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6 The world this week Leaders 9 Mitt Romney America's next CEO? 10 India's identity scheme The magic number 11 Executive pay Bosses under fire 11 Natural disasters The cost of catastrophes 12 Scotland's referendum Clarity, please On the cover Mitt Romney Looks Like winning the Republican nomination. His party could do worse: Leader, page 9. He is stiLL an enigma to Republican voters-and the rest, pages 24-26. South Carolina beckons, page 27. His career says a Lot about how American business has changed: Schumpeter, page68
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Volume 402 Number 8767 First published in September1843
to take part in "a severe contest between intelligence, which presses forward, and an unworthy, timid ignorance obstructing our progress. " Editorial offices in London and also: Atlanta, Beiji ng, Berli n, Brussels, Cairo, Chicago, Hong Ko ng, Jo han nes burg, Los Angeles, Mexico City, Moscow, New Delhi , New Yo rk, Paris, Sa n Francisco, Sao Pau lo, Si ngapore, Tokyo, Washington DC
Letters 14 On oil, the Republicans, the East India Company, suicide, Belgian beer, the rich Briefing 24 Mitt Romney Towards the coronation United States 27 New Hampshire's primary Mitt Romney marches on 28 The recovery and the election That 2004 feeling 29 Guantanamo No way out 29 Harsh Laws Another one in the net 30 Rebalancing America's forces Downgrading Europe 32 Lexington Obama and Iran The Americas 35 Brazil's trade policy See king protection 36 Iran and Latin America Brothers in arms? 37 Colombia's former para militaries Criminals with attitude 37 Lima's metro The train leaves at last
Asia 39 India's UID scheme Reform by numbers 40 Malaysian politics The end of Sodomy 2.0 41 Chinese air pollution Clearing the air? 41 Abductions in Sri Lanka Murky business 42 Australia's aborigines Occupied land 43 Banyan Letthem eat yellowcake Middle East and Africa 44 Nigeria Aspreading insurgency 45 South Africa Disappointment 46 Israeli politics Shaking the kaleidoscope 46 Egypt's religions Nervous Christians 46 Rwandan history Shifting the blame 47 Tunisia Ideology v practicality 47 Syria and Russia Wait and sea Europe 49 Europe's economies Afalse dawn? 50 Germany and the euro Unhappy new year 50 French tourism Boney-park 51 Greek woes The Mediterranean blues 52 Albanians in Greece Heading home again 53 Charlemagne Denmark and the EU Britain 54 Scotland's referendum If at first you don't succeed 55 Executive pay Money for nothing? 56 Terrorists and historians Deathly archive 56 No-frills hotels Room without a view 57 Bagehot Edonomics
India How an ID scheme could help India's poorest peopleand serve as a model for other countries leader, page 10. Opposition to the scheme, page 39
Executive pay Britain is a case study in how politicians miss the point when they try to "fix" executive pay: leader, page 11. Bosses' pay levels are driven by globalisation . Moves to link pay and performance need to recognise this, page 55
Scotland's independence The referendum should ask one question: in or out? Leader, page 12. Wrangling over the terms of the vote, page 54
~~
Contents continues overleaf
4 Contents
The Economist January 14th 2012
International 58 Video and human rights Visibility before all 59 Baby names Thanks, mum
Kodak and Fuji Why is Kodak at death's door while Fujifilm , its old rival, is thriving? Page 63
Natural disasters The rising cost of catastrophes, and how to limitthedamagetheydo : leader, page 11; briefing, pages 60-62
Briefing 60 Natural disasters Counting the cost of calamities Business 63 Technological change The last Kodak moment? 66 Carrefour Bread, cheese, new boss? 66 Golden parachutes Rip-cord economics 67 Brands in China Fakes lose favour 68 Schumpeter Romney the revolutionary
