permits to alcoholics; others do not. Four states- Alaska, Arizona, Vermont and Wyoming- do not require a permit at all, although three of them do helpfully issue them for use outside the state. The question of which states have the cheapest and easiest-to-obtain permits is another popular topic on defensivecarry.com. Forcing states to accept the permits of the most permissive jurisdictions would be an assault on states' rights, says Mark Glaze of Mayors Against Illegal Guns, a pressure group. It will fall to the Senate to adjudicate. John Thune, a Republican from South Dakota, says he is working on getting concealed carry through the chamber. He was also the leader of the last attempt, in 2009, that fell just two votes short of approval. Conditions look more favourable now. Several of the Democrats who voted against reciprocity then have since been re-
placed by Republicans, who tend to be keener on gun rights. Others, such as Claire McCaskill of Missouri, are facing difficult re-election battles in gun-friendly states. Even Barack Obama, the bogeyman of gun-rights groups, has wavered on the subject of concealed carry. He claimed to oppose it as a candidate, but then signed a law permitting it in national parks in 2009. Mr Obama, facing a difficult re-election battle of his own, would probably prefer not to offend anyone by weighing in on either side this time. Harry Reid, the leader of the Democratic majority in the Senate, could well grant him his wish, by preventing the subject from coming to a vote. And even if there is a vote, gun-control advocates assume that when the chips are down enough Democrats would probably be available to foil Mr Thune again. But relying on allies who do not wish to come forward until the last minute is always a nerve-racking proposition. •
ment agencies, with a budget of around $1 billion, has agreed to clean up. Disinfection technology could cost it $250m to build and run over 20 years. For many this is a turning-point for a river that has been gradually clawing its way back to life. The timing is no accident. The river is increasingly seen as an environmental and economic resource. A decade of investment has set the scene for demands to improve water quality. Downtown, a new riverside walk brings tourists and allows office workers to stretch their legs. New waterfront restaurants, and developments such as Chicago's Trump Tower, have been popping up. David Spielfogel, head of policy for the mayor, says that the city already has a spectacular front yard for tourism and recreation in the form of Lake Michigan, and now wants the same thing along its river. The city plans to get more people to use the river by building boathouses. But in the longer term water quality must improve ~~
The Economist November 26th 2011
United St ates 43 Drinking rules
Political fact-checking
Behind the Zion curtain
Fun at the FactFest NEW YORK
Techies talk about how to make the news more reliable A S THIS week's deadline approached ./"\.for the congressional "supercommittee" to agree on how to trim the deficit, each party tried to put pressure on the other with claims of dubious veracity. Republicans aired exaggerated figures for the proportion of government spending that is borrowed, ranging from 40% to 43% (the true figure this year was 36.1%, projected to fall to 27% in 20l2).John Kerry, meanwhile, said that the bipartisan Simpson-Bowles deficit-reduction plan proposed a year ago would have raised an extra $2 trillion in revenue; it actually predicted just under $1 trillion. Have you yawned yet? The truth is not always gripping stuff. But somebody has to tell it, to keep political discourse from going entirely off the rails. That is the theory behind PolitiFact.com and FactCheck.org, the two best-known of various sites that trawl through politicians' public statements and dig out their lies, evasions and economies with the truth (FactCheck for the borrowing percentage, PolitiFact over Mr Kerry's revenue inflation). And as election season heats up and the fibs start flying thick and fast, they hope to be in the vanguard of keeping reality in check. So can more of it be done? That was the question at "FactFest", a gathering of journalists and digerati convened on November 15th at the City University of New York's journalism school by Jeff Jarvis, a media pundit ~ enough
for swimming. Debra Shore, a commissioner at the MWRD, says disinfection is one of a host of expected new water-quality measures. The flow of the river, westward towards the Mississippi, is not natural. It was reversed in 1900 to prevent its filth entering Lake Michigan- the source of the city's drinking water. Some groups, such as the Friends of the Chicago River and the Natural Resources Defence Council, wonder whether the river's flow should be halted or even reversed again-thus preventing the spread of alien species between the Great Lakes and the Mississippi river sys-
and professor best known for extreme openness about his own life. Fact-checking has become a cottage industry in the last few years-PolitiFact has 32 full-time staff, employed by its network of partner newspapers. And on the internet, on which readers can post instant corrections to articles or annotate documents, and terabytes of government data are available at the click of a mouse, truth is much more readily available. The trouble is, so is untruth. Can one defeat the other? The FactFest produced a lot of theoretical proposals. Better crowdsourcing tools, to help catch falsehoods. (A simple corrections box on every news website would help.) Technology to rebroadcast updates, so if a blog or news article quotes another, it gets updated if the original is changed. Standardisation- of data sources, measures of factual reliability, and platforms for sharing information. Links between news outlets and fact-checking sites, so that, for instance, whenever you read a story about Mr Kerry, you can click on his name to call up a history of his truthfulness- summed up perhaps by PolitiFact's helpful Truth0 -Meter0, which rates claims on a six-level scale ranging from "true" to "pants on fire". Snazzy stuff, if it works. But with the web increasingly divided into like-minded echo chambers, it's not clear whether such a flood of factuality would inform people better- or just reinforce their convictions about what a lying bunch the other lot are.
tern. But for a double-reversal, water quality would have to be much better. The challenge for city and state authorities is to find money to invest in the river; but one study found that improving water quality alone would eventually give a $1 billion boost to the economy. Chicagoans increasingly see their river as a source of great opportunity. The river, and its connection between the Great Lakes and the Midwest, is the reason that Chicago flourished. It now looks as if the city will return the favour. The river may turn out to be one of the keys to Chicago's future, as well as to its past. •
SALT LAKE CITY
The drinks flow more freely, except in Utah A LMOST 8o years after the repeal of Pro.1"\.hibition, the sale of wine and spirits remains partly or wholly in government hands in a third of America's states. But in these tough times economic considerations are starting to outweigh moral concerns. On November 8th Washington's voters approved plans to privatise the state's 3281iquor outlets and open the business to warehouse stores and supermarkets. Budget planners think the change could bring in an extra $8om a year from licence fees. The victory for the Yes campaign- secured with $22.5m from Costco, a warehouse-store chain, the record for a donation to a Washington ballot initiativereduces the number of controlled states to 17, following similar moves by West Virginia and Iowa years ago. Other states considering opening the spigots include North Carolina, Virginia and Pennsylvania. Opponents will not give up without a fight. They wield studies that point to increases in consumption and car accidents after laws are loosened. But nowhere is liberalisation resisted more staunchly than in Mormon-dominated Utah, where even strong beer has to be sold through publicly owned stores. Its restrictive distribution system is under the spotlight thanks to an ongoing bid-rigging scandal at the staterun alcohol monopoly. But the forces arrayed against reform are strong, including the speaker of the state Senate and antidrink-driving pressure groups. The odds of privatisation are "a small fraction of those of seeing a Mormon in the White House," sighs one lawmaker. Worse, Utah's famously tough and complicated rules on the way drinks are stored and served in bars and restaurants have been growing more restrictive, not less so. The shackles had loosened a bit during the governorship of Jon Huntsman, whose administration worried that jokes about being "slower than Salt Lake City on a Saturday night" were a turn-off to partyminded skiers (Utah has some of the best slopes in North America). Bars no longer had to set themselves up as private clubs that charged would-be drinkers membership fees, for instance. After Mr Huntsman left to become Barack Obama's ambassador to China, however, the reactionaries regained the initiative. Under one new law, restaurants opened after January 2010, even those that serve nothing more potent than beer, have to erect a barrier along the length of the bar ~~
44 United States ~ that
shields under-age punters from the sight of drinks being stored or poured. These walls, often made of frosted glass, are known locally as "Zion curtains". These establishments' beer sales cannot exceed 30% of their total revenue. The same law bans all-day discounts on drinks, introduced by many bars in recent years to get around the ban on happy hours. Doubles have long been illegal. Licensed restaurants must use ID scanners on customers who look younger than 35. Bars and restaurants are regularly tripped up by a strict quota system for new licences, which is based on Utah's popula-
The Economist November 26th 2011 tion growth. A number of places that had been awarded permits for all types of alcohol had them taken away in October because the increase in headcount was below projections. These can now serve only beer that is 3.2% or less alcohol. To cap it all, pubs and eateries have to pay the same 80-90% markup for their booze as consumers do in the state-run stores. With so many hoops to jump through and extra costs to absorb, it is no wonder that some chains are slowing their expansion in the state or choosing to focus elsewhere. As the souvenir shot glasses say: "Eat, drink and be merry- tomorrow you may be in Utah." •
California ' s dysfunctional politics
Help on the way LOS ANGELES
Out west, a different supercommittee might yet do rather well N CALIFORNIA it is the worst of times, it is the best of times; but the worst is the Imore salient. The state's non-partisan legislative analyst, Mac Taylor, has now given the lie to the gimmicky budget the governor, Jerry Brown, and the legislature agreed to in June. They had, rather desperately, chosen to assume that billions in new revenues would materialise. None of them did, said Mr Taylor, who expects receipts to be $3.7 billion behind forecast. He projects a new two-year gap of $13 billion for this and the coming fiscal years- about 15% of the current budget, which itself is about a fifth smaller than it was when the recession struck. Mr Taylor's analysis has a dire consequence. It necessitates automatic "trigger cuts" (if the state's finance director confirms his conclusion next month, which is likely). This means that schools, universities, welfare recipients and other vulnerable Californians will lose yet more funding. A school year that is, at 175 days, already one of the shortest in the industrialised world could drop another week. Some schools would lose bus services, leaving (mainly poor) pupils stranded. Mr Brown bears some of the blame. During his campaign in 2010 he made a rash promise not to raise taxes without approval by the people, but then proved unable to persuade the legislature to put the required measure on the ballot. Hence this "all-cuts" budget. Mr Brown is now planning to collect signatures to put a tax increase on next year's ballot. Most blame, however, belongs not to any one person but to California's system of governance, which has ossified for decades. The state's tax system, designed for an agricultural and manufacturing econ-
omy, is now outdated and needlessly volatile. The state's initiative process, the main feature of California's beloved "direct democracy", is dominated by special interests and leaves voters out of their depth. And the state legislature does not work, both because ballot initiatives have preempted it and because the extremists on right and left can block, but not agree on, any reform of consequence. This is where better times become imaginable. For the past year, California has had its own bipartisan supercommittee of sorts. The Think Long Committee for California, assembled by Nicolas Berggruen, a rich investor, and consisting of stalwarts from right, left and centre in Californian politics, differs from its ill-fated congressional equivalent. First, it actually achieved a consensus, unveiled this week. Second, it actually has a mechanism to turn its recommendations into law: the initiative process itself. The committee's plan is to place two
initiatives on next November's ballot. One would fix California's tax system. In 1950 California got 6o% of its revenues from sales taxes, which apply only to goods. Since then, untaxed services have become the mainstay of the economy, so sales taxes now contribute only about 22%. Income taxes, mainly on the richest Californians, have during that time grown from 10% of total revenues to more than half, making state revenues highly volatile. The Think Long Committee wants to fix this by extending sales taxes to services, and simplifying and cutting income-tax rates. This would be "only very slightly more regressive", says Nathan Gardels, an adviser to the group, because the poor would get a sales-tax rebate and rich people tend to spend more on services (on accountants, lawyers, fitness instructors, etc). The new system would eventually raise revenues by about $10 billion a year. The other measure is an initiative to fix initiatives. It would create a council of independent experts, appointed by the governor and both parties, who would screen proposed initiatives for sanity and cost. The council could also place its own initiatives on the ballot. That leaves the remaining tangle of dysfunction, the hyper-partisan legislature. Two reforms- apolitically drawn districts and a primary system that picks out the two top performers, regardless of party for a run-off- have already been adopted and will be tested for the first time next year. They might help moderate candidates. David Crane, a Democrat who advised Mr Brown's Republican predecessor, Arnold Schwarzenegger, hopes to amplify these reforms with another effort. By his reckoning, the uo-member legislature could become functional again if an "ethical bloc" of as few as five "principled and numerate" moderates could get elected, to break the stalemate. To support such politicians, Mr Crane and two partners have started Govern For California, a sort of political venture-capital fund. The idea is to finance good candidates to keep them out of the pockets oflobbyists. •
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46 United States
The Economist November 26th 2011
Lexington I Terrible swift sword It was never supposed to fall on the Defence Department itself
N THE summer of 2010 Admiral Mike Mullen, then still chairman of America's joint chiefs of staff, said that the biggest security threat facing the nation was the national debt. The proposition that military strength depends in the long run on economic health is hardly controversial. But the admiral cannot have foreseen the astonishing sequence of budget negotiations that have paralysed Congress this past year. In the latest twist this week, Democrats and Republicans on Congress's so-called "supercommittee" failed to agree on a plan to reduce the budget deficit, thereby exposing the defence budget to the prospect of a decade's worth of deep spending cuts. The Budget Control Act that Congress passed in August stipulated that if the supercommittee failed, government spending would be cut automatically by some $1.2 trillion, with the axe falling most heavily on the Pentagon. Add this "sequestration" to the $350 billion of cuts already agreed on this summer, and the Defence Department is looking at losing up to $1 trillion, almost a fifth of the total, from its spending plans in the ten years from 2013. Leon Panetta, Barack Obama's defence secretary, calls the consequences "devastating". At the end of the ten years, he says, the United States would have the smallest ground force since 1940, the fewest ships since 1915 and the smallest air force in its history. Senators John McCain and Lindsey Graham, both Republicans, claim that America would face a "swift decline as the world's leading military power". Plenty of defence wonks agree. "The future of America's national security hangs in the balance," say the American Enterprise Institute (AEI), the Heritage Foundation and the Foreign Policy Initiative, a group of right-leaning think-tanks that have banded together to "defend defence". At the Brookings Institution, Michael O'Hanlon, like Mr Panetta a Democrat, is also worried. Even without the extra burden of sequestration, he argues, the $350 billion reduction already agreed would cut into muscle, not just fat. America might no longer be able to meet its "irreducible" defence needs, such as winding down the Iraqi and Afghan wars responsibly, deterring Iran, hedging against a rising China, protecting the sea lanes and keeping terrorists at bay. All this sounds a mite alarmist. People close to the Defence Department have a habit of overreacting to cuts, and if these are
I
as damaging as advertised they are unlikely to happen. Great nations decline in different ways: by losing wars, overreaching, collapsing internally. But it would be extraordinary if America sacrificed its position as the world's leading military power as the result of a legislative accident. And this would be an accident. Nobody intended the provisions of the Budget Control Act to be enacted. The law was a pistol Congress pointed at its own head in order to frighten itself into cutting the deficit. Mandatory defence cuts were designed to scare the Republicans; mandatory cuts in other programmes were supposed to scare the Democrats. In the event Congress failed to scare itself enough, which means that it reached no agreement, so the pistol might go off after all. But will it? Congress has a year to take evasive action before sequestration bites. Senators McCain and Graham say that the cuts "cannot be allowed to occur". Howard McKeon, chairman of the House Armed Services Committee, is threatening legislation to block them. Congress does, after all, have the power to amend or repeal its own law, though Barack Obama has the veto, and has promised to use it should Congress try to dodge the bullet. He may relish the chance to cut defence spending and blame theRepublicans for it. The likeliest outcome is therefore neither a sudden, history-altering reduction in defence spending, nor a quick fix that lets Congress wriggle out of its trap, but a drawn-out and perhaps salutary election-year debate about how much defence to buy at a time of distress. The defenders of defence have strong arguments. America spends less than s% of GDP on defence, more than most countries but less than the highs of 9% it reached in the 196os. Health and pensions, not defence, are the real drivers of the deficit. But one of the most interesting things about this debate may well be the changing stance of the Republican Party.