69 70 71 71 72 72 73 74
China's property market The downturn will benefit stateowned developers, page 69
Finance and economics China's property market Marriages and mergers Buttonwood The euro's descent European bank capital By hook or by crook Reviewing the crisis The Lo down After Hildebrand Damage control Taxing golf Putters aflutter Japan's trade balance Seeing red Free exchange The politics of economics
Sdence and technology 76 Military technology Magic bullets 77 Mathematical ecology Spot check 77 Leap seconds Their time has come 78 Bed bugs A new debugger
Books and arts 79 The haj on show Journey of faith 80 El sistema in Venezuela Music man 81 Prosecuting al-Qaeda Atricky business Business books quarterly 82 Setting a price on the future The mathematics of markets 83 Wall Street analysis Mike Mayo's memoir 83 Global marketing Local heroes 84 World changers Headbanging 84 Job interviews Application 92 Economic and finandal indicators Statistics on 42 economies, plus a closer look at our Big Mac index Obituary 94 Ronald Searle How to be Toppin Art
Next week We publish a spedal report on state capitalism. The crisis of Western liberal capitalism has coindded with the rise of a powerful new form of state capitalism in emerging markets, says Adrian Wooldridge Pri ndpal commercial offices: 25 StJames's St reet, London SW1A 1H G Tel: 020 7830 1000 Boulevard des Tranchees 16 1206 Ge neva, Switzerland Tel: 41 22 566 2470 750 3rd Ave nu e, 5th Floo r, New York, NY 10017 Tel: 1212 5410500 60/ FCentral Plaza 18 Harbour Road, Wanchai, Hong Kon g Tel: 85 2 2585 3888 Other commercial offices: Chicago, Dubai , Frankfurt, Los Angeles, Paris, San Fran cisco and Singapore
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Politics
A row broke out between Pakistan's military leaders and its government after Yo usaf Raza Gilani, the prime minister, criticised the army chief of staff for participating in a public judicial inquiry. The military responded with a strongly worded statement warning of "serious ramifications". Mr Gilani also sacked his defence secretary. Meanwhile, America resumed drone missile strikes on Palment institution focused on the priVate sector 10 developmg countnes We create opportun1t1es for people to escape poverty and mprove the1r ltves. We do so by proVK11ng llnanc1ng to h lp businesses employ more people and supply essential services, by mobillz~ng capital from rs, and by delivenng adv1say serviCeS to ensure sustainable development. IFC recenUy launched a Spectal lmtia!Jve to strengthen Its ablhty to contnbute to the development of nfrastructure n Sui),-Saharan Africa. The Initiative In lves building up specialized capac1ty 10 Public.,rivale Partnerships (PPPs}. 10 order to worx more closely th Governments. the World Bank and private nvestors with the overarchtng goal to 111Cfease the flow of bankable anfrastruc1ure pi'OJ8Cis IFC is seeking to recrUit
IFC's Partnership & Advisory Services Operabons Oepartment (CPA) supports IFC AdviSOry Services (AS) through streamlined operations, bm ty nd accurate analysis and reporbng, effecttve partnership development and lnctus!Ve leam•ng and outreach CUrrent IFC managed AS aMual expendrtures ar roughly $300 mill on end growrng funded by a combination of IFC's own funds. cit nt cootribu1100 and donor partners IFC lS recrurtrng a
• Senior!Principallnvestment Officers as PPP Specialists
• Manager, Partnership and Donor Relations
With a proven track record in origmabng structuring and closing complex
Based Washmgton. O.C Pos 1112551, {)ea(f/me Jan 31 , 2012.
transacllOIIS
He/she wrll proVIde lead rsll p and strategiC VISIOfl for collabOrallon with dooor partners. develop donor funding trateg1es and oversee the Implementation of work plans. Integral results measurement and kno ledge mana ment anto the Corporatr01fs approach to partnership development negobate and Implement partnership frame rk agreements. halse wrth counterparts at th World Bank, end ensure that IFC globally pre nts one face to partners. Csnd dates Will d monstrat extensive knowledge or the donor commumty, eir strateg•es, pnontles and structures excellent communication and lnfluencmg sl\\\\'.Ill
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The Economist January 14th 2012
Appointments
89
Senior Professor of Finance specialised in Capital Markets/ Asset Management- one vacancy in Singapore EDHEC-Rtsk Institute is part of EDHEC Business chool, one of Europ 's leading busmess schools and a memb r of the select group of academic mstttut1ons worldwide to hav earned th trip/ crown of international accreditations {MCSB, EOUI , As oc1ation of MBAs). Established tn 2001, EDHEC-Risk Institute has become the prenuer mternat1onal centr for financial r search and 1ts application to the mdustry. In partnership w1th large financial institutions, its team of 80 p rmanent professors. engineers and support staff imp/ ments six re arch programme and lev n r sear h cha1rs fo using on asset allocation and risk manag ment tn the traditional and alternative investment universes. The r suit of the resear h programmes and chairs are dis eminated through th three EDHEC-R1 k Institute locat1ons 1n London, Nice and ingapore.
With a PhD tn finance or econom1cs, the successful candidate will have demonstrated his/her ability to produce h1gh quality research and will have an outstanding rack record of interna ional publication. Research service will focus on asse management w1th spec1al emphas1s on asset allocation and portfolio construction and will be carried out within EDHEC-Risk Institute, a leading interna ional research centre for tndustry-relevant academic research. The successful candidate will teach in the As1an chapter of the EDHEC-Risk Institute PhD tn Finance programme, and w1ll act as a figurehead for the programme tn the region. The candida e will have demons ra ed his/her capacity o interact with the financial industry v1a research proJects and/or executive education, and the desire to pursue projects, as a member of EDHEC-Risk Institute, in collaboration w1th the tndustry. Salaries are at the top end of the range for similar positions and bonuses are available for both academic publications and involvement in EDHEC-Risk Institute's research projects.
• •• •
If you wish to apply for this position, please send an applicatiOn letter and C'l/ quotinq the reference 1111SPFSGP to Ms Sevcrine Anjubault: EDHEC Business School 400 promenade des Anglais BP 3116 - 06202 Nice ccdex 3 - France or to sevcrinc.anjubault@' cdhec-risk.com .
The Economist January 14th 2012
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Big Mac index The Economist's Big Mac index is based on the theory of purchasing-power parity: that, in the long run, exchange rates should adjust to equal the price of a basket of goods and services in different countries. Our basket consists of one McDonald's Big Mac, and we've compared it with the average price in America, $4.20. According to our burgernomics, the Swiss franc is 62% overvalued: the exchange rate that would equalise the price of a Swiss Big Mac with an American one is 1.55 francs to the dollar; the actual exchange rate is only 0.96. The cheapest burger is found in India, where it costs just $1.62. Big Macs aren't sold in India, so we've taken the price of a Maharaja Mac, made with chicken instead of beef.