A wobble in the Grand Old Party The day after the supercommittee said it had failed, eight Republican presidential candidates took part in a "national security debate" in Washington, DC. Mitt Romney spoke vehemently against the defence cuts, but Newt Gingrich declined to agree that all military savings were unacceptable, and Ron Paul questioned their true magnitude. Neither Grover Norquist, he of the notorious anti-tax pledge, nor the tea-party movement, sees a reason to exempt the Pentagon from the general fiscal austerity. FreedomWorks, an advocacy group, has just issued a "tea-party budget". This embraces a plan by Tom Coburn, a conservative senator from Oklahoma, for $1 trillion of defence cuts over the decade. All this adds up to what Senator Graham considers a profound change within his party. He was aghast when its leadership made defence into the supercommittee's hostage, claiming that Ronald Reagan would never have done such a thing. But the Reagan era is long gone, and Robert Gates, the (Republican) defence secretary who stayed on to serve Mr Obama for two years, summed up the new thinking when he asked: "Does the number of warships we have and are building really put America at risk when the United States' battle fleet is larger than the next 13 navies combined, n of which belong to allies and partners?". America is not about to throw away its military pre-eminence, either by accident or design. But the fat years are over, and the failure of the supercommittee may accidentally have given its politicians an incentive to answer such questions seriously. • Economist.comfblogsflexington
47 Also in this section 48 Mexico's changing drug war 49 Latin American integration 49 Electoral reform in Canada
For daily analysis and debate on the Americas, visit Economist.comfamericas
Politics in Brazil
Cleaning the Brasilia pork factory SAO PA ULO
In a never-ending telenovela of sleaze, Dilma Rousseff is tackling the excesses of
patronage politics but not yet the underlying system
y NOW Brazil's president, Dilma RousB seff, must be finding the script wearily familiar. First come the corruption allegations, then the indignant denials, more evidence, equivocation and retractions- and finally another of her ministers has to walk. Since June Ms Rousseff has lost her chief of staff and the ministers of transport, agriculture, tourism and sport, variously accused of influence-peddling, bribe-taking, signing fraudulent deals with shell companies and diverting public funds into party coffers or their own pockets. Now Carlos Lupi, the labour minister, has become the latest to look as if he is heading for the exit. He is accused of presiding over a department that charged kickbacks for government contracts, of personally accepting free flights from one of those contractors and of siphoning off public money to semi-phantom non-governmental organisations (NGOs). Mr Lupi's response was pugnacious. He did not know the man in question and had never flown with him, he said. The only way to get him out of his ministry, Mr Lupi added, would be to shoot him ("and it would have to be a big bullet, because I'm a big guy"). Then came photographs of him with both businessman and plane. His defenestration seems to be a matter of time. Barring new revelations, he may go in a wider cabinet shuffle expected early in the new year. The faxina ("housecleaning"), as Ms Rousseff's removal of allegedly light-fin-
gered ministers has come to be known, is popular. The latest opinion polls put her and her government's approval ratings at record highs. But it merely scratches the surface of a problem with roots in the way that politics has developed in Brazil. All presidents since democracy was restored in 1985 have had to form variegated coalitions to obtain legislative majorities. But, complained Fernando Henrique Cardoso, a former president, earlier this month, a "system" has now developed under which parties demand ministries in return for their votes, and then use the public funds they thus gain control of to expand their membership. The 513 seats in the lower house of Congress are now divided between 23 parties. Ms Rousseff's governing coalition comprises ten of them, commanding 360 seats (an nth, with 40 legislators, left after the transport minister was sacked). Several of its smaller members have no discernible aim other than to grow fat on public money. The biggest, the Party of the Brazilian Democratic Movement, an alliance of regional power brokers, switched to join her predecessor, Luiz Inacio Lula da Silva, after he won in 2002 and will stay only as long as it suits. "We have a strong president who is unable to do anything without support in Congress," says Sylvia Costa of Congresso em Foco, an anti-corruption watchdog. "And that support must be bought." When the solution found by Lula's party managers in his first term- paying
parliamentarians for their votes- came to light, the resulting outrage nearly brought him down. With cash ruled out, ministries and other grace-and-favour appointments were left as the main political currency. That led to ministerial inflation: Lula's cabinet grew from 26 in 2003 to 37 when he stepped down last year. Some parties seem to have run "their" ministries for profit. The Communist Party, for example, has held the sports ministry since Lula took office. Under Orlando Silva, forced out shortly before Mr Lupi's travails began, it is alleged to have demanded kickbacks on some contracts and funnelled money to affiliates through fake NGOs. Some 25,000 jobs, including board and managerial posts at state-controlled firms and pension funds and in ministries' regional offices, are also in the president's gift. A senior official points out that 20,000 of these go to career civil servants, not party hacks. But the two are not mutually exclusive, points out David Fleischer, a political scientist at the University of Brasilia. The test comes when a new party takes the presidency, as when Lula took office, he says. Then there was a wholesale clearout. By the end of Lula's second term a big share of senior managers in the federal administration and at state pension funds were trade unionists or members of his Workers' Party (PT). Ms Rousseff has shown little sign that she is interested in making radical changes to this political-patronage system. She has already added a 38th cabinet member (the boss of a new civil-aviation agency) and plans a 39th (a minister for small businesses). To streamline the government bureaucracy, officials place their faith in a new public-management council, chaired by Jorge Gerdau, a businessman. There is talk that some ministries may be consolidated. To go much further, the president would have to cut the number of minis- ~~
The Economist November 26th 2011
48 The Americas ~ tries
held by her own party (currently 18), and that looks unlikely. More plausible is that Ms Rousseff will simply continue to sack the most egregious sinners as they are brought to her notice. She has been more parsimonious than Lula in disbursing funds for budget amendments pushed by individual legislators. Already her crackdown on ministerial miscreants has cut off the main (illegal) source of cash for small political parties, points out Alberto Almeida of Instituto Analise, a consultancy in Sao Paulo. Over time that might prompt a much-needed consolidation of the political system. Officials insist that the government needs a large political base to be able to approve important legislation, such as a new oil-royalty law. They talk, too, of tax and pension reform. But much of Ms Rousseff's political agenda-improving education and health, eliminating extreme poverty, and investing in infrastructure- does not require congressional approval. She could afford to be more radical in her political clean-up. • Mexico's changing drug war
Shifting sands CJU DA D J UAREZ
The drug war's fifth year throws up new trends, for better and worse years ago next week, Felipe Calderon took office as Mexico's president FandIVE launched a crackdown against organised crime. Since then there has been a horrible predictability about the country's drug war: each year the number of deaths has risen, most of them concentrated in a handful of cities. But this year both those tendencies look as if they have started to change. The annual death toll seems to have plateaued at aroundu,ooo. Hotspots have cooled, only for violence to invade places previously considered safe. Ciudad Juarez, in Chihuahua state and on the border with Texas, is the most striking example of this. For several years it has been the most dangerous place in Mexico and, by most counts, the world. A city of 1.3m, it saw more than 3,000 murders last year. Yet this year the number of mafia-related killings in Chihuahua has fallen by about a third, according to a tally by Reforma, a newspaper, as have kidnappings and car thefts. (The government has notreleased murder statistics in almost a year.) So far this year, Chihuahua state accounts for only around 15% of such murders in Mexico, down from a peak of 32%. The turnaround is the fruit of better cooperation between the municipal, state and federal branches of government, ac-
cording to Hector Murguia, Juarez's mayor. Such co-operation is not easy in Mexico, where policing is still divided between more than 2,ooo separate forces, despite efforts by the federal government to pass a law to consolidate them. Mr Murguia is particularly proud of his new chief of police, Julian Leyzaola, hired from Tijuana, where he presided over a dramatic dip in the murder rate. Mr Leyzaola, a retired army officer, has detractors: on November 17th Baja California's human-rights commission accused him of torturing detainees in Tijuana, an accusation he rejects. Others are sceptical about the relevance of the government in reducing the violence in places such as Juarez and Tijuana. In both cities the powerful Sinaloa "cartel" has been pushing to displace incumbent gangs. The dip in violence suggests that it has at last beaten or reached an accommodation with its rivals, believes David Shirk, head of the nans-Border Institute at the University of San Diego. The Tijuana mob has been all but wiped out. The head of La Linea, a rival of Sinaloa in Juarez, was arrested in July. Some of these busts may be thanks to rival cartels' tipoffs. "The government is an instrument that contributes-but whose hand is on the instrument?" asks Mr Shirk. Whatever the cause, both cities now appear increasingly to be the Sinaloa mob's turf: the army said that $15.3m in cash it seized in Tijuana this week belonged to them. Though Sinaloa's expansion may have slowed the violence in Juarez and Tijuana, elsewhere it has stirred it up (see map). Nuevo Leon, Mexico's richest state after the capital, was once one of its safest. But Sinaloa's attempts to dislodge the Zetas, their strongest rivals, from the state capital, Monterrey, have caused almost as many murders as in Chihuahua. Similarly, Sina-
I
loa dispatched a group of "Zeta killers" to cause havoc in previously-quiet Veracruz over the summer. The Zetas have retaliated, sending gunmen to Sinaloa's Pacific strongholds. Acapulco has already suffered; next may be Guadalajara, Mexico's second-largest city. It was protected by large numbers of federal police before and during the Pan American games. But the games finished on November 20th. Predicting the traffickers' next moves has become harder because many cartels have split into smaller groups. Based on a survey of messages left online and at the scenes of executions, Eduardo Guerrero, a Mexican academic, estimates that in 2007 there were u organised-crime groups active in Mexico, whereas in 2010 there were 114. Mr Murguia says that there could be ten different mobs operating in Juarez alone. Separating the big gangs from opportunistic youths is not always easy. Some teenagers are turning to amateurish extortion rackets because there are few other opportunities (see p76). "The cry heard in Mexico is employment, employment, employment," Mr Murguia says. Juarez must now hold on to its gains with fewer police. Only 2,500 federal cops patrol, down from 5,000 in January. "We don't know which side the municipal police will play for," says Hugo Almada, of the University of Juarez. Some believe that the local force has links with the Juarez cartel. But the federal cops are not wholly clean either: several dozen have been arrested over the past year for crimes including kidnapping, extortion and murder. The year has shown that the world's most dangerous city need not stay that way. Yet violence in places such as Nuevo Leon "suggests that what has happened in Juarez can happen anywhere in Mexico," Mr Shirk says. Too soon to celebrate, then. •
STATES
Gulf of Mexico
PACIFIC OCEAN
Drug-related murders January 1st - November 4th 2011 *
0
1,000
m %change on year earlier Sources: Reforma; *Includes incomplete data Trans-Border institute fromApril 16th·l•1ay 13th
500 km
Interactive: See maps of "cartel" territories and trafficking routes in Mexico at Economist.comf2011mexd rugs
The Economist November 26th 2011
The Americas 49 Electoral reform in Canada
A surfeit of MPs OTTAWA
Super-sizing the House of Commons ACK in 1994, when he was a newly B elected member of Parliament for the Reform Party and keen to change the way
Latin American integration
Peal{s and troughs
CARACAS
Yet another new regional club T WILL, says Hugo Chavez (pictured), be Ihave "the most important political event to occurred in our America in 100 years or more." Well hardly. But the inaugural get-together of the Community of Latin American and Caribbean States, a 33-country outfit known as CELAC from its initials in Spanish, to be held in Caracas on December 2nd and 3rd, does reveal how Latin America is changing. For a start the influence of the United States is declining in a region it once called its "backyard". The new body includes all the countries of the Americas except the United States and Canada. Meanwhile, the Organisation of American States (OAS), which includes them, is in such disarray that it may not survive. Brazil, Venezuela and Republicans in the us Congress have all either withheld, or have threatened to cut, funding for the OAS, for differing reasons. The clout of Spain, once seen as a model by Latin America's restored democracies, is also receding: only half the heads of state bothered to turn up last month at an Ibero-American summit, a Spanish-inspired annual event. Yet, the proliferation of regional bodies does not necessarily mean that Latin America is any more united. The Englishspeaking Caribbean apart, it has three broad trade blocks. Brazil dominates Mercosur, a relatively protectionist trade group. Chile, Colombia, Mexico and Peru, all on the Pacific coast, are more open economies trying to forge closer ties. And then there is Mr Chavez's Bolivarian Alliance for the Peoples of Our America (ALBA), an
politics was done in Ottawa, Stephen Harper argued that Canadians were among the most over-represented people in the world and that the number of seats in the House of Commons should be reduced. As prime minister of a Conservative government with majorities in both houses of Parliament, he seems to have changed his mind. The Fair Representation bill, which the government introduced last month and is pushing to get through Parliament before Christmas, will add 30 MPS to the tally of 308. The western provinces of Alberta and British Columbia, where the population is rising fast, will each get six extra seats. But Ontario will get another15 and Quebec three. Tim Uppal, the junior minister piloting the measure, said that it will move Canada closer to the elusive goal of representation by population, last met a century ago. Just redistributing the existing number of seats to reflect the westward population shift, as the opposition Liberals propose, cannot be done because it would create winners and losers, MrUppal candidly conceded. Mr Harper's is hardly the first federal government that for the sake of peace with the provinces wants only winners to emerge from the redistricting, which idea he launched ten years ago. Conceived as a political block, rather than a trade group, its aim was to free the region from the grip of the United States and "the tyranny of the dollar". ALBA signed up Cuba, Bolivia, Nicaragua, Honduras, Ecuador and three tiny Caribbean nations (Dominica, St Vincent and Antigua). But Honduras withdrew in 2010 after its president was ousted in a coup. According to the Venezuelan government, its trade with fellow ALBA members rose fromjust$1.6 billion in 2004 to $5.8 billion in 2010. Some of it is denominated in the sucre, a putative common currency. Nearly all this trade involves subsidised shipments of Venezuelan oil. ALBA has also signed up Syria and Iran as observers. Other countries in the region either abhor ALBA, or tolerate it as an irrelevance. Even Cuba, which was uncomfortable about its dependence on Venezuelan aid even before Mr Chavez was diagnosed with cancer earlier this year, is now keen to diversify its economic ties. Brazil is financing a new port on the island.
takes place every ten years following a national census. Its room for manoeuvre is restricted by the constitution and a 1985 law, which together mean that no province can have fewer seats in the Commons than it had in 1986 or than it has in the Senate. So Prince Edward Island, with 140,ooo souls, has four MPS because it has four senators, whereas Brampton West, a district near Toronto, has to get by with just one for its 17o,ooo. The bill's tinkering means that six provinces will still have too many MPs, whereas Ontario, Alberta and British Columbia will still have too few. Only Quebec will have the right number. And Canada as a whole will have a surfeit of parliamentarians compared with many other democracies. Britain, which has proportionately about the same number of MPS as Canada, is moving in the opposite direction. A law approved in February cuts the seats in the British House of Commons from 650 to 6oo. The Liberals complain that Mr Harper is squandering money on Parliament at a time when public spending is being cut. The younger Mr Harper might well have agreed it would be better to share out the existing number of parliamentary seats. But the older Mr Harper will surely have noticed that many of the extra seats will be created in areas where the ruling Conservatives are strong. For its part, Brazil has promoted the South American Union (UNASUR), which aims to develop cross-border infrastructure and defence co-operation. Tacitly, it is a vehicle for containing Mr Chavez. Seven South American countries, including Brazil and Argentina but not Chile, Colombia or Peru, are holding desultory talks about setting up a Bank of the South, another wheeze of Mr Chavez's now supposed to open next year. All this would seem to leave little room for CELAC. Its birth stemmed from Mexico's desire to be included in regional talking-shops, and from a general symbolic yearning to create a club that includes Cuba as a full member. On paper CELAC will try to co-ordinate among trade blocks, such as Mercosur and the Andean Community (but UNASUR is also supposed to do that). It will also try to stimulate regional trade and speak with one voice in international forums. If only. The lesson of ALBA is that regional clubs based on political ideology rather than national interest do not get very far. •
50
Also in this section 51 Movement in Myanmar 52 Afghanistan's post-war economy 52 Pakistan's "memogate" 53 Indonesia's security reforms 54 Banyan: Tried and found wanting
For daily analysis and debate on Asia, visit Economist.comjasia Economist.comjblogsjbanyan
Governing China
The Guangdong model FOSHAN AND GUANGZHOU
One Chinese province adopts a beguilingly open approach-up to a point NLIKE attention-seeking politicians elsewhere, senior Communist cadres in China like to keep their ambitions hidden.If anything, they signal grey conservatism, stressing how little they wish to change things. But as the country awaits a change of its leadership late next year, some high officials are up for a bit of selfpromotion. In Guangdong province in the south the Communist Party chief, Wang Yang, is dropping hints that his more liberal style of governing might offer a better way for running the country. Guangdong has long been the most vibrant and economically liberal province in China. Now the idea that economic liberalism might be matched by greater political openness has come to be called the "Guangdong model". A prominent supporter is Xiao Bin of Sun Yat-sen University in Guangzhou, the provincial capital. On the blackboard, he draws a picture of an egg. He makes chalk marks on the white to show how changes can be made in the way the party rules, while leaving the yolk- for which read a Communist Party monopoly on power- unmarked. Mr Wang, who is 56, has been a member of the ruling Politburo since 2007. He knows well how to keep within the party's bounds. He rarely talks of the Guangdong model, which would sound like a slap at others. But among academics and online commentators, the term has blossomed.
U
Guangdong newspapers occasionally talk about it. Fans of the model fiercely defend it against advocates of its rival promoted by the party chief of Chongqing deep inland, Bo Xilai, who has a flair for publicity. Both Mr Wang and Mr Bo may join the Politburo's standing committee next year, when seven of nine members, including President Hu Jintao and the prime minister, Wen Jiabao, will step down. Mr Bo trumpets the importance of state-owned enterprises, traditional socialist values and the inspirational power of Mao-era songswhile getting tough on organised crime.
Maoist websites lionise Mr Bo; the Chongqing model is held up in shining contrast to that of Guangdong and its "capitalist roaders". Six decades of Communist rule have been punctuated by battles between the left (as Mr Bo's supporters are proud to call themselves) and the right (a label that carries a stigma to this day). This battle is exceptional, however. It is being fought out not in arcane commentaries in party newspapers but in open debate. Both camps hold symposiums about their respective models. A book is out about the Chongqing model. In literary terms, Mr Xiao admits that the Guangdong camp is lagging somewhat. Perhaps the debate generates more heat in public than it does in the Communist Party itself. A researcher at Guangdong's party school says Guangdong and Chongqing are not in opposition. Both regions, he says, are learning from each other. For example, Chongqing is building the development zones to attract investors that Guangdong pioneered in the 1980s. Guangdong, he says, could learn from Chongqing's efforts to absorb migrants from the countryside into city life. Guangdong academics have studied Chongqing's experiments in creating markets for rural land, where powerful restrictions apply even in "liberal" Guangdong. In the political realm, however, Mr Wang's supporters point to changes which, they say, are distinctive. One concerns the role of trade unions, a rather sensitive area for a party that is still unnerved by the role that Solidarity played in Poland in the 1980s to bring down Communist power. Mr Wang's rethink was triggered by a spate of 2oo-odd strikes last year in the Pearl River delta that began in May with ~~
The Economist November 26th ~
Asia 51
2011
workers downing tools at a Honda carparts factory in Foshan, near Guangzhou. Mr Wang, says an academic, chose not to see the strikes as a threat to political stability. Indeed he expressed sympathy with the workers' demands (which is perhaps easier to do at companies owned by foreigners). Elsewhere in China ringleaders are commonly rounded up once strikes have been settled, but those in Guangdong were not. All the incidents, the academic says, had "happy endings", with pay increases of 30-40%. Buying off strikers is common enough in China. But Mr Wang went further, encouraging state-affiliated trade unions (there are no independent ones) to be more active in representing workers' interests. Trade unions in China are normally little more than creatures of management, run by party cadres. Prodded by Mr Wang, Guangdong's unions began encouraging collective bargaining, a practice officially authorised but widely disliked by local officials who fear worker activism and upward wage pressures. Mr Wang's views did not strike an instant chord with his subordinates. Most participants at one meeting on how to handle the strikes "didn't get it" when he called for a hands-off approach, says someone with knowledge of the proceedings. By contrast, during a large-scale taxi strike in Chongqing in 2008, Mr Bo was more interventionist. He held an unusual televised meeting with drivers, but later launched a sweeping anti-mafia campaign that resulted in a wealthy businessman accused of organising the strike being sentenced to 20 years in prison for gangsterism and disrupting transport. Supporters of the Guangdong model also point to the greater leeway Mr Wang has given NGOS, which are heavily circumscribed in China. Their registration in Guangdong, and especially in Shenzhen, a trailblazing economic zone bordering Hong Kong, involves fewer hoops. Mr Wang has been credited with promoting more open access to information about government spending. In 2009 Guangzhou became the first Chinese city to publish all its budgets. It is never entirely clear how much of these initiatives have been taken by Mr Wang himself. Guangdong in general and Shenzhen in particular have long enjoyed unusual freedom to experiment. This year Mr Wang has been promoting the goal of a "happy Guangdong" (the pursuit of which is enshrined in the province's new fiveyear plan). Public happiness, assessed by opinion polls, is being introduced as a new criterion for judging local leaders' suitability for promotion. Yet unhappiness remains rife, and in this Guangdong is no exception. Dissatisfaction is widespread among the more than 36m migrants in Guangdong, one-
third of the provincial population, many of whom work in harsh conditions. Protests, sometimes violent, are common. In Dadun village, on the edge of one of Guangzhou's satellite towns, a notice outside the government headquarters promises rewards of up to 1o,ooo yuan ($1,600) for turning in "criminals" involved in large riots in June triggered by security guards roughing up a street hawker. The rioters were migrants who work in countless small jeans factories, one even in a temple courtyard, trimming threads and stamping on studs.
Nor does the Guangdong model extend to free and fair elections. In September Dadun held a ballot for seats in the local legislature. But only its fewer than 7,000 Cantonese inhabitants were allowed to vote, and not the 6o,ooo-odd sweatshop labourers from other provinces. In a village near Foshan, residents elected an independent candidate, ie one who did not have party backing. Plainclothes goons now keep watch on his home. A villager confides her support for the new legislator only in a hushed tone. Mr Wang's egg-yolk remains inviolate. •
Movement in Myanmar
Eye-rubbing SI NGAPORE
The Lady runs for a seat, and Hillary Clinton calls on the generals
E
VEN after a year of often startling change, the pace of events in Myanmar can still surprise. On Novemben8th, only a year after its leader, Aung San Suu Kyi, was released from a long stint of house arrest, the National League for Democracy (NLD) said that it would formally re-enter politics and compete in upcoming parliamentary by-elections. The opposition party had boycotted last year's national elections, on the grounds that they were rigged in favour of the army junta and its proxies. The NLD was then disqualified as a political party. The NLD now says it is satisfied by various changes to the electoral lawsand the government appears satisfied to see the party unbanned. Ms Suu Kyi says that she herself will contest one of the seats up for grabs. She is wildly popular, and her participation would invest the
Parliament first, president next?
parliament with much-needed legitimacy, though it will remain heavily dominated by parliamentarians chosen by the army. Thein Sein, president since March and the man chiefly responsible for initiating Myanmar's thaw, got his reward at the annual bash in Indonesia of the Association of South-East Asian Nations (ASEAN). There, Myanmar was promised the chairmanship of the regional block for 2014. This represents a diplomatic breakthrough. Earlier bids ran up against international objections to Myanmar's dismal record on human rights. But the really big endorsement came on Novemben9th, when President Barack Obama announced that his secretary of state, Hillary Clinton, would visit Myanmar on Decembenst. She will be the highest-ranking visitor from the United States since the Burmese armed forces seized power in 1962. The country is gently being released from the diplomatic deep-freeze. The Myanmar government has long coveted this sort of high-profile visit, which is coming as a reward for moving away from the military dictatorship of old. But both America and Myanmar are also motivated by another factor: China. Years of diplomatic and economic isolation have left Myanmar under the influence of a giant northern neighbour with no scruples about doing business in the resource-rich country. Some are now keen to lessen the country's dependence on China. They hope that after Ms Clinton's visit, Western sanctions will be eased and investment will start to flow. America, for its part, may hope to detach Myanmar from China's orbit as part of Mr 0 bama's new "pivot" towards Asia. Some Burmese may wish that their country will not become a new cockpit of superpower rivalry.
52 Asia
The Economist November 26th 2011 Pakistan's "memogate"
As you were ISLAMABAD
Pakistan is forced to find a new ambassador to Washington
FTEN during Pakistan's turbulent history has the army's mth Brigade 0 swept out of its headquarters in Rawal-
Afghanistan's post-war economy
Investing or a-whoring? KABUL
Even on optimistic assumptions, the economy will barely tread w ater
connoisseurs of South Asian Baroque, few places are more heavenly FthanOR Sher Pur, a Kabul neighbourhood where cavernous houses boast garish colours, outsize chandeliers, sparldy columns and giant concrete eagles on the rooftops. These startling dwellings were quickly let a decade ago to hordes of foreign contractors working on multimillion-dollar development projects. But now the district is emptying, as the splurge of aid recedes. Until recently USAID rented one 18-room giant for $24,000 a month. It is now on the market for $15,000 a month, and the agent will take much less. Since 2001 vast sums of Western money have been spent on Afghanistan- $440 billion by America alone. Foreign money has dominated the economy, powering breakneck consumption. Exports account for a paltry 2.5% of Afghanistan's GDP. Soon NATO will start cutting its 130,000 troops in the country, to perhaps as few as 2o,ooo by 2015. Many fear an economic depression when foreign spending dries up. But a new forecast by the World Bank suggests that, if it is lucky, Afghanistan can avoid disaster, even if that means only treading water for the next decade. For one thing, most foreign spending never came into the country in the first place, because it paid the salaries of foreign soldiers and their suppliers. Much aid spending has also gone on foreign salaries and Landcruisers. That spending will not be missed.
pindi, scooted to Islamabad 20 minutes away, and effortlessly taken over the government. These days, under General Ashfaq Kayani, the soldiers know it is wiser to rule from behind the scenes, with a weak civilian government taking the blame for the country's problems. On November 22nd the army heaped humiliation on the government, pressing it to jettison Pakistan's ambassador to the United States, Husain Haqqani, a smooth operator, over allegations that he crafted an offer to rein in the Pakistani army and its spy agency in return for American help in averting a feared coup. The offer to the American administration was made in an unsigned memo, which Mr Haqqani denies writing. It was sent to America's military high command in May, during a time when relations were febrile following the killing in Pakistan by American special forces of Osama bin Laden. The memo's existence was revealed only in October, by the controversial American businessman of Pakistani origin who delivered it. It was supposedly composed on the instructions of Mr Haqqani acting on behalf of President Asif Zardari. The incendiary documentproposedthatgovernment would dismantle the wing of the army's Inter-Services Intelligence responsible for dealing with th e Tali ban, in return for American support. Though the bin Laden raid was a huge embarrassment to the army, the "memogate" scandal showed again that real power in Pakistan still lies with the soldiers. No evidence pins the memo to Mr Zardari. Its recipient, Admiral Mike Mullen, then chairman of the Joint Chiefs of Staff, says he did not take it seriously. The army and the friendly television stations it whipped up forced Mr Haqqani's exit before an investigation into the matter The World Bank thinks current GDP growth of 9% a year will fall to s-6%. Rapid population growth, however, means that, measured by GDP per person, one of the world's poorest countries will hardly get any richer. Even this forecast depends on heroic assumptions: years of good harvests, no worsening of security as NATO leaves, an open-ended Western commitment of $7 billion a year to pay for Afghanistan's police and army, and the successful exploitation of the country's vast but un-
had even begun. Mr Haqqani had once written a book detailing the links between the army and jihadists. In America his connections ensured a direct line to top decisionmakers. The armed forces had never liked having the country's most important relationship entrusted to him. The government has saved a little face by appointing Sherry Rehman to succeed Mr Haqqani as ambassador in Washington. She is a rare politician of substance in the ruling Pakistan Peoples Party. She has a record as a campaigner for human rights. And she supports the government's welcome attempts to improve ties with India, the army's eternal enemy. Yet the soldiers do not seem to mind her. She argues for more American understanding of army views that, she says, are shaped more by fears about a dangerous region than by self-serving ambition. The m th can stand easy for now.
Sherry Rehman won't be writing memos tapped mineral wealth. (Mining experts are sceptical about that, though the minister responsible insists that a state-owned Chinese company which won the rights to a vast copper deposit in 2008 will end its foot-dragging and begin work soon.) The Bank says more money should be given directly to the government rather than to foreign contractors. Yet the weak administration already struggles to spend what it gets. Dismantling the war economy may ~~
The Economist November 26th 2011 ~ help
businesses flourish. Skilled workers who have spent the past ten years earning inflated salaries doing menial jobs for foreigners will become more affordable for Afghan companies- and more productive. Property has much further to fall. One optimist argues logistics companies that kept NATO in supplies could give Pakistan's truckers a run for their money. But, as the World Bank notes, the development of farming and even simple industries calls for Afghans to show more enterprise. One businessman who made millions from NATO contracts says his friends are holding back because they worry 2015 will bring more violence and government corruption. "What will businessmen who have made fortunes on military contracts do?" a Western adviser wonders. "Will they set up successful enterprises or will they retire to Dubai and spend their money in whorehouses?" The country wants to know. •
Indonesia's security reforms
Unholy muddle JAKARTA
At odds over dealing with intolerance and terrorism
HE world's most populous MuslimT majority nation, Indonesia, has long had a problem in some parts of the archipelago with religious extremism, intolerance and the sort of terrorism that can flow from both. The country has had a good deal of success in combating Islamist terrorism since the bombings on the island of Bali in 2002, which killed 202 people. But continuing suicide-bomb attacks and the discovery of terrorist training-camps suggest that Indonesia remains in danger. Judging by recent events, however, the country has yet to develop a clear strategy to deal with the threat. Too often, different bits of the state give out different, even contradictory, signals. The result is a dangerous muddle. Thus on Octoberuth lawmakers at last passed a new security bill, the Law on State Intelligence. This was the culmination of years of debate, in many ways a tribute to Indonesia's vibrant new democracy. Legislators wanted to produce a bill that sharpened the effectiveness of the country's multitude of intelligence and anti-terrorist agencies without encroaching too much on hard-won civil rights. In the end, the law redefined the roles of those agencies, strengthening their powers to intervene against "opponents" working against the "national interest". A tough new stance from the state, it might seem. Indeed, just the sort of law that might have made it eas-
Asia 53 ier to gather evidence against people such as Abu Bakar Basyir, a notorious radical cleric. At the conclusion of the latest case against him in June, Mr Basyir was sentenced to 15 years in prison by a district court for inciting terrorism and funding terrorist cells. Yet only two weeks after the new law was passed the high court in Jakarta, the capital, decided on appeal to reduce by six years the sentence handed out to Mr Basyir by the lower court, partly as "an act of humanity" for the "elderly" (73·year·old) man. This follows previous court cases in which Mr Basyir either avoided a guilty verdict altogether or had light sentences reduced. Furthermore, his lawyers will now petition the Supreme Court to strike down the remaining nine years. They must have every chance of success. Well-meaning parliamentarians can legislate all they like, it seems, but if the courts do not mete out sufficient punishment then the state will remain ineffective. Take another case. In February three members of a peaceful Islamic movement, the Ahmadiyah, considered heretical by orthodox Muslims, were beaten and hacked to death in broad daylight by a frenzied mob in west Java. Their end was caught on film. Despite the extraordinary violence, in August the perpetrators were handed down only token prison sentences, ranging from three to five months. There was an outcry, but the sentences stood. The guilty are now all free, including one 17·year·old treated as a hero on his return home. The government seems helpless; ministers merely talk of respecting the independence of the courts. Yet an unreformed judiciary seems to be dominated by religious conservatives, within a nominally secular state, or judges who fear Islamist radicals. The feebleness of the response to the murders of the three Ahmadis seems to have encouraged others. Since February several
Basyir: nine years and falling
more vicious attacks on Ahmadi houses have taken place. Provincial governments have even passed decrees, yet to be challenged in court, banning all Ahmadiyah activities. The teenage thuggery of the Ahmadiyah case and the relative sophistication of the terrorism that Mr Basyir is accused of orchestrating have a direct link. Once launched on his trajectory of violence, today's thug can readily be converted into tomorrow's terrorist. Andreas Harsono of the local office of Human Rights Watch argues that the anti-Ahmadiyah campaign is now being used for exactly this purpose, that is, to motivate and recruit young extremists. Sidney Jones of the International Crisis Group, a think-tank, says that rather than focusing on new legislation, the government needs to design a well-funded and comprehensive programme, involving better police training and community work, to prevent extremism spreading in the first place. To complicate matters further, the government's showpiece Law on State Intelligence will probably end up in court itself. A coalition of human-rights organisations has vowed to challenge it in the Constitutional Court. Despite its efforts to balance the demands of security against civil rights, they argue that too much power is being taken from the police and handed to military intelligence, with little judicial oversight. They also argue that the definition of national security is too broad. It could be used to target separatists with legitimate political arguments, such as in West Papuam, for instance. There, a cackhanded attempt to break up a political rally left several dead on October 19th. Clearly, a balance needs to be struck between effective legislation, the protection of hard-won rights and action against religious extremism. Regrettably, Indonesia still seems a fair way off from striking it. •
The Economist November 26th 2011
54 Asia
Banyan
I
Tried and found wanting
Asia's dism al record on tackling war crim es is an indicator of illiberalism
EHIND a huge bulletproof screen sit judges, lawyers and three wizened former leaders of the Khmer Rouge. In their 8os, the B defendants may be the last people to be prosecuted over the deaths of at least 1.7m people in 1975-79, when the Khmer Rouge exercised monstrous power in Cambodia. Gawped at daily by busloads of onlookers- monks, black-clad teenagers, turbaned villagers, earnest foreigners- the men can expect to pass much of the rest of their lives in the Extraordinary Chambers in the Courts of Cambodia, a hybrid local and United Nations creation that sits just outside the capital, Phnom Penh. The tribunal has an impossible job. The crimes in its ambit are too many and various for more than symbolic justice to be seen to be done. Set up in 2003 and now costing $40m a year, it has so far managed a single conviction, of Kaing Guek Eav, alias Duch, who ran the infamous Tuol Sleng prison, where 14,000 entered and only a dozen came out. Though a monster, he was a relatively low-ranking one, with a degree of remorse. On November 21st prosecutors opened the case against the three defendants in "case 002" (numbered as if hundreds more were expected). The three are Nuon Chea, "Brother Number Two" and Pol Pot's right-hand man; Ieng Sary, the Khmer foreign minister; and Khieu Samphan, who was once head of state. Despite mounds of evidence, convicting them will be agonisingly complicated. The charges, including war crimes, torture and genocide against minorities, are cumbersome. To make things easier, the court is breaking the trials into pieces, starting with a case over the forced removal of city dwellers to the countryside in 1975. But the case could take years, and the three may never get to answer the graver charges. Then there is political meddling and incompetence. No case 003 seems likely. That looks suspiciously convenient for Cambodia's current rulers and their cronies, anxious to avoid close scrutiny of their parts in the killing fields. Court officials have resigned amid fierce public feuding, some between locals and foreigners. Critics say that some judges look partial or corrupt, so the court's credibility is at stake. Relatives of some victims are boycotting the court, and donors look twitchy. Still, the proceedings' integrity is still just about intact. The same cannot be said for Asia's other current war-crimes trial, in
Bangladesh. In 1971 several hundred thousand or more (mostly civilians) perished at the hands of Pakistani soldiers and local accomplices losing the bloody fight against secession. On November 20th the first defendant at the country's International War Crimes Tribunal, Delawar Hossain Sayadee, was charged with genocide, murder, rape, arson, abduction and torture. Mr Sayadee is a leader of a prominent Islamic party,Jamaat-e-Islami. Six opposition figures w ill probably join him in the dock. The tribunal could have been laudable. This was a horrific spell of history, and justice might have helped reconciliation. Instead, it risks being a travesty. The prosecutions look biased. One defence lawyer talks of a "climate of vendetta" against opponents of the prime minister, Sheikh Hasina. None of the chief perpetrators, Pakistani soldiers, will be in court. Nor will pro-independence militants be charged over smaller but still gruesome massacres of Biharis, migrants who sympathised with Pakistan. The defendants seem to have been made targets because of their political role today as much as for earlier wrongs. Jamaat is an ally of the main opposition; some of the accused were ministers in Bangladesh's previous government. Should they be convicted and hanged in time for the next election, that would handily weaken the opposition. Yet a nakedly partisan trial would only deepen historical wounds, not salve them. Outsiders, including the American government who on ce advised the court, look increasingly wary. Human Rights Watch says that witnesses and lawyers are being harassed, and defence lawyers lack time to prepare. Lawyers are blocked from challenging the judges' impartiality. They say that the tribunal chairman should go, because he presided over an earlier investigation and mock trial in 1994, which condemned the accused as war criminals. They complain, too, that foreign lawyers, in theory allowed in the "international" court, are in effect barred. As a consequence of these problems, says a British lawyer, the trial "lacks even the appearance of independence or impartiality". Journalists attempting to report as m uch have been intimidated.
Rule by strongmen, not by law Asia seems unable to follow Europe, Africa or South America in setting up either strong tribunals or truth commissions, such as South Africa's, to address old horrors. Nor will it deal with recent ones. In Sri Lanka much evidence suggests war crimes against civilians took place in 2009, as the civil war against the brutal Tamil Tigers reached a final climax. On November 2oth commissioners who had led a public inquiry into "lessons learnt" from the war handed the government their report. Yet the government refuses an inquiry into those final days. Even raising the matter is risky. A UN report this year on the topic caused a bitter diplomatic row. On Novemben8th the ex-army chief, Sarath Fonseka, a jailed political rival of the ruling Rajapaksa family, got a new three-year prison term for suggesting that political leaders ordered rebel prisoners to be shot. Asia pays a price for failing to secure justice over war crimes. Gary Bass of Princeton University argues that well-run trials bring real benefits. They help address "living wounds" that linger for decades after genocides, encouraging reconciliation, for example, by naming individuals, not whole groups, as guilty of particular wicked acts. More generally, they encourage respect for the law and impartial institutions. Sadly, for large parts of Asia with weak democracy and illiberal strongmen in charge, the chances of a fair reckoning for vile crimes are slender indeed. •
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SPECIAL REPORT WOMEN AND WORK
Closing the gap
Women have made huge progress in the workplace, but still get lower pay and farfewertop jobs than men. Barbara Beck asks why
:
ACKNOWLEDGMENTS Many people helped in the preparation of this report, some of whom asked to remain anonymous. The author is grateful to them all. Apart from those mentioned in the text, partiwlar thanks are due to the many experts at the DECO and the World Bank who generously gave of their time and knowledge. and to Linda Bash, Anne Bouverot. Beth Brooke, Sandrine Devillard-Hoellinger, Vasantha Erraguntla, Kim Gandy. Nandita Gurjar, Heidi Ha rtmann, Karen Kornbluh, Emily Lawson, Sandra Lawson, Jea n Lee, Dana Lewis. Pirkko Maki nen, Charlotte Oades, Fiona O'Hara, Taru Paivike, Minna Salmi, Nicole Schwab, Kate Turner, Melanne Verveer. Susan Vinnicombe and Wang Bo.
WHEN HILDA SOLIS was at high school, a male career adviser told her mother that the girl was not college material; she should consider becoming a secretary. Hilda was furious. One of seven chi ldren born to working-class immigrant parents, she had high ambitions. She did go to college, became a lawmaker in California and is now secretary of labour, the first Latina to hold a cabinet post in America's federa l government. On Tarja Halonen's first day at work in the legal department of a trade union she answered the phone to a man who, hearing a female voice, asked to speak to one of the lawyers. She informed him that he was speaking to one. Things got better after that. Following her stint as a lawyer she served in Finland's parliament for over 20 years. Since 2000 she has been the country's president, the first CONTENTS female in the job. Both these incidents happened in the 1970s. They would 5 Female labour markets be much less likely today, partly The cashier and the carpenter because political correctness has made people more cautious (not 8 Education least thanks to a series of highAworld of blueprofile sex-discrimination court stockings cases) but mainly because attitudes really have changed. josef 9 Work and family Ackermann, the chief executive Baby blues of Deutsche Bank, caused a storm 11 Topjobs earlier this year when he said that Too many suits appointing women to the bank's executive board (which currently 14 Women in China has none) would make it "prettier The sky's the limit and more colourful". A German 16 Looking ahead government minister, lise Aigner, Here's to the next advised Mr Ackermann to look half-century for pretty and colourful things in a field of flowers or a museum. There is a new drive on to change mindsets further. Organisations ranging from the United Nations to the OECD and the World Bank are paying more attention to women. Some European countries have already introduced quotas to get more of them on company boards and others may follow. Every self-respecting firm, bank, consultancy and headhunter is launching initiatives, conducting studies and running conferences on how to make the most of female potential. Are these efforts still needed? In many emerging markets women remain second-class citizens, lacking basic rights and suffering violence and many kinds of disadvantage. In the rich world most of the battles about legal and political rights have been won, and on the economic front too women have come a long way. It is easy to forget that even in developed countries they arrived in strength in the labour force only a few decades ago. Since 1970 the proporAlist of sources is at tion of women of working age who have paid jobs across the rich world Economist.comfspeda lreports has risen from 48% to 64% (see chart, next page). There are large variations An audio interview with from country to country: in parts of southern and eastern Europe only the author is at about half of them go out to work, whereas in most of the Nordic counEconomist.comfaudiovideof spedalreports tries well over?o% have jobs, close to the figure for men. In America for a ••
SPECIAL REPORT WOMEN AND WORK
Labour-force participation rate 2010, %
OECD average,% 0
20
40
60
China
it
Finland United States
i
Britain Germany France Spain Brazil Japan Italy
~
100
• • !
I I
Sweden
India
• 80
i
I t
i i i :i i i i I ii i ~ f '
Women ;n bus; ness
i
US, 2010, %
0 CEOs'
20
Executives' Board seats* 1
~tanagementl l
while early last year more women were working than men- until the recession caught up with them. But the broad trend in most countries is still slightly upwards. Claudia Goldin, an economics professor at Harvard who has studied American women's employment history over the past century or so, calls the mass arrival of women in the workplace in the 1970s a "quiet revolution". Of course there have always been women who worked outside the home, but the numbers were much smaller. Until the 1920s working women were mostly young and single and had jobs in factories or as domestic servants that required little education. From the 1930s onwards many more girls went to high school and college and got jobs in offices where conditions were much more agreeable. In the 1950s large numbers of married women took up work as secretaries, teachers, nurses, social workers and so on, often part-time. By the 1970s their daughters, having watched their mothers go off to work, took it for granted that they would do the same. Many of them had also seen their parents get divorced, which made having an income of their own seem like a wise precaution. And they had the Pill, which for the first time in history provided them with reliable birth control. That allowed them to embark on a career first and leave marriage and children until later. It also made it worthwhile to invest more in their education. By1980 American women were graduating from college in the same numbers as men and have since overtaken them by a significant margin. What happened in America was echoed, to a greater or lesser degree, in most other industrial countries. The dual-income couple was born. This has been a great boon to all concerned. National economies benefited from the boost in growth provided by many extra workers acquired over a relatively short period without the trouble and expense of rearing them or the upheaval of importing them. Employers enjoyed a wider choice of employees who, despite equal-pay legislation, were often cheaper and more flexible than men. And women themselves gained the freedom to
80
100
i
i , i·
professional
t
60
!