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India For more countries see: Economist.comfbmjan12 Source: McDonald's; The Economist
• At market exchange rate (Jan 11th 2012) tWeighted average of member countries
The Economist commodity-price index
%change on Dec 31st 2010 Index one in local in$ Jan 11th week curren cy terms United States (S&P 500) 1,292.5 +1.2 +2.8 +2.8 United States (NAScomp) 2.710.8 +2.4 +2.2 +2.2 China (SSEB, $terms) 221.8 +4.6 -30.2 -27.1 Japan (Topix) 733.5 -1 .3 -18.4 -14.0 !!!~~(~~~~tl_OQ} .J..Q5~ __ni!_ _ _:8_:2_ _·1]~ World, dev'd (MSCI) 1.204.3 +0.1 -5.9 -5.9 Emerging markets (MSCI) 948.7 +1.2 -17.6 -17 .6 World, all(MSCI) 305.6 +0.2 -7.6 -7 .6 ~o!!_d!_o!!_!!~(Ci!j!)!.O.!!.J.I)_ _ 2?l:? _ ..:.Q.i_ _ ..:!:_5.:.?_ _ ~·2 EMBI+ (JPMorgan) 597.2 -0.6 +8.3 +8.3 Hedge funds (HFRX) 1,119.1 +0.5 -8.1 -8.1 Volatility, US (VIX) 21.1 +22.2 +17.8 (levels) CDSs, Eur (iTRAXX)t 176.3 +2.0 +68.5 +59 .4 CDSs, NAm (CDX) t 116.0 -3.3 +36.2 +36.2 Carbon trading (EU ETS) € 7.0 +7.5 -50.3 -53.0
2005=100
*Total return index. tcredit-default-swap spreads, basis points. Sources: National statistics offices, central banks and stock exchanges; Bloomberg; CBOE; CBOT; CMIE; Cotlook; Darmenn &
Curl; EEX; FT; HKMA; ICCO; !CO; ISO; Jackson Rice; JPMorgan Chase; NZ WoolServices; Thompson Lloyd & Ewart; Thomson Reuters; Urner Barry; WSJ; WM/Reuters
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%change on one one month year
Dollar index __ _}~,2_ __ l§i_6__ __:ri_2_
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Metals Sterling index All items 213 .9 Euroindex All items 175.1 Gold l.Rer oz 1,604.0 West Texas Intermediate 103.1 $per barrel
+2 .9 Jl..2 :t3..7 . .. ~_3 1._2 -18.6 +2.5
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*Provisional !Non-food agriculturals.
Indicators for more countries and additional series, go to: Economist.comfindicators
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Ronald Searle Ronald Searle, artist, limner of St Trinian's and St Custard's, died on December 30th, aged 9L Nigel Molesworth of St Custard's writes ART is for weeds and sissies whose mater .1'"\.hav said Take care of my dear little Cedric, he is delicate you kno and cannot stand a foopball to the head. Whenever anebode mention Art they all sa gosh mikelangelo leenardo wot magnificent simetry of line. Shurely the very pinnackle of western civilisation etc.etc. Pass me my oils Molesworth that I may paint my masterpeece. The headmaster sa gosh cor is that the medeechi venus hem-hem a grate work so true to life reminds me of young mrs filips enuff said. Molesworth sa on the contry the most beatiful form in art is a Ronald Searle GURL from St Trinian's in a tunick with black suspenders and armed with a hockey stick to beat the daylites out of another gurl or maybe just a teacher chortle chortle. Mr Searle sa he hav based her on his sister Olive. She hav wild platts and an empty gin bottle in her pocket a sack of poysinous todestools two sticks of dynamite and possibly a hippo on a lede while an old crone alias a teacher sa from a window Elspeth put that back AT ONCE. Or she will be sharpening a massiv knife on a grinder with grusome heads of gurls on a shelf behind and the headmistres will be telling the surprized parent this is Rachel, our head gurl, ha ha ha. We offer every attention to your prescious chicks including drunken orgeys wiches sabbaths every
form of the subjunctive in fr. or lat. and coffin-making for a modest charge. The luvely creaturs of St Trinian's so pleased the publick that Mr Searle sa, people think I have drawn nothing else, I am sick to dethe of them, so he began in 1953 to draw from Geoffrey Willans words the farest forms of St Custard's, viz, Peason my grate frend who hav a haircut like a chimney brush, fotherington-tomas with curlie hair who believe in fairies, Molesworth 2 my younger bro who is uterly wet and a weed and Grimes the headmaster, alias soho sammy with a face of evil unparralled. Not to mention Me n. molesworth brave and feerless wot a noble BOY in his yellow blazer and his cap at a rakkish angle, a gift to Art with the lite of geenius gleeming from his glasses and an expreshun that strike fear into every teacher in the skool. Mr Searle hav drawn too the charming scenes of the place, viz, the headmaster's office with escape runways, the many varities of Kane one with telescopic sights, the Glurk and Lesser Titwort as found in Botany, the hairy gerund as found in lat. chiz chiz, Matron smoking in her room ahem, a corner of the playing fields with pouring rane and a ghastly THING with many feet and claws that is Molesworth 1 about to curse the skool for EVER. Mr Searle left skool at 15 cheers cheers. He was office boy for a solicitors but he