I
rop~m••· l i
40
Sou1ces: ILO; OECD: Ca:alyst Resea1ch
t; j
i i ii ' Fo1tune 500 companieS
pursue a wide range of careers, financial independence and much greater control over their lives. These additional workers are spending money, paying taxes and making the economy go round. No wonder policymakers everywhere are trying to encourage even more women to take up paid work to boost output. A further reason to welcome them is that in many developed countries, as well as in China, falling birth rates have started to cause working populations to shrink and the number of elderly people to rise steeply, with ominous consequences for economies in general and pensions in particular. More working women could help offset the decline in the labourforce. Womenomks Perhaps surprisingly, there is little work on the macroeconomic effect of all the extra women who have entered the labour force over the past four decades, but McKinsey reckons that America's GDP is now about 25% higher than it would have been without them. Kevin Daly at Goldman Sachs, an investment
Back in the 1990s women in rich countries seemed to be heading towards a golden era. Now there is a palpable sense offrustration bank, has calculated that eliminating the remaining gap between male and female employment rates could boost GDP in America by a total of 9%, in the euro zone by 13% and in Japan by as much as 16%. Since not even the equality-conscious Nordics have yet managed to get rid of the employment gap altogether, it seems unlikely that gains on this scale will be realised in the foreseeable future, if ever, but there is certainly scope for improvement in some rich countries and even more in emerging markets. In the BRIGS and other fast-growing developing countries the gap is already narrowing. Employers too have reason to be grateful for the boost to their labour force from the extra women, not least because talented people are in short supply the world over. Since women make up half the talent pool (though their interests and preferences are often different from men's, of which more later), get-
~~
SPECIAL REPORT WOMEN AND WORK
ting more of them into work should help alleviate the shortage, all the more so %of male earnings since there are now more university-educated women Japan United Sweden than men in most rich counStates France Finland Britain tries (and some emerging ones too). .. ' 50 A number of studies have shown that the pres.....~................................ ". 40 ence of a critical mass of women in senior jobs is positively correlated with a company's performance and possibly with higher profits. 20 None of them has demonstrated a causal link, but it is not implausible that compa10 nies will benefit from a more diverse workforce with a j_ 0 broader set of ideas. Many of 201QI 1980 their customers are probably 0• lates· availa:Jie female. In Europe and America women decide on 70-80% of all household purchases and strongly influence buying decisions even for items such as cars and computers that are generally seen as male preserves. For women themselves it has been liberating to be able to choose almost any kind of career. If they wish (and can find a husband who will support them), they are still free to devote themselves to full-time child care and domestic duties- unlike men, who rarely have that choice. But these days most of them, for reasons ranging from money to the desire for self-fulfilment, want to work outside the home. They have made great strides in all kinds of careers, but they still find it much harder than men to bag the most senior jobs. The picture is much the same everywhere: men and women fresh out of college or university are being recruited in roughly equal numbers; half-way up the ladder a lot of the women have already dropped out; and at the top there are hardly any left. The rate of attrition in the middle ranks has slowed a bit in recent years, but the most senior jobs remain almost exclusively male. Women make up just 3% of Fortune 500 cEos. And despite sheaves of equal-pay legislation, women get paid less than men for comparable work. That is partly because they often work in different fields, and many of them are parttimers with lower hourly rates. But even in identical jobs they earn slightly less than men from the beginning, and as time goes by the gap gets ever bigger. Across the OECD it now averages 18%. That is a lot less than what it was 40 years ago (see chart), but in recent years it has stopped narrowing. Back in the 1990s women in rich countries seemed to be heading towards a golden era. They were continuing to move into the workforce in ever-increasing numbers, more opportunities were opening up for them and the pay gap with men was getting smaller. Now there is a palpable sense of frustration. Catching up with men, particularly at the top, seems to be taking much longer than expected. At the same time women in some of the richer emerging markets seem to be pushing ahead. In China the numbers in senior positions are rising across the board, and in India women are getting top jobs in the crucial IT industry. This special report will explore the reasons why progress in the rich world seems to have stalled and what can be done about it. It will start by explaining what sort of work women do, and why that matters. • Wage gap
Female labour markets
Difference between average earnings of full-ti me male and female employees
The cashier and the carpenter
· ·~···· ~
·-::s;::::;;-.. .... . . . ... . . . . .
-=
Men and women do different jobs for different pay IN 1964 LADYBIRD BOOKS, a British publishing company, launched a series of small picture books to help young children learn to read. They featured Peter and Jane, their dog, their house, their toys and the rest of their little world. Their dad went out to work and their mum stayed at home and looked after Peter and Jane. By the late 1970s, after a couple of updates, their world had changed slightly: dad did more things around the house and Jane was wearing jeans rather than skirts. But she still spent a lot of her time at home playing with her doll or helping mum. Peter preferred to be out and about with dad. The books are still available, but their charm is now of the vintage variety. When they were first published, families in most industrial countries were just like Peter's and Jane's. In America in the early 1970s more than half of all families with children consisted of a breadwinner husband, a stay-at-home wife and two or more kids; now only a fifth do. Instead there are lots of single-parent households, and even if couples live together they no longer necessarily marry. If they do, the wives are likely to go out to work, whether or not they have dependent children, and take only a short break for maternity. Life is too expensive for most families to be able to manage on one pay cheque. In most rich countries the dominant model now is the two-earner family, with both parents working full-time. Men are still more likely than women to be in paid work. Across the OECD countries some 83% of men of working age are in the labour market, compared with 64% of women. But the share of women at work is still rising. In the Nordic countries the gap between men and women has almost gone and in most of the big rich countries it is only ten or 15 percentage points. In the emerging markets it is much wider, not least because women do a lot of unpaid work in family businesses and farms that do not show up in the figures. However, in China the gap, at about 12 percentage points, is smaller than in many Western countries. Even in rich countries the numbers are not all they seem because women generally put in far fewer hours than men. Measured by how many full-time jobs those hours would add up to, the average employment gap between men and women in the OECD widens to around a third. That is because women, particularly if they have children, are much more likely than men to work parttime (see chart 1, next page), and even in full-time jobs they work shorter hours. A woman's place The main reason why
~~
SPECIAL REPORT WOMEN AND WORK
~
women do not put in long hours at their jobs is that they work long hours at home. Housework and child care the world over, but particularly in poor countries, are still seen mainly as a woman's responsibility, whether or not she also has a formal job. Even in the rich world women spend at least twice as much time as men on unpaid work: an average of 33 hours a week, against16 for men. Where working women are the norm, as in the Nordic countries, the gap between the unpaid hours put in by men and women are smaller, though not negligible; where more of them stay at home, as in southern Europe, and particularly Japan and South Korea, it is much larger. It may be unfair, but by working shorter paid hours, women are managing to achieve a reasonable balance in their lives. In a regular survey produced by the European Foundation for the Improvement of Living and Working Conditions, only 16·18% of women (depending on whether they have young children) across Europe report dissatisfaction with their work-life balance, against 20-27% for men. The most vexing gap between the sexes is in pay. Almost all rich countries have laws, passed mostly in the 1970s, that are meant to ensure equal pay for equal work, and the gap did narrow noticeably for a while when women first started to flood into the labour market. In America, for instance, it has halved since 1970, from 40% to 20%. But most of those gains came in the early years and have tailed off. Across the OECD the difference in male and female median hourly earnings now averages around 18%, but with large and sometimes surprising variations (see chart, previous page). Cheap at the price One explanation for the persistent differences is that men and women, except the most highly educated ones, often work in separate labour markets. Women are concentrated in teaching, health care, clerical work, social care and sales; they are underrepresented in manual and production jobs, maths, physics, science and engineering and in managerial jobs, particularly at the senior end. They are also much more concentrated than men in just a few job categories. Half the employed women in rich countries work in just 12 of the no main occupations listed by the International Labour Office (ILO). The jobs in which men work are spread far more widely, from construction workers to top managers. In America women have in fact made considerable progress in getting into a range of jobs that used to be male preserves, according to a recent paper by the Institute for Women's
II
It's a woman thing Part-time employment•, 2010.% 0
Netherlands
10
20
30
40 ;'
I
I ;i I if I • I i I i
50
!
60 r'
70
i
Britain Germany Japan
OECD average Sweden
u" ;ted SOtffi Finland SoUice: DECO
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•
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~
i; I
• People w1o us Lally wo1k less than 30 hou1s a week 111 t1en main JOb
r
Smaller hit, slower recovery Women and men on non-farm payrolls i n the US, '000
·············-·····-·················-····--·····-····-·-·-·-···········-···········-·-·-················ .................................. 72 ~·ten
·-··--·-······........ ...........................,........._ ,_______.... _.__ .. _ _...... . . . 70 -
-....... ....... -·--·
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2007
08
09
10
11
SoUices: IWPR; US BUieau of laboUI Stat1s:ics
Policy Research, a think-tank in Washington, DC. For example, the share of women dentists went up from under 2% in 1972 to over 30% in 2009; that of female lawyers from 4% to 32%; and that of women pharmacists and photographers from the low teens to half. In Finland, where medicine and law used to be maledominated, the majority of doctors and lawyers are now female, as are quite a number of housepainters, says Eeva·Liisa Inkeroinen, a director at the Confederation of Finnish Industries. But in America even now very few women want to become carpenters, electricians or machinists, and men show no interest in becoming dental assistants or hairdressers. During the 1970s and 1980s the labour markets for men and women became less segregated, but that trend came to a halt in the mid-1990s. Younger women are now actually more likely to work in segregated occupations than older ones. That is a worry because there is a strong link between the concentration of women in an occupation and the level of pay. Jobs dominated by women, such as teaching and nursing, pay less across the board. If women become more prevalent in fields such as medicine, will relative pay drop as a result? One place where women seem to be both welcome and happy is the public sector. New work in 12 countries commissioned by the OECD and the World Bank found that the share of women in public-sector employment in all of them except 'fur· key was much higher than their share in total employment. In Sweden, Finland and Denmark, where women make up roughly half the labour force, their share in public-sector employment is a remarkable 70%. The biggest attraction of the public sector is that, for women with the same qualifications and skills, it almost always pays better than does private industry. For men the differences are much less pronounced. The public sector is also more likely to promote women to senior jobs. Figures are hard to come by, but in rich countries women typically hold 30-40% of senior managerial posts in central government. Hours and conditions too are usually more congenial and maternity arrangements more generous. So with better pay, conditions and promotion prospects, it is no wonder that the public sector is the employer of choice for so many women. But the debt crisis has thrown a spanner in the works, because public-sector jobs in many countries have been drastically cut back. That is now beginning to hit female employment disproportionately hard. In America women at first seemed to be weathering the recession rather well. Employment declined for both men and women, but much more for men (see chart 2) because initially the biggest job losses were in male-dominated sectors such as manufacturing and construction. In services, where women are concentrated, the losses were slower to come
~~
SPECIAL REPORT WOMEN AND WORK
A world of bluestockings OFTH EWORLD's 774m illiterate adults two-thirds are women, a share that has remained unchanged for the past two decades. In rich countries pretty much everyone, male or female, can read and write (though employers sometimes wonder). In developing regions such as South Asia, sub-Saharan and north Africa and the Middle East, men are still much more likely to be literate than women. But girls everywhere are beginning to catch up. Across the emerging world, 78%ofthem are now at primary school, an only slightly smaller proportion than boys (82%). At secondary level enrolment remains lower and girls are further behind, but things are getting better there too. Education for girls in poor countries has all sorts of desirable consequences: not only the likelihood of a better job with higher pay, but also of better health, a later marriage, fewer children and being able to provide better care for the family. Aid donors are making a special effort to give girls' education a push. RobertZoellick, the presidentofthe World Bank, has taken to saying that investing in girls is notjusta good thing but a smart thing to do. The big surprise of the past few decades has been women's huge advance into tertiary education. Across rich countries the share of those aged over 25 who have had some form of higher education is now 33%, against 28% of men in the same age group (see chart 3 for individual countries). Even in many developing regions they make up a majority of students in higher education. It is too soon to feel sorry for men. Although women now earn morefirstdegrees, they mostly still get fewer Phos (though in America they seem to have caught up), and if they stay on in academia
~
they are promoted more slowly than men. Many of them are put off by the way the academic promotion system works, explains lotte Bailyn, a professor at MIT Sloan School of Management. Togetahead,young hopefuls have to put in a hugeamountoftime and effort just when many women startto think about having a family, so they do not apply for senior posts. Ms Bailyn approvingLy notes the recent decision by America's National Science Foundation, which funds a big chunk of the universities' basic research, to allow grant recipients to take a break. Crucially, women's Lead at first-degree level does not so far seem to have translated into betterjob opportunities. In a paper published earlier this year Ina Ganguli, Ricardo Hausmann and Martina Viarengo of Harvard's KennedySchoolofGovernment concluded that the achievement of educational parity is a "cheque in the mail" that may presage more women joining the labour
I
II
More learned Population over 25 years old with tertiary education*, %
0 Russia United States Britain Sweden Japan
I
I I I I
10
20
l
T
I
Germany Brazil
40
i
50
60
•
·i i
. t:+
: I :t ·i .i : I I
United Arab1 Emirates France
30
Source: UNESCO
*•
through. Before the start of the downturn at the end of 2007, men outnumbered women on American payrolls by about 3m, but by the third quarter of 2009 they reached parity at just under 65m each. Since early 2010, though, men's payrolls have started to turn up again whereas women's have remained flat-and the public sector is still reducing its head count. Despite these setbacks, women have been riding to the rescue of their families during the recession, says the OECD. In almost all rich countries men's working hours have fallen since the onset of the crisis but women have increased theirs to help make up for the shortfall. The recession has also fuelled interest among both men and women in starting up a business. Becoming an entrepreneur holds particular attractions for women. They can set their own
•Latest ava•lable year
force, but lots of other factors-such as cultural attitudes and the availability of child care-also play a part. On its own, educational parity-even superiority-is not enough. Women may not be helping themselves by concentrating heavily on subjects that set them apart from men. In rich countries they account for over 70% of degrees in humanities and health, whereas the vast majority of degrees in mathematics and engineering go to men. Women with humanities degrees are less likely to be in demand for jobs in high-tech industries, which tend to pay well. At postgraduate level the gap between subjects gets even bigger. And on MBA courses, the classic avenue to senior corporate jobs, women make up only about a third of the students. Such differences between males and females show up quite early in Life. In the oeco's annual study of educational performance, the Programme for International Student Assessment (PISA), girls score better in reading in all countries even at primary level, and much better by the time they are 15. In maths and science boys and girls perform much the same at primary school, but at age 15 boys do rather better than girls in maths (though not science). However, these disparities are not nearly big enough to explain the huge differences in the choice of subject at university level. The oeco's PISA researchers conclude that the choices have little to do with ability and may well be influenced by ingrained stereotypes. That would help to explain why they vary so much from country to country. In Japan women are awarded only 11% ofalldegrees in engineering, manufacturing and construction; in Indonesia their share is exactly half.
hours to fit in with the rest of their lives, and they can be sure that the boss properly appreciates them. Big companies sometimes help them get there. Coca-Cola, for instance, has an entrepreneurship programme called "5 by 20" that aims to increase the number of women who distribute and sell the drink on their own account to sm by 2020. Women run about a third of small businesses in rich countries, but it is not an easy option. They find it even harder than men to line up finance, so their start-ups are often undercapitalised. The businesses are typically smaller than those headed by men, generate fewer jobs and have a lower turnover. Both as entrepreneurs and as employees, women still seem to be at a disadvantage. The most obvious explanation is that most of them have children. •
SPECIAL REPORT WOMEN AND WORK
"we accept it", says Ms Inkeroinen of the Confederation of Finnish Industries: children are seen as the responsibility of society as a whole. Not all employers are so philosophical. There is anecdotal evidence that small businesses in particular try to avoid hiring women who seem likely to start a family. And it is striking that in all the Nordic countries working women are heavily concentrated in the public sector, which finds it easier than many private firms to accommodate the comings and goings. America is in a class of its own as the only rich country where women get no paid maternity leave at all (though two states, California and New Jersey, offer six weeks at reduced rates of pay). In practice some 6o% of women in jobs that require a college education do get paid while on baby leave, but most women doing mundane work do not. Until the Pregnancy Discrimination act of 1978 women could be sacked for being pregnant or having a child, and until the Family and Medical Leave act of1993 they had no right to take time off to give birth. Now at least they get12 weeks, albeit unpaid, after which most return to work fairly promptly. Finding child care is entirely up to the parents. It may seem surprising that American women are not put off by all this. They actually produce more children than most Europeans: more than two per woman. The OECD average is only 1.7, well below the replacement rate of 2.1, and in most big European countries the figure is much lower (see chart 4, next page).
Work and family
Baby blues Ajuggler's guide to having it all "THE MOST STRESSFUL thing about having this baby was arranging cover at work for the time I was going to be away," says Sara Leclerc, an in-house lawyer with an international fire -protection firm. Her new baby girl is asleep and her fouryear-old son is watching television. Over a drink and a snack in her stylish house in the woods outside Helsinki she explains that she plans to be at home for about a year, but will keep in close touch with her company and then resume work full-time. Her husband, Pekka Erkinheimo, a lawyer with another company, will do his share. In this part of the world balancing work and children is for fathers as well as for mothers. Finland's gap between male and female employment rates is less than three percentage points, among the smallest in the world, and the vast majority of Finnish women have full-time jobs. Anne Brunila, executive vice-president of Fortum, an energy company, says that those who stay at home are often questioned about their choice. But working women's lives are made easier by employers' enlightened attitudes, excellent public child-care provision and generous family leave. Almost all rich countries provide paid maternity leave, averaging about 20 weeks. Many also offer paid parental leave, which may be available to either parent but is generally taken by the mother, so a number of countries, including Finland, now have separate "mommy and daddy quotas", allocating periods ofleave to each parent that cannot be transferred. Four out of five Finnish new fathers take a month off. All this leave may seem rather expensive for employers, but
What women want The only European countries whose birth rates come close to America's are France, the Nordics and Britain, and except for Britain they all have excellent child-care facilities. In France the ecoles maternelles play a big part in allowing women to go out to work, and the Nordic countries are famous for their affordable day-care centres with well-qualified staff. In Finland local authorities must guarantee a place for every child under three. Parents on low incomes get it free; the better-off pay up to €250 ($340) a month. The centres are open from 7-8am to s-6pm and provide breakfast and lunch. School hours for older kids are similarly work-friendly, about the same as an adult working day, with a free lunch. Moreover, those schools produce sparkling results: Finland regularly comes near the top the OECD's PISA rankings for educational achievement. A study by the ILO of child care in ten countries last year found huge national differences in provision. In some countries nurseries are seen as a public entitlement, rather like schools. In others the care of small children is considered a private matter. Most countries come somewhere in between. Denmark puts the most money into child care, followed by other Nordic countries. France is also high on the list, as, perhaps surprisingly, is Britain. America and Japan spend well below the average. The study found that most countries are seriously short of good-quality child care for children under three. The market does not provide enough of it because if done properly it is too expensive for most parents, so governments often subsidise it. Provision for older pre-school children is better but still patchy, and the hours are usually too short to allow parents to work fulltime. And even when the children start school, facilities for keeping them in after hours are often lacking. That is a particular beef of working parents in Germany where most schools finish at lunchtime, hours before parents get home from their jobs. How quickly women should return to work after having a child is a vexed question. Clearly they need time to recover physically, to get the baby into a routine and to find child care, so something longer than the basic maternity leave at first sight seems preferable, but it makes it harder to settle back into the job afterwards. If new mothers are off for only a few months their skills will still be fresh when they return and their employers
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SPECIAL REPORT WOMEN AND WORK
r sirth dearth Total ferti lity, children per woman 0
1950-1955 4
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2005-2010
5
World United States
France Finland Britain China Spain Germany Japan SoLICe: UN
• find it easier to arrange temporary cover. Germany used to encourage women to stay home for up to three years after having a baby, but in 2007 the government changed the incentives because women were becoming disconnected from the labour market. Data on return rates are scarce, but in some European countries at least a quarter of the women go back to work when their maternity leave runs out, and in Anglophone countries about half the women are back on their child's first birthday. Home or away? What is best for the children? The answer is far from clearcut, and cultural attitudes play a part. In Germany a woman who contracts out the care of her young children is still called a Rabenmutter, a bad mother. In America nobody thinks anything of dropping off the kids at a childminder. The academic literature has turned up some evidence that if the mother is back in employment within less than a year of the birth the child's cognitive development may be slightly slowed, and the more so the more hours she works. But the person who looks after the child at home does not necessarily have to be the mother: the father or another person who is well disposed towards it may do an equally good job. In some countries grandparents play a big part in children's upbringing. And much depends on other factors: the quality of the parenting when the mother is at home, the child itself (boys are more likely than girls to suffer from a mother's absence) and the family's economic circumstances. Poverty is very bad for children, so if the mother's work helps to avert it they will benefit. If the child care is being outsourced, then its quality makes all the difference. Poor child care can set a child back. Yet in Denmark, where women tend to go back to work within a few months of giving birth and public child-care provision is first-class, studies have found no ill effects on children's behaviour in their first year of life. And once the child is older than one, being in formal child care may actually be good for it, particularly if it comes from an Time to let go?
underprivileged background. In France pre-school attendance at an ecole matemelle from age two seems to have positive effects on later academic performance. But even if the kids are all right, women still need to figure out whether work will actually pay. That depends not just on wages and child-care costs but also on a number of other factors such as tax policies and benefits. The OECD reckons that across its member countries the net average cost of child care after allowing for fees, cash benefits and tax concessions is 18% of the average wage, which makes children seem a bit of a luxury. Childcare arrangements are often a complicated patchwork quilt of paid help, family, friends and neighbours. In some countries, including Switzerland, Ireland and Britain, the combined effect of the cost of child care and the lack of tax concessions and benefits makes it unattractive for mothers of young children to work unless they are very well paid. If governments in such countries want to get more women into the labour force, they will need to ensure that good-quality child care is more widely available and more affordable, for example by making it tax-deductible. In Britain, where it is not, even highly paid professional women such as corporate lawyers and accountants complain that after paying their nanny's salary, tax and social-security contributions they see little or nothing of their own after-tax earnings. For low-paid parents the calculation becomes even more unattractive. Women in single-parent households- which in rich countries now make up one in five households with children- are often financially better off not working. But the calculation is not just about immediate payback. Across the earnings spectrum, women who have been out of the labour force for a while find it hard to get back in because their skills deteriorate, they become less confident and employers fret about the hole in their cv. Studies of the effect of career breaks show that even a few years away have a devastating impact on lifetime earnings and pension rights, not only because there is no pay coming in but because of the loss of seniority and promotion. That is why many women are prepared to work for only a small net return while their children are young. All this is assuming that every woman will have a family. ••
SPECIAL REPORT WOMEN AND WORK
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Most do, though they leave it increasingly late: in rich countries the average age at which they have their first child is now 28, compared with 24 in 1970. But growing numbers of women are forsaking motherhood altogether. Of those born in 1965 (who will by and large have completed their families), 18% are childless, with large variations from country to country. In Portugal the figure is only 4%, in Italy around 20%. Some of these women may not have been able to have a family, but most will have chosen not to. The more highly educated and successful they are, the more likely they are to have made that choice. Sylvia Ann Hewlett, founder and president of the Centre for Work-Life Policy in New York, notes that among American college-educated women aged 41-45 in white-collar jobs, two-fifths have no kids. In future women will have to retire much later than they do now because they live ever longer and current pension ages are becoming ever less affordable. If they have no children, their careers will be just as long as men's. And even if they do, as most will, the time spent bringing them up will account for only aminor part of their total working life. Women's role in perpetuating the species is not nearly enough to explain the huge gap in opportunities at the top of organisations. •
Top jobs
Too many suits And not nearly enough skirts in the boardrooms "PERHAPS WE WOMEN should just keep out of this male circus," said one of the participants in a forum on "German Female Executives" run by Odgers Berndtson, a firm of headhunters. Gabriele Stahl, a partner in the firm's Frankfurt office, recalls this comment because it seems to sum up the way many female managers feel about getting to the top of the corporate tree. If they ever do. A study by Elke Holst and Julia Schimeta by the German Institute of Economic Research in Berlin found that in 2010 women held only 3.2% of all executive board seats in Germany's 200 biggest non-financial firms. In the largest companies their share was even smaller. Financial institutions and insurance companies, where at least half of all employees are female, did no better than the rest, and state-owned companies were only slightly ahead. On the supervisory boards, the other component of Germany's two-tier board structure, women are slightly better represented because some of the seats are reserved for employees, but last year they still made up only n% of the total- and one-third of these boards had none at all. That list includes household names like Porsche, E. ON and Robert Bosch. The glass ceiling, like everything else in Germany, is pretty solid. But Germany AG is no worse than many others. Across Europe the proportion of women on company boards averages around 10%, though with large variations: from less than 1% in Portugal to nudging 40% in Norway, thanks to that country's much-cited quota system. America, at 16%, does somewhat better than the European average, and most emerging markets do less well (see chart 5). Big publicly quoted companies tend to have slightly more women on their boards. But the numbers everywhere have barely moved over the past decade. The debate about women on boards and the use of quotas has generated a lot of heat, but the more important question is how many make it into the top executive suites, because that is
where most board members are drawn from, and the picture here is equally dismal. In America women last year made up less tham8% of senior managers and not even 8% of the highest earners (they get paid less than men at every level, including the top layer). Among the Fortune 500 companies only about 15% of the most senior managers and only 3% of the CEOs were women. Female bosses like Indra Nooyi at PepsiCo, Irene Rosenfeld at Kraft Foods, Giiler Sabanci at Sabanci Group and Chanda Kochhar at ICICI get more attention than their male colleagues precisely because women are still so rare at the top of large companies. It was big news last month when IBM appointed its first female CEO in its 100-year history, Virginia Rome tty. It is not that companies refuse to recruit or promote women.ln most rich countries roughly half the new intake of graduates for most professional and managerial posts is female, and some of the women do move up. Ms Stahl, the headhunter, says that half her clients, regardless of the industry they are in, now ask her to put forward female candidates for senior management posts. They say they would not only be happy to employ a woman but would actually prefer one. Companies have long been saying that when they look for potential leaders "there are no women" in the pipeline. That may have been true 20 or even ten years ago, but by now substantial numbers of women have arrived in middle management and even in the "marzipan layer" (just below the icing) from which future top executives are recruited. Why do so few get any further? One reason is that female managers tend to work in socalled functional specialities (such as HR) rather than line management, which is the main hunting ground for the very top but often involves extensive travel and unsocial hours. More importantly, boards have traditionally been made up of white middle-aged males of similar backgrounds who are comfortable with each other and recruit new colleagues in their own image. Women, even if they can be found, "are a bigger risk", says Joanna Barsh, a director in McKinsey's New York office; they have a different style and are more visible, so if something goes wrong everyone notices. Besides, women themselves are often reluctant to put themselves forward for promotion. They have few female role models to look up to, so it takes a leap of the imagination to picture themselves in charge. Promising young men are often guided or sponsored by older colleagues, but there are few senior women who can do the same for younger female colleagues, and if an older man roots for a younger woman it can send the IJ wrong signal. Men also benefit Disproportionate from informal networks that ofWomen on corporate boards ten involve socialising after % of total, September 2011 hours and talking about sport. 10 20 30 40 0 Women may not want to join i Norway these, or may find themselves excluded. Some women find the culFrance ture of organisations so offputBritain ting that they see little point in Germany rising to the top. A famous HarUnited vard Business School case States study by Rosabeth Moss Kanter Spain and}ane Roessner, published in China 2003, describes the efforts of Brazil the then boss of Deloitte, one of India the big four accountancy firms, Russia to stem the attrition among the Sources: ~kKinsey; Catalyst firm's senior women. They
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will double the money it spends with women-owned businesses, train women around the world and push suppliers to use more women. It is trying to rebuild its image after a class-action suit for sex discrimination brought by 1m of its employees that was thrown out by America's Supreme Court in June. Shell is running a global career-development programme for talented women within the organisation and has set itself a long-term target of 20% for women in the company's senior executive ranks. At Time Warner each division has to have a succcession plan for its top management which is reviewed every year for its diversity. Vodafone has a "1•1" programme that requires all managers to put an additional woman on their team each year. Deutsche Telekom last year promised to raise the number of women in the company's middle and upper management to 30% by the end of 201S and is making rapid progress. Commitment at the top of the organisation is crucial for such initiatives, but for many bosses women are barely on the agenda, so nothing much gets done.
Vive La difference
• made up half the new intake at graduate level but only1o% of the candidates for partnership. Losing so many well-qualified people was costing the firm a great deal of money, so it commissioned research from Catalyst, a New York-based think-tank that works to increase the number of women in business, to find out why they were leaving. It got a big surprise. The firm had assumed that most of the women had quit to start a family and spend time at home. It turned out that 90% of them were still working- for other firms. They had got disenchanted with a work environment which they found maledominated and alienating, and felt that the whole system of advancement within the firm that worked well for the men- mentaring, coaching, counselling, networking- worked against them. The heavy work schedule, which the firm had expected to be the main drawback, came only third on the list. If everything else had been fine, the women would have been prepared to put up with it. But this was a horrible place for women to work. Deloitte took the message to heart and set about reinventing itself as a more women-friendly employer. It was not alone in having to do so. A number of other organisations that rely heavily on their human capital, such as accountancy practices, consultancies and law firms, also found they were losing too many of their female employees and were forced to change their working practices. Some of them are now among the most considerate employers of women. Among other things, this usually involves offering a flexible work environment, with the emphasis on getting the job done rather than being present. Ernst & Young, another of the big accountancy firms, regularly features on lists of best places to work, helped by the example set at the top. The firm's boss, James Turley, is also chairman of the board of Catalyst, the thinktank for women in business, and is a strong believer in equal opportunities. Ernst & Young now has three women on its global executive board of 1S and is looking for more. McKinsey also takes great care to look after its women; one ex-staffer says it practises "the opposite of discrimination". Different companies are adopting different strategies. Walmart, the world's largest retailer, announced in September that it
The business case The companies that are taking action are hardly doing it out of the goodness of their hearts. The main argument now being put forward is that there is a business case for having more women in senior positions. At its most basic, this says that since women make up so% of the population and hence so% of the talent, it would be absurdly wasteful to ignore them when so many businesses struggle to fill high-powered jobs- all the more so as women are now generally better educated than men. There is much woolly talk about women's management style, which is supposedly more pragmatic, more empathetic, more risk-averse (which is seen as a good thing after the excesses in the run-up to the financial crisis) and stronger on communication than men's. In his book "The Red Queen", Matt Ridley, a popular science writer, points to differences between male and female behaviour that were established in the early days of Homo sapiens when men specialised in hunting and women in gathering. It may be true that certain attitudes and preferences are more prevalent in women than in men, but it seems unreasonable to assume that these traits will be present in individual bosses just because they are women. After all, male manage-
Anumber of studies have pointed to a strong correlation between significant numbers of women at the top of a company and its success in the marketplace ment styles also vary widely. A more persuasive argument for including women in teams of leaders is that they add diversity of experience and outlook, and that a more diverse team is likely to be better at producing new ideas than the same old people patrolling their comfort zones. A number of studies have pointed to a strong correlation between significant num hers of women at the top of a company and its success in the marketplace. In 2004 Catalyst looked at the performance of Fortune soo companies and found that the group with the highest representation of women in top management also had a much better return on equity than those with the lowest. Three years later it examined the boards of directors of the same group of companies and again found that those with the most women were, on average, more profitable and more efficient than those with the least. Companies with a "critical mass" of women directors- at least three- did better than those with smaller numbers. Ilene Lang, Catalyst's president and CEO, says a single woman on a board is often seen as a token and two as a pair, but when numbers get to three or more each woman is ••
SPECIAL REPORT WOMEN AND WORK
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seen as an individual in her own right. McKinsey in 2007 studied over 230 public and private companies and non-profit organisations with a total of ns,ooo employees worldwide and found that those with significant numbers of women in senior management did better on a range of criteria, including leadership, accountability and innovation, that were strongly associated with higher operating margins and market capitalisation. It also looked at 89 large listed European companies with high proportions of women in top management posts and found that their financial performance was well above the average for their sector. Other studies have come up with similar findings. Nobody is claiming evidence of a causal link, merely of an association, but the results are so consistent that promoting women seems like a good idea, just in case.
No thanks Do women actually want the top jobs? Sheryl Sandberg, the coo of Facebook, spots a female "ambition gap". Women are less ambitious not only than men, she says, but also than women were 20 years ago. In America she sees lots of bright, well-educated young females aiming lower than their male peers and settling for careers below their potential because they are already thinking ahead to the time when they might want to have children. She is urging them to "put up their hands and sit at the table". But it could just be that these young women are taking a long, hard look at what it takes to get to the corner office and deciding that it is just not worth the effort. The most senior jobs in big companies are generally of the "extreme" variety, involving huge responsibility, working weeks of 70 hours or more and constant travel. There is much debate about trying to change the high-pressure culture at the top of business in favour of something calmer and saner, but global competition will ensure that there are always people who will put in the hours- and the chances are that a majority of them will be men. Catherine Hakim, a fellow at the Centre for Policy Studies, a British think-tank, argues that although men and women have the same cognitive ability, they have different tastes, values and aspirations, which means they behave differently in the workplace. She distinguishes between three main groups of people: the "home-centred" at one extreme, who are interested mainly in family life and children; the "work-centred" at the other, who are committed to a career; and the "adaptives" in between, who want to combine work and family. Among women, each of the two groups at the extremes typically account for about 20% of the total, depending on the country, but the great majority are somewhere in the middle, juggling as best they can, and will respond to any measures that make it easier for them. By contrast, says Ms Hakim, among men the share of the work-centred group is between half and three-quarters. The rest are adaptives, with a negligible number of home-centred ones. Given these differences between men's and women's priorities, she argues, women in rich countries have got as close to parity in the workforce as they ever will. They have achieved equal rights and opportunities and can choose to work wherever they like, but they are not under the same pressure as men to achieve, and most of them will go for a balanced life rather than aim for the top. In Ms Hakim's view, "family-friendly" policies have proved to be counterproductive in Sweden and women will never fill so% of senior jobs. The stubborn refusal of numbers at the top to shift seems to bear her out. But there is something deterministic about the argument. If the proportion of women with different attitudes to work varies among countries, might it not change over time as more women get into the marzipan layer and beyond? •
Women in China
The sky's the limit But it's not exactly heaven PULLY CHAU SPENT eight years working for the Chinese office of a big international advertising agency and never got a pay rise; there was always some excuse. "It was stupid of me not to ask," she says. "If I had been a Caucasian man, I would have done better." She stuck around because she liked the idea of working for an outfit that was well known in China and hoped to learn something. Eventually she got fed up and took a job with another Western agency, draftfcb, where she is now chairman and CEO for Greater China, based in Shanghai. Just turned so, glamorous, confident and boundlessly energetic, she could pick and choose from any number of jobs. There are lots of opportunities for women in China, she says- but in business life is still easier for men. Women make up 49% of China's population and 46% of its labour force, a higher proportion than in many Western countries. In large part that is because Mao Zedong, who famously
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SPECIAL REPORT WOMEN AND WORK
• said that "women hold up half the sky", saw them as a resource and launched a campaign to get them to work outside the home. China is generally reckoned to be more open to women than other East Asian countries, with Taiwan somewhat behind, South Korea further back and] apan the worst. And its women expect to be taken seriously; as one Chinese female investment banker in Beijing puts it, "we do not come across as deferential". Young Chinese women have been moving away from the countryside in droves and piling into the electronics factories in the booming coastal belt, leading dreary lives but earning more money than their parents ever dreamed of. Others have been pouring into universities, at home and abroad, and graduating in almost the same numbers as men. And once they have negotiated China's highly competitive education system, they want to get on a career ladder and start climbing. The opportunities are there. Avivah Wittenberg-Cox, who runs a consultancy, 20-first, that helps companies improve the balance between the sexes in senior jobs, points out that China already has a higher proportion of women in the top layers of management than many Western countries. The supply of female talent is abundant, says Jin Yu, a partner with McKinsey in Beijing and their most senior woman in China, but once you start funnelling it the numbers come down. She also concedes that there is room for improvement in
the way that Chinese companies nurture potential female leaders. The same goes for the Chinese body politic: only 13 of the 204 members elected at the most recent meeting of the Chinese Communist Party's central committee (its top decision-making body) were women. Jobs with state-owned companies are popular with Chinese women because at lower levels these are relatively comfortable places to work, with shorter and more predictable hours than in the private sector. But attitudes remain highly conservative and very few women are found in the upper echelons. Wendy (not her real name), a well-qualified woman in her 40s with an MBA, holds down a senior job at China National Petroleum Corporation, the country's largest integrated oil and gas company, but complains that women suffer from discrimination both in her company and her industry. She has had to do a lot of travelling to places like Libya, Sudan and Pakistan and blames her recent divorce on the demands of the job. "You have to give up a lot" to maintain your position at work in a company like hers, she says. After her divorce she applied for a lower-level post with less punishing hours so she could spend more time with her 12-year-old daughter. But she is already studying for her next qualification and plans to go back on the fast track once her daughter is older so she can send her to study in Britain. "Chinese women have a very difficult life," she says. Many female high-fliers in China find it easier to work for a multinational. Iris Kang, who heads the business unit for emerging markets at Pfizer, a pharmaceutical company, used to be a doctor in a state-owned hospital but switched to the private sector after a visit to Nepal, where she developed a taste for the capitalist system. She says there is less sex discrimination in multinationals than in Chinese companies, and the number of women in senior posts in her firm is rising rapidly. Hers is another tale of relentless self-improvement. Soon after she joined the private sector she took an executive MBA at the China Europe International Business School (CEIBS) in Shanghai, China's most highly rated business school, and last year she added a Masters degree in pharmaceutical medicine, all the while heading a team of 120 people in her job with Pfizer. As Ms Kang says, to succeed as a woman in China "you need to be better than a man." That goes for female entrepreneurs, too. China has plenty: over 29m of them at the latest count, or a quarter of the national total, according to Meng Xiaosi, vice-president of the All-China Women's Federation. And some strike it very rich: seven of the14 women on last year's Forbes worldwide list of self-made billionaires were from China, with property magnates particularly prominent. China is growing so fast that there are plenty of opportunities for start-ups and less red tape than in more mature economies, and finance is less of a problem than in the West.
There is room for improvement in the way that Chinese companies nurture potential female leaders. The same goes for the Chinese body politic It is hard to see how these formidable Chinese women can fit any children into their impossibly busy lives, but most of them do. They are entitled to (but don't always get) three months' paid maternity leave and mostly return to work afterwards. That is made a little easier by one big advantage they have over most working women in the West: hands-on grandparents. The older generation has traditionally played a large part in bringing up children in China, and still does. A baby is often farmed out to the grandparents for the first few years of its life, or the grandparents ••
Looking ahead
Here's to the next half-century It's taking a long time, but things are getting better
Precious in every way ~
come to live in the family home to look after it. If no grandparents are available, nannies are plentiful and affordable. Most of these women seem to stop at one offspring, not only because of the one-child policy (which can be quite leaky) but because any more would be just too difficult to manage. Even looking after the one-and-only takes up a huge amount of time and resources. The whole business of child-rearing has become exhaustingly competitive.