could not stop drawing, even on leegal dokuments scratch scratch, is that a kartoon you have done my lad, yes it is a fantasy of the future Molesworth, wot a horrible thing I think you had better leave. Cambridge Art Skool and then in the war camooflaging pill-boxes as haystacks, how about sum more straw round the doorway, perhaps a dunghill outside, how artistick feel free. A mistery voyage to Singapore then followed drawing all the way, but then come the Japs invading, Boom KABOOM!! achach-ach-ach-ach, motorbikes roring by, urum-urum-urum-uraaaaaa, too late, into prison camp, still drawing. He staid four yeres there and was six stone when he left. A wunder he could smile agane after seeing men die all around him from cholera or torchure with bodes like sticks, but what he drew afterwards had a savvage melankoly underneath it as the art master sa, old majors with large noses and small handkerchiefs, dogs that are undoutedly plotting an evil de de, lugubrioos couples dancing hem-hem, criket bats and balls killing players at a single blo, a man catching music like flys in ajar, a child-hater selling balloons that carry the pathetik little weeds faraway. Yet in 1961 tired of drawing for Punch or roming America for Holiday magazine he zoomed across to France, where there were long thin men in berets long thin loaves of bred and many swurly balconys besides the usual sad dogs, maniack cats, mademoiselles with long eyelashes ahem who sa, how about a good time will you have a glas of Champagne. And he looking autour de lui sa Houp-la I am so happy here pore as a mouse in my attick in Paris and then on my hilltop in Provence, I will never return to boring old Blighty, but I will work for Le Monde and Le Figaro Litteraire, and also Life and the New Yorker. For I recall that for my first t.v. over there I was paid $1,000 a minit, super smashing good show. And he drew New York City as per ushual very tall and thin and inky humans with bodies still like sticks scowling among the skycrapers but also collossal painted butterflys flutering by, hullo clouds, hullo sun, and giant flowers of many coluours sprowting out of desks. And his Nature was v. grand and beattful red and blue while the spiky tarts and bisnessmen raced round not seing it or ruining it all. And speking of Life, sa silently the long black undertaker in his tall black hat sitting by the grave, I do not think much of that as a titel for a magazine, why not Dethe, but Dethe where is thy sting, where Grave thy victory cry Molesworth (over the WHACK of the Kane), when everbode still kepe larffing at the world Mr Searle hav made. •
Congratulations to the
2012 Kauffman Prize Medal Recipients
Erik Hurst and Tobias Moskowitz Erik Hurst is the V. Duane Rath Professor of Economics and the John E. Jeuc Faculty Fellow at the University of Ch1cago Booth School of Business. An expert in entrepreneurship, macroeconomic policy and housing markets, Hurst researches barriers to entrepreneurship, entrepreneurial finance, and household consumption and financial behavior. Tobias Moskow1tz 1s the Fama Fam1ly Professor of Finance at the University of Chicago Booth School of Business. An expert in entrepreneurial finance, finandal markets and investments, MoskoWitz researches the returns to pnvate business ownership, the political economy of finandal regulation, corporate finance and finanoal networ s. The Ewing Marion Kauffman Prize Medal for Distinguished Research in Entrepreneurship is awarded annually to recognize scholars under age forty whose research has made a Significant contributiOn to the body of literature in entrepreneurship. It includes a $50,000 cash pnze. Thisyear he pnze is being shared by two outstanding scholars.