Grooming the little emperors It starts at kindergarten, which may be of the Monday-toFriday boarding variety, and can get very expensive even at that level: the best ones are vastly oversubscribed, and although they are state-run, you hear stories about parents being asked for "sponsorship" of up to 20o,ooo yuan ($32,000) to get in. After that the child has to be manoeuvred into the best school, homework needs to be closely supervised and there is a lot of ferrying around for after-school activities. Steering a child through all this almost amounts to a full-time job. The effort culminates in the gaokao, the national college-entrance exam that determines which, if any, university the youngster can get into. What makes life even harder for Chinese women is that most Chinese men still expect them to look after home and fam ily more or less single-handed, whether or not they are holding down a job. That includes caring for elderly parents or relatives, so it does not stop when the children grow up. These are deeprooted, hard-to-shift attitudes that long pre-date the Mao era. Many Chinese men find it psychologically hard to cope with high-earning wives, and if something has to give it is usually the wife's job. Women who are too stridently successful may have trouble finding a husband in the first place. Even China's female high achievers are now beginning to wonder if they are doing the right thing. In their recent book "Winning the War for Talent in Emerging Markets", Sylvia Ann Hewlett and Ripa Rashid note that "the concept of work-life balance, once foreign ... is an increasingly popular topic of conversation." It has already become more acceptable for a woman not to be working, says Helene Zhuge, CEO of bon-tv, a private television network broadcasting from China to the world. If her husband has a good job, or she has money of her own, she can now be a stay-at-home wife without incurring social disapproval. According toMs Zhuge, this is part of a broader movement over the past few years towards greater social liberalism in China. In the big cities it is now fine for a couple to live together without being married; divorce is getting more common; and being gay is no big deal. But having children out of wedlock is still unusual because the bureaucratic complications are horrendous. •
"WOMEN ARE NOT at the top anywhere," says Herminia Ibarra, a professor at the INSEAD business school near Paris. "Many get on the high-potential list and then languish there for ever."Thatis broadly true not only in business but also in politics, academia, law, medicine, the arts and almost any other field you care to mention. In parliaments across the world women on average hold just 20% of the seats (see chart 6), though again the Nordics do much better. In Finland-one of the first countries to give them the vote, in 19o6- women have at various times held more than half the ministerial jobs. The prime minister one back was a woman and so is the current president, Tarja Halon en, the first female to hold the post. A lawyer, doughty fighter for women's rights and single mother, she is nearing the end of her second and final term of office but would like to see another woman president soon: "Once is not enough." Elsewhere too female political leaders are becoming less unusual-think of Germany's Angela Merkel, Brazil's Dilma Rousseff, Australia's Julia Gillard or Liberia's Ellen Johnson Sirleaf- but still far from common. The most egregious gap between men and women is still in the world of work. The World Economic Forum, a Geneva-based think-tank, earlier this month published its latest annual "Global Gender Gap Report", comparing progress in 135 countries towards sex equality in four broad areas. In health and education, says Saadia Zahidi, head of the WEF's Women Leaders and Gender Parity Programme, most countries have largely closed the gap in recent years. In the third, politics, the gap is still wide but progress has been relatively rapid. The fourth, economic opportunity, is proving dishearteningly slow to shift, not just in developing countries but in many rich ones too. Ms Zahidi argues that "smaller gaps in economic opportunity are directly correlated with greater competitiveness, so increased equality helps to promote economic growth." On the face of it women have done all they possibly to prepare themselves. Speak up Ill could Noting that their menfolk got Women in single or lower better jobs if they were more house of parliament highly educated, they piled into %. end August 2011 the colleges. They went out to 0 10 20 30 40 50 look for work in such numbers ! Sweden that in many countries now al· Finland most as many women as men hold down jobs. They poured Netherlands i into business and the profes· Spain II sions, and a lot more of them Germany these days make it to middleBritain ranking jobs. But there the vast China of them stop. majority Italy The reasons are complex, us but a few stick out. First, work in Russia most organisations is struc· India tured in ways that were estab· Brazil lished many decades ago, SoL ICe: Inter-Par hamentary Umon when married men were the
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85 Also in this section 86 American tax law 87 Japan' s stock exchanges 87 Bust Baltic banks 88 Buttonwood: Gloom descends 90 Economics focus: The next housing bust
0
•
For daily analysis an d debate on economics, visit Economist.com/ economics
• India's currency
Rupee and the bears MUMBAI
What the mini-run on the rupee says about India HE result of headless-chicken financial Tmarkets or a canary in the coal mine? India is grappling with this question. On November 22nd the rupee fell to an alltime low against the dollar. The speed of the rout (see chart) has been scary for a place that was supposed to be largely insulated from the rich world's troubles. It is 20 years since India had a balance-of-payments crisis and for a long time the talk has been about it becoming an economic superpower. But there lingers a memory of when it felt it was a financial hostage to the world, and this helps explain the whiff of panic now in the air. Mumbai's financial types say that firms are scrambling to find dollars and that desperate euro-zone banks, which supply about half of India's foreign loans, are cutting off credit lines. That sense of fear strikes some as overdone. Jonathan Anderson, of UBS, a bank, has tagged the rupee a "drama queen". India's high inflation and chunky current-account deficit, financed by capital flows, mark it out from most of Asia. But neither attribute is new. Chetan Ahya, an economist at Morgan Stanley, thinks India has its problems, but that the weak rupee mainly reflects the trauma in global markets, which has caused capital flows to dry up. Hardest hit by global risk aversion are countries with external deficits. The currencies of other places with current-account gaps, such as South Africa and Tur-
key, have been walloped too. To be sure, the rupee deserves a beating, given how India's prospects have dimmed. "The currency markets have been late in reacting," reckons Samiran Chakraborty, of Standard Chartered, another bank. "The Indian business community has been more negative than foreigners for some time," adds Roopa Kudva, the boss of CRISIL, a ratings and research firm . India's growth model has been to run a small current-account deficit, financed with high-quality capital inflows, such as foreign direct investment and equity purchases. As a poor country this makes sense: India should invest more than it saves. But bits of its approach look rickety.
I
Waiting for the bounce Indian rupee against the do llar, inverted scale -----~- o
10 20 30
40 50 t
II
1980
1
1 I! 1
85
t
1 I
90
1 1 t i
95
Source: Tho mson Reuters
1
1
t
I I I I I I I I t I I I
2000
05
1
11
60
For a start the current-account deficit is likely to overshoot projections of about 3% of GDP for 2on, if October's trade figures are anything to go by. Exports slowed faster than imports, a chunk of which are nondiscretionary commodities and oil. The investment climate has soured d ue to stubborn inflation, high interest rates and G D P growth that may dip below 7% in the coming quarter. Pessimism about the government's appetite for reform has surely hurt India's ability to attract capital. Neelkanth Mishra, a strategist at Credit Suisse and a longstanding bear on the economy, reckons the quality of capital coming in is falling too, with flightier and riskier debt rather than stickier equity investments. The falling rupee, then, partly reflects India's economic failings. But will a cheaper currency add to these problems or help solve them? It should eventually narrow the external deficit, by boosting exports and limiting imports. Still, a sharp fall in the currency can be deadly if a country has borrowed in other people's money. India's indebted government sells its rupee bonds to locals, mainly banks, not jittery foreigners. The trouble is that since India's banks are forced to stuff themselves full of loans to the state, Indian firms have had to borrow abroad. Sanjeev Prasad at Kotak, a broker, says that the recent results season saw a host of firms booking losses as the value in rupees of their foreign debts rose. He worries about them being able to refinance these borrowings. And a lower rupee will fan inflation, which is already at 9-10%. The Reserve Bank of India (RBI), India's central bank, and the government have been praying that it will slow. But a rough rule of thumb is that a10% depreciation adds 6o-10o basis points to inflation, says Mr Chakraborty at Standard Chartered. That's unhelpful. ~~
86 Finance and economics
I
The Economist November 26th 2011 American tax taw
Stacking brics Net reserve• coverage as % of GOP, latest 10 - 0
+
10 20 30 40 50 60
Chi na
Scratched by the FATCA
Thailand Russia South Korea
Indonesia Brazil
India Mexico Argentina Egypt
Vietnam South Africa
Tu rkey Source: US$
~
'Foreign-exchange reserves plus currentaccount surplus minus short-term external debt
For the authorities there are three possible responses. They have already done the first: easing the rules on foreign lending to India, to try to attract short-term funds. The second option would be to intervene in the currency markets by selling dollars and buying rupees. That might, though, complicate domestic policy, by tightening monetary conditions further. If the RBI bought banks' rupees then those lenders would have fewer available to buy government bonds, further increasing the already high borrowing costs of the state. The RB I could try to offset this by buying government bonds directly, but that might in turn hamper its efforts to support the rupee. And has India enough firepower? The country has $314 billion of reserves, largely thanks to the central bank intervening in the past to stop the rupee appreciating too much. But that cushion is not as big as it seems. Mr Mishra reckons foreign debts that must be repaid within a year now equal48% of India's reserves. Using a similar approach of deducting short-term debts from reserves, Mr Anderson reckons India's net position has deteriorated. Compared with other countries it is only middlingly good (see chart) and the RBI may be nervous of using too much ammunition. That leaves a third option: for the politicians to make tough choices. If it cut its fiscal deficit the state would probably lower the current-account deficit. And if reforms were sped up, growth might recover, inflation could fall and foreign investment would pick up. The priorities include freeing the supply chains that have caused high food prices and cutting the red tape that is choking industrial projects. So far the omens are not promising. On November 22nd, the first day of the winter sitting of India's parliament was adjourned due to raucous behaviour. Sadly, the rupee is not the only drama queen around. •
Congress creates a bureaucratic nightmare for fund managers
ATCHING tax cheats is well and good C in theory. Achieving that feat in practice is another matter. As fund managers are finding, the latest effort from the American authorities to root out those of their citizens who have been hiding their assets overseas is creating a bureaucratic nightmare around the world. The operation of the Foreign Account Tax Compliance Act (FATCA) has already been postponed for a year because of the immense problems that it is going to cause global investors. The law requires that foreign financial institutions (a category that seems to include everybody from financial advisers to pension funds) register with the Internal Revenue Service by June 30th 2013. If they do not register, they will then be regarded as "non-participating". In that case a 30% withholding tax will be applied to all their income on American assets from 2014 as well as to the proceeds from the sales of these assets from 2015. Since the American equity and bond markets are the biggest in the world, the vast majority of foreign fund managers will feel obliged to register. But that is where their problems will start. Managers will then have to tell the IRS whether their clients are American citizens. To do that they will have to find out a lot more than whether the client has an American address. They will need to check, for example, whether the client was born in the United States or whether interest or dividends
Paperboarding
are transferred to a bank account there. This creates a whole bunch of problems. For a start, managers would have to report information about their clients to the IRS; a requirement that would cause some of them to fall foul of their own country's data-protection laws. Second, there may be several layers of intermediation between the fund manager and the client. For example, the investors in a mutual fund will often include private banks and financial advisers, who are acting on behalf of other clients; sometimes these clients might be private companies. The fund manager will need to look through all these layers to find the end client. Even when fund managers are able to contact their clients directly, there is no guarantee that they will reply. Much paperwork already goes unread and unanswered. "Many people will just put the form in the bin," says Julie Patterson of the Investment Management Association, the lobby group for British fund managers. But if the client doesn't fill in the right forms, they will be dubbed a "recalcitrant account holder" by the IRS, on the ground that they might be an American trying to evade tax (rather than, say, a forgetful old lady in Stuttgart). If the fund manager has recalcitrant account holders, or cannot provide enough information to satisfy the IRS, it will have to apply the withholding tax on their share of its American assets. Fund rules will prohibit it from applying this charge to the affected clients, so the effect will be to penalise all investors, American or not. Clients from Aberdeen to Zagreb will be funding America's fiscal deficit. The rule will also apply to company pension funds, even though it seems unlikely that many Americans would go to the lengths of joining corporate pension schemes to evade taxes. Pension funds will ~~
The Economist November 26th 2011 ~ have
to assert not only that their members are not Americans but that their potential beneficiaries (spouses, children) are not so either, a Herculean task. Fund managers still hold some hope that the costliest provisions of the legislation can be negated. "The us authorities have been listening to the concerns of the market," says Fiona Bantock of the European Fund and Asset Management Association. The IRS is expected to issue a clarification of the rules by the end of the year. If the process is not made simpler or less costly, fund managers may be forced to take drastic measures. One approach would be to bar Americans from investing in their funds, or to require them to own separate classes of shares. Another approach would involve some global funds avoiding American assets entirely. That can hardly be what Congress hadinmind. •
Japan's stock exchanges
Listing, not keeling TOKYO
The Tokyo and Osaka markets are merging N 1990, one year after Japan's bubble burst, the Tokyo Stock Exchange (TSE) acIcounted for one-third of the world's stockmarket capitalisation. Today it is a paltry 7%. Other Asian countries have become a beehive for investors and new listings. China's bourses are now more valuable than Japan's, where the Nikkei 225 index is at about a quarter of its 1989 peak. The long slide into semi-relevance explains the merger announced on November 22nd between the TSE, which dominates cash stock-trading, and the Osaka Securities Exchange (osE), which focuses on derivatives. Put together, the firms overtake the London Stock Exchange to become the world's third-largest market, after America's NYSE and NASDAQ. But whereas the total value of shares traded on most exchanges had been increasing at a clipping pace-until global stockmarkets fell sharply in recent months- Tokyo's market has been steadily losing ground (see chart). The bourses say their marriage is for "the revitalisation of the Japanese economy." Atsushi Saito, the boss of the TSE and also of the new entity (tentatively called the Japan Exchange Group), hopes it will encourage people to "invest in Asia through the Japanese market." The exchanges say that cutting overlapping technology will save ¥7 billion ($90m) a year. Yet the consolidation is not so much for synergy as for survival. Just as the Japanese economy is being left behind, its ex-
Finance and economics 87
changes are struggling. Other Asian markets, notably Shanghai and Hong Kong, are far more popular for fund-raising than Tokyo. This year companies raised $39 billion in initial public offerings on Chinese markets, whereas those in Japan raised a measly $ssom, according to Bloomberg. They also face competition from alternative trading platforms. Some 70% of shares listed on the NYSE trade off the exchange, compared withjust10% in Japan. The merger does not address some of the fundamental problems holding back Japan's markets. First is regulation. "Pedantic and inflexible" is how a large foreign investor describes it. Japan is preposterously strict over trifling matters but turns a blind eye to serious ones. "Non-material" uncertainties that on other bourses only have to be disclosed to shareholders can lead to listings being denied inJapan."It raises the cost of capital- you'd have to be nuts to list in Japan," the foreign investor says. The boss of a large Asian fund ruefully admits that its Japan unit is incorporated in the Cayman Islands to escape the country's punishing 40% tax rate. And the TSE lacks sophistication. For example, decimalisation does not exist. One cannot quote a price finer than ¥1, despite the fact that a filled order may have four decimal points on the price, says Pelham Smithers, a Japan stock analyst. With a stock such as Mizuho, a bank whose price is around ¥100, it means the bid/offer spread is 1%, which translates to an exorbitant $1m on a $10om order. "Big investors can't take such a risk, so trade the stock away from the market," sighs Mr Smithers. Merging the two exchanges does nothing to change this, nor to boost liquidity, eliminate red tape, increase the use of English or improve corporate governance, which is a particular concern in the wake of the scandal over dodgy deals at Olympus, a camera-maker. Tokyo will acquire a majority of the Osaka bourse, form a holding company, maintain the osE's public listing and create four business units: cash equity market, futures trading, regulatory and clearing. This makes the transaction a backdoor listing for the TSE, giving it a currency with which to get into the great glo-
I
In the slow la ne Top stock exchanges by market capitalisation June 2011, Strn
-----·m:J 0
NYSE Euronext (US) NASDAQOMX l ondon
2
Tokyo NYSE Euronext
{Europe)
4
6
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Source: World Federation of Exchanges
*In local-currency terms
bal stockmarket-acquisition game. The deal was pushed by the Financial Services Agency, which is keen to make Japan nothing less than Asia's financial hub. It frets Japan is being left behind. But consolidation is no panacea. The two exchanges have been competitors as much as their cities have rivalled each other for centuries: integration of systems and cultures will be a nightmare. And with characteristic lethargy, the bourses do not expect their new structure to be in place until2013. •
Baltic banks
Red litas day A bust bank in Lithuania sparks w orries in l atvia HOSE who watch the murkier overlaps between power and money in T eastern Europe have long worried quietly about Lithuania's Snoras Bankas, part of a business empire that includes the country's leading daily paper. A government decision on November 16th to nationalise the bank, and the issuing on November 23rd of arrest warrants for two of its former shareholders, Vladimir Antonov and Raimondas Baranauskas, on charges including embezzlement and forgery, add weight to those worries. (They deny wrongdoing and are threatening legal action.) The rumpus has rippled. Mr Antonov, through another company, owns a British football club, Portsmouth. It says it is unaffected. But the effect was dramatic in Latvia, where regulators closed a Snoras subsidiary, Krajbanka, the country's sixth-biggest deposit-taker, saying 10om Latvian lati ($190.7m) appears to be miss- ~~
The Economist November 26th 2011
88 Finance and economics ~
ing. An insurance scheme covers deposits up to €1oo,ooo, but customers queued nervously outside the bank's branches; for the time being they may withdraw only so lati a day. At Snoras the limit is a more generous soo Lithuanian litai ($195). Latvian officials are miffed. With more warning, they could have closed Krajbanka before so much money drained out. Others ask why Lithuania gave Snoras such an easy ride in the past. But when the authorities there did swoop it was smooth and speedy; parliament, government and financial supervisors worked closely together. Snoras still seems to have enough
money to repay personal customers without recourse to the deposit-insurance fund. The nationalisation followed a centralbank investigation that revealed large sums flowing offshore. At least €3oom is thought to be missing; some assets appear not to exist. The bank's bad property loans are a particular headache. The Lithuanian authorities must now decide whether to split Snoras into good and bad parts or to bankrupt it; whether to allow withdrawals by all creditors or some; and how (with Latvia) to sort out Krajbanka. Nobody welcomes a bank failure, especially when nerves are jangling elsewhere
in Europe. Both the litas and the lats are pegged to the euro, which limits the central banks' ability to provide liquidity to the banking system in a crisis. But this story looks likely to stay self-contained. In both countries the main banks are owned by Nordic parent companies. Unlike Austrian and German banks, these outsiders are not retreating to their home markets. State finances are sound too: Latvia in particular is in much more robust health than three years ago, when a banking and currency crisis prompted a big international bailout. Most importantly, there are no signs of bank runs spreading. Long may that last. •
Buttonwood I European banks are becoming the focus of concern
NVESTORS began 20n with high hopes. Bob Doll of BlackRock, a fund-manage- I Iment group, expected double-digit gains from the American stockmarket; the strategists at Barclays Capital expected a 22% return from European shares. Instead Wall Street is flat and European investors have suffered double-digit losses. The year is ending in a mood of unrelenting pessimism. Although a spike in oil prices and Japan's nuclear disaster have played their part, the real problem has been Europe. The debt crisis is deeper and more widespread than almost anyone feared at the start of the year. In a joke coined by Jim Grant, a newsletter writer, government bonds have turned from offering a risk-free return into becoming a return-free risk. Matt King, a credit strategist at Citigroup, thinks this change in attitude has been decisive. "The discovery that a credit you thought was safe, and accumulated a large exposure to, is actually rather risky, tends to lead to a wave of forced selling so strong that it can overwhelm the fundamentals." The proposed so% write-off for private-sector holders of Greek government debt must have played a part in this process. Fund managers now seem to be reluctant to hold any euro-zone government debt. Even in Germany, a bond auction failed on November 23rd, with only €3.6 billion ($4.8 billion) sold of a potential €6 billion issue. This sell-off sent ripples through the financial system because of the strange symbiosis between governments and banks. The former rescued the latter in 2008 but the banks are also big buyers of government bonds. The result is that doubts about the health of a sovereign issuer become worries about the solvency of its banking system. Banks are finding it more difficult and
Your deposits are where? Euro area corporate-bond yields,% 10
8 6 4
2 ~ 0
2006
07
08
09
10
11
Source: Thomson Reuters
expensive to borrow money. Since May, American money-market funds have cut their exposure to European banks by 42%, according to Fitch, a ratings agency. The spread between the rate at which banks pay for money and official short-term rates has widened sharply since September. Although the spread is well below the levels reached in 2008, many banks are getting by only with the help of liquidity provision from the European Central Bank. The ECB said on November 22nd that demand for funding had reached a two-year high. Some banks are having to indulge in expensive "liquidity swaps" in order to get the right kind of collateral to offer the ECB. Other indicators of risk are also sounding the alarm. European bank shares trade at well below asset value, suggesting that investors expect their balance-sheets to suffer significant write-downs in future. The cost of insuring against European bank default is at its highest ever, according to Markit, an information provider. The yields on bank debt have also been rising and diverging sharply from the yields on non-financial debt (see chart). There are two potential adverse conse-
quences of this squeeze. The first is that the banks, which are being required to increase their capital ratios by the European Banking Authority, are unlikely to be able to raise new equity in such circumstances. So they may cut their lending to companies. Barclays Capital points out that, if the region's banks improved their capital ratios purely by shrinking their balance-sheets, lending would fall by around €3 trillion, or almost a third of the region's GOP. The second is that concern about the banks may affect consumer confidence, as it did in 2008. Indeed, things may be worse this time round since governments may feel less able, for political or financial reasons, to bail banks out. Historians note that it was the 1931 failure of an Austrian bank, Credit Anstalt, that ushered in the worst phase of the Great Depression. Many commentators feel that the scale of this crisis is not yet appreciated, particularly in Germany, which is why decisive action (a fiscal bail-out or the mass purchase of bonds by the ECB) has not taken place. "Germans haven't felt the pain yet," says David Bowers of Absolute Strategy Research, a consultancy. German industrial production was booming earlier this year; but the boom is fading fast. Any action may come too late to stop a significant recession in Europe; already the purchasing managers' indices are pointing to a downturn. And the rest of the global economy may not be strong enough to compensate. American GoP did grow in the third quarter, but only by an annualised 2%. In China, the vice premier for the economy, Wang Qishan, said on November 21st that "global economic conditions remain grim." It does not look like being a very merry Christmas. Economist.comfblogsfbuttonwood
90 Finance and economics
The Economist November 26th 2011
Economics focus I House of horrors, part 2 The bursting of the global housing bubble is only halfway through ANY of the world's financial and economic woes since after they bottomed. Some 4m foreclosed homes could come 2008 began with the bursting of the biggest bubble in his- onto America's market, which may hold down prices. tory. Never before had house prices risen so fast, for so long, in so The second question is whether home prices in markets that many countries. Yet the bust has been much less widespread are still overvalued are likely to fall. Some economists reject our than the boom. Home prices tumbled by 34% in America from measures of overvaluation, arguing that lower interest rates justi2006 to their low point earlier this year; in Ireland they plunged fy higher prices because buyers can take out bigger mortgages. by an even more painful 45% from their peak in 2007; and prices There is some truth in this, but interest rates will not always be so have fallen by around15% in Spain and Denmark. But in most oth- low. The recent jump in bond yields in some euro-area countries er countries they have dipped by less than 10%, as in Britain and has raised mortgage rates for new borrowers. Italy. In some countries, such as Australia, Canada and Sweden, And low rates need to be balanced against the fact that tighter prices wobbled but then surged to new highs. As a result, many credit conditions make it harder for homebuyers to get mortgages. The average deposit needed by a British first-time buyer is property markets are still looking uncomfortably overvalued. The latest update of The Economist's global house-price indi- now equivalent to 90% of average annual earnings, according to cators shows that prices are now falling in eight of the 16 coun- Capital Economics, a consultancy. It was less than 20% in the late tries in the table, compared with five in late 2010. (For house 1990s. Another popular argument used to justify sky-high prices prices from more countries see our website). To assess the risks of in countries such as Australia and Canada is that a rising populaa further slump, we track two measures of valuation. The first is tion pushes up demand. But this should raise both prices and the price-to-income ratio, a gauge of afforrents, leaving their ratios unchanged. Prices do not necessarily need to drop dability. The second is the price-to-rent ratio, which is a bit like the price-to-earnings The Economist house-price indicators sharply to return to fair value. Adjustment could come through higher rents ratio used to value companies. Just as the Ratio of house prices to income, 1975-2011=100 and wages. With low inflation, however, value of a share should reflect future pro160 it could take a decade or more before price fits that a company is expected to earn, house prices should reflect the expected ratios return to their long-run average in 140 some countries. benefits from home ownership: namely the rents earned by property investors (or 120 those saved by owner-occupiers). If both Jingle mail of these measures are well above their American prices fell sharply, even though 100 long-term average, which we have calcuhomes were less overvalued than they were in many other countries, because lated since 1975 for most countries, this 80 high-risk mortgages and a surge in unemcould signal that property is overvalued. ployment caused distressed sales. In Based on the average of the two measures, home prices are overvalued by most other countries, lenders avoided the 1975 80 85 90 95 2000 05 11)1 worst excesses of subprime lending, and about 25% or more in Australia, Belgium, to come Under(-)fover( +) unemployment rose by less, so there Canada, France, New Zealand, Britain, the Latest, % change valued, Netherlands, Spain and Sweden (see tawere fewer forced sales dragging prices on a year since against•: down. America is also unusual in having ble). Indeed, in the first four of those earlier 2007 Rents Income! countries housing looks more overvalued non-recourse mortgages that let borrow.~.~~~!~~............~:?........1 ~...~ ...... 6.~ ..........~~ .... . ers walk away with no liability. than it was in America at the peak of its Canada 6.2 21.9 71 29 ................................................................... bubble. Despite their collapse, Irish home An optimist could therefore argue that France 7. 7 5.8 58 39 .............................................................. prices are still slightly above "fair" valueour gauges overstate the extent to which Australia -2.2 18.1 53 .........38 partly because they were incredibly overhouse prices are overvalued, and that if ................................. ................. ........ New Zealand 0.1 -4.0 66 4 .... valued at their peak, and partly because markets are only a bit too expensive they ............... .......... .............. ........................ Sweden ... ' ....... 1.1 ' .... ' ... 15.2 40 23 incomes and rents have fallen sharply. In can adjust gradually without a sharp fall. ............. ' ... ' ......... ' ... ' ........... . It is important to remember, however, contrast, homes in America, Japan and .~P.~i~ ............. ~.5:?...... ~.1?:.2 .......3.2..........3~ ... .. Germany are all significantly undervathat lower interest rates and rising popuNetherlands -2.8 -5.7 23 37 ................................................................... lued. In the late 1990s the average house lations were used to justify higher prices Britain 0.8 -8.7 28 20 price in Germany was twice that in in America and Ireland before their bubDen mark -1.3 -14.3 23 16 France; now it is 20% cheaper. bles burst so spectacularly. .ItatY............... ~.1:?....... .~3:.7 .......J. .........1~ .... . This raises two questions. First, since Another concern is that Australia, BritIreland -15.1 -45. 2 10 nil American homes now look cheap, are ain, Canada, the Netherlands, New ZeaSwitzerland 3.7 17.7 -3 -9 prices set to rebound? Average house land, Spain and Sweden all have even United States -5.9 -27.6 -8 -22 prices are 8% undervalued relative to higher household-debt burdens in relarents, and 22% undervalued relative to intion to income than America did at the .~.~~~~nx..........~: ?......... ?:.~......:~.s........ ~.~~ .... . come (see chart). Prices may have reached Japan -3.3 -10.7 -36 -36 peak of its bubble. Overvalued prices and a floor, but this is no guarantee of an imlarge debts leave households vulnerable Sources: B!S; Haver Analytics; *Relative to Long-run Nationwide; OECD; Teranet; average !Disposable to a rise in unemployment or higher minent bounce. In Britain and Sweden in Thomson Reuters; The Economist income per person mortgage rates. A credit crunch or recesthe mid-1990s, prices undershot fair value Interactive: Compare countries' housing data sion could cause house prices to tumble by around 35%. Prices in Britain did not over time at: Economist.comfhouseprices in many more countries. • really start to rise for almost four years
M
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91
Science in Japan
Also in this section
Where rats and robots play
92 The latest Mars rover 92 Good news on climate change 93 World AIDS Day 93 Preventing infantile anaemia
NAHA
Japanese science needs a shake-up. A new institute in Okinawa may provide it
has the personnel: 212 researchers, and five Nobel laureates on its board of governors. Soon it will have the students, too. The first intake, next autumn, will only be 20. But that will rise to 100 in five years' time. According to its president, Jonathan Dorfan (a physicist lured from Stanford University), the OIST seeks to address three shortcomings in Japanese science. First, it wants to nurture independence of thought in young researchers, encouraging them to work for themselves rather than as foot soldiers for professors. Second, it wants Japanese science to become more open to the outside world. Third, it wants to stimulate the emergence of technology
good science depends. If young Japanese scientists cannot be persuaded to study abroad, though, perhaps abroad can be brought to Japan. At the moment, 85 of the OIST's researchers are gaijin. Ultimately, the organisation aims to recruit half of both its faculty and its students from outside the country. And, as if that were not enough to stir the pot, these scientists have to mix with each other, too. The OIST's laboratories (designed by Kenneth Kornberg, the son of a Nobel prize-winning scientist and brother of another) abut one another and share microscopes, refrigerators and other equipment. Dr Dorfan says everything is
ematicians and computer geeks intermin-
clusters in a country where there is disturb-
designed to eliminate the barriers- physi-
gle, sharing laboratory equipment, teachers and money. After two centuries of science becoming more and more specialised, the idea is to bring back the generalist. Surprisingly, this experiment is taking place in Japan-a country with one of the most rigid academic hierarchies in the world. Locating it in Okinawa, though, is a masterstroke. The island, which is closer to Shanghai and Taipei than to Tokyo, is as cut off as is possible to imagine from the mainstream of Japanese academia. The result is a skunk works: a place where novel and possibly controversial ideas can be tested without constant interference from institutional vested interests. If an idea from a skunk works fails, it can be buried quietly, and nobody gets hurt. If it succeeds, it can be launched fully formed, and bureaucratic resistance thus overcome. The OIST certainly has the money to do this. The government has spent ¥77 billion (almost $1 billion, at current exchange rates) over the past six years to create it. It
ingly little interaction between universities and industry- and few Silicon Valleystyle start-ups as a consequence. That graduate students and post-docs are fodder for the ambitions of departmental heads is not unique to Japan. But the phenomenon is generally thought to be exaggerated there: a toxic consequence of Confucian respect for authority and an academic system borrowed lock, stock and barrel from 19th-century Germany. Young Japanese researchers, though, are fed up with it. One result is that the number of graduate students in natural sciences has been falling in Japan since 2003. Those youngsters are, nevertheless, oddly reluctant to deal with their disgruntlement by going abroad. Between 1996 and 2007, 28% of the science and engineering doctorates awarded in America went to Chinese; n% to Indians; 9% to South Koreans; and 7% to Taiwanese. Japanese, by contrast, picked up just 2% of them. That stymies the exchange of ideas on which
cal and otherwise- between traditional fields of research. That breakdown of barriers is even apparent in individual researchers. Kenji Doya, for example, is an engineer turned neuroscientist. He runs two laboratories at the OIST. One explores learning by robots. The other looks at how a brain chemical called serotonin regulates the patience of rats. An algorithm for regulating patience in the brain, he believes, could be used to improve robotics. Which is just the sort of thing that, if brought to fruition in Dr Dorfan's alma mater, would have the researchers who had come up with it bolting out of the door and into the offices of the nearest venture capitalist, prior to hiring a suitable garage to build their prototype in. Whether that will happen in Okinawa, remains to be seen. Its physical climate is certainly as pleasant as California's. Changing the intellectual climate to match may prove a challenge. •
HINK of a university and what comes to mind may be the cloistered calm of Oxford, the architectural chaos of MIT or even, perhaps, the 1950s brutalism of Moscow. A Daliesque building on a subtropical island, with a view of the ocean and signs on campus warning of venomous snakes, is more unusual. But that is appropriate, for the Okinawa Institute of Science and Technology (OIST), inaugurated as a graduate university on November 19th, is intended to be unusual. It was built from scratch on a forested hilltop overlooking the East China Sea, and its approach to science starts from scratch too. It has no departments. Instead, its biologists, chemists, physicists, math-
T
92 Sdence and technology
The Economist November 26th 2011
Mars exploration
How to Ianda Minion Mars The biggest and fanciest Mars rover so far will soon b last off from Florida ARTH excepted, the most probed and prodded planet in the solar system is Mars. Besides the assortment of craft that have flown by it or gone into orbit around it, three robotic buggies equipped with cameras and scientific instruments have roamed the Martian surface on behalf of NASA, America's space agency, since 1997. If all goes according to plan, they will soon be joined by a fourth. On November 26th a new rover, Curiosity, will ascend from Cape Canaveral. If it gets there in one piece, it will examine the climate and geology of Mars and look for any signs of life that might have arisen. The first of NASA's rovers, Sojourner, which reached Mars ill1997, was 65cm long and weighed (on Earth, where the gravitational pull is 212 times Mars's) 1okg. Spirit and Opportunity, its twin successors, were larger, at 1.6 metres and 170kg. Curiosity, by comparison, is a monster. At 3 metres and 90okg it is the size of a small car. It also uses different technology. The other three rovers were powered by solar panels. Curiosity is powered by plutonium. (Not a fullscale reactor, but a generator that turns the heat of radioactive decay into electrical energy.) This brings three advantages. First, it allows Curiosity to carry more power-hungry scientific instruments than previous rovers. Second, it permits the rover to work through the Martian winter. Third, it avoids the problem of dust accumulating on the solar panels, which gradually sapped the strength of its predecessors. Curiosity's size makes getting it safely onto the Martian surface tricky. Previous rovers have deployed parachutes to slow their descents, and have then crashed into the ground using airbags to cushion their impacts. Curiosity is too massive for that approach to work. Instead, NASA hopes to deposit it on Mars using a contraption it has dubbed a skycrane. As with the other rovers, Curiosity's mother ship will rely on heat shields and air-resistance, and then on a parachute, to slow its arrival. But at an altitude of1.6km a specially designed descent stage bearing the rover will drop away from this vehicle. The descent stage has eight rocket motors on its corners. These will slow its fall to a relatively sedate 0.75 metres a second. When it is about 20 metres above the surface, the rover will be lowered from it on wires and deposited gently onto the Martian landscape. The cables will then be cut with explosives, the descent stage will fly
E
off and crash land elsewhere, and Curiosity will begin its mission. That, at least, is the theory. But the skycrane has never been used before, and there is plenty else that could go wrong. Indeed, Mars has something of a reputation for destroying spacecraft. Around half the missions sent there since the first Soviet attempts in 1960 have failed to arrive. A conversation on the subject in 1964, between a journalist and John Casani, a NASA scientist, spawned the idea of a Great Galactic Ghoul, a malevolent creature that prowls the space-lanes between Earth and Mars, dining on unfortunate spacecraft.
The ghoul's latest victim appears to have been Phobos-Grunt, an ambitious Russian mission that was intended to return to Earth with a rock sample from Phobos, the larger of Mars's moons. The Russian space agency's engineers lost contact with it soon after its launch on November 8th. Limited contact had been re-established as The Economist went to press, but it is not clear whether the mission can be salvaged. NASA's engineers, rationalists though they be, will be keeping their fingers crossed on Saturday, and hoping that the ghoul's appetite has thus been sated, and that it will leave Curiosity alone. •
Climate change
Good news at last?
Th e climate may not be as sensitive to carbon dioxide as previously believed LIMATE science is famously complicated, but one useful number to keep C in mind is "climate sensitivity". This measures the amount of warming that can eventually be expected to follow a doubling in the atmospheric concentration of carbon dioxide. The Intergovernmental Panel on Climate Change, in its most recent summary of the science behind its predictions, published in 2007, estimated that, in present conditions, a doubling of C02 would cause warming of about 3°C, with uncertainty of about a degree and a half in either direction. But it also says there is a small probability that the true number is much higher. Some recent studies have suggested that it could be as high asl0°C. If that were true, disaster beckons. But a paper published in this week's Science, by Andreas Schmittner of Oregon State University, suggests it is not. In Dr Schmittner's
analysis, the climate is less sensitive to carbon dioxide than was feared. Existing studies of climate sensitivity mostly rely on data gathered from weather stations, which go back to roughly1850. Dr Schmittner takes a different approach. His data come from the peak of the most recent ice age, between 19,000 and 23,000 years ago. His group is not the first to use such data (ice cores, fossils, marine sediments and the like) to probe the climate's sensitivity to carbon dioxide. But their paper is the most thorough. Previous attempts had considered only small regions of the globe. He has compiled enough information to make a credible stab at recreating the elimate of the entire planet. The result offers that rarest of things in climate science- a bit of good news. The group's most likely figure for climate sensitivity is 2.3°C, which is more than half a de- ~~
The Economist November 26th ~
gree lower than the consensus figure, with a 66% probability that it lies between 1.7" and 2.6°C. More importantly, these results suggest an upper limit for climate sensitivity of around 3.2"C. Before you take the suv out for a celebratory spin, though, it is worth bearing in mind that this is only one study, and, like all such, it has its flaws. The computer model used is of only middling sophistication, Dr Schmittner admits. That may be one reason for the narrow range of his team's results. And although the study's geographical coverage is the most comprehensive so far for work of this type, there are still blank areas- notably in Australia, Central Asia, South America and the northern Pacific Ocean. Moreover, some sceptics complain about the way ancient data of this type were used to construct a different but related piece of climate science: the so-called hockey-stick model, which suggests that temperatures have risen suddenly since the beginning of the industrial revolution. It will be interesting to see if such sceptics are willing to be equally sceptical about ancient data when they support their point of view. •
AIDS
Get your act together, guys Two UN reports on AIDS are coming out this month. That is one too many
S
Sdence and technology 93
2011
OMETHING odd is going on in the international AIDS establishment. December 1St has been designated (as it is every year) to be "World AIDS Day". That is a signal for the United Nations to put out areport on the state of the epidemic. This year, though, there are to be two reports. On November 21St UN AIDS, an agency created in 1996 to deal specifically with the then-newish disease, published its assessment of the situation. This reaffirmed what has become clear recently: that the epidemic is being beaten back by the widespread deployment of drugs, in combination with changes in the behaviour of those most at risk. The annual number of deaths has fallen to L8m, from its peak of 2.2m in 2005. New infections have also fallen, from a peak of 3.2m in 1997 to 2.7m last year. The report went on to outline what it calls an investment framework, designed to deal with the epidemic in the most costeffective way. This builds on an analysis published in the Lancet in June by Bernhard Schwartlander, UN AIDS's director of evidence, strategy and results. It attempts to prescribe, for each part of the world, the mixture of drug treatment, condom-promotion, prophylactic circumcision and so
Infantile anaemia
Blood simple A small change in how babies are delivered might abolish infantile anaemia
HILDHOOD anaemia is a problem. Around the world, almost a quarter of under-fives suffer from it. And anaemia is not a trivial thing. A child's development, both physical and mental, is stifled by a lack of iron. The reason is that, besides its well-known role in haemoglobin, the oxygen-transporting molecule in the blood, iron is also involved in many aspects of brain development. A study just published in the British Medical]oumal by Ola Andersson, an obstetrician at the Hospital ofHalland in Halmstad, Sweden, suggests that a simple change of medical procedure when a child is born may bring a big reduction in anaemia. That change is not to cut the umbilical cord linking the child with the placenta straight after birth- as is standard practice- but, rather, to give it time to transfer more of the placenta's contents (particularly its blood) to the child it has been nurturing. The argument in favour of rapid clamping is that too much blood may flow from the detached placenta to the newly born child, and that this can cause problems of its own. But that is unproven, and would be a strike against evolution because, in nature, the umbilicus of a mammal usually does remain attached to the infant for some time after birth. Only the modern technology of clamps and sharp scissors permits the slithery tube to be dealt with at speed. To test her idea that extended post partum connection to the placenta is good for a child's health, Dr Andersson and her colleagues recruited 334 pregnant, non-smoking women whose fetuses appeared to be healthy. When these women came to term, their midwives followed one of two sets of instructions, chosen at random and given to them just before each birth. In 166 cases the newborns had their umbilical cords clamped
C
on that will bring most benefit to the fight. On Novembenoth, however, a joint report by the World Health Organisation (wHo), the United Nations' Children's Fund (UNICEF) and- you've guessed itUNAIDS comes out. What it will say is still under wraps. But WHO and UNICEF are also sponsors of UN AIDS, so the duplication of effort looks odd. Both sides seem miffed by the other's actions. Michel Sidibe, the head of UNAIDS, described the production of separate reports as "costly and inefficient". Gottfried Hirnschall, the WHO's director
within ten seconds of delivery. The other 168 had them clamped after at least three minutes had passed. When the children were four months old, Dr Andersson re-examined them and took a blood sample. Those babies whose umbilical clamps had been applied after three minutes had, on average, iron levels 45% higher than those whose cords had been clamped immediately. Put another way, only o.6% of them were anaemic, compared with 5.7% of the rapidly clamped. Rapid clamping of the umbilicus, then, seems to cause one child in 20 to become anaemic, at least in the early months of its life. Any experiment of this sort needs to be repeated, of course, to check it is correct. But if it is, then the burden of proof in the matter of when to cut the cord will have shifted from those who would cut late to those who would cut early. The cost of doing so would seem negligible; the benefit, great.
An unkind cut? of HIV I AIDS, says it had been agreed that in 2011 the three organisations would work together and jointly release a single report. Though the AIDS epidemic has been knocked back by the huge sums of money now being thrown at it (about $15 billion a year at the moment, in poor and middleincome countries), continued success requires an uninterrupted supply of drugsand therefore of the cash to pay for them. The state of the world's economy means politicians are looking for any excuse to save money. Not a good moment to be squabbling. •
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95 Also in this section 96 Cesar Chavez and the UFW 96 Artists and photographers 97 Chinese export porcelain 98 Fiction from Arge ntina
Prospero, our online blog on books, arts and culture, appears every day. For analysis and debate, visit Economist.com/culture
New fiction from Japan
Hey babe, tal{e a walk on the wild side A black cat, two moons and a host of nocturnal little people populate Haruki Murakami's new novel. But has he become more conventional? ARUKI MURAKAMI filches from George Orwell's "Nineteen EightyFour" for the title of his new novel, ''1Q84", making a play on kyu, the Japanese word for nine, by transposing the Jetter "Q" for the number "9". Significantly, the action also takes place over the last nine months of 1984. But it would be a mistake to conclude from this that Japan's magical postmodernist has spent nearly 1,000 pages writing about a dystopian world where couples make love in an ash glade, hardly daring to speak because of the all-listening microphones in the trees. Mr Murakami's main influence here is not so much Orwell as Philip Pullman; his "1Q84" Jess a stairway to another world than a heave-he into a whole new universe. Sitting in a taxi on the gridlocked elevated Metropolitan Expressway in Tokyo, Aomame, the skinny heroine with asymmetric breasts (her name means "green peas"), is catapulted into action when she hears Janacek's "Sinfonietta" on the radio. Her cabbie tells her she can beat the traffic by hopping out of the car and down an emergency staircase at the next exit. He warns her that things will not be the same. But it is only when Aomame notices that the policemen have swapped their holstered revolvers for bulky semi-automatic weapons that she realises she has entered a parallel universe. This gripping beginning ensures the
H
1Q84. By Haruki Murakami. Books 1 and 2 translated by Jay Rubin and Book 3 by Philip Gabriel. Knopf 944 pages; $30.50. Harvill; £34.99
reader falls for Aomame, forcing Mr Murakami to work extra hard on her counterpart, Tengo, who appears in alternate chapters in the book. Tengo is an unpublished novelist who keeps to himself, working as a private maths tutor in a prep school. His father was a debt-collector who rounded up licence fees for the NKK television network, dragging his son along with him on Sundays as he called on households doorto-door. Tengo's beloved mother died when he was very young, and the boy's earliest memory is of hearing his mother having her breasts sucked by a man who was not his father. Tengo's flat-pack character fills out as the book evolves, in particular in a long passage when he visits his aged father in his nursing home and tries to talk to him about the past. Tengo's life changes when a friend, a grumpy editor named Komatsu, persuades him to clean up a raw manuscript by a teenage girl, Eriko Fukada, called Fuka-Eri throughout. Komatsu believes that the girl's autobiographical story, about being raised on a rural commune that changes into a sinister cult involved in mind games and child abuse, has all the
makings of a bestseller if its style can be improved enough so that it wins a literary prize. Aomame, as might be expected from a woman who shimmies down from an overhead expressway without much concern for her stockings or her chestnutcoloured Charles Jourdan heels, turns out to be a minx on the make, a charming, ballbreaking, feminist do-gooder who likes nothing better than rounding off a day's killing with an all-night bout of bisexual sex. Aomame is really a hired gun, who specialises in quietly offing wife-beaters and child rapists, a manga version of Stieg Larsson's Lisbeth Salander. Aomame's and Tengo's parallel stories began to rub against one another long before the characters do. They both see a black cat and two moons (one shiny and normal, the other misshapen and mosscoloured); and both know about the little people who emerge periodically from the mouth of a sleeping child and disappear under the child's bed. The two heroes were once at school together and even, briefly, held hands at the age of ten. An unresolved longing to recapture that moment permeates both their lives, and the willthey-won't-they question overshadows the whole book. Herein lies the conundrum of "1Q84". Mr Murakami's reputation as Japan's greatest literary surrealist is based on a series of short stories and novels, such as "Hardboiled Wonderland and the End of the World", which came out in 1985, and "Norwegian Wood" two years later. His early works were intensely personal fantasies involving unhappy, virtually disembodied men and suffused with references to Western music and literature. ''1Q84" is much longer, but also far more conventional. Like two American writers, Jonathan Franzen and Jeffrey Eugenides, both ~~
96 Books and arts ~ known
for their fizzy inventiveness but whose recent work is more plot-driven, Mr Murakami seems to have made a conscious move towards romantic narrative. Mr Franzen's latest book asks whether the married protagonists will stay together; Mr Eugenides's which of the two main heroes will his heroine end up with (if any). It is Mr Murakami's turn, now, to cut in on the boy-girl gavotte. This has certainly proved a popular move. When the first two volumes of ''1Q84" were published in Japanese in 2009, more than 1m copies were sold in just a few weeks; the third volume followed to similar acclaim a few months later. Keeping up originality can be hard work. But Mr Murakami's new direction, like that of Mr Franzen and Mr Eugenides, is bringing him thousands of fresh readers. And that is a good thing. •
American agribusiness
The power in the • Union Trampling Out the Vintage: Cesar Chavez and the Two Souls of the United Farm Workers. By Frank Bardacke. Verso; 836 pages; $54.95 and £35
"HE IS trampling out the vintage" is part of a line from "The Battle Hymn of the Republic". It continues "where the grapes of wrath are stored". Thus the title of Frank Bardacke's history deliberately echoes John Steinbeck's novel, a proletarian classic which tells the story of tenant farmers driven off their fields in Oklahoma and forced to cross the country to seek work in California. But, as Mr Bardacke stresses, a huge demographic difference divides then from now. In the Depression of the 1930s Steinbeck could present his impoverished "Okies" as deserving of government help "because they were true American whites". It was harder for their MexicanAmerican successors to win public sympathy. They were brown, Spanish-speaking and "considered aliens and sojourners". It took the genius of Cesar Chavez, whose family was dispossessed of its land during his boyhood, to bring them into the American mainstream. As a vegan inspired by Catholic social teaching and the non-violent methods of Mohandas Gandhi, Chavez was more comfortable with religious people than political ones. He set out to create a movement rather than a union, leading a "pilgrimage" across the Central Valley of California to the state capital, Sacramento, in 1966. When his followers were blocked by the police they knelt in prayer behind a picture of the Virgin of Guadalupe.
The Economist November 26th 2011 The idealism of Chavez's movement and the fasts he endured to win support for striking farmworkers caught the public imagination. Other labour leaders looked on aghast as he built an odd but strong coalition of farmworkers, religious enthusiasts, student radicals, politicians, artists and union officials. Working together they persuaded consumers in their millions to boycott the grapes, lettuces and other products of agribusinesses which refused to negotiate sincerely with the United Farm Workers (UFW). The tactic they perfected was described by critics as "victimhood". A photograph of a starving urchin was, for instance, captioned: "Every grape you buy helps keep this child hungry". Mr Bardacke is only half-impressed with all this. As he sees it Chavez had two main responsibilities: to sustain support for boycotts, "which he did magnificently", and to administer the union, "which he did badly". The author notes that the union's membership continued to decline in the late 1980s even after Chavez fasted for 36 days to support its grape boycott and anti-pesticide campaign. His verdict seems unduly harsh but then Mr Bardacke is an old-fashioned leftist. For him, strikebreakers are almost always "scabs" and growers not even worth listening to. This is a pity, for such prejudices mar an otherwise intelligent, thorough history. The UFW is indeed, as he contends, a shadow of its former self, but the odds against it ever succeeding as a conventional labour union were always impossibly large. Illegal migrants from Mexico, poor and desperate for work, poured across the border to take the jobs of UFW members and doom their strikes. The rival Teamsters union was no help. Its opera-
Living off the land
tives sabotaged UFW recruitment drives by telling farmworkers they would be much better off in a tough professional union like theirs. Nonetheless Chavez left a significant legacy which is insufficiently acknowledged by Mr Bardacke. In leading by example and through the sheer force of his will he raised the stature of MexicanAmericans not just in California and the south-west but throughout the United States. In consequence, he is now held in the same high esteem as his black equivalent, Martin Luther King. Cesar Chavez's portrait hangs in the National Gallery in Washington, nc. His statue stands on university campuses. Streets, parks and buildings are named after him. In California his birthday, March 31st, is a state holiday. His truth is marching on. •
Artists and photographers
Point and paint AM STERDAM
A long overdue study of the influence
early photography had on painting
"J Bannard, HAVE all my subjects to hand", Pierre a French post-impressionist painter, once wrote. "I go to see them. I take notes. Then I go home. And before I start painting I reflect, I dream." At the turn of the 19th century, the "notes" Bannard made included snapshots that he took with his flexible hand-held Kodak camera, which had first been introduced in 1888. Unhampered by hefty equipment (the Kodak was held at waist level and had an arrow marked on top to help point the lens) or long exposures, Bonnard and his fellow painters from the Nabi group, Edouard Vuillard and Felix Vallotton, were among the first artists to use the camera to observe fine details, perspectives and light effects too fleeting to see with the naked eye. A painstakingly curated new show juxtaposes 220 mostly unpublished vintage snapshots by seven fin-de-siecle artists along with their paintings, prints and drawings in an effort to demonstrate how this new way of seeing inspired and expanded the painters' creative vision. Henri Riviere, a French printmaker and designer, climbed the soaring Eiffel Tower before it was completed in 1889 to photograph the exhilarating lines and angles of its iron girders set against the Paris sky for a series of 36 lithographs. Vuillard and a gifted, yet little-known, Belgian painter named Henri Evenepoel used the camera as a sketch book and aide-memoire to capture everyday moments with family and friends. Bonnard in turn photographed his slender, round-faced mistress and muse, ~~
The Economist November 26th 2011
Books and arts 97 Chinese export porcelain
Treasure trove TheRA Collection of Chinese Ceramics: A Collector's Vision (Three Volumes). By Maria Antonia Pinto de Matos. Jorge Welsh Books; 1,204 pages; £900
HEN the Portuguese began trading with China in the early 1500s, porcelain was one of the luxury goods they carried home in their ships. Only the Chinese knew how to make this delicate, often translucent, material that rings when you tap it. Demand for porcelain made expressly for foreigners spread as far afield as the Netherlands, Germany, Persia, the Ottoman empire,Japan and the young United States. The Chinese manufacturers drew on traditional shapes, but quickly began to branch out, making Western tureens in the form of pigs, cockerels, blue-eyed horned oxheads and bug-eyed crouching crabs, as well as sauce boats shaped as whole multicoloured fish. It was a world apart from the traditional Chinese blue-and-white. The earliest commissions, often with coats of arms, are called the "first orders". For Portuguese speakers these works have long been an evocation of a seafaring heritage in which many take pride. Now Chinese collectors are beginning to acquire them as homage to the sophistication and commercial acumen of their forebears. For the moment, though, the best collection is still in Brazil. It is the focus of a new three-volume study of 6oo outstanding pieces. Among the rarities acquired by this anonymous collector are 22 "first orders", many more than can be found in any museum. Maria Antonia Pinto de Matos, director of the National Tile Museum in Lisbon and an expert on Chinese export wares, spent 11 years on this project. She tells the story of early exploration and the fascination with the exotic, detailing the crafty manoeuvring of foreign trade with China and the many influences that flowed back and forth across the water. Her books document the transition from tradition to Western motifs and shapes, among them coffee pots and sugar casters, and also delves into the sources for the armorial pieces for which this Brazilian collector has a special fondness. These books are expensive, but they are well worth the investment. This is the best work yet written on Chinese export porcelain and will be a resource for collectors, dealers and curators for years to come.
W
Double vision ~ Marthe
de Meligny, naked in a glade, as inspiration for his illustrations of "Daphnis and Chloe" by a second-century Greek novelist and romancer, Longus. Neither Vuillard nor Bannard, with whom he shared a studio, actually copied photographs in their resonant, small-scale paintings of domestic interiors. Instead, both tried to replicate the immediacy of snapshots (or instantanes as they were called in France) often catching their subjects mid-gesture. Using his photographs only as an occasional reference point, or to reflect a mood, Vuillard recomposed his subjects at will. "At Table, Lunch" and "In Front of the Tapestry: Misia and Thadee Natanson" both show abbreviated figures, whether absorbed in eating a meal, or with their backs to the viewer. Vuillard's figures, who are almost swallowed up by the vibrant decor, have an apparitional quality that appealed to the 20th-century French photographer, Henri Cartier-Bresson, who described Vuillard and Bannard as among the artists he most admired. A Dutch painter, George Hendrik Breitner, also seizes a moment in time in a bustling Amsterdam street scene that is dominated by a veiled figure holding a fur muff up to her face, looking blurred and fugitive, as in real life. Now acknowledged as a gifted photographer in his own right, Breitner used his camera for "Girl in Red Kimono" (pictured right above with its photographic model, left). This precise yet atmospheric re-creation of his snapshot of a girl curled up on a divan, shows her intricately patterned kimono in sharp contrast with the design of the Persian carpet at her feet. "Snapshot : Painters and Photography 1888-1915" is at the Van Gogh Museum, Amsterdam, until Ja nuary 8th 2012. 1t will be displayed at the Phillips Collection in Washington, DC, from February 4th until May 6th and at the In dianapolis Museum of Art from Ju ne 3rd until September 2nd.
Unlike their official work, none of this exhibition's seven artists ever intended their photographs to go on public display. Photography, for them, was a mechanical process rather than an art form. Some of the images come from the attics and albums of the artists' families; Riviere's photographs, now at the Musee d'Orsay, were catalogued only in 1988. Vallotton, who left just 20 images, compared with 2,000 left by Vuillard, may even have destroyed the evidence following accusations that he copied a central figure from a photograph published in a French magazine in 1908. Snapshot studies for two of his paintings, "Beach at Etretat" and a portrait of his wife entitled "Red Room, Etretat", show how he worked from photographs, eliminating extraneous details and grey shadows. He used this pared-down style to create powerful groups of figures or psychological portraits. Vallotton and Vuillard liked to exchange photographs. Evenepoel, a pupil of Gustave Moreau who took almost 900 photographs, including a series of searching self-portraits, in the two years before he died of typhoid aged 27, described his camera as a "real gem". A photograph of his hesitant family about to cross the Place de la Concorde recalls Edgar Degas's famous portrait of Vicomte Lepic and his daughters, while images of his cousin Louise de Mey and their son Charles embody the emotion he invested in his portraits. "I savour them all [my snapshots] with the slightly sad joy of reflecting that all this good time is past", Evenepoel wrote to his father in 1897. These images, like most in the exhibition, are startlingly small. But close inspection reveals a finely detailed portrait of how this group of artists lived and worked, and it conveys the real sense of the excitement they felt as they experimented with their seemingly miraculous new gadget. •
The Economist November 26th 2011
98 Books and arts Fiction from Argentina
The price of love
The junta's policy of eliminating its enemies still fascinates Argentina's novelists
T SEEMS appropriate now that Argentina's investigation into the fate of its desaIparecidosthe 8, 60 people officially 9 known to have "disappeared" under the military dictatorship of 1976·83- was headed by a writer. Ernesto Sabato, who died in April at the age of 99, described his task as a "slow descent into hell". Ever since "Never Again", his 1984 report on the "dirty war", generations of Argentine novelists have followed Sabato into the inferno. For Argentine society, the chapter never closes. Continuing revelations about hundreds of adopted children who were abducted with their parents, or born in custody, have resulted in DNA tests and legal challenges by a campaigning group, "Grandmothers of the Plaza de Mayo". Two of these fine recent novels revisit events during the junta. The others- both exceptional debuts- focus on a disturbing present, yet are haunted by unexplained disappearances. Tomas Eloy Martinez (pictured below), a prominent journalist, novelist and academic who spent years in exile and died in 2010, is known for his explorations of the psychology of Peronism, among them "Santa Evita" (1995). In "Purgatory" (2oo8), his last novel, an Argentine cartographer in suburban New Jersey senses that her husband has returned to her, no older than when he disappeared 30 years earlier. After years of searching, she remains impervious to evidence of his death as it would confirm that her father, a cheerleading propagandist for the junta, connived in his killing. The novel alludes to the mixture of hypocrisy and collusion that characterised that period, and the banal sentimentality of its distractions- flying saucers, soap operas, fatherland and futbol (the infamous 1978 World Cup hosted and won by Argentina). The heroine's state of denial and her ghostly and erotic delusions mirror a country still struggling with reality. Craven complicity is at the heart of Carlos Gamerro's "An Open Secret", a literary thriller first published in 2002 that has the makings of a classic. The perfect crime is "one committed in the sight of everyonebecause then there are no witnesses, only accomplices." A veteran of the war in the Falklands (or Malvinas as they are known in Argentina) returns in the 1990s to his hometown in the pampas to probe the disappearance in custody of a troublesome young journalist during the weekend of Diego Maradona's football debut 20 years
Purgatory. By Tomas Eloy Martinez. Translated by Frank Wynne. Bloomsbury; 273 pages; $17 and £16.99
An Open Secret. By Carlos Gamerro. Translated by Ian Barnett. Pushkin Press; 286 pages; $15 and £10
Open Door. By Iosi Havilio. Translated by Beth Fowler. And Other Stories; 213 pages; £10 7 Ways to Kill a Cat . By Matias Nespolo. Translated by Frank Wynne. Harvill Seeker; 246 pages; £10.99
earlier. He finds a "conspiracy of chattiness" rather than of silence, over a murder the whole town was in on. Mr Gamerro, who was born in 1962, departs from a previous generation's reverence for eyewitness testimony and memorialising the dead. The tone is hard-boiled, its cynicism alleviated by rare lyrical flights, and the desaparecido emerges as a spoilt mama's boy and unsavoury womaniser. The "involuntary martyr" is no hero. The perspective is that of a generation seeking the unadulterated truth about their parents and grandparents during the "dirty war"- and hence their own identity. Amid the torrential self-
The Argentine dream
justification of the townsfolk, from barbers to bankers, the subject becomes language itself, which is used to excuse and obfuscate. The stark epigraph is from William Burroughs: "To speak is to lie/To live is to collaborate." The bereaved mother in "An Open Secret" appears mad, though the madness is all around her. In "Open Door" by Iosi Havilio, who was born only in 1974, Argentina resembles an asylum. A young veterinary assistant relates how her female lover went missing. She fears that she may have seen her commit suicide off a bridge in Buenos Aires's old port. Between trips to the morgue to identify corpses, she visits a pampas village named Open Door, after the psychiatric hospital that was founded there in 1898 as an "agricultural work colony". In the countryside she moves between two partners: an ageing gauchowhose name is the same as his ailing horse, Jaime- and an amoral, druggie country girl with plaits. As sexual encounters unfold in the woman's alienated voice, the characters merge with the village "loonies". Events, like interchangeable lovers, have equal weight, from a stable fire to the brewing of mate tea, in an ambiguous tale that verges on dark comedy. A suspected UFO turns out to be the spotlit film set for a commercial. In an asylum without walls, there is "nothing to limit the illusion of absolute liberty"; ultimate control is when people no longer feel they are being coerced. With skill and subtlety, the novel hints that a whole society might labour under an illusion of liberty, manipulated by forces outside the frame. What those malign forces might be is more explicit in "7 Ways to Kill a Cat" by Matias Nespolo, another debut novelist of Mr Havilio's generation. His shantytown tale from southern Buenos Aires, which recalls the "City of God" slum in the Rio favelas, is set during Argentina's 2001 financial crash, with protesters defying tear gas, from teachers to lorry drivers. It opens in a barrio at the "wolf's mouth", where the asphalt and streetlights give out, with two peso-less youths butchering a cat for meat. As they become embroiled in a lethal turf war between drug lords, the narrator, Gringo, probes the mystery of his mother's disappearance, and that of his cousin- areformed gangster turned pavement hawker. Gringo, torn between moral scruples and the need to "look after number one", learns that there are only two ways to kill a cat: civilised or savage. A police crackdown on the marchers prompts him to retaliate in what he sees as a "seriously civilised fashion". One of the characters in "An Open Secret" claims bitterly that in Argentina, "the winners make history and the losers write it." To judge from these novels that scour the past and mourn the future, it seems nobody won. •
